Interim Report II/2006

2006	• Adjusted EBIT up 13 percent
JAN	• Spain's energy regulatory agency CNE approves Endesa acquisition but attaches
FEB	far-reaching conditions
MAR	• Outlook for full year 2006 revised upwards:
APR	increase in adjusted EBIT expected
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC

2 E.ON Group Financial Highlights

E.ON Group Key Figures at a Glance
January 1 – June 30  in millions	2006	20051	+/– %
Power sales (in billion kWh)2	205.8	205.1	–
Gas sales (in billion kWh)2	559.4	499.7	+12
Sales	36,915	28,174	+31
Adjusted EBITDA3	6,296	5,628	+12
Adjusted EBIT4	4,836	4,271	+13
Income/Loss (–) from continuing operations before income taxes and minority interests	3,803	4,632	–18
Income/Loss (–) from continuing operations	2,732	2,870	–5
Income/Loss (–) from discontinued operations, net	95	156	–39
Net income	2,827	3,026	–7
Adjusted net income5	2,847	2,163	+32
Investments	2,457	1,775	+38
Cash provided by operating activities	2,773	2,796	–1
Free cash flow6	1,279	1,790	–29
Net financial position7 (at June 30 and December 31)	–2,596	3,863	–
Employees (at June 30 and December 31)	80,549	79,570	+1
Earnings per share (in )	4.29	4.59	–7

1Adjusted for discontinued operations.

2Unconsolidated figures.

3Non-GAAP financial measure; see reconciliation to net income on page 9. 4Non-GAAP financial measure; see reconciliation to net income on page 9 and commentary on pages 34–35.

5Non-GAAP financial measure; see reconciliation to net income on page 10.

6Non-GAAP financial measure; see reconciliation to cash provided by operating activities on page 11.

7Non-GAAP financial measure; see reconciliation on page 12.

Non-GAAP financial measures: This report contains certain non-GAAP financial measures. Management believes that the non-GAAP financial measures used by E.ON, when considered in conjunction with (but not in lieu of) other measures that are computed in U.S. GAAP, enhance an understanding of E.ON's results of operations. A number of these non-GAAP financial measures are also commonly used by securities analysts, credit rating agencies, and investors to evaluate and compare the periodic and future operating performance and value of E.ON and other companies with which E.ON competes. Additional information with respect to each of the non-GAAP financial measures used in this report is included together with the reconciliations described below.

E.ON prepares its financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). As noted above, this report contains certain consolidated financial measures (Group adjusted EBIT, adjusted EBITDA, adjusted net income, net financial position, net interest expense, and free cash flow) that are not calculated in accordance with U.S. GAAP and are therefore considered "non-GAAP financial measures" within the meaning of the U.S. federal securities laws. In accordance with applicable rules and regulations, E.ON has presented in this report a reconciliation of each non-GAAP financial measure to the most directly comparable U.S. GAAP measure for historical measures and an equivalent U.S. GAAP target for forward-looking measures. The footnotes presented with the relevant historical non-GAAP financial measures indicate the page of this report on which the relevant reconciliation appears. The non-GAAP financial measures used in this report should not be considered in isolation as a measure of E.ON's profitability or liquidity and should be considered in addition to, rather than as a substitute for, net income, cash provided by operating activities, and the other income or cash flow data prepared in accordance with U.S. GAAP presented in this report and the relevant reconciliations. The non-GAAP financial measures used by E.ON may differ from, and not be comparable to, similarly titled measures used by other companies.

4 Letter to Shareholders
5 E.ON Stock
6 Results of Operations
- Energy Price Developments
- Sales Volume, Sales, Earnings Performance
- Investments
- Financial Condition
- Employees
- Risk Situation
- Outlook
16 Market Units
16 Central Europe
18 Pan-European Gas
19 U.K.
21 Nordic
22 U.S. Midwest
24 Interim Financial Statements (Unaudited)
34 Business Segments
36 Financial Calendar

In the first half of 2006, the E.ON Group continued its positive performance. We increased sales by 31 percent from 28.2 billion to 36.9 billion and adjusted EBIT by 13 percent from 4.3 billion to 4.8 billion. A key contributing factor was the solid earnings performance of our Central Europe and Pan-European Gas market units. The U.K. market unit posted an earnings increase in the second quarter, which, as anticipated, significantly reduced the considerable earnings decline it had posted in the first quarter. For the E.ON Group, we now expect full-year adjusted EBIT to surpass the high prior-year level. In the first half of 2006, we recorded net income (after taxes and minority interests) of 2.8 billion, 7 percent below the high prior-year figure. As anticipated, we will not repeat the extraordinarily high net income of full year 2005.

The most important energy policy issue in Germany is currently the new regulatory regime for the country's power and gas networks. The Federal Network Agency (known by its German abbreviation, BNetzA) has ruled on the network charges of a number of network operators. The reduction the BNetzA made to the charges filed by one of our network operators is in line with our expectations which were adjusted in the course of the year. In late June, the BNetzA presented its proposed incentive plan for network regulation. The plan, however, does not create incentives for network operators to achieve lasting efficiency improvements. Despite our difference of opinion with the BNetzA, we support the rapid introduction of a workable incentive plan and will continue to play a constructive role in this process. As a network operator, we need a stable regulatory environment in order to make long-term investments in security of supply.

