Strategic Alliance Between Endesa and Morgan Stanley Dean Witter for Structured Electricity Trading.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 20, 1999

-- Immediate integration of the structured electricity trading

activities of both companies in Europe.

-- Endesa is the first Spanish company to start electricity

trading and marketing activities on a European scale.

Endesa S. A. (NYSE:ELE), and Morgan Stanley Dean Witter have agreed to establish a strategic alliance to jointly develop their structured electricity trading businesses in Europe.

This alliance is a fundamental development in Endesa's European strategy. For Morgan Stanley, this venture will allow it to extend its present trading and marketing activities, currently focused on the US, UK and Scandinavia, into Continental Europe.

The immediate goal of the alliance is to establish a joint business line, focused on the structuring of wholesale electricity transactions. Staff, provided by both companies, will be based initially in London. This platform will start operation in early 2000 and will be supported by the international Endesa and Morgan Stanley Dean Witter organisations.

The alliance will enable both companies to integrate immediately all of their structured wholesale electricity trading and marketing activities in Europe.

Electricity trading and marketing

The liberalisation of electricity markets in most European countries and the implementation of the European Directive have led to the development of wholesale electricity markets, in most cases beyond the national boundaries, that look increasingly similar to the international markets of oil, gas and commodities.

     -- Spot electricity markets, similar to stock or commodity
        exchanges, are already functioning or under development in the
        UK, Scandinavia, Spain, The Netherlands, Germany, Poland, etc.

     -- Futures markets are in operation in Scandinavia, and will soon
        exist in Germany and The Netherlands.

     -- A number of electricity traders and brokers, similar to those
        operating in financial and commodity markets, have already
        appeared on the European scene.

     -- Increasingly complex contractual mechanisms, such as swaps,
        options, or electricity price indexations with commodity
        prices, are developing in the electricity markets.

The increasing complexity of electricity markets has made it necessary for electricity companies to develop risk management functions similar to those of financial institutions or oil companies.

This has led the way to a new trading business that complements the traditional generation, distribution and supply activities with a variety of operations, in physical and financial markets. These activities include spot sales (which already take place in power pools in Spain, the UK or Scandinavia and bilateral markets in Switzerland or Germany) and new contractual structures (contracts for differences, options, indexed contracts, etc.) that provide an improved risk coverage which benefits both the supplier and the seller. These tools make it possible to structure complex wholesale transactions, customised to suit the needs of large electricity consumers, distribution companies, etc.

For Endesa, this activity is fundamental to its European expansion, as the instrument to achieve an adequate optimisation of its energy and financial flows in liberalised markets, ensuring strict risk control and preventing the exposure to open market positions.

Endesa and Morgan Stanley Dean Witter

The alliance of Endesa and Morgan Stanley Dean Witter brings together two of the global leaders in their respective businesses.

Endesa is one of the leaders of the electricity industry at an international level, with 35,000 MW of installed capacity, 120,000 GWh of distributed energy and 21 million customers in thirteen countries on three continents, figures that position it among the world's 10 largest electricity companies.

Endesa has recently focused its strategy in Europe. It is actively contributing to the development of the European electricity market, promoting the development of exchanges such as the Amsterdam Power Exchange (APX) or the Polish Power Exchange (GESA). Endesa is one of the largest shareholders of APX, with a 10% stake, and has a representative on the Supervisory Board. The Spanish company is one of the founders and a major shareholder of GESA, with a 10% stake, where it is also the co-ordinator of the implementation efforts and has a representative on the supervisory board, as well as another as president of the management board. Endesa is also initiating its commercial deployment in Europe, as well as analysing a variety of investment opportunities.

Morgan Stanley Dean Witter & Co. is a preeminent global financial services company and a market leader in securities, asset management, and credit services. The Company has offices in New York, London, Tokyo, Hong Kong and other principal financial centers around the world and has 464 branch offices serving individual investors throughout the United States. In the fiscal year ending 30 November 1999 the company recorded net income of US$ 4.79 billion and a market capitalisation is US$ 72.9 billion.

Morgan Stanley Dean Witter's commodities division is among the largest energy traders in the world. In electricity it is among the leaders of the US, UK and Scandinavian wholesale trading and marketing markets. In oil and gas, Morgan Stanley is among the world leaders in all market segments.

Reasons for an alliance

The alliance of an electricity company such as Endesa and an experienced trader such as Morgan Stanley Dean Witter is based on the complementary abilities of these two organisations to develop this business in a faster and more efficient way.

Morgan Stanley Dean Witter contributes its experience, technology and IT systems for trading and risk management, in an activity that depends critically on these elements. In this way, its presence in the alliance will make it possible to start this new business more quickly and with increased guarantees of strict risk control.

Endesa contributes its experience in the operation and development of generation and distribution systems, in the commercialization of electricity to large customers (it currently has a 45% market share in the liberalized Spanish market), as well as in the development of the electricity business in liberalised environments, in Spain and Latin America. Endesa will implement its strategy of asset development in Europe to support the structured trading activities of the joint venture.

Endesa has experience in electricity exchanges such as the Spanish pool and the most important Latin American exchanges, as well as in transmission analysis and management, fundamental for an adequate treatment of physical electricity deliveries.

Moreover, the US experience shows that electricity markets, even though they are becoming closer to commodity or financial markets, have specific characteristics that make it necessary to complement the financial and risk management abilities with electricity capabilities.

Business expectations

With this agreement Endesa becomes the first Spanish electricity company to start trading and marketing activities on a European scale. This trading platform will support the commercial development of Endesa in Europe, and its eventual investments in generation and distribution assets, adequately managing the risks derived from these businesses.

It is extremely difficult to make reliable estimates in a market as incipient and dynamic as European electricity. However, it is estimated that this trading activity could generate sales revenues of more than US$ 1 billion in a four or five years time horizon.

For further information, contact Miguel Temboury, North America Investor Relations, 212/750-7200, www.endesa.es.