##### Table of Contents





UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to       Commission file number 1-16455
  Reliant
    Energy, Inc. (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) 497-3000Houston, Texas 77002(Address and Zip Code
    of Principal Executive Offices)

(Registrants Telephone
    Number,
    Including Area Code)   Securities
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.001 per share, and associated

New York Stock Exchangerights to purchase Series A Preferred Stock   None
      þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer þ

Accelerated filer
    o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller Reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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TABLE OF
    CONTENTS
   
 Forward-Looking Information


iiiGlossary of Technical Terms


ivPART IItem 1.


Business


1General


1Retail Energy


1Wholesale Energy


3Regulation


5Competition and
    Seasonality


6Environmental
    Matters


6Employees


8Executive
    Officers


9Available
    Information


10Certifications


11Item 1A.


Risk Factors


11Risks Related to
    the Retail and Wholesale Energy Businesses


11Risks Relating to
    Our Retail Business


13Risks Related to
    Our Company


15Other Risks


16Item 1B.


Unresolved Staff Comments


16Item 2.


Properties


16Item 3.


Legal Proceedings


16Item 4.


Submission of Matters to a Vote of Security
    Holders


16PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


17Item 6.


Selected Financial Data


18Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


19Business
    Overview


19Consolidated
    Results of Operations


21Liquidity and
    Capital Resources


31Off-Balance Sheet
    Arrangements


33Historical Cash
    Flows


34New Accounting
    Pronouncements, Significant Accounting Policies and
    Critical     Accounting Estimates


36Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


39Market Risks and
    Risk Management


39Non-trading Market
    Risks


39Trading Market
    Risks


40Item 8.


Financial Statements and Supplementary Data


42Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


42Item 9A.


Controls and Procedures


42Item 9B.


Other Information


42 i




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PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


43Item 11.


Executive Compensation


43Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


43Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


43Item 14.


Principal Accountant Fees and Services


43PART IVItem 15.


Exhibits and Financial Statement Schedules


44Form of Change in Control AgreementForm for Change in Control AgreementForm of 2002 Long-Term Incentive PlanForm of 2002 Long-Term Incentive Plan2002 Long-Term Incentive Plan / Long-Term Incentive Award Agmt2002 Long-Term Incentive Plan / Long-Term Incentive Award AgmtAnnual Base Salaries of Named Executive OfficersAsset Purchase AgreementRatio of Earnings from Continuing Operations to Fixed ChargesSubsidiariesConsent of KPMG LLPConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 1350   ii




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##### Table of Contents



Forward-Looking
    Information      
    Demand and market prices for electricity, purchased power and
    fuel and emission allowances;
    Limitations on our ability to set rates at market prices;
    Legislative, regulatory
    and/or
    market developments;
    Our ability to obtain adequate fuel supply
    and/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.   iii




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##### Table of Contents



GLOSSARY
    OF TECHNICAL TERMS  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). iv




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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. v




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##### Table of Contents



PART I  Item 1.
    Business General    
    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.  Form 10-K.
 Retail
    Energy           1




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##### Table of Contents



Operations
    Data
  Form 10-K. Form 10-K.
  2007


2006


2005(gigawatt hours)Electricity Sales to End-Use Retail Customers:Mass:Residential:Houston


13,516



15,447



18,029Non-Houston


8,361



7,955



6,504Small Business:Houston


3,035



3,587



3,640Non-Houston


1,433



1,375



891Total Mass


26,345



28,364



29,064Commercial and Industrial:ERCOT(1)


36,926



33,393



32,309Non-ERCOT


4,680



5,572



6,152Total Commercial and Industrial


41,606



38,965



38,461Market 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



1,256Non-Houston


563



504



390Small Business:Houston


116



132



139Non-Houston


36



29



17Total Mass


1,771



1,829



1,802Commercial and Industrial:ERCOT(1)


87



74



70Non-ERCOT


2



1



2Total Commercial and Industrial


89



75



72Total


1,860



1,904



1,874     (1)
    
    Includes customers of the Texas
    General Land Office for whom we provide services.  2




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##### Table of Contents



December 31,2007


2006(in thousands, metered locations)Retail Customers:Mass:Residential:Houston


1,016



1,095Non-Houston


555



547Small Business:Houston


109



124Non-Houston


38



33Total Mass


1,718



1,799Commercial and Industrial:ERCOT(1)


91



75Non-ERCOT


2



1Total Commercial and Industrial


93



76Total


1,811



1,875     (1)
    
    Includes customers of the Texas
    General Land Office for whom we provide services. Wholesale
    Energy      Region

Principal MarketsPJM

Illinois, New Jersey and PennsylvaniaMISO

Illinois, western Pennsylvania and OhioSoutheast

Florida, Mississippi and Texas (non-ERCOT)West

California and NevadaERCOT

Texas (ERCOT)    3




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##### Table of Contents



Number of


Net GeneratingGeneration


CapacityRegion

Facilities


(MW)


Fuel Type

Dispatch TypePJM(1)


22



7,298


Coal/Gas/Oil/Dual

Base-load/Intermediate/PeakingMISO


4



1,678


Coal/Gas/Oil

Base-load/Intermediate/PeakingSoutheast(2)(3)


5



2,541


Gas/Dual

Base-load/Intermediate/PeakingWest


6



3,990


Gas/Dual

Base-load/Intermediate/PeakingERCOT


1
(4)


830
(4)

Gas

Base-loadTotal


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.  Operations
    Data
  Form 10-K.
  2007


2006


2005GWh


%
    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
%   4




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##### Table of Contents



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



18,259.3MISO Coal


5,518.0



5,577.7



5,871.4PJM/MISO Gas


1,444.0



929.3



1,205.5West


3,543.9



2,439.0



1,948.5Other


3,493.6



5,268.8



5,474.3Total


33,676.6



33,737.1



32,759.0Open Energy Unit Margin
    ($/MWh)(3):PJM Coal

$
30.95


$
27.15


$
35.11MISO Coal


29.18



21.69



33.89PJM/MISO Gas


34.63



47.35



50.60West


5.64



4.92



NM
(4)Other


6.87



0.76



4.93Total 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 this
    Form 10-K.(4)
    
    NM is not meaningful. Regulation  Texas
  Form 10-K.
    Other
    States
     5




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##### Table of Contents



Federal
    Energy Regulatory Commission
   Competition
    and Seasonality  Form 10-K
 Environmental
    Matters    2
  Form 10-K
  Air
    Quality
  2 2
  NOx
    and
    SO2
    Emissions
  2
 6




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2 2 2 cap-and-trade
  2 cap-and-trade
  2
  Mercury
    Emissions
  cap-and-trade
    cap-and-trade
    Air
    Particulates
  2
  Greenhouse
    Gas Emissions
  2 2
 7




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2
  2 2
  1998-2001
  Water
    Quality
  plant-by-plant,
  Other
     Employees    SegmentRetail energy


1,161Wholesale energy


1,976Other operations


561Total


3,698  8




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##### Table of Contents



Executive
    Officers  Name

Age(1)

Present PositionMark M. Jacobs


45


President and Chief Executive OfficerBrian Landrum


45


Executive Vice President and Chief Operating OfficerRick J. Dobson


49


Executive Vice President and Chief Financial OfficerCharles S. Griffey


48


Senior Vice President, Market Design and Regulatory AffairsD. Rogers Herndon


42


Senior Vice President, Strategic Planning and Business
    DevelopmentMichael L. Jines


49


Senior Vice President, General Counsel and Corporate SecretarySuzanne L. Kupiec


41


Senior Vice President, Risk and Structuring and Corporate
    Compliance OfficerThomas C. Livengood


52


Senior Vice President and ControllerAlbert H. Myres


44


Senior Vice President, Government and Public AffairsKaren D. Taylor


50


Senior Vice President, Human Resources and Chief Diversity
    Officer     (1)
    
    Age is as of February 1, 2008.  Mark M. Jacobs
  Brian Landrum
  Rick J. Dobson
  Charles S. Griffey
  D. Rogers Herndon
  Michael L. Jines
  Suzanne L. Kupiec
 9




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##### Table of Contents



Thomas C. Livengood
  Albert H. Myres
  Karen D. Taylor
 Available
    Information  (713-497-7000). (http://www.reliant.com):
  
    Our corporate governance guidelines and board committee charters;
    Our annual reports on
    Form 10-K,
    quarterly reports on
    Form 10-Q,
    current reports on
    Form 8-K
    and amendments to these reports; and
    Our business ethics policy.  Form 10-K. (http://www.sec.gov) (1-800-SEC-0330).
 10




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##### Table of Contents



Certifications  Form 10-K.
  Item 1A.
    Risk
    Factors. Risks
    Related to the Retail and Wholesale Energy Businesses  The
    financial results of our wholesale and retail energy segments
    are subject to market risks beyond our control.
    The
    markets in which we operate are relatively immature markets that
    are characterized by elements of both deregulated and regulated
    markets. Changes in the regulatory environment in which we
    operate could adversely affect our ability to set rates, or the
    cost, manner or feasibility of conducting our
    business.
  Form 10-K.
  The
    tightening of the supply and demand balance for electricity may
    result in significant long- and
    short-term
    price volatility in both our wholesale and retail businesses.
    Price volatility may result in legislative, regulatory or
    judicial initiatives intended to mitigate the impact of such
    volatility.
  and/or
 11




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We
    depend on sources, facilities and systems that we do not own or
    control for our fuel and fuel supply and to deliver electricity
    to and bill our customers. Any disruption in these sources,
    facilities or systems could have an adverse effect on our
    business.
  and/or and/or and/or
  The
    operation of generation facilities involves significant risks
    that could interrupt operations and increase our
    costs.
  and/or
  Our
    business operations expose us to the risk of loss if third
    parties fail to perform their contractual
    obligations.
  Form 10-K
  Our
    costs of compliance with environmental laws are significant and
    can affect our future financial results.
   12




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##### Table of Contents



and/or Form 10-K
  Failure
    to obtain or maintain any required permits or approvals could
    prevent or limit us from operating our business.
    We
    could be liable for a share of the payment defaults of other
    market participants.
    Significant
    events beyond our control, such as hurricanes and other
    weather-related problems or acts of terrorism, could have a
    material adverse effect on our business.
   Risks
    Relating to Our Retail Business  Merrill
    Lynch provides credit support for our retail
    business.
   13




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##### Table of Contents



We
    depend on third parties to provide electricity to supply our
    retail customers.
    Rising
    power supply costs could adversely affect the financial
    performance of our retail electric operations.
    
    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 the
    12-month
    forward prices; and
    changes in market heat rate (i.e., the relationship between
    power and natural gas prices).  We may
    lose further market share in the Houston retail electricity
    market, which is a significant contributor of income to our
    consolidated results.
  Form 10-K.
  Violations
    of market power standards may negatively impact the wholesale
    cost of power.
    We
    depend on the ISOs to communicate operating and system
    information in a timely and accurate manner. Information that is
    not accurate or timely can have an impact on our future reported
    financial results.
  Form 10-K.
 14




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##### Table of Contents



Risks
    Related to Our Company  Our
    borrowing levels, debt service obligations and restrictive
    covenants may adversely affect our business. We may be
    vulnerable to reductions in our cash flow.
    
    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.    Our
    hedging and other risk management activities may not work as
    planned.
  Form 10-K.
  Changes
    in the wholesale energy market or changes in our evaluation of
    generation assets could result in impairments.
    Lawsuits,
    regulatory proceedings and tax proceedings could adversely
    affect our future financial results.
    We
    have entered into outsourcing arrangements with third party
    service providers. In addition, our operations are highly
    dependent on computer and other operating systems, including
    telecommunications systems. Any interruptions in these
    arrangements or systems could significantly disrupt our business
    operations.
   15




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If we
    acquire or develop additional generation assets, or dispose of
    existing generation assets, we may incur additional costs and
    risks.
   Other
    Risks  Form 10-K.
  Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.  Form 10-K.
  Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   16




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.      Market PriceHigh


Low2007:First Quarter

$
21.70


$
13.52Second Quarter

$
27.79


$
20.37Third Quarter

$
30.69


$
22.72Fourth Quarter

$
28.74


$
24.112006:First Quarter

$
10.74


$
9.57Second Quarter

$
12.55


$
10.51Third Quarter

$
13.58


$
11.64Fourth Quarter

$
14.40


$
12.02     Sales of Unregistered Securities.
  Stock Price Performance Graph.
 17




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##### Table of Contents



Form 10-K
  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


$
10,097Operating 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


$
994Cash flows from investing activities


(179
)


1,057



306



900



917Cash flows from financing activities


(292
)


(1,957
)


594



(1,047
)


(2,889
)   18




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##### Table of Contents



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


$
36Total assets


9,457



10,567



13,569



12,194



13,297Current portion of long-term debt and short-term borrowings


52



355



789



619



129Long-term debt


2,903



3,178



4,317



3,939



4,276Stockholders 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 EITF
    No. 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. Business
    Overview      Retail Energy.
    
    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; 19




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##### Table of Contents




    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.  Wholesale Energy.
    
    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.  Company-wide.
  
