8-K

   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         Date of Report (Date of earliest event reported): JULY 6, 2001

                         ------------------------------

                          RELIANT ENERGY, INCORPORATED
             (Exact name of registrant as specified in its charter)


                                                                                  
               TEXAS                                   1-3187                               74-0694415
    (State or other jurisdiction              (Commission File Number)                     (IRS Employer
          of incorporation)                                                             Identification No.)


                        1111 LOUISIANA
                        HOUSTON, TEXAS                                            77002
           (Address of principal executive offices)                            (Zip Code)



       Registrant's telephone number, including area code: (713) 207-3000

                         ------------------------------


   2

ITEM 7.           FINANCIAL STATEMENTS AND EXHIBITS.

                  (c)  Exhibits.

                  The following exhibit is filed herewith:

                  99.1 Report: "Myths Debunked: The Real Story of Wholesale
                       Power Costs in California."

ITEM 9.           REGULATION FD DISCLOSURE.

    Attached to this current report on Form 8-K as Exhibit 99.1 is a report
entitled "Myths Debunked: The Real Story of Wholesale Power Costs in California"
that subsidiaries of Reliant Resources, Inc. (a majority owned subsidiary of
Reliant Energy, Incorporated) anticipate filing later today with the Federal
Energy Regulatory Commission. Exhibit 99.1 is incorporated by reference herein.
The report includes information with respect to revenues, expenses and operating
margins of Reliant Resources, Inc. in the State of California over the period
commencing April 7, 1998 through May 31, 2001. A copy of this report is also
available on Reliant Energy, Incorporated's web site, www.ReliantEnergy.com
under its Securities and Exchange Commission filings section.

    The information in this current report on Form 8-K is being furnished, not
filed, pursuant to Regulation FD. Accordingly, the information in this report
will not be incorporated by reference into any registration statement filed by
Reliant Energy, Incorporated under the Securities Act of 1933, as amended,
unless specifically identified therein as being incorporated therein by
reference. The furnishing of the information in this report is not intended to,
and does not, constitute a determination or admission by Reliant Energy,
Incorporated that the information in this report is material or complete, or
that investors should consider this information before making an investment
decision with respect to any security of Reliant Energy, Incorporated or any of
its affiliates.




                                       2
   3
                                    SIGNATURE

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                                RELIANT ENERGY, INCORPORATED


Date: July 6, 2001                              By: /s/ MARY P. RICCIARDELLO
                                                   -----------------------------
                                                    Mary P. Ricciardello
                                                    Senior Vice President and
                                                    Chief Accounting Officer




                                       3
   4
                                  EXHIBIT INDEX



    EXHIBIT
    NUMBER                      EXHIBIT DESCRIPTION
    ------                      -------------------
              
     99.1        Report: "Myths Debunked: The Real Story of Wholesale Power
                 Costs in California."





                                       4

EX-99.1

   1
                                                                   EXHIBIT 99.1

                                                          [RELIANT ENERGY LOGO]


                                MYTHS DEBUNKED:
                    THE REAL STORY OF WHOLESALE POWER COSTS
                                 IN CALIFORNIA

                      WHY WHOLESALE POWER COSTS INCREASED
                      ---
                           WHO COLLECTED THE REVENUES
                           ---
             WHAT WAS THE IMPACT ON OPERATING MARGINS OF SUPPLIERS
             ---




          [This report is based in part upon an earlier report prepared
          by Reliant Energy entitled, Analysis of Increased Power
          Costs. Most significantly, this previous report has been
          updated and revised to include information regarding Reliant
          Energy's revenues, expenses and operating margins in
          California over the period April 7, 1998 to May 31, 2001.]




