2011 Annual Report - OTCIQ.com

Risk Management and Insurance
E.ON Risk Consulting GmbH, a wholly owned subsidiary of
E.ON AG, is responsible for insurance-risk management in the
E.ON Group. It develops and optimizes solutions for E.ON’s
operating risks by using insurance and insurance-related instruments
and secures the necessary coverage in international
insurance markets. To this end, E.ON Risk Consulting GmbH is,
among other things, responsible for management of client
data and insurance contracts, claims management, the accounting
of risk covering and claims, and all associated reporting.
Risk Committee
In compliance with the provisions of Section 91, Paragraph 2,
of the German Stock Corporation Act relating to the establishment
of a risk-monitoring and early warning system, the
E.ON Group has a Risk Committee. The Risk Committee, which
consists of representatives of key E.ON AG divisions and departments,
is responsible for ensuring that the risk strategy for
commodity and credit risks defined by the Board of Management
is implemented, complied with, and further developed.
Risk Situation
In the normal course of business, we are subject to a number
of risks that are inseparably linked to the operation of our
businesses. The E.ON Group, and thus E.ON AG, is exposed to
the following main categories of risk:
Market Risks
Our units operate in an international market environment
that is characterized by general risks relating to the business
cycle. In addition, the entry of new suppliers into the marketplace
along with more aggressive tactics by existing market
participants has created a keener competitive environment
for our electricity business in and outside Germany which could
reduce our margins. Our Gas global unit continues to face
considerable competitive pressure in the gas marketplace. Competition
in the gas market and increasing trading volumes
at virtual trading points and gas exchanges could result in considerable
risks for natural gas purchased under long-term
take-or-pay contracts. In addition, substantial price risks result
CEO Letter
E.ON Stock
Combined Group Management Report
Consolidated Financial Statements
Corporate Governance Report
Supervisory Board and Board of Management
Tables and Explanations
from the fact that gas procurement prices are predominantly
indexed to oil prices, whereas sales prices are increasingly
guided by wholesale prices. Generally, contracts between producers
and importers are subject to periodic adjustments to
the current market situation. E.ON Ruhrgas is conducting
intensive negotiations with producers. After unsuccessful negotiations
with Gazprom, E.ON Ruhrgas exercised its contractual
option of opening an arbitration process against Gazprom.
The demand for electric power and natural gas is seasonal,
with our operations generally experiencing higher demand
during the cold-weather months of October through March
and lower demand during the warm-weather months of April
through September. As a result of these seasonal patterns,
our sales and results of operations are higher in the first and
fourth quarters and lower in the second and third quarters.
Sales and results of operations for all of our energy operations
can be negatively affected by periods of unseasonably warm
weather during the autumn and winter months. Our units in
Scandinavia could be negatively affected by a lack of precipitation,
which could lead to a decline in hydroelectric generation.
We expect seasonal and weather-related fluctuations in
sales and results of operations to continue.
We use a comprehensive sales management system and
intensive customer management to minimize these risks.
51