    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. 20




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##### Table of Contents




    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.  Form 10-K.
  Recent Events.
 Consolidated
    Results of Operations    2007
    Compared to 2006 and 2006 Compared to 2005
    21




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##### Table of Contents



Change


Changefrom 2006


from 20052007


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



36Other contribution margin


1



1



4







(3
)Other general and administrative


(171
)


(172
)


(140
)


1



(32
)Western states and similar settlements


(22
)


(35
)


(359
)


13



324Gains on sales of assets and emission allowances, net


26



159



168



(133
)


(9
)Depreciation and amortization


(424
)


(373
)


(446
)


(51
)


73Income of equity investments, net


5



6



26



(1
)


(20
)Debt extinguishments and conversions


(73
)


(37
)






(36
)


(37
)Other, net










(23
)






23Interest expense


(349
)


(428
)


(399
)


79



(29
)Interest income


34



34



23







11Income tax (expense) benefit


(135
)


122



253



(257
)


(131
)Income (loss) from continuing operations


358



(327
)


(441
)


685



114Income (loss) from discontinued operations


7



(2
)


111



9



(113
)Cumulative effect of accounting changes, net of tax






1



(1
)


(1
)


2Net income (loss)

$
365


$
(328
)

$
(331
)

$
693


$
3   Retail
    Energy Segment
    Unrealized Gains/Losses on Energy
    Derivatives.
 22




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##### Table of Contents



Retail
    Energy Revenues.
  Change


Changefrom 2006


from 20052007


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
)


716Commercial 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



392Total


7,637



7,702



6,594



(65
)


1,108Retail energy revenues from resales of purchased power and other
    hedging activities


540



488



474



52
(11)


14Market usage adjustments


(4
)


7



(23
)


(11
)


30Total 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. 23




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##### Table of Contents



Retail
    Energy Cost of Sales.
  Change


Changefrom 2006


from 20052007


2006


2005


to 2007


to 2006(in millions)Costs of sales

$
6,820


$
6,635


$
5,676


$
185


$
959Retail 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
)






15Unrealized (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.  Retail
    Energy Margins.
  Change


Changefrom 2006


from 20052007


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
)


15Retail gross margin


952



984



752



(32
)


232Operation 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
)


126Unrealized 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. 24




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##### Table of Contents



Wholesale
    Energy Segment
    Historical and Operational Wholesale
    Hedges.
  Unrealized Gains/Losses on Energy
    Derivatives.
  Changes in California-Related Receivables and
    Reserves.
   25




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##### Table of Contents



Wholesale
    Energy Revenues.
  Change


Changefrom 2006


from 20052007


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.  Wholesale
    Energy Cost of Sales.
  Change


Changefrom 2006


from 20052007


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. 26




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##### Table of Contents



Wholesale
    Energy Margins.
  Change


Changefrom 2006


from 20052007


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



1PJM/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



8Open 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
)


4Open 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. 27




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##### Table of Contents



(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.  Other
    General and Administrative.
  Change


Changefrom 2006


from 20052007


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



7Rent 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



2Other 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.  Western States and Similar Settlements.
 28




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##### Table of Contents



Gains on
    Sales of Assets and Emission Allowances, Net.
  Change


Changefrom 2006


from 20052007


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
)






4Other, 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 this
    Form 10-K.  Depreciation
    and Amortization.
  Change


Changefrom 2006


from 20052007


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.  Income of
    Equity Investments, Net.
  Change


Changefrom 2006


from 20052007


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.  Debt Extinguishments and Conversions.
 29




---



##### Table of Contents



Other,
    Net.
  Change


Changefrom 2006


from 20052007


2006


2005


to 2007


to 2006(in millions)Impairment of investments

$
(3
)

$



$
(23
)(1)

$
(3
)

$
23Other, net


3











3



Other, net

$



$



$
(23
)

$



$
23     (1)
    
    See note 19 to our
    consolidated financial statements.  Interest
    Expense.
  Change


Changefrom 2006


from 20052007


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.  Interest
    Income.
  Change


Changefrom 2006


from 20052007


2006


2005


to 2007


to 2006(in millions)Interest on temporary cash investments

$
25


$
6


$
3


$
19
(1)

$
3Net margin deposits


8



27



13



(19
)(2)


14Interest 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.  Income Tax Expense (Benefit).
  Income (Loss) from Discontinued Operations.
 30




---



##### Table of Contents



Liquidity
    and Capital Resources  Sources
    of Liquidity and Capital Resources
  Form 10-K
      Liquidity
    and Capital Requirements
      Capital Requirements.
  2007


2008


2009


2010(in millions)Maintenance capital expenditures:Retail energy

$
14


$
19
(1)

$
14
(1)

$
14
(1)Wholesale
    energy(2)


55



56



67



54Other operations


16



3



7



685



78



88



74Environmental


100



261



115



26
(3)Capitalized interest


4



22



37



13Total 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. 31




---



##### Table of Contents



(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.  Contractual Obligations.
  Less than


One to


Three to


More thanContractual Obligations

Total


One Year


Three Years


Five Years


Five Years(in millions)Debt, including credit
    facilities(1)

$
5,177


$
271


$
836


$
362


$
3,708Other commodity
    commitments(2)


1,543



255



359



233



696Derivative liabilities


623



436



132



49



6REMA operating lease payments


1,059



62



115



119



763Maintenance agreements obligations


704



14



37



68



585Other operating lease payments


467



76



154



100



137Plant and equipment
    commitments(3)


296



240



56







Other(4)


435



46



77



64



248Total 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

$
3,2692009


2,5512010


1,6342011


1,0492012


758Total(1)

$
9,261     (1)
    
    Includes sales commitments with
    both fixed and variable pricing components. See note 12(c)
    to our consolidated financial statements.  Contingencies and Guarantees.
   32




---



##### Table of Contents



Credit
    Risk
      Exposure


Credit


Exposure


Number of


Net Exposure ofBefore


Collateral


Net of


Counterparties


CounterpartiesCredit 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



206No 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. Off-Balance
    Sheet Arrangements   33




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##### Table of Contents



Historical
    Cash Flows  Cash
    FlowsOperating Activities
  2007
    Compared to 2006 and 2006 Compared to 2005.
  Change


ChangeFrom 2006


From 20052007


2006


2005


to 2007


to 2006(in millions)Operating income (loss)

$
876


$
(24
)

$
(321
)

$
900


$
297Depreciation and amortization


424



373



446



51



(73
)Gains on sales of assets and emission allowances, net


(26
)


(159
)


(168
)


133



9Net changes in energy derivatives


(393
)(1)


317
(2)


192
(3)


(710
)


125Western 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
)


2,478Settlements of exchange transactions prior to contractual
    period(6)


(9
)


22



(8
)


(31
)


30Net 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
)


162Net cash provided by (used in) continuing operations from
    operating activities


755



1,330



(1,110
)


(575
)


2,440Net 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. 34




---



##### Table of Contents



Cash
    FlowsInvesting Activities
  2007
    Compared to 2006 and 2006 Compared to 2005.
  Change


Changefrom 2006


from 20052007


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
)


123Restricted 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
)


837Net 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 this
    Form 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. 35




---



##### Table of Contents



Cash
    FlowsFinancing Activities
  2007
    Compared to 2006 and 2006 Compared to 2005.
  Change


Changefrom 2006


from 20052007


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
)






28Proceeds 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



5Net 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
)  New
    Accounting Pronouncements, Significant Accounting Policies and
    Critical Accounting Estimates  New
    Accounting Pronouncements
    Significant
    Accounting Policies
    Critical
    Accounting Estimates
   36




---



##### Table of Contents



Fair
    Value.
  Goodwill.
  Property, Plant and Equipment.
  
    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.  Derivative Assets and Liabilities.
  
    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.    Form 10-K.
  Retail
    Energy Segment Estimated Revenues and Energy Supply
    Costs.
  Accrued Unbilled Revenues.
   37




---



##### Table of Contents



Estimated Energy Supply Costs.
      Dependence on ERCOT ISO Settlement
    Procedures.
  Loss
    Contingencies.
    Deferred
    Tax Assets, Valuation Allowances and Tax Liabilities.
     38




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk. Market
    Risks and Risk Management   Non-trading
    Market Risks  Commodity
    Price Risk
      2013 and


TotalSource of Fair Value

2008


2009


2010


2011


2012


Thereafter


Fair Value(in millions)Prices actively
    quoted(1)

$
1


$



$



$
(1
)

$
13


$



$
13Prices 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.   39




---



##### Table of Contents



Fair Value ofCash Flow


Earnings Impact of


Total PotentialAs of December 31,

Market Prices

Hedges


Other Derivatives


Loss in Fair Value2007

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.    Interest
    Rate Risk
         Trading
    Market Risks   40




---



##### Table of Contents



2013 and


TotalSource 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



















62Prices based on models and other valuation methods


























Total

$
17


$
2


$



$



$



$



$
19       2007


2006(in millions)Realized

$
8


$
(3
)Unrealized


11



30Total

$
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



39Fair 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.  value-at-risk Value-at-risk value-at-risk.
  value-at-risk
  
    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.  value-at-risk and/or
 41




---



##### Table of Contents



value-at-risk value-at-risk and/or
  value-at-risk
  2007


2006(in millions)As of December 31

$
1


$
2Year Ended December 31:Average


3



3High


5



7Low


1



1   Item 8.
    Financial
    Statements and Supplementary Data.  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  page F-1.
  Changes
    in Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information.   42




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.  Form 10-K. Form 10-K,
  Item 11.
    Executive
    Compensation.  Form 10-K,
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  Equity
    Compensation Plan Information
    (a)


(b)


(c)Number of SecuritiesRemaining Available forNumber of


Weighted-Average


Future Issuance UnderSecurities to Be Issued


Exercise Price of


Equity Compensation PlansUpon Exercise of


Outstanding


(Excluding SecuritiesOutstanding Options,


Options, Warrants


ReflectedWarrants 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



3,659,039Total


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.  Form 10-K,
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.  Item 14.
    Principal
    Accountant Fees and Services.  Form 10-K,
 43




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  (a) List of Documents Filed as Part of this Report
  (1)
    Index to
    Consolidated Financial Statements of Reliant Energy, Inc. and
    Subsidiaries.  Reliant Energy, Inc.s Report on Internal
    Control Over Financial Reporting


F-1Report of Independent Registered Public
    Accounting Firm


F-2Report of Independent Registered Public
    Accounting Firm


F-3Report of Independent Registered Public
    Accounting Firm


F-4Consolidated Statements of Operations for the
    Years Ended December 31, 2007, 2006 and 2005


F-5Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-6Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


F-7Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for the Years Ended
    December 31, 2007, 2006 and 2005


F-8Notes to Consolidated Financial Statements


F-9   (2)
    Financial
    Statement Schedule.  Schedule IIReliant Energy, Inc. and
    SubsidiariesValuation and Qualifying Accounts for 2007,
    2006 and 2005


F-66     Item 3-16 Regulation S-X:
  Consolidated Financial Statements of RERH Holdings, LLC and
    Subsidiaries.Report of Independent Registered Public
    Accounting Firm


F-67Consolidated Statement of Operations for the
    Years Ended December 31, 2007 and 2006


F-68Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-69Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007 and 2006


F-70Consolidated Statements of Members Equity
    and Comprehensive Income for the Years Ended December 31,
    2007 and 2006


F-71Notes to Consolidated Financial Statements


F-72Consolidated Financial Statements of Reliant Energy Retail
    Holdings, LLC and Subsidiaries.Report of Independent Registered Public
    Accounting Firm


F-85Consolidated Statement of Operations for the
    Years Ended December 31, 2005


F-86Consolidated Statement of Cash Flows for the Year
    Ended December 31, 2005


F-87Consolidated Statement of Members Equity
    and Comprehensive Income for the Year Ended December 31,
    2005


F-88Notes to Consolidated Financial Statements


F-89Consolidated Financial Statements of Reliant Energy
    Mid-Atlantic Power Holdings, LLC and Subsidiaries.Report of Independent Registered Public
    Accounting Firm


F-101Report of Independent Registered Public
    Accounting Firm


F-102Consolidated Statements of Operations for the
    Years Ended December 31, 2007, 2006 and 2005


F-103Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-104Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


F-105 44




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##### Table of Contents



Consolidated Statements of Members Equity
    and Comprehensive Income (Loss) for the Years Ended
    December 31, 2007, 2006 and 2005


F-106Notes to Consolidated Financial Statements


F-107Consolidated Financial Statements of Orion Power Holdings,
    Inc. and Subsidiaries.Report of Independent Registered Public
    Accounting Firm


F-125Report of Independent Registered Public
    Accounting Firm


F-126Consolidated Statements of Operations for the
    Years Ended December 31, 2007, 2006 and 2005


F-127Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-128Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


F-129Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for the Years Ended
    December 31, 2007, 2006 and 2005


F-130Notes to Consolidated Financial Statements


F-131  45




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##### Table of Contents



(3)
    Index to
    Exhibits.  Form 10-K. Regulation S-K.
  SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference3
.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


3.13
.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


3.34
.1

Specimen Stock Certificate

Reliant Energy, Inc.s Amendment No. 5 to Registration
    Statement on Form S-1, filed March 23, 2001

333-48038


4.14
.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


4.24
.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


4.34
.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


4.54
.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


4.74
.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


4.74
.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 46




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference4
.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


4.124
.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


4.24
.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


4.54
.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


4.64
.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


4.14
.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


4.24
.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


4.184
.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


4.34
.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 47




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference4
.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


4.24
.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


4.14
.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


4.210
.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


10.110
.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


10.810
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


10.110
.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


10.7B10
.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


99.210
.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


10.6B10
.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


10.1A10
.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


10.1B10
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


99.110
.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


10.210
.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


10.310
.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


10.410
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


10.610
.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


10.1410
.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


10.1510
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


10.1710
.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


10.1810
.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


10.110
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


10.310
.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


10.410
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


1.110
.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


4.6a10
.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


4.6b10
.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


4.4a10
.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




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##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


4.5a10
.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


4.5b10
.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


10.2010
.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


10.2110
.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


10.2210
.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


10.2310
.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


4.8a10
.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


4.8b10
.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 orExhibit



Reporter or Registration

Registration

ExhibitNumber

Document Description

Statement

Number

Reference10
.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


10.110
.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


10.110
.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 orExhibit



Reporter or Registration

Registration

ExhibitNumber

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 orExhibit



Reporter or Registration

Registration

ExhibitNumber

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




---



##### Table of Contents



SEC File orExhibit



Reporter or Registration

Registration

ExhibitNumber

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 orExhibit



Reporter or Registration

Registration

ExhibitNumber

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



SIGNATURES
    Reliant Energy, Inc.
   By: /s/  Mark
    M. Jacobs   President and Chief Executive Officer
      Signature

Title/s/  Mark
    M. JacobsMark
    M. Jacobs

President and Chief Executive Officer/s/  Rick
    J. DobsonRick
    J. Dobson

Executive Vice President and Chief Financial Officer
    (Principal Financial Officer)/s/  Thomas
    C. LivengoodThomas
    C. Livengood

Senior Vice President and Controller
    (Principal Accounting Officer)/s/  E.
    William BarnettE.
    William Barnett

