Bewag AG

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Bewag AG

Puschkinallee 52
D-12435 Berlin
Germany
Telephone: (49) (30) 2671-0600
Fax: (49) (30) 2671-0605
Web site: http://www.bewag.de

Public Company
Incorporated: 1884 as Städtische Elektricitäts-Werke, Aktiengesellschaft zu Berlin (A.G.StEW)
Employees: 6,385
Sales: DM 3.42 billion ($1.67 billion) (2000)
Stock Exchanges: Frankfurt/Main
Ticker Symbol: BEWAG
NAIC: 221112 Fossil Fuel Electric Power Generation; 221121 Electric Bulk Power Transmission and Control; 221122 Electric Power Distribution

Berlin-based Bewag AG supplies Germany’s capital city with electricity. With a share of 97 percent in Berlin’s electricity market, the company owns and runs 20 power stations in and around Berlin with a capacity of 3,000 MW for electricity and 6,000 MW for heat generation. Bewag also operates an electricity network of 40,000 kilometers and is involved in electricity trading through its subsidiary best energy GmbH. Bewag holds a major share in Berlin-based gas and heat supplier GASAG. Since 1997 Bewag has been partly owned by the American power utility Southern Energy, Inc., which since changed its name to Mirant. The sale of E.ON Energie AG’s 49 percent share in Bewag to Hamburg-based electricity company HEW was pending in 2001.

1880s Origins

In 1866 German engineer Werner von Siemens discovered the “electro-dynamic principle,” which made possible the construction of “dynamo-machines” that could generate electricity. Not long after that, in 1881, the inhabitants of Germany’s capital were startled to see the first electricity-powered tram run in the Berliner Lichterfelde suburb. At the same time the city government set up a “Beleuchtungskuratorium” (illumination-committee) and started experimenting with electrical illumination of Berlin’s streets. From 1882 on Potsdamer Platz and Leipziger Strasse were constantly lit.

In the same year, when the first block power station based on plans of inventor Thomas A. Edison went into operation in New York City, German politician and industrialist Emil von Rathenau, backed by several banks, founded a research society called the “Gelegenheits-Gesellschaft” (the opportunity society) for the construction of “Glühlichtanlagen.” These electric lightning systems were badly needed in Berlin’s numerous theaters, many of which had been devastated by fires started by open gas lighting. Within nine months the company had installed 40 electric lightning systems.

In 1883 the Edison Society agreed to grant Rathenau’s company rights to Edison’s patents for a license fee. Werner von Siemens’ company Siemens & Halske acquired an exclusive right to build dynamo machines, cables, and power lines. In April 1883 the Gelegenheits-Gesellschaft was transformed into Deutsche Edison Gesellschaft für angewandte Elektricität (DEG), “the German Edison Society for Applied Electricity.” In January 1884 Bavarian Staatsbaupraktikant Oskar von Miller became DEG’s second director. Unlike many other specialists in the field, Rathenau strongly believed in centralized power generation to supply electricity to large areas. Before building a large central power station, however, a smaller one was set up in a cellar at Friedrichstrasse 85 at the corner of Unter den Linden. It was used to illuminate the famous “Kranzler Eck” and “Café Bauer.” After lengthy negotiations with Berlin’s city government, DEG finally cut a deal in February 1884 obliging it to provide electricity to every customer who signed a three-year contract with the company. DEG was allowed to lay the necessary cables to supply an area of about 800 meters radius around the Fürstenhaus am Werderschen Markt and was required to pay a concession fee from its profits to the city. On May 8,1884 DEG founded the new subsidiary Städtische Elektricitäts-Werke, Aktiengesellschaft zu Berlin (A.G.StEW), a public limited company that became Berlin’s public electricity provider; DEG transferred its concession to the new company. The agreement was adopted soon afterward by many other German municipalities and initiated the sprouting up of public electricity works throughout the country. DEG in turn secured the more profitable business of manufacturing the equipment needed by the Städtische Elektricitäts-Werke to deliver electricity to its customers.

After the legal and economic structure for the company was set up, the first German “Kraftzentrale” (power center) was built on a property in Berlin’s Markgrafenstrasse 44. In August 1885 the power station started generating electricity. It was called the “Centrale” and consisted of five “waterpipe-furnaces” and six steam engines with a capacity of 540 kW. At first the Centrale supplied 28 customers with electric light, including two large accounts, the Royal Schauspielhaus theater and the Reichsbank. Only one year later, a second power station was put into operation at the central Mauerstrasse 80, primarily to provide illumination for a large shopping center in Leipziger Strasse and the hotel Kaiserhof, which became Berlin’s first hotel with electric light. Two other power stations were built in 1889 at Spandauer Strasse 49 and one year later at Schiffbauerdamm 22. The power stations were connected, using a scale model of several square meters that included all of the streets, which was designed by Edison.

