SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

Commission file number: 1-13240

Securities registered or to be registered pursuant to Section 12(b) of the Act:

*Listed, 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:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   o No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No

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:

x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

Indicate by check mark which financial statement item the registrant has elected to follow:

o Item 17    o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

TABLE OF CONTENTS

Endesa Chile’s Simplified Organizational Structure (1)

As of December 31, 2009

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GLOSSARY

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INTRODUCTION

As used in this report on Form 20-F, first person personal pronouns such as “we,” “us” or “our” refer to Empresa Nacional de Electricidad S.A. (Endesa Chile or the Company) and our consolidated subsidiaries unless the context indicates otherwise.  Unless otherwise noted, our interest in our principal subsidiaries and related companies is expressed in terms of our economic interest as of December 31, 2009.

We are a Chilean company with electricity generation assets, and with subsidiaries and unconsolidated equity investments engaged primarily in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru.  As of the date of this report, our direct controlling entity, Enersis S.A. (Enersis), owns a 60.0% stake in our company.  ENDESA, S.A. (Endesa Spain), in turn, holds a 60.6% beneficial interest in Enersis.  Enel S.p.A., an Italian electricity generation and distribution company, owns 92.1% of Endesa Spain through a wholly-owned subsidiary.

Financial Information    

In this report on Form 20-F, unless otherwise specified, references to “dollars,” “$,” are to dollars of the United States of America; references to “pesos” or “Ch$” are to Chilean pesos; the legal currency of Chile; references to “Ar$” or “Argentine pesos” are to the legal currency of Argentina; references to “R$,”  or “reais” are to Brazilian reals, the legal currency of Brazil; references to “soles” are to Peruvian Nuevo Sol, the legal currency of Peru; references to “CPs” or “Colombian pesos” are to the legal currency of Colombia; references to “€” or “Euros” are to the legal currency of the European Union; and references to “UF” are to Unidades de Fomento.

The Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary unit.  The UF rate is set daily in advance based on changes in the previous month’s inflation rate.  As of December 31, 2009, UF 1 was equivalent to Ch$ 20,942.88.  The dollar equivalent of UF 1 was $ 41.30 at December 31, 2009, using the Observed Exchange Rate reported by the Banco Central de Chile (the “Chilean Central Bank,” or the “Central Bank”) as of December 31, 2009 of Ch$ 507.10 per $ 1.00.  As of May 31, 2010, UF 1 was equivalent to Ch$ 21,112.41.  The dollar equivalent of UF 1 was $ 39.79 for May 31, 2010, using the Observed Exchange Rate reported by the Central Bank of Ch$ 530.62 per $ 1.00.

Our Consolidated Financial Statements and, unless otherwise indicated, other financial information concerning to our Group included in this report are presented in pesos. Until the year ended December 31, 2008, Endesa Chile prepared its financial statements in accordance with generally accepted accounting principles in Chile (Chilean GAAP).  In accordance with the rules of the Superintendence of Securities and Insurance (SVS), for 2009, Endesa Chile has prepared its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standard Board (IASB).  The opening IFRS statement of financial position was prepared as of January 1, 2008.  A description of the principal differences between Chilean GAAP and IFRS applicable to Endesa Chile, a reconciliation of our shareholders’ equity as of January 1 and December 31, 2008, and a reconciliation to the net income for the year ended December 31, 2008 from Chilean GAAP to IFRS, are included in Note 36 to our Consolidated Financial Statements.

Subsidiaries are consolidated by the global integration method, incorporating into the Consolidated Financial Statements all assets, liabilities, income, expenses and cash flows after making the corresponding adjustments and eliminations for intra-group transactions.

Jointly-controlled entities, which are those that do not have a controlling shareholder but which are governed by a joint management agreement, are consolidated by the proportional integration method. Endesa Chile recognizes, line by line, its share of the assets, liabilities, income and expenses of such entities, so that the aggregation of balances and subsequent eliminations, takes place only in the proportions of Endesa Chile’s shares in them.

Investments in associates over which the Company entities are recorded in our Consolidated Financial Statements under the equity method.

For detailed information regarding subsidiaries, jointly-controlled entities and associates see Appendix No. 1 of the Consolidated Financial Statements.

For the convenience of the reader, this report contains translations of certain peso amounts into dollars at specified rates.  Unless otherwise indicated, the dollar equivalent for information in pesos is based on the Observed Exchange Rate, as defined in “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” as of December 31, 2009.  The Federal Reserve Bank of New York does not report a noon buying rate for pesos.  No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, as the case may be, at such rate or at any other rate.  See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates.”

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Technical Terms

References to “GW” and “GWh” are to gigawatt and gigawatt hours, respectively; references to “MW” and “MWh” are to megawatts and megawatt hours, respectively; references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively; references to “kV” are to kilovolts, and references to “MVA” are to megavolt amperes.  Unless otherwise indicated, statistics provided in this report with respect to electricity generation facilities are expressed in MW, in the case of the installed capacity of such facilities.  One TW = 1,000 GW, one GW = 1,000 MW, and one MW = 1,000 kW.  Statistics relating to aggregate annual electricity production are expressed in GWh and are based on a year of 8,760 hours, except for 2008, a leap year, based on 8,784 hours.  Statistics relating to installed capacity and production of the electricity industry do not include electricity of self-generators.  Statistics relating to our production do not include electricity consumed by us from our generators.

Energy losses experienced by generation companies during transmission are calculated by subtracting the number of GWh of energy sold from the number of GWh of energy generated (excluding own energy consumption and losses of the power plant), within a given period. Losses are expressed as a percentage of total energy generated.

Calculation of Economic Interest

References are made in this report to the “economic interest” of Endesa Chile and its related companies.   In circumstances where we do not directly own an interest in a related company, our economic interest in such ultimate related company is calculated by multiplying the percentage economic interest in a directly held related company by the percentage economic interest of any entity in the ownership chain of such related company.  For example, if we own 60% of a directly held subsidiary and that subsidiary owns 40% of an associate, our economic interest in such associate would be 24%.

Forward-Looking Statements

This report contains statements that are or may constitute forward-looking statements.  These statements appear throughout this report and include statements regarding our intent, belief or current expectations, including, but not limited to, any statements concerning:

·                  our capital investment program;

·                  trends affecting our financial condition or results from operations;

·                  our dividend policy;

·                  the future impact of competition and regulation;

·                  political and economic conditions in the countries in which we or our related companies operate or may operate in the future;

·                  any statements preceded by, followed by or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions; and

·                  other statements contained or incorporated by reference in this report regarding matters that are not historical facts.

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to:

·                  changes in the regulatory framework for the electric industry in one or more of the countries in which we operate;

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·                  our ability to implement proposed capital expenditures, including our ability to arrange financing where required;

·                  the nature and extent of future competition in our principal markets;

·                  political, economic and demographic developments in the emerging market countries of South America where we conduct our business; and

·                  the factors discussed below under “Risk Factors.”