Director/s/  Sarah
    M. BarpoulisSarah
    M. Barpoulis

Director/s/  Donald
    J. BreedingDonald
    J. Breeding

Director/s/  Kirbyjon
    H. CaldwellKirbyjon
    H. Caldwell

Director/s/  Steven
    L. MillerSteven
    L. Miller

Director/s/  Laree
    E. PerezLaree
    E. Perez

Director/s/  Evan
    J. SilversteinEvan
    J. Silverstein

Director 61




---



##### Table of Contents



Signature

Title/s/  Joel
    V. StaffJoel
    V. Staff

Director/s/  William
    L. TransierWilliam
    L. Transier

Director  62




---



##### Table of Contents



RELIANT
    ENERGY, INC.S REPORT ON INTERNAL
    CONTROL OVER FINANCIAL REPORTING        page F-2.
  /s/  Mark
    M. JacobsMark
    M. Jacobs
    President and
    Chief Executive Officer

/s/  Rick
    J. DobsonRick
    J. Dobson
    Executive Vice President and
    Chief Financial Officer  F-1




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm     Internal ControlIntegrated Framework Page F-1.
        Internal ControlIntegrated Framework
        F-2




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm                Internal ControlIntegrated Framework
      F-3




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                  F-4




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
  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


$
9,711,995Expenses: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



8,365,921Operation and maintenance


883,083



833,094



736,954Selling, general and administrative


372,528



383,977



292,486Western states and similar settlements


22,000



35,000



359,436Gains on sales of assets and emission allowances, net


(25,699
)


(159,386
)


(168,114
)Depreciation and amortization


424,432



372,616



445,871Total operating expense


10,333,171



10,901,193



10,032,554Operating Income (Loss)


875,553



(23,808
)


(320,559
)Other Income (Expense):Income of equity investments, net


4,686



5,791



25,458Debt 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



23,227Total 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
)


110,799Income (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
)


0.37Income (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
)


0.37Income (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



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  December 31,2007


2006(thousands of dollars, except per share amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
754,962


$
463,909Restricted cash


3,251



24,980Accounts and notes receivable, principally customer, net of
    allowance of $36,724 and $33,332


1,082,746



1,043,637Inventory


285,408



275,437Derivative assets


214,207



489,726Margin deposits


139,834



452,605Accumulated deferred income taxes


114,559



279,479Investment in and receivables from Channelview, net


83,253



Prepayments and other current assets


104,314



141,016Current assets of discontinued operations


2,133



2,460Total current assets


2,784,667



3,173,249Property, Plant and Equipment, net


5,222,217



5,741,995Other Assets:Goodwill, net


379,644



381,594Other intangibles, net


405,338



423,745Derivative assets


90,107



203,857Accumulated deferred income taxes


70,410



87,858Prepaid lease


270,133



264,328Other


234,014



290,507Total other assets


1,449,646



1,651,889Total Assets

$
9,456,530


$
10,567,133LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt and short-term borrowings

$
52,546


$
355,264Accounts payable, principally trade


687,046



664,630Derivative liabilities


436,503



1,164,809Margin deposits


250



16,490Other


426,839



488,764Current liabilities of discontinued operations






3,286Total current liabilities


1,603,184



2,693,243Other Liabilities:Derivative liabilities


187,089



420,534Other


278,641



324,145Long-term liabilities of discontinued operations


3,542



Total other liabilities


469,272



744,679Long-term Debt


2,902,346



3,177,691Commitments and ContingenciesTemporary Equity Stock-based Compensation


4,694



1,647Stockholders 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



99Additional paid-in capital


6,215,512



6,174,665Accumulated deficit


(1,635,526
)


(2,026,316
)Accumulated other comprehensive loss


(103,058
)


(198,575
)Total stockholders equity


4,477,034



3,949,873Total Liabilities and Stockholders Equity

$
9,456,530


$
10,567,133    F-6




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  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
)


608Depreciation and amortization


424,432



372,616



445,871Deferred income taxes


118,631



(152,431
)


(278,992
)Net changes in energy derivatives


(393,453
)


316,742



192,235Amortization of deferred financing costs


50,294



31,508



15,110Debt 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



359,436Income of equity investments, net


(4,686
)


(5,791
)


(25,458
)Other, net


12,703



12,590



27,498Changes 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
)


10,978Western states and similar settlements payments


(35,000
)


(159,885
)


Accounts payable


46,194



(97,117
)


144,466Other current assets


12,306



17,284



33,071Other assets


(17,953
)


(35,373
)


(32,605
)Taxes payable/receivable


(10,975
)


1,302



3,053Other current liabilities


(45,713
)


64,046



(34,479
)Other liabilities


(11,597
)


(2,963
)


4,495Net 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
)


192,948Net 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



149,345Proceeds from sales of emission allowances


6,815



205,510



234,421Purchases of emission allowances


(91,923
)


(22,575
)


(145,769
)Restricted cash


6,674



1,926



14,251Other, net


6,045







5,500Net cash provided by (used in) continuing operations from
    investing activities


(179,170
)


89,485



175,452Net cash provided by discontinued operations from investing
    activities


520



967,566



130,700Net cash provided by (used in) investing activities


(178,650
)


1,057,051



306,152Cash Flows from Financing Activities:Proceeds from long-term debt


1,300,000



400,000



299,000Payments 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
)


407,000Payments 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



37,885Net cash provided by (used in) continuing operations from
    financing activities


(292,040
)


(1,319,412
)


594,354Net cash used in discontinued operations from financing
    activities






(638,000
)


Net cash provided by (used in) financing activities


(292,040
)


(1,957,412
)


594,354Net Change in Cash and Cash Equivalents


291,053



375,512



(16,657
)Cash and Cash Equivalents at Beginning of Period


463,909



88,397



105,054Cash and Cash Equivalents at End of Period

$
754,962


$
463,909


$
88,397Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest paid (net of amounts capitalized) for continuing
    operations

$
344,701


$
385,055


$
347,249Income taxes paid (net of income tax refunds received) for
    continuing operations

$
27,884


$
28,649


$
21,812    F-7




---



##### Table of Contents








RELIANT
    ENERGY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY AND COMPREHENSIVE INCOME (LOSS)
  Accumulated Other Comprehensive Income(Loss)UnrealizedGain (Loss)

















Discontinuedon





Benefits


Benefits





Total


OperationsAvailable


Deferred


Actuarial


Net


Additional


Accumulated


AccumulatedAdditional








For


Derivative


Net


Prior


Minimum


Other


Other


TotalCommon


Paid


Treasury


Accumulated


Sale


Gains


Gain


Service


Benefits


Comprehensive


Comprehensive


Stockholders


ComprehensiveStock


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
)

$
4,386,354Net loss














(330,556
)






























(330,556
)

$
(330,556
)Contributions from CenterPoint Energy, Inc.






7,079







































7,079Warrants






1,411







































1,411Transactions under stock plans


5



48,250



2,209



































50,464Other 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


















































3,871Comprehensive loss

















































$
(581,615
)Balance December 31, 2005

$
66


$
5,846,747


$



$
(1,698,504
)

$



$
(284,133
)

$



$



$
(148
)

$
(284,281
)

$
(335
)

$
3,863,693Adjustment to initially apply FASB Statement No. 123R






18,099







































18,099Balance after initial adjustment to apply FASB Statement
    No. 123R


66



5,864,846







(1,698,504
)






(284,133
)










(148
)


(284,281
)


(335
)


3,881,792Net loss














(327,812
)






























(327,812
)

$
(327,812
)Distribution to CenterPoint Energy, Inc.






(3,774
)






































(3,774
)Warrants






970







































970Transactions under stock plans


3



45,201







































45,204Conversion of convertible senior subordinated notes to common
    stock


30



267,422







































267,452Other 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



240,971Other comprehensive income from discontinued operations


















































335Adjustment 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
)

$



$
3,949,873Adjustment to initially apply FIN 48






(468
)






25,683































25,215Balance after initial adjustment to apply FIN 48


99



6,174,197







(2,000,633
)






(172,243
)


(15,463
)


(10,869
)






(198,575
)






3,975,088Net income














365,107































365,107


$
365,107Distribution to CenterPoint Energy, Inc.






(2,487
)






































(2,487
)Warrants


1



43







































44Transactions under stock plans


6



43,659







































43,665Conversion of convertible senior subordinated notes to common
    stock






100







































100Other comprehensive income (loss):Deferred gain from cash flow hedges, net of tax of
    $3 million






















3,225















3,225







3,225



3,225Reclassification of net deferred loss from cash flow hedges into
    net income, net of tax of $58 million






















88,903















88,903







88,903



88,903Reclassification of benefits net prior service costs into net
    income, net of tax of $0






























1,308







1,308







1,308



1,308Reclassification of benefits actuarial net loss into net income,
    net of tax of $0


























356











356







356



356Deferred benefits actuarial net gain, net of tax of $0


























1,725











1,725







1,725



1,725Comprehensive income

















































$
460,624Balance December 31, 2007

$
106


$
6,215,512


$



$
(1,635,526
)

$



$
(80,115
)

$
(13,382
)

$
(9,561
)

$



$
(103,058
)

$



$
4,477,034    F-8




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##### Table of Contents





RELIANT
    ENERGY, INC. AND SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (1)
    Background
    and Basis of Presentation  Background.
    Basis of Presentation.
  Deconsolidation of Channelview.
        (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.  Our critical accounting estimates
    include:
   F-9




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Principles
    of Consolidation.    (c)
    Revenues.  Power Generation and Capacity Revenues.
  Natural Gas Sales Revenues.
  Retail Energy Revenues.
    (d)
    Derivatives
    and Hedging Activities.         F-10




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           F-11




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Purpose for Holding or

Transactions that

Transactions thatInstrument

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

RevenuesSupply management revenues

Revenues

Cost of salesPower purchases related to our retail operations

Cost of sales

Cost of salesPower purchases related to wholesale operations

Cost of sales

RevenuesPower purchases/sales related to our legacy trading positions

Revenues

RevenuesNatural 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 salesNatural gas and fuel sales related to wholesale operations

Revenues

Cost of salesNatural gas and fuel purchases related to wholesale operations

Cost of sales

Cost of salesNatural gas and fuel purchases/sales related to our legacy
    trading positions

Cost of sales

Cost of salesInterest rate swaps and caps

Interest rate risk associated with floating-rate debt

N/A(3)

Interest expenseEmission 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).  value-at-risk
  Earnings Volatility from Derivative
    Instruments.
 F-12




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##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Set-off of Derivative Assets and
    Liabilities.
  New Accounting Pronouncement Not Yet AdoptedOffsetting
    of Amounts. FIN 39-1,
    (e)
    Credit
    Risk.   F-13




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (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


$
6,311Building and building improvements


5 - 15



31



30Land improvements


20 - 35



235



238Other


3 - 10



470



451Land






92



95Assets under construction






157



67Total






6,853



7,192Accumulated depreciation






(1,630
)


(1,450
)Property, plant and equipment, net





$
5,223


$
5,742       (h)
    Intangible
    Assets and Amortization Expense.  Goodwill.
  Other Intangibles.
 F-14




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##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (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


$
155Coal


55



51Natural gas


29



20Heating oil


50



49Total inventory

$
285


$
275   (n)
    Environmental
    Costs.  and/or
  (o)
    Asset
    Retirement Obligations.   F-15




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##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  (p)
    Repair
    and Maintenance Costs for Power Generation Assets.    (q)
    Deferred
    Financing Costs.    2007


2006


2005(in millions)Beginning of year

$
92


$
112


$
126Capitalized


31



17



1Amortized


(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



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (3)
    Related
    Party Transactions  (a)
    Equity
    Contributions/Distributions.    (b)
    Indemnities
    and Releases.    (4)
    Intangible
    Assets  (a)
    Goodwill.    Retail


WholesaleEnergy


Energy


Total(in millions)As of January 1, 2006

$
53


$
334


$
387Changes






(5
)


(5
)As of December 31, 2006


53



329



382Changes






(2
)


(2
)As of December 31, 2007

$
53


$
327


$
380     Goodwill Impairment Tests.
  Estimation of our Wholesale Energy Reporting Units Fair
    Value.
   F-17




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##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Number of years used in internal cash flow analysis


15EBITDA(1)
    multiple for terminal values (through August 2005 test and for
    April 2006 test)


7.5EBITDA 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.  (b) Other
    Intangibles.
  RemainingWeighted


December 31,Average


2007


2006Amortization


Carrying


Accumulated


Carrying


AccumulatedPeriod (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


$
95Contractual
    rights(3)

$



$
(1
)

$
(1
)Contractual
    obligations(1)(3)






3



9Net

$



$
2


$
8  F-18




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##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (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, 2007Expected to beReclassified intoAt the End of


Results of Operationsthe 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




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005(in millions)Energy derivatives:Hedge ineffectiveness gains (losses)

$
6
(1)

$
(69
)

$
71Other 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.      2006Income/Loss fromContinuing Operationsbefore 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




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (6)
    Debt  (a)
    Overview.    December 31,2007


2006Weighted








WeightedAverage








AverageStated








StatedInterest








InterestRate(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



3Senior 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







267Fixed rate debt due 2014 to 2024














9.55







75Reliant Energy Power Supply, LLC working capital facility due
    2012


5.30











5.80







Total facilities, bonds and notes






2,886



41







3,149



345Other:Adjustment to fair value of
    debt(7)






17



11







29



10Total other debt






17



11







29



10Total 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. F-21




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (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


UnusedCredit


Amount


of Credit


Amount(in millions)Reliant Energy senior secured revolver due 2012

$
500


$



$
109


$
391Reliant Energy letter of credit facility due 2014


250







247



3Retail working capital facility due 2012


300











300$
1,050


$



$
356


$
694     Reliant EnergyReliant Energy


Consolidated(in millions)2008

$
41
(1)

$
412009






2010


2



4022011






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.  2007 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



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006 Financing Activity.
  