                                  JULY 6, 2001



   2



                                MYTHS DEBUNKED:
                    THE REAL STORY OF WHOLESALE POWER COSTS
                                 IN CALIFORNIA


I.       INTRODUCTION

                  Disingenuous attempts have been made in recent months to
         paint the picture that independent generators have been the principal
         beneficiaries of the increase in wholesale power costs in California.
         Reliant Energy is now taking the step, unprecedented in this
         controversy, of publicly disclosing its California operating margins
         to help demonstrate the falsity of these claims. A review of Reliant's
         operating margins reveals no significant increase in operating margins
         over the period 1998 to 2001 on a dollar per megawatt-hour basis.
         While revenues have increased significantly over this period, what is
         ignored is that Reliant's sales quantities have increased FOUR FOLD
         and Reliant's fuel costs have increased SEVEN FOLD over this same
         period. In stark contrast, Reliant's operating margin has increased
         slightly more than TEN PERCENT. The evidence is compelling: operating
         costs and sales quantities are driving the revenues of gas-fired
         generators, not increases in operating margins.

                  While the prices paid to gas-fired independent generators
         dominated political and media reports, California's single
         market-clearing price system was quietly paying gas-based prices -
         thereby delivering immense windfalls - to generators who bought no gas
         at all. The real money stayed in California itself - with California's
         own three big utilities plus LADWP, who together collected

                                      -1-
   3
         more than half of the $27 billion power bill in 2000. Another
         twenty-two percent went to others who were buying little or no
         natural gas.

                  After the independent gas-fired generators paid their fuel
         bills, their net revenues totaled less than ten percent of the total
         market.

II.      BACKGROUND

                  There has been a tremendous amount of attention focused on
         the increase in wholesale power costs in California from 1999 to 2000.
         This discussion has focused primarily on the magnitude of the increase
         in wholesale power costs without attempting to explain or otherwise
         put into context the reasons that wholesale power costs have
         increased. Similarly, there has been very little analysis done
         relative to where the increased revenues associated with the increases
         in wholesale power costs flowed. Publicly some officials have
         suggested that the primary beneficiaries of increased wholesale power
         costs have been power generators and marketers, many of whom are
         headquartered outside of California.1 While most of the data necessary
         to do a thorough analysis of this issue is in the possession of the
         California Independent System Operator ("CAISO") and individual market
         participants, we can say, based on publicly available information,
         that the assumption that the generators and marketers received the
         bulk of the revenues associated with increased power costs is clearly
         erroneous. We can also say, based on the financial results of
         Reliant's California

- --------
1 Texas-based generators are routinely cited by press and public officials as
comprising the bulk of the alleged problem. In fact, the only available
statistically-based study, published by the California Independent System
Operator in March 2001 showed Texas-based generators and marketers receiving
less than twenty percent of the alleged overcharges during the study period.
See Appendix A.


                                      -2-
   4
         operations, that the assumption that increases in operating margins
         are the major driving force behind wholesale power increases is
         similarly inaccurate.

                  Based on a review of publicly available data concerning the
         revenues of California's investor-owned utilities together with
         various statements made publicly by other market participants that
         shed light on their revenues and/or expenses, an analysis of the $27
         billion in wholesale power costs in 2000 shows that MORE THAN HALF OF
         THE INCREASE IN WHOLESALE POWER COSTS WAS PAID TO CALIFORNIA'S
         INVESTOR-OWNED UTILITIES, SAN DIEGO GAS AND ELECTRIC, SOUTHERN
         CALIFORNIA EDISON AND PACIFIC GAS AND ELECTRIC (THE "IOUS"), AND THE
         PUBLICLY-OWNED LOS ANGELES DEPARTMENT WATER AND POWER ("LADWP").2 This
         analysis also undercuts statements made to the effect that the
         increase in wholesale power costs has represented a tremendous
         transfer of wealth to entities outside of California.3 To the
         contrary, analysis of available data would suggest that the majority
         of the wholesale power costs in 2000 were paid to California-based
         entities. The implication that an alleged massive transfer of wealth
         moved to Texas-based entities, or to entities based in states outside
         the West seems also implausible, since the largest outside supplier to
         California was the Canadian supplier, British Columbia Hydro ("BC
         Hydro"), which together with numerous

- --------
2 While the analysis set forth in this report is based in part on limited
access to source information, the information with respect to the revenues and
expenses of the IOUs is, as described below, based on analyses of filings made
with the California Public Utilities Commission by the IOUs. The remainder of
the analysis is based on other public statements made by market participants
with regard to revenues and expenses, filings with the Energy Information
Agency and extrapolations made based on those statements and filings. While
access to all of the source data might result in some changes at the margin,
the fundamental conclusions set forth in this analysis would not be affected by
such changes.
3 It is also worth noting that to the extent suppliers are publicly traded
companies, the ultimate beneficiaries of any earnings on power sales are the
shareholders of such companies. Of course, these shareholders are dispersed
across the United States, including, in many cases, California.

