straight talking. · 2019. 1. 4. · financial calendar 2011/2012 20 april 2011 annual general...

Financial calendar 2011/2012

20 April 2011 AnnualGeneralMeeting

21 April 2011 Dividendpayment

12 May 2011 Interimreportforthefirstquarterof2011

11 August 2011 Interimreportforthefirsthalfof2011

10 November 2011 Interimreportforthefirstthreequartersof2011

6 March 2012 Annualreportforfiscal2011






The Annual General Meeting and all events concerning the publication of the financial reports are broadcast live on the internet and recorded.

We will keep the recordings on our website for at least twelve months.

2010 key Figures at a glance.

• Allearningstargetsachieved

• Operatingresultup8%

• Dividendof€3.50pershareproposed

AnnuAl RepoRt 2010

RWE

Annu

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epor

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0

RWE Group 2010 2009 +/- %

External electricity sales volume billion kWh 311.2 282.8 10.0

External gas sales volume billion kWh 395.4 332.0 19.1

External revenue € million 53,320 47,741 11.7

EBITDA € million 10,256 9,165 11.9

Operating result € million 7,681 7,090 8.3

Income from continuing operations before tax € million 4,978 5,598 − 11.1

Net income/RWE AG shareholders’ share in income € million 3,308 3,571 − 7.4

Recurrent net income € million 3,752 3,532 6.2

Return on capital employed (ROCE) % 14.4 16.3 –

Weighted average cost of capital (WACC) before tax % 9.0 9.0 –

Value added € million 2,876 3,177 − 9.5

Capital employed € million 53,386 43,597 22.5

Cash flows from operating activities € million 5,500 5,299 3.8

Capital expenditure € million 6,643 15,637 − 57.5

Property, plant and equipment and intangible assets € million 6,379 5,913 7.9

Financial assets € million 264 9,724 − 97.3

Free cash flow € million − 879 − 614 − 43.2

Number of shares outstanding (average) thousands 533,559 533,132 0.1

Earnings per share € 6.20 6.70 − 7.5

Recurrent net income per share € 7.03 6.63 6.0

Dividend per share € 3.501 3.50 –

31 Dec 2010 31 Dec 2009

Net debt of the RWE Group € million 28,964 25,787 12.3

Workforce2 70,856 70,726 0.2

1 Dividend proposal for RWE AG‘s 2010 fiscal year, subject to approval by the 20 April 2011 Annual General Meeting.2 Converted to full-time positions.

straight talking.

RWE Aktiengesellschaft

Opernplatz 145128 EssenGermany

T +49 201 12-00F +49 201 12-15199 I www.rwe.com

how we have organised ourselves.

the rwe group

the

RWe

GRo

up

Straight talking. 1

To our investors

LetterfromtheCEO 36

TheRWEExecutiveBoard 42

2010inbrief 44

RWEonthecapitalmarket 46

1.0 Review of operations 51

1.1 Strategyandstructure 52

1.2 Economicenvironment 58

1.3 Politicalenvironment 66

1.4 Majorevents 69

1.5 Notesonreporting 74

1.6 Businessperformance 76

1.7 Financialpositionandnetworth 101

1.8 Notestothefinancialstatements 107

ofRWEAG(holdingcompany)

1.9 Innovation 112

1.10Developmentofrisksandopportunities 116

includingthereportontheinternalcontrol

andriskmanagementsystem

includingthecorporategovernance

declaration

1.11Outlookfor2011 127

2.0 Our responsibility 135

2.1 SupervisoryBoardreport 136

2.2 Corporategovernance 140

2.3 Compensationreport 143

(partofthereviewofoperations)

2.4 Workforce 152

2.5 Sustainability 154

3.0 Responsibility statement 160

4.0 Consolidated financial 161

statements

4.1 Incomestatement 162

4.2 Statementofrecognised 163

incomeandexpenses

4.3 Balancesheet 164

4.4 Cashflowstatement 165

4.5 Statementofchangesinequity 166

4.6 Notes 167

4.7 Auditor‘sreport 227

Further information

Materialinvestments 228

TheRWEGroup‘svaluemanagement 231

Boards 233

OrganisationchartoftheRWEGroup 238

OrganisationchartofRWEAG 240

Glossary 241

Index 244

Imprint 245

Five-yearoverview


Financialcalendar2011/2012

contents

Power generation

Conventional generation/

nuclear power

Renewableenergy

Five-YeAR oveRvieW

(pARt oF th

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F opeRAtio

ns)

Fold

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nten

ts

what we do.

electricity and gas: rwe oFFers everything FroM a single source.

RWEisoneofEurope’sfiveleadingelectricityandgascompanies.Throughour

expertiseinoil,gasandligniteproduction,theconstructionandoperationof

conventionalandrenewables-basedpowerplants,commoditiestradingaswellas

electricityandgastransmissionandsales,wecovertheentireenergyvaluechain.

Morethan70,000employeessupplyabout16millioncustomerswithelectricityand

nearly8millioncustomerswithgasviaourfullyconsolidatedcompanies.Infiscal

2010,werecordedmorethan€53billioninrevenue.

Europeisourmarket:RWEistheNo.1powerproducerinGermany,No.3inthe

Netherlands,andNo.3intheUK.WecontinuouslyexpandourpositioninCentral

EasternandSouthEasternEurope.

Ourpowerplantportfolioandourinvestmentprogrammeforbuildingnew,

environmentallyfriendlyandflexiblegenerationcapacityarethemainbasisfor

growingearningsinthefuture.Ourgroupwidenew-buildpowerplantprogramme

withatotalinstalledcapacityofabout12gigawattsisonschedule,inthelastthird

ofitsimplementationphase.Besidesmoreefficientandclimatefriendlyfossil

fuel-firedpowerstations,renewableenergyplaysakeyrole.Ourleadingposition

inEuropeanenergytradinghelpsusmakeoptimaluseofourpowerplantson

themarket.Wereacttochangesincustomerneedsbyofferingnewproductsfor

homes,commerceandindustry.Inthiscontext,climateprotectionandenergy

efficiencyarebecomingincreasinglyimportant.

Ourgasandoilproductionbusinessesaredisplayingabove-averagegrowth.In

lightofthelong-termglobalriseindemandforgas,weplantosteadilyincreasethe

amountweproducein-house.

Gas and oil production

Energy trading /gas midstream

Electricity andgas networks

Electricity andgas sales

Customers

RWE AGGermany Netherlands/

BelgiumUnited Kingdom

Central Eastern and South Eastern Europe

Renewables Upstream Gas & Oil

Trading/ Gas Midstream

Power Generation

Sales and Distribution Networks

RWE Power RWE Deutschland

Essent RWE npower RWE East RWE Innogy RWE Dea RWE Supply & Trading

RWE AGAmprionElectricity transmissionsystem operator (unbundled)

NET4GASGas transmission system operator(Czech Republic)(unbundled)

Internal services

Five-year overviewRWE Group

2010 2009 2008 2007 2006

Net financial debt € million 11,904 10,382 − 650 − 2,064 − 4,720

Net debt of the RWE Group € million 28,964 25,787 18,659 16,514 17,827

Leverage factor 2.8 2.8 2.1 2.1 –

Workforce

Workforce at end of the year3 70,856 70,726 65,908 63,439 61,725

Research & development

R&D costs € million 149 110 105 74 73

R&D employees 360 350 330 270 273

Emissions balance

CO2 emissions million metric tons 165 149 172 187 178

Free allocation of CO2 certificates million metric tons 115 105 105 170 167

Shortage of CO2 certificates million metric tons 50 44 67 17 11

Specific CO2 emissions metric tons/MWh 0.732 0.796 0.768 0.866 0.797

Five-year overviewRWE Aktiengesellschaft

2010 2009 2008 2007 2006

Dividend/dividend payment

Dividend payment € million 1,8674 1,867 2,401 1,689 1,968

Dividend per share € 3.504 3.50 4.50 3.15 3.50

Market capitalisation

Market capitalisation at the end of the year € billion 28.0 38.0 35.4 53.5 46.5

Long-term credit rating

Moody’s A2 A2 A1 A1 A1

(outlook) (negative) (negative) (negative) (stable) (stable)

Standard & Poor’s A A A A+ A+

(outlook) (negative) (negative) (stable) (negative) (negative)

1 Since 2008, EBITDA has also included operating income from investments.2 Figures from 2006 according to the new value management concept; see Annual Report 2007, page 208.3 Converted to full-time positions.4 Proposed dividend for RWE AG‘s 2010 fiscal year, subject to approval by the 20 April 2011 Annual General Meeting.

As a major European energy utility, we have responsibilities that go far beyond our company. By investing billions, we are paving the way today for tomorrow’s supply of energy. People need energy. And they want this energy to be safe, clean and affordable.

This is our core responsibility – and we need society to support us. Now more than ever before, the future of energy supply is a topic of public discussion. Often, debate is dogmatic, heated and highly emotional. RWE counters this with verifiable facts and rational reasoning. Because only honesty and transparency will take us forward. That is why straight talking matters.


2010 2009 2008 2007 2006

External revenue € million 53,320 47,741 48,950 42,507 42,554

Income

EBITDA1 € million 10,256 9,165 8,773 7,915 7,172

Operating result € million 7,681 7,090 6,826 6,533 5,681

Income from continuing operations before tax € million 4,978 5,598 4,866 5,246 3,537

Net income/RWE AG shareholders’ share in net income € million 3,308 3,571 2,558 2,667 3,847

Earnings per share € 6.20 6.70 4.75 4.74 6.84

Recurrent net income per share € 7.03 6.63 6.25 5.29 4.38

Return on equity % 23.1 28.5 20.7 20.1 30.3

Return on revenue % 12.3 14.8 12.3 16.0 15.2

Value management2

Return on capital employed (ROCE) % 14.4 16.3 17.2 16.5 14.2

Value added € million 2,876 3,177 3,453 2,970 2,074

Capital employed € million 53,386 43,597 39,809 39,710 40,206

Cash flow/capital expenditure/depreciation and amortisation

Cash flows from operating activities € million 5,500 5,299 8,853 6,085 6,783

Free cash flow € million − 879 − 614 4,399 2,020 2,289

Free cash flow per share € − 1.65 − 1.15 8.17 3.59 4.07

Capital expenditure including acquisitions € million 6,643 15,637 5,693 4,227 4,728

of which: Property, plant and equipment and intangible assets € million 6,379 5,913 4,454 4,065 4,494

Depreciation, amortisation, impairment losses and asset disposals € million 3,410 2,553 2,416 2,629 3,164

Degree of asset depreciation % 61.8 64.0 69.4 70.9 66.0

Asset/capital structure

Non-current assets € million 60,465 56,563 41,763 41,360 51,999

Current assets € million 32,612 36,875 51,667 42,060 41,456

Balance sheet equity € million 17,417 13,717 13,140 14,659 14,111

Non-current liabilities € million 45,162 45,633 36,793 36,796 52,402

Current liabilities € million 30,498 34,088 43,497 31,965 26,942

Balance sheet total € million 93,077 93,438 93,430 83,420 93,455

Fixed asset intensity of investments % 53.4 49.4 35.5 38.4 44.0

Current asset intensity of investments % 35.0 39.5 55.3 50.4 44.4

Asset coverage % 103.5 104.9 119.6 124.4 127.9

Equity ratio % 18.7 14.7 14.1 17.6 15.1

Five-Year Overview (Part OF the review OF OPeratiOns)

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ENERGY UTILITIES RIP OFF CUSTOMERS

to our investors review of operations Our responsibility

responsibility statement Consolidated financial statements Further information

imprint 245

ImprInt

Design concept and layout:

Peter Schmidt Group GmbH

Typesetting, image editing and production:

Kompass/Chiari Werbeagentur GmbH, Düsseldorf

Photographs:

Claudia Kempf, Wuppertal

Catrin Moritz, Essen

Jan Eumann, Düsseldorf

Bernd Arnold, Cologne

RWE archive

Printing:

D+L Printpartner GmbH, Bocholt

RWE is a member of DIRK,

the German Investor Relations Association.


Opernplatz 1

45128 Essen

Germany

Phone +49 201 12-00

Fax +49 201 12-15199

E-mail [email protected]

Investor Relations:

Phone +49 201 12-15025

Fax +49 201 12-15265


Corporate Communications:

Phone +49 201 12-15250

Fax +49 201 12-15094

For annual reports, interim reports and further information

on RWE, please visit us on the internet at www.rwe.com or

call our shareholder hotline:

Phone 0180 1 451280 (callers in Germany)

Phone +49 180 1 451280 (callers outside Germany,

excluding the USA)

Phone +11 49 180 1 451280 (callers from the USA)

This annual report was published on 24 February 2011. This is a

translation of the German annual report. In case of divergence

from the German version, the German version shall prevail.

Forward-looking statements. This report contains forward-looking statements regarding the future development of the RWE Group

and its companies as well as economic and political developments. These statements are assessments that we have made based

on information available to us at the time this document was prepared. In the event that the underlying assumptions do not

materialise or additional risks arise, actual performance can deviate from the performance expected at present. Therefore, we

cannot assume responsibility for the correctness of these statements.

5

•TheGermanelectricitymarketisfiercelycompetitive

•Government-imposedtaxesandleviesdriveupend-customerprices

•Foresightedelectricitypurchasingavoidspricespikes

Dr.Hanns-FerdinandMüller,SpokespersonoftheExecutiveBoardofRWEVertriebAG

“The fact of the matter is that, in Germany, two thirds of the electricity price is influenced by the government and regulatory authorities.”

3

END-CUSTOMER ELECTRICITY PRICES ARE MADE UP OF PROCUREMENT AND SALES COSTS, REGULATED NETWORK FEES AS WELL AS TAXES AND LEVIES

THE GERMAN ElEcTRiciTy MARKET is fiERcEly coMpETiTivE

•Whenweselltheelectricitywegenerateonthewholesalemarket,wedoitat

prevailingmarketprices.Itisthefreecompetitiononopenmarkets,suchasthe

EEXelectricityexchange,thatestablishestheprices,notRWE.

•Competitionintheretailcustomersectorisalsofierce.Somediscountershave

takentoofferingpricesthatdonotevencovertheircosts.Householdscan

choosebetween900suppliersandcomparepricesandproductsontheinternet.

•Nowadays,switchingutilitiesischild’splay.Thenewprovidertakescareofthe

formalities.AccordingtotheGermanEnergyandWaterAssociation,Germany’s

accumulatedswitchraterosefrom7percenttonearly22percentbetween2006

and2009.Anevenlargernumberofcustomerschangedtariffsratherthan

suppliers.

GovERNMENT-iMposED TAXEs AND lEviEs DRivE Up END-cUsToMER pRicEs

•Today,taxesandleviesaccountformorethan40percentofresidentialelectricity

prices.Inaddition,gridfeesaresubjecttostateregulation.Thesecurrentlymake

up24percentoftheelectricitybill.

•Thecostofgenerating,transmittingandsellingelectricityincreasedby8percent

betweentheliberalisationoftheelectricitymarketin1998and2010,whiletaxes

andleviesroseby131percent.

•Asregardstheshareoftaxesandleviesincludedinelectricityprices,Germany

rankssecondhighestinEurope;onlyDenmarkchargesitscustomersmore.

•Consumerssubsidiserenewableenergyviatheirelectricitybills.Theexpansionof

renewablespushescostsup.ThelevyimposedbytheGermanRenewableEnergy

Act(REA)nowamountsto3.5eurocentsperkilowatthour.Thisis1.5eurocents

morethanin2010.

•However,RWEVertrieb’scustomerswillnotfeelthefullimpactofthisincreasein

2011.Ourkilowatthouronlycosts0.8eurocentsmore.Thisisbecausewerealised

savingsinelectricityprocurement,whichwedirectlypassthroughtoourcustomers.

•TheREAchargeswillcontinuetoincreasesignificantlyinthenextfewyears,

especiallyduetotheunabatedexpansionofsolarpowerproduction.Thetotal

estimatedfor2012aloneis21billioneuros.Thisistwiceasmuchasin2009.

4

foREsiGHTED ElEcTRiciTy pURcHAsiNG AvoiDs pRicE spiKEs

•Oursalescompanieshavetobuyelectricityatprevailingmarketconditions,

justlikecompetitorswhodonotownpowerplants.Onemustseektomitigate

pricerisksarisingfromsuddenpricespikes.Weaccomplishthisbymaking

forwardpurchasesearlyon.

•OurGermancustomerscanalsobenefitfromthishedgingstrategy,forexample

byoptingforthe‘RWEStrom36max’tariff,whichguaranteesafixedpricefor

36 months.Forcustomersoptingforthistariff,pricesonlygoupiftaxesor

leviesareraised.

AvERAGE MoNTHly ElEcTRiciTy Bill iN € foR A THREE-pERsoN HoUsEHolD iN GERMANy (3,500 KWH p.A.)

Taxes and leviesElectricity procurement, grid fees and salesTotal electricity price

49.95

69.10

12.35

28.57

37.60 40.53

1998

2010

+ 131 %

+ 8 %

+ 38 %

iN GERMANy, 41 pERcENT of REsiDENTiAl ElEcTRiciTy Bills coNsisT of TAXEs AND lEviEs

Source: German Energy and Water Association, 12/2010.

35% Electricity procurement and sales

24% State-regulated grid fees

41%State-imposed

levies and taxes

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CO2 kILLS!STOP RWEThEy ARE CLIMATE-kILLERS

9

•RWEhassetitselfambitiousclimateprotectiongoals

•Fromstrategytoimplementation:wereduceouremissionsbybuildingnewgasandcoal-firedplants

•Weinvestbillionsinrenewableenergy

“We’re reducing our carbon footprint – at an ever increasing speed.”

Dr.JürgenGroßmann,President&CEOofRWEAG

7

RWE HAs sET iTsElf AMBiTioUs cliMATE pRoTEcTioN GoAls

•Thechangingclimateisaglobaltalkingpoint.Whichisagoodthing–iftalkis

followedbyaction.WhatappliestousallasindividualsalsoappliestoRWEona

largerscale.

•ReducingourCO2emissionsisacornerstoneofourstrategy.Everyyear,weinvest

billionstomakeourplantsmoreefficientandthusmoreclimate-friendly.

•Wherearewetoday?In2010,ourplantsproduced0.73metrictonsofcarbon

dioxidepermegawatthourofelectricity,8percentlessthanintheyearbefore,

butstillfartoomuch.

•Onaverage,ourcompetitorsproducelessCO2thanus.Thisclearlyprovides

thedirectionforus,especiallyinviewofthefinancialrisksassociatedwithhigh

CO2emissions.

•Wehavesetourselvesacleargoal:wewanttoreduceourCO2exposuretothe

averagelevelsofotherutilitiesinourmarketsby2020.Weexpecttheemission

factorcommononthemarketin2020tobearound0.45metrictonsofcarbon

dioxidepermegawatthour.

•By2025,75percentofourelectricitygenerationcapacityshouldbebasedon

low-emissionorCO2-freetechnologies,brokendownasfollows:30percent

renewables,30percentgas-firedpowerplants,and15percentnuclearpower.

•Wewillbereducingemissionselsewhere,too.TheKyotoProtocolprovidesan

opportunityforustoobtainemissioncertificatesforourownplantsinexchange

forclimateprotectionmeasuresindevelopingandemergingcountries.RWEisone

ofthegloballeadersinthisfield,currentlyimplementingover120projectsin

China,India,Egyptandmanyothercountries.

WE INVEST BILLIONS IN RENEWABLE ENERGY AND CLIMATE-FRIENDLY POWER PLANTS

RWE ElEcTRiciTy GENERATioN MiX By 2025: 75 % of iNsTAllED cApAciTy sHoUlD HAvE liTTlE oR No co2

30 %

20 %

15 %

20 %

30 %

25 %

35 %25 %

Nuclear Gas Highly efficient coal Renewables

Capacity Generation

8

fRoM sTRATEGy To iMplEMENTATioN: WE REDUcE oUR EMissioNs By BUilDiNG NEW GAs AND coAl-fiRED plANTs

•Wepassedimportantmilestonesontheroadtoclimate-friendlyenergy

productionin2010.Forinstance,wecommissionednewgas-firedpower

stationsthatarestate-of-the-artintermsofefficiencyandreductionof

emissions.

•Bymid2014,wewanttocommissionanadditional12gigawattsofgeneration

capacity,withCO2-freeandlow-emissionstechnologiesaccountingformore

thanhalfofthis.

•Weinvestinrenewableenergyaswellasstate-of-the-artgasandcoal-fired

powerstations,whichwilledgeoutdatedhigh-emissionplantsoutofthe

market.Thetablebelowliststherespectivefossilfuelprojects.

• Includingthegas-firedpowerstationscommissionedin2010,ournewplants

maysaveanestimated25millionmetrictonsofCO2emissions–eachandevery

year!ThisisaquarterofthetotalemissionsproducedbycarsinGermany.

WE iNvEsT BillioNs iN RENEWABlE ENERGy

•Anincreasingamountofourelectricityistocomefromrenewablesources.

Wewillspendalmostfourbillioneurosonthisuntil2013.Thismakesusthe

biggestGermaninvestorinrenewableenergyinEurope.

•Ourmedium-termgoal:by2014,weexpectoursubsidiaryRWEInnogy,the

specialistforrenewableenergy,tohave4.5gigawattsofinstalledcapacityin

operationorunderconstruction.

•Buildingnewonshoreandoffshorewindfarmsisapriorityforus.Ourfirst

GermanoffshorewindfarmnorthoftheIsleofHelgolandwillgoonlinein2013.

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lingen Gas 876 0.5

Neurath lignite 2,100 2.6

Hamm Hard coal 1,528 2.3

staythorpe Gas 1,650 0.8

pembroke Gas 2,188 1.2

Moerdijk 2 Gas 426 0.4

claus c Gas 1,304 1.1

Eemshaven Hard coal/biomass 1,560 2.7

Denizli Gas 775 0.5

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EXTENSION OF NUCLEAR LIFETIMES = PROLONGED DANGER

13

•Nuclearenergymakesamajorcontributiontoclimateprotectionandsecurityofsupply

•ThecontinuedoperationofGermannuclearpowerplantshasadampeningeffectonelectricityprices

•Anincreasingnumberofcountriesrelyonnuclearpower

“Clean. Safe. Affordable. Nuclear energy as a complement to renewables is the best solution.”

Prof.Dr.GerdJäger,ExecutiveVice-PresidentofRWEPowerAG

11

NUclEAR ENERGy MAKEs A MAJoR coNTRiBUTioN To cliMATE pRoTEcTioN AND sEcURiTy of sUpply

•Germanyhassetitselfambitiousclimate-protectiongoals.By2020,the

countryaimstoreducegreenhousegasemissionsby40percentcomparedto

1990levels,andby80to95percentby2050.

•Expandingrenewableenergyiskeytothis.Thegoalistohaverenewables

accountfor30percentofelectricityproductionby2020,andforasmuchas

80percentby2050.

•Noneofthisispossiblewithoutmakinglargeinvestments.Basedonestimates

bytheGermanenvironmentministry,theelectricitysectoralonewillneedto

invest100billioneurosby2020.

•Onethingiscertain:withoutnuclearpower,itwillbeimpossibletoachieve

Germany’sclimate-protectiontargetsunlessonespendsunreasonablesumsof

money.

THE coNTiNUED opERATioN of GERMAN NUclEAR poWER plANTs HAs A DAMpENiNG EffEcT oN ElEcTRiciTy pRicEs

•Germannuclearpowerplantsareworldleadersintermsofsafety:

accordingtotheInternationalEnergyAgency(IEA),theymeetthehighest

standards.RWE’sexistingpowerstationsalreadyfulfillmanyofthecriteria

thathavetobemetbynewbuildstoday.

•Wehaveputinconsiderableefforttoreachthehighestsafetylevelsand

safeguardthispositionoverthelongterm.Inthelasttenyears,wehave

invested1.4billioneurosattheBiblissitealone,whereweimplementeda

numberofmeasurestoincreasesafety.

•AffordableelectricityisakeyfactorinselectingGermanyasalocationfor

productionfacilitiesandbusinesspremises.Thiscontributestosecuringjobs.

•BasedonastudybytheFederationofGermanIndustries(BDI),thecontinued

operationofGermany’snuclearpowerstationscoulddampenelectricity

wholesalepricesbymorethan20percentin2020.Thiswouldtranslateinto

annualsavingsof90eurosforanaveragehousehold.

THERE ARE GOOD ARGUMENTS IN FAVOUROF USING NUCLEAR ENERGY: LOW GENERATION COSTS, SAFE TECHNOLOGY AND HARDLY ANYCO2 EMISSIONS

12

AN iNcREAsiNG NUMBER of coUNTRiEs REly oN NUclEAR poWER

•Thefuturebelongstoenergyfromrenewables.Butwhatcanbedoneintimes

whenthereisneitherwindnorsunshine?

•Nuclearpowerisavailableatalltimes.Itisideallysuitedforoffsetting

fluctuatingamountsofelectricityfedintothegridfromrenewablesources.

Germanreactorscanramptheiroutputupordownby9,600megawattswithin

15minutes.

•Therealisationthatnuclearenergyismakinganimportantcontributionto

climateprotectionandsecurityofsupplyisalsobeingmadeonaninternational

scale.TheUSA,Sweden,SwitzerlandandtheNetherlandshaveextendedthe

lifetimesoftheirnuclearpowerstationsto60years.

•CountriessuchasItalyandSweden,whichdecidedtophaseoutnuclearenergy

yearsago,nowactuallyintendtobuildnewplants.

•BasedondatapublishedbybusinessconsultancyfirmArthurD.Little,atotalof

63reactorsarecurrentlyunderconstructionthroughouttheworld,agreements

havebeensignedforanother63,andsitesarealreadyavailableforanadditional

121units.

•Asolutionforthefinalstorageofradioactivewastemustfinallybefound.In

Germany,responsibilityforthisisbornebythestate,whereastheoperatorsof

nuclearpowerplantsbearthecostsofdisposal.

MANfRED GüllNER, foRsA

“Eighty-onepercentoftheGermanpopulationbelievethatonecannotfullyrenouncenuclearpowerintheenergysupplyofthefuture.Thisquotahasrisensignificantlysince2005(59percent).”

forsa survey in summer 2010.

NUclEAR poWER AccoUNTs foR ABoUT A QUARTER of GERMAN ElEcTRiciTy

1 Preliminary. Source: German Energy and Water Association.

Quota of net electricity production by fuel in Germany in 20091

16 %

6 %

13 %

18 %

23 %

24 %

Nuclear

Natural gas

Renewables

Oil, pumped storage and other

Lignite

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2009: 561 billion kWh

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A CUSTOMER FROM GERMANy COMPLAINS BITTERLy ABOUT hIS BAD EXPERIENCE WITh RWE’S CUSTOMER SERVICE AFTER AN ERRONEOUS METER READING LED TO UNJUSTIFIED ADMINISTRATIVE AND DEBT COLLECTION FEES.

•RWE’scustomerserviceisgettingbetter–andfaster–allthetime

•Weofferawiderangeofproductsandlocalcustomerservice

•Ourcorporatecustomersbenefitfrommade-to-measureproducts

•RWEisacompetentpartnertothosewhowishtosaveenergy

AchimSüdmeier,ExecutiveVice-PresidentSalesatRWEVertriebAG

“Dissatisfied customers – we have them as well. But we’re working on reducing their number.”

17

15

OUR SERVICE CONCEPT CONSIDERS CHANGES IN MARKET CONDITIONS AND THE NEEDS OF OUR CUSTOMERS

RWE’s cUsToMER sERvicE is GETTiNG BETTER – AND fAsTER – All THE TiME

•Thosewhowanttosurviveinthemarketinthelongrunmustofferexcellent

customerservice.

•Webelieveinqualityandhaveinvestedalottothisend.In2010alone,

RWEVertriebexpandeditscustomerserviceteamby100newemployees.

SouthernGermany’stechnicalinspectionauthorityTÜVSüdrepeatedly

recognisedusforservicequalityandcustomersatisfaction.

•Today,customerqueriesareanswered25percentfasteratRWEVertriebthan

ayearago.

•Wetakesuggestionsandcriticismseriously.In2010,wecreatedacustomer

advisorypanel,whichtakesonboardtheviewsofourresidentialcustomersin

Germanyanddevelopsideasforsolutions.

• IntheUnitedKingdom,weinvested200millionpoundsinnewbillingand

data-managementsystems,withaviewtoservingourcustomersmorequickly

andefficiently.

•OurresidentialcustomersintheNetherlandscanchangetheirprepaymentsfor

electricityandgasonlineaccordingtotheirneeds.

WE offER A WiDE RANGE of pRoDUcTs AND locAl cUsToMER sERvicE

•OurresidentialcustomersinandoutsideofGermanycanchoosefromawide

anddiversifiedsuiteofproducts.Theportfoliorangesfromflatrateandgreen

powerofferingstoonlinetariffs,e.g.undertheeprimobrand.

•RWEVertriebhasincreaseditsconsultingcapacityby10percent.

•Weenlargedourlocalfootprintsignificantly:RWEnowhasover70energystores

andmobileinformationdesks.Thisis30percentmorethantwoyearsago.

•Allcallsplacedtousarefreeofcharge.Overthelastfewyears,wehavemore

thanhalvedtelephonewaitingtimes.In93percentofallcases,ourcustomers

reachamemberofstaffontheirfirstattempttocontactRWEVertrieb.

16

oUR coRpoRATE cUsToMERs BENEfiT fRoM MADE-To-MEAsURE pRoDUcTs

•Wehavebeenofferingourcorporatecustomersacatalogueoftailor-madeenergy

servicessince2008.Weinformthemoftariffsandprovideadviceonwaysto

realisesavingswhenconsumingenergy.Ourcustomerscantracktheirelectricity

consumptionovertimeonaninternetplatform.

•Furthermore,weofferourcorporatecustomersvariableelectricitytariffs,someof

whichareadjustedtodevelopmentsontheelectricityexchangeonaweeklybasis.

•Keyaccountsinneedofastablebasisofcalculationcanalsofindtheproductthey

need:long-termelectricitycontracts,someofwhichlastuntil2037.

•Weofferourmunicipalcustomersspecialpartnershipconcepts.Theseinclude

consultancyonoptimisingtheenergyefficiencyofcityhallsandotherpublic

buildings.

WWW.ENERGiEWElT.DE – oUR sERvicEs:

sAviNG ENERGy AT HoME

NEW ENERGy-EfficiENT BUilDiNGs

MoDERNisiNG BUilDiNGs

cRAfTsMEN AND ENERGy coNsUlTANTs

fiNANciNG AND sUBsiDiEs

lEARNiNG ABoUT solAR poWER

RWE is A coMpETENT pARTNER To THosE WHo WisH To sAvE ENERGy

•Makingmoreefficientuseofenergymeansreducingcostsandbeinggentleonthe

environment.Wehelpourcustomersdothis,strengtheningoursalespositionat

thesametime.

•Onourwebportalatwww.energiewelt.de,weprovideadviceontheeconomicuse

ofelectricityandgas.FromitsonlinelaunchinOctober2009totheendof2010,

theportalhadalreadyattracted3.5millionvisitors.Beitinstallinginsulation,smart

meters,smarthomes,heatpumps,solarthermalpower,combinedheatandpower

generationorenergy-efficientmachinesanddevices,thereissomethingfor

everybody.

•Establishedin2009,RWEEffizienzGmbHisourinnovationcentreforenergysaving

productswithapproximately100employees.Thesubsidiaryalsomakesusa

pioneerinclimate-friendlyelectriccars.In‘RWEAutostrom,’wealreadyhavethe

rightproductforthosewhochargetheircarsinsteadoffillingup.

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THE GREEd Of CORpORATES fOR pROfIT

21

Dr.RolfPohlig,CFOofRWEAG

“Our investors have entrusted us with their money. It is our task to manage it responsibly.”

•Ourinvestorsputtheirtrustinus

•Withoutprofits,wecannotinvestintomorrow’senergysupply

•Wetakeourstakeholders’expectationsseriously

•Thevaluewecreatebenefitsemployees,shareholdersandsociety

19

OUR INVESTORS EXPECT A SUCCESSFUL STRATEGY AND AN ATTRACTIVE DIVIDEND. IN TURN, THEY CONTRIBUTE TO FINANCING TOMORROW’S ENERGY SUPPLY

oUR iNvEsToRs pUT THEiR TRUsT iN Us

•Energysupplyrequiresalong-termbusinessmodel.Wethinkandplaninterms

ofdecades,notintermsofyears.

•Theprofitsweachieveenableustoearnareasonablereturnonthecapitalthat

shareholdersputatRWE’sdisposal.

•Ourshareholdersfollowdistinctinvestmentstrategies.Savingforapension

playsaveryimportantroleamongprivateshareholders.Institutionalinvestors,

suchaspensionfundsandmunicipalshareholders,alsotendtohavelong-term

horizonsandbankondividendcontinuity.

•Governmentmeasuresthatburdenourearningseffectivelyhitourshareholders.

ThisappliesinparticulartothenewnuclearfueltaxinGermany.Itwillhavea

negativeeffectofanaverageof600to700millioneurosonouroperating

result,limitingthefundswecanspendoninvestmentsanddividends.

WiTHoUT pRofiTs, WE cANNoT iNvEsT iN ToMoRRoW’s ENERGy sUpply

•Profitsaretheprerequisiteforsafeguardingthefutureofourcompanyandits

jobs.Onlywithgoodresultsandahealthycashflowcanweinvestbillionsofeuros

intheconversionofourpowerplantfleetandsecuretomorrow’senergysupply.

• Inthelastfiveyears,wespentmuchmorecapitalonproperty,plantand

equipmentthanwepaidindividendstoshareholders.Weintendtocontinue

proceedinginthismanner.Insodoing,wearecreatingthebasisforfuture

dividendsandsecuringthejobsofouremployees.Theregionsinwhichweare

activealsobenefitfromthis,asdooursuppliers.

• In2010alone,almosthalfourcapitalspendingonproperty,plantandequipment

wasattributabletoGermany.

20

THE vAlUE WE cREATE BENEfiTs EMployEEs, sHAREHolDERs AND sociETy

•RWEwillinvestapproximately18billioneurosby2013.

•Aboveall,thefundswillbededicatedtotheconstructionofnewpowerstations

andrenewableenergyaswellastheexpansionandmodernisationofelectricity

networksandtheexplorationofnewenergysources.

•ThisRWEstimuluspackagecandoentirelywithoutstatesupport,safeguards

jobsandcontributestocreatingvalue.Infiscal2010,16billioneurosinvalue

addedwascreatedanddistributedamongemployees,shareholdersandsociety.

WE TAKE oUR sTAKEHolDERs’ EXpEcTATioNs sERioUsly

•Ourgoalistoreconcileentrepreneurialactionwithourstakeholders’

expectations.Onlybyachievingthisbalancecanweensurethecompany’s

long-termsuccessandcreatevalueforourshareholders.

•Wehavedividedourcorporateresponsibilitystrategyintotenfieldsofaction,

whichhighlighttheRWEGroup’smajorchallengesfromourstakeholders’

perspective.

•Since2010,ExecutiveBoardcompensationhasalsobeenalignedwithour

successinthevariousfieldsofcorporateresponsibility.ThismakesRWEoneof

thefirstcompaniestohavedirectlylinkedmanagementboardremunerationto

sustainabilitygoals.

Furtherinformation:RWECorporateResponsibilityReport

www.rwe.com/responsibility

iNvEsTMENTs iN THE coMpANy’s EARNiNG poWER

€ million 2010 2009 2008 2007 2006

Capitalexpenditureonproperty,plantandequipment 6,379 5,913 4,454 4,065 4,494

Recurrentnetincome 3,752 3,532 3,367 2,985 2,466

Dividendpayment 1,8671 1,867 2,401 1,689 1,968

1 subject to approval by the 20 April 2011 Annual General Meeting.

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ELECTRICITy OLIGOPOLy RAkES IN ThE MONEySTUDy: MARkET POWER DELIVERS BILLIONS IN PROFITSBy JAkOB SChLANDT

Thisopinionissharedbyconsumeradvocatesandcompetitionwatchdogs.Inaninterviewwith

FrankfurterRundschau,JustusHaucap,headofthemonopolycommission,said,“Theenormous

profitsarenotsurprising.ThereisnorealcompetitionintheGermanpowergenerationsector,

exacerbatedbytheextensionofnuclearpowerplantlifetimes.”

SaysHolgerKrawinkel,energyexpertwiththefederalassociationofconsumeradvocacy

centres:“CompetitionintheGermangenerationmarketisafarce.”Headdedthattheenergy

heavyweightshavemoremarketpowerthanbeforederegulationsometenyearsago.

25

•Electricitypricesonwholesalemarketsaredeterminedbysupplyanddemandinatransparentway

•Marginalcostsaredecisiveforthedeploymentofpowerplants

•ThereisnoevidenceofmanipulationontheGermanelectricitywholesalemarket

“Market power? In Europe, we have electricity exchanges that work – and Germany’s is the most important one.”

StefanJudisch,ChairmanoftheBoardofDirectorsofRWESupply&TradingGmbH

23

WE FACE COMPETITION WITH CONVICTION, AS IT ACCELERATES OUR GROWTH AND WE EARN THE DIVIDEND FOR OUR SHAREHOLDERS THROUGH MARKET PERFORMANCE

ElEcTRiciTy pRicEs oN WHolEsAlE MARKETs ARE DETERMiNED By sUpply AND DEMAND iN A TRANspARENT WAy

•Electricityisaveryspecialproduct.Itiscompletelyhomogenousandcanbe

producedinmanyways.Becauseelectricityisalmostimpossibletostore,itneeds

tobeproducedthemomentitisneeded,nomoreandnolessthanrequired.

•Demandforelectricityfluctuatesbythesecond.Itdependsonavarietyoffactors,

suchasthetimeofdayoryear,theweather,ortheeconomiccycle.Industrial

consumers’consumptionisdeterminedbycapacityutilisation,whereasresidential

consumptionisdriventoagreaterextentbytemperature.

•Pricesonelectricityexchangescanbeextremelyvolatilewithinasingleday.

6 December2010wassuchaday(seediagrambelow).Duetotheweather,wind

turbinesstoodstillandsolarpanelsstoppedgeneratingelectricity,astheywere

coveredinsnow.Asthedayprogressed,thepriceofelectricitydoubled,then

tripled,andfinallymorethanhalved.

•Onlyveryfewproductsdisplaysuchextremeandsuddenmovementsinprice.

•Giventhesehugefluctuations,electricityproducers,distributorsandlarge

consumershedgetheirelectricitypricerisksonforwardmarkets.

HoURly pRicEs foR ElEcTRicTy oN THE GERMAN spoT MARKET oN 6 DEcEMBER 2010

€/MWh

Hours

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120

100

80

60

40

201 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Source: RWE Supply & Trading.

MARGiNAl cosTs ARE DEcisivE foR THE DEployMENT of poWER plANTs

•Thedemandforelectricityismetbyamultitudeofplantoperators.Plant

deploymentdependsstrictlyoneconomiccriteriabasedonshort-termvariable

costs(marginalcosts).Theseessentiallyincludethecostsoffuel,suchascoalor

gas,andthecostsofCO2emissionrights.

• Ifthereisashort-termriseindemand,additionalcapacitiesaredeployed

accordingtotherespectivepowerstation’smarginalcostranking.Inother

words,themorecost-efficienttheplant,thesooneritscapacitywillbeutilised.

•Electricityfromrenewablesourcessuchaswindorsolarenergyisgivenpriority

intheelectricitygrid.Thisismandatedbythelegislator.Nextinlineare

run-of-riverandnuclearplants,whichhavelowmarginalcosts,followedbycoal

andgas-firedplantsandfinally,inpeaktimes,oil-firedpowerstations.

•Themarginalcostsofthelastpowerplantneededtocoverdemandfor

electricityatanygiventimeandthusensuregridstabilitydefinethepriceper

megawatthourontherespectiveelectricityexchange.Thispricewillthenalso

applytoallotherpowerstations.Plantswithmarginalcostsbelowthisprice

produceelectricity–theothersdonot.

• Iftheelectricitypriceishigherthanthemarginalcosts,theplantoperator

achievesamargin,whichisrequiredtocoverfixedcosts,suchasstaffcostsor

depreciation.Investmentsinnewpowerstationscanonlypayoffifthemargins

achievedovertheplant’slifetimeexceedthefixedcosts.

THERE is No EviDENcE of MANipUlATioN oN THE GERMAN ElEcTRiciTy WHolEsAlE MARKET

•Germany’selectricitymarketischaracterisedbyalargevarietyofsuppliersand

intensecompetition.AmongallEUelectricitymarkets,theGermanmarketisthe

onewiththelowestmarketconcentration,bothintermsofgenerationand

supply,asastudyconductedbyCapgeminiConsultantsinNovember2010

showed.

•About5,500terawatthoursofelectricitywereelectronicallytradedinGermany

in2010–morethananywhereelseinEurope.Thisliquidityisproofofthehigh

transparencyofthemarketplaceandthetrustplacedinitbytraders.

•Some270companiesfrom22countriesconducttheirtradeontheEEXEnergy

Exchange.Electricityistradedroughlysixtoseventimes,bothontheexchange

andoverthecounter,beforefinallybeingdeliveredtothecustomer.Thisserves

thepurposesofeconomicoptimisationandrisktransferamongpower

producers,salescompanies,andindustrialpowerconsumers.

•GermanwholesaleelectricitypriceshaverangedintheEuropeanmidfieldfor

years.NeithertheEuropeanCommissionnortheGermanFederalCartelOfficeor

thetradingmonitoringagencyestablishedattheEEXhaveeverfoundevidence

ofmarketmanipulationontheGermanwholesaleelectricitymarket.

24

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ENERGy hEAVyWEIGhTS ON ThE ENDANGERED SPECIES LIST?RWE IS BLOCkING INNOVATION!

“Those who accuse us of being sluggish ignore that we actually get things moving.”

•Ourresearchanddevelopmentworkisdedicatedpredominantlytoclimateprotection

•RWEisleadingthewayinthefieldofelectriccars

•Weinvestinsmartgridstosecuretheelectricitysupplyofthefuture

Dr.NinaSkorupska,ChiefTechnicalOfficer,EssentN.V.

29

27

TO US, INNOVATION IS THE KEY TO MAKING TOMORROW’S ENERGY SUPPLY SMARTER AND GENTLER ON RESOURCES AND THE ENVIRONMENT

oUR REsEARcH AND DEvElopMENT WoRK is DEDicATED pREDoMiNANTly To cliMATE pRoTEcTioN

•Weintendtomakethegenerationofelectricityfromfossilfuelsmoreefficient

andcleaner.Thisiswhatourresearchanddevelopmentefforts(R&D)atRWE

focuson.

• InourcoalinnovationcentrenearCologne,Germany,weworkontechnologies

aimingtoreduceandconvertcarbondioxide.Weplantospendatotalofover

100millioneurosonthis.

•Wealsoconductlarge-scaleprojectswithpartners.OneexampleistheDesertec

initiative,whichstartedin2009andofwhichweareafoundingmember.Its

objectiveistocreatetheframeworkconditionsforinvestinginthesupplyof

largeamountsofsolarandwindpowertoEurope,theMiddleEastandNorth

Africa.

•ViaourDutchsubsidiaryEssent,wearealreadyaleaderintheco-firingof

biomassincoal-firedpowerplants.

CO2 usagefor chemical precursors

Electricity storage using compressed air

sElEcT iNNovATioN pRoJEcTs

Smart metering for fully transparent

electricity consumption

Electric cars

Desertec saharan electricity

for Europe

Algae farmingwith carbon dioxide

ECOdrei project for energy-efficient

living

CO2 separationin coal-fired power

plants

Furtherinformation:www.rwe.com/innovations

WE iNvEsT iN sMART GRiDs To sEcURE THE ElEcTRiciTy sUpply of THE fUTURE

•Theenergylandscapeischangingrapidly.Besideslarge-scalepowerplants,

innumerabledecentralisedsolarfacilities,windturbinesandminibiomasspower

stationsalsogenerateelectricity.

• Intheenergygrid,theamountsofelectricityfedinandconsumedmustbein

balanceatalltimes,inordertokeepthevoltageonthesystemstable.Ensuring

thisisademandingtask.Therefore,inadditiontoflexiblepowerstations,we

neednew,smartgrids,withwhichfluctuatingenergyflowscanbebetter

managed.

•RWEhastakenonaleadingroleinthe‘NetworksfortheElectricitySupplyofthe

Future’projectpromotedbytheGermaneconomicsandtechnologyministry.

Togetherwithpartners,wearedevelopingconceptstoadaptournetworkstothe

supplytasksofthefuture.

•Flexibilityisakeycompetenceintomorrow’senergyworld.Ourcustomersalso

needtoactflexibly.SinceJanuary2011,RWEhasbeenofferingtime-dependent

tariffs,enablingcustomerstorealisesavingsbymanagingconsumption

accordingtothetimeofday.

Furtherinformation:www.rwe.com/innovations

28

RWE is lEADiNG THE WAy iN THE fiElD of ElEcTRic cARs

•RWEistakingCO2-freeelectricitytothestreets.Weareimplementingourlargest

pilotprojectintheRhine-Ruhrarea,ourcoreregion.Theobjectiveistohavea

charginginfrastructurethroughoutDortmund,EssenandMülheim,sothat

electriccarscan‘fillup’withourelectricity.Wehavelaunchedanotherpilot

projectintheDutchprovinceofNoord-Brabant.

•RWEofferselectricityforcarswhichfullystemsfromrenewablesourcesandis

thusfreeofcarbondioxide.

•Wehavealreadysetupover500chargingstationsinGermany,andtheirnumber

issteadilyrising.Twentymunicipalutilitieshavealreadysignedagreementswith

us,accordingtowhichwewillprovidethemwithchargingstationsandelectric

cars.

•Westartedofferingmass-producedelectriccarsinOctober2010.Buyerscan

ordertheMitsubishii-MiEVandstructurallyidenticalmodelsofferedbyCitroën

andPeugeotaspartofthe‘e-Drive’package,whichincludeschargingunitsfor

homeuse,inadditiontogreenelectricity.

Furtherinformation:www.rwe-mobility.com

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hOMEPAGE OF ThE GERMAN CLIMATE-PROTECTION ACTIVIST GROUP kLIMARETTER.INFORWE FORCES RENEWABLES DEVELOPMENT TO SLOW

AccordingtoRWECEOJürgenGroßmann,theenergygroupdoesnotwanttomakeanyadditionalinvestmentin

renewables.Asjustification,heexplainedthatthegroupwastoonegativelyaffectedbythenuclearfueltaxandthe

nuclearfund.Incontrast,accordingtoanewstudyconductedbytheGreenParty,thegrouphasbeenrakinginbillions

inprofitssince2002andchargingitscustomersexcessiveprices.

ByJohannaTreblin

NuclearenergygiantRWEintendstofreezeinvestmentinrenewables.InaninterviewwithStern,thecompany’sCEO

JürgenGroßmannindirectlyheldthenuclearfueltaxandthecontributionstothefundforrenewablesresponsible,into

whichGermany’sbigfourenergygroupshavetopay.

“Actions speak louder than words. We invest more than a billion euros in renewable energy every year.”

•Slowingdownisoutofthequestion:RWEisapioneerinthedevelopmentofrenewableenergy

•Weinvestwithforesightandaclearfocus

•Ourprojectsprovewemakebigthingshappen

Prof.Dr.FritzVahrenholt,ChairmanoftheBoardofDirectorsofRWEInnogyGmbH

33

31

WE iNvEsT WiTH foREsiGHT AND A clEAR focUs

•RWEhassetitselfanambitiousgoal:by2025,wewant30percentofour

electricitygenerationcapacitytobebasedonrenewables.

•RWEinvestsinalmosteverykindofrenewableenergysource:onshoreand

offshorewind,run-of-river,biomassandsolarthermalenergy.Webuildourplants

onthemostsuitablesitesforeachsourceinEurope.

•Photovoltaicgeneration,forinstance,doesnotfeaturemuchinourplansbecause

itincurssuchhighemissionsavoidancecosts–upto400eurospermetrictonof

CO2saved.Bycomparison,foronshorewindfarms,theyareintheorderof80

euros.

RENEWABLE ENERGY IS ONE OF THE MOST IMPORTANT GROWTH AREAS FOR RWE; MARKET LEADERSHIP IS WHAT WE AIM FOR

sloWiNG DoWN is oUT of THE QUEsTioN: RWE is A pioNEER iN THE DEvElopMENT of RENEWABlE ENERGy

• Inrecentyears,RWEhasbecomeakeyplayerinthefieldofrenewableenergy.

RWEInnogy,thecompanywefoundedin2008andwhichalreadyemploysover

1,200people,leadsoureffortsinthisarea.

•RWEInnogyisthebiggestGermaninvestorinrenewableenergyinEurope.

Since2008,thecompanyhasmorethandoubleditsgenerationcapacity:bythe

endof2010,3.4gigawattsofcapacitywereinoperationorunderconstruction.

Another18.2gigawattsarecurrentlybeingdeveloped.

•RWEInnogy’sactivitiesfocusonRWE’scoremarketsinGermany,theUK,

theNetherlandsandPoland.Furthermore,wearealsoactiveinSpain,France

andItaly.

oUR RENEWABlE ENERGy pRoJEcTs

In operation:

Run-of-river power plants Wind farms Biomass-fired power plants

Under construction or development: Run-of-river power plants Wind farms Biomass-fired power plants solar thermal plant

32

oUR pRoJEcTs pRovE WE MAKE BiG THiNGs HAppEN

•Lastyear,wetooksomemajorstepsforwardinexpandingourrenewableenergy

portfolio.

•WeweregiventhegreenlightforthedevelopmentoftwoBritishoffshorewind

farmprojects,AtlanticArrayandDoggerBank,earlyin2010.AtlanticArraywill

haveaninstalledcapacityofupto1.5gigawatts,andDoggerBank–inwhich

RWEInnogyholdsa25percentstake–willhaveabout9gigawatts.

• InMarch,westartedtheconstructionofalargewoodpelletisingfacilityin

Georgia,USA.Withanannualproductionof750,000metrictons,theplantwill

beoneofthelargestandmostmodernofitskindintheworld.

•RWEInnogyalsofoundedajointventurefortheconstructionandoperationof

theGwyntyMôrwindfarmofftheWelshcoastin2010.Wehold60percent,the

Munichmunicipalutilityhasa30percentinterest,andSiemensholds10

percent.OvertwobillioneurosarebeinginvestedinGwyntyMôr.

•WealsobeganconstructionworksonourfirstGermanoffshorewindfarm,called

‘NordseeOst’.Theplantwillbelocatedabout35kilometresnorthoftheIsleof

Helgolandandcompletionisplannedfor2013.Wearespendingaroundabillion

eurosonthis.

•Furthermore,in2010,wecommissionednewonshorewindfarmsinItalyand

Poland.TheAndasolsolarthermalprojectinSpain,inwhichwehaveastake,has

nearlybeencompleted.

•Ourprojectsspeakforthemselves.Someofthemaresolargeittakesabig

companylikeRWEtomakethemhappen.

34

Would you like to learn more about RWE and the energy industry?

If so, visit our website: www.rwe.com

Straight talking. 1

To our investors

LetterfromtheCEO 36


2010inbrief 44






1.4 Majorevents 69






1.9 Innovation 112





declaration

1.11 Outlookfor2011 127






2.4 Workforce 152



4.0 Consolidated financial statements 161



incomeandexpenses




4.6 Notes 167


Further information



Boards 233



Glossary 241

Index 244

Imprint 245

Five-yearoverview



Fold-out contents in back cover

Contents

Con

ten

ts

Letter from the Ceo

‘Straighttalking’isthethemeofthisyear’sAnnualReport.Arepowercompaniesrippingoff

customers?Aretheyinflexibleanddotheyhinderprogress?Dotheynotcareaboutenvironmental

andclimateprotection?Hardlyadaygoesbywithoutnewspapersorthetelevisionlevelling

accusationsatenergycompanies.WeatRWEarealsofamiliarwithsuchallegationsfromface-to-face

talkswithcustomers,politiciansandassociationrepresentatives.Atthebeginningofthisreport,

weaddressthemostcommonmisconceptionsaboututilitieslikeRWEandcounterthemwithfacts.

Theyspeakinourfavour–atleastwethinkso.But,pleasereadonandjudgeforyourself.

Straighttalkingissomethingyoucanalsoexpectofuswhenwereporttoyouonthecompany’s

situation.Thefactofthematteristhattheregulatoryframeworkconditionsoftheenergyindustry

havedeterioratedsignificantly.Somuchso,thatthepathweembarkedupontocutcostsandimprove

efficiencieswillnotsuffice.Thereisnousedenyingit.TheseaisgettingrougherforRWE.Thishas

nothadaninfluenceonthefinancialyearthatjustended.Infact,quitetheoppositeistrue–andthat

isgoodnews:2010wasthemostsuccessfulfiscalyearinthehistoryofRWE.At€7.7billion,the

operatingresultwashigherthanever.Comparedto2009,itimprovedby8%.Weincreasedrecurrent

netincomeby6%to€3.8billion.Therefore,weslightlyexceededourownexpectations.

36 Letter from the Ceo RWE Annual Report 2010

Onceagain,themainsuccessfactorwasourGermanelectricitygenerationbusiness.Weposted

furthergainsinthisarea,despitepricesontheelectricitymarketthatwerefarbelowthelevels

witnessedbeforetheonsetoftheeconomiccrisis.Creditforthisgoestoourhedgingstrategy.Wesell

nearlyallofourelectricityforward,uptothreeyearspriortodelivery.Therefore,wehadsoldpartsof

our2010generationbefore2009,atmarketpricesthatwerestillhigh.Anotherimportantdriverof

ourearningsgrowthwasthefactthatweincludedEssent,theDutchenergyutilityweacquiredin

2009,inourfiguresonafull-yearbasisforthefirsttime.DevelopmentsatEssentwereencouraging.

Inthemeantime,thecompany’sintegrationintoourGrouphasbeencompleted.

RWEranksamongEurope’sfivelargestenergycompanies.Wesolidifiedthispositionthroughthe

acquisitionofEssent.Butsizeisnotanendtoitself.Weleverageourstrengthtocreatelastingvalue.

Inparticular,weachievethisviaourpowerplantmodernisationandreplacementprogramme.Wehad

setourselvesthegoalofcommissioningnewgasandcoal-firedpowerstationswithatotalinstalled

capacityof12gigawattsbytheendof2013.Inthefinancialyearthatjustcametoaclose,we

managedtocompletethefirsttwolarge-scalefacilities:ourcombined-cyclegasturbinepowerplants

inLingenandatStaythorpe.Theirefficiencyofnearly60%makesthemtechnologicallyworldclass.

Accordingly,theirfuelconsumptionandcarbonemissionsarelow.Wealsomaintainedourcoursefor

growthwithrespecttorenewableenergy,andareconductingalargenumberofprojectsinthisfield.

Itwouldgobeyondthescopeofthislettertomentionthemall.However,onehighlightisthatwe

startedconstructingourfirstGermanoffshorewindfarmin2010.

Letter from the Ceo 37to our investors Review of operations our responsibility

Responsibility statement Consolidated financial statements Further information

Nevertheless,wearenotonlyinvestinginelectricitygeneration.Asubstantialsumhasalsobeen

setasidetomaintainandmodernisenetworkinfrastructure,tobuildnewgaspipelinesandstorage

facilities,aswellastoexpandourgasandoilproduction.Wealsomadegoodprogressinthisarea

in2010.

Asyoucantell,thefinancialyearthatjustendedwasverysuccessful.Andofcoursewewantyou,our

shareholders,tobenefitfromthis.TheExecutiveandSupervisoryBoardsofRWEAGwillproposeto

theAnnualGeneralMeetinginAprilthatadividendof€3.50persharebepaid.Basedonthepriceof

ourcommonshareattheendof2010,thisrepresentsadividendyieldof7%.Thisplacesusinthetop

groupoftheDAX.

Letusmovefromthepasttothefuture.Wecannotupholdourmedium-termgoals,whichwe

informedyouaboutinFebruary2010.Unfortunately,thereasonsforthislieoutsideoursphereof

influence.Wehadaimedtoincreaseouroperatingresultandrecurrentnetincomebyanaverageof

5%peryearfrom2008to2012.Inaddition,wewantedtoclose2013withthesetwofinancialsand

EBITDAhigherthan2009levels.Today,werealisethattheeconomicandpoliticalframework

conditionswillnotallowforthis.YoucanrestassuredthatmyfellowboardmembersandIarejustas

disappointedaboutthisasyouare.

Whatisthebackgroundofthisunforeseeabledevelopment?Whatconsequenceswillithave?

InOctober,theGermanLowerHousedecidedtointroduceataxonnuclearfuel.Thelevyislimitedto

sixyears.Itwillcurtailouroperatingresultbyanaverageof€600millionto€700millionperyearfrom

2011to2016.Wehadalreadyinformedyouaboutthis.Thenuclearfueltaxisproofofthefactthat

onecannolongerspeakofreliablepoliticalframeworkconditionsintheenergyindustry.Webelieve

thelevyisquestionablefromalegalpointofviewandareconsideringfilingalawsuitagainstit.

However,therewassomegoodnewsin2010,namelytheextensionofthelifetimesofGermannuclear

powerplants.ThisisanissuetowhichIpersonallywasespeciallycommitted,alongwithothers.

However,thereisatrade-offforusasoperators,inparticularintheformofsubstantialcontributions

toastatesubsidyfundforrenewableenergy.Ontopofthat,wehavetospendmoneyonretrofitting

ournuclearfacilities.Tosumup,wewillbefacedwithsignificantburdensintheyearsahead,whereas

thefinancialadvantagesofthelifetimeextensionwillcometobearmuchlateron.

Theeconomicframeworkconditionsarealsolessfavourablethananticipated.Letusstartbytakinga

lookatwholesaleelectricityprices.Theyhavebeenstagnatingatalowlevelsince2009,although

energyfuelssuchascoalandoilhaveagainriseninprice.Atthesametime,demandforelectricityhas

recovered.InGermany,itcouldreturntothelevelseenbeforetheeconomiccrisisasearlyas2011.

Whyisthisnotmirroredbypricesontheelectricitymarket?Toanswerthisquestion,wemustfirsttake

alookatthedevelopmentofelectricitygenerationcapacity.Itrecentlypostedasignificantrise,and

willcontinueitsupwardtrendoverthemediumterm.Coalandgas-firedpowerstationswitha

combinedinstalledcapacityofmorethan12gigawattsarecurrentlyunderconstructioninGermany.


Inaddition,therenewablegenerationbaseisexpandingatrecordspeed.Thisappliesespeciallyto

solarpanels.Bytheendof2009,theyaccountedforacapacityofjustunder10gigawattsinGermany.

Ayearlater,thisfigurerosetoanincredible17gigawatts,anditisstilltrendingupwards.Photovoltaic

plants,whicharehighlysubsidised,mostlygenerateelectricityduringpeak-loadperiods,namely

duringtheday,whenindustrial,commercialandtradeenergyconsumptionishigh.Theirexpansionis

thereforeespeciallydetrimentaltogasandhardcoal-firedpowerstations,whicharetypicallyused

duringpeak-loadperiods.Therefore,manymarketparticipantsalreadyanticipateovercapacitiesanda

substantialneedtoshutdownpowerplants.Thismightexplainwhythereisstillnoupwardtrendon

theelectricityforwardmarket.

However,itwouldbenaivetosimplyaddupthegigawattfigures.Itistruethatmuchmoreelectricity

isproducedfromrenewableswhenthewindblowsandthesunshines.However,weatherconditions

ofthistypearenottheruleinGermany,especiallynotinthewinter.Intheeventofalackofwind

orsolarenergyduringpeakperiods,coalandgas-firedpowerplantsaswellasnuclearreactorsmust

takeover.Thisiswhenonecanobserveextremepricemovements,oftenfromonehourtothenext.

Therefore,wecannotcompletelyrenouncefossilfuel-firedpowerstations,especiallywhenitcomes

toflexibleplants,theoutputofwhichcanberapidlyrampeddownandbackupagain.Neither

industrialnorresidentialcustomerscandowithoutthissecurityofsupply.Itispreciselythissecurity

andflexibilitythatdistinguishesthoseofourplantsthathavebeenrecentlybuiltorareunder

construction.Weneedtohaveawellbalancedportfolio,bothasacompanyaswellasforthe

economyasawhole.Therefore,Ihavenodoubtthatourpowerplantinvestmentprogrammewill

payoff.

Theconditionsunderlyingnotonlytheelectricitysectorbutalsothegasbusinesshavebecomemore

difficult.Europewasrecently‘flooded’withgas,withtheincreaseinproductionofshalegasinthe

USAbeingacontributingfactor.TheUnitedStatesisevolvingfromgasimportertogasexporter.The

resultisthatEuropenowhasmoreimportedgasatitsdisposal.Ontopofthis,liquidtradingmarkets

aregainingsignificanceinEurope.Thiscallsintoquestionamechanismthathasprovidedforstable

frameworkconditionsforyears:thecouplingofgastooilprices.WhengasutilitieslikeRWEconcluded

long-termsupplycontractswithproducerslikeGazpromorStatoil,theyoftenincludedaprovisionthat

linkedthegaspricetothatofoil.However,inthemeantime,gashasbecomeincreasinglytradedon

liquidspotmarketsonwhichoildoesnothaveadirecteffectonprices.Since2009,quotationson

thesemarketshavebeenfarbelowtheoil-indexedprices.Wecannolongercoverourpurchasingcosts

insomecases,primarilywhendoingbusinesswithourkeyaccounts.Thisisreflectedinsignificant

burdensontheearningsofRWESupply&Trading’sgasmidstreambusiness.

Whathavewedoneinresponse?Ourlong-termagreementswithgassuppliersincludeclausesthat

allowforscheduledandunscheduledcontractrenegotiationsforourprocurementprices.Wehave

madeconsistentandearlyuseofthem.Ourgoalistoadaptthesupplyconditionsinorderforthemto

allowustocontinueresellingthegasprofitably.Arbitrationproceduresareusuallyinitiatedinthe



eventthatsuchtalksfail.Insomecases,thishasalreadyhappened.Manyoftheresultsofthe

renegotiationswillnotbeavailableuntil2012or2013.Theywillbedecisiveforthedevelopmentof

earningsinourgasmidstreambusiness.Weareconvincedofhavingstrongarguments.

Thisroundsupmypresentationofourmotivesforloweringourexpectations.Nevertheless,Iseeno

reasontobepessimistic.Acompany’ssuccessprovesitselfespeciallyinhardtimes.Wearenot

lookingback.Wearerollingupoursleevesandhavealreadyinitiatedawholehostofmeasureswhich

wewillimplementstepbystep.Wewillpresentthesemeasurestoyouindetaillaterinthisreport.

OurnewearningsoutlookforthecomingyearstakesintoaccountalltheburdensthatIhavejust

described.Ourforecastfor2011envisagesearningsbeforeinterest,taxes,depreciationand

amortisation–EBITDAforshort–decliningbysome15%.Theoperatingresult,whichincludes

depreciationandamortisation,willdecreasebyabout20%.Thisslightlysteeperdropisduetothe

factthatoursubstantialcapitalexpenditurecausesdepreciationtogrow.Weareinthemiddleofthe

biggestgrowthcampaigneverundertakeninRWE’shistoryandwillcommissionfurtherpowerplants

in2011andthereafter.

Recurrentnetincome,towhichyourdividendisorientated,isexpectedtofallbyroughly30%.Our

outlookisalsocautiousoverthemediumterm.OurEBITDAandoperatingresultwillbeintheorderof

€8billionand€5billionin2013,whenwestopreceivingfreeallocatedemissionallowances.We

expectrecurrentnetincometototalabout€2billion.Weupholdourpayoutratioof50%to60%.

Therefore,you,ourshareholders,willcontinuetobenefitfromatleasthalfofourrecurrentnet

income.TheRWEsharewillthusretainitsattractivedividend,despitenumerousburdens.

Ourstrategicalignmentalsoremains.Weresolutelycontinuetomoderniseourpowerstations.

Climateprotectionandresourceconservationarestillatthetopofouragendainthiscontext,so

expandingourrenewablegenerationcapacityalsoremainsapillarofourstrategy.Anothergrowth

areaistheoilandgasproductionofoursubsidiaryRWEDea.Atthesametime,weintendtobroaden

ourfootprintandextendourinternationalreach.Inordertoaccomplishthis,weneedastrong

balancesheet.AyardstickofourfinancialrobustnessistheratioofnetdebttoEBITDA,alsoknownas

theleveragefactor.Weareorientatingourselvestowardsanupperlimitof3.0.Inthefinancialyear

thatjustended,itwas2.8.Inviewoftheanticipateddeclineinearningsinthecurrentyear,however,

wewillexceedthismarkatfirst.Inordertoreturnourleveragefactorbelowourupperlimitoverthe

mediumterm,weareconsideringsellinginvestmentsandpartsofcompanies.Weintendtorealise

proceedsofupto€8billionasaresult.Wehavegenerallytakenaccountofthesedivestmentsinour

earningsforecast.Our€28billioncapitalexpenditureprogramme,whichwehadintendedto


implementfrom2010to2013,willbereducedbyapproximately€3billion.Asaresult,some

€18 billionremainfor2011andthetwofollowingyears.Noneofthemajorpowerplantornetwork

expansionprojectsareaffectedbythecuts.Conversely,projectsthatarelessurgentwillbe

postponed.Ourpackageofmeasuresisbeingsupplementedbytheexpansionofourefficiency-

enhancementandcost-cuttingprogramme.Wewanttosaveanadditional€200millionona

sustainablebasisuntil2012.

Asyoucansee,weareequippingourselvesfortoughertimes.Theserequireexceptionalperformance,

notleastfromouremployees.Welargelyhavethemtothankforthefactthattoday,wecanlookback

onthestrongestfinancialyearinRWE’shistory.MyfellowboardmembersandIwouldliketoexpress

oursinceregratitudetothemforthisaccomplishment.Byunitingourforces,wewillalsomasterthe

challengesthatlieaheadofus.Wheneveronestandsontopofamountain,theonlywaytogois

down.Onemustthereforereachnewheights.Oursightsarefirmlysetonthisgoal.

Mydearinvestors,Iaskyoutoaccompanyusonthisjourney.Weareallworkinghardtoensurethat

RWEremainsanattractiveinvestmentforyou,dayafterday.

Sincerelyyours,

Dr.JürgenGroßmann

PresidentandCEOofRWEAG

Essen,11February2011

PS:Anyonewhowritesletterslikesreceivingmail,too.Doyouhaveanysuggestionsorpointsofview,

perhapswithrespecttoourmotto‘Straighttalking?’Orwouldyoulikesomemoreinformation?

Ifso,thensendane-mailtostraighttalking@rwe.com.BothRWEandIpersonallylookforwardto

hearingfromyou.



Dr. Jürgen Großmann President and CEO

Dr. Leonhard Birnbaum Chief Commercial Officer

The RWe execuTive BoaRd

Alwin Fitting Labour Director

Dr. Rolf Martin Schmitz Chief Operating Officer

Dr. Rolf Pohlig Chief Financial Officer

44

2010 in Brief.

JAnUARy

RWE Innogy places winning bid for further offshore wind projects in the UK

Withinthescopeofatenderprocess,theUKgovernmentgrantsuspermissiontodeveloptheAtlanticArrayandDoggerBankprojects.WewillinitiallydeveloptheAtlanticArrayprojectalone,whichwillhave1.5 gigawattsingenerationcapacity.AtDoggerBank,wehavea25%stakeinaconsortiumaimingfor9 gigawattsincapacity.

MARCh

RWE starts construction of a pellet factory in the USA

ThewoodpelletisingplantisbeingbuiltintheUSstateofGeorgia.Thefactorywillhaveanannualproductionof750,000metrictons,makingitthebiggestandmostmodernofitstypeintheworld.Weintendtousethepelletsinpurebiomasspowerplantsaswellasforco-firingwithhardcoal.Thefacilityisduetobeginproductionin2011.

APRIL

RWE decides to build a gas-fired power plant in Turkey

The775megawattfacilityisbeingerectedinDenizliinthewesternpartofthecountry.ItisownedbyajointventurebetweenRWE(70%)andtheTurkishenergycompanyTurcas(30%).Weestimatethecapitalexpenditureat€500million.Thepowerstationisscheduledtostartcommercialoperationin2013.

APRIL

State-of-the-art gas power plant goes online in Lingen

WecommissionthepowerstationinthepresenceofGermany’scurrentFederalPresident,ChristianWulff.Theplanthasaninstalledcapacityof876 megawattsanditsefficiencyfactorofnearly60%ranksitasworldclass.Wespentsome€500millionincapitalonthestation.

JULy

Green light for the single-largest investment in RWE Dea’s history

WesignanagreementwiththeEgyptianOilMinisterandpartnercompaniesforthedevelopmentofgasfieldsintwoMediterraneanconcessionareas.RWE DeawillsetasideUS$3.6 billionforthisoverthenexttwodecades.Thecompanyhasastakeofabout40%intheproject.Productionisscheduledtocommencebytheendof2014.

JUne

RWE Innogy establishes joint venture for the construction and operation of the Gwynt y Môr offshore wind farm

OurpartnersinthejointventureareStadtwerkeMünchenandSiemens,whichholdinterestsof30%and10%,respectively.TheGwyntyMôrwindfarmwillhave160turbinesandatotalinstalledcapacityof576megawattsandwillbeerectedoffthecoastofNorthWales.Itisscheduledforcompletionin2014.Morethan€2billionwillbeinvestedinthefacility.

45

oCtobeR

German Lower House introduces nuclear fuel tax and lifetime extensions for nuclear power plants

Thenewlevywillremaininforcethroughtotheendof2016.Itwillchannel€2.3 billioninannualrevenuestotheGermanstate.Wereservetherighttotakelegalactionagainstthetax.ThegovernmentdecidestoamendtheGermanNuclearAct,whichmeansthatGermannuclearpowerstationswillbeallowedtorunforanaverageoftwelveyearslonger.Inexchange,theiroperatorswillmakepaymentsintoafundthatwillbeusedtoexpandrenewableenergy,amongotherthings.

noveMbeR

UK gas-fired power plant commissioned

AttheendofNovember,allfourunitsofthehighlyefficientplantatStaythorpe(Nottinghamshire)wereonlinesimultaneouslyforthefirsttime.Theyhaveacombinedinstalledcapacityof1,650megawatts.Thisisenoughtosupplynearlytwomillionhomeswithelectricity.Thecapitalexpendituretotalledabout€800million.

DeCeMbeR

Contract to sell Thyssengas signed

ThebuyersofthecompanyinwhichourGermanlong-distancetransmissionnetworkissubsumedareinfrastructurefundsmanagedbytheAustralianfinancialserviceproviderMacquarie.Everyyear,Thyssengastransmitsalmost10 billioncubicmetresofnaturalgasthroughpipeswithanoveralllengthof4,100 kilometres.WehadmadeacommitmenttotheEUCommissiontosellthecompany.

sePteMbeR

RWE issues its first hybrid bond

Thevolumeof€1.75billionmakesourissuancethelargestoneofasecurityofthistypeeverplacedbyanindustrialenterpriseinEurope.Itdrawskeeninterestfrominvestors.Hybridbondsareamixofequityanddebtfinancing.Intheeventofinsolvency,theyareonlysettledafteralltheotherdebtinstruments.

sePteMbeR

Reorganisation of activities in Germany and Eastern Europe

RWEdecidestopoolitsGermansalesanddistributionnetworkoperationsunderRWERheinlandWestfalenNetzAGwitheffectfrom1January2011.ThelattercompanynowoperatesasRWE DeutschlandAG.AdecisionisalsomadetoestablishRWEEast,s.r.o.,headquarteredinPrague,Czech Republic,tooverseeourcompaniesinCentralEasternEuropeandTurkeyfrom2011onwards.

Shareholders of German companies could generally be satisfied with the stock performance in

2010. Posting a gain of 16 %, the DAX 30 was the second-best performing index in Europe.

Holders of RWE stocks had less reason to be pleased. Our common shares closed the year with

a loss of 23 %. In particular, Germany’s new nuclear fuel tax and low electricity and gas wholesale

prices dampened the development of RWE’s share price, as these factors caused our medium-term

earnings prospects to worsen.

RWE shares much weaker than the DAX.TheGermanstockmarketexperiencedagood2010.

Germany’sleadindex,theDAX,rosefrom5,957to6,914points,postingagainof16%.Thisisan

outstandingfigurewhencomparedinternationally.Forinstance,theDAXclearlydistancedtheDow

JonesEUROSTOXX50.In2010,theEurozone’smarketbarometerslippedby3%.Infact,theDAX

alsohadapoorstarttotheyear,mainlyduetotheGreekfinancialcrisis.Thecountry’simpending

insolvencyandthehighbudgetarydeficitsofotherEurozonememberstatesspurreddoubtabout

thecurrencyunion’sstability.Thesituationcalmed,thankstoanEUrescuepackage.Astheyear

progressed,therobusteconomyincreasinglydetermineddevelopmentsonthestockmarket.Investor

sentimentbrightenedconsiderably,aboveallinGermany,wheretheeconomydisplayedespecially

dynamicdevelopment.

rWe on the CapitaL market

31 D

ec 0

9

RWE common share

31 M

ar 10

30 Ju

n 10

30 Se

p 10

31 D

ec 10

Dow Jones STOXX UtilitiesDAX 30 Source: Bloomberg.

20

10

0

-10

-20

-30

Performance of RWE common shares compared with the DAX 30 and the Dow Jones STOXX Utilities indices % (average weekly figures)

46 RWe on the capital market RWE Annual Report 2010

The2010stockperformancewasalesspleasingoneforRWEshareholders.Ourcommonand

preferredsharesended2010at€49.89and€47.99,respectively.Thetotalreturnfortheyearasa

whole(returnonthesharepriceplusthedividend)was−23%and−18%.Thedevelopmentofour

sharepricereflectsthedeteriorationofourearningsprospects.Thisisduetotheunfavourable

developmentofelectricityandgaswholesalepricesaswellasthenuclearfueltaxinGermanylevied

from2011onwards.ThenewlevywasamajorreasonwhyRWEsharesclearlylaggedbehindthe

Europeanutilitysectorindex,theDowJonesSTOXXUtilities(−5%).Afterthegovernment’splansin

earlyJunetointroduceanuclearfueltaxbecameknown,thesectorindexandtheRWEsharestarted

tomoveinoppositedirections.Inthenearlysevenmonthsremainingintheyear,theDowJones

STOXXUtilitiesrecordedagainof7%,whileourcommonsharesrecordedadropof14%.

Monthly highs and lows (daily closing price)Monthly average Source: Bloomberg.

Monthly highs and lows of the RWE common share in 2010€

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

75

70

65

60

55

50

45

68.96

63.87

65.75 65.8368.02

62.60

59.06

55.39 56.1754.24

51.50 51.5150.15

49.3347.9648.0049.55

51.6852.3353.32

56.54

60.9162.92

61.69

Total return of RWE shares and important indices up to the end of 2010 % p.a.