Our planned acquisition of Endesa, a Spanish energy utility, would strengthen our market position and further expand it in Southern Europe and South America. The EU Commission issued an unconditional antitrust approval of the transaction in late April. On July 27, 2006, the CNE, Spain's energy regulatory agency approved the transaction but attached far-reaching conditions. We see no justification for these conditions. On August 10, we filed an appeal against the CNE's conditions with Spain's Ministry of Industry, which has up to three months to decide on our appeal. We'll continue to do everything we can to ensure that Endesa shareholders can make their decision as soon as possible. We believe that this transaction will benefit all stakeholders: customers, employees, and shareholders as well as the wider Spanish economy.

At the same time, we're not losing sight of our other strategic objectives. On July 12, 2006, we signed a framework agreement with Gazprom to exchange assets in gas production and in gas trading, gas sales, and the electricity business. Under the agreement, E.ON is to acquire a stake in Yushno Russkoye in Siberia, one of the world's largest natural gas fields. In return, Gazprom is to acquire minority stakes in our two Hungarian gas companies and in E.ON Hungária, a regional power and gas distributor, plus additional compensation. Production at Yushno Russkoye is expected to begin next year. In view of the increasing demand for natural gas, E.ON and Gazprom are making an important contribution towards enhancing Europe's security of supply for the long term. As you can see, we continue to work hard to achieve our growth objectives and further enhance the value of your company.

Sincerely yours

Dr. Wulf H. Bernotat

Including the dividend and special dividend, E.ON stock finished the first six months of 2006 up 10 percent. E.ON stock thus significantly outperformed other European blue chips as measured by the EURO STOXX 50, which advanced by 2 percent over the same period, and was on par with its peer index, the STOXX Utilities, which also rose by 10 percent.

The trading volume of E.ON stock climbed by more than 80 percent year on year to 50.5 billion, making E.ON the fifth most-traded stock in the DAX index of Germany's top 30 blue chips. As of June 30, 2006, E.ON was the largest DAX stock in terms of market capitalization.

E.ON stock is listed on the New York Stock Exchange as American Depositary Receipts (ADRs). Effective March 29, 2005, the conversion ratio between E.ON ADRs and E.ON stock is three to one. The value of three E.ON ADRs is effectively that of one share of E.ON stock.

For the latest information about E.ON Stock, visit www.eon.com.

E.ON Stock
	June 30, 2006	Dec. 31, 2005
Shares outstanding (in millions)1	659	659
Closing price (in )	90.02	87.39

Market capitalization ( in billions)2	62.3	60.5
1Excludes treasury stock.

2Based on the entire capital stock (692,000,000 shares).

Performance and Trading Volume
January 1 – June 30	2006	2005
High (in )1	100.35	73.68
Low (in )1	82.12	64.50
Trading volume2
– Millions of shares	537.1	407.1
–  in billions	50.5	27.9
1XETRA. 2Source: Bloomberg (all German stock exchanges).

6 Results of Operations

Energy Price Developments

European power and natural gas markets saw sustained high prices and volatility in the first half of 2006. The main drivers were international oil, coal, and CO2 prices as well as the natural gas supply and storage situation in the United Kingdom.

Sustained growth in oil demand along with ongoing political risks in major oil producing countries like Iran, Iraq, and Nigeria have led to high, volatile oil prices. The price of Brent crude oil rose to about \$72 per barrel by the end of June 2006, a 16 percent increase from the beginning of the year.

Coal prices increased at a similar rate but were less volatile. Since the beginning of 2006, coal prices have risen by more than 11 percent to \$68 per metric ton. Market observers attribute the increase to supply problems, particularly in South Africa, and to greater buying interest in coal derivatives.

Germany's natural gas import prices are contractually indexed to heating oil prices, which they track with a time lag. Because heating oil prices have risen continually, the average price of Germany's natural gas imports was 43 percent higher in the first half of 2006 than in the first half of 2005. Natural gas prices in the United Kingdom also remain high and volatile, primarily due to supply concerns and a fire at the U.K.'s largest gas storage facility. The expectation that this facility will be operational by winter led to a decline in U.K. forward natural gas prices, although forward prices remain near the levels seen in the fourth quarter of 2005.

CO2 prices were extremely volatile in the second quarter of 2006. Following increases in the beginning of 2006, CO2 prices dropped by 27 percent in a single day on the publication of EU member states' emissions data for 2005, which were significantly below market expectations. Since May 2006, CO2 prices have stabilized at about 16 per metric ton.

Wholesale power prices across Europe, which were heavily influenced by the sharp decline in CO2 prices, fell by approximately 10 to 20 percent in the U.K., Nordic, and German markets. Since May 2006, German wholesale power prices have stabilized at a higher level of about 54 per MWh on

the back of oil and coal price developments. Reduced hydropower availability pushed wholesale power prices higher in the Nordic market, while U.K. wholesale power prices continued to decline through late June due to lower natural gas prices.

Through June, U.S. natural gas prices for 2007 delivery fell by about 10 percent compared with the beginning of 2006. The main reasons cited for decline are record gas storage levels and the expectation of higher supplies due to the absence of significant hurricane activity along the U.S. Gulf coast so far in 2006. Electricity prices moved lower, mainly influenced by the decline in gas prices and, to a smaller extent, by the development of SO2 prices, which fell by more than half since the beginning of the year.

Regulation of Network Charges in Germany

The new regulation of Germany's electricity and gas networks requires that network charges be approved in advance. The approvals process is currently under way.

Electricity network charges were supposed to have been approved by May 1, 2006, and gas network charges by August 1, 2006. Due to the Federal Network Agency's (BNetzA) lengthy review process, rulings on electricity and gas network charges are considerably delayed. To date, the BNetzA has ruled on only a small number of electricity network charges. The BNetzA issued its first ruling for an E.ON network operator when it ruled on the charges of E.ON Thüringer Energie's distribution network operator. Effective August 1, 2006, the BNetzA reduced by about 14 percent the network charges filed by our subsidiary.

