BKW FMB Energy LtdAnnual Report 2005B

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Facts & Figures

Financials

2005 2004 20031 20021 20011

Restated CHF m CHF m CHF m CHF m CHF mTotal operating revenue 1,989.1 1,770.2 2,944.5 2,079.1 1,621.6Operating income before depreciation and amortisation 431.0 385.1 370.0 346.4 356.3Net profit 306.7 217.7 254.2 208.7 196.9

Cash flow provided by operating activities 308.0 311.8 217.3 281.7 302.5Purchase of property, plant and equipment 129.5 133.8 78.3 84.4 79.3

Balance sheet total 5,508.9 4,889.2 4,810.9 4,365.3 4,136.4Shareholders’ equity 2,742.8 2,378.0 2,220.0 1,964.2 1,819.6

as % of balance sheet total 49.8 48.6 46.1 45.0 44.0

Electricity business

GWh GWh GWh GWh GWhElectricity sales Switzerland 7,058 6,962 6,708 6,468 6,578Electricity sales International 3,774 3,672 4,437 1,977 293Electricity trading 7,044 6,829 32,063 25,483 15,155Pump/substitution energy 665 541 678 593 531Transmission losses/own consumption 363 305 350 319 304Total sales 18,904 18,309 44,236 34,840 22,861

Volume generated by hydroelectric plants 3,489 3,572 3,915 3,751 4,147Volume generated by nuclear power plants

incl. purchase contracts 5,371 5,828 5,786 5,744 5,640Volume generated from decentral plants 15 13 14 15 18Trade (purchases) and energy buybacks 10,029 8,896 34,521 25,330 13,056Total purchases 18,904 18,309 44,236 34,840 22,861

Employees (Full Time Equivalent) 2,120 2,130 2,074 2,027 1,911

Information on the BKW share2

CHF CHF CHF CHF CHFPar value 2.50 2.50 2.50 2.50 2.50Share price

Year-end 88.00 69.50 47.90 30.20 12.00High 95.85 70.35 47.90 30.20 15.00Low 67.40 47.90 30.00 12.50 12.00

Earnings per share (BKW shareholders’ portion) 5.88 4.15 4.87 3.98 3.75Equity (BKW shareholders’ portion) 51.85 46.52 42.09 38.00 34.55

Market capitalisation in CHF millions 4,627.5 3,529.5 2,502.7 1,545.2 626.4

1 Changes in IFRS accounting principles for the years 2004–2005 have resulted in limited scope for comparison with the 2001–2003 figures

2 2001–2004 presentation adjusted following 1:10 share split

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Contents

2 ForewordBroad-based network – high quality of supply

7 StrategyHigher investment in production and networks

10 CompanyOrgans

12 SustainabilityCorporate responsibility

13 EnergypolicyReliable framework required

16 EnergySalesandProcurementElectricity sales up

17 ProductionEnergy production with strong regional roots

20 2005Production FactsandFigures

21 TradeInternational network – local roots

24 SalesBespoke offerings and local presence

27 Networks19,000 kilometres of secure supply

29 FinancialReview

80 CorporateGovernance

96 OrganisationalChart

2

ForewordBroad-based network – high quality of supply

Expectations exceeded2005 has been a good year overall for BKW FMB Energy Ltd, with positive fac-tors more than offsetting negative effects on the results. Positive effects included a steady increase in business in the home market, commissioning of the Bernina line to Italy, and growth in revenue and income from international trading activi-ties. BKW took advantage of price trends, and in particular leveraged the increased volatility on international markets. The company also stepped up international sales. Negative factors impacting the results were the generator damage at Leibstadt nuclear power plant, price re-ductions in the home market, and dry weather conditions.In 2005 the BKW Group reported a 12.4 per cent increase in total operating revenue from CHF 1,770.2 million to CHF 1,989.1 million as a result of higher prices on the international market and good sales performance in Switzerland. Operating income before interest, taxes, depreciation and amortisation (EBITDA) rose year-on-year by 11.9 per cent to CHF 431.0 million. Profit rose by 40.9 per cent from CHF 217.7 million to CHF 306.7 million At CHF 490 million, revenue from trading was up 37.3 per cent. The financial result of CHF 56.4 million had a disproportionate impact on the annual results.

BKW’spositionisreinforcedthroughawiderangeofnetworks

underpinnedbyBKW’sowninstallations,intensivecooperationwith

partners,andnewpartnerships.BKWremainscommittedtoensuring

highreliabilityandqualityofsupplyforitscustomers,throughfore-

sightinitsactionsandinvestmentsinproductionandtransmission.

Extreme weather conditionsIn contrast to 2004, the year under review was marked by extreme weather and dif-ficult hydrological conditions. Relatively long cold spells at the beginning and end of the year resulted in higher electricity consumption. The long dry spell last au-tumn which was preceded by floods in August led to a drop in river water levels, and the level of many lakes fell dramati-cally. Mindful of its role as an energy provider, BKW conserved its resources in order to continue delivering electricity related services on its own.

Record highs on spot marketsWith no adequate expansion of produc-tion capacities, increased electricity consumption in the year under review resulted in even greater shortfalls of available energy throughout Europe. Oil and gas prices reached a record high due to caps (also politically motivated) on de-livery volumes. This development was an additional factor behind the general rise in the price of electricity. Prices were also driven up by the introduction in 2005 of trading in CO2 emission certificates: the resultant sharp rise in costs directly im-pacted wholesale prices. Overall, market trends identified in recent years were reinforced in the year under review: the buyer’s market is turning into a seller’s market.

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Lack of clarity in energy policySwiss energy policy continues to face major challenges. For years BKW has supported the creation of a transparent, Euro-compatible legal framework. BKW is convinced that the high security of sup-ply that is largely assured thanks to inte-gration of the Swiss electricity industry in the international market can only be sustained if cross-border operations are run according to a cohesive set of rules.In conjunction with other Swiss grid operators, BKW founded the new pri-vate-law network company, swissgrid. Conditions imposed by parliament and the Competition Commission led to de-lays in the new company’s operational startup. The Swiss Competition Appeals Commission has still to make a defini-tive ruling. ETRANS remains the direct point of contact for European partners, and advocates the interests of network operators. In early 2005 BKW petitioned the Fed-eral Council to lift the time limit on the operating permit for the Mühleberg nu-clear power plant. The application is be-ing evaluated by the Federal Department of Environment, Transport, Energy and Communication (DETEC). BKW is con-fident that DETEC will concur with the company’s justifiable and well-grounded claims.

Phased market deregulationSince autumn 2005 both houses of the Swiss parliament have been intensively deliberating the terms and conditions of electricity market deregulation. Three proposals have been drawn up in this context. They relate to the revision of the Electricity Law which governs cross-border electricity trading, the Electricity Supply Law which provides for phased market deregulation, and revision of the Energy Law which sets forth provisions for the promotion of new renewable en-ergies. In its consultations the National Council and Council of States are re-quired to determine whether the elec-tricity market is to be opened in a single phase or two separate phases, and whether or not electricity from renewable energies (ground heat, biomass, sun, wind) is to be promoted by means of a feed-in reim-bursement to cover costs.

Changes in the energy industryThe sale by UBS of a majority holding in Motor Columbus was of particular impor-tance for the Swiss electricity industry. In September 2005 UBS decided to sell its Motor Columbus shares to a consortium consisting of French state-owned com-pany Electricité de France, Energie Ou-est Suisse and other shareholders. BKW submitted an equivalent offer, but this was not accepted.BKW has geared its strategic and commer-cial approach to address the new balance of power on the Swiss market. Existing partnerships with E.ON, Groupe E and Youtility were further pursued. Thanks

DrFritzKilchenmann,Chairman(left)KurtRohrbach,President(right)

to efficient production and network in-frastructures and a robust, broad-based market position backed by long-term cus-tomer relations, BKW will drive ahead its own development. With a sound financial footing and a highly-skilled, motivated workforce, BKW is well placed to venture further along this path.

Broader shareholder baseMid-February 2006 saw completion of the consultation procedure initiated by the canton of Berne in November 2004 on the law governing the cantonal holding in BKW. This represents another important step towards implementation of the can-ton of Berne's ownership strategy. Under the terms of the law, the canton's share of BKW capital and voting rights would be reduced to 34 percent. In principle, BKW welcomes this move. With a 34 percent stake, the canton of Berne would still be in a strong position to exert influence on BKW. BKW is in favour of a legal frame-work to enhance security of supply. In the year under review BKW resold the shares acquired from the canton of Jura towards the end of 2004, placing a total of 170,000 shares on the market at the end of April 2005. This allowed BKW to reduce its own free float and increase share liquidity. This move is consistent with BKW’s shareholder-friendly policy of achieving a broader shareholder base, increasing the liquidity of BKW shares, and making it simpler for shareholders to exercise their rights. The latter was further facilitated through measures such as the share split, shortening of the

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Sustainability. The electricity supply business is like sport: Success is dependent on years of planning and performance enhancement. At the beginning the going is often tough, and progress may be slow. Success sets in once endurance has been built up, skills honed, and a sustainable impact achieved. BKW – and the energy flows.

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registration deadline, and introduction of an independent proxy, which were ap-proved at the 2005 General Shareholders’ Meeting.

New partnerships and consolidation of existing partnershipsCurrent business activities are devoted to ensuring high quality of supply, re-gional presence and a broad-based net-work. BKW delivers electricity not only to the canton of Berne; it also offers its products and services in the cantons of Jura, Fribourg, Neuchâtel, Basle Country, Solothurn, Obwalden and Valais. Exist-ing relations were further consolidated and additional new partnerships entered into in the year under review.

Foundation of cc energie saIn September 2005 BKW and Groupe E (formerly EEF.ENSA) founded a joint venture under the name cc energie sa, to provide customer service and applica-tion management services. cc energie sa started operations on 1 January 2006 at its offices in Murten. The aim of the company is to reduce operating and in-vestment costs and boost the market posi-tion of the partners through jointly caring for some 500,000 residential and SME customers, and by operating a shared IT platform.

Purchase of onyx sharesIn mid-November 2005 BKW took part in a bid process and submitted an offer to the communities of Langenthal and Her-zogenbuchsee for the purchase of their holdings in onyx Energie Mittelland AG (onyx). The BKW bid was successful. In line with BKW’s objective to acquire a majority holding in onyx, the company submitted a purchase offer to other onyx shareholder communities. To date, most of the community councils have come out in favour of selling their holdings, subject to a definitive decision by the responsible

bodies. BKW’s participation represents an important step towards securing long-term, cost-effective electricity supplies in the Upper Aargau region.

Majority holding in Arnold AGIn mid-December 2005 BKW acquired from AEK Energie AG its holding in Ar-nold AG of Selzach. In so doing, BKW be-came the majority shareholder in Arnold AG. This participation has allowed BKW to expand and reinforce competence in its core business in the fields of network con-struction and network services. Arnold AG will be operated as a BKW Group company from fiscal 2006.At the end of December 2005 BKW and the Valais communities of Kippel, Ferden and Wiler founded a public limited com-pany under the name Energieversorgung Talschaft Lötschen (EVTL), which com-menced operations on 1 January 2006.

Bern3 – adding value to the city2005 was a special year not only for BKW but also for the city of Berne as a centre of business and culture. Three major events were staged in which BKW was closely involved: At the beginning of May BKW inaugurated the world’s largest in-sta-dium solar power plant on the roof of the brand-new football stadium, the Stade de Suisse in Wankdorf/Berne. The plant has since been producing the cheapest unsub-sidised solar energy in Switzerland. As a principal partner, BKW supported the Einstein exhibition in Berne’s Historical Musem, and as a founding partner lent support to the newly-opened Zentrum Paul Klee. BKW’s involvement found positive resonance far beyond cantonal borders.

2005 General Shareholders’ MeetingThe 2004 Annual Report as well as the 2004 financial and consolidated state-ments, proposals of the Board of Direc-tors for the appropriation of retained earn-ings, and other items were approved by the General Shareholders’ Meeting held on 26 May 2005. The Board of Directors was granted discharge of its actions for the 2004 financial year.Ernst & Young AG were appointed statu-tory and Group auditors for fiscal 2005.

Board of DirectorsAfter 12 years in office, Peter Kappeler gave up his mandate to the BKW Board of Directors at the 2005 General Sharehold-ers’ Meeting. BKW would like to thank Peter Kappeler for his services.

Promotions and appointmentsIn the year under review the Board of Directors and Executive Board approved the following promotions and appoint-ments: Patrick Miazza, Head of Mühle-berg Nuclear Power Plant (KKM): First Vice President. Walter Lehmann, Head of KKM Operations, Reto Umbricht, Head of Internal Audit, and Thomas Wettstein, Head of IT Strategy and Deployment: Vice Director. Chris-André Cotting, Head of Langnau Regional Office, Christoph Frings, Head of Thermal Power Plants, Frank Harnisch, Head of Residential and SME Customers, Phlippe-André Künzi, Project Manager for Thermal Power Plants, Markus Swoboda, Head of HR Development, and Mark Kaspar Vogel, Head of Network Operations: members of senior management.

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ThanksThe Board of Directors and Executive Board of BKW appreciate the level of per-sonal commitment shown by employees. We thank everyone who has contributed to BKW’s success in 2005, and continue to count on your efforts in the future. Our thanks go also to our customers and shareholders, whose confidence in us strengthens our resolve and inspires us to continue delivering above-average performance.

OutlookBusiness activities in the first few months of 2006, coupled with the current price level on international markets, provide the basis for yet another good year-end result. Nevertheless, it is unlikely that the extraordinary financial income recorded in 2005 can be repeated in 2006.

7

StrategyHigher investment in production and networks

Further pursuit of proven strategyAgainst the backdrop of a rapidly chang-ing market and uncertainty with regard to the energy policy framework, BKW pursues the strategic principles and cor-porate policy which for many years have proven so successful. The main focus is on further developing and strengthening existing partnerships with communities, cantons, energy supply and production companies, and with national and inter-national customers. Thanks to a tech-nologically diverse and geographically broad production base, partly operated by partners and located in various regions throughout Switzerland, coupled with ef-ficient, reliable network installations and direct supplies to end customers, BKW

has carved out a solid market position. Vertical integration provides the foun-dations for the company’s independent development.

Expansion of productionWith supply shortfalls looming, the Swiss electricity industry in general and BKW in particular are facing major challenges. Whereas in recent years the main de-velopment priority has been to promote growth in trading and sales, the focus must once more be shifted towards in-vestments in electricity production. BKW aims to guarantee the existing high level of secure supplies over the long term by expanding and enhancing efficiency at existing production facilities. In terms of electricity procurement, BKW relies

Verticalintegration,versatilepartnerships,abroadnetworkand

goodregionalrootsremainthekeyelementsofBKW’scorporate

policy.BKWintendstosignificantlystepupinvestmentsin

productionandnetworkfacilitiesinfuture,inordertopreventsupply

shortfallsandtoboostitsposition.

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Security of supply. Producing electricity is not in itself an art. But delivering sufficient electricity to all parts of the country at any given time is a major challenge. Electricity production and energy require-ments must be accurately aligned. That’s why we look after our products in the same way as a vegetable grower: to ensure a profitable yield in line with market demand. BKW – and the energy flows.

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on its proven mix of hydro and nuclear power, supplemented by electricity from renewable energy sources such as wind and sun, as well as fossil fuels. To address the problem of congestion, it is imperative that solutions for tomorrow be objectively discussed and implemented today. To this end, all conceivable options must be con-sidered: including nuclear energy, which enables Switzerland to honour its interna-tional obligations (Kyoto Protocol), and gas-powered plant production, which can be implemented within a relatively short time. BKW therefore believes it is essential that the time limit on the oper-ating permit for the Mühleberg nuclear power plant be lifted. Equally important in this context will be the expansion and construction of new production facilities in Switzerland, the raising of the Grim-selsee masonry dam (KWO plus), and the successful implementation of projects in neighbouring countries.

Strong network infrastructure: the backbone of suppliesBKW operates a widespread supply net-work at local, regional, inter-regional and international levels. To address growing demand, this network must be extended both at home and abroad. In this context an important milestone was achieved in the year under review with the opening of the Bernina line to Italy. In order to ensure future security of supply, however, the network infrastructure must be further expanded and optimally deployed. Here BKW intends to honour its commitment to consolidating Switzerland’s position as an international electricity hub. As an experienced network operator, BKW in-tends to provide other market players with direct access to its know-how in the field of network services. Acquisition of Ar-nold AG will allow customers to benefit from synergies in a core business.

Consolidation of position in electricity tradingAgainst the backdrop of international market changes and thanks to the compa-ny’s own versatile production base, BKW was able to implement its international procurement strategies in the year under review. In future, trading will play an even more central role in electricity pro-curement and sales. The idea behind this move is to achieve proportional growth in trading and production activities so as to take full advantage of the company’s vertical integration model.

Sustainable customer relationsBKW is committed to further expanding market presence and customer proximity through attractive offerings and innova-tive services. As with trading, BKW is aiming to develop sales in balanced proportion to production growth. The overriding objective is to achieve a long-term, sustainable consolidation of rela-tions with existing and new customers. Growth via sales partnerships is a key element of the BKW strategy. The exist-ing Youtility concept is proving highly successful and will be further pursued. Transparency and customer focus will be enhanced by separating energy and network usage prices, as an important prerequisite for the forthcoming liberal-ised market. In parallel with efforts on the home front, BKW aims to strengthen its position in key sales markets abroad by differentiating itself through local pres-ence and customer proximity, optimally rationalising customer-specific proc-esses, and defending its position backed by maximum reliability and convincing supply services.

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Company Organs

TheExtendedExecutiveBoard(lefttoright):ArturoJ.Egli,UrsSeiffert,PatrickBraun,LukasGürtler(Secretary),HermannIneichen,Hans-RudolfThöni,KurtRohrbach,MatthiasKaufmann,HeinzRaaflaub,MartinPfisterer,ChristianSahli

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Board of Directors (at 31.12.2005) Dr Fritz Kilchenmann, Münsingen, Chairman Dr Hans Lauri, Münsingen, Vice Chairman Walter Balmer, Rosshäusern Barbara Egger-Jenzer, Berne1 Urs Gasche, Fraubrunnen1

Dr Hans-Dieter Harig, Hannover Walter von Känel, St-Imier Peter Kappeler, Muri/BE (until 26.05.05) Dr Bernhard Reutersberg, Munich Laurent Schaffter, Delémont Walter von Siebenthal, Saanenmöser Ulrich Sinzig, Langenthal Philippe Virdis, Fribourg Secretary to the Board of Directors: Matthias Kaufmann, First Vice President BKW 1 Canton of Berne delegates to the Board (Art. 21 of the BKW Articles of Incorporation and Art. 762 of the Swiss Code of Obligations) Internal Auditing Reto Umbricht Auditors and Group Auditors Ernst & Young Ltd, Berne Executive Board Kurt Rohrbach, President Hermann Ineichen, Director, Energy Patrick Braun, Director, Networks Heinz Raaflaub, Director, Management Services Expanded Executive Board Arturo J. Egli, Vice Director, Head of Sales Matthias Kaufmann, First Vice President, General Secretary Dr Martin Pfisterer, First Vice President, Head of Corporate and Brand Communications Urs Seiffert, First Vice President, Head of Trade Christian Sahli, First Director, Head of Finance and Controlling Hans-Rudolf Thöni, First Vice President, Head of Production Secretary to the Executive Board: Lukas Gürtler, BKW Corporate Lawyer

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Conservation of resourcesFor BKW, sustainability means adopting a responsible approach to business within the context of a long-term corporate pol-icy aimed at conserving limited resources. The principle of sustainability dictates the company’s strategy and provides guide-lines for operational implementation. For over one hundred years BKW has been delivering electricity to customers reli-ably, cost-effectively and ecologically. BKW relies on a sustainable production mix of hydroelectricity and nuclear power as well as new renewable energies such as solar and wind power. The company con-solidated its market leadership in this area and provided proof of its commitment to sustainability thanks to the inauguration of the solar power plant on the roofs of the Stade de Suisse in Wankdorf, Berne, and the generation of electricity by new wind turbines on Mont Crosin. More- over, BKW’s 1to1 energy wind and solar products are certified to the water star, wind star and sun star standard. BKW’s efforts to conserve limited supplies of water during the long dry spell in 2005 are further proof of the company’s com-mitment to sustainability in its everyday actions. Yet another example of this is the company’s long-established practice of recycling old network materials.

Sustainable investmentsBKW aims to move further along the path of sustainability through targeted meas-ures, and has decided to make sizeable investments in the maintenance, renewal and expansion of existing production and network facilities. This will guarantee the efficient production of energy production and the reliable supply of electricity. The KWOplus expansion project for more efficient natural inflows to Lake Grim-sel is a very important element in the bid to ensure sustainable use of existing resources.

Further training: a key commitmentEmployees are pivotal to BKW’s sus-tainable success. As such, the company accords special attention to its staff. Em-ployees are empowered to submit their ideas in a participative process. Construc-tive cooperation creates the right platform for sustainable partnership from which BKW customers can also benefit. BKW supports its employees by offering a broad range of schemes for professional and personal development. Special prior-ity is also given to apprentices and jun-ior management. BKW’s further training and management development schemes ensure that employees and management gain the skills they require for current and future positions of responsibility. A sustainable personnel policy contributes to corporate success and is a key element in enabling us to fulfil our obligations to-wards the economy and the community.

SustainabilityisoneoftheguidingprinciplesbehindBKW’s

businessactivities.BKWhonoursitsobligationstowardsthe

economy,thecommunityandtheenvironment.Nowandin

thefuture.

SustainabilityCorporate responsibility

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Energy policyReliable framework required

BKWisinfavouroffullEU-compatibleliberalisationoftheelectricity

marketgovernedbyaclearregulatoryframework.Inordertohelp

shapethefutureofenergyandexpandproductionandnetwork

facilities,BKWmustbeabletoplaneffectivelyandrelyontransparent

frameworkconditions.Thepoliticalprocessisnotyetfinalised.

