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Activities Report of the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. corresponding to the 2016 fiscal year drawn up by the Committee and approved by the Board of Directors, pursuant to the provisions of Article 34.6 of the By-Laws and Article 5 of the Regulations of the Committee.

Activities Report of the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. Corresponding to the 2016 Fiscal Year

Content

1. Background 6

2. The Audit and Compliance Committee 8

2a. Composition 9

2b. Functions 9

2c. Regulations 11

3. Meetings 14

3a. Relevant Data 15

3b. Agenda 15

4. Activities 18

4a. Internal Audit 19

4b. Financial Information and Risk Control Systems 20

4c. Audition 22

4d. Compliance 23

5. Annexe 26

6 / Background

/ Activities Report of the Audit and Compliance Committee

NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text of this translation and the text of the original Spanish-language document that this translation is intended to reflect, the text of the original Spanish-language document shall prevail.

Background1


Background / 7

Activities Report of the Audit and Compliance Committee /

On 22 December 2009 Iberdrola Distribución Eléctrica, S.A.U. created its Board of Directors, which was granted the broadest responsibilities and powers through the By-Laws to be able to manage, direct, administrate and represent the Company.

The Board of Directors is particularly subject to compliance with the obligations arising from the legislation, rules and regulations regarding the separation of regulated activities and the Code of Incompatible Activities of the companies pertaining to the Iberdrola Group Spain with regulated activities (article 1 of the By-laws).

In accordance with the provisions of the cited Code of Incompatible Activities of the companies pertaining to the Iberdrola Group Spain with regulated activities, the parties responsible for managing this regulated Company entail the Company’s Board of Directors and each member thereof, persons designated as responsible for the management of functions inherent to the regulated activity of electricity distribution and, in particular, the parties listed in Annexe 1 of the 2015 Annual Report relating to compliance with the code of incompatible activities for Iberdrola Group Spain companies with regulated activities.

Additionally and as a general rule (article 27 of its By-laws), the Board of Directors of Iberdrola Distribución Eléctrica, S.A.U. shall entrust the ordinary management of the Company to the Executive Directors and Managers, and shall concentrate its activities primarily on the general function of supervision and consideration of matters of particular importance for the Company, not delegating powers which are legally or by virtue of the By-Laws reserved for the direct knowledge of the Board of Directors.

The general supervisory function of the Board of Directors of Iberdrola Distribución Eléctrica, S.A.U. is realised through the following aspects:a) Supervising the effective separation of activities of the Company with regard to the

companies of the Iberdrola Group that carry out liberalised activities, in addition to compliance by employees, executives and members of the Board of Directors per se with the independence criteria established by law and the Code of Incompatible Activities for Iberdrola Group Spain Companies with regulated activities.

b) Supervising the management of the Company and fulfilment of the established objectives.c) Establishing the risk control and management policy, identifying the main risks of the

Company, organising suitable internal control and information systems, and regularly monitoring these systems in consideration for these purposes of the General risk control and management policy of Iberdrola, S.A.

In this context, the Board of Directors contains an Audit and Compliance Committee whose organisation and system for operational arrangement are governed by the By-Laws and by the Committee’s Regulation.

8 / The Audit and Compliance Committee



The Audit and

Compliance

Committee

2

The Audit and Compliance Committee / 9



2a

CompositionAs of 31 December 2016, the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. comprises three members, who are all members of the Board of Directors with one executive and two independent directors:

Member Type Profile

Leopoldo Sánchez Gil (Chairman) Independent Director Property Registrar

Guillermo Alonso Olarra Independent Director Lawyer

Jose Luis Berasategui Executive Director Director of Planning and Regulation at Iberdrola Distribución Eléctrica, S.A.U.

Leopoldo Sánchez Gil was appointed Chairman of the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. by resolution of the Board of Directors on 6 April 2016.

The role of Committee Secretary (non-director) is carried out by Vicente Noguera Hernández, the Vice-Secretary of the Company’s Board of Directors, and assisted, for cases in which the Committee Chairman deems appropriate, by the participation of the Internal Audit Director.

