SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _____  to  _____ 

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report  _____ 

Commission file number: 1-13240

EMPRESA NACIONAL DE ELECTRICIDAD S.A.

(Exact name of Registrant as specified in its charter)

EMPRESA NACIONAL DE ELECTRICIDAD S.A.		CHILE
(Translation of Registrant’s name into English)		(Jurisdiction of incorporation or organization)

Santa Rosa 76, Santiago, Chile
Telephone No. (562) 630-9000
(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
American Depositary Shares		New York Stock Exchange
Shares		New York Stock Exchange*

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:

$ 400,000,000		7.750%		Notes due 2008
$ 400,000,000		8.500%		Notes due 2009
$ 400,000,000		8.350%		Notes due 2013
$ 200,000,000		8.625%		Notes due 2015
$ 230,000,000		7.875%		Notes due 2027
$ 220,000,000		7.325%		Notes due 2037
$ 200,000,000		8.125%		Notes due 2097

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. Shares of Common Stock: 8,201,754,580

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

þ 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      þ 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:

þ 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.

þ Large accelerated filer		o Accelerated filer		o Non-accelerated filer

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

o U.S. GAAP		o		International Financial Reporting Standards as issued by the International Accounting Standards Board		þ Other

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

o Item 17       þ 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       þ No

 

 

TABLE OF CONTENTS

		Page
GLOSSARY			1
INTRODUCTION			4
Financial Information			4
Technical Terms			5
Calculation of Economic Interest			5
Forward-Looking Statements			5
PART I			7
Item 1. Identity of Directors, Senior Management and Advisors			7
Item 2. Offer Statistics and Expected Timetable			7
Item 3. Key Information			7
Item 4. Information on the Company			17
Item 4A. Unresolved Staff Comments			69
Item 5. Operating and Financial Review and Prospects			69
Item 6. Directors, Senior Management and Employees			96
Item 7. Major Shareholders and Related Party Transactions			104
Item 8. Financial Information			105
Item 9. The Offer and Listing			108
Item 10. Additional Information			109
Item 11. Quantitative and Qualitative Disclosures About Market Risk			124
Item 12. Description of Securities other than Equity Securities			127
PART II			128
Item 13. Defaults, Dividend Arrearages and Delinquencies			128
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			128
Item 15. Controls and Procedures			128
Item 16. [Reserved]			129
Item 16A. Audit Committee Financial Expert			129
Item 16B. Code of Ethics			129
Item 16C. Principal Accountant Fees and Services			130
Item 16D. Exemptions from Listing Requirements for Audit Committees			131
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Persons			131
PART III			132
Item 17. Financial Statements			132
Item 18. Financial Statements			132
Item 19. Exhibits			132
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1

GLOSSARY

ACCIONA, S.A.		Acciona, S.A.		Spanish construction holding company.
AESGener		AES Gener S.A.		Chilean generation company that competes with us in Chile, Argentina, Brazil and Colombia.
AFP		Administradora de Fondos de Pensiones		Chilean private pension funds.
Ampla		Ampla Energía e Servicos S.A.		Brazilian distribution company operating in Rio de Janeiro, owned by Endesa Brasil, a subsidiary of our parent company, Enersis.
ANEEL		Agéncia Nacional de Energia Elétrica		Brazilian governmental agency for electric energy.
Betania		Central Hidroeléctrica de Betania S.A. E.S.P.		Endesa Chile’s Colombian subsidiary which merged with Emgesa in 2007.
Bureau Veritas		Bureau Veritas		International independent certification company.
Cachoeira Dourada		Centrais Eléctricas Cachoeira Dourada S.A.		Brazilian generating company owned by Endesa Brasil, a subsidiary of our parent company, Enersis.
Cammesa		Compañía Administradora del Mercado Mayorista Eléctrico S.A.		Argentine autonomous entity in charge of the operation of the Mercado Eléctrico Mayorista (Wholesale Electricity Market), or MEM. Cammesa’s stockholders are generation, transmission and distribution companies, large users and the Secretariat of Energy.
CDEC		Centro de Despacho Económico de Carga		Autonomous entity in two Chilean electric systems in charge of coordinating the efficient operation and dispatch of units to satisfy the demand at any time.
CELTA		Compañía Eléctrica Tarapacá S.A.		Endesa Chile’s subsidiary that operates in the SING with thermal plants.
CEMSA		Compañía de Energía del Mercosur S.A.		Energy trading company with operations in Argentina subsidiary of Endesa Chile.
Chilectra		Chilectra S.A.		Chilean electricity distribution company operating in the Santiago metropolitan area owned by our parent company, Enersis.
CIEN		Companhia de Interconexão Energética S.A.		Brazilian transmission company, wholly-owned by Endesa Brasil, a subsidiary of our parent company, Enersis.
CNE		Comisión Nacional de Energía		Chilean National Energy Commission, governmental entity with responsibilities under the Chilean regulatory framework.
Codensa		Codensa S.A. E.S.P.		Colombian distribution company controlled by our parent company, Enersis that operates mainly in Bogotá and Cundinamarca.
Coelce		Companhia Energética do Ceará S.A.		Brazilian distribution company operating in the state of Ceará. Coelce is controlled by Endesa Brasil, a subsidiary of our parent company, Enersis.

CREG		Comisión de Regulación de Energía y Gas		Colombian Commission for the Regulation of Energy and Gas.
CTM		Compañía de Transmisión del Mercosur		Endesa Brasil’s transmission subsidiary with operations in Argentina.
Edegel		Edegel S.A.A.		Peruvian generation company, subsidiary of Endesa Chile.
Edelnor		Empresa de Distribución Eléctrica de Lima Norte S.A.A.		Peruvian distribution company with a concession area in the northern part of Lima, a subsidiary of our parent company, Enersis.
Edesur		Empresa Distribuidora Sur S.A.		Argentine distribution company with a concession area in the south of the Buenos Aires larger metropolitan area, a subsidiary of our parent company, Enersis.
El Chocón		Hidroeléctrica El Chocón S.A.		Endesa Chile’s subsidiary with two hydroelectric plants, El Chocón and Arroyito, both located in the Limay River, Argentina.
Emgesa		Emgesa S.A. E.S.P.		Colombian generation company controlled by Endesa Chile.
Endesa Brasil		Endesa Brasil, S.A.		Brazilian holding company, subsidiary of our parent company, Enersis, created in 2005.
Endesa Costanera		Endesa Costanera S.A.		Argentine generation company controlled by Endesa Chile.
Endesa Fortaleza		Central Geradora Termelétrica Endesa Fortaleza S.A.		Endesa Fortaleza owns a combined cycle generating plant, located in the state of Ceará. Endesa Fortaleza is fully owned by Endesa Brasil, a subsidiary of our parent company, Enersis.
Endesa Internacional		Endesa Internacional S.A.		A subsidiary of Endesa Spain and the direct controller of our parent company, Enersis.
Endesa Spain		Endesa, S.A.		A Spanish electricity generation and distribution company with a 60.6% beneficial interest in Enersis, parent company of Endesa Chile.
ENEL		ENEL S.p.A		A large power company in Italy.
ENRE		Ente Nacional Regulatorio de la Energía		Argentine national regulatory authority of the energy sector.
GasAtacama		GasAtacama S.A.		Company involved in the gas transportation and electricity generation in the north of Chile, affiliate of Endesa Chile.
IFRS		International Financial Reporting Standards		Reporting standard that the company will adopt starting on January 1, 2009.
LNG		Liquid Natural Gas		The gas that the future LNG Quintero plant will process.
MEM		Mercado Eléctrico Mayorista		Wholesale Electricity Market in Argentina.

MME		Ministério de Minas e Energia		Ministry of Mines and Energy of Brazil.
NIS		Sistema Interconectado Nacional		National interconnected electric system. There are such systems in Argentina, Brazil and Colombia.
ONS		Operador Nacional do Sistema Elétricos		Electric System National Operator. Brazilian nonprofit private entity responsible for the planning and coordination of operations in interconnected systems.
OSINERGMIN		Organismo Supervisor de la Inversión en Energía y Minería		Energy and mining investment supervisor authority. The Peruvian regulatory electricity authority.
Pangue		Empresa Eléctrica Pangue S.A.		Chilean electricity company, owner of the Pangue power station. Pangue is an Endesa Chile subsidiary.
Pehuenche		Empresa Eléctrica Pehuenche S.A.		Chilean electricity company, owner of three power stations in the Maule basin. Pehuenche is an Endesa Chile’s subsidiary.
San Isidro		Compañía Eléctrica San Isidro S.A.		Chilean electricity company, owner of a thermal power station. San Isidro is wholly-owned by Endesa Chile.
SEF		Superintendencia de Electricidad y Combustible		Governmental entity in charge of supervising the Chilean electricity industry.
SEIN		Sistema Eléctrico Interconectado Nacional		Peruvian interconnected electric system.
SIC		Sistema Interconectado Central		Chilean central interconnected electric system.
SING		Sistema Interconectado del Norte Grande		Electric system operating in northern Chile.
SVS		Superintendencia de Valores y Seguros		Chilean authority in charge of supervising public companies, securities and insurance.
UTA		Unidad Tributaria Anual		Chilean annual tax unit. One UTA equals 12 UTM.
UTM		Unidad Tributaria Mensual		Chilean monthly tax unit used to define fines, among other purposes.
VAD		Valued Added Distribution		Valued added from distribution of electricity.
VNR		Valor Nuevo de Reemplazo		The net replacement value, in its Spanish acronym.