Pre-emptive regulation for electricity tradingIn December 2004 the Federal Council submitted two proposals to parliament for deliberation: the bill for deregulation of the Swiss electricity market, and amend-ments to the Electricity Law concerning new provisions for electricity trading. While the latter proposal found general acceptance in the subsequent political discussion, apart from a few dissenting opinions on the implementation process, the former has had a difficult passage. The debate has been particularly heated with regard to the specific conditions govern-ing deregulation of the electricity market, as well as measures to promote renewable energies. These will now be incorporated in a separate proposal. The revision of the

electricity law is based on an EU direc-tive which came into force back in mid-2004. The law must be amended to pro-vide for cross-border electricity transits and trading transactions ahead of market deregulation. It envisages the creation of an independent operator company for the transmission network and the forma-tion of a state electricity commission to act as the regulatory authority. The law also governs access to the transmission network and measures for managing con-gestion. BKW is of the opinion that the transit regulations must comply with the minimum requirements of the EU, since this is the only way in which Switzerland can participate as an equal partner in Eu-ropean electricity trading, upon which it depends.

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Market. Competition stimulates business. We embrace this challenge and welcome competition. Because we’ve done our homework, we – like other traditional Swiss businesses – are best in class when it comes to in-novation, cost efficiency and customer focus. Bring on the open market: it will inspire us to achieve even more. BKW – and the energy flows.

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swissgrid – delay in starting operationsIn the year under review BKW and other Swiss electricity grid operators founded a new private-law network company, swissgrid. The Competition Commission imposed a proviso prohibiting members of the Board of Directors and Executive Board of national transmission network operators from joining the governing organs of other electricity companies. This condition has delayed commence-ment of swissgrid’s operational activities. BKW and its founding partners firmly believe that the strategic management of swissgrid must be carried out by indus-try experts with experience in national and international grid operation. There is general consensus on the issue of non-discriminatory access to the high-voltage network. As experiences in EU countries have shown, an appropriate transitional period is necessary in order to ensure careful planning of the requisite technical and organisational measures.

Consensus on phased market liberalisationAfter lengthy debate in the National Council, the electricity market is now to be liberalised in two phases. From 2007, large and medium-sized consumers with an annual consumption volume of at least 100,000 kilowatt-hours will be free to choose their supplier. Smaller consum-ers, and private households in particular, will be granted this right as from 2012 in accordance with a parliamentary deci-sion for which no optional referendum is required. Suppliers i.e. transmission net-work operators will be obliged to continue delivering electricity to small consumers who do not switch to a new energy pro-vider. BKW has consistently canvassed in favour of full market liberalisation in a single step but does not oppose the planned consensus solution. Parliamen-tary deliberations on the new law had still not been completed by the end of 2005.

Broad-based promotion of renewable energiesFollowing another intensive debate, plans are now in place to introduce feed-in re-imbursements and investment guarantees to promote electricity production based on ground heat, biomass, solar and wind energy. A maximum surcharge of CHF 0.03 per kilowatt-hour will be levied on the high-voltage network. At present this would bring in some CHF 165 million per year. This is akin to a legal cross-subsidy imposed by means of a mandatory tax. BKW believes that this legislative ap-proach is not sustainable since it neces-sitates the construction of economically unviable production plants and places the burden on consumers, who expect lower prices following deregulation of the elec-tricity market. BKW has been promoting renewable energies for the past 15 years through targeted measures without any state assistance, and has long been dis-tributing a renewable, cost-effective en-ergy in the form of hydroelectricity.

Reduction in the cantonal holdingBetween November 2005 and February 2006 the Council of the Canton of Berne held a consultation procedure on the law governing the cantonal holding in BKW. Following a previous reduction of the can-tonal stake to 52.9 percent, this second step in the canton’s ownership strategy aims to reduce the holding even further to 34 percent. BKW needs greater room for manoeuvre in the liberalised market, in which the foremost objective remains the secure, cost-effective supply of elec-tricity to its home market, including out-lying regions. The canton will be able to perform its legally assigned supervisory function over distribution networks with-out incurring any conflicts of interest as the principal shareholder of the canton’s largest network operator.

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Increase in domestic electricity consumptionIn conjunction with its distribution part-ners, BKW continued to offer the same high quality of supply as in 2004, deliv-ering 7,058 GWh of energy reliably and free of CO2 to its residential, industrial, commercial and service industry end customers in Switzerland. As a result, electricity sales increased 1.4 percent year-on-year. This national trend is at-tributable to new customer acquisition and growth in demand from existing cus-tomers. Cold weather in the first months of 2005, followed by hot weather condi-tions in the summer months, increased consumption. While generator damage in the Leibstadt nuclear power plant coupled with low reserves of water in late autumn negatively impacted production figures in 2005, the shortfalls were offset by energy procurement.

International position strengthenedBKW consolidated its position in inter-national markets in 2005, responding rapidly and flexibly to requirements on these markets thanks to technologically and geographically differentiated produc-tion facilities and a broad procurement base. Despite new capacity constraints at the German border, trade-related sales rose year-on-year by 3.2 per cent from 6,829 GWh to 7,044 GWh. International sales of electricity also increased by 2.8 per cent to 3,774 GWh. BKW’s subsidi-aries in Italy and Germany succeeded in expanding activities and concluding new contracts with industrial customers.

Energy Sales and Procurement Electricity sales up

In2005BKWdeliveredatotalof18,904GWhofelectricity:an

increaseof3.3percent.Whilegrowthinelectricitytradingvolumes

andinternationalsaleswasstrong,salesalsoroseinBKW’score

region.BKWcontinuestorelyonitsprovenelectricitymixtosecure

thequalityofitssupplies.

Successful production and procurement mixElectricity production in BKW’s own plants as well as partner plants fell by 538 GWh from 9,413 GWh to 8,875 GWh, largely due to loss of production at the Leibstadt nuclear power plant and lower output from run-of-river plants. By contrast, Mühleberg nuclear power plant suffered no production stoppages and re-corded an output of no less than 2,856.6 GWh despite production cutbacks due to high temperatures in the River Aare during the summer. Including purchas-ing contracts, electricity generated by nuclear power plants dropped to 5,371 GWh compared with 5,828 GWh in the previous year. Trade-related purchases of electricity rose by 12.7 per cent to 10,029 GWh. Last year, despite severe weather conditions, fault-free operations at BKW’s various plants as well as elec-tricity procurement based on long-term purchase contracts continued to play a key role in allowing BKW to deliver reli-able, high-quality supplies of electricity to its customers.

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Production Energy production with strong regional roots

Abroadproductionbasecombininghydroelectricityandnuclear

power,supplementedbywindandsolarenergy,ensureshighsecurity

ofsupply.BKW’smarketpositionathomeandabroadisenhanced

throughthereliabilityandavailabilityofround-the-clockenergy,

coupledwiththeflexibilitytogeneratevaluablepeakloadenergy.

Technological diversity and a geographically broad network of partnersBKW operates a technological diverse range of production facilities, consisting of its own run-of-river power plants and Mühleberg nuclear power plant in the supply region, as well as holdings and purchase rights in other hydroelectric and nuclear power plants. Wind and so-lar energy plants complete this extensive portfolio of offerings. In 2005, too, this technological diversity, broad geographi-cal reach and close cooperation with re-gional partners provided BKW with the right conditions under which to maintain its high standard of supplies despite ad-verse factors such as the floods in summer, low water levels in late autumn, and a

loss of production at the Leibstadt nuclear power plant over several months. Mühle-berg nuclear power plant in particular, as well as holdings and purchase rights in hydroelectric and nuclear power plants in Switzerland and neighbouring countries continued to provide a reliable supply of CO2-free electricity.The end of the year saw the foundation of Kandersteg-based Kraftwerke Kander Alp AG (KKA) and submission of the per-mit application for a 2 MW hydroelectric plant in Alpbach. The aim of the company and project is to step up the partnership with Licht- und Wasserkraftwerk AG Kandersteg, in order to reinforce regional presence and encourage the use of renew-able energies.

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Future. If you work in the field of energy, you need to take the long view. For generations we have been focusing our energies on the production and distribution of electricity. That’s why our ideas are visionary, our approach forward-looking, and our actions goal-driven. This way we can sustainably ensure maximum security of supply for the next generation and the one after that. BKW – and the energy flows.

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Stoppage at KKW Leibstadt for several monthsBKW produced a total of 8,875 GWh of electricity in the year under review from its own power plants as well as through purchase rights and holdings. This rep-resents a drop of around 5.7 per cent compared to the previous year. One of the main factors impacting this figure was the five-month overhaul of Leib- stadt nuclear power plant, due to generator damage, which resulted in a year-on-year decline in output of 34 per cent. By consolidating its position in the field of peak energy, generated by storage power plants operated by partners in alpine re-gions, BKW was able to respond flexibly and swiftly to national and international market developments. Thanks to the ef-forts of some 400 BKW employees and 200 employees of Kraftwerke Oberhasli, production facilities were kept up and running and available to address chang-ing demands.

Extreme hydrological conditionsHydroelectricity production was im-pacted in the year under review by very high levels of precipitation during one week in summer, and low water levels during the rest of the year. Water rose at such a fast rate during the summer floods that in some places record-high levels were recorded. In their wake, the floods also felled an extremely high volume of timber. Thanks to extra staff and round-the-clock efforts to cope with the additional workload, the situation was quickly rectified with minimal damage and no accidents, and the affected facili-ties were once more on stream within one or two days. Lack of sufficient precipitation during the rest of the year resulted in low water levels and a decline in production. The situation was alleviated thanks to water stored in reservoirs operated by Kraft-werke Oberhasli AG. Plans to increase the height of the Grimselsee masonry dam

will further improve the use of available water resources. Reservoir stocks man-aged by BKW with a view to ensuring reliable supplies were within the long-term average range, and as such were at all times well above those of other Swiss reservoirs.

Reliability of Mühleberg nuclear power plantThe Mühleberg nuclear power plant (KKM) recorded a production volume of 2,857 GWh in 2005. This good result is due to the plant’s good condition and uninterrupted operations. The slight change from the record year of 2004 is due to the somewhat longer duration of the plant’s annual overhaul. Comprehen-sive technical work was performed in the year under review in order to ensure the safe operation of the plant. The work primarily consisted of conducting repeat tests on and in the reactor pressure tank and exchanging the high-pressure pre-heater in a turbine string. Such overhauls play a key role in sustainably ensuring the good condition of this nuclear power plant. Moreover, fault-free operations can help to guarantee an independent, reliable and CO2-free supply of electricity in the BKW’s region for another 25 years. With this in mind, BKW petitioned the relevant federal authorities in early 2005 to lift the time limit on the current operation permit for KKM.

Record wind power productionBKW also scored achievements in the field of renewable energies. The solar power plant operated by BKW on Mont Soleil in the Bernese Jura produced a total of 0.6 GWh of electricity, and the solar power plant on the roof of the new Stade de Suisse in Wankdorf, Berne, gener-ated more than 0.7 GWh, equivalent to the annual power consumption of 200 households. BKW produces the largest volume of solar energy from stand-alone facilities in Switzerland. Thanks to two

new turbines and despite light wind con-ditions, the Juvent wind power plant on Mont Crosin generated more than 7 GWh of power: around 20 per cent more than in 2004.

Leveraging all optionsIn view of the growing demand for elec-tricity, the scarcity of power supplies across Europe, and the ongoing deregula-tion of electricity markets, BKW intends to leverage all options and opportunities to expand its production and procurement capacities. This can be achieved through stepping up performance at existing plants, increasing its share of regional partner plants, and building or acquiring holdings in new power plants in Swit-zerland and neighbouring countries. The raising of the Grimsel masonry dam is of major importance in this context, since the resultant increase in storage capacity will be instrumental in securing power supplies, particularly during high-de-mand winter months.

2020

Energy portion* Installed BKW Winter BKW % change % production purchase portion purchase betw. 2004 BKW share 2005 2005 2004 and 2005 MW GWh % GWh Own power plants and Group companiesHydroelectric plants Mühleberg 100.0 45.0 146.4 31.1 147.3 –0.6 Bannwil 100.0 28.5 134.2 37.8 144.1 –6.9 Spiez 100.0 18.6 93.7 34.3 101.7 –7.9 Kandergrund 100.0 18.8 92.8 23.4 97.1 –4.4 Aarberg 100.0 15.0 83.3 35.6 84.1 –1.0 Niederried-Radelfingen 100.0 15.0 74.6 36.9 73.3 1.8 Kallnach 100.0 8.0 43.8 25.3 51.0 –14.2 Simmentaler Kraftwerke 100.0 27.0 91.2 23.7 103.5 –11.8 EWR Energie AG (Schattenhalb) 100.0 6.0 21.6 23.7 23.6 –8.6 Sociéte la Goule SA – 7.5 22.2 53.9 26.7 –17.0 EW Grindelwald AG (First) – 1.4 4.0 14.1 5.0 –20.0 Total hydroelectric plants – 190.8 807.7 29.7 857.5 –5.8Nuclear power plant Mühleberg 100.0 355.0 2,856.6 55.3 2,920.1 –2.2Decentral plants 100.0 1.8 7.5 65.8 7.2 3.5Total own power plants and Group companies – 547.6 3,671.7 49.7 3,784.8 –3.0

Holdings and purchasing rightsHydroelectric plants Kraftwerke Oberhasli AG 50.0 531.0 1,180.7 35.4 1,054.1 12.0 Engadiner Kraftwerke AG 29.7 128.0 323.1 51.0 391.5 –17.5 Grande Dixence SA 13.3 90.0 271.8 65.9 251.9 7.9 Kraftwerke Mauvoisin AG 19.5 77.2 173.5 71.8 190.4 –8.9 Gommerkraftwerke AG 42.5 50.0 114.4 11.6 117.5 –2.6 Maggia Kraftwerke AG 10.0 62.0 110.9 59.6 149.1 –25.6 Blenio Kraftwerke AG 12.0 47.0 72.4 53.1 82.4 –12.2 Kraftwerke Hinterrhein AG 7.6 50.0 79.7 67.1 119.7 –33.4 Electra-Massa AG 16.1 54.8 89.2 2.5 85.6 4.1 Bielersee Kraftwerke AG 50.0 9.7 53.1 39.1 58.4 –9.0 Kraftwerke Mattmark AG 11.1 26.4 72.1 51.5 63.7 13.1 Kraftwerk Flumenthal (Atel) 37.9 8.2 45.4 37.0 49.1 –7.5 Electricité de la Lienne SA 29.0 26.7 58.7 65.9 62.0 –5.3 Kraftwerke Sanetsch AG 50.0 9.0 17.3 28.0 19.0 –9.2 Aarewerke AG 10.0 4.0 19.3 36.4 20.5 –5.9 Total hydroelectric plants 1,174.0 2,681.6 44.2 2,714.7 –1.2Nuclear power plants Leibstadt AG 14.7 171.0 843.4 87.3 1,277.7 –34.0 Cattenom (purchasing rights) – 155.0 1,085.7 53.2 1,100.4 –1.3 Fessenheim (purchasing rights) – 90.0 585.5 42.4 530.0 10.5 Total nuclear power plants 416.0 2,514.6 62.1 2,908.1 –13.5Decentral plants Juvent SA wind power plant 60.0 4.1 6.2 58.0 4.8 29.5 Mont-Soleil solar power plant 17.8 0.5 0.6 42.2 0.6 –5.7 Total decentral plants 4.6 6.8 0.6 5.4 25.6Total holdings and purchasing rights 1,594.6 5,202.9 52.9 5,628.2 –7.6 Total own power plants, holdings and purchasing rights – 2,142.1 8,874.7 51.8 9,412.9 –5.7

* The energy portion may deviate from the capital shareholding due to special energy supply agreements.

2005 Production Facts and Figures

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TradeInternational network – local roots

AstheEuropeanelectricitymarketbecomesevermorecomplex,

high-levelcompetenceisbecomingakeycriterionformarketplayers.

ForyearsBKWhasbeenbuildingupcompetence,consistently

gearingproductionfacilitiesandnetworkcapacitiesandleveraging

marketknow-howtodelivermaximumbenefitsforitscustomers.

Rising electricity prices and auctioned border capacitiesThe year under review saw electric-ity prices rise at an unprecedented rate of more than 100%, accompanied by strong market price volatility. The rising financial cost for procurement of primary energy sources such as oil, gas and coal, is driving up electricity production costs. Charges for CO2 certificates, which can fluctuate between EUR 6 and 30 per ton, had a significant impact on production costs in the year under review, resulting in a general increase in product prices. Lower volumes of run-of-river water due to dry weather conditions on the Euro-pean continent, coupled with the tempo-rary shut-down of the Leibstadt nuclear power plant in summer and tempera-

ture-related spikes in demand during the winter months, were additional factors leading to this price rise.Exploitation of national price differences by market participants in the year under review accelerated and intensified co-operation within the European electric-ity market. This trend has increased the importance of trading in cross-border transmission capacities. For some time now, border capacities such as those at Switzerland’s northern frontier have been auctioned off, as a result of which the in-ter-country price gap has widened.

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Innovation. Creativity is the engine that drives culture. Day after day it also inspires us as an energy provider to create and deliver a variety of offerings. In the dynamic interplay between sustainability, an ever-changing society and new technologies, our innovative products take centre stage. That’s why we also provide our experts with a platform on which to exchange ideas. BKW – and the energy flows.

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Profitable international trading activitiesBKW continued to pursue its proven, suc-cessful strategy in an increasingly com-plex market. In the year under review, sharp fluctuations in national price differ-ences were exploited by increasing border capacity in order to optimise procurement and sell structural surpluses at a profit on the European market. BKW’s after-hours intraday activities further boosted the short-term energy business in particular, enabling production facilities to be used cost-effectively and guaranteeing secu-rity of supply. Through these activities, BKW positioned itself in Europe not only as a trading partner but also as an electric-ity producer.In-house trading, among other things in renewable energy, gained further impor-tance for BKW in 2005. In operational terms, BKW acquired important market know-how in production facility manage-ment; and in financial terms, it recorded an exceptional financial result from en-ergy derivatives trading.

International salesBKW’s foreign sales companies recorded moderate growth in 2005, both in Ger-many and in Italy, as reflected among other things in higher reported revenues. In Germany, introduction of the new energy management law and regulatory body on 1 July 2005 strengthened the competitive position of network-inde-pendent sales companies such as BKW Energie GmbH. In Italy the Bernina line, which was opened in January 2005, has provided Electra Italia S.p.A with more room to manoeuvre in third-party pro-curement. Exports of electricity to Italy

– still a largely stand-alone market with its own regulatory framework – increased further in volume. BKW is committed to long-term partnerships in order to expand operations outside Switzerland and expand the competitiveness of sales companies, with a view to introducing

the vertically integrated business model abroad.

Gas trading under difficult conditionsGas trading developed along the same lines as the trend in electricity transmis-sion capacities, with access to interna-tional transmission capacities becoming more difficult. BKW is endeavouring to address these difficult conditions by forg-ing links with national and international partners in order to strengthen its position in the gas market.

Positioning in dynamic marketsPrice volatility in 2005, coupled with changing market conditions, calls for actions based on risk awareness and a sound knowledge of the market. BKW harnesses this knowledge through its local sales companies, and enhances it through direct market and trading analy-ses. BKW is addressing price volatility by applying appropriate risk parameters in order to position itself in a rapidly chang-ing market as a competent trading and sales partner that leverages market trends, optimises the use of production facilities, and by so doing helps to ensure long-term security of supply.

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SalesBespoke offerings and local presence

Thankstocustomerfocus,bespokeofferings,localpresenceand

agoodnetworkofpartnerships,BKWaddsvalueforitscustomers

bydeliveringmorethanjustelectricityfromthepowersocket.

Youtility – a successful partnership modelIn December 1999 representatives of BKW and the Bernischer Elektrizitäts-verband (BEV) decided to set up an in-terest group in preparation for the forth-coming liberalisation of the electricity market. This move led to the formation of Youtility AG. To facilitate joint marketing and sales based on cohesive criteria, the partners also introduced a shared product brand: 1to1 energy. By the end of 2005, 92 energy providers had already joined the Youtility partnership. The brand serves a region encompassing around one million customers in the cantons of Berne, Jura, Basle Country, Solothurn, Fribourg and Neuchâtel. The 1to1 energy brand covers a wide portfolio of services, and in the

year under review consolidated its posi-tion as a leading platform for the Swiss electricity sector.

New 1to1 energy productAt the Swiss Home Construction and Minergie Exhibition in December 2005, BKW and its Youtility partners unveiled a new electricity product for new homes and conversions completed to the “Min-ergie” standard in the 1to1 energy region. Minergie is a Swiss building standard that promotes the rational use of energy and enhances the quality of life. By launching 1to1 energy easy minergie, BKW has posi- tioned itself as the first Swiss energy supplier to offer a product that supports the Minergie standard without any state subsidies.

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Established eco-energy productsIn its first year of operation BKWs solar power plant on the roof of the new Stade de Suisse stadium in Wankdorf, Berne, produced more than 0,7 Gigawatt-hours of solar energy. Two thirds of this elec-tricity has already been sold under the 1to1 energy sun star brand to businesses and households. BKW was awarded the Swiss and European solar prizes for this installation. BKW subsidiary Juvent SA celebrated its tenth anniversary in au-tumn 2005, in the presence of numerous customers, local authorities, residents, schools and interested visitors. In the year under review the company’s eight large wind turbines generated more than 7 million kilowatt hours of wind energy, marketed under the energy wind star brand name. At the beginning of Novem-ber 2005 the Association for Ecological Electricity (Verein für umweltgerechte Elektrizität/VUE) extended its certificate for Aarberg hydroelectricity plant and its 1to1 energy water star eco-energy product for another five years.

