Reliant Resources is doing well in the opening innings of retail electric choice in the ERCOT market and looks to growing retail sales to provide a natural hedge to its wholesale market operations, Chairman Steve Letbetter told stockholders in making a delayed announcement Friday of very positive fourth quarter and full year 2001 earnings for the Resources group and parent Reliant Energy.

“The transition to open choice has gone very well in Texas,” Letbetter said, adding that Reliant has 1.7 million retail customers, including customers in the territory of its own HL&P subsidiary and in adjoining territories of TXU Energy and AEP. He noted Reliant’s unique position as the only one among large marketers which also is participating in the unregulated retail market.

Overall Reliant Energy Friday reported net income for 2001 of $980 million, or $3.35 per diluted share, more than double the net income of $447 million, or $1.56 per diluted share, for 2000. The results include the company’s approximately 83% interest in Reliant Resources, which more than doubled operating income from its wholesale energy segment to $899 million due to increased power generation sales volumes and margins.

Fourth quarter 2001 net income came in at $46 million, or $0.16 per diluted share, compared to a reported net loss of $299 million, or a loss of $1.04 per diluted share, for the fourth quarter of 2000.

Reliant Energy had announced in early February it would delay reporting earnings in order to recalculate some of the Resources unit’s hedging transactions which would impact favorably on the results. The company said Friday it also was restating earnings for the second and third quarters of 2001, adding in $108 million of net income for the first nine months based on a correction in the accounting treatment of a series of structured transactions. The transactions had been “inappropriately accounted for as cash flow hedges.” They should have been accounted for as derivatives with changes in fair valued recognized in the company’s income statement.

Reliant’s wholesale energy business had an operating loss of $13 million in the fourth quarter of 2001, compared to income of $15 million in 4Q 2000. The decrease was due to reduced trading margins, a charge of $68 million related to the Enron bankruptcy, increased costs for its Mid-Atlantic power generation operations, increased overhead and depreciation costs, and legal and other expenses related to the energy crisis in California.

The company’s power sales volumes increased by 88% for 2001 to 380,405,000 MWh over 2000 volumes of 201,939,000 MWh; and by 59% in the fourth quarter to 110,211,000 MWh over 4Q 2000 volumes of 69,509,000 MWh. Natural gas sales of 3.7 Tcf in 2001 compared to 2.4 Tcf in 2000. Fourth quarter gas sales were 972 Bcf compared to 716 Bcf in 4Q 2000.

“We’re moving forward with plans to separate into two separately owned public companies,” Letbetter said. “Reliant Energy received a favorable ruling from the Internal Revenue Service in late January, and we expect to complete the formation of CenterPoint Energy as the new holding company and the spin-off of Reliant Resources to Reliant Energy shareholders once we receive approval of the restructuring from the Securities and Exchange Commission.”

Reflecting on a hard year for the energy industry, Letbetter cited weak demand, the collapse in spark spreads and the dramatic reduction in profitability in the latter part of the year for the industry’s slump. Instead of the expected soft landing coming off the high prices at the beginning of last year, the price decline had been “hard and deep.” Because of the liquidity crunch other companies have been canceling projects and selling off properties, which provides more opportunities for Reliant, he added.

In a conference call Friday, CFO Steve Naeve pointed to the company’s strong balance sheet and debt to equity ratio of 51%, saying it would have no need for incremental financing to carry out its budget plans. Its 2002 projections are for earnings between $1.80 and $2.00.

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