Dynamic Expansion at Turn of the Century

Städtische Elektricitäts-Werke tried its best to accomplish the demanding task of setting up and expanding the necessary infrastructure and of winning over new electricity customers. The company was able to survive, however, only by means of a significant financial infusion from DEG. The major breakthrough came with the help of Deutsche Bank, which at that time had existed only 17 years. On May 23, 1887, the Allgemeine Electricitäts-Gesellschaft (AEG) was founded as the legal successor of DEG. A few months later, on October 1, 1887, Städtische Elektricitäts-Werke was renamed Berliner Electricitäts-Werke (BEW). At the same time AEG, headed by Rathenau, von Miller, and financial specialist Felix Deutsch, agreed to manage BEW for the following ten years. In August 1888 a new concession agreement was finally approved by the city of Berlin. It allowed BEW to expand its reach and to build two more power stations within the city limits. At the same time, however, the city withdrew BEW’s exclusive right to install electricity cable in houses and invited other competitors into the market.

After ten years the business had thrived to such a degree that AEG’s and BEW’s management were split once again. Von Miller left AEG in spring 1890, while Rathenau eagerly promoted the transmission of electricity over long distances. When electricity was still being used primarily for lighting, its much higher impact on the production infrastructure of the whole economy could already be seen on the horizon. In 1889 BEW delivered electricity to the firm Ludwig Loewe & Co. to power motors instead of light bulbs, and only six years later BEW and AEG founded a subsidiary to promote electric motors to small businesses.

Around the turn of the 19th century Berlin greatly expanded its network for the supply of electricity. New high-voltage transmission technology made it possible to move power generation from the city center to the suburbs. In 1896–97 AEG built two power stations, one in the southwestern suburb of Zehlendorf, another in Oranienburg for Berlin’s northern suburbs, and Drehstromwerk Oberspree to supply the neighboring southern areas such as Teltow and Niederbarnim. Between 1898 and 1914 several more power stations were set up in and around Berlin: the Berliner Vororts-Elektrizitätswerke, which supplied Tempelhof, Steglitz, and Dahlem in 1898; the Charlottenburg power station in the southwest in 1899; the Städtisches Elektrizitätswerk Charlottenburg in 1900; the Rummelsburg power plant in 1907; the Moabit plant in 1908; Gemeindekraftwerk Steglitz in 1911; and Kreiselektrizitätswerk Oberhavel in the north in 1914. Equipped with this capital-intensive infrastructure, Berlin’s electricity industry witnessed a dynamic upswing before the onset of World War I. Electricity production jumped from 425,000 kWh in 1897–98 to two million kWh in 1903–04, a growth of almost 500 percent in only six years. A major advance was smaller and longer-lasting steam turbines, which were also easier to maintain than the piston-steam engines they replaced. The higher capacity also made it possible to introduce electricity-powered industry machinery as well as electric household appliances, which in turn gave the emerging electric industry, but also the electrochemical industry, an enormous boost.

Interruption by Two World Wars

World War I broke out in August 1914 and four months later the 1899 concession agreement with BEW expired. The city government decided to transform the company into a municipal entity. In October 1915 it purchased all of the power stations and other plants from BEW for 132 million marks. The company was renamed Städtische Elektricitätswerke Berlin (StEW) and its management was overseen by city officials. During World War I the electricity works’ primary task was supplying the war industry. It struggled with the growing scarcity of raw materials, fuel, and skilled workers.

Company Perspectives:

A clear vision—always. Competition is a challenge for all of us, every single day of the year. The long-term success of Bewag depends on the competence and commitment of our employees as well as their ability to work as a team. A willingness to change, to learn something new is as important as a customer-oriented approach. So simple and yet so difficult to achieve.

Plans to ensure Berlin’s electricity supply by means of long-distance power lines from large centralized power generators far away from the city finally were realized after the war’s end. As early as 1913 AEG and BEW had acquired large bituminous coal fields around Bitterfeld, almost 100 miles away from the Prussian capital. The acquisition was made primarily to lower dependence on the highly volatile coal prices, but also with the idea of using it to generate energy for Berlin. Within only a year Germany’s biggest power station Golpa-Zschornewitz was erected there, which at first supplied only war industry. In winter 1917–18, however, an 80-mile-long high-voltage power line was laid and from June 1918 on electricity was delivered from Golpa-Zschornewitz to Berlin. These deliveries were sufficient to meet basic demand, while the smaller, older, and less economical power plants around Berlin supplied only the extra electricity at peak times. As it turned out in the following years, however, this model was not as secure as expected and was abandoned after several power blackouts occurred.