You should not place undue reliance on such statements, which speak only as of the date that they were made.  Our independent public accountants have not examined or compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements.  You should consider these cautionary statements together with any written or oral forward-looking statements that we may issue in the future.  We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

For all these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I

Item 1.   Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.   Offer Statistics and Expected Timetable

Not applicable.

Item 3.   Key Information

A.            Selected Financial Data.

The following summary consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements included in this report. Our audited Consolidated Financial Statements as of and for the year ended December 31, 2009 and 2008 are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB.   For further detail on the adoption of IFRS, please see “Introduction – Financial Information.”  The financial data as of and for each of the two years ended December 31, 2009 in the table below are presented in nominal pesos.

In general, amounts are expressed in million except for ratios, operating data, shares and ADS data. For the convenience of the reader, all data presented in dollars in the following summary, from and at the end of the year ended December 31, 2009, are translated at the Observed Exchange Rate Ch $  507.10 for $  1.00. No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, at such rate or any other rate. For more information concerning historical exchange rates, see –“Exchange Rates” below.

Our principal operating subsidiaries were consolidated prior to 1998.  As of October 1, 2005, the 92.51% participation interest we held in Centrais Elétricas Cachoeira Dourada S.A., or “Cachoeira Dourada,” was contributed to Endesa Brasil and consequently ceased to be consolidated by us, which significantly affected balance sheet figures as of December 31, 2005, and revenues and related costs for 2005 and subsequent years.  See “Item 4. Information on the Company — A. History and Development of the Company,” for details on Endesa Brasil.

The following table sets forth the selected consolidated financial data of Endesa Chile in accordance with IFRS for the periods indicated:

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(1)             Solely for the convenience of the reader, peso amounts have been translated into dollars at the exchange rate of Ch$ 507.10 per dollar, the Observed Exchange Rate as of December 31, 2009.

(2)             Capex figures represent effective payments for each year.

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(1)    Energy production is defined as total generation minus energy consumption and technical losses within our own power plants.

(2)    The differences in the 2008 figures of Chile compared to those reported in our 2008 Form 20‑F are explained by the consolidation of 50% of GasAtacama, a jointly controlled company, into Endesa Chile’s financial statements due to the adoption of IFRS in January 2009, which requires proportional consolidation of the owned joint ventures

(3)    On May 24, 2005, the Board of Directors of Endesa Chile approved the constitution of the holding company in Brazil with the name of Endesa Brasil S.A. Since then we ceased to consolidate the operations in that country.

Exchange Rates

Fluctuations in the exchange rate between the peso and the dollar will affect the dollar equivalent of the peso price of our shares of common stock, without par value (the Shares or the Common Stock), on the Bolsa de Comercio de Santiago (the Santiago Stock Exchange), the Bolsa Electrónica de Chile (the Chilean Electronic Exchange) and the Bolsa de Corredores de Valparaíso (the Valparaíso Stock Exchange) (collectively, the Chilean Exchanges).  These exchange rate fluctuations will likely affect the price of the Company’s American Depositary Shares (ADSs) and the conversion of cash dividends relating to the Shares represented by ADSs from pesos to dollars.  In addition, to the extent financial liabilities of the Company are denominated in foreign currencies, exchange rate fluctuations may have a significant impact on earnings.

The Ley Orgánica del Banco Central de Chile 18,840 (the Central Bank Act), provides that the Central Bank may require that certain purchases and sales of foreign currency be carried out in the Mercado Cambiario Formal (the Formal Exchange Market), a market comprised of banks and other entities explicitly authorized by the Central Bank.  Purchases and sales of foreign currency, which can take place outside the Formal Exchange Market, can be carried out in the Mercado Cambiario Informal (the Informal Exchange Market), which is a recognized currency market in Chile.  Free market forces drive both the Formal and Informal Exchange Markets.  Foreign currency for payments and distributions with respect to the ADSs may be purchased in either the Formal or the Informal Exchange Market, but such payments and distributions must be remitted through the Formal Exchange Market.  The Central Bank publishes daily the dólar observado (the Observed Exchange Rate), which is computed by taking the weighted average of the previous business day’s transactions in the Formal Exchange Market.

Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other.  The Informal Exchange Rate means the average rate at which transactions are made in the Informal Exchange Market.  On December 31, 2009, the Informal Exchange Rate was Ch$ 507.45, or 0.07% higher than the published Observed Exchange Rate of Ch$ 507.10 per $ 1.00.  On May 31, 2010, the informal exchange rate was Ch$ 530.35 per $ 1.00, 0.05% lower than the Observed Exchange Rate corresponding to such date of Ch$ 530.62 per $ 1.00.  Unless otherwise indicated, amounts translated to dollars were calculated based on the exchange rates prevailing as of December 31, 2009.

The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank.

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Source: Chilean Central Bank.

(1)   Reflects pesos at historical values rather than in constant pesos.

(2)   The average of the exchange rates on the last day of each month during the period.  This is not applicable to monthly data.

B.            Capitalization and Indebtedness.

Not applicable.

C.            Reasons for the Offer and Use of Proceeds.

Not applicable.

Risk Factors.

South American economic fluctuations are likely to affect our results from operations.

All of our operations are located in five South American countries.  Accordingly, our consolidated revenues are sensitive to the performance of South American economies as a whole.  If local, regional or worldwide economic trends adversely affect the economy of any of the five countries in which we have investments or operations, our financial condition and results from operations could be adversely affected.

The South American financial and securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries.  Although economic conditions are different in each country, investor reaction to developments in one country may have a significant effect on the securities of issuers in other countries, including Chile.  Chilean financial and securities markets may be adversely affected by events in other countries and such effects may affect the value of our securities.  Moreover, we have significant investments in relatively risky countries such as Argentina.  Generation and distribution of cash from such subsidiaries in these countries have proven to be volatile.

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Certain South American economies have been characterized by frequent and occasionally drastic intervention by governmental authorities, which may adversely affect our business.

Governmental authorities have changed monetary, credit, tariff and other policies to influence the course of the economies of Argentina, Brazil, Colombia and Peru.  These governmental actions, intended to control inflation and affect other policies, have often involved wage, price and tariff rate controls as well as other interventionist measures, which in Argentina included freezing bank accounts and imposing capital restrictions in 2001, the nationalization of the private sector pension funds in 2008, and the use of Central Bank reserves of the Argentine Treasury in order to pay down indebtedness maturing in 2010. Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could adversely affect our business and financial results, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the response by governments in the region to these circumstances.  If governmental authorities intervene materially in any of the countries in which we operate, it could cause our business to become less profitable, and our results from operations may be adversely affected.

Our electricity business is subject to risks arising from natural disasters, catastrophic accidents and acts of terrorism which could adversely affect our operations, earnings and cash flow.

