Bloomberg News

Reliant Energy Reports Its 13th Loss in 17 Quarters

February 27, 2007

Reliant Energy Inc., the second- largest Texas power retailer, posted its 13th loss in 17 quarters after above-normal temperatures sapped demand for electricity to heat homes.

The fourth-quarter net loss narrowed to $53.7 million, or 17 cents a share, from $134.1 million, or 44 cents, a year earlier, Houston-based Reliant said today in a statement. Revenue fell 9.8 percent to $2.34 billion.

Reliant, which has power plants nine U.S. states, lost sales because of warmer-than-normal weather across much of the nation. The average wholesale electricity price in PJM Interconnection LLC, the largest U.S. power market, tumbled 45 percent from a year earlier to $50.62 per megawatt-hour, according to data from Intercontinental Exchange Inc.

``The fourth quarter was one of the warmest winters on record, and essentially, power generators were less able to dispatch'' units that run at periods of high demand, said Nathan Judge, an analyst at Atlantic Equities in London.

Chief Executive Officer Joel Staff sold assets and cut jobs to reduce debt and costs after a collapse in wholesale power prices contributed to almost $2 billion in losses in 2002 and 2003. Reliant last week said Staff will retire as CEO in May and be replaced by Chief Financial Officer Mark Jacobs.

Texas opened its power industry to competition in 2002, creating a system where former monopoly utility companies such as Reliant can be undercut on prices by other retailers.

Contract Adjustments

Shares of Reliant fell 44 cents, or 2.5 percent, to $16.87 in New York Stock Exchange composite trading. Before today, the stock had climbed 22 percent this year.

The fourth-quarter loss was smaller than a year earlier partly because of a $49 million gain in the valuation of contracts that lock in energy prices. Reliant reported $101 million in costs in the 2005 fourth quarter to reflect a drop in the value of the contracts.

Reliant records these costs and gains, called mark to market, each quarter to reflect market prices for power and the fuel used in producing it. The adjustments, which represent a snapshot of what losses or gains would be if the energy contracts were immediately liquidated, are hypothetical. Reliant locks in profits through agreements that fix fuel costs and the prices the company will be paid for power.

Excluding the latest quarter's mark-to-market gain and $37 million in debt-conversion costs, the loss was about 21 cents a share. The company was expected to lose 19 cents a share, the average of nine analyst estimates (RRI:US) compiled by Bloomberg.

Asset Sales

Reliant, which earlier this month said it may sell a power plant east of Houston, also may shed assets considered ``non- strategic'' in Florida, Mississippi and Nevada, Staff told investors today on a conference call.

That category may include four plants in the three states, said Pat Hammond, a company spokeswoman. The plant near Houston may be sold or transferred to lenders.

TXU Corp., based in Dallas, is the largest power retailer in Texas. TXU, which yesterday said it agreed to be acquired in a $45 billion leveraged buyout, today said its fourth-quarter profit rose 33 percent to $475 million, or $1.03 a share.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

To contact the editor responsible for this story: Robert Dieterich at rdieterich@bloomberg.net.


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