The 1920s brought an unprecedented increase in demand for electricity in Berlin. In 1920 Berlin’s surrounding suburbs merged to form “Groß-Berlin” (Greater Berlin). The Städtische Elektricitätswerke’s red tape-driven organizational structure did not seem appropriate for the dynamic growth needed to expand the energy supply infrastructure. Thus once again the city brought in professional managers to help run the power plant. On December 8, 1923 the Berliner Städtische Elektrizitätswerke Akt.-Ges. (Bewag) was registered officially as a public stock company. All shares remained in the city’s hands, but a 50-year lease agreement allowed Bewag to use all of the power generation and distribution facilities of the city. In turn, Berlin received a percentage of the company’s revenues.

In the early 1920s Germany was hit hard by hyperinflation. By April 1920 electricity prices had more than quadrupled in comparison with prewar levels. When the inflation spiral started spinning out of control, however, in January 1923 a kWh cost 275 marks; by November it was no less than 420 billion Marks. A currency reform eventually normalized the situation and demand for electricity started to rise again. By 1927 half of all Berlin households was connected to the power network; by 1928 the city’s elevated trains and subway were powered by electricity.

The next crisis, however, hit even harder. In the aftermath of the New York Stock Exchange crash in October 1929, economic depression spread throughout the world. Big cities like Berlin were suddenly faced with high unemployment, and production of and demand for electricity dropped. Faced with high budget pressures, the city took out a loan using the electricity works as collateral. A new holding company, the Berliner Kraftund Licht-Aktiengesellschaft (BKL), with Bewag as its subsidiary, was set up in 1931. The city of Berlin held a 16 percent share and the banks held 67 percent in the new company. After the Nazis came to power, however, the two companies were merged in November 1934 to form Berliner Kraft- und Licht (Bewag) AG. By the onset of World War II Bewag had become Germany’s biggest local power utility.

Division in 1948 and Reunification in 1990

Although most of Berlin’s power stations survived the war, more than half of their furnaces and turbines were dismantled by Russian troops, leaving power-generating capacity in the Western sectors of the city at 30 percent of the prewar level. The city was split into two parts and for the next four decades West Berlin became an “energy island.” In 1948 Bewag moved its headquarters to the West Berlin Tiergarten district and the Soviet-dominated eastern sector of the city founded its own power utility company, the “Ost-Bewag” (East-Bewag). In April 1948 the British military commander approved the reconstruction of the dismantled Kraftwerk West power station. This turned out to be an extraordinary endeavor, however—beginning on June 24, 1948, the Russian army completely blocked all rail, road, and water connections to West Berlin for almost a year. All the necessary construction material, including furnaces that had been cut into parts with blowtorches and fuels, were flown into the western part of the city by the Western Allies. On December 1, 1949, West Berlin Mayor Ernst Reuter opened the first section of the newly built power station, which was renamed after him, “Kraftwerk Reuter.” On March 4, 1952, West Berlin was cut off from the West German power distribution infrastructure. The city’s geographical isolation pushed Bewag to set up an energy supply system that was able to provide all the necessary electricity without being connected to a larger network.

Meantime, the East German Ost-Bewag became a government-managed company and rebuilt the power generation and distribution networks in the eastern part of the city. Bewag was hit hard by the two oil price shocks in 1973 and 1979 since the company relied on 25 percent oil as a fuel, compared with only three percent in West Germany, and half of its power generation capacity was oil-based. In the mid-1970s the Soviet Union suggested letting a West German firm build a nuclear power station in Königsberg, Russia and deliver the generated power through Poland and East Germany to West Berlin and West Germany. This plan, however, as well as similar ones, were vetoed by the East German government. On the other hand, Bewag rejected another East German government plan to deliver electricity from a brown-coal power station near Leipzig to West Berlin. It was turned down because of the extraordinarily high prices demanded. In 1978 the Ost-Bewag was renamed VEB Energieversorgung Berlin, which was changed again one year later to VEB Energiekombinat Berlin (EKB).