Our primary facilities include power plants and their associated transmission lines, pipelines, LNG terminals and re‑gasification plants, storage and chartered LNG tankers.  Our facilities may be damaged by earthquakes, flooding, fires, other catastrophic disasters arising from natural or accidental human causes, as well as acts of terrorism.    For example, on February 27, 2010, Chile experienced a major earthquake measuring 8.8 on the Richter scale, followed by a tsunami.  Notwithstanding our insurance policies regarding these events, we could still experience severe business disruptions, significant decreases in revenues based on lower demand arising from catastrophic events, or significant additional costs to us not otherwise covered by business interruption insurance clauses.  There may be an important time lag between a major accident or catastrophic event and our definitive recovery from our insurance policies, which typically carry non‑recoverable deductible amounts, and in any event are subject to caps per event.  Some of these considerations, among others, could lead to an adverse effect on our operations, earnings and cash flow.  For information on the February 27, 2010 earthquake in Chile, please see “Item 4. Information on the Company — A. History and Development of the Company. Recent Developments.”

We are subject to refinancing risk and to debt covenants that could affect our liquidity.

As of December 31, 2009, our debt in financial terms was $ 4,172 million, while under accounting terms, it totaled $ 4,221 million.  These amounts differ since financial debt does not include accrued interest, which accounting debt includes, and considers other items that accounting debt does not include, such as derivatives’ mark to market effects.

Our financial debt had the following maturity timetable:

·      $ 603 million in 2010;

·      $ 493 million in 2011;

·      $ 355 million in 2012;

·      $ 1,494 million in the period 2013-2014; and

·      $ 1,226 million thereafter.

Of the $ 603 million of financial debt maturing in 2010:

·      $ 351 million is in Chile;

·      $ 102 million in Argentina;

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·      $ 78 million in Colombia; and

·      $ 72 million in Peru.

Our debt agreements are subject to certain fairly standard debt to EBITDA and debt to equity financial covenant ratios, among others.  With IFRS adoption, all the financial covenants were amended, so as to leave the Company with approximately the same levels of covenant constraints as before the accounting standards’ change.  They also contain common affirmative and negative covenants, as well as events of default, and in some cases, mandatory prepayment events.

As is customary for certain credit and capital market debt facilities, a significant portion of Endesa Chile’s financial indebtedness is subject to cross default provisions, with different definitions, criteria, materiality thresholds, and applicability as to the subsidiaries that could give rise to a cross default. 

In the event that any of our cross default provisions are triggered and our existing creditors demand immediate repayment, a portion of our indebtedness could become due and payable.  For more information on covenants, cross default and relevant provisions for these credit facilities, see “Item 5.  Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

We may be unable to refinance our indebtedness or obtain such refinancing on terms acceptable to us.  In the absence of such refinancing, we could be forced to dispose of assets in order to make up for any shortfall in the payments due on our indebtedness under circumstances that might not be favorable to obtaining the best price for such assets.  Furthermore, assets may not be sold quickly enough, or for amounts sufficient to enable us to make such payments.

As of the date of this report, Argentina continues to be the country with the highest refinancing risk.  As of December 31, 2009, the third-party financial debt of our Argentine subsidiaries amounted to $ 295 million.  As a matter of policy for all of our Argentine subsidiaries as long as fundamental issues concerning the electricity sector remain unresolved, we are rolling over our Argentine outstanding debt.  If our creditors do not continue to accept rolling over debt principal when it becomes due, we may be unable to refinance such indebtedness.

Since our generation business depends heavily on hydrological conditions, drought conditions may hurt our profitability.

Approximately 58% of our consolidated installed generation capacity is hydroelectric.  Accordingly, extreme hydrological conditions may affect our business and have an adverse effect on our results.

During periods of drought, thermal plants, such as ours that use natural gas, fuel oil or coal as a fuel are dispatched more frequently.  Our operating expenses increase during these periods, and depending on our commercial obligations, we may have to buy electricity from other generators in order to comply with our contractual supply obligations.  The cost of these electricity purchases in the spot market may exceed the price at which we sell contracted electricity, thus producing losses from those contracts.

Governmental regulations may impose additional operating costs which may reduce our profits.

We are subject to extensive regulation of tariffs and other aspects of our business in the countries in which we operate, and these regulations may adversely affect our profitability.  In addition, changes in the regulatory framework, including changes that if adopted would significantly affect our operations, are often submitted to the legislators and administrative authorities in the countries in which we operate and could have a material adverse impact on our business.  For instance, in 2005 there was a change the in water rights law in Chile that requires us to pay for all the unused water rights.

The Chilean government can impose electricity rationing during drought conditions or prolonged failures in power facilities.  If, during rationing, we are unable to generate enough electricity to comply with our contractual obligations, we may be forced to buy electricity in the pool market at the spot price, since even a severe drought does not constitute a force majeure event.  The spot price may be significantly higher than our costs to generate the electricity and can be as high as the “cost of failure” set by the National Energy Commission, or the CNE.  This “cost of failure,” which is updated semiannually by the CNE, is a measurement of how much final users would pay for one extra MWh under rationing conditions.  If we are unable to buy enough electricity in the pool market to comply with all of our contractual obligations, then we would have to compensate our regulated customers for the electricity we failed to provide at the rationed price.  If material rationing policies are imposed by regulatory authorities in Chile, our business, financial condition and results from operations may be affected adversely in a material way.

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Similarly, if material rationing policies are imposed by any regulatory authority as a result of adverse hydrological conditions in the other countries in which we operate, our business, financial condition and results from operations may be affected adversely in a material way.  Rationing periods may occur in the future and consequently, our generation subsidiaries may be required to pay regulatory penalties if such subsidiaries fail to provide adequate service under such conditions.

Regulatory authorities may impose fines on our subsidiaries.

In Chile, our electricity businesses may be subject to regulatory fines for any breach of current regulations, including energy supply failure.  Such fines may range from 1 Unidad Tributaria Mensual (UTM), or $ 73, to 10,000 Unidades Tributarias Anuales (UTA), or $ 8.7 million, in each case using the UTM, UTA and foreign exchange rate as of December 31, 2009.  Any electricity company supervised by the Superintendencia de Electricidad y Combustible (Chilean Superintendence of Electricity and Fuels), or SEF, may be subject to these fines in cases where, in the opinion of the SEF, operational failures that affect the regular energy supply to the system are the fault of the company; for instance, when the coordination duty of the system agents is not fulfilled.

Our generation subsidiaries may be required to pay fines or to compensate customers if those subsidiaries are unable to deliver electricity to them even if such failure is due to forces outside of our control.

