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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2007 | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 76-0655566 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
1000 Main Street | (713) 497-3000 | |
Houston, Texas 77002 (Address and Zip Code of Principal Executive Offices) | (Registrant’s Telephone Number, Including Area Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, par value $.001 per share, and associated | New York Stock Exchange | |
rights to purchase Series A Preferred Stock |
Large accelerated filer þ | Accelerated filero | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller Reporting company o |
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• | Demand and market prices for electricity, purchased power and fuel and emission allowances; | |
• | Limitations on our ability to set rates at market prices; | |
• | Legislative, regulatoryand/or market developments; | |
• | Our ability to obtain adequate fuel supplyand/or transmission and distribution services; | |
• | Interruption or breakdown of our generating equipment and processes; | |
• | Failure of third parties to perform contractual obligations; | |
• | Changes in environmental regulations that constrain our operations or increase our compliance costs; | |
• | Failure by transmission system operators to communicate operating and system information properly and timely; | |
• | Failure to meet our debt service, collateral postings and obligations related to our credit-enhanced retail structure; | |
• | Ineffective hedging and other risk management activities; | |
• | Changes in the wholesale energy market or in our evaluation of our generation assets; | |
• | The outcome of pending or threatened lawsuits, regulatory proceedings, tax proceedings and investigations; | |
• | Weather-related events or other events beyond our control; | |
• | The timing and extent of changes in commodity prices and interest rates; | |
• | Our ability to attract and retain retail customers and to adequately forecast their energy needs and usage; and | |
• | Financial market conditions and our access to capital. |
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Cal ISO | California Independent System Operator. | |
capacity | Energy that could have been generated at continuous full-power operation during the period. | |
capacity factor | The ratio of actual net electricity generated to capacity. | |
CenterPoint | CenterPoint Energy, Inc. and its subsidiaries, on and after August 31, 2002, and Reliant Energy, Incorporated and its subsidiaries, prior to August 31, 2002. | |
Channelview | Reliant Energy Channelview LP, Reliant Energy Channelview (Texas) LLC, Reliant Energy Channelview (Delaware) LLC and Reliant Energy Services Channelview LLC. | |
CO2 | Carbon dioxide. | |
commercial capacity factor | Generation divided by economic generation. | |
contribution margin | Revenues less (a) cost of sales, (b) operation and maintenance, (c) selling and marketing and (d) bad debt expense. | |
EBITDA | Earnings (loss) before interest expense, interest income, income taxes, depreciation and amortization expense. | |
economic generation | Estimated generation at 100% plant availability based on an hourly analysis of when it is economical to generate based on the price of power, fuel, emission allowances and variable operating costs. | |
EITF | Emerging Issues Task Force. | |
EPA | United States Environmental Protection Agency. | |
ERCOT | Electric Reliability Council of Texas. | |
ERCOT ISO | ERCOT Independent System Operator. | |
ERCOT Region | The electric market operated by ERCOT. | |
FASB | Financial Accounting Standards Board. | |
FERC | Federal Energy Regulatory Commission. | |
GAAP | Accounting principles generally accepted in the United States of America. | |
gross margin | Revenues less cost of sales. Gross margin excludes depreciation, amortization, labor and other product costs. | |
GWh | Gigawatt hour. | |
ISO | Independent system operator. | |
LIBOR | London Inter Bank Offering Rate. | |
market usage adjustments | The revenues and the related energy supply costs in our retail energy segment include our estimates of customer usage based on initial usage information provided by the independent system operators and the distribution companies. We revise these estimates and record any changes in the period as additional settlement information becomes available (collectively referred to as “market usage adjustments”). |
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MISO | Midwest Independent Transmission System Operator, which is an RTO. | |
MW | Megawatt. | |
MWh | Megawatt hour. | |
net generating capacity | The average of a facility’s summer and winter generating capacities, net of auxiliary power. | |
NOx | Nitrogen oxides. | |
NYMEX | New York Mercantile Exchange. | |
Orion Power | Orion Power Holdings, Inc. and its subsidiaries. | |
PEDFA | Pennsylvania Economic Development Financing Authority. | |
PJM | PJM Interconnection, LLC, which is an RTO. | |
PJM Market | The wholesale and retail electric market operated by PJM primarily in Delaware, the District of Columbia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia. | |
PUCT | Public Utility Commission of Texas. | |
REMA | Reliant Energy Mid-Atlantic Power Holdings, LLC and its subsidiaries. | |
RERH Holdings | RERH Holdings, LLC and its subsidiaries. | |
RPM | Model utilized by the PJM Interconnection, LLC to meet load serving entities’ forecasted capacity obligations via a forward-looking commitment of capacity resources. | |
RTO | Regional transmission organization. | |
SEC | United States Securities and Exchange Commission. | |
SO2 | Sulfur dioxide. |
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Item 1. | Business |
• | Retail energy—provides electricity and energy services to more than 1.8 million retail electricity customers in Texas, including residential and small business customers and commercial, industrial and governmental/institutional customers. Our next largest market is the PJM Market, where we serve commercial, industrial and governmental/institutional customers. We regularly evaluate entering additional markets. | |
• | Wholesale energy—provides electricity and energy services in the competitive wholesale energy markets in the United States through our ownership and operation of or contracting for power generation capacity. As of December 31, 2007, we had approximately 16,000 MW of power generation capacity. |
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2007 | 2006 | 2005 | ||||||||||
(gigawatt hours) | ||||||||||||
Electricity Sales to End-Use Retail Customers: | ||||||||||||
Mass: | ||||||||||||
Residential: | ||||||||||||
Houston | 13,516 | 15,447 | 18,029 | |||||||||
Non-Houston | 8,361 | 7,955 | 6,504 | |||||||||
Small Business: | ||||||||||||
Houston | 3,035 | 3,587 | 3,640 | |||||||||
Non-Houston | 1,433 | 1,375 | 891 | |||||||||
Total Mass | 26,345 | 28,364 | 29,064 | |||||||||
Commercial and Industrial: | ||||||||||||
ERCOT(1) | 36,926 | 33,393 | 32,309 | |||||||||
Non-ERCOT | 4,680 | 5,572 | 6,152 | |||||||||
Total Commercial and Industrial | 41,606 | 38,965 | 38,461 | |||||||||
Market usage adjustments | (67 | ) | 8 | (250 | ) | |||||||
Total | 67,884 | 67,337 | 67,275 | |||||||||
(1) | These volumes include customers of the Texas General Land Office for whom we provide services. |
2007 | 2006 | 2005 | ||||||||||
(in thousands, metered locations) | ||||||||||||
Weighted Average Retail Customer Count: | ||||||||||||
Mass: | ||||||||||||
Residential: | ||||||||||||
Houston | 1,056 | 1,164 | 1,256 | |||||||||
Non-Houston | 563 | 504 | 390 | |||||||||
Small Business: | ||||||||||||
Houston | 116 | 132 | 139 | |||||||||
Non-Houston | 36 | 29 | 17 | |||||||||
Total Mass | 1,771 | 1,829 | 1,802 | |||||||||
Commercial and Industrial: | ||||||||||||
ERCOT(1) | 87 | 74 | 70 | |||||||||
Non-ERCOT | 2 | 1 | 2 | |||||||||
Total Commercial and Industrial | 89 | 75 | 72 | |||||||||
�� | ||||||||||||
Total | 1,860 | 1,904 | 1,874 | |||||||||
(1) | Includes customers of the Texas General Land Office for whom we provide services. |
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December 31, | ||||||||
2007 | 2006 | |||||||
(in thousands, metered locations) | ||||||||
Retail Customers: | ||||||||
Mass: | ||||||||
Residential: | ||||||||
Houston | 1,016 | 1,095 | ||||||
Non-Houston | 555 | 547 | ||||||
Small Business: | ||||||||
Houston | 109 | 124 | ||||||
Non-Houston | 38 | 33 | ||||||
Total Mass | 1,718 | 1,799 | ||||||
Commercial and Industrial: | ||||||||
ERCOT(1) | 91 | 75 | ||||||
Non-ERCOT | 2 | 1 | ||||||
Total Commercial and Industrial | 93 | 76 | ||||||
Total | 1,811 | 1,875 | ||||||
(1) | Includes customers of the Texas General Land Office for whom we provide services. |
Region | Principal Markets | |
PJM | Illinois, New Jersey and Pennsylvania | |
MISO | Illinois, western Pennsylvania and Ohio | |
Southeast | Florida, Mississippi and Texas (non-ERCOT) | |
West | California and Nevada | |
ERCOT | Texas (ERCOT) |
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Number of | Net Generating | |||||||||||
Generation | Capacity | |||||||||||
Region | Facilities | (MW) | Fuel Type | Dispatch Type | ||||||||
PJM(1) | 22 | 7,298 | Coal/Gas/Oil/Dual | Base-load/Intermediate/Peaking | ||||||||
MISO | 4 | 1,678 | Coal/Gas/Oil | Base-load/Intermediate/Peaking | ||||||||
Southeast(2)(3) | 5 | 2,541 | Gas/Dual | Base-load/Intermediate/Peaking | ||||||||
West | 6 | 3,990 | Gas/Dual | Base-load/Intermediate/Peaking | ||||||||
ERCOT | 1 | (4) | 830 | (4) | Gas | Base-load | ||||||
Total | 38 | 16,337 | ||||||||||
(1) | We lease a 100%, 16.67% and 16.45% interest in three Pennsylvania facilities having 572 MW, 1,711 MW and 1,712 MW of net generating capacity, respectively, through facility lease agreements expiring in 2026, 2034 and 2034, respectively. The table includes our net share of the capacity of these facilities. | |
(2) | We own a 50% interest in one of these facilities having a net generating capacity of 108 MW. An unaffiliated party owns the other 50%. The table includes our net share of the capacity of this facility. | |
(3) | We are party to a tolling agreement entitling us to 100% of the capacity of a Florida facility having 630 MW of net generating capacity. This tolling agreement expires in 2012 and is treated as an operating lease for accounting purposes. | |
(4) | Represents Channelview, which we deconsolidated on August 20, 2007 due to its bankruptcy filings. See notes 1 and 21 to our consolidated financial statements. |
2007 | 2006 | 2005 | ||||||||||||||||||||||
GWh | % Economic(1) | GWh | % Economic(1) | GWh | % Economic(1) | |||||||||||||||||||
Economic Generation(2): | ||||||||||||||||||||||||
PJM Coal | 23,886.2 | 82 | % | 23,541.9 | 81 | % | 23,152.2 | 81 | % | |||||||||||||||
MISO Coal | 7,998.3 | 73 | % | 6,525.1 | 59 | % | 7,047.2 | 63 | % | |||||||||||||||
PJM/MISO Gas | 1,584.2 | 5 | % | 1,011.1 | 4 | % | 1,562.9 | 6 | % | |||||||||||||||
West | 3,711.8 | 13 | % | 2,833.3 | 11 | % | 2,032.0 | 9 | % | |||||||||||||||
Other | 3,802.2 | 48 | % | 5,731.1 | 86 | % | 6,005.9 | 56 | % | |||||||||||||||
Total | 40,982.7 | 39 | % | 39,642.5 | 39 | % | 39,800.2 | 39 | % | |||||||||||||||
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Commercial Capacity Factor: | ||||||||||||
PJM Coal | 82.4 | % | 82.9 | % | 78.9 | % | ||||||
MISO Coal | 69.0 | % | 85.5 | % | 83.3 | % | ||||||
PJM/MISO Gas | 91.2 | % | 91.9 | % | 77.1 | % | ||||||
West | 95.5 | % | 86.1 | % | 95.9 | % | ||||||
Other | 91.9 | % | 91.9 | % | 91.1 | % | ||||||
Total | 82.2 | % | 85.1 | % | 82.3 | % | ||||||
Generation(2): | ||||||||||||
PJM Coal | 19,677.1 | 19,522.3 | 18,259.3 | |||||||||
MISO Coal | 5,518.0 | 5,577.7 | 5,871.4 | |||||||||
PJM/MISO Gas | 1,444.0 | 929.3 | 1,205.5 | |||||||||
West | 3,543.9 | 2,439.0 | 1,948.5 | |||||||||
Other | 3,493.6 | 5,268.8 | 5,474.3 | |||||||||
Total | 33,676.6 | 33,737.1 | 32,759.0 | |||||||||
Open Energy Unit Margin ($/MWh)(3): | ||||||||||||
PJM Coal | $ | 30.95 | $ | 27.15 | $ | 35.11 | ||||||
MISO Coal | 29.18 | 21.69 | 33.89 | |||||||||
PJM/MISO Gas | 34.63 | 47.35 | 50.60 | |||||||||
West | 5.64 | 4.92 | NM | (4) | ||||||||
Other | 6.87 | 0.76 | 4.93 | |||||||||
Total weighted average | $ | 25.66 | $ | 21.07 | $ | 28.02 | ||||||
(1) | Represents economic generation (hours) divided by maximum generation hours (maximum plant capacity multiplied by 8,760 hours). | |
(2) | Excludes generation related to power purchase agreements, including tolling agreements. | |
(3) | Represents open energy gross margin divided by generation volume. Open energy gross margin is a non-GAAP measure as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of thisForm 10-K. | |
(4) | NM is not meaningful. |
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Segment | ||||
Retail energy | 1,161 | |||
Wholesale energy | 1,976 | |||
Other operations | 561 | |||
Total | 3,698 | |||
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Name | Age(1) | Present Position | ||||
Mark M. Jacobs | 45 | President and Chief Executive Officer | ||||
Brian Landrum | 45 | Executive Vice President and Chief Operating Officer | ||||
Rick J. Dobson | 49 | Executive Vice President and Chief Financial Officer | ||||
Charles S. Griffey | 48 | Senior Vice President, Market Design and Regulatory Affairs | ||||
D. Rogers Herndon | 42 | Senior Vice President, Strategic Planning and Business Development | ||||
Michael L. Jines | 49 | Senior Vice President, General Counsel and Corporate Secretary | ||||
Suzanne L. Kupiec | 41 | Senior Vice President, Risk and Structuring and Corporate Compliance Officer | ||||
Thomas C. Livengood | 52 | Senior Vice President and Controller | ||||
Albert H. Myres | 44 | Senior Vice President, Government and Public Affairs | ||||
Karen D. Taylor | 50 | Senior Vice President, Human Resources and Chief Diversity Officer |
(1) | Age is as of February 1, 2008. |
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• | Our corporate governance guidelines and board committee charters; | |
• | Our annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and amendments to these reports; and | |
• | Our business ethics policy. |
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Item 1A. | Risk Factors. |
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• | varying supply procurement contracts used and the timing of entering into related contracts; | |
• | subsequent changes in the overall price of natural gas; | |
• | daily, monthly or seasonal fluctuations in the price of natural gas relative to the12-month forward prices; and | |
• | changes in market heat rate (i.e., the relationship between power and natural gas prices). |
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• | We must dedicate a portion of our cash flows to pay debt service requirements, which reduces the amount of cash available for other business purposes; | |
• | The covenants in our debt agreements and in our agreement with Merrill Lynch restrict our ability to, among other things, obtain additional financing, make investments or acquisitions, create additional liens on our assets and take other actions to react to changes or opportunities in our business; | |
• | If we do not comply with the payment and other material covenants under our debt agreements, our debt holders could require us to repay our debt immediately and, in the case of our revolving credit facilities, terminate their commitment to lend us money; and | |
• | Our debt levels and credit ratings may affect the evaluation of our creditworthiness by customers, which could put us at a competitive disadvantage to competitors with less debt or investment grade credit ratings. |
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Item 1B. | Unresolved Staff Comments. |
Item 2. | Properties. |
Item 3. | Legal Proceedings. |
Item 4. | Submission of Matters to a Vote of Security Holders. |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Price | ||||||||
High | Low | |||||||
2007: | ||||||||
First Quarter | $ | 21.70 | $ | 13.52 | ||||
Second Quarter | $ | 27.79 | $ | 20.37 | ||||
Third Quarter | $ | 30.69 | $ | 22.72 | ||||
Fourth Quarter | $ | 28.74 | $ | 24.11 | ||||
2006: | ||||||||
First Quarter | $ | 10.74 | $ | 9.57 | ||||
Second Quarter | $ | 12.55 | $ | 10.51 | ||||
Third Quarter | $ | 13.58 | $ | 11.64 | ||||
Fourth Quarter | $ | 14.40 | $ | 12.02 |
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Item 6. | Selected Financial Data. |
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(1)(2)(3)(4) | (1)(5)(6)(7) | (1)(7)(8) | (1) | (1)(9)(10)(11) | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||
Revenues | $ | 11,209 | $ | 10,877 | $ | 9,712 | $ | 8,098 | $ | 10,097 | ||||||||||
Operating income (loss) | 876 | (24 | ) | (321 | ) | (13 | ) | (476 | ) | |||||||||||
Income (loss) from continuing operations | 358 | (327 | ) | (441 | ) | (276 | ) | (916 | ) | |||||||||||
Cumulative effect of accounting changes, net of tax | — | 1 | (1 | ) | 7 | (24 | ) | |||||||||||||
Net income (loss) | 365 | (328 | ) | (331 | ) | (29 | ) | (1,342 | ) |
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(1)(2)(3)(4) | (1)(5)(6)(7) | (1)(7)(8) | (1) | (1)(9)(10)(11) | ||||||||||||||||
Diluted Earnings (Loss) per Share: Income (loss) from continuing operations | $ | 1.01 | $ | (1.06 | ) | $ | (1.46 | ) | $ | (0.93 | ) | $ | (3.12 | ) |
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(1)(2)(3)(4)(6) | (1)(5)(8) | (1) | (1)(10) | (1) | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Statements of Cash Flow Data: | ||||||||||||||||||||
Cash flows from operating activities | $ | 762 | $ | 1,276 | $ | (917 | ) | $ | 106 | $ | 994 | |||||||||
Cash flows from investing activities | (179 | ) | 1,057 | 306 | 900 | 917 | ||||||||||||||
Cash flows from financing activities | (292 | ) | (1,957 | ) | 594 | (1,047 | ) | (2,889 | ) |
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December 31, | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(1)(2)(12) | (1) | (1) | (1) | (1) | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Net margin deposits | $ | 140 | $ | 436 | $ | 1,700 | $ | 487 | $ | 36 | ||||||||||
Total assets | 9,457 | 10,567 | 13,569 | 12,194 | 13,297 | |||||||||||||||
Current portion of long-term debt and short-term borrowings | 52 | 355 | 789 | 619 | 129 | |||||||||||||||
Long-term debt | 2,903 | 3,178 | 4,317 | 3,939 | 4,276 | |||||||||||||||
Stockholders’ equity | 4,477 | 3,950 | 3,864 | 4,386 | 4,372 |
(1) | We sold or transferred the following operations, which have been classified as discontinued operations: Desert Basin, European energy, Orion Power’s hydropower plants, Liberty, Ceredo and Orion Power’s New York plants. We sold the following operations, which are included in continuing operations: REMA hydropower plants in April 2005, landfill-gas fueled power plants in July 2005 and our El Dorado investment in July 2005. See notes 20 and 22 to our consolidated financial statements. | |
(2) | We deconsolidated Channelview on August 20, 2007. See notes 1 and 21 to our consolidated financial statements. | |
(3) | During 2007, we recorded and paid a $22 million charge related to resolution of a 2004 indictment for alleged violations of the Commodity Exchange Act, wire fraud and conspiracy charges. See note 14(a) to our consolidated financial statements. | |
(4) | During 2007, we incurred $73 million in debt extinguishments expenses and expensed $41 million of deferred financing costs related to accelerated amortization for refinancings and extinguishments. See notes 2(q) and 6 to our consolidated financial statements. | |
(5) | During 2006, we incurred $37 million in debt conversion expense. See note 6 to our consolidated financial statements. | |
(6) | During 2006, we recorded a $35 million charge (paid in 2007) related to a settlement of certain class action natural gas cases relating to the Western states energy crisis. See note 14(a) to our consolidated financial statements. | |
(7) | During 2006 and 2005, we had gains on sales of emission allowances of $159 million and $160 million, respectively. | |
(8) | During 2005, we recorded charges of $359 million relating to various settlements associated with the Western states energy crisis, which were paid during 2006. See note 14(a) to our consolidated financial statements. | |
(9) | Effective October 1, 2003, we adopted EITFNo. 03-11 and began prospectively reporting the settlement of sales and purchases of fuel and purchased power related to our non-trading commodity derivative activities that were not physically delivered on a net basis in our results of operations in the same line as the item hedged. We did not reclassify amounts for periods prior to October 1, 2003. | |
(10) | During 2004, 2003 and 2002, we recorded charges of $2 million, $47 million and $128 million, respectively, relating to a payment made to CenterPoint in 2004 of $177 million. | |
(11) | During 2003, we recorded a goodwill impairment charge of $985 million. | |
(12) | See note 13 to our consolidated financial statements for discussion of our contingencies. |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
• | We are a leader in delivering the benefits of competitive electricity markets to retail customers, which results in a business that has a high return on invested capital and relatively stable earnings; |
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• | Retail competition provides opportunities to add value through customer segmentation, product and service innovation and brand; | |
• | Increases in wholesale supply costs will provide conservation and load management opportunities that will dramatically alter load; and | |
• | Continued success in markets currently open to retail competition will drive new competitive market openings. |
• | Strengthening our competitive position by improving our operating cost and effectiveness, using customer segmentation to identify and provide innovative products and services, providing superior customer service and continuing to build our brand; | |
• | Leading the development of “Smart Energy” to encourage more efficient power consumption and provide a superior customer experience, including increasing transparency of customer bills, providing time of use signals, disaggregating customer usage and providing enhanced control over power consumption; and | |
• | Entering and developing new competitive markets. |
• | Capital intensive, cyclical industries generally earn returns below their cost of capital over a full cycle; | |
• | New build investment typically under earns its cost of capital unless there is a significant cost advantage; and | |
• | Over the next several years, we anticipate significant tightening of supply/demand. |
• | Realizing the value from anticipated improving supply and demand fundamentals in the wholesale markets from our existing portfolio of assets; | |
• | Achieving operating and commercial excellence in order to reliably and economically meet customer needs; and | |
• | Optimizing and growing our portfolio of assets by utilizing a highly-disciplined capital investment process with a return on invested capital focus. |
• | Establishing and maintaining a strong, flexible capital structure that ensures a competitive cost of capital with an ability to invest in value creating opportunities throughout the cycle, including returning capital to shareholders; | |
• | Building a highly disciplined return on invested capital focus; and | |
• | Continuing to develop innovative structures and transactions that improve returns and reduce risk. |
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• | communicating openly with our employees; | |
• | fostering company pride among our employees; | |
• | providing a satisfying and safe work environment; | |
• | recognizing and rewarding employee contributions and capabilities; and | |
• | motivating our employees to be collaborative leaders committed to our future. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Retail energy contribution margin, including unrealized gains/losses on energy derivatives | $ | 942 | $ | 250 | $ | 342 | $ | 692 | $ | (92 | ) | |||||||||
Wholesale energy contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives | 524 | 146 | 110 | 378 | 36 | |||||||||||||||
Other contribution margin | 1 | 1 | 4 | — | (3 | ) | ||||||||||||||
Other general and administrative | (171 | ) | (172 | ) | (140 | ) | 1 | (32 | ) | |||||||||||
Western states and similar settlements | (22 | ) | (35 | ) | (359 | ) | 13 | 324 | ||||||||||||
Gains on sales of assets and emission allowances, net | 26 | 159 | 168 | (133 | ) | (9 | ) | |||||||||||||
Depreciation and amortization | (424 | ) | (373 | ) | (446 | ) | (51 | ) | 73 | |||||||||||
Income of equity investments, net | 5 | 6 | 26 | (1 | ) | (20 | ) | |||||||||||||
Debt extinguishments and conversions | (73 | ) | (37 | ) | — | (36 | ) | (37 | ) | |||||||||||
Other, net | — | — | (23 | ) | — | 23 | ||||||||||||||
Interest expense | (349 | ) | (428 | ) | (399 | ) | 79 | (29 | ) | |||||||||||
Interest income | 34 | 34 | 23 | — | 11 | |||||||||||||||
Income tax (expense) benefit | (135 | ) | 122 | 253 | (257 | ) | (131 | ) | ||||||||||||
Income (loss) from continuing operations | 358 | (327 | ) | (441 | ) | 685 | 114 | |||||||||||||
Income (loss) from discontinued operations | 7 | (2 | ) | 111 | 9 | (113 | ) | |||||||||||||
Cumulative effect of accounting changes, net of tax | — | 1 | (1 | ) | (1 | ) | 2 | |||||||||||||
Net income (loss) | $ | 365 | $ | (328 | ) | $ | (331 | ) | $ | 693 | $ | 3 | ||||||||
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Retail energy revenues from end-use retail customers: | ||||||||||||||||||||
Mass: | ||||||||||||||||||||
Residential: | ||||||||||||||||||||
Houston | $ | 2,057 | $ | 2,466 | $ | 2,357 | $ | (409 | )(1) | $ | 109 | (2) | ||||||||
Non-Houston | 1,175 | 1,109 | 708 | 66 | (3) | 401 | (4) | |||||||||||||
Small Business: | ||||||||||||||||||||
Houston | 493 | 593 | 476 | (100 | )(5) | 117 | (6) | |||||||||||||
Non-Houston | 203 | 189 | 100 | 14 | 89 | (7) | ||||||||||||||
Total Mass | 3,928 | 4,357 | 3,641 | (429 | ) | 716 | ||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||
ERCOT | 3,334 | 2,964 | 2,549 | 370 | (8) | 415 | (9) | |||||||||||||
Non-ERCOT | 375 | 381 | 404 | (6 | ) | (23 | )(10) | |||||||||||||
Total Commercial and Industrial | 3,709 | 3,345 | 2,953 | 364 | 392 | |||||||||||||||
Total | 7,637 | 7,702 | 6,594 | (65 | ) | 1,108 | ||||||||||||||
Retail energy revenues from resales of purchased power and other hedging activities | 540 | 488 | 474 | 52 | (11) | 14 | ||||||||||||||
Market usage adjustments | (4 | ) | 7 | (23 | ) | (11 | ) | 30 | ||||||||||||
Total retail energy revenues | 8,173 | $ | 8,197 | $ | 7,045 | $ | (24 | ) | $ | 1,152 | ||||||||||
(1) | Decrease primarily due to (a) lower volumes driven by (i) fewer number of customers and (ii) a change in customer usage and mix and (b) lower unit sales prices. | |
(2) | Increase primarily due to increases in unit sales prices, partially offset by lower volumes due to (a) fewer number of customers, (b) a change in customer usage and mix and (c) milder weather. | |
(3) | Increase primarily due to increased number of customers, partially offset by lower volumes due to a change in customer usage and mix. | |
(4) | Increase primarily due to (a) higher volumes due to increased number of customers and (b) higher unit sales prices. | |
(5) | Decrease primarily due to lower volumes primarily driven by (a) fewer number of customers and (b) a change in customer usage and mix. | |
(6) | Increase primarily due to higher unit sales prices. | |
(7) | Increase primarily due to (a) higher volumes due to increased number of customers and (b) higher unit sales prices. These increases were partially offset by lower volumes due to a change in customer usage and mix. | |
(8) | Increase primarily due to (a) higher volumes due to increased number of customers and (b) higher unit sales prices. These increases were partially offset by lower volumes due to a change in customer usage and mix. | |
(9) | Increase primarily due to (a) fixed price contracts renewed at higher market rates due to higher prices of electricity when the contracts were executed, (b) variable rate contracts, which are tied to the market price of natural gas and (c) higher volumes. | |
(10) | Decrease primarily due to lower volumes due to fewer number of customers. This decrease was partially offset by increases primarily due to (a) fixed price contracts renewed at higher market rates due to higher prices of electricity when the contracts were executed and (b) variable rate contracts, which are tied to the market price of natural gas. | |
(11) | Increase primarily due to our supply management activities in various markets in Texas. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Costs of sales | $ | 6,820 | $ | 6,635 | $ | 5,676 | $ | 185 | $ | 959 | ||||||||||
Retail energy intersegment costs | 394 | 571 | 625 | (177 | ) | (54 | ) | |||||||||||||
Subtotal | 7,214 | 7,206 | 6,301 | 8 | (1) | 905 | (2) | |||||||||||||
Market usage adjustments | 7 | 7 | (8 | ) | — | 15 | ||||||||||||||
Unrealized (gains) losses on energy derivatives | (438 | ) | 287 | 69 | (725 | )(3) | 218 | (4) | ||||||||||||
Total retail energy cost of sales | $ | 6,783 | $ | 7,500 | $ | 6,362 | $ | (717 | ) | $ | 1,138 | |||||||||
(1) | Increase primarily due to higher costs of purchased power at the time of procurement, partially offset by lower volumes due to a change in customer usage and mix. | |
(2) | Increase primarily due to higher costs of purchased power at the time of procurement. | |
(3) | See footnote 7 under “Retail Energy Margins.” | |
(4) | See footnote 8 under “Retail Energy Margins.” |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Mass gross margin | $ | 719 | $ | 776 | $ | 689 | $ | (57 | )(1) | $ | 87 | (2) | ||||||||
Commercial and industrial gross margin | 244 | 208 | 78 | 36 | (2) | 130 | (2) | |||||||||||||
Market usage adjustments | (11 | ) | — | (15 | ) | (11 | ) | 15 | ||||||||||||
Retail gross margin | 952 | 984 | 752 | (32 | ) | 232 | ||||||||||||||
Operation and maintenance | (245 | ) | (234 | ) | (190 | ) | (11 | )(3) | (44 | )(4) | ||||||||||
Selling and marketing expense | (124 | ) | (124 | ) | (95 | ) | — | (29 | )(5) | |||||||||||
Bad debt expense | (79 | ) | (89 | ) | (56 | ) | 10 | (33 | )(6) | |||||||||||
Retail contribution margin | 504 | 537 | 411 | (33 | ) | 126 | ||||||||||||||
Unrealized gains (losses) on energy derivatives | 438 | (287 | ) | (69 | ) | 725 | (7) | (218 | )(8) | |||||||||||
Total retail energy contribution margin, including unrealized gains/losses on energy derivatives(9) | $ | 942 | $ | 250 | $ | 342 | $ | 692 | $ | (92 | ) | |||||||||
(1) | Decrease primarily due to lower volumes driven by (a) a change in customer usage and mix and (b) fewer number of customers. | |
(2) | Increase primarily due to higher unit margins (higher unit sales prices, partially offset by higher unit prices of purchased power at the time procurement). | |
(3) | Increase primarily due to (a) $18 million increase in salaries, contract services and professional fees and (b) $4 million for a technology licensing settlement. These increases were partially offset by (a) $4 million decrease in corporate allocations and (b) $4 million decrease in gross receipt tax. | |
(4) | Increase primarily due to (a) $26 million increase in gross receipts tax and (b) $12 million increase in contract services and professional fees. | |
(5) | Increase primarily due to additional marketing campaigns. | |
(6) | Increase primarily due to higher customer defaults in 2006 primarily due to increases in unit sales prices. | |
(7) | Increase primarily due to (a) $187 million of increased gains on energy derivatives which settled during the period, (b) $71 million of decreased losses from cash flow hedge ineffectiveness, (c) $372 million of decreased losses due to changes in prices on our derivatives marked to market and (d) $51 million of decreased losses resulting from the termination of commodity contracts with a counterparty. | |
(8) | Decrease primarily due to (a) $139 million loss due to cash flow hedge ineffectiveness and (b) $102 million loss due to the reversal of previously recognized unrealized gains resulting from the termination of commodity contracts with a counterparty. These decreases were partially offset by $85 million gain due to settlements. | |
(9) | Retail energy segment profit and loss measure. |
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25
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Wholesale energy third-party revenues | $ | 2,877 | $ | 2,487 | $ | 2,879 | $ | 390 | (1) | $ | (392 | )(2) | ||||||||
Wholesale energy intersegment revenues | 394 | 571 | 625 | (177 | )(3) | (54 | ) | |||||||||||||
Subtotal | 3,271 | 3,058 | 3,504 | 213 | (446 | ) | ||||||||||||||
Revenues—affiliates | 127 | — | — | 127 | (4) | — | ||||||||||||||
Unrealized gains (losses) on energy derivatives | 32 | 192 | (218 | ) | (160 | )(5) | 410 | (6) | ||||||||||||
Total wholesale energy revenues | $ | 3,430 | $ | 3,250 | $ | 3,286 | $ | 180 | $ | (36 | ) | |||||||||
(1) | Increase primarily due to (a) higher power sales prices and (b) higher power sales volumes. These increases were partially offset by lower natural gas sales volumes. | |
(2) | Decrease primarily due (a) lower natural gas sales prices (related to gas transportation contracts) and (b) lower power sales prices. These decreases were partially offset by higher natural gas and power sales volumes. | |
(3) | Decrease primarily due to lower power sales volumes. This decrease was partially offset by (a) higher power sales prices and (b) higher natural gas sales volumes related to a tolling agreement. | |
