No longer believers in the Enron Corp. energy trading mantra that “bigger is better,” Mirant Corp. and Reliant Resources Inc. executives said Thursday that the focus now is on cash — finding it, paying off debts with it and keeping as much of it as they can. They both conceded that for them, anyway, physical gas trading has not become a cash cow.

Building up enough liquidity to assuage the major credit rating agencies and as important, investors, is coming at a price, with both companies dumping non-core assets, eliminating or sharply reducing energy trading offices, laying off once prized employees and trimming visionary budgets. In a panel discussion, Marce Fuller, Mirant’s CEO, and Steve Naeve, RRI’s COO, told attendees of the Merrill Lynch Global Gas & Power Leaders Conference in New York, that they no longer want the panache as a top physical gas marketer.

Naeve, who warned that the regulatory structure has to change for the merchant sector to properly operate, said RRI’s once profitable trading business has closed its Canadian office and fired nearly 170 natural gas and power traders throughout the country. RRI’s wholesale markets, he said, “are at a trough.” He and Fuller were on a panel at the Merrill Lynch conference.

“I think it’s probably clear to me at this point that we do not need to be the biggest marketer of physical gas,” said Fuller. “At this point in time, we can’t assume the markets are going to rebound enough.” She said, “looking at this, you realize that now, you cannot refinance what you have in place. The plan [for Mirant] is to deal with the [debt] maturities we have in the next two to three years…with a comprehensive plan over the next two to three years as they come due for Mirant.”

By reducing assets and downsizing its budget, Mirant has been “building up liquidity all year long,” and Fuller said it has steadily risen to its current level, $1.7 billion. “We expect to end the year there, not assuming any other asset sales.” She added that the “good news,” is that the company is positioned to “build going forward. All of our liquidity is in cash.”

Now in “phase two” of its restructuring plan for the year, Fuller said more reductions will be made to Mirant’s budget before November. “I believe we can take another $200-to-$300 million more out of the capital budget for next year. We are focused on bringing the capital budget down,” and said another $1 billion in assets could be sold.

At RRI, the physical gas business had become a “big liquidity hog,” said Naeve, and things had to change. The retail unit, which has a strong Texas market, helped to shore up the tremendous drop in trading over the last few months, and currently, retail business accounts for more than half of RRI’s earnings. RRI’s spin-off from Reliant Energy Inc. (which will become CenterPoint Energy) will occur Sept. 30, said Naeve.

“The challenges we’ve got to work through on our way through the near term is the status of our debt maturities,” Naeve said. With two “buckets” of maturities due, one for $1.3 billion of secured debt due Oct. 28, “I feel very good about our ability to get this done. But we’re not likely to see anything happen until pretty close to the end of October.”

The other “bucket” is a $2.9 billion bridge to acquire Orion’s equity, he said. “The maturity is mid-February 2003. We think we’ve reached a conceptual agreement on restructuring with the bank,” but added that RRI does not yet have a term fee. “The reality of the situation is that all of this is just soaking in. February’s maturity is here, but the banks are drawn away to more urgent situations, a lot of sort of bigger fish to fry…with all of the other merchant players. The banks are essentially distracted. I’d be happy to get this deal done tomorrow,” but he said that was unlikely.

Despite a “double downgrade,” Naeve said he was “very comfortable” with RRI’s current cash status, and said he was “confident we have liquidity in hand.” Going forward, Naeve said, the main goal is “restoration of the balance sheet.” He added, “our problem is too much bank debt with near-term maturity. If we can extend the maturity of the bank debt, then we’ll have access to the markets.”

By using asset sales, Naeve said RRI will be able to pay the banks back quickly. On how those assets will be targeted, he said, “we’ve come to realize that scale is important.” Where RRI has “scale,” that is market share, assets will be kept. Other areas where RRI is not a large player, which he said included Florida, could be targeted. “You will see us sell some assets,” Naeve added.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.