2b

FunctionsThe powers and duties entrusted to this Committee according to article 34.3 of the By-Laws are in any case:a) Supervising the Company’s Internal Audit area, which will be functionally controlled

by the Chairman of the Audit and Compliance Committee and will be organisationally subordinated to the Chairman of the Board of Directors. The Committee will safeguard the independence and effectiveness of Internal Audit, approve the orientation and engagement plans of the cited Internal Audit, and propose the appointment or dismissal of its Director or Head to the Board of Directors.

b) Supervising the drafting and presentation of financial information, evaluating any proposal on changes to the accounting practices or policies and to the internal control systems for monitoring risks relevant to the Company to adequately identify, manage and report them.

c) Analysing, together with the auditors, significant weaknesses in the internal control system detected during the audit.




d) Establishing adequate relationships with auditors to receive information regarding matters that could jeopardise the independence thereof for examination by the Audit and Compliance Committee, other matters concerning the auditing procedure, and other communications as set forth in applicable auditing legislation and auditing standards. In any case, it must receive annual written confirmation by the auditors as to their independence vis-à-vis the Company or its direct or indirect subsidiaries, as well as information on additional services of any nature rendered to these companies by the auditors or by related persons or entities in accordance with applicable auditing legislation.

e) Issuing an annual report before the actual audit report reflecting an opinion as to the independence of the auditors. This report must, in any case, refer to the rendering of additional services referred to in the preceding section.

f) Receiving information from the Compliance Division concerning any relevant matter relating to regulatory compliance and the prevention and correction of illegal or fraudulent conducts.

g) Reviewing, through the Compliance Division, the Company’s internal policies and procedures to confirm their effectiveness in preventing misconduct, such as the Ethics Mailbox, and identifying possible policies or procedures that may be more effective in promoting the highest ethical standards, for submission to the Board of Directors for consideration.

h) Reviewing and confirming the annual operating budget of the Compliance Division for submission to the Board of Directors, and supervising that the Compliance Unit has the material and human resources needed to carry out its tasks, ensuring its independence and effectiveness.

i) Approving the annual activities plan of the Compliance Division.j) Reporting on the proposals for the appointment of the Compliance Director.k) Issuing a preliminary opinion on reports drawn up in the area of separation of regulated

activities and, particularly, on the annual status report on incompatible activities in the Company as drawn up by the Compliance Division and which must be submitted to the Board of Directors by the Compliance Division.

l) Any further duties and powers that may be conferred thereon by the Board of Directors.




2c

RegulationsThe Audit and Compliance Committee at Iberdrola Distribución Eléctrica, S.A.U. has its own Regulations, which were approved by the Committee and endorsed by the Company’s Board of Directors on 22 December 2009.

The wording of the Regulations has undergone a number of amendments since the initial approval. One such amendment is the agreement of the Committee on 15 February 2012, which approved to change article 3, sections 2.b) and 2.d.i) of the Regulations. Likewise, on 12 July 2012, the Committee concurred to amend article 7.2 of its Regulations with a view to adapting it to the new wording in article 34 of the By-laws. On 5 April 2013 the Committee amended section 1 in article 3 and item e) in article 2 of this same provision to address its responsibilities vis-à-vis the Compliance Division. On 25 November 2014 the Committee agreed to amend article 7.1 of its Regulations with a view to render a more flexible composition of the Audit and Compliance Committee from three members to at least three yet no more than five members. On 10 December 2014 the Committee amended its Regulations so (i) that the Committee now issues its preliminary opinion on reports drawn up in the area of separation of regulated activities and, particularly, on the annual status report on incompatible activities in the Company, and (ii) as to therein reflect the assumption by Iberdrola España, S.A.U. and its Audit and Compliance Committee of certain functions previously attributed to Iberdrola, S.A. and some of the Committees thereof. Lastly, on 8 July 2016, the Committee agreed to amend the Regulations to adapt them to the latest changes in the Group’s Corporate Governance System. All these changes were duly endorsed through the corresponding agreements of the Board of Directors.