(4) | We deconsolidated Channelview on August 20, 2007. These revenues represent sales of fuel to Channelview. | |
(5) | See footnote 23 under “Wholesale Energy Margins.” | |
(6) | See footnote 24 under “Wholesale Energy Margins.” |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Wholesale energy third-party costs | $ | 2,138 | $ | 2,371 | $ | 2,725 | $ | (233 | )(1) | $ | (354 | )(2) | ||||||||
Cost of sales—affiliates | 105 | — | — | 105 | (3) | — | ||||||||||||||
Unrealized (gains) losses on energy derivatives | 25 | 136 | (95 | ) | (111 | )(4) | 231 | (5) | ||||||||||||
Total wholesale energy cost of sales | $ | 2,268 | $ | 2,507 | $ | 2,630 | $ | (239 | ) | $ | (123 | ) | ||||||||
(1) | Decrease primarily due to (a) lower purchased natural gas and power volumes and (b) lower purchased capacity. | |
(2) | Decrease primarily due to (a) lower prices paid for natural gas and purchased power and (b) lower oil volumes. These decreases were partially offset by (a) higher purchased natural gas volumes and (b) higher prices of coal. | |
(3) | We deconsolidated Channelview on August 20, 2007. These cost of sales represent purchases of power from Channelview. | |
(4) | See footnote 23 under “Wholesale Energy Margins.” | |
(5) | See footnote 24 under “Wholesale Energy Margins.” |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Open energy gross margin(1): | ||||||||||||||||||||
PJM Coal | $ | 609 | $ | 530 | $ | 641 | $ | 79 | (2) | $ | (111 | )(3) | ||||||||
MISO Coal | 161 | 121 | 199 | 40 | (4) | (78 | )(5) | |||||||||||||
PJM/MISO Gas | 50 | 44 | 61 | 6 | (17 | ) | ||||||||||||||
West | 20 | 12 | (10 | ) | 8 | 22 | (6) | |||||||||||||
Other | 24 | 4 | 27 | 20 | (7) | (23 | )(8) | |||||||||||||
Total | 864 | 711 | 918 | 153 | (207 | ) | ||||||||||||||
Other margin:(9) PJM Coal | 56 | 29 | 40 | 27 | (10) | (11 | ) | |||||||||||||
MISO Coal | 14 | 8 | 7 | 6 | 1 | |||||||||||||||
PJM/MISO Gas | 109 | 49 | 19 | 60 | (11) | 30 | (12) | |||||||||||||
West | 141 | 155 | 187 | (14 | )(13) | (32 | )(14) | |||||||||||||
Other | 63 | 111 | 91 | (48 | )(15) | 20 | (16) | |||||||||||||
Total | 383 | 352 | 344 | 31 | 8 | |||||||||||||||
Open wholesale gross margin | 1,247 | 1,063 | 1,262 | 184 | (17) | (199 | )(18) | |||||||||||||
Operation and maintenance | (639 | ) | (599 | ) | (544 | ) | (40 | )(19) | (55 | )(20) | ||||||||||
Bad debt expense | 1 | 2 | (2 | ) | (1 | ) | 4 | |||||||||||||
Open wholesale contribution margin | 609 | 466 | 716 | 143 | (250 | ) | ||||||||||||||
Historical and operational wholesale hedges | (92 | ) | (376 | ) | (484 | ) | 284 | (21) | 108 | (22) | ||||||||||
Unrealized gains (losses) on energy derivatives | 7 | 56 | (123 | ) | (49 | )(23) | 179 | (24) | ||||||||||||
Changes in California-related receivables and reserves | — | — | 1 | — | (1 | ) | ||||||||||||||
Total wholesale energy contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives(25) | $ | 524 | $ | 146 | $ | 110 | $ | 378 | $ | 36 | ||||||||||
(1) | Open energy gross margin is calculated using the power sales prices received by the plants less delivered spot fuel prices. This figure excludes the effects of other margin, our historical and operational wholesale hedges and unrealized gains/losses on energy derivatives. | |
(2) | Increase primarily due to (a) higher open energy unit margins (higher power prices partially offset by higher fuel costs) and (b) higher economic generation. | |
(3) | Decrease primarily due to lower open energy unit margins (lower power prices partially offset by lower fuel costs). This decrease was partially offset by higher commercial capacity factor. | |
(4) | Increase primarily due to (a) higher open energy unit margins (higher power prices) and (b) higher economic generation. These increases were partially offset by lower commercial capacity factor primarily due to higher planned outages in 2007. | |
(5) | Decrease primarily due to lower open energy unit margins (lower power prices partially offset by lower fuel costs). | |
(6) | Increase primarily due to higher open energy unit margins (lower fuel costs partially offset by lower power prices) and increased economic generation. These increases were partially offset by lower commercial capacity factor. | |
(7) | Increase primarily due to higher open energy unit margins (higher power prices partially offset by higher fuel costs). This increase was partially offset by lower economic generation due primarily to the deconsolidation of Channelview on August 20, 2007. | |
(8) | Decrease primarily due to lower open energy unit margins (lower power prices partially offset by lower fuel costs). | |
(9) | Other margin represents power purchase agreements, capacity payments, ancillary services revenues and selective commercial hedge strategies. | |
(10) | Increase primarily due to (a) RPM capacity payments and (b) ancillary services revenues. | |
(11) | Increase primarily due to RPM capacity payments. | |
(12) | Increase primarily due to (a) higher capacity payments and (b) ancillary services revenues. |
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(13) | Decrease primarily due to (a) fewer selective commercial hedge activities and (b) lower revenue from power purchase agreements. These decreases were partially offset by higher capacity payments. | |
(14) | Decrease primarily due to lower gains on selective commercial hedge activities. | |
(15) | Decrease primarily due to (a) the deconsolidation of Channelview on August 20, 2007 and (b) lower revenue from power purchase agreements. | |
(16) | Increase primarily due to higher revenue from power purchase agreements. | |
(17) | Increase primarily due to (a) higher open energy unit margins, (b) higher capacity payments and (c) higher economic generation. These increases were partially offset by lower commercial capacity factor due to higher planned outages in 2007. | |
(18) | Decrease primarily due to (a) lower open energy unit margins and (b) lower economic generation. These decreases were partially offset with higher commercial capacity factor in the PJM and MISO regions. | |
(19) | Increase primarily due to (a) $21 million increase in planned outages and maintenance spending and (b) $19 million increase in services and support primarily due to strategic initiatives for improving plant performance ($16 million). These increases were partially offset by decreases due to the deconsolidation of Channelview on August 20, 2007. | |
(20) | Increase primarily due to $46 million increase in planned outages and maintenance spending primarily at our coal plants. | |
(21) | Increase primarily due to (a) $134 million in higher margins on natural gas transportation and storage contracts, (b) $120 million decrease in losses on closed power hedges and (c) $23 million in higher margins on operational hedges. | |
(22) | Increase primarily due to a $387 million decrease in losses from power sales, resulting from a 41% decrease in hedged volumes and 55% decrease in the average loss on hedges, reduced by $187 million of losses on 2006 power hedges closed in the third quarter of 2005. This increase was partially offset by $98 million due to a decrease of coal market prices combined with an increase in coal contract prices. | |
(23) | Decrease primarily due to $75 million reduction in gains on energy derivatives which settled during the period, partially offset by $14 million gain due to change in prices on our derivatives marked to market. | |
(24) | Increase primarily due to (a) $113 million gain due to settlements and (b) $74 million gain due to changes in prices on our derivatives marked to market. | |
(25) | Wholesale energy segment profit and loss measure. |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Salaries and benefits | $ | 87 | $ | 90 | $ | 66 | $ | (3 | ) | $ | 24 | (1) | ||||||||
Professional fees, contract services and information systems maintenance | 38 | 29 | 22 | 9 | 7 | |||||||||||||||
Rent and utilities | 21 | 20 | 20 | 1 | — | |||||||||||||||
Credit-enhanced retail structure fee | 1 | 13 | — | (12 | )(2) | 13 | (2) | |||||||||||||
Legal costs | 11 | 11 | 17 | — | (6 | ) | ||||||||||||||
Settlement of shareholder class action lawsuits | — | — | 8 | — | (8 | ) | ||||||||||||||
Costs in connection with Channelview’s reorganization | 3 | — | — | 3 | — | |||||||||||||||
Other, net | 10 | 9 | 7 | 1 | 2 | |||||||||||||||
Other general and administrative | $ | 171 | $ | 172 | $ | 140 | $ | (1 | ) | $ | 32 | |||||||||
(1) | Increase primarily due to impact of increased stock price on stock-based incentive plan expense. | |
(2) | See note 7 to our consolidated financial statements. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Equipment held in storage | $ | 24 | $ | — | $ | — | $ | 24 | $ | — | ||||||||||
Emission allowances | 1 | 159 | 160 | (158 | )(1) | (1 | ) | |||||||||||||
REMA hydropower plants | — | — | 12 | — | (12 | ) | ||||||||||||||
Landfill-gas fueled power plants | — | — | (4 | ) | — | 4 | ||||||||||||||
Other, net | 1 | — | — | 1 | — | |||||||||||||||
Gains on sales of assets and emission allowances, net | $ | 26 | $ | 159 | $ | 168 | $ | (133 | ) | $ | (9 | ) | ||||||||
(1) | Decrease primarily relates to our fundamental view compared to current to market prices. In the past few years, we sold some excess emission allowances. See “Business—Environmental Matters” in Item 1 of thisForm 10-K. |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Depreciation on plants | $ | 269 | $ | 247 | $ | 264 | $ | 22 | (1) | $ | (17 | )(2) | ||||||||
Depreciation on information systems | 35 | 50 | 76 | (15 | )(3) | (26 | )(4) | |||||||||||||
Other, net—depreciation | 5 | 6 | 11 | (1 | ) | (5 | ) | |||||||||||||
Depreciation | 309 | 303 | 351 | 6 | (48 | ) | ||||||||||||||
Amortization of emission allowances | 110 | 65 | 90 | 45 | (5) | (25 | )(6) | |||||||||||||
Other, net—amortization | 5 | 5 | 5 | — | — | |||||||||||||||
Amortization | 115 | 70 | 95 | 45 | (25 | ) | ||||||||||||||
Depreciation and amortization | $ | 424 | $ | 373 | $ | 446 | $ | 51 | $ | (73 | ) | |||||||||
(1) | Increase primarily due to early retirements of plant components when replacement components are installed for upgrades (from $9 million in 2006 to $29 million in 2007). This increase was partially offset by $5 million decrease related to Channelview, which was deconsolidated on August 20, 2007. | |
(2) | Decrease primarily due to early retirements of plant components when replacement components are installed for upgrades (from $23 million in 2005 to $9 million in 2006). | |
(3) | Decrease primarily due to assets becoming fully depreciated. This decrease was partially offset by depreciation on assets placed into service during 2007. | |
(4) | Decrease primarily due to assets becoming fully depreciated. | |
(5) | Increase primarily due to higher average cost of SO2 allowances purchased and used. | |
(6) | Decrease primarily due to lower average cost of SO2 and NOx allowances purchased and used. |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
El Dorado Energy, LLC | $ | — | $ | — | $ | 20 | (1) | $ | — | $ | (20 | ) | ||||||||
Sabine Cogen, LP | 5 | 6 | 6 | (1 | ) | — | ||||||||||||||
Income of equity investments, net | $ | 5 | $ | 6 | $ | 26 | $ | (1 | ) | $ | (20 | ) | ||||||||
(1) | We sold this investment in 2005. See note 20 to our consolidated financial statements. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Impairment of investments | $ | (3 | ) | $ | — | $ | (23 | )(1) | $ | (3 | ) | $ | 23 | |||||||
Other, net | 3 | — | — | 3 | — | |||||||||||||||
Other, net | $ | — | $ | — | $ | (23 | ) | $ | — | $ | 23 | |||||||||
(1) | See note 19 to our consolidated financial statements. |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Fixed-rate debt | $ | 235 | $ | 249 | $ | 249 | $ | (14 | )(1) | $ | — | |||||||||
Deferred financing costs | 51 | 32 | 15 | 19 | (2) | 17 | (2) | |||||||||||||
Fees for MWh’s delivered under credit-enhanced retail structure | 26 | 2 | — | 24 | (3) | 2 | (3) | |||||||||||||
Channelview | 16 | 25 | 25 | (9 | )(4) | — | ||||||||||||||
Variable-rate debt | 14 | 88 | 67 | (74 | )(5) | 21 | (6) | |||||||||||||
Financing fees expensed | 12 | 27 | 30 | (15 | ) | (3 | ) | |||||||||||||
Unrealized losses on derivatives | 5 | 11 | 16 | (6 | ) | (5 | ) | |||||||||||||
Capitalized interest | (4 | ) | — | — | (4 | ) | — | |||||||||||||
Amortization of fair value adjustment of acquired debt | (11 | ) | (9 | ) | (9 | ) | (2 | ) | — | |||||||||||
Other, net | 5 | 3 | 6 | 2 | (3 | ) | ||||||||||||||
Interest expense | $ | 349 | $ | 428 | $ | 399 | $ | (79 | ) | $ | 29 | |||||||||
(1) | Decrease primarily due to decrease in outstanding debt principal balances. | |
(2) | See notes 2(p) and 6 to our consolidated financial statements. | |
(3) | See note 7 to our consolidated financial statements. | |
(4) | Decrease primarily due to the deconsolidation of Channelview on August 20, 2007. | |
(5) | Decrease primarily due to $76 million due to decrease in outstanding debt principal balances. | |
(6) | Increase primarily due to $16 million due to increase in rates and $5 million due to increase in outstanding debt principal balances. |
Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest on temporary cash investments | $ | 25 | $ | 6 | $ | 3 | $ | 19 | (1) | $ | 3 | |||||||||
Net margin deposits | 8 | 27 | 13 | (19 | )(2) | 14 | ||||||||||||||
Interest on California net receivables | — | — | 6 | — | (6 | ) | ||||||||||||||
Other, net | 1 | 1 | 1 | — | — | |||||||||||||||
Interest income | $ | 34 | $ | 34 | $ | 23 | $ | — | $ | 11 | ||||||||||
(1) | Increase primarily due to increase in cash equivalents due to (a) the return of net margin deposits as a result of the credit-enhanced retail structure that became effective on December 1, 2006 and (b) cash flows from operations. See note 7. | |
(2) | Decrease primarily due to the credit-enhanced retail structure that became effective on December 1, 2006. |
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2007 | 2008 | 2009 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Maintenance capital expenditures: | ||||||||||||||||
Retail energy | $ | 14 | $ | 19 | (1) | $ | 14 | (1) | $ | 14 | (1) | |||||
Wholesale energy(2) | 55 | 56 | 67 | 54 | ||||||||||||
Other operations | 16 | 3 | 7 | 6 | ||||||||||||
85 | 78 | 88 | 74 | |||||||||||||
Environmental | 100 | 261 | 115 | 26 | (3) | |||||||||||
Capitalized interest | 4 | 22 | 37 | 13 | ||||||||||||
Total capital expenditures | $ | 189 | $ | 361 | $ | 240 | $ | 113 | ||||||||
(1) | We are currently evaluating investing in our “Smart Energy” initiative, which could result in capital expenditures. However, no estimate for this potential investment is included in the table as the amounts are not yet reasonably estimatable. | |
(2) | Excludes $8 million for 2008 through 2014 for pre-existing environmental conditions and remediation, which have been accrued for in our consolidated balance sheet as of December 31, 2007. |
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(3) | We have estimated environmental capital expenditures of $26 million to $53 million for 2010 and have included the low end of the range in the table. |
Less than | One to | Three to | More than | |||||||||||||||||
Contractual Obligations | Total | One Year | Three Years | Five Years | Five Years | |||||||||||||||
(in millions) | ||||||||||||||||||||
Debt, including credit facilities(1) | $ | 5,177 | $ | 271 | $ | 836 | $ | 362 | $ | 3,708 | ||||||||||
Other commodity commitments(2) | 1,543 | 255 | 359 | 233 | 696 | |||||||||||||||
Derivative liabilities | 623 | 436 | 132 | 49 | 6 | |||||||||||||||
REMA operating lease payments | 1,059 | 62 | 115 | 119 | 763 | |||||||||||||||
Maintenance agreements obligations | 704 | 14 | 37 | 68 | 585 | |||||||||||||||
Other operating lease payments | 467 | 76 | 154 | 100 | 137 | |||||||||||||||
Plant and equipment commitments(3) | 296 | 240 | 56 | — | — | |||||||||||||||
Other(4) | 435 | 46 | 77 | 64 | 248 | |||||||||||||||
Total contractual cash obligations | $ | 10,304 | $ | 1,400 | $ | 1,766 | $ | 995 | $ | 6,143 | ||||||||||
(1) | Includes interest payments. | |
(2) | Includes commitments with both fixed and variable pricing components. See note 12(c) to our consolidated financial statements. | |
(3) | These amounts are included in the capital requirements table above under either maintenance capital expenditures for wholesale energy or environmental. | |
(4) | Includes stadium naming rights, credit-enhanced retail structure fee on sales commitments, estimated pension and post retirement benefit payments and other contractual obligations. |
2008 | $ | 3,269 | ||
2009 | 2,551 | |||
2010 | 1,634 | |||
2011 | 1,049 | |||
2012 | 758 | |||
Total(1) | $ | 9,261 | ||
(1) | Includes sales commitments with both fixed and variable pricing components. See note 12(c) to our consolidated financial statements. |
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Exposure | Credit | Exposure | Number of | Net Exposure of | ||||||||||||||||
Before | Collateral | Net of | Counterparties | Counterparties | ||||||||||||||||
Credit Rating Equivalent | Collateral(1) | Held(2) | Collateral | >10%(3) | >10%(3) | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Investment grade | $ | 142 | $ | (17 | ) | $ | 125 | — | $ | — | ||||||||||
Non-investment grade | 233 | — | 233 | 2 | 206 | |||||||||||||||
No external ratings:(4) | ||||||||||||||||||||
Internally rated—Investment grade | 45 | — | 45 | — | — | |||||||||||||||
Internally rated—Non-investment grade | 13 | (3 | ) | 10 | — | — | ||||||||||||||
Total | $ | 433 | $ | (20 | ) | $ | 413 | 2 | $ | 206 | ||||||||||
(1) | The table excludes amounts related to contracts classified as normal purchase/normal sale and non-derivative contractual commitments that are not recorded in our consolidated balance sheets, except for any related accounts receivable. Such contractual commitments contain credit and economic risk if a counterparty does not perform. Nonperformance could have a material adverse impact on our future results of operations, financial condition and cash flows. | |
(2) | Collateral consists of cash, standby letters of credit and other forms approved by management. | |
(3) | See note 2(e) to our consolidated financial statements. | |
(4) | For unrated counterparties, we perform credit analyses including review of financial statements, contractual rights and restrictions and credit support such as parent company guarantees to create an internal credit rating. |
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Change | Change | |||||||||||||||||||
From 2006 | From 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Operating income (loss) | $ | 876 | $ | (24 | ) | $ | (321 | ) | $ | 900 | $ | 297 | ||||||||
Depreciation and amortization | 424 | 373 | 446 | 51 | (73 | ) | ||||||||||||||
Gains on sales of assets and emission allowances, net | (26 | ) | (159 | ) | (168 | ) | 133 | 9 | ||||||||||||
Net changes in energy derivatives | (393 | )(1) | 317 | (2) | 192 | (3) | (710 | ) | 125 | |||||||||||
Western states and similar settlements | — | 35 | 359 | (35 | ) | (324 | ) | |||||||||||||
Western states and similar settlements payments | (35 | ) | (160 | ) | — | 125 | (160 | ) | ||||||||||||
Margin deposits, net | 297 | 1,264 | (4) | (1,214 | )(5) | (967 | ) | 2,478 | ||||||||||||
Settlements of exchange transactions prior to contractual period(6) | (9 | ) | 22 | (8 | ) | (31 | ) | 30 | ||||||||||||
Net option premiums sold (purchased) | (23 | ) | (53 | ) | 3 | 30 | (56 | ) | ||||||||||||
Interest payments | (345 | ) | (385 | ) | (347 | ) | 40 | (38 | ) | |||||||||||
Change in accounts and notes receivable and accounts payable, net | 20 | 32 | 35 | (12 | ) | (3 | ) | |||||||||||||
Income tax payments, net of refunds | (28 | ) | (29 | ) | (22 | ) | 1 | (7 | ) | |||||||||||
Other, net | (3 | ) | 97 | (65 | ) | (100 | ) | 162 | ||||||||||||
Net cash provided by (used in) continuing operations from operating activities | 755 | 1,330 | (1,110 | ) | (575 | ) | 2,440 | |||||||||||||
Net cash provided by (used in) discontinued operations from operating activities | 7 | (54 | ) | 193 | 61 | (247 | ) | |||||||||||||
Net cash provided by (used in) operating activities | $ | 762 | $ | 1,276 | $ | (917 | ) | $ | (514 | ) | $ | 2,193 | ||||||||
(1) | Includes unrealized gains on energy derivatives of $445 million. | |
(2) | Includes unrealized losses on energy derivatives of $231 million. | |
(3) | Includes unrealized losses on energy derivatives of $192 million. | |
(4) | Change primarily due to our credit-enhanced retail structure and the expiration of certain hedges. | |
(5) | Change primarily due to both a decrease in net unrealized value of our broker accounts and increased counterparty obligations. | |
(6) | Represents exchange transactions financially settled in three business days prior to the contractual delivery month. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Capital expenditures | $ | (189 | ) | $ | (97 | ) | $ | (82 | ) | $ | (92 | )(1) | $ | (15 | ) | |||||
Proceeds from sales of assets, net(2) | 82 | 1 | 149 | (3) | 81 | (148 | ) | |||||||||||||
Proceeds from sales of emission allowances(2)(4) | 7 | 205 | 234 | (198 | ) | (29 | ) | |||||||||||||
Purchases of emission allowances(4) | (92 | ) | (23 | ) | (146 | ) | (69 | ) | 123 | |||||||||||
Restricted cash | 7 | 2 | 14 | 5 | (12 | ) | ||||||||||||||
Other, net | 6 | 1 | 6 | 5 | (5 | ) | ||||||||||||||
Net cash provided by (used in) continuing operations from investing activities | (179 | ) | 89 | 175 | (268 | ) | (86 | ) | ||||||||||||
Net cash provided by discontinued operations from investing activities | — | 968 | (5) | 131 | (6) | (968 | ) | 837 | ||||||||||||
Net cash provided by (used in) investing activities | $ | (179 | ) | $ | 1,057 | $ | 306 | $ | (1,236 | ) | $ | 751 | ||||||||
(1) | Increase primarily due to environmental capital expenditures for NOx and SO2 emission reductions at two of our facilities beginning in 2007. | |
(2) | See note 20 to our consolidated financial statements. | |
(3) | Includes $76 million, $42 million and $28 million related to sales of El Dorado, REMA hydropower plants and landfill-gas fueled power plants, respectively. | |
(4) | See “Business—Environmental Matters” in Item 1 of thisForm 10-K. | |
(5) | Includes $952 million of net cash proceeds from the sale of New York plants. | |
(6) | Includes $100 million of net cash proceeds from the sale of Ceredo. |
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Change | Change | |||||||||||||||||||
from 2006 | from 2005 | |||||||||||||||||||
2007 | 2006 | 2005 | to 2007 | to 2006 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Proceeds from issuance of senior unsecured notes | $ | 1,300 | $ | — | $ | — | $ | 1,300 | $ | — | ||||||||||
Payments of senior secured notes | (1,126 | ) | — | — | (1,126 | ) | — | |||||||||||||
Net proceeds from (payments on) senior secured term loans | (400 | ) | (452 | ) | 190 | 52 | (642 | ) | ||||||||||||
Net borrowings under (payments on) receivables facility | — | (450 | ) | 223 | 450 | (673 | ) | |||||||||||||
Net borrowings under (payments on) senior secured revolver | — | (383 | ) | 184 | 383 | (567 | ) | |||||||||||||
Payments under REMA’s term loans | — | — | (28 | ) | — | 28 | ||||||||||||||
Proceeds from issuances of stock | 41 | 25 | 37 | 16 | (12 | ) | ||||||||||||||
Payments of debt extinguishments and conversions expenses | (73 | ) | (36 | ) | — | (37 | ) | (36 | ) | |||||||||||
Payments of financing costs | (31 | ) | (17 | ) | (1 | ) | (14 | ) | (16 | ) | ||||||||||
Other, net | (3 | ) | (6 | ) | (11 | ) | 3 | 5 | ||||||||||||
Net cash provided by (used in) continuing operations from financing activities | (292 | ) | (1,319 | ) | 594 | 1,027 | (1,913 | ) | ||||||||||||
Net cash used in discontinued operations from financing activities | — | (638 | ) | — | 638 | (638 | ) | |||||||||||||
Net cash provided by (used in) financing activities | $ | (292 | ) | $ | (1,957 | ) | $ | 594 | $ | 1,665 | $ | (2,551 | ) | |||||||
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• | whether there is an indication of impairment; | |
• | the grouping of assets; | |
• | the intention of “holding” versus “selling” an asset; | |
• | the forecast of undiscounted expected future cash flow over the asset’s estimated useful life; and | |
• | if an impairment exists, the fair value of the asset or asset group. |
• | estimated forward market price curves; | |
• | valuation adjustments relating to time value; | |
• | liquidity valuation adjustments; | |
• | costs of administering future obligations under existing contracts; and | |
• | credit adjustments, based on estimated defaults by counterparties. |
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
2013 and | Total | |||||||||||||||||||||||||||
Source of Fair Value | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Fair Value | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Prices actively quoted(1) | $ | 1 | $ | — | $ | — | $ | (1 | ) | $ | 13 | $ | — | $ | 13 | |||||||||||||
Prices provided by other external sources(2) | (114 | ) | 21 | (14 | ) | — | — | — | (107 | ) | ||||||||||||||||||
Prices based on models and other valuation methods(3) | (63 | ) | (13 | ) | 24 | 1 | (3 | ) | (6 | ) | (60 | ) | ||||||||||||||||
Total mark-to-market non-trading derivatives | (176 | ) | 8 | 10 | — | 10 | (6 | ) | (154 | ) | ||||||||||||||||||
Cash flow hedges(4) | (63 | ) | (35 | ) | (35 | ) | (32 | ) | (19 | ) | — | (184 | ) | |||||||||||||||
Total | $ | (239 | ) | $ | (27 | ) | $ | (25 | ) | $ | (32 | ) | $ | (9 | ) | $ | (6 | ) | $ | (338 | ) | |||||||
(1) | Represents our NYMEX futures positions in natural gas, crude oil and power, which have quoted prices for the next 72, 30 and 36 months, respectively. | |
(2) | Represents our forward positions in natural gas, coal and crude oil and power at points for which over-the-counter market broker quotes are available, which on average, extend 24 or 36 months into the future. Positions are valued against internally developed forward market price curves that are validated and recalibrated against over-the-counter broker quotes. This category includes some transactions whose prices are obtained from external sources and then modeled to hourly, daily or monthly prices, as appropriate. | |
(3) | Represents the value of (a) our valuation adjustments for liquidity, credit and administrative costs, (b) options or structured transactions not quoted by an exchange or over-the-counter broker, but for which the prices of the underlying position are available and (c) transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point. | |
(4) | As of December 31, 2007, all previously designated cash flows hedges have been de-designated. See notes 2(d) and 5 to our consolidated financial statements. |
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Fair Value of | ||||||||||||||
Cash Flow | Earnings Impact of | Total Potential | ||||||||||||
As of December 31, | Market Prices | Hedges | Other Derivatives | Loss in Fair Value | ||||||||||
2007 | 10% decrease | $ | — | $ | (353 | ) | $ | (353 | ) | |||||
2006 | 10% decrease | 33 | (328 | ) | (295 | ) |
• | the derivatives are not closed out in advance of their expected term; | |
• | the derivatives continue to function effectively as hedges of the underlying risk; and | |
• | as applicable, anticipated underlying transactions settle as expected. |
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2013 and | Total | |||||||||||||||||||||||||||
Source of Fair Value | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Fair Value | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Prices actively quoted | $ | (31 | ) | $ | (12 | ) | $ | — | $ | — | $ | — | $ | — | $ | (43 | ) | |||||||||||
Prices provided by other external sources | 48 | 14 | — | — | — | — | 62 | |||||||||||||||||||||
Prices based on models and other valuation methods | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | $ | 17 | $ | 2 | $ | — | $ | — | $ | — | $ | — | $ | 19 | ||||||||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Realized | $ | 8 | $ | (3 | ) | |||
Unrealized | 11 | 30 | ||||||
Total | $ | 19 | $ | 27 | ||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Fair value of contracts outstanding, beginning of period | $ | 9 | $ | (20 | ) | |||
Contracts realized or settled | (10 | )(1) | (2 | )(2) | ||||
Changes in valuation techniques | — | (8 | ) | |||||
Changes in fair values attributable to market price and other market changes | 20 | 39 | ||||||
Fair value of contracts outstanding, end of period Total | $ | 19 | $ | 9 | ||||
(1) | Amount includes realized gain of $8 million and deferred settlements of $2 million. | |
(2) | Amount includes realized loss of $3 million offset by deferred settlements of $5 million. |
• | Confidence level—95% for natural gas and petroleum products and 99% for power products; | |
• | Volatility—calculated daily from historical forward prices using the exponentially weighted moving average method; | |
• | Correlation— calculated daily from daily volatilities and historical forward prices using the exponentially weighted moving average method; and | |
• | Holding period—natural gas and petroleum products generally have two day-holding periods. Power products have holding periods of five to 20 days based on the risk profile of the portfolio and the liquidation period. |
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2007 | 2006 | |||||||
(in millions) | ||||||||
As of December 31 | $ | 1 | $ | 2 | ||||
Year Ended December 31: | ||||||||
Average | 3 | 3 | ||||||
High | 5 | 7 | ||||||
Low | 1 | 1 |
Item 8. | Financial Statements and Supplementary Data. |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Item 9A. | Controls and Procedures. |
Item 9B. | Other Information. |
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Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 11. | Executive Compensation. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
(a) | (b) | (c) | ||||||||||
Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
Number of | Weighted-Average | Future Issuance Under | ||||||||||
Securities to Be Issued | Exercise Price of | Equity Compensation Plans | ||||||||||
Upon Exercise of | Outstanding | (Excluding Securities | ||||||||||
Outstanding Options, | Options, Warrants | Reflected | ||||||||||
Warrants and Rights | and Rights(1) | in Column (a)) | ||||||||||
Equity compensation plans approved by security holders(2) | 8,360,073 | (3) | $ | 13.56 | 24,747,036 | (4) | ||||||
Equity compensation plans not approved by security holders(5) | 1,404,979 | (6) | $ | 8.28 | 3,659,039 | |||||||
Total | 9,765,052 | $ | 13.07 | 28,406,075 |
(1) | The weighted average exercise prices exclude shares issuable under outstanding time-based restricted stock units (which do not have an exercise price). | |
(2) | Plans approved by stockholders include the Reliant Energy, Inc. Employee Stock Purchase Plan, the 2002 Long-Term Incentive Plan, the Long-Term Incentive Plan of Reliant Energy, Inc. and the Reliant Energy, Inc. Transition Stock Plan. | |
(3) | This amount includes 7,990,551 shares issuable upon the exercise of outstanding stock options and 369,322 shares issuable pursuant to outstanding restricted stock units granted under the 2002 Long-Term Incentive Plan. | |
(4) | Includes stockholder approved reserves of 9,899,115 shares as of December 31, 2007 that may be issued under the Employee Stock Purchase Plan and 14,847,921 shares that may be issued under the 2002 Long-Term Incentive Plan. Under the 2002 Long-Term Incentive Plan, no more than 25% of the shares available for future issuance are available for grant as awards of restricted stock and non-restricted awards of common stock or units denominated in common stock. No additional shares may be issued under the Long-Term Incentive Plan of Reliant Energy, Inc. or the Reliant Energy, Inc. Transition Stock Plan. | |
(5) | The Reliant Energy Inc. 2002 Stock Plan permits grants of stock options, stock appreciation rights, performance based stock awards, time-based stock awards and cash awards to all employees other than the executive officers subject to the reporting requirements of Section 16(a) of the Exchange Act. The Board authorized 6,000,000 shares for grant upon adoption of the 2002 Stock Plan. To the extent these 6,000,000 shares were not granted in 2002, the excess shares were cancelled. In January 2003, an additional 6,000,000 shares were authorized for the plan, with no more than 25% of these shares available for grant as awards of restricted stock and non-restricted awards of common stock or units denominated in common stock. The total number of shares available for future issuance is adjusted for new grants, exercises, forfeitures, cancellations and terminations of outstanding awards. | |
(6) | This amount includes 817,328 shares issuable upon the exercise of outstanding stock options and 587,651 shares issuable pursuant to outstanding restricted stock units. |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 14. | Principal Accountant Fees and Services. |
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Item 15. | Exhibits and Financial Statement Schedules. |
(1) | Index to Consolidated Financial Statements of Reliant Energy, Inc. and Subsidiaries. |
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-9 |
(2) | Financial Statement Schedule. |
F-66 |
Consolidated Financial Statements of RERH Holdings, LLC and Subsidiaries. | ||||
F-67 | ||||
F-68 | ||||
F-69 | ||||
F-70 | ||||
F-71 | ||||
F-72 | ||||
Consolidated Financial Statements of Reliant Energy Retail Holdings, LLC and Subsidiaries. | ||||
F-85 | ||||
F-86 | ||||
F-87 | ||||
F-88 | ||||
F-89 | ||||
Consolidated Financial Statements of Reliant Energy Mid-Atlantic Power Holdings, LLC and Subsidiaries. | ||||
F-101 | ||||
F-102 | ||||
F-103 | ||||
F-104 | ||||
F-105 |
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F-106 | ||||
F-107 | ||||
