VEREINIGTE ELEKTRIZITÄTSWERKE WESTFALEN AG History

Company History:

The Vereinigte Elektrizit&auml×werke Westfalen AG (VEW) is Germany's third largest energy supplier. Its supply zone in the federal states of North Rhine-Westphalia and Lower Saxony in northwestern Germany covers an area of some 13,200 square kilometers with a population of around five million people. Within this area, VEW provides electricity and natural gas as well as district heating and water either directly or via other companies. In 1990, the company had a generating plant capacity of 6,569 megawatts, 74,000 kilometers of electricity transmission lines, and a gas distribution network of some 8,800 kilometers in length. In that year, the company provided its customers with 38.2 billion kilowatt hours of electricity and 30.1 billion kilowatt hours of gas.

VEW was created in 1925, when several municipal electricity companies from the eastern, Westphalian part of the Ruhr--Europe's largest industrial conglomeration--merged voluntarily. Its roots go back in part to the 19th century. The oldest company in the merger, the Städtische Elektrizit&auml×werk Dortmund, was founded in 1897. Prior to its foundation there had been bitter disputes in Dortmund over the provision of electricity for the town. The local gas company, which had the sole rights to provide gas lighting for the town, had objected several times to the introduction of electricity. The town administration, on the other hand, was in favor of it. With the construction of the port of Dortmund at the end of the new canal to the North Sea, the town resolved to break the deadlock, and in 1895 decided to establish a new electric power station to supply energy to the docks and the town. The engineer Carl Döpke was commissioned to construct the power station, which went into operation in 1897. Designed to provide industry and commerce with the new three-phase current, its 2,000-kilowatt generating capacity made it one of the biggest power stations in Imperial Germany.

Now that the transmission of three-phase current was technically feasible, it was possible to supply large areas from central power stations. In the Ruhr, this development caused considerable political strife. The two other companies later involved in the merger to form VEW--the Elektrizit&auml×werk Westfalen AG (EWW), established in Bochum in 1906, and the Westfälische Verbands-Elektrizit&auml×werk (WVE), created in 1908--were the product of municipal political disputes triggered by the introduction of the new long-distance power supply.

The industralist Hugo Stinnes's Rheinisch-Westfälische Elektrizit&auml×werk (RWE), based in Essen and operating in the western Ruhr area, invited the Ruhr municipalities to join the grid connected to its high-powered station, and within just a few years of the turn of the century many municipalities had done so, attracted by the favorable rates. In 1905 Stinnes built a second power station in Kruckel near Dortmund in order to supply the eastern Ruhr area, but his plans for expansion met with resistance from Westphalian town councillors. Their spokesman, Karl Gerstein, the chief administrative officer for the Bochum district, saw Stinnes's plans as an attempt to create a private electricity monopoly. Gerstein believed electricity supply to be a municipal matter and, together with a number of town and district administrations, founded EWW as a counterbalance to RWE. EWW did not intend to build its own power stations but to use the electricity-generating capacity of the power stations at the many mines in the area. The 1906 report of the Bochum district's administrative council stated that: "It is with great pleasure and satisfaction that the administrative council can look back on the founding of the company after overcoming untold difficulties. The significance of the founding is that it has prevented the creation of a monopoly which threatened to take a hold on the entire industrial region." In the years that followed, EWW extended its grid well beyond the Ruhr area. Between 1911 and 1914 it began the systematic electrification of the rural regions in northern Westphalia (M&uuml#terland). As the demand for energy grew, the company built two new large power stations of its own, the Gemeinschaftswerk Hattingen in 1912, and the Gersteinwerk in 1914, which were to form the nucleus of the company's electricity-generating capacity.