Partnering customers and leveraging synergiesIn autumn 2005 BKW and Groupe E SA (formerly Groupe Entreprise Electrique Fribourgoise SA and Energie Neuchâte-loise SA) jointly founded cc energie sa. The company has been operational since 1 January 2006, ensuring the efficient processing of enquiries from residential and SME customers of both founding partners and will make an important contribution to cutting operational and investment costs in the IT area. In future, the new company also plans to offer Cus-tomer Relation Management (CRM) and application management services to third parties.

Contracts signed with key account customersIn 2005 BKW concluded competitive contracts with all sales partners, negoti-ated new pricing conditions and adjusted contract structures. In the wake of a sharp rise in market prices, new delivery condi-tions were also agreed with some busi-ness customers.Finally, BKW succeeded in acquiring new customers outside its home supply territory, concluding among other things a long-term supply contract with Ele-ktrizitätswerk Obwalden (EWO).

Award for “energy forum”On 6 July 2005, “energy forum”, the cus-tomer magazine of BKW FMB Energy Ltd and its Youtility partners, won first prize in the “Energy” category at the European “Best of corporate publishing” awards in Munich. A total of 537 German-speaking corporate publications from reputable major companies, primarily in Germany, Austria and Switzerland, took part in the competition. With its wide range of tips and trends, high practical value and attractive service offerings, the magazine provides an effective medium for dialogue with some one million read-ers. The customer magazine of BKW FMB Energy Ltd and its Youtility part-ners is published three times a year and has a circulation of 400,000.

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Reliability. Energy is a fragile resource, and as such our responsibility towards it is correspondingly large. A reliable supply of electricity neces-sitates ongoing investments in infrastructure and product development. We also invest a great deal in workplaces and in our employees, so that every product is finished to perfection. BKW – and the energy flows.

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Networks19,000 kilometres of secure supply

Electricitygridsthatoperatereliably,coupledwithcoordinated

networkexpansionatthelocal,regionalandinter-regionallevels,

arekeycriteriaforsecurityofsupply.Thisincludesconsistent

maintenance,rapidcorrectionoffaults,andongoingoptimisation

ofthenetworkinfrastructure.

In the interests of security of supply …BKW’s supply region was hard hit by severe weather conditions at the end of August 2005. Operations had to be sus-pended at short notice at several power plants, and several regions suffered lengthy power cuts. The severe weather damaged several lines, particularly in the Bernese Oberland. Thanks to rapid responses by all affected BKW teams and good cooperation with partner com-panies, the damage was quickly rectified and electricity supplies were restored to customers. While the standard of BKW’s electricity network is high, the grow-ing demand for electricity is constantly driving a need to upgrade or expand the network infrastructure. Important steps have been made to ensure security of supply both now and in the future: for instance, international transmission ca-pacity has been increased, swissgrid – the Swiss transmission network organisation – was founded, and both the inter-regional distribution network and the rail network power supply were enhanced.

… and quality of supplyIn the spring of 2005 a new high-perform-ance 380/132-kV transformer was put into operation in the Bassecourt substation. This measure helps to ensure the exist-ing high quality of supply in the canton of Jura and western Switzerland. The regu-lating ability of the new transformer in-creases the importance of the substation as an important international electricity trading hub.

Deploying high-quality technologyIn the year under review, both security and quality of supply were further en-hanced in the Berne region. One of the key factors in this respect is the new Müh-leberg East substation being constructed to replace the outdoor facility, which was built back in the 1920s. The new build-ing will be a modern gas-insulated indoor facility, and is scheduled to go on stream in October 2006. Demand for traction energy is rising sharply in connection with work on extending the Lötschberg axis for the new base tunnel from Frutigen to Raron (scheduled to open in 2007). BKW is ad-dressing this need with four new fully-static 20 MW converters in Wimmis. At the beginning of 2004, BLS Alp Transit AG awarded BKW the contract as general contractor for this challenging project, and the new converters were definitively integrated in the Swiss railway power net-work at the beginning of 2006.

Adjustments ahead of the deregulated electricity marketSince the end of 2005 Etrans has been implementing a new procedure for energy operations and congestion management in the high-voltage network. The grow-ing demand for energy in Europe, cou-pled with increased energy trading and efforts to optimise power plant deploy-ment, are pushing the Swiss transmission network to the limits of its capacity. EC Regulation No. 1228/2003 governs the fair, non-discriminatory access to cross-

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border capacities and requires transport capacities to be auctioned in the event of transmission capacity congestion. In the year under review, BKW and the other Swiss electricity companies implemented the related adjustments in the schedule balance group (FPBG) system. The FPBG system provides for standardised schedule registration processes for Swiss and foreign electricity traders in accord-ance with the European model. Adoption of this procedure brings Switzerland into line with EU member states and will en-sure that Switzerland continues to func-tion as an electricity trading hub. More-over, the system is a prerequisite for the introduction of auctions at Swiss borders from early 2006. Residual capacities at Swiss borders can be optimally deployed through the market-driven assignment of transmission capacities. Long-term agreements (for instance with France) which are key to Switzerland’s security of supply are currently excluded from the auction regulation.

High-value partnershipsBKW is committed to open, efficient cooperation with its partners. Where networks are concerned, relations with other companies play a key role. In the year under review, existing synergies were actively leveraged through such partnerships. BKW and two energy sup-pliers in the west of Switzerland – Groupe E, Romande Energie SA and Services In-dustriels de Lausanne – decided to jointly procure and standardise the materials required for their respective networks.

With this in mind, a shared IT platform was created in order to cut the cost of network infrastructure maintenance and expansion. In the year under review BKW acquired a majority stake in Arnold AG of Selzach, thereby creating the basis for more intensive collaboration with this company. Incorporation of Arnold AG in the BKW Group opens up a variety of new growth options, providing employees in both companies with new opportunities for personal development.

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Financial Review

30 FinancialResult

32 ConsolidatedFinancialStatements oftheBKWGroup

66 Participations

68 ReportoftheGroupAuditors

70 FinancialStatementsofBKW

76 AppropriationofRetainedEarnings

77 ReportoftheStatutoryAuditors

78 InvestorInformation

30

Financial ResultStrong growth in energy business

statement on the annual result is minimal (CHF 0.6 million lower than published figures for 2004).Shares in the state funds for future de-commissioning and disposal of nuclear power plants and nuclear waste are now measured at the fair values of the funds instead of at the acquisition cost of con-tributions. This increases the volatility of the BKW Group’s financial result since stock exchange movements are directly reflected in the measurement.Fuel elements are now recorded under property, plant and equipment rather than inventories. This has resulted in a shift in the income statement of around CHF 17 million respectively between operating income before depreciation and amorti-sation (EBITDA) and operating income (EBIT), since the disposal of fuel ele-ments is now recorded under depreciation rather than operating expenses.According to IAS 39 (revised), value ad-justments to available-for-sale financial instruments are recorded directly under equity rather than in the income state-ment. Since this change was adopted ret-roactively to 1 January 2004, the period result for 2004 was eliminated by the revaluation surplus of CHF 27.5 million (net taxes). In 2005 CHF 46.8 million of unrealised profit and losses from financial assets was booked to equity. A detailed presentation of the changes in accounting principles is provided in the Notes to the consolidated annual financial statements on pages 46 and 47.

Total turnover and operating revenue up thanks to trading growth

The BKW Group recorded a 12.4 per cent increase in total operating revenue from CHF 1,770.2 million to CHF 1,989.1 mil-lion. This result is largely attributable to a price-related increase in revenue from trading and international sales, which

were positively impacted by a favour-able market environment, the opening of the Bernina line at the end of January 2005 which has virtually doubled BKW’s transmission capacity to Italy, and highly successful trading activities. Due to higher market prices, revenue from electricity trading rose by 37.3 per cent to CHF 490.0 million. Revenue from energy derivatives trading performed outstand-ingly, rising from CHF 3.5 million to CHF 39.7 million as a result of volatile market price movements and thanks to BKW’s accurate market predictions coupled with skilful market positioning.At CHF 322.9 million, revenue from inter-national sales was up 21.3 per cent due to higher average prices in the end customer segment. The additional CHF 56.8 mil-lion in revenue was primarily achieved thanks to successes in passing on higher market prices for new contracts. Conversely, revenue from sales in Swit-zerland declined slightly by 0.9 per cent to CHF 878.5 million as a result of pricing measures, although the drop was less than expected due to growth in the volume of sales in Switzerland.

Increased profit due to higher financial result

Third-party energy procurement rose by one third or 36.0 per cent as a result of growth in trading and international sales, as well as lower production volumes. However, a substantial improvement in energy business performance led to an increase of CHF 45.9 million in operating income before depreciation and amorti-sation (EBITDA) to CHF 431.0 million. Given the price reduction measures total-ling CHF 20 million and higher energy procurement costs of around CHF 25 mil-lion following stoppage at the Leibstadt nuclear power plant, this figure has ex-ceeded expectations. Operating income (EBIT) increased by CHF 50.7 million to

Good annual result

Fiscal 2005 was overall a good financial year for the BKW Group, in which it re-corded total operating revenue of CHF 1,989.1 million and net profit of CHF 306.7 million. Given the negative impact of the second series of price reductions totalling CHF 20 million and generator damage at Leibstadt nuclear power plant in the first half-year, as well as the effect of be-low-average water levels, this result has greatly exceeded expectations.

Changes in presentation according to IFRS

The consolidated financial statements of the BKW Group at 31 December 2005 were prepared in accordance with Inter-national Financial Reporting Standards (IFRS). The scope of consolidation was expanded in 2005 following the foun-dation of Kraftwerke Kander Alp AG. Changes in the accounting principles, adopted on 1 January 2005 in line with new and revised IASB standards and in-terpretations, had a significant impact on presentation of the BKW Group’s income situation. The previous-year figures were adjusted accordingly.BKW revised its business model for en-ergy trading based on the Group’s risk policy. Energy trading transactions conducted with the aim of achieving a trading margin without involving assets (e.g. power plants) are treated as finan-cial instruments in accordance with IAS 39. Items open for trading on the balance sheet date are measured and accounted for. Income from trading in energy de-rivatives is recorded net in the income statement. As a result of this change in presentation, published net sales of CHF 2,872.4 mil-lion for 2004 (also adjusted for the sake of comparison) were reduced (restated) to CHF 1,710.3 million. The effect of this re-

31

CHF 334.9 million due to a year-on-year drop of CHF 4.8 million in depreciation expenses.The financial result was impacted by extraordinary factors, rising sharply by CHF 69.6 million from minus CHF 13.2. million in 2004 to plus CHF 56.4 million in 2005, largely as a result of exchange rate gains on securities related to the decommissioning/disposal funds meas-ured at fair value, and gains on securi-ties held by BKW. Income tax expenses rose by CHF 31.3 million to CHF 84.6 million. The lower previous-year figure of CHF 53.3 million includes an income tax refund of CHF 4.3 million in respect of previous years and is based on pre-tax earnings, which are CHF 120.3 million lower than in 2004. The outstanding results recorded by in-ternational business more than offset negative effects arising from BKW’s price reduction measures and production losses at Leibstadt nuclear power plant. Coupled with an excellent financial re-sult, this has enabled the BKW Group to record an annual result after taxes of CHF 306.7 million: a year-on-year increase of 40.9 per cent.

Higher balance sheet total and equity ratio

In 2005 the balance sheet total once more increased by CHF 619.7 million or some 13 per cent, ending the year at CHF 5,508.9 million. Non-current assets rose by 3.5 per cent to CHF 3,094.1 million as a result of value adjustments to the state funds and a rise in the value of holdings and securities. Current assets also rose by 27.2 per cent to CHF 2,414.8 million, primarily due to higher short-term invest-ments and capitalisation of positive re-placement values for energy derivatives.On the liabilities side, shareholders’ eq-uity rose by 15.3 per cent to CHF 2,742.8 million compared to the end of 2004, with

equity ratio up slightly from 48.6 per cent to 49.8 per cent. In addition to profit dis-tribution, the sale of 170,000 of BKW’s own shares (prior to the share split) to institutional investors contributed to an increase in shareholders’ equity.Long-term liabilities showed a slight drop of 2.2 per cent due to conversion of the bond issue into short-term liabilities. Conversely, the sharp rise of 63.9 per cent in short-term liabilities is attributable to a higher figure for trade accounts receiv-able and to negative replacement values for energy derivatives Provisions for nuclear waste disposal as well as for energy procurement and sales contracts were used according to plan in the year under review. No sig-nificant changes were recorded in other provisions.

Cash flow from operating activities on a par with 2004

Cash flow provided by operating activi-ties dipped slightly below the prior-year figure by CHF 3.9 million to CHF 307.9 million. Cash flow used for investing activities rose year-on-year by CHF 35 million to CHF 206.3 million as a re-sult of an increase in net investments in current and non-current financial assets. Cash flow used for financing activities was positive following the sale of 170,000 BKW shares (pre-split) in the first half of 2005. The higher figure for interest paid and dividends is a result of an increase in dividend from CHF 1.50 to CHF 1.80 CHF per share.

Outlook

The first few months of 2006 saw a contin-uation of the good performance recorded by the BKW Group in 2005. On this ba-sis and on account of price movements in international energy markets, BKW

expects to end the current financial year with a higher operating result (EBITDA) than in 2005. As far as the financial re-sult is concerned, it cannot be assumed that the extraordinary return on capital in respect of the decommissioning and disposal funds will be on the same scale as in 2005. BKW therefore anticipates a lower financial result but expects net profit to be more or less on a par with the previous year.

32

Consolidated Financial Statements of BKW GroupConsolidated Income Statement

CHF millions Note 2005 2004 Restated Net sales 6 1,931.6 1,710.3Own capitalised cost 19.2 19.5Other operating income 38.3 40.4Total operating revenue 1,989.1 1,770.2 Energy procurement 7 –1,073.4 –902.4Material and third-party services –103.3 –109.3Personnel expenses 8 –229.4 –228.8Other operating expenses –152.0 –144.6Total operating expenses –1,558.1 –1,385.1 Operating income before depreciation and amortisation 431.0 385.1 Depreciation and amortisation 9 –96.1 –100.9 Operating income 334.9 284.2 Financial income 10 113.1 50.8Financial expenses 10 –79.0 –79.7Income from equity-valued companies 14 22.3 15.7 Result before income taxes 391.3 271.0 Income taxes 11 –84.6 –53.3 Net profit for the year 306.7 217.7 Share of profit, minority interests 0.7 0.6Share of profit, BKW shareholders 306.0 217.1 Earnings per share in CHF (diluted and undiluted) 12 5.88 4.15

33

Consolidated Financial Statements of BKW GroupConsolidated Balance Sheet

Assets CHF millions Note 31.12.2005 31.12.2004 RestatedProperty, plant and equipment 13 1,423.6 1,387.9Investments in equity-valued companies 14 426.1 413.1Non-current financial assets 15 1,189.0 1,131.9Intangible assets 16 28.4 27.5Deferred tax assets 11 27.0 30.1Total non-current assets 3,094.1 2,990.5 Inventories 17 11.4 9.1Accounts receivable 18 445.2 456.0Derivatives 25 183.1 24.6Short-term financial assets 15 1,226.6 1,034.7Prepaid expenses and accrued income 117.5 87.7Cash and cash equivalents 431.0 286.6Total current assets 2,414.8 1,898.7 Total assets 5,508.9 4,889.2

Liabilities and shareholders’ equity CHF millions Note 31.12.2005 31.12.2004 RestatedShare capital 19 132.0 132.0Capital reserves 35.0 35.0Retained earnings 2,574.6 2,301.1Own shares 19 –15.3 –105.5Minority interests 16.5 15.4Total shareholders’ equity 2,742.8 2,378.0 Deferred tax liabilities 11 421.1 385.5Long-term provisions 20 1,305.9 1,315.1Long-term debts 21 100.0 200.0Other long-term liabilities 22 169.7 141.2Total long-term liabilities 1,996.7 2,041.8 Other short-term liabilities 23 315.4 310.3Derivatives 25 175.9 21.9Short-term provisions 20 21.8 25.3Short-term debts 21 130.0 30.0Current income tax liabilities 39.1 30.7Accrued expenses and deferred income 87.2 51.2Total short-term liabilities 769.4 469.4 Total liabilities 2,766.1 2,511.2 Total liabilities and shareholders’ equity 5,508.9 4,889.2

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Consolidated Financial Statements of BKW GroupChanges in Consolidated Equity

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CHF millions Equity at 31.12.2003 132.0 35.0 2,037.7 0.6 0.0 –6.2 2,199.1 20.9 2,220.0Effect of changes in accounting principles and correction of previous-year error (see Notes 4.15 and 4.16) 94.9 94.9 0.4 95.3Equity at 01.01.2004 132.0 35.0 2,132.6 0.6 0.0 –6.2 2,294.0 21.3 2,315.3 Profit for the year 217.1 217.1 0.6 217.7Translation adjustments –0.1 –0.1 –0.1Value adjustment on financial assets 34.0 34.0 34.0Deferred income taxes –6.5 –6.5 –6.5Total income and expenses recorded in the period 0.0 0.0 217.1 –0.1 27.5 0.0 244.5 0.6 245.1 Dividend –78.5 –78.5 –0.2 –78.7Purchase/sale of own shares 1.9 –99.3 –97.4 –97.4Acquisition of minority interests 0.0 –6.3 –6.3Equity at 31.12.2004 (restated) 132.0 35.0 2,273.1 0.5 27.5 –105.5 2,362.6 15.4 2,378.0Effect of changes in accounting principles (see Note 4.15) 1.0 1.0 1.0Equity at 01.01.2005 132.0 35.0 2,274.1 0.5 27.5 –105.5 2,363.6 15.4 2,379.0 Profit for the year 306.0 306.0 0.7 306.7Translation adjustments 0.2 0.2 0.2Financial assets – Value adjustment 46.8 46.8 46.8– Transfer to statement of income –1.8 –1.8 –1.8– Deferred income taxes –9.5 –9.5 –9.5Total income and expenses recorded during the period 0.0 0.0 306.0 0.2 35.5 0.0 341.7 0.7 342.4 Dividend –94.9 –94.9 –0.1 –95.0Purchase/sale of own shares 25.7 90.2 115.9 115.9Acquisition of minority interests 0.0 –0.1 –0.1Foundation of Group company 0.0 0.6 0.6Equity at 31.12.2005 132.0 35.0 2,510.9 0.7 63.0 –15.3 2,726.3 16.5 2,742.8

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Consolidated Financial Statements of BKW GroupConsolidated Cash Flow Statement

CHF millions Note 2005 2004 Restated Result before income taxes 391.3 271.0Adjustment for Depreciation and amortisation 9 96.1 100.9 Income from equity-valued companies 14 –22.3 –15.7 Financial result 10 –34.1 28.9 Gains/losses from sale of non-current assets –0.5 0.0 Change in long-term provisions (excl. interest) –77.4 –34.8 Change in assigned rights of use –5.7 –6.0 Other non-cash positions 2.2 2.4Change in net current assets (excl. financial assets/liabilities) 8.0 31.1Other financial items paid –2.0 –2.8Income taxes paid –47.7 –63.2Cash flow provided by operating activities 307.9 311.8 Purchase of property, plant and equipment 13 –129.5 –133.8Proceeds from sale of property, plant and equipment 5.0 5.4Acquisition of minority interests –0.1 –5.7Foundation of Group companies (Minority share) 0.6 0.0Investments in associated companies 14 –2.0 –2.7Disposals of associated companies 0.3 0.0Investments in current and non-current financial assets –212.7 –148.9Disposal of current and non-current financial assets 91.7 49.4Purchase of intangible assets 16 –2.5 –5.9Interest received 27.8 53.8Dividends received 15.1 17.1Cash flow used for investing activities –206.3 –171.3 Purchase/Sale of own shares 114.0 –100.8Increase in other long-term liabilities 35.3 38.8Decrease in other long-term liabilities –1.2 –13.4Increase in short-term financial liabilities 0.0 30.0Interest paid –9.7 –6.8Dividends paid –95.0 –78.7Cash flow from/for financing activities 43.4 –130.9

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Translation adjustments on cash and cash equivalents –0.6 –1.6 Net change in cash and cash equivalents 144.4 8.0 Cash and cash equivalents at start of reporting period 286.6 278.6Cash and cash equivalents at end of reporting period 431.0 286.6 of which:Bank and cash balances 129.6 95.4Term deposits 301.4 191.2

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Consolidated Financial Statements of BKW GroupNotes on the Financial Statements

1 Description of business

BKW FMB Energy Ltd (BKW), Berne/Switzerland, and its subsidiaries are a leading energy provider, and deliver a wide range of products and services to residential and business customers. En-ergy is sold in neighbouring countries via the Group’s own sales channels. BKW covers the entire value chain, from the production, transmission and distribution to the trading and sale of energy.

2 Accounting principles

2.1 General principlesThe consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS). They provide a true and fair view of the financial position, the results of operations and the cash flows of the BKW Group. The financial statements also comply with Swiss company law. The closing date for the Group financial state-ments and those of its fully consolidated companies is 31 December. The state-ments are quoted in Swiss francs (CHF).

The consolidated financial statements were prepared on the basis of historical acquisition costs. Exceptions are de-scribed in the Note on principles of ac-counting and valuation. Preparation of the financial statements in accordance with the applicable accounting standards requires the use of estimates and assump-tions that affect the reported amounts of assets, provisions, liabilities and contin-gent liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the report-ing period. Actual results may differ from these estimates.

The financial statements were approved by the Board of Directors on 28 March 2006.

2.2 Adoption of new standards and interpretationsAll standards and interpretations in force on the balance sheet date were applied in preparing the consolidated financial state-ments. New standards and amendments to existing standards have influenced the accounting and valuation principles used by the BKW Group. A summary of the effects is provided in Note 4.15. Various amendments and new standards and interpretations which had been pub-lished by the balance sheet date will not be applied until subsequent financial years. With the exception of IFRIC 5 (Rights to interests arising from decommissioning, restoration and environmental funds), the BKW Group decided against early adop-tion. The BKW Group plans to adopt the amendments from the date on which they enter into force and expects these changes to have no significant effect on the finan-cial, asset and income situation in future financial years. The effects of IFRIC 5 are presented in Note 4.15.