Consolidated Financial Statements of Orion Power Holdings, Inc. and Subsidiaries. | ||||
F-125 | ||||
F-126 | ||||
F-127 | ||||
F-128 | ||||
F-129 | ||||
F-130 | ||||
F-131 |
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(3) | Index to Exhibits. |
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
3 | .1 | Third Restated Certificate of Incorporation | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 3.1 | ||||||
3 | .2 | Third Amended and Restated Bylaws | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 | 1-16455 | 3.3 | ||||||
4 | .1 | Specimen Stock Certificate | Reliant Energy, Inc.’s Amendment No. 5 to Registration Statement on Form S-1, filed March 23, 2001 | 333-48038 | 4.1 | ||||||
4 | .2 | Rights Agreement between Reliant Resources, Inc. and The Chase Manhattan Bank, as Rights Agent, including a form of Rights Certificate, dated as of January 15, 2001 | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 4.2 | ||||||
4 | .3 | Common Stock Warrant Agreement by Reliant Resources, Inc. for the benefit of the holders from time to time, dated as of March 28, 2003 | Reliant Energy, Inc.’s Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2002 | 1-16455 | 4.3 | ||||||
4 | .4 | Indenture relating to the 5.00% Convertible Senior Subordinated Notes due 2010, between Reliant Resources, Inc. and Wilmington Trust Company, as Trustee, dated as of June 24, 2003 | Reliant Energy, Inc.’s Registration Statement on Form S-3, filed July 24, 2003 | 333-107295 | 4.5 | ||||||
4 | .5 | Registration Rights Agreement relating to the 5.00% Convertible Senior Subordinated Notes due 2010, among Reliant Resources, Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Banc of America Securities LLC, dated as of June 24, 2003 | Reliant Energy, Inc.’s Registration Statement of Form S-3, filed July 24, 2003 | 333-107295 | 4.7 | ||||||
4 | .6 | Indenture relating to the 9.50% Senior Secured Notes due 2013,among Reliant Resources, Inc., the Guarantors listed in Schedule I thereto and Wilmington Trust Company, as Trustee, dated as of July 1, 2003 | Reliant Energy, Inc.’s Registration Statement on Form S-4, filed July 24, 2003 | 333-107297 | 4.7 | ||||||
4 | .7 | Supplemental Indenture relating to the 9.50% Senior Secured Notes due 2013, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of November 19, 2004 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 4.11 |
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SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
4 | .8 | Second Supplemental Indenture relating to the 9.50% Senior Secured Notes due 2013, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 4.12 | ||||||
4 | .9 | Third Supplemental Indenture relating to the 9.50% Senior Secured Notes due 2013, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 4.2 | ||||||
4 | .10 | Form of Senior Indenture to be issued under universal shelf | Reliant Energy, Inc.’s Amendment No. 1 to Registration Statement on Form S-3, filed December 10, 2003 | 333-107296 | 4.5 | ||||||
4 | .11 | Form of Subordinated Indenture to be issued under universal shelf | Reliant Energy, Inc.’s Amendment No. 1 to Registration Statement on Form S-3, filed December 10, 2003 | 333-107296 | 4.6 | ||||||
4 | .12 | Senior Indenture relating to the 6.75% Senior Secured Notes due 2014, among Reliant Energy, Inc. and Wilmington Trust Company, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 4.1 | ||||||
4 | .13 | First Supplemental Indenture relating to the 6.75% Senior Secured Notes due 2014, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 4.2 | ||||||
4 | .14 | Second Supplemental Indenture relating to the 6.75% Senior Secured Notes due 2014, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 4.18 | ||||||
4 | .15 | Third Supplemental Indenture relating to the 6.75% Senior Secured Notes due 2014, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 4.3 | ||||||
4 | .16 | Indenture between Orion Power Holdings, Inc. and Wilmington Trust Company, dated as of April 27, 2000 | Orion Power Holdings, Inc.’s Registration Statement on Form S-1, filed August 18, 2000 | 333-44118 | 4.1 |
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SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
4 | .17 | Fourth Supplemental Indenture relating to the 9.50% Senior Secured Notes due 2013, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of June 5, 2007 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed June 6, 2007 | 1-16455 | 4.2 | ||||||
4 | .18 | Fourth Supplemental Indenture relating to the 7.625% Senior Notes due 2014, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of June 13, 2007 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed June 15, 2007 | 1-16455 | 4.1 | ||||||
4 | .19 | Fifth Supplemental Indenture relating to the 7.875% Senior Notes due 2017, among Reliant Energy, Inc., the Guarantors listed therein and Wilmington Trust Company, dated as of June 13, 2007 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed June 15, 2007 | 1-16455 | 4.2 | ||||||
10 | .1 | Master Separation Agreement between Reliant Resources, Inc. and Reliant Energy, Incorporated, dated as of December 31, 2000 | CenterPoint Energy Houston Electric, LLC’s (formerly known as Reliant Energy, Incorporated) Quarterly Report on Form 10-Q for the period ended March 31, 2001 | 1-3187 | 10.1 | ||||||
10 | .2 | Tax Allocation Agreement between Reliant Resources, Inc. and Reliant Energy, Incorporated, dated as of December 31, 2000 | CenterPoint Energy Houston Electric, LLC’s (formerly known as Reliant Energy, Incorporated) Quarterly Report on Form 10-Q for the period ended March 31, 2001 | 1-3187 | 10.8 | ||||||
10 | .3 | Third Amended and Restated Credit and Guaranty Agreement among (i) Reliant Energy, Inc., as Borrower; (ii) the Other Loan Parties referred to therein, as Guarantors; (iii) the Lenders party thereto; (iv) Bank of America, N.A., as Administrative Agent and Collateral Agent; (v) Barclays Bank PLC and Deutsche Bank Securities Inc., as Syndication Agents; and (vi) Goldman Sachs Credit Partners L.P. and Merrill Lynch Capital Corporation, as Documentation Agents, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.6 |
48
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .4 | Credit Sleeve and Reimbursement Agreement among Reliant Energy Power Supply, LLC, the Guarantors listed therein, Merrill Lynch Commodities, Inc.,and Merrill Lynch & Co., Inc., dated as of September 24, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed September 25, 2006 | 1-16455 | 10.1 | ||||||
10 | .5 | Schedules and Exhibits to the Credit Sleeve and Reimbursement Agreement dated as of September 24, 2006 (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment) | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2006 | 1-16455 | 10.7B | ||||||
10 | .6A | Amended and Restated Credit Sleeve and Reimbursement Agreement among Reliant Energy Power Supply, LLC, the Guarantors listed therein, Merrill Lynch Commodities, Inc.,and Merrill Lynch & Co., Inc., dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 99.2 | ||||||
10 | .6B | Schedules and Exhibits to the Amended and Restated Credit Sleeve and Reimbursement Agreement dated as of December 1, 2006 (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment) | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.6B | ||||||
10 | .7A | Amended and Restated Credit Sleeve and Reimbursement Agreement among Reliant Energy Power Supply, LLC, the Guarantors listed therein, Merrill Lynch Commodities, Inc. and Merrill Lynch & Co., Inc., dated as of August 1, 2007 | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 | 1-16455 | 10.1A | ||||||
10 | .7B | Schedules and Exhibits to the Amended and Restated Credit Sleeve and Reimbursement Agreement dated as of August 1, 2007 (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment) | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 | 1-16455 | 10.1B | ||||||
10 | .8 | Working Capital Facility among Reliant Energy Power Supply, LLC, the Guarantors listed therein and Merrill Lynch Capital Corporation, dated as of September 24, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed September 25, 2006 | 1-16455 | 10.2 |
49
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .9 | Amended and Restated Working Capital Facility Agreement among Reliant Energy Power Supply, LLC, the Guarantors listed therein and Merrill Lynch Capital Corporation, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 99.1 | ||||||
10 | .10 | Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2001A between Reliant Energy, Inc., as Guarantor, and J.P. Morgan Trust Company, National Association, as Trustee, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 10.2 | ||||||
10 | .11 | Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002A between Reliant Energy, Inc., as Guarantor, and J.P. Morgan Trust Company, National Association, as Trustee, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 10.3 | ||||||
10 | .12 | Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002B between Reliant Energy, Inc., as Guarantor, and J.P. Morgan Trust Company, National Association, as Trustee, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 10.4 | ||||||
10 | .13 | Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2003A between Reliant Energy, Inc., as Guarantor, and J.P. Morgan Trust Company, National Association, as Trustee, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 10.5 |
50
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .14 | Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2004A between Reliant Energy, Inc., as Guarantor, and J.P. Morgan Trust Company, National Association, as Trustee, dated as of December 22, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 27, 2004 | 1-16455 | 10.6 | ||||||
10 | .15 | Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2001A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.14 | ||||||
10 | .16 | Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.15 | ||||||
10 | .17 | Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002B among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.16 |
51
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .18 | Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2003A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.17 | ||||||
10 | .19 | Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2004A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of September 21, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 | 1-16455 | 10.18 | ||||||
10 | .20 | Second Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2001A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.1 | ||||||
10 | .21 | Second Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.2 |
52
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .22 | Second Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2002B among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.3 | ||||||
10 | .23 | Second Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2003A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.4 | ||||||
10 | .24 | Third Supplemental Guarantee Agreement relating to Pennsylvania Economic Development Financing Authority’s outstanding Exempt Facilities Revenue Bonds (Reliant Energy Seward, LLC Project) Series 2004A among Reliant Energy, Inc., the Guarantors listed therein and The Bank of New York Trust Company, N.A., as trustee, dated as of December 1, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed December 7, 2006 | 1-16455 | 10.5 |
53
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .25 | Credit and Guaranty Agreement among Reliant Energy, Inc., as Borrower, the Other Loan Parties referred to therein as guarantors, the lenders party thereto, Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc., as Joint Lead Arrangers, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Goldman Sachs Credit Partners L.P., Merrill Lynch Capital Corporation,and ABN AMRO Bank N.V., as Joint Bookrunners with respect to the Revolving Credit Facility and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Goldman Sachs Credit Partners L.P., Merrill Lynch Capital Corporation and Bear, Sterns & Co. Inc., as Joint Bookrunners with respect to the Pre-Funded L/C Facility, dated as of June 12, 2007 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed June 15, 2007 | 1-16455 | 1.1 | ||||||
10 | .26 | Facility Lease Agreement between Conemaugh Lessor Genco LLC and Reliant Energy Mid-Atlantic Power Holdings, LLC, dated as of August 24, 2000 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.6a | ||||||
10 | .27 | Schedule identifying substantially identical agreements to Facility Lease Agreement constituting Exhibit 10.26 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.6b | ||||||
10 | .28 | Pass Through Trust Agreement between Reliant Energy Mid-Atlantic Power Holdings, LLC and Bankers Trust Company, made with respect to the formation of the Series A Pass Through Trust and the issuance of 8.554% Series A Pass Through Certificates, dated as of August 24, 2000 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.4a | ||||||
10 | .29 | Schedule identifying substantially identical agreements to Pass Through Trust Agreement constituting Exhibit 10.28 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.4b |
54
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .30 | Participation Agreement among (i) Conemaugh Lessor Genco LLC, as Owner Lessor; (ii) Reliant Energy Mid-Atlantic Power Holdings, LLC, as Facility Lessee; (iii) Wilmington Trust Company, as Lessor Manager; (iv) PSEGR Conemaugh Generation, LLC, as Owner Participant; (v) Bankers Trust Company, as Lease Indenture Trustee; and (vi) Bankers Trust Company, as Pass Through Trustee, dated as of August 24, 2000 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.5a | ||||||
10 | .31 | Schedule identifying substantially identical agreements to Participation Agreement constituting Exhibit 10.30 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.5b | ||||||
10 | .32 | First Amendment to Participation Agreement, dated as of November 15, 2001 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.20 | ||||||
10 | .33 | Schedule identifying substantially identical agreements to First Amendment to Participation Agreement constituting Exhibit 10.32 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.21 | ||||||
10 | .34 | Second Amendment to Participation Agreement, dated as of June 18, 2003 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.22 | ||||||
10 | .35 | Schedule identifying substantially identical agreements to Second Amendment to Participation Agreement constituting Exhibit 10.34 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.23 | ||||||
10 | .36 | Lease Indenture of Trust, Mortgage and Security Agreement between Conemaugh Lessor Genco LLC, as Owner Lessor, and Bankers Trust Company, as Lease Indenture Trustee, dated as of August 24, 2000 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.8a | ||||||
10 | .37 | Schedule identifying substantially identical agreements to Lease Indenture of Trust constituting Exhibit 10.36 | Reliant Energy Mid-Atlantic Power Holdings, LLC’s Registration Statement on Form S-4, filed December 8, 2000 | 333-51464 | 4.8b | ||||||
10 | .38 | Purchase and Sale Agreement by and between Orion Power Holdings, Inc., Reliant Energy, Inc., Great Lakes Power Inc. and Brascan Corporation, dated as of May 18, 2004 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed May 21, 2004 | 1-16455 | 99.2 |
55
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
10 | .39 | Purchase and Sale Agreement between Orion Power Holdings, Inc., as Seller, Reliant Energy, Inc., as Guarantor, and Astoria Generating Company Acquisitions, L.L.C., as Buyer, dated as of September 30, 2005 | Reliant Energy, Inc.’s Current Report on Form 10-K, filed October 6, 2005 | 1-16455 | 10.1 | ||||||
10 | .40 | Settlement and Release of Claims Agreement among each of the Reliant Parties, OMOI, each of the California Parties, each of the Additional Claimants, each of the Class Action Parties and each of the Local Governmental Parties (each as defined therein), dated as of October 12, 2005 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed October 20, 2005 | 1-16455 | 10.1 | ||||||
10 | .41 | Settlement Agreement between Reliant Energy, Inc. and Seneca Capital, L.P. dated April 18, 2006 | Reliant Energy, Inc.’s Current Report on Form 8-K, filed April 18, 2006 | 1-16455 | 10.1 | ||||||
*10 | .42 | Executive Life Insurance Plan, effective as of January 1, 1994, including the first and second amendments thereto (Reliant Energy, Inc. has adopted certain obligations under this plan with respect to the following individuals: James A. Ajello and Brian Landrum) | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 10.30 | ||||||
*10 | .43 | Transition Stock Plan, effective as of May 4, 2001 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001 | 1-16455 | 10.37 | ||||||
*10 | .44 | 2002 Stock Plan, effective as of March 1, 2002 | Reliant Energy, Inc.’s Registration Statement on Form S-8, filed April 19, 2002 | 333-86610 | 4.5 | ||||||
*10 | .45 | Annual Incentive Compensation Plan, effective as of January 1, 2001 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001 | 1-16455 | 10.9 | ||||||
*10 | .46 | 2002 Annual Incentive Compensation Plan for Executive Officers, effective as of March 1, 2002 | Reliant Energy, Inc.’s 2002 Proxy Statement on Schedule 14A | 1-16455 | Appendix I | ||||||
*10 | .47 | Long-Term Incentive Plan, effective as of January 1, 2001 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2001 | 1-16455 | 10.10 | ||||||
*10 | .48 | 2002 Long-Term Incentive Plan, effective as of June 6, 2002 | Reliant Energy, Inc.’s Registration Statement on Form S-8, filed April 19, 2002 | 333-86612 | 4.5 | ||||||
*10 | .49 | Deferral Plan, effective as of January 1, 2002 | Reliant Energy, Inc.’s Registration Statement on Form S-8, filed December 7, 2001 | 333-74790 | 4.1 |
56
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
*10 | .50 | First Amendment to Deferral Plan, effective as of January 14, 2003 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003 | 1-16455 | 10.5 | ||||||
*10 | .51 | Successor Deferral Plan, effective as of January 1, 2002 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 | 1-16455 | 10.30 | ||||||
*10 | .52 | Deferred Compensation Plan, effective as of September 1, 1985, including the first nine amendments thereto (This is now a part of the plan listed as Exhibit 10.51) | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 10.25 | ||||||
*10 | .53 | Deferred Compensation Plan, as amended and restated effective as of January 1, 1989, including the first nine amendments thereto (This is now a part of the plan listed as Exhibit 10.51) | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 10.26 | ||||||
*10 | .54 | Deferred Compensation Plan, as amended and restated effective as of January 1, 1991, including the first ten amendments thereto (This is now a part of the plan listed as Exhibit 10.51) | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 10.27 | ||||||
*10 | .55 | Benefit Restoration Plan, as amended and restated effective as of July 1, 1991, including the first amendment thereto (This is now a part of the plan listed as Exhibit 10.51) | Reliant Energy, Inc.’s Amendment No. 8 to Registration Statement on Form S-1, filed April 27, 2001 | 333-48038 | 10.12 | ||||||
*10 | .56 | Key Employee Award Program 2004-2006 of the 2002 Long-Term Incentive Plan and the Form of Agreement for Key Employee Award Program, effective as of February 13, 2004 | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2004 | 1-16455 | 10.1 | ||||||
*10 | .57 | First Amendment to the Key Employee Award Program, effective as of August 10, 2005 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.44 | ||||||
*10 | .58 | Form of 2002 Stock Plan Nonqualified Stock Option Award Agreement, 2003 Grants | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 | 1-16455 | 10.39 | ||||||
+*10 | .59 | Form of Change in Control Agreement for CEO, CFO and COO | |||||||||
+*10 | .60 | Form for Change in Control Agreement for persons other than CEO, CFO and COO | |||||||||
*10 | .61 | Reliant Energy, Inc. Executive Severance Plan, effective as of January 1, 2006 | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 | 1-16455 | 10.57 |
57
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
*10 | .62 | Form of 2002 Long-Term Incentive Plan Nonqualified Stock Option Award Agreement for Directors | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 | 1-16455 | 10.53 | ||||||
*10 | .63 | Form of 2002 Long-Term Incentive Plan Restricted Stock Award Agreement for Directors | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 | 1-16455 | 10.54 | ||||||
*10 | .64 | Form of 2002 Long-Term Incentive Plan Quarterly Restricted and Premium Restricted Stock Units Award Agreement for Directors | Reliant Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 | 1-16455 | 10.55 | ||||||
+*10 | .65 | Form of 2002 Long-Term Incentive Plan Quarterly Common Stock and Premium Restricted Stock Award Agreement for Directors | |||||||||
+*10 | .66 | Form of 2002 Long-Term Incentive Plan Restricted Stock Award Agreement for Directors | |||||||||
*10 | .67 | Form of Long-Term Incentive Plan Restricted Stock Award Agreement for Directors’ initial grant | Reliant Energy, Inc.’s Current Report on Form 8-K, filed August 24, 2006 | 1-16455 | 10.1 | ||||||
*10 | .68 | Reliant Energy, Inc. Non-Employee Directors’ Compensation Program, effective as of May 16, 2007 | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.1 | ||||||
*10 | .69 | 2002 Long-Term Incentive Plan 2007 Long-Term Incentive Award Program for Officers | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended March 30, 2007 | 1-16455 | 10.1 | ||||||
*10 | .70 | Form of 2002 Long-Term Incentive Plan 2007 Long-Term Incentive Award Agreement for Officers | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended March 30, 2007 | 1-16455 | 10.2 | ||||||
*10 | .71 | 2002 Long-Term Incentive Plan 2007 Long-Term Incentive Award Agreement for Mark Jacobs | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.3 | ||||||
*10 | .72 | 2002 Long-Term Incentive Plan Amendment to Nonqualified Stock Option Award Agreement by and between Reliant Energy, Inc. and Joel V. Staff dated as of May 16, 2007—March 12, 2003 grant | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.4 | ||||||
*10 | .73 | 2002 Long-Term Incentive Plan Amendment to Nonqualified Stock Option Award Agreement by and between Reliant Energy, Inc. and Joel V. Staff dated as of May 16, 2007—May 8, 2003 grant | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.5 |
58
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SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
*10 | .74 | 2002 Long-Term Incentive Plan Amendment to Nonqualified Stock Option Award Agreement by and between Reliant Energy, Inc. and Joel V. Staff dated as of May 16, 2007—August 23, 2003 grant | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.6 | ||||||
*10 | .75 | 2002 Long-Term Incentive Plan Amendment to Key Employee Award Program 2004-2006 Agreement by and between Reliant Energy, Inc. and Joel V. Staff dated as of May 16, 2007—February 13, 2004 grant | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 | 1-16455 | 10.7 | ||||||
*10 | .76 | 2002 Long-Term Incentive Plan Long-Term Incentive Award Agreement for Rick J. Dobson | Reliant Energy, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 | 1-16544 | 10.2 | ||||||
+*10 | .77 | 2002 Long-Term Incentive Plan Long-Term Incentive Award Agreement for Albert H. Myres, Sr. | |||||||||
+*10 | .78 | 2002 Long-Term Incentive Plan Long-Term Incentive Award Agreement for Charles Griffey | |||||||||
+*10 | .79 | Annual Base Salaries of Named Executive Officers | |||||||||
+10 | .80 | Asset Purchase Agreement by and among Reliant Energy Channelview LP, Reliant Energy Services Channelview LLC and Kelson Energy IV LLC entered into February 24, 2008 and dated as of February 25, 2008 | |||||||||
+12 | .1 | Reliant Energy, Inc. and Subsidiaries Ratio of Earnings from Continuing Operations to Fixed Charges | |||||||||
+21 | .1 | Subsidiaries of Reliant Energy, Inc. | |||||||||
+23 | .1 | Consent of KPMG LLP, independent registered public accounting firm of Reliant Energy, Inc. | |||||||||
+23 | .2 | Consent of Deloitte & Touche LLP, former independent registered public accounting firm of Reliant Energy, Inc. | |||||||||
+31 | .1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
59
Table of Contents
SEC File or | |||||||||||
Exhibit | Reporter or Registration | Registration | Exhibit | ||||||||
Number | Document Description | Statement | Number | Reference | |||||||
+31 | .2 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
+32 | .1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) |
60
Table of Contents
By: /s/ Mark M. Jacobs |
Signature | Title | |||
/s/ Mark M. Jacobs Mark M. Jacobs | President and Chief Executive Officer | |||
/s/ Rick J. Dobson Rick J. Dobson | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||
/s/ Thomas C. Livengood Thomas C. Livengood | Senior Vice President and Controller (Principal Accounting Officer) | |||
/s/ E. William Barnett E. William Barnett | Director | |||
/s/ Sarah M. Barpoulis Sarah M. Barpoulis | Director | |||
/s/ Donald J. Breeding Donald J. Breeding | Director | |||
/s/ Kirbyjon H. Caldwell Kirbyjon H. Caldwell | Director | |||
/s/ Steven L. Miller Steven L. Miller | Director | |||
/s/ Laree E. Perez Laree E. Perez | Director | |||
/s/ Evan J. Silverstein Evan J. Silverstein | Director |
61
Table of Contents
Signature | Title | |||
/s/ Joel V. Staff Joel V. Staff | Director | |||
/s/ William L. Transier William L. Transier | Director |
62
Table of Contents
CONTROL OVER FINANCIAL REPORTING
/s/ Mark M. Jacobs Mark M. Jacobs President and Chief Executive Officer | /s/ Rick J. Dobson Rick J. Dobson Executive Vice President and Chief Financial Officer |
F-1
Table of Contents
F-2
Table of Contents
F-3
Table of Contents
F-4
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(thousands of dollars, except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Revenues (including $31,592, $191,405 and $(218,081) unrealized gains (losses)) (including $127,083, $0 and $0 from affiliates) | $ | 11,208,724 | $ | 10,877,385 | $ | 9,711,995 | ||||||
Expenses: | ||||||||||||
Cost of sales (including $413,028, $(422,325) and $25,846 unrealized gains (losses)) (including $105,118, $0 and $0 from affiliates) | 8,656,827 | 9,435,892 | 8,365,921 | |||||||||
Operation and maintenance | 883,083 | 833,094 | 736,954 | |||||||||
Selling, general and administrative | 372,528 | 383,977 | 292,486 | |||||||||
Western states and similar settlements | 22,000 | 35,000 | 359,436 | |||||||||
Gains on sales of assets and emission allowances, net | (25,699 | ) | (159,386 | ) | (168,114 | ) | ||||||
Depreciation and amortization | 424,432 | 372,616 | 445,871 | |||||||||
Total operating expense | 10,333,171 | 10,901,193 | 10,032,554 | |||||||||
Operating Income (Loss) | 875,553 | (23,808 | ) | (320,559 | ) | |||||||
Other Income (Expense): | ||||||||||||
Income of equity investments, net | 4,686 | 5,791 | 25,458 | |||||||||
Debt extinguishments and conversions | (72,779 | ) | (37,257 | ) | — | |||||||
Other, net | 4 | 203 | (22,672 | ) | ||||||||
Interest expense | (349,199 | ) | (427,867 | ) | (399,281 | ) | ||||||
Interest income | 34,833 | 34,317 | 23,227 | |||||||||
Total other expense | (382,455 | ) | (424,813 | ) | (373,268 | ) | ||||||
Income (Loss) from Continuing Operations Before Income Taxes | 493,098 | (448,621 | ) | (693,827 | ) | |||||||
Income tax expense (benefit) | 135,115 | (121,929 | ) | (253,080 | ) | |||||||
Income (Loss) from Continuing Operations | 357,983 | (326,692 | ) | (440,747 | ) | |||||||
Income (loss) from discontinued operations | 7,124 | (2,088 | ) | 110,799 | ||||||||
Income (Loss) Before Cumulative Effect of Accounting Changes | 365,107 | (328,780 | ) | (329,948 | ) | |||||||
Cumulative effect of accounting changes, net of tax | — | 968 | (608 | ) | ||||||||
Net Income (Loss) | $ | 365,107 | $ | (327,812 | ) | $ | (330,556 | ) | ||||
Basic Earnings (Loss) per Share: | ||||||||||||
Income (loss) from continuing operations | $ | 1.05 | $ | (1.06 | ) | $ | (1.46 | ) | ||||
Income (loss) from discontinued operations | 0.02 | (0.01 | ) | 0.37 | ||||||||
Income (loss) before cumulative effect of accounting changes | 1.07 | (1.07 | ) | (1.09 | ) | |||||||
Cumulative effect of accounting changes, net of tax | — | — | — | |||||||||
Net income (loss) | $ | 1.07 | $ | (1.07 | ) | $ | (1.09 | ) | ||||
Diluted Earnings (Loss) per Share: | ||||||||||||
Income (loss) from continuing operations | $ | 1.01 | $ | (1.06 | ) | $ | (1.46 | ) | ||||
Income (loss) from discontinued operations | 0.03 | (0.01 | ) | 0.37 | ||||||||
Income (loss) before cumulative effect of accounting changes | 1.04 | (1.07 | ) | (1.09 | ) | |||||||
Cumulative effect of accounting changes, net of tax | — | — | — | |||||||||
Net income (loss) | $ | 1.04 | $ | (1.07 | ) | $ | (1.09 | ) | ||||
F-5
Table of Contents
December 31, | ||||||||
2007 | 2006 | |||||||
(thousands of dollars, except per share amounts) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 754,962 | $ | 463,909 | ||||
Restricted cash | 3,251 | 24,980 | ||||||
Accounts and notes receivable, principally customer, net of allowance of $36,724 and $33,332 | 1,082,746 | 1,043,637 | ||||||
Inventory | 285,408 | 275,437 | ||||||
Derivative assets | 214,207 | 489,726 | ||||||
Margin deposits | 139,834 | 452,605 | ||||||
Accumulated deferred income taxes | 114,559 | 279,479 | ||||||
Investment in and receivables from Channelview, net | 83,253 | — | ||||||
Prepayments and other current assets | 104,314 | 141,016 | ||||||
Current assets of discontinued operations | 2,133 | 2,460 | ||||||
Total current assets | 2,784,667 | 3,173,249 | ||||||
Property, Plant and Equipment, net | 5,222,217 | 5,741,995 | ||||||
Other Assets: | ||||||||
Goodwill, net | 379,644 | 381,594 | ||||||
Other intangibles, net | 405,338 | 423,745 | ||||||
Derivative assets | 90,107 | 203,857 | ||||||
Accumulated deferred income taxes | 70,410 | 87,858 | ||||||
Prepaid lease | 270,133 | 264,328 | ||||||
Other | 234,014 | 290,507 | ||||||
Total other assets | 1,449,646 | 1,651,889 | ||||||
Total Assets | $ | 9,456,530 | $ | 10,567,133 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt and short-term borrowings | $ | 52,546 | $ | 355,264 | ||||
Accounts payable, principally trade | 687,046 | 664,630 | ||||||
Derivative liabilities | 436,503 | 1,164,809 | ||||||
Margin deposits | 250 | 16,490 | ||||||
Other | 426,839 | 488,764 | ||||||
Current liabilities of discontinued operations | — | 3,286 | ||||||
Total current liabilities | 1,603,184 | 2,693,243 | ||||||
Other Liabilities: | ||||||||
Derivative liabilities | 187,089 | 420,534 | ||||||
Other | 278,641 | 324,145 | ||||||
Long-term liabilities of discontinued operations | 3,542 | — | ||||||
Total other liabilities | 469,272 | 744,679 | ||||||
Long-term Debt | 2,902,346 | 3,177,691 | ||||||
Commitments and Contingencies | ||||||||
Temporary Equity Stock-based Compensation | 4,694 | 1,647 | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock; par value $0.001 per share (125,000,000 shares authorized; none outstanding) | — | — | ||||||
Common stock; par value $0.001 per share (2,000,000,000 shares authorized; 344,579,508 and 337,623,392 issued) | 106 | 99 | ||||||
Additional paid-in capital | 6,215,512 | 6,174,665 | ||||||
Accumulated deficit | (1,635,526 | ) | (2,026,316 | ) | ||||
Accumulated other comprehensive loss | (103,058 | ) | (198,575 | ) | ||||
Total stockholders’ equity | 4,477,034 | 3,949,873 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 9,456,530 | $ | 10,567,133 | ||||
F-6
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(thousands of dollars) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income (loss) | $ | 365,107 | $ | (327,812 | ) | $ | (330,556 | ) | ||||
(Income) loss from discontinued operations | (7,124 | ) | 2,088 | (110,799 | ) | |||||||
Net income (loss) from continuing operations and cumulative effect of accounting changes | 357,983 | (325,724 | ) | (441,355 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Cumulative effect of accounting changes | — | (968 | ) | 608 | ||||||||
Depreciation and amortization | 424,432 | 372,616 | 445,871 | |||||||||
Deferred income taxes | 118,631 | (152,431 | ) | (278,992 | ) | |||||||
Net changes in energy derivatives | (393,453 | ) | 316,742 | 192,235 | ||||||||
Amortization of deferred financing costs | 50,294 | 31,508 | 15,110 | |||||||||
Debt extinguishments and conversions expenses | 72,779 | 37,257 | — | |||||||||
Gains on sales of assets and emission allowances, net | (25,699 | ) | (159,386 | ) | (168,114 | ) | ||||||
Western states and similar settlements | — | 35,000 | 359,436 | |||||||||
Income of equity investments, net | (4,686 | ) | (5,791 | ) | (25,458 | ) | ||||||
Other, net | 12,703 | 12,590 | 27,498 | |||||||||
Changes in other assets and liabilities: | ||||||||||||
Accounts and notes receivable, net | (25,731 | ) | 129,161 | (109,736 | ) | |||||||
Changes in notes, receivables and payables with affiliates, net | (13,078 | ) | — | — | ||||||||
Inventory | (21,863 | ) | 18,157 | (42,253 | ) | |||||||
Margin deposits, net | 296,531 | 1,264,332 | (1,213,940 | ) | ||||||||
Net derivative assets and liabilities | (31,088 | ) | (30,313 | ) | 10,978 | |||||||
Western states and similar settlements payments | (35,000 | ) | (159,885 | ) | — | |||||||
Accounts payable | 46,194 | (97,117 | ) | 144,466 | ||||||||
Other current assets | 12,306 | 17,284 | 33,071 | |||||||||
Other assets | (17,953 | ) | (35,373 | ) | (32,605 | ) | ||||||
Taxes payable/receivable | (10,975 | ) | 1,302 | 3,053 | ||||||||
