As filed with the Securities and Exchange Commission on June 30, 2004

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OF THE

SECURITIES EXCHANGE ACT OF 1934,
for the fiscal year ended December 31, 2003
Commission File Number: 1-14648

EDP—Electricidade de Portugal, S.A.

(Exact name of registrant as specified in its charter)

EDP—Electricity of Portugal Republic of Portugal

(Translation of registrant’s name into English) (Jurisdiction of incorporation or organization)

Praça Marquês de Pombal, 12

1250-162 Lisbon, Portugal
(Address of principal executive offices)

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

Ordinary Shares, with nominal value €€ 1 per share* New York Stock Exchange
American Depositary Shares (as evidenced by American
Depositary Receipts), each representing 10 Ordinary Shares New York Stock Exchange

* 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: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the last
full fiscal year covered by this Annual Report:
At December 31, 2003, there were outstanding:
3,000,000,000 Ordinary Shares, with nominal value of €€ 1 per share
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 No

Indicate by check mark which financial statement item the registrant has elected to follow: Item 17
Item 18 ⌧
 TABLE OF CONTENTS

PART I
Item 1. Identity of Directors, Senior Management and Advisers 3
Item 2. Offer Statistics and Expected Timetable 3
Item 3. Key Information 3
SELECTED FINANCIAL DATA 3
EXCHANGE RATES 6
CAPITALIZATION AND INDEBTEDNESS 7
REASONS FOR THE OFFER AND USE OF PROCEEDS 7
RISK FACTORS 7
Item 4. Information on the Company 13
HISTORY AND BUSINESS OVERVIEW 13
Iberian Energy 15
Telecommunications 16
Information Technology 16
Group capital expenditures and investments 16
International Investments 20
STRATEGY 20
THE IBERIAN ELECTRICITY MARKET 25
PORTUGAL 25
Electricity System Overview 25
Generation 29
Transmission 39
Distribution 41
Tariffs 46
Competition 47
SPAIN 48
History and Overview 48
Generation 50
Distribution and Supply 54
Other Activities 55
BRAZIL 56
Overview 56
Generation 59
Distribution 60
TELECOMMUNICATIONS 63
OTHER INVESTMENTS AND INTERNATIONAL ACTIVITIES 67
SUBSIDIARIES, AFFILIATES AND ASSOCIATED COMPANIES 68
REGULATION 68
The Iberian Electricity Market 68
Portugal 70
Spain 76
EU Legislation 80
Brazil 84
Telecommunications 88
Item 5. Operating and Financial Review and Prospects 91
OVERVIEW 91
CRITICAL ACCOUNTING POLICIES 95
RESULTS OF OPERATIONS 99
2003 COMPARED WITH 2002 100
2002 COMPARED WITH 2001 110
LIQUIDITY AND CAPITAL RESOURCES 116
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 117
PENSIONS AND BENEFITS 118
1
 INFLATION 118
PORTUGUESE GAAP COMPARED WITH U.S. GAAP 118
IMPACT OF RECENTLY ISSUED U.S. ACCOUNTING STANDARDS 121
Item 6. Directors, Senior Management and Employees 122
BOARD OF DIRECTORS 122
SENIOR MANAGEMENT 127
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT 130
SHARE OWNERSHIP 131
EMPLOYEES 132
EMPLOYEE BENEFITS 133
Item 7. Major Shareholders and Related Party Transactions 133
MAJOR SHAREHOLDERS 133
RELATED PARTY TRANSACTIONS 134
INTERESTS OF EXPERTS AND COUNSEL 134
Item 8. Financial Information 134
CONSOLIDATED STATEMENTS 134
OTHER FINANCIAL INFORMATION 135
Legal Proceedings 135
Dividends and Dividend Policy 135
SIGNIFICANT CHANGES 135
Item 9. The Offer and Listing 135
TRADING MARKETS 135
MARKET PRICE INFORMATION 136
THE PORTUGUESE SECURITIES MARKET 136
TRADING BY US IN OUR SECURITIES 140
PLAN OF DISTRIBUTION 140
SELLING SHAREHOLDERS 140
DILUTION 140
EXPENSES OF THE ISSUE 140
Item 10. Additional Information 141
SHARE CAPITAL 141
ARTICLES OF ASSOCIATION 141
NYSE CORPORATE GOVERNANCE STANDARDS 147
MATERIAL CONTRACTS 149
EXCHANGE CONTROLS 150
PORTUGUESE TAXATION 150
UNITED STATES TAXATION 152
DIVIDENDS AND PAYING AGENTS 154
STATEMENT BY EXPERTS 154
DOCUMENTS ON DISPLAY 154
SUBSIDIARY INFORMATION 155
Item 11. Quantitative and Qualitative Disclosures About Market Risk 155
Item 12. Description of Securities Other Than Equity Securities 158
GLOSSARY OF TERMS 159
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies 161
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 161
Item 15. Controls and Procedures 161
Item 16. [Reserved] 161
Item 16A. Audit Committee Financial Expert 161
Item 16B. Code of Ethics 161
Item 16C. Principal Accountant Fees and Services 162
Item 16D. Exemptions from the Listing Standards for Audit Committees 162
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 162
PART III
Item 17. Financial Statements 162
Item 18. Financial Statements 162
Item 19 Exhibits 163
2
 Defined terms
In this annual report, “EDP” refers to EDP—Electricidade de Portugal, S.A. and the terms “we”, “us” and “our” refer to EDP
and, as applicable, its direct and indirect subsidiaries as a group. Unless we specify otherwise or the context otherwise requires,
references to “US$,” “$” and “U.S. dollars” are to United States dollars, references to “escudo(s)” or “PTE” are to Portuguese
escudos, references to “real” or “reais” are to Brazilian reais, references to “£” or “GBP” are to British Pounds Sterling and references
to “€€ ” or “euro” are to the euro, the single European currency established pursuant to the European Economic and Monetary Union,
or EMU. We have explained a number of terms related to the electricity industry in the “Glossary of Terms” included in this annual
report.

Forward-looking statements
This annual report and the documents incorporated by reference in this annual report contain forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of
operations, business strategies, operating efficiencies, competitive positions, growth opportunities for existing services, plans and
objectives of management, markets for stock and other matters. Statements in this annual report that are not historical facts are
“forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act.
These forward-looking statements, including, among others, those relating to our future business prospects, revenues and
income, wherever they may occur in this annual report, the documents incorporated by reference in this annual report and the exhibits
to this annual report, are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks
and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a
consequence, you should consider these forward-looking statements in light of various important factors, including those set forth in
this annual report. Important factors that could cause actual results to differ materially from estimates or projections contained in the
forward-looking statements include, without limitation:
• the effect of, and changes in, regulation and government policy in countries in which we operate;
• the effect of, and changes in, macroeconomic, social and political conditions in countries in which we operate;
• the effects of competition, including competition that may arise in connection with the development of an Iberian electricity
market;
• our ability to reduce costs;
• hydrological conditions and the variability of fuel costs;
• anticipated trends in our business, including trends in demand for electricity;
• our success in developing our telecommunications business;
• our success in new businesses, such as gas;
• future capital expenditures and investments;
• the timely development and acceptance of our new services;
• the effect of technological changes in electricity, telecommunications and information technology; and
• our success at managing the risks of the foregoing.
1
 We undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
Presentation of financial information
Unless we indicate otherwise, we have prepared the financial information contained in this annual report in accordance with
generally accepted accounting principles in Portugal, or Portuguese GAAP, which differs in significant respects from generally
accepted accounting principles in the United States, or U.S. GAAP. We describe these differences in “Item 5. Operating and Financial
Review and Prospects—Portuguese GAAP Compared with U.S. GAAP” and in note 39 to our consolidated financial statements.
Unless we indicate otherwise, any reference in this annual report to our consolidated financial statements is to the consolidated
financial statements, including the related notes, included in this annual report.
Beginning in 2002 (for fiscal year 2001 and thereafter), we published our consolidated financial statements in euros. Unless we
indicate otherwise, we have translated amounts stated in U.S. dollars from euros at an assumed rate solely for convenience. By
including these currency translations in this annual report, we are not representing that the euro amounts actually represent the U.S.
dollar amounts shown or could be converted into U.S. dollars at the rate indicated. Unless we indicate otherwise, we have translated
the U.S. dollar amounts from euros at the noon buying rate in The City of New York for cable transfers in foreign currencies as
announced by the Federal Reserve Bank of New York for customs purposes (the “Noon Buying Rate”) on June 24, 2004 of $1.217
per €€ 1.00. That rate may differ from the actual rates used in the preparation of our consolidated financial statements included in Item
18 and U.S. dollar amounts used in this annual report may differ from the actual U.S. dollar amounts that were translated into euros in
the preparation of our consolidated financial statements. For information regarding recent rates of exchange between euros and U.S.
dollars, see “Item 3. Key Information—Exchange Rates.” In addition, for convenience only and except where we specify otherwise,
we have translated certain reais figures into euro at the fixed rate of exchange between the real and euro of 3.776 reais = €€ 1.00. The
rate of exchange between reais and euros represents the euro equivalent of the U.S. dollar/real fixed rate of exchange, calculated by
translating reais into U.S. dollars using the Noon Buying Rate on June 24, 2004 of 3.103 reais = $1.00 and then translating U.S.
dollars into euros using the rate of exchange between U.S. dollars and euros of $1.217 = €€ 1.00, which was the applicable Noon
Buying Rate on June 24, 2004. By including convenience currency translations in this annual report, we are not representing that the
reais amounts actually represent the euro amounts shown or could be converted into euros at the rates indicated.
Prior to January 1, 2001, our reporting currency was Portuguese escudos. For convenience and to facilitate a comparison, all
escudo-denominated financial data for periods prior to January 1, 2001 included in this annual report have been restated from escudos
to euros at the fixed rate of exchange as of January 1, 1999 of PTE 200.482 = €€ 1.00. Where escudo-denominated amounts for periods
prior to January 1, 2001 have been rounded, the restated euro amounts have been calculated by converting the rounded escudo-
denominated amounts into euros. The comparative balances for prior years now reported in euros depict the same trends as would
have been presented had we continued to report such amounts in Portuguese escudos. Other financial data for periods prior to January
1, 1999 may not be comparable to that of other companies reporting in euros if those companies had restated from a reporting
currency other than Portuguese escudos.
2
 PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.

Item 3. Key Information

SELECTED FINANCIAL DATA
You should read the following in conjunction with “Item 5. Operating and Financial Review and Prospects” and our
consolidated financial statements and other financial data, including the related notes, found elsewhere in this annual report.
The summary financial data below has been extracted from our audited consolidated financial statements for each of the five
years ended December 31, 2003 and as of December 31, 1999, 2000, 2001, 2002 and 2003 and the related notes, which appear
elsewhere in this annual report. The audited consolidated financial statements have been prepared in accordance with Portuguese
GAAP, which differ in certain significant respects from U.S. GAAP. See “Item 5. Operating and Financial Review and Prospects—
Portuguese GAAP compared with U.S. GAAP” and note 39 to our consolidated financial statements for a discussion of the principal
differences between Portuguese GAAP and U.S. GAAP with respect to our audited consolidated financial statements.
In 1999, we selected a new firm of independent public accountants to audit our consolidated financial statements based on a
solicitation of bids to a number of firms, including our previous firm of independent public accountants. Our consolidated financial
statements from 1999 through 2003 were audited by PricewaterhouseCoopers, Lda. Fiscal years prior to 1999 were audited by Ernst
& Young.
3
 Year ended December 31,

2003 2003
1999 2000 2001 2002
Euro Euro Euro Euro Euro(1) US$(1)

(in millions, except per ordinary share and per ADS data)
Statement of income:
Amounts in accordance with Portuguese GAAP
Electricity sales 2,966 3,676 5,201 5,876 6,296 7,663
Other sales(2) 38 61 98 112 160 195
Services(3) 68 110 351 398 521 634
Total revenues 3,072 3,846 5,650 6,387 6,978 8,492
Raw materials and consumables 901 1,731 3,080 3,687 3,921 4,772
Personnel costs 463 439 592 625 647 787
Depreciation and amortization 616 614 665 740 846 1,029
Supplies and services 287 369 651 675 633 770
Own work capitalized(4) (214) (229) (233) (242) (236) (287)
Concession and power-generation rental costs(5) 129 133 149 158 176 214
Hydrological correction(6) (60) (35) 0 0 0 0
Other operating expenses, net 43 102 73 95 86 105
Total operating costs and expenses 2,166 3,122 4,977 5,738 6072 7,389
Operating income 906 724 674 649 906 1,102
Net interest expense(7) 140 175 205 223 359 437
Other non-operating income (expenses), net 56 (289) (126) (139) (14) (18)
Income before income taxes 822 838 594 287 532 648
Provision for income taxes (net of deferred taxes) (308) (313) (203) (172) (196) (238)
Minority interest 0 23 60 220 44 54
Net income 514 549 451 335 381 464
Net income from operations per ordinary share(8) 0.30 0.24 0.22 0.22 0.30 0.37
Net income from operations per ADS 3.02 2.41 2.25 2.16 3.02 3.68
Basic and diluted net income per ordinary share (8) 0.17 0.18 0.15 0.11 0.13 0.15
Basic and diluted net income per ADS (8) 1.72 1.83 1.50 1.12 1.27 1.55
Dividends per ordinary share(9)(10) 0.14 0.14 0.11 0.09 0.09 0.11
Dividends per ADS (9)(10) 1.40 1.40 1.13 0.90 0.90 1.10
Amounts in accordance with U.S. GAAP(12)
Net income 644 405 519 300 498 606
Basic and diluted net income per ordinary share (9) 0.21 0.14 0.17 0.10 0.17 0.20
Basic and diluted net income per ADS (9) 2.14 1.35 1.74 1.00 1.67 2.03
Cash flow data:
Amounts in accordance with Portuguese GAAP
Net cash from operating activities 985 1,122 1,221 898 1,774 2,158
Net cash used in investing activities 1,294 914 1,243 1,141 529 644
Net cash used in (from) financing activities (385) 482 96 297 (1,119) (1,361)
4
 Year ended December 31,

2002 2003 2003

1999 2000 2001
Euro Euro Euro Euro(1) Euro(1) US$(1)

(in millions, except per ordinary share and per ADS data)
Balance sheet data (at period end):
Amounts in accordance with Portuguese GAAP
Cash and cash equivalents 16 58 34 214 287 350
Other current assets 707 1,162 1,496 1,863 1,919 2,336
Total current assets 723 1,220 1,530 2,077 2,207 2,685
Fixed assets, net (11) 10,477 9,540 9,844 11,204 11,652 14,180
Other assets 2,510 4,128 4,860 4,844 4,792 5,832
Total assets 13,710 14,887 16,233 18,125 18,651 22,698
Short-term debt and current portion of long-term debt 598 1,807 1,744 1,887 1,579 1,922
Other current liabilities 621 890 1,286 1,631 1,711 2,083
Total current liabilities 1,219 2,697 3,030 3,518 3,290 4,004
Long-term debt, less current portion 3,770 3,205 4,055 6,107 5,914 7,197
Hydro account (13) 339 366 388 324 0 0
Other long-term liabilities 2,319 2,377 2,423 2,616 3,525 4,290
Total liabilities 7,648 8,645 9,896 12,566 12,729 15,491
Minority interest 2 37 241 65 236 288
Hydro account (13) 0 0 0 0 388 472
Shareholders’ equity 6,060 6,205 6,097 5,494 5,298 6,448
Amounts in accordance with U.S. GAAP(12)
Fixed assets, net (11) 8,750 5,316 5,929 6,602 7,172 8,729
Total assets 12,940 14,010 15,455 16,922 17,730 21,577
Total current liabilities 1,238 2,714 3,052 2,551 3,280 3,991
Total long-term liabilities 7,415 6,776 7,721 10,420 10,892 13,255
Total liabilities 8,653 9,489 10,773 12,970 14,172 17,247
Shareholders’ equity 4,287 4,483 4,441 3,886 3,497 4,256

(1) For 1999 and 2000, escudos are translated into euro at the fixed rate of exchange established at the commencement of the third
stage of European Monetary Union on January 1, 1999 by the European Council of Ministers between the euro and escudo of
PTE 200.482 = € € 1.00. For 2003, euros are translated into U.S. dollars at the rate of exchange of $1.217 = € € 1.00, which was
the U.S. Federal Reserve Bank of New York noon buying rate on June 24, 2004.
(2) Consists of sales of steam, ash, information technology products and sundry materials.
(3) Consists of electricity-related services, services to information technology systems, telecommunications, engineering, laboratory
services, training, medical assistance, consulting, multi-utility services and other services.
(4) Our consolidated income statements present expenses in accordance with their nature rather than their function. Therefore,
costs incurred by us for self-constructed assets are capitalized as part of fixed assets and included as a reduction of total
expenses under “Own work capitalized” when the related costs have been included in the relevant expense items.
(5) Substantially all of these amounts relate to rent expenses paid to municipalities for the right to distribute electricity in the
relevant municipal areas.
(6) As required by government regulation, we record charges and credits to operating income, depending on hydrological
conditions in a given year, to smooth the effect on our earnings and customer prices that result from changes in hydrological
conditions. The difference between the economic costs of generating electricity and the economic reference costs based on an
average hydrological year are included in this item. The imputed interest on the accumulated balance of the hydro account and
other adjustments are included in “Other non-operating expenses (income).” In 2003 and for the following years, net gains and
losses arising from the hydrological account are being charged to other non-operating income (expenses). In this respect, in
2003 we booked a €€ 19.4 million income item, or US$ 23.6 million, under this profit and loss account caption. Additionally, in
2001 we recorded a €€ 47.5 million income item. We did not record such an item in 2002.
(7) Includes interest and related expenses and interest and related income. See “Item 5. Operating and Financial Review and
Prospects—2003 compared with 2002—Other expenses (income).”
(8) Basic and diluted earnings per ordinary share are based on our historical average number of ordinary shares outstanding after
giving effect to a 5 for 1 stock split and our average number of ordinary shares outstanding after giving effect to the 5 for 1
stock split plus the effect of the exercise of employee stock options, respectively. Basic and diluted earnings per ADS are based
upon basic and diluted earnings per ordinary share multiplied by 10 as each ADS is equivalent to 10 ordinary shares on a post-
split basis.
(9) Based on 3,000,000,000 ordinary shares issued and outstanding.
(10) Dividends per ordinary share in US$, translated at the prevailing rate of exchange at the date of payment between the U.S
dollar and the escudo for 1999, amount to US$ 0.13 in 1999, US$ 0.12 in 2000, US$ 0.10 in 2001, US$ 0.11 in 2002 and US$
0.11 in 2003 and dividends per ordinary share in euro, translated at the fixed rate of exchange between the euro and the escudo
for 1999, amount to €€ 0.14 in 1999, €€ 0.14 in 2000, € € 0.11 in 2001, €€ 0.09 in 2002 and € 0.09 in 2003.
(11) Substantially all of these assets are subject to reversion to the Republic or the municipalities. See “Item 4. Information on the
Company—Regulation—Reversionary assets.”
(12) U.S. GAAP amounts for 1999, 2000 and 2001 are not comparable to 2002 and 2003 due to the implementation of SFAS 142.
(13) Commencing with 2003, the hydrological correction account is no longer presented in our consolidated balance sheet as a
liability.
5
 EXCHANGE RATES
Effective January 1, 1999, Portugal and 11 other member countries of the European Union, or EU, adopted the euro as their
common currency. The euro was traded on currency exchanges and was available for non-cash transactions during the transition
period between January 1, 1999 and December 31, 2001. During this transition period, the national currencies remained legal tender
in the participating countries as denominations of the euro, and public and private parties paid for goods and services using either the
euro or the participating countries’ existing currencies. On January 1, 2002, the euro entered into cash circulation. Between January 1,
2002 and February 28, 2002 both the euro and the escudo were in circulation in Portugal. From March 1, 2002, the euro became the
sole circulating currency in Portugal. As of January 1, 2002, we ceased to use the escudo.
The vast majority of our revenues, assets, expenses and liabilities have historically been denominated in escudos, and we
prepared and published our consolidated financial statements in escudos through the 2000 fiscal year. Beginning in 2002 (for fiscal
year 2001 and thereafter), our consolidated financial statements have been published in euros. A portion of our revenues and expenses
and certain liabilities are nonetheless denominated in non-euro currencies outside the euro zone and fluctuations in the exchange rates
of those currencies in relation to the euro will therefore affect our results of operations. To learn more about the effect of exchange
rates on our results of operations, you should read “Item 5. Operating and Financial Review and Prospects.” Exchange rate
fluctuations will also affect the U.S. dollar price of the ADSs and the U.S. dollar equivalent of the euro price of our ordinary shares,
the principal market of which is the Euronext Lisbon Stock Exchange. In addition, any cash dividends are paid by us in euro, and, as a
result, exchange rate fluctuations will affect the U.S. dollar amounts received by holders of ADSs on conversion of those dividends
by the depositary.
The following table shows, for the periods and dates indicated, information concerning the exchange rate between the U.S.
dollar and the euro. These rates are provided solely for your convenience. We do not represent that the escudo could have been, or
that the euro could be, converted into U.S. dollars at these rates or at any other rate.
The column of averages in the table below shows the averages of the relevant exchange rates on the last business day of each
month during the relevant period. The high and low columns show the highest and lowest exchange rates, respectively, on any
business day during the relevant period.

U.S. dollar per euro (1)

Year ended December 31, End of Period Average

1999 1.01 1.06

2000 0.94 0.92
2001 0.89 0.89
2002 1.05 0.95
2003 1.26 1.13

U.S. dollar per euro (1)

Period High Low

2003
December 1.26 1.20
2004
January 1.29 1.24
February 1.28 1.24
March 1.24 1.21
April 1.24 1.18
May 1.23 1.18

(1)
Euro amounts are based on the U.S. Federal Reserve Bank of New York noon buying rate.
Our ordinary shares are quoted in euro on the Euronext Lisbon Stock Exchange. Our ADSs are quoted in U.S. dollars and traded
on the New York Stock Exchange. On June 24, 2004, the exchange rate between the euro and the U.S. dollar was $1.217 = € € 1.00.
6
 CAPITALIZATION AND INDEBTEDNESS
Not applicable.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.

RISK FACTORS
In addition to the other information included and incorporated by reference in this annual report, you should carefully consider
the following factors. There may be additional risks that we do not currently know of or that we currently deem immaterial based on
information currently available to us. Our business, financial condition or results of operations could be materially adversely affected
by any of these risks, resulting in a decline in the trading price of our ordinary shares or ADSs.
RISKS RELATED TO OUR CORE ELECTRICITY BUSINESS
The competition we face in the generation and supply of electricity is increasing, affecting our electricity sales and
operating margins.
The increase in competition from the Portuguese and Spanish implementation of EU directives intended to create a competitive
electricity market may materially and adversely affect our results of operations and financial condition.
In Portugal, while we currently face limited competition from independent power producers in generation, we expect that this
competition will increase as the industry further liberalizes. Portuguese law requires that contracts for the construction of future
power plants in Portugal in the Binding Sector be awarded through competitive tender processes, in which we expect to participate. In
a competitive tender process, we may lose opportunities to generate electricity in the Binding Sector in Portugal.
The Portuguese regulatory structure now allows for competition in the supply of electricity, which could adversely affect our
sales of electricity. In particular, as more electricity consumers qualify to participate in the market-based Non-Binding Sector in
Portugal, more electricity will be sold in the competitive markets where prices may be lower than existing tariffs. Prior to 2002,
consumers of electricity were eligible to participate in the Non-Binding Sector as Qualifying Consumers based on minimum annual
consumption thresholds set by regulation, which declined annually over the 1999-2001 period. Pursuant to EU directives, the
threshold was 20 GWh for 2000 and 9 GWh for 2001. From January 1, 2002 to February 26, 2004, all electricity consumers other
than low voltage consumers, which are generally residential and small commercial users, were treated as Qualifying Consumers
automatically upon notification to the Portuguese regulatory authority. From February 26, 2004, the eligibility threshold was lowered
to extend to special lower voltage consumers. As of the end of February 2004, there were approximately 50,000 consumers eligible to
be Qualifying Consumers, which represented approximately 53% of total demand in mainland Portugal in volume terms.
In Spain, the electricity market has been completely liberalized since January 1, 2003. Accordingly, regardless of the type of
consumer, voltage or consumption required, every customer can choose its electricity supplier and how the electricity is supplied. In
other words, the consumer can choose between a local distributor paying the regulated tariff fixed by the Spanish government, or
enter into a contract with a supplier and pay the price agreed by both parties. Despite the complete liberalization of the Spanish
market, the majority of consumers have not changed their supplier. Until now, this liberalization has mainly produced effects among
medium- and high-voltage consumers. Although fixed rate tariffs are expected to predominate, at least in the short and medium term,
among Spanish electricity consumers, especially low voltage consumers, there could be a more pronounced move to contractually-
agreed tariffs in the future and these tariffs could be lower than regulated tariffs.
7
 In the context of liberalization of the electricity market within the EU, at the end of 2001 the Portuguese and Spanish
governments entered into a cooperation protocol which sets forth the main principles for the creation of an Iberian electricity market
— free competition, transparency, objectiveness and efficiency. The stated intent of the cooperation protocol is to guarantee for
Portuguese and Spanish consumers access to electricity distribution and to create interconnections with third countries on equal
conditions applicable to Portugal and Spain. In addition, it is intended that the production of electricity by producers in Portugal and
Spain be subject to similar regulatory environments that allow producers in one country to execute bilateral agreements for electricity
distribution to consumers in the other country. The cooperation protocol also calls for the creation of an Iberian common electricity
pool.
During the Figueira da Foz summit of November 8, 2003, the Portuguese and Spanish governments executed a memorandum of
understanding that set the timetable for the creation of an Iberian electricity market. On January 20, 2004, the same governments
entered into a more detailed agreement known as the international agreement, which was approved by the Portuguese Parliament and
ratified by the President of the Republic of Portugal on April 20, 2004. This agreement creates a single Iberian electricity market
designated as MIBEL, as part of the process of integration of the electricity markets of both countries. The MIBEL will be limited in
the short-term by a lack of high-voltage power lines linking Spain and Portugal, but is expected to be fully operational by 2006.
The scope of increased competition and any adverse effects on our operating results and market share resulting from the full
liberalization of the European electricity markets, and in particular the Portuguese and Spanish electricity markets, will depend on a
variety of factors that cannot be assessed with precision and that are beyond our control. Accordingly, we cannot anticipate the risks
and advantages that may arise from this market liberalization. When further implemented, the organizational model and resulting
competition may materially and adversely affect our results of operations and financial condition.
Our core electricity operating results are affected by laws and regulations, including regulations regarding the prices we
may charge for electricity.
As an electricity public service, we operate in a highly regulated environment. An independent regulator appointed by the
Portuguese government, the Entidade Reguladora dos Serviços Energéticos, referred to as ERSE or the regulator, regulates the
electricity industry through, among other things, a tariff code that defines the prices we may charge for electricity services in the
Binding Sector. In attempting to achieve an appropriate balance between, on the one hand, the interests of electricity customers in
affordable electricity and, on the other hand, our need and the needs of other participants in the electricity sector to generate adequate
profit, the regulator may take actions that adversely impact our profitability.
In real terms, adjusted for inflation, very high, high and medium voltage tariffs, generally applied to industrial customers, have
declined by an average of 3.4% per year over the period 1999 to 2004. The tariffs for low voltage customers have also declined in real
terms by an average of approximately 3.1% per year over the same period. For 2004, in nominal terms, tariffs for all voltage levels
increased, on average, by 2.1% from the 2003 levels. Although the nominal final tariff charged to consumers increased, on average,
across all voltage levels in 2004 by 2.1% from the 2003 levels, the component of the final tariff charged by EDP Distribuição, or
EDPD, our distribution company, decreased for the second regulatory period, covering the years 2002-2004, from the tariff charged in
the first regulatory period, covering the years 1999-2001. During the first regulatory period, the annual decrease in the tariff charged
by EDPD was calculated on the basis of the Portuguese consumer price index, or CPI, less approximately 5%. During the second
regulatory period, the figure subtracted from CPI, referred to as the “efficiency factor,” increased to approximately 7%. The net tariffs
to be charged by EDPD in 2004 are lower than in 2003, which could adversely affect our profitability in 2004.
In addition, the Portuguese government has implemented selected measures to encourage the development of various forms of
electricity production, including auto production (entities generating electricity for their own use that may sell surplus electricity to
the national transmission grid), cogeneration, small hydroelectric production (under 10 MVA installed capacity) and production using
renewable sources. These alternative producers compete with us in the supply of electricity in the Binding Sector.
8
 The current and future legislation contemplating the early termination of the PPAs could eventually adversely affect our
revenues.
Following to the Resolution of the Council of Ministers no. 63/2003 of April 28, 2003, relating to the promotion of liberalization
of the electricity and gas markets in furtherance of the organizational structure of the Iberian Electricity Market, the Portuguese
government has enacted Decree law no. 185/2003 of August 20, 2003, which contemplates the early termination of the existing power
purchase agreements, or PPAs, in accordance with the conditions to be set out in a separate decree law not yet enacted. In addition,
EU Directive no. 2003/54/EC of June 26, 2003 designates July 2004 as the final date for implementation of the electricity single
buyer system. Although Decree law no. 185/2003 of August 20, 2003 states that operators will be adequately compensated for the
loss of the economic benefit of the PPAs, the amount of and the criteria for determining the compensation have not yet been defined
and our generation revenues could otherwise be adversely affected if our generation companies do not sufficiently replace electricity
purchases on the same terms as previously made by REN-Rede Eléctrica Nacional, S.A. or REN. In addition, our operating margins
may be adversely affected by new costs that are currently compensated through PPAs.

If our concessions from the Portuguese government and municipalities were terminated, we could lose control over our
fixed assets.
Most of our revenues currently come from the generation and distribution of electricity. We conduct these activities pursuant to
concessions and licenses granted by the Portuguese government and various municipalities. These concessions and licenses are
granted for fixed periods ranging in most cases from 20 to 75 years, but are subject to early termination under specified
circumstances. The expiration or termination of concessions or licenses would have an adverse effect on our operating revenues.
Upon expiration of licenses or termination of concessions, the fixed assets associated with licenses or concessions will in general
revert to the Portuguese government or a municipality, as appropriate. Although specified amounts would be paid to us with respect to
these assets, the loss of these assets may adversely affect our operations.
Our operational cash flow is affected by variable hydrological conditions.
Hydroelectric plants, which are powered by water, account for approximately 54% of our generation capacity in mainland
Portugal. Our hydroelectric generation in Portugal is dependent on the amount and location of rainfall and river flows from Spain, all
of which vary widely from year to year. Consequently, there is a high degree of variation in levels of hydroelectric production.
In years of less favorable hydrological conditions, we generate less hydroelectricity and must rely more heavily on thermal
production to meet demand for electricity. Thermal generation, which is fired by coal, fuel oil, natural gas or a combination of fuels,
is more expensive in terms of variable costs than hydroelectric generation. Our total variable production costs and costs of purchased
electricity in a very dry year can vary from those in a very wet year by approximately €€ 200 million. These increased costs in a dry
year could have an adverse impact on our operational cash flow.
Our electricity business is subject to numerous environmental regulations that could affect our results of operations and
financial condition.
Our electricity business is subject to extensive environmental regulations. These include regulations under Portuguese law, laws
adopted to implement EU regulations and directives and international agreements on the environment. Environmental regulations
affecting our business primarily relate to air emissions, water pollution, waste disposal and electromagnetic fields. The principal
waste products of fossil-fueled electricity generation are sulfur dioxide, or SO 2, nitrogen oxides, or NOX, carbon dioxide, or CO2, and
particulate matters such as dust and ash. A primary focus of environmental regulation applicable to our business is to reduce these
emissions.
We incur significant costs to comply with environmental regulations requiring us to implement preventive or remediation
measures. Environmental regulatory measures may take such forms as emission limits, taxes or
9
required remediation measures, and may influence our policies in ways that affect our business decisions and strategy, such as by
discouraging our use of certain fuels.
We have made capital expenditures to minimize the impact of our operations on the environment, including measures to comply
with applicable law and expect to make approximately €€ 40 million of such capital expenditures in 2004. Major expenditures so far
include capital expenditures to limit SO2 and NO X emissions in generation and to install underground cables in our distribution
network. In October 2002 we initiated the use of fuel with a 1% sulfur content in order to comply with environmental regulations
requiring us to reduce the level of sulfur in the fuel oil we consume, and as a result we have incurred higher fuel costs. Under the EU
Directive relating to the emission of pollutants from Large Combustion Plants, Portuguese environmental authorities are currently
creating a plan, called the National Emissions Reduction Plan, to reduce SO2 and NOx emissions. This plan is expected to be formally
approved during the second half of 2004. Additionally, with regard to CO2 emissions, new proposals defining green house gas
emission reduction measures were put forward for public comment in 2003, and are expected to be implemented in Portugal in 2004.
Although we expect to be in timely compliance with these new requirements, such requirements could necessitate additional licenses
or the acquisition of emission rights and result in higher electricity costs.
RISKS RELATED TO OUR OTHER BUSINESSES
Our involvement in Brazil and in other international activities subjects us to particular risks that could affect our
profitability.
Although we have not recently made significant additional investments in our Brazilian electricity business, we have significant
investments in electricity-related projects in Brazil and other international investments. Our investments in Brazil and in other
countries present a different or greater risk profile than that of our electricity business in Portugal and Spain. Given the size of our
operations in Brazil relative to that of our other international investments, these risks are particularly relevant to our Brazilian
operations where, for example, we have experienced adverse currency fluctuations and an uncertain regulatory regime. Risks
associated with our investments in Brazil and other international investments include, but are not limited to:
• economic volatility;
• exchange rate fluctuations and exchange controls;
• strong inflationary pressures;
• government involvement in the domestic economy;
• political uncertainty; and
• unanticipated changes in regulatory or legal regimes.
There can be no assurance that we will successfully manage our operations in Brazil and other international operations.
Exchange rate instability and, in particular, fluctuations in the value of the Brazilian real against the value of the U.S. dollar may
result in uncertainty in the Brazilian economy, which may affect the results of our Brazilian operations. As a result of inflationary
pressures, the Brazilian currency has been devalued periodically over the last four decades. Throughout this period, the Brazilian
government has implemented various economic plans and utilized a number of exchange rate policies. During 2002, the exchange rate
depreciated 52.2% against the U.S. dollar, while during 2003 it appreciated 18.2% against the U.S. dollar. In addition, we are exposed
to translation risk when the accounts of our Brazilian businesses, denominated in Brazilian reais, are translated into our consolidated
accounts, denominated in euro. We cannot predict movements in Brazil’s currency, and, since long-term Brazilian currency hedges
are not available, a major devaluation of the real might adversely affect our results of operations.
10
 Regulatory, hydrological and infrastructure conditions in Brazil may adversely affect our Brazilian operations.
We hold interests in Brazilian distribution companies and have invested in Brazilian generation projects. In the past, our
distribution activities in Brazil were adversely affected by regulatory, hydrological and infrastructure conditions in Brazil. Our
generation projects in Brazil were also adversely affected by these conditions. These conditions could have a similar adverse effect on
our Brazilian generation and distribution operations in the future.
Delays by the Brazilian energy regulatory authorities in developing a regulatory structure that encourages new generation have
led to, and might in the future contribute to, shortages of electricity to meet demand in some regions of Brazil. Additionally, drought
conditions in Brazil have limited and might also in the future limit the supply of electricity available for our distribution companies in
Brazil. A lack of capacity in the electricity transmission system has limited and might also in the future limit the ability of generation
plants operating in geographical areas with abundant rainfall to transmit generated electricity to distribution companies operating in
areas experiencing drought conditions. Sales by these distribution businesses have been and might in the future be affected by these
conditions that limit the supply of electricity available for distribution.
As a result of a shortage of electricity and lack of transmission capacity, the Brazilian federal government implemented an
electricity-rationing plan in June 2001. Although the rationing program ended on February 28, 2002, its implementation had an
adverse effect not only on electricity consumption, which decreased significantly during the period the program was in effect, but on
consumption habits in affected areas. As a result, we anticipate that a recovery in consumption to pre-rationing levels may take some
time. The lower demand from consumers has affected and will continue to affect demand for electricity from our distribution
businesses in Brazil. While the period up to and during the rationing period was characterized by electricity shortages, the post-
rationing period was characterized by surplus electricity as a result of decreased consumption combined with abundant rainfall after a
long drought. Consequently, in 2002 and 2003 our Brazilian operations could only dispose of surplus electricity at depressed prices.
In 2004, laws regarding the New Model for the Brazilian electric utility sector were approved. As the regulations for the New
Model have not yet been implemented, there is a risk that the new regulations may not be favorable for us. In addition, the New
Model contemplates significant control by the Brazilian government, creating uncertainty regarding competition and further
investments in the private sector.
Tariffs of distribution companies in Brazil currently consist of two components: non-manageable costs and manageable costs.
The main purpose of this split is the maintenance of an adjusted tariff for inflation and the sharing of efficiency gains with consumers.
The aim of distribution tariffs is to pass non-manageable costs through and to index manageable costs to inflation. Although it is
expected that the New Model will maintain the pass-through of non-manageable costs, there might be delays in readjustment of the
tariffs in the event of large macro-economic fluctuations (e.g., inflation and exchange rates). There can be no assurance that
regulations implementing the New Model will fully mitigate the risk of delayed tariff adjustments.
Due to problems with natural gas supply to the Northeast region of Brazil, the Brazilian regulator decided to reduce the capacity
of all thermal plants in that region that can be used for energy trading. It is unlikely that there will be an increase in the natural gas
supply in the Northeast in the short term. This constraint represents a risk for all thermal plants in the region, as it reduces the revenue
potential of such plants.
We face new risks and uncertainties related to our new non-electricity businesses.
We have limited experience operating a large-scale telecommunications business and limited experience in gas. In entering and
operating these business areas we face managerial, commercial, technological and other risks, as well as regulatory regimes, including
fees and licensing requirements and operating restrictions, that are different from the ones we have faced in the past. If we fail to
manage these risks and operate these businesses effectively, our ability to develop successfully and achieve profitability in these
business areas would be affected. In 2003, our telecommunications businesses had a loss before taxes of €€ 148.7 million.
11
 We intend to develop an Iberian gas business as complimentary to and strategically aligned with our electricity business. Please
see “Item 4. Information on the Company—Strategy—Iberian energy—Developing an Iberian gas business” for more information on
our gas strategy. Increased involvement in the gas industry will expose us to new risks including demanding governmental and
environmental industry regulation and economic risks relating to the fluctuations in the price of energy, currencies and time-lags
between purchase and sale prices. There can be no assurance that we will successfully manage the development of our gas business,
and a failure to do so could have an adverse effect on the profitability of our consolidated results of operations.
We face increasing competition from various types of providers in our telecommunications business.
The telecommunications sector is highly competitive within Portugal and across the EU, and we expect competition to remain
vigorous and increase in the future.
In the fixed line telephone area, we compete for market share primarily with Portugal Telecom, or PT, which historically held a
monopoly on fixed line services in Portugal and continues to hold a dominant position in this market. We also face competition from
other fixed line operators in Portugal.
Our fixed line telephone business also faces strong indirect competition from cellular telephone service providers, particularly
those in the voice segment. Mobile subscriptions have already overtaken the number of fixed line connections in Portugal and we
expect this growth to continue.
We also face significant competition from numerous existing operators in the Internet and data services areas, both of which we
have targeted, and we expect that new competitors will emerge as these markets continue to evolve.

OTHER RISKS
The value of our ordinary shares or ADSs may be adversely affected by future sales of substantial amounts of ordinary
shares by the Portuguese government or the perception that such sales could occur.
The Portuguese government may sell all or a portion of its shareholding in us at any time through formal privatization stages,
either through a public offering or by direct sales of our shares to third parties. Sales of substantial amounts of our ordinary shares by
the Portuguese government, or the perception that such sales could occur, could adversely affect the market price of our ordinary
shares and ADSs and could adversely affect our ability to raise capital through subsequent offerings of equity.
Restrictions on the exercise of voting rights, as well as special rights granted to the Portuguese government, may impede
an unauthorized change in control and may limit our shareholders’ ability to influence company policy.
Under our Articles of Association, no holder of ordinary shares, except the Republic of Portugal and equivalent entities, may
exercise voting rights that represent more than 5% of our voting share capital. In addition, specific notification requirements are
triggered under our Articles of Association when shareholders purchase 5% of our ordinary shares and under the Portuguese
Securities Code, or Cod.VM, when purchases or sales of our ordinary shares cause shareholders to own or cease to own specified
percentages of our voting rights. The Portuguese government enacted Decree law no. 49/2004 of March 10, 2004, which revoked the
former law requiring approval of the Portuguese Ministry of Finance for a person to be able to acquire more than 10% of our ordinary
shares
In connection with the offering by the Portuguese government of our ordinary shares in October 2000, and pursuant to Article
13 of Decree law no. 141/2000 of July 15, 2000, known as the Privatization Decree Law, special rights were granted to the
Portuguese government. The government will have these rights so long as it is an EDP shareholder. These rights provide that, without
the favorable vote of the government, no resolution can be adopted at our general meeting of shareholders relating to:
• amendments to our by-laws, including share capital increases, mergers, spin-offs or winding-up;
12
 • authorization for us to enter into group/partnership or subordination agreements; or
• waivers of, or limitations on, our shareholders’ rights of first refusal to subscribe to share capital increases.
The Privatization Decree Law also entitles the Portuguese government to appoint one member of our board of directors
whenever the government votes against the list of directors presented for election at our general meeting of shareholders.

Item 4. Information on the Company

HISTORY AND BUSINESS OVERVIEW
HISTORY
We are the largest generator and distributor of electricity in Portugal. In addition, we own 30% of REN, the sole transmitter of
electricity in Portugal, and we have significant electricity operations in Spain and Brazil. Our principal executive offices are located at
Praça Marquês de Pombal, 12, 1250-162 Lisbon, Portugal. Our telephone number at this location is +351-21-001-2500.
We were incorporated in 1976 under the name EDP—Electricidade de Portugal, E.P., as a result of the nationalization and
merger of the principal Portuguese companies in the electricity sector in mainland Portugal. Following the sale by the Republic of
Portugal in October 2000 of 20% of our outstanding ordinary shares, after a four-phase privatization process that started in 1997, we
are approximately 26.1% owned, directly or indirectly, by the Republic of Portugal and an additional 4.84% of our shares are held by
Caixa Geral de Depósitos, S.A., a state-owned bank. Other significant shareholders include BCP—Banco Comercial Português S.A.,
or BCP (5.05%), Iberdrola, S.A. (5%) and, indirectly, Brisa—Autoestradas de Portugal S.A., or Brisa (2%).
13
 The following chart shows our current structure and a list of the primary companies and investments within the EDP Group. For
a more detailed listing and description, please see “—Subsidiaries, Affiliates and Associated Companies” and note 9 to our
consolidated financial statements.

14
BUSINESS OVERVIEW
Iberian Energy
Electricity
Historically, electricity has been our core business. We underwent a restructuring in 1994, at which time we formed subsidiaries
to operate in the areas of electricity generation, transmission and distribution. Following the government’s purchase from us of a 70%
interest in REN in 2000, our two principal electricity subsidiaries were our electrical generation company, CPPE, and our distribution
company, EDPD, which was formed in early 2000 by the merger of our four wholly-owned distribution companies. These two
wholly-owned subsidiaries, together with REN, carried out electricity generation, transmission and distribution activities in Portugal.
On March 29, 2001, we announced the creation of EDP—Gestão da Produção de Energia, or EDP Produção, a subsidiary that began
operations in July 2001 and now holds most of our Portuguese energy production-related units as part of measures we are
implementing to boost efficiency.
As the largest producer and distributor of electricity in Portugal, we currently hold the leading position in the Portuguese market.
In 2003, we accounted for approximately 82% of the installed generation capacity in the Public Electricity System and 99% of the
distribution in the Public Electricity System. REN, in which we hold a 30% equity interest, accounted for 100% of the transmission in
the Public Electricity System. Our 2003 operating revenues amounted to € € 6,977.5 million (US$ 8,491.6 million), approximately 90%
of which represented electricity sales, yielding operating income of €€ 905.7 million (US$ 1,102.3 million). As of December 31, 2003,
our total assets were €€ 18,650.7 million (US$ 22,697.9 million), and shareholders’ equity was €€ 5,298.0 million (US$ 6,447.7
million).
The following table shows our revenues by activity and geography:
Year ended December 31,

2001 2002 2003

(millions of EUR)
Energy (1)
Portugal 4,599 5,001 5,038
Spain 0 324 675
Brazil 691 669 1,008
Telecommunications
Portugal 126 187 161
Spain 62 134 170
Information Technology 189 224 186
Adjustments(2) (16) (151) (261)

Total 5,650 6,387 6,978

(1) Consists of electricity in Portugal and Brazil and electricity and gas in Spain.
(2) Revenue figures for each year have been adjusted to include revenues from services and to exclude intercompany transactions.
In Portugal, we create power for consumption in both the Public Electricity System and the Independent Electricity System. In
2003, our generating facilities in Portugal had a total installed capacity of 7,940 MW. In the transmission function, REN operates the
national grid for transmission of electricity throughout mainland Portugal on an exclusive basis pursuant to Portuguese law. REN also
manages the system dispatch and the interconnections with Spain. In our distribution function, EDPD carries out Portugal’s local
electricity distribution almost exclusively. EDPD provided more than 5.7 million customers with 38,916 GWh of electricity in 2003.
We expect regional markets for electricity to develop in Europe as an initial stage in the development of an integrated and
liberalized electricity market with the EU. For geographical and regulatory reasons, we anticipate that an Iberian electricity market
will be the regional market for our core electricity business in the near future. Accordingly, we consider our core electricity business
to include our operations in the Portuguese and Spanish electricity markets. In a process that took place during 2001 and 2002, we
expanded our energy operations with the
15
acquisition of a 40% interest in Hidroeléctrica del Cantábrico S.A., or Hidrocantábrico, a Spanish electricity and gas utility company.
Hidrocantábrico operates electricity generation plants and distributes and supplies electricity and gas in the Iberian Peninsula, mainly
in the Asturias and Basque regions in Spain. Beginning in June 2002, we have consolidated on a proportional basis 40% of
Hidrocantábrico.
Gas
We also have investments, notably in gas utilities, which we regard as complementary to our core electricity business.
Since July 2000, we have held a 14.27% ownership interest in GALP, SGPS, S.A. or GALP, a holding company with interests in
GDP – Gás de Portugal, SGPS, S.A., or GDP, and Transgás—Sociedade Portuguesa de Gás Natural, S.A., or Transgás, companies
that transport and supply natural gas throughout Portugal, and Petrogal, a company involved in oil refining and distribution and the
production of petroleum products.
In April 2003, the Portuguese government announced recommendations concerning the reorganization of the Portuguese energy
sector, in the context of which we may become a major participant in the Iberian combined gas and electricity sector. This
announcement included recommendations that Portuguese gas and electricity activities be combined and developed by us in order to
strengthen our position in the competitive Iberian market. In connection with the Portuguese energy sector reorganization, in March
2004 we entered into an agreement to purchase, together with Eni, S.p.A., or Eni, and REN, the entire share capital of GDP. The
agreement is subject to specified conditions including the approval of the relevant competition authorities. For more information on
this transaction, please see “—Strategy—Iberian Energy.” In addition, in November 2003 we entered into agreements to purchase
interests in Portgás – Sociedade de Distribuição de Gás, S.A., or Portgás, and Setgás – Sociedade de Produção e Distribuição de Gás,
S.A., or Setgás, two of the major regional gas distribution companies in Portugal. For more information on these transactions, please
see “—Strategy—Iberian energy—Developing an Iberian gas business.”
Our interests in the gas sector in Spain are held through our 40%-owned subsidiary Hidrocantábrico, which is the controlling
shareholder in Naturcorp, the leading gas company in the Basque region of Spain. For more information on our participation in the
Spanish gas sector, please see “—Spain-History and Overview.”

Telecommunications
In 2000, taking into consideration our existing resources and expertise, we decided to pursue the telecommunications and
information technology businesses.
Currently, ONI, SGPS, S.A., or ONI, our 56%-owned subsidiary and the holding company for our telecommunications
businesses has the overall responsibility for strategic and financial matters relating to our telecommunications business segments.
Pursuant to a recent reorganization, ONI’s businesses are currently focused on two main areas: wireline Portugal and wireline Spain,
which areas are discussed in more detail in “—Telecommunications.”

Information Technology
We pursue the information technology business through our wholly owned subsidiary EDINFOR—Sistemas Informáticos, S.A.,
or EDINFOR, which holds a 58% interest in ACE—Holding SGPS, S.A., or ACE. ACE owns 100% of CASE—Concepção e
Arquitectura de Soluções Informáticas Estruturadas, S.A., or CASE. CASE provides consulting and information systems services to
us and to third parties.
Group capital expenditures and investments
The following table sets forth our capital expenditures and investments for the years 2001 through 2003, divided into operating
investment and financial investment. Operating investment generally refers to the development and acquisition of fixed assets and
financial investment generally refers to the acquisition of equity interests in companies.
16
 Year ended December 31

2001 2002 2003

(thousands of EUR)
OPERATING INVESTMENT:
Energy:
Portugal:
Generation:
Thermal/Hydro 109,646 204,979 213,851
Renewable: wind 6,574 11,397 38,533
Renewable: biomass(1) 0 35,205 922
Cogeneration 13,142 9,618 33
Engineering and Operations and Maintenance(2) 2,371 15,264 7,809

Total Generation 131,733 276,463 261,147

Distribution:(3)
Investment, net of subsidies 181,938 241,551 263,056
IT Systems (transfer from EDINFOR to EDPD) 0 80,547 11,974
Subsidies in kind (assets) 69,533 54,095 61,039
Subsidies in cash 78,490 56,853 59,714

Total Distribution 329,961 433,046 395,783

Supply(4) 980 8,337 6,218
Total technical costs 462,674 717,846 663,148
Financial costs capitalized 15,867 15,361 24,005

Total Portugal 478,541 733,208 687,152

Spain:
Hidrocantábrico (5) 0 84,775 70,528

Total Spain 0 84,775 70,528

Total Energy Portugal and Spain 478,541 817,983 757,680

Brazil:
Generation 40,836 55,600 58,676
Distribution:
Bandeirante 47,226 25,413 39,392
Escelsa 0 16,208 18,639
Enersul 0 25,152 16,184
EDP Brazil 1,608 261 415

Total Brazil 89,670 122,634 133,307

Telecommunications(6) and Information Technology:
Telecommunications 239,019 311,962 28,564
Information Technology 70,977 41,833 58,784

Total Telecommunications and Information Technology 309,996 353,795 87,348

Other:
Other Operating Investment (7) 29,530 45,362 24,939

TOTAL OPERATING INVESTMENT 907,737 1,339,773 1,003,274

FINANCIAL INVESTMENT:
Energy:
Portugal:
Acquisition of additional 10% shareholding in Turbogás 0 20,986 0
Spain:
Acquisition of Naturcorp by Hidrocantábrico(8) 0 0 100,235
Acquisition of Hidrocantábrico by EDP(9) 262,388 520,591 0
Brazil:
 Acquisition of share capital of IVEN (Escelsa/Enersul) 209,011 0 0

Total Energy 471,399 541,577 100,235

Telecommunications:
Acquisition of Comunitel by ONI 69,554 0 0

Total Telecommunications 69,554 0 0

Other:
Subscription to BCP rights issue and capital increase 0 30,636 40,599
Acquisition of Escelsa notes(10) 0 379,964 0
Other financial investments 12,328 15,718 40,926

Total Other 12,328 426,318 81,525

TOTAL FINANCIAL INVESTMENT 553,281 967,896 181,760

TOTAL CAPITAL EXPENDITURES AND INVESTMENTS 1,461,018 2,307,669 1,185,034

(1) Renewable—biomass investment in 2002 includes €€ 35.2 million relating to an internal transfer of the Mortágua biomass power
plant, from EDP, S.A. to EDP Produção Bioeléctrica. As such, this does not affect our cash flow in 2002.
17
(2) In 2001, expenditures in engineering and O&M includes the expenditures made by Tergen, HidrOeM and EDP Produção, which
companies were created in 2001.
(3) Distribution includes capital expenditures of EDPD.
(4) Supply comprises the capital expenditures of EDP Energia, our company operating in the liberalized market.
(5) Investments represent 40% of Hidrocantábrico’s operational investments.
(6) Investments for telecommunications include primarily infrastructure.
(7) Other Operating Investment includes investments by the EDP Group in installations and equipment at the holding company
level, investments by our real estate companies and investments by our support services companies.
(8) Investment represents 40% of Hidrocantábrico’s financial investments in the acquisition of Naturcorp.
(9 Total investment in the acquisition of 40% of Hidrocantábrico amounts to € € 782.9 million, of which €€ 262.4 million was invested
in 2001.)
(10) In 2002 we acquired certain notes issued by Escelsa. For more information on this transaction please see “Item 11.
Quantitative and Qualitative Disclosures About Market Risk.”
Total capital expenditures and investments of €€ 1,185.0 million in 2003 represented a 48.6% decrease from total capital
expenditures and investments of €€ 2,307.7 million in 2002. This decrease was primarily due to lower financial investments in 2003
compared to 2002. In 2002, we finalized the acquisition of our 40% stake in Hidrocantábrico in the amount of € € 782.9 million, of
which € € 262.4 million was paid in 2001 and €€ 520.6 million in 2002. In addition, in 2002 we also acquired part of Escelsa’s notes
issued in U.S. dollars for the total amount of € € 380 million. Having reduced the exchange rate risk relating to U.S. dollar debt of our
Brazilian subsidiaries, we did not enter into any further debt acquisition programs in 2003. The decrease in total capital expenditures
and investments from 2002 to 2003 was also due to a lower level of operational investments in 2003. In Portugal, we made lower
operating investments in our distribution business in 2003, reflecting the internal transfer from EDINFOR to EDPD of a commercial
and administrative IT system in 2002, and overall investments in generation were lower as a result of the internal transfer in 2002,
from EDP to EDP Produção Bioeléctrica, of the investment made in 1999 related to the Mortágua biomass power plant, which does
not represent a cash outflow, but was included in our 2002 capital expenditures and investments. Additionally, we had lower
expenditures in telecommunications in 2003, as a result of the divestment of our UMTS business.
We expect total operational investments in 2004 to be approximately €€ 1,200 million, concentrated mainly in generation and
distribution.
The capital expenditures set forth above have not been adjusted to reflect the fact that certain expenditures represent transfers
between businesses within the EDP group of assets that had previously been accounted for by the transferors as their own capital
expenditures. The capital expenditures above have also not been adjusted for divestments of certain financial investments. Adjusting
for these transactions would result in the following:
Year ended December 31,

2001 2002 2003

(thousands of EUR)
Total Capital Expenditures and Investments: 1,461,018 2,307,669 1,185,034
Internal Transfers:
IT Systems (from EDINFOR to EDPD) (80,547) (11,974)
Mortágua Biomass Power Plant (from EDP, S.A. to EDP Produção Bioeléctrica) (35,180)
Divestments:
ESSEL (77,800)
Redal (26,905)
Optep (Optimus) (315,000)
Iberdrola (400,102)
Total Internal Transfers and Divestments (77,800) (457,632) (412,076)

Adjusted Total Capital Expenditures and Investments 1,383,218 1,850,037 772,958

In recent years, a significant part of our capital expenditures on electricity projects in mainland Portugal has been in distribution.
Since EDPD is required by law to connect all customers who wish to be supplied by the Public Electricity System, a large part of
capital expenditures is spent in connecting new customers, improving network efficiency and developing the network (installing new
cables and lines) to accommodate the growth in consumption. In addition, we are required to meet government standards for meter
control, which requires us to make further investments in new meters. Our investment in distribution in Portugal in 2003 totaled € €
395.8 million compared with € € 433.0 million in 2002 and €€ 330.0 million in 2001, and mainly consisted of recurring capital
expenditures necessary for the operation, improvement and expansion of our distribution network in Portugal, including expansion to
accommodate growth in consumption and maintenance. In keeping with our strategic goal of reducing
18
recurring capital expenditures in our core electricity business, capital expenditures in distribution declined between 1998 and 2000
due to lower costs in materials and services and a reduced allocation of these costs to capital expenditures. Between 2000 and 2003,
EDPD’s capital expenditures increased due to higher investments in the distribution network pursuant to our public commitment to
improve the quality of service by reducing the equivalent interruption time in the distribution of electricity. In 2002, the increase in
EDPD capital expenditures also reflects the internal transfer from EDINFOR to EDPD of € € 80.5 million worth of assets that relate to
non-recurring investments made in a commercial and administrative IT system based on the SAP platform. In 2003, EDPD capital
expenditures also included € € 12.0 million related to the transfer of this IT system. As such, this transfer did not affect our cash flow in
2002 and 2003.
Under current regulations in Portugal, we receive contributions directly from customers for a portion of our capital expenditures
for new connections to the transmission and distribution networks. The total amount of contributions from customers in 2003 was
approximately € € 121 million compared with approximately €€ 111 million in 2002.
During 2003, we invested €€ 261.1 million in generation in Portugal, compared with €€ 276.5 million in 2002 and €€ 131.7 million
in 2001. The higher capital expenditures in 2003 and 2002 compared to 2001 were primarily a result of expenses incurred due to the
start of construction of the first two 392 MW units of the TER CCGT plant and of the two 94 MW units of the Venda Nova
hydroelectric plant. We expect a similar level of operational investment in generation in Portugal in 2004.
In Portugal, we expect to focus future distribution capital expenditures on connecting new clients and improving the quality of
the electricity service through a more efficient network. We expect to concentrate future generation capital expenditures on the
development of new hydroelectric projects and in the construction of the new TER CCGT power plant. Future capital expenditures in
generation may also include special projects such as co-generation and wind power generation opportunities. While the actual amount
of our future investments will depend on factors that cannot be currently foreseen, we expect to incur recurring capital expenditures of
approximately € € 700 million annually in the aggregate in our core electricity generation and distribution businesses in Portugal during
this period.
In Spain, apart from the capital expenditure of €€ 250.6 million (100% of Hidrocantábrico’s investment) for the acquisition of
Hidrocantábrico’s 62% stake in Naturcorp, we incurred additional capital expenditures of €€ 176.3 million (100% of Hidrocantábrico’s
investment) during 2003 on generation, electricity distribution and on special regime generation projects. Hidrocantábrico’s 2003
operational investments decreased compared to 2002, due to lower investments in generation and electricity distribution activities.
Investments in generation decreased due to the completion of the Castejón CCGT plant in September 2002. As for electricity
distribution activity, fewer investments were made in expansion outside Asturias (northern region of Spain). Investment in special
regime generation increased in 2003 with the construction of the P.E. del Cantábrico (65 MW), the P.E. Arlanzón (34 MW) and the
P.E. Albacete (124 MW) wind farms.
In line with our strategic objectives of building our fixed line telecommunications and our international activities, we also may
incur additional capital expenditures in connection with these activities and other strategic investments as well as non-recurring
capital expenditures such as for information technology. With respect to investments in Brazil, we currently expect to fund any future
capital expenditures with cash flow generated by local operations and or by reais-denominated debt.
We made capital expenditures related to environmental matters in 2003 and 2002 of approximately € € 15 million. We expect
these capital expenditures to amount to approximately € € 40 million in 2004, of which €€ 20 million will be related to new investments
in emissions abatement equipment in the Sines power plant, in order to adapt the facility to the new environmental regulations
relating to SO 2 and NOx emissions.

Over the next three years, we expect to incur capital expenditures of approximately € € 3.25 billion, more than 75% of which will
be dedicated to the expansion of electricity generation facilities in Portugal and Spain, including renewable energy facilities, and the
improvement of the quality of our electricity distribution network in Portugal.
19
 We believe that cash generated from operations and existing credit facilities is sufficient to meet present working capital needs.
We currently expect that our planned capital expenditures and investments will be financed from internally generated funds, existing
credit facilities and customer contributions, which may be complemented with medium or long term debt financing and equity
financing as additional capital expenditure and financial investment requirements develop. To learn more about our sources of funds
and how the availability of those sources could be affected, see “Item 5. Operating and Financial Review and Prospects—Liquidity
and Capital Resources.”
International Investments
Apart from Spain, we have made a number of international investments in the electricity and water sectors in Brazil, Cape
Verde, Guatemala and Macau. We have actively sought opportunities outside of Portugal in which we could capitalize on our existing
strengths. In 2003 and in 2004 to date, we have not initiated any new international investment projects. In accordance with our
strategy of shareholder value creation, we have divested in non-strategic holdings in Chile and Morocco. We have also reorganized
our shareholding in CEM – Companhia de Electricidade de Macau, or CEM. As a result, China Power International Holding, a
Chinese electricity company, has acquired a 6% interest in CEM and our stake in CEM has decreased slightly, from 21.78% to
21.19%. For more information on CEM and this transaction, please see “—Other Investments and International Activities.”
STRATEGY
Our principal strategic objective is the creation of shareholder value through the achievement of sustained real earnings growth
and our primary strategic focus is on energy activities in the Iberian Peninsula. Accordingly, we have redefined our concept of our
domestic market to include the Iberian Peninsula and are positioning ourselves for the Iberian electricity market that will develop in
the future. In this context, we acquired operating control of Hidrocantábrico in 2001, the fourth largest electricity operator in Spain,
which, in turn, acquired Naturcorp, the second largest gas operator in Spain, in 2003.
While expanding into the Spanish gas and electricity sectors, we are also strengthening our core electricity business in Portugal.
During recent years, we have been making considerable efforts to optimize and restructure our Portuguese generation and distribution
activities in preparation for the full liberalization of electricity supply in Portugal and the expected integration of the Portuguese and
Spanish electricity markets. In connection with these efforts, we are taking steps to improve the quality of service through cost-
conscious investment in technical and commercial infrastructure, particularly in the areas of electricity distribution and sales, and
further restructure our human resources, primarily in our distribution business. In this regard, we have had and continue to have
programs in place that are aimed at reducing our headcount and we intend to expand our sales and customer service human resource
capabilities. We are also increasing our electricity generation capacity through modernization of existing facilities and selective
development of new facilities, in each case mindful of environmental requirements and concerns.
Outside of our Iberian energy activities, we have also sought to focus on our core business through divestiture of non-strategic
financial investments, as demonstrated by our sale in 2003 of our 3% stake in the Spanish electricity company Iberdrola, and to
selectively pursue other business activities that are complementary to our energy activities. These other business activities include
selectively pursuing international opportunities in electricity, developing our telecommunications business in Portugal and Spain, and
restructuring our information technology business.
IBERIAN ENERGY
Our primary strategic focus is the Iberian energy market. We are the leading electricity company in Portugal. We also intend to
develop activities in the Portuguese gas sector by translating our financial investment in GALP into a controlling stake in GDP. In
Spain, we exercise operating control over Hidrocantábrico and maintain a successful partnership with Hidrocantábrico’s other
shareholders: Energie-Baden-Württemberg AG, or En BW, a German utility company, and Cajastur — Caja de Ahorros de Asturias, a
Spanish savings bank, or Cajastur. Hidrocantábrico acquired a 62% stake of Naturcorp in March 2003 and currently has a 56.8%
stake in Naturcorp after Gas Natural exchanged its 50% interest in Gas de Euskadi, a subsidiary of Naturcorp, for a direct interest in
Naturcorp.
20
 In the Iberian energy market our strategic objectives are:
• preserving the value of our Portuguese electricity business in light of the liberalization of the Portuguese electricity market
and the creation of an integrated Iberian market;
• growing our electricity Iberian platform through Hidrocantábrico; and
• developing an Iberian gas business by leveraging our existing assets.

Preserving the value of our Portuguese electricity business

In our Portuguese electricity business, we face increasing competition arising from the liberalization of the electricity market in
Portugal, in the Iberian Peninsula and throughout the EU. In July 2004, the entire Portuguese electricity market is expected to be
liberalized, meaning that all customers will be free to choose their electricity supplier. Competition in electricity supply will also
increase as the newly created Iberian electricity market comes into operation. Additionally, we face increasing pressure on the
operating margins of our electricity distribution business in Portugal due to regulation of electricity tariffs in the Public Electricity
System.
In response to these challenges, we plan to:
• continue efforts to enhance earnings and maintain our leading market share of generation and distribution in the liberalized
and growing Portuguese electricity market, while also capitalizing on growth opportunities created by increasing
liberalization within the EU, particularly in the Iberian electricity market; and
• continue our program to increase the efficiency of our Portuguese electricity operations, reduce related costs with the goal of
achieving international best practice standards, and minimize the impact of tariff reductions in the current regulatory period
on operating margins of our electricity distribution business.
In pursuing these objectives, we intend to:
• pursue effective marketing to both new and existing customers, particularly those that benefit, or will benefit, from
competitive alternatives in the Non-Binding Sector (where we are present through our subsidiary EDP Energia);
• continue to provide high quality and cost-effective services to the Binding Sector and the Non-Binding Sector;
• further centralize our corporate structure, as we have done with the merger of our four distribution companies into EDPD
and the centralization of most of our generation companies in EDP Produção;
• continue to centralize and improve the efficiency of our administrative activities, such as accounting, and procurement, with
the aim of achieving cost savings in supplies of goods and services and personnel reduction, to which end we created EDP
Valor, a company that integrates some of our service companies by consolidating resources and centralizing purchasing
activities;
• identify opportunities to achieve future reductions in overhead expenses through the continued implementation of the
“Efficiency Program” started in the beginning of 2002, in connection with which we have agreed with the Portuguese
electricity regulator on an appropriate tariff mechanism that can facilitate further efficiency improvements through personnel
reduction at EDPD; and
21
 • continue to monitor the level of recurring capital expenditures in our Portuguese electricity business.
Growing our Iberian electricity platform
In light of the intended integration of the Spanish and Portuguese electricity sectors, we have expanded the definition of our
domestic market to embrace the entire Iberian Peninsula. Following our acquisition of a 40% interest in Hidrocantábrico at the end of
2001, we became the first Iberian company to own significant generation and distribution assets as well as a meaningful customer
base in both Portugal and Spain – two EU countries with among the highest electricity consumption growth rates in the European
Union.
To grow our Iberian electricity platform, we intend to:
• position ourselves to benefit from the creation of an Iberian electricity market and pursue growth opportunities in Spain by
leveraging on our investment in Hidrocantábrico;
• grow our customer base by capitalizing on the fully liberalized electricity market in Spain;
• take advantage of a combined electricity and gas service offering in Spain through the activities of both Hidrocantábrico and
Naturcorp and in Portugal through the activities of EDP and GDP; and
• increase generation capacity through the construction of a new CCGT power plant, the development of renewable energy
generation projects, primarily through the construction or acquisition of new wind farms, and the increase of capacity in
existing plants to cope with strong consumption growth.

Developing an Iberian gas business

We view the gas business as being highly complementary to electricity and of great strategic attractiveness. Both Portugal and
Spain have gas and electricity consumption growth rates above the EU average. Each country requires new capacity to be gradually
added and CCGT plants, fired by gas, are considered to be an advantageous option to meet the Iberian electricity system expansion
requirements because of their lower investment costs required per MW, greater efficiency, lower operating and maintenance costs and
lower emission levels compared to other thermal generation plants. Since new gas-fired generation capacity is expected to be added to
the Iberian electricity system, power generators, which are already among the largest gas consumers in the Iberian Peninsula, are and
will continue to be the facilitators of the development and sustainability of the gas business in the Iberian Peninsula, although their
competitive position will increasingly depend on gas prices and the flexibility of gas contracts. The natural gas market is
characterized by the existence of long-term contracts. For electricity generators, long-term contracts in the natural gas market are
usually indexed to the price of oil, are of a take-or-pay nature and restrict the final destination of contracted gas. Since gas represents
a substantial portion of gas-fired power plants’ total costs, access to flexible and competitive gas contracts is of paramount importance
to increase the efficiency of CCGT power plants.
There are two main reasons for us to develop an integrated Iberian gas business:
• to increase the competitiveness and efficiency of our gas-fired power plants. By being involved in both gas distribution and
electricity generation we expect to be able to mitigate the risk presented by variable gas prices while increasing the
flexibility of gas sourcing and placing; and
• to capture synergies from distributing both gas and electricity to final consumers, leveraging on our existing electricity client
base and on the sharing of infrastructure and system costs.
In April 2003, the Portuguese government announced recommendations concerning the reorganization of the energy sector, as a
result of which we have the opportunity to become a major participant in the Iberian combined electricity and gas sector. According
to the government’s recommendations, gas and electricity in Portugal should be combined and developed by us in order to take
advantage of the synergies and flexibility that will result from integrated management of these activities.
22
 In the context of the reorganization of the Portuguese energy sector, in March 2004 we entered into an agreement to purchase,
together with Eni and REN, the entire share capital of GDP, which operates in the Portuguese gas sector and owns assets for the
transport and distribution of gas. The completion of the agreement and related transactions is subject to specified conditions,
including approval of the relevant competition authorities. Pursuant to this agreement, initially we, Eni and REN will hold 33.34%,
33.33% and 33.33%, respectively, of GDP’s share capital, although REN will only participate in GDP on a temporary basis. The
agreement provides that the cost of the stake of each buyer will be €€ 400 million. In connection with the purchase agreement, we also
entered into a shareholders’ agreement with Eni and REN that provides rules for the temporary governance of GDP (until the exit of
REN) and the mechanism by which REN will exchange its stake in GDP for GDP’s high pressure gas network assets. Following the
exit of REN, we and Eni will own 51% and 49% of GDP, respectively. Accordingly, we also entered into a shareholders’ agreement
with Eni that will govern the management of GDP following the exit of REN and includes the terms of collaboration between Eni and
us and the exit clauses in the case of a deadlock event that cannot be resolved. In the case of a deadlock, we will have a call option
over Eni’s stake in GDP. If we do not exercise this call option within the time specified in the agreement, Eni will have a call option
over our stake in GDP. As we intend to leverage our stake in GALP to acquire our position in GDP and focus on the gas business
rather than oil-related activities, we also agreed with Parpública – Participações Públicas, S.G.P.S., S.A., or Parpública, on a
mechanism for us to exit the share capital of GALP. Pursuant to this agreement, Parpública has a call option to acquire our 14.27%
stake in GALP for € € 456.7 million and we have a put option to sell our stake in GALP to Parpública on the same terms. Parpública’s
call option may be exercised from March 31, 2004 until one year after acquisition of the GDP shares by EDP, Eni and REN. Our put
option may be exercised during the 3-month period after the expiration of the period for the exercise of Parpública’s call option.
We have also entered into agreements to acquire stakes in the two main Portuguese regional gas distribution companies: Portgás
and Setgás. Portgás has the concession to distribute gas in the districts of Porto, Braga and Viana do Castelo. We have entered into a
call option agreement with GALP, GDP and GDP Distribuição, SGPS, S.A. to acquire a 46.265% shareholding in Portgás. We may
exercise this option for 18 months from November 2003 by paying € € 86,400,000, subject to adjustments for variations in share capital
and shareholder loans. At the same time, we entered into a call option agreement with CGD to acquire all of the shares of NQF –
Projectos de Telecomunicações e Energia, S.A., or NQF, which owns 12.9% of Portgás. Under the same agreement, we have granted
to CGD a put option pursuant to which CGD may sell the NQF shares to us. The put option may be exercised at any time between
June 15, 2004 and September 15, 2004 at an agreed price of € € 64,942,880.57. NQF also owns 10.1% of Setgás, which has the
concession to distribute gas in the district of Setubal. Completion of the transactions involving Portgás and Setgás are subject, among
other things, to approval by competition authorities, for which application has been made.
Our current interest in the gas sector in Spain consists of our 40% holding in Hidrocantábrico, which controls Naturcorp, with
more than 500,000 customers and approximately 10% of Spain’s regulated revenues for gas distribution, or 8% of GWh of gas
distributed. For more information on our participation in the Spanish gas sector, please see “—Spain—History and Overview.”
INTERNATIONAL ACTIVITIES
Although our core business has historically been electricity in Portugal, it has evolved to include the Iberian energy market.
However, international opportunities arise in the electricity business and related businesses through which we believe we can achieve
attractive returns. In international investments, we have looked particularly toward Brazil, where we believe we can play an active
role in managing the electricity operations in which we are involved and where potential returns may be attractive. During the first
half of 2003, we reassessed our Brazil strategy and are undertaking the following initiatives with the goal of rationalizing our
Brazilian operations by making them more self-sustaining and independently managed:
• corporate restructuring: integration of all activities in Brazil under our subsidiary, EDP Brazil, which will consolidate not
only financial results but also planning and strategic control;
• capital restructuring: assessment of the capital structure of EDP Brazil and its subsidiaries;
23
 • corporate governance: harmonization and alignment of the corporate governance structures and procedures of EDP Brazil’s
subsidiaries, with a view toward improving the efficiency and transparency of governance and the decision-making process;
• strategic positioning: introduction of the necessary adjustments to our existing investments with the aim at obtaining greater
added value for shareholders and the establishment of strategic platforms for the development of future businesses; and
• generation of synergies: ensuring that EDP Brazil is worth more than the sum of its parts, thus providing adequate
remuneration of capital employed, through initiatives such as the re-launch of an efficiency program and analysis of the
feasibility of shared services.
We regularly review our international investments and may change their focus over time consistent with our strategic objectives.
In this regard, we continuously monitor our investment portfolio in order to capitalize on our ability to efficiently manage electricity
operations through significant influence or control. For a more detailed discussion of our international activities, you should read “—
Brazil” and “—Other International Activities and Strategic Investments.”

TELECOMMUNICATIONS
Our telecommunications activities are conducted through ONI, our telecommunications subsidiary comprised of various
business units. ONI is a fixed line telecommunications operator primarily focused on corporate clients and provides voice and data
services in Portugal and Spain.
We plan to build on our existing operations in order to achieve a competitive role in the corporate fixed line telecommunications
sector in Portugal and Spain, which we regard as attractive markets of suitable size and high growth potential. We based our decision
to enter and develop this business on our ability to capitalize on our existing infrastructure, including access to an extensive fiber
optic backbone, to leverage our existing resources, including a large base of customers and suppliers, and to use our existing
telecommunications operations as a platform for expanded activities.
Although our plans and strategy continue to evolve and adapt to trends in the telecommunications sector, we currently anticipate
emphasizing the following business areas:
• fixed line operations, using ONI’s fixed line voice and data operations as a platform; and
• Internet access services, building on ONI’s Internet service provider activities.
We also have allied and expect to ally ourselves with other partners who may bring resources and synergies to facilitate our
efforts to develop a presence in each of these business areas. For a more detailed discussion of our telecommunications activities,
please see “—Telecommunications.”
INFORMATION TECHNOLOGY
We are involved in the information technology market mainly through EDINFOR. During the second half of 2003, and
following a decision to allow participation of a strategic partner in EDINFOR’s share capital, we have been implementing several
initiatives that will facilitate the success of a future partnership. Such initiatives include the improvement of the relationship with the
EDP Group, the increase of sales outside the EDP Group and the winding up and/or merger of 17 companies of the EDINFOR group.
In 2004, we hope to find a strategic partner for EDINFOR that will bring to EDINFOR technological expertise. In any partnership
eventually entered into, we would seek to ensure that our core information technology systems continue to be run by EDINFOR. With
such a partnership in place, we expect to be better able to focus on our core business, while maintaining the availability and security
of key systems, and enhancing EDINFOR’s growth potential.
24
DEVELOPING OF COMPLEMENTARY BUSINESS ACTIVITIES/OTHER UTILITIES
Consistent with our strategy, we are selectively evaluating opportunities that are complementary to our core businesses and that
may enable us to achieve cost savings along the chain of activities from us to the consumer and that management expects can generate
additional shareholder value.
The acquisition of an interest in Affinis has provided us with the opportunity to become involved in additional commercial
activities related to the supply of electricity and gas, such as the provision and servicing of appliances and the installation of utility
infrastructure in homes and businesses. For more information on our complementary business activities you should read “—
Subsidiaries, Affiliates and Associated Companies” below.

THE IBERIAN ELECTRICITY MARKET

In November 2001, the Portuguese and Spanish governments signed a “Protocol for Cooperation between the Spanish and
Portuguese governments for the creation of the Iberian Electricity Market”, or the Protocol, in which they undertook to create an
Iberian electricity market based on the principles of free and fair competition, transparency, objectivity and efficiency. In particular,
the Protocol was intended to guarantee Portuguese and Spanish consumers better access to domestic and foreign electricity networks
and give Iberian electricity operators the freedom to contract with consumers and to engage in distribution activities in a common
Iberian electricity pool. The Iberian Electricity Market, or MIBEL, was expected to come into force by January 2003, but has been
delayed due to a change in the Portuguese government and the need for harmonization of the Spanish tariff structure. A revised
timeframe was agreed to in November 2003 and further implementation details were agreed to in January 2004. For more information
on MIBEL, see “—Regulation—Iberian Electricity Market.”

PORTUGAL
ELECTRICITY SYSTEM OVERVIEW
Portuguese Electricity System
Since 1997, Portugal had an electricity market structure pursuant to the legislation enacted by the government that introduced
the National Electricity System. The chart below illustrates the structure of the National Electricity System.
25
Note: Operations that are 100%-owned by us are highlighted in bold.
(1) We own 10% of Tejo Energia and 20% of Turbogás.
(2) Began operations in early 1998.
(3) As of April 2004, none existed.
(4) At the end of January 2004, approximately 21,300 potential Qualifying Consumers, or “Eligible Consumers”, existed, of which
2,714 had become Qualifying Consumers and 2,028 were already in the Non-Binding Sector. Prior to February 2004, all
consumers except low-voltage consumers were Eligible Consumers. Decree law no. 36/2004 of February 26, 2004 provides for
the decrease of the eligibility threshold in mainland Portugal to include special low voltage consumers, which are those with
subscribed demands above 41.4 KW and voltage levels below 1kV. In March 2004, the regulator published the regulations
necessary to allow special low voltage consumers to change their supplier. We expect that in July 2004 all low voltage
consumers will become eligible consumers. However, the rules and procedures necessary to the implementation have not yet
been created.
26
 The National Electricity System consists of the Public Electricity System, or the Binding Sector, and the Independent Electricity
System. The Public Electricity System is responsible for ensuring the security of electricity supply within Portugal and is obligated to
supply electricity to any consumer who requests it. Within the Independent Electricity System are the Non-Binding Sector and other
independent producers (including auto producers). We and other generators can supply electricity to the Non-Binding Sector. The
Non-Binding Sector is a market-based system that permits “Qualifying Consumers” to choose their electricity supplier. Over the past
several years the minimum consumption level required to be a Qualifying Consumer has progressively declined and, as of February
26, 2004, Eligible Consumers, i.e., all consumers other than low voltage consumers that are not special low voltage consumers,
automatically became Qualifying Consumers after communicating their intention to the regulator to be treated as such. For more
information on the liberalization of electricity sales you should read “—Competition.”
The National Electricity System is intended to improve transparency in the costs associated with the supply of electricity and to
prepare for a more market-based and competitive electricity supply system in Portugal that continues to fulfill EU requirements.

The Public Electricity System or Binding Sector

The Public Electricity System, or the Binding Sector, includes the binding generation in our generation company, CPPE, the
transmission company, REN, in which we have a 30% stake, and our distribution company, EDPD. The Public Electricity System
also includes two independent power producers: Tejo Energia’s plant at Pego, in which we have a 10% stake, and the Turbogás plant
at Tapada do Outeiro, in which we have a 20% stake. All plants in the Public Electricity System enter into PPAs with REN through
which they commit to provide electricity exclusively to the Public Electricity System through REN, acting as the single buyer in the
Binding Sector and operator of the national transmission grid. For more information on REN’s activities, you should read “—
Transmission” below.
Power plants in the Binding Sector are each subject to binding licenses issued by the Direcção Geral de Geologia e Energia, or
DGGE, which has succeeded the Direcção Geral de Energia (DGE), which are valid for a fixed term, ranging from a minimum of 15
years to a maximum of 75 years, but which are revoked upon termination of the related PPAs with REN. These licenses, together with
PPAs, require each power plant in the Binding Sector to generate electricity exclusively for the Public Electricity System.
While REN’s responsibilities relate primarily to the transmission of electricity and system dispatch, it is also responsible for
working with DGGE to identify potential sites for the installation of new power plants and for the management of wholesale
purchases of electricity and sales to distribution companies.
The Independent Electricity System
The Independent Electricity System consists of two parts—the Non-Binding Sector and the other independent producers,
including renewable source producers, which include small hydroelectric producers (under 10 MW installed capacity), and
cogenerators.
The Non-Binding Sector
At present, the only producers in the Non-Binding Sector are our three wholly-owned embedded hydroelectric generators, which
are small hydroelectric plants with more than 10MW installed capacity that deliver all of the energy they produce directly to the
distribution system, and CPPE’s CCGT plant in Ribatejo. Although producers in the Non-Binding Sector are required to obtain
licenses, they have no obligation to supply electricity to the Public Electricity System. These entities are free to contract directly with
Qualifying Consumers. In 2003, the total number of Eligible Consumers in Portugal represented approximately 45% of total demand
in mainland Portugal in volume terms. During 2003, 1,430 Eligible Consumers exercised their right to become Qualifying
Consumers, of which 1,054 entered into contracts with EDP Energia and 376 entered into contracts with producers in the Spanish
market. Of the 1,919 existing Qualifying Consumers at the end of 2003, 1,404 are customers of EDP Energia, representing
approximately 7% of the electricity sold by us and 3% of our revenues in 2003. As of December 31,
27
2003, approximately 21,300 Eligible Consumers existed and 1,919 of these had opted to become Qualifying Consumers. By July
2004, all consumers are expected to be Eligible Consumers. We expect an increasing but limited impact on our revenues due to the
progressive decrease in the eligibility threshold. Two of the three tariff components relating to distribution, representing
approximately 90% of tariff revenue in 2003, are payable to EDPD by Eligible Consumers electing to become Qualifying Consumers.
In addition, EDP Energia has the opportunity to gain Qualifying Consumers as its customers, in which case the third distribution tariff
component would be payable to EDP Energia.
Producers in the Non-Binding Sector are able to use the national transmission grid and distribution system on an open-access
basis to connect to Qualifying Consumers, which pay regulated transmission and distribution charges to REN for transmission and
EDPD or other companies for distribution, respectively. Our hydroelectric plants in the Independent Electricity Systems deliver all of
the electricity they produce directly to the distribution system without going through the national transmission grid. These plants pay
regulated transmission charges to REN. Contractual relationships between producers and consumers in the Non-Binding Sector are
freely negotiable between the parties.

Other independent producers

The Portuguese government has implemented selected measures to encourage the development of various forms of electricity
production, including auto producers (entities that generate electricity for their own use and may sell surplus electricity to REN),
cogenerators, small hydroelectric producers and other producers using renewable sources. REN is currently required by law to
purchase the excess electricity produced by these independent producers at a regulated price based on avoidable costs, defined as the
costs REN avoids by receiving power from these producers rather than dispatching plants in the Binding Sector and/or investing in
new plants to increase installed capacity, plus an environmental premium, referred to as the “green tariff.” For more information on
our electricity sales, you should read “—Distribution” below.

Size and composition of Portugal’s electricity market

During the period from 1999 through 2003, the total electricity supplied by EDPD (in both the Binding and Non-Binding
Electricity Sectors) experienced an average growth rate of 4.7% per annum. In 2002, there was a reduction in the annual growth rate
to 2.4% due to a slowdown in the economy. In 2003, the annual growth rate increased to 3.7%.
The primary factors that management believes have an impact on demand are the rate of gross domestic product growth,
electricity connections to new households and changes in electricity consumption per capita. After the period from 1999 through
2001, during which consumption in the Public Electricity System experienced an average growth rate of 2.1% above growth in
Portugal’s gross domestic product, or GDP, there was a reduction to 0.7% above the growth rate in Portugal’s GDP in the year 2002
due to a slowdown in the economy. The previous growth trend is expected to resume in the future, assuming that the Portuguese
economy recovers from the slowdown that occurred in 2002. We anticipate that the Portuguese economy will recover and that overall
consumption in the National Electricity System will increase at an average of 3.7% per year in 2004, 2005 and 2006. Residential
consumption is assumed to increase each year over the same period by an average of 4.5%, services by an average of 2.8%, and
industrial by an average of 2.9%.
Peak demand as a percentage of the total installed capacity, which is the sum of the total installed capacity of the Public
Electricity System, or PES, and the total installed capacity of the Non-Binding System, has remained fairly constant in recent years,
except in 2003 when it increased slightly due to an extremely cold winter and a decrease in installed capacity in the PES following the
decommissioning of the Alto Mira power plant (132 MW). Our available capacity as a percentage of the total installed capacity has
maintained a value of approximately 78% from 1999 through 2003. The ratio of peak demand to EDP’s average available capacity
indicates that EDP alone did not have sufficient available capacity to cover the total peak demand in 2001, 2002 and 2003. To address
this, in early 2004, the first 392 MW unit of the TER CCGT plant began operation. The second unit is expected to begin operation in
October 2004, and the third in 2006. We are also building new hydroelectric generation capacity.
28
 The following table sets forth the ratios of peak demand to installed capacity, EDP’s available capacity to the installed capacity
of the Public Electricity System and the Non-Binding System and peak demand to EDP’s available capacity. Peak demand includes
demand satisfied by generation from Other Independent Producers.
As of December 31,

1999 2000 2001 2002 2003

(in MW, except percentages)

Installed capacity of the PES(1) 8,804 8,758 8,758 8,758 8,626
Installed capacity of the NBES(2) 255 255 255 255 647

Total installed capacity (PES plus NBES) 9,059 9,013 9,013 9,013 9,273

Peak demand (PES plus NBES) 6,522 6,890 7,466 7,394 8,046
Peak demand as a percentage of the total installed capacity (PES plus NBES) 72.0% 76.4% 82.8% 82.0% 86.8%
EDP:
EDP’s average available capacity (PES) 6,808 6,765 6,801 6,841 6,695
EDP’s average available capacity (NBES) (3) 196 215 247 226 228
EDP’s available capacity as a percentage of the total installed capacity (PES plus
NBES) 77.3% 77.4% 78.2% 78.4% 74.7%
Peak demand as a percentage of EDP’s average available capacity (PES plus
NBES) 93.1% 98.7% 105.9% 104.6% 116.2%

(1) Public Electricity System.

(2) Non-binding Electricity System, which consists of generation in the Independent Electricity System other than the “other
independent producers.” All of the NBES hydroelectric plants with an installed capacity less than or equal to 10 MW became
special regime producers in October 2002. Special regime generation generally consists of small or renewable energy facilities,
from which the electricity system must acquire all electricity offered, at tariffs fixed according to the type of generation.
Installed capacity of the Non-binding Electricity System in 2003 includes the first 392 MW unit of TER that was in testing at the
end of the year.
(3) Provisional values from 1999 to 2001 take into account the restructuring of the Vila Cova plant in 1999.

