Risk Report62 Risk Management System E.ON views the management of opportunities and risks as a normal and conscious aspect of managing our business. Consequently, our risk management system consists of a number of components that are embedded into E.ON's entire organizational structure and processes. As a result, our risk management system is an integral part of our business and decision-making processes. The key components of our risk management system include our groupwide guidelines and reporting systems; our standardized groupwide strategy, planning, and controlling processes; Internal Audit activities; the separate groupwide risk reporting conducted pursuant to the Corporate Sector Control and Transparency Act ("KonTraG"); and the establishment of risk committees. Our risk manage- ment system is designed to enable management to recog- nize risks early and to take the necessary countermeasures. We continually review our groupwide planning, controlling, and reporting processes to ensure they remain effective and effi- cient. As required by law, the effectiveness of our risk man- agement system is reviewed regularly by our Internal Audit and our Independent Auditors. Risk Management and Insurance E.ON Risk Consulting GmbH, a wholly owned subsidiary of E.ON AG, is responsible for insurance-risk management in the E.ON Group. It develops and optimizes solutions for E.ON's operating risks by using insurance and insurance-related instruments and secures the necessary coverage in interna- tional insurance markets. To this end, E.ON Risk Consulting GmbH is, among other things, responsible for management of client data and insurance contracts, the accounting of risk covering and claims, and all associated reporting. Risk Committee Pursuant to the provisions of Section 91, Paragraph 2 of the German Stock Corporation Act relating to the establishment of a risk-monitoring and early warning system and to the mini- mum requirements for risk management and for the use of financial instruments at industrial companies contained in the German Minimum Requirements for Risk Management ("MaRisk"), the E.ON AG Board of Management has estab- lished a Risk Committee for E.ON AG. The Risk Committee, which consists of representatives of key E.ON AG divisions and departments, is responsible for ensuring that the risk strategy for commodity and credit risks defined by the Board of Management is implemented, complied with, and further developed. Risk Situation In the normal course of business, we are subject to a number of risks that are inseparably linked to the operation of our businesses. The E.ON Group, and thus E.ON AG, is exposed to the following categories of risk: Market Risks Our market units operate in an international market environ- ment that is characterized by general risks relating to the business cycle and by increasingly intense competition that could reduce our margins. Liberalization of the German elec- tricity market caused prices to decrease beginning in 1998. Since 2001, prices have increased. Retail prices now exceed 1998 levels, and prices for sales to distributors and industrial customers have also increased. These price increases have generally been driven by increases in the price of fuel as well as additional taxes and levies. There was strong public criti- cism in the fall of 2007 in response to the announcement of electricity increases to take effect on January 1, 2008. Faced with rising energy costs, we cannot rule out the possibility of future electricity price increases. As a result, we expect to face increasing political pressure. Adjusted for taxes and other levies, German wholesale and retail electricity prices are in the midrange for Europe. Outside Germany, increased competition from new market entrants and existing market participants could adversely affect our U.K. or Swedish mar- ket share in both the retail and wholesale sectors. In addi- tion to our operations in the United Kingdom and the Nordic countries, we are also subject to competitive pressure on margins in Eastern and Southern Europe and in other elec- tricity markets where we are already present or in new elec- tricity markets we may enter. E.ON Ruhrgas also faces risks associated with increased competition in the gas sector. We use a comprehensive sales management system and inten- sive customer management to minimize these risks.