8 July 2002 – Independent energy producer Reliant Energy said Monday it had obtained SEC approval for its plan to adopt a new holding company structure including the separation of Reliant Resources.
The new holding company will be CenterPoint Energy, said the Houston-based company, which expects to complete the spin-off of Reliant Resources later this summer. The only regulatory action still required for the spin-off and renaming to take place is an extension by the US’ Internal Revenue Service of a previous ruling that the move will be tax-free to CenterPoint Energy and its shareholders. Reliant said it expected the IRS to grant this approval in the near future.
“The separation into two companies is the right strategic step for both Reliant Resources and the new CenterPoint Energy,” said Reliant Energy CEO Steve Letbetter. “The companies have different markets, different strategies and different aspirations,” he said. “In addition, each company should have enhanced access to capital as separate entities.” The company said that both Reliant Energy and Reliant Resources “are currently in discussions with their banks regarding extension of bank credit facilities required by each company on a going forward basis.”
On Friday Reliant Resources was forced to admit that it had entered into sham energy trades and other accounting tricks to artificially boost its revenues by over $8bn over the past three years.
The company, which has been the subject of numerous regulatory reviews including the SEC, has restated its revenues and earnings for 1999, 2000 and 2001, it was revealed in a regulatory filing on Friday evening. Reliant said it had discovered “round-trip” trades – where suppliers swapped power contracts and then reversed the transaction within a few hours – which had added $6.4bn to its revenues over the past three years. But because the revenues were matched by identical costs, they had no effect on Reliant’s net income or cash flows.
The company’s revenues were also boosted by $1.5bn because of the way it accounted for four energy trades that Reliant described as swaps. The restatement reduced Reliant’s revenues for 2001 from $46.2bn to $40.81bn. For 2000, its revenues were cut from $29.3bn to $28.26bn, while revenues for 1999 were cut from $15.2bn to $13.79bn.
In the last 12 months shares in Reliant Resources have lost more than two-thirds of their value.