Edison: Standard & Poor’s places Edison rating BBB on "Credit Watch Developing "

Milan, June 21, 2011 – Edison informs that Standard & Poor’s rating agency has today placed the Edison long-term credit rating BBB on “Credit Watch Developing”.

The Credit Watch placement, according to the agency, reflects the possibility either to raise or to lower the company’s rating in the near term. With this formula Standard & Poor’s takes into account the possible changes in Edison’s ownership structure and governance as well as the impact on the business risk profile determined by the weakness of the energy demand and by the longer than expected renegotiation process of long-term gas procurement contracts.

According to Standard & Poor’s the BBB rating on Edison reflects its well-established position as Italy’s second-largest electricity and gas group, its efficient power generation fleet, its increased financial discipline through the reduction of capital expenditure and a one-notch uplift for shareholder support from its joint owner Edf.

Edison is confident it will be successful in renegotiating at least one long-term gas procurement contract by the end of the year. The Company’s objective will continue to be securing in the next few years both reasonable margins on its gas contracts and lump-sum compensation payments for the previous years.

Here below the full text of the press release circulated by Standard & Poor’s:

Edison 'BBB/A-2' Ratings Placed On CreditWatch Developing On Weakening SACP And Uncertainty Over Shareholder Structure

Overview
We believe that Italy-based utility Edison SpA is operating in increasingly challenging market conditions, pressuring the group's profitability and credit metrics.

In our opinion, any prolonged uncertainty concerning Edison's shareholder structure may impair its ability to refinance its debt over the medium term.

We are therefore placing our 'BBB/A-2' ratings on Edison on CreditWatch developing. The CreditWatch listing reflects the possibility of either a downgrade or an upgrade due to downward pressure on Edison's stand-alone credit profile and possible changes to the group's ownership structure.

LONDON (Standard & Poor's) June 21, 2011--Standard & Poor's Ratings Services said today that it placed its 'BBB' long-term and 'A-2' short-term corporate credit ratings on Italy-based utility Edison SpA on CreditWatch with developing implications.

The ratings on Edison continue to reflect a one-notch uplift for shareholder support from joint owner Electricite de France S.A.(EDF; A+/Stable/A-1).

The CreditWatch placement reflects the possibility of us either lowering or raising the ratings in the near term. This possibility is based on our view of increasing negative pressure on Edison's 'bbb-' stand-alone credit profile (SACP) and the potential rating implications of changes in Edison's ownership structure and governance.

We believe that challenging market conditions in Edison's midstream gas operations are likely to result in much lower profitability and cash flows over the medium term. This could lead us to reassess our view of Edison's business risk profile, which we currently classify as strong. In 2010, the market price for gas fell below the cost of gas imported under long-term take-or-pay contracts. This led to negative gas supply margins and a loss in
Edison's gas segment. As a consequence, Edison's results for the first quarter of 2011 remained, in our opinion, very weak, with an EBITDA decline of 43% compared with the previous year. Although we understand that Edison is currently renegotiating all of its gas supply contracts, we believe that gas margins may remain negative for longer than we previously anticipated. Therefore, we consider that Edison's credit metrics are likely to fall well below levels that we view as commensurate with the current ratings in 2011 and
2012.

In our opinion, the current negotiations between EDF and Delmi SpA (not rated)--an investment vehicle 51%-owned and controlled by Italian utility A2A SpA (BBB+/Negative/A-2)--with respect to the joint ownership of Edison, could affect the ratings on Edison in the following ways:

- Should EDF gain further control of Edison, we believe that Edison's credit quality could strengthen.
- Should EDF sell its stake in Edison, we would remove the one-notch uplift for shareholder support that is currently reflected in the corporate credit ratings in line with our parent-subsidiary criteria
- Should EDF gain full managerial control of Edison, and should we
subsequently assess Edison as a core subsidiary of EDF, we could likely equalize the ratings on Edison with EDF's SACP.

We believe that Edison's current ownership structure is unlikely to be maintained because the operating synergies between Edison and its two main shareholders remain limited.

We think that political risks in relation to the negotiations of the shareholder agreement have increased, and, in the context of these negotiations, Delmi, A2A, and EDF have already extended the deadline for a possible nonrenewal of the agreement to Sept. 15, 2011.