2008 Business Overview
Content 3 History and Development of the Company 5 Business Description Overview 5 Our Business 8 Business Description Central Europe 8 Overview 10 Operations 12 Central Europe West Non-regulated 18 Central Europe West Regulated 24 Business Description Pan-European Gas 24 Overview 24 Operations 25 Up-/Midstream 25 Supply 38 Sales 39 Downstream Shareholdings 41 Competitive Environment 42 Business Description U.K. 42 Overview 42 Operations 43 Market Environment 44 Non-regulated Business 46 Retail 47 Energy Services 47 Regulated Business 48 Other 49 Business Description Nordic 49 Overview 49 Operations 53 Non-regulated Business 57 Regulated Business 60 Business Description U.S. Midwest 60 Overview 60 Operations 60 Market Environment 61 Regulated Business 62 Power Generation 64 Transmission 64 Distribution/Retail 64 Non-regulated Businesses 65 Business Description Energy Trading 65 Overview 65 Operations 66 Optimization 67 Proprietary Trading 67 Risk Management 67 Regulatory Environment 67 Market Environment 2008 70 Business Description New Markets 70 Climate & Renewables 73 Other 73 Russia 78 Italy 84 Spain 89 Regulatory Environment EU/Germany: Electricity and Gas 89 Overview 89 The German Energy Law of 1998 90 The Second Electricity and Gas Directives 91 Revisions of the German Energy Law 93 Further German Legislation 94 European Regulation on Cross-Border Trading 94 Energy Infrastructure and Security of Supply 95 Security of Energy Supply (Gas) 95 Regional Markets 96 New European Energy Policy 98 Regulatory Environment Germany: Electricity and Gas 98 Electricity 99 Gas 102 Regulatory Environment U.K. 102 Electricity 103 Gas 104 Regulatory Environment Nordic 104 Electricity 105 Gas 105 Security of Energy Supply (Gas) 106 Renewable Energy and Electricity Certificates 107 Regulatory Environment U.S. Midwest 107 Retail Electric Rate Regulation 108 Retail Gas Rate Regulation 108 Transmission Developments 109 Energy Polcy Art of 2005 and Repeal of PUHCA 109 Other Regulations 110 Environmental Matters 110 General 110 Germany 112 Europe 113 U.K. 114 Nordic 115 U.S. Midwest 118 Property, Plants and Equipment 118 General 118 Production Facilities 120 Additional Information
History and Development of the Company E.ON AG is a stock corporation organized under the laws of the Federal Republic of Germany. It is entered in the Commercial Register (Handelsregister) of the local court of Düsseldorf, Germany, under HRB 22315. E.ON s registered office is located at E. ON-Platz 1, D-40479 Düsseldorf, Germany, telephone +49-211-45 79-0. E.ON s agent in the United States is E.ON North America, Inc., 2751 Centerville Road, Wilmington, DE 19808. The state of Prussia established VEBA in 1929 when it consolidated state-owned coal mining and energy interests (hence the original name VEBA, Vereinigte Elektrizitäts- und Bergwerks-Aktiengesellschaft ). Ownership of VEBA was transferred from the dissolved Prussian state to the Federal Republic of Germany. VEBA was partially privatized in 1965, leaving the German government with a 40.2 percent share. After several subsequent offerings, privatization was completed in 1987 when the German government offered its remaining 25.5 percent share to the public. During and since the privatization process, VEBA AG evolved into a management holding company, providing strategic leadership and resource allocation for the entire Group. On June 16, 2000, VEBA AG merged with VIAG AG, one of the largest industrial groups in Germany. VEBA AG was subsequently renamed E.ON AG. The merger of VEBA and VIAG was legally implemented by merging VIAG AG into VEBA AG, with VEBA AG continuing as the surviving entity. The newly-merged company then received the new name E.ON AG. VIAG AG was dissolved and its assets and liabilities were transferred to VEBA AG. Simultaneously, each VIAG shareholder, with the exception of VEBA AG, received two shares of the new company in exchange for each five VIAG shares held. Pursuant to this exchange ratio, the former VIAG shareholders (with the exception of VEBA AG) therefore held 33.1 percent of the company immediately after the merger, while the former VEBA shareholders held 66.9 percent. In 2002, E.ON acquired the London- and Coventry-based British utility Powergen. As agreed between E.ON and Powergen, upon satisfaction of all conditions E.ON implemented the transaction under an alternative U.K. legal procedure known as a scheme of arrangement instead of a tender offer. The scheme of arrangement provided for the acquisition of all outstanding Powergen shares by virtue of an order of the English courts following approval of the transaction at a meeting of Powergen shareholders convened by order of the court. Following the receipt of the necessary regulatory approvals, E.ON completed its acquisition of the Powergen Group, which is now wholly owned by E.ON, on July 1, 2002. In March 2003, E.ON transferred LG&E Energy (Powergen s former principal U.S. operating subsidiary; now named E.ON U.S.) and its direct parent holding company to a direct subsidiary of E.ON AG. In July 2004, Powergen was renamed E.ON UK. The total purchase price amounted to 7.6 billion (net of 0.2 billion cash acquired), and the assumption of 7.4 billion of debt. Goodwill in the amount of 8.9 billion resulted from the purchase price allocation. A significant deterioration in the market environment for the Powergen Group s U.K. and U.S. operations triggered an impairment analysis as of the acquisition date that resulted in an impairment charge of 2.4 billion, thus reducing the amount of goodwill associated with the transaction to 6.5 billion. For more information on E.ON UK and E.ON U.S., see Business Overview U.K. and U.S. Midwest. 3
History and Development of the Company E.ON Ruhrgas is one of the leading non-state-owned gas companies in Europe and the largest gas business in Germany in terms of gas sales. Prior to its acquisition by E.ON, Ruhrgas was owned by a number of holding companies, with indirect stakes dispersed among a number of major industrial and energy companies both within and outside Germany. E.ON completed its acquisition of these stakes in 2003, following a prolonged procedure marked by regulatory and legal challenges to E.ON s aquisition of control over Ruhrgas. The total cost of the transaction to E.ON, including settlement costs and excluding dividends received on Ruhrgas shares owned by E.ON prior to its consolidation, amounted to 10.2 billion. Beginning as of February 1, 2003, E.ON fully consolidated Ruhrgas, which was renamed E.ON Ruhrgas on July 1, 2004. In February 2006, we announced our intent to make an offer to acquire all the outstanding ordinary shares and ADSs of Endesa. The offer consisted of an offer to all holders of Endesa ordinary shares and a separate, concurrent offer to all holders of Endesa ordinary shares who are resident in the United States and to all holders of Endesa ADSs, wherever located. In April 2007 following competing bids by Acciona S.A. ( Acciona ) and Enel SpA ( Enel ), we entered into an agreement with Enel/ Acciona to acquire, following any acquisition of Endesa by Enel/Acciona: (1) Enel Viesgo Generación, S.L., Electra de Viesgo Distribución, S.L. and Enel Viesgo Servicios S.L. (together, Viesgo ) in Spain, a 1,500 megawatts ( MW ) generation capacity business and distribution business, from Enel; (2) 1,000 MW of generating capacity in Spain to be transferred from Endesa; (3) new build projects in Spain of 2,000 MW of capacity by 2010; (4) Endesa s 80 percent stake in Endesa Italia, S.p.A., a 7,000 MW generation capacity business and future liquid natural gas regasification capacity; (5) Endesa s stake in SNET in France with 2,500 MW of capacity; and (6) certain assets in Poland and Turkey. The exact purchase price for these assets was determined on the basis of fair values using generally accepted methods. On August 6, 2007, the European Commission approved the acquisition of certain European activities of Endesa ( Endesa Europe ) and Viesgo by us without any conditions. The transaction was closed upon completion of the takeover of Endesa by Enel/Acciona on June 26, 2008, with E.ON acquiring all of the shares in Endesa Europa from Endesa. In December, 2008, E.ON Nordic became the effective sole owner of E.ON Sverige (the remaining minority interest is only 0.05 percent/squeeze out planned by the end of 2009). Before this, E.ON Nordic was the largest shareholder in E.ON Sverige, holding 55.3 percent of the share capital and a 56.6 percent voting interest, while a 44.6 percent interest was held by the Norwegian energy company Statkraft. The joint ownership situation was resolved by means of an asset swap, whereby Statkraft received certain assets and shares in E.ON AG in exchange for its share in E.ON Sverige AB. For more information on this transaction, see Business Overview Nordic. 4