    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.  Senior Secured Revolver and Letter of Credit Facility (the
    June 2007 credit facilities).
      Senior Unsecured 7.625% and
    7.875% Notes.
  Senior Unsecured 9.25% and
    9.50% Notes.
 F-23




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Senior Secured 6.75% Notes.
  Convertible Senior Subordinated Notes.
  Orion Power Holdings Senior Notes.
  Reliant Energy Seward, LLC PEDFA
    Bonds.
  REMA Term Loans.
  Channelview LP.
 F-24




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Retail Working Capital Facility.
  (d)
    Warrants.    (e)
    Interest
    Rate Derivative Instruments.  ,
  Expirations.
  Terminations.
  (7)
    Credit-Enhanced
    Retail Structure     F-25




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        (8)
    Stockholders
    Equity    Common


TreasuryStock


Stock(Shares in thousands)As of January 1, 2005


299,684



128Issued 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


28,601As 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



  F-26




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (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



302,409Plus: 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. F-27




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (10)
    Stock-Based
    Incentive Plans and Benefit Plans  (a)
    Stock-Based
    Incentive Plans.  Overview of Plans.
    Summary.
  2007

2006

2005(in millions)Stock-based incentive plans compensation expense (pre-tax)

$
26


$
30


$
8Income tax impact (before impact of the valuation allowances)

$
(9
)

$
(9
)

$
(3
)       Valuation Data.
  F-28




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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 dateTime-based restricted
    stock(2)

No change

Market price of our common stock on the grant dateTime-based
    cash(3)

No change

Market price of our common stock on each reporting measurement
    datePerformance-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
    datePerformance-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 datePerformance-based
    cash(1)(3)

No change

Market price of our common stock on each reporting measurement
    dateEmployee 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.  Time-Based Stock Options.
    2007Weighted


WeightedAverage


Average Remaining


AggregateExercise


Contractual


IntrinsicOptions


Price


Term (Years)


Value(in millions)Beginning of period


7,864,352


$
13.98



5


$
37Granted


541,907



18.36Exercised


(2,196,713
)(1)


9.43Forfeited


(49,930
)


16.26Expired


(413,862
)


26.54End of period


5,745,754
(2)(3)


15.21



4



71Exercisable at end of period


5,243,775



14.90



4



67  F-29




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (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

$



$
7.18Proceeds from exercise of time-based options


16



29Intrinsic value of exercised time-based options


8



17Tax benefits realized



(1)



(1)     (1)
    
    None realized due to our net
    operating loss carryforwards.    2007Expected term in
    years(1)


6Estimated
    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.  Time-Based Restricted Stock Awards.
 F-30




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007WeightedAverage GrantShares


Date Fair ValueBeginning of period


1,095,469


$
9.95Granted


456,776



18.91Vested


(429,779
)(1)


8.85Forfeited


(75,063
)


13.71End of period


1,047,403
(2)


14.04December 31, 2007 total compensation cost related to
    nonvested time-based restricted stock awards not yet recognized

$
6 millionWeighted 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


$
9Weighted-average grant date fair value of time-based restricted
    stock granted


11.64



12.65   Time-Based Cash Awards.
    Performance-Based and Market-Based Awards.
   F-31




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2004-2006
    2007ReportingMeasurementShares


Date Fair ValueBeginning of period


1,004,800
(1)

$
14.48Vested


(1,004,800
)


14.48End of period






N/A     (1)
    
    Based on the market price of our
    common stock on the vesting date, $15 million in fair value
    vested.    2007WeightedAverageWeighted


RemainingAverage


Contractual


AggregateExercise


Term


IntrinsicOptions


Price


(Years)


Value(in millions)Beginning of period


4,270,400


$
8.36



7


$
25Exercised


(1,366,600
)(1)


8.40End of period


2,903,800



8.33



6



52Exercisable at end of period


2,903,800



8.33



6



52Weighted 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. F-32




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Expected term in
    years(1)


3Estimated
    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.      Employee Stock Purchase Plan.
    2007


2006


2005(1)Expected term in years


0.5



0.5



0.5Estimated
    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.   F-33




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Pro-forma Data for 2005.
  2005(in millions, exceptper-share amounts)Net loss, as reported

$
(331
)Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects


5Deduct: 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
)     Options2005Expected term in years


5Estimated
    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.  Classification.
  Other.
  (b)
    Pension
    and Postretirement Benefits.  Benefit Plans.
   F-34




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Pension


Postretirement Benefits2007


2006


2007


2006(in millions)Change in Benefit ObligationBeginning of year

$
90


$
82


$
73


$
67Service cost


6



6



2



2Interest cost


5



5



4



4Benefits paid


(2
)


(2
)






Actuarial gain


(1
)


(1
)


(1
)


End of year

$
98


$
90


$
78


$
73Change in Plan AssetsBeginning 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 BenefitsDecember 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
)    F-35




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension


Postretirement Benefits2007


2006


2005


2007


2006


2005(in millions)Service cost

$
6


$
6


$
6


$
2


$
2


$
2Interest cost


5



5



4



4



4



4Expected return on plan assets


(4
)


(4
)


(3
)










Net amortization


1



1



1











2Net benefit cost

$
8


$
8


$
8


$
6


$
6


$
8   Assumptions.
  Pension


Postretirement BenefitsDecember 31,


December 31,2007


2006


2007


2006Discount rate


5.75
%


5.75
%


5.75
%


5.75
%Rate of compensation increase


3.0
%


3.0
%


3.0
%


3.0
%     Pension


Postretirement Benefits2007


2006


2005


2007


2006


2005Discount 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


2005Health 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 PointIncrease


Decrease(in millions)Effect on service and interest cost

$
1


$
(1
)Effect on accumulated postretirement benefit obligation


10



(9
)  F-36




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Plan Assets.
  Percentage of Plan Assets


Targetas of December 31,


Allocation2007


2006


2008Domestic equity securities


49
%


50
%


50
%International equity securities


10



11



10Global equity securities


10



11



10Debt securities


31



28



30Total


100
%


100
%


100
%   net-of-fee
  Asset Class

Index

WeightDomestic equity securities

Wilshire 5000 Index


50
%International equity securities

MSCI All Country World Ex-U.S. Index


10Global equity securities

MSCI All Country World Index


10Debt securities

Lehman Brothers Aggregate Bond Index


30100
%     Cash Obligations.
  PostretirementPension


Benefits(in millions)2008

$
3


$
22009


3



32010


4



32011


4



42012


5



52013-2017


39



33   (c)
    Savings
    Plan.     F-37




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (d)
    Other
    Employee Matters.    (11)
    Income
    Taxes  (a)
    Summary.    2007


2006


2005(in millions)Current:Federal

$



$



$
7State


16



30



19Total current


16



30



26Deferred:Federal


121



(19
)


(305
)State


(2
)


(133
)


26Total 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


2005Federal statutory rate


35
%


(35
)%


(35
)%Additions (reductions) resulting from:Federal tax uncertainties


(1
)


3



1Federal valuation
    allowance(1)


(7
)


15
(2)


State income taxes, net of federal income taxes


2
(3)


(12
)(4)


4Capital loss valuation allowances










(12
)Debt conversion expense






3



Changes in estimates of deferred tax assets and liabilities










4Other, net


(2
)


(1
)


2Effective 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. F-38




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2007


2006(in millions)Deferred tax assets:Current:Derivative liabilities, net

$
86


$
275Western states settlement






13Allowance for doubtful accounts


13



13Employee benefits


7



4Federal valuation allowance






(10
)State valuation allowances






(15
)Other


9



4Total current deferred tax assets


115



284Non-current:Employee benefits


68



73Net operating loss carryforwards


629



620Capital loss carryforwards


9



Environmental reserves


11



11Derivative liabilities, net


42



92Other


62



44Federal valuation allowance


(14
)


(50
)State valuation allowances


(67
)


(70
)Other valuation allowances


(22
)


(18
)Total non-current deferred tax assets


718



702Total deferred tax assets

$
833


$
986Deferred tax liabilities:Current:Other

$



$
9Total current deferred tax liabilities






9Non-current:Depreciation and amortization


653



622Other


12



6Total non-current deferred tax liabilities


665



628Total deferred tax liabilities

$
665


$
637Accumulated deferred income taxes, net

$
168


$
349  F-39




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Tax
    Attribute Carryovers.  StatutoryDecember 31,


Carryforward


Expiration2007


Period


Year(s)(in millions)


(in years)Net Operating Loss Carryforwards:Federal

$
1,284



20



2022 through 2027State


3,257



5 to 20



2008 through 2027Foreign


64



7 to 10



2008 through 2014Capital Loss Carryforwards


26



5



2012Charitable Contribution Carryforwards


4



5



2009 through 2012State Tax Credit Carryforwards


6



1 to 20



2008 through 2027   (c)
    Valuation
    Allowances.      Capital, ForeignFederal


State


and Other, Net(in millions)As of January 1, 2005

$



$
96


$
138Changes in valuation allowance






(1
)


(117
)(1)As of December 31, 2005






95



21Changes 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



18Changes in valuation allowance


(37
)(3)(4)


(18
)(4)


4Changes 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. F-40




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (d)
    Adoption
    of FIN 48 and Tax Uncertainties.      Adoption Effect onJanuary 1, 2007Increase (Decrease)(in millions)Goodwill

$
(2
)Other long-term liabilities


(27
)Retained deficit


(25
)     2007(in millions)Beginning of year (immediately after adoption)

$
4Increases related to prior years


11Decreases 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 AuditFederal


1997 to 2007


1997 to 2005Texas


2000 to 2007


2000 to 2005Pennsylvania


2004 to 2007


2006California


2003 to 2007


2003 to 2006  F-41




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    $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.  Agreement with CenterPoint.
  (12)
    Commitments  (a)
    Lease
    Commitments.  REMA Leases.
    Tolling Agreements.
 F-42




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Office Space Lease.
  Cash Obligations Under Operating Leases.
  REMA Leases


Other(1)(2)


Total(in millions)2008

$
62


$
76


$
1382009


63



78



1412010


52



76



1282011


63



66



1292012


56



34



902013 and thereafter


763



137



900Total

$
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.  Operating Lease Expense.
  (b)
    Guarantees
    and Indemnifications.          and/or
 F-43




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          December 31, 2007StatedMaximum








Carrying AmountPotential








of LiabilityAmount of





Assets Held


Recorded onType 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.   F-44




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (c)
    Other
    Commitments.  Property, Plant and Equipment Commitments. 2
  Fuel Supply, Commodity Transportation, Purchased Power and
    Electric Capacity Commitments.
  Purchased PowerFuel


Transportation


And ElectricCommitments


Commitments


Capacity CommitmentsFixed


Variable


Fixed


Fixed


VariablePricing


Pricing(1)


Pricing


Pricing


Pricing(2)(in millions)2008

$
81


$
7


$
87


$
67


$
132009


60



8



75



74



112010


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.    Sales Commitments.
  Retail Energy


Wholesale EnergyFixed


Variable


FixedPricing(1)


Pricing(1)(2)


Pricing(in millions)2008

$
854


$
2,071


$
3442009


526



1,517



5082010


213



1,130



2912011


64



859



1262012


27



573



158Total

$
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. F-45




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Naming Rights to Houston Sports Complex.
  Long-term Power Generation Maintenance
    Agreements.
  2008

$
142009


102010


272011


282012


402013 and thereafter


585Total

$
704   (13)
    Contingencies    (a)
    Pending
    Electricity and Natural Gas Litigation.    Electricity Actions.
  Natural Gas Actions. and/or
   F-46




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (b)
    Environmental
    Matters.  New Source Review Matters.
      Ash Disposal Site Closures.
  Remediation Obligations.
  Conemaugh Actions.
  (c)
    Other.  PUCT Cases. price-to-beat
 F-47




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CenterPoint Indemnity.
  Texas Franchise Audit.
  Sales Tax Contingencies.
  (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

$
268Estimated refund obligation


(87
)Discount


(14
)Interest receivable


41Cash payments


150Cornerstone settlement


8Other


(7
)Total

$
359
(1)     (1)
    
    The settlement also included
    undertakings not involving the payment of cash or the waiver of
    rights to receivables. F-48




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2005(in millions)Estimated refund obligation

$
2Discount


(1
)Interest receivable


6Net impact

$
7     Criminal Proceeding Reliant Energy
    Services.
  (b)
    Nevada
    Power.    (c)
    Shareholder
    Class Action Lawsuits.   F-49




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (15)
    Estimated
    Fair Value of Financial Instruments    December 31,2007


2006Carrying





CarryingValue


Fair
    Value(1)


Value


Fair
    Value(1)(in millions)Fixed rate debt

$
2,955


$
2,963


$
2,866


$
2,987Variable rate debt










667



669Total 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       F-50




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statements of Operations.
  2007Reliant Energy


Guarantors


Non-Guarantors


Adjustments(1)


Consolidated(in millions)Revenues

$



$
3,662


$
9,756


$
(2,209
)

$
11,209Cost of sales






3,298



7,557



(2,198
)


8,657Operation and maintenance






187



701



(5
)


883Selling, general and administrative






24



355



(6
)


373Western states and similar settlements






22











22Gains on sales of assets and emission allowances, net






(17
)


(9
)






(26
)Depreciation and amortization






157



267







424Total






3,671



8,871



(2,209
)


10,333Operating income (loss)






(9
)


885







876Income of equity investment, net






5











5Income (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







34Interest 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
)


493Income tax expense (benefit)


(50
)


(113
)


298







135Income (loss) from continuing operations


365



(171
)


438



(274
)


358Income from discontinued operations










7







7Net income (loss)

$
365


$
(171
)

$
445


$
(274
)

$
365   F-51




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006Reliant Energy


Guarantors


Non-Guarantors


Adjustments(1)


Consolidated(in millions)Revenues

$



$
8,811


$
9,805


$
(7,739
)

$
10,877Cost of sales






8,734



8,439



(7,737
)


9,436Operation and maintenance






177



658



(2
)


833Selling, general and administrative


1



9



373







383(Gain) loss on sales of receivables






7



(7
)






Western states and similar settlements






35











35Gains on sales of assets and emission allowances, net






(21
)


(138
)






(159
)Depreciation and amortization






152



221







373Total


1



9,093



9,546



(7,739
)


10,901Operating income (loss)


(1
)


(282
)


259







(24
)Income of equity investment, net






6











6Income (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







34Interest 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











1Net income (loss)

$
(328
)

$
(360
)

$
166


$
194


$
(328
)   F-52




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2005Reliant Energy


Guarantors


Non-Guarantors


Adjustments(1)


