Österreichische Elektrizitätswirtschafts-AG

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Österreichische Elektrizitätswirtschafts-AG

Am Hof 6A
Vienna, A-1010
Austria
Telephone: (+43 01) 531 13 0
Fax: (+43 01) 531 13 53791
Web site: http://www.verbund.at

Public Company
Incorporated: 1947
Employees: 2,436
Sales: $3.21 billion (2006)
Stock Exchanges: Vienna
NAIC: 221122 Electric Power Distribution

Österreichische Elektrizitätswirtschafts-AG, more commonly known as Verbund, is Austria's leading electricity company, and a top player in the European electricity sector. Verbund operates through four primary divisions: Generation, Transmission, Distribution, and Trading. The company's Generation division is also the top producer of electrical power in Austria, with a total output of more than 8,300 MW. Verbund is also one of Europe's cleanest power producers, with approximately 85 percent of its power generated by a network of 87 hydropower plants. The remaining 15 percent is produced at the group's nine thermal power plants. Verbund's Transmission division is responsible for the operation of the group's 3,300-kilometer supra-regional high-voltage grid, which not only provides the country's primary transmission backbone, but also serves as Austria's connection into the European-wide power grid. Since 2005, and as a result of the full liberalization of the Austrian electricity sector, Verbund has also been involved in electricity distribution, selling directly to end customers in the residential and corporate markets. Lastly, Verbund's Trading division plays an active role among the European electricity trade markets, and is also a major component in the company's internationalization strategy. As such, Verbund operates subsidiaries in a number of European markets, including Germany, France, Italy, Hungary, Poland, Slovenia, and, since December 2006, Greece and Turkey. In the middle of the first decade of the 2000s, Verbund has also been seeking a merger partner in order to position itself among the ongoing consolidation of the European energy sector. Verbund, formerly controlled by the Austrian government, is listed on the Vienna Stock Exchange. The company's revenues topped EUR 2.5 billion ($3.2 billion) in 2005.

RECONSTRUCTING THE AUSTRIAN ENERGY SECTOR IN THE POSTWAR ERA

The earliest use of electric power within the borders of the present-day Austria date from 1873, when the Krupp factory in Berndorf commissioned a DC generator for its own power supply. By 1886, the first public electric utility company had launched operations, in Scheibbs. The use of electric power spread rapidly throughout the region, and by the outbreak of World War I, more than 350 power plants were in operation within the later Austria's borders. Hydroelectric plants, making use of the country's abundant water supplies, were already a feature of Austria's power generation sector, particularly in the more mountainous western and southern regions. By 1920, the country had already begun connecting a national grid, and by 1930 had put into place a grid based on 110 kV mains connecting the Styria and Upper Austria regions to the important Viennese market.

The steadily rising demand for electric power, especially in Vienna, led the country to begin exploring the idea of constructing a massive hydroelectric complex near the mountain town of Kaprun. While plans for the complex, slated to generate as much as 200,000 kW per day, were drawn up during the 1920s, construction of the plant began only following the German annexation of Austria and the arrival of the National Socialist government to power. Construction of the plant became a centerpiece of the Nazi economic objectives for the region, and some 10,000 workers, many of whom were forced laborers, were put to work on the project. By the time of the Austrian capitulation, the Kaprun plant already produced some 30,000 kW per day.

Under occupation by the Allied forces, the new Austrian government established a nationalization policy, in large part to keep the country's resources out of the hands of the Soviets. The First Nationalization Act of 1946 affected the banking sector as well as industrial areas such as mining, steel, shipbuilding, petrochemicals, and chemicals. In 1947, the passage of the Second Nationalization Act was largely directed toward the country's public utilities, and especially the electricity sector. Under this act, most of the country's power generation plants were turned over to the country's provincial governments. At the same time, however, the country's largest plants, which produced most of the country's electricity, were placed under the control of a new body, Österreichische Elektrizitätswirtschafts AG, which became more commonly known as Verbundgesellschaft.

