Reliant Energy Inc. - Company Profile, Information, Business Description, History, Background Information on Reliant Energy Inc.

1111 Louisiana Street
Houston, Texas 77002

Company Perspectives:

Reliant Energy's operating philosophy is defined by five key business principals that customers, investment professionals, community leaders, and employees have come to expect: we will understand each of our customers on an individual basis and provide them with products and services they value; we will treat people with respect and fairness; shareholder value will be our ultimate measure of success; we will strive to be one the top five competitors in the electric and gas industry; we will compete in multiple aspects of the energy value chain; and we will change without hesitation to take advantage of the best opportunities. We will be the one people choose for energy, innovation, opportunity, and investment.

History of Reliant Energy Inc.

Reliant Energy Inc.--formerly Houston Industries Inc.--operates among the top five power and natural gas marketers in the United States. With over $32 billion in assets, the company serves nearly four million customers in the southern United States and Minnesota. After the Texas Electric Choice Act was passed in 1999, Reliant Energy rolled its non-regulated operations into Reliant Resources, a majority owned subsidiary with power plants it the United States as well as the Netherlands. Reliant Resources also markets and trades energy in Germany, the United Kingdom, and in the United States. Reliant Energy Communications, an Internet-related division, provides Texans with Internet, data, voice, and other telecommunications services.

Early History

Reliant Energy's earliest predecessor, Houston Electric Light & Power Company (HEL&P), was chartered in 1882 by Emanuel Raphael, a cashier at the Houston Savings Bank and one of several prominent Houston businessmen bent on bringing electric lights to their city. Other investors included Houston Mayor William R. Baker, who ushered the new utility through a franchise agreement with the city, which allowed HEL&P to construct and operate a power plant and electric lines.

HEL&P's policy of charging flat rates, coupled with low electrical usage, spelled early financial problems for the company, and by 1886 the firm had entered receivership. The following year a bankrupt HEL&P was sold to a competing Houston utility, Houston Gas Light Company. In 1889 Citizens' Electric Light & Power Company entered the Houston utility arena and two years later bought out Houston Gas Light's interest in HEL&P.

In late 1897, Citizens' Electric defaulted on bank loans, and in January 1898 the utility was placed under control of another receiver, Houston attorney Blake Dupree. William H. Chapman, a Boston businessman, was soon brought in as general manager of the company and became a stabilizing force, initiating a power line rebuilding program and advocating use of residential lighting.

Shortly after Chapman arrived in Houston, a boiler exploded at the utility's Gable Street power plant during the evening of March 26, killing four men and leaving the city in total darkness. Early the following morning, a fire started in the damaged plant and destroyed everything of value. Vowing to continue operations, Dupree promptly signed a contract with General Electric Corporation for new power plant equipment, and by 1900 a new Gable Street plant was operational.

Citizens' Electric continued to have financial troubles, and in 1901 its assets were transferred to United Electric Securities Company, the investment arm of General Electric and the Houston utility's major creditor at that time. That same year Citizens' Electric was reorganized as Houston Lighting and Power Company (HL&P).

Under United Electric Securities, HL&P established a fully metered system for keeping track of electrical use, and abandoned a flat-rate fee system for one that offered rate incentives for increased usage. Following the discovery of oil in the Houston area during the year of its incorporation, HL&P changed its boiler fuel from coal to oil.

The discovery of oil also changed Houston, spawning a period of growth and industrialization along the Gulf Coast. General Electric's infusion of cash and electrical generators helped HL&P keep pace, and by 1902 the company's electrical lines were serving nearly all of Houston.

On January 9, 1906, a day after the company declared its first dividend, HL&P was purchased by Isadore Newman & Sons, a holding company based in New York and New Orleans that operated under the name of American Cities Railway and Light Company. That same year the Houston utility was reorganized as Houston Lighting & Power Company 1905, and became part of an electric utility holding company structure that operated a string of southern U.S. properties.

During the first decade of the 20th century, HL&P's sales grew with the area's oil industry. Power lines were extended to oil fields as they sprouted up, as well as the growing number of refiners locating along the Houston Ship Channel. In 1910, the company also began supplying electricity to pipeline firms. In 1911, American Cities Railway & Light Company, renamed American Cities Company, was sold to Bertron Griscom & Company, a holding company with offices in New York, Philadelphia, and Paris. That same year the Bertron Griscom board of directors promoted general manager William H. Chapman to company president.