Business Description Overview Our Business We are the largest industrial group in Germany, measured on the basis of market capitalization at December 31, 2008. For the year ended December 31, 2008, we had sales of 86.7 billion and we have approximately 93,500 employees worldwide. As of December 31, 2008, our core energy business was organized into the following ten market units: Central Europe, Pan- European Gas, U.K., Nordic, U.S. Midwest, Energy Trading, Climate & Renewables, Russia, Italy and Spain. Because of their volumes and significance, the market units Climate & Renewables, Russia, Italy and Spain are combined in the reporting segment New Markets. Central Europe E.ON Energie AG, Munich, Germany ( E.ON Energie ) is the lead company of the Central Europe market unit. E.ON Energie is one of the largest non-state-owned European power companies in terms of electricity sales. E.ON Energie s core business consists of the ownership and operation of power generation facilities and the transmission, distribution and sale of electricity and, to a lesser extent, gas and heat, to interregional, regional and municipal utilities, traders and industrial, commercial and residential customers. The Central Europe market unit owns interests in and operates power stations with a total installed capacity of approximately 38,400 MW, of which Central Europe s attributable share is approximately 28,750 MW (not including mothballed, shutdown and cold reserve plants). In 2008, the Central Europe market unit recorded revenues of 41.1 billion and an adjusted EBIT of 4.7 billion. Pan-European Gas E.ON Ruhrgas AG, Essen, Germany ( E.ON Ruhrgas ) is the lead company of the Pan-European Gas market unit and is responsible for all of E.ON s non-retail gas activities in continental Europe. E.ON Ruhrgas is one of the leading non-state-owned gas companies in Europe and the largest gas company in Germany in terms of gas sales, with 687.0 billion kilowatt hours ( kwh ) of gas sold in 2008. E.ON Ruhrgas principal business is the supply, transmission, storage and sale of natural gas. E.ON Ruhrgas purchases nearly all of its natural gas from producers in six countries: Russia, Norway, the Netherlands, Germany, the United Kingdom and Denmark. E.ON Ruhrgas sells this gas to supraregional and regional distributors, municipal utilities and industrial customers in Germany and increasingly also delivers gas to customers in other European countries. In addition, E.ON Ruhrgas is active in gas transmission within Germany via a network of approximately 11,552 kilometers ( km ) of gas pipelines through its subsidiary E.ON Gastransport GmbH ( E.ON Gastransport ) and operates a number of underground storage facilities through its subsidiary E.ON Gas Storage GmbH ( E.ON Gas Storage or EGS ). E.ON Ruhrgas also holds numerous stakes in German and other European gas companies, as well as a 6.4 percent shareholding in Gazprom, Russia s main natural gas exploration, production, transportation and marketing company. In 2008, the Pan-European Gas market unit recorded revenues of 27.4 billion and adjusted EBIT of 2.6 billion. U.K. E.ON UK plc (formerly Powergen UK plc), Coventry, United Kingdom ( E.ON UK ) is the lead company of the U.K. market unit and is one of the leading electricity and gas companies in the United Kingdom. E.ON UK and its associated companies are actively involved in electricity generation, distribution and retail. As of December 31, 2008, E.ON UK owned or through joint ventures had an attributable interest in 10,330 MW of generation capacity. E.ON UK served approximately 8.1 million electricity and gas customer accounts at December 31, 2008 and its Central Networks business served a further 5.0 million customer connections. In 2008, the U.K. market unit recorded sales of 11.1 billion and an adjusted EBIT of 0.9 billion. Nordic E.ON Nordic AB, Malmö, Sweden ( E.ON Nordic ) is the lead company of the Nordic market unit. E.ON Nordic s principal business, carried out mainly through E.ON Sverige AB, is the generation, distribution and sale of electricity, gas and heat and the treatment of waste, mainly in Sweden. E.ON Sverige is the second-largest Swedish utility (on the basis of electricity sales and production capacity). On December 31, 2008, E.ON Nordic became the effective sole owner of E.ON Sverige (the remaining minority interest is only 0.05 percent/squeeze out planned by the end of 2009). Before this, E.ON Nordic was the largest shareholder in E.ON Sverige, holding 55.3 percent of the share capital and a 56.6 percent voting interest, while a 44.6 percent interest was held by Statkraft. The joint ownership situation was resolved by means of an asset swap, whereby Statkraft received certain assets and shares in E.ON AG in exchange for its share in E.ON Sverige AB. As of December 31, 2008, E.ON Nordic owned, 5
Business Description Overview through E.ON Sverige, interests in power stations with a total installed capacity of approximately 17,800 MW, of which its attributable share was approximately 7,200 MW (not including mothballed and shutdown power plants). In 2008, E.ON Nordic recorded sales of 3.9 billion, and adjusted EBIT of 770 million. U.S. Midwest E.ON U.S. LLC, Louisville, USA ( E.ON U.S. ) is the lead company of the U.S. Midwest market unit. E.ON U.S. is a diversified energy services company with businesses in power generation, retail gas and electric utility services, as well as asset-based energy marketing. E.ON U.S. s power generation and retail electricity and gas services are located principally in Kentucky, with small customer bases in Virginia and Tennessee. As of December 31, 2008, E.ON U.S. owned or controlled aggregate generating capacity of approximately 7,500 MW. In 2008, E.ON U.S. served more than one million customers. In 2008, the U.S. Midwest market unit recorded sales of 1,880 million, and adjusted EBIT of 395 million. Energy Trading E.ON Energy Trading AG, Germany ( EET ) is the lead company of the Energy Trading market unit. EET began operations in January 2008, and combines the majority of our European trading activities, including those relating to electricity, gas, coal, oil and CO 2 emission allowances. EET was created with the goal of taking advantage of the opportunities created by the increasing integration of Europe s power and gas markets and those present in global commodity markets. The combination is enabling the Company to seize new opportunities created by the ongoing integration of European energy markets and the aim is to achieve a leading market position in the international energy trading business. E.ON Energy Trading had revenues of 31.8 billion and adjusted EBIT of 645 million in 2008. New Markets Until the end of 2008, the results of each of the new market units Climate & Renewables, Russia, Italy and Spain are reported as part of the New Markets segment. In 2008, the New Markets segment recorded sales of 