Faced with a canceled dividend and break-up of RWE, municipal shareholders of Germany's second-largest utility are losing patience with chief executive Peter Terium.
Around 100 representatives of German municipalities, who together own 24 percent of RWE, are calling on shareholders to withdraw support for Mr. Terium when the company holds its annual general shareholders meeting in April.
Shocked with the loss of income, announced last month, and surprised by RWE’s plan last year to restructure and break the group in two businesses, many municipal investors doubt that Mr. Terium has the vision to usher the new company towards a brighter future.
"I don't trust him," said one influential representative of municipal shareholders. "My confidence in Mr. Terium has broken down."
On their own, the municipal shareholders cannot withdraw support for Mr.Terium, because they lack a majority of shares. But they could hurt RWE and Mr. Terium in a different way, because the municipalities are also among RWE’s biggest customers.
RWE does good business in our region. It doesn't have to stay that way. Ernst Gerlach, Head, VKA association of RWE municipal shareholders
“RWE does good business in our region. It doesn't have to stay that way,” Ernst Gerlach, who heads the association of municipal RWE shareholders (VKA), told Handelsblatt.
Mr. Gerlach added that the municipalities are far more than just shareholders, “rather its partners and customers for more than a century.”
And both parties rely on good working rapport: RWE relies on concessions to run its electricity and gas networks. “Cooperation only works when we have the feeling that we are also valued,” Mr. Gerlach said.
Key shareholders also have a growing list of grievances to vent. “There were a number of things that were unveiled to us as a fait accompli in the past year,” said Mr. Gerlach, who heads the association of municipal RWE shareholders and referred to Mr. Terium's career plans and the group's restructuring.
Mr. Terium announced last December to spin off a separate company containing RWE’s renewable power, electricity distribution and retail sales. Following its stock market launch later this year, he wants to lead the new company, leaving his current position to RWE's vice-chief Rolf Martin Schmitz. The board of directors gave his plans the green light on Thursday.
RWE is breaking itself up to better handle the country’s Energiewende, or energy transition program. Germany in 2011 announced plans to phase out nuclear energy by 2022 and draw at least 80 percent of energy from renewables by 2050. The decision was taken by the German chancellor, Angela Merkel, in reaction to the Fukushima nuclear accident in Japan.
Since then, Germany has offered billions of euros in subsidies to makers of wind turbines and solar energy firms to expand the nation’s renewable energy grid. The subsidies have led to a glut of electricity on the market, which has cut wholesale electricity prices in half and led to billions of euros of losses at E.ON, RWE and rivals such as Vattenfall from Sweden and Karlsruhe-based EnBW. Utilities have closed down brand new coal power plants.
Faced with fresh writedowns of €2.1 billion, or $2.3 billion, on power plants, Mr. Terium canceled the 2015 dividend payment last month, shocking municipal shareholders once again.
Uwe Bonan, treasurer for Mülheim an der Ruhr, which owns millions of RWE shares, said that they lack €7.2 million in their municipal budget as they had been banking on a dividend payout of €0.75, but now will receive nothing. “Our budget is already pushed to the limit by the refugee crisis,” he said.
Mr. Bonan, like many other regional leaders, also voiced discontent at the RWE boss' management style. “The way the board communicated this decision is unacceptable,” he said.
Mr. Terium cannot risk a fallout with local mayors, not least because the new business, like the parent company, relies on a good relationship with local authorities, meaning the boss has no choice but to ramp up his charm offensive.
And local politicians' hackles are raised, regardless of whether they hail from the ruling coalition parties Social Democrats or Chancellor Angela Merkel’s Christian Democratic Union.
At two regional meetings, municipal shareholders mulled over the shock sparked by the dividend decision. Around 50 people gathered in the small village of Baar, and shortly after a similar number congregated in Essen, where the energy giant is headquartered. Numerous sources present at these gatherings reported that regional mayors and governments agreed that they needed to send a strong message back to Mr. Terium.
However, at the end of the day any move would be symbolic: The shareholders do not have the power to reverse the scrapping of the dividend, despite their sway over the company.
And in the supervisory board, the four municipal representatives finally conceded their agreement, meaning that the debate on the future of Mr. Terium has dug a deep rift between leading shareholders and management. Moreover, the dispute is unlikely to dissipate fast, and will cast a long shadow over the renewable energy subsidiary's public listing plan and drag on RWE's recovery.
And the anger among the regional representatives is understandable: They were banking on a dividend cut from €1.00 to €0.80, or to €0.50 at the most, leaving them shocked to the core when the news broke. The municipalities offered a compromise of a smaller cut, but this was turned down, one influential shareholder revealed.
And now they are left to fix gaping holes in their budgets. Essen has raised taxes to help plug a budget which is down €19 million compared to a year earlier.
Resentment against Mr. Terium has been building up over a number of years also from within the board, including from the soon-to-leave supervisory board chairman Manfred Schneider and now from Schneider's planned successor Werner Brandt.
Overall it is clear that RWE's boss can't afford conflict right now. Earnings from RWE's core business, conventional electricity production, are sinking at record speed. As the German market is being pumped full of green energy, the big coal and gas power stations are hardly competitive any more. In the not too distant future, RWE's conventional electricity production will likely produce losses.
Simultaneously, the nuclear phase-out adds to the group's woes. In Berlin the nuclear commission, appointed by the federal government, is negotiating how to secure the funds needed for the nuclear clean up from ailing utilities, adding to their financial pressures.
Rolf Martin Schmitz, who will lead RWE after its "green" unit is spun off, will inherit a company under threat. On the stock market, RWE is now worth less than €7 billion. Since the nuclear disaster at Fukushima, the price of RWE shares crashed by almost 75 percent to just over €11 a piece. By contrast, in early 2008, the stock had broken through the €100 mark and the company’s market value was €56 billion. RWE shareholders have had to sit back and watch the value of their stock plummet.