Dear Shareholders

The BKW Group is aiming for carbon-free production in the long term. To this end, in addition to promoting energy efficiency, the company intends to pursue further expansion of new renewable energies in Switzerland and abroad, optimise hydroelectric power plants, and build a replacement for Mühleberg nuclear power plant.

Successful annual results in a difficult environment

In the 2009 financial year BKW generated consolidated operating revenue of CHF 3,592.6 million, an increase of CHF 96.4 million or 2.8 percent over the previous year. Operating profit before interest, taxes, depreciation and amortisation (EBITDA) rose by CHF 30.3 million or 6.4 percent to CHF 501.6 million. The good operating result is attributable to the undiminished strength of the Group's earning power and to a special effect of CHF 28.6 million recognised in income. Net profit rose year-on-year by 115.2 percent to CHF 298.5 million, primarily due to the significantly higher financial result following an easing on international financial markets.

Market liberalisation off to a slow start

The Swiss Electricity Supply Act (StromVG) has now been in force for more than a year. Since then, electricity market liberalisation and the associated price adjustments have been the subject of much political debate and public discussion. So far, liberalisation has failed to live up to many of the expectations of customers, politicians, business and the electricity industry itself. In a free market, supply and demand largely determine the price of a product. Yet two factors are impeding the growth of effective competition, and will continue to do so for the foreseeable future: firstly, the law provides for phased liberalisation, which means that the electricity market is initially opened up only to customers with an annual electricity consumption of more than 100 megawatt hours (MWh); and secondly, under the related decree, electricity utilities have an obligation to deliver electricity also to large customers at production cost. As long as wholesale prices remain significantly higher than end customer prices, very few customers will be motivated to change their electricity provider. And BKW customers are no exception.

The formulation of the provisions governing the billing of ancillary service costs and grid usage charges bear all the hallmarks of the regulator. Having already curtailed revenue from the use of the ultra-high-voltage grid, in spring 2009 the Electricity Commission ElCom issued an additional decree reducing such revenue even further. As a result, BKW is losing out on revenue of several million francs a year in the high-, medium- and low-voltage grid area alone. BKW takes the view that this mandatory reduction in revenue contravenes the applicable legal conditions, and in 2009 lodged an appeal against this ruling with the aim of clarifying the legal situation. BKW wants to make sure there is no shortage of necessary funds in the longer term, to avoid putting energy security at risk. Reliable, fault-free grids are an indispensable part of the infrastructure if energy is to continue being supplied reliably in the quality to which consumers have become accustomed. This, in turn, depends on the availability of sufficient funds to finance the necessary investments in replacements and upgrades.

A number of external factors are driving up the cost of grids. Despite this, BKW decided that, in view of the difficult economic situation, it would not raise electricity prices for 2010. Instead, it opted to focus on internal cost-cutting measures. Nevertheless, any surcharges imposed by the legislator and authorities, such as an increase in the compensatory feed-in tariff (FIT) or water rates, will inevitably need to be passed on to customers.

Carbon-free production is the long-term goal

In the long term BKW is aiming for a carbon-free production park. To this end, in addition to promoting energy efficiency, the company is committed to further expansion in new renewable en- ergies in Switzerland and abroad, optimisation of hydroelectric power plants, and a replacement for Mühleberg nuclear power plant. Because the decision on a replacement nuclear power plant will be made by referendum, its realisation remains open to uncertainty. Efforts to expand new renewable energies are also increasingly encountering opposition. BKW is therefore targeting gas- and coal-fired fossil-thermal production, at least as a transitional solution. In keeping with its long-term strategy, however, it will refrain from actively seeking any new fossil-thermal power plant projects although existing projects abroad will be implemented on a smaller scale. Planning work on the gas-fired combined-cycle power plant in Utzenstorf has been suspended. The construction site is exceptionally well served in terms of infrastructure, so BKW has purchased the land for the planned facility as part of an overall concept.

Top priority on a replacement for Mühleberg nuclear power plant

For BKW, carbon-free production is heavily dependent on building a replacement for Mühleberg nuclear power plant. With this in mind, in 2007 the company co-founded with Axpo AG the project company Resun AG, and in December 2008 Resun submitted to the relevant federal authority two general licence applications to build replacements for the existing Mühleberg and Beznau nuclear power plants. The application for Mühleberg was favourably viewed by the authorities. They will now draw up their evaluations of the three general licence applications for Mühleberg (BE), Beznau (AG) and Gösgen (SO), and submit them to all cantons by autumn 2010. The cantons will then draw up their positioning statement on the general licence applications. These statements are subject to a voluntary or mandatory referendum in some cantons, and the Canton of Berne Council plans to submit its statement of position to Bernse voters.

