First Reserve Pumps Up Reliant Energy

Reliant Energy (NYSE: RRI) has secured $1 billion in new capital commitments, including a $650 million term loan commitment from GS Loan Partners and a $350 million convertible preferred stock purchase by First Reserve Corp. The Houston-based company said the move was prompted by “disappointing” 2008 retail results, plus difficulties related to Hurricane Ike.

PRESS RELEASE
Reliant Energy today announced it is revising its 2008 outlook downward to reflect the financial impact of Hurricane Ike and lower commodity prices in its wholesale business.

In addition, the company and Merrill Lynch have agreed to take steps to end their credit-enhanced retail structure, given the current operating environment and Reliant’s decision to develop a new retail strategy aimed at lowering collateral requirements and providing more consistent earnings. The company has obtained commitments for $1 billion in new capital to support its business to facilitate the transition.

“Our retail results in 2008 have been disappointing, due in part to the recent impact of Hurricane Ike,” said Mark Jacobs, president and chief executive officer, Reliant Energy. “We have also faced unprecedented turmoil in the financial markets. To address these challenges, we have determined that terminating our credit-enhanced retail structure in an orderly manner is appropriate.”

“We have arranged for $1 billion of additional capital,” Jacobs added. “Combined with current liquidity of $1.2 billion, we will have adequate liquidity to facilitate the termination of the credit-enhanced retail structure. Certainly, conditions for raising additional capital are not favorable, however, on balance we believe these steps are in our best long-term interests.”

The company has lowered its retail contribution margin outlook for 2008 by $300 million to $350 million as a result of the effects of Hurricane Ike, including reduced sales volumes, the sale of excess supply during this time, updates to retail pricing assumptions and increased storm-related operating costs.

In response to its intention to terminate the credit-enhanced retail structure and current operating environment, Reliant is developing a new retail strategy aimed at lowering collateral requirements and providing more consistent earnings.

Commodity prices have fallen significantly since the company provided its most recent outlook. In addition, third quarter results were impacted by mild weather and reduced off-peak prices. The company estimates that its outlook for 2008 open wholesale contribution margin will be approximately $480 million lower than its previous outlook.

These outlook updates exclude any financial impact arising from termination of the credit-enhanced structure.

Reliant has arranged for $1 billion in additional capital consisting of a commitment for a $650 million term loan from GS Loan Partners and an agreement to issue $350 million of convertible preferred stock to the energy private equity firm of First Reserve Corporation.

Each of these arrangements is contingent upon completion of definitive agreements and, among other things, reaching definitive agreements with Merrill Lynch regarding termination of the credit-enhanced retail structure. Reliant and Merrill Lynch have agreed to use their commercially reasonable efforts to negotiate definitive agreements before October 31, 2008. Merrill Lynch has waived compliance with the minimum adjusted EBITDA covenant in the $300 million retail working capital facility through October 31, 2008, so long as all other covenants are complied with, and Reliant has agreed to not draw on the retail working capital facility. Included in the appendix to this release is a summary of material terms for the term loan and the convertible preferred stock to which the parties have agreed, subject to the completion of definitive agreements.

Reliant Energy, Inc. (RRI) based in Houston, provides electricity and energy services to retail and wholesale customers in the United States. The company provides service to approximately 1.8 million retail electricity customers primarily in Texas, including residential and small business customers. Reliant also serves commercial, industrial, governmental and institutional customers in Delaware, Illinois, Maryland, New Jersey, New York, Pennsylvania and Washington, D.C.

The company is one of the largest independent power producers in the nation with more than 15,000 megawatts of power generation capacity across the United States. These strategically located generating assets use natural gas, fuel oil and coal. For more information, visit http://www.reliant.com.