In 2004, the SEF imposed fines on Endesa Chile in the amount of UTA 2,030, or $ 1.8 million, due to a blackout that occurred in the Metropolitan Region in 2003.  As a result of an administrative resolution, these fines have since been reduced to 1,610 UTA, or $ 1.4 million.  In 2005, the SEF imposed fines of UTA 1,260, or $ 1.1 million, on Endesa Chile due to a blackout that occurred in the Metropolitan Region in 2003.  In February 17, 2009, the SEF imposed fines on Endesa Chile, Pehuenche and San Isidro for UTA 200, UTA 200 and UTA 100, respectively, or $ 0.4 million in total.  We are currently appealing all these fines, but these appeals may be unsuccessful.

We depend in part on payments from our subsidiaries and affiliates to meet our payment obligations.

In order to pay our obligations, we rely partly on cash from dividends, loans, interest payments, capital reductions and other distributions from our subsidiaries and equity affiliates, as well as cash from proceeds of the issuance of new securities.  Our ability to pay our obligations will depend on the receipt of distributions from our subsidiaries.  The ability of our subsidiaries and equity affiliates to pay dividends, interest payments, loans and other distributions to us is subject to legal constraints such as dividend restrictions, fiduciary duties, contractual limitations and foreign exchange controls that may be imposed in any of the five countries where they operate.

Historically, we have been able to access the cash flows of our Chilean subsidiaries, but we have not been similarly able to access at all times the cash flows of our non‑Chilean operating subsidiaries due to government regulations, strategic considerations, economic conditions and credit restrictions.

Our future results from operations outside Chile may continue to be subject to greater economic and political uncertainties than what we have experienced in Chile, thereby reducing the likelihood that we will be able to rely on cash flows from operations in those entities to repay our debt.

Dividend Limits and Other Legal Restrictions.  Some of our non‑Chilean subsidiaries are subject to legal reserve requirements and other restrictions on dividend payments.  In addition, the ability of any of our subsidiaries which are not wholly owned to distribute cash to us may be limited by the fiduciary duties of the directors of such subsidiaries to their minority shareholders.  Furthermore, some of our subsidiaries may be forced by local authorities to diminish or eliminate dividend payments. As a consequence of such restrictions, our subsidiaries could, under certain circumstances, be prevented from distributing cash to us.

Contractual Constraints.  Distribution restrictions in our subsidiaries’ contractual agreements include the following:  prohibitions against dividend distributions by many companies in the case of default, and in the case of Pangue and Edegel, if they are not in compliance with certain financial ratios; and prohibitions against dividend distributions, capital reductions, intercompany interest payments and debt repayment by Endesa Costanera and El Chocón in Argentina, in the case of default and if not in compliance with certain financial ratios.

Operating Results of Our Subsidiaries.  The ability of our subsidiaries and equity affiliates to pay dividends or make loan payments or other distributions to us is limited by their operating results.  To the extent that the cash requirements at any of our subsidiaries exceed available cash, such subsidiary will not be able to make cash available to us.

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Foreign Currency Controls.  The ability of our non-Chilean subsidiaries and equity affiliates to pay dividends and make loan payments or other distributions to us may be subject to restrictions that may be imposed by Central Banks or other governmental authorities in the various jurisdictions in which we operate.  For example, during the economic crisis of 2001, the Central Bank of Argentina imposed restrictions on the transfer of funds outside Argentina.

Foreign exchange risks may adversely affect our results, and the dollar value of dividends payable to ADS holders.

Most South American currencies in which we and our subsidiaries operate have been subject to large devaluations and appreciations against the dollar and may be subject to significant fluctuations in the future.

Historically, a significant portion of our consolidated indebtedness has been denominated in dollars and, although a substantial portion of our revenues are linked to dollars, we generally have been and will continue to be materially exposed to fluctuations of our local currencies against the dollar because of time lags and other limitations in the indexation of our tariffs to the dollar.

Because of this exposure the cash generated by our subsidiaries can be diminished materially when the local currencies devalue against the dollar.  Future volatility in the exchange rate of the currencies in which we receive revenues or incur expenditures, may affect our financial condition and results from operations.  For more information on the risks associated with foreign exchange rates, see “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”

As of December 31, 2009, using financial rather than accounting conventions, Endesa Chile’ total consolidated financial debt was $ 4,170 million (net of currency hedging instruments).  Of this amount $ 2,139 million, or 51%, was denominated in dollars and $ 938 million in pesos.  In addition to the dollar and the peso, our foreign currency denominated consolidated indebtedness included the equivalent of:

·      $ 72 million in Argentine pesos;

·      $ 876 million in Colombian pesos; and

·      $ 145 million in soles.

This totals an aggregate of $ 1,093 million in currencies other than dollars or pesos.

For the twelve‑month period ended December 31, 2009, our operating revenues amounted to $ 4,324 million (before consolidation adjustments) of which:

·      $ 750 million, or 17%, was denominated in dollars; and

·      $ 2,238 million, or 52%, was linked in some way to the dollar.

In the aggregate, 69% of our operating revenues (before consolidation adjustments) was either denominated in dollars or linked to dollars through some form of indexation, while 2% were in pesos.

Revenues, before consolidation adjustments, in other currencies for the year ended December 31, 2009, included the equivalent of:

·      $ 530 million in Argentine pesos;

·      $ 680 million in Colombian pesos; and

·      $ 50 million in soles.

Despite the fact that we generate revenues and incur debt in these same currencies, we believe that we are subject to risk in terms of our foreign exchange exposure to these four currencies.  The most material case is that of Argentina, where most of our debt is denominated in dollars while our revenues are mostly in Argentine pesos.

Furthermore, trading in the shares of our common stock underlying ADSs is conducted in pesos.  Our depositary bank will receive cash distributions that we make with respect to the shares underlying the ADSs in pesos.  The depositary bank will convert such pesos to dollars at the then-prevailing exchange rate to make dividend and other distribution payments in respect of ADSs.  If the peso depreciates against the dollar, the value of the ADSs and any dollar distributions ADS holders receive from the depositary bank will decrease.

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Construction of new facilities may be adversely affected by factors associated with these projects.

Factors that may adversely affect our ability to build new facilities include: delays in obtaining regulatory approvals, including environmental permits;  shortages or increases in the price of equipment, materials or labor; opposition by local or international political, environmental and ethnic groups; strikes; adverse changes in the political and regulatory environment in the countries where we operate; adverse weather conditions, natural disasters, accidents or other unforeseen events; and the inability to obtain financing at affordable rates.

Any of these factors may cause delays in the completion of all or part of our capital investment program and may increase the cost of the projects.

We are involved in litigation proceedings.

We are currently involved in various litigation proceedings, which could result in unfavorable decisions or financial penalties against us, and we will continue to be subject to future litigation proceedings, which could have material adverse consequences to our business.

We are a party to a number of legal proceedings, some of which have been pending for several years.  Some of these claims may be resolved against us.  Our financial condition or results from operations could be adversely affected in a material way if certain material claims are resolved against us.  See Note 19 of our audited Consolidated Financial Statements.

The values of our subsidiaries’ long-term energy supply contracts are subject to fluctuations in the market prices of certain commodities.