As part of the network charge approval process, the BNetzA is also dealing with the refund of overcharges. The BNetzA will require electricity network operators to refund to network customers the difference between operators' actual network charges and their approved network charges for the period between November 1, 2005, and the date operators' charges are approved. This is reflected in our Consolidated Financial Statements for the period ended June 30, 2006. The BNetzA has not yet issued a ruling on gas network charges.

Germany's Energy Law of 2005 required the BNetzA to design an incentive plan for the regulation of network charges. The BNetzA submitted its plan in late June 2006. The German federal government may now, with the Bundesrat's approval, issue an ordinance on an incentive plan for network regulation. The BNetzA's report calls for the incentive plan to begin on January 1, 2008. Furthermore, it proposes that, within six to eight years, all income from network charges should be reduced to the level of the most efficient network operator and that all network operators reduce their costs by 1.5 to 2 percent annually.

The energy industry is in agreement that the efficiency enhancements and cost reductions proposed by the BNetzA are neither technically achievable nor economically reasonable. Moreover, the proposed transition periods are too short. It will be important to ensure that the legislation codifying the incentive plan contains mechanisms to reflect the structural differences between network operators and maintains incentives for investment in network infrastructure.

8 Results of Operations

Power and Gas Sales

The E.ON Group sold about the same amount of electricity in the first half of 2006 as in the prior-year period. The Central Europe market unit sold 3 percent more electricity due to the inclusion of newly consolidated regional electricity distributors in Bulgaria, Romania, and the Netherlands. By contrast, our U.K., Nordic, and U.S. Midwest market units sold less electricity than last year. We sold 12 percent more natural gas thanks primarily to colder winter weather, Pan-European Gas's continuing volume growth outside Germany, and the inclusion of newly consolidated subsidiaries in Hungary, the Netherlands, and Germany.

Sales up Substantially

All market units contributed to the substantial 31 percent increase in sales, which was mainly due to the following factors: the global increase in raw-material and energy prices which led to higher average power and gas prices, the inclusion of newly consolidated regional utilities particularly in Bulgaria, Hungary, and Romania, and weather-driven volume increases, particularly of natural gas.

Sales
January 1 – June 30  in millions	2006	20051	+/– %
Central Europe	15,112	12,505	+21
Pan-European Gas	14,016	8,860	+58
U.K.	6,395	4,876	+31
Nordic	1,779	1,663	+7
U.S. Midwest	994	928	+7
Corporate Center	–1,381	–658	–
Sales	36,915	28,174	+31

1Adjusted for discontinued operations.

Adjusted EBIT up 13 percent

The improvement in adjusted EBIT at Central Europe and Pan-European Gas is also attributable to power and gas price developments, the inclusion of newly consolidated companies in Central Europe East and the United Kingdom, and higher power and gas sales volumes. However, Central Europe's adjusted EBIT was negatively impacted by provisions created to address the expected consequences of the government regulation of network charges. Nordic's adjusted EBIT was at the prior-year level. Higher CO2 and fuel costs led to a decline in U.K.'s adjusted EBIT. However, thanks to U.K.'s positive performance in the second quarter, the decline was significantly smaller than for the period ended March 31, 2006. The main factors in the decline in U.S. Midwest's adjusted EBIT were the costs associated with participation in the new MISO market, introduced on April 1, 2005, as well as lower retail sales volumes due to significantly milder temperatures.

Adjusted EBIT
January 1 – June 30  in millions	2006	20051	+/– %
Central Europe	2,454	2,337	+5
Pan-European Gas	1,458	803	+82
U.K.	451	613	–26
Nordic	428	428	–
U.S. Midwest	165	173	–5
Corporate Center	–173	–150	–
Core Energy Business	4,783	4,204	+14
Other Activities2	53	67	–21
Adjusted EBIT3	4,836	4,271	+13

1Adjusted for discontinued operations.

2This segment consists of Degussa, which is accounted for using the equity method. 3Non-GAAP financial measure; see the table below for a reconciliation to net income.

Net Income 7 Percent below High Prior-Year Level

Net income (after income taxes and minority interests) of 2.8 billion and earnings per share of 4.29 were both 7 percent below the high prior-year level.

Net Income
January 1 – June 30  in millions	2006	20051	+/– %
Adjusted EBITDA2	6,296	5,628	+12
Depreciation, amortization, and impairments affecting
adjusted EBIT3	–1,460	–1,357	–
Adjusted EBIT2	4,836	4,271	+13
Adjusted interest income (net)4	–533	–537	–
Net book gains	606	188	–
Restructuring expenses	–	–13	–
Other nonoperating earnings	–1,106	723	–
Income/Loss (–) from continuing operations before income taxes and
minority interests	3,803	4,632	–18
Income taxes	–766	–1,497	–
Minority interests	–305	–265	–
Income/Loss (–) from continuing operations	2,732	2,870	–5
Income/Loss (–) from dis
continued operations, net	95	156	–39
Net income	2,827	3,026	–7

1Adjusted for discontinued operations.

2Non-GAAP financial measure.

3For commentary see footnote 2 in the table on page 34. 4See reconciliation on page 35.

At –533 million, adjusted interest income (net) was almost unchanged from the prior-year figure of –537 million.

Net book gains in the first half of 2006 were significantly above the prior-year figure and resulted from the sale of securities (230 million) and the Degussa transaction (376 million; see commentary on page 29). In the prior-year period, net book gains resulted from the sale of securities.

We did not record restructuring expenses in the first half of 2006.