According to various surveys, the majority of the population in the cantons of Berne, Fribourg and Neuchâtel are in favour of a replacement for Mühleberg nuclear power plant, and two thirds are even of the opinion that it should be built on the existing site in Mühleberg. The majority of residents in the Mühleberg region itself also support the BKW project. Yet such favourable findings do not alter the fact that public opinion of nuclear power is divided.

Unlimited licence granted

Up to now, Mühleberg has been the only nuclear power plant in Switzerland to have a time limit imposed on its operating licence. In January 2005 BKW petitioned the Federal Department for the Environment, Transport and Communications (DETEC) to abolish the time limit, which expires at the end of 2012, and at the end of 2009, DETEC ruled in favour of abolishing the time limit. Although there is still the possibility of an appeal, BKW derives satisfaction from this decision since it supports BKW's strategy for a carbon-free supply of electricity.

Driving forward expansion in new renewable energies

Large projects are not the only ones attracting opposition. Plans for facilities for the production of electricity from new renewable energies also frequently encounter resistance. Besides having to cater to the requirements of a wide range of interest groups from landscape conservation and heritage protection to fishery associations and environmental organisations, these facilities often have to meet strict legal provisions and undergo lengthy permit procedures. BKW endeavours to ensure that directly affected parties and interest groups are involved in its plans as early as possible. For example, over a nine-year period the project to expand Juvent II wind farm in the Jura region of Berne was planned in close collaboration with the Swiss Foundation for Landscape Protection and other interest groups.

In 2009 BKW continued its drive to step up research and development in the field of new renewable energies. In the field of solar energy, this was achieved primarily via the Mont-Soleil company and the cooperation with Bertrand Piccard's Solar Impulse project.

Using smart electricity grids to regulate consumption

The future of electricity supplies depends not only on efficient, innovative production technologies but also on further development of the entire infrastructure. With this in mind, BKW is actively exploring the following issues: Given the enormous volume of data available, what is the best way to use this to ensure greater flexibility for customers and enable suppliers and grid operators to optimise their operations?

BKW is currently drafting decision guidelines for the development and introduction of innovative products based on an intelligent electricity supply infrastructure. The aim is to identify the opportunities, feasibility and obstacles relating to integrated electricity supply solutions in Switzerland. To this end it has not only launched internal projects but is also working closely with members of the business and political communities. One example is the collaboration with Swiss Post, IBM Switzerland and the municipality of Ittigen (BE) to obtain findings on a broad-based scale.

Sustainability: our constant compass

It is BKW's declared long-term goal to continue supplying customers with reliable, cost-effective and ecological electricity well into the future. The principle of sustainable development, based on the triangular relationship between the economy, ecology and society, is a long-honoured tradition at BKW.

Until 2008, corporate sustainability was included as part of the Annual Report. To underscore the growing importance of this topic, BKW published its first separate sustainability report in the summer of 2009. Drawn up in compliance with international standards, the report provides customers, shareholders, investors and employees with detailed information on selected activities and issues, particularly in the field of electricity production and transmission.

2008 Annual Report approved

On 30 April 2009, the General Shareholders' Meeting approved the 2008 Annual Report and consolidated year-end financial statements, adopted the proposals of the Board of Directors for the appropriation of retained earnings, and discharged the Board of Directors of its responsibilities. The auditors and Group auditors for fiscal 2008 were Ernst & Young AG.

Election to the Board of Directors

Karl-Michael Fuhr stood down from the Board of Directors at the 2009 General Shareholders' Meeting. Shareholders elected Hartmut Geldmacher to the BKW Board of Directors as representative of E.ON Energie AG for the remaining term of office, i.e. until the 2011 General Shareholders' Meeting.

A warm thank-you to employees, customers and shareholders

2009 was a year which saw a great many changes in the electricity sector, compounded by the challenges of the global economic crisis. All this called for a huge personal effort on the part of BKW employees. The Board of Directors and Executive Board extend their warmest thanks to all employees for their hard work and dedication. Thanks to their commitment, BKW is able to position itself and pursue further growth as the largest vertically integrated utility in Switzerland. Our thanks also go to our customers and shareholders for their continued loyalty. Your trust is our most important criterion for BKW's successful future.

Dr Fritz Kilchenmann
Chairman

Kurt Rohrbach
CEO