WVE in Kruckel also came into being as a result of the conflict between Stinnes and the municipalities of the eastern Ruhr. RWE, with its new power station in Kruckel, had already signed power supply agreements with several Westphalian communities by 1905 when Gerstein managed to persuade the municipal authorities to deny the company the right to use the public highways for its power lines and cable. After years of bitter disputes and reciprocal blockades, agreement was finally reached in 1908. RWE transferred its power station in Kruckel to a new company, the Westfälische Verbands-Elektrizit&auml×werk (WVE). The municipalities were the majority share holders with 73%, while the mining companies held 18% and RWE 9%. At the same time, a demarcation agreement between the powerful RWE on the one hand and the municipal electricity companies in the Westphalian part of the Ruhr on the other brought a temporary respite from the battles between the two sides, without permanently resolving the issue.

Because of rapidly increasing demand in the region, the three Westphalian electricity companies expanded quickly in the years before World War I. From 1909 all the companies were involved in the gas supply industry as well, initially restricted to small, local distribution systems. During the war the companies experienced considerable difficulties in obtaining coal for the power stations. These difficulties were dramatically intensified by the reparations demands on German coal at the end of the war. Against the background of these coal shortages and the Reich's government's efforts to nationalize the industry, a number of Westphalian electricity companies formed a loose association--the Kommunaler Elektrizit&auml×werks-Verband Westfalen-Rheinland GmbH (KEV)--at the beginning of the 1920s to protect their interests. They particularly wanted to protect themselves from being taken over by RWE. The latter was in a powerful position, as it used brown coal predominantly as opposed to hard coal, and brown coal was not affected by reparations demands. The municipal companies, previously heavily reliant on hard coal, had to ask RWE to help them supply electricity, but RWE would only do so in exchange for shareholdings. Among KEV's main aims were the careful distribution of hard coal reserves and mutual support. In the mid-1920s the hard coal shortages ended and the government dropped its plans to nationalize the electricity industry. KEV was consequently disbanded. Only the Städtische Elektrizit&auml×werk Dortmund and WVE intensified their relationship and under Carl Döpke's leadership created a joint holding company, the Dortmunder und Verbands-Elektrizit&auml×werk GmbH, in 1923. On January 1, 1925, EWW also joined this company, which was renamed the Vereinigte Elektrizit&auml×werke Westfalen GmbH (VEW) and became the nucleus of the present VEW. The private shareholders sold their shares during 1925 and VEW became wholly owned by the Westphalian municipalities. The merged companies' supply areas proved complementary to each other, containing as they did different types of electricity consumer, and the merger allowed the power stations to be used more efficiently. The new overall management board, based in Dortmund, was headed by Döpke, VEW's founding father. Regional centers were set up in Bochum, Dortmund and M&uuml#ter. At the time of its foundation VEW had a generating plant capacity of 176,000 kilowatts of steam-generated and hydroelectric power. The company had 9,300 kilometers of electrical transmission lines and supplied 270 million kilowatt hours of electricity and 6.8 million cubic meters of gas a year. These figures placed VEW in fifth position among Germany's electricity supply companies.

Over the next few years the new management presided over a period of considerable expansion. Two factors were of particular significance. First, in the mid-1920s, the political and economic situation in the Weimar Republic stabilized, bringing sustained economic recovery. Second, the rationalization then underway in industry and commerce coupled with the electrification of Westphalia's agricultural areas produced a rapidly growing demand for electricity. In VEW's heavily industrialized supply area, electricity demand doubled between 1924 and 1929 to 520 million kilowatt hours. The result was substantial expansion of the power stations and a corresponding increase in the capacity of the supply network. By 1930, the company's generating plant capacity had risen to 267,000 kilowatts and the network now encompassed some 17,000 kilometers of lines. In 1925-1926 VEW acquired three coal mines in order to guarantee continued coal supplies for its power stations. In addition, the company invested large sums in extending its grid, particularly in the region of southern Westphalia, the Sauerland. Here the town of Arnsberg became the seat of a new regional division of the company. With this step, the company's supply area attained virtually its current extent. As far as gas supply was concerned, this period saw the construction of the first long-distance gas pipelines, opening up new areas and creating new business opportunities for the company. From 1925 to 1929, VEW's gas output quadrupled to 24.4 million cubic meters.