Other nonoperating earnings primarily reflect the fulfilment of derivative gas procurement contracts and from the marking to market of derivatives (–952 million). For the period ended June 30, 2005, the marking to market of derivatives resulted in a positive effect of 910 million.

Our continuing operations recorded a tax expense of 766 million in the first half of 2006. The decline in our tax expense primarily reflects a higher share of tax-free income.

Minority interests' share of net income increased due to higher earnings contributions at the companies in question and consolidation effects.

Income/Loss (–) from discontinued operations, net, includes the results of E.ON Finland, which was sold in June 2006, and Western Kentucky Energy, which is held for sale. Pursuant to U.S. GAAP, their results are reported separately in the Consolidated Statements of Income (see commentary on pages 28–29). In the prior-year period, this item also contained the results of Viterra and Ruhrgas Industries, which were sold in 2005.

10 Results of Operations

Adjusted net income 32 percent above prior-year figure

In addition to reflecting our operating performance, net income also reflects extraordinary effects such as the marking to market of derivatives. For the first time, we are disclosing adjusted net income, an earnings figure after interest income, incomes taxes, and minority interests that has been adjusted to exclude certain extraordinary effects. The adjustments include book gains and losses on disposals, restructuring expenses, and other nonoperating income and expenses of a nonrecurring or rare nature (after taxes and minority interests). Adjusted net income also excludes Income/Loss (-) from discontinued operations, net.

Adjusted Net Income1
January 1 – June 30  in millions	2006	2005	+/– %
Net income	2,827	3,026	–7
Nonoperating earnings after income taxes and minority interests	115	–707	–
Income/Loss (–) from dis continued operations, net	–95	–156	–
Adjusted net income	2,847	2,163	+32
1Non-GAAP financial measure.

Investments Significantly Higher

In the period under review, the E.ON Group invested 2.5 billion, a 38 percent increase year on year. We invested 1.5 billion in intangible assets and property, plant, and equipment compared with 1 billion in the prior year. Investments in financial assets totaled 963 million versus 769 million in the prior year.

Investments
January 1 – June 30  in millions	2006	20051	+/– %
Central Europe	1,090	728	+50
Pan-European Gas	582	224	+160
U.K.	308	412	–25
Nordic	335	234	+43
U.S. Midwest	154	76	+103
Corporate Center	–12	101	–
Total	2,457	1,775	+38

1Adjusted for discontinued operations.

Central Europe invested 1,090 million in the first half of 2006, 50 percent more than in the same period last year. Investments in intangible assets and property, plant, and equipment totaled 668 million (prior year: 527 million) and were aimed predominantly at generation and distribution assets. Investments in financial assets increased significantly to 422 million (prior year: 201 million), primarily due to capital increases at subsidiaries, the acquisition of ownership interests in small regional distribution companies in eastern Germany, and investments in new solid-waste incineration plants.

Pan-European Gas invested 582 million, of which 151 million (prior year: 61 million) went towards intangible assets and property, plant, and equipment. Investments in financial assets of 431 million (prior year: 163 million) mainly reflect the acquisition of the gas trading and storage business of Hungary's MOL (now E.ON Földgaz Trade and E.ON Földgaz Storage). This transaction closed in late March 2006.

U.K. invested 308 million in 2006 primarily on capital expenditure for additions to property, plant, and equipment. The decrease compared with 2005 is due to the acquisitions of the Enfield CCGT asset and of Economy Power's retail small and medium sized enterprise customers in 2005 partially offset by additional capital expenditure allowances in the regulated business due to the five-year regulation review and by higher expenditure on the generation portfolio, particularly to develop new renewables capacity at Lockerbie.

Nordic invested 222 million (prior year: 136 million) in intangible assets and property, plant, and equipment to maintain existing production plants and to upgrade and extend its distribution network. The increase was mainly related to efficiency-enhancing investments in Nordic's nuclear power plants, as well as investments in its distribution network being realized earlier as a result of the severe storm in January 2005. Investments in financial assets totaled 113 million compared with 98 million in 2005.

U.S. Midwest's investments of 154 million were 103 percent above the prior-year figure, primarily due to increased spending for SO2 emissions equipment and the Trimble County 2 plant construction, higher spending in generation and distribution, and currency translation effects.

Financial Condition

Management's analysis of E.ON's financial condition uses, among other financial measures, cash provided by operating activities, free cash flow, and net financial position. Free cash flow is defined as cash provided by operating activities less investments in intangible assets and property, plant, and equipment. We use free cash flow primarily to make growthcreating investments, pay out cash dividends, repay debts, and make short-term financial investments. Net financial position equals the difference between our total financial assets and total financial liabilities. Management believes that these financial measures enhance the understanding of the E.ON Group's financial condition and, in particular, its liquidity.

The E.ON Group's cash provided by operating activities in the first half of 2006 was slightly below the prior-year level.

Cash Provided by Operating Activities
January 1 – June 30  in millions	2006	20051	+/–
Central Europe	1,100	1,289	–189
Pan-European Gas	842	1,327	–485
U.K.	–72	–330	+258
Nordic	546	272	+274
U.S. Midwest	270	120	+150
Corporate Center	87	118	–31
Cash provided by operating activities	2,773	2,796	–23
Investments in intangible assets and property, plant, and equipment	1,494	1,006	+488
Free cash flow2	1,279	1,790	–511
1Adjusted for discontinued operations. 2Non-GAAP financial measure.

The decline in Central Europe's cash provided by operating activities is mainly attributable to an increase in working capital and in contributions to VKE, a German energy industry pension fund. The main positive factors were the significant increase in gross profit on sales in the electricity business and lower payments for nuclear fuel reprocessing.