Other current liabilities | (45,713 | ) | 64,046 | (34,479 | ) | |||||||
Other liabilities | (11,597 | ) | (2,963 | ) | 4,495 | |||||||
Net cash provided by (used in) continuing operations from operating activities | 755,017 | 1,330,044 | (1,110,111 | ) | ||||||||
Net cash provided by (used in) discontinued operations from operating activities | 6,726 | (54,171 | ) | 192,948 | ||||||||
Net cash provided by (used in) operating activities | 761,743 | 1,275,873 | (917,163 | ) | ||||||||
Cash Flows from Investing Activities: | ||||||||||||
Capital expenditures | (188,856 | ) | (96,793 | ) | (82,296 | ) | ||||||
Proceeds from sales of assets, net | 82,075 | 1,417 | 149,345 | |||||||||
Proceeds from sales of emission allowances | 6,815 | 205,510 | 234,421 | |||||||||
Purchases of emission allowances | (91,923 | ) | (22,575 | ) | (145,769 | ) | ||||||
Restricted cash | 6,674 | 1,926 | 14,251 | |||||||||
Other, net | 6,045 | — | 5,500 | |||||||||
Net cash provided by (used in) continuing operations from investing activities | (179,170 | ) | 89,485 | 175,452 | ||||||||
Net cash provided by discontinued operations from investing activities | 520 | 967,566 | 130,700 | |||||||||
Net cash provided by (used in) investing activities | (178,650 | ) | 1,057,051 | 306,152 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Proceeds from long-term debt | 1,300,000 | 400,000 | 299,000 | |||||||||
Payments of long-term debt | (1,535,887 | ) | (865,870 | ) | (148,333 | ) | ||||||
Increase (decrease) in short-term borrowings and revolving credit facilities, net | 6,554 | (825,554 | ) | 407,000 | ||||||||
Payments of financing costs | (31,245 | ) | (16,673 | ) | (1,198 | ) | ||||||
Payments of debt extinguishments and conversions expenses | (72,779 | ) | (36,157 | ) | — | |||||||
Proceeds from issuances of stock | 41,317 | 24,842 | 37,885 | |||||||||
Net cash provided by (used in) continuing operations from financing activities | (292,040 | ) | (1,319,412 | ) | 594,354 | |||||||
Net cash used in discontinued operations from financing activities | — | (638,000 | ) | — | ||||||||
Net cash provided by (used in) financing activities | (292,040 | ) | (1,957,412 | ) | 594,354 | |||||||
Net Change in Cash and Cash Equivalents | 291,053 | 375,512 | (16,657 | ) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 463,909 | 88,397 | 105,054 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 754,962 | $ | 463,909 | $ | 88,397 | ||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
Cash Payments: | ||||||||||||
Interest paid (net of amounts capitalized) for continuing operations | $ | 344,701 | $ | 385,055 | $ | 347,249 | ||||||
Income taxes paid (net of income tax refunds received) for continuing operations | $ | 27,884 | $ | 28,649 | $ | 21,812 |
F-7
Table of Contents
Accumulated Other Comprehensive Income(Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain (Loss) | Discontinued | |||||||||||||||||||||||||||||||||||||||||||||||||||
on | Benefits | Benefits | Total | Operations | ||||||||||||||||||||||||||||||||||||||||||||||||
Available | Deferred | Actuarial | Net | Additional | Accumulated | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Additional | For | Derivative | Net | Prior | Minimum | Other | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||
Common | Paid | Treasury | Accumulated | Sale | Gains | Gain | Service | Benefits | Comprehensive | Comprehensive | Stockholders’ | Comprehensive | ||||||||||||||||||||||||||||||||||||||||
Stock | In Capital | Stock | Deficit | Securities | (Losses) | (Loss) | Costs | Liability | Income (Loss) | Income (Loss) | Equity | Income (Loss) | ||||||||||||||||||||||||||||||||||||||||
(thousands of dollars) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2004 | $ | 61 | $ | 5,790,007 | $ | (2,209 | ) | $ | (1,367,948 | ) | $ | 8 | $ | (29,211 | ) | $ | — | $ | — | $ | (148 | ) | $ | (29,351 | ) | $ | (4,206 | ) | $ | 4,386,354 | ||||||||||||||||||||||
Net loss | (330,556 | ) | (330,556 | ) | $ | (330,556 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Contributions from CenterPoint Energy, Inc. | 7,079 | 7,079 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants | 1,411 | 1,411 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions under stock plans | 5 | 48,250 | 2,209 | 50,464 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred gain (loss) from cash flow hedges, net of tax of $160 million and $1 million | (233,234 | ) | (233,234 | ) | 2,378 | (230,856 | ) | (233,234 | ) | |||||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred (gain) loss from cash flow hedges into net loss, net of tax of $9 million and $1 million | (21,688 | ) | (21,688 | ) | 1,493 | (20,195 | ) | (21,688 | ) | |||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax of $0 | (8 | ) | (8 | ) | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income from discontinued operations | 3,871 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (581,615 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2005 | $ | 66 | $ | 5,846,747 | $ | — | $ | (1,698,504 | ) | $ | — | $ | (284,133 | ) | $ | — | $ | — | $ | (148 | ) | $ | (284,281 | ) | $ | (335 | ) | $ | 3,863,693 | |||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 123R | 18,099 | 18,099 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance after initial adjustment to apply FASB Statement No. 123R | 66 | 5,864,846 | — | (1,698,504 | ) | — | (284,133 | ) | — | — | (148 | ) | (284,281 | ) | (335 | ) | 3,881,792 | |||||||||||||||||||||||||||||||||||
Net loss | (327,812 | ) | (327,812 | ) | $ | (327,812 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Distribution to CenterPoint Energy, Inc. | (3,774 | ) | (3,774 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Warrants | 970 | 970 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions under stock plans | 3 | 45,201 | 45,204 | |||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible senior subordinated notes to common stock | 30 | 267,422 | 267,452 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in minimum pension liability, net of tax of $1 million | (2,121 | ) | (2,121 | ) | (2,121 | ) | (2,121 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Deferred loss from cash flow hedges, net of tax of $79 million | (129,081 | ) | (129,081 | ) | (129,081 | ) | (129,081 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred loss from cash flow hedges into net loss, net of tax of $150 million and $0 | 240,971 | 240,971 | 335 | 241,306 | 240,971 | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income from discontinued operations | 335 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158, net of tax of $0, $0 and $2 million | (15,463 | ) | (10,869 | ) | 2,269 | (24,063 | ) | (24,063 | ) | |||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (217,708 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2006 | $ | 99 | $ | 6,174,665 | $ | — | $ | (2,026,316 | ) | $ | — | $ | (172,243 | ) | $ | (15,463 | ) | $ | (10,869 | ) | $ | — | $ | (198,575 | ) | $ | — | $ | 3,949,873 | |||||||||||||||||||||||
Adjustment to initially apply FIN 48 | (468 | ) | 25,683 | 25,215 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance after initial adjustment to apply FIN 48 | 99 | 6,174,197 | — | (2,000,633 | ) | — | (172,243 | ) | (15,463 | ) | (10,869 | ) | — | (198,575 | ) | — | 3,975,088 | |||||||||||||||||||||||||||||||||||
Net income | 365,107 | 365,107 | $ | 365,107 | ||||||||||||||||||||||||||||||||||||||||||||||||
Distribution to CenterPoint Energy, Inc. | (2,487 | ) | (2,487 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Warrants | 1 | 43 | 44 | |||||||||||||||||||||||||||||||||||||||||||||||||
Transactions under stock plans | 6 | 43,659 | 43,665 | |||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible senior subordinated notes to common stock | 100 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred gain from cash flow hedges, net of tax of $3 million | 3,225 | 3,225 | 3,225 | 3,225 | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred loss from cash flow hedges into net income, net of tax of $58 million | 88,903 | 88,903 | 88,903 | 88,903 | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of benefits net prior service costs into net income, net of tax of $0 | 1,308 | 1,308 | 1,308 | 1,308 | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of benefits actuarial net loss into net income, net of tax of $0 | 356 | 356 | 356 | 356 | ||||||||||||||||||||||||||||||||||||||||||||||||
Deferred benefits actuarial net gain, net of tax of $0 | 1,725 | 1,725 | 1,725 | 1,725 | ||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 460,624 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2007 | $ | 106 | $ | 6,215,512 | $ | — | $ | (1,635,526 | ) | $ | — | $ | (80,115 | ) | $ | (13,382 | ) | $ | (9,561 | ) | $ | — | $ | (103,058 | ) | $ | — | $ | 4,477,034 | |||||||||||||||||||||||
F-8
Table of Contents
(1) | Background and Basis of Presentation |
(2) | Summary of Significant Accounting Policies |
(a) | Use of Estimates and Market Risk and Uncertainties. |
• | the reported amount of assets, liabilities and equity, | |
• | the reported amounts of revenues and expenses and | |
• | our disclosure of contingent assets and liabilities at the date of the financial statements. |
F-9
Table of Contents
(b) | Principles of Consolidation. |
(c) | Revenues. |
(d) | Derivatives and Hedging Activities. |
F-10
Table of Contents
F-11
Table of Contents
Purpose for Holding or | Transactions that | Transactions that | ||||
Instrument | Issuing Instrument(1) | Physically Flow/Settle | Financially Settle(2) | |||
Power futures, forward, swap and option contracts | Power sales to end-use retail customers | Revenues | N/A(3) | |||
Power sales from wholesale operations | Revenues | Revenues | ||||
Supply management revenues | Revenues | Cost of sales | ||||
Power purchases related to our retail operations | Cost of sales | Cost of sales | ||||
Power purchases related to wholesale operations | Cost of sales | Revenues | ||||
Power purchases/sales related to our legacy trading positions | Revenues | Revenues | ||||
Natural gas and fuel futures, forward, swap and option contracts | Natural gas and fuel purchases/sales related to our retail operations | N/A(3) | Cost of sales | |||
Natural gas and fuel sales related to wholesale operations | Revenues | Cost of sales | ||||
Natural gas and fuel purchases related to wholesale operations | Cost of sales | Cost of sales | ||||
Natural gas and fuel purchases/sales related to our legacy trading positions | Cost of sales | Cost of sales | ||||
Interest rate swaps and caps | Interest rate risk associated with floating-rate debt | N/A(3) | Interest expense | |||
Emission allowances futures(4) | Price risk associated with purchases/sales of emission allowances | N/A(3) | Revenues/Cost of sales |
(1) | The purpose for holding or issuing is not impacted by the accounting method elected for each instrument. | |
(2) | Includes classification for mark-to-market derivatives and amounts reclassified from accumulated other comprehensive income (loss) related to cash flow hedges. | |
(3) | N/A is not applicable. | |
(4) | Includes emission allowances futures for sulfur dioxide (SO2), nitrogen oxide (NOX) and carbon dioxide (CO2). |
F-12
Table of Contents
(e) | Credit Risk. |
F-13
Table of Contents
(f) | Selling, General and Administrative Expenses. |
(g) | Property, Plant and Equipment and Depreciation Expense. |
Estimated Useful | December 31, | |||||||||||
Lives (Years) | 2007 | 2006 | ||||||||||
(in millions) | ||||||||||||
Electric generation facilities | 10 - 35 | $ | 5,868 | $ | 6,311 | |||||||
Building and building improvements | 5 - 15 | 31 | 30 | |||||||||
Land improvements | 20 - 35 | 235 | 238 | |||||||||
Other | 3 - 10 | 470 | 451 | |||||||||
Land | 92 | 95 | ||||||||||
Assets under construction | 157 | 67 | ||||||||||
Total | 6,853 | 7,192 | ||||||||||
Accumulated depreciation | (1,630 | ) | (1,450 | ) | ||||||||
Property, plant and equipment, net | $ | 5,223 | $ | 5,742 | ||||||||
(h) | Intangible Assets and Amortization Expense. |
F-14
Table of Contents
(i) | Capitalization of Interest Expense. |
(j) | Cash and Cash Equivalents. |
(k) | Restricted Cash. |
(l) | Allowance for Doubtful Accounts. |
(m) | Inventory. |
December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Materials and supplies, including spare parts | $ | 151 | $ | 155 | ||||
Coal | 55 | 51 | ||||||
Natural gas | 29 | 20 | ||||||
Heating oil | 50 | 49 | ||||||
Total inventory | $ | 285 | $ | 275 | ||||
(n) | Environmental Costs. |
(o) | Asset Retirement Obligations. |
F-15
Table of Contents
(p) | Repair and Maintenance Costs for Power Generation Assets. |
(q) | Deferred Financing Costs. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Beginning of year | $ | 92 | $ | 112 | $ | 126 | ||||||
Capitalized | 31 | 17 | 1 | |||||||||
Amortized | (10 | ) | (16 | ) | (15 | ) | ||||||
Accelerated amortization/write-offs(1) | (41 | ) | (21 | )(2) | — | |||||||
Channelview deconsolidation(3) | (5 | ) | — | — | ||||||||
End of year | $ | 67 | $ | 92 | $ | 112 | ||||||
(1) | See note 6. | |
(2) | Of this amount, $5 million was recorded to additional-paid-in capital in connection with converting our debt to equity. See note 6. | |
(3) | Channelview was deconsolidated on August 20, 2007. See notes 1 and 21. |
(r) | Gross Receipts Taxes. |
(s) | Sales Taxes. |
(t) | New Accounting Pronouncement Not Yet Adopted—Fair Value. |
F-16
Table of Contents
(3) | Related Party Transactions |
(a) | Equity Contributions/Distributions. |
(b) | Indemnities and Releases. |
(4) | Intangible Assets |
(a) | Goodwill. |
Retail | Wholesale | |||||||||||
Energy | Energy | Total | ||||||||||
(in millions) | ||||||||||||
As of January 1, 2006 | $ | 53 | $ | 334 | $ | 387 | ||||||
Changes | — | (5 | ) | (5 | ) | |||||||
As of December 31, 2006 | 53 | 329 | 382 | |||||||||
Changes | — | (2 | ) | (2 | ) | |||||||
As of December 31, 2007 | $ | 53 | $ | 327 | $ | 380 | ||||||
F-17
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Number of years used in internal cash flow analysis | 15 | |||
EBITDA(1) multiple for terminal values (through August 2005 test and for April 2006 test) | 7.5 | |||
EBITDA multiple for terminal values (for September 2005 test and April 2007 test) | 8.0 | (2) | ||
Risk-adjusted discount rate for our estimated cash flows (through April 2006 test) | 9.0 | % | ||
Risk-adjusted discount rate for our estimated cash flows (April 2007 test) | 9.5 | %(3) | ||
Approximate average anticipated growth rate for demand in power | 2.0 | % | ||
Long-term after-tax return on investment for new investment | 7.5 | % |
(1) | Defined as earnings (loss) before interest expense, interest income, income taxes, depreciation and amortization expenses. | |
(2) | Changed primarily due to market factors affecting peer company comparisons. | |
(3) | Changed primarily due to capital structure of peer company comparisons. |
Remaining | ||||||||||||||||||||
Weighted | December 31, | |||||||||||||||||||
Average | 2007 | 2006 | ||||||||||||||||||
Amortization | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
Period (Years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
(in millions) | ||||||||||||||||||||
SO2 emission allowances(1)(2) | — | (1) | $ | 444 | $ | (307 | ) | $ | 357 | $ | (222 | ) | ||||||||
NOx emission allowances(1)(3) | — | (1) | 335 | (188 | ) | 339 | (170 | ) | ||||||||||||
Contractual rights(4) | — | — | — | 4 | (4 | ) | ||||||||||||||
Power generation site permits(5) | 27 | 73 | (12 | ) | 73 | (10 | ) | |||||||||||||
Water rights(5) | 27 | 68 | (16 | ) | 67 | (14 | ) | |||||||||||||
Other(5) | — | 8 | — | 4 | — | |||||||||||||||
Total | $ | 928 | $ | (523 | ) | $ | 844 | $ | (420 | ) | ||||||||||
(1) | Amortized to amortization expense on a units-of-production basis. As of December 31, 2007, we have recorded (a) SO2 emission allowances through the 2039 vintage year (most of which relate to 2010 and beyond) and (b) NOx emission allowances through the 2039 vintage year (most of which relate to 2009 and beyond). | |
(2) | During 2007, 2006 and 2005, we purchased $89 million, $22 million and $130 million, respectively, of SO2 emission allowances. | |
(3) | During 2007, 2006 and 2005, we purchased $3 million, $1 million and $16 million, respectively, of NOx emission allowances. | |
(4) | Amortized to revenues and cost of sales, as applicable, based on the estimated realization of the fair value established on the acquisition date over the contractual lives. As of December 31, 2007, we have no contractual rights recorded on our consolidated balance sheet. | |
(5) | Amortized to amortization expense on a straight-line basis over the estimated lives. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Other intangibles, excluding contractual rights and obligations(1)(2) | $ | 115 | $ | 70 | $ | 95 | ||||||
Contractual rights(3) | $ | — | $ | (1 | ) | $ | (1 | ) | ||||
Contractual obligations(1)(3) | — | 3 | 9 | |||||||||
Net | $ | — | $ | 2 | $ | 8 | ||||||
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(1) | Contractual obligations are in other long-term liabilities. | |
(2) | Includes amortization of emission allowances of $110 million, $65 million and $90 million during 2007, 2006 and 2005, respectively. | |
(3) | Amortized to revenues and cost of sales, as applicable, based on the estimated realization of the fair value established on the acquisition date over the contractual lives. |
2008 | $ | 16 | (1) | |
2009 | 13 | (1) | ||
2010 | 16 | (1) | ||
2011 | 16 | (1) | ||
2012 | 16 | (1) |
(1) | These amounts do not include expected amortization expense of emission allowances, which have not been purchased as of December 31, 2007. |
(5) | Derivatives and Hedging Activities |
December 31, 2007 | ||||||||
Expected to be | ||||||||
Reclassified into | ||||||||
At the End of | Results of Operations | |||||||
the Period | in Next 12 Months | |||||||
(in millions) | ||||||||
Designated cash flow hedges | $ | — | $ | — | ||||
De-designated cash flow hedges | 80 | 31 | ||||||
$ | 80 | $ | 31 | |||||
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Revenues | $ | 1 | $ | 1 | $ | (15 | ) | |||||
Cost of sales | 18 | 26 | (30 | ) | ||||||||
Total | $ | 19 | $ | 27 | $ | (45 | ) | |||||
F-19
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2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Energy derivatives: | ||||||||||||
Hedge ineffectiveness gains (losses) | $ | 6 | (1) | $ | (69 | ) | $ | 71 | ||||
Other net unrealized gains (losses) | 439 | (162 | ) | (263 | ) | |||||||
Interest rate derivatives: | ||||||||||||
Other net unrealized losses | (5 | ) | (11 | ) | (16 | ) | ||||||
Total(2)(3) | $ | 440 | $ | (242 | ) | $ | (208 | ) | ||||
(1) | As discussed above, during 2007, we de-designated our remaining cash flow hedges; the amount reflected here subsequent to that time relates to previously measured ineffectiveness reversing due to settlement of the derivative contracts. | |
(2) | No component of the derivatives’ gain or loss was excluded from the assessment of effectiveness. | |
(3) | Includes $0, $3 million loss and $0 for 2007, 2006 and 2005, respectively, recognized in our results of continuing operations as a result of the discontinuance of cash flow hedges for forecasted transactions that we determined were probable of not occurring. |
2006 | ||||||||
Income/Loss from | ||||||||
Continuing Operations | ||||||||
before Income Taxes | Net Loss | |||||||
(in millions) | ||||||||
Cash flow hedges(1) | $ | — | $ | — | ||||
Mark-to-market derivatives | (32 | )(2) | (20 | ) | ||||
Total | $ | (32 | ) | $ | (20 | ) | ||
(1) | The impact relating to cash flow hedges was an increase in our net derivative liabilities of $9 million and a $5 million increase in accumulated other comprehensive loss, net of income taxes. | |
(2) | This amount represented an increase in our net derivative liabilities and an increase in net unrealized losses on energy derivatives, which were recorded $(1) million in revenues and $(31) million in cost of sales. | |
(3) | This represents a $0.07 impact on loss per share for 2006. |
F-20
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(6) | Debt |
(a) | Overview. |
December 31, | ||||||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Stated | Stated | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Rate(1) | Long-Term | Current | Rate(1) | Long-Term | Current | |||||||||||||||||||
(in millions, except interest rates) | ||||||||||||||||||||||||
Facilities, Bonds and Notes: | ||||||||||||||||||||||||
Reliant Energy: | ||||||||||||||||||||||||
Senior secured revolver due 2012 | 6.45 | % | $ | — | $ | — | — | % | $ | — | $ | — | ||||||||||||
Senior secured term loans(B) | — | — | 7.73 | 397 | 3 | |||||||||||||||||||
Senior unsecured notes due 2010(2) | — | — | 9.25 | 550 | — | |||||||||||||||||||
Senior unsecured notes due 2013(3) | 9.50 | 13 | — | 9.50 | 550 | — | ||||||||||||||||||
Senior secured notes due 2014 | 6.75 | 671 | 41 | (4) | 6.75 | 750 | — | |||||||||||||||||
Senior unsecured notes due 2014 | 7.625 | 575 | — | — | — | — | ||||||||||||||||||
Senior unsecured notes due 2017 | 7.875 | 725 | — | — | — | — | ||||||||||||||||||
Convertible senior subordinated notes due 2010 (unsecured) | 5.00 | 2 | — | 5.00 | 2 | — | ||||||||||||||||||
Subsidiary Obligations: | ||||||||||||||||||||||||
Orion Power Holdings senior notes due 2010 (unsecured) | 12.00 | 400 | — | 12.00 | 400 | — | ||||||||||||||||||
Reliant Energy Seward, LLC PEDFA(5)fixed-rate bonds due 2036 | 6.75 | 500 | — | 6.75 | 500 | — | ||||||||||||||||||
Channelview LP(6): | ||||||||||||||||||||||||
Term loans and revolving working capital facility: | ||||||||||||||||||||||||
Floating rate debt due 2008 to 2024 | — | — | 6.95 | — | 267 | |||||||||||||||||||
Fixed rate debt due 2014 to 2024 | — | — | 9.55 | — | 75 | |||||||||||||||||||
Reliant Energy Power Supply, LLC working capital facility due 2012 | 5.30 | — | — | 5.80 | — | — | ||||||||||||||||||
Total facilities, bonds and notes | 2,886 | 41 | 3,149 | 345 | ||||||||||||||||||||
Other: | ||||||||||||||||||||||||
Adjustment to fair value of debt(7) | 17 | 11 | 29 | 10 | ||||||||||||||||||||
Total other debt | 17 | 11 | 29 | 10 | ||||||||||||||||||||
Total debt | $ | 2,903 | $ | 52 | $ | 3,178 | $ | 355 | ||||||||||||||||
(1) | The weighted average stated interest rates are as of December 31, 2007 or 2006. | |
(2) | These notes became unsecured in June 2007 and we called the remaining balance in July 2007. See below. | |
(3) | These notes became unsecured in June 2007. See below. | |
(4) | As of February 15, 2008, we repurchased $41 million subsequent to December 31, 2007. | |
(5) | PEDFA is the Pennsylvania Economic Development Financing Authority. |
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Table of Contents
(6) | Channelview was deconsolidated on August 20, 2007. See notes 1 and 21. | |
(7) | Debt acquired in the Orion Power acquisition was adjusted to fair market value as of the acquisition date. Included in interest expense is amortization of $11 million, $9 million and $9 million for valuation adjustments for debt for 2007, 2006 and 2005, respectively. |
Total Committed | Drawn | Letters | Unused | |||||||||||||
Credit | Amount | of Credit | Amount | |||||||||||||
(in millions) | ||||||||||||||||
Reliant Energy senior secured revolver due 2012 | $ | 500 | $ | — | $ | 109 | $ | 391 | ||||||||
Reliant Energy letter of credit facility due 2014 | 250 | — | 247 | 3 | ||||||||||||
Retail working capital facility due 2012 | 300 | — | — | 300 | ||||||||||||
$ | 1,050 | $ | — | $ | 356 | $ | 694 | |||||||||
Reliant Energy | ||||||||
Reliant Energy | Consolidated | |||||||
(in millions) | ||||||||
2008 | $ | 41 | (1) | $ | 41 | |||
2009 | — | — | ||||||
2010 | 2 | 402 | ||||||
2011 | — | — | ||||||
2012 | — | — | ||||||
2013 and thereafter | 1,984 | 2,484 | ||||||
$ | 2,027 | $ | 2,927 | (2) | ||||
(1) | As of February 15, 2008, we repurchased $41 million subsequent to December 31, 2007. | |
(2) | Excludes Channelview LP’s debt of $338 million. |
(b) | Financing Activity. |
• | Downsize of: |
• | $700 million to $500 million senior secured revolver and extension of maturity from 2009 to 2012, and | |
• | $300 million to $250 million senior secured letter of credit facility and extension of maturity from 2010 to 2014; |
• | Issuance of: |
• | $575 million 7.625% senior unsecured notes due 2014, and | |
• | $725 million 7.875% senior unsecured notes due 2017; |
• | Repayment of: |
• | $521 million 9.25% senior secured notes due 2010, | |
• | $537 million 9.50% senior secured notes due 2013, and | |
• | $400 million senior secured term loan due 2010. |
F-22
Table of Contents
• | Amendment and downsize of: |
• | $1.7 billion to $700 million senior secured revolver, and | |
• | $530 million to $400 million senior secured term loans; |
• | Issuance of: |
• | $300 million letter of credit facility, and | |
• | $300 million retail working capital facility; and |
• | Repayment of $450 million retail receivables facility. |
(c) | Credit Facilities and Debt. |
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F-24
Table of Contents
(d) | Warrants. |
(e) | Interest Rate Derivative Instruments. |
(7) | Credit-Enhanced Retail Structure |
F-25
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(8) | Stockholders’ Equity |
Common | Treasury | |||||||
Stock | Stock | |||||||
(Shares in thousands) | ||||||||
As of January 1, 2005 | 299,684 | 128 | ||||||
Issued to benefit plans | 4,877 | (128 | ) | |||||
Issued for warrants | 339 | — | ||||||
As of December 31, 2005 | 304,900 | — | ||||||
Issued to benefit plans | 3,732 | — | ||||||
Issued for warrants | 390 | — | ||||||
Issued for converted debt | 28,601 | |||||||
As of December 31, 2006 | 337,623 | — | ||||||
Issued to benefit plans | 5,562 | — | ||||||
Issued for warrants | 1,384 | — | ||||||
Issued for converted debt | 11 | — | ||||||
As of December 31, 2007 | 344,580 | — | ||||||
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(9) | Earnings Per Share |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Income (loss) from continuing operations (basic) | $ | 358 | $ | (327 | ) | $ | (441 | ) | ||||
Plus: Interest expense on 5.00% convertible senior subordinated notes, net of tax | — | (1) | — | (2) | — | (2) | ||||||
Income (loss) from continuing operations (diluted) | $ | 358 | $ | (327 | ) | $ | (441 | ) | ||||
(1) | In December 2006, we converted 99.2% of our convertible senior subordinated notes to common stock. | |
(2) | As we incurred a loss from continuing operations for this period, diluted loss per share is calculated the same as basic loss per share. |
2007 | 2006 | 2005 | ||||||||||
(Shares in thousands) | ||||||||||||
Diluted Weighted Average Shares Calculation: | ||||||||||||
Weighted average shares outstanding (basic) | 342,467 | 307,705 | 302,409 | |||||||||
Plus: Incremental shares from assumed conversions: | ||||||||||||
Stock options | 4,885 | — | (1) | — | (1) | |||||||
Restricted stock | 505 | — | (1) | — | (1) | |||||||
Employee stock purchase plan | 47 | — | (1) | — | (1) | |||||||
5.00% convertible senior subordinated notes | 213 | (2) | — | (1) | — | (1) | ||||||
Warrants | 4,674 | — | (1) | — | (1) | |||||||
Weighted average shares outstanding assuming conversion (diluted) | 352,791 | 307,705 | 302,409 | |||||||||
(1) | See footnote 2 above regarding diluted loss per share. | |
(2) | See footnote 1 above. |
2007 | 2006 | 2005 | ||||||||||
(Shares in thousands, dollars in millions) | ||||||||||||
Shares excluded from the calculation of diluted earnings/loss per share | N/A | (1) | 35,951 | (2)(3) | 36,538 | (3) | ||||||
Shares excluded from the calculation of diluted earnings/loss per share because the exercise price exceeded the average market price | 2,005 | (4) | 2,536 | (4) | 4,471 | (4) | ||||||
Interest expense (after-tax) that would be added to income if 5.00% convertible senior subordinated notes were dilutive | N/A | (1) | $ | 9 | (2) | $ | 9 |
(1) | Not applicable as we included the item in the calculation of diluted earnings/loss per share. | |
(2) | On December 21, 2006, we converted 99.2% of our convertible senior subordinated notes to common stock. See note 6. | |
(3) | Potential shares excluded consist of convertible senior subordinated notes, warrants, stock options, restricted stock, performance-based shares and shares related to the employee stock purchase plan. | |
(4) | Includes stock options. |
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Table of Contents
(10) | Stock-Based Incentive Plans and Benefit Plans |
(a) | Stock-Based Incentive Plans. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Stock-based incentive plans compensation expense (pre-tax) | $ | 26 | $ | 30 | $ | 8 | ||||||
Income tax impact (before impact of the valuation allowances) | $ | (9 | ) | $ | (9 | ) | $ | (3 | ) | |||
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After January 1, 2006 | Prior to January 1, 2006 | |||
(SFAS No. 123R) | (APB No. 25) | |||
Award: | ||||
Time-based stock options(1) | Black-Scholes option-pricing model value on the grant date | Intrinsic value on the grant date | ||
Time-based restricted stock(2) | No change | Market price of our common stock on the grant date | ||
Time-based cash(3) | No change | Market price of our common stock on each reporting measurement date | ||
Performance-based stock(4) | Market price of our common stock on each reporting measurement date until accounting grant date | Market price of our common stock on each reporting measurement date | ||
Performance-based options(4) | Black-Scholes option-pricing model value on each reporting measurement date until accounting grant date | Intrinsic value of option on each reporting measurement date | ||
Performance-based cash(1)(3) | No change | Market price of our common stock on each reporting measurement date | ||
Employee stock purchase plan | Black-Scholes option-pricing model value on the first day of the offering period | No compensation expense recorded |
(1) | No awards were granted during 2006. | |
(2) | Restricted stock and restricted stock units are referred to as “restricted stock.” | |
(3) | These are liability-classified awards under SFAS No. 123R. | |
(4) | No awards were granted in 2007 and 2006. |
2007 | ||||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Price | Term (Years) | Value | |||||||||||||
(in millions) | ||||||||||||||||
Beginning of period | 7,864,352 | $ | 13.98 | 5 | $ | 37 | ||||||||||
Granted | 541,907 | 18.36 | ||||||||||||||
Exercised | (2,196,713 | )(1) | 9.43 | |||||||||||||
Forfeited | (49,930 | ) | 16.26 | |||||||||||||
Expired | (413,862 | ) | 26.54 | |||||||||||||
End of period | 5,745,754 | (2)(3) | 15.21 | 4 | 71 | |||||||||||
Exercisable at end of period | 5,243,775 | 14.90 | 4 | 67 | ||||||||||||
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(1) | Received proceeds of $21 million. Intrinsic value was $26 million on the exercise dates. No tax benefits were realized in 2007 due to our net operating loss carryforwards. | |
(2) | We estimate that 115,798 of these will be forfeited. | |
(3) | As of December 31, 2007, the total compensation cost related to nonvested time-based stock options not yet recognized and the weighted-average period over which it is expected to be recognized is $2 million and 2 years, respectively. |
2006 | 2005 | |||||||
(in millions, except per unit amounts) | ||||||||
Weighted average grant date fair value of the time-based options granted | $ | — | $ | 7.18 | ||||
Proceeds from exercise of time-based options | 16 | 29 | ||||||
Intrinsic value of exercised time-based options | 8 | 17 | ||||||
Tax benefits realized | — | (1) | — | (1) |
(1) | None realized due to our net operating loss carryforwards. |
2007 | ||||
Expected term in years(1) | 6 | |||
Estimated volatility(2) | 31.04 | % | ||
Risk free interest rate | 4.63 | % | ||
Dividend yield | 0 | % | ||
Weighted-average fair value | $ | 7.32 |
(1) | The expected term is based on a binomial lattice model. | |
(2) | We estimate volatility based on historical and implied volatility of our common stock. |
F-30
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2007 | ||||||||
Weighted | ||||||||
Average Grant | ||||||||
Shares | Date Fair Value | |||||||
Beginning of period | 1,095,469 | $ | 9.95 | |||||
Granted | 456,776 | 18.91 | ||||||
Vested | (429,779 | )(1) | 8.85 | |||||
Forfeited | (75,063 | ) | 13.71 | |||||
End of period | 1,047,403 | (2) | 14.04 | |||||
December 31, 2007 total compensation cost related to nonvested time-based restricted stock awards not yet recognized | $ | 6 million | ||||||
Weighted average period over which the nonvested time-based restricted stock is expected to be recognized | 2 years | |||||||
(1) | Based on the market price of our common stock on the vesting date, $9 million in fair value vested. | |
(2) | We estimate that 133,415 of these will be forfeited. |
2006 | 2005 | |||||||
(in millions, except per unit amounts) | ||||||||
Fair value of time-based restricted stock that vested based on market price of our common stock on the vesting date | $ | 11 | $ | 9 | ||||
Weighted-average grant date fair value of time-based restricted stock granted | 11.64 | 12.65 |
F-31
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2007 | ||||||||
Reporting | ||||||||
Measurement | ||||||||
Shares | Date Fair Value | |||||||
Beginning of period | 1,004,800 | (1) | $ | 14.48 | ||||
Vested | (1,004,800 | ) | 14.48 | |||||
End of period | — | N/A | ||||||
(1) | Based on the market price of our common stock on the vesting date, $15 million in fair value vested. |
2007 | ||||||||||||||||
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Term | Intrinsic | ||||||||||||||
Options | Price | (Years) | Value | |||||||||||||
(in millions) | ||||||||||||||||
Beginning of period | 4,270,400 | $ | 8.36 | 7 | $ | 25 | ||||||||||