1 year 5 years 10 years

RWE common share − 22.5 0.4 4.5

RWE preferred share − 18.3 3.1 8.1

DAX 30 16.1 5.0 0.7

Dow Jones EURO STOXX 50 − 2.8 − 1.9 − 2.7

Dow Jones STOXX 50 3.1 − 1.9 − 2.8

Dow Jones STOXX 600 11.6 0.5 − 0.1

Dow Jones STOXX Utilities − 4.5 2.0 4.0

REXP1 4.0 4.3 5.1

1 Index for the performance of government securities on the German bond market.

RWe on the capital market 47to our investors Review of operations our responsibility


RWE shares better than DAX in long-term comparison.Despitetheirweakperformancein2010,

RWEsharesdeliveredarobustlong-termreturn.Thosewhopaid€10,000tobuycommonsharesin

ourcompanytenyearsagoandreinvestedtheirdividendssawtheirinvestmentsriseto€15,538by

31December2010.Acashinvestmentinourpreferredsharesoverthesameperiodwouldhave

increasedthevalueofthedepositaryaccountto€21,861.Thiscorrespondstoanannualaverage

returnof4.5%and8.1%,respectively.RWEsharesarethereforeamongGermany’smostsuccessful

stocksinthelastdecade,aperiodwhichwasovershadowedbytwostockmarketcrises.By

comparison,theDAXrosebyanaverageofjust0.7%peryearduringthesameperiod.Thiswould

haveincreasedaninitialinvestmentof€10,000to€10,747.

€3.50 dividend per share proposed for 2010.TheSupervisoryandExecutiveBoardsofRWEAG

willproposeadividendof€3.50pershareforfiscal2010totheAnnualGeneralMeetingon

20 April 2011.Relativetorecurrentnetincome,thisresultsinapayoutratioof50%.Basedon

theyear-endclosingsharepricesofourcommonandpreferredshares,thedividendyieldsstood

at7.0%and7.3%,respectively.ThisgivesusaleadingpositionintheDAX.

RWE share indicators1 2010 2009 2008 2007 2006



Cash flows from operating activities per share

€ 10.31 9.94 16.44 10.82 12.06



Payout ratio3 % 50 53 71 57 80

Dividend yield on common shares4 % 7.0 5.2 7.1 3.3 4.2

Dividend yield on preferred shares4 % 7.3 5.6 8.4 3.8 4.9

Common share price

End of year € 49.89 67.96 63.70 96.00 83.50

High € 68.96 68.58 100.64 97.90 89.85

Low € 47.96 46.52 52.53 74.72 61.56

Preferred share price

End of year € 47.99 62.29 53.61 83.07 72.00

High € 62.52 62.65 84.39 86.00 73.91

Low € 44.51 41.75 37.46 66.33 54.18

Number of shares outstanding (average) thousands 533,559 533,132 538,364 562,373 562,374


1 Based on the annual average number of shares outstanding. 2 Dividend proposal for RWE AG’s 2010 fiscal year, subject to the approval of the 20 April 2011 Annual General Meeting. 3 The payout ratio is obtained by dividing the corresponding dividend payment in millions of euros by recurrent net income in millions of euros. 4 The dividend yield is obtained by dividing the corresponding dividend per share by the corresponding year-end quotation.


Ticker symbols common shares preferred shares

Reuters RWEG.DE (Xetra) RWEGpr.DE (Xetra)

RWEG.f (frankfurt) RWEGpr.f (frankfurt)

Bloomberg RWE Gy (Xetra) RWE3 Gy (Xetra)

RWE GR (frankfurt) RWE3 GR (frankfurt)

German Securities Identification Number 703 712 703 714

ISIN DE0007037129 DE0007037145

USA CUSIP No. (ADR) 74975E303 –

Wide international shareholder base.Attheendof2010,80%ofRWE’s562.4millionshareswere

ownedbyinstitutionalinvestors,while15%wereheldbyprivateinvestors(includingemployee

shareholders)and5%byRWEAG.Therewerethusnochangescomparedtothepreviousyear.

InstitutionalinvestorsinGermanyhold36%ofthecapitalstock(endof2009:36%),withthosein

NorthAmerica,theUnitedKingdomandIrelandaccountingforacombined23%(29%)andthose

inContinentalEurope,excludingGermany,owning17%(13%).RWEnergie-Beteiligungsgesellschaft,

inwhichprimarilymunicipalsharesarepooled,isoursinglelargestshareholder,holding16%.

US-basedassetmanagementcompanyBlackRockFinancialManagementaccountsforabout3%,

whichisthelargestRWEpositionoutsideGermany.Some1%ofthesharesareunderRWEemployee

ownership.Intheyearunderreview,26,279staffmembers,or59%ofthoseentitledtosubscribe,

participatedinouremployeesharescheme,subscribingatotalof558,000shares.Byofferingthis

programme,weenableourpersonnelatGermansitestobuyRWEsharesatfavourableconditions.

Wespent€5.8milliononthisin2010.ThefreefloatofRWEcommonsharesconsideredbyDeutsche

Börseintermsofindexweightingwas80%attheendoftheyear.

Shareholder structure of RWE AG1

5% Own shares

14% Private shareholders

1 Percentages reflect shares in the subscribed capital. Sources: Notifications of shareholdings in accordance with the German Securities Trading Act (WpHG) and shareholder identification, as of the end of 2010.

1% Employee shareholders 16% RW Energie-Beteiligungsgesellschaft 80% Institutional shareholders: 36% Germany 12% USA/Canada 11% UK/Ireland 17% Continental Europe excl. Germany 4% Rest of the world 3% BlackRock Financial Management

61% Other institutional shareholders

RWe on the capital market 49to our investors Review of operations our responsibility


Development of the five-year credit default swap (CDS) for RWE compared with the CDS index iTraxx Europe in basis points (average weekly figures)

31 D

ec 09

RWE

31 M

ar 10

30 Ju

n 10

30 Se

p 10

31 D

ec 10

iTraxx Europe Source: Bloomberg.

140

120

100

80

60

40

20

0

RWE is traded on stock markets in Germany and the USA.InGermany,RWEsharesaretradedon

theFrankfurtamMainandDüsseldorfStockExchangesaswellasviatheelectronicplatformXetra.

TheycanalsobeobtainedoverthecounterinBerlin,Bremen,Hamburg,Hanover,Munichand

Stuttgart.OutsideGermany,RWEstockistradedoverthecounterintheUnitedStatesviaAmerican

DepositaryReceipts(ADRs),andnotoursharesdirectly,inwhatisknownasaLevel1ADR

Programme.ADRsaresharecertificatesissuedbyUSdepositarybanks,representingacertainnumber

ofaforeigncompany’sdepositedshares.Untiltheendof2010,ourshareswerealsolistedonthe

SIXSwissExchangeinZurich.Wedecidedtodelistthem,duetoverylowturnover.

RWE maintains good creditworthiness on the capital market.Thecorporatebondmarketwasmarked

bymutuallyopposingtrendsin2010.Ontheonehand,interbankinterestratesintheEurozonewere

unusuallylow.Ontheotherhand,theGreekcrisisforcedbondissuerstopayhigherriskpremiums

ontheserates.Hedgingcreditriskviacreditdefaultswaps(CDSs)alsobecamemoreexpensive.The

iTraxxEuropeindex,whichismadeupoftheCDSpricesof125majorEuropeancompanies,advanced

from75basispointstomorethan130basispointsinthefirsthalfoftheyear,beforecomingback

downsomewhat.Itwasmarginallyabovethe100-pointmarkattheendoftheyear.Five-yearCDSs

forRWErosefrom45toover80basispointsoverthecourseoftheyear.However,theyremainedlow

comparedtothoseofotherindustrialenterprises,proofofRWE’sgoodcreditworthiness.


51

1.0 revieW of operations

eBitda

What you Can measure our suCCess By.

operating resuLt

reCurrent net inCome

dividend

effiCienCy enhanCement

Forecast for 2010: Increaseof5%to10%

2010 actual: Increaseof12%to€10.3billion

Forecast for 2011: Decreaseofabout15%

Forecast for 2010: Increaseofabout5%



Forecast for 2010: Increaseofabout5%



Forecast for 2010: Payoutratioof50%to60%ofrecurrent

netincome

2010 actual: Payoutratioof50%

(proposeddividend:€3.50pershare)

Forecast for 2011: Payoutratioof50%to60%ofrecurrent

netincome

Forecast for 2010: €700millioncomparedto2006

2010 actual: €700millioncomparedto2006

Forecast for 2011: €900millioncomparedto2006

oU

R Re

sPo

nsI

bILI

ty

RWE ranks among Europe’s five leading electricity and gas companies. We want to strengthen this

position. However, the market environment is likely to remain difficult. Competition is becoming

fiercer, and the demands placed by customers on our service levels and product offerings are

rising. Furthermore, regulatory intervention is changing established business models. At the same

time, we are witnessing low prices on the electricity and gas wholesale markets. We are tackling

these challenges by developing innovative products and services and continuing to invest in

environmentally friendly energy supplies for the future.

Major challenges for power utilities. Energysupplyrequiresalong-termbusinessmodel.Investments

inpowerplants,networksaswellasoilandgasproductionareusuallyplannedfordecadesin

advance–notjustforyears.Therefore,ourstrategybuildsonfundamentaltrends.However,Europe’s

energymarketsareundergoingchange,whichrequiresutilitiestoadapttheirbusinessmodels.This

changeischaracterisedby:

• theEuropeanUnion’sambitiousgoalstoreducegreenhousegasemissions,whichcause

CO2-intensivegenerationtechnologiestobeincreasinglyreplacedbymethodsthataremore

gentleontheclimate;

• apersistentlysubstantialneedforinvestmentinenergyinfrastructure,especiallytoconvertthe

generationportfoliotoaccommodatemorerenewablesandtheensuingneedtomoderniseand

expandnetworkinfrastructure;

• theincreasingneedforflexiblepowerplantdeployment,triggeredbytheexpansionofrenewable

generationanditsstronglyfluctuatingelectricityfeed-ins;

• theconvergenceofregionalmarketsresultingfromincreasinginternationaltradingandthe

expansionofcross-bordertransmissioncapacity;

• themountingpoliticalinfluenceexertedonthesupplystructureandpriceformationonenergy

marketsandthegeneralpublic’severmorefrequentresistancetoinfrastructureprojectssuchasthe

constructionofpowerplants,networksandCO2storagefacilities;and

• unexpectedstructuralriftsinthemarkets,e.g.thedecouplingwitnessedsince2009ofwholesale

gaspricesfromthoseestablishedinoil-indexedgaspurchasingagreements.

Covering all stages of the value chain creates stability. Thischallengingenvironmentprovidesnew

opportunitiesforpowerfulandbroadlypositionedmarketplayers.Werecognisedtheaforementioned

challengesearlyon.Thecornerstoneofourcurrentandfuturesuccessisourstrong,integrated

businessmodel,whichaddssubstantialvalue.Wecoverallofthemajorstagesoftheenergyvalue

chain.Inthefieldofelectricity,wearenotsimplyagenerator,butatrader,networkoperator

andsalescompanyaswell.Wearealsoactiveatallvalue-creationstagesinthegassector,fromthe

welltotheendcustomer.Thankstothisstructure,wecanflexiblyoffsetmarketfluctuationsin

individualareas.

strategy and struCture1.1

52 strategy and structure RWE Annual Report 2010

Climate protection is the centrepiece of our strategy.Wecanonlybesuccessfulinthelongrunifwe

managetoprovideaffordable,safeandenvironmentallyfriendlyenergy.Loweringcarbondioxide

emissionsisamongourprimestrategictargets.Itprovidesthedirectionforthemodernisationand

expansionofourgenerationportfolio.Furthermore,byspendingheavilyonnetworksandpipelines,

wearemakingacontributiontoensuringthereliablesupplyofelectricityandgas.Anotherpillarof

ourstrategyistheexpansionofourgasandoilproduction.Inaddition,wewanttogiveouractivities

astrongerregionaldiversification.Thefollowingguidelineswilldetermineouractioninthenextfew

years:

• Improving our CO2 emissions balance:Ourcurrentnew-buildpowerplantprogramme,whichis

inthelastthirdofitsimplementationphase,willmakeasubstantialcontributiontoreducing

ourcarbonfootprint.However,thiswillnotbetheendofthetransformationofourpower

plantportfolio.Inthelongrun,weareconsideringsupplementingourgenerationbasewith

additionalstate-of-the-artcombined-cyclegasturbinepowerstations,astheirabilitytorapidlyvary

theirloadfactorideallycomplementsrenewableenergy.Thedecisiontoextendthelifetimesof

GermannuclearpowerplantshelpsuscutdownonCO2.Ourmedium-termreductiontarget

orientatesitselftowardstheaveragecarbonemissionspermegawatthour(MWh)ofgenerated

electricity.OurgoalistousephysicalandfinancialmeasurestolowerourCO2intensitytothe

averagelevelofthecompetitioninourmarketsnolaterthan2020.Ourassumptionisthatthe

customaryemissionfactorinthesemarketswillberoughly0.45metrictonsofCO2perMWhin

2020.Bycomparison,RWEemitted0.73metrictonsperMWhinthefinancialyearthatjustended

(2009:0.80metrictonsperMWh).

• Value-added growth by expanding our renewable energy business:RWEInnogywantstoenlarge

itsrenewableelectricitygenerationbasesubstantially.Theaimistohave4.5gigawatts(GW)under

constructionorinoperationby2014.Duetoreductionsincapitalexpenditureandprojectdelays,

wewillnotbeabletoachievethisgoalasearlyas2012,whichwasouroriginalplan.Themajority

ofthefundsareearmarkedforonshoreandoffshorewindprojects.Wearealsoinvestinginthe

productionofelectricityandheatfrombiomassandareinvestigatingtheconstructionofnew

hydroelectricpowerplants.Inaddition,weareactiveinthefieldofsolarthermalpower,albeitonly

onasmallscale.

• Strengthening of our upstream position:Wewantourannualgasandoilproductiontoreach

about70millionbarrelsofoilequivalentby2016.Asaresult,wewouldproducemorethantwice

asmuchgasandoilasinthefinancialyearjustended.Wehadoriginallysoughttoachievethis

targetasearlyas2015,butwearenotprogressingasquicklyasanticipatedattheoutset,mainly

duetoreductionsincapitalexpenditureanddelaysinapprovalprocedures.

• Stronger international diversification:Inviewofmountinglocation-relatedrisks,itisbecoming

increasinglyimportanttogiveourcompanyalargeregionalfootprint.Overtwothirdsofour

growthinvestmentsarealreadybeingmadeabroad.In2010,theshareoftheoperatingresult

achievedbyouractivitiesoutsideGermanyamountedtoaboutaquarter.Weaimtoincreaseit

significantlyoverthemediumterm.

strategy and structure 53to our investors Review of operations our responsibility


From strategy to implementation: the largest investment programme in RWE’s history. Amain

buildingblockofourstrategyiscapitalexpenditureonpowerplantsandnetworks.Inthefinancial

yearthatjustended,wecommissionedtwostate-of-the-artgas-firedpowerstations,an876MW

facilityinLingen(Germany)anda1,650MWplantatStaythorpe(UK).Bythemiddleof2014,we

wanttohavecommissionedabout12GWinnewcapacity,withmorethanhalfofthisbeingbased

onCO2-freeandlow-CO2technologies.Welargelyfinanceourcapitalexpenditurewiththeearnings

ofourgenerationandnetworkactivities.However,from2011onwards,weexpecttoexperience

substantialearningsshortfallsduetotheintroductionofthenuclearfueltaxinGermany.Persistently

lowpricesofelectricityandgasonthewholesalemarketswillalsocurtailourearnings.Thisforces

ustocutspending.Weoriginallyenvisagedinvestingatotalof€28billioninproperty,plantand

equipmentfrom2010to2013.Nowweplantoachieveatargetofabout€25billionforthatperiod,

whichequatestoapproximately€18billionfrom2011to2013.Nevertheless,ourcapitalexpenditure

programmeisstillbyfarthebiggestinRWE’shistory.

Some €12 billion of the €18 billion in capital expenditure on property, plant and equipment between 2011 and 2013 is earmarked for growth and replacement investments, of which:

~28% Other

~44% CO2-free and low- CO2 technologies

~28% Highly efficient coal-based generation

Hard coal and lignite-fired power plants

Networks, midstream, gas and oil production and other projects

Renewables and gas-fired power plants

Inadditiontopowerplantsandnetworks,ourinvestmentactivityalsocentresontheexpansionof

ourgasandoilproduction.Morethan€3billionhasbeensetasideforthisfortheperiodfrom2011

to2013.Ourinvestmentinthegasbusinessisalsoearmarkedfortheconstructionofnewstorage

andtransmissionpipelines.OneexampleofthisistheNabuccopipeline,whichwillgiveEuropean

customersaccesstonewgassourcesintheCaspianregionandtheMiddleEastviaanewroute.We

arealsooncourseforexpansioninactivitiesrelatingtothetransportofliquefiednaturalgas(LNG).

Aboveandbeyondthis,energyefficiencyisbecomingmoreimportantforus.Thankstothe

innovativeproductsandservicesofRWEEffizienzGmbHforhouseholds,corporatecustomersand

municipalfacilities,wearesettingstandardsinthisfield.


Organicgrowthtakescentrestageforus.However,thisdoesnotmeanthatweruleoutminor

acquisitionswhichcomplementourportfolio.WebelievethatCentralEasternandSouthEastern

Europe,includingTurkey,provideparticularopportunities.

Wemeasureallinvestmentprojectsbywhethertheyhelpusachievetheaforementionedgoals.

Thekeyfinancialyardstickistheinternalrateofreturn(IRR),whichmustatleastmatchthecost

ofcapital,plusareturnpremium.Thelatterreflectstheriskprofileofthedivisionandcountryin

question.Weincreasedthispremiumsignificantlyin2010.Asaresult,someprojectsnolonger

achievetherequiredreturnandwillthereforebediscontinued.Besidessavingfunds,thisfrees

uproomformoreattractiveprojects.

Europe remains our market. TheregionalfocusofouractivitiesisandwillremainEurope.Amongour

coremarketsareGermany,theUnitedKingdom,theBeneluxcountriesaswellasCentralEasternand

SouthEasternEurope.Thesemarketsarerelativelystable,despitetheheightenedpoliticalrisks.In

particular,theCentralEasternEuropeancountriesandTurkeydistinguishthemselvesthroughgood

growthprospects.DuetotheneedofthesecountriestobridgethegaptotherestofEurope,their

energyconsumptionwillrisemorethantheEuropeanaverage.Atthesametime,therewillbea

substantialneedforinvestmentduetotheoutdatedenergyinfrastructure.ThemarketsofNorth

WesternEuropecontinuetobeattractiveforus,althoughtheystillharbourweakgrowthpotentialin

termsofelectricityandgasconsumption.Energyutilitiescansetthemselvesapartinthesemarkets

byofferingintelligentsolutionsforincreasedclimateprotectionandenergyefficiencyaswellas

throughtailor-madeproductsandservices.Weintendtoestablishtheprerequisitesforthisonthe

strengthofourrecordinvestmentprogramme,thusfurtherimprovingourmarketshareinthefaceof

increasinglyfiercecompetition.

Norway

Poland

Algeria Libya Egypt

Germany

Mauritania

0.25 /−0.50

0.50 /−0.25

3.00 /2.50

3.00 /2.00

RWE core markets with established market position

Growth markets under observation

Additional markets especially for renewables

Additional markets especially for upstream gas & oil

forecast average growth of electricity/gas consumption in % p.a. (2010 − 2020)

x /y



Asillustratedbythechartonpage55,ouractivitiesgobeyondourcoreregions,particularlyinour

upstreambusiness.WeproducegasandoilnotonlyinEurope,butalsoinNorthAfrica.Inaddition,

welaunchedanupstreamprojectintheCaspianregionandarelookingintoprojectsinotherareas

aroundtheworld.Wehavealsowidenedourregionalfocusintheexpansionofrenewableenergy.In

thisrespect,ourgrowthstrategyincludescountriessuchasFrance,SpainandItaly.Itisnaturalfor

certainactivitiestotakeplaceoutsideourcoremarkets,forinstanceclimateprotectionmeasures

withinthescopeoftheKyotoCleanDevelopmentMechanismandJointImplementationschemes.

ThesameappliestoourLNGbusiness.Inaddition,energytradingisbecomingincreasinglyglobal.

ThisisagrowingfieldofactivityforusinAsiaandNorthAmerica.

Inourcoremarkets,wecommandaleadingpositionintermsofsalesvolumewithatleastoneofour

mainproducts,namelyelectricityandgas.Thisisalsowhatwestriveforwhenenteringnewmarkets.

Efficient structure and business management.Ourorganisationistheplatformwithwhichwe

achieveourgoals,soitmustadaptitselftonewmarketconditionsandstrategicguidelines.

WeconstantlyworkonmakingourGroup’sstructuremoreefficient.Wealsosetthestageinsome

importantrespectsin2010.Forexample,wepooledtheGermansalesanddistributionnetwork

businessesinthenewRWEDeutschlandAG(formerlyRWERheinlandWestfalenNetzAG).Our

activitiesinCentralEasternEuropeandTurkeywerealsoreorganised.Ouroperationsinthatregion

nowreporttothenewlyestablishedRWEEast,s.r.o.,headquarteredinPrague(CzechRepublic).

Theaforementionedreorganisationmeasuresenteredintoforceon1January2011.Moredetailed

informationcanbefoundonpage69ofthisreport.

Market positions of the RWE Group in terms of sales

Electricity Gas

Germany No. 1 No. 3

United Kingdom No. 4 No. 4

Netherlands No. 2 No. 1


No. 2 in Hungary No. 3 in slovakia presence in the czech Republic No. 6 in polandpresence in Turkey

leading position in Hungary No. 2 in slovakia No. 1 in the czech Republic ––

Total Europe No. 3 No. 6


Value-oriented growth: our internal control instrument. RWE’scentralcontrolinstrumentisvalue

added.ThisishowweembedourgoalofaddingvalueoverthelongtermintheGroup’sandthe

divisions’managementprocesses.Valueaddedisthereturnoncapitalemployed,minusthecostof

capital.Inadditiontootherindividuallyagreedtargets,thisaddedvalueisalsotheyardstickforthe

performance-linkedcompensationofourexecutivesandsalariedstaff.DetailsonRWE’svalue

managementaredescribedonpages90etseq.and231etseq.



The business cycle picked up again following 2009, the year of the crisis. Germany’s economy

expanded by 3.6 %, posting especially strong growth. Signs of recovery can also be seen on the

energy markets. During periods of the year, electricity and gas consumption displayed more

dynamic development than predicted. Energy fuels such as oil and hard coal became much more

expensive. Conversely, wholesale electricity prices have so far failed to reflect this upturn.

World economy gets back on track for growth. Basedondatacurrentlyavailableandin-house

estimates,lastyear’sglobaleconomicoutputwas4%higherthanin2009.Theupswingwasledby

theemergingeconomiesofChinaandIndia,withbothcountriespostinggrowthofapproximately

10%.Incontrast,thegainrecordedbytheEurozonewasrelativelymodestat1.7%.Inthisregion,

therevitalisationcameprimarilyfromexports,whereasthefinancialcrisisfacedbysomemember

statesanddeclininginvestmentsinconstructionslowedgrowth.Drivenbyindustrialproduction,

capacityutilisationhasalsorisen.However,itstillremainsmuchlowerthanbeforetherecession.

InGermany,2010realgrossdomesticproduct(GDP)wasanestimated3.6%upyearonyear.Our

mainmarketisthusamongthemostdynamiceconomiesintheEurozone.Thebasisforthiswas

exports,traditionallytheengineofGermany’seconomy,whichnearlymatchedthepre-crisislevel.

Acontributiontogrowthwasalsomadebyexpenditureonequipmentandconsumerspending.

GrowthratesexperiencedintheNetherlandsandBelgiumweremuchlower.Accordingtoour

estimates,theyamountedto1.7%and2%,respectively.Again,exportswereinstrumentalin

achievingtheupturn.

Incontrast,theUKeconomyismuchmoredependentondomesticconsumption,whichis

significantlyaffectedbydevelopmentsonthereal-estatemarket.TheUKpropertymarket

experiencedacrisisin2008and2009,whichconsiderablyerodedtheassetsofmanyhouseholds.

Intheinterim,propertypriceshaverecovered.Thisandhigherdiscretionaryincomewerethe

determinantsofasignificantrevitalisationinconsumerspending,whichwasstillonthedecline

in2009.GDProsebyanestimated1.4%in2010.

InourCentralEasternEuropeanmarkets,SlovakiaandPolandpostedthestrongestgrowth,each

expandingby3.7%.Slovakia,whichjoinedtheEuropeanMonetaryUnionin2009,benefitedfrom

theeuro’sintermittentweaknessandtheensuingdropinexportprices.PolandisoneoftheEU

countriesthatwereleastaffectedbytherecession.Thankstorobustdomesticdemand,thecountry’s

GDPevenadvancedin2009,theyearofthecrisis.In2010,theCzechRepublicposted2.3%growth.

InHungary,measurestakentoconsolidatethestatefinancesslowedeconomicactivity.Thisisoneof

thereasonsGDPwasonlyupanestimated1.1%.

eConomiC environment1.2

RWE Annual Report 201058 economic environment

Low temperature, low wind levels. Whereastheeconomictrendisprimarilyreflectedindemandfor

energyamongindustrialenterprises,residentialenergyconsumptionissignificantlyinfluencedby

weatherconditions.InourEuropeancoremarkets,2010temperaturesweremuchlowerthanayear

earlier.InGermany,theyhittheirlowestlevelsince1996.ThemonthofDecemberwasexceptionally

cold.Besidesenergyusage,electricitysupplyisalsosubjecttoweather-relatedinfluences,especially

withrespecttowindturbinesandsolarpanels.InGermany,theUnitedKingdomandtheNetherlands,

windlevelsweretheweakestsince2003.Consequently,useofwindpowercapacitywaslow.In

Spain,however,windlevelswerehigherthanthelong-termaverage.

Cold weather and strong industrial activity stimulate energy consumption. Theeconomicrecovery

andcoldweatherrevitaliseddemandforenergyinourcoremarkets.Electricityusageincreased

significantlyinsomecases,butwasunabletoreachthelevelwitnessedbeforetherecession.In

Germany,basedonavailabledata,nearly4%moreelectricitywasusedthanin2009.Production

growthinenergy-intensiveindustriesplayedamajorpartinthis.Demandforelectricityisalsolikely

tohaverisenintheNetherlands,ifonlytoamarginalextent.Basedoncurrentinformation,the

UnitedKingdomrecordedagainof1.7%.ThegrowthratesweestimatedforourCentralEastern

Europeanmarketsarerelativelyhigh.Slovakialeadsthewaywith5%,followedbytheCzechRepublic

andPoland,eachwith4%,andHungarywith2.7%.Developmentsingasconsumptionwereeven

moredynamic.Gasusageprobablyincreasedby5%inGermany,7%intheCzechRepublic,8%in

Hungary,and9%intheUnitedKingdom.Accordingtoinitialestimates,theNetherlandsrecorded

15%growth.

Price recovery on crude oil markets. Despitetheimprovedmacroeconomicprospects,pricesonfuel

marketsarestillfarbelowtheleveljustbeforethefinancialandeconomiccrises.However,theyhave

recoveredsomewhatcomparedto2009.Thisholdstrueespeciallyforcrudeoilquotations.Abarrelof

BrentcrudetradedatanaverageofUS$79,whichwasmuchmoreexpensivethanthepreviousyear

(US$62).Asia’sfast-growingeconomiesmadeasubstantialcontributiontothisduetotheirstrong

demand.Thepricetrendalsoreflectedthegeneralexpectationofacyclically-inducedriseincrudeoil

consumption.

End-customer gas prices down year on year. AsalargeshareofgasimportstoContinentalEuropeis

basedonlong-termagreementslinkedtothepriceofoil,developmentsontheoilmarketalso

influencethepriceofgas.However,thistypicallyoccurswithatimelagofseveralmonths.Inaddition

totheoil-indexedsupplycontracts,short-termtradesoffreelyavailablequantitiesalsoincreasingly

determinethesituationongasmarkets.Oildoesnothaveadirectimpactontheformationofprices

forthesetransactions.MajortradinghubsaretheNationalBalancingPoint(NBP)intheUnited

KingdomandtheTitleTransferFacility(TTF)intheNetherlands.Since2009,pricesonthesemarkets

havebeenfarbelowthoseinoil-indexedcontracts.Inthemeantime,someofthesecontractshave

beenrevised.Certaincontingentsarenolongerindexedtooilandareinsteadpricedonthebasisof

economic environment 59to our investors Review of operations our responsibility


wholesalespotprices.ThiswasoneofthereasonswhypricesforgasimportstoGermanydeclined

slightly,despitehigheroilquotations.

One-year forward prices on the TTF gas wholesale market€/MWh (average monthly figures)

Forward for delivery in 2011Forward for delivery in 2010Forward for delivery in 2009

Trading year: 2008 Trading year: 2009 Trading year: 2010

50

40

30

20

10

0


Gas forward price (TTF, left axis)

Gas/oil forward price difference(right axis)

Crude oil forward price (Brent, indexed to TTF, left axis)

31 D

ec 08

35

30

25

20

15

10

5

10

5

0

−5

−10

−15

−20

30 Ju

n 09

31 D

ec 09

30 Ju

n 10

31 D

ec 10

Crude oil (Brent) and gas (TTF wholesale market) forward prices for 2011€/MWh (average weekly figures)


PricesalsofellintheGermanend-customerbusiness,by9%forhouseholdsandby7%forindustrial

enterprises.GasalsobecamemuchcheaperoutsideGermany.IntheCzechRepublic,the

aforementionedcustomergroupspaid5%and4%less,respectively.Thedropsamountedto7%and

4%intheUnitedKingdomand9%and6%intheNetherlands.Hungarywitnessedopposite

developments.Gasbillsforhouseholdsinthatcountryweremarginallyhigher,andthosefor

industrialoperationswereupasmuchas20%.Thesituationingasforwardtradingwasasfollows:

supplycontractsforthecomingcalendaryear(2011forward)weresettledforanaverageof€19per

MWhontheTTFwholesalemarket.Thisis€1morethanwhathadtobepaidforthe

2010forwardin2009.

60 economic environment RWE Annual Report 2010

Hard coal prices markedly higher than in 2009. In2010,pricesofthermalcoaloninternational

marketsreturnedtolevelsfarabovethosewitnessedduringtherecession.Similartocrudeoil,

stimuluswasparticularlyprovidedbyAsia’shighdemand.AmetrictoncostanaverageofUS$93

(includingfreightandinsurance)inRotterdamspottrading,31%upon2009andasmuchas38%up

ineuroterms.Seafreightratesareamajorcomponentofhardcoalquotations.Thestandardroute

fromSouthAfricatoRotterdamcostanaverageofUS$12.50permetricton,whichwasslightlyless

thantheyear-earlierlevel(US$13.50).Demandforseacargohasincreasedconsiderablyasoflate,but

shippingcapacityhasalsorisen.ThepriceofhardcoalproducedinGermanyisdeterminedbythe

GermanFederalOfficeofEconomicsandExportControl(BAFA).TheOfficeorientatesitselftowards

quotationsforimportedhardcoal.Therefore,theBAFApricefollowsdevelopmentsoninternational

markets,albeitwithacertaintimelag.Noaveragefigurewasavailablefor2010whenthisreport

wenttoprint,butexpertsestimateittobe€85permetrictonofhardcoalunit.Thiswouldbe

€6morethanintheprecedingyear.

Price stability in CO2 emissions trading. Thereinvigoratedindustrialbusinesscycleonlymadeasmall

impressiononEuropeantradingofCO2emissionallowances(referredtoasEUAllowances—EUAs).

EUAsfor2010werequotedatanaverageof€14.50permetrictonofCO2intheyearunderreview,

whichwasslightlymorethanthepricepaidfor2009certificatesayearearlier(€13.40).European

companiesmaycoverdomesticemissionsuptoapredeterminedlevelbysubmittingCertified

EmissionReductions(CERs)obtainedthroughprojectswithinthescopeoftheCleanDevelopment

Mechanism(CDM)createdbytheKyotoProtocol.Thesearecreditsearnedfromemission-reduction

measurestakenindevelopingandnewlyindustrialisingcountries.CERshavebeenquotedat€1to

€3belowthepriceofEUAsforquitesometime.Lastyear,certificatesfor2010tradedatanaverage

of€12.40.Thecomparablefigurefor2009was€11.80.

CO2 certificate prices in the European emissions trading system €/metric ton of CO2

(average monthly figures)


30

20

10

0

Source: RWE Supply & Trading.EU Allowance (EUA) for the corresponding trading year

Certified Emission Reduction (CER) for the corresponding trading year



Wholesale electricity spot prices in Germany €/MWh (average monthly figures)


140

120

100

80

60

40

20

0

Base load Peak load Source: EEX energy exchange.

One-year forward wholesale electricity prices in Germany€/MWh (average monthly figures)


140

120

100

80

60

40

20

0

Base load Peak load Source: RWE Supply & Trading.

Forward for delivery in 2009 Forward for delivery in 2010 Forward for delivery in 2011

Still no upturn in electricity prices. Theriseinfuelpriceswasbarelyreflectedinthepriceof

electricity.Onlyattheendof2010didquotationspickupslightly.InGermanspottradingonthe

EuropeanEnergyExchange(EEX),base-loadpowersoldforanaverageof€44perMWh,while

peak-loadelectricitywassettledfor€55perMWh.In2009,thesefiguresamountedto€39 perMWh

and€51perMWh,respectively.InGermanforwardtrading,contractsforthefollowingcalendaryear

(2011forward)averaged€50forbase-loadpower,whichwasslightlymoreexpensivethanthe2010

forwardayearearlier(€49).Peak-loadpoweractuallybecamecheaper,droppinginpricefrom€70

perMWhto€65perMWh.Thefactthatelectricityforwardpricesarepersistentlylowdespitehigher

fuelcostsispartlyduetotheunexpectedsignificantexpansionofrenewableswithphotovoltaics

leadingtheway.BasedoninformationfromtheGermanenvironmentministry,totalinstalledsolar

capacityrosebyover7GWtoapproximately17GW.Solarpanelslargelyfeedelectricityintothe

systemduringpeakperiods.Thisdecreasedthedeploymentpotentialprimarilyofhardcoalandgas-

firedpowerstations.Moreover,theriseinsolarpowerfeed-inscontributedtoreducingthegap

betweenpeak-loadandbase-loadquotations.


Wesellforwardnearlyalloftheoutputofourpowerplantsinordertoreducevolumeandpricerisks.

Therefore,currentelectricitypricesonlyhadaminorimpactonourincomeintheperiodunder

review.Whatismuchmoredecisiveisthepriceatwhichweconcludedcontractsfordeliveryin2010

inprecedingyears.Sincesomeofthesaleswereconcludedduringtheenergymarketboom,the

pricesfetchedwerefarabovepresentlevels.Our2010Germangenerationsoldforanaverageof

€67perMWh.Thecorrespondingfigureforour2009productionwas€70perMWh.

Whenconcludingelectricityforwardsales,weusuallyprocurefuelorsecurethepriceoffuelandCO2

emissionallowancesrequiredforthegenerationatthesametimeassigningthesupplyagreement.

Firstandforemost,thisappliestoourhardcoalandgas-firedpowerplants.Theearningsofthese

powerstationsarepredominantlyinfluencedbyso-calledcleandarkspreads(hardcoal)andclean

sparkspreads(gas).Thesearecalculatedbydeductingthecostoftherespectivefuelusedandof

emissionallowancesfromthepriceofelectricity.SincewepurchasedhardcoalandCO2certificates

ontheforwardmarketfor2010atpricesthatwerelowerthanfor2009,thespreadswerealised

actuallyimprovedsomewhat.Conversely,thecostoffuelusedbyourlignite-firedandnuclearpower

plantsismuchmorestable.Therefore,spreadsusuallytrendinthesamedirectionaselectricity

prices.

ChangesinwholesalepowerpricesgenerallyaffecttheGermanend-customerbusinesswithatime

lag,becausesalescompaniesbuyelectricitymostlyinadvance.Theirprocurementcostsfor2010

werethereforestillinfluencedbywholesalepricesinprecedingyears.Leviesincludedinpowerbills

inaccordancewiththeGermanRenewableEnergyAct(REA)rosesignificantly,asincreasingamounts

ofelectricityarebeingfedintothegridduetotheprogressiveexpansionofwind,biomassand—

aboveall—solargenerationcapacity.Electricitytariffschargedtohouseholdsandsmallcommercial

enterpriseswereanaverageofabout3%higherthanin2009.Pricespaidbyindustrialcompanies

wereupabout1%.ThemarkedriseinREAlevieswillmakeelectricitymoreexpensivein2011as

well.Forexample,RWEVertrieb,ourlargestGermansalescompany,raiseditsbasictariffby3.6%as

of1January2011,meaningitispassingthroughonlypartoftheadditionalburdenfromtheREA.

IntheUK,oursecond-largestelectricitymarket,developmentswereasfollows:contractsinspot

tradingcostanaverageof£41perMWh(€48)forbase-loadpower,£4abovethelevelin2009.They

increasedinpricefrom£45perMWhto£47perMWh(€55)forpeak-loadelectricity.The2011

forwardwassettledfor£45perMWh(€52)ofbase-loadpower,whichwasmarginallymorethanwas

paidforthe2010forwardintheyear-earlierperiod.Incontrast,drawingthesamecomparison,

peak-loadpowerdroppedinpricefrom£53perMWhto£51perMWh(€59).



One-year forward wholesale electricity prices in the United Kingdom£/MWh (average monthly figures)

Trading year: 2008

Forward for delivery in 2009 Forward for delivery in 2010 Forward for delivery in 2011

Trading year: 2009 Trading year: 2010

120

100

80

60

40

20

0


RWEsellsforwardmostofitsUKelectricityproduction,similartothepolicyitpursuesinGermany.

AsourUKgenerationportfoliolargelyconsistsofhardcoalandgas-firedpowerplants,theearnings

trendwassignificantlyinfluencedbyrealisedcleandarkspreadsandcleansparkspreads.Theformer

weremuchsmaller,andthelatterslightlybiggerthanin2009.Thespreadsonshort-termspot

markettransactionsachievablebyoperatorsofhardcoalandgas-firedpowerplantsremainsmall.

Thesepowerplants,whicharelargelymid-meritandpeak-loadfacilities,areespeciallyhardhitbythe

factthatdemandforelectricityremainslowduetotheeconomicsituation.

AllmajorUKenergysuppliersloweredtheirelectricitytariffsforcustomersinthelasttwoyears,

someofthemrepeatedly.Priceswereonaverage3%loweryearonyearforhouseholdsandsmall

commercialenterprisesanddownmorethan12%forindustrialandcorporatecustomers.However,

Wholesale electricity spot prices in the United Kingdom £/MWh (average monthly figures)


140

120

100

80

60

40

20

0



electricitybecamemoreexpensiveattheendof2010.Slightlyhigherquotationsonthewholesale

marketcausedseveralmajorutilitiestoraisetheirtariffsinthefourthquarter.Asof4January2011,

RWEnpowerincreasedpricesforresidentialcustomersby5.1%.

WholesaleelectricitypricesintheNetherlandsdisplayedadevelopmentsimilartothatinGermany.

End-customerelectricitybillsshrankby7%forhouseholdsandnearly5%forindustrialenterprises.

PriceadjustmentsinourCentralEasternEuropeanend-customermarketsvariedgreatly.Residential

electricitybillswere4%and2%upinPolandandHungary,whereastheyweremarginallydownin

Slovakia.Onaverage,industrialcustomershadtopaylessthanin2009:5%inPoland,9%in

Slovakia,and20%inHungary.



The year under review was marked by decisions made in the field of energy policy, which will

have major ramifications. In the autumn, the German government established the cornerstones of

the country’s energy policy through to 2050. Top priority has been given to the expansion of

renewables. The autumn also saw the extension of nuclear power plant lifetimes. However, there is

a substantial trade-off for utilities, in particular due to the introduction of a nuclear fuel tax. The

framework of energy policy in the United Kingdom is also undergoing change. The UK government

plans to take measures designed to accelerate the expansion of nuclear and renewable generation

capacity.

Government adopts energy concept for Germany. AttheendofSeptember,theGermangovernment

adoptedacomprehensiveenergyconceptinwhichitestablishedtheguidelinesforanoverall

strategyforanenvironmentallyfriendly,reliableandaffordablesupplyofenergythroughto2050.

Thegovernment’saimistohavethefutureenergymixlargelyconsistofrenewables.In2010,the

shareofgrosselectricityconsumptionaccountedforbyrenewableenergywas17%.Accordingtothe

concept,itshouldamountto80%by2050.Thegovernmentbelievestheuseofoffshorewind

turbinesharbourssubstantialpotentialandwantstoestablisha€5 billioncreditprogrammeforthe

firsttenoffshorewindfarms.Nuclearenergyhasbeenclassifiedbythegovernmentasabridge

technology,sotheconceptenvisagesextendingthelifetimesofGermannuclearpowerplants,which

hasnowbeengivenalegalbasis.Moreover,thegovernmentwantstopavethewayforcarbon

captureandundergroundstoragedemonstrationprojects.Suchprojectslackalegalframeworkin

Germany,becauseacorrespondingEUdirectiveisstilltobetranslatedintonationallaw.The

governmentattacheshighprioritytotheexpansionofelectricitynetworksandthedevelopmentof

electricitystoragetechnologies.Theprimaryenergyconsumptionofexistingbuildingsisenvisaged

tobereducedby80%by2050throughrefurbishmenttomaximiseenergyefficiency.Toachievethis

goal,thegovernmentwillbuildonincentivesprovidedbystatesubsidies.Roadtrafficisalsobeing

addressedbytheenergyconcept.TheaimistohaveonemillionelectriccarsinGermanyby2020and

sixmillionby2030.ThegovernmentexpectsthatGermangreenhousegasemissionscanbelowered

bybetween80%and95%by2050comparedto1990levelsasaresultoftheseandfurther

measures.

German Lower House decides to introduce nuclear fuel tax and extend nuclear power plant

lifetimes. On28October2010,theGermanLowerHousepassedtheGermanNuclearFuelTaxAct,

whichenvisagestheintroductionofataxfornuclearpowerplantoperators.Thetaxamountsto

€145 pergramoffissionablematerial.Itwillbeleviedfrom2011throughto2016andwillbeusedto

helprestructurethestatebudget.Thegovernmentexpects€2.3billioninannualrevenuesfromthis.

Thetaxdoesnothaveanotableimpactontheformationofpricesonthewholesalemarket,andso

cannotbepassedthroughtoelectricitycustomers.ItwillprobablycurtailRWE’soperatingresultby

anaverageof€600millionto€700millionperannum.TheNuclearFuelTaxActenteredintoforce

witheffectfrom1January2011.Wereservetherighttotakelegalactionagainstthenewtax,aswe

believeitisquestionableintermsofconstitutionalandEuropeanlaw.

poLitiCaL environment1.3

RWE Annual Report 201066 Political environment

Alsoon28October2010,theGermanLowerHousepassedthe11thamendmenttotheGerman

NuclearEnergyAct,whichenvisagesadditionalgenerationoutputfornuclearpowerplants,resulting

inlifetimeextensions.Facilitiescommissionedafter1980cancontinuetooperateforamaximumof

14yearslongerthanpreviouslyenvisaged.RWE’sGundremmingenB/CandEmslandunitsfallinto

thiscategory.Theadditionalproductionvolumeforolderplants,includingourBiblisA/Bunits,

correspondstoalifetimeextensionofabouteightyears.Onthesameday,additionalsafety

standardswereestablishedfornuclearpowerplantsinthe12thamendmenttotheGermanNuclear

EnergyAct.Thiswillgiverisetoinvestments,thesumofwhichisstilluncertain.Bothamendments

becameeffectiveinDecember.ThegovernmentexpectsthatthelawswillnotrequireUpperHouse

approval.However,theoppositionandcertainGermanstatesareofadifferentopinionandhave

announcedthattheywillfileconstitutionalsuits.

Inlightofthelifetimeextensions,operatorsofnuclearpowerplantswillmakepaymentsintoafund

thatisyettobecreated.Itwillbeusedtopromotemeasurestakentoimplementthegovernment’s

energyconcept.Acorrespondingagreementwiththegovernmentwassignedon10January2011.

Itenvisagesthat,from2017onwards,nuclearpowerplantoperatorspayalevyforalltheelectricity

theygenerateduringthelifetimeextensions.Ithasbeensetat€9perMWh,butissubjectto

adjustmentinlinewiththedevelopmentofconsumerpricesandwholesaleelectricityquotations.

Thelevywilldeclineifthenuclearfueltaxisincreasedoritsassessmentperiodisextendedbeyond

2016.Thesamewillapplyiftheallocatedproductionvolumesfromthelifetimeextensionsare

changedtothenuclearpowerplantoperators’disadvantage,orifplantretrofitsorsafetyfeatures

requiredbythegovernmentoragreedwiththeauthoritiesresultinexpensesexceeding€500million

perunit.From2011to2016,nuclearpowerplantoperatorswillmakelump-sumadvancepayments

onthelevy,totalling€1.4billionfortheperiodasawhole.Theprepaymentsdonotbearinterestand

willbeoffsetagainstthelevyfor2017to2022inequalinstalments.

Promotion of solar energy under scrutiny. Thepromotionofsolarpowerhasledtoanunexpected

accelerationoftheconstructionofphotovoltaicplants.BasedonstatementsmadebytheGerman

environmentministry,theinstalledcapacityrosebymorethan70%tosome17GWin2010.

AccordingtoestimatesbytheGermanEnergyandWaterAssociation,solarpanelsaccountfor

morethanhalfofthesubsidiespaidwithinthescopeoftheGermanRenewableEnergyAct(REA)in

2011,althoughtheyonlyproduceafifthoftheREAelectricity.Thesubstantialgrowthininstalled

capacityhasledtoanincreaseintheREAlevychargedtoelectricityconsumersviatheirpower

billsfrom2.05 eurocents(2010)to3.53eurocents(2011)perkilowatthour.Thiscreated

hugecontroversy.Thegovernmentcutthesubsidyratesforsolarpowerbyroughly13%asof

1 January 2011andispreparingtoimplementanotherreductionwitheffectfrom1July2011.

Furthermore,itwillamendtheREAfundamentallyasof1January2012.

to our investors Review of operations our responsibility


Political environment 67

Special tax for energy companies in Hungary. InOctober2010,theHungarianparliamentdecided

tointroduceaspecialtaxforcompaniesintheenergy,telecommunicationsandretailsectors,which

willremainineffectuntil2012.Itisestimatedtototal€600millionperannum.Thetaxisintendedto

reducethestatedeficit.Thefirstpaymentwasduein2010,basedon2009revenues.Powerutilities

havetopay1.05%oftheirnetrevenues.Thelawstipulatesthatthetaxappliesnotjusttoexternal

revenue,butalsotoallintragrouprevenue.Intheyearunderreview,thenegativeimpactonthe

earningsofourHungariansubsidiariestotalled€25million.Thetaxislegallydebatableandisbeing

reviewedbytheEUCommission.

United Kingdom: government plans legislative package for increased climate protection. TheUK’s

generalelectionsinMay2010resultedinaconservative/liberaldemocratcoalition.Thetwo

governingpartiesintendtolaunchaseriesoflegislativeinitiativesdesignedtoimprovethe

regulatoryframeworkconditionsforclimate-friendlyelectricitygeneration.Theplanincludestaxing

fossilfuelsdependingontheircarbonintensity.Thiswouldgivethegenerationofelectricityfrom

gas,nuclearfuelandrenewablesanothercostadvantageoverhardcoal,goingaboveandbeyond

emissionstrading.Inaddition,anewtariffschemeforelectricityfromnuclearreactorsand

renewablesistoprovidegreaterplanningcertaintyforinvestors.Twonewmodelsarebeing

evaluated:afixedsurchargeonthewholesalepriceontheonehandandaguaranteedsalespriceon

theother.Furthermore,newpowerstationswouldonlybeapprovediftheircarbonemissionsdonot

exceedacapthatisyettobedetermined.Thegovernmentwantstomaketheupperlimitsolowthat

onlythosepowerplantsthatcanatleastpartiallycaptureandstorecarbondioxideemissionscanbe

built.Inaddition,thegovernmentisweighinguptheintroductionofacapacitymarket.Thiswould

meanthatpowerplantoperatorswouldbecompensatedforkeepingflexibleback-upcapacityin

reserve,evenwhenitisnotgeneratingelectricity.Thereisamountingneedforsuchback-up

capacity,astheexpansionofrenewablesiscausingtheamountofintermittentgeneration

onthesystemtoincrease.InDecember2010,theUKgovernmentpublishedapositionpaperfor

reformingtheelectricitymarket.Thegeneralpublic,associationsandcompanieshaveuntilMarch

2011tocommentonthereformproposals.Onconclusionoftheconsultation,thegovernment

intendstoprepareabill.Thereformsaretotakeeffectnolaterthan2014.

RWE Annual Report 201068 Political environment

Fiscal 2010 was not only dominated by major political decisions. We also made significant

progress in modernising our generation portfolio: over the course of the year, we commissioned

two cutting-edge gas-fired power stations. We also passed some important milestones in the

expansion of our renewable generation base. And, in the upstream business, we paved the way for

the biggest investment in RWE Dea’s history.

German Lower House decides to introduce nuclear fuel tax and extend nuclear power plant

lifetimes. On28October2010theGermanLowerHousepassedtheGermanNuclearFuelTaxAct.

TheActenvisagestheintroductionofataxfornuclearpowerplantoperators.Alsoon28October,

themembersoftheLowerHousepassedthe11thamendmenttotheGermanNuclearEnergyAct.It

enablesthelifetimesofnuclearpowerstationstobeprolongedbyanaverageoftwelveyears.The

actsenteredintoforceon1January2011and14December2010,respectively.Inlightofthelifetime

extensions,operatorsofnuclearpowerplantswillmakepaymentsintoanewlycreatedfund,which

willbeusedtopromotemeasurestakentoimplementthegovernment’senergyconcept.Thedetails

havebeensetoutinanagreementbetweentheutilitiesandtheFederalRepublicofGermany,which

wassignedon10January2011.Wehavereportedonthesubjectindetailonpages66etseq.

RWE purchases electricity contingent from the Stade nuclear power plant.Intherun-uptothe

11th amendmenttotheNuclearEnergyAct,wehadalreadyestablishedthepossibilityofslightly

extendingtheoperationoftheBiblisAnuclearpowerstation.InMay,RWEPoweracquiredthe

generationallotmentofthedecommissionedStadenuclearpowerplantfromE.ONKernkraftGmbH.

Thefacilitywasonlinefrom1972to2003.Thetransferredallotmentof4.8billionkilowatthours

allowsustorunthe1,167megawattBiblisAunitatfullloadforaboutsixmonthslonger.

Pooling of activities in Germany and Eastern Europe.Wehaveprogressedincreatingamoreefficient

Groupstructuresince2007.InSeptember,theExecutiveBoardadoptedanumberofreorganisation

measures,whichtookeffecton1January2011.TheGermansalesanddistributionnetwork

businesseswereincorporatedintoRWERheinlandWestfalenNetzAG.Operatingunderthenewname

RWEDeutschlandAGsincethebeginningof2011,thisisthecompanytowhichRWEVertrieb

(includingeprimo,RWE EnergiedienstleistungenandRWEAqua),theregionalcompanies,RWE

Effizienz,andtheinvestmentspreviouslyheldbyRWERheinlandWestfalenNetzhavebeenassigned.

WealsorealignedourEasternEuropeanactivities.Fromnowonlocaloperationswillbeoverseenby

thenewcompanyRWEEast,s.r.o.,headquarteredinPrague,CzechRepublic.Thisdoesnotapplyto

theCzechlong-distancegaspipelinebusiness,whichisdirectlyassignedtotheareaofresponsibility

ofthePresidentandCEOofRWEAGtocomplywithregulatoryrequirements.

major events1.4

Major events 69to our investors Review of operations our responsibility


Holding company Executive Board reduced to five mandates.Dr.UlrichJobs,theRWEAG

ExecutiveBoardmemberwhowasinchargeoftheoperationalmanagementofourinternational

business,retiredbymutualagreementwitheffectfrom30September2010.Thisreducedthe

sizeoftheholdingcompany’sExecutiveBoard,whichwenthandinhandwitharedefinitionofthe

Board’sareasofresponsibility.Dr.LeonhardBirnbaumisnowinchargeofmanagingallof

theGroup’scommoditypositionsasChiefCommercialOfficer.Asaresult,RWESupply&Trading

hasbeenassignedtohim,alongwiththefollowinginternationallyactivecompanies:RWEInnogy,

RWEDeaandRWE Technology.AsChiefOperatingOfficer,Dr.RolfMartinSchmitznowoverseesthe

nationallyorientatedcompanies,i.e.RWEDeutschlandandRWEPower,alongwithRWE’sactivities

intheNetherlandsandBelgium,theUnitedKingdom,andCentralEasternandSouthEasternEurope.

RWE divests German long-distance gas network.InDecember,wesignedanagreementtosell

ThyssengasGmbH.Thebuyersofthecompany,inwhichourGermangasnetworkissubsumed,are

infrastructurefundsmanagedbyAustralianfinancialservicesproviderMacquarie.Inthemeantime,all

oftherequiredapprovalshavebeenobtained.Thyssengastransmitsnearly10billioncubicmetresof

naturalgasoveralong-distancenetworkwithanaggregatelengthofapproximately4,100kilometres.

WehadmadeacommitmenttotheEUCommissiontosellthisactivity.

New gas-fired power plants commence production in Germany and the UK.Wecompleted

constructiononthecombined-cyclegasturbine(CCGT)powerstationsinLingenandatStaythorpein

fiscal2010.Bothfacilitiesareonline.Thedual-unitLingenplanthasaninstalledcapacityof876MW

andwascommissionedon14AprilinthepresenceofGermany’scurrentFederalPresident,Christian

Wulff.Wespent€0.5billionincapitalonthestate-of-the-artpowerstation,whichhasanefficiency

ofnearly60%.ThefourunitsatStaythorpe(Nottinghamshire)haveanaggregateinstalledcapacity

of1,650MWandcommencedproductionbetweenAugustandNovember.Theyhaveanefficiency

of58%,alsorankingthematthehighestlevel.Thecapexbudgetforthisfacilityamountedto

€0.8 billion.

RWE decides to build a gas-fired power plant in Turkey.InApril2010,wedecidedtoinvestina

combined-cyclegasturbine(CCGT)powerplantinDenizli(westTurkey).Constructionworkbegan

shortlyafterwards.Thepowerstationwillhaveaninstalledcapacityof775MWandisscheduledto

goonlinein2013.ItwillbeownedandoperatedbyajointventurebetweenRWE(70%)andthe

TurkishenergycompanyTurcas(30%).Theinvestmentbudgetisexpectedtototalaround€0.5billion.

70 Major events RWE Annual Report 2010

Expansion of the upstream position in Egypt.RWEDeahaspavedthewayforthesingle-largest

investmentinitshistory.Inthenexttwodecades,ourupstreamsubsidiarywillspendUS$3.6billion

developinggasfieldsinEgypt’sNorthAlexandriaandWestMediterraneanDeepWaterconcessions.In

July,wesignedtherespectiveagreementswiththeEgyptianoilminister,theEgyptianstate-owned

companyEGPCandBP.Thecontractshadbeenpre-approvedbytheEgyptianparliament.Production

isscheduledtobeginbytheendof2014.ThefielddevelopmentbudgettotalsaboutUS$9billion,of

whichroughly40%isallocabletousandsome60%toourpartnerBP,whowillassumetheoperating

lead.Thenaturalgasreservesfromtheconcessionstowhichwewillhaveaccessamounttomorethan

50billioncubicmetres.TheNorthAlexandriaandWestMediterraneanDeepWaterconcessionsare

locatedinthewesternNiledelta,roughly40kilometresofftheEgyptiancoast.Thewaterinthearea

inwhichfielddevelopmentisbeginningisbetween300and800metresdeep.Followingastart-up

phase,RWE Dea’sshareofannualproductionisenvisagedtototalover3billioncubicmetresofgas.

Againstthisbackdrop,wearemonitoringEgypt’scurrentpoliticalsituationveryclosely.

Major progress in the expansion of renewable generation capacity.RWEInnogystayedoncoursefor

growthinthefieldofrenewableenergyintheyearunderreview.Bytheendoftheyear,thecompany

hadarenewablegenerationportfolioof2.3gigawatts(GW),andtheGroup’stotalwas2.9GW.

Another1.1GWisunderconstruction.Inaddition,wearedevelopingprojectswithacombined

installedcapacityof18.2GW,withwindfarmsasthefocalpoint.Furthermore,weareinvestingin

electricityandheatgenerationfrombiomassand–onasmallerscale–insolarthermalpower.

Aboveall,wepassedsignificantmilestonesintheexpansionofoffshorewindpowergeneration:

• Withinthescopeofatenderprocess,inJanuary2010,theUKgovernmentgranteduspermission

todeveloptheAtlanticArrayandDoggerBankoffshorewindprojects.Wewillinitiallydevelopthe

AtlanticArrayprojectalone,whichwillhaveupto1.5GWingenerationcapacity.ForDoggerBank,

however,weplacedthewinningbidaspartofaconsortiumcalled‘Forewind‘,inwhichRWE

Innogyholdsa25%stake.Windturbineswithatotalinstalledcapacityof9GWaretobebuiltin

thisarea.

• In2010,RWEInnogyfiredthestartingshotfortheconstructionofourfirstGermanoffshorewind

farm.Measurestoprepareforconstructionareunderway,andthefirstfoundationsarescheduledto

beerectedbytheendof2011.Thewindfarm,called‘NordseeOst‘,islocatedsome35 kilometres

northoftheIsleofHelgolandandisintendedtohaveover48turbineswithacombinedinstalled

capacityof295MW.Weplantocompletetheprojectin2013.Associatedcapitalspendingis

estimatedat€1 billion.



• InNovember2010,RWEInnogyandthepartnercompaniesoftheC-Powerconsortiumtookthe

decisiontoexpandtheBelgianThorntonBankoffshorewindfarm.Atotalof30MWincapacityhas

beeninstalledsofar.Another295MWwillbeaddedby2013.Alloftherequiredapprovalshave

beenobtained.Relatedcapitalexpendituretotals€1.3billion.RWEInnogyholdsa26.7%stakein

theproject.

RWEInnogyalsomadeprogressinonshorewindpowergeneration.Wecommissionedtwonewwind

farmsinItaly:SanBasilio(25MW)andUruri(26MW).Wedevelopedandbuiltbothoftheseprojects

withourItalianpartnerFri-ElGreenPower.TwonewRWEInnogywindfarmswentonlineinPolandas

well:oneinPiecki(32MW)andtheotherinTychowo(35MW).Furthermore,installationsinFrance

andScotlandalsobeganproduction.

RWEInnogyalsosuccessfullycontinuedtoexpandinthefieldofelectricityandheatgenerationfrom

biomass.InMarch2010,thecompanystartedtobuildalarge-scalewoodpelletisingplantintheUS

stateofGeorgia.Thefactorywillhaveanannualproductionof750,000metrictonsandwillbeoneof

thebiggestandmostmodernofitstypeintheworld.Thepelletswillbeusedinpurebiomasspower

plantsaswellasfortheco-firingofcoalandbiomass.Thefactoryisduetobeginoperationin2011,

withatotalinvestmentof€120million.

New partnerships for the expansion of renewable energy.Inthefinancialyearthatjustended,

RWE Innogyenteredintotwopartnershipswhichareconductingrenewableenergyprojects.InApril

2010,theGreenGECCOjointventurewasestablishedwith26municipalandregionalutilities,with

RWEInnogyowninga51%stake.By2020,thenewcompanyintendstohaveinvestedabout€1

billioninthegenerationofelectricityandheatfromrenewables,bothwithinandoutsideGermany.

AnotherpartnershipfollowedinJune2010:RWE InnogysetupajointventurewiththeMunich

municipalutility(StadtwerkeMünchen)andSiemenstobuildandoperatetheGwyntyMôroffshore

windfarmintheUK.Weown60%oftheproject,withStadtwerkeMünchenandSiemensholding

stakesof30%and10%,respectively.TheinvestmentinGwyntyMôrexceeds€2billion,includingthe

gridconnectiontothecoast.Thewindfarmwillhave160turbines,aninstalledcapacityof576MW

andwillbeerectedoffthecoastofNorthWales.Siemenswillsupply,installandmaintaintheturbines

andhasalsobeencommissionedtohandlethegridconnection.

RWE issues hybrid bond with record volume.InSeptember2010,weissuedahybridbondwith

avolumeof€1.75billion.Thiswasthelargestissuanceofasecurityofthistypeeverplacedbyan

industrialenterpriseinEurope.Itdrewkeeninterestfrominvestors.Furtherinformationonthehybrid

bondcanbefoundonpages102and195.

72 Major events RWE Annual Report 2010

Major events after the period under review:

Exit from the Romanian nuclear energy project.InJanuary2011,RWE,GDFSuez(France)and

Iberdrola(Spain)announcedtheirexitfromtheongoingCernadovanuclearpowerplantprojectin

Romania.Twonewunits,eachwithaninstalledcapacityof720MW,aretobebuiltatthesite.The

projectisspearheadedbyajointventure,inwhichstate-ownedSNNuclearelectricaownsamajority

stakeandfurtherEuropeanutilitiesholdinterests.RWEhadastakeof9.15%.Ourwithdrawalwillnot

haveamaterialfinancialimpactonus.Thereasonsforourdecisionareeconomicandmarket-induced

uncertainties,whichareprimarilycausedbytheafter-effectsofthefinancialcrisis.

RWE divests minority interest in coal-fired power plant in Rostock.InFebruary2011,wesoldour

24.6%interestinahardcoal-firedpowerstationinRostock,Germany,toRheinEnergieAG.Inaddition,

RheinEnergieisalsoacquiringVattenfall’s25%stake.Theremaining50.4%isstillownedbyEnBW.

Thepowerstationhasanelectricitygenerationcapacityof553MWandsuppliesdistrictheattothe

gridoftheRostockmunicipalutility(StadtwerkeRostock).



Commentary on the segment structure.Thisreportisbasedonthesegmentstructureweintroduced

inthe2009financialstatements.TheRWEGroupisdividedintosevendivisionsbasedonnational

andfunctionalcriteria.Wehavemadesomeadjustmentswithrespecttotheassignmentofactivities

amongthedivisions,comparedto2009.Thesepredominantlyrelatetopartsofthebusinessofthe

DutchenergyutilityEssent,whichwasacquiredattheendofSeptember2009.Thefollowingisan

overviewofthedivisions.

• Germany:Thisdivisionconsistsofthe‘PowerGeneration’and‘SalesandDistributionNetworks’

BusinessAreas.ThefirstoneincludesRWEPower’sactivitiesandthesecondoneencompasses

RWERheinlandWestfalenNetzAG,whichhasbeenrenamedRWEDeutschlandAG,includingits

investments;RWEVertrieb(includingeprimo,RWEEnergiedienstleistungenandRWEAqua);

RWE EffizienzandtheGermanregionalutilities.Thelatteroperatetheirownelectricitygeneration

facilitiestoasmallextent,aswellasmanagingthenetworkandend-customeroperations.The

businessareaalsoincludessomenon-Germanactivities:ourminorityinterestsinAustrian-based

KELAGandLuxembourg-basedEnovosaswellasourwateroperationsinZagreb,Croatia,whichare

runbyRWEAqua.WeassignedEssent’sGermangasstorageactivitiestotheSalesandDistribution

NetworksBusinessAreawitheffectfrom1April2010.

• Netherlands/Belgium:ThisisthedivisionunderwhichwereportonEssent,whichwas

consolidatedforthefirsttimeasof30September2009.However,inadditiontothe

aforementionedreassignment,wemadethefollowingadjustments:in2010,westarteddisclosing

Essent’swindpowergenerationundertheRenewablesSegmentandthetradingbusiness

(includingkeyaccountactivities)undertheTrading/GasMidstreamSegment.Toensure

transparency,westatetheresultsfromthesetwoEssentactivitiesasaseparateitem.Ourformer

Dutchenergysalesactivities(RWEEnergyNederland)weretransferredtoEssentwitheffectfrom

1 October2009.Ithasbeenassignedtothe‘Other,consolidation’lineforthefirstninemonthsof

2009.Furthermore,thepowerplantprojectinEemshaveninitiatedbyRWEPowerwastransferred

toEssentinthethirdquarterof2010.Wearebuildingahardcoal-firedtwinunitwith

anetinstalledcapacityof1,560MWatthesiteintheprovinceofGroningen.

• UnitedKingdom:RWEnpowerispresentedinthisitem.ItencompassesourUKgenerationand

supplybusinesseswiththeexceptionofelectricityproductionfromrenewables,whichisoverseen

byRWEInnogy.

• CentralEasternandSouthEasternEurope:ThisdivisioncoversourcompaniesinPoland,Hungary,

theCzechRepublicandSlovakia.WerecentlybeganstatingourTurkishoperationsaspartofthis

divisionaswell.Wethereforeamendedthedivision’sname(formerlyCentralandEasternEurope).

InPoland,wefocusonelectricitysupplyandthepowerdistributionnetwork.InHungary,wealso

havealignite-basedelectricitygenerationbusiness,whichismanagedbyoursubsidiaryMátra.Via

minorityinterests,wearealsoactiveinthegassectorandwatersupplybusinessinHungary.Our

notes on reporting1.5

74 notes on reporting RWE Annual Report 2010

Czechactivitiesconcentrateonthesupply,distribution,supraregionaltransmission,transitand

storageofgas.InSlovakia,weareactiveinthepowernetworkandelectricityend-customer

businessesthroughourminorityinterestinVSEandinthegassupplysectorviaRWEGas

Slovensko.InTurkey,wearegoingtobuildagas-firedpowerstationwithapartner,whichis

scheduledtobegincommercialoperationin2013.

• Renewables:ThisdivisioncomprisesalloftheactivitiesofRWEInnogy,whichspecialisesin

electricityandheatgenerationfromrenewables.Asmentionedearlier,westartedreporting

Essent’swindpowergenerationunderthisdivisionin2010.

• UpstreamGas&Oil:ThissegmentconsistsofRWEDea’sbusiness.Thecompanyproducesgasand

oil,focusingonEuropeandNorthAfrica.

• Trading/GasMidstream:Thisdivisionencompassesenergytrading,gasmidstreamactivities,and

salestoourmajorGermanindustrialandcorporatecustomers.Since1January2010,Essent’s

energytradingandkeyaccountoperationshavealsobeensubsumedunderthisdivision.

The‘Other,consolidation’itemcoversourelectricitytransmissionsystemoperator,Amprion;the

Groupholdingcompany,RWEAG;ourinternalserviceproviders,namelyRWEService,RWEITand

RWEConsulting;aswellasRWETechnology,whichwasestablishedwitheffectfrom1January2010.

ItalsoincludesThyssengas,theassetsandliabilitiesofwhichareclassifiedas‘heldforsale’onthe

balancesheet.

notes on reporting 75to our investors Review of operations our responsibility


RWE stayed on course for success in 2010. The operating result was the highest in the company’s

history. Rising by 8 % compared to 2009, it exceeded our expectations. Recurrent net income,

which was up 6 %, also surpassed our forecast. Once again, our German electricity generation was

the driver of our success. In addition, we benefited from the inclusion of the Dutch utility Essent,

which we acquired in 2009, in our figures on a full-year basis for the first time.

Electricity generation up 20 %.Inthefinancialyearthatjustcametoaclose,theRWEGroup

produced225.3billionkilowatthours(kWh)ofelectricity,20%morethanin2009.In-house

generationandpowerpurchasescombinedfor329.7billionkWh.Thiswas10%morethaninfiscal

2009.Intheyearunderreview,32%ofelectricitygenerationwasfromlignite,25%fromhardcoal,

20%nuclear,and19%gas.Theshareofrenewableenergyamountedto4%.

• Germany:TheGermanyDivisionproduced165.1billionkWhofelectricity.RelativetotheGroup,

thiscorrespondstoashareof73%.InadditiontoRWEPower’sGermangeneration,thisfigure

includessmallamountsofelectricityproducedbyregionalcompanies.Italsoencompasses

electricitygeneratedbypowerplantsnotownedbyRWEthatwecandeployatourdiscretionon

thebasisoflong-termagreements.Theseareprimarilyhardcoalunits.Comparedto2009,

generationbytheGermanyDivisionwasup13%,mostlyduetotheincreasedavailabilityofthe

Biblisnuclearpowerplant.Inaddition,ourcontractuallysecuredhardcoal-firedpowerstations

Business performanCe1.6

Electricity productionby division

Germany Netherlands / Belgium

United Kingdom central Eastern and south Eastern

Europe

Renewables RWE Group

Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

In-house generation 165.11 146.01 14.3 4.5 34.3 26.7 5.7 5.7 5.9 4.3 225.3 187.2

Lignite 65.4 65.3 – – – – 5.6 5.6 – – 71.0 70.9

Hard coal 39.0 31.8 5.7 1.6 10.4 10.7 – – 0.1 – 55.2 44.1

Nuclear 45.2 33.9 – – – – – – – – 45.2 33.9

Gas 11.9 11.5 6.8 2.1 23.8 15.8 0.1 0.1 0.2 0.2 42.8 29.7

Renewable energy 1.5 1.6 1.8 0.8 – – – – 5.6 4.1 8.9 6.5

Pumped storage, oil, other 2.1 1.9 – – 0.1 0.2 – – – – 2.2 2.1

Electricity purchased from third parties 27.2 33.9 8.62 1.5 18.02 25.92 20.52 20.32 0.1 0.1 104.43 112.83

Total 192.3 179.9 22.9 6.0 52.3 52.6 26.2 26.0 6.0 4.4 329.7 300.0

1 Including electricity procured from power plants not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. In fiscal 2010, it amounted to 25.6 billion kWh, of which 23.4 billion kWh were generated from hard coal.2 Electricity stated was fully or partially purchased through our trading business.3 Including purchases by RWE Supply & Trading and companies subsumed under ‘Other, consolidation’ (mainly Amprion).

76 business performance RWE Annual Report 2010

werealsousedmuchmorethanin2009,asaresultoftheimprovedmarketconditionsforthese

facilities.Thecommissioningofournew876MWcombined-cyclegasturbinepowerplantinLingen

alsohadapositiveimpact.

• Netherlands/Belgium:Essent’selectricityproductiontotalled14.3billionkWh.AstheDutch

energyutilitywasconsolidatedonatwelve-monthbasisforthefirsttime,theprecedingyear’s

figure(4.5billionkWh)wassignificantlysurpassed.WestartedconsolidatingEssentasof

30 September2009.Therefore,weonlydisclosedgenerationforthefourthquarterof2009.

• UnitedKingdom:TheamountofelectricitygeneratedbyRWEnpowerroseby28%to

34.3 billion kWh.Followingmaintenanceworkperformedintheprecedingyear,ourgas-fired

powerplantatDidcotranmuchmorein2010.Furthermore,thenew1,650MWcombined-cycle

gasturbinepowerstationatStaythorpewentonlineinthesecondhalfoftheyear.Conversely,

capacityutilisationatourhardcoal-firedpowerplantsexperiencedamarginalmarket-induced

decreasecomparedto2009.

• CentralEasternandSouthEasternEurope:At5.7billionkWh,productionbythisdivisionwas

unchanged.ItprimarilystemsfromtheHungarianlignite-basedpowerproducerMátra.

• Renewables:Thedivisiongenerated5.9billionkWhofelectricity,nearlyallofwhichcamefrom

renewablesources.Comparedto2009,thisrepresentsanincreaseof37%,whichisprimarilydue

tothefactthatwestartedstatingproductionfromEssent’swindturbinesinthisdivisionin2010.

TheinclusionofDantadeEnergíasinourfiguresonafull-yearbasisforthefirsttimealsohada

positiveeffect.InMay2009,wehadincreasedourstakeintheSpanishwindfarmoperatorfrom

49.33%to98.65%.Organicgrowthalsocontributedtotheriseingeneration.Forinstance,the

RhylFlatsoffshorewindfarmintheUK,whichhasanaggregateinstalledcapacityof90MW,went

onlineinDecember2009.

Inadditiontoourin-housegeneration,weprocureelectricityfromexternalsuppliers.Thesepurchases

totalled104.4billionkWh(2009:112.8billionkWh).ThisincludedelectricityfedintoRWE’snetwork

bythirdparties,inaccordancewiththeGermanRenewableEnergyAct(REA).

Among Europe’s leading electricity generators, with over 52 gigawatts in power plant capacity.

Attheendofthe2010financialyear,theRWEGrouphadaninstalledcapacityof52.2GW.Werank

fifthamongEurope’senergyutilities.Thesefiguresincludethecontractuallysecuredcapacities

mentionedearlierthatarenotownedbyRWE.Ourelectricitygenerationcapacityincreasedby

2.6 GWcomparedto2009.Contributingtothis,amongotherthings,wasthecommissioningofour

newgas-firedpowerstationsinLingenandatStaythorpe.Hardcoalaccountsforthebiggestshareof

ourinstalledcapacityat29%(precedingyear:31%),followedbygasat22%(18%),ligniteat21%

(22%),andnuclearpowerat12%(13%).Renewableshaveashareof6%(5%).TheGermanyDivision

accountsfor65%ofourpowerplantcapacity,withtheUnitedKingdomandNetherlands/Belgium

Divisionsmakingup23%and6%,respectively.

business performance 77to our investors Review of operations our responsibility


Specific CO2 emissions down 8 %.Infiscal2010,ourelectricitygenerationoperationsemitted

164.9 millionmetrictonsofcarbondioxide.RWE-ownedpowerplantsaccountedfor142.7million

metrictons,andtheremaining22.2millionmetrictonscamefromcontractuallysecuredcapacity.Our

emissionswere15.8millionmetrictons,or11%,higheryearonyear.Thisisaconsequenceofthe

markedriseinelectricitygenerationbyhardcoalandgas-firedpowerplants,towhichtheinclusionof

Essentonatwelve-monthbasisforthefirsttimecontributed.Bycontrast,ourspecificemission

factor,reflectingthecarbondioxideemissionspermegawatthourofelectricityproduced,improved.

Itdroppedby8%,from0.796metrictonsperMWhto0.732metrictons,becausetheshareofCO2-

freeorlow-CO2generationinourtotalproductionincreased.Theimprovedutilisationofthecapacity

oftheBiblisnuclearpowerstationwasoneofthefactors.

Intheyearunderreview,wewereallocatedfreestateemissionallowances(knownasEUallowances,

orEUAs)correspondingto115.1millionmetrictonsinCO2emissions.Wereceivedemissions

allowancesfor84.9millionmetrictonsinGermany,16.2millionmetrictonsintheUK,and8.5million

metrictonsintheNetherlands.Intotal,theallocationwasfarfrombeingenoughtocoverour

emissions.Therefore,wehadtopurchasecertificates.AttheGrouplevel,theshortageamountedto

49.8millionmetrictons.

Power plant capacity by divisionas of 31 Dec 2010, in MW

Germany1 Netherlands /Belgium

United Kingdom central Eastern and south

Eastern Europe

Renewables RWE Group

Primary energy source

Hard coal 9,673 885 4,575 – 102 15,143

Gas 5,086 1,927 4,525 147 442 11,729

Lignite 10,172 – – 763 192 10,954

Nuclear 6,295 – – – – 6,295

Renewable energy 313 331 – 1 2,302 2,947

Pumped storage, oil, other 2,489 – 2,657 – – 5,146

Total 34,028 3,143 11,757 911 2,375 52,214

1 Including capacities of power stations not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. As of 31 December 2010, these capacities amounted to 8,672 MW, of which 6,507 MW were based on hard coal.2 Mostly plants belonging to RWE Innogy Cogen.