In 1913, Houston voters approved city charter amendments that empowered Houston to regulate public utilities and establish its own electric utility in the event it was unhappy with HL&P's service. The amendments set in motion a year-long series of negotiations between HL&P and the city, culminating in a profit-sharing agreement, which guaranteed the company a 12 percent rate of return and the city any profits above that return.

Shortly after the profit-sharing agreement was reached in 1914, Chapman retired and the Bertron Griscom board named Edwin B. Parker, an attorney with the firm that represented the company in negotiations with the city, to replace Chapman. Unlike Chapman, Parker served mostly as a figurehead president, who left the day-to-day operations in the hands of Sam Bertron, who was named general manager a year after Parker's appointment.

By 1914, HL&P was showing a profit for the first time in its history. That same year HL&P began expanding into suburban Houston, acquiring electrical assets in Houston Heights and establishing a franchise agreement to serve the city of Magnolia Park. During the next four years electrical systems were acquired in Sunset Heights, Brunner, and Park Place, with all of the suburbs eventually becoming part of Houston.

After the United States entered World War I in 1917, HL&P was called on to extend its power lines to Camp Logan, a U.S. Army barracks in Houston. The war helped prolong Houston's industrial boom, but during the conflict company finances took a turn for the worse as HL&P struggled to fund additional generating capacity needed to serve the growing area.

The Electric Bond & Share Acquisition: 1922

Financial problems continued for HL&P after the war, and Bertron Griscom, close to receivership itself by 1921, was in no position to help. In 1922 financial help came, as it did 21 years earlier, from a company affiliated with General Electric. In 1922, the Electric Bond & Share Company through its subsidiary National Power & Light Company, acquired HL&P. Electric Bond & Share had been spun off by General Electric as a holding company for public utilities. With the change in ownership, HL&P once again became part of a healthy holding company structure, with operations in 33 states.

Electric Bond & Share put a quick infusion of capital into HL&P's operations, part of which came from an aggressive program of local stock sales beginning in 1922. Among the modernization and construction projects laid out by Electric Bond & Share was a sorely needed modern power plant. In 1923, construction began on the $5 million Deepwater plant along the Houston Shipping Channel, which would more than double the company's generating capacity with the ability to serve two million residents.

By 1924, Deepwater's first two generating units were operational. While the company continued to improve its service system throughout the 1920s with additional generating units, transmission, and distribution line improvements, after Deepwater went on line HL&P turned its focus toward marketing and expansion efforts.

In 1924, HL&P moved from its three-story headquarters into the ten-story downtown Electric Building, where a seven-story lighted sign was hung. HL&P began using the widely visible first floor of the Electric Building to display the variety of electrical appliances it marketed. HL&P also organized sales crews to canvass residential neighborhoods, and demonstrate and sell appliances. With expansion that followed, within a few years HL&P canceled its exclusive merchandise franchises and began encouraging residents to buy appliances from area dealers.

Deepwater's construction allowed HL&P to seek out new industrial as well as residential customers. Rate reductions were offered to attract new business to the area and to bring on line existing industries that had constructed their own generating facilities during the American Cities Railway era of low-generating capacity.

On the residential side, with its increased capacity HL&P entered nearly 70 Houston-area communities during the 1920s, acquiring existing electrical properties while extending lines into nonserviced areas for the first time. During the second half of the 1920s HL&P also began building a backup power supply, entering into electric system interconnection agreements with neighboring Texas utilities.

Following the death of Edwin Parker in 1930, Sam Bertron, Jr., was promoted to president and Hiram O. Clarke was named vice-president. Despite the Great Depression that began in 1929, HL&P continued expansion efforts through 1931, when it acquired its largest service system to date by purchasing the assets of the Galveston Electric Company.

While the Great Depression never hit Houston as hard as it struck other areas, in 1931 company revenues began to slide and by 1932 workers were forced to take wage reductions to keep their jobs. Revenues bottomed out in 1933, and three years later a financially stable HL&P began a series of rate reductions that stretched through the end of the 1930s. By 1937, the company had resumed construction programs halted earlier in the decade, including a submarine cable to Galveston Island and the addition of a generating unit at the Gable Street plant, which had not been updated since Bertron Griscom controlled the utility.