The Portuguese overall growth rate in demand for electricity is slightly higher than the rate reflected in the figures above due to
the growth of auto production of electricity in certain industries. Auto producers supply their surplus electricity to REN, which
displaces electricity generation in the Public Electricity System.
The term “installed capacity” in this report refers to the maximum capacity of a given generation facility under actual operating
conditions. Maximum capacity of a hydroelectric facility is based on the gross electricity emission to the transmission network by the
units of such facility, whereas maximum capacity of a thermal facility is based on the net electricity emission (net of own
consumption) to the transmission network. In previous reports, installed capacity of a facility referred to the level of electricity
emission to the transmission network based on the technical nominal specification of the units of such facility established by the
manufacturer. Referring to installed capacity in terms of maximum capacity is preferable because in Portugal the PPAs remunerate
electricity producers based on this concept and this concept is widely used by other electricity companies in Europe.
GENERATION
As of December 31, 2003, our Portuguese electricity generation facilities consist of hydroelectric, thermal (coal, fuel oil, natural
gas and gas oil), biomass, cogeneration and wind generation facilities, and had a total installed capacity of 7,939 MW (including one
392 MW unit of the new TER CCGT plant, which was in service by the end of 2003 for testing purposes and began commercial
operations in early 2004), 7,052 MW of which was in the Public Electricity System and 888 MW of which was in the Independent
Electricity System, and approximately 53% of which was represented by hydroelectric facilities, 28% by fuel oil/natural gas facilities,
15% by coal-fired facilities, 2% by gas oil facilities and 2% by wind-driven, biomass and cogeneration facilities. We do not own or
operate any nuclear-powered facilities in Portugal.
29
 Our installed capacity in the Public Electricity System of 7,052 MW represents approximately 82% of the total installed capacity
in the Public Electricity System. The total installed capacity of the Public Electricity System decreased from 1999 to 2000 to a small
degree as a result of the decommissioning of one unit at our Tapada do Outeiro plant. From 2000 to 2002, the installed capacity of the
Public Electricity System remained constant. In 2003, another small decrease resulted from the decommissioning of the 132 MW Alto
de Mira plant. Our smaller hydroelectric plants, wind generating facilities and cogeneration and biomass plants are part of the
Independent Electricity System.
Since its creation in 1994, CPPE has operated all of our conventional thermal plants and approximately 92.6% of our
hydroelectric plants. On March 29, 2001, we announced the incorporation of EDP Produção, a subsidiary that began operations in
July 2001 and now operates most of our Portuguese energy production-related units, including CPPE, as part of measures we are
implementing to boost efficiency. In 2003, CPPE accounted for approximately 96.3% of our electricity generation in Portugal. During
the second half of 2003, we reorganized our generation business in preparation for the liberalization of the Iberian electricity market,
which is expected to start operations during 2004. We are in the process of consolidating a number of generation companies formerly
held by EDP Produção, which operate in the Independent Electricity System, into CPPE as part of the reorganization of our
generation business.
EDP Energia was created to supply electricity to Qualifying Consumers and to conduct energy trading activities. The energy
trading activities were subsequently transferred to EDP Produção.
EDP Produção also holds a variety of engineering and operations and maintenance, or O&M, companies, including EDP
Produção EM – Engenharia e Manutenção, S.A., a company which undertakes hydroelectric and thermal engineering projects and
studies, project management, engineering and consulting.
Enernova (wind energy) and EDP Bioeléctrica (biomass plants) are now held directly by EDP outside of EDP Produção. Since
1996, Enernova has increased by six times its installed generation capacity, from 10 MW to 65 MW. New projects are in progress,
some of which are under construction and others are in licensing development, which will add installed capacity of 280 MW by 2006,
and 300 MW by 2008.
The following map sets forth the CPPE power plants in the Binding Sector as of December 31, 2003.
30
CPPE POWER PLANTS
31
 The generation capacity of CPPE plants in the Binding Sector is bound to the Public Electricity System under PPAs between
CPPE and REN. Under the PPAs, CPPE is guaranteed a fixed revenue component (capacity charge) based on the contracted
availability and installed capacity, regardless of the energy produced. The PPAs also allow CPPE to pass-through to the final tariff its
total fuel consumption cost through a variable revenue component (energy charge) that is invoiced monthly to REN. Pursuant to the
Portuguese government’s policy for the reorganization of the energy sector, the PPAs are expected to be terminated as a step in the
creation of an Iberian electricity market. For more information, please see “Regulation—Portugal.”
The following table sets forth our total installed capacity by type of facility at year-end for the years 1999 through 2003.
As of December 31,

Type of facility 1999 2000 2001 2002 2003

(MW)
Hydroelectric:
CPPE plants 3,903 3,903 3,903 3,903 3,903
Independent System hydroelectric plants 309 309 309 309 311

Total hydroelectric 4,212 4,212 4,212 4,212 4,214

Thermal(1) 3,327 3,281 3,281 3,281 3,149
Wind 20 30 41 41 65
Biomass 9 9 9 9 9
Cogeneration 0 67 67 111 111
CCGT (2) 0 0 0 0 392

Total 7,568 7,599 7,610 7,654 7,939

(1) On June 30, 2003, the PPA of the Alto de Mira plant expired and the plant was decommissioned.
(2) New plant, in testing at the end of 2003.
Hydroelectric generation is dependent upon hydrological conditions. In years of less favorable hydrological conditions, less
hydroelectricity is generated and the Public Electricity System must depend upon increased thermal production. In addition, in years
of less favorable hydrological conditions, imports of electricity may increase. For purposes of forecast models, our estimated annual
hydroelectric production based on current installed capacity in an average year is 10.6 TWh and can reach about 15 TWh in a wet
year and may fall to less than 7 TWh in a dry year. Between 1993 and 2003, our actual hydroelectric production has ranged from a
low of 6.9 TWh in 1999, a very dry year, to a high of 14.9 TWh in 2003, a record wet year.
32
 The following table summarizes our electricity production, excluding losses at our plants and our own consumption, by type of
generating facility from 1999 through 2003, and also sets forth our hydroelectric capability factor for the same period.
Year ended December 31,

Type of facility 1999 2000 2001 2002 2003

(in GWh, except hydroelectric capability factor)

Hydroelectric:
CPPE plants(1) 6,457 10,229 12,607 6,764 13,964
Independent System hydroelectric plants 447 624 790 573 901

Total hydroelectric 6,904 10,853 13,397 7,336 14,865

Thermal:
Coal 9,319 9,091 8,677 9,532 9,473
Fuel oil and natural gas 7,596 4,631 5,583 7,848 3,120
Gas oil 2 38 50 13 26
Coal and fuel oil(2) 85 11 30 44 (1)
Cogeneration 0 134 423 590 679
CCGT(3) — — — — 203

Total thermal 17,002 13,905 14,763 18,027 13,500

Wind 53 70 90 113 128
Biomass 2 5 18 37 38

Total 23,961 24,833 28,269 25,513 28,532

Hydroelectric capability factor (4) 0.68 1.08 1.19 0.75 1.33

(1) Includes the following amounts of our own consumption for hydroelectric pumping, 491 GWh in 1999, 558 GWh in 2000, 485
GWh in 2001, 670 GWh in 2002 and 485 GWh in 2003.
(2) Since the beginning of 1998, our existing plant at Tapada do Outeiro uses only fuel oil. Production in 2003 reflects the fact that
our plant at Tapada do Outeiro generated an amount of electricity that was less than the plant’s own consumption.
(3) One unit of this plant was in testing at the end of 2003.
(4) The hydroelectric coefficient varies based on the hydrological conditions in a given year. A hydroelectric capability factor of
one corresponds to an average year, while a factor less than one corresponds to a dry year and a factor greater than one
corresponds to a wet year.
The average availability for production of CPPE’s plants remained stable from 1999 (93.0%) through 2003 (92.7%) for thermal
plants, and increased slightly from 95.1% to 96.8% for hydroelectric plants during the same period. Forced outage is unplanned
availability at a power plant caused by trips, critical repairs or other unexpected occurrences. Non-availability results from planned
maintenance and forced outages. CPPE is reducing planned maintenance outages through more efficient maintenance techniques.
CPPE’s generating facilities have experienced very low rates of forced outage over the past five years. Management believes these
low rates compare favorably with the European average. In the period 1999 through 2003, forced outages of CPPE’s thermal plants
has ranged between 2.1% and 2.8%. During the same period, forced outages of CPPE’s hydroelectric plants ranged between 0.4% and
1.0%. In 2003, forced outages of CPPE’s thermal plants was 2.1% and hydroelectric plants was 0.44%.
33
 The average availability factor is defined as the total number of hours per year that a power plant is available for production as a
percentage of the total number of hours in that year. This factor reflects the mechanical availability, not the actual availability of
capacity, which may vary due to hydrological conditions. The table below indicates for each type of CPPE generating facility the
“average capacity utilization” and “average availability factor” indicators, comparable with other European utilities, each calculated
in accordance with our computational method, for the indicated years:

Average capacity utilization (1) Average availability factor

Year ended December 31, Year ended December 31,

Type of facility 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003

Hydroelectric 18.9% 29.8% 36.9% 19.8% 40.8% 95.1% 95.0% 94.8% 95.9% 96.8%
Thermal:
Coal(2) 89.3% 86.8% 83.1% 91.3% 90.7% 90.5% 89.2% 90.5% 94.0% 94.2%
Fuel oil and natural gas 50.6% 30.8% 37.2% 52.3% 20.8% 93.2% 94.6% 96.6% 93.7% 90.8%
Coal and fuel oil(3) 10.3% 2.8% 7.2% 10.8% 0.0% 98.6% 99.6% 98.9% 98.2% 94.9%
Gas oil(4) 0.1% 1.3% 1.7% 0.4% 1.2% 99.6% 99.4% 98.4% 99.1% 98.0%
Total weighted average thermal(5) 58.3% 47.8% 49.9% 60.7% 44.8% 93.0% 93.2% 94.6% 94.4% 92.7%

(1) The average capacity utilization is defined as actual production as a percentage of theoretical maximum production.
(2)
The average availability of the coal plants in 1999 was affected by the installation of low NOX burners in each unit of the Sines
plant, one per year, which required production from each unit to stop temporarily.
(3) None, primarily due to minimal generation at our Tapada do Outeiro plant as a result of a wet year in 2003 and the fact that
this is a peak load power plant.
(4) Increase in average capacity utilization was due to the need to use the fuel stock of the Alto de Mira power plant in the context
of its decommissioning in 2003.
(5) Weighted average is based on total installed capacity of the thermal system.

During the period from 1999 through 2003, CPPE has had operating and maintenance costs, excluding fuel and depreciation
costs, below the limits contained in the relevant PPAs over that time period. Management expects to continue to maintain these costs
below the PPA limits in 2004. However, we expect that during 2004 most of the PPAs may terminate, according to a decree law
expected to be enacted, and compensation mechanisms for these terminations will be defined with the goal of maintaining the
economic value of the terminated PPAs. On June 30, 2003, the PPA of our 132 MW Alto de Mira plant terminated on the scheduled
expiration date. For more information on PPA terminations, please see “—Regulation—Portugal.”
Given that CPPE’s power plants are in the Binding Sector, they are required to have binding licenses issued by DGGE. CPPE
received the requisite binding licenses in June 1997, which were effective from January 1, 1995.
Hydroelectric plants
As of December 31, 2003, we operated 25 hydroelectric generating facilities in the Binding System, with 63 total units and an
aggregate installed capacity of 3,903 MW.
34
 Based on an independent revaluation of our assets in 1992, management estimates that the average remaining useful life of our
dams is approximately 45 years. The table below sets out our hydroelectric plants, installed capacity as of December 31, 2003, the
type of hydroelectric plant, the year of commencement of operation and the year in which the most recent major refurbishment, if any,
was accomplished.
Installed Year of last
capacity River reservoir Year entered major
Hydroelectric plants (MW) plant type into service refurbishment

CPPE Plants:
Alto Lindoso 630.0 Reservoir 1992 —
Miranda 369.0 Run of river 1960/95 1970
Aguieira 336.0 Reservoir 1981 —
Valeira 240.0 Run of river 1976 —
Bemposta 240.0 Run of river 1964 1969
Pocinho 186.0 Run of river 1983 —
Picote 195.0 Run of river 1958 1969
Carrapatelo 201.0 Run of river 1971 —
Régua 180.0 Run of river 1973 —
Torrão 140.0 Reservoir 1988 —
Castelo de Bode(1) 159.0 Reservoir 1951 2003
Vilarinho Furnas 125.0 Reservoir 1972/87 —
Vila Nova (Venda Nova/Paradela) 144.0 Reservoir 1951/56 1994
Fratel 132.0 Run of river 1974 1997
Crestuma-Lever 117.0 Run of river 1985 —
Cabril 108.0 Reservoir 1954 1986
Alto Rabagão 68.0 Reservoir 1964 —
Tabuaço 58.0 Reservoir 1965 —
Caniçada 62.0 Reservoir 1954 1979
Bouçã 44.0 Reservoir 1955 1988
Salamonde 42.0 Reservoir 1953 1989
Pracana 41.0 Reservoir 1950/93 1993
Caldeirão 40.0 Reservoir 1994 —
Touvedo 22.0 Reservoir 1993 —
Raiva 24.0 Reservoir 1982 —

Total 3,903.0
Independent System Hydroelectric Plants:
Hidrocenel(2) 107.6 Various Various
HDN (3) 118.5 Various Various
EDP Energia(4) 84.9 Various Various
Total 311.0

Total maximum capacity 4,214.0

(1) We invested approximately €€ 13 million in the modernization of the electricity generating turbines and other dam equipment at
Castelo de Bode, which was completed at the end of 2003.
(2) Hidrocenel which operates 15 plants with capacities ranging from 0.1 MW to 24.4 MW and dates of entry into service from
1906 to 2003, is in the process of being merged into CPPE. This process is expected to be completed in 2004.
(3) HDN, which operates 13 plants with capacities ranging from 0.9 MW to 44.1 MW and dates of entry into service from 1922 to
1992, is in the process of being merged into CPPE. This process is expected to be completed in 2004.
(4) EDP Energia owns five plants with capacities ranging from 0.2 MW to 80.7 MW and dates of entry into service from 1927 to
1951.
35
 Thermal plants
CPPE operates all our conventional thermal power plants, with total installed capacity, as of December 31, 2003, of 3,148.5
MW and installed capacity per generating unit ranging from 16 MW to 298 MW. The following table sets forth, as of December 31,
2003, our conventional thermal plants by installed capacity, type of fuel, net efficiency at maximum output, number of units and year
entered into service.
Net efficiency Years
Installed at maximum Number of entered
Thermal plants Capacity (MW) Fuel output units into service

Sines 1,192.0 Coal 36.9 4 1985-89

Setúbal 946.4 Fuel oil 38.3 4 1979-83
Carregado I 473.8 Fuel oil 37.4 4 1968/1974
Carregado II (1) Fuel oil /
236.4 Natural gas 37.6 2 1976
Tunes 197.0 Gas oil 28.4 4 1973/1982
Tapada do Outeiro (EDP facility) (2) 1959/ 1967
46.9 Coal /fuel oil 29.4 1 (unit 3)
Barreiro 56.0 Fuel oil 34.3 2 1978

Total maximum capacity 3,148.5

(1) These units began burning natural gas in 1997.

(2) This three-unit plant is scheduled to be progressively decommissioned until the end of 2004. The first unit of 50 MW was
decommissioned on December 31, 1997. The second unit of 50 MW was decommissioned on December 31, 1999. From 2000
onward, only one 50 MW unit, currently burning fuel oil, is operational.
There has been no significant change in average net efficiency of CPPE’s thermal plants over the past five years. With continued
proper maintenance of the thermal facilities, CPPE expects to maintain net efficiency at least at levels contracted in the PPAs.

Other energy sources

In addition to our hydroelectric and thermal plants, we promote the use of renewable energy sources with other types of
facilities. Enernova, our subsidiary specializing in this area, concentrated its initial investments in wind farms (due to greater
technological advances made to date). Our first wind facility commenced operation in 1996. We now have five wind facilities with a
combined installed capacity of 65 MW. In 2002, we created a new subsidiary for the biomass assets, EDP Produção Bioeléctrica,
which owns the Mortágua biomass (forestry waste) power plant. This plant started operations in 1999 and has an installed capacity of
9 MW.
Fuel
CPPE uses a number of fossil fuels in the generation of electricity. The introduction of natural gas to Portugal is diversifying the
sources of primary energy. For more information on our use of natural gas you should read “—Natural gas.”
CPPE fuel consumption costs, including transportation, were €€ 273.9 million in 2003 and €€ 434.6 million in 2002, which
represented approximately 41.2% and 52.8%, respectively, of CPPE’s total operating expenses. The decrease in the total cost of fuel
consumed from 2002 to 2003 resulted primarily from a decrease in the thermal production powered by fuel oil, due to increased
hydroelectric production in 2003, which was a wet year.
36
 The table below shows a breakdown of costs of fuel consumed by CPPE from 1999 through 2003.
Year ended December 31,

Type 1999 2000 2001 2002 2003

(thousands of EUR)
Imported coal 116,823 128,902 142,810 148,773 130,531
Fuel oil (1) 109,371 146,721 193,867 259,816 117,716
Gas oil(2) 219 1,895 4,618 1,526 2,744
Natural gas 42,163 25,364 12,260 24,497 22,917

Total 268,578 302,882 353,555 434,612 273,908

(1) Includes consumption for the production of steam at the Barreiro power plant.
(2) Small amounts of gas oil are consumed by the gas oil plants for the operation of these plants in synchronous compensation
mode for purposes of voltage regulation and a very small amount of generation.
The following table sets forth the amounts of fuel purchased by CPPE in each of the last five years.
Year ended December 31,

Type 1999 2000 2001 2002 2003

(thousands of metric tons, except natural gas)

Imported coal 3,533 3,564 3,108 3,587 3,593
Fuel oil (1) 1,712 1,052 1,237 1,941 716
Gas oil 0 0 26 3 10
Natural gas(2) 376 142 60 150 131

(1) Includes purchases for the production of steam at the Barreiro plant.
(2) Measured in millions of cubic meters.

Coal
As the Sines power plant is a base load, or continuous operation power plant, CPPE enters into supply contracts for more than
one year for the major part of its consumption of coal. Pursuant to the PPAs, for purchases of coal, an annual Target Contract
Quantity, or TCQ, is defined by REN based on the forecasts for coal consumption for a wet year. The TCQ is the basis for long-term
supply and shipping contracts, which are negotiated by CPPE, subject to REN approval. In addition, CPPE makes spot-market
purchases as necessary. In both 2003 and 2002, CPPE purchased 78% of its coal through long-term contracts and 22% of its coal on
the spot market. In comparison, in 2002 and 2001, CPPE purchased 78% and 70%, respectively, of its coal through long-term
contracts, and 22% and 30%, respectively, of its coal on the spot market.
The following table shows a breakdown of CPPE’s coal purchases from 1999 to 2003 by geographic markets as a percentage of
total purchases.
Year ended December 31,

Region 1999 2000 2001 2002 2003

South Africa 28.0% 38.0% 28.0% 28.9% 34.6%

United States 12.0% 10.0% 17.0% 3.2% 9.9%
Australia 17.0% 0.0% 13.0% 23.2% 18.6%
South America 43.0% 48.0% 27.0% 16.3% 32.9%
Southeast Asia 0.0% 4.0% 15.0% 16.9% 0.0%
Europe 0.0% 0.0% 0.0% 11.3% 4.0%

Total 100% 100% 100% 100% 100%

In 2003, the average cost of coal consumed was €€ 36.7 per ton. In 2002 and 2001, the average cost of coal consumed for
imported coal was €€ 41.4 per ton and €€ 43.8 per ton, respectively.
37
 Fuel oil and gas oil
Fuel oil purchases by CPPE are made in the spot market and pursuant to contracts. CPPE purchases fuel oil from refineries in
Europe, primarily in Portugal and northwestern Europe, and is remunerated through PPAs based on, among other things, costs of fuel
oil indexed to the spot market.
The average cost of fuel oil consumed in 2003 was €€ 164.76 per ton, compared with €€ 143.25 and €€ 141.22 in 2002 and 2001,
respectively. The increase in 2003 was due to increases in market prices as a result of the conflict in Iraq and production control by
OPEC members. To meet its objectives to improve air quality, CPPE has shifted its fuel oil purchases to lower sulfur fuel oil, which
has increased the cost of consumed fuel oil. In 2003, the average sulfur content of fuel oil purchased by CPPE was approximately
0.9%, compared with 2.1% in 2002. To comply with an EU Directive, in October 2002 CPPE initiated the use of fuel with a 1%
sulfur content. The use of lower sulfur fuel oil has increased, and will increase in the future, the average cost of fuel oil consumed.
CPPE maintains gas oil reserves as fuel for emergency gas turbine generators. Since gas oil is very expensive and economically
inefficient, these reserves are used on a very limited basis. Consequently, small purchases of gas oil have been made by CPPE, as
required by REN.
The increase in 2003 of the consumption of gas oil was due to higher production by the Alto de Mira plant prior to its
decommissioning in order to exhaust its fuel inventory.

Natural gas
Since the introduction in 1997 of the import of natural gas from Algeria into Portugal by Transgás, CPPE has had access to
natural gas as a source of primary energy. CPPE converted two units of Carregado into dual-fired (fuel oil and natural gas) in late
1997. In 2003, CPPE purchased 131 million cubic meters of natural gas for a total of €€ 22.9 million compared to 150 million cubic
meters of natural gas in 2002 for a total of € € 24.5 million. For more information on our activities related to natural gas you should
read “—Other International activities and strategic investments.”
Planned new plants
In order to meet increased demand for electricity in Portugal, additional capacity is planned for the National Electricity System.
The following table sets out planned new power facilities in Portugal.
Type of Developing Planned capacity Target
Facility generation entity (MW) year Status

Alqueva(1) Hydroelectric EDIA/CPPE 240 2004 Under Construction

Venda Nova II Hydroelectric CPPE 192 2004 Under Construction
Baixo Sabor Hydroelectric CPPE 180 2010 Planning
Picote II Hydroelectric CPPE 236 2010 Planning
CCGT Ribatejo CCGT TER (2) 3x392 2004/2006 Under Construction

(1) EDIA—Empresa de Desenvolvimento e Infra-estruturas de Alqueva, S.A. (“EDIA”) is a company wholly-owned by the Republic
of Portugal that is developing a multi-purpose hydro scheme for irrigation and the production of electricity. CPPE will operate
the Alqueva hydroelectric power plant.
(2) TER CCGT will operate in the Non-Binding Sector. The first unit began commercial service in February 2004, the second unit is
expected to begin service in October 2004 and the last one in March 2006. TER is in the process of being merged into CPPE.
Capital expenditures
In 2003, we spent €€ 261.1 million in capital expenditures in technical costs for our generation facilities, compared with €€ 276.5
million in 2002 and € € 131.7 million in 2001. Our capital expenditures in the generation sector have been concentrated on the
following activities: conducting preliminary studies for and building of hydroelectric plants, maintaining and upgrading existing
power plants, investing in environmental projects such as the installation of emission reduction equipment and, in 2003, investing €€
142.4 million in the new TER CCGT
38
(combined cycle gas turbine) power plant units 1 and 2, and € € 38.4 million in wind energy farms. At this stage, management expects
that the TER CCGT plant will cost approximately €€ 600 million, including all three units.
The following table sets forth our capital expenditures in technical costs from 1999 through 2003 on plants by type and status of
generating plant.
Year ended December 31,

Plant type and status 1999 2000 2001 2002 2003

(thousands of EUR)
Thermal/Hydro
Public Electricity System
Hydroelectric plants under construction 6,449 14,235 16,877 25,690 34,359
Hydroelectric plants in operation 10,475 9,038 10,289 12,756 11,732
Thermal plants in operation 25,199 17,623 14,764 16,261 20,340
Plants under study 359 190 1,450 1,011 349

Total CPPE 42,482 41,086 43,380 55,718 66,780

Independent Electricity System
Hydroelectric plants 11,457 7,913 4,964 4,137 3,849
TER 0 3,571 58,535 142,946 142,350
Wind 5,726 11,128 6,521 11,159 38,389
Cogeneration facilities 37,654 25,439 13,083 9,602 255
Biomass(1) 12,679 0 0 35,180 614
Total Independent Electricity System 67,516 48,051 83,103 203,024 185,456
Others(2) 0 0 0 0 312
Non-specific investment(3) 4,070 4,969 5,250 17,721 8,599

Total Generation 114,068 94,106 131,733 276,463 261,147

(1) Investments in 2002 include € € 35.2 million related to an intra-group transfer of the Mortagua biomass power plant (built in
1999), to EDP Produção.
(2) Other investments include studies and investment relating to our trading system.
(3) Non-specific investment refers to investments not directly related to our plants, such as administrative buildings, transportation
equipment and implementation of new information systems.
We currently expect that our planned capital expenditures and investments will be financed from internally generated funds,
existing credit facilities and customer contributions, which may be complemented with medium- or long-term debt financing and
equity financing as additional capital expenditure requirements develop, particularly as our plans evolve with respect to our
telecommunications business. To learn more about our sources of funds and how the availability of those sources could be affected,
see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
TRANSMISSION
The transmission system in mainland Portugal is owned and operated by REN, which is obligated by law to supply electricity
within the National Electricity System. Electricity transmission in Portugal is the bulk transfer of electricity, at voltages between 150
kV and 400 kV, from generation or acquisition sites across a transmission system to areas of use via networks that are linked to each
other to form an interconnected national transmission grid. As described above, the Portuguese government purchased a 70% interest
in REN from us in late 2000. For more information on this purchase, you should read “Item 5. Operating and Financial Review and
Prospects—Overview.”
REN operates the national transmission grid on an exclusive basis pursuant to Portuguese law under a concession provided for
by a 1995 decree law. The concession is valid for 50 years from September 2000, when the concession agreement was signed.
39
 The Portuguese transmission system operates at a frequency of 50 Hz, which is in line with the majority of the European
transmission systems. At year-end 2003, there were 47 substations operating on the national transmission grid, not including power
plants. All of these substations are now fully automated and operated by remote control. Of REN’s transmission lines at December
31, 2003, approximately 2,438 km were 150 kV lines, 2,704 km were 220 kV lines and 1,403 km were 400 kV lines. At the end of
2003, REN had five interconnections with Spain, three of which are 220 kV lines and two of which are 400 kV lines. Additionally, at
the beginning of April 2004, a new 400 kV circuit of the interconnection line Alto-Lindoso-Cartelle was put into operation.
Management understands that, within the context of creation of MIBEL, REN plans to establish two additional interconnections with
Spain by 2006: Alqueva-Balboa, a 400 kV line scheduled for completion in 2004 and Douro Internacional-Aldeadavila, a 220 kV or
400 kV line scheduled for completion in 2006.
Managing and controlling the power system
In addition to the construction and operation of the national transmission grid, REN is also responsible for central dispatch of all
power plants with installed capacity of more than 10 MW. This includes scheduling generation to match, as closely as possible, the
demand on the national transmission grid. As part of managing the national transmission grid, REN is also responsible for scheduling
imports and exports with Spain.
As the sole holder of the concession for transmission, REN is required by law to develop and maintain an efficient, coordinated
and economical system of electricity transmission and not to discriminate among competitors in the generation and distribution of
electricity.

Purchases of electricity
REN purchased 36,155 GWh of electricity in 2003 from all of the generators in the Binding Sector, consisting of CPPE’s
generating plant, the 600MW Tejo Energia plant at Pego and the Turbogás 3x330 MW combined cycle gas turbine plant at Tapada do
Outeiro, through PPAs with each operator of any individual power plant within the Binding Sector that supplies electricity to the
Public Electricity System.
REN enters into a PPA with each operator of any individual power plant within the Binding Sector that supplies electricity to the
Public Electricity System. Under each PPA, the operator is obligated to sell to REN all the electricity produced by a particular plant,
as well as to provide ancillary and special services, such as synchronous compensation, pumping and automatic generation control.
The life span of a PPA is fixed according to the full technical useful life of the equipment and generally its remuneration scheme is
based on a capacity charge. Under the PPAs, any extraordinary investments agreed upon with REN, in consultation with the regulator,
can be reimbursed. These investments can be paid to the generator through a revision of the capacity charge. For more information on
the regulation of PPAs, please see “—Regulation—Portugal.”
The existing site locations for power plants in the Public Electricity System are owned by or, in the case of hydroelectric plants,
granted under a concession to, REN, which REN leases or makes available by sub-concession to the operators of the plants for the
duration of the respective PPAs. REN is involved in selecting future site locations, which it will then lease to successful bidders.
The Turbogás plant at Tapada do Outeiro burns natural gas supplied by Transgás. REN has entered into an Energy Management
Agreement, or EMA, with Transgás, which governs the use of natural gas in thermal plants and defines applicable prices. Transgás
has the exclusive right to import gas to, and transport gas within, its concession area of Portugal for 35 years. However, in March
2003, the Portuguese government announced its view on the reorganization of the energy market, stating its intention to liberalize
both the gas and electricity sectors. Within this goal, the government has stated its intention to transfer the high-pressure
transportation network of gas to REN. To prepare for this transfer of assets, at the end of 2003 REN, in accordance with the
Resolution of the Council of Ministers no. 193-A/2003 of December 26, 2003, bought for €€ 420.9 million the capital owned by the
Portuguese State in GALP, which owns 100% of Transgás, which in turn owns the high-pressure network for the transportation of
gas. As a result of this acquisition, REN owns 18.3% of GALP, which is expected to approximately equal the value of gas assets that
will be transferred to REN. See “Strategy—Iberian energy—Developing an Iberian gas business” for more information on this
transaction.
40
 Apart from the power plants in the Public Electricity System, REN is also obligated to buy energy from auto producers,
cogenerators, small hydroelectric producers and other renewable source energy plants operating under Portuguese law within the
Independent Electricity System.
REN supplies energy to EDPD at a uniform Bulk Supply Tariff, which is calculated by averaging all the individual power costs
contracted with the generators through the PPAs after incorporating transmission, system management and regulatory costs, together
with other costs for the purchase of additional electricity. During the 1999-2001 regulatory period, the Bulk Supply Tariff was
adjusted every two years for changes in the generators’ fuel costs, which are entirely passed on by the generators to REN pursuant to
the PPAs. For the 2002-2004 regulatory period, changes in fuel costs are now incorporated into the Bulk Supply Tariff on a quarterly
basis. REN also buys and sells electricity into Spain’s power pool at prevailing prices in the pool.

Imports and exports

The following table sets forth REN’s net imports in each of the last five years in GWh and as a percentage of total demand.
Net imports
Year (GWh) Percentage of total demand

1999 (857) N/A

2000 931 2.5%
2001 239 0.6%
2002 1,899 4.7%
2003 2,794 6.5%
DISTRIBUTION
Electricity distribution in Portugal is a regulated business and involves the transfer of electricity from the transmission system
and its delivery across a distribution system to regulated consumers and Qualifying Consumers, meter reading and installation, and
supply to regulated consumers. The local electricity distribution function in mainland Portugal is carried out almost exclusively by
EDPD. Through fourteen network distribution areas as well as seven commercial areas directed at serving customers supplied in the
Public Electricity System, EDP distributed electricity to 5,768 million consumers in 2003, amounting to 38,916 GWh, of which 4,048
GWh was distributed to Qualifying Consumers. At December 31, 2003, EDPD employed approximately 6,334 personnel.
Under Portuguese law, distribution of high voltage electricity, greater than 45kV and less than 110kV, and medium voltage
electricity, greater than 1kV and less than or equal to 45kV, is regulated by DGGE through the issuance of a binding license with no
time limitation. Our four distribution companies, subsequently consolidated into EDPD, were appointed by law as the holders of the
license for distribution of high and medium voltage electricity. EDPD received the license in 2000. Distribution of low voltage
electricity is regulated through 20-year municipal concession agreements with municipal councils. EDPD pays rent to each
municipality as required by law. For more information on licenses and concessions held by us, you should read “—Regulation” and
note 1 to the consolidated financial statements.
Under the terms of the binding licenses, EDPD is obliged to supply electricity to all customers located within its licensed area
that are part of the Public Electricity System. EDPD is also obliged to provide access to the distribution network to producers in the
Independent Electricity System in return for a regulated access charge from consumers. EDPD owns, leases or has rights of way for
the land on which its substations are situated. In addition, EDPD has long-term rights of way for its distribution lines. If necessary,
new properties may be acquired through the exercise of eminent domain. In those cases, EDPD compensates affected private property
owners.
The authorized area of EDPD covers all of mainland Portugal. At December 31, 2003, EDPD’s distribution lines spanned a total
of approximately 194,609 kilometers. The only distribution lines in Portugal not owned by EDPD are those of the auto producers and
small cooperatives, which own their own lines. The following table sets forth the kilometers of EDPD’s distribution lines, by voltage
level, at December 31, 2003.
41
 Distribution lines Km

Overhead lines:
High voltage (60/130kV) 7,267
Medium voltage (6/10/15/30kV) 52,742
Low voltage (1kV) 98,099
Total overhead lines 158,108
Underground cables:
High voltage (60/130kV) 361
Medium voltage (6/10/15/30kV) 11,513
Low voltage (1kV) 24,627
Total underground cables 36,501

Total 194,609
Customers and sales
EDPD distributes electricity to approximately 5.8 million customers. Approximately 67% of electricity consumption in 2003
was along the coast, with approximately 15% in the Oporto metropolitan region and 20% in the Lisbon metropolitan region. EDPD
classifies its customers by voltage level of electricity consumed. The following chart shows the number of customers as of December
31, 2003, according to level of voltage contracted, and indicates whether such customers are binding customers supplied by EDPD or
Qualifying Consumers to which EDPD distributes electricity on behalf of suppliers in the Independent Electricity System.
Binding Qualifying
Customers by voltage level customers consumers Total

High and very high voltage(1) 146 3 149

Medium voltage (2) 19,039 1,916 20,955
Special low voltage (3) 28,184 0 28,184
Low voltage (4) 5,718,999 0 5,718,999

Total 5,766,368 1,919 5,768,287

(1) High voltage is greater than 45 kV and less than or equal to 110 kV. Very high voltage is greater than 110 kV.
(2) Medium voltage is greater than or equal to 1 kV and less than or equal to 45 kV.
(3) Special low voltage consumers have subscribed demands above 41.4KW and voltage levels below 1 kV. Special low voltage
customers are primarily small industrial and commercial customers.
(4) Low voltage is less than 1 kV.
EDPD has experienced increased demand over the past five years in all electricity voltage levels. Considering overall demand
on EDPD’s distribution network, both from binding customers and Qualifying Consumers, consumption has grown at an average
annual growth rate of 4.8% from December 31, 1999 to December 31, 2003. The highest average annual growth rate during this
period (6.0%) was in demand from very high and high voltage customers. These voltage levels experienced a 9.3% increase in
demand in 2003 due to a large increase in the industrial activity of one of our largest customers, as well as a higher demand on the
distribution grid from auto producers. Under current regulations, REN must purchase all electricity offered by auto producers at a
specified tariff through EDPD. As the auto producers may purchase electricity at a price below that at which they sell to REN, the
buying and selling of electricity by auto producers has increased demand for use of the distribution grid. Demand by medium voltage
levels increased from 10,639 GWh in 1999 to 12,534 GWh in 2003, representing average annual growth of 4.2%. Following the
gradual decrease of the eligibility threshold between 1999 and 2003, more electricity distributed through EDPD’s network
corresponds to consumption by medium voltage qualifying consumers. As a result, electricity demand by medium voltage binding
consumers decreased from 10,639 GWh in 1999 to 8,600 GWh in 2003, whereas electricity demand by medium voltage qualifying
consumers, non-existent in 1999, increased to 3,934 GWh in 2003. Consumption by low voltage customers, typically residential and
services, increased from 17,786 GWh in 1999 to 21,513 GWh in 2003, representing average annual growth of 4.8%. The growth in
low voltage consumption during this period resulted primarily from the increase in the number of low voltage customers from
approximately 5.3 million to approximately 5.8 million, as well as an increase in annual consumption per consumer.
42
 The following table shows electricity distributed in each of the last five years, separated by type of consumer.
Year ended December 31,

1999 2000 2001 2002 2003

(GWh)
Electricity distributed
Very high voltage and high voltage:
Binding customers 3,855 4,104 4,259 4,271 4,755
Qualifying consumers 0 83 176 182 114

Total very high voltage and high voltage 3,855 4,187 4,435 4,453 4,869
Medium voltage:
Binding customers 10,639 11,092 11,358 11,198 8,600
Qualifying consumers 0 133 344 776 3,934

Total medium voltage 10,639 11,225 11,702 11,974 12,534

Low voltage 16,839 17,884 18,823 19,424 20,346
Public lighting 947 1,010 1,065 1,080 1,167

Total 32,280 34,306 36,025 36,931 38,916

On a revenue basis, our Portuguese electricity sales grew from € € 2,938 million in 1999 to €€ 3,546 million in 2003. The most
significant increase in sales has been to low voltage customers (typically residential and services), to whom sales increased from €€
2,056 million in 1999 to €€ 2,596 million in 2003. Recent growth in revenue from electricity sales was due to expansion in
consumption and average tariff increases set by the regulator of 2.8% in 2003 and 2.3% in 2002. Furthermore, the increase in revenue
from electricity sales in 2001, 2002 and 2003 was also influenced by the tariff adjustment, as discussed below. The following table
shows EDPD’s total domestic sales of electricity to binding customers by level of voltage required, as well as revenues from the use
of distribution network, charged to Qualifying Consumers.
Year ended December 31,

1999 2000 2001 2002 2003

(thousands of EUR)
Electricity sales
Very high voltage and high voltage 158,887 156,049 165,957 167,827 186,467
Medium voltage 722,963 749,100 772,357 783,388 615,394
Low voltage 1,981,460 2,080,475 2,194,035 2,335,135 2,500,380
Public lighting 74,351 80,279 83,918 86,614 95,731
Tariff adjustment 0 (55,995) 42,218 70,482 77,919

Total binding customers 2,937,661 3,009,908 3,258,485 3,443,446 3,475,891

Qualifying Consumers 0 1,152 2,788 12,939 70,485

Total 2,937,661 3,011,060 3,261,273 3,456,385 3,546,376

Tariffs are fixed by the regulator in advance for each year and are based in part on estimated data for variables such as demand
and cost. If there are differences between the estimated data and the data actually experienced during the period, adjustments, shown
in the table above as the tariff adjustment, will be made to the tariff in a subsequent period to account for these differences. The tariff
adjustment reflects our estimate of the amount that will be applied in fixing tariffs in subsequent periods as a result of these
differences. Tariff adjustments represent adjustments related to EDPD’s distribution and supply activities. Due to actual consumption
in 2002 and 2003 below that assumed in the setting of the 2002 and 2003 tariffs, amounts invoiced to final customers did not
sufficiently compensate EDPD for the fixed amount that EDPD was required to pay for electricity acquired from REN, giving rise to
a tariff adjustment in each of 2002 and 2003. For more information on the tariff adjustments you should read “Operating and
Financial Review and Prospects.”
In 2003, the total number of Eligible Consumers in mainland Portugal, corresponding to very high, high and medium voltage
customers, represented approximately 45% of total demand in 2003 in volume terms. Pursuant to Decree law no. 36/2004 of February
26, 2004, Eligible Consumers also include special low voltage customers. Accordingly, as of the end of February 2004, there were
approximately 50,000 Eligible Consumers, representing approximately 53% of electricity distributed in 2003. We expect that in July
2004 all consumers will become Eligible Consumers.
43
 The following chart shows the consumption profile of both binding and qualifying customers supplied by the public network
operated by EDPD in the Portuguese mainland for the years from 1999 through 2003.
Year ended December 31,

1999 2000 2001 2002 2003

(GWh)
Consumption profile (1)
Residential 8,987 9,678 10,188 10,513 11,110
Cooking and heating 8 8 8 8 8
Non-Residential 7,498 8,004 8,490 8,868 9,309
Binding customers 7,498 7,964 8,428 8,728 8,165
Qualifying consumers 0 40 62 140 1,144
Industrial uses(2) 12,219 12,855 13,374 13,438 14,164
Binding customers 12,219 12,679 12,917 12,620 11,277
Qualifying consumers 0 176 457 818 2,887
Agricultural uses 667 679 737 776 803
Binding customers 667 679 737 776 784
Qualifying consumers 0 0 0 0 19
Traction for railways 364 360 358 439 450
Lighting of State buildings, Administrative Bodies, etc. 1,529 1,632 1,722 1,700 1,850
Binding customers 1,529 1,632 1,722 1,700 1,820
Qualifying consumers 0 0 0 0 30
Public Lighting 946 1,010 1,065 1,080 1,167
Other(3) 121 129 137 137 141

Total 32,340 34,355 36,079 36,959 39,002

(1) Includes our own consumption.

(2) Includes electrochemistry and electrometallurgy.
(3) Other non-EDP distributors.

Taking into account all customers linked to the public network operated by EDPD, including Qualifying Consumers, there has
been a continuous increase in demand from every sector of activity in the past five years.
A breakdown of electricity consumption by sector of economic activity shows that, of the major consumer types, the fastest
growing sector has been the power for railway traction and residential and public lighting, with an average annual growth rate of
5.4% between 1999 and 2003. During this same period, the agricultural and non-residential sectors exhibited an average annual
growth rate of 4.7% and 5.6% respectively.
The number of distribution customers per distribution employee is an important measure for EDPD. In the period from 1999
through 2003, the number of customers per employee has increased from 586 to 910.
Purchases of electricity
EDPD purchases all of its electricity in the Binding Sector from REN. In 1999, the regulator established a legal framework that
limits purchases of electricity by EDPD from the Non-Binding Sector, which for the 2002-2004 regulatory period is 8%. EDPD has
historically purchased less than 8% of its total energy from suppliers in the Non-Binding Sector and abroad. REN must purchase, and
EDPD must purchase from REN, all electricity produced by Other Independent Producers. The cost of purchased electricity is passed
through to customers in accordance with the regulated tariff system and is not a determining factor in EDPD’s results.
44
 Year ended December 31,

1999 2000 2001 2002 2003

(GWh)
Electricity Purchases
From Binding Sector generation 32,483 33,915 35,282 34,801 32,307
From Other Independent Producers 2,165 2,469 2,552 2,817 3,694
From the non-binding system (SENV) 447 622 891 1,354 2,044

Total 35,095 37,007 38,726 38,972 38,046

Distribution losses
EDPD experiences technical losses of electricity which are associated with the normal use of its network and, to a far lesser
extent, commercial losses of electricity due primarily to gaps between estimated meter readings and actual levels of consumption,
which are usually recovered in subsequent years, with the exception of losses due to stolen energy and faulty meters. Although losses
are within the normal range for the types of networks employed, management expects the amount of annual losses to decrease further
as a result of capital expenditures in our distribution network.
The following table sets forth data regarding the losses of EDPD in absolute terms and as a percentage of demand, as well as
EDP’s own uses of energy.
Year ended December 31,

1999 2000 2001 2002 2003

(in GWh, except percentages)

Demand on the distribution network 35,095 37,230 39,263 39,965 42,261
Own uses of energy 31 21 22 20 33
Distribution losses 2,756 2,875 3,183 3,008 3,259
Distribution losses/demand on the distribution network 7.9% 7.7% 8.1% 7.5% 7.7%
Capital expenditures
In recent years, our largest capital expenditures have been on the distribution system. EDPD is obligated by law to connect all
customers who request to be linked to the Public Electricity System. As a result, the largest component of capital expenditures is
spent on connecting new customers, improving network efficiency and developing the network (installing new cables and new lines)
to accommodate the growth in demand.
EDPD’s total 2003 capital expenditures in technical costs amounted to €€ 334.7 million, of which approximately 8% are
expenditures on “non-specific” administrative, technical and commercial systems and corresponding technology support
infrastructure, including an installment payment of approximately € € 12.0million for the acquisition of an IT system from EDINFOR.
EDPD’s capital expenditures in technical costs in distribution totaled €€ 379.0 million in 2002, €€ 260.4 million in 2001, €€ 234.0
million in 2000 and € € 231.4 million in 1999. These amounts also include amounts paid by customer contributions in cash, but do not
include in kind assets contributed by customers. These in kind contributions amounted to €€ 61.0 million in 2003, € € 54.1 million in
2002, €€ 69.5 million in 2001, €€ 52.8 million in 2000 and €€ 57.1 million in 1999. New customers are required by current regulation to
make a contribution, in cash or in kind, for connections based on factors such as the type of voltage, the amount of power to be
supplied, and distance to the network. In 2003, total customer contributions, and certain amounts contributed for infrastructure
improvements, amounted to approximately €€ 120.7 million.
Conservation measures
We have been progressively implementing a voluntary policy to promote electricity conservation in an effort to decrease the
variability of the load on the system and to increase efficient use of electricity. In doing so, we have increased dissemination of
information on end-use efficiency in several industrial subsectors, services and residential use. We have also launched a program of
granting awards to industrial customers for successfully implementing electricity efficiency projects and have established a joint
venture with other energy sector companies whose main goal is to promote energy conservation.
45
 In addition, the tariff structure has been designed to promote the rational use of electricity, basing tariffs on marginal costs,
which may vary by time of day or season. Large consumers with a capability to reduce demand are offered an interruptible tariff rate,
which results in a discount to the consumer and helps to alleviate demand at peak times.
TARIFFS
The prices we charge for electricity are subject to extensive regulation under a tariff regime that was revised in 1998, causing
significant price reductions. In December 1998, the regulator implemented a new tariff regulatory code to be applied in mainland
Portugal, establishing a periodic definition of regulatory parameters for tariffs and a methodology for setting tariffs. During the first
regulatory period, including the years 1999-2001, and the second regulatory period, including the years 2002-2004, prices were set
annually according to a series of formulae that were derived based primarily upon what was deemed to be an appropriate return on
assets in transmission, a return fixed by price cap in distribution, and a return on assets and agreed costs in commercialization, i.e., the
activity of supply, measurement and billing of energy sales to final clients.
For more information on tariffs during the 2002-2004 regulatory period, you should read “—Regulation—Portugal—
Electricity/pricing tariffs.” In April 2002, the Portuguese government extended the powers of the regulator to the Portuguese
archipelagos of Azores and Madeira, with the intention of leveling the higher tariffs of these island regions to comparatively lower
tariffs of the mainland Portugal while providing adequate financial returns to island electricity companies. This leveling leads to an
incremental increase in prices charged to mainland customers, although such prices cannot increase more than inflation.
In the Binding Sector, distribution tariffs for customers are differentiated by voltage level, tariff option and period of electricity
consumption. These tariffs, when set, are uniform throughout mainland Portugal within each level of voltage.
For the 2002-2004 regulatory period, the regulator has applied a four-rate tariff price structure related to the time of day for
medium, high and very high voltage consumers. Low voltage consumers with subscribed demands above 20.7 kVA have a three-rate
time of day structure, while low voltage consumers with subscribed demands up to 20.7 kVA might choose between a single-rate
tariff, or a day-night tariff option.
Producers and consumers in the Non-Binding Sector have a right to access and use the national transmission grid and our
distribution network through the payment of access tariffs for the Global Use of System, the Use of the Transmission Network, the
Use of the Distribution Network and Network Commercialization, which terms and conditions were established by the regulator. For
more information on the tariff structure, you should read “—Regulation—Portugal—Electricity/pricing tariffs.”
Until the end of 1998, tariffs were fixed annually by convention, negotiated between the former Direcção Geral de Concorrência
e Preços, or DGCC, and us. Tariffs were based on total estimated costs for the relevant year assuming average hydrological
conditions. These tariffs were not specifically linked to an inflation-indexed formula. From 1995 through 1997, tariffs decreased in
nominal terms by 2.8% and in real terms, adjusted for inflation by 7.8%. On September 15, 1998, the new tariff regime, which
became effective from 1999 onward, was adopted by the regulator and on December 4, 1998, the regulator announced a new policy
for the years 1999, 2000 and 2001. Under this regime, tariffs are set by the regulator pursuant to a periodic registration of regulatory
parameters. In 1999, high, medium and low voltage tariffs declined in real terms by 12.8%, 12.8% and 7.5%, respectively, from 1998
levels. For 2000, in nominal terms, tariffs for all voltage levels declined by 0.6% from the 1999 levels. For 2001, in nominal terms,
tariffs for all voltage levels increased, on average, by 1.2% from the 2001 levels. In November 2001, the regulator published the
regulatory framework for the 2002-2004 regulatory period. For 2002, in nominal terms, tariffs increased across all voltage levels by
an average of 2.2% from the 2001 levels. For 2003, in nominal terms, tariffs increased across all voltage levels by an average of 2.8%
from the 2002 levels. In real terms, adjusted for inflation, very high, high and medium voltage tariffs have declined by an average of
3.4% over the period 1999 to 2004. The tariffs for low voltage customers have also declined by an average of approximately 3.1%
over the same period. For 2004, in nominal terms, tariffs increased across all voltage levels by an average of 2.1% from the 2003
levels. To learn more about these tariffs, you should read “—Regulation—Portugal—Electricity/pricing tariffs.”
46
 For the 2002-2004 regulatory period, the regulator considers the distribution function to consist of three business areas, which
could in the future be liberalized at different times and subject to different tariff regulatory regimes: use of the distribution network,
network commercialization services and commercialization of supply in the Binding Sector. The use of the distribution network area
involves activities relating to investments in and the operation of the distribution grid. Tariffs applicable to the use of the distribution
network are based on a price cap mechanism designed to reduce distribution tariffs on an annual basis by, an average over the three
years of the regulatory period, a percentage equal to the Portuguese Consumer Price Index, minus a percentage referred to as the
“efficiency coefficient.” The efficiency coefficient was approximately 5% for the 1999-2001 regulatory period and is approximately
7% for the 2002-2004 regulatory period. The network commercialization area consists of activities related to meter installation,
reading and the billing of all services associated with the use of the distribution network. The commercialization of supply in the
Binding Sector area consists of activities directly relating to the final consumer, such as customer service, billing of final consumers
in the Binding Sector and collecting payments from consumers. The tariff applicable to the network commercialization services and
commercialization of supply in the Binding Sector area is based on costs accepted by the regulator plus a 9% return on assets. During
the 1999-2001 regulatory period, distribution tariffs in the Binding Sector were subject to a sliding scale profit sharing mechanism,
which required us to return to customers a portion of our annual profits that exceeded specified levels designated by the regulator.
This mechanism was abolished at the second regulatory period 2002-2004.
Tariffs are also subject to an annual extra adjustment mechanism that takes into account the deviations of actual costs compared
to forecasted costs used to derive tariffs for the previous one or two years. As a result, we have adopted a “tariff adjustment” in our
financial statements that reflects our estimate of the amount that will be applied in fixing tariffs in subsequent periods as a result of
differences between estimated and actual data. For the 1999-2001 regulatory period, the tariff adjustment also reflected our estimate
of the portion of any excess profits or deficit in profits that would be applied in fixing tariffs in subsequent periods as a result of
having achieved annual profits above or below levels set by the regulator. Customer tariffs for very high voltage, high voltage and
medium voltage are subject to quarterly adjustments, primarily to accommodate changes in fuel prices. For more information on the
tariff adjustment, you should read “—Distribution—Customers and sales,” “Operating and Financial Review and Prospects” and note
39(p) to the consolidated financial statements.

COMPETITION
Until 1988, we had a monopoly for the generation, transmission and distribution of electricity in Portugal, although a very small
number of municipalities distributed low voltage electricity to consumers. Since 1988, measures have been taken to encourage limited
competition in power generation in Portugal. In 1999, the regulator implemented measures to encourage competition in the supply of
electricity in Portugal. For more information on these measures, you should read “—Electricity System Overview.” In addition, as a
result of political and regulatory developments, especially within the context of the creation of MIBEL, we expect increased
competition from Spanish electricity companies.
In December 2003, four qualified suppliers were authorized to operate in the Portuguese non-binding system, three of which are
Spanish companies: Endesa Energia, S.A.; Iberdrola, S.A.; Union Fenosa Comercial; Sodesa — Comercialização de Energia, S.A.
See “—Iberian Electricity Market,” “—Spain—History and Overview” below and “—Regulation.”

Generation
The existing power stations of CPPE, which in 2003 formed 89% of our generating capacity, are all part of the Public Electricity
System. The earnings that CPPE derives from these power stations are unlikely to be affected by competition from generators in the
Independent Electricity System. In accordance with the terms of the PPAs, CPPE’s operating income is dependent on the availability
of capacity and is substantially unaffected by levels of actual output. Under Portuguese law, any projects for construction of new
thermal power plants in the Public Electricity System must be subject to an open tender coordinated by DGGE. In the case of
hydroelectric generation, all plants planned to be commissioned until 2010 are allocated by law to CPPE.
The Public Electricity System includes two power stations that are not owned and operated by us: the Pego power plant, which
was constructed and commissioned by us and later sold to Tejo Energia; and Tapada do Outeiro
47
which commenced full operations in 1999 and is owned and operated by Turbogás. The admission of these power stations to the
Public Electricity System resulted from two international tender processes coordinated by us in accordance with Portuguese
government policy in effect at that time to establish competitive practice in the electricity generation sector. We expect to participate
in future tender processes.
Subject to the issuance of generation licenses, we may construct plants that will operate in the Independent Electricity System,
such as the TER CCGT plant. The first unit of the TER CCGT plant entered commercial service in early 2004. The two remaining
units are expected to start operating in October 2004 and March 2006, respectively.
New plants in the Independent Electricity System will operate in the openly competitive market and sell power to REN under
competitive offers or make bilateral contracts with REN, Non-Binding Sector customers, Binding Sector distributors or Spanish
agents.
Because Portugal is contiguous only with Spain and there are limited connections between Spain and the rest of Europe, and
because of recent political, legal and regulatory developments, management expects that a regional market on the Iberian Peninsula
will develop. In January 2004, the Portuguese and Spanish governments signed a final agreement for the creation of the Iberian
electricity market, which agreement was approved by the Portuguese parliament under Resolution no. 33-A/2004 of April 20, 2004
and ratified by the President of Portugal under Decree law no. 19-B/2004 of April 20, 2004. This agreement calls for, among other
things, the harmonization of tariff structures, and the creation of a common pool for Portugal and Spain to be fully implemented in
2006. See “—Iberian Electricity Market” and “—Spain.” Accordingly, we expect to face increased competition in generation and
wholesale supply from Spanish participants in the market.

Transmission
As the sole provider of transmission throughout Portugal, REN is well insulated from the effects of competition. In its role as the
wholesale buyer and seller of electricity in the Public Electricity System, it is entitled to recover the electricity purchase costs via the
Bulk Supply Tariff charged to EDPD for electricity destined for Public Electricity System customers. In the Non-Binding Sector,
however, EDPD is permitted to purchase electricity from sellers other than REN, up to limits set by the regulator. For more
information on these purchases, you should read “—Distribution” below.

Distribution
EDPD, and previously, our distribution companies, have historically held an effective monopoly over distribution. However,
increases in the levels of industrial auto production have reduced the amount of electricity sold to these entities from the Public
Electricity System. In addition, in early 1999, the regulator implemented legislation liberalizing the electricity supply business.
As of May 15, 2003, all Eligible Consumers automatically may become Qualifying Consumers. In 2003, the total number of
Eligible Consumers represented approximately 45% of demand in mainland Portugal in volume terms. If Eligible Consumers elect to
become Qualifying Consumers, EDPD will continue to receive two of the three tariff components relating to distribution. For more
information on the tariff mechanism, you should read “—Regulation—Portugal—Electricity pricing/tariffs.” Since February 2004,
Eligible Consumers include special low voltage consumers. The full liberalization of the electricity market is expected to be
completed in July 2004 with the opening of the market to the rest of the low voltage consumers.

SPAIN
HISTORY AND OVERVIEW
The implementation of an Iberian Electricity Market is the driving force behind our decision to expand our operations to Spain.
In 2001 we identified Hidroeléctrica del Cantábrico, or Hidrocantábrico, as an independent utility company that could facilitate our
entry into the Spanish energy market.
48
 In January 2001, Adygesinval, S.L., a company jointly and equally owned by us and Cajastur—Caja de Ahorros de Asturias, a
Spanish savings bank, launched an unconditional cash public tender offer for 100% of the outstanding shares of Hidrocantábrico at € €
24 per share. Cajastur and Cáser—Caja de Seguros Reunidos, Compañía de Seguros y Reaseguros, S.A., a Spanish insurance
company, already held 14.97% of the shares of Hidrocantábrico. Adygesinval acquired a 19.2% shareholding in Hidrocantábrico
directly from TXU Europe, an arm of the United States utility TXU Corp., for €€ 24 per share, or approximately € € 522 million. Spanish
industrial group Ferroatlantica, together with Energie-Baden-Württemberg AG, or EnBW, a German utility company, launched a rival
tender offer for Hidrocantábrico shares. After the tender offers for Hidrocantábrico were completed in April 2001, a consortium
formed by Adygesinval, Cajastur and Cáser owned approximately 35% of the shares of Hidrocantábrico, of which only shares
representing 25% could vote because Hidrocantábrico’s by-laws limit the voting rights of any single shareholder to 10%. Adygesinval
could exercise 10% of the voting rights, Cajastur could exercise approximately 10% of the voting rights and Cáser could exercise
approximately 5% of the voting rights. Ferroatlantica and EnBW owned approximately 60% of the shares and could exercise 10% of
the voting rights of Hidrocantábrico. Pursuant to a Spanish merger law, Adygesinval and Ferroatlantica each notified the European
Commission, or EC, of their respective acquisitions of Hidrocantábrico shares. The EC approved both the Adygesinval transaction
and the Ferroatlantica/EnBW transaction, although with respect to the Ferroatlantica/EnBW transaction the EC required certain
covenants from EnBW’s controlling shareholder. Pursuant to a Spanish law aimed at shareholdings by state-linked businesses in
certain sectors, the Spanish government temporarily suspended the political rights (including shareholder voting and rights to inspect
corporate records) of Adygesinval and Ferroatlantica/EnBW pending the outcome of a procedure under this law, the purpose of which
is to determine whether an acquiror is controlled by a government entity. These suspensions were both lifted subject to certain
conditions, which in the case of Adygesinval were linked to the creation of an Iberian electricity market.
In December 2001, we signed an agreement with EnBW, Cajastur and Cáser concerning joint control of Hidrocantábrico
through Adygesinval. Ferroatlantica transferred its holdings in Hidrocantábrico to EnBW at the time of the agreement. Under the
agreement Adygesinval merged into Hidrocantábrico. The agreement also contains provisions for the corporate governance of
Hidrocantábrico. The agreement of all parties is required for specified key corporate actions. Operational matters require only the
consent of us and EnBW. In the event of a deadlock concerning operational matters, we would ultimately be able to decide the course
of action, but EnBW would have a right to require us to purchase its shares in Hidrocantábrico in such an event. The appointment of
Hidrocantábrico’s chief executive officer, chairman and the secretary of the board of directors requires agreement of all three parties.
If agreement cannot be reached, we will designate the chief executive officer, Cajastur will appoint the chairman and EnBW will
appoint the secretary of the board of directors. The EC’s Merger Task Force approved the agreement in early March 2002. One of the
conditions to the transactions contemplated by the agreement, the delisting of Hidrocantábrico shares from the Madrid, Barcelona and
Bilbao Stock Exchange, was completed in June 2002. Hidrocantábrico is currently 39.52% owned by us, 34.58% owned by EnBW
and 24.70% owned by Cajastur and Cáser. The remaining 1.20% comprises shares owned by other shareholders and own shares held
by Hidrocantábrico.
In March 2003, Hidrocantábrico won the auction privatization process that led to its acquisition of 62% of Naturcorp.
Subsequently, Naturcorp reorganized its gas holdings as a result of which a minority shareholder in Gas de Euskadi, another gas
company controlled by Hidrocantábrico, exchanged its holding for shares in Naturcorp such that 100% of Gas de Euskadi was
integrated into the Naturcorp group and Hidrocantábrico’s ownership of Naturcorp decreased from 62% to 56.8%. As part of this
reorganization, Gas Natural, the minority shareholder in Gas de Euskadi, a subsidiary of Naturcorp, exchanged its 20.5% stake in Gas
de Euskadi for a stake in Naturcorp. As a result of the reorganization of Naturcorp, Hidrocantábrico has become the second largest
gas company in the Spanish market, with more than 500,000 customers and approximately 10% of Spain’s regulated revenues for gas
distribution, or 8% of GWh of gas distributed.
Market Structure
The two major characteristics of the Spanish electricity sector are the existence of the wholesale Spanish generation market, or
the Spanish pool, and the fact that any consumer is free to choose its supplier as of January 1, 2003. Competition was first introduced
in the Spanish electricity market on January 1, 1998 by Law 54/1997, which provided a regulatory framework that reorganized the
functioning of the market.
49
 Generation facilities in Spain operate either in the “ordinary regime” or the “special regime.” Special regime generators, which
comprise cogeneration and renewable energy facilities of up to 50 MW may sell their net electricity output to the system either (i) at
tariffs fixed by decree, or at tariffs linked to pool prices plus a premium, that vary depending on the type of generation and are
generally higher than Spanish prices, or (ii) in the Spanish pool (or by bilateral contracts) together with certain premiums and
incentives. Ordinary regime generators provide electricity to the Spanish pool and by bilateral contract to consumers and liberalized
suppliers at market prices.
Companies with the capability to sell and buy electricity may participate in the Spanish pool. Electricity generators sell
electricity in the pool and the regulated electricity distributors, suppliers in the liberalized, or unregulated, market and consumers that
are permitted to participate in the pool, or qualified consumers, buy electricity in this pool. Foreign companies or consumers that have
foreign agent status may also sell and buy in the Spanish pool. The market operator and agency responsible for the market’s economic
management and bidding process is Compañía Operadora del Mercado Español de Electricidad, or OMEL.
In addition to selling electricity to regulated consumers (customers that are subject to a regulated final tariff and are not qualified
consumers), transmission companies and regulated distributors must provide network access to all suppliers and qualified consumers
that have chosen to be supplied in the liberalized market. However, qualified consumers must pay an access tariff to the distribution
companies if such access is provided. At the beginning of each year, the Spanish government sets both the final and access tariffs. By
Royal Decree no. 1802/2003, the Spanish government established the electricity tariffs for 2004. For more information on tariffs, you
should read “—Regulation—Spain—Electricity Regulation.”
Liberalized suppliers are free to set a price to qualified consumers. These entities’ main direct activity costs are the wholesale
market price and the regulated access tariffs to be paid to the distribution companies. Electricity generators and liberalized suppliers
or consumers may also engage in bilateral contracts without participating in the wholesale market.
GENERATION
Hidrocantábrico’s installed capacity represents 4.7% of Spain’s mainland generation capacity, or 5.5%, excluding special regime
facilities (which are generally cogeneration and renewable energy facilities). In 2003, Hidrocantábrico had a total installed capacity of
2,820 MW, approximately 56.9% of which are coal-fired facilities, 13.9% a CCGT facility, 16.1% hydroelectric facilities, 1.3%
cogeneration facilities and 5.9% renewable energy facilities other than special regime hydroelectric. Hidrocantábrico also holds a
15.5% interest in the Trillo nuclear power plant that accounts for 165 MW of the plant’s total installed capacity of 1,066 MW.
The following table sets forth Hidrocantábrico’s total installed capacity by type of facility at year-end 2001, 2002 and 2003.
As of December 31,

Type of facility 2001 2002 2003

(MW)
Hydroelectric:
Hydroelectric – Ordinary regime 408 413 432
Hydroelectric – Special regime(1) 23 23 23

Total hydroelectric 431 436 455

Thermal:
Coal 1,588 1,588 1,605
CCGT 0 393 393
Nuclear 165 165 165

Total Thermal 1,753 2,146 2,163

Cogeneration (2) 38 41 37
Wind (2) 24 30 129
Biomass(2) 3 5 6
Waste(2) 13 13 30

Total 2,262 2,671 2,820

(1) Includes 19.15 MW related to Hidrocantábrico’s 48.86% stake in Hidraulica de Santillana (39.2 MW).
(2) In the case of projects owned by SINAE, these figures represent SINAE’s stake in each project’s installed capacity.
Hidrocantábrico owns 80% of SINAE.
50
 The following table sets forth Hidrocantábrico’s thermal plants.
Year
Installed entered
capacity into
Thermal plants (MW) Fuel service

Coal
Aboño
Unit I 366 Coal 1974
Unit II 556 Coal 1985
Soto de Ribera
Unit I 68 Coal 1962
Unit II 254 Coal 1967
Unit III 361 Coal 1984
Nuclear
Trillo 165 Uranium 1988
CCGT
Castejón 393 Natural Gas 2002

Total installed capacity 2,163

The following table sets forth Hidrocantábrico’s hydroelectric plants in the ordinary regime:
Year
Installed River entered Year of last
capacity reservoir into major
Hydroelectric plants (MW) plant type service refurbishment

La Malva 9.14 Reservoir 1917/24 2002

La Riera 7.83 Run of river 1946/56 2001
Miranda 73.19 Run of river 1962 2000
Proaza 50.33 Reservoir 1968 2002
Priañes 18.50 Reservoir 1952/67 2003
Salime 78.99 Reservoir 1954 2003
Tanes 125.46 Reservoir 1978 1995
La Barca 55.72 Reservoir 1967/74 2002
La Florida 7.60 Reservoir 1952/60 1998
Laviana 1.10 Run of river 1903 2001
Caño 1.00 Run of river 1928 1996
San Isidro 3.12 Run of river 1957 2002

Total installed capacity 431.98

The average remaining useful life of Hidrocantábrico’s hydroelectric generation plants is approximately 47 years.
Since hydroelectric generation is dependent on hydrological conditions, for forecasting model purposes the estimated
Hidrocantábrico hydroelectric production based on current installed capacity in an average year is 806 GWh, ranging from a
maximum of 1,058 GWh in a wet year to a minimum of 590 GWh in a dry year.
Generation activity in 2003 was characterized by high availability and efficiency of, and high production by, Hidrocantábrico’s
power plants, together with lower pool prices than in 2002 due to the higher hydro availability in the Spanish power system.
Hidrocantábrico’s generation in the ordinary regime, excluding its own or ancillary consumption, rose 4.8% from 13,503 GWh in
2002 to 14,155 GWh in 2003, of which hydroelectric generation represented 861 GWh, an increase of 11.7% from 2002. Coal-fired
thermal generation amounted to 10,491 GWh in 2003, a reduction of 4.6% from 2002 due to a wet year. Nuclear generation, in
respect of the 15% stake in the Trillo plant, amounted to 1,257 GWh in 2003, an increase of 3.7% from 2002. Natural gas-fired
thermal generation amounted to 1,546 GWh in 2003, a threefold increase from 2002 due to the full-year operation, in 2003, of the
new Castejón CCGT that commenced electricity production in October 2002.
51
 The following table summarizes Hidrocantábrico’s electricity generation for 2001, 2002 and 2003, excluding losses at
generation plants and Hidrocantábrico’s own or ancillary consumption, and sets forth the hydroelectric coefficient at year-end 2001,
2002 and 2003.
Year ended December 31,

Type of facility 2001 2002 2003

(in GWh, except by hydroelectric coefficient factor)

Hydroelectric:
Hydroelectric – Ordinary regime(1) 867 771 861
Hydroelectric – Special regime 78 41 86

Total hydroelectric 945 812 947

Thermal:
Coal 9,832 10,997 10,491
Natural Gas 0 522 1,546
Nuclear (2) 1,222 1,212 1,257
Cogeneration 78 110 114

Total thermal 11,132 12,841 13,408

Wind 59 61 119
Biomass 24 28 32
Waste 11 44 81

Total 12,161 13,786 14,587

Hydroelectric coefficient(3) 1.080 0.96 1.068

(1) Includes the following amounts of consumption for hydroelectric pumping: 140 GWh in 2001, 131 GWh in 2002 and 127 GWh
in 2003.
(2) Corresponding to 15% of Trillo’s generation.
(3) The hydroelectric coefficient varies based on the hydrological conditions in a given year. A hydroelectric coefficient of one
corresponds to an average year, while a factor less than one corresponds to a dry year and a hydroelectric coefficient greater
than one corresponds to a wet year.
The average availability for production of Hidrocantábrico’s power plants increased from 94.21% in 2002 to 95.68% in 2003 for
thermal plants and decreased from 89.26% in 2002 to 87.71% in 2003 for hydroelectric plants. Hidrocantábrico’s forced outages in
2003 were 1.58% at thermal plants and 1.88% at hydroelectric plants.
The table below sets out for each type of Hidrocantábrico generating facility the average capacity utilization and the average
availability factor for 2002 and 2003.

Average capacity utilization(1) Average availability factor

Year ended December 31, Year ended December 31,

Type of facility 2001 2002 2003 2001 2002 2003

Hydroelectric 24.56% 21.66% 23.12% 93.21% 89.26% 87.71%

Thermal:
Coal 74.97% 83.79% 78.75% 93.80% 93.94% 95.73%
Natural gas(2) 0% 47.31% 46.55% 0% 97.19% 96.26%
Nuclear 90.35% 89.57% 92.95% 90.67% 89.66% 93.85%

Total weighted average thermal(3) 76.42% 81.75% 73.98% 93.51% 94.21% 95.68%

(1) The average capacity utilization is defined as actual production as a percentage of theoretical maximum production.
(2) Hidrocantábrico’s natural gas fueled CCGT plant began operations in 2002.
(3) Weighted average is based on total installed capacity of the thermal system.

Although Hidrocantábrico experienced increased production and plant efficiency, in terms of plant availability, in 2003, prices
decreased in the Spanish electricity market due to very favorable hydrological conditions. This led to increased hydroelectric
production, which adversely affected operating results of Hidrocantábrico’s generation activity in 2003.
52
 Planned outages in 2003 occurred as a result of maintenance on the Aboño Unit 1, Soto Unit 2 and Castejón power plants, as
well as a refueling outage in the Trillo nuclear power plant. Hidrocantábrico’s generation facilities benefited from several
environmental improvements and equipment upgrades. Hidrocantábrico has improved its systems and management procedures
through the integration of several functions and processes, including technical, administrative and purchasing processes.
Thermal generation consumed 3,865 thousand metric tons of coal in 2003, 73.4% of which was imported and 26.6% domestic.
Fuel consumption costs including transportation amounted to €€ 211 million in 2003 and €€ 198.4 million in 2002, representing
approximately 79.6% and 77.3%, respectively, of Hidrocantábrico’s total consolidated operating expenses. Despite the fact that 2003
was a wetter year than 2002, Hidrocantábrico’s fuel costs increased due to the full-year operation in 2003 of Hidrocantábrico’s new
CCGT plant at Castejón that started commercial operation in September 2002. Castejón’s gas cost was the main cause of the fuel cost
increase that occurred during 2003.
As a result of its increased thermal production, Hidrocantábrico’s market share in the Spanish pool rose from 7.5% in 2002 to
7.6% in 2003. Hidrocantábrico generating plants sell all their electricity output into the Spanish pool at very competitive prices.
In 2003, capital expenditures on generating facilities amounted to €
€ 93.9 million, an increase of 8.18% from 2002. These
expenditures are set forth below.
Year ended December 31,

Plant type and status 2001 2002 2003

(thousands of EUR)
Hydroelectric plants in operation 1,106 1,428 2,107
Thermal plants in operation 9,801 65,082 20,151
Plants under construction 101,776 0 0
Special regime: (1)
Hydroelectric plants in operation 3 2 0
Wind 6,147 16,264 49,047
Waste 698 2,067 3,500
Biomass 2,194 1,120 350
Cogeneration facilities 1,339 814 18,720

Total Generation 123,064 86,777 93,875

(1) Excludes capital expenditures of H. Santillana, a company in which we hold in minority stake. Data corresponding to SINAE, an
80%-owned subsidiary of Hidrocantábrico, represents 100% of capital expenditures of SINAE and its subsidiaries.
Hidrocantábrico is planning to develop three CCGT plants as set forth in the table below:
Planned
Type of capacity Target
Facility generation Developing entity (MW) year Status

Soto CCGT Contratación de Construcción y Servicios 400 2007 Licensing Process

Castejón 2 CCGT Contratación de Construcción y Servicios 400 2006 Licensing Process
Cadiz CCGT Contratación de Construcción y Servicios 400 2008 Licensing Process
Special regime generation
Special regime generation is developed by Hidrocantábrico through Genesa, a 100%-owned subsidiary mainly focused on
cogeneration, and SINAE, an 80%-owned subsidiary mainly focused on renewable energy. Throughout 2003, Hidrocantábrico
worked on the restructuring of SINAE’s shareholdings, SINAE’s industrial activities and SINAE’s reorganization, with the objective
of providing the basis for stable and sustained development of SINAE, with a focus on the promotion, operation and management of
renewable energy sources, mainly wind power. In 2002 and 2003, delays in the launching of some projects resulted in a lower
contribution than previously anticipated from Hidrocantábrico’s renewable energy business, as did the high natural gas prices that
reduced cogeneration margins, one of the main activities of this business.
53
 During 2003, we commenced the construction of the 124 MW Campollano wind farm in Albacete. The construction of the 65
MW Parques Eólicos del Cantábrico in Asturias (including the Cuesta 8MW, the Los Lagos 39 MW and the Acebo 18MW wind
farms) and the 34 MW Parque Eólico Arlazón wind farm in Burgos were concluded and all commenced operations in 2003, with the
exception of the Acebo wind farm, which went into production in January 2004. Additionally, the 20MW Sierra del Cortado wind
farm began operating in 2003. The waste plant of Sinova at Soria, with an installed capacity of 16.3 MW, started operations at the end
of 2003.
Hidrocantábrico is planning to develop the following wind farms:
Planned
Type of Capacity Target
Facility Generation (MW) Year Status

P.E. Cruz del Hierro (improvements) Wind 5.3 2004 In construction

P.E. Albacete Wind 124.1 2004 In construction
P.E. Madero (improvements) Wind 33 2005 Planning
P.E. Curiscao-Pumar Wind 87.8 2005 Planning
P.E. Brújula Wind 73.5 2005 Planning
P.E. Las Lomillas Wind 49.5 2005 Planning
P.E. Carondio Wind 41.6 2006 Planning
P.E. Avila Oeste Wind 68.0 2006 Planning
P.E. Munera I & II Wind 70 2006 Planning
P.E. Medinaceli Wind 40 2007 Planning
P.E. Avila Oeste Wind 68.0 2007 Planning
P.E. Burgos Este Wind 111 2007 Planning
P.E. San Roque Wind 24 2008 Planning
P.E. La Dehesica Wind 28 2008 Planning

DISTRIBUTION AND SUPPLY

Electricity Distribution
Hidrocantábrico has a network infrastructure that covers the regions of Asturias (accounting for the vast majority of its
network), Valencia, Madrid and Alicante, totaling 19,147 km as follows:
Distribution lines Km

Overhead lines:
High voltage (50/132kV) 1,211
Medium voltage (5/10/16/20/22/24 kV) 4,493
Low voltage (<1kV) 11,089
Total overhead lines 16,793
Underground cables:
High voltage (50/132kV) 7
Medium voltage (5/10/16/20/22/24 kV) 919
Low voltage (1kV) 1,428
Total underground cables 2,354

Total 19,147
Electricity distributed in 2003 through Hidrocantábrico’s own network amounted to 8,659 GWh, a 3.4% increase from 2002
levels. As of December 31, 2003, Hidrocantábrico had 561,208 customers, representing a 2.2% increase from 2002 and includes
1,468 qualified consumers that previously had been supplied by non-regulated suppliers. Since January 1, 2003, every consumer in
Hidrocantábrico’s market can elect to be supplied by non-regulated suppliers.
54
 In 2003, the volume of electricity distributed and the number of customers by voltage level was as follows:
2003 Sales and Customers

% annual increase Total

Distribution by level of voltage GWh (decrease) from 2002 customers

High and very high voltage(1) 5,520 0% 19

Medium voltage (2) 991 19% 690
Low voltage (3) 2,148 6% 560,499

Total 8,659 3% 561,208

(1) High voltage is greater than 36 kV and less than or equal to 145 kV. Very high voltage is greater than 145 kV.
(2) Medium voltage is greater than or equal to 1 kV and less than or equal to 36 kV.
(3) Low voltage is less than 1 kV.

During 2003, Hidrocantábrico’s distribution business, Hidrocantábrico Distribución Eléctrica, S.A.U., continued its expansion
outside of Asturias in the autonomous communities of Madrid, Valencia and Alicante, all of which are geographic areas with strong
economic activity. The operating results of the distribution business in 2003 increased from 2002 as a consequence of connecting new
substations in Valencia and Alicante, which also reduced the initial launching activity expenses outside of Asturias.
In 2003, Hidrocantábrico continued to improve technical and operational management activities. The networks and facilities
were enlarged and Hidrocantábrico continued the development of information technology and automation of the distribution network.
Gas Distribution
Gas invoiced in 2003 to the regulated market amounted to 4,370 GWh, representing a 199% increase from 1,464 GWh in 2002,
due to the contribution of Naturcorp. Additionally, the volume of gas distributed in the liberalized market (in which we provide third
party access to our network) reached 5,257 GWh. The total number of gas consumers that are connected to Hidrocantábrico’s
distribution network increased from 157,051 in 2002 to 542,794 in 2003. The acquisition of Naturcorp added 372,364 customers.
Hidrocantábrico’s gas distribution activities revenues of €€ 157.0 million in 2003 compared with €€ 55.6 million in 2002, the increase
primarily reflecting the acquisition of Naturcorp.
Electricity and Gas Supply
The energy supply activity performed by Hidrocantábrico Energía, S.A.U., or Hidrocantábrico Energía, includes the supply of
electricity to qualified consumers. Hidrocantábrico Energía invoiced 4,712 GWh of electricity supply in 2003, with revenues of €€
394.3 million in 2003, compared to €€ 241.8 million in 2002. This figure represents 6.5% of the liberalized market. More than 74%
was supplied outside of Hidrocantábrico’s traditional market.
In 2003, Hidrocantábrico Energía successfully participated in the annual auction of the RENFE electricity contract, the Spanish
railroad and the biggest electricity consumer currently in the market. Hidrocantábrico Energía won 28% of the 2003 and 2004 supply
contracts.
In 2003, Hidrocantábrico Energía continued its natural gas supply service that began in 2002. Since August 1, 2003, Naturcorp
has been included in reported results of gas supply. Taking Naturcorp into account, Hidrocantábrico has entered into 474 contracts
and invoiced 5,711 GWh.
OTHER ACTIVITIES
Telecommunications
In 2003, Hidrocantábrico’s cable telecommunications business continued its development through two subsidiaries, which are
the concessionaires of television, fixed line telephony and internet for Asturias, Telecable de Asturias, S.A.U., or Telecable, and for
Castilla y León, Retecal, Sociedad Operadora de Telecomunicaciones de Castilla y León, S.A., or Retecal. Telecable is 100%-owned
by Sociedad Promotora de las Telecommunicaciones en Asturias, S.A., which is 49.95%-owned by Hidrocantábrico. Retecal is
34.96%-owned by Hidrocantábrico.
55
 As of December 31, 2003, there were a total of 732,700 cabled homes and 189,982 customers for both subsidiaries, an increase
of 17% from 2002. Telecable adopted a new network technology that allows voice over Internet Protocol (VoIP) services, deployed a
television infrastructure improving image and sound quality, rolled out its cable network to the city of Pravia and moved its technical
teams to its new headquarters at the Gijón City Technological campus.
Hidrocantábrico increased its shareholding position in Retecal from 30.99% in 2002 to 34.96% in 2003, as a consequence of a
share exchange of its participation in TV Castilla-León, which resulted in receipt of additional Retecal shares. The transmission
network among its 17 urban networks was finished, as was the fiber optics interconnection between León and Oviedo. Telecable
revenues were €€ 49.1 million in 2003, compared to €€ 35.5 million in 2002. Retecal revenues were € € 49.6 million in 2003, compared to
€€ 45.9 million in 2002.

Research and Development

Research and development activities carried out in 2003 were aimed at the reduction of emissions, treatment of by-products,
maintenance and the extension of equipment life at various plants and were conducted in coordination with various universities and
industry groups and were partially subsidized by the Spanish government and European Union entities.

BRAZIL
OVERVIEW
Brazil’s electricity industry is organized into one large interconnected electricity system, which is known as the Sistema
lnterligado Nacional, or the Brazilian SIN, comprised of electricity companies in the southern, southeast, central-western, northeast
and parts of the northern regions of Brazil, and several other small, isolated systems. Generation, transmission, distribution and
supply activities are legally separated in Brazil.
In 2003, Brazil had a total installed capacity of 77,321 MW, of which approximately 86% was hydroelectric and 14% was
thermoelectric. In addition, in order to satisfy its electricity requirements, Brazil imported 8,078 MW of electricity in 2003. Centrais
Elétricas Brasileiras S.A. – Eletrobrás, or Eletrobrás, a company controlled by the Brazilian government, owns approximately 32.57%
of the installed generating capacity within Brazil. Eletrobrás has regional subsidiaries responsible for generation and transmission of
electricity: Centrais Elétricas do Norte do Brasil S.A. – Eletronorte and Companhia Hidroelétrica do São Francisco – CHESF in the
north and northeast of Brazil, Furnas Centrais Elétricas S.A. in the southeast and central-west of Brazil and Centrais Elétricas do Sul
do Brasil S.A. – Eletrosul in the south of Brazil. In addition, Eletrobrás controls Eletrobrás Termonuclear S.A. – Eletronuclear.
In addition to the government-owned entities at the federal level, certain Brazilian states have government-owned entities
involved in the generation, transmission and distribution of electricity. They include among others, Companhia Energética de São
Paulo – CESP, Companhia Paranaense de Energia – COPEL and Companhia Energética de Minas Gerais – CEMIG. With regard to
distribution activity, most of the former state-owned companies were privatized and in 2003 private companies distributed more than
70% of the distributed electricity in Brazil.
Our electricity operations in Brazil consist of distribution, generation and related activities. The following of our Brazilian
subsidiaries are engaged in distribution:
• Bandeirante Energia S.A., or Bandeirante, in São Paulo;
• Espirito Santo Centrais Eléctricas S.A., or Escelsa, in the state of Espirito Santo; and
56
 • Empresa Energética do Mato Grosso do Sul S.A., or Enersul, in the state of Mato Grosso do Sul.
In generation, we participate in the following companies:
• FAFEN Energia S.A. in the state of Bahia;
• Investco (Lajeado plant) in the state of Tocantins, through EDP Lajeado S.A.; and
• Enerpeixe S.A. (under construction), in the state of Tocantins.
Our related businesses comprise our trading businesses, which are concentrated in Enertrade S.A.
In recent years the electricity sector in Brazil has been adversely affected by internal and external economic circumstances
related to Brazil in general and by problems specific to the electricity sector. The Brazilian economy was affected by the worldwide
economic slowdown in recent years and, in 2002, uncertainty inside and outside Brazil surrounding the October presidential elections.
As a result, there was a sharp depreciation in the value of the real against other major currencies and increases in Brazilian inflation
and interest rates. These conditions led to a scarcity of financing sources, which adversely affected the industrial sectors of the
Brazilian economy including the electricity sector.
In addition to these adverse economic circumstances, in recent years electric utility companies in Brazil have had to contend
with a government imposed rationing program that was in effect from June 2001 until February 2002, low wholesale prices in the
wholesale electricity market, or the MAE, and uncertainties regarding the electricity sector’s regulations and framework.
As a result of a shortage of electricity, the Brazilian federal government implemented an electricity rationing plan in June 2001.
Although the rationing program ended on February 28, 2002, its implementation had an adverse effect not only on electricity
consumption, which decreased significantly during the period the program was in effect, but also on consumption habits in affected
areas. The lower demand from consumers has affected and we expect it to continue to affect demand for electricity from our
distribution businesses in Brazil. In addition, 2003, like 2002, was characterized by very favorable hydroelectric conditions, creating
increased supply that, combined with continuing low demand, severely depressed prices on the MAE. There continued to be
uncertainties about electricity sector regulations and framework in 2003 due to the new programs recently implemented by the new
administration and the lack of an existing stable and consistent legal framework. Additionally, strict fiscal and monetary policies
adopted during 2003 slowed economic activity. Industrial activity increased only 0.3% in 2003 compared to an increase of 2.5% in
2002, driven mainly by the export sector.
Despite the adverse circumstances in the Brazilian electricity sector in 2003, there were positive developments, principally due
to favorable changes in macroeconomic indicators, most notably the inflation and exchange rates. In 2003, a widely-used measure of
inflation, IGP-M, was 8.71%, compared to 25.31% in 2002. The exchange rate of the Brazilian real appreciated 18% against the U.S.
dollar, reaching 2.89 reais per U.S. dollar at the end of 2003, compared to 3.53 reais at the end of 2002. In relation to the euro, the
exchange rate appreciated 2%, reaching 3.64 reais at the end of 2003. Domestically, the main factors influencing the movement of
these indicators were the adherence to a strict inflation targets policy, the agreement of primary surplus levels with the International
Monetary Fund, or IMF, and a surplus in the trade balance, which achieved a record surplus of $24.8 billion in 2003. In order to reach
the inflation targets, the Brazilian Central Bank increased the local interest rate (SELIC) at the beginning of 2003, reaching 26.5% in
the first half of 2003. Lower inflation expectations led the government to adopt a gradually decreasing interest rates policy, with rates
decreasing to 16.5% by the end of 2003. The movement of these indicators was also supported by high liquidity in global financial
markets, caused by low interest rates in developed economies, which resulted in an increased capital flow to Brazil. Additionally,
economic growth experienced by major commercial partners of Brazil (namely the United States of America, China and Argentina)
led to increased Brazilian exports in 2003.
In 2003, the main events affecting the Brazilian electric utility industry were: (i) the macroeconomic turnaround in the country;
(ii) the good hydrological conditions in the main consumption markets (except the Northeast region);
57
(iii) the substantial increase in the installed capacity, mainly due to investments started in the previous periods; and (iv) the moderate
consumption growth despite the nearly zero economic growth. As a result, the electric sector in 2003 was characterized by energy
oversupply. While the installed capacity increased on average 5% from 2000 to 2003, the consumption in 2003 was lower than in
2000.
In order to regulate excess energy generation in 2003 and to reestablish the revenues previously projected by distributors, the
Ministry of Mines and Energy, or MME, released a proposal in mid-2003 presenting an outline of the New Energy Sector Model for
discussion with industry, the public and government. In March 2004, the Brazilian government enacted the New Electricity Industry
Model Law that redefined the major guidelines of the Brazilian energy sector.
The New Electricity Industry Model Law is intended to reform the Brazilian electricity market by increasing the role of private
investment and eliminating barriers to foreign investment, especially in generation, in order to increase overall competition in the
electricity industry. Additionally, it significantly changed the regulatory structure of this industry by expanding the oversight of the
MME over the entire electricity sector. The scope of these changes to Brazil’s regulatory system have yet to be completely defined, as
several important aspects of the regulation have yet to be implemented by means of additional regulation. For more information on
the regulation of the Brazilian electricity sector and the New Electricity Industry Model Law, you should read “—Regulation—
Brazil.”
We continue to carry out a restructuring plan in Brazil. On October 31, 2002, we completed the first stage of the restructuring,
which put the following companies under direct control of EDP Brasil S.A., our holding company for Brazil, or EDP Brazil: Energest
S.A., Enertrade Comercializadora de Energia S.A., Bandeirante Energia S.A., EDP Lajéado S.A., FAFEN Energia S.A. and Enerpeixe
S.A. On December 31, 2003, EDP Brazil took the control of IVEN S.A., or IVEN, the company that directly controls Escelsa and
indirectly controls Enersul. In connection with this process, EDP Brazil merged Calibre Participações S.A., 135 Participações S.A.,
EDP 2000 Participações Ltda, and EDP Investimentos Ltda. Following the reorganization of the IVEN holding, EDP Brazil owns a
69.55% stake in the voting shares and a 23.99% stake in IVEN’s total capital. The main goals of this transaction were to simplify the
shareholding structure and to eliminate tax inefficiencies. In furtherance of our Brazilian shareholding restructuring process, we
expect EDP Brazil to take control of the remaining shares of IVEN owned by EDP Group during 2004.
Another action taken was the merger of Enerpro into Energest, consolidating in Energest all activities concerning the
development and implementation of generation projects, and also engineering, operation and maintenance services for the generation
business units in Brazil.
On December 30, 2003, Investco, a company that operates the Lajeado plant and of which EDP Lajeado owns 14.36% of the
shares and 27.65% of voting rights, did not redeem part of the Redeemable Shares Class R from Eletrobras scheduled to be redeemed
at that time because it did not have sufficient retained results from previous years as required under Brazilian Law. Discussions are
under way between Investco and Eletrobas in order to find alternatives to resolve the situation. The shares not redeemed amount to
approximately 150 million reais (€€ 39.2 million).
In 2003, EDP Brazil recorded provisions related to its investments in EDP Lajeado and FAFEN Energia. Enersul also wrote off
22 million reais (€€ 7 million at the time of the charge) relating to the market value of its gas turbine.
In the case of FAFEN Energia, EDP Brazil recorded a provision of 139 million reais (€€ 40 million at the time of the charge) due
to the unlikelihood of FAFEN Energia to sell energy at prices equivalent to the normative value for thermal plants, i.e., the regulated
tariff for electricity from thermal plants. When the decision was made to invest in the FAFEN Energia plant, electricity price
estimates were based on the normative value for thermal plants. In 2002, Bandeirante and FAFEN Energia signed a PPA based on
such estimated value. The PPA was subject to approval by ANEEL, which was denied because FAFEN Energia had not complied
with all of the conditions set out in Brazil’s Thermal Plant Priority Program, which provides for the sale of electricity at the normative
value for thermal plants. Subsequently, FAFEN Energia and Bandeirante entered into a new PPA. The new PPA uses as a reference,
in accordance with conditions set by ANEEL for its approval, the normative value of hydroelectric plants, which is considerably
lower than the price previously expected. The new PPA has not yet been approved by ANEEL. As a result of the foregoing, EDP
Brazil recorded a provision for future losses.
58
 With regard to EDP Lajeado, EDP Brazil recorded a provision of 90 million reais (€ € 26 million at the time of the charge). EDP
Brazil’s trading company, Enertrade, entered into a PPA to acquire electricity produced by the Lajeado plant and entered into PPAs
with EDP Brazil’s distribution companies with respect to such electricity. At the time these PPAs were entered into, the electricity
price permitted under tariff regulations was higher than under regulations subsequently issued by ANEEL, but before ANEEL’s
approval of the PPAs. Enertrade contested ANEEL’s decision and obtained an injunction permitting it to charge prices set forth in the
PPAs until there is a decision on the merits. However, EDP Brazil’s distribution companies have not yet obtained such an injunction
despite contesting ANEEL’s decision and are, therefore, prohibited from passing on to customers the prices in the PPAs. Given the
current situation, EDP has recorded a provision for future losses.
In the case of Enersul, the company wrote off 22 million reais (€€ 7 million at the time of the write off) related to the market
value of Campo Grande’s gas turbine acquired in 2001 as Enersul has terminated this project and decided to sell the turbine.