VEW had some RM60 million in share capital, yet during this five-year period it funded investments totalling RM130 million. VEW's municipal partners, with financial worries of their own, were unable to provide the company with the additional capital it needed. As long-term loans were not available from a German capital market that had been severely hit by the inflation of the early 1920s and as VEW was able to obtain dollar loans, secured against property from the United States, only in 1925 and 1928, the investments were financed almost exclusively by short-term loans. Between 1925 and 1930, the company's obligations rose ten-fold, and this form of raising finance led to a worrying imbalance between equity and borrowed capital.

By the beginning of the 1930s, the combination of rapid expansion, management mistakes, and the unbalanced capital structure had put the company in a precarious financial situation. On top of this the Depression had already led to a dramatic fall in demand for electricity and gas. The company was on the verge of bankruptcy. An attempt to reschedule its debt failed due to the worsening situation in the U.S. capital market. Instead, a German-American banking consortium made available a medium-term loan. The loan was secured by a borrower's note providing for a share option if the loan were not repaid. One result of this rescue package was the restructuring of VEW GmbH into a joint stock company. VEW AG was founded on January 1, 1930, with a share capital of RM60 million. The capital was then increased by a further RM60 million of preferential shares, which provided the security on the loan. Together with the departure of the company's former management, the rescue package ensured the company's survival at least for a while, especially as an attempt by RWE to take over VEW was foiled by the resistance of the U.S. creditor banks.

As a result of the world Depression, the producer goods industries which formed some of VEW's most important customers suffered a massive contraction in output and employment. This in turn led to a sharp reduction in the demand for electricity, gas and water. Mass unemployment and growing poverty led to reductions in the energy consumption of private consumers as well. The summer of 1932 marked the absolute low point in energy demand. VEW was forced to undertake drastic economy measures. All construction work was halted and around a quarter of the work force dismissed. However, these measures brought no improvement in the company's financial situation. VEW had continued to run at a loss since 1930 and found it difficult to maintain repayments on its loan. It was only at the end of 1933 that assistance from the Reich's Economic Ministry allowed the company to carry out a thorough rescheduling and restructuring of its debt. When the loan secured by borrower's note was replaced by securer forms of debt, the preferential shares option was rendered invalid, thus removing the risk of a takeover by another company. At the end of its restructuring VEW was able to emerge once more as a financially stable and technically advanced company.

The Nazi seizure of power in January 1933 had far-reaching consequences for companies such as VEW that were in municipal hands. Almost all VEW's top management was dismissed and replaced by figures close to the Nazi party. At the same time, the economic situation improved as the recovery that had begun in autumn 1932 was strengthened from 1933 onwards by the Nazis' job creation schemes and armaments programs as part of their Four Year Plan. The increase in economic activity brought with it a growing demand for electricity, gas and water. In 1934 VEW supplied 541 million kilowatt hours of electricity, surpassing the previous record of 1929.

During the 1930s the political situation continued to exert a considerable influence on VEW's development. The energy demands of the Four Year Plan forced the company to expand its power stations and supply grid. For example, the Reich's government pressed VEW to provide the power for a new aluminum works in Lünen. Considerable expansion of the Gersteinwerk power station was required before the aluminum works could be connected to the grid, a step taken in 1938. Supplying the Lünen works was in some ways a special case, but it was characteristic of the growing demand for energy within the dynamic economy of the rearmament era. Whereas industrial electricity consumption trebled between 1932 and 1939, demand as a whole increased only twofold. Within the industrial sector, it was the iron and steel industry, with a four-fold increase in electricity consumption, the mines, with a five-fold increase, and the cement industry, whose commitments to help build motorways and the defensive Siegfried line caused a seven-fold increase, that led the field in electricity demand.

Because the Ruhr mining industry was interested in ensuring a guaranteed demand for coal even in times of economic downturn, it pressed to provide a larger share of public electricity supply. Between 1935 and 1939, VEW signed agreements with 12 large mining companies, several more smaller ones, and Steinkohle-Elektrizit&auml× AG (STEAG)--an electricity-generating company founded in 1937 by mining companies in the Ruhr and selling its electricity to the public supply companies--with the result that the mines came to provide 20% of VEW's generating plant capacity. The growing demand for energy substantially improved VEW's own financial position and in 1936 the company resumed paying dividends.