                                      -3-
   5
         Western suppliers provided the majority of energy to California from
         outside the state, as documented by the CAISO's only report of
         alleged overcharges.4

                  The claim that high prices principally represent gas-fired,
         out-of-state generator profit also falls apart when analyzed in light
         of readily available public information. Natural gas costs have been
         and remain one of the primary driving factors in the increase in
         wholesale power cost in California. The generation retained by the
         California IOUs is primarily nuclear for Southern California Edison,
         or in the case of Pacific Gas and Electric, nuclear and hydro.
         Additionally, key suppliers outside of California such as BC Hydro and
         the Bonneville Power Administration operate hydroelectric generation
         facilities. Since power prices are typically set at the margin by less
         efficient gas-fired generation, as gas prices have increased, nuclear
         and hydroelectric generated energy has become materially more
         profitable. In contrast, while the revenues of the gas-fired suppliers
         have increased, those increases are more easily explained by the
         dramatic run up in natural gas prices.

                  Finally, when the operating margins of the independent
         generators are considered in light of the increases in natural gas
         costs - and, in the case of Reliant, a four-fold increase in sales
         volumes since 1998 - it is apparent that WHOLESALE POWER COSTS ARE NOT
         BEING DRIVEN BY INCREASED OPERATING MARGINS. This analysis also
         illustrates the absurd nature of the claims in the range of $9 billion
         in refunds, when, for example, Reliant's total operating margin
         (without allowing for any return on investment and without deducting
         fixed costs, interest

- --------
4 See Appendix A.

                                      -4-
   6
         expense and taxes) for spot sales during the relevant refund period
         being considered by FERC was less than $130 million.

III.     ANALYSIS OF POWER SUPPLY COSTS

A.       WHY DID PRICES INCREASE?

                  Public officials have been quick to point out that wholesale
         power costs have increased substantially from 1999 to 2000. Indeed,
         wholesale power costs increased approximately five fold over this
         period as illustrated by Figure 3-1.




                  [Figure 3-1 presented on the following page.]

                                      -5-
   7
         WHOLESALE POWER COSTS IN CAL-ISO                            FIGURE 3-1
         $/Billions

                                   [BAR CHART]

                                                      27.1

                      5.6               7.4
                 ---------------------------------------------
                     1998              1999           2000

         Source:  CAL-ISO

         Typically ignored, however, is any critical discussion of the factors
         that resulted in this increase in wholesale power costs. Without an
         understanding of some of the factors driving wholesale power costs up,
         an erroneous impression can be created that the increase in wholesale
         power costs is attributable solely to the actions of suppliers seeking
         to maximize revenues in a time of scarcity.
                  Two primary factors, more than all others, account for the
         bulk of the increase in wholesale power costs from 1999 to 2000.
         First, is the serious supply and demand imbalance that exists in
         California. Figure 3-2 shows the supply and demand balance in
         California.

                                      -6-
   8



         CALIFORNIA SUPPLY DEMAND BALANCE                           FIGURE 3-2
         Megawatts at peak hour



            [LINE CHART INDICATING - CAPACITY - LOAD - RESERVE MARGIN]

           60,000
                     Line indicating Capacity
           50,000                               | Load
                                 Line indicating|
           40,000

           30,000

           20,000

           10,000
                       Line indicating Reserve |
                0                              | Margin
                 -------------------------------------------------
                 1990     1992     1994     1996     1998     2000

         Source:  NERC

         As this chart illustrates, the increase in demand without a
         corresponding increase in supply forced reserve margins over this
         period to continue to tighten. The California supply and demand
         imbalance was aggravated by several other circumstances. Among those
         include a significant reduction in imports from 1999 to 2000 due to
         California's reliance on hydroelectric resources and drought
         conditions in the Northwest (California is dependent in a significant
         way on imports to meet its demand requirements). Figure 3-3
         illustrates the dramatic reduction in imports experienced in 2000.

