Reliant Energy’s increased focus on the non-regulated side ofthe energy business has apparently made the former pipeline anddistribution assets of NorAm Energy no longer attractive to thecompany. Reliant said last week it hired an investment banking firmto evaluate strategic alternatives for two of its gas distributioncompanies 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 in a $3.8 billion deal announced August1996. At the time, Don Jordan was CEO. Jordan retired from his postas chairman in December and was replaced by R. Steve Letbetter, whohas been serving 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 themanagement change. He noted this is the second “180-degree turn”for the company has made in the last 18 months, the first being thesale of South American assets. “I think the actions speak louderthan words here. They made two significant changes in directioncompared to the focus and momentum that was in place from the priorCEO.”

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.

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.

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