Reliant Energy, which operates five power plants in California, expects its financial condition to improve over the next three years. It plans to phase out existing hedge contracts, see better capacity utilization as a result of increasing demand for electricity, and enjoy the competitive advantage of its coal power fleet over gas generation. The company does not plan to sell major assets. "Make no mistake: we know our performance is unacceptable," Joel Staff, Reliant chair and chief executive officer, told financial analysts February 8. On the basis of a preliminary 2005 assessment, with final results due February 21, company executives told the analysts that before taxes, Reliant will lose $668 million. It spent $1.1 billion in net cash to operate. Reliant sees rising energy demand in California increasing "economic" (that is, profitable) capacity utilization at its Western power plants from 8.7 percent in 2005 to 31.8 percent by 2008. Those plants include the company?s five facilities in California and one in Nevada. Staff said the Houston-based company will improve performance through several key steps. He added that dismissal of the company?s ?legacy litigation? also should improve Reliant?s outlook. Last year, the company settled major litigation stemming from California?s 2000-01 energy crisis (Circuit, Aug. 19, 2005). Reliant?s new strategy will allow the company to avoid selling more assets, such as California power plants, to raise cash, said Staff. A key element of Reliant?s strategy is to support the anticipated move by the state of Texas to a fully competitive electricity market before the end of the year. Reliant is the retail utility for the Houston area. Another step will be for Reliant to phase out hedge contracts for power from its coal plants and move them to an open wholesale model. "We will no longer sell power forward from our coal plants," said Brian Landrum, Reliant executive vice-president of operations. Seventy percent of their output is sold forward in 2006 and 35 percent in 2007, he said. The hedge contracts have prevented the company from raising the price of its coal power, even as higher natural gas costs have raised the price of power from competing gas-fired plants, he said. Another key strategy will be for the company to increase its commercial capacity factor - the percentage of time that the company?s plants run profitably - from 81 percent in 2005 to 83 percent next year and 87 percent by 2008, said Landrum. The company also is banking on changes to its credit structure to help stem the flow of red ink. Combined, all the moves outlined by Staff and Landrum are projected to reduce the amount of capital that Reliant has had tied up as collateral by $1 billion. Reliant's California Power Plants Houston, Texas?based Reliant owns five power plants in Southern California. The quintet of plants represent 3,378 MW of generation. They include the 1,516 MW Ormond Beach project and the 560 MW Mandalay generating facility. Reliant also owns the 640 MW Etiwanda plant, the 608 MW Coolwater Plant, and the 54 MW Ellwood Plant. In Nevada, Reliant owns the 598 MW West Bighorn power plant.