                                      -7-
   9



         CALIFORNIA NET IMPORTS                                      FIGURE 3-3
         Peak Hours (June - November)
         Average MWh/Hour

                       [BAR GRAPH INDICATING PEAK HOURS]



             June          July          Aug.          Sep.          Oct.          Nov.
          1999  2000    1999  2000    1999  2000    1999  2000    1999  2000    1999  2000
          ----  ----    ----  ----    ----  ----    ----  ----    ----  ----    ----  ----
                                                              
8,000
                                                                                 --
7,000                                                --                          --
                         --            --            --                          --
6,000      --            --            --            --            --            --
           --            --            --            --            --            --
5,000      --            --            --            --            --    --      --
           --            --            --            --            --    --      --
4,000      --            --            --            --            --    --      --    --
           --    --      --            --            --            --    --      --    --
3,000      --    --      --    --      --            --    --      --    --      --    --
           --    --      --    --      --            --    --      --    --      --    --
2,000      --    --      --    --      --            --    --      --    --      --    --
           --    --      --    --      --            --    --      --    --      --    --
1,000      --    --      --    --      --    --      --    --      --    --      --    --
           --    --      --    --      --    --      --    --      --    --      --    --
    0      --    --      --    --      --    --      --    --      --    --      --    --


         Source:  CAISO

                  The other driving factor in the increase in wholesale power
         costs from 1999 to 2000 was the cost of natural gas. For a variety of
         reasons, including demand in other parts of the country, the lack of
         infrastructure upgrades in order to support the increase in gas demand
         and the increased demand for natural gas to fuel gas-fired electric
         generation facilities that were being run at significantly higher
         levels in 2000, gas prices increased dramatically from 1999 to 2000.
         Figure 3-4 illustrates the significant increase experienced.

                                      -8-
   10



         CALIFORNIA GAS PRICE                                        FIGURE 3-4
         $/Mmbtu

                  [LINE GRAPH SHOWING INCREASE IN GAS PRICES]

         [Graph shows increase from 2/1/98 to 11/1/00. From 2 at 2/1/98 to
          5/1/00. Then increase to over 14 on 11/1/00.]


         Source:  Western Natural Gas Market Review (Brent Freidman Associates)

         Because natural gas-fired generation is the marginal source of
         generation in California the increase in natural gas costs contributed
         directly to the increase in overall wholesale power costs.

         B.       WHERE DID THE INCREASED REVENUES GO?

                  Contrary to widespread conjecture by politicians, the
         independent generators are not the primary beneficiaries of increased
         wholesale power costs. An analysis of publicly available data and
         public statements made by numerous parties would indicate that more
         than half of the power revenues in 2000 flowed to the IOUs and LADWP.5
         Because the three IOUs in California retained

- --------
5 The data sources for the IOU information include the UDC Monthly Balancing
Account Reports filed with the CPUC by both SCE and PG&E and the ATCP filings
made with the CPUC by SDG&E. These filings indicate that SCE had generation
revenues of $6.06 billion, PG&E had generation revenues of $5.6 billion and
SDG&E had generation revenues of $616 million. The information with regard to
LADWP is based on public statements made by former LADWP General Manager David
Freeman that LADWP's

                                      -9-
   11
         ownership of a significant portion of their regulated generation,
         coupled with the fact that this retained California utility
         generation is hydroelectric and nuclear, means that the IOUs have
         received not only a significant portion of the revenue associated
         with increased wholesale power costs, but enjoyed a
         disproportionately greater increase in profit margin, as their
         production costs are not linked to natural gas prices. Analysis would
         also indicate that LADWP has received a significant portion of the
         revenue associated with increases in wholesale power costs. Figure
         3-5 illustrates Reliant's estimate of where the power revenues went
         based on available data.



                 [Figure 3-5 presented on the following page.]

