This year, EDP will be publishing a single report divided into five different sections:

> The EDP section describes the company and the framework in which it operates in its different markets and includes a summary of the main financial, economic, operational, environmental and social performance indicators. It also contains the Group's strategic agenda for 2009-2012.

> The Business section gives a summary of the Group's operational performance by type of business, (electricity and gas) and by market.

> The Contribution to Sustainability section is designed to live up to the expectations of the company's main stakeholders.

> The Corporate Governance section abides by Regulation 1/2007 of the Portuguese Securities Market Commission (CMVM).

> The Financial Information section analyses the company's performance and includes financial statements in line with financial reporting standards.

This report gives an overview of the company's business performance and good sustainability practices and seeks to live up to the expectations shared by its main stakeholders. It is not intended to replace other forms of communication designed for specific stakeholders.

The report's purpose is also to comply with CMVM Regulation 1/2007, the Companies Code, the Corporate Governance Code and the Duty of Information Regulation (5/2008).

The criteria for selecting contents and assessing their materiality are:

> Impacts on financial profit/loss,

> Contribution to the implementation of company strategy and sustainability of business,

> Environmental and social relevance of the business,

> Response to different shareholders' expectations in the Group's performance.

The following matters are therefore reported in different forms:

> Those relevant to the internal financial reporting control system (SCIRF),

> Management of significant environmental aspects identified in the Group's environmental management systems,

> Public commitments made to investors, customers or the communities where EDP operates,

> Those of particular interest to other stakeholders, such as government authorities, the CMVM and other regulators, ethically and socially responsible investors and organisations representing the interests of sectors impacted by the Group's activity. All these stakeholders are regularly asked to provide the company with economic, environmental and social information.

Reports also take account of the Group's voluntary commitments, such as its membership of the Global Compact, in matters of integrity and respect for human rights.

Dialog with their stakeholders is a commitment of the company expressed in EDP’s Principles for Sustainable Development: Ensure an open, transparent and trustful relationship with the different stakeholder group; Establish stakeholder communication channels and integrate their concern; Report performance in a credible, objective way in its economical, environmental and social dimensions.

During 2009, EDP started a thorough process to assess the company’s maturity level, in its strategic, procedural and operational approach, against AA1000 APS (2008) standards. These standards, supported in three main principles: Inclusion, Materiality and Response, are important to increase the effectiveness of how EDP communicates and promotes dialogue, replying to the expectations and increasing requirements of different stakeholders.

This process is being developed at a corporate level, including an analysis of the Portuguese specificities, along with the ones from the main EDP Companies, such as EDP renewable; HC Energia and EDP Brazil. Within different maturity stages, the challenge is to guaranty a strategic alignment along with specific approaches to local expectations. It is EDP goal to maintain common strategic priorities within all its companies, letting specific issues be dealt according with its local importance. Harmonization procedures will be set in 2011.

EDP Asked KPMG the verification according to AA1000 AS (2008), Type 2. The verification process includes not only the information disclosed in the EDP’s Annual Report 2010, but also the alignment of EDP’s practices with the principle of inclusion, materiality and response. In Dialog with Stakeholders is available a list with the main stakeholder segments of EDP, as well as the description of the main practices in place, according with AA1000 standard. 


PRINCIPLE OF INCLUSION

A stakeholder is all and any agent with influence and being influenced by the company activities, in a direct or indirect way. An inclusive company promotes participation of stakeholders in the development of a strategic response to sustainability. EDP recognises this principle in its engagement processes e commits itself to improve the process of stakeholder identification, guaranteeing that the stakeholder perspective is always considered.

From all the initiatives developed it was possible to improve the knowledge about the concerns and expectations of different stakeholders and continue the action plans ongoing. It is believed that its results will contribute to a continuous improvement of EDP’s sustainability performance.
 
