RWE profit fall on power grid legislation in Hungary

RWE AG, Germany's largest power generator, will probably see profit in Hungary fall because new regulations on network fees will boost costs, an official said. The decree, effective Aug. 1, also requires state-owned grid operator to redistribute extra income from network fees to eliminate large differences in profitability among Hungary's six electricity suppliers. RWE, which operates two of the country's six suppliers, could see income drop as one of its units, Elmű Nyrt will receive less compensation from the grid operator because its distribution costs are already lower than other suppliers. Elmű operates in densely populated Budapest. Power suppliers had complained they were losing money because the country's uniform tariffs didn't cover distribution costs. „RWE is going to lose because of the changes,” György Békés, head of the pricing department at the Hungarian Energy Office, said yesterday. „It is cheaper to distribute power in densely populated areas, while it is more expensive in regions with smaller population.” Elmű said the new rules will boost costs and cut profit this year while RWE's other unit, Émász Nyrt is expected to benefit because its distribution costs are higher. RWE's combined profit in Hungary may decline by about Ft 2 billion ($9.5 million) this year, Kornél Sarkadi Szabó, an analyst with Raiffeisen Securities, wrote in a note to clients. E.ON, which competes with RWE and other utilities to boost power sales in eastern Europe, is expected to benefit from the regulatory change, according to Békés. E.ON operates three of the country's six electricity suppliers and could get Ft 2 billion this year from redistribution network fees, Sarkadi Szabó wrote. The change of network fee payments is likely to be neutral for Démász Nyrt, the single distribution unit of Electricite de France SA in Hungary, Békés said. (Bloomberg)