Consolidated(in millions)Revenues

$



$
8,518


$
7,893


$
(6,699
)

$
9,712Cost of sales


(1
)


8,754



6,311



(6,698
)


8,366Operation and maintenance






171



565



1



737Selling, general and administrative






9



291



(7
)


293Loss on sales of receivables






8



(8
)






Western states and similar settlements






359











359Gains on sales of assets and emission allowances, net






(7
)


(164
)


3



(168
)Depreciation and amortization






165



274



7



446Total


(1
)


9,459



7,269



(6,694
)


10,033Operating income (loss)


1



(941
)


624



(5
)


(321
)Income of equity investments, net






26











26Income (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







23Interest 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



111Income (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. F-53




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheets.
  December 31, 2007Reliant Energy


Guarantors


Non-Guarantors


Adjustments(1)


Consolidated(in millions)ASSETSCurrent Assets:Cash and cash equivalents

$
490


$
1


$
264


$



$
755Restricted cash






1



2







3Accounts and notes receivable, principally customer, net


11



252



831



(11)



1,083Accounts and notes receivableaffiliated companies


2,009



368



328



(2,705)



Inventory






148



137







285Derivative assets






73



141







214Investment in and receivables from Channelview, net


1



82











83Other current assets


19



160



197



(17)



359Current assets of discontinued operations










2







2Total current assets


2,530



1,085



1,902



(2,733)



2,784Property, Plant and Equipment, net






2,870



2,353







5,223Other Assets:Goodwill and other intangibles, net






184



482



119



785Notes receivableaffiliated companies


2,365



656



68



(3,089)



Equity investments of consolidated subsidiaries


2,212



304







(2,516)



Derivative assets






12



78







90Other long-term assets


55



860



356



(696)



575Total other assets


4,632



2,016



984



(6,182)



1,450Total Assets

$
7,162


$
5,971


$
5,239


$
(8,915)


$
9,457LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt and short-term borrowings

$
41


$



$
11


$



$
52Accounts payable, principally trade






68



624



(5)



687Accounts and notes payableaffiliated companies


103



2,223



379



(2,705)



Derivative liabilities






62



375







437Other current liabilities


11



182



256



(23)



426Total current liabilities


155



2,535



1,645



(2,733)



1,602Other Liabilities:Notes payableaffiliated companies






2,213



876



(3,089)



Derivative liabilities






25



162







187Other long-term liabilities


539



152



284



(696)



279Long-term liabilities of discontinued operations










4







4Total other liabilities


539



2,390



1,326



(3,785)



470Long-term Debt


1,986



500



417







2,903Commitments and ContingenciesTemporary Equity Stock-based Compensation


5















5Total Stockholders Equity


4,477



546



1,851



(2,397)



4,477Total Liabilitiesand Stockholders Equity

$
7,162


$
5,971


$
5,239


$
(8,915)


$
9,457  F-54




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   December 31, 2006Reliant Energy


Guarantors


Non-Guarantors


Adjustments(1)


Consolidated(in millions)ASSETSCurrent Assets:Cash and cash equivalents

$
286


$
24


$
154


$



$
464Restricted cash










25







25Accounts and notes receivable, principally customer, net


10



264



779



(9)



1,044Accounts and notes receivableaffiliated companies


1,737



418



259



(2,414)



Inventory






144



131







275Derivative assets






61



429







490Other current assets


7



529



354



(17)



873Current assets of discontinued operations










2







2Total current assets


2,040



1,440



2,133



(2,440)



3,173Property, Plant and Equipment, net






3,044



2,698







5,742Other Assets:Goodwill and other intangibles, net






182



505



119



806Notes receivableaffiliated companies


3,249



789



94



(4,132)



Equity investments of consolidated subsidiaries


1,377



328



5



(1,710)



Derivative assets






77



127







204Other long-term assets


76



730



400



(564)



642Total other assets


4,702



2,106



1,131



(6,287)



1,652Total Assets

$
6,742


$
6,590


$
5,962


$
(8,727)


$
10,567LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt and short-term borrowings

$
3


$



$
352


$



$
355Accounts payable, principally trade






224



444



(3)



665Accounts and notes payableaffiliated companies






2,021



393



(2,414)



Derivative liabilities






238



927







1,165Other current liabilities


55



159



313



(23)



504Current liabilities of discontinued operations










3







3Total current liabilities


58



2,642



2,432



(2,440)



2,692Other Liabilities:Notes payableaffiliated companies






3,251



881



(4,132)



Derivative liabilities






77



344







421Other long-term liabilities


484



167



237



(564)



324Total other liabilities


484



3,495



1,462



(4,696)



745Long-term Debt


2,248



501



429







3,178Commitments and ContingenciesTemporary Equity Stock-based Compensation


2















2Total Stockholders Equity


3,950



(48)



1,639



(1,591)



3,950Total 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. F-55




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Condensed
    Consolidating Statements of Cash Flows.
  2007Reliant 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


$
755Net cash provided by discontinued operations from operating
    activities










7







7Net cash provided by (used in) operating activities


146



(114
)


620



110



762Cash 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











82Net purchases of emission allowances






(42
)


(43
)






(85
)Restricted cash






(1
)


8







7Other, net






6











6Net 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















1,300Payments of long-term debt


(1,526
)






(10
)






(1,536
)Increase in short-term borrowings and revolving credit
    facilities, net










7







7Changes in notes with affiliated companies,
    net(3)(4)






80



(31
)


(49
)


Payments of debt extinguishment costs


(73
)














(73
)Proceeds from issuances of stock


41















41Payments 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







291Cash and Cash Equivalents at Beginning of Period


286



24



154







464Cash and Cash Equivalents at End of Period

$
490


$
1


$
264


$



$
755   F-56




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006Reliant 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


$



$
1,330Net cash provided by (used in) discontinued operations from
    operating activities


3



(7
)


(50
)






(54
)Net cash provided by operating activities


13



407



856







1,276Cash 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







1Net proceeds from sale of emission allowances






88



94







182Restricted cash










2







2Other, net






1











1Net cash provided by (used in) continuing operations from
    investing activities


1,059



(403
)


(192
)


(375
)


89Net cash provided by discontinued operations from investing
    activities


712







968



(712
)


968Net cash provided by (used in) investing activities


1,771



(403
)


776



(1,087
)


1,057Cash Flows from Financing Activities:Proceeds from long-term debt


400















400Payments 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















25Payments 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







376Cash and Cash Equivalents at Beginning of Period


3



36



49







88Cash and Cash Equivalents at End of Period

$
286


$
24


$
154


$



$
464   F-57




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2005Reliant 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







193Net 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







149Net sales (purchases) of emission allowances






(49
)


137







88Restricted cash










14







14Other, net






6











6Net cash provided by (used in) continuing operations from
    investing activities


(460
)


(14
)


(151
)


800



175Net cash provided by discontinued operations from investing
    activities


110



51



80



(110
)


131Net cash provided by (used in) investing activities


(350
)


37



(71
)


690



306Cash Flows from Financing Activities:Proceeds from long-term debt


299















299Payments of long-term debt


(109
)


(1
)


(38
)






(148
)Increase in short-term borrowings and revolving credit
    facilities, net


184







223







407Changes in notes with affiliated companies,
    net(3)






1,956



(1,156
)


(800
)


Proceeds from issuances of stock


37















37Payments of financing costs


(1
)














(1
)Net cash provided by (used in) continuing operations from
    financing activities


410



1,955



(971
)


(800
)


594Net cash used in discontinued operations from financing
    activities










(110
)


110



Net cash provided by (used in) financing activities


410



1,955



(1,081
)


(690
)


594Net Change in Cash and Cash Equivalents


(22
)


11



(6
)






(17
)Cash and Cash Equivalents at Beginning of Period


25



25



55







105Cash and Cash Equivalents at End of Period

$
3


$
36


$
49


$



$
88  F-58




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (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  2007First Quarter


Second Quarter


Third Quarter


Fourth Quarter(in millions, except per share amounts)Revenues

$
2,362


$
2,650


$
3,544


$
2,653Income (loss) from continuing operations


260



(281
)


160



219Income (loss) from discontinued operations


(1
)


(2
)


2



8Net income (loss)


259



(283
)


162



227Basic Earnings (Loss) Per Share:Income (loss) from continuing operations

$
0.77


$
(0.82
)

$
0.47


$
0.64Income (loss) from discontinued operations


(0.01
)


(0.01
)






0.02Net income (loss)

$
0.76


$
(0.83
)

$
0.47


$
0.66Diluted Earnings (Loss) Per Share:Income (loss) from continuing operations

$
0.75


$
(0.82
)

$
0.45


$
0.62Income (loss) from discontinued operations


(0.01
)


(0.01
)


0.01



0.02Net income (loss)

$
0.74


$
(0.83
)

$
0.46


$
0.64   F-59




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006First Quarter


Second Quarter


Third Quarter


Fourth Quarter(in millions, except per share amounts)Revenues

$
2,453


$
2,775


$
3,305


$
2,344Income (loss) from continuing operations


(139
)


23



(154
)


(57
)Income (loss) from discontinued operations


5



(9
)


(1
)


3Income (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
)






0.01Income (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
)






0.01Income (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. F-60




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     
    $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.     F-61




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Retail


Wholesale


OtherEnergy


Energy


Operations


Eliminations


Consolidated(in millions)2007:Revenues from external
    customers(1)

$
8,173


$
3,036
(2)

$



$



$
11,209Intersegment 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
)


1,467Expenditures for long-lived
    assets(6)


14



159



16







189Equity investment as of December 31, 2007






25











25Total assets as of December 31, 2007


1,778



7,492



1,081
(7)


(894
)


9,4572006:Revenues from external
    customers(1)

$
8,197


$
2,679
(8)

$
1


$



$
10,877Intersegment 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







397Expenditures for long-lived
    assets(6)


9



78



10







97Equity investment as of December 31, 2006






25











25Total assets as of December 31, 2006


1,984



8,402



848
(7)


(667
)


10,5672005:Revenues from external
    customers(1)

$
7,045


$
2,661


$
6


$



$
9,712Intersegment revenues






625







(625
)


Contribution margin, including historical and operational
    wholesale hedges and unrealized gains/losses on energy
    derivatives(3)(11)


342



110
(12)


4







456Expenditures for long-lived
    assets(6)


9



66



7







82Equity investments as of December 31, 2005






30











30Total 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. F-62




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (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


$
456Other general and administrative


171



172



140Western states and similar settlements


22



35



359Gains on sales of assets and emission allowances, net


(26
)


(159
)


(168
)Depreciation and amortization


424



373



446Operating income (loss)


876



(24
)


(321
)Income of equity investments, net


5



6



26Debt extinguishments and conversions


(73
)


(37
)


Other, net










(23
)Interest expense


(349
)


(428
)


(399
)Interest income


34



34



23Income (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
)


111Income (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    Property, Plant and Equipment.
  Emission Allowances.
  REMA Hydropower Plants.
  Landfill-gas Fueled Power Plants.
 F-63




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  El Dorado Investment.
  (21)
    Channelviews
    Bankruptcy Filings  debtors-in-possession
      December 31,2007


2006(in millions)Property, plant and equipment, net

$
356


$
368Secured debt obligations, including accrued interest


340



343Payables to Reliant Energy and its subsidiaries, net


96



72         (22)
    Discontinued
    Operations  (a)
    New
    York Plants.  General.
 F-64




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Use of Proceeds.
  Assumptions Related to Debt, Deferred Financing Costs and
    Interest Expense on Discontinued
    Operations.
  (b)
    Ceredo
    Plant.    (c)
    European
    Energy.      (d)
    All
    Discontinued Operations.   New York


Ceredo


EuropeanPlants


Plant


Energy


Total2006Revenues

$
108


$



$



$
108Loss before income tax expense/benefit


(7
)(1)










(7
)2005Revenues

$
996


$



$



$
996Income (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.   F-65




---



##### Table of Contents



RELIANT
    ENERGY, INC. AND SUBSIDIARIES
 SCHEDULE IIVALUATION
    AND QUALIFYING ACCOUNTS  2007,
    2006 and 2005
  Column A

Column B


Column C


Column D


Column EAdditionsBalance at


Charged


Charged


Deductions


Balance atBeginning


to


to Other


from


EndDescription

of Period


Income


Accounts(1)


Reserves(2)


of Period(thousands of dollars)2007Allowance for doubtful accounts

$
33,332


$
78,588


$



$
(75,196
)

$
36,724Reserves deducted fromderivative assets


126,710



(58,310
)






(159
)


68,2412006Allowance for doubtful accounts


34,054



86,961







(87,683
)


33,332Reserves deducted from derivative assets


197,384



(68,240
)






(2,434
)


126,710Reserves for severance


1,860



3,845







(5,705
)


2005Allowance for doubtful accounts


41,636



57,817







(65,399
)


34,054Reserves deducted from derivative assets


87,323



128,306



33



(18,278
)


197,384Reserves 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. F-66




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm  
             
 F-67




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  2007


2006(thousands of dollars)Revenues:Electricity sales and services revenues (including $(70) and
    $227 unrealized gains(losses))

$
7,978,078


$
7,460,341Expenses:Cost of sales (including $443,218 and $(394,902) unrealized
    gains (losses))


6,368,557



2,790,009Cost of salesaffiliates


236,762



3,937,469Operation and maintenance


225,261



206,397Operation and maintenanceaffiliates


19,271



25,917Selling, general and administrative


211,372



231,692Selling, general and administrativeaffiliates


68,876



70,060Depreciation and amortization


23,947



29,490Total operating expense


7,154,046



7,291,034Operating Income


824,032



169,307Other Income (Expense):Other, net


699



22Interest expense


(29,476
)


(28,198
)Interest income


15,166



2,481Interest income (expense), netaffiliates


(6,579
)


104,427Total other income (expense)


(20,190
)


78,732Income Before Income Taxes


803,842



248,039Income tax expense


309,135



96,180Net Income

$
494,707


$
151,859    F-68




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(thousands of dollars)ASSETSCurrent Assets:Cash and cash equivalents

$
226,200


$
136,017Restricted cash






13,000Accounts receivable and unbilled revenue, principally customer,
    net of allowance of $34,947 and $29,386


776,115



732,975Accumulated deferred income taxes


94,744



206,795Derivative assets


128,935



422,098Prepayments and other current assets


21,171



41,603Total current assets


1,247,165



1,552,488Property, Plant and Equipment, net


43,487



54,340Other Assets:Goodwill, net


31,631



31,631Derivative assets


75,660



127,028Other


22,969



47,434Total other assets


130,260



206,093Total Assets

$
1,420,912


$
1,812,921LIABILITIES AND MEMBERS EQUITYCurrent Liabilities:Accounts payable, principally trade

$
486,746


$
396,728Payable to affiliates, net


40,437



38,970Retail customer deposits


62,676



67,068Other taxes payable


46,634



53,585Taxes payable to Reliant Energy, Inc.