We have economic exposure to fluctuations in the market prices of certain commodities as a result of the long‑term energy sales contracts we have entered into.  Our subsidiaries have material obligations under long‑term fixed-price electricity sales contracts, the values of which fluctuate with the market price of electricity.  In addition, we have material obligations as selling parties under long‑term energy supply contracts with prices that vary in accordance with the market price of electricity, which, in turn, depend on water levels in reservoirs, the market prices of commodities such as natural gas, fuel oil, coal and other energy-related products, as well as the dollar exchange rate.  Changes in the market price of these commodities and in the dollar exchange rate do not always correlate with changes in the market price of electricity or with our cost of production of electricity.  Accordingly, there may be times when the price paid to us under these contracts is less than our cost of production or acquisition of electricity.  We do not carry out transactions in commodity derivative instruments to manage our exposure to commodity price fluctuations.  For further discussion, please refer to “Item 11 ‑Quantitative and Qualitative Disclosures about Market Risk ‑ Commodity Price Risk.”

Our controlling shareholders may have conflicts of interest relating to our business.

Enel S.p.A. (Enel) through a wholly-owned subsidiary owns 92.1% of ENDESA, S.A. (Endesa Spain) which owns 60.6% of Enersis’ share capital, and Enersis beneficially owns 60.0% of Endesa Chile’s outstanding capital stock.  Our controlling shareholders have the power to determine the outcome of most material matters that require shareholders’ votes, such as the election of the majority of our board members and, subject to contractual and legal restrictions, the distribution of dividends.  Our controlling shareholders also can exercise influence over our operations and business strategy.  Their interests may in some cases differ from those of our other shareholders.  Enel and Endesa Spain conduct their business in South America through us as well as through entities in which we do not have an equity interest

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Environmental regulations in the countries in which we operate may increase our costs of operations.

Our operating subsidiaries are also subject to environmental regulations which, among other things, require us to perform environmental impact studies for future projects and obtain permits from both local and national regulators.  Approval of these environmental impact studies may be withheld by governmental authorities.  In addition, public opposition may cause delays or modifications to any proposed project and laws or regulations may change or be interpreted in a manner that could adversely affect our operations or our plans for companies in which we hold investments.  See “Item 4.  Information on the Company — B. Business Overview — Electricity Industry Regulatory Framework.”

The relative illiquidity and volatility of Chilean securities markets could adversely affect the price of our common stock and ADSs.

Chilean securities markets are substantially smaller and less liquid than the major securities markets in the United States.  In addition, Chilean securities markets may be affected materially by developments in other emerging markets.  The low liquidity of the Chilean market may impair the ability of holders of ADSs to sell shares of our common stock withdrawn from the ADS program into the Chilean market in the amount and at the price and time they wish to do so.

Lawsuits against us brought outside of Chile or complaints against us based on foreign legal concepts may be unsuccessful.

All of our assets are located outside of the United States.  Almost all of our directors and officers reside outside of the United States and most of their assets are located outside the United States as well.  If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce against them, in United States or Chilean courts, judgments obtained in United States courts based upon the civil liability provisions of the federal securities laws of the United States.  In addition, there is doubt as to whether an action could be brought successfully in Chile on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.

Item 4.   Information on the Company

A.            History and Development of the Company.

Incorporation and Contact Information of the Company

Empresa Nacional de Electricidad S.A. (Endesa Chile) is a publicly held limited liability stock company incorporated under the laws of the Republic of Chile on December 1, 1943.  Since 1943, the Company has been registered in Santiago with the SVS under Registration No. 0114.  The Company is commercially referred to as both Endesa and Endesa Chile.

The Company’s contact information in Chile is:

The Company’s authorized representative in the United States of America is Puglisi & Associates, whose contact information is:

Development of the Company

The Chilean government owned Endesa Chile from its incorporation in 1943 until we were privatized in 1987 through a series of public offerings which were completed in 1989.

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In May 1992, Endesa Chile began its international expansion program with the following developments:

·      we acquired a stake in Endesa Costanera in 1992 and later, in August 1993, we acquired a controlling equity interest in El Chocón, both in Argentina; in March 2007 Endesa Chile increased its equity interest in El Chocón from 47.44% to 65.37% and in Endesa Costanera from 64.26% to 69.76%.

·      we acquired Edegel in Peru in October 1995; in June 2006, there was a merger between Edegel and Etevensa, after which Endesa Chile’s equity interest became 33.06% of its Peruvian assets.  In October 2009, we purchased an additional 29.4% of Edegel from Generalima, a Peruvian indirect subsidiary of Endesa Spain.  With this transaction, we increased our economic interest in Edegel to 62.46%.

·      we acquired Betania and Emgesa, both in Colombia, in December 1996 and in October 1997, respectively. In September 2007 both subsidiaries were merged into Betania, which then changed its name back to Emgesa S.A. E.S.P.; as of December 2009 Endesa Chile’s equity interest in Emgesa was 26.9%. Due to a shareholders’ agreement, Endesa Chile controls Emgesa. 

·      we acquired Cachoeira Dourada in Brazil in September 1997 and in 1998 we and Endesa Spain invested in CIEN which operates an international transmission line connecting Brazil and Argentina.  Since October 2005, Cachoeira Dourada and CIEN have been subsidiaries of Endesa Brasil.

On March 26, 2007, Spanish company Acciona, S.A. (Acciona) and Italian company Enel, executed an agreement for the joint management of Spanish company, Endesa Spain.  The latter, through its Spanish subsidiary Endesa Latinoamérica, holds 60.6% of the share capital of Enersis, which in turn holds 60% of the share capital of Endesa Chile.

On February 20, 2009, Acciona and Enel, reached an agreement whereby Acciona would transfer directly and indirectly to Enel Energy Europe S.L., wholly owned by Enel, its 25.0% shareholding in Endesa Spain, subject to certain conditions, which were subsequently met.  In accordance with the agreement, Enel paid Acciona € 9,627 million.  The amount was determined by subtracting the dividends distributed by Endesa Spain and received by Acciona after February 20, 2009 (€ 1,561 million) from the cash consideration of the agreement established on that same date (€ 11,107 million) and adding interest accrued as from the agreement date (€ 81 million).  On June 25, 2009, the shares were transferred, making Enel the ultimate controller of Enersis by virtue of its 92.1% shareholding in Endesa Spain.  This transaction was reported to the Spanish National Securities Market Commission (CNMV in its Spanish acronym) as material information on the same date.  In addition, during 2009, Endesa Spain transferred to Acciona certain wind and hydroelectric energy generation assets in Spain and Portugal priced at € 2,814 million.

On June 25, 2009, the shares and assets were transferred, making Enel the ultimate controller of Endesa Chile by virtue of its 92.1% shareholding in Endesa Spain.  This transaction was reported to the Spanish National Securities Market Commission (CNMV in its Spanish acronym) as material information on the same date.