Pan-European Gas's positive business performance in the first half of the year was not reflected in its cash provided by operating activities. The reasons are the later payment of supplier invoices from the prior year, lower payments from customers due to higher advance payments at the end of the prior year, and price-driven increases in payments for gas procurements. Other negative factors were the buildup of working gas in storage at E.ON Földgaz Trade, which became a consolidated E.ON company on March 31, 2006, and the price-driven increases in expenditures for natural gas in storage at E.ON Ruhrgas AG.

Cash provided by operating activities at the U.K. market unit was significantly higher year on year. The improvement was mainly due to the absence of one-off pension-fund payments made in 2005. Higher gas procurement costs, which were only partially recovered through higher sales prices, were a countervailing factor. U.K.'s negative cash provided by operating activities in the first half of 2006 resulted mainly from higher gas costs that impacted the first quarter of 2006 and the last quarter of 2005 partially offset by retail price rises.

Nordic's cash provided by operating activities increased significantly because the prior-year figure was negatively affected by a number of nonrecurring items including high cash outflows relating to the severe storm in January 2005 and higher tax payments compared with the current year. Improved electricity margins in the first half of 2006 constituted another positive factor.

Cash provided by operating activities at U.S. Midwest was higher year on year mainly due to increased collections of accounts receivable which resulted from higher natural gas prices in the fourth quarter of 2005. Cash increases were partly offset by pension contributions in 2006.

The Corporate Center's cash provided by operating activities was below the prior-year level. Positive tax effects in the current year almost entirely made up for the absence of income recorded in the prior year on the unwinding of currency swaps.

12 Results of Operations

In general, surplus cash provided by operating activities at Central Europe, U.K., and U.S. Midwest is lower in the first quarter of the year (despite the high sales volume typical of this season) due to the nature of their billing cycles, which in the first quarter are characterized by an increase in receivables combined with cash outflows for goods and services. During the remainder of the year, there is typically a corresponding reduction in working capital, resulting in surplus cash provided by operating activities, although sales volumes in these quarters (with the exception of U.S. Midwest) are actually lower. The fourth quarter is characterized by an increase in working capital. At Pan-European Gas, by contrast, cash provided by operating activities is recorded principally in the first quarter, whereas there are cash outflows for intake at gas storage facilities in the second and third quarters and for gas tax prepayments in the fourth quarter. A major portion of the market units' capital expenditures for intangible assets and property, plant, and equipment is paid in the fourth quarter.

Due to the increase in investments in intangible assets and property, plant, and equipment, free cash flow was 29 percent below the prior-year number.

Net Financial Position
 in millions	June 30, 2006	Dec. 31, 2005	June 30, 2005
Bank deposits	2,182	5,859	3,369
Securities and funds (current assets)	9,274	9,260	8,708
Total liquid funds	11,456	15,119	12,077
Securities and funds (fixed assets)	1,387	1,160	1,155
Total financial assets	12,843	16,279	13,232
Financial liabilities to banks	–1,673	–1,572	–2.328
Bonds (including MTN)	–9,113	–9,538	–9,572
Commercial paper	–3,388	–	–4,073
Other financial liabilities	–1,265	–1,306	–617
Total financial liabilities	–15,439	–12,416	–16,590
Net financial position1	–2,596	3,863	–3,358
1Non-GAAP financial measure; see reconciliation in the next table .

Net financial position, a non-GAAP financial measure, is derived from a number of figures which are reconciled to the most directly comparable U.S. GAAP measure in the next table.

Reconciliation of Net Financial Position
 in millions	June 30, 2006	Dec. 31, 2005	June 30, 2005
Liquid funds shown in the Consolidated Financial Statements	11,456	15,119	12,077
Financial assets shown in the Consolidated Financial Statements	25,829	21,686	17,616
– Thereof loans	–889	–1,100	–1,212
– Thereof equity investments	–22,865	–18,759	–14,551
– Thereof shares in affiliated companies	–688	–667	–698
= Total financial assets	12,843	16,279	13,232
Financial liabilities shown in the Consolidated Financial Statements	–17,589	–14,362	–18,593
– Thereof to affiliated companies	141	134	110
– Thereof to associated companies	2,009	1,812	1,893
= Total financial liabilities	–15,439	–12,416	–16,590
Net financial position	–2,596	3,863	–3,358

Our net financial position of -2,596 million was 6,459 million below the figure reported as of December 31, 2005 (3,863 million). This is mainly attributable to financial outlays for investments in property, plant, and equipment, the acquisition of the natural gas business of Hungary's MOL, and the 2.6 billion payment under our contractual trust arrangement. In addition, the dividend payout (including the special dividend) and the related tax payment resulted in substantial cash outflow. Our net financial position was positively affected by proceeds from the disposal of E.ON Finland and, in particular, by our strong cash provided by operating activities.

Financial Key Figures
January 1 – June 30  in millions	2006	2005
Net interest expense1	–60	–100
Adjusted EBITDA2	6,296	5,628
Adjusted EBITDA ÷ net interest expense	104.9x	56.3x

1Non-GAAP financial measure; see page 35 for a reconciliation to interest income shown in the Consolidated Statements of Income.

2Non-GAAP financial measure; see reconciliation to net income on page 9.

Net interest expense declined by 40 million from the yearearlier figure, mainly due to the positive development of our net financial position. Net interest expense only includes the interest income of those items that are also part of the net financial position.