Exercised | (1,366,600 | )(1) | 8.40 | |||||||||||||
End of period | 2,903,800 | 8.33 | 6 | 52 | ||||||||||||
Exercisable at end of period | 2,903,800 | 8.33 | 6 | 52 | ||||||||||||
Weighted average grant date fair value | N/A | |||||||||||||||
(1) | Received proceeds of $11 million, intrinsic value was $19 million on the exercise dates. No tax benefits were realized in 2007 due to our net operating loss carryforwards. |
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Expected term in years(1) | 3 | |||
Estimated volatility(2) | 31.21 | % | ||
Risk-free interest rate | 4.9 | % | ||
Dividend yield | 0 | % | ||
Weighted-average fair value | $ | 7.52 |
(1) | The expected term is based on a projection of exercise behavior considering the contractual terms and the participants of the option awards. | |
(2) | We estimated volatility based on historical and implied volatility of our common stock. |
2007 | 2006 | 2005(1) | ||||||||||
Expected term in years | 0.5 | 0.5 | 0.5 | |||||||||
Estimated volatility(2) | 21.32 | % | 42.96 | % | 32.97 | % | ||||||
Risk-free interest rate | 5.07 | % | 4.74 | % | 2.94 | % | ||||||
Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
Weighted-average fair value | $ | 3.87 | $ | 3.02 | $ | 3.25 |
(1) | Because we applied APB No. 25 during 2005, this was only used for pro-forma data. | |
(2) | We estimated volatility based on the historical volatility of our common stock. |
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2005 | ||||
(in millions, except | ||||
per-share amounts) | ||||
Net loss, as reported | $ | (331 | ) | |
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects | 5 | |||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (17 | ) | ||
Pro forma net loss | $ | (343 | ) | |
Loss per share: | ||||
Basic and diluted, as reported | $ | (1.09 | ) | |
Basic and diluted, pro forma | $ | (1.13 | ) | |
Options | ||||
2005 | ||||
Expected term in years | 5 | |||
Estimated volatility(1) | 45.75 | % | ||
Risk-free interest rate | 4.18 | % | ||
Dividend yield | 0 | % | ||
Weighted-average fair value | $ | 5.72 |
(1) | We estimated volatility based on an equal weighting of historical and implied volatility of our common stock. |
(b) | Pension and Postretirement Benefits. |
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Pension | Postretirement Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Beginning of year | $ | 90 | $ | 82 | $ | 73 | $ | 67 | ||||||||
Service cost | 6 | 6 | 2 | 2 | ||||||||||||
Interest cost | 5 | 5 | 4 | 4 | ||||||||||||
Benefits paid | (2 | ) | (2 | ) | — | — | ||||||||||
Actuarial gain | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
End of year | $ | 98 | $ | 90 | $ | 78 | $ | 73 | ||||||||
Change in Plan Assets | ||||||||||||||||
Beginning of year | $ | 59 | $ | 50 | $ | — | $ | — | ||||||||
Employer contributions | 14 | 4 | — | — | ||||||||||||
Benefits paid | (3 | ) | (2 | ) | — | — | ||||||||||
Actual investment return | 5 | 7 | — | — | ||||||||||||
End of year | $ | 75 | $ | 59 | $ | — | $ | — | ||||||||
Funded status | $ | (23 | ) | $ | (31 | ) | $ | (78 | ) | $ | (73 | ) |
Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Current liabilities | $ | — | $ | — | $ | (2 | ) | $ | (1 | ) | ||||||
Noncurrent liabilities | (23 | ) | (31 | ) | (76 | ) | (72 | ) | ||||||||
Net amount recognized | $ | (23 | ) | $ | (31 | ) | $ | (78 | ) | $ | (73 | ) | ||||
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Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost | $ | 6 | $ | 6 | $ | 6 | $ | 2 | $ | 2 | $ | 2 | ||||||||||||
Interest cost | 5 | 5 | 4 | 4 | 4 | 4 | ||||||||||||||||||
Expected return on plan assets | (4 | ) | (4 | ) | (3 | ) | — | — | — | |||||||||||||||
Net amortization | 1 | 1 | 1 | — | — | 2 | ||||||||||||||||||
Net benefit cost | $ | 8 | $ | 8 | $ | 8 | $ | 6 | $ | 6 | $ | 8 | ||||||||||||
Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % |
Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | ||||||||||||
Expected long-term rate of return on assets | 7.5 | % | 7.5 | % | 7.5 | % | N/A | N/A | N/A |
2007 | 2006 | 2005 | ||||||||||
Health care cost trend rate assumed for next year | 8.3 | % | 9.0 | % | 9.0 | % | ||||||
Rate to which the cost trend rate is assumed to gradually decline (ultimate trend rate) | 5.5 | % | 5.5 | % | 5.5 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2015 | 2015 | 2011 |
One-Percentage Point | ||||||||
Increase | Decrease | |||||||
(in millions) | ||||||||
Effect on service and interest cost | $ | 1 | $ | (1 | ) | |||
Effect on accumulated postretirement benefit obligation | 10 | (9 | ) |
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Percentage of Plan Assets | Target | |||||||||||
as of December 31, | Allocation | |||||||||||
2007 | 2006 | 2008 | ||||||||||
Domestic equity securities | 49 | % | 50 | % | 50 | % | ||||||
International equity securities | 10 | 11 | 10 | |||||||||
Global equity securities | 10 | 11 | 10 | |||||||||
Debt securities | 31 | 28 | 30 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Asset Class | Index | Weight | ||||
Domestic equity securities | Wilshire 5000 Index | 50 | % | |||
International equity securities | MSCI All Country World Ex-U.S. Index | 10 | ||||
Global equity securities | MSCI All Country World Index | 10 | ||||
Debt securities | Lehman Brothers Aggregate Bond Index | 30 | ||||
100 | % | |||||
Postretirement | ||||||||
Pension | Benefits | |||||||
(in millions) | ||||||||
2008 | $ | 3 | $ | 2 | ||||
2009 | 3 | 3 | ||||||
2010 | 4 | 3 | ||||||
2011 | 4 | 4 | ||||||
2012 | 5 | 5 | ||||||
2013-2017 | 39 | 33 |
(c) | Savings Plan. |
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(d) | Other Employee Matters. |
(11) | Income Taxes |
(a) | Summary. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | 7 | ||||||
State | 16 | 30 | 19 | |||||||||
Total current | 16 | 30 | 26 | |||||||||
Deferred: | ||||||||||||
Federal | 121 | (19 | ) | (305 | ) | |||||||
State | (2 | ) | (133 | ) | 26 | |||||||
Total deferred | 119 | (152 | ) | (279 | ) | |||||||
Income tax expense (benefit) from continuing operations | $ | 135 | $ | (122 | ) | $ | (253 | ) | ||||
Income tax expense (benefit) from discontinued operations | $ | — | $ | (5 | ) | $ | (68 | ) | ||||
2007 | 2006 | 2005 | ||||||||||
Federal statutory rate | 35 | % | (35 | )% | (35 | )% | ||||||
Additions (reductions) resulting from: | ||||||||||||
Federal tax uncertainties | (1 | ) | 3 | 1 | ||||||||
Federal valuation allowance(1) | (7 | ) | 15 | (2) | — | |||||||
State income taxes, net of federal income taxes | 2 | (3) | (12 | )(4) | 4 | |||||||
Capital loss valuation allowances | — | — | (12 | ) | ||||||||
Debt conversion expense | — | 3 | — | |||||||||
Changes in estimates of deferred tax assets and liabilities | — | — | 4 | |||||||||
Other, net | (2 | ) | (1 | ) | 2 | |||||||
Effective rate | 27 | % | (27 | )% | (36 | )% | ||||||
(1) | Our changes to the federal valuation allowance are recorded at Reliant Energy, Inc. | |
(2) | Of this percentage, $18 million (4%) relates to the reduction of net deferred tax assets. | |
(3) | Of this percentage, $18 million (4%) relates to a decrease in our state valuation allowances. | |
(4) | Of this percentage, $40 million (9%) relates to Pennsylvania state law changes, which effectively decreased all limitations to use net operating losses in that state. |
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December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Deferred tax assets: | ||||||||
Current: | ||||||||
Derivative liabilities, net | $ | 86 | $ | 275 | ||||
Western states settlement | — | 13 | ||||||
Allowance for doubtful accounts | 13 | 13 | ||||||
Employee benefits | 7 | 4 | ||||||
Federal valuation allowance | — | (10 | ) | |||||
State valuation allowances | — | (15 | ) | |||||
Other | 9 | 4 | ||||||
Total current deferred tax assets | 115 | 284 | ||||||
Non-current: | ||||||||
Employee benefits | 68 | 73 | ||||||
Net operating loss carryforwards | 629 | 620 | ||||||
Capital loss carryforwards | 9 | — | ||||||
Environmental reserves | 11 | 11 | ||||||
Derivative liabilities, net | 42 | 92 | ||||||
Other | 62 | 44 | ||||||
Federal valuation allowance | (14 | ) | (50 | ) | ||||
State valuation allowances | (67 | ) | (70 | ) | ||||
Other valuation allowances | (22 | ) | (18 | ) | ||||
Total non-current deferred tax assets | 718 | 702 | ||||||
Total deferred tax assets | $ | 833 | $ | 986 | ||||
Deferred tax liabilities: | ||||||||
Current: | ||||||||
Other | $ | — | $ | 9 | ||||
Total current deferred tax liabilities | — | 9 | ||||||
Non-current: | ||||||||
Depreciation and amortization | 653 | 622 | ||||||
Other | 12 | 6 | ||||||
Total non-current deferred tax liabilities | 665 | 628 | ||||||
Total deferred tax liabilities | $ | 665 | $ | 637 | ||||
Accumulated deferred income taxes, net | $ | 168 | $ | 349 | ||||
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(b) | Tax Attribute Carryovers. |
Statutory | ||||||||||||
December 31, | Carryforward | Expiration | ||||||||||
2007 | Period | Year(s) | ||||||||||
(in millions) | (in years) | |||||||||||
Net Operating Loss Carryforwards: | ||||||||||||
Federal | $ | 1,284 | 20 | 2022 through 2027 | ||||||||
State | 3,257 | 5 to 20 | 2008 through 2027 | |||||||||
Foreign | 64 | 7 to 10 | 2008 through 2014 | |||||||||
Capital Loss Carryforwards | 26 | 5 | 2012 | |||||||||
Charitable Contribution Carryforwards | 4 | 5 | 2009 through 2012 | |||||||||
State Tax Credit Carryforwards | 6 | 1 to 20 | 2008 through 2027 |
(c) | Valuation Allowances. |
Capital, Foreign | ||||||||||||||||
Federal | State | and Other, Net | ||||||||||||||
(in millions) | ||||||||||||||||
As of January 1, 2005 | $ | — | $ | 96 | $ | 138 | ||||||||||
Changes in valuation allowance | — | (1 | ) | (117 | )(1) | |||||||||||
As of December 31, 2005 | — | 95 | 21 | |||||||||||||
Changes in valuation allowance | 50 | (2) | (14 | ) | (3 | ) | ||||||||||
Changes in valuation allowance included in accumulated other comprehensive loss | 10 | — | — | |||||||||||||
Other, net | — | 4 | — | |||||||||||||
As of December 31, 2006 | 60 | 85 | 18 | |||||||||||||
Changes in valuation allowance | (37 | )(3)(4) | (18 | )(4) | 4 | |||||||||||
Changes in valuation allowance included in accumulated other comprehensive loss | 4 | — | — | |||||||||||||
Channelview deconsolidation | (13 | )(5) | — | — | ||||||||||||
As of December 31, 2007 | $ | 14 | $ | 67 | $ | 22 | ||||||||||
(1) | Net decrease is primarily due to net capital gains recorded during the year and the identification of various tax planning strategies with respect to the sale of assets. Of the capital loss carryforward impact of $120 million, $82 million is recorded in continuing operations and $38 million is recorded in discontinued operations. | |
(2) | Net increase is primarily due to our recent history of losses and the change in our net federal deferred tax assets. | |
(3) | During 2007, we submitted a revision to taxable income to the Internal Revenue Service filed in our 2003 federal income tax return, which resulted in an increase in our net deferred tax assets related to our net operating losses, which was offset by an increase in our valuation allowance of $19 million. | |
(4) | Net decrease is primarily due to 2007 pre-tax income. | |
(5) | Channelview was deconsolidated on August 20, 2007. See notes 1 and 21. |
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(d) | Adoption of FIN 48 and Tax Uncertainties. |
Adoption Effect on | ||||
January 1, 2007 | ||||
Increase (Decrease) | ||||
(in millions) | ||||
Goodwill | $ | (2 | ) | |
Other long-term liabilities | (27 | ) | ||
Retained deficit | (25 | ) |
2007 | ||||
(in millions) | ||||
Beginning of year (immediately after adoption) | $ | 4 | ||
Increases related to prior years | 11 | |||
Decreases related to prior years | (11 | ) | ||
Increases related to current year | — | |||
Settlements | (3 | ) | ||
Lapses in the statute of limitations | — | |||
End of year | $ | 1 | ||
January 1, 2007 | ||||||||
(Immediately After Adoption) | December 31, 2007 | |||||||
(in millions) | ||||||||
Interest and penalties(1) | $ | 3 | $ | — |
(1) | The activity during 2007 was insignificant. |
Subject to Examination | Currently Under Audit | |||||
Federal | 1997 to 2007 | 1997 to 2005 | ||||
Texas | 2000 to 2007 | 2000 to 2005 | ||||
Pennsylvania | 2004 to 2007 | 2006 | ||||
California | 2003 to 2007 | 2003 to 2006 | ||||
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• | $177 million payment to CenterPoint during 2004 related to our residential customers; | |
• | $351 million charge during 2005 to settle certain civil litigation and claims relating to the Western states energy crisis (see note 14(a)); and | |
• | the timing of tax deductions as a result of negotiations with respect to California-related revenue, depreciation, emission allowances and certain employee benefits. |
(12) | Commitments |
(a) | Lease Commitments. |
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REMA Leases | Other(1)(2) | Total | ||||||||||
(in millions) | ||||||||||||
2008 | $ | 62 | $ | 76 | $ | 138 | ||||||
2009 | 63 | 78 | 141 | |||||||||
2010 | 52 | 76 | 128 | |||||||||
2011 | 63 | 66 | 129 | |||||||||
2012 | 56 | 34 | 90 | |||||||||
2013 and thereafter | 763 | 137 | 900 | |||||||||
Total | $ | 1,059 | $ | 467 | $ | 1,526 | ||||||
(1) | Includes tolling arrangement, rental agreements for office space and capacity commitments accounted for as leases. | |
(2) | Excludes projected sublease income on office space of $48 million. |
(b) | Guarantees and Indemnifications. |
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December 31, 2007 | ||||||||||||||||
Stated | ||||||||||||||||
Maximum | Carrying Amount | |||||||||||||||
Potential | of Liability | |||||||||||||||
Amount of | Assets Held | Recorded on | ||||||||||||||
Type of Guarantee | Future Payments | Amount Utilized(1) | As Collateral | Balance Sheet | ||||||||||||
(in millions) | ||||||||||||||||
Commodity obligations(2) | $ | 3,173 | $ | 196 | $ | — | $ | — | ||||||||
Standby letters of credit(3) | 302 | 302 | — | — | ||||||||||||
Payment and performance obligations under service contracts and leases(4) | 35 | — | — | — | ||||||||||||
Non-qualified benefits of CenterPoint’s retirees(5) | 55 | 55 | — | — | ||||||||||||
Total guarantees | $ | 3,565 | $ | 553 | $ | — | $ | — | ||||||||
(1) | This represents the estimated portion of the maximum potential amount of future payments that is utilized as of December 31, 2007. For those guarantees related to obligations that are recorded as liabilities by our subsidiaries, this includes the recorded amount. | |
(2) | Reliant Energy has guaranteed the performance of certain of its wholly-owned subsidiaries’ commodity obligations. These guarantees were provided to counterparties in order to facilitate physical and financial agreements in electricity, gas, oil, transportation and related commodities and services. Some of these guarantees have varying expiration dates and some can be terminated by Reliant Energy upon notice. | |
(3) | Reliant Energy has outstanding standby letters of credit, which guarantee the performance of certain of its wholly-owned subsidiaries. As of December 31, 2007, these letters of credit expire on various dates through 2008. | |
(4) | Reliant Energy has guaranteed the payment obligations of certain wholly-owned subsidiaries arising under long-term service agreements and leases for certain facilities. As of December 31, 2007, these guarantees expire over varying years through 2018. | |
(5) | See above. |
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(c) | Other Commitments. |
Purchased Power | ||||||||||||||||||||
Fuel | Transportation | And Electric | ||||||||||||||||||
Commitments | Commitments | Capacity Commitments | ||||||||||||||||||
Fixed | Variable | Fixed | Fixed | Variable | ||||||||||||||||
Pricing | Pricing(1) | Pricing | Pricing | Pricing(2) | ||||||||||||||||
(in millions) | ||||||||||||||||||||
2008 | $ | 81 | $ | 7 | $ | 87 | $ | 67 | $ | 13 | ||||||||||
2009 | 60 | 8 | 75 | 74 | 11 | |||||||||||||||
2010 | 37 | 8 | 73 | 13 | — | |||||||||||||||
2011 | 21 | 9 | 75 | 13 | — | |||||||||||||||
2012 | 22 | 9 | 71 | 13 | — | |||||||||||||||
2013 and thereafter | 101 | 86 | 502 | 7 | — | |||||||||||||||
Total | $ | 322 | $ | 127 | $ | 883 | $ | 187 | $ | 24 | ||||||||||
(1) | For contracts with variable pricing components, we estimated prices based on assumptions on escalations per the contractual terms. | |
(2) | For contracts with variable pricing components, we estimated prices based on forward commodity curves as of December 31, 2007. |
Retail Energy | Wholesale Energy | |||||||||||
Fixed | Variable | Fixed | ||||||||||
Pricing(1) | Pricing(1)(2) | Pricing | ||||||||||
(in millions) | ||||||||||||
2008 | $ | 854 | $ | 2,071 | $ | 344 | ||||||
2009 | 526 | 1,517 | 508 | |||||||||
2010 | 213 | 1,130 | 291 | |||||||||
2011 | 64 | 859 | 126 | |||||||||
2012 | 27 | 573 | 158 | |||||||||
Total | $ | 1,684 | $ | 6,150 | $ | 1,427 | ||||||
(1) | In connection with our credit-enhanced retail structure, we estimate the fees under these sales commitments to be $15 million, $10 million, $7 million, $5 million and $3 million during 2008, 2009, 2010, 2011 and 2012, respectively. | |
(2) | For contracts with variable pricing components, we estimated prices based on forward commodity curves as of December 31, 2007. |
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2008 | $ | 14 | ||
2009 | 10 | |||
2010 | 27 | |||
2011 | 28 | |||
2012 | 40 | |||
2013 and thereafter | 585 | |||
Total | $ | 704 | ||
(13) | Contingencies |
(a) | Pending Electricity and Natural Gas Litigation. |
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(b) | Environmental Matters. |
(c) | Other. |
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(14) | Settlements and Other Charges |
(a) | Western States and Similar Settlements. |
Accounts receivable related to the period from October 2000 through June 2001, excluding estimated refund obligation | $ | 268 | ||
Estimated refund obligation | (87 | ) | ||
Discount | (14 | ) | ||
Interest receivable | 41 | |||
Cash payments | 150 | |||
Cornerstone settlement | 8 | |||
Other | (7 | ) | ||
Total | $ | 359 | (1) | |
(1) | The settlement also included undertakings not involving the payment of cash or the waiver of rights to receivables. |
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2005 | ||||
(in millions) | ||||
Estimated refund obligation | $ | 2 | ||
Discount | (1 | ) | ||
Interest receivable | 6 | |||
Net impact | $ | 7 | ||
(b) | Nevada Power. |
(c) | Shareholder Class Action Lawsuits. |
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(15) | Estimated Fair Value of Financial Instruments |
December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Value | Fair Value(1) | Value | Fair Value(1) | |||||||||||||
(in millions) | ||||||||||||||||
Fixed rate debt | $ | 2,955 | $ | 2,963 | $ | 2,866 | $ | 2,987 | ||||||||
Variable rate debt | — | — | 667 | 669 | ||||||||||||
Total debt | $ | 2,955 | $ | 2,963 | $ | 3,533 | $ | 3,656 | ||||||||
(1) | We based the fair values of our fixed rate and variable rate debt on (a) incremental borrowing rates for similar borrowing arrangements or (b) information from market participants. |
(16) | Supplemental Guarantor Information |
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2007 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues | $ | — | $ | 3,662 | $ | 9,756 | $ | (2,209 | ) | $ | 11,209 | |||||||||
Cost of sales | — | 3,298 | 7,557 | (2,198 | ) | 8,657 | ||||||||||||||
Operation and maintenance | — | 187 | 701 | (5 | ) | 883 | ||||||||||||||
Selling, general and administrative | — | 24 | 355 | (6 | ) | 373 | ||||||||||||||
Western states and similar settlements | — | 22 | — | — | 22 | |||||||||||||||
Gains on sales of assets and emission allowances, net | — | (17 | ) | (9 | ) | — | (26 | ) | ||||||||||||
Depreciation and amortization | — | 157 | 267 | — | 424 | |||||||||||||||
Total | — | 3,671 | 8,871 | (2,209 | ) | 10,333 | ||||||||||||||
Operating income (loss) | — | (9 | ) | 885 | — | 876 | ||||||||||||||
Income of equity investment, net | — | 5 | — | — | 5 | |||||||||||||||
Income (loss) of equity investments of consolidated subsidiaries | 271 | 3 | — | (274 | ) | — | ||||||||||||||
Debt extinguishments | (73 | ) | — | — | — | (73 | ) | |||||||||||||
Interest expense | (234 | ) | (35 | ) | (80 | ) | — | (349 | ) | |||||||||||
Interest income | 11 | 7 | 16 | — | 34 | |||||||||||||||
Interest income (expense)—affiliated companies, net | 340 | (255 | ) | (85 | ) | — | — | |||||||||||||
Total other income (expense) | 315 | (275 | ) | (149 | ) | (274 | ) | (383 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | 315 | (284 | ) | 736 | (274 | ) | 493 | |||||||||||||
Income tax expense (benefit) | (50 | ) | (113 | ) | 298 | — | 135 | |||||||||||||
Income (loss) from continuing operations | 365 | (171 | ) | 438 | (274 | ) | 358 | |||||||||||||
Income from discontinued operations | — | — | 7 | — | 7 | |||||||||||||||
Net income (loss) | $ | 365 | $ | (171 | ) | $ | 445 | $ | (274 | ) | $ | 365 | ||||||||
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2006 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues | $ | — | $ | 8,811 | $ | 9,805 | $ | (7,739 | ) | $ | 10,877 | |||||||||
Cost of sales | — | 8,734 | 8,439 | (7,737 | ) | 9,436 | ||||||||||||||
Operation and maintenance | — | 177 | 658 | (2 | ) | 833 | ||||||||||||||
Selling, general and administrative | 1 | 9 | 373 | — | 383 | |||||||||||||||
(Gain) loss on sales of receivables | — | 7 | (7 | ) | — | — | ||||||||||||||
Western states and similar settlements | — | 35 | — | — | 35 | |||||||||||||||
Gains on sales of assets and emission allowances, net | — | (21 | ) | (138 | ) | — | (159 | ) | ||||||||||||
Depreciation and amortization | — | 152 | 221 | — | 373 | |||||||||||||||
Total | 1 | 9,093 | 9,546 | (7,739 | ) | 10,901 | ||||||||||||||
Operating income (loss) | (1 | ) | (282 | ) | 259 | — | (24 | ) | ||||||||||||
Income of equity investment, net | — | 6 | — | — | 6 | |||||||||||||||
Income (loss) of equity investments of consolidated subsidiaries | (189 | ) | (9 | ) | 4 | 194 | — | |||||||||||||
Debt conversions | (37 | ) | — | — | — | (37 | ) | |||||||||||||
Interest expense | (299 | ) | (35 | ) | (94 | ) | — | (428 | ) | |||||||||||
Interest income | 2 | 27 | 5 | — | 34 | |||||||||||||||
Interest income (expense)—affiliated companies, net | 267 | (296 | ) | 29 | — | — | ||||||||||||||
Total other expense | (256 | ) | (307 | ) | (56 | ) | 194 | (425 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | (257 | ) | (589 | ) | 203 | 194 | (449 | ) | ||||||||||||
Income tax expense (benefit) | 66 | (230 | ) | 42 | — | (122 | ) | |||||||||||||
Income (loss) from continuing operations | (323 | ) | (359 | ) | 161 | 194 | (327 | ) | ||||||||||||
Income (loss) from discontinued operations | (5 | ) | (2 | ) | 5 | — | (2 | ) | ||||||||||||
Income (loss) before cumulative effect of accounting change | (328 | ) | (361 | ) | 166 | 194 | (329 | ) | ||||||||||||
Cumulative effect of accounting change, net of tax | — | 1 | — | — | 1 | |||||||||||||||
Net income (loss) | $ | (328 | ) | $ | (360 | ) | $ | 166 | $ | 194 | $ | (328 | ) | |||||||
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2005 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Revenues | $ | — | $ | 8,518 | $ | 7,893 | $ | (6,699 | ) | $ | 9,712 | |||||||||
Cost of sales | (1 | ) | 8,754 | 6,311 | (6,698 | ) | 8,366 | |||||||||||||
Operation and maintenance | — | 171 | 565 | 1 | 737 | |||||||||||||||
Selling, general and administrative | — | 9 | 291 | (7 | ) | 293 | ||||||||||||||
Loss on sales of receivables | — | 8 | (8 | ) | — | — | ||||||||||||||
Western states and similar settlements | — | 359 | — | — | 359 | |||||||||||||||
Gains on sales of assets and emission allowances, net | — | (7 | ) | (164 | ) | 3 | (168 | ) | ||||||||||||
Depreciation and amortization | — | 165 | 274 | 7 | 446 | |||||||||||||||
Total | (1 | ) | 9,459 | 7,269 | (6,694 | ) | 10,033 | |||||||||||||
Operating income (loss) | 1 | (941 | ) | 624 | (5 | ) | (321 | ) | ||||||||||||
Income of equity investments, net | — | 26 | — | — | 26 | |||||||||||||||
Income (loss) of equity investments of consolidated subsidiaries | (193 | ) | 96 | (3 | ) | 100 | — | |||||||||||||
Other, net | — | (23 | ) | — | — | (23 | ) | |||||||||||||
Interest expense | (278 | ) | (35 | ) | (86 | ) | — | (399 | ) | |||||||||||
Interest income | 1 | 20 | 2 | — | 23 | |||||||||||||||
Interest income (expense)—affiliated companies, net | 144 | (170 | ) | 26 | — | — | ||||||||||||||
Total other expense | (326 | ) | (86 | ) | (61 | ) | 100 | (373 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | (325 | ) | (1,027 | ) | 563 | 95 | (694 | ) | ||||||||||||
Income tax expense (benefit) | 12 | (456 | ) | 185 | 6 | (253 | ) | |||||||||||||
Income (loss) from continuing operations | (337 | ) | (571 | ) | 378 | 89 | (441 | ) | ||||||||||||
Income (loss) from discontinued operations | 6 | 130 | (85 | ) | 60 | 111 | ||||||||||||||
Income (loss) before cumulative effect of accounting change | (331 | ) | (441 | ) | 293 | 149 | (330 | ) | ||||||||||||
Cumulative effect of accounting change, net of tax | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Net income (loss) | $ | (331 | ) | $ | (441 | ) | $ | 292 | $ | 149 | $ | (331 | ) | |||||||
(1) | These amounts relate to either (a) eliminations and adjustments recorded in the normal consolidation process or (b) reclassifications recorded due to differences in classifications at the subsidiary levels compared to the consolidated level. |
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December 31, 2007 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 490 | $ | 1 | $ | 264 | $ | — | $ | 755 | ||||||||||
Restricted cash | — | 1 | 2 | — | 3 | |||||||||||||||
Accounts and notes receivable, principally customer, net | 11 | 252 | 831 | (11) | 1,083 | |||||||||||||||
Accounts and notes receivable—affiliated companies | 2,009 | 368 | 328 | (2,705) | — | |||||||||||||||
Inventory | — | 148 | 137 | — | 285 | |||||||||||||||
Derivative assets | — | 73 | 141 | — | 214 | |||||||||||||||
Investment in and receivables from Channelview, net | 1 | 82 | — | — | 83 | |||||||||||||||
Other current assets | 19 | 160 | 197 | (17) | 359 | |||||||||||||||
Current assets of discontinued operations | — | — | 2 | — | 2 | |||||||||||||||
Total current assets | 2,530 | 1,085 | 1,902 | (2,733) | 2,784 | |||||||||||||||
Property, Plant and Equipment, net | — | 2,870 | 2,353 | — | 5,223 | |||||||||||||||
Other Assets: | ||||||||||||||||||||
Goodwill and other intangibles, net | — | 184 | 482 | 119 | 785 | |||||||||||||||
Notes receivable—affiliated companies | 2,365 | 656 | 68 | (3,089) | — | |||||||||||||||
Equity investments of consolidated subsidiaries | 2,212 | 304 | — | (2,516) | — | |||||||||||||||
Derivative assets | — | 12 | 78 | — | 90 | |||||||||||||||
Other long-term assets | 55 | 860 | 356 | (696) | 575 | |||||||||||||||
Total other assets | 4,632 | 2,016 | 984 | (6,182) | 1,450 | |||||||||||||||
Total Assets | $ | 7,162 | $ | 5,971 | $ | 5,239 | $ | (8,915) | $ | 9,457 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Current portion of long-term debt and short-term borrowings | $ | 41 | $ | — | $ | 11 | $ | — | $ | 52 | ||||||||||
Accounts payable, principally trade | — | 68 | 624 | (5) | 687 | |||||||||||||||
Accounts and notes payable—affiliated companies | 103 | 2,223 | 379 | (2,705) | — | |||||||||||||||
Derivative liabilities | — | 62 | 375 | — | 437 | |||||||||||||||
Other current liabilities | 11 | 182 | 256 | (23) | 426 | |||||||||||||||
Total current liabilities | 155 | 2,535 | 1,645 | (2,733) | 1,602 | |||||||||||||||
Other Liabilities: | ||||||||||||||||||||
Notes payable—affiliated companies | — | 2,213 | 876 | (3,089) | — | |||||||||||||||
Derivative liabilities | — | 25 | 162 | — | 187 | |||||||||||||||
Other long-term liabilities | 539 | 152 | 284 | (696) | 279 | |||||||||||||||
Long-term liabilities of discontinued operations | — | — | 4 | — | 4 | |||||||||||||||
Total other liabilities | 539 | 2,390 | 1,326 | (3,785) | 470 | |||||||||||||||
Long-term Debt | 1,986 | 500 | 417 | — | 2,903 | |||||||||||||||
Commitments and Contingencies | ||||||||||||||||||||
Temporary Equity Stock-based Compensation | 5 | — | — | — | 5 | |||||||||||||||
Total Stockholders’ Equity | 4,477 | 546 | 1,851 | (2,397) | 4,477 | |||||||||||||||
Total LiabilitiesandStockholders’ Equity | $ | 7,162 | $ | 5,971 | $ | 5,239 | $ | (8,915) | $ | 9,457 | ||||||||||
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December 31, 2006 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 286 | $ | 24 | $ | 154 | $ | — | $ | 464 | ||||||||||
Restricted cash | — | — | 25 | — | 25 | |||||||||||||||
Accounts and notes receivable, principally customer, net | 10 | 264 | 779 | (9) | 1,044 | |||||||||||||||
Accounts and notes receivable—affiliated companies | 1,737 | 418 | 259 | (2,414) | — | |||||||||||||||
Inventory | — | 144 | 131 | — | 275 | |||||||||||||||
Derivative assets | — | 61 | 429 | — | 490 | |||||||||||||||
Other current assets | 7 | 529 | 354 | (17) | 873 | |||||||||||||||
Current assets of discontinued operations | — | — | 2 | — | 2 | |||||||||||||||
Total current assets | 2,040 | 1,440 | 2,133 | (2,440) | 3,173 | |||||||||||||||
Property, Plant and Equipment, net | — | 3,044 | 2,698 | — | 5,742 | |||||||||||||||
Other Assets: | ||||||||||||||||||||
Goodwill and other intangibles, net | — | 182 | 505 | 119 | 806 | |||||||||||||||
Notes receivable—affiliated companies | 3,249 | 789 | 94 | (4,132) | — | |||||||||||||||
Equity investments of consolidated subsidiaries | 1,377 | 328 | 5 | (1,710) | — | |||||||||||||||
Derivative assets | — | 77 | 127 | — | 204 | |||||||||||||||
Other long-term assets | 76 | 730 | 400 | (564) | 642 | |||||||||||||||
Total other assets | 4,702 | 2,106 | 1,131 | (6,287) | 1,652 | |||||||||||||||
Total Assets | $ | 6,742 | $ | 6,590 | $ | 5,962 | $ | (8,727) | $ | 10,567 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Current portion of long-term debt and short-term borrowings | $ | 3 | $ | — | $ | 352 | $ | — | $ | 355 | ||||||||||
Accounts payable, principally trade | — | 224 | 444 | (3) | 665 | |||||||||||||||
Accounts and notes payable—affiliated companies | — | 2,021 | 393 | (2,414) | — | |||||||||||||||
Derivative liabilities | — | 238 | 927 | — | 1,165 | |||||||||||||||
Other current liabilities | 55 | 159 | 313 | (23) | 504 | |||||||||||||||
Current liabilities of discontinued operations | — | — | 3 | — | 3 | |||||||||||||||
Total current liabilities | 58 | 2,642 | 2,432 | (2,440) | 2,692 | |||||||||||||||
Other Liabilities: | ||||||||||||||||||||
Notes payable—affiliated companies | — | 3,251 | 881 | (4,132) | — | |||||||||||||||
Derivative liabilities | — | 77 | 344 | — | 421 | |||||||||||||||
Other long-term liabilities | 484 | 167 | 237 | (564) | 324 | |||||||||||||||
Total other liabilities | 484 | 3,495 | 1,462 | (4,696) | 745 | |||||||||||||||
Long-term Debt | 2,248 | 501 | 429 | — | 3,178 | |||||||||||||||
Commitments and Contingencies | ||||||||||||||||||||
Temporary Equity Stock-based Compensation | 2 | — | — | — | 2 | |||||||||||||||
Total Stockholders’ Equity | 3,950 | (48) | 1,639 | (1,591) | 3,950 | |||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 6,742 | $ | 6,590 | $ | 5,962 | $ | (8,727) | $ | 10,567 | ||||||||||
(1) | These amounts relate to either (a) eliminations and adjustments recorded in the normal consolidation process or (b) reclassifications recorded due to differences in classifications at the subsidiary levels compared to the consolidated level. |
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2007 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net cash provided by (used in) continuing operations from operating activities | $ | 146 | $ | (114 | ) | $ | 613 | $ | 110 | $ | 755 | |||||||||
Net cash provided by discontinued operations from operating activities | — | — | 7 | — | 7 | |||||||||||||||
Net cash provided by (used in) operating activities | 146 | (114 | ) | 620 | 110 | 762 | ||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Capital expenditures | — | (27 | ) | (162 | ) | — | (189 | ) | ||||||||||||
Investments in, advances to and from and distributions from subsidiaries, net(2) | 346 | (6 | ) | (279 | ) | (61 | ) | — | ||||||||||||
Proceeds from sales of assets, net | — | 82 | — | — | 82 | |||||||||||||||
Net purchases of emission allowances | — | (42 | ) | (43 | ) | — | (85 | ) | ||||||||||||
Restricted cash | — | (1 | ) | 8 | — | 7 | ||||||||||||||
Other, net | — | 6 | — | — | 6 | |||||||||||||||
Net cash provided by (used in) continuing operations from investing activities | 346 | 12 | (476 | ) | (61 | ) | (179 | ) | ||||||||||||
Net cash provided by discontinued operations from investing activities | — | — | — | — | — | |||||||||||||||
Net cash provided by (used in) investing activities | 346 | 12 | (476 | ) | (61 | ) | (179 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from long-term debt | 1,300 | — | — | — | 1,300 | |||||||||||||||
Payments of long-term debt | (1,526 | ) | — | (10 | ) | — | (1,536 | ) | ||||||||||||
Increase in short-term borrowings and revolving credit facilities, net | — | — | 7 | — | 7 | |||||||||||||||
Changes in notes with affiliated companies, net(3)(4) | — | 80 | (31 | ) | (49 | ) | — | |||||||||||||
Payments of debt extinguishment costs | (73 | ) | — | — | — | (73 | ) | |||||||||||||
Proceeds from issuances of stock | 41 | — | — | — | 41 | |||||||||||||||
Payments of financing costs | (31 | ) | — | — | — | (31 | ) | |||||||||||||
Other, net | 1 | (1 | ) | — | — | — | ||||||||||||||
Net cash provided by (used in) financing activities | (288 | ) | 79 | (34 | ) | (49 | ) | (292 | ) | |||||||||||