Recent Developments:

On January 28, 2010 we held three bondholder meetings for our Chilean bonds denominated in UF, with the purpose of carrying out certain proposed amendments.  The bondholders approved the amendments, which dealt with both technical adjustments for setting the proper financial covenants as a consequence of the adoption of IFRS on January 1, 2009, as well as new borrower‑friendly language on certain cross acceleration and bankruptcy/insolvency clauses.  After giving legal effect to such amendments on March 10, 2010, all series of our Chilean bonds reference only the borrower, and no longer reference any of our subsidiaries in Chile and abroad, in these Event of Default provisions.

On February 27, 2010, Chile experienced a major earthquake measuring 8.8 on the Richter scale, in the Bío-Bío Region, followed by a tsunami.  As a consequence, few of our facilities were affected, and the Company did not suffer any casualty.  Our generation thermal plants Bocamina I (128 MW) and Bocamina II (370 MW, still under construction), which are located near the epicenter, presented some structural damages, causing the interruption of operations in the former plant and an expected delay in the construction on the latter.  Bocamina I represents 2% of our generating capacity in Chile.  The rest of our generating facilities in the country were impacted within the limits of the original design, and there was no disruption in their normal operations.

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Damages suffered by some of our customers affected our business, due to the impact on electricity demand. Also some suppliers (such as Transelec, a transmission company not owned by us) experienced difficulties in their facilities, with negative effects on our capacity to effectively deliver electricity to our clients. We have insurance policies which provide us coverage (while in compliance with our property policy), including property damages, business interruptions and contingent business interruptions (i.e., attributable to our customers and/or suppliers). In the case of Bocamina II, we also have insurance for the construction phase of our projects, covering damages and advance loss of profits for up to two years.  All these insurance policies have their customary deductibles. There may be an important time lag until we finally receive total compensation.

For additional information, see “ —D. Property Plants and Equipment.”

Investments, Capital Expenditures and Divestitures

Investments in Chile

Our capital expenditures and investments during 2009 amounted to $ 760.3 million, of which $ 551.0 million corresponds to expansion, primarily in Chile, and $ 209.2 million to capital expenditure maintenance in all our operating subsidiaries.  As of December 31, 2009, our expected capital expenditures amount to approximately $ 2.2 billion over the next five years ending on December 31, 2014.  Although we have considered how these investments will be financed as part of the Company’s budget process, we have not committed to any particular financial structure and the financing will depend on the market conditions at the time the cash flows are needed.

Reinforcing Endesa Chile’s commitment with sustainability and with its non-conventional renewable energy (NCRE) project development initiatives, and following the commercial start‑up of the Canela 18 MW wind farm in December 2007, our subsidiary Endesa Eco completed the commissioning of 40 wind generators of the wind farm Canela II on November 25, 2009, thereby adding 60 MW of new capacity in the Sistema Interconectado Central (SIC), with an investment of approximately $ 150 million.  Commercial operations started on December 11, 2009.

With respect to the Quintero LNG project, in which Endesa Chile holds a 20% stake in the re‑gasification terminal, the “Early Gas” phase started commercial operations on September 12, 2009, requiring the presence in port of the tanker to operate the re‑gasification plant.  This re‑gasification plant is already operating in a fast‑track mode, and plans to be fully operational in its total storage capacity in August 2010. Total investment for this project is approximately $ 1.1 billion.

On June 20, 2009 the first unit of the Quintero thermal plant project, which Endesa Chile built in the Valparaíso Region, successfully made its first synchronization with the SIC, beginning its commercial operations on July 23, 2009.  The second unit successfully made its synchronization with the SIC on August 28, 2009 and has been in commercial operations since September 4, 2009.  This project, located on a site alongside the Quintero re‑gasification plant, has a declared capacity of 257 MW, and will operate with either natural gas or with diesel oil. Total investment was approximately $ 140 million.  Works continue for the construction of the Bocamina II coal‑fired plant in Coronel, in the Bío-Bío Region.  With a capacity of 370 MW, it will be equipped with the latest emission‑reduction technologies and it is estimated that the start‑up will be in June 2011.

Investments in Argentina

In Argentina, our subsidiaries Endesa Costanera S.A. and Hidroeléctrica El Chocón S.A., carried out investments between 2004 and 2007 in the Fondo Para Inversiones Necesarias Que Permitan Incrementar La Oferta De Energía Eléctrica En El Mercado Eléctrico Mayorista  (Foninvemem), which translated into a 21% shareholding in Termoeléctrica José de San Martín S.A. (San Martín). and Termoeléctrica Manuel Belgrano S.A.(Manuel Belgrano), corresponding to two 800 MW combined‑cycle plants.  Both plants started operating in open cycle during 2008.  The closing of the cycles (combined‑cycle operation) took place in January 2010 in the case of the Manuel Belgrano plant and in February 2010 in the case of the José de San Martín plant.

Investments in Colombia

In Colombia, following the conclusion of the Firm Energy Obligation process (see “— B. Business Overview—Electricity Industry Regulatory Framework”) for the projects, which start operations between December 2014 and November 2019, in June 2009, the Colombian Ministry of Mines and Energy chose Emgesa’s El Quimbo hydroelectric project, with a capacity of 400 MW.  In line with the project’s schedule, the principal civil works and equipment supply and assembly contracts are currently in their tender processes, in order to estimate the required investment.

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Investments in Peru

In January 2008, Edegel signed a turnkey contract with Siemens Power Generation for the installation of a 189 MW turbine at the Santa Rosa plant, to operate with natural gas from Camisea.  On September 2, 2009, the turbine started its commercial operations with a capacity of 193 MW, with an investment of approximately $ 90 million.  On November 28, 2009, an increase of 7 MW was recognized, reaching a total capacity of 200 MW, allowing Edegel to increase its installed capacity to 1,667 MW, thereby enabling it to meet the Peruvian market demand growth.  Also, in October 2009, we purchased a 29.4% stake of Edegel for $ 375 million.  With this transaction, we increased our economic interest in Edegel from 33.1% to 62.5%.

The table below sets forth the capital expenditures made by our subsidiaries in 2008‑2009 and expected capital expenditures for the period 2010-2014

CAPITAL EXPENDITURES OF ENDESA CHILE AND ITS SUBSIDIARIES

We have carried out some investments, divestitures and other reorganizations in the last three years including the following:

·      Centrales Hidroeléctricas de Aysén S.A., (HidroAysén), a long‑term investment company, was formed in September 2006.  Endesa Chile has a 51% holding and Colbún S.A. holds the remaining 49%.  The environmental impact assessment (EIA) for the 2,750 MW hydroelectric project was submitted to the environmental authority in August 2008.  The EIA was prepared by an international consortium comprised of SWECO, POCH Ambiental and EPS.  The EIA is in process and the first request for clarifications has been issued, for which the company submitted its response in October 2009.  In January 2010, HidroAysén received a second document with observations from local environmental authorities, and the company requested a suspension from the process until June 2010 in order to better respond to such observations.