Emissions balance by country Germany 1 Netherlands /Belgium2

United Kingdom central Eastern and south Eastern

Europe

RWE Group

Million metric tons of co2 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

CO2 emissions 130.6 123.3 8.3 2.7 18.9 16.6 7.1 6.5 164.9 149.1

Free allocation of CO2 certificates 84.9 83.1 8.5 2.4 16.2 14.9 5.5 4.8 115.1 105.2

Shortage of CO2 certificates 45.7 40.2 − 0.2 0.3 2.7 1.7 1.6 1.7 49.8 43.9

1 Includes power stations not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. In the year under review, they produced 22.2 million metric tons of CO2 and were allocated certificates for 19.7 million metric tons.2 In fiscal 2009, Essent was only included on a three-month basis.


Intheemissiontradingperiodfrom2008to2012andthereafter,weareallowedtocoveramaximum

of100millionmetrictonsofourCO2emissionsbysubmittingcertificatesobtainedthroughemission

reductionswithinthescopeofKyotoCleanDevelopmentMechanismandJoint Implementation

projects.Thisisadvantageousbecausethecostofthesecertificatesisusuallybelowthemarketprice

ofEUAs.Bytheendofthe2010financialyear,wehadcontractuallysecuredcertificatesfor

68.6 millionmetrictonsofcarbondioxide.However,itcannotberuledoutthatsomeprojectsmay

notbeimplementedorthattheiremissionsavingsmaylagbehindexpectations.Takingsuchrisksinto

account,weestimatethatwewillreceiveemissionscertificatescovering41.4millionmetrictons.By

theendof2010,wehadalreadyreceivedcertificatesfor14.5millionmetrictons,ofwhichwehave

alreadyusedanequivalentof4.6millionmetrictons.

Marked growth of gas and oil reserves.RWEDea,ourupstreamcompany,aimstoexpanditsgasand

oilproductiontoroughly70millionbarrelsofoilequivalent(OE)by2016.Themaingrowthprojects

weareimplementingareinNorthAfrica,theUKNorthSea,andoffthecoastofNorway.Asof

31 December2010,ouroilandgasreservestotalled137millioncubicmetresofOE,some70%upon

thepreviousyear’slevel(81millioncubicmetresofOE).Themainreasonisthatweconcluded

contractsforthedevelopmentofmajorgasreservesintwoEgyptianconcessions(seepage71).

Reservesisthetermusedforhydrocarbonsstoredundertheground,theexistenceofwhichhasbeen

proven,andtheproductionofwhichiseconomicallyfeasibleandlegallysecured.Thesearedifferent

toresources,whicharehydrocarbonsthatfailtomeetalltheaforementionedcriteria,orwhichhave

notyetbeenclearlyidentifiedgeologically.Bytheendof2010,RWEDeahad91millioncubicmetres

ofOEinprovenresources(precedingyear:143millioncubicmetresofOE).

Slight decline in gas and oil production.Inthefinancialyearthatjustended,RWEDeaproduced

2,786millioncubicmetresofgasand2,266thousandcubicmetresofoil.Convertingthegastooil

equivalentandaddingittocrudeoilproductionresultsinatotalproductionof4,963thousandcubic

metres,or31.2millionbarrelsofOE.Thiswas4%lessthanin2009.Gasproductionwasdown5%.

Thedepletionofexistingreservesresultedinanaturaldecreaseinproduction,whichprimarilyrelated

toourGermanandUKconcessionareas.Conversely,additionalwellsatthesiteinVölkersen,

Germany,hadapositiveimpact.Furthermore,webeganproductioninanewlydevelopedgasfieldin

theNorwegianNorthSea.Oilvolumeswere3%lowerthantheyear-earlierfigure.Theprogressive

exhaustionofreserveswasfelthereaswell,especiallyinourGermanMittelplateoilfield.Our

concessionsintheGulfofSuez(Egypt)werealsoaffected.Apositiveeffectcamefromthe

commencementofproductioninaDanishoilfield.Furthermore,wetookmeasurestoimprove

productionyieldinGermanyandEgypt.



• Germany:Thedivisionsold113.1billionkWhofelectricity,5%morethanintheprecedingyear.In

particular,wesoldmoretodistributors.Salestoindustrialandcorporatecustomerswerealsoup,

duetotheeconomicrecovery.Customerlossesintheresidentialandsmallcommercialenterprise

businessledtomarginaldropsinvolume.Bytheendof2010,theGermanyDivision’sfully

consolidatedcompaniesweresupplyingatotalof6,712,000customerswithelectricity,151,000

fewerthanayearearlier.ThedeclinerelatedtoRWEVertriebandtheregionalbusiness,whereas

ourdiscountereprimogrewitsshareofthemarket.Atyear-end,thecompanywasserving736,000

electricitycustomers,whichwas110,000morethanintheprioryear.

• Netherlands/Belgium:Essentsold22.0billionkWhofelectricity.Theprioryear’scomparable

figure,whichonlyreflectedthefourthquarter,was6.8billionkWh.Asof31December2010,

Essentwassupplying2,329,000customerswithelectricity.Wehad2,169,000electricitycustomers

intheNetherlandsand160,000inBelgium.Thiscomparesto2,144,000and172,000inthe

precedingyear.

Electricity sales markedly higher due to full-year inclusion of Essent.Infiscal2010,wesupplied

311.2billionkWhofelectricitytoexternalcustomers.Electricitysalesaretypicallylowerthan

generationlevels,mainlyduetotransmissionlossesandin-houseusebyligniteproduction

operationsandpumpedstoragepowerstations.Electricitysaleswere10%upon2009,inpart

becauseEssentwasincludedonatwelve-monthbasisforthefirsttime.Furthermore,webenefited

fromthecyclically-inducedriseindemand,especiallyinGermany.

External electricity sales volume

private and commercial customers

industrial and corporate customers

Distributors Electricity trading Total

Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

Germany 26.0 26.1 29.1 27.3 58.0 54.6 – – 113.1 108.0

Netherlands /Belgium 11.9 3.5 10.1 2.0 – – – 1.3 22.0 6.8

United Kingdom 19.1 20.1 30.8 29.8 – – – – 49.9 49.9

Central Eastern and South Eastern Europe 7.9 8.7 10.2 9.0 6.5 7.1 – – 24.6 24.8

Trading /Gas Midstream – – 30.5 26.8 – – 32.8 32.6 63.3 59.4

RWE Group1 65.3 59.3 110.8 95.7 102.3 93.9 32.8 33.9 311.2 282.8

1 Including sales of the Renewables Division and of companies stated under ‘Other, consolidation’ (primarily Amprion).


• UnitedKingdom:ElectricitysalesbyRWEnpoweramountedto49.9billionkWh,equallingthe

year-earlierlevel.Whileourshareoftheindustrialandcorporatecustomermarketimprovedslightly,it

deterioratedintheresidentialandsmallcommercialenterprisesector.Asof31December2010,

RWEnpowerserved4,003,000electricitycustomers,144,000fewerthanayearbefore.Ourshare

oftheUKresidentialmarketwas14%.

• CentralEasternandSouthEasternEurope:Wesold24.6billionkWhofelectricityinthisdivision.Theslight

declinecomparedto2009isduetothefactthat,in2010,westartednettingoutcertainsalesvolumes

againstwholesalepurchases.Thecyclically-drivenriseindemandhadapositiveimpact.Moreover,our

electricitycustomerbasesinHungaryandPolandpostedamarginalincreaseto2,236,000and910,000,

respectively.WestartedmarketingelectricityintheCzechRepublicatthebeginningof2010.Byyear-end,

wewereserving13,000customersinthatcountry.

• Trading/GasMidstream:Externalelectricitysalesachievedbythisdivisiontotalled63.3billionkWh,7%up

ontheprioryear.ThemainreasonisthatwehavebeenstatingEssent’skeyaccountbusinessunder

Trading/GasMidstreamsince2010.

Electricity sales volume of the RWE Group by country in 2010 (2009) %

2.6 (3.0) Other

7.1 (2.9) Netherlands

5.7 (6.1) Hungary

16.1 (17.7) United Kingdom 68.5 (70.3) Germany

311.2 billion kWh(282.8 billion kWh)



Big gain in gas sales volume thanks to Essent.Externalgassalesamountedto395.4billionkWh,up

19%ontheyear-earlierlevel.ExcludingtheeffectofEssent’sconsolidationonatwelve-monthbasis

forthefirsttime,theywouldhaverisenby2%.Webenefitedfromtheincreaseinresidentialdemand

forheatingpurposes,whereascustomerlossesintheCzechRepublichadacounteractingeffect.

• Germany:Thedivisionsold97.6billionkWhofgas.Comparedto2009,thisrepresentsagainof

3%.Ourdeliveriestoindustrialandcorporatecustomers,householdsandsmallcommercial

operationsallrose.Theeconomicrecoveryandcolderweatherbenefitedusinthisrespect.

Furthermore,wewoncustomersinthesesegments.Conversely,wesuffereddeclinesinvolumein

businesswithdistributors,someofwhichswitchedprovidersorstartedpurchasingincreasing

amountsofgasfromcompetitors.Atthebalancesheetdate,ourfullyconsolidatedGermansales

companiesweresupplyinggasto1,106,000customers.Thisis34,000morethaninthepreceding

year.

• Netherlands/Belgium:Essentcontributed112.8billionkWhtotheRWEGroup’sgassalesvolume,

whichwasmuchmorethanin2009duetotheaforementionedconsolidationeffect.Thecompany

had2,015,000gascustomerson31December2010,splitbetween1,959,000intheNetherlands

and56,000inBelgium.Thecomparablefiguresfor2009were1,920,000and59,000,respectively.

• UnitedKingdom:RWEnpower’sgassalesamountedto53.3billionkWh,3%higherthantheyear-

earlierfigure.Thiswasduetothecolderweather,however,wealsosufferedcompetition-induced

customerlosses.Thisappliestobusinesswithindustrialenterprisesaswellastohouseholdsand

smallcommercialoperations.Bytheendoftheyear,RWEnpowerwasserving2,571,000gas

customers,70,000fewerthanin2009.Customerswhoobtainbothelectricityandgasfromus

declinedby69,000to2,279,000.

External gas sales volume private and commercial customers

industrial and corporate customers

Distributors Total

Billion kWh 2010 2009 2010 2009 2010 2009 2010 2009

Germany1 29.0 27.6 23.7 19.9 44.9 47.4 97.6 94.9

Netherlands /Belgium 63.8 17.9 49.0 16.2 – 2.0 112.8 36.1

United Kingdom 48.8 45.1 4.5 6.8 – – 53.3 51.9

Central Eastern and South Eastern Europe 35.6 33.1 29.4 27.5 8.5 15.3 73.5 75.9

Upstream Gas & Oil – – 2.1 2.8 16.5 16.2 18.6 19.0

Trading /Gas Midstream – – 26.4 18.9 12.6 14.2 39.0 33.1

RWE Group2 177.2 130.5 135.1 106.4 83.1 95.1 395.4 332.0

1 Prior-year figures adjusted due to customer reassignment.2 Including sales volumes achieved by RWE Energy Nederland in the first three quarters of 2009.


• CentralEasternandSouthEasternEurope:Gassalesdecreasedby3%to73.5billionkWhinthis

division,despitethecolderweather.IntheCzechRepublic,ourmainmarket,someofthe

distributorswesupplyswitchedprovidersorstarteddiversifyingtheirgasprocurement.Wefeltthe

impactofthemountingcompetitivepressureinthatcountryinothercustomergroupsaswell.

ThenumberofgascustomersweserveintheCzechRepublicdeclinedby89,000to2,192,000.In

contrast,weobservedapositivetrendinSlovakia,whereRWEGasSlovensko,thesalessubsidiary

wefoundedinJuly2008,issteppingupgassalestocorporatecustomers.Intheyearbeing

reported,thecompanyachievedsalesof7.8billionkWh,whichwas5.6billionkWhmorethanin

2009.

• UpstreamGas&Oil:RWEDeadelivered18.6billionkWhofgastoexternalcustomers,falling

belowtheprior-yearfigureby2%.Thismirroredthedeclineingasproduction.

• Trading/GasMidstream:Thedivisionsold39.0billionkWhofgasoutsidetheGroup.

RWE Supply&TradingfocusesonprocuringgasforRWEcompaniesandthereforepredominantly

generatesinternalsales.Thecompany’sexternalgassalesconsistofsurpluspurchases.We

alsogenerateexternalsaleswithinthescopeofthekeyaccountbusinesswithindustrial

enterprises.Asmentionedearlier,wealsostartedstatingthekeyaccountbusinessofEssent’s

tradingcompaniesunderTrading/GasMidstreamin2010.Thereassignmentwasamajorreason

whyexternalsalesinthefinancialyearbeingreviewedwereup18%.

Gas sales volume of the RWE Group by country in 2010 (2009) %

13.5 (15.8) United Kingdom

3.2 (1.4) Others

16.6 (22.7) Czech Republic

37.1 (43.1) Germany

29.6 (17.0) Netherlands

395.4 billion kWh(332.0 billion kWh)



External revenue 12 % up year on year.In2010,theRWEGroupgenerated€53,320millionin

externalrevenue,surpassingtheyear-earlierfigureby12%.ThiswasmainlyduetoEssent’stwelve-

monthconsolidationforthefirsttime,whereaslowergassalespriceshadacounteractingeffect.

Foreignexchangeeffectshadapositiveimpactonthedevelopmentofrevenue,asourmainforeign

currenciesappreciatedovertheeuro.TheBritishpoundcostanaverageof€1.17,comparedto€1.12

inthepreviousyear.TheUSdollarroseinpricefrom€0.72to€0.76,theCzechcrownfrom€0.038to

€0.040,theHungarianforintfrom€0.0035to€0.0036,andthePolishzlotyfrom€0.23to€0.25.

Disregardingmaterialconsolidationandcurrencyeffects,revenuewasunchanged.

External revenue € million

2010 2009 + /– %

Germany 19,528 19,386 0.7

Power Generation 1,072 1,056 1.5

Sales and Distribution Networks 18,456 18,330 0.7

Netherlands /Belgium 6,510 1,799 –

United Kingdom 7,759 7,843 − 1.1

Central Eastern and South Eastern Europe 5,297 5,254 0.8

Renewables 366 245 49.4

Upstream Gas & Oil 1,353 1,208 12.0

Trading /Gas Midstream 7,517 6,937 8.4

Other, consolidation 4,990 5,069 − 1.6

RWE Group 53,320 47,741 11.7

of which:

Electricity revenue 34,803 31,225 11.5

Direct electricity tax 1,323 1,041 27.1

Gas revenue 14,491 12,443 16.5

Oil revenue 1,049 1,024 2.4


• Germany:Externalrevenueachievedbythisdivisiontotalled€19,528million,whichwasmarginallyupon

2009.Electricityrevenueroseby4%to€14,124million,aboveallduetothesalesincreasesmentioned

earlier.Moreover,therewasariseinthird-partyelectricitytransitthroughournetworks.Inthegasbusiness,

revenuesdeclinedby6%to€3,826million.Thisdevelopmentresultsfrompriceadjustments.OurGerman

regionalutilitiesloweredtheirtariffsin2009/2010–insomecasesseveraltimes–inordertopassthe

advantagesofthedecreasingprocurementcoststhroughtotheircustomers.

• Netherlands/Belgium:Thedivisionpostedaconsolidation-drivengaininrevenueto€6,510million.The

electricityandgasbusinessesaccountedfor€2,195millionand€4,108million,respectively.

• UnitedKingdom:At€7,759million,revenuegeneratedbyRWEnpowerfelljustshortoftheprioryear’s

figure.Excludingcurrencyeffects,itdroppedby5%.Electricityrevenuedeclinedby2%andby6%netof

thecurrencyimpact.Pricereductionsmadeintheprecedingyearplayedarole.RWEnpowerlowered

residentialtariffsbyanaverageof8%on31March2009.Gasrevenuerecordedaslightincreaseto

€2,016 million.Insterlingterms,however,itdecreasedby3%.Again,priceeffectswerethedetermining

factor.RWEnpowerloweredresidentialgastariffsbyanaverageof7%witheffectfrom26 March 2010.

• CentralEasternandSouthEasternEurope:Thedivisionrealised€5,297millioninrevenue,slightlymorethan

in2009.Excludingforeignexchangeeffects,revenuewouldhavedroppedby3%.Electricityrevenueroseby

2%to€2,492million,whereasnetofcurrencymovements,itdeclinedby2%.Pricereductionsinthe

industrialandcorporatecustomeraccountbusinessplayedarole.At€2,706million,gasrevenuewasona

paryearonyear.Excludingtheforeignexchangeimpact,itdecreasedby4%,largelyduetothe

aforementionedvolumedropsintheCzechRepublic.

• Renewables:Externalrevenuegeneratedbythisdivisionjumped49%to€366million,inpartbecauseithas

includedEssent’swindpowerrevenue(€76million)since2010.Thecommissioningofnewgeneration

capacityandtheinclusionoftheSpanishwindfarmoperatorDantadeEnergíasonatwelve-monthbasisfor

thefirsttimealsocontributedtothisgrowth.

• UpstreamGas&Oil:RWEDeaimprovedexternalrevenueby12%to€1,353million,despiteaslightdropin

productionvolume.Thecompanyrealisedmuchhigherdollarpricesforitscrudeoilproductionthanin

2009.TheappreciationofUScurrencyovertheeuroalsohadapositiveimpact,whereaslowerrealisedgas

priceshadacounteractingeffect.

• Trading/GasMidstream:Externalrevenuegeneratedbythedivisionadvancedby8%to€7,517million.The

mainreasonisthatrevenuefromEssent’stradingbusinesswasincludedforthefirsttime(€1,505million).



EBITDA€ million

2010 2009 + /– %

Germany 6,728 5,811 15.8



Netherlands /Belgium 660 277 –

United Kingdom 504 445 13.3



of which: Essent wind activities 69 – –

Upstream Gas & Oil 619 437 41.6

Trading /Gas Midstream − 7 986 − 100.7

of which: Essent trading activities 108 – –

Other, consolidation 101 − 202 –

RWE Group 10,256 9,165 11.9

Reconciliation of income from operating activities to EBITDA € million

2010 2009 + /– %

Income from operating activities1 6,507 7,326 − 11.2

+ Operating income from investments 345 321 7.5

+ Non-operating income from investments 62 − 59 –

– Non-operating result 767 − 498 –

Operating result 7,681 7,090 8.3

+ Operating depreciation and amortisation 2,575 2,075 24.1

EBITDA 10,256 9,165 11.9

1 See the income statement on page 162.


Operating result € million

2010 2009 + /– %

Germany 5,575 4,780 16.6



Netherlands /Belgium 391 180 117.2

United Kingdom 272 247 10.1



of which: Essent wind activities 23 – –

Upstream Gas & Oil 305 203 50.2

Trading /Gas Midstream − 21 985 − 102.1

of which: Essent trading activities 96 – –

Other, consolidation − 86 − 416 79.3

RWE Group 7,681 7,090 8.3

Operating result increased by 8 %.TheRWEGroup’searningsimprovedfurtherin2010.EBITDA

roseby12%to€10,256million,withtheoperatingresultgrowingby8%to€7,681million.Withthe

exceptionofTrading/GasMidstream,alldivisionspostedsignificantgains.Wethereforeexceededour

forecastofFebruary2010.WehadexpectedEBITDAtoincreasebybetween5%and10%andthe

operatingresulttorisebyapproximately5%.Inparticular,ourCzechgasbusinessexceeded

expectations.Furthermore,thereleaseofprovisionscausedthe‘Other,consolidation’itemtorecord

abiggerimprovementthananticipated.Conversely,earningsgeneratedbyRWESupply&Trading

wereevenweakerthanexpected.Disregardingmaterialconsolidationandcurrencyeffects,the

RWE Group’sEBITDAandoperatingresultroseby5%and3%,respectively.

• Germany:Thedivisionpostedanoperatingresultof€5,575million,up17%onthepreviousyear.

ThefollowingdevelopmentwasobservedinthePowerGenerationandSalesandDistribution

NetworksBusinessAreas:

PowerGeneration:Here,werecordedagainof17%to€4,000million.Amajorcontributorwasour

highergenerationoutput,whichpartiallystemmedfromtheBiblisnuclearpowerplant’simproved

availability.Furthermore,webenefitedfromprice-inducedreliefwithrespecttoourhardcoal

purchases(€679million).Asmentionedearlier,wehadalreadysoldourelectricityfor2010earlyon

theforwardmarket,purchasingthefuelrequiredtoproduceitatthesametime.Wealsobought

emissionallowancesearlyon,realisingpriceadvantagesovertheprioryear.Theexpenseassociated



withtheshortageofemissionallowancesthereforedecreasedby€269millionto€689million.

However,therewasalsoadecreaseinthepriceswerealisedforourelectricitygeneration,which

averaged€67perMWh(prioryear:€70 perMWh).Onbalance,changesinnuclearprovisionsledto

burdens.Furthermore,thepositiveexceptionaleffectsofthereleaseofprovisionsinthepreceding

yeardidnotrecur.Theyrelatedtonuclearwastedisposalandtherecultivationofopencastlignite

miningsites.

SalesandDistributionNetworks:Thisbusinessareaincreaseditsoperatingresultby16%to

€1,575 million,partlyonthestrengthofcost-cuttingmeasures.Inthenetworkbusiness,higher

electricityandgasthroughputcausedearningstorise.Ontopofthat,thecostofcompensationfor

gridlossesdropped,becausethepowerusedtodosobecamecheaper.Conversely,thefollowing

issuehadanegativeeffect:theGermanFederalNetworkAgencyisoftheopinionthatourrevenue

fromthenetworkfeeswechargedatthebeginningofnetworkregulation(2005to2007)wastoo

high.Theexcessamountsmustberefundedviareducednetworkfeesfrom2010onwards.Inthe

salesbusiness,wetookadvantageofthepositiveeffecttheweatherhadongassalesvolumes,

whileelectricitymarginsshrank.

• Netherlands/Belgium:Inthisdivision,werecordedanoperatingresultof€391million,whichwas

muchhigherthantheyear-earlierfigure(€180million)duetotheconsolidationeffect.Gas

activitiesachievedaparticularlystrongoperatingresult.Theunusuallycoldwinterweatherwasa

contributingfactor.However,earningsperformancesuffered,partiallybecausethepowerplant

projectinEemshaven(Netherlands)initiatedbyRWEPowerwastransferredtoEssent,which

refundedRWEPowerforalloftheprojectcostsincurredsince2009.Wearebuildingahardcoal

twinunitwithanetinstalledcapacityof1,560MWatthesiteintheProvinceofGroningen.

• UnitedKingdom:RWEnpower’soperatingresultimprovedby10%to€272million.Netofforeign

exchangeeffects,theincreaseamountedto6%,whichwasmainlyattributabletothesupply

business.Webenefitedfromefficiency-enhancementmeasuresandtheweather-drivenrisein

demandforgas,butalsosufferedfromanincreaseinbaddebt.Electricityandgasprocurement

pricesroseinthesecondhalfoftheyear,butRWEnpowerdidnotincreaseitsresidentialtariffs

untilJanuary2011.RWEnpower’sgenerationbusinessclosedtheperiodbeingreviewed

significantlydownyearonyear.Thedeteriorationinconditionsonthemarketforourhardcoal-fired

powerstationsledtoearningsshortfalls,whichcouldnotbefullyoffsetbytheincreased

generationofourgas-firedpowerplantsandcostreductions.


• CentralEasternandSouthEasternEurope:Theoperatingresultweachievedinthisdivisiongrewby

11%to€1,173million.IntheforecastweissuedinFebruary2010,wehadexpectedtofallshortof

theprioryear’sresult.Thefactthatweactuallymanagedtoexceeditsubstantiallyisinpartdueto

theimpactofforeignexchangerates.Moreover,contrarytoexpectations,earningsintheCzechgas

businessimproved.Thiswasduetotheincreaseinnetworkandsalesmargins,whereasshortfallsin

salestodistributorshadacounteractingeffect.TheearningscontributionmadebyourPolish

electricityactivitiesalsogrew.Webenefitedfromone-offeffectsaswellasfromcostreductions.In

Hungary,wecapitalisedonvolumeandprice-inducedearningsimprovementsintheelectricity

business,butexperiencedearningsshortfallsattheelectricitygeneratorMátra.Additionalburdens

arosefromtheretrospectiveintroductionofaspecialtaxforenergyutilities(€25million),onwhich

wereportedonpage68.

• Renewables:Here,theoperatingresultimprovedby€16millionto€72million.Ofthissum,

€23 millioncamefromEssent’swindpoweractivities,whichwestatedaspartoftheRenewables

Divisionin2010.However,theresultclearlylaggedbehindexpectationsbecausewindlevelsin

NorthWesternEuropewereunusuallylow.Apositiveeffectwasfeltfromthecommissioningofthe

RhylFlatswindfarmoffthecoastofWalesattheendof2009andtheinclusionofDantade

Energíasinourfiguresforafullyearforthefirsttime.Conversely,anticipatedburdensarosein

connectionwithRWEInnogy’sgrowthstrategyasitsongoingandplannedcapitalexpenditure

projectsgohandinhandwithhighrun-upcosts.

• UpstreamGas&Oil:RWEDeaincreaseditsoperatingresultby50%to€305millionduetocurrency

movementsandhigheroilprices.Inaddition,productionleviesandexplorationcostsdeclined.The

factthatproductionvolumesandgaspriceswerelowerandwrite-downswerehigheryearonyear

hadacounteractingeffect.

• Trading/GasMidstream:Thedivisionclosedtheyearunderreviewwithanoperatingloss

of€21 million.Theresultwasthusmuchlowerthantheunusuallyhighfigurepostedinthe

previousyear(€985 million).Inenergytrading,weweresuccessful,butfailedtomatchthevery

goodperformancerecordedin2009.Therewasanevensteeperdropinearningsinthegas

midstreambusiness,whichhadbenefitedfrompositiveone-offeffectsayearearlier.Incontrast,

therewereheavyburdensintheyearunderreview.Thisisbecause,inmostcases,gaspurchases

forGermanyandtheCzechRepublicarebasedonlong-termcontractslinkedtothepriceofoil,

whileourcustomersincreasinglylooktoquotationsontheliquidTTFandNBPtradinghubs(see

page59).Thesehavebeenmuchlowerthantheoil-indexedpurchasingpricessinceasearlyasthe

middleof2009.Aswelargelysettleinternalgasdeliveriesunderwholesaleconditions,theprice

differenceshaveanimpactontheoperatingresultofRWESupply&Trading,whichisresponsible

forgasprocurement.ApositiveeffectontheTrading/GasMidstreamDivisionwasfeltfromthe

first-timeinclusionofEssent’stradingactivities,whichpostedanoperatingresultof€96millionin

2010.



RWE achieves a return on capital employed of 14.4 %.Oneofthemaingoalsofourbusinessactivity

istoincreasethecompany’svalue.Inordertoaccomplishthis,wemustearnareturnonourcapital

employed(ROCE)thatexceedsthecostofcapital.Infiscal2010,ourROCEwas14.4%,clearly

surpassingtheGroup’scostofcapital,whichwas9.0%beforetax.ROCEminusthecostofcapital,

multipliedbycapitalemployed,equalsabsolutevalueadded.Itisanimportantcriterionforassessing

investmentsanddeterminingourexecutives’performance-linkedpayments.Inthefinancialyearthat

justended,valueaddedamountedto€2,876 million.Thiswas9%lessthanin2009,despitethe

improvementintheoperatingresult.Thereasonforthisistheincreaseincapitalemployed.Our

intensifiedinvestmentactivityplayedaroleontheonehand,asnewplantsalreadyaffectROCE

duringtheconstructionphase,althoughtheydonotcontributetoearningsyet.Ontheotherhand,

wehadonlyrecognisedaquarterofEssent’scapitalemployedinthepreviousyear,becausethe

companywasnotincludedintheconsolidatedfinancialstatementsuntiltheendofSeptember.

Thedevelopmentofvalueaddedwasalsoinfluencedbyadjustmentswemadetothecostofcapital.

Thisaffectsindividualdivisions,butnottheGroupasawhole.

key figures for value management operating result

2010

capital employed

20101

RocE

2010

capital costs before taxes

2010

Absolutevalue

added

2010

Weighted average cost

of capital (WAcc)

before tax2009

Absolute value

added

2009

€ million € million % % € million % € million

Germany 5,575 29,575 18.9 9.5 2,7652 9.5 2,1642

Power Generation 4,000 13,803 29.0 10.0 2,620 10.0 2,146

Sales and Distribution Networks 1,575 15,772 10.0 8.75 195 9.0 27

Netherlands /Belgium 391 4,564 8.6 9.5 − 42 9.0 56

United Kingdom 272 5,147 5.3 9.5 − 217 10.0 − 254

Central Eastern and South Eastern Europe 1,173 5,596 21.0 8.5 697 9.0 578

Renewables 72 3,797 1.9 9.5 − 289 9.5 − 165

Upstream Gas & Oil 305 2,509 12.2 12.5 − 8 13.0 − 72

Trading /Gas Midstream − 21 3,222 − 0.6 9.5 − 327 10.0 821

Other, consolidation − 86 − 1,024 – – 297 – 49

RWE Group 7,681 53,386 14.4 9.0 2,876 9.0 3,177

1 Averaged for the year.2 Due to the differences in the costs of capital, this figure is not the sum of value added by Power Generation and Sales and Distribution Networks.


• Germany:Thebiggestcontributionbyfar,i.e.€2,765million,toincreasingvaluewithinthe

RWE Groupcamefromthisdivision.Mostofitisattributabletoourpowergenerationactivities.

Theearningsgrowthpostedbythisbusinessareawasthemainreasonwhyvalueaddedrose

by€601million.Theimprovedearningsofthesalesanddistributionnetworkbusinesswerealso

afactor.

• Netherlands/Belgium:Valueaddedbythisdivisiondroppedby€98millionto−€42million.Despite

consolidationeffects,theoperatingresultwasmuchhigherthanintheprecedingyear.Butthis

alsoappliestocapitalemployed,whichwehadonlyconsideredproratain2009,asexplained

earlier.Anothernegativeeffectarosefromthetakeoverofthenew-buildpowerplantprojectin

Eemshaven(−€54 million),asthiscausedcapitalemployedtorise,whileearningswereburdened.

Excludingthiseffect,thedivisionwouldhaveearnedbackitscostofcapital.

• UnitedKingdom:RWEnpower’svalueaddedwasalsonegative.At−€217million,however,it

improvedby€37millionyearonyear.Amongotherthings,thiswasduetotheimprovedoperating

result.

• CentralEasternandSouthEasternEurope:At€697million,thedivisionmadethesecond-largest

contributiontovalueaddedwithintheRWEGroup,postingagainof€119millioncomparedto

2009.Thedevelopmentofearningswasthemajorinfluentialfactor.

• Renewables:RWEInnogy’svalueaddedfellby€124millionto–€289million,despiteimproved

earnings.Thisreflectsthesubstantialinvestmentintheexpansionofthegenerationportfolio.

• UpstreamGas&Oil:ValueaddedbyRWEDeawasslightlynegative,i.e.−€8million,but

€64 millionhigherthanin2009.Thedivisionbenefitedfromavastlyimprovedoperatingresult.

Theriseincapitalemployedcausedbycapitalexpenditurehadacounteractingeffect.

• Trading/GasMidstream:ThesignificantdropinearningsatRWESupply&Tradingledtonegative

valueaddedof−€327million.However,at€821million,theprior-yearfigurehadbeenunusually

high.

Youwillfinddetailedinformationonthevaluemanagementconceptonpages231etseq.

Reconciliation to net income: negative special items due to commodity derivatives.The

reconciliationfromtheoperatingresulttonetincomeischaracterisedbynegativeone-offeffects.

TheseprimarilyarosefromthefairvaluationofcommodityderivativesandimpairmentsonourUK

hardcoalandoil-firedpowerplants.Thepositiveimpactofthereleaseofprovisionsfellshortof

offsettingthis.Inconsequence,netincomedecreaseddespitethegoodoperatingearnings.



Negativeinfluencesoccurredespeciallyinthenon-operatingresult,whichdeterioratedby

€1,265 millionto−€767million.Itscomponentsdevelopedasfollows:

• Asin2009,therewerenonotablecapitalgains.Thesinglelargestearningscontributioncame

fromthesaleofaminorityinterestinacustomer’spowerstationintheCzechRepublic.

• Theaccountingtreatmentofderivativetransactionshadanegativeimpactof€337million,

comparedtothe€720millioninprofitrecordedayearearlier.PursuanttoInternationalFinancial

ReportingStandards(IFRS),certainderivativesusedtohedgethepricesofforwardcontracts

(underlyingtransactions)areaccountedforatfairvalueattheirrespectivebalancesheetdate,

whereastheunderlyingtransactions(whichdisplaytheexactoppositedevelopment)areonly

recognisedasaprofitorlosswhentheyarerealised.Thesetimingdifferencesresultinshort-term

effectsonearnings,whichareneutralisedovertime.ThederivativeslargelyrelatedtoRWE

Supply&Trading’sgasmidstreambusiness.Moreover,thenon-operatingresultwasnegatively

affectedbecause,in2010,westartedaccountingforourGermangaspurchasingagreementsat

fairvalueinsteadofaspendingtransactions.Ascommentedonearlier,oil-indexedprocurement

pricesforpartsofourgassalesaremuchhigherthanthesalespricesrealisableonthemarket.

Therefore,thechangeinaccountingtreatmentinthefirstquarterhadaverynegativeeffecton

earnings.However,thisimpactweakenedconsiderablyoverthecourseoftheyear,asmostofthe

affectedcontractswerefulfilledandtheinfluenceonearningsoftheirrealisationwasconsidered

intheoperatingresultofRWESupply&Trading.

• Theresultstatedunder‘Restructuring,other’amountedto−€498million.Thiswas€241million

downontheyear-earlierfigure,whichincludedsubstantialextraordinaryincomefromthechange

innuclearandminingprovisions(€411million).In2010,westoppedreflectingsucheffects,which

amountedto€197millionintheyearunderreview,inthenon-operatingresult,recognisingthem

Non-operating result€ million

2010 2009 + /– € million

Capital gains 68 35 33

Goodwill impairment losses – – –

Impact of commodity derivatives on earnings − 337 720 − 1,057

Restructuring, other − 498 − 257 − 241

Non-operating result − 767 498 − 1,265


intheoperatingresultinstead.Achargeof€296millionstemmedfromanimpairmentrecognised

forourUKhardcoalandoil-firedpowerstations.Thereby,weacknowledgedthatthemargins

realisablethroughtheseplantsonthemarketdeterioratedconsiderably.Theearningstrendwas

positivelyinfluencedbytheabsenceofnegativeeffectsfromtheprecedingyear,whichincludeda

write-downonourstakeinUS-basedExcelerateEnergyofUS$250million(€179million).We

amortisedRWEnpower’scustomerbaseintheperiodbeingreviewedby€262million.Thisfigure

wasslightlyhigherthanin2009(€252million)duetomovementsinforeignexchangerates.

Thefinancialresultimprovedby€54millionto−€1,936million.Itscomponentsdevelopedas

follows:

• Netinterestdeterioratedby€175millionto−€810million.Ourgrowthinvestmentsandthe

acquisitionofEssentincreasedourneedforfinancing.Wecoveredpartofitbysellingsecurities,

whichcausedinterestincometodrop.Furthermore,weissuednewbonds.

• At€940million,theinterestaccretiontonon-currentprovisionswasessentiallyunchanged.

• Theotherfinancialresult,whichincludesnumerousexpenseitems,improvedby€212millionto

−€186million.Thiswasduetotheabsenceofchargesfromtheprecedingyearincurredinpartdue

tothecrisisonfinancialmarkets.Forexample,wehadrealisedwrite-downsonsecuritiesandbook

lossesonthesaleofsecurities.Conversely,wegeneratedincomefromsuchsalesin2010.

Financial result € million

2010 2009 + /− € million

Interest income 448 589 − 141

Interest expenses − 1,258 − 1,224 − 34

Net interest − 810 − 635 − 175

Interest accretion to non-current provisions − 940 − 957 17

Other financial result − 186 − 398 212

Financial result − 1,936 − 1,990 54



RWEearned€4,978millioninincomefromcontinuingoperationsbeforetax,11%lessthanin2009.

Theeffectivetaxratedroppedfrom33%to28%,inpartbecauseourcorporatetaxcreditroseand

wewereabletocapitaliselosscarryforwards.Aftertax,incomefromcontinuingoperationsdeclined

by4%to€3,602million.Discontinuedoperationsdidnotcontributetoincomein2010,whereas

theprior-yearfigurestillincludedincomefromAmericanWater,whichhassincebeensold.The

minorityinterestamountedto€279million,7%higherthanin2009.Forthefirsttime,weare

alsostatingtheminorityinterestallocabletotheholdersofthehybridbondissuedinSeptember

2010.At€15 million,itcorrespondstothepost-taxfinancingcostsallocabletotheyearunder

review.Youcanfinddetailedinformationonourhybridbondonpages102and195ofthisreport.

TheRWEGroup’snetincomedeclinedby7%to€3,308million.Accordingly,ourearnings

persharedroppedfrom€6.70to€6.20.ThenumberofRWEsharesoutstandingintheperiodbeing

reviewedaveraged533.6million(prioryear:533.1million).

Recurrent net income improved by 6 %.Theyardstickfordeterminingourdividendisrecurrentnet

income.Itdoesnotincludethenon-operatingresult.Ifmajornon-recurrenteffectsinthefinancial

resultandincometaxesoccur,thesearealsoexcluded.Intheyearunderreview,recurrentnet

incometotalled€3,752million,6%upyearonyear.Wewerethereforeslightlyupontheforecast

issuedinFebruary2010,whichenvisagedanincreaseofapproximately5%.

Reconciliation to net income 2010 2009 + /– %


Non-operating result € million − 767 498 –

Financial result € million − 1,936 − 1,990 2.7


Taxes on income € million − 1,376 − 1,858 25.9

Income from continuing operations € million 3,602 3,740 − 3.7

Income from discontinued operations € million – 91 –

Income € million 3,602 3,831 − 6.0

Minority interest € million 279 260 7.3

RWE AG hybrid investors’ interest € million 15 – –

Net income /RWE AG shareholders' share in net income € million 3,308 3,571 − 7.4




Effective tax rate % 28 33 –


Efficiency-enhancement programme: target for 2010 achieved.Wearemakinggoodprogresswith

theefficiency-enhancementprogrammeweinitiatedin2007.Bytakingmeasurestoreducecostsand

increaserevenue,weaimtotapadditionalearningpotential–anddosomoreandmoreeveryyear.

Oneoftheproject’sgoalsistoenhancetheperformanceofourGermanelectricityandgasnetwork

business,whichshouldlimittheimpactonourearningsfromtariffcutsmandatedbythenetwork

regulator.FurthersavingswillbeachievedthroughimprovementsinITservicesandpurchasingaswell

asthepoolingofback-officefunctions.Moreover,weintendtoincreaserevenuebyimprovingthe

availabilityofourpowerplants.

By2009,wehadalreadyachievedapositiveeffectonearningsof€450millionthroughthe

programme.Thebaselineyearis2006.Withrespectto2010,wehadenvisagedincreasingthe

programme’simpactonearningsto€700million.Wehaveachievedthistarget.Theefficiency-

enhancementprogrammewillrununtiltheendof2012andwewanttointensifyoureffortsbythen.

Forinstance,wehaveidentifiedadditionalpotentialforsavingsintermsofprojectandmaterialcosts.

Furthermore,RWEnpowerwillintroduceanewITsystem,whichwillallowthecompanytoreduceits

salescostsconsiderably.Therefore,wecanraiseouroverallgoalfortheprogrammeby2012.Initially,

wewantedtoachievepositiveeffectseveryyear,totalling€1.2billionfrom2006to2012.Wearenow

targetingafigureof€1.4billion.

Planned efficiency enhancements compared to 2006€ million (accumulated)

2007 2008 2009 2010 2011 2012

Initial target 100 200 450 700 900 1,200

Increase 200

New target 1,400

Capital expenditure on property, plant and equipment and on intangible assets€ million

2010 2009 + /– € million

Germany 2,410 2,813 − 403

Power Generation 1,180 1,791 − 611

Sales and Distribution Networks 1,230 1,022 208

Netherlands /Belgium 1,144 156 988

United Kingdom 876 853 23

Central Eastern and South Eastern Europe 430 368 62

Renewables 614 447 167

Upstream Gas & Oil 507 855 − 348

Trading /Gas Midstream 4 2 2

Other, consolidation 394 419 − 25

RWE Group 6,379 5,913 466



Capital expenditure on property, plant and equipment 8 % higher year on year.TheRWEGroup

spent€6,643millionincapitalintheyearunderreview,comparedto€15,637millionin2009.The

significantdeclineisattributabletofinancialinvestments,whichbarelyhadanimpactin2010,after

havingbeenexceptionallyhighin2009(€9,724million)duetotheacquisitionofEssent.Conversely,

capitalexpenditureonproperty,plantandequipmentandintangibleassetsroseby8%to€6,379

million.ThiswasinpartbecauseEssent’scapexwasincludedonatwelve-monthbasisforthefirst

time.Nevertheless,onthewhole,wespentalittlelessthanexpected,due,amongstotherthings,to

delaysintheconstructionofpowerplantprojects.InFebruary2010,wehadforecastGroupcapital

expenditureonproperty,plantandequipmentandintangibleassetstobeintheorderof€7.0

billion.

• Germany:Capitalexpenditurebythisdivisionamountedto€2,455million.Thisrepresentsa

decreaseof41%comparedto2009.Thedivision’sbusinessareasdisplayedthefollowing

development:

PowerGeneration:Capitalspendingbythisbusinessareawasdown36%to€1,182million.

Asintheprecedingyear,almostallofthiswasspentonproperty,plantandequipment.The

declineispartlyduetoRWE Power’stransferoftheEemshavenpowerplantprojecttoEssent.As

mentionedearlier,wearebuildinga1,560MWtwin-unithardcoalfacilityattheDutchsite.We

completedworkonthenewgas-firedpowerstationinLingenintheyearbeingreviewed.Ithasan

installedcapacityof876MWandwascommissionedinApril.Themajorongoingprojectisthe

2,100MWdual-blocklignite-firedpowerplantinNeurathnearCologne,Germany.Wearebehind

schedule,primarilyduetoquality-relatedproblemsexperiencedbysuppliers.Basedonourcurrent

planning,bothunitswillgoonlinethisyear.Ontopofthis,RWEPowerisbuildinga1,528MW

twin-unithardcoalfacilityinHamm,Germany.Supplierscauseddelayshereaswell.Therefore,the

facilitywillnotgoonlineuntil2013.Thesenew-buildpowerplantswillenableustoachieve

Capital expenditure on financial assets€ million

2010 2009 + /– € million

Germany 45 1,325 − 1,280

Power Generation 2 45 − 43

Sales and Distribution Networks 43 1,280 − 1,237

Netherlands /Belgium 3 7,794 − 7,791

United Kingdom 23 114 − 91

Central Eastern and South Eastern Europe 8 3 5

Renewables 95 286 − 191

Upstream Gas & Oil – – –

Trading /Gas Midstream 61 141 − 80

Other, consolidation 29 61 − 32

RWE Group 264 9,724 − 9,460


significantefficiencyimprovementsandemissionreductions.Furthermore,thenewunitswillbe

capableofswitchingloadsmuchfasterthanolderfacilities.Thisenablesustotakeadvantageof

pricefluctuationsinelectricityspottradingbymakingmoreflexibleuseofourpowerplants.These

fluctuationsareexpectedtobecomemorefrequentinviewoftherisingshareofelectricity

productionaccountedforbyweather-dependentsourcessuchaswindandsolar.

SalesandDistributionNetworks:Wespent€1,273millionincapitalonthisbusinessarea,45%less

thaninthepreviousyear.Capitalexpenditureonfinancialassetsdeclinedsignificantly,following

severalsizeabletransactionswehadconcludedin2009.Theseincludedtheacquisitionofa20%

stakeintheformerRWEWestfalen-Weser-Emsheldbymunicipalshareholdersfor€800million.

Capitalexpenditureonproperty,plantandequipmentandintangibleassetsamountedto

€1,230 million,20%upontheprecedingyear’slevel.Thesefundsweremainlyallocatedto

upgradestothenetworkinfrastructure.Inaddition,weinvestedinnewgasstoragecapacity.

• Netherlands/Belgium:At€1,147million,capitalexpenditurebythisdivisionwas86%downonthe

previousyear’sfigure,whichwasunusuallyhighduetotheacquisitionofEssent.Including

ancillarypurchasingcosts,wespent€7,794millionontheacquisitionoftheDutchenergyutility.

Incontrast,nonotablefundswerededicatedtofinancialassetsin2010.Conversely,capital

expenditureonproperty,plantandequipmentandintangibleassetstotalled€1,144million,which

wasoverseventimeshigherthanin2009.However,theyear-earlierfigureonlyincludedfourth-

quarterspending.Thedivision’ssinglelargestundertakingisthepowerplantprojecttakenover

fromRWEPowerinEemshaven,theNetherlands.Furthermore,EssentisconstructingtheMoerdijk

2andClausCcombined-cyclegasturbinepowerplants.Theformerisbeingbuiltdirectlyadjacent

totheexistingMoerdijkpowerplant.Itwillhaveaninstalledcapacityof426MWandisscheduled

togoonlineinthefourthquarterof2011.ClausCisenvisagedtohaveaninstalledcapacityof

1,304MWandreplacetheexistingClausB(640MW)gas-firedpowerstation.Weplanto

commissiontheplantinthefirsthalfof2012.Weexpecttospendatotalof€1.5billiononthese

twoprojects.

• UnitedKingdom:RWEnpowerinvested€899million,7%lessthanin2009.Onceagain,decreasing

spendingonfinancialassetswasthemainreason.Capitalexpenditureonproperty,plantand

equipmentandintangibleassetsroseby3%to€876million.Centrestagewastakenbythe

constructionoftwostate-of-the-artcombined-cyclegasturbinepowerstations.Allfourunitsatour

facilityatStaythorpe(Nottinghamshire)wentonlinebetweenAugustandNovember2010.Ithasan

aggregateinstalledcapacityof1,650MW.ThesecondplantislocatedatPembroke,Wales.Itwill

haveaninstalledcapacityof2,188MW,andisscheduledtobegingenerationin2012.

• CentralEasternandSouthEasternEurope:Capitalexpenditureadvancedby18%to€438million.

Itwasalmostexclusivelyusedonproperty,plantandequipment.Thefocuscontinuestobeon

measurestoimproveelectricityandgasnetworkinfrastructure.However,intheyearbeing

reviewed,westeppedupourinvestmentintheexpansionofourCzechgasstoragecapacities.

Additionalfundswerededicatedtotheconstructionofa775MWcombined-cyclegasturbine

powerstationintheTurkishtownofDenizli,whichwestartedinmid-2010.



• Renewables:RWEInnogyaimstoexpanditsrenewablegenerationbasesignificantlyandismaking

goodprogress.At€709million,capitalexpenditurein2010wasintheorderofthepreviousyear.

Mostofitwasdedicatedtoproperty,plantandequipment.Fundswereprimarilyspentonbuilding

newwindpowercapacity.OursinglelargestprojectistheGwyntyMôrwindfarmoffthecoast

ofNorthWales,whichwillhaveatotalinstalledcapacityof576MW.Bytheendof2011,layingof

thefirstfoundationsforatotalof160windturbinesshouldhavecommenced,withcompletion

scheduledfor2014.AnotherinvestmentistheplannedNordseeOstwindfarmnorthoftheIsleof

Helgoland,whichwillhaveanaggregateinstalledcapacityof295MW.Constructionhasbegun,

withtheprojectduetobecompletedin2013.TobuildtheGwyntyMôrandNordseeOstwind

farms,wewilluseourownspecialconstructionships,forwhichwemadedownpaymentsinthe

yearunderreview.AnothermajorprojectistheexpansionoftheThorntonBankwindfarmoffthe

Belgiancoastfrom30MWto325MW.Furthermore,RWEInnogygrantedloanstoassociated

companies,butthesearenotstatedascapitalexpenditure:€300million(previousyear:

€220 million)wasearmarkedfortheGreaterGabbardOffshoreWindsLtd.jointventure,whichis

erectingthenamesakewindfarmofftheUKcoast.Weown50%ofthecompany.Inaddition,we

investedinonshorewindenergy,forexampleatsitesinPoland,ItalyandScotland.Besideswind

power,biomassplaysasignificantroleforus.Intheyearbeingreported,webegantoconstructa

42MWcombinedheatandpowerplantintheScottishtownofMarkinch.Moreover,weare

buildingseveralsuchfacilitiesatlocationsintheGermanstateofNorthRhine-Westphalia.Wealso

spentcapitalonhydroelectricprojectsin2010,albeittoalesserextent,forexampleonthe

expansionofarun-of-riverpowerstationontheupperRhine.

• UpstreamGas&Oil:CapitalspendingatRWEDeaamountedto€507million,clearlydownon

thepreviousyear’shighfigure(€855million).Thelatterwasgreatlyinfluencedbytheacquisition

ofa70%stakeintheBreaghgasfieldintheNorthSea.Wespentroughly€260milliononit,

whereaswedidnotconcludeanytransactionsofasimilarorderin2010.Asintheprecedingyear,

RWE Dea’sfocuswasplacedondevelopingexistingreservesandresources.

• Trading/GasMidstream:RWESupply&Tradingroughlyhalveditscapitalexpenditureto

€65 million.Asintheprecedingyear,additionstoExcelerateEnergy’sequitywerethesingle

largestitem.

Other,consolidation:Thisitemincludes€423millionincapitalexpenditurefor2010,largely

relatingtoproperty,plantandequipment.MostofthefundswereusedbyAmpriontomodernise

andexpandtheelectricitytransmissionnetwork.


Employee headcount marginally higher.Asofthebalance-sheetdate,theRWEGroupemployed

70,856people,41,039,or58%,ofwhomworkedatGermansites.Part-timepositionswere

calculatedinthesefiguresonapro-ratabasis.Theworkforceincreasedby130personnelcompared

to31December2009,duetooperatingchanges.Incontrast,acquisitionsanddivestmentscauseda

net311employeestoleavetheGroup.Thereweremajorshiftsofpersonnelbetweenthedivisions,

because,in2010,Essent’stradingbusinessandwindpoweractivitieswerereclassifiedtothe

Trading/GasMidstreamandRenewablesSegments,respectively.Inaddition,employeestransferred

fromRWEITtoRWEnpowerandRWESupply&Trading.Asinpreviousyears,wetrainedfarmore

peoplethanrequiredtocoverourownneeds.By31December2010,3,079youngadultswereina

professionaltrainingprogrammeatRWE.Stafffiguresdonotincludetrainees.

Cost reductions and efficiency improvements in Group purchasing.RWEService,ourinternalservice

provider,isinchargeofpurchasinggoodsandservices.Thisdoesnotincludetheprocurementof

electricity,commodities,insuranceservices,orpowerplantcomponentsneededfornew-build

projects.RWEServiceusesstandardisedpurchasingsystemsandcomplieswiththeprinciplesofbest

practice.Yetagain,thecompanyrealisedsubstantialsavingsinfiscal2010.Forinstance,ittook

chargeofnearlyallpurchasesofmanagement,personnel,legalconsultingandmarketingservices.

Moreover,wecompletedtheintegrationofEssentintoourcorporatepurchasingprocessandrefined

RWEstandardsforoccupationalsafetyandsustainabilityintooursuppliermanagementsystem.

Workforce 1 31 Dec 2010

31 Dec 2009

+ /– %

Germany 34,184 33,605 1.7



Netherlands /Belgium 3,899 4,695 − 17.0

United Kingdom 11,711 12,224 − 4.2

Central Eastern and South Eastern Europe 11,163 11,289 − 1.1

Renewables 1,232 980 25.7

Upstream Gas & Oil 1,363 1,279 6.6

Trading /Gas Midstream 1,512 989 52.9

Other 5,7922 5,665 2.2

RWE Group 70,856 70,726 0.2

1 Converted to full-time positions.2 Of which 2,271 at RWE IT and 1,406 at RWE Service.



Rawmaterialsaresourcedbyourgenerationcompanieseitherdirectlyonthemarket,orvia

RWE Supply&Trading.In2010,theamountofhardcoalprocuredtogenerateelectricitytotalled

16.3 millionmetrictonsofhardcoalunit(HCU),comparedto16.2millionmetrictonsintheprevious

year.ThisincludescoalforpowerplantsnotownedbyRWEthatwecandeployatourdiscretionon

thebasisoflong-termagreements.Inthefinancialyearthatjustcametoaclose,RWEPowersourced

12.2millionmetrictonsofHCU(previousyear:10.5millionmetrictons),andRWEnpowerpurchased

2.2millionmetrictons(previousyear:5.2millionmetrictons).Essentaccountsfor1.8millionmetric

tonsofHCU(prioryear:0.5millionmetrictons).Furthermore,thecompanyused0.8millionmetric

tonsofbiomasstoco-fireatcoalpowerstations(previousyear:0.2millionmetrictons).Theslight

increaseinhardcoalvolumesisduetothehigherutilisationofourpowerstationsinGermanyand

Essent’sfirst-timeinclusiononatwelve-monthbasis.Acounteractingeffectwasfeltfromthefact

thatRWEnpowerlargelymetitsneedbyreducinginventory.Wecoverroughlyhalfofcoaldemand

fromourownpowerplantsinGermanyfromdomesticproductionsources.RussiaisRWEnpower’s

majorsupplierregion,andEssentprocurestwothirdsofthehardcoalitusesfromColombia.Biomass

usedfortheco-firingofourDutchcoalpowerplantsislargelysourcedfromNorthAmerica.

RWEsourceslignitefromproprietaryopencastmines.IntheRhineland,ourmainminingregion,

weproduced91millionmetrictonsofligniteintheyearunderreview(previousyear:92million

metrictons).Weused80millionmetrictonstogenerateelectricityand11millionmetrictonsto

manufacturerefinedproducts.

OurgaspurchasingispooledinRWESupply&Trading.In2010,ourprocurementvolumeamounted

toroughly50billioncubicmetres.Abouthalfofitissourcedonthebasisoflong-termtake-or-pay

agreements,theconditionsofwhichareorientatedtowardsthedevelopmentofoilprices.We

concludedsuchsupplyagreementslargelywithcompaniesinRussia,Norway,theNetherlandsand

Germany.Inaddition,webuygasonwholesalemarkets,namelytheTitleTransferFacility

(Netherlands)andtheNationalBalancingPoint(UK).Approximately3%ofourgaspurchasevolume

iscoveredbyin-houseproduction.


In fiscal 2010, we spent more on property, plant and equipment than ever before – and paid our

shareholders a large dividend. Our operating cash flow alone would not have been enough to

finance this. Our good creditworthiness enabled us to raise debt at favourable conditions. In

addition, we made use of an innovative financial tool by issuing a hybrid bond. This was the

largest issuance of a security of this type ever placed by a European industrial enterprise.

Central financing through RWE AG.TheRWEGroup’sfinancingistheresponsibilityofRWEAG.

Thecorporateheadquartersdoesnotusuallyissuebondsitself,insteadtransferringthistaskto

Netherlands-basedRWE FinanceB.V.Onlyinspecificcasesdoothersubsidiariesraisecapitaldirectly,

especiallyifitismoreadvantageouseconomicallytomakeuseoflocalcreditandcapitalmarkets.

Furthermore,RWE AGactsasco-ordinatorwhenGroupcompaniesassumealiability:thecompany

decidesonthescopeofwarrantiesissuedandlettersofcomfortsigned.Poolingtheseactivitiesisa

basicprerequisiteformanagingandmonitoringfinancialriskscentrally.Moreover,thisstrengthens

ourpositionwhennegotiatingwithbanks,businesspartners,suppliersandcustomers.

Substantial financial flexibility.Weprimarilymeetourfinancingneedswiththehighandstablecash

flowsfromouroperatingactivities.Inaddition,wehaveaccesstoanumberofflexiblefinancing

instruments.OneofourmajortoolsistheDebtIssuanceProgramme(DIP)forlong-termrefinancing

onthecapitalmarket.ThemaximumcountervalueofthebondsthatwecanissuethroughtheDIP

totals€30 billion.Last,butnotleast,acommercialpaperprogrammegivesusamaximumof

US$5 billioninheadroomforshort-termfinancingonthemoneymarket.€0.5billioninRWE

commercialpaperwasoutstandingasof31December2010.

A€4.0billioncreditlineweobtainedinNovember2010servesasanadditionalliquidityreserve.It

hasatenorofaninitialfiveyearsandreplacestwo€2.0billionlinesofcredit,whichwouldhave

expiredinOctober2011.RWEhastheoptionin2011and2012tofileforanextensionofthecredit

lineuntilNovember2016and2017,respectively.

Neithertheaforementionedfinancinginstruments,northecurrentcreditfacilities,containspecific

financialcovenantssuchasinterestcoverage,leverageorcapitalisationratiosthatcouldtrigger

actions,suchasaccelerationofrepayment,provisionofadditionalcollateral,orhigherinterest

payments.Likewise,theydonotcontainratingtriggers.

finanCiaL position and net Worth1.7

Financial position and net worth 101to our investors Review of operations our responsibility


RWE issues hybrid bond with record volume. In September, we issued a hybrid bond with a volume of

€1.75 billion. This was the largest and lowest-interest issuance of a security of this type ever placed by

an industrial enterprise in Europe. With an annual coupon of 4.625 % and an issue price of 99.7 %, the

bond drew keen interest from investors. Hybrid bonds are a mix of equity and debt financing. In the

event of insolvency, they are settled only once all of the company’s other debt instruments have been

serviced. In exchange, this paper usually has a higher coupon than conventional bonds. RWE’s hybrid

bond theoretically has an unlimited tenor. However, we have the right to redeem it for the first time

after five years. Further information on the hybrid bond can be found in the notes on page 195.

Total volume of bonds outstanding rises to €18.1 billion. Besides the hybrid bond, we only had

two minor issuances on the capital market in 2010, whereas we redeemed a total of €0.6 billion

in bonds. By 31 December 2010, outstanding paper including the hybrid bond had a value of

€18.1 billion. This is €1.7 billion more than in the previous year. The bonds are denominated in euros,

sterling, US dollars and Japanese yen. We concluded hedges to manage our currency exposure. Taking

such transactions into account, our debt broke down into 72 % in euros and 28 % in sterling. This

means that we do not have any currency exposure from capital market debt in US dollars or in yen.

Our bonds’ initial tenors range from 2 to 30 years. Their weighted average remaining term to maturity

at the end of 2010 was 8.1 years. The hybrid bond is not included in this figure. €1.5 billion in bonds

are due for repayment in 2011.

Maturity profile of the RWE Group’s capital market debt (as of 31 Dec 2010)

Maturity€ billion

year

RWE AG/RWE Finance B.V.

2.5

2.0

1.5

1.0

0.5

0.0

’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23 ’24 ’25 ’26 ’27 ’28 ’29 ’30 ’31 ’32 ’33 ’34 ’35 ’36 ’37 ’38 ’39 ’40 ’41

RWE AG hybrid bond (unlimited tenor, may be redeemed for the first time in 2015)

102 Financial position and net worth RWE Annual Report 2010

RWE Group‘s capital market debt as of 31 Dec 2010by maturity1

2011-2014 2015-2018 2019-2023 from 2024

Nominal volume € billion 5.8 3.9 3.8 2.8

Relative share of total volume of capital market debt % 36 24 23 17

1 Excluding the hybrid bond, which has an unlimited tenor.

Net debt rises to €29.0 billion.Ournetdebtroseby€3.2billionto€29.0billionduringthe2010

financialyear.Capitalexpenditureonproperty,plantandequipmentplayedanespeciallysignificant

role,achievinganewrecordhighof€6.4billion.Thedividendpaymentsof€2.2billionalsomadea

contribution.Inaddition,provisionsfornuclearwastemanagementincreasedby€0.5billion.

Conversely,cashprovidedbyoperatingactivitiesdampenedtheriseinliabilities.Thisalsoappliesto

thehybridbond,whichwasissuedinSeptember,becauseindeterminingnetdebt,weclassifyhalfof

the€1.75billioninhybridcapitalasequity,inlinewiththeprocedurefollowedbytherating

agencies.Incontrast,ourconsolidatedbalancesheetissubjecttoInternationalFinancialReporting

Standards(IFRS),whichstipulatethatthehybridcapitalbefullyclassifiedasequity.

Net debt € million

31 Dec 2010

31 Dec 2009

+/– %

Cash and cash equivalents 2,476 3,074 − 19.5

Marketable securities 3,445 3,443 0.1

Other financial assets 1,985 3,247 − 38.9

Financial assets 7,906 9,764 − 19.0

Bonds, other notes payable, bank debt, commercial paper 17,572 17,707 − 0.8

Other financial liabilities 2,238 2,439 − 8.2

Financial liabilities 19,810 20,146 − 1.7

Net financial debt 11,904 10,382 14.7

Provisions for pensions and similar obligations 3,318 3,281 1.1

Surplus of plan assets over benefit obligations 56 79 − 29.1

Provisions for nuclear waste management 10,010 9,491 5.5

Mining provisions 2,920 2,712 7.7

Hybrid capital (share of relevance to rating) 880 – –

Net assets held for sale 12 – –

Net debt of the RWE Group 28,964 25,787 12.3



Securing current A rating is a high priority.Assessmentsofcreditworthinessmadebyindependent

ratingagencieshaveasubstantialinfluenceonacompany’soptionstoraisecapital.Thebetterthe

rating,theeasieritistogainaccesstointernationalcapitalmarketsandthebettertheconditionsfor

debtfinancing.Therefore,webenefitfromthefactthatthetwoleadingratingagencies,Moody’sand

Standard&Poor’s,havegivenRWEhighcreditratings.Thefollowingtableprovidesanoverviewof

ourcreditratingsattheendofJanuary2011:

Leverage factor remains at 2.8.Wemanageourdebtbasedonrecognisedparameters.Oneofthe

keyfiguresistheratioofnetdebttoEBITDA,whichwerefertoasthe‘leveragefactor.’Thiskey

performanceindicatorisofmoreinformationalvaluethanthedebttotalasitreflectsthecompany’s

earningpowerand,inturn,thecompany’sabilitytoservicethedebt.InFebruary2010,weset

ourselvesthegoaltoorientateourleveragefactortowardsanupperlimitof3.0.Wehitthistarget.

Inthefinancialyearthatjustended,itwas2.8,matchingthe2009factor.

Cost of debt slightly lower.In2010,ourcostofdebtamountedto4.9%.Thisfigurerelatestothe

RWEGroup’saveragebondsandcommercialpaperoutstanding,includinginterestderivatives.Hybrid

capitalisnotconsidered.Ourfinancingcostsweremarginallydownon2009(5.0%).Thebonds

issuedinthefiscalyearmadeacontributiontothis,bearingabelow-averageinterestrateof2.7%

(includinghedges).

Credit rating Moody’s standard & poor’s

Long-term A2 / negative outlook A / negative outlook

Short-term p-1 A-1

Cash flow statement€ million

2010 2009 +/– € million

Cash flows from operating activities 5,500 5,299 201

of which: changes in working capital − 2,349 − 795 − 1,554

Cash flows from investing activities − 6,683 − 8,326 1,643

Cash flows from financing activities 638 4,839 − 4,201

Effects of changes in foreign exchange rates and other changesin value on cash and cash equivalents 6 13 − 7

Total net changes in cash and cash equivalents − 539 1,825 − 2,364

Cash flows from operating activities 5,500 5,299 201

Minus capital expenditure on property, plant and equipment and on intangible assets − 6,379 − 5,913 − 466

Free cash flow − 879 − 614 − 265


Cash flows from operating activities improved by 4 %.Infiscal2010,wegenerated€5,500millionin

cashflowsfromoperatingactivities.Thiswas4%morethaninthepreviousyear(€5,299million).The

maindriverwasthegoodearnings,whereaseffectsinworkingcapitalhadacounterproductive

impact.Cashoutflowsforinvestingactivitiestotalled€6,683million.Thisisthesumbywhichour

cashoutflowsforinvestingactivities(includingchangesincashinvestments)exceededproceedsfrom

thedisposalofassetsandthesaleofcompanies.Cashflowsfromfinancingactivitiesamountedto

€638 million,despitethehighdividendpaymentforthe2009financialyear.Theyprimarilystemfrom

thebondissuances,whichhadatotalvolumeof€2.1billion.Cashandcashequivalentsdeclinedby

€539millionoverthecourseoftheyear.

Cashflowsfromoperatingactivities,minuscapitalexpenditureonproperty,plantandequipmentand

intangibleassets,resultinfreecashflow,whichamountedto−€879million.Thiswaslowerthanthe

year-earlierfigure,whichwasalreadynegative(−€614million).Itreflectsourextensiveinvesting

activity.

Balance sheet structure 31 Dec 2010 31 Dec 2009

€ million % € million %

Assets

Non-current assets 60,465 65.0 56,563 60.5

Intangible assets 17,350 18.6 17,320 18.5

Property, plant and equipment 32,237 34.6 28,627 30.6

Current assets 32,612 35.0 36,875 39.5

Receivables and other assets1 23,258 25.0 27,396 29.3

Total 93,077 100.0 93,438 100.0

Equity and liabilities

Equity 17,417 18.7 13,717 14.7

Non-current liabilities 45,162 48.5 45,633 48.8

Provisions 23,485 25.2 22,315 23.9

Financial liabilities 15,908 17.1 17,019 18.2

Current liabilities 30,498 32.8 34,088 36.5

Other liabilities2 20,881 22.4 25,132 26.9

Total 93,077 100.0 93,438 100.0

1 Including financial accounts receivable, trade accounts receivable, and tax refund claims.2 Including trade accounts payable and income tax liabilities.



Balance sheet structure:equity ratio rises to 18.7 %.Asof31December2010,theRWEGroup’s

balancesheettotalamountedto€93.1billion.Thisis€0.3billionlessthanintheprecedingyear.

Majorchangesoccurredwithrespecttothederivativepositions:theywereeachdown€3.3billionon

boththeequityandliabilitiessideofthebalancesheet.Ourfinancialaccountsreceivablefrom

sureties(marginsandcollateral)declinedby€1.3billion,whereasproperty,plantandequipment

roseby€3.6billionyearonyearduetoourextensiveinvestmentactivity.Changesinforeign

exchangeratescausedthebalancesheettotaltoincreaseby€0.7billion.Intheyearbeingreviewed,

theRWEGroup’sequityratiorosefrom14.7%to18.7%.Driverswerethecompany’sconsiderable

earningpowerandtheissuanceofthehybridbond.Equityandnon-currentliabilitiescoveredallour

non-currentassetsatthebalancesheetdate.


RWE AG’s role in the Group.AsthemanagementholdingcompanyoftheRWEGroup,RWEAG

handlescentralmanagementtasks.Itseconomicsituationislargelydeterminedbythesubsidiaries’

activities.

Financial statements.RWEAGpreparesitsfinancialstatementsincompliancewiththerulesset

outintheGermanCommercialCodeandtheGermanStockCorporationAct.Therulesofthe

GermanAccountingModernisationAct(BilMoG)wereappliedtothefinancialyearendingon

31 December 2010forthefirsttime.Adjustmentstoprior-yearfiguresonlyreflectthechangeinthe

accountingtreatmentofourownshares.ThefinancialstatementsaresubmittedtoBundesanzeiger

VerlagsgesellschaftmbH,Cologne,Germany,theoperatoroftheelectronicFederalGazette

(Bundesanzeiger)andpublishedintheelectronicBundesanzeiger.Theycanbeorderedfromusand

arealsoavailableontheinternet.

notes to the finanCiaL statements of rWe ag (hoLding Company)

1.8

Balance sheet of RWE AG (abridged)1

€ million31 Dec

201031 Dec

2009

Non-current assets

Financial assets 39,849 40,039

Current assets

Accounts receivable from affiliated companies 3,950 3,896

Other accounts receivable and other assets 876 778

Marketable securities and cash and cash equivalents 1,679 1,751

Total assets 46,354 46,464

Equity 8,146 7,493

Provisions 4,851 7,360

Accounts payable to affiliated companies 29,462 29,966

Other liabilities 3,895 1,645

Total equity and liabilities 46,354 46,464

1 Prior-year figures adjusted.

Income statement of RWE AG (abridged) € million

2010 2009

Net income from financial assets 3,184 3,662

Net interest − 681 − 1,091

Other income and expenses 1,413 982

Profit from ordinary activities 3,916 3,553

Extraordinary income and expenses 1 –

Taxes on income − 1,397 − 1,115

Net profit 2,520 2,438

Profit carried forward – 7

Allocation to retained earnings − 653 − 578

Distributable profit 1,867 1,867

notes to the financial statements of RWe AG 107to our investors Review of operations our responsibility


Assets.ThenetworthofRWEAGisdeterminedbythemanagementofinvestmentsandthe

performanceofmanagementfunctionsfortheGroupcompanies.Theholdingcompanyholdsthe

sharesintheGroupcompaniesandperformsfinancingfunctionsforthem.Thepresentationof

theassetschangedduetothenewrulessetoutintheBilMoG.Accordingly,assetsusedtohedge

pensionobligationsaresetoffagainstthelatter.Intheyearunderreview,thisprimarilyaffected

non-currentsecurities.Inconsequence,assetswerereducedby€3.0billion.Furthermore,28.8 million

ofourownsharesstatedascurrentassetswithacarryingamountof€2.0billionmustbedirectlyset

offagainstequity.Thefigurestatedfortheprecedingyearwasadjustedaccordingly.The€1.75 billion

hybridbondweissuedinSeptember2010,whichisclassifiedasdebtinaccordancewithGerman

commerciallaw,waslargelyresponsiblefortheriseinotherliabilities.

Asof31December2010,RWEAG’sequityratiowas17.6%.Itexceededthepreviousyear’sadjusted

figure(16.1%).€0.7billionwastransferredtoretainedearnings.

Financial position.OneofRWEAG’skeytasksistoprocurefundsforitssubsidiaries’ongoingbusiness

activities.ThesubsidiaryRWEFinanceB.V.handlesmostofthecompany’sexternalrefinancingonthe

capitalmarketbyissuingbondsbackedbyRWEAG.Asmentionedearlier,RWEAGissuedahybrid

bondinthefinancialyearthatjustended.IthasanunlimitedtenorandRWEAGcanredeemitforthe

firsttimeafterfiveyears.Asof31December2010,outstandingbondsandcommercialpaperissued

byRWEincludingthehybridbondamountedto€18.1billionand€0.5 billion,respectively.In2010,

RWEtookoutasyndicatedcreditlinewithseveralbanksforatotalof€4.0billion.Ithasatermoffive

yearsandreplacestwotranches,eachofwhichhadavolumeof€2.0billionandwouldhaveexpiredin

October2011.

Earnings position.RWEAG’searningsarelargelydeterminedbythoseachievedbyitssubsidiaries.

Thenetprofitgeneratedin2010wasmarginallyupyearonyear.Incomefromfinancialassets,which

wasprimarilycontributedbyRWEPoweraswellasthenetworkandsalescompaniesinGermanyand

CentralEasternEurope,declinedslightly.Conversely,netinterestimproved.Thisisprimarilybecause,

pursuanttotheBilMoG,incomefromsecuritiesheldtohedgepensionobligationsissetoffagainst

interestexpensesassociatedwithprovisionsforpensions.The‘Otherincomeandexpenses’item

alsoimproved,especiallyasincometaxapportionmentsfromsubsidiarieswerehigherthanin2009.

Accordingly,thetaxexpenserosecomparedto2009.

TheSupervisoryandExecutiveBoardsofRWEAGwillproposetotheAnnualGeneralMeetingon

20 April2011thatadividendof€3.50persharebepaidforfiscal2010.RelativetotheGroup’s

recurrentnetincome,thisresultsinapayoutratioof50%.Itisthusatthelowendofthetarget

rangeof50%to60%.

108 notes to the financial statements of RWe AG RWE Annual Report 2010

Takeover provisions: disclosure in compliance with Secs. 315, Para. 4 and 289, Para. 4

of the German Commercial Code (HGB) and report of the Executive Board in accordance with

Sec. 176, Para. 1, Sentence 1 of the German Stock Corporation Act (AktG).RWEAG’ssubscribed

capitalremainedunchanged,consistingof523,405,000no-par-valuecommonsharesinthenameof

thebearer(93.1%ofthesubscribedcapital)and39,000,000no-par-valuepreferredsharesinthe

nameofthebearerwithoutvotingrights(6.9%ofthesubscribedcapital).Theremainingrightsand

obligationsaredeterminedbytheGermanStockCorporationAct(AktG).Holdersofnon-voting

preferredshareshavearighttoapreferredshareofprofitsof€0.13persharewhenthedistributable

profitisdistributed.Thecompositionofsubscribedcapitaland,aboveall,thelegaldefinitionofthe

non-votingpreferredsharesissuedbyRWEareincompliancewiththeprovisionsofthelawandof

theArticlesofIncorporation.

IncompliancewithSec.21,Para.1oftheGermanSecuritiesTradingAct(WpHG),on21December

2007,RWEnergie-BeteiligungsgesellschaftmbH&Co.KG,Dortmund,informedusthatitheld

16.089%ofRWEAG’svotingstockatthetime.

ExecutiveBoardmembersareappointedanddismissedinaccordancewithSecs.84etseq.ofthe

GermanStockCorporationAct(AktG)inconnectionwithSec.31oftheGermanCo-DeterminationAct

(MitbestG).AmendmentstotheArticlesofIncorporationaremadepursuanttoSecs.179etseqq.in

connectionwithSec.16,Para.6oftheArticlesofIncorporationofRWEAG.AccordingtoSec.16,

Para.6oftheArticlesofIncorporation,unlessotherwiseprovidedforbylaworintheArticlesof

Incorporation,theAnnualGeneralMeetingshalladoptallresolutionswithasimplemajorityofthe

votescast;insofarasamajorityofthecapitalstockrepresentedisrequired,thesimplemajority

shallsuffice.Wethusmadeuseofthelegalpossibilityofdeterminingadifferentcapitalmajorityfor

amendmentstotheArticlesofIncorporationthanprescribedbylaw.AmendmentstotheArticlesof

Incorporationthatonlyconcernthewording,withoutchangingcontent,maybedecideduponbythe

SupervisoryBoard(Sec.10,Para.9oftheArticlesofIncorporation).

PursuanttotheresolutionpassedbytheAnnualGeneralMeetingon22April2010,thecompanywas

authorisedtopurchasesharesofanyclassinRWEuntil21October2011,totallingupto10%ofthe

sharecapital.Thepurchasemaybelimitedtosharesofasingleclass.ItisattheExecutiveBoard’s

discretiontopurchasethesharesonthestockmarketorbymakingapubliccallforshares.Thiscan

bedonethroughtheuseofputorcalloptions.Theownsharesmaythenbecalledin.Ifcommon

sharesareboughtback,theycanalsobetransferredtothirdpartieswithinthescopeofmergersor

acquisitions,orsoldinanothermanner.Asalenotconductedonthestockexchangeorviaatender

toallshareholdersmayonlybemadeinexchangeforcash.Moreover,thepriceatthetimeofsale

maynotbesignificantlylowerthanthestock-marketpriceforcommonsharesbearingthesame

rights.Commonsharesboughtbackmaybeusedtoredeemconvertibleandoptionbondsissuedon

thebasisoftheresolutionspassedbytheAnnualGeneralMeetingheldon22April2009.The

authorisationmaybeexercisedinfullorinpartandalsoforpartialamounts.