The Regulations govern the principles of engagement and, notwithstanding the necessary adaptations in response to the company’s circumstances, the internal operating system of the Committee and its functions adjust to the content of the Regulations of the Audit and Compliance Committee of Iberdrola España, S.A.U. insofar as it concerns the information that must be made available to the Committee.

The Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U., the Internal Audit Division and the Compliance Division discharge their duties with full independence, notwithstanding their due cooperation with the Audit and Compliance Committee of Iberdrola España, S.A.U. and its Internal Audit Division. In any case, the aforementioned cooperation must fully fulfil the obligations regarding separation of incompatible activities and the protection of commercially-sensitive information according to the legislation in force on the separation of regulated activities and the corresponding Code of Incompatible Activities for Iberdrola Group Spain companies with regulated activities.

Likewise, the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U., maintains the corresponding rapport with the competent risk management unit at the company regarding internal control and risk management systems. In this regard, the aforementioned unit is the ordinary channel for communicating risk management-related




matters with the Committee and the rest of the Company’s organisations, and is also responsible for preparing the information required for sessions held to address such issues, for which the unit manager may attend Committee meetings if deemed appropriate.




Construcción de una líneaSan Isidro / León

© Iberdrola

14 / Meetings



Meetings3

Meetings / 15



Relevant Data

Agenda

3a

3b

2016

Meetings 8

Reports and proposals submitted to the Board of Directors of the Company (Annexe 1) 14

Attendance by Directors (Annexe 2) 33

Agenda items 50

The Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. held a total of 8 meetings, with the following agendas:

1st meeting on 9 February 2016

Order of the day• Reading and approval of the previous session’s minutes.• Compliance with the Code of Incompatible Activities: Human Resources.• Attendance of the Auditor.• Report on economic-financial information (2015).• Report on the independence of the auditor.• Presentation by the Internal Audit Director. 2015 Activities Report.• Annual ACC Activities Report (2015).• Tracking of the 2016 Annual Internal Audit Plan. Recommendations.• Report on risk control and management systems (2015).• New version of the Company’s Crime Prevention Programme.• Presentation of the report on ACC operation in 2015 (PriceWaterhouseCoopers).• Miscellaneous.

2nd meeting on 16 March 2016

Order of the day• Reading and approval of the previous session’s minutes.• Report on the 2015 Financial Statements.• Annual report on compliance with the Code of Incompatible Activities of the Iberdrola

Group Spain with regulated activities (2015).• Miscellaneous.


16 / Meetings


3rd meeting on 6 April 2016

Order of the day• Reading and approval of the previous session’s minutes.• Compliance with the Code of Incompatible Activities: Human Resources.• Report on the economic-financial information from the first quarter 2016.• Tracking of the 2016 Annual Internal Audit Plan. Recommendations.• Risk policies. Risk limits.• Amendment of the General Standards regulating transactions between the Company and

other Companies in the Group.• Miscellaneous.

4th meeting on 1 June 2016 (in writing, without meeting)

Order of the day• Approval of the Report by the Audit and Compliance Committee regarding the conditions

for commissioning the Auditor for fiscal year 2016. Proposal on the conditions for commissioning submitted to the Board of Directors for approval.

5th meeting on 8 July 2016

Order of the day• Reading and approval of the previous session’s minutes.• Attendance of the Auditor. Limited review of first half of 2016 and Internal Control

Recommendations.• Report on economic-financial information. First half of 2016.• Tracking of the 2016 Annual Internal Audit Plan. Recommendations.• Report on risk control and management systems. First half of 2016.• Amendment to the Regulations of the Company’s Audit and Compliance Committee

Regulations and Compliance Division.• Training: Liquidation process.• Miscellaneous.