·      In February 2007, Endesa acquired 19,574,798 common shares from Southern Cone Power Argentina S.A., which holds 5.5% of the share capital of Endesa Costanera.  The investment was for $ 9.5 million.  As a result of this purchase, Endesa Chile’s beneficial interest in Endesa Costanera increased from 64.3% to 69.8%.

·      In March 2007, Endesa Chile acquired a total of 4,467,500 shares from CMS Generation Co. and CMS Generation S.R.L., representing 25% of the share capital of Hidroinvest S.A., the Argentine holding company and controller of El Chocón, and also acquired 7,405,768 direct shares of El Chocón.  The total purchase price was $ 50 million, which included the debt that Hidroinvest S.A. owed to CMS.  With this purchase, the beneficial interest of Endesa Chile in Hidroinvest S.A. increased from 69.9% to 96.1%, and strengthens our control of El Chocón, which is 59%-controlled by Hidroinvest S.A.  As a result of the foregoing share purchases, Endesa Chile increased its beneficial interest in El Chocón from 47.4% to 65.4%.

·      In June 2007, Endesa Chile notified CMS Enterprises Company (CMS) of its decision to exercise its right of first offer granted by CMS for their interests in the companies and vehicles that conform GasAtacama.  On this same date, Endesa Chile and Southern Cross Latin America Private Equity Fund III, L.P. (Southern Cross) executed a sale and purchase agreement for 50% of the participation of Endesa Chile in GasAtacama and of the sponsor loans associated with this participation, to the Southern Cross fund.  As a result of the foregoing, Endesa Chile and Southern Cross each own 50% of GasAtacama.

·     In September 2007 the Colombian companies Emgesa S.A. E.S.P. and Central Hidroeléctrica Betania S.A. E.S.P. were merged into the latter, which then changed its name back to Emgesa S.A. E.S.P. (Emgesa).  As a result, Endesa Chile’s direct and indirect shareholding in Emgesa is 26.9%. This new corporate structure offers advantages involving better financial terms for our Colombian operations.

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We are publicly held limited liability stock electric generation company with consolidated operations in Chile, Argentina, Colombia and Peru and an equity interest in a Brazilian company.  Our core business is electricity generation.  We also participate in the engineering services industry and have a tunnel concession in Chile.  The low proportion of non‑generation contribution, less than 1.5% in terms of revenues, does not justify the breakdown of revenues per activity.

Our consolidated installed capacity, as of December 31, 2009, was 13,864 MW, with 57.6% hydroelectric capacity, 41.8% thermal electric and 0.6% wind power generation capacity.  Total installed capacity is defined as the maximum power capacity (measured in MW generation units), under specific technical conditions and characteristics.

We own and operate 29 generation facilities in Chile with an aggregate installed capacity, as of December 31, 2009, of 5,650 MW, 6.9% higher compared to the 5,283 MW in 2008.  The difference in 390 MW in the 2008 figure, compared to the total installed capacity disclosed in the 2008 Form 20‑F, is explained by the consolidation of 50% of the capacity of GasAtacama, a jointly controlled company, into Endesa Chile’s financial statements due to the adoption of IFRS in January 2009, which requires for proportional consolidation of owned joint ventures. This change also explains differences in other 2008 figures such as physical sales, generation, purchases, installed capacity, main customers and power plants in Chile.

The most important increases in our total installed capacity in Chile were mainly due to the start-up of commercial operations of the LNG terminal; the incorporation of Quintero (257 MW, thermal) in September 2009;the increase in installed capacity of San Isidro 2 (from 353 to 399 MW) in December 2009.Also the incorporation of Canela II (60 MW, wind farm) in December 2009 contributed to the increased capacity.

Quintero’s project started operations with a 129 MW unit in July 2009, and with a second 128 MW unit in September 2009.  Canela II has 40 generators which, in addition to the 11 initial Canela generators, represent the biggest wind farm in Chile with 78 MW.

We accounted for 37.4% of Chile’s total generation capacity as of December 31, 2009, measured by the maximum capacity calculated by CDEC‑SIC.  Hydroelectric installed capacity represents 61.3% of Endesa Chile’s total installed capacity in Chile; thermoelectric installed capacity, 37.3% and wind power, 1.4%.  The CDEC is the electricity dispatch center in the corresponding electric system.  See “— B. Business Overview — Electricity Industry and Regulatory Framework.”

As of December 31, 2009, we also had interests in 25 generation facilities outside of Chile with an aggregate installed capacity of 8,214 MW, 2.5% higher compared to 8,014 MW in 2008.  The main change in our total installed capacity outside Chile is in Peru with the thermal unit Santa Rosa TG8 which started operations in September 2009 with 193 MW and an additional 7 MW since November 2009 (for a total of 200 MW).  For additional detail on capacity increase of these units see “— D. Property, Plant and Equipment.”  Hydroelectric installed capacity outside Chile represents 55.1% of Endesa Chile’s total installed capacity outside Chile. Based on 2009 figures, the Company’s installed generation capacity in Argentina, Colombia and Peru represents approximately 14%, 21% and 29% of total capacity in each country, respectively.

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ENDESA CHILE’S CONSOLIDATED HYDRO/THERMAL GENERATION (GWh)(2)

(1)    The difference in the values reported in our 2008 Form 20-F is explained by the incorporation of the mini hydro Ojos de Agua into the item “Other generation” and the consolidation of GasAtacama.

(2)    Generation minus power plants’ own consumption and technical losses.

(3)    Other generation refers to the generation of the subsidiary Endesa Eco (Renewable energy: mini hydro Ojos de Agua and wind farms Canela and Canela II)

Our consolidated electricity production reached 55,030 GWh in 2009, 4.3% higher than the 52,754 GWh produced in 2008.  Colombia was the only country which reduced its generation, from 12,905 GWh in 2008 to 12,674 GWh in 2009, a decrease of 1.8%.  Argentina was the country which most increased generation, from 10,480 GWh in 2008 to 11,955 GWh in 2009, an increase of 14.1%.  Hydroelectric generation in 2009 in the four countries in which we consolidate the results from our operations was 8% higher than in 2008 and thermal generation in 2009 was 1.7% lower than in 2008.

Our consolidated physical energy sales for 2009 were 59,859 GWh, 4.2% higher than our consolidated physical energy sales of 57,458 GWh in 2008.   The main increases in sales were in Argentina and Chile, and the main reduction was in Peru, as illustrated in the following table:

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ENDESA CHILE PHYSICAL DATA PER COUNTRY

(1)   For details on generation facilities, see “ —D. Property Plants and Equipment.”