- --------
profit in 2000 was approximately $300 million and that LADWP charged a margin
of fifteen percent over cost. The information with regard to the independent
generators is based on (i) for Duke, public statements that their revenues were
based on an average price of $76/MWh times the megawatt-hours reported in
filings made with the Energy Information Agency, and (ii) for all others, the
average price per megawatt-hour of $114/MWh cited in the CAISO study (Empirical
Evidence of Strategic Bidding in California ISO Real-Time Market) times the
number of megawatt-hours reported for each supplier in filings made with the
Energy Information Agency. The "Other" category is simply the difference
between the sum of the IOUs, the independent generators, LADWP and the $27.1
billion wholesale power cost reported for 2000 by the CAISO.


                                     -10-
   12
         WHERE THE $27.1 BILLION WENT IN 2000                        FIGURE 3-5
         (Revenues less gas costs for independent generators)
         $/Billion

                                [BAR CHART]

                $123          $63         $23          $62
                ----          ---         ---          ---
                IOUs       Generators    LADWP        Other



         Source:  See Footnote 5.


              There are several points worth noting from this analysis:

         o    The IOUs and LADWP received more than 54% of the revenues
              associated with wholesale power costs in 2000.
         o    Other parties, including entities such as
              other municipally owned utilities, marketers, BC Hydro
              (according to the CAISO, the largest single revenue recipient)
              and the Bonneville Power Administration received approximately
              22% of the revenue associated with wholesale power costs in 2000.

                                     -11-
   13
         o    Net of natural gas costs, approximately eight percent of the
              revenue associated with wholesale power costs was paid to the
              independent generators, or less than 24% of the revenue when
              natural gas costs are included. Additionally, as discussed below,
              revenue for the gas-fired generators was substantially offset by
              the increase in natural gas costs described previously.

IV.      THE IMPACT OF INCREASED EXPENSES ON OPERATING MARGINS

                  Building on the foregoing discussion regarding who received
         the revenues associated with wholesale power cost increases in 2000,
         it is also critical to take into account offsetting expenses. For the
         owners of hydroelectric and nuclear facilities, the increase in
         revenues in 2000 was not offset by increasing fuel and emissions
         costs. Based on information prepared by Governor Davis' office in
         connection with the execution of the Memorandum of Understanding with
         SCE, SCE's generation costs were reported as $42/MWh.6 This yields a
         revenue-to-expense ratio of approximately 2.7:1.

                  In contrast, the natural gas-fired generators, while
         experiencing an increase in revenues, also experienced a significant
         increase in operating costs in the form of natural gas costs and
         emissions costs.7 For example, in 2000 Reliant's gas cost alone
         represented approximately sixty-five percent of its revenues, up from
         approximately forty-five percent in 1998. Assuming Reliant's cost
         structure

- --------
6 Benefit-Cost Analysis of the Memorandum of Understanding ("MOU") with
Southern California Edison ("SCE"), Prepared by The Blackstone Group L.P. and
Saber Partners, LLC (April 30, 2001). For purposes of this analysis, the same
generation cost of $42/MWh was used for PG&E and SDG&E as being indicative of
their generation costs. The SCE generation cost from the Benefit-Cost Analysis
appears to be an all in cost figure inclusive of fuel, variable O&M, emissions
and capital recovery.
7 Except as noted, the charts included in this report do not take into account
increases in emissions costs, but such costs increased by over 1,000% in 2000
over 1999 levels.
                                     -12-
   14
         is representative of the other independent generators,8 this yields a
         revenue-to-expense ratio of approximately 1.5:1.

                  Because the natural gas fired generators are paying the bulk
         of their revenues for fuel, their operating margins are reduced. So
         not only are the revenues for the IOUs significantly higher than the
         independent generators, their operating margins would be expected to
         be significantly higher since they experienced no material offsetting
         increase in operating expenses.
                  Figure 4-1 illustrates the disparity in operating margins.
         When the revenue figures for the IOUs are adjusted to remove QF and
         utility power purchases, the revenues for the IOUs are only
         approximately ten percent more than the revenues of the independent
         generators. However, the operating margin of the IOUs is almost
         two-and-half times that of the independent generators.9



                 [Figure 4-1 presented on the following page.]

- --------
8 In 2000, Reliant's units were representative of the existing stock of
gas-fired units in California.
9 For purposes of this analysis, costs for the independent generators only
include fuel and variable O&M ($6/MWh), not emissions, capital or other costs.
In contrast, the cost figures for the IOUs appear to be all-in cost figures.
Taking the additional costs of the independent generators into account would
only magnify the disparity in operating margins.