INTRODUCTION

As used in this annual 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 indicated, our interest in our principal subsidiaries and related companies is expressed in terms of our economic interest as of December 31, 2007.

Financial Information

In this annual report on Form 20-F, unless otherwise specified, references to “dollars,” “$,” are to United States dollars; references to “pesos” or “Ch$” are to Chilean pesos; the legal currency of Chile; references to “Ar$” or “Argentine pesos” are to the legal currency of Argentina; references to “R$,” “reals” or “reais” are to Brazilian reals, the legal currency of Brazil; references to “soles” are to Peruvian soles, the legal currency of Peru; references to “CPs” or Colombian pesos are to the legal currency of Colombia; 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, 2007, 1 UF was equivalent to Ch$ 19,622.66. The dollar equivalent of 1 UF was $ 39.49 at December 31, 2007, using the Observed Exchange Rate reported by the Banco Central de Chile (the “Chilean Central Bank,” or the “Central Bank”) as of December 31, 2007 of Ch$ 496.89 per $ 1.00. As of May 31, 2008, 1 UF was equivalent to Ch$ 20,061.03. The dollar equivalent of 1 UF was $ 41.83 for May 31, 2008, using the Observed Exchange Rate reported by the Central Bank of Ch$ 479.54 per $ 1.00.

Our audited consolidated financial statements and, unless otherwise indicated, other financial information concerning us and our subsidiaries included in this annual report are presented in constant pesos in conformity with Chilean generally accepted accounting principles (“Chilean GAAP”) and the rules of the Superintendencia de Valores y Seguros,, or SVS. Data expressed in pesos for all periods in the Company’s audited consolidated financial statements for the three fiscal years ended December 31, 2007 are expressed in constant pesos as of December 31, 2007. See Note 2 to our audited consolidated financial statements included herein. For Chilean accounting purposes, inflation adjustments are calculated based on a “one-month lag” convention using an inflation adjustment factor based on the Indice de Precios al Consumidor (Chilean consumer price index, or “Chilean CPI”). The Chilean CPI is published by Chile’s Instituto Nacional de Estadísticas (the “National Bureau of Statistics”). For example, the inflation adjustment applicable for the 2007 calendar year is the percentage change between the November 2006 Chilean CPI and the November 2007 Chilean CPI, which was 7.4%. Chilean GAAP, differs in certain important respects from accounting principles generally accepted in the United States (“U.S. GAAP”). See Note 32 to our audited consolidated financial statements contained elsewhere in this annual report for a description of the principal differences between Chilean GAAP and U.S. GAAP, as they relate to us, and for a reconciliation to U.S. GAAP stockholders’ equity and net income as of and for the three years in the period ended December 31, 2007, respectively.

Under Chilean GAAP, we consolidate the results from operations of a company defined as a “subsidiary” under Law No. 18,046 (the “Chilean Companies Act”). In order to consolidate a company, we must generally satisfy one of two criteria:

	•		control, directly or indirectly, more than a 50% voting interest in such company; or
	•		nominate or have the power to nominate a majority of the Board of Directors of such company if we control 50% or less of the voting interest of that company.

As of December 31, 2007 we consolidated all our operational Chilean subsidiaries. In Argentina, we consolidated the hydroelectric company Central Hidroeléctrica El Chocón S.A. (“El Chocón”), and the thermoelectric company Endesa Costanera. In Colombia, we consolidated the generation company Emgesa S.A. E.S.P., (“Emgesa”) which is controlled pursuant to a shareholders’ agreement. We also consolidated the generation company Edegel S.A.A. (“Edegel”), in Peru.

For the convenience of the reader, this annual 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” at December 31, 2007. 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 annual 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.”

Technical Terms

References to “GW” and “GWh” are to gigawatts 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; and references to “kV” are to kilovolts. Unless otherwise indicated, statistics provided in this annual report with respect to electricity generation facilities are expressed in MW, in the case of the installed capacity of such facilities, and in GWh, in the case of the aggregate annual electricity production of such facilities. 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. 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.

Technical transmission energy losses are calculated by:

•

subtracting the number of GWh of energy sold from the number of GWh of energy purchased and generated (which already excludes own energy consumption and losses of the power plant), within a given period.

Calculation of Economic Interest

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

Forward-Looking Statements

This annual report contains statements that are or may constitute forward-looking statements. These statements appear throughout this annual 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 annual 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;
	•		changes in the environmental regulatory framework in one or more of the countries in which we operate;
	•		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 annual 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.

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 of consolidated selected financial and operating data should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, included in this annual report. Our audited consolidated financial statements are prepared in accordance with Chilean GAAP and the rules of the SVS, which differ in certain important respects from U.S. GAAP. Note 32 to our audited consolidated financial statements provides a description of the principal differences between Chilean GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of net income and shareholders’ equity for the periods indicated therein. Financial data as of and for each of the five years ended December 31, 2007 in the following table have been restated in constant pesos as of December 31, 2007.

In general, amounts are in millions except for ratios, operating data, shares and ADS data. For the convenience of the reader, all data presented in dollars in the following summary, as of and for the year ended December 31, 2007, are converted at the Observed Exchange Rate for December 31, 2007 of Ch$ 496.89 per $ 1.00. No representation is made that the peso or dollar amounts shown in this annual report could have been or could be converted into dollars or pesos, at such rate or at any other rate. For more information concerning historical exchange rates, see “Item 3. Key Information A. Selected Financial Data 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. All companies have been consolidated according to Chilean GAAP.

The information detailed in the following table includes the effect of certain accounting changes for the five years ended and as of December 31, 2007, which affect the comparability presented below. For information on changes in accounting policies see Note 3 to our consolidated financial statements.

		As of or for the year ended December 31, (in constant millions of Ch$)
		2003				2004				2005				2006				2007				2007
																						(millions
		Ch$				Ch$				Ch$				Ch$				Ch$				of $) (1)
Chilean GAAP:
Revenues from operations			1,071,603				1,173,136				1,231,473				1,436,068				1,726,964				3,476
Cost of operations			(640,957	)			(714,780	)			(756,183	)			(851,961	)			(1,119,053	)			(2,252	)
Administrative and selling expenses			(36,475	)			(39,130	)			(42,303	)			(42,301	)			(37,081	)			(75	)
Operating income			394,171				419,226				432,987				541,806				570,830				1,149
Equity in income (losses) of related companies, net			20,226				21,815				14,879				45,478				(10,453	)			(21	)
Goodwill amortization			(1,797	)			(1,664	)			(1,498	)			(1,013	)			(910	)			(2	)
Interest expense, net			(219,930	)			(201,811	)			(179,004	)			(168,726	)			(154,254	)			(310	)
Price-level restatement and foreign currency translation, net			11,099				25,949				17,785				5,473				25,466				51

		As of or for the year ended December 31, (in constant millions of Ch$)
		2003				2004				2005				2006				2007				2007
																						(millions
		Ch$				Ch$				Ch$				Ch$				Ch$				of $) (1)
Other non-operating expense, net			(18,036	)			(31,859	)			(22,266	)			(14,607	)			(67,335	)			(136	)
Income before income taxes, minority interest and negative goodwill amortization			185,733				231,656				262,883				408,411				363,345				731
Income taxes			(31,880	)			(106,136	)			(100,832	)			(140,540	)			(113,413	)			(228	)
Extraordinary loss			—				—				—				—				—				—
Minority interest			(81,029	)			(48,624	)			(57,535	)			(70,788	)			(61,874	)			(125	)
Amortization of negative goodwill			18,154				18,291				16,788				6,484				4,382				9
Net income			90,978				95,187				121,304				203,567				192,439				387
Net income per share in Ch$/$			11.09				11.60				14.79				24.82				23.46				0.05
Net income per ADS in Ch$/$ (2)			332.92				348.05				443.77				744.60				703.89				1.42
U.S. GAAP (6):
Revenues from operations			1,071,604				1,173,136				1,231,473				1,436,068				1,726,964				3,476
Operating income			182,197				440,683				450,583				568,526				587,669				1,183
Equity in income of related companies, net			52,625				21,816				(16,444	)			50,031				(33,438	)			(67	)
Income taxes			28,492				(172,987	)			(109,374	)			(149,193	)			(117,303	)			(236	)
Net income (loss) from continuing operations			84,701				72,187				109,958				227,574				181,442				365
Cumulative effect of changes in accounting principles, net of tax and minority interest			(140	)			1,371				—				—				—				—
Income from discontinued operations, net of tax and minority interest			134				—				—				—				—				—
Net income			84,695				73,558				109,958				227,574				181,442				365
Income from continuing operations per share in Ch$/$			10.45				8.81				13.41				27.74				22.12				0.04
Cumulative effect of changes in accounting principles			(0.02	)			0.16				—				—				—				—
Discontinued operations			0.02				—				—				—				—				—
Net income per share in Ch$/$			10.45				8.97				13.41				27.74				22.12				0.04
Income from continuing operations per ADS in Ch$/$			313.50				264.20				402.32				803.67				663.60				1.34
Income from discontinued operations per ADS in Ch$/$ (2)			0.66				—				—				—				—				—
Net income per ADS in Ch$/$ (2)			314.16				264.20				402.32				803.67				663.60				1.34

