RWE Essay

RWE is a power, natural gas, and water resources company based in Essen, Germany. RWE came into existence in 1898 when a contract was signed for a power plant to be built in Essen to provide power for that city. With over 63,000 employees, it is now the second-largest utility company in Germany, behind E.ON. In 2007 its revenue was €42.5 billion, of which €17.7 billion came from outside Germany. Its net profit that year was €2.7 billion. In 2008 it was rated A (Stable Outlook) by Standard and Poor and A1 (Negative Outlook) by Moody’s.

RWE is the fifth-largest utility company in Europe and holds a large market share on the continent. The company provides electricity and what it describes as a full range of services. It serves 20 million customers that include private households, commercial operations, and municipal utilities and regional energy suppliers. It ranks number five in Europe and is the number two provider of electricity in Germany and Hungary, and number three in Britain and Slovakia.

RWE’s customer base for its gas operations is 10 million customers, making it the number six provider of gas in Europe. It is the third-largest supplier of gas to Germany and Britain and the largest supplier to the Czech Republic. It supplies gas as well as related services, including transportation. RWE provides water management and waste services. This business activity had RWE engaged in continental Europe, Britain, and the United States, but it has committed to withdraw from this aspect of its business outside Europe. In 2006 it sold its Thames

Water division for £8 billion. In the following year RWE planned to sell its American Water Works division (which it had purchased in 2003) but delayed the sale due to uncertainty in American markets. It simply was not a good time to sell and RWE assumed that it could get only 80 percent of what American Water was worth. The sale did go through in April 2008 when it sold 36 percent of its stake in the company. Shares sold for $21.50 each instead of the planned $24. The issues that had caused RWE to delay its offering still existed and RWE received $1.2 billion from the sale, considerably less than it had hoped.

As has been the case with other power and gas companies in the European Union, RWE has had to face scrutiny by both the European Commission and the German Federal Cartel Office. One such case was the Cartel Office’s investigation into the charge that RWE had been overcharging for electricity based on improperly factoring in CO2 charges. The investigation and antitrust activity was dropped when RWE agreed to auction off some electricity from its coal fired plants.

Commission to sell its gas transmission network in Germany. As part of its efforts to encourage competition within the EU, the European Commission has been trying to uncouple gas companies from the gas transportation networks. In return for the sale, the European Commission agreed that it would drop its antitrust investigations and would not file a complaint. In a related sale the year before, although this time prompted by action from the Dutch government, RWE sold its gas grid companies in the Netherlands.

Despite these activities that have reduced the reach of RWE in some ways, it has continued to expand, notably in eastern Europe. In 2008 RWE began operations in Turkey and in that same year signed an agreement to purchase a stake in a Turkish electricity generation company. RWE will eventually assist in the construction of new power plants. In that same year RWE joined a consortium of five other companies from Bulgaria, Austria, Hungary, Romania, and Turkey to construct a gas pipeline from Turkey to Austria. RWE announced plans to expand its gas deliveries to Slovakia. RWE has also partnered with a Swedish corporation to purchase British Energy.

Finally, in a transaction that shows possible changes in RWE’s business model, in 2007 it purchased a company, eprimo, that has successfully used a Web-based business model. RWE used eprimo to sell gas through the internet to supplement its current model of sales by direct contact between its regional companies and its customers.

Bibliography:

  1. Charles Forelle, “RWE Seeks to Sell German Gas Grid,” Wall Street Journal (June 2, 2008);
  2. Siobhan Kennedy, “RWE Teams up With Vattenfall in the Battle for British Energy,” The Times (April 17, 2008);
  3. RWE, www.rwe.com (cited March 2009).

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