World War II initially had relatively little effect on VEW's activities. By the end of the war, however, substantial sections of VEW's power stations and grid had been destroyed. The company's Dortmund power station and the hydroelectric power station on the Möhnetal barrier were almost completely destroyed. The Hattingen municipal station and the Kruckel power station suffered only minor damage while the Gerstein power station remained intact. The high tension networks across the whole supply area as well as the electricity and gas networks in the larger cities suffered the worst damage.

The collapse of the Third Reich in May 1945 brought about far-reaching changes in VEW's structure. The company came under the control of Allied powers, its mines were expropriated and management subjected to denazification. In the period up to the end of 1945, all the members of the management and supervisory boards were replaced. Efforts to rebuild the grid began at an early stage and by early summer 1945 some parts of Westphalia were already being supplied with energy.

The West German currency reform of June 1948 stabilized the economic situation and allowed the company once again to restore its position as a technically advanced energy company. A large loan from Marshall Plan funds helped it to modernize its power stations. The remaining investment was largely self-financed. Between 1948 and 1955 VEW, a company with DM91 million equity capital, was able to finance a construction program of DM500 million. As the company celebrated its 25th anniversary in 1950, it had a generating capacity of 611 megawatts, 21,600 kilometers of electricity transmission lines, and a gas distribution network some 1,300 kilometers in length. In that year it supplied 1.9 billion kilowatt hours of electricity and 160 million cubic meters of gas.

If the company was to keep pace with West Germany's rapidly growing energy demand, further expansion was vital and this would require outside sources of finance. The company's equity was increased in two stages to DM280 million. Because of the lack of liquidity of the company's shareholders, the municipalities, this increase was made possible only by retaining dividends. In the long term, however, this was not a satisfactory way to meet VEW's financial needs, and during the 1960s there were protracted discussions over what would be politically and economically the most expedient way to increase the company's equity. Bringing in private capital came to seem the best option. In 1966 VEW's partial privatization was carried out with the issue of DM75 million of bearer shares. The shares were initially placed on all the German exchanges and later on the Swiss exchanges as well. This was a turning point in the company's history, since VEW changed from being wholly in municipal hands to being a mixed public service and private company. The company's equity, which rose to DM1 billion in 1985, divides up as follows: 31.5% is held by the municipalities in the form of registered shares with restricted transferability--these shares have treble voting rights and thus the municipalities control a majority of the votes; the remaining shares, bearer shares with single voting rights, are in both municipal and private hands, and are owned by some 41,000 shareholders both in Germany and abroad. Two holding companies have more than 25% of the equity, namely the Kommunale Energie-Beteiligungsgesellschaft mbH, Dortmund, and the Energie-Verwaltungs-Gesellschaft mbH, Düsseldorf.

Among VEW's most important technical developments was the company's adoption of nuclear energy during the 1960s. A nuclear plant was built in Lingen and began supplying the VEW grid in 1968 (the plant was closed in 1977 because of technical defects). VEW's supply network, too, had to be modernized extensively. Before the war, high voltage lines carrying 50 and 110 kilovolts had been erected. In the mid-1950s these were replaced by 220 kilovolt lines and from 1975 380 kilovolt lines had been adopted in the European supply grid. For gas supply, it was the 1960s that saw key innovations, most notably the progressive replacement of coking plant gas by cheaper natural gas. VEW began the changeover in 1965 and took about ten years to complete the process. In addition, the 1960s and 1970s also saw the expansion of the district heating schemes that VEW had begun in Dortmund back in 1951. Large industrial enterprises and dense urban areas were the chief beneficiaries. At its 50th anniversary in 1975, VEW had a generating capacity of 6,062 megawatts of electricity in steam turbine and hydroelectric power stations, 62,000 kilometers of power lines, and a gas supply network of 4,000 kilometers. With a turnover of DM2.5 billion, the company supplied 17 billion kilowatt hours of electricity and 3 billion kilowatt hours of gas.

