Hamburg Backs EU2 Billion Buyback of Power Grids in Plebiscite

Hamburg, Germany’s second-biggest city, is preparing to spend 2 billion euros ($2.7 billion) to buy back energy grids it sold to utilities Vattenfall Europe AG and EON SE (EOAN) more than 20 years ago after its citizens backed the repurchase by a narrow majority yesterday.

The buyback was supported by 51 percent of voters in a referendum held on the same day as federal elections that saw Angela Merkel’s Christian Democrats win their highest score since Helmut Kohl’s victory of 1990 and Merkel a third term as chancellor.

The port city is one of dozens of German municipalities that are reclaiming control of energy grids after a period of privatizations in the 1990s when money was needed to prop up budgets. More than 70 new municipal utilities have started up since 2007, and public operators have taken over more than 200 concessions to run energy grids from private companies in that time, according to the VKU association of public utilities. Berlin will hold a similar referendum Nov. 3.

“We’re generally seeing a remunicipalization trend as the idea that private is superior to state has not lived up to its promises,” said Hans-Joachim Reck, VKU’s managing director. “The regional operators in Frankfurt and Munich show that it’s worth keeping energy supply in municipal hands.”

The repurchases come as Germany’s commercial utilities are seeing margins squeezed by Merkel’s decision to phase out nuclear power by 2022 in a shift to renewable energy.

The drive has created the biggest discrepancy between consumer and producer power prices in 15 years, turning the cost of electricity into a political battleground and prompting municipalities to reverse course.

Residential Bills

Because of taxes and charges that subsidize the country’s 550 billion-euro plan to expand solar and wind power, residential bills are more than twice the amount that utilities pay to deliver the electricity, according to Berlin-based lobby group BDEW.

EON, Germany’s biggest utility, in June sold a majority in its Westfalen Weser unit. In January it announced plans to sell a 43 percent stake in EON Thueringer Energie to a group of municipalities.

RWE AG (RWE), the biggest power generator in the country of more than 80 million people, in December sold its 58 percent stake in a regional utility for 220 million euros to a group including Thuega AG, Energieversorgung Mittelrhein GmbH and Koblenz city.

Germany is divided over whether returning grids to public operators will ease the burden on consumers. Consumer power prices are 68 percent higher than in 1998, leaving Germans paying more for their power than any other nation in the European Union except Cyprus and Denmark, EU data show.

Delaying Shift

The local initiative Our Hamburg – Our Grid, a group of more than 50 environmental, consumer and church groups advocating the buyback, argued that Vattenfall and EON don’t act in the best interest of the people and are delaying Germany’s shift to alternative energy.

The proponents say Hamburg, which has 1.7 million inhabitants and boasts Germany’s biggest port, may generate sales of 1 billion euros and a profit of 100 million euros a year with grid fees once it is in charge of the networks. These span 27,000 kilometers (16,780 miles) of power grid, 7,300 kilometers of gas lines and an 800-kilometer district heating network.

“We regret the result of the referendum,” said Ove Struck, spokesman for EON’s northern German EON Hanse AG unit, in a statement. “We need to examine in depth what it means for Hamburg and for the company,” he said, adding that EON remains open to talks with the city-state.

Debt Pile

Hamburg’s Social Democrat Mayor Olaf Scholz opposed a complete buyback, saying this would overburden the city, whose debt pile stands at more than 20 billion euros, in a Sept. 19 interview in Hamburger Abendblatt.

Hamburg, unlike Munich and Frankfurt, began privatizing municipal utilities Hamburgische Electricitaetswerke AG, or HEW, and Hein Gas in the late 1990s.

In 2012, the city bought back 25.1 percent of three grid units for 543.5 million euros as it sought to regain influence and press for a modernization of the network.

The referendum is only the first step in the city’s attempt to take back control. It must now ask Vattenfall and EON for approval to increase its stake to 100 percent, said Andreas Dressel, leader of the SPD bloc in the Hamburg parliament, in an interview.

“If they oppose a sale, we will have to start our own power grid operator” and submit competing bids for network concessions at the start of 2014, he said.

Vattenfall also plans to take part in the power grid concessions tender and sees a good chance of winning it, Tuomo Hatakka, Chairman of the management board of Vattenfall GmbH, said in a statement.

To contact the reporter on this story: Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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