PursuanttotheresolutionpassedbytheAnnualGeneralMeetingon22April2009,theExecutive

Boardwasauthorisedtoissueoptionorconvertiblebondsuntil21April2014.Thebonds’combined

nominalvalueislimitedat€6billion.Theshareholders’subscriptionrightscanbewaivedifthe

bondsareissuedatapriceinlinewiththemarketandthenewsharesdonotaccountformorethan

10%ofthesharecapital.TheExecutiveBoardmayalsowaivetheshareholders’subscriptionrightsin

ordertoavoidallocationoffractionsofsharesthatwouldresultfromthesubscription.Thiscanalso

bedoneinordertoofferthesharestoholdersofearlierconvertibleandoptionbondsinanumberto

whichtheywouldbeentitledonconversionorexerciseoftheoptionasshareholders.Pursuantto

Sec.4,Para.3aand3boftheArticlesofIncorporation,€143,975,680inconditionalcapital,divided

among56,240,500commonsharesinthenameofthebearer,maybeusedtoexerciseconvertible

andoptionrights.

PursuanttoSec.4,Para.2oftheArticlesofIncorporation,theExecutiveBoardisauthorisedtoin-

creasethecompany’scapitalstockwiththeSupervisoryBoard’sapprovalbyupto€287,951,360

until16April2013eitheratonceorinseveralincrementsthroughtheissuanceofno-par-value

commonsharesinthenameofthebearerinexchangeforcontributionsincashorinkind(authorised

capital).Theshareholders’subscriptionrightscanbewaivedwiththeSupervisoryBoard’sapproval,

inordertoavoidallocationoffractionsofshares.Thesubscriptionrightscanalsobewaivedinorder

toissuesharesinexchangeforcontributionsinkindwithinthescopeofmergersorforthepurpose

ofacquiringstakesincompanies.Subscriptionrightscanalsobewaivedintheeventofacashcapital

increaseifthepriceatwhichthenewsharesareissuedisnotsignificantlylowerthanthepriceat

whichsharesoutstandingaretradedonthestockmarket,andiftheportionofthecapitalstock

accountedforbythenewshares,forwhichsubscriptionrightsarewaived,doesnotexceed10%in

total.TheExecutiveBoardshallbeempowered,subjecttotheconsentoftheSupervisoryBoard,to

determinethefurtherdetailsandconditionsoftheshareissuance.Sharesfromauthorisedcapital

areaddedtosharesfromconditionalcapitalincaseswheretheyarebothissuedwaivingthe

shareholders’subscriptionrights.Insuchcases,thecapitalstockmaynotbeincreasedbymorethan

20%throughtheissuanceofnewshares.

RWEAG’ssyndicatedcreditlinehasachangeofcontrolclauseincludingthefollowingmain

provisions:intheeventofachangeofcontrolormajorityatRWE,furtherdrawingsaresuspended

untilfurthernoticeandthelendersshallenterintonegotiationswithusonacontinuationofthe

creditline.Shouldanagreementwiththemajorityofthelendersnotbereachedwithin30daysfrom

suchachangeofcontrol,thelendersshallcancelthelineofcredit.RWE’snon-subordinatedbonds

haveachangeofcontrolclausewiththefollowingessentialprovisions:intheeventofachangeof

controlinconjunctionwithadropinRWEAG’screditratingbelowinvestment-gradestatus,creditors

havetherighttodemandthattheirbondsberedeemed.Theredemptionamountiscalculatedonthe

basisofthecorrespondingbondconditions.Thehybridbondhasachangeofcontrolclause

110 notes to the financial statements of RWe AG RWE Annual Report 2010

accordingtowhichwemayfullycancelandredeemthehybridbondwithinadefinedchangeof

controlperiodintheeventofachangeofcontrol.Ifitisnotredeemedandthecreditratingdrops

belowinvestment-gradestatusduringthechangeofcontrolperiod,therateofremunerationforthe

hybridbondincreasesby500basispointsp.a.

ExecutiveBoardmembershaveaspecialrightofterminationintheeventofachangeofcontrol.On

executionofthisspecialrightoftermination,ExecutiveBoardmembersreceiveaone-offpaymentin

theamountofthecompensationdueuntiltheendofthedurationofthecontractoriginallyagreed,

whichshallcorrespondtoatleasttwicetheirtotalcontractualannualcompensationandshallnot

correspondtomorethanthreetimestheirtotalcontractualannualcompensation.Thisisinlinewith

therequirementsoftheGermanCorporateGovernanceCode.Dr.JürgenGroßmannwasgrantedthis

specialrightofterminationbeforetheamendmenttotheGermanCorporateGovernanceCode,which

tookeffectin2008.Hisemploymentcontractenvisagesaone-offpaymentthatcoversallofthe

remunerationdueuntiltheendofthecontractualtermaswellasthesumcontractuallyagreed

insteadofapensioncommitment.

Furthermore,intheeventofachangeofcontrol,retainedExecutiveBoardbonusesareprematurely

valuedandpossiblypaid.Thisisdoneonthebasisoftheaveragebonus-malusfactorofthelast

threeyears.Whetherretainedbonusesarepaidoutandtheamountofthepayoutdependonthis

factor.

The2005long-termincentiveplan(Beat)andthe2010RWEperformanceshareplan(Beat2010)for

theExecutiveBoardandexecutivesofRWEAGandofaffiliatedcompaniesincludeaprovisionfora

changeofcontrol.Insuchevents,allholdersofperformancesharesreceiveacompensatory

payment.Theamountofthecompensatorypaymentisdeterminedbymultiplyingthepricepaidfor

RWEsharesaspartofthetakeoverbythefinalnumberofperformancesharesasofthedateofthe

takeoveroffer,inlinewiththecorrespondingplanconditions.

Theauthorisationtoconductsharebuybacks,theauthorisedcapital,theprovisiongoverning

changesofcontroloverthesyndicatedcreditlineandtheRWEbondsaswellastheprovisions

effectiveintheeventofachangeofcontrolintheExecutiveBoardmembers’contractsaswellasin

the2005long-termincentiveplan(Beat)andthe2010RWEperformanceshareplan(Beat2010)are

inlinewithgenerallyacceptedGermancapitalmarketstandards.



Efficient, climate-friendly and intelligent – this is our vision for the energy supply of the future.

Our extensive research and development work contributes to turning this vision into reality.

However, progress in climate protection must not result in setbacks in terms of efficiency or

security of supply. Therefore, we focus on solutions that are comprehensively sustainable,

from the use of carbon dioxide as a raw material and new electricity storage technologies to

electric cars.

Research and development costs up 35 %.Ourresearchanddevelopment(R&D)isdesignedto

createsolutionsforanenvironmentallyfriendly,reliableandaffordablesupplyofenergy,thereby

safeguardingourcompetitivenessoverthelongterm.Thisisanareainwhichwegreatlyrelyon

ourco-operationwithpartnersinplantengineeringandthechemicalindustryaswellasresearch

institutes.Asaresult,ourrangeofactionislargerthanthefollowingfiguresmightotherwise

indicate.Lastfinancialyear,wespent€149milliononR&D,€39millionmorethanin2009.Partof

thereasonforthisisthatweincludedEssent,andthusitsR&Dexpenditure,onatwelve-monthbasis

forthefirsttimeintheyearunderreview.Threehundredandsixtyofouremployeesweresolelyor

partiallydedicatedtoR&Dwork.

Carbon dioxide: from pollutant to commodity.Howcanwereconcilegeneratingelectricityfrom

fossilfuel–especiallycoal–withthegoalofprotectingtheclimate?Ananswertothisquestionis

providedbytechnologieswhichpreventcarbondioxidefrompowerplantsenteringintothe

atmosphere.WhatneedstobedonefirstistoisolatetheCO2.Severalmethodscanbeemployedto

doso.Themostadvancedtechnologybyfaristheseparationofthecarbondioxidefromthefluegas

thatisproducedwhencoalorgasiscombusted.Thistechniqueisknownas‘CO2washing.’Webuilta

pilotplantatourNiederaußemsitetotestit.Since2009,wehavebeentestingnew‘CO2detergents’

forlarge-scaletechnicalusethere,togetherwithBASFandLinde.Theresultsarepromising:

comparedtothesubstancescommonlyusedtoday,thenewsolventsconsumeupto20%lessenergy

whenisolatingthecarbondioxide.Inaddition,wehaveproventhattheywithstandseveralwash

cycles.Weintendtotestadditionaldetergentsinasecondpilotplant,whichislocatedatour

AberthawpowerstationintheUK.Preparationsforconstructionareunderway.Ourgoalistobeina

positiontouseCO2washingcommerciallynolaterthan2020.

innovation1.9

Research and development 2010 2009 2008 2007 2006

R&D costs € million 149 110 105 74 73

R&D employees 360 350 330 270 273

112 Innovation RWE Annual Report 2010

However,capturingthecarbondioxideisonlythefirststep.Inaddition,thegashastobekeptfrom

theatmospherepermanently,forexamplebystoringitinrockformationsdeepunderthesurfaceof

theearth.WearelookingintowaysofseparatingandstoringcarbondioxideinEemshaven

(Netherlands)wherewearebuildingatwin-unithardcoal-firedpowerplantwithanaggregate

installedcapacityof1,560MW.WecouldsupplementitwithaCO2separationdemonstrationunitif

wereceivedsupportfromanEUsubsidyprogramme.InGermany,however,thereisstillnolegal

frameworkfortheundergroundstorageofCO2.Furthermore,ithasbecomeclearthatitmeetswith

resistancefromlocalresidents.Againstthisbackdrop,wearetakinganotherstepforward.We

areinvestigatinghowtoturnaharmfulgreenhousegasintoavaluablecommodityintimesof

increasinglyscarceresources,althoughtheemissionreductionpotentialofthismethodismuchlower

thanthroughstorage.OurideascentreonhowCO2canbeusedasacarbonbuildingblockinthe

fieldsofbiotechnology,chemistryandbiology.Welaunchedthreeco-operationprojectsin2010

toaddressthisissue.ThefirstundertakingwasinitiatedbyRWEPowerinJanuarytogetherwith

theHessiancompanyBRAIN.Thetaskathandistousemicro-organismstoconvertcarbondioxide

intobiomass,bio-plasticsandchemicalintermediates.BRAINisaleaderinthefieldof‘white

biotechnology,’thetermusedtodescribetheuseofbiotechnologicalmethodsinindustrial

production.AsecondprojectwasstartedbyRWEPowerinJune2010inconjunctionwithBayerand

theInstituteforTechnicalandMacromolecularChemistryatRWTHAachenUniversity.Inthis

undertaking,wearelookingintowaystomanufactureplasticsfromCO2.Germany’sfederaleducation

andresearchministry(BMBF)issubsidisingthisproject.Ourprojectlistisroundedoffbythethird

researchactivityweinitiatedcalled‘CO2RRECT.’TheideabehindthisisthatexpertsfromRWE,Bayer,

Siemensandseveraluniversitiesandresearchcentresuseelectricityfromrenewablesourcesinorder

toproducehydrogenthroughelectrolysis.Inasecondstep,thehydrogenisbroughtintocontact

withCO2.Theresultischemicalintermediatessuchascarbonmonoxideandformicacid.Inthis

manner,carbondioxidecanbeusedasastartingmaterialforproductsindailyusesuchasCDs.

ThisprojectisalsobeingsubsidisedbytheBMBF.

More efficient lignite-based electricity generation.AseriousdisadvantageincapturingCO2is

thatitleadstoefficiencydropsinelectricitygeneration.Itisthereforeallthemoreimportantthat

weconstantlyworkonraisingtheefficiencyofourpowerstations.Amilestonepassedonthe

waytoachievingthisisthedemonstrationunitfordryinglignitepriortocombustion,whichwe

commissionedatourNiederaußemsitein2009.Themethodemployed–fluidisedbeddryingwith

integratedwasteheatuse–increasestheefficiencyoflignite-basedelectricitygenerationbyupto

10%.RWEdevelopedthistechnologyandhaditpatented.Sincesellingalicensefortheuseofthis

methodinanAustralianproject,Linde-KCA-DresdenGmbHandUhdeServicesGmbHhavealso

obtainedourpermissiontoemploythetechnologyfrom2010onwards.Weintendtomarketit

worldwide,whichwillcontributetoensuringthatthelignite-firedpowerplantsofothercompanies

alsohavehigherefficienciesandloweremissions.

Innovation 113to our investors Review of operations our responsibility


Energy from the force of the ocean.OurR&Dactivityinthefieldofelectricityproductionalso

addressesenergyfromrenewables.Wearetakingvariousapproachesinthisarea,suchasharnessing

theenergyofthesea.InJune2010,RWEInnogyandVoithHydrodecidedtobuildanoceancurrent

powergenerationplantinthewatersoftheOrkneyIslands(Scotland).Thejointventure,namedVoith

HydroOceanCurrentTechnologies,willinstallamarinetidalcurrentturbinethere,withaninstalled

capacityof1MW.Weplantoputitthroughatwo-yeartestsowecangainimportantexpertise

concerningtheoperationofthistypeofplant.Inaddition,wewanttopavethewayfornewmethods

ofusingenergyfromrenewablesbyprovidingthirdpartieswithfinancialassistanceforputtingtheir

ideasintopractice.ViathesubsidiaryweestablishedinOctober2010,InnogyVentureCapitalGmbH,

weacquirestakesinyoungcompaniesworkingonimplementingpromisingtechnologies.

RWE plans highly efficient compressed air storage facility. Duetotherapidriseinthenumberof

windturbinesandsolarpanels,electricityonthesystemisincreasinglyinfluencedbyweather

conditions.However,thesupplyofelectricitymustalwaysmeetdemandinorderforthegridvoltage

toremainstable.Strikingthisbalanceisbecominganever-moreambitioustask,whichcannotbe

accomplishedwithoutnewelectricitystoragetechniques.Againstthisbackdrop,RWEPowerjoined

forceswiththeGermanAerospaceCentreaswellasGeneralElectricGroupandZüblintodevelopkey

componentsforaninnovativepressurised-airstoragefacility.Ifweaccomplishthissuccessfully,the

nextstepwouldbetobuildademonstrationfacilityinStaßfurt(Saxony-Anhalt).Whenelectricity

supplyishigh,airiscompressedandforcedintosubterraneancavities,whereitisstored.This

compressedaircanbeusedtogenerateelectricitywhenneeded.Weplantobuildademonstration

plantcapableofstoring1,000MWhandanelectriccapacityofupto200MW.Itshouldhavean

efficiencyof70%.Weintendtoaccomplishthisbycapturingtheheatgeneratedduringthe

compressionprocessandreturningittothefacility’senergycycle.Itwouldbethefirsttimethis

methodisusedonalargescaleanywhereintheworld.

RWE conducts research on the intelligent networking of decentralised electricity sources.Inthe

energyworldofthepast,electricitywasfedintothegridalmostexclusivelybylarge-scalepower

plants,whereastheroleassumedbyhomeswaslimitedtothatofconsumer.Inthemeantime,this

picturehaschanged.Moreandmorehouseholdsareequippedwithsolarpanelsandproduce

electricitythemselves,feedingtheirsurplusenergyintothesystem.Thistranslatesintoadditional

co-ordinationworkforoperatorsofmediumandlow-voltagenetworks.Therefore,intheenergy

worldofthefuture,smartgridswillplayakeyrole.Networksofthistypefeaturenewcontrol

technologyenablingamoreefficientuseoftheircapacity.Inthelastfinancialyear,wegavethe

go-aheadfortheconstructionofsuchanintelligentelectricitynetworkinBitburg/PrüminEifel

County.TheprojectisbeingsupportedbytheGermaneconomicsandtechnologyministry.Itis

beingcarriedoutbyaconsortiumledbyRWEDeutschlandAG,whichincludesABBandConsentec

aswellasDortmundTechnicalUniversity,allofwhicharelocatedinGermany.

114 Innovation RWE Annual Report 2010

AnothersteptowardsthefutureconsistsofformingITlinksbetweensmalldecentralisedpower

producersandusers.WithinthescopeoftheEU-subsidisedPowerMatchingCityHoogkerk

demonstrationprojectintheNetherlands,wearetestingthetechnicalprerequisitesandcommercial

impactofsuchnetworks.Forexample,customerscanconsultpricedatatodeterminewhentoswitch

ontheirwashingmachinesorheatpumps.Thisbringsdemandforelectricitymoreinlinewithsupply,

reducingbothcostsandsystemload.Inaddition,wearetestinganovelcontrolprogramme,which

convenientlytakesautomaticenergyusagedecisionsforcustomers.

Charging instead of filling: the mobility of the future.Inadditiontosmartgrids,anotherintegral

componentoftomorrow’senergyworldiselectriccars.TheyareoccasionallyseenonGermany’s

roads,sometimesbearingtheRWElogo.TheGermangovernmenthassetitselfthegoalofhavinga

millionelectriccarsonthecountry’sroadsby2020.Wearesupportingthisundertakingbysettingup

andconstantlyrefininganetworkofchargingstationswithauser-friendlybillingsystem.To

supplementtheseefforts,westartedinvestigatingwithourpartnersRenault,RWTHAachen

UniversityandAachenerForschungsgesellschaftKraftfahrwesenmbHhowsuitableelectriccarsare

forcommuters.Weareexamininghowspecificdrivingstylesonshortroutesaffecttheperformance

ofanelectricmotor.Besidetechnicalaspects,wewanttouseourstudytoanalysecustomer

acceptanceanddevelopideasfornewproducts.Hereagain,wearereceivingassistancefromthe

realmofpolitics,astheprojectisbeingsubsidisedbytheGermantransport,buildingandurban

developmentministry.

Innovation 115to our investors Review of operations our responsibility


Traditionally, the energy sector is considered a crisis-proof industry. Nevertheless, last year, it

also experienced a rise in risks. Uncertain political framework conditions, changing market

structures and fluctuating electricity and fuel prices bring entrepreneurial challenges, making

professional risk management more important than ever. To us, the systematic recording,

assessment and control of risks is a key element of solid business management. It is equally

important to identify – and take advantage of – opportunities.

Organisation of risk management in the RWE Group.Overallresponsibilityforthegroupwiderisk

managementsystemsitswiththeExecutiveBoardofRWEAG.Itestablishestherulesandminimum

standards,definesthecapsfortheaggregatedmarketandcreditrisksandtakesdecisionson

transactionsthatcanresultinsubstantialrisks.

WithinthescopeofrestructuringtheRWEGroup,wealsorefinedtheorganisationofourrisk

management.TheControlling/OrganisationalEfficiencyDepartmentwithintheCFO’smandatehas

takenoverallresponsibilityforthecontrol,steeringandco-ordinationoftheriskmanagementsystem

sincethebeginningofthe2011financialyear.Thisorganisationalunitregularlyreportsonthe

Group’srisksituationtotheExecutiveBoardandtheRiskManagementCommittee.

TheRiskManagementCommitteeisinchargeofmonitoringandrefiningtheriskmanagement

system.ItiscomposedoftheheadsofthefollowingRWEAGcorporatedepartments:Commodity

Management,Compliance,Controlling/OrganisationalEfficiency,Finance,Accounting,Legal/Board

Affairs,AuditandStrategy.TheCommitteeischairedbytheheadoftheCorporateControlling/

OrganisationalEfficiencyDepartment.

Inaddition,thefollowingorganisationalunitshavebeenentrustedwithcorporateriskmanagement

tasks:

CommodityManagement,thecorporatedepartmentcreatedinJanuary2011,controlscommodity

positions.ThisdepartmentreportstotheExecutiveBoardmemberinchargeofcommercial

management.WithinaframeworkdeterminedbytheExecutiveBoard,itgrantsapprovalsfor

hedgingstrategiesandlargecommoditytransactions.Inaddition,itderiveslimitsforthecommodity

risksoftheoperatingcompaniesfromtheriskcapsestablishedbytheExecutiveBoard.

TheCFOofRWEAGisinchargeoftrackingandmonitoringcommodityrisks.Infulfillingthistask,he

isassistedbytheCFOsandmanagingdirectorsinchargeoffinanceofourmajorGroupcompanies.

TheRiskControllingUnit,whichbelongstotheControlling/OrganisationalEfficiencyDepartment,

establishesperformancetargetsforriskmeasurement,monitorscommodityrisksandreportsonthis

totheExecutiveBoard.Thisishowweensurethattheserisks,whichareveryimportanttous,are

closelymonitoredandthatguidelinesareimplementeduniformlythroughouttheGroup.

deveLopment of risks and opportunities1.10

116 Development of risks and opportunities RWE Annual Report 2010

ThecontrollingoftheRWEGroup’screditrisksishandledbytheCreditRiskControllingUnit,which

alsobelongstotheControlling/OrganisationalEfficiencyDepartment.

TheoperatingmanagementoffinancialrisksattheRWEAGlevelistheresponsibilityoftheFinancial

ControllingOrganisationalUnit,whichbelongstotheFinanceDepartment.Itstasksinclude

reportingoncurrency,interestandliquidityrisks.

Thestrategicguidelinesforthemanagementofourfinancialassets(includingthefundsofRWE

Pensionstreuhande.V.andRWEPensionsfondsAG)aredeterminedbytheAssetManagement

Committee.Itevaluatestheearningsprospectsandrisksagainsteachother,selectssuitableasset

classes(bonds,stocks,etc.)anddecidesontheallocationofthecompany’sfundstothem.The

membersoftheAssetManagementCommitteearetheCFOofRWEAG,theHeadofCorporate

FinanceandtheCFOsofRWEPower,RWEDea,RWEnpower,Lechwerke,enviaMandSüwag.

RisksinfinancialreportingaremonitoredbyRWEAG’sCorporateAccountingDepartment.This

departmentalsoreportsdirectlytotheCFO.Itusesaninternalcontrolsystem,whichisdescribedin

detailonpages125etseq.Inaddition,theCorporateComplianceDepartmentfocusesonensuring

compliancewithRWE’scodeofconductandtheavoidanceofcorruptionrisks.Itreportstothe

PresidentandCEOofRWEAGor,ifmembersoftheExecutiveBoardareaffected,directlytothe

ChairmanoftheSupervisoryBoardandtheChairmanoftheAuditCommittee.

Undertheexpertmanagementoftheaforementionedareas,ourGroupcompaniesseetoitthatthe

riskmanagementguidelinesareimplementedthroughouttheGroup.

Risk management as a continuous process.Riskmanagementhasbeenintegratedintoour

operatingworkflowasacontinuousprocess.IntheRWEGroup,risksandopportunities,definedas

negativeorpositivedeviationsfromtargetfigures,areidentifiedandclassifiedearlyon.Weevaluate

risksaccordingtotheirprobabilityofoccurrenceanddamagepotentialandaggregatethematthe

GroupcompanyorGrouplevel.Riskmonitoringcoversthethree-yearhorizonofourmedium-term

planning.However,itmayextendbeyondthatformaterialstrategicrisks.Risksthatsharethesame

causeareaggregatedtooneposition.Ifariskcanbereduced,theresidualriskisreportedtogether

withthecountermeasuresalreadytaken.Thedamagepotentialisdefinedinrelationtotheoperating

resultandequityofthebusinessunitconcernedandtheGroupasawhole.Usingariskmatrix,the

correspondingrisksthusbecomevisibleintermsoftheirprobabilityofoccurrenceandpotential

damage.Wecanderivefromthis,amongotherthings,theneedforactionwithrespecttoindividual

risks.Riskswithahighprobabilityofoccurrenceordamagepotentialaremitigatedbytaking

operationalmeasures.Wherenecessary,weaccountforthembytakingprecautionarystepsonthe

balancesheet,e.g.provisions.Weevaluateandmanageopportunitiesaspartofourregularplanning

process.

Development of risks and opportunities 117to our investors Review of operations our responsibility


Wepreparestandardisedreportsonourrisksandopportunitiesforourmanagementandsupervisory

committeesonaquarterlybasis.TheExecutiveBoardofRWEAGisimmediatelyinformedof

unforeseenmaterialchangestotherisksituation.OurGroupAuditDepartmentregularlyappraises

thequalityandfunctionalityofourriskmanagementsystem.Nevertheless,wecannotguarantee

withabsolutecertaintythatallrelevantrisksareidentifiedandthatthecontrolswork.Forexample,

humanerrorcanneverberuledoutcompletely.

Overall assessment of the risk and opportunity situation by executive management.Asanenergy

company,RWEisespeciallydependentonreliablepoliticalframeworkconditionsintheenergy

sector.However,thesehaverecentlybecomemoreuncertain,asevidencedbytheintroductionof

theGermannuclearfueltax.Statebudgetarydeficitsareincreasingthepressureongovernmentsin

numerousEuropeancountriestoimposenewburdensoncompaniessuchasenergyutilities,which

areboundtocertainlocations.Substantialrisksalsoexistinconnectionwiththeextensionofnuclear

powerplantlifetimesvotedforbytheGermanLowerHouse.Importantdetailswhichsignificantly

affecttheprofitabilityandcontinuingoperationofourplantsremaintobeclarified.Itisalso

uncertainwhetherthelifetimeextensionislegallyvalid.Inadditiontoenergypolicy,the

developmentofsupplyanddemandonelectricityandgasmarketsaffectsourearningpowerin

particular.Cyclicalinfluencesaswellaschangesinmarketstructurecometobearinthisrespect.For

instance,thecontinuedriseinthenumberofwindturbinesandsolarpanelsiscrowdingout

conventionalgeneration.Changesinfuelpricescanhaveasubstantialimpactonearningsif

electricityquotationsdonotmoveaccordingly.Welimitsuddenmarketpricerisksbysellingforward

electricityuptothreeyearsbeforeitisdeliveredandgenerallyhedgingthepriceofthefueland

emissioncertificatesneededtogenerateitonconclusionoftheseforwardtransactions.Wealso

hedgeviaforwardtransactionsinthegasbusiness.Risksexistinthiscontext,becausewepurchase

someofourgasonthebasisoflong-termcontractslinkedtothepriceofoilandthemarketpriceof

gashasbeendecoupledfromthatofoilsincethemiddleof2009.Insomecases,thepriceofthegas

webuyishigherthanthepricewecanrealisewhenweselliton.Toobtainbetterpurchasing

conditions,weenteredintocontractrenegotiationswithourgassuppliers.Theiroutcomeis

uncertain.Despitethisandotherimponderables,therearenoidentifiablerisksthatjeopardisethe

continuedoperationofRWEAGortheRWEGroup.

Major risk and opportunity categories.Thefollowingillustratestherisksandopportunitieswhich

mayhaveasubstantialimpactonourasset,financialandearningspositions.Theycanbedivided

amongthefollowingcategories:

• Risks and opportunities arising from the volatility of commodity prices:Thedevelopmentof

pricesoncommoditymarketsgreatlyinfluencesourearnings,especiallyinthefieldofelectricity

generation.Forexample,decreasingelectricitypricesorrisingfuelcostsmayleadtoadeclinein


generationmargincontributionsandreducethevalueofourpowerplants.RWEDea’supstream

businessisalsoexposedtopricerisks.Moreover,unfavourablemarketdevelopmentscancause

ourelectricityandgaspurchasepricestoexceedthepriceswecanrealisethroughsalestoend-

customersanddistributors.Thisprimarilyrelatestothoseofourgasprocurementcontractswhich

arelinkedtothepriceofoil.However,theaforementionedrisksarecontrastedbythepossibility

thatthepricesmaydevelopinRWE’sfavour.Weassessthepriceriskstowhichweareexposedon

theprocurementandsalesmarketstakingaccountofcurrentforwardpricesandexpectedprice

volatility.Commodityandcreditrisksfacedbygenerationandsalescompaniesaremanagedby

followinghedgingrulesestablishedbyRWEAG.Asalreadymentioned,inthegenerationbusiness,

welimitrisksbysellingmostofourelectricityearlyon,viaforwardcontracts,andhedgingtheprice

oftherequiredfuelandemissioncertificates.Wealsomakeuseofforwardmarketstolimitrisksin

RWE Dea’supstreambusinessandinRWESupply&Trading’smidstreambusiness.

RWESupply&Tradingplaysacentralrolewhenitcomestomanagingcommoditypricerisks.The

companyistheRWEGroup’sinterfacetotheworld’swholesalemarketsforenergyandenergy

commodities.ItmarketslargeportionsoftheGroup’sgenerationpositionandpurchasesthefossil

fuelsandCO2emissioncertificatesneededtoproduceelectricity.RWESupply&Tradingthuspools

theriskandvalueaddedfromcommoditytransactionsfortheGroupandcombinestheexpertise

forthesetransactionscentrally.Itsroleasinternaltransactionpartnermakesiteasierforustolimit

theearningsrisksforthegenerationandsalesbusinessesstemmingfrompriceswingsonenergy

markets.RWESupply&Tradingalsousescommodityderivativestominimiseriskintheprocurement

andsalesbusinesses.Thetradingactivitiesarenotexclusivelyorientatedtowardsreducingrisks.

RWE Supply&Tradingundertakesproprietarytradingtoastrictlylimitedextentinordertotake

advantageofchangesinpricesonenergymarkets.

TheRWEGroup’sriskmanagementsystemforenergytradingisfirmlyalignedwithbest

practiceasappliedtothetradingtransactionsofbanks.Transactionsareconcludedwiththird

partiesonlyifcreditrisksarewithinapprovedlimits.Groupwideguidelinesprovidestructures

andprocessesforthetreatmentofcommodityrisksandassociatedcreditrisks.Thecommodity

positionsinoursubsidiariesareconstantlymonitored,andfindingsarereportedtotheresponsible

committees.Furthermore,theExecutiveBoardofRWEAGreceivesdetailedupdatesonour

consolidatedcommodityriskpositionsonaquarterlybasis.TheGroupcompaniesinformthe

CorporateRiskControllingDepartmentabouttheirpositions,whichconsolidatesthem.This

procedureisnotfollowedformarketrisksarisinginconnectionwiththepuretradesconducted

byRWE Supply&Trading.Suchrisksaremonitoreddailyandstatedseparately.



Theupperrisklimitsintheenergytradingbusinessaresetandconstantlymonitoredbythe

ExecutiveBoardofRWEAG.Amongotherthings,wecalculatetheValueatRisk(VaR)toquantify

pricerisks.Inprinciple,theVaRfigureswithintheRWEGrouparebasedonaconfidenceintervalof

95%andaholdingperiodofoneday.Thismeansthat,withaprobabilityof95%,themaximum

dailylossdoesnotexceedtheVaR.Ourcentralriskcontrollingparameterfortheenergytrading

activitiesofRWESupply&TradingistheGlobalVaR,whichmaynotexceed€40million.Infiscal

2010,itaveraged€11million,andthemaximumwas€17million.However,ourriskanalysisisnot

onlybasedontheamountofVaR.Wealsofactorextremescenariosintostresstests,determinethe

influencetheycanhaveonliquidityandearnings,andtakecountermeasureswhenevertherisksare

toohigh.

• Risks and opportunities resulting from gas procurement contract price renegotiations:Someof

ourgaspurchasesarebasedonlong-termagreementslinkedtothepriceofoil.However,gas

priceshavebeendecoupledfromthepriceofoiloninternationalmarketssincethemiddleof

2009.Asaresult,thegaswebuyismoreexpensivethanattheTTF(Netherlands)andNBP(United

Kingdom)tradinghubs,exposingustopotentialdeclinesinmarginsandcustomerlosses.This

primarilyaffectsourGermanandCzechactivities.Toobtainbetterpurchaseconditions,weentered

intocontractrenegotiationswithourgassuppliers,someofwhichhavealreadyturnedinto

arbitrationproceedings.Theiroutcomeswillhaveasubstantialinfluenceonourmedium-term

earnings.Ourexpectationsarebasedondetailedlegalassessmentswhichwecarriedoutinthe

run-uptotherenegotiations.Thereisariskthattheoutcomesofthepricerenegotiationsmaylag

behindourexpectations.Buttheymayalsoofferustheopportunitytoenforceconditionsthatare

morefavourablethanassumedinitially.

• Legal risks:TheRWEGroup’sexposuretotheconstantchangeinthepolitical,legalandsocial

environmentinwhichitdoesbusinesscanbeexpectedtohaveasubstantialimpactonearnings.

Ligniteandhardcoalpowerplantsaccountforasignificantportionofourelectricitygeneration

portfolio.ThecostsweincurtopurchaseCO2certificatesare,asaresult,farabovethesector

average.InDecember2008,theEUmemberstatesagreedthattheWesternEuropeanelectricity

sectorwillbeallocatedhardlyanyfreecertificatesfrom2013onwards.ThiswillcauseourCO2

coststobemuchhigherthaninthecurrenttradingperiod,whichwilllastuntil2012.Weintendto

significantlyreduceourspecificcarbondioxideemissionsandmakeourpowergenerationportfolio

moreefficientthroughourinvestmentprogramme.Furthermore,welimitourCO2riskby

participatinginclimate-protectionprojectsindevelopingandnewlyindustrialisingcountrieswithin

thescopeoftheKyotoCleanDevelopmentMechanismandJointImplementationprogramme.

Anothermeasureinvolvesthevirtualswappingofpowerplantcapacitywithvariouscontracting

parties.Inaddition,weconcludelong-termelectricitysupplyagreements,inwhichtheCO2price

riskisbornebythecustomer,andpurchaseCO2certificatesforfutureperiodsearlyon.


Asautility,weplanourcapitalexpenditureforperiodsextendingoverdecades,makingus

especiallydependentonreliablepoliticalframeworkconditionsintheenergysector.However,

therearesubstantialuncertainties.Inparticular,thisaffectstheuseofnuclearenergyinGermany.

Asexplainedearlier,thenewGermannuclearfueltaxhasconsiderablenegativeeffectsonour

earnings,financialandcapitalexpenditureplanning.However,webelievethatthelegal

admissibilityofsuchalevyisfundamentallyquestionable.Substantialuncertaintysurroundsthe

GermanLowerHouse’sdecisiontoextendthelifetimesofnuclearpowerstations.Forinstance,the

additionalsafetyrequirementsfortheplants’operationandtheinvestmentsrequiredasaresult

haveyettobedetermined.Inaddition,thereisariskthatthelifetimeextensionmaybeannulledif

itisfoundthatitrequiredapprovalfromtheGermanUpperHouse,orbecauselatergovernments

repealit.Someoppositionpartiesandfederalstateshavealreadyannouncedthattheywillfile

suitsagainstthelifetimeextensionattheGermanConstitutionalCourt.

Weareexposedtorisksassociatedwithapprovalswhenbuildingandoperatingproduction

facilities.Thisparticularlyaffectsouropencastminesandpowerplants.Iftheiroperationis

interruptedorcurtailed,thiscanresultinsignificantproductionandearningsshortfalls.

Furthermore,thereisadangerofnew-buildprojectseitherreceivinglateornoapproval,orof

grantedapprovalsbeingwithdrawn.Dependingontheconstructionprogressmadeandthe

contractualobligationstosuppliers,thiscanhaveasignificantnegativefinancialimpact.Wetake

precautionarymeasuresagainstthisbypreparingourapplicationsforapprovalwithgreatcareand

ensuringthatapprovalprocessesarehandledcompetently.

InGermany,risksalsoarisefromthemonitoringofanti-competitivepricingpractices,thelegal

frameworkofwhichbecamestricterattheendof2007.Theinvestigationsintothewholesale

electricitymarketinitiatedbytheGermanFederalCartelOfficeinthespringof2009ended

withoutanyviolationofantitrustlawhavingbeenidentified.Legislativeinitiativesexistatnational

andEuropeanlevelsaimingtoconstantlymonitorelectricitygenerationandwholesaleelectricity

markets,whichcouldresultinnewtransparencyobligationsforthecompanies.

Theincentive-basedregulationofourGermanelectricityandgasnetworkcompaniesineffectsince

2009isalsoassociatedwithearningsrisks.Uncertaintyexistsinparticularwithrespecttothe

recognitionofcostsandefficiencyfiguresforthesecondregulatoryperiod.Irrespectiveofthis,the

returnonequityanddebtneedstobeimproved.Furthermore,theinfluenceofotherfactorsused

tocalculaterevenuehasnotbeendeterminedconclusively.



• Other legal and arbitration procedures:IndividualRWEGroupcompaniesareinvolvedinlitigation

andarbitrationproceedingsduetotheiroperationsorsaleofcompanies.Out-of-courtclaimshave

beenfiledagainstsomeofthem.Furthermore,Groupcompaniesaredirectlyinvolvedinvarious

procedureswithpublicauthoritiesorareatleastaffectedbytheirresults.However,wedonot

expectanymaterialeffectsontheRWEGroup.

Conciliationproceedingsinconnectionwiththelegalrestructuringofcompaniesarecurrently

pending.Theywereinitiatedbyoutsideshareholdersinordertoexaminetheappropriatenessof

conversionratiosorcashcompensation.Sincethesefigureswerecalculatedbyindependent

experts,webelievetheassociatedrisksarelow.Ifdifferentlegallyenforceabledecisionsare

reached,wewillpaycompensationtotheaffectedshareholders,includingthosewhoarenot

directlyinvolvedintheconciliationproceedings.

• Financial risks and opportunities:Thevolatilityofforeignexchangerates,interestratesandshare

pricescanalsohaveasignificanteffectonourearnings.Themanagementoffinancialrisksis

governedbyaspecificguidelineandistheresponsibilityoftheCFOofRWEAG.

Duetoourinternationalactivities,currencyriskmanagementisveryimportant.Groupcompanies

aregenerallyobligedtohedgetheircurrencyrisksviaRWEAG.Theparentcompanydetermines

thenetfinancialpositionforeachcurrencyandhedgesit,ifnecessarywithexternalmarket

partners.TheVaRconceptisoneofthetoolsusedtomeasureandlimitrisk.Intheyearunder

review,theaverageVaRforRWEAG’sforeigncurrencypositionwaslessthan€1million.

Wealsogivesignificantimportancetothemanagementofinterestraterisks.Wedifferentiate

betweentworiskcategories.Ontheonehand,risesininterestratescanleadtoreductionsinthe

priceofsecuritiesheldbyRWEAG.Thisprimarilyrelatestofixed-interestbonds.Ontheother

hand,interestrateincreasesalsocauseourfinancingcoststorise.TheVaRforthesecuritiesprice

riskofourcapitalinvestmentsin2010averaged€9million(previousyear:€21million).We

measurethesensitivityoftheinterestexpensewithrespecttorisesinmarketinterestratesusing

theCashFlowatRisk.Weapplyaconfidencelevelof95%andaholdingperiodofoneyear.The

CashFlowatRiskamountedto€5millionatthebalancesheetdate.

Thesecuritiesweholdinourportfolioincludeshares.TheVaRfortheriskassociatedwithchanges

insharepricesaveraged€11million(previousyear:€21million).


Risksandopportunitiesfromchangesinthepriceofsecuritiesarecontrolledbyaprofessional

fundmanagementsystem.TheGroup’sfinancialtransactionsarerecordedcentrallyusingspecial

softwareandmonitoredbyRWEAG.Thisenablesthebalancingofrisksacrossindividual

companies.Rangeofaction,responsibilitiesandcontrolsaresetoutininternalguidelines,to

whichourGroupcompaniesareobligedtoadhere.

• Creditworthiness of business partners:Ourbusinessrelationswithfinancialinstitutions,trading

partners,customersandsuppliersexposeustocreditrisks.Wecountertheminpartbyclosely

trackingthecreditworthinessofourcounterparties.Creditriskmanagementisgovernedbya

dedicatedguidelinewhichisvalidthroughouttheGroup.Compliancewiththegroupwide

standardsformeasuringandmanagingcreditrisksestablishedinthisguidelineismonitoredbythe

CreditRiskControllingDepartment.

Wemanagecreditrisksbysettinglimitsandbyadjustingthemonatimelybasis,especiallyinthe

eventofchangesincreditworthiness.Ifnecessary,werequestcashcollateralorbankguarantees.

Wealsotakeoutcreditinsurancepoliciesormakeuseofcreditdefaultswapsinsofaras

economicallyfeasible.Mostofthebanksandtradingpartnerswithwhichwehavecredit

relationshipsareofgoodcreditworthiness.Wedeterminetheircreditstandingusinganinternal

assessmentmethod.Forbanks,weuseexternalratingsandanearlywarningindicator,whichwe

developedinlightofthefinancialmarketcrisis.Wesellasignificantportionofourelectricity

generationontheexchange.Thecreditriskforthesesalesisassumedbyaclearingunit.Asarule,

over-the-countertradingtransactionsareconcludedonthebasisofframeworkagreements,e.g.

thoseprescribedbytheEuropeanFederationofEnergyTraders(EFET).Inaddition,weagreeon

collateral.Wemeasurethecreditrisksoftheenergytradingandfinancialactivitiesonadailybasis.

• Liquidity risk:Liquidityrisksconsistofthedangerofourliquidityreservesnolongerbeing

sufficienttomeetfinancialobligationsinatimelymanner.AtRWE,suchobligationsresultabove

allfromtherefinancingofduefinancialliabilities.Furthermore,wemustputupcollateraliftrading

contracts(e.g.withexchanges)markedtomarketresultinaloss.Weclassifyourliquidityriskas

low.Thebasisforthisisoursolidfinancing.Wehavestrongcashflowsfromoperatingactivities,

substantialcashandcashequivalents,unusedcreditlines,andfurtherfinanciallatitudethrough

ourCommercialPaperandDebtIssuanceProgrammes(seepage101).Ourcarefulplanning

ensuresthatweareliquidatalltimes.Amongotherthings,wemakeuseofagroupwide

notificationsystem,whichrecordstheGroupcompanies’short,mediumandlong-termliquidity

needs.



• Risks and opportunities associated with corporate strategy:Decisionsoncapitalexpenditureon

property,plantandequipmentandacquisitionsareassociatedwithmajorrisksandopportunities,

duetotheamountofcapitalemployedandthefactthatitistieduplongterm.Whenacompanyis

acquired,problemscanariseinrelationtotheintegrationofemployees,processesand

technologies.RWEhasspecificaccountabilityprovisionsandapprovalprocessesinplaceto

prepareandimplementstrategicdecisionsconcerningcapitalexpenditureonproperty,plantand

equipmentandacquisitions.Closelymonitoringbothourmarketsandcompetitorshelpsusrecord

strategicrisksandopportunitiesadequatelyandearlyon.WearefollowingthesituationinNorth

Africaclosely.Mostofourlocalcapitalexpenditureisbackedbyfederalguaranteesagainst

politicalrisks.

• Continuity of business activities:Weoperatetechnologicallycomplexandinterconnected

productionplantsinallpartsofourvaluechain.Uninsureddamagecanbeincurredbyourlignite

miningequipment,powerstations,powerplantcomponentsandgrids.Thereisanincreasingrisk

ofoutagesinourpowerplantsduetotheageingoftheircomponents.Inaddition,the

constructionofnewplantscanbedelayedduetoaccidents,faultymaterialortime-consuming

approvalprocedures.Ourgridbusinessisexposedtotheriskoffacilitiesbeingdamagedbyforce

majeuresuchassevereweatherconditions.Welimittheserisksthroughhighsafetystandardsas

wellasregularinspection,maintenanceandservicingwork.Ifeconomicallyviable,wetakeout

appropriateinsurancepolicies.

• IT security:Ourbusinessprocessesaresupportedbyefficientdataprocessingsystems.

Nevertheless,wecannotfullyruleoutalackofavailabilityofITinfrastructureorabreachinthe

securityofourdata.Wemitigatetheserisksbyapplyinghighsecuritystandardsaswellasraising

userawarenessandlimitingaccessprivileges.Inaddition,weregularlyinvestinhardwareand

softwareupgrades.OurITislargelybasedonstandardscommoninthemarket.Itsoperationsare

runinmoderndatacentres.Wehaveestablishedamandatorygroupwideprocessformanaging

risksassociatedwithengineeringITsolutions.

• Human resources:Competitionforthebesttalentisbecomingincreasinglyfierce.Tosecure

andstrengthenourpositioninthisarea,whenrecruitingstaff,wehighlightRWE’sattractiveness

asanemployerandstrivetoretainexpertsandexecutivesoverthelongterm.Inadditionto

performance-basedcompensationandprogressiveemployeebenefits,weputagreatdealofeffort


intothevariedprospectsofferedthroughouttheRWEGroup:traineeprogrammes,cross-

disciplinarycareerpaths,assignmentsinvariousEuropeanGroupcompaniesaswellasattractive

continuededucationandadvancedtrainingofferings.Welimitstafffluctuationrisksbyensuring

suitablereplacementsareinplaceandbyearlysuccessionplanning.

Report on the Internal Control and Risk Management System – statements in accordance with

Sec. 315, Para. 2, No. 5 and Sec. 289, Para. 5 of the German Commercial Code (HGB). Risks

associatedwithfinancialreportingreflectthefactthatourannualandinterimfinancialstatements

maycontainmisrepresentationsthatcouldhaveasignificantinfluenceonthedecisionsmadeby

theiraddressees.Ouraccounting-basedinternalcontrollingsystem(ICS)aimstodetectpotential

sourcesoferrorandlimittheresultingrisks.ItcoversthefinancialreportingoftheentireRWEGroup.

Thisenablesustoensurewithsufficientcertaintythattheparentcompanyandconsolidated

financialstatementsarepreparedincompliancewithstatutoryregulations.

Thedesignoftheaccounting-relatedICSlargelymirrorstheorganisationofouraccountingand

financialreportingprocess.OneofthemainfeaturesofthisprocessisthecontrolovertheGroup

anditsoperatingunits.ThebasisisprovidedbythetargetparametersdeterminedbytheExecutive

BoardofRWEAG.Buildingonthemandourexpectationsconcerningtheoperatingbusinesstrend,

wedevelopourmedium-termbudgetonceayear.Itincludesthefiguresbudgetedforthefollowing

fiscalyearaswellasthefiguresplannedforsubsequentyears.Weprepareforecastsinlinewiththe

budgetforfinancialyearsunderway.TheExecutiveBoardofRWEAGandthemanagementboardsof

itsmajorsubsidiariesconveneonceaquarterinordertoevaluatetheinterimandannualfinancial

statementsandupdatetheforecasts.

Accountingismostlyhandledlocally.Occasionally,thisfunctionisperformedbyGroupcompanies

fortheirsubsidiaries.Certainprocessingtaskssuchaspayrollaccountingarepooledatinternal

serviceproviderslikeRWEServiceGmbHorareatleastsubjecttouniformgroupwidequality

standards.Asholdingcompany,RWEAGperformscentralaccountingtasks.Theseinclude

consolidation,theaccountingtreatmentofprovisionsforpensionsinGermany,andgoodwill

impairmenttests.RWEAGisalsoinchargeoftasksrelatingtothemanagementandmonitoringof

financialinstruments,moneytransactions,cashinvestmentsandtaxgroupaccounting.External

serviceprovidersarecommissionedincertaincases.

TheCEOsandCFOsorthemanagingdirectorsofmajorsubsidiariesaswellasselectRWEAG

departmentheadsmusttakeaninternalbalance-sheetoathforexternalhalfandfull-yearreporting.



OnlythendothemembersoftheExecutiveBoardofRWEAGtakeanexternalhalfandfull-year

balance-sheetoathandsigntheresponsibilitystatement.Thereby,theyconfirmthattheprescribed

accountingstandardsandtheRWEGroup’saccountingguidelineshavebeenadheredtoandthatthe

figuresgiveatrueandfairviewofthenetassets,financialpositionandresultsofoperations.

Weprepareourfinancialstatementsusingagroupwidereportingsystemthatwealsousetoprepare

thebudgetsandforecasts.Allfullyconsolidatedsubsidiariesusethissystem.Itformsthebasisfora

standardiseddatareportingprocesswithintheGroup.Thefinancialaccountingsystemsarelargely

maintainedbyRWEITGmbH.

Weidentifyrisksinfinancialreportingatthedivisionallevelonthebasisofquantitative,qualitative

andprocess-relatedcriteria.ThefoundationsoftheICSareourgenerallybindingguidelinesand

ethicalvalues,whicharealsosetoutinRWE’sCodeofConduct.Buildingonthis,theminimum

requirementsofthemajorprocessingstepsensuretheintegrityofdatacollectionandmanagement.

Therisksofindividualbalance-sheetitemsresultingfromsubjectivediscretionorcomplex

transactionsarerecordedinagroupwideriskandcontrolmatrix.Onceayear,weprovethatthe

necessarycontrolshaveactuallybeenimplementedandcarriedoutproperly.Thisisdonebythe

InternalAuditDepartment,externalauditors,orthemanagementinchargeofperformingthe

controls.

Wheninsession,theAuditCommitteeoftheSupervisoryBoardregularlyconcernsitselfwiththe

effectivenessoftheaccounting-relatedICS.Onceayear,theCFOofRWEAGholdsapresentationon

therisksoffinancialreportingbeforethiscommittee.Healsoexplainswhichcontrolmeasureswere

takenandhowtheproperimplementationofthecontrolswasverified.

OurGroupAuditDepartmentiscertifiedtotheInternationalStandardsfortheProfessionalPracticeof

InternalAuditingoftheInstituteofInternalAuditors(IIA).Inorganisationalanddisciplinarymatters,

itreportsdirectlytotheCEO.

Corporate Governance Declaration in accordance with Sec. 289a of the German Commercial Code

(HGB).TheExecutiveBoardofRWEAktiengesellschaftissuedacorporategovernancestatementin

accordancewithSec.289aoftheGermanCommercialCodeon11February2011andpublishediton

theinternetatwww.rwe.com/corporate-governance-declaration-sec−289a-HGB.


Whereas the economy continues to recover, the conditions underlying our business are

becoming more difficult. Germany’s new nuclear fuel tax and the unfavourable development

of electricity and gas prices will have extremely negative effects in 2011. We expect that our

operating result will be about 20 % below the record level set in 2010. By reducing capital

expenditure, making divestments and cutting more costs, we intend to stabilise our financial

and earnings power. Nevertheless, our medium-term earnings forecast is also cautious.

World economy maintains course for growth.Basedoninitialforecasts,globaleconomicoutputwill

risebymorethan3%in2011,withChinaremainingtheeconomy’sengine.However,growthinthat

countrywillprobablyslow,asthegovernmentrecentlystartedtopursuealessexpansionary

monetaryandfiscalpolicy.IntheEurozone,measurestoconsolidatethestatebudgetswilldampen

theupturn.However,giventheincreasedutilisationofindustrialcapacity,investingactivityislikely

topickup.EconomicgrowthintheEurozonemaycomeclosetolastyear’slevel(1.7%).The

economicforecastforGermanyissomewhatbetter.Thecountry’scouncilofexpertsbelievesthata

gainofmorethan2%ispossible.Asaresult,Germanywouldreturntothegrossdomesticproduct

achievedin2008.Inadditiontothetraditionaldrivingforces,consumerspendingwillalsosupport

thecountry’sgrowth.Thereasonsaretheencouragingemploymenttrendandtherisein

discretionaryincome.PrognosesfortheNetherlandsandBelgiumareslightlymorecautious,with

growthanticipatedat1.5%.ThesameappliestotheUnitedKingdom.Savingsprogrammes

mandatedbythestateandtheincreaseinvalue-addedtaxwillprobablycurtailconsumerspending.

InitialestimatesforourCentralEasternEuropeancoremarketsindicateacontinuedrecovery.Poland

andtheCzechRepubliccouldachievegrowthratesinexcessof3%.Hungary’scurrentlyslow

expansionislikelytopickupslightly.

Economy has a positive impact on energy consumption.Thedevelopmentofenergyusagewill

probablybenefitfromtheeconomy’spositiveeffectsin2011aswell.Weexpectthatproduction

growthinGermany’senergy-intensivesectorswillnormaliseinsingle-digitpercentageterritory.

Ifdemandintheotherconsumptionsectorsremainsstable,theneedforelectricityshouldincrease

marginally.IntheUnitedKingdom,itwasonaslightdeclineevenbeforetheeconomiccrisisdue

toprogressmadeintermsofenergyefficiency.Evenifindustrialproductionexpands,itisunlikely

tosurpasslastyear’slevelin2011.OurforecastfortheNetherlandsissimilar.Incontrast,electricity

consumptioninourCentralEasternEuropeanmarketsmayrisebymorethan2%.Giventhe

economy’smomentuminthesecountries,itshouldgrowconsiderablyinthenextfewyearsaswell.

Sincedemandforgasismoredependentontemperaturesthanforelectricity,itissubjecttohigher

fluctuationandisdifficulttopredict.Excludingpotentialweather-relatedeffects,Germangasusage

shouldbeintheorderoflastyear.Minoreconomicstimulusisexpected.However,thecontinued

expansionofrenewablesmightreducetheutilisationofgaspowerplantcapacities.Gasconsumption

intheNetherlandsisalsolikelytostagnateifweexcludeweather-relatedeffects.IntheUnited

outLook for 20111.11

outlook for 2011 127to our investors Review of operations our responsibility


Kingdom,itcouldactuallydropduetomeasurestoimproveenergyefficiency.Conversely,inour

CentralEasternEuropeanmarkets,weexpecttoseemarginalgains.Besidescyclicaleffects,the

mountingimportanceofgasoverotherenergysourceswillplayarole.

Fuel expected to be more expensive than in 2010.Thepricecurveoninternationalcrudeoil,hard

coalandnaturalgasmarketsrecentlytrendedupward.Dynamiceconomicdevelopmentdisplayed

byemergingcountriessuchasChinaandIndiawasthemainreason.Ontopofthis,exceptional

effectsonhardcoalcametobear–mostnotablytheflooddisasterinAustralia,whichbrought

operationsatnumerousminestoahalt.On31January2011,ametrictonofthermalhardcoalcost

US$122(includingfreightandinsurance)inRotterdamspottrading.Monthlyforwardpricesthrough

totheendof2011witnessedonthatdayrevealthatmarketparticipantsexpecttheaverageforthe

yearasawholetoalsobearoundUS$120.Thiswouldrepresentasignificantrisecomparedto2010

(US$93).Thesituationoncrudeoilmarketsissimilar.AttheendofJanuary,abarrelofBrentcrude

tradedatUS$98.ThepriceexpectedforthefullyearisapproximatelyUS$100,whichisalsofar

abovethe2010level(US$79).ThisisduetofearsthattheunrestinNorthAfricamaycurtailoil

supplies.TheappreciationofcrudeoilwillbereflectedontheContinentalEuropeangasmarket

withatimelag,resultingfromthelinktooilpricesinnumerousimportagreements.However,the

contractsalsoincreasinglytakedevelopmentsingasspottradingintoaccount.Corresponding

contractualadjustmentsshoulddampentheriseinimportprices.GasquotationsonEurope’smajor

tradinghubshaverisenrecently,butremainclearlybelowthepriceofoil-indexedsupplyagreements

duetotheamplesupplyofgas.Marketsignalsindicatethatthissituationmaypersistfortherestof

theyear.InEuropeantradingofCO2emissionallowances,priceshavebeenmovingsidewaysina

narrowcorridorsince2009.Atpresent,therearenosignsofpricesrisingaboveorfallingbelowthe

corridor.

Realised electricity price lower year on year. Quotationsonelectricityforwardmarketsstagnated

recently,despitethefactthatfuelhasbecomemoreexpensive.However,weassumethatthey

willriseifthehardcoalandnaturalgaspricetrendscurrentlyobservedprovesustainable.Butthis

wouldnothaveanotableeffectonourearningsin2011,aswehavesoldforwardnearlyallofour

generationforthisyear.ThepricewerealisedforourGermanproductionwasbelowthecomparable

figureof€67perMWhfor2010.Partofourgenerationfortheyearsaheadhasalsoalreadybeen

placedonthemarket.InGermany,thisappliestoover50%ofproductionfor2012andover10%for

2013(asoftheendof2010).Withrespecttoforwardsales,wegenerallypurchaseorhedgethe

pricesofthefuelrequiredtogeneratetheelectricitywhenweenterintotheagreements.Thisalso

holdstrueforthepurchaseofemissionallowances.

128 outlook for 2011 RWE Annual Report 2010

Organic growth despite difficult framework conditions.Climateprotection,resourceconservation

andorganicgrowthcontinuetotopouragendaaswemaintainourstrategiccourse,despitedifficult

economicandpoliticalconditions.However,wewillslowourpacesomewhat.Theburdensstemming

fromthenuclearfueltaxandtheunfavourabledevelopmentofelectricityandgaspriceswillweigh

heavilyonusintheyearstocome.Wewillscalebackourcapitalexpenditureonproperty,plantand

equipmentsomewhat.Initially,wehadbudgetedatotalof€28billionfortheperiodfrom2010to

2013.Wehavesubsequentlyreducedthissumbyabout€3billion,whichmeansthatweplanto

spendatotalofabout€18billionin2011andthetwofollowingyears.Attractiveprojectsthatare

noturgentwillbepostponed,andwewillfullyrenounceundertakingsthatonlystandachanceof

earningmoderatereturns.Thecutswilllargelyhaveanimpactafter2011.Ourongoingnew-build

powerplantprojectsremainunaffectedbythis.

Fast pace of expansion of renewable energy and the upstream position.Theincreaseofour

generationcapacitybasedonrenewableswillaccelerateinthenextfewyears.RWEInnogywillinvest

anaverageof€1.2billionperannumonthisuntil2013.Newoffshorewindprojectsarethefocal

point.The504MWGreaterGabbardwindfarmofftheUKcoast,inwhichweholdastakeof50%,

isscheduledforcompletionin2011.Bytheendof2010,roughlyhalfofthe140windturbineshad

alreadybeenerected.ThefirstsetofwindturbinesatourGermanNordseeOstprojectwillgoonline

in2012.Thewindfarmwillhaveanaggregateinstalledcapacityof295MWwhenitiscompletedin

2013.The576 MWGwyntyMôrwindfarmoffthecoastofWalesshouldbefullycommissionedby

2014.Wewillalsoexpandouronshorewindpowercapacity,aboveallintheUnitedKingdom,Italy

andPoland.Furthermore,wearebuildingbiomassthermalpowerplantsintheUKandafacilityfor

themanufactureofwoodpelletsintheUSA.Thiscourseforgrowthwillalsobereflectedinthe

operatingresultofRWEInnogy.Weexpectittopostdouble-digitpercentageannualgrowthrates

until2013.

Weintendtoincreaseouroilandgasproductiontoapproximately70millionbarrelsofoilequivalent

by2016.RWEDeawillspendmorethan€3billiondevelopingitsreservesfrom2011to2013.The

mainareasinEuropearetheUKNorthSeaandtheNorwegiancoast.Inaddition,weplantosetaside

alargeshareofcapitalexpenditureforNorthAfrica.Wearethereforeobservingtheregion’spolitical

situationwithkeeninterest.

All eyes still on climate protection.Loweringourcarbonemissionsremainsoneofourmajor

strategicgoals.GiventhatweareamongEurope’sbiggestpowerproducers,webelieveweshoulder

aspecialresponsibilityinthisregard.Thecashflowsfromourcurrentpowerplantactivitiesgiveus

thefinancialstrengthtomanagethegradualconversionofourgenerationportfolioourselves.We

wanttoreduceourCO2exposuretothelevelofanaveragecompetitorinourmarketsbynolater

than2020bytakingemissions-reducingandfinancialmeasures(seepage53).Inviewofthehigh

proportionofourportfolioaccountedforbyligniteandhardcoal-firedpowerstations,thisisan

ambitioustarget.Massiveinvestmentswillhavetobemadetoaccomplishthis.Ofthejustover

€8 billionwehavesetasidefortheexpansionandmodernisationofourgenerationportfoliountil



2013,over60%isallocabletocarbon-freeorlow-carbontechnologies.Theremainingexpenditure

hasbeenearmarkedforthenewestgenerationofcoal-firedpowerplants,theefficiencyofwhich

isupto30%higherthanthatoftheirpredecessors.Moreover,wearealsospendingcapitalon

CO2 reductionprojectsoutsideEuropewithinthescopeoftheKyotoCleanDevelopmentMechanism

andJointImplementationscheme.Furthermore,wearelookingintothepossibilityofconducting

virtualpowerplantswapswithotherelectricitygenerators,areconcludinglong-termagreements

pursuanttowhichthecustomersbeartheCO2riskfortheelectricitytheyprocure,andwepurchase

CO2certificatesforfutureperiodsonthewholesalemarket.

Divesting to preserve financial headroom.TheacquisitionofEssentwillremainourbiggestgrowth

stepviaatakeoverinthenextfewyears.Wedonotruleoutfurtheracquisitions,butifatall,they

wouldbeonamuchsmallerscale.Weareevaluatinghowtogrowourmarketshareorestablish

startingpositions–aboveallinCentralEasternandSouthEasternEurope–bytakinginterestsin

establishedlocalenergycompanies.However,asarule,weonlyconsideracquisitionsiftheymeetour

financialcriteria.Thekeyyardstickistheinternalrateofreturn(IRR).Itmustatleastmatchthecostof

capitalplusareturnpremium.However,themostimportantitemsonouragendawhenitcomesto

financingourgrowthinvestmentsandsafeguardingourfinancialroomformanoeuvrearedivestments.

Bytheendof2013,wewanttohavesoldGroupcompaniesandinvestmentswithacombinedvalueof

€8billion.Bydivestingourlong-distancegastransmissionoperatorThyssengasandourminority

interestinahardcoal-firedpowerplantinRostock,wehavealreadytakenthefirstfewstepsinthis

direction.

Forecast for 2011: revenue lower year on year.OurexternalGrouprevenueisexpectedtobedown

on2010.Themainreasonisthatweanticipatethatwewillhavetoswitchtheaccountingtreatment

ofourelectricitytransmissionsystemoperator,Amprion,overthecourseoftheyeartotheequity

method.ShouldcertainEUunbundlingregulationsbetranslatedintoGermanlawin2011,wewould

nolongerbeabletoexertentrepreneurialcontroloverthecompany.PursuanttoIFRS,thisisa

prerequisiteforfullconsolidation.Companiesstatedatequityarenotconsideredinexternal

revenue.TheyarefactoredintoEBITDAandtheoperatingresultbasedontheirnetincome.

Significant drop in earnings expected.Inthecurrentfinancialyear,thedeteriorationofeconomic

andpoliticalframeworkconditionswillhaveasignificantimpactonourearnings.Whereasthe

considerabledeclineinpricesonwholesaleelectricitymarketscomparedto2008hasnothada

sizeableeffectsofarduetoourearlyforwardsales,itwillcausemarginstoshrinkmarkedlyin2011.

Ontopofthat,wewillbefacedwiththeburdensimposedbythenuclearfueltaxintroducedin

Germanyin2011.Chargesinthegasmidstreambusinesswillagainbehigheryearonyear.Insome

cases,westillhavetopaymuchmoreforgaspurchasesbasedonoil-indexedcontractsthanwecan

realisewhensellingiton.Positiveeffectsonearningsfromongoingcontractrenegotiationswithour

gassuppliersareexpectedtobefeltnoearlierthan2012.


WeanticipatethattheRWEGroup’sEBITDAwillclosesome15%downonlastyear’slevel

(€10,256 million).Theoperatingresult(€7,681million)isexpectedtodeclinebyapproximately20%.

Ourforecastforrecurrentnetincome(€3,752million),thebasisfordeterminingthedividend,isa

decreaseofabout30%.

• Germany:Fromourcurrentperspective,thedivision’soperatingresultisanticipatedtodecline

significantly.

PowerGeneration:TheearningsdroppredictedfortheGermanyDivisionwilllargelycomefrom

RWEPower.WehavealreadysoldforwardnearlyallofourGermangenerationforthecurrentyear.

Therealisedpriceislowerthanthe€67perMWhrecordedin2010.Thenuclearfueltaxleviedfor

thefirsttimein2011andretrofittingmeasuresattheBiblisnuclearpowerstationwillalsoleadto

earningsshortfalls.Weexpectthatnuclearenergyprovisionswillprovidepositiveeffectsover

2010.

SalesandDistributionNetworks:Wealsoexpectthisbusinessareatoclosewithlowerearnings.

Ifweatherconditionsnormalise,ourearningsinthegassalesbusinesswillfallshortoflastyear’s

highlevel.Inaddition,weanticipatethatexpensesincurredtoimprovenetworkinfrastructurewill

behigher.Conversely,ourrefundsofexcessfees(seepage88)willbelowerthanin2010.

• Netherlands/Belgium:Theoperatingresultpostedbythisdivisionwillclosetheyearsignificantly

downonlastyear’sgoodresult.ThisisprimarilybecausewetransferredpartsofEssent’sgas

midstreamactivitiestoRWESupply&Trading.In2010,thesehadrecordedstrongearnings,inpart

duetothecoldweather.Essent’selectricitygenerationisalsoexpectedtomakeasmaller

contributiontoearnings,asweanticipatethatthemarginsofourDutchgasandhardcoal-fired

powerplantswillshrink.Incontrast,ITandstaffcostsavingswillhaveapositiveimpact.

Outlook for 2011 €million

2010 2011 forecast vs. 2010

External revenue 53,320 Below previous year

EBITDA 10,256 Approx. − 15%

Operating result 7,681 Approx. − 20%

Germany 5,575 significantly below previous year

Power Generation 4,000 significantly below previous year

Sales and Distribution Networks 1,575 Below previous year

Netherlands/Belgium 391 significantly below previous year

United Kingdom 272 Above previous year

Central Eastern and South Eastern Europe 1,173 significantly below previous year

Renewables 72 significantly above previous year

Upstream Gas & Oil 305 significantly above previous year

Trading/Gas Midstream − 21 significantly below previous year

Recurrent net income 3,752 Approx. − 30%



• UnitedKingdom:Weexpectthisdivisiontocontinuegrowingitsoperatingresult,inpartdriven

byextensivemeasurestakentoimproveefficiency.Furthermore,webelievethatmarginsinthe

residentialcustomerbusinesswillrecover.RWEnpowerraisedresidentialelectricityandgas

tariffsbyanaverageof5.1%witheffectfrom4January2011.Conversely,upfrontnetwork

costsarelikelytorise.Inaddition,weexpecttoincurhigherexpensesformeasurestopromote

energysavingsinhouseholds.UKutilitiesareobligedtodothiswithinthescopeofgovernment

programmes.Earningsinthegenerationbusinessarelikelytodeteriorateagain,althoughthenew

gas-firedpowerplantatStaythorpewillcontributetoourelectricityproductionforafullyearfor

thefirsttime.DuetothecurrentdifficultmarketconditionsintheUK,themarginsofourhardcoal

andgas-firedpowerplantswillprobablybelowerthanin2010.Moreover,thehighlevelofcapital

expenditurewillbereflectedinanincreaseindepreciation.

• CentralEasternandSouthEasternEurope:Fromourcurrentperspective,theoperatingresult

achievedbythisdivisionislikelytobemuchlowerthantheunexpectedlygoodfigurepostedlast

year.MarginsintheCzechgassupplyandgasstoragebusinessesareexpectedtodeteriorate.

TheearningscontributionbytheHungarianelectricitybusinessisalsoanticipatedtobesmaller

thanin2010.However,wepredictthatinPoland,wewillbenefitfromimprovedelectricity

networkmargins.

• Renewables:TheprogressiveexpansionofRWEInnogy’srenewablegenerationportfoliowilladd

torevenue,thuscontributingtoasignificantimprovementintheoperatingresult.Weexpectto

beabletocompletetheconstructionoftheGreaterGabbardoffshorewindfarmoverthecourseof

theyear.Inaddition,weassumethatweatherconditionswillnormalise,followingtheextremely

lowwindlevelsin2010.Thiswouldalsohaveapositiveimpactonearnings.Acounteractingeffect

willstemfromthefactthatongoingandplannedinvestmentprojectsarecausingsubstantial

run-upcosts.

• UpstreamGas&Oil:RWEDea’soperatingresultshouldimprovesignificantly,asweanticipate

beingabletorealisehigheroilandgasprices.Furthermore,weexpectthathigheroilproduction

volumeandlowerexplorationcostswillhaveapositiveimpact.However,ourgasproductionis

likelytoremainbelowthe2010level.Thisisaresultofthenaturaldeclineinproductioncausedby

theprogressivedepletionofexistingreserves,mainlyaffectinggasfieldsinGermanyandthe

UnitedKingdom.AnticipatedproductionincreasesinNorwayandEgyptwillhaveapositiveeffect.

• Trading/GasMidstream:Weexpectthisdivisiontoclosetheyearwithanotheroperatingloss,

whichmightbemoresignificantthanin2010(−€21million).Thisisduetoburdensinthegas

midstreambusiness.Asexplainedearlier,since2009,oil-indexedgaspurchasepriceshavebeen

muchhigherinsomecasesthanthesalepricesrealisableonthemarket.Theresultingeffectson

earningswillbeevenmoresubstantialin2011.Wearerenegotiatingourprocurementcontracts

withourgassuppliers,theoutcomeofwhichwillhaveasignificantinfluenceonmedium-term

earnings.However,mostofthedecisionswillprobablynotbetakenuntil2012or2013.We

expectthatthetradingactivitiesofRWESupply&Tradingwillpostastableperformance

comparedto2010.


Lower dividend for fiscal 2011.Ourdividendproposalforfiscal2011willbeinlinewithourusual

payoutratioof50%to60%.Thebasisforcalculatingthedividendisrecurrentnetincome.Asset

outearlier,weexpectthelattertodeclinebyapproximately30%.Ourdividendwillthereforebe

lowerthantheonefor2010.

Capex of more than €7 billion planned.Ourcapitalexpenditureonproperty,plantandequipmentin

2011willamounttobetween€7.0billionand€7.5billion.Thiswouldclearlyexceedtherecord

figureof€6.4 billionpostedin2010.WeplantoincreasespendingaboveallintheRenewables,

CentralEasternandSouthEasternEurope,GermanyandUpstreamGas&OilDivisions.Asbefore,the

focusoftheRWEGroup’sinvestingactivityin2011willbetheconstructionofhighlyefficientfossil

fuel-firedpowerplants,theenlargementofourrenewablegenerationbase,themodernisationof

networkinfrastructureandthedevelopmentofoilandgasfields.

Leverage factor: upper limit likely to be exceeded.Ournetdebt,whichamountedto€29.0billionat

theendof2010,isexpectedtocontinuetoincreaseoverthecourseoftheyearduetoour

comprehensiveinvestmentprogramme.Weexpectariseintheorderof€1billion.Thisandthe

earningstrendpresentedabovewillcausetheleveragefactor,whichreflectstheratioofnetdebtto

EBITDA,toincreaseconsiderably.Itwillprobablyexceedtheupperlimitof3.0towhichweare

orientatingourselves.Weintendtoreturntheleveragefactorclosertothislimitoverthemedium

term,inordertosecureoursolidArating.Theaforementionedcapitalexpenditurecutsand

divestmentswillhelpustoaccomplishthis.

Headcount: marginal growth expected.Ourworkforcewillgrowsomewhatinthecurrentfinancial

year,asaresultofourinvestmentprogramme.JobsarebeingcreatedaboveallintheGermany

andRenewablesDivisions.Acounteractingeffectwillcomefromthefactthatwewillprobably

accountforAmprionatequityfrom2011onwardsandthereforenolongerconsiderthecompany

whencalculatingourpersonnelfigures.Inaddition,thesaleofThyssengaswillreducetheGroup’s

workforce.

New earnings forecast for 2012 and 2013.InFebruary2010,weprovidedanoutlookonour

medium-termearningstrend.Wehadanticipatedbeingabletoincreaseouroperatingresultand

recurrentnetincomebyanaverageof5%peryearfortheperioduntil2012.Thebaselineyearfor

thisforecastwas2008.Duetotheunexpecteddeteriorationineconomicandpoliticalframework

conditions,wewillnotmanagetoachievethisgoal.TheGermannuclearfueltaxandpersistentlylow

pricesonelectricityandgaswholesalemarketswillcurtailourearningsalsobeyond2011.Thiswill

primarilyaffectourGermanelectricitygenerationandthegasmidstreambusiness.Incontrast,the

RenewablesandUpstreamGas&Oilgrowthsegmentsarelikelytocontinuetheirpositiveearnings

trends.Onthewhole,weexpectthattheRWEGroup’soperatingresultwillcontinuetodeclinein

2012andthefollowingyear,albeitnotasmuchasin2011.



Therefore,wecannotupholdtheoutlookfor2013wepublishedinFebruary2010,either.Wehad

anticipatedbeingabletoclosewithEBITDA,anoperatingresultandrecurrentnetincomeupon

2009levels.Basedonourcurrentplanning,EBITDAandtheoperatingresultwillbeintheorderof

€8 billionand€5billionin2013.Thefigureweexpecttopostintermsofrecurrentnetincomeis

approximately€2billion.In2013,earningsintheelectricitygenerationbusinesswillagainworsen

considerablyyearonyear,becausewewillnolongerbeallocatedanyCO2emissionallowancesfree

ofcharge.TheexpectedearningsgrowthintheRenewablesandUpstreamGas&OilDivisionswill

notbeabletocompensateforthis.WeanticipatethatRWEInnogy’soperatingresultwillreach

€500 millionafter2013,theyearoriginallyscheduled.Ourplanned€8billionindivestmentshave

alreadybeenconsideredintheforecastfor2012/2013.

Dividend remains attractive.Weupholdourpayoutratioof50%to60%overthemediumterm

aswell.Thismeansthatwestillwanttopayoutatleasthalfourrecurrentnetincometoour

shareholders.RWEwillthereforecontinuetopayanattractivedividend.


135

2.0 our responsiBiLity

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Infiscal2010,theSupervisoryBoardfulfilledallofthedutiesimposedonitbyGermanlawandthe

company’sArticlesofIncorporation.WeregularlyadvisedtheExecutiveBoardonrunningthe

companyandmonitoreditsmeasures.Insodoing,wewereconsultedonallfundamentaldecisions.

TheExecutiveBoardinformedusofallthematerialaspectsofbusinessdevelopments,majorevents

andtransactionsregularly,extensivelyandinatimelymanner,bothinwritingandverbally.Wewere

keptabreastoftheearningssituation,risksandriskmanagementinanequallythoroughmanner.

TheSupervisoryBoardconvenedfourordinarymeetingsintheyearunderreview.NoneoftheBoard

membersattendedlessthanhalfofthemeetings.Theaverageparticipationratewas95%.Wetook

ourdecisionsonthebasisofdetailedreportsanddraftresolutionssubmittedbytheExecutiveBoard.

Wewerealsoinformedofprojectsandtransactionsofspecialimportanceorurgencybetween

meetings.TheSupervisoryBoardpassedtheresolutionsrequiredofitbylawortheArticlesof

Incorporation.Wherenecessary,italsodidsowheninsession.AsChairmanoftheSupervisory

Board,IwasconstantlyintouchwiththeChairmanoftheExecutiveBoardinordertoimmediately

discusseventsofmaterialimportancetotheRWEGroup’ssituationanddevelopment.

Main points of debate.Oneofthecentraltopicsofourconsultationsinfiscal2010werethe

developmentsontheinternationalgasmarketandGermanenergypolicy.Extensivedebateswere

heldontheextensionofnuclearpowerplantlifetimesandtheintroductionofataxonnuclearfuel,

asthesemeasureshavesignificantinfluenceontheRWEGroup’searnings.TheExecutiveBoard

informedusaboutthesestepsindetailandanalysedtheirimplications.Inaddition,werepeatedly

concernedourselveswiththeGroup’sneworganisationalstructure,thestatusofnew-buildpower

plantprojectsandfinancingactivities.WecloselymonitoredtheestablishmentofRWE Technology,

theprogressofRWEInnogy’sprojectsandtheintegrationofEssent,whichwasacquiredin2009,

intotheRWEGroup.