Expansion as an Independent Company: 1940s-60s

HL&P entered the 1940s with a 5,000-square-mile service area, which included 150,000 customers in 140 communities. In 1942, HL&P also entered a new era, becoming an independent company after National Power & Light Company was forced to sell its interests in the Houston utility in order to comply with the provisions of the 1935 Public Utility Holding Company Act.

After the United States entered World War II, HL&P was called on to construct additional power plants to meet wartime construction needs. In 1943, the first unit of HL&P's third power plant, West Junction, went on line. With concern for power failures, the company also accelerated its interconnection activities during the war and became part of a power-pool arrangement that tied investor-owned utilities in Texas to dams along the state's major rivers.

Following the war, the demands of a petroleum-related industrial boom in the Houston area replaced the war as a motivating factor, and spurred HL&P to increase its generating capacity. Between 1946 and the end of the decade the company placed additional generating units at West Junction, and built a fourth plant, Greens Bayou.

During the first half of the 1950s power plant construction continued at a rapid clip. The company built a fifth power facility, the Webster plant, and added generating units at West Junction and Greens Bayou. In 1950, Hiram Clarke died, and the West Junction plant that Clarke had designed was renamed in his honor. In late 1953 Bertron died, and the following year Walter Alvis Parish, a former company attorney, was tapped to succeed Bertron.

Between 1956 and the end of the decade, the company continued to increase its generating capacity, constructing the Sam Bertron plant, the Smithers Lake plant--later renamed the W.A. Parish plant--and the North Houston plant. In 1957, the Houston City Council granted the company a new 50-year franchise, and HL&P promptly turned to the other 37 incorporated communities it served for similar 50-year franchise agreements.

W.A. Parish was named the company's first chairman in 1958, and Tom H. Wharton, a former executive vice-president, was promoted to president. The following year Parish died, and Wharton assumed the additional post of chairman.

After decades of rate reductions, in 1960 HL&P requested the first rate increase in its history in order to offset the financial effects of its building program and a recession in the Texas economy. The company was granted a $4.1 million increase, half of its $8.2 million request. A year later HL&P faced another setback when Hurricane Carla ripped through its service area, causing $1.6 million worth of electrical system damages.

Despite a slow start, HL&P continued to witness explosive growth in its service area during the 1960s. In response to that growth, three generating units were added to existing plants during the first half of the decade. During the same period HL&P continued building its "power highway," a network of interconnected transmission systems with other electric utilities that would stretch from the Gulf of Mexico to the Red River.

In 1963 P.H. Robinson, an executive vice-president, was promoted to president while Wharton continued to serve as chairman for the next two years. In 1964 Robinson announced the start of a five-year, $939 million growth and expansion plan dubbed Project Enterprise, aimed at doubling the company's generating capacity with the addition of four new generating units, including construction of what would become the P.H. Robinson plant. Project Enterprise's construction projects also included a fully-computerized energy control center, seven new service centers, and a new 27-story corporate headquarters, named the Electric Tower.

Development of Nuclear Power Plants: 1970s

In 1970, Robinson was named to fill the five-year vacancy in the chairman's seat, and Carl Sherman, a former executive vice-president, was promoted to president. By 1971, the company began serious study of nuclear power plants, but those plans as well as other proposals for increased generating capacity during the decade became subject to increasing federal regulations.

HL&P first felt the effects of the changing regulatory environment in 1971, when the U.S. Environmental Protection Agency challenged the location of the company's gas-fired Cedar Bayou generating station, less than a month after the plant had been dedicated. The EPA alleged that Cedar Bayou's discharge of water into Trinity Bay would damage marine life, while HL&P maintained it would improve it. After a two-year legal battle the EPA agreed to end its opposition. In return, the company agreed to reduce its planned number of generating units from six to three, and expand its water-quality monitoring programs.

In 1972, HL&P announced plans for two Austin County, Texas, nuclear power plants, one to be located on Allens Creek and a second plant on the lower Mill Creek. In 1973, Mill Creek plans were scuttled in response to public opposition, and nine years later a series of regulatory hearing delays and escalating construction costs led HL&P to kill the Allens Creek project.