Electricity generation from hard coal had always played a predominant role for VEW. The coal crisis in the 1960s and 1970s, brought about by industry's extensive switching to oil, forced the company to close its own mines, but VEW continued to use hard coal to produce most of its electrical power--85% in 1986. This had two consequences. First, the company has been extensively involved in research projects to achieve optimum use of coal in electricity generation. Second, it acquired a larger share of Ruhrkohle AG, the largest German mining company, between 1984 and 1987. As VEW's annual report for 1984 explained, "The electricity industry has become Ruhrkohle's biggest consumer. As one of the biggest consumers of German hard coal, VEW is especially interested in intensifying cooperation in the area of energy technology, in particular in the further development of new coal technology and environmental protection." Since the oil crises of the 1970s, and with the growing debate about the world climate, protecting the environment and saving resources have become top priorities in all VEW's energy policy decisions. This is manifest in innovations to prevent harmful chemical emissions, in the company's use of renewable energy sources, and in the energy-saving advice it offers customers and partners.

The end of the 1980s saw a number of significant changes whose importance for VEW's development will become fully apparent only later in the 1990s. In a major expansion of its existing areas of activity, VEW decided in 1987 to make use of its long years of experience in waste disposal to offer waste and refuse disposal as a commercial service.

April 1988 saw the completion of VEW's biggest investment project to date when the DM5 billion nuclear power station Emsland, belonging to the VEW subsidiary Kernkraftwerke Lippe-Ems GmbH, supplied electricity to the public grid for the first time.

At the end of 1989 VEW acquired part of Steinmüller Verwaltungsgesellschaft mbH, a leading player in construction of steam power generators and in tool technology. This was VEW's first acquisition outside the energy sector and forms part of its strategy of developing and converting to new technology both for environmental protection and for advanced electricity generation.

The unification of East and West Germany in October 1990, after more than 40 years of division, represented a major challenge for Germany's energy industry. The power stations and systems in East Germany were completely outdated and desperately in need of renovation. The building of a reliable and environmentally friendly energy supply network on a commercial basis in the new German federal states will require the efforts of companies from Germany and other European countries. VEW has become involved in both the electricity and gas supply sectors in eastern Germany. Alongside other German electricity companies, it has acquired a share in the Mitteldeutsche Energieversorgung AG (MEAG) in Halle (Saale). Together with British Gas, Gaz de France, and Westfälische Ferngas AG, it has also acquired shares in several regional gas companies in Sachsen-Anhalt, Saxony, and Brandenburg. Further activities and acquisitions in the new German federal states are under consideration.

VEW's shareholdings in industrial companies, its search for new and fruitful areas of operation, and its involvement in developing the new German federal states will ensure VEW's secure place in the German and European energy markets of the future.

Principal Subsidiaries: Kernkraftwerke Lippe-Ems GmbH (75%); MEAG Geschäftsbesorgungs-AG (67.2%); Abfallverwertungsgesellschaft Westfalen mbH (51%); VEW-Harpen Kraftwerk Werne oHG (51%); AVU Aktiengesellschaft für Versorgungs-Unternehmen (50%); ORFA Organ-Faser Aufbereitungsgesellschaft mbH & Co KG (30%); Ruhrkohle AG (30.2%); Gelsenwasser AG (27%); Steinmüller Verwaltungsgesellschaft mbH (25.1%); Gasversorgung Leipzig GmbH (25.5%); Gasversorgung Sachsen-Anhalt GmbH (17%); Märkische Gasversorgung GmbH(12.8%).

Further Reading:

• Vereinigte Elektrizit&auml×werke Westfalen Aktiengesellschaft, Köln, Mueller & Co., 1930.
  25 Jahre VEW 1925-1950, Dortmund, 1950.
• Horstmann, Th., ed., Elektrifizierung in Westfalen. Fotodokumente aus dem Archiv der VEW, Hagen, v. d. Linnepe, 1990.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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