		As of or for the year ended December 31, (in constant millions of Ch$)
		2003				2004				2005				2006				2007				2007
																						(millions
		Ch$				Ch$				Ch$				Ch$				Ch$				of $) (1)
Consolidated Balance Sheet Data
Chilean GAAP:
Total assets			6,364,004				6,041,020				5,345,121				5,678,830				5,387,378				10,842
Long-term liabilities			2,666,122				2,489,735				1,941,502				2,248,143				1,921,620				3,867
Minority interest			1,417,979				1,280,750				1,024,072				1,004,392				886,883				1,785
Total Shareholders’ equity			1,738,109				1,782,315				1,800,825				1,927,089				1,884,227				3,792
Capital stock			1,222,878				1,222,878				1,222,878				1,222,878				1,222,878				2,461
U.S. GAAP:
Total assets			6,002,357				5,672,773				5,042,886				5,364,885				5,126,547				10,311
Long-term liabilities			2,753,770				2,623,481				2,087,430				2,367,599				2,047,132				4,120
Minority interest			1,371,917				1,181,435				939,404				914,225				749,512				1,508
Total Shareholders’ equity			1,308,129				1,355,113				1,406,038				1,550,839				1,596,838				3,214
Capital stock			1,222,878				1,222,878				1,222,878				1,222,878				1,222,878				2,461
Other Consolidated Financial Data
Chilean GAAP:
Capital expenditures (5)			152,703				109,214				64,455				182,671				207,030				417
Depreciation and amortization			194,554				178,986				172,957				183,998				192,976				384
Cash dividends per share in Ch$/$ (3)			2.61				4.69				6.41				2.76				13.03				0.026
Cash dividends per ADS in $ (2)(3)(4)			0.00				0.00				0.00				0.15				0.79				0.79
Weighted average outstanding (million)
Number of shares			8,202				8,202				8,202				8,202				8,202				8,202
Number of ADS			14				14				14				14				14				14

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 “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.

In Chile, the Ley Orgánica del Banco Central de Chile No. 18,840 (the “Central Bank Act”), enacted in 1989, made it easier to buy and sell foreign currency in Chile. The Central Bank Act currently provides that the Central Bank may require that certain purchases and sales of foreign currency take place in the Mercado Cambiario Formal (the “Formal Exchange Market”), a market formed by banks and other entities which have been specifically authorized by the Central Bank. Purchases and sales of foreign currency which can take place outside of 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 Exchange Market or the Informal Exchange Market, but such payments and distributions must be necessarily done through the Formal Exchange Market.

For purposes of operations in the Formal Exchange Market, the Chilean Central Bank sets a reference exchange rate (dólar acuerdo, or the “Reference Exchange Rate”). The Reference Exchange Rate is set daily by the Central Bank, taking into account internal and external inflation and variations in parities between the peso and each of the dollar, the Japanese yen and the Euro in a ratio of 80:5:15, respectively. The daily observed exchange rate (dólar observado, or the “Observed Exchange Rate”) reported by the Central Bank and published daily in the Chilean newspapers is calculated by taking the weighted average of the previous business day’s transactions in the Formal Exchange Market.

The Informal Exchange Market reflects transactions carried out at informal exchange rates (the “Informal Exchange Rate”) by entities that are not authorized to operate in the Formal Exchange Market (e.g., certain foreign exchange houses, travel agencies and others). No limits were imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other. On December 31, 2007, the Informal Exchange Rate was Ch$ 498.10, or 0.24% higher than the published Observed Exchange Rate of Ch$ 496.89 per $ 1.00. On May 31, 2008, the informal exchange rate was Ch$ 480.50 per $ 1.00, 0.20% higher than the Observed Exchange Rate corresponding to such date, of Ch$ 479.54 per $ 1.00. Unless otherwise indicated, amounts translated to dollars were calculated based on the exchange rates in effect as of December 31, 2007.

The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank. No representation is made that the peso or dollar amounts referred to herein could have been or could be converted into dollars or pesos, as the case may be, at the rates indicated or at any other rate. The Federal Reserve Bank of New York does not report a noon buying rate for pesos.

		Observed Exchange Rate (1)
		(Ch$ per $)
		Low				High				Average				Period-
Year		(2)				(2)				(3)				end
2003			593.10				758.21				686.89				593.80
2004			557.40				649.45				611.11				557.40
2005			509.70				592.75				558.06				512.50
2006			511.44				549.63				529.64				532.39
2007			493.14				548.67				521.06				496.89

		Observed Exchange Rate (1)
		(Ch$ per $)
										Average				Period-
Last six months		Low (2)				High (2)				(3)				end
2007
November			496.27				516.25				—				505.38
December			495.49				506.79				—				496.89
2008
January			463.58				498.05				—				465.34
February			453.95				476.44				—				453.95
March			431.22				454.94				—				437.71
April			433.98				461.49				—				461.49
May			464.83				479.66				—				479.54

B. Capitalization and indebtedness.

Not applicable.

C. Reasons for the offer and use of proceeds.

Not applicable.

D. Risk factors.

Risks Relating to Our Operations in Every Country in Which We Operate

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

Approximately 63% of our consolidated installed capacity in Chile, Argentina, Colombia and Peru is hydroelectric. Accordingly, extreme hydrological conditions affect our business and may have a substantial influence over 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 the size of our commitments, we may have to buy electricity from other parties 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.

Our generation subsidiaries have a commercial policy in order to limit the potential impact of interruptions to our ability to supply electricity to our customers, including those caused by droughts, interruptions in gas supply and prolonged plant stoppages. Pursuant to this policy, a volume of contracts is determined for each generation company by reducing the hydrological risk to acceptable levels, assured by a degree of statistical reliability of 95%. Any contracts for volumes that exceed this 95% level are required to include clauses transferring the risk of interruptions and its related costs to the customers. Notwithstanding this risk-reduction policy, a prolonged drought will adversely affect our results.

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 $ 69, to 10,000 Unidades Tributarias Anuales (“UTA”), or $ 8.3 million using the UTM, UTA and foreign exchange rate for December 31, 2007. Any electricity company supervised by the Superintendencia de Electricidad y Combustibles, the 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 such company, for instance, when the coordination duty of the system agents is not fulfilled, even when it is not within the company’s control to prevent such failures. These fines may be appealed.

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 2003, the SEF imposed fines on some of our Chilean generation subsidiaries in an aggregate amount of 5,330 UTA, or $ 4.4 million, due to their failure to transmit energy in the Metropolitan Region on September 23, 2002. In 2004, the SEF imposed fines on us in an aggregate amount of 2,030 UTA due to a blackout that occurred in the Metropolitan Region on January 13, 2003. As a result of an administrative resolution, these fines have since been reduced to 1,610 UTA, or $ 1.3 million. In 2005, the SEF imposed fines of 1,260 UTA, or $ 1.0 million, on us due to a blackout that occurred in the Metropolitan Region on November 7, 2003. We are currently appealing these fines, but these appeals may be unsuccessful.

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 in Water Rights Law, and since then we must pay for all its unused water rights. For additional information see “Item 4. Information on the Company — B. Business Overview — Electricity Industry Regulatory Framework — Chilean Electricity Law — Water rights”

For instance, 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 Comisión Nacional de Energía (National Energy Commission), or the CNE. The “cost of failure” is determined semiannually by the CNE’s economic models as the highest cost of electricity during periods of electricity deficit. 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 volume 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.

Similarly, if material rationing policies are imposed by any regulatory authority as a result of adverse hydrological conditions in the countries in which we operate, our business, financial condition and results of 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.

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.”

Foreign exchange risks may adversely affect our results of operations and financial condition.

The peso and the other 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.Over the last five years, the peso has appreciated against the dollar. Historically, a significant portion of our consolidated indebtedness has been denominated in dollars and, although a substantial portion of our revenues are linked in part 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, for instance, the cash generated by our subsidiaries can be materially diminished when the local currencies devalue against the dollar. Future volatility in the exchange rate of the peso, and the other currencies in which we receive revenues or incur expenditures, to the dollar, 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, 2007, using financial instead of accounting conventions, Endesa Chile’s total consolidated financial debt was $ 4,076 million (net of currency hedging instruments). Of this amount, $ 2,570 million was denominated in dollars and $ 508 million was denominated in pesos, which represent 5.3% of our 2007 revenues. In addition to the dollar and the peso, our foreign currency denominated consolidated indebtedness included the equivalent of $ 747 million in Colombian pesos, $ 216 million in soles and $ 34 million in Argentine pesos.