6th meeting on 5 October 2016

Order of the day• Reading and approval of the previous session’s minutes.• Report on economic-financial information. Third quarter of 2016.• Tracking of the 2016 Annual Internal Audit Plan. Recommendations.• Information on risk control and management systems. Third quarter of 2016.• Report from the Legal Services Director: status on claim-associated risks.• Training: Regulatory accounting.• Miscellaneous.


Meetings / 17


7th meeting on 10 October 2016 (in writing, without meeting)

Order of the day• Report on economic-financial information. Third quarter of 2016.

8th meeting on 13 December 2016

Order of the day• Reading and approval of the previous session’s minutes.• Presentation by the auditor. Preliminary audit.• Preview of 2016 accounting year end.• Draft Activities Report for the Audit and Compliance Committee for 2016.• Tracking of the 2016 Annual Internal Audit Plan. Recommendations.• Proposed Annual Activity Plan and budget for the Internal Audit Division for fiscal year

2017.• Proposed Annual Activity Plan and budget for the Compliance Division for fiscal year 2017.• Training plan for the Committee, 2017.• Miscellaneous.

18 / Activities



Activities4

Activities / 19



Internal Audit

4a

The following activities were carried out by the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. corresponding to 2016, with a view to fulfilling the duties entrusted by virtue of the By-Laws in article 34.3 and further implemented in article 3.2 of the Committee Regulations.

The powers and duties of the Audit and Compliance Committee include “Supervising the Company’s Internal Audit area, which shall report functionally to the Chairman of the Audit and Compliance Committee and hierarchically to the Chairman of the Board of Directors. The Committee will safeguard the independence and effectiveness of Internal Audit, approve the orientation and engagement plans of the cited Internal Audit, and propose the appointment or dismissal of its director or head to the Board of Directors.”. (Art. 34.3.a. of the By-Laws).

On 10 December 2015, as the successor of Xabier López del Corral, Jon Ander Navarro Mendizábal was appointed as Internal Audit Director of Iberdrola Distribución Eléctrica, S.A.U., reporting hierarchically to the Chairman of the Board of Directors and functionally to the Chairman of the Audit and Compliance Committee.

The Internal Audit Division of Iberdrola Distribución Eléctrica S.A.U. was created within the framework of the process of adaptation to the new corporate governance model associated with the creation of the Board of Directors and its Audit and Compliance Committee.

Since it was created, and for 2016 in particular, the Company’s Internal Audit Division has had the following main priorities:1. To support the Audit and Compliance Committee. In this regard, it is essential to mention

that the Committee and the Internal Audit Division alike discharge their duties with full independence, notwithstanding their due cooperation with the Audit and Compliance Committee of Iberdrola España, S.A.U. and its Internal Audit Division. In any case, the aforementioned cooperation fulfils the obligations regarding separation of incompatible activities and the protection of commercially-sensitive information according to the legislation in force on the separation of regulated activities and the corresponding Code of Incompatible Activities for Iberdrola Group Spain companies with regulated activities.

2. To design a 2016 Activity Plan that meets the needs of the Company’s Audit and Compliance Committee without prejudice to the cooperation with the orientation and general plans established by the Internal Audit Division at Iberdrola España, S.A.U.In this regard, an Activity Plan for 2016 was submitted to the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. for approval on 10 December 2015. This plan entailed a total of 44 projects and engagements of the Internal Audit Division.

3. To be equipped with suitable resources and the profiles necessary to carry out its function successfully. In this regard, the Board of Directors of the Company, at the behest of the Audit and Compliance Committee, in its meeting of 10 December 2015, approved the budget proposal submitted by the Internal Audit Division.


20 / Activities


4b

Financial Information and Risk Control Systems

Throughout 2016, the Internal Audit Director at the Company attended a total of 15 sessions for the purpose of informing on the tracking of the 2016 Annual Activity Plan and reporting on the finished reports. In the session on 8 July 2016 the Internal Audit Director presented a proposal to adapt the 2016 Annual Activity Plan, which was approved by the Committee. Additionally, the Director also appeared to present an analysis regarding the Company’s interim economic-financial information, which was used as the basis for the reports that the Committee passed on to the Board of Directors concerning the cited information; and proposed the Annual Activity Plan for 2017.