TheSupervisoryBoardalsoheldin-depthdebatesontheGermanActontheAppropriatenessof

ManagementBoardCompensation(VorstAG),whichenteredintoforceinAugust2009,andonits

effectsonthecompany.DuetotheVorstAG,itbecamenecessarytomakeadjustmentstothe

ExecutiveBoardcompensationsystem,forwhichtheSupervisoryBoardpassedaresolutionatits

meetingon23February2010.

NeedforactionalsoarosefromtheGermanAccountingModernisationAct(BilMoG),which

tookeffecton29May2009.TheBilMoGtightenedtherequirementsforthequalificationofthe

supervisoryboardsoflistedcorporations.PursuanttoSec.100,Para.5oftheGermanStock

CorporationAct(AktG),atleastoneindependentindividualpossessingexpertiseinthefieldof

accountingorfinancialstatementauditsmustbeappointedtothesupervisoryboard.InitsFebruary

session,theSupervisoryBoarddesignatedMr.vonBoehm-Bezingasitsindependentfinancialexpert.

2.1 supervisory Board report

RWE Annual Report 2010136 supervisory board report

ByintroducingtheBilMoG,theGermanlegislatordefinedtherequirementstobefulfilledwith

respecttotheestablishmentandactivityofanauditcommittee.Todoevenbetterjusticetothese

requirements,weadaptedtheSupervisoryBoard’sbylawsatourSeptembermeeting.

SupervisoryBoardmembersdisclosedpotentialconflictsofinterestinsomecasesintheperiod

underreview.Inonecase,thisledtotheSupervisoryBoardmemberinquestionabstainingfrom

influencingtherelevantdebatesandrefrainingfromcastingavoteduringthepassageofthe

correspondingresolution.

TheExecutiveBoardregularlyinformedusoftherevenueandearnings,measurestoreducecosts,

andpricedevelopmentsonenergymarkets.Inoursessionon17December2010,followingin-depth

consultations,weadoptedtheExecutiveBoard’splanningfor2011andtheforecastfor2012and

2013.Wereceiveddetailedcommentaryincaseswherethereweredeviationsfromplansandgoals

establishedpreviously.

Committees.TheSupervisoryBoardhasfivecommittees.Theirmembersarelistedonpage235.

ThesecommitteesarechargedwithpreparingissuesandresolutionsoftheSupervisoryBoard

meetings.Incertaincases,theyexertdecision-makingpowersconferredonthembytheSupervisory

Board.ThecommitteechairmenregularlyinformedtheSupervisoryBoardoftheirwork.

Dr. Manfred Schneider, Chairman of the Supervisory Board of RWE AG.

supervisory board report 137to our investors Review of operations our responsibility


TheExecutive Committeeconvenedtwoordinarymeetingsinthe2010financialyear.Amongother

things,itdidpreparatoryworkfortheSupervisoryBoarddebatesconcerningthe2009financial

statementsofRWEAktiengesellschaftandtheGroup,aswellastheplanningforfiscal2011and

forecastsfor2012and2013.

TheAudit Committeeconvenedfivetimes.Itdiscussedthequarterlyfinancialreports,thefinancial

statementsforthefirsthalfandtheannualfinancialstatementsatlength.Inaddition,itprepared

theawardoftheauditcontracttotheindependentauditor,includingtheprioritiesoftheauditand

thefeeagreement.SpecialattentionwasalsopaidtotheGroup’sriskmanagementandthe

accounting-relatedinternalcontrollingsystem.Furthermore,thecommitteedealtwithcompliance

issuesandtheauditresultsoftheinternalauditdepartmentaswellasitsauditschedule.Further

topicsofdebateinfiscal2010weretheimplementationoftheBilMoGinaccountingterms,the

internalcontrolsystemofRWESupply&Trading,theimplementationofthecapitalexpenditure

programme,aswellastheeconomicdevelopmentofEssentanditsintegrationintotheGroup.

TheannualandinterimfinancialstatementswereeachdiscussedatlengthwiththeExecutiveBoard

andtheindependentauditorbeforetheywerepublished.Theindependentauditorwaspresentatall

oftheCommitteemeetings,participatedinthedebates,andreportedonhisauditand/orhisaudit-

likereview.

ThePersonnel Affairs Committeeheldthreemeetings.Debatesprimarilyaddressedthe

compensationsystem,theamountofExecutiveBoardremuneration,thecompanypensionscheme

aswellasthenewrequirementsoftheGermanActontheAppropriatenessofManagementBoard

Compensation(VorstAG).Furthermore,theCommitteepreparedtheSupervisoryBoard’spersonnel-

relateddecisions.

TheNomination Committeewasinsessiononce,inordertopreparetheappointmentof

Dr.WolfgangSchüsseltotheSupervisoryBoard.Afocalpointofthecommittee’sworkin-between

sessionswastheidentificationofsuitablecandidatesforpotentialreplacementsontheSupervisory

Board.

Inthefinancialyearthatjustended,therewasnoreasontoconvenetheMediation Committee,

whichcomplieswithSec.27,Para.3oftheGermanCo-DeterminationAct(MitbestG).

Financial statements for fiscal 2010.ThefinancialstatementsofRWEAktiengesellschaft,which

werepreparedbytheExecutiveBoardincompliancewiththeGermanCommercialCode(HGB),the

financialstatementsoftheGroup,whichwerepreparedincompliancewithInternationalFinancial

ReportingStandards(IFRSs)pursuanttoSec.315aoftheGermanCommercialCode(HGB),the

combinedreviewofoperationsforRWEAktiengesellschaftandtheGroup,andtheaccountswere

scrutinisedbyPricewaterhouseCoopersAktiengesellschaftWirtschaftsprüfungsgesellschaftand

wereissuedanunqualifiedauditor’sopinion.Inaddition,theindependentauditorfoundthatthe

ExecutiveBoardhadestablishedanappropriateearlyriskdetectionsystem.Theauditorswere

RWE Annual Report 2010138 supervisory board report

electedbytheAnnualGeneralMeetingon22April2010andcommissionedbytheSupervisoryBoard

toauditthefinancialstatementsofRWEAGandtheGroup.Documentssupportingtheannual

financialstatements,theannualreportandtheauditor’sreportweresubmittedtoallthemembers

oftheSupervisoryBoardingoodtime.TheExecutiveBoardalsocommentedorallyonthedocuments

intheSupervisoryBoard’sbalancesheetmeetingof22February2011.Theresponsibleindependent

auditorsreportedatthismeetingonthematerialresultsoftheauditandwereavailabletoprovide

supplementaryinformation.TheAuditCommitteehadpreviouslyconcerneditselfindepthwiththe

financialstatementsofRWEAktiengesellschaftandtheGroup,aswellasauditreports,duringits

meetingon21February2011,withtheauditorpresent.ItrecommendedthattheSupervisoryBoard

approvethefinancialstatementsaswellastheappropriationofprofitsproposedbytheExecutive

Board.

TheSupervisoryBoardthoroughlyreviewedthefinancialstatementsofRWEAktiengesellschaft

andtheGroup,thecombinedreviewofoperationsforRWEAktiengesellschaftandtheGroup,

andtheproposedappropriationofdistributableprofit.Noobjectionswereraisedasaresultof

thisreview.AsrecommendedbytheAuditCommittee,theSupervisoryBoardapprovedthe

auditor’sresultsoftheauditofbothfinancialstatementsandadoptedthefinancialstatementsof

RWE AktiengesellschaftandtheGroupfortheperiodending31December2010.The2010annual

financialstatementsarethusadopted.TheSupervisoryBoardconcurswiththeappropriationof

profitsproposedbytheExecutiveBoard,whichenvisagesadividendpaymentof€3.50pershare.

Changes in personnel on the Supervisory and Executive Boards.Witheffectfrom1February2010,

FrithjofKühnwasappointedtosucceedHeinz-EberhardHollasmemberoftheSupervisoryBoardby

courtdecree.Furthermore,asof1March2010,Dr.WolfgangSchüsselwasappointedbycourt

decreesuccessortoDr.ThomasFischerasmemberoftheSupervisoryBoard.

Dr.UlrichJobsretiredfromthecompany’sExecutiveBoardwitheffectfromtheendofthedayof

30 September2010.OnbehalfoftheSupervisoryBoard,Iwouldliketotakethisopportunityto

thankhimagainforalltheworkhehasdoneovertheyears.

IthanktheRWEExecutiveBoardandalltheGroup’semployeesfortheworktheydidinthefinancial

yearthatjustcametoaclose.Theirdedicationandexpertisemadeadecisivecontributiontothe

company’scommercialsuccess.

OnbehalfoftheSupervisoryBoard

Dr.ManfredSchneider

Chairman




supervisory board report 139

Responsible and transparent corporate governance is one of the cornerstones of our sustained

success. Our guiding principle is always the most up-to-date version of the German Corporate

Governance Code, which was introduced in 2002. In recent years, we have always issued an

unconditional statement of compliance. New recommendations were included in the Code in

May 2010, and we intend to continue complying with them entirely in the future.

The German Corporate Governance Code. ‘Corporategovernance’definestheresponsibleand

transparentmanagementandmonitoringofacompany,focusedonlong-termcommercialsuccess.

RWEallowsitselftobejudgedbythis.WeusetherecommendationsoftheGermanCorporate

GovernanceCode(hereinafterreferredtoasthe‘Code’)asthemainbenchmarkforthis.TheCode

aimstoincreasetheconfidenceplacedbydomesticandinternationalinvestors,customers,employees

andthepublicinGermanlistedcompanies.TheGovernmentCommissionoftheGermanCorporate

GovernanceCodesubmittedthefirstversionoftheCodeinFebruary2002.Sincethen,the

CommissionhasreviewedtheCodeeveryyearagainstthebackdropofdomesticandinternational

developmentsandadapteditwhenevernecessary.

New Code recommendations. TheGermanCorporateGovernanceCodewasagainrefinedlastyear.In

itsplenarysessionon26May2010,theGovernmentCommissionaddedvariousdetailstothe

diversityrecommendationsformanagementandsupervisoryboardmembers.Inaddition,new

recommendationswereadoptedinordertorendersupervisoryboardsmoreprofessionallyqualified.

ThenewversionoftheCodewasannouncedintheelectroniceditionoftheGermanFederalGazette

on2July2010.

• Diversity in supervisory and management boards.Therecommendationconcerningdiversityin

Germansupervisoryboards(Item5.4.1)wasamendedtorequiresupervisoryboardstoestablish

specificgoalsregardingtheircomposition.Takingintoaccountthecompany‘ssituation,the

objectivesmustconsiderthecompany‘sinternationalactivity,potentialconflictsofinterestofthe

supervisoryboardmembersanddiversity,aswellasspecifyinganagelimit.Inparticular,women

aretoberepresentedappropriately.TheCodefurtherrecommendsthatcompaniesreportontheir

goalsconcerningthecompositionoftheirsupervisoryboardsandthestatusoftheirimplementation

infuturecorporategovernancereports(cf.Item5.4.1,Para3).Withrespecttothestaffingof

managementboards,supervisoryboardsaretoensurecompliancewithdiversityrequirements,with

dueregardtotheappropriaterepresentationofwomen(Item5.1.2).Thesamerecommendation

wasissuedtomanagementboardsinrelationtothestaffingofmanagementpositions(Item4.1.5).

• Rendering supervisory boards more professional.Inadditiontothefocusondiversity,Code

amendmentsalsodealtwiththequalificationsofsupervisoryboardmembers.Thestatutory

obligationforsupervisoryboardmemberstoindependentlyimplementthecontinuededucation

andadvancedtrainingmeasuresnecessarytoperformtheirdutieswasincludedintheCode,in

ordertoemphasisetheimportanceofsuchmeasures.Thenewrulealsorequirescompaniesto

providetheboardmemberswithadequatesupportinthiscontext(Item5.4.1,Para.4).Pursuantto

anotherrecommendation,supervisoryboardmemberssittingonthemanagementboardofalisted

companymayexercisenomorethanthreemandatesinlistedcompaniesoutsidetheirgroupof

Corporate governanCe2.2

140 Corporate governance RWE Annual Report 2010

companies.Inthefuture,thelimitationwillbeexpandedtoincludemandatesinsupervisorybodies

ofcompanies,subjecttocomparablerequirements(Item5.4.5).

RWEwelcomestheCode‘snewdiversityrecommendations,buthascompliedwiththemonlytoa

limitedextentsofar.Anotherrecommendationthatwedidnotfullyadheretoforacertaintime

relatestothecaponthenumberofsupervisoryboardmandates.Additionalcommentaryonthe

deviationshasbeenprovidedinthestatementofcompliance(seebelow).Otherwise,wecomplywith

alloftherecommendationsofthecurrentversionoftheCodeandtakeupitssuggestions,withafew

exceptions.

OurlistedGroupcompanyLechwerkeAGisalsoputtingtheCodeintopractice.However,thespecifics

ofmembershipintheGroupmustbetakenintoaccountinthiscontext.LechwerkeAGhasincluded

informationonthedeviationsfromtheCode’srecommendationsinitsstatementofcompliance.

Directors’ dealings and potential conflicts of interest.Transparencyisacoreelementofgood

corporategovernance.Itisindispensable,especiallyincaseswheretransactionsconcludedbythe

ExecutiveBoardmayleadtoconflictsofinterest.Wewouldliketohighlightthefollowingaspectsof

RWE’scorporategovernancepractice:

• MaterialtransactionsconcludedbetweenRWEoraGroupcompanyandanExecutiveBoardmember

orrelatedpartywereinlinewithprevailingmarketstandards.Noconflictsofinterestofmembersof

theExecutiveBoardgoingaboveandbeyondthiswerenotified.NoSupervisoryBoardmember

concludedacontractwithRWEAG.

• ExecutiveBoardmembers,relatedpartiesandonememberoftheSupervisoryBoardpurchasedRWE

sharesintheyearunderreview.Nosaleswerenotifiedtous.Wepublishedinformationon

transactionsnotifiedtousinaccordancewithSec.15aoftheGermanStockCorporationAct(WpHG)

throughoutEurope.

TheRWEsharesandrelatedfinancialinstrumentsdirectlyorindirectlyheldbymembersofthe

ExecutiveandSupervisoryBoardsaccountforlessthan1%ofthesharesissuedbyRWE.

Wepublishfurtherinformationonourcorporategovernancepracticesontheinternetat

www.rwe.com/investorrelations.ThiswebpagealsoprovidesaccesstoourArticlesofIncorporation,

thebylawsoftheSupervisoryBoardandtheExecutiveBoard,RWE’scodeofconduct,allthecorporate

governancereportsandstatementsofcomplianceaswellasthecorporategovernancedeclarationin

accordancewithSec.289aoftheGermanCommercialCode.

Statement of compliance in accordance with Sec. 161 of the German Stock Corporation Act.Afteran

orderlyaudit,theExecutiveandSupervisoryBoardsofRWEAGissuedthefollowingdeclarationof

compliance:

Sinceitslaststatementofcomplianceon23February2010anduntil2July2010,

RWE AktiengesellschaftcompliedwithalloftherecommendationsoftheGovernmentCommission

oftheGermanCorporateGovernanceCodeissuedinthe5August2009versionoftheCode.Since

Corporate governance 141to our investors Review of operations our responsibility


3 July2010,RWEAktiengesellschafthascompliedwithalloftherecommendationsoftheversion

oftheCodeissuedon2July2010,withthefollowingexceptions:

• ThediversityrecommendationssetoutinItem5.1.2,Sentence1andItem5.4.1,Paras.2and3are

notbeingfullycompliedwithatpresent.Ensuringdiversityisalreadycommonpracticethroughout

theGroup.Amongotherthings,wehavehaddiversityprogrammestailoredtoincreasetheshare

ofwomeninmanagerialpositionsforquiteawhile.However,anoverallconceptforachieving

diversitygoalswhenstaffingtheExecutiveBoardisyettobecreated.Thesameappliestothe

staffingoftheSupervisoryBoard.Asbefore,theNominationCommitteeandtheplenarysessionof

theSupervisoryBoardconsideredtheissueofdiversity,RWE‘sinternationaloperations,potential

conflictsofinterest,andtheestablishedagelimitforSupervisoryBoardmemberswhenselecting

thecandidatesfortheelectionoftheshareholderrepresentativesscheduledfor20April2011.

However,nospecificgoalsexistedthatcouldhavebeenconsideredorpresentedintheAnnual

Report,andtheyarestillyettobeestablished.TheSupervisoryBoardofRWEAGisoftheopinion

thatcreatinganoverallconceptforthediversityofmembersoftheExecutiveandSupervisory

BoardsanddeterminingspecificgoalsregardingthecompositionoftheSupervisoryBoardrequires

extensivepreparatoryworkandin-depthdiscussions,whichshouldbelefttotheSupervisoryBoard,

whichwillhavebeenrecomposedafterthisyear‘sAnnualGeneralMeeting.Onlyinthismannercan

oneensurethatallmaterialaspectsbeconsideredandthatboththeconceptandthegoalsprove

themselvesinpractice.Inthecurrentfinancialyear,theSupervisoryBoardwilldealwiththeissue

extensivelyandprovideinformationinaccordancewithstatutoryregulationsonanycorresponding

adjustmentstoRWE‘scorporategovernance.

• RWEAktiengesellschaftfollowedtherecommendationinItem5.4.5toalimitedextentfrom

3 July 2010to21January2011.Untiltheendofthisperiod,Dr.EkkehardSchulzwasChairmanof

theExecutiveBoardofThyssenKruppAGandsatonthesupervisoryboardsoftwolistedcompanies

aswellasofanon-listedcompanywithsimilarrequirementsconcurrentlytohismembershipinthe

SupervisoryBoardofRWE.AshehasretiredfromtheExecutiveBoardofThyssenKrupp,wecomply

withtheCode‘srecommendationunconditionallyonceagain.ItistheviewoftheSupervisoryBoard

ofRWEAGthatitwasinthecompany‘sbestinteresttokeepDr.SchulzontheRWEboard.This

opinionisbasedonDr.Schulz‘syears-longtenureonRWE‘sSupervisoryBoardaswellasonthe

extensiveexpertiseandexperiencehepossessesbyvirtueofhisleadingpositionsincompanies

withinternationalactivities.Moreover,thedeviationfromtheCode‘srecommendationonlylasted

foraveryshortperiod.

RWEAktiengesellschaft

OnbehalfoftheSupervisoryBoard OnbehalfoftheExecutiveBoard

Dr.ManfredSchneider Dr.JürgenGroßmann Dr.RolfPohlig


142 Corporate governance RWE Annual Report 2010

For us, transparent reporting on Executive and Supervisory Board compensation is one of

the core elements of good corporate governance. On the following pages, we have presented

the principles of RWE AG’s compensation system as well as its structure and the payments.

The 2010 compensation report fully complies with the recommendations of the German

Corporate Governance Code. It is part of the combined review of operations and the corporate

governance report.

ExecutiveBoardcompensation

Compensation structure. ThestructureandamountofExecutiveBoardmembercompensationare

determinedbytheSupervisoryBoardandreviewedonaregularbasis.Theexistingcompensation

systemensuresthatExecutiveBoardmembersarecompensatedinamannercommensuratewith

theiractivitiesandresponsibilities,inlinewithcommonpracticewithintheGroupandonthe

externalmarket.Ittakesintoaccountnotonlytheirpersonalperformance,butalsothecompany’s

businesssituation,itsperformanceandprospectsforthefuture.

InlightoftheGermanActontheAppropriatenessofManagementBoardCompensation(VorstAG)

whichcameintoforceon5August2009,theSupervisoryBoardreviewedthecompensationsystem

andbroughtthecompensationstructuremoreinlinewithsustainablebusinessdevelopment.On

22 April2010,theupdatedcompensationsystemwaspresentedtotheAnnualGeneralMeeting,

whichapproveditbyasignificantmajorityvote.

Short-term compensation components. Thetotalcashcompensationconsistsofanon-performance-

basedfixedcomponentandavariableperformance-relatedcomponent.Ifthedegreetowhich

targetshavebeenachievedis100%,thetotalcashcompensationbreaksdownintoapproximately

45%(formerly40%)forthefixedcomponentandapproximately55%(formerly60%)forthevariable

component.

Thevariablecomponentconsistsofacompanybonus,accountingforapproximately70%,andan

individualbonus,accountingforapproximately30%.ThecompanybonusisbasedontheGroup’s

valueadded.Ifthefigurebudgetedforthefiscalyearinquestionisachieved,thedegreetowhich

thetargethasbeenachievedis100%;thedegreecanamounttobetween0%(formerly50%)and,

asbefore,150%.ThepersonalbonusdependsonthedegreetowhichanExecutiveBoardmember

achievestheperformancegoalsagreedwiththeChairmanoftheSupervisoryBoardatthebeginning

ofthefinancialyear.Themaximumdegreetowhichthistargetcanbeachievedis120%.

Compensation report2.3

Compensation report 143to our investors Review of operations our responsibility


InordertoenablethemembersoftheExecutiveBoardtopartakeinanevenmoremeasurable

mannerofbothpositiveandnegativecompanyperformanceoverthelongterm,paymentof25% of

thebonusiswithheldforthreeyears.Thiscorrespondstonearly15%ofthetotalcashcompensation.

Areviewbasedonwhatistermeda‘bonusmalusfactor’isconductedbytheSupervisoryBoardat

theendofthethree-yearperiod,inordertodeterminewhethertheExecutiveBoardhasmanagedthe

companysustainably.Onlyifthisappliesistheretainedbonuspaid.

ThedevelopmentoftheGroup’saddedvaluedetermines45%ofthebonusmalusfactor.Another

45%isdeterminedonthebasisofacompany-specificindex,whichreflectstheGroup’ssuccessin

thefieldofcorporateresponsibility(CR).ThisCRIndex,whichbuildsonthesustainabilityreporting

thathasbeenafixtureatRWEformanyyears,reflectstheGroup’senvironmentalandsocialactivity.

Theremaining10%ofthebonusmalusfactorisdeterminedbytheGroup-internalMotivationIndex,

whichmeasuresemployeesatisfactionandmotivation.

Atthebeginningofthethree-yearperiod,theSupervisoryBoardestablishesbindingtargetfigures

forvalueadded,theCRIndex,andtheMotivationIndex,whichmaynotbealteredduringthe

observationperiod.Thesetargetfiguresarecomparedtothefiguresactuallyachievedattheendof

thethree-yearperiod.Thebonusmalusfactorcalculatedbythismethoddetermineswhetherthe

retainedbonusispaidaswellasitsamount.Thebetterthefiguresactuallyachieved,thehigherthe

bonusmalusfactor.Itmayvarybetween0%and130%.

Thepresentedamendmentstothecompensationschemewillbeimplementedinaccordancewith

statutoryregulationsfortheChairmanoftheExecutiveBoardassoonashiscontracthasbeen

adapted.Inparticular,therulesconcerningthepartialretentionofthebonusandthebonusmalus

factordonotapplyyet,andthebonusforfiscal2010willbefullypaidoutafterthe2011Annual

GeneralMeeting.Incontrast,thenewrulesapplytotheothermembersoftheExecutiveBoardas

theyagreedtoanadvanceapplicationoftherefinedcompensationsystemwitheffectfromtheyear

underreview.

Inadditiontocashcompensation,ExecutiveBoardmembersreceivenon-cashremunerationand

othercompensation,consistingprimarilyofsumsreflectingtheuseofcompanycarsaccordingto

Germanfiscalguidelinesandaccidentinsurancepremiums.

CompensationalsoincludespaymentforexercisingSupervisoryBoardmandatesheldbyExecutive

Boardmembersataffiliates.Allthisincomeisdeductedfromthevariablecompensationand

thereforedoesnotincreasethetotalremuneration.

RWE Annual Report 2010144 Compensation report

Theshort-termcompensationcomponentspaidtomembersoftheExecutiveBoardforfiscal2010

wereasfollows:

Theretained25%ofthebonusisnotincludedin2010compensationbecauseitdoesnothavean

impactonremunerationuntiltheendofthethree-yearperiodandonlyaffectsitifthenecessary

prerequisitesaremet.Thefollowingpresentationisthereforevoluntary,andaimstoconveya

completepictureofthecompensationcomponents.

Long-term incentive compensation. WiththeexceptionoftheChairmanoftheExecutiveBoard,

performanceshareswereawardedtomembersoftheExecutiveBoardaspartoftheBeat2010

long-termincentiveplan(“Beat”forshort).Performancesharesaregrantedonconditionthatthe

ExecutiveBoardmembersinvestinRWEcommonsharesasumwhichisequaltoone-thirdofthe

Short-term Executive Board compensation in 2010

Non-performance-based compensation

performance- based compensation

Non-cashand other

remuneration

paymentfor exercise

of mandates1

other payments Total

€ ‘000 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

Dr. Jürgen Großmann2 2,700 2,700 3,898 4,431 30 24 37 7 2,000 2,000 8,665 9,162

Dr. leonhard Birnbaum 750 680 779 1,259 24 22 0 0 0 0 1,553 1,961

Alwin fitting 769 680 794 1,246 18 16 3 13 0 0 1,584 1,955

Dr. Ulrich Jobs3 630 760 789 1,282 17 23 80 125 0 0 1,516 2,190

Dr. Rolf pohlig 840 760 809 1,340 32 31 60 67 0 0 1,741 2,198

Dr. Rolf Martin schmitz 750 453 543 742 20 12 236 97 0 0 1,549 1,304

Total 6,439 6,033 7,612 10,300 141 128 416 309 2,000 2,000 16,608 18,770

1 income from the exercise of mandates is part of variable compensation.2 Dr. Jürgen Großmann receives an annual €2,000,000 instead of a pension commitment.3 Dr. Ulrich Jobs retired from the Executive Board as of 30 september 2010.

Bonus retention€ ‘000

2010 2009

Dr. Jürgen Großmann 0 0

Dr. leonhard Birnbaum 260 0

Alwin fitting 266 0

Dr. Ulrich Jobs1 0 0

Dr. Rolf pohlig 290 0

Dr. Rolf Martin schmitz 260 0

Total 1,076 0

1 Dr. Ulrich Jobs retired from the Executive Board as of 30 september 2010.



Compensation report 145

valueoftheperformancesharesgrantedaftertaxes.ThesharesmustbeheldfortherespectiveBeat

tranche’sentirewaitingperiod.Anynecessarynotificationsofdirectors’dealingswerepublished.

TheformerBeat2005long-termincentiveplanwasadaptedinviewoftheVorstAG.Most

importantly,theformerwaitingperiodwasextendedfromthreetofouryears,andadditional

exercisedatesafterthetermwereincluded.Beatthussupplementsthecompensationsystem

withanevenlonger-termincentivecomponent,rewardingthesustainablecontributionmade

byexecutivestothecompany’ssuccesstoanevengreaterextent.Asbefore,thecompany’s

performanceismeasuredusingtheTotalShareholderReturn(TSR)ofRWEshares,whichcoversboth

thedevelopmentofthesharepriceandreinvesteddividends.Thepayoutfactorisdeterminedby

comparingRWE’s TSRwiththeTSRofothercompaniesintheDowJonesSTOXXUtilitiesIndex.

ExecutivesentitledtoparticipateinBeatreceiveaconditionalallocationofperformancesharesevery

year.Aperformanceshareallocatedinthefiscalyearconsistsoftheconditionalrighttoreceivea

payoutincashfollowingawaitingperiodoffour(previouslythree)years.However,apayoutonly

takesplaceif,onconclusionofthewaitingperiod,theRWEshare’sperformanceisbetterthanthe

performanceof25%ofthecompaniesinthepeergroup,measuredintermsoftheirindexweighting

asoftheinceptionoftheprogramme.Consequently,thedecisivefactorisnotonlyRWE’sposition

amongthecompaniesinthepeergroup,butalsowhichofthecompaniesRWEoutperforms.

PaymentinthefiscalyearcorrespondstotheaverageRWEsharepriceduringthelast60(previously

20)tradingdayspriortotheexpiryoftheprogramme,thenumberofconditionallyallocated

performanceshares,andthepayoutfactor.PaymentforExecutiveBoardmembersislimitedto

one-and-a-halftimesthevalueoftheperformancesharesatgrant.

PerformancesharesgrantedunderBeatintheyearunderreviewbreakdownasfollows:

Long-term incentiveshare-based payment

Beat 2010: 2010 tranche

No. Allocation value at grant

€ ’000

Dr. leonhard Birnbaum 28,891 750

Alwin fitting 28,891 750

Dr. Ulrich Jobs 28,891 750

Dr. Rolf pohlig 28,891 750

Dr. Rolf Martin schmitz 28,891 750

Total 144,455 3,750


Intheyearunderreview,the2007long-termincentivetrancheoftheBeat2005programmewas

paidoutasfollows:

ExecutiveBoardmembersstillholdperformancesharesfromtheBeat2005programme’s2008and

2009tranchesfromExecutiveBoardactivityinpreviousyears.Theseallocationsarenotpartoftotal

compensationforthe2010financialyear.Instead,theyarepartoftotalcompensationforthetwo

precedingfiscalyears.Assuch,theyarepresentedinthecompensationreportsfor2008and2009.

GermanAccountingStandard(DRS)17mandatesthatthetotalexpenserecognisedforshare-based

paymentsallocabletoeachExecutiveBoardmemberbedisclosedanditemised.Duetothe

developmentoftheshareprice,noexpenseswererecognisedforshare-basedpaymentsinthe

periodunderreview.Instead,partoftheexistingprovisionwasreleasedintheperiodbeing

reviewedasfollows:

Long term incentiveshare-based payment

Beat 2005: 2007 tranche

payout € ’000

Alwin fitting 590

Dr. Ulrich Jobs 590

Dr. Rolf pohlig 590

Total 1,770

Allocation to expenses for long-term incentive share-based payments 2008 /2009 /2010 tranches

2010€ ‘000

2009€ ‘000

Dr. leonhard Birnbaum − 65 433

Alwin fitting − 161 941

Dr. Ulrich Jobs − 161 941

Dr. Rolf pohlig − 161 941

Dr. Rolf Martin schmitz − 29 319

Total − 577 3,575




Total compensation. Intotal,theExecutiveBoardreceived€16,608,000inshort-termcompensation

componentsinfiscal2010.Inadditiontothis,long-termcompensationcomponentsfromthe2010

trancheoftheBeatprogrammeamountingto€3,750,000wereallocated.Totalcompensationofthe

ExecutiveBoardforfiscal2010thereforeamountedto€20,358,000.

Employment termination benefits. ExecutiveBoardmembersreceivethefollowingbenefitsfrom

RWEwhentheyretirefromtheBoard:

Pension commitments. ThemembersoftheExecutiveBoard–withtheexceptionofitsChairman,

Dr. JürgenGroßmann–receivepensioncommitments(directcommitments),whichgrantthemor

theirsurvivingdependantsentitlementtoalife-longpensionorsurvivingdependants’benefits.

Thesebenefitsaredueintheeventofretirementuponreachingtheageof60(retirementage),

permanentdisability,deathandearlyterminationornon-extensionoftheemploymentcontractby

thecompany.Theamountofqualifyingincomeandthelevelofbenefitsdeterminedbytheduration

ofservicearetakenasabasisforeachmember’sindividualpensionandsurvivingdependants’

benefits.Profitparticipationandotherfringebenefitsarenotfactoredintothepension.Theceiling

forpensionbenefitsformembersoftheExecutiveBoardis60%ofthelastqualifyingincomeonthe

daybeforetheyreachretirementage.Thewidow’spensionamountsto60%ofherhusband’s

pension,theorphan’spensionamountsto20%ofthewidow’spension.Vestedold-agepension

benefitsdonotexpire.Theamountoftheold-agepensionandthesurvivingdependants’benefits

arereviewedeverythreeyears,takingaccountofallmajorcircumstances,withdueregardto

changesinthecostofliving.Duetoearlierprovisions,therearesomedifferencesinthepension

commitmentsintermsofthecalculationofthelevelofbenefits,thecreditingofotherpensions

andbenefits,andtheadjustmentmodeselectedforpensionsandsurvivingdependants’benefits.

Intheeventofanearlyterminationornon-extensionofanemploymentcontract,ExecutiveBoard

membersshallonlyreceivepaymentiftheterminationornon-extensionwasoccasionedbythe

companyandeffectedwithoutduecause.Insuchcases,theystartreceivingpensionpaymentswhen

theyleavethecompany,butnoearlierthanoncompletionoftheir55thyearofage.Intheeventofa

non-extensionorearlyterminationofanemploymentcontract,50%oftheincomeearnedthrough

otheractivitiesuntiltheendoftheExecutiveBoardmember’s60thyearofageorthebeginningof

themember’soccupationaldisabilityistakenintoaccountindeterminingthepensionpayments.

Theservicecostofpensioncommitmentsinfiscal2010totalled€776,000.Attheendoftheyear

underreview,thepresentvalueofthedefinedbenefitobligationwas€17,007,000.Thefollowingis

abreakdownofservicecostsandthepresentvalueofpensionbenefits,takingintoaccountbothage

andyearsofservice.


WithregardtoExecutiveBoardmembers,vestedpensionbenefitsfromearlieremploymentandyears

ofserviceforpreviousemployerswhichhavebeenrecognised,arecreditedtothecompany’spension

paymentsbycontractualarrangement.

Change of control.ExecutiveBoardmembershaveaspecialrightofterminationintheeventthat

thecompanylosesitsindependenceastheresultofcontrolbeingtakenoverbyshareholdersorthird

parties.Insuchcases,theyhavetherighttoretirefromtheExecutiveBoardwithinsixmonthsof

thetimeatwhichthechangeofcontrolbecomesknownandtorequestthattheiremployment

contractbeterminatedincombinationwithaone-offpayment.Totheextentnecessarytoensurethe

company’ssurvival,however,theSupervisoryBoardcandemandthattheExecutiveBoardmember

remaininofficeuntiltheendofthesix-monthperiod.

Achangeofcontrolasdefinedbythisprovisionoccurswhenashareholderoragroupof

shareholdersactingjointly,orthirdpartiesactingjointly,acquireatleast30%ofthevotingrights

inacompany,orifanyoftheaforementionedcanexertacontrollinginfluenceonthecompanyin

anothermanner.Acontrollinginfluencemayalsoexistifoneorseveraljointlyactingshareholdersor

thirdpartiesholdmorethanhalfofthevotingstockrepresentedatthreeconsecutiveAnnualGeneral

Meetings.Theaforementionedprovisionsdonotapplyifthechangeofcontrolputsthecontrolof

thecompanyinthehandsofindividualorjointlyactingcitiesorcommunitiesorcompanieswhichare

majority-ownedbyanentityunderpubliclawintheFederalRepublicofGermany.

Onterminationoftheiremploymentcontracts,ExecutiveBoardmembersreceiveaone-offpayment

intheamountofthecompensationdueuntiltheendofthedurationofthecontractoriginally

agreed,whichshallnotbehigherthanthreetimestheirtotalcontractualannualcompensationand

shallnotbelessthantwicetheirtotalcontractualannualcompensation.

Pensions predicted annual pension on reaching the company

age limit (60 years)1 € ‘000

service cost

€ ‘000

Defined benefitobligation

€ ‘000

Age 2010 2009 2010 2009 2010 2009

Dr. leonhard Birnbaum 44 270 245 111 85 889 635

Alwin fitting 57 312 283 188 136 4,648 3,935

Dr. Ulrich Jobs2 57 302 274 149 155 4,251 3,761

Dr. Rolf pohlig 58 302 274 84 63 2,733 2,159

Dr. Rolf Martin schmitz3 53 408 370 244 0 4,486 3,713

776 439 17,007 14,203

1 Based on compensation qualifying for pensions as of 31 December 2010.2 Dr. Ulrich Jobs retired from the Executive Board as of 30 september 2010. This led to a one-off increase in the service cost of €520,000.3 Dr. Rolf Martin schmitz’s projected pension includes pensions due from former employers.




Asregardsbenefits,effectiveasoftheendoftheemploymentcontract’sagreedduration,Executive

Boardmembersaretreatedasifthecompanyhadnotextendedtheiremploymentcontractsatthat

time,withouttherebeingamaterialreasoninthesenseofSection626oftheGermanCivilCode

(BGB).

TheChairmanoftheExecutiveBoard,Dr.JürgenGroßmann,wasgrantedaspecialrightof

terminationbeforetheamendmenttotheGermanCorporateGovernanceCodewitheffectfrom

6June2008.Onexerciseofhiscontractuallysecuredspecialrightoftermination,Dr.Großmann

shallreceiveaone-timepaymentthatcoversalloftheremunerationdueuntiltheexpiryofhis

employmentcontract,includingtheamountcontractuallyagreedinsteadofapensioncommitment.

Intheeventofachangeofcontrol,alltheperformancesharesgrantedtotheExecutiveBoardand

entitledexecutivesshallexpire.Instead,acompensatorypaymentshallbemade,whichshallbe

determinedwhenthetakeoverofferismade.TheamountshallbeinlinewiththepricepaidforRWE

sharesatthetimeofthetakeover.Thisshallthenbemultipliedbythefinalnumberofperformance

shares.Performancesharesshallalsoexpireintheeventofamergerwithanothercompany.Inthis

case,thecompensatorypaymentshallbecalculatedbasedontheexpectedvalueoftheperformance

sharesatthetimeofthemerger.Thisexpectedvalueshallbemultipliedbythenumberof

performancesharesgranted,pro-rateduptothedateofthemerger.

Intheeventofachangeofcontrol,theExecutiveBoard’sretainedbonusesarevaluedearlyand,if

applicable,paidout.Thisisdonebasedontheaveragebonusmalusfactorforthelastthreeyears.

Theaveragecalculatedbythismethoddetermineswhethertheretainedbonusesarepaidoutaswell

astheamountofthepayout.

Severance cap. IfanExecutiveBoardmandateisotherwiseterminatedearlywithoutduecause,

ExecutiveBoardmembersshallreceiveaseverancepaymentofnomorethantwototalannual

compensationsandnomorethanthecompensationdueuntiltheendoftheemploymentcontract.

ThisruleshallbeappliedtotheChairmanoftheExecutiveBoardinlinewiththeGermanCorporate

GovernanceCodeonlyoncehiscontracthasbeenadaptedorextended.

Other commitments. Dr.UlrichJobsreachedanagreementwiththecompanytoretirefromthe

ExecutiveBoardearly,witheffectfrom30September2010.Hereceivedatotalof€3,149,000,

consistingofabasesalaryandbonusesfortheperiodfrom1October2010throughto

31 March 2012,towhichhewasentitledonthebasisofhiscontract,whichwouldhaveexpired

on31 March2012.Heshallalsobeconditionallyallocatedthesamenumberofperformanceshares

forthisperiodastheotherExecutiveBoardmembers.Performancesharesgrantedearliershall

remainvalidinaccordancewiththeplanconditions.Dr.Jobsshallreceiveacompanypensionfrom

1 April2012onwards,inlinewiththecontractualarrangements.

150 Compensation report RWE Annual Report 2010

SupervisoryBoardcompensation

ThecompensationoftheSupervisoryBoardissetoutintheArticlesofIncorporationandisdetermined

bytheAnnualGeneralMeeting.SupervisoryBoardmembersreceiveafixedcompensationof€40,000

perfiscalyearfortheirservicesaftereachfiscalyear.Thecompensationincreasesby€225forevery

€0.01bywhichthedividendexceeds€0.10percommonshare.

TheChairpersonoftheSupervisoryBoardreceivesthreetimesandtheDeputyChairpersonreceives

twicetheaforementionedamount.Ifacommitteehasbeenactiveatleastonceinafiscalyear,

committeemembersreceiveone-and-a-halftimesthecompensationandthecommitteechairperson

receivestwicethecompensation.IfamemberoftheSupervisoryBoardholdsseveralofficesonthe

SupervisoryBoardofRWEAGconcurrently,heorshereceivescompensationonlyforthehighest-paid

position.Out-of-pocketexpensesarerefunded.

Intotal,theemolumentsoftheSupervisoryBoardamountedto€3,434,000infiscal2010.

Additionally,certainSupervisoryBoardmemberswerepaidcompensationtotalling€243,000for

exercisingmandatesatsubsidiaries.

Supervisory Board compensation 2010 base compensation

2010 committee compensation

Total

€ ‘000 fixed variable fixed variable 2010 2009

Dr. Manfred schneider, chairman 40 77 80 153 350 292

frank Bsirske, Deputy chairman 40 77 40 77 234 234

Dr. paul Achleitner 40 77 20 38 175 175

Werner Bischoff 40 77 20 38 175 175

carl-ludwig von Boehm-Bezing 40 77 40 77 234 234

Heinz Büchel 40 77 20 38 175 175

Dieter faust 40 77 20 38 175 175

Dr. Thomas R. fischer (until 31 Jan 2010) 3 6 0 0 9 193

Andreas Henrich 40 77 0 0 117 117

Heinz-Eberhard Holl (until 31 Jan 2010) 3 6 2 3 14 175

frithjof Kühn (since 1 feb 2010) 37 70 18 35 160 0

Hans peter lafos 40 77 0 0 117 21

Dr. Gerhard langemeyer 40 77 20 38 175 175

Dagmar Mühlenfeld 40 77 20 38 175 175

Dr. Wolfgang Reiniger 40 77 0 0 117 117

Günter Reppien 40 77 20 38 175 175

Dagmar schmeer 40 77 20 38 175 175

Dr.-ing. Ekkehard D. schulz 40 77 20 38 175 175

Dr. Wolfgang schüssel (since 1 Mar 2010) 34 64 0 0 98 0

Uwe Tigges 40 77 20 38 175 175

Manfred Weber 40 77 0 0 117 117

Dr. Dieter Zetsche 40 77 0 0 117 54

Total 797 1,532 380 725 3,434 3,304

Compensation report 151to our investors Review of operations our responsibility


The challenges faced by RWE are bigger than ever. To overcome them, we need employees with

innovative ideas and who are willing to take initiative. Recruiting talent within and outside the

Group, developing it, and retaining it over the long term are important cornerstones of our

personnel strategy. Another task at hand is to promote flexibility and willingness to change. Only

by taking this approach can we guarantee that vacancies are filled optimally – with the right

employees, at the right time and at the right place.

RWE addresses budding professionals.Demographicchangehascausedthenumberofsuitable

youngprofessionalstodecreaseandcompetitionforemployeesisalreadymuchfiercerthanafew

yearsago.Therefore,wemustinvestigateallthepossibilitiesofengagingwithtalentedyoungpeople

andarousingtheirinterestinRWE.Inparticular,theinternetoffersavarietyofoptions.Viaourportal

atwww.rwe.com/career,weaddresspupils,studentsandgraduatesaswellasindividualswithwork

experience.Theportaliswellreceived.Itwasrankedfourthamongthewebpresencesof100German

companiesinasurveyconductedbythepersonnelconsultinginstitutePotentialpark.However,

besidescommunicatingviatheinternet,itisalsoimportanttoestablishpersonalcontacts.Therefore,

welauncheda‘mobileinformationcampaign’in2010totargetstudents.Lastyear,wevisited

tenuniversitieswithaninformationbooth.RWEemployeesexplainedtheareasofactivityofour

companyaswellaspointsofentry.Furthermore,weacquaintedthestudentswiththeenergy

industrythroughpresentationsandanexhibitionoftechnologicalinnovations.Morethan4,000

youngpeopleacceptedourinvitationtoinformthemselvesaboutRWEatthesevenues.Employer

brandingisanotherfieldinwhichweareactive.Thistermdesignatestheuseofconceptsfromthe

fieldofmarketingtopresentacompanyasanattractiveemployerandtodistinguishitfromits

competitors.Tosharpenourprofileinthisarea,welaunchedanadvertisingcampaignin2010.Itwas

agreatsuccess.InarankingpublishedbytheconsultingfirmUniversum,RWEwasrecognisedasthe

bestup-and-comerinthe‘MostAttractiveEmployeroftheYear’category.

Identifying and making use of our employee potential.AtRWE,thesearchfortalentdoesnotendat

thefactorygate.Itisvitalforustoknowourpersonnel’squalificationsandmakestrategicuseof

them.Asystem,inwhichwerecordandconstantlyupdatetheknow-howofouremployees,assistsus

tothisend.Thismakesiteasierforustofillvacancieswithsuitablepersonnelfromwithinourown

ranks.OurHRworkalsoaimstosupportthoseofouremployeeslookingfornewchallengeswithin

theRWEorganisation,evengoingbeyondtheirGroupcompanyandhomecountry.Thisiswhywe

expandedourin-housejobboard.Besidesgivingourworkforcetheopportunitytostayabreastof

thevacanciesofferedbyoursubsidiaries,ouremployeescanregistertheirinterestintakingona

newtask.Thismakesiteasierforourexecutivestotargetemployeeswillingtochangewhenstaffing

vacantpositions.Whereverpossibleandreasonable,wefillmanagerialpositionsfromwithinourown

WorkforCe2.4

152 Workforce RWE Annual Report 2010

ranks.Thisreducesthecostofacquaintingthemwiththeirnewdutiesandprovidesperformance

incentivestoespeciallyqualifiedindividuals.Toensurethatnotalentremainsundetected,our

executivestaffassessesthepotentialoftheirteamsonceeverytwoyears.Thedivisionheadsthen

convenetoselectfromalistofproposalsthoseindividualswhomtheyconsidertohavethemost

potential.TheirinformationisstoredinadatabaseaccessibletoallexecutivesfromallGroup

companies.Furthermore,themanagementboardsofRWEAGandtheGroupcompaniesmeetoncea

yeartonominatesuccessioncandidatesforkeyexecutivepositions.Takingthisapproachhasenabled

ustostaffover90%ofourmanagerialvacancieswithinternalcandidates.

Opportunities through diversity.Societyincreasinglydemandsthatcompaniesrecognisethe

benefitsofadiverseworkforce.ThisisanareainwhichRWEispursuinganumberofgoals.Inline

withtheinternationalreachofourbusiness,wepromotecross-countrymobilitywithintheRWEGroup

andrespectforpeoplewithdifferentculturalbackgrounds.Moreover,wewanttohiremorewomenat

RWE.Ouraimisalsotohavemorefemalerepresentationinexecutivepositions,andwehaveinitiated

aspecialmentoringprogrammeforthispurpose.Amongotherthings,participantsareshownthe

rangeofwaystoplanone’scareersuccessfullyatRWE.Supportisalsoprovidedbyourinternational

networkforwomeninmanagerialpositions.Attheendof2010,11%ofallexecutivestaffatRWE

wasfemale,comparedto9%ayearearlier.

Long-term incentives for enduring success.Strongretentionofourexecutivesandhighidentification

withcompanytargets–thesearetheobjectiveswearepursuingwithourlong-termincentiveplan,

‘Beat.’Underthisprogramme,wegrantexecutivesso-calledperformanceshares(seepages196et

seqq.),whicharepaidoutafterfouryearsattheearliest.Theamountofthepayoutdependsonthe

developmentofRWE’ssharepriceandreinvesteddividendscomparedtocompetitors.Thepayoutis

capped,andpoorperformancecancancelitcompletely.Since2010,allexecutivesparticipatingin

BeathavebeenobligedtoinvestinRWEcommonsharesasumcorrespondingtoone-sixthofthe

valueoftheallocatedperformanceshares.Thisrequirementpreviouslyappliedonlytomembersof

executiveandmanagementboardsofthemostimportantGroupcompanies.

Good ideas pay off.Ourgroupwideideamanagementsystemprovidesouremployeeswithan

incentivetocapitaliseontheirexperienceandcreativityinordertoimproveworkprocesses.Inthe

lastfiscalyearalone,some6,300ideasweresubmitted.Weestimatethecommercialbenefitto

exceed€50millionperyear.Oneexampleisthedevelopmentofadrone,whichcanbeusedtoeasily

andsafelymonitorpoorlyaccessibleareassuchaspowerplantboilersandsmokestacks.Besides

increasingoccupationalsafety,thissavesbothtimeandmoney.In2010,werewardedouremployees

fortheirinnovativeideaswithmorethan€2millioninbonuses.

Workforce 153to our investors Review of operations our responsibility


Sustainable business practice pays off – for investors, customers, employees and society. It forms

the basis of lasting value creation, reliable customer relationships, attractive jobs and a strong

community. This is all indispensable for companies with a long-term orientation and regional roots

like RWE.

Ten fields of action orientated towards sustainability.Wecanonlyachievelong-termsuccessasa

companyifwesecuresociety’sacceptancethroughresponsibleaction.Ourcorporateresponsibility

(CR)strategyencompassestenfieldsofactioninwhichwepooltheissuesandchallengesthatare

mostdemandingtous.WewanteverythingthatwedointhefieldofCRtobetransparent,

measureableandbinding.Therefore,wehavedefinedkeyperformanceindicatorsforeachofthe

fieldsofactionandsetourselvesgoalswhichweintendtoachieveintheyearsahead.Theextent

towhichwearesuccessfulinthisareaalsoinfluencesthecompensationoftheGroup’sExecutive

Board.Since2010,25%ofthebonuspayabletotheExecutiveBoardhasbeenretainedforthree

years.Attheendofthisperiod,theSupervisoryBoardverifieswhetherthecompanydeveloped

sustainably.Onlyifconfirmedistheretainedbonuspaidout,justunderhalfofwhichislinkedtothe

successweachieveinthetenCRactionfields.Thismakesusoneofthefirstcompaniesinthe

DAXtolinkexecutiveboardremunerationdirectlytotheachievementofsustainabilitygoals.

Onthisandthefollowingpages,wewillpresentthetenactionfieldsofourCRstrategyaswellas

thekeyfiguresweusetomeasureoursuccessinthisarea.Furtherinformationcanbefoundinthe

reportentitled‘OurResponsibility,’whichwillbepublishedinApril2011,andonthewebat

www.rwe.com/responsibility.

(1) Climate protection.Societyexpectsustocomeupwithsolutionsforprotectingtheclimate.

AsEurope’slargestemitterofcarbondioxide,wecarryanespeciallysignificantresponsibility,as

highemissionsresultinhigheconomicrisks.Therefore,weinvestbillionsofeurosexpandingour

renewablegenerationportfolioandbuildingstate-of-the-artgasandcoal-firedpowerstations.This

enablesolder,moreemission-intensivepowerplantstogoofflinewithoutjeopardisingsecurityof

supply.By2020,weintendtohavereducedourCO2exposuretoourcompetitors’average.Wealso

wanttoaccomplishthisthroughfinancialhedges,suchasthepurchaseofemissionsallowances

throughclimate-protectionprojectsindevelopingandemergingcountriesandthevirtualswapof

carbon-intensivegenerationcapacityforcompetitors’lower-emissioncapacities.Thetargetwehave

setourselvesfor2013istolimitourCO2exposuretoanequivalentof0.67metrictonsforevery

megawatthourofelectricitygenerated.

sustainaBiLity2.5

154 sustainabilty RWE Annual Report 2010

(2) Energy efficiency.Makingsparinguseofenergyisnotonlygoodfortheclimate,butalso

conservesresourcesandthereforesavesmoney.Weassistourcustomerstothisendinvariousways,

includingtheuseofsmartmeters,automatedhomeconsumption(smarthomes)andthepromotion

ofelectriccars.Ourwebsiteatwww.energiewelt.deincludesin-depthadviceonhowtosaveenergy

aswellasinformationonsubsidyprogrammesandmanufactureroffers.However,itisprimarily

incumbentuponusasacompanytomakeefficientuseofscarceresources.Wearethereforeworking

onreducingtheenergyconsumptionofourvehiclefleetandproperties.Nevertheless,themost

importantleverintermsofenergyefficiencyareourpowerplants.Assetoutearlier,weare

increasinglyreplacingoldfacilitieswithnewones.Therefore,theefficiencyofourfossilfuel-fired

powerstationswillimprovemarkedlyinthenextfewyears.Ourtargetfor2013is42.4%.

(3) Security of supply.Energymustbeavailablewheneveritisneeded.Ourcustomersrelyonusto

ensurethis–bothtodayandtomorrow.Therefore,RWEplacesgreatimportanceonabalancedand

widelydiversifiedgenerationportfolio,includingnuclear,coal,gasandrenewables.Wealso

capitaliseontheadvantagesofdiversityingasprocurement.Securityofsupplydoesnotbuildon

thesourcesofenergyalone.Italsoconcernsitstransmissiontotheconsumer.Theobjectiveweare

pursuingwithrespecttoelectricityistokeeptheannualaverageoutageofourdistributionnetworks

percustomerinGermanybelow25 minutes.Incomparison,at20.4minutes,itwasclearlybelowthis

markin2009.Nevertheless,webelieveourgoalisambitious,becausetherequirementsplacedon

thecapabilitiesandoperationofnetworksareincreasingduetotheexpansionofrenewableenergy

andtheincreasinguseofdecentralisedpowergenerationunits.Interruptionsinthesupplyofgasare

muchshorter,becausethegasnetworkactsasabuffer.Theyrecentlyaveragedsomethreeminutes

percustomerperyear.

(4) Pricing.Ourcustomersexpectexcellentservice,customisedofferingsandfairprices.Inaddition,

theyaremoreandmorewillingtoswitchproviders.Innovativeproductstailoredtosuittheneedsof

homesandcommercialoperationsenabledustodefendourshareofthemarketin2010,despite

mountingcompetition.Ouraimistohavesatisfiedcustomerswhostaywithusoverthelongterm,

perhapsevenbuyingmorethanoneproductfromus,andrecommendustobothfamilyandfriends.

In2010,westartedmeasuringoursuccessinthisrespectinGermanyusingaloyaltyindex.Itis

basedonsurveysofourresidentialandcommercialcustomers.Theindexmovesonascaleof0to

100points.Ascorebelow70designateslowsatisfaction,withvaluesfrom70to79indicating

mediocresatisfactionandfiguresabove80representinghighsatisfaction.Weachieved71pointsin

theyearunderreview.Ourgoalfor2013istoachieveanindexratingofatleast73.

sustainabilty 155to our investors Review of operations our responsibility


(5) Social responsibility.Asweareanenergycompany,wehavestronglinkswiththecommunities

atoursites,someofwhichhavebeeninexistencefordecades.Weareareliableemployerand

principalinthesecommunities,whereweworkonsocialissues.Ourcharitableactivitiesarepooled

intheRWEFoundation,whichbeganitsworkin2009.Itisendowedwithacapitalstockof

€56 millionandpromotestheeducation,culture,andsocialintegrationofyoungpeople.Through

our‘RWECompanius’initiative,wesupportthestrongeffortputinbyRWEemployeesforsocial

causes.Lastyear,wespent€2.2millionpromotingapproximately1,800projects.Allthesemeasures

benefitRWE,astheyimproveouracceptancebythegeneralpublic.Onceayear,wecommissionan

opinionsurveyinstitutetoidentifyhowRWEisperceivedbythepublicwhencomparedtoourmajor

competitors.In2010,wehadthebestreputationinourpeergroup,apositionweintendto

maintain.

(6) Demographic change.Inviewofthesteadydropinbirthrates,especiallyinGermany,we

mustseetoitearlyonthatweretainaccesstoadequatelyqualifiedstaffoverthelongterm.We

alreadytakeadvantageofmanywaystoattractyoungtalenttoourcompanyandcreateaworking

environmentthatmeetstheirexpectations.Inaddition,weprojectourneedforpersonneloverthe

longterm,takingintoaccounttheeffectsofdemographicchangeonvariousprofessions.Oneofthe

toolsweuseinthisanalysisisademographicsindex,whichmeasurestheRWEGroup’sagestructure.

Thehighertheindexscore,themoreevenlytheagegroupsarerepresentedinourGroupcompanies.

Thebestpossiblerankingis100.Inthefinancialyearunderreview,weachievedascoreof84points.

Weintendtomaintainthislevelthroughto2013.

(7) Supply chain. Ourstakeholdersincreasinglyquestionwhetherhumanrightsareobserved,

workingconditionsarereasonableandtheenvironmentisbeingprotectedincountriesfromwhich

wesourceourproductsandfuels.Byimplementingasupplychainmanagementsystem,wewant

toensurethatourbusinessrelationshipswithexternalpartnersadheretoourgroupwidecode

ofconduct.TheCodeforbidsusfrommaintainingbusinessrelationshipswithcompanieswhich

arepubliclyknowntoinfringethefundamentalethicalprinciplessetoutbytheUNGlobalCompact

initiative.Thisishowwemitigatetheriskofmisconductbyexternalcompaniesaffectingour

reputation.ContraventionsoftheGlobalCompactbysuppliersofplantsandcomplexcomponents

areunlikely,becausetheyarealmostexclusivelydomiciledinOECDmemberstates.Wehave

establishedprocessesfortheprocurementofstandardgoodsandservicesaswellasforenergyfuels,

whichenableustoobtaininformationonsuppliercompliancewiththeGlobalCompact.In2010,two

thirdsofourbusinessrelationshipswerealreadycoveredbytheseprocesses.Weareaimingfora

ratioof95%by2013.


(8) Innovation. Wewillachieveourgoalsinthefieldsofclimateprotection,energyefficiencyand

securityofsupplyonlyifwehaveaccesstocutting-edgetechnologies.Thisiswhyweassign

significantimportancetoresearchanddevelopment(R&D).Weareconductingover200projects

alongourentirevaluechain–fromrawmaterialextractionviatheconversion,distributionand

storageofenergytoitsuse(seepages112etseqq.).TomanageourR&Dactivities,wesetupa

groupwideinnovationmanagementsystem.Weidentifythemoststrategicallyimportantissuesat

thebeginningofeveryyear.Wemeasureoursuccessbythedegreetowhichwehavetakenspecific

R&Dmeasuresandinformedthepublicaboutouractivities.

(9) Occupational safety and health management.Wewantouremployeestoreturnhomeashealthy

aswhentheyarriveatwork.Inordertodothebestpossiblejusticetothisambition,weconstantly

workonimprovingoccupationalsafetyandhealth.Themeasurestakenaspartofthecompany

healthmanagementsystemlaunchedin2009aretailoredtomaintainstaffperformance.We

introducedaWorkloadAccomplishmentIndex(WAI)inGermanyin2010.TheWAIgivesemployeesa

basisforsystematicallyassessing–withtheassistanceofaphysician–thedegreetowhichtheyare

physicallyandpsychologicallycapabletodotheirworkatpresentandinthefuture.RWE’scultureof

safetyisalsoimportanttous.Toimproveit,weinitiatedthe‘SichervoRWEg’campaignin2008,

focusingonexecutiveinstruction.Thisandahostofadditionalmeasureshaveinstilledtheworkand

healthphilosophyintoteamsanddailyroutines.Wemeasureoursuccessinthefieldofoccupational

safetybythefactthataccidentfrequencyresultinginatleastonelostdayofworkperemployeeis

steadilydeclining.Intheyearbeingreviewed,weexperienced3.5foreverymillionhoursworked.

Thismeanstheaccidentratewasdownfortheninthstraightyear.Weintendtoachievearatebelow

2.5 by2013.

(10) Environmental protection.Ourmeasuresforprotectingtheenvironmentgofarbeyondlimiting

carbondioxideemissions.Mostofouractivityishardlynoticedbythepublic.Itisbasedonanumber

oflegalandapprovalrequirements,thefulfilmentofwhichisconsideredamatterofcourse.Tothe

bestofourknowledge,RWEcompaniesdidnotviolateanystatutoryregulationsintheyearbeing

reviewed,meaningourgroupwideenvironmentalmanagementsystemisfulfillingitspurpose.We

furtherexpandeditin2010asweintegratednewsubsidiaries,inparticularEssent.Coverageisnow

at98%,therebynearlyreachingourgoalof100%,whichweintendtoachieveby2013.

In2010,ourcapitalexpenditureonenvironmentalprotectionmeasuresamountedto€2,863million.

Twothirdsofthissumwereassignedtoclimateprotection,includinginvestmentsinthe

modernisationofourpowerplantsandtheexpansionofourrenewableelectricitygeneration

portfolio.Asubstantialshareofourenvironmentalexpenditurewasdedicatedtocleanair,including

thecostofoperatingfluegasdesulphurisationunits.Actionwetaketoprotectnatureandconserve

landscapesmainlyencompassestherecultivationofligniteminingsites.



RWE qualifies for sustainability indices.Ourcompanywasagainrecognisedforitssustainability

strategy.RWEwasincludedintheDowJonesSustainabilityIndex(DJSI),therenownedindexgroup,

foryetanotheryearinSeptember2010.Selectionsaremadebasedoneconomic,ecologicaland

socialcriteria.RWEisrepresentedintheDJSIWorldandtheDJSIEurope.Fromtheutilitysector,

17 andeightcompaniesqualifiedfortheseindices,respectively.WeareoneofthefewGerman

companiestohavebelongedtotheindexfamilywithoutinterruptionsinceitsinceptionin1999.The

DowJonesSustainabilityindicesareestablishedandpublishedbySustainableAssetManagement

(SAM)inco-operationwithDowJonesIndexesandSTOXXLimited.Theyarewidelyrecognisedasthe

world’sprimeindexgroupforcorporateperformanceinthefieldofsustainability.

Sustainability indicators reflect responsible action.Assetoutearlier,weestablishedspecificgoals

foreachCRactionfield.Furthermore,thereareanumberofotherindicatorswhichreflectour

performanceinthefieldofsustainablebusinessmanagement.Thefollowingisanoverviewofsome

keyperformanceindicators.Theyaredividedintocategories,i.e.environment,societyandcorporate

governance.TheselectionofindicatorsisorientatedtowardstherecommendationsoftheSocietyof

InvestmentProfessionalsinGermany(DVFA).

Environmental expenditure cost capital expenditure Total

€ million 2010 2009 2010 2009 2010 2009

clean air 348 242 45 103 393 345

Nature and landscape protection 73 75 18 12 91 87

Water protection 261 105 43 22 304 127

Waste disposal 162 172 1 – 163 172

Noise abatement 18 5 3 5 21 10

Brownfield sites, soil contamination 4 5 1 1 5 6

climate protection 172 162 1,714 1,320 1,886 1,482

Total 1,038 766 1,825 1,463 2,863 2,229


Field performance indicator 2010 2009 2008 2007

Environment RWE-owned plants

Nox emissions1 g/kWh 0.58 0.67 0.67 0.76

so2 emissions1 g/kWh 0.29 0.34 0.39 0.57

particulate emissions1 g/kWh 0.019 0.024 0.028 0.034

Ash1 thousand mt 7,740 7,429 6,406 6,687

Gypsum1 thousand mt 2,053 1,956 1,533 1,671

primary energy consumption2 billion kWh 403.0 368.2 396.0 411.7

Water consumption1,3 m3/MWh 1.41 1.70 1.49 1.69

specific co2 emissions mt/MWh 0.715 0.792 0.749 0.861

scope 1 co2 emissions4 million mt 144.9 135.9 147.4 155.1

Total plants5

specific co2 emissions mt/MWh 0.732 0.796 0.768 0.866




capital expenditure of the Renewables Division € million 709 733 1,102 −8

share of the Group’s electricity generation accounted for by renewables % 4.09 3.5 2.4 2.4

society Employees10 70,856 70,726 65,908 63,439

share of women in the company % 26.2 26.1 25.6 25.2

share of women in executive positions % 10.8 9.011 8.9 8.9

fluctuation rate % 8.3 8.7 8.8 9.1

Training days per employee (Germany) 4.7 4.8 4.6 4.2

Health ratio % 95.6 95.4 95.4 95.6

lost-time incident frequency lTif12 3.5 4.3 5.3 6.1

fatal work-related accidents13 3 5 12 9

corporate governance share of the RWE Group’s revenue earned in countries with a high or very high risk of corruption14 % 12.0 12.7 12.9 11.8

R&D costs € million 149 110 105 74

1 figures for 2009 adjusted due to the inclusion of Netherlands /Belgium and Hungary.2 figures for 2009 adjusted due to the inclusion of the Netherlands /Belgium.3 Difference between power plant water withdrawals and returns to rivers and other surface waters; excluding power plants with sea water cooling.4 scope 1: direct co2 emissions from in-house sources (oil and gas production, gas transmission & electricity generation).5 including power stations not under RWE ownership, but that we can deploy at our discretion on the basis of long-term agreements. 6 scope 2: indirect co2 emissions from the generation of electricity purchased from third parties which is used when being transmitted over the RWE network (network losses).7 scope 3: indirect co2 emissions that do not fall under scope 1 or 2, produced through the generation of electricity procured from third parties, (including network losses in third-party networks), production and transmission of used fuel, and co2 emissions of gas sold to customers.8 RWE innogy was established in february 2008.9 Electricity generation based on wind (3.1 TWh), hydro (3.5 TWh) and biomass (2.3 TWh).10 converted to full-time positions.11 Excluding Essent.12 sum of all accidents for every million hours worked. Excluding employees of third-party companies.13 including employees of third-party companies.14 countries rated lower than six on a scale of zero to ten in the corruption perceptions index by the anti-corruption organisation Transparency international, with ten corresponding to the lowest risk of corruption.



RWE Annual Report 2010160 Responsibility statement

Tothebestofourknowledge,andinaccordancewiththeapplicablereportingprinciples,theconsoli-

datedfinancialstatementsgiveatrueandfairviewoftheassets,liabilities,financialpositionand

profitorlossoftheGroup,andtheGroupreviewofoperationsincludesafairreviewofthedevelop-

mentandperformanceofthebusinessandthepositionoftheGroup,togetherwithadescriptionof

theprincipalopportunitiesandrisksassociatedwiththeexpecteddevelopmentoftheGroup.


TheExecutiveBoard

responsiBiLity statement3.0

Großmann Birnbaum

Pohlig

Fitting

Schmitz

161

4.0 ConsoLidated finanCiaL statements

Con

soLI

DAte

D F

InAn

CIAL

stA

teM

ents

RWE Annual Report 2010162 Income statement

4.1 inCome statement

€ million Note 2010 2009

Revenue (including natural gas tax/electricity tax) (1) 53,320 47,741

Natural gas tax/electricity tax (1) 2,598 1,550

Revenue (1) 50,722 46,191

changes in finished goods and work in progress − 20 44

other own work capitalised 219 210

other operating income (2) 1,276 1,610

cost of materials (3) 33,176 29,838

staff costs (4) 4,873 4,610

Depreciation, amortisation, and impairment losses (5) 3,213 2,357

other operating expenses (6) 4,428 3,924

Income from operating activities of continuing operations 6,507 7,326

income from investments accounted for using the equity method (7) 310 131

other income from investments (7) 97 131

financial income (8) 1,248 1,699

finance costs (8) 3,184 3,689

Income from continuing operations before tax 4,978 5,598

Taxes on income (9) 1,376 1,858

Income from continuing operations 3,602 3,740

income from discontinued operations 91

Income 3,602 3,831

of which: minority interest 279 260

of which: RWE AG hybrid capital investors’ interest 15

of which: net income/income attributable to RWE AG shareholders 3,308 3,571

Basic and diluted earnings per common and preferred share in € (28) 6.20 6.70

of which: from continuing operations in € (6.20) (6.58)

of which: from discontinued operations in € (0.12)



statement of recognised income and expenses 163

4.2 statement of reCognised inCome and expenses 1

€ million Note 2010 2009

Income 3,602 3,831

currency translation adjustment 218 8

fair valuation of financial instruments available for sale (29) 2 383

fair valuation of financial instruments used for hedging purposes (29) 161 122

other comprehensive income of investments accounted for using the equity method (pro rata) -34 36

Actuarial gains and losses of defined benefit pension plans and similar obligations 1 − 788

Other comprehensive income 348 − 239

Total comprehensive income 3,950 3,592

of which: attributable to RWE AG shareholders (3,671) (3,442)

of which: attributable to RWE AG hybrid capital investors (15)

of which: attributable to minority interests (264) (150)

1 figures stated after taxes.

RWE Annual Report 2010164 balance sheet

Assets € million

Note 31 Dec 2010 31 Dec 2009

Non-current assets

intangible assets (10) 17,350 17,320

property, plant and equipment (11) 32,237 28,627

investment property (12) 162 182

investments accounted for using the equity method (13) 3,694 3,736

other non-current financial assets (14) 750 709

financial receivables (15) 1,042 1,118

other receivables and other assets (16) 2,213 2,488

income tax assets 626 507

Deferred taxes (17) 2,391 1,876

60,465 56,563

Current assets

inventories (18) 3,293 3,115

financial receivables (15) 2,746 3,422

Trade accounts receivable (19) 9,485 9,530

other receivables and other assets (16) 10,484 13,784

income tax assets 543 660

Marketable securities (20) 3,196 3,290

cash and cash equivalents (21) 2,476 3,074

Assets held for sale 389

32,612 36,875

93,077 93,438

4.3 BaLanCe sheet

Equity and liabilities € million

Note 31 Dec 2010 31 Dec 2009

Equity (22)

RWE AG shareholders’ interest 14,574 12,792

RWE AG hybrid capital investors’ interest 1,759

Minority interest 1,084 925

17,417 13,717

Non-current liabilities

provisions (24) 23,485 22,315

financial liabilities (25) 15,908 17,019

other liabilities (27) 3,584 3,972

Deferred taxes (17) 2,185 2,327

45,162 45,633

Current liabilities

provisions (24) 5,572 5,829

financial liabilities (25) 3,902 3,127

Trade accounts payable (26) 8,415 9,697

income tax liabilities 90 218

other liabilities (27) 12,376 15,217

liabilities held for sale 143

30,498 34,088

93,077 93,438



Cash flow statement 165

4.4 Cash fLoW statement

€ million Note (32) 2010 2009

income 3,602 3,831

Depreciation, amortisation, impairment losses/write-backs 3,184 2,464

changes in provisions 338 − 10

changes in deferred taxes − 680 97

income from disposal of non-current assets and marketable securities − 165 69

other non-cash income/expenses 1,570 − 357

changes in working capital − 2,349 − 795

Cash flows from operating activities of continuing operations 5,500 5,299

cash flows from operating activities of discontinued operations 11

Cash flows from operating activities 5,500 5,310

intangible assets/property, plant and equipment/investment property

capital expenditure − 6,379 − 5,913

proceeds from disposal of assets 176 103

Acquisitions and investments

capital expenditure − 258 − 8,801

proceeds from disposal of assets/divestitures 220 2,328

changes in marketable securities and cash investments − 442 4,427

Cash flows from investing activities of continuing operations(before transfer to contractual trust arrangements) − 6,683 − 7,856

Transfer to contractual trust arrangements − 470

Cash flows from investing activities of continuing operations(after transfer to contractual trust arrangements) − 6,683

− 8,326

cash flows from investing activities of discontinued operations − 78

Cash flows from investing activities − 6,683 − 8,404

Net change in equity (incl. minority interest) 27 186

issuance of hybrid capital 1,738

Dividends paid to RWE AG shareholders and minority interests − 2,198 − 2,592

issuance of financial debt 3,485 11,592

Repayment of financial debt − 2,414 − 4,347

Cash flows from financing activities of continuing operations 638 4,839

cash flows from financing activities of discontinued operations 65

Cash flows from financing activities 638 4,904

Net cash change in cash and cash equivalents − 545 1,810

Effects of changes in foreign exchange rates and other changes in value on cash and cash equivalents 6 13

Net cash change in cash and cash equivalents from discontinued operations 2

Net change in cash and cash equivalents − 539 1,825

cash and cash equivalents at beginning of the reporting period 3,074 1,249

Cash and cash equivalents at end of the reporting period 2,535 3,074

of which: reported as “Assets held for sale” − 59

Cash and cash equivalents at end of the reporting period as per the consolidated balance sheet 2,476 3,074

RWE Annual Report 2010166 statement of changes in equity

4.5 statement of Changes in equity

Statement of changes in equity € million

Note (22)

sub-scribed

capital of RWE AG

Additionalpaid-in

capital of RWE AG

Retainedearnings

anddistribut-

able profit

own shares

Accumulated other comprehensive income

RWE AGshare-

holders’ interest

RWE AG hybrid capital

investors’ interest

Minority interest

Total

currency translation

adjust-ments

fair value measure-ment of financial

instruments

Available for sale

Used for hedging

purposes

Balance at 1 Jan 2009 1,440 1,158 11,200 − 2,500 112 − 274 451 11,587 1,553 13,140

capital paid in 10 10

sales of own shares − 52 228 176 176

Dividends paid 1 − 2,401 − 2,401 − 121 − 2,522

income 3,571 3,571 260 3,831

other com-prehensive income − 769 115 403 122 − 129 − 110 − 239

Total compre-hensive income 2,802 115 403 122 3,442 150 3,592

other changes − 12 − 12 − 667 − 679

Balance at 31 Dec 2009 1,440 1,158 11,537 − 2,272 227 129 573 12,792 925 13,717

capital paid in 1,738 21 1,759

Dividends paid 1 − 1,867 − 1,867 − 160 − 2,027

income 3,308 3,308 15 279 3,602

other com-prehensive income 14 218 − 30 161 363 − 15 348

Total compre-hensive income 3,322 218 − 30 161 3,671 15 264 3,950

other changes − 22 − 22 6 34 18

Balance at 31 Dec 2010 1,440 1,158 12,970 − 2,272 445 99 734 14,574 1,759 1,084 17,417

1 following the reclassification of minority interests to other liabilities as per iAs 32.



notes 167

4.6 notes

RWEAG,headquarteredatOpernplatz1,45128Essen,

Germany,istheparentcompanyoftheRWEGroup

(“RWE”or“Group”).

Theconsolidatedfinancialstatementsfortheperiodended

31 December2010wereapprovedforpublicationon

11 February2011bytheExecutiveBoardofRWEAG.The

statementswerepreparedinaccordancewiththeInternational

FinancialReportingStandards(IFRSs)applicableintheEU,as

wellasinaccordancewiththesupplementaryaccounting

regulationsapplicablepursuanttoSec.315a,Para.1ofthe

GermanCommercialCode(HGB).Thepreviousyear’sfigures

werecalculatedaccordingtothesameprinciples.

Astatementofchangesinequityhasbeendisclosedinaddition

totheincomestatement,thestatementofrecognisedincome

andexpenses,thebalancesheetandthecashflowstatement.

TheNotestothefinancialstatementsalsoincludesegment

reporting.

Severalbalancesheetandincomestatementitemshavebeen

combinedintheinterestsofclarity.Theseitemsarestatedand

explainedseparatelyintheNotestothefinancialstatements.

Theincomestatementisstructuredaccordingtothenatureof

expensemethod.

Theconsolidatedfinancialstatementshavebeenpreparedin

euros.Unlessspecifiedotherwise,allamountsarestatedin

millionsofeuros(€million).

Theseconsolidatedfinancialstatementswerepreparedforthe

2010fiscalyear(1Januaryto31December).

TheExecutiveBoardofRWEAGisresponsibleforthecomplete-

nessandaccuracyoftheconsolidatedfinancialstatementsand

thereviewofoperationsoftheGroup,whichiscombinedwith

thereviewofoperationsofRWEAG.

Weemployinternalcontrolsystems,uniformgroupwidedirec-

tives,andprogrammesforbasicandadvancedstafftrainingto

ensurethattheconsolidatedfinancialstatementsandcombined

reviewofoperationsareadequatelyprepared.Compliancewith

legalregulationsandtheinternalguidelinesaswellastherelia-

bilityandviabilityofthecontrolsystemsarecontinuouslymoni-

toredthroughouttheGroup.