Key Dates:

1884:: The first German public electricity supply company is founded in Berlin.
1915:: The city of Berlin acquires Städtische Elektricitäts-werke Berlin (StEW).
1923:: Berliner Städtische Elektrizitätswerke Akt.-Ges. (Bewag) is officially registered as a public stock company.
1934:: Berliner Kraft- und Licht-Aktiengesellschaft (BKL) and Berliner Städtische Elektrizitätswerke Akt.-Ges. (Bewag) merge to form Berliner Kraft- und Licht (Bewag) Aktiengesellschaft.
1948:: Bewag is split into two companies as a result of World War II.
1952:: West Berlin is cut off from other electricity distribution networks.
1979:: Ost-Bewag becomes VEB Energiekombinat Berlin (EKB).
1991:: Bewag takes over EKB’s successor Energieversorgung Berlin AG (EBAG).
1994:: Bewag is connected with the network of power company VEAG.
1997:: Berlin puts its share in Bewag up for sale; Southern Energy becomes major shareholder.

The city’s two power utilities were finally reunited after the sudden fall of the Berlin Wall in 1989. A new company, Energieversorgung Berlin AG (EBAG), was founded to succeed the East German EKB and was—in accordance with an agreement between the East and West German governments—sold to Bewag, effective January 1, 1991. A year later Bewag’s claim for restitution was fully accepted. In December 1992 an emergency energy supply connection between the two parts of Berlin ended the city’s “energy isolation.” Another high-voltage connection with Berlin-based power company VEAG, which supplied electricity to eastern German states, ended West Berlin’s isolation in 1994. In the same year EBAG merged with Bewag and two years later the East Berlin company was fully integrated into Bewag again.

Bewag for Sale in 1997

In May 1997 the city of Berlin decided to sell off its 50.8 percent share in Bewag. The city government was under tremendous budget pressure and wanted to lift some financial weight from its shoulders by cashing in on some of its assets. At the same time Germany was awaiting the deregulation of the country’s power supply market, which was dominated by a handful of companies. The German antitrust office signaled that it would not approve a deal if only German power companies were involved. After lengthy negotiations a DM 2.9 billion deal was signed by a consortium of three companies. German power suppliers PreussenElektra AG and Bayernwerk AG, which already held ten percent share packages in Bewag, were able to upgrade their shares to 23 and 26 percent, respectively. A new major shareholder was found in Atlanta-based Southern Energy, Inc., which acquired a 26 percent stake in Bewag. Southern Energy was thus the first non-German company to break into Germany’s energy supply market. The Americans secured management leadership but agreed to produce a large percentage of electricity for Bewag at Berlin facilities to guarantee jobs in the German capital. The two German parties agreed to hold their shares for at least 20 years. The other 25 percent of Bewag shares were held by smaller portfolio investors.

The next challenge the newly privatized Bewag had to face was Germany’s sudden liberalization of the country’s energy market, which abolished the supply monopolies of German power companies for determined regions and opened their electricity distribution networks to other energy suppliers for a fee. The reform went into effect on April 29, 1998, and within a year energy prices dropped between 25 and 50 percent for businesses and ten to 20 percent for private customers. To remain competitive in its core market—one that because of its density was very lucrative to other energy suppliers—Bewag intensified marketing efforts. With German telecommunications company MobilCom AG, it founded a joint venture, best energy GmbH, a new subsidiary to expand into new territory through electricity trading. BerlinDat Gesellschaft für Informationsverarbeitung und Systemtechnik GmbH was another joint venture set up with Siemens AG to venture into information service markets. Bewag also made a concerted effort to lower raw material and repair costs. The number of employees was reduced by one third, dropping from 9,800 in 1995–96 to 6,385 in 1999–2000. Despite these measures Bewag’s electricity sales dropped by five percent in business year 1999/2000 compared with the previous year, while net earnings went down 15 percent during the same period.

When German electricity giants VEBA and VIAG announced their merger to form E.ON Energie AG in the late 1990s, the German antitrust office ruled that PreussenElektra AG, which was owned by VEBA, and Bayernwerk AG, which was owned by VIAG, had to give up their Bewag shares. They found a potent new shareholder in Hamburg’s electrical works HEW, which was majority owned by Swedish electricity company Vattenfall AB. However, Bewag’s third shareholder, Southern Energy, which in the meantime had changed its name to Mirant, blocked the deal because it was interested in taking over Bewag completely and believed it had first option on further shares. The case was slated for arbitration in 2001.

Principal Subsidiaries

FHW Fernheizwerk Neukölln AG (75.22%); EnergieSüdwest AG (51%); GASAG Berliner Gaswerke AG (31.58%); BerlinDat Gesellschaft für Informationsverarbeitung und Systemtechnik mbH (74.99%); IPH Institut “Prüffeld für elektrische Hochleistungstechnik” GmbH; EAVV Energie Assekuranz Versicherungs Vermittlungs GmbH (60%); best energy GmbH (50%); Berliner Energieagentur GmbH (33%); EBH Energie-Beteiligungsholding GmbH (25%).