For the twelve-month period ended December 31, 2007, our revenues amounted to $ 3,476 million of which $ 660 million, or 19% was denominated in dollars, $ 1,634 million, or 47% was linked in some way to the dollar and $ 183 million were revenues in pesos. In the aggregate, 66% of our revenues was either in dollars or tied to dollars through some form of indexation. Revenues before consolidation adjustments in these other currencies for the twelve-month period ended December 31, 2007, included the equivalent of $ 359 million in Colombian pesos, $ 525 million in Argentine pesos, and $ 113 million in soles. Although we both 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 the principal amount of our debt is denominated in dollars while our revenues are mostly in Argentine pesos.

We may be subject to refinancing risk.

As of December 31, 2007, on a consolidated basis, we had $ 662 million of indebtedness maturing in 2008, $ 960 million in 2009 (holders of certain Yankee Bonds can exercise a put option on February 1, 2009), $ 207 million in 2010, $ 470 million in 2011, $ 259 million in 2012 and $ 1,517 million maturing thereafter. This same $ 662 million indebtedness, divided by country, is as follows: $ 71 million in Argentina; $ 31 million in Colombia; $ 135 million in Peru; and $ 425 million in Chile.

We are subject to certain fairly standard types of financial covenants including maximum ratios of indebtedness to adjusted cash flow, indebtedness to EBITDA, debt to equity and minimum ratios of adjusted cash flow to interest expense, as defined in our debt agreements. In addition, most of our indebtedness contains cross-default provisions, generally triggered by default on other indebtedness that exceeds $ 30 million on an individual basis. In the event that any of our cross-default provisions is triggered and our existing creditors demand immediate repayment, a significant portion of our indebtedness, could become due and payable. For more information on some of these covenants and certain 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, our subsidiaries in Argentina are exposed to the greatest refinancing risk. As of December 31, 2007, the third-party financial debt of our Argentine subsidiaries (Endesa Costanera and El Chocón) was $ 318 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 most of our outstanding debt. If our creditors do not continue to accept rolling over debt principal when it becomes due, we may be unable to refinance our indebtedness on terms acceptable to us.

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

In order to pay our obligations, we rely in part 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. 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. Our subsidiaries and equity affiliates may be additionally limited by their operating results.

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 all 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 flow 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. As a consequence of such duties, 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 Empresa Eléctrica Pangue S.A., or Pangue, our Chilean generation subsidiary, if it is not in compliance with certain debt-to-equity ratio and debt coverage ratio (in each case, as defined in Pangue’s credit agreement that matures in January 2010); prohibitions against dividend distributions, capital reductions, intercompany interest payments and debt repayment by Endesa Costanera and El Chocón in Argentina, in each case 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.

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 emergency 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 in Argentina, the Central Bank of Argentina imposed restrictions on the transfer of funds outside the country.

The Argentine natural gas crisis has increased the vulnerability of the electricity sector in Chile.

In Argentina, the low price imposed by regulators on natural gas has directly affected production and investment in natural gas fields, which has impacted the short and medium-term availability of natural gas, both, in Chile and in Argentina. A natural gas shortage has forced electricity generation companies, including ours, to use more expensive fuel oil, thus substantially increasing production costs. Demand for electricity in Chile’s central region increased by 6.6% in 2007 and is expected to continue to increase in the foreseeable future. Increasing demand, combined with a low level of mid-term investment in the electricity sector, particularly exposes the Chilean electricity sector to the adverse effects of the Argentine natural gas crisis. Since 2004, Chile has been affected by increasing restrictions in the supply of natural gas from Argentina despite the existence of long-term contracts.

Our combined cycle plant San Isidro and both units in Taltal operate with natural gas and diesel oil. Our related company, GasAtacama, also operates with natural gas and diesel oil. Each company has gas contracts with Argentine suppliers and has been affected adversely by restrictions of natural gas from Argentina, reaching zero levels. In the case of GasAtacama, because of the additional generating costs, with losses associated, we took an investment impairment provision of Ch$ 48.9 million in 2007 because of this problem. The materiality of the impact in the future will depend on the level of natural gas restrictions from Argentina and the contractual commitments of each company. See “Item 4. Information on the Company — A. Hstory and Development of the Company — Recent Developments.”

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

All of our operations are located in South America. In 2007, we generated 43% of our consolidated operating revenues and 41% of our consolidated operating income outside Chile. 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 countries in which we have investments or operations, our financial condition and results from operations could be affected adversely.

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 affected adversely by events in other countries and such effects may affect the value of our securities. Moreover, we have significant investments in relatively risky non-Chilean countries such as Argentina, Brazil, Colombia and Peru. Generation and distribution of cash from subsidiaries in these countries have proven to be volatile.

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

Governmental authorities have changed monetary, credit, tariff and other policies to influence the course of the economy of Argentina, Brazil, Colombia and Peru. These governments’ actions were intended to control inflation and affect other policies have often involved wage, price and tariff rate controls as well as other interventionist measures, which have included freezing bank accounts and imposing capital controls, for example, this was the case in Argentina in 2001. Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could affect our business and financial results adversely, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the response by governments in the region to such 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 of operations may be affected adversely.

Construction of new facilities may be affected adversely 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 increase in the prices 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 and our affiliates operate; adverse weather conditions, which may delay the completion of power plants or substations; 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 investments 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 of these material claims are resolved against us. See note 26 to our audited consolidated financial statements.

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

ENDESA, S.A. (Endesa Spain) currently owns 60.6% of Enersis’ share capital, and ENEL S.p.A. and ACCIONA, S.A. jointly hold 92.06% of Endesa Spain’s share capital. Enersis beneficially owns 60% of Endesa Chile’s outstanding capital stock (ENDESA, S.A., ENEL S.P.A., ACCIONA, S.A. and Enersis, collectively the “Controllers”). The Controllers have the power to determine the outcome of most material matters that require shareholder vote, such as the election of the majority of our board members and, subject to contractual and legal restrictions, the distribution of dividends.  The Controllers also can exercise influence over our operations and business strategies.  Our Controllers’ interests may in some cases differ from those of our other shareholders.  The Controllers conduct their business in South America through us and through entities not consolidated by us or in which we have no interest.

We have outstanding credit facilities with “change of control” provisions which could result in some acceleration rights on such indebtedness.

Approximately 17% of the amount outstanding in our consolidated debt obligations has “change of control” contractual provisions. As of December 31, 2007, $ 674 million of Endesa Chile’s consolidated indebtedness had some kind of “change of control provision” either in the form of a negative covenant, a mandatory prepayment or otherwise. However, $ 316 million in Endesa Chile’s subsidiaries’ contracts either (a) require a preliminary merger or spin-off prior to triggering such change of control provision, or (b) the change of control does not apply to Endesa Spain but to the other companies instead.

A total of $ 358 million Endesa Chile’s consolidated indebtedness has “change of control provisions” which specifically refer to Endesa Spain, directly or indirectly, as the controlling entity. In order to make possible the completion of Enel & Acciona’s take-over of Endesa Spain we obtained the necessary consents in advance. If another change of control were to occur, and we are not successful in obtaining certain waivers or amendments, then the lenders under these facilities would have the ability to accelerate such debt and make it immediately due and payable.

Approximately $ 216 million of Endesa Chile debt are to be found in revolving credit facilities governed by the laws of the State of New York, in which lenders under both facilities, on an individual basis, have rights to accelerate payment if Endesa Spain is no longer, directly or indirectly, the ultimate controlling parent, and, the new controlling entity would have a lower rating (including with respect to outlook) than the unsecured long-term foreign currency rating of Endesa Spain, as rated by each of Standard & Poor’s (S&P) and Moody’s immediately prior to giving effect to a transaction involving a change of control, as defined. Endesa Spain’s applicable ratings as of this report are “A3 with negative outlook” according to Moody’s, “A- with negative outlook” according to S&P, and “A- with negative outlook” according to Fitch.

If a tender offer for Endesa Spain is successful, and if a change of control were to take place, we cannot give assurances that our lenders would waive any acceleration rights that they might otherwise have under such credit agreements. For more detailed information on Endesa Chile contractual provisions, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

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, our generation subsidiaries 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, depends on water levels in reservoirs, the market prices of commodities such as natural gas, 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. Under Chilean GAAP, our income statement does not reflect fluctuations in the fair value of our long-term energy contracts, although we are required to do so under U.S. GAAP. For further discussion, please refer to “Item 11. Quantitative and Qualitative Disclosures About Market Risk — Commodity Price Risk.”

Our business is dependent on the Chilean economy and our revenues are sensitive to its performance.