                                     -13-

   15


         COMPARISON OF REVENUES AND COSTS                            FIGURE 4-1
         (Excluding QF and Other Utility Purchases)
         $/Billion

            [BAR CHART INDICATING COMPARISON OF REVENUES AND COSTS]

                     $7.0                        $6.3

                      4.4                         1.9

                    Margin                       Margin

                      2.6                         4.5

                     Cost                         Cost

                   -------                      -------
                     IOUs                      Generators


V.       THE IMPACT OF INCREASES IN EXPENSES ON RELIANT'S OPERATING MARGINS

                  The common perception that revenue increases experienced by
         the independent generators over the last twelve months have been
         primarily attributable to increased operating margins is clearly
         wrong. As the foregoing discussion demonstrates, increased revenue to
         gas-fired generators has been substantially offset by the dramatic run
         up in natural gas costs. Additionally, in the case of many of the
         gas-fired generators, including Reliant, revenue has increased due to
         substantial increases in sales volumes. As shown in Figure 5-1, which
         shows the megawatt-hour sales quantities for Reliant over the period
         April

                                     -14-
   16
         7, 1998, through May 31, 2001, Reliant's sales quantities in
         California in 2000 increased more than four times over that in 1998.
         As previously discussed, this was primarily a result of a reduction in
         imports due to drought conditions in the Northwest, as gas-fired
         energy replaced unavailable hydro power.

         SALES QUANTITIES                                            FIGURE 5-1
         MWh

             [BAR CHART INDICATING SALES QUANTITIES 0 TO 14,000,000]

               2,871,857       7,028,579     11,829,836    3,072,847
               ---------       ---------     ----------    ---------
                  1998            1999          2000     Oct-May Refund
                                                         Period., ISO/PX
                                                              Sales


                  While Reliant's revenue rose substantially over this same
         period as a result of this substantial increase in sales volumes (See
         Figure 5-2), its expenses rose commensurately (See Figure 5-3). In
         particular, it is worth noting that in

                                     -15-
   17
         contrast to the four-fold increase in sales volumes from 1998 to 2000,
         Reliant's gas costs increased more than seven fold.

         NET REVENUE                                                 FIGURE 5-2
         $Million

                [BAR CHART INDICATING NET REVENUE $0 TO $1,400,000,000]

            ------------------------------
            Revenues Increased by:
            -Dramatic natural gas cost
             increases
            -Significant increases in Mwh
             sales
            -Not by material increases in
             sales margins
            ------------------------------


              $226,581,639   $306,293,362    $1,147,422,512     $570,889,230
              ------------   ------------    --------------     ------------
                  1998            1999          2000           Oct-May Refund
                                                               Period., ISO/PX
                                                                    Sales

         Note: 1998, 1999, and 2000 figures include all
         sales revenue from ISO, PX, and bilateral transactions



                 [Figure 5-3 presented on the following page.]

                                     -16-
   18
         FUEL AND VARIABLE O&M EXPENSE                               FIGURE 5-3
         $Million

      [BAR CHART INDICATING FUEL AND VARIABLE O&M EXPENSE - $0 TO $900,000,000]

              $100,000,000+  $200,000,000+   $800,000,000+     $400,000,000+
              ------------   ------------    --------------     ------------
                  1998            1999          2000           Oct-May Refund
                                                               Period., ISO/PX
                                                                    Sales

                                             Note: Fuel expense in this
                                             analysis is based on average
                                             portfolio fuel expense. Since
                                             actual incremental fuel expense
                                             for spot market sales was higher
                                             than average portfolio fuel
                                             expense during the Oct-May
                                             refund period, this understates
                                             actual incremental fuel
                                             expenses for ISO/PX sales.


                  As a result, as shown in Figures 5-4 and 5-5, Reliant's
         operating margins during 2000 account for only approximately 28% of
         Reliant's total California revenue. Moreover, despite the suggestion
         by the State of California that generators such as Reliant owe
         billions of dollars in refunds, Reliant's total operating margin
         (which only takes into account fuel expenses, emission costs and
         variable operations and maintenance costs, but DOES NOT provide for
         any return on and of capital, does not cover other fixed costs and
         does not reflect interest expenses or taxes) for spot market
         transactions during the relevant refund period is less than $130
         million. This information highlights the absurd nature of the refund
         claims that have been made to date.


