[UNITED STATES] Reliant Energy swings to $359 million profit
Reliant Energy reported a second-quarter profit after energy contracts gained in value. Net income was $358.7 million, or $1.01 a share, compared with a loss of $283 million, or 83 cents, a year earlier, Houston-based Reliant said today in a statement. Revenue rose 29 percent to $3.42 billion.
Earnings before interest, taxes, depreciation and amortization fell 68 percent to $62 million because of "extraordinary market conditions" in Texas, Reliant said. The measure, called "open EBITDA," doesn't include such items as hedging gains and losses. Retail power sales had a loss of $40 million, compared with a profit of $126 million a year earlier.
"Retail is a significant business for them, and it did not perform well in the quarter," said Gordon Howald, an analyst with Calyon Securities USA Inc. in New York who has a "buy" rating on Reliant shares and doesn't own any.
Howald said the company had a loss of about 2 cents a share excluding such items as the energy contracts, which missed his estimate by 19 cents.
Reliant operates in Texas's competitive retail power market, meaning it can be undersold on prices by other companies. Retailers in the state had to cope with volatile pricing in the second quarter, and some providers smaller than Reliant went out of business.
The Electric Reliability Council of Texas, the state's main grid operator, has announced in recent months that financial problems at small power retailers meant that more than 40,000 customers were being shifted to other providers. That drew the attention of state lawmakers and regulators, who discussed the market and possible grid constraints during hearings.
Reliant records costs and gains to make its valuation of energy contracts reflect market prices. The adjustments resulted in an unrealized gain of $570 million in the second quarter. A year earlier, the company had a loss of $326 million from the contracts and a debt-related expense of $71 million.
Earnings from plants that sell power in wholesale markets rose 20 percent to $142 million.
Reliant changed its 2008 forecast for open EBITDA to $1.06 billion from $1.11 billion. The 2009 forecast was changed to $1.58 billion, up from an earlier outlook of $1.26 billion. The 2010 forecast is now $1.48 billion, up from $1.38 billion previously.
Benchmark power prices in PJM Interconnection LLC, the biggest U.S. wholesale power market, rose 35 percent from the 2007 second quarter to an average of $100.77 per megawatt-hour, according to data compiled by Bloomberg.
Chief Executive Officer Mark Jacobs has sought to sell assets and expand Reliant's commercial and industrial retail business. The company had losses of more than $2.5 billion from 2002 to 2006.
The earnings statement was released before the opening of regular trading on U.S. stock markets. Reliant fell 82 cents, or 4.6 percent, to $17.20 Monday in New York Stock Exchange composite trading. The stock has dropped 34 percent this year.