5.5 billion, and adjusted EBIT of 90 million. Climate & Renewables E.ON Climate & Renewables GmbH, Germany ( EC&R ) is the lead company of the Climate & Renewables market unit. EC&R is responsible for managing and expanding our global renewables business and for coordinating climate-protection projects. EC&R has 888 MW of attributable generating capacity in the U.S. and 1,091 MW in Europe. Russia E.ON Russia Power, Russia ( E.ON Russia ) is the lead company of the E.ON Russia market unit. E.ON Russia oversees our power business in Russia. In October 2007, we acquired a majority stake in the Russian power generation company OAO OGK-4 ( OGK-4 ). E.ON now holds 78.3 percent of OGK-4 s capital stock. OGK-4 operates five conventional power stations at different locations with a total installed net capacity of 8,300 MW. Italy E.ON Italia S.p.A., Italy ( E.ON Italia ) is the lead company of the Italy market unit. E.ON Italia manages our power and gas business in Italy, and is active in Italy s wholesale power and gas markets and in natural gas sales. The acquisition of the activities of Endesa in Italy gave us a total of about 5,500 MW of generating capacity in Italy. Spain E.ON España, S.L., Madrid, Spain ( E.ON España ) is the lead company of the Spain market unit, which began operations from July 1, 2008. Upon completion of the takeover of Endesa, S.A. ( Endesa ) by Enel S.p.A. ( Enel ) and Acciona, S.A. ( Acciona ) on June 26, 2008, E.ON acquired all of the shares of Electra de Viesgo Distribución S.L. ( Viesgo Distribución ), Enel Viesgo Generación S.L. ( Viesgo Generación ) and Enel Viesgo Servicios S.L. ( Viesgo Servicios ), whose operations are now combined in E.ON España. E.ON España is an integrated power company, which is active in the supply of electricity and energy efficiency services. E.ON España owns and operates power generation facilities, and distributes and sells electricity to industrial, commercial and residential customers in Spain. The Spain market unit owns interests in and operates power stations with a total installed gross capacity of approximately 3,282 MW, all of which is attributable to the market unit. Since its foundation in June 2008, E.ON Distribución has served approximately 660,000 customers with electricity. 6
Business Description Overview Corporate Center The Corporate Center consists of E.ON AG itself, those interests owned directly and indirectly by E.ON AG that have not been allocated to any of the other segments. The Corporate Center s results also reflect consolidation effects at the Group level, including the elimination of intersegment sales. The following table sets forth the sales of E.ON s reporting segments (including the Corporate Center) for 2008 and 2007: E.ON Sales 2008 2007 in millions % in millions % Central Europe 41,135 47.5 32,029 46.6 Pan-European Gas 27,422 31.6 22,745 33.1 U.K. 11,051 12.8 12,584 18.3 Nordic 1 3,877 4.5 3,339 4.9 U.S. Midwest 1 1,880 2.2 1,819 2.6 Energy Trading 31,760 36.6 New Markets 5,862 6.8 252 0.4 Corporate Center 1, 2, 3 36,234 41.8 4,037 5.9 Total sales 86,753 100.0 68,731 100.0 1 Excludes the sales of certain activities now accounted for as discontinued operations. 2 Includes primarily the parent company and effects from consolidation, as well as the results of certain other interests, as noted above. 3 Excludes intercompany sales. Most of E.ON s operations are in Germany. German operations produced 58.2 percent of E.ON s revenues (measured by location of operation) in 2008 (2007: 59.1 percent). E.ON also has a significant presence outside Germany representing 41.8 percent of revenues by location of operation for 2008 (2007: 40.9 percent). In 2008, approximately 49.3 percent (2007: 53.7 percent) of E.ON s revenues were derived from customers in Germany and 50.7 percent (2007: 46.3 percent) from customers outside Germany. At December 31, 2008, E.ON had 93,538 employees, approximately 38.9 percent of whom were employed in Germany. 7
Business Description Central Europe Overview The Central Europe market unit is led by E.ON Energie. E.ON Energie, which is wholly owned by E.ON, is one of the largest nonstate-owned European power companies in terms of electricity sales. E.ON Energie had revenues of 41.1 billion (not including 1.5 billion of energy taxes that were remitted to the tax authorities), 33.3 billion of which was generated from German customers and adjusted EBIT of 4.7 billion in 2008. E.ON Energie s core business consists of the ownership and operation of power generation facilities, the transmission and distribution grid and the sale of electricity and, to a lesser extent, gas and heat, in Germany and continental Europe. It is one of the four interregional electric utilities in Germany that are interconnected in the western European power grid. E.ON Energie is embarking on a significant program to build new generating capacity in many of the countries in which it operates: In 2008, construction of the 800 MW natural gas plant at Livorno Ferraris, Italy, was completed. The power plant has started commercial operations and been transferred to the new Italy market unit. Construction is underway on new facilities at Irsching, Germany (a 530 MW advanced natural gas plant to be built in cooperation with Siemens AG, scheduled to begin operations in 2011 and a new 800 MW combined-cycle gas-fired plant, which is scheduled to begin operations in 2009), Datteln, Germany (a 1,100 MW hard coal plant, scheduled to begin commercial operation in 2011) and Maasvlakte, Netherlands (a 1,100 MW hard coal plant, scheduled to begin operations in 2012). Construction was also started on two 400 MW gas-fired combined-cycle power plants in Gönyü, Hungary, and Malzenice, Slovakia, that are expected to start commercial operation at the end of 2011 and beginning of 2010, respectively. Furthermore construction is underway on two new 400 MW gas fired combined cycle units on the power plant site Emile Huchet, France, scheduled to begin commercial operation in 2010. In addition, E.ON Energie plans to build new plants at the location of Staudinger, Germany (a 1,100 MW hard coal plant) and in the harbor of Antwerp, Belgium (a 1,100 MW hard coal plant), if all requirements are met. E.ON also plans to build the world s first large coal-fired power plant with a target efficiency of more than 50 percent and a capacity of about 550 MW in Wilhelmshaven, Germany. E.ON Energie s company structure reflects its operations in western and eastern Europe and, in addition, reflects the individual segments of its electricity business: generation, transmission, distribution and sales. The following chart shows the major subsidiaries of the Central Europe market unit as of December 31, 2008, their respective fields of operation and the percentage of each held by E.ON Energie as of that date. 8