A substantial portion of our assets and operations are located in Chile and, accordingly, our financial condition and results of operations are to a certain extent dependent upon economic conditions prevailing in Chile. In 2007, the Chilean economy grew by an estimated 5.1% compared to a 4.3% increase in 2006. The latest Chilean Central Bank estimate for growth in 2008, however, is in the 4.0% — 5.0% range. There is no assurance that such growth will be achieved, that the growth trend will continue in the future, or that future developments in the Chilean economy will not impair our ability to proceed with our strategic plans or adversely impact our financial condition or results of operations. Our financial condition and results from operations could also be affected by changes in economic or other policies of the Chilean government, which has exercised and continues to exercise a substantial influence over many aspects of the private sector. In addition, our financial condition and results of operations could also be affected by other political or economic developments in Chile, a well as regulatory changes or administrative practices of Chilean authorities, over which we have no control. Finally, the Chilean economy may also be affected by developments in more developed countries, including the subprime crisis that started in the United States.

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. 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 courts 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.

Foreign exchange risks may affect the dollar amount of dividends payable to holders of our ADSs adversely.

Chilean trading in the shares of our common stock underlying American Depositary Shares (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.

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

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.

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:

Main office:		Santa Rosa 76, Santiago, Chile
Mailing Address:		C.P. 8330099, Santiago
Telephone:		(562) 630-9000
Fax:		(562) 635-3938

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

Main office:		850 Library Avenue, Suite 204, Newark, Delaware
Mailing Address:		P.O. Box 885, Newark, Delaware, 19711
Telephone:		(302) 738-6680
Fax:		(302) 738-7210

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.

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

	•		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.
	•		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 to Emgesa S.A. E.S.P.;
	•		we acquired Cachoeira Dourada in Brazil in September 1997. Since October 2005, Cachoeira Dourada has been a subsidiary of Endesa Brasil.

Since October 10, 2007, the Italian energy company, Enel S.p.A., and the Spanish construction company, Acciona, S.A., jointly hold 92.06% of the share capital of Endesa Spain As of the date of this annual report, Endesa Spain owns a 60.6% beneficial interest in Enersis, which is a Chilean publicly held holding company with subsidiaries engaged primarily in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru. Enersis beneficially owns 60% of Endesa Chile’s outstanding capital stock.

Endesa Chile’s shares are publicly traded on the Bolsa de Comercio de Santiago, Bolsa de Valores (the “Santiago Stock Exchange”), the Bolsa Electrónica de Chile, Bolsa de Valores (the “Electronic Stock Exchange”) and the Bolsa de Corredores, Bolsa de Valores (the “Valparaíso Stock Exchange”). Endesa Chile’s American Depositary Shares (ADS) have been listed on the New York Stock Exchange since July 1994. Shares of Endesa Chile have also been listed and traded on the Bolsa de Valores Latinoamericanos de la Bolsa de Madrid, or Latibex, since December 2001.

Investments, Capital Expenditures and Divestitures

Our capital expenditures and investments during 2007 included investments of Ch$ 178 billion ($ 360 million) primarily in Chile and Argentina and capital expenditure maintenance of Ch$ 69 billion ($ 139 million) in all our operating subsidiaries. As of December 31, 2007 we expected to make capital expenditures of approximately Ch$ 2,391 billion ($ 4.8 billion) over the next five years. Although we have considered how these investments will be financed as part of the Company’s budget process, we have not committed to any financial structure and the financing will depend on the market conditions at the time the cash flows are needed.

In 1995, our Board of Directors approved the construction of the San Isidro Plant Expansion Project. The San Isidro II power plant will have a maximum capacity in combined cycle with liquid natural gas (LNG) of 379 MW. It started operations in open cycle in April 2007. Due to a commitment with the Chilean government the operation in combined cycle came into service in January 2008. Today it is operating at 353 MW. The start up of operations with LNG is planned for July 2009. The investment cost has been $ 229 million.

The Company finished the construction of the 32 MW Palmucho pass-through hydroelectric plant, which started operations in November 2007. The total investment cost came to $ 45 million. Palmucho is taking advantage of the ecological flow that the Ralco plant releases, pursuant to Ralco’s Environmental Impact Assessment.

In August 2005, Endesa Eco presented its Environmental Impact Declaration to the Maule Region’s National Environmental Commission for the construction of the Ojos de Agua mini-hydroelectric plant which will be located approximately 100 kilometers from the city of Talca, in the valley of the River Cipreses, downstream from the La Invernada Lake. This mini-plant will have a capacity of 9 MW, and the investment cost is expected to be $ 25 million. It is planned to come into service during the first half of 2008.

Endesa Eco is also working on the development of nonconventional renewable energy projects. The first stage of the Canela wind farm started operations in December 2007. This 18.15 MW plant is located 295 km. north of Santiago in the district of Canela in Chile’s Fourth Region. The investment cost reached $ 43 million. An expansion of the Canela wind farm is expected to start up operations in the third quarter of 2009. It will add 59.4 MW to the existing wind farm and the total investment is planned to cost $ 135 million.

In May 2004, the construction of the LNG regasification plant started. Endesa Chile, ENAP, British Gas and Metrogas are together in this project, where Endesa Chile has 20% equity interest. The total investment of the plant will reach $ 940 million and it is planned to come into service by mid 2009.

On September 28, 2007, the board of Endesa Chile approved the construction of the Quintero thermal generation plant. The plant will consist of two gas turbines in open cycle which will use diesel and liquefied natural gas once the Quintero re-gasification plant starts commercial operations. The latter is currently being built on land adjoining the location of the future plant. The project will have a capacity of 240 MW and its operational start-up is estimated for the first half of 2009. The total project investment amounts to $ 120 million.

In September 2007, Endesa Chile started the construction of the Bocamina Plant Expansion. This project consists of the construction and commissioning of a second electricity generating unit of approximately 350 MW, the total cost of the project will be approximately $ 625 million. The project also includes the installation of a hose filter in the existing first unit of the plant to reduce particle emissions, currently being installed. The start up of the second unit is expected by mid 2010.

On June 5, 2007, Endesa Chile submitted Los Cóndores 150 MW pass-through hydro plant to the environmental impact evaluation system, which was approved on April 16, 2008. The cost of the project will be approximately $ 273 million and it is expected to start operations in 2012.

In Colombia, on March 2, 2006, Endesa Chile’s Colombian subsidiary, Emgesa, purchased the assets of Termocartagena, located on the Atlantic coast, in a public tender process, for $ 17 million.

In Peru, Edegel’s Santa Rosa thermal plant will expand its capacity with an open cycle of 183 MW. The project is considering the use of natural gas from Camisea. The investment required is $ 90 million and it is planned to come into service by December 2009.

In Argentina, Endesa Chile has been taking part since 2005 in Foninvemem, building two thermal plants of 800 MW each. Endesa Chile will hold 21% interest equity through Endesa Costanera and El Chocón. In March 2008 275 MW started operations in open cycle. The project is expected to start operations in combined cycle in 2009.

The table below sets forth the capital expenditures made by our subsidiaries in 2007 and expected capital expenditures for the period 2008-2012:

CAPITAL EXPENDITURES OF ENDESA CHILE AND ITS SUBSIDIARIES

		(in millions of $) (1)
		2005				2006				2007				2008-2012
Chile			46.8				241.3				408.3				3,186
Argentina			29.7				28.3				34.9				159
Brazil			1.0				—				—				—
Colombia			9.2				36.6				32.3				1,264
Peru			21.6				94.5				23.7				256
Total			108.3				400.7				499.3				4,865

We have carried out some investments, divestitures and other reorganizations in the last five years in order to implement our strategy, including the following:

	•		On April 18, 2005, Endesa Chile and its subsidiary Endesa Inversiones Generales S.A. (“ENIGESA”), created a new subsidiary Endesa Eco S.A. (See “ — C. Organizational Structure” for details on ENIGESA);
	•		On May 24, 2005, the Board of Endesa Chile approved the constitution of the holding company in Brazil with the name of Endesa Brasil S.A., which received the contribution of existing assets in that country owned by Endesa Internacional, Endesa Chile, Enersis and Chilectra. As of October 1, 2005, the total participation interest Endesa Chile held in Cachoeira Dourada, 92.5%, and in Companhia de Interconexao Energética S.A., “CIEN”, 45%, in Compañía de Transmisión del Mercosur S.A. (“CTM”) 45% and in Transportadora de Energía del Mercosur S.A. (“TESA”). 45% was transferred to this new entity, which translated into an economic interest of 37.8% for Endesa Chile in Endesa Brasil as of December 31, 2005 (37.65% as of December 2007). The purpose of this asset reorganization was to provide greater stability of local cash flows by being managed centrally, and the optimization of financing costs. It will also improve financing from third parties and strengthen the group’s positioning to take advantage of new investment opportunities, making it the fourth integrated private sector electric utility in Brazil.
	•		On October 3, 2005, the Board of Endesa Chile approved the dissolution and liquidation of the investment company Lajas Inversoras S.A., which owned 99.61% of the Brazilian company Cachoeira Dourada. The assets of this company were distributed between its shareholders in proportion to their participation in the company.
	•		On November 16, 2005, Gestora del Proyecto GNL S.A. was constituted. The company was formed by Endesa Chile, jointly with ENAP, Colbún, Metrogas and AESGener, to develop the liquified natural gas project in Chile. On April 1, 2006, Colbún and AESGener announced their withdrawal from the project. Today GNL Chile S.A. is owned by Endesa Chile (20%), ENAP (20%), Metrogas (20%) and British Gas (40%).
	•		As of December 13, 2005, Endesa Chile, through its Argentine subsidiaries, El Chocón and Endesa Costanera, participates in two new companies, Termoeléctrica Manuel Belgrano S.A. and Termoeléctrica José de San Martín S.A., with a 15.4% and a 5.5% share interest, respectively, in each new company. The expected start-up date for the Manuel Belgrano power plant is in the first half of 2009 and in the second half of 2009 for José de San Martín. Until then the companies will begin to recover their credits from the cash flows generated by the project under the ten-year production sales contract with the Mercado Eléctrico Mayorista, or MEM. (See “ —B. Business Overview. Operations in Argentina” for details).