Net Change in Cash and Cash Equivalents | 204 | (23 | ) | 110 | — | 291 | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 286 | 24 | 154 | — | 464 | |||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 490 | $ | 1 | $ | 264 | $ | — | $ | 755 | ||||||||||
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2006 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors(5) | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net cash provided by continuing operations from operating activities | $ | 10 | $ | 414 | $ | 906 | $ | — | $ | 1,330 | ||||||||||
Net cash provided by (used in) discontinued operations from operating activities | 3 | (7 | ) | (50 | ) | — | (54 | ) | ||||||||||||
Net cash provided by operating activities | 13 | 407 | 856 | — | 1,276 | |||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Capital expenditures | — | (24 | ) | (73 | ) | — | (97 | ) | ||||||||||||
Investments in, advances to and from and distributions from subsidiaries, net(2) | 1,059 | (468 | ) | (216 | ) | (375 | ) | — | ||||||||||||
Proceeds from sales of assets, net | — | — | 1 | — | 1 | |||||||||||||||
Net proceeds from sale of emission allowances | — | 88 | 94 | — | 182 | |||||||||||||||
Restricted cash | — | — | 2 | — | 2 | |||||||||||||||
Other, net | — | 1 | — | — | 1 | |||||||||||||||
Net cash provided by (used in) continuing operations from investing activities | 1,059 | (403 | ) | (192 | ) | (375 | ) | 89 | ||||||||||||
Net cash provided by discontinued operations from investing activities | 712 | — | 968 | (712 | ) | 968 | ||||||||||||||
Net cash provided by (used in) investing activities | 1,771 | (403 | ) | 776 | (1,087 | ) | 1,057 | |||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from long-term debt | 400 | — | — | — | 400 | |||||||||||||||
Payments of long-term debt | (852 | ) | — | (14 | ) | — | (866 | ) | ||||||||||||
Increase (decrease) in short-term borrowings and revolving credit facilities, net | (383 | ) | — | (442 | ) | — | (825 | ) | ||||||||||||
Changes in notes with affiliated companies, net(3) | — | (16 | ) | (359 | ) | 375 | — | |||||||||||||
Premium paid for conversion of senior subordinated notes | (36 | ) | — | — | — | (36 | ) | |||||||||||||
Proceeds from issuances of stock | 25 | — | — | — | 25 | |||||||||||||||
Payments of financing costs | (17 | ) | — | — | — | (17 | ) | |||||||||||||
Net cash used in continuing operations from financing activities | (863 | ) | (16 | ) | (815 | ) | 375 | (1,319 | ) | |||||||||||
Net cash used in discontinued operations from financing activities | (638 | ) | — | (712 | ) | 712 | (638 | ) | ||||||||||||
Net cash used in financing activities | (1,501 | ) | (16 | ) | (1,527 | ) | 1,087 | (1,957 | ) | |||||||||||
Net Change in Cash and Cash Equivalents | 283 | (12 | ) | 105 | — | 376 | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 3 | 36 | 49 | — | 88 | |||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 286 | $ | 24 | $ | 154 | $ | — | $ | 464 | ||||||||||
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2005 | ||||||||||||||||||||
Reliant Energy | Guarantors | Non-Guarantors | Adjustments(1) | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net cash provided by (used in) continuing operations from operating activities | $ | (95 | ) | $ | (1,989 | ) | $ | 974 | $ | — | $ | (1,110 | ) | |||||||
Net cash provided by discontinued operations from operating activities | 13 | 8 | 172 | — | 193 | |||||||||||||||
Net cash provided by (used in) operating activities | (82 | ) | (1,981 | ) | 1,146 | — | (917 | ) | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Capital expenditures | — | (49 | ) | (33 | ) | — | (82 | ) | ||||||||||||
Investments in, advances to and from and distributions from subsidiaries, net(2) | (460 | ) | 1 | (341 | ) | 800 | — | |||||||||||||
Proceeds from sales of assets, net | — | 77 | 72 | — | 149 | |||||||||||||||
Net sales (purchases) of emission allowances | — | (49 | ) | 137 | — | 88 | ||||||||||||||
Restricted cash | — | — | 14 | — | 14 | |||||||||||||||
Other, net | — | 6 | — | — | 6 | |||||||||||||||
Net cash provided by (used in) continuing operations from investing activities | (460 | ) | (14 | ) | (151 | ) | 800 | 175 | ||||||||||||
Net cash provided by discontinued operations from investing activities | 110 | 51 | 80 | (110 | ) | 131 | ||||||||||||||
Net cash provided by (used in) investing activities | (350 | ) | 37 | (71 | ) | 690 | 306 | |||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from long-term debt | 299 | — | — | — | 299 | |||||||||||||||
Payments of long-term debt | (109 | ) | (1 | ) | (38 | ) | — | (148 | ) | |||||||||||
Increase in short-term borrowings and revolving credit facilities, net | 184 | — | 223 | — | 407 | |||||||||||||||
Changes in notes with affiliated companies, net(3) | — | 1,956 | (1,156 | ) | (800 | ) | — | |||||||||||||
Proceeds from issuances of stock | 37 | — | — | — | 37 | |||||||||||||||
Payments of financing costs | (1 | ) | — | — | — | (1 | ) | |||||||||||||
Net cash provided by (used in) continuing operations from financing activities | 410 | 1,955 | (971 | ) | (800 | ) | 594 | |||||||||||||
Net cash used in discontinued operations from financing activities | — | — | (110 | ) | 110 | — | ||||||||||||||
Net cash provided by (used in) financing activities | 410 | 1,955 | (1,081 | ) | (690 | ) | 594 | |||||||||||||
Net Change in Cash and Cash Equivalents | (22 | ) | 11 | (6 | ) | — | (17 | ) | ||||||||||||
Cash and Cash Equivalents at Beginning of Period | 25 | 25 | 55 | — | 105 | |||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 3 | $ | 36 | $ | 49 | $ | — | $ | 88 | ||||||||||
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(1) | These amounts relate to either (a) eliminations and adjustments recorded in the normal consolidation process or (b) reclassifications recorded due to differences in classifications at the subsidiary levels compared to the consolidated level. | |
(2) | Net investments in, advances to and from and distributions from subsidiaries are classified as investing activities. | |
(3) | Net changes in notes with affiliated companies are classified as financing activities for subsidiaries of Reliant Energy and as investing activities for Reliant Energy. | |
(4) | Reliant Energy converted intercompany notes payable of a guarantor subsidiary of $753 million to equity during 2007. | |
(5) | During 2006, Reliant Energy Retail Holdings, LLC, a non-guarantor, made a non-cash capital distribution (related to intercompany receivables) of $1.9 billion to Reliant Energy. |
(17) | Unaudited Quarterly Information |
2007 | ||||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
(in millions, except per share amounts) | ||||||||||||||||
Revenues | $ | 2,362 | $ | 2,650 | $ | 3,544 | $ | 2,653 | ||||||||
Income (loss) from continuing operations | 260 | (281 | ) | 160 | 219 | |||||||||||
Income (loss) from discontinued operations | (1 | ) | (2 | ) | 2 | 8 | ||||||||||
Net income (loss) | 259 | (283 | ) | 162 | 227 | |||||||||||
Basic Earnings (Loss) Per Share: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.77 | $ | (0.82 | ) | $ | 0.47 | $ | 0.64 | |||||||
Income (loss) from discontinued operations | (0.01 | ) | (0.01 | ) | — | 0.02 | ||||||||||
Net income (loss) | $ | 0.76 | $ | (0.83 | ) | $ | 0.47 | $ | 0.66 | |||||||
Diluted Earnings (Loss) Per Share: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.75 | $ | (0.82 | ) | $ | 0.45 | $ | 0.62 | |||||||
Income (loss) from discontinued operations | (0.01 | ) | (0.01 | ) | 0.01 | 0.02 | ||||||||||
Net income (loss) | $ | 0.74 | $ | (0.83 | ) | $ | 0.46 | $ | 0.64 | |||||||
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2006 | ||||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
(in millions, except per share amounts) | ||||||||||||||||
Revenues | $ | 2,453 | $ | 2,775 | $ | 3,305 | $ | 2,344 | ||||||||
Income (loss) from continuing operations | (139 | ) | 23 | (154 | ) | (57 | ) | |||||||||
Income (loss) from discontinued operations | 5 | (9 | ) | (1 | ) | 3 | ||||||||||
Income (loss) before cumulative effect of accounting change | (134 | ) | 14 | (155 | ) | (54 | ) | |||||||||
Net income (loss) | (133 | ) | 14 | (155 | ) | (54 | ) | |||||||||
Basic Earnings (Loss) Per Share: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.46 | ) | $ | 0.07 | $ | (0.50 | ) | $ | (0.18 | ) | |||||
Income (loss) from discontinued operations | 0.02 | (0.02 | ) | — | 0.01 | |||||||||||
Income (loss) before cumulative effect of accounting change | (0.44 | ) | 0.05 | (0.50 | ) | (0.17 | ) | |||||||||
Cumulative effect of accounting change, net of tax | — | — | — | — | ||||||||||||
Net income (loss) | $ | (0.44 | ) | $ | 0.05 | $ | (0.50 | ) | $ | (0.17 | ) | |||||
Diluted Earnings (Loss) Per Share: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.46 | ) | $ | 0.07 | $ | (0.50 | ) | $ | (0.18 | ) | |||||
Income (loss) from discontinued operations | 0.02 | (0.02 | ) | — | 0.01 | |||||||||||
Income (loss) before cumulative effect of accounting change | (0.44 | ) | 0.05 | (0.50 | ) | (0.17 | ) | |||||||||
Cumulative effect of accounting change, net of tax | — | — | — | — | ||||||||||||
Net income (loss) | $ | (0.44 | ) | $ | 0.05 | $ | (0.50 | ) | $ | (0.17 | ) | |||||
• | seasonal fluctuations in demand for electric energy and energy services; | |
• | changes in energy commodity prices, including unrealized gains/losses on energy derivatives; and | |
• | timing of maintenance expenses. |
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• | $73 million of debt extinguishments expenses ($71 million in the second quarter and $1 million in each of the third and fourth quarters); | |
• | $41 million write-off of deferred financing costs ($39 million in the second quarter and $1 million in each of the third and fourth quarters); | |
• | $37 million change in income tax expense/benefit due to our federal valuation allowance ($1 million increase during the first quarter, $21 million increase during the second quarter, $22 million decrease during the third quarter and $37 million decrease during the fourth quarter); | |
• | $29 million charge for early retirements in depreciation expense ($15 million in the first quarter, $13 million in the second quarter and $1 million in the third quarter); | |
• | $24 million gain on sales of equipment ($18 million in the third quarter and $6 million in the fourth quarter); and | |
• | $22 million charge for Reliant Energy Services, Inc. resolution of criminal indictment in the first quarter. |
• | $159 million gain on sales of emission allowances ($151 million gain in the first quarter, $5 million gain in the second quarter and $3 million gain in the third quarter); | |
• | $68 million change in income tax expense/benefit due to our federal valuation allowance ($70 million increase during the first quarter, $20 million increase during the second quarter, $30 million decrease during the third quarter and $8 million increase during the fourth quarter); | |
• | $40 million income tax benefit in the fourth quarter related to Pennsylvania state law changes; | |
• | $37 million charge for the debt conversion expense during the fourth quarter; and | |
• | $35 million charge related to the settlement of certain class action natural gas cases relating to the Western states energy crisis during the third quarter. |
(18) | Reportable Segments |
• | Retail energy—provides electricity and energy services to more than 1.8 million retail electricity customers in Texas, including residential and small business customers and commercial, industrial and governmental/institutional customers. Our next largest market is the PJM market, where we serve commercial, industrial and governmental/institutional customers. We regularly evaluate entering additional markets. | |
• | Wholesale energy—provides electricity and energy services in the competitive wholesale energy markets in the United States through our ownership and operation of or contracting for power generation capacity. As of December 31, 2007, we had approximately 16,000 MW of power generation capacity. |
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Retail | Wholesale | Other | ||||||||||||||||||
Energy | Energy | Operations | Eliminations | Consolidated | ||||||||||||||||
(in millions) | ||||||||||||||||||||
2007: | ||||||||||||||||||||
Revenues from external customers(1) | $ | 8,173 | $ | 3,036 | (2) | $ | — | $ | — | $ | 11,209 | |||||||||
Intersegment revenues | — | 394 | 13 | (407 | ) | — | ||||||||||||||
Contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives(3)(4) | 942 | 524 | (5) | 7 | (6 | ) | 1,467 | |||||||||||||
Expenditures for long-lived assets(6) | 14 | 159 | 16 | — | 189 | |||||||||||||||
Equity investment as of December 31, 2007 | — | 25 | — | — | 25 | |||||||||||||||
Total assets as of December 31, 2007 | 1,778 | 7,492 | 1,081 | (7) | (894 | ) | 9,457 | |||||||||||||
2006: | ||||||||||||||||||||
Revenues from external customers(1) | $ | 8,197 | $ | 2,679 | (8) | $ | 1 | $ | — | $ | 10,877 | |||||||||
Intersegment revenues | — | 571 | 1 | (572 | ) | — | ||||||||||||||
Contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives(3)(9) | 250 | 146 | (10) | 1 | — | 397 | ||||||||||||||
Expenditures for long-lived assets(6) | 9 | 78 | 10 | — | 97 | |||||||||||||||
Equity investment as of December 31, 2006 | — | 25 | — | — | 25 | |||||||||||||||
Total assets as of December 31, 2006 | 1,984 | 8,402 | 848 | (7) | (667 | ) | 10,567 | |||||||||||||
2005: | ||||||||||||||||||||
Revenues from external customers(1) | $ | 7,045 | $ | 2,661 | $ | 6 | $ | — | $ | 9,712 | ||||||||||
Intersegment revenues | — | 625 | — | (625 | ) | — | ||||||||||||||
Contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives(3)(11) | 342 | 110 | (12) | 4 | — | 456 | ||||||||||||||
Expenditures for long-lived assets(6) | 9 | 66 | 7 | — | 82 | |||||||||||||||
Equity investments as of December 31, 2005 | — | 30 | — | — | 30 | |||||||||||||||
Total assets as of December 31, 2005 | 2,762 | 9,871 | 1,691 | (7) | (755 | ) | 13,569 |
(1) | Substantially all revenues are in the United States. | |
(2) | Includes $127 million from affiliates. | |
(3) | Revenues less (a) cost of sales, (b) operation and maintenance, (c) selling and marketing and (d) bad debt expense. | |
(4) | Includes $438 million, $7 million and $445 million in retail energy, wholesale energy and consolidated, respectively, results relating to unrealized gains on energy derivatives, which is a non-cash item. | |
(5) | Includes $(92) million relating to historical and operational wholesale hedges. | |
(6) | Long-lived assets include net property, plant and equipment, net goodwill, net other intangibles and equity investments. All of our long-lived assets are in the United States. | |
(7) | Other operations include discontinued operations of $2 million, $2 million and $1,084 million as of December 31, 2007, 2006 and 2005, respectively. | |
(8) | Includes $1.2 billion in revenues from a single counterparty, which represented 11% of our consolidated revenues and 45% of our wholesale energy segment’s revenues. As of December 31, 2006, $16 million was outstanding from this counterparty. | |
(9) | Includes $(287) million, $56 million and $(231) million in retail energy, wholesale energy and consolidated, respectively, results relating to unrealized gains (losses) on energy derivatives, which is a non-cash item. |
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(10) | Includes $(376) million relating to historical and operational wholesale hedges. | |
(11) | Includes $(69) million, $(123) million and $(192) million in retail energy, wholesale energy and consolidated, respectively, results relating to unrealized losses on energy derivatives, which is a non-cash item. | |
(12) | Includes $(484) million relating to historical and operational wholesale hedges. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Contribution margin, including historical and operational wholesale hedges and unrealized gains/losses on energy derivatives | $ | 1,467 | $ | 397 | $ | 456 | ||||||
Other general and administrative | 171 | 172 | 140 | |||||||||
Western states and similar settlements | 22 | 35 | 359 | |||||||||
Gains on sales of assets and emission allowances, net | (26 | ) | (159 | ) | (168 | ) | ||||||
Depreciation and amortization | 424 | 373 | 446 | |||||||||
Operating income (loss) | 876 | (24 | ) | (321 | ) | |||||||
Income of equity investments, net | 5 | 6 | 26 | |||||||||
Debt extinguishments and conversions | (73 | ) | (37 | ) | — | |||||||
Other, net | — | — | (23 | ) | ||||||||
Interest expense | (349 | ) | (428 | ) | (399 | ) | ||||||
Interest income | 34 | 34 | 23 | |||||||||
Income (loss) from continuing operations before income taxes | 493 | (449 | ) | (694 | ) | |||||||
Income tax expense (benefit) | 135 | (122 | ) | (253 | ) | |||||||
Income (loss) from continuing operations | 358 | (327 | ) | (441 | ) | |||||||
Income (loss) from discontinued operations | 7 | (2 | ) | 111 | ||||||||
Income (loss) before cumulative effect of accounting changes | 365 | (329 | ) | (330 | ) | |||||||
Cumulative effect of accounting changes, net of tax | — | 1 | (1 | ) | ||||||||
Net income (loss) | $ | 365 | $ | (328 | ) | $ | (331 | ) | ||||
(19) | Impairment of Cost Method Investment |
(20) | Sales of Assets and Emission Allowances |
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(21) | Channelview’s Bankruptcy Filings |
December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Property, plant and equipment, net | $ | 356 | $ | 368 | ||||
Secured debt obligations, including accrued interest | 340 | 343 | ||||||
Payables to Reliant Energy and its subsidiaries, net | 96 | 72 |
(22) | Discontinued Operations |
(a) | New York Plants. |
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(b) | Ceredo Plant. |
(c) | European Energy. |
(d) | All Discontinued Operations. |
New York | Ceredo | European | ||||||||||||||
Plants | Plant | Energy | Total | |||||||||||||
2006 | ||||||||||||||||
Revenues | $ | 108 | $ | — | $ | — | $ | 108 | ||||||||
Loss before income tax expense/benefit | (7 | )(1) | — | — | (7 | ) | ||||||||||
2005 | ||||||||||||||||
Revenues | $ | 996 | $ | — | $ | — | $ | 996 | ||||||||
Income (loss) before income tax expense/benefit | 18 | (2) | (27 | )(3) | 52 | 43 |
(1) | Includes an additional pre-tax loss on disposal of $16 million primarily due to changes in derivative assets not terminated as of the date of sale. The cumulative pre-tax loss on disposal through December 31, 2006 was $255 million. | |
(2) | Includes $239 million estimated loss on disposal. | |
(3) | Includes $27 million loss on disposal. |
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Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
Additions | ||||||||||||||||||||
Balance at | Charged | Charged | Deductions | Balance at | ||||||||||||||||
Beginning | to | to Other | from | End | ||||||||||||||||
Description | of Period | Income | Accounts(1) | Reserves(2) | of Period | |||||||||||||||
(thousands of dollars) | ||||||||||||||||||||
2007 | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 33,332 | $ | 78,588 | $ | — | $ | (75,196 | ) | $ | 36,724 | |||||||||
Reserves deducted from | ||||||||||||||||||||
derivative assets | 126,710 | (58,310 | ) | — | (159 | ) | 68,241 | |||||||||||||
2006 | ||||||||||||||||||||
Allowance for doubtful accounts | 34,054 | 86,961 | — | (87,683 | ) | 33,332 | ||||||||||||||
Reserves deducted from derivative assets | 197,384 | (68,240 | ) | — | (2,434 | ) | 126,710 | |||||||||||||
Reserves for severance | 1,860 | 3,845 | — | (5,705 | ) | — | ||||||||||||||
2005 | ||||||||||||||||||||
Allowance for doubtful accounts | 41,636 | 57,817 | — | (65,399 | ) | 34,054 | ||||||||||||||
Reserves deducted from derivative assets | 87,323 | 128,306 | 33 | (18,278 | ) | 197,384 | ||||||||||||||
Reserves for severance | 1,325 | 8,664 | — | (8,129 | ) | 1,860 |
(1) | Represents charges to accumulated other comprehensive income/loss. | |
(2) | Deductions from reserves represent losses or expenses for which the respective reserves were created. In the case of the allowance for doubtful accounts, such deductions are net of recoveries of amounts previously written off. |
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RERH Holdings, LLC:
February 25, 2008
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2007 | 2006 | |||||||
(thousands of dollars) | ||||||||
Revenues: | ||||||||
Electricity sales and services revenues (including $(70) and $227 unrealized gains(losses)) | $ | 7,978,078 | $ | 7,460,341 | ||||
Expenses: | ||||||||
Cost of sales (including $443,218 and $(394,902) unrealized gains (losses)) | 6,368,557 | 2,790,009 | ||||||
Cost of sales—affiliates | 236,762 | 3,937,469 | ||||||
Operation and maintenance | 225,261 | 206,397 | ||||||
Operation and maintenance—affiliates | 19,271 | 25,917 | ||||||
Selling, general and administrative | 211,372 | 231,692 | ||||||
Selling, general and administrative—affiliates | 68,876 | 70,060 | ||||||
Depreciation and amortization | 23,947 | 29,490 | ||||||
Total operating expense | 7,154,046 | 7,291,034 | ||||||
Operating Income | 824,032 | 169,307 | ||||||
Other Income (Expense): | ||||||||
Other, net | 699 | 22 | ||||||
Interest expense | (29,476 | ) | (28,198 | ) | ||||
Interest income | 15,166 | 2,481 | ||||||
Interest income (expense), net—affiliates | (6,579 | ) | 104,427 | |||||
Total other income (expense) | (20,190 | ) | 78,732 | |||||
Income Before Income Taxes | 803,842 | 248,039 | ||||||
Income tax expense | 309,135 | 96,180 | ||||||
Net Income | $ | 494,707 | $ | 151,859 | ||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(thousands of dollars) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 226,200 | $ | 136,017 | ||||
Restricted cash | — | 13,000 | ||||||
Accounts receivable and unbilled revenue, principally customer, net of allowance of $34,947 and $29,386 | 776,115 | 732,975 | ||||||
Accumulated deferred income taxes | 94,744 | 206,795 | ||||||
Derivative assets | 128,935 | 422,098 | ||||||
Prepayments and other current assets | 21,171 | 41,603 | ||||||
Total current assets | 1,247,165 | 1,552,488 | ||||||
Property, Plant and Equipment, net | 43,487 | 54,340 | ||||||
Other Assets: | ||||||||
Goodwill, net | 31,631 | 31,631 | ||||||
Derivative assets | 75,660 | 127,028 | ||||||
Other | 22,969 | 47,434 | ||||||
Total other assets | 130,260 | 206,093 | ||||||
Total Assets | $ | 1,420,912 | $ | 1,812,921 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable, principally trade | $ | 486,746 | $ | 396,728 | ||||
Payable to affiliates, net | 40,437 | 38,970 | ||||||
Retail customer deposits | 62,676 | 67,068 | ||||||
Other taxes payable | 46,634 | 53,585 | ||||||
Taxes payable to Reliant Energy, Inc. | 21,188 | — | ||||||
Accrual for transmission and distribution charges | 74,393 | 60,654 | ||||||
Derivative liabilities | 336,440 | 904,108 | ||||||
Other | 90,569 | 75,497 | ||||||
Total current liabilities | 1,159,083 | 1,596,610 | ||||||
Other Liabilities: | ||||||||
Derivative liabilities | 38,011 | 225,997 | ||||||
Other | 33,833 | 19,043 | ||||||
Total other liabilities | 71,844 | 245,040 | ||||||
Commitments and Contingencies Members’ Equity: | ||||||||
Members’ equity | 189,985 | (28,729 | ) | |||||
Total members’ equity | 189,985 | (28,729 | ) | |||||
Total Liabilities and Members’ Equity | $ | 1,420,912 | $ | 1,812,921 | ||||
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2007 | 2006 | |||||||
(thousands of dollars) | ||||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 494,707 | $ | 151,859 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 23,947 | 29,490 | ||||||
Deferred income taxes | 163,557 | (108,547 | ) | |||||
Net changes in energy derivatives | (391,981 | ) | 407,649 | |||||
Non-cash federal income tax contributions from Reliant Energy, Inc., net | — | 179,222 | ||||||
Other, net | 3,301 | 1,118 | ||||||
Changes in other assets and liabilities: | ||||||||
Accounts receivable and unbilled revenue, net | 12,315 | 196,846 | ||||||
Receivables/payables—affiliates | (41,891 | ) | (481,521 | ) | ||||
Margin deposits, net | 10,890 | (2,775 | ) | |||||
Net derivative assets and liabilities | (22,709 | ) | (76,112 | ) | ||||
Accounts payable | 89,974 | 271,019 | ||||||
Other current assets | 9,806 | 10,763 | ||||||
Other current liabilities | 12,902 | 31,057 | ||||||
Other assets | (5,295 | ) | 342 | |||||
Retail customer deposits | (4,392 | ) | 6,158 | |||||
Taxes payable/receivable | (4,226 | ) | 9,032 | |||||
Other taxes payable | (9,057 | ) | 14,311 | |||||
Accrual for transmission and distribution charges | 13,739 | 16,344 | ||||||
Taxes payable to Reliant Energy, Inc. and related accrued interest | 21,188 | — | ||||||
Other liabilities | (2,687 | ) | (3,477 | ) | ||||
Net cash provided by operating activities | 374,088 | 652,778 | ||||||
Cash Flows from Investing Activities: | ||||||||
Restricted cash | 13,000 | (13,000 | ) | |||||
Capital expenditures | (13,457 | ) | (9,424 | ) | ||||
Contribution to investment | (2,550 | ) | — | |||||
Contribution from Reliant Energy, Inc. of Reliant Energy Solutions East, LLC | 2,530 | — | ||||||
Net cash used in investing activities | (477 | ) | (22,424 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Dividends to Reliant Energy, Inc. | (437,000 | ) | — | |||||
Decrease in short-term borrowings, net | — | (450,000 | ) | |||||
Contributions from (distributions to) Reliant Energy, Inc. | 153,572 | (2,944 | ) | |||||
Changes in note with Reliant Energy, Inc., net | — | (50,115 | ) | |||||
Net cash used in financing activities | (283,428 | ) | (503,059 | ) | ||||
Net Change in Cash and Cash Equivalents | 90,183 | 127,295 | ||||||
Cash and Cash Equivalents at Beginning of Period | 136,017 | 8,722 | ||||||
Cash and Cash Equivalents at End of Period | $ | 226,200 | $ | 136,017 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Cash Payments: | ||||||||
Interest paid to affiliate | $ | 5,995 | $ | 2,942 | ||||
Interest paid to third parties | 29,741 | 29,090 | ||||||
Income taxes paid (net of income tax refunds received) | 25,012 | 16,472 | ||||||
Income taxes paid to affiliate | 110,000 | — | ||||||
Non-cash Disclosure: | ||||||||
Contributions from Reliant Energy, Inc., net | 995 | 171,629 | ||||||
Transfer of certain assets and liabilities from Reliant Energy Electric Solutions, LLC to Reliant Energy Power Supply, LLC, net | — | 329,807 | ||||||
Transfer of certain assets and liabilities from Reliant Energy Services, Inc. to Reliant Energy Power Supply, LLC, net | (2,254 | ) | (329,773 | ) | ||||
Contributions from (distributions to) Reliant Energy, Inc. of Reliant Energy Solutions East, LLC | 6,164 | (2,058 | ) | |||||
Distribution to Reliant Energy, Inc. of note receivable | — | (1,943,943 | ) |
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Members’ | Comprehensive | |||||||
Equity | Income | |||||||
(thousands of dollars) | ||||||||
Balance at December 31, 2005 | $ | 1,596,694 | ||||||
Net income | 151,859 | $ | 151,859 | |||||
Contributions from Reliant Energy, Inc., net | 171,629 | |||||||
Distribution to Reliant Energy, Inc. of Reliant Energy Solutions East, LLC | (5,002 | ) | ||||||
Distribution to Reliant Energy, Inc. of note receivable | (1,943,943 | ) | ||||||
Transfer of certain assets and liabilities from Reliant Energy Electric Solutions, LLC to Reliant Energy Power Supply, LLC, net | 329,807 | |||||||
Transfer of certain assets and liabilities from Reliant Energy Services, Inc. to Reliant Energy Power Supply, LLC, net | (329,773 | ) | ||||||
Comprehensive income | $ | 151,859 | ||||||
Balance at December 31, 2006 | $ | (28,729 | ) | |||||
Net income | 494,707 | 494,707 | ||||||
Contributions from Reliant Energy, Inc., net | 154,567 | |||||||
Distribution to Reliant Energy, Inc. of cash dividend | (437,000 | ) | ||||||
Contribution from Reliant Energy, Inc. of Reliant Energy Solutions East, LLC | 8,694 | |||||||
Transfer of certain assets and liabilities from Reliant Energy Services, Inc. to Reliant Energy Power Supply, LLC, net | (2,254 | ) | ||||||
Comprehensive income | $ | 494,707 | ||||||
Balance at December 31, 2007 | $ | 189,985 | ||||||
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(1) | Background and Basis of Presentation |
• | Formed Reliant Energy Power Supply, LLC in April 2006 to procure the purchased power for RERH Holdings’ Texas retail customers. Reliant Energy Power Supply, LLC began procuring power in July 2006. | |
• | Reliant Energy Solutions East, LLC was distributed to Reliant Energy, Inc. on October 1, 2006 as this entity does business for retail customers outside of Texas. See below for 2007 activity. | |
• | Certain assets and liabilities were transferred from Reliant Energy Electric Solutions, LLC and Reliant Energy Services, Inc. (both of which are not subsidiaries of Retail Holdings) to Reliant Energy Power Supply, LLC in the third and fourth quarters of 2006 as these related to supply positions for the Texas retail customers. |
• | Reliant Energy, Inc. contributed Reliant Energy Solutions East, LLC to Reliant Energy Retail Services, LLC on August 1, 2007 and its operations are included in these consolidated financial statements from that point forward for 2007. See above for 2006 activity. |
Subsidiary | Formation Date | |
Reliant Energy Retail Holdings, LLC (the predecessor parent) | September 2000 | |
Reliant Energy Retail Services, LLC | September 2000 | |
Reliant Energy Solutions East, LLC | February 2002 | |
RE Retail Receivables, LLC | June 2002 | |
Reliant Energy Power Supply, LLC | April 2006 |
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(2) | Summary of Significant Accounting Policies |
(a) | Use of Estimates and Market Risk and Uncertainties. |
• | the reported amount of assets, liabilities and equity, | |
• | the reported amounts of revenues and expenses and | |
• | disclosure of contingent assets and liabilities at the date of the financial statements. |
(b) | Principles of Consolidation. |
(c) | Revenues. |
(d) | Derivatives and Hedging Activities. |
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Transactions that | ||||||
Purpose for Holding or | Physically | Transactions that | ||||
Instrument | Issuing Instrument(1) | Flow/Settle | Financially Settle(2) | |||
Power futures, forward, swap and option contracts | Power sales to end-use retail customers | Revenues | N/A(3) | |||
Supply management revenues | Revenues | Cost of sales | ||||
Power purchases | Cost of sales | Cost of sales | ||||
Natural gas futures, forward, swap and option contracts | Natural gas purchases/sales | N/A(3) | Cost of sales |
(1) | The purpose for holding or issuing is not impacted by the accounting method elected for each instrument. | |
(2) | Includes classification formark-to-market derivatives. | |
(3) | N/A is not applicable. |
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(e) | Credit Risk. |
(f) | Selling, General and Administrative Expenses. |
(g) | Property, Plant and Equipment and Depreciation Expense. |
Estimated Useful | December 31, | |||||||||||
Lives (Years) | 2007 | 2006 | ||||||||||
(in millions) | ||||||||||||
Information technology | 3 - 10 | $ | 183 | $ | 174 | |||||||
Furniture and leasehold improvements | 3 - 10 | 6 | 6 | |||||||||
Assets under construction | 5 | 5 | ||||||||||
Total | 194 | 185 | ||||||||||
Accumulated depreciation | (151 | ) | (131 | ) | ||||||||
Property, plant and equipment, net | $ | 43 | $ | 54 | ||||||||
(h) | Intangible Assets and Amortization Expense. |
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(i) | Income Taxes. |
(j) | Cash and Cash Equivalents. |
(k) | Restricted Cash. |
(l) | Allowance for Doubtful Accounts. |
(m) | Gross Receipts Taxes. |
(n) | Sales Taxes. |
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(o) | New Accounting Pronouncement Not Yet Adopted—Fair Value. |
(3) | Related Party Transactions |
2007 | 2006 | |||||||
(in millions) | ||||||||
Allocated or charged by Reliant Energy(1) | $ | 88 | $ | 96 |
(1) | Includes $2 million and $3 million for RERH Holdings’ share of allocated rent expense. |
2007 | 2006 | |||||||
(in millions) | ||||||||
Purchases from Reliant Energy under various commodity agreements(1) | $ | 237 | $ | 3,937 |
(1) | Recorded in cost of sales— affiliates. |
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2007 | 2006 | |||||||
(in millions) | ||||||||
Non-cash federal income tax contributions from Reliant Energy, Inc., net | $ | — | $ | 179 |
(4) | Debt |
(a) | Working Capital Facility. |
(b) | Receivables Facility. |
(5) | Credit-Enhanced Retail Structure |
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(6) | Benefit Plans |
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(7) | Income Taxes |
(a) | Summary. |
2007 | 2006 | |||||||
(in millions) | ||||||||
Current: | ||||||||
Federal | $ | 126 | $ | 179 | ||||
State | 20 | 26 | ||||||
Total current | 146 | 205 | ||||||
Deferred: | ||||||||
Federal | 141 | (95 | ) | |||||
State | 22 | (14 | ) | |||||
Total deferred | 163 | (109 | ) | |||||
Income tax expense | $ | 309 | $ | 96 | ||||
2007 | 2006 | |||||||
Federal statutory rate | 35 | % | 35 | % | ||||
Additions (reductions) resulting from: | ||||||||
State income taxes, net of federal income taxes | 3 | 4 | ||||||
Effective rate | 38 | % | 39 | % | ||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Deferred tax assets: | ||||||||
Current: | ||||||||
Derivative liabilities, net | $ | 80 | $ | 202 | ||||
Allowance for doubtful accounts and credit provisions | 12 | 11 | ||||||
Employee benefits | 1 | 1 | ||||||
Other | 3 | — | ||||||
Total current deferred tax assets | 96 | 214 | ||||||
Non-current: | ||||||||
Derivative liabilities, net | — | 39 | ||||||
Employee benefits | — | 2 | ||||||
Total non-current deferred tax assets | — | 41 | ||||||
Total deferred tax assets | $ | 96 | $ | 255 | ||||
Deferred tax liabilities: | ||||||||
Current: | ||||||||
Other | $ | — | $ | 7 | ||||
Total current deferred tax liabilities | — | 7 | ||||||
Non-current: | ||||||||