Concerning this most recent appearance, the Committee approved the Annual Activity Plan for 2017 on 13 December 2016, entailing a total of 34 projects and engagements to be undertaken by the Internal Audit Division of the Company throughout the year, characterised by:1. Cover the requirements of the Audit and Compliance Committee.2. Adhere to the orientation and general plans established by the Internal Audit Division of

Iberdrola España, S.A.U. in accordance with the Group’s Basic Internal Audit Standards so long as doing so does not interfere with the obligations insofar as incompatible activities or the protection of commercially sensitive information according to the legislation on the separation of regulated activities and the corresponding Code of Incompatible Activities for Companies of the Iberdrola Group Spain with regulated activities.

3. Follow a uniform methodology with other internal audit divisions in the Group and adhere to professional standards.

4. Focus on the most relevant processes and controls, prioritising the ones with the greatest risk.

The Audit and Compliance Committee’s powers and duties include “Supervising the drafting and presentation of financial information, evaluating any proposal on changes to the accounting practices or policies and to the internal control systems for monitoring risks relevant to the Company to adequately identify, manage and report them” (Art. 34.3.b. of the By-Laws).

Financial Reporting ProcessSince its constitution and commencement, the Committee’s main activities include receiving the corresponding economic-financial information and issuing a report on the interim economic-financial information of the Company for approval by the Committee and subsequent submission to the Board of Directors.

The main aim of this analysis is to ensure that the interim information submitted to the Company’s Board of Directors is drawn up in accordance with the same accounting


Activities / 21


standards as the annual financial statements and to evaluate any proposed changes to accounting practices or policies within the accounting practices and policies observed in the Iberdrola Group.

The Internal Audit Division assists the Committee with this task by analysing the information in accordance with the approach that the Committee requires for reporting to the Board of Directors. The Control Division has previously submitted the details of the economic-financial information to the Committee for review.

As a result of its efforts, the Committee has approved and submitted reports to the Board on 9 February regarding 2015 economic-financial information; 16 March, Report on the 2015 Financial Statements; 6 April, quarterly report on 31 March 2016; 8 July, half year report on 30 June 2016; and 10 October, corresponding to 30 September 2016.

As part of the process of reviewing half-yearly information, the Committee evaluated the series of guarantees associated with the process of drawing up information that was designed in keeping with the internal control model and certifications established at the corporate level for the companies pertaining to Iberdrola Group Spain.

Furthermore, in the meeting held on 13 December 2016, the Control Director submitted a preview of the close of 2016, which will be reviewed by the Committee for drawing up of the yearly financial statements.

It is also essential to note that the above process is part of the process of drawing up interim economic-financial information of Iberdrola Group Spain.

Risk Control SystemsOn 9 February, 8 July and 5 October 2016, the Company’s risk manager informed the Committee about the internal control systems associated with the risks of Iberdrola Distribución Eléctrica, S.A.U.

In this regard, information was reported on the main risks affecting the carrying out of business and the control mechanisms established for the proper management and control thereof in accordance with the “Policy and limits of Risks of Iberdrola Distribución Eléctrica, S.A.U.” approved by the Board of Directors of the Company.

Having drawn up the reports regarding fiscal year 2015 and the first half of 2016, the Committee submitted them to the Company’s Board of Directors and the Audit and Compliance Committee of Iberdrola España, S.A.


22 / Activities


4c

AuditionThe Audit and Compliance Committee’s powers and duties include “Analysing, together with the auditors, significant weaknesses in the internal control system detected during the audit.

Establishing adequate relationships with auditors to receive information regarding matters that could jeopardise the independence thereof for examination by the Audit and Compliance Committee, other matters concerning the auditing procedure, and other communications as set forth in applicable auditing legislation and auditing standards. In any case, it must receive annual written confirmation by the auditors as to their independence vis-à-vis the Company or its direct or indirect subsidiaries, as well as information on additional services of any nature rendered to these companies by the auditors or by related persons or entities in accordance with applicable auditing legislation.

