NRG and Reliant: Kind of like the old HL&P?

Online energy trading/M&A news site had an item today saying the folks at NRG Energy are considering buying the retail electric business of Houston-based Reliant Energy.

reliant_street_sign Does NRG plus RRI equal HL&P? A marriage between two-thirds of the former integrated utility (CenterPoint is the missing link) is being rumored.

According to Bloomberg’s summary of the SparkSpread story (it’s a pricey subscriber-only service):

“Senior NRG executives expressed interest in buying the Reliant business at an investor dinner during a financial conference in Phoenix last week hosted by the Edison Electric Institute, reported, citing unidentified “market watchers.”

We can’t vouch for the accuracy of SparkSpread (many companies criticize it, particularly since most of its stories use unnamed sources) but it often is the first to catch wind of deals.
But the notion that NRG, itself the target of a hostile takeover by Exelon, would buy Reliant’s retail electric business, which that company said several weeks ago it might sell, is a bit difficult to imagine.
NRG is the second-largest power plant operator in Texas, and has many of its plants around Houston. Most of its fleet is made up of plants that used to belong to the former integrated utility here, Houston Lighting & Power..
Reliant is the second-largest electric retailer in the state with a particularly solid footprint in the Houston area because it is the retail business that spun out of HL&P.
Being a wholesale power producer in Texas is a pretty good business because it’s a large, fast growing market that is considered one of the most open as far as competition. The way the wholesale market prices are set, with limited caps on how high prices can spike, has led many companies to invest in projects of all types here. The Texas assets are a big reason Exelon wants NRG.
The retail electric business in Texas can have good profit margins, particularly on the residential and small business side, but this year has been challenging, even for a well-established firm like Reliant.
It’s hard to see why NRG would want to not only get into that tough business but essentially buy one of its biggest wholesale customers.
Could this be a ploy by NRG to fend off the Exelon bid? Perhaps. But reading between the lines of a Texas Senate Committee on Business and Commerce hearing held in Austin on Tuesday, it sounds like there could be some other potential barriers to a successful Exelon bid for NRG.
Senators asked Public Utility Commission Chairman Barry Smitherman if the state had any say over the Exelon/NRG deal, should it go through. Smitherman said it appeared the only thing the state could act on is if the combined company would have more than 20 percent of the state’s generation capacity. (Exelon officials have said they thought that might be the case and would likely have to sell off a couple thousand megawatts of capacity).
But then Sen. Leticia Van de Putte of San Antonio noted that her town’s utility CPS Energy, is a partner in the South Texas Project nuclear plant with NRG and is counting on the two-reactor expansion that is in the filing process.
Exelon has proposed a new dual-reactor nuclear plant near Victoria on an undeveloped site, but Van de Putte is concerned a merger between Exelon and NRG could mean one of the projects gets cancelled.

puc_commissioners_1 Smitherman (center): “No comment.”

“We don’t want to … lose our place in line for federal action because of a financial transaction,” Van de Putte said.
Other legislators said that since many expect federal regulation of carbon dioxide emissions Texas will need to rely on meeting much of its future power demand via new nuclear reactors if it hopes to avoid having to increase its reliance of pricey natural gas-fired power.
“Since we’re so determined that we need as much nuclear as possible in the future, wouldn’t we be better off with two competing companies building nuclear plants instead of one consolidated company?” asked Sen. Kevin Eltife of Tyler.
“I don’t’ think I can answer that,” said Smitherman, given Wall Street’s close scrutiny of the takeover attempt. Several others in the room warned “be careful,” as he answered.
“You don’t have to answer,” Eltife said.
Exelon, however, says not to worry about a merger cutting into the two nuke projects.