On February 21, 2006, Standard & Poor's put its AA- long-term rating for E.ON bonds and its A-1+ short-term rating on credit watch with negative implications following E.ON's offer to acquire Endesa. On February 22, 2006, Moody's announced that it was reviewing its Aa3 long-term rating for E.ON bonds for a possible downgrade. Following the closing of the Endesa transaction, E.ON aims to have a single-A flat rating (A/A2). Commercial paper issued by E.ON has a short-term rating of A-1+ and P-1 by Standard & Poor's and Moody's, respectively.

On February 21, 2006, E.ON made an offer of 29.1 billion for 100 percent of Endesa's stock. In conjunction with this offer, E.ON concluded a 32 billion credit facility. Pursuant to the terms of its offer, E.ON adjusted its offer to 26.9 billion following Endesa's dividend payout in July 2006.

Employees

On June 30, 2006, the E.ON Group had 80,549 employees worldwide, as well as 1,919 apprentices and 229 board members and managing directors. Our workforce was essentially unchanged from year end 2005.

At the end of the current period, 46,269 employees, or 57.4 percent of all staff, were working outside Germany, also essentially unchanged from year end 2005.

Employees1
	June 30, 2006	Dec. 31, 2005	+/– %
Central Europe	44,141	44,476	–1
Pan-European Gas	12,755	13,366	–5
U.K.	14,411	12,891	+12
Nordic	5,912	5,424	+9
U.S. Midwest	2,898	3,002	–3
Corporate Center	432	411	+5
Total	80,549	79,570	+1
Discontinued operations2	456	840	–46
Degussa3	33,690	33,882	–1

1Figures do not include apprentices, managing directors, or board members. 2Includes WKE and, effective December 31, 2005, E.ON Finland. 3At June 30, 2006, Degussa had 1,400 apprentices.

The number of employees at Pan-European Gas declined by about 5 percent to 12,755 relative to year end 2005, mainly due to efficiency-enhancement measures at E.ON Gaz Romania.

At the end of the first half of 2006, U.K. had 14,411 employees, roughly 12 percent more than at year end 2005. The increase is chiefly attributable to the further additions in customer service staff and increased hiring of technical personnel at the power distribution and metering businesses.

At the end of the first half of 2006, Nordic had 5,912 employees, 9 percent more than at year end 2005. The increase is due in particular to the hiring of seasonal staff in the summer months.

At the end of the first half of 2006, U.S. Midwest had 2,898 employees, 3 percent less than at year end 2005. The decrease is due mainly to the sale of operating contracts of a service company in the non-regulated business.

During the reporting period, wages and salaries including social security contributions and retirement payments totaled 2.3 billion, compared with 2.2 billion a year ago.

14 Results of Operations

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.

Technologically complex facilities are involved in the production and distribution of energy. Operational failures or extended production stoppages of facilities or components of facilities could adversely impact our earnings situation. We seek to minimize these risks through ongoing employee training and qualification programs and regular maintenance and enhancement of our facilities.

In the normal course of business, E.ON is exposed to interest rate, currency, commodity price, and counterparty risks which we address through the use of instruments suited to this purpose.

Our market units operate in an international market environment characterized by general risks related to the business cycle and by increasingly intense competition. We use a comprehensive sales management system and derivative financial instruments to limit the price and sales risks faced by our power and gas business on liberalized markets.

The political, legal, and regulatory environment in which the E.ON Group does business is a source of additional external risks. Changes to this environment can make planning uncertain. Our goal is to play an active and informed role in shaping our business environment. We pursue this goal by engaging in a systematic and constructive dialog with political leaders and representatives of government agencies. Currently, the following issues are of particular relevance:

• The regulation of electricity and gas networks codified in Germany's Energy Law 2005 requires that network charges be approved in advance. This poses a risk to our earnings situation, since it is becoming apparent that Germany's Federal Network Agency is interpreting the law in a one-sided manner prejudicial to network operators.

• Germany's Federal Cartel Office (FCO) issued an order prohibiting E.ON Ruhrgas from implementing existing long-term gas supply contracts. E.ON Ruhrgas filed an emergency appeal with the State Superior Court in Düsseldorf to prevent the order from taking immediate effect. The appeal was not successful. We are now concentrating our efforts on the main case before the State Superior Court whose decision can be appealed to the German Federal Appeals Court. We expect that the main case will provide our customers and us with a thorough legal clarification and therefore the necessary legal assurance, in particular about the permissibility of the competitive injunction issued against us by the FCO. In accordance with the terms of the FCO's order, we are in the meantime offering our resellers affected by the order new gas supply contracts for the period after October 1, 2006. The offer has been well received.

The operational and strategic management of the E.ON Group relies heavily on highly complex information technology. Our IT systems are maintained and optimized by qualified E.ON Group experts, outside experts, and a wide range of technical security measures.

In the period under review, the E.ON Group's risk situation did not change substantially from year end 2005.

Outlook

The E.ON Group's positive earnings performance continued in the second quarter. We now expect our adjusted EBIT for 2006 to surpass the high prior-year level. However, we will not repeat the extraordinarily high net income figure posted in 2005, which resulted in particular from the book gains on our successful Viterra and Ruhrgas Industries disposals.

The earnings forecast by market unit is as follows: For 2006, we expect Central Europe's adjusted EBIT to be slightly above the prior-year level. We expect to offset the adverse affects of regulatory measures affecting our network business by achieving operating improvements in other areas.

Pan-European Gas's upward earnings trend from the start of the year continued in the second quarter. We now expect Pan-European Gas's adjusted EBIT to markedly exceed the figure for 2005. Assuming temperatures are normal and oil price forecasts are correct, the sharp rate of earnings growth recorded in the first half of the year cannot be extrapolated to the year as a whole because certain effects primarily impacted the first half. The Up-/Midstream business will benefit from earnings streams from E.ON Ruhrgas UK North Sea Limited, which was acquired last year, and from temperature-driven volume increases recorded in the first quarter. Moreover, oil price developments were a significant negative factor in the prior year. On balance, we expect higher equity earnings in the downstream business.