Business Description Central Europe Major Subsidiaries of the Central Europe Market Unit Holding Company for the Market Unit E.ON Energie AG Leading entity for the management and coordination of the market unit activities Centralized strategic, controlling and service functions Central Europe West Non-regulated Conventional Power Plants E.ON Kraftwerke GmbH (100%) Power generation by conventional power plants District heating Industrial power plants E.ON Benelux Holding B.V. (100%) Power generation by conventional power plants in the Netherlands District heating in the Netherlands Sales of power and gas in the Netherlands Société Nationale d Electricité et de Thermique S.A. (SNET) (65%) 1 Power generation by conventional power plants and some wind turbines in France Sales of power in France Nuclear Power Plants E.ON Kernkraft GmbH (100%) Power generation by nuclear power plants Hydroelectric Power Plants E.ON Wasserkraft GmbH (100%) Power generation by hydroelectric power plants Waste Incineration E.ON Energy from Waste AG, formerly BKB AG, renamed in 2008 (100%) Energy generation from waste incineration Sales of Electricity, Gas and Heat E.ON Vertrieb Deutschland GmbH 2 Providing sales service and management activities for E.ON Energy Sales GmbH and six regional sales companies Sales service and management for E WIE EINFACH Strom & Gas GmbH E.ON Energy Sales GmbH (100%) Supply of electricity and energy services to large industrial customers, as well as to regional and municipal distributors Centralized wholesale functions Six regional sales companies and one regional utility company (E.ON Thüringer Energie AG) across Germany (shareholding percentages range from 53.0 to 100 percent) Sales of electricity, gas, heat and water to retail customers Energy support services E WIE EINFACH Strom & Gas GmbH (100%) Sales of electricity and gas to residential customers and small and medium enterprises across Germany Ruhr Energie GmbH (100%) Customer service and electricity and heat supply to utilities and industrial customers in the Ruhr region E.ON France S.A.S. (52.4%) 3 Sales of electricity and gas in France via subsidiary E.ON Energie S.A.S. Central Europe West Regulated Transmission E.ON Netz GmbH (100%) 4 Operation of high-voltage grids (380 kilovolt 110 kilovolt) System operation, including provision of regulating and balancing power Distribution of Electricity and Gas Six regional utility companies and one regional grid company (TEN Thüringer Energienetze GmbH) across Germany (shareholding percentages range from 53.0 to 100 percent) Distribution of electricity and gas to retail customers Central Europe East E.ON Hungária Energetikai ZRt. (100%) Generation, distribution and sales of electricity and gas in Hungary through its group companies E.ON Czech Holding AG (100%) Generation, distribution and sales of electricity and gas in the Czech Republic through its group companies E.ON România S.R.L. (20.4%) 5 Distribution and sales of electricity and gas in Romania through its group companies E.ON Bulgaria EAD (100%) Distribution and sales of electricity in Bulgaria through its group companies E.ON Slovensko a.s. (100%) Generation, distribution and sales of electricity in Slovakia through its group companies (which are valued under the equity method, given E.ON Slovensko s minority interest in those companies) Other/Services E.ON Engineering GmbH (57%) 6 Provision of consulting and planning services in the energy sector to companies within the Group and third parties Marketing of expertise in the area of conventional and renewable power generation and cogeneration, as well as a pipeline business E.ON Facility Management GmbH (100%) Infrastructure services 1 Owned by E.ON AG, but operated by E.ON Energie. The remaining shares are held by Electricité de France S.A. (EdF) (18.75 percent) and by Charbonnages de France (CdF) (16.25 percent). 2 Six of the seven regional utility companies (excluding E.ON Thüringer Energie AG) own stakes of 10 percent each. 40 percent is directly held by E.ON Energie AG. 3 The remaining 47.6 percent interest is held by E.ON Ruhrgas AG. 4 E.ON Hochspannungsnetz GmbH and Transpower Stromübertragungs GmbH since January 2009. 5 Managed by E.ON Energie; total E.ON share: 90.2 percent (69.8 percent held by E.ON Ruhrgas International AG). 6 The remaining 43.0 percent interest is held by E.ON Ruhrgas AG. 9
Business Description Central Europe As of January 1, 2008, for financial reporting purposes, the Central Europe market unit comprises four units: Central Europe West Non-regulated, Central Europe West Regulated, Central Europe East and Other/Consolidation. The Central Europe West Non-regulated unit reflects the results of the conventional (including waste incineration), nuclear and hydroelectric generation businesses, the retail electricity business in Germany and the gas retail business in Germany. In addition, Central Europe West Non-regulated also includes the results of E.ON Benelux Holding B.V. ( E.ON Benelux ), which operates power generation, district heating and gas and electricity retail businesses in the Netherlands. The Central Europe West Regulated unit reflects the results of the market unit s businesses responsible for transmission of electricity as well as the regional distribution of power and gas in Germany. The Central Europe East unit primarily includes the results of the companies in Bulgaria, the Czech Republic, Hungary, Romania and Slovakia (with the Slovak activities being valued under the equity method given E.ON Energie s minority interest). Other/Consolidation primarily includes the results of E.ON Energie s generation and retail business in France (primarily SNET, acquired as part of the Endesa Europe transaction and reported as part of the Central Europe market unit), other national and international shareholdings, service companies and E.ON Energie AG, as well as intrasegment consolidation effects. Operations Electricity generated at power stations is delivered to customers through an integrated transmission and distribution system. The principal segments of the electricity industry in the countries in which E.ON Energie operates are: Generation: the production of electricity at power stations; Transmission: the bulk transfer of electricity across an interregional power grid, which consists mainly of overhead transmission lines, substations and some underground cables (at this level there is a market for bulk trading of electricity, through which sales and purchases of electricity are made between generators, regional distributors, and other suppliers of electricity); Distribution: the transfer of electricity from the interregional power grid and its delivery, across local distribution systems, to customers; and Sales: the sale of electricity. E.ON Energie s core business consists of the ownership and operation of power generation facilities and the transmission, distribution and sale of electricity and, to a lesser extent, gas and heat, to interregional, regional and municipal utilities, traders and industrial, commercial and residential customers. The trading operations of Central Europe were reported at E.ON Energy Trading effective January 1, 2008. The following table sets forth the sources of E.ON Energie s electric power in kwh in 2008 and 2007: E.ON Energie s Sources of Electric Power Million kwh 2008 2007 +/ % Own production 138,304 134,531 +2.8 Purchased power 251,372 192,635 +30.5 from power stations in which E.ON Energie has an interest of 50 percent or less 4,475 8,301 46.1 from other suppliers 246,897 184,334 +33.9 Total power procured 1 389,676 327,166 +19.1 Power used for operating purposes, network losses and pump storage 13,456 13,469 0.1 Total 376,220 313,697 +19.9 1 For 2007, excluding physically-settled electricity trading activities at E.ON Sales & Trading GmbH ( EST ). EST s physically-settled electricity trading activities amounted to 141,797 million kwh in 2007. In 2008, E.ON Energie procured a total of 389.7 billion kwh of electricity, including 13.5 billion kwh used for operating purposes, network losses and pumped storage. E.ON Energie purchased a total of 4.5 billion kwh of power from power stations in which it has an interest of 50 percent or less. In addition, E.ON Energie purchased 235.4 billion kwh of electricity from other utilities, 11.5 billion kwh of which were from Vattenfall Europe, the eastern German interregional utility, for redistribution by eastern German regional distributors. In addition, E.ON Energie purchased power from local generators in Hungary, the Czech Republic, Bulgaria and Romania totaling 41.8 billion kwh. The increase in purchased power compared to 2007 is mainly related to structural effects arising from the transfer of trading operations to Energy Trading (65.6 billion kwh). 10