GENERATION
Lajeado
In late 1997, EDP Brazil formed a consortium with three Brazilian distribution companies that were awarded a 35-year
concession to build a dam and operate a hydroelectric power plant in Lajeado, Brazil. We own 14.36% of the shares and 27.65% of
the voting rights in Investco, the company that operates the plant. EDP Lajeado owns the right to sell 27.37% of the energy generated
by the Lajeado hydroelectric power plant. Of the total energy generated, 24.75% can be freely traded with other electricity market
agents, while the remaining energy must be sold at regulated prices to distribution companies. The Lajeado hydroelectric power plant
began full operation in November 2002, following the completion and commissioning of its fifth unit, and has an installed capacity of
902.5 MW. The plant produced 4,457 GWh in 2003.
Couto Magalhães
In November 2001, a consortium 49%-owned by EDP Brazil and 51%-owned by Grupo Rede was awarded a concession to
build and operate a 150 MW hydroelectric power plant on the Araguaia River in Brazil, the Couto Magalhães power plant. The
construction of the project was expected to start in 2003 and its operations during 2006. The project has now been interrupted due to
additional environmental requests by regulators that were not agreed to in the original concession contract, which led to increasing
development costs and postponing the start-up of the construction as well as the plant operations. These requests negatively impact
the economic viability of the project. The consortium has informally requested rescission by the regulator of the concession contract
and is now waiting for a formal response.
Peixe Angical
In June 2001, a consortium 95%-owned by EDP Brazil and 5%-owned by Grupo Rede was awarded a concession to build and
operate a 450 MW hydroelectric power plant on the Tocantins River in Brazil, the Peixe Angical power plant. The annual concession
rent is 6.8 million reais (€
€ 1.8 million) for 29 years starting in the seventh year of the 35-year concession. After a one-year
suspension, construction of the plant was reinitiated in October 2003, following the completion of an agreement between us and
Eletrobrás and BNDES. The agreement included an equity participation of 40% of Furnas and funding of 670 million reais (€ € 175
million) approved by BNDES, reducing the amount to be supported by us. At the end of 2003, we had invested 204 million reais (€ €
72 million) in this project. Plant operations are planned to begin in 2006.
59
 FAFEN Energia
The first phase of the FAFEN Energia thermoelectric plant in the Bahia state of Brazil began on August 25, 2002, with an
installed capacity to produce 54 MW of electricity and 152 tons per hour of steam. From that capacity, the plant has to produce 22
MW and 42 tons per hour of steam under a tolling regime to Petrobras–Petróleo Brasileiro S.A. EDP Brazil has an 80% participation
in the venture, and Petrobras holds the remaining 20%. Its second phase configuration will include an additional gas turbine of 26.7
MW and a steam turbine of 53 MW. The construction was initiated in March 2003 and should be completed during 2004. It is
estimated that following completion of the second phase, the plant will produce a total of 133 MW of electricity and 42 tons per hour
of steam. In 2003, FAFEN Energia produced 173,902 MWh and 352,603 tons of steam. FAFEN Energia and Bandeirante have signed
a PPA, which ANEEL has not yet approved. At the end of 2003, we had invested 269 million reais (€€ 83 million) in this project.

DISTRIBUTION
In 2003 our distribution companies in Brazil served more than 2.9 million customers, distributed 21,424 GWh of electricity and
had revenue of 3.2 billion reais (€
€ 919.8 million).
Revenue Revenue
Customers GWh (thousands (thousands
Company (thousands) Distributed of reais) of euros)

Bandeirante 1,320 11,380 1,674,395 484,069

Escelsa 968 7,187 943,697 272,824
Enersul 614 2,857 563,586 162,933

Total 2,902 21,424 3,181,678 919,826

Bandeirante
EDP Brazil holds a 96.48% stake in the share capital of Bandeirante, a distribution company in the Brazilian state of São Paulo
that, in 2003, served more than 1.32 million customers.
In 2003, Bandeirante sold 9,539 GWh, a 6% decrease from 2002, primarily due to consumption decreases in the industrial
segment. Consumption in the residential segment represented 22.4% of total sales volume, an increase of 0.8% from 2002.
Consumption in the industrial segment represented 54.8% of total sales volume, a decrease of 12.8% from 2002, reflecting the loss of
liberalized customers to other energy suppliers. Consumption in the commercial segment represented 12.4% of total sales volume, an
increase of 4.5% from 2002. In the other segments, which represent 10.5% of total sales volume, the consumption increase was 8.2%
from 2002. Taking into account electricity distributed to liberalized customers, which pay Bandeirante a fee for use of its distribution
grid, Bandeirante distributed 11,380 GWh in 2003, a 4.2% increase from 2002.
On October 23, 2003, Bandeirante’s tariffs were adjusted as part of a periodic tariff review resulting in an increase of 18.08%
over the period from 2004-2008, of which 14.68% will be applied during the first year and the remaining 3.4% will be applied over
the next three annual tariff readjustment processes.
In 2003, Bandeirante made capital expenditures of 136 million reais (€€ 39.3 million) with a focus on modernization, customer
service, improvement of the network’s operational conditions in expanding regions and increases in the electricity grid’s operational
flexibility. As part of a program of modernization, 50 million reais (€
€ 15 million) was spent in 2003, including expenditures relating
to a new operations center and in the new commercial information system.
In order to improve productivity, Bandeirante has been encouraging its employees to adopt procedures that build a creative and
innovative culture that is focused on results and responsive to customers and the market. In 2003, Bandeirante reduced its workforce
to 1,261 employees, achieving a customer per employee ratio of 1,050.
60
 At the end of March 2003, the company raised 200 million reais (€€ 55 million at the time of the issue) through the issuance of 6-
month promissory notes. In September 2003, the company issued new promissory notes in amount of 180 million reais (€€ 53 million
at the time of the issue) to refinance the notes issued in March 2003.
At the end of 2003, Bandeirante’s board of directors approved a long-term loan of US$100 million from the Inter-American
Development Bank to finance the expansion of the distribution grid and to improve the general quality of services.
Escelsa
EDP and its subsidiaries own 54.76 % of Escelsa-Espírito Santo Centrais Elétricas S.A., or Escelsa, a distribution company in
the Espírito Santo state of Brazil that, in 2003,served more than 968,000 customers.
In September 2002, a lawsuit with GTD Participações, S.A., or GTD, a Brazilian company, received a favorable decision on the
merits in our favor. This decision, however, is subject to an appeal to the High State Court of Rio de Janeiro, which has not yet been
decided. Previously, a shareholders’ agreement with GTD that provided for joint control of Escelsa was in force. The lawsuit was
filed by GTD when it contested the termination of the shareholders’ agreement provided for in such agreement. GTD attempted to
suspend our rights as controlling shareholder, but the judiciary denied this request. We convened an extraordinary shareholders’
meeting of Escelsa in September 2002 at which we gained control of Escelsa, which control had previously been shared jointly with
GTD. In October 2002, we took over the management of Escelsa and appointed new executive officers. Since that time, we have fully
consolidated Escelsa. Following the decision of the Lower Court of Rio de Janeiro, GTD filed an additional lawsuit in the Federal
Court of Rio de Janeiro with a similar complaint, but this time against Brazilian Union and Eletrobras as well, on which no ruling has
yet been made.
The electricity required by Escelsa’s distribution grid in 2003 totaled 8,185 GWh, an 11% increase from the previous year. In
order to meet market demand, Escelsa’s hydroelectric plants generated 922 GWh internally, which represents 11.2% of the electricity
required. Escelsa purchased the remaining 5,975 GWh from other suppliers. In addition, 1,287 GWh produced by other generators
passed through Escelsa’s grid.
Escelsa’s total electricity sales volume was 5,900 GWh in 2003, representing a 7% decrease from 2002 due to decreased
electricity sales to the commercial and industrial segments. Consumption by the residential segment represented 20.3% of total sales
volume, an increase of 5.5% from 2002. Consumption by the industrial segment represented 46.5% of total sales volume, a decrease
of 16.6% from 2002, which reflects the loss of liberalized customers to other energy suppliers. Consumption by the commercial
segment represented 12.8% of the total sales volume, a decrease of 10% from 2002, also reflecting the loss of liberalized customers.
The energy supply sold to other electric utilities represented 5.4% of the total sales volume, an increase of 1% from 2002. Finally,
sales to other segments represented 15.0% of the total sales volume, an increase of 13% from 2002. Taking into account electricity
distributed to liberalized customers, which pay Escelsa a fee for use of its distribution grid, Escelsa distributed 7,187 GWh in 2003,
an 11% increase from 2002.
On August 7, 2003, ANEEL approved Escelsa’s tariff readjustment, an increase of 17.3% that consisted of:
• 8.96% to compensate for Escelsa’s non-controllable costs, which are passed along to customers;
• 7.8% to compensate for Escelsa’s controllable costs, which were adjusted to reflect inflation, and were discounted by 0.63%,
due to the pass-through to the tariffs of the year’s productivity gains, or the X Factor; and
• 0.54% to compensate for Escelsa’s losses during the rationing period in 2001-2002.
Every three years, Escelsa’s tariffs are reviewed according to its concession contract, for the purpose of reassessing the fair
return on capital employed. Escelsa’s next tariff review will conclude in August 2004. Preliminary studies by ANEEL and Escelsa’s
management with respect to the next tariff began in May 2004.
61
 In 2003, Escelsa had capital expenditures of 64 million reais (€€ 19 million), of which 57 million reais (€€ 17 million) were
technical costs related to the expansion and improvement of the distribution grids, new substations and company modernization. The
remaining 7 million reais (€€ 2 million) were financial costs related to the expenditures capitalized in Escelsa’s assets.
Escelsa’s workforce at the end of 2003 totaled 1,309 employees, 3.5% less than in 2002. Esclesa continues to increase the
customers per employee ratio, reaching 742 in 2003 from 705 in 2002, an improvement of 5%.
Enersul
EDP and its subsidiaries indirectly hold a controlling stake in Enersul-Empresa Energética do Mato Grasso do Sul S.A., or
Enersul, a distribution company in the Mato Grasso do Sul state of Brazil, that, in 2003, served more than 614,000 customers.
Enersul’s total energy sales volume for 2003 was 2,816 GWh, representing a 2% increase from 2002. Sales to the residential
segment represented 31.4% of the total sales volume, an increase of 1.1% from 2002. Sales to the industrial segment represented
23.5% of the total sales volume, a decrease of 2.5% from 2002. Sales to the commercial segment represented 19.7% of the total sales
volume, an increase of 3.7% from 2002. Enersul had 613,645 customers at the end of 2003, an increase of 3% compared to 2002.
Taking into account electricity distributed to liberalized customers, which pay Enersul a fee for use of its distribution grid, Enersul
distributed 2,857 GWh in 2003, a 4% increase from 2002.
On April 8, 2003, ANEEL approved a tariff increase for Enersul of 42.26% as part of a periodic tariff review. Of this amount,
32.59% has already been applied to the current tariff and the remainder, 9.67%, will be added to the tariff over the years from 2004 to
the next review in 2007.
In 2003, Enersul had capital expenditures of 56 million reais (€
€ 16 million) focused on modernizing, improving and expanding
the company’s distribution grid.
Although at the end of 2003, Enersul’s workforce was 1.2% higher that in 2002, totaling 940 employees, the company was able
to improve its ratio of customers to employees to 653 in 2003 from 643 in 2002.
CERJ
In 1996, EDP, S.A. formed a consortium with Chilectra and Endesa that acquired approximately 70% of the stock of Companhia
de Eletricidade do Rio de Janeiro, S.A., or CERJ, an electricity distribution company in the Rio de Janeiro state of Brazil. EDP, S.A.
currently owns 7.77% of CERJ (11.27% at December 31,2003), reflecting reductions in our stake as a result of capital increases that
we did not participate in.
Related Activities
Enertrade manages contacts between our Brazilian generation and distribution businesses and engages in electricity trading. In
addition, Enertrade seeks to capture business from liberalized clients that move away from our distribution companies as sources of
supply and sell to other liberalized clients. As the New Energy Sector model provides that liberalized clients may only purchase
electricity from generators or traders, we expect that the shift of these clients away from our distribution companies will continue.
In 2003, Enertrade’s sales volume amounted to 2,713 GWh, of which 1,620 GWh were sold to liberalized customers. Enertrade
purchased 1,072 GWh from EDP Lajeado. This represents an increase of 28% in comparison to the previous year. The average price
of energy sold and purchased by Enertrade in 2003 were, respectively, 58.8 reais/MWh and 53.34 reais/MWh.
62
 TELECOMMUNICATIONS
HISTORY AND OVERVIEW
In March 2000, we announced a strategic decision to pursue the telecommunications business. This decision provided us with an
opportunity to leverage our existing resources and expertise and to build on our initiatives in the telecommunications and information
technology businesses. At that time we held a 25% stake in Optimus, Portugal’s third mobile operator, and had, on January 1, 2000,
launched the fixed-line operations of our subsidiary, ONI Telecom. In June 2000, we announced a new organizational structure for
our telecommunications and related activities, which focused these activities in ONI, SGPS, S.A., or ONI, a holding company owned
by us and our partners, that operates various business segments discussed in more detail below. The current shareholder structure in
ONI is as follows: EDP 56.025%, Brisa 17%, BCP 16.188%, BCP’s pension fund 6.637%, GALP Serviços 4.096% and GALP
0.054%.
On June 12, 2001, we announced ONI’s acquisition of Comunitel enabling ONI to offer “one-stop-shopping” to the growing
number of companies operating in both Portugal and Spain. Comunitel is a Spanish telecommunications operator with a portfolio of
products and services directed to small and medium size enterprises.
For the year ended December 31, 2003, ONI had revenues of € € 331.1 million, of which €€ 15.3 million was generated from
services provided to the EDP Group, and an operating loss of €€ 68.7 million compared with, for the year ended December 31, 2002,
revenues of €€ 320.8 million, of which € € 13 million was generated from services provided to the EDP Group, and an operating loss of
€€ 154.8 million.
In March 2002, we sold 100% of OPTEP, our subsidiary that, at the time of the sale, indirectly held 25.49% of Optimus, to
Thorn Finance SA for €€ 315 million. Prior to this sale, OPTEP transferred its interest in ONI to us. Since our subsidiary ONI Way and
Optimus were each awarded a UMTS license in late 2000, we were required to sell our stake in Optimus by March 31, 2002 in order
to comply with Portuguese regulatory requirements. We no longer hold any shares in Optimus, directly or indirectly, although our
agreement with Thorn Finance SA gives us a right of first refusal to purchase the shares sold if Thorn Finance SA reaches an
agreement to sell the shares to a third party.
In early 2002, ONI renegotiated its lease agreement of the fiber optic network owned by REN. Under the renegotiated terms of
this agreement, the duration of the lease has been reduced from 20 years to 5 years and fiber optic pairs length has been reduced by
50% to approximately 1,850 kilometers.
In late 2002, ONI Way decided to significantly reduce its activity and proposed to its shareholders to decide whether the UMTS
project should be temporarily frozen or terminated, due to several adverse economic, financial, technical and regulatory reasons. In
order to optimize shareholder value, ONI Way entered into agreements with TMN, Vodafone-Telecel (now known as Vodafone
Portugal) and Optimus under which ONI Way had the option to sell to those companies a substantial part of its assets. In addition, it
was also agreed to enter into put and call options to sell to Vodafone-Telecel the entire share capital of ONI Way.
On January 6, 2003, a 72% majority of the shareholders general meeting of ONI Way decided not to launch ONI Way’s UMTS
project and to confirm the decisions and acts of the board of directors in this regard. Subsequently, ONI Way’s UMTS license was
revoked on January 13, 2003 by the Minister of Economy with the consent of ONI Way. ONI Way subsequently entered into
arrangements with the majority of its employees, and, since December 31, 2003, has no labor agreements. In addition, ONI Way has
terminated its distribution agreements and settled its commitments with suppliers, all in connection with the termination of its UMTS
activities.
In November 2003, the ONI Way put option was exercised and in February 2004 ONI Way’s entire share capital was sold to
Vodafone Portugal.
63
 In the first quarter of 2003, ONI revised its organizational structure to better achieve the goals and strategies defined for its
business segments. This process was concluded in the fourth quarter of 2003, by the merger of ONI Grandes Redes, ONI Sistemas de
Informação, ONI One, ONI Solutions, Shopping Direct and Brisatel into ONI Telecom. Accordingly, ONI’s businesses are currently
pursued in two main areas: wireline Portugal and wireline Spain.
Wireline Portugal comprises:
• ONI Telecom, a wholly-owned subsidiary of ONI, is a licensed telecommunications company that develops and provides
wireline communication services to corporate and residential clients and also serves as a “carrier’s carrier,” selling capacity
to other communications companies.
• uCall, a 60%-owned subsidiary of ONI offering call center services, fulfilling ONI’s needs in back office support, as well as
providing services to companies outside the ONI group.
Wireline Spain comprises:
• Comunitel, which is 99.93%-owned by ONI, is a telecommunications operator specializing in providing communication
services to corporate clients. Comunitel was one of the first operators to provide advanced telecommunication services in
Spain.
• Ola Internet, a wholly-owned subsidiary of ONI, which is a company offering voice and data services to medium size
companies in Spain.
In early 2004, ONI became the owner of 99.98% of Germinus XXI, or Germinus, an “incubator” company developing services
in the market where telecommunications, media, hardware and software converge, increasing its previous ownership of approximately
80% of Germinus. The Germinus group offers services in four activities: applications and technological platforms, professional
services, information services and network business.
ONI’s management team is led by Pedro Norton de Matos, chief executive officer, and the executive members of ONI’s board.
Executive board members have the following responsibilities: Jorge Cruz Morais, former director of EDP Strategic Planning, is the
chief financial officer of ONI, and Luís Ribeiro Vaz, former board member of the retail group Jerónimo Martins, heads Spanish
operations.
TELECOMMUNICATIONS MARKET
In accordance with EU requirements, the Portuguese government has taken significant steps during the past several years to
open the telecommunications market to competition. In 1997, Portuguese regulations took effect that permitted us and others to install
and provide infrastructure for telecommunications services. On January 1, 2000, Portugal opened the entire telecommunications
sector to competition.
As of January 1, 2001, alternative carriers have been permitted to offer local and regional indirect calls, and as of June 30, 2001,
customers have been allowed to keep their existing phone numbers while changing to a different access operator. Although number
portability now exists in Portugal, ONI believes that some additional technical issues need to be addressed by ICP-Autoridade
Nacional de Comunicações, or ICP-ANACOM, to make number portability a more efficient process.
In January 2002, liberalization of the telecommunications sector advanced a step further with the long promised unbundling of
the local loop (ULL). However, technical and administrative restrictions by the historical monopoly telecommunications operator
Portugal Telecom, or PT, did not allow for widespread use of this technology, effectively preventing the new operators from
exploiting this new opportunity.
64
COMPETITION
In the fixed line business area, ONI is competing for market share primarily with PT, which historically held a monopoly on
fixed line services in Portugal. Currently, in the first stages of liberalization of this area, PT continues to hold a dominant position in
this market. Other fixed line operators in Portugal include Novis, controlled by Sonae.Com and France Telecom, and Jazztel. Based
on data released by ICP-ANACOM, in the fourth quarter of 2003 new operators accounted for 13.4% of the total minutes in the fixed
line area.
Indirectly, fixed line operators also face strong competition from cellular telephone service providers, particularly in the voice
segment. Cellular services in Portugal are currently provided by TMN, Vodafone Portugal and OPTIMUS.
We also face significant competition in data transmission services and as an Internet Service Provider, or ISP. Numerous
operators compete in these areas, including SAPO, a PT ISP, IOL, a Media Capital ISP, and Clix, a Sonae.Com ISP.

TELECOMMUNICATIONS ACTIVITIES
Infrastructure: ONI has in place an extensive infrastructure to provide telecommunications services, which includes
approximately 6,000 kilometers of fiber optic cable, including multiple strings, for a total of approximately 150,000 kilometers of
fiber optic backbone, in Portugal. We own approximately 110,000 kilometers of this backbone and lease approximately 40,000
kilometers to REN, Transgás and EDIS. ONI currently has approximately 300 points of presence, (PoPs) and 2 network central
offices, in Lisbon and Porto. At the end of 2000, ONI linked its fiber optic network to Iberdrola’s network, creating two new
connections to Spain and adding to the existing connection with the network of Comunitel.
The incorporation of Brisatel’s assets in the ONI group in October 2001 added approximately 1,300 kilometers of fiber optic
cable (of which approximately 1,120 kilometers are already installed) to the fiber optic cable that we had already in place at the time.
Brisatel also added 70 PoPs and two international links with RENFE, the Spanish railroad operator, which required a restructuring of
ONI’s PoPs to avoid redundancy. The incorporation of Brisatel’s assets in the ONI group was one of the factors that led ONI to
renegotiate its lease of the fiber optic network owned by REN in early 2002. Under the renegotiated terms of this lease, the duration
of the lease has been reduced from 20 years to 5 years and fiber optic pairs length was reduced by 50% to approximately 3,000
kilometers by the beginning of 2003. As of January 2004, fiber optic pairs length was reduced again to 2,329 kilometers.
ONI expects to increase consumer connections to its existing fiber optic backbone to provide telecommunications services. ONI
has efforts underway to develop digital powerline technology and is currently conducting pilot tests.
Telephone and data services: In late 1999, we began aggressive efforts to build ONI brand recognition and generate customer
pre-registrations. In November 1999, ONI acquired Comnexo, a private data operator providing services to closed user groups. This
acquisition was designed to expand the scale and reach of our data operations. ONI Telecom commenced operations in January 2000
as a voice and data fixed-line operator concurrent with the opening of competition in Portugal. We continue to provide services in this
area through ONI. ONI Telecom’s initial activities were focused on fixed-line voice services for businesses and high-value customers.
ONI currently expects to develop other products and services, including value-added voice services, data transmission, and integrated
voice, data and video services.
At December 31, 2003, ONI had approximately 741,000 registered voice lines generating demand for approximately 2,6 million
minutes per day, or an aggregate of 939 million minutes in 2003. In comparison, in 2002 ONI’s fixed line operation in Portugal
accounted for approximately 733 million minutes of voice traffic.
According to a report by ICP-ANACOM for the fourth quarter of 2003, ONI holds an overall market share in fixed line
telephone traffic of approximately 5%, which corresponds to approximately 45% among the new fixed line operators in Portugal.
65
 In Spain, at December 31, 2003 our subsidiary Comunitel and its subsidiary Ola internet generated approximately 1,700 million
minutes of voice traffic in 2003.
Internet access services: ONI has high capacity platforms to provide Internet access services and is operating as an ISP. As of
December 31, 2003, ONI had approximately 436,000 registered ISP customers generating approximately 1.6 million minutes per day
for an aggregate of approximately 638 million minutes in 2003.
In July 2002, ONI launched an Asynchronous Digital Subscriber Line, or ADSL, product that allows high speed Internet access
over regular telephone lines and that can be installed by end users over their existing telephone lines.
PARTNERSHIPS
In March 2000, we entered into a strategic alliance with BCP to facilitate joint efforts in the areas of Internet-based electronic
finance, or e-finance, non-financial Internet-based services and third generation wireless telephone services. The EDP-BCP
agreement provides for the establishment of cross-shareholdings between our companies. We have acquired 4.25% of BCP’s
outstanding shares, including share consideration for BCP’s interest in our telecommunications holding company, and BCP has
acquired approximately 5% of our outstanding shares.
On May 9, 2001, we entered into an agreement for a strategic alliance in the telecommunications sector with BCP, GALP and
Brisa. Under the terms of the agreement, Brisa became a shareholder of ONI in exchange for its 100% stake in Brisatel, which owned
4% of ONI Way. Within the context of this strategic alliance, Brisa proposed two members of ONI’s board of directors and they were
subsequently elected by the shareholders of ONI.
Following its decision to focus on wireline communications in 2002, ONI decided to gradually reduce its investment in B2C
(business to consumer) and B2B (business to business) platforms, having already disposed of some of its subsidiaries in this area.
REGULATION
Our activities in the telecommunication area subject us to a number of regulatory regimes, including licensing requirements and
operating restrictions. For more information on the regulation of telecommunications, please see “—Regulation—
Telecommunications.” ONI holds licenses for the establishment and operation of public telecommunications networks (ICP-05/99-
RPT, granted June 14, 1999) and the provision of Fixed Telephony Service (ICP-001/99-SFT, granted August 10, 2000). ONI also
holds a registration for the provision of public use telecommunications services (Register-006/99 dated January 20, 1999). ONI was
awarded two licenses for the use of frequencies aimed at fixed wireless access in the 3.6-3.8 Mhz and 24.5-26.5 Ghz bands (ICP-
01/99-FWA and ICP-05/99-FWA granted December 29, 1999). In 2003, ONI requested the revocation of the 3.6-3.8 Mhz band
license. The difficulties to install terminal equipment, the lack of scale, together with other technological difficulties made the
operation of a fixed wireless network difficult and uneconomical.
EMPLOYEES
ONI’s human resources have the experience and expertise to assist it in developing and growing the telecommunications
business. As of December 31, 2003, ONI had approximately 1160 employees, 51% in wireline Portugal and 49% in wireline Spain.
FINANCIAL RESULTS
As a recent entrant in the telecommunications sector, during its first four years of operations ONI has incurred significant
operating costs in connection with developing and sustaining its business while, at the same time, increasing revenues as a result of its
growing customer base. ONI had revenues for 2003 of € € 331.1 million, of which services provided to the EDP Group amounted to € €
15.3 million, and an operating loss of €€ 68.7 million. In comparison, ONI had revenues for 2002 of €€ 320.8 million, of which services
provided to the EDP Group amounted to €€ 13 million, and an operating loss of €€ 154.8 million. ONI’s 2003 operational capital
expenditures for fixed line communications in Portugal and Spain were approximately €€ 28.6 million compared with approximately €€
140.8 million in 2002. ONI’s total assets at the end of 2003 were € € 835 million compared with €€ 888 million at the end of 2002.
66
 ONI’s current assessment of expenditures in the telecommunications area anticipates an investment by ONI of approximately €€
114 million for the period 2004-2006 almost exclusively for network infrastructure and client connections and equipment, although
the amount of investments may change as ONI’s plans develop.
Due to divestiture of the UMTS project, we are no longer committed to the approximately € € 2,600 million of aggregate capital
expenditures forecasted in the bid submitted by ONI Way in the public tender for the fourth UMTS license in Portugal.
OTHER INVESTMENTS AND INTERNATIONAL ACTIVITIES
During 1998, we acquired in the Spanish securities market 3% of the share capital of Iberdrola, a Spanish utility company. In
September 2003, we sold a block of 10 million shares representing 1.11% of the share capital of Iberdrola to Banco Bilbao Vizcaya
Argentaria, S.A., for €€ 153.9 million. In October 2003, we sold 17,050,000 shares, representing a 1.89% stake in the share capital of
Iberdrola, to BANCAJA, Caja de Ahorros de Valencia, Castellón y Alicante for € € 246.2 million. As a result of this transaction, we no
longer have any stake in Iberdrola. Iberdrola holds a stake in us of slightly less than 5% of our share capital, which corresponds to
slightly more than 5% of our voting rights.
We also have an interest of approximately 4% in ELCOGAS, S.A., a consortium that includes, in addition to us, Electricité de
France, Endesa, Iberdrola, International Power and others. ELCOGAS, S.A. was formed to build and operate a 300 MW integrated
gasification combined cycle plant in Puertollano, Spain. This plant burns gas obtained from the coal gasification process.
We hold a 21% interest in a consortium that indirectly owns an 80.88% interest in the capital of Empresa Eléctrica de Guatemala
S.A., or EEGSA, which is an electricity distribution company in Guatemala. In 2003, EEGSA had approximately 717,000 customers,
a sales volume of 3,429 GWh and a service area of 6,200 square kilometers. EEGSA is Central America’s largest distribution
company. In 2003, EEGSA generated €€ 312.6 million in revenues and had a net income of € € 15.2 million. The consortium is made up
of EDP, Iberdrola and Teco Energy, a Florida electric company.
We also own a 21.19% stake in CEM – Companhia de Electricidade de Macau, S.A., or CEM, the electric utility company of
Macau, and have an active role in CEM’s management. In 2003, CEM had approximately 195,500 customers and sold 1,754 GWh of
electricity. In 2003, CEM had revenues of €€ 216.0 million and net income of € € 58.8 million. CEM has the concession for generation,
transmission and distribution in Macau until December 2010. CEM serves a population of approximately 470,000 in an area of 28
square kilometers. In 2003, we reorganized our shareholding in CEM by winding up an intermediary holding company, Sogeste, in
which we had an 85% stake, and acquiring a proportion of the stake held in CEM by the other shareholder of Sogeste, Gaixa Geral de
Depósitos. As part of this reorganization process, we sold a 2.06% stake in CEM to China Power International Holding, a company of
the main electricity operator in mainland China, as an opportunity to diversify and strengthen the shareholder structure of CEM.
In late 1999, we formed a consortium, 60% owned by us and 40% owned by AdP Aguas de Portugal, which was chosen by the
government of Cape Verde to acquire a 51% interest in Electra, for which we paid €€ 27 million. Electra produces electricity and
distributes electricity and water in Cape Verde. In 2003, Electra produced 199 GWh of electricity, compared to 181 GWh in 2002,
and distributed 133 GWh to 65,538 customers in an area of 4,030 square kilometers. Also in 2003, Electra produced 4 million cubic
meters of water and distributed 2.8 million cubic meters of water to 22,578 customers. Electra had revenues of €€ 27.7 million and a
net loss of €€ 5.0 million in 2003.
67
 SUBSIDIARIES, AFFILIATES AND ASSOCIATED COMPANIES
Apart from EDP Produção, EDPD, Hidrocantábrico, our Brazilian companies and ONI, we hold interests in a number of
subsidiaries that provide various services to our other companies. Some of these subsidiaries also provide services to third parties.
These entities contributed €€ 151 million in revenues in 2003.
EDP Valor integrates some of our service companies with the objective of achieving cost reductions within EDP through the
consolidation of resources and the centralizing of purchasing activities. Since the first quarter of 2002, EDP Valor has extended its
services to EDP Produção and EDPD.
EDP - Electricidade de Portugal Internacional, S.G.P.S., S.A. provides management and organization consulting services in
electricity generation, transmission and distribution, undertakes project management and promotion, and executes and supervises the
performance of commercial contracts.
EDINFOR—Sistemas Informáticos, S.A. develops, operates and markets software and systems, and also provides consulting
and vocational training in information technology. See “—Telecommunications.” EDINFOR holds a 57.77% interest in ACE-SGPS,
which is holding for Portuguese companies that provide management, strategic and information systems consultancy, supply of
corporate turnaround services, organization restructuring, e-trade, data warehousing, knowledge management, customer relationship
management, planning and management of information implementation of IT Solutions, financial services and implementation and
training in SAP R3. Amongst other companies, EDINFOR also holds major interests in: Copidata Industrial Gráfica e Equipamentos,
S.A., a company that creates, executes and sells graphic systems; IT-Log, Logística e Gestão de Tecnologias de Informação, S.A., a
company whose activities consist of the conception, production, installation, logistics and management of IT systems; and IT-GEO,
Tecnologias e Informação Georeferenciadas, S.A., a company whose activities consist of the development and integration of
geographic information systems and the production, maintenance and sale of geographic data.
Affinis—Serviços de Assistência e Manutenção Global, S.A. provides home services and contractor management to residential
and corporate customers through a network of skilled professionals. In the residential area, Affinis offers home services including the
planning, installation, maintenance and repair of electrical, gas, plumbing and structural systems and the replacement of household
appliances. In the corporate area, Affinis provides technical assistance with respect to many of the services provided in the residential
area. In October 2002, our subsidiary EDP Participações acquired a 45% stake in Affinis’s share capital and shareholder loans from
PROCME—Gestão Global de Projectos, S.A., or PROCME, for a total of €€ 13.5 million, of which €€ 11.5 million corresponds to the
share capital acquisition. Of this amount, €€ 4.05 million was paid in October 2002, and the balance is due in three €€ 3.15 million
installments over 2004, 2005 and 2006. These installments may be adjusted depending on the financial performance of Affinis.
Following the acquisition operation, EDP Participações and PROCME subscribed to a €€ 5 million capital increase in Affinis in
amounts proportional to their holdings in the company.
REGULATION
THE IBERIAN ELECTRICITY MARKET
On November 14, 2001, in accordance with the liberalization objectives contained in EU Directive 96/92/EC, the Portuguese
and Spanish governments signed the Protocol, in which they undertook to create an Iberian electricity market based on the principles
of free and fair competition, transparency, objectivity and efficiency. In particular, the Protocol was intended to:
• guarantee consumers in Portugal and Spain access to the electricity network from either country and to interconnections
with third countries on equal terms; and
• give electricity operators in an Iberian electricity market the freedom to contract with consumers, to engage in distribution
activities in both countries and to participate in a common Iberian electricity pool.
68
 In late December 2001, the regulators from Spain and Portugal, (Comision Nacional de Energia, or CNE, and Entidade
Reguladora dos Serviços Energéticos, or ERSE, respectively) presented a paper for public discussion on the MIBEL organizational
model. In March 2002, based on that public discussion, they presented a compromise structure for MIBEL. As determined in the
Protocol, the model took into consideration the principles stated in the Protocol, the applicable EU legislation, the recent experience
of both countries’ electricity markets and regulatory best practices. The model also introduced ideas to allow for the development of a
competitive and efficient market, equipped with the necessary supervision and control mechanisms, in order to guarantee the
satisfaction of consumers’ needs, to provide for the security of electricity supply in the short and long term and to be fully compatible
with the objectives of energy efficiency and the development of renewable energy in both countries.
Although MIBEL was expected to come into force by January 2003, representatives of the Portuguese and Spanish governments
at the October 2002 Valencia summit established a new schedule for MIBEL’s implementation. The revised timeframe was created
due to the fact that MIBEL would be delayed not only due to a change in the Portuguese government, but also because of the need for
the harmonization of the Spanish tariff structure.
For the purpose of developing MIBEL, the Protocol contains a timetable for the development of the following interconnections
between Spain and Portugal that was not amended at the Valencia summit: Alqueva-Balboa, a 400kV line scheduled for completion
in 2004; Douro Internacional-Aldeadavila, either the construction of a new 400kV interconnection or an increase of the existing
interconnection capacity scheduled for completion in 2006; and Alto-Cartelle-Lindoso, a second interconnection for the purpose of
increasing transmission efficiency, for which a new 400 kV circuit was put into operations in April 2004.
During the Figueira da Foz summit of November 8, 2003, the Portuguese and Spanish governments executed a memorandum of
understanding that established a new timeframe for the creation of MIBEL and agreed to specific aspects in connection with this
creation, including:
• Implementation of operating mechanisms governing the working of the two “poles” of the market and their integration;
• Harmonization of regulation applicable to the spot and forward electricity markets in Portugal and Spain;
• Termination of the majority of PPAs in Portugal by the start date of the integrated operation of MIBEL; and
• Institutionalization of the Iberian Regulatory Board, including representatives of the two regulators, the purpose of which
will be to be resolve conflicts and control the working of the markets within the scope of their common responsibilities.
On January 20, 2004, both governments entered into a more detailed agreement known as the international agreement, which
was approved by the Portuguese Parliament under Resolution no. 33-A/2004 of April 20, 2004 and ratified by the President of the
Republic of Portugal under Decree law no. 19-B/2004 of April 20, 2004. This agreement creates an Iberian electricity market
designated as MIBEL, and is intended to constitute a milestone in the process of integration of the electricity markets of both
countries.
Under the international agreement, MIBEL will operate with a spot market, which includes daily and intra-daily markets and
will initially be managed by the current market operator of the Spanish market (OMEL), and a forward market, which will initially be
managed by a market operator located in Portugal (OMIP). In addition, electricity transactions may also be negotiated by means of
bilateral contracts with a term not less than one year. The international agreement also clarifies that the existence of two market
operators, OMEL and OMIP, is temporary and that the two operators will eventually be merged into a single market operator. By
April 21, 2005, each market operator is expected to limit the amount of its share capital held by any single shareholder to 5%, except
that technical and economic managers of other electricity systems may hold stakes of up to 10%. Additionally, by April 21, 2005,
system operators may no longer hold interests in the share capital of market operators. By April 20, 2006, it is expected that both
market operators will merge and create a single market operator designated as the Iberian Market Operator (Operador do Mercado
Ibérico).
69
 Within the context of MIBEL, changes introduced to the Portuguese energy policy in April 2003 resulted in the redefinition of
the Portuguese government’s main objectives in the energy sector, which comprise, among others: the liberalization of the market,
improvement of the quality of service, security of supply and reinforcement of the productivity of the national economy. The
Portuguese government has indicated its intention to proceed with the restructuring of the Portuguese electricity system, which
includes, among other measures, terminating the existing PPAs by means of adequate compensation mechanisms and changing
REN’s single buyer status. As a result, Decree law no. 185/2003 of August 20, 2003 contemplates the early termination of PPAs
according to specific rules to be defined in a subsequent decree law, which is also expected to define indemnification measures
adequate to compensate the investments and commitments provided for in each PPA that are not achievable through the expected
market revenues once the PPAs are terminated. It is also expected that both Portugal and Spain should take all necessary measures to
open the market to all consumers and harmonize both tariff structures through clear and transparent rules, particularly in Spain.
PORTUGAL
The basis and principles of the organization of the electricity sector in Portugal were set out in 1995 legislation that was partially
revised in 1997 in accordance with the general principles of EU Directive 96/92/CE. Following the 1997 revisions, the Regulatory
Entity of the Electric Sector, or ERSE, was appointed as the independent regulator in February 1997. On April 12, 2002, ERSE
became the Regulatory Entity of the Energetical Services, and its authority was extended to the domain of natural gas regulation. On
March 25, 2002, by Decree law no. 69/2002, ERSE’s authority with respect to the electric sector was extended to the Autonomic
Regions of Madeira and Azores. The responsibilities for regulation of the electricity sector in Portugal are now generally split
between Direcção Geral de Geologia e Energia, or DGGE, ERSE and the Competition Authority, as described below.

Direcção Geral de Geologia e Energia

DGGE has the primary responsibility for planning and developing the Public Electricity System including, approving the
issuance, modification and revocation of generation and distribution licenses and preparing expansion plans for the Public Electricity
Sector every two years, in conjunction with REN, for the approval of the Portuguese Ministry of Economy. DGGE is also responsible
for regulations applicable to the transmission grid and the distribution network and service quality.
The regulator
ERSE, or the regulator, has clearly defined regulatory duties, powers and objectives established by law, including the
responsibility to approve the main regulations that are published in the form of the following codes:
• the tariff code and the values for the tariffs and prices to be implemented;
• the commercial relations code governing relations between entities in the Portuguese electricity system;
• the dispatch code;
• the access to the national transmission grid code; and
• the interconnections code.
The codes listed above are applicable to the 2002-2004 regulatory period and were adopted by the regulator in September 2001.
For the upcoming regulatory period (2005-2007), in April 2004 the regulator revised the codes referred to above to incorporate the
recent expansion, in February 2004, of the eligibility threshold to include special low voltage consumers.
70
 The Competition Authority
The Competition Authority applies legislation relating to competition, especially with regard to restrictive practices and
concentrations.
National energy policy
Pursuant to a public announcement made in March 2003, the Portuguese Council of Ministers passed two resolutions regarding,
on the one hand, Portuguese energy policy, and, on the other hand, the Portuguese government’s options for the restructuring of the
Portuguese energy sector.
Resolution no. 63/2003 of the Portuguese Council of Ministers of April 28, 2003 revoked the previous national energy strategy
of September 2001, announced the new Portuguese energy policy and defined general objectives and specific measures to carry out
the new policy. In accordance with this resolution, the Portuguese government declared its intention to:
• develop and assure the safety of the national energy supply by adopting measures necessary to (i) reduce the dependency of
external sources of energy primarily by country and type of source, (ii) diversify external sources of energy by country and
type of source, (iii) keep mandatory reserves of combustibles, and (iv) guarantee an adequate energy generation capacity;
• develop rational energy needs in order to fulfill environmental requirements, namely by (i) setting up mechanisms to achieve
the Kyoto Protocol’s goals, (ii) participating in European market of emissions, and (iii) promoting the rational use of energy;
and
• promote national competitiveness in the new liberalized energy market, namely through, among other measures, (i) the
implementation of MIBEL, in stages, to be fully operational by 2006, (ii) the promotion of competition and the opening of
the Portuguese electricity and natural gas sectors, which involves, for instance, implementing procedures to renegotiate or
terminate the existing PPAs, and (iii) expansion of natural gas regulation, liberalization of combustibles prices and
monitoring the functioning of the respective markets, which involves, for example, the separation of the gas high pressure
transport network from other activities related with natural gas.
On May 10, 2003, Resolution no. 68/2003 of the Portuguese Council of Ministers defined the options the Portuguese
government may utilize to restructure the Portuguese energy sector: (i) combine gas and electricity management and offer the two via
the same entrepreneurial organization, allowing a better use of its synergies and complementarities; (ii) no unilateral imposition of
energy sector model restructure on the sector’s companies and their shareholders; (iii) definition of the political, competition and
regulatory framework of the energy sector; (iv) freedom of the market’s functioning, requiring that from the strategic and
organizational framework, rational solutions should arise for the interests of the companies, their shareholders, workers and costumers
in order to assure competition of Portuguese companies and the economy within a progressively integrated European market.
For the execution of these options, the Portuguese government has decided, among other measures, (i) to promote the
liberalization of access to gas infrastructures for electric generation companies operating in Portugal, beginning July 1, 2004, (ii) to
promote adequate legislative measures to open gas infrastructures to eligible consumers under principles of equality, (iii) to promote
and support the consolidation of regulated infrastructures of gas and electricity under one company.

Recent developments in the liberalization of the Portuguese electricity system

With the progression of the liberalization process and taking into account the creation of MIBEL, new transitional legislation
was enacted to bring the structure of the National Electricity System and its operations into line with a competitive market regime, as
detailed below:
71
 • Order no. 12596/2003 of July 1, 2003: Approves the draft by laws and the organization and working model of the Iberian
Energy Market Operator – Portuguese Pole. The main object of this order is to undertake the organization and management
of the MIBEL system – in relation to the forward physical products and derivatives – that will contribute to the
concentration of the market in fewer products, without prejudice to the respective agents’ freedom to contract. The
operations involved in the negotiation, transaction and settlement of energy-based products and services will take place on
these markets.
• Order no. 14315/2003, of July 23, 2003: Establishes the general principles of the methodology and of the main valuation
parameters to be used in the calculation of the compensation or contractual balance maintenance costs (CMEC) applicable to
the termination of the PPAs.
• Decree law no. 184/2003, of August 20, 2003: Enshrines the exercise of new activities in the electricity market, namely
wholesale and retail trading and importing and exporting electricity and, to develop them, it creates the positions of traders
and external agent.
• Decree law no. 185/2003, of August 20, 2003: For the purpose of developing MIBEL, this decree law establishes a set of
general rules of a transitory nature required to create a free, competitive electricity market and called for the enactment of a
new framework that is expected to undertake a profound revision of the electricity sector legislation. For this purpose, the
decree law enshrines the general rules applicable to the trading of electricity within the National Electric System,
particularly the functions and duties of the market agents and the obligations of public service and universal service. It also
establishes the guarantee of the adoption of indemnity measures for producers in case of termination of the PPAs entered
into with REN. In addition, the decree law defines the organized market and the responsibilities of the market operator, and
enshrines the principal of transfer to producers of the land allocated to respective electricity generating power plants.
• Decree law no. 198/2003, of September 2, 2003: Recognizes the right to remuneration for the land constituting the sites on
which the PES electricity power plants are built and establishes the rules allowing REN to sell or lease them to the present
National Electric System producers. It also publishes, as an appendix, plans of the areas allocated to the power plant sites.
• Regulation no. 96/2004, of January 23, 2004: In anticipation of the scope of the early termination of the PPAs, this
regulation establishes that the CMEC shall include, as operating expenses, the costs inherent to the leases of the land where
the power plants are located, except hydroelectric plants. It also establishes the methodology and criteria for the settlement
of the leasing or acquisition values of the sites.
• Decree law no. 36/2004, of February 26, 2004: Progressing the liberalization process, this decree law lowers the eligibility
threshold in mainland Portugal to include special low voltage consumers.
In addition, further laws and regulations are expected to be enacted for the purpose of moving Portugal to a liberalized market
environment, including legislation creating a new framework legal regime for the electricity sector.
Electricity pricing/tariffs
According to Portuguese law, the tariff regulation follows two basic principles: harmonization of tariffs throughout the country,
according to which the tariff regulation will apply to all clients of the Binding Sector; and the principle of financial viability of all
companies operating in the Binding Sector, subject to adequate management, according to which the changes in conditions of the
license cannot endanger the viability of those companies.
Since December 1998, the regulator has implemented a new tariff regime, under which tariffs are periodically reviewed for a
period of three years. The first regulatory period ranged from years 1999-2001, for which period the regulator defined tariffs for
customers in the Binding Sector and customers in the Non-Binding Sector who access the national transmission grid. The regulator
also defined the parameters for tariffs to be applied to distribution companies. Annual rates were set based primarily upon what was
deemed to be an appropriate return on assets in transmission and by profit sharing and price cap mechanisms in distribution.
72
 In the 2002-2004 regulatory period, annual rates are set in a similar fashion except that the profit sharing mechanism in
distribution was eliminated. The tariffs for network services and supply in the Binding Sector were applicable in the 1999-2001
regulatory period and required us to return to customers a portion of our annual profits that exceeded specified levels designated by
the regulator. Tariffs regarding the use of the distribution network continue to be based on a price cap mechanism similar to that
applied in the 1999-2001 regulatory period. Currently, the overall electricity tariff comprises charges for generation, transmission and
distribution, which includes physical distribution and commercial supply.
Under the applicable tariff regime, low voltage customers using up to 20.7 kVA are charged at rates applicable to defined
consumption levels. Low voltage customers using more than 41.4 kVA and medium, high and very high voltage customers are
invoiced for demand based on subscribed demand and average monthly peak demand.
The current tariff regime offers two discount schemes for customers in the Binding Sector, which apply to all customers equally.
Under the first scheme, medium voltage customers with contracted demand above 4 MW and a yearly utilization greater than 5,000
hours or consumption above 30 GWh are entitled to a discount of 6% (in 2003). Discounts are applied to monthly invoices. This
scheme is expected to be completed by 2005. The second method available for obtaining discounts is through a reduction of a
customer’s load. A customer that is able to reduce its load by at least 4 MW can elect to have an “interruptible tariff.” In cases in
which a distributor declares an interruptibility period and the customer complies with that period, the customer can receive an
additional discount. Under the load discount scheme, an eligible customer may elect one of two “interruptible tariffs,” which results in
average rebates of approximately 13%, depending on the interruptible load contracted.
At the beginning of the 2002-2004 regulatory period, the regulator introduced a new tariff structure, based on the concept of an
additive tariff consisting of sub-tariff components using an approach that is more reflective of costs, both between the Binding and
Non-Binding Sectors, and also in each sector. For example, in the 1999-2001 regulatory period, costs were less efficiently reflected in
the tariff in the Binding Sector, thereby giving customers in the Binding Sector the benefit of lower tariffs than in the Non-Binding
Sector where costs were more efficiently reflected in tariffs.
Generation revenues arising from power sold by CPPE and other plants in the Binding Sector under PPAs allow these plants to
achieve a return on assets of 8.5% in real terms. For more information on the PPAs, you should read “Portugal—Transmission—
Purchase of Electricity.” The price of electricity in each PPA consists of the capacity and energy charges, which account for 95% of
PPA costs, together with costs associated with imports, autoproduction and generation facilities. The capacity and energy charges
have been, and continue to be, passed through to the final tariff paid by customers in the Binding Sector.
Transmission revenues have been changed from the 1999-2001 regulatory period to the 2002-2004 regulatory period. The
transmission component of the tariff is calculated annually by the regulator to cover operating and maintenance expenses of the
national transmission grid as well as to provide to REN a return on assets in the 2002-2004 regulatory period of 9% in nominal terms,
excluding the remuneration of the land used for generation sites owned by REN. During the 1999-2001 regulatory period, an 8.5%
return on assets figure was used.
Because the transmission component of the tariff is based on estimated data for variables such as cost and demand, each formula
incorporates an annual adjustment mechanism that operates with a two year time lag and is intended to adjust for differences between
amounts recorded as revenue and the revenue level permitted by the tariff when applied to actual operational data. For more
information on the tariff adjustment, you should read “Item 5. Operating and Financial Review and Prospects” and note 39(p) to the
consolidated financial statements.
The remuneration of distribution in the Binding Sector is the only one of the three businesses where returns are fixed primarily
according to a price cap mechanism. For the 2002-2004 regulatory period, the commercial supply of electricity was split into network
commercialization and Binding Sector commercialization, both with regulatory schemes of cost acceptance plus an allowed return on
assets. As with generation and transmission, the distribution tariffs are subject to an annual adjustment mechanism with adjustments
made based on actual costs two years after
73
originally recorded. For the 2002-2004 regulatory period, the regulator fixed the price cap at 7.5% for high and medium voltage levels
and 6.6% for the low voltage level. For the network commercialization and for the Binding Sector commercialization, the regulator
set at 9% the fixed asset return rate. However, the profit sharing mechanism for this regulatory period was eliminated.
In the Binding Sector, customer tariffs for low voltage consumption cannot increase by more than the forecast inflation rate for a
particular year. In addition, customer tariffs for very high voltage, high voltage and medium voltage are subject to quarterly
adjustments, primarily to accommodate changes in fuel prices.
Other codes
The Commercial Relations Code was published on September 1, 2001, and is intended to govern the commercial relations
between entities within the Binding Sector as well as the commercial relations between the Binding Sector and the Non-Binding
Sector. This code also governs the access to the Non-Binding Sector by Qualifying Consumers and the rules applicable to the
purchase and sale of electricity within a system established for the Non-Binding Sector. The regulator has also enacted the rules of
access to this system and the rights and obligations of the system’s participants, including Qualifying Consumers who have elected to
participate in the Non-Binding Sector, their agents and REN as the manager of the system. The Commercial Relations Code was
recently amended in April 2004, in light of the regulatory regime set out in Decree law no. 36/2004 of February 26, 2004.
The Dispatch Code, also published on September 1, 2001 (and amended in December 2001), establishes the rules of dispatch
that are applicable to REN based on principles of equality of treatment and opportunity and safeguarding the public interest in the
Binding Sector.
The Access to the Grid and Interconnections Code published on September 1, 2001, is based on the same general principle as
the Dispatch Code. Access to the grid is subject to the execution of an agreement in accordance with a model provided by the
regulator. This Code was also amended pursuant to the approval of the Decree law no. 36/2004 of February 26, 2004.
Since 2001, ERSE has been updating these codes, on a yearly basis, to accommodate changes in the electricity sector.
On January 1, 2001, DGGE issued a quality of service code. Under this code, DGGE seeks to enhance the quality of service
with a system of penalties assessed against electricity companies based on their performance. DGGE has defined benchmarks against
which a company’s performance can be measured if requested by the company’s customers. Fines are imposed against electricity
companies in the event of power failures or any disturbances in power supply that, in each case, cause an operator’s performance to
fall below DGGE’s benchmarks. These benchmarks were effective as of July 1, 2001.
In February 2003, DGGE approved and published a new quality of service code that clarifies and tightens quality standards
imposed on electricity companies as well as the compensation amounts to be paid to costumers.

Reversionary assets
Our assets held under concession agreements with the Portuguese government or municipalities or licenses issued by the
government for generation and distribution of electricity are treated either as being within the public domain of the Republic of
Portugal or municipalities (for assets used in low voltage distribution) or dedicated to public service. We use assets that are part of the
public domain and own and use assets that are dedicated to public service subject to limitations on their disposal.
Assets within the public domain that by their nature are replaceable may be replaced by another asset performing the same
function, subject to prior authorization in certain cases. Any asset that has been replaced will thereafter be treated as a private asset.
Other assets held by us, including land and buildings not held under concessions or license, are our private property.
74
 Under Portuguese law, assets under public domain cannot be sold, pledged or otherwise encumbered and are not available for
enforcement of judgments. The same regime applies to assets dedicated to public service, subject to specified exceptions.
The reversion of assets is subject, in specified cases, to payment as described in the following paragraphs:
Licenses for generation
Assets held by the CPPE for generation revert to REN, as concessionaire for the national transmission grid, at the termination of
the relevant PPA, subject to payment of the residual value of assets, in accordance with the PPA, provided that the assets are
considered by REN to be necessary for generation in the Binding Sector according to the expansion plan for the Binding Sector in
place at the time. If not considered necessary by REN, CPPE is entitled to purchase those assets for use in the Non-Binding Sector.

Licenses for distribution

Our assets held under a binding license for distribution of high voltage and medium voltage revert to REN, as concessionaire for
the national transmission grid, when the license terminates. If the termination occurs by revocation or resolution of the license,
payments are due as established in the binding agreements entered into between the parties. If the license terminates for any other
reason, the payment due will be the average of the net book value of the assets and value of lost profits.
Concessions with municipalities
Assets held by EDPD in low voltage revert to municipalities at the end of the term of concession, subject to payment of the net
value of assets as determined by a commission of three members, one appointed by each party and a third one by the Portuguese
government. Both the expiration and early termination of these concessions can only take place if the municipalities meet specified
conditions regarding the viability of the proposed distribution arrangements and the transfer of assets and workers.

Environmental
Overview
In Portugal, the fundamental principles regarding environmental matters are set forth in the Portuguese Constitution, which
guarantees each Portuguese citizen the right to a “healthy and ecologically balanced human environment” and establishes
environmental protection as a duty of the state. Also, in 1987, the Portuguese government has adopted an environmental statute, the
“Lei de Bases do Ambiente”, which (i) sets forth certain fundamental rules regarding air, light, superficial soil and subsoil, flora and
fauna, (ii) establishes certain principles regarding environmental protection, including the “polluter-pays” principle, and (iii)
establishes a regime of civil and criminal liability.
Specifically, the Portuguese electricity supply industry and we have to comply with a number of EU and Portuguese
environmental laws and regulations, regarding, among others, (i) air emissions, (ii) waste water discharges, (iii) waste management,
(iv) use of water resources and (v) assessment of the environmental impact of new projects.
Management believes that we are in compliance with all existing material environmental laws and regulations to which we are
subject and expects us to remain in compliance with these laws and regulations.

Specific regulation
Concerning SO2 and NOx emissions, the EU Directive 2001/80/CE, October 23, 2001 relating to the emission of pollutants from
Large Combustion Plants, was implemented in August 2003 in Portugal by Decree law no. 178/2003 of August 5, 2003. Under this
new regulation, Portuguese environmental authorities are currently creating a plan,
75
called the National Emissions Reduction Plan, to reduce SO 2 and NO x emissions. This plan is expected to be formally approved
during the first half of 2004. Management expects to be in compliance with the National Emissions Reduction Plan by the time
required since the necessary emissions abatement equipment (fuel gas desulfurization and additional NOx primary reduction
measures) is expected to be installed in the Sines power plant by 2008, while the Barreiro, Carregado and Setúbal power plants are
expected to be exempt from compliance with new emission limit requirements.

With regard to CO2 emissions, both the EU and Portugal are signatories to the UN Framework Convention on Climate Change,
adopted in May 1992, and parties to the Kyoto Protocol of December 1997, under which the EU committed to reduce CO2 and other
greenhouse gases, or GHGs, by 8% from 1990 levels during the period 2008-2010. Both the EU and Portugal ratified the Protocol in
2002. In 2003, a revised draft of the Portuguese National Program on Climate Change, which defines GHG emission reduction
measures, was put forward for public comment. This draft, which proposes additional GHG measures, is expected to be approved by
the Portuguese government in 2004. The EU Directive on GHG emissions trading, Directive 2003/87/EC, was published in October
2003 and has not yet been implemented under Portuguese law. Under this Directive, Portugal released a National Allocation Plan
proposal for public comment on March 17, 2004. This proposal assigns GHG emission allowances to installations in specific
industrial sectors, including thermal power plants, for the 2005-2007 regulatory period and is expected to be finalized in October
2004. Although this proposal does not fully contemplate dry hydrological conditions that could necessitate additional licenses and
result in higher electricity costs, management expects to be able to fulfill our responsibilities under these national and industry-
specific emissions allowance assignations for GHGs.
As part of our strategy to address public concern over the possible effects of electromagnetic fields, or EMF, we adopted the
International Radiation Protection Association, or IRPA, recommendations published in 1990 for the design of new overhead lines.
These recommendations have been substantially confirmed by the International Commission on Non-Ionizing Radiation, or ICNIRP,
guidelines (1998) that were adopted in the Recommendation on the Limitation of Exposure of the General Public to EMF of the EU
Council (June 1999).
In connection with the establishment of new facilities or significant increase in capacity of existing power plants, Portuguese
legislation requires us to undertake environmental impact studies. New thermal power plants must comply with specific emission
limits for NO X, SO2 and particles. EDP has only one such project current under development and it complies with the new LCPD
Directive.
Our environmental policy and activities
In 1994 our board of directors has adopted an Environmental Policy Declaration, which sets forth our principles for
environmental policy and activities. Our policy is aimed at minimizing or, where possible, eliminating negative environmental
impacts. Management believes that we are in compliance with all existing material EU and Portuguese government environmental
regulations, and expects that we will comply with proposed changes in EU regulations.
We made capital expenditures related to environmental matters in 2003 and 2002 of approximately € € 15 million. We expect
these capital expenditures to amount to approximately € € 40 million in 2004, of which €€ 20 million will be related to new investments
in emissions abatement equipment in the Sines power plant, in order to adapt the facility to the new environmental regulations
relating to SO 2 and NOx emissions.

SPAIN
Electricity regulation
The enactment of Law 54/1997 of November 27, 1997 has gradually changed the Spanish electricity sector from a state-
controlled system to a free-market system with elements of free competition and liberalization. With this change, the Spanish
government intends to guarantee the electricity supply at the highest quality and at the lowest possible price. The current regulatory
framework provides for:
• the unbundling of activities so that no operator can carry out regulated activities (transmission, distribution, technical
management of the system and economic management of the wholesale market) and liberalized activities (generation,
trading and international/intra-community exchanges) at the same time;
76
 • a wholesale generation market, or electricity pool;
• freedom of entry for new operators with liberalized activities in the electricity sector;
• liberalized activities to take place in a competitive environment, while transmission, distribution, technical management of
the system and economic management of wholesale market activities will continue to be regulated as these activities’
particular characteristics impose severe limitations on the possibility of introducing competition;
• as of January 1, 2003, all consumers may select their suppliers and the method of supply, either at market prices or with a set
tariff fixed by the Spanish government;
• all operators and consumers have the right to access the transmission and distribution grid by paying access tariffs
previously approved by the Spanish government; and
• environmental protection.
Technical and economic management of the system
Prior to the enactment of Law 54/1997, operation of the electricity system in Spain was a public service provided by the
government through Red Eléctrica de España, S.A., or REE, a state controlled entity. Currently, under Law 54/1997, REE continues
to serve as the system operator, but some of its dispatching functions have been taken over by the market operator, Companía
Operadora del Mercado Español de Electricidad, S.A., or OMEL. Accordingly, OMEL is responsible for the economic management
of the wholesale market and REE is responsible for the technical management of the transmission grid and the balancing mechanism
that ensures that energy supply is equal to energy demand. The Spanish government no longer controls REE, although it still retains a
28.5% interest in the company through Sociedad Estatal de Participaciones Industriales, or SEPI. To ensure that REE and OMEL are
guaranteed the highest levels of independence and transparency, the maximum stake that can legally be held in REE has been reduced
to 3% (except for SEPI) and in the case of OMEL to 5%, except that economic managers of other electricity systems may hold stakes
of up to 10% in OMEL until June 30, 2006.

Supervision of the system

The National Energy Commission is the public authority in charge of supervision of the electricity, hydrocarbons and liquid
natural gas industries in Spain.
Generation
Law 54/1997 seeks to create a competitive electricity generation market where power generation plants are dispatched based on
the results of a competitive bidding process administered by OMEL. Moreover, the same law provides for a transitional period until
2010 during which power generation companies that were subject to the Stable Legal Framework on December 31, 1987 will be
entitled to partial compensation for the costs they incurred in connection with the transition to the competitive market regime, or
stranded costs. This compensation is paid from amounts collected from consumers, as part of the tariffs, and settled by the National
Energy Commission. Law 54/1997 also provides that the installation of new power generation plants be completely liberalized and
not subject to government planning, subject only to the authorizations required by the applicable laws and regulations (town planning
and environmental protection, for example). New electricity generators will be entitled to the same rights and payments as other
generators.
On June 23, 2000, Royal Decree no. 6/2000 was adopted to increase competition in the electricity and other sectors. The main
consequences of these measures were the following:
• a 3-year moratorium on generation capacity increases, which ended on June 23, 2003, was imposed on those operators with
more than 20%, and less than 40% of the total Spanish installed capacity and a 5-year moratorium on those operators with
more than 40% of the total Spanish installed capacity excluding capacity increases related to projects currently under the
public inquiry process at the date of the Royal Decree and future projects to replace current generation capacity;
77
 • eligibility for all consumers to participate in the liberalized market from January 1, 2003;
• a maximum reduction in residential tariffs during the period between 2001 and 2003 of 9% depending on the evolution of
demand, interest rates and efficiencies resulting from the opening of the market to competition; and
• a prohibition on from holding third parties stakes in more than one main operator and nor are main operators permitted to
hold stakes in other main operators.
Due to increasing concern over environmental matters, generation activities included in the “special regime” (those based on
non-consumable, renewable energies as well as specific cogeneration plants) have become increasingly important in recent times.
Royal Decree no. 436/2004 of March 12, 2004 establishes a new legal and financial framework for generation activities. The aim of
this Royal Decree is to promote clean energy such that it will constitute approximately 30% of total electricity consumption by 2010.
The new financial framework allows special regime generators to choose between selling their energy at market prices (in the
electricity pool, the long-term pool or through bilateral agreements, in all cases, plus certain premiums and incentives) or at set tariffs
(to distributors).
Transmission and distribution
Under some of the provisions of the current regulatory scheme, electricity transmission and distribution activities will continue
to be regulated as their particular characteristics impose limitations on the possibility of introducing competition. The current
regulatory framework has changed, however, the manner in which electricity businesses receive payments, in order to promote
efficiency and quality of service.
The regulations take into account the investment and operational costs related to transmission activities. Fixed payment for
distribution is based on investment and on operational and maintenance costs, as well as distribution areas, incentives for the quality
of supply, loss reduction and commercial management costs.

Trading
Trading (or retailing) in Spain was created by Law 54/1997. Traders are companies that have access to the transmission and
distribution networks and whose function is to sell electricity to eligible consumers or other agents in the system. Economic terms of
retailing transactions are freely agreed to by the parties concerned. Therefore, this type of supply is not subject to fixed tariffs.

Tariffs
Spanish electricity tariffs are fixed annually by the government through Royal Decree. Royal Decree no. 1432/2002 of
December 2002 established a new method of calculation for the period 2003-2010. The new method of calculation allows tariffs to be
fixed under more objective, transparent and predictable conditions. Annual increases to tariffs cannot exceed 2% and electricity
companies carrying out regulated activities can recover the losses known as rate deficits, caused by the reduction of tariffs during the
period 2000-2002.
Royal Decree no. 1802/2003 of December 26, 2003 fixed the tariffs for 2004 and provided for an average rise of 1.72% on the
2003 average tariff (or reference tariff, which includes all applicable tariffs and costs).
78
 The integrated supply tariffs increased 1.54% from 2003, while access tariffs were increased 1.60% from 2003. Both the supply
and access tariffs for residential consumers increased 1.475% from 2003, and tariffs for other consumers increased 1.6% from 2003.
These tariff increases are due to the inclusion of the following elements of the tariffs for 2004 (the last three of which were
introduced for the first time for 2004):
• payments in respect of regulated activities such as transport, distribution and trading carried out by certain companies,
mainly in the Canary and Balearic Islands;
• fixed compensation for the costs incurred by specific companies owning electricity generation facilities in connection with
the transition to the competitive market regime (stranded costs);
• the annual compensation for recovering the rate deficit of regulated activities as well as the review of the compensation to
the electricity systems inside and outside the Iberian Peninsula during 2001 and 2002;
• the outcome of the updates for deviations in the estimates adopted for calculating the 2003 tariff; and
• REE’s costs relating to the management of the system outside the Iberian Peninsula.
Gas regulation
Law 34/1998 of October 7, 1998 began the liberalization process of the Spanish natural gas sector and has been amended several
times in recent years in order to improve this liberalization process.
The main features of the current regulatory framework are as follows:
• the unbundling of activities so that no operator may carry out regulated activities (regasification, strategic storage,
transmission, distribution and supplying at set tariffs) and liberalized activities (trading at market prices) simultaneously;
• as of January 1, 2003, all consumers, regardless of their consumption, are fully eligible to select their suppliers as well as the
method of supply, either at market prices or with a set tariff;
• all operators and consumers have the right to access the transmission and distribution grids by paying access tariffs
previously approved by the Spanish government. This right is based on principles of free access, objectivity and
transparency. Access to the grid can only be denied under circumstances set forth in certain laws and regulations in cases
where there is a lack of capacity or reciprocity;
• all tariffs, tolls and royalties are based on costs that are transferred to consumers of natural gas. The tariff is based on levels
of pressure and consumption rather than by type of use. The tolls and royalties for transport and distribution are based on the
level of pressure at which the network is connected to the consumers’ installation and on the volume of annual consumption
rather than on distance;
• to ensure that ENAGAS, S.A., the current technical manager of the system, as well as the owner of the majority of the high-
pressure transmission grid, is guaranteed the highest level of independence, the maximum stake that can be legally held in it,
directly or indirectly, by any shareholder has been reduced to 5%. Any necessary reductions must take place before
December 31, 2006; and
• Royal Decree no. 1434/2002 of December 27, 2002, specifically regulating transmission, distribution, trading and supply
activities, as well as the process of authorizing natural gas plants and installations, regulates relations between gas
companies and their customers, both in the regulated and unregulated markets.
79
EU LEGISLATION
On December 19, 1996, a major breakthrough in the creation of an internal market in energy in the EU was reached with the
adoption by the European Parliament and the EU Council of Ministers of Directive 96/92/EC “concerning common rules for the
internal market in electricity,” or the Access Directive.
The Access Directive endeavors to promote a competitive open electricity market reconciling the following challenges: (1)
increasing efficiency in production, transmission and distribution; (2) reinforcing security of supply; (3) increasing competitiveness of
the European economy. The Access Directive was reviewed beginning in March 2001. As a result, Directive 2003/54/EC was adopted
and went into effect in August 2003. Member States must implement this Directive by July 1, 2004. The expected scope and impact
of this new Directive is discussed below.

Public service obligations and customer protection

Member States must ensure that electricity companies are operated in accordance with the principles of Directive 2003/54/EC
with a view toward achieving a competitive, secure and environmentally sustainable market in electricity and must not discriminate
between these companies with respect to rights or obligations. Member States may require distribution companies to connect
customers to their grid under the Directive. Member States must ensure that eligible customers are effectively able to switch to new
suppliers.

Planning of new generation capacity

With regard to construction of new generating capacity, Member States must adopt a tender procedure that must be conducted in
accordance with objective, transparent and non-discriminatory criteria. Member States must provide precise criteria for the tender and
these criteria must be made public. In the event of a refusal of authorization to construct new generation facilities, the applicants must
be duly informed of the reasons for such refusal, and appeal procedures must be made available.

Tendering for new generation capacity

Member States must ensure the possibility of providing for new capacity or energy efficiency/demand-side management
measures through a tendering procedure or an equivalent procedure based on certain objectives, including transparency, non-
discriminatory terms and published criteria. However, these procedures may only be launched if, on the basis of the authorization
procedure, the generating capacity being built or the energy efficiency/demand-side management measures being taken are not
sufficient to ensure the objectives referred to above.
Tender specifications must be made available to any interested undertaking established in the territory of a Member States, and
must contain a detailed description of the contract specifications and the procedure to be followed by all tenderers, including an
exhaustive list of criteria governing the selection of tenderers and incentives.
Member States must designate an independent authority responsible for the organization, monitoring and control of the
tendering procedure.
80
 Transmission system operation
Member States must ensure the long-term ability of the system to meet reasonable demands for the transmission of electricity in
order to ensure the security of supply. The transmission system operator will be, in that context, responsible for ensuring a secure,
reliable and efficient electricity system and ensuring the availability of all necessary ancillary services insofar as this availability is
independent from any other transmission system with which its system is interconnected. The transmission system operator must also
provide to any other system operator with which its system is interconnected, sufficient information to secure efficient cooperation
and non-discrimination between users or classes of system users.
Where the transmission system operator is part of a vertically-integrated undertaking, it must be independent, at least in terms of
its legal form, organization and decision-making, from other activities not relating to transmission, but these rules do not require the
separation of ownership of assets of the transmission system from the vertically-integrated undertaking. In order to ensure the
independence of the transmission system operator, specific criteria must be followed, including that the entities responsible for the
management of the transmission system operator may not be part of the corporate structure of the integrated electricity undertaking
responsible, directly or indirectly, for the day-to-day operation of the generation, distribution and supply of electricity.

Distribution system operation

Member States must designate or require companies that own or are responsible for distribution systems to designate, for a
period of time to be determined by the Member State, one or more distribution system operators. The distribution system operator
must maintain a secure, reliable and efficient electricity distribution system in its area, respecting the environment and without
discrimination between system users or classes of users in favor of its related companies.
Where the distribution system operator is part of a vertically-integrated undertaking, it must be independent, at least in terms of
its legal form, organization and decision making, from other activities not relating to distribution, without having to separate the
ownership of assets of the distribution system operator from the vertically-integrated undertaking. In order to ensure the independence
of the distribution system operator, specific criteria must be followed, including that the ones responsible for the management of the
distribution system operator may not be part of the corporate structure of the integrated electricity undertaking responsible, directly or
indirectly, for the day-to-day operation of the generation, transmission or supply of electricity. These requirements, however, may not
be applied to integrated electricity undertakings serving less than 100,000 connected customers, or serving small, isolated systems.
The above considerations do not prevent the existence of a combined transmission and distribution system operator, which is
independent in its legal form, organization and decision making from other activities not related to transmission or distribution system
operation. These rules do not require separation of ownership of assets of the combined system from the vertically-integrated
undertaking.

Unbundling and transparency of accounts

Member States or designated authorities, including regulatory authorities, must have access to the accounts of electricity
undertakings. Electricity companies whatever their system of ownership or legal form, must draw up, submit to audit and publish their
annual accounts in accordance with the rules of national law concerning the annual accounts of limited liability companies.
Electricity companies must keep separate accounts for their transmission and distribution activities, as they would be required to
do if the activities in question were carried out by separate companies, in order to avoid discrimination, cross subsidization and
distortion of competition. Until July 1, 2007, they must keep separate accounts for supply activities for eligible customers and supply
activities for non-eligible customers.
81
 Organization of access to the system
Third party access to transmission and distribution must be ensured by Member States, based on published tariffs and applicable
to all eligible customers and applied objectively and without discrimination between system users. The operator of a transmission or
distribution system may refuse access only if it lacks the necessary capacity, but must provide duly substantiated reasons for such
refusal.
Member States must ensure that the eligible customers are: (a) until July 1, 2004, the eligible customers as specified in Article
19 of Directive 96/92/EC; (b) from July 1, 2004, at the latest, all non-household customers; (c) from July 1, 2007, all customers. In
order to avoid imbalance in the opening of electricity markets, contracts for the supply of electricity with an eligible customer in the
system of another Member State may not be prohibited if the customer is considered eligible in both systems involved.
Member States must designate one or more competent bodies as regulatory authorities. Those bodies must be completely
independent from the interests of the electricity industry and are responsible for ensuring non-discriminatory, effective competition
and the efficient functioning of the market and have the authority to require transmission and distribution system operators, if
necessary, to modify terms, conditions, tariffs, rules, mechanisms and methodologies. They may act as dispute settlement authorities
and, therefore, must be competent to judge and to decide on a complaint that any third party may present relating to the transmission
or distribution system operator.
Member States are to create appropriate and efficient mechanisms for regulation, control and transparency so as to avoid any
abuse of a dominant position. In the event of a sudden crisis in the energy market, a Member State may temporarily take the necessary
safeguard measures, taking into consideration that such measures must cause the least possible disturbance in the functioning of the
internal market.
Derogation of relevant provisions concerning transmission, distribution, unbundling and transparency of accounts and
organization of access to the system may apply if Member States demonstrate that there are substantial problems with regard to the
operation of their small isolated systems.
Member States must bring into force all necessary provisions to comply with the Directive 2003/54/EC by July 1, 2004.
Member States may, however, postpone until July 1, 2007, the implementation of unbundling of distribution system operators (Article
15 (1)), without prejudice to all legal requirements to produce such implementation.
Gas
The European Parliament and Council of Ministers adopted the new Gas Directive 2003/55/EC of June 26, 2003, which contains
common rules for the natural gas market. The Directive entered into force in August 2003 and Member States must implement it by
July 1, 2004. This Directive requires legal unbundling of network activities from supply, establishes a regulator with well-defined
functions in all Member States, requires that network tariffs are published, reinforces public service obligations and introduces
measures to increase the security of supply.
The main provisions established by the Gas Directive 2003/55/EC are as follows:
• General rules for the organization of the sector: Member States must ensure, on the basis of their institutional organization
and with due regard to the principle of subsidiarity, that natural gas undertakings are operated in accordance with the
principles of this Directive with a view toward achieving a competitive, secure and environmentally sustainable market in
natural gas and must not discriminate between these undertakings with respect to either rights or obligations. Member States
may require that undertakings, in the general economic interest, carry out public service obligations that are clearly defined,
transparent, non-discriminatory, verifiable and guarantee equality of access for EU gas companies to national consumers and
must take appropriate measures to protect final customers. Member States must ensure that eligible customers are effectively
able to switch to new suppliers. Nevertheless, long-term contracts will continue to be an important part of the gas supply of
Member States and should be maintained as an option for gas supply undertakings as long as they do not undermine the
objectives set by the Directive and are compatible with the Treaty, including competition rules.
82
• Transmission, storage, LNG, distribution and supply: In the case of a gas undertaking performing transmission, distribution,
storage or liquified natural gas (LNG) activities that are separate, in legal form, from those undertakings performing
production and/or supply activities, the designated operators may be the same undertaking owning the infrastructure. In
order to ensure efficient and non-discriminatory network access, transmission and distribution systems should be operated
through legally separate entities where vertically-integrated undertakings exist.
• Organization of access to the system: Third party access to the transmission and distribution system, and LNG facilities
must be ensured based on published tariffs, applicable to all eligible customers, including supply undertakings, and applied
objectively and without discrimination between system users.
• For the organization of access to storage facilities and linepack, Member States may choose either or both of the following
access procedures (i) negotiated access (with the relevant storage system operator or natural gas undertakings) in which the
parties are obliged to negotiate in good faith and must publish their main commercial conditions for the use of storage,
linepack and other ancillary services; or (ii) in the case of regulated access, Member States must give rights to access on the
basis of published tariffs and/or other terms and obligations for use of those facilities. This right of access for eligible
customers may be given by enabling them to enter into supply contracts with competing natural gas undertakings other than
with the owner and/or operator of the system or a related undertaking.
• Member States must ensure that natural gas undertakings and eligible customers are able to access upstream pipeline
networks in compliance with the objectives of fair and open access, achieving a competitive market in natural gas and
avoiding any abuse of a dominant position.
• Eligibility: Member States must ensure that the eligible customers are: (a) until July 1, 2004, the eligible customers as
specified in Article 18 of Directive 98/30/EC; (b) from July 1, 2004, at the latest, all non-household customers; (c) from July
1, 2007, all customers. Contracts for supply with an eligible customer in the system of another Member State must not be
prohibited if the customer is eligible in both systems involved.
• Unbundling of accounts: Natural gas undertakings, whatever their system of ownership or legal form, must draw up, submit
to audit and publish their annual accounts. These undertakings must, in their internal accounting, keep separate accounts for
each of their transmission, distribution, LNG and storage activities as they would be required to do if the activities in
question were carried out by separate undertakings, in order to avoid discrimination, cross-subsidization and distortion of
competition.
• Emergent markets: Member States qualifying as an emergent market, which, due to the implementation of this Directive
would experience substantial problems, may derogate some provisions of this Directive, including matters relating to the
unbundling of transmission and distribution systems operators, third party access to both systems of transmission and
distribution and provisions related to market opening and reciprocity. This derogation must automatically expire at that time
the Member State no longer qualifies as an emergent market.
• According to Article 28 of this Directive, at the time the derogation referred in the previous paragraph expires, the definition
of eligible customers must result in an opening of the market equal to at least 33% of the total annual gas consumption of the
national gas market. Two years thereafter, all non-household customers must be eligible customers, and three years
thereafter, all customers must be eligible.
83
BRAZIL
Legal and regulatory framework
The Brazilian Constitution provides that the development, use and sale of electricity may be undertaken directly by the federal
government or indirectly through the granting of concessions, permissions and authorizations. Historically, the Brazilian electricity
industry has been dominated by generation, transmission and distribution concessionaires controlled by the federal and state
governments. In recent years, the Brazilian government has taken a number of measures to reform the electricity industry. Generally
speaking, these measures have been taken with a view toward increasing the role of private investment and eliminating existing
barriers to foreign investment, thus increasing overall competition in the electricity industry.
Initiated in 1995, the reform carried out in the energy industry established the rules for the execution of concession agreements
between concessionaires and the Brazilian government, the requirement of a public bidding process for the granting of concessions
related to energy facilities and services and competition in generation activity, following a transition period to a competitive market
foreseen at that time. Due to difficulties faced during the implementation of these reforms, combined with an aversion to risk caused
by the rationing program that occurred in 2001, the current Brazilian government launched a new reform in the energy industry with a
view toward securing the future supply of electricity and reasonable tariffs.
On March 15, 2004, the Brazilian government enacted the New Electricity Industry Model Law, or New Model Law. This law
significantly changed the regulatory structure of the Brazilian electricity market, mainly by increasing the oversight of the federal
government over the industry, including government contract awards, and granting it responsibilities previously given to ANEEL.
Principal regulatory authorities
Ministry of Mines and Energy and ANEEL
The Ministry of Mines and Energy, or MME, is the Brazilian government’s primary regulatory entity for the electricity industry.
Following the adoption of the New Model Law, the MME has taken over certain duties that were previously the responsibility of
ANEEL, an independent federal regulatory agency, including the drafting of guidelines governing the award of concessions and the
issuance of directives governing the bidding process for the construction and operation of hydroelectric plants. The MME may, at its
discretion, however, delegate such tasks to ANEEL.
The Brazilian electricity industry is regulated by ANEEL. After the enactment of the New Model Law, ANEEL’s
responsibilities have changed such that its primary responsibility now is to regulate and supervise the electricity industry in line with
the policy to be dictated by the MME and to respond to matters that are delegated to it by the federal government.
National Energy Policy Council
In August 1997, the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) was created to
advise the Brazilian president with respect to the development and creation of national energy policy. The CNPE is presided over by
the MME, and the majority of its members are ministers in the federal government. The CNPE was created to, among other things,
promote the rational use of Brazil’s energy resources and to assure the supply of energy to the country.
ONS
The National System Operator (Operador do Sistema Nacional, or ONS) was created in 1998. The ONS is a non-profit, private
entity comprised of liberalized customers (defined below in — The New Model Law — The Liberalized Market) and electric utilities
engaged in the generation, transmission and distribution of electricity, in addition to other private participants such as importers and
exporters. The primary role of the ONS is to coordinate and control the generation and transmission operations in the Interconnected
Power System, subject to the MME’s authorization and ANEEL’s regulation and supervision.
84
 Wholesale Electricity Market and its successor—the CCEE
The Wholesale Electricity Market was originally a self-regulated body responsible for the operation of the short-term energy
market, primarily to ensure that purchases of energy in the short-term energy market were settled and cleared in an efficient manner.
Beginning in 2002, the Wholesale Electricity Market became subject to authorization, inspection and regulation by ANEEL.
Participants in the Wholesale Electricity Market include all of the large electricity generating companies, distributors and energy
traders.
Under the New Model Law, the Wholesale Electricity Market will be discontinued and its activities and assets will be absorbed
by the new Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) within 90 days of the official
publication of the regulation establishing the CCEE. No date has yet been set for the official publication of this regulation.

Electricity Industry Monitoring Committee and the Energy Research Company—EPE

The New Model Law authorized the creation of the Electricity Industry Monitoring Committee (Comitê de Monitoramento do
Setor Elétrico, or CMSE) which acts under the direct supervision of the MME. The CMSE is in charge of monitoring the supply
conditions of the system and with indicating steps to be taken to correct eventual identified problems uncovered by such monitoring.
The New Model Law authorized the creation of the Energy Research Company (Empresa de Pesquisa Energética, or EPE), a
state-owned company that is responsible for conducting strategic research on the energy industry, including electricity, oil, gas, coal
and renewable energy sources. EPE will be responsible for, among other things, studying projections of the Brazilian energy matrix,
preparing and publishing the national energy balance, identifying and quantifying energy resources and obtaining the required
environmental licenses for new generation concessionaires.

The New Model Law

The New Model Law, enacted by the current Brazilian administration in March 2004, introduced significant changes to the
former directives and structure of the electricity industry, with a view toward fostering a more centralized industry at the federal level.
The model aspires to provide incentives to private and public entities to build and maintain generation capacity that guarantees Brazil
a secure electric power supply while simultaneously providing reasonable consumer tariffs through competitive energy auctions.
Although the New Model Law is already in effect, as are the directives described below, several important aspects of this model have
yet to be regulated.
Parallel Environment for the Trading of Electricity
Electricity sales under the new model will be divided into two market segments: the regulated market, or Pool, which includes
the sale of electricity to regulated consumers such as distributors, and the free market, which includes sales of electricity to non-
regulated consumer such as liberalized customers and electricity traders.
The Regulated Market, or Pool
The purchase of electricity by distributors for purposes of providing electricity to captive consumers will be made in the
regulated market by means of a bidding process (auction). Distributors will be required to contract energy from generators via a
pooling process managed by ANEEL, directly or through the CCEE, the successor to the Wholesale Electricity Market (See “—
Principal Regulatory Authorities”). Energy purchases will be made through two types of bilateral agreements: the Contrato de
Quantidade de Energia (“Energy Agreement”) and the Contrato de Disponibilidade de Energia (“Capacity Agreement”). Together,
these agreements comprise the PPAs in the Regulated Market (Contratos de Comercialização de Energia no Ambiente Regulado).
85
 The Liberalized Market
The free market will cover freely negotiated energy sales between generation concessionaires, independent power producers,
self-generators, energy traders, importers of electricity and liberalized customers. Liberalized customers are consumers that may
purchase bulk electricity through bilateral contracts and are limited to (i) existing consumers that, in July 1995, had demand of at least
10 MW, supplied at voltage levels equal to or greater that 69 kV, (ii) new consumers with demand of at least 3 MW at any voltage,
(iii) groups of consumers subject to agreement with the local distribution concessionaire and (iv) existing consumers with demand of
at least 3 MW, supplied at voltage levels equal to or greater than 69 kV. The free market will also include existing bilateral contracts
between generators and distributors until they expire. Upon expiration, these contracts must be executed under the New Model Law
guidelines.
Energy consumers wishing to negotiate contracts for energy supply outside the Pool will be able to leave the regulated system
by notifying their respective distributors up to three years in advance. Once a consumer has opted for the free market, it may only
return to be supplied by the local distributor once it has given its regional distributor five years notice, provided that the distributor
may reduce such term at its discretion. State-owned generators may sell energy to liberalized customers, but unlike private generators,
they are obligated to do so through an auction process.

Restricted Activities of Distributors

The distributors in the National Interconnected System are not permitted to (i) develop activities related to the generation or
transmission of electricity, (ii) sell electricity to liberalized customers, except for those in their concession area and under the same
conditions and tariffs maintained with respect to captive consumers, (iii) hold, directly or indirectly, any interest in any other
company, corporation or partnership or (iv) develop activities that are unrelated to their respective concessions, except for those
permitted by law or in the relevant concession agreement. Generators will not be allowed to hold equity interests in excess of 10% in
distributors. The New Model Law has granted a transition period of eighteen months for companies to comply with these rules, and
ANEEL can extend this term for another eighteen months in the event that companies are unable to do so within the prescribed
timeframe.

Elimination of Self-Dealing
Since the purchase of electricity for captive consumers will be performed through the Pool, self-dealing, a practice whereby
distributors were permitted to purchase up to 30% of their energy needs through electricity that was either self-produced or acquired
from affiliated companies, is no longer permitted, except in the context of agreements that were duly approved by ANEEL prior to the
enactment of the New Model Law.
Independent Power Producers and Self-Producers
The Brazilian government introduced the concept of the independent power producer, or IPP, as an additional measure in
opening the electricity industry to private investment and enhancing competition in energy generation. An IPP is a legal entity or
consortium holding a concession or authorization for the sale of electricity to (i) liberalized customers in the free market, (ii)
concessionaires of electricity services, subject to criteria defined by the MME, (iii) consumers who have not had their supply assured
by the local distribution concessionaire after more than 180 days, upon request, subject to criteria defined by the MME and (iv)
groups of ordinary consumers, upon previous agreement with the local distribution concessionaire, subject to criteria defined by the
MME. Self-producers that generate power primarily for their own use may contribute or exchange electricity with other self-
producers within a consortium, sell excess electricity in the free market or exchange electricity with the local distribution
concessionaire to allow for consumption by industrial plants owned by the self-producer and located somewhere other than in the area
of generation.
86
 Initial Supply Contracts
During the transition period (1998-2006) to a free and competitive energy market as envisioned in the reform initiated in 1995,
purchases and sales of electricity between generation and distribution concessionaires must occur pursuant to Initial Supply Contracts.
Initial Supply Contracts are primarily “take or pay” commitments with prices and volumes approved by ANEEL. The purpose of
Initial Supply Contracts is to guarantee stable supply and prices for distribution companies and a predictable stream of revenue for
generation companies. During the transition period, the goal was to permit the gradual introduction of competition in the industry and
to protect market participants against exposure to potentially volatile spot market prices. From 2003 to 2006, the electricity committed
to Initial Supply Contracts has been reduced by 25% each year. Generation companies, under the New Model Law, will be allowed
trade their uncontracted electricity in the Pool or in the free energy market. In addition, the New Model Law allows public generation
companies to amend the Initial Supply Contracts that were in full force and effect as of March 2004. Generation companies that have
amended their Initial Supply Contracts are not required to comply with the requirement to reduce the amount of electricity committed
under such contracts by 25%.