Issuing an annual report before the actual audit report reflecting an opinion as to the independence of the auditors. This report must, in any case, refer to the rendering of additional services referred to in the preceding section” (Art. 34.3.c, d and e of the By-Laws).

The Committee’s work with the Auditor is part of the process of drawing up and auditing the Company’s financial statements.

Furthermore, the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. has responsibilities with regard to reviewing the contract commissioning conditions of the Auditor and supervising the independence risk in carrying out its activity. During 2016, this line of activity has been materialised in:a) The appearance before the Committee on 9 February 2016 of the partner responsible for

auditing the financial statements of Iberdrola Distribución Eléctrica, S.A.U. to report on the audit conducted on the Company’s financial statements as of 31 December 2015.

b) The proposal for commissioning the audit firm for projects other than auditing with a view to preventing any independence-related risk:Approval of the Report for commissioning auditing services for the inventory of facilities, investments in service and regulatory information on costs for 2015 and 2016 (resolution of 6 April 2016).

c) The acknowledgement and appointment by Iberdrola Redes España, S.A.U. of the Company’s auditor for 2016, approval of the Committee’s report on commissioning the auditor and the submission to the Board of Directors for approval on 1 June 2016 of the proposal on the conditions for commissioning the auditor.

d) The appearance before the Committee on 8 July 2016 of the auditors of the financial statements of Iberdrola Distribución Eléctrica, S.A.U. to report on the limited revision of the Company’s financial statements as of 30 June 2016 and to formulate internal control recommendations.

e) The appearance before the Committee on 13 December 2016 of the partner responsible for the auditing of the annual accounts of Iberdrola Distribución Eléctrica, S.A.U. to anticipate


Activities / 23


4d

Compliance

the results of the preliminary audit conducted on the financial reporting of the Company as of September and to anticipate potential risks of the audit looking ahead to the annual financial statements.

The following activities were carried out by the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. corresponding to 2016 for compliance with statutory duties, good governance requirements and the prevention and correction of illegal or fraudulent conducts.

The powers and duties of the Audit and Compliance Committee include “Receiving information from the Compliance Division concerning any relevant matter relating to regulatory compliance and the prevention and correction of illegal or fraudulent conducts.

Reviewing, through the Compliance Division, the Company’s internal policies and procedures to confirm their effectiveness in preventing misconduct, such as the Ethics Mailbox, and identifying possible policies or procedures that may be more effective in promoting the highest ethical standards, for submission to the Board of Directors for consideration.

Reviewing and confirming the annual operating budget of the Compliance Division for submission to the Board of Directors, and supervising that the Compliance Unit has the material and human resources needed to carry out its tasks, ensuring its independence and effectiveness.

Approving the annual activities plan of the Compliance Division.Reporting on the proposals for the appointment of the Compliance Director.Issuing a preliminary opinion on reports drawn up in the area of separation of

regulated activities and, particularly, on the annual status report on incompatible activities in the Company as drawn up by the Compliance Division and which must be submitted to the Board of Directors by the Compliance Division.” (Art. 34.3.f, g, h, i, j and k. of the By-laws).

The By-Laws and Regulations of the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. contemplate a series of requirements concerning legislative compliance and, in particular, relating to the separation of regulated activities and compliance with the Code of Incompatible Activities for companies pertaining to Iberdrola Group Spain with regulated activities, the rules and regulations of the Iberdrola Group Corporate Governance System, regulatory provisions governing the activities of the Company, and the control systems established to buttress compliance therewith.

Article 23.2 of the By-Laws states that:“The Board of Directors, always in accordance with the corporate interest, shall set up

a suitable framework for its relations with the other Iberdrola Group companies, of which the Company is itself a member, acting within the limits laid down by law and always


24 / Activities


maintaining independence in the normal and effective management of the Company, not excluding co-operating in a general strategy in order to obtain the maximum possible advantage for the benefit of both the Company and the other companies pertaining to the Iberdrola Group, in compliance with the provisions of Corporate Policies on corporate governance and with legislation in relation to risks and social responsibility integrated within the Corporate Governance System of Iberdrola, S.A. as parent company of the Iberdrola Group.