21,188



Accrual for transmission and distribution charges


74,393



60,654Derivative liabilities


336,440



904,108Other


90,569



75,497Total current liabilities


1,159,083



1,596,610Other Liabilities:Derivative liabilities


38,011



225,997Other


33,833



19,043Total other liabilities


71,844



245,040Commitments 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    F-69




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  2007


2006(thousands of dollars)Cash Flows from Operating Activities:Net income

$
494,707


$
151,859Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


23,947



29,490Deferred income taxes


163,557



(108,547
)Net changes in energy derivatives


(391,981
)


407,649Non-cash federal income tax contributions from Reliant Energy,
    Inc., net






179,222Other, net


3,301



1,118Changes in other assets and liabilities:Accounts receivable and unbilled revenue, net


12,315



196,846Receivables/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



271,019Other current assets


9,806



10,763Other current liabilities


12,902



31,057Other assets


(5,295
)


342Retail customer deposits


(4,392
)


6,158Taxes payable/receivable


(4,226
)


9,032Other taxes payable


(9,057
)


14,311Accrual for transmission and distribution charges


13,739



16,344Taxes 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



652,778Cash 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



127,295Cash and Cash Equivalents at Beginning of Period


136,017



8,722Cash and Cash Equivalents at End of Period

$
226,200


$
136,017Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest paid to affiliate

$
5,995


$
2,942Interest paid to third parties


29,741



29,090Income taxes paid (net of income tax refunds received)


25,012



16,472Income taxes paid to affiliate


110,000



Non-cash Disclosure:Contributions from Reliant Energy, Inc., net


995



171,629Transfer of certain assets and liabilities from Reliant Energy
    Electric Solutions, LLC to Reliant Energy Power Supply, LLC, net






329,807Transfer 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
)    F-70




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF MEMBERS EQUITY AND COMPREHENSIVE
    INCOME  Members


ComprehensiveEquity


Income(thousands of dollars)Balance at December 31, 2005

$
1,596,694Net income


151,859


$
151,859Contributions from Reliant Energy, Inc., net


171,629Distribution 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


329,807Transfer of certain assets and liabilities from Reliant Energy
    Services, Inc. to Reliant Energy Power Supply, LLC, net


(329,773
)Comprehensive income





$
151,859Balance at December 31, 2006

$
(28,729
)Net income


494,707



494,707Contributions from Reliant Energy, Inc., net


154,567Distribution to Reliant Energy, Inc. of cash dividend


(437,000
)Contribution from Reliant Energy, Inc. of Reliant Energy
    Solutions East, LLC


8,694Transfer of certain assets and liabilities from Reliant Energy
    Services, Inc. to Reliant Energy Power Supply, LLC, net


(2,254
)Comprehensive income





$
494,707Balance at December 31, 2007

$
189,985    F-71




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Background
    and Basis of Presentation  Background.
    
    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 DateReliant Energy Retail Holdings, LLC (the predecessor parent)

September 2000Reliant Energy Retail Services, LLC

September 2000Reliant Energy Solutions East, LLC

February 2002RE Retail Receivables, LLC

June 2002Reliant Energy Power Supply, LLC

April 2006  F-72




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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)
    Revenues.      (d)
    Derivatives
    and Hedging Activities.       F-73




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (mark-to-market
    Transactions thatPurpose for Holding or

Physically

Transactions thatInstrument

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 salesPower purchases

Cost of sales

Cost of salesNatural 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 for
    mark-to-market
    derivatives.(3)
    
    N/A is not applicable.    mark-to-market value-at-risk
  Set-off of Derivative Assets and
    Liabilities.
  New Accounting Pronouncement Not Yet AdoptedOffsetting
    of Amounts. FIN 39-1,
   F-74




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (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


$
174Furniture and leasehold improvements


3 - 10



6



6Assets under construction






5



5Total






194



185Accumulated depreciation






(151
)


(131
)Property, plant and equipment, net





$
43


$
54     (h)
    Intangible
    Assets and Amortization Expense.  Goodwill.
 F-75




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other Intangibles.
  (i)
    Income
    Taxes.  Federal.
  State.
  (j)
    Cash
    and Cash Equivalents.    (k)
    Restricted
    Cash.    (l)
    Allowance
    for Doubtful Accounts.    (m)
    Gross
    Receipts Taxes.    (n)
    Sales
    Taxes.   F-76




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (o)
    New
    Accounting Pronouncement Not Yet AdoptedFair
    Value.    (3)
    Related
    Party Transactions    Support and Technical Services. mark-up
    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.  Services from Reliant Energy Electric Solutions, LLC and
    Reliant Energy Services, Inc.
  2007


2006(in millions)Purchases from Reliant Energy under various commodity
    agreements(1)

$
237


$
3,937     (1)
    
    Recorded in cost of
    sales affiliates. F-77




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Notes ReceivableReliant Energy,
    Inc.
  Naming Rights to Houston Sports Complex.
  Income Taxes.
  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   F-78




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            (6)
    Benefit
    Plans     F-79




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (7)
    Income
    Taxes  (a)
    Summary.    2007


2006(in millions)Current:Federal

$
126


$
179State


20



26Total current


146



205Deferred:Federal


141



(95
)State


22



(14
)Total deferred


163



(109
)Income tax expense

$
309


$
96     2007


2006Federal statutory rate


35
%


35
%Additions (reductions) resulting from:State income taxes, net of federal income taxes


3



4Effective rate


38
%


39
%   F-80




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2007


2006(in millions)Deferred tax assets:Current:Derivative liabilities, net

$
80


$
202Allowance for doubtful accounts and credit provisions


12



11Employee benefits


1



1Other


3



Total current deferred tax assets


96



214Non-current:Derivative liabilities, net






39Employee benefits






2Total non-current deferred tax assets






41Total deferred tax assets

$
96


$
255Deferred tax liabilities:Current:Other

$



$
7Total current deferred tax liabilities






7Non-current:Depreciation and amortization


9



17Derivative assets, net


13



Other






1Total non-current deferred tax liabilities


22



18Total deferred tax liabilities

$
22


$
25Accumulated deferred income taxes, net

$
74


$
230   (b)
    Valuation
    Allowances.    (c)
    Adoption
    of FIN 48 and Tax Uncertainties.   F-81




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Subject to

Currently UnderExamination

AuditFederal

1997 to 2007

1997 to 2005Texas

2000 to 2007

2000 to 2005Pennsylvania

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.  Cash Obligations Under Operating Leases.
  2008

$
152009


162010


162011


72012


12013 and thereafter


Total

$
55   Operating Lease Expense.
  (b)
    Guarantees
    and Indemnifications.  Equity Pledged as Collateral for Reliant
    Energy.
  Other. and/or
 F-82




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (c)
    Other
    Commitments.  Purchased Power Commitments.
  Purchased Power CommitmentsFixed Pricing


Variable
    Pricing(1)(in millions)2008

$
67


$
132009


73



112010


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.    Sales Commitments.
  Fixed
    Pricing(1)


Variable
    Pricing(1)(2)(in millions)2008

$
854


$
2,0712009


526



1,5172010


213



1,1302011


64



8592012


27



573Total

$
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. F-83




---



##### Table of Contents



RERH
    HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (9)
    Contingencies    PUCT Cases. price-to-beat
  (10)
    Estimated
    Fair Value of Financial Instruments   F-84




---



##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
        DELOITTE &
    TOUCHE LLP
    F-85




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF OPERATIONS
  2005(thousands of dollars)Revenues:Electricity sales and services revenues

$
5,997,644Expenses:Purchased power


621,075Purchased poweraffiliates


4,629,342Operation and maintenance


175,382Operation and maintenanceaffiliates


17,401Selling, general and administrative


153,792Selling, general and administrativeaffiliates


49,568Loss on sales of assets


4,329Depreciation and amortization


48,656Total operating expense


5,699,545Operating Income


298,099Other Income (Expense):Other, net


275Interest expense


(19,196
)Interest income


300Interest income, netaffiliates


102,244Total other income


83,623Income Before Income Taxes


381,722Income tax expense


148,824Net Income

$
232,898    F-86




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF CASH FLOWS
  2005(thousands of dollars)Cash Flows from Operating Activities:Net income

$
232,898Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


48,656Deferred income taxes


(6,203
)Federal income tax contributions from Reliant Energy, Inc., net


136,564Loss on sale of assets


4,329Changes in other assets and liabilities:Accounts and notes receivable and unbilled revenue, net


(201,964
)Accounts receivable/payableaffiliates


122,966Net derivative assets and liabilities


350Accounts payable


14,123Other current assets


2,564Other current liabilities


5,384Other assets


654Retail customer deposits


163State income taxes payable


4,244Other taxes payable


5,327Accrual for transmission and distribution charges


317Other liabilities


2,707Net cash provided by operating activities


373,079Cash Flows from Investing Activities:Capital expenditures


(9,239
)Proceeds from sale of assets, net


27,303Net cash provided by investing activities


18,064Cash Flows from Financing Activities:Increase in short-term borrowings, net


223,000Changes in notes with Reliant Energy, Inc., net


(613,383
)Net cash used in financing activities


(390,383
)Net Change in Cash and Cash Equivalents


760Cash and Cash Equivalents at Beginning of Period


7,962Cash and Cash Equivalents at End of Period

$
8,722Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest paid to affiliate

$
6,920Interest paid (net of amounts capitalized) to third party


19,355Income taxes paid (net of income tax refunds received)


14,096Non-cash Disclosure:Contributions from Reliant Energy, Inc., net


133,564Transfer of Reliant Energy Electric Solutions, LLC to Reliant
    Energy, Inc.


(273,476
)    F-87




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF MEMBERS EQUITY AND COMPREHENSIVE
    INCOME
  Other


Accumulated Other


TotalMembers


Comprehensive


Members


ComprehensiveEquity


Income (Loss)


Equity


Income(thousands of dollars)Balance at December 31, 2004

$
1,503,710


$
(2
)

$
1,503,708Net income


232,898







232,898


$
232,898Contributions from member


133,564







133,564Transfer of Reliant Energy Electric Solutions, LLC to Reliant
    Energy, Inc.


(273,478
)


2



(273,476
)Comprehensive income













$
232,898Balance at December 31, 2005

$
1,596,694


$



$
1,596,694    F-88




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (1)
    Background
    and Basis of Presentation  Background.
      Subsidiary

Formation DateReliant Energy Retail Services, LLC (Retail Services)

September 2000Reliant Energy Solutions East, LLC (Solutions East)

February 2002RE Retail Receivables, LLC

June 2002       Basis of Presentation.
  (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.     F-89




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Principles
    of Consolidation.    (c)
    Revenues.  Retail Revenues.
    Changes in Estimates.
  (d)
    Derivatives
    and Hedging Activities.         F-90




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 03-11, No. 03-11 No. 03-11,
  Purpose for Holding or

Transactions that

Transactions thatInstrument

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 powerNatural 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.  value-at-risk
  Set-off of Derivative Assets and
    Liabilities.
  (e)
    Credit
    Risk.     F-91




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (f)
    Selling,
    General and Administrative Expenses.    (g)
    Severance
    Costs.    (h)
    Property,
    Plant and Equipment and Depreciation Expense.      (i)
    Intangible
    Assets and Amortization Expense.  Goodwill.
  Other Intangibles.
  (j)
    Stock-based
    Compensation.   F-92




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2005(in millions)Net income, as reported

$
233Add: 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 EnergyEmployee StockReliant Energy


Purchase PlanStock Options


Rights2005


2005Expected life in years


5



0.5Estimated
    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.   F-93




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (m)
    Allowance
    for Doubtful Accounts.    (3)
    Related
    Party Transactions    Notes ReceivableAffiliate.
  Support Services.
  Naming Rights to Houston Sports Complex.
  Reliant Energy Services and REES Energy Supply
    Services.
   F-94




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Income Taxes.
  (4)
    Derivatives
    and Hedging Activities      (5)
    Receivables
    Facility        (6)
    Benefit
    Plans  (a) Stock-Based Incentive Plans.
  Overview.
 F-95




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Time-Based Stock Options.
    2005Weighted AverageOptions


Exercise PriceGranted





$
Outstanding at end of year


1,351,042



16.95Exercisable at end of year


1,250,823



18.03   Time-Based Restricted Stock Awards.
    2005Granted


80,235Outstanding at end of year


334,904Weighted average grant date fair value

$
12.63   Performance-Based Awards.
  2004-2006
 F-96




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005Granted


Outstanding at end of year


179,200Weighted average grant date fair value


N/A     2005Weighted AverageOptions


Exercise PriceGranted





$
Outstanding at end of year


761,600



8.34Exercisable at end of year






   Employee Stock Purchase Plan.
    (b)
    Savings
    Plan.   F-97




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (7)
    Income
    Taxes    2005(in millions)Current:Federal

$
137State


18Total current


155Deferred:Federal


(10
)State


4Total deferred


(6
)Income tax expense

$
149     2005(in millions)Income before income taxes

$
382Federal statutory rate


35
%Income tax expense at statutory rate


134Net addition (reduction) in taxes resulting from:State income taxes, net of federal income taxes


14Other, net


1Total


15Income tax expense

$
149Effective rate


39
%   Tax Contingencies.
 F-98




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (8)
    Commitments  (a)
    Lease
    Commitments.  Cash Obligations Under Operating
    Leases.
  2006

$
42007


32008


22009


22010


22011 and thereafter


Total

$
13   Operating Lease Expense.
  (b)
    Guarantees.  Guarantor.
  Equity Pledged as Collateral to Reliant
    Energy.
  Other. and/or
    (c)
    Other
    Commitments.  Sales Commitments.
  2006

