Increased power and gas sales help double Reliant's 1Q income

By the OGJ Online Staff

HOUSTON, Apr. 16--Buoyed by growth in operating income from wholesale power and gas sales, Reliant Energy Inc. reported first quarter earnings of $274 million, or 94�/share, compared with $134 million or 47�/share for the same period of 2000.

Wholesale power sales increased 171% and gas sales 40% producing operating income of $216 million for the wholesale energy division versus a loss of $22 million for the comparable 2000 period. The company attributed some of the increase to the addition of nearly 4,300 Mw of power generation in the mid-Atlantic region.

The results included a $38 million reserve taken for receivable balances related to energy sales in California and $21 million of higher expenses for emissions credits. In the fourth quarter, Reliant set aside $39 million for unpaid balances.

In a conference call Steve Letbetter, CEO of Reliant, said the company was comfortable with its reserves set aside for unpaid power bills in California.

If there are any changes resulting from Pacific Gas & Electric Co.'s bankruptcy reorganization filing, the reserves could be increased, he said. Letbetter noted unpaid balances have actually declined to $337 million from $380 million as of the end of the fourth quarter. The company received some partial payments accounting for the reduction.

"The ultimate solution to the California crisis is still not in hand. But we are encouraged by the progress made so far," said Letbetter.

Switching to the upcoming deregulation in the Texas market, Letbetter told analysts a recent ruling by a Public Utility Commission administrative law judge means the company will have to give customers $290 million/year in credits for its excess collection of stranded costs. Customers will receive the credits over a 10-year period.

Since 1998, Reliant has collected $1.5 billion from customers to 'mitigate' in advance of competition the value of its stranded assets such as the South Texas nuclear plant. Analysts asked how much of first quarter earnings could be attributed to the collection of this mitigation.

The company said that information was not immediately available. The ruling also said that the company will have to reduce its revenue requirement by $156 million.

"We believe we will be able to recover this money in 2004, when the 'true-up' of stranded costs takes place," said Letbetter. At that time the PUC will evaluate or true-up the value of the stranded assets given real market conditions. The state is set to open its electricity market in January 2002.

On the regulated electric side, Reliant reported that operating income decreased to $186 million from $202 million for the same period of 2000. Increased expenses for information technology and benefits changes accounted for most of the decline.

On the gas side, cooler weather contributed to the increased operating income of the distribution business. Operating income increased 29% to $135 million, compared to $105 million for the first quarter of 2000. Pipelines and gathering also performed better than the comparable quarter last year with an increase in operating income to $39 million from $32 million.

On the down side, Reliant recorded a $7 million loss from the disposal of discontinued operations in Latin America. Its investments in European utility operations haven't fared too well either.

Operating income from its investments in a Dutch utility fell to $18 million from $33 million for the comparable quarter last year. The company attributed the decline to increased competition in Holland from the opening of the wholesale market in January 2001. The company also recorded an operating loss of $33 million for its unregulated retail electric segment, communications business, and eBusiness group compared with last year's first quarter loss of $9 million.

Reliant executives would not comment about the outlook beyond a statement that the company should outperform its previous announced earnings per share target growth rate of 10-12%. Reliant is in the registration period of its initial public offering. The IPO is expected to be completed by early May and a complete spin-off of the unregulated side of the company within 12 months of the IPO, said Letbetter.