As expected, the U.K. market unit's adjusted EBIT performance in the second quarter was significantly better than in the first quarter. This improvement supports our expectation that full-year 2006 adjusted EBIT will be significantly above the 2005 figure. Important factors include the impact of

retail price increases, increased value from E.ON UK's generation fleet, and profit and cost initiatives partially counteracted by future commodity cost increases.

We anticipate that Nordic's adjusted EBIT for 2006 will be below the strong figure posted in 2005. Earnings development will be affected by significantly higher nuclear and hydro taxes and by the absence of earnings streams from the divested hydropower plants. These effects will be partially counteracted by higher average electricity prices.

We expect U.S. Midwest's 2006 adjusted EBIT to slightly exceed the prior-year level due to lower costs following the approvals of the responsible commissions that allow us to exit the organized MISO market in September.

16 Market Units

Central Europe

Central Europe
January 1 – June 30  in millions	2006	2005	+/– %
Sales	15,112	12,505	+21
– Thereof energy taxes	544	543	–
Adjusted EBITDA	3,069	2,948	+4
Adjusted EBIT	2,454	2,337	+5

Market Development

With the exception of a small number of regions, electricity prices in Germany's residential segment did not change in the second quarter, since there is typically a delay before changes in wholesale prices are passed on to residential customers. In a number of cities, there has been a stronger presence of new energy suppliers offering electricity and gas to residential customers.

Power and Gas Sales

The Central Europe market unit increased its power sales by 3.9 billion kWh to 137.4 billion kWh. The increase is almost entirely attributable to the inclusion of newly consolidated regional electricity distributors in Bulgaria, Romania, and the Netherlands.

Central Europe's regional distribution companies sold about 20 billion kWh more natural gas than in the prior-year period. More than two thirds of the increase resulted from consolidation effects. In the first half of the previous year, NRE of the Netherlands and Gasversorgung Thüringen (GVT) were not yet consolidated E.ON companies; our Hungarian gas utilities were not included until April 2005. The remainder of the increase is primarily weather-driven.

Power Generation and Procurement

Central Europe utilized its flexible mix of generation assets to meet about 47 percent of its electricity requirements, compared with 48 percent in the prior year. It procured around 4.1 billion kWh more electricity from outside sources than in the year-earlier period. This increase results mainly from the inclusion of newly consolidated subsidiaries in Bulgaria and Romania.

Power Generation and Procurement1
January 1 – June 30 Billion kWh	2006	2005	+/– %
Owned generation	67.9	66.5	+2
Purchases	76.9	73.1	+5
– Jointly owned power plants	6.4	6.7	–4
– Outside sources	70.5	66.4	+6
Power procured	144.8	139.6	+4
Station use, line loss, pumped-storage hydro	–7.4	–6.1	–
Power sales	137.4	133.5	+3

1Excludes trading activities.

Sales and Adjusted EBIT

Central Europe grew sales by 2.6 billion relative to the prior-year period. The expansion of our operations, particularly in Central Europe East, is responsible for about one third of the increase. The remaining increase is mainly attributable to adjustments to our power and gas prices resulting from the global rise in raw-material and energy prices and to weather-driven volume increases, particularly of natural gas.

Adjusted EBIT rose by 117 million year on year, with Central Europe's business units developing as follows:

Adjusted EBIT at Central Europe West Power was 136 million below the prior-year figure. This follows an increase of 18 million in the first quarter of 2006. The decrease is mainly attributable to provisions of 325 million created for the expected consequences of the new regulation of network charges in Germany (see commentary on page 7). In addition, the passthrough of higher wholesale electricity prices to end customers was moderated by significantly higher conventional fuel costs and higher power procurement costs. Adjusted EBIT was also negatively affected by increased charges stemming from earlier reporting periods.

Adjusted EBIT at Central Europe West Gas was 81 million above the prior-year figure, mainly due to volume increases resulting from cold weather in the period under review and to the fact that GVT was not a consolidated E.ON company in the prior-year period.

Central Europe East's adjusted EBIT rose by 60 million compared with the same period last year. About two thirds of the increase reflects the inclusion of earnings from companies in Bulgaria, Hungary, and Romania acquired in 2005. The remaining increase results from our operations in Bulgaria and the Czech Republic and is primarily price-driven.

Adjusted EBIT recorded under Other/Consolidation increased by 112 million, mainly due to higher income from realized hedging transactions.

Financial Highlights by Business Unit
		Central Europe West			Central Europe		Other/
January 1 – June 30		Power		Gas	East		Consolidation			Central Europe
 in millions	2006	2005	2006	2005	2006	2005	2006	2005	2006	2005
Sales1	9,525	8,580	3,097	2,086	1,727	1,201	219	95	14,568	11,962
Adjusted EBITDA	2,181	2,336	471	379	298	222	119	11	3,069	2,948
Adjusted EBIT	1,827	1,963	358	277	195	135	74	–38	2,454	2,337

1Excludes energy taxes; trading activities are recognized net.

18 Market Units

Pan-European Gas

Pan-European Gas
January 1 – June 30  in millions	2006	2005	+/– %
Sales	14,016	8,860	+58
–Thereof energy taxes	1,847	1,682	+10
Adjusted EBITDA	1,717	978	+76
Adjusted EBIT	1,458	803	+82

Market Development

Germany consumed about 9 percent more natural gas in first half of 2006 than in the prior-year period, mainly due to cooler weather in January and March. Temperatures in the second quarter were comparable to those of the prior year. In this period, Germany consumed 3 percent more natural gas than in the same quarter a year ago.

