Working to set aside enough reserves to cover potential lossesfrom power trading in California, Houston-based Reliant Energy Inc.reported fourth quarter results Friday that fell short of WallStreet expectations. The utility posted a loss of $298.6 million,or $1.04 a diluted share. In fourth quarter 1999, it also lost,posting earnings of $72.7 million or 26 cents a share.
However, a strong performance from Reliant Energy’s unregulatedwholesale energy businesses and an increased demand for itsregulated electric service resulted in earnings up 65% for theentire year 2000. Adjusted earnings for last year were $838million, or $2.94 per share, up from $508 million, or $1.78 pershare a year earlier. In early 2000, CEO Steve Letbetter saidReliant had set a profit growth target of 10% to 12%, andacknowledged that the company had exceeded that figure with growthof 65% for the year.
Adjusted earnings for the fourth quarter were $73 million, or$0.25 a share, almost mirrored from the fourth quarter of 1999,when earnings were $73 million, or $0.26 a share. Analysts surveyedby First Call/Thomson Financial had predicted earnings of 33 centsa share, but Reliant said the average estimate did not includediscontinued operations and other factors, including its Californiareserve.
Taking the biggest hit in the final quarter was Reliant’swholesale energy group, which sells power in the Californiaelectricity market. Both of California’s largest utilities, PacificGas and Electric and Southern California Edison may default onpayments due bondholders and suppliers, and Reliant has set up areserve of $39 million to cover potential losses.
Letbetter, commenting to analysts during a conference callFriday, said that California’s move to create a creditworthy entityto purchase power was a “good first step.” He said, “in time, aworkable solution can be reached.”
Earlier last week, Reliant submitted six proposals forquantities up to 3,500 MW in response to California’s electricitysupply auction. The company said that the state’s rigid biddingterms restricted the amount of power it could offer at the lowestprice, but said it was committed to finding additional solutions.
In other earnings, Reliant’s electricity operation, HoustonLighting & Power, saw operating income rise 41% to $203million, edged on by colder conditions than normal. Kilowatt-hoursales in the quarter also increased nearly 5% from a year earlier.
The strong year-end performance came from the unregulatedwholesale energy group, which includes power generation, tradingand marketing. That group realized a fourth quarter profit of $16million versus a loss of $14 million a year ago and a rise to $482million for the full year compared with $27 million in 1999.
Reliant also profited in its electric operations, which werefueled by higher demand, natural gas distribution, and itspipelines and gathering business.
Letbetter said that Reliant had made “substantial strides” inexecuting its growth strategies in recent years. He noted thatacross the board, all business segments had performed well, andsaid the company’s track record reflected its commitment toincrease shareholder value.
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