Verbund was tasked with rebuilding the country's electrical infrastructure, which had been heavily damaged during the war. Despite the relatively low level of electricity consumption in the immediate postwar years, Austrians nonetheless suffered through frequent interruptions in the electricity supply. As part of its effort to restore smooth electricity supply, Verbund, which initially lacked the resources to invest in new plant construction, was forced to import electricity from outside the country. Nonetheless, at the end of the war, the Allied occupation forces had encouraged the continuation of work on the Kaprun plant. By securing funding under the Marshall Plan, Verbund was able to accelerate work on the Kaprun facility. That site eventually expanded its capacity to more than 300,000 kW per day, making it one of the largest hydroelectric plants in Europe.

By 1955, Verbund had succeeded in rebuilding Austria's power generation capacity to the point where the country no longer relied on imports to meet demand. Verbund continued to build up the country's electrical infrastructure, focusing on hydroelectric technology in order to take advantage of the abundance of water. Over the next decades, the company oversaw the construction of a number of new plants, such as the Aschach plant on the Danube, completed in 1964.

Yet Austria's booming economy produced a corresponding surge in demand for electricity. By the mid-1960s, the country was once again forced to turn to the foreign market for some 25 percent of its electricity needs. Verbund stepped up its plant capacity expansion effort, joining in the construction of a nuclear power plant at Zentendorf in the early 1970s. By the end of that decade, however, the tide of public opinion had turned against nuclear energy, and in 1978, the country voted against commissioning the completed facility.

COMPANY PERSPECTIVES

As Austria's leading electricity company we also have a clear international vision: To be the driving force for clean energy in Europe.

Instead, Verbund began investing in a new generation of thermal power plants, completing the Dürnrohr coal-burning plant in 1986, as well as another power plant in Mellach. Verbund also took steps to develop a stronger infrastructure for importing electricity, particularly largely thermal-based electricity necessary to fill in the gaps during the winter months. In 1983, the company put into place its first High Voltage Direct Current link, at Dürnrohr, enabling the company to extend its reach, notably to Poland and even to the Soviet Union. That link also allowed Verbund to position itself as a major middleman in the booming European energy trading market. By the end of the decade, thermal power already represented 7 percent of Verbund's total power capacity. The company continued to expand these operations, and by the middle of the first decade of the 2000s had boosted its thermal power capacity to 15 percent of its total.

PREPARING FOR THE FREE MARKET IN THE NEW CENTURY

By the end of the 1980s, many of Austria's nationalized companies were financially unsound. The government, with an eye to the country's aim of joining the European Union (EU), then launched a privatization program. Verbund's turn came in 1988, when the government sold a 49 percent stake in the company in a public offering, listing the company on the Vienna Stock Exchange. At the same time, Verbund was given direct ownership over a number of other governmentowned operations, such as subsidiaries set up to operate various power plants.

Verbund launched a new, ambitious project, that of the construction of a new plant at Freudenau on the Danube. Construction of the site began in the early 1990s, and by 1998, the plant had been connected into the country's power grid. By then, Verbund had begun to prepare for a new era, as Austria entered into the EU in 1995, and adopted the single European currency in 1999. The looming deregulation of the Austrian electricity market, slated for 2001 in keeping with EU rules, signaled the start of new opportunities, and competition.

Verbund reorganized its operations, creating a number of specialized subsidiaries to oversee its various operations. These included Verbund Austrian Hydro Power AG, which operated the group's 90 hydroelectric power plants, and Verbund Austrian Thermal Power GmbH, created in 2001, which became responsible for its thermal power plant operations. The company's transmission operations, including its 110 kV, 220 kV, and 380 kV high-voltage grid, were placed under Verbund Austrian Power Grid AG.

Another subsidiary, Verbund Austrian Power Trading AG, became an important part of Verbund's goal of becoming a major player in the European electricity market. As such, that subsidiary spearheaded the company's foreign expansion, establishing sales offices in Germany, Italy, and France, and then entering Slovenia and Poland as well. The company quickly succeeded in securing power supply contracts in a number of markets, including France, the Netherlands, Germany, and elsewhere.

Verbund also actively sought to expand its operations in order to gain the scale necessary to compete amid the rapidly consolidating European electricity sector. One of the company's earliest efforts dated from 1997, when it joined in with partners EVN (itself a major shareholder in Verbund) and Wiener Stadtwerke to acquire a stake in Oberosterreichische Kraftwerke AG (OKA), based in Upper Austria. In 2000, Verbund bought full control of Osterreichische Draukraftwereke AAG, and its 22 power generation stations, previously owned jointly with Kaerntner Elektrizitätwirtschafts AG (Kelag). The following year, Verbund consolidated its position in the Styrian region with the creation of a new joint venture, Steweag-Steg GmbH, in partnership with Energie Steiermark AG. One of the goals of the joint venture was to give Verbund stronger access to the neighboring Croatian and Slovenian markets.

Verbund's position as the dominant electricity supplier in Austria, however, appeared to interfere with its growth ambitions. In 2001, the company attempted to reposition itself as a truly European leader in the region's electricity sector, through a merger agreement with Germany's E.ON. The agreement called for the two companies to combine into a new company, European Hydro Power, with Verbund in control of some 60 percent of shares. Yet concern that Verbund might slip from Austrian ownership forced the Austrian government to end the merger plan.

KEY DATES

1947:: Second Nationalization Act creates Österreichische Elektrizitätswirtschafts-AG (aka Verbund) in order to rebuild and expand Austrian electricity generation capacity.
1955:: Completion of Kaprun hydroelectric power plant enables Austrian electricity self-sufficiency.
1978:: Austrian population votes against commissioning of completed nuclear power plant, forcing Verbund to increase thermal power capacity.
1983:: Verbund inaugurates first High Voltage Direct Current link in order to import electricity from Eastern Europe.
1988:: Verbund is privatized with 49 percent of shares placed on Vienna Stock Exchange.
1998:: New hydroelectric power plant on Danube at Freudenau is commissioned.
2002:: Verbund scraps merger agreement with EnergieAllianz.
2005:: Verbund launches direct electricity sales.
2006:: Verbund drops plans to merge with OMV; company enters Greece and Turkey.

Similarly, in 2002, Verbund struck an agreement with EnergieAllianz, a consortium of most of Austria's regional power companies. Once again, however, Verbund was forced to abandon the plan over concerns that the company would gain a de facto monopoly over the Austrian power market.

Verbund continued to seek new partners for growth into the middle of the decade. In 2006, the company announced an agreement to merge with fellow Austrian OMV, the largest oil and gas group in the country, and similarly controlled by the Austrian government. Under the merger plan, the Austrian government agreed to transfer its 51 percent stake in Verbund into OMV, in a deal worth some EUR 13 billion ($18 billion). Yet the government was soon forced to drop the plan following strong public opposition.

Despite these setbacks, Verbund continued to put into place its internationalization strategy, adding a new subsidiary in Hungary in 2004. Meanwhile, the final steps in the deregulation of the Austrian electricity sector allowed Verbund to launch direct electricity sales to the residential and corporate markets for the first time. By the end of 2006, the company had also entered Greece, where it bought a 70 percent stake in power producer Heron. The company also launched construction of a power plant in the north of France, in partnership with that country's Poweo, while forming a partnership with Turkey's Sabanci to enter that market as well. Verbund expected to play a major role in the European electricity sector for years to come.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

VERBUND Management Service GmbH; VERBUND-Austrian Hydro Power AG; VERBUND-Austrian Power Grid AG; VERBUND-Austrian Power Sales GmbH; VERBUND-Austrian Power Trading AG; VERBUND-Austrian Thermal Power GmbH & Co KG; VERBUND-BeteiligungsgmbH VBG; Verbund-Telekom Service GmbH.

PRINCIPAL DIVISIONS

Generation; Transmission; Trading; Distribution.

PRINCIPAL COMPETITORS

Wiener Stadtwerke Holding AG; Wien Energie GmbH; EVN AG; Energie Steiermark AG; TIWAG-Tiroler Wasserkraftwerke AG; Energie AG Oberosterreich AG; Salzburg AG; Wienstrom GmbH.