Ownership limitations
In 2000, ANEEL established new limits on the concentration of certain services and activities within the electricity industry.
Under these limits, with the exception of companies participating in the National Privatization Program (which need only comply
with such limits once their final corporate restructuring is accomplished) no electricity industry company (including both its
controlling and controlled companies) may (i) own more than 20% of Brazil’s installed capacity, 25% of the installed capacity of the
South/Southeast/Central-West region or 35% of the installed capacity of the North/Northeast region, except if such percentage
corresponds to the installed capacity of a single generation plant, (ii) own more than 20% of Brazil’s distribution market, 25% of the
South/Southeast/Central-West distribution market or 35% of the North/Northeast distribution market, except in the event of an
increase in the distribution of energy exceeding the national or regional growth rates or (iii) own more than 20% of Brazil’s trading
market with final consumers, 20% of Brazil’s trading market with non-final consumers or 25% of the sum of the above percentages.

Distribution tariffs
Distribution tariff rates are subject to review by ANEEL, which has the authority to adjust and review tariffs in response to
changes in energy purchase costs and market conditions. When adjusting distribution tariffs, ANEEL divides the costs of distribution
companies between (i) costs that are not the under control of the distributor, or non-manageable costs, and (ii) costs that are under the
control of distributors, or manageable costs. The readjustment of tariffs is based on a formula that takes into account the division of
costs between the two categories.
Non-manageable costs include, among others, the following:
• costs of electricity purchased for resale pursuant to Initial Supply Contracts;
• costs of electricity purchased from Itaipu;
• costs of electricity purchased pursuant to bilateral agreements that are freely negotiated between parties; and
• certain other charges for the transmission and distribution systems.
Manageable costs are determined by subtracting all the non-manageable costs from the distribution company’s revenues.
Each distribution company’s concession agreement provides for an annual readjustment of tariffs. In general, non-manageable
costs are fully passed through to consumers by the tariff. Manageable costs, however, are restated for inflation in accordance with the
IGP-M index. After the initial three to five years following a periodic tariff review, depending on each concession agreement
(Escelsa, 3 years; Bandeirante, 4 years; Enersul, 5 years), the IGP-M index must be reduced by a factor determined by ANEEL in
order for distribution companies to share with their consumers gains of productivity, the so-called X Factor.
87
 The X Factor is determined by ANEEL in accordance with three components: (i) expected gains of productivity from increase in
scale; (ii) consumers evaluation through ANEEL’s Consumer Satisfaction Index; and (iii) the cost of the labor force. Tariffs are
readjusted annually to reflect the effects of inflation on tariffs. Every period, as noted in the relevant concession agreement, there is a
periodic review of the tariffs rates (revisão tarifária periódica) in which the tariff is reviewed with a view toward assuring the
necessary revenues to cover efficient operational costs and adequate remuneration of prudent investments. In addition,
concessionaires of distribution are entitled to extraordinary review of tariffs (revisão extraordinária), on a case-by-case basis, to
ensure the financial equilibrium of the concession and to compensate for unpredictable costs, including taxes, which significantly
change their cost structure.
Impact of the New Model Law on our Brazilian operations
The impact of the New Model Law on our Brazilian operations depends on the complete implementation of the rules. In the case
of our Brazilian generation assets, it is not expected to have a major impact because most of our companies have already signed PPAs
that have been approved by ANEEL, leaving only a limited exposure in the new environment for energy contracting. Regarding
distribution, the main risks relate to the forecast of the energy consumption for the 5-year period and the potential exposure to the
regulated contracting environment.

TELECOMMUNICATIONS
Legislative and regulatory measures have been taken in recent years to change the telecommunications market in Portugal from
a monopoly held by PT to a fully open and competitive market. PT operates under a concession, which had granted it the exclusive
right for 30 years from March 20, 1995, renewable thereafter for successive periods of 15 years upon agreement by the government
and PT, to provide, among other things, domestic and international public fixed voice telephone services and leased lines and to
install and operate the related basic telecommunications network in Portugal. By the end of 2002, the government released the
infrastructures that constitute the basic telecommunications network from public domain and sold them to PT, pursuant to the
amendment of the terms of the concession introduced by Decree law no. 31/2003 of February 17, 2003.
The EU adopted in 2002 a number of directives (known as the Review, 99 Telecom package) relating to the telecommunications
market, the latest of which is Directive 2002/77/CE of September 16, 2002, that set forth the parameters for regulating
telecommunications sectors in EU member countries. This package was implemented in Portugal through the Electronic
Communications Law (Law no. 5/2004 of February 10, 2004), also known as Regicom. This law revoked the Law 91/97 of August 1,
1997, as amended by Law 29/2002 of December 6, known as the Basic Law of Telecommunications, which had been adopted in
Portugal in anticipation of the full opening of competition in the Portuguese telecommunications market. In accordance with EU
Legislation, this law established the principle of telecommunications liberalization, therefore abolishing the exclusive rights of PT and
provided that the Portuguese telecommunications market would be fully opened to competition as of January 1, 2000.
Legislative framework
Following the revocation of the Basic Law of Telecommunications, the Electronic Communications Law now provides the
legislative framework and basis for telecommunications regulation in Portugal. The Portuguese government enacted this law in order
to comply with and implement a number of directives on telecommunications adopted by the EU Council of Ministers on March 7,
2002 (part of the Telecom Package). The other key elements of the framework of laws and regulations that apply to the
telecommunications sector in Portugal are:
• regulations to be adopted by the Portuguese telecommunications regulator to implement and give effect to different
provisions of the Electronic Communications Law (provisionally, certain regulations approved under the former Basic Law
of Telecommunications will be kept in effect until the new regulations are approved);
88
 • decree laws not revoked by the Electronic Communications Law and concerning in particular the use of radio frequencies,
the approval and free circulation of terminal and radio equipment and the telecommunications infrastructures in buildings
regime;
• directives, regulations, and policies of the EU;
• legislation establishing and defining the functions of the ICP-Autoridade Nacional de Comunicações, or ICP-ANACOM, as
the Portuguese telecommunications regulator and the Ministry of Economy, or ME, as the government entity with basic
responsibility for telecommunications policy in Portugal; and
• ICP-ANACOM determinations and regulations issued on the basis of specific powers granted by specific legislation.
Broadly, the Electronic Communications Law introduced, among other things, (i) new rules on access to telecommunications
infrastructure, (ii) increases to administrative fines and (iii) the reinforcement of the powers and autonomy of ICP-ANACOM, namely
by granting it powers to approve and publish legally binding regulations, to define the relevant telecom markets and to identify
companies with significant market power.
Because the approval of the Electronic Communications Law entirely superseded the Basic Law of Telecommunications and
almost all previous ancillary legislation, it is expected that extensive regulation will have to be passed in the coming months in order
to fully replace the former legislation and fully implement the new Electronic Communications Law. Matters such as implementation
of the new municipal tax for rights of way, the definition of telecommunications fees and relevant markets, identification of
companies with significant market power and their inherent obligations, and the regulation of the procedures required for the
attribution of rights to use numbering and frequency resources are amongst the issues expected to require immediate attention. As this
regulation is still being developed, there can be no assurance that final regulations will be favorable for new market entrants such as
ONI.
As under the Basic Law of Telecommunications, the Electronic Communications Law also regulates the general obligations of
operators and service providers concerning their users, in particular on issues such as mandatory publicly available information
concerning their offers. Under the new regime, ICP-ANACOM may also decide to impose specific additional obligations on operators
deemed to have significant market power.
The Portuguese regulator
Although the Ministry of Economy retains basic responsibility for telecommunications policy in Portugal, ICP-ANACOM,
acting under new statues approved by Decree law no. 309/2001 of December 7, is allowed to act with great autonomy and is entrusted
with a wide range of responsibilities regarding the regulation, supervision and representation of the telecommunications sector. The
Electronic Communications Law also defines the main objectives of regulation and gives ICP-ANACOM the main competencies
foreseen in the new EU legal framework.
Licensing and registration
The new EU Licensing Directive prohibits any limitation on the number of new entrants in telecommunications markets, except
as required to ensure an efficient use of radio frequencies. The licensing regime is based on general authorizations as opposed to
individual licenses. However, it permits national regulatory authorities to make the granting of numbering and radio frequency
resources subject to individual usage rights.
To facilitate implementation of the EU Licensing Directive, the Electronic Communications Law introduced a new concept
regarding access to the telecommunications market. According to the relevant provision, telecommunications services normally fall
under a general authorization regime (Regime de autorização geral). This, in turn, requires that the entities that provide
telecommunications services in Portugal are obligated to (i) provide ICP-ANACOM with a summary and description of the services
they intent to offer, (ii) communicate the date planned for the launch of their activity and (iii) provide certain identification elements
under terms defined by ICP-ANACOM and recently published. After the provision of this information to ICP-ANACOM the
companies may immediately start their activity.
89
 If the provision of the relevant services requires individual rights of use of frequencies or numbering, these rights can only be
granted through an open, transparent and non-discriminatory procedure. The specific rules applicable to this procedure will be
established by ICP-ANACOM, unless it relates to services to be made available for the first time in a specific frequency band, or
relates to frequencies available for the first time and involves a competitive selection between several interested parties. In cases for
which the service is available for the first time, the government will be responsible for approving the relevant applicable regulations.
Pricing and fees
Telecommunications operators in Portugal other than PT are free to establish the prices for their services. PT entered into a
pricing convention with ICP-ANACOM and the former DGCP, the Portuguese commerce and prices Department in the Ministry of
Economy, which established price caps on PT’s prices for fixed telephone services (i.e., installation charges, line rental fees and
prices for domestic and international telephone calls), leased lines and telex. Prices must be transparent, cost oriented and non-
discriminatory and must be published in the Official Gazette.
Operators and service providers must pay administrative fees to ICP-ANACOM, established by the Ministry of Economy. The
amounts of these fees are yet to be determined, as the relevant fees due under the Basic Law of Telecommunications are no longer
applicable under the Electronic Communications Law. The granting of numbering resources will also be subject to administrative fees
that are different than those under the previous legal framework. The possibility for competitive bidding or auction procedures for the
allocation of numbers and frequencies is also considered in the Electronic Communications Law.

Interconnection
Interconnection regulation is now generally regulated by the Electronic Communications Law. The basic principle is that
operators are free to negotiate the technical and commercial terms and conditions applicable to interconnection agreements. However,
it has also granted ICP-ANACOM a wide range of powers not only to intervene in dispute resolution or by its own initiative and to
fix “ex-ante” conditions, but also to introduce certain conditions deemed necessary to modify existing interconnection agreements.
National telecommunication strategy
According to the Portuguese Plans approved by the Portuguese Parliament for the four year period 2003/2006, it is intended to
improve the telecommunication sector’s technological progress and to promote an independent regulator furnishing it with means to
prevent all obstacles to a fully open and competitive market.
Internet
At present, there is limited Portuguese and EU legislation specifically covering the provision of Internet services, apart from the
general rules established by the Electronic Communications Law, although there are laws and regulations relating to certain specific
aspects of Internet activities, including the use of domain names, digital signatures, electronic invoices and data protection. In
addition, the EU adopted what is known as the E-Commerce Directive, which sets out basic principles for regulating electronic
activities in the EU. There are also a number of pending legislative and regulatory proposals in Portugal and in the EU.
Internet advertising activities are subject to the relevant restrictions of the Portuguese Advertising Code, to Portuguese
legislation applicable to home advertising and, more recently, to Decree law no. 7/2004 of January 7, 2004, or the E-Commerce Law
implementing the corresponding EU e-Commerce Directive. In addition, sales through the Internet can be considered a form of retail
sales and subject to Decree law no. 143/2001 of April 26, 2001, pursuant to which a consumer has the right to cancel a contract within
14 business days to 3 months, depending on the extent to which the seller has complied with the information requirements established
by this decree law.
90
 On June 8, 2000, in order to ensure the free circulation of electronically provided services, including commerce between
Member States, the EU adopted the E-Commerce Directive (2000/31/EC). This Directive sets out two main principles: services
electronically provided by an ISP established within a Member State are required to comply with the legal requirements of such
Member State (country of origin principle); and any Member State may not, as a rule, restrict the electronic services provided from
another Member State (principle of mutual recognition). Portugal has recently implemented this directive in the E-Commerce Law
(approved by Decree law no. 7/2004, of January 7) and, although exceptions apply to several matters such as tax, competition,
personal data, gambling activities and notarial acts, this law sets out the main rules applicable to the provision of services using
Internet and online contracting.
On December 21, 1998, the EU approved a plan, known as the Action Plan, to promote safer use of the Internet by combating
illegal and harmful content on global networks. While some member countries have adopted this Action Plan, to date Portugal has
not.
It is also possible that “cookies,” or pieces of electronic information used to track demographic information and to target
advertising, may become subject to increased levels of legislation limiting or prohibiting their use. The recently-enacted E-Commerce
Law did not, however, clarify this issue.
In addition, because of the global nature of the Internet, our Internet activities may be deemed subject to the laws or regulations
of other countries.
Item 5. Operating and Financial Review and Prospects
OVERVIEW
COMPANY OVERVIEW
Our principal business is the generation and distribution of electricity in Portugal and Spain (the Iberian Peninsula), which we
consider to be and refer to in this annual report as our domestic market. We are also involved in activities related to our core energy
business both in our domestic market, such as the distribution and supply of natural gas, and in Brazil, where we exercise control over
three distribution companies and own interests in generation. In addition, we hold interests in other complementary businesses, such
as a 56% stake in ONI, a fixed line telecommunications operator in Portugal and Spain.

FACTORS IMPACTING OUR BUSINESS

Our businesses, financial condition and operating performance have been and will continue to be primarily affected by:
• the macroeconomic conditions in the countries in which we operate, which influence the overall level of demand for
electricity and gas;
• changes in the regulatory frameworks in the countries in which we operate, which can affect the tariffs that we are permitted
to charge for electricity and gas;
• our level of operating costs, which consist primarily of depreciation and amortization, fuel costs and costs of purchased
electricity and gas, and wages and salaries; and
• the volatility of the Brazilian real against the euro, which influences our reported results and the value of our consolidated
assets and liabilities.
91
 Economic factors
The level of demand for electricity in countries in which we operate is directly related to the general level of economic activity
in those countries.
Over the last decade, Portugal has experienced a stronger rate of economic growth than many other EU Member States. From
1993 through 2003, Portugal’s real gross domestic product grew at an average annual rate of 2.6%, as compared with an average of
2.2% for all EU Member States. Portugal, like other European countries, was affected by a recession from 1992 through 1994. Since
1996, however, the Portuguese economy has recovered and growth in Portugal’s gross domestic product has exceeded the EU
average. The structure of Portugal’s economy has been undergoing significant changes, as higher value-added sectors, such as
manufacturing and services, have gained in relative importance compared to lower value-added sectors, such as agriculture. In 2003,
Portuguese GDP declined by about 1.0% compared to a growth rate of 0.5% in the euro zone and a growth rate of 0.4% in Portugal in
2002 and 1.6% in 2001. The slowdown in the Portuguese economy in 2003 was mainly the result of international economic factors,
principally the difficulty experienced in the euro zone and North America as these areas attempted to stage economic recoveries,
lower demand in Portugal and a decline in EU exports as a result of the appreciation of the euro against the U.S. dollar. In addition,
budgetary restrictions in several EU countries prevented the adoption of expansionary economic policies. Despite the unfavorable
macroeconomic environment, electricity consumption in Portugal grew by 5.3% in 2003, one of the fastest growing rates in the euro
zone, driven by a cold winter and a particularly warm summer.
In Spain, where we have a 40% ownership stake in Hidrocantábrico, GDP growth was 2.4% in 2003, compared to 2.0% in 2002
and 2.7% in 2001. In 2003, Spain had one of the highest-performing European economies, significantly above the EU average and
above Spanish GDP growth in 2002, despite the difficult international economic environment in 2003, particularly in Europe.
Electricity consumption growth in the Spanish market was 5.8% during 2003, compared with growth of 2.4% in 2002.
During 2001 and 2002, Brazil experienced a series of events that had a negative effect on its economy. On the international
front, the troubled state of several of the major economies of Latin America, especially Argentina’s default on its debt obligations and
the Argentine government’s decision to remove the peg of the Argentine peso to the U.S. dollar, raised fears that Argentina’s
economic difficulties would spread to Brazil. On the domestic front, the Brazilian economy was significantly affected by the energy
rationing program implemented by the Brazilian government, the weakening of demand in Brazil and the uncertainty surrounding the
results of the October 2002 presidential elections, which raised concerns over the continuity of a number of economic reforms. In
2003, Brazil experienced a positive turnaround in its economy, reflected in inflation indicators and currency exchange rates. This
turnaround was largely due to improved liquidity in international financial markets, the economic growth of Brazil’s main
commercial partners (China, Argentina and the United States of America), adherence to the targets of inflation policy, agreement on
primary surplus levels with the IMF and improvement in Brazil’s trade balance, which reached US$24,800 million in 2003. The real
depreciated 18.7% in 2001 and 52.2%% in 2002, against the U.S. dollar, largely due to Brazil’s increased financing requirements and
a decrease in the inflow of foreign capital. In 2003, the Brazilian real appreciated 18% against the U.S. dollar, reaching 2.89 reais per
U.S. dollar at the end of 2003, compared to 3.53 reais at the end of 2002, due to Brazil’s decreased financing requirements, an
increase in the inflow of foreign capital and government fiscal and monetary policies. Despite improvements in certain economic
indicators and in currency exchange rates, the tight monetary policy pursued by the Brazilian government in 2003 adversely affected
the domestic economy and GDP decreased by 0.22% after increases of 1.31% and 1.93% in 2001 and 2002, respectively. Despite the
relatively modest economic growth, as measured by GDP, in 2002 and 2003, the resolution of most of the difficult economic factors
and signs of the adoption of an economic policy based on stability have led to more optimistic expectations for the Brazilian economy
for 2004.
Regulatory factors
Since the 1990s, the policy of successive Portuguese governments has been to remove barriers to trade, privatize state-owned
companies and liberalize key economic sectors, such as telecommunications, transportation and energy and power. Prior to 1988, we
had a nearly complete monopoly of the electricity generation, transmission and distribution business in Portugal. Since 1988,
however, competition has increased in the generation business and is expected to continue to do so during the next few years as the
EU competition policy is implemented. In
92
1999, the regulator implemented measures to encourage competition in the distribution of electricity in Portugal, and beginning in
June 2004 all consumers will be able to choose their supplier. To learn more about these measures, you should read “Item 4.
Information on the Company—Portugal—Competition.”
Until the end of 1998, tariffs were fixed annually by convention, negotiated between us and DGCC. Tariffs were based on total
estimated costs for the relevant year assuming average hydrological conditions. These tariffs were not specifically linked to an
inflation-indexed formula. From 1995 through 1997, tariffs decreased in nominal terms by 2.8% and in real terms, adjusted for
inflation, by 7.8%. On September 15, 1998, the new tariff regime, which became effective in 1999, was adopted by the regulator and
on December 4, 1998, the regulator announced a new policy for the years 1999, 2000 and 2001. Under this regime, tariffs are set by
the regulator pursuant to a periodic registration of regulatory parameters. In 1999, in nominal terms, tariffs for all voltage levels
declined by an average of 6.3% from 1998 levels. For 2000, in nominal terms, tariffs for all voltage levels declined by 0.6% from the
1999 levels. For 2001, in nominal terms, tariffs for all voltage levels increased, on average, by 1.2% from the 2001 levels. In
November 2001, the regulator published the regulatory framework for the 2002-2004 regulatory period. For 2002, in nominal terms,
tariffs increased across all voltage levels by an average of 2.2% from the 2001 levels. For 2003, in nominal terms, tariffs increased
across all voltage levels by an average of 2.8% from the 2002 levels. In real terms, adjusted for inflation, very high, high and medium
voltage tariffs have declined by an average of 3.4% over the period 1999 to 2004. The tariffs for low voltage customers have also
declined, in real terms, by an average of approximately 3.1% over the same period. For 2004, in nominal terms, tariffs increased
across all voltage levels by an average of 2.1% from the 2003 levels. In real terms, very high voltage tariffs increased 1.6% between
2003 and 2004, high voltage tariffs remained stable, medium voltage tariffs decreased by 0.1% and low voltage tariffs increased
0.1%. Tariffs in 2004, in real terms, increased 0.21% on average across all voltage levels. To learn more about these tariffs, you
should read “Item 4. Information on the Company—Portugal—Tariffs” and “—Regulation—Portugal.”
In late 2000, the Portuguese government purchased a 70% interest in REN from us. The government’s decision to purchase a
controlling stake in REN from us was a part of the government’s reorganization of the Public Electricity System in accordance with
the European trend toward greater liberalization. As part of this liberalization, the government sought to separate the company
managing the national grid from generation and distribution companies, which the government in the decree law stated is the most
suitable model of operation and would bring greater transparency and competition to the electricity sector. The decree law relating to
the REN purchase permits us to purchase the sites of the power plants used in the Binding Sector in the event REN chooses not to use
such sites and plants at the conclusion of the applicable contract for the expansion of the Binding Sector, thereby permitting us to
continue to operate the plant in the Non-Binding Sector. The decree law also provides that, in the event we sell our remaining shares
in REN, the government will have the first right to acquire these shares. Currently, our 30% interest in REN is accounted for under
the equity method of accounting. The reduction of the Portuguese government’s ownership to less than a majority interest in our
shares and the reduction of our ownership interest to less than a majority interest in REN’s shares triggered provisions in some of our
debt agreements that provide specified remedies for creditors. For more information, see “—Liquidity and Capital Resources.”
In Spain, following the trend of privatization and liberalization in other regulated sectors, a new regime was introduced by Law
54/97 whereby management, transmission and distribution of electricity remained the only regulated activities in the electricity sector.
Furthermore, in order to accomplish a complete unbundling between generation and transmission activities, accounting separation
was established for companies carrying out both activities. Under the new framework, a wholesale market, which is run by OMEL,
was established for generation activities. Customers above a determined voltage threshold were allowed to choose their electricity
supplier and REE remains responsible for the technical management of the transmission grid.
In recent years, further measures have been implemented to enhance competition, and since January 1, 2003 all customers can
choose their electricity supplier. In other words, they can decide to remain regulated and subject to the electricity tariff or enter into a
contract with a supplier at a market rate.
Pursuant to Law 54/97, the regulated electricity tariffs will be determined by a Spanish governmental Royal Decree on an annual
basis. The tariff may be amended if special circumstances warrant doing so, once the legal requirements have been complied with and
the necessary reports are obtained. In 2002, a new method of tariff calculation was adopted for the period 2003-2010. Electricity
companies that were in operation as of December 31, 1997
93
can recover a fixed amount of “competition transition costs.” This enables these companies to recover part of the costs borne by
electricity generators during a period of transition to a competitive market until 2010. The regulated electricity tariff is based upon an
average tariff or reference tariff, which includes all the applicable tariffs and costs. These tariffs are not specifically linked to an
inflation-indexed formula. The system of regulated tariffs is used to determine the price of the supply of electricity and access to the
transportation and supply networks. The regulated supply tariff is based upon a range of general tariffs, which are determined by the
supply tension and the use of the power contracted.
For 1999, in nominal terms, the average tariff in Spain decreased by 5.57%. The decline of the average tariff continued until
2002, when the new method of calculation was adopted. Since then, the average tariff increased for 2003 and 2004 by 1.65% and
1.72%, respectively. However, the reference tariff has decreased in real terms, adjusted for inflation, every year since 1992. Thus, the
cumulative variation of the tariff in real terms presupposes a 44.5% reduction since 1993.
Factors affecting the comparability of our results of operations
In the first half of 2002, we acquired 40% of Hidrocantábrico and started proportionally consolidating the company as of June 1,
2002. Our 2002 consolidated financial statements included Hidrocantábrico’s contribution for the last seven months of 2002, whereas
in 2003, our consolidated financial statements include Hidrocantábrico’s contribution from the full year.
In October 2002, we gained operational control over Espirito Santo Centrais Electricas, S.A., or Escelsa, a Brazilian electricity
distributor located in Espirito Santo State. Escelsa owns 65% of Emprea Energetica do Mato Grosso do Sul, S.A., or Enersul. Until
the end of September 2002, we accounted for Enersul using the equity method and from October 1, 2002 fully consolidated both
Escelsa and Enersul. Despite the fact that this change in the consolidation method had no impact on our reported net profit, it did have
an impact on our consolidated financial statements.
Our operating margin and net profit in 2003 increased by 39.6% and 13.7%, respectively, from 2002. In 2002, operating margin
and net profit decreased by 3.7% and 25.6%, respectively, from 2001.
The increase in 2003 operating margin was influenced by the consolidation changes between 2002 and 2003 mentioned above
relating to Hidrocantábrico, Escelsa and Enersul. If we had fully consolidated these companies for 12 months of 2002, our operating
margin would have increased 23.8% in 2003. This increase is partly explained by the strong growth rates in electricity consumption
across all of the countries in which we operate, an increase in the regulated revenues of EDPD, tariff increases granted to our
distribution companies in Brazil by the Brazilian electricity regulator and better operating performance of ONI as a result of the
implementation of a cost reduction plan and following discontinuation of ONI Way in 2002. The decrease in operating margin in
2002 was partially due to the effects of lower electricity distribution tariffs in Portugal following the start of the 2002-2004 tariff
period and the combination of lower consumption in areas served by Bandeirante, Escelsa and Enersul following the electricity
rationing program of the Brazilian government, and a severe devaluation of the real against the euro. A devaluation in the real
negatively affects our consolidated results as the results of our Brazilian companies are translated into euros in our consolidated
results.
The 13.7% increase in net profit from 2002 to 2003 was due to a 39.6% increase in operating margin discussed above and lower
extraordinary losses due to a one-time write-off in 2002 of our investment in ONI Way, in connection with the divestment of ONI’s
UMTS business. The factors positively affecting net profit were partially offset by higher financial charges and lower contributions
from minority interests resulting from the proportional consolidation of Hidrocantábrico for 12 months in 2003 compared with 7
months in 2002.
Looking forward, we do not expect one-time items to materially affect our results in 2004. Although we will continue to
experience lower tariffs in our distribution business, we are optimistic that the regulator may allow us to include in our regulatory cost
base significant restructuring costs related to our human resources, which we began to implement in the last quarter of 2003. In
addition, in 2004 we will not have the capital expenditures previously required for ONI’s development of a UMTS network.
94
 Our costs are influenced by inflationary trends, fluctuations in fuel costs and hydrological conditions. In years with less
favorable hydrological conditions, or drier conditions, use of thermal power can increase significantly, causing our spending on fuel
to increase substantially. In years with more favorable hydrological conditions, or wetter conditions, the opposite result occurs. To
smooth the impact on earnings and customer prices, the “hydro account” was established. The hydro account is discussed below in
“—2003 compared with 2002—Hydrological correction” and in notes 2(p) and 21 to the consolidated financial statements.
Our profit and loss account is prepared on the total-cost basis typically used by major Portuguese companies. Costs related to
our personnel and materials incurred for assets under construction that are capitalized as part of fixed assets and will be amortized in
future periods are classified in the income statement as expenses, and a corresponding amount is credited to “Own work capitalized.”

CRITICAL ACCOUNTING POLICIES

Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that
underlie the preparation of our consolidated financial statements. Our critical accounting policies, the judgments and other
uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are
factors to be considered in reviewing our consolidated financial statements and the discussions below in “—Results of Operations.”
A critical accounting policy is one that is both important to results of operations and financial condition and requires
management to make critical accounting estimates. An accounting estimate is an approximation made by management of a financial
statement component or account. Accounting estimates reflected in our financial statements measure the effects of past business
transactions or events, or the present status of an asset or liability. Accounting estimates included in the accounting policies presented
in the consolidated financial statements require assumptions about matters that are highly uncertain at the time the estimate is made.
Additionally, different estimates that could have been used, or changes in an accounting estimate that are reasonably likely to occur,
could have a material impact on the financial statements. The inherent uncertainty of some matters can make judgments subjective
and complex. The effects of estimates and assumptions related to future events cannot be made with certainty. Our estimates are
based upon historical experience and on assumptions that management believes to be reasonable in the circumstances. These
estimates may change with changes in events, information, experience, and our operating environment. The following critical
accounting policies and estimates are those used in the preparation of our consolidated financial statements.

Fixed assets
Fixed assets are presented at historical cost except for items acquired before 1992, at revalued amounts. Historical costs include,
except for assets constructed prior to 1995, finance charges and foreign exchange differences. They also include direct internal costs
and general and administrative overheads.
We have entered into PPAs with REN, as the sole buyer for the Binding Sector, for the majority of the generation assets’
economic lives. As permitted under Portuguese GAAP, these assets are classified as assets in our financial statements. Additionally,
REN has recorded the minimum contracted payments made to producers in the Binding Sector in connection with PPAs as an expense
of the respective periods. In accordance with U.S. GAAP, these PPAs between REN and CPPE are accounted for as capital lease
receivables for CPPE and capital lease obligations for REN. Prior to July 1, 2000, the effects of the PPAs between the two related
companies were eliminated in consolidation.
The carrying values of all generation and distribution assets have been approved by the regulator for the purposes of accepting
amortization as part of the new tariffs.
Depreciation is calculated on the straight-line basis at specific rates accepted by the tax authorities for us or for general purposes
business, which reflect the economic useful lives of each category of fixed assets.
95
 Payments received from customers and subsidies granted for the construction of fixed assets are presented as deferred revenue
and amortized to income over a period equivalent to that of the related items.
Impairment of long-term assets
Tangible and intangible fixed assets, net of the relevant deferred revenue, are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount may not be recoverable. Goodwill is reviewed for impairment at the end of the first
complete financial year after the relevant acquisition, and thereafter if events or changes in circumstances indicate that the carrying
amount may not be recoverable. When conducting a review for impairment, consideration is taken of the regulated and contractual
aspects of our operations.
Uncertainties exist when assessing the recoverability of the carrying amounts of the tangible and intangible fixed assets. The
assessment is made based on the best information available regarding the anticipated continuity of the concession or other contractual
arrangements in place.

Allowance for uncollectible accounts

Estimated provisions for uncollectible accounts receivable from retail electricity sales are recorded in the same period as the
related revenues. These estimates are based on management’s assessment of the probable collection of customer accounts, aging of
accounts receivable, bad debt write-offs, and other factors. Certain circumstances and events can cause actual bad debt write-offs to
vary from assumptions used in estimating uncollectible account provisions; these include general economic conditions, industry
trends, deterioration of major customer credit worthiness, and higher defaults. Our earnings would be affected should such
circumstances require a material adjustment to our provision for uncollectible accounts.

Employee retirement benefits

We have a commitment to complement retirement and survivors’ pensions of the employees subject to the ACT (collective labor
agreement) to the extent that these are not covered by the Portuguese government’s social security plans. Those employees have the
option of taking early retirement, subject to certain conditions relating to pre-defined age and length of service requirements being
met. Retired employees retain the right to medical assistance based upon similar conditions as those pertaining to employees still on
the active payroll. The entitlement to these benefits is usually based on the employee remaining in service up to retirement age. The
expected costs of these benefits are accrued over the period of employment, using valuations performed by independent qualified
actuaries. The pension plans are generally funded by payments from the EDP Group companies, taking into account the
recommendations of the independent qualified actuaries.
There are numerous uncertainties inherent in estimating employee retirement benefits and assumptions that are valid at the time
of estimation, but may change significantly when new information becomes available. Fluctuations in the rates and other assumptions
used for the actuarial valuations may, ultimately, result in actuarial gains or losses that, in accordance with the relevant accounting
criteria, will be recognized in the financial statements.
Deferred income taxes
Deferred income taxes, recoverable and payable, have been included in our balance sheet as deferred tax assets and liabilities for
the expected future tax consequences attributable to differences between the financial statement carrying amount of assets and
liabilities and their tax bases.
There are certain uncertainties inherent in estimating deferred income taxes, namely that of the relevant companies of the EDP
Group obtaining taxable profit in the periods in which such differences revert in the income statement.
96
Revenue recognition
Unbilled revenues
Revenues from retail electricity sales are recognized when monthly billings are made to customers for energy sold, based upon
meter readings performed on a “cycle basis” during each month, together with historical consumptions individually by customer. In
order to properly match revenue with related expenses (power costs, distribution expenses, etc), estimated “unbilled revenues” are
accrued for electricity provided from meter read dates to each month-end. Such estimated unbilled revenues are based on our net
system load, the number of days from meter reading to the end of each calendar month, and current retail customer rates.
In Portugal, the tariffs of electrical energy supplied to clients in the Binding Sector are determined by the regulator. Tariffs for
clients outside the Binding Sector are negotiated and contracted on an individual basis. Tariffs in the electricity distribution business
are subject to a price cap mechanism. These earnings are subject to a gross profit restriction and after being subject to confirmation or
approval by the regulator are to be adjusted in future periods. We estimate amounts that are subject to future tariff revenue or
adjustments and defer the recognition of the revenues until future periods. These amounts are recorded as accounts receivable-trade in
the accompanying balance sheet.

Hydrological correction account

The hydrological correction account constitutes a legally mandated mechanism for compensating the variable costs of electric-
power generation. In years with unfavorable hydrological conditions, thermal generation increases and, consequently, expenditures on
fuel and electricity imports increase substantially. In years with abundant rainfall, the opposite occurs. We cannot modify the tariffs
we charge to take into account the changes in variable costs incurred as a result of hydrological conditions. In this context and with a
view to avoiding major distortions in operating results, due to favorable or unfavorable hydrological conditions, the hydrological
correction account is adjusted upwards or downwards based upon average hydrological conditions. Estimation of future hydrological
conditions is based on the best information currently available. Changes in such estimates will result in changes to the hydrological
correction account in future financial periods.
The annual changes in the hydrological correction account consist of the following:
• The difference between the economic costs of generating electricity and the economic reference costs is charged to REN for
inclusion in the Binding Sector costs(prior to June 2000 this difference was charged to the income statement).
• A financial charge associated with the hydrological correction account’s accumulated balance.
• An adjustment, which may be either an income or an expense item, corresponding to the amount necessary to make the
expected balance, in a time scale of 10 years, equal to an adequate reference level.
The Portuguese government approves the amount of the accumulated balance and the movements during the year on an annual
basis. Under U.S. GAAP, the effect of future changes in hydrological conditions is viewed as a general business risk and the resulting
adjustments are therefore reversed.
Tariff adjustment
Prior to 1999, the selling price of electricity in Portugal was based upon a negotiated price between us and the government.
Tariffs were generally based on operating costs incurred during a year associated with average hydrological conditions. However,
there were no specific guidelines in place ensuring that we would recover actual cost incurred during this time. On January 1, 1999,
and again on January 1, 2002, new tariff regimes were introduced that established formulae for the calculation of the selling price of
electricity in Portugal. These tariffs at current market conditions allow us to recover actual costs incurred. On January 1, 2002, the
regulator implemented alternative revenue programs that allow us to increase tarrifs in future periods to recover allowable revenues.
97
Investments
Derogating accounting principles generally accepted in Portugal, we have implemented early “International Accounting
Standard 39—Recognition and Measurement of Financial Instruments”, or IAS 39, for fiscal year 2003, having calculated the
retroactive effects from December 31, 2002. Consequently, we classified our investments in accordance with this IAS 39, particularly
with regard to the types of financial instruments and their recognition and measurement, carrying them under the following categories
of financial assets: trading, held to maturity and available for sale. The classification depends on the purpose for which the
investments were acquired. Our board of directors determines the classification of these investments on the date of acquisition and re-
assesses this classification on a regular basis.
Trading account securities
Investments acquired primarily for the purpose of being traded in the very short-term are classified as trading securities and are
recorded as current assets. For the purpose of our financial statements, short-term is defined as three months. Realized and unrealized
gains and losses caused by changes in the fair value of trading securities are recorded in the profit and loss account during the period
in which they occur.

Medium- and long-term investment portfolio (investment securities available for sale)
Investments expected to be held for an undetermined period of time and that can be sold to meet liquidity requirements or in the
event of changes in interest rates, are classified as available for sale under non-current assets, unless our board of directors has the
express intention of holding the investments for a period of less than 12 months from the balance sheet date or if there is a need to sell
them to generate operating capital, in which case they are carried under current assets. Acquisition cost includes transaction costs.
Investments available for sale are accounted at their fair value.

Accounting for derivatives

Derivatives are initially measured in our consolidated balance sheet at cost and subsequently carried at fair value. The method of
recognition of the resultant gain or loss depends on the nature of the item that is hedged. We identify derivatives as either: (i) hedging
the fair value of the recognized assets or liabilities; (ii) hedging of a planned transaction or firm commitment; or (iii) hedging of a net
investment in a foreign entity on the date on which the derivatives are acquired. Changes in the fair value of derivatives identified as
fair-value hedging instruments and qualifying as effective, are recognized as a gain or loss in the profit and loss account together with
the changes in the fair value of the asset or liability for which the hedging risk was taken. Changes in the fair value of derivatives
identified and classified as cash-flow hedging instruments are recognized against reserves. When the planned transaction or firm
commitment leads to recognition of an asset or liability, the gains and losses previously recorded against reserves are included in the
initial measurement of the cost of the respective asset or liability. In any other case, the amounts recorded against reserves are
transferred to the profit and loss account and classified as income or expense during the period in which the firm commitment or
planned transaction impacted on the profit and loss account. For any transaction which, despite economic hedging in accordance with
our risk management policies, is not classified as hedging in accordance with IAS 39, the gains and losses are recognized in the profit
and loss account during the period to which they relate. On the date on which the hedging instrument expires or is sold, or when the
hedging transaction no longer meets the requirements for hedge accounting in accordance with IAS 39, any cumulative gain or loss
recorded against reserves is maintained until such time as the planned transaction or firm commitment is recognized in the profit and
loss account. If the planned transaction or firm commitment is no longer expected, the cumulative gain or loss reported against
reserves is transferred to the profit and loss account. The hedging of a net investment in a foreign entity is recorded in a manner
similar to cash-flow hedging. If the hedging instrument is a derivative, any gain or loss on the hedging instrument in respect of the
effective part of the hedge is recognized against reserves. The gain or loss on the ineffective portion of the hedge is recognized
immediately in the profit and loss account. However, if the hedging instrument is not a derivative, all gains and losses on exchange
rate fluctuations are recognized against reserves. To achieve hedge accounting on the date of commencement of the transaction, we
document the relationship between the hedging instruments and the hedged items, as well as the respective risk-management
objectives and strategies underlying the respective hedging transactions. This process includes the link between all derivatives
identified as hedging instruments for assets and
98
liabilities or for specific transactions or firm commitments. We also document in our evaluation, at the inception of the hedge and
during the life of the hedge, whether the derivatives used in the hedging transactions are highly effective to compensate the fair value
or the cash flows of the hedged items.
Estimate of the fair value of financial instruments
The fair value of derivatives traded on liquid markets and of assets available for sale is based on their listed prices on the
balance sheet date. The fair value of interest-rate swaps is calculated on the basis of the present value of future estimated cash flows.
The estimated value of future cash flows is used to determine the fair value of other financial instruments. The book values of
financial assets and liabilities with a maturity of less than one year are assumed to be close to their fair values.

RESULTS OF OPERATIONS
Beginning in January 2001, we consolidated the results of Bandeirante with our results. In 2002, following the conclusion of our
acquisition of a 40% stake in Hidrocantábrico, we proportionally consolidated the results of Hidrocantábrico from June through
December. On October 10, 2002, we gained control over Brazilian distribution companies Escelsa and Enersul. As a result, we
consolidated the results of Escelsa and Enersul from October through December 2002. We currently control 54.74% of Escelsa and
35.69% of Enersul. In December 2002, we decided to discontinue ONI Way’s UMTS operations, a decision which was reflected by a
write-off of ONI Way and the consequent increase in ‘Other non-operating expenses (income)’ due to the creation of a non-recurring
provision of € € 280.9 million. The following table sets forth our revenues by geography and activity for 2001, 2002 and 2003. For
more information concerning our revenues, see note 26 to our consolidated financial statements.
Sales of Other Services
Electricity sales rendered Total

(millions of EUR)
Year ended December 31, 2001
Portugal
Generation 1,277.9 12.4 14.6 1,294.9
Distribution and supply 3,282.5 1.6 19.9 3,304.1
Brazil
Distribution and supply 690.5 0 0 690.5
Telecoms 0 30.9 157.0 187.9
Information technology 0 39.1 149.9 189.0
Services and other adjustments (39.7) 13.9 9.7 (16.0)

EDP Group 5,201.3 98.0 351.1 5,650.4

Year ended December 31, 2002
Portugal
Generation 1,425.4 18.7 18.2 1,462.3
Distribution and supply 3,503.4 1.7 33.1 3,538.2
Spain
Generation 145.1 2.5 0.8 148.3
Distribution and supply 150.1 7.6 6.3 164.0
Gas 0 10.5 1.1 11.5
Brazil
Distribution and supply 668.6 0 0 668.6
Telecoms 0 46.7 274.1 320.8
Information technology 0 35.5 188.5 224.0
Services and other adjustments (16.5) (11.2) (123.5) (151.2)

EDP Group 5,876.2 112.0 398.4 6,386.6

99
Year ended December 31, 2003
Portugal
Generation 1,318.9 19.7 26.6 1,365.2
Distribution and supply 3,610.6 1.9 60.2 3,672.8
Spain
Generation 256.8 2.0 1.1 259.9
Distribution and supply 287.7 28.9 12.4 329.0
Gas 0 75.9 10.1 86.0
Brazil
Generation 27.4 2.3 11.5 41.3
Distribution and supply 929.0 0 37.6 966.6
Telecoms 0 7.3 323.8 331.1
Information technology 0 27.0 159.3 186.3
Services and other adjustments (134.2) (4.9) (121.6) (260.6)

EDP Group 6,296.1 160.3 521.2 6,977.5

The following table sets forth our operating costs and expenses and our results of operations as a percentage of total revenues:
Year ended December 31,

2001 2002 2003

Total revenues 100% 100% 100%

Raw materials and consumables 54.5% 57.7% 56.2%
Personnel costs 10.5% 9.8% 9.3%
Depreciation and amortization 11.8% 11.6% 12.1%
Supplies and services 11.5% 10.6% 9.1%
Own work capitalized (4.1)% (3.8)% (3.4)%
Concession and power-generation rental costs 2.6% 2.5% 2.5%
Provisions 2.1% 1.6% 1.1%
Other operating expenses (income) (0.8)% (0.1)% 0.1%
Total operating costs and expenses 88.1% 89.8% 87.0%
Operating margin 11.9% 10.2% 13.0%
Net interest and related expenses 3.6% 3.5% 5.1%
Other non-operating income / (expenses) (2.2)% 2.2% 0.2%
Profit before tax 10.5% 4.5% 7.6%
Consolidated net profit 8.0% 5.2% 5.5%

2003 COMPARED WITH 2002

Revenues
Our total revenues in 2003 increased by 9.3% to € € 6,977.5 million from €€ 6,386.6 million in 2002, due primarily to the increase
in electricity sales, which in 2003 represented approximately 90.2% of our total revenues compared with 92.0% of total revenues in
2002. In 2003, revenues as well as the other items in our consolidated profit and loss account were affected by the proportional (40%)
consolidation of Hidrocantábrico for twelve months, which in 2002 was proportionally consolidated for seven months, and the full
consolidation of Escelsa and Enersul for twelve months, which in 2002 were equity consolidated for the first nine months and fully
consolidated in the last quarter of the year. We have consolidated revenues from Hidrocantábrico in the amount of €€ 662.5 million in
2003 and €€ 321.4 million in 2002. Escelsa and Enersul contributed €€ 435.8 million in 2003 and €€ 100.8 million in 2002.
Sales of electricity. Our total electricity sales increased by 7.1% to €€ 6,296.1 million in 2003 from €€ 5,876.2 million in 2002
mainly due to the consolidation effects of Hidrocantábrico, Escelsa and Enersul noted above.
Electricity sales in Portugal from generation and distribution and supply activities, which represented 78.3% of our total
consolidated electricity revenues, remained stable at €€ 4,929.5 million in 2003 from €€ 4,928.8 million in 2002, with the increase in
electricity sales from distribution and supply activities being offset by a decline in electricity sales from generation activity.
100
 Electricity sales from our distribution and supply activities in Portugal increased 3.1% from €€ 3,503.4 million in 2002 to €€
3,610.6 million in 2003 due to a 5.4% increase in the Portuguese electricity system demand from 36,931 GWh in 2002 to 38,916
GWh in 2003 and due to the fact that, in nominal terms, tariffs increased across all voltage levels by an average of 2.8% in 2003 from
the 2002 levels. The 5.4% increase in electricity sales volume was primarily due to a 4.9% increase in low voltage consumption,
which occurred as a result of a cold winter and a particularly warm summer in 2003, as well as due to a 9.3% increase in very high
voltage and high voltage consumption following an increase in the number of our industrial clients, after EDPD gained four large
industrial clients. Electricity distribution in the PES decreased 3.1% to 34,868 GWh in 2003 from 35,973 GWh in 2002, whereas in
the Non-Binding Sector, electricity distributed increased by more than fourfold to 4,048 GWh in 2003 from 958 GWh in 2002 due to
the fact that some medium voltage consumers opted to become Qualifying Consumers.
Beginning with the new tariff regime in Portugal that became effective in 1999, tariffs are fixed by the regulator in advance of
each year based in part on estimated data for variables such as demand and cost. If there are differences between the estimated data
and the actual data during a period, an adjustment will be made to the tariff in a subsequent period to account for these differences.
Our revenues include tariff adjustments that we calculate to estimate the portion of our revenues from electricity sales that should be
deferred to a subsequent period to take account of data that the regulator will consider in setting tariffs. If actual costs and demand
deviate from the estimated data, the revenues REN receives from electricity sales to EDPD will vary from the revenues allowable
under the tariff regime. In the event actual revenues exceed the revenue level allowable, such as due to higher than estimated demand,
REN is obligated, two years later, to compensate the Public Electricity System for the excess. This compensation takes the form of a
reduction in the amounts charged by REN to distributors such as EDPD in the Public Electricity System. By contrast, if REN’s actual
revenues are less than the revenue level allowable, such as due to higher than estimated costs, REN will, two years later, be able to
recover the shortfall through an increase in the amounts charged by REN to distributors such as EDPD in the Public Electricity
System. Any reduction or increase received by or charged to EDPD is fully passed through to the customer tariffs in the Binding
Sector. There is also a tariff adjustment in respect of 1999, 2000 and 2001 reflecting the profit sharing mechanism in distribution
relating to EDPD’s selling and distribution activities, which is reflected in the customer tariffs two years later. For the 2002-2004
regulatory period the profit sharing mechanism was eliminated. None of the accounting entries associated with tariff adjustments have
an impact on our cash flow. For more information on the tariff adjustments, you should read note 39(p) to the consolidated financial
statements.
In 2003, the aggregate tariff adjustment was €€ 77.9 million. This figure includes a positive adjustment of € € 77.0 million from the
2003 tariff adjustment, a positive adjustment of € € 17.9 million from a revision made to the tariff adjustment of year 2002, a negative
adjustment of €€ 10.2 million from the 2002 tariff adjustment reposition and a negative adjustment of € € 6.7 million from the 2001 tariff
adjustment reposition. In 2002, the aggregate tariff adjustment was € € 70.5 million. This figure includes a positive adjustment of €€ 50.0
million relating to the application of the new tariff regulation in 2002, and a positive adjustment of € € 20.5 million relating to the 2000
tariff adjustment reposition.
Electricity sales from our generation activity in Portugal decreased 7.5% from €€ 1,425.4 million in 2002 to €€ 1,318.9 million in
2003. Approximately 89% of EDP Produção’s generation revenues are based on long-term PPAs between each of its power plants
and REN as the single buyer for the Portuguese PES. The PPAs include an energy charge component that remunerates EDP
Produção’s plants operating in the PES for fuel consumption incurred by producing electricity. Given that 2003 was a wet year, EDP
Produção’s thermal power plants were less utilized and we incurred lower fuel costs, resulting in lower revenues from the variable
component of the PPAs that remunerate for fuel consumption.
Electricity sales in Spain increased to €€ 542.2 million in 2003 from €€ 295.1 million in 2002, primarily due to the proportional
consolidation of Hidrocantábrico for twelve months in 2003 compared to seven months in 2002. Other factors that influenced this
increase were higher electricity revenues in 2003 from Hidrocantábrico’s supply activity that were partially offset by lower Spanish
electricity pool prices during 2003.
101
 Electricity sales in Brazil increased to €€ 956.4 million in 2003 from €€ 668.6 million in 2002, primarily due to the full
consolidation of Escelsa and Enersul for twelve months in 2003 compared to three months in 2002. Other factors that influenced this
increase were tariff revisions that affected our distribution companies in Brazil during 2003, namely a 14.68% average tariff increase
for Bandeirante (as of October 22), a 17.30% average tariff increase for Escelsa (as of August 6) and a 32.59% average tariff increase
for Enersul (as of April 8). These tariff increases were partially mitigated by the devaluation of the Brazilian real against the euro
beginning in June 2002.

Other sales. Our other sales activities, including sales of natural gas, steam, ash, information technology products,
telecommunications equipment and sundry materials, generated revenues of €€ 160.3 million in 2003 compared with €€ 112.0 million in
2002, due primarily to the inclusion since August 2003 of gas sales of Naturcorp, which was proportionally consolidated in our
accounts on the same basis as Hidrocantábrico. As a result, the contribution of the Spanish activities to the consolidated revenues
from other sales activities increased to € € 105.3 million in 2003 from €€ 20.1 million in 2002. This increase more than offset an 84.4%
decrease in revenues from telecommunications equipment sales from €€ 46.7 million in 2002 to €€ 7.3 million in 2003, due to the
completion of a major contract, and a 23.9% decrease in sales from our information technology activity from €€ 35.5 million in 2002
to €€ 27.0 million in 2003, due to a decrease in demand for IT solutions, as result of the economic slowdown that resulted in lower
investments by corporations in IT systems.

Services rendered. Our revenues from services increased to €€ 521.2 million in 2003 from €€ 398.4 million in 2002, due to the
changes in EDP’s consolidation of Hidrocantábrico, Escelsa and Enersul, as noted above, and increased sales by EDP Energia,
Bandeirante and ONI. Activities generating these revenues include electricity-related services, services related to information
technology systems, telecommunications, engineering, laboratory services, training, medical assistance, consulting, multi-utility
services and other services. Revenues from services provided by the electricity activity in Portugal increased to €€ 86.9 million in 2003
from € € 51.3 million in 2002, mainly due to an increase at EDP Energia resulting from the ongoing liberalization process in Portugal.
Services provided in Spain by Hidrocantábrico contributed € € 6.2 million and €€ 15.0 million in 2002 and 2003, respectively, following
the proportional consolidation of Hidrocantábrico for twelve months in 2003. Our operations in Brazil contributed €€ 49.1 million to
our consolidated revenues from services in 2003, as a result of the full year consolidation of Escelsa and Enersul, as well as
Bandeirante’s contribution following the increased number of liberalized clients in its concession area that have to pay for the use of
Bandeirante’s distribution grid. The 18.2% increase in telecommunications services to €€ 323.8 million in 2003 from €€ 274.1 million
in 2002 resulted from higher voice telecommunications services provided by ONI. Information technology activity revenues from
services provided declined 15.5% from €€ 188.5 million in 2002 to €€ 159.3 million in 2003, due primarily to the Portuguese economic
slowdown in 2003.
Operating costs and expenses
Our total operating costs and expenses increased by 5.8% to €€ 6,071.8 million in 2003 compared to €€ 5,737.9 million in 2002,
mainly due to the consolidation effects already mentioned above relating to Hidrocantábrico, Escelsa and Enersul. These
consolidation effects more than offset lower fuel costs at EDP Produção, following a wet year in which thermal generation was
reduced in favor of hydro power, lower operating costs at Bandeirante associated with the depreciation of the Brazilian real against
the euro beginning in June 2002, and lower costs at ONI, primarily as a result of the cost-cutting program and a reduction in the
number of employees.
Hidrocantábrico’s contribution to our total operating costs and expenses in 2003 totaled €€ 580.3 million compared to €€ 283.3
million in 2002 (seven months of proportional consolidation), while Escelsa and Enersul contributed € € 372.9 million in 2003
compared to €€ 85.6 million in 2002 (three months of full consolidation). In addition, total operating costs at Hidrocantábrico reflect
the consolidation of five months of Naturcorp in 2003 and the start of Castejón CCGT’s operations in October 2002.
As a percentage of revenues, total operating costs and expenses decreased to 87.0% in 2003 from 89.8% in 2002 due primarily
to lower costs of purchased electricity and fuel.

Raw Materials and Consumables. The major components of our raw materials and consumables are the costs of purchased
electricity, fuel costs and costs of other materials. Our raw materials and consumables costs increased 6.3% to €€ 3,921.1 million in
2003 from €€ 3,687.1 million in 2002 due to the consolidation of Hidrocantábrico,
102
Escelsa and Enersul, as noted above. These consolidation effects more than offset lower fuel costs at EDP Produção, following a
reduction in use of thermal generation due to a wet year, and a decrease in the cost of sales of telecommunications equipment.
Our costs of purchased electricity increased 11.8% to €€ 3,360.3 million in 2003 from €€ 3,005.5 million in 2002, due to the
consolidation effects of Hidrocantábrico, Escelsa and Enersul, as noted above.
Generation and distribution and supply activities in Portugal represent 73.7% of our costs of purchased electricity. Electricity
purchases from generation in Portugal increased €€ 28.1 million in 2003 to €€ 65.3 million due to an increase in electricity purchases of
small hydro producers operating in the Non-Binding Sector as these producers are allowed to acquire energy up to their installed
capacity in order satisfy energy procurements of the Non-Binding Sector. Our costs of purchased electricity in distribution and supply
activity in Portugal primarily include purchases made by EDPD from REN as well as purchases from private generators and small
independent producers. The energy that EDPD purchases from REN is supplied to the binding sector. In 2003, electricity purchases
increased 1.1% to €€ 2,412.5 million in 2003 from € € 2,386.4 million in 2002, mainly due to a 4% increase in the average tariff charged
on power purchases from REN, offset by a 3.1% decrease in the Portuguese binding system electricity consumption. For more
information on these purchases of electricity, you should read “Item 4. Information on the Company—Portugal—Electricity System
Overview—The Independent Electricity System” and “—Competition.”
Costs of purchased electricity in Spain by Hidrocantábrico represented €€ 358.2 million in 2003 compared with €€ 154.1 million in
2002. This increase is mostly due to consolidation effects. In addition, in 2003, Hidrocantábrico’s costs of purchased electricity reflect
the first time consolidation of five months of Naturcorp in 2003 and the start of Castejón CCGT’s operations in October 2002.
Costs of purchased electricity in Brazil increased 34.9% in 2003 to €€ 656.5 million from €€ 486.5 million. This increase is
primarily due to the consolidation of Escelsa and Enersul, as noted above. In 2003, Escelsa and Enersul contributed €€ 251.1 million
compared with € € 57.5 million in 2002. Costs of purchased electricity at Bandeirante decreased 16.8% to €
€ 357.0 million in 2003 from
€€ 429.1 million in 2002, mainly due to the depreciation of the Brazilian real against the euro.
Our fuel, steam and ashes costs decreased 14.5% to € € 398.0 million in 2003 from €€ 465.5 million in 2002. In 2003, fuel costs
from generation in Portugal represented 78.5% of our fuel costs and decreased 32.9% to €€ 312.3 million from €€ 465.5 million in 2002.
This decrease in fuel costs reflects a decline in fuel utilization by EDP Produção associated with a lower use of thermal generation
due to a wet year. In order to account for the variability of hydrological conditions in Portugal and its impact on the fuel costs, EDP
uses the “Hydrological correction account,” or hydro account. The hydro account is an accounting mechanism we established
pursuant to Portuguese law. The purpose of this account is to smooth the short-term effect on our earnings and customer prices that
result from changes in hydrological conditions. In years with favorable hydrological conditions, there is an increase in hydroelectric
generation and a decrease in variable costs of thermal generation. Conversely, in years with unfavorable hydrological conditions there
is a decrease in hydroelectric generation and our expenditures on fuel and electricity imports increase substantially and the variable
costs of thermal generation increase accordingly. We cannot modify the tariff we charge to take into account the changes in variable
costs incurred due to hydrological conditions. In order to reduce major distortions in operating results due to changing hydrological
conditions, the hydro account is reinforced in years of favorable hydrological conditions with a corresponding operating charge in the
income statement, thereby eliminating the overstatement of its net income. In years of less favorable hydrological conditions we use
the hydro account (with a corresponding credit to operating income) so as to reduce the negative impact on our net income arising
from the increased expenditures on fuel and electricity imports. These upward or downward adjustments to the hydro account are
made based upon the economic reference cost calculated on the basis of an average hydrological year.
Prior to REN’s sale, all of the movements relating to the hydro account were considered as being of a non-cash nature on the
grounds that they were made (in accounting terms) in our consolidated financial statements as an expense recorded to the hydro
account in favorable hydrological years and as an income recorded to the hydro account in less favorable hydrological years.
Following the sale of REN, cash movements now take place between REN and us for reinforcing or drawing against the hydro
account that, after REN’s separation, is still carried on our
103
 balance sheet. At December 31, 2003 the hydro account amounted to €€ 387.5 million, an increase of €€ 63.4 million, which includes
€€ 71.9 million charged to REN. In 2002 the hydro account decreased by €€ 63.4 million to €€ 324.1 million. This difference was
primarily a result of 2003 having been an exceptionally wet year (hydro coefficient of 1.33), while 2002 was a dry year (hydro
coefficient of 0.76). To learn more about the effect of hydrological conditions on our business, you should read “Item 4. Information
on the Company—Portugal—Generation.”
The Portuguese government determines the “level of reference” of the hydro account based upon the least favorable period of
hydrological conditions during the previous 30 years. In doing so, the government determines an amount expected to be adequate to
withstand unfavorable hydrological conditions that may occur in the future. The government has determined that the hydro account
must not exceed the level of reference. The level of reference of the hydro account was €€ 387.5 million for 2003, 2002 and 2001. In
2003, the hydro account exceeded the reference level causing us to record the excess €€ 19.4 million under non-operating income. In
2002, the hydro account did not exceed the reference level, hence we did not record an excess in non-operating income in 2002.
We record as an annual expense deemed interest credited to the hydro account corresponding to the average interest rate paid on
our euro-denominated borrowings for the applicable year. The method of accounting for this deemed interest did not change with the
sale of REN. For more information on the hydro account, you should read notes 2(p) and 21 to our consolidated financial statements.
Fuel costs in Spain at Hidrocantábrico amounted to €€ 85.5 million in 2003 compared to € € 39.3 million in 2002, primarily due to
the consolidation effects as noted above. In addition, fuel costs at Hidrocantábrico reflect the start of operations of Castejón’s CCGT
power plant (October 2002) noted above.
The major components of our costs for other materials are the costs of cables, meters, transformers and other goods for resale,
included under the item “Raw materials and consumables – Other materials.” These costs decreased to €€ 162.7 million in 2003 from €€
216.0 million in 2002. A majority of these costs are credited to “Own work capitalized” and the remainder is applied to maintenance
of the transmission and distribution networks. See “—Own work capitalized.”
Costs for other materials from generation, distribution and supply activities in Portugal represent 70.5% of our costs for other
materials. Costs of materials from our generation activity in Portugal decreased 21.1% in 2003 to €€ 3.5 million. Regarding our
distribution and supply activities in Portugal, these costs increased 39% to €€ 111.3 million in 2003 from € € 80.1 million in 2002,
because 2002 costs with materials were lower than normal due to stocks write-offs.
Costs of other materials in Spain from Hidrocantábrico increased €€ 4.1 million to €€ 6.3 million in 2003 compared with €€ 2.2
million in 2002. This increase is the result of the consolidation effects noted above.
Costs from other materials in Brazil increased €€ 6.2 million to € € 10.2 million in 2003 from €€ 4.0 million in 2002. This increase is
the result of the above mentioned consolidation effects of Escelsa and Enersul. In 2003, Escelsa and Enersul contributed €€ 5.9 million
to our costs with other materials, compared with €€ 1.1 million in 2002.
Cost of sales for telecommunications decreased €€ 46.8 million in 2003 to €€ 6.6 million from € € 53.4 million in 2002, following
the shut down of UMTS operations in December 2002. In addition, the decrease in the cost of sales reflects the completion of a major
equipment supply contract in 2002.
Raw materials and consumables relating to our information technology activities decreased 22.7% to €€ 24.5 million in 2003
from € € 31.6 million in 2002, partially reflecting the economic slowdown of the Portuguese economy that, as mentioned above,
affected the information technology revenues.
Personnel costs. Personnel costs, which consist mainly of wages and salaries and social security and pension fund contributions,
increased 3.5% in 2003 to €€ 646.6 million from €€ 624.8 million in 2002, mainly as a result of the consolidation changes noted above.
104
 Personnel costs in the Portuguese electricity business increased 3.5% to €€ 517.4 million in 2003 from €€ 500.1 million in 2002
following the 2.7% average salary increase. As a percentage of total personnel costs, electricity business in Portugal remained stable
in 2003 and 2002 at 80%. Personnel costs in generation in Portugal increased 0.7% to €€ 120.3 million in 2003 from €€ 119.6 million in
2002 as a result of an increase in average salaries, partially offset by a reduction of 111 employees toward the end of 2003. Personnel
costs in distribution and supply increased 4.3% to €€ 397.1 million in 2003 from € € 380.6 million in 2002 reflecting the increase of
pension premiums and the average salary increase.
In Spain, personnel costs at Hidrocantábrico were € € 37.1 million in 2003 compared to € € 18.3 million in 2002. This increase is
primarily due to the proportional consolidation of twelve months in 2003 compared to seven months in 2002. Additionally, the
inclusion of Naturcorp in Hidrocantábrico’s accounts since August 2003 also contributed to this increase.
Personnel costs in Brazil increased 61.6% to € € 64.0 million in 2003 from €€ 39.6 million, primarily due to the full consolidation
of Escelsa and Enersul for twelve months in 2003 compared to three months in 2002. In addition, the average salary increase in our
Brazilian subsidiaries was approximately 10%, which also contributed to the increase. However, both of these effects were partly
offset by the strong depreciation of the Brazilian real against the euro beginning in June 2002.
Personnel costs in our telecommunications activities decreased 43.2% to €€ 51.0 million in 2003 from €€ 89.7 million in 2002,
reflecting the discontinuation of the UMTS project toward the end of 2002 and the reduction in the number of employees achieved
primarily at the fixed line business in Portugal.
Personnel costs in our information technology activities decreased 12% to €€ 66.4 million in 2003 from €€ 75.5 million in 2002,
due to the ongoing staff restructuring process and successful wage negotiations.

Depreciation and amortization. Depreciation and amortization in 2003 increased to €€ 845.6 million from €€ 739.5 million in
2002, primarily due to the consolidation changes noted above.
Depreciation and amortization charges in the Portuguese electricity business increased 3.8%, or € € 21.4 million, to € € 583.3
million in 2003 from € € 561.9 million in 2002 (and as a percentage of our total depreciation and amortization charges, it decreased
69.0% in 2003 compared to 76.0% in 2002). Depreciation and amortization charges in generation increased 2.7% to €€ 234.4 million
in 2003 from €€ 228.2 million in 2002. Depreciation and amortization in distribution and supply activities increased 4.6% to €€ 348.9
million in 2003 from € € 333.6 million in 2002, due to the transfer of an IT system from our IT services provider company, EDINFOR,
to EDPD and greater investments made in the distribution network.
In Spain, Hidrocantábrico’s contribution to our depreciation and amortization charges increased to €€ 60.1 million in 2003 from €€
26.9 million in 2002, primarily due to the proportional consolidation of Hidrocantábrico for twelve months in 2003 compared to
seven months in 2002. In addition, the inclusion of Naturcorp since August 2003 and the depreciation of the investment made in
Castejón CCGT since October 2002 also contributed to this increase.
Depreciation and amortization charges in the Brazilian electricity business increased to € € 58.3 million in 2003 from €€ 34.2
million in 2002 mainly due to the full consolidation of Escelsa and Enersul for twelve months in 2003 compared to three months in
2002. This increase was partly offset by the depreciation of the Brazilian real against the euro.
Depreciation and amortization charges relating to telecommunication activities increased 8.8% to €€ 72.7 million in 2003 from €€
66.9 million in 2002 as a result of the acquisition in Spain of cable access rights, primarily during 2002, and the investments made in
Portugal in connection with the expansion of the network in 2002 and the acquisition of direct access infrastructure.
105
 In 2003, depreciation and amortization charges relating to information technology activities increased 28.4% to €€ 24.3 million
from € € 18.9 million in 2002, primarily due to the IT project ISU/Communications that began depreciating in 2003.
Supplies and services. These costs consist of supplies and services provided to us by external suppliers, and include external
maintenance and repairs, specialized services, communication, rents, insurance and other services. External maintenance and repairs
consists of work on our power plants, substations and transmission and distribution networks that we subcontracted to others. Other
specialized services include technical services such as auditing, legal, consulting, and revenue collection. Communication services
include telecommunications, postal, delivery and courier services. The cost of these external supplies and services decreased 6.3% to
€€ 632.5 million in 2003 from €€ 675.1 million in 2002.
Supplies and services in the Portuguese electricity business increased 1.2% to €€ 285.6 million in 2003 from €€ 282.1 million, and
as a percentage of our total supplies and services it increased to 45.2% in 2003 from 41.8% in 2002. Supplies and services relating to
generation activity increased €€ 2.0 million to €€ 75.0 million in 2003, benefiting from a reduction in insurance costs, steady
maintenance costs and tighter management discipline. Supplies and services relating to distribution and supply activity increased
0.7% to €€ 210.6 million in 2003 due to the transfer of services, which were being performed internally by EDPD, to our shared
services company, EDP Valor. This effect was offset by a decrease in maintenance costs due to both the renegotiation of contracts,
which are no longer on a retainer basis, and a more efficient use of internal resources.
Supplies and services costs relating to Hidrocantábrico decreased to €€ 33.4 million in 2003 from € € 41.1 million in 2002,
primarily due to the fact that, in 2002 the electricity transmission and distribution tariffs paid by Hidrocantábrico’s supply unit were
accounted under supplies and services, while in 2003 these tariffs started to be accounted under purchases of electricity.
Supplies and services relating to the electricity business in Brazil increased to €€ 62.2 million in 2003 from €
€ 36.0 million in 2002
mainly due to the full consolidation of Escelsa and Enersul for twelve months in 2003 against three months in 2002. In addition, the
full operations of the hydro power plant Lajeado beginning in November 2002 and the complete year of the cogenerator Fafen, also
contributed to this increase.
Supplies and services in our telecommunications activities decreased 9.7% to €€ 265.3 million in 2003 from € € 293.7 million in
2002 primarily due to the cost-cutting program. The major savings were in advertising costs, specialized works and fixed network
costs.
Supplies and services related to our information technology activities decreased 6.7% to €€ 70.1 million in 2003 from €€ 75.1
million in 2002, mainly as a result of the effect of economic slowdown in the information technology business and the transfer of an
information technology asset to our Portuguese electricity distribution unit.

Own work capitalized. Own work capitalized consists of amounts that correspond to costs related to our costs of personnel and
materials and other external supplies and services incurred for projects under construction that are capitalized and will be amortized in
future periods. These amounts generally consist of consumption of materials, direct internal costs, general administrative overheads
and financial charges. Own work capitalized decreased 2.5% to €€ 235.6 million in 2003 from €€ 241.8 million in 2002.
Own work capitalized in the Portuguese electricity business represented 94.7% in 2003 of our total own work capitalized
(against 77.7% in 2002). In 2003, it increased 18.7% to €€ 223.0 million from €€ 188.0 million in 2002. Own work capitalized in our
generation activity in Portugal increased to €€ 38.2 million in 2003 from €€ 26.2 million in 2002 following the investments in TER
CCGT and Venda Nova II hydro power plant. Own work capitalized in the distribution and supply activities in Portugal increased
14.2% to €€ 184.8 million in 2003 from € € 161.8 million in 2002 primarily due to higher investments in the distribution grid.
In 2003 and 2002 Hidrocantábrico contributed €€ 4.0 million and €€ 2.7 million to Own work capitalized, respectively primarily
due to the proportional consolidation of twelve months in 2003 compared to seven months in 2002.
106
 Own work capitalized in our telecommunication activities is almost non-existent in 2003 compared to €€ 30.2 million accounted
for in 2002. The 2002 figure is related to the UMTS project, which was discontinued by the end of 2003.
Own work capitalized relating to information technology decreased 33.5% to €€ 8.4 million in 2003 due to the fact that 2002
figures reflect the capitalization of costs on the development of an IT system for EDPD, that was completed in the end of 2002.
A table setting forth the components of Own work capitalized for the past three years is provided in note 30 to our consolidated
financial statements.

Concession and power-generation rents. Concession and power-generation rental costs, which consist mainly of rents paid by
EDPD to municipalities for concessions to distribute low-voltage electricity, increased to €€ 175.6 million in 2003 from €€ 158.2
million in 2002. The amount of rents payable to municipalities for concessions is set by government regulation and is based on the
amount of low-voltage electricity consumed in the respective municipal areas each year. The 11.0% increase in concession and
power-generation rental costs between 2002 and 2003 is primarily due to the increase in the average concession fee paid by our
generation activity to the Portuguese municipalities, from 7.00% to 7.25% of previous year’s sales, and the 6.3% increase in low
voltage, special low voltage and public lighting sales.

Provisions. Provisions decreased to €€ 75.7 million in 2003 from €€ 100.6 million in 2002, primarily due to a decrease in
provisions for doubtful accounts charges and healthcare liabilities provision charges. This line item is discussed in note 31 to the
consolidated financial statements.
We systematically record the provision for doubtful accounts receivable from third parties and municipalities based on the age
of the receivables and our collection history. We do not record a provision with respect to accounts receivable from other public
entities since historically we have not experienced a problem in collecting these receivables. Accounts receivable are written off when
a customer is declared bankrupt by a court of law because we receive the tax benefit of the write-off only when the customer is
actually declared bankrupt. Consequently, we have a significant amount of accounts receivable that are fully provided for but have
not been written-off. For more information on this provision, you should read note 39(h) to the consolidated financial statements.
Until the end of 2002, increases in provisions for doubtful accounts were reflected in our consolidated statements of income in
the line item “Provisions” and were included in the determination of operating income while decreases were included in the line item
“Other non-operating expenses (income), net” below the operating income. Beginning in 2003, at the electricity distribution activity
in Portugal, both increases and decreases in provisions for doubtful accounts are included in the line item “Provisions.”
Provisions in the Portuguese electricity business decreased to €€ 55.5 million in 2003 from €€ 76.9 million in 2002 (and as a
percentage of our total provisions, it decreased 73.4% in 2003 compared to 76.4% in 2002). Provisions in generation increased €€ 1.1
million to €€ 12.7 million in 2003. Provisions in distribution and supply activities decreased to €
€ 42.8 million in 2003 from € € 65.3
million in 2002, due to the accounting of the provision decreases in this line item since 2003, at the distribution business level, as
noted above.
Other operating expenses/(income). This item includes primarily taxes other than income taxes and other operating income
(net), which decreased to a €€ 10.3 million expense in 2003 from € € 5.7 million income in 2002. This decrease is partly related to other
operating expenses in Brazil, which increased to € € 18.6 million in 2003 from €€ 6.3 million in 2002 due to the regulatory contributions
to the Energy Development Account in 2003, as well as the full consolidation of Escelsa and Enersul for twelve months in 2003
compared to three months in 2002. The Energy Development Account was created in Brazil largely to promote the competitiveness of
some generation technologies, including wind farms, small hydro plants, biomass plants and thermal facilities using natural gas and
domestic mineral coal.
107
Operating margin
As a result of the factors discussed above, our operating margin increased 39.6% to €€ 905.7 million in 2003 from € € 648.7 million
in 2002. Operating margin from our core electricity business in Portugal increased 12.5% to € € 731.7 million in 2003 from € € 650.3
million in 2002, primarily due to a successful costs control program. In Spain, Hidrocantábrico contributed € € 82.2 million to our
consolidated operating margin in 2003 compared to €€ 38.1 million in 2002. In addition to the changes in consolidation noted above,
Hidrocantábrico benefited from the first time consolidation of Naturcorp. Operating margin from Brazilian electricity activities
increased €€ 65.4 million to €€ 126.8 million in 2003. This increase is partly due to the changes in consolidation related to Escelsa and
Enersul noted above. These companies contributed €€ 62.8 million to our operating margin in 2003 compared to €€ 15.2 million in
2002. In addition, Brazilian electricity activities benefited from tariffs increases and recovery in Brazilian consumption. Operating
margin from telecommunication activities improved by €€ 86.2 million to a €€ 68.7 million loss in 2003 from a €€ 154.8 million loss in
2002, due to the discontinuation of UMTS operations, an increase in voice traffic, lower interconnection costs and rigorous cost
cutting. Operating margin from information technology activities decreased €€ 26.3 million to €€ 9.3 million in 2003 from € € 35.6
million in 2002 due to the slowdown of the Portuguese economy.

Interest and related income/(expenses), net

Our net interest and related income/(expenses) consist of interest and related income and interest and related expenses. These net
expenses increased to €€ 359.0 million in 2003 from €€ 222.8 million in 2002 (and increased as a percentage of our total revenues to
5.1% in 2003 compared to 3.5% in 2002). This variation was mainly influenced by the consolidation changes noted above.
Hidrocantábrico contributed a €€ 62.4 million net expense in 2003 compared to a €€ 37.7 million net expense in 2002, reflecting the
40% proportional consolidation of Hidrocantábrico since June 2002. From January until May 2002, we accounted for €€ 5.4 million
income from the application of the equity method in respect of Hidrocantábrico. Escelsa and Enersul contributed a € € 8.8 million
income in 2003 compared with a €€ 37.3 million income in 2002, reflecting full consolidation of the Escelsa and Enersul since October
2002. This was offset by a €€ 102.9 million expense from the application of the equity method in respect of Escelsa and Enersul, which
we accounted for in the period from January to September 2002.
During 2002, we recognized €€ 56.4 million of positive foreign exchange differences on U.S. dollar assets that we acquired for
the sole purpose of covering foreign exchange differences on the U.S. dollar debt of our Brazilian subsidiaries. By the end of 2002 we
used these U.S. dollar assets in the purchase of approximately 83% of Escelsa’s U.S. dollar bond issue. These Escelsa bonds were
acquired at below par value, resulting in an € € 89.2 million financial gain. In 2003, we recognized negative foreign exchange
differences of €€ 65.0 million in respect of the Escelsa bonds as a result of the Brazilian real’s increase in value against the U.S. dollar.
Net expense from interest on debt increased due to the consolidation changes and to the financial gain registered on Escelsa
bonds in 2002, as noted above. This increase was partly offset by lower interest rates associated with our debt in 2003.
Contributions from equity method investees were positively influenced in 2003 as a result of higher contributions from REN and
CEM. Investment income decreased 8.2% to a € € 36.7 million income in 2003 from a €€ 40.0 million income in 2002, due to lower
dividends received from BCP.
Amortization of investments (goodwill) increased as a result of the consolidation changes, the acquisition of Naturcorp by
Hidrocantábrico and, for the first time in 2003, amortization of a client portfolio acquired by Comunitel.

Other non-operating income/(expenses)

We had other non-operating expenses of €€ 14.4 million in 2003, compared to other non-operating expenses of €€ 138.9 million in
2002 (which reflected ONI Way’s write-off), primarily due to a €€ 56.7 million expense in 2003 related to non-operating provisions
net of provision utilizations and a €€ 47.8 million expense associated to costs with human resources rationalization in Portugal. These
losses in 2003 were partially offset by non-operating income of
108
€€ 79.8 million related to the reversal of depreciation of fixed assets that were funded by third parties, mostly related to our Portuguese
electricity distribution activity, and €€ 19.4 million related to the hydrological correction mechanism explained above (we did not
record such income in 2002).
We recorded a net expense of € € 56.7 million in 2003 related to non-operating provisions net of provision utilizations compared
with a net income of €€ 58.1 million recorded in 2002. The net expense recorded in 2003 reflects a € € 114.7 million provision for
financial assets in order to cover for contingencies and possible devaluations in Brazil and Cape Verde and €€ 72.5 million income
related to the reduction of provisions for financial assets and other risks and contingencies. For more information on non-operating
provisions net of utilizations you should read note 34 to the consolidated financial statements.
An income item of €€ 79.8 million was registered in 2003, compared to €€ 71.8 million in 2002, for the portion of depreciation due
primarily to new electricity connections made in prior years that were financed largely with customer payments. We record the
amount of these payments initially as deferred income and as the assets are depreciated over 30 years, a portion of the amount is taken
into income and offset by a corresponding charge.
As the primary supplier of low voltage electricity in Portugal, we have in the past been obliged to provide electricity to
municipalities for street lighting and other public buildings even in situations where the recipient municipalities were not paying their
bills on a timely basis. Although we have not encountered significant collection problems in recent years, prior to 1988 collection
problems were encountered with certain municipalities and we still have on our books receivables from municipalities related to
electricity and other services provided prior to 1988. These receivables consist of amounts receivable from a small number of
municipalities that have not signed a concession agreement with us and with which a payment plan has not been agreed and amounts
receivable from municipalities that have signed a concession agreement and have agreed to a deferred payment plan.

Provision for income taxes

Our provision for income taxes is determined on the basis of the estimated taxable income for the period. Income taxes provided
for in 2003 were €€ 239.3 million compared with € € 171.2 million in 2002. The reference income tax rate in Portugal was 30% in 2003
and 2002, compared with 32% in 2001. In addition, a municipal surcharge of up to 10% of the base rate is typically levied by the
municipality in which the income is earned. Our effective tax rate is different from the reference income tax in Portugal each year due
to permanent differences arising mainly from amortization of the goodwill and concession rights, amortization resulting from
revaluation of fixed assets and tariff deviations in the electricity business that are not deductible for income tax purposes. Our
effective tax rate was 44.8% in 2003, compared with 59.7% in 2002. The effective tax rate in 2003 reflects impairment charges
relating to Brazil that were not tax deductible while the 2002 effective tax rate reflects higher charges relating to the write-off of our
investment in ONI Way that were not tax deductible. For more information on provision for income taxes, you should read note 35 of
our consolidated financial statements.
Provision for deferred income taxes
Deferred income taxes are recognized in our consolidated financial statements in accordance with International Accounting
Standard 12. Our provision for deferred income tax is determined, using the balance sheet liability method, on the temporary
differences between the book values of assets and liabilities and their respective taxable bases. The taxable base of assets and
liabilities is determined so as to reflect the consequences of taxation resulting from the way in which we expect, on the balance sheet
date, to recover or to pay the recorded amount of our assets and liabilities. In determining deferred tax, the rate used is the one in
effect or otherwise applicable on the balance sheet date. Recognized deferred tax assets are reduced to the recoverable amount that
can be compensated against future expected profits. In 2003, our provision for deferred income taxes amounted to a €€ 43.7 million
benefit, whereas in 2002 the provision for deferred income taxes amounted to a €€ 0.6 million charge. This difference is mainly
explained by the fact that in 2002 we booked the deferred tax effect of a charge, in the amount of €€ 29.6 million, related to the capital
gain arising from the acquisition of the Escelsa U.S. dollar bonds below par value; and we also experienced a €€ 5.6 million decrease
in the deferred income tax charge related to tariff deviations in the electricity business in Portugal. This difference is also explained
by the fact that in 2003 we booked the deferred tax effect of a benefit, in the amount of €€ 8.3 million, related to an extraordinary
provision for the investments in Brazil and Cape Verde and associated contingencies.
109
Consolidated net profit
As a result of the factors discussed above, our consolidated net income for 2003 increased 13.7% to €€ 381.1 million from €€
335.2 million in 2002.
2002 COMPARED WITH 2001
Revenues
Our total revenues in 2002 increased by 13% to €
€ 6,386.6 million from €€ 5,650.4 million in 2001, due primarily to the beginning
of the proportional (40%) consolidation of Hidrocantábrico (since June 2002) and the full consolidation of Escelsa and Enersul (last
three months of 2002). These companies were equity consolidated in 2001. Electricity sales represented approximately 92.0% of our
total revenues in 2002 compared with 92.1% of total revenues in 2001.

Sales of electricity. Our total electricity sales in 2002 increased by 13.0% to €€ 5,876.2 million from €€ 5,201.3 million in 2001
mainly due to the consolidation effects mentioned above related to Hidrocantábrico, Escelsa and Enersul and to higher sales from our
Portuguese electricity activities.
Electricity sales in Portugal from generation and distribution and supply activities, which represented 83.9% of our total
consolidated electricity revenues, increased 8.3% to €€ 4,928.8 million in 2002 from €€ 4,550.5 million in 2001.
Electricity sales revenues from our distribution and supply activities in Portugal increased 6.7% from € € 3,282.5 million in 2001
to €€ 3,503.4 million in 2002, primarily due to a 2.5% increase in the Portuguese electricity system demand to 36,931 GWh in 2002
from 36,025 GWh in 2001. The 2.5% increase in the Portuguese system demand was mainly due to a normal 3.1% increase in low
voltage consumption. Electricity distribution in the PES increased 1.3% to 35,973 GWh in 2002 from 35,505 GWh in 2001, whereas
in the Non-Binding Sector, electricity distribution almost doubled to 958 GWh in 2002 from 520 GWh in 2001 due to the fact that
some medium voltage consumers opted to become Qualifying Consumers.
In 2002, the aggregate tariff adjustment was €€ 70.5 million. This figure includes an adjustment of €€ 50 million relating to the
application of the new tariff regulation in 2002 and an adjustment of €€ 20.5 million relating to the 2000 tariff adjustment reposition. In
2001, the aggregate tariff adjustment was €€ 42.2 million. This figure includes an adjustment of € € 35.5 million relating to the sharing
of EDPD’s 1999 profit that is reflected in 2001 tariffs, and an adjustment of €€ 6.7 million relating to a partial recovery of EDPD’s
2001 profit as actual revenues were below those estimated in the fixing of 2001 tariffs.
Electricity sales from our generation activity in Portugal increased 12.4% from €€ 1,267.9 million in 2001 to €€ 1,425.4 million in
2002. Approximately 93% of EDP Produção’s generation revenues in 2002 were based on long-term PPAs between each of its
binding system power plants and REN as the single buyer for the PES. The PPAs include an energy charge component that
remunerates EDP Produção’s plants operating in the PES for fuel consumption incurred in the production of electricity. Given that
2002 was a dry year when compared with 2001, EDP Produção’s thermal power plants were more utilized, resulting in higher fuel
consumption and thus higher revenues from the variable component of the PPAs.
The incorporation of seven months of electricity sales from Hidrocantábrico (40%) in 2002 amounted to € € 295.1 million.
Electricity sales in Brazil increased to €€ 668.6 million in 2002 from €€ 690.5 million in 2001, reflecting the beginning of the
consolidation of Escelsa and Enersul in 2002 (last three months of 2002), that mitigated the effect on Bandeirante’s accounts of the
real devaluation against the euro.
Other sales. Our other sales activities, including sales of steam, ash, information technology products, telecommunications
equipment, fixed property and sundry materials, generated revenues of €€ 112.0 million in 2002 compared with € € 98.0 million in 2001.
Apart from the impact of the initial consolidation of Hidrocantábrico, which accounted for an extra €€ 20.0 million in 2002, the biggest
contributor to this line item was our telecommunications
110
activities, which other sales increased 51.3% from €€ 30.9 million in 2001 to €€ 46.7 million in 2002, as ONI supplied equipment under
a major contract. Other sales also include other sales from our generation activity in Portugal that increased 50.9% to €€ 18.7 million in
2002 from €€ 12.4 million in 2001 mainly due to Energin, a cogenerator that sells electricity and steam and that began industrial
service in late 2001.

Services rendered. Our revenues from services increased 13.5% to € € 398.4 million in 2002 from €€ 351.1 million in 2001. The
primary reason for this increase was the increased contribution of our telecommunication subsidiaries’ due to a significant growth of
both voice and data services that benefited from the gradual liberalization of short-distance calls (local traffic) in Portugal and from a
significant growth in ISP traffic, respectively. The increase in revenues from services provided relating to our information technology
activities was due to the continued participation of Edinfor Group companies in the development and installation of SAP-related
projects. Revenues from services provided by the electricity activity in Portugal increased 48.7% in 2002 to € € 51.3 million from € €
34.5 million in 2001, mainly due to an increase at EDP Energia resulting from the ongoing liberalization process in Portugal. Services
provided in Spain by Hidrocantábrico contributed €€ 6.2 million in 2002, following its initial seven-month 40% consolidation of the
company.

Operating costs and expenses

Our total operating costs and expenses amounted to €€ 5,737.9 million in 2002, up 15.3% from €€ 4,976.8 million in 2001. This
increase is due to the consolidation of Hidrocantábrico, Escelsa and Enersul for the first time in 2002 and to higher electricity
purchases from our Portuguese electricity distribution and supply activities.
Hidrocantábrico contributed €€ 283.3 million in 2002 (seven months at 40% proportional consolidation), while Escelsa and
Enersul contributed € € 85.6 million in 2002 (three months full consolidation).
In addition to consolidation effects relating to Hidrocantábrico, Escelsa and Enersul, the increase in total operating costs and
expenses resulted from higher fuel costs at EDP Produção, following a dry year in which hydro generation was reduced in favor of
thermal power, higher electricity purchases at EDPD, due to an increase in electricity demand, and higher costs at ONI due to an
increase of the company’s activity in 2002. These effects more than offset Bandeirante’s lower operating costs that resulted from the
Brazilian real depreciation against the euro.
As a percentage of revenues, total operating costs and expenses increased to 89.8% in 2002 from 88.1% in 2001 due primarily to
the increased costs of purchased electricity and fuel.
Raw Materials and Consumables. Our raw materials and consumables costs increased by 19.8% to €€ 3,687.1 million in 2002
from € € 3,078.9 million in 2001, due primarily to increased costs of purchased electricity. Raw materials and consumables in 2002
include contributions of € € 195.6 million from Hidrocantábrico and €€ 58.6 million from Escelsa and Enersul, in addition to higher fuel
costs, resulting from increased utilization of thermal generation, and to higher electricity purchases.
Our costs of purchased electricity increased 19.1% to €€ 3,005.5 million in 2002 from €€ 2,524.3 million in 2001 due to the initial
consolidation of Hidrocantábrico, Escelsa and Enersul and to higher costs of electricity purchases from our distribution and supply
activities, following an increase of the average tariff charged on power purchased from REN.
Costs of purchased electricity from our generation and distribution and supply activities in Portugal represent 81% of our total
electricity purchases in 2002.
Costs of purchased electricity from our generation activity in Portugal increased €€ 33.6 million to €€ 37.3 million in 2002 due to
an increase in electricity purchases by small hydro power plants operating in the Non-Binding Sector as 2002 was a dry year and
these producers are permitted to purchase electricity, up to their installed capacity, in order to satisfy electricity procurements in the
Non-Binding Sector.
111
 Costs of purchased electricity from our distribution and supply activities increased 15.8% to €€ 2,386.4 million in 2002 from €€
2,060.3 million in 2001 due both to a 13.6% increase in the average tariff charged on electricity purchased from REN, resulting from
an increase in fuel prices, and a 2.5% increase in electricity consumption. For more information on these purchases of electricity, you
should read “Item 4. Information on the Company—Portugal—Electricity System Overview—The Independent Electricity System”
and “—Competition.”
In Spain, cost of purchased electricity at Hidrocantábrico, which was fully consolidated for the first time in 2002, amounted to €€
154.1 million.
Electricity purchases in Brazil decreased 2.2% to €€ 486.5 million in 2002 from € € 497.4 million in 2001. Escelsa and Enersul,
which were fully consolidated for the first time in 2002, contributed €€ 57.5 million to electricity purchases in Brazil in 2002. The
decrease in electricity purchases in Brazil in 2002 partly resulted from the depreciation of the Brazilian real against the euro.
Our fuel costs increased by 23.4% to €€ 465.5 million in 2002 from € € 377.2 million in 2001, reflecting, on the one hand, the
general rise in fuel prices, the effects of which were felt to a lesser extent in 2001, and, on the other hand, higher fuel utilization
associated with a greater use of thermal generation due to a dry year. Consequently, there was an increase in fuel oil (which is more
expensive than coal) in the fuel consumption mix. In 2002, the hydro account decreased by €€ 63.4 million to € € 324.1 million, which
decrease includes €€ 76.1 million charged by REN. In 2001 the hydro account increased by €€ 22 million to €€ 387.5 million. This
difference was primarily a result of 2002 having been a dry year (hydro coefficient of 0.76), while 2001 was a wet year with a (hydro
coefficient of 1.19). To learn more about the effect of hydrological conditions on our business, you should read “Item 4. Information
on the Company—Portugal—Generation.”
The level of reference of the hydro account was €€ 387.5 million for 2002, 2001 and 2000. In 2002, the hydro account did not
exceed the reference level, hence we did not record the excess in non-operating income in 2002. In 2001, the hydro account exceeded
the reference level, causing a surplus of €€ 47.5 million that was recorded by us as non-operating income in 2001.
In 2002, Hidrocantábrico’s fuel costs totaled €€ 39.3 million, following the initial 40% consolidation of the company.
The major components of our costs for other materials are costs of cables, meters, transformers and other goods for resale,
included under the item “Raw materials and consumables – Other materials”. These costs increased 21.8% to €€ 216.0 million in 2002
from € € 177.4 million in 2001. A majority of these costs are credited to “Own work capitalized” and the remainder is applied to
maintenance of the transmission and distribution networks. See “—Own work capitalized.”
Costs for other materials from generation, distribution and supply activities in Portugal represent 39.1% of our costs for other
materials. Costs for other materials from our generation activity in Portugal increased 12.0% in 2002 to € € 4.4 million from €€ 3.9
million in 2001. Costs for other materials from distribution and supply activities decreased 25.5% in 2002 to €€ 80.1 million from € €
107.5 million in 2001 because costs with materials were abnormally low due to stocks write-offs.
Costs of other materials in Spain from Hidrocantábrico were € € 2.2 million in 2002, reflecting the effect of new consolidations in
2002.
In Brazil, considering only Bandeirante, costs of other materials remained stable at €€ 2.9 million in 2002. Escelsa and Enersul
contributed €€ 1.1 million in 2002.
Costs of raw materials and consumables in our telecommunications activities represented 24.7% of our costs of other materials
in 2002. These costs increased €
€ 32.7 million to €€ 53.4 million in 2002 primarily due to increased costs at ONI Way.
112
 Costs of raw materials and consumables in our information technology activities decreased 7.4% to €€ 31.6 million in 2002 from
€€ 34.2 million in 2001, reflecting a 9.3% decrease in sales as EDINFOR focused its activity on services rather than equipment.