In 1973, HL&P formed a joint venture with the cities of San Antonio and Austin and neighboring Central Power and Light Company to construct a nuclear power plant southwest of Houston along the Gulf Coast. HL&P became managing partner of the venture, owning a 30.8 percent interest in what became known as the South Texas Project (STP). While HL&P was making plans for nuclear plants, during the first half of the 1970s HL&P finished construction of seven gas-fired units at existing plants.

Following the Organization of Petroleum Exporting Countries (OPEC) oil embargo of 1973 HL&P began promoting conservation of electricity. The increasing complexities surrounding fuel supplies also led HL&P to form two wholly owned subsidiaries, Primary Fuels, Inc. (PFI) and Utility Fuels, Inc. (UFI). PFI was created in 1973 to explore for and develop oil and gas reserves along the Texas Gulf Coast. In 1974, UFI was formed to acquire and deliver power plant fuels, with activities initially limited to HL&P fuels and later expanded to serve other companies.

In 1974, Robinson retired as chairman and was replaced by Sherman. Before the year was over Sherman died and in the ensuing corporate reshuffle two former executive vice-presidents took over, with J.G. Reese elected chairman and Don Jordan, at the age of 42, elected the youngest president in the company's history.

Following a corporate restructuring process in 1976, the holding company Houston Industries Inc. (HI) was formed to give HL&P and its affiliates greater financial and organizational flexibility. In 1977, HI became the owner of all HL&P, UFI, and PFI assets. Reese was named chairman of the new holding company and Jordan president. After exactly 50 years of service to HL&P and affiliates, in April 1978 Reese retired, leaving his two chairmen seats vacant.

With increased federal government pressure to abandon oil and natural gas as boiler fuels, during the late 1970s HL&P began converting its generators to coal. UFI played a major role in the gradual transition to coal, negotiating long-term coal-supply contracts and purchasing more than 1,000 railroad cars for coal transportation, which during the following decade led to expansion of UFI's business activities outside of HL&P operations. In 1979, HL&P announced it would construct a power plant in Limestone County, Texas, that would burn lignite, a soft form of coal. Six years later, after escalating costs delayed construction, the Limestone plant began operations.

The South Texas Project also experienced considerable construction delays, and by 1979, three years after building had started, serious questions were being raised about quality control at the construction site. During 1979 and 1980, the company issued several stop-work orders at STP in response to governmental concerns.

With STP just one-third finished, in late 1981 HL&P dismissed Brown & Root, Inc. as construction manager and architect, but asked the firm to retain its assignment to do the actual construction. Brown & Root, however, resigned that post. In moves unprecedented in the construction of nuclear power plants, HL&P changed both its architect and builder, naming Bechtel Corporation as architect-engineer and Ebasco Constructors Inc. as builder. In 1982, HL&P filed suit against Brown & Root charging the firm with breach of contract, and three years later HL&P received a $750 million settlement from its former contractor. Facing the inflationary conditions of 1982, a backlogged construction schedule and heightened public dissent over company rate increases and HL&P's handling of STP, Don Jordan was named chairman and chief executive officer of HL&P, and Don Sykora, a former executive vice-president, was elevated to president and chief operating officer of the utility.

To ease the strain on its generating capacity caused by construction delays, in 1983 HL&P tapped three of its industrial customers and began purchasing power produced through co-generation, the simultaneous production of electricity and thermal energy from the same fuel source. In a move to improve public relations that same year, Jordan created a community services division to provide bill-paying assistance to low-income, elderly, and handicapped customers. In 1983, Hurricane Alicia ripped through Houston, leaving a path of devastation that knocked out 8,000 miles of power lines and left an unprecedented 750,000 customers without electricity, with some customers waiting more than two weeks for power to be restored.

Branching Out Into the Cable Industry: Late 1980s

In 1985, HI began a three-year series of diversification moves and formed the subsidiary Innovative Controls, Inc., to develop and market lightweight security lights. In 1986 HI and Time Inc.'s cable television unit formed Paragon Communications, a 50-50 joint venture to purchase 22 cable television systems serving 550,000 customers, primarily in Texas, Florida, and the Northeast. That same year HI formed the subsidiary KBLCOM Incorporated to manage its cable operations.