3 Consolidation principles

3.1 Scope of consolidationThe consolidated financial statements cover the annual statements of BKW and all companies over which BKW has con-trol. Control exists when BKW has the possibility to dictate financial and busi-ness policy with a view to gaining an eco-nomic benefit. Companies controlled by BKW are listed under Group companies in the list of participations on pages 66 and 67. The newly-founded Kraftwerke Kander Alp AG was consolidated for the first time in the year under review. Mi-nority shareholders have a 40% holding in the company. Changes in holdings are listed in the list of participations.

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3.2 Consolidation methodThe financial statements are based on the closing statements of the individual Group companies drawn up according to Group-wide principles of valuation and presen-tation. Group companies are included in the consolidated financial statements in their entirety. Assets and liabilities as well as expenditure and income are in-cluded in their entirety. Minority interests in shareholders’ equity and net income of the relevant Group companies are dis-closed separately in the balance sheet and income statement. Intercompany income and expenditure as well as intercompany assets and liabilities are eliminated on consolidation. Intercompany profits on intercompany transactions and balances not yet realised from sales to third parties are eliminated on consolidation.

3.3 Shares in associated companies and joint venturesInvestments in companies in which BKW is able to exercise significant influence but not overall control (generally owner-ship between 20% and 50%) are classified as associated companies and accounted for using the equity method.

Companies which are jointly managed on the basis of contractual agreements between the shareholders (usually partner plants) are treated as joint ventures. Joint ventures are included in the consolidation using the equity method, irrespective of the holding.

The BKW Group’s share of assets and lia-bilities as well as expenses and income of associated companies and joint ventures is disclosed in Note 14. The closing date for some partner plants differs from that of BKW since these companies close their accounts on 30 September in line with the hydrological year. Energy produced by partner plants is billed to shareholders on the basis of existing agreements – ir-respective of the current market prices

– at actual cost. Overvaluation of part-ner companies’ production plants is ac-counted for under onerous contracts for energy procurement, due to the contrac-tual obligation to pay energy production costs. Due to the shareholder obligation to pay actual costs, the recoverability of investments in partner plants measured at the proportional equity value is taken as a given.

3.4 Acquisition and sale of participationsCompanies acquired by the BKW Group during the year are consolidated as from the effective date of acquisition. Pur-chased net assets (including intangible assets) are measured at fair value and integrated using the purchase method. Differences between the higher purchase price and the fair value of net assets are classified as goodwill from acquisitions. Goodwill in respect of acquisitions is sub-jected to annual impairment tests and ad hoc testing whenever impairment is indi-cated. Any negative difference is imme-diately recognised in income. Companies disposed of during the year are excluded after the date of sale. Differences be-tween the selling price and the net assets disposed of (taking into account goodwill recorded in the balance sheet as well as accumulated foreign currency transla-tion differences and value fluctuations for financial instruments not charged to income) are recognised in income on the effective date.

3.5 Foreign currency translationsThe BKW Group records transaction in foreign currencies at the current ex-change rates on the date of transaction. Exchange gains and losses arising from such transactions as well as the transla-tion of foreign currency balances on the balance sheet date are taken to income. Foreign-currency financial statements of Group companies outside Switzerland are converted to Swiss francs according to

the following principles: – Balance sheet, at the current

exchange rate on 31 December.– Income statement, at average

exchange rates for the year– Cash flow, at average exchange rates

for the year

Differences arising from the translation of the financial statements of foreign Group companies are accounted for in consolidated shareholders‘ equity with-out affecting income.

Currency exchange ratesCHF 31.12.05 31.12.04EUR Closing date 1.56 1.54EUR Average 1.56 1.56

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– loans and receivables originated by the entity;

– available-for-sale financial assets.

Financial assets and liabilities are sub-jected to a standard valuation procedure according to category. When initially rec-ognised, they are measured at the acquisi-tion cost including transaction costs on the trade date. After initial recognition, financial assets and financial liabilities designated at fair value through profit or loss are recorded in the balance sheet at fair value and gains or losses are recorded in the income statement. Financial as-sets available-for-sale are also measured at fair value but the gains or losses are recorded under equity. Held-to-maturity investments as well as loans granted by and receivables due to the BKW Group are carried at amortised cost using the effective interest method less impair-ments. Impairment is recognised if there is considered to be a risk of value loss. Impairments in respect of nominal value or acquisition costs are charged to income. The fair value for a stock exchange quoted share for which the market is assumed to be active is determined based on the published market price. The fair value of other financial instruments is determined using the discounted cash flow method or other recognised measurement methods. Financial assets are derecognised when the rights are realised or have expired, or when the BKW Group hands over control. Financial liabilities are derecognised only when they are discharged.

4.2.2 Financial assetsFinancial assets cover participations, securities, receivables from state funds, pension surpluses, term deposits and loans.

Stock exchange listed securities which constitute part of a portfolio of financial instruments, jointly managed and realis-able in the short term, are categorised as

“assets at fair value through profit or loss” and recorded under current assets. Other participations and securities are catego-rised as “available for sale” and assigned to non-current assets.

Nuclear power plant operators are re-quired by law to make annual payments to the state funds (federal decommission-ing and disposal fund). Future bills for decommissioning and disposal are paid by these state funds according to the statutory requirements. These payments are regarded as reimbursements under the terms of IFRIC 5 and are charged to income as receivables from state funds. The receivables are measured at the lower of the obligation (see Note 4.9) and the fair value of the proportional net assets of the fund. Changes in fund valuations are made in the financial result for the period in question.

The pension surplus is valued on the basis of IAS 19 (see Note 4.12.). Term deposits and loans are valued at amortised cost.

4.2.3 Energy derivativesBKW trades in contracts in the form of forwards and futures with fixed and flex-ible profiles for underlying energy. Con-tracts concluded with the sole intention of achieving a trading margin are treated as financial instruments and designated as energy derivatives. Business transac-tions open on the balance sheet date are measured at fair value. BKW receivables in respect of counterparties are recorded under assets as positive replacement val-ues, while liabilities are recorded under liabilities as negative replacement values. Ongoing transactions with positive or negative replacement values are netted if the respective contract terms provide for this and charging can be legally car-ried out. Realised and unrealised gains and losses from energy derivatives are recorded as income from energy deriva-tives trading. A table listing replacement

4 Principles of accounting and valuation

4.1 Presentation of salesSales of energy in the sales business are considered as realised and recorded as sales when delivery is complete.

Energy trading revenue is presented ac-cording to the underlying transaction mo-tive. Energy business transacted for the purpose of the active management of the power plant base or physical coverage of energy supply or purchase contracts is assigned to the physical book. Gross rev-enue from these transactions is recorded as sales (“electricity trading”) at the time of delivery.

Energy transactions concluded with the sole intention of achieving a trad-ing margin are assigned to the trading book. These transactions come under the IAS 39 (revised 2003) definition of financial instruments. They are meas-ured at the fair value on the closing date, and realised as well as unrealised gains and losses from these transactions are recorded net under “income from en-ergy derivative trading”. Income from energy trading transactions concluded to achieve a trading margin consists of two components. Effective realised gains or losses from the transactions in progress, and unrealised capital gains and losses from valuation of the fair value of open contracts.

4.2 Financial instruments4.2.1 GeneralFinancial instruments constitute all con-tractual agreements that give rise to fi-nancial assets of an entity and financial liabilities of another entity. In accordance with IAS 39, financial assets and liabili-ties are categorised as follows:– financial assets or financial liabilities

at fair value through profit or loss; – held-to-maturity investments;

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values and contract volume i.e. the basis or nominal value of the transactions is provided in Note 25.

4.2.4 Interest and currency hedgingTo hedge against interest rate and cur-rency fluctuations, derivatives finan-cial instruments are used as and when required, in compliance with existing hedging and credit risk policy guidelines. They are measured at fair value. Realised and unrealised changes in the value of financial instruments that serve to hedge against exchange rate and interest rate risks arising from ongoing business ac-tivities are charged to income as financial income/expenses.

4.2.5 Trade accounts receivable/ payable and prepaid/accrued expenses and deferred/accrued incomeAccounts receivable are stated at nominal value minus adjustments for uncollectible receivables. Trade accounts payable are not subject to interest and are recorded at nominal value. Prepaid/accrued expenses and deferred/accrued income cover the periodical adjustment of expenses and income.

4.3 Property, plant and equipmentProperty, plant and equipment are re-corded at purchase or manufacturing cost less accumulated depreciation and impair-ment losses recognised. Depreciation is calculated using the straight-line method and systematically based on the useful lives of the objects. The useful lives are annually reviewed and impairment tests are annually performed. Impairments in respect of property, plant and equipment are determined according to the princi-ples set forth in Note 4.8. Property, plant and equipment dependent on concessions are written down at most over the term of the concession.Cash values of estimated decommission-ing and disposal costs are charged to the balance sheet together with acquisition or

manufacturing costs (see also Note 4.9). Fuel elements produced specifically for the nuclear power plant are charged to the balance sheet under property, plant and written down on the basis of wear and tear (burn-off).

For long-term investment projects the borrowing interest is charged to the balance sheet during the set-up phase. Land is valued at acquisition cost. De-preciation is recorded only in the event of impairment.

Repairs and maintenance with no added value are charged to the income statement as incurred. They are carried as assets only if the costs extend the original useful life or give rise to other significant eco-nomic benefits (cost reduction, increase in earnings).

Estimated useful lives of property, plant and equipment:Land and sites Only if value under construction diminishesBuildings 50 yearsPower plants 40 to 80 yearsTransmission and distribution stations 20 to 50 yearsIT systems 10 to 30 yearsOperating facilities and vehicles 3 to 20 years

4.4 Intangible assetsIntangible assets cover rights of use and contractual or legal rights acquired as a result of acquisitions, as well as goodwill.

Rights of use are contractually agreed amounts to compensate a contractual partner for the use of its operating instal-lations as well as licences for the construc-tion and operation of the company’s own installations. Rights of use and intangible assets obtained as a result of an acquisi-tion are written down over the period of use, or at most the contract period, using

the straight-line method. Goodwill in re-spect of acquisitions is subjected to an-nual impairment tests and ad hoc testing whenever impairment is indicated.

4.5 InventoriesInventories are recorded at the lower of acquisition/manufacturing cost or net realisable value. The acquisition/manu-facturing cost of raw and auxiliary ma-terials is measured at the weighted mov-ing average. Semi-finished and finished products include the directly assignable cost and share of overall construction costs. Interest on borrowed capital is not capitalised.

4.6 Work in progressProduction contracts are valued accord-ing to the Percentage of Completion or POC method. The stage of completion is determined on the basis of individual progress reports or cost estimates. The associated income is recorded in the in-come statement as revenue. The income includes the original contract sum as well as variations in contract work, claims and incentive premiums to the extent that it is probable they will result in revenue and are capable of being reliably measured. Orders and order groups whose pro-rata income cannot be reliably estimated are capitalised. Anticipated losses are imme-diately recorded in their entirety. After taking into account customer progress billings, work in progress is stated under accounts receivable, as net assets from production contracts.

4.7 Cash and cash equivalentsCash is stated at face value and covers cash on hand, bank account balances and cash invested with financial institutes for a maximum period of 90 days. This defi-nition of cash also applies to the cash flow statement.

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known but can be reliably measured. If an outflow of resources is no longer probable or determinable, a provision is charged to contingent liabilities. If the effect of the time value of the cash outflow is material, the amount of the provision is measured at present value.

As the operator of the Mühleberg nuclear power plant, BKW is required by law to decommission the plant after the operat-ing phase and to dispose of the nuclear waste. The present value of estimated dismantling and decommissioning costs is provisioned and adjusted annually sub-ject to interest. The same amount is car-ried together with the acquisition/manu-facturing costs of the plant.

The costs incurred with regard to com-missioning of the plant were posted under Assets and Liabilities on the date of com-missioning. The related decommission-ing and disposal costs are carried annu-ally over the operating period of 40 years using the straight-line method.

The provision is calculated based on the following assumptions:– Operating period of 40 years– Average inflation rate of 3%– Average interest rate of 5%.

4.10 Income taxesIncome taxes include current and de-ferred taxes based on profit. Deferred in-come taxes are determined based on local tax regulations. Deferred taxes account for the income tax effects between inter-nal and local tax evaluation guidelines for assets and liabilities according to the comprehensive liability method, and are based on the actual tax rates or enacted tax rates expected to apply when this dif-ference is adjusted.

Deferred tax liabilities are always recog-nised in the balance sheet but are carried as assets only if it appears probable that

these deferred tax assets will be of use to the Group on the basis of future an-ticipated profits.

Changes in deferred taxes are recorded in the income statement except when the origin of temporary differences is recog-nised as not affecting profit. In this case deferred taxes are also charged to equity as not affecting profit.

4.11 ContingenciesMeasurement of the provision for nuclear waste disposal is essential for assessment of the balance sheet and income statement of BKW. The industry calculates shared, detailed costs for the shut-down and dis-posal of nuclear waste. These cost calcu-lations are examined by the Swiss federal government, while BKW estimates plant-specific obligations.

Errors in cost calculations as well as changes in legal provisions governing de-commissioning and nuclear waste disposal can affect the Group’s asset and earnings situation. Cost calculations for decom-missioning and nuclear waste disposal are currently being reviewed and updated. As soon as the results are available, the pro-visions will be adjusted accordingly. An operating period of 40 years is assumed for the Mühleberg nuclear power plant. This corresponds to the operating permit period which is currently subject to a time limit and expires in 2012. The technical life of the plant is foreseeably longer. If the operating permit is extended or an open-ended permit is granted, this would impact the provisions situation which is based on the authorised operating period. BKW is of the opinion that the existing provisions are reasonable on the basis of available information.

The provision for onerous contracts for energy procurement covers the losses expected from the obligation to pay en-ergy production costs in respect of partner

4.8 Impairment of assetsOn each balance sheet date, assets are tested for indicators regarding impair-ment or reversal of impairment. If in-dications of impairment or reversal of impairment are identified, the recover-able amount of the asset is measured. The recoverable amount of assets with an indefinite useful life is measured ir-respective of whether there is any indi-cation that they may be impaired. As-sets whose carrying value exceeds the recoverable amount are written down or value adjusted. The recoverable value is defined as the higher of the net selling price or useful value (cash value of es-timated future cash flows). The recov-erable value is separately measured for each asset or, if this is not possible, for the cash-generating unit to which the asset belongs. For assets for which the amount still payable exceeds the value on the balance sheet date, the amount exceeding the value of the asset is pro-visioned for under onerous contracts. An impairment loss recognised in previous years for an asset other than goodwill is reversed if no impairment or only a reduced impairment exists. Impairment losses for assets subject to depreciation are reversed to the value which would have been determined had the acquisi-tion value been depreciated according to plan. The reverse booking is also charged to income.

Overvaluation of partner companies’ pro-duction plants is accounted for under on-erous contracts for energy procurement, due to the contractual obligation to pay energy production costs.

4.9 ProvisionsProvisions cover all obligations on the bal-ance sheet date arising from past transac-tions and events where it is probable that an outflow of resources embodying eco-nomic benefits will be required to settle the obligation, the amount of which is not

42

plants. A sustainable change in realisable energy prices would have had a signifi-cant impact on the level of the provision, which amounted to CHF 185.6 million at 31 December 2005.

4.12 Pension planThe BKW Group operates various pen-sion plans in accordance with legal re-quirements. The majority of employees are covered by the Pensionskasse BKW, a legally autonomous defined benefit scheme compliant with the terms of IAS 19.

The costs and obligations arising from defined benefit schemes are determined on an actuarial basis using the projected unit credit method, which reflects serv-ice rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Until this obligation is recalculated, cur-rent service costs are charged on the basis of selected parameters. A pension surplus is capitalised only if these service costs are available to the BKW Group without limitation, in the form of future contri-bution repayments or reductions (e.g. in the form of employer reserves). Annual service costs related to employment dur-ing the period under review are charged to income. Actuarial gains and losses arising from periodic recalculations are charged to income on a straight-line ba-sis over the average remaining period of service, provided they exceed the greater of 10% of plan assets or 10% of the de-fined benefit obligation.

Contributions payable towards defined contribution schemes are periodically recorded and recognised in the income statement.

4.13 Share-based paymentBKW Group employees have the oppor-tunity to purchase BKW share capital on preferential terms. Until further notice, full-time employees of the BKW Group are offered a defined number of BKW reg-istered shares every year at a fixed prefer-ential price, subject to a blocking period. The fair value of the shares is taken to be the share price on the date on which they were granted. The blocking period is taken into account through application of a mark-down by the stock exchange. The difference between the fair value and the preferential price paid by employees is recorded under personnel expenses on the date on which the shares were granted. The issued shares are deducted from the number of own shares.

4.14 Segment reportingAs a vertically integrated power supply company, the BKW Group is exclusively active in the energy business. As such, it produces and sells one main product: electricity. Segment reporting is not pre-pared since activities not related to the energy business account for less than 10% of revenue. Reports by business segment are therefore not required. Geographical segmentation is based on the location of assets (origin of sales). All significant IT systems are located in and all significant business managed from Berne, hence sig-nificant risks and earnings are assigned to Switzerland. The remaining revenues are below 10% and do not therefore require geographical segmentation.

4.15 Significant changes in accounting principlesValuation and disclosure of energy trading transactionsBKW has revised its business model for energy trading based on the Group’s risk policy. Moreover, the revised IAS 32 (2003) and IAS 39 (2003) standards which came into force on 1 January 2005 have laid down a clearer definition of for-

ward contracts which must be treated as financial instruments. As a result, energy trading transactions concluded with the sole intention of achieving a trading mar-gin business are now treated as financial instruments. Trading transactions are re-corded according to the underlying trans-action motive: Transactions conducted with the sole intention of achieving a financial trading margin are assigned to the trading book, while energy trading transactions aimed at the physical cover-age of energy purchase and supply con-tracts are assigned to the physical book. Trading book contracts are now measured at fair value, and the income realised or unrealised from these transactions is re-ported under net sales as income from energy derivative trading. Physical book contracts continue to be recorded as sales (electricity trading) and as energy pro-curement at the time of delivery.

The effect of initial measurement of these energy trading transactions as financial instruments was calculated on 1 January 2004 with retained earnings, resulting in a CHF 4.4 million increase in equity. Positive replacement values of CHF 42.8 million and negative replacement values of CHF 43.7 million as well as a reduction of CHF 17.6 million in the provision for onerous energy sales contracts were re-corded in the consolidated balance sheet. The 2004 income statement was nega-tively impacted in the amount of CHF 0.6 million after deferred taxes, reducing reported sales by CHF 1,162.1 million.

Decommissioning and disposalWith regard to the decommissioning and disposal of nuclear power plants and op-erations, the IFRIC 5 (rights to interests arising from decommissioning, restora-tion and environmental funds) interpreta-tion published by the IASB was adopted early. The IFRIC applies to accounting in the financial statements of shares in funds related to the decommissioning or

43

sumptions underlying the calculation of fair values of provisions or the planning horizon for operational life changed. In accordance with IAS 8, the reclassifica-tion of fuel elements was applied for the first time retroactive to 1 January, 2004, as a change in accounting methods. This has resulted in an increase of CHF 89.3 million in property, plant and equipment at 1 January 2004.

Provisions for nuclear waste disposal, onerous contracts, energy procurement and restructuring increased on 1 January, 2004 by CHF 8.4 million. After deferred taxes, equity was reduced by CHF 6.6 million. The effects reduced the 2004 result by CHF 2.5 million.

Investments in equity-valued companiesTo date, most of the associated companies and joint ventures which the BKW Group accounts for in the consolidated finan-cial statements using the equity method, in compliance with IAS 28 and IAS 31, have prepared their financial statements according to Swiss GAAP FER. Now that companies which apply accounting policies other than IFRS standards can no longer be included in consolidated financial statements, these companies are converting their accounts to comply with IFRS. In line with the IFRS provi-sions, this change in accounting methods was performed retroactively to 1 January 2004, resulting in an increase of CHF 15.5 million in investments in equity-valued companies, and a reduction of CHF 0.7 million in the share of profit of these com-panies for 2004.

Financial assetsTo date, value adjustments to available-for-sale financial instruments have been recorded in the income statement. Since 1 January 2005 such value adjustments have been recorded under equity. Im-pairments continue to be charged to the income statement. If these financial in-

struments are sold or otherwise derecog-nised, the accumulated value adjustments in shareholders’ equity are reposted to the income statement for the current period. Value adjustments incurred in 2004 (mi-nus taxes) in the amount of CHF 27.5 mil-lion were retroactively charged to equity, resulting in a corresponding reduction in financial income and income taxes.

Securities included in a portfolio of fi-nancial instruments, jointly managed and realisable in the short term, were reclas-sified from non-current to current assets. The previous-year balance sheet was retroactively adjusted. At 31 December 2004, the carrying amount of reclassified securities was CHF 141.8 million.

Business combinations (IFRS 3)Since 1 January 2005 (or following 31 March 2004, in the case of new acquisi-tions), a positive difference between the purchase price and the fair value of net assets acquired (goodwill) is no longer amortised on a regular basis but only if events or changes in circumstances indi-cate that it might be impaired. A negative difference is recorded in the income state-ment of the current period. In compliance with the transitional provisions of IFRS 3, a negative difference of CHF 1.0 mil-lion at 31 December 2004 in respect of an acquisition made before 31 March 2004 was eliminated on 1 January 2005 with a corresponding adjustment to the opening balance of retained earnings.