In this context, the sustained maximisation of the economic value of the Company is to be regarded as an essential component of the Company’s interests and, therefore, as a criterion that at all times is to guide the actions of the Board of Directors and its delegated organs. The Board of Directors shall likewise see that the Company abides by laws and regulations in its dealings with stakeholders; fulfils its obligations and contracts in good faith; respects the customs and good practices of the sectors and territories where it does business; and upholds any additional social responsibility principles it has subscribed to voluntarily.”

In relation to the foregoing, article 34 of the By-laws were amended on 3 April 2013 for the purpose of constituting and governing the operation of a new Compliance Division of the Company, configured as an independent internal area linked to the Audit and Compliance Committee, whose powers and responsibilities are established for verifying regulatory compliance and the prevention and correction of illegal or fraudulent conducts within the scope of Iberdrola Distribución Eléctrica, S.A.U., in addition to reviewing the internal policies and procedures of the Company with a view to ensuring its effectiveness in preventing such conducts.

Along these lines, by resolution on 5 April 2013, the Audit and Compliance Committee amended the wording of its Regulations to mention the new Compliance Division of Iberdrola Distribución Eléctrica, S.A.U. and establish the functions of the Committee in terms of compliance with statutory duties, good governance requirements and the prevention and correction of illegal or fraudulent conducts.

Also on the aforementioned date, the Company’s Board of Directors approved the Regulations for the new Compliance Division and, following a favourable preliminary report issued by the Committee, agreed to appoint Bonifacio Álvarez de Paz as Compliance Director at Iberdrola Distribución Eléctrica, S.A.U.

On 10 February 2015, following a favourable report from the Audit and Compliance Committee, the Board of Directors agreed appoint Paz Montes Relanzón as Compliance Director at Iberdrola Distribución Eléctrica, S.A.U., replacing Bonifacio Álvarez de Paz.

The most relevant activities carried out by the Committee in 2016 in relation to compliance with legal and good governance requirements have been:a) On 9 February 2016, the Compliance Director informed the Committee on the new version

of the Crime Prevention Programme implemented at the Company on 24 June 2014.b) On 16 March 2016, the Compliance Director presented the annual report on compliance

with the Code of Incompatible Activities of Iberdrola Group Spain with regulated activities (2015) and the Committee agreed to issue a favourable opinion thereon and pass it on to the Company’s Board of Directors for approval.

c) In its session on 8 July 2016, the Committee reported favourably on the amendment to the Compliance Division Regulations and submitted the amendment proposal to the Company’s Board of Directors.

d) On 5 October 2016, the Committee reported on (i) the annual report on compliance with


Activities / 25


and the effectiveness of the company’s Crime Prevention Programme in 2015 and (ii) the new version of the Crime Prevention Programme.

e) On 13 December 2016, the Committee approved the Annual activity plan and reported favourably on the Compliance Division’s 2017 budget presented at this meeting by its Director.

f) Within the framework of the assessment on compliance with the Code of Incompatible Activities, the Committee reported regarding Human Resources insofar as the entries and leaves affecting company staff, transfers to liberalised companies of the group, confidentiality undertakings and training activities conducted in this regard in the sessions on 9 February and 6 April 2016.

g) Amongst the recurrent activities designed to safeguard compliance with the aforementioned requirements is the annual appearance of the Company’s Legal Services Director to present the most relevant legal matters on the basis of their effects on the risks of the Company (session on 5 October 2016).

h) On 6 April 2016, the Committee issued a Report on the amendment to the General Standards regulating transactions between the Company and other Companies in the Group for its subsequent submission to the Board of Directors.

i) The compliance assessment reports drawn up by PricewaterhouseCoopers, Asesores de Negocios, S.L., regarding the Company’s compliance with the Corporate Governance System of the Iberdrola Group in 2016, referring to the Board of Directors and the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U.