InlinewiththerequirementsoftheGermanCorporateControl

andTransparencyAct(KonTraG),theGroup’sriskmanagement

systemenablestheExecutiveBoardtoidentifyrisksatanearly

stageandinitiatecountermeasures,ifnecessary.

Theconsolidatedfinancialstatements,thecombinedreviewof

operationsandthereportoftheindependentauditoraredis-

cussedindetailbytheAuditCommitteeandattheSupervisory

Board’smeetingonfinancialstatementswiththeindependent

auditorpresent.TheresultsoftheSupervisoryBoard’sexamina-

tionarepresentedinthereportoftheSupervisoryBoard(pages

136to139ofthisAnnualReport).

Basis of presentation

168 Notes RWE Annual Report 2010

In addition to RWE AG, the consolidated financial statements

contain all material German and foreign companies which RWE

AG controls directly or indirectly. Material associates and mate-

rial joint ventures are accounted for using the equity method.

Investments in subsidiaries, joint ventures or associates which

are of secondary importance from a Group perspective are

accounted for in accordance with IAS 39. Subsidiaries which are

not included in the scope of consolidation account for less than

1 % of the Group’s revenue, income and debt. Subsidiaries with

negative income or equity are generally fully consolidated.

The information pursuant to Sec. 313, Para. 2 of the German

Commercial Code (HGB), which forms part of the Notes to the

consolidated financial statements, is not included in the printed

version. The information can be found on our company’s

website at www.rwe.com. Material consolidated investments

Corporate acquisitions. On 30 September 2009, RWE acquired

100% of the Dutch power utility Essent N. V.’s voting stock.

The accounting treatment of the business acquisition was final-

ised as of 30 September 2010, without any adjustments to the

preliminary accounting treatment as of 31 December 2009.

Assets and liabilities held for sale / Discontinued operations.

In 2009, RWE made a commitment to the EU Commission

to sell its interests in Thyssengas GmbH, which operates

RWE’s long-distance gas transmission network in Germany.

RWE concluded a contract on the sale of its 100% stake in

Thyssengas GmbH in December 2010, subject to the approval

and investments accounted for using the equity method are

listed on pages 228 to 230 of this Annual Report.

In the year under review, 11 companies domiciled in Germany

and 18 outside of Germany were consolidated for the first time.

17 companies, three of which were headquartered in Germany,

are no longer included in the scope of consolidation; 20 com-

panies were merged, of which 13 were domiciled in Germany.

Furthermore, seven associates (of which two in Germany) were

accounted for using the equity method for the first time. In

respect of companies accounted for using the equity method in

the previous year, four were sold, including one headquartered

in Germany; one company abroad was merged and seven

companies were no longer accounted for using the equity

method, of which six were headquartered in Germany. First-

time consolidation and deconsolidation generally take place

when control is transferred.

Scope of consolidation

Scope of consolidation Germany

31 Dec 2010

Foreign countries

31 Dec 2010

Total

31 Dec 2010

Total

31 Dec 2009

Fully consolidated companies 204 241 445 453

Investments accounted for using the equity method 69 52 121 126

of the EU Commission and the anti-trust authorities. The

anti-trust authorities and the EU Commission granted approval

in December 2010 and late January 2011, respectively. The

assets and liabilities of Thyssengas are stated as “held for sale”

as of 31 December 2010. Thyssengas is included under

“Other /consolidation” in the segment reporting.

The following table presents the assets and liabilities of

Thyssengas which are held for sale:

Key figures for Thyssengas€ million

31 Dec 2010

Non-current assets 296

Current assets 93

Non-current liabilities 36

Current liabilities 107

notes 169to our investors Review of operations our responsibility


Inthepreviousyear,AmericanWaterWorksCompanyInc.

(AmericanWater),Wilmington/Delaware,USA,wasstatedasa

discontinuedoperation.FiguresfortheactivitiesofAmerican

Waterduringtheperiodoffullconsolidation(JanuarytoMarch

2009)arepresentedinthefollowingtable:

Moreover,afterdeconsolidationduetolossofthevoting

majorityinAmericanWater,€42millionresultingfromthesale,

−€2 millioninfairvalueadjustmentsand€26millioninincome

frominvestmentswerereportedinincomefromdiscontinued

operationsinthepreviousyear.

Changesinthescopeofconsolidationresultedinadecrease

of€111millioninnon-currentassets(includingdeferredtaxes),

and€61millionincashandcashequivalents,andanincrease

of€482millionincurrentassets(excludingcashandcashequiv-

alents)aswellasanincreaseof€57millioninnon-currentand

currentliabilities.Thesefigureseachincludethemutuallyoffset-

tingeffectsofitemsreportedas“Assetsandliabilitiesheldfor

sale”.

Thetotalsalespricefordivestedsubsidiariesamountedto

€227 million(previousyear:€222million),whichwaspaidin

cashorcashequivalents.

Effectsofchangesinthescopeofconsolidationhavebeen

statedintheNotesinsofarastheyareofparticularimportance.

key figures for American Water € million

Jan - Mar 2009

Revenue 426

Expenses/income − 323

ordinary income from discontinued operations before tax 103

Taxes on income − 39

income 64

fair value adjustments − 39

income from discontinued operations 25

170 notes RWE Annual Report 2010

ThefinancialstatementsofGermanandforeigncompanies

includedinthescopeoftheGroup’sfinancialstatementsare

preparedusinguniformaccountingpolicies.Onprinciple,sub-

sidiarieswhosefiscalyearsdonotendontheGroup’sbalance-

sheetdate(31December)prepareinterimfinancialstatements

asofthisdate.

Businesscombinationsarereportedaccordingtotheacquisi-

tionmethod.Thismeansthatcapitalconsolidationtakesplace

byoffsettingthepurchaseprice,includingtheamountofthe

minorityinterest,againsttheacquiredsubsidiaries’revalued

netassetsatthetimeofacquisition.Indoingso,minority

interestisgenerallymeasuredattheproratedvalueofthe

subsidiaries’identifiablenetassets.Subsidiaries’identifiable

assets,liabilitiesandcontingentliabilitiesaremeasuredatfull

fairvalue,regardlessoftheamountoftheminorityinterest.

Intangibleassetsarereportedseparatelyfromgoodwillif

theyareseparablefromthecompanyoriftheystemfroma

contractualorotherright.InaccordancewithIFRS3,nonew

restructuringprovisionsarerecognisedwithinthescopeofthe

purchasepriceallocation.Ifthepurchasepriceexceedsthe

revaluedproratednetassetsoftheacquiredsubsidiary,the

differenceiscapitalisedasgoodwill.Ifthepurchasepriceis

lower,the(negative)differencefromfirst-timeconsolidation

isincludedinincome.

Capitalisedgoodwillisnotamortised:itistestedforimpair-

mentonceeveryyear,ormorefrequentlyifthereareindica-

tionsofimpairment.Intheeventofdeconsolidation,residual

carryingamountsofcapitalisedgoodwillaretakenintoaccount

whencalculatingincomefromdisposals.Changesinshareown-

ershipwhichdonotaltertheabilitytocontrolthesubsidiary

arerecognisedwithoutaneffectonincome.Ifsharesinasub-

sidiaryaresoldresultinginachangeincontrol,theremaining

sharesarerevaluedwithaneffectonincome.

Expensesandincomeaswellasreceivablesandpayables

betweenconsolidatedcompaniesareeliminated.Intra-group

profitsandlossesareeliminated.

Forinvestmentsaccountedforusingtheequitymethod,good-

willisnotreportedseparately,butratherincludedinthevalue

recognisedfortheinvestment.Inotherrespects,theconsolida-

tionprinciplesdescribedaboveapply.Goodwillisnotamor-

tised.Ifimpairmentlossesontheequityvaluebecomeneces-

sary,wereportsuchunderincomefrominvestmentsaccounted

forusingtheequitymethod.Thefinancialstatementsofinvest-

mentsaccountedforusingtheequitymethodareprepared

usinguniformaccountingpolicies.

Consolidation principles



Intheirindividualfinancialstatements,thecompaniesmeasure

non-monetaryforeigncurrencyitemsatthebalance-sheetdate

usingtheexchangerateineffectonthedatetheywereinitially

recognised.Monetaryitemsareconvertedusingtheexchange

ratevalidonthebalance-sheetdate.Exchangerategainsand

lossesfromthemeasurementofmonetarybalance-sheetitems

inforeigncurrencyoccurringuptothebalance-sheetdateare

recognisedintheincomestatementunderotheroperating

incomeorexpenses.

Functionalforeigncurrencytranslationisappliedwhenconvert-

ingthefinancialstatementsofcompaniesoutsideoftheeuro

area.Astheprincipalforeignenterprisesincludedintheconsol-

idatedfinancialstatementsconducttheirbusinessactivities

independentlyintheirnationalcurrencies,theirbalance-sheet

itemsaretranslatedintoeurosintheconsolidatedfinancial

statementsusingtheaverageexchangerateprevailingonthe

balance-sheetdate.Thisalsoappliesforgoodwill,whichis

viewedasanassetoftheeconomicallyautonomousforeign

entity.Wereportdifferencestoprevious-yeartranslationsin

othercomprehensiveincomewithoutaneffectonincome.

Expenseandincomeitemsaretranslatedusingannualaverage

exchangerates.Whentranslatingtheadjustedequityofforeign

companiesaccountedforusingtheequitymethod,wefollow

thesameprocedure.

Thefollowingexchangerates(amongothers)wereusedasa

basisforforeigncurrencytranslations:

Foreign currency translation

Exchange rates

in €

Average year-end

2010 2009 31 Dec 2010 31 Dec 2009

1 Us dollar 0.76 0.72 0.75 0.69

1 pound sterling 1.17 1.12 1.16 1.13

100 czech korunas 3.96 3.77 3.99 3.78

100 Hungarian forints 0.36 0.35 0.36 0.37

1 polish zloty 0.25 0.23 0.25 0.24


Intangible assetsareaccountedforatamortisedcost.Withthe

exceptionofgoodwill,allintangibleassetshavefiniteuseful

livesandareamortisedusingthestraight-linemethod.Useful

livesandmethodsofamortisationarereviewedonanannual

basis.

Softwareforcommercialandtechnicalapplicationsisamortised

overthreetofiveyears.“Operatingrights”refertotheentirety

ofthepermitsandapprovalsrequiredfortheoperationof

apowerplant.Suchrightsaregenerallyamortisedover

theeconomiclifeofthepowerplant,usingthestraight-line

method.Easementagreementsintheelectricityandgas

business,andothereasementrights,generallyhaveusefullives

ofupto20years.Concessionsinthewaterbusinessgenerally

havetermsofupto25years.Capitalisedcustomerrelations

areamortisedoveraperiodofuptotenyears.Usefullives

andmethodsofamortisationarereviewedonanannualbasis.

Goodwillisnotamortised;insteaditissubjectedtoanimpair-

menttestonceeveryyear,ormorefrequentlyifthereareindi-

cationsofimpairment.

Developmentcostsarecapitalisedifanewlydeveloped

productorprocesscanbeclearlydefined,istechnicallyfeasible

anditisthecompany’sintentiontoeitherusetheproductor

processitselformarketit.Furthermore,assetrecognition

requiresthattherebeasufficientlevelofcertaintythatthe

developmentcostsleadtofuturecashinflows.Capitalised

developmentcostsareamortisedoverthetimeperiodduring

whichtheproductsareexpectedtobesold.Researchexpendi-

turesarerecognisedasexpensesintheperiodinwhichthey

areincurred.

Animpairmentlossisrecognisedforanintangibleasset,if

therecoverableamountoftheassetislessthanitscarrying

amount.Aspecialregulationappliesforcaseswhentheasset

ispartofacash-generatingunit.Suchunitsaredefinedasthe

smallestidentifiablegroupofassetswhichgeneratescash

inflows;theseinflowsmustbelargelyindependentofcash

inflowsfromotherassetsorgroupsofassets.Iftheintangible

assetisapartofacash-generatingunit,theimpairmentloss

iscalculatedbasedontherecoverableamountofthisunit.

Ifgoodwillwasallocatedtoacash-generatingunitandthe

carryingamountoftheunitexceedstherecoverableamount,

theallocatedgoodwillisinitiallywrittendownbythe

difference.Impairmentlosseswhichmustberecognisedin

additiontothisaretakenintoaccountbyreducingthecarrying

amountoftheotherassetsofthecash-generatingunitona

proratedbasis.Ifthereasonforanimpairmentlossrecognised

inprioryearshasceasedtoexist,awrite-backisperformed.

Theincreasedcarryingamountresultingfromthewrite-back

maynot,however,exceedtheamortisedcost.Impairment

lossesongoodwillarenotreversed.

Property, plant and equipmentisstatedatdepreciatedcost.

Borrowingcostsarecapitalisedaspartoftheasset’scost,if

theyareincurreddirectlyinconnectionwiththeacquisitionor

productionofa“qualifiedasset”forwhichaconsiderable

periodoftimeisrequiredtopreparetheassetforuseorsale.

Ifnecessary,thecostofproperty,plantandequipmentmay

containtheestimatedexpensesforthedecommissioningof

plantsorsiterestoration.Maintenanceandrepaircostsare

recognisedasexpenses.

Exploratorywellsareaccountedforatcost,accordingtothe

successfuleffortsmethod,meaningthatexpensesforexplora-

tionactivitiesareonlycapitalisedforsuccessfulprojects,for

examplewhenwellsspecificallyleadtothediscoveryofcrude

oilornaturalgas.Seismologyandgeologyexpendituresare

recognisedasexpenses.Withintheframeworkoftheunit-of-

productionmethod,wedonotdepreciateoramortisecapital-

isedexplorationexpensesintheexplorationphase,butrather

afterproductionbegins.Explorationassetsaretestedfor

impairmentassoonasfactsandinformationindicatethatthe

carryingvalueexceedstherecoverableamount.

Withtheexceptionoflandandleaseholdrights,asarule,

property,plantandequipmentisdepreciatedusingthe

straight-linemethod,unlessinexceptionalcasesanother

depreciationmethodisbettersuitedtotheusagepattern.

WecalculatethedepreciationofRWE’stypicalproperty,plant

andequipmentaccordingtothefollowingusefullives,which

applythroughouttheGroup:

Accounting policies



Property,plantandequipmentheldunderafinanceleaseis

capitalisedatthefairvalueoftheleasedassetorthepresent

valueoftheminimumleasepayments,dependingonwhichis

lower.Theyaredepreciatedusingthestraight-linemethodover

theexpectedusefullifeortheleaseterm,whicheverisshorter.

Impairmentlossesandwrite-backsonproperty,plantand

equipmentarerecognisedaccordingtotheprinciplesdescribed

forintangibleassets.

Investment propertyconsistsofallrealpropertyheldtoearn

rentalincomeorforlong-termcapitalappreciationratherthan

foruseinproductionorforadministrativepurposes.Thisprop-

ertyismeasuredatdepreciatedcost.Transactioncostsarealso

includedintheinitialmeasurement.Depreciableinvestment

propertyisdepreciatedover7to75yearsusingthestraight-

linemethod.Fairvaluesofinvestmentpropertyarestatedin

theNotesandaredeterminedusinginternationallyaccepted

valuationmethodssuchasthediscountedcashflowmethodor

arederivedfromthecurrentmarketpricesofcomparablereal

estate.

Impairmentlossesandwrite-backsforinvestmentpropertyare

alsorecognisedaccordingtotheprinciplesdescribedforintan-

gibleassets.

Investments accounted for using the equity methodareinitial-

lyaccountedforatcostandthereafterbasedonthecarrying

amountoftheirproratednetassets.Thecarryingamountsare

increasedorreducedannuallybyproratedprofitsorlosses,div-

idendsandallotherchangesinequity.Goodwillisnotreported

separately,butratherincludedintherecognisedvalueofthe

investment.Goodwillisnotamortised.Animpairmentlossis

recognisedforinvestmentsaccountedforusingtheequity

method,iftherecoverableamountislessthanthecarrying

amount.

Other financial assetsarecomprisedofsharesinnon-consoli-

datedsubsidiariesandinassociates/jointventuresnotaccount-

edforusingtheequitymethod,aswellasotherinvestments

andnon-currentmarketablesecurities;theseassetsareshown

inthecategory“Availableforsale”.Thiscategoryincludes

financialinstrumentswhichareneitherloansorreceivables,

norfinancialinvestmentsheldtomaturity,andwhicharenot

measuredatfairvaluethroughprofitorloss.Initiallyandinthe

followingperiods,theyarerecognisedatfairvalueaslongas

suchcanbedeterminedreliably.Theyareinitiallymeasuredon

theirsettlementdate.Unrealisedgainsandlossesarestatedas

othercomprehensiveincome,withdueconsiderationofany

deferredtaxes.Gainsorlossesarerecognisedintheincome

statementuponsaleofthefinancialinstruments.Ifthereare

objective,materialindicationsofareductioninthevalueof

anasset,animpairmentlossisrecognisedwithaneffecton

income.Ifadebtorisexperiencingsignificantfinancialdifficul-

ties,orisdelinquentonpaymentsofinterestorprincipal,this

canbeanindicationofimpairmentofthefinancialassetin

question.Thesameistruewhenthereisnolongeranactive

marketforafinancialasset.

Receivablesarecomprisedoffinancial receivables, trade

accounts receivableandother receivables.Withtheexception

offinancialderivatives,receivables and other assetsarestated

atamortisedcost.Allowancesfordoubtfulaccountsarebased

ontheactualdefaultrisk.Asarule,theamountsofreceivables

arecorrectedthroughtheuseofanallowanceaccount,inac-

cordancewithinternalGroupguidelines.Prepaymentsreceived

fromcustomersforconsumptionwhichisyettobemetered

andbilledarenettedoutagainsttradeaccountsreceivableof

theutilities.

Loansreportedunderfinancialreceivablesarestatedatamor-

tisedcost.Loanswithinterestratescommoninthemarket

areshownonthebalancesheetatnominalvalue;asarule,

however,non-interestorlow-interestloansaredisclosedat

theirpresentvaluediscountedusinganinterestratecommen-

suratewiththerisksinvolved.

Useful life in years

Buildings 7 – 75

Technical plants

Thermal power plants 10 – 40

Wind turbines up to 20

Electricity grids 20 – 45

Water main networks 20 – 80

Gas and water storage facilities 15 – 50

Gas distribution facilities 14 – 40

Mining facilities 3 – 25

Mining developments 33 – 35

Wells in Upstream Gas & oil up to 29


CO2emissionallowancesareaccountedforasintangibleassets

andreportedunderotherassets.Allowanceswhicharepur-

chasedandallowancesallocatedfreeofchargearebothstated

atcostandarenotamortised.

Deferred taxesresultfromtemporarydifferencesinthecarry-

ingamountintheseparateIFRSfinancialstatementsandthe

taxbase,andfromconsolidationprocedures.Deferredtax

assetsalsoincludetaxreductionclaimsresultingfromthe

expectedutilisationofexistinglosscarryforwardsinsubse-

quentyears.Deferredtaxesarecapitalisedifitissufficiently

certainthattherelatedeconomicadvantagescanbeused.

Theiramountisassessedbasedonthetaxratesapplicableor

expectedtobeapplicableinthespecificcountryatthetime

ofrealisation.Thetaxregulationsvalidoradoptedasofthe

balance-sheetdatearekeyconsiderationsinthisregard.

ThetaxrateusedtocalculatedeferredtaxesinGermanyis

31.2% (previousyear:30.9%).Thisisderivedfromthepre-

vailing15% corporatetaxrate,the5.5%solidaritysurcharge,

andtheGroup’saveragelocaltradetaxrateinGermany,which

wasadjustedduringtheyearunderreview.Deferredtaxassets

anddeferredtaxliabilitiesarenettedoutforeachcompany

and/ortaxgroup.

Inventoriesareassetswhichareheldforsaleintheordinary

courseofbusiness(finishedgoodsandgoodsforresale),which

areintheprocessofproduction(workinprogress–goodsand

services)orwhichareconsumedintheproductionprocessorin

therenderingofservices(rawmaterialsincludingnuclearfuel

assembliesandexcavatedearthforlignitemining).

Insofarasinventoriesarenotacquiredprimarilyforthepurpose

ofrealisingaprofitonashort-termresaletransaction,theyare

carriedatthelowerofcostornetrealisablevalue.Production

costsreflectthefullcostsdirectlyrelatedtoproductionandare

determinedbasedonnormalcapacityutilisation.Inaddition

todirectlyallocablecosts,productioncostsincludeadequate

portionsofrequiredmaterialsandproductionoverheads,

includingproduction-relateddepreciation.Borrowingcosts,

however,arenotcapitalisedaspartofthecost.Thevaluation

isgenerallybasedonaveragevalues.Theusageofexcavated

earthforligniteminingiscalculatedusingtheFIFOmethod.

Ifthenetrealisablevalueofinventorieswrittendowninearlier

periodshasincreased,thereversalofthewrite-downisrecog-

nisedasareductionofthecostofmaterials.

Nuclearfuelassembliesarestatedatdepreciatedcost.Depreci-

ationisdeterminedbyoperationandcapacity,basedoncon-

sumptionandthereactor’susefullife.

Inventorieswhichareacquiredprimarilyforthepurposeof

realisingaprofitonashort-termresaletransactionarestated

attheirnetrealisablevaluelessdistributioncosts.Changesin

valuearerecognisedwithaneffectonincome.

Securitiesclassifiedascurrentmarketable securitiesessentially

consistofmarketablesecuritiesheldinspecialfundsaswellas

fixed-interestsecuritieswhichhaveamaturityofmorethan

threemonthsandlessthanoneyearfromthedateofacquisi-

tion.Allofthesesecuritiesareclassifiedas“Availableforsale”

andarestatedatfairvalue.Thetransactioncostsdirectlyasso-

ciatedwiththeacquisitionofthefinancialassetareincludedin

theinitialmeasurement;thesesecuritiesareinitiallymeasured

ontheirsettlementdate.Unrealisedgainsandlossesare

includedinothercomprehensiveincome,withdueconsidera-

tionofanydeferredtaxes.Gainsorlossesarerecognisedinthe

incomestatementatthetimeofsale.Ifthereareobjective,

materialindicationsofareductioninvalue,animpairmentloss

isrecognisedwithaneffectonincome.

Financialassetsarederecognisedwhenthecontractualrights

tocashflowsfromtheassetexpireoriftheentitytransfersthe

financialasset.Thelatterapplieswhensubstantiallyalltherisks

andrewardsofownershipoftheassetaretransferred,orthe

entitynolongerhascontroloftheasset.

Cash and cash equivalentsconsistofcashonhand,demand

depositsandcurrentfixed-interestsecuritieswithamaturityof

threemonthsorlessfromthedateofacquisition.

Assetsarestatedunder“Assets held for sale”iftheycanbe

soldintheirpresentconditionandtheirsaleishighlyprobable.

Suchassetsmaybecertainnon-currentassets,assetgroups

(“disposalgroups”)oroperations(“discontinuedoperations”).

Liabilitiesintendedtobesoldinatransactiontogetherwith



assetsareapartofadisposalgroupordiscontinuedopera-

tions,andarereportedseparatelyunder“Liabilities held for

sale”.

Non-currentassetsheldforsalearenolongerdepreciatedor

amortised.Theyarerecognisedatfairvaluelesscoststosell,as

longasthisamountislowerthanthecarryingamount.

Gainsorlossesonthevaluationofspecificassetsheldforsale

andofdisposalgroupsarestatedunderincomefromcontinu-

ingoperationsuntilfinalcompletionofthesale.

Theitem“Incomefromdiscontinuedoperations”intheincome

statementincludesincomefromoperatingactivitiesaswellas

gainsorlossesresultingfromrecognitionatfairvalueorfrom

thedisposalofactivities.

Thegroupwidestockoptionplansareaccountedforascash-

settledshare-based payment.Atthebalance-sheetdate,a

provisionisrecognisedintheamountoftheproratedfairvalue

ofthepaymentobligation.Changesinthefairvaluearerecog-

nisedwithaneffectonincome.Thefairvalueofoptionsis

determinedusinggenerallyacceptedvaluationmethodologies.

Provisionsarerecognisedforalllegalorconstructiveobliga-

tionstothirdpartieswhichexistonthebalance-sheetdateand

relatetopastevents,andwithregardtowhichitisprobable

thatanoutflowofresourceswillberequired,andtheamount

ofwhichcanbereliablyestimated.Provisionsarecarriedatthe

prospectivesettlementamountandarenotoffsetagainst

reimbursementclaims.Iftheprovisiontobemeasuredinvolves

alargenumberofitems,theobligationisestimatedbyweight-

ingallpossibleoutcomesbytheirprobabilityofoccurrence

(expectedvaluemethod).

Allnon-currentprovisionsarerecognisedattheirprospective

settlementamount,whichisdiscountedasofthebalance-sheet

date.Inthedeterminationofthesettlementamount,anycost

increaseslikelytooccurupuntilthetimeofsettlementare

takenintoaccount.

Ifnecessary,thecostofproperty,plantandequipmentmay

containtheestimatedexpensesforthedecommissioningof

plantsorsiterestoration,forwhichdecommissioning,restora-

tionandsimilarprovisionsarerecognised.Ifchangesinthe

discountrateorchangesintheestimatedtimingoramountof

thepaymentsresultinchangesintheprovisions,thecarrying

amountoftherespectiveassetisadjustedbythesame

amount.Ifthedecreaseintheprovisionexceedsthecarrying

amountoftheunderlyingasset,theexcessisrecognisedimme-

diatelythroughprofitorloss.

Asarule,releasesofprovisionsarecreditedtotheexpense

accountonwhichtheprovisionwasoriginallyrecognised.

Provisionsforpensionsandsimilarobligationsarerecognised

fordefinedbenefitplans.Theseareobligationsofthecompany

topayfutureandongoingpost-employmentbenefitsto

entitledcurrentandformeremployeesandtheirsurviving

dependents.Inparticular,theobligationsrefertoretirement

pensions.Individualcommitmentsaregenerallycalculatedac-

cordingtotheemployees’lengthofserviceandcompensation.

Provisionsfordefinedbenefitplansarebasedontheactuarial

presentvalueoftherespectiveobligation.Thisismeasured

usingtheprojectedunitcreditmethod.Thisbenefit/years-of-

servicemethodnotonlytakesintoaccountthepensionbene-

fitsandbenefitentitlementsknownasofthebalance-sheet

date,butalsoanticipatedfutureincreasesinsalariesand

pensionbenefits.Thecalculationisbasedonactuarialreports,

takingintoaccountappropriatebiometricparameters(for

Germany,inparticularthe“Richttafeln2005G”byKlaus

Heubeck).Theprovisionderivesfromthebalanceofactuarial

presentvalueoftheobligationsandthefairvalueoftheplan

assets.Theservicecostisdisclosedinstaffcosts.Theinterest

costandexpectedreturnonplanassetsareincludedinthe

financialresult.

Actuarialgainsandlossesarefullyrecognisedinthefiscalyear

inwhichtheyoccur.Theyarereportedasacomponentofother

comprehensiveincomeoutsideofprofitorlossinthestate-

mentofrecognisedincomeandexpensesandimmediately

assignedtoretainedearnings.Theyremainoutsideprofitor

lossinsubsequentperiodsaswell.

Inthecaseofdefinedcontributionplans,theenterprise’s

obligationislimitedtotheamountitcontributestotheplan.

Contributionstotheplanarereportedunderstaffcosts.


Wastemanagementprovisionsinthenuclearenergysectorare

basedonobligationsunderpubliclaw,inparticulartheGerman

AtomicEnergyAct,andonrestrictionsstipulatedinoperating

licenses.Theseprovisionsaremeasuredusingestimates,which

arebasedonanddefinedincontracts,oninformationfrom

internalandexternalspecialistsandexpertopinions,aswellas

ondatafromtheGermanFederalOfficeforRadiationProtec-

tion(BfS).

Obligationsexistingasofthebalance-sheetdateandidentifi-

ablewhenthebalancesheetisbeingpreparedarerecognised

asprovisionsforminingdamagetocoverlandrecultivationand

remediationofminingdamagethathasalreadyoccuredor

beencaused.Theprovisionsmustberecognisedduetoobliga-

tionsunderpubliclaw,suchastheGermanFederalMiningAct,

andformulated,aboveall,inoperatingschedulesandwater

lawpermits.Provisionsaregenerallyrecognisedbasedonthe

increaseintheobligation,e.g.inlinewithligniteproduction.

Suchprovisionsaremeasuredatfullexpectedcostoraccording

toestimatedcompensationpayments.

Furthermore,provisionsaremadeowingtoobligationsunder

publiclawtodismantleproductionfacilitiesandfillwells.The

amountoftheseprovisionsisdeterminedonthebasisoftotal

costestimates,whichreflectpastexperienceandthecompara-

tiveratesdeterminedbytheGermanAssociationofOiland

NaturalGasProductionIndustry.Ananalogousapproachis

takenforforeignsubsidiaries.

AprovisionisrecognisedtocovertheobligationtodeliverCO2

emissionallowancestotherespectiveauthorities;thisprovision

ismeasuredatthecarryingamountoftheCO2allowances

capitalisedforthispurpose.Ifaportionoftheobligationisnot

coveredwiththeavailableallowances,theprovisionforthis

portionismeasuredusingthemarketpriceoftheemission

allowancesonthereportingdate.

Liabilitiesconsistof financial liabilities, trade accounts payable

andother liabilities.Uponinitialrecognition,liabilitiesare

statedatfairvalueincludingtransactioncostsandarecarried

atamortisedcostintheperiodsthereafter(exceptfor

derivativefinancialinstruments).Liabilitiesfromfinancelease

agreementsaremeasuredattheloweroffairvalueofthe

leasedassetorthepresentvalueofminimumleasepayments.

Deferredincomeandprepaymentsfromcustomersarerecog-

nisedasliabilitiesunderotherliabilities.Deferredincome

includesadvancesandcontributionsinaidofconstructionand

buildingconnectionthatarecarriedasliabilitiesbytheutilities

andwhicharegenerallyamortisedandincludedinincomeover

theusefullifeofthecorrespondingasset.Deferredincomealso

includestaxableandnon-taxablegovernmentgrantsforcapital

expenditureonnon-currentassets,whicharegenerallyrecog-

nisedasotheroperatingincomeinlinewiththeassets’depre-

ciation.

Certainminorityinterestsarealsopresentedunderotherliabili-

ties.Specifically,thispertainstopurchasepriceobligations

fromrightstotenderminorityinterests(putoptions).

Derivative financial instrumentsarerecognisedasassetsor

liabilitiesandmeasuredatfairvalue,regardlessoftheir

purpose.Changesinthisvaluearerecognisedwithaneffecton

income,unlesstheinstrumentsareusedforhedgeaccounting

purposes.Insuchcases,recognitionofchangesinthefairvalue

dependsonthetypeofhedgingtransaction.

Fairvaluehedgesareusedtohedgeassetsorliabilitiescarried

onthebalancesheetagainsttheriskofachangeintheirfair

value.Hedgesofunrecognisedfirmcommitmentsarealso

recognisedasfairvaluehedges.Forfairvaluehedges,changes

inthefairvalueofthehedginginstrumentaswellasthefair

valueoftherespectiveunderlyingtransactionsarerecognised

intheincomestatement.Thismeansthatgainsandlossesfrom

thefairvaluationofthehedginginstrumentareallocatedto

thesamelineitemsoftheincomestatementasthegainsor

lossesfromtheunderlyinghedgedtransactionorportions

thereof.Intheeventthatunrecognisedfirmcommitmentsare

hedged,changesinthefairvalueofthefirmcommitmentswith

regardtothehedgedriskresultintherecognitionofanasset

orliabilitywithaneffectonincome.

Cashflowhedgesareusedtohedgetheriskofvariabilityin

cashflowsrelatedtoanassetorliabilitycarriedonthebalance

sheetorrelatedtoahighlyprobableforecasttransaction.Ifa

cashflowhedgeexists,unrealisedgainsandlossesfromthe

hedginginstrumentareinitiallystatedasothercomprehensive

income.Suchgainsorlossesarerecognisedintheincome

statementwhenthehedgedunderlyingtransactionhasan

effectonincome.Ifforecasttransactionsarehedgedandsuch



transactionsleadtotherecognitionofafinancialassetorfinan-

cialliabilityinsubsequentperiods,theamountsthatwererec-

ognisedinequityuntilthispointintimearerecognisedinthe

incomestatementintheperiodduringwhichtheassetorliabil-

ityaffectstheincomestatement.Ifthetransactionsresultin

therecognitionofnon-financialassetsorliabilities,forexample

theacquisitionofproperty,plantandequipment,theamounts

recognisedinequitywithoutaneffectonincomeareincluded

intheinitialcostoftheassetorliability.

Thepurposeofhedgesofanetinvestmentinaforeignentityis

tohedgethecurrencyriskfrominvestmentswithforeignfunc-

tionalcurrencies.Unrealisedgainsandlossesfromhedgesare

recognisedinothercomprehensiveincomeuntildisposalofthe

foreignunit.

IAS39stipulatestheconditionsfortherecognitionofhedging

relationships.Amongstotherthings,thehedgingrelationship

mustbedocumentedindetailandbeeffective.Accordingto

IAS39,ahedgingrelationshipis“effective”whenthechanges

inthefairvalueofthehedginginstrumentarewithin80%to

125%,bothprospectivelyandretrospectively,oftheopposite

changeinthefairvalueofthehedgeditem.Onlytheeffective

portionofahedgeisrecognisedinaccordancewiththe

preceedingrules.Theineffectiveportionisrecognisedimmedi-

atelyintheincomestatementwithaneffectonincome.

Contractsthatwereenteredintoandcontinuetobeheldfor

thepurposeofreceiptordeliveryofnon-financialitemsin

accordancewiththecompany’sexpectedpurchase,saleor

usagerequirements(own-usecontracts)arenotaccountedfor

asderivativefinancialinstruments,butratherasexecutory

contracts.Ifthecontractscontainembeddedderivatives,the

derivativesareaccountedseparatelyfromthehostcontract,if

theeconomiccharacteristicsandrisksoftheembeddedderiva-

tivesarenotcloselyrelatedtotheeconomiccharacteristicsand

risksofthehostcontract.Writtenoptionstobuyorsellanon-

financialitemwhichcanbesettledincasharenotown-use

contracts.

Contingent liabilitiesarepossibleobligationstothirdparties

orexistingobligationswhichwillprobablynotleadtooutflow

ofeconomicbenefitsortheamountofwhichcannotbemeas-

uredreliably.Contingentliabilitiesareonlyrecognisedonthe

balancesheet,iftheywereassumedwithintheframeworkofa

businesscombination.TheamountsdisclosedintheNotes

correspondtotheexposureatthebalance-sheetdate.

Management judgements in the application of accounting

policies.Managementjudgementsarerequiredintheapplica-

tionofaccountingpolicies.Inparticular,thispertainstothefol-

lowingitems:

• Withregardtocertaincontractsadecisionmustbemadeas

towhethertheyaretobetreatedasderivativesorasso-

calledown-usecontracts,andbeaccountedforasexecutory

contracts.

• Financialassetsmustbeallocatedtothecategories“Heldto

maturityinvestments”,“Loansandreceivables”,“Financial

assetsavailableforsale”,and“Financialassetsatfairvalue

throughprofitorloss”.

• Withregardto“Financialassetsavailableforsale”adecision

mustbemadeastoifandwhenreductionsinvaluearetobe

recognisedasimpairmentswithanimpactonincome.

• Withregardtoassetsheldforsale,itmustbedeterminedif

theycanbesoldintheircurrentconditionandifthesaleof

suchishighlyprobable.Ifbothconditionsapply,theassets

andanyrelatedliabilitiesmustbereportedandmeasuredas

“Assetsheldforsale”or“Liabilitiesheldforsale”,

respectively.

Management estimates and judgements.Preparationof

consolidatedfinancialstatementspursuanttoIFRSrequires

assumptionsandestimatestobemade,whichhaveanimpact

ontherecognisedvalueoftheassetsandliabilitiescarriedon

thebalancesheet,onincomeandexpensesandonthe

disclosureofcontingentliabilities.

Amongstotherthings,theseassumptionsandestimatesrelate

totheaccountingandmeasurementofprovisions.Withregard

topensionprovisionsandsimilarobligations,thediscount

factorandtheexpectedreturnonplanassetsareimportant

estimates.Thediscountfactorforpensionobligationsisdeter-

minedonthebasisofyieldsonhighquality,fixed-ratecorpo-

ratebondsonthefinancialmarketsasofthebalance-sheet

date.InGermany,anincreaseordecreaseofonepercentage

pointinthediscountfactorwouldresultinareductionof

€1,314million(previousyear:€1,287million)oranincrease

of€1,672million(previousyear:€1,638million),respectively,

inthepresentvalueoftheobligationsofthepensionplans.

FortheGroupcompaniesintheUK,identicalchangesinthe

discountfactorwouldreduceorincreasepensionobligations

by€627million(previousyear:€529million)or€798million

(previousyear:€653million),respectively.However,asthe

commitmentsstemmingfromcompanypensionplansare


primarilycoveredbyfundsandthevalueofmostplanassets

typicallyexhibitsnegativecorrelationwiththemarketyieldsof

fixed-interestsecurities,thepensionprovisions−asdetermined

takingintoaccounttheexistingplanassets−onlydependon

theprevailinglevelofmarketinterestratestoalimiteddegree.

Fortheaccountingofbusinesscombinations,theidentifiable

assets,liabilitiesandcontingentliabilitiesarerecognisedat

fairvalueasofthedateofacquisition.Inthisregard,themost

importantestimatesrelatetothedeterminationofthefair

valueoftheseitemsasoftheacquisitiondate.Fairvalueis

calculatedeitheronthebasisofreportsofindependentexter-

nalvaluationexpertsorinternalanalysesusingsuitablevalua-

tiontechniques.Amongstotherthings,specialattentionispaid

totheprojectionoffuturecashflowsanddeterminationofthe

discountrate.

Theimpairmenttestforgoodwillisbasedoncertainassump-

tionspertainingtothefuture,whichareregularlyadjusted.

Deferredtaxassetsarerecognisedifrealisationoffuturetax

benefitsisprobable.Actualfutureincomefortaxpurposesand

hencetheactualrealisabilityofdeferredtaxassets,however,

maydeviatefromtheestimationmadewhenthedeferredtaxes

arecapitalised.

Furtherinformationontheassumptionsandestimatesupon

whichtheseconsolidatedfinancialstatementsarebasedcanbe

foundintheexplanationsoftheindividualitems.

Allassumptionsandestimatesarebasedonthecircumstances

andforecastsprevailingonthebalance-sheetdate.Further-

more,asofthebalance-sheetdaterealisticassessmentsof

overalleconomicconditionsinthesectorsandregionsinwhich

theGroupconductsoperationsaretakenintoconsideration

withregardtotheprospectivedevelopmentofbusiness.Actual

amountsmaydeviatefromtheestimatedamountsiftheoverall

conditionsdevelopdifferentlythanexpected.Insuchcases,the

assumptions,and,ifnecessary,thecarryingamountsofthe

affectedassetsandliabilitiesareadjusted.

Asofthedateofpreparationoftheconsolidatedfinancial

statements,itisnotpresumedthattherewillbeamaterial

changeintheassumptionsandestimates.

Capital management.RWE’scapitalmanagementisdeter-

minedbytheGroup’sstrategicobjectivesandfocuseson

increasingthevalueofthebusinessoverthelongterm.To

achievethisgoal,theRWEGroupendeavourstoconstantly

optimiseitsexistingoperations,tosafeguarditsmarket

positionbyofferingcompetitiveproductsandservicesand,

ifnecessary,tooptimiseitsportfolioviavalue-creating

acquisitionsanddivestitures.

RWEmanagesitscapitalstructureonthebasisoffinancialindi-

cators.Onekeyindicatoristhe“debtfactor”(leveragefactor),

whichiscalculatedusingnetdebt.Netdebtiscalculatedby

addingmaterialnon-currentprovisionsaswellasonehalfof

theissuedhybridcapitaltonetfinancialdebtandsubtracting

thesurplusofplanassetsoverbenefitobligations.Thedebt

factoristheratioofnetdebttoEBITDA.Fortheyearunder

review,thisfactorwas2.8(previousyear:2.8).Thedebtfactor

isnottoexceed3.0overthelongterm,thussupportingasolid

creditrating.

Weplacegreatimportanceonmaintainingasolidcreditrating

andthusensuringfinancialflexibility.Thecreditratingisinflu-

encedbyanumberofqualitativeandquantitativefactors.

Theseincludeaspectssuchastheamountofcashflowsand

debtaswellasmarketconditions,competition,andthepoliti-

calframework.

Theissuanceofa€1.75billionhybridbondinSeptember2010

alsohadabeneficialeffectontherating.Onehalfofthehybrid

capitalisclassifiedasequitybythetwoleadingratingagen-

cies,Moody’sandStandard&Poor’s.Asaresult,thedebtindi-

catorsrelevanttotheratingarebetterthantheywouldbeifa

traditionalbondhadbeenissued.

Atpresent,Moody’sandStandard&Poor’sassigntheratings

A2andA,bothwithanegativeoutlook,tothenon-subordinat-

edbondsissuedbyRWEAGandbyRWEFinanceB.V.witha

guaranteebyRWEAG.RWEthuscontinuestohaveinvestment-

graderatings.Theshort-termcreditratingsareP-1andA-1.

Wearecommittedtomaintainingourgoodcreditratings.



TheInternationalAccountingStandardsBoard(IASB)andthe

IFRSInterpretationsCommittee(IFRSIC)haveapprovedseveral

amendmentstoexistingInternationalFinancialReporting

Standards(IFRSs)andadoptedseveralnewIFRSsandinterpre-

tations,whichbecameeffectivefortheRWEGroupasoffiscal

2010:

IFRS 3 (2008) “Business Combinations”containsamended

regulationsontheaccountingofbusinesscombinations.Com-

paredtotheoriginalversionofIFRS3,thechangesrelateto

thescopeofapplicationandthetreatmentofstepacquisitions.

IFRS3(2008)alsocontainsanewoptionforcompanies:non-

controllinginterestscanbemeasuredatfairvalueoratthepro-

portionateshareofnetassetsindividuallyforeachtransaction.

Dependingonwhichoptionacompanyexercises,anygoodwill

isrecognisedinfulloronlyinproportiontothemajorityown-

er’sinterest.Thechangeswillhaveacorrespondingimpacton

theaccountingtreatmentofbusinesstransactions.

IAS 27 (2008) “Consolidated and Separate Financial State-

ments”:Inparticular,byrevisingIAS27,theIASBchangedthe

regulationsforthetreatmentoftransactionswithnon-control-

linginterestsofagroup.Transactionswhichresultinaparent

companychangingitsownershipinterestinasubsidiarywith-

outalossofcontrolaretobeaccountedforasequitytrans-

actionswithoutaneffectonprofitorloss.Regulationsfortreat-

mentintheeventofalossofcontroloverasubsidiarywere

alsochanged:thestandardregulateshowdeconsolidation

gainsorlossesaretobecalculatedandhowresidualownership

interestintheformersubsidiaryistobemeasuredfollowinga

partialsale.Thechangeswillthusaffecttheaccountingtreat-

mentofcertainbusinesstransactions.

Thefollowingstandardsandinterpretations,whichare

applicableforthefirsttimeinfiscal2010,donothavea

materialimpactontheRWEGroup’sconsolidatedfinancial

statements.

• ImprovementstoInternationalFinancialReportingStandards

(2009)

• IFRS1(restructuredin2008)–First-timeAdoption

ofInternationalFinancialReportingStandards

• AmendmenttoIFRS1(2009)–AdditionalExemptions

forFirst-timeAdopters

• AmendmenttoIFRS2(2009)–GroupCash-settled

Share-basedPaymentTransactions

• AmendmenttoIAS39(2009)–EligibleHedgedItems

• IFRIC12–ServiceConcessionArrangements

• IFRIC15–AgreementsfortheConstructionofRealEstate

• IFRIC16–HedgesofaNetInvestmentinaForeignOperation

• IFRIC17–DistributionsofNon-cashAssetstoOwners

• IFRIC18–TransfersofAssetsfromCustomers

Changes in accounting policies


New accounting policies

TheIASBandtheIFRSIChaveadoptedfurtherstandardsand

interpretations,whicharenotyetmandatoryintheEU.These

standardsandinterpretationsarepresentedbelow.EU

endorsementisstillpendinginsomecases.Wearecurrently

reviewingwhateffectstheywillhaveontheRWEGroup’s

consolidatedfinancialstatements.

IFRS 9 (2009)“Financial Instruments”replacestheprevious

regulationsofIAS39ontheclassificationandmeasurementof

financialassetsandliabilities.IFRS9(2009)becomeseffective

forthefirsttimeforfiscalyearsstartingonorafter1January

2013.

IAS 24 (2009) “Related Party Disclosures”essentiallysimpli-

fiesreportingonrelatedcompanieswhicharecontrolledor

significantlyinfluencedbythestate.IAS24(2009)becomes

effectiveforthefirsttimeforfiscalyearsstartingonorafter

1 January2011.

Amendment to IAS 32 (2009) “Classification of Rights Issues”

addressestheissuer’saccountingtreatmentofcertainrights,

optionsorwarrantsdenominatedinaforeigncurrency.Inthe

future,theseinstrumentsmustbeclassifiedasequity.Thenew

regulationsbecomeeffectiveforthefirsttimeforfiscalyears

startingonorafter1February2010.

Withregardtothefollowingstandardsandinterpretations,

whicharenotyetapplicableinfiscal2010,itisalreadyforesee-

ablethatthesewillhavenomaterialimpactsonthe

RWE Group’sconsolidatedfinancialstatements:

• ImprovementstoIFRS(2010)

• AmendmenttoIFRS1(2010)–LimitedExemptionfromCom-

parativeIFRS7DisclosuresforFirst-timeAdopters

• AmendmenttoIFRS1(2010)–SevereHyperinflationandRe-

movalofFixedDatesforFirst-timeAdopters

• AmendmentofIFRS7(2010)–FinancialInstruments:Disclo-

sures

• AmendmenttoIAS12(2010)–DeferredTax:Recoveryof

UnderlyingAssets

• AmendmenttoIFRIC14(2009)–PrepaymentsofaMinimum

FundingRequirement

• IFRIC19–ExtinguishingFinancialLiabilitieswithEquity

Instruments



(1) Revenue

Asarule,revenueisrecordedwhentheservicesorgoodshave

beendeliveredandtheriskshavebeentransferredtothe

customer.

Toimprovethepresentationofbusinessdevelopment,we

reportrevenuegeneratedbyenergytradingoperationsasnet

figures,reflectingrealisedgrossmargins.Bycontrast,westate

electricity,gas,coalandoiltransactionsthataresubjectto

physicalsettlementasgrossfigures.Energytradingrevenueis

generatedbythesegmentTrading/GasMidstream.Infiscal

2010,grossrevenue(includingenergytrading)totalled

€114,682million(previousyear:€98,013million).

Abreakdownofrevenuebydivisionandgeographicalregion

iscontainedinthesegmentreportingonpages219to222.

Revenueincreasedbyanettotalof€5,016millionasaresult

offirst-timeconsolidationsanddeconsolidations.

Theitemnaturalgastax/electricitytaxcomprisesthetaxes

paiddirectlybyGroupcompanies.Changesinthescopeof

consolidationresultedinanincreaseof€775millioninthis

item.

Incomefromthedisposalofnon-currentfinancialassetsand

loansisdisclosedunderincomefrominvestmentsifitrelatesto

investments;otherwiseitisrecordedaspartofthefinancial

resultasistheincomefromthedisposalofcurrentmarketable

securities.

Anincreaseof€134millioninotheroperatingincomeis

attributabletochangesinthescopeofconsolidation.

(2) Other operating income

Notes to the Income Statement

Other operating income€ million

2010 2009

Release of provisions 97 826

cost allocations/refunds 218 95

Disposal and write-back of current assets excluding marketable securities 51 22

Disposal and write-back of non-current assets including income from deconsolidation 139 135

income from derivative financial instruments 322

compensation for damage/insurance benefits 10 35

Rent and lease 28 27

Miscellaneous 411 470

1,276 1,610

Thecostofrawmaterialsalsoincludesexpensesfortheuse

anddisposalofspentnuclearfuelassemblies.

Cost of materials€ million

2010 2009

cost of raw materials and of goods for resale 29,169 26,170

cost of purchased services 4,007 3,668

33,176 29,838

(3) Cost of materials Costofmaterialsinexplorationactivitiesamountedto

€85millioninthereportingperiod(previousyear:

€133 million).

Atotalof€61,362millioninenergytradingrevenue

(previousyear:€50,272million)wasnettedoutagainst

costofmaterials.Changesinthescopeofconsolidation

resultedinanincreaseof€2,863millioninthecostof

materials.


Explorationactivitiesresultedinotheroperatingexpensesof

€57million(previousyear:€76million).

(6) Other operating expenses

Other operating expenses€ million

2010 2009

Maintenance and renewal obligations 917 829

Additions to provisions 271 104

concessions, licenses and other contractual obligations 515 540

structural and adaptation measures 196 71

legal and other consulting and data processing services 295 327

Disposal of current assets and decreases in values (excluding decreases in the value of inventories and marketable securities) 380 242

Disposal of non-current assets including expenses from deconsolidation 102 127

insurance, commissions, freight and similar distribution costs 235 252

General administration 224 192

Advertising 241 236

Expenses from derivative financial instruments 70 159

lease payments for plant and grids as well as rents 123 100

postage and monetary transactions 86 82

fees and membership dues 89 48

Exchange rate losses 52 17

other taxes (primarily on property) 79 49

Miscellaneous 553 549

4,428 3,924

Anincreaseof€434millioninotheroperatingexpensesis

attributabletochangesinthescopeofconsolidation.

TheRWEGroup’saveragepersonnelheadcountamountedto

71,001(previousyear:68,828excludingAmericanWater).This

figureisarrivedatbyconversiontofull-timepositions,meaning

thatpart-timeandfixed-termemploymentrelationshipsare

includedinaccordancewiththeratioofthepart-timeworkor

thedurationoftheemploymenttotheannualemployment

time.Ofthetotalaveragepersonnelheadcount,55,224were

staffcoveredbycollectiveorotheragreements(previousyear:

54,107)and15,777werestaffwhowerenotcoveredbycollec-

tiveagreements(previousyear:14,721).Inaddition,2,800

traineeswereemployedonaverage(previousyear:2,756).

Traineesarenotincludedinthepersonnelheadcount.

Anincreaseof€278millioninstaffcostsisattributableto

changesinthescopeofconsolidation.

(5) Depreciation, amortisation and impairment losses

Depreciationandimpairmentlossesonproperty,plantand

equipmentamountedto€2,600million(previousyear:

€1,900 million)andto€10million(previousyear:€8million)

oninvestmentproperty.Intangibleassetswerewrittendownby

€603million(previousyear:€449million),ofwhich€314 mil-

lion(previousyear:€272million)pertainedtocustomerbases

ofacquiredenterprises.Explorationactivitiesresultedin

depreciation,amortisationandimpairmentlossesof€5million

(previousyear:€1million)onproperty,plantandequipment

andintangibleassets.

Impairmentlosseswererecognisedinthereportingperiod.

Theseimpairmentlossesamountedto€471million(previous

year:€14million)onproperty,plantandequipment,€3 million

(previousyear:€0million)oninvestmentpropertyand

€37 million(previousyear:€5million)onintangibleassets

(withoutgoodwill).

Depreciation,amortisationandimpairmentlossesincreased

by€216millionasaresultofchangesinthescopeofconsoli-

dation.

Staff costs€ million

2010 2009

Wages and salaries 3,946 3,761

cost of social security, pensions and other benefits 927 849

4,873 4,610

(4) Staff costs



(7) Income from investments

Incomefrominvestmentsincludesallincomeandexpenses

whichhaveariseninrelationtooperatinginvestments.Itis

comprisedofincomefrominvestmentsaccountedforusing

theequitymethodandotherincomefrominvestments.

Incomefrominvestmentsincludesimpairmentlossesonother

financialassetsintheamountof€3million(previousyear:

€4 million)andimpairmentlossesonloanstoinvestments

amountingto€16million(previousyear:€16million).

Duringtheyearunderreview,additionsof€71millionwere

recognisedinrelationtoKärntnerEnergieholdingBeteiligungs

GmbH,Austria,andStadtwerkeDuisburgAG,bothinvestments

accountedforusingtheequitymethod,basedonincreasesin

Thefinancialresultbreaksdownintonetinterest,interest

accretiontoprovisions,otherfinancialincomeandother

financecosts.

companyvalue,whileanimpairmentof€40millionwasrecog-

nisedonFri-EIS.p.A.,Italy,aninvestmentaccountedforusing

theequitymethod,duetoslower-than-anticipated

developmentofthecompany’sprojects.Inlightofthedifficult

conditionsontheliquefiednaturalgas(LNG)market,animpair-

mentof€105millionwasrecognisedinthepreviousyearon

ExcelerateEnergyLP,USA,aninvestmentaccountedforusing

theequitymethod.

Income from investments€ million

2010 2009

Income from investments accounted for using the equity method 310 131

of which: additions/amortisation/impairment losses on investments accounted for using the equity method (24) (− 111)

income from non-consolidated subsidiaries − 1 29

of which: amortisation/impairment losses on non-consolidated subsidiaries (− 2)

income from other investments 53 51

of which: impairment of shares in other investments (− 3) (− 2)

income from the disposal of investments 34 97

Expenses from the disposal of investments 64

income from loans to investments 27 53

Expenses from loans to investments 16 35

Other income from investments 97 131

407 262

Financial result€ million

2010 2009

interest and similar income 448 589

other financial income 800 1,110

Financial income 1,248 1,699

interest and similar expenses 1,258 1,224

interest accretion to

provisions for pensions and similar obligations (including capitalised surplus of plan assets) 147 176

provisions for nuclear waste management as well as to mining provisions 623 567

other provisions 170 214

other finance costs 986 1,508

Finance costs 3,184 3,689

− 1,936 − 1,990

(8) Financial result


Interestaccretiontoprovisionscontainsthereversalallocable

tothecurrentyearofthediscountingofnon-currentprovisions

fromtheannualupdateofthepresentvaluecalculation.Itis

reducedbytheprojectedincomeonplanassetsforthecover-

ageofpensionobligations.

Netinterestessentiallyincludesinterestincomefrominterest-

bearingsecuritiesandloans,incomeandexpensesrelatingto

marketablesecurities,andinterestexpenses.

Furthermore,taxesintheamountof€9millionwereoffset

directlyagainstequityinrelationtohybridcapital.

Thefinancialresultalsocontainsallotherfinancialincomeand

financecostswhichcannotbeallocatedtonetinterestorto

interestaccretiontoprovisions.

Otherfinancialincomeincludes€161millioningainsrealised

fromthedisposalofmarketablesecurities(previousyear:

€292 million).Otherfinancecostsinclude€0million(previous

year:€51million)inwrite-downsofmarketablesecuritiesdueto

decreasesintheirfairvalueand€44million(previousyear:

€441million)inrealisedlossesfromthedisposalofmarketable

securities.

Ofthedeferredtaxes,− €586millionisrelatedtotemporary

differences(previousyear:€5million).

Currenttaxesonincomecontain€26millioninnettaxexpens-

es(previousyear:€130million)relatingtopriorperiods.

Duetotheutilisationoftaxlosscarryforwardsunrecognisedin

prioryears,currenttaxesonincomewerereducedby€32mil-

lion(previousyear:€4million).

Duringtheperiodunderreview,equityincreasedby€8million

(previousyear:€251million)byoffsettingdeferredtaxeswith

othercomprehensiveincome,asfollows:

Interest result by category€ million

2010 2009

loans and receivables 359 357

financial assets available for sale 89 232

financial liabilities carried at (amortised) cost − 1,258 − 1,224

− 810 − 635

Taxes on income€ million

2010 2009

current taxes on income 2,056 1,761

Deferred taxes − 680 97

1,376 1,858

Income taxes recognised in other comprehensive income€ million

2010 2009

fair valuation of financial instruments available for sale 34 − 9

fair valuation of financial instruments used for hedging purposes 6 − 58

Actuarial gains and losses of defined ben-efit pension plans and similar obligations − 32 318

Income 8 251

Net interest€ million

2010 2009

interest and similar income 448 589

interest and similar expenses 1,258 1,224

− 810 − 635

(9) Taxes on income

Netintereststemsfromfinancialassetsandliabilities,which

areallocatedtothefollowingcategories:



Tax reconciliation€ million

2010 2009


Theoretical tax expense 1,555 1,729

Differences from foreign tax rates − 142 − 169

Tax effects on

Tax-free domestic dividend income − 76 − 95

Tax-free foreign dividend income − 28 − 32

other tax-free income − 11 − 14

Expenses not deductible for tax purposes 132 72

Accounting for associates using the equity method (including impairment losses on associates’ goodwill) 16 69

Unutilisable loss carryforwards / utilisation of unrecognised loss carryforwards / write-downs on loss carryforwards / recognition of loss carryforwards − 122 55

income on the disposal of investments − 12 − 36

changes in domestic tax rates − 10

changes in foreign tax rates − 56

other 130 279

Effective tax expense 1,376 1,858

Effective tax rate in % 27.6 33.2


(10) Intangible assets

Notes to the Balance Sheet

Intangible assets € million

Developmentcosts

concessions, patent rights,

licenses and similar rights

customerrelationships

and similar assets

Goodwill prepayments Total

Cost

Balance at 1 Jan 2010 475 3,734 2,790 13,258 2 20,259

Additions/disposals due to changes in the scope of consolidation 16 1 2 130 149

Additions 112 165 1 278

Transfers 2 1 − 1 2

currency translation adjustments 11 21 74 192 298

Disposals 9 93 2 104

Balance at 31 Dec 2010 607 3,829 2,866 13,578 2 20,882

Accumulated amortisation/impairment losses

Balance at 1 Jan 2010 223 968 1,742 6 2,939

Additions/disposals due to changes in the scope of consolidation 7 10 − 1 16

Amortisation/impairment losses in the reporting period 69 220 314 603

Transfers 1 1

currency translation adjustments 6 7 52 65

Disposals 9 83 92

Balance at 31 Dec 2010 297 1,122 2,107 6 3,532

Carrying amounts

Balance at 31 Dec 2010 310 2,707 759 13,572 2 17,350

Cost

Balance at 1 Jan 2009 316 1,999 2,164 9,152 4 13,635

Additions/disposals due to changes in the scope of consolidation 55 1,297 470 3,871 − 2 5,691

Additions 104 499 1 604

currency translation adjustments 19 19 156 235 − 1 428

Disposals 19 80 99

Balance at 31 Dec 2009 475 3,734 2,790 13,258 2 20,259

Accumulated amortisation/impairment losses

Balance at 1 Jan 2009 169 898 1,360 6 2,433

Additions/disposals due to changes in the scope of consolidation − 1 − 22 12 − 11

Amortisation/impairment losses in the reporting period 48 129 272 449


Disposals 2 44 46

Balance at 31 Dec 2009 223 968 1,742 6 2,939

Carrying amounts

Balance at 31 Dec 2009 252 2,766 1,048 13,252 2 17,320



Inthereportingperiod,theRWEGroup’stotalexpenditureson

researchanddevelopmentamountedto€149million(previous

year:€110million).Developmentcostsof€112millionwere

capitalised(previousyear:€104million).

Asofthebalance-sheetdate,thecarryingamountofintangible

assetsrelatedtoexplorationactivitiesamountedto€374million

(previousyear:€415million).

Goodwillbreaksdownasfollows:

Inthereportingperiod,goodwillincreasedby€130million.

Anincreaseincurrentredemptionliabilitiesfromputoptions

resultedinanadjustmentwithoutaneffectonincomeof

€213 milliontothegoodwillofthesegmentSalesandDistribu-

tionNetworks.Declinesingoodwillprimarilyresultedfromthe

reportingofThyssengasas“Assetsandliabilitiesheldforsale”

(€77million).Inrespectofadditionstogoodwillintheprevious

year(€3,871 million),€3,435millionresultedfromtheacquisi-

tionofEssent.WiththeassignmentofEssent’stradingactivi-

tiesandwindpowergenerationtothesegmentsTrading/Gas

MidstreamandRenewables,goodwillof€510millionand

€285 million,respectively,wasallocatedtothesesegments.

Goodwillof€43 millionwasallocatedtothesegmentSalesand

DistributionNetworks,basedontheassignmentofEssent’sgas

storageactivities.

Inthethirdquarterofeachfiscalyear,theregularimpairment

testisperformedtodetermineifthereisanyneedtowrite

downgoodwill.Inordertocarryoutthisimpairmenttest,good-

willisallocatedtothecash-generatingunitsatthesegmentlev-

el.Theimpairmenttestinvolvesdeterminingtherecoverable

amountofthecash-generatingunits,whichisdefinedasthe

higheroffairvaluelesscoststosellorvalueinuse.Thefair

valuereflectsthebestestimateofthepricethatanindepend-

entthirdpartywouldpaytopurchasethecash-generatingunit

asofthebalance-sheetdate.Valueinuseisthepresentvalue

ofthefuturecashflowswhichareexpectedtobegenerated

withacash-generatingunit.

Fairvalueisassessedfromanexternalperspectiveandvaluein

usefromacompany-internalperspective.Wedetermineboth

variablesusingabusinessvaluationmodel,takingintoaccount

plannedfuturecashflows.Thesecashflows,inturn,arebased

onthebusinessplan,asapprovedbytheExecutiveBoard

andvalidatthetimeoftheimpairmenttest,andpertaintoa

detailedplanningperiodofuptofiveyears.Incertainjustifiable

cases,alongerdetailedplanningperiodistakenasabasis,

insofarasthisisnecessaryduetoeconomicorregulatory

conditions.Thecashflowplansarebasedonexperienceaswell

asonexpectedmarkettrendsinthefuture.Ifavailable,market

transactionsinthesamesectororthird-partyvaluationsare

takenasabasisfordeterminingfairvalue.

Mid-termbusinessplansarebasedoncountry-specificassump-

tionsregardingthedevelopmentofkeyeconomicindicators

suchasgrossdomesticproduct,consumerprices,interestrate

levelsandnominalwages.Theseestimatesare,amongstothers,

derivedfrommacroeconomicandfinancialstudies.

Thekeyplanningassumptionsforthebusinesssegmentsactive

inEurope’selectricityandgasmarketsareestimatesrelatingto

thedevelopmentofwholesalepricesforelectricity,crudeoil,

naturalgas,coalandCO2emissionallowances,retailpricesfor

electricityandgas,andthedevelopmentofmarketsharesand

regulatoryframeworkconditions.

Thediscountratesusedforbusinessvaluationsaredetermined

onthebasisofmarketdata.Withregardtocash-generating

units,duringtheperiodunderreviewtheyrangedfrom6.25%

to9.00%aftertax(previousyear:6.5%to9.0%)andfrom

8.0%to16.5%beforetax(previousyear:8.8%to15.6%).

Goodwill€ million

31 Dec 2010

31 Dec 2009

Germany 4,186 3,937

power Generation (404) (404)

sales and Distribution Networks (3,782) (3,533)

Netherlands/Belgium 2,665 3,504

United Kingdom 2,968 2,877

central Eastern and south Eastern Europe 2,048 1,956

Renewables 736 441

Upstream Gas & oil 25 26

Trading/Gas Midstream 944 434

others 77

13,572 13,252


Fortheextrapolationoffuturecashflowsgoingbeyondthe

detailedplanninghorizon,weassumedconstantgrowthrates

of0.0%to1.0%(previousyear:0.0%to1.0%).Thesefigures

arederivedfromexperienceandfutureexpectationsforthe

individualdivisionsanddonotexceedthelong-termaverage

growthratesinthemarketsinwhichtheGroupcompaniesare

active.Incalculatingcashflowgrowthrates,thecapitalexpen-

dituresrequiredtoachievetheassumedcashflowgrowthare

subtracted.

Asofthebalance-sheetdate,boththefairvalueslesscosts

tosellandthevaluesinusewerehigherthanthecarrying

amountsofthecash-generatingunits.Thesesurplusesreact

verysensitivelytochangesinthediscountrate,thegrowthrate

andtheoperatingresultaftertaxesinterminalvalueaskey

measurementparameters.

Ofallthesegments,UnitedKingdomandNetherlands/Belgium

exhibitedthesmallestsurplusesofrecoverableamountovercar-

ryingamount.

ThegoodwillallocatedtothesegmentUnitedKingdomamount-

edto€2,968millionasof31December2010.Theimpairment

testshowedarecoverableamountwhichexceededthecarrying

amountby£1.1billion.ValuationofthesegmentUnitedKing-

domwascalculatedusingadiscountrateof6.75%anda

growthrateof1.0%.Anincreaseinthediscountratebymore

than1.21percentagepointstoabove7.96%,theassumption

ofanegativegrowthratehigherthan1.53%oradecreaseof

morethan£85millionintheoperatingresultaftertaxesin

terminalvaluewouldresultintherecoverableamountbeing

lowerthanthecarryingamountofthecash-generatingunit

UnitedKingdom.

ThegoodwillallocatedtothesegmentNetherlands/Belgium

amountedto€2,665million.Therecoverableamountexceeded

thecarryingamountby€0.9billion.Impairmentwouldhave

beennecessaryifthecalculationshadusedadiscountrate

increasedbymorethan0.42percentagepointstoabove6.67%,

agrowthratedecreasedbymorethan0.69percentagepoints

tobelow0.31%oranoperatingresultreducedbymorethan

€61millioninterminalvalue.



Property, plant and equipment

€ million

land, land rights

and buildings incl.

buildings on third-party

land

Technicalplant and

machinery

other equipment,

factoryand office

equipment

prepayments

plantsunder con-

struction

Total

Cost

Balance at 1 Jan 2010 6,959 64,004 2,079 1,869 4,593 79,504

Additions /disposals due to changes in the scope of consolidation − 39 − 729 1 112 − 60 − 715

Additions 285 1,908 171 681 3,198 6,243

Transfers 73 1,737 52 − 7 − 1,914 − 59

currency translation adjustments 32 380 18 − 3 60 487

Disposals 77 704 133 54 968

Balance at 31 Dec 2010 7,233 66,596 2,188 2,652 5,823 84,492

Accumulated depreciation /impairment losses

Balance at 1 Jan 2010 3,566 45,747 1,559 5 50,877

Additions /disposals due to changes in the scope of consolidation − 20 − 601 − 2 − 623

Depreciation /impairment losses in the reporting period 208 2,195 162 35 2,600

Transfers − 40 − 40


Disposals 44 609 129 782

Write-backs 5 2 7

Balance at 31 Dec 2010 3,678 46,934 1,603 40 52,255

Carrying amounts

Balance at 31 Dec 2010 3,555 19,662 585 2,652 5,783 32,237

Cost

Balance at 1 Jan 2009 6,612 58,519 1,942 1,024 2,953 71,050

Additions /disposals due to changes in the scope of consolidation 89 2,291 36 − 1 789 3,204

Additions 164 1,951 161 859 2,317 5,452

Transfers 129 1,360 28 − 13 − 1,535 − 31

currency translation adjustments 26 376 22 93 517

Disposals 61 493 110 24 688

Balance at 31 Dec 2009 6,959 64,004 2,079 1,869 4,593 79,504


Balance at 1 Jan 2009 3,441 44,342 1,501 1 3 49,288

Additions /disposals due to changes in the scope of consolidation 10 14 − 1 − 1 22

Depreciation /impairment losses in the reporting period 167 1,582 149 2 1,900

Transfers − 14 − 14


Disposals 35 400 106 541

Write-backs 11 11

Balance at 31 Dec 2009 3,566 45,747 1,559 5 50,877

Carrying amounts

Balance at 31 Dec 2009 3,393 18,257 520 1,869 4,588 28,627

(11) Property, plant and equipment


Oftheadditions/disposalsduetochangesinthescopeofcon-

solidation,€2,947millionwasrelatedtoEssentintheprevious

year.

Thecarryingamountofproperty,plant,andequipmentfor

explorationactivitieswas€346million(previousyear:

€354 million).

Property,plantandequipmentweresubjecttorestrictionsin

theamountof€1,026million(previousyear:1,137 million)in

Asof31December2010,thefairvalueofinvestmentproperty

amountedto€257million(previousyear:€254million).Ofthis,

€85million(previousyear:€80million)isbasedonvaluations

byindependentappraisers.Rentalincomeinthereportingperi-

theformoflandchargesandchattelmortgages.Ofthecarry-

ingamountofproperty,plantandequipment,€136million

(previousyear:€74million)wasattributabletoassetsleased

underfinanceleases.Theseassetswereprincipallycomprised

oftechnicalplantandequipmentwithatotalvalueof€127mil-

lion(previousyear:€64million).Disposalofproperty,plant

andequipmentresultedfromthesaleordecommissioningof

plants.

odamountedto€23million(previousyear:€23million).

Directoperatingexpensestotalled€14million(previousyear:

€11 million).

Investment property€ million

Cost

Balance at 1 Jan 2009 366

Additions /disposals due to changes in the scope of consolidation − 1

Transfers 31

currency adjustments 1

Disposals 19

Balance at 31 Dec 2009 378



Depreciation /impairment losses in the reporting period 8

Transfers 14

Disposals 12


Carrying amounts


(12) Investment property

Investment property€ million

Cost


Additions /disposals due to changes in the scope of consolidation

Transfers 40

currency adjustments

Disposals 17




Depreciation /impairment losses in the reporting period 10

Transfers 40

Disposals 7


Carrying amounts




(13) Investments accounted for using the equity method

Thefollowingsummariespresentthekeyitemsfromthebal-

ancesheetsandincomestatementsofcompaniesaccounted

forusingtheequitymethod:

(14) Other non-current financial assets

Asof31December2010,thefairvalueofinvestmentsaccount-

edforusingtheequitymethodforwhichquotedmarketprices

existamountedto€2million(previousyear:€2million).

Non-currentsecuritiesprimarilyconsistoffixed-interestmarket-

ablesecuritiesandsharesoflistedcompanies.Long-term

securitiesamountingto€189 million(previousyear:€95 mil-

lion)weredepositedinatrustaccountforRWEAGanditsubsi-

diariestocovercreditbalancesstemmingfromtheblockmodel

forpre-retirementpart-timework,pursuanttoSec.8aofthe

Pre-RetirementPart-TimeWorkAct(AltTZG).

Inrespectofjointventures,€4,280millionofassets(previous

year:€3,457million)and€1,831millionofliabilities(previous

year:€1,569million)werenon-current.

Investments accounted for using the equity method

€ million

31 Dec 2010 31 Dec 2009

Total of which: joint ventures


Equity

Assets 24,436 4,524 24,312 3,739

liabilities 17,078 3,564 13,997 2,573

7,358 960 10,315 1,166

Adjustment to RWE interest and equity method − 3,664 − 477 − 6,579 − 583

3,694 483 3,736 583

Income from investments accounted for using the equity method

€ million

2010 2009



Revenue 15,814 480 18,882 253

income 840 − 207 1,277 − 185

Adjustment to RWE interest and equity method − 530 105 − 1,146 23

310 − 102 131 − 162

Other non-current financial assets€ million

31 Dec 2010 31 Dec 2009

Non-consolidated subsidiaries 145 170

other investments 356 386

Non-current securities 249 153

750 709


Thecarryingvaluesofexchange-tradedderivativeswithnetting

agreementsareoffset.

Changesinthescopeofconsolidationincreasedotherreceiva-

blesandotherassetsby€13million.

(15) Financial receivables

Financial receivables

€ million

31 Dec 2010 31 Dec 2009

Non-current current Non-current current

loans to non-consolidated subsidiaries and investments 809 994 806 487

collateral for trading activities 674 2,022

other financial receivables

Accrued interest 114 127

Miscellaneous other financial receivables 233 964 312 786

1,042 2,746 1,118 3,422

Asofthebalance-sheetdate,financialreceivablesfromassoci-

atesamountedto€2,195million(previousyear:€1,470 mil-

lion).

CompaniesoftheRWEGroupdepositedcollateralforthetrad-

ingactivitiesstatedaboveforexchange-basedandover-the-

Withtheexceptionofderivatives,thefinancialinstruments

reportedunderotherreceivablesandotherassetsaremeas-

uredatamortisedcost.Derivativefinancialinstrumentsare

statedatfairvalue.

counter(OTC)transactions.Thesedepositsensurethatthe

obligationsfromthetransactionsaredischargedevenifthe

developmentofpricesisnotfavourable.

(16) Other receivables and other assets

Other receivables and other assets

€ million

31 Dec 2010 31 Dec 2009


Derivatives 1,696 7,222 1,769 10,433

surplus of plan assets over benefit obligations 56 79

prepayments for items other than inventories 769 714

co2 emission allowances 983 1,117

prepaid expenses 178 162

Miscellaneous other assets 461 1,332 640 1,358

2,213 10,484 2,488 13,784



Thecapitalisedtaxreductionclaimsfromlosscarryforwards

resultfromtheexpectedutilisationofpreviouslyunusedtax

losscarryforwardsinsubsequentyears.

Realisationofthesetaxcarryforwardsisguaranteedwithsuffi-

cientcertainty.Attheendofthereportingperiod,corporate

incometaxlosscarryforwardsandtradetaxlosscarryforwards

forwhichnodeferredtaxclaimshavebeenrecognisedamount-

edto€660millionand€266million,respectively(previous

year:€372millionand€187million).€25millionofthese

incometaxlosscarryforwardsapplytothenextfiveyears.

Theotherlosscarryforwardscanessentiallybeusedforan

unlimitedperiod.

Intheyearunderreview,deferredtaxexpensesof€37million

arisingfromthetranslationofforeignfinancialstatementswere

offsetagainstequity(previousyear:€63million).

(17) Deferred taxes

Deferredtaxassetsandliabilitiesprincipallystemfromthefact

thatmeasurementsintheIFRSstatementsdifferfrommeasure-

mentsinthetaxbases,asaresultofdeviationsinvaluations.

€2,558millionand€2,496millionofthegrossdeferredtax

assetsandliabilities,respectively,willberealisedwithintwelve

months(previousyear:€2,473millionand€2,603million).

Thefollowingisabreakdownofdeferredtaxassetsandliabili-

tiesbyitem:

Deferred taxes

€ million

31 Dec 2010 31 Dec 2009

Assets liabilities Assets liabilities

Non-current assets 412 2,856 517 2,678

current assets 267 1,756 381 2,009

Exceptional tax items 239 267

Non-current liabilities

provisions for pensions 641 24 581 114

other non-current provisions 2,079 17 1,752 168

current liabilities 2,291 740 2,092 594

5,690 5,632 5,323 5,830

Tax loss carryforwards

corporate income tax (or comparable foreign income tax) 142 47

Trade tax 6 9

Gross total 5,838 5,632 5,379 5,830

Netting -3,447 -3,447 -3,503 -3,503

Net total 2,391 2,185 1,876 2,327


(18) Inventories

Inventories€ million

31 Dec 2010 31 Dec 2009

Raw materials, incl. nuclear fuel assemblies and earth excavated for lignite mining 2,373 2,125

Work in progress - goods 25 27

Work in progress - services 88 82

finished goods and goods for resale 788 857

prepayments 19 24

3,293 3,115

Inventorieswerenotsubjecttoanyrestrictionsondisposaland

therewerenofurtherobligations.

Thecarryingamountofinventoriesacquiredforresalepurposes

was€627 million(previousyear:€245 million).

