Regulators OK Reliant Energy holding company

Move advances plan to spin off trading arm

July 09, 2002|By BLOOMBERG NEWS

HOUSTON - Reliant Energy Inc., the biggest electricity company in Texas, said yesterday that federal regulators have approved a new holding company structure, a step needed to complete the spinoff of Reliant Resources, its energy-trading arm.

Reliant Energy will be renamed CenterPoint Energy, a natural gas and power-delivery company. Reliant Resources shares held by its parent will be distributed to investors in coming weeks, completing a separation that began last year, the company said in a statement.

Reliant Energy owns 83 percent of Reliant Resources, which in February bought Baltimore-based Orion Power Holdings Inc. for $4.8 billion. Reliant Resources moved Orion operations to Pennsylvania and Texas.

Chief Executive R. Steve Letbetter has said that completing the spinoff quickly is Reliant Energy's top priority. The company has $4.7 billion in credit facilities that expire Friday, and the new structure should give it better access to capital, he said yesterday.

"This has positive implications for Reliant Energy," said Paul Fremont, an analyst with Jefferies & Co. who rates both Reliant entities "hold" and owns no shares. "I'm not aware of any obstacles in the way of the spinoff."

Shares in Reliant Energy rose $1.10, or 6.9 percent, to $17.15 in midafternoon trading. They have lost more than a third of their value this year. Reliant Resources rose 3 cents to $8.71.

Reliant Energy is waiting for the Internal Revenue Service to confirm the tax-free status of the spinoff before completing the transaction, it said. An IRS ruling in January anticipated completion by the end of April.

On Friday, Reliant Energy and Reliant Resources reduced previously reported revenue by $7.9 billion over the past three years to exclude sham energy trades under investigation by the Securities and Exchange Commission, the agency that approved the new holding company structure. Profit for the 1999-2001 period was unchanged at both companies.

The restatement cut Reliant Energy's revenue last year by 12 percent to $40.8 billion, while Reliant Resources' dropped 15 percent to $31.1 billion. "Round-trip" trades also have led to the resignation of company executives, the cancellation of a bond sale, inquiries from regulators and investor lawsuits.

The collapse of Enron Corp., a decline in gas and power prices and closer scrutiny by credit-rating services and regulators has crippled the energy-trading industry. Hundreds of traders were fired in the second quarter, and companies such as Williams Cos., Dynegy Inc. and Aquila Inc. are selling assets and securities to raise cash and reduce debt.

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