Reliant Energy Posts Loss, Inks Texas Retail Operations Sale

Reliant Energy Inc. said Monday it swung to a net loss in the 4th-Q on $543M in write-downs & hedging losses. The Houston-based electricity supplier also said it'll sell its Texas retail business - the bulk of its distribution business - to NRG Energy Inc. for $287.5M in cash plus working capital. Reliant CEO Mark Jacobs said the company's continuing to consider ways to boost value for shareholders, and called the sale a milestone in the strategic-alternatives process. NRG Energy said combination of Reliant's estimated 1.8 million customers in Texas combined with NRG's power plants in the state will provide an "ideal business model." Using NRG's power plants to meet the power demand of Reliant's customers reduces the capital needs of the business, which became a problem for Reliant. In a conference call, CEO David Crane said the company isn't looking to expand the retail electricity business beyond Texas, seeing the state's deregulated market as a unique opportunity where NRG/Reliant combination has a comparative advantage. In addition, NRG reached an agreement with Merrill Lynch to provide collateral support at the retail enterprise for up to 18 months as NRG moves to have its own generation supply Reliant's retail business. Reliant is being sued by Merrill as the investment bank disputes the energy company's termination of a $ 300 M credit line, claiming it triggers the default of an additional agreement. The deal, expected to close in the second quarter, comes as NRG's board fends off an unsolicited bid from Exelon Corp. Exelon in November launched an exchange offer to pay a fixed ratio of 0.485 Exelon share for each NRG share. Exelon went directly to shareholders after NRG's board dismissed the same offer, saying it "grossly undervalues" the company. The Chicago company said last week 51% of NRG's shareholders had tendered their shares in support of the proposed deal by a deadline last week. U.S. power generators & utilities are being hurt not only by slumping electricity demand, but also by tumbling natural-gas prices. Natural-gas prices help set the market price for electricity. In November, Reliant said it would wind down its commercial and industrial retail power-supply business amid market turmoil and the credit crunch. The company reassured investors afterward it had adequate liquidity as it announced it wouldn't proceed with $1 billion in loans, which some on Wall Street said were too expensive. Still, Reliant has continued to unload assets, selling its Northeastern electricity marketing business to Hess in December. The Texas retail operations since became the bulk of its non-generation operations. Meanwhile, Reliant swung to a 4th-Q net loss of $437.7 M, or $1.25 a share, from year-earlier net income of $227 million, or 64