Business Description Central Europe Electricity accounted for 81.0 percent of E.ON Energie s 2008 sales (2007: 80.0 percent), gas revenues represented 13.3 percent (2007: 13.8 percent), district heating 2.0 percent (2007: 2.0 percent) and other activities 3.7 percent (2007: 4.2 percent). The following table sets forth data on the sales of E.ON Energie s electric power in 2008 and 2007: E.ON Energie s Sales of Power 1 Million kwh 2008 2007 +/ % Sales partners (non-consolidated interregional, regional and municipal utilities) 101,680 105,808 3.9 Energy Trading/other 145,708 80,126 +81.8 Industrial and commercial customers 82,065 83,687 1.9 Residential and small commercial customers 46,767 44,076 +6.1 Total 376,220 313,697 +19.9 1 For 2007, excluding physically settled electricity trading activities at EST. EST s physically settled electricity trading activities amounted to 141,797 million kwh in 2007. The increase in the total sale of power is mainly attributable to structural effects arising from the transfer of trading operations to Energy Trading. The following table sets forth data on the gas sales of E.ON Energie in 2008 and 2007: E.ON Energie s Sales of Gas Million kwh 2008 2007 +/ % Sales partners (non-consolidated interregional, regional and municipal utilities) 27,692 27,544 +0.5 Industrial and commercial customers 56,841 59,474 4.4 Residential and small commercial customers 45,661 39,179 +16.5 Total 130,194 126,197 +3.2 In 2008, gas sales increased by 3.2 percent to 130.2 billion kwh compared to 2007 (126.2 billion kwh). The increase was mainly related to the newly consolidated activities in France (+10.4 billion kwh) and increased sales at E WIE EINFACH Strom & Gas GmbH ( EWI ) (+3.4 billion kwh) as well as to higher weather-related sales volumes. Structural effects arising from the transfer of activities to the new Italy market unit had a negative impact of 13.0 billion kwh. 11
Business Description Central Europe Central Europe West Non-regulated Power Generation General In Germany, E.ON Energie owns interests in and operates electric power generation facilities with a total installed capacity of approximately 33,300 MW, its attributable share of which is approximately 24,900 MW (not including mothballed, shutdown or reduced power plants). The German power generation business is subdivided into four units according to fuels used: E.ON Kraftwerke GmbH owns and operates the power stations using fossil fuel energy sources, E.ON Kernkraft owns and operates the nuclear power stations, E.ON Wasserkraft GmbH owns and operates the hydroelectric power plants and E.ON Energy from Waste Aktiengesellschaft ( EEW ) owns and operates the waste incineration plants. In the Netherlands, E.ON Energie operates, through its subsidiary E.ON Benelux, hard coal and natural gas power plants for the supply of electricity to EET and the sale of electricity and heat to bulk customers and utilities. As of December 31, 2008, it had a total installed generation capacity of approximately 1,900 MW. In France, E.ON Energie operates, through E.ON subsidiary SNET, hard coal power plants for the supply of electricity. As of December 31, 2008, it had a total installed generation capacity of approximately 2,350 MW, its attributable share of which is approximately 1,550 MW. Based on the consolidation principles under IFRS, E.ON Energie reports 100 percent of revenues and expenses from majorityowned power plants in its consolidated accounts without any deduction for minority interests. Conversely, 50 percent and minority-owned power plants (at least 20 percent) are accounted for by the equity method. Power generation capacity in jointly owned plants is generally reported based on E.ON s ownership percentage. The following table sets forth E.ON Energie s major electric power generation facilities (including cogeneration plants) in Germany, France and the Netherlands, the total capacity and the capacity attributable to E.ON Energie for each facility as of December 31, 2008, and their start-up dates. E.ON Energie s Electric Power Stations in Germany, France and the Netherlands Total capacity net MW % 1 E.ON Energie s share Attributable capacity MW Start-up date Nuclear Brokdorf 1,410 80.0 1,128 1986 Brunsbüttel 771 33.3 257 1976 Emsland 1,329 12.5 166 1988 Grafenrheinfeld 1,275 100.0 1,275 1981 Grohnde 1,360 83.3 1,133 1984 Gundremmingen B 2 1,284 25.0 321 1984 Gundremmingen C 2 1,288 25.0 322 1984 Isar 1 878 100.0 878 1977 Isar 2 1,400 75.0 1,050 1988 Krümmel 2 1,346 50.0 673 1983 Unterweser 2 1,345 100.0 1,345 1978 Total 13,686 8,548 Lignite Buschhaus 2 352 100.0 352 1985 Lippendorf S 2 891 50.0 446 1999 Schkopau 900 55.6 500 1995 Others (< 100 MW) 33 n/a 17 n/a Total 2,176 1,315 1 Percentage of total capacity attributable to E.ON Energie. 2 Earmarked for sale. 3 Power station operated by E.ON Benelux under long-term cross-border leasing arrangement. 4 Dismantling finalized in 2008 for power stations Arzberg 5/6/7 and Rauxel 2 CHP Combined Heat and Power Generation. NL Located in the Netherlands. FR Located in France. 12
Business Description Central Europe E.ON Energie s Electric Power Stations in Germany, France and the Netherlands (continued) Hard Coal Total capacity net MW % 1 E.ON Energie s share Attributable capacity MW Start-up date Bexbach 1 2 714 8.3 59 1983 Datteln 3 113 100.0 113 1969 Emile Huchet 4 FR 115 65.0 75 1959 Emile Huchet 5 FR 330 65.0 215 1973 Emile Huchet 6 FR 600 65.0 390 1981 Farge 2 350 100.0 350 1969 GKW Weser/Veltheim 3 2 303 66.7 202 1970 Hornaing 3 FR 240 65.0 156 1970 Heyden 875 100.0 875 1987 Kiel 323 50.0 162 1970 Knepper C 345 100.0 345 1971 Lucy 3 FR 245 65.0 159 1971 Maasvlakte 1 NL, 3 532 100.0 532 1988 Maasvlakte 2 NL, 3 534 100.0 534 1987 Mehrum C 2 690 50.0 345 1979 Provence 4 FR 230 65.0 150 1967 Provence 5 FR 595 65.0 387 1984 Rostock 2 508 50.4 256 1994 Scholven B 345 100.0 345 1968 Scholven C 345 100.0 345 1969 Scholven D 345 100.0 345 1970 Scholven E 345 100.0 345 1971 Scholven F 676 100.0 676 1979 Shamrock 132 100.0 132 1957 Staudinger 1 249 100.0 249 1965 Staudinger 3 293 100.0 293 1970 Staudinger 5 510 100.0 510 1992 Wilhelmshaven 757 100.0 757 1976 Zolling 2 449 100.0 449 1986 Others (< 100 MW) 353 n/a 322 n/a Total 12,441 10,073 Natural Gas Kirchlengern GT1/2 200 62.8 126 1980/2005 Burghausen CHP 120 100.0 120 2001 Obernburg CHP 100 50.0 50 1995 Franken I/1 383 100.0 383 1973 Franken I/2 440 100.0 440 1976 Galileistraat NL, CHP 209 100.0 209 1988 GKW Weser/Veltheim 4 GT 400 66.7 267 1975 Huntorf 321 100.0 321 1977 Irsching 3 415 100.0 415 1974 Jena-Süd CHP 197 53.0 104 1996 Kirchmöser 160 100.0 160 1994 RoCa 3 NL, CHP, 3 220 100.0 220 1996 Staudinger 4 622 100.0 622 1977 Others (< 100 MW) 852 n/a 662 n/a Total 4,639 4,099 1 Percentage of total capacity attributable to E.ON Energie. 2 Earmarked for sale. 3 Power station operated by E.ON Benelux under long-term cross-border leasing arrangement. 4 Dismantling finalized in 2008 for power stations Arzberg 5/6/7 and Rauxel 2 CHP Combined Heat and Power Generation. NL Located in the Netherlands. FR Located in France. 13
Business Description Central Europe E.ON Energie s Electric Power Stations in Germany, France and the Netherlands (continued) Fuel Oil Total capacity net MW % 1 E.ON Energie s share Attributable capacity MW Start-up date Ingolstadt 3 386 100.0 386 1973 Ingolstadt 4 386 100.0 386 1974 Others (< 100 MW) 373 n/a 373 n/a Total 1,145 1,145 Hydroelectric Braunau-Simbach 100 50.0 50 1953 Happurg 160 100.0 160 1958 Jochenstein 132 50.0 66 1955 Langenprozelten 164 100.0 164 1976 Walchensee 124 100.0 124 1924 Waldeck 1 135 100.0 135 1931 Waldeck 2 460 100.0 460 1974 Others (< 100 MW) 1,789 n/a 1,652 n/a Total 3,064 2,811 Others (waste, wind, biomass et al.) Waste 338 n/a 243 n/a Wind, biomass et al 88 n/a 52 n/a Total 426 295 Total 37,577 28,286 Mothballed/Shutdown/Reduced Irsching 2 312 100.0 312 1972 Pleinting 1 292 100.0 292 1968 Pleinting 2 402 100.0 402 1976 Staudinger 2 249 100.0 249 1965 Dismantling 4 Irsching 1 151 100.0 151 1969 Offleben 280 100.0 280 1972 Scholven G 672 50.0 336 1974 Scholven H 672 50.0 336 1975 Stade 640 66.7 427 1972 Würgassen 640 100.0 640 1971 Total 4,310 3,425 Transferred to Statkraft by December 31, 2008 Emden 4 (Natural gas) 433 100.0 433 1972 Robert Frank 4 (Natural gas) 2 491 100.0 491 1973 Erzhausen (Hydroelectric) 2 220 100.0 220 1964 Hydroelectric power plants < 100 MW and Biomas 82 100.0 58 n/a Total 1,226 1,202 Transferred to E.ON Climate & Renewables GmbH in 2008 Wind 302 n/a 210 n/a Total 302 210 1 Percentage of total capacity attributable to E.ON Energie. 2 Earmarked for sale. 3 Power station operated by E.ON Benelux under long-term cross-border leasing arrangement. 4 Dismantling finalized in 2008 for power stations Arzberg 5/6/7 and Rauxel 2 CHP Combined Heat and Power Generation. NL Located in the Netherlands. FR Located in France. For information about E.ON Energie s power generation facilities in eastern Europe, see Central Europe East. 14
