REV: JULY 1, 2004
RWE and the Proposal for a German Electricity
At the end of April 2001, Dietmar Kuhnt, CEO of RWE, was sitting in his office overlooking Essen in the Ruhr, Germany’s industrial heartland. In the last several decades the Ruhr had been transformed from the one of Europe’s most polluted areas into a classic example of how to combine industry with a healthy environment. RWE had changed as well, expanding from its core business as one of Germany’s eight large interregional electricity companies into other areas such as petrol stations, construction and printing presses. In the last year, under Kuhnt’s leadership, RWE had redefined its self as a multi-utility and become one of the leading players in the liberalized European electricity and utility markets. The company had merged with VEW, the fifth-biggest German electricity company, and acquired Thames Water, a major international water company based in Britain, while it disposed of several non-core activities in petrol and telecommunications. RWE’s new slogan was “one group, multi-utility”.
A key issue on Kuhnt’s agenda was to define a strategy towards electricity regulation in Germany. In the past six years, Germany’s electricity market had been liberalized without too much government involvement. The former conservative government had preferred a very light-handed approach that relied on self-regulation with policing by competition authorities, rather than the creation of an industry-specific regulator. However, a recent report of the Bundeskartellamt, the German anti-trust agency, had documented the failures of self-regulation, including the ways municipal and regional utilities had tried to block fair competition. Kuhnt faced a difficult choice: should he support the status quo or join forces with some of the other utilities and with independent supplier and consumer groups in lobbying for a national regulator? The choice was troubling and difficult because an open electricity market was essential to RWE’s multi-utility strategy.
________________________________________________________________________________________________________________ Professor Alexander Dyck, Professor Jose Gomez-Ibanez (Kennedy School of Government) and Christoph Meier (MPA Kennedy School of Government, 2002) prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2002 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
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RWE and the Proposal for a German Electricity Regulator
The German Electricity Industry1
The German electricity industry began in 1866, when Werner von Siemens invented the dynamo that allowed the production of electricity at a large scale. The first small power plants were built by private investors, but soon the various levels of government took over Germany’s electrification.
The structure of the electricity industry established in the 1920s would last for over seventy years. To serve urban areas, most city governments founded municipal utilities, beginning with Berlin in 1884. The municipal utility that provided electric service usually provided other utility services as...
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