Depreciation and amortization | 9 | 17 | ||||||
Derivative assets, net | 13 | — | ||||||
Other | — | 1 | ||||||
Total non-current deferred tax liabilities | 22 | 18 | ||||||
Total deferred tax liabilities | $ | 22 | $ | 25 | ||||
Accumulated deferred income taxes, net | $ | 74 | $ | 230 | ||||
(b) | Valuation Allowances. |
(c) | Adoption of FIN 48 and Tax Uncertainties. |
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Subject to | Currently Under | |||
Examination | Audit | |||
Federal | 1997 to 2007 | 1997 to 2005 | ||
Texas | 2000 to 2007 | 2000 to 2005 | ||
Pennsylvania | 2004 to 2007 | 2006 |
• | $177 million payment to CenterPoint during 2004 related to residential customers; and | |
• | the timing of tax deductions could be changed as a result of negotiations with respect to depreciation. |
(8) | Commitments |
(a) | Lease Commitments. |
2008 | $ | 15 | ||
2009 | 16 | |||
2010 | 16 | |||
2011 | 7 | |||
2012 | 1 | |||
2013 and thereafter | — | |||
Total | $ | 55 | ||
(b) | Guarantees and Indemnifications. |
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(c) | Other Commitments. |
Purchased Power Commitments | ||||||||
Fixed Pricing | Variable Pricing(1) | |||||||
(in millions) | ||||||||
2008 | $ | 67 | $ | 13 | ||||
2009 | 73 | 11 | ||||||
2010 | 13 | — | ||||||
2011 | 13 | — | ||||||
2012 | 13 | — | ||||||
2013 and thereafter | 6 | — | ||||||
Total | $ | 185 | $ | 24 | ||||
(1) | For contracts with variable pricing components, RERH Holdings estimated prices based on forward commodity curves as of December 31, 2007. |
Fixed Pricing(1) | Variable Pricing(1)(2) | |||||||
(in millions) | ||||||||
2008 | $ | 854 | $ | 2,071 | ||||
2009 | 526 | 1,517 | ||||||
2010 | 213 | 1,130 | ||||||
2011 | 64 | 859 | ||||||
2012 | 27 | 573 | ||||||
Total | $ | 1,684 | $ | 6,150 | ||||
(1) | In connection with the credit-enhanced retail structure, RERH Holdings estimates the fees under these sales commitments to be $15 million, $10 million, $7 million, $5 million and $3 million during 2008, 2009, 2010, 2011 and 2012, respectively. | |
(2) | For contracts with variable pricing components, RERH Holdings estimated prices based on forward commodity curves as of December 31, 2007. |
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(9) | Contingencies |
(10) | Estimated Fair Value of Financial Instruments |
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Houston, Texas
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2005 | ||||
(thousands of dollars) | ||||
Revenues: | ||||
Electricity sales and services revenues | $ | 5,997,644 | ||
Expenses: | ||||
Purchased power | 621,075 | |||
Purchased power—affiliates | 4,629,342 | |||
Operation and maintenance | 175,382 | |||
Operation and maintenance—affiliates | 17,401 | |||
Selling, general and administrative | 153,792 | |||
Selling, general and administrative—affiliates | 49,568 | |||
Loss on sales of assets | 4,329 | |||
Depreciation and amortization | 48,656 | |||
Total operating expense | 5,699,545 | |||
Operating Income | 298,099 | |||
Other Income (Expense): | ||||
Other, net | 275 | |||
Interest expense | (19,196 | ) | ||
Interest income | 300 | |||
Interest income, net—affiliates | 102,244 | |||
Total other income | 83,623 | |||
Income Before Income Taxes | 381,722 | |||
Income tax expense | 148,824 | |||
Net Income | $ | 232,898 | ||
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2005 | ||||
(thousands of dollars) | ||||
Cash Flows from Operating Activities: | ||||
Net income | $ | 232,898 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 48,656 | |||
Deferred income taxes | (6,203 | ) | ||
Federal income tax contributions from Reliant Energy, Inc., net | 136,564 | |||
Loss on sale of assets | 4,329 | |||
Changes in other assets and liabilities: | ||||
Accounts and notes receivable and unbilled revenue, net | (201,964 | ) | ||
Accounts receivable/payable—affiliates | 122,966 | |||
Net derivative assets and liabilities | 350 | |||
Accounts payable | 14,123 | |||
Other current assets | 2,564 | |||
Other current liabilities | 5,384 | |||
Other assets | 654 | |||
Retail customer deposits | 163 | |||
State income taxes payable | 4,244 | |||
Other taxes payable | 5,327 | |||
Accrual for transmission and distribution charges | 317 | |||
Other liabilities | 2,707 | |||
Net cash provided by operating activities | 373,079 | |||
Cash Flows from Investing Activities: | ||||
Capital expenditures | (9,239 | ) | ||
Proceeds from sale of assets, net | 27,303 | |||
Net cash provided by investing activities | 18,064 | |||
Cash Flows from Financing Activities: | ||||
Increase in short-term borrowings, net | 223,000 | |||
Changes in notes with Reliant Energy, Inc., net | (613,383 | ) | ||
Net cash used in financing activities | (390,383 | ) | ||
Net Change in Cash and Cash Equivalents | 760 | |||
Cash and Cash Equivalents at Beginning of Period | 7,962 | |||
Cash and Cash Equivalents at End of Period | $ | 8,722 | ||
Supplemental Disclosure of Cash Flow Information: | ||||
Cash Payments: | ||||
Interest paid to affiliate | $ | 6,920 | ||
Interest paid (net of amounts capitalized) to third party | 19,355 | |||
Income taxes paid (net of income tax refunds received) | 14,096 | |||
Non-cash Disclosure: | ||||
Contributions from Reliant Energy, Inc., net | 133,564 | |||
Transfer of Reliant Energy Electric Solutions, LLC to Reliant Energy, Inc. | (273,476 | ) |
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Other | Accumulated Other | Total | ||||||||||||||
Member’s | Comprehensive | Member’s | Comprehensive | |||||||||||||
Equity | Income (Loss) | Equity | Income | |||||||||||||
(thousands of dollars) | ||||||||||||||||
Balance at December 31, 2004 | $ | 1,503,710 | $ | (2 | ) | $ | 1,503,708 | |||||||||
Net income | 232,898 | 232,898 | $ | 232,898 | ||||||||||||
Contributions from member | 133,564 | 133,564 | ||||||||||||||
Transfer of Reliant Energy Electric Solutions, LLC to Reliant Energy, Inc. | (273,478 | ) | 2 | (273,476 | ) | |||||||||||
Comprehensive income | $ | 232,898 | ||||||||||||||
Balance at December 31, 2005 | $ | 1,596,694 | $ | — | $ | 1,596,694 | ||||||||||
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(1) | Background and Basis of Presentation |
Subsidiary | Formation Date | |
Reliant Energy Retail Services, LLC (Retail Services) | September 2000 | |
Reliant Energy Solutions East, LLC (Solutions East) | February 2002 | |
RE Retail Receivables, LLC | June 2002 |
(2) | Summary of Significant Accounting Policies |
(a) | Use of Estimates and Market Risk and Uncertainties. |
• | the reported amount of assets and liabilities, | |
• | the reported amounts of revenues and expenses and | |
• | our disclosure of contingent assets and liabilities at the date of the financial statements. |
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(b) | Principles of Consolidation. |
(c) | Revenues. |
(d) | Derivatives and Hedging Activities. |
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Purpose for Holding or | Transactions that | Transactions that | ||||
Instrument | Issuing Instrument(1) | Physically Flow | Financially Settle(2) | |||
Power futures, forward, swap and option contracts | Power sales to end-use retail customers Supply management revenues Power purchases | Revenues Revenues Purchased power | N/A Purchased power Purchased power | |||
Natural gas and fuel futures, forward, swap and option contracts | Natural gas and fuel purchases/sales | N/A | Purchased power |
(1) | The purpose for holding or issuing is not impacted by the accounting method elected for each instrument. | |
(2) | Includes classification for mark-to-market derivatives and amounts reclassified from accumulated other comprehensive income (loss) related to cash flow hedges. |
(e) | Credit Risk. |
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(f) | Selling, General and Administrative Expenses. |
(g) | Severance Costs. |
(h) | Property, Plant and Equipment and Depreciation Expense. |
(i) | Intangible Assets and Amortization Expense. |
(j) | Stock-based Compensation. |
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2005 | ||||
(in millions) | ||||
Net income, as reported | $ | 233 | ||
Add: Stock-based compensation expense included in reported net income, net of tax | — | |||
Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of tax | (2 | ) | ||
Pro forma net income | $ | 231 | ||
Reliant Energy | ||||||||
Employee Stock | ||||||||
Reliant Energy | Purchase Plan | |||||||
Stock Options | Rights | |||||||
2005 | 2005 | |||||||
Expected life in years | 5 | 0.5 | ||||||
Estimated volatility(1) | 45.75 | % | 32.97 | % | ||||
Risk-free interest rate | 4.18 | % | 2.94 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Weighted-average fair value | $ | 5.72 | $ | 3.25 |
(1) | For options, RERH estimated volatility based on an equal weighting of historical and implied volatility of Reliant Energy’s common stock. For employee stock purchase plan rights, RERH estimated volatility based on the historical volatility of Reliant Energy’s common stock. |
(k) | Income Taxes. |
(l) | Cash and Cash Equivalents. |
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(m) | Allowance for Doubtful Accounts. |
(3) | Related Party Transactions |
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(4) | Derivatives and Hedging Activities |
(5) | Receivables Facility |
(6) | Benefit Plans |
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2005 | ||||||||
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Granted | — | $ | — | |||||
Outstanding at end of year | 1,351,042 | 16.95 | ||||||
Exercisable at end of year | 1,250,823 | 18.03 |
2005 | ||||
Granted | 80,235 | |||
Outstanding at end of year | 334,904 | |||
Weighted average grant date fair value | $ | 12.63 |
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2005 | ||||
Granted | — | |||
Outstanding at end of year | 179,200 | |||
Weighted average grant date fair value | N/A |
2005 | ||||||||
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Granted | — | $ | — | |||||
Outstanding at end of year | 761,600 | 8.34 | ||||||
Exercisable at end of year | — | — |
(b) | Savings Plan. |
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(7) | Income Taxes |
2005 | ||||
(in millions) | ||||
Current: | ||||
Federal | $ | 137 | ||
State | 18 | |||
Total current | 155 | |||
Deferred: | ||||
Federal | (10 | ) | ||
State | 4 | |||
Total deferred | (6 | ) | ||
Income tax expense | $ | 149 | ||
2005 | ||||
(in millions) | ||||
Income before income taxes | $ | 382 | ||
Federal statutory rate | 35 | % | ||
Income tax expense at statutory rate | 134 | |||
Net addition (reduction) in taxes resulting from: | ||||
State income taxes, net of federal income taxes | 14 | |||
Other, net | 1 | |||
— | ||||
Total | 15 | |||
Income tax expense | $ | 149 | ||
Effective rate | 39 | % | ||
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(8) | Commitments |
(a) | Lease Commitments. |
2006 | $ | 4 | ||
2007 | 3 | |||
2008 | 2 | |||
2009 | 2 | |||
2010 | 2 | |||
2011 and thereafter | — | |||
Total | $ | 13 | ||
(b) | Guarantees. |
(c) | Other Commitments. |
2006 | $ | 2,043 | ||
2007 | 924 | |||
2008 | 416 | |||
2009 | 144 | |||
2010 | 73 | |||
Total | $ | 3,600 | ||
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(9) | Contingencies |
(10) | Estimated Fair Value of Financial Instruments |
(11) | Sales of Landfill-Gas Fueled Power Plants |
(12) | Subsequent Event (Unaudited) |
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Reliant Energy Northeast Generation, Inc., Sole Member of Reliant Energy Mid-Atlantic Power Holdings, LLC:
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Houston, Texas
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2007 | 2006 | 2005 | ||||||||||
(thousands of dollars) | ||||||||||||
Revenues: | ||||||||||||
Revenues | $ | (10,235 | ) | $ | 26,107 | $ | 42,906 | |||||
Revenues—affiliates | 696,856 | 539,701 | 587,336 | |||||||||
Total | 686,621 | 565,808 | 630,242 | |||||||||
Expenses: | ||||||||||||
Cost of sales | 244,695 | 239,686 | 230,391 | |||||||||
Cost of sales—affiliates | 9,930 | 15,329 | 20,465 | |||||||||
Operation and maintenance | 104,600 | 91,915 | 72,712 | |||||||||
Operation and maintenance—affiliates | 57,831 | 48,155 | 45,997 | |||||||||
Facilities leases | 59,848 | 59,848 | 59,848 | |||||||||
General and administrative—affiliates | 44,029 | 43,017 | 44,956 | |||||||||
Gains on sales of assets and emission allowances, net | (1,969 | ) | (71,323 | ) | (109,798 | ) | ||||||
Depreciation and amortization | 88,449 | 71,315 | 83,544 | |||||||||
Total operating expense | 607,413 | 497,942 | 448,115 | |||||||||
Operating Income | 79,208 | 67,866 | 182,127 | |||||||||
Other Income (Expense): | ||||||||||||
Other, net | — | 1 | 53 | |||||||||
Interest expense | (1,230 | ) | (1,095 | ) | (1,418 | ) | ||||||
Interest expense—affiliates | (70,485 | ) | (68,921 | ) | (64,746 | ) | ||||||
Interest income | 837 | 655 | 939 | |||||||||
Total other expense | (70,878 | ) | (69,360 | ) | (65,172 | ) | ||||||
Income (Loss) Before Income Taxes | 8,330 | (1,494 | ) | 116,955 | ||||||||
Income tax expense (benefit) | 5,262 | (9,842 | ) | 14,579 | ||||||||
Income Before Cumulative Effect of Accounting Change | 3,068 | 8,348 | 102,376 | |||||||||
Cumulative effect of accounting change, net of tax | — | — | (225 | ) | ||||||||
Net Income | $ | 3,068 | $ | 8,348 | $ | 102,151 | ||||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(thousands of dollars) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 28,536 | $ | 17,274 | ||||
Restricted cash | 1,663 | — | ||||||
Accounts receivable | 4,875 | 4,595 | ||||||
Receivables from affiliates, net | 59,180 | 11,466 | ||||||
Inventory | 81,382 | 80,689 | ||||||
Prepaid lease | 59,030 | 59,030 | ||||||
Derivative assets | 12,374 | 1,744 | ||||||
Accumulated deferred income taxes | 11,319 | 9,751 | ||||||
Prepayments and other current assets | 7,227 | 7,558 | ||||||
Total current assets | 265,586 | 192,107 | ||||||
Property, Plant and Equipment, net | 681,675 | 679,319 | ||||||
Other Assets: | ||||||||
Goodwill, net | 3,635 | 3,635 | ||||||
Other intangibles, net | 98,732 | 105,642 | ||||||
Accumulated deferred income taxes | 48,968 | 68,378 | ||||||
Prepaid lease | 270,133 | 264,328 | ||||||
Other | 43,646 | 41,098 | ||||||
Total other assets | 465,114 | 483,081 | ||||||
Total Assets | $ | 1,412,375 | $ | 1,354,507 | ||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | 89 | $ | 83 | ||||
Accounts payable, principally trade | 28,543 | 16,142 | ||||||
Subordinated accounts payable to affiliates, net | 193,897 | 160,308 | ||||||
Subordinated interest payable to affiliates, net | 29,800 | 63,587 | ||||||
Derivative liabilities | 37,614 | 22,695 | ||||||
Other | 18,389 | 17,168 | ||||||
Total current liabilities | 308,332 | 279,983 | ||||||
Other Liabilities: | ||||||||
Derivative liabilities | 123,794 | 117,269 | ||||||
Benefit obligations | 39,289 | 42,021 | ||||||
Other | 19,597 | 18,459 | ||||||
Total other liabilities | 182,680 | 177,749 | ||||||
Subordinated Note Payable to Affiliate | 618,658 | 618,658 | ||||||
Long-term Debt | 642 | 731 | ||||||
Commitments and Contingencies Member’s Equity: | ||||||||
Common stock; no par value (1,000 shares authorized, issued and outstanding) | — | — | ||||||
Additional paid-in capital | 284,672 | 284,672 | ||||||
Retained earnings | 82,455 | 79,387 | ||||||
Accumulated other comprehensive loss | (65,064 | ) | (86,673 | ) | ||||
Total member’s equity | 302,063 | 277,386 | ||||||
Total Liabilities and Member’s Equity | $ | 1,412,375 | $ | 1,354,507 | ||||
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2007 | 2006 | 2005 | ||||||||||
(thousands of dollars) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | $ | 3,068 | $ | 8,348 | $ | 102,151 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Cumulative effect of accounting changes | — | — | 225 | |||||||||
Depreciation and amortization | 88,449 | 71,315 | 83,544 | |||||||||
Deferred income taxes | 4,341 | (14,112 | ) | 2,385 | ||||||||
Non-cash federal income tax contributions from Reliant Energy, Inc., net | — | — | 3,826 | |||||||||
Net changes in energy derivatives | 35,711 | (5,422 | ) | 5,885 | ||||||||
Gains on sales of assets and emission allowances, net | (1,969 | ) | (71,323 | ) | (109,798 | ) | ||||||
Other, net | (27 | ) | (59 | ) | (493 | ) | ||||||
Changes in other assets and liabilities: | ||||||||||||
Accounts receivable | (280 | ) | (140 | ) | 1,321 | |||||||
Accounts receivable from affiliates, net | (47,624 | ) | 24,823 | 13,820 | ||||||||
Inventory | (693 | ) | 291 | (9,216 | ) | |||||||
Prepaid lease | (5,805 | ) | (4,916 | ) | (15,949 | ) | ||||||
Accounts payable | 3,976 | 272 | (857 | ) | ||||||||
Other current assets | 246 | 1,602 | (8,536 | ) | ||||||||
Other current liabilities | 199 | 4,328 | (1,773 | ) | ||||||||
Other assets | 337 | (9,925 | ) | (1,218 | ) | |||||||
Subordinated accounts payable to affiliates, net | 42,531 | 30,393 | (21,700 | ) | ||||||||
Subordinated interest payable to affiliates, net | (33,787 | ) | (41,172 | ) | (186,822 | ) | ||||||
Income taxes payable/receivable | 698 | (17,051 | ) | 17,279 | ||||||||
Other liabilities | 3,029 | (1,737 | ) | 9,160 | ||||||||
Net cash provided by (used in) operating activities | 92,400 | (24,485 | ) | (116,766 | ) | |||||||
Cash Flows from Investing Activities: | ||||||||||||
Capital expenditures | (33,172 | ) | (14,360 | ) | (7,785 | ) | ||||||
Proceeds from sales of assets, net | 124 | 1,238 | 42,560 | |||||||||
Proceeds from sales of emission allowances | 628 | 1,141 | 8,519 | |||||||||
Proceeds from sales of emission allowances—affiliates | 3,744 | 73,140 | 99,903 | |||||||||
Purchases of emission allowances—affiliates | (50,799 | ) | (50,467 | ) | (34,834 | ) | ||||||
Restricted cash | (1,663 | ) | — | 28,652 | ||||||||
Net cash provided by (used in) investing activities | (81,138 | ) | 10,692 | 137,015 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Payments of long-term debt | — | — | (28,211 | ) | ||||||||
Net cash used in financing activities | — | — | (28,211 | ) | ||||||||
Net Change in Cash and Cash Equivalents | 11,262 | (13,793 | ) | (7,962 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period | 17,274 | 31,067 | 39,029 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 28,536 | $ | 17,274 | $ | 31,067 | ||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
Cash Payments: | ||||||||||||
Interest paid to affiliate (net of amounts capitalized) | $ | 91,884 | $ | 107,364 | $ | 244,976 | ||||||
Interest paid to third parties | 286 | 1,338 | 1,539 | |||||||||
Income taxes paid (net of income tax refunds received) | 221 | 21,322 | (1,739 | ) | ||||||||
Non-cash Disclosure: | ||||||||||||
Contributions from Reliant Energy, Inc., net | — | 33,152 | 17,826 |
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Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||
Benefits | Total | |||||||||||||||||||||||||||||||||||||||
Deferred | Actuarial | Accumulated | ||||||||||||||||||||||||||||||||||||||
Additional | Retained | Derivative | Net | Benefits | Other | Total | Comprehensive | |||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Earnings | Gains | Gain | Net Prior | Comprehensive | Member’s | Income | ||||||||||||||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | (Losses) | (Loss) | Service Costs | Income (Loss) | Equity | (Loss) | |||||||||||||||||||||||||||||||
(thousands of dollars) | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | 1,000 | — | 233,694 | (31,112 | ) | (55,583 | ) | — | — | (55,583 | ) | 146,999 | ||||||||||||||||||||||||||||
Net income | 102,151 | 102,151 | $ | 102,151 | ||||||||||||||||||||||||||||||||||||
Contributions from Reliant Energy, Inc., net | 17,826 | 17,826 | ||||||||||||||||||||||||||||||||||||||
Deferred loss from cash flow hedges, net of tax of $91 million | (128,132 | ) | (128,132 | ) | (128,132 | ) | (128,132 | ) | ||||||||||||||||||||||||||||||||
Reclassification of net deferred loss from cash flow hedges, net of tax of $37 million | 52,836 | 52,836 | 52,836 | 52,836 | ||||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 26,855 | ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2005 | 1,000 | $ | — | $ | 251,520 | $ | 71,039 | $ | (130,879 | ) | $ | — | $ | — | $ | (130,879 | ) | $ | 191,680 | |||||||||||||||||||||
Net income | 8,348 | 8,348 | $ | 8,348 | ||||||||||||||||||||||||||||||||||||
Contributions from Reliant Energy, Inc., net | 33,152 | 33,152 | ||||||||||||||||||||||||||||||||||||||
Deferred loss from cash flow hedges, net of tax of $13 million | 18,061 | 18,061 | 18,061 | 18,061 | ||||||||||||||||||||||||||||||||||||
Reclassification of net deferred loss from cash flow hedges, net of tax of $22 million | 31,743 | 31,743 | 31,743 | 31,743 | ||||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 58,152 | ||||||||||||||||||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158, net of tax of $2 million and $2 million | (2,861 | ) | (2,737 | ) | (5,598 | ) | (5,598 | ) | ||||||||||||||||||||||||||||||||
Balance, December 31, 2006 | 1,000 | $ | — | $ | 284,672 | $ | 79,387 | $ | (81,075 | ) | $ | (2,861 | ) | $ | (2,737 | ) | $ | (86,673 | ) | $ | 277,386 | |||||||||||||||||||
Net income | 3,068 | 3,068 | $ | 3,068 | ||||||||||||||||||||||||||||||||||||
Deferred gain from cash flow hedges, net of tax of $3 million | 2,929 | 2,929 | 2,929 | 2,929 | ||||||||||||||||||||||||||||||||||||
Reclassification of net deferred loss from cash flow hedges, net of tax of $9 million | 12,802 | 12,802 | 12,802 | 12,802 | ||||||||||||||||||||||||||||||||||||
Reclassification of net prior service costs into net loss, net of tax of $0 | 593 | 593 | 593 | 593 | ||||||||||||||||||||||||||||||||||||
Reclassification of actuarial net loss into net loss, net of tax of $0 | 40 | 40 | 40 | 40 | ||||||||||||||||||||||||||||||||||||
Deferred benefits, net of tax of $1 million and $2 million | 2,851 | 2,394 | 5,245 | 5,245 | 5,245 | |||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 24,677 | ||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2007 | 1,000 | $ | — | $ | 284,672 | $ | 82,455 | $ | (65,344 | ) | $ | 30 | $ | 250 | $ | (65,064 | ) | $ | 302,063 | |||||||||||||||||||||
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(1) | Background and Basis of Presentation |
(2) | Summary of Significant Accounting Policies |
(a) | Use of Estimates and Market Risk and Uncertainties. |
• | the reported amount of assets, liabilities and equity, | |
• | the reported amounts of revenues and expenses and | |
• | disclosure of contingent assets and liabilities at the date of the financial statements. |
(b) | Principles of Consolidation. |
(c) | Power Generation and Capacity Revenues. |
(d) | Derivatives and Hedging Activities. |
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Purpose for Holding or | Transactions that | Transactions that | ||||
Instrument | Issuing Instrument(1) | Physically Flow/Settle | Financially Settle(2) | |||
Power futures, forward, swap and option contracts | Power sales Power purchases | Revenues Cost of sales | Revenues Revenues | |||
Natural gas and fuel futures, forward, swap and option contracts | Natural gas and fuel purchases | Cost of sales | Cost of sales |
(1) | The purpose for holding or issuing is not impacted by the accounting method elected for each instrument. | |
(2) | Includes classification formark-to-market derivatives and amounts reclassified from accumulated other comprehensive income (loss) related to cash flow hedges. |
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(e) | Credit Risk. |
(f) | General and Administrative Expenses—Affiliates. |
(g) | Property, Plant and Equipment and Depreciation Expense. |
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Estimated Useful | December 31, | |||||||||||
Lives (Years) | 2007 | 2006 | ||||||||||
(in millions) | ||||||||||||
Electric generation facilities | 20 - 30 | $ | 834 | $ | 823 | |||||||
Other | 3 - 26 | 11 | 11 | |||||||||
Land | 26 | 26 | ||||||||||
Assets under construction | 38 | 15 | ||||||||||
Total | 909 | 875 | ||||||||||
Accumulated depreciation | (227 | ) | (196 | ) | ||||||||
Property, plant and equipment, net | $ | 682 | $ | 679 | ||||||||
(h) | Intangible Assets and Amortization Expense. |
(i) | Income Taxes. |
(j) | Cash and Cash Equivalents. |
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(k) | Restricted Cash. |
(l) | Inventory. |
December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Materials and supplies, including spare parts | $ | 48 | $ | 47 | ||||
Coal | 15 | 17 | ||||||
Heating oil | 18 | 17 | ||||||
Total inventory | $ | 81 | $ | 81 | ||||
(m) | Environmental Costs. |
(n) | Asset Retirement Obligations. |
(o) | Repair and Maintenance Costs for Power Generation Assets. |
(p) | Deferred Lease Costs. |
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(q) | New Accounting Pronouncement Net Yet Adopted—Fair Value. |
(3) | Related Party Transactions |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Allocated or charged by Reliant Energy | $ | 96 | $ | 86 | $ | 86 |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Sales to Reliant Energy under various commodity agreements(1) | $ | 697 | $ | 540 | $ | 587 | ||||||
Purchase from Reliant Energy under various commodity agreements(2) | 8 | 13 | 18 | |||||||||
Fees charged by Reliant Energy for these services and included in operation and maintenance—affiliates | 5 | 5 | 5 | |||||||||
Fees charged by Reliant Energy for these services and included in cost of sales—affiliates | 2 | 2 | 2 | |||||||||
Sales of emission allowances to Reliant Energy(3) | 4 | 73 | 100 | |||||||||
Gains on emission allowances sales to Reliant Energy(4) | 1 | 70 | 92 |
(1) | Recorded in revenues—affiliates. | |
(2) | Recorded in cost of sales—affiliates. | |
(3) | Reflects price at which Reliant Energy sold the emission allowances to third parties. | |
(4) | Recorded in gains on sales of assets and emission allowances, net. |
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2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Non-cash federal income tax contributions from (distributions to) Reliant Energy, Inc., net | $ | — | $ | 33 | $ | 18 |
(4) | Intangible Assets |
(a) | Goodwill. |
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(b) | Other Intangibles. |
Remaining | December 31, | |||||||||||||||||||
Weighted Average | 2007 | 2006 | ||||||||||||||||||
Amortization | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
Period (Years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
(in millions) | ||||||||||||||||||||
SO2 emission allowances(1)(2) | — | (1) | $ | 252 | $ | (187 | ) | $ | 204 | $ | (138 | ) | ||||||||
NOx emission allowances(1)(3) | — | (1) | 90 | (56 | ) | 89 | (49 | ) | ||||||||||||
Total | $ | 342 | $ | (243 | ) | $ | 293 | $ | (187 | ) | ||||||||||
(1) | SO2 is sulfur dioxide and NOx is nitrogen oxides. Amortized to amortization expense on aunits-of-production basis. As of December 31, 2007, REMA has recorded (a) SO2 emission allowances through the 2030 vintage year (most of which relate to 2011 and beyond) and (b) NOx emission allowances through the 2030 vintage year (most of which relate to 2009 and beyond). | |
(2) | During 2007, 2006 and 2005, we purchased $48 million, $29 million and $35 million, respectively, of SO2emission allowances from affiliates. | |
(3) | During 2007, 2006 and 2005, we purchased $3 million, $2 million and $0, respectively, of NOxemission allowances from affiliates. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Emission allowances | $ | 56 | $ | 39 | $ | 51 | ||||||
Total | $ | 56 | $ | 39 | $ | 51 | ||||||
2008 | $ | —(1 | ) | |
2009 | 2(1 | ) | ||
2010 | 4(1 | ) | ||
2011 | 5(1 | ) | ||
2012 | 5(1 | ) |
(1) | These amounts do not include estimated amortization expense of emission allowances, which have not been purchased as of December 31, 2007. |
(5) | Derivatives and Hedging Activities |
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December 31, 2007 | ||||||||
Expected to be | ||||||||
Reclassified into | ||||||||
Results of Operations | ||||||||
At the End of the Period | in Next 12 Months(1) | |||||||
(in millions) | ||||||||
Designated cash flow hedges | $ | — | $ | — | ||||
De-designated cash flow hedges | (65 | ) | (17 | ) | ||||
$ | (65 | ) | $ | (17 | ) | |||
(6) | Debt |
(7) | Benefit Plans |
(a) | Pension and Postretirement Benefits. |
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Pension | Postretirement Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Beginning of year | $ | 25 | $ | 27 | $ | 32 | $ | 39 | ||||||||
Transfer to affiliate | — | (5 | ) | — | (8 | ) | ||||||||||
Service cost | 3 | 3 | 1 | 1 | ||||||||||||
Interest cost | 1 | 1 | 2 | 2 | ||||||||||||
Benefits paid | (1 | ) | — | — | — | |||||||||||
Actuarial gain | (2 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||
End of year | $ | 26 | $ | 25 | $ | 32 | $ | 32 | ||||||||
Change in Plan Assets | ||||||||||||||||
Beginning of year | $ | 17 | $ | 18 | $ | — | $ | — | ||||||||
Transfer to affiliate | — | (3 | ) | — | — | |||||||||||
Employer contributions | 3 | 1 | — | — | ||||||||||||
Actual investment return | — | 1 | — | — | ||||||||||||
End of year | $ | 20 | $ | 17 | $ | — | $ | — | ||||||||
Funded status | $ | (6 | ) | $ | (8 | ) | $ | (32 | ) | $ | (32 | ) | ||||
Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Current liabilities | $ | — | $ | — | $ | (1 | ) | $ | — | |||||||
Noncurrent liabilities | (6 | ) | (8 | ) | (31 | ) | (32 | ) | ||||||||
Net amount recognized | $ | (6 | ) | $ | (8 | ) | $ | (32 | ) | $ | (32 | ) | ||||
Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost | $ | 3 | $ | 3 | $ | 4 | $ | 1 | $ | 1 | $ | 2 | ||||||||||||
Interest cost | 1 | 1 | 1 | 1 | 2 | 3 | ||||||||||||||||||
Expected return on plan assets | (1 | ) | (1 | ) | (1 | ) | — | — | — | |||||||||||||||
Net amortization | — | — | — | 1 | 1 | 2 | ||||||||||||||||||
Net benefit cost | $ | 3 | $ | 3 | $ | 4 | $ | 3 | $ | 4 | $ | 7 | ||||||||||||
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Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | N/A | N/A |
Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | 3.0 | % | N/A | N/A | N/A | |||||||||||||||
Expected long-term rate of return on assets | 7.5 | % | 7.5 | % | 7.5 | % | N/A | N/A | N/A |
2007 | 2006 | 2005 | ||||||||||
Health care cost trend rate assumed for next year | 8.3 | % | 9.0 | % | 9.0 | % | ||||||
Rate to which the cost trend rate is assumed to gradually decline (ultimate trend rate) | 5.5 | % | 5.5 | % | 5.5 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2015 | 2015 | 2011 |
One-Percentage Point | ||||||||
Increase | Decrease | |||||||
(in millions) | ||||||||
Effect on service and interest cost | $ | — | $ | — | ||||
Effect on accumulated postretirement benefit obligation | 4 | (3 | ) |
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Percentage of Plan Assets | Target | |||||||||||
as of December 31, | Allocation | |||||||||||
2007 | 2006 | 2008 | ||||||||||
Domestic equity securities | 49 | % | 50 | % | 50 | % | ||||||
International equity securities | 10 | 11 | 10 | |||||||||
Global equity securities | 10 | 11 | 10 | |||||||||
Debt securities | 31 | 28 | 30 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Asset Class | Index | Weight | ||||
Domestic equity securities | Wilshire 5000 Index | 50 | % | |||
International equity securities | MSCI All Country World Ex-U.S. Index | 10 | ||||
Global equity securities | MSCI All Country World Index | 10 | ||||
Debt securities | Lehman Brothers Aggregate Bond Index | 30 | ||||
100 | % | |||||
Postretirement | ||||||||
Pension | Benefits | |||||||
(in millions) | ||||||||
2008 | $ | 1 | $ | 1 | ||||
2009 | 1 | 1 | ||||||
2010 | 1 | 1 | ||||||
2011 | 1 | 2 | ||||||
2012 | 1 | 2 | ||||||
2013-2017 | 10 | 15 |
(b) | Savings Plan. |
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(c) | Other Employee Matters. |
(8) | Income Taxes |
(a) | Summary. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | 3 | ||||||
State | 1 | 4 | 9 | |||||||||
Total current | 1 | 4 | 12 | |||||||||
Deferred: | ||||||||||||
Federal | 1 | 7 | 6 | |||||||||
State | 3 | (21 | ) | (3 | ) | |||||||
Total deferred | 4 | (14 | ) | 3 | ||||||||
Income tax expense (benefit) | $ | 5 | $ | (10 | ) | $ | 15 | |||||
2007 | 2006 | 2005 | ||||||||||
Federal statutory rate | 35 | % | (35 | )% | 35 | % | ||||||
Additions (reductions) resulting from: | ||||||||||||
State income taxes, net of federal income taxes | 29 | (555 | )(1) | 3 | ||||||||
Federal valuation allowance | — | — | (25 | ) | ||||||||
Other, net | (1 | ) | (69 | ) | (1 | ) | ||||||
Effective rate | 63 | % | (659 | )% | 12 | % | ||||||
(1) | Of this percentage, $9 million (592%) relates to Pennsylvania state law changes, which effectively decreased REMA’s limitations to use net operating losses in that state. |
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December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Deferred tax assets: | ||||||||
Current: | ||||||||
Derivative liabilities, net | $ | 10 | $ | 9 | ||||
Employee benefits | — | 1 | ||||||
Total current deferred tax assets | 10 | 10 | ||||||
Non-current: | ||||||||
Employee benefits | 19 | 16 | ||||||
Net operating loss carryforwards | 59 | 84 | ||||||
Environmental reserves | 6 | 3 | ||||||
Derivative liabilities, net | 50 | 49 | ||||||
Other | 18 | 11 | ||||||
Total non-current deferred tax assets | 152 | 163 | ||||||
Total deferred tax assets | $ | 162 | $ | 173 | ||||
Deferred tax liabilities: | ||||||||
Non-current: | ||||||||
Depreciation and amortization | $ | 106 | $ | 99 | ||||
Total non-current deferred tax liabilities | 106 | 99 | ||||||
Total deferred tax liabilities | $ | 106 | $ | 99 | ||||
Accumulated deferred income taxes, net | $ | 56 | $ | 74 | ||||
(b) | Tax Attribute Carryovers. |
Statutory | ||||||||||||
December 31, | Carryforward | Expiration | ||||||||||