26 / Annexe



Annexe5

Annexe / 27



Reports and proposals submitted to the Board of Directors

1

Reports and proposals submitted to the Board of Directors Date

Report on economic-financial information (2015) 9 February 2016

Report on the independence of the auditor 9 February 2016

Annual ACC Activities Report (2015) 9 February 2016

Report on risk control and management systems (2015) 9 February 2016

Report on the 2015 Financial Statements 16 March 2016

Annual report on compliance with the Code of Incompatible Activities of the Iberdrola Group Spain with regulated activities (2015) 16 March 2016

Report on the economic-financial information from the first quarter 2016 6 April 2016

Approval of the Report by the Audit and Compliance Committee regarding the conditions for commissioning the Auditor for fiscal year 2016. Proposal on the conditions for commissioning submitted to the Board of Directors for approval.

1 June 2016

Report on economic-financial information. First half of 2016. 8 July 2016

Report on risk control and management systems. First half of 2016. 8 July 2016

Report from the Legal Services Director: status on claim-associated risks. 5 October 2016

Report on economic-financial information. Third quarter of 2016. 10 October 2016

Proposed Annual Activity Plan and budget for the Internal Audit Division for fiscal year 2017. 13 December 2016

Proposed Annual Activity Plan and budget for the Compliance Division for fiscal year 2017. 13 December 2016


28 / Annexe


Appearances by Executives

2

Appearance of the Internal Audit Director of Iberdrola Distribución Eléctrica

Appearances by Executives Date

1 Report on economic-financial information (2015). 09-Feb-16

2 Report on the independence of the auditor. 09-Feb-16

3 Presentation by the Internal Audit Director. 2015 Activities Report. 09-Feb-16

4 Annual ACC Activities Report (2015). 09-Feb-16

5 Tracking of the 2016 Annual Internal Audit Plan. Recommendations. 09-Feb-16

6 Report on the 2015 Financial Statements. 16-Mar-16

7 Report on the economic-financial information from the first quarter 2016. 06-Apr-16

8 Tracking of the 2016 Annual Internal Audit Plan. Recommendations. 06-Apr-16

9 Report on economic-financial information. First half of 2016.

10 Tracking of the 2016 Annual Internal Audit Plan. Recommendations. 08-Jul-16

11 Report on economic-financial information. Third quarter of 2016. 05-Oct-16

12 Tracking of the 2016 Annual Internal Audit Plan. Recommendations. 05-Oct-16

13 Draft Activities Report for the Audit and Compliance Committee for 2016. 13-Dec-16

14 Tracking of the 2016 Annual Internal Audit Plan. Recommendations. 13-Dec-16

15 Proposed Annual Activity Plan and budget for the Internal Audit Division for fiscal year 2017. 13-Dec-16

Appearance of the Compliance Director of Iberdrola Distribución Eléctrica


1 New version of the Company's Crime Prevention Programme. 09-Feb-16

2 Annual report on compliance with the Code of Incompatible Activities of the Iberdrola Group Spain with regulated activities (2015). 16-Mar-16

3 Proposed Annual Activity Plan and budget for the Compliance Division for fiscal year 2017. 13-Dec-16


Annexe / 29


Appearance of the Control Director of Iberdrola Distribución Eléctrica


1 Report on economic-financial information (2015). 09-Feb-16

2 Report on the 2015 Financial Statements. 16-Mar-16

3 Report on the economic-financial information from the first quarter 2016. 06-Apr-16

4 Report on economic-financial information. First half of 2016. 08-Jul-16

5 Report on economic-financial information. Third quarter of 2016. 05-Oct-16

6 Preview of 2016 accounting year end. 13-Dec-16


Documents

Activities Report of the Audit and Compliance … · Activities Report of the Audit and Compliance Committee of Iberdrola Distribución Eléctrica, S.A.U. FRUUHVSRQGLQJWRWKH VFDO\HDUGUDZQXSE\WKH