Personnel costs. Personnel costs, which consist mainly of wages and salaries and social security and pension fund contributions,
increased 5.5% to €€ 624.8 million in 2002 from €€ 592.0 million in 2001. This increase was primarily due to the inclusion of seven
months of Hidrocantábrico’s personnel costs amounting to €€ 18.3 million and, to a lesser extent, the consolidation of three months of
Escelsa and Enersul personnel costs, amounting to €€ 7.8 million.
Personnel costs in the Portuguese electricity business increased 3.7% to €€ 500.1 million in 2002 from €€ 482.1 million following
the 3.4% average salary increase. As a percentage of total personnel costs, electricity business in Portugal decreased to 80.0% in 2002
from 81.4% in 2001. Personnel costs in generation increased 5.4% to €€ 119.6 million in 2002 from €€ 113.5 million in 2001. Personnel
costs in distribution and supply activities increased 3.2% to €€ 380.6 million in 2002 from €
€ 368.6 million in 2001.
In Brazil, considering only Bandeirante, personnel costs decreased 27.6% to €€ 31.8 million in 2002 from €
€ 43.9 million
primarily due to the depreciation of the real against the euro in 2002.
Personnel costs in our telecommunications activities in 2002 increased 18.0% to €€ 89.7 million from € € 76.0 million, mainly due
to costs incurred with the UMTS project, which was discontinued by the end of 2002.
Personnel costs in our information technology activities increased 15.4% to € € 75.5 million in 2002 from €€ 65.4 million following
the increased demand for information technology services provided by EDINFOR.

Depreciation and amortization. Depreciation and amortization increased to € € 739.5 million in 2002 from €€ 664.7 million in
2001. The consolidation of Hidrocantábrico in 2002 contributed €€ 26.9 million while Escelsa and Enersul contributed €€ 7.9 million.
Depreciation and amortization in the Portuguese electricity business increased 1.6% to €€ 561.9 million in 2002 from € € 553.0
million (as a percentage of our total depreciation and amortization charges, it decreased to 76.0% in 2002 compared to 83.2% in
2001). In generation there was an increase in depreciation and amortization of 1.4% to € € 228.2 million in 2002 from €€ 225.2 million
in 2001. In distribution and supply activities the depreciation and amortization charges increased 1.8% to € € 333.6 million in 2002
from € € 327.8 million in 2001.
In Brazil, considering only Bandeirante, the depreciation and amortization charges decreased to €
€ 26.3 million in 2002 from € €
35.8 million in 2001 primarily due to the depreciation of the real against the euro in 2002.
Depreciation and amortization charges in telecommunication activities increased 36.8% in 2002 to €€ 66.9 million from € € 48.9
million in 2001 following the increase in 2002 of the investment level associated with the fixed line business.
Depreciation and amortization charges in information technology activities increased €
€ 1.1 million to €€ 18.9 million in 2002
from € € 17.8 million in 2001.
Supplies and services. The cost of supplies and services increased by 3.7% to €€ 675.1 million in 2002 from € € 651.2 million in
2001, due primarily to the inclusion of seven months of Hidrocantábrico and three months of Escelsa and Enersul. Hidrocantábrico
contributed €€ 41.1 million while Escelsa and Enersul contributed €€ 8.4 million.
External supplies and services in the Portuguese electricity business decreased 1.2% to €€ 282.1 million in 2002 from €€ 285.5
million in 2001 (and as a percentage of the consolidated supplies and services decreased to €€ 41.8% in 2002 from 43.8% in 2001).
Supplies and services in generation increased 4.8% to €€ 73.0 million in 2002 from € € 69.6 million in 2001 mainly due to a non-
recurring cost with SAP information system charged by EDINFOR and the invoice by our shared services company, EDP Valor, of
services that were previously performed in EDP Produção.
113
Supplies and services in distribution and supply activities decreased 3.1% to €€ 209.2 million in 2002 from €€ 215.9 million in 2001 due
to the positive results of the cost cutting program implemented at the beginning of 2002.
In Brazil, considering only Bandeirante, supplies and services decreased 23.9% to € € 27.7 million from €€ 36.4 million primarily
due to the depreciation of the real against the euro in 2002.
Costs of supplies and services in our telecommunication activities increased 34.1% to €€ 293.7 million in 2002 from €€ 219.1
million in 2001 due to an increase in ONI’s activity. Despite this increase, supplies and services increased at much slower pace than
revenues following the cost-cutting program implemented in late 2001.
Costs of supplies and services in our information technology activities increased 14.4% to € € 75.1 million in 2002 from €€ 65.7
million in 2001 following the increased demand for information technology services provided by EDINFOR.

Own work capitalized. Own work capitalized consists of amounts that correspond to costs related to our costs of personnel and
materials and other external supplies and services incurred for projects under construction that are capitalized and will be amortized in
future periods. These amounts generally consist of consumption of materials, direct internal costs, general administrative overheads
and financial charges. Own work capitalized increased to €€ 241.8 million in 2002 from €€ 232.5 million in 2001.
Own work capitalized at the Portuguese electricity business represented 77.7% in 2002 of our total own work capitalized
compared to 76.4% in 2001. In 2002, it increased 5.8% to €€ 188.0 million from €€ 177.7 million in 2001. Own work capitalized in
generation increased to €€ 26.2 million in 2002 from €€ 23.9 million in 2001 following the investments in TER CCGT and Venda Nova
II hydro power plant. Own work capitalized in distribution and supply activities increased 5.2% to €€ 161.8 million in 2003 from €
€
153.8 million primarily related to higher investments in the distribution grid.
The consolidation of the last seven months of Hidrocantábrico in 2002 contributed € € 2.7 million to our own work capitalized.
A table setting forth the components of Own work capitalized for the past three years is provided in note 30 to the consolidated
financial statements.
Concession and power-generation rents. Concession and power-generation rental costs increased in 2002 to €€ 158.2 million
from € € 149.1 million in 2001. The 6.1% increase in concession and power-generation rental costs between 2001 and 2002 is primarily
due to the increase in the average concession fee paid to the Portuguese municipalities, from 6.75% to 7.00% on average on previous
year’s sales, and the 5.4% increase in low voltage, special low voltage and public lighting sales.

Provisions. Provisions decreased to €€ 100.6 million in 2002 from €€ 116.0 million in 2001, primarily due to a decrease in
provisions for pension liabilities, which was partly offset by an increase in provisions for healthcare liabilities. This line item is
discussed in note 31 to the consolidated financial statements.
Until the end of 2002, increases in provisions for doubtful accounts were reflected in our consolidated statements of income in
the line item “Provisions” and were included in the determination of operating income while decreases were included in the line item
“Other non-operating expenses (income), net” below the operating income. Provisions for doubtful accounts accounted for €€ 24.4
million in 2002 and € € 20.5 million in 2001. These line items are discussed below and in notes 8, 31, and 34 to the consolidated
financial statements.
Other operating expenses / (income). This item primarily includes taxes other than income taxes and other operating income
(net), which decreased to a €€ 5.7 million income in 2002 from a €€ 42.5 million income in 2001. This decrease was due to a reduction
in supplementary gains, which consists of reimbursements received for out-of-pocket expenses incurred and is charged to third parties
related to information technology and telecommunications services. For more information on these expenses, you should read note 32
to the consolidated financial statements.
114
Operating margin
As a result of the factors discussed above, our operating margin decreased by 3.7% to €€ 648.7 million in 2002 from €€ 673.5
million in 2001. In our core electricity business in Portugal our operating margin decreased 8.6% to €€ 650.3 million in 2002 from €€
711.6 million in 2001, primarily due to the regulator’s tariff cuts on the use of the distribution grid and commercialization tariffs
following the last regulatory review, which was effective as of January 2002. In 2002 Hidrocantábrico contributed € € 38.1 million to
our operating margin. In Brazil, Bandeirante’s operating margin decreased 28.6% to €€ 46.1 million in 2002 from € € 64.6 million in
2001 mainly due to the depreciation of the real against the euro, while Escelsa and Enersul contributed €€ 15.2 million in 2002 to our
operating margin. In our telecommunication activities, operating margin decreased 14.0% to a loss of €€ 154.8 million in 2002 from a
loss of €€ 135.9 million in 2001 due to costs incurred with the UMTS project. Operating margin in our information technology
activities increased 14.2% to €€ 35.6 million in 2002 from € € 31.1 million in 2001 following the increased demand for information
technology services.

Interest and related income/(expenses), net

Our net interest expenses increased to €€ 222.8 million in 2002 from €€ 205.3 million in 2001 (but decreased as a percentage of
our total revenues to 3.5% in 2002 compared to 3.6% in 2001). This increase was primarily due to a net expense related to interest of
€€ 283.1 million in 2002 compared to €€ 214.7 million in 2001, due primarily to an increase in our average debt level that was partially
offset by the lower interest rates.

Other non-operating income/(expenses)

We had other non-operating expenses of €€ 138.9 million in 2002 compared with other non-operating income of € € 126.0 million
in 2001 primarily due to a €€ 222.8 million net loss in 2002 related to net provisions movements. In 2001, we recorded non-operating
income of €€ 47.5 million related to the hydrological correction mechanism.
We recorded an income item of €€ 71.8 million in 2002 compared to € € 63.9 million in 2001 for the portion of depreciation due
primarily to new electricity connections made in prior years that were financed largely with customer payments. We record the
amount of these payments initially as deferred income and as the assets are depreciated over 30 years, a portion of the amount is taken
into income and offset by a corresponding charge.
We recorded a net loss of €€ 222.8 million in 2002 related to net provisions movements compared to a net loss of €€ 41.1 million
recorded in 2001. The net loss recorded in 2002 reflects the write off of ONI Way, following the discontinuation of the UMTS project
that ONI Way was developing. For more information on net movement of provisions you should read note 31 to the consolidated
financial statements.
Provision for income taxes
Our provision for income taxes is determined on the basis of the estimated taxable income for the period. Income taxes provided
for in 2002 were €€ 171.2 million compared with € € 244.0 million in 2001. The reference income tax rate in Portugal was 30% in 2002,
compared with 32% in 2001 and 2000. In addition, a municipal surcharge of up to 10% of the base rate is typically levied by the
municipality in which income is earned. Our effective tax rate is different from the reference income tax in Portugal each year due to
permanent differences arising mainly from amortization of the goodwill and concession rights, amortization resulting from
revaluation of fixed assets and tariff deviations in the electricity business that are not deductible for income tax purposes. Our
effective tax rate was 59.7% in 2002 compared with 41.1% in 2001, primarily due to the fact that the negative impact of the ONI Way
write-off following the discontinuation of its UMTS operations in 2002 was not tax deductible. For more information on the provision
for income taxes, you should read note 35 of our consolidated financial statements.
Provision for deferred income taxes
Deferred income taxes are recognized in our consolidated financial statements in accordance with International Accounting
Standard 12. Our provision for deferred income tax is determined, using the balance sheet liability
115
method, on the temporary differences between the book values of assets and liabilities and their respective taxable bases. The taxable
base of assets and liabilities is determined so as to reflect the consequences of taxation resulting from the way in which we expect, on
the balance sheet date, to recover or to pay the recorded amount of our assets and liabilities. In determining deferred tax, the rate used
is the one in effect or otherwise applicable on the balance sheet date. Recognized deferred tax assets are reduced to the recoverable
amount that can be compensated against future expected profits. In 2002, our provision for deferred income taxes amounted to a €€ 0.6
million charge, whereas in 2001 the provision for deferred income taxes amounted to a € € 41.1 million benefit. This difference is
mainly due to the additional charge, in 2002, of €€ 13.3 million related to the tariff deviation of the electricity business and to the
deferred tax effect of a charge, in the amount of €€ 29.6 million, related to the capital gain arising from the acquisition of the Escelsa
U.S. dollar bonds below par value. The remaining differences are mostly explained by tax losses brought forward regarding ONI and
Brazil.

Consolidated net profit

As a result of the factors discussed above, our consolidated net profit for 2002 decreased 25.6% to €€ 335.2 million from €€ 450.8
million in 2001.

LIQUIDITY AND CAPITAL RESOURCES

We manage and control our funding and treasury activities centrally at the EDP, S.A. level, except with respect to ONI and our
businesses in Spain and Brazil. At EDP, S.A., the account balances of our subsidiaries are netted in EDP, S.A.’s accounts and
centralized payments are made for the entire EDP Group. In Portugal, there are no legal or economic restrictions on the ability of our
subsidiaries to transfer funds to EDP, S.A. Our subsidiaries in Portugal do not enter into their own financing arrangements except for
our cogeneration subsidiary, EDP Cogeração, which finances some of its own projects, ONI and EDINFOR.
Our primary source of liquidity is cash generated from operations. Net cash provided from operating activities was € € 1,773.6
million in 2003, compared with €€ 897.7 million in 2002 and €€ 1,221.2 million in 2001.
Total cash and equivalents, net of bank overdrafts, at December 31, 2003 were an overdraft position of €€ 308.4 million
compared with an overdraft position of €€ 407.3 million at December 31, 2002 and an overdraft position of € € 468.5 million at
December 31, 2001. Cash and cash equivalents are held in euros.
Net cash used in investing activities was €€ 529.1 million in 2003, compared with €€ 1,141.4 million in 2002 and € € 1,243.0 million
in 2001, representing a 53.6% decrease in 2003 and an 8.2% decrease in 2002. The decrease in 2003 compared with 2002 reflects our
sale in 2003 of our investment in Iberdrola and Hidrocantábrico’s acquisition of Naturcorp and, in 2002, our acquisition of
Hidrocantábrico. The decrease in 2002 compared with 2001 reflects the fact that although investment in the acquisition of subsidiaries
(mainly Hidrocantábrico) was higher than in the previous year, this was offset to a greater extent by the proceeds from divestments
and income from investments and dividends.
Net cash used in financing activities was €€ 1,118.6 million in 2003 compared with net cash from financing activities of €€ 297.2
million in 2002 and net cash used in financing activities of €€ 96.1 million in 2001. The increase in net cash used in financing activities
in 2003 was mainly due to debt reduction, partially resulting from the liquidity achieved by the sale of our investment in Iberdrola.
The increase in net cash from financing activities in 2002 was due to the issuance of new medium and long-term debt during 2002.
As of December 31, 2003, EDP, S.A. had available committed credit facilities of €€ 1,446 million and a fully underwritten €€ 350
million commercial paper program. Of these short-term credit facilities, €€ 600 million corresponds to a syndicated revolving credit
facility expiring in August 2004, which we intend to replace with a new 5 year credit line, and €€ 700 million corresponds to a credit
line facility negotiated in March 2003 to be used primarily as a back-up facility for our euro commercial paper program of €€
1,000,000,000, signed in April 2001. The facility expires in March 2006, or in March 2008 if we decide to exercise the two-year
extension option. These credit lines permit drawings of one, two, three and six months at agreed margins over the euro interbank
offered rate, or Euribor, based on a rating grid. Management believes that the combination of these negotiated credit lines
116
and commercial paper programs provides an adequate source of liquidity for our operations. Our credit facility agreements do not
impose financial ratio requirements and events of default clauses are not based on credit rating, so that their availability is not
impacted by downgrades or declines in financial ratios or other measures of financial performance.
Our consolidated indebtedness, including bonds, long-term bank loans, commercial paper and bank overdrafts, was €€ 7,492.7
million at December 31, 2003 compared with € € 7,994.1 million at December 31, 2002 and €€ 5,799.1 million at December 31, 2001.
As part of the strategy of extending the average life of our debt portfolio, in March 2003, we issued €€ 150 million of bonds with a 10-
year term, which was placed with a single domestic investor. As of December 31, 2003, debt at EDP, S.A. and EDP Finance B.V.
amounted to €€ 5,356.2 million, corresponding to 71.5% of our total debt. Our debt management guidelines continue to be focused on
controlling financial costs and reducing our exposure to foreign exchange risk.
In 2000, the reduction of the Portuguese government’s ownership to less than a majority interest in our shares and the reduction
of our ownership interest to less than a majority interest in REN’s shares triggered provisions in some of our debt agreements that
provide specified remedies for creditors including provisions in two of our domestic bond issues that permitted bondholders to seek
our redemption of the bonds. Under one of these domestic bond issues, a provision was triggered giving bondholders the right to call
a meeting of bondholders for the purpose of proposing modifications to the terms of the bond. A meeting was called and, because we
did not accept the modifications proposed, bondholders had the right to, within 30 days, require redemption of their bonds. As a
result, we were required to redeem €€ 125,000,000 of this € € 150,000,000 issue at par on July 18, 2001. With respect to the other
domestic bond issue, a provision was triggered giving bondholders the right to redeem their bonds at any time, and as of June 4, 2004
we had redeemed €€ 236,938,299 of this €€ 250,000,000 issue at par. We have effectively refinanced the portion of our debt represented
by these domestic bonds through a bond issue in March 2001 under our MTN program. In 2000, our MTN program was amended to
prevent the REN transaction from triggering any remedies for bondholders of the € € 1,000,000,000 issue maturing in 2009. As a result
of this amendment, the annual interest rate of this issue increased from 6.00% to 6.40%. We obtained or reached agreement on
amendments to or waivers of applicable provisions in all of our other debt agreements.
At December 31, 2003, the weighted average interest rate of our indebtedness at EDP, S.A. and EDP Finance B.V. was 3.58%,
compared with 3.67% at December 31, 2002. At December 31, 2003, total debt held by EDP, S.A. and EDP Finance B.V. was
denominated in euros (or hedged using cross currency swaps), and we therefore do not have currency exchange rate risk relating to
this debt. At December 31, 2003, approximately 68% of our total long-term indebtedness at EDP, S.A. and EDP Finance B.V. carried
a floating rate, but was hedged against interest rate risk through collar structures. At December 31, 2002, approximately 72.7% of our
total long term indebtedness carried a floating rate, the weighted average interest rate of which was 3.47%.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Our contractual obligations and commercial commitments consist primarily of credit facilities, as described above. The
following table provides details regarding EDP’s contractual and commercial obligations subsequent to December 31, 2003:

Payments Due and Amount of Commitment by Expiration Period

(EUR millions)
December 31, December 31, December 31, December 31, December 31,
Total 2004 2005 2006 2007 2008 Thereafter

Long-term debt 5,913.6 – 606.1 924.6 903.5 721.9 2,757.5

Short-term debt 1,579.1 1,579.1 – – – – –
Total
contractual
cash
obligations 7,492.7 1,579.1 606.1 924.6 903.5 721.9 2,757.5

Guarantees 584.2 293.9 14.4 0 53.9 0 222.0

TOTAL 8,076.9 1,873.0 620.5 924.6 957.4 721.9 2,979.5

117
 We believe that cash generated from operations and existing credit facilities is sufficient to meet present working capital needs.
We currently expect that our planned capital expenditures and investments will be financed from internally generated funds, existing
credit facilities and customer contributions, which may be complemented with medium- or long-term debt financing and equity
financing as additional capital expenditure requirements develop. For more information on our planned capital expenditures you
should read “Item 4. Information on the Company–History and Business Overview—Group capital expenditures and investments.”
PENSIONS AND BENEFITS
We maintain a defined benefit pension plan for all our active and retired employees included in the Collective Labor Agreement,
or the A.C.T., for Portuguese group companies created in 1994 with the restructuring of EDP. Pension benefits are based on the
employees’ years of service and the compensation level at the end of their employment period, less Portuguese social security
benefits. The normal retirement age is 65. However, employees at least 60 years of age with 36 years of service, or employees of any
age with 40 years of service, may elect early retirement. Employees electing early retirement are entitled to full pension benefits that
are calculated on the same basis as that for employees retiring at the normal retirement age. Our policy has been to make
contributions to the plan based on the availability of funds while making the minimum annual contributions required by applicable
regulations. Some companies not a part of the A.C.T, such as the Brazilian and Spanish companies, also have complementary social
benefits to their own social security systems, either as a defined benefit plan (Bandeirante, for example) or a defined contribution plan
(Escelsa and Hidrocantábrico, for example).
We also provide comprehensive medical coverage, in addition to that provided by the Portuguese national health system, for
retired employees, including those who have taken early retirement, and their dependents. Additionally, we provide a death benefit to
retirees’ survivors. We administer the program internally and assume the full cost of funding the program net of employee
contributions, amounting to approximately 10% of the total medical expenses covered.
At December 31, 2003, our accrued pension and medical benefit liabilities were €€ 562.3 million compared with €€ 608.2 million
at December 31, 2002 and €€ 683.9 million at December 31, 2001. The provisions for medical benefits and pensions in 2003 were €€
412.6 million and €€ 149.6 million, respectively, amounting to €€ 562.3 million in total, compared with €€ 396.7 million and €€ 211.5
million, respectively, in 2002, amounting to € € 608.2 million in total, and € € 377.9 million and €€ 305.9 million, respectively, in 2001,
amount to €€ 683.9 million in total. We expect to fund pension fund liabilities from our internal resources.
INFLATION
Inflation in Portugal, as measured by changes in the Portuguese CPI, averaged 3.3%, 3.6% and 4.4% in 2003, 2002 and 2001,
respectively. During the period from 1993 through 2003, changes in the Portuguese CPI averaged 3.7% per annum, ranging from a
high of 6.7% in 1993 to a low of 2.2% in 1997.
To reflect the impact of inflation, Portuguese GAAP and regulations permit companies to revalue their fixed assets.
Accordingly, we revalued our assets in 1992 based on an assessment of the remaining useful life and modern equivalent asset value of
the assets at December 31, 1992. In accordance with Portuguese GAAP, depreciation of fixed assets is computed on the revalued
amounts, with depreciation in respect of the original acquisition cost and 60% of the revaluation increment being deductible for
corporate income tax purposes. Under U.S. GAAP, fixed assets may not be stated at more than their historical acquisition cost.

PORTUGUESE GAAP COMPARED WITH U.S. GAAP

Our financial statements have been prepared in accordance with Portuguese GAAP, which varies in certain significant respects
from U.S. GAAP. The principal differences between Portuguese GAAP and U.S. GAAP as they relate to us concern:
• the revaluation of fixed assets, as discussed above under “Inflation”;
118
 • the capitalization of overheads and foreign exchange differences in connection with the construction of fixed assets;
• the capitalization of research and development costs, advertising costs, maintenance and repair, and reorganization costs;
• the hydrological correction account;
• the deferral of certain costs, profit distributions to management and employees and employee termination benefits;
• the accounting for employee retirement benefits;
• the reversal of allowances for certain doubtful accounts;
• the capital treatment of contracts for the purchase of capacity and electricity;
• the accounting for investments, including REN;
• the accounting for the sale proceeds from the disposal of REN;
• the accounting for joint venture returns, namely Hidrocantábrico;
• the accounting for derivative instruments;
• the depreciation of goodwill;
• the tariff adjustments and other regulatory assets;
• guarantees; and
• income taxes.
We include in the cost of assets constructed for our own use a portion of our general and administrative overhead. Assets
constructed prior to 1995 also include the net foreign exchange differences, both gains and losses, which resulted from loans
denominated in non-escudo currencies contracted to fund the capital expenditures. Under U.S. GAAP, these amounts are included in
income in the period incurred.
We capitalize and amortize research and development costs, advertising costs, major maintenance and repair costs, and
reorganization costs. Under U.S. GAAP, these amounts are included as expenses in the period incurred.
As required by government regulation, we record a provision in the hydrological correction account to smooth the effect on our
earnings that results from changes in hydrological conditions. Under U.S. GAAP, the effect of future changes in hydrological
conditions would be viewed as a general business risk and accrual would not be permitted.
As part of our profit sharing plan, we customarily distribute a portion of net profit to management and employees. Under
Portuguese GAAP, this distribution is reflected in the period in which formal shareholder approval is obtained and is recorded as a
reduction of retained earnings or other reserves. U.S. GAAP requires that these distributions be recorded as compensation expense in
the period they are earned.
We and some of our subsidiaries have pension obligations, in connection with both defined benefit and defined contribution
plans, and also have medical benefits for retired employees. Costs for defined contribution plans are expensed when incurred.
Accumulated obligations and annual expenses for medical benefits and defined benefit
119
pension plans are determined on actuarial basis. We adopted this policy by implementing IAS 19 in 1999. For the U.S. GAAP
reconciliation, we use SFAS 87 and SFAS 106 as from 1995. Thus, differences in accounting for these obligations generally originate
from the date of determination of the transition obligation (1989 for U.S. GAAP purposes and 1996 for Portuguese GAAP purposes)
and the assumptions relating the adherence rate to the early retirement plan for the period 1999-2003, as well as for the recognition of
the additional pension minimum liability.
We reached agreements with several municipalities on the terms for the future settlement of various old accounts receivable,
which under Portuguese GAAP and U.S. GAAP were fully provided in the past. We reversed a portion of the allowance for doubtful
accounts related to these old accounts receivable in 1999 and 2000, but not after those periods. Under U.S. GAAP, the benefit from
the recovery of these accounts receivable may only be recorded when the amounts are actually received.
We constructed and sold the Pego and Tapada de Outeiro power plants in 1993 and 1998, respectively. Before 1999, at the time
of the sales, REN signed PPAs with the producers in the Binding Sector by which the capacity and electricity of the plants were fully
contracted to the Binding Sector represented by REN. Under the PPAs, REN is required to make specified minimum payments
whether or not it is able to take delivery of the electricity. As permitted under Portuguese GAAP, REN recorded the sales of the
power plants and it also recorded the minimum contracted payments as an expense of the respective periods. U.S. GAAP would
require the sales to be treated as sale lease-back transactions and the power purchase agreements to be recorded as capital leases. Prior
to the sale of REN to the Portuguese government, the contracts with Tejo Energia and Turbogás were recorded in this manner.
Currently, the most relevant PPAs are those that REN has entered into with CPPE power plants.
Under Portuguese GAAP, we carry investments in publicly traded equity securities, other than those of subsidiaries and those
that are accounted for under the equity method, at market. Changes in the carrying value other than those resulting from permanent
impairment are reflected in equity. Under U.S. GAAP, these securities would be stated at fair value and the changes therein, net of
income taxes, would be recorded in a separate component of shareholders’ equity and included in the determination of comprehensive
income. Our investment in REN and equity in earnings of REN are affected by certain accounting differences between U.S. GAAP
and Portuguese GAAP. The differences affecting our investment in REN and equity in earning of REN include: revaluation of fixed
assets, overheads capitalized, deferred costs, employee termination benefits, distribution to management and employees, power
purchase agreements and deferred income taxes.
Under Portuguese GAAP, since the sale proceeds from the disposal of our 70% interest in REN were equal to the net book value
of the interest sold, no gain or loss was recorded on the transaction. Under U.S. GAAP, the net book value of the interest sold would
be reduced as a result of the accounting differences between Portuguese GAAP and U.S. GAAP; therefore, the proceeds received
from the disposal of REN would exceed the net book value of the interest disposed, resulting in a gain on disposal and the remaining
investment in REN would be reduced accordingly. The gain on the disposal, in the amount of € € 342,045,810, and the related deferred
tax in the amount of €€ 120,400,126, would be charged directly to shareholders’ equity (with a net effect of €€ 221,645,684).
Our 40% holdings in the voting rights of Hidrocantábrico plus the existing shareholders’ agreement allowed the investment to be
consolidated as a joint venture on a proportionate basis under Portuguese GAAP. Under U.S. GAAP this investment would be
accounted for under the equity method. Hidrocantábrico’s shareholders equity and net income have been adjusted to U.S. GAAP
before applying the equity method to our accounts.
Until 2002, derivative financial instruments were not recognized in the financial statements under Portuguese GAAP. Under
U.S. GAAP, derivative financial instruments would be recognized in the balance sheet at market value. For instruments that do not
qualify for hedge accounting under FAS 133, as implemented on January 1, 2001, the movements in the market value are included in
our net profit. Upon adoption of FAS 133 on January 1, 2001, no transition adjustment was recorded as all derivatives existing at that
date were previously recorded at fair market value in the balance sheet for U.S. GAAP. The derivative financial instruments held by
us at December 31, 2000, 2001 and 2002 were not designated hedges and thus movements in their fair value would be recognized in
net income. As of the date of our adoption of IAS 39 in 2003, in our Portuguese GAAP consolidated financial statements derivative
financial instruments are recognized in our consolidated balance sheet at market value, and those that do not quality for hedge
accounting are included in our net profit.
120
 From January 1, 2002, U.S. GAAP requires that goodwill, including previously existing goodwill, and intangible assets with
indefinite useful lives are not amortized but are tested for impairment annually. Concession rights continue to be amortized, as these
are intangible assets with finite lives. Goodwill amortization charged to the consolidated profit and loss account was adjusted for U.S.
GAAP purposes in the amount of € € 11.9 million in 2002 and €€ 54.4 million in 2003.
Prior to 1999, the sales price of electricity in Portugal was based upon a negotiated price between the government and us. Tariffs
were generally based on operating costs incurred during a year associated with average hydrological conditions. However, there were
no specific guidelines in place that ensured that we would recover actual costs incurred. On January 1, 1999, and again on January 1,
2002, new tariff regimes were introduced that established formulae for the calculation of the selling price of electricity in Portugal.
These tariffs at current market conditions allow us to recover actual costs incurred. However, not all of the criteria necessary to adopt
the U.S. GAAP accounting for regulated industries exist. Therefore, U.S. GAAP requirements applicable to regulated industries have
not been applied. On January 1, 2002, the regulator implemented alternative revenue programs that allow us to increase tariffs in
future periods to recover allowable revenues. Future tariff increases have been recorded in the current year for Portuguese GAAP and
are reversed under U.S. GAAP.
Guarantees related to our operations with bank loans and other operational activities that have no accounting recording under
Portuguese GAAP must be adjusted and presented as liabilities for U.S. GAAP purposes. These adjusted amounts are related to the
purchase of electricity and the receipt of some subsidies from the government.
Under Portuguese GAAP, prior to 1999, it was acceptable to recognize income tax expense based upon the estimated current
income tax liability on the current year’s earnings. When income and expense recognition for income tax purposes does not occur in
the same period as income and expense recognition for financial reporting purposes, the resulting temporary difference was not
considered in the computation of the income tax expense for the period. Under U.S. GAAP, income taxes are provided using the
liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
attributable to differences between the financial statement carrying amount of assets and liabilities and their tax bases. A valuation
allowance is provided based on the expected realization of these deferred tax assets.
In 1999, we implemented International Accounting Standard 12 (Revised), Income Taxes, which requires income taxes to be
provided for using the liability method and is substantially consistent with the method under U.S. GAAP.
Our net profit in 2003 under U.S. GAAP amounted to €€ 498.0 million and € € 299.9 million in 2002 compared with €€ 381.1
million in 2003 and € € 335.2 million in 2002, respectively, under Portuguese GAAP. Our shareholders’ equity under U.S. GAAP was
€€ 3,497.3 million at December 31, 2003 and €€ 3,886.3 million at December 31, 2002, compared with € € 5,298.0 million and €€ 5,494.2
million, respectively, under Portuguese GAAP.
See note 39 to our audited consolidated financial statements for the significant adjustments to net income and shareholders’
equity that would have been required if U.S. GAAP rather than Portuguese GAAP had been applied in the financial statements.
IMPACT OF RECENTLY ISSUED U.S. ACCOUNTING STANDARDS
In January 2003, the FASB issued FASB Interpretation No. 46, (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46
was revised in December 2003 and has been interpreted in various FASB staff positions. FIN 46 is effective immediately for all
variable interests in variable interest entities (VIE) created after January 31, 2003. For VIEs created before that date, the requirements
are effective for us from January 1, 2004. FIN 46 requires certain transitional disclosures to be made immediately if it is reasonably
possible that an entity will consolidate or disclose information about VIEs when FIN 46 becomes effective. FIN 46 defines a VIE as
an entity where either the total equity investment at risk is not sufficient to permit the entity to finance its activities, without additional
subordinated financial support; or the equity investors lack any one of the following: (1) the ability to make decisions about an
entity’s activities; (2) the obligation to absorb losses of the entity; or (3) the right to receive residual returns of the entity. VIEs are
required to be consolidated by the primary beneficiary, which is the party that absorbs the majority of the entity’s expected losses,
expected gains, or both. It is not expected that this standard will have a material impact on our U.S. GAAP financial statements.
121
 In April 2003, the FASB issued SFAS 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”
This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No.
133, Accounting for In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” This statement is effective prospectively for contracts entered into or modified after June 30, 2003 and
prospectively for hedging relationships designated after June 30, 2003. Adoption of this statement has not had a material impact on
our U.S. GAAP financial statements.
In May 2003, the FASB issued FAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity.” FAS 150 is effective prospectively for financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June 15, 2003. FAS 150 requires that certain financial
instruments, previously accounted for as equity, be classified as liabilities. This statement must be implemented by reporting the
cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement
and still existing at the beginning of the interim period of adoption. Following adoption of this statement, certain financial instruments
have been reclassified from minority interests to liabilities. This statement is not expected to have a material impact on our financial
statements.
In December 2003, the FASB issued a revision to SFAS No. 132, Employers’ Disclosures about Pensions and Other Retirement
Benefits, which requires enhanced disclosures about our defined benefit pension plans. The revised standard will become effective for
our U.S. GAAP financial statements for 2004. Adoption of this statement has not had, and is not expected to have, a material impact
on our U.S. GAAP financial statements, although additional disclosures have been added.
In November 2003, the Emerging Issues Task Force (EITF) reached a consensus on certain additional disclosure requirements in
connection with holding losses on investment securities (EITF 03-1- The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments). This standard is not expected to have a material impact on our U.S. GAAP financial statements.
Item 6. Directors, Senior Management and Employees
BOARD OF DIRECTORS
Our board of directors manages our affairs and monitors the daily operation of our activities in accordance with Portuguese law
and our Articles of Association. Executive officers are in charge of our various administrative departments and report directly to our
board of directors. Our operating companies are each managed by their respective boards of directors who report ultimately to our
board of directors.
Under Portuguese law, the board of directors has the power to perform any and all acts necessary or desirable for the furtherance
of our purposes, with the exception of any acts that under Portuguese law or our Articles of Association are subject to the express
approval of shareholders at a general meeting. Pursuant to our Articles of Association the shareholders may in a general meeting
appoint a board composed of an uneven number of members with a minimum of 5 and a maximum of 15 members. One of the
directors can be elected separately by a minimum of 10% of the shareholders that voted against the list of proposed directors by, in
the same shareholders meeting, voting for a new director that automatically substitutes the last person on the list of proposed
directors. Currently, the board of directors consists of a Chairman and twelve other directors elected by a simple majority of the votes
cast at a general meeting.
Pursuant to our Articles of Association, which provide that the board of directors may delegate day-to-day management
responsibilities to an executive committee composed of an uneven number of directors, the board of directors has appointed an
executive committee and established the following guidelines for the executive committee:
• to globally define our policies on our different areas of activity, the coordination of activities among EDP Group companies,
and the management of our holdings; and
122
 • to submit to the board of directors for a decision only those matters that executive committee finds to be of suitable
importance.
The executive committee is not authorized to:
• appoint new directors,
• convene general meetings of shareholders,
• approve our annual report and accounts in order to submit them to a general meeting of shareholders,
• approve plans and annual or multi-year budgets nor monitor their execution,
• approve our quarterly accounts,
• move our principal office, or
• prepare plans for a merger, spin-off, transformation or sale of our group companies; and
• hold meetings, as convened by its chairman usually once a week, at which non-Executive Committee members may be
present.
The current executive committee was appointed in May 2003, although its composition may change in order to fill vacancies,
and is currently composed of the following five directors: Mr. João Talone, our Chief Executive Officer, Mr. Rui Miguel Horta e
Costa, Mr. Arnaldo Pedro Figueirôa Navarro Machado, Mr. Jorge Manuel Oliveira Godinho and Mr. Pedro Manuel Bastos Mendes
Rezende.
In July 2003, the board of directors created an audit committee composed of three directors. Following the withdrawal of Mr.
António de Almeida, the initial President of this committee, Mr. José Manuel Trindade Neves Adelino was appointed President. Mr.
Luís Filipe Rolim de Azevedo Coutinho and Mr. António Afonso de Pinto Galvão Lucas are also members of the audit committee.
The members of the audit committee are qualified as independent directors under CMVM Regulation no. 11/2003 of December 2,
2003.
The audit committee has, among others, the following main functions:
• supervises compliance with and proper application of prevailing accounting principles and standards, in conjunction with the
work of the Registered Chartered Accountant (Fiscal Único) and of the external auditors;
• analyzes the quarterly, semi-annual and annual financial information, draws up non-binding initial reports on this
information for appraisal by the board of directors, which may include recommendations on the provision of information to
shareholders; and
• submits proposals in connection with the appointment of the external auditor and its remuneration to the board of directors,
monitors the activity of the external auditor and checks consistency and adequacy of expenditure with the external auditor
and its efficiency.
Our remuneration committee is composed of three members, which are shareholders elected at our general meeting of
shareholders, as provided for in Portuguese law and in article 24 of our Articles of Association. This committee has the capacity to
determine the remuneration of our board of directors and of our other corporate bodies, including retirement plans. The current
members of the remuneration committee are Mr. Vasco de Mello
123
(Chairman), Mr. Ruy de Albuquerque and Mr. Plácido Pires. Neither the law nor our Articles of Association impose or provide for a
charter or regulation to be approved in relation to the organization or activity of the remuneration committee.
The board of directors has the exclusive authority to represent us in transactions with third parties, but may delegate these
powers. The board of directors has no power to amend or repeal the Articles of Association, which may only be amended or repealed
by the shareholders in a general meeting by a resolution adopted by two-thirds of the votes cast, representing, on a first call, a quorum
of at least one-third of our share capital, as set forth in Portuguese law.
The term of office of the board of directors is three calendar years, renewable, with the year of election or appointment being
considered as a full calendar year. Directors may be removed at any time, with or without cause, by the general meeting of
shareholders. Vacancies that occur on the board of directors may be filled by the board, with the term of the new director being
coterminous with that of the substituted director. Directors filling board vacancies pursuant to designation by the board of directors
must be submitted for ratification at the first general meeting of shareholders subsequent to the substitution. Our directors do not have
service contracts with us or our subsidiaries that provide for benefits upon termination of employment. According to its internal
regulations, the board of directors must convene once a month, and a majority of directors must be present to constitute a quorum. A
director may be represented at a meeting only by another director by proxy given in writing for the meeting in question, and no more
than one director can be represented by proxy at a particular meeting. Directors have equal voting rights, and all resolutions of the
board of directors are adopted by a majority of the votes cast. The Chairman has the deciding vote in the event of a tie.
Pursuant to our Articles of Association, the shareholders at a general meeting appoint the remuneration committee, which is a
committee of shareholders that determines the compensation of directors and directors’ benefits.
Under Portuguese law, a director must act diligently and with due care, always seeking to promote the company’s interest while
taking due account of the interests of shareholders and employees. A director will be liable to the company, the company’s
shareholders and third parties for any damages caused by a breach of these duties.
The members of our board of directors, their principal past affiliations, information on their business experience and principal
business activities outside of us and selected other information are set forth below:
Year originally
Name Age Position elected

Mr. Francisco de la Fuente Sánchez 62 Chairman 2000

Mr. João Ramalho Talone 52 Chief Executive Officer 2003
Mr. Rui Miguel Horta e Costa 43 Chief Financial Officer 2000
Mr. José Manuel Trindade Neves Adelino 50 Director 2003
Mr. Luis Fernando de Mira Amaral 58 Director 2004
Mr. José Manuel Gonçalves de Morais Cabral 57 Director 2003
Mr. Luis Filipe Rolim de Azevedo Coutinho 43 Director 2003
Mr. Jorge Manuel Oliveira Godinho 51 Director 2003
Mr. António Afonso de Pinto Galvão Lucas
Mr. Arnaldo Pedro Figueirôa Navarro Machado 58 Director 2002
Mr. Vítor Ângelo Mendes da Costa Martins 57 Director 2003
Mr. Pedro Manuel Bastos Mendes Rezende 43 Director 2003
Mr. Paulo de Azevedo Pereira da Silva 43 Director 2003
Mr. Francisco de la Fuente Sánchez is Chairman of our board of directors and has been on our board of directors since January
1997. In addition, Mr. Francisco Sánchez is Chairman of the board of directors of ONI SGPS, member of the board of
Hidrocantábrico and member of the Superior Council of Banco Comercial Português. Mr. Francisco Sánchez served as Chairman and
CEO of EDP, S.A. between 2000 and 2003, Chairman of EDP Produção and EDPD between 2002 and 2003, and Chairman of EDP
Energia and EDP Valor between 2001 and
124
2003. From 1997 to 1998, Mr. Francisco Sánchez was a member of the board of directors of EN, CENEL, LTE and SLE and between
1998 and 2001, he was Chairman of CERJ and EDP - Cogeração, Vice-Chairman of Bandeirante, and a member of the board of
directors of EDP Internacional. Mr. Francisco Sánchez also served as member of the boards of directors of LTE and Hidrotejo from
1994 to 1996. He was General Manager of one of our distribution divisions from 1990 to 1994 and Central Commercial Manager of
EDP from 1988 to 1989. He was assistant to our board of directors from 1987 to 1988. Mr. Francisco Sánchez holds a degree in
electrotechnical engineering from Instituto Superior Técnico de Lisboa.

Mr. João Ramalho Talone was appointed our Chief Executive Officer in May 2003. In addition Mr. Talone is Chairman of the
board of directors of EDP Produção and EDPD and a member of the board of directors of ONI SGPS and Hidrocantábrico. In April
2003, he was elected deputy-chairman of the board of directors of Lusotur. Until 2002, Mr. Talone served as Chairman and CEO of
the Executive Board of Directors of Eureko (appointed in September 1999), member of the Board of Directors of BCP—Banco
Commercial Português, S.A. (appointed in 1991) and Chairman of Seguros & Pensões (appointed in 1995). In January 2003, by
appointment of the Council of Ministers, he was charged with rethinking the corporate strategy of the national energy sector. Between
December 2002 and January 2003, he headed the project to terminate IPE — Instituto de Participações do Estado, a state owned
company holding the Republic of Portugal’s interests in several of its subsidiaries. Mr. Talone is a member of the Board of Directors
of “Association de Génève” (international insurance forum), to which he was elected in June 1995. In 1988-89, he was a guest
lecturer at the Universidade Nova de Lisboa in the International Business area. Mr. Talone holds a degree in civil engineering from
Instituto Superior Técnico de Lisboa, an MBA from Universidade Nova de Lisboa in association with the Wharton School of
Pennsylvania and has completed the Higher Management Course at the National Institute for Industrial Research and the Advanced
Management Program at Harvard Business School.

Mr. Rui Miguel Horta e Costa was appointed to our board of directors in May 2000 and re-elected in May 2003. Mr. Horta e
Costa is also a member of the boards of directors of Hidrocantábrico, GALP, EDPD, EDP Produção and ONI. Mr. Horta e Costa is
also our chief financial officer. He served as Executive Director of UBS Warburg in London from 1995 to 2000, and from 1990 to
1995, he was a member of the board of directors of Grupo Jorge de Mello. Mr. Horta e Costa was Resident Vice-President of Citibank
Portugal from 1989 to 1990, and from 1987 to 1989 he served in the positions of Director of Banco Finantia and assistant of the board
of directors for the same bank. From 1986 to 1987, he was Account Manager for MDM—Sociedade de Investimentos. Mr. Horta e
Costa holds a degree in economics from Universidade Católica Portuguesa, as well as an MBA in management from the University of
Minnesota.

Mr. José Manuel Trindade Neves Adelino was appointed to our board of directors in May 2003. He has been a full Professor of
Finance at Universidade Nova de Lisboa since 1995. He is also a member of the National Education Council and of the board of the
Deposit Insurance Fund, and he belongs to the strategic councils of Portugal Telecom and CTT-Correios de Portugal. He was a non-
executive member of the board of Banco Português do Atlântico and has acted as a consultant to several companies and government
organizations in his areas of expertise. Mr. Neves Adelino holds a degree in Finance from Universidade Técnica de Lisboa and a
graduate degree in Business Administration (DBA) from the Kent State University, USA.
Mr. Luís Fernando Mira Amaral was appointed to our board of directors in 2004. He is presently CEO of Caixa Geral de
Depósitos. From 1997 to 1998 he was a member of the European Union Competitiveness Advisory Board and prior to that he was
Portuguese Minister of Industry and Energy from 1987 to 1995 and Portuguese Minister of Labor and Social Security from 1985 to
1987. Mr. Mira Amaral was also member of the board of directors of Cimpor and BPI and CEO of Banco de Fomento de Angola. Mr.
Mira Amaral holds a degree in electrical engineering from Instituto Superior Técnico and a masters degree in economics from
Universidade Nova de Lisboa. He also attended the Graduate School of Business’ Executive Program at Stanford University.
Mr. José Manuel Gonçalves de Morais Cabral was appointed to our board of directors in May 2003. He is also Director of
Efacec Capital, SGPS, S.A. and José de Mello Participações II, SGPS, S.A., and Senior Manager of José de Mello Serviços, Lda.
From 1995 to 1999, he served as Director and CEO of Lisnave, S.A. Previously, he was Director of IPE, S.A. between 1992 and
1994, and Director of Celbi, S.A. between 1993 and 1995. From 1989 to 1992, he served as Chairman of Air Atlantis, S.A., and
between 1970 and 1989, he was Controller and CFO of METAL Portuguesa, S.A. Mr. Morais Cabral holds a degree in Economics
from I.S.C.E.F., Lisbon.
125
 Mr. Luis Filipe Rolim de Azevedo Coutinho was appointed to our board of directors in May 2003. He is also Senior Adviser of
the Holding of Grupo Abrantina, as well as Professor in Economics at Universidade Nova de Lisboa. Between 1984 and 2002, he
served as Senior Advisor at José Bento Pedroso & Filhos, Lda., I.P.E., Grupo V.I/B.T.A., Grupo Abrantina, Bank of Portugal, Lisbon
Municipality, Calouste Gulbenkian Foundation Portuguese and Finance Secretary of State. He was a member of the boards of
directors of several companies of Abrantina Group and CFO of Valora – Serviços de Apoio à Emissão Monetária. He holds a degree
in Management from Universidade Católica Portuguesa and an MBA from Universidade Nova de Lisboa.

Mr. Jorge Manuel Oliveira Godinho was appointed to our board of directors in May 2003. From March 2001 to May 2003, Mr.
Godinho was President of the Executive Committee at EDINFOR-Sistemas Informáticos, S.A., and Chairman at Ace-Holding, SGPS,
S.A. Between 1998 and 2000 he was Adviser of the Board of Electricidade de Portugal, S.A., Executive Member of the Board of
OPTEP and Vice-Chairman of the Board of Optimus. Between 1991 and 1998, Mr. Godinho was Chairman of the Board of Portucel
SGPS, Portucel Industrial and Portucel Florestal. From 1985 to 1990, he served as Secretary of State for Fisheries. He was also
chairman of the board of directors of Docapesca, deputy-chairman of the Portuguese Industrial Association and member of the Social
Security Financial Management Institute, the National Scientific and Technological Research Board, the Forum for Competitiveness,
Efacec Capital SGPS, S.A. and the Fund for the Internationalization of the Portuguese Economy. He was Assistant and Senior
Lecturer at the Instituto Superior Técnico. Mr. Godinho holds a degree in Engineering from Instituto Superior Técnico and an MBA
from Universidade Nova de Lisboa.
Mr. António Afonso de Pinto Galvão Lucas was appointed to our board of directors in 2004. He is presently Chairman of the
board of directors of EPM - Sociedade Gestora de Participações Sociais, S.A. and of its subsidiaries Fábrica Cerâmica de Valadares
S.A., Valadares España S.A. and CCS – Serviços de Gestão Lda., companies operating in the ceramics sector. Also in this sector, he
is Chairman of the board of directors of Secla. Previously, he was manager and director of the CUF Group and SAPEC Group. He
was also director of CIP – Portuguese Industry Confederation and is currently the President of APICER – Portuguese Ceramics
Association and member of the Superior/Consultive Councils of AEP – Portuguese Entrepreneurship Association, COTEC –
Association for Inovation, Forum for Competitiveness and ERSE – Energy Services Regulator. Mr. Galvão Lucas holds a degree in
industrial-chemical engineering from Instituto Superior Técnico.
Mr. Arnaldo Pedro Figueirôa Navarro Machado was appointed to our board of directors in May 2002 and he is presently the
Chief Executive Officer of EDPD - Energia. Mr. Navarro Machado served as Chief Executive Officer of Sociedade Central de
Cervejas from 2000 to 2002. He acted as member of the board of directors of HLC - Engenharia de Gestão e Projectos, S.A. between
1998 and 2000. In the EDP Group he has served as Vice-Chairman of the board of directors of EDP, S.A. from 1992 to 1998,
Chairman of the board of directors of MRH - Mudança e Recursos Humanos, S.A. in 1997 and 1998, member and Chairman of the
board of directors of INTERNEL - Electricidade de Portugal Internacional, S.A. from 1992 to 1998 and of CPPE, S.A. between 1994
and 1997, member of the board of directors of CERJ from 1996 to 1998, of INVESTCO - Veículo de Investimento de
Empreendimento and of Hidroeléctrica do Lajeado in Brazil during 1998, of OPTEP from 1997 to 1998, of Turbogás from 1995 to
1998 and of EDP, S.A. in 1991 and 1992. Prior to this, he has served as member of the Management Council of Sociedade Central de
Cervejas from 1988 to 1991, as Chairman of the board of directors of Sociedade da Água de Luso, S.A. during January 1990 and as
member of the board of directors of Setenave from 1984 to 1988. Mr. Navarro Machado holds a degree in Naval Engineering from
the University of the Stracholyde, Glasgow.
Mr. Vítor Ângelo Mendes da Costa Martins was appointed to our board of directors in May 2003. Mr. Vítor Martins is also
Senior Adviser of CITIGROUP, a position that he has held since 1997, as well as a member of the Management Committee of the
IEEI - Instituto de Estudos Estratégicos Internacionais, member of the Strategic Board of the “Notre Europe” Jacques Delors
Association and member of the Advisory Board of the Forum de Administradores de Empresas. From 1999 to 2002, he was Chairman
of Jazztel Portugal, and between 1996 and 2002, he was a member of the Advisory Committee of Public Markets of the European
Committee. Previously, he served as Secretary of State for Europeans Affairs from 1985 to 1995. Mr. Vítor Martins holds a degree in
Management from ISEG, Lisbon.
Mr. Pedro Manuel Bastos Mendes Rezende was appointed to our board of directors in May 2003. In addition to serving as a
member of the board of directors of EDP, he is also serving as President of the Executive Committee of
126
EDP Produção and Chairman of its subsidiaries, as well as a board member of EDP Energia, EDPD and Hidrocantábrico. Since 1990,
Mr. Pedro Bastos Rezende has been a member of The Boston Consulting Group, where he served in the Madrid office until 1995 and
in the Lisbon office thereafter. He was elected Partner and Director in May 1997 and has co-led the Lisbon office since then. He was
also the local leader of the Energy Practice Area. From 1985 to 1989, he was Head of the Testing Department for VALEO – Clutch
Division in Spain. Mr. Pedro Bastos Rezende holds a degree in Industrial Mechanical Engineering from ICAI – Madrid, Spain and an
MBA from Insead – Fontainebleau, France.

Mr. Paulo de Azevedo Pereira da Silva was appointed to our board of directors in May 2003. He is also General Manager of
BCP – Banco Comercial Português, S.A., Director of LEASEFACTOR S.G.P.S., Chairman of the Board of Directors of BCP
LEASING and Director of CREDIBANCO – Banco de Crédito Pessoal. Mr. Paulo Azevedo holds a degree in Economics from the
Faculdade de Economia do Porto.
SENIOR MANAGEMENT
We have twenty-five Executive Officers who are in charge of various business and administrative departments at the holding
company level of EDP and report directly to the board of directors. Selected information is set forth below for the executive officers
in charge of a principal business function.
Year of
Name Age Appointment Position

Mr. António Pedro Alfaia de Carvalho 58 2004 General Secretary

Mr. António José Marrachinho Soares 43 1998 Alternate General Secretary
Mr. António José Silva Coutinho 35 2003 Head of Energy Planning Office
Mr. António Manuel Barreto Pita de Abreu 54 2003 General Manager
Mr. António Manuel Neves de Carvalho 54 2000 Head of Environment Office
Mr. António Maria Ramos da Silva Vidigal 54 2003 Head of Risk Management Office
Mr. António Martins da Costa 49 2003 General Manager
Mr. António Pacheco de Castro 45 1994 Head of Iberian Articulation Office
Mr. António Pedro Alfaia de Carvalho 58 1998 Head of Legal Office
Mr. Carlos Alves Pereira 38 2003 Head of Business Analysis Office
Mr. Eugénio André Purificação Carvalho 50 2001 Head of Human Resources Office
Mr. Horácio Manuel Piriquito Casimiro 43 2003 Head of Communication and Image Office
Mr. João Manuel Manso Neto 46 2003 General Manager
Mr. Joaquim Armando Ferreira Silva Filipe 55 2003 General Manager
Mr. Joaquim Pedro de Macedo Santos 50 2003 Head of Brazil Articulation Office
Mr. Jorge Manuel Ribeirinho Soares Machado 60 2003 General Manager
Mr. José Manuel Ferrari Bigares Careto 41 2003 Head of Gas Project
Mr. José Avelino Abreu Aguiar 56 2000 Head of Information Systems Office
Ms. Magda Abdool Magid Vakil 41 1998 Head of Financial Management Office
Ms. Maria Joana Mano Pinto Simões 43 2000 Head of Regulation and Tariff Office
Mr. Miguel Ribeiro Ferreira 36 2003 Head of Planning and Control, Consolidation
and Tax Office
Ms. Paula Pinto da Fonseca 43 2003 Head of Quality Office
Mr. Pedro Manuel Carreto Pires João 34 2000 Head of Investor Relations Office
Mr. Stephan Godinho Lopes Morais 30 2003 Chief of Staff, Cabinet of the CEO
Mr. Vitor Manuel Silva Leitão 50 2000 Head of Internal Audit Office
Mr. Vasco Manuel de Castro Coucello 52 2003 General Manager

Mr. António Pedro Alfaia de Carvalho was appointed head of our legal office in May 1998, where he has been a legal counselor
since 1979. He also served as our company secretary between July 1997 to July 2000, and again since February 2004 to the present.
Mr. de Carvalho holds a law degree from Faculdade de Direito de Lisboa.

Mr. António José Marrachinho Soares has been our alternate company secretary since April 1998. Between 1994 and 2000, Mr.
Soares was assistant to the board of directors and the head of the secretariat of the board. Mr. Soares holds a law degree from
Faculdade de Direito de Lisboa and post-graduate degree in securities law, as
127
well as a post-graduate degree in public regulation from Universidade de Coimbra–CEDIPRE, Centro de Estudos de Direito Público e
Regulação.
Mr. António José da Silva Coutinho was appointed head of energy planning in November 2003. From 1997 to 2003, he has
worked as a business consultant for The Boston Consulting Group, focused mainly on the Energy Practice Area. Before joining BCG,
he worked for four years in a civil engineering firm as a structural designer. Mr. Coutinho holds a BSc in civil engineering and MSc
in Operational Research from Lisbon’s Instituto Superior Técnico.

Mr. António Manuel Barreto Pita de Abreu is currently General Manager of EDP, Chairman of EDINFOR, ACE and MRH,
Vice-President of Turbogás, S.A. and Member of the Board of Directors of Electricidade dos Açores, S.A. He was Member of the
Board of Directors of EDP (2000-2003), Chairman of EDP Produção and CPPE, Member of the Board of Directors of EDINFOR and
EDPD, Chairman of TER, EDP Cogeração and TERGEN, Member of the Board of Directors of 093x (2000-2002), Chairman of REN
(2000), Member of the Board of Directors of Sãvida (2000-2001) and MRH (2000-2001), Chairman of Onitelecom (1998-2000), Oni
Açores, Onisolutions (1999-2000) and Edinet (1997-1999), Member of the Board of Directors of Optep (1997-1998), Executive
Director of REN (1994-1997), Director of DORE-Direcção Operacional da Rede Eléctrica (1991-1994) and had several roles in
EDP’s divisions in charge of the Portuguese National Grid (1977-1991).

Mr. António Manuel Neves de Carvalho was appointed head of our environmental office in September 2000. He also served as
REN’s director responsible for the systems and equipment department from 1994 to 2000 and as an assistant executive officer in the
systems department from 1991 to 1994. Mr. Carvalho holds a degree in telecommunications and electronics engineering from
Instituto Superior Técnico de Lisboa.

Mr. António Maria Ramos da Silva Vidigal was appointed Chief Risk Officer in June 2003. Previously, he served as CEO of
OniWay, a 3G start-up mobile operator, after having participated as Executive Board Member of Optimus Telecomunicações from
the company launch to June 2000. Mr. Vidigal joined the EDP Group in 1976. He was Executive Board Member of EDP, S.A. from
1992 to 1997, and acted as Chairman, CEO or Board Member in subsidiaries encompassing IT, Power Distribution, Power Plant
Engineering, Hidro Power Plant Operation and Telecommunications. Mr. Vidigal holds a degree in Power Systems Engineering from
Instituto Superior Técnico de Lisboa, and completed complementary studies in Computer Science at Universidade Nova de Lisboa
and in Management at AESE in Lisbon.

Mr. António Martins da Costa is currently the CEO of EDP Brazil and Chairman of the Board of Directors of the respective
controlled companies of energy generation, distribution and trading. Having started his professional career in 1976 as a lecturer at the
University, he joined EDP in 1981 and later, in 1989, moved to the financial sector, assuming the position of General Manager and
Executive Board Member of insurance companies, pension funds and asset management operations of Banco Comercial Português
(Portugal) and Eureko BC (Holland). Since 1999, he was also the vice-president of the Management Board of PZU (Poland). He
holds a degree in Civil Engineering and an MBA from the University of Oporto, and has completed executive education studies at
INSEAD (Fontainebleau), AESE (University of Navarra) and Wharton School (Philadelphia, USA).
Mr. António Pacheco de Castro was appointed General Manager in June 2003. He has served as head of strategic planning since
September 2000. Between 1997 and 2000, Mr. Castro served as the executive officer responsible for our investor relations office. Mr.
Castro also served as an assistant manager of our strategic planning office from 1995 to 1997. Mr. Castro holds a management degree
and an MBA from Lisbon’s Instituto Superior de Economia.
Mr. Carlos Alves Pereira was appointed head of the business analysis office in October 2003, after serving as Assistant to the
Board of Directors (2002-2003). He served as head of Corporate Finance and Project Finance for Portugal in Argentaria Banca de
Inversiones (1996-2002). Prior to that, he worked for 4 years in Jorge de Mello’s Group where he served as Associate Director for the
Financial Area of the holding company Nutrinveste (1994- 1996) and as Senior Analyst of Corporate Finance in Incofina. From 1988
to 1990, he was a Financial Analyst at the fund manager company Gestifundo. Mr. Pereira holds a management degree from Lisbon’s
Universidade Católica Portuguesa and an MBA from Insead.
128
 Mr. Eugénio André Purificação Carvalho was appointed head of our human resources office in July 2001. He was also head of
CPPE’s human resources office between 1998 and 2001. He served as assistant executive officer of REN’s commercial department
between 1993 and 1998, and he also served as an electrical engineer in power control systems from 1979 to 1993. Mr. Carvalho holds
a degree in telecommunications and electronics engineering from Instituto Superior Técnico de Lisboa, and a post graduate degree in
Industrial Management from Lisbon’s Instituto Superior de Ciências do Trabalho e da Empresa.

Mr. João Manuel Manso Neto joined EDP in July 2003 as General Manager. He is a member of the Board of EDP Produção,
being responsible for Trading. Before joining EDP, he worked in banking since 1981, mainly in what is now the BCP Group (in
Portugal and in Poland), where he was General Manager in charge of several areas, including Treasury and Capital Market and Large
Corporate Clients. Mr. Neto holds a degree in economics from Instituto Superior de Economia de Lisboa, a post graduate degree in
European economy from Universidade Católica de Lisboa and a masters degree in economics from Universidade Nova de Lisboa.
Until 1993, he also taught economics in Universidade Nova de Lisboa.

Mr. Joaquim Armando Ferreira Silva Filipe was appointed General Manager of EDP in June 2003. He is also CEO of
Bandeirante Energia since January 2002 and a member of the Boards of Directors of EDP Brazil, Bandeirante Energia, Escelsa,
Enersul and Iven. He holds a degree in electrical engineering from the University of Oporto.

Mr. Horácio Manuel Piriquito Casimiro was appointed head of our communication and image office in May 2003. He served as
head of corporate communication at GALP between 2001 and 2003. From 1997 to 2001 he was a member of the board of five
companies in the Media Capital Group. From 1995 to 2001 he held the senior management position at three publications (Semanário
Económico, Valor and Fortunas & Negócios). From 1996 to 2000, he was a member of the board of Rádio Comercial and Rádio
Nostalgia. From 1990 to 1991 he was the assistant to the Minister of Finance and the Minister of Agriculture. Mr. Piriquito holds a
management degree from Universidade Livre de Lisboa.

Mr. Joaquim Pedro de Macedo Santos was appointed head of the Brazil link office in July 2003 and, since December 2003, he
is member of the Board of Directors of Enernova. From 2001 to 2003, he was head of strategic planning in EDINFOR and member of
the Board of Directors of subsidiaries Copidata and Mecaresopre. From 1998 to 2001, he was responsible for strategic planning and
control in OPTEP and, prior to that, he was head of department in ERSE (1996-1998), head of EDP’s strategic planning department
(1994-1996) and, from 1980 to 1994, he had other several experiences in EDP. From 1976 to 1980, he was an electrical and
instrumentation specialist in Quimigal. Mr. Santos holds a degree in electrical engineering from Lisbon’s Instituto Superior Técnico
and has an MBA from Universidade Nova de Lisboa.
Mr. Jorge Manuel Ribeirinho Soares Machado was appointed General Manager in June 2003. He is Executive Vice-President of
EDP Produção, S.A. since July 2001, CEO of CPPE, S.A. since January 2004 and Board Member of EDP Produção EM, S.A. since
July 2002. He has been Board Member of CPPE since January 1995 and Chairman of Enernova, S.A. between 1993 and 1995. From
1987 to 1994 he has been Central Planning Manager of EDP. Mr. Machado holds a civil engineering degree from Faculdade de
Engenharia da Universidade do Porto and has been professor of the same faculty between 1971 and 1984.
Mr. José Manuel Ferrari Bigares Careto was appointed coordinator of the gas project in May 2003. Prior to that he served as
Executive Board Member of OniWay. He also served in the Sonae Group, from 1998 to 1999, as head of the Customers Affairs and
Regulatory Affairs Departments of Optimus and, from 1999 to 2000, as Executive Board Member of Novis. From 1989 to 1996, he
served as Head of the Studies and Planning Department of ICP – Instituto das Comunicações de Portugal and from 1986 to 1989 as
responsible of the planning and statistics area of CTT- Correios de Portugal. Mr. Ferrari Careto holds an economics degree from
Universidade Nova de Lisboa.
Mr. José Avelino Abreu Aguiar was appointed head of our information systems office in July 2000. He has also served as an
executive officer at EDINFOR since 1991. Mr. Aguiar holds a degree in electrotechnical engineering from Faculdade de Engenharia
at Oporto University and a management degree (PADE) at AESE.
129
 Ms. Magda Abdool Magid Vakil was appointed head of our financial management office in July 1998. Between 1994 and 1997,
she served as a loan officer in the European Investment Bank in Luxembourg and between 1988 and 1994 as a senior manager of
corporate banking in the Royal Bank of Canada in London. Ms. Vakil holds a degree in economics from the University of Kent,
Canterbury.
Ms. Maria Joana Mano Pinto Simões was appointed head of our regulation and tariffs office in July 2000. She also served as an
assistant director of our strategic planning department from 1998 to 2000. Ms. Simões holds a degree in electrotechnical engineering
from Instituto Superior Técnico de Lisboa and has an MBA from Universidade Nova de Lisboa.

Mr. Miguel Ribeiro Ferreira was appointed head of our planning and control, consolidation and tax office in August 2003. From
August 2001 to July 2003 he was head of treasury, consolidation, planning and control, accounting and tax issues of Novabase Group.
From April 1993 to July 2001 he was responsible for BCP Group’s consolidation and financial reporting. From September 1991 to
March 1993, he served as an Audit Junior Staff at Price Waterhouse Audit Department. Mr. Ribeiro Ferreira holds a management
degree from Lisbon’s Instituto Superior de Gestão and post-graduate degree in advanced corporate finance from Universidade
Católica Portuguesa, Lisbon.

Ms. Ana Paula Pinto Fonseca Morais was appointed as head of our quality office in November 2003. Between July 2000 and
June 2003 she was the head of our public relations office. From 1995 through to 1999, she served as the Public Relations Officer for
the Portuguese Health Minister and between 1990 and 1995 she held the position of Executive Officer for Marketing and
Communication in IAPMEI (Institute of Medium and Small sized companies). Ms. Fonseca holds a degree in sociology from
Universidade Nova de Lisboa.
Mr. Pedro Manuel Carreto Pires João was appointed head of our investor relations office in June 2000. From 1999 to 2000, he
served as an equity sales manager at BCI in Oporto. He also served as an associate director at Banco Bozano Simonsen in London
between 1997 and 1999 and as an equity research associate at Goldman Sachs International in London between 1996 and 1997. Mr.
Pires holds a management degree from Lisbon’s Instituto Superior de Gestão and an MBA from the London Business School.

Mr. Stephan Godinho Lopes Morais was appointed Chief of Staff for the CEO in May 2003. During 2002 and 2003 he was a
Consultant for the Portuguese government for the Restructuring of the State Holding Company—IPE, and for the Reorganization of
the National Energy Sector. In 1999 and 2000 he was a Senior Consultant with Arthur Andersen Business Consulting in London.
Between 1996 and 1999 he was a Consultant with Halcrow Management Sciences—London, working on utility privatizations. Mr.
Morais holds a degree in civil engineering from Instituto Superior Técnico, Lisbon and an MBA from Harvard Business School.
Mr. Vitor Manuel Silva Leitão is currently head of our internal audit office and was head of our information systems office
between 1995 and 2000. He was also an assistant manager in the accounting department from 1990 to 1995. Mr. Leitão holds a
degree in mechanical and production engineering from Instituto Superior Técnico de Lisboa and an MBA from Universidade Nova,
Lisbon.
Mr. Vasco Coucello was appointed General Manager in June 2003. He has served as head of the unit responsible for the supply
to corporate clients in the liberalized market since the beginning of 2000 (EDP Energia). During the 1990s he served as General
Manager for Energy in the Portuguese Administration. In the early 1990s he was head of the strategic planning and management
information department within the planning directorate of EDP. Internationally, he served as Vice-President of the European Energy
Charter Bureau and head of the Standing Group on the Oil Market in the International Energy Agency. Mr. Coucello holds a civil
engineering degree from Instituto Superior Técnico and an MBA from Universidade Nova, Lisbon.
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Aggregate compensation paid in 2003 by us to our directors and executive officers was approximately €€ 3.7 million and €€ 10.8
million, respectively. Our 2003 Portuguese annual report to shareholders includes, for the first time, individual compensation for the
chairman of our board of directors and for our chief executive officer.
130
The amounts of individual compensation disclosed for 2003 relate to the period from May 22, 2003, the date of our 2003 general
meeting of shareholders, to December 31, 2003. During this period, we paid € € 357,995 to Mr. Francisco Sánchez, Chairman of our
board of directors, and € € 368,464 to Mr. João Talone, our Chief Executive Officer and Chairman of the executive committee of our
board of directors.

SHARE OWNERSHIP
As of December 31, 2003, the directors and executive officers listed in Item 6 as a group owned less than 1% of our outstanding
ordinary shares (not including ordinary shares held by any entity with which any of the directors or executive officers are affiliated).
Number of
Members of the Board of Directors Shares*

Mr. Francisco de la Fuente Sánchez 10,373

Mr. João Ramalho Talone 1,905
Mr. Rui Miguel de Oliveira Horta e Costa 3,762
Mr. José Manuel Trindade Neves Adelino 895
Mr. Luis Fernando de Mira Amaral 3,636
Mr. José Manuel Gonçalves de Morais Cabral 715
Mr. Luís Filipe Rolim de Azevedo Coutinho 0
Mr. Jorge Manuel Oliveira Godinho 30,393
Mr. António Afonso de Pinto Galvão Lucas 0
Mr. Arnaldo Pedro Figueirôa Navarro Machado 9,680
Mr. Vítor Ângelo Mendes da Costa Martins 767
Mr. Pedro Manuel Bastos Mendes Rezende 0
Mr. Paulo Azevedo Pereira da Silva 5,986

* Number of Shares reflects aggregate shares held by Directors and the Directors’ family members.
On July 28, 2003, we acquired 311,095 treasury shares to grant as annual performance bonuses to our management team.
The directors and executive officers listed in Item 6 have also been granted an aggregate of 2,286,250 stock options under our
stock option plans. We have adopted two stock options plans:
• A plan for members of the board of directors, initially comprising a total of 1,750,000 ordinary shares, which were increased
to 2,450,000 ordinary shares at the general shareholders meeting on May 10, 2000. This plan is managed by disinterested
persons who are not employees of EDP or its subsidiaries.
• A plan for members of the boards of directors of our operating companies and senior officers of EDP and its subsidiaries
comprising a total of 16,250,000 ordinary shares. Awards of options under this plan are determined in the sole discretion of
the board of directors of EDP.
Under both plans, the exercise price of each option equals the market price of our stock on the date of grant and an option’s
maximum term is 5 years. A summary of the status of our two fixed stock option plans as of December 31, 2002 and 2003, and
changes during the years then ended on those dates is presented below:
Shares available for grant Weighted average
under 1999 option plans Option activity exercise price

Balance December 31, 2001 16,413,750 — —

Options forfeited — — —
Options granted — — —
Balance December 31, 2002 16,413,750 2,286,250 3.43
Options forfeited(1) — (353,992) —
Options granted (2) (980,000) 490,000 —
Balance December 31, 2003 15,433,750 2,422,258 3.36
131
(1) Option forfeited includes options not exercised within the required period and option forfeited by departing plan participants.
(2) The number of options to be granted for 2004 has not yet been determined.

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2003.
Weighted average
Options outstanding Weighted average exercise price remaining contractual life Options exercisable

2,422,258 3.36 1.3 years 0

EMPLOYEES
As of December 31, 2003, we had 17,618 employees in active service, of which approximately 439 held senior managerial
positions, taking into account employees of EDP in Portugal in addition to employees of EDINFOR, EDP Brazil and Hidrocantábrico.
In recent years, we have pursued a policy in our core electricity business of staff reductions and workforce rationalization, which has
resulted in a steady reduction in permanent staff levels. The table below shows our employment levels at the dates indicated.
December 31,

1999 2000 2001 2002 2003

Permanent staff 13,550 12,864 11,709 12,445 17,261

Fixed-term contract 333 402 362 388 357

Total 13,883 13,266 12,071 12,833 17,618

We experienced 4.9% absenteeism in 2003, compared with 6.1% absenteeism in 2002 and 6.2% absenteeism in 2001.
The following table sets forth our employees as of December 31, 2003:
EDP EDP EDP
Portugal EDINFOR ONI Brazil Hidrocantábrico Group

Distribution 6,334 — — 3,514 672 10,520

Generation 1,983 — — 139 471 2,593
EDP, S.A. 311 — — — — 311
Other 870 1,615 1,178 105 426 4,194

Total 9,498 1,615 1,178 3,758 1,569 17,618

Approximately 59.9% of our employees are members of a union. Our non-management employees in Portugal are represented
by 30 unions, of which six represent the majority of employees. Most of the unions are members of one of the two principal
confederations in Portugal: CGTP-Intersindical and UGT. Our non-management employees in Spain are represented by five unions
and our non-management employees in Brazil are represented by five unions. The unions assume responsibility for annually
negotiating salary levels, negotiating the collective bargaining agreements and ensuring that the collective bargaining agreements are
correctly applied. In May 2000, we reached agreement with all of the unions representing our employees in Portugal on a new
collective bargaining agreement which provides for, among other things, higher entry level compensation across professional
categories and greater opportunities for seniority-related compensation increases within individual professional categories. A related
agreement provides for a 4.0% salary increase for 2001 and a 3.5% increase for 2002 and a 2.8% increase for 2003. Future increases
will be negotiated on an annual basis. The weighted average salary increase in 2003 for employees in our group companies, including
EDINFOR, ONI, EDP Brazil and Hidrocantábrico, was 4.6%.
From 1988 through 2003, we have experienced twelve strikes, four of which lasted only 24 hours each, and two of which lasted
48 hours each. Six of the seven strikes concerned salary negotiations, our privatization or our restructuring.
132
 In 2001, there was one strike concerning employee’s rights, salaries and the maintenance of the public social security system.
The strike involved a total of 35 workers and 140 hours of strike time (number of persons per strike multiplied by the number of hours
of each strike).
In 2002, there were 3 strikes, concerning employee’s rights, salary negotiations, the maintenance of the National Wealth Service
and the Public Social Security system, protests against new labor laws approval and against installation closing. One of these strikes
was a national strike and in all there were 2,639 workers involved and 25,530 hours of strike time (number of persons per strike
multiplied by the number of hours of each strike).
In 2003, there were two strikes concerning salary negotiations, new labor laws and the defense of workers rights recognized in
the Collective Work Agreement. These strikes involved 528 workers and 3,526 hours of strike time (number of persons per strike
multiplied by the number of hours of each strike).
In 2003, there were no strikes by our Spanish or Brazilian employees.

EMPLOYEE BENEFITS
Our employees are entitled to participate in a profit sharing program. In 2003, approximately €€ 25.1 million was distributed to
our labor force (excluding EDINFOR and ONI businesses) as profit sharing. We maintain defined benefit pension plans for all
employees of the companies that have subscribed to the Collective Labor Agreement in Portugal and Brazil. These pension plans are
supplemental to the pension provided to retirees by the social security systems. As of December 31, 2003, the value of the underlying
pension funds totaled € € 816.5 million, and the pension expense in 2003 was €€ 72.2 million. For further information about our pension
and benefit plans, see “Item 5. Operating and Financial Review and Prospects—Pensions and benefits” and notes 2(o), 18, and 31 to
our consolidated financial statements. Our directors and senior officers are also eligible for stock option plans, described in “—Share
Ownership.”
Our employees are eligible to participate in a complementary health plan that supplements benefits from the National Health
Service. Currently, the health plan covers approximately 100% of our people among the existing labor force, retired people,
pensioners and relatives. In addition, employees receive personal accident insurance that covers death and invalidity, as well as a
death subsidy complement.

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS
The Portuguese government, directly or through PARPUBLICA—Participações Públicas, S.G.P.S., S.A., (formally known as
PARTEST) a corporation wholly-owned by the Portuguese government, which was formed in 1991 for the purposes of holding the
Republic’s interest in a number of enterprises in various industries, at April 29, 2004 owned approximately 26.1% of our outstanding
ordinary shares. Through Caixa Geral de Depósitos, a state-owned bank, the Portuguese government owns an additional 4.84% of our
ordinary shares. The Portuguese government’s ownership of EDP ordinary shares declined from approximately 70% in 1997 to the
current level as a result of the offering of our ordinary shares in successive stages of our privatization.
The following table sets forth information concerning the ownership of our ordinary shares as of April 29, 2004, by the
Portuguese government and by our officers and directors as a group (not including ordinary shares held by any entity with which any
such officers or directors are affiliated). Other than as set out in the following table, we are not aware of any shareholder owning more
than 5.0% of our ordinary shares.
Number of Ordinary Percentage of Outstanding
Name of owner Shares owned Ordinary Shares

Republic of Portugal 783,074,076 26.1%

Banco Comercial Português 151,635,713 5.05%
All directors and executive officers as a group Approximately 230,000 <1%
133
 The Portuguese government has special rights that all other holders of our ordinary shares do not have. To learn more about the
special rights of the Portuguese government you should read “Item 10. Additional Information —Articles of Association—
Limitations on the purchase and transfer of ordinary shares; special rights of the Portuguese government.”
In addition to the shareholders listed above and Caixa Geral de Depósitos, which owns 145,187,830, or approximately 4.84%, of
our ordinary shares, other significant EDP shareholders include Iberdrola, which in May 2002 announced that it had acquired
additional ordinary shares and as of April 29, 2004 owns 150,000,000, or 5%, of our ordinary shares and Brisa, which indirectly owns
60,002,297, or approximately 2%, of our ordinary shares.
As of April 29, 2004, approximately 0.05% of the ordinary shares were represented by ADSs that were held by three holders of
record, including The Depositary Trust Company. The number of ADSs outstanding was 1,498,120 at April 29, 2004.

RELATED PARTY TRANSACTIONS

Mr. Jardim Gonçalves, a director of EDP until May 2003, is presently the Chairman of BCP’s board of directors. Following the
departure of Mr. Jardim Gonçalves, Mr. Paulo de Azevedo Pereira da Silva, the general manager of BCP and a director of various
companies of the BCP group, became a member of our board of directors. In March 2000, we and BCP entered into a strategic
alliance, pursuant to which Mr. Gonçalves was elected to our board of directors as a non-executive director, we have acquired 4.25%
of BCP’s outstanding shares and BCP has acquired approximately 5% of our outstanding shares. In March 2003, we subscribed to a
share capital increase of BCP, bringing our stake to 4.36%. In the ordinary course of business, we and BCP enter into customary
commercial banking transactions, such as deposits and loans.
Mr. Luis Fernando de Mira Amaral, a director of EDP following the departure of Mr. António de Sousa, is presently the
Chairman of the executive committee of Caixa Geral de Depósitos’ board of directors. Caixa Geral de Depósitos owns 4.84% of our
ordinary shares. In the ordinary course of business, we and CGD enter into customary commercial banking transactions, such as
deposits and loans.
On May 9, 2001, we entered into an agreement for a strategic alliance in the telecommunications sector with BCP, GALP and
Brisa. Brisa became a shareholder of ONI in exchange for its 100% stake in Brisatel, which owned 4% of ONI Way. As a result of the
agreement, EDP holds 56% of the share capital of ONI and Brisa holds 17%, while BCP and GALP hold the remaining 22.8% and
4.2%, respectively. Within the context of the strategic alliance, Brisa proposed two members of ONI’s board of directors and they
were subsequently elected by the shareholders of ONI. Mr. José Manuel Gonçalves de Morais Cabral, a director of EDP, is a director
of various companies within the José de Mello Group, which owns a significant interest in Brisa. Brisa owns approximately 2% of our
ordinary shares.
INTERESTS OF EXPERTS AND COUNSEL
Not applicable.

Item 8. Financial Information

CONSOLIDATED STATEMENTS
Please refer to “Item 18. Financial Statements” and pages F-1 through F-70 of this annual report.
134
 OTHER FINANCIAL INFORMATION
LEGAL PROCEEDINGS
We experience a number of claims and legal and arbitral proceedings incidental to the normal conduct of our business.
Management does not believe that liabilities related to such claims and proceedings are likely to be, individually or in the aggregate,
material to our consolidated financial condition.

DIVIDENDS AND DIVIDEND POLICY

We have declared dividends each year since 1991, when we became a corporation. The following table shows our dividends per
share based on 3,000,000,000 ordinary shares outstanding in the years indicated:
1999 2000 2001 2002 2003

Dividends per ordinary share (in euro)(1) 0.14 0.14 0.11 0.09 0.09
Dividends per ordinary share (in U.S. dollars) (2) 0.13 0.12 0.10 0.11 0.11

(1) For 1999 and 2000, escudos are translated into euro at the fixed rate of exchange established at the commencement of the third stage of European Monetary Union on
January 1, 1999 by the European Council of Ministers between the euro and escudo of PTE 200.482 = € € 1.00.
(2) Translated at the prevailing rate of exchange at the date of payment, which for 2003 was $ 1.1975 = 1.00.

The payment and amount of dividends are subject to the recommendation of our board of directors and the consent by our
shareholders at a general meeting. It is the current intention of the board of directors, subject to our financial condition, to continue its
policy of proposing an annual dividend of at least 68% of “Distributable Net Income,” as defined below. The Portuguese government
has indicated its approval of this policy and that it will not exercise its voting rights in opposition to those dividends, subject to our
financial condition. Under Portuguese law, our Distributable Net Income is defined as our net income, calculated in accordance with
Portuguese GAAP, after covering losses for previous periods and allocation of 5% to a legal reserve until it reaches 20% of the
aggregate nominal value of its share capital. At least 50% of our Distributable Net Income must be distributed to shareholders in the
form of a dividend, unless a resolution is passed by the shareholders. In order to raise the dividend above a 50% payout ratio, a simple
majority of votes of shareholders present is required; in order to lower the dividend below a 50% payout ratio, a majority of votes
corresponding to 75% of our share capital is required. The board of directors, with prior approval of our Audit Board, may, in
specified circumstances, authorize the payment of interim dividends, although management expects to only pay a single dividend on
an annual basis.
Pursuant to Portuguese law, dividends are paid to shareholders of record as of the date established for payment. These payments
are effected by means of Portugal’s book-entry clearance and settlement system.
All dividends are paid in euro following the full implementation of the EMU. Dividends received by a holder of ordinary shares
or ADSs will, under current law and practice, be subject to taxation. The effective rate of Portuguese withholding tax has changed
periodically in recent years and may change again in the future. For more information regarding taxation of dividends, you should
read “Item 10. Additional Information—Portuguese Taxation.” Dividends received by holders of ADSs will be paid in U.S. dollars,
net of conversion expenses of the depositary.
SIGNIFICANT CHANGES
No significant change in our financial condition has occurred since the date of our consolidated financial statements included in
this annual report.
Item 9. The Offer and Listing
TRADING MARKETS
In Portugal, our ordinary shares trade on the Mercado de Cotações Oficiais, or the Official Market, of the Euronext Lisbon
Stock Exchange. In the United States, our ordinary shares trade in the form of ADSs represented
135
by ADRs issued by Citibank, N.A., as depositary. Our ADSs are listed on the New York Stock Exchange and our ordinary shares are
listed on the Euronext Lisbon Stock Exchange. Our ADSs and our ordinary shares are also listed on the Frankfurt Stock Exchange,
and our ordinary shares are quoted on SEAQ International.
MARKET PRICE INFORMATION
The tables below set forth, for the periods indicated, the reported high and low sales prices of our ADSs on the New York Stock
Exchange and of our ordinary shares, based on the 3,000,000,000 ordinary shares outstanding after giving effect to the 5 for 1 stock
split approved at our May 12, 2000 general meeting, on the Euronext Lisbon Stock Exchange:
Per ADS Per Ordinary Share

High Low High Low

(U.S. Dollars) (Euro)

1999 50.04 29.00 4.36 2.82
2000 39.50 25.81 4.22 3.10
2001 34.31 20.90 3.64 2.29
2002
First Quarter 22.19 19.28 2.50 2.18
Second Quarter 21.73 19.45 2.45 1.92
Third Quarter 19.75 14.78 1.99 1.47
Fourth Quarter 17.25 14.56 1.72 1.49
Full Year 22.19 14.56 2.50 1.47
2003
First Quarter 18.50 15.10 1.69 1.38
Second Quarter 23.27 17.32 1.98 1.57
Third Quarter 24.40 21.30 2.14 1.85
Fourth Quarter 26.50 22.33 2.10 1.94
Full Year 26.50 15.10 2.14 1.38
2004
First Quarter 31.15 21.15 2.52 2.01
Month of
December 2003 26.50 24.55 2.10 2.02
January 2004 27.38 25.15 2.16 2.01
February 2004 29.78 26.50 2.34 2.11
March 2004 31.15 26.68 2.52 2.15
April 2004 29.49 27.15 2.44 2.28
May 2004 28.48 26.17 2.36 2.16

THE PORTUGUESE SECURITIES MARKET

The Portuguese equity market, which had experienced significant increases in liquidity and trading volumes until 2001,
registered a slowdown in 2002 and 2003, consistent with the worldwide economic situation. Since November 1997, Portugal’s status
in the Morgan Stanley Capital International, or MSCI, indices changed from emerging market to developed market. In particular,
Portugal joined the MSCI Europe and World indices and left the MSCI Emerging Market index.
The integration of the former Lisbon and Oporto Stock Exchange in Euronext, N.V. (under the name Euronext Lisbon Stock
Exchange) on January 30, 2002, has allowed the Euronext Lisbon Stock Exchange to participate in a wider European capital market,
which also includes Euronext Paris Stock Exchange, Euronext Amsterdam Stock Exchange and Euronext Brussels Stock Exchange.
This integration process is intended to create a European common capital market, in order to allow investors to have access to a single
equity and derivatives trading platform, common netting, clearing and settlement services and harmonized market rules and
procedures.
A single equity and derivatives trading platform was recently implemented by migration of several platforms of the Euronext
Stock Exchanges. The migration of both the equity and derivatives markets platforms managed by
136
Euronext Lisbon SGMR to a single equity and derivatives trading platform common to all Euronext Stock Exchanges occurred in
November 2003 for the equity market and in March 2004 for the derivatives market.
This migration involved the adoption by Euronext Lisbon–Sociedade Gestora de Mercados Regulamentados, S.A., or Euronext
Lisbon SGMR, of the Euronext Market Model, which consists of the harmonization of rules applicable to the markets, members and
transactions of Euronext Stock Exchanges. For this purpose, Euronext Lisbon SGMR approved a number of rules, which entered into
force on November 7, 2003, in order to accommodate the Euronext Market Model, respecting, where necessary, the requirements of
Portuguese regulation on these matters. Currently, there are Harmonized Rules, accommodating the Euronext Market Model, and
Non-Harmonized Rules, where the requirements of the Portuguese regulation are safeguarded.
As of December 31, 2003, the market capitalization of equity securities listed on the Euronext Lisbon Stock Exchange was €€
91,180 million, compared with € € 72,998 million as of December 31, 2002, representing 58.1% and 51.6%, respectively, of the total
market capitalization of Portuguese listed securities. As of December 31, 2003, 158 Portuguese companies’ financial assets were
listed on the Euronext Lisbon Stock Exchange (representing a total of 522 different issues), of which 57 were in the form of equity
securities (61 issues), 83 in the form of bonds (255 issues), 7 in the form of warrants (182 issues) and 11 in the form of other listed
funds and certificates (24 issues). On the basis of euro value, the ten most actively traded equity securities in ordinary sessions of the
Euronext Lisbon Stock Exchange in 2003 represented approximately 94.6% of total trading volume of equity securities on the
Euronext Lisbon Stock Exchange compared with 93% in 2002. Turnover of equity securities was €€ 19,024 million in 2003 compared
with €€ 21,688 million in 2002.
In 2003, our ordinary shares represented approximately 14.8% of total trading volume of equity securities on the Euronext
Lisbon Stock Exchange. As of March 31, 2004, our ordinary shares accounted for 17.8% of total market turnover since January 1,
2004. As of April 16, 2004, our ordinary shares weighted 9.77% in the PSI General Index, 15.60% in the PSI 20 Index and 0.53% in
the Euronext 100 Index, each as defined below.
The Official Market, created in July 1991, is the market on which most significant Portuguese equity and derivative securities
are listed. The Official Market index, or the PSI General Index, published since February 1991, is a weighted average price of all
shares listed on the Official Market, other than preferred shares without voting rights. The exact number of companies in the PSI
General Index’s portfolio may change each day as a result of new admissions, exclusions, suspensions and the absence of quotations.
This index essentially reflects the Official Market’s global profitability.
The Euronext Lisbon Stock Exchange calculates an index called the PSI 20, which includes the 20 largest and most actively
traded stocks listed on the Official Market. This index was created for the purpose of acting as the Portuguese stock market
benchmark and as an underlying reference for futures and options contracts. Market operators also use the PSI 20 as an underlying
index for structured financial products whose performance depends on the performance of the Portuguese stock market. The
methodology for the composition and calculation of this index was changed in May 2001 and was implemented on October 1, 2001.
The weight of the index components, which before this revision was based on the 20 companies with the largest market capitalization
listed in the Official Market, now also takes in consideration the free float of these companies and introduces a maximum limit of
20% of the weight that a given company can have in the index.
Pursuant to the integration of the former Portuguese stock market (Bolsa de Valores de Lisboa e Porto) with Euronext, some
Portuguese listed companies are now also included in Euronext indices. We, along with six other Portuguese companies, are included
in the Euronext 100 Index, which is a market capitalization weighted price index comprised of the 100 largest and most actively
traded stocks on Euronext Stock Exchanges. Each stock participating in the Euronext 100 Index must experience turnover of over
20% of its issued shares over the course of a rolling one-year analysis period.
The Euronext Lisbon Stock Exchange is supervised by the Ministry of Finance and the Portuguese Securities Exchange
Commission, or CMVM, and operated by the Euronext Lisbon SGMR.
137
TRADING
Since March 1, 1999, all shares currently listed on the Official Market of the Euronext Lisbon Stock Exchange are traded
through a continuous trading system, which is designed to provide automatic execution and trading through LIST, a computerized
trading system. The principal feature of the continuous trading system is the computerized matching of buy and sell orders based,
first, on matching sales price and, second, on the time of entry of the order. Each order is executed as soon as a matching order is
entered, but can be modified or revoked up to its execution. Between 7:30 a.m. and 8:00 a.m. on each trading day, from Monday to
Friday excluding public holidays, the daily opening market clearing price is established for each security on the continuous trading
system based on the bids and offers outstanding. During the last 5 minutes of this pre-opening period it is possible to immediately
present purchase and sale orders, which may not, however, be modified or revoked. On any trading day, the opening price may not
change more than 15% from a reference price, which is the closing price of the last session or the price resulting from an automatic
roll-call held during the session in order to reset the reference price. Computer-matched trading then proceeds on the continuous
trading system from 8:00 a.m. until 4:30 p.m.
An automatic trading procedure by roll-call auction will be used if there is an interruption in the continuous trading system. In
trading through a roll-call auction, all the orders to buy or sell the same security are processed together. Each roll-call auction
originates one single price for the security and is followed by the matching of trades according to the priority of each of the orders,
which is established according to the respective prices. Sell orders below and buy orders above the auction price will not be matched.
At present there are no official market makers or independent specialists in the continuous trading system and therefore orders to
buy or sell shares in excess of corresponding orders to sell or buy shares will not be executed.
According to the Cod.VM, which entered into force on March 1, 2000, transactions on the Euronext Lisbon Stock Exchange
may only be performed by its members. There are two categories of members of the Euronext Lisbon Stock Exchange: negotiator
members and clearance members. Negotiator members may perform stock exchange transactions but are not allowed to execute their
clearance and are therefore required to enter into an agreement with one or more clearance members for clearance of the operations
they negotiate. Only financial institutions authorized to buy and sell securities for their own accounts, such as banks and dealers, may
become clearance members. Clearance members can clear stock exchange transactions and negotiate transactions.
Any trading of stocks listed on the continuous trading system that takes place off-market must be cleared through financial
institutions and physically settled through the Central de Valores Mobiliários (CVM), where those stocks are registered or deposited.
Stock prices are quoted in euro per share.