	•		On June 1, 2006, the merger between Endesa Chile’s Peruvian subsidiary, Edegel and Etevensa, a subsidiary of Endesa Internacional, was completed. During October, the combined cycle of the plant’s second boiler was closed, leaving its final capacity at 457 MW.
	•		Centrales Hidroeléctricas de Aysén S.A., a long-term investment company, was formed on September 4, 2006. Endesa Chile has a 51% holding and Colbún S.A. holds the remaining 49%. As of December 1, 2006, an environmental impact study was granted to the international consortium created by the companies SWECO, POCH Ambiental and EPS. The total installed capacity of the project is approximately 2,750 MW and the estimated investment is currently under study.
	•		On February 28, 2007, Endesa acquired 19,574,798 ordinary shares from Southern Cone Power Argentina S.A., which holds 5.5% of the share capital of Endesa Costanera. The investment was $ 9.5 million. As a result of this purchase, Endesa Chile’s beneficial interest in Endesa Costanera increased from 64.3% in 2003 to 69.8%.
	•		On March 8, 2007, Endesa Chile acquired a total of 4,467,500 shares from CMS Generation Co. and CMS Generation S.R.L. (individually and collectively, “CMS”), 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. The share purchase was carried out through the exercise of the right of first refusal, which was agreed in the Shareholders Agreement. As a result of the foregoing share purchases, Endesa Chile increased its beneficial interest in El Chocón from 47.4% to 65.37%.
	•		On June 30, 2007, Endesa Chile notified CMS Enterprises Company (CMS) of its decision to exercise, acting directly or through one of its subsidiaries, its right of first offer granted by CMS for their direct and indirect interests in the companies and vehicles that conform GasAtacama, for an amount of $ 80,000,000. This included not only the 50% equity interest in all the companies and vehicles, but also the sponsor loans that CMS granted to the vehicles of 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 direct and indirect participation of Endesa Chile in the GasAtacama and of the sponsor loans associated to this participation, to the Southern Cross fund, for an amount of $ 80,000,000. As a result of the foregoing, Endesa Chile and Southern Cross each own 50% of GasAtacama.
	•		On September 1, 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 to Emgesa S.A. E.S.P. As a result, Endesa Chile’s direct and indirect shareholding in the merged company, Emgesa S.A. E.S.P., is 26.87%. This new corporate structure offers advantages for the management of Colombian financial transactions.

Recent Developments

In October 10, 2007, Enel Energy Europe S.R.L., a subsidiary of Enel S.p.A., or Enel, a company organized under the laws of Italy, and ACCIONA, S.A., or Acciona, a company organized under the laws of the Kingdom of Spain, jointly and concurrently acquired 92.06% of the shares issued by ENDESA, S.A., or Endesa Spain. In turn, Endesa Spain is the controller of 60.6% of the share capital of Enersis S.A., through its Spanish subsidiary Endesa Internacional , S.A. Enersis beneficially owns 60% of Endesa Chile’s outstanding capital stock.

GasAtacama Generación S.A. (“GAG”), a wholly-owned generation subsidiary of Inversiones Gas Atacama Holding Limitada (“GAT”), in turn a 50% owned affíliate (Southern Cross Group (“Southern Cross”), a Chilean fund, holds the other 50%), owns a 781 MW combined cycle thermal plant, located 50 kms north of Antofagasta, designed originally to burn Argentine natural gas, came on stream in 1999. Its installed capacity accounts for 21.7% of the SING system, in northern Chile, where many of the country’s most important copper mines are located. Currently, the SING has capacity needs of approximately 1,900 MW, of which on average, 900 MW come from coal plants, and the balance from combined cycle plants.

Natural gas restrictions from Argentina began in 2004 and increased over time, leading to a complete natural gas interruption as of the second quarter of 2007. Since then, GAG and other generators have been burning diesel instead of natural gas, and thereby incurring much higher operating costs. The substitution of natural gas with diesel, compounded with the escalating costs for the latter fuel, has increased the production cost by approximately fifteen times between 2004 and 2008.

GAG has long-term regulated contracts at regulated node prices expiring in December 2011, with Empresa Eléctrica de Arica S.A., Empresa Eléctrica de Iquique S.A., and Empresa Eléctrica de Antofagasta S.A., all of them distribution companies servicing residential customers, and belonging to EMEL, a Chilean holding company. The contracts were entered into at a time in which GAG could count on an uninterrupted Argentine natural gas supply. The gas supply shortfall has led to increases in generation costs in the SING, and these costs are not fully covered by the node price. The energy node price in the SING had been under 100 $/MWh until the last price setting in April 2008, when the CNE set it at $ 115.9/MWh at the Crucero node. On the other hand, spot prices (as a reference for generation costs with diesel as fuel) in the system averaged $ 185/MWh during the first quarter of 2008.

In 2006, GAG applied to an arbiter to put an end to its contract with EMEL. The adverse financial effect of this so-called “EMEL deficit” led to severe liquidity constraints. Current GAT forecasts for the EMEL deficit for the 2008-2011 period, at which time the EMEL contract expires, are in the range of $ 600-900 million, assuming diesel prices in the range of $ 90-120/bbl.

During the second half of 2007, GAG lost all of its net worth, and the possibility of filing for bankruptcy increased for several reasons, including the continuing increase in the price of diesel, the complete and sustained interruption of all natural gas coming from Argentina, economic consequences of earthquakes that took place in October and November, and the cash shortfalls derived from the nonrecoverability of a tax specifically levied on diesel. In addition, in September 2007, the Chilean government promulgated Law No. 20,220, which among other effects, provides that in the event of a court-ordered revocation of a contract between a generation company and a distribution company with regulated clients, the generation company would be required to continue supplying energy to its client in the same contractual terms, for an 18-month period. In practice, this means that even in the event that GAG had been able to obtain a favorable court judgment against EMEL, GAG would have had to continue in all events to service the contract for an 18-month period, even in the case of bankruptcy. In January, 2008, the result of the arbitrage against EMEL was unfavorable to GAG, though we are in the process of making an appeal to the Supreme Court. As a consequence of all the foregoing, Endesa Chile recorded a Ch$ 48,890 million investment impairment provision for GAT to better reflect the value of the company.

Notwithstanding the foregoing, the option to file for GAG’s bankruptcy was at least temporarily abandoned after GAG signed an MOU with several important northern mining companies and its owners, Endesa Chile and Southern Cross, allowing GAG to continue operations while seeking a definite solution to the company’s situation.

The MOU called for a definitive contract covering a substantial part of the EMEL deficit, which has been growing over time. This back-up contract, Contrato de Servicio de Respaldo, was signed on April 29, 2008, with the participation of mining companies representing 85.93% of the 1,554 MW (maximum demand at peak hour in the SING, excluding demand arising from distribution companies). Among the principal objectives of the contract, are the following: (1) continuity of electricity supply in the SING, with a back-up of up to 600 MW operating continuously through December 31, 2013, with diesel if necessary, so as to minimize the risk of electricity rationing, and the concurrent losses to production for the copper mines; and (2) the achievement of a generation capacity cushion until 2013 which would permit failure of other operating units or delays in the beginning of operations of new coal-burning plants. The mining companies that were signators to the agreement include BHP Billiton (Escondida, Spence, Cerro Colorado) Codelco (Chuquicamata, Radomiro Tomic and Gabriela Mistral), Collahuasi, Freeport (El Abra) Barrick (Zaldívar), Anglo American (Mantos Blancos) Xstrata (Lomas Bayas), SQM, Antofagasta Minerals (El Tesoro), Teck-Cominco (Quebrada Blanca) and Yamana (Meridian Gold). In a parallel manner, GAT entered into a long-term contract with Compañía de Petróleos de Chile Copec S.A., a large Chilean distributor of petroleum-derived hydrocarbons, in order to secure the availability of diesel through the end of 2013, for a daily consumption of up to 3,400 cubic meters.

