Bloomberg News

Reliant Net Income Rises 46% on Energy Contracts

May 01, 2008

Reliant Energy Inc., owner of power plants in nine U.S. states, said first-quarter profit rose 46 percent after energy contracts gained in value. Reliant fell after the company said earnings through 2010 would be lower than previously forecast.

Net income climbed to $377.2 million, or $1.07 a share, from $258.7 million, or 74 cents, a year earlier, Houston-based Reliant said today in a statement. Revenue rose 19 percent to $2.82 billion.

Reliant records costs and gains to make its valuation of energy contracts reflect market prices. The adjustments, which resulted in a $558 million gain in the first quarter, represent a snapshot of what losses or gains would be if the energy contracts were immediately liquidated. The gain a year earlier was $522 million. Reliant benefits from a tight market, said Gordon Howald, an analyst with Calyon Securities in New York.

``Demand for power continues to be strong,'' said Howald, who has a ``buy'' rating on Reliant shares and doesn't own any. Howald said Reliant's results missed his estimate of 11 cents a share by 1 cent when items such as the contracts were excluded.

The company changed its 2008 forecast for earnings before interest, taxes, depreciation and amortization, or ``open EBITDA,'' to $1.11 billion from $1.24 billion. The 2009 outlook was changed to $1.26 billion, down from $1.49 billion, and the 2010 forecast is now $1.38 billion, down from $1.6 billion.

Reliant, which has about 16,000 megawatts of generating capacity, fell 72 cents, or 2.8 percent, to $25.02 as of 1:30 p.m. in New York Stock Exchange composite trading. The stock has dropped 4.7 percent this year.

Reliant said first-quarter open EBITDA, which doesn't include such items as hedging gains and losses, rose 51 percent to $172 million.

Earnings from plants that sell power in wholesale markets rose 67 percent to $142 million, Reliant said. Profit from retail power sales fell 2.9 percent to $66 million.

Higher Coal Prices

The open EBITDA outlook declined in part because of higher coal prices, Pat Hammond, a Reliant spokeswoman, said today in a telephone interview. The prices for coal and natural gas aren't the most important factors for the company, Chief Executive Officer Mark Jacobs said today on a call with analysts and investors.

``The fundamental tightening of supply and demand will have a far greater and more sustained impact on earnings and cash flow,'' Jacobs said.

Spot prices in the PJM Interconnection LLC power market, the largest in the U.S., averaged $78.60 per megawatt-hour in the first quarter, up 19 percent from a year earlier. Jacobs has sought to sell assets and expand Reliant's commercial and industrial retail business into New York. The company had losses of more than $2.5 billion from 2002 to 2006.

(Reliant held an earnings conference call for investors and analysts. To listen to a replay, access the Webcast at http://www.reliant.com.)

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

To contact the editor responsible for this story: Tony Cox at acox3@bloomberg.net.


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