Treatment of minority interests (IAS 27)Third-party minority interests in Group companies are now presented in the consolidated balance sheet as part of shareholders’ equity, and no longer as a separate item between liabilities and shareholders’ equity. The reported result for the period now includes the share of minority interests in the profits or losses of Group companies. Earnings per share, on the other hand, continues to be re-

disposal of nuclear power plants and ma-terials. As a nuclear power plant operator, BKW is obliged to pay contributions to state funds. The right to receive reim-bursement from the funds is capitalised in accordance with IAS 37. Claims are recognised at the lower of the carrying value of the provision and the fair value of the net assets of the funds. Changes in fund valuations are made in the financial result for the period in question. This ini-tial adoption of IFRIC 5 is treated as a change in the accounting method and was applied retroactively to 1 January, 2004, in line with the transitional provisions of the Interpretation. This resulted in a re-duction of CHF 21.3 million in receivables from the decommissioning and disposal funds at 1 January 2004. After deducting deferred taxes, equity was charged with CHF 16.6 million. The income statement for 2004 contains a negative effect, after deferred taxes, of CHF 6.0 million.

In conjunction with the initial adoption of IFRIC 5, the existing practice of re-cording fuel elements under current as-sets in the consolidated balance sheet was reviewed. Since fuel elements are in use over several years (generally 4 to 7 years) and only special-purpose fuel elements can be used for the power plant, it was decided that reclassification from inven-tories to property, plant and equipment would provide more reliable information on the asset situation and increase trans-parency. For this reason, fuel elements were accordingly reclassified as property, plant and equipment. The obligation to dispose of fuel elements appropriately was recorded in accordance with IAS 16, i.e. the present value of the estimated costs for disposal of fuel elements was capitalised as an element of acquisition costs, and a corresponding provision for disposal was set up. The estimated costs for decommissioning and disposal have not changed as a result of the change in accounting method. Nor have the as-

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ported as the share of BKW shareholders in the consolidated profit.

4.16 Correction of previous-year errorsWhen implementing the IFRS changes in the accounting principles of the BKW Group, an in-depth review of all material items was conducted. This resulted in the following corrections:

The tax rate used to date to calculate de-ferred taxes was too high and had to be reduced. On 1 January 2004, deferred tax assets declined on 1 January 2004 by CHF 7.4 million and deferred tax liabili-ties by CHF 85.7 million. Since Group companies with minority shareholders were also affected by the change in tax rate, the share of minority interests in equity rose by CHF 0.4 million. These adjustments were made via sharehold-ers’ equity on 1 January 2004 without affecting income. Deferred income tax expenses for 2004 were reduced by CHF 2.7 million.

An incorrect measurement criterion ap-plied to investments in equity-valued companies in earlier financial years re-sulted in too low a value for investments. The correction increased the carrying amount of investments at 1 January 2004 by CHF 20.3 million. The 2004 year-end result was not affected.

The restructuring provision at 1 Decem-ber 2004 included obligations amounting to CHF 30 million. Since the payments are related to decommissioning of the nuclear power plant, the obligation has been reclassified as part of the provision for decommissioning and nuclear waste disposal. The reclassification has had no effect on the income statement.

4.17 Effect of changes in estimatesIAS 16 (revised 2003) requires the use-ful lives of property, plant and equip-ment to be reviewed annually. Analyses conducted at the beginning of 2005 re-sulted in an extension of the useful life of high-voltage installations from 40 to 50 years. This adjustment and other minor adjustments to useful lives resulted in a reduction of around CHF 8 million in de-preciation for the 2005 fiscal year.

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4.18 Reconciliation of restatement for 2004

Income Statement CHF millions 2004 Impact of changes in accounting principles Impact 2004 Published IAS 32/39 IAS 32/39 IAS 28/31 IFRIC 5 of errors Restated Energy Financial Equity- Decommiss- trading assets valued ioning/ companies disposal Net sales 2,872.4 –1,162.1 1,710.3Own capitalised cost 19.5 19.5Other operating income 40.4 40.4Total operating revenue 2,932.3 –1,162.1 0.0 0.0 0.0 0.0 1,770.2 Energy procurement –2,051.9 1,162.6 –13.1 –902.4Nuclear fuel and disposal –31.0 31.0 0.0Material and third-party services –109.4 0.1 –109.3Personnel expenses –228.8 –228.8Other operating expenses –144.6 –144.6Total operating expenses –2,565.7 1,162.7 0.0 0.0 17.9 0.0 –1,385.1 Operating income before depreciation and amortisation 366.6 0.6 0.0 0.0 17.9 0.0 385.1 Depreciation and amortisation –84.0 –16.9 –100.9 Operating income 282.6 0.6 0.0 0.0 1.0 0.0 284.2 Financial result 18.4 –1.3 –34.0 –12.0 –28.9Income from equity-valued companies 16.4 –0.7 15.7 Result before income taxes 317.4 –0.7 –34.0 –0.7 –11.0 0.0 271.0 Income taxes –65.1 0.1 6.5 2.5 2.7 –53.3 Net profit 252.3 –0.6 –27.5 –0.7 –8.5 2.7 217.7 Share of minority interests in profit 0.6 0.6Share of BKW shareholders in profit 251.7 –0.6 –27.5 –0.7 –8.5 2.7 217.1 Earnings per share (CHF) 4.81 –0.01 –0.53 –0.01 –0.16 0.05 4.15

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Balance Sheet CHF millions 31.12.2004 Impact of changes in accounting principles Impact 31.12.2004 Published* IAS 32/39 IAS 32/39 IAS 28/31 IFRIC 5 of errors Restated Energy Financial Equity- Decommiss- trading assets valued ioning/ companies disposalProperty, plant and equipment 1,309.2 78.7 1,387.9Investments in equity-valued companies 377.9 14.9 20.3 413.1Non-current financial assets 1,302.7 –141.8 –29.0 1,131.9Intangible assets 27.5 27.5Deferred tax assets 36.9 –6.8 30.1Total non-current assets 3,054.2 0.0 –141.8 14.9 49.7 13.5 2,990.5 Inventories 86.7 –77.6 9.1Accounts receivable 456.0 456.0Derivatives 24.6 24.6Current financial assets 892.9 141.8 1,034.7Prepaid expenses and accrued income 87.7 87.7Cash and cash equivalents 286.6 286.6Total current assets 1,809.9 24.6 141.8 0.0 –77.6 0.0 1,898.7 Total assets 4,864.1 24.6 0.0 14.9 –27.9 13.5 4,889.2 Share capital 132.0 132.0Additional paid-in capital 35.0 35.0Retained earnings 2,213.3 3.9 14.9 –31.8 100.8 2,301.1Own shares –105.5 –105.5Minority interests 15.0 0.4 15.4Total shareholders’ equity 2,289.8 3.9 0.0 14.9 –31.8 101.2 2,378.0 Deferred tax liabilities 481.1 1.1 –9.0 –87.7 385.5Long-term provisions 1,307.5 –5.3 12.9 1,315.1Long-term debts 200.0 200.0Other long-term liabilities 141.2 141.2Total long-term liabilities 2,129.8 –4.2 0.0 0.0 3.9 –87.7 2,041.8 Other short-term liabilities 310.3 310.3Derivatives 21.9 21.9Short-term provisions 25.3 25.3Short-term liabilities 30.0 30.0Current income tax liabilities 30.7 30.7Accrued expenses and deferred income 48.2 3.0 51.2Total short-term liabilities 444.5 24.9 0.0 0.0 0.0 0.0 469.4 Total liabilities 2,574.3 20.7 0.0 0.0 3.9 –87.7 2,511.2 Total liabilities and equity 4,864.1 24.6 0.0 14.9 –27.9 13.5 4,889.2* Reclassifications which are necessitated by a change in presentation of the balance sheet but have no influence on valuation have

already been performed.

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5 Financial risk management

Risk is managed within the Group in ac-cordance with principles laid down by senior management. These principles govern the hedging of market, currency, interest and credit risks. Principles have also been laid down governing the man-agement of cash and cash equivalents as well as current and non-current financial assets. The Group operates central units whose responsibility it is to monitor and control such risks.

Market risksMarket risks arise from price and ex-change rate fluctuations on incompletely secured positions of the energy business. Unsecured positions in the energy busi-ness have an impact on the Group’s earn-ings position. The risk policy enables the existence of monitored, open positions which, together with the use of financial instruments, should contribute to opti-mising the earnings potential.

Currency risksEnergy trading is now largely conducted in euros. Exchange rate fluctuations have an impact on the assets and earnings positions stated in Swiss francs. To the extent considered necessary, euro posi-tions are secured using currency swaps and futures.

Interest rate risksThe production of power and operation of transmission and distribution networks are capital intensive. Interest rate fluctua-tions give rise to changes in interest ex-penses. These are financed over the long term with phased maturity dates to mini-mise the impact of interest rate changes on the earnings situation. In addition, in-terest rate hedging instruments are used where necessary. Cash is invested over the short to medium term primarily in fixed interest positions to minimise the impact of interest rate changes and price fluctuations.

Credit risksCredit risk includes the risk that a coun-terparty will be unable or unwilling to discharge their obligation and cause a financial loss. Active risk management with defined limits per counterparty is practised with respect to accounts receiv-able trade and the investment of funds.

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6 Net sales CHF millions 2005 2004 Restated Electricity sales Switzerland 878.5 886.5Electricity sales International 322.9 266.1Electricity trading 490.0 356.9Income from energy derivatives trading 39.7 3.5Other electricity business 129.2 122.9Gas business 18.8 25.1Engineering services and electrical installation business 54.4 50.9Changes in work in progress –1.9 –1.6Total 1,931.6 1,710.3

7 Energy procurement CHF millions 2005 2004 Restated Electricity procurement, third parties 716.0 526.4Electricity procurement, joint ventures 264.6 280.4Net use of provisions for onerous contracts –36.7 –31.6Other expenses for electricity procurements 111.1 102.3Gas procurement, third parties 18.4 24.9Total 1,073.4 902.4

8 Personnel expenses CHF millions 2005 2004 Salaries and wages 192.4 192.1Social security contributions and other personnel expenses 37.0 36.7Total 229.4 228.8 Number of employees on balance sheet date (FTE) 31.12.2005 31.12.2004 Employees 2,000 2,015Trainees 120 115Total 2,120 2,130

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9 Depreciation and amortisation CHF millions 2005 2004 Restated Property, plant and equipment 94.5 99.5Intangible fixed assets 1.6 1.4Total 96.1 100.9

10 Financial result CHF millions 2005 2004 Restated Interest income 25.5 28.7Dividends 2.8 2.5Value adjustment on state funds 69.1 15.5Gain on sale of financial assets 6.9 1.1Value adjustment on securities held for trading 8.5 2.4Other financial income 0.3 0.6Financial income 113.1 50.8 Interest expenses –9.7 –9.8Interest on provisions –64.1 –64.2Loss from sales of financial assets –0.3 0.0Value adjustment on securities held for trading –1.9 –0.1Other financial expenses –2.2 –2.1Currency translation adjustments –0.8 –3.5Financial expenses –79.0 –79.7 Total 34.1 –28.9

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11 Taxes CHF millions 2005 2004 Restated Current income taxes 55.4 48.0Deferred taxes 29.2 5.3Total income tax 84.6 53.3

Reconciliation with reported income tax:CHF millions 2005 2004 Restated Result before income taxes 391.3 271.0 Tax expenses at anticipated rate of 21.7% (2004: 21.7%) 84.9 58.8Influence of participation reduction and non-taxable income –3.2 –1.3Taxes in respect of previous years 1.8 –4.3Other items 1.1 0.1Total income taxes 84.6 53.3 Effective tax rate 21.6% 19.7%

No loss carry-forwards were recorded on the balance sheet date. Taxes charged to equity amounted to CHF 11.8 million (including CHF 9.5 million to financial assets).

Deferred tax assets/liabilities by origin of temporary differencesCHF millions 31.12.2005 31.12.2004 Restated – Non-current assets 148.6 119.8– Current assets 48.5 20.2– Provisions and other long-term liabilities 225.3 210.4– Short-term liabilities –28.3 5.0Total deferred tax asets/liabilities 394.1 355.4 Of which taxes disclosed in the balance sheet:as deferred tax liabilities 421.1 385.5as deferred tax assets –27.0 –30.1Net deferred tax liabilities 394.1 355.4

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12 Earnings per share 2005 2004 Total shares issued at a par value of CHF 2.50 52,800,000 52,800,000Less own shares held at 31.12. –214,982 –2,015,680Total shares owned by third parties at 31.12. 52,585,018 50,784,320 Net profit for the year of the BKW Group in CHF millions 306.0 217.1 Average total shares held by third parties 52,039,373 52,276,960Average earnings per share in CHF 5.88 4.15 Dividend per share in CHF 2.5 1.8

In accordance with a decision by the General Shareholders’ Meeting on 26 May 2005, a 1:10 share split was carried out. For the sake of comparability, the previous-year number of shares was adjusted and share information accordingly restated.

The undiluted earnings per share are calculated based on the weighted average share capital. There are no circumstances which lead to a dilution of earnings per share.

Changes in the accounting principles as well as corrections to errors resulted in an adjustment in earnings per share for the previous period (see Notes 4.15 to 4.17). The earnings per share published in the 2004 Annual Report amounted to CHF 4.82. The dividend per share for fiscal 2005 corresponds to the proposal by the Board of Directors to the General Shareholders’ Meeting and must be approved by shareholders at this meeting.

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13 Property, plant and equipment CHF millions Power Transmission Buildings & Nuclear Other prop- Construction plants & distribu- land fuel erty, plant & in progress tion plants equipment Total Gross values at 31.12.2003 1,216.0 1,937.9 153.6 0.0 257.0 66.8 3,631.3Restatement 11.8 586.1 597.9Gross values at 01.01.2004 1,227.8 1,937.9 153.6 586.1 257.0 66.8 4,229.2Additions 3.4 2.1 1.4 6.4 1.4 124.4 139.1Disposals –2.8 –5.4 –3.8 –12.0Reclassifications 9.0 45.5 3.4 15.7 –73.6 0.0Translation adjustments 0.0Gross values at 31.12.2004 (restated) 1,237.4 1,980.1 158.4 592.5 270.3 117.6 4,356.3Additions 5.6 1.8 0.1 12.7 1.0 113.5 134.7Disposals –3.7 –2.1 –0.4 –12.9 –0.5 –19.6Reclassifications 16.4 45.6 6.1 16.7 –84.8 0.0Translation adjustments 0.0Gross values at 31.12.2005 1,255.7 2,025.4 164.2 605.2 275.1 145.8 4,471.4 Accum. depreciation at 31.12.2003 1,102.2 1,046.4 70.7 0.0 147.5 0.0 2,366.8Restatement 11.8 496.8 508.6Accum. depreciation at 01.01.2004 1,114.0 1,046.4 70.7 496.8 147.5 0.0 2,875.4Additions 5.8 57.8 3.1 16.9 15.9 99.5Disposals –0.4 –2.5 –3.6 –6.5Translation adjustments 0.0Accum. depreciation at 31.12.2004 (restated) 1,119.4 1,101.7 73.8 513.7 159.8 0.0 2,968.4Additions 7.0 47.7 2.6 17.2 20.0 94.5Disposals –0.2 –1.8 –0.3 –12.8 –15.1Translation adjustments 0.0Accum. depreciation at 31.12.2005 1,126.2 1,147.6 76.1 530.9 167.0 0.0 3,047.8 Net values at 31.12.2004 118.0 878.4 84.6 78.8 110.5 117.6 1,387.9Net values at 31.12.2005 129.5 877.8 88.1 74.3 108.1 145.8 1,423.6

The fire insurance values at 31.12.2005 amounted to CHF 2,630.2 million (2004: CHF 2,633.6 million). There were no indicators necessitating a review with regard to possible impairment. No investments were made in the year under review which necessitated the capitalisation of borrowing costs. No compensation for property, plant and equipment which was impaired, lost or decommis-sioned was charged to the income statement. Increases of CHF 5.1 million (2004: CHF 1.1 million) for fuel elements do not affect cash. This relates to the non-cash increase in respect of the nuclear waste obligation.

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14 Investments in equity-valued companies CHF millions Joint Associated ventures companies Total At 31.12.2004 (restated) 363.2 49.9 413.1Invesments 2.0 2.0Investments by non-cash consideration 1.3 1.3Divestments –0.3 –0.3Dividends –11.7 –0.6 –12.3Share of net income 16.8 5.5 22.3At 31.12.2005 369.6 56.5 426.1

When cc energie sa was founded, share capital of CHF 1.3 million was in the form of tangible assets. None of the equity-valued companies is listed on the stock exchange.

Financial values of Gross values Gross values Share Sharejoint ventures 31.12.2005 31.12.2004 31.12.2005 31.12.2004CHF millions Restated Restated Non-current assets 8,763.2 8,197.9 1,529.4 1,477.3Current assets 551.5 440.9 119.1 83.0Long-term liabilities 6,480.8 5,934.3 1,121.4 1,028.9Short-term liabilities 848.5 776.6 157.5 168.2Income 1,589.5 1,643.5 316.8 314.5Expenses 1,464.0 1,577.3 300.0 302.2Profit 125.5 66.2 16.8 12.3

Joint ventures primarily consists of partner plants. Due to existing partner contracts, shareholders in partner plants are obliged to pay the annual costs due on their share (in-cluding interest and repayment of borrowed funds). On the balance sheet date the share of unpaid share capital amounted to CHF 24.9 million (2004: CHF 24.9 million).

Financial values of Gross values Gross values Share Shareassociated companies 31.12.2005 31.12.2004 31.12.2005 31.12.2004CHF millions Restated Restated Non-current assets 127.1 125.0 43.3 42.9Current assets 146.0 111.4 47.8 38.8Long-term liabilities 37.9 28.9 11.8 10.1Short-term liabilities 62.9 64.2 22.8 21.7Income 302.7 288.5 103.3 98.9Expenses 286.9 278.5 97.8 95.5Profit 15.8 10.0 5.5 3.4

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15 Financial assets CHF millions Available- Securities Loans Receivables Term Pension for-sale held for from state deposits surplus financial trading funds assets Total At 31.12.2003 249.2 0.0 50.3 465.2 1,268.0 28.9 2,061.6Restatement –137.1 137.1 –21.3 –21.3At 1.1.2004 112.1 137.1 50.3 443.9 1,268.0 28.9 2,040.3Additions 26.6 22.6 15.2 1,103.5 0.3 1,168.2Disposals –9.8 –24.2 –15.5 –1,044.2 –1,093.7Value adjustments not affecting income 34.0 34.0Value adjustments affecting income 2.3 15.5 17.8At 31.12.2004 (restated) 136.3 141.8 57.4 474.6 1,327.3 29.2 2,166.6Additions 3.2 59.5 8.5 52.9 1,075.6 0.7 1,200.4Disposals –6.1 –51.5 –29.3 –987.0 –1,073.9Value adjustments not affecting income 46.8 46.8Value adjustments affecting income 6.6 69.1 75.7At 31.12.2005 180.2 156.4 36.6 596.6 1,415.9 29.9 2,415.6of which:Short-term financial assets 156.4 9.3 1,060.9 1,226.6Non-current financial assets 180.2 0.0 27.3 596.6 355.0 29.9 1,189.0

Long-term time deposits have a weighted average residual term to maturity of 1.7 years (2004: 2.1 years) and a weighted average interest rate of 1.6% (2004: 1.6%). The weighted average residual term to maturity of short-term investments is 4.6 months (2004: 6.1 months), and the weighted average interest rate is 0.9% (2004: 1.2%).

Financial assets available for sale, securities held for trading, and shares in the state funds, are recorded at fair value. Since the state funds are managed by the federal government, BKW has no access to the managed assets. Any residual amount would be refunded to BKW only on conclusion of decommissioning and disposal.

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16 Intangible assets Rights of use 2005 2004CHF millions Gross values at 31.12. 63.9 58.0Additions from acquisitions 2.5 5.9Disposals Gross values at 31.12. 66.4 63.9 Accum. amortisation at 31.12. 36.4 35.4Additions 1.6 1.0DisposalsAccum. amortisation at 31.12. 38.0 36.4 Net values at 31.12. 28.4 27.5

17 Inventories

Inventories consist of network construction materials. In the year under review, an impairment of CHF 1.1 million was recorded for inventories due to a mark-down for destockage. Impairment reversals in the amount of CHF 0.3 million were booked to income.

18 Accounts receivable CHF millions 31.12.2005 31.12.2004 Restated Trade accounts receivable 388.3 366.3Other receivables 50.9 85.1Payments made 3.1 0.3Work in progress 2.9 4.3Total 445.2 456.0

Work in progress includes orders realised on the balance sheet date including the proportionate profit of CHF 1.3 million (2004: CHF 1.3 million). This incorporates payments amounting to CHF 3.2 million (2004: CHF 3.8 million).

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19 Share capital and reserves Significant shareholders and their direct participation 31.12.2005 31.12.2004 Canton of Berne 52.9% 52.9%E.ON Energie AG 20.0% 20.0%

Own share transactions Number Book value Cash-relevant proportion CHF millions CHF millions 31.12.2003 551,220 6.2 Purchases 1,576,760 103.7 103.7Sales/Allotment –112,300 –4.4 –2.931.12.2004 2,015,680 105.5 Purchases 203,244 17.2 17.2Sales/Allotment –2,003,942 –107.4 –131.231.12.2005 214,982 15.3

On 31.12.2005 30,980 BKW shares were held by Group companies and 3,010 by eq-uity-valued companies. For reasons of comparison, the number of shares in 2004 was adjusted in line with the 1:10 share split.

Share capitalThe fully paid up and issued share capital consists of 52,800,000 registered shares at a par value of CHF 2.50 each.

Capital reservesCapital reserves include the premium paid on issuing the shares.

Retained earningsRetained earnings consists of legal and statutory reserves (excluding capital reserves), retained earnings from previous years, and gains/losses on the sale of own shares.

Currency translationsReserves for currency translations cover currency differences arising from the conver-sion of foreign Group companies’ financial statements.

