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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 18, 1999
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RELIANT ENERGY, INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 1-3187 74-0694415
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1111 LOUISIANA
HOUSTON, TEXAS 77002
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (713) 207-3000
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ITEM 5. OTHER EVENTS.
Texas Customer Choice Legislation
In June 1999, Texas adopted legislation that substantially amends the
regulatory structure governing electric utilities in order to allow retail
competition beginning on January 1, 2002. In preparation for that competition,
Reliant Energy, Incorporated (the Company) will make significant changes in the
electric utility operations it conducts through Reliant Energy HL&P. In
addition, the Public Utility Commission of Texas (Utility Commission) will issue
a number of new rules and determinations prior to the beginning of competition.
The legislation defines the process by which competition is to be
achieved and creates a transition period during which most utility rates are
frozen at their present levels. The legislation provides for utilities to
recover 100 percent of their stranded costs and regulatory assets related to
generation and allows the issuance of securitization bonds related to
most of those costs.
Retail Choice. Under the legislation, on January 1, 2002 (the retail
choice date), most retail customers of investor-owned electric utilities in
Texas will be entitled to purchase their electricity from any of a number of
"retail electric providers" which will have been certified by the Utility
Commission. Retail electric providers will not own or operate generation assets.
Rates for their sales will not be subject to traditional cost-of-service
regulation. Retail electric providers affiliated with the Company may compete
statewide for these sales, but rates they charge within the utility's
traditional service territory are subject to certain limitations at the outset
of retail choice, as described below. The Utility Commission will prescribe
regulations governing quality and other aspects of service from retail electric
providers.
Unbundling. By 2002, electric utilities such as Reliant Energy HL&P
will restructure their businesses in order to separate power generation,
transmission and distribution and retail activities into different units. The
utility will submit a plan to accomplish that separation to the Utility
Commission by January 10, 2000. The transmission and distribution business will
continue to be subject to cost-of-service rate regulation and will be
responsible for delivering electricity from power generators to the retail
consumers.
Generation. Power generators will sell electric energy to wholesale
purchasers, including retail electric providers, at unregulated rates. To
facilitate a competitive market, Reliant Energy HL&P and other electric
utilities will be required to sell at auction entitlements to 15 percent of
their installed generating capacity no later than 60 days before the retail
choice date. That obligation to auction entitlements continues until the earlier
of (i) January 1, 2007 or (ii) the date the Utility Commission determines that
at least 40 percent of the residential and small commercial load served in the
electric utility's service area is being served by non-affiliated retail
electric providers. In addition, a power generator which owns and controls more
than 20 percent of the power generation in an area after the reductions from the
capacity auction (calculated as prescribed in the legislation) must submit a
mitigation plan to reduce generation which it owns and controls to 20 percent.
The legislation also creates a program mandating air emissions reductions for
non-permitted generating facilities. The Company anticipates that costs
associated with this obligation will be recoverable through the stranded cost
recovery mechanisms contained in the legislation.
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Rates. Base rates charged by Reliant Energy HL&P will be frozen until
January 1, 2002. On January 1, 2002, retail rates charged to residential and
small commercial customers by the utility's affiliated retail electric
provider will be reduced by 6 percent from the average rates (on a bundled
basis) in effect on January 1, 1999. That reduced rate will be known as the
"price to beat" and will be charged by the affiliated retail electric provider
to residential and small commercial customers in Reliant Energy HL&P's service
area who have not elected service from another retail electric provider. The
affiliated retail electric provider may not further reduce its rates to
residential or small commercial customers in the utility's service area until
the earlier of (i) the date that 40 percent of power consumed by that class is
being served by non-affiliated retail electric providers or (ii) January 1,
2005. The affiliated retail electric provider will make the price to beat
available until January 1, 2007.
Stranded Costs. Reliant Energy HL&P will be entitled to recover its
stranded costs (i.e., the excess of net book value of generation assets over the
market value of those assets) and regulatory assets related to generation. The
legislation prescribes specific methods for determining the amount of stranded
costs and the details for their recovery. However, during the base rate freeze
from 1999 to 2002, earnings above the authorized rate of return will be applied
in a manner to accelerate depreciation of generation-related assets for
regulatory purposes, and depreciation expense for transmission and
distribution-related assets may be redirected to generation assets for
regulatory purposes. In addition, the legislation provides for Reliant Energy
HL&P, or a special purpose entity, to issue securitization bonds for regulatory
assets and for stranded costs. These bonds will be sold to third parties and
will be amortized, along with any stranded costs for which bonds are not sold,
through non-bypassable charges recovered through the transmission and
distribution rates to customers. Any costs associated with nuclear
decommissioning that have not been recovered as of January 1, 2002, will
continue to be subject to cost of service rate regulation and will be included
in a non-bypassable charge to retail customers.
Accounting. Reliant Energy HL&P currently applies the accounting
policies established in SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS No. 71). For a discussion of the Company's current
accounting policies under SFAS No. 71, see Note 1(c) in the Company's Form 10-K
for the year ended December 31, 1998. The Company is currently evaluating
whether the legislation contains sufficient detail to enable the Company to
reasonably determine the impact on Reliant Energy HL&P's generation operations.
If so, the Company anticipates that it would discontinue the use of SFAS No. 71
for the Reliant Energy HL&P generation operations. If the Company discontinues
use of SFAS No. 71 with respect to the generation operations, the effect of that
change on the Company's consolidated financial statements will be determined,
taking into consideration SFAS No. 101, "Accounting for the Discontinuation of
Application of SFAS No. 71", Emerging Issues Task Force No. 97-4, "Deregulation
of the Pricing of Electricity -- Issues Related to the Application of FASB
Statements No. 71, Accounting for the Effects of Certain Types of Regulation,
and No. 101, Regulated Enterprises -- Accounting for the Discontinuation of
Application of FASB Statement No. 71" and SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In
any event, Reliant Energy HL&P's transmission and distribution operations will
continue to meet the criteria for recognition of regulatory assets and
liabilities as defined by SFAS No. 71.
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Acquisition of Dutch Generating Company
As previously disclosed, the Company and its subsidiary, Reliant
Energy Power Generation, Inc., have entered into an agreement to acquire an
interest in N.V. Energieproduktiebedrijf UNA, a power generation company
providing service in the Netherlands. Consummation of that transaction is
awaiting certain government approvals in the Netherlands and had been expected
to occur this summer. However, it is now anticipated that the transaction will
not close until later in the third or fourth quarter 1999. The transaction is
subject to usual and customary conditions, including the receipt of government
approvals on terms and conditions acceptable to the Company.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RELIANT ENERGY, INCORPORATED
(Registrant)
/s/ MARY P. RICCIARDELLO
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Mary P. Ricciardello
Senior Vice President and Comptroller
Date: July 7, 1999
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