$
2,0432007


9242008


4162009


1442010


73Total

$
3,600  F-99




---



##### Table of Contents



RELIANT
    ENERGY RETAIL HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (9)
    Contingencies  Legal
    Matters.
    Texas Commercial Energy.
  Utility Choice Electric.
  PUCT Cases.
  (10)
    Estimated
    Fair Value of Financial Instruments    (11)
    Sales of
    Landfill-Gas Fueled Power Plants    (12)
    Subsequent
    Event (Unaudited)   F-100




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm   
               F-101




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
            F-102




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  2007


2006


2005(thousands of dollars)Revenues:Revenues

$
(10,235
)

$
26,107


$
42,906Revenuesaffiliates


696,856



539,701



587,336Total


686,621



565,808



630,242Expenses:Cost of sales


244,695



239,686



230,391Cost of salesaffiliates


9,930



15,329



20,465Operation and maintenance


104,600



91,915



72,712Operation and maintenanceaffiliates


57,831



48,155



45,997Facilities leases


59,848



59,848



59,848General and administrativeaffiliates


44,029



43,017



44,956Gains on sales of assets and emission allowances, net


(1,969
)


(71,323
)


(109,798
)Depreciation and amortization


88,449



71,315



83,544Total operating expense


607,413



497,942



448,115Operating Income


79,208



67,866



182,127Other Income (Expense):Other, net






1



53Interest expense


(1,230
)


(1,095
)


(1,418
)Interest expenseaffiliates


(70,485
)


(68,921
)


(64,746
)Interest income


837



655



939Total other expense


(70,878
)


(69,360
)


(65,172
)Income (Loss) Before Income Taxes


8,330



(1,494
)


116,955Income tax expense (benefit)


5,262



(9,842
)


14,579Income Before Cumulative Effect of
    Accounting Change


3,068



8,348



102,376Cumulative effect of accounting change, net of tax










(225
)Net Income

$
3,068


$
8,348


$
102,151    F-103




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(thousands of dollars)ASSETSCurrent Assets:Cash and cash equivalents

$
28,536


$
17,274Restricted cash


1,663



Accounts receivable


4,875



4,595Receivables from affiliates, net


59,180



11,466Inventory


81,382



80,689Prepaid lease


59,030



59,030Derivative assets


12,374



1,744Accumulated deferred income taxes


11,319



9,751Prepayments and other current assets


7,227



7,558Total current assets


265,586



192,107Property, Plant and Equipment, net


681,675



679,319Other Assets:Goodwill, net


3,635



3,635Other intangibles, net


98,732



105,642Accumulated deferred income taxes


48,968



68,378Prepaid lease


270,133



264,328Other


43,646



41,098Total other assets


465,114



483,081Total Assets

$
1,412,375


$
1,354,507LIABILITIES AND MEMBERS EQUITYCurrent Liabilities:Current portion of long-term debt

$
89


$
83Accounts payable, principally trade


28,543



16,142Subordinated accounts payable to affiliates, net


193,897



160,308Subordinated interest payable to affiliates, net


29,800



63,587Derivative liabilities


37,614



22,695Other


18,389



17,168Total current liabilities


308,332



279,983Other Liabilities:Derivative liabilities


123,794



117,269Benefit obligations


39,289



42,021Other


19,597



18,459Total other liabilities


182,680



177,749Subordinated Note Payable to Affiliate


618,658



618,658Long-term Debt


642



731Commitments and Contingencies Members Equity:Common stock; no par value (1,000 shares authorized, issued
    and outstanding)






Additional paid-in capital


284,672



284,672Retained earnings


82,455



79,387Accumulated other comprehensive loss


(65,064
)


(86,673
)Total members equity


302,063



277,386Total Liabilities and Members Equity

$
1,412,375


$
1,354,507    F-104




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  2007


2006


2005(thousands of dollars)Cash Flows from Operating Activities:Net income

$
3,068


$
8,348


$
102,151Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Cumulative effect of accounting changes










225Depreciation and amortization


88,449



71,315



83,544Deferred income taxes


4,341



(14,112
)


2,385Non-cash federal income tax contributions from Reliant Energy,
    Inc., net










3,826Net changes in energy derivatives


35,711



(5,422
)


5,885Gains 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
)


1,321Accounts receivable from affiliates, net


(47,624
)


24,823



13,820Inventory


(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
)


17,279Other liabilities


3,029



(1,737
)


9,160Net 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



42,560Proceeds from sales of emission allowances


628



1,141



8,519Proceeds from sales of emission allowancesaffiliates


3,744



73,140



99,903Purchases of emission allowancesaffiliates


(50,799
)


(50,467
)


(34,834
)Restricted cash


(1,663
)






28,652Net cash provided by (used in) investing activities


(81,138
)


10,692



137,015Cash 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



39,029Cash and Cash Equivalents at End of Period

$
28,536


$
17,274


$
31,067Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest paid to affiliate (net of amounts capitalized)

$
91,884


$
107,364


$
244,976Interest paid to third parties


286



1,338



1,539Income 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    F-105




---



##### Table of Contents





RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF MEMBERS EQUITY AND COMPREHENSIVE INCOME
    (LOSS)
  Accumulated Other Comprehensive Income (Loss)Benefits





TotalDeferred


Actuarial





AccumulatedAdditional


Retained


Derivative


Net


Benefits


Other


Total


ComprehensiveCommon Stock


Paid-In


Earnings


Gains


Gain


Net Prior


Comprehensive


Members


IncomeShares


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
)


146,999Net income














102,151



















102,151


$
102,151Contributions from Reliant Energy, Inc., net










17,826























17,826Deferred 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



52,836Comprehensive income





































$
26,855Balance, December 31, 2005


1,000


$



$
251,520


$
71,039


$
(130,879
)

$



$



$
(130,879
)

$
191,680Net income














8,348



















8,348


$
8,348Contributions from Reliant Energy, Inc., net










33,152























33,152Deferred loss from cash flow hedges, net of tax of
    $13 million


















18,061











18,061



18,061



18,061Reclassification of net deferred loss from cash flow hedges, net
    of tax of $22 million


















31,743











31,743



31,743



31,743Comprehensive income





































$
58,152Adjustment 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
)

$
277,386Net income














3,068



















3,068


$
3,068Deferred gain from cash flow hedges, net of tax of
    $3 million


















2,929











2,929



2,929



2,929Reclassification of net deferred loss from cash flow hedges, net
    of tax of $9 million


















12,802











12,802



12,802



12,802Reclassification of net prior service costs into net loss, net
    of tax of $0


























593



593



593



593Reclassification of actuarial net loss into net loss, net of tax
    of $0






















40







40



40



40Deferred benefits, net of tax of $1 million and
    $2 million






















2,851



2,394



5,245



5,245



5,245Comprehensive income





































$
24,677Balance, December 31, 2007


1,000


$



$
284,672


$
82,455


$
(65,344
)

$
30


$
250


$
(65,064
)

$
302,063    F-106




---



##### Table of Contents





RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Background
    and Basis of Presentation  Background.
    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.   F-107




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (mark-to-market,
          Purpose for Holding or

Transactions that

Transactions thatInstrument

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
    RevenuesNatural 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 for
    mark-to-market
    derivatives and amounts reclassified from accumulated other
    comprehensive income (loss) related to cash flow hedges.  mark-to-market value-at-risk
 F-108




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  mark-to-market
  Set-off of Derivative Assets and
    Liabilities.
  New Accounting Pronouncement Not Yet AdoptedOffsetting
    of Amounts. FIN 39-1,
      (e)
    Credit
    Risk.      (f)
    General
    and Administrative ExpensesAffiliates.    (g)
    Property,
    Plant and Equipment and Depreciation Expense.    F-109




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Estimated Useful


December 31,Lives (Years)


2007


2006(in millions)Electric generation facilities


20 - 30


$
834


$
823Other


3 - 26



11



11Land






26



26Assets under construction






38



15Total






909



875Accumulated depreciation






(227
)


(196
)Property, plant and equipment, net





$
682


$
679       (h)
    Intangible
    Assets and Amortization Expense.  Goodwill.
  Other Intangibles.
  (i)
    Income
    Taxes.  Federal.
  State.
  (j)
    Cash
    and Cash Equivalents.   F-110




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (k)
    Restricted
    Cash.    (l)
    Inventory.    December 31,2007


2006(in millions)Materials and supplies, including spare parts

$
48


$
47Coal


15



17Heating oil


18



17Total inventory

$
81


$
81   (m)
    Environmental
    Costs.  and/or
  (n)
    Asset
    Retirement Obligations.    and/or
  (o)
    Repair
    and Maintenance Costs for Power Generation Assets.    (p)
    Deferred
    Lease Costs.   F-111




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (q)
    New
    Accounting Pronouncement Net Yet AdoptedFair
    Value.    (3)
    Related
    Party Transactions    Support Services.
    2007


2006


2005(in millions)Allocated or charged by Reliant Energy

$
96


$
86


$
86   Procurement and Marketing.
  2007


2006


2005(in millions)Sales to Reliant Energy under various commodity
    agreements(1)

$
697


$
540


$
587Purchase from Reliant Energy under various commodity
    agreements(2)


8



13



18Fees charged by Reliant Energy for these services and included
    in operation and maintenanceaffiliates


5



5



5Fees charged by Reliant Energy for these services and included
    in cost of salesaffiliates


2



2



2Sales of emission allowances to Reliant
    Energy(3)


4



73



100Gains 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. F-112




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Subordinated Long-term Note Payable to
    Affiliate.
  Working Capital Note.
  Subordinated Working Capital Facility.
  Letters of Credit.
  Income Taxes.
  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.   F-113




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Other
    Intangibles.  Remaining


December 31,Weighted Average


2007


2006Amortization


Carrying


Accumulated


Carrying


AccumulatedPeriod (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 a
    units-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


$
51Total

$
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     F-114




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31, 2007Expected to beReclassified intoResults of OperationsAt 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  and/or
    (7)
    Benefit
    Plans  (a)
    Pension
    and Postretirement Benefits.  Benefit Plans.
   F-115




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension


Postretirement Benefits2007


2006


2007


2006(in millions)Change in Benefit ObligationBeginning of year

$
25


$
27


$
32


$
39Transfer to affiliate






(5
)






(8
)Service cost


3



3



1



1Interest cost


1



1



2



2Benefits paid


(1
)










Actuarial gain


(2
)


(1
)


(3
)


(2
)End of year

$
26


$
25


$
32


$
32Change in Plan AssetsBeginning 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 BenefitsDecember 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 Benefits2007


2006


2005


2007


2006


2005(in millions)Service cost

$
3


$
3


$
4


$
1


$
1


$
2Interest cost


1



1



1



1



2



3Expected return on plan assets


(1
)


(1
)


(1
)










Net amortization














1



1



2Net benefit cost

$
3


$
3


$
4


$
3


$
4


$
7  F-116




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assumptions.
  Pension


Postretirement BenefitsDecember 31,


December 31,2007


2006


2007


2006Discount rate


5.75
%


5.75
%


5.75
%


5.75
%Rate of compensation increase


3.0
%


3.0
%


N/A



N/A     Pension


Postretirement Benefits2007


2006


2005


2007


2006


2005Discount 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/AExpected long-term rate of return on assets


7.5
%


7.5
%


7.5
%


N/A



N/A



N/A       2007


2006


2005Health 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 PointIncrease


Decrease(in millions)Effect on service and interest cost

$



$
Effect on accumulated postretirement benefit obligation


4



(3
)  F-117




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Plan Assets.
  Percentage of Plan Assets


Targetas of December 31,


Allocation2007


2006


2008Domestic equity securities


49
%


50
%


50
%International equity securities


10



11



10Global equity securities


10



11



10Debt securities


31



28



30Total


100
%


100
%


100
%   net-of-fee
  Asset Class

Index

WeightDomestic equity securities

Wilshire 5000 Index


50
%International equity securities

MSCI All Country World Ex-U.S. Index


10Global equity securities

MSCI All Country World Index


10Debt securities

Lehman Brothers Aggregate
    Bond Index


30100
%     Cash Obligations.
  PostretirementPension


Benefits(in millions)2008

$
1


$
12009


1



12010


1



12011


1



22012


1



22013-2017


10



15   (b)
    Savings
    Plan.   F-118




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (c)
    Other
    Employee Matters.    (8)
    Income
    Taxes  (a)
    Summary.    2007


2006


2005(in millions)Current:Federal

$



$



$
3State


1



4



9Total current


1



4



12Deferred:Federal


1



7



6State


3



(21
)


(3
)Total deferred


4



(14
)


3Income tax expense (benefit)

$
5


$
(10
)

$
15     2007


2006


2005Federal statutory rate


35
%


(35
)%


35
%Additions (reductions) resulting from:State income taxes, net of federal income taxes


29



(555
)(1)


3Federal 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.  F-119




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2007


2006(in millions)Deferred tax assets:Current:Derivative liabilities, net

$
10


$
9Employee benefits






1Total current deferred tax assets


10



10Non-current:Employee benefits


19



16Net operating loss carryforwards


59



84Environmental reserves


6



3Derivative liabilities, net


50



49Other


18



11Total non-current deferred tax assets


152



163Total deferred tax assets

$
162


$
173Deferred tax liabilities:Non-current:Depreciation and amortization

$
106


$
99Total non-current deferred tax liabilities


106



99Total deferred tax liabilities

$
106


$
99Accumulated deferred income taxes, net

$
56


$
74   (b)
    Tax
    Attribute Carryovers.  StatutoryDecember 31,


Carryforward


Expiration2007


Period


Year(s)(in millions)


(in years)Net Operating Loss Carryforwards:Federal

$
128



20



2026 through 2027State


257



5 to 20



2011 through 2027   (c)
    Valuation
    Allowances.   F-120




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Federal


State(in millions)As of January 1, 2005

$
30


$
5Changes in valuation allowance


(30
)


(2
)As of December 31, 2005






3Changes in valuation allowance






(3
)As of December 31, 2006 and 2007

$



$
   (d)
    Adoption
    of FIN 48 and Tax Uncertainties.        Subject to

Currently UnderExamination

AuditFederal

1997 to 2007

1997 to 2005New Jersey

2004 to 2007

NonePennsylvania

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.   F-121




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Cash Obligations Under Operating
    Leases.
  2008