Revaluation reserveThe revaluation reserve includes fair value adjustments for available-for-sale assets until their realisation or their classification as an impairment.

Own sharesBKW shares held by BKW or Group companies are deducted from equity at acquisition cost. Own shares are used in particular for employee stock purchase plans.

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20 Provisions CHF millions Nuclear Onerous Onerous Restruc- Other waste contracts, contracts, turing provisions disposal energy energy sales procurement Total At 31.12.2003 865.4 289.9 34.4 39.9 80.0 1,309.6Restatement 99.5 –61.1 –17.6 –30.0 –9.2At 01.01.2004 964.9 228.8 16.8 9.9 80.0 1,300.4Provisions made 5.1 7.0 2.8 1.5 22.5 38.9Interest 48.3 15.9 64.2Provisions used –16.3 –31.6 –2.2 –0.7 –5.4 –56.2Provisions reversed –4.3 –2.6 –6.9Translation adjusments 0.0At 31.12.2004 (restated) 1,002.0 220.1 13.1 10.7 94.5 1,340.4Write-off of neg. difference –1.0 –1.0At 01.01.2005 1,002.0 220.1 13.1 10.7 93.5 1,339.4Provisions made 5.2 4.1 0.8 2.8 12.9Interest 50.0 14.1 64.1Provisions used –23.5 –41.7 –5.3 –5.0 –4.6 –80.1Provisions reversed –6.0 –1.3 –1.3 –8.6Translation adjusments 0.0At 31.12.2005 1,033.7 186.5 10.6 6.5 90.4 1,327.7of which:Short-term provisions 2.1 5.2 14.5 21.8Long-term provisions 1,033.7 186.5 8.5 1.3 75.9 1,305.9

The provision for nuclear waste disposal is reserved for the disposal of spent fuel elements and radioactive waste as well as for the decommissioning of nuclear power plants. Annual payments must be made to the state funds for decommissioning and nuclear waste disposal (see Note 15). These funds pay the costs of disposal on behalf of operators following the decommissioning of plants. According to current assumptions, decommissioning and disposal work will continue until 2093. The majority of payments will be made after the nuclear power plant has been decommissioned. However, some payments for the disposal of spent fuel elements and radioactive waste fall due before this date. Anticipated reimbursements are reported under non-current financial assets.

The provision for onerous energy procurement contracts covers the excess cash outflows for purchasing energy from production plants. The provision is continually used by energy purchases from partner plants and can extend beyond the end of the permit period (i.e. until 2074 at the latest).

The provision for onerous energy sales contracts covers future below-market cash inflows from energy sales contracts. The con-tracts have a term of up to 6 years.

The provision for restructuring covers future expenses for defined or legally required restructuring measures. The payments are spread over the next 7 years.

Other provisions include obligations in the personnel area as well as other operating obligations. Cash outflows in respect of these provisions are largely anticipated over the next three years.

Interest on provisions calculated at cash value is charged via financial expenses.

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21 Long-term debts

The following fixed-interest bonds were outstanding on the balance sheet date:CHF millions 31.12.2005 31.12.2004 33⁄4% debenture bond 1997–2007 BKW FMB Energy Ltd 100.0 100.041⁄2% debenture bond 1996–2006 BKW FMB Beteiligungen AG 100.0 100.0Pension plans 30.0 30.0Total 230.0 230.0of which:Short-term financial liabilities 130.0 30.0Long-term financial liabilities 100.0 200.0

On the balance sheet date the weighted average interest rate based on the nominal value amounted to 4.125%. The 4.5% bond issue becomes due for repayment on 28 August 2006.

22 Other long-term liabilities CHF millions 31.12.2005 31.12.2004 Assigned rights of use 111.0 108.5Other long-term liabilities 58.7 32.7Total 169.7 141.2

23 Other short-term liabilities CHF millions 31.12.2005 31.12.2004 Trade accounts payable 221.1 215.8Pension plans 18.2 14.7Other obligations 73.2 78.1Customer prepayments 2.9 1.7Total 315.4 310.3

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24 Pension obligations

The status of BKW Group companies which are members of the Pensionskasse BKW is as follows:CHF millions 31.12.2005 31.12.2004 Fair value of pension plan assets portion 1,212.7 1,083.3Present value of funded obligation –1,086.7 –991.6Plan assets in excess of benefit obligation 126.0 91.7Unrecorded actuarial (gains)/losses –3.1 –2.4Excess coverage portion not available for use –93.0 –60.1Capitalised plan assets in excess of benefit obligation 29.9 29.2

Periodic pension cost: Current service cost 28.6 25.3Interest cost 34.7 37.6Expected return on plan assets –48.7 –47.4Employee contributions –8.2 –8.0Recorded actuarial (gains)/losses –28.8 27.5Change in excess coverage portion not available for use 32.9 –22.9Net periodic pension cost 10.5 12.1

Details of change in capitalised plan assets in excess of benefit obligation: At 1.1. 29.2 28.9Net periodic pension cost –10.5 –12.1Employer contributions paid 11.2 12.4At 31.12. 29.9 29.2 Effective rate of return on plan assets 14.5% 4.7%

Calculation principles: Discount rate 3.0% 3.5%Expected rate of return on plan assets 4.5% 4.5%Rate of increase in future compensation levels 2.0% 2.0%Rate of increase in future pension levels 1.0% 1.0%

25 Derivative financial instruments

BKW is exposed to market and currency risks as a result of its business activities. The corporate policy provides for a risk management system to reduce risks arising from energy trading transactions. Negotiating parameters, responsibilities and controls are set down in binding internal guidelines. Energy trading transactions are governed by a system of defined limits and regular control mechanisms. Reporting systems moni-tor risk positions on a daily basis. Derivative financial instruments are also monitored in order to hedge against exchange rate fluctuation risks. Central risk management

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has drawn up guidelines according to which derivatives are hedged against risk and compliance is monitored at regular intervals. The following table provides information on replacement values and contract volumes for all derivative financial instruments open on the balance sheet date in respect of energy trading and exchange rate hedging. The replacement value corresponds to the fair value of open derivative financial instruments. Positive replacement values repre-sent receivables and hence an asset. Negative replacement values represent obligations and hence a liability. The contract volume corresponds to the basic value or contract volume of the underlying derivative financial instrument.

The replacement value for futures is zero, since price fluctuations are offset daily compared with the agreed closing prices. Forward contracts include forwards and futures with fix and flexible profiles. The replacement value is obtained from the price fluctuation compared with the closing price. Price fluctuations in forward contracts are recorded by adjusting the replacement value, since fluctuations in value are not financially offset on a daily basis. CHF millions Replacement value Contract positive negative volume 31.12.2004 31.12.2004 31.12.2004 Futures (energy trading) 0.0 0.0 172.2Forward contracts (energy trading) 24.6 21.9 397.4Exchange rate hedging 0.0 0.0 0.0Total 24.6 21.9 569.6 31.12.2005 31.12.2005 31.12.2005 Futures (energy trading) 0.0 0.0 461.5Forward contracts (energy trading) 180.6 175.2 1,283.5Exchange rate hedging 2.5 0.7 191.3Total 183.1 175.9 1,936.3

The use of derivative financial instruments entails a credit and market risk for the Company. If the counterparty does not fulfil its obligations arising from the derivative contract, the Company’s contractor risk corresponds to the positive replacement value of the derivative. In the case of negative replacement value, the Company is liable to the counterparty and the counterparty bears the repayment risk. These risks related to derivative financial instruments are minimised through high standards imposed on the contractual partner’s creditworthiness. In the year under review and the previous year, the maximum default risk was on a par with positive replacement values.

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26 Contingent liabilities

On 31 December 2005 there was CHF 104.3 million (2004: CHF 33.4 million) out-standing in Group guarantees in favour of third parties.

Nuclear power plant operators are under a limited obligation to make supplementary contributions to the decommissioning fund in the event that an individual contributor is unable to pay. With the entry into force of the new Nuclear Energy Law on 1 Febru-ary, 2005, this limited obligation to make supplementary contributions also applies to the disposal fund.

The BKW Group is involved in various legal disputes arising from ordinary business. In our opinion, the requisite provisions have been made for these cases.

No other contingent liabilities exist apart from those mentioned in Notes 14 and 20.

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27 Related parties

The following financial relationships between the BKW Group and related parties existed in the periods reported. All transactions were conducted on the same terms and conditions as with independent third parties:

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CHF millions 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Energy sales 18.6 20.2 61.3 46.3 44.1 45.4 17.9 15.1 0.1 0.1Other sales and services 1.4 1.3 0.2 0.1 3.4 3.0 17.7 26.6 0.9 0.8Interest and dividends received 1.9 2.1 0.6 0.5 0.6 0.6 12.3 13.0 Energy purchases 24.9 32.3 0.2 264.4 280.4 Taxes and charges 13.9 13.5 Interest and dividends paid 50.7 42.0 28.5 23.8 0.9 1.1Income taxes 22.6 19.3 Other purchases and services 2.6 1.2 4.6 5.2 19.0 18.2 8.4 5.9 12.9 12.4 Loans (active) 3.9 12.7 4.2 Rights of use 7.0 7.2 Current financial assets 32.4 2.8 0.5 1.5 6.5 31.5 Receivables and accruals 4.8 4.1 11.4 5.1 11.7 10.7 6.8 12.4 Cash and cash equivalents 89.1 85.9 Liabilities and accruals 13.2 13.2 1.6 10.3 6.1 3.6 15.8 17.5 48.1 44.7Liabilities from income taxes 19.5 14.4

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Transactions with the ParentThe canton of Berne is the majority shareholder of BKW. As such it has a controlling influence on all decisions at the General Shareholders’ Meeting, including the election of members of the Board of Directors and the appropriation of retained earnings. The relationship with the canton of Berne, its authorities, public-law institutions and the private-law companies it controls is on many levels: BKW delivers energy and other services, purchases material and services, and pays taxes, water rates and other taxes and charges. Furthermore, it conducts financial transactions with BEKB.

In 2005 BKW acquired 100,000 of its own shares from BEKB at a price of CHF 8.5 million.

Transactions with companies exerting significant influence over the GroupBKW exercises significant influence on E.ON Energie AG and Groupe E AG, since it delivers and buys energy from both companies. All these trading transactions are performed at market conditions.

Transactions with Group companiesNo transactions were conducted which were not eliminated within the scope of consolidation.

Transactions with associated companiesReported transactions consist of energy deliveries, dividends, engineering services (in-come), maintenance/servicing (income) and material/third-party services (expense). In 2005 associated companies paid back CHF 1.5 million in loans to BKW.

Transactions with joint venturesReported transactions consist of energy deliveries and purchases, dividends, engineer-ing services (income), operational management and maintenance/servicing (income). In 2005 associated companies paid back CHF 5.3 million in loans to BKW (2004: CHF 0.3 million) and borrowed CHF 11.7 million (2004: CHF 6.0 million).

Transactions with the pension fundTransactions with the Pensionskasse BKW are conducted as part of the occupational pension plan and consist of employer contributions, administrative charges (personnel, operational and administrative costs), real estate services (management of properties) and financial transactions (liquidity management including interest).

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Transactions with the Board of Directors, Executive Board and Extended Executive Board

Compensation: CHF millions 2005 2004 Short-term benefits 4.2 4.0Contributions to pension plan 0.3 0.3Other long-term benefits 0.0 0.0Severance payments 0.0 0.0Share-based payments 0.1 0.1Total 4.6 4.4

BKW granted two members of the Executive Board a home construction loan of CHF 0.3 million (2004: CHF 0.3 million).

28 Share-based payment

In the year under review BKW Group employees had an opportunity to acquire up to 114,980 shares (2004: 113,810 shares) at a preferential price. In 2005 59,740 shares (2004: 68,160 shares) were assigned at a price of CHF 45.00 each (2004: CHF 30.00). The underlying present value of the shares was CHF 65.15 (2004: CHF 55.32). The personnel expense for this stock purchase was CHF 1.2 million (2004: CHF 1.7 mil-lion). No purchase rights remained open on the balance sheet date. For reasons of comparison, the information was adjusted in line with the 1:10 share split.

29 Events after the balance sheet date

On 16 November 2005 BKW concluded purchase agreements with the city of Lan-genthal and the community of Herzogenbuchsee to acquire a 38.6% stake in Onyx Energie Mittelland, Langenthal, at a price of CHF 129.6 million. The agreements were subject to the preferential purchase rights of the other shareholders. No shareholders exercised their rights within the defined period, and on 31 January 2006 the agreements were implemented. However, entry of BKW in the share ledger requires the consent of the Board of Directors of Onyx Energie Mittelland. BKW has submitted an offer to the other shareholders to take over their shares under the same conditions.

At the beginning of 2006 BKW acquired a 32% stake in Arnold AG of Selzach. Fol-lowing this purchase, BKW has a controlling stake in this company, with 66% of the capital and votes. The remaining minority shareholder can opt to sell its stake to BKW until 31 December 2006.

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Group CompaniesBKW Energie GmbH Kelkheim (D) * 1.0 EUR 100.0 31.12.BKW enex AG Berne * 7.0 CHF 100.0 31.12.BKW FMB Beteiligungen AG Berne * 50.0 CHF 100.0 31.12.BKW FMB Energie Österreich GmbH Vienna (A) * 0.05 EUR 100.0 31.12.BKW Handel AG Berne * 2.5 CHF 100.0 31.12.BKW ISP AG Berne * 0.9 CHF 100.0 31.12.BKW Übertragungsnetz AG Berne * 40.0 CHF 100.0 31.12.Electra Italia S.p.A Milan (I) * 1.0 EUR 80.1 31.12.Elektrizitätswerk Grindelwald AG1 Grindelwald 0.55 CHF 91.6 31.12.EWR Energie AG Schattenhalb * 2.0 CHF 100.0 31.12.inelectro sa Porrentruy * 0.5 CHF 100.0 31.12.Kraftwerke Kander Alp AG2 Kandersteg 1.5 CHF 60.0 31.12.Simmentaler Kraftwerke AG Erlenbach 7.31 CHF 83.4 31.12.Société des forces électriques de la Goule Saint-Imier 3.5 CHF 80.8 31.12.

Joint VenturesBielersee Kraftwerke AG BIK Bienne 20.0 CHF 50.0 31.12.cc energie sa3 Murten * 2.0 CHF 65.0 31.12.EDJ, Energie du Jura S.A. Delémont * 7.43 CHF 41.0 30.9.Electra-Massa Naters 40.0 CHF 16.1 31.12.Electricité de la Lienne SA Sion 24.0 CHF 33.3 30.9.Engadiner Kraftwerke AG Zernez 140.0 CHF 30.0 30.9.Etrans Ltd Laufenburg 7.5 CHF 11.5 31.12.Forces Motrices de Conches SA Ernen 30.0 CHF 40.0 31.12.Forces Motrices de Mauvoisin SA Sion 100.0 CHF 19.5 30.9.Grande Dixence SA Sion 300.0 CHF 13.3 31.12.Juvent SA Berne 0.1 CHF 65.0 31.12.Kernkraftwerk-Beteiligungs- gesellschaft AG (KBG) Berne * 150.0 CHF 33.3 31.12.Kernkraftwerk Leibstadt AG Leibstadt 450.0 CHF 9.5 31.12.Kraftwerk Aegina AG Ulrichen 12.0 CHF 5.0 30.9.Kraftwerk Sanetsch AG (KWS) Gsteig 8.0 CHF 50.0 30.9.Kraftwerke Hinterrhein AG Thusis 100.0 CHF 7.7 30.9.Kraftwerke Mattmark AG Saas Grund 90.0 CHF 11.1 30.9.Kraftwerke Oberhasli AG Innertkirchen 120.0 CHF 50.0 31.12.Officine idroelettriche di Blenio SA Olivone 60.0 CHF 12.0 30.9.Officine Idroelettriche della Maggia SA Locarno 100.0 CHF 10.0 30.9.Zwilag Zwischenlager Würenlingen AG Würenlingen 5.0 CHF 10.7 31.12.

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Associated CompaniesAEK Energie AG Solothurn 6.0 CHF 35.5 31.12.Arnold AG Selzach * 0.5 CHF 34.0 31.12.em electrocontrol ag Berne * 0.25 CHF 44.0 31.12.Energie Biberist AG EBAG Biberist 5.0 CHF 25.0 31.12.NIS AG Lucerne * 1.0 CHF 25.0 31.12.Swissgrid Ltd4 Laufenburg * 15.0 CHF 11.4 31.12.Youtility AG Berne * 5.5 CHF 41.3 31.12.

OtherAarewerke AG Klingnau 16.8 CHF 10.1 30.6.d Holding Zurich * 9.5 CHF 5.0 31.10.Frisa engineering SA5 Lausanne * 0.2 CHF 6.6 31.12.Groupe E Ltd6 Fribourg * 68.8 CHF 9.3 31.12.RTC Real-Time Center AG Köniz * 30.0 CHF 3.1 31.12.Société Electrique des Forces de l’Aubonne Aubonne 5.0 CHF 10.0 31.12.

1 The participation was increased from 91.1% to 91.6 % in the year under review2 New company founded in 2005.3 New company founded in 2005. Contractual agreements do not allow any control by the Company, hence it is treated as a joint

venture.4 New company founded in 2005.5 The share capital was reduced from CHF 0.5 million to CHF 0.2 million in the year under review due to restructuring. 6 Merger of Enterprises Electriques Fribourgeoises (EEF) and Electricité Neuchâteloise S.A.in 2005.

Principles of consolidation/valuationGroup companies Full consolidationJoint ventures Equity accountingAssociated companies Equity accountingOther Fair value

Closing dateSome partner plants close their annual accounts on 30 September to coincide with the hydrological year.

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Report of the Group Auditors

To the General Meeting ofBKW FMB Energy Ltd, Berne

Berne, 29 March 2006

Report of the Group Auditors

As the Group auditors, we have audited the consolidated financial statements (income statement, balance sheet, cash flow statement, statement of shareholders’ equity and notes, pages 32 to 67) of BKW FMB Energy Ltd for the year ended December 31 2005.

These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning pro-fessional qualification and independence.

Our audit was conducted in accordance with Swiss Auditing Standards and with the International Standards on Auditing (ISA), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial state-ments. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations, the changes in equity and the cash flows in accordance with International Financial Reporting Standards (IFRS), and comply with Swiss law.

We recommend that the consolidated financial statements submitted to you be approved.

Ernst & Young Ltd

Marcel Gehrig Thomas StenzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)

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Financial Statements of BKWIncome Statement

in CHF thousands 2005 2004 Net revenue 1,692,428 1,489,204 Changes for work in progress –1,869 –1,453 Own capitalised cost 2,579 9,961 Other operating income 59,727 52,941 Total operating revenue 1,752,865 1,550,653 Energy procurement –879,240 –744,400 Material and third-party services –288,534 –248,235 Personnel expenses –199,989 –200,542 Depreciation –90,336 –75,147 Other operating expenses –141,849 –136,028 Total operating expenses –1,599,948 –1,404,352 Earnings before interest and income tax (EBIT) 152,917 146,301 Financial income 129,704 104,777Financial expenses –29,393 –25,793Income taxes –51,187 –41,877 Profit before extraordinary items and taxes 202,041 183,408 Gain on disposal of non-current assets 895 3,141 Net profit for the year 202,936 186,549

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Financial Statements of BKWBalance Sheet

Assets in CHF thousands Note 31.12.2005 31.12.2004 Property, plant and equipment 2 623,139 610,209Participations 247,708 244,705Non-current receivables and other financial assets 3 1,323,129 1,434,674Intangible assets 8,935 7,624Total non-current assets 2,202,911 2,297,212 Inventories 4,584 4,047Trade accounts receivable 4 351,973 335,842Other accounts receivable 5 1,177,920 1,020,112Prepaid expenses and accrued income 85,552 55,291Cash and cash equivalents 382,503 272,986Total current assets 2,002,532 1,688,278 Total assets 4,205,443 3,985,490

Liabilities and shareholders’ equity in CHF thousands Note 31.12.2005 31.12.2004 Share capital 6 132,000 132,000General legal reserves 72,560 72,560Reserves for own shares 7 15,325 105,509Free reserves 467,575 287,391Unappropriated retained earnings 205,757 187,821Total shareholders’ equity 893,217 785,281 Provisions 2,514,229 2,454,931Bond issue 8 100,000 100,000Third-party rights of use 118,329 114,451Other long-term liabilities 58,623 35,676Total long-term liabilities 2,791,181 2,705,058 Trade accounts payable 9 165,684 188,112 Other short-term liabilities 10 216,997 205,571 Accrued expenses and deferred income 138,364 101,468 Total short-term liabilities 521,045 495,151 Total liabilities 3,312,226 3,200,209 Total liabilities and shareholders’ equity 4,205,443 3,985,490

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Financial Statements of BKWNotes and Explanations regarding the Financial Statements

1 Preamble

The following explanations comply with the standards prescribed by Art. 663b of the Swiss Code of Obligations (SCO). The fully consolidated companies and companies consolidated at equity (hereafter referred to as associated companies) as well as their subsidiaries, listed on page 66, are regarded as participations under the terms of SCO Art. 663a and 663b.

Fuel elements for the Mühleberg nuclear power plant are now classified under property, plant and equipment and no longer under inventories. For reasons of comparison, the fuel elements in the amount of CHF 47.4 million were reclassified in the previous-year balance sheet. Furthermore, revenue from energy trading contracts was redefined. Energy trading transactions conducted with the sole aim of generating a trading mar-gin are now reported net under revenue. For reasons of comparison, the CHF 1,162.1 million in revenue from energy procurement recorded in the previous-year income statement was reclassified under net revenue.

2 Property, plant and equipment

Property, plant and equipment covers plant, buildings and land, operating equipment and installations under construction.

The fire insurance values at 31.12.2005 amounted to CHF 2,423.9 million (2004: CHF 2,452.2 million).