Business Description Central Europe Germany E.ON Energie s German plants generate electricity primarily with nuclear power, bituminous coal (commonly referred to as hard coal ), lignite, gas, fuel oil and water. The existing nuclear and hydroelectric power plants are E.ON Energie s sources of power with the lowest variable costs and, together with lignite-based power plants, are used mainly to cover the base load. Hard coal is utilized mainly for middle load, while the other energy sources are used primarily for peak load. Nuclear Power E.ON Energie operates its German nuclear power plants through E.ON Kernkraft. These nuclear power plants are required to meet applicable German safety standards, which are among the most stringent standards in the world (see Environmental Matters Germany: Electricity ). Operators of nuclear power plants are required under German nuclear law to establish sufficient financial provisions for obligations that arise from the use of nuclear power. In accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets ( IAS 37 ) and IFRIC 1, these provisions include: (1) provisions for management of non-contractual obligations based on experts opinions and estimates, and (2) provisions for contractual obligations based on concluded contracts. All nuclear provisions include expenses for management of spent nuclear fuel rods, disposal of contaminated operating waste and the decommissioning of nuclear plants. At year-end 2008, E.ON Energie had provisions in its consolidated accounts for these purposes equal to 8.4 billion for management of non-contractual obligations and 3.7 billion for contractual obligations. In addition to obligations relating to the German nuclear law, E.ON Energie has had to establish provisions for the disposal and dismantling of non-nuclear plant components according to other applicable laws. E.ON Kernkraft purchases uranium and fuel elements for its nuclear power plants from domestic and international suppliers, primarily under long-term contracts. E.ON Energie considers the supply of uranium and fuel elements on the world market to be generally adequate. In May 1995, PreussenElektra, which formed part of E.ON Energie in 2000, decided to shut down its nuclear power plant at Würgassen for economic reasons and, in October 1995, it applied for and received permission from the German authorities to decommission and dismantle the Würgassen plant in accordance with German nuclear energy legislation. E.ON Energie expects the decommissioning of Würgassen, which began in October 1995, to last until approximately 2015. In 2000, E.ON Energie also decided to shut down the nuclear power plant Stade. In July 2001, E.ON Kernkraft filed an application with the Lower Saxonian Ministry of Environment to decommission and dismantle Stade and received the relevant approval in September 2005. Stade was shut down in November 2003, and E.ON Energie expects its decommissioning to last until approximately 2015. As of December 31, 2008, E.ON Energie has established a provision for the decommissioning and the management of spent nuclear fuel rods at Würgassen and Stade totaling 1.3 billion. The current German Nuclear Power Regulations Act (Atomgesetz, or AtG ) took effect in April 2002. Among other things, it provides as follows: Nuclear Phase-out: The operators of the nuclear plants have agreed to a specified number of operating kwh for each nuclear plant. This number has been calculated on the basis of 32 years of plant operation using a high load factor. The operators may trade allocated kwh among themselves. This means that if one nuclear plant closes before it has produced the allocated amount of kwh, the remaining kwh may be transferred to another nuclear power plant. Termination of Fuel Reprocessing: The transport of spent fuel elements for reprocessing was allowed until June 30, 2005. Following this deadline, the operators must store spent fuel in interim facilities on the premises of the nuclear plants. E.ON has constructed five such interim on-site storage facilities. Two of these, Grafenrheinfeld and Grohnde, went into operation in the first quarter of 2006, while the remaining three interim on-site storage facilities in Brokdorf, Isar and Unterweser went into operation in the first half of 2007. 15
Business Description Central Europe As part of the agreement, the German federal government has agreed not to institute any future changes in German tax law which discriminate against nuclear power operations or other measures creating economic disadvantages in comparison with other forms of power generation. The Company considers its provisions with respect to nuclear power operations to be adequate with respect to the costs of implementing the agreement. E.ON Energie has no plans to construct any new nuclear power plants in Germany. Hard Coal In 2008, approximately 30 percent of the hard coal used by E.ON Energie s German operations was mined in Germany. Traditionally, hard coal is mined in Germany under much more difficult conditions than in other countries. Therefore, German coal production costs are substantially above world market levels, and E.ON Energie strongly believes they will continue to remain high. Although electricity producers were in the past required to purchase German coal, they are now free to purchase coal from any source. To encourage the purchase of German coal, the German federal government has been paying direct subsidies to German producers enabling them to offer domestic coal at world market prices, although it is now in the process of reducing such subsidies. Due to high production costs and the reduction in subsidies, the volume of German coal production has shown a relatively steady decline in the past and is expected to continue to decline further. However, E.ON Energie expects that adequate supplies of imported coal for its operations will be available on the world coal market at acceptable prices. Hard coal is generally available from multiple sources, though prices are determined on international commodities markets and are therefore subject to fluctuations. Lignite German lignite, also known as brown coal, has approximately one-third of the heating value of hard coal. E.ON Energie participates in lignite-based energy generation in western Germany through EKW and in eastern Germany through Kraftwerk Schkopau GbR and a portion of one unit of Kraftwerk Lippendorf. Lignite is a readily available domestic fuel source that E.ON Energie obtains from its own reserves or under long-term contracts with German producers. The price of lignite is not generally volatile and is generally determined by reference to published indices in Germany. However, the price can fluctuate based on the underlying price of hard coal in global commodities markets. Gas and Oil In Germany, the price of natural gas is linked to the price of oil and other competing fuels. This mechanism has been enforced in order to reduce the influence of, and dependence on, gas-producing