In 1987, HL&P formed two other subsidiaries. Development Ventures, Inc., a venture capital organization, was formed to provide start-up financing for small businesses; while Houston Industries Finance, Inc., an unconsolidated subsidiary, was created to purchase accounts receivables of HL&P and other HI subsidiaries to reduce the utility's capital requirements.

In 1988, the South Texas Project was cleared by government bodies of all safety concerns and granted a full operating license, more than 15 years after plans for the plant had begun and after construction costs had risen by nearly 500 percent to $5.5 billion. HL&P also won the first round in a lawsuit brought by the city of Austin, which alleged HL&P had mismanaged the project, leading to the cost overrun. HL&P argued that regulatory changes, not poor management, were responsible, and a state district court agreed. The city of Austin appealed the ruling; its appeal was pending in the early 1990s. The project's co-owners, the city of San Antonio and Central Power & Light, also alleged HL&P had breached its duties as project manager; these claims were also in arbitration in the early 1990s.

In 1989, HI made the strategic decision to limit its diversified operations, and concentrate immediate expansion efforts on cable television. That same year it sold PFI and acquired the U.S. cable television system of Rogers Communications, Inc. KBLCOM spent more than $1.3 billion on the Rogers Communications purchase, which included more than 550,000 customers in the metropolitan areas of San Antonio and Laredo, Texas; Minneapolis, Minnesota; Portland, Oregon; and Orange County, California.

In 1990, KBLCOM formed KBL-TV to sell advertising on cable channels. The same year HI sold the assets of Innovative Controls, and Development Ventures stopped funding new businesses. As Houston Industries entered the 1990s, it was focused on its cable and utilities operations. HI's plans for the near future did not include major acquisitions, although KBLCOM continued to be interested in expansion of its cable system and services.

Deregulation Leads to Restructuring During the 1990s

These plans changed however, as the utilities industry began to take on a new look during the 1990s due to consolidation and increased competition brought on by deregulation. In fact, the firm sold KBLCOM and its share in Paragon Inc. to Time Warner in August 1995 and instead began to seek out strategic alliances that would position it as a diversified energy firm--a firm that was able to provide customers with a variety of services.

One such move was its acquisition of NorAm Energy Corp. The $2.5 billion deal--completed in 1997--created one of the largest electric and natural gas firms in the United States with assets of $18 billion. Jordan commented on HI's motive behind the deal in a 1996 The Oil Daily article, stating that "market and regulatory forces are changing the industry landscape to a more competitive environment. In addition, the electric and natural gas markets are converging, and customers are demanding additional products and service."

In order to better position itself to take advantage of deregulating markets, HI reorganized its company operations into three main segments including HI Power Generation, HI Retail Energy Group, and HI Trading and Transportation Group during 1997 and also named Steve Ledbetter president and chief operating officer of the firm. By 1998, the company had grown from operating as an electric utility serving 1.4 million customers in the Houston area, to a diversified firm with nearly four million customers in the United States as well as a growing customer base abroad. That year, HI acquired its first non-regulated power generation plants in California. It also entered the Ohio and Georgia markets, both of which were in the process of deregulating. The company also expanded its international business in Brazil and purchased three utilities in El Salvador.

A New Name For the New Millennium

In 1999, HI announced that it was changing its name to Reliant Energy Inc. (REI) to better reflect the company's shift from a local utility to a diversified energy services firm. The company once again shuffled its operations into two main groups, Reliant Energy Retail and Reliant Energy Wholesale. Throughout the year, Reliant focused on building its retail group, acquiring assets in the Chicago area as well as in the East Coast region. The company also began aggressive expansion in Florida, eyeing the state as a lucrative growth market. REI also established subsidiary Reliant Energy Trading & Marketing B.V. in the Netherlands, hoping to capture industrial and commercial customers who were able to choose the energy supplier of their choice as part of the Electricity Act of 1998 passed in Europe.