                                     -17-
   19
         NET OPERATING MARGIN10                                      FIGURE 5-4
         $MWh


          [BAR CHART INDICATING NET OPERATING MARGIN -$/Mw $0.00 TO $45.00]

                 $37.52      $11.21      $27.64        $41.34
                --------    --------    --------     ------------
                  1998        1999        2000     Oct-00/May-01 Period
                                                 (Subject to Refund)ISO/PX
                                                        Sales



         SUMMARY FINANCIALS                                          FIGURE 5-5




                                                1998              1999              2000           Oct-May Refund
                                                                                                        Period
                                                                                                   ISO and PX Sales
                                             ------------      ------------    --------------     -----------------
                                                                                     
          Sales Quantities in Mwh              2,871,857        7,028,579         11,829,836          3,072,847
          Net Revenue                        $226,581,639      $306,293,362    $1,147,422,512       $570,889,230
          Fuel and Variable O&M Expense      $118,841,212      $227,475,304      $820,472,211       $413,697,236
          Net Operating Margin               $107,740,427      $78,818,058       $326,950,301      $127,041,394(11)
          Net Operating Margin in $/Mwh           $38              $11               $28                 $41


- --------
10 The Oct-00/May-01 Period includes $30,150,600 in emissions costs. Emission
costs are not included in the 1998, 1999 and 2000 figures.
11 This figure includes $30,150,600 in emission costs. Emisssion costs are not
included in the calculation of net operating margin for 1998, 1999 and 2000.

                                     -18-
   20
                  Even a cursory review of the foregoing information highlights
         that THE SUBSTANTIAL REVENUE INCREASES THAT HAVE BEEN EXPERIENCED OVER
         THE LAST YEAR IN CALIFORNIA ARE ATTRIBUTABLE TO GAS COST INCREASES AND
         INCREASES IN SALES VOLUMES. Ignoring this fact, some have suggested
         that the revenue increases have been driven by profiteering. However,
         an analysis of operating margins over the last three years - including
         two years in which no one contends that the market was dysfunctional -
         reveals the fallacy of this notion: while operating margins have
         increased from 1998 to the present, the increase in operating margins
         (from $38/MWh in 1998 to $41/MWh in the refund period) is a fraction
         of the increase in gas costs and sales volumes over this same period.

VI.      CONCLUSION

         Conclusions that can be drawn from the foregoing analysis include:

         o    There are a number of explanations for the increase in wholesale
              power costs from 1999 to 2000, including a reduction in imports
              and dramatic increases in the cost of natural gas.

         o    There has not been a tremendous wealth transfer from California
              to other parts of the country. To the contrary, the majority of
              the wholesale power costs in 2000 were paid to California-based
              entities. Equally significant, the revenue received by these
              California-based entities led to a direct increase in profit
              margin, given the cost structure of the generation retained by
              the utilities. Low variable cost nuclear and hydro generation
              enjoyed a very large windfall as power prices rose due to
              gas-fired generation on the margin and increased gas costs.

                                      -19-
   21
         o    Independent generators, while experiencing an increase in revenue
              in 2000, incurred significantly higher fuel costs. The operating
              margins of the generators (gross revenues net of fuel costs)
              represent approximately eight percent of the total wholesale
              power costs in California in 2000. Even without taking into
              account increases in operating costs, the revenues received by
              the independent generators account for only approximately 24% of
              the total wholesale power costs in California in 2000.

         o    Additionally, many independent generators like Reliant have
              experienced substantial increases in sales volumes over the
              period 1998 to 2000 due to the lack of imports, particularly
              hydro generation. The combination of this increase in sales and
              dramatically higher natural gas costs has been largely
              responsible for the increase in Reliant's revenues. As a result,
              over this same period, Reliant's operating margins have not
              dramatically changed. In stark contrast to the widely-touted
              claims that billions of dollars are owed in refunds, Reliant's
              total operating margin (which does not include any return on
              investment, fixed costs, interest expenses or taxes) on spot
              sales over the period October 2000 through May 2001 is less than
              $130 million.