Changesinthescopeofconsolidationresultedinadecreaseof

€12millionininventories.

(19) Trade accounts receivable

Asofthebalance-sheetdate,tradeaccountsreceivablefrom

associatesamountedto€241million(previousyear:€292mil-

lion).

Tradeaccountsreceivabledecreasedby€76milliondueto

changesinthescopeofconsolidation.

(20) Marketable securities

Thetotalvalueofcurrentmarketablesecuritieswas€3,196mil-

lion(previousyear:€3,290million),consistingoffixed-interest

marketablesecuritiesof€2,670million(previousyear:

€2,642 million)withamaturityofmorethanthreemonths

fromthedateofacquisition,andstocksandprofit-participation

certificatesof€526million(previousyear:€648million).

Marketablesecuritiesarestatedatfairvalue.Asof31Decem-

ber2010,theaveragereturnonfixed-interestsecuritieswas

2.1%(previousyear:2.1%).Securitiesintheamountof

€812 million(previousyear:€649million)weredepositedwith

clearingbanksascollateral.

(21) Cash and cash equivalents

RWEkeepsdemanddepositsexclusivelyforshort-termcash

positionsandonlyatbankswithaminimumcreditratingof

A-/A3fromoneofthetworenownedratingagencies,Moody’s

orStandard&Poor’s.Asinthepreviousyear,interestratesare

maintainedatmarketlevels.

(22) Equity

Abreakdownofequityisshownonpage166.

ThesubscribedcapitalofRWEAGisstructuredasfollows:

Cash and cash equivalents€ million

31 Dec 2010

31 Dec 2009

cash and demand deposits 2,317 2,113

Marketable securities and other cash investments (maturity less than three months from the date of acquisition) 159 961

2,476 3,074

Subscribed capital 31 Dec 2010Number of shares

31 Dec 2009Number of shares

31 Dec 2010carrying amount

31 Dec 2009carrying amount

in ‘000 in % in ‘000 in % € million € million

common shares 523,405 93.1 523,405 93.1 1,340 1,340

preferred shares 39,000 6.9 39,000 6.9 100 100

562,405 100.0 562,405 100.0 1,440 1,440



Commonandpreferredsharesareno-par-valuebearershare

certificates.Preferredshareshavenovotingrights.Undercer-

tainconditions,preferredsharesareentitledtopaymentofa

preferencedividendof€0.13pershare,uponallocationofthe

company’sprofits.

PursuanttoaresolutionpassedbytheAnnualGeneralMeeting

on17April2008,theExecutiveBoardofRWEAGwasauthor-

isedtoincreasethecompany’scapitalstock,subjecttotheSu-

pervisoryBoard’sapproval,byupto€287,951,360.00until

16 April2013,throughtheissuanceofnew,bearercommon

sharesinreturnforcontributionsincashorinkind(authorised

capital).Incertaincases,thesubscriptionrightsofsharehold-

erscanbewaived,withtheapprovaloftheSupervisoryBoard.


on22April2009,theExecutiveBoardwasfurtherauthorised

toissueoptionorconvertiblebondsuntil21April2014.The

totalnominalvalueofthebondsislimitedto€6,000million.

Shareholders’subscriptionrightsmaybewaivedundercertain

conditions.TheAnnualGeneralMeetingdecidedtoestablish

€143,975,680inconditionalcapitaldividedinto56,240,500

bearercommonshares,inordertoredeemthebonds.Shares

fromtheauthorisedcapitalaretobedeductedfromtheshares

fromtheconditionalcapital,insofarastheyarebothissued

withawaiverofshareholders’subscriptionrights.Accordingly,

thesharecapitalmaynotbeincreasedbymorethan20%by

theissueofnewshares.


on22April2010,thecompanywasauthorisedtopurchase

sharesofanyclassinRWEtotallingupto10%ofthecompa-

ny’scapitalstockuntil21October2011.Sharebuy-backsmay

alsobeconductedwithputorcalloptions.Furthermore,the

resolutionalsoauthorisestheExecutiveBoardtowithdrawown

shares,withoutrequiringanadditionalresolutionbytheAnnu-

alGeneralMeetingor–undercertainconditionsandwaiverof

shareholders’subscriptionrights–tosellthemtothirdparties.

On31December2010,RWEAGheld28,846,473no-par-value

commonsharesinRWEAG(31December2009:28,846,473).

Theacquisitioncostsofownsharesamountingto€2,272 mil-

lionweredeductedfromthecarryingamountofequity(31 De-

cember2009:€2,272million).Asofthebalance-sheetdate,

theyaccountedfor€73,846,970.88ofthecompany’sshare

capital.Thisisequivalentto5.13%ofsubscribedcapital.

InSeptember2010,RWEAGissuedahybridbondwithanomi-

nalvolumeof€1.75billion.Thebond,whichissubordinatedto

allothercreditorsecurities,isaperpetualandmaybecalled

onlybyRWEAGonspecific,contractuallyagreedcalldatesor

occasions.Itbearsaninterestrateof4.625%p.a.untilthefirst

calldate,whichisin2015.Ifthebondisnotcalledasofthis

date,itsinterestrateuntilthenextcalldate,whichisin2020,

willbethesumofthethenapplicablefive-yearinterbankrate

andacreditspreadof265basispoints.Ifitisnotcalledasof

thatdate,either,itwillbeconvertedintoavariable-interest

bondwithanannualcallrightandaninterestrateequalling

the12-monthEURIBORplus365basispoints.Interestpay-

mentsmaybedeferredundercertainconditions,especiallyif

theExecutiveandSupervisoryBoardsproposetotheAnnual

GeneralMeetingthatadividendnotbepaid.Deferredinterest

paymentsmustbemadeupforwhenpaymentofadividendis

proposedagain.Aftertenyears,thehybridbondmayonlybe

redeemedbyissuingequityorequity-likefinancialinstruments,

forexamplenewhybridbonds.Atthefirstcalldate,whichis

afterfiveyears,thehybridbondmayberedeemedwithout

restrictionswithrespecttothefollow-upfinancing.

PursuanttoIAS32,theissuedhybridbondmustbeclassified

asequity.Proceedsfromthebondissuewerereducedbythe

capitalprocurementcostsandaddedtoequity,takingaccount

oftaxes.Interestduetobondholderswillbebookeddirectly

againstequity,afterdeductionoftaxes.Thefirstinterest

paymentcomesdueon28September2011.

Accumulated other comprehensive incomereflectschangesin

thefairvaluesoffinancialinstrumentsavailableforsale,cash

flowhedgesandhedgesofthenetinvestmentinforeignenti-

ties,aswellaschangesstemmingfromforeigncurrencytransla-

tionadjustmentsfromforeignfinancialstatements.

Dividend proposal

WeproposetotheAnnualGeneralMeetingthatRWEAG’sdis-

tributableprofitforfiscal2010beappropriatedasfollows:

Distributionofadividendof€3.50perindividualdividend-

bearingshare:

Dividend €1,867,454,844.50

profit carryforward €38,966.69

Distributable profit €1,867,493,811.19


Thedividendproposaltakesintoaccountthenon-dividend-

bearingsharesheldbythecompanyasof31December2010.

Thenumberofdividend-bearingsharesmaydeclinebeforethe

AnnualGeneralMeetingiffurtherownsharesarepurchased.

Conversely,thenumberofdividend-bearingsharesmayriseif

ownsharesaresoldpriortotheAnnualGeneralMeeting.In

thesecases,basedonanunchangeddividendperdividend-

bearingshare,anadjustedproposalfortheappropriationofthe

distributableprofitwillbemadetotheAnnualGeneralMeeting,

inwhichthetotalamountoftheappropriationisreducedby

thepartialamountthatwouldbedistributablefortheown

sharesadditionallypurchasedbetween1January2011andthe

dateoftheproposalfortheappropriationofdistributableprofit

andisincreasedbythepartialamountthatisdistributablefor

theownsharessoldbetween1January2011andthedateof

theproposalfortheappropriationofdistributableprofit.The

profitcarryforwardwillincreaseordeclinebythesepartial

amounts.

BasedonaresolutionofRWEAG’sAnnualGeneralMeetingon

22April2010,thedividendforfiscal2009amountedto€3.50

perdividend-bearingcommonandpreferredshare.Thedivi-

dendpaymenttoshareholdersofRWEAGtotalled€1,867mil-

lion.

Minority interest

TheshareownershipofthirdpartiesinGroupentitiesis

presentedinthisitem.

Significantminorityinterestsareessentiallyheldinthe

HungarianenergyutilitiesandintheCzechgascompanies.

(23) Share-based payment

Intheyearunderreview,thegroupwideshare-basedpayment

systemsforexecutivesofRWEAGandsubordinateaffiliates

consistedofthefollowing:Beat2005andBeat2010.Ifthe

personsholdingnotionalstocksarenotemployedbyRWEAG,

theexpensesassociatedwiththeexerciseoftheperformance

sharesarebornebytherespectiveGroupcompany.

Beat 2005

2007 tranche 2008 tranche 2009 tranche

Grant date 1 Jan 2007 1 Jan 2008 1 Jan 2009

Number of conditionally granted performance shares

1,468,132 1,668,836 3,251,625

Term 3 years 3 years 3 years

pay-out conditions Automatic pay-out, if − following a waiting period of three years − an outperformance compared to 25 % of the peer group of the Dow Jones sToXX Utilities index has been achieved, measured in terms of their index weighting as of the inception of the programme. Measurement of outper-formance is carried out using Total shareholder Return (TsR), which takes into account both the development of the share price together with reinvested dividends.

Determination of payment 1. Determination of the index weighting of the peer group companies which exhibit a lower TsR than RWE at the end of the term.

2. performance factor is calculated by squaring this percentage rate and multiplying it by 1.25.3. Total number of performance shares which can be paid out is calculated by multiplying the

performance shares conditionally granted by the performance factor.4. payment corresponds to the final number of performance shares valued at the average RWE

share price during the last 20 exchange trading days prior to expiration of the programme. The payment is limited to twice the value of the performance shares as of the grant date.

change in corporatecontrol /merger

• if during the waiting period there is a change in corporate control, a compensatory payment is made. This is calculated by multiplying the price paid in the acquisition of the RWE shares by the final number of performance shares. The latter shall be determined as per the plan condi-tions with regard to the time when the bid for corporate control is submitted.

• in the event of merger with another company, the compensatory payment shall be calculated on the basis of the fair value of the performance shares at the time of the merger multiplied by the prorated number of performance shares corresponding to the ratio between the total waiting period and the waiting period until the merger takes place.

form of settlement cash settlement



Beat 2010

2010 tranche; Waiting period: 3 years 2010 tranche; Waiting period: 4 years

Grant date 1 Jan 2010 1 Jan 2010

Number of conditionally granted performance shares

784,421

1,012,331

Term 3 years 5 years

pay-out conditions Automatic pay-out, if − following a waiting period of three years (valuation date: Dec 31 of the third year) − an outperformance compared to at least 25 % of the peer group of the Dow Jones sToXX Utilities index has been achieved, measured in terms of their index weighting as of the issue of the tranche. Measurement of outperformance is carried out using Total shareholder Return (TsR), which takes into account both the development of the share price together with reinvested dividends.

possible pay-out on three exercise dates (valuation dates: Dec 31 of the fourth year, June 30 and Dec 31 of the fifth year) if − as of the valuation date − an outperformance compared to at least 25 % of the peer group of the Dow Jones sToXX Utilities index has been achieved, measured in terms of their index weighting as of the issue of the tranche. Measure-ment of outperformance is carried out using Total shareholder Return (TsR), which takes into account both the development of the share price together with reinvested dividends. Automatic pay-out occurs on the third valuation date; the number of performance shares available for pay-out can be freely chosen on the first and second valuation date.

Determination of payment 1. Determination of the index weighting of the peer group companies which exhibit a lower TsR than RWE at the valuation date.

2. The total number of performance shares which can be paid out is determined on the basis of a linear payment curve. if the index weighting of 25 % is outperformed, 7.5 % of the conditionally-granted performance shares can be paid out. Another 1.5 % of the performance shares granted can be paid out for each further percentage point above and beyond the index weighting of 25 %.

3. payment corresponds to the number of payable performance shares valued at the average RWE share price during the last 60 exchange trading days prior to the valuation date. The payment is limited to twice the value of the performance shares as of the grant date.

change in corporatecontrol /merger

• if during the waiting period there is a change in corporate control, a compensatory payment is made. This is calculated by multiplying the price paid in the acquisition of the RWE shares by the final number of per-formance shares which have not been used. The latter shall be determined as per the plan conditions with regard to the time when the bid for corporate control is submitted.

• in the event of merger of RWE AG with another company, the performance shares shall expire and a compensatory payment shall be made. first, the fair value of the performance shares as of the time of merger shall be calculated. This fair value is then multiplied by the number of performance shares granted, reduced pro-rata. The reduction factor is calculated as the ratio of the time from the beginning of the total waiting period until the merger takes place to the entire waiting period of the programme, multiplied by the ratio of the performance shares not yet used as of the time of the merger to the total number of performance shares granted at the beginning of the programme.

personal investment As a prerequisite for participation, plan participants must demonstrably invest one sixth of the gross grant value of the performance shares before taxes in RWE common shares and hold such investment for the waiting period of the tranche in question.

form of settlement cash settlement

Thefairvalueoftheperformancesharesconditionallygranted

intheBeatprogrammeamountedto€25.96pershareasof

thegrantdateforthe2010tranche(four-yearwaitingperiod),

€28.80pershareforthe2010tranche(three-yearwaiting

period),€11.93pershareforthe2009tranche,and€22.25

pershareforthe2008tranche.Thesevalueswerecalculated

externallyusingastochastic,multivariateBlack-Scholes

standardmodelviaMonteCarlosimulationsonthebasis

ofonemillionscenarioseach.Inthecalculations,due

considerationwastakenofthemaximumpaymentstipulated

intheprogramme’sconditionsforeachconditionallygranted

performanceshare,theremainingterm,thediscountratesfor

theremainingterm,thecurrentpricesoftheunderlyingshares,

therelatedvolatilitiesandcorrelations,andtheexpected

dividendsofRWE AGandofpeercompanies.


Performance Shares from Beat 2005 2007 tranche 2008 tranche 2009 tranche

outstanding at the start of the fiscal year 1,447,103 1,662,036 3,243,641

Granted

change (granted /expired) − 10,011 − 16,832

paid out -1,447,103

outstanding at the end of the fiscal year 0 1,652,025 3,226,809

payable at the end of the fiscal year 0 1,652,025 0

Performance Shares from Beat 2010 2010 tranche; Waiting period: 3 years 2010 tranche; Waiting period: 4 years

outstanding at the start of the fiscal year

Granted 784,421 1,012,331

change (granted /expired) − 11,934 − 13,439

paid out

outstanding at the end of the fiscal year 772,487 998,892

payable at the end of the fiscal year 0 0

Intheyearunderreview,thenumberofperformanceshares

developedasfollows:

Theremainingcontractualtermamountedtofouryearsforthe

2010tranchewithfour-yearwaitingperiod,twoyearsforthe

2010tranchewiththree-yearwaitingperiodandoneyearforthe

2009tranche.Thecontractualtermforthe2008trancheended

uponcompletionoftheyearunderreview;thepaymentamount

is€16.70perperformanceshare.

Intheyearunderreview,thenumberofoutstandingoptions

fromtheSharesaveSchemedevelopedasfollows:

Inadditiontotheabove,therewerethefollowingshare-based

paymentsystemswithequitysettlementforexecutivesand

employeesatRWENpowerplc.,RWESupply&TradingGmbH,

RWE ITUKLtd.undRWENpowerRenewablesLtd.(Sharesave

Scheme):

RWE Npower plc. /RWE Supply & Trading Gmbh / RWE IT Uk Ltd. /RWE Npower Renewables Ltd.

sharesave scheme

Tranches 2006 − 2010

Number of options granted per tranche 247,119 − 404,796

Term 3 years

Waiting period 3 years

Exercise price £36.47 − 50.24

form of settlement Existing shares

Options from the Sharesave Scheme Tranches 2006 to 2010

outstanding at the start of the fiscal year 745,672

Granted 404,796

Exercised − 141,014

Expired − 93,755

outstanding at the end of the fiscal year 915,699

Exercisable at the end of the fiscal year 88,874



Infiscal2010,thetotalincomeforthegroupwideshare-based

paymentsystemsamountedto€7million(previousyear:total

expenseof€46million).Asinthepreviousyear,theclaims

weresettledincashonly.Asofthebalance-sheetdate,provi-

sionsforcash-settledshare-basedpaymentprogrammes

Provisions for pensions and similar obligations.Thecompany

pensionplanconsistsofdefinedcontributionanddefined

benefitplans.

Inthereportingperiod,€50million(previousyear:€24million)

waspaidintodefinedcontributionplans.Thissumincludes

paymentsmadebyRWEforabenefitplanintheNetherlands

whichcoversthecommitmentsofvariousemployers.Thisfund

(24) Provisions

amountedto€44million(previousyear:€79million).The

intrinsicvalueofthecash-settledshare-basedpaymenttrans-

actionsexercisableorpayableasofthebalance-sheetdate

amountedto€28million(previousyear:€28million).

doesnotprovidetheparticipatingcompanieswithinformation

allowingforthepro-rataallocationofcommitments,planassets

andservicecost.InRWE’sconsolidatedfinancialstatements,

thecontributionsarerecognisedanalogouslytoadefined

contributionplan.

Provisionsfordefinedbenefitplansaredeterminedusingactu-

arialmethods.Thefollowingassumptionsareapplied:

Provisions

€ million

31 Dec 2010 31 Dec 2009

Non-current current Total Non-current current Total

provisions for pensions and similar obligations 3,318 3,318 3,281 3,281

provisions for taxes 3,194 407 3,601 2,796 316 3,112

provisions for nuclear waste management 9,686 324 10,010 9,250 241 9,491

provisions for mining damage 2,822 98 2,920 2,618 94 2,712

19,020 829 19,849 17,945 651 18,596

other provisions

staff-related obligations (excluding restructuring) 901 747 1,648 793 850 1,643

Restructuring obligations 456 139 595 386 142 528

purchase and sales obligations 820 867 1,687 1,210 887 2,097

Uncertain obligations in the electricity business 451 337 788 449 389 838

Environmental protection obligations 133 49 182 127 26 153

interest payment obligations 714 27 741 564 24 588

obligations to deliver co2 emission allowances / certificates for renewable energies 972 972 1,242 1,242

Miscellaneous other provisions 990 1,605 2,595 841 1,618 2,459

4,465 4,743 9,208 4,370 5,178 9,548

23,485 5,572 29,057 22,315 5,829 28,144

Calculation assumptions

in %

31 Dec 2010 31 Dec 2009

Germany foreign1 Germany foreign1

Discount factor 5.25 5.30 5.25 5.70

compensation increase 2.75 4.90 2.75 5.20

pension increase 1.00 − 1.50 3.30 1.00 − 1.50 3.50

Expected return on plan assets 5.75 5.50 5.75 5.25

1 pertains to benefit commitments to employees of the RWE Group in the UK.


Theexpectedreturnonplanassetswasdetermineddepending

onthespecificassetcategories.Theexpectedreturnonequity

investmentsisbasedonthelong-termaverageperformance

observedfortheindustriesandgeographicalmarketsinvolved,

takingintoaccountthecurrentcompositionoftheequityport-

folio.Forfixed-interestsecurities,theexpectedreturnwas

derivedfromappropriatelyselectedtradingpricesandindices,

Excludingtaxes,asof31December2010cumulativeactuarial

gains/lossesamountedto−€6,254million(31 December2009:

−€6,287million).

inaccordancewithacceptedmethods.Theexpectedreturn

onrealestatewascalculatedtakingintoconsiderationthe

marketingpossibilities,whicharedeterminedbycontractual

obligationsandlocalmarketconditions.

Provisionsforpensionsarebrokendownasfollows:

Provisions for pensions and similar obligations (funded and unfunded plans)€ million

31 Dec 2010

31 Dec 2009

present value of funded benefit obligations 15,170 14,588

fair value of plan assets 13,833 13,139

Net balance for funded plans 1,337 1,449

capitalised surplus of plan assets over benefit obligations 56 79

Provision recognised for funded plans 1,393 1,528

Provision recognised for unfunded plans 1,925 1,753

3,318 3,281

Development of plan assets

€ million

fair value

2010 2009

Balance at 1 Jan 13,139 11,030

Expected return on plan assets 730 660

Employer contributions to funded plans 166 826

Employee contributions to funded plans 16 13

Benefits paid by funded plans − 871 − 786

Actuarial gains (losses) of funded plans 541 1,162

currency translation adjustments 124 234

changes in the scope of consolidation − 12

Balance at 31 Dec 13,833 13,139



In2010,theactualreturnsonplanassetsamountedto

€1,271 million(previousyear:€1,822million).

Composition of plan assets (fair value)

€ million

31 Dec 2010 31 Dec 2009

Germany1 foreign2 Total Germany1 foreign2 Total

Equity instruments 2,783 781 3,564 3,042 270 3,312

interest-bearing instruments 4,537 2,856 7,393 5,208 3,052 8,260

Real estate 166 196 362 78 80 158

Mixed funds3 947 947

Alternative investments 918 439 1,357 742 360 1,102

other4 155 55 210 135 172 307

9,506 4,327 13,833 9,205 3,934 13,139

1 plan assets in Germany primarily pertain to assets of RWE AG and of various Group companies which are managed by RWE pensionstreuhand e.v. as a trust, as well as to assets of RWE pensionsfonds AG.2 foreign plan assets pertain to the assets of a UK pension fund for covering benefit commitments to employees of the RWE Group in the UK.3 containing dividend- and interest-bearing instruments.4 includes reinsurance claims against insurance companies and other fund assets of provident funds.

Composition of plan assets (targeted investment structure)

in %

31 Dec 2010 31 Dec 2009

Germany1 foreign2 Germany1 foreign2

Equity instruments 23.4 17.5 28.4 6.9

interest-bearing instruments 54.3 67.5 59.3 77.6

Real estate 2.3 5.0 2.3 2.0

Mixed funds3 10.0

Alternative investments 10.0 10.0 10.0 9.1

other4 4.4

100.0 100.0 100.0 100.0

1 plan assets in Germany primarily pertain to assets of RWE AG and of various Group companies which are managed by RWE pensionstreuhand e.v. as a trust, as well as to assets of RWE pensionsfonds AG.2 foreign plan assets pertain to the assets of a UK pension fund for covering benefit commitments to employees of the RWE Group in the UK.3 containing dividend- and interest-bearing instruments.4 Does not include reinsurance claims against insurance companies and other fund assets of provident funds, as such do not fall under the scope of portfolio management as a whole.

Development of pension claims

€ million

present value

2010 2009

Balance at 1 Jan 16,341 13,768

current service cost 201 143

interest cost 877 836

contributions by employees 16 13

Actuarial gains (losses) 508 2,268

Benefits paid − 979 − 908

past service cost 7 − 36


changes in the scope of consolidation − 21 5

Balance at 31 Dec 17,095 16,341


Infiscal2010,pastservicecostscontainedincreasedbenefit

commitmentsintheUnitedKingdom(€22million)andcorre-

spondingreductionsinGermany.Inthepreviousyear,such

costsconsistedmainlyofplancurtailments.

Thepresentvalueofpensionclaims,lessthefairvalueofthe

planassets,equalsthenetamountoffundedandunfunded

pensionplans.Thefollowingdevelopmentshavebeenseen

overthelastfiveyears:

Forthesameperiod,thefollowingexperienceadjustments

weremadetothepresentvaluesofthepensionclaimsandthe

fairvaluesoftheplanassets:

Expenses for pension provisions€ million

2010 2009

service cost 201 143

interest cost 877 836

Expected return on plan assets − 730 − 660

Amortisation of past service cost 7 − 36

355 283

Iftheexperienceadjustmentspertaintothepresentvaluesof

pensionclaims,thentheyarepartoftheactuarialgainsor

lossesonthepensionclaimsfortheyearinquestion.Ifthey

pertaintothefairvaluesofplanassets,thentheyaretobe

equatedwiththeactuarialgainsorlossesarisingontheplan

assetsfortheyearinquestion.

Paymentsfordefinedbenefitplansareexpectedtoamountto

€309millioninfiscal2011.

Experience adjustments€ million

2010 2009 2008 2007 2006

present value of pension claims − 199 − 451 − 40 367 38

fair value of plan assets 541 1,162 − 2,107 − 494 − 69

Net amount of funded and unfunded pension plans€ million

2010 2009 2008 2007 2006

present value of pension claims 17,095 16,341 13,768 15,733 17,955

fair value of plan assets 13,833 13,139 11,030 12,675 6,119

Balance 3,262 3,202 2,738 3,058 11,836



Roll-forward of provisions

€ million

Balance at 1 Jan 2010

Additions Unusedamountsreleased

interestaccretion /change in

discountrate

changes inthe scopeof conso-lidation,currency

adjust-ments,

transfers

Amountsused

Balance at 31 Dec

2010

provisions for pensions 3,281 203 151 − 511 − 266 3,318

provisions for taxes 3,112 1,133 − 22 − 54 − 568 3,601

provisions for nuclear waste management 9,491 180 472 − 1 − 132 10,010

provisions for mining damage 2,712 117 − 61 151 64 − 63 2,920

18,596 1,633 − 83 774 − 42 − 1,029 19,849

other provisions

staff-related obligations (excluding restructuring) 1,643 845 − 197 34 23 − 700 1,648

Restructuring obligations 528 161 − 21 47 8 − 128 595

purchase and sales obligations 2,097 612 − 401 40 − 81 − 580 1,687

Uncertain obligations in the electricity business 838 114 − 18 16 − 134 − 28 788

Environmental protection obligations 153 41 − 1 2 − 1 − 12 182

interest payment obligations 588 180 − 8 2 − 17 − 4 741

obligations to deliver co2 emission allow-ances /certificates for renewable energies 1,242 1,028 − 31 − 10 − 1,257 972

Miscellaneous other provisions 2,459 647 − 356 29 89 − 273 2,595

9,548 3,628 − 1,033 170 − 123 − 2,982 9,208

Provisions 28,144 5,261 − 1,116 944 − 165 − 4,011 29,057

of which: changes in the scope of consol idation (− 61)

1 incl. treatment of actuarial gains and losses as per iAs 19.93A.

Provisions for nuclear waste management arealmostexclu-

sivelyrecognisedasnon-currentprovisions,andtheirsettle-

mentamountisdiscountedtothebalance-sheetdate.Fromthe

currentperspective,themajorityofutilisationisanticipatedto

occurintheyears2020to2050.Asinthepreviousyear,the

discountfactorwas5.0%.Volume-basedincreasesintheprovi-

sionsaremeasuredattheirpresentvalue.Inthereporting

period,theyamountedto€92million(previousyear:€122mil-

lion).Furtheradditionsof€88millioninprovisions(previous

year:releaseof€388million)stemfromthefactthatcurrent

estimatesprojectanetincreaseinanticipatedwastedisposal

costs(previousyear:decrease).Additionstoprovisionsfornu-

clearwastemanagementprimarilyconsistofaninterestaccre-

tionof€472million(previousyear:€446million).€833million

inprepayments,primarilytoforeignreprocessingcompanies

andtotheGermanFederalOfficeforRadiationProtection(BfS)

fortheconstructionoffinalstoragefacilities,werededucted

fromtheseprovisions(previousyear:€796million).

Intermsoftheircontractualdefinition,provisionsfornuclear

wastemanagementbreakdownasfollows:

Provisions for nuclear waste management€ million

31 Dec 2010

31 Dec 2009

provisions for nuclear obligations, not yet contractually defined 7,977 7,557

provisions for nuclear obligations, contractually defined 2,033 1,934

10,010 9,491


Inrespectofthedisposalofspentnuclearfuelassemblies,the

provisionsforobligationswhicharenotyetcontractuallyde-

finedcovertheestimatedlong-termcostsofdirectfinalstorage

offuelassemblies,whichiscurrentlytheonlypossibledisposal

methodinGermany,aswellasthecostsforthedisposalof

radioactivewastefromreprocessing,whichessentiallyconsist

ofcostsfortransportfromcentralisedstoragefacilitiesandthe

plants’intermediatestoragefacilitiestoreprocessingplants

andfinalstorageaswellasconditioningforfinalstorageand

containers.Theseestimatesaremainlybasedonstudiesbyin-

ternalandexternalexperts,inparticularbyGNSGesellschaft

fürNuklear-ServicembHinEssen,Germany.Withregardtothe

decommissioningofnuclearpowerplants,thecostsforthe

post-operationalphaseanddismantlingaretakenintoconsid-

eration,onthebasisofdatafromexternalexpertopinionspre-

paredbyNISIngenieurgesellschaftmbH,Alzenau,Germany,

whicharegenerallyacceptedthroughouttheindustryandare

updatedcontinuously.Finally,thisitemalsocoversallofthe

costsoffinalstorageforallradioactivewaste,basedondata

providedbyBfS.

Provisionsforcontractuallydefinednuclearobligationsare

relatedtoallnuclearobligationsforthedisposaloffuelassem-

bliesandradioactivewasteaswellasforthedecommissioning

ofnuclearpowerplants,insofarasthevalueofsaidobligations

isspecifiedincontractsundercivillaw.Theyincludetheantici-

patedresidualcostsofreprocessing,return(transport,contain-

ers)andintermediatestorageoftheresultingradioactive

waste,aswellastheadditionalcostsoftheutilisationofurani-

umandplutoniumfromreprocessingactivities.Thesecostsare

basedonexistingcontractswithforeignreprocessingcompa-

niesandwithGNS.Moreover,theseprovisionsalsotakeinto

accountthecostsfortransportandintermediatestorageof

spentfuelassemblieswithintheframeworkoffinaldirect

storage.Thepowerplants’intermediatestoragefacilitiesare

licensedforanoperationalperiodof40years.Thesefacilities

commencedoperationsbetween2002and2006.Furthermore,

theamountsarealsostatedfortheconditioningandintermedi-

atestorageofradioactiveoperationalwaste,whichisprimarily

performedbyGNS.

WithdueconsiderationoftheGermanAtomicEnergyAct(AtG),

inparticulartoSec.9aofAtG,theprovisionfornuclearwaste

managementbreaksdownasfollows:

Provisions for mining damagealsoconsistalmostentirelyof

non-currentprovisions.Theyarereportedatthesettlement

amountdiscountedtothebalance-sheetdate.Asintheprevi-

ousyear,weuseadiscountfactorof5.0%.Inthereporting

period,additionstoprovisionsforminingdamageamountedto

€117million(previousyear:€165million).Ofthis,anincrease

of€67 million(previousyear:€84million)wascapitalised

underproperty,plantandequipment.Theinterestaccretion

oftheadditionstoprovisionsforminingdamageamountedto

€151 million(previousyear:€121million).

Provisions for restructuring pertainmainlytomeasuresfor

sociallyacceptablepayrolldownsizingfrompreviousyears.

Provisions for nuclear waste management€ million

31 Dec 2010

31 Dec 2009

Decommissioning of nuclear facilities 4,490 4,626

Disposal of nuclear fuel assemblies 4,831 4,303

Disposal of radioactive operational waste 689 562

10,010 9,491

(25) Financial liabilities

Financial liabilities

€ million

31 Dec 2010 31 Dec 2009


Bonds payable (incl. other notes payable) 14,864 1,496 15,904 640

commercial paper 493 238

Bank debt 293 426 411 514

other financial liabilities

collateral for trading activities 567 945

Miscellaneous other liabilities 751 920 704 790

15,908 3,902 17,019 3,127



Financialliabilitiestoassociatestotalled€187million(previous

year:€186million).

€15,679millionofthenon-currentfinancialliabilitieswereinter-

est-bearingliabilities(previousyear:€16,802million).Bankdebt

mainlystemmedfromtheformeractivitiesofacquiredcompa-

nies.

Changesinthescopeofconsolidationcausedfinancialliabilities

todeclineby€3million.

TheoutstandingbondspayablewereissuedbyRWEAGor

RWEFinanceB.V.

Thefollowingoverviewshowsthekeydataonthemajorbonds

payableasof31December2010:

Bonds payableissuer

outstanding amount

carrying amount

coupon in % Maturity

RWE finance B.v. €1,500 million €1,496 million 2.5 september 2011

RWE finance B.v. €1,808 million €1,823 million 6.125 october 2012

RWE finance B.v. Us$ 250 million €187 million 2.0 february 2013

RWE finance B.v. £630 million €731 million 6.375 June 2013

RWE finance B.v. €1,000 million €996 million 5.75 November 2013

RWE finance B.v. €530 million €529 million 4.625 July 2014

RWE finance B.v. €2,000 million €1,986 million 5.0 february 2015

RWE finance B.v. €850 million €853 million 6.25 April 2016

RWE AG €100 million €100 million variable1 November 2017

RWE finance B.v. €980 million €979 million 5.125 July 2018

RWE finance B.v. €1,000 million €991 million 6.625 January 2019

RWE finance B.v. £570 million €665 million 6.5 April 2021

RWE finance B.v. €1,000 million €997 million 6.5 August 2021

RWE finance B.v. £500 million €575 million 5.5 July 2022

RWE finance B.v. £488 million €564 million 5.625 December 2023

RWE finance B.v. £760 million €885 million 6.25 June 2030

RWE AG €600 million €594 million 5.75 february 2033

RWE finance B.v. £1,000 million €1,143 million 6.125 July 2039

RWE AG €160 million2 €156 million 4.762 february 2040

other (incl. other notes payable) various €110 million various various

Bonds payable (incl. other notes payable) €16,360 million

1 interest payment dates: 15 May /15 Nov.2 After swap into euro.


Duringthereportingperiod,smallerissueswereplacedonthe

Europeancapitalmarket,withintheframeworkofourcommer-

cialpaperprogramme.Upto€0.5billionwasraisedwithinthe

frameworkofthisprogramme(previousyear:€2.1billion).The

interestratesontheinstrumentsrangedbetween0.4%and

1.3%(previousyear:0.8%and3.1%).

Aboveandbeyondthis,otherfinancialliabilitiesincludecollat-

eralfortradingactivities.

€47million(previousyear:€199million)ofthefinancialliabili-

tiesaresecuredbymortgages,and€107million(previousyear:

€19million)bysimilarrights.

Theprincipalcomponentofsocialsecurityliabilitiesarethe

amountspayabletosocialsecurityinstitutions.

Changesinthescopeofconsolidationdecreasedotherliabili-

tiesby€6million.

Otherfinancialliabilitiescontainfinanceleaseliabilities.Lease

agreementsprincipallyrelatetocapitalgoodsintheelectricity

business.

Liabilitiesarisingfromfinanceleaseagreementshavethe

followingmaturities:

(26) Trade accounts payable

Accountspayabletoassociatesamountedto€115million(pre-

viousyear:€55million).

Explorationactivitiesaccountedforliabilitiesof€21million

(previousyear:€84million).

Changesinthescopeofconsolidationresultedina€5million

declineintradeaccountspayable.

Liabilities from financelease agreements

€ million

Maturities of minimum lease payments

31 Dec 2010 31 Dec 2009

Nominalvalue

Discount present value

Nominal value

Discount present value

Due in the following year 8 8 9 9

Due after 1 to 5 years 29 1 28 30 1 29

Due after 5 years 101 2 99 43 2 41

138 3 135 82 3 79

(27) Other liabilities

Other liabilities

€ million

31 Dec 2010 31 Dec 2009


Tax liabilities 1,055 988

social security liabilities 44 45 55 56

Restructuring liabilities 98 42 129 61

Derivatives 910 7,036 1,360 9,852

Deferred income 1,894 299 1,911 268

Miscellaneous other liabilities 638 3,899 517 3,992

3,584 12,376 3,972 15,217



Miscellaneousotherliabilitiesinclude€1,775million(previous

year:€1,562million)incurrentredemptionliabilitiesfromput

optionsonminorityinterests.

(28) Earnings per share

Basicanddilutedearningspersharearecalculatedbydividing

thenetincomeattributabletothesharesbytheaverage

numberofsharesoutstanding;ownsharesarenottakeninto

accountinthiscalculation.Theearningspersharearethesame

forbothcommonandpreferredshares.

(29) Reporting on financial instruments

Financialinstrumentsaredividedintonon-derivativeandderiv-

ative.

Non-derivativefinancialassetsessentiallyincludeothernon-

currentfinancialassets,accountsreceivable,marketablesecuri-

tiesandcashandcashequivalents.Financialinstrumentsinthe

category“Availableforsale”arerecognisedatfairvalue,and

othernon-derivativefinancialassetsatamortisedcost.Onthe

liabilitiesside,non-derivativefinancialinstrumentsprincipally

includeliabilitiesrecordedatamortisedcost.

Themaximumdefaultriskcorrespondstothecarryingamount

ofthefinancialassets.Ifdefaultrisksassociatedwithfinancial

assetsareidentified,theyarerecognisedthroughimpairment.

Fairvaluesarederivedfromtherelevantstockmarketquota-

tionsoraremeasuredusinggenerallyacceptedvaluationmeth-

ods.

Pricesonactivemarkets(e.g.exchangeprices)aredrawnupon

forthemeasurementofcommodityderivatives.Ifnopricesare

available,forexamplebecausethemarketisnotsufficiently

liquid,thefairvaluesaredeterminedonthebasisofgenerally

acceptedvaluationmethods.Indoingso,wedrawonpriceson

activemarketsasmuchaspossible.Ifsucharenotavailable,

company-specificplanningestimatesareusedinthemeasure-

mentprocess.Theseestimatescontainallofthemarketfactors

whichothermarketparticipantswouldtakeintoaccountinthe

courseofpricedetermination.

Forwards,futures,optionsandswapsinvolvingcommodities

arerecognisedattheirfairvaluesasofthebalance-sheetdate,

insofarastheyfallunderthescopeofIAS39.Exchange-traded

productsaremeasuredusingthepublishedclosingpricesof

therelevantexchange.Fornon-exchangetradedproducts,

Deferred income

€ million

31 Dec 2010 31 Dec 2009


Advances and contributions in aid of construction and building connection 1,614 160 1,709 168

Government grants for non-current assets

Taxable 10 2 12 1

Non-taxable 1 1

other 269 137 189 99

1,894 299 1,911 268

Other information

Earnings per share 2010 2009

Net income attributable to RWE AG shareholders € million 3,308 3,571

Number ofshares outstanding(weighted average) thousands 533,559 533,132

Basic and diluted earnings per common and preferred share € 6.20 6.70

Dividend per share € 3.501 3.50

1 proposal for fiscal 2010.


Fair value hierarchy€ million

Total 2010

level 1 level 2 level 3 Total2009

level 1 level 2 level 3

other financial assets 750 67 237 446 709 42 145 522

Derivatives (assets) 8,918 8,304 614 12,202 11,744 458

securities 3,196 992 2,204 3,290 1,102 2,188

Derivatives (liabilities) 7,946 7,748 198 11,212 10,941 271

Redemption liabilities from put options 1,775 1,775 1,562 1,562

measurementisbasedonpubliclyavailablebrokerquotations

or,ifsuchquotationsarenotavailable,ongenerallyaccepted

valuationmethods.Thefairvalueofcertainlong-termprocure-

mentorsalescontractsisdeterminedusingrecognisedvalua-

tionmodels,onthebasisofinternaldataifnomarketdataare

available.

Forwardpurchasesandsalesofsharesoflistedcompaniesare

measuredonthebasisofthespotpricesoftheunderlying

shares,adjustedfortherelevanttimecomponent.

Forderivativefinancialinstrumentswhichweusetohedge

interestrisks,thefuturepaymentflowsarediscounted

usingthecurrentmarketinterestratescorrespondingtothe

remainingmaturity,inordertodeterminethefairvalueofthe

hedginginstrumentsasofthebalance-sheetdate.

Thefairvalueoffinancialinstrumentsreportedunderother

financialassetsandsecuritiesisthepublishedexchangeprice,

insofarastheseinstrumentsaretradedonactivemarkets.The

fairvalueofnon-tradeddebtandequityinstrumentsisdeter-

minedonthebasisofdiscountedexpectedpaymentflows.

Currentmarketinterestratescorrespondingtotheremaining

maturityareusedfordiscounting.

Thefollowingoverviewpresentsthemainparametersforthe

measurementoffinancialinstrumentsmeasuredatfairvaluein

thefairvaluehierarchyprescribedbyIFRS7.Inaccordancewith

IFRS7,theindividuallevelsofthefairvaluehierarchyarede-

finedasfollows:

Level1:Measurementusing(unadjusted)pricesofidentical

financialinstrumentsquotedonactivemarkets;

Level2:Measurementonthebasisofinputparameterswhich

arenotthequotedpricesfromLevel1,butwhichcanbe

observedforthefinancialinstrumenteitherdirectly(i.e.as

price)orindirectly(i.e.derivedfromprices);

Level3:Measurementusingfactorswhichcannotbeobserved

onthebasisofmarketdata.



ThedevelopmentofthefairvaluesofLevel3financialinstru-

mentsispresentedinthefollowingtable:

Theotherchangeinderivatives(liabilities)amountingto

€646 millionmainlystemsfromthefirst-timefairvaluemeas-

urementofgassupplycontractswhichwerepreviouslyclassi-

fiedasown-usecontracts.

Level 3 financial instruments: Development in 2010

€ million


changes in the scope of

consolidation, currency

adjustments and other

changes Balance at 31 Dec 2010

Recognised in profit or loss

Not recognised in profit or loss

(oci)

With a cash effect

other financial assets 522 − 141 65 446

Derivatives (assets) 458 69 40 47 614

Derivatives (liabilities) 271 646 − 65 − 108 − 546 198

Redemption liabilities from put options 1,562 213 1,775

Level 3 financial instruments: Development in 2009

€ million


changes in the scope of

consolidation, currency

adjustments and other

changes Balance at 31 Dec 2009

Recognised in profit or loss

Not recognised in profit or loss

(oci)

With a cash effect

other financial assets 345 − 1 178 522

Derivatives (assets) 363 456 − 177 − 35 − 149 458

Derivatives (liabilities) 67 278 − 18 − 9 − 47 271

Redemption liabilities from put options 1,294 268 1,562

Level 3 financial instruments: Amounts recognised in profit or loss

€ million

Total 2010

of which: attributable to

financial instruments held at the

balance-sheet date

Total 2009

of which: attributable to

financial instruments held at the

balance-sheet date

Revenue 210 210 58 58

cost of materials − 16 − 13 − 217 − 217

other operating expenses − 60 − 60

income from investments − 1

134 137 − 160 − 159


Thefollowingimpairmentswererecognisedonfinancialassets

whichfallunderthescopeofIFRS7andarereportedunderthe

balance-sheetitemsstatedbelow:

Impairments on financial assets in 2010€ million

other non-current financial assets

financial receivables

Trade accounts receivable

other receivables and other assets

Total

Balance at 1 Jan 2010 123 344 531 4 1,002

Additions 3 18 259 2 282

Transfers 33 − 1 − 2 5 35


Disposals 13 83 456 5 557

Balance at 31 Dec 2010 146 278 343 6 773

Impairments on financial assets in 2009€ million

other non-current financial assets

financial receivables

Trade accounts receivable

other receivables and other assets

Total

Balance at 1 Jan 2009 257 178 510 2 947

Additions 19 27 143 2 191

Transfers − 149 157 − 8


Disposals 4 18 133 155

Balance at 31 Dec 2009 123 344 531 4 1,002



Asofthecut-offdate,therewereunimpaired,pastduereceiva-

blesfallingunderthescopeofIFRS7inthefollowingamounts:

Financialassetsandliabilitiescanbebrokendownintocatego-

rieswiththefollowingcarryingamounts:

Receivables, past due and not impaired

Gross amount as of 31 Dec

2010

Receivables, past due, impaired

Receivables not impaired, past due by:

€ millionless than 30 days

31 to 60 days

61 to 90 days

91 to 120 days

over 120 days

financial receivables 4,065 53 5

Trade accounts receivable 9,829 1,160 785 94 53 39 120

other receivables and other assets 9,731 5 1 1 3

23,625 1,218 786 94 53 40 128

Receivables, past due and not impaired

Gross amount as of 31 Dec

2009

Receivables, past due, impaired

Receivables not impaired, past due by:

€ millionless than 30 days

31 to 60 days

61 to 90 days

91 to 120 days

over 120 days

financial receivables 4,883 48 11 5

Trade accounts receivable 10,060 921 724 77 49 40 154

other receivables and other assets 13,215 5 1 1 1

28,158 974 736 78 49 40 160

Carrying amounts by category€ million

31 Dec 2010

31 Dec 2009

financial assets recognised at fair value through profit or loss 6,040 9,502

of which: held for trading (6,040) (9,502)

financial assets available for sale 3,947 3,998

loans and receivables 16,553 18,150

financial liabilities recognised at fair value through profit or loss 6,503 8,574

of which: held for trading (6,503) (8,574)

financial liabilities carried at (amortised) cost 28,019 29,380


Thecarryingamountsoffinancialassetsandliabilitieswithin

thescopeofIFRS7basicallycorrespondtotheirfairvalues.The

onlydeviationisforbonds,commercialpaperandotherfinan-

cialliabilities,wherethecarryingamountof€19,810million

ThenetresultasperIFRS7essentiallyincludesinterest,divi-

dendsandresultsfromthemeasurementoffinancialinstru-

mentsatfairvalue.

Infiscal2010,changesof€91millionaftertaxesinthevalueof

financialassetsavailableforsalewererecognisedinaccumulat-

edothercomprehensiveincomewithoutaneffectonincome

(previousyear:€193million).Aboveandbeyondthis,€89mil-

lioninchangesinthevalueoffinancialinstrumentsavailable

forsalewhichhadoriginallybeenrecognisedwithoutaneffect

onincomewererealisedasincome(previousyear:expenseof

€190 million).

Asautilityenterprisewithinternationaloperations,theRWE

Groupisexposedtocredit,liquidityandmarketrisksinitsordi-

narybusinessactivity.Inparticular,marketrisksstemfrom

changesincommodityprices,exchangerates,interestrates

andshareprices.

Welimittheserisksviasystematic,groupwideriskmanage-

ment.Thekeyinstrumentsincludehedgingtransactions.The

rangeofaction,responsibilitiesandcontrolsaredefinedin

bindinginternaldirectives.

Derivativefinancialinstrumentsareusedtohedgecurrency,

commodityandinterestraterisksfromoperationsaswellas

risksfromcashinvestmentsandfinancingtransactions.The

(previousyear:€20,146million)deviatesfromthefairvalueof

€21,444million(previousyear:€21,605million).

Thefollowingnetresultsfromfinancialinstrumentsasper

IFRS 7wererecognisedintheincomestatement:

instrumentsmostcommonlyusedareforeignexchangefor-

wardsandoptions,interestrateswaps,interestratecurrency

swaps,andcommodityforwards,options,futuresandswaps.

Additionally,derivativesmaybeusedforproprietarytrading

purposeswithindefinedlimits.

DetailedinformationontherisksoftheRWEGroupandonthe

objectivesandproceduresoftheriskmanagementispresented

inthechapter“Developmentofrisksandopportunities”inthe

reviewofoperations.

HedgeaccountingpursuanttoIAS39isappliedprimarilyfor

hedgesofcurrencyrisksfromnetinvestmentsinforeignenti-

tieswithforeignfunctionalcurrencies,forforeign-currency

itemsandinterestraterisksfromnon-currentliabilities,aswell

asforpricerisksfromsalesandpurchasetransactions.

Fair value hedgesaremainlyusedtohedgefixed-interestloans

andliabilitiesagainstmarketpricerisks.Theobjectiveofthe

hedgeistotransformfixed-interestinstrumentsintovariable-

rateinstruments,therebyhedgingtheirfairvalue.Instruments

usedareinterestrateswapsandinterestratecurrencyswaps.

Inthecaseoffairvaluehedges,boththederivativeaswellas

theunderlyinghedgedtransactionaremeasuredatfairvalue

withaneffectonincome.Asofthereportingdate,thefair

valueofinstrumentsusedasfairvaluehedgesamountedto


Net gain /loss on financial instruments as per IFRS 7€ million

2010 2009

financial assets and liabilities recognised at fair value through profit or loss − 813 − 17

of which: held for trading (− 813) (− 17)

financial assets available for sale 292 169

loans and receivables 286 423

financial liabilities carried at (amortised) cost − 1,741 − 1,327



Intheyearunderreview,lossesof€26million(previousyear:

€27million)wererecognisedfromadjustmentofthecarrying

amountsoftheunderlyingtransactions,whileagainof

€24 million(previousyear:€24million)stemmingfromchanges

inthefairvalueofthehedgeswasrecognised.Bothofthese

arereportedinthefinancialresult.

Cash flow hedgesareprimarilyusedtohedgeagainstforeign

currencyandpricerisksfromfuturesalesandpurchasetransac-

tions.Hedginginstrumentsconsistofforeignexchangefor-

wardsandoptions,andcommodityforwards,options,futures

andswaps.Theeffectiveportionofchangesinthefairvalueof

thehedgeinstrumentsisdisclosedunderothercomprehensive

incomeuntiltheunderlyingtransactionisrealised.Ineffective

changesinvaluearerecognisedinprofitorloss.Thehedge’s

contributiontoincomefromaccumulatedothercomprehensive

incomeisrecognisedintheincomestatementwhentheunder-

lyingtransactionisrealised.Asofthereportingdate,therec-

ognisedfairvalueofinstrumentsusedascashflowhedges

amountedto€61million(previousyear:−€269million).

Thefuturesalesandpurchasetransactionshedgedwith

cashflowhedgesareexpectedtoberealisedinthefollowing

15 yearsandrecognisedinprofitorloss.

Intheyearunderreview,changesof€1,310millionaftertaxes

inthefairvaluesofinstrumentsusedforcashflowhedges

(previousyear:€1,214million)weredisclosedunderaccumulat-

edothercomprehensiveincomewithoutaneffectonincome.

Thesechangesinvaluereflecttheeffectiveportionofthe

hedges.

Anexpenseof€2millionwasrecognisedwithaneffecton

incomeinrelationtotheineffectiveportionsofcashflow

hedges(previousyear:€15million).

Aboveandbeyondthis,changesof€1,152millionaftertaxes

inthevalueofcashflowhedgeswhichhadoriginallybeen

recognisedwithoutaneffectonincomewererealisedas

income(previousyear:€1,111million)duringthereporting

period.

Furthermore,intheperiodunderreviewthecostofnon-finan-

cialassetswasincreasedby€188million(previousyear:

increaseof€128million)bychangesinthevalueofcashflow

hedgesreportedinothercomprehensiveincomeandnotrecog-

nisedinprofitorloss.

Hedges of net investment in a foreign entityareusedto

hedgetheforeigncurrencyrisksofnetinvestmentinforeign

entitieswithforeignfunctionalcurrencies.Weusebondswith

varioustermsintheappropriatecurrenciesandinterestrate

currencyswapsashedginginstruments.Exchangeratechanges

onbondsusedforhedgingpurposesandchangesinthefair

valueofinterestratecurrencyswapsarerecognisedunderfor-

eigncurrencytranslationadjustmentsinothercomprehensive

income.Asofthereportingdate,thenegativefairvalueofthe

bondsamountedto€2,103million(previousyear:€2,038mil-

lion)andthepositivefairvalueoftheswapsamountedto


Duringtheyearunderreview,anexpenseof€1million(previ-

ousyear:€4million)wasrecognisedwithaneffectonincome

inrelationtotheineffectiveportionsofhedgesofnetinvest-

mentinforeignentities.

Market risksstemfromfluctuationsinpricesonfinancial

markets.Changesinexchangerates,interestratesandshare

pricescanhaveaninfluenceontheGroup’sresults.Duetothe

RWEGroup’sinternationalprofile,exchangeratemanagement

isakeyissue.SterlingandUSdollararetwoimportant

currenciesfortheRWEGroup.Fuelsaretradedinthesetwo

currencies,andRWEalsodoesbusinessintheUKcurrencyarea.

Groupcompaniesarerequiredtohedgeallcurrencyrisksvia

RWEAG.Thenetfinancialpositionforeachcurrencyisdeter-

mindedbyRWEAGandhedgedwithexternalmarketpartners

ifnecessary.

Interestraterisksstemprimarilyfromfinancialdebtandthe

Group’sinterest-bearinginvestments.Wehedgeagainstnega-

tivechangesinvaluecausedbyunexpectedinterest-ratemove-

mentsusingnon-derivativeandderivativefinancialinstru-

ments.

Opportunitiesandrisksfromchangesinthevaluesofsecurities

arecontrolledbyaprofessionalfundmanagementsystem.The

Group’sfinancialtransactionsarerecordedusingcentralised

riskmanagementsoftwareandmonitoredbyRWEAG.Thisena-

blesthebalancingofrisksacrosstheindividualcompanies.

Groupriskmanagementhasestablisheddirectivesforcommod-

ityoperations.Theseregulationsstipulatethatderivativesmay


beusedtohedgepricerisks,optimisepowerplantschedules

andincreasemargins.Furthermore,commodityderivativesmay

betraded,subjecttolimitsdefinedbyindependentorganisa-

tionalunits.Compliancewithlimitsismonitoreddaily.

Allderivativefinancialinstrumentsarerecognisedasassetsor

liabilitiesandaremeasuredatfairvalue.Wheninterpreting

theirpositiveandnegativefairvalues,itshouldbetakeninto

accountthat,withtheexceptionofproprietarytradingincom-

modities,thesefinancialinstrumentsaregenerallymatched

withunderlyingtransactionsthatcarryoffsettingrisks.

Maturitiesofderivativesrelatedtointerestrates,currencies,

equities,indicesandcommoditiesarebasedonthematurities

oftheunderlyingtransactionsandarethusprimarilyshort-term

andmedium-terminnature.Maturitiesofupto30yearshave

beenagreedupontohedgeforeigncurrencyrisksofforeign

investments.

Shareprice,interestrateandforeigncurrencyrisksoffinancial

instrumentsaswellascommoditypricerisksaremeasuredat

RWEusingtheValue-at-Riskmethod,inlinewiththeinterna-

tionalbankingstandard.Inaddition,forthemanagementof

interestraterisk,aCashFlowatRiskisdetermined.

WiththeValue-at-Riskmethod,themaximumexpectedloss

arisingfromchangesinmarketpricesduringspecificperiodsis

calculatedonthebasisofhistoricalmarketvolatilityandis

monitoredcontinuously.WiththeexceptionoftheCashFlow-

at-Riskdata,allValue-at-Riskfiguresarebasedonaconfidence

intervalof95%andaholdingperiodofoneday.ForCashFlow

atRisk,aconfidenceintervalof95%andaholdingperiodof

oneyearistakenasabasis.Aggregationoftheindividual

Value-at-RiskitemsintoasingleValue-at-Riskindicatorisnot

expedient,primarilyduetomutualdependencies.

Initsmanagementofgroupwideinterestraterisk,RWEdistin-

guishesbetweeninterestrateriskfrominterest-bearingfinan-

cialinvestmentsrecognisedonthebalancesheetandinterest

rateriskfromthefinancingportfolio,whichprimarilyconsists

ofdebtonthecapitalmarket.Withregardtotheinterest-bear-

ingfinancialinvestmentsrecognisedonthebalancesheet,

ValueatRiskisdetermined,whichreflectsthefairvalueriskof

theseinvestments.Asof31December2010,thisamountedto

€7.1million(previousyear:€9.3million).Sincefiscal2010,

CashFlowatRiskiscalculatedforthefinancingportfolio,which

representsameasurementofthesensitivityofinterestexpens-

estoincreasesinmarketinterestrates.Asof31December

2010thisamountedto€4.9million.

WithintheRWEGroup,allcompaniesarerequiredtohedge

theirforeigncurrencyrisksviaRWEAG.OnlyRWEAGmaymain-

tainopenforeigncurrencypositions,subjecttopredefinedlim-

its.Asof31December2010,theValueatRiskfortheseforeign

currencypositionswaslessthan€1million(previousyear:

€38.1million).Thefiguresfor2009and2010arenotsuitable

forcomparisonaswenowreporttheValueatRiskwhichisalso

usedforinternalmanagementpurposes.Thefigureusedinter-

nallyalsoincludestheunderlyingtransactionsforcashflow

hedges.IncontrasttothecurrentlyreportedValue-at-Risk

figure,theValueatRiskfor2009onlyincludesexternalforeign

currencyderivatives.Therelatedunderlyingtransactionswere

notincludedinthepast.

Risksrelatedtotheshareportfolioarealsomonitoredusingthe

Value-at-Riskmethod.Asof31December2010,theValueat

Riskwas€7.7million(previousyear:€11.7million).

Asof31December2010,ValueatRiskforthecommodityposi-

tionsofthetradingbusinessofRWESupply&Tradingamount-

edto€10.0million(previousyear:€46.5million).Thefigures

for2009and2010arenotsuitableforcomparisonaswenow

reporttheValue-at-Riskfiguresbasedonthemanagementap-

proach.Thus,thefigureswhichareactuallyusedformanage-

mentpurposesarestated.Inthepast,figurescalculatedspecif-

icallyforexternalreportingpurposeswerereported.Theseonly

includedon-balancesheetfinancialinstrumentsanddidnot

takeintoconsiderationown-usecontracts.

InadditiontoCommodityValueatRisk,stresstestsarecontinu-

ouslycarriedouttomanagecommodityrisks,inordertomodel

theimpactsonliquidityandearningsconditionsandtakerisk-

mitigatingmeasuresifnecessary.Withintheframeworkof

thesestresstests,individualgroupsofmarketpricecurvesare

modified,andrevaluationofthecommoditypositionisthen

undertakenonthebasisofthesecurves.Thescenariosinclude



bothhistoricalscenariosofextremepricesandrealistic,ficti-

tiouspricescenarios.Aboveandbeyondthis,possibleextreme

scenariosforthemajortradingdesksareassessedonamonthly

basis.Intheeventthatthestresstestsexceedinternalthresh-

olds,thesescenariosarethenanalysedindetailinrelationto

theirimpactandprobability,and–ifnecessary–risk-mitigating

measuresareconsidered.

IfmarketliquidityisavailablecommodityrisksattheGroup’s

powergenerationcompaniesaretransferred–inaccordance

withGroupguidelines–atmarketpricestothesegmentTrad-

ing/GasMidstream,wheretheyarehedged.Inaccordancewith

theapproachforlong-terminvestmentsforexample,itisnot

possibletomanagecommodityrisksfromlong-termpositions

orpositionswhichcannotbehedgedduetotheirsizeandthe

prevailingmarketliquidityusingtheValue-at-Riskconcept.Asa

result,thesepositionsarenotincludedintheaforementioned

Value-at-Riskfigure.Aboveandbeyondopenproductionposi-

tionswhichhavenotyetbeentransferred,Groupcompanies

arenotallowedtomaintainsignificantriskpositions,according

toGroupguidelines.

Credit risks.Infinancialandtradingoperations,weprimarily

havecreditrelationshipswithbanksandothertradingpartners

withgoodcreditworthiness.Creditrisksassociatedwithcon-

tractualpartnersarerevieweduponconclusionofthecontract

andconstantlymonitored.Wealsolimitcreditriskbythedefini-

tionoflimitsfortradingwithcontractualpartnersandby

requiringcashcollateral.Creditriskintradingoperationsis

monitoredonadailybasis,andonaweeklybasisforfinancial

operations.

Weareexposedtocreditrisksinourretailbusiness,becauseit

ispossiblethatcustomerswillfailtomeettheirfinancialobliga-

tions.Withregularanalysisofthecreditworthinessofourmajor

customers,weareabletoidentifysuchrisksandreactaccord-

ingly.

Wealsoemploycreditinsurance,financialguarantees,bank

guaranteesandotherformsofsecuritytoprotectagainstcredit

risksinfinancialandtradingactivities,andretailbusiness.

Themaximumbalance-sheetdefaultriskisexpressedbythe

carryingvalueofthereceivablesstatedinthebalancesheet.

Thedefaultrisksforderivativescorrespondtotheirpositive

fairvalues.Additionalcreditriskscanstemfromfinancial

guaranteesandloancommitmentsforexternalcreditors.

Asof31 December2010,theseobligationsamountedto

€709 million(previousyear:€804million).Therewereno

materialdefaultsin2010and2009.

Liquidity risks.Asarule,RWEGroupcompaniescentrallyrefi-

nancewithRWEAG.Inthisregard,thereisariskthatliquidity

reserveswillprovetobeinsufficienttomeetfinancialobliga-

tionsinatimelymanner.In2011,capitalmarketdebtwitha

nominalvolumeofapproximately€1.5billion(previousyear:

€0.6billion)andbankdebtof€0.4billion(previousyear:

€0.5 billion)aredue.Additionally,short-termdebtmustalso

berepaid.

Asof31December2010,liquidityneedsarecoveredwithcash

andcashequivalents,andcurrentmarketablesecuritiestotal-

ling€5,672million(previousyear:€6,364million).Aboveand

beyondthis,asofthebalance-sheetdate,RWEAGhadafully

committed,unusedsyndicatedcreditlineof€4billion(previous

year:€4billion)atitsdisposal.Asofthebalance-sheetdate,

€494million(previousyear:€238million)hadbeenraisedfrom

theUS$5billioncommercialpaperprogramme(previousyear:

US$5billion)and€16.3billionfromthe€30billiondebt

issuanceprogramme(previousyear:€16.4billion).Accordingly,

liquidityriskisextremelylow.


Aboveandbeyondthis,asof31December2010,therewere

financialguaranteesintheamountof€524million(previous

year:€804million)forexternalcreditors,whicharetobe

allocatedtothefirstyearofrepayment.Additionally,Group

companieshaveprovidedloancommitmentstothird-partycom-

paniesamountingto€185million.Ofthisamount,€181million

iscallablein2011and€4millionintheyears2012to2015.

FinancialliabilitiesfallingunderthescopeofIFRS7areexpect-

edtoresultinthefollowing(undiscounted)paymentsinthe

comingyears:

Redemption and interest payments on financial liabilities

€ million

carrying amount

31 Dec 2010

Redemption payments interest payments

2011 2012 to 2015

from 2016 2011 2012 to 2015

from 2016

Bonds payable (incl. other notes payable) 16,360 1,561 6,263 8,590 967 3,148 4,804


Bank debt 719 432 170 117 8 24 6

liabilities arising from finance lease agreements 135 8 29 101

other financial liabilities 1,536 941 191 445 28 102 81

Derivative financial liabilities 7,946 7,013 779 40 − 35 − 88 245


Redemption liabilities from put options 1,775 1,775

Miscellaneous other financial liabilities 10,447 10,390 61 73

Redemption and interest payments on financial liabilities

€ million

carrying amount

31 Dec 2009

Redemption payments interest payments

2010 2011 to 2014

from 2015 2010 2011 to 2014

from 2015

Bonds payable (incl. other notes payable) 16,544 640 5,599 10,376 919 3,072 5,271


Bank debt 925 596 177 156 12 42 21

liabilities arising from finance lease agreements 79 9 30 43

other financial liabilities 1,415 893 236 332 18 58 50

Derivative financial liabilities 11,212 10,116 1,005 37 − 18 − 28 70


Redemption liabilities from put options 1,562 1,562

Miscellaneous other financial liabilities 11,351 10,444 873 89



(30) Contingent liabilities and financial commitments

Asof31December2010,theGrouphad€5,609millionincapi-

talcommitments(previousyear:€5,192million).

WithintheframeworkoftheEssentacquisition,weundertook

toacquirethesharesinEnergyResourcesHoldingB.V.,Nether-

lands(formerlyEssentBusinessDevelopmentB.V.,Nether-

lands)fromthepreviousowners(putoption),pendingaposi-

tivedecisionbythecourts.

Commitmentsfromoperatingleasesreferlargelytolong-term

rentalarrangementsforpowergenerationandsupplyplantsas

wellasrentandleasecontractsforstorageandadministration

buildings.Minimumleasepaymentshavethefollowingmaturi-

tystructure:

Commitments from operating leases

€ million

Nominal value

31 Dec 2010 31 Dec 2009

Due within 1 year 145 101

Due within 1 to 5 years 398 256

Due after 5 years 389 185

932 542

Long-termcontractualpurchasecommitmentsexistforsupplies

offossilfuels,includingnaturalgasandhardcoalinparticular.

Paymentobligationsstemmingfromthemajorpurchasecon-

tractsamountedto€90.8billionasof31December2010,of

which€6.7billionwasduewithinoneyear.

Gaspurchasesgenerallyoccurwithintheframeworkoftake-or-

paycontracts.Theconditionsintheselong-termcontracts,

whichhavetermsupto2035,arerenegotiatedbythecontrac-

tualpartnersatcertainintervals,whichmayresultinchangesin

thereportedpaymentobligations.Calculationofthepayment

obligationsresultingfromthepurchasecontractsisbasedon

parametersfromtheinternalplanning.

Furthermore,long-termfinancialcommitmentsexistforpur-

chasesofelectricity.Asof31December2010,theminimum

paymentobligationsstemmingfromthemajorpurchasecon-

tractstotalled€14.6billion,ofwhich€0.9billionwasdue

withinoneyear.Aboveandbeyondthis,therearealsolong-

termpurchaseandservicecontractsforuranium,conversion,

enrichmentandfabrication.

Essentgroupentities(and/ortheirpredecessors)havetrans-

ferredrightsofuseorsimilarrightswithrespecttogenerating

assetstoforeigninvestorsandsubsequentlyleasedthemback

untilJanuary2017.Theseso-calledcross-borderleases(CBLs)

areformallyguaranteedbyEssent.Thecontractswereconclud-

edpriortoEssent’sacquisitionbyRWE.TheCBLsontheseas-

setsprovideEssentwiththeoption(inJanuary2017,subjectto

certainconditions)tobuybackthetransferredrightsforafixed

priceintheamountofapproximatelyUS$920million.Lease

paymentstotheendoftheterm(totallingUS$358million)and

amountspayableuponanyexerciseofapurchaseoptionare

fundedbyanyproceedsfromfinancialinstrumentspledgedto

therespectiveCBLcounterpartiesand/orotherarrangements

madebyEssentgroupentities.

Furthermore,priortoitsacquisitionbyRWE,Essenthadissued

guaranteeswhichrelatetopaymentandperformanceobliga-

tionsfromCBLtransactionsofvariousformersubsidiaries,

whichtodayarecontrolledbyENEXISB.V.,Netherlands(for-

merlyEssentNetwerkB.V.)(“ENEXIS”).Asof31December

2010,onetransactionhasyettobecompleted,afterENEXIS

endedanothertransactionwiththecontractualpartnerduring

2010bymutualagreement.

UnderitsCBLsandtheCBL-relatedguarantees,Essentisliable

foranypaymentobligationsexceedingtheproceedsfromthe

pledgedfinancialinstrumentsand/orotherrelevantarrange-

ments−ifany,includingtheabovementionedCBLobligations

ofENEXIS.

Incaseofmandatoryearlyterminations,theCBLscontain

clauseswhichmightresultinpaymentobligationsincluding

indemnityandfinancingcosts.IncertaincasestheCBL

counterpartiesmayalsotakepossessionoftheasset.Assuming

mandatoryearlyterminationofallCBLs,theestimatedaggre-

gatecostwouldamounttoapproximatelyUS$140million(as

at31December2010).Ofthis,US$130millionrelatetogener-

atingfacilitiesofEssentandroughlyUS$10milliontonetwork

assetsofENEXIS.Thisamountisderivedfromthesumofthe

aggregateterminationvalues(US$1,045million)lessthe

expectedvalueofthefinancialinstrumentsand/orother

agreements,plusvariouscosts,particularlyindemnities.

UponconclusionoftheEssentacquisition,theCBL-related

liabilitieswerecoveredbythejointimplementationofafund

byRWEandthevendors.


Outsideshareholdersinitiatedseverallegalproceedingsto

examinetheappropriatenessoftheconversionratiosandthe

amountofcashpaidincompensationinconnectionwithcom-

panyrestructuringspursuanttoGermancompanylaw.Weare

convincedthattheconversionratiosandcashcompensation

calculatedonthebasisofexpertopinionsandverifiedbyaudi-

torsareadequate.Ifadifferentlegallyenforceableconclusion

isreached,allaffectedshareholderswillbecompensated,even

iftheyarenotinvolvedintheconciliationproceedings.

TheEUCommissionconductedfollow-upinquiriesatseveral

EuropeanpowerutilitiesinMayandDecemberof2006.This

alsoaffectedRWEGroupcompaniesinGermany.Followingthis,

inearlyMay2007,theEUCommissioninitiatedanabuseproce-

dureagainstRWE,basedonthesuspicionthatRWEandaffiliat-

edcompanieshinderedaccesstothenaturalgastransmission

systeminGermanyinordertoattainapurportedlymarket-dom-

inatingpositioninthegassupplybusiness.Followinganagree-

mentbetweenRWEAGandtheEUCommissioninMay2008,in

February2009RWEAGsubmittedaformalstatementofcom-

mitmenttosellitsGermanlong-distancenetworktoathird

partyindependentofRWE.Thiscommitmentdoesnotconsti-

tuteadmissionthatanti-trustregulationswereviolated.TheEU

CommissionapprovedthisstatementinMarch2009andinturn

endedtheabuseproceedingsagainstRWE.Formoreinforma-

tiononthesaleofThyssengas,pleaseseepage70.

TheEUCommissionalsoendeditsinvestigationsofRWEin

thefieldofelectricityinOctober2009.InJanuary2011,the

GermanFederalCartelOfficecompleteditssectorinquiryinthe

fieldofpowergeneration,whichbeganinMarch2009andalso

affectedRWE.Thissector-widereviewfocusedonissuesrelated

tothewithholdingofpowerplantcapacitiesandmanipulation

ofwholesaleprices.Theinquiryfoundnoevidenceofabusive

behaviourbyelectricityproducers.TheCartelOfficedid,how-

ever,callontheFederalGovernmenttocontinuemonitoring

thepowergenerationsectorinthefuturebylaunchingamar-

kettransparencyscheme.

Webearlegalandcontractualliabilityfromourmembershipin

variousassociationswhichexistinconnectionwithpowerplant

projects,profit-andloss-poolingagreementsandfortheprovi-

sionofliabilitycoverfornuclearrisks,amongstothers.

Bysigningamutualbenefitagreement,RWEAGandotherpar-

entcompaniesofGermannuclearpowerplantoperatorsunder-

tooktoprovideapproximately€2,244millioninfundingtolia-

blenuclearpowerplantoperatorstoensurethattheyareable

tomeettheirpaymentobligationsintheeventofnucleardam-

ages.RWEAGhasa25.851%contractualshareintheliability,

plus5%fordamagesettlementcosts.

The11thAmendmentoftheGermanAtomicEnergyAct(AtG),

whichenteredintoforceon14December2010,grantsaddi-

tionalgenerationquotasfornuclearpowerplants.Thisulti-

matelyrepresentsanextensionoftheoperatingtimes.Against

thisbackground,theoperatorsofnuclearpowerplantscommit-

tedtomakepaymentstoafundwhichwillbeusedtopromote

measuresfortheimplementationoftheenergystrategyofthe

GermanFederalGovernment.Thisisregulatedinanagreement

withtheFederalRepublicofGermanywhichwassignedon

10 January2011.Accordingtothisagreement,startingfrom

2017nuclearpowerplantoperatorswillpayalevyfortheaddi-

tionalpowerquantitiesgeneratedwithintheframeworkofthe

extendedoperatingtimes.Thelevyamountsto€9/MWhand

willbeadjustedonanannualbasisinaccordancewiththe

developmentoftheconsumerpriceindexandtheEEXelectrici-

typrices.From2011to2016,thenuclearpowerplantopera-

torswillbemakinglump-sumpre-paymentsonthelevies.These

pre-paymentswilltotal€1.4billionfortheperiodasawhole

andwillbeappliedtowardstheleviesinequalannualinstal-

mentsfortheperiod2017to2022.RWE’sshareofthese

pre-paymentswillamounttoamaximumof€0.4billion.

RWEAGanditssubsidiariesareinvolvedinregulatoryandanti-

trustproceedings,litigationandarbitrationproceedingsrelated

totheiroperations.However,wedonotexpectanymaterial

negativerepercussionsfromtheseproceedingsontheRWE

Group’seconomicorfinancialposition.Additionally,companies

belongingtotheRWEGrouparedirectlyinvolvedinvarious

administrativeandregulatoryproceedings(includingapproval

procedures)oraredirectlyaffectedbytheirresults.



(31) Segment reporting

WithintheRWEGroupsegmentsaredefinedbothinaccord-

ancewithfunctionalandgeographicalcriteria.

Thesegment“PowerGeneration“essentiallyconsistsofthe

powergenerationbusinessandligniteproductioninGermany.

Forthemostpart,thesegment“SalesandDistribution

Networks”encompassessalesanddistributionnetworksin

Germany.

Thesegment“Netherlands/Belgium“comprisestheactivities

oftheEssentGroupwhichwasacquiredin2009aswellasthe

Group’sotherelectricityandgasbusinessinthisregion.In

fiscal2010,thewindpowergenerationandtradingactivitiesof

theEssentGroupwereintegratedintothesegments“Renewa-

bles”and“Trading/GasMidstream”,respectively,andthegas

storageactivitiesintothesegment“SalesandDistribution

Networks”.

Thesegment“UnitedKingdom”consistsofalmostallofthe

electricityandgasbusinessinthisregion.

CentralEasternandSouthEasternEuropeanpowergeneration

andthesupplyandthedistributionactivitiesinthisregionare

includedinthesegment“CentralEasternandSouthEastern

Europe”.Duringtheperiodunderreview,thenameofthis

segmentwaschangedfrom“CentralandEasternEurope”to

“CentralEasternandSouthEasternEurope”duetothe

increasedbusinessactivitiesinTurkey.

Activitiesforthegenerationofelectricityandheatfromrenew-

ableenergysourcesarebundledinRWEInnogyandpresented

inthesegment“Renewables”.Since2010,thissegmentalso

includesthewindpowergenerationoftheEssentGroup.

Thesegment“UpstreamGas&Oil“coversalloftheGroup’s

gasandoilproductionactivities.

Thesegment“Trading/GasMidstream”coversenergytrading

andthecommercialoptimisationofnon-regulatedgasactivi-

ties.Thelatteraspectcomprisesprocurement,transportand

storagecontractsinGermany,theUKandtheCzechRepublic,

andtheliquefiednaturalgas(LNG)business.Thissegmentis

alsoresponsibleforkeyaccountbusinesswithmajorGerman

industrialandcommercialcustomers.Since2010,thetrading

andkeyaccountactivitiesoftheEssentGrouparealsopresent-

edin“Trading/GasMidstream”.

“Other/consolidation“coversconsolidationeffects,theGroup

CentreandtheactivitiesofotherGroupareaswhicharenot

presentedseparately.Suchactivitiesconsistprimarilyofthe

cross-segmentservicesprovidedbyRWEServiceGmbH,RWEIT

GmbH,andRWEConsultingGmbH,aswellasGermantransmis-

siongridactivitiesintheelectricityandgasbusiness.


