Board backs, also unanimously, the financing model for the new transaction in the United States

THE BOARD OF IBERDROLA UNANIMOUSLY APPROVES FINANCING THE ACQUISITION OF ENERGY EAST VIA AN ACCELERATED CAPITAL INCREASE

• The operation, which amounts to 85 million shares, representing approximately 7 % of existing capital, will allow the Company to strengthen balance sheet funds and its financial situation, while broadening the shareholder base
   
• Following completion of the integration with ScottishPower and the announcement of the acquisition of Energy East, the Board praised the performance of IBERDROLA over the past few years, describing its growth and international penetration as “highly satisfactory”

IBERDROLA will finance the acquisition of  the U.S. company Energy East via an accelerated and privately placed capital increase (Accelerated Bookbuilt Offer, ABO). The decision was unanimously approved by the Board.

This placement, through which 85 million new shares will be issued, representing approximately 7 % of existing capital, will enable the Company to reinforce shareholder funds and its solid financial situation while broadening the shareholder base.

IBERDROLA has appointed ABN AMRO ROTHSCHILD, CREDIT SUISSE and JP MORGAN as Joint Global Co-ordinators and Bookrunners to the transaction.

The proceeds of this capital increase will be used to finance the acquisition of Energy East, which was approved unanimously by the Board on Monday. The operation represents a renewed vote of confidence in the management of IBERDROLA and its Chairman Ignacio Galán following the successful completion of the acquisition of ScottishPower.

The Board praised the performance of IBERDROLA over the past few years, describing its growth and international penetration as “highly satisfactory”. It highlighted, among other fruits of the strategy that has been implemented since 2001, value creation, shareholder returns, job stability and professional developments for employees, quality and security of supply to customers and diversification of risk.

Finally, in the light of the achievements of the Company and projects being developed in the near future, which have transformed IBERDROLA into “one of the world’s leading energy companies”, Board directors, aware of the importance of the work carried out, unanimously expressed their “commitment to the Company’s progress” and their “unconditional support for the management team and the leadership of the Chairman.”

The new shares, which are not eligible for the final 2006 dividend (€ 0.593per share to be paid on July 2nd, are expected to start trading on the stock exchange on June 29th with a different ISIN code. The two share types will be unified on July 2nd, when the new shares will have the same economic rights as the old shares.

Improvements in Corporate Governance

The Board also approved changes in IBERDROLA’s Auditing and Compliance Committee, whereby member Sebastián Battaner becomes Chairman, the current chairman Ricardo Álvarez Isasi becomes Secretary, and the current Secretary, Julio de Miguel Aynat, becomes a member.

The Board also resolved to modify the IBERDROLA Group’s Code of Professional Conduct, to align it with other corporate governance standards used in the company, which have been adapted to the new recommendations issued by Spain’s National Securities Market Commission (CNMV).

Among the changes are the inclusion of a vision statement –to be the preferred company on the basis of commitment to value creation, quality of life and protection of the environment— and corporate values (ethics and corporate responsibility, business results, respect for the environment, trust and a sense of belonging to the IBERDROLA Group).

Other new clauses in the Code of Professional Conduct refer to the commitment to human and labour rights, the principle of non-discrimination and equal opportunity for all employees, the reconciling of work and family life, the concept and treatment of insider information, corporate social responsibility, and sustainable development.

The Board also approved the amendment of the Regulations of the Board of Directors to establish the mandatory retirement age for all board members at 70 years.