Several frustrated Reliant Energy Inc. shareholders on Wednesday urged R. Steve Letbetter, chairman and CEO, to resign, insinuating during an annual meeting in Houston that the utility giant has deteriorated since Letbetter took over as CEO in 1999. Calls for his resignation, as well as others from Reliant’s executive team, were not submitted to a formal vote, and Letbetter did not answer questions about whether the company would be in better shape without him at the helm.

At week’s end, Letbetter was still in control, after facing a less hostile crowd at Thursday’s Reliant Resources Inc.’s annual meeting. A Reliant Energy spokeswoman indicated that Letbetter had no immediate plans to step down. “Mr. Letbetter remains committed to leading Reliant into the future, and believes the company is well positioned for long-term growth and prosperity to the benefit of shareholders, customers and employees,” she told NGI.

During the annual meeting, Letbetter did tell the audience that he regretted Reliant’s participation in the phony round-trip energy trades now under scrutiny, and explained that measures had been taken to ensure sham trading never happens again. He was elected chairman of Reliant Energy in January 2000, and also serves as chairman and CEO of subsidiary Reliant Resources, of which Reliant Energy owns 83%.

Letbetter has run Reliant Resources since its inception in 2000, and until last month also has served as president. Last month, COO Stephen W. Naeve assumed the president’s role at Reliant Resources. Reliant Resources remains under investigation by the Securities and Exchange Commission (SEC) as well as the Federal Energy Regulatory Commission for its round-trip trade practices, which the company has already admitted boosted revenues about 10% over a three-year period.

At least four people involved in the sham trades at Reliant have either been fired or have resigned in the past three weeks, including two energy traders. Joe Bob Perkins, the executive vice president of the energy trading business, and Sahid Malik, president of the trading unit also resigned (see NGI, May 20 ). Of most concern to the shareholders Wednesday were the falling stock prices of the companies, which have dropped drastically in recent months, first with investors pulling out of the energy sector following the Enron Corp. scandal, and then with revelations of their own accounting problems.

Shareholders stood in line at the microphone set up to criticize the management of the company during the annual meeting, and Letbetter responded by telling the critics that the company remained committed to honesty and integrity. “If we focus on the long haul, we will deliver shareholder value,” he said. Among other things, he said spinning off Reliant Resources as planned will help boost shareholder value. Regulatory approval of the spinoff is expected this summer, according to the company.

In other news last week, Reliant Energy’s corporate credit rating was affirmed by Standard & Poor’s (S&P), which rates the Houston-based utility giant “BBB+/A-2.” The outlook is “stable.” Reliant Energy has about $4.5 billion of long-term debt (excluding $749 million of bonds securitized by regulatory assets and $1 billion securitized by AOL TimeWarner stock) and $3.8 billion of short-term debt outstanding.

The credit ratings agency said it expects Reliant Energy to receive SEC approval to restructure and “subsequently spin off the common stock of Reliant Resources to shareholders of CenterPoint Energy Inc.,” which will be the new holding company’s name. “S&P also expects Reliant Energy’s $4.7 billion of bank credit facilities to be renewed before they expire on July 12, and also expects it to recover all of its regulatory assets in 2004-2005, as allowed under Texas law,” said S&P analyst Judith Waite.

Under Texas retail competition law, which took effect Jan. 1, retailers were required to separate their transmission and distribution assets from their generation assets. It also required retailers to create retail electric providers (REPs) to supply electricity to retail customers (managing market and commodity risk), and assured the utilities’ right to recover their generating plant investment — including a reasonable margin from 2002 to 2004, which is accrued and added to the generating plants’ recoverable value.

In 2004, utilities are allowed to issue debt in an amount equal to the difference between the market and regulatory book values of the generating plants. The debt is securitized by that difference, which is a regulatory asset. Proceeds from the debt issuance, the expected sale of the generating assets, and other elements of the eventual “true-up” will be used to pay down an equal amount of debt — about $5 billion, in Reliant Energy’s case.

Reliant Energy chose to separate completely the generating assets from the transmission and distribution business, and Reliant Resources owns the REP. CenterPoint Energy owns the transmission and distribution business, as well as the gas distribution businesses in Texas, Louisiana, Mississippi, Arkansas, Oklahoma and Minnesota.

“When the separation is complete, CenterPoint Energy will have almost no commodity risk and very little market risk, giving it an above-average business position,” said Waite. “However, because CenterPoint will be carrying all the debt once carried by the combined company, leverage will be very high until securitization of the regulatory assets is completed. Thereafter, Standard & Poor’s expects CenterPoint Energy’s financial profile to meet the targets for the ratings.”

S&P also extended the “stable” outlook for Reliant Energy (and CenterPoint Energy) through 2005, which is beyond the current one- to two-year horizon, based on the timing incorporated in the Texas law that deregulates the retail electricity market.

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