Reliant Energy’s increased focus on the non-regulated side ofthe energy business has apparently made the former pipeline anddistribution assets of subsidiary NorAm Energy no longer attractiveto the company. Reliant said last week it hired an investmentbanking firm to evaluate strategic alternatives for two of its gasdistribution companies and its gas pipeline operations.

The distribution companies, Reliant Energy Arkla and ReliantEnergy Minnegasco, serve more than 1.4 million customers inArkansas, Louisiana, Oklahoma, Texas and Minnesota. Reliant’s gaspipeline operations include two interstates as well as gatheringand pipeline services. The interstate pipelines, Reliant Energy GasTransmission and Mississippi River Transmission, total 8,200 milesof pipe and together form one of the largest gas pipelines in theMidcontinent. The company’s gathering operations include 4,000miles of pipe.

The assets up for sale were acquired by Reliant, then HoustonIndustries, in August 1997 (see NGI Aug. 4, 1997) in a $3.8 billiondeal announced August 1996 (see NGI Aug. 19, 1996). At the time,Don Jordan was CEO. Jordan retired from his post as chairman inDecember and was replaced by R. Steve Letbetter, who has beenserving as president and CEO since June.

“We are transitioning our portfolio to competitive energyservices businesses in the wholesale and retail energy sectors,”Letbetter said last week. “In less than three years we’veestablished a strong wholesale presence in five important regionalU.S. markets and evolved into a skills-based energy servicescompany with superior capabilities in generation, trading andmarketing. Our near-term focus in the retail arena will be Texas,our home market, which will become competitive on Jan. 1, 2002.”

Reliant is not considering alternatives for Reliant EnergyHL&P/Entex, which serves 1.7 million electricity and gascustomers in the greater Houston area, or Reliant Energy Entex,which serves 557,000 gas customers in east and south Texas,Louisiana and Mississippi. Entex as well as wholesale energytrading and marketing operations also came to Reliant via NorAm.

PaineWebber analyst Barry Abramson said the potential sale ofthe former NorAm assets stems, at least in part, from the change inmanagement. He noted this is the second “180-degree turn” thecompany has made in the last 18 months, the first being the sale ofSouth American assets. “I think the actions speak louder than wordshere. They made two significant changes in direction compared tothe focus and momentum that was in place from the prior CEO.”

In November, Reliant sold its 50% interest in a Mexican gasdistribution company that had been acquired through the NorAmacquisition. Reliant Energy International and Mexican partnerCorporacion Gutsa SA de CV sold Gas Natural de Rio Panuco toTractabel for $8.5 million. NorAm partnered with Gutsa to win the30-year distribution concession in the northeastern Mexican stateof Tamaulipas. In December, Reliant said it was evaluatingalternatives for its interests in electric utilities serving nearly10 million customers in Brazil, Columbia, El Salvador andArgentina, as well as gas systems in Columbia and power generationin Argentina. Letbetter attributed the move to “a refocusing of ourstrategy.”

Reliant spokeswoman Sandy Fruhman said the potential sale of theformer NorAm assets is not related to the change in the CEO’soffice but instead is a continuation of the strategy to targetnon-regulated businesses and their earnings growth, which issteeper than that of regulated utilities. Proceeds from any salelikely will be invested in the energy services business, she said.

Reliant’s focus on non-regulated power generation was madeespecially apparent last month when the company said it agreed topay Sithe Energies $2.1 billion in cash for 21 power plants inPennsylvania, New Jersey and Maryland (PJM) with 4,276 MW of netgenerating capacity (see NGI Feb. 28). The deal fits with Reliant’splan to leverage its trading and marketing business with generationin key U.S. regions.

Fruhman credited the NorAm deal for giving the company its startin energy trading and marketing. “It would have been difficult forus to build a business like that from the ground up. We did get anice foundation from NorAm, but we’ve done a heck of a lot sincethen.” She said the Sithe acquisition is key to Reliant’s recentboosting of its earnings growth target from 8 to 10% per year to 10to 12% per year.

Still, comments made by Letbetter as recently as October suggestthe company was envisioning a future for all of the former NorAmassets. In a speech at PowerMart ’99, Letbetter credited the NorAmacquisition for giving the company needed scale. “Perhaps moresignificantly,” he said, “the acquisition increased the scope ofour business to include natural gas pipeline and distributionoperations, a significantly larger geographic footprint, plustrading, marketing and risk management capabilities.

“At Reliant Energy, we see two primary businesses evolving -energy delivery and energy services, each of which has severalcomponents. We view the two as being interrelated with manypotential synergies. Reliant Energy is active in both of thesebusinesses.”

And others as well. Like a host of energy giants, Reliant hasturned some of its attention to communications. Last week, thenon-regulated Reliant Energy Communications agreed to acquireInsync Internet Services, a business-to-business Internet serviceprovider.

As for what will happen to the distribution and pipeline assetsif they are sold, Abramson said they don’t have to go to the samebuyer. Utilities in the regions of the distribution companies arelikely candidates. As for the pipelines, Southern Company andAmerican Electric Power are electric utilities that have expressedan interest in pipelines, he said.

Joe Fisher, Houston

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.