E.ON considers selling network business

28 February 2008 – E.ON, Germany’s largest energy group, is considering selling its high-voltage network business in a move that would hand an important victory to the European Commission’s attempts to break up electricity companies.

THE FT reports that E.ON is hoping the move could win it political sympathy at a time of unprecedented pressure against utilities from European regulators and national governments.

The company declined to comment, but people briefed on the sales talks said E.ON was considering the move because of a triple risk.

The Commission has threatened to break up companies if they do not sell their high-voltage electricity networks, although it has back-tracked somewhat on its plans.

E.ON is also facing up to renewed pressure from the new network regulator in Germany, which is cutting its margins considerably, and there are also threats from Berlin to take action against utilities if nothing changed.

A sale could bring in about €1bn ($1.5bn). But the move is likely to cause consternation in the German government, as Berlin as been one of the strongest opponents of so-called ownership unbundling, where the distribution and transmission assets of companies are separated.

E.ON’s move is likely to make it harder for Berlin to maintain its argument.

Other German companies have also considered a similar sale of their high-voltage networks, according to industry insiders.

RWE, E.ON’s biggest domestic rival, looked at it as recently as last year and Vattenfall Europe, the German subsidiary of the Swedish utility, is also said to have considered such a move.

A possible sale of its high-voltage network comes as E.ON also considers getting rid of Thüga, its holding company for municipal utilities. The company is worth several billion euros and E.ON’s ownership of such municipal utilities has also come in for strong political criticism in Germany.