Insurance policies taken out by BKW FMB Energy Ltd also cover the property, plant and equipment of BKW Übertragungsnetz AG.

3 Non-current receivables and other financial assets

Financial assets cover financial loans, receivables from state funds, and long-term financial claims on banks and securities.Claims in respect of the state fund are stated at fair value. in CHF thousands 31.12.2005 31.12.2004 Financial assets to third parties 1,149,039 1,152,186 associated companies 11,090 5,988 Group companies 163,000 276,500Total 1,323,129 1,434,674

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4 Trade accounts receivable in CHF thousands 31.12.2005 31.12.2004 Trade accounts receivable third parties 271,163 261,978 associated companies 13,423 19,102 Group companies 68,399 53,904Work in progress –1,012 858Total 351,973 335,842

5 Other accounts receivable

Other accounts receivable from third parties primarily cover receivables from finan-cial institutions with a residual term to maturity of between 3 and 12 months (2005 = CHF 1,053 million) as well as credit balances from settlements with various tax offices and social plans.

Receivables from associated companies and Group companies cover current accounts for day-to-day business and short-term loans. in CHF thousands 31.12.2005 31.12.2004 Other accounts receivable third parties 1,088,499 904,392 associated companies 8,152 31,878 Group companies 81,269 83,842Total 1,177,920 1,020,112

6 Share capital

The share capital is divided into 52,800,000 registered shares at a par value of CHF 2.50. BKW FMB Energy Ltd shares have been traded on the SWX Swiss Exchange since May 2003.

Significant shareholders and their direct participation:in % 31.12.2005 31.12.2004 Canton of Berne 52.9 52.9E.ON Energie AG 20.0 20.0

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7 Own shares

BKW FMB Beteiligungen AG (a fully-owned subsidiary) and EW Grindelwald AG (majority holding of BKW FMB Beteiligungen AG) together hold 30,980 shares in BKW FMB Energy Ltd at a par value of CHF 2.50, with a total value of CHF 98,970 (at 31.12.2004: 170,799 shares at a par value of CHF 25.– with a total value of CHF 85,943,933). In several transactions spread over the year under review, BKW FMB Beteiligungen AG acquired 710 shares at a par value of CHF 2.50 for CHF 50,969 and sold 1,653,720 shares at a par value of CHF 2.50 for CHF 85,819,932. In addi-tion, in several transactions BKW FMB Energy Ltd acquired 224,534 own shares for a total of CHF 18,726,956 and sold 348,222 shares for a total of CHF 23,066,014. This includes the transfer of 24,000 shares held by Group companies in BKW FMB Energy Ltd. At 31.12.2005 BKW FMB Energy Ltd held 184,002 of its own shares. The total at 31.12.2005 of 214,982 shares or CHF 15,324,995 is disclosed as reserves for own shares.

8 Bond issue in CHF thousands 31.12.2005 31.12.2004 33⁄4 % 1997–2007 100,000 100,000

9 Trade accounts payable in CHF thousands 31.12.2005 31.12.2004 Trade accounts payable third parties 130,226 161,331 associated companies 8,978 15,115 Group companies 26,480 11,666Total 165,684 188,112

10 Other short-term liabilities in CHF thousands 31.12.2005 31.12.2004 Other short-term liabilities third parties 85,024 78,228 associated companies 6,118 2,495 Group companies 59,703 56,520 BKW pension plan 48,126 44,668Short-term provisions 18,026 23,660Total 216,997 205,571

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11 Contingent liabilities

Shareholders of the Kernkraftwerk-Beteiligungsgesellschaft AG have agreed to pay the annual costs due on their share, including interest and repayment of borrowed funds. BKW has undertaken the same obligation towards the wind, hydro and nuclear power plants as well as towards nuclear waste disposal companies in which it participates via BKW FMB Energy Ltd or BKW FMB Beteiligungen AG. In the case of another company, BKW FMB Energy Ltd guarantees repayment and interest on borrowed funds in proportion to the BKW FMB Energy Ltd/BKW FMB Beteiligungen AG holding in this company. Nuclear power plant operators are under a limited obligation to make supplementary contributions to the decommissioning fund in the event that an individual contributor is unable to pay. With the entry into force of the new Nuclear Energy Law on 1 Febru-ary, 2005, this limited obligation to make supplementary contributions also applies to the disposal fund. in CHF thousands 31.12.2005 31.12.2004 Group guarantees in favour of third parties 104,302 33,364

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Appropriation of retained earningsProposal to the General Shareholders’ Meeting

in CHF Retained earnings/Profit carried forward 2,820,816Net profit for the year 202,936,496Unappropriated retained earnings 205,757,312

The Board of Directors proposes the following appropriations of retained earnings:Dividend of CHF 2.50 per share 132,000,000Allocation to free reserves 70,000,000Balance carried forward 3,757,312Total 205,757,312

Since the general reserve has reached 50% of share capital, no additional allocation has been made.

On the balance sheet date BKW FMB Energy Ltd held 184,002 of its own shares. These shares are not entitled to a dividend. The number of shares may change before the divident payout date.

Subject to approval by the General Shareholders’ Meeting, the following will be paid out:Dividend per share 2.500Minus 35% withholding tax –0.875Net dividend 1.625

Berne, 28 March 2006

On behalf of the Board of DirectorsChairmanDr Fritz Kilchenmann

The Executive BoardKurt Rohrbach Heinz Raaflaub Patrick Braun Hermann Ineichen

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Report of the Statutory Auditors

To the General Meeting ofBKW FMB Energy Ltd, Berne

Berne, 29 March 2006

Report of the Statutory Auditors

As statutory auditors, we have audited the accounting records and the financial state-ments (income statement, balance sheet and notes, pages 70 to 75) of BKW FMB Energy Ltd for the year ended December 31 2005.

These financial statements are the responsibility of the Board of Directors. Our re-sponsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.

Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accounting records and financial statements and the proposed ap-propriation of available earnings comply with Swiss law and the company’s Articles of Incorporation.

We recommend that the financial statements submitted to you be approved.

Ernst & Young Ltd

Marcel Gehrig Thomas StenzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)

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Investor informationKey facts about the BKW share

BKW FMB Energy Ltd share capital of CHF 132 million is divided into 52,800,000 registered shares at a par value of CHF 2.50 each. In the period under review the share price rose by 26.62 per cent.

Performance of the BKW Share 31.12.2004 – 30.12.2005 (in CHF)

1:10 share split

The General Shareholders’ Meeting of 26 May 2005 voted in favour of a proposal by the Board of Directors to split the 5,280,000 existing registered shares at a par value of CHF 25 each in a 1:10 ratio to create 52,800,000 new registered shares at a par value of CHF 2.50 each. The date of the split was 6 June 2005.

Listing

BKW FMB Energy Ltd shares are listed on the main board of the SWX Swiss Exchange and are also quoted on the BX Berne eXchange. Ticker symbol for SWX and BX: BKWNShare Number: 2 160 700ISIN code CH 002 160700 4

Appropriation of Retained Earnings

The Board of Directors proposes to the General Shareholders’ Meeting a dividend of CHF 2.50 per share for the 2005 financial year. The dividend will be paid out on 26 May 2006.

BKW registered sharesSwiss Performance Index (indexed)

95.00

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Month 01 02 03 04 06 07 08 09 10 11 1205

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Restrictions on share transferability

The Company reserves the right to refuse registration of an acquirer of shares in the shareholder register if, through the acquisition, a natural person or legal entity or a partnership directly or indirectly holds more than 5 per cent of the entire share capital. The same restriction applies to corporate bodies, partnerships or groups of persons who are interrelated to each other or otherwise linked and act in concert to acquire shares. Registration may also be refused if the acquirer has not expressly declared that the shares were acquired in his own name and on his own account.

Significant shareholders at 31.12.05 at 31.12.04 Canton of Berne 52.91% 52.91%E.ON Energie AG 20.0% 20.0%

The proportion of shares held by the public (free float) is approximately 27 per cent. The BKW share is listed on the Swiss Performance Index (SPI).

Key figures per share at 31.12.05 at 31.12.042

Earnings per share (in CHF) 5.88 4.15Equity per share (in CHF) 51.85 46.52Dividend per share (in CHF) 2.50 1.80Dividend yield in % 2.8 2.6Price/earnings ratio1 15.0 16.7Year-end price (CHF) 88.00 69.50Year high (CHF) 95.85 70.35Year low (CHF) 67.40 47.90

1 Based on year-end price2 After restatement and share split

Financial Calendar

General Shareholders’ Meeting 19 May 2006Presentation of Half-Yearly Results 19 September 2006

Contact: investor.relations@bkw-fmb.ch

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Corporate GovernanceReport on the 2005 Financial Year

The information provided in this report is compliant with the Regulations on Corporate Governance Information drawn up by the SWX Swiss Exchange (SWX).

The published information is based on the status at 31 December 2005. Significant changes which have taken place between this date and the date of printing of this report are listed in Para. 10.

1 Group structure and shareholders

Group structureBKW consolidation covers only companies which are not listed separately on the stock exchange. The participations of BKW in individual companies which are fully consoli-dated in the annual financial statements are listed below. In all cases the participation corresponds to the percentage of shares and of voting rights. A detailed list of BKW participations is given on pages 66 and 67 of the Annual Report.

Fully consolidated participations of BKW FMB Energy Ltd and its associated companiesCompany Domicile Share-/ % Holding Basic capital in millions and currency BKW Energie GmbH Kelkheim (D) 1.0 (EUR) 100BKW enex AG Berne 7 (CHF) 100BKW FMB Beteiligungen AG Berne 50 (CHF) 100BKW FMB Energie Österreich GmbH Vienna (A) 0.05 (EUR) 100BKW Handel AG Berne 2.5 (CHF) 100BKW ISP AG Berne 0.9 (CHF) 100BKW Übertragungsnetz AG Berne 40 (CHF) 100Electra Italia S.p.A. Milan (I) 1 (EUR) 80.1Elektrizitätswerk Grindelwald AG Grindelwald 0.55 (CHF) 91.6EWR Energie AG Schattenhalb 2 (CHF) 100inelectro sa Porrentruy 0.5 (CHF) 100Kraftwerke Kander Alp AG Kandersteg 1.5 (CHF) 60Simmentaler Kraftwerke AG Erlenbach 7.31 (CHF) 83.4Société des Forces Electriques de la Goule SA Saint-Imier 3.5 (CHF) 80.8

Significant shareholdersSignificant shareholders in BKW are:in % Holding Holding at 31.12.05 at 31.12.04 Canton of Berne 52.91 52.91E.ON Energie AG 20.0 20.0

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2 Capital structure

CapitalThe share capital of BKW amounts to CHF 132,000,000 and is divided into 52,800,000 fully paid up registered shares at a par value of CHF 2.50 each. The shares are listed on the SWX Swiss Exchange and the BX Berne eXchange. There is no capital of either an authorised or conditional nature. The Company has issued neither participation certificates nor dividend-right certificates.

Changes in capitalOver the past three financial years (2003–2005) the following changes in BKW share-holders’ equity have occurred (in CHF thousands): 2005 2004 2003 Unappropriated retained earnings 205,757 187,821 187,699 Appropriation of retained earnings: Allocation to legal reserves – – 7,260 Distribution of dividend 132,0003 95,0402 79,2001

Allocation to free reserves 70,000 92,000 100,000 Balance carried forward 3,757 780 1,239

1 CHF 15 per share at par value CHF 252 CHF 18 per share at par value CHF 253 CHF 2.50 per share at par value CHF 2.50 (subject to approval by the General

Shareholders’ Meeting)

Single-company accounts of BKW were prepared in accordance with the accounting provisions of the Swiss Code of Obligations. On 26 May 2005 the General Share-holders’ Meeting approved a 1:10 share split. The amount of share capital remains unchanged. The new registered shares have a par value of CHF 2.50 each (formerly CHF 25 each).

Changes in capital are summarised as follows (in CHF thousands): 31.12.2005 31.12.2004 31.12.2003 Share capital 132,000 132,000 132,000Gen. legal reserves 72,560 72,560 65,300Reserves for own shares 15,325 105,509 6,168Free reserves 467,575 287,391 286,732Unappropriated retained earnings 205,757 187,821 187,699Total 893,217 785,281 677,899

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SharesAll 52,800,000 registered shares in BKW with a nominal value of CHF 2.50 each are fully paid up. All shares have equal voting rights. Every share represented at the General Shareholders’ Meeting is entitled to one vote.

The Company does not print or issue certificates in respect of the registered shares. However, shareholders may request to be issued with a certificate in respect of their shares free of charge.

Limitations on transferability and nominee registrationsRegistered BKW shares can be transferred only by assignment. Notification of such assignment must be given to BKW. The Company may refuse to register an acquirer of shares in the shareholders’ register for the following reasons:– If, through the acquisition, a natural person or legal entity or a partnership directly

or indirectly combines more than 5 per cent of the entire share capital. The same restriction applies to corporate bodies, partnerships or groups of persons who are interrelated to each other or otherwise linked and act in concert to acquire shares.

– If the acquirer has not expressly declared that the shares were acquired in his own name and on his own account.

These limitations on transferability were introduced following the decision of the General Shareholders’ Meeting on 21 June 2002 and apply to all shares acquired after this date.

No nominees are registered.

Convertible bonds and optionsThe Company has no outstanding convertible bonds and has issued no options.

Cross-involvementThere are no reciprocal seats on the boards of listed companies.

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The following table lists the individual members of the Board of Directors and their functions: Name Nationality Board In office Function member since until Dr Fritz Kilchenmann CH 1994 2007 Chairman Chairman of the Nomination and Compensation Committee Chairman of the Ad-hoc Strategy CommitteeDr Hans Lauri CH 1994 2007 Vice Chairman Chairman of the Audit CommitteeWalter Balmer CH 1992 2007 MemberBarbara Egger-Jenzer CH 2002 2007 Member1

Member of the Ad-hoc Strategy CommitteeUrs Gasche CH 2002 2007 Member1

Member of the Ad-hoc Strategy Committee Vice Chairman of the Audit Committee2

Dr Hans-Dieter Harig D 1997 2007 Member Member of the Ad-hoc Strategy Committee Member of the Ad-hoc Strategy Committee3

Dr Bernhard Reutersberg D 2002 2007 Member Member of the Audit Committee Member of the Ad-hoc Strategy CommitteeLaurent Schaffter CH 2003 2007 MemberUlrich Sinzig CH 1992 2007 Member Vice Chairman of the Nomination and Compensation CommitteeWalter von Känel CH 1992 2007 Member Member of the Nomination and Compensation CommitteeWalter von Siebenthal CH 1992 2007 MemberPhilippe Virdis CH 2003 2007 Member Member of the Ad-hoc Strategy Committee

1 Canton of Berne delegate2 From 26 May 2005

3 Board of Directors

Information on members of the Board of DirectorsThe Board of Directors consists exclusively of non-executive independent members. Neither now nor in the course of the last three financial years has any current member of the Board of Directors simultaneously been a member of the Executive Board of BKW or a BKW Group company.

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In accordance with Art. 21 of the Articles of Incorporation and under the terms of Art. 762 of the Swiss Code of Obligations (OR), the Canton of Berne is entitled to a maximum of two seats on the Board of Directors. Currently, State Councillors Barbara Egger-Jenzer and Urs Gasche have seats on the Board of Directors as delegates of the Canton of Berne.The following is a summary of the main tasks, Board mandates and representation offices held by Board members.

Fritz Kilchenmann, Doctor of Law, advocate, has been Chairman of the Board since 1994. He runs his own firm of solicitors in Berne and represents BKW on the board of various affiliated BKW companies. Before opening his own firm of solicitors, he was legal advisor and Secretary to the BKW Board of Directors. He legally represents only the BKW Group.

Hans Lauri, Doctor of Law, advocate, has been Vice Chairman of the Board since 1994. Until 2002 he was Financial Director of the Canton of Berne, during which time he represented the canton of Berne on the BKW Board of Directors. In 2002 Dr Hans Lauri was elected to the Board of Directors at the General Shareholders’ Meeting. He runs his own consultancy in Münsingen and is Chairman of the Board of BLS Lötsch-bergbahn AG, Der Bund Verlag AG and Berner Reha Zentrum AG, and is a member of the Board of Directors of Basler & Hofmann Ingenieure und Planer AG and of Zuckerfabriken Aarberg und Frauenfeld AG. He is also parliamentary representative of the canton of Berne in the Council of States.

Walter Balmer is a master farmer and operates his own farm in Mühleberg. He is also Chairman of the Board of Lobag, Vice Chairman of the Board of Directors of Cremo SA, member of the Board of Directors of BEA Bern Expo, member of the board of the Swiss Farmers’ Association, and President of the Canton of Berne Association of Home Owners.

Barbara Egger-Jenzer is an advocate and a State Councillor, in which function she acts as Director of Construction, Transport and Energy for the canton of Berne State Council. She is also a member of the Board of Directors of BLS Lötschbergbahn AG and Alpar AG. Prior to her appointment she worked as an independent lawyer.

Urs Gasche is a solicitor and a State Councillor, in which function he acts as Director of Finance for the canton of Berne. Prior to his appointment he worked as an independent partner in a firm of solicitors. He is also a member of the Board of Directors of Verein-igte Schweizerische Rheinsalinen (United Swiss Salt Works) in Schweizerhalle.

Hans-Dieter Harig, Doctor of Engineering, is a mechanical engineer who has been retired since 2003. Prior to his retirement he was Chairman of the Board of E.ON Energie AG in Munich. He is now a member of the Board of E.ON Energie AG and represents E.ON Energie AG on the boards of other companies including E.ON Ruhrgas AG and Verbundnetz Gas AG.

Dr Bernhard Reutersberg holds a Swiss commercial diploma and is a member of the Management Board of E.ON Energie AG in Munich. He is also Chairman of the Su-pervisory Board of E.ON Thüringer Energie AG, E.ON Sales & Trading, Munich, and

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E.ON Hungaria as well as a member of the Supervisory Board of Avacon, Helmstedt, Thüga AG, Munich, and E.ON Bayern AG.

Laurent Schaffter holds a degree in engineering and, as a member of the State Council, is Energy Director for the Canton of Jura. He is also Chairman of the Board of Energie du Jura SA. Prior to his election to the Cantonal Council of Jura, he was a director of AJOTEX SA.

Ulrich Sinzig, advocate, is a director of aare Seeland Mobil AG and, among other things, Vice Chairman of the Board of Directors of Swiss Federal Railways (SBB), Vice Chairman of the International Association for Public Transport, and Vice Chair-man of the Swiss Tourist Board.

Walter von Känel is a businessman, a director of Longines SA and a member of the Management Board of the Swatch Group. He is also President of the Association Patronale de l’Horlogerie et de la Microtechnique as well as a member of the Union du Commerce et de l’Industrie du Jura bernois, the Saint-Imier State Council and the Assemblée interjurassienne. Before being appointed as director of Longines SA, he worked in a clock dial factory.

Walter von Siebenthal is a hotelier and is Chairman of the Board of Directors of the Montreux-Oberland Railway.

Philippe Virdis has a degree in engineering and is General Director of E, Chairman of the Board of Groupe EEF Connect SA, Cisel Informatique SA and SAIDEF SA, as well as Vice Chairman of Forces Motrices Hongrin-Léman SA, Frigaz SA and Capital Risque Fribourg SA. He is also a member of the Board of Directors of Béroche-Energie SA and a member of the board of Electrosuisse (Association for Electrical, Energy and Information Technology) and VSE (Association of Swiss Electricity Companies).

TasksIn accordance with Swiss corporation law and Art. 19 of the Articles of Incorporation, the Board of Directors is the governing body of the Company and of related organs. It decides on all matters which are not delegated to other organs either by law or by the Organisational Regulations as defined in Art. 20 of the Articles of Incorporation.

Election and terms of officeIn accordance with Art. 21 of the Articles of Incorporation, the Board of Directors consists of between nine and thirteen members. Under the terms of Art. 762 of the Swiss Code of Obligations (OR), the Canton of Berne is entitled to hold up to two seats. The other members are elected by the General Shareholders’ Meeting.

The term of office for members elected by the General Shareholders’ Meeting is four years. These members may be re-elected. The term of office for delegates of the Canton of Berne appointed under the terms of Art. 762 OR, is defined by the State Council. The term of office shall not extend beyond the calendar year in which a board member reaches his 70th birthday.

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Internal organisationThe internal organisational structure of the Board of Directors is laid down in the Articles of Incorporation and the Organisational Regulations. No special functions other than Chairman and Vice Chairman are defined. The Secretary need not be a member of the Board. In the year under review the Board of Directors convened nine times for an average of three hours per meeting.

The Audit Committee and the Nomination and Compensation Committee are per-manent committees to the Board of Directors. Furthermore, the Board of Directors is entitled to set up ad hoc committees at any time for the purpose of important business such as major investments, alliances and co-operations. In the event of time pressure or matters of utmost confidentiality, the Chairman or, in his absence, the Vice Chair-man is also entitled to set up an ad hoc committee. Members of these committees are appointed by the Board of Directors and are charged with the general task of analysing specific Board business in detail, and supporting the Board in its supervisory duties. The tasks and organisation of the Audit Committee and the Nomination and Compen-sation Committee are defined in Art. 9 and 10 of the Organisational Regulations and in the relevant directives authorised by the Board of Directors.

The tasks of the Audit Committee are as follows: – Discussion, with internal and external auditors as well as Executive Board repre-

sentatives, of the year-end financial statements, half-yearly financial statements, consolidated statements and half-yearly consolidated statements.

– Discussion, with internal and external auditors as well as Executive Board repre-sentatives, of significant changes in the presentation of the financial statements as well as extraordinary items in closing accounts and changes in disclosure.

– Evaluation and monitoring of the organisation and effectiveness of internal control-ling procedures, compliance with standards, activities of external auditors and their interaction with internal Group auditors.

