RWE, VEW boards approve merger

The supervisory boards of German utilities RWE and VEW have approved a merger that would create one of the largest European publicly-listed energy groups. The proposed deal follows the announcement in September of a merger between German utilities Veba and Viag, but could be held up by regulatory problems.

The deal comes amid accelerated consolidation in the German electricity market caused by intense competition and price wars in the wake of liberalization. The merger could bring cost savings of up to euro1bn per year after two years, compared to savings of euro800m per year after two years envisaged by the Veba/Viag deal.

RWE will now remain the largest German energy group, a position it faced losing after the Veba/Viag deal. The companies have entered talks to define their relative valuation, and determine a ratio for a share swap. A ratio of about one to four or five is expected.

The merger needs regulatory approval from the EU and the German federal cartel office (BKA). RWE/VEW will have sales of about euro44bn ($47bn), putting it in third place in Europe after EDF and Enel. It will have an estimated 3.3 per cent share of Europe’s energy market.

Green light for UK trading arrangements

The UK government and electricity regulator have confirmed that the proposed arrangements for reforming electricity trading in the country are to go ahead. The new arrangements could be in place by next autumn, and a tender has been issued to a short list of potential suppliers of the trading system.

Energy minister Helen Liddell said that the new electricity trading arrangements (NETA) will bring heightened competition and therefore put downward pressure on prices.

A review of trading arrangements was implemented following concerns over high wholesale electricity prices caused by the market power of generators in the current pool trading system.

The new trading system will resemble a commodity-style market which, it is hoped, will induce a higher level of liquidity and competition.

The Association of Electricity Producers is concerned, however, that the regulator and the government will put pressure on generators to avoid price swings. This is a natural and occasional phenomenon in commodity markets.

Renewable subsidy plans

The European Commission is drawing up plans to let member governments subsidise electricity generation from renewable resources until renewables account for five per cent of national energy consumption. The proposed legislation has met with criticism from environmental groups.

The draft legislation aims to increase the share of renewables in the European Union (EU) energy markets while ensuring that these technologies can compete with conventional energy resources. The EC, however, wants subsidies to cease by the end of 2010.

Tractebel ruling

French multi-utility group Suez Lyonnaise des Eaux has been ordered by a Brussels commercial court to reveal more information on its euro7.6bn ($8.1bn) bid for the remaining shares in its Belgian subsidiary Tractebel.

The bid for the energy group is seen as politically sensitive in Belgium because Tractebel controls the country’s electricity and gas monopolies Electrabel and Distrigaz. However, the court did not uphold a recommendation by Belgian public prosecutor for the bid to be suspended.

Suez’s offer for 49 per cent of Tractebel is facing opposition from shareholders.

France set to face antitrust action

The European Commission’s antitrust watchdog is expected to begin formal proceedings against the French government over the delay in opening up the country’s electricity market to competition. The move follows protests from British, German and Dutch ministers over Electricit

The French Senate is currently discussing legislation to end EDF’s monopoly but implementation of the law is likely to be delayed. Market liberalization has allowed EDF to become active in other state’s electricity markets, including a bid for Germany’s EnBW that German economics minister Werner M

  • Swedish paper manufacturer Svenska Cellulosa’s French unit has signed an electricity supply agreement with Germany’s RWE after the utility offered prices of 13-15 centimes/kWh compared with EDF’s 20 centimes/kWh.


    News digest

    Austria:

    The board of the Austrian generator Vorarlberger Kraftwerke AG (VKW) has announced the company is to sever its ties with the Austrian national electricity grouping – the Verbundgesellschaft. The move follows a similar announcement by Illwerke AG. The VKW’s departure will affect the coordination agreements between VKW and the Verbund under which electricity purchases from VKW – around 300-400 million kWh per year – are controlled by the Verbund. However, VKW has signed a contract with Germany’s EnBW to replace these lost sales.

    Finland:

    Swedish energy company Vattenfall has made a SEK1.5bn ($183.6m) offer for Finnish electricity distributor Keskisuomen Valo, which is owned by 22 municipalities. If the offer is accepted, it will increase Vattenfall’s market share in Finland from ten to 13 per cent. Keskisuomen Valo has an annual turnover of FM300m ($35.3m).

    France:

    EDF is to cut its costs by 30 per cent over the next three years, according to the group’s president Francois Roussely. Roussely said that this target would be difficult to achieve, especially in the nuclear sector, but all parts of the company will be expected to contribute.

    Spain:

    Spanish electricity utilities received over $476m in aid in the first seven months of 1999 to cover the costs of transition to acompetitive market, according to the country’s energy commission.

    UK:

    GPU-owned electricity supplier Midlands Electricity is to cut 300 jobs from its power distribution business, blaming tough price control proposals imposed by regulator Callum McCarthy. The move follows an announcement by utility Northern Electricity that it will shed 500 jobs, also blaming the price controls.

    UK:

    Eastern Group is to sell its metering business early in 2000. The company, which is owned by TXU of the USA, says that the group is no longer seen as core to Eastern’s business. The move comes just a few months before the planned opening of the meter-reading industry to competition next April.

    UK:

    Rolls-Royce has defended the safety of its nuclear processing facility in Derby, saying that it has implemented improvements recommended by the Nuclear Installations Inspectorate.

    UK:

    The Viridian Group is to upgrade the capacity of the planned electricity connector between Scotland and Northern Ireland to 500 MW from 250 MW. The£100m ($62m) contract for the project was awarded to Alcatel Kable Norge AS and Siemens. Construction will begin in late 1999 and will be completed by the end of 2001.