Gas Release Program

On May 17, 2006, E.ON Ruhrgas held the fourth auction of a portion of the natural gas it procures under long-term supply contracts. Seven bidders were awarded a total of about 39 billion kWh of gas in the seventh round of the Internet-based auction. Demand was thus higher than in the previous years.

Gas Sales

Pan-European Gas's midstream business sold 404.9 billion kWh of natural gas in the first half of 2006, surpassing the prior-year figure by nearly 12 percent. It sold 138.6 billion kWh of natural gas in the second quarter, about 1 percent more than last year.

2006	2005	+/– %
266.3	225.6	+18
56.6	57.7	–2
43.3	44.5	–3
38.7	35.3	+10
138.6	137.5	+1
404.9	363.1	+12

In the first half of 2006, E.ON Ruhrgas AG increased its sales volume outside Germany by 28 percent to 81.7 billion kWh. Sales outside Germany thus accounted for one fifth of total sales volume. Additional gas volumes were sold in Italy in the second quarter. In addition, we acquired new customers in France and Denmark.

In the first six months of 2006, sales volume in Germany rose by 8 percent year on year to 323.1 billion kWh. Sales volume declined by 3 percent in the second quarter following a significant 15 percent increase in the first quarter. Overall, sales by segment changed only slightly. In the first half of 2006, regional gas companies accounted for 47 percent of total sales volume, municipal utilities for 24 percent, and industrial customers for 9 percent compared with 49 percent, 24 percent, and 9 percent, respectively, in the prior-year period.

Sales and Adjusted EBIT

Pan-European Gas increased sales by 58 percent year on year to 14 billion.

Sales growth in the midstream business resulted mainly from higher average sales prices in the wake of oil price movements along with higher sales volumes in the first half. The upstream business includes the revenue streams of E.ON Ruhrgas UK North Sea Limited. This company was acquired in 2005 and only contributed to consolidated sales in November and December. In September 2005, Pan-European Gas increased its stake in Njord Field from 15 percent to 30 percent, which also had a positive effect on sales in the current-year period. Sales at Downstream Shareholdings were about 1.3 billion higher, due primarily to consolidation effects. The sales of E.ON Gaz Romania are included from the beginning of 2006, whereas in 2005 they were not consolidated until the second half following our acquisition of majority stake. E.ON Földgaz Trade and E.ON Földgaz Storage became consolidated E.ON subsidiaries on March 31, 2006, after we acquired 100 percent of the two companies from MOL, a Hungarian oil and gas company.

Pan-European Gas recorded an adjusted EBIT of 1,458 million, a considerable increase from the prior-year period. All business units contributed to the advance.

The Up-/Midstream business unit benefited in the first half of 2006 from high oil and natural gas price levels and consolidation effects. Temperature-driven volume increases in the first quarter and sales growth outside Germany served to increase adjusted EBIT at the midstream business. In addition, the continual rise in oil prices had a significant negative impact on adjusted EBIT in the prior-year period. Moreover, adjusted EBIT in the second quarter was positively affected by payments of invoices from the cold winter. Furthermore, nonrecurring income from the final clearing of trading transactions contributed to the increase in adjusted EBIT; the negative effects of these transactions had had a negative impact on the prior-year figure.

Higher equity earnings from associated companies constituted a key positive effect on adjusted EBIT at Downstream Shareholdings. Another was the inclusion of E.ON Gaz Romania. By contrast, E.ON Földgaz Trade, which operates in Hungary's regulated gas market, recorded a negative adjusted EBIT due to the delay in passing through higher procurement costs.

Financial Highlights by Business Unit
			Downstream		Other/
January 1 – June 30	Up-/Midstream Shareholdings		Consolidation		Pan-European Gas
 in millions	2006	2005	2006	2005	2006	2005	2006	2005
Sales1	10,287	6,438	2,239	956	–357	–216	12,169	7,178
Adjusted EBITDA	1,197	595	512	384	8	–1	1,717	978
Adjusted EBIT	1,002	457	448	347	8	–1	1,458	803
1Excludes energy taxes.

U.K.

U.K.
January 1 – June 30  in millions	2006	2005	+/– %
Sales	6,395	4,876	+31
Adjusted EBITDA	732	908	–19
Adjusted EBIT	451	613	–26

Market Development

U.K. market electricity and gas consumption at 180 billion kWh and 553 billion kWh, respectively, for the first half of 2006 was broadly in line with 2005.

E.ON UK's residential retail prices were increased by 18.4 percent for electricity and 24.4 percent for gas, effective March 10, 2006. In an environment of rising wholesale energy costs, the pricing strategy is under constant watch.

Power and Gas Sales

The decrease in Industrial and Commercial (I&C) power and gas volumes reflected E.ON UK's focus on margin rather than volume. Residential and SME power and gas sales volumes increased despite a 2 percent reduction in the number of customer accounts; the volume increase is primarily due to colder weather in the first quarter.

Sales by Customer Segment1
January 1 – June 30 Billion kWh	2006	2005	+/– %
Power—Residential and SME	19.9	18.9	+5
Power—I&C	9.2	11.6	–21
Total power sales	29.1	30.5	–5
Gas—Residential and SME	40.7	39.7	+3
Gas—I&C	16.7	18.1	–8
Total gas sales	57.4	57.8	–1
1Excludes wholesale and energy trading activities.