2011 Annual Report - OTCIQ.com

A sensitivity analysis was performed on the Group’s short-term
floating-rate borrowings, including hedges of both foreign
exchange risk and interest risk. This measure is used for internal
risk controlling and reflects the economic position of
the E.ON Group. A one-percentage-point upward or downward
change in interest rates (across all currencies) would cause
interest charges to respectively increase or decrease by €13 million
in the subsequent fiscal year (2010: €30 million increase
or decrease).
Commodity Price Risk Management
E.ON is exposed to substantial risks resulting from fluctuations
in the prices of commodities, both on the supply and demand
side. This risk is measured based on potential negative deviation
from the target EBITDA.
The maximum permissible risk is determined centrally by the
Board of Management in its medium-term planning and translated
into a decentralized limit structure in coordination with
the units. Before fixing any limits, the investment plans and
all other known obligations and quantifiable risks have been
taken into account. Risk controlling and reporting, including
portfolio optimization, is steered centrally for the Group by
Group Management.
E.ON conducts commodity transactions primarily within the
system portfolio, which includes core operations, existing sales
and procurement contracts and any commodity derivatives
used for hedging purposes or for power plant optimi zation.
The risk in the system portfolio thus arises from the open
position between planned procurement and generation and
planned sales volumes. The risk of these open positions is
measured using the profit-at-risk number, which quantifies the
risk by taking into account the size of the open position and
the prices, the volatility and the liquidity of the under lying commodities.
PaR is defined as the maximum potential negative
change in the value of the open position at a probability of
95 percent in the event that the open position is closed as
quickly as possible.
The principal derivative instruments used by E.ON to cover
commodity price risk exposures are electricity, gas, coal and oil
swaps and forwards, as well as emissions-related derivatives.
Commodity derivatives are used by the units for the purposes
CEO Letter
E.ON Stock
Combined Group Management Report
Consolidated Financial Statements
Corporate Governance Report
Supervisory Board and Board of Management
Tables and Explanations
of price risk management, system optimization, equalization of
burdens, and even for the improvement of margins. Proprietary
trading is permitted only within very tightly defined limits.
The risk measure used for the proprietary trading portfolio is
a five-day value-at-risk with a 95- percent confidence interval.
The trading limits for proprietary trading as well as for all other
trading activities are established and monitored by bodies
that are independent from trading operations. A three-year
planning horizon, with defined limits, is applied for the system
portfolio. Limits used on hedging and proprietary trading
activities include five-day value-at-risk and profit-at-risk numbers,
as well as stop-loss limits. Additional key elements of the
risk management system are a set of Group-wide commodity risk
guidelines, the clear division of duties between scheduling,
trading, settlement and controlling, as well as a risk reporting
system independent from trading operations. Commodity positions
and associated risks throughout the Group are reported
to the members of the Risk Committee on a monthly basis.
As of December 31, 2011, the E.ON Group has entered into
electricity, gas, coal, oil and emissions-related derivatives with
a nominal value of €199,155 million (2010: €154,196 million).
The VaR for the proprietary trading portfolio amounted to
€19 million as of December 31, 2011 (2010: €20 million). The PaR
for the financial and physical commodity positions held in
the system portfolio over a three-year planning horizon was
€2,860 million as of December 31, 2011 (2010: €2,454 million).
The calculation of the PaR reflects the economic position of the
E.ON Group over a planning horizon of three years, and in
addition to the financial instruments included in the scope of
IFRS 7, also encompasses the remaining commodity positions.
This economic position is also used for internal risk controlling.
147