$
622009


632010


522011


632012


562013 and thereafter


763Total

$
1,059   Operating Lease Expense.
  (b)
    Guarantees
    and Indemnifications.  Equity Pledged as Collateral for Reliant
    Energy.
  Other. and/or
    (c)
    Other
    Commitments.  Property, Plant and Equipment Commitments. 2
  Fuel Supply Commitments.
 F-122




---



##### Table of Contents



RELIANT
    ENERGY MID-ATLANTIC POWER HOLDINGS, LLC AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
882009


682010


452011


302012


312013 and thereafter


187Total

$
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    New Source Review Matters.
      Ash Disposal Site Closures.
  Remediation Obligations.
 F-123




---



##### Table of Contents



Conemaugh Actions. and/or
  (11)
    Estimated
    Fair Value of Financial Instruments    (12)
    Sales of
    Assets and Emission Allowances    Emission Allowances.
  Hydropower Plants.
 F-124




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm                  F-125




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           DELOITTE &
    TOUCHE LLP
    F-126




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
  2007


2006


2005(thousands of dollars)Revenues:Revenues

$
22,317


$
22,861


$
91,919Revenuesaffiliates


542,568



474,851



548,533Total


564,885



497,712



640,452Expenses:Cost of sales


227,240



222,358



186,912Cost of salesaffiliates


(5,521
)


2,427



68,272Operation and maintenance


161,713



143,786



115,924Operation and maintenanceaffiliates


37,696



35,924



43,500Taxes other than income taxes


11,570



13,089



3,709General and administrativeprimarily affiliates


27,685



27,980



40,493Gains on sales of assets and emission allowances,
    netprimarily affiliates


(7,480
)


(66,964
)


(58,189
)Depreciation and amortization


137,602



100,107



126,416Total operating expenses


590,505



478,707



527,037Operating Income (Loss)


(25,620
)


19,005



113,415Other Income (Expense):Other, net










42Interest expense


(34,314
)


(38,472
)


(39,949
)Interest expenseaffiliates


(9,293
)


(1,351
)


(908
)Interest incomeprimarily affiliates


8,452



8,956



382Total other expense


(35,155
)


(30,867
)


(40,433
)Income (Loss) from Continuing Operations Before Income
    Taxes


(60,775
)


(11,862
)


72,982Income tax expense (benefit)


(25,737
)


(31,135
)


24,385Income (Loss) from Continuing Operations


(35,038
)


19,273



48,597Income (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
)    F-127




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
  December 31,2007


2006(thousands of dollars, except per share amounts)ASSETSCurrent Assets:Cash and cash equivalents

$
259


$
81Accounts receivable, principally customer, net of allowance of $0


102



1,664Receivables from affiliates, net


19,968



33,046State income taxes receivable


45,763



10,084Inventory


57,233



50,289Derivative assets






5,086Accumulated deferred income taxes


6,713



7,359Collateral posted under agreement with Reliant Energy, Inc.


2,000



3,278Prepayments and other current assets


1,843



1,304Current assets of discontinued operations


2,132



2,460Total current assets


136,013



114,651Property, Plant and Equipment, net


1,619,651



1,587,885Other Assets:Goodwill, net


173,570



175,520Other intangibles, net


165,509



183,163Long-term note receivable from Reliant Energy, Inc.


67,200



92,200Long-term collateral posted under agreement with Reliant Energy,
    Inc.


14,392



12,326Other


9,383



59,615Total other assets


430,054



522,824Total Assets

$
2,185,718


$
2,225,360LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt

$
11,409


$
10,505Accounts payable, principally trade


36,278



29,594Accrued interest payable


7,999



7,996Other taxes payable


12,496



10,910Other


17,530



9,335Current liabilities of discontinued operations






3,286Total current liabilities


85,712



71,626Other Liabilities:Accumulated deferred income taxes


165,709



178,042Benefit obligations


46,726



58,100Taxes payable to Reliant Energy, Inc.


66,294



84,310Long-term liabilities of discontinued operations


3,542



Other


10,602



11,043Total other liabilities


292,873



331,495Revolving Credit Facility with Reliant Energy, Inc.


37,299



12,683Long-term Debt


416,934



428,343Commitments and ContingenciesStockholders Equity:Common stock; par value $1.00 per share (1,000 shares
    authorized, issued and outstanding)


1



1Additional paid-in capital


2,211,138



2,211,139Accumulated deficit


(851,607
)


(823,693
)Accumulated other comprehensive loss


(6,632
)


(6,234
)Total stockholders equity


1,352,900



1,381,213Total Liabilities and Stockholders Equity

$
2,185,718


$
2,225,360    F-128




---



##### Table of Contents





ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED 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
)


86,096Net income (loss) from continuing operations and cumulative
    effect of accounting changes


(35,038
)


19,273



48,399Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Cumulative effect of accounting change










198Depreciation and amortization


137,602



100,107



126,416Deferred income taxes


(21,422
)


(27,474
)


44,581Non-cash equity contribution of operation and maintenance and
    general and administrative costs from Reliant Energy, Inc., net










56,890Net changes in energy derivatives


1,108



(1,108
)


4,846Net 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
)


2,003Changes in other assets and liabilities:Accounts receivable, net


1,562



2,415



48,996Inventory


(7,384
)


3,414



(1,853
)Other current assets


(539
)


2,173



(2,603
)Other assets


4,867



10,036



422Accounts payable


(27
)


5,163



1,644Payable 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



1,768Accrued 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



162,752Net cash provided by (used in) discontinued operations from
    operating activities


6,726



(49,689
)


171,800Net cash provided by (used in) operating activities


55,336



(4,700
)


334,552Cash Flows from Investing Activities:Capital expenditures


(109,212
)


(45,566
)


(16,334
)Proceeds from sales of assets, net


259







2,372Proceeds from sales of emission allowances


624



1,134



8,554Proceeds from sales of emission allowancesaffiliates


12,678



69,320



56,519Purchases of emission allowancesaffiliates


(9,643
)






(1,998
)Net cash provided by (used in) continuing operations from
    investing activities


(105,294
)


24,888



49,113Net cash provided by discontinued operations from investing
    activities


520



967,566



79,101Net cash provided by (used in) investing activities


(104,774
)


992,454



128,214Cash 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
)


5,283Cash and Cash Equivalents at Beginning of Period


81



13,752



8,469Cash and Cash Equivalents at End of Period

$
259


$
81


$
13,752Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest paid (net of amounts capitalized) to third parties for
    continuing operations


44,756


$
48,360


$
48,686Income taxes paid (net of income tax refunds received) for
    continuing operations


(2,858
)


(17,022
)


3,917Non-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    F-129




---



##### Table of Contents








ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
    COMPREHENSIVE INCOME (LOSS)
  Accumulated Other Comprehensive Income (Loss)DiscontinuedBenefits


Benefits





Total


OperationsDeferred


Actuarial


Net


Additional


Accumulated


AccumulatedAdditional





Derivative


Net


Prior


Minimum


Other


Other


TotalCommon Stock


Paid-In


Accumulated


Gains


Gain


Service


Benefits


Comprehensive


Comprehensive


Stockholders


ComprehensiveShares


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
)

$
2,052,071Net 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



4,925Reclassification 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














































3,403Comprehensive loss













































$
(60,494
)Balance, December 31, 2005


1,000



1



2,460,551



(848,341
)


18,847











(147
)


18,700



(335
)


1,630,576Net income














24,648



























24,648


$
24,648Distributions 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














































335Adjustment 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













































$
6,818Balance, December 31, 2006


1,000


$
1


$
2,211,139


$
(823,693
)

$
2,711


$
(5,566
)

$
(3,379
)

$



$
(6,234
)

$



$
1,381,213Net loss














(27,914
)


























(27,914
)

$
(27,914
)Deferred gain from cash flow hedges, net of tax of $0


















330















330







330



330Reclassification 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



401Reclassification of benefits actuarial net loss into net loss,
    net of tax of $0






















170











170







170



170Deferred benefits, net of tax of $1 million and
    $1 million






















1,100



642







1,742







1,742



1,742Comprehensive loss













































$
(28,312
)Balance, December 31, 2007


1,000


$
1


$
2,211,139


$
(851,607
)

$



$
(4,296
)

$
(2,336
)

$



$
(6,632
)

$



$
1,352,901    F-130




---



##### Table of Contents





ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Background
    and Basis of Presentation  Background.
    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.     F-131




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Purpose for Holding or

Transactions that

Transactions thatInstrument

Issuing Instrument(1)

Physically Flow

Financially
    Settle(2)Power futures, forward, swap and option contracts

Power sales
    Power purchases

Revenues
    Cost of sales

Revenues
    RevenuesNatural 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.  value-at-risk
   F-132




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Set-off of Derivative Assets and
    Liabilities.
  New Accounting Pronouncement Not Yet AdoptedOffsetting
    of Amounts. FIN 39-1,
    (e)
    Credit
    Risk.      (f)
    General
    and Administrative ExpensesPrimarily
    Affiliates.   F-133




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (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


$
1,783Land improvements


20 - 32



98



97Other


3 - 10



10



9Land






12



12Assets under construction






89



28Total






2,032



1,929Accumulated depreciation






(412
)


(341
)Property, plant and equipment, net





$
1,620


$
1,588       (h)
    Intangible
    Assets and Amortization Expense.  Goodwill.
  Other Intangibles.
  (i)
    Capitalization
    of Interest Expense.    (j)
    Income
    Taxes.  Federal.
 F-134




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  State.
  (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


$
19Coal


34



30Heating oil


2



1Total inventory

$
57


$
50   (n)
    Environmental
    Costs.  and/or
  (o)
    Asset
    Retirement Obligations.    and/or
 F-135




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (p)
    Repair
    and Maintenance Costs for Power Generation Assets.    (q)
    New
    Accounting Pronouncement Not Yet AdoptedFair
    Value.    (3)
    Related
    Party Transactions    Support and Technical Services.
    2007

2006

2005(in millions)Allocated or charged by Reliant Energy

$
65


$
64


$
84Unpaid allocations and charges recorded as non-cash equity
    contributions from Reliant Energy










57   Commodity Procurement and Marketing.
  2007


2006


2005(in millions)Sales to Reliant Energy under various commodity
    agreements(1)

$
543


$
475


$
548Purchases from Reliant Energy under various commodity
    agreements(2)


1



7



68Gains on coal sales to Reliant
    Energy(3)


6



5



6Sales of emission allowances to Reliant
    Energy(4)


13



69



56Gains on emission allowances sales to Reliant
    Energy(5)


6



66



53     (1)
    
    Recorded in
    revenuesaffiliates. F-136




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (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.  Debt Obligations from/to Reliant Energy.
    Secured Revolving Letter of Credit Facility Agreement with
    Reliant Energy.
  Cash
    Distributions to Reliant Energy.
  2007

2006

2005(in millions)Orion Power Holdings cash distributions to Reliant Energy

$



$
(209
)

$
(340
)   Income Taxes.
  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
)    F-137




---



##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (4)
    Intangible
    Assets  (a)
    Goodwill.    As of January 1, 2006

$
181Changes


(5
)As of December 31, 2006


176Changes


(2
)As of December 31, 2007

$
174     Goodwill Impairment Tests.
  Estimation of Fair Value.
    Number of years used in internal cash flow analysis


15EBITDA(1) multiple for terminal values (2005 tests)


7.5EBITDA 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. F-138




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (b)
    Other
    Intangibles.  RemainingWeighted


December 31,Average


2007


2006Amortization


Carrying


Accumulated


Carrying


AccumulatedPeriod (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


$
31Contractual
    rights(1)

$



$
(1
)

$
(1
)Contractual
    obligations(1)(2)






3



9Net

$



$
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   F-139




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        (6)
    Debt    December 31,2007


2006Weighted








WeightedAverage








AverageStated








StatedInterest








InterestRate(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



10Total 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


4002011


2012


2013 and thereafter


$
400   Orion Power Holdings Senior Notes.
 F-140




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (7)
    Benefit
    Plans  (a)
    Pension
    and Postretirement Benefits.  Benefit Plans.
      Pension


Postretirement Benefits2007


2006


2007


2006(in millions)Change in Benefit ObligationBeginning of year

$
57


$
52


$
31


$
28Service cost


2



3



1



Interest cost


3



3



2



2Benefits paid


(2
)


(1
)






Actuarial loss










(1
)


1End of year

$
60


$
57


$
33


$
31Change in Plan AssetsBeginning 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
)  F-141




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension


Postretirement BenefitsDecember 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 Benefits2007


2006


2005


2007


2006


2005(in millions)Service cost

$
3


$
3


$
2


$



$



$
1Interest cost


3



3



2



2



2



1Expected return on plan assets


(3
)


(2
)


(1
)










Net amortization


1



1



1











Net benefit cost

$
4


$
5


$
4


$
2


$
2


$
2   Assumptions.
  Pension


Postretirement BenefitsDecember 31,


December 31,2007


2006


2007


2006Discount rate


5.75
%


5.75
%


5.75
%


5.75
%Rate of compensation increase


3.0
%


3.0
%


3.0
%


3.0
%     Pension


Postretirement Benefits2007


2006


2005


2007


2006


2005Discount 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    F-142




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Health 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 PointIncrease

Decrease(in millions)Effect on service and interest cost

$



$
Effect on accumulated postretirement benefit obligation


5



(4
)   Plan Assets.
  Percentage of Plan Assetsas of December 31,


Target Allocation2007


2006


2008Domestic equity securities


49
%


50
%


50
%International equity securities


10



11



10Global equity securities


10



11



10Debt securities


31



28



30Total


100
%


100
%


100
%     Asset Class

Index

WeightDomestic equity securities

Wilshire 5000 Index


50
%International equity securities

MSCI All Country World Ex-U.S. Index


10Global equity securities

MSCI All Country World Index


10Debt securities

Lehman Brothers Aggregate Bond Index


30Total




100
%    F-143




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash Obligations.
  PostretirementPension


Benefits(in millions)2008

$
2


$
12009


2



12010


2



12011