countries. Only about 16 percent of gas demand in Germany is satisfied by German deposits, while about 84 percent is satisfied through imports from foreign producers, primarily from Russia, Norway and the Netherlands. For its gas-fired power plants, E.ON Energie purchases gas from E.ON Ruhrgas and other international suppliers, mainly under short-term contracts. Fuel oil power plants are only used for peak load operations. E.ON Energie purchases its fuel oil from traders or directly from a number of oil companies. As with natural gas, the price of fuel oil depends on the price of crude oil. Water This domestic source of energy is primarily available in southern Germany due to the presence of mountains and rivers. The variable costs of production are extremely low in the case of run-of-river plants and consequently, these plants are used to cover base load requirements. Storage and pump storage facilities are used to meet peak demand and for back-up power purposes. Waste Incineration E.ON Energie also has a waste incineration business, led by EEW. In 2008, incinerated waste volumes totaled approximately 3.4 million metric tons. The waste incineration plants have a total power generation capacity of 338 MW of electricity, of which 243 MW is attributable to E.ON Energie. The Netherlands E.ON Energie s Dutch plants generate electricity primarily with hard coal and natural gas. E.ON Benelux primarily uses imported hard coal and Dutch natural gas in its power plants. France E.ON s French plants generate electricity primarily with hard coal, primarily imported. 16
Business Description Central Europe Demand for power tends to be seasonal, rising in the winter months and typically resulting in additional electricity sales by E.ON Energie in the first and fourth quarters. E.ON Energie believes it has adequate sources of power to meet foreseeable increases in demand, whether seasonal or otherwise. In order to benefit from economies of scale associated with large stations, E.ON Energie has built large capacity power station units in conjunction with other utilities where it does not require all of the electricity produced by such plants. In these cases, the purchase price of electricity is determined by the production cost plus a negotiated fee. Although E.ON s power plants are maintained on a regular basis, there is a certain risk of failure for power plants of every fuel type. Depending on the associated generation capacity, the length of the outage and the cost of the required repair measures, the economic damage due to such a failure can vary significantly. In order to meet contractual commitments, electricity which cannot be generated at these plants has to be bought from other generators or has to be generated from more expensive plants. Thus, power plant outages can negatively affect the market unit s financial and operating results. Sales In 2008, E.ON Energie bundled the operations of six of the seven German regional energy companies concerning sales administration (relating to marketing, product development and procurement) in a company managing all sales activities: E.ON Vertrieb Deutschland GmbH ( EVD ). The regional energy companies transferred the relevant parts of their natural gas and power sales business (including the customer contracts) to an affiliated subsidiary (regional sales company, Vertriebsgesellschaft, VG ) in which they have a 100 percent interest. Each regional energy company has its own VG. The sales activities of the VGs are directed by EVD, and the regional energy companies own stakes in EVD to ensure the consideration of regional interests, as well as their involvement in substantial decisions. Additionally, EVD directs the national wholesale sales activities of E.ON Energy Sales GmbH ( EES ) and offers sales services and management for EWI. EES took over the former sales activities of E.ON Sales & Trading GmbH ( EST ); EST s trading activities were transferred to EET, with retroactive effect as of January 1, 2008. Responsibility for the long-term portion of these contracts (i.e., those with obligations beyond three years) has remained with E.ON Energie (sales part: EES). E.ON Energie s customers are interregional, regional and municipal utilities, traders, industrial and commercial customers and, through regional sales companies, residential and small commercial customers. A highly competitive environment resulted in a reduction of approximately 520,000 private customers in E.ON Energie s power and gas business with its regional sales companies in 2008. In February 2007, E.ON Energie launched the new company EWI, which provided by the end of 2008 power and or gas to approximately 750,000 residential and small business customers throughout Germany. The introduction of EWI has therefore allowed us to keep our overall number of residential customers relatively stable in a highly competitive market. Electricity The following table sets forth the sale of electric power by E.ON Energie s German companies (for 2007, excluding that used in physically settled trading activities), primarily in Germany, in 2008 and 2007: Sale of Power 1 Million kwh 2008 2007 +/ % Non-consolidated interregional, regional and municipal utilities 226,867 171,375 +32.4 Industrial and commercial customers 48,003 55,071 12.8 Residential and small commercial customers 28,978 28,722 +0.9 Total 1, 2 303,848 255,168 +19.1 1 The increase in the total sale of power mainly reflects reorganization effects. Formerly internal sales volumes to EET are now shown as external. 2 Total sales of power includes sales of EES in European countries other than Germany. The supply contracts under which E.ON Energie s German regional energy companies (all are majority-owned) regularly order their required load for upcoming years correspond to their own supply contracts. Typical supply contracts last for one to three years. Potential alternative sources of electricity include the purchase of electricity from other utilities and auto-generation by municipalities, regional distributors or industrial customers. The contracts of the regional sales companies and E.ON Thüringer Energie with municipal utilities contain varying terms and conditions. Gas E.ON Energie s gas sales volume in Germany amounted to 100.6 billion kwh in 2008 compared to 93.2 billion kwh in 2007. The increase of consumption was mainly due to the colder winter in 2008. 17
Business Description Central Europe Heat E.ON Energie is one of the leading suppliers of district heating in Germany. It operates its own district heating networks and supplies several additional networks owned by other companies. E.ON Energie s regional energy companies are also involved in district heat and steam delivery. E.ON Energie s total district heat deliveries in Western Europe increased from 15.2 billion kwh in 2007 to 16.1 billion kwh in 2008, of which 11.2 billion kwh were supplied in Germany. The increase primarily reflected the expansion of this business. Water E.ON s regional water business is conducted through certain of its distribution companies, particularly E.ON Hanse AG, E.ON Avacon AG ( E.ON Avacon ) and E.ON Westfalen Weser AG. Customers Through its companies in which it has majority shareholdings, E.ON Energie serves approximately 7.6 million electricity customers in Germany. E.ON Energie s German operations also supply approximately 1.5 million customers with gas and more than 0.5 million customers with water. The Netherlands In the Netherlands, E.ON Benelux acquired the Dutch power and gas company NRE Energie b.v. ( NRE ) in 2005. In 2008, this former company NRE Energie b.v., now known as E.ON Benelux Levering B.V., supplied approximately 1.2 billion kwh of electricity and approximately 3.3 billion kwh of gas to its approximately 0.26 million electricity and/or gas customers in the Netherlands. France E.ON France S.A.S. acts as E.ON Energie AG s local holding company for