Bloomberg News

Reliant Energy Posts Profit on Gain From Contracts

May 03, 2007

Reliant Energy Inc., the largest Texas power retailer, posted its first profit in three quarters because of a gain in the valuation of energy contracts.

Net income was $258.7 million, or 75 cents a share, compared with a loss of $133.1 million, or 44 cents, a year earlier, the Houston-based company said today in a statement. The results included a $522 million gain in the value of energy contracts and $22 million in costs from a legal settlement. Revenue fell 3.7 percent to $2.36 billion.

The company raised its 2007 forecast for earnings before interest, taxes, depreciation and amortization to $1.03 billion from $974 million. The measure doesn't include such items as contract valuation adjustments. On that basis, which Reliant calls ``open EBITDA,'' first-quarter profit rose to $114 million from $45 million.

Power retailing, Reliant's biggest business, drove the increase. Retail earnings were $68 million, compared with a loss of $32 million a year earlier. Profit from plants that sell power in wholesale markets fell 23 percent to $85 million because maintenance projects reduced output.

Shares of Reliant fell 6 cents to $22.85 in New York Stock Exchange composite trading. Before today, the stock had jumped 61 percent this year.

The average wholesale electricity price in PJM Interconnection LLC, the largest U.S. power market, rose 9 percent from a year earlier in the first quarter to $66.43 per megawatt-hour, according to Bloomberg data.

Contract Snapshot

Reliant records costs or 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.

Chief Financial Officer Mark Jacobs will replace Joel Staff this month as Reliant's chief executive officer. Staff shed assets and cut jobs to reduce costs and debt. The company had losses of almost $2 billion in 2002 and 2003.

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

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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