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E.ON, RWE profits increases on German power sales, lower costs

E.ON AG and RWE AG, Germany’s two biggest utilities, may probably report a Q2 profit rise after they sold power for more in Germany and UK costs dropped.

E.ON, based in Düsseldorf, may say net income advanced 14% to €1.27 billion ($1.8 billion). RWE may post profit of €742.5 million, up 22%. Profit rose because the companies sold as much as 95% of their Q2 electricity at last year’s prices, which were 40% higher.

E.ON’s CEO Wulf Bernotat and RWE’s CEO Harry Roels are using cash from higher power rates and asset sales to buy back shares. Ulf Moritzen, who helps manage $7.6 billion, including E.ON and RWE shares, at Nordinvest in Hamburg, said that electricity sales would be on a high level since the company has long-term contracts locked in. These contracts generate a huge cash flow, so the company can pay well out to its share holders.

E.ON shares advanced 13% in 2007, with Essen-based RWE shares down 5%. E.ON publishes its earnings on August 15, while RWE reports August 9. Both companies reported a 50% increase in Q1 net income. E.ON is reporting quarterly earnings according to International Financial Reporting Standards for the first time this year. The change prompted E.ON to revise its Q1 2006 profit higher by 19%. Permits to regulate greenhouse-gas emissions may erode profits.

The European Union is handing out fewer allowances for a five-year phase of the trading program, which starts next year, than in the initial three years of the system. This will probably force utilities to buy permits at market prices to cover shortfalls. RWE, the European Union’s biggest emitter of carbon dioxide, said June 22 that it may have to buy as many as 70 million metric tons of allowances a year for the next five years. At current prices, that would cost €6.8 billion. (