PORTUGUESE TRANSACTION COSTS

Currently, the framework applicable to Portuguese fees, taxes and other charges applicable to the transfer of ordinary shares is
governed by Decree law no. 183/2003 of August 19, 2003, which revoked Regulation no. 1303/2001 of November 22, 2001, as
amended by Regulation no. 323/2002 of March 27, 2002, both issued by the Ministry of Finance, and by Regulation no. 913-I/2003
of August 30, 2003. This new regime abolished the fees applicable to the securities’ transactions effected on a stock exchange, in
other regulated securities markets or off-market, which have been replaced by supervision fees that are paid by the entities subject to
the supervision of the CMVM in connection with the performance of services in relation to securities, such as clearance and
settlement services, registration or custodian services or portfolio management. According to the preamble of Decree law no.
183/2003 of August 19, 2003, this new regime aims to increase liquidity and international competitiveness of the Portuguese
securities market as result of not imposing fees or other charges directly on the transfer of shares.
A stamp tax of 4.0% is payable on brokerage fees, bank settlement fees and bank commissions.
Under current laws and practice, no Portuguese transfer fees, taxes or other charges are levied on the transfer of ADSs, other
than the deposit or the withdrawal of ordinary shares, unless the transfer is made through a financial intermediary domiciled or
established in Portugal. If the transfer is made through a financial intermediary domiciled or established in Portugal, the transfer may
be regarded as a transfer of ordinary shares over the counter with the consequences stated above.
138
 The status of Portuguese law with respect to transfer fees, taxes and other charges applicable to deposits and withdrawals of
ordinary shares for ADSs is uncertain. Under current law and practice, a negotiable bank settlement fee and a stamp tax of 4.0% of
this fee may apply to deposits and withdrawals of ordinary shares. However, Portuguese brokerage fees, bank commissions and stock
exchange fees will not be levied on a deposit of ordinary shares in exchange for ADSs or a withdrawal of ordinary shares in exchange
for the cancellation of ADSs, unless the deposit or withdrawal is made through a financial intermediary domiciled or established in
Portugal. If a deposit or withdrawal of ordinary shares is made through such a financial intermediary, the deposit or withdrawal may
be regarded as a transfer of ordinary shares over the counter with the consequences stated above. Current practice with respect to the
applicability of Portuguese transfer fees, taxes or other charges to deposits and withdrawals of ordinary shares is subject to change.

CLEARANCE AND SETTLEMENT

All securities traded on the Euronext Lisbon Stock Exchange, either in certificated form or in book-entry form, must be
deposited or registered in the CVM. The CVM provides a system for the registration and control of securities, including custody of
certificated securities and registration of book-entry securities. The CVM is managed by Interbolsa—Sociedade Gestora de Sistemas
de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A., or Interbolsa, a company wholly-owned by Euronext Lisbon
SGMR that also manages the Clearing and Settlement System for stock exchange transactions.
The Clearing and Settlement System is currently the most widely used clearing and settlement system in Portugal. Under this
system, the member of the stock exchange inputs trade information on LIST, the nation-wide computerized trading system. The
clearance member, which also has to be a participant of the Clearance and Settlement System, accepts the trade, at the latest, one day
after the date of the trade, becoming the legal counterparty to the transaction until it settles. By the third business day after the trade,
the electronic book-entry for the transfer of the securities takes place in the books of the CVM. This physical settlement is provisional
until the financial settlement takes place after the end of the market daily process of the same third business day after the trade. In the
business day following the settlement of the trade, the participants are informed of the volume of securities and cash amounts that
were settled and those that failed to be settled.
Our ordinary shares have been accepted for trading on Euroclear and Clearstream and settle and trade with Euroclear and
Clearstream in accordance with standard settlement procedures for internal clearances and with external counterparties through the
CVM. Our ordinary shares are subject to such rules and regulations as Euroclear and Clearstream may from time to time determine.
Under Portuguese law, the acquisition of shares through a stock exchange transaction allows the owner to immediately sell those
shares in the same market, without awaiting the physical and financial settlement of the transaction. However, the clearance member
related to that transaction is the first responsible for its physical settlement. In case of default in the physical settlement, Interbolsa
must immediately initiate the substitution procedures necessary for good settlement of the transaction. These procedures involve an
automatic lending and borrowing system, or if there are no securities available, an automatic buy-in system, in relation to the short
positions on the closing date.
To hold our ordinary shares directly in book-entry form through the facilities of the CVM, an entity that is a non-resident of
Portugal must, prior to the execution of the transaction, open a special share portfolio account with a financial intermediary located in
Portugal and duly licensed to act as a financial intermediary pursuant to applicable legislation. The investor may then buy and sell
listed securities with some restrictions and repatriate the proceeds. Persons who hold ordinary shares through Euroclear and
Clearstream will not be required to open a special share portfolio account with a financial intermediary located in Portugal in order to
hold the ordinary shares.
139
 TRADING BY US IN OUR SECURITIES
Except in specified circumstances, under Portuguese law companies may not, at any time, hold more than 10% of their own
share capital and may purchase or otherwise trade in their own equity securities only with shareholder authorization. Under our
Articles of Association, the shareholders may, at a general meeting, grant us the authority to purchase our own shares.
At our general meeting held on March 30, 2004, the shareholders renewed the authorization for our board of directors and the
management bodies of our subsidiaries to purchase our shares under the following conditions: (1) the number of shares to be acquired
cannot exceed 10% of our share capital limit that already includes any shares to be acquired under the stock options plans; (2) the
acquisition can only be done within the regulated markets where we are listed; and (3) the acquisition price shall have as maximum
and minimum limits 115% and 85%, respectively, of the weighted average of the closing quotations of our shares in the last ten
sessions of the Euronext Lisbon Stock Exchange preceding the date of the acquisition.
The shareholders also renewed the authorization for our board of directors and the management bodies of our subsidiaries to sell
our shares under the following conditions: (1) the number of sales and shares to be sold will be defined by our board of directors and
by the management bodies of our subsidiaries, which shall include any shares to be granted under the stock options plans; (2) the sale
of shares can only be done within the regulated markets where we are listed, without prejudice of obligations to be satisfied within the
stock options plans whose creation has been duly approved by the general meeting; and (3) the sale price cannot be lower than 90% of
the weighted average of the closing quotations of our shares in the last ten sessions of the Euronext Lisbon Stock Exchange preceding
the date of the sale, except if the sale is executed to fulfill the stock options plans whose creation has been duly approved by the
general meeting.
This general meeting resolution has renewed the authorization for our board of directors to purchase and sell our own shares for
an additional period of 18 months, which had already been granted in previous identical resolutions passed at the general meetings
held since 1999.
As of May 31, 2004, we held 24,598,668 of our own ordinary shares, 1,750,000 of which we purchased in 1999, 650,000 of
which we purchased in 2000, 9,326,209 of which we purchased in 2001, 5,702,717 of which we purchased in 2002, 4,002,038 of
which we purchased in 2003 and 3,267,704 of which we purchased in 2004. Ordinary shares held by us will be deemed to be
outstanding under Portuguese law but not entitled to any dividends, voting rights or preemptive rights except the right to receive
ordinary shares upon increases of share capital by incorporation of reserves.

PLAN OF DISTRIBUTION
Not applicable.

SELLING SHAREHOLDERS
Not applicable.

DILUTION
Not applicable.

EXPENSES OF THE ISSUE

Not applicable.
140
Item 10. Additional Information
SHARE CAPITAL
Not applicable.

ARTICLES OF ASSOCIATION
The following is a summary of both the rights of our shareholders and certain provisions of our Articles of Association. Rights
of our shareholders are set out in our Articles of Association or are provided for by applicable Portuguese law. Because it is a
summary, it does not contain all the information that may be important to you. For more complete information you should read our
Articles of Association. Directions on how to obtain a complete copy of our Articles of Association are provided under “—
Documents on Display” below.

GENERAL
We are registered at the Lisbon Commercial Registry Office under number 1805. Under Article 3 of our Articles of Association,
we have as our company purpose the promotion, involvement and management, in a direct or indirect manner, of capital projects and
activities in the electrical sector, both at the Portuguese national and international level, with the aim of enhancing and streamlining
the performance of the universe of companies comprising the EDP Group. We may also acquire participating interests as a limited
liability member in companies having corporate missions that differ from our own, even if such companies are regulated by special
laws, or participate in complementary company groupings, European economic interest groupings, consortia or in any other type of
association, temporary or permanent.

TRANSACTIONS WITH DIRECTORS

According to the Portuguese Companies Law, contracts between us or our affiliates, on one hand, and our directors or any
person acting on behalf of them, on the other hand, must be previously authorized by our board of directors, without the interested
director’s vote, and approved by our Registered Chartered Accountant (“Fiscal Único”). Companies may not grant loans or extend
any kind of credit to their directors, make payments on their behalf, guarantee their obligations or pay their remuneration more than
one month in advance. Under Article 26 of our Articles of Association, our directors need not be shareholders of us. For more
information on our board of directors, you should read “Item 6. Directors, Senior Management and Employees—Board of Directors.”

VOTING RIGHTS
Pursuant to our Articles of Association, any holder of 100 or more ordinary shares registered in its name at least 15 days in
advance of any meeting of shareholders is entitled to attend the meeting and to have one vote for every 100 ordinary shares owned.
Shareholders must provide us, up to eight days prior to the date of the meeting, with a certificate from a financial intermediary
confirming that the shareholder held the ordinary shares on the date 15 days prior to the meeting and that the ordinary shares have
been blocked from that date up to the date of the meeting. According to the Portuguese Company Law, those shareholders holding
fewer than 100 ordinary shares may aggregate their interests with other shareholders of ordinary shares, which themselves may own
more or less than 100 ordinary shares, and permit one of them, or another holder entitled to attend the meeting, to attend and vote on
their behalf at the meeting.
Under Portuguese law, holders of ordinary shares entitled to vote may be represented by proxy at a meeting of shareholders. The
proxy must be filed with us by the date of the scheduled meeting of shareholders. Proxies must be in hand signed and are only valid
for a single meeting.
141
 The voting rights exercised by a single shareholder, other than the Portuguese government or an equivalent entity, are limited to
a maximum of 5% of our share capital. No single shareholder can exercise voting rights, in its name or on behalf of other
shareholders, representing more than 5% of our share capital. For purposes of computing the percentage of the share capital held by a
single shareholder, the votes corresponding to the following shares are aggregated:
• the number of shares held by the shareholder;
• the number of shares held by any other entity controlled directly or indirectly by the shareholder;
• the number of shares held by other persons or entities in their own name or in the name of another for the benefit of the
shareholder;
• the number of shares held by an entity belonging to the same corporate group as the shareholder entity;
• the number of shares held by third parties with whom the shareholder has an option or any other right to buy our shares;
• the number of shares held by third parties with whom the shareholder has entered into a shareholder agreement related to a
joint exercise of voting rights; and
• the number of shares held by any person as security where the person is entitled to exercise the voting rights corresponding
to our shares.
Holders of ADSs are treated as holders of the ordinary shares represented by the ADSs for purposes of determining the
applicability of the 5% limitation on voting rights. Voting instructions of an individual ADS holder may not to be carried out by us as
votes of ordinary shares to the extent that those votes, together with any votes cast by the ADS holder as a holder of ordinary shares,
exceed 5% of our share capital.
Under Portuguese law, a company may not vote its own shares that it holds as treasury stock, nor may any subsidiary that holds
stock of its parent vote the treasury stock, and a company’s treasury stock will not be counted towards a quorum or for purposes of
determining a requisite percentage of votes cast. In accordance with Portuguese law, our shareholders must approve the acquisition by
us of our own shares. Under Portuguese law, a Portuguese company may not, except under specified limited circumstances, purchase
more than 10% of its nominal share capital as treasury stock.
Under the Portuguese Companies Law and our Articles of Association, we can create shares with special rights (e.g., priority
rights over a company’s profits) with the approval of two-thirds of the votes cast at a general meeting of shareholders.

SHAREHOLDERS’ MEETINGS
A general meeting of shareholders must be held annually within the first five months of the year following the close of the year
for which the general meeting is convened. Other general meetings of shareholders are convened by the president of the general
meeting whenever deemed appropriate or suitable and requested by the board of directors, the Registered Chartered Accountant or the
holders of at least 5% of our total share capital. Currently, notices of shareholders’ meetings must be given by an announcement
published in the Diário da República, the Portuguese Official Gazette, and in a national newspaper with general circulation in Lisbon
and Oporto, at least 30 days before the scheduled date of the meeting. However, in our March 30, 2004 general meeting, an
amendment to our Articles of Association was approved to allow shareholders’ meetings to be convened within the shortest period
permitted by Portuguese law, in order to create the flexibility to apply eventual changes to the current legal periods for convening
such meetings. This amendment to our Articles of Association has not yet been implemented.
Under the Portuguese Companies Law and our Articles of Association, the general meeting is constituted by the presence, in
person or by proxy, of shareholders. There is no quorum requirement unless the meeting is called to vote on the extraordinary matters
referred to below. In general, resolutions can be approved by a simple majority of votes cast. However, there are special quorum and
majority requirements in cases where the general meeting is called to vote on extraordinary matters, which are amending our Articles
of Association, approving a merger, break-up
142
or transformation or dissolution of us, increasing our share capital and waiving pre-emptive rights. In these cases, the presence on a
first call, in person or by proxy, of shareholders representing at least one-third of our share capital is required. There is no quorum
requirement on a second call. Resolutions on these foregoing matters must be approved by at least two-thirds of the votes cast unless,
on a second call, there are present, in person or by proxy, shareholders representing at least 50% of our share capital, in which case a
simple majority of votes cast is required. However, there is a special majority requirement in the case of the election of our board of
directors. If a group of minority shareholders holding at least 10% of the voting rights votes against the resolution providing for the
election of the members of the board of directors, those minority shareholders have the right to elect one director.
All resolutions adopted at a general meeting of shareholders are binding upon all shareholders.

PROXY REQUIREMENTS
In the event that any person requests a proxy from more than five shareholders, whether for that person or others, those proxies
may be used for only one specified general meeting and a proxy will be considered revoked if the shareholder granting the proxy
attends the meeting. A proxy request must contain at least the following information:
• the date, time, place and agenda for the meeting for which the proxy is requested;
• identification of relevant documents that may be reviewed by shareholders;
• the identity of the person or persons who will act as the shareholder’s proxy holder;
• a statement as to how the proxy holder will vote the related shares in the absence of instructions from the shareholder; and
• a statement that, in the event of circumstances unforeseen at the time the request was sent, the proxy holder will vote
according to his or her evaluation of the shareholder’s best interests.
Furthermore, pursuant to the Cod.VM, it is also required, in order for a person to represent more than five shareholders, that the
proxy includes a description of the voting rights of the proxy holder and the voting instructions to the proxy holder.
If a shareholder provides voting instructions with respect to a proxy request, the proxy holder must vote the related shares in
accordance with those instructions except in the event of unforeseen circumstances as indicated above, in which case the proxy holder
must inform the shareholder of how he or she has voted and the reasons for the vote. If a person requesting a proxy does not agree
with the voting instructions received from the shareholder, he or she must reject the proxy and immediately inform the shareholder of
the rejection.
Any person that has requested proxies is required to send, at that person’s expense, to shareholders for whom that person was
the proxy holder, a copy of the minutes of the related general meeting.
VOTING BY CORRESPONDENCE
According to our by-laws and the Cod.VM, our shareholders may vote by correspondence. Under the Cod.VM, public notices
concerning shareholders’ meetings must indicate the possibility of voting by correspondence and must specify the procedures to
follow in order to vote by correspondence, including a mailing address and deadline for receipt of the votes. We are obligated to
verify the authenticity of each vote and ensure its confidentiality. According to our Articles of Association, shareholders may cast
their vote by correspondence for each item on the agenda, provided that they send a registered letter with recorded delivery addressed
to the chairman of the general meeting at our registered office in Portugal, signed in accordance with the signature on their identity
card, at least eight days prior to the general meeting, enclosing a legible photocopy of the identity card of the person signing the letter.
143
DIVIDENDS AND DISTRIBUTIONS
Under Portuguese law, we are required to establish and maintain a legal reserve equal to 20% of the aggregate nominal value of
our share capital and, if necessary to maintain this legal reserve, to contribute a minimum of 5% of our annual net income to the legal
reserve. The legal reserve is distributable only upon our liquidation but it can be used to cover losses and be incorporated as our share
capital. Currently, our total legal reserve is approximately €€ 326 million, which is in compliance with Portuguese law. Net income in
each fiscal year, as increased or decreased by any profit or loss carried forward from prior years, less any contribution to the legal
reserve, is available for distribution to shareholders as dividends, subject to the requirements of Portuguese law and our Articles of
Association. The payment and amount of dividends are subject to the recommendation of our board of directors and the decision by
our shareholders at a general meeting.
If we have earned distributable profits since the end of the preceding fiscal year, as shown on an interim income statement
certified by our auditors, our board of directors has the authority, with the prior approval of the audit board and subject to Portuguese
law and regulations, without the approval of shareholders, to distribute interim dividends to the extent of these distributable profits.
Under Portuguese law, dividends are generally distributed to shareholders pro rata according to their respective holdings of
shares. The payment of the dividend is due within 30 days of the date of the general meeting approving the dividend. The board of
directors determines the actual dividend payment date within that period. You should read “—Portuguese Taxation” below to learn
about taxes on dividends we pay. According to Decree law no. 187/70 of April 30, 1970, dividend entitlement lapses in favor of the
Republic of Portugal if not claimed by the shareholder within five years.
In the event that we are liquidated, our assets remaining after payment of our debts, liquidation expenses and all of our
remaining obligations will be distributed first to repay in full the nominal value of our ordinary shares. Thereafter, any surplus will be
distributed pro rata among the holders of ordinary shares based on the nominal value of their holdings.
PRE-EMPTIVE RIGHTS
Shareholders have a preferential, ratable right to subscribe for any new issue of ordinary shares for cash, except if a special
resolution at the general meeting duly limits or waives these rights in furtherance of our best interests. These rights are separately
transferable and may be traded on the Euronext Lisbon Stock Exchange, where our ordinary shares are listed, during the period when
the rights may be exercised.
Unless they agree otherwise, holders of convertible bonds generally are granted rights equal to those of shareholders to
subscribe for new issues of ordinary shares and subsequent issues of convertible bonds. Shareholders have a pre-emptive right to
subscribe for convertible bonds unless the right is waived by special resolution at a general meeting.
Portuguese law, except as mentioned above, requires a Portuguese company to grant preemptive rights to all of its existing
shareholders to purchase a sufficient number of shares to maintain their existing percentage of ownership of the company whenever
the company issues new shares for cash. Under this requirement, any preemptive rights in connection with any future issuance of
ordinary shares for cash will be offered by us to the depositary as the registered owner of the ordinary shares underlying the ADSs.
However, under current U.S. law, U.S. holders of ADSs or ordinary shares would not be entitled to exercise their preemptive rights
unless a registration statement under the Securities Act is effective with respect to these rights and ordinary shares or an exemption
from these registration requirements is available. We intend to evaluate at the time of any preemptive rights offering the costs and
potential liabilities associated with a registration statement, as well as the indirect benefits to us of enabling U.S. holders of ADSs and
ordinary shares to exercise preemptive rights and any other factors we consider appropriate at the time, and then to make a decision as
to whether to file a registration statement.
No assurance can be given that a registration statement would be filed. If no registration statement is filed and no exemption
from the registration requirements under the Securities Act is available, the depositary is required,
144
pursuant to the terms of the depositary agreement between it, us and the owners and holders from time to time of ADSs, to sell U.S.
holders’ preemptive rights and distribute the proceeds if a premium can be recognized over the cost of any sale.
BOOK-ENTRY REGISTRATION OF ORDINARY SHARES
Our Articles of Association require that each ordinary share be indivisible and in uncertificated, book-entry and registered form.
In the case of joint or co-ownership of ordinary shares, a common representative must be designated by the joint or co-owners of
those ordinary shares through whom all rights associated with the ordinary shares must be exercised. The ordinary shares must be
registered in accounts opened with commercial banks or authorized dealers located in Portugal and authorized by the CMVM to act as
custodians of securities. The banks are also obligated to be members of the CVM, through which all ordinary shares must be
transferred.

SHAREHOLDERS’ REPORTING OBLIGATIONS

Under Article 13 of our Articles of Association, those shareholders who become the holders of a participating interest equal to
or in excess of 5% of our voting rights or share capital pursuant to the rule contained in former Article 346 of the Portuguese
Securities and Capital Markets Code, which corresponds to Article 20 of the current Cod.VM, must communicate this fact to our
board of directors within five business days following the date on which the 5% shareholding was acquired, and are barred from
exercising voting rights until such time as they make this communication. For purposes of this provision, the shareholders are
required to furnish to our board of directors, in writing and in a complete, objective, clear and accurate manner, and to the satisfaction
of our board of directors, all the information that our board of directors requests from them. Under Article 7 of our Articles of
Association, a shareholder must notify our board of directors of any shareholders’ agreement into which the shareholder has entered
into relating to our ordinary shares. This information must be supplied within 30 days following the execution of the shareholders’
agreement in question. Under the Cod.VM, notification of these shareholders’ agreements must also be given to the CMVM within
three days after execution.
Also, under the Cod.VM, any person or persons acting in concert, including companies and their affiliates, making a purchase or
sale of our ordinary shares that results in that person either owning or ceasing to own specific threshold percentages, i.e., 2%, 5%,
10%, 20%, 1/3%, 50%, 2/3% and 90%, of our voting rights must, within three business days, notify us, the Euronext Lisbon Stock
Exchange and the CMVM. Upon receiving this notification, we must publish it in the Euronext Lisbon Stock Exchange bulletin and
in a major daily newspaper.
PORTUGUESE REPORTING AND DISCLOSURE REQUIREMENTS
Under Portuguese law we are required to publish, among others:
• annual reports of operations and financial statements that include, among others:
• a management report; and
• an audited financial statement;
• a report on corporate governance practices with information regarding the following matters:
• measures for and a statement indicating the level of compliance with the CMVM recommendations on corporate
governance and an explanation of the reasons for non-compliance with any of those recommendations;
• organizational structure of the departments involved in the entrepreneurial decision process;
• a list of specific committees created in the company such as ethic or governance commission;
• description of the risk control system implemented by the company;
• governance structure of the board of directors, including description of the allocation of functions between Chairman
of the board and Chairman of the executive committee,
145
 • number of members of the board of directors with specific distinction between executive and non-executive members
and the tasks performed by each member, as well as indication of independent directors;
• remuneration of the members of the board of directors on an aggregate or individual basis, with separation of the
amount received by executive and non-executive members and the fixed and variable amount of such total
remuneration, including remuneration paid by group companies or companies that are otherwise controlled;
• composition of the remuneration committee or equivalent body of the company;
• description of codes of conduct and other internal regulations;
• indication of the remuneration paid to auditors and persons in a group or domain relation, with separation of auditing,
consulting and other services;
• description of the evolution of our shares quotation;
• description of our dividends policy;
• description of the main characteristics of our stock option plans;
• description of the main elements of transactions with economic relevance executed between the company group
companies and controlled companies, on the one hand, and members of corporate bodies and holders of significant
stakes, on the other hand, except if executed on arm’s length terms and within the ordinary course of business of the
company;
• description of the new technologies used for disclosure of financial data and other data for the preparation of the annual
general shareholders meeting;
• information on the investor relations department, including its functions, the type of information provided, web site and
representative for assistance to investors;
• a report on the exercise of voting rights and on proxy requirements; and
• a report on corporate rules, namely regarding to internal procedures applicable to conduct of business, management
and control of activity risk;
• semi-annual reports that include financial statements, material information on our activities and performance and factors that
may potentially influence future performance;
• quarterly reports that include material information on our activities;
• specified information concerning the acquisition or sale by us of our ordinary shares;
• non-public information that investors would consider relevant to an evaluation of us or the price of our ordinary shares; and
• specified information concerning outstanding bonds and changes in the composition of our board of directors, our
Registered Chartered Accountant and the board of our general meeting.

LIMITATIONS ON THE PURCHASE AND TRANSFER OF ORDINARY SHARES; SPECIAL RIGHTS OF THE
PORTUGUESE GOVERNMENT
Individual buying and selling decisions regarding our ordinary shares are not subject to consent from us or any Portuguese
authority. On March 10, 2004, the government enacted Decree law no. 49/2004, revoking Decree law no. 380/93, which established
the former requirement of approval of the Portuguese Ministry of Finance for a person to be able to acquire more than 10% of our
ordinary shares.
In connection with its offering of our ordinary shares in October 2000 and pursuant to Article 13 of the Privatization Decree
Law, special rights were granted to the Portuguese government. The Portuguese government
146
has these rights so long as it is a shareholder of us. These rights provide that, without the favorable vote of the Portuguese
government, no resolution can be adopted at our general meeting of shareholders relating to:
• amendments to our Articles of Association, including share capital increases, mergers, spin-offs or dissolution;
• authorization for us to enter into group/partnership or subordination agreements; or
• waivers of, or limitations on, our shareholders’ pre-emptive rights to subscribe to share capital increases.
The Privatization Decree Law also entitles the Portuguese government to appoint one member of our board of directors
whenever it votes against the list of directors presented for election at our general meeting of shareholders.
LIABILITY IN RESPECT OF SUBSIDIARIES
Under Portuguese law, a company that wholly owns a subsidiary is ultimately liable for the debts of that subsidiary.
DISSOLUTION AND LIQUIDATION RIGHTS
Except as otherwise permitted by Portuguese law, we may be dissolved and liquidated by a resolution approved at a general
meeting by the vote of at least two-thirds of the votes cast, subject to the requirements applicable to the adoption of amendments to
the Articles of Association as described above. In this case, our board of directors will adopt and implement a plan for dissolution and
liquidation, unless decided otherwise by our shareholders. The shareholders acting at the general meeting approving the proposal
would retain full authority to direct the liquidation, including replacing liquidators, approving liquidation accounts and granting
release to the liquidators. Any shareholder, the Portuguese government or a creditor of us may also resort to judicial dissolution in
specific cases as provided for in the Portuguese law. Upon our liquidation, each shareholder is entitled to receive its pro rata share of
any assets remaining after the payment of our debts and taxes and expenses of the liquidation.

NYSE CORPORATE GOVERNANCE STANDARDS

Pursuant to Section 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 described in greater detail in Item 6 of this annual report on
Form 20-F. The table below discloses the significant differences between our corporate governance practices and the NYSE
standards.
NYSE Standards Our Corporate Governance Practice

Director Independence. Majority of board of directors must be The composition of our board of directors is in compliance
independent. §303A.01 with relevant Portuguese laws, which do not require
independent directors. However, the three board members
serving on our audit committee are independent as defined in
CMVM Regulation no. 11/2003 of December 2, 2003. As
discussed below, we expect that by July 31, 2005 the members
of our audit committee will meet NYSE independence
requirements.

Executive Sessions. Non-management directors must meet Our non-management directors do not meet regularly without
regularly in executive sessions without management. management. Portuguese law and our Articles of Association
Independent directors should meet alone in an executive session provide for meetings of the entire board and meetings of board
at least once a year. §303A.03 committees. Our independent directors meet regularly only as
a result of the fact that all of our independent directors serve
on our audit committee.
147
 NYSE Standards Our Corporate Governance Practice

Audit committee. Audit committee satisfying the independence We expect to comply with the independence requirements of
and other requirements of Rule 10A-3 under the Exchange Act Rule 10A-3 by July 31, 2005 (the date by which compliance is
and the more stringent requirements under the NYSE standards mandated for foreign private issuers), but the members of our
is required. §§303A.06, 303A.07 audit committee are not required to satisfy the NYSE
independence and other audit committee standards that are not
prescribed by Rule 10A-3.
• We have a three-member audit committee, which is
composed of directors.
• The members of our audit committee and the
committee’s president are independent as such term
is defined in CMVM Regulation no. 11/2003 of
December 2, 2003.
• Our audit committee operates pursuant to a written
charter.
• The main duties of our audit committee are
specified in Item 6 of this annual report on Form
20-F.

Nominating/corporate governance committee. We do not have a nominating/corporate governance

Nominating/corporate governance committee of independent committee. Our shareholders elect all of our directors, in
directors is required. The committee must have a charter accordance with Portuguese law and our Articles of
specifying the purpose, duties and evaluation procedures of the Association. Neither Portuguese law nor our Articles of
committee. §303A.04 Association provide for a formal procedure for nomination of
directors.

Compensation committee. Compensation committee of Pursuant to our Articles of Association, the shareholders at a
independent directors is required, which must approve general meeting appoint the remuneration committee, which is
executive officer compensation. The committee must have a a committee of shareholders that determines directors’
charter specifying the purpose, duties and evaluation compensation and benefits. The remuneration committee does
procedures of the committee. §303A.05 not have a written charter that addresses the responsibilities
identified by the NYSE listing standards. Portuguese law
provides the basic criteria for determining compensation of the
members of the board of directors, including executive
directors.

Equity compensation plans. Equity compensation plans require Shareholder approval is required under Portuguese law for the
shareholder approval, subject to limited exemptions. acquisition and sale of own or treasury shares, including for
the purpose of the adoption and amendment of an equity-
compensation plan or stock option plan. Our current stock
option plans have been approved our general shareholders’
meeting, which has also granted authorization for the
acquisition and sale of our own shares for that purpose.

Corporate governance guidelines. Corporate governance We have not adopted a separate set of corporate governance
guidelines must be adopted and disclosed. §303A.09 guidelines. The duties of our directors are
148
 set forth in our Articles of Association and Portuguese law. In
addition, each of our board of directors and our executive
committee has specific regulations. The regulations of our
board of directors govern, among other things:
• Functioning of the board;
• Power of the board and how power may be
delegated to the executive committee;
• Creation of board committees;
• Responsibilities of directors; and
• The decision-making process and other procedural
matters.

Code of Ethics. Corporate governance guidelines and a code of Under Portuguese law, a director must act diligently and with
business conduct and ethics is required, with disclosure of any due care, always seeking to promote the company’s interest
waiver for directors or executive officers. §303A.10 while taking due account of the interests of shareholders and
employees. A director may be liable to the company, the
company’s shareholders and third parties for any damages
caused by a breach of these duties. Our senior executive and
financial officers are bound by these standards, which we
believe have a purpose and function that is substantially
similar to a code of ethics. Additionally, we plan to adopt a
code of ethics by the end of 2004.

CEO certification and disclosure of material non-compliance. Our CEO will promptly notify the NYSE in writing after any
Each listed company CEO must certify to the NYSE each year executive officer becomes aware of any material non-
that he or she is not aware of any company violations of NYSE compliance with any applicable provisions of the NYSE
corporate governance listing standards. In addition, each listed listing standards.
company CEO must 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
these standards. §303A.12
MATERIAL CONTRACTS
Our power plants in the Binding Sector are subject to binding licenses issued by DGE and such plants enter into PPAs with
REN, as described in “Item 4. Information on the Company—Portugal—Electricity System Overview—The Public Electricity System
or Binding Sector.” In the Non-Binding Sector, EDP Energia enters into contracts with Qualifying Consumers, as described in “Item
4. Information on the Company—Portugal—Electricity System Overview—The Non-Binding Sector.”
In July 2002, we updated our €€ 5,000,000,000 MTN program. Our MTN program provides for the periodic issuance, by us and
our wholly owned finance subsidiary EDP Finance B.V., of debt instruments on terms and conditions determined at the time the
instruments are issued.
In 2001, we issued a € € 1,000,000,000 bond under the MTN program maturing in 2011. This € € 1,000,000,000 bond issue pays a
fixed interest rate of 5.875%.
149
 In 2002, we issued two bonds under the MTN program: the first was a GBP 200,000,000 bond issued in August maturing in
August 2017 with a 6.625% annual coupon and the second was a €
€ 500,000,000 bond issued in December maturing in March 2008
with a 5% annual coupon.
In April 2001, we established an € € 1,000,000,000 commercial paper program that provides for the periodic issuance of notes by
us and EDP Finance, B.V. The notes can have maturities of not less than 1 day and not more than 364 days and an interest rate
determined at the time of issuance.
For more information on these programs and our other borrowings, you should read “Item 5. Operating and Financial Review
and Prospects—Liquidity and Capital Resources.”

EXCHANGE CONTROLS
EXCHANGE CONTROLS
Portugal does not impose exchange controls on transfers of currency abroad.
A non-resident of Portugal who wishes to invest in ordinary shares (but not ADSs) must open a special share portfolio account
with a commercial bank located in Portugal and duly licensed to act as securities’ custodian pursuant to applicable legislation prior to
the execution of the transaction. The investor may then buy and sell listed securities with some restrictions and repatriate the
proceeds.
Dividends may be freely transferred to a foreign country. See “—Taxation” below for a summary of certain Portuguese tax
consequences to holders of ordinary shares and ADSs, including the payment of dividends thereon and the realization of capital gains
with respect thereto.
There are also limitations on voting that apply to our ordinary shares and our ADSs. For more information, you should read “—
Articles of Association” above.

EXCHANGE RATE POLICY

The value of the euro with respect to non-euro currencies, including the U.S. dollar, is affected by European Central Bank
exchange rate policy. As of March 31, 2002, the following twelve Member States are participating in the third stage of the EMU:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. These
Member States are referred to as the “participating Member States.” Since January 1, 1999 the value of the national currency of a
participating Member State in the national currency of another country, whether a participating Member State or not, may be
determined only through the bilateral conversion method, i.e., by converting the first currency into euro and then converting this euro
equivalent into the second currency. Pursuant to the third stage of EMU, the participating Member States have adopted a single
currency, which is designated the “euro” and have transferred authority for conducting monetary policy to the European Central
Bank. The value of the euro as against the currencies of each of the participating Member States was irrevocably fixed. The
conversion rate between the euro and the escudo was fixed at PTE 200.482 per euro.
PORTUGUESE TAXATION
GENERAL
The following is a summary of the principal Portuguese tax considerations that are likely to be material to the purchase,
ownership and disposition of ordinary shares or ADSs if a holder is a non-resident of Portugal for Portuguese tax purposes, does not
hold 10% or more of any class of our stock and does not hold our ordinary shares or ADSs through a permanent establishment in
Portugal.
Resident holders for purposes of Portuguese taxation include collective entities having their registered office or effective place
of management in Portugal and individuals having remained in Portuguese territory more than 183 days in any given calendar year or
having the use of a dwelling in Portuguese territory at the end of any given calendar year which may imply their intention of using it
as their habitual residence.
150
 A non-resident holder may be broadly defined as any collective entity or individual not satisfying the above criteria. However,
non-resident holders having a permanent establishment or a fixed installation in Portugal to which Portuguese-source income may be
attributed will be taxed on such income under rules applicable to resident holders.
This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to non-
resident holders, and does not address tax rules applicable to special classes of holders.
Furthermore, this summary is based on the tax laws of Portugal in effect on the date of this annual report, including the
Convention between the United States of America and the Portuguese Republic for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income, together with the related Protocol are referred to in this annual report
as the Treaty, and is subject to changes to those laws and practices or the Treaty subsequent to that date, which changes could be
made on a retroactive basis.
Prospective purchasers should consult their own advisers as to the tax consequences of the acquisition, ownership and
disposition of ordinary shares or ADSs in light of their particular circumstances, including the effect of any other national laws.
For purposes of the Treaty and for Portuguese tax purposes, a U.S. person holding ADSs will be treated as a beneficial owner of
our ordinary shares represented by such ADSs.

DIVIDENDS
The general rate of withholding tax on dividends in Portugal is currently 25% for non-residents. However, until five years after
the date upon which EDP’s privatization is completed, only 50% of dividends received, net of other benefits, from shares acquired
during the privatization process are required to be included in taxable income. EDP’s privatization process has not yet been
completed.
Under the Treaty, the rate of withholding tax on dividends distributed to U.S. residents eligible for Treaty benefits will not
exceed 15%. Since Portuguese effective rates are at or below the Treaty rates, according to the Portuguese Tax Authority, at the
present time it is not necessary for U.S. residents to claim treaty benefits with respect to dividends paid on ordinary shares or ADSs.
Pro rata distributions of ordinary shares or rights to subscribe for ordinary shares are not treated as dividends for Portuguese tax
purposes, and, therefore, are not subject to Portuguese withholding tax or the Portuguese substitute gift and inheritance tax. The
Portuguese tax consequences of pro rata distributions of ordinary shares or rights to subscribe for ordinary shares may be subject to
change.
CAPITAL GAINS
In general, capital gains realized by non-resident individuals on the transfer of ordinary shares or ADSs are subject to tax at the
rate of 10% if those ordinary shares or ADSs were held for 12 months or less, and are not subject to tax if those ordinary shares or
ADSs were held for more than 12 months. Regardless of the length of time ordinary shares or ADSs have been held, however, non-
resident corporate holders and non-resident individual holders of ordinary shares and ADSs are not subject to tax on capital gains in
Portugal if the following three conditions are met:
• no more than 25% of the non-resident entity is owned, directly or indirectly, by resident entities;
• the non-resident entity does not have as its place of residence a state or jurisdiction identified in a list of tax havens
published by the Portuguese Ministry of Finance; and
151
 • the capital gains do not arise from the transfer for consideration of shares or other participations in a Portuguese resident
company the assets of which primarily are comprised (more than 50%) of immovable property located in Portugal or in a
Portuguese resident company that controls such a company (a “Portuguese Real Property Holding Company”).
Under the Treaty, unless EDP is a Portuguese Real Property Holding Company, capital gains derived from the sale or other
disposition of ordinary shares, including deposits of ordinary shares in exchange for ADSs, by an individual holder who is eligible for
Treaty benefits will not be subject to Portuguese capital gains tax, regardless of the length of time our ordinary shares are held.

GIFT AND INHERITANCE TAXES

Gift and inheritance tax was abolished and as it relates to free transfers was substituted by (i) stamp duty, if the beneficiary is an
individual, and (ii) corporate income tax, if the beneficiary is a corporate entity. Nonetheless, transfers by a non-resident of ordinary
shares or ADSs by gift or at death will not be subject to Portuguese Stamp Duty provided the beneficiary is also a non-resident or
otherwise if the beneficiary is the respective spouse, parents or children.

PORTUGUESE TRANSACTION COSTS

Pursuant to Decree law no. 183/2003 of August 19, 2003, which revoked Regulation no. 1303/2001 of November 22, 2001, as
amended by Regulation no. 323/2002 of March 27, 2002, both issued by the Ministry of Finance, and on Regulation no. 913-I/2003
of August 30, 2003, fees applicable to securities’ transactions performed in a stock exchange, on other regulated securities markets or
off-market were abolished and replaced by supervision fees that are paid by the entities subject to the supervision of the CMVM in
connection with the performance of services in relation to securities, such as clearance and settlement services, registration or
custodian services or portfolio management.
A stamp tax of 4.0% is payable on brokerage fees, bank settlement fees and bank commissions, but not on Euronext Lisbon
Stock Exchange fees.
Under current laws and practice, no Portuguese transfer fees, taxes or other charges are levied on the transfer of ADSs, other
than the deposit or the withdrawal of ordinary shares, unless the transfer is made through a financial intermediary domiciled or
established in Portugal. If the transfer is made through a financial intermediary domiciled or established in Portugal, the transfer may
be regarded as a transfer of ordinary shares over the counter with the consequences stated above.
The status of Portuguese law with respect to transfer fees, taxes and other charges applicable to deposits and withdrawals of
ordinary shares for ADSs is uncertain. Under current law and practice, a negotiable bank settlement fee and a stamp tax of 4.0% of
the fee may apply to deposits and withdrawals of ordinary shares. However, Portuguese brokerage fees, bank commissions and stock
exchange fees will not be levied on a deposit of ordinary shares in exchange for ADSs or a withdrawal of ordinary shares in exchange
for the cancellation of ADSs, unless the deposit or withdrawal is made through a financial intermediary domiciled or established in
Portugal. If a deposit or withdrawal of ordinary shares is made through a financial intermediary, the deposit or withdrawal may be
regarded as a transfer of ordinary shares over the counter with the consequences stated above. Current practice with respect to the
applicability of Portuguese transfer fees, taxes or other charges to deposits and withdrawals of ordinary shares is subject to change.
UNITED STATES TAXATION
GENERAL
The following is a summary of material U.S. federal income tax considerations that are likely to be relevant to the purchase,
ownership and disposition of ordinary shares or ADSs by a holder that is a citizen or individual resident of the United States or a U.S.
corporation or that otherwise will be subject to U.S. federal income tax on a
152
net income basis with respect to ordinary shares or ADSs of EDP (a “U.S. Holder”). This summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant to a decision to purchase our ordinary shares or ADSs
by any particular purchaser, including tax considerations that arise from rules of general application to all purchasers or to certain
classes of investors or that are generally assumed to be known by purchasers. Thus, for example, this summary deals only with
holders that purchase and hold ordinary shares or ADSs as capital assets, and does not address the tax treatment of holders that may
be subject to special tax rules, such as banks, insurance companies, securities dealers, traders in securities that elect to mark to market,
tax exempt entities, persons that hold ordinary shares or ADSs as a position in a “straddle” for tax purposes, persons who hold 10% or
more of any class of our stock and persons whose “functional currency” is not the U.S. dollar. The summary is based on the tax laws
of the United States in effect on the date of this annual report, which are subject to change, possibly with retroactive effect.
Prospective purchasers should consult their own advisers as to the tax consequences of the purchase, ownership and disposition of
ordinary shares or ADSs in light of their particular circumstances, including the effect of any state, local or other national laws.
In general, for U.S. federal income tax purposes, holders of ADSs will be treated as the beneficial owners of our ordinary shares
represented by those ADSs.

DIVIDENDS
The gross amount of any dividends received with respect to our ordinary shares or ADSs, including amounts withheld in respect
of Portuguese withholding tax, generally will be subject to U.S. federal income taxation as foreign-source dividend income, and will
not be eligible for the dividends received deduction allowed to corporations. Dividends paid in euros will be includible in your
income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt by you or, in the case of
ordinary shares held in ADS form, by the Depositary. If dividends paid in euros are converted into U.S. dollars on the date of receipt,
you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. If you do not
convert euros that are received by you into U.S. dollars on the date of receipt, you generally will have a basis in those euros equal to
their U.S. dollar value on that date. You also generally will be required to recognize foreign currency gain or loss realized on a
subsequent conversion or other disposition of the euros, which will be treated as U.S. source ordinary income or loss.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual
prior to January 1, 2009 with respect to our ordinary shares or ADSs will be subject to taxation at a maximum rate of 15% if the
dividends are “qualified dividends.” Dividends paid on our ordinary shares or ADSs will be treated as qualified dividends if 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”), foreign personal holding company (“FPHC”) or foreign investment company (“FIC”). Based
on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC, FPHC or
FIC for U.S. federal income tax purposes with respect to our 2003 taxable year. 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, FPHC or FIC for our 2004 taxable year. The U.S. Treasury has
announced its intention to promulgate rules pursuant to which holders of ADSs or common stock 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. Holders of
our ADSs and ordinary shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light
of their own particular circumstances.
Portuguese withholding tax on dividends should be treated as foreign income taxes that, subject to generally applicable
limitations under U.S. tax law, are eligible for credit against your U.S. federal income tax liability or, at your election, may be
deducted in computing taxable income. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain
short-term or hedged positions in securities and may not be allowed in respect of arrangements in which the expected economic profit
is insubstantial. U.S. Holders are urged to consult their own tax advisers to determine whether they are eligible for benefits under the
Treaty, and whether, and to what extent, foreign tax credits will be available with respect to dividends paid by us.
153
 Distributions of additional shares with respect to ordinary shares or 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.
CAPITAL GAINS
Upon a sale or other disposition of ordinary shares or ADSs, a U.S. Holder will recognize gain or loss for United States federal
income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s
tax basis, determined in U.S. dollars, in its ordinary shares or ADSs. Generally, such gain or loss will be capital gain or loss, will be
long-term capital gain or loss if the U.S. Holder’s holding period for such ordinary shares or ADSs exceeds one year and any gain
will be income from sources within the United States for foreign tax credit limitation purposes. The net amount of long-term capital
gain recognized by an individual U.S. Holder before January 1, 2009 generally is subject to taxation at a maximum rate of 15%. The
deductibility of capital losses is subject to significant limitations.
As discussed in “— Portuguese Taxation—Capital Gains,” above, if we are a Portuguese Real Property Holding Company, U.S.
Holders could be subject to a Portuguese capital gains tax of 10% on capital gains realized under Portuguese law on the sale or other
disposition of ordinary shares or ADSs that were held for 12 months or less. In the event that such a Portuguese tax is imposed, U.S.
Holders that do not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax
credit benefits in respect of such Portuguese tax.
Deposits and withdrawals of ordinary shares in exchange for ADSs will not result in the realization of gain or loss for U.S.
federal income tax purposes.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends and payments of the proceeds of a sale of ordinary shares or ADSs paid to a U.S. Holder 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 U.S. Holder is a corporation or other exempt recipient or provides a taxpayer identification number and certifies that no
loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information
reporting or backup withholding. However, a non-U.S. person may be required to provide a certification to establish its non-U.S.
status in connection with payments received within the United States or through certain U.S.-related financial intermediaries. Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal
income tax liability. A holder 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.
DIVIDENDS AND PAYING AGENTS
Not applicable.
STATEMENT BY EXPERTS
Not applicable.

DOCUMENTS ON DISPLAY
Copies of our Articles of Association and by-laws may be examined at our principal place of business at Praça Marquês de
Pombal, 12 1250-162 Lisbon, Portugal.
154
 We also file reports, including annual reports on Form 20-F, periodic reports on Form 6-K and other information with the
Securities and Exchange Commission, or the SEC, pursuant to the rules and regulations of the SEC that apply to foreign private
issuers. You may read any materials publicly filed with the SEC at the SEC’s public reference room at the following location:

Public Reference Room

450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC filings are also available
to the public from commercial document retrieval services.
As of November 2002 we file electronically with the SEC. Documents we have filed as of November 2002 are available on the
website maintained by the SEC.
Our ADRs are listed on the New York Stock Exchange, or NYSE. Reports and other information concerning us are available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

SUBSIDIARY INFORMATION
Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

CREATION OF THE RISK MANAGEMENT OFFICE
During the second half of 2003, we established a Risk Management Department whose mission consists of the definition
implementation and upkeep of an Integrated Risk Management System, or SGIR, for the EDP Group. Use of the SGIR allows risk to
be taken into account in our strategic and operational decisions. The SGIR will be implemented in stages. During 2004, we expect the
rules to be established and the methodologies drawn up that will implement the risk function within the EDP Group. Efforts will be
directed at adopting best practices and in creating a state-of-the-art infrastructure. We expect the first stage to include implementation
of the systems designed to allow risk limit and analysis management, leading progressively to risk-adjusted return on capital
(RAROC) management and to active management of the company’s business portfolio. SGIR will use risk modeling and aggregation
methodologies. We are currently developing the means necessary to allow, in particular, quantitative analyses to be performed using a
model for “value at risk” analysis. In performing its duties, the Risk Management Department has a functional relationship with the
company’s various business areas in which the risks are identified, so as to achieve an aggregate overview of risk within the EDP
Group, taking into account the correlations between the several variables that cause risk.
BUSINESS UNIT RISK CONTROL
In addition to the consolidated control and management of group business risks, the processing and control of business risks at
the level of the various business units is also of importance to us. At the business unit level we have implemented the following
aspects of risk control:
• the Internal Audit Department monitors compliance of the internal operational procedures in accordance with our policies;
• the Financing Department manages the risk associated with the financial market, having contracted with a number of
financial instruments to reduce exposure to interest-rate and exchange rate risks. This has been undertaken on a prudent
basis and periodic evaluation is made of the financial instruments’ fair values;
• EDP Valor monitors the contracting of insurance at the EDP Group level in order to achieve the most adequate means of
cover of insurable risks;
• EDP Produção has a risk board that monitors all risks associated with electricity generation, ranging from operation and
maintenance to partnerships and outsourcing. The risk board performed a set of audits during 2003 of the electricity
generating facilities; and
155
 • EDPD, EDP Energia and our trading activity, in close cooperation with various EDP departments, have characterized the
risks and opportunities stemming from the progressive liberalization of the energy sector.
GENERAL
We are exposed to market risks, including foreign currency, commodity price and interest rate risk. We use financial derivative
instruments to manage our exposure to interest rate fluctuations and, in the case of EDP Brazil, to manage currency exposure.
Management’s guidelines with respect to the use of financial derivative instruments are that we do not engage in speculative
derivative transactions and that all derivative transactions are solely for hedging purposes and must relate to a specific underlying
asset, for example, cash flows of the derivative transaction must match those of the underlying asset being hedged. The negotiation of
financial derivative transactions follows our internal procedures set by management, which require that for each transaction our
financial department must submit to the executive committee of the Board of Directors for its approval a description of the hedging
strategy that defines the objective of the hedge, the specific asset being hedged and the parameters of the proposed transaction.
Following this approval, it is the responsibility of our financial department to negotiate with the counterparty and consummate the
transaction, which is then ratified by the executive committee of the Board of Directors. With respect to the management of our debt
portfolio, our hedging strategies have mainly been limited to the debt at the EDP, S.A. level (including EDP Finance B.V.), and not at
the level of any of our subsidiaries. However, Hidrocantábrico manages its interest rate exposure, EDP Brazil manages currency
exposure and we have in the past acquired U.S. dollar-denominated bonds of Escelsa in order to manage currency risk at the
consolidated level.
The counterparties to our financial derivative transactions are major financial institutions and these transactions expose us to
market and credit risk and, occasionally, may be concentrated with certain counterparties. Management believes the credit risk and
interest rate risk arising from non-performance by the counterparties is not significant, based on the investment grade rating of the
counterparties. We do not require collateral or other security to support the financial instruments with credit risk.

INTEREST RATE RISK

Management is aware of our exposure to market risks arising from our outstanding debt and derivative instruments. Our market
risks result mainly from interest rate fluctuations. We estimate the sensitivity of the fair values of our financial instruments to changes
in interest rates. The methods and assumptions used by us to determine fair values for financial instruments in our consolidated
financial statements are the following:
• Bonds – the quoted market price at December 31 of the respective years.
• Bank loans – discounted cash flow analysis, based on our incremental borrowing rates for similar types of borrowing
arrangements.
The fair value of interest rate and currency swap agreements is determined using discounted cash flow analysis based on zero-
coupon yield curve rates. Zero-coupon rates used to discount cash flows are derived from market rates (mid bid-offer spread) quoted
by market dealers. Interest rate swap agreements are used to manage the proportion of variable rate debt in our debt portfolio and to
reduce the level of interest expense.
The debt and derivatives portfolio of EDP, S.A. and EDP Finance B.V. are managed together, and notional amounts of interest
rate swap agreements, including cross-currency interest rate swaps, outstanding as of December 31, 2003, decreased to €€ 3,450.7
million from €€ 3,545.6 million at December 31, 2002, primarily due to the repayment of associated debt. The swap agreements have
remaining maturities between 9 months and 15 years. The fair value of these derivative financial instruments is the amount that would
be paid or received upon termination of the agreement based on available market rates. Fair values are estimates that involve
uncertainties and cannot be determined with precision. These agreements, if terminated, would result in receivables of € € 166.7 million
at December 31, 2003.
156
 Our main exposure is to euro interest rates. The fair value of all interest rate sensitive financial instruments at the EDP, S.A. and
EDP Finance B.V. level amounted to a net liability of € € 6,251.4 million as of December 31, 2003. These include primarily long-term
debt, interest rate and cross currency interest rate swaps. At December 31, 2003, in the event of a 10% increase in interest rates for all
maturities, this fair value would increase to €€ 6,274.6 million. A 10% decrease would result in a decrease of this fair value to €€
6,224.4 million. At December 31, 2003, outstanding long-term debt held at the subsidiary level was as follows: ONI, €€ 41.7 million,
EDINFOR, €€ 6.6 million, EDP Brazil, €€ 321.7 million, and Hidrocantábrico, €€ 761.8 million.
At December 31, 2002, the fair value of all interest rate sensitive financial instruments at the EDP, S.A. and EDP Finance B.V.
level amounted to a net liability of €€ 6,406.8 million. At December 31, 2002, in the event of a 10% increase in interest rates for all
maturities, this fair value would increase to €€ 6,461.6 million. A 10% decrease would result in a decrease of this fair value to €€
6,354.9 million.
Hidrocantábrico manages interest rate risk with financial instruments. The notional value of interest rate swap agreements and
collars outstanding at December 31, 2003 amounted to €€ 607 million. These instruments have remaining maturities between 6 months
and 3 years. The fair value of these derivative financial instruments is the amount that would be paid or received upon termination of
the agreements based on available market rates. These fair values are estimates that involve uncertainties and cannot be determined
with precision. These agreements, if terminated, would result in payment of €€ 7.9 million at December 31, 2003. The fair value of all
interest rate sensitive financial instruments at the Hidrocantábrico level outstanding at December 31, 2003 amounted to €€ 769.7
million. At December 31, 2003, in the event of a 10% increase in interest rates for all maturities, this fair value would decrease to €
€
765.6 million. A 10% decrease would result in an increase of this fair value to €€ 773.9 million.
At the Hidrocantábrico level, the notional value of interest rate swap agreements and collars outstanding at December 31,2002
amounted to €€ 607 million. These instruments have remaining maturities between 18 months and 4 years. The fair value of these
derivative financial instruments is the amount that would be paid or received upon termination of the agreements based on available
market rates. These fair values are estimates that involve uncertainties and cannot be determined with precision. These agreements, if
terminated, would result in payment of € € 6.2 million at December 31, 2002. At December 31, 2002, the fair value of all interest rate
sensitive financial instruments at the Hidrocantábrico level amounted to a net liability of €€ 636.4 million. At December 31, 2002, in
the event of a 10% increase in interest rates for all maturities, this fair value would increase to €€ 629.5 million. A 10% decrease would
result in a decrease of this fair value to €€ 641.7 million.
Given the floating-rate nature of the long-term debt of our Brazilian businesses and the lack of a medium or long-term yield
curve in the Brazilian financial markets, the most accurate estimate of the fair value of our Brazilian businesses’ long-term debt is the
notional value of such debt.
FOREIGN EXCHANGE RATE RISK
We are exposed primarily to two types of foreign exchange risk arising from our Brazilian investments: the impact of foreign
exchange fluctuations on the value of our equity investment, which does not have an impact on our profit and loss account but is
reflected in our balance sheet, and the impact of foreign exchange fluctuations on the non-Brazilian currency denominated debt of our
Brazilian businesses which is reflected in their income statements and, in the case of consolidated subsidiaries, has a corresponding
effect on our income statement. Management’s policy with respect to the impact on the value of our equity investment is not to use
financial instruments to hedge against this risk given the long-term nature of these investments and that short-term fluctuations in
their value impacting our balance sheet are considered acceptable.
In respect of the impact of foreign exchange rate fluctuations on the non-Brazilian real denominated debt of our Brazilian
businesses, it is our management’s policy that all future debt be raised in Brazilian reais or, if this is not possible, debt denominated in
non-Brazilian currency must be swapped to Brazilian reais. The Brazilian companies manage the impact of foreign exchange
fluctuations of the U.S. dollar against the Brazilian real using cross-currency interest rate swaps. At December 31, 2003, outstanding
notional amounts amounted to €€ 84.2 million, an increase from €€ 46.5 million at December 31,2002. These agreements, if terminated,
would result in payments of € € 5.6 million at December 31, 2003 and €€ 3.7 million at December 31, 2002.
157
 Of our Brazilian businesses, Escelsa had the largest amount of non-Brazilian real denominated debt, which consists of US$ 431
million of senior notes outstanding, maturing in 2007. In addition to the Brazilian companies’ local use of financial instruments to
hedge against foreign exchange fluctuations, our management decided to purchase the U.S. dollar denominated debt of Escelsa
through a tender offer for Escelsa’s senior notes, thus limiting the impact of the devaluation of the Brazilian real against the U.S.
dollar on our consolidated profit and loss account. As a result of the tender offer, we acquired 357.4 thousand of these bonds,
corresponding to 83% of the total outstanding bonds, at an average discount of 25% of their nominal value.
Currently all outstanding consolidated debt, with the exception of that held by our Brazilian companies, is raised in euro or
immediately converted to euro at time of issuance. Management is also aware that foreign exchange rate risks may exist for us in the
future if a material portion of our outstanding debt is denominated in a currency other than the euro.

COMMODITY PRICE RISK

Management is aware that we are subject to risks associated with market fluctuations in the cost of fuel. A rise in the market
price for fuel has a negative impact on our financial results. Moreover, fuel prices are often quoted in U.S. dollars, subjecting us to the
additional risk of a rise in the value of the U.S. dollar against the euro. Despite those risks, we do not hedge against rising fuel costs as
we expect to be able to pass through to tariffs the fuel cost incurred.

Item 12. Description of Securities Other Than Equity Securities

Not applicable.
158
 GLOSSARY OF TERMS

Capacity charge: Refers to the monthly charge payable by REN to the generators in the Binding Sector
for each power plant, in respect of each PPA, based on contracted firm capacity,
whether or not dispatched, payable by REN to such generators.

CCGT (Combined Cycle Gas Turbine): A type of generating plant in which turbines, typically fueled by natural gas, are used
to drive generators to produce electricity. The exhaust gases are then passed through
a boiler to produce steam that in turn drives an additional turbine coupled to a
generator.

Cogeneration: The simultaneous generation of steam and electricity, typically where the need arises
for industrial purposes.

Dry year: A year in which hydrological conditions are unfavorable such that hydroelectric
generation in that year is below average (10,600 GWh).

Energy charge: Refers to the variable charge based on actual electricity delivered to the national
transmission grid.

Generating unit: An electric generator together with the turbine or other device that drives it.

Gigawatt (GW): 1,000,000,000 watts (1,000 megawatts).

Gigawatt hour (GWh): One gigawatt of power supplied or demanded for one hour.

Hydroelectric unit: A generating unit that uses water power to drive the electric generator.

Installed capacity: The level of electric power which can be delivered from a particular generating unit
on a full-load continuous basis to the transmission network under actual conditions.

Kilovolt (kV): 1,000 volts.

Kilovolt ampere (kVA): 1,000 volts ampere.

Kilowatt (kW): 1,000 watts.

Kilowatt hour (kWh): One kilowatt of power supplied or demanded for one hour.

Megawatt (MW): 1,000,000 watts (1,000 kilowatts).

Megawatt hour (MWh): One megawatt of power supplied or demanded for one hour.

Megavolt ampere (MVA): 1,000,000 volts ampere.

NOx: Oxides of nitrogen.

SO2: Sulfur dioxide.

Substation: An assemblage of equipment that switches and/or changes or regulates the voltage of
electricity in a transmission and distribution system.

Technical cost: The cost incurred in making a capital expenditure excluding the cost of financing the
expenditure.
159
Terawatt (TW): 1,000,000,000,000 watts (1,000,000 mega watts)

Terawatt hour (TWh): One terawatt of power supplied or demanded for one hour.

Thermoelectric unit: A generating unit that uses combustible fuel as the source of energy to drive the
electric generator.

Volt: The basic unit of electric force analogous to water pressure in pounds per square inch.

Volt ampere: The basic unit of apparent electrical power.

Watt: The basic unit of active electrical power.

Wet year: A year in which hydrological conditions are favorable such that hydroelectric
generation in that year is greater than average (10,600 GWh).
160
 PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
At our General Meeting held on May 12, 2000, our shareholders approved the change of our share nominal value to 1 euro. Our
nominal share capital remained 3,000,000,000 euros.
In addition, shareholders approved at this General Meeting a 5-for-1 stock split of our ordinary shares. Consequently, the share
capital is now represented by 3,000,000,000 shares with a nominal value of 1 euro.
Item 15. Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2003. 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 the disclosure controls and procedures as of
December 31, 2003 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and
submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when
required.
There has been no change in our internal control over financial reporting during 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

Item 16. [Reserved]

[Reserved]

Item 16A. Audit Committee Financial Expert

Our board of directors has reviewed the qualifications and backgrounds of each member of the audit committee and determined
that, although no one member of the audit committee is an “audit committee financial expert” within the meaning of Item 16A of this
annual report, the combined qualifications and experience of the members of the audit committee give the audit committee
collectively the financial expertise necessary to discharge its responsibilities.
Item 16B. Code of Ethics
We have not adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934. Under
Portuguese law, a director must act diligently and with due care, always seeking to promote the company’s interest while taking due
account of the interests of shareholders and employees. A director will be liable to the company, the company’s shareholders and
third parties for any damages caused by a breach of these duties. Our senior executive and financial officers are bound by these
standards, which we believe have a purpose and function that is substantially similar to a code of ethics within the meaning of Item
16B. Additionally, we plan to adopt a code of ethics within the meaning of Item 16B by the end of 2004.
161
Item 16C. Principal Accountant Fees and Services
AUDIT AND NON-AUDIT FEES
The following table sets forth the fees billed to us by our principal independent auditors, PwC, during the fiscal years ended
December 31, 2002 and 2003:
Year ended December 31,

2002 2003

Audit fees 768,807 660,031

Audit-related fees 144,510 548,102
Tax fees 0 0
Other fees 0 0

Total fees 913,317 1,208,133

Audit fees in the above table are the aggregate fees billed by PwC in connection with the audit of our consolidated annual and
interim financial statements and audit work performed for our major subsidiaries in Portugal and Brazil. In addition, other audit fees
were incurred in 2002 and 2003 for audit work performed to the individual financial statements of other Portuguese subsidiaries by
local Portuguese audit firms, in the amount of approximately € € 585,000 for 2002 and € € 460,000 for 2003, and for audit work
performed by Deloitte Brazil for some of our Brazilian subsidiaries in the amount of approximately €€ 100,000 for 2002 and €€ 91,000
for 2003.
Audit-related fees in the above table are the aggregate fees billed by PwC for work on our annual report on Form 20-F, the
implementation of provisions of the Sarbanes-Oxley Act of 2002 and work on our Smart Close process. In addition, in 2003 we
incurred other audit-related fees of €€ 255,000 related to work performed by Deloitte Brazil and Deloitte Portugal in relation to the
calculation of the fair value of EDP Group’s investments in Brazil.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
Our board of directors has not established pre-approval policies and procedures for the engagement of our independent auditors
for services. Our board of directors expressly approves on a case-by-case basis any engagement of our independent auditors for audit
or non-audit services provided to our subsidiaries or to us. According to the internal regulations of our audit committee, this
committee is required to provide a proposal to our board of directors in relation to the engagement of auditors and their fees.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.

PART III
Item 17. Financial Statements
Our financial statements have been prepared in accordance with Item 18 hereof.

Item 18. Financial Statements

Index to Financial Statements and Schedules
162
Reports of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as at December 31, 2003 and 2002 F-2
Consolidated Profit and Loss Account for the years ended December 31, 2003, 2002 and 2001 F-3
Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001 F-4
Changes in Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2002 and 2001 F-5
Notes to the Financial Statements F-6
Item 19. Exhibits

Index to Exhibits
1.1 Amended and Restated Articles of Association of EDP, together with an English translation thereof (incorporated by
reference to our registration statement on Form F-3 (file no. 333-12620) filed on October 20, 2000).
2.1 Amended and Restated Articles of Association of EDP (see Exhibit 1.1).
2.2 Deposit Agreement dated June 16, 1997 among Citibank, N.A. EDP and the holders from time to time of American
Depositary Receipts (“ADR”) (incorporated by reference to our registration statement on Form F-1 (file no. 333-6928)
filed on May 16, 1997).
2.3 Amendment No. 1 dated September 8, 2000, to the Deposit agreement dated June 16, 1997 among Citibank, N.A., EDP
and the holders from time to time of ADRs (incorporated by reference to our registration statement on Form F-3 (file
no. 333-12620) filed on October 20, 2000).
2.4 Amended form of ADR (included in Exhibit 2.3).
2.5 Certain documents relating to EDP Finance B.V. Programme for the Issuance of Debt Instruments (incorporated by
reference to our annual report on Form 20-F for the fiscal year ended December 31, 1999).
2.6 Certain documents relating to amendment and increase of EDP Finance B.V. Programme for the Issuance of Debt
Instruments (incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2000).
2.7 Certain documents relating to EDP Finance B.V. Euro-Commercial Paper Programme (incorporated by reference to our
annual report on Form 20-F for the fiscal year ended December 31, 2000).
2.8 Other than as provided in Exhibits 2.5 and 2.6, the total amount of long-term debt securities of EDP authorized under
any instrument does not exceed ten per cent of the total assets of the EDP Group on a consolidated basis. EDP agrees to
provide to the Securities and Exchange Commission, upon request, copies of any instruments that define the rights of
holders of long-term debt of EDP that are not filed as exhibits to this annual report.
4.1 License for Sines Power Plant, together with English translation thereof (incorporated by reference to our registration as
Form F-1 (file no. 333-6928) filed on May 16, 1997).
4.2 Power Purchase Agreement, dated December 20, 1994, between REN and TURBOGÁS-Produtora Enérgica, S.A.
(incorporated by reference to our registration statement on Form F-1 (file no. 333-6928) filed on June 16, 1997).
4.3 Energy Management Agreement, dated December 1993, between REN and Transgás-Sociedade
163
 Portuguesa de Gás Natural, S.A. (redacted version; subject to confidential treatment request); incorporated by
reference to our registration statement on Form F-1 (file no. 333-6928) filed on June 12, 1997).
4.4 Supplemental Agreement to the Power Purchase Direct Agreement for the CCGT Power Station at Tapada do Outeiro
(incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 1999).
8.1 Subsidiaries of EDP.
12.1 Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certifications pursuant to 18 U.S.C. § 1350 as adopted by section 906 of the Sarbanes-Oxley Act of 2002.
164
 Signature
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has fully caused this Annual Report on Form 20-F to be signed on its behalf by the
undersigned, thereunto duly authorized.

EDP – Electricidade de
Portugal

Date: June 30, 2004 /s/ João Ramalho Talone

João Ramalho Talone

Chief Executive Officer

Date: June 30, 2004 /s/ Rui Miguel Horta e Costa

Rui Miguel Horta e Costa

Chief Financial Officer
165
 PricewaterhouseCoopers
Avenida da Liberdade, 245 - 8º A
1269 - 034 Lisboa
Portugal
Tel +351 21319 70 00
Fax +351 21316 11 14
To the Board of Directors of
EDP – Electricidade de Portugal, S.A.
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated profit and loss account, consolidated
statement of cash flows and changes in consolidated statement of shareholders’ equity present fairly, in all material respects, the
financial position of EDP – Electricidade de Portugal, S.A. and its subsidiaries at December 31, 2003 and December 31, 2002, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in Portugal. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Additionally, as described in Note 2 to the accounts, the Company has changed its accounting policy for recognition and
measurement of financial instruments and impairment of assets during the year ended December 31, 2003.
Accounting principles generally accepted in Portugal 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 the Note 39
to the consolidated financial statements.
/s/ PricewaterhouseCoopers
Lisbon, Portugal
March 15, 2004, except for the contents of Note 40,
as to which date is June 29, 2004

PricewaterhouseCoopers - Auditores e Consultores, Lda.

Sede: Avenida da Liberdade 245 8º A, 1269 - 034 Lisboa
Contribuinte nº. 504193279 Capital social Euros 750.000
Matriculada na Conservatória do Registo Comercial sob o nº. 7297
 EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES
Consolidated Balance Sheets as at December 31, 2003 and 2002
2003 2003 2002
Notes USD’000 (*) Euro’000 Euro’000

Assets
Cash and cash equivalents 4 349,883 287,496 213,973
Accounts receivable - trade, net 5 1,348,514 1,108,064 970,860
Accounts receivable - other, net 6 793,293 651,843 740,543
Inventories 7 193,790 159,236 150,305
Prepaid expenses and other current assets — — 1,772

Total Current Assets 2,685,480 2,206,639 2,077,453

Long term receivables 8 530,420 435,842 260,584

Investments, net 9 1,974,523 1,622,451 1,965,984
Fixed assets, net 10 14,179,996 11,651,599 11,204,237
Other assets, net 11 3,327,446 2,734,138 2,616,932

Total Non-Current Assets 20,012,385 16,444,030 16,047,737

Total Assets 22,697,865 18,650,669 18,125,190

Liabilities and Shareholders’ Equity

Short term debt and current portion of long term debt 12 1,921,801 1,579,130 1,887,033
Accounts payable - trade 13 952,456 782,626 1,018,571
Accounts payable - other 14 227,898 187,262 173,677
Accrued cost 15 287,862 236,534 294,499
Taxes payable 16 327,498 269,103 49,752
Deferred revenue 17 286,925 235,764 94,855

Total Current Liabilities 4,004,440 3,290,419 3,518,387

Long term debt 12 7,196,826 5,913,579 6,107,042

Accrued pension and post retirement liabilities 18 684,274 562,263 608,256
Deferred revenue and other liabilities 19 3,605,253 2,962,410 2,008,013

Total Non-Current Liabilities 11,486,353 9,438,252 8,723,311

Total Liabilities 15,490,793 12,728,671 12,241,698

Minority interests 20 287,802 236,485 65,199

Hydrological correction account 21 471,595 387,506 324,111
Share capital 22 3,651,000 3,000,000 3,000,000
Treasury stock 24 (59,657) (49,020) (43,494)
Reserves and retained earnings 25 2,392,522 1,965,918 2,202,460
Consolidated net profit 25 463,810 381,109 335,216

Total Shareholders’ Equity 6,447,675 5,298,007 5,494,182

Total liabilities and Shareholders’ equity 22,697,865 18,650,669 18,125,190

(*) Converted at 1.217 USD

See accompanying notes to the Consolidated Financial Statements
F-2
 EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES
Consolidated Profit and Loss Account
for the years ended December 31, 2003, 2002 and 2001
2003 2003 2002 2001
Notes USD’000 (*) Euro’000 Euro’000 Euro’000

Revenues
Sales 26 7,857,391 6,456,361 5,988,140 5,299,242
Services rendered 26 634,251 521,159 398,417 351,132

8,491,642 6,977,520 6,386,557 5,650,374

Operating costs and expenses, net

Raw materials and consumables 26 4,771,913 3,921,046 3,687,097 3,078,864
Personnel costs 27 786,956 646,636 624,771 591,973
Depreciation and amortization 28 1,029,085 845,592 739,541 664,691
Supplies and services 29 769,774 632,518 675,070 651,230
Own work capitalized 30 (286,753) (235,623) (241,769) (232,519)
Concession and power-generating rents 213,758 175,643 158,176 149,114
Provisions 31 92,134 75,706 100,645 115,986
Other operating expenses / (income) 32 12,486 10,260 (5,678) (42,498)

7,389,353 6,071,778 5,737,853 4,976,841

Operating Margin 1,102,289 905,742 648,704 673,533

Interest and related income 33 376,083 309,025 381,720 251,422
Interest and related expenses 33 (813,011) (668,045) (604,564) (456,755)
Other non-operating income / (expenses) 34 (17,577) (14,443) (138,939) 125,989

Profit before tax 647,784 532,279 286,921 594,189

Provision for income taxes 35 291,173 239,255 171,168 244,012
Provision for deferred taxes 35 (53,208) (43,721) 571 (41,059)

Profit after tax 409,819 336,745 115,182 391,236

Minority interests (53,992) (44,364) (220,034) (59,559)

Consolidated Net Profit 463,811 381,109 335,216 450,795

Net Profit per share - Basic - Euros 22 0.15 USD 0.13 euros 0.11 euros 0.15 euros

(*) Converted at 1.217 USD

See accompanying notes to the Consolidated Financial Statements
F-3
 EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
for the years ended December 31, 2003, 2002 and 2001
2003 2003 2002 2001
USD’000 Euro’000 Euro’000 Euro’000

Cash Flow from Operating Activities

Operating activities :
Cash receipts from customers 8,362,401 6,871,324 6,215,764 5,350,306
Cash paid to suppliers (5,178,720) (4,255,316) (4,085,818) (3,336,852)
Cash paid to staff (860,703) (707,233) (685,792) (632,241)
Concession rents paid (209,019) (171,749) (158,176) (149,114)

Cash flows provided by operating activities 2,113,959 1,737,026 1,285,978 1,232,099

Income tax received / (paid) (177,722) (146,033) (277,444) (111,607)

Other variations of operating 181,338 149,004 (62,527) 121,177

3,616 2,971 (339,971) 9,570

Cash flow before Extraordinary items 2,117,575 1,739,997 946,007 1,241,669

Proceeds in respect of extraordinary items 203,007 166,809 28,026 16,779

Payments in respect of extraordinary items (162,113) (133,207) (76,363) (37,274)

40,894 33,602 (48,337) (20,495)

Net Cash flow provided by Operating

Activities 2,158,469 1,773,599 897,670 1,221,174

Cash Flow from Investing Activities

Cash receipts resulting from:
Investments and long term-receivables 555,950 456,820 193,377 175,839
Tangible and intangible fixed assets 40,896 33,604 77,603 5,710
Fixed assets subsidies 90,130 74,059 56,448 132,106
Interest 16,145 13,266 4,083 —
Dividends 44,619 36,663 40,042 16,831
Disposal of investments in subsidiaries — — 315,000 —

747,740 614,412 686,553 330,486

Cash payments resulting from:

Investments (49,409) (40,599) (55,511) (734,091)
Tangible fixed assets (1,137,667) (934,813) (931,346) (709,201)
Intangible fixed assets (82,650) (67,913) (42,981) (130,178)
Aquisition of subsidiaries and associates (121,986) (100,235) (798,124) —

(1,391,712) (1,143,560) (1,827,962) (1,573,470)

Net Cash Flow used in Investing Activities (643,972) (529,148) (1,141,409) (1,242,984)

Cash Flow from Financing Activities

Cash receipts resulting from:
Loans obtained 16,349,978 13,434,657 12,905,666 4,639,262

16,349,978 13,434,657 12,905,666 4,639,262

Cash payments resulting from:

Loans repaid (16,823,088) (13,823,408) (11,884,708) (4,040,265)
Interest and similar costs (555,036) (456,069) (375,734) (254,104)
 Dividends (326,491) (268,275) (337,675) (415,922)
Acquisition of treasury stock (6,725) (5,526) (10,399) (25,057)

(17,711,340) (14,553,278) (12,608,516) (4,735,348)

Net Cash Flow used in Financing Activities (1,361,362) (1,118,621) 297,150 (96,086)

Variation of cash and cash equivalents 153,135 125,830 53,411 (117,896)

Effect of currency translation differences (32,836) (26,981) 7,857 (9,681)

Cash and cash equivalents at the beginning of the period (495,634) (407,259) (468,527) (340,951)

Cash and cash equivalents at the end of the period (*) (375,335) (308,410) (407,259) (468,528)

(*) See note 4 to the Financial Statements, detailing the breakdown of ‘Cash and Cash equivalents’
See accompanying notes to the Consolidated Financial Statements
F-4
 EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES
Changes in Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2003, 2002 and 2001
(Thousands of Euros)
Fair value
Total Legal Reserves reserves and
Shareholders’ Share and special and retained other Treasury
Equity capital reserve earnings valuation stock

Balance as at December 31, 2000 6,204,730 3,000,000 259,641 2,953,127 — (8,038)

Transfer to reserves:
Legal and special reserves — — 27,449 (27,449) — —
Dividends paid (Eur 0.14 per share) (418,990) — — (418,990) — —
Purchase and sale of treasury stock (25,057) — — — — (25,057)
Net profit for the year 450,795 — — 450,795 — —
Other reserves arising on consolidation (114,720) — — (114,720) — —

Balance as at December 31, 2001 6,096,758 3,000,000 287,090 2,842,763 — (33,095)

Transfer to reserves:
Legal and special reserves — — 22,541 (22,541) — —
Bonus to employees (22,073) — — (22,073) — —
Dividends paid (Eur 0.11 per share) (337,675) — — (337,675) — —
Purchase and sale of treasury stock (10,399) — — — — (10,399)
Net profit for the year 335,216 — — 335,216 — —
Exchange differences arising on consolidation (300,028) — — (300,028) — —
Fair value of investments available for sale (268,975) — — — (268,975) —
Other reserves arising on consolidation 1,358 — — 1,358 — —

Balance as at December 31, 2002 5,494,182 3,000,000 309,631 2,497,020 (268,975) (43,494)
Transfer to reserves:
Legal and special reserves — — 16,760 (16,760) — —
Bonus to employees (25,062) — — (25,062) — —
Dividends paid (Eur 0.09 per share) (268,275) — — (268,275) — —
Purchase and sale of treasury stock (5,526) — — — — (5,526)
Net profit for the year 381,109 — — 381,109 — —
Deferred taxes (see note 8) (252,296) — — (252,296) — —
Effects arising from the implementation of IAS 36
and 39 in EDP Group:
- Financial instruments / Derivatives 131,181 — — 131,181 — —
- Reclassification of impairment of BCP in
2002(*) — — — (247,750) 247,750 —
- Fair value of investments available for sale 10,758 — — — 10,758 —
- Reversion of Fair value of Iberdrola in
2002 21,223 — — — 21,223 —
Exchange differences arising on consolidation (193,032) — — (193,032) — —
Other reserves arising on consolidation 3,745 — — 3,745 — —

Balance as at December 31, 2003 5,298,007 3,000,000 326,391 2,009,880 10,756 (49,020)

(*) This reclassification is caused by the implementation of IAS 39 and IAS 36 in 2003, specifically the application of the concept
of impairment loss in the event of conditions that can be considered as being of a permanent nature. It is considered that the
depreciation in value of the financial investment in BCP has these characteristics and, consequently, that the impairment loss
would be recorded within retained earnings in the opening balance sheet of 2003, whilst the amount remains within equity as a
fair value adjusted for 2002 in accordance with the principles of adopting new standards within the Portuguese accounting
framework.
See accompanying notes to the Consolidated Financial Statements
F-5
 EDP - ELECTRICIDADE DE PORTUGAL, S.A. AND SUBSIDIARIES
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
1. The business operations of the EDP Group
The EDP Group operates mainly in the Iberian and Brazilian markets in the electricity and telecommunications sectors.
Activity in the Energy Sector on the Iberian Peninsula
In Portugal, the National Electricity System (SEN) is based on the coexistence of a Public Service Electricity System (SEP) and
of an Independent Electricity System (SEI), the latter comprising the Non-binding Electricity System (SENV) and the Special
Regime Producers (PRE).
The SEP comprises the National Transport Network (RNT), Binding Producers, Binding Distributors and Binding Customers.
The RNT, under concession to REN - Rede Eléctrica Nacional, S.A., is in charge with providing electricity transport and with
the overall technical management of the SEP. Binding Producers are tied to RNT by long-term exclusive supply contracts.
Binding Distributors are obliged to supply their customers in accordance with fixed prices, under the law, by the Energy
Services Regulatory Entity (ERSE). Binding Customers are entities and individuals that cannot opt for a SENV supplier
(currently low-tension consumers), or either those that are able to do so, but opt to acquire electricity from their respective
binding distributor under conditions determined by the ERSE. The SENV essentially comprises Non-binding Producers and
Non-binding Customers, the latter being entitled to use the SEP networks using fixed tariffs determined by ERSE under the
terms of the law.
Special Regime Producers operate in the renewable energies and cogeneration areas, delivering their electricity to the SEP
networks under special legislation. In accordance with the law, the ERSE is in charge with exercising the regulation of the
sector, through the preparation, issue, and application of regulations, and also through the definition of the tariffs both for the
use of infrastructure and for the supply of electricity to SEP customers. Through the generation and distribution companies, the
EDP Group plays a fundamental role in the entire SEN, and has a relevant position within the SEP, and also owns generation
companies that operate within the SEI both at the level of the SENV and at the level of the PREs.
In Spain, the EDP Group has a 40% shareholding in Group Hidroeléctrica del Cantábrico, S.A. (Hidrocantábrico), a company in
which it undertakes operational management. Hidrocantábrico is the parent company that carries on the business in the
electricity (generation, transport, distribution and supply), gas (distribution and supply) and telecommunications sectors. This
EDP shareholding in Hidrocantábrico constitutes part of a reasoning for the integration and consolidation of the Iberian energy
market.
Activity in the Energy Sector in Brazil
In Brazil, the EDP Group operates in the electricity sector, namely in generation, distribution and supply. In distribution it has a
96.5% shareholding in Bandeirante Energia S.A., and 99.97% of IVEN, S.A., which controls Escelsa Espírito Santo Centrais
Eléctricas, S.A., and Enersul Empresa Energética do Mato Grosso do Sul S.A.
In the electricity generation sector, the EDP Group has holdings in Usina Hidroeléctrica (UHE), Lajeado (27.65%), Usina
Termoeléctrica (UTE) and Fafen (79.6%); in partnership with the Rede Group of Brazil was successful in the auctions for the
concession of the construction and operation of Peixe Angical and Couto Magalhães hydroelectric power stations.
In the supply business, in addition to the business carried on by the distribution companies, the EDP Group operates in the
electricity trading market through Enertrade, a wholly owned Group company.
Low-tension Electricity Distribution Concession Regime
In accordance with specific legislation (Decree-Law 344-B/82), the right to distribute low-tension electricity in Portugal is in the
hands of the municipalities (local authorities). However, EDP is allowed to carry on this activity, under concession, by entering
into concession contracts generally with a 20 year term, which can be revoked with 2 years notice. Since 1994, when EDP was
restructured as a Group by splitting into new companies, these concession terms were maintained in relation to the 4 electricity
distribution companies set-up at that time and later merged in 2000 into EDP Distribuição S.A. In respect to these concessions, a
rent is paid to the concessor municipalities.
Activity in the Telecommunications Sector
In the telecommunications sector, the EDP Group holds 56.03% of the share capital of ONI SGPS (ONI), the remaining capital
is held by BCP, GALP Energia and Brisa. ONI operates in fixed telecommunications, providing voice and data services in the
Portuguese market (both corporate and residential customers) and in the Spanish market (in the corporate segment).
Activity in the Information Technologies Sector
The EDP Group operates in the information technologies through EDINFOR - Sistemas Informáticos S.A., a wholly owned
subsidiary which holds 57.8% of ACE, engaged namely in consultancy, systems integration, processing, application
outsourcing, IT infrastructure, georeferenced solutions, printing solutions, and finishing.
F-6
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Public Domain Assets

In Portugal some fixed assets allocated to electricity generation and distribution within the SEP are subject to the public domain
regime. Howhever, EDP has the authority to operate and manage these assets in the binding sector only, and never for any other
purpose. In Brazil the fixed assets used in the distribution and supply of electricity are tied to those services and cannot be
withdrawn, sold, assigned or mortgaged without the prior express consent of the Regulator. ANEEL has already created
regulations releasing the assets of the Public Electricity Service concessions, granting prior authorisation for the release of assets
of no use to the concession, provided they are to be sold, further determining that the product of the sale be deposited in a tied
bank account, to be used in the concession.