Regions 2010

€ million

EU Rest of Europe

other RWE Group

Germany UK other EU

External revenue1, 2 27,283 8,332 14,190 683 234 50,722

intangible assets, property, plant and equipment and investment property 24,841 8,416 15,052 929 511 49,749

1 Excluding natural gas tax /electricity tax.2 Broken down by the region in which the service was provided.

Segment reportingDivisions 2010

€ million

Germany Nether-lands /

Belgium

United Kingdom

central Eastern

and south Eastern Europe

Renew-ables

Upstream Gas & oil

Trading /Gas Mid-

stream

other /consolidation RWE Grouppower

Genera-tion

sales and Distri-bution

Networks

operat-ing

compa-nies

other

External revenue (incl. natural gas tax /electricity tax) 1,072 18,456 6,510 7,759 5,297 366 1,353 7,517 4,936 54 53,320

intra-group revenue 10,378 4,426 551 11 474 203 134 21,466 1,790 − 39,433

Total revenue 11,450 22,882 7,061 7,770 5,771 569 1,487 28,983 6,726 − 39,379 53,320

Operating result 4,000 1,575 391 272 1,173 72 305 − 21 178 − 264 7,681

operating income from investments 47 373 23 − 20 60 10 − 119 2 −31 345

operating income from investments accounted for using the equity method 28 294 22 − 20 59 7 − 118 2 274

operating depreciation and amortisation 510 643 269 232 267 139 314 14 94 93 2,575

Total impairment losses 21 67 11 296 5 119 53 2 574

EBITDA 4,510 2,218 660 504 1,440 211 619 − 7 272 − 171 10,256

Cash flows from operating activities 3,164 1,475 308 679 1,157 128 489 − 1,431 1 − 470 5,500

carrying amount of investments accounted for using the equity method 149 2,383 210 31 377 474 102 − 32 3,694

capital ex-penditure on intangible assets, property, plant and equipment and investment property 1,180 1,230 1,144 876 430 614 507 4 315 79 6,379



Segment reportingDivisions 2009

€ million

Germany Nether-lands /

Belgium

United Kingdom

central Eastern

and south Eastern Europe

Renew-ables

Upstream Gas & oil

Trading /Gas Mid-

stream

other /consolidation RWE Grouppower

Genera-tion

sales and Distri-bution

Networks

operat-ing

compa-nies

other

External revenue (incl. natural gas tax /electricity tax) 1,056 18,330 1,799 7,843 5,254 245 1,208 6,937 4,946 123 47,741

intra-group revenue 9,804 4,783 158 11 465 138 262 19,308 2,561 − 37,490

Total revenue 10,860 23,113 1,957 7,854 5,719 383 1,470 26,245 7,507 − 37,367 47,741

Operating result 3,428 1,352 180 247 1,055 56 203 985 129 − 545 7,090

operating income from investments 47 343 8 − 6 57 4 1 − 93 9 − 49 321

operating income from investments accounted for using the equity method 30 277 19 − 6 55 4 − 89 9 − 1 298

operating depreciation and amortisation 461 570 97 198 230 70 234 1 132 82 2,075

Total impairment losses 10 1 5 4 112 3 135

EBITDA 3,889 1,922 277 445 1,285 126 437 986 261 − 463 9,165

Cash flows from operating activities 2,288 1,457 − 15 387 888 27 319 580 338 − 970 5,299

carrying amount of investments accounted for using the equity method 166 2,294 222 28 375 477 190 20 − 36 3,736

capital ex-penditure on intangible assets, property, plant and equipment and investment property 1,791 1,022 156 853 368 447 855 2 336 83 5,913

Regions 2009

€ million

EU Rest of Europe

other RWE Group

Germany UK other EU

External revenue1, 2 28,442 8,622 7,640 1,340 147 46,191

intangible assets, property, plant and equipment and investment property 23,103 7,911 14,124 741 250 46,129

1 Excluding natural gas tax /electricity tax.2 Broken down by the region in which the service was provided.


Products

€ million

RWE Group

2010 2009

External revenue1 50,722 46,191

of which: electricity (33,480) (30,184)

of which: gas (13,216) (11,934)

of which: crude oil (1,049) (1,024)

1 Excluding natural gas tax /electricity tax.

Reconciliation of income items€ million

2010 2009

EBITDA 10,256 9,165

- operating depreciation and amortisation − 2,575 − 2,075

Operating result 7,681 7,090

+ Non-operating result − 767 498

+ financial result − 1,936 − 1,990


Notes on segment data. Wereportrevenuebetweentheseg-

mentsasRWEintra-grouprevenue.Internalsupplyofgoods

andservicesissettledatarm’slengthconditions.

Incomeandexpensesthatareunusualfromaneconomic

perspective,orstemfromexceptionalevents,prejudicethe

assessmentofoperatingactivities.Theyarereclassifiedtothe

non-operatingresult.Intheeventthatimpairmentlossesare

recognisedonthegoodwilloffullyconsolidatedcompanies,

wereportsuchlossesinthenon-operatingresult.

Moredetailedinformationispresentedonpages91etseqq.in

thereviewofoperations.

RWEdidnotgeneratemorethan10%ofsalesrevenueswith

anysinglecustomerintheyearunderreviewandtheprevious

year.

(32) Notes to the cash flow statement

Thecashflowstatementclassifiescashflowsaccordingtooper-

ating,investingandfinancingactivities.Cashandcashequiva-

lentsinthecashflowstatementcorrespondtotheamountstat-

edinthebalancesheet.Cashandcashequivalentsconsistof

cashonhand,demanddepositsandfixed-interestmarketable

Thedefinitionoftheoperatingresultisderivedfromthevalue

managementconcept.Thisindicatorisusedforcontrolpurpos-

eswithintheGroup(cf.pages231etseq.).Thefollowingtable

presentsthereconciliationofEBITDAtotheoperatingresult

andtoincomefromcontinuingoperationsbeforetax:

securitieswithamaturityofthreemonthsorlessfromthedate

ofacquisition.

Amongotherthings,cashflowsfromoperatingactivities

include:

• cashflowsfrominterestincomeof€460million(previous

year:€593million)andcashflowsusedforinterestexpenses

of€1,257million(previousyear:€1,231million)

• €1,723million(previousyear:€1,949million)intaxeson

incomepaid(lessincometaxrefunds)

• incomefrominvestments,correctedforitemswithoutan

effectoncashflows,inparticularfromaccountingusingthe

equitymethod,amountedto€428million(previousyear:

€460million)

Flowsoffundsfromtheacquisitionandsaleofconsolidated

companiesareincludedincashflowsfrominvestingactivities.

Effectsofforeignexchangeratechangesarestatedseparately.

Cashflowsfromfinancingactivitiesinclude€1,867million(pre-

viousyear:€2,401million)whichwasdistributedtoRWEshare-



Businesstransactionswereconcludedwithmajorassociates,

resultinginthefollowingitemsinRWE’sconsolidatedfinancial

statements:

Thereceivablesmainlyconsistofinterest-bearingloans,whilst

theliabilitiesstemexclusivelyfromsupplyandservicetransac-

tionswithrelatedcompanies.Alltransactionsarecompletedat

arm’slengthconditionsandonprincipledonotdifferfromthe

financingconditionsandconditionsforsupplyandservices

withotherenterprises.€414millionofthereceivables(previous

year:€113million)and€6millionoftheliabilities(previous

year:€4million)fallduewithinoneyear.Inrespectofthe

receivables,asinthepreviousyeartherewascollateralamount-

ingto€5million.

Aboveandbeyondthis,asof31December2010,therewasan

unused€29millionlineofcreditfortheRWE-VeoliaBerlin-

wasserBeteiligungsGmbH(previousyear:€24million).

AstheCEOofRWEAG,Dr.JürgenGroßmann,isapartnerin

GeorgsmarienhütteHoldingGmbHandRGMGebäudemanage-

mentGmbH,thecompaniesoftheGeorgsmarienhütteGroup

andRGMGebäudemanagementGmbHareclassifiedasrelated

parties.RWEGroupcompaniesprovidedservicesanddeliveries

amountingto€9.9milliontothesecompanies(previousyear:

€7.7million),andreceivedfromthemservicesanddeliveries

amountingto€2.4million(previousyear:€2.5million).As

of31December2010,therewerereceivablesof€0.8million

(previousyear:€2.0million)andliabilitiesof€0.5million

(previousyear:€0.2million).Alltransactionsarecompleted

atarm’slengthpricesandonprinciplethebusinessrelations

donotdifferfromthosemaintainedwithenterpriseswhich

arenotrelatedtotheRWEGroup.

Aboveandbeyondthis,theRWEGroupdidnotexecuteany

materialtransactionswithrelatedcompaniesorpersons.

key items from transactions with associates€ million

2010 2009

income 907 861

Expenses 278 169

Receivables 1,004 708

liabilities 12 10

holdersand€331million(previousyear:€191million)which

wasdistributedtominorityshareholders.

Changesinthescopeofconsolidation(withoutconsideration

of“Assetsheldforsale”)decreasedcashandcashequivalents

byanetamountof€2million(previousyear:increaseof

€589 million).Additionsof€5million(previousyear:€703 mil-

lion)wereoffsetagainstcapitalexpenditureonfinancialassets,

whilstdisposalsof€7million(previousyear:€114million)were

deductedfromproceedsfromdivestitures.

Explorationactivitiesreducedcashflowsfromoperatingacti-

vitiesby€162million(previousyear:€188million)andcash

flowsfrominvestingactivitiesby€170million(previousyear:

€199million).

Therearenorestrictionsonthedisposalofcashandcash

equivalents.

(33) Information on concessions

Inthefieldsofelectricity,gasandwatersupply,therearea

numberofeasementagreementsandconcessioncontracts

betweenRWEGroupcompaniesandgovernmentalauthorities

intheareassuppliedbyRWE.

Easementagreementsareusedintheelectricityandgasbusi-

nesstoregulatetheuseofpublicrightsofwayforlayingand

operatinglinesforpublicenergysupply.Theseagreementsare

generallylimitedtoatermof20years.Afterexpiry,thereisa

legalobligationtotransferownershipofthelocaldistribution

facilitiestothenewoperator,forappropriatecompensation.

Waterconcessionagreementscontainprovisionsfortheright

andobligationtoprovidewaterandwastewaterservices,oper-

atetheassociatedinfrastructure,suchaswaterutilityplants,

aswellastoimplementcapitalexpenditure.Concessionsinthe

waterbusinessgenerallyhavetermsofupto25years.

(34) Related party disclosures

Withintheframeworkoftheirordinarybusinessactivities,RWE

AGanditssubsidiarieshavebusinessrelationshipswithnumer-

ouscompanies.Theseincludeassociatedcompanieswhichare

classifiedasrelatedparties.Inparticular,thiscategoryincludes

investmentsinmunicipaloperationsaccountedforusingthe

equitymethodinthesegmentSalesandDistributionNetworks.


ThecompensationmodelandcompensationoftheExecutive

andSupervisoryBoardsispresentedinthecompensation

report,whichisincludedinthereviewofoperations.

Intotal,thecompensationoftheExecutiveBoardamounted

to€20,358,000(previousyear:€22,520,000),pluspension

servicecostsof€776,000(previousyear:€439,000).The

ExecutiveBoardreceivedshort-termcompensationcomponents

amountingto€16,608,000forfiscal2010(previousyear:

€18,770,000).Inadditiontothis,long-termcompensation

componentsoftheBeatprogramme(2010tranche)inthe

amountof€3,750,000wereallocated(€3,750,000fromthe

2009Beattrancheinthepreviousyear).

TheSupervisoryBoardreceivedtotalcompensationof

€3,434,000(previousyear:€3,446,000)infiscal2010.

SupervisoryBoardmembersalsoreceived€243,000incompen-

sationfromsubsidiariesfortheexerciseofmandates(previous

year:€296,000).

Duringtheperiodunderreview,noloansoradvanceswere

grantedtomembersoftheExecutiveorSupervisoryBoards,

withtheexceptionofanadvanceof€1,000fortravelexpenses

grantedtoanemployeerepresentativeontheSupervisory

Board.OneemployeerepresentativeontheSupervisoryBoard

hasanoutstandingloanof€11,000fromtheperiodbeforehis

membershipoftheBoard.

FormermembersoftheExecutiveBoardandtheirsurviving

dependentsreceived€14,717,000(previousyear:

€18,074,000),ofwhich€1,861,000camefromsubsidiaries

(previousyear:€1,831,000).Ofthis,€1,842,000wasrelatedto

long-termincentiveremunerationcomponents(previousyear:

€7,000,000).Asofthebalance-sheetdate,€129,692,000(pre-

viousyear:€124,558,000)hasbeenaccruedfordefinedbenefit

obligationstoformermembersoftheExecutiveBoardandtheir

survivingdependents.Ofthis€19,369,000wassetasideat

subsidiaries(previousyear:€19,737,000).

InformationonthemembersoftheExecutiveandSupervisory

BoardsinaccordancewithSec.285No.10oftheGerman

CommercialCode(HGB)ispresentedonpages233to237.

(35) Auditor’s fees

RWErecognisedthefollowingfeesasexpensesfortheservices

renderedbytheauditorsoftheconsolidatedfinancialstate-

ments,PricewaterhouseCoopersAktiengesellschaftWirtschafts-

prüfungsgesellschaft(PwC)andcompaniesbelongingtoPwC’s

internationalnetwork:

Auditor’s fees

€ million

2010 2009

Total of which: Germany

Total of which: Germany

Audit services 18.0 9.1 18.2 8.9

other assurance services 8.5 8.3 6.4 6.1

Tax services 0.3 0.2 0.2 0.1

other services 0.6 0.5 0.4 0.4

27.4 18.1 25.2 15.5



notes 225

Thefeesforauditservicesprimarilycontainthefeesfortheau-

ditoftheconsolidatedfinancialstatementsandfortheauditof

thefinancialstatementsofRWEAGanditssubsidiaries.Other

assuranceservicesincludefeesforthereviewofinterimre-

ports,reviewoftheinternalcontrollingsystem,inparticularthe

ITsystems,andexpensesrelatedtostatutoryorcourtordered

requirements.Inparticular,thefeesfortaxservicesinclude

compensationforconsultationinrelationtothepreparationof

taxreturnsandreviewofresolutionsofthetaxauthoritiesas

wellasothernationalandinternationaltax-relatedmatters.

AmprionGmbHrecognisedfeesamountingto€0.1million(pre-

viousyear:€0.1million)inrelationtoservicesrenderedbythe

auditorBDODeutscheWarentreuhandAGinfiscal2010.

In2010,totalfeeexpensesrelatedtodiscontinuedoperations

ofconsolidatedsubsidiariesamountedto€0million(previous

year:€1.2million).

(36) Application of Sec. 264, Para. 3 and Sec. 264b of the

German Commercial Code

Infiscal2010,thefollowingGermansubsidiariesmadepartial

useoftheexemptionclauseincludedinSec.264,Para.3and

Sec. 264boftheGermanCommercialCode(HGB):

• BGEBeteiligungs-GesellschaftfürEnergieunternehmenmbH,

Essen

• eprimoGmbH,Neu-Isenburg

• GBVDreizehnteGesellschaftfürBeteiligungsverwaltung

mbH&Co.KG,Essen

• GBVFünfteGesellschaftfürBeteiligungsverwaltungmbH,

Essen

• GBVSiebteGesellschaftfürBeteiligungsverwaltungmbH,

Essen

• OIEAktiengesellschaft,Idar-Oberstein

• RheinischeBaustoffwerkeGmbH,Bergheim

• rhenagBeteiligungsGmbH,Cologne

• RWEAquaGmbH,Berlin

• RWEAquaHoldingsGmbH,Essen

• RWEBeteiligungsgesellschaftmbH,Essen

• RWEBeteiligungsverwaltungAuslandGmbH,Essen

• RWEConsultingGmbH,Essen

• RWEDeaAG,Hamburg

• RWEDeaNorthAfrica/MiddleEastGmbH,Hamburg

• RWEDeaSuezGmbH,Hamburg

• RWEDeutschlandAktiengesellschaft,Essen

• RWEEffizienzGmbH,Dortmund

• RWEGasspeicherGmbH,Dortmund

• RWEInnogyCogenGmbH,Dortmund

• RWEInnogyGmbH,Essen

• RWERInnogyNordwestWindparkbetriebsgesellschaftmbH,

Sassnitz

• RWEInnogyWindpowerHannoverGmbH,Hannover

• RWEITGmbH,Essen

• RWEKundenserviceGmbH,Bochum

• RWEOffshoreLogisticsCompanyGmbH,Essen

• RWEPowerAktiengesellschaft,CologneandEssen

• RWEPowerErsteGesellschaftfürBeteiligungsverwaltung

mbH,Essen

• RWERheinhessenBeteiligungsGmbH,Dortmund

• RWERhein-RuhrNetzserviceGmbH,Siegen

• RWERhein-RuhrVerteilnetzGmbH,Wesel

• RWERWNBeteiligungsgesellschaftMittembH,Essen

• RWEServiceGmbH,Dortmund

• RWESupply&TradingGmbH,Essen

• RWESystemsDevelopmentGmbH&Co.KG,Dortmund

• RWETechnologyGmbH,Essen

• RWEVertriebAktiengesellschaft,Dortmund

• RWEWestfalen-Weser-EmsNetzserviceGmbH,Dortmund

• RWEWestfalen-Weser-EmsVerteilnetzGmbH,Recklinghausen

• SaarwasserkraftwerkeGmbH,Essen

(37) Events after the balance-sheet date

Informationoneventsafterthebalance-sheetdateispresented

inthereviewofoperations.


(38) Declaration according to Sec. 161 of the German

Stock Corporation Act

ThedeclarationsontheGermanCorporateGovernanceCode

prescribedbySec.161oftheGermanStockCorporationAct

(AktG)havebeensubmittedforRWEAGanditspubliclytraded

Germansubsidiariesandhavebeenmadeaccessibletothe

shareholdersontheInternetpagesofRWEAGanditspublicy

tradedGermansubsidiaries.


TheExecutiveBoard

Großmann Birnbaum

Pohlig

Fitting

Schmitz



Auditor’s report 227

4.7 auditor’s report

Wehaveauditedtheconsolidatedfinancialstatementspre-

paredbytheRWEAktiengesellschaft,Essen,comprisingthe

incomestatementandstatementofrecognisedincomeand

expenses,balancesheet,cashflowstatement,statementof

changesinequityandthenotestotheconsolidatedfinancial

statements,togetherwiththegroupmanagementreport,

whichiscombinedwiththemanagementreportoftheRWE

Aktiengesellschaft,Essen,forthebusinessyearfrom1January

to31 December2010.Thepreparationoftheconsolidatedfi-

nancialstatementsandthecombinedmanagementreportin

accordancewiththeIFRSs,asadoptedbytheEU,andtheaddi-

tionalrequirementsofGermancommerciallawpursuantto

§ (Article)315aAbs.(paragraph)1HGB(“Handelsgesetzbuch”:

GermanCommercialCode)aretheresponsibilityoftheparent

Company’sExecutiveBoard.Ourresponsibilityistoexpressan

opinionontheconsolidatedfinancialstatementsandthecom-

binedmanagementreportbasedonouraudit.

Weconductedourauditoftheconsolidatedfinancialstate-

mentsinaccordancewith§317HGBandGermangenerally

acceptedstandardsfortheauditoffinancialstatementsprom-

ulgatedbytheInstitutderWirtschaftsprüfer(InstituteofPublic

AuditorsinGermany)(IDW)andadditionallyobservedtheInter-

nationalStandardsonAuditing(ISA).Thosestandardsrequire

thatweplanandperformtheauditsuchthatmisstatements

materiallyaffectingthepresentationofthenetassets,financial

positionandresultsofoperationsintheconsolidatedfinancial

statementsinaccordancewiththeapplicablefinancialreport-

ingframeworkandinthecombinedmanagementreportarede-

tectedwithreasonableassurance.Knowledgeofthebusiness

activitiesandtheeconomicandlegalenvironmentoftheGroup

andexpectationsastopossiblemisstatementsaretakeninto

accountinthedeterminationofauditprocedures.Theeffec-

tivenessoftheaccounting-relatedinternalcontrolsystemand

theevidencesupportingthedisclosuresintheconsolidated

financialstatementsandthecombinedmanagementreport

areexaminedprimarilyonatestbasiswithintheframeworkof

theaudit.Theauditincludesassessingtheannualfinancial

statementsofthoseentitiesincludedinconsolidation,thede-

terminationoftheentitiestobeincludedinconsolidation,the

accountingandconsolidationprinciplesusedandsignificant

estimatesmadebytheCompany’sExecutiveBoard,aswellas

evaluatingtheoverallpresentationoftheconsolidatedfinancial

statementsandthecombinedmanagementreport.Webelieve

thatourauditprovidesareasonablebasisforouropinion.

Ouraudithasnotledtoanyreservations.

Inouropinionbasedonthefindingsofouraudittheconsoli-

datedfinancialstatementscomplywiththeIFRSsasadopted

bytheEU,andtheadditionalrequirementsofGermancommer-

ciallawpursuantto§315aAbs.1HGBandgiveatrueandfair

viewofthenetassets,financialpositionandresultsofopera-

tionsoftheGroupinaccordancewiththeseprovisions.The

combinedmanagementreportisconsistentwiththeconsoli-

datedfinancialstatementsandasawholeprovidesasuitable

viewoftheGroup’spositionandsuitablypresentstheoppor-

tunitiesandrisksoffuturedevelopment.


PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

ManfredWiegand MarkusDittmann

(GermanPublicAuditor) (GermanPublicAuditor)

RWE Annual Report 2010228 Material investments

I. Affiliates investment in acc. with sec.

16 of the German stock

corporation Act%

Equity of the last

fiscal year

€ ‘000

Net income/ loss of

the last fiscal year

€ ‘000

Revenue 2010

€ million

Employees 2

2010 average

RWE Aktiengesellschaft, Essen 8,146,208 2,520,741 – 801

Power Generation, Germany

RWE power Aktiengesellschaft, cologne and Essen 100 3,476,964 – 1 10,886 13,560

Kernkraftwerke lippe-Ems GmbH, lingen (Ems) 99 432,269 – 1 433 329

Kernkraftwerk Gundremmingen GmbH, Gundremmingen 75 84,184 8,343 295 743

Rheinbraun Brennstoff GmbH, cologne 100 63,316 – 1 611 168

Sales and Distribution Networks, Germany

Emscher lippe Energie GmbH, Gelsenkirchen 79 77,955 23,301 501 642

Energis GmbH, saarbrücken 64 140,934 26,867 385 299

envia Mitteldeutsche Energie AG, chemnitz 59 1,200,692 276,468 3,097 2,085

envia Netzservice GmbH, Kabelsketal 100 4,046 – 1 406 13

envia verteilnetz GmbH, Halle (saale) 100 24 – 1 1,883 5

eprimo GmbH, Neu-isenburg 100 4,600 – 1 498 93

EWv Energie- und Wasser-versorgung GmbH, stolberg 54 39,539 13,586 346 382

Koblenzer Elektrizitätswerk und verkehrs-Aktiengesellschaft, Koblenz 58 78,542 15,273 451 492

lechwerke AG, Augsburg 90 385,369 70,903 1,388 1,102

lEW verteilnetz GmbH, Augsburg 100 4,816 – 1 814 100

MiTGAs Mitteldeutsche Gasversorgung GmbH, Halle (saale) 75 134,041 40,255 713 331

rhenag Rheinische Energie Aktiengesellschaft, cologne 67 272,158 158,093 254 341

RWE Beteiligungsgesellschaft mbH, Essen 100 7,820,490 – 1 – –

RWE Deutschland Aktiengesellschaft, Essen 100 504,974 – 1 1,886 4,906

RWE Effizienz GmbH, Dortmund 100 25 – 1 5 83

RWE Gasspeicher GmbH, Dortmund 100 115,426 – 1 135 49

RWE Kundenservice GmbH, Bochum 100 25 – 1 246 14

RWE Rhein-Ruhr Netzservice GmbH, siegen 100 25 – 1 789 26

RWE Rhein-Ruhr verteilnetz GmbH, Wesel 100 25 – 1 2,312 222

RWE vertrieb Aktiengesellschaft, Dortmund 100 11,002 – 1 12,574 2,044

RWE Westfalen-Weser-Ems Netzservice GmbH, Dortmund 100 25 – 1 675 19

RWE Westfalen-Weser-Ems verteilnetz GmbH, Recklinghausen 100 25 – 1 1,914 183

RWW Rheinisch-Westfälische Wasserwerksgesellschaft mbH, Mülheim an der Ruhr 80 75,730 10,267 106 403

stadtwerke Düren GmbH, Düren 75 23,345 2,614 150 221

süwag Energie AG, frankfurt am Main 78 347,675 82,300 1,657 1,197

süwag Netz GmbH, frankfurt am Main 100 961 – 1 576 274

vsE Aktiengesellschaft, saarbrücken 69 159,255 28,766 456 321

Netherlands/Belgium

RWE Benelux Holding B.v., ’s-Hertogenbosch/Netherlands 100 3,709,689 − 112,679 – –

Essent Energie productie B.v., ’s-Hertogenbosch/Netherlands 100 599,732 − 16,118 – 518

Essent Energie verkoop Nederland B.v., ’s-Hertogenbosch/Netherlands 100 82,757 24,135 1,146 172

Essent Retail Energie B.v., ’s-Hertogenbosch/Netherlands 100 65,552 50,552 2,847 914

RWE Energy Nederland N.v., Hoofddorp/Netherlands 100 50,330 12,984 1,539 32

1 profit - and loss-pooling agreement2 converted to full-time positions

materiaL investmentsAsof31December2010



Material investments 229

I. Affiliates investment in acc. with sec.

16 of the German stock

corporation Act%

Equity of the last

fiscal year

€ ‘000

Net income/ loss of

the last fiscal year

€ ‘000

Revenue 2010

€ million

Employees 1

2010 average

United kingdom

RWE Npower Holdings plc, swindon/United Kingdom2 100 61,272 − 374,895 7,770 11,908


Budapesti Elektromos Müvek Nyrt. (ElMü), Budapest/Hungary 55 929,519 27,068 832 354

ElMü Hálózati Elosztó Kft., Budapest/Hungary 100 977,568 37,201 377 228

ÉMÁsZ Hálózati Kft., Budapest/Hungary 100 318,160 14,027 155 125

Észak-magyarországi Áramszolgáltató Nyrt. (ÉMÁsZ), Miskolc/Hungary 54 327,131 19,928 309 116

Jihomoravská plynárenská, a.s., Brno/czech Republic 50 328,653 74,793 675 711

JMp Net, s.r.o., Brno/czech Republic 100 433,148 49,806 150 45

Mátrai Erömü Zártkörüen Müködö Részvénytársaság (MÁTRA), visonta/Hungary 51 309,034 71,715 352 2,407

NET4GAs, s.r.o., prague/czech Republic 100 2,119,563 198,936 404 521

RWE & Turcas Güney Elektrik üretim A.s., Ankara/Turkey 70 130,309 − 1,024 – –

RWE Energie, a.s., Ústí nad labem/czech Republic 100 381,092 119,851 796 28

RWE Gas international B.v., Hoofddorp/Netherlands 100 4,389,763 775,287 – –

RWE GasNet, s.r.o., Ústí nad labem/czech Republic 100 581,831 87,885 217 200

RWE Gas storage, s.r.o., prague/czech Republic 100 600,468 53,112 155 223

RWE polska s.A., Warsaw/poland 100 522,916 42,293 700 608

RWE stoen operator sp. z o.o., Warsaw/poland 100 670,597 9,165 220 584

RWE Transgas, a.s., prague/czech Republic 100 3,070,682 − 192,336 4,683 308

severomoravská plynárenská, a.s., ostrava/czech Republic 68 230,836 66,608 490 19

sMp Net, s.r.o., ostrava/czech Republic 100 291,307 46,688 121 –

vcp Net, s.r.o., Hradec Králové/czech Republic 100 217,374 27,253 72 –

východočeská plynárenská, a.s., Hradec Králové/czech Republic 67 152,041 40,776 294 49

Renewables

RWE innogy GmbH, Essen 100 514,583 – 3 123 267

Agrupació Energías Renovables, s.A.U., Barcelona/spain AERsA Group2 with 9 subsidiaries in spain 100 293,897 287 79 36

RWE innogy cogen GmbH, Dortmund 100 54,813 – 3 78 171

RWE Npower Renewables ltd., swindon/United Kingdom 100 452,547 − 24,662 20 341

Upstream Gas & Oil

RWE Dea AG, Hamburg 100 1,407,378 – 3 808 989

RWE Dea Norge As, oslo/Norway 100 160,130 36,336 306 61

RWE Dea suez GmbH, Hamburg 100 87,226 – 3 213 133

Trading/Gas Midstream

RWE supply & Trading GmbH, Essen 100 426,294 – 3 26,308 1,146

RWE supply & Trading Netherlands B.v., Eindhoven/Netherlands 100 1,870,231 − 57,561 4,742 74

RWE supply & Trading switzerland s.A., Geneva/switzerland 100 373,941 − 43,874 842 193

Other subsidiaries

Amprion GmbH, Dortmund 100 613,025 118,527 6,439 797

RWE finance B.v., ’s-Hertogenbosch/Netherlands 100 9,749 2,441 – –

RWE service GmbH, Dortmund 100 248,451 – 3 2,303 1,395

1 converted to full-time positions2 figures from the Group’s consolidated financial statements3 profit and loss-pooling agreement

RWE Annual Report 2010230 Material investments

II. Companies accounted for using the equity method investment in acc. with sec. 16 of the

German stock corporation Act

%

Equity of the last fiscal year

€’000

Net income/loss of the last fiscal year

€’000

Power Generation, Germany

Grosskraftwerk Mannheim Aktiengesellschaft, Mannheim 40 114,141 6,647

Sales and Distribution Networks, Germany

AvU Aktiengesellschaft für versorgungs-Unternehmen, Gevelsberg 50 117,176 12,672

Dortmunder Energie- und Wasserversorgung GmbH (DEW 21), Dortmund 47 157,589 23,741

Enovos international s.A., luxembourg/luxembourg 20 469,083 140,541

Kärntner Energieholding Beteiligungs GmbH, Klagenfurt/Austria1 49 543,739 49,686

KEW Kommunale Energie- und Wasserversorgung AG, Neunkirchen 29 71,803 9,165

Niederrheinische versorgung und verkehr Aktiengesellschaft, Mönchengladbach1 50 471,315 42,250

pfalzwerke Aktiengesellschaft, ludwigshafen 27 194,732 17,763

Regionalgas Euskirchen GmbH & co. KG, Euskirchen 43 53,482 11,381

RheinEnergie AG, cologne 20 564,045 184,476

RWE-veolia Berlinwasser Beteiligungs GmbH, Berlin 50 305,559 87,167

stadtwerke Duisburg Aktiengesellschaft, Duisburg 20 154,409 40,733

stadtwerke Essen Aktiengesellschaft, Essen 29 117,257 22,568

stadtwerke Remscheid GmbH, Remscheid 25 113,503 5,767

stadtwerke velbert GmbH, velbert 50 76,466 8,312

südwestfalen Energie und Wasser AG, Hagen 19 287,283 20,272

Zagrebačke otpadne vode d.o.o., Zagreb/croatia 49 123,559 11,529


fövárosi Gázmüvek Zrt., Budapest/Hungary 50 136,888 16,717

TiGÁZ Tiszántúli Gázszolgáltató Zrt., Hajdúszoboszló/Hungary 44 508,633 -9,481

východoslovenská energetika a.s., Košice/slovakia 49 672,621 54,344

Renewables

fri-El s.p.A., Bolzano/italy1 50 16,622 -1,421

Greater Gabbard offshore Winds limited, Reading/United Kingdom 50 40 89

Zephyr investments limited, swindon/United Kingdom1 33 -12,234 -4,265

Trading/Gas Midstream

Excelerate Energy lp, The Woodlands/Texas/UsA1 50 310,220 − 183,626

1 figures from the Group’s consolidated financial statements

the RWe Group’s value management 231to our investors Review of operations our responsibility


Return-oriented control of the company. Increasing

shareholdervalueliesattheheartofourstrategy.Additional

valueiscreatedwhenthereturnoncapitalemployed(ROCE)

exceedsthecostofcapital.ROCEreflectsthepureoperating

return.Itistheratiooftheoperatingresulttocapitalemployed.

Thetableatthetopofpage232showstheparametersusedto

calculatethecostofcapital.Wecalculateitasaweighted

averagecostofequityanddebt.

Thecostofequitycorrespondstothecapitalmarket’s

expectationofcompany-specificreturnswheninvestinginan

RWEshareoverandabovethatofarisk-freeinvestment.The

costofdebtislinkedtolong-termfinancingconditionsforthe

RWEGroupandallowsinterestondebttobeclassifiedastax

deductible(taxshield).

Weusednewfiguresasabasisfordeterminingthecostof

capitalin2010.Wecalculatethecostofequityasfollows:

weuseaninterestrateforarisk-freeinvestmentof4.25%

(previousyear:4.5%)asabasis,plusriskchargesspecificto

theGroupandtheGroup’sdivisions.Theappliedbetafactorfor

theRWEGroupis0.95(previousyear:0.78).Wecalculatethe

costofdebtbyapplyingapre-taxrateof5.75%(previousyear:

6.25%).Theratioofequitytodebtis50:50.Wedonotderive

thisparameterfromtheamountscarriedonthebalancesheet,

but,amongotherthings,fromthemarked-to-marketvaluation

ofequityandassumptionsconcerningthelong-term

developmentofournetfinancialpositionandprovisions.Asin

theprecedingyear,theRWEGroup’stotalcostofcapitalfor

2010was9.0%beforetax.

Whendeterminingcapitalemployed,depreciablenon-current

assetsarenotstatedatcarryingamounts.Instead,we

recognisehalfoftheirhistoriccosts.Theadvantageofthis

procedureisthatthedeterminationofROCEisnotinfluenced

bythedepreciationperiod.Thisreducesthefluctuationinvalue

addedcausedbytheinvestmentcycle.However,wefully

accountforthegoodwillincludedinthepurchasepriceof

financialassets.

RelativevalueaddedisthedifferencebetweenROCEandthe

costofcapital.Multiplyingthisfigurebythecapitalemployed

resultsintheabsolutevalueadded,whichweemployasa

centralmanagementbenchmark.Thehigherthevalueadded,

themoreattractiveaparticularactivityisforourportfolio.Itis

anotherimportantcriterionforevaluatingcapitalexpenditure

andfordeterminingtheperformance-linkedcompensationof

RWEGroupexecutives.

Lower cost of capital from 2011 onwards.Ourannualreviewof

ourcostofcapitalcausedustomakesomenewadjustments.

Duetothereductionininterestlevels,wewillapplylowerrates

forbothequityanddebt.Thecostofcapitalwilldropfrom

9.0%to8.5%.

the rWe group’s vaLue management

RWE Annual Report 2010232 the RWe Group’s value management

RWE Group – capital costs 2011 2010 2009

Risk-free interest rate % 3.7 4.25 4.50

Market premium % 5.0 5.0 5.0

Beta factor 0.90 0.95 0.78

cost of equity after tax % 8.2 9.0 8.4

cost of debt before tax % 4.90 5.75 6.25

Tax rate for debt % 27.4 27.1 27.1

Tax shield % − 1.3 − 1.6 − 1.7

cost of debt after tax % 3.6 4.2 4.6

proportion of equity % 50 50 50

proportion of debt % 50 50 50

Capital costs after tax % 5.75 6.5 6.5

Tax rate for blanket conversion % 31 30 30

Weighted average cost of capital (WACC) before tax % 8.50 9.0 9.0

RWE Group – determining capital employed 31 Dec 2010 31 Dec 2009

intangible assets/property, plant and equipment1 € million 58,849 56,150

+ investments including loans2 € million 5,998 5,585

+ inventories € million 3,293 3,115

+ Trade accounts receivable € million 9,481 9,527

+ other accounts receivable and other assets3 € million 12,872 16,627

- Non-interest-bearing provisions4 € million 12,384 12,214

- Non-interest-bearing liabilities5 € million 22,156 27,043

- Adjustments6 € million 954 858

Capital employed € million 54,999 50,889

RWE Group – determining value added 2010

capital employed before adjustments (averaged for the year) € million 52,944

+ Adjustments7 € million 442

Capital employed after adjustments (averaged for the year) € million 53,386

Operating result € million 7,681

ROCE % 14.4

Relative value added % 5.4

Absolute value added € million 2,876

1 intangible assets; property, plant and equipment; and investment property were stated at half of their cost (see the statement of changes in assets); goodwill and the customer base were recognised at carrying amounts. 2 investments accounted for using the equity method and other financial assets (excluding non-current securities). 3 including tax refund claims; excluding the net present value of defined contribution pension benefit obligations as well as derivative financial instruments in the amount of €938 million (previous year: €733 million). 4 including tax provisions and other provisions; excluding non-current provisions in the amount of €425 million (previous year: €446 million). 5 including trade liabilities, income tax liabilities and other liabilities; excluding derivative financial instruments in the amount of €534 million (previous year: €485 million) and purchase price liabilities of €1,775 million (previous year: €1,562 million) from put options. 6 Assets capitalised in accordance with iAs 16.15 in the amount of €486 million (previous year: €488 million) are not taken into account since these assets do not employ capital. Deferred tax liabilities relating to RWE npower’s capitalised customer base are not taken into account, either. 7 Mostly corrections to reflect timing differences, due among other things, to first-time consolidations /deconsolidations during the year.



boards 233

Werner Bischoff2

MonheimamRhein

FormermemberoftheMainExecutiveBoardofIGBergbau,

Chemie,Energie

Yearofbirth:1947

Membersince:13April2006

Otherappointments:

• ContinentalAG

• Evonik-DegussaGmbH

• EvonikIndustriesAG

• RWEDeaAG

• RWEPowerAG

- THSTreuHandStellefürBergmannswohnstättenim

rheinisch-westfälischenSteinkohlenbezirkGmbH

(Chairman)

Carl-Ludwig von Boehm-Bezing

BadSoden

FormermemberoftheBoardofManagementof

DeutscheBankAG

Yearofbirth:1940

Membersince:11December1997

Heinz Büchel2

Trier

ChairmanoftheGeneralWorksCouncilofRWEDeutschlandAG

Yearofbirth:1956


Dieter Faust2

Eschweiler

ChairmanoftheGeneralWorksCouncilofRWEPowerAG

Yearofbirth:1958

Membersince:1August2005

Otherappointments:

• RWEPowerAG

Dr. Thomas R. Fischer3

Berlin

Yearofbirth:1947

Memberuntil:31January2010

Dr. Manfred Schneider

Leverkusen

Chairman

Yearofbirth:1938


Otherappointments:

• BayerAG(Chairman)

• DaimlerAG

• LindeAG(Chairman)

Frank Bsirske2

Berlin

DeputyChairman

Chairmanofver.diVereinteDienstleistungsgewerkschaft

Yearofbirth:1952

Membersince:9January2001

Otherappointments:

• DeutscheLufthansaAG

• IBMCentralHoldingGmbH

• DeutschePostbankAG

- KfWBankengruppe

Dr. Paul Achleitner

Munich

MemberoftheBoardofManagementof

AllianzSE

Yearofbirth:1956

Membersince:16March2000

Otherappointments:

• AllianzGlobalInvestorsAG

• BayerAG

• DaimlerAG

- AllianzInvestmentManagementSE(Chairman)

Supervisory Board1

Boards

• Member of other mandatory supervisory boards.- Member of comparable domestic and foreign supervisory bodies of commerical enterprises.

1 The terms of all members end with effect from the end of the Annual General Meeting on 20 April 2011.2 Employee representative.3 information valid as of the date of retirement from the supervisory Board.

Asof11February2011

RWE Annual Report 2010


1 The terms of all members end with effect from the end of the Annual General Meeting on 20 April 2011.2 Employee representative.3 information valid as of the date of retirement from the supervisory Board.

234 boards

Dr. Gerhard Langemeyer

Dortmund

FormerMayoroftheCityofDortmund

Yearofbirth:1944


Dagmar Mühlenfeld

MülheimanderRuhr

MayoroftheCityofMülheimanderRuhr

Yearofbirth:1951


Otherappointments:

- BeteiligungsholdingMülheimanderRuhrGmbH

- FlughafenEssen/MülheimGmbH(Chairwoman)

- medlGmbH(Chairwoman)

- Mülheim&BusinessGmbH(Chairwoman)

- RuhrbaniaProjektentwicklungsgesellschaftmbH

(Chairwoman)

Dr. Wolfgang Reiniger

Essen

Lawyer

Yearofbirth:1944


Günter Reppien2

Lingen

FormerChairmanoftheGeneralWorksCouncilof

RWEPowerAG

Yearofbirth:1951


Otherappointments:

• RWEPowerAG

- StadtwerkeLingenGmbH

Dagmar Schmeer2

Saarbrücken

ChairwomanoftheWorksCouncilofVSEAG

Yearofbirth:1967

Membersince:9August2006

Otherappointments:

• VSEAG

Andreas Henrich2

MülheimanderRuhr

HeadofHRManagementatRWEDeutschlandAG

Yearofbirth:1956


Otherappointments:

• ELEEmscherLippeEnergieGmbH

• RWEDeutschlandAG

Heinz-Eberhard Holl3

Osnabrück

FormerChiefAdministrativeOfficer,OsnabrückRuralDistrict

Yearofbirth:1940

Memberuntil:31January2010

Otherappointments:

• GeorgsmarienhütteGmbH

• GeorgsmarienhütteHoldingGmbH

Frithjof Kühn

Siegburg

ChiefAdministrativeOfficer,RheinSiegRuralDistrict

Yearofbirth:1943

Membersince:1February2010

Otherappointments:

• RWHoldingAG(Chairman)

- KreissparkasseKöln

Hans Peter Lafos2

Bergheim

RegionalDistrictSectorHead,UtilitiesandDisposal(Sector2),

ver.diVereinteDienstleistungsgewerkschaft,DistrictofNRW

Yearofbirth:1954

Membersince:28October2009

Otherappointments:

• GEWKölnAG

• RWEPowerAG

• RWEVertriebAG



boards 235


2 Employee representative.

Executive Committee of the Supervisory Board

Dr.ManfredSchneider(Chairman)

FrankBsirske

Dr.PaulAchleitner

HeinzBüchel

DieterFaust

DagmarMühlenfeld

DagmarSchmeer

Dr.-Ing.EkkehardD.Schulz

Mediation Committee in accordance with Sec. 27, Para. 3 of

the German Co-Determination Act (MitbestG)


FrankBsirske

WernerBischoff


Personnel Affairs Committee


FrankBsirske

Dr.PaulAchleitner

Heinz-EberhardHoll–until31January2010–

FrithjofKühn–since1February2010–

GünterReppien

UweTigges

Audit Committee

Carl-LudwigvonBoehm-Bezing(Chairman)

WernerBischoff

Dr.GerhardLangemeyer

GünterReppien


UweTigges

Nomination Committee


Dr.PaulAchleitner

Heinz-EberhardHoll–until31January2010–

FrithjofKühn–since1February2010–

Dr.-Ing. Ekkehard D. Schulz

Krefeld

MemberoftheSupervisoryBoardofThyssenKruppAG

Yearofbirth:1941


Otherappointments:

• AXAKonzernAG

• BayerAG

• MANSE

• ThyssenKruppElevatorAG(Chairman)

–until21January2011–

• ThyssenKruppSteelEuropeAG(Chairman)

–until21January2011–

Dr. Wolfgang Schüssel

Vienna

FormerFederalChancellor

Yearofbirth:1945

Membersince:1March2010

Otherappointments:

- BertelsmannStiftung

Uwe Tigges2

Bochum

ChairmanoftheGroupWorksCouncilofRWEAG

Yearofbirth:1960


Otherappointments:

• RWEVertriebAG

Manfred Weber2

Wietze

ChairmanoftheGeneralWorksCouncilofRWEDeaAG

Yearofbirth:1947


Otherappointments:

• RWEDeaAG

Dr. Dieter Zetsche

Stuttgart

ChairmanoftheExecutiveBoardofDaimlerAG

Yearofbirth:1953

Membersince:16July2009

Supervisory Board Committees

RWE Annual Report 2010236 boards

Alwin Fitting

ExecutiveVice-PresidentofRWEAG,

appointeduntil31March2013

Bornin1953inWesthofen(Rhine-Hesse);joinedtheRWE Group

in1974;trainedmasterelectrician;ExecutiveVice-President

andLabourDirectorofRWEPowerAGfromOctober2000to

July2005;ExecutiveVice-PresidentandLabourDirectorof

RWE AGsinceAugust2005.

Group-levelresponsibilities:Security,HRManagement&Labour

Law,DiversityOfficeandCorporateResponsibility/

EnvironmentalProtection.

Otherappointments:

• AmprionGmbH

• RWEITGmbH(Chairman)

• RWEPensionsfondsAG

• RWEServiceGmbH(Chairman)

Dr. Ulrich Jobs1


until30September2010

Bornin1953inHerne;holdsadiplomainengineeringanda

doctorateinmining/mineengineering;joinedtheRWEGroup

in1977;ExecutiveVice-PresidentofRWEAGsinceApril2007;

concurrentlyCEOofRWEPowerAGfromMay2007toFebruary

2008;ChiefOperatingOfficerofRWEAGfromApril2008to

April2009;ChiefOperatingOfficerInternationalofRWEAG

fromMay2009toSeptember2010.

Otherappointments:

• DeutscheSteinkohleAktiengesellschaft

• RAGAG

• RWEDeaAG(Chairman)

- ELMÜNyrt.(Chairman)

- EMASZNyrt.(Chairman)

- EssentN.V.

- MátraiKraftwerkG.AG(Chairman)

- NET4GAS,s.r.o.

- RWENpowerHoldingsplc(Chairman)

- RWEPolskaSpólkaAkcyina(Chairman)

- RWESupply&TradingGmbH(Chairman)

- RWETransgas,a.s.(Chairman)

- RWETurkeyHoldingA.S.

- Východoslovenskáenergetika,a.s.

Dr. Jürgen Großmann

PresidentandCEOofRWEAG,

appointeduntil30September2012

Bornin1952inMülheimanderRuhr;studiedferrous

metallurgyandeconomics,doctorateinferrousmetallurgy;

activewithintheKlöcknerGroupfrom1980to1993,exitingas

memberoftheExecutiveBoardofKlöckner-WerkeAG;acquired

Georgsmarienhüttein1993;OwnerandManagingDirectorof

GeorgsmarienhütteHoldingGmbHfrom1993to2006;joined

RWEAGasPresidentandCEOwitheffectfrom1October2007.

Group-levelresponsibilities:PublicAffairs/EnergyPolitics,

Compliance/ManagementBoardOffice,Communication,

ExecutiveManagementandAudit.

Otherappointments:

• BATIGGesellschaftfürBeteiligungenmbH

• BritishAmericanTobacco(Industrie)GmbH

• BritishAmericanTobacco(Germany)GmbH

• DeutscheBahnAG

• SURTECOSE(Chairman)

• VolkswagenAG

- HanoverAcceptancesLimited

Dr. Leonhard Birnbaum


appointeduntil30September2013

Bornin1967inLudwigshafenamRhein;doctorateinchemical

engineering;consultantatMcKinsey&CompanyInc.from1996

to2008;promotedtopartner(principal)in2000andtosenior

partner(director)atMcKinseyin2006,exitingasmemberof

McKinsey’sglobalmanagementteamfortheenergysector;

joinedRWEAGasHeadofCorporateStrategyandBusiness

Developmentwitheffectfrom7April2008;Executive

Vice-Presidentsince1October2008;ChiefStrategyOfficer

ofRWEAGfromJanuary2009toSeptember2010;Chief

CommercialOfficerofRWE AGsince1October2010.

Group-levelresponsibilities:CommodityManagement,Strategy,

Mergers&AcquisitionsandResearch&Development.

Otherappointments:

• RWEDeaAG(Chairman)

• RWESupply&TradingGmbH


Executive Board


1 information valid as of the date of retirement from the Executive Board.

boards 237to our investors Review of operations our responsibility


Dr. Rolf Martin Schmitz


appointeduntil30April2014

Bornin1957inMönchengladbach;doctorateinengineering;

i.a.inchargeofcorporatedevelopmentandeconomicpolicy

atVEBAAGfrom1988to1998;ExecutiveVice-Presidentof

rhenagRheinischeEnergieAG,Cologne,from1998to2001;

MemberoftheBoardofManagementofThügaAGfrom2000

to2004;ChairmanoftheBoardofDirectorsofE.ONKraftwerke

GmbHfrom2004to2005;ChairmanoftheExecutiveBoardof

RheinEnergieAGandManagingDirectorofStadtwerkeKöln

from2006to2009;ChiefOperatingOfficerNationalofRWEAG

fromMay2009toSeptember2010;since1 October2010Chief

OperatingOfficerofRWEAG.

Group-levelresponsibilities:ParticipationManagement,

MunicipalitiesandGeneration/Networks/SalesCoordination.

Otherappointments:

• enviaMitteldeutscheEnergieAG

• LechwerkeAG(Chairman)

• RWEPowerAG(Chairman)

• RWEDeutschlandAG(Chairman)

• SüwagEnergieAG(Chairman)

- EssentN.V.

- KELAG-KärntnerElektrizitäts-AG

- RWETransgas,a.s.


Dr. Rolf Pohlig


appointeduntil31December2011

Bornin1952inSolingen;doctorateineconomics;Executive

Vice-PresidentFinanceandAccountingofVEBAAGfrom1993

to2000;ExecutiveVice-PresidentMergers&Acquisitionsof

E.ONAGfrom2000to2006;joinedtheRWEGroupinJanuary

2007asExecutiveVice-President;ChiefFinancialOfficerof

RWE AGsinceMay2007.

Group-levelresponsibilities:Controlling/Organisational

Efficiency,Finance,InvestorRelations,Legal/BoardAffairs,

AccountingandTax.

Otherappointments:

• RWEDeaAG

• RWEPensionsfondsAG(Chairman)

• RWEPowerAG

• RWEDeutschlandAG

- EssentN.V.

- RWETransgas,a.s.


RWE Annual Report 2010238 organisation chart of the RWe Group

Germany Netherlands /Belgium United Kingdom Central Eastern and South Eastern Europe

Power Generation Sales and Distribution Networks

RWE Power AG• Dr. Johannes f. lambertz• prof. Dr. Gerd Jäger• Antonius voß• Erwin Winkel

RWE Deutschland AG• Dr. Arndt Neuhaus• Bernd Böddeling• Dr. Heinz-Willi Mölders• Dr. Joachim schneider• Dr. Bernd Widera

Essent N.V.• peter Terium• Arjan Blok• Dr. Nina skorupska• Erwin van laethem

RWE Npower plc• volker Beckers• Kevin Mccullough• Kevin Miles• Dr. frank Weigand

RWE East, s.r.o.• Martin Herrmann• Karl Kraus• Dr. Marie-Theres Thiell• Dr. filip Thon

RWE AG

Chief Operating OfficerDr. Rolf Martin schmitz

Asof11February2011

organisation Chart of the rWe group

Transmission system operators Internal service providers

Amprion GmbHElectricity transmission system operator (unbundled)• Dr. Hans-Jürgen Brick• Dr. Klaus Kleinekorte

NET4GAS, s.r.o.Gas transmission system operator(czech Republic)(unbundled)• Thomas Kleefuß• Jan Nehoda

RWE IT GmbH• Michael Neff• stefan Niehusmann

RWE Service GmbH• Georg petrich • Dr. Ulrich piepel

RWE Technology GmbH• Matthias Hartung • Dr. Michael fübi• Dr. Ralf Nowack

RWE AG

President and CEODr. Jürgen Großmann

Labour DirectorAlwin fitting

Chief Commercial OfficerDr. leonhard Birnbaum

organisation chart of the RWe Group 239to our investors Review of operations our responsibility


Renewables Upstream Gas & Oil Trading /Gas Midstream

RWE Innogy GmbH• prof. Dr. fritz vahrenholt• Dr. Hans friedrich Bünting• paul coffey

RWE Dea AG• Thomas Rappuhn• Dr. Johannes Karlisch• Ralf to Baben

RWE Supply & Trading GmbH• stefan Judisch• Dr. Bernhard Günther• Dr. peter Kreuzberg• Richard lewis• Alan Robinson

RWE AG


RWE Annual Report 2010240 organisation chart of RWe AG

RWE AG

President and Chief Executive OfficerDr. Jürgen Großmann

Chief Financial OfficerDr. Rolf pohlig

Labour DirectorAlwin fitting

Group Public Affairs /Energy PoliticsDr. peter Heinacher

Group Controlling /Organisational EfficiencyDr. Martin Muhr

Group SecurityMichael schmidt

Group Compliance & Management Board OfficeDr. Jens Hüffer

Group FinanceDr. Markus coenen

Group HR Management & Labour LawDr. Hans-Dieter Rüter

Group Communicationvolker Heck

Investor RelationsDr. stephan lowis

Diversity Office1

Dr. claudia Mayfeld

Group Executive ManagementDr. Henning Rentz

Group Legal /Board AffairsDr. Manfred Döss

Corporate Responsibility/ Group Environmental ProtectionJoachim löchte

Group Audit1

Harry schurGroup Accountingfred Riedel

Group TaxDr. Berend Holst

Chief Operating OfficerDr. Rolf Martin schmitz


Participation Managementfrank Grone

Commodity ManagementDr. Michael Herrmann

MunicipalitiesDr. Arndt Neuhaus

Group StrategyThomas Birr

Group Coordination Generation /Networks /SalesBernhard lüschper

Mergers & AcquisitionsAndreas Zetzsche

Group Research & DevelopmentDr. frank-Detlef Drake

organisation Chart of rWe ag

Asof11February2011

1 functional head.

Glossary 241to our investors Review of operations our responsibility


gLossary

Asset coverage.Ratiooflong-termcapital(shareholders’

equityandnon-currentliabilities)tolong-termassets.

BAFA prices.ToenableGermancoaltobesoldatcompetitive

prices,miningcompaniesreceivefinancialsupportequalling

thedifferencebetweentheirproductioncostsandtheprice

ofcoalimportedfromnon-EUcountries.Inthiscontext,

theGermanFederalOfficeofEconomicsandExportControl

determinesfree-at-frontierthird-countrycoalpricesasasubsidy

parameter.ThepriceofthermalhardcoalispublishedbyBAFA

quarterlyandannuallyinshippingtonsandtonsofhardcoal

units.

Barrel.Internationalunitofmeasurementfortradingoil.

AUS barrelcorrespondsto158.987litres.

Base load.Constantminimumdemandforelectricity

irrespectiveofloadfluctuation.Thiselectricityisusedby

householdappliancesrunning24hoursaday,industrial

enterprisesthatoperatearoundtheclock,etc.Base-loadpower

isprimarilygeneratedbyligniteandnuclearpowerstations.

Thesefacilitiesareusuallyinoperationmorethan6,000hours

ayear.Run-of-riverpowerstationsandbiomassplantsalso

supplybase-loadpower.

Clean Development Mechanism.InaccordancewiththeKyoto

Protocol,companiesandcountriescanobtainemission

certificatesbyparticipatinginprojectstoreduceemissionsin

newlyindustrialisinganddevelopingcountries,whicharenot

obligedtoreduceemissionsthemselves.Theycanusethese

certificatestomeettheirownrequirements.

CO2.Chemicalformulaforcarbondioxide.CO2isachemical

compoundmadeofcarbonandoxygen.

Combined heat and power generation (CHP).InCHPenergy

conversionplants,heatproducedduringchemicalorphysical

conversionandtheelectricpowergeneratedbytheenergy

conversionprocessareused.Unlikethermalpowerstations,

whicharesolelydesignedtogenerateelectricity,CHPplants

usewasteheat,therebyachievingmuchhigherefficiencies,

whichresultinfuelsavings.

Commercial paper.Tradeable,unsecuredbearerbondissued

onlyforshort-termdebtfinancing.Commercialpaperisa

revolvingcreditfacility,withtermstypicallyrangingfromone

dayto24months.

Commodity.Termforstandardised,tradeablegoodssuchas

electricity,oilorgas.

Confidence level.Probabilityofavaluelyingwithinacertain

interval.

Credit default swap (CDS).Financialderivativefortrading

defaultrisksassociatedwithdebtfinancing.Thepartyseeking

tohedgesuchrisksgenerallypaysanannualfeetothe

principal.Intheeventthattheunderlyingcreditisnotrepaid,

thehedge-seekingpartyreceivesacontractuallyagreedsum

fromtheprincipal.

Current asset intensity of investment.Ratioofcurrentassets

tototalassets.

Debt issuance programme (DIP).Contractualmasterand

modeldocumentsfortheissuanceofbonds.BasedontheDIP,

bondswithtenorsofoneto30yearscanbeissuedbothquickly

andflexibly.

Defined benefit obligation.Netpresentvalueofanemployee’s

benefitentitlementsfromacompanypensionplanasofthe

balance-sheetdate.

Degree of asset depreciation.Cumulativeproperty,plantand

equipmentdepreciation-to-costratio.

Diluted earnings per share.Ifacompanyplacesnewshareson

thefinancialmarketaspartofacapitalincrease,theportionof

thecompanyrepresentedbyeachsharedecreases.Inaddition,

theriseinthetotalnumberofsharescausesearningspershare

todecline.Thisdropinvalueisreferredtoasadilution.

EBITDA.Earningsbeforeinterest,taxes,depreciationand

amortisation.

Efficiency.Inenergyconversion,theratioofusefulwork

performedtototalenergyexpended.Inthermalpower

stations,theefficiencyisthepercentageofthermalenergy

containedinthefuelwhichcanbeconvertedtoelectricity.

Thehighertheefficiency,thelowerthelossofthefuel’s

RWE Annual Report 2010242 Glossary

energycontent.Moderngas-firedpowerplantshavean

efficiencyofupto60%.Efficienciesof46%and43%can

beachievedwithhardcoalandlignite,respectively.

Equity accounting.Methodforaccountingforentities,the

assetsandliabilitiesofwhichcannotbeentirelyincludedinthe

consolidatedfinancialstatementsbyfullyconsolidatingthe

entity.Insuchcases,thecarryingamountoftheinvestmentis

recordedonthebasisofthedevelopmentoftheshareheldin

theentity’sequity.Thischangeisrecordedintheincome

statementofthecompanywhichownstheshareintheentity.

Exploration.Termusedforthesearchfor,andprospectingof,

oilandgasresources.

Fixed asset intensity of investments.Ratioofnon-current

assetstototalassets.

Forward market /forward trading.Contractsfortransactions

tobefulfilledatafixedpointintimeinthefuturearetraded

onforwardmarkets.Certainconditions,e.g.thepriceor

settlementdate,areestablishedwhenthecontractisagreed.

Full consolidation.Methodforincludingsubsidiariesinthe

financialstatementsofagroupincaseswherethesubsidiaries

arecontrolledbytheparentcompany(throughthemajorityof

thevotingrightsorbyothermeans).

Hard coal unit (HCU).Unitofmeasurementfortheenergy

contentofprimaryenergycarriers.OnekilogramHCU

correspondsto29,308kilojoules.

Hybrid bond.Mixtureofdebtandequityfinancing.Hybrid

bondsusuallyhaveverylongorunlimitedtenorsandcan

usuallyonlyberedeemedbytheissueroncontractuallyagreed

dates.Dependingonthebondprovisions,interestpayments

maybesuspendedifcertaincontractualconditionsaremet.

Impairment test.Methodofverifyingthevalueofassets,

involvingacomparisonofthecarryingamounttotherealisable

amount.Theobjectiveisnottoaccountforassetsatanamount

higherthantheirrealisableamount.Thedifferenceis

recognisedasareductioninvaluewithaneffectontheprofit

orloss.

Investment grade.Ratingcategoryforcompaniesofverygood

toaveragecreditworthiness.ThiscategoryincludestheAAAto

BBBandAaatoBaaratingclassesawardedbyS&P/Fitchand

Moody’s,respectively.Non-investment-gradecompaniesareat

amuchhigherriskofnotbeingabletomeettheirfinancial

obligations.

Joint implementation.InaccordancewiththeKyotoProtocol,

countriesorcompaniescanobtainemissioncertificatesby

participatinginprojectstoreduceemissionsincertainother

countrieswhicharealsoobligedtoreduceemissions.Theycan

usethesecertificatestomeettheirownreduction

requirements.

Kilowatt (kW).Unitofmeasurementofelectricoutput.

1megawatt(MW)=103kilowatts,

1gigawatt(GW)=106kilowatts,

1terawatt(TW)=109kilowatts.

Leverage factor.RatioofnetdebttoEBITDA.

LNG.Acronymforliquefiednaturalgas.LNGisobtainedby

coolinggasuntilitbecomesliquid.Itoccupiesonly1/600of

thespacefilledbynaturalgasinitsgaseousstate.Inthisform,

itisverywellsuitedfortransportationandstorage.

Peak load.Designatesphasesinwhichelectricitydemandis

especiallyhigh,forexample,atnoon,whenmealsareprepared

inmanyfactoriesandhomes.Peak-loadpowerplantsareoften

inservicelessthan3,000hoursperyear.Gas-firedandhydro

storagepowerstationsbelongtothiscategory.

Performance shares.Virtualshares,whichentitleparticipants

intheBeatLong-TermIncentivePlantoreceiveapaymentat

theendoftheplanperiod.Theprerequisiteisthatthe

predefinedperformancetargetshavebeenmetorexceeded.

Put or call options.Optionsgrantingtheirbuyertherightto

purchase(calloption)orsell(putoption)aspecificunderlying,

forexampleashare,atapre-arrangedpricewithina

predeterminedperiodoftime.

Rating.Standardisedmethodininternationalcapitalmarkets

forassessingtheriskexposureandcreditworthinessofdebt

issuers.ASingleAratingisgiventoborrowersofstrong

creditworthiness.

Glossary 243to our investors Review of operations our responsibility


Service cost.Reflectstheincreaseinthecostassociated

withthenetpresentvalueofanemployee’spensionbenefit

entitlementsinaccordancewiththeemployee’swork

performanceintheperiodbeingreviewed.

Spot market /spot trading.Generaltermformarketswhere

paymentanddeliveryareusuallyeffectedsoonafterconclusion

ofthetransaction.

Syndicated credit line.Creditlineofferedtocompanies,backed

byseveralbanks,whichcanbedrawndowninvariousamounts,

termsandcurrencies.Generallyusedtosecureliquidity.

Total Shareholder Return (TSR).Indicatorofthedevelopment

ofashareinvestmentoverthelongterm.Ittakesintoaccount

boththedividendspaidaswellasthechangesinshareprice

forthedurationoftheinvestment.

Upstream.Termforallactivitiesinvolvedintheexplorationand

productionofoilandgas.Alsoincludestheprocessingofthese

resourcesintomarketablerawmaterialsmeetinggenerally

acceptedqualitystandards.

Value at Risk (VaR).Measureofriskindicatingthemaximum

lossthatmightoccurfromariskposition(e.g.asecurities

portfolio)assumingacertainprobabilityundernormalmarket

conditionsandthatthepositionisheldforacertainperiod

oftime.AVaRof€1millionwithaholdingperiodofoneday

andaconfidencelevelof95%meansthatthereisa95%

probabilitythatthepotentiallossresultingfromtherisk

positionwillnotexceed€1millionfromonedaytothenext.

RWE Annual Report 2010244 Index

B

Balance sheet 105, 107, 164, 186

Bonds 50, 101, 108, 109, 205, 216

C

capital expenditure 54, 95, 121, 133, 158

cash and cash equivalents 103, 164, 174, 194

cash flow 105, 165, 222

cash flow statement 104, 165, 222

climate and environmental protection 53, 55, 68, 112, 129, 154, 157

co2 emissions 53, 66, 78, 113, 129, 154, 159

co2 emissions trading 61, 68, 79

corporate responsibility 144, 154

cost of capital 90, 231

D

Debt 101, 104, 231, 102, 130

Depreciation 162, 172, 182, 189

Dividend 48, 108, 133, 134, 195

E

EBiTDA 86, 87, 131, 241

Efficiency enhancement 95, 99

Electric cars 66, 115

Employees 49, 99, 112, 124, 152, 157

Energy efficiency 54, 154

Equity 106, 107, 164, 166, 194, 228

Executive Board 36, 42, 70, 109, 116, 143, 236, 238

F

financial assets 96, 107, 164, 173, 191

financial result 93, 183

G

Group structure 56, 69, 238

h

Hybrid bond 72, 94, 102, 110, 166, 195

I

impairment losses 183, 186

income statement 107, 162, 181

inventories 164, 174, 194

L

leverage factor 104, 133, 178, 242

liabilities 103, 107, 164, 176, 177, 204, 216, 217

lifetime extension 38, 66, 69, 118, 121

N

Net income 91, 94, 207

Nuclear energy 73, 76, 103, 121, 155, 203

Nuclear fuel tax 47, 54, 66, 69, 121, 133

O

operating result 87, 131

P

property, plant and equipment

54, 95, 129, 133, 164, 172, 189

provisions 87, 103, 107, 164, 175, 199, 203

R

Rating 104, 110, 133, 178, 242

REA levy 67, 77

Recurrent net income 94, 131

Renewable energy 53, 63, 67, 71, 75, 77, 129

Research and development 112, 156, 187

Revenue 162, 181, 220, 228

Risk management 116, 167, 212

RocE 90, 231

RWE AG (holding company) 107, 240

S

segment reporting 219

share 46, 94, 109, 194, 207

shareholder structure 49

strategy 52, 154, 231

supervisory Board 136, 140, 151, 233

T

Takeover provisions 109

V

value management 90, 231

index

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ENERGY UTILITIES RIP OFF CUSTOMERS

to our investors review of operations Our responsibility

responsibility statement Consolidated financial statements Further information

imprint 245

ImprInt

Design concept and layout:

Peter Schmidt Group GmbH

Typesetting, image editing and production:

Kompass/Chiari Werbeagentur GmbH, Düsseldorf

Photographs:

Claudia Kempf, Wuppertal

Catrin Moritz, Essen

Jan Eumann, Düsseldorf

Bernd Arnold, Cologne

RWE archive

Printing:

D+L Printpartner GmbH, Bocholt

RWE is a member of DIRK,

the German Investor Relations Association.


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Phone 0180 1 451280 (callers in Germany)

Phone +49 180 1 451280 (callers outside Germany,

excluding the USA)

Phone +11 49 180 1 451280 (callers from the USA)

This annual report was published on 24 February 2011. This is a

translation of the German annual report. In case of divergence

from the German version, the German version shall prevail.

Forward-looking statements. This report contains forward-looking statements regarding the future development of the RWE Group

and its companies as well as economic and political developments. These statements are assessments that we have made based

on information available to us at the time this document was prepared. In the event that the underlying assumptions do not

materialise or additional risks arise, actual performance can deviate from the performance expected at present. Therefore, we

cannot assume responsibility for the correctness of these statements.

As a major European energy utility, we have responsibilities that go far beyond our company. By investing billions, we are paving the way today for tomorrow’s supply of energy. People need energy. And they want this energy to be safe, clean and affordable.

This is our core responsibility – and we need society to support us. Now more than ever before, the future of energy supply is a topic of public discussion. Often, debate is dogmatic, heated and highly emotional. RWE counters this with verifiable facts and rational reasoning. Because only honesty and transparency will take us forward. That is why straight talking matters.


2010 2009 2008 2007 2006

External revenue € million 53,320 47,741 48,950 42,507 42,554

Income

EBITDA1 € million 10,256 9,165 8,773 7,915 7,172

Operating result € million 7,681 7,090 6,826 6,533 5,681

Income from continuing operations before tax € million 4,978 5,598 4,866 5,246 3,537

Net income/RWE AG shareholders’ share in net income € million 3,308 3,571 2,558 2,667 3,847



Return on equity % 23.1 28.5 20.7 20.1 30.3

Return on revenue % 12.3 14.8 12.3 16.0 15.2

Value management2

Return on capital employed (ROCE) % 14.4 16.3 17.2 16.5 14.2

Value added € million 2,876 3,177 3,453 2,970 2,074

Capital employed € million 53,386 43,597 39,809 39,710 40,206

Cash flow/capital expenditure/depreciation and amortisation

Cash flows from operating activities € million 5,500 5,299 8,853 6,085 6,783

Free cash flow € million − 879 − 614 4,399 2,020 2,289

Free cash flow per share € − 1.65 − 1.15 8.17 3.59 4.07

Capital expenditure including acquisitions € million 6,643 15,637 5,693 4,227 4,728

of which: Property, plant and equipment and intangible assets € million 6,379 5,913 4,454 4,065 4,494

Depreciation, amortisation, impairment losses and asset disposals € million 3,410 2,553 2,416 2,629 3,164

Degree of asset depreciation % 61.8 64.0 69.4 70.9 66.0

Asset/capital structure

Non-current assets € million 60,465 56,563 41,763 41,360 51,999

Current assets € million 32,612 36,875 51,667 42,060 41,456

Balance sheet equity € million 17,417 13,717 13,140 14,659 14,111

Non-current liabilities € million 45,162 45,633 36,793 36,796 52,402

Current liabilities € million 30,498 34,088 43,497 31,965 26,942

Balance sheet total € million 93,077 93,438 93,430 83,420 93,455

Fixed asset intensity of investments % 53.4 49.4 35.5 38.4 44.0

Current asset intensity of investments % 35.0 39.5 55.3 50.4 44.4

Asset coverage % 103.5 104.9 119.6 124.4 127.9

Equity ratio % 18.7 14.7 14.1 17.6 15.1

Five-Year Overview (Part OF the review OF OPeratiOns)

how we have organised ourselves.

the rwe group

the

RWe

GRo

up

Straight talking. 1

To our investors

LetterfromtheCEO 36


2010inbrief 44






1.4 Majorevents 69






1.9 Innovation 112





declaration

1.11Outlookfor2011 127






2.4 Workforce 152



4.0 Consolidated financial 161

statements



incomeandexpenses




4.6 Notes 167


Further information



Boards 233



Glossary 241

Index 244

Imprint 245

Five-yearoverview



contents

Power generation

Conventional generation/

nuclear power

Renewableenergy

Five-YeAR oveRvieW

(pARt oF th

e RevieW o

F opeRAtio

ns)

Fold

-ou

t tAble oF co

nten

ts

what we do.

electricity and gas: rwe oFFers everything FroM a single source.

RWEisoneofEurope’sfiveleadingelectricityandgascompanies.Throughour

expertiseinoil,gasandligniteproduction,theconstructionandoperationof

conventionalandrenewables-basedpowerplants,commoditiestradingaswellas

electricityandgastransmissionandsales,wecovertheentireenergyvaluechain.

Morethan70,000employeessupplyabout16millioncustomerswithelectricityand

nearly8millioncustomerswithgasviaourfullyconsolidatedcompanies.Infiscal

2010,werecordedmorethan€53billioninrevenue.

Europeisourmarket:RWEistheNo.1powerproducerinGermany,No.3inthe

Netherlands,andNo.3intheUK.WecontinuouslyexpandourpositioninCentral

EasternandSouthEasternEurope.

Ourpowerplantportfolioandourinvestmentprogrammeforbuildingnew,

environmentallyfriendlyandflexiblegenerationcapacityarethemainbasisfor

growingearningsinthefuture.Ourgroupwidenew-buildpowerplantprogramme

withatotalinstalledcapacityofabout12gigawattsisonschedule,inthelastthird

ofitsimplementationphase.Besidesmoreefficientandclimatefriendlyfossil

fuel-firedpowerstations,renewableenergyplaysakeyrole.Ourleadingposition

inEuropeanenergytradinghelpsusmakeoptimaluseofourpowerplantson

themarket.Wereacttochangesincustomerneedsbyofferingnewproductsfor

homes,commerceandindustry.Inthiscontext,climateprotectionandenergy

efficiencyarebecomingincreasinglyimportant.

Ourgasandoilproductionbusinessesaredisplayingabove-averagegrowth.In

lightofthelong-termglobalriseindemandforgas,weplantosteadilyincreasethe

amountweproducein-house.

Gas and oil production

Energy trading /gas midstream

Electricity andgas networks

Electricity andgas sales

Customers

RWE AGGermany Netherlands/

BelgiumUnited Kingdom


Renewables Upstream Gas & Oil

Trading/ Gas Midstream

Power Generation

Sales and Distribution Networks

RWE Power RWE Deutschland

Essent RWE npower RWE East RWE Innogy RWE Dea RWE Supply & Trading

RWE AGAmprionElectricity transmissionsystem operator (unbundled)

NET4GASGas transmission system operator(Czech Republic)(unbundled)

Internal services


2010 2009 2008 2007 2006

Net financial debt € million 11,904 10,382 − 650 − 2,064 − 4,720

Net debt of the RWE Group € million 28,964 25,787 18,659 16,514 17,827

Leverage factor 2.8 2.8 2.1 2.1 –

Workforce

Workforce at end of the year3 70,856 70,726 65,908 63,439 61,725

Research & development

R&D costs € million 149 110 105 74 73

R&D employees 360 350 330 270 273

Emissions balance

CO2 emissions million metric tons 165 149 172 187 178

Free allocation of CO2 certificates million metric tons 115 105 105 170 167

Shortage of CO2 certificates million metric tons 50 44 67 17 11

Specific CO2 emissions metric tons/MWh 0.732 0.796 0.768 0.866 0.797

Five-year overviewRWE Aktiengesellschaft

2010 2009 2008 2007 2006

Dividend/dividend payment



Market capitalisation


Long-term credit rating

Moody’s A2 A2 A1 A1 A1

(outlook) (negative) (negative) (negative) (stable) (stable)

Standard & Poor’s A A A A+ A+

(outlook) (negative) (negative) (stable) (negative) (negative)

1 Since 2008, EBITDA has also included operating income from investments.2 Figures from 2006 according to the new value management concept; see Annual Report 2007, page 208.3 Converted to full-time positions.4 Proposed dividend for RWE AG‘s 2010 fiscal year, subject to approval by the 20 April 2011 Annual General Meeting.

Financial calendar 2011/2012






6 March 2012 Annualreportforfiscal2011






The Annual General Meeting and all events concerning the publication of the financial reports are broadcast live on the internet and recorded.

We will keep the recordings on our website for at least twelve months.

2010 key Figures at a glance.

• Allearningstargetsachieved

• Operatingresultup8%

• Dividendof€3.50pershareproposed

AnnuAl RepoRt 2010

RWE

Annu

al R

epor

t 201

0

RWE Group 2010 2009 +/- %

External electricity sales volume billion kWh 311.2 282.8 10.0

External gas sales volume billion kWh 395.4 332.0 19.1

External revenue € million 53,320 47,741 11.7

EBITDA € million 10,256 9,165 11.9



Net income/RWE AG shareholders’ share in income € million 3,308 3,571 − 7.4


Return on capital employed (ROCE) % 14.4 16.3 –

Weighted average cost of capital (WACC) before tax % 9.0 9.0 –

Value added € million 2,876 3,177 − 9.5

Capital employed € million 53,386 43,597 22.5

Cash flows from operating activities € million 5,500 5,299 3.8

Capital expenditure € million 6,643 15,637 − 57.5

Property, plant and equipment and intangible assets € million 6,379 5,913 7.9

Financial assets € million 264 9,724 − 97.3

Free cash flow € million − 879 − 614 − 43.2

Number of shares outstanding (average) thousands 533,559 533,132 0.1



Dividend per share € 3.501 3.50 –

31 Dec 2010 31 Dec 2009

Net debt of the RWE Group € million 28,964 25,787 12.3

Workforce2 70,856 70,726 0.2

1 Dividend proposal for RWE AG‘s 2010 fiscal year, subject to approval by the 20 April 2011 Annual General Meeting.2 Converted to full-time positions.

straight talking.


Opernplatz 145128 EssenGermany

T +49 201 12-00F +49 201 12-15199 I www.rwe.com