the gas and electricity sales activities of E.ON Energie S.A.S. and the renewables project development activities of E.ON Energies Renouvelables S.A.S. In 2008, electricity sales comprised 0.5 billion kwh to industrial customers. Gas sales amounted to 10.4 billion kwh supplied to industrial customers. Central Europe West Regulated Transmission In December 2008, E.ON s binding commitment to the European Commission to sell a variety of power-generation activities, as well as its ultrahigh-voltage network in Germany, came into effect. Based on this commitment and on declarations of intent already signed with parties interested in acquiring generating capacity, the total capacity to be sold, along with associated assets and liabilities, is presented as a disposal group. This relates exclusively to the Central Europe market unit. The ultrahighvoltage network has not been reclassified as of December 31, 2008, as the disposal process was not yet initiated. Overall the German power transmission grid of E.ON Energie covers an area of nearly 200,000 km 2. The 380 and 220 kilovolts extra-high-voltage lines have a system length of close to 11,000 km, whereas the high-voltage lines (110 kilovolts) have a system length of over 30,000 km. The grid is interconnected domestically, and with the western European power grid with links to the Netherlands, Austria, Denmark and Eastern Europe and with other power grids in Germany. The system is mainly operated by E.ON Netz. The network of E.ON Netz allows long-distance power transport (380 and 220 kilovolts) at low transmission losses and covers about 40 percent of the surface area of Germany. The ambitious plans for the construction of offshore windfarms in Germany provide new challenges to network operators. Transmission system operators are legally bound to connect those offshore windfarms, the construction of which is expected to have been started by 2011, to the existing transmission system onshore through new powerlines. Transmission system operators will have to build powerlines primarily in the area of the North Sea, starting the construction concurrently with the building of the wind farms. Costs for related investments will initially have to be born by E.ON Netz, but are expected to eventually be distributed among all four transmission system operators and finally be included in network charges. Access to the transmission grid is open to all potential users. E.ON Netz believes that its usage fees and conditions comply with existing German regulations governing grid access. For further information about the impact of recent regulatory developments on E.ON Energie s transmission business and results, see Regulatory Environment. The Baltic Cable links the transmission grid of E.ON Energie to Scandinavia. For details, see Nordic Electricity Distribution. 18
Business Description Central Europe Distribution Electricity The German utilities historically established defined supply areas which were coextensive with their distribution grids. The following map shows E.ON Energie s current distribution area in Germany through its majority shareholdings in regional energy companies as of December 31, 2008: E.ON Hanse (73.8%) E.ON edis/e.on Hanse E.ON Westfalen Weser (62.8%) E.ON edis (70.2%) E.ON Avacon (65.8%) E.ON Mitte (73.3%) TEN Thüringer Energienetze (53.0%) Majority shareholdings E.ON Bayern (100.0%) In 2008, the network companies operating the distribution systems, organized as subsidiaries of E.ON Energie s regional energy companies ( small DSO ), were reintegrated into the corresponding regional energy companies. To meet legal requirements, the corresponding sales units have been spun off into newly established subsidiaries (Vertriebsgesellschaft) of each of the regional energy companies (for details on the sales business, see Central Europe West Non-regulated Sales above). E.ON Thüringer Energie AG s distribution system operating company (TEN Thüringer Energienetze GmbH) has not been reintegrated into E.ON Thüringer Energie AG. Within the other regional utility companies the DSO and the grid operation and technical net service (TNS) were strictly organizationally separated and are now organized in an explicit and non-overlapping way. For more information on related legal requirements, see Regulatory Environment Revisions of the German Energy Law. Access to E.ON Energie s power distribution grid is open to all potential users. The energy companies of E.ON Energie believe its usage fees and conditions comply with existing German regulations governing grid access. For further information about the impact of recent regulatory developments on E.ON Energie s distribution business and results, see Regulatory Environment Electricity Network Charges. Gas E.ON Energie s distribution subsidiaries supply natural gas to households, small businesses and industrial customers in many parts of Germany. Similar to Electricity above, the Company believes its usage fees and conditions for gas comply with existing German regulations governing network access. For further information about the impact of recent regulatory developments on E.ON Energie s distribution business and results, see Regulatory Environment Gas Network Charges. 19
Business Description Central Europe Central Europe East E.ON Energie has significant shareholdings in Hungary, the Czech Republic, Slovakia, Bulgaria and Romania, including companies having power generation facilities with a total installed capacity of approximately 830 MW, E.ON Energie s attributable share of which is approximately 460 MW. National holding companies such as E.ON Hungária Energetikai ZRt. ( E.ON Hungária ), E.ON Czech Holding AG ( E.ON Czech Holding ), E.ON Slovensko a.s., E.ON Bulgaria EAD and the newly formed successor to E.ON Energie România S.A., E.ON România S.R.L. (established December 31, 2008) coordinate E.ON Energie s activities in the region. The following table summarizes the most significant shareholdings in each of the specific countries: E.ON Energie s Most Significant Shareholdings in Eastern Europe Business Shareholding 1 Hungary E.ON Hungária Energetikai ZRt. Holding 100% Debreceni Kombinált Ciklusú Erömü Kft. Power and heat generation 100% Nyíregyházi Kombinált Ciklusú Erömü Kft. Power and heat generation 100% E.ON Energiatermelö Kft. Diverse small power generation units 100% E.ON Dél-dunántúli Áramszolgáltató ZRt. Power distribution 100% 2 E.ON Észak-dunántúli Áramszolgáltató ZRt. Power distribution 100% 2 E.ON Tiszántúli Áramszolgáltató ZRt. Power distribution 100% 2 E.ON Középdunántúli Gázszolgáltató ZRt. Gas distribution and sales 99.6% E.ON Dél-dunántúli Gázszolgáltató ZRt. Gas distribution and sales 99.9% E.ON Energiaszolgáltató Kft. Sales of power and gas for quasi-regulated 100% customers (USP segment) E.ON Hálózati Szolgáltató Kft. Network services 100% E.ON Ügyfélszolgálati Kft. Customer services 100% E.ON Gázdasági Szolgáltató Kft. Business services 100% Czech Republic E.ON Czech Holding AG Holding 100% Teplárna Otrokovice a.s. Power and heat generation 66.0% E.ON Trend s.r.o. Power and heat generation 100% E.ON Distribuce, a.s. Power distribution 100% Jihočeská plynárenská Distribuce, s.r.o. (JČP) Gas distribution 100% E.ON Energie, a.s. Sales of power and gas 100% E.ON Česká republika, s.r.o. Services 100% Bulgaria E.ON Bulgaria EAD Holding & Services 100% E.ON Bulgaria Grid AD Power distribution 67.0% E.ON Bulgaria Sales AD Sales of power 67.0% Romania E.ON România S.R.L. Holding 20.4% 3 E.ON Moldova Distributie S.A. Power distribution 51% E.ON Gas Distributie S.A. Gas distribution 51% E.ON Moldova Furnizare S.A. Sales of power 51% E.ON Gas România S.A. Sales of gas 51% Slovakia E.ON Slovensko a.s. Holding 100% 1 The minority shareholdings listed are those in which E.ON Energie has a direct interest. 2 Except for a golden share. 3 Additional 69.8 percent held by E.ON Ruhrgas International AG. 20