To promote competition within the European Union, the European Commission is pushing for greater separation between the business of generating electricity and the business of transmitting it. We support the Commission’s efforts to create an effective, EU-wide internal market for energy. But we don’t believe that the Commission’s proposed policy mechanisms will help bring about the internal market.

Nevertheless, after weighing up the advantages and disadvantages, we decided that it would be best to comply with the Commission’s wishes and propose a number of structural initiatives to promote competition in the German electricity market. These measures relate mainly to the sale of our electric transmission network in Germany and the disposal of 4,800 megawatts of generating capacity that, ideally, we’d like to swap for capacity in other European markets. This was a business decision, one that in no way alters our fundamental beliefs.

We are also fostering competition by increasing the transparency of power and gas markets. E.ON is the first Continental European company to publish detailed information about the availability of its generating capacity. The information, which is available online, will mainly benefit power traders and purchasers by offering them greater planning certainty. Our nationwide energy retailer in Germany, E WIE EINFACH ("E as in Easy"), ushers in a new era of retail competition in Germany.

 

E WIE EINFACH is the first retailer to offer power and gas service nationwide, making it easy for residential and small business customers across Germany to switch providers. And it has a rate plan that makes saving easy, too. E WIE EINFACH’s prices are guaranteed to be cheaper — by 1 cent per kilowatt-hour for power and by 2 cents per cubic meter for natural gas — than customers’ local incumbent supplier. Our subsidiary’s success has spurred retail competition in Germany. That’s evident from the many suppliers that have followed our example.

To improve gas market competition in Germany, in early February 2007 E.ON Ruhrgas auctioned storage capacity. The auction of secondary capacity, which resulted in the sale of about 200 million cubic meters of working gas capacity for a 12-month period, will help create competition for structuring services in Germany.

 

Effective October 1, 2008, gas transmission pipeline operators E.ON Gastransport and bayernets will establish a joint market area for high-caloric natural gas also known as H gas, which has a higher energy content that the low-caloric or L gas produced in Germany. H gas comes primarily from gas fields in the North Sea and Russia. We expect the creation of the joint market area to increase the gas trading volume on the European Energy Exchange in Leipzig and to spur gas-market competition in Germany.