                                     -20-
   22
                                   APPENDIX A

WESTERN GENERATORS, LED BY BRITISH COLUMBIA, BONNEVILLE AND LOS ANGELES, IN THE
  AGGREGATE COLLECTED MOST OF THE "EXCESSIVE" PROFITS IN THE REAL TIME POWER
  MARKET ACCORDING TO CALIFORNIA ISO STUDY FOR KEY 2000 PRICE INCREASE PERIOD


             [BAR CHART INDICATING TEXAS AND NON-TEXAS COMPANIES]

      Puget Sound Energy (B12) -- $7.1
                      (Others) -- $7.2
              Idaho Power (B9) -- $7.7
          (6)Williams/AES (A5) -- $7.8
                   Avista (B4) -- $12.2
              Pacificorp (B11) -- $13.6
                 Serrpra (B14) -- $14.9
         Los Angeles DWP (B10) -- $17.8
           (4)Duke Energy (A2) -- $18.4
                 (1)Enron (B8) ++ $27.9
     Bonneville Power Adm (B6) -- $30.0
            (2)Dynagy/NRG (A1) ++ $32.1
               (3)Reliant (A3) ++ $35.5
      (5)Southern (Mirant)(A4) -- $96.8
         British Columbia (B5) -- $176.2




THE ISO STUDY REPORTED CALIFORNIA AND WESTERN SUPPLIERS ACCOUNTING FOR THREE
TIMES THE ALLEGED "EXCESSIVE RENTS" OR EXCESS PROFITS AS TEXAS FIRMS: 57%
VERSUS 19%, WITHOUT COUNTING PROFITS OF SDG&E, SCE AND PG&E'S RETAINED HYDRO
AND NUCLEAR POWER PLANTS

         DARK Solid ++ Texas Companies. LIGHT Stripe -- Non-Texas Companies.
AMOUNTS IN MILLIONS. THE PARENTHETICAL ALPHANUMERIC CODES ARE THE ORIGINAL CODE
NAMES USED IN THE ISO REPORT TO MASK THE IDENTITIES OF THE SUPPLIERS REFERRED
TO IN THE REPORT. THE EXISTENCE OF THE KEY TO THIS CODE WAS FIRST PUBLISHED BY
THE L.A. TIMES ON APRIL 11, 2001.

         Chart published IN SHEFFRIN, EMPIRICAL EVIDENCE OF STRATEGIC BIDDING
IN CALIFORNIA ISO REAL-TIME MARKET (CAL. ISO, MARCH 21, 2001), PAGE 19.
ORIGINAL CAPTION: "FIGURE 8. EXCESSIVE RENTS EARNED IN REAL-TIME MARKET FOR THE
TOP TEN SUPPLIERS (CUMULATIVE RENT FOR MAY TO NOVEMBER 2000 - TOP RENT
RECEIVERS ($MILLIONS)." THE INDEPENDENT ELECTRIC INDUSTRY GENERALLY REGARDS
THIS REPORT, WHICH WAS PREPARED DURING THE PERIOD AFTER THE GOVERNOR'S
REPLACEMENT OF THE PREVIOUS INDEPENDENT ISO BOARD WITH HIS OWN APPOINTEES, AS
BOTH BIASED AND CONCEPTUALLY UNSOUND. HOWEVER, ONLY THE ISO HAS ACCESS TO THE
KIND OF DATA NECESSARY TO COMPILE INFORMATION OF THIS KIND.

NOTES: 1. Enron is Texas based, but has no generation in California. 2. Dynegy
is a Texas company but the venture in California is 50% owned by NRG, a
Minnesota company. 3. Reliant is a Texas company. 4. Duke is a North Carolina
company both as to headquarters and policy direction. Western trading
operations are located in Salt Lake City, Utah, Eastern trading operations in
Texas. 5. Mirant, until recently part of the Southern Company, is located for
all purposes in Atlanta, Georgia. 6. Arlington, Va., based AES owns and
operates the California joint venture plants and Williams of Oklahoma markets
the electricity.

                                     -21-