2. Accounting policies
a) Basis of presentation
The Group’s parent company, EDP – Electricidade de Portugal, S.A. (hereinafter known as EDP), was incorporated in 1976 as a
consequence of the nationalisation and consequent merger of the principal companies of the electricity sector operating in
mainland Portugal. Its registered office is in Lisbon at Praça Marquês de Pombal, 12, 6º. During 1994, as established by Decree-
Law 7/91 and 131/94, the EDP Group was established (hereinafter known as EDP Group or Group) following the split of EDP,
which led to a number of subsidiaries wholly owned by EDP itself, directly or indirectly. The Group’s businesses are currently
focused on the generation, distribution and supply of electricity, on the distribution and supply of gas, on telecommunications
and on information technologies. Although complementary, the Group currently operates as well in related areas such as water,
engineering, laboratory tests, vocational training and property management.
The Consolidated Financial Statements of the EDP Group have been prepared in accordance with accounting principles
generally accepted in Portugal (“Portuguese GAAP”), except as provided in notes 9, 18, 37 and 39, particularly as a result of the
adoption of International Accounting Standards IAS 19, IAS 22, IAS 32, IAS 36 and IAS 39. The Consolidated Financial
Statements have been prepared from the accounting records of EDP and its subsidiary companies listed below. Portuguese
GAAP differs in certain significant respects from generally accepted accounting principles in the United States of America
(“U.S. GAAP”). A description of these differences and their effects on consolidated net income and shareholders’ equity are set
forth in Note 40. The financial statements also include certain reclassifications and additional disclosures in order to conform
more closely to the form and content of financial statements required by the Securities and Exchange Commission of the United
States of America.
The accounting standards are consistent with those applied in the previous year, except for the changes resulting from the early
adoption of IAS 32, IAS 36 and IAS 39.
The translation of the euro amounts into U.S. dollars is disclosed in the accompanying financial statements solely for the
convenience of the readers and has been made at the rate of US$ 1,217 to Euro 1.00, the exchange rate at June 24, 2004. No
representation is made that the euro amounts could have been, or could be, converted into U.S. dollars at that or any other rate.
The preparation of the financial statements in conformity with Portuguese GAAP, together with the reconciliation to U.S.
GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Some of the more significant estimates and assumptions relate to the hydrological correction account,
depreciation and impairment of long lived assets, fair value of financial investments, provision for employee retirement benefits
and deferred taxes. Actual results could differ from those estimates.

c) Basis of consolidation
The consolidated financial statements reflect the assets, liabilities and results of EDP, S.A., and of its subsidiary companies, as
defined in Note 7, and the proportional part of assets, liabilities and results of joint ventures in respect of the years ended
December 31, 2003 and 2002.
Shareholdings in subsidiaries
Shareholdings in subsidiaries and in companies in which the Group directly or indirectly holds more than 50% of the voting
rights at General Meetings of Shareholders or is able to control the financial and operating policies of a company have been
included in the consolidated financial statements using the purchase method. The subsidiaries are included in the consolidation
as from the date on which control is acquired up to the date on which it actually ends. The purchase method is used in
accounting for the acquisition of subsidiaries. The acquisition cost corresponds to the fair value of the assets delivered, shares
issued and liabilities assumed on the date of acquisition, plus those costs directly attributable to the acquisition.
Intra-group transactions, dividends distributed between Group companies, balances and unrealized gains on transactions
between Group companies are eliminated. The value corresponding to the third-party holdings is carried under minority
interests. The results of subsidiaries acquired or sold during the year are included in the profit and loss account from the date
they are included in the consolidation perimeter up to the date of their sale. The companies consolidated using the purchase
method are detailed in Note 9.
Shareholdings in associate companies under the form of joint control
The interests of the Group in jointly-controlled entities are consolidated using the proportional method, namely Hidrocantábrico.
The Group consolidates its proportion of costs and revenues, of the assets and liabilities and of the cash flows of the joint
undertakings on a line-by-line basis with the respective similar components of the Group’s financial statements.
F-7
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Shareholdings in associated companies

Investments in associated companies are carried at the value resulting from the application of the equity method criteria. The
differentials attributed by way of fair values are addicionally considered. In accordance with this method, the consolidated
financial statements include the Group’s share of the total gains and losses recognised from the date on which significant
influence begins up to the date on which it actually ends. Associates are entities in which the Group holds between 20% and
50% of the voting rights, or over which the Group has significant influence, although cannot exercise control over them.
Unrealised gains or losses on transactions between the Group and its associates are eliminated.
The Group’s investment in associates includes goodwill (net of accumulated amortisation) on the acquisition. When the share of
the losses of an associate exceeds the investment in the associate, the Group recognises additional losses, if the Group shall have
to incur in additional liabilities in benefit of the associate.

Shareholdings in subsidiaries resident abroad

In the consolidation, the value of assets and liabilities of subsidiaries resident abroad are recorded at their value in euros
translated at the official exchange rates ruling on the balance sheet date. The results of the subsidiaries are consolidated using
their value in euros at the average monthly exchange rate for the year. Currency differences resulting from translation into euros
of the balance sheet at the beginning of the year and of the results of the year, at the official exchange rate ruling on the balance
sheet date, are recorded against reserves.

Goodwill
The Goodwill arising from the acquisition of shareholdings in subsidiaries and associates is defined as the difference between
cost and the proportional fair value of the assets acquired. Positive Goodwill is recorded under intangible assets and amortized
over the estimated useful life, usually of 20 years. Negative Goodwill is recorded in the same way, unless it can be attributed to
future losses or to items of fixed assets. The value of the Goodwill carried on the balance sheet, as an intangible fixed asset, is
reviewed annually, and adjustments are made in respect of permanent loss of value as necessary.

Concession rights in Brazil (investments in Bandeirante, Escelsa and Enersul)

The Concession rights in Brazil, namely the investments in Bandeirante, Escelsa and Enersul, are the result of the application of
calculations and methodologies identical to those of the Goodwill, that is, the difference between the cost and the proportional
fair value of the assets acquired. Concession rights are recorded under intangible fixed assets and are amortized over the useful
life of the concession, usually of 30 years.
d) Investments – Implementation by the EDP Group of International Accounting Standard 39 to financial instruments
Departing from accounting principles generally accepted in Portugal, the EDP Group has made early implementation of
“International Accounting Standard 39 - Recognition and Measurement of financial instruments” during fiscal year of 2003,
having calculated the retroactive effects as to December 31, 2002. Consequently, the EDP Group classifies its investments in
accordance with this international accounting standard, particularly with regard to the types of financial instruments and their
recognition and measurement, carrying them under the following categories of financial assets: Trading; Held to maturity; and
Available for sale. The classification depends on the purpose for which the investments were acquired.
The Board of Directors determines the classification of these investments on the date of acquisition and re-assesses this
classification on a regular basis.
Trading account securities
Investments acquired primarily for the purpose of being traded in the very short term are classified as Trading Securities and are
recorded as current assets. For the purpose of these consolidated financial statements, short term is defined as 3 months.
Realized and unrealized gains and losses caused by changes to the fair value of trading securities are recorded in the profit and
loss account during the period in which they occur.

Medium and long-term investment portfolio (investment securities available for sale)
Investments expected to be held for an undetermined period of time and that can be sold to meet liquidity requirements or in the
event of changes to interest rates, are classified as Available for sale under non-current assets, unless the board of directors has
the express intention of holding the investments during a period of less than 12 months from the balance sheet date or if there is
a need to sell them to generate operating capital, in which case they are carried under current assets. Acquisition cost includes
transaction costs. Investments available for sale are accounted at their fair value.
Unrealised gains and losses caused by changes to the fair value of investments classified as available for sale are recognised
against reserves. The fair value of investments is based on the listed prices or on amounts derived from cash-flow models. The
fair values of unlisted shareholders’ equity instruments are estimated using applicable price/earnings or price/cash-flow ratios,
adjusted to reflect any specific circumstances of the securities’ issuers. Shares for which fair values cannot be reliably measured
are recognised at cost less impairment losses.
When instruments classified as available for sale are sold or subject to impairment losses, the cumulative adjustments of fair
value are accounted in the profit and loss account as gains or losses.
F-8
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

e) Impairment of long-term assets

In addition to implementation of IAS 39, the EDP Group has implemented IAS 36, which deals with impairments. Tangible
fixed assets and other non-current assets, including goodwill, concession rights and intangible fixed assets, are subject to annual
review to determine the existence or otherwise of impairment when events or circumstances indicate that their carrying amount
cannot be recovered. An impairment loss is recognised for the excess of the carrying amount of an asset over its recoverable
amount, which is defined as the greater of the net value of the sale of the asset and its value in use. For the evaluation of possible
impairment, assets are grouped together in the smallest identifiable group of assets generating separate cash flows.

f) Assets and liabilities expressed in foreign currencies

All assets and liabilities expressed in foreign currency have been translated into euros using the exchange rate ruling on the
balance sheet date. Favourable and unfavourable currency translation differences caused by differences between the exchange
rate ruling on the date of the transaction and those ruling on the collection, payment or balance sheet date are recorded as gains
or losses in the profit and loss account.

g) Tangible fixed assets

Fixed assets owned by the Group
Tangible fixed assets, except those assets existing at the time of the split of EDP in 1994, which are carried at the amounts
resulting from the valuation undertaken in 1992, are recorded at cost (acquisition or construction), net of accumulated
depreciation. Fixed assets include financial costs and currency translation differences capitalised during the construction stage,
resulting from loans taken out to finance them, as well as overheads.
Fixed assets contributed in kind/cash by third parties are amortized on the same basis and at the same rates as the Group’s other
fixed assets, the respective counter costs compensated in extraordinary income, by the straight-line amortisation of such
compensation (recorded under Accruals & Deferrals - Investment Subsidies) on the same basis and at the same rates as the
respective contributed fixed assets. Current fixed asset repair and maintenance costs are considered costs for the year in which
they are incurred. Expenditures on major repairs and improvements are treated as deferred costs and are amortised over a
maximum period of 6 years.
The depreciation and amortisation rates are calculated on the straight-line basis taking into consideration the useful life of each
type of fixed assets analysed as follows:
Rates in
Years

Buildings and related improvements 8-50

Plant, machinery and equipment:
Hydroelectric generation 32-60
Thermoelectric generation 25-30
Renewables generation 30
Distribution 10-30
Other plant and equipment 5-10
Transport equipment 4-25
Administrative equipment 4-10
Other fixed assets 10-25
Fixed assets allocated to the EDP Distribuição concessions
Under the terms of Decree-Law 344-B/82, as mentioned in note 1, low-tension electricity distribution concessions do not
involve the sale of the assets of the concessor municipalities, which remain their property, without prejudice to their allocation
to operation by the Group. In accordance with the foregoing, the fixed assets allocated to the concession are carried under
tangible fixed assets, with a contra entry under medium-and long-term liabilities (Other Debtors and Creditors - DL 344-B/82
Regularisation Account).
The amounts of these fixed assets are carried at the costs arising from the valuation made in 1992, net of accumulated
depreciation. The fixed assets allocated to the concession are amortised on the same basis and at the same rates as those of the
Company’s own fixed assets, the respective cost being compensated under extraordinary income (Note 27), by the reduction, on
an equal amount, of the liability towards Municipalities carried under liabilities. The Group is responsible for the maintenance
and repair of these fixed assets during the life of the concession contract, the costs being recorded in the same basis with those of
the Group’s own fixed assets.
Multipurpose Hydroelectric Plants of Companhia Portuguesa de Produção de Electricidade (CPPE)
Multipurpose Hydroelectric Plants correspond to that part of the hydroelectric power stations built by the Group that is used for
sundry purposes that do not lie within the scope of its electricity generating business (irrigation, water supplies to the population,
etc.), and for this reason they are subsidised by the State. These fixed assets are carried at construction cost, which includes
overheads, as indicated for the Group’s own fixed assets. These fixed assets are not amortised. The value attributed to the
investment for which the State is responsible in multipurpose hydroelectric plants has been determined by application of
provisional percentages to the accumulated direct costs of these facilities. Part funding received from State in respect of these
facilities is carried under medium-and long-term liabilities.
F-9
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

h) Financial investments in properties

Financial investments in Properties are carried at the amount of the valuation undertaken during 1992, the difference between
this and historic costs have been recorded under revaluation reserves. These investments are amortised over the useful life of the
property.

i) Intangible fixed assets

Excluding the goodwill and the concession rights in Brazil balances, intangible fixed assets include set-up costs, research and
development costs, and intellectual property and other rights. These balances are amortized using the straight-line method over a
period of three to six years.
Those investments that increase the performance of software programs over and above their original specifications are added to
the original cost of the software. Software development costs recognised as assets are amortised using the straight-line method
over their useful life, generally 3 to 6 years. The Group’s major corporate, information and managements IT systems developed
on SAP platforms are amortised using the straight-line method over their useful life of 10 years.

j) Deferred costs
Deferred costs stated within other assets in the accompanying balance sheet, include amounts incurred in connection with the
issuance of long term debt and major repairs and improvements to fixed assets. Debt issuance costs are amortized over the term
of the bonds or long term debt. Costs for major repairs and improvements are amortized over a maximum period of six years.

k) Inventories
Stocks are carried at cost or at market price if less than cost, warehouse outgoings (consumption) are valued at average cost.

l) Recognition of costs and revenues

Costs and revenues are recorded during the year to which they relate regardless of when paid or received. Differences between
amounts received and paid and the corresponding revenue and expenditure are recorded under accruals and deferrals. Revenues
comprises the amounts invoiced on the sale of products or of services provided, net of value added tax, rebates and discounts,
after elimination of intra-group sales. The invoicing of electricity sales is undertaken on a monthly basis. Monthly electricity
invoices are based on real meter reading or on estimated consumptions based on the historic data of each consumer. In Portugal
ERSE establishes the SEP electricity tariffs.
Revenues from the telecommunications businesses are recorded in the period which they occured. These services are billed
monthly and invoiced based on real meter reading or on estimated consumptions based on actual traffic.
Interest earned is recognised using the accrual accounting principle, taking into account the amount owed and the real interest-
rate during the period to maturity. Dividends are recognised based on a cash basis.

m) Accounts receivable
Accounts receivable are recorded at their net realisable amount, considering the necessary provisions for doubtful debt. These
provisions are quantified and recorded based of the valuation of estimated losses from non-collection of accounts receivable at
the end of each year.

n) Liabilities for holiday pay and holiday subsidies

The amount of liabilities for holiday pay and holiday subsidies and the respective Social Security charges for the current year,
payable in the following year, are recorded as costs of the current year, against accrued costs.
o) Social benefits extended to EDP Group employees
The Group records costs resulting from pensions and associated charges in accordance with the IAS 19, replacing the
Portuguese Accounting Directive 19, that results from the adoption to Portuguese law of the earlier version of IAS19. Social
benefits are detailed in Note 18 to the consolidated financial statements, as is the quantification of the effects of such alteration.
EDP and some of its subsidiaries have a commitment to supplement retirement and survivors’ pensions to the extent that these
are not covered by the government’s social security plan. Employees may apply for early retirement, subject to certain
conditions relating to applicable regulations namely pre-defined age and length of service requirements being met.
Pension costs for defined benefit plans are recorded using the projected unit credit method. Under this method, the cost of
providing pensions is charged to the profit and loss account to spread the regular cost over the service lives of employees in
accordance with the advice of qualified actuaries who carry out a full valuation of the plans every year. The pension obligation
is measured as the present value of the estimated future cash outflows using interest rates of government securities that have
terms to maturity approximating the terms of the related liability. Pension costs for defined contribution plans are expensed to
income as incurred.
Wherever post-retirement medical assistance is also provided to retirees, the entitlement to these benefits is usually based on the
employee remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of
employment, using an accounting method similar to that for defined benefit pension plans. Independent qualified actuaries
perform valuations of these obligations.
The assets of these plans are held in separate trustee-administered funds. The pension plans are generally funded by payments
from the relevant Group companies, taking into account the recommendations of the independent qualified actuaries.
F-10
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

p) Hydrological correction account

The hydrological correction account constitutes a legally mandated mechanism for compensating the variable costs of electric-
power generation. In low rainfall years, the thermoelectric generating system is over-utilized and consequently, expenditure on
fuel and electricity imports increases substantially. In years with abundant rainfall the opposite occurs. Tariffs can not be
modified to take into account the changes in variable costs incurred resulting from hydrological conditions. In this context and
with a view to avoiding major distortions in operating results due to favorable or unfavorable hydrological conditions, the
hydrological correction account is adjusted upwards or downwards based upon average hydrological conditions.
The annual changes in the hydrological correction account consist of the following:
• the difference between the economic costs of generating electricity and the economic reference costs is charged to REN for
inclusion in the Binding Sector costs (prior to June 2000 this difference was charged to the income statement);
• a financial charge associated with the hydrological correction account’s accumulated balance;
• an adjustment, which may be either an income or an expense item, corresponding to the amount necessary to make the
expected balance, in a time scale of 10 years, equal to an adequate reference level.
The amount of the accumulated balance and the movements during the year are approved by the Government on an annual basis.
q) Own work capitalized
Using specific criteria, costs incurred by the Group (essentially materials, staff costs and financial charges) in the construction of
fixed assets on a cost-plus basis, which are recorded in the profit and loss account by nature of expense, are included under fixed
assets with a contra entry in this account.

r) Treasury stock
The EDP Group periodically acquires own shares mainly to satisfy obligations in connection with Company stock option plans.
Shares acquired are recorded at acquisition cost.
s) Dividends payable
Dividends payable are recorded in the Group’s financial statements during the year in which they are approved by the
shareholders of the parent company – EDP, S.A.
t) Statements of cash flows
The statements of cash flows are prepared using the direct and indirect methods.
Cash and cash equivalents presented on the balance sheets represent highly liquid investments purchased with original maturities
of three months or less. Cash and equivalents in the statements of cash flows include cash and cash equivalents, net of bank
overdrafts.
u) Taxation
Income tax is calculated on the basis of the taxable income of companies included in the consolidation and considers deferred
taxation. Deferred taxes are calculated, using the balance sheet liability method, on the temporary differences between the book
values of assets and liabilities and their respective taxable bases.
The taxable base of assets and liabilities is determined so as to reflect the consequences of taxation resulting from the way in
which the company expects, on the balance sheet date, to recover or to pay the recorded amount of its assets and liabilities. In
determining deferred tax, the rate in effect or substantially activated on the balance sheet date in used. Recognised deferred tax
assets are reduced to the recoverable amount that can be conpensated against future expected profits.
3. Financial-risk management policies
Financial-risk management
The businesses of the EDP Group are exposed to a variety of financial risks, including the effects of changes to market prices,
exchange rates and interest rates. The Group’s exposure to financial risks lies essentially in its debt and derivatives portfolio,
arising from the interest-rate risk, the exchange-rate risk and, to a limited extent, the risk of non-compliance by the counterparty
in each operation.
F-11
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The maturity of the financial markets is analysed on an ongoing basis in accordance with the Group’s risk management policy.
To minimise potential adverse effects on its financial performance, interest-rate and/or exchange-rate and derivatives
instruments are employed, including collars (floors and caps).
The management of the financial risks of EDP, SA, and of EDP Finance, B.V. (and other entities) are undertaken by the central
treasury in accordance with policies approved by the board of directors. Central treasury identifies, evaluates and submits to the
Board for approval hedging mechanisms appropriate to each exposure. The board of directors is responsible for the definition of
general risk-management principles and of exposure limits. All transactions undertaken using derivatives instruments require the
prior approval of the board of directors, which defines the parameters of each transaction and approves formal documents
describing the objectives.

Exchange-rate risk management

The Group operates internationally and is exposed to exchange-rate risk resulting from exposure to various currencies, mainly
U.S. dollars and Brazilian reais. Currently, the exposure to the USD/EUR currency fluctuation risk results from the Brazilian
companies that have financial debt expressed in US dollars. Debt contracted by the holding company is fully denominated in
euros. Bonds issued by EDP Finance BV under the Medium Term Notes Programme in JPY and GBP are immediately
converted into euros on the date of issue and to floating interest-rates through exchange-rate and interest-rate derivatives.
Central Treasury is responsible for monitoring the evolution of the currencies referred above, seeking to mitigate the impact of
currency fluctuations on the financial costs of the Group companies and, consequently on consolidated net profit, using
exchange-rate derivatives and/or other hedging instruments, and restructuring these debts if required.
The Brazilian subsidiaries exposed to USD/BRL currency fluctuation through their debt in U.S. dollars use forward rate
agreements and currency swaps to hedge this risk. Additionally, investments in the Brazilian subsidiaries, whose net assets are
exposed to exchange-rate risks, are monitored through analysis of the evolution of the BRL/EUR exchange-rate. Given the long-
term nature of investments in the Brazilian subsidiaries, the Group has decided not to use financial instruments to hedge the
exchange-rate risk inherent to the investment in these subsidiaries. This position is further strengthened by the short-term nature
of the exchange-rate fluctuations that have been seen. Nevertheless, these investment positions are duly monitored, taking into
consideration the evolution of the respective exchange rates.
The policy implemented by the EDP Group consists of undertaking derivatives operations for the purpose of hedging risks with
characteristics similar to those of hedged liability. The operations are monitored throughout their useful life and, periodically,
their effectiveness in controlling and hedging the risk that gave rise to them is evaluated. At the same time, these operations are
revalued to market on an ongoing basis.

Interest-rate risk management

The Group’s operating and financing cash flows are substantially independent from fluctuation of the interest-rate markets. The
Group has no substantial volume of interest-earning assets. The aims of the interest-rate risk management policies are: i) to
reduce debt financial charges and, subsequently; ii) to immunise the cash flows from debt market fluctuations by the settlement
of derivatives instruments to fix the debt rates (swaps and caps), taking into consideration a comfortable margin compared with
its regulated operating cash flows. Therefore, in floating-rate financing, the Group settles interest-rate instruments and
derivatives to hedge cash flows associated with future interest payments, which have the effect of converting floating-interest
rate loans into fixed-interest rate loans. Long-term loans settled at fixed rates are, when appropriate, converted into floating rates
through interest-rate instruments and derivatives designed to reduce financial charges and to level them to market conditions. In
addition to these derivatives operations, more structured collar operations are settled, as necessary, to mitigate exposure of debt
cash flows to market rate fluctuations.
All these operations are undertaken on liabilities in the Group’s debt portfolio and mainly involve perfect hedging, through
matching the periodicity of payments/revenues between the operations and also considering their principal repayment profiles.
The Group has a portfolio of interest-rate derivatives with maturities between approximately 1 and 15 years, and does not intend
to cancel them before the date initially planned. The Group’s Central Treasury undertakes sensitivity analyses of the fair value
of financial instruments to interest-rate fluctuations.

Counter party credit-rate risk management in financial transactions

The EDP Group policy in terms of the counter party risk of financial transactions is governed by an analysis of the technical
capacity, competitiveness, credit notation and exposure of each counter-party, avoiding significant concentrations of credit risks.
Counter parties in derivatives and financial transactions are restricted to high-quality credit institutions, therefore, the Group
does not believe that there is significant risk of counter party non-compliance. No collateral is required in these transactions.
The Group has adopted the best market practices in respect of documentation of its financial transactions. To this end, all
derivatives operations are contracted under the ISDA Master Agreements, and bond issues are undertaken under a Debt
Instrument Issue Programme. Regarding the third-party debt generated by the Group’s day-to-day business, the credit risks arise
essentially from the legal obligation of providing continuous low-tension electricity to municipalities that normally incur delays
insofar as payment is concerned. This risk is considered to be mitigated by the large number of customers and their diversity in
terms of sectors of activity and by the large volume of residential customers.

Liquidity risk
The EDP Group undertakes prudent management of the liquidity risk, contracting and maintaining credit lines and financing
facilities with a firm underwriting commitment by national and international financial institutions of high credit rating notation,
allowing immediate, flexible access to funds. These lines are used to complement and backup national and international
commercial paper programmes, allowing the Group’s short-term financing sources to be diversified.
F-12
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Accounting for financial instruments

The EDP Group implemented early “International Accounting Standard 39 Recognition and Measurement of Financial
Instruments”, or IAS 39, for fiscal year 2003, having calculated the retroactive effects from December 31, 2002. Consequently,
we classified our investments in accordance with this IAS 39, particularly with regard to the types of financial instruments and
their recognition and measurement, carrying them under the following categories of financial assets: trading, held to maturity
and available for sale. The classification depends on the purpose for which the investments were acquired. Our board of
directors determines the classification of these investments on the date of acquisition and re-assesses this classification on a
regular basis.
Changes in the fair value of derivatives identified as fair-value hedging instruments qualified as effective, are recognised as a
gain or loss and taken to the profit and loss account together with the changes in the fair value of the asset or liability for which
the hedging risk was attributed.
Changes in the fair value of derivatives identified and classified as cash-flow hedging instruments are recognised against
reserves. When the planned transaction or firm commitment leads to recognition of an asset or liability, the gains and losses
previously recorded against reserves are included in the initial measurement of the cost of the respective asset or liability. In any
other case, the amounts recorded against reserves are transferred to the profit and loss account and classified as income or
expense during the period in which the firm commitment or planned transaction impacted on the profit and loss account. For any
transaction which, despite economic hedging in accordance with the Group’s risk-management policies, is not classified as
hedging in accordance with IAS 39, the gains and losses are recognised in the profit and loss account during the period to which
they refer.
On the date on which the hedging instruments expires or is sold, or when the hedging transaction no longer meets the
requirements for hedge accounting in accordance with IAS 39, any cumulative gain or loss recorded against reserves is
maintained until such time as the planned transaction or firm commitment is recognised the profit and loss account. If the
planned transaction or firm commitment is no longer expected, the cumulative gain or loss reported against reserves is
transferred to the profit and loss account.
The hedging of a net investment in a foreign entity is recorded in a manner similar to cash-flow hedging. If the hedging
instrument is a derivative, any gain or loss on the hedging instrument in respect of the effective part of the hedge is recognised
against reserves. The gain or loss on the ineffective part is recognised immediately in the profit and loss account. However, if
the hedging instrument is not a derivative, all gains and losses on exchange-rate fluctuations are recognised against reserves.
To achive hedge accounting on the date of commencement of the transaction, the Group documents the relationship between the
hedging instrument and the hedged items, as well as the respective risk-management objectives and strategies underlying the
respective hedging transactions. This process includes the link between all derivatives identified as hedging instruments for
assets and liabilities or for specific transactions or firm commitments. The Group also documents in its evaluation, at the
inception of the hedge and during the life of the hedge, whether the derivatives used in the hedging transactions are highly
effective to compensate the fair value or the cash flows of the hedged items.

Estimate of the fair value of financial instruments

The fair value of derivatives traded on liquid markets and of assets available for sale is based on their listed prices on the
balance sheet date. The fair value of interest-rate swaps is calculated on the basis of the present value of future estimated cash
flows.
The estimated value of future cash flows is used to determine the fair value of other financial instruments. The book values of
financial assets and liabilities with a maturity of less than one year are assumed to be close to their fair values.
F-13
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

4. Cash and cash equivalents

The balance Cash and cash equivalents is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Cash:
- Cash in hand 20,375 1,427

20,375 1,427

Bank deposits:
- Current deposits 116,205 27,428
- Short term deposits 6,963 9,860

123,168 37,288

Negotiable securities:
- Other securities 56,291 92,691

56,291 92,691

Other treasury placements:

- Financial products at domestic banks 85,300 82,367
- Financial products at foreign banks 2,368 206

87,668 82,573

Provision (6) (6)

287,496 213,973

With reference to the consolidated statement of cash flows, the breakdown for the purpose of determination and detailing the Cash
and Cash equivalents components, is as follows:
Group

2003 2002
Euro’000 Euro’000

Cash components:
- Cash 20,375 1,427
- Bank deposits 123,168 37,288
- Negotiable securities 56,291 92,691

199,834 131,406

Cash equivalents:
- Other treasury securities 87,668 82,573
- Overdrafts (595,912) (621,238)

(508,244) (538,665)

Cash and cash equivalents (308,410) (407,259)

F-14
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

5. Accounts receivable - Trade, net

This balance Accounts receivable - Trade, net is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Resident customers:
State and official entities 36,234 29,353
Local authorities 31,041 32,652
Corporate sector and individuals 789,986 651,686
Unbilled receivables 85,193 106,227
Trade accounts - bills receivable 46 14

942,500 819,932

Non-resident customers:
Corporate sector and individuals 158,490 142,280

158,490 142,280

1,100,990 962,212

Doubtful debt 188,689 159,511

Provision for doubtful debt (181,615) (150,863)

1,108,064 970,860

6. Accounts receivable - Other, net

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Other accounts receivable - Short term / Current

State and other public entities:
- Income tax 73,398 —
- Value added tax 100,730 102,657
- Other taxes 5,647 17,762
Other related companies 1,178 —
Advances to suppliers 2,478 3,298
Other debtors:
- Account with the Pension Fund 12,120 12,075
- Performance bonds and tied deposits — 13,878
- Amounts owed to staff 8,536 7,092
- Amounts owed by the State and Concessors 6,879 9,523
- Debtors in respect of other goods and services 102,934 163,041
- Regulatory assets 51,732 51,062
- NAG/EDP Protocol - Alqueva 26,082 —
- Other debtors and sundry operations 7,344 136,724

399,058 517,112

Provision for short-term debtors (9,335) (13,901)

 389,723 503,211

Accrued income
- Interest receivable 193,234 137,575
- For sales and services provided 7,368 49,997
- From hydrological correction account — 16,113
- Other accrued income 61,518 33,647

262,120 237,332

651,843 740,543

F-15
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

7. Inventories
This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Merchandise 15,794 10,143

Purchases and advances on account of purchases 2,291 5,864
Finished and intermediate products 569 583
Products and work in progress 3,648 4,863
Sub-products, waste, residues and scrap 1,989
Raw and subsidiary materials and consumables:
Coal 24,920 38,827
Fuel 47,530 46,985
Other consumables 62,495 44,220

159,236 151,485
Provision for inventories — (1,180)

159,236 150,305

8. Long term receivables, net

The balance Long term receivables, net is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Trade accounts receivable - Medium and long-term / Non Current:

Resident customers:
Customers - Local government - Debt at December 31, 1988 (i) 181,689 185,343
Corporate sector and individuals 5,017 —
Trade accounts - bills receivable 413 —

187,119 185,343

Provision for local government customers at December 31, 1988 (101,322) (101,322)

85,797 84,021

Trade accounts receivable - Medium and long term / Non Current

Other related companies — 18,744
Other debtors:
- Fixed assets in compensated integration (ii) 9,270 19,246
- Regulatory assets (iii) 275,608 71,290
- Performance bonds and tied deposits 44,991 29,771
- Other debtors and sundry operations 20,176 49,933

350,045 188,984

Provision for medium-/long-term debtors - Non current — (12,421)

350,045 176,563

435,842 260,584
(i) The amount of this heading is shown net of the compensation of debits related to assets undergoing integration to be transferred
to the Group and of the rents owed by the Group on that date.
(ii) Compensated fixed assets undergoing integration correspond to the net amounts, on integration date, of the debts of local
authorities up to December 31, 1988, compensated by means of the respective assets undergoing integration (Tangible Fixed
Assets under the regime of Decree-law 344-B/82). The transfer of these amounts to tangible fixed assets is awaiting
formalisation of the concession contracts or debt regularisation protocols to be entered into by EDP and the local authorities.
(iii) The regulatory assets heading shows the costs associated with the 2003 Human Resources Rationalisation Plan, which were
accepted by the Energy Services Regulatory Entity as an investment amortizable over a period of 20 years, beginning in 2005.
F-16
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

9. Investments
This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Shareholdings
Subsidiary companies 1,305 202,518
Associate companies 441,449 483,295
Medium/long-term investments (available for sale) 1,293,517 1,314,863
Other companies 58,441 81,635

1,794,712 2,082,311

Investment in properties
Buildings and other constructions 1,417 536

1,417 536

Other financial investments

Bank deposits — 58
Public debt securities 19 19
Other securities 70,143 86,442
Other financial investments 4,029 5,085
Amounts recoverable for the sale of Oniway 39,667 70,000
Fixed assets in progress — 2

113,858 161,606

1,909,987 2,244,453

Provision for financial assets :

Shareholdings (285,790) (276,734)
Other financial investments (1,391) (1,391)

(287,181) (278,125)

Amortization of investment in properties (355) (344)

(355) (344)

(287,536) (278,469)

1,622,451 1,965,984

The financial investment in CERJ - Companhia de Electricidade do Estado do Rio de Janeiro SA, is carried net of the value of
Goodwill amortized up to the year 2000, until which time the EDP Group held significant influence allowing it to account for
the investment with the equity method. As of January 1, 2001, the EDP Group no longer holds such influence, holding since
then 11.27% of the share capital. In accordance with the Portuguese Official Plan of Accounts, under these circumstances the
equity method is no longer applicable, and the financial investment is therefore carried in the books as a cost method investment.
F-17
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The breakdown of Shareholdings is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Investment in subsidiary companies:

EDP Investimendos, Lda — 32,698
Calibre — 137,898
135 Participações — 3,093
Electra de Cabo Verde — 27,213
Other 1,305 1,616

1,305 202,518

Investment in associated companies:

DECA - Distribucion Eléctrica Centroamerica, SA 67,894 68,423
Companhia de Electricidade de Macau 65,129 —
REN - Rede Eléctrica Nacional, SA 254,223 236,366
Associated Companies of Hidrocantábrico Group 39,398 100,399
Portsines - Terminal de Sines 7,501 7,907
Turbogás - Produtora Energética 5,211 22,221
Other 2,093 47,979

441,449 483,295

Medium-/long-term investment (available for sale)

CERJ - Companhia Eléctrica do Estado Rio Janeiro 97,767 97,767
Iberdrola — 382,340
Galp, SGPS 328,211 322,566
BCP - Banco comercial Português 552,789 512,190
OPTEP (Optimus) 314,750 —

1,293,517 1,314,863

Investments in other companies:

Elcogás 2,166 2,166
Tagusparque 1,097 1,097
Tejo Energia, SA 4,988 4,988
Valor Sul 2,469 2,469
Efacec 3,566 3,566
EDA - Eléctrica dos Açores 6,891 6,891
Costa Rica Energética, Lda 2,073 2,509
Other 35,191 57,949

58,441 81,635

1,794,712 2,082,311

During the end of September 2003 and the beginning of October 2003, the EDP Group sold its entire shareholding in Iberdrola,
generating a book gain in the amount of Eur 17.8 million.
The Medium/long-term investments classified as investments available for sale, in the Group, results from the full
implementation from January 1, 2003, for the first time, by the EDP Group, of IAS 39: Recognition and Measurement of
Financial Instruments. Movements during the year, as well as the effects of this transition from the Portuguese accounting
standards from 2003, are reviewed in the following points.
The year’s movements under the Medium/long-term investments classified as available for sale, in the Group, are recorded in
the books as follows:
• Gains on the investments are added to their acquisition cost
• Provisions are set aside for losses on the investments, with a contra-entry against:
• profit and loss, in the case of non-temporary potential losses (impairment);
• reserves, in the case of potential temporary losses.
F-18
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
As at December 31, 2003, the breakdown of the Medium/long-term investments classified as available for sale in the Group is
analysed as follows:
Group

Carrying Market Unrealized Unrealized

value value gain loss
Euro’000 Euro’000 Euro’000 Euro’000

CERJ - Companhia Eléctrica do Estado Rio Janeiro 97,767 88,717 — (9,050)

Galp, SGPS 322,566 328,211 5,645 —
BCP - Banco comercial Português 552,789 277,149 — (275,640)
OPTEP (Optimus) 315,000 314,749 — (251)

1,288,122 1,008,826 5,645 (284,941)

As an immediate consequence of the full implementation by the EDP Group, for the first time, of IAS 39: Recognition and
Measurement of Financial Instruments, the Medium/long-term investments classified as investments available for sale in the
Group, includes booking of an asset consisting of the whole of the holding in OPTEP (whose assets included 25.72% of the
share capital of Optimus SA), and a liability of the EDP Group to the entity that acquired this asset in 2002, since there is with
the latter an agreement which includes an “adjustment mechanism of the selling price of Optimus/OPTEP”. Consequently, in
accordance with IAS 39, it cannot be classified as a definitive sale/commitment. In accordance with the international standard,
the assets sold in 2002 are recorded in full under assets, and the respective liability, also in full, and the price fluctuations are
recognized as ‘investments available for sale’ for as long as the referred clause remains in force up to March 22, 2005.
During 2003 the following changes took place to the consolidation structure of the EDP Group:
• In the wake of Hidrocantábrico (HC) taking control of 62% of the share capital of the Naturcorp Group, as a result of a
privatisation process finalised at the end of 2003, the Naturcorp Group was included in the accounts of the HC Group
using the purchase method, and consequently were included in the accounts of the EDP Group through the proportional
consolidation of the 40% held in the HC Group.
The impact of the acquisition of 62% of the Naturcorp Group by the Hidrocantábrico Group on the Consolidated Financial
Statements of EDP was as follows:
2003

40%
Naturcorp
Euro’000

ASSETS
Fixed assets 398,640
Investments 1,840
Accounts receivables 36,560
Cash and cash equivalents 14,440
Other assets 320

451,800

LIABILITIES
Provisions for contingencies and liabilities 5,840
Financial debt 6,960
Other liabilities 42,960

55,760

F-19
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
2003

40%
Naturcorp
Euro’000

PROFIT AND LOSS ACCOUNT

Sales 175,680
Cost of sales (122,160)

53,520

Personnel costs 6,200

Other costs (net) 8,520
Depreciation and provisions 11,760

26,480

27,040
Financial profit/(loss) (12,440)
Other non Operating income (expenses) 440

15,040
Income tax for the year 5,040

10,000

The movements in Provisions for Investments are analysed as follows:

Group

2003 2002
Euro’000 Euro’000

Provision for shareholdings:

Balance as at January 1 276,734 5,547
Charge for the year 8,585 2,213
Charge against reserves - Available for sale adjustments 15,967 268,974
Write-backs (15,496) —

Balance as at December 31 285,790 276,734

Provision for other financial placements:

Balance as at January 1 1,391 1,391

Balance as at December 31 1,391 1,391

287,181 278,125

The Subsidiary Companies fully consolidated at December 31, 2003, were as follows:
Shareholders’ Net
Equity Profit
Head Share capital 31-Dec-03 31-Dec-03 %
Subsidiary Companies office / Currency Euro’000 Euro’000 Group

Group’s parent holding company :

EDP, S.A. Lisbon 3 000 000 000 EUR 5,298,007 381,109 —
Electricity Business - Portugal :
Electricity Generation:
EDP Produção, S.A. Lisbon 1 250 000 000 EUR 1,906,280 328,522 100.00%
EDP Produção Bioeléctrica S.A. Lisbon 4 000 000 EUR 11,095 (2,057) 100.00%
CPPE, S.A. Lisbon 1 234 000 000 EUR 2,495,933 347,618 100.00%
TER, S.A. Lisbon 500 000 EUR 303 (164) 100.00%
Enernova, S.A. Lisbon 7 500 000 EUR 21,234 3,664 100.00%
EDP Cogeração, S.A. Lisbon 5 740 000 EUR 4,550 884 100.00%
Hidrocenel, S.A. Seia 45 500 000 EUR 56,255 2,975 100.00%
HDN, S.A. Braga 24 500 000 EUR 32,133 3,652 100.00%
O & M Serviços, S.A. Mortágua 500 000 EUR 848 232 60.00%
EDP Energia, S.A. Lisbon 50 100 200 EUR 86,959 14,477 100.00%
Hidrobasto Cabeceiras 100 000 EUR 100 (4) 60.00%
Hidrinor, SA Ponte de Lima 648 437 EUR 748 102 100.00%
Soporgen Lisbon 50 000 EUR 2,466 2,663 82.00%
Energin Azóia Lisbon 50 000 EUR (2,055) (2,106) 65.00%
F-20
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Shareholders’ Net
Equity Profit
Head Share capital 31-Dec-03 31-Dec-03 %
Subsidiary Companies office / Currency Euro’000 Euro’000 Group

Electricity Distribution:
EDP Distribuição, S.A. Lisbon 1 024 500 000 EUR 1,566,925 134,366 100.00%
Electricity Business - Brazil:
Electricity Generation:
EDP Lajeado, S.A. São Paulo 100 000 000 BRL 2,812 (22,250) 100.00%
Fafen Energia, S.A. Camaçari 62 501 000 BRL (625) (7,582) 79.60%
Enerpeixe, S.A. São Paulo 213 333 438 BRL 58,224 — 60.00%
Electricity Distribution:
Escelsa, S.A. Espirito Santo 153 946 942 BRL 103,120 48,288 54.76%
Enersul, S.A. Mato Grosso Sul 463 415 296 BRL 120,346 3,762 35.70%
Bandeirante Energia, S.A. São Paulo 254 628 684 BRL 195,437 26,925 96.50%
Telecommunications Business - Portugal:
ONITELECOM Lisbon 274 630 000 EUR 69,604 (58,104) 56.02%
ONI Multimédia, S.A. Lisbon 50 000 EUR (77,780) (25,500) 56.02%
U Call, S.A. Lisbon 50 000 EUR (55) (62) 73.61%
Autor, S.A. Aveiro 50 000 EUR (452) (408) 56.02%
ONI Madeira Funchal 50 000 EUR (78) (111) 39.21%
ONI Açores P.Delgada 250 000 EUR 425 229 33.61%
ONI Plataformas, S.A. Lisbon 50 000 EUR 47 (0) 56.02%
ONI Web Lisbon 50 000 EUR (9,263) (9,263) 56.02%
ONI Way Lisbon 300 000 000 EUR 5,810 (14,369) 56.02%
FCTE, S.A. Lisbon 500 000 EUR (258) (83) 44.82%
Telecomunications Business - Espanha :
Germinus XXI Madrid 4 112 749 EUR (3,219) (3,718) 79.77%
Intercom Internet Barcelona 3 017 EUR 3 (0) 100.00%
Ola Internet Madrid 405 010 EUR 781 1,636 100.00%
Information Technologies Business -
Portugal:
EDINFOR, S.A. Lisbon 17 000 000 EUR 53,962 (6,167) 100.00%
Onsource, S.A. Lisbon 1 250 000 EUR 1,525 30 57.77%
Case Edinfor II, S.A. Lisbon 500 000 EUR (658) (1,844) 57.77%
Netion, S.A. Lisbon 50 000 EUR 183 122 46.22%
Case Edinfor, ACE Lisbon 498 798 EUR 498 (0) 57.77%
Integer, S.A. Lisbon 250 000 EUR 695 (97) 57.77%
Inovis, S.A. Lisbon 50 000 EUR 344 23 57.77%
Consulteam, S.A. Lisbon 60 000 EUR (701) (700) 57.77%
ACEBENET, S.A. Lisbon 250 000 EUR 65 (382) 57.77%
ACE BI, S.A. Lisbon 250 000 EUR 200 (66) 57.77%
ACE Sistemas Comerciais, S.A. Lisbon 250 000 EUR 503 66 57.77%
ACE QS, S.A. Lisbon 250 000 EUR 387 22 57.77%
Sigmaplano, S.A. Lisbon 174 579 EUR 524 246 57.77%
Onalp, Lda Lisbon 5 000 EUR 14 6 57.77%
S- Tecno, S.A. Estoril 250 000 EUR (24) (69) 57.77%
Case, S.A. Lisbon 250 000 EUR 2,282 (3,083) 57.77%
Centralbiz, S.A. Oporto 50 000 EUR 9 (48) 57.77%
ACE Heathcare, S.A. Paço d’Arcos 200 000 EUR 137 (65) 43.62%
ACE Plus, S.A. Funchal 250 000 EUR (510) (753) 46.22%
PSI-DOC, S.A. Lisbon 150 000 EUR (111) (49) 57.77%
No Limits, S.A. Lisbon 250 000 EUR 414 83 40.44%
IT - LOG, S.A. Lisbon 1 000 000 EUR 3,889 1,846 100.00%
 IT - GEO, S.A. Lisbon 50 000 EUR 2,064 1,828 100.00%
Copidata, S.A. Odivelas 4 491 000 EUR 8,354 60 99.33%
Copidata, Lda, Odivelas 598 558 EUR 1,203 1 99.40%
Escritomática, Lda Odivelas 44 892 EUR 327 3 99.60%
Central-E, S.A. Lisbon 5 000 000 EUR (6,894) (2,915) 52.80%
Information Technologies Business -
Brazil:
ACE Sistemas Informação, Ltda São Paulo 1 871 713 BRL 196 5 57.77%
Edinfor Soluções Informáticas, Ltda São Paulo 2 783 497 BRL 2,439 (883) 100.00%
Information Technologies Business -
Mozambique:
ACESI, Ltda Maputo 200 000 000 MZM (193) 25 59.85%
F-21
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Shareholders’ Net
Equity Profit
Head Share capital 31-Dec-03 31-Dec-03 %
Subsidiary Companies office / Currency Euro’000 Euro’000 Group

Other :
EDP Produção EM, S.A. Oporto 2 250 000 EUR 6,412 1,636 100.00%
Tergen, S.A. Carregado 250 000 EUR 243 (5) 80.00%
Enerfin, S.A. Oporto 50 000 EUR (15) (19) 74.88%
HIDROEM, SA Oporto 1 000 000 EUR 308 73 100.00%
HIDRORUMO, SA Oporto 2 800 000 EUR 6,110 325 100.00%
EDP Energia Ibérica, SA Madrid 60 200 EUR (514) (573) 100.00%
EDP Valor, S.A. Lisbon 4 550 000 EUR 7,136 635 100.00%
EDP Serviços, S.A. Lisbon 750 000 EUR 479 (360) 100.00%
MRH, S.A. Lisbon 750 000 EUR (505) (1,117) 100.00%
Sãvida, S.A. Lisbon 450 000 EUR 1,781 942 100.00%
SCS, S.A. Lisbon 50 000 EUR (629) (699) 100.00%
EDP Imobiliária, S.A. Lisbon 5 000 000 EUR 6,167 (717) 100.00%
EDIPOMBAL, S.A. Lisbon 750 000 EUR 2,994 (28) 100.00%
ONI S.G.P.S. Lisbon 400 119 796 EUR (132,764) (133,626) 56.02%
TLD Vigo 1 235 092 EUR (25,616) (3) 56.02%
Comunitel Global, S.A. Vigo 52 031 843 EUR 8,861 (18,867) 55.98%
ACE S.G.P.S. Lisbon 11 683 383 EUR 7,254 (9,395) 57.77%
ACE Consulting, Ltda Luanda 45 000 EUR (537) (188) 71.84%
ACE Global, S.A. Lisbon 250 000 EUR (2,443) (2,950) 57.77%
Primitiva, S.A. Lisbon 87 097 EUR 345 150 57.77%
Case Internacional, Lda Funchal 5 000 EUR (132) 11 100.00%
Mecaresopre, S.A. Lisbon 150 000 EUR 390 45 80.00%
EDP Águas, S.A. Lisbon 5 000 000 EUR 7,362 (116) 100.00%
Valorágua, S.A. Lisbon 2 500 000 EUR 1,598 42 100.00%
EDP Estudos e Consultadoria, S.A. Lisbon 50 000 EUR 82 22 100.00%
EDP Serviner, S.A. Lisbon 50 000 EUR 922 686 100.00%
Edalpro, Lda Lisbon 748 197 EUR 1,728 353 100.00%
Labelec, S.A. Sacavém 2 200 000 EUR 6,481 2,126 100.00%
EDP Participações S.G.P.S. Lisbon 125 000 000 EUR 1,033,566 37,875 100.00%
Balwerk, Lda Lisbon 5 000 EUR (204,710) (19,988) 100.00%
EDP Internacional S.G.P.S Lisbon 37 500 000 EUR 817,386 (24,408) 100.00%
EDP Brasil S.A. São Paulo 1 303 839 767 BRL 347,798 (42,872) 100.00%
Internel, S.A. Lisbon 50 000 EUR 498 (231) 100.00%
Fundo Aphelion Cayman Islands 752 290 071 USD 498,592 (205) 100.00%
Iven, S.A. São Paulo 322 334 857 BRL 56,044 24,230 100.00%
Magistra, S.A. São Paulo 668 482 734 BRL 176,963 6,006 54.76%
Enercorp, Ltda São Paulo 4 035 000 BRL 708 (1,126) 100.00%
Enertrade, S.A. São Paulo 23 047 514 BRL 5,412 1,429 100.00%
Energest, S.A. São Paulo 46 242 339 BRL (3) (3,214) 100.00%
Enercouto, S.A. São Paulo 1 000 BRL — — 99.90%
EDP Finance BV Amsterdam 20 000 EUR (35,519) (20,942) 100.00%
EDP Irlanda Dublin 1 000 000 EUR 659 (61) 100.00%
EDP - Investimentos, Lda Macau 200 000 MOP 41,552 9,035 99.00%
The Associated Companies included in the consolidation using the proportional consolidation method as at December 31, 2003,
were as follows:
Shareholders’ Net
Equity Profit
Head Share capital 31-Dec-03 31-Dec-03 %
Associated Companies office / Currency Euro’000 Euro’000 Group

Investco S.A. São Paulo. Brazil 665 643 638 BRL 171,264 (2,518) 27.65%
Hidroeléctrica Del Cantábrico S.A. Oviedo. Spain 425 721 430 EUR 1,690,536 30,973 40.00%
Affinis S.A. Lisbon -Portugal 1 500 000 EUR 46 (489) 45.00%
F-22
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The Associated Companies included in the consolidation using the equity method as at December 31, 2003, were as follows:
Shareholders’ Net
Equity Profit
Head Share capital 31-Dec-03 31-Dec-03 %
Associated Companies office / Currency Euro’000 Euro’000 Group

REN S.A. Lisbon - Portugal 534 000 000 EUR 847,409 93,489 30.00%
Bioeléctrica SPA Pisa - Itália 2 998 775 EUR 484 (550) 24.00%
BIZFIRST S.A. Lisbon - Portugal 250 000 EUR (269) (301) 35.00%
Campos Envelopagem S.A. Palmela - Portugal 74 850 EUR 623 86 30.00%
Ecogen S.A. Loures - Portugal 100 000 EUR (303) (195) 34.99%
Portsines S.A. Sines - Portugal 10 000 000 EUR 17,431 (1,424) 39.60%
Geoterceira Açores - Portugal 1 000 000 EUR 564 (324) 49.90%
CEM S.A. Macau 580 000 000 MOP 249,104 44,704 21.19%
Carriço Cogeração, SA Vila Rei-Portugal 50 000 EUR 37 — 35.00%
Portábil, SA Lisbon - Portugal 1 125 000 EUR 1,320 69 35.00%
Turbogás, SA Oporto-Portugal 13 308 000 EUR 26,056 5,331 20.00%
LBC Tanquipor, SA Barreiro-Portugal 1 350 000 EUR 3,088 274 28.89%
Electra S.Vicente-
Cabo Verde 600 000 000 CVE (8,386) (4,975) 30.60%
DECA-II Guatemala 2 077 092 000 GTQ 65,339 2,554 21.00%
Eólica da Alagoa, SA Arcos Val.-Portugal 50 000 EUR 50 — 40.00%

10. Fixed assets

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Fixed assets under the Decree Law 344-B/82 regime 240,607 259,916
Land and natural resources 128,169 122,260
Buildings and other constructions 410,982 336,746
Plant and machinery:
Hydroelectric generation 6,952,258 6,936,948
Thermoelectric generation 3,405,254 3,446,991
Renewables generation 42,795 42,795
Electricity distribution 12,675,981 11,648,649
Other plant and machinery 714,415 417,636
Transport equipment 75,761 73,900
Office equipment and utensils 344,250 325,556
Other tangible fixed assets 22,393 17,486
Fixed assets in progress 1,187,302 1,022,066

26,200,167 24,650,949

Accumulated depreciation
Depreciation charges for the year (803,091) (706,106)
Other accumulated depreciation (13,745,477) (12,740,606)

(14,548,568) (13,446,712)

11,651,599 11,204,237

‘Tangible fixed assets under the Decree-Law 344-B/82 regime’ are those assets allocated to low-tension in electricity
distribution transferred from the local authorities under the concession regime. These assets, though operated by the Group,
continue to be the property of the local authorities and are accounted as follows:
Group

2003 2002
Euro’000 Euro’000

Fixed assets under the DL 344-B/82 regime 240,607 259,916

Accumulated depreciation (231,528) (243,265)

Net amount 9,079 16,651

F-23
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Part of these assets may be transferred to Group ownership by settlement, by offsetting accounts in respect of debts of the
respective municipalities (see Note 5) pending settlement.
Tangible fixed assets during 2003, for the Group, are analysed as follows:
Changes in
Balance Acquisitions Subsidiaries Balance
January 1st / Charge year Disposals Transfers / Other December 31st
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Cost :
Fixed assets under the DL
344-B/82 regime 259,916 — — — (19,309) 240,607
Land and natural resources 122,260 14 (179) 326 5,748 128,169
Buildings and other
constructions 336,746 709 (8,211) 28,656 53,082 410,982
Plant and machinery 22,493,019 126,178 (67,720) 395,141 844,085 23,790,703
Transport equipment 73,900 4,777 (7,457) 605 3,936 75,761
Office equipment and
utensils 325,556 8,133 (1,291) 92,867 (81,015) 344,250
Other tangible fixed assets 17,486 283 (40) 3,011 1,653 22,393
Fixed assets in progress 1,022,066 801,542 — (520,606) (115,700) 1,187,302

24,650,949 941,636 (84,898) — 692,480 26,200,167

Accumulated depreciation :
Fixed assets under the DL
344-B/82 regime 243,265 3,229 — — (14,966) 231,528
Buildings and other
constructions 143,317 9,703 (6,698) — 20,081 166,403
Plant and machinery 12,839,248 739,364 (55,701) — 388,662 13,911,573
Transport equipment 46,622 10,418 (5,656) — 3,148 54,532
Office equipment and
utensils 169,455 38,267 33 — (27,646) 180,109
Other tangible fixed assets 4,805 2,110 (24) — (2,468) 4,423

13,446,712 803,091 (68,046) — 366,811 14,548,568

The ‘Changes in Subsidiaries/Other’ column includes (i) adjustments to fair values arising from the economic revaluations of
the tangible fixed assets of Escelsa / Enersul performed during 2003 as part of the final purchase price allocation, (ii) exchange-
rate variations during the year, and (iii) the inclusion of the Naturcorp Group in the consolidation perimeter following
acquisition of control by the Hidrocantábrico Group in July 2003.
In accordance with the accounting criteria defined in Note 2, the following amounts of financing interest were capitalized during
the year under Fixed assets in progress:
Group

2003 2002
Euro’000 Euro’000

Electricity generation 6,166 10,215

Electricity distribution 7,701 5,269
Studies and projects 10,101 533

23,968 16,017

11. Other assets

The balance Other assets is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Intangible assets 950,182 1,657,085

Goodwill 899,514 186,034
Deferred taxes 609,338 545,979
Deferred costs 275,104 227,834

2,734,138 2,616,932

F-24
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The balance Intangible assets is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Intangible assets
Set-up costs 85,157 93,056
Research and development costs 103,302 140,434
Industrial property and other rights 158,057 145,355
Fixed assets in progress and other fixed assets 21,944 13,229
Other intangible assets on telecommunications business 40,209 —
Concession rights in Brazil and Spain 835,366 1,515,405

1,244,035 1,907,479

Accumulated amortization
Amortization of concession rights during the year (30,439) (42,359)
Amortization of intangible fixed assets during the year (42,501) (33,435)
Other accumulated amortization (220,913) (174,600)

(293,853) (250,394)

950,182 1,657,085

Intangible assets during 2003 are analysed as follows:

Changes in
Balance Acquisitions Subsidiaries Balance
January 1st / Charge year Disposals Transfers / Other December 31st
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Cost :
Set-up costs 93,056 1,633 — 2,976 (12,508) 85,157
Research and development
costs 140,434 968 (35,369) 10,347 (13,078) 103,302
Industrial property and
other rights 145,355 4,273 — 1,300 7,129 158,057
Fixed assets in progress and
other fixed assets 13,229 14,555 — (14,623) 8,783 21,944
Other intangible assets on
telecommunications
business — 40,209 — — — 40,209
Concession rights in Brazil
and Spain 1,515,405 — — (568,431) (111,608) 835,366

1,907,479 61,638 (35,369) (568,431) (121,282) 1,244,035

Accumulated amortization :
Set-up costs 50,471 15,145 (68) — (693) 64,855
Research and development
costs 35,502 17,294 (90) — (8,100) 44,606
Industrial property and
other rights 41,884 7,164 — — (16,672) 32,376
Other intangible assets on
telecommunications
business — 2,898 — — 11,673 14,571
 Concession rights in Brazil
and Spain 122,537 30,439 — (15,510) (21) 137,445

250,394 72,940 (158) (15,510) (13,813) 293,853

In the ‘Changes in subsidiaries/Other’ column includes the adjustments related to the Concession rights in Brazil, namely
arising from the fair values/economic revaluations of the tangible fixed assets of Escelsa / Enersul undertaken in 2003 as part of
the final purchase price allocation.
F-25
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The Concession rights heading, resulting from the difference between cost and the proportional fair value of the company’s
assets on the date of acquisition, is analysed as follows for the following acquisitions:
2003 2002

Net Accumulated Concession Net Accumulated Concession

Amount amortization Rights Amount amortization Rights
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Electricity Business - Spain

Hidrocantábrico
Group — — — 552,921 (15,510) 568,431
Electricity Business -
Brazil
Bandeirante
Energia 220,796 (54,483) 275,279 229,415 (45,648) 275,063
Escelsa /
Enersul 477,125 (82,962) 560,087 610,532 (61,379) 671,911

697,921 (137,445) 835,366 1,392,868 (122,537) 1,515,405

Amortization charges
for the year (30,439) (42,359)

On December 31, 2003, the Concession rights over Hidrocantábrico Group were transfered to Goodwill as a result of
incorporation and start-up of the new Iberian Electricity Open Market (Mibel).
The Concession rights over the Brazilian electricity distribution subsidiaries, particularly over Bandeirante Energia SA, Escelsa
- Espírito Santo Centrais Eléctricas SA, and Enersul - Empresa Energética do Mato Grosso do Sul SA, are amortized using the
straight-line method over the life of the concessions, up to 2025, 2030 and 2030 respectively.
As at December 31, 2003, by business area, the main Research and development projects are as follows:
Amount Accumulated Net
invested amortization Amount
Euro’000 Euro’000 Euro’000

Development projects by business area:

Electricity generation 18,175 (10,609) 7,566
Information technologies 8,475 (4,708) 3,767
Telecommunications 73,026 (28,467) 44,559
Other 3,626 (822) 2,804

103,302 (44,606) 58,696

As at December 31, 2003, the breakdown of the Industrial property and other rights assets, is as follows:
Amount Accumulated Net
invested amortization Amount
EDP Group Company Euro’000 Euro’000 Euro’000

Software licensing Brazil and Hidrocantábrico 47,397 (24,975) 22,422

Optic fibre usage rights ONI Telecom 108,932 (6,609) 102,323
Other Other companies 1,728 (792) 936

158,057 (32,376) 125,681

F-26
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The breakdown of Goodwill is as follows:
2003 2002

Net Accumulated Net Accumulated

Amount amortization Goodwill Amount amortization Goodwill
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Electricity Business
Hidrocantábrico
Group 706,357 (46,319) 752,676 — — —
Investco 2,050 (127) 2,177 1,767 (106) 1,873
Enerpeixe 1,625 (4) 1,629 — — —

710,032 (46,450) 756,482 1,767 (106) 1,873

Telecommunications Business
Comnexo 12,704 (8,399) 21,103 14,815 (6,288) 21,103
Comunitel Global 63,268 (22,889) 86,157 71,798 (14,359) 86,157
Other 11,394 (1,385) 12,779 11,580 (135) 11,715

87,366 (32,673) 120,039 98,193 (20,782) 118,975

Information Technology
Business
ACE, SGPS 50,017 (8,827) 58,844 52,960 (5,884) 58,844
Case Edinfor 2,528 (1,084) 3,612 2,890 (722) 3,612
Copidata 203 (3,861) 4,064 1,016 (3,048) 4,064
S-Tecno Serviços
TI 2,748 (1,178) 3,926 3,159 (767) 3,926
Other 6,399 (2,428) 8,827 7,313 (1,273) 8,586

61,895 (17,378) 79,273 67,338 (11,694) 79,032

Other Businesses
Affinis Serviços 12,036 (689) 12,725 12,672 (53) 12,725
Turbogás 17,266 (908) 18,174 — — —
Companhia
Electricidade
Macau 9,650 (6,893) 16,543 — — —
Other 1,269 (858) 2,127 6,064 (1,132) 7,196

40,221 (9,348) 49,569 18,736 (1,185) 19,921

899,514 (105,849) 1,005,363 186,034 (33,767) 219,801

Amortization charges for

the year (54,439) (23,072)

Goodwill in respect of subsidiary and associate companies is amortized using the straight-line method over the estimated useful
life (10 years in general, and 20 years for ACE, Affinis, Turbogás and Hidrocantábrico).
F-27
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
In respect of Deferred tax assets, the EDP Group records in its accounts the tax effect arising from temporary differences
between the assets and liabilities determined from an accounting standpoint and from a taxation standpoint, and this is broken
down by company as follows:
Deferred Tax Assets

2003 2002
Euro’000 Euro’000

Individual - EDP, SA 336,924 300,245

ONI Group 107,831 89,864
EDP Produção Group 1,037 —
EDP Brazil Group 131,707 143,140
Hidrocantábrico Group 12,814 12,524
EDP Finance BV 18,510 —
Other 515 206

EDP Group 609,338 545,979

The breakdown of Deferred Tax Assets is as follows:

Group
Euro ’000

Balance as at January 1, 2003 545,979

Profit and loss account charge:

Tax losses 14,023
Provisions 970
Depreciation 3,917
Book revaluations 12,692
Tariff adjsutments 1,181
Other 9,317

Charge for the year 42,100

Reserve’s charge:
Book revaluations 24,703
Other (3,444)

Charge against reserves 21,259

Balance as at December 31, 2003 609,338

The balance Deferred costs is analysed as follows:

Group

2003 2002
Euro’000 Euro’000

Deferred costs :
- Rents 1,771 5,309
- Expenditure on concessions 11,499 11,886
- Accrued maintenance 18,172 4,150
- Compensation of fuel costs 159,716 78,884
- Deferred retirement benefit obligation 50,993 62,330
- Advertising and propaganda costs 346 2,361
- Cost of negotiating loans (EIB) 24,537 29,012
- Discounts on bond issues 6,434 6,616
- Other deferred costs 1,636 27,286

275,104 227,834

F-28
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

12. Debt - Short and long term

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Short term loans - Current

Overdrafts :
- EDP, SA — 44,243
- ONI Group 592,298 571,519
- Other 3,614 5,476

595,912 621,238

Bank loans:
- EDP, SA 315,711 271,110
- ONI Group 51,395 2,534
- Brazil Group 225,530 222,556
- Hidrocantábrico Group 24,360 178,622
- EDP Finance BV 93,524 —
- Other 46,977 21,028

757,497 695,850

Bonds issued - Non convertible:

- EDP, SA 10,221 12,261
- EDP Finance BV 45,500 —

55,721 12,261

Commercial paper
- EDP, SA 170,000 557,684

170,000 557,684

1,579,130 1,887,033

Medium and long term loans - Non Current

Bank loans:
- EDP, SA 631,021 946,593
- ONI Group 41,732 48,000
- Brazil Group 237,662 328,873
- Hidrocantábrico Group 761,800 629,947
- EDP Finance BV 550,000 643,524
- Other 67,032 17,994

2,289,247 2,614,931

Bonds issued - Non convertible:

- EDP, SA 2,476,551 2,341,958
- EDP Finance BV 963,694 1,009,194
- Grupo Brazil 84,087 40,959

3,524,332 3,392,111
Commercial paper
- EDP, SA 100,000 100,000

100,000 100,000

5,913,579 6,107,042

7,492,709 7,994,075

F-29
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
As of December 31, 2003, the scheduled repayments of the long-term portion of the group’s debt was as follows:
Euro’000

2005 606,100
2006 924,600
2007 903,500
2008 721,900
2009 and following years 2,757,479

5,913,579

At the EDP, SA, level, the Group has short-term credit facilities in the sum of Eur 746 million, indexed to the Euribor rate for
the agreed period of use, with margin conditions agreed in advance, of which Eur 726 million have a firm underwriting
commitment. There is also a Eur 350 million commercial paper programme with guaranteed placement. As far as medium-term
credit facilities are concerned, Eur 700 million is available to EDP, SA, with a firm underwriting commitment, also indexed to
Euribor under previously agreed conditions. As at December 31, 2003, Eur 50 million had been used of the total credit facilities.
The bank loans in Brazil involve floating-rate interest on the real, mostly indexed to the CDI. On the other hand, bank loans in
euros are associated with floating-rate interest indexed to the three- or six-month Euribor rates.
The breakdown of Bonds issued as at December 31, 2003 is as follows:
Issue Interest Repayment/ Group
Issuer date rate conditions Euro’000

Issued by EDP, S.A.

EDP, SA 22nd
Issue May 30, 1996 Euribor 6 months - 0.10% (i) 20,636
EDP, SA 23rd
Issue Dec 20, 1996 Euribor 6 months - 0.125% (ii) 10,332
EDP, SA 24th
Issue Dec 22, 1997 Euribor 6 months + 0.10% (iii) 6,525
EDP, SA 25th
Issue Nov 23, 1998 Euribor 6 months + 0.225% (iv) 299,279
EDP, SA 26th
Issue Mar 26, 2003 Euribor 6 months + 0.5% On Mar 26, 2013 150,000

486,772

Issued by EDP within the ‘Euro Medium Term Notes Programme’

EDP, SA 1st
Issue Oct 29, 1999 Fixed rate EUR 6.40% On Oct 29, 2009 1,000,000
EDP, SA 2nd
Issue Mar 28, 2001 Fixed rate EUR 5.875% On Mar 28, 2011 1,000,000
EDP Finance BV
3rd Issue (*) Oct 29, 2001 JPY Libor 3 months + 0.20% On Oct 29, 2004 45,500
EDP Finance BV
4th Issue Nov 26, 2001 Coupon Zero On Nov 26, 2009 22,455
EDP Finance BV
5th Issue (*) Nov 28, 2001 Fixed rate JPY 0.70% On Nov 28, 2006 27,882
EDP Finance BV
6th Issue (*) Aug 9, 2002 Fixed rate GBP 6.625% On Aug 9, 2017 320,000
EDP Finance BV
7th Issue Dec 16, 2002 Fixed rate EUR 5.00% On Dec 16, 2008 500,000
EDP Finance BV
8th Issue Dec 23, 2002 Fixed rate EUR 2.661% On Dec 23, 2022 93,357
 3,009,194

Issued by Escelsa (Brazil) (International Bond)

Escelsa USD 430
Million (**) On Jul 28, 1997 Fixed rate USD 10.0% On Jul 15, 2007 58,041
Issued by Investco (Brazil) (Domestic bond)
Investco 1st Issue Nov 1, 2001 IGPM + 12.80% On Nov 1, 2011 19,721
Investco
(FINAM) Nov 14, 2003 TJLP + 4% On Nov 14, 2011 6,325

26,046

3,580,053

(i) : 4 annual payments beginning in June 2, 2003. It may be repaid early at the request of bondholders.
(ii) : 4 annual payments beginning in December 20, 2008. As from December 20, 2006 it may be repaid in part or in full at the
request of EDP to all the bondholders.
(iii) : 4 annual payments beginning in January 5, 2002.
(iv) : 6 semi-annual payments beginning in May 23, 2006.
(*) : These issues by EDP Finance BV have associated floating-interest-rate euro currency swaps.
(**) : The EDP Group holds 83% of the value of this issue in an intra-group portfolio, as a result of the international takeover
bid launched in 2002.
F-30
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The breakdown of Loans by maturity is as follows:
Group

2003 2002
Euro’000 Euro’000

Bank loans and overdrafts :

Up to 1 year 1,523,409 1,874,772
1 to 5 years 2,312,265 2,544,263
Over 5 years 76,982 170,668

3,912,656 4,589,703

Bond issues :
Up to 1 year 55,721 12,261
1 to 5 years 877,830 232,266
Over 5 years 2,646,502 3,159,845

3,580,053 3,404,372

7,492,709 7,994,075

The analysis of total debt by interest is as follows:

Group

2003 2002
Euro’000 Euro’000

Bonds and bank loans

Below 5% 5,491,216 —
5% to 7.5% — 1,512,084
7.5% and above 547,279 55,222
Variable rates (weighted average rate: 3.467% at 12/31/02; 2.845%
at 12/31/03) 588,302 5,147,921
Other debt
Commercial paper (weighted average rate: 3.212% at 12/31/02;
2.1629% at 12/31/03) 270,000 657,618
Bank overdrafts (4.2325% at 12/31/02; 3,38% at 12/31/03) 595,912 621,230

7,492,709 7,994,075

The breakdown of the fair value of the EDP Group’s debt, that is the market value of the debt, is as follows:
2003 2002

Carrying Market Carrying Market

Value Value Value Value
Euro’000 Euro’000 Euro’000 Euro’000

Short term loans - Current 1,579,130 1,579,130 1,887,033 1,887,033

Medium and long term loans - Non current 5,913,579 6,251,355 6,107,042 6,406,804

7,492,709 7,830,485 7,994,075 8,293,837

The market value of the medium/long-term loans is calculated on the basis of the cash flows discounted at the rates ruling on
December 31, 2003. In current short-term debt, the book value is considered to be the market value.
F-31
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

13. Accounts payable - Trade

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Short term creditors - Current

Suppliers 678,741 787,361
Supplies of fixed assets 103,885 230,393
Other — 817

782,626 1,018,571

14. Accounts payable - Other

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Other shareholders 10,541 10,443

Advances to customers 1,204 518
Other creditors
- Employees 20,625 —
- Supply of other goods and services 12,946 19,992
- Concession rents 6,690 6,477
- Creditors for collections 20,115 28,529
- For interest and financial credits 13,960 29,540
- INAG/EDP Protocol - Alqueva 35,893 —
- Other 6 19,302
- Corporate income tax (IRC) - payments by the holding company 123 —
- Other creditors and sundry operations 65,159 58,876

187,262 173,677

15. Accrued cost

The balance Accrued cost is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Accrued costs:
- Holiday pay, bonus and other charges 68,393 60,032
- Interest payable 121,874 169,371
- Other accrued costs 46,267 65,096

236,534 294,499

16. Taxes payables

This balance is analysed as follows:
 Group

2003 2002
Euro’000 Euro’000

State and other public entities:

- Income tax 173,924 9,081
- Withholding tax 11,686 8,415
- Social security contributions 11,359 10,542
- Value added tax 12,197 18,665
- Other taxes 59,937 3,049

269,103 49,752

F-32
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

17. Deferred revenue

The balance Deferred revenue is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Deferred revenue:
- Gains on sales to be realised — 70,072
- Equal Installment Account EDP Distribuição 101,096 —
- Other deferred revenue 134,668 24,783

235,764 94,855

18. Accrued pension and post retirement liabilities

The balance Accrued pension and retirement liabilities is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Defined benefit pension plan 149,636 211,543

Post retirement medical benefits 412,627 396,713

562,263 608,256

Some companies of the EDP Group grant their employees post-retirement benefits, both under the form of defined-benefit plans
and under the form of defined-contribution plans. These include pension benefits that pay complimentary old-age, disability and
surviving-relative pension complements, and also early retirement pensions. In some cases medical care is provided during the
period of retirement and of early retirement, through mechanisms complementary to those of the National Health Service.
The existing plans are presented hereunder, with a brief description of each and of the companies covered by them, as well as of
the economic and financial data.
I. Pension Plans - Defined-Benefit Type
In Portugal, the companies of the EDP Group resulting from the split of EDP in 1994 have defined benefits plan financed
through a closed Pension Fund, covered by a specific provision. This Pension Fund covers liabilities for retirement pension
benefits (old age, disability and surviving relative) as well as liabilities for early retirement.
In Brazil, Bandeirante has two defined-benefit plans managed by the CESP Foundation, a closed complementary welfare entity
with its own assets, segregated from those of the Sponsors (Bandeirante and other Brazilian electricity companies) with no
contributive solidarity:
• BD Plan in force up to March 31, 1998, a Balance Benefit Plan that grants Balanced Proportional Supplementary Benefit
(BSPS) in the form of an annuity payable to participants enrolled by March 31, 1998, of an amount defined in proportion to
past length of service accumulated by the reference date, based on compliance with regulatory granting requirements. The
company is liable in full for the cover of any actuarial insufficiencies of this Plan.
• BD Plan in force after March 31, 1998, which grants an annuity in proportion to the accumulated past length of service after
March 31, 1998, on the basis of 70% of the average actual monthly wage for the last 36 months in service. In the event of
death or disability caused by works accident, beneficiaries incorporate the whole of the past service (including that
accumulated up to March 31, 1998), not just the past service accumulated after March 31, 1998. The Company and the
participants equally share liability for the cover of the actuarial insufficiencies of this plan.
The change in benefit obligation of consolidated liabilities for past services linked to these pension plans has been as follows:
2003 2002

Portugal Brazil Group Portugal Brazil Group

 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Change in benefit obligation

Liabilities at the beginning of period 1,394,075 54,658 1,448,733 1,354,910 78,273 1,433,183
Cost of current services 11,193 1,047 12,240 11,977 1,243 13,220
Cost of Interest 78,843 6,006 84,849 83,123 5,703 88,826
Benefits paid (139,459) (1,516) (140,975) (142,738) (1,539) (144,277)
Actuarial losses 67,889 4,147 72,036 86,803 9,439 96,242
Currency fluctuation — 407 407 — (38,461) (38,461)

Liabilities at the end of the period 1,412,541 64,750 1,477,291 1,394,075 54,658 1,448,733

F-33
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
In calculating the liabilities inherent in these pension plans within the EDP Group the following financial and actuarial
assumptions were used:
2003 2002

Portugal Brazil Portugal Brazil

Euro’000 Euro’000 Euro’000 Euro’000

Assumptions
Rate of return of the Funds 5.70% 10.24% 6.50% 10.24%
Discount rate 5.20% 10.24% 6.00% 10.24%
Wage growth rate 3.30% 7.12% 3.30% 7.12%
Pension growth rate 2.25% 7.12% 2.25% 7.12%
Social Security wage
appreciation rate 2.00% 4.00% 2.00% 4.00%
Inflation rate 2.00% 4.00% 2.00% 5.00%
Mortality table TV 88/90 AT-49(qx) TV 73/77 AT-49(qx)
Disability table 50% EKV 80 Light-Average (ix) 50% EKV 80 Light-Average (ix)
Expected % of subscription by
employees eligible for early
retirement (a) Not applicable (a) Not applicable

(a) In 2002, 100% of the eligible population (employees entitled to early retirement in accordance with the Collective Bargaining
Agreement: 36 years service aged at least 60 or 40 years service of any age) and 70% of employees aged 55 or more. As from
2003, 40% of the eligible population.
As mentioned above, only part of the liabilities for the Pension Plan is financed through the Pension Funds, the remainder being
recognised in accordance with IAS 19, by means of a provision detailed hereunder:
2003 2002

Portugal Brazil Group Portugal Brazil Group

Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Provision for Pension Plans

Liabilities at the end of the
period 1,412,541 64,750 1,477,291 1,394,075 54,658 1,448,733
Fund assets at the end of
the period (785,147) (31,355) (816,502) (727,258) (22,687) (749,945)

Unfunded liabilities 627,394 33,395 660,789 666,817 31,971 698,788

Deferred actuarial losses
(i) (506,600) (4,553) (511,153) (474,033) (13,212) (487,245)

Value of the provision at

the end of the period 120,794 28,842 149,636 192,784 18,759 211,543

(i) The international accounting standards adopted by EDP allowed deferred actuarial gains/losses to be recognised systematically
in the statement of income for the year by amortising the amount that exceeded, in the previous year, 10% of the value of the
greater of the liabilities or assets of the Fund. Such amortisations are calculated for the period corresponding to the average
remaining length of service of the active population.
The components of consolidated net cost recognised during the period with these plans are as follows:
2003 2002

Portugal Brazil Group Portugal Brazil Group

Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Cost for the period

 Cost of the service 11,193 1,047 12,240 11,977 1,243 13,220
Cost of interest 78,843 6,006 84,849 83,123 5,703 88,826
Return on the Funds’ assets (44,286) (5,800) (50,086) (54,063) (1,968) (56,031)
Worker contributions — (552) (552) — (706) (706)
Amortization of deferred actuarial losses 25,718 — 25,718 17,045 — 17,045

Net cost for the period 71,468 701 72,169 58,082 4,272 62,354

F-34
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The plan assets of the Pension Funds was as follows
2003 2002

Portugal Brazil Group Portugal Brazil Group

Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Change in plan assets

Assets at the beginning of period 727,258 22,687 749,945 754,270 27,016 781,286
Group Contributions 54,340 3,947 58,287 48,596 4,073 52,669
Worker contributions — 552 552 — 706 706
Pensions paid during the period (50,340) (1,516) (51,856) (52,058) (1,539) (53,597)
Return of the Funds 44,286 5,800 50,086 54,063 1,968 56,031
Actuarial gains (losses) 9,603 (413) 9,190 (77,613) 4,846 (72,767)
Currency fluctuation — 297 297 — (14,383) (14,383)

Assets at the end of the period 785,147 31,355 816,502 727,258 22,687 749,945

The assets of the Pension Fund in Portugal are managed by four independent pension fund management companies of
recognised merit. As of December 31, 2003 the composition of and returns on the fund portfolio are as follows:
Allocation of assets by type

Cash Bonds Shares Real Estate Total

% % % % %

Break down of funds assets 5.6% 45.6% 23.7% 25.1% 100.0%

Effective return on investments 1.5% 2.4% 1.9% 5.7%
As a result of the fact that in accounting the costs of pensions and associated charges the EDP Group transposed the provisions
of IAS 19 earlier than required, derogating in this way and to this extent the provisions of Accounting Director of 19 – which
transposed to Portuguese accounting standards the earlier version of the international standard – we present hereunder the effects
and impacts on the said the derogation. In analysing the differences in this particular case, the EDP Group makes use of the
“corridor” method to recognise actuarial gains and losses, allowing deferral of their impact on results. This technique is one of
the options provided for in IAS 19 in paragraphs 92 and 93. Accounting Directive 19, on the contrary, imposes in this matter
recognition of actuarial losses and gains directly in results for the year in which they occur and does not accept the “corridor”
alternative or allow deferral of actuarial gains and losses in excess of the said “corridor”. It therefore imposes a systematic
method of immediate recognition in results.
II. Pension Plans - Defined Contribution Type
Hidrocantábrico in Spain and Bandeirante and Escelsa in Brazil have social benefits Defined-contribution plans that
complement those benefits granted by the Social Welfare Systems to the Group companies’ employees, under which they pay a
contribution to these plans each year, calculated in accordance with the rules established in each case.

III. Liability for Medical Care Plans - Defined Benefit Type

In Portugal, Group companies resulting from the split of EDP in 1994 have a Medical Care Plan of the defined-benefit type,
supported through a provision that covers the whole of these liabilities. The evolution of consolidated liabilities for past services
inherent in the EDP Group medical care plan has been as follows:
Group - Portugal

2003 2002
Euro’000 Euro’000

Change in benefit obligation

Liabilities at the beginning of the period 496,201 474,371
Cost of current services 5,942 6,540
Cost of interest 29,049 30,096
Benefits paid (24,099) (22,735)
Actuarial losses 153,162 7,929

Liabilities at the end of the period 660,255 496,201

F-35
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The following financial and actuarial assumptions were used in calculating the liabilities associated with this medical care plan:
Group - Portugal

2003 2002
Euro’000 Euro’000

Assumptions
Discount rate 5.20% 6.00%
Annual growth rate of medical services costs 4.5%(a) 4.5%(a)
Mortality table (b) (b)
Disability table (b) (b)
Expected % of subscription by employees eligible for early retirement (b) (b)

(a) 4.5% during the first 10 years and 4.0% during the remaining years
(b) As mentioned in the Pension Plan assumptions
As mentioned above, Medical Care Plan liabilities are recognised in the Group’s accounts through a provision, which is
presented below:
Group - Portugal

2003 2002
Euro’000 Euro’000

Provision for Medical Care Plans

Liabilities at the end of the period 660,255 496,200
Deferred actuarial losses (i) (247,628) (99,487)

Value of the provision at the end of the period 412,627 396,713

(i) The international accounting standards adopted by EDP allowed deferred actuarial gains/losses to be recognised systematically
in the statement of income through amortisation of the amount exceeding, in the previous year, 10% of the amount of the greater
of the liabilities or of the assets of the Fund. These amortisations are calculated for the period corresponding to the estimated
average remaining length of service of the active population.
The components of net consolidated cost recognised during period with this plan are as follows:
Group - Portugal

2003 2002
Euro’000 Euro’000

Cost for the period

Cost of the service 5,942 6,540
Cost of interest 29,049 30,096
Amortization of the deferred transitory obligation (i) 5,022 4,873

Net cost for the period 40,013 41,509

19. Deferred revenue and other liabilities

The balance Deferred revenue and other liabilities is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Subsidies for investment in fixed assets 1,546,101 1,339,085

Deferred taxes 616,056 344,122
Provision for financial assets 92,696 —
Provisions for other contingencies and liabilities 164,615 198,027
Concession fixed assets held - (Reg. DL 344-B/82) 9,079 16,650
State share in Multipurpose hydroelectric power stations 14,996 19,740
Reclassifications between headings of customers and other debtors 39,843 41,239
Recognition of liabilities on the sale of OPTEP in 2002 315,000 —
Supplies of fixed assets 74,618 —
Electricity tariff compensations in Brazil 35,013 —
Other creditors and sundry operations 54,393 49,150

2,962,410 2,008,013

F-36
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
As an immediate consequence of the full application by the EDP Group for the first time of IAS 39: Measurement and Recognition of
financial instruments, the Creditors – Medium/long-term heading of the Group, includes an entry of the EDP Group’s liability as a
result of the sale of 100% of the OPTEP/Optimus asset (see Note 7) in 2002, since there is an “Optimus/OPTEP selling price
adjustment mechanism” clause with the buyer, and consequently, in accordance with the IAS 39, it cannot be specified as a sale/firm
commitment. In accordance with the international standard, the asset sold in 2002 is carried in full under assets and the respective
liability, also in full, is carried under the Group’s liability, while price fluctuations are recognized as though the matter was one of
‘investments available for sale’ for as long as the said clause is in force until March 22, 2005.
In respect of Deferred tax liabilities, the EDP Group records in its accounts the tax effect arising from temporary differences
between the assets and liabilities determined from an accounting standpoint and from a taxation standpoint, and this is broken down
by company as follows:
Deferred Tax Liabilities

2003 2002
Euro’000 Euro’000

Individual - EDP, SA 474,839 285,789

ONI Group 719 779
EDP Brasil Group 103,066 25,132
Hidrocantábrico Group 37,432 32,422

EDP Group 616,056 344,122

The breakdown of Deferred Tax Liabilities is as follows:

Group
Euro ’000

Balance as at January 1, 2003 344,122

Profit and loss account charge:

Provisions 920
Depreciation (24,036)
Book revaluations (3,014)
Tariff deviation 23,579
Other 930

Charge for the year (1,621)

Reserve’s charge:
Revaluation of tangible fixed assets 220,050
Book revaluations 34,637
Other 18,868

Charge against reserves 273,555

Balance as at December 31, 2003 616,056

The movements in provisions for Financial Assets were as follows:

Group

2003 2002
Euro’000 Euro’000

Opening balance — —
Increases 114,695 —
Decreases (21,999) —

Closing balance 92,696 —

F-37
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The movements in provisions for Other Contingencies and Liabilities were as follows:
Group

2003 2002
Euro’000 Euro’000

Opening balance 198,027 147,601

Changes in subsidiaries — 77,527
Increases 39,978 3,972
Decreases (73,390) (31,073)

Closing balance 164,615 198,027

20. Minority interests

This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

ONI Group (89,141) (11,449)

Edinfor Group 3,222 7,090
Brazil Group 150,273 71,122
Hidrocantábrico Group 175,336 —
Other (3,205) (1,564)

236,485 65,199

21. Hydrological correction account

The balance Hydrological correction account is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Opening balance on January 1 324,111 387,506

Differential for the year. 71,916 (76,080)
Hydrological correction bonuses (19,350) —
Financial charges 10,829 12,685

Closing balance on December 31. 387,506 324,111

The Hydrological Correction Account is a mechanism that was legally instituted (Decree-Law 338/91) to compensate variable
electricity production costs. In dry years the thermoelectric system is overused and the spending on fuel or on the import of
electricity increases significantly. In wet years the situation is reversed. Electricity supply tariffs for the customers of the SEP
cannot be altered in the light of the cost fluctuations caused by the hydraulicity. In accordance with Order-in-Council 987/2000,
the hydrological correction account is assigned to the EDP accounts and, consequently, it is carried in an account under
liabilities in its balance sheet, and the corresponding movements for the year are detailed in the notes to the financial statements.
The annual amount of the hydrological correction is calculated in accordance with parameters established by law, and includes:
(i) The differential between the economic cost of electricity production and the reference economic cost, which is borne by REN
as the RNT concessionaire and sole manager of the hydrological correction account. EDP pays REN each month the positive
differentials and receives from REN the negative differentials. These payments and revenues are recorded with a contra entry in
the hydrological correction account;
(ii) the financial costs or income associated with the accumulated balance of this account constitute an EDP cost or income; (iii)
the part corresponding to the amount necessary to make the expected value of the balance, within 10 years, equal to an adequate
benchmark, when it reflects a debit to the hydrological correction account, constitutes EDP income, when it reflects a credit, the
REN is obliged to make the respective payment to EDP. The corresponding cost is included in the REN electricity-selling tariff
to the tied distribution company (EDP Distribuição), constituting a cost for the latter to be recovered through its customer selling
prices. Movements under the hydrological correction account are subject to approval by ministerial order.
F-38
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

22. Share capital

The share capital amounts to Euro 3 billion represented by 3,000,000,000 ordinary shares each of a par value of 1 euro, and is
fully paid-up.
The breakdown of the earnings per share (EPS) is as follows:
Group

2003 2002

Consolidated net profit in Euros 381,108,991 335,215,826

Average number of shares in the year 3,000,000,000 3,000,000,000

Net Profit per share - Basic - Euros 0.13 euros 0.11 euros

EDP, which began as a state-owned Company, was successively transformed into a sociedade anónima (limited liability
company under Portuguese law) wholly owned by the public sector and then into a sociedade anónima with a majority of its
share capital owned by the public sector. It is currently a sociedade anónima in whose share capital the State and other Public
Entities have a minority holding. The privatisation process began in 1997, and the second and third stages of the privatisation
took place in 1998 and the fourth stage in 2000, following which the State now holds about 30% of the share capital, directly
and indirectly.
The EDP Group calculates its basic and diluted earnings per share in accordance with IAS 33, under the terms of which earnings
per share are calculated using the weighted average of the shares issued during the reporting period.
23. Legal reserve
In accordance with article 295 of Companies Code and with the EDP articles of association, the Legal Reserve must be
increased by a minimum of 5% of the annual profits until such time as its value equals 20% of the company’s share capital. This
reserve may be used only to cover losses or to increase share capital.
24. Treasury stock
This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Book value of EDP, SA shares 49,020 43,494

Number of EDP SA shares 21,430,964 shares 17,428,926 shares

Market price of EDP, SA shares as at December 31 2.09 euros 1.59 euros

Market value of EDP, SA shares as at December 31 44,791 27,712

The treasury shares held by EDP, S.A., lie within the limits established by the Company’s articles of association and by the
Companies Code.
25. Reserves and retained earnings
This balance is analysed as follows:
Group

2003 2002
Euro’000 Euro’000

Legal reserves 326,391 309,631

Revaluation reserves 89,449 1,172,729
Other reserves and retained earnings 3,031,892 1,287,194
Fair-value adjustments of investments available for sale 10,756 (268,975)
Net profit 381,109 335,216
Currency translation arising on consolidation (572,500) (379,468)
Other reserves arising on consolidation (920,070) 81,349

2,347,027 2,537,676

F-39
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The balance of potential gains and losses on the balance sheet date in respect of investments available for sale is carried in a
specific account under shareholders’ equity, namely fair value adjustments. The breakdown of the movement during the year
under this heading in respect of Medium/Long-term investments classified as available for sale in the Group, impacting directly
in this account, is as follows :
Group

Gains Losses
Euro’000 Euro’000

Net balance of fair value adjustments as at January 1, 2003 — (268,975)

CERJ - Companhia Eléctrica do Estado Rio Janeiro — (9,050)

Iberdrola (cancellation due to sale) — 21,223
Galp, SGPS 5,644 —
Reclassification of the 2002 loss on BCP shares to retained earnings as a result of the
implementation in full of IAS 36 and 39 (see Note 39) — 247,750
BCP - Banco comercial Português — (27,889)
OPTEP (Optimus) 42,303 (250)

Balance of fair value adjustments as at December 31, 2003 47,947 (37,191)

Net balance of fair value adjustments as at December 31, 2003 10,756

The amount resulting from the fluctuation in local currency of the Shareholders’ Equity of the Subsidiary and Associate
Companies expressed in foreign currencies resulting from the fluctuation of the respective exchange rates is recorded under
Currency Translation arising on consolidation. The exchange rates used in the preparation of the Financial Statements are as
follows:
Exchange rates in 2003 Exchange rates in 2002

Rates Average Rates Average

Currency Closing exchange-rate Closing exchange-rate

American dollar USD 1.2630 1.1312 1.0487 0.9456

Brazilian Real BRL 3.6640 3.4590 3.7120 2.8010
Macao Pataca MOP 10.0990 9.0340 8.4000 7.5900
The contra entry of the adjustments made to the headings of tangible fixed assets and financial investments in properties caused
by the various revaluations undertaken, net of amounts used to increase the share capital and to cover retained losses, and the
corresponding deferred taxes are carried under Revaluation Reserves. These revaluations were undertaken pursuant to the
following legislation:

Decree-law no. 430/78 Decree-law no. 111/88

Decree-law no. 219/82 Decree-law no. 7/91
Decree-law no. 399-G/84 Decree-law no. 49/91
Decree-law no. 171/85 Decree-law no. 264/92
Decree-law no. 118-B/86
F-40
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Article 8 of Decree-Law 7/91, of January 8, which determined the formation of new sociedades anónimas constituted by means
of the simple split of EDP, called for the valuation of EDP’s assets, the valuation having been undertaken by entities selected
from among those previously qualified by the Finance Ministry for the purpose and subjected to the approval of the Finance
Minister. This evaluation, pursuant to Decree-Law 22/92 of February 14, is used for tax purposes, particularly with regard to the
calculation of depreciation charges for the year. The following is a comparison of the book value of the tangible fixed assets
with their respective historic costs:
2003 2002

Historic Revalued Historic Revalued

costs Revaluation amounts costs Revaluation amounts
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Gross assets 14,558,852 10,454,013 25,012,865 13,174,870 10,454,013 23,628,883

Depreciation (5,034,618) (9,513,950) (14,548,568) (4,124,019) (9,322,693) (13,446,712)

Net
assets 9,524,234 940,063 10,464,297 9,050,851 1,131,320 10,182,171

During fiscal 2003, of the overall amount of the revaluation reserve, (i) the sum of Eur 136,838,000 was constituted/transferred
by way of deferred taxes, and (ii) the sum of Eur 946,442,000 was transferred to retained earnings in respect of revalued assets
wholly depreciated and written off. Following these transfers, final amount of the Revaluation Reserve stood at Eur 89,449,000
as at December 31, 2003.
The reserves under Decrees-Law 46031 and 46914 – for Self-financing and for Complement of the Financial Amortization –
were set up in accordance with the provisions of loan contracts entered into with the International Bank for Reconstruction and
Development, the outstanding principal of which was repaid in full during 1991.