(2)   Total installed capacity is defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics, in most cases confirmed by satisfaction guarantee tests performed by equipment suppliers certified by Bureau Veritas, an international independent certification company.  Figures may differ from installed capacity declared to regulating authorities and customers in each country, according to criteria defined by each authority and corresponding contractual frameworks.  We have not restated capacities based on this certification.

(3)   Energy generated defined as total generation minus own power plant consumption and technical losses.

(4)   San Isidro 2, Palmucho and Canela’s generation in Chile consolidated since April, November and December 2007, respectively; Quintero and Canela II generation in Chile consolidated since July and December 2009, respectively; Santa Rosa TG8´s generation in Peru consolidated since November 2009.

We segment our sales to customers using two different categories.  First, we distinguish between regulated and unregulated customers.  Regulated customers are distribution companies who mainly serve residential clients.  Unregulated customers, on the other hand, may freely negotiate the price of electricity with generators or they may purchase electricity in the pool market at the spot price.  The second criterion we use to segment our customer sales is by contracted sales and non-contracted sales.  This method is useful because it provides a uniform way for us to compare our customers from country to country.  The countries in which we operate have varying classifications for what constitutes a regulated customer.  In contrast, contracted sales are defined uniformly throughout.

In general, in the countries in which we operate, the potential for contracting electricity is related to the volume of electricity demand.  Customers identified as small volume regulated customers, such as residential customers, subject to government regulated electricity tariffs, must purchase electricity directly from a distribution company.  These distribution companies, which purchase large amounts of electricity for small residential customers, generally enter into contractual agreements with generators at a regulated tariff price.  Those identified as large volume industrial customers also enter into contractual agreements with energy suppliers.  However, such large volume industrial customers are not subject to the regulated tariff price.  Instead, these customers are allowed to negotiate the price of energy with generators based on the characteristics of the service required.  Finally, the market pool, where energy is normally sold at the spot price, is not carried out through contractual agreements, but instead complies with pool market operations.

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The following table contains information regarding Endesa Chile’s consolidated sales of electricity by type of customer for each of the periods indicated:

ENDESA CHILE CONSOLIDATED PHYSICAL SALES BY TYPE OF CUSTOMER (GWh)

The specific energy consumption limit (measured in GWh) for regulated and unregulated customers is country specific.  Moreover, regulatory frameworks often require that regulated distribution companies have contracts to support their commitments to small customers and also determine which customers can purchase energy in electricity pool markets.

The following table contains information regarding our consolidated physical sales of electricity per customer segment:

ENDESA CHILE CONSOLIDATED PHYSICAL SALES PER CUSTOMER PRICE SEGMENT (GWh)

(1)    Includes the sales to distribution companies not backed by contracts in Chile and Peru.

In terms of expenses, the primarily variable costs involved in the electricity generation business, in addition to the direct variable cost of generating hydroelectric or thermal electricity such as fuel costs, are energy purchases and transportation costs.  During periods of relatively low rainfall conditions, the amount of our thermal generation increases.  This not only involves increasing the total cost of fuel, but also the cost of transporting that fuel to the thermal generation power plants.  Under drought conditions, electricity that we have contractually agreed to provide may exceed the amount of electricity that we are able to generate, requiring us to purchase electricity in the pool market in order to satisfy our contractual commitments.  The cost of these pool market purchases may, under certain circumstances, exceed the price at which we sell electricity under contracts, and result in a loss.  We attempt to minimize the effect of poor hydrological conditions on our operations in any year primarily by limiting contractual sales requirements to an amount that does not exceed the estimated production in a “dry year.”  In determining estimated production in a dry year, we take into account available statistical information concerning rainfall and water flows, and the capacity of key reservoirs. In addition to limiting contracted sales, we may adopt other strategies such as installing temporary thermal capacity, negotiating lower consumption levels with unregulated customers, negotiating with other water users and including pass-through costs clauses in contracts with clients.

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The following table contains information regarding our electricity generation and purchases:

CONSOLIDATED PHYSICAL GENERATION AND PURCHASES (GWh)

(1)    Total energy generation (GWh) plus purchases differs from GWh sales due to technical transmission losses in Chile and Peru, as the generation figure has already deducted power plant consumption and technical losses of generation units.

We have a 50% beneficial interest in GasAtacama Chile S.A. through which we participate in the gas transportation and thermal generation business in northern Chile.  Since March 2008 we have a 51% beneficial interest in HidroAysén  through which we participate in a hydroelectric project in the Aysén Region.  We also participate in the gas transportation business in Chile through our related company, Electrogas S.A. (Electrogas), in which we have a 42.5% beneficial interest.  Electrogas owns a pipeline in the Valparaíso Region and supplies natural gas to the power plants San Isidro and Nehuenco.  The other shareholders are Colbún S.A. and ENAP. 

Since September 2005, our participation in the Brazilian electricity business is carried out through our equity investment in Endesa Brasil S.A, in which we have a beneficial interest of 38.9%.  Endesa Brasil S.A. consolidates operations of two generation companies, Central Geradora Termeléctrica Endesa Fortaleza S.A.,(Endesa Fortaleza), and Cachoeira Dourada; CIEN, which owns two transmission lines between Argentina and Brazil; CTM and TESA, subsidiaries of CIEN which own the Argentine side of the lines; and two distribution companies, Ampla Energía e Servicos S.A.,(Ampla), which is the second largest electricity distribution company in the State of Rio de Janeiro and Companhia Energética do Ceará S.A. (Coelce), which is the sole electricity distributor in the State of Ceará. 

Operations in Chile

We own and operate a total of 29 generation plants in Chile directly and through our subsidiaries Pehuenche, Pangue, San Isidro, Celta, Endesa Eco and our jointly controlled company GasAtacama.  Of these plants, 16 are hydroelectric, with a total installed capacity of 3,465 MW.  This represents 61.3% of our total installed capacity in Chile.  There are eleven thermal plants which operate with gas, coal or oil with a total installed capacity of 2,107 MW, representing 37.3% of our total installed capacity in Chile, and there are two wind power units with 78 MW in the aggregate, , representing 1.4% of our total installed capacity in Chile.  Twenty-six (16 hydroelectric, 8 thermoelectric and 2 wind power plants) of our plants are connected to the country’s major interconnected electricity systems, Sistema Interconectado Central, or the SIC, and the other three power plants (GasAtacama and two units of Celta) are connected to the Sistema Interconectado del Norte Grande, or the SING.

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The following table sets forth the installed generation capacity for each of the Company’s Chilean subsidiaries:

INSTALLED CAPACITY PER SUBSIDIARY IN CHILE (MW) (1)

(1)    The installed capacity was certified by Bureau Veritas.

Our total electricity generation in Chile (in both the SIC and the SING) reached 22,239 GWh in 2009, 4.6% higher than in 2008, and accounted for approximately 39.1% of total electricity production in Chile during 2009.

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The following table sets forth the electricity generation for each of our Chilean subsidiaries: