RWE Second-Quarter Profit Falls on CO2 Permits, Lower Grid Fees

By Nicholas Comfort

Aug. 14 (Bloomberg) -- RWE AG, Germany's second-biggest utility, said second-quarter profit fell 67 percent on higher costs to emit carbon dioxide and lower power grid fees.

Net income dropped to 347 million euros ($516 million) in from 1.06 billion euros a year earlier, according to Bloomberg calculations. The figure was calculated by subtracting first- quarter figures from half-year numbers released today on the Essen-based utility's Web site. That missed the 742.5 million- euro median estimate of eight analysts surveyed by Bloomberg.

RWE, the European Union's largest emitter of greenhouse gases, saw the number of carbon permits it gets free of charge slashed while costs for the certificates jumped. Gains from record power prices and the return of two nuclear reactors were eroded as a German regulator cut the fees the utility can charge for use of its power transmission grid.

``They have a much higher commodity exposure than competitors,'' Catharina Saponar, an analyst at Nomura Holdings Inc. said before the earnings were released. ``CO2 costs will have gone up quite materially, as will commodity costs.''

RWE fell 1.9 percent yesterday to 73.37 euros in Frankfurt, extending its drop for the year to 24 percent. That compares with a 20 percent decline for larger German rival E.ON AG, which yesterday raised its full-year profit outlook.

Of the 40 analysts who cover RWE, 21 advise investors to buy the stock, 12 say ``hold'' and seven recommend selling.

Emissions Permits

Carbon dioxide allowance prices jumped 61-fold in the quarter to an average 25.61 euros a metric ton, compared with 42 cents a year earlier, when the European Commission allowed nations to hand out too many permits. The allocation in 2008 was slashed by 9.4 percent.

The utility's grid fees are based on what reimbursement Germany's Federal Network Agency judges appropriate given RWE's level of investment in the infrastructure.

The authority, known as the Bundesnetzagentur, invalidated 28 percent of the costs the company claimed in March, Renate Hichert, a Bonn-based agency spokeswoman, said by telephone on Aug. 12. The investments determining 2008 grid fees are based on spending from 2006, she said.

The 1.17 gigawatt Biblis A and 1.3-gigawatt Biblis B nuclear plants restarted in the first quarter after a halt that lasted over a year.

German electricity for delivery the next day sold for an average of 71.63 euros a megawatt-hour in the second quarter, compared with 35.39 euros a year earlier, according to broker GFI Group Inc.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net