26. Revenues
The Revenues, with breakdown by Sales and Services rendered, and by contribution of each business, is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Sales by sector of activity/business:

Electricity 6,296,103 5,876,158 5,201,275
Steam and ashes 22,061 18,651 12,361
Gas 105,311 — —
Information systems and technologies 26,850 50,861 29,800
Telecommunications 3,889 23,701 30,125
Other Businesses 2,147 18,769 25,681

6,456,361 5,988,140 5,299,242

Services rendered by sector of activity/business:

Associated with electricity sales 80,122 18,996 9,235
Thermo/Hydro electricity engeneering 6,457 5,311 9,347
Information systems and technologies 69,999 65,174 108,679
Telecommunications 312,334 273,780 151,839
Consultancy and services 12,283 4,536 20,964
Other 39,964 30,620 51,068

521,159 398,417 351,132

TOTAL TURNOVER by business:

Electricity 6,376,225 5,895,154 5,210,510
Steam and ashes 22,061 18,651 12,361
Thermo/Hydro electricity 6,457 5,311 9,347
Gas 105,311 — —
Information systems and technologies 96,849 116,035 138,479
Telecommunications 316,223 297,481 181,964
Other 54,394 53,925 97,713

6,977,520 6,386,557 5,650,374

F-41
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The breakdown of Sales is as follows:
2003 2002

Iberian Brazilian Iberian Brazilian

Market market Total Market market Total

Electricity:
To the National Transport network 1,339,411 — 1,339,411 1,323,894 — 1,323,894
To final customers:
- Very high tension 9,509 — 9,509 37,936 5,629 43,565
- High tension 368,126 242,604 610,730 167,222 126,130 293,352
- Medium tension 738,351 289,371 1,027,722 812,018 172,582 984,600
- Low tension (>39,6 KVA) 313,193 313,193 271,247 — 271,247
- Low tension 2,424,190 388,807 2,812,997 2,380,945 398,188 2,779,133
- Low tension (Public lightning) 95,731 — 95,731 86,614 14,977 101,591
Embedded generation 37,062 — 37,062 38,285 — 38,285
Discounts and tariff difference 49,748 — 49,748 45,304 (4,813) 40,491

5,375,321 920,782 6,296,103 5,163,465 712,693 5,876,158

Other Sales:
- Steam and ashes 19,748 2,313 22,061 18,651 — 18,651
- Gas 105,311 — 105,311 — — —
- Printed forms 10,492 — 10,492 10,942 — 10,942
- Telecommunications equipment 3,711 — 3,711 23,701 — 23,701
- Data network equipment — — — 23,236 — 23,236
- PC equipment 13,409 — 13,409 24,470 — 24,470
- Other 5,274 — 5,274 10,982 — 10,982

157,945 2,313 160,258 111,982 — 111,982

5,533,266 923,095 6,456,361 5,275,447 712,693 5,988,140

2001

Iberian Brazilian
Market market Total

Electricity:
To the National Transport network 1,214,073 — 1,214,073
To final customers:
- Very high tension 36,837 19,924 56,761
- High tension 175,100 208,259 383,359
- Medium tension 782,980 186,254 969,234
- Low tension (>39,6 KVA) 261,227 — 261,227
- Low tension 1,965,301 268,373 2,233,674
- Low tension (Public lightning) 83,918 12,514 96,432
Embedded generation 12 — 12
Discounts and tariff difference (8,682) (4,815) (13,497)

4,510,766 690,509 5,201,275

Other Sales:
- Steam and ashes 12,361 — 12,361
- Gas — — —
- Printed forms 11,352 — 11,352
- Telecommunications equipment 30,125 — 30,125
- Data network equipment 253 — 253
- PC equipment 29,548 — 29,548
- Other 14,328 — 14,328

97,967 — 97,967

4,608,733 690,509 5,299,242

F-42
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The breakdown of Gross profit on Sales is as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Sales:
Electricity 6,296,103 5,876,158 5,201,275
Steam and ashes 22,061 18,651 12,361
Gas 105,311 — —
Information systems and technologies 26,850 50,861 29,800
Telecommunications 3,889 23,701 30,125
Other Businesses 2,147 18,769 25,681

6,456,361 5,988,140 5,299,242

Cost of sales - Raw materials and consumables :

Electricity 3,360,268 3,005,526 2,524,293
Fuel, steam and ashes 398,034 465,527 377,192
Information technologies 19,143 36,207 39,969
Telecommunications 6,571 53,378 20,683
Other activities 137,030 126,459 116,727

3,921,046 3,687,097 3,078,864

2,535,315 2,301,043 2,220,378

The breakdown of Services rendered is as follows:

Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Associated with electricity sales 80,122 18,996 9,235

Engineering studies and designs 6,457 5,311 9,347
IT services 69,999 65,174 108,679
Voice services - urban calls 227,181 191,437 108,839
Other telecommunications services 85,153 82,343 43,000
Provision of collection services 11,004 8,787 7,630
Consultancy, management and co-ordination 1,279 4,536 20,964
Other services provided 39,964 21,833 43,438

521,159 398,417 351,132

The breakdown of Revenues by geographic market is as follows:

Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Portugal 5,143,257 5,203,731 4,887,232

Spain 856,848 452,150 61,545
Brazil 977,415 730,676 701,597

6,977,520 6,386,557 5,650,374

F-43
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

27. Personnel costs

The balance Personnel costs is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Corporate officers’ remuneration 15,258 15,988 16,278

Employees’ remuneration 413,552 411,630 386,122
Charges on remuneration 192,539 156,540 139,692
Other staff costs 25,287 40,613 49,881

646,636 624,771 591,973

The breakdown by management positions and professional category of the permanent staff as at December 31, 2003, 2002 and
2001 is as follows:
Group

2003 2002 2001

Managers/ Head of Department 462 621 535

Senior management 2,755 3,167 2,054
Middle management 2,484 2,252 528
Intermediate management 247 353 220
Highly-skilled workers 8,612 7,630 2,718
Skilled workers 1,123 423 4,641
Semi-skilled workers 927 845 983
Unskilled workers 778 906 30

17,388 16,197 11,709

As at December 31, 2003, the number of employees in service, including those on temporary contract, totalled 17,664 (18,455 in
2002). These figures include all the employees of all the consolidated companies (purchase or proportional method), regardless
of the EDP holding in the share capital.
As at December 31, 2002, the employees assigned to ONI in Spain and the employees assigned to Hidrocantábrico were not
included.
The remuneration of the corporate officers of EDP - Electricidade de Portugal, S.A., was as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Board of Directors 3,089 2,815 2,815

External Auditor and Official auditor (EDP, S.A. only) 82 82 82

3,171 2,897 2,897

During 2003 the EDP Remuneration Committee, in keeping with the mandate that had been given to it at the General Meeting
held in May 2003, granted the members of the Board of Directors extraordinary remuneration in respect of the 2002 results, in
the total sum of Eur 606,000 of which Eur 585,000 were for executive directors and Eur 21,000 for non-executive directors.
F-44
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

28. Depreciation and amortization

The balance Depreciation and amortization is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Tangible fixed assets:

Fixed assets under concession the Decree-law 344-B/82 3,229 4,284 4,882
Buildings and other constructions 9,703 6,442 6,162
Plant and machinery
Hydroelectricity generation 128,850 129,004 125,406
Thermoelectric generation 103,778 98,101 96,507
Electricity distribution 445,808 385,319 339,511
Other plant and machinery 60,928 48,906 45,991
Transport equipment 10,418 8,189 7,558
Administrative equipment 37,850 24,314 18,170
Other tangible fixed assets 2,527 1,547 1,790

803,091 706,106 645,977

Intangible fixed assets:

Set-up costs 15,145 14,856 13,393
Research and development costs 17,294 15,471 3,883
Industrial property and other rights 7,164 3,108 1,438
Other intangible assets on telecommunications business 2,898 — —

42,501 33,435 18,714

845,592 739,541 664,691

29. Supplies and services

This balance is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Subcontracts:
Subcontracts 209,239 179,074 113,097
Other subcontracts 5,916 — —
Supplies and services:
Water, electricity and fuel 12,335 8,261 9,650
Utensils and office material 5,066 6,511 6,952
Leases and rents 52,010 51,186 40,555
Communications 30,967 21,246 33,650
Insurance 19,636 18,386 10,886
Transport, travel, and the board and lodging 12,972 12,503 13,685
Commissions and fees 10,887 16,724 18,789
Maintenance and repairs 94,127 99,886 95,042
Advertising and propaganda 12,545 20,970 23,557
Specialised work 130,757 187,548 231,475
Other supplies and services: 36,061 52,775 53,892
 632,518 675,070 651,230

F-45
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

30. Own work capitalized

This balance is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Consumption of materials 99,327 70,695 84,020

Direct internal costs and overheads 105,401 113,220 83,083
Financial charges 24,005 16,036 14,478
Other own work capitalized 6,890 41,818 50,938

235,623 241,769 232,519

31. Provisions for the year

This balance is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Charge for doubtful debt 9,649 24,372 20,464

Charge for pension liabilities 17,008 14,687 63,042
Charge for healthcare liabilities 40,014 57,614 32,480
Charge for other contingencies and liabilities 9,035 3,972 —

75,706 100,645 115,986

32. Other operating expenses net

This balance is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Other operating income:

Supplementary income 7,768 8,067 39,961
Operating subsidies 685 453 1,899
Other operating income 9,628 22,094 22,614

18,081 30,614 64,474

Other operating expenses:

Direct taxes 398 2,811 898
Indirect taxes 19,092 13,824 12,850
Other operating costs and losses 8,851 8,301 8,228

28,341 24,936 21,976

Other net operating income / (expenses) (10,260) 5,678 42,498

F-46
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

33. Interest and related income and expenses

The balance Interest and related income and expenses, are analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Interest and related income :

Interest income 65,530 128,599 140,437
Income on application of the equity method 46,464 36,450 25,105
Investment income 36,740 40,042 16,831
Favourable exchange differences 47,559 90,260 62,321
Updating losses on rationing (Brazil) 30,358 15,731 —
Other financial gains 82,374 70,638 6,728

309,025 381,720 251,422

Interest and related expenses :

Interest expense 399,970 329,860 287,137
Banking services 28,372 57,025 12,647
Losses on application of the equity method 13,308 115,184 13,485
Unfavourable exchange differences 58,273 22,846 63,666
Other financial losses 75,702 14,218 49,029

575,625 539,133 425,964

Amortization of investments (Goodwill):

- Concession rights 30,439 53,535 12,683
- Goodwill assets 54,439 11,896 18,108
- Other intangible assets on telecommunications business 7,542 — —

92,420 65,431 30,791

668,045 604,564 456,755

Net Financial Income / (Expenses) (359,020) (222,844) (205,333)

Only in 2001 and 2002 EDP has recorded in interest income, respectively, a financial gain of Eur 88,557 thousand and Eur
89,174 thousand related to early extinguishment of Bandeirante and Escelsa debt.
F-47
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

34. Other non-operating income / (expenses)

The balance Other non-operating income / (expenses) is analysed as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Other non-operating income

Gains on fixed assets 44,147 53,264 27,682
Recovery of debt 2,652 168 398
Reduction of provisions
- For customer debt 1,444 — —
- For financial assets 21,774 — —
- For other contingencies and liabilities 50,736 76,371 18,681
Corrections to previous years 15,147 9,692 13,305
Compensation of depreciation of part-funded fixed assets 79,822 71,767 63,887
Residual value of Oniway — 70,000 —
Hydrological correction 19,350 — 47,466
Other extraordinary gains 45,159 22,694 15,176

280,231 303,956 186,595

Other non-operating (expenses)

Losses on stocks 1,442 2,279 2,635
Losses on fixed assets 14,850 41,332 2,635
Bad debt 15,086 9,084 1,385
Fines and penalties 3,228 2,248 74
Corrections to previous years 46,755 13,934 7,467
Extraordinary depreciation
- Intangible fixed assets — 1,991 —
- Fixed assets in progress — 278,944 —
Extraordinary provisions
- Financial assets 114,695 — —
- For other debtors 3,461 — —
- For other contingencies and liabilities 12,535 18,297 3,068
Additional income tax assessment in respect of 1995/97/98 — 15,926 —
Loss on Baixa UTE Campo Grande (Enersul) 6,950 13,963 —
Cost of human resources rationalisation 47,810 — —
Other extraordinary losses 27,862 44,897 43,342

294,674 442,895 60,606

Net Non-Operating Results (14,443) (138,939) 125,989

F-48
 EDP - Electricidade de Portugal, S.A. and Subsidiaries
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

35. Provisions for income taxes

In accordance with prevailing legislation, tax returns are subject to review and correction by the tax authorities during
subsequent years. In Portugal this period is five years, and 1998 was the last year considered to be definitively liquidated by the
tax authorities.
Tax losses calculated for given year, also subject to inspection and adjustment, may be deducted from taxable profits during
subsequent years. The companies of the EDP Group are taxed, whenever possible, under the consolidated systems allowed by
the tax law of the respective countries.
The breakdown of income tax expense is as follows:
Group

2003 2002 2001

Euro’000 Euro’000 Euro’000

Tax base
Income before income taxes 532,279 286,921 594,188
Permanent differences 192,740 302,779 76,300

725,019 589,700 670,488

Normal charge 239,256 194,602 234,671

Adjustments (43,722) (22,863) (31,718)

Income tax expenses 195,534 171,739 202,953

Current income taxes 239,255 171,168 244,012

Deferred income taxes (43,721) 571 (41,059)

Income tax expense 195,534 171,739 202,953

The breakdown of the reconciliation between the nominal and the actual income tax (IRC) rate for the Group in 2003 is as
follows:
2003

Tax Base Tax Rate

Euro ’000 Euro ’000 %

Nominal tax on profits 532,279 175,652 33.0%

- Main effects at taxation level:
Net depreciation 30,153 9,950 1.9%
Amortization Resulting from revaluation fixed assets 76,503 25,246 4.7%
Net provisions (25,338) (8,362) -1.6%
Corrections to previous years 11,722 3,868 0.7%
Book losses not compensated 303,463 100,143 18.8%
Effects of untaxed equity method (31,574) (10,419) -2.0%
Tariff deviation in electricity business in Portugal (73,105) (24,125) -4.5%
Elimination of double economic taxation (36,595) (12,076) -2.3%
Employee profit-sharing (21,296) (7,028) -1.3%
Excess tax estimate for 2002 (39,602) (13,069) -2.5%
Other adjustments to taxable income (1,591) (525) -0.1%

Effective rate and actual tax on profits 725,019 239,255 44.8%

Corporate income tax returns are subject to review and correction by the income tax authorities for a period of six years after the
 filing of such returns. Accordingly, the last taxation year that can be considered definitively assessed by the income tax
authorities in 1998.
36. Segmental reporting
The Segmental Reporting is provided in an appendix subsequent to these notes to the financial statements and it was prepared in
accordance with Portuguese Accounting Directive 27 and with international best practices.
F-49
 EDP Group Business by Business Segment
Information by business segment - 2003
(Amounts expressed in thousands of euros)
Portugal Spain Brazil
Services
Distribution Distribution Distribution Information and Other
Generation (a) + Supply Generation + Supply Gas (b) Generation + Supply Telecoms Technology Adjustments EDP Group

Turnover
Sales of
electricity 1,318,853 3,610,621 256,791 287,655 — 27,414 928,963 — — (134,194) 6,296,103
Other sales 19,748 1,946 1,990 28,948 75,867 2,314 — 7,290 27,023 (4,868) 160,258
Services
rendered 26,629 60,246 1,116 12,357 10,108 11,536 37,609 323,820 159,323 (121,585) 521,159

1,365,230 3,672,813 259,897 328,960 85,975 41,264 966,572 331,110 186,346 (260,647) 6,977,520

Raw materials
and
consumables
Purchase of
electricity 65,344 2,412,534 50,113 262,196 48,153 5,597 650,926 — — (134,595) 3,360,268
Fuel costs 312,346 — 84,078 1,438 — — 265 — — (93) 398,034
Other
materials 3,453 111,336 454 15,862 52 2,294 7,897 6,571 24,453 (9,628) 162,744

381,143 2,523,870 134,645 279,496 48,205 7,891 659,088 6,571 24,453 (144,316) 3,921,046

Gross
Margin 984,087 1,148,943 125,252 49,464 37,770 33,373 307,484 324,539 161,893 (116,331) 3,056,474

Other operating
income /
(costs)
Supplies and
services (74,960) (210,632) (16,969) (14,614) (5,352) (16,677) (45,550) (265,307) (70,053) 87,596 (632,518)
Personnel
costs (120,339) (397,060) (17,971) (14,902) (4,227) (517) (63,441) (50,973) (66,431) 89,225 (646,636)
Own work
capitalized 38,232 184,816 2,508 1,266 222 — — 8 8,397 174 235,623
Concession
and
power-
generating
rents (3,894) (171,749) — — — — — — — — (175,643)
Other
operating
income /
 (costs) (6,152) (778) 1,232 912 (1,186) (777) (17,821) 886 294 13,129 (10,261)

(167,113) (595,403) (31,200) (27,338) (10,543) (17,971) (126,812) (315,386) (127,793) 190,124 (1,229,435)

Gross Operating
Margin 816,974 553,540 94,052 22,126 27,227 15,402 180,672 9,153 34,100 73,793 1,827,039
Depreciation
and
amortization 234,351 348,926 27,416 25,156 7,529 4,311 53,954 72,744 24,301 46,904 845,592
Provisions 12,742 42,793 295 766 19 — 11,039 5,076 508 2,468 75,706

Operating
Margin 569,881 161,821 66,341 (3,796) 19,679 11,091 115,679 (68,667) 9,291 24,421 905,741
Financial
income /
(expense) (76,188) (37,468) (18,847) (9,964) (5,586) (15,363) (14,226) (38,858) (7,134) (42,966) (266,600)
(Amortization
of
goodwill
and
concession
rights) — (11) (20,379) (11) (7,600) (71) (1) (19,461) (5,360) (39,526) (92,420)

Current results 493,693 124,342 27,115 (13,771) 6,493 (4,343) 101,452 (126,986) (3,203) (58,071) 546,721
Extraordinary
gains /
(losses) (4,075) 80,226 (1,118) 1,344 437 (26,414) 14,350 (21,745) (4,069) (53,379) (14,443)

Profit before
taxes 489,618 204,568 25,997 (12,427) 6,930 (30,757) 115,802 (148,731) (7,272) (111,450) 532,278
Income taxes 164,130 51,065 4,820 (4,350) 2,426 1,190 36,857 (17,658) 2,967 (45,913) 195,534
Minority
interests (164) — 181 — 5,034 (2,172) 22,825 (58,055) (4,041) (7,973) (44,365)

Net attributable
profit 325,652 153,503 20,996 (8,077) (530) (29,775) 56,120 (73,018) (6,198) (57,564) 381,109

Other
information :
Tangible
fixed
assets 4,367,736 4,477,925 711,682 219,064 157,618 259,135 665,181 233,623 95,401 464,234 11,651,599
Intangible
fixed
assets 6,663 756 139,837 199,870 14,567 978 29,403 181,814 8,878 367,417 950,183
Current assets 1,108,217 1,072,971 76,661 81,144 43,894 38,933 781,218 170,896 110,993 (420,111) 3,064,816
Shareholders’
equity 4,101,294 1,658,780 368,534 194,150 113,526 108,043 428,732 (204,018) 53,835 (1,524,869) 5,298,007
 Current
liabilities 3,423,871 3,502,151 105,685 80,416 33,229 127,582 618,986 854,089 207,351 (4,130,949) 4,822,411
Investment in
fixed
assets 281,812 405,211 37,874 20,736 11,918 59,091 74,215 28,564 58,784 25,069 1,003,274

(a) The electricity generation includes the renewables segment

(b) The commercial activity of the Gas segment is aggregated with the Distribution and Supply
F-50
 EDP Group Business by Business Segment
Information by business segment - 2002
(Amounts expressed in thousands of euros)
Portugal Spain Brazil
Services
Distribution Distribution Information and Other
Generation + Supply Generation + Supply Gas (a) Distribution Telecoms Technology Adjustments EDP Group

Turnover
Sales of
electricity 1,425,432 3,503,395 145,063 150,126 — 668,597 — — (16,454) 5,876,158
Other sales 18,651 1,738 2,501 7,587 10,477 — 46,729 35,510 (11,210) 111,983
Services
rendered 18,212 33,075 773 6,262 1,062 — 274,057 188,494 (123,518) 398,417

1,462,295 3,538,208 148,337 163,975 11,539 668,597 320,786 224,004 (151,183) 6,386,558

Raw materials
and
consumables
Purchase of
electricity 37,277 2,386,353 33,600 120,511 — 486,530 — — (58,745) 3,005,526
Fuel costs 465,527 — 38,270 1,056 — — — — (39,326) 465,527
Other
materials 4,377 80,121 190 1,128 3,314 3,979 53,378 31,640 37,917 216,044

507,182 2,466,474 72,060 122,695 3,314 490,509 53,378 31,640 (60,155) 3,687,097

Gross
Margin 955,114 1,071,734 76,277 41,280 8,225 178,088 267,408 192,364 (91,028) 2,699,461

Other operating
income /
(costs)
Supplies and
services (72,963) (209,157) (14,491) (26,859) (1,538) (36,038) (293,736) (75,121) 54,833 (675,070)
Personnel
costs (119,559) (380,554) (9,358) (8,013) (954) (39,569) (89,691) (75,470) 98,398 (624,771)
Own work
capitalized 26,183 161,777 (385) 2,866 173 793 30,225 12,633 7,503 241,769
Concession
and
power-
generating
rents (3,664) (154,008) — — — — — — (504) (158,176)
Other
operating
income /
(costs) 5,393 8,832 42 433 92 (6,293) 5,685 862 (9,368) 5,678

(164,610) (573,110) (24,193) (31,574) (2,227) (81,107) (347,516) (137,096) 150,862 (1,210,570)

Gross Operating
Margin 790,504 498,624 52,084 9,705 5,999 96,981 (80,108) 55,268 59,833 1,488,890
Depreciation
and
amortization 228,231 333,619 17,103 7,515 2,251 34,227 66,852 18,924 30,819 739,541
Provisions 11,612 65,331 2,283 291 279 1,393 7,881 781 10,793 100,645

Operating
Margin 550,661 99,674 32,697 1,899 3,468 61,362 (154,841) 35,563 18,221 648,704
Financial
income /
(expense) (90,135) (47,164) (16,184) (5,497) (1,718) 2,755 (26,579) (8,503) 35,611 (157,413)
(Amortization
of
goodwill
and
concession
rights) — — (5,692) (6,326) (2,325) — (16,012) (5,353) (29,724) (65,431)

Current results 460,526 52,510 10,822 (9,924) (574) 64,117 (197,432) 21,707 24,108 425,860
Extraordinary
gains /
(losses) 7,066 85,660 (3,366) (1,739) (90) (23,688) (259,328) (6,890) 63,436 (138,939)

Profit before
taxes 467,592 138,170 7,456 (11,663) (664) 40,429 (456,760) 14,817 87,544 286,921
Income taxes 170,643 41,836 1,558 (2,711) (618) (29,772) (33,483) 6,617 17,668 171,739
Minority
interests — — (391) — — 24,338 (230,066) 394 (14,309) (220,034)

Net attributable
profit 296,949 96,334 6,289 (8,951) (47) 45,862 (193,212) 7,806 84,185 335,216

Other
information :
Tangible
fixed
assets 4,324,116 4,329,978 721,619 212,378 49,647 673,956 242,869 85,464 564,210 11,204,237
Intangible
fixed
assets 5,877 143 148,667 209,204 569 12,403 219,646 9,259 498,395 1,104,164
Current assets 842,134 811,182 96,099 76,259 11,440 812,274 347,794 169,594 (530,905) 2,635,871
Shareholders’
equity 3,862,590 1,519,190 412,067 195,503 56,786 344,281 (86,287) 67,779 (877,727) 5,494,182
Current
liabilities 726,865 2,477,066 198,193 105,604 26,785 294,985 1,076,689 183,107 (231,822) 4,857,472
Investment in
fixed
assets 238,365 384,823 55,216 33,258 13,880 25,382 228,619 28,199 47,911 1,055,653

(a) The commercial activity of the Gas segment is aggregated with the Distribution and Supply
(b) Profit and loss account of Hidrocantábrico Group included in EDP Group’s accounts by the proportional method with a 40%
interest shareholding
F-51
 EDP Group Business by Business Segment
Information by business segment - 2001
(Amounts expressed in thousands of euros)
Portugal Brazil
Services
Distribution Distribution Information and Other
Generation (a) + Supply + Supply Telecoms Technology Adjustments EDP Group

Turnover
Sales of electricity 1,267,922 3,282,544 690,509 — — (39,701) 5,201,275
Other sales 12,361 1,620 — 30,893 39,149 13,944 97,967
Services rendered 14,600 19,895 — 157,031 149,883 9,722 351,132

1,294,883 3,304,060 690,509 187,924 189,032 (16,034) 5,650,374

Raw materials and consumables

Purchase of electricity 3,653 2,060,291 497,387 — — (37,038) 2,524,293
Fuel costs 377,192 — — — — — 377,192
Other materials 3,909 107,544 2,785 20,683 34,164 8,294 177,379

384,754 2,167,836 500,172 20,683 34,164 (28,744) 3,078,864

Gross Margin 910,129 1,136,224 190,337 167,241 154,868 12,710 2,571,510

Other operating income / (costs)

Supplies and services (69,595) (215,878) (36,367) (219,072) (65,665) (44,654) (651,230)
Personnel costs (113,481) (368,621) (43,876) (75,885) (65,398) 75,288 (591,973)
Own work capitalized 23,900 153,756 — 38,535 21,680 (5,351) 232,519
Concession and power-
generating rents (3,437) (145,659) — — — (18) (149,114)
Other operating income /
(costs) 3,644 18,132 (4,743) 5,930 4,400 15,134 42,498

(158,969) (558,270) (84,986) (250,492) (104,983) 40,399 (1,117,300)

Gross Operating Margin 751,161 577,954 105,351 (83,251) 49,885 53,110 1,454,210
Depreciation and amortization 225,182 327,827 35,827 48,868 17,796 9,191 664,691
Provisions 9,805 54,730 4,911 3,742 960 41,839 115,986

Operating Margin 516,175 195,397 64,613 (135,861) 31,129 2,080 673,533

Financial income / (expense) (92,414) (25,076) 32,793 (31,842) (4,235) (84,559) (205,333)
(Amortization of goodwill and
concession rights) — — — (9,861) (5,250) 15,111 —

Current results 423,761 170,321 97,406 (177,565) 21,644 (67,367) 468,200

Extraordinary gains / (losses) 6,448 90,427 (10,769) 4,470 (795) 36,208 125,989
Profit before taxes 430,209 260,748 86,637 (173,095) 20,849 (31,159) 594,189
Income taxes 141,631 73,297 19,242 (51,526) 7,716 12,593 202,953
Minority interests (151) — — (62,918) 3,285 226 (59,559)

Net attributable profit 288,729 187,451 67,395 (58,651) 9,848 (43,978) 450,795

F-52
 Additional disclosure of Brazil and Hidrocantábrico business Segment
(Amounts expressed in thousands of euros)
Brazil Spain

2003 2002 2001 2003 2002

Distribution + Supply Distribution Distribution

Bandeirante Escelsa Enersul Enertrade Bandeirante Escelsa Enersul Bandeirante HC Group (a) HC Group (a)

Turnover
Sales of electricity 467,235 255,768 159,779 46,181 567,781 68,036 32,780 690,509 542,228 295,128
Other sales — — — — — — — — 105,310 20,048
Services rendered 16,834 17,055 3,154 566 — — — — 15,007 6,176

484,069 272,823 162,933 46,747 567,781 68,036 32,780 690,509 662,545 321,351

Raw materials and

consumables
Purchase of electricity 356,965 167,728 83,334 42,899 429,063 39,316 18,151 497,387 358,245 154,054
Fuel costs 265 — — — — — — — 85,513 39,326
Other materials 2,029 2,497 3,371 — 2,866 469 644 2,785 6,301 2,190

359,259 170,225 86,705 42,899 431,929 39,785 18,795 500,172 450,059 195,570

Gross Margin 124,810 102,598 76,228 3,848 135,852 28,251 13,985 190,337 212,486 125,781

Other operating income /

(costs)
Supplies and services (21,742) (12,428) (10,307) (1,073) (27,683) (4,322) (4,033) (36,367) (33,369) (41,068)
Personnel costs (26,689) (20,531) (15,410) (811) (31,769) (4,372) (3,428) (43,876) (37,100) (18,325)
Own work capitalized — — — — 793 — — — 3,996 2,654
Concession and power-
generating rents — — — — — — — — — —
Other operating
income / (costs) (2,749) (10,341) (4,683) (48) (4,759) (1,534) — (4,743) (2,608) (1,254)

(51,180) (43,300) (30,400) (1,932) (63,418) (10,228) (7,461) (84,986) (69,081) (57,993)

Gross Operating Margin 73,630 59,298 45,828 1,916 72,434 18,023 6,524 105,351 143,405 67,789
Depreciation and
amortization 21,053 17,097 15,787 17 26,304 3,981 3,942 35,827 60,101 26,869
Provisions 1,623 5,174 4,242 — — 1,393 — 4,911 1,080 2,853

Operating Margin 50,954 37,027 25,799 1,899 46,130 12,649 2,582 64,613 82,224 38,066
Financial income /
(expense) (22,770) 19,746 (10,930) (272) (34,517) 38,659 (1,387) 32,793 (34,397) (23,399)
(Amortization of
 goodwill and
concession rights) — (1) — — — — — — (27,990) (14,342)

Current results 28,184 56,772 14,869 1,627 11,614 51,308 1,195 97,406 19,837 325
Extraordinary gains /
(losses) 1,359 18,774 (5,919) 136 (6,489) (2,573) (14,626) (10,769) 663 (5,194)

Profit before taxes 29,543 75,546 8,950 1,763 5,125 48,735 (13,431) 86,637 20,500 (4,870)
Income taxes 1,021 30,018 5,568 250 (5,290) (24,482) — 19,242 2,896 (1,771)
Minority interests 998 20,597 1,177 53 (162) 33,137 (8,637) — 5,215 (391)

Net attributable profit 27,524 24,931 2,205 1,460 10,576 40,080 (4,794) 67,395 12,389 (2,708)

Other information :
Tangible fixed assets 248,828 224,633 191,589 131 307,581 195,301 171,074 1,088,364 983,644
Intangible fixed assets 14,921 8,700 5,745 37 4,163 8,240 — 354,274 358,441
Current assets 300,381 325,005 145,383 10,449 333,317 335,755 143,202 148,284 183,798
Shareholders’ equity 197,033 105,668 120,535 5,496 170,073 59,055 115,153 676,210 664,356
Current liabilities 317,934 183,305 110,919 6,828 167,226 93,979 33,780 165,987 330,582
Investment in fixed
assets 37,580 17,596 15,279 — 25,413 — — 70,528 102,354

(a) Profit and loss account of Hidrocantábrico Group included in EDP Group’s accounts by the proportional method with a 40% interest shareholding
F-53
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

37. Commitments
As at December 31, 2003, the breakdown of financial commitments not shown in the balance sheet in respect of guarantees
provided (no mortgages have been provided) is as follows:
Group
Commitments Euro’000

Guarantees of a financial nature

Guarantees provided by Group entities - Portugal
to domestic banks 80,672
to foreign banks 154,521
to other domestic entities 68,231
to other foreign entities 7,942
Guarantees provided by Group entities - Spain
to foreign banks 38,363
to other foreign entities 9,198
Guarantees provided by Group entities - Brazil
to foreign banks 52,211

411,138

Guarantees of an operational nature

Guarantees provided by group entities - Portugal
to other domestic entities 59,246
to foreign banks 16,976
to other foreign entities 32,434
Guarantees provided by group entities - Spain
to foreign banks 63,925
to other foreign entities 577

173,158

584,296

Bank guarantees provided for operational activities are as follows:

Group
Euro’000

Domestic banks 16,356

Foreign banks 87,757

104,113

The breakdown of financial commitments in respect of swap contracts outstanding on the balance sheet date is as follows:
Group

2003 2002

Assets Liabilities Assets Liabilities

Euro’000 Euro’000 Euro’000 Euro’000

Interest rate swaps :

EUR 3,057,371 3,450,753 3,152,203 3,545,585
GBP 200,000 — 200,000 —
JPY 8,000,000 — 8,000,000 —
On the date of the first application of IAS 32 and IAS 39, EDP did not have all the documents required to be able to comply
with the requirements for hedge accounting. Therefore, all changes in the fair value of derivatives have been recorded in
accordance with amounts reflected for U.S. GAAP standard “FAS 133” in EDP’s 2002 Form 20-F as filed with the U.S.
Securities and Exchange Commission. Consequently, all variations to the fair value of these instruments have been recognised in
the statement of income for the year as from the date of the adoption.
However, owing to the process of transition to the IFRS, in which the EDP Group has been involved for some time, the
preparation of the documentation required for these financial derivatives to be considered as hedging instruments has already
been started, and hedge accounting will commence during 2004.
F-54
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Taking into account the fact that financial instrument assets are recorded under accruals and deferrals assets and that financial
instrument liabilities are recorded under accruals and deferrals liabilities, the relevant information is as follows:
Group 2003

Market Value
Nominal
Value Total Assets Liabilities
Euro’000 Euro’000 Euro’000 Euro’000

Interest-rate contracts:
Interest-rate swaps 3,057,371 224,362 264,175 (39,813)
Options bought and sold 3,735,697 (8,520) — (8,520)

215,843 264,175 (48,332)

Interest-rate and exchange-rate contracts:

CIRS (currency and interest rate swaps) 393,382 (49,127) — (49,127)

166,716 264,175 (97,459)

The maturity of these derivatives instruments is as follows:

Group 2003

Up to 3 months 1 year More than

3 months to 1 year to 5 years 5 years Total
Euro’000 Euro’000 Euro’000 Euro’000 Euro’000

Interest-rate contracts:
Interest-rate swaps — 2,940 216 221,205 224,362
Options bought and sold — (2,612) (3,229) (2,679) (8,520)

— 328 (3,013) 218,526 215,842

Interest-rate and exchange-rate contracts:

CIRS (currency and interest rate swaps) — (8,707) (5,819) (34,601) (49,127)

— (8,379) (8,832) 183,925 166,715

The possible real interest rates on the various financial derivatives instruments are as follows:
Group 2003

Currency EDP Pays EDP Receives

Interest-rate contracts:
Interest-rate swaps Euro 4.50% 2.17% 6.40% 2.35%
Interest-rate and exchange-rate contracts:
CIRS (currency and interest rate swaps) EUR / JPY 2.5810% 2.5260% 0.7000% 0.2550%
CIRS (currency and interest rate swaps) EUR / GBP 3.5410% 6.6250%
Value
Euro’000 Group 2003

Interest-rate contracts:
Options bought on interest rates (CAP purchases) 3 735 697 4.82% 2.51%
Options sold on interest rates (CAP sale) 1 000 000 5.30% 4.10%
 Options sold on interest rates (CAP sale) 3 735 697 3.50% 2.27%
38. Employee Stock Option Plans
The EDP Group began a stock option programme under the terms approved by the General Meeting, applicable to senior
management and directors, with a view to stimulating the creation of value, in keeping with the practice employed by similar
companies.
The aim of the plan, approved in 1999, is to grant over a period of five years purchase options on shares representing the EDP
share capital. The number of options to be awarded cannot exceed 16,250,000 (following the stock split in which each share was
replaced by 5 shares of a par value equal to 1/5 of the value before the stock split), each option giving entitlement to the
acquisition of one share. In the event of alteration of the EDP share capital, this limit and the number of options already granted
may be adjusted so that the size of the plan and/or the position of the beneficiaries of the option remain substantially the same as
the size and/or position existing prior to the fact in question. This provision may be applicable in other cases that, in the opinion
of the board of directors of EDP, warrant identical treatment.
F-55
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The consideration payable for the acquisition of shares granted under the stock options (exercise price) is the weighted average
of the closing prices of EDP shares during the period prior to the date defined as the option-granting date fixed by the EDP
board of directors. The exercise price may be corrected in the event of: a) alteration to the share capital; b) distribution of
dividends and other reserves to shareholders having a significant effect on the price of the EDP shares; and c) the occurrence of
other facts of a similar nature that, in the judgement of the EDP board of directors, warrant such corrections.
The liabilities assumed within the scope of the EDP incentives plans in respect of directors and certain senior staff in the service
of the Group companies are recognised as a cost in each period, taking into account the time to maturity of the option exercise
right or of the attribution of the shares. The respective provision is set aside/increased taking into account the staggering of the
rights granted and of the inherent costs, over the life of the plan. These costs correspond to the difference between the estimated
cost of acquisition of the shares by the Company and their selling price to the employees. The corresponding costs are recorded
under “ Staff costs”, and costs inherent in the respective hedging operations are recorded under “Financial costs and losses”.

39. Reconciliation to accounting principles generally accepted in the United States of America
The consolidated financial statements of EDP Group have been prepared in accordance with Portuguese GAAP which varies in
certain significant aspects from U.S. GAAP. Differences that have a significant effect on the Group consolidated results of
operations and shareholders’ equity are as follows:
a) Revaluation of fixed assets
The Group’s fixed assets that were acquired prior to 1993 are stated at revalued amounts as permitted under Portuguese GAAP.
The revalued fixed assets are being depreciated over their estimated useful lives on their revalued basis. Under U.S. GAAP,
fixed assets may not be stated at more than their historical acquisition cost. Accordingly, in the accompanying reconciliation, the
increases in shareholders’ equity and the related increase in depreciation expense occurring as a result of such revaluations have
been reversed for all periods presented. Depreciation for corporate income tax purposes is based on the original acquisition cost
and 60% of the additional revaluation increment. Therefore, the adjustments also reflect the remaining deferred tax benefit
arising from the revaluation increments. The effect of the revaluation on the gains and losses on disposals is not significant.
b) Capitalized overhead
The EDP Group capitalizes a portion of its general and administrative overhead to the cost of its assets under construction.
Under U.S. GAAP, such costs are expensed in the period incurred.
c) Foreign exchange differences
As permitted under Portuguese GAAP, prior to 1995, the EDP Group capitalized net foreign exchange differences (both gains
and losses) that resulted from loans contracted to fund capital expenditures denominated in non-escudo currencies. Under U.S.
GAAP, foreign exchange gains and losses may not be capitalized.
d) Deferred costs
The EDP Group capitalizes and amortizes research and development expenses, advertising costs, major repairs and maintenance
costs, and reorganization costs. Under U.S. GAAP, such amounts are expensed in the period incurred. The Group also defers
and amortizes subsidies received with respect to research and development costs (included in deferred revenue in the
consolidated balance sheets). Under U.S. GAAP, the benefit of the subsidies would be included in income as the related research
and development costs are incurred.
e) Hydrological correction account
As required by Government regulation, the Group records a liability amount to smooth the effect on its earnings that result from
changes in hydrological conditions. Under U.S. GAAP, the effect of future changes in hydrological conditions would be viewed
as a general business risk and such a recording would not be permitted. Since July 2000, the movement of gain/losses for hydro
conditions are charged to REN and not to the income statements.
The hydrological correction adjustments presented below in the U.S. GAAP net income reconciliation reflect the net change for
the year in the Hydrological correction account which consists of the amounts disclosed in Note 21.

f) Distribution to management and employees

The EDP Group customarily distributes a portion of its net income to management and employees. The amount of the
distribution generally amounts to one month’s salary. Under Portuguese GAAP, this distribution is reflected in the period in
which formal shareholder approval is obtained and is recorded as a reduction of retained earnings or other reserves. U.S. GAAP
requires that such distributions be recorded as compensation expense in the period to which they relate.
g) Employee retirement benefits
The Company and some of its subsidiaries have pension obligations, both defined benefit and contribution and also medical
benefits for retired employees. Costs for defined contribution are expensed when incurred. Accumulated obligations and annual
expenses for medical and defined benefit pension plans are determined on actuarial basis. The company adopted this policy in
Portuguese GAAP by implementing IAS 19 in 1999. For U.S. GAAP the company is using SFAS 87 and SFAS 106 as from
1995.
F-56
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Thus, differences in accounting for these obligations are basically originated from the date of determination of transition
obligation (1989 for U.S. GAAP purposes and 1996 for Portuguese GAAP) and the assumptions relating the adherence rate to
the early retirement plan for the period 1999-2002, as well as for recognition the additional pension minimum liability.
h) Accounts receivable
Under Portuguese GAAP a provision for doubtful accounts is established based on historical collection experience and
evaluation of the current status of existing receivable balances. However, accounts receivables are only written-off when a
customer is declared bankrupt by a court of law. Under U.S. GAAP, the write-off of a receivable would occur when collection is
not probable.
In 1998, 1999 and 2000 the Company reached agreements with various municipalities on the terms of the future settlement of
various old accounts receivable that under Portuguese GAAP had been fully provided in the past. During 2001, 2002 and 2003
the Group collected Eur 1,156,628 and Eur 3,081,748 and Eur 3,654,098 related to those agreements. Under U.S. GAAP, the
collection of the receivables in question had previously been considered not probable and consequently had been written off.
Therefore, under U.S. GAAP the benefit from the recovery of these accounts receivable may only be recorded when the amounts
are actually received.

i) Power purchase agreements

As permitted under Portuguese GAAP, REN has recorded the minimum contracted payments made to producers of the Binding
sector in connection with PPAs as an expense of the respective periods. U.S. GAAP would require these agreements to be
treated as acquisitions of assets and the assumption of capital lease obligations because the power plants’ production is fully
dedicated and at the direction of REN and the agreements are for the duration of the estimated useful lives of the power plants.
Prior to July 1, 2000, PPAs held by REN were reflected in the balance sheet amounts on the U.S. GAAP basis presented below
by recognition of a fixed asset and a capital lease obligation recorded at the inception of the term of the agreements equal to the
present values of the minimum payments required under the agreements, less estimated executory costs. The reconciliation
presented below also reflects the allocation of the minimum payments, less the estimated executory costs, between a reduction in
the liability and interest expense. In addition, an adjustment has been made for the depreciation expense of the fixed asset.
At the time of the disposal of the Central do Pego to Tejo Energia in 1993, the estimated construction cost of the plant under
Portuguese GAAP was equal to the proceeds of disposal. However, the construction costs included capitalized foreign exchange
differences and general and administrative costs which under U.S. GAAP would have been expensed as periodic costs prior to
the disposal. These capitalized costs would have resulted in a gain on disposal of approximately Eur 48,592,891 which, because
of the PPAs, would not have been recognized in 1993. The U.S. GAAP adjustments presented below reflect the reversal of the
capitalization of the foreign exchange differences and general and administrative overheads as if they had been expensed prior to
1995.
In accordance with U.S. GAAP PPAs between REN and CPPE were accounted for as capital lease receivables for CPPE and a
capital lease obligations for REN. The generation assets related to the PPAs were recorded in REN’s accounts. Prior to July 1,
2000, the effects of the PPAs between the two related companies were eliminated as a result of consolidation.
j) Investments
Under Portuguese GAAP, investments in publicly traded equity securities, other than those of subsidiaries and those that are
accounted for under the equity method, were carried at historical cost until 2001. From January 1, 2002 under Portuguese GAAP
these investments are stated at fair value and the changes therein, net of income taxes, are recorded in shareholders’ equity,
however any permanent loss in the carrying value is recognized in the income statement.
Under U.S. GAAP for all years presented, these available for sale securities would be stated at fair value and the changes
therein, net of income taxes, would be recorded in a separate component of shareholders’ equity and included in the
determination of comprehensive income. Any other than temporary impairment would be recognized in the income statement,
therefore in 2002 an amount of Eur 247,751 thousand before tax benefit and 165,933 thousand net of tax has been reflected in
the determination of U.S. GAAP net income.

k) Equity accounting on investments

The Group’s equity investments and equity in earnings (primarily of REN and Hidrocantábrico) are affected by certain
accounting differences between U.S. GAAP and Portuguese GAAP. The differences affecting the Group’s investments and
equity in earnings include: revaluation of fixed assets, overheads capitalized, deferred costs, employee termination benefits,
distribution to management and employees, PPAs and deferred income taxes. These differences are as described in the
respective narratives.
F-57
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

l) Disposal of REN
Under Portuguese GAAP, sale proceeds from the disposal of the EDP 70% interest in REN were equal to the net book value of
the interest sold, resulting in no gain or loss recorded on the transaction. Under U.S. GAAP, the net book value of the interest
sold was reduced as a result of the accounting differences between Portuguese GAAP and U.S. GAAP; therefore, the proceeds
received from the disposal of REN exceeded the net book value of the interest disposed, resulting in a gain on disposal and the
remaining investment in REN must be reduced accordingly. The gain on the disposal, in the amount of Eur 342,046 thousand,
and the related deferred tax in the amount of Eur 120,400 thousand, were charged directly to shareholders’ equity (with a net
effect of Eur 221,646 thousand).

m) Derivative instruments
The EDP Group uses derivative instruments in the normal course of business, to offset fluctuations in earnings and cash flows
associated with movements in exchange rates, interest rates and commodity prices. Derivative instruments are not generally held
by the company for speculative trading purposes. FAS 133, “Accounting for Derivative Instruments and Hedging Activities”, as
amended by FAS 137 and FAS 138, was adopted by the Company with effect from January 1, 2001 under U.S. GAAP. FAS 133
establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheet amd measure those instruments at fair value. FAS 133
prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of efectiveness in
orders to qualify for hedge accounting. From January 1, 2003 (as discussed at note 2 d) IAS 39 was adopted on Portuguese
GAAP.
Therefore no difference arrise in the current year as all derivatives are marked to market both U.S. GAAP and IAS 39.
The EDP Group has chosen not to apply the hedge accounting provision of FAS 133, and accordingly all changes in the fair
value of derivative instruments are recorded in the income statement.
n) Depreciation of goodwill
As of January 1, 2002 U.S. GAAP requires that goodwill, including previously existing goodwill, and intangible assets with
indefinite useful lives are not amortized but are tested for impairment annually. Concession rights continue to be amortized, as
this is a finitive lived intangible asset. In 2002 and 2003 the goodwill amortization charged to the profit and loss account was
adjusted under U.S. GAAP in the amount of Eur 11,896 thousand and Eur 20,653 thousand.

o) Equity Method vs Proportional consolidation

The investment in Hidrocantábrico where EDP owns 40% of its share capital is jointly controlled with two other main
shareholders with a residual amount of 1.2% of share capital owned by other shareholders. Under Portuguese GAAP, associated
companies where the parent company exercises significant influence together with other shareholders, even if the parent
company’s participation is fewer than 50%, are proportionately consolidated. Under U.S. GAAP these investments are
accounted for by the equity method as presented in adjustment k).
p) Tariff adjustments and accounting for rate regulated entities
Prior to 1999, the selling price of electricity in Portugal was based upon a negotiated price between the EDP and the
Government. Tariffs were generally based on operating costs incurred during a year associated with average hydrological
conditions. However, there were no specific guidelines in place that ensure that the Group would recover actual cost incurred
during this time.
On January 1, 1999, and again on January 1, 2002, a new tariff regime was introduced that established formulae for the
calculation of the selling price of electricity in Portugal. These tariffs at current market conditions allow for the EDP to recover
actual costs incurred; however, not all of the criteria necessary to adopt the U.S. GAAP accounting for regulated industries exist.
Therefore, U.S. GAAP requirements applicable to regulated industries have not been applied.
On January 1, 2002, the regulator implemented alternative revenue programs which allow EDP to increase tariffs in future
periods to recover allowable revenues. Future tariff increases have been recorded in the current year for Portuguese GAAP and
are reversed under U.S. GAAP.

q) Guarantees
Under U.S. GAAP, the guarantees related to the Group’s operations with bank loans and other operational activities must be
adjusted and presented as a liability. These adjusted amounts are related to the purchase of electricity and the receivable of some
subsidies from the government.
F-58
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

r) Regulatory assets
During the current year the Company set up a restructuring plan, which is intended to be completed by 2006. The plan consists
of a reduction of approximately 500 employees, in EDP Distribuição, most of them through a pre-retirement scheme. The costs
that will be expensed in those 4 years, were accepted by the Portuguese regulator, to be recovered through the tariffs, in the next
20 years. As such, in 2003 the Company recorded a regulated asset against a provision for restructuring (no effect on equity) in
the amount of Eur 148,4 million. During the current year EDP recorded restructuring costs of Eur 14,9 million and recorded
regulatory income of the same amount, associated with the tariff adjustment accepted by the regulator. For U.S. GAAP purposes
the regulatory asset and regulatory liability and the related regulatory income were reversed as such amounts are nor recorded
under U.S.GAAP. Expense of Eur 14,9 million was recorded for both Portuguese GAAP and U.S.GAAP.

s) Income taxes
Until December 31, 1998, as permitted under Portuguese GAAP, income taxes were accounted for in accordance with the taxes
payable method based on estimated income taxes currently payable as determined by Government regulations. Under U.S.
GAAP and, subsequent to January 1, 1999, under Portuguese GAAP, income taxes are provided using the liability method,
which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to
differences between the financial statement carrying amount of assets and liabilities and their tax bases. A valuation allowance is
provided based on the expected realization of the deferred tax assets. Additionally, any deferred tax effect of other U.S. GAAP
adjustment is reflected.
t) Operating income
Under U.S. GAAP, except for losses resulting from discontinued operations which would be presented separately, substantially
all the amounts in Note 34 would be included in the determination of operating income.

u) Impact of Recently Issued Accounting Standards

FASB Interpretation Number (FIN) 46 (revised December 2003) – Consolidation of Variable Interest Entities
FIN 46 was issued in January 2003, was revised in December 2003 and has been interpreted in various FASB staff positions. It
is effective immediately for all variable interests in variable interest entities (VIE) created after January 1, 2003. For VIEs
created before that date, the requirements are effective for EDP Group from January 1, 2004. FIN 46 requires certain transitional
disclosures to be made immediately if it is reasonably possible that an entity will consolidate or disclose information about VIEs
when FIN 46 becomes effective. FIN 46 defines a VIE as an entity where either the total equity investment at risk is not
sufficient to permit the entity to finance its activities, without additional subordinated financial support; or the equity investors
lack any one of the following: (1) the ability to make decisions about an entity’s activities; (2) the obligation to absorb losses of
the entity; or (3) the right to receive residual returns of the entity. VIEs are required to be consolidated by the primary
beneficiary, which is the party that absorbs the majority of the entity’s expected losses, expected gains, or both. It is not
expected that this standard will have a material impact on the EDP Group’s U.S. GAAP finantial statements.

SFAS 149 – Amendment of Statement 133 on Derivative Instruments and Hedging Activities
SFAS 149 was issued in April 2003. This statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities. This statement is
effective prospectively for contracts entered into or modified after June 30, 2003 and prospectively for hedging relationships
designated after June 30, 2003. Adoption of this statement has not had a material impact on EDP Group’s U.S. GAAP financial
statements.
SFAS 150 – Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
SFAS 150 was issued in May 2003. The statement amends the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that these instruments be classified as liabilities in statements of
financial position. This statement is effective prospectively for financial instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement shall be
implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before
the issuance date of the statement and still existing at the beginning of the interim period of adoption and not expected to have a
material impact on EDP Group finantial statements.

SFAS 132 – Employers’ Disclosures about Pensions and Other Retirement Benefits (revised 2003)
In December 2003 the FASB issued a revision to SFAS 132 which requires enhanced disclosures about the EDP Group’s
defined benefit pension plans. Adoption of this statement has not had, and is not expected to have a material impact on EDP
Group’s U.S. GAAP financial statements although additional disclosure have been added.
EITF 03-1 – The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments
In November 2003 the EITF reached a consensus on certain additional disclosure requirements in connection with holding
losses on investment securities. This standard is not expected to have a material impact on EDP Group’s U.S. GAAP financial
statements.
F-59
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The effect on net income and shareholders’ equity is as follows:
Net income
2003 2003 2002 2001
US$ Euro ’000 Euro ’000 Euro ’000

Net income as reported under Portuguese GAAP 463,810 381,109 335,216 450,795

U.S. GAAP adjustments increase (decrease) due to:

a. Depreciation of revaluation of fixed assets 232,760 191,257 200,973 204,504
b. Capitalized overheads (17,614) (14,473) (35,650) (2,283)
c. Depreciation of exchange differences 21,549 17,707 19,297 23,408
d. Deferred costs 95,639 78,586 20,870 (89,989)
e. Hydrological correction adjustments 13,256 10,892 12,685 (26,906)
f. Distribution to management and employees (29,928) (24,592) (22,989) (22,634)
g. Pension and other post-retirement benefits (50,795) (41,738) (61,876) (61,876)
h. Accounts receivable – municipalities 4,447 3,654 3,082 1,157
i. Power purchase agreements – after REN disposal (14,845) (12,198) (15,507) (20,124)
j. Investments — — (247,751) —
k. Equity accounting on investments - REN 28,127 23,112 (26,283) 43,256
k. Equity accounting on investments - Hidrocantábrico 4,548 3,737 (6,734) —
m. Derivative instruments — — 99,890 42,285
n. Depreciation of goodwill 66,252 54,439 11,896 —
p. Tariff adjustments (94,827) (77,919) (49,996) —
r. Regulatory assets (48,012) (39,451) — —
Other (1,003) (824) (531) —
u. Income taxes (67,289) (55,291) 63,396 (22,385)

Net adjustments 142,265 116,898 (35,228) 68,413

Net income in accordance with U.S. GAAP 606,075 498,007 299,988 519,208

Basic and diluted net income per share 0.20 0.17 0.10 0.17

Shareholders’ equity
2003 2003 2002
US$ Euro ’000 Euro ’000

Shareholders’ equity as reported under Portuguese GAAP 6,447,675 5,298,007 5,494,182

U.S. GAAP adjustments increase (decrease) due to:

a. Revaluation of fixed assets (1,144,057) (940,063) (1,131,320)
b. Capitalized overheads (854,374) (702,033) (687,560)
c. Exchange differences capitalized (331,376) (272,289) (289,996)
d. Deferred costs (59,690) (49,047) (127,633)
e. Hydrological correction adjustments 384,073 315,590 304,697
f. Distribution to management and employees (27,406) (22,519) (22,989)
g. Pension and other post-retirement benefits 25,545 20,990 62,728
g. Additional minimum pension liability (357,572) (293,814) (216,418)
h. Accounts receivable – municipalities (83,809) (68,865) (72,519)
i. Power purchase agreements – after REN disposal (270,991) (222,671) (210,473)
k. Equity accounting on investments - REN 38,104 31,310 8,198
k. Equity accounting on investments - Hidrocantábrico (3,647) (2,997) (6,734)
l. Gain on disposal of REN (178,401) (146,591) (146,591)
m. Derivative instruments — — 131,181
n. Depreciation of goodwill 80,730 66,335 11,896
 p. Tariff adjustments (155,673) (127,915) (49,996)
q. Guarantees (12,309) (10,114) —
r. Regulatory assets (48,012) (39,451) —
Other (1,682) (1,382) (531)
s. Deferred income taxes on Portuguese books 113,323 93,117 571
t. Income taxes 695,807 571,739 835,571

Net adjustments (2,191,417) (1,800,670) (1,607,918)

Shareholders’ equity in accordance with U.S. GAAP 4,256,258 3,497,337 3,886,264

F-60
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Certain significant line items of the balance sheets as presented on a Portuguese GAAP basis would be as follows after application of
U.S. GAAP differences:
Group

2003 2002
Euro ’000 Euro ’000

Fixed assets 7,172,209 6,601,644

Total assets 17,730,012 16,922,182
Total current liabilities 3,279,785 2,550,817
Total long-term liabilities 10,891,738 10,419,900
Total liabilities 14,171,523 12,970,717
Shareholders’ equity:
Share capital 2,950,980 2,956,507
Other comprehensive income (773,711) (559,329)
Reserves and retained earnings 1,320,068 1,489,088

3,497,337 3,886,266

Total liabilities and shareholders’ equity 17,730,012 16,922,182

Accounts receivable
The amount of accounts receivable, trade and long-term receivables in accordance with U.S. GAAP are as follows:
Group

2003 2002
Euro ’000 Euro ’000

Accounts receivable, trade (Note 6)

Accounts receivables 765,936 703,300
PPA receivables, short-term (less than 1 year) 121,527 110,072

887,463 813,372

Long-term receivables (Note 8)

Long-term receivables 435,842 370,656
PPA receivables, long-term (over 1 year) 3,190,154 3,312,681

3,625,996 3,683,337

Income taxes
The components of the income tax provision and deferred income tax assets and liabilities in accordance with U.S. GAAP is as
follows:
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Current 239,255 171,168 244,012

Deferred 55,291 (63,396) 22,385

294,546 107,772 266,397

The reconciliation of the expected income tax provision computed using the Company’s Portuguese statutory income tax rate of 32%
in 2001, 30% in 2002 and 2003 to the actual income tax provision is as follows:
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Net income before income taxes under U.S. GAAP 696,356 190,460 684,987

Expected income tax expense at the statutory rate 208,907 57,138 219,196
Municipal income taxes 20,891 5,714 21,920
Change in tax rate and in estimates (13,069) (22,863) —
Equity method investments (10,419) (25,985) (4,090)
Goodwill amortization 115,113 71,945 30,947
Other (26,877) 21,823 (1,576)

294,546 107,772 266,397

F-61
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Components of deferred income tax assets and liabilities:
Group

2003 2002
Euro ’000 Euro ’000

Deferred tax assets:

Fixed assets:
Revaluation 155,110 224,001
Overheads capitalized 193,059 226,895
Exchange differences capitalized 74,879 95,699
Deferred costs capitalized 13,488 42,119
Pension and other post-retirement benefits 159,685 221,425
Power purchase agreements 61,235 69,456
Investments — 81,758
Provision for various contingencies 40,207 65,349
Provision for doubtful accounts 4,716 2,325
Tariff adjustments 35,177 —
Regulatory assets 10,849

Total deferred tax assets 748,405 1,029,027

Deferred tax liabilities:

Hydrological correction account investments 86,787 100,550
Deferred in associates — 7,300
Shareholder’s equity reserve 9,079 11,974
Pension minimum liability 80,800 71,418
Tariff adjustments — 2,214

Total deferred tax liabilities 176,666 193,456

Total net deferred tax assets 571,739 835,571

Pensions
EDP uses a December 31, 2003 measurement date for all of its plans. The components of the net periodic pension cost under
U.S. GAAP include the following:
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Service cost 12,240 13,222 14,525

Interest cost 84,849 88,824 74,710
Expected return on plan assets (50,086) (56,031) (57,531)
Worker’s contributions (552) — —
Amortization of net actuarial losses 19,892 72,431 61,212
Amortization of transition obligation 5,826 6,130 6,130

Net periodic pension cost 72,169 124,576 99,047

The following table sets forth the changes and the funded status of the pension plan under U.S. GAAP:
Group

2003 2002
Euro ’000 Euro ’000
Change in benefit obligation
Benefit obligation at beginning of year 1,448,733 1,433,183
Service cost 12,240 13,222
Interest cost 84,849 88,824
Actuarial losses/(gains) 72,036 96,242
Estimated benefits paid (140,975) (144,277)
Exchange losses/(gains) 407 (38,461)

Benefit obligation at end of year 1,477,290 1,448,733

F-62
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Group

2003 2002
Euro ’000 Euro ’000

Change in plan assets

Fair value of plan assets at beginning of year 749,945 781,286
Actual return of plan assets 59,690 60,877
Worker’s contributions 552 —
Actual company contributions 58,287 52,669
Benefits paid (51,856) (53,597)
Actuarial (losses)/gains (413) (77,613)
Exchange losses/(gains) 297 (13,677)

Fair value of plan assets at end of year 816,502 749,945

Funded status of plan (underfunded) (660,789) (698,788)

Unrecognized net actuarial losses/(gains) 532,458 560,246
Unrecognized transition obligation 50,678 23,319

Prepaid (accrued) benefit cost (77,653) (115,223)

Additional minimum pension liability (344,492) (272,922)

Prepaid (accrued) benefit cost / pension liability (422,145) (388,145)

The accumulated benefit obligation in excess of plan assets, is as follows:

Group

2003 2002
Euro ’000 Euro ’000

Projected benefit obligation 1,477,290 1,448,733

Accumulated benefit obligation 1,207,234 1,405,025
Fair value of plan assets 749,945 781,286
As of December 31, 2002 and December 31, 2003 plan assets consisted of:
Group

2003 2002
Euro ’000 Euro ’000

Portuguese State bonds 51,248 51,970

Foreign public bonds 133,380 89,097
Bonds 201,452 274,606
Investment fund units 138,139 128,891
Shares 91,149 24,291
Buildings 185,894 179,517
Cash and equivalents 45,693 19,403
Commercial paper 3,994 2,984
Other (3,772) 7,599

847,177 778,358
Plan assets relating to others (REN) (30,675) (28,413)

816,502 749,945
Following an asset - liability modelling study concluded in 2003, the EDP Group and the Consultants and the Asset Managers
considered the target asset allocation mentioned below to be the appropriate for the stability and security of Pension Fund assets,
level of periodic contributions and of the financing of the projected liabilities, taking into account investments restrictions, a risk
profile and a level of returns:
a) Investment strategy for three years, except actual property in the amount of 180 million Euros, currently rented to
the Associates that should be reduced :
• Bonds : 70% (min. 50%, max. 85%)
• Equities: 30% (min. 15%, max.40%)
• Property: max. 5% .
b) Asset returns measures against strategic benchmark.
c) Risk diversification policies.
F-63
A summary of the assets of the plan, classified into its major assets classes, is shown below as at December 31, 2003:
Rates

Total Bonds 45.60%

Total Cash 5.60%
Total Equities 23.70%
Property 25.10%

100.00%

In calculating the liabilities inherent in pension and other benefits within the EDP Group the following financial and actuarial
assumptions were used:
2003

Other
Pension Benefits benefits

Portugal Brazil Portugal

Euro’000 Euro’000 Euro’000

Assumptions
Discount rate 5.20% 10.24% 5.20%
Long term rate of return on assets 5.70% 10.24% n.a.
Wage growth rate 3.30% 7.12% n.a.
Pension growth rate 2.25% 7.12% n.a.
Inflation rate 2.00% 4.00% n.a.
Medical trend rate n.a. n.a. 4.50%

2002

Other
Pension Benefits benefits

Portugal Brazil Portugal

Euro’000 Euro’000 Euro’000

Assumptions
Discount rate 6.00% 10.24% 6.00%
Long term rate of return on assets 6.50% 10.24% n.a.
Wage growth rate 3.30% 7.12% n.a.
Pension growth rate 2.25% 7.12% n.a.
Inflation rate 2.00% 5.00% n.a.
Medical trend rate n.a. n.a. 4.50%
The assumptions to determine the overhall expected, “Rate of return on assets”, was determined with reference to EDP’s target
allocation and the best expectations for the long term returns on each of the following assets classes:
Weitght
Weitght Real return return

European Equities 16.00% 7.40% 1.20%

Global ex.European Equities (unhedged) 6.00% 7.80% 0.50%
Euro Gov.Bonds-Fixed Rate 31.00% 2.30% 0.70%
Euro Corp.Bonds-Fixed Rate 6.00% 2.90% 0.20%
Euro Variable Rate 15.00% 0.50% 0.10%
Property 26.00% 5.00% 1.20%

Euro inflation n.a. 1.80% 1.80%

Total 100.00% 5.70%

 The following is a summary of the significant assumptions used in the determination of the pension obligation:
2003 2002 2001
Rates Rates Rates

Weighted average discount rate 5.2% 6.0% 6.5%

Rate of increase in compensation 3.3% 3.3% 3.5%
Expected rate of return on plan assets 5.7% 6.5% 7.5%
Expected percentage of eligible staff electing early retirement * * *

* During 2002 it was estimated that employees applying for early retirement would be 70% of the eligible employees. From 2003
and on, it was estimated that only 40% of eligible employees will apply for early retirement.
F-64
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Other post-retirement benefits

EDP provides comprehensive medical coverage, in addition to that provided by the Portuguese national health system, for
retired employees (including those who have taken early retirement) and their dependents. Additionally, the Company provides
a death benefit to its retirees’ survivors. The Company administers the program internally and assumes the full cost of funding
the program net of employee contributions amounting to approximately 10% of the total medical expenses covered.
A summary, of the components of the net periodic post-retirement benefit cost under U.S. GAAP, is presented in the following
table:
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Service cost 5,942 6,540 6,714

Interest cost 29,049 30,095 28,781
Amortization of transition obligation 5,022 4,873 4,873

Net periodic post-retirement benefit cost 40,013 41,508 40,368

The following table sets forth the changes and the funded status of the plan under U.S. GAAP as of December 31, 2002 and
December 31, 2003:
Group

2003 2002
Euro ’000 Euro ’000

Change in benefit obligation

Benefit obligation at beginning of year 496,201 474,371
Service cost 5,942 6,540
Interest cost 29,049 30,095
Actuarial losses 153,162 7,929
Benefits paid (24,099) (22,735)

Benefit obligation at end of year 660,255 496,200

Unfunded status of plan (660,255) (496,200)
Unrecognized (gains)/losses 205,251 52,237
Unrecognized transition obligation 42,377 47,251

Accrued benefit cost (412,627) (396,712)

The assumed medical cost trend rate used in measuring the accumulated post-retirement benefit obligation as of December 31,
2003 was 4.5% for the next nine years and 4% after. The health cost trend rate assumption has a significant effect on the
amounts reported.
The assumed discount rate and salary growth rate used in determining the accumulated post-retirement benefit obligation was
5.2% and 3.3%, respectively, as of December 31, 2003 and 6% and 3.3%, respectively as of December 31, 2002.
FAS 106 allows recognition of the cumulative effect of the liability in the year of adoption or the amortization of the obligation
over a period of up to 20 years. The Company has elected to recognize the initial post-retirement benefit obligation of Eur
101,455 thousand as of January 1, 1995, over a period of 17.7 years, the average remaining service period of the employee
group.
The table below shows the expected benefit payments projections for the next ten years, based on the same assumptions used in
the current year and in accordance with FAS 132:
Expected benefit payments

Pension Other
2004 149,982 26,414
2005 141,491 27,390
2006 133,195 28,375
2007 124,254 29,391
2008 114,853 30,420
2009 105,496 31,430
2010 97,308 32,464
2011 88,925 33,564
2012 81,720 34,708
2013 76,252 36,094
2014 73,505 37,507
F-65
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Defined Contribution Plans

Hidrocantábrico has social benefits Defined contribution plans that complement those benefits granted by the Social Welfare
Systems to the companies’ employees, under which they pay a contribution to these plans each year, calculated in accordance
with the rules established in each case.The payments were Eur 20,568 thousand and Eur 17,912 thousand in 2003 and 2002
respectively
Research and development expenses
Research and development expenses under U.S. GAAP amounted to Eur 76,021 thousand in 2001, Eur 44,180 thousand in 2002
and Eur 15,523 thousand in 2003.
Comprehensive income
For purposes of presenting its reconciliation of shareholders’ net equity and net income from Portuguese GAAP to U.S. GAAP,
in 1998 the Company adopted FAS 130, “Reporting Comprehensive Income”. This standard requires reporting the components
of comprehensive income, the change in equity (net assets) of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources, and the components thereof in an entity’s financial statements. The non-
owner changes in equity that have not been included in income include accounts such as foreign currency translation
adjustments and unrealized gains and losses on available-for-sale securities. The adoption of FAS 130 resulted in revised and
additional disclosures for U.S. GAAP reporting purposes, but had no effect on the financial position, results of operations, or
liquidity of the Company.
The comprehensive income for each of the three years in the period ended December 31, 2001, 2002 and 2003 is as follows:
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Net income in accordance with U.S. GAAP 498,007 299,988 519,208

Change in currency translation adjustment (193,032) (300,028) (48,819)
Unrealized gains (losses) on investments 47,947 (21,223) (19,436)
Tax effect of unrealized gains (losses) on investments (13,185) 6,791 6,842
Additional minimum pension liability (77,396) (216,418) —
Tax effect on additional minimum liability 21,284 71,418 —

Comprehensive income 283,625 (159,472) 457,795

Earnings per ordinary share

Basic earnings per share is based upon the weighted average number of Ordinary Shares outstanding during the year. Diluted
earnings per share is computed on the basis of the weighted average number of Ordinary Shares outstanding during the year plus
the effect of Ordinary Shares issuable upon the exercise of employee stock options using the treasury stock method. During
1999, the Company established two employee stock option plans. The shares issued under these plans had no material effect on
the weighted average Ordinary Shares outstanding. Ten Ordinary Shares equal one American Depository Share (ADS).
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Net income – Portuguese GAAP 381,109 335,216 450,795

Net income - U.S. GAAP 498,007 299,988 519,208
net income from continuing operations:
Net income – Portuguese GAAP 381,109 779,216 450,745
Net income - U.S. GAAP 498,007 743,988 519,208
Weighted average Ordinary Shares outstanding 2,978,569,036 2,982,571,074 2,988,273,791
Weighted average ADS outstanding 297,856,904 298,257,107 298,827,379
F-66
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
Group

2003 2002 2001

Euro Euro Euro

Net income per Ordinary Share

Basic and diluted – Portuguese GAAP 0.13 0.11 0.15
Basic and diluted – U.S. GAAP 0.17 0.10 0.17
-net income from continuing operations:
Basic and diluted – Portuguese GAAP 0.13 0.26 0.15
Basic and diluted – U.S. GAAP 0.17 0.25 0.17
Net income per ADS:
Basic and diluted – Portuguese GAAP 1.28 1.12 1.51
Basic and diluted – U.S. GAAP 1.67 1.01 1.74
-net income from continuing operations:
Basic and diluted – Portuguese GAAP 1.28 2.61 1.51
Basic and diluted – U.S. GAAP 1.67 2.49 1.74
Goodwill
For U.S. GAAP purposes, the goodwill for each reportable segment is as such:
Group

Electricity
Spain Brazil Telecom IT Other business TOTAL

December 31, 2001 — — 287,480 67,560 1,488 356,528

Entries/(exits) of subsidiaries — — 0 0 14,598 14,598
Additions — — 2,742 455 228 3,425
Disposals — — -5,533 0 0 -5,533
Impairment losses — — -170,507 0 0 -170,507

December 31, 2002 — — 114,182 68,015 16,314 198,511

Transfers from concession rights 706,226 706,226

Additions 3,806 1,064 241 34,717 39,828
Disposals -7,433 -5,069 -12,502

December 31, 2003 706,226 3,806 107,813 68,256 45,962 932,063

The impairment loss in 2002 is due to the discontinuation of Oniway business, with a total loss of Eur 444 million, including the
impairment of goodwill of Eur 170 million. The results of Oni way prior to discontinuation were not material. In 2001 the
amortization expense of Goodwill was Eur 16,668 thousand. Since then, the goodwill amortization is adjusted and presented in
the US reconciliation, due to the fact that U.S. GAAP requires that goodwill is not amortized but tested for impairment.
From January 1, 2002, goodwill is no longer amortized under U.S. GAAP but reviewed annually for impairment under FAS 142
“Goodwill and Other Intangible Assets”. Goodwill amortization of Eur 11,896 thousand in 2002 and Eur 54.439 thousand in
2003 are charged against Portuguese GAAP earnings and added back in the U.S. GAAP reconciliation.
Group

2003 2002 2001

Euro ’000 Euro ’000 Euro ’000

Reported net income under U.S.GAAP 498,007 299,988 519,208

Goodwill amortization — — 16,668
Adjustment net income 498,007 299,988 535,876
Basic and diluted earnings per share:
Reported net income 0.17 0.10 0.16
Goodwill amortization — — 0.01
Adjustment net income 0.17 0.10 0.17
F-67
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001

Intangible assets
For concession rights and other intangible assets, subject to amortization under U.S. GAAP, the agregate amortization expense
for the current year and estimated aggregate amortization expense for each of the five succeeding fiscal years are:

Agreegate amortization expense

2003 72,940
Estimated amortization expense
2004 72,940
2005 62,952
2006 57,795
2007 47,315
2008 40,501

Unrealized losses in investments available for sale, classified as temporary losses.

Acquisition Market value Loss charged
Cost/Balance At December to equity in
sheet value 31, 2003 2003

CERJ 97,767 88,717 (9,050)

BCP 305,038 277,149 (27,889)
Optep 315,000 314,749 (251)

717,805 680,615 (37,190)

All investments are in common stock. These losses results from valuations reports performed by independent specialists (CERJ
and Optep), and from a decrease in the publicly traded shares of BCP (listed company in the Lisbon stock exchange).
In the previous year the loss in BCP was charged to the income statement (Eur 247,751 thousand) because that loss was
considered other than temporary. In the first months of 2004 BCP started to recover its value in the stock market, and as such the
2003 loss is considered temporary. By the end of May 2004, BCP has recovered a significant part of the 2003 loss. The BCP
listed price at December 31, 2003 was Eur 1.77, and by the end of the first quarter was Eur 2.01.
Equity investments
EDP’s investments in associates accounted for under the equity method are presented in note 9 of these consolidated financial
statements. The summarized financial information of the most relevant are presented below:
2003 2002

REN HC Other REN HC Other

Euro ‘000 Euro ‘000 Euro ‘000 Euro ‘000 Euro ‘000 Euro ‘000

Fixed assets 1,422,362 4,385,891 1,290,596 1,380,797 3,852,993 1,281,738

Current assets 221,993 376,429 161,511 222,323 421,456 81,375
Non current assets 696,422 53,749 10,465 342,901 619 61,661

Total Assets 2,340,777 4,816,069 1,462,572 1,946,021 4,275,068 1,424,774

Loans 280,000 1,969,187 722,184 326,667 2,041,585 642,535

Current liabilities 1,193,071 472,238 161,788 523,443 321,698 165,540
Non current
liabilities 20,297 247,977 123,808 308,024 238,605 115,588

Total Liabilities 1,493,368 2,689,402 1,007,780 1,158,134 2,601,889 923,663

Minority interest 437,817 12,290 —

Equity 847,409 1,688,850 454,792 787,887 1,660,889 501,111
Total Equity 847,409 2,126,667 454,792 787,887 1,673,179 501,111

Net Revenue 2,359,587 1,660,055 559,545 2,302,868 1,462,082 579,489

Operating Costs (2,004,361) (1,528,064) (299,052) (2,278,753) (1,316,360) (311,652)
Other operating
income (227,287) 25,210 (90,441) 92,423 — (133,543)
Non operating costs,
net (34,451) (103,847) (127,789) (51,113) (133,291) (92,740)
Minority interest (13,038) 2,135

Net income 93,488 40,316 42,263 65,425 14,565 41,553

Percentage owned
by EDP: 30.00% 40.00% — 30.00% 40.00%
F-68
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
2001

REN HC Other
Euro ‘000 Euro ‘000 Euro ‘000

Fixed assets 1,352,585 1,922,000 37,593

Current assets 223,693 425,000 6,588
Non current assets 406,364 76,000 —

Total Assets 1,982,642 2,423,000 44,181

Loans 350,000 847,000 7,554

Current liabilities 579,204 93,000 4,902
Non current liabilities 307,443 445,000 5,829

Total Liabilities 1,236,647 1,385,000 18,285

Minority interest
Equity 745,995 1,038,000 25,896

Total Equity+Minority interest 745,995 1,038,000 25,896

Net revenue 2,209,104 1,180,000 17,172

Operating costs (2,126,601) (1,033,000) (7,552)
Other operating income 15,682 7,000 (6,298)
Non operating costs, net (53,685) (81,000) (1,759)
Minority interest — 1,000 —

Net income 44,500 74,000 1,563

Percentage owned by EDP: 30.00% 9.50% —

Proportional consolidation
As mentioned in note 2c, the Company consolidates interests in jointly controlled entities, using the proportional method,
namely Hidrocantábrico (HC). For U.S. GAAP purposes, investments in jointly controlled entities must be accounted for using
the equity method. The differences in accounting treatment between proportional consolidation and the equity method of
accounting have no impact on reported stockholders’ equity or net income. Rather, they relate solely to matters of classification
and display.
Condensed financial information relating to the Company’s pro rata interest in Hidrocantábrico is as follows:
HC 2003 HC 2002

Balance sheet information Euro '000 Euro '000

Tangible and intangible fixed assets 1,870,271 1,657,112
Current assets 150,572 168,582
Non current assets 21,500 248

Total assets 2,042,343 1,825,942

Loans 787,675 816,634

Current liabilities 188,895 128,679
Non-current liabilities 99,191 95,442

Total liabilities 1,075,761 1,040,755

 Minority interests 175,127 4,916

EDP's investment 791,455 780,271

Statement of income information

Net revenue 664,022 321,351
Operating costs, net -601,142 -295,194
Other operating income (costs) -41,539 -29,257
Minority interests -5,215 391

Net income 16,126 -2,709

Employee stock option plans

The Company has two fixed option plans. Under the 1999 option plan for members of the Board of Directors of EDP, the
Company may grant options for up to 2,450,000 shares of common stock. Under the 1999 option plan for members of the boards
of directors of the EDP’s operating companies and senior officers of EDP and its subsidiaries, the Company may grant options
for up 16,120,000 shares of common stock. Under both plans, the exercise price of each option equals the market price of the
Company’s stock on the date of grant and an option’s maximum term is 5 years. Options are granted at the discretion of the
board of directors of EDP and vest over a two year service period.
A summary of the status of the Company’s two fixed stock option plans as of December 31, 2002 and 2003, and changes during
the years then ended on those dates is presented below:
Shares available
for grant under Weighted
1999 option Option average
plans activity exercise price

Balance December 31, 2001 16,413,750 2,286,250 —

Options forfeited — — —
Options granted — — —

Balance December 31, 2002 16,413,750 2,286,250

Options forfeited — (353,992) —

Options granted (1) — 490,000 —

Balance December 31, 2003 16,413,750 2,422,258

At the general shareholders meeting held on May 10, 2000, an increase in the number of options available under the 1999 options
plans was approved to adjust the plans for an increase in the number of directors from 5 to 7.
Of 2,400,000 options granted in 1999, only 2,286,250 were accepted by directors and executive officers.
(1) The number of options to be granted for 2004 has not yet been determined.

F-69
 EDP - Electricidade de Portugal, S.A.
Notes to the Financial Statements
December 31, 2003, 2002 and 2001
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2003.
Weighted
Weighted average
Options average exercise remaining Options
outstanding price contractual life exercisable

2,422,258 3.35 1.3 years —

40. Relevant and subsequent events
EDP and Hidrocantábrico constitute a European Economic Interest Group
On January 12, 2004, EDP – Electricidade de Portugal, through CPPE – Companhia Portuguesa de Produção de Electricidade,
and Hidrocantábrico agreed to set up a European Economic Interest Group (EEIG) with a view to developing and putting into
practice a process of contracting and adjudicating equipment to reduce emissions of sulphur dioxide into the atmosphere at their
Sines, Aboño and Soto de Ribera power stations. Both companies will participate in the EEIG on equal footing.
Both parties will look into the possibility of extending the present agreement to the management and execution of contracts to be
awarded on the basis of this process. The EEIG, which will be headquartered in Oviedo, is a type of company association
created under an EEC regulation dated 1985 and is governed in Spain by a law dating from 1991. This type of association, with
its own legal personality, is designed to simplify inter-company cooperation within the European Union. The option taken –
involving a single adjudication process – means that the process must be governed by one of the applicable national laws; in this
case the decision was taken to opt for Spanish law.
The joint installed power covered by the contracting and adjudication process totals around 2,166 MW and – in an average year
– the three power stations in question burn about 7.5 million tons of coal. In accordance with the European Directive, the new
equipment is expected to be operational during the last quarter of 2007, leading to sulphur dioxide emissions by the respective
groups of these three power stations in accordance with the figures established by the directive (400 mg/Nm3).
EDP concludes Framework Agreement with a view to Acquisition of Control of the Natural Gas Industry in Portugal
On February 6, 2004, within the context of Council of Ministers’ Resolution 68/2003 of May 10, in respect of the restructuring
of the Portuguese energy sector, EDP concluded a framework agreement with Eni, S.p.A. (Eni), establishing the heads of
agreement reached by the parties with regard to bringing together the gas and electricity industries, and also with regard to the
final structure of the share capital of GDP, SGPS, S.A. (GDP), 51% of which is expected to be held by EDP and 49% by Eni.
However, during the transition period, REN – Rede Eléctrica Nacional may come to have a minority holding in GDP up to the
conclusion of the process of separation of regulated assets such as the high-pressure natural gas network. The direct involvement
of these companies in the natural gas business will be undertaken on the basis of a reference figure of Eur 1,2 billion attributed
to the whole of the gas assets (including such regulated assets as come to be transferred to REN) currently held by the GALP
Energia group. Implementation of this transaction is based on the assumption that the direct involvement of EDP in the natural
gas business will be underpinned by the economic value resulting from its sale of its holding in GALP Energia, in which EDP
has a 14.7% stake, and for this reason it is not expected that the transaction will require any additional investment by EDP. EDP
and Eni will make a start as from this time to talks concerning the contracts to structure the operation and to define the corporate
governance of GDP, to be concluded by March 31, 2004. The conclusion of the transaction will in any case depend on approval
by the respective fair trade authorities.
EDP Clarifies the Market on the Process of Definition of the Compensation Value of the CAEs
On March 5, 2004, EDP informed the market and the public in general that the process of definition of the value of
compensation (CMEC – Contractual Balance Maintenance Costs) linked to the possible transition of the energy acquisition
contracts (CAEs) to the market system within the scope of MIBEL was still underway and had not therefore been concluded.
On March 8, 2004, in response to several requests for clarification in view of the news published in respect of the early
termination of the Energy Acquisition Contracts (CAEs), EDP once again stated:
1. That not being party to the work of the European Commission and the Portuguese Government in progress in Brussels, EDP
was entirely unaware of any progress or of the content thereof;
2. That investors and the market in general should not base investment decisions on the figures that had been published, which
EDP considered totally unfounded and whose calculation criteria it was unable to reconstitute; and
3. That, as it had disclosed on several occasions, EDP would only formalise the early termination of the CAEs, provided that an
economically neutral and equivalent alternative were ensured, certified by independent entities, and that it believed that this
could occur by April 20, 2005.
F-70
 Exhibit 8.1
As of December 31, 2003
LIST OF SUBSIDIARIES
The following is a list of our subsidiaries (which are also the names under which they do business). The jurisdiction of incorporation
of these subsidiaries is Portugal unless otherwise indicated.
EDP - Gestão da Produção de Energia, S.A. (“EDP Produção”)
CPPE - Companhia Portuguesa de Produção de Electricidade, S.A. (“CPPE”)
HDN-Energia do Norte, S.A. (“HDN”)
HIDROCENEL-Energia do Centro, S.A. (“HIDROCENEL”)
REN - Rede Eléctrica Nacional, S.A. (“REN”)
EDP-Distribuição Energia, S.A. (“EDPD”)
Electricidade de Portugal Internacional, S.G.P.S., S.A. (“EDP Internacional”)
EDP Brasil S.A. (incorporated in Brazil)
Iven, S.A (incorporated in Brazil)
EBE-Empresa Bandeirante de Energia, S.A. (“Bandeirante”) (incorporated in Brazil)
Escelsa – Espirito Santo Centrais Eléctricas S.A. (“Escelsa”) (incorporated in Brazil)
Enersul – Empresa Energética do Mato Grasso do Sul S.A. (“Enersul”) (incorporated in Brazil)
Hidrocantábrico – Hidroeléctrica del Cantábrico S.A. (“Hidrocantábrico”) (incorporated in Spain)
Hidrocantábrico Distribuición Eléctrica, S.A.U. (incorporated in Spain)
Naturcorp Multiservicios, S.A.U. (“Naturcorp”) (incorporated in Spain)
Sinae Energia y Medioambiente, S.A. (“Sinae”) (incorporated in Spain)
EDINFOR - Sistemas Informáticos, S.A. (“EDINFOR”)
ONI SGPS – Sociedade Gestora de Participações (“ONI”)
 Exhibit 12.1
CERTIFICATIONS
I, João Ramalho Talone, certify that:
1. I have reviewed this annual report on Form 20-F of EDP – Electricidade de Portugal, S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent
function):
a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.

Date: June 30, 2004 /s/ João Ramalho Talone

João Ramalho Talone

Chief Executive Officer
I, Rui Miguel Horta e Costa, certify that:
1. I have reviewed this annual report on Form 20-F of EDP – Electricidade de Portugal, S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent
function):
a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.

Date: June 30, 2004 /s/ Rui Miguel Horta e Costa

Rui Miguel Horta e Costa

Chief Financial Officer
2
 Exhibit 13.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), each of the undersigned officers of EDP – Electricidade de Portugal, S.A. (the “Company”), does hereby certify to such
officer’s knowledge that:
The Annual Report on Form 20-F for the year ended December 31, 2003 (the “Form 20-F) of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly
presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 30, 2004 /s/ João Ramalho Talone

João Ramalho Talone

Chief Executive Officer

Date: June 30, 2004 /s/ Rui Miguel Horta e Costa

Rui Miguel Horta e Costa

Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to EDP – Electricidade de Portugal, S.A. and
will be retained by EDP – Electricidade de Portugal, S.A. and furnished to the Securities and Exchange Commission or its staff upon
request.