2007 | Period | Year(s) | ||||||||||
(in millions) | (in years) | |||||||||||
Net Operating Loss Carryforwards: | ||||||||||||
Federal | $ | 128 | 20 | 2026 through 2027 | ||||||||
State | 257 | 5 to 20 | 2011 through 2027 |
(c) | Valuation Allowances. |
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Federal | State | |||||||
(in millions) | ||||||||
As of January 1, 2005 | $ | 30 | $ | 5 | ||||
Changes in valuation allowance | (30 | ) | (2 | ) | ||||
As of December 31, 2005 | — | 3 | ||||||
Changes in valuation allowance | — | (3 | ) | |||||
As of December 31, 2006 and 2007 | $ | — | $ | — | ||||
(d) | Adoption of FIN 48 and Tax Uncertainties. |
Subject to | Currently Under | |||
Examination | Audit | |||
Federal | 1997 to 2007 | 1997 to 2005 | ||
New Jersey | 2004 to 2007 | None | ||
Pennsylvania | 2004 to 2007 | None |
• | the timing of tax deductions could be changed as a result of negotiations with respect to depreciation, emission allowances and certain employee benefits. |
(9) | Commitments |
(a) | Lease Commitments. |
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2008 | $ | 62 | ||
2009 | 63 | |||
2010 | 52 | |||
2011 | 63 | |||
2012 | 56 | |||
2013 and thereafter | 763 | |||
Total | $ | 1,059 | ||
(b) | Guarantees and Indemnifications. |
(c) | Other Commitments. |
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2008 | $ | 88 | ||
2009 | 68 | |||
2010 | 45 | |||
2011 | 30 | |||
2012 | 31 | |||
2013 and thereafter | 187 | |||
Total | $ | 449 | (1) | |
(1) | Of this amount, $127 million relates to contracts with variable pricing components for which the prices were determined based on assumptions on escalations per the contractual terms. |
(10) | Contingencies |
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(11) | Estimated Fair Value of Financial Instruments |
(12) | Sales of Assets and Emission Allowances |
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CONSOLIDATED STATEMENTS OF OPERATIONS
2007 | 2006 | 2005 | ||||||||||
(thousands of dollars) | ||||||||||||
Revenues: | ||||||||||||
Revenues | $ | 22,317 | $ | 22,861 | $ | 91,919 | ||||||
Revenues—affiliates | 542,568 | 474,851 | 548,533 | |||||||||
Total | 564,885 | 497,712 | 640,452 | |||||||||
Expenses: | ||||||||||||
Cost of sales | 227,240 | 222,358 | 186,912 | |||||||||
Cost of sales—affiliates | (5,521 | ) | 2,427 | 68,272 | ||||||||
Operation and maintenance | 161,713 | 143,786 | 115,924 | |||||||||
Operation and maintenance—affiliates | 37,696 | 35,924 | 43,500 | |||||||||
Taxes other than income taxes | 11,570 | 13,089 | 3,709 | |||||||||
General and administrative—primarily affiliates | 27,685 | 27,980 | 40,493 | |||||||||
Gains on sales of assets and emission allowances, net—primarily affiliates | (7,480 | ) | (66,964 | ) | (58,189 | ) | ||||||
Depreciation and amortization | 137,602 | 100,107 | 126,416 | |||||||||
Total operating expenses | 590,505 | 478,707 | 527,037 | |||||||||
Operating Income (Loss) | (25,620 | ) | 19,005 | 113,415 | ||||||||
Other Income (Expense): | ||||||||||||
Other, net | — | — | 42 | |||||||||
Interest expense | (34,314 | ) | (38,472 | ) | (39,949 | ) | ||||||
Interest expense—affiliates | (9,293 | ) | (1,351 | ) | (908 | ) | ||||||
Interest income—primarily affiliates | 8,452 | 8,956 | 382 | |||||||||
Total other expense | (35,155 | ) | (30,867 | ) | (40,433 | ) | ||||||
Income (Loss) from Continuing Operations Before Income Taxes | (60,775 | ) | (11,862 | ) | 72,982 | |||||||
Income tax expense (benefit) | (25,737 | ) | (31,135 | ) | 24,385 | |||||||
Income (Loss) from Continuing Operations | (35,038 | ) | 19,273 | 48,597 | ||||||||
Income (loss) from discontinued operations | 7,124 | 5,375 | (86,096 | ) | ||||||||
Income (Loss) Before Cumulative Effect of Accounting Changes | (27,914 | ) | 24,648 | (37,499 | ) | |||||||
Cumulative effect of accounting change, net of tax | — | — | (198 | ) | ||||||||
Net Income (Loss) | $ | (27,914 | ) | $ | 24,648 | $ | (37,697 | ) | ||||
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CONSOLIDATED BALANCE SHEETS
December 31, | ||||||||
2007 | 2006 | |||||||
(thousands of dollars, except per share amounts) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 259 | $ | 81 | ||||
Accounts receivable, principally customer, net of allowance of $0 | 102 | 1,664 | ||||||
Receivables from affiliates, net | 19,968 | 33,046 | ||||||
State income taxes receivable | 45,763 | 10,084 | ||||||
Inventory | 57,233 | 50,289 | ||||||
Derivative assets | — | 5,086 | ||||||
Accumulated deferred income taxes | 6,713 | 7,359 | ||||||
Collateral posted under agreement with Reliant Energy, Inc. | 2,000 | 3,278 | ||||||
Prepayments and other current assets | 1,843 | 1,304 | ||||||
Current assets of discontinued operations | 2,132 | 2,460 | ||||||
Total current assets | 136,013 | 114,651 | ||||||
Property, Plant and Equipment, net | 1,619,651 | 1,587,885 | ||||||
Other Assets: | ||||||||
Goodwill, net | 173,570 | 175,520 | ||||||
Other intangibles, net | 165,509 | 183,163 | ||||||
Long-term note receivable from Reliant Energy, Inc. | 67,200 | 92,200 | ||||||
Long-term collateral posted under agreement with Reliant Energy, Inc. | 14,392 | 12,326 | ||||||
Other | 9,383 | 59,615 | ||||||
Total other assets | 430,054 | 522,824 | ||||||
Total Assets | $ | 2,185,718 | $ | 2,225,360 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | 11,409 | $ | 10,505 | ||||
Accounts payable, principally trade | 36,278 | 29,594 | ||||||
Accrued interest payable | 7,999 | 7,996 | ||||||
Other taxes payable | 12,496 | 10,910 | ||||||
Other | 17,530 | 9,335 | ||||||
Current liabilities of discontinued operations | — | 3,286 | ||||||
Total current liabilities | 85,712 | 71,626 | ||||||
Other Liabilities: | ||||||||
Accumulated deferred income taxes | 165,709 | 178,042 | ||||||
Benefit obligations | 46,726 | 58,100 | ||||||
Taxes payable to Reliant Energy, Inc. | 66,294 | 84,310 | ||||||
Long-term liabilities of discontinued operations | 3,542 | — | ||||||
Other | 10,602 | 11,043 | ||||||
Total other liabilities | 292,873 | 331,495 | ||||||
Revolving Credit Facility with Reliant Energy, Inc. | 37,299 | 12,683 | ||||||
Long-term Debt | 416,934 | 428,343 | ||||||
Commitments and Contingencies | ||||||||
Stockholder’s Equity: | ||||||||
Common stock; par value $1.00 per share (1,000 shares authorized, issued and outstanding) | 1 | 1 | ||||||
Additional paid-in capital | 2,211,138 | 2,211,139 | ||||||
Accumulated deficit | (851,607 | ) | (823,693 | ) | ||||
Accumulated other comprehensive loss | (6,632 | ) | (6,234 | ) | ||||
Total stockholder’s equity | 1,352,900 | 1,381,213 | ||||||
Total Liabilities and Stockholder’s Equity | $ | 2,185,718 | $ | 2,225,360 | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
2007 | 2006 | 2005 | ||||||||||
(thousands of dollars) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income (loss) | $ | (27,914 | ) | $ | 24,648 | $ | (37,697 | ) | ||||
(Income) loss from discontinued operations | (7,124 | ) | (5,375 | ) | 86,096 | |||||||
Net income (loss) from continuing operations and cumulative effect of accounting changes | (35,038 | ) | 19,273 | 48,399 | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Cumulative effect of accounting change | — | — | 198 | |||||||||
Depreciation and amortization | 137,602 | 100,107 | 126,416 | |||||||||
Deferred income taxes | (21,422 | ) | (27,474 | ) | 44,581 | |||||||
Non-cash equity contribution of operation and maintenance and general and administrative costs from Reliant Energy, Inc., net | — | — | 56,890 | |||||||||
Net changes in energy derivatives | 1,108 | (1,108 | ) | 4,846 | ||||||||
Net amortization of contractual rights and obligations | (302 | ) | (2,218 | ) | (8,177 | ) | ||||||
Amortization of revaluation of acquired debt | (10,505 | ) | (9,721 | ) | (8,921 | ) | ||||||
Gains on sales of assets and emission allowances, net—primarily affiliates | (7,480 | ) | (66,964 | ) | (58,189 | ) | ||||||
Non-cash federal income tax distributions to Reliant Energy, Inc., net | — | — | (26,361 | ) | ||||||||
Other, net | 366 | (658 | ) | 2,003 | ||||||||
Changes in other assets and liabilities: | ||||||||||||
Accounts receivable, net | 1,562 | 2,415 | 48,996 | |||||||||
Inventory | (7,384 | ) | 3,414 | (1,853 | ) | |||||||
Other current assets | (539 | ) | 2,173 | (2,603 | ) | |||||||
Other assets | 4,867 | 10,036 | 422 | |||||||||
Accounts payable | (27 | ) | 5,163 | 1,644 | ||||||||
Payable to/receivable from affiliates, net | (14,840 | ) | 7,188 | (52,412 | ) | |||||||
Collateral posted under agreement with Reliant Energy, Inc. | (788 | ) | (15,604 | ) | — | |||||||
Income taxes payable/receivable | 22,938 | 13,510 | 1,768 | |||||||||
Accrued interest | 3 | (4 | ) | — | ||||||||
Long-term taxes payable to Reliant Energy, Inc. and related accrued interest | (18,015 | ) | — | — | ||||||||
Other current liabilities | 184 | 1,735 | (9,881 | ) | ||||||||
Other liabilities | (3,680 | ) | 3,726 | (5,014 | ) | |||||||
Net cash provided by continuing operations from operating activities | 48,610 | 44,989 | 162,752 | |||||||||
Net cash provided by (used in) discontinued operations from operating activities | 6,726 | (49,689 | ) | 171,800 | ||||||||
Net cash provided by (used in) operating activities | 55,336 | (4,700 | ) | 334,552 | ||||||||
Cash Flows from Investing Activities: | ||||||||||||
Capital expenditures | (109,212 | ) | (45,566 | ) | (16,334 | ) | ||||||
Proceeds from sales of assets, net | 259 | — | 2,372 | |||||||||
Proceeds from sales of emission allowances | 624 | 1,134 | 8,554 | |||||||||
Proceeds from sales of emission allowances—affiliates | 12,678 | 69,320 | 56,519 | |||||||||
Purchases of emission allowances—affiliates | (9,643 | ) | — | (1,998 | ) | |||||||
Net cash provided by (used in) continuing operations from investing activities | (105,294 | ) | 24,888 | 49,113 | ||||||||
Net cash provided by discontinued operations from investing activities | 520 | 967,566 | 79,101 | |||||||||
Net cash provided by (used in) investing activities | (104,774 | ) | 992,454 | 128,214 | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Distributions to Reliant Energy, Inc. | — | (209,400 | ) | (340,000 | ) | |||||||
Changes in revolving credit facility with Reliant Energy, Inc., net | 24,616 | 12,683 | (7,300 | ) | ||||||||
(Loan to) repayments from Reliant Energy, Inc. | 25,000 | (92,200 | ) | — | ||||||||
Payments of long-term debt | — | (191 | ) | — | ||||||||
Net cash provided by (used in) continuing operations from financing activities | 49,616 | (289,108 | ) | (347,300 | ) | |||||||
Net cash used in discontinued operations from financing activities | — | (712,317 | ) | (110,183 | ) | |||||||
Net cash provided by (used in) financing activities | 49,616 | (1,001,425 | ) | (457,483 | ) | |||||||
Net Change in Cash and Cash Equivalents | 178 | (13,671 | ) | 5,283 | ||||||||
Cash and Cash Equivalents at Beginning of Period | 81 | 13,752 | 8,469 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 259 | $ | 81 | $ | 13,752 | ||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
Cash Payments: | ||||||||||||
Interest paid (net of amounts capitalized) to third parties for continuing operations | 44,756 | $ | 48,360 | $ | 48,686 | |||||||
Income taxes paid (net of income tax refunds received) for continuing operations | (2,858 | ) | (17,022 | ) | 3,917 | |||||||
Non-cash Disclosure: | ||||||||||||
Contributions from (distributions to) Reliant Energy, Inc., net for continuing operations | — | (39,543 | ) | (51,471 | ) | |||||||
Contributions from Reliant Energy, Inc., net for discontinued operations | — | — | 30,468 |
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CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME (LOSS)
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued | ||||||||||||||||||||||||||||||||||||||||||||||||
Benefits | Benefits | Total | Operations | |||||||||||||||||||||||||||||||||||||||||||||
Deferred | Actuarial | Net | Additional | Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
Additional | Derivative | Net | Prior | Minimum | Other | Other | Total | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Accumulated | Gains | Gain | Service | Benefits | Comprehensive | Comprehensive | Stockholder’s | Comprehensive | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | (Losses) | (Loss) | Costs | Liability | Income (Loss) | Loss | Equity | Income (Loss) | |||||||||||||||||||||||||||||||||||||
(thousands of dollars) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | 1,000 | $ | 1 | $ | 2,821,552 | $ | (810,644 | ) | $ | 45,047 | $ | — | $ | — | $ | (147 | ) | $ | 44,900 | $ | (3,738 | ) | $ | 2,052,071 | ||||||||||||||||||||||||
Net loss | (37,697 | ) | (37,697 | ) | $ | (37,697 | ) | |||||||||||||||||||||||||||||||||||||||||
Distributions to Reliant Energy, Inc., net | (361,001 | ) | (361,001 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Deferred gain from cash flow hedges, net of tax of $3 million | 4,925 | 4,925 | 4,925 | 4,925 | ||||||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred (gain) loss from cash flow hedges, net of tax of $22 million and $2 million | (31,125 | ) | (31,125 | ) | 3,403 | (27,722 | ) | (31,125 | ) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income from discontinued operations | 3,403 | |||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (60,494 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2005 | 1,000 | 1 | 2,460,551 | (848,341 | ) | 18,847 | — | — | (147 | ) | 18,700 | (335 | ) | 1,630,576 | ||||||||||||||||||||||||||||||||||
Net income | 24,648 | 24,648 | $ | 24,648 | ||||||||||||||||||||||||||||||||||||||||||||
Distributions to Reliant Energy, Inc., net | (249,412 | ) | (249,412 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Changes in minimum pension liability, net of tax of $1 million | (2,029 | ) | (2,029 | ) | (2,029 | ) | (2,029 | ) | ||||||||||||||||||||||||||||||||||||||||
Deferred loss from cash flow hedges, net of tax of $3 million | (4,334 | ) | (4,334 | ) | (4,334 | ) | (4,334 | ) | ||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred (gain) loss from cash flow hedges, net of tax of $8 million $0 | (11,802 | ) | (11,802 | ) | 335 | (11,467 | ) | (11,802 | ) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income from discontinued operations | 335 | |||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158, net of tax of $4 million, $2 million and $1 million | (5,566 | ) | (3,379 | ) | 2,176 | (6,769 | ) | (6,769 | ) | |||||||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 6,818 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2006 | 1,000 | $ | 1 | $ | 2,211,139 | $ | (823,693 | ) | $ | 2,711 | $ | (5,566 | ) | $ | (3,379 | ) | $ | — | $ | (6,234 | ) | $ | — | $ | 1,381,213 | |||||||||||||||||||||||
Net loss | (27,914 | ) | (27,914 | ) | $ | (27,914 | ) | |||||||||||||||||||||||||||||||||||||||||
Deferred gain from cash flow hedges, net of tax of $0 | 330 | 330 | 330 | 330 | ||||||||||||||||||||||||||||||||||||||||||||
Reclassification of net deferred gain from cash flow hedges, net of tax of $2 million | (3,041 | ) | (3,041 | ) | (3,041 | ) | (3,041 | ) | ||||||||||||||||||||||||||||||||||||||||
Reclassification of benefits net prior service costs into net loss, net of tax of $0 | 401 | 401 | 401 | 401 | ||||||||||||||||||||||||||||||||||||||||||||
Reclassification of benefits actuarial net loss into net loss, net of tax of $0 | 170 | 170 | 170 | 170 | ||||||||||||||||||||||||||||||||||||||||||||
Deferred benefits, net of tax of $1 million and $1 million | 1,100 | 642 | 1,742 | 1,742 | 1,742 | |||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (28,312 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2007 | 1,000 | $ | 1 | $ | 2,211,139 | $ | (851,607 | ) | $ | — | $ | (4,296 | ) | $ | (2,336 | ) | $ | — | $ | (6,632 | ) | $ | — | $ | 1,352,901 | |||||||||||||||||||||||
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(1) | Background and Basis of Presentation |
(2) | Summary of Significant Accounting Policies |
(a) | Use of Estimates and Market Risk and Uncertainties. |
• | the reported amount of assets, liabilities and equity, | |
• | the reported amounts of revenues and expenses and | |
• | disclosure of contingent assets and liabilities at the date of the financial statements. |
(b) | Principles of Consolidation. |
(c) | Power Generation and Capacity Revenues. |
(d) | Derivatives and Hedging Activities. |
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Purpose for Holding or | Transactions that | Transactions that | ||||
Instrument | Issuing Instrument(1) | Physically Flow | Financially Settle(2) | |||
Power futures, forward, swap and option contracts | Power sales Power purchases | Revenues Cost of sales | Revenues Revenues | |||
Natural gas and fuel futures, forward, swap and option contracts | Natural gas and fuel sales Natural gas and fuel purchases | Revenues Cost of sales | Cost of sales Cost of sales |
(1) | The purpose for holding or issuing is not impacted by the accounting method elected for each instrument. | |
(2) | Includes classification for mark-to-market derivatives and amounts reclassified from accumulated other comprehensive income (loss) related to cash flow hedges. |
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(e) | Credit Risk. |
(f) | General and Administrative Expenses—Primarily Affiliates. |
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(g) | Property, Plant and Equipment and Depreciation Expense. |
Estimated Useful | December 31, | |||||||||||
Lives (Years) | 2007 | 2006 | ||||||||||
(in millions) | ||||||||||||
Electric generation facilities | 20 - 32 | $ | 1,823 | $ | 1,783 | |||||||
Land improvements | 20 - 32 | 98 | 97 | |||||||||
Other | 3 - 10 | 10 | 9 | |||||||||
Land | 12 | 12 | ||||||||||
Assets under construction | 89 | 28 | ||||||||||
Total | 2,032 | 1,929 | ||||||||||
Accumulated depreciation | (412 | ) | (341 | ) | ||||||||
Property, plant and equipment, net | $ | 1,620 | $ | 1,588 | ||||||||
(h) | Intangible Assets and Amortization Expense. |
(i) | Capitalization of Interest Expense. |
(j) | Income Taxes. |
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(k) | Cash and Cash Equivalents. |
(l) | Allowance for Doubtful Accounts. |
(m) | Inventory. |
December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Materials and supplies, including spare parts | $ | 21 | $ | 19 | ||||
Coal | 34 | 30 | ||||||
Heating oil | 2 | 1 | ||||||
Total inventory | $ | 57 | $ | 50 | ||||
(n) | Environmental Costs. |
(o) | Asset Retirement Obligations. |
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(p) | Repair and Maintenance Costs for Power Generation Assets. |
(q) | New Accounting Pronouncement Not Yet Adopted—Fair Value. |
(3) | Related Party Transactions |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Allocated or charged by Reliant Energy | $ | 65 | $ | 64 | $ | 84 | ||||||
Unpaid allocations and charges recorded as non-cash equity contributions from Reliant Energy | — | — | 57 |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Sales to Reliant Energy under various commodity agreements(1) | $ | 543 | $ | 475 | $ | 548 | ||||||
Purchases from Reliant Energy under various commodity agreements(2) | 1 | 7 | 68 | |||||||||
Gains on coal sales to Reliant Energy(3) | 6 | 5 | 6 | |||||||||
Sales of emission allowances to Reliant Energy(4) | 13 | 69 | 56 | |||||||||
Gains on emission allowances sales to Reliant Energy(5) | 6 | 66 | 53 |
(1) | Recorded in revenues—affiliates. |
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(2) | Recorded in cost of sales—affiliates. Amounts include purchases from an affiliate to meet requirements of contractual commitments. | |
(3) | Recorded in cost of sales—affiliates. | |
(4) | Reflects price at which Reliant Energy sold the emission allowances to third parties. | |
(5) | Recorded in gains on sales of assets and emission allowances, net. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Orion Power Holdings cash distributions to Reliant Energy | $ | — | $ | (209 | ) | $ | (340 | ) |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Non-cash contributions from (distributions to) Reliant Energy related to federal income taxes for continuing and discontinued operations | $ | — | $ | (40 | ) | $ | (78 | ) |
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(4) | Intangible Assets |
(a) | Goodwill. |
As of January 1, 2006 | $ | 181 | ||
Changes | (5 | ) | ||
As of December 31, 2006 | 176 | |||
Changes | (2 | ) | ||
As of December 31, 2007 | $ | 174 | ||
Number of years used in internal cash flow analysis | 15 | |||
EBITDA(1) multiple for terminal values (2005 tests) | 7.5 | |||
EBITDA multiple for terminal values (April 2006 test) | 7.0 | (2) | ||
EBITDA multiple for terminal values (April 2007 test) | 8.0 | (2) | ||
Risk-adjusted discount rate for estimated cash flows (2005 tests) | 9.0 | % | ||
Risk-adjusted discount rate for estimated cash flows (April 2006 test) | 9.5 | %(3) | ||
Risk-adjusted discount rate for estimated cash flows (April 2007 test) | 10.0 | %(3) | ||
Approximate average anticipated growth rate for demand in power | 2.0 | % | ||
Long-term after-tax return on investment for new investment | 7.5 | % |
(1) | Defined as earnings (loss) before interest expense, interest income, income taxes, depreciation and amortization expenses. | |
(2) | Changed primarily due to market factors affecting peer company comparisons. | |
(3) | Changed primarily due to capital structure of peer company comparisons. |
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(b) | Other Intangibles. |
Remaining | ||||||||||||||||||||
Weighted | December 31, | |||||||||||||||||||
Average | 2007 | 2006 | ||||||||||||||||||
Amortization | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
Period (Years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
(in millions) | ||||||||||||||||||||
SO2 emission allowances(1)(2) | — | (1) | $ | 160 | $ | (103 | ) | $ | 134 | $ | (72 | ) | ||||||||
NOx emission allowances(1)(3) | — | (1) | 180 | (71 | ) | 181 | (60 | ) | ||||||||||||
Contractual rights(4) | — | — | — | 4 | (4 | ) | ||||||||||||||
Total | $ | 340 | $ | (174 | ) | $ | 319 | $ | (136 | ) | ||||||||||
(1) | SO2 is sulfur dioxide and NOx is nitrogen oxides. Amortized to amortization expense on a units-of-production basis. As of December 31, 2007, Orion Power has recorded (a) SO2 emission allowances through the 2039 vintage year (most of which relate to 2010 and beyond) and (b) NOx emission allowances through the 2039 vintage year (most of which relate to 2009 and beyond). | |
(2) | During 2007, 2006 and 2005, Orion Power purchased $28 million, $0 and $0, respectively, of SO2 emission allowances from affiliates. | |
(3) | During 2007, 2006 and 2005, Orion Power purchased $4 million, $0 and $2 million, respectively, of NOx emission allowances from affiliates. | |
(4) | Amortized to revenues and cost of sales, as applicable, based on the estimated realization of the fair value established on the acquisition date over the contractual lives. As of December 31, 2007, Orion Power has no contractual rights recorded on its consolidated balance sheet. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Emission allowances | $ | 50 | $ | 25 | $ | 31 | ||||||
Contractual rights(1) | $ | — | $ | (1 | ) | $ | (1 | ) | ||||
Contractual obligations(1)(2) | — | 3 | 9 | |||||||||
Net | $ | — | $ | 2 | $ | 8 | ||||||
(1) | Amortized to revenues and cost of sales, as applicable, based on the estimated realization of the fair value established on the acquisition date over the contractual lives. | |
(2) | Contractual obligations are in other long-term liabilities. |
2008 | $ | 1 | (1) | |
2009 | 6 | (1) | ||
2010 | 7 | (1) | ||
2011 | 7 | (1) | ||
2012 | 7 | (1) |
(1) | These amounts do not include expected amortization expense of emission allowances, which have not been purchased as of December 31, 2007. |
(5) | Derivatives and Hedging Activities |
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(6) | Debt |
December 31, | ||||||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Stated | Stated | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Rate(1) | Long-term | Current | Rate(1) | Long-term | Current | |||||||||||||||||||
(in millions, except interest rates) | ||||||||||||||||||||||||
Orion Power Holdings senior notes due 2010 (unsecured) | 12.00 | $ | 400 | $ | — | 12.00 | $ | 400 | $ | — | ||||||||||||||
Adjustment to fair value of debt(2) | 17 | 11 | 29 | 10 | ||||||||||||||||||||
Total debt | $ | 417 | $ | 11 | $ | 429 | $ | 10 | ||||||||||||||||
(1) | The weighted average stated interest rates are as of December 31, 2007 or 2006. | |
(2) | Debt acquired by Reliant Energy in the Orion Power acquisition was adjusted to fair market value as of the acquisition date. Included in interest expense is amortization of $11 million, $9 million and $9 million for valuation adjustments for debt for 2007, 2006 and 2005, respectively. |
2008 | $ | — | ||
2009 | — | |||
2010 | 400 | |||
2011 | — | |||
2012 | — | |||
2013 and thereafter | — | |||
$ | 400 | |||
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(7) | Benefit Plans |
(a) | Pension and Postretirement Benefits. |
Pension | Postretirement Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Beginning of year | $ | 57 | $ | 52 | $ | 31 | $ | 28 | ||||||||
Service cost | 2 | 3 | 1 | — | ||||||||||||
Interest cost | 3 | 3 | 2 | 2 | ||||||||||||
Benefits paid | (2 | ) | (1 | ) | — | — | ||||||||||
Actuarial loss | — | — | (1 | ) | 1 | |||||||||||
End of year | $ | 60 | $ | 57 | $ | 33 | $ | 31 | ||||||||
Change in Plan Assets | ||||||||||||||||
Beginning of year | $ | 36 | $ | 30 | $ | — | $ | — | ||||||||
Employer contributions | 9 | 3 | — | — | ||||||||||||
Benefits paid | (2 | ) | (1 | ) | — | — | ||||||||||
Actual investment return | 3 | 4 | — | — | ||||||||||||
End of year | $ | 46 | $ | 36 | $ | — | $ | — | ||||||||
Funded Status | $ | (14 | ) | $ | (21 | ) | $ | (33 | ) | $ | (31 | ) | ||||
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Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in millions) | ||||||||||||||||
Current liabilities | $ | — | $ | — | $ | (1 | ) | $ | (1 | ) | ||||||
Noncurrent liabilities | (14 | ) | (21 | ) | (32 | ) | (30 | ) | ||||||||
Net amount recognized | $ | (14 | ) | $ | (21 | ) | $ | (33 | ) | $ | (31 | ) | ||||
Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost | $ | 3 | $ | 3 | $ | 2 | $ | — | $ | — | $ | 1 | ||||||||||||
Interest cost | 3 | 3 | 2 | 2 | 2 | 1 | ||||||||||||||||||
Expected return on plan assets | (3 | ) | (2 | ) | (1 | ) | — | — | — | |||||||||||||||
Net amortization | 1 | 1 | 1 | — | — | — | ||||||||||||||||||
Net benefit cost | $ | 4 | $ | 5 | $ | 4 | $ | 2 | $ | 2 | $ | 2 | ||||||||||||
Pension | Postretirement Benefits | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % |
Pension | Postretirement Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Discount rate | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | 5.75 | % | ||||||||||||
Rate of compensation increase | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | ||||||||||||
Expected long-term rate of return on assets | 7.5 | % | 7.5 | % | 7.5 | % | N/A | N/A | N/A |
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2007 | 2006 | 2005 | ||||||||||
Health care cost trend rate assumed for next year | 8.3 | % | 9.0 | % | 9.0 | % | ||||||
Rate to which the cost trend rate is assumed to gradually decline (ultimate trend rate) | 5.5 | % | 5.5 | % | 5.5 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2015 | 2015 | 2011 |
One-Percentage Point | ||||||||
Increase | Decrease | |||||||
(in millions) | ||||||||
Effect on service and interest cost | $ | — | $ | — | ||||
Effect on accumulated postretirement benefit obligation | 5 | (4 | ) |
Percentage of Plan Assets | ||||||||||||
as of December 31, | Target Allocation | |||||||||||
2007 | 2006 | 2008 | ||||||||||
Domestic equity securities | 49 | % | 50 | % | 50 | % | ||||||
International equity securities | 10 | 11 | 10 | |||||||||
Global equity securities | 10 | 11 | 10 | |||||||||
Debt securities | 31 | 28 | 30 | |||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
Asset Class | Index | Weight | ||||
Domestic equity securities | Wilshire 5000 Index | 50 | % | |||
International equity securities | MSCI All Country World Ex-U.S. Index | 10 | ||||
Global equity securities | MSCI All Country World Index | 10 | ||||
Debt securities | Lehman Brothers Aggregate Bond Index | 30 | ||||
Total | 100 | % | ||||
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Postretirement | ||||||||
Pension | Benefits | |||||||
(in millions) | ||||||||
2008 | $ | 2 | $ | 1 | ||||
2009 | 2 | 1 | ||||||
2010 | 2 | 1 | ||||||
2011 | 3 | 2 | ||||||
2012 | 3 | 2 | ||||||
2013-2017 | 24 | 12 |
(b) | Savings Plan. |
(c) | Other Employee Matters. |
(8) | Income Taxes |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | (26 | ) | |||||
State | (4 | ) | (4 | ) | 6 | |||||||
Total current | (4 | ) | (4 | ) | (20 | ) | ||||||
Deferred: | ||||||||||||
Federal | (18 | ) | 11 | 57 | ||||||||
State | (4 | ) | (38 | ) | (13 | ) | ||||||
Total deferred | (22 | ) | (27 | ) | 44 | |||||||
Income tax expense (benefit) from continuing operations | $ | (26 | ) | $ | (31 | ) | $ | 24 | ||||
Income tax expense (benefit) from discontinued operations | $ | — | $ | (1 | ) | $ | 6 | |||||
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2007 | 2006 | 2005 | ||||||||||
Federal statutory rate | (35 | )% | 35 | % | 35 | % | ||||||
Additions (reductions) resulting from: | ||||||||||||
State income taxes, net of federal income taxes | (9 | ) | 254 | (1) | (6 | ) | ||||||
Other, net | 2 | (27 | ) | 4 | ||||||||
Effective rate | (42 | )% | 262 | % | 33 | % | ||||||
(1) | Of this percentage, (a) $17 million (145%) relates to Pennsylvania state law changes, which effectively decreased our limitations to use net operating losses in that state and (b) $7 million (61%) relates to changes in valuation allowances. |
December 31, | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Deferred tax assets: | ||||||||
Current: | ||||||||
Employee benefits | $ | 1 | $ | 1 | ||||
Other | 4 | 6 | ||||||
Total current deferred tax assets | 5 | 7 | ||||||
Non-current: | ||||||||
Employee benefits | 18 | 21 | ||||||
Net operating loss carryforwards | 29 | 29 | ||||||
Other | 13 | 14 | ||||||
Valuation allowance | (3 | ) | (5 | ) | ||||
Total non-current deferred tax assets | 57 | 59 | ||||||
Total deferred tax assets | $ | 62 | $ | 66 | ||||
Deferred tax liabilities: | ||||||||
Non-current: | ||||||||
Depreciation and amortization | 215 | 209 | ||||||
Other | — | 7 | ||||||
Total non-current deferred tax liabilities | 215 | 216 | ||||||
Total deferred tax liabilities | $ | 215 | $ | 216 | ||||
Accumulated deferred income taxes, net | $ | (153 | ) | $ | (150 | ) | ||
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(b) | Tax Attribute Carryovers. |
Statutory | ||||||||||||
December 31, | Carryforward | Expiration | ||||||||||
2007 | Period | Year(s) | ||||||||||
(in millions) | (in years) | |||||||||||
Net Operating Loss Carryforwards: | ||||||||||||
State | $ | 480 | 20 | 2020 through 2027 |
(c) | Valuation Allowances. |
State | ||||
(in millions) | ||||
As of January 1, 2005 | $ | 25 | ||
Changes in valuation allowance | (1 | ) | ||
As of December 31, 2005 | 24 | |||
Changes in valuation allowance | (19 | ) | ||
As of December 31, 2006 | 5 | |||
Changes in valuation allowance | (2 | ) | ||
As of December 31, 2007 | $ | 3 | ||
(d) | Adoption of FIN 48 and Tax Uncertainties. |
Adoption Effect on | ||||
January 1, 2007 | ||||
Increase (Decrease) | ||||
(in millions) | ||||
Goodwill | $ | (2 | ) | |
Other long-term liabilities | (3 | ) | ||
Retained deficit | (1 | ) |
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January 1, 2007 | December 31, | |||||||
(Immediately After Adoption) | 2007 | |||||||
(in millions) | ||||||||
Unrecognized tax benefits(1) | $ | — | $ | — | (2) | |||
Interest and penalties(1) | — | — |
(1) | The activity during 2007 was insignificant. | |
(2) | Of this amount, $0, if recognized, would affect the effective tax rate. |
Subject to Examination | Currently Under Audit | |||||||
Federal | 1997 to 2007 | 1997 to 2005 | ||||||
Pennsylvania | 2004 to 2007 | 2006 | ||||||
New York state and city | 2003 to 2006 | 2003 to 2006 |
(9) | Commitments |
(a) | Lease Commitments. |
(b) | Guarantees and Indemnifications. |
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(c) | Other Commitments. |
(10) | Contingencies |
(11) | Estimated Fair Value of Financial Instruments |
December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value(1) | Value | Value(1) | |||||||||||||
(in millions) | ||||||||||||||||
Fixed rate debt | $ | 428 | $ | 436 | $ | 439 | $ | 456 | ||||||||
Total debt | $ | 428 | $ | 436 | $ | 439 | $ | 456 | ||||||||
(1) | Orion Power based the fair values of its fixed rate debt on information from market participants. |
(12) | Sales of Assets and Emission Allowances |
(13) | Discontinued Operations |
(a) | New York Plants. |
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(b) | Ceredo Plant. |
(c) | All Discontinued Operations. |
New York | ||||||||||||
Plants | Ceredo Plant | Total | ||||||||||
2006 | ||||||||||||
Revenues | $ | 104 | $ | — | $ | 104 | ||||||
Income before income tax expense/benefit | 4 | (1) | — | 4 | ||||||||
2005 | ||||||||||||
Revenues | $ | 1,014 | $ | — | $ | 1,014 | ||||||
Loss before income tax expense/benefit | (48 | )(2) | (32 | )(3) | (80 | ) |
(1) | Includes an additional pre-tax loss on disposal of $16 million during 2006 primarily due to changes in derivative assets not terminated as of the date of sale. The cumulative pre-tax loss on disposal through December 31, 2006 is $308 million. | |
(2) | Includes $292 million estimated loss on disposal. | |
(3) | Includes $32 million loss on disposal. |
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