As REI entered the new millennium, Jordan retired leaving Letbetter to take over as chairman, president, and CEO. Under his direction, the company began to shift its focus from its Latin American interests to its European and U.S. businesses. During 2000, it completed its acquisition of the Dutch utility N.V. UNA, expanding its foothold in the European market. The firm also made a $2.1 billion purchase of interests in 21 power plants located in the Mid-Atlantic states, increasing its unregulated power holdings. It also augmented its telecommunications holdings with the purchase of Insync Internet Services, an Internet service and Web hosting provider--REI had entered the telecommunications industry in 1999 as a competitive local exchange carrier.

Reliant came under fire in 2000, however, when it announced that it was paying $300 million for the naming rights to Houston's new football stadium. Just as that news broke, REI reported third quarter earnings that had increased 79 percent over second quarter earnings. At the same time, its HL&P arm requested an increase in electricity rates for the second time that year, angering consumers who felt the price hikes were footing the $300 million bill for the new stadium. Company officials claimed that the price increase had nothing to do with the stadium and that the money used for the deal was from increased revenues and the sale of some of its Latin American holdings.

Meanwhile, REI was preparing to change shape again--a change brought on by the 1999 passing of the Texas Electric Choice Act. Under the terms of the act, REI was required to split its regulated and unregulated businesses into two separate entities in order to create a fair competition environment for new companies entering the electric market. Reliant Resources Inc. was created as a subsidiary responsible for the company's unregulated business operations in the United States and Europe. Its businesses included Reliant Energy Retail Services, Reliant Energy C&I Solutions, Reliant Energy Wholesale Group, Reliant Energy Europe, Reliant Energy Communications, and Reliant Energy Ventures. In 2001, the subsidiary raised $1.8 billion in its initial public offering. That September it announced that it would acquire Orion Power Holdings Inc. for $2.9 billion in order to increase its share of the U.S. power and energy services market.

Having undergone a major transformation over the years, REI stood as a leading energy services firm with positive future prospects. During 2000 revenues increased by over 90 percent while stock price rose by 89 percent during the year. With the Texas electricity market slated to begin full retail competition in January 2002, Reliant Resources also appeared to be well positioned to increase its market share.

Principal Subsidiaries: Reliant Resources Inc.; Reliant Energy HL&P; Reliant Energy Entex; Reliant Energy Arkla; Reliant Energy Minnegasco; Reliant Energy Pipelines; Reliant Energy Retail Services; Reliant Energy C&I Energy Solutions; Reliant Energy Wholesale Group; Reliant Energy Europe; Reliant Energy Communications.

Principal Competitors: Entergy Corporation; TXU Corp.; Utilicorp United Inc.


Additional Details

Further Reference

Beck, Bill, At Your Service: An Illustrated History of Houston Lighting & Power Company, Houston, Tex.: Houston Lighting & Power Company, 1990.Bullion, Lew, "Reliant Shifting Focus From Latin America," Pipeline & Gas Journal, January 2000, p. 13.------, "Reliant Spins Off Unregulated Business," Pipeline & Gas Journal, September 2000.De Rouffignac, Ann, "Houston Industries, Destec Win Bids for California Power Plants," Houston Business Journal, November 27, 1998, p. 8.------, "Moniker Change to Reliant Energy Ends an Era for Houston Industries," Houston Business Journal, February 5, 1999.Fan, Aliza, "Houston Industries to Acquire NorAm in $3.8 Billion Gas-Electric Merger," Oil Daily, August 13, 1996, p. 3."HI Reorganizes as NorAm Deal Nears," Houston Business Journal, January 10, 1997, p. 30."Houston Industries Changes Name," Oil Daily, February 3, 1999.Perin, Monica, "Reliant 'Convergence' Has Energy Company Scrambling Over PR," Houston Business Journal, October 23, 2000.------, "Reliant Hastens its European Market Entrance," Houston Business Journal, January 7, 2000, p. 5."Reliant Energy Expands Retail Business," Pipeline & Gas Journal, April 1999, p. 4."Reliant IPO Raises $1.8 Billion," Houston Business Journal, May 18, 2001."Reliant to Buy Bulk of Sithe for $2.1 Billion," Modern Power Systems, March 2000, p. 12.Ryser, Jeffrey, "Serendipity or Savvy Investment? A Cable Investment Pays Off," Electrical World, January 1996, p. 55."The Power Meltdown in California," Business Week, December 6, 2000.

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