The recent contract with the mining companies requires that they pay a price for the back-up service that accounts for approximately 71% of the EMEL deficit and the remaining 29% is to be financed by GAT, Southern Cross and Endesa Chile, with caps of $ 50 million each for the latter two owners. The mining companies cap their price at $ 650 million, and if oil prices exceed $ 120/bbl during the period, or for any other reason, this capped amount should be reached, they have a right to an early termination of the contract. This solution, although reducing significantly the probability of bankruptcy at GAG, implies certain risks and costs to GAT and its owners. In addition, the price of diesel, as of the time of this report, has shown an upward trend, already exceeding the $ 120/bbl reference level, making the operating monthly cost exceed the amount which allows the cap to be extended beyond December 2011. Therefore, there is no reason as of the date of this report to expect a reversal of the investment impairment provision taken in the 2007 financial statements, in connection with GAT, our affiliate.

For additional information relating to GAT’s investment impairment taken for the 12-month period ended December 31, 2007, see “Item 5. Operating and Financial Review and Prospects” included in this annual report.

B. Business Overview.

We are a publicly traded electric generation company with operations in Chile, Argentina, Colombia and Peru and an equity interest in Brazil. Our core business is electricity generation. We also participate in the engineering services industry and have a highway concession. The low proportion of nongeneration revenues does not warrant the breakdown of revenues per activity.

Our consolidated installed capacity, as of December 31, 2007, was 12,720 MW, with 62.6% hydroelectric capacity, 37.2% thermal electric and 0.2% 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 25 generation facilities in Chile with an aggregate installed capacity, as of December 31, 2007, of 4,779 MW, compared to 4,477 MW in 2006. The main changes of our total installed capacity in Chile are the incorporation of Palmucho (32 MW, hydroelectric), San Isidro II (248 MW, thermal electric in open cycle) and Canela (18 MW, wind power). We accounted for 36.8% of Chile’s total generation capacity as of December 31, 2007 measured by the maximum capacity calculated by CDEC-SIC. Hydroelectric installed capacity in Chile represents 72.2% of Endesa Chile’s total installed capacity in Chile. CDEC is the Centro de Despacho Económico de Carga in the corresponding electric system.

As of December 31, 2007, we also had interests in 25 generation facilities outside of Chile with an aggregate installed capacity of 7,941 MW, compared to 7,843 MW in 2006. The main changes to our total installed capacity outside Chile are in Peru and in Colombia: Ventanilla (36 MW), Callahuanca (5 MW) in Peru, and Guavio (50 MW) in Colombia. For additional detail on capacity increase of these units see “Item 4. Information on the Company – D. Property, Plant and Equipment.” Hydroelectric installed capacity outside Chile represents 56.9% of Endesa Chile’s total installed capacity outside Chile. Based on 2007 figures, the Company’s installed generation capacity in Argentina, Colombia and Peru represents approximately 15%, 21% and 28% of total capacity in each country, respectively.

The following table sets out information relating to Endesa Chile’s electricity generation:

ENDESA CHILE’S CONSOLIDATED HYDRO/THERMAL GENERATION (GWh)(1)

		Year ended December 31,
		2005								2006								2007
		(GWh)				%				(GWh)				%				(GWh)				%
Hydroelectric generation			38,068				76				38,617				73				32,687				65
Thermal generation (2)			12,054				24				14,332				27				17,796				35
Other generation (Wind)			—				—				—				—				3				0
Total generation			50,122				100				52,949				100				50,486				100

Our consolidated electricity production reached 50,486 GWh in 2007, 4.7% lower than the 52,949 GWh produced in 2006. Argentina was the country which most reduced the generation from 13,750 GWh in 2006 to 12,117 GWh in 2007 (-11.9%). Hydroelectric generation in 2007 was 15% lower than in 2006; Argentina and Chile had the higher reductions (27% and 23% respectively) due to the drought conditions presented in 2007; in Chile these reductions were partially offset by the increase in thermal generation, which almost doubled, from 2,825 GWh in 2006 to 5,591 GWh in 2007.

Our consolidated physical energy sales for 2007 were 55,225 GWh, 3.0% lower than our consolidated physical energy sales of 56,942 GWh in 2006. The main reduction in sales was in Argentina and Chile as illustrated in the following table:

ENDESA CHILE PHYSICAL DATA PER COUNTRY

		As of December 31, each year
		2005				2006				2007
Argentina
Number of generating facilities (1)			5				5				5
Installed capacity (MW) (2)			3,623.0				3,638.7				3,644.1
Energy generated (GWh) (3)			12,332.5				13,750.3				12,117.1
Energy sales (GWh)			12,578.8				13,926.3				12,406.3
Brazil (4)
Number of generating facilities (1)			—				—				—
Installed capacity (MW) (2)			—				—				—
Energy generated (GWh) (3)			2,644.8				—				—
Energy sales (GWh)			2,897.5				—				—
Chile
Number of generating facilities (1)			22				22				25
Installed capacity (MW) (2)			4,476.7				4,476.7				4,779.2
Energy generated (GWh) (3)			18,763.8				19,973.2				18,773.0
Energy sales (GWh)			20,730.4				20,922.8				19,212.1
Colombia
Number of generating facilities (1)			11				11				11
Installed capacity (MW) (2)			2,657.2				2,778.7				2,828.7
Energy generated (GWh) (3)			11,864.2				12,564.0				11,941.8
Energy sales (GWh)			15,077.5				15,326.9				15,613.1
Peru
Number of generating facilities (1)			8				9				9
Installed capacity (MW) (2)			968.5				1,425.5				1,468.0
Energy generated (GWh) (3)			4,516.3				6,662.0				7,654.4
Energy sales (GWh)			4,599.9				6,766.5				7,993.5

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.

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)

		Year ended December 31,
		2005								2006								2007
																						% of
		Sales				% of Sales				Sales				% of Sales				Sales				Sales
		(GWh)				Volume				(GWh)				Volume				(GWh)				Volume
Regulated customers			21,206				37.9				20,146				35.4				22,881				41.4
Non-regulated customers			12,652				22.6				13,735				24.1				14,374				26.0
Electricity pool market sales			22,026				39.4				23,061				40.5				17,970				32.5
Total electricity sales			55,884				100.0				56,942				100.0				55,225				100.0

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. Customers 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.

The specific energy (measured in GWh) consumption limit for regulated and non-regulated 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.

Under normal hydrological and fuel conditions our regulated and non-regulated customers carry out their commercial relationships by means of contracts. The electricity pool market sales are not governed by contracts, but instead comply with pool market operations.

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)

		Year ended December 31,
		2005								2006								2007
						% of								% of								% of
		Sales				Sales				Sales				Sales				Sales				Sales
		(GWh)				Volume				(GWh)				Volume				(GWh)				Volume
Contracted sales (1)			33,858				60.6				33,881				59.5				37,255				67.5
Non-contracted sales			22,026				39.4				23,061				40.5				17,970				32.5
Total electricity sales			55,884				100.0				56,942				100.0				55,225				100.0

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.

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

CONSOLIDATED PHYSICAL GENERATION AND PURCHASES (GWh)

		Year ended December 31,
		2005								2006								2007
						% of								% of								% of
		Sales				Sales				Sales				Sales				Sales				Sales
		(GWh)				Volume				(GWh)				Volume				(GWh)				Volume
Electricity generation			50,122				88.7				52,949				91.8				50,486				89.8
Electricity purchases			6,396				11.3				4,730				8.2				5,722				10.2
Total(1)			56,517				100.0				57,679				100.0				56,208				100.0

Our primary equity investments in Chile, which are related companies that we do not consolidate in our financial statements but instead include their income as net equity income in our income statement, are primarily conducted through GasAtacama. We have a 50% ownership interest in GasAtacama through which we participate in the gas transportation and thermal generation business in northern Chile. 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% ownership interest. Electrogas owns a pipeline to the Fifth Chilean Region and supplies natural gas to the power plants San Isidro and Nehuenco. The other shareholders are Colbún S.A. and ENAP.

We participate in the Brazilian electricity business through our equity investment in Endesa Brasil, in which we have a beneficial interest of 37.7%. Until September 30, 2005, we held a direct 45% ownership share of Companhia de Interconexão Energética S.A, (“CIEN”), in Brazil, involved in electricity trading and also in the operation of the transmission interconnection lines between Argentina and Brazil. We also held a 45% ownership in CTM, which is involved in electricity trading and transmission in Argentina. As of the last quarter of 2005, our investments in CIEN and CTM were contributed to Endesa Brasil. We also have a minority interest in electricity trading and transmission in Argentina through our 45% ownership in Comercializadora de Energía del Mercosur S.A. (“CEMSA”). See “ —C. Organizational Structure” for details on our related companies.

We own and operate a total of 25 generation plants in Chile directly and through our subsidiaries Pehuenche, Pangue, San Isidro, Celta and Eco. Of these plants, 15 are hydroelectric plants, with a total installed capacity of approximately 3,452 MW. This represents 72.2% of our total installed capacity in Chile. There are nine thermal plants which operate with gas, coal or oil with a total installed capacity of 1,309 MW that represents 27.4% of our total installed capacity in Chile, and there is one wind power unit with approximately 18 MW. 23 (15 hydroelectric, 7 thermoelectric and one wind power plant) of our plants are connected to the country’s major interconnected electricity systems, Sistema Interconectado Central, or the SIC, and the other two power plants are connected to the Sistema Interconectado del Norte Grande, or the SING.