– Preparatory work for the appointment or discharge of external auditors, Group audi-tors and the head of internal auditing, for submission to the Board of Directors.

– Discussion of the quality of accounting and financial reporting based on an assess-ment of internal and external audits.

The Audit Committee has the following powers:– Authorisation of accounts involving credits approved by the Board of Directors,

with the proviso that extraordinary credit overdrafts are reported to the Board of Directors.

– Direct involvement of the head of internal auditing at meetings of the Audit Committee.

– Fostering direct contacts between the Chairman and members of the Audit Com-mittee and internal and external auditors as well as the CEO.

– Definition of compensation for internal and external auditors.

The Audit Committee consists of three members: Dr Hans Lauri (Chairman), Urs Gasche1 (Vice Chairman), and Dr Bernhard Reutersberg. As a rule, meetings of the Audit Committeee are attended by the CEO, the Head of Finance and Controlling, the head of internal auditing and a representative of an external firm of auditors. The Audit Committee regulations stipulate at least four ordinary meetings per year.

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In 2005 the Audit Committee convened four times for an average of three hours per meeting.1 From 26 May 2005

The tasks of the Nomination and Compensation Committee are as follows:– Formulation of principles governing the compensation of members of the Board of

Directors and Executive Board.– Formulation of principles governing the selection of candidates for election or re-

election to the Board of Directors.– Succession planning at the Board and Executive Board level.– Handling selection and compensation business at the Board and Executive Board

level.

The Nomination and Compensation Committee has the following powers:– Definition of salaries of members of the Executive Board and briefing the Board of

Directors in this regard.

The Nomination and Compensation Committee consists of three members: Dr Fritz Kilchenmann (Chairman), Ulrich Sinzig (Vice Chairman) and Walter von Känel. Under the terms of the Nomination and Compensation Commitee regulations, the Nomination and Compensation Committee convenes as often as required but at least once a year. In the year under review the committee convened four times for an aver-age of 1.5 hours per meeting.

The Board of Directors has set up an Ad-hoc Strategy Committee whose task is to support and assist the Executive Board in monitoring strategy and developing strategic options for BKW from the standpoint of its main shareholders.

The tasks of the Ad-hoc Strategy Committee are as follows:– Assessment of action plans for pursuing strategic options.– Advising the Executive Board on the defined strategic options.– Formulation of a proposal to the Board of Directors concerning the option to be

selected as well as related strategic adjustments.

The Ad-hoc Strategy Committee has the following powers:– Engagement of external experts up to a total cost of CHF 100,000.

The Ad-hoc Strategy Committee consists of six members: Dr Fritz Kilchenmann (Chairman), Urs Gasche, Dr Hans-Dieter Harig, Dr Bernhard Reutersberg, Philippe Virdis and Ms Barbara Egger-Jenzer. In 2005 the Ad-hoc Strategic Committee con-vened six times for an average of two hours per meeting.

Definition of areas of responsibilityUnder the terms of Art. 20 of the Articles of Incorporation, the Board of Directors delegates the management of business to the Executive Board and defines their respon-sibilities within the framework of the organisational regulations. The Executive Board comprises the four Division Heads. Mr Kurt Rohrbach simultaneously performs the function of Chairman of the Executive Board and head of his division. As a rule, the Executive Board convenes once a week.

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Subject to the authority of the General Shareholders’ Meeting, the Board of Directors and the Board Committees, the Executive Board is responsible for the management of BKW and can delegate tasks and competences within its remit. It also performs preparatory work on matters which must be submitted to the governing bodies for decision.

The Board of Directors has transferred the following responsibilities in particular to the Executive Board:– Decisions on projects as well as the authorisation of credit for expenses and the as-

sumption of obligations related to the core operating business, and in particular the preparation, extension and maintenance of production, transmission and distribution plant for electrical energy, the assumption of obligations related to such plant, as well as contributions to such plant up to the amount of CHF 8,000,000.– if provided for by financial planning, and up to the amount of CHF 4,000,000.– for unplanned projects.

– Decisions on projects as well as the authorisation of credit for expenses and the assumption of obligations outside the core operating business, up to the amount of CHF 4,000,000 per case if provided for by financial planning, and up to the amount of CHF 2,000,000.– for unplanned projects.

– Decisions on the purchase and sale of real estate up to CHF 8,000,000.– if provided for by financial planning, and up to CHF 4,000,000.– for unplanned projects.

– Decisions on the subscription of share issues and participation in or increases of par-ticipations in companies, provided the expense does not exceed CHF 2,000,000.– per case and the purpose of the company in question is not outside the core operating business.

– Decisions on the assignment of work and deliveries.– Decisions regarding the initiation of legal or arbitral action, and authorisation of

litigation settlements in this regard up to the amount of CHF 8,000,000.–.– Decisions on taking up long-term loans up to the amount of CHF 50,000,000.–.– The appointment, induction and further training of senior management.– The definition of salaries and compensation for members of the Extended Executive

Board and senior management.

Additional information on the Executive Board is given in Para. 4.

Information and control instruments vis-à-vis the Executive BoardThe Executive Board undertakes to provide the Board of Directors with regular updates on important events.

As a rule, matters which must be handled by the Board of Directors are discussed in advance by the board conference which is attended by the Chairman of the Board and members of the Executive Board.

Reporting to the Board of Directors takes the following form:– Regular reports on important events as well as on general business performance. – A report, submitted in spring, on the financial figures for the previous fiscal year

and, in autumn, a report on the financial figures for the first half of the current year. These reports are accompanied by a forecast of the annual result based on current business performance.

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– In the middle of the year, the medium-term plan for the next four financial years; and towards the end of the financial year, the next year’s budget for approval.

– In spring, written reports on the previous-year performance of BKW holdings, risk management in the trading business and sponsorship activities.

Internal auditing submits a quarterly report to the Audit Committee summarising its auditing activities. In particular, the report covers audits of Group-wide transaction and business processes. Once a year, internal auditing reports to the Audit Committee on the annual financial statements audit and any other priority topic defined by the audit.

4 Executive Board and Extended Executive Board

Information on members of the Executive BoardThe BKW Executive Board consists of four members: the Heads of Corporate Steering, Management Services, Networks and Energy.

The following is a summary of information on members of the Executive Board: Name Nationality Function Kurt Rohrbach CH President, Head of Corporate SteeringHeinz Raaflaub CH Vice President, Head of Management ServicesPatrick Braun CH Head of NetworksHermann Ineichen CH Head of Energy

Kurt Rohrbach holds a degree in electrical engineering from the Federal Institute of Technology. In addition to his BKW function, he is a member of the board of the Canton of Berne Trade and Industry Association. He joined BKW in 1980 and headed the Energy Division of BKW until the end of 2002.

Heinz Raaflaub is an advocate and notary public. He joined BKW in 1974 and headed the Legal and Real Estate Services unit of BKW until mid-1984. He is also a member of the board of the Bernese Association of Employers.

Patrick Braun holds a degree in electrical engineering from the Federal Institute of Technology. He joined BKW In 1977 and headed the Networks and Trade department of BKW until mid-1996.

Hermann Ineichen holds a degree in electrical engineering and an MSc in Energy Management. He joined BKW In 1996 and headed the Trade unit of BKW until the end of 2000.

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Information on members of the Extended Executive BoardThe Board Committee has appointed the following senior management members to the Extended Executive Board. They directly represent the issues and business within their sphere of responsibility on the Executive Board and have the right of co-decision and of motion/application. Name Nationality Function Arturo J. Egli CH Head of SalesMatthias Kaufmann CH Secretary to the Board of DirectorsDr Martin Pfisterer CH Head of Corporate and Brand CommunicationsUrs Seiffert CH Head of TradeChristian Sahli CH Head of Finance and ControllingHans-Rudolf Thöni CH Head of Production

Arturo J. Egli holds a degree in electrical and mechanical engineering from the Federal Institute of Technology. Before joining BKW on 1 August 2003 as Head of Sales, he was CEO of Lanz Oensingen AG and Thermoselect Heavy Machinery AG.

Matthias Kaufmann is an advocate. Before joining BKW in 1992, he was Assistant Head of the Swiss Federal Council’s Service for Administrative Control.

Martin Pfisterer is a Doctor of Law, advocate and notary public as well as a federally certified PR consultant, and has been Head of Communication at BKW since 1987.

Urs Seiffert has a degree in mechanical engineering and an MBA. Until the end of 2000 he headed the Energy Trading Department of BKW.

Christian Sahli has a degree in social science and headed the Corporate Finance unit of BKW until the end of 2003.

Hans-Rudolf Thöni has a degree in mechanical engineering from the Federal Institute of Technology. Until the end of June 2001 he headed the Engineering Technology Department of the Mühleberg nuclear power plant.

Management contractsBKW has delegated no management tasks to third parties not belonging to the Group.

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5 Compensations, shareholdings, and loans

Content and method of determining compensation and shareholding programmesCompensation for members of the Board of Directors is defined by the Board of Direc-tors. Compensation for members of the Executive Board is defined by the Nomination and Compensation Committee.

With the exception of the Chairman, members of the Board of Directors receive a fixed annual remuneration, a flat-rate expense allowance and an expense allowance for meetings. The Chairman of the Board also receives a fixed annual remuneration and additional compensation for his secretariat/infrastructure, but no expense allowance for meetings. In 2005 each member of the Board of Directors was offered the option of acquiring 400 BKW shares at a preferential price. The shares acquired in this way are subject to a blocking period.

Members of the Executive Board receive a fixed annual remuneration for their service, including a variable bonus of up to 25% of the annual remuneration, indexed to busi-ness success and personal performance. In 2005 each member of the Executive Board was offered the option of acquiring 400 BKW shares at a preferential price (members of the Extended Executive Board were offered the option of 300 shares each). The shares acquired in this way are subject to a blocking period.

Remuneration of members of governing Company organsThe following is a list of compensations for the entire Board of Directors and Ex-ecutive Board including the Extended Executive Board. This covers the total of all compensations granted in the financial year to persons who are members of company organs and persons who stood down from this function in the course of the year. No severance payments were made.

The members of the Board of Directors perform no executive functions and receive no benefits from BKW in the form of retirement provisions.

No share options are issued.

The following compensation was paid to, and share allotments conferred on, existing members of governing bodies: Organ Compensation Share allotment Members of the CHF 1,061,524 4,400 Registered shares atthe Board of Directors par value CHF 2.501 Members of the CHF 3,527,7672 4,760 registered shares atExecutive Board and par value CHF 2.503

Extended Executive Board

1 All 4,400 registered shares were purchased by members of the Board of Directors at a preferential price; the shares thus acquired thus are subject to a blocking period. The

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difference between the option price and the market value of the share was recorded as compensation.

2 The total compensation for members of the Executive Board is based on gross salary. Employer pension fund contributions, discounted value of shares assigned as a performance premium or loyalty bonus, as well as the difference between the option price and the market value of the share are also included in the total compensation.

3 3,100 registered shares were purchased by members of the Board of Directors at a preferential price; the shares thus acquired are subject to a blocking period. The difference between the option price and the market value of the share has been ac-counted for in the total compensation (see Footnote 2 above). The remaining 1,660 registered shares were assigned to members of the Executive Board and the Extended Executive Board as performance premiums or loyalty bonuses which are also subject to a blocking period and were taken into account in the discounted value of the total compensation (see Footnote 2).

No remuneration was conferred on former members of governing organs in the year under review and no severance payments were made to members of governing organs who gave up their function in 2005.

Additional fees and remunerationNo member of the governing organs received additional fees or additional remuneration in 2005 amounting to half of the member’s statutory total compensation.

Loans, advances or credits granted to members of governing bodiesThe following table, broken down in the same way as the above breakdown of members, lists the total outstanding loans, advances and credits granted by Group companies of BKW to members of governing bodies and the terms under which such loans, advances and credits were granted.

1 Loans with an undefined maturity term for home construction in accordance with the valid provisions.

2 Individuals and legal entities as defined in Art. 678 of the Swiss Code of Obligations (OR)

BKW has provided no securities on loans which members of its governing organs have received from third parties.

Organ No. of loans1 Total amount Interest rates Securities or beneficiary CHF Members of the NoneBoard of Directors in toto andpersons closely linked to them2

Members of the Executive Board 2 CHF 271,750 3% Mortgageand Extended Executive Board certificatesand persons closely linked on real estateto them2

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Share ownershipOrgan Share ownership Members of the Board of Directors in toto 22,200 Registered shares at par value CHF 2.50 Members of the Executive 24,524 Registered shares atBoard and Extended Executive Board in toto par value CHF 2.50

Highest total compensationThe highest total compensation paid in 2005 to a member of the Board of Direc-tors (total fixed remuneration, flat-rate allowance fees for special services and for infrastructure and secretariat, as well as concessions in respect of share acquisition) amounted to CHF 298,691.

Note 27 to the Consolidated Financial Statements provides additional information on compensation paid to members of the Board of Directors and Executive Board.

6 Shareholders’ participation rights

The following provisions are taken from the BKW Articles of Incorporation. The current Articles of Incorporation are available to shareholders free of charge upon request.

Voting-rights restrictions and representationOnly persons listed in the shareholder register as a shareholder with voting rights are entitled to exercise shareholders’ rights. There are no limitations on voting rights for BKW shareholders attending the General Shareholders’ Meeting.

Every shareholder with voting rights can represent himself at the General Sharehold-ers’ Meeting or be represented by another shareholder. Representation by a third party is not permitted.

Public-law associations, legal entities and commercial societies are represented by their governing bodies, shareholders or legal representatives or by persons with writ-ten special power of attorney.

Every share listed in the shareholder register with voting rights is entitled to one vote at the BKW General Shareholders’ Meeting.

Statutory quorumUnless otherwise provided for under law, decisions at the General Shareholders’ Meet-ing are reached by a simple majority of votes. Simple majority of votes also applies to decisions concerning the easing or lifting of the restriction on transferability of registered shares.

Convocation of the General Shareholders’ Meeting, agendaNotice of the General Shareholders’ Meeting shall be given by the Board of Directors at least 20 days prior to the date of the meeting. Shareholders representing at least ten

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per cent of the share capital may also convene a meeting by submitting their request in writing, stating the agenda items and proposals. Shareholders representing shares with a par value of CHF 1 million or more may request that an item be placed on the agenda. This request must be submitted no later than 50 days before the date of the General Shareholders’ Meeting.

Entries in the share ledgerThe basis for determining entitlement to attend or be represented at the General Share-holders’ Meeting is the status of entries of shareholders with voting rights on the tenth day before the General Shareholders’ Meeting.

7 Change of control and defensive measures

Under the term of Art. 6 of the Articles of Incorporation, BKW has raised the threshold for an obligation to make an offer as defined in Art. 32 of the Federal Law on Stock Exchanges and Securities Trading to 49%.

No agreements have been drawn up with or benefits planned for members of the Board of Directors and/or Executive Board in the event of transfer of ownership.

8 Auditors

Terms of officeThe auditors of BKW are selected on an annual basis. The current auditors are Ernst & Young AG, who have held this office since 1990. The mandate was originally con-ferred on Neutra Treuhand AG, which was taken over by ATAG Ernst & Young Ltd. Since 2000 this company has operated under the name Ernst & Young AG. Mr Marcel Gehrig has been Chief Auditor since 2003.

FeesThe auditors’ fee for auditing costs related to BKW and consolidated Group companies amounted to CHF 494,000 for the year under review. The auditors’ fee for supplemen-tary services not related to auditing amounted to CHF 248,000.

Supervisory and control instruments vis-à-vis the auditorsSupervisory and control instruments vis-à-vis the auditors constitute one of the key components of the Audit Committee’s tasks. The Audit Committee normally convenes four times a year. As a rule, the auditors attend these meetings.

9 Information policy

The Company is committed to the punctual dissemination of transparent and com-prehensive information to its shareholders and the general public. It regularly informs the media about important events related to its business activities. A press conference is held at least once a year. Shareholders receive the Annual Report in addition to a written invitation to the General Shareholders’ Meeting and, as a rule, a half-yearly

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shareholder’s letter on business performance. Share price related information is pub-lished within the context of the obligation to disclose as required by the law on Stock Exchanges and Securities Trading. In addition to press releases, special information for shareholders and investors (in particular Annual Reports) are published on the Internet (www.bkw-fmb.ch).

10 Significant changes since 31.12.05

Samuel Leupold has been appointed Head of Production and member of the Extended Executive Board with effect on 1 August 2006, succeeding Rudolf Thöni who will continue to act as energy economy specialist for BKW. A graduate in engineering from the Federal Institute of Technology and a Master of Business Administration, Samuel Leupold currently holds a senior management position at Bühler AG, Uzwil.

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Addresses

BKW Head Office

BKW FMB Energy LtdViktoriaplatz 23000 Berne 25Tel. (+41) 31 330 51 11Fax (+41) 31 330 56 35info@bkw-fmb.chwww.bkw-fmb.ch

Investor Relations

BKW FMB Energy LtdAlex MiescherInvestor Relations OfficerViktoriaplatz 23000 Berne 25Tel. (+41) 31 330 57 97Fax (+41) 31 330 58 04investor.relations@bkw-fmb.ch

Media Communications

BKW FMB Energy LtdMedia CommunicationsViktoriaplatz 23000 Berne 25Tel. (+41) 31 330 51 07Fax (+41) 31 330 57 90info@bkw-fmb.ch

Regional Offices

BKW FMB Energy LtdSpiez Regional OfficeThunstrasse 343700 SpiezTel (+41) 33 650 82 11Fax (+41) 33 654 28 48spiez@bkw-fmb.ch

BKW FMB Energy LtdGstaad Regional OfficeKirchstrasse3780 GstaadTel (+41) 33 748 47 47Fax (+41) 33 748 47 46gstaad@bkw-fmb.ch

BKW FMB Energy LtdLangnau Regional OfficeBurgdorfstrasse 253550 Langnau i.E.Tel (+41) 34 409 61 11Fax (+41) 34 409 61 15langnau@bkw-fmb.ch

BKW FMB Energy LtdBienne Regional OfficeDr. Schneiderstrasse 162560 NidauTel (+41) 32 332 22 00Fax (+41) 32 332 24 22biel.bienne@bkw-fmb.ch

BKW FMB Energy LtdBerne Regional OfficeBahnhofstrasse 203072 OstermundigenTel (+41) 31 330 51 11Fax (+41) 31 932 01 67bern@bkw-fmb.ch

BKW FMB Energy LtdWangen Regional OfficeVorstadt 203380 Wangen a.A.Tel (+41) 32 631 43 43Fax (+41) 32 631 43 63wangen@bkw-fmb.ch

BKW FMB Energy LtdDelémont Regional OfficeRue Emile-Boéchat 832800 DelémontTel (+41) 32 421 33 33Fax (+41) 32 421 32 00delémont@bkw-fmb.ch

BKW FMB Energy LtdPorrentruy Regional OfficeRue Achille Merguin 22900 PorrentruyTel (+41) 32 465 31 31Fax (+41) 32 465 31 41porrentruy@bkw-fmb.ch

Publishing Details

Concept, EditorDieter Widmer

Design/Image ConceptAtelier Bundi DNS, Boll

Full-page photosPhotographyBrigitte Batt + Klemens Huber, Fräschels

Other photosMartin Rindlisbacher, Brenzikofen

PrinterJost Druck AG; Hünibach

The photographs on pages 6, 7, 13, 17, 21, 24, 25 and 28 depict BKW struc-tures, colours and forms.

Facts & Figures

Financials

2005 2004 20031 20021 20011

Restated CHF m CHF m CHF m CHF m CHF mTotal operating revenue 1,989.1 1,770.2 2,944.5 2,079.1 1,621.6Operating income before depreciation and amortisation 431.0 385.1 370.0 346.4 356.3Net profit 306.7 217.7 254.2 208.7 196.9

Cash flow provided by operating activities 308.0 311.8 217.3 281.7 302.5Purchase of property, plant and equipment 129.5 133.8 78.3 84.4 79.3

Balance sheet total 5,508.9 4,889.2 4,810.9 4,365.3 4,136.4Shareholders’ equity 2,742.8 2,378.0 2,220.0 1,964.2 1,819.6

as % of balance sheet total 49.8 48.6 46.1 45.0 44.0

Electricity business

GWh GWh GWh GWh GWhElectricity sales Switzerland 7,058 6,962 6,708 6,468 6,578Electricity sales International 3,774 3,672 4,437 1,977 293Electricity trading 7,044 6,829 32,063 25,483 15,155Pump/substitution energy 665 541 678 593 531Transmission losses/own consumption 363 305 350 319 304Total sales 18,904 18,309 44,236 34,840 22,861

Volume generated by hydroelectric plants 3,489 3,572 3,915 3,751 4,147Volume generated by nuclear power plants

incl. purchase contracts 5,371 5,828 5,786 5,744 5,640Volume generated from decentral plants 15 13 14 15 18Trade (purchases) and energy buybacks 10,029 8,896 34,521 25,330 13,056Total purchases 18,904 18,309 44,236 34,840 22,861

Employees (Full Time Equivalent) 2,120 2,130 2,074 2,027 1,911

Information on the BKW share2

CHF CHF CHF CHF CHFPar value 2.50 2.50 2.50 2.50 2.50Share price

Year-end 88.00 69.50 47.90 30.20 12.00High 95.85 70.35 47.90 30.20 15.00Low 67.40 47.90 30.00 12.50 12.00

Earnings per share (BKW shareholders’ portion) 5.88 4.15 4.87 3.98 3.75Equity (BKW shareholders’ portion) 51.85 46.52 42.09 38.00 34.55

Market capitalisation in CHF millions 4,627.5 3,529.5 2,502.7 1,545.2 626.4

1 Changes in IFRS accounting principles for the years 2004–2005 have resulted in limited scope for comparison with the 2001–2003 figures

2 2001–2004 presentation adjusted following 1:10 share split

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BKW FMB Energy LtdAnnual Report 2005B

KW

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