 PRINCIPLE OF MATERIALITY

The macro-economic context, where the challenges of sustainability are increasing, summing up with the diversity of EDP’s stakeholders, results in a large and complex list of important issues, which must be prioritised according to its relevance and significance. An issue is considered material when it influences the decision, the action and the performance of an organization and its stakeholders.

EDP’s material issues were identified through the Accountability’s methodology, which ensures a balanced and cleared assessment of data collected internally and throughout the different channels opened for different stakeholders: Satisfaction surveys; surveys to perceive the opinion stakeholders have on EDP’s sustainability performance; workshops to discuss and assess the level of engagement, etc.

Comparing the 2009 material issues, in 2010 Climate Change and Environmental Protection are still the main concerns, with Innovation, renewable energies and energy efficiency arising as shared priorities.All these issues are covered by the Annual Report and an action plan is being developed to reinforce the engagement around these issues, specifically to identify new opportunities to strengthen partnerships with different stakeholders.




PRINCIPLE OF RESPONSE 

The organization ensures the principles of response through the improvement of its sustainability performance, as a result action plans and decisions, in a continuous dialog with its stakeholders.

EDP has a set of policies, with objectives and goals framed in processes and initiatives where engagement with stakeholders is continuously being reinforced. Improve the focus of these initiatives in the material issues, ensuring the right stakeholders are involved will allow the company to be more effective in achieving those goals, common to those stakeholders.

For more information about the initiatives in place, please consult Stakeholders and Dialog with Stakeholders.


MAIN INITIATIVES DURING 2010

During 2008, EDP carried out a thorough identification of all its stakeholders and since then, has ongoing:

> a revision of the above mentioned process, having approved already a corporate Coordination Area for Stakeholder Relations (see page 125). 

> During 2010:

          - The Executive Board met with the Environmental and Sustainability Board – an external advisory statutory body (see page 117).  

          - A workshop with experts on different suitability subjects was conducted to discuss about sustainability strategies and material issues for the company;

          - Surveys were conducted comprising local communities, living in the surroundings of generation facilities under operation;

          - Satisfaction surveys were conducted and the reinforcement of the investors’ engagement channels was performed.

          - Surveys were also conducted comprising NGO and Suppliers

          - Meetings and workshops were promoted with media, suppliers and public authorities;

          - An internal training  session was conducted to clarify AA1000 principles, as well as to reinforce the use of these principles on stakeholders engagement processes.

With several initiatives being conducted within an annual basis, the challenge in to ensure an effective and efficient dialog between different parties, as well as promote the best practices within all EDP’s Companies.

During 2011 EDP will promote feedback to all participants, as well as will develop action plans to guaranty the focus on material issues

In page 67 can be consulted some specific commitments for 2011.

 Annual reports and accounts are prepared on the basis of the Global Reporting Initiative, Electric Utility Sector Supplement. EDP wishes to improve reporting of these indicators to further improve its compliance.

The table in the hard-copy version has been simplified and there is a detailed description in Publications. 

 In 2004, EDP joined the Global Compact initiative introduced by Koffi Annan, the UN Secretary-General at the time. This report has recounted progress in complying with the 10 Global Compact principles.
 

The EDP organisation structure, in the business section displays the range of companies covered by the annual report.

The same consolidation criteria were used as in 2009. The following accounting methods were adopted for the consolidation of accounts:

> Full consolidation method: where the parent company holds the majority of voting rights (% control) in the subsidiary, either directly or indirectly. The results of such subsidiaries are reported at 100%.

> Proportional consolidation method: where a company included in the accounting consolidation perimeter runs another company together with one or more companies not included in the perimeter. In this case, only the results corresponding to the percentage stake in the jointly-controlled company are reported.

All the companies consolidated using both methods are listed in Note 52 to the financial statements in the annual report.

The checks were conducted by an independent organisation, KPMG Advisory, Consultores de Gestão, Lda, which was selected in 2008 on the basis of an invitation to tender in Portugal, submitted to four companies of recognised experience in the field.

For a better understanding of the report, our on-line glossary includes definitions of the quantitative indicators given.