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)

		2005				2006				2007
Endesa			2,754				2,754				3,034
Pehuenche			695				695				699
Pangue			467				467				467
San Isidro			379				379				379
Celta			182				182				182
Eco			—				—				18
Total			4,477				4,477				4,779

Our total electricity generation in Chile (in both the SIC and the SING) reached 18,773 GWh in 2007, 6.0% lower than in 2006, and accounted for approximately 33.7% of total electricity production in Chile in 2007. The Company’s generation market share in Chile for 2007 was 37.3%.

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

ELECTRICITY GENERATION IN CHILE (GWh)

		Year ended December 31,
		2005				2006				2007
Endesa			10,903				11,642				11,093
Pehuenche			4,060				4,345				3,437
Pangue			2,241				2,432				1,351
San Isidro			1,178				802				1,956
Celta			383				751				933
Eco			—				—				3
Total			18,764				19,973				18,773

Hydroelectric generation in 2007 was 23% lower than in 2006 due to the drought conditions presented during 2007. The potential energy in reservoirs at December 31, 2007 was 40% less than at December 31, 2006, as shown in the following table.

		Year ended December 31,
Reservoir		2006				2007
		(GWh)				(GWh)				% Change
Laja			4,754				3,028				(36	)
Maule			1,573				1,307				(17	)
Chapo			577				119				(79	)
Colbún			533				283				(47	)
Invernada			315				116				(63	)
Rapel			72				53				(26	)
Melado			15				6				(62	)
Ralco			531				147				(72	)
Total			8,370				5,059				(40	)

Low-cost hydroelectric generation accounted for 70.2% of our total electricity generation in 2007 compared with the 85.9% of 2006. Generation by type in Chile is shown in the following table:

ENDESA CHILE HYDRO/THERMAL GENERATION IN CHILE (GWh)

		Year ended December 31,
		2005								2006								2007
		Generation								Generation								Generation
		(GWh)				%				(GWh)				%				(GWh)				%
Hydroelectric generation			15,762				84.0				17,148				85.9				13,179				70.2
Thermal generation			3,003				16.0				2,825				14.1				5,591				29.8
Other generation (Wind)																			3				0.0
Total generation			18,764				100.0				19,973				100.0				18,773				100.0

Our thermal electric generation facilities are either gas, coal or oil-fired. In order to satisfy our natural gas and transportation requirements, we enter into long-term gas contracts with suppliers that establish maximum supply amounts and prices and long-term gas transportation agreements with the pipeline companies, currently Gas Andes and Electrogas (an Endesa Chile related company). We obtain our coal and fuel oil requirements through competitive auctions with major domestic and international suppliers.

The Argentine energy crisis has affected not only the natural gas supply to Chile but also its domestic market. This situation and the drought conditions evident in Chile during 2007 increased the use of natural gas substitutes, including fuel oil and diesel. Endesa Chile increased the use of diesel from 23,000 tons in 2006 to 591,000 tons in 2007, and coal from 438,000 tons to 851,000 tons, respectively. Since 2005, San Isidro has entered into a swap contract with Endesa Costanera, which has allowed San Isidro to temporarily generate electricity with natural gas, using Endesa Costanera’s share, by paying Endesa Costanera the additional cost incurred through generation with fuel oil, plus a fee. Fuel oil in Argentina is subsidized.

In May 2007, as part of a consortium with Enap, Metrogas and British Gas, in which Endesa Chile participation is 20%, we agreed to construction of the liquefied natural gas (“LNG”) regasification facility in Quintero Bay. The terminal is currently under construction. Partial commercial operations are expected for 2009 while full commercial operations should occur in 2010.

During 2007, the works to allow unit No. 1 in Taltal to operate with diesel stock started, and both finished in March 2008. All of Endesa Chile natural gas units will now be able to operate with gas and diesel.

In June 2007, the commercial operations of the Electrogas Concón-Quillota diesel oil pipeline started, which improved the supply to San Isidro and Nehuenco thermal power plants. This oil pipeline, located in Chile’s Fifth Region, was built to transport diesel oil from the Concón refinery to the electricity power plants of Colbún, San Isidro and Endesa Chile (nearly 1,600 MW in total). Shareholders of Electrogas are Endesa Chile (42.5%), the Matte Group (42.5%) and Enap (15.0%).

ELECTRICITY SALES PER SYSTEM IN CHILE (GWh)

		Year ended December 31,
		2005				2006				2007
		Sales				Sales				Sales
		(GWh)				(GWh)				(GWh)
Electricity sales in the SIC			35,900				38,259				39,982
Electricity sales in the SING			11,546				12,027				12,674

Our physical energy sales in Chile reached 20,731 GWh in 2005, 20,923 GWh in 2006 and 19,212 GWh in 2007 which represent a 43.7%, 41.6% and 36.5% market share, respectively. The percentage of the energy purchases to satisfy our contractual obligations to third parties has declined from 10.8% in 2005 to 5.3% in 2007 as a result of our commercial strategy of reducing contracted sales. This commercial strategy is primarily influenced by our decision to reduce hydrological exposure because of government regulations implemented in 1999. See “— B. Business Overview — Electricity Industry and Regulatory Framework.” We attempt to minimize the effect of poor hydrological conditions on our operations, in any given year, primarily by limiting contractual commitments to an amount below the estimated production in a dry year. Government regulations have had the direct effect of increasing contract failure costs, which is the cost that we pay when we are unable to satisfy our contractual commitments, and the indirect effect of discouraging investment in generation assets. Given the effects of the government regulations, energy supply has not increased as much as energy demand, increasing the spot price in the electricity pool market and making it a relatively more attractive commercial alternative.

The following table sets forth our electricity purchases and production in Chile:

ENDESA CHILE PHYSICAL GENERATION AND PURCHASES IN CHILE (GWh)

		Year ended December 31,
		2005								2006								2007
		Sales				%				Sales				%				Sales				%
		(GWh)				of Volume				(GWh)				of Volume				(GWh)				of Volume
Electricity generation			18,764				89.2				19,973				93.8				18,773				94.7
Electricity purchases			2,268				10.8				1,317				6.2				1,042				5.3
Total (1)			21,032				100.0				21,290				100.0				19,815				100.0

We supply electricity to the major regulated electricity distribution companies, large unregulated industrial firms (primarily in the mining, pulp and steel sectors) and the pool market. Commercial relationships with customers are normally governed by formal contracts. Supply contracts with distribution companies must be auctioned, are generally standardized and have an average term of ten years. Supply contracts with unregulated customers (large industrial customers) are specific to the needs of each client and the conditions are agreed upon between both parties and reflect competitive market conditions.

In 2005, 2006 and 2007, Endesa Chile had 53, 46 and 35 customers in Chile, respectively, including the main distribution companies in the SIC and the major unregulated industrial customers. The eleven minor unregulated customers in 2007 demanded approximately 0.6 GWh/year. There were fourteen distribution companies which presented withdrawals under the provisions of Resolution 88 and represented the 8.5% of total sales. (See “ — B. Business Overview—Electricity Industry Regulatory Framework.”). Sociedad Austral de Electricidad S.A. , or Saesa, a nonrelated Chilean distribution company, was the largest with purchases of 745 GWh/year. The following table sets forth information regarding our sales of electricity in Chile by type of customer:

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

		Year ended December 31,
		2005								2006								2007
		Sales				% of Sales				Sales				% of Sales				Sales				% of Sales
		(GWh)				Volume				(GWh)				Volume				(GWh)				Volume
Regulated customers (1)			10,575				51.0				10,756				51.4				11,502				59.9
Non-regulated customers			4,797				23.1				5,176				24.7				5,281				27.5
Electricity pool market sales			5,358				25.8				4,991				23.9				2,430				12.6
Total electricity sales			20,731				100.0				20,923				100.0				19,212				100.0

Our most significant supply contracts with regulated customers are with Chilectra S.A. (“Chilectra”), an Endesa Chile related company, and Compañía General de Electricidad S.A. (“CGE”), the two largest distribution companies in Chile in terms of sales. Our contracts with Chilectra and CGE expire in 2010 and 2009, respectively. In November 2007, Chilectra, CGE and Chilquinta placed the second long-term energy requirement bid for 14,732 GWh, divided in three blocks (B1, B2 and B3) to be delivered as of January 2011 for ten, twelve and fourteen years respectively. Chilectra was the only distributor that acquired energy in this process with 5,700 GWh from Endesa (3,200 GWh) and Colbún (2,500 GWh). The energy allocated represented 39% of Chilectra’s demand. Chilectra’s energy allocation per company and per block and the percentage of energy allocated was as follows:

		Chilectra B1				Chilectra B2				Chilectra B3				% of the total
		(GWh)				(GWh)				(GWh)				energy allocated
Endesa			1,700				—				1,500				56.1
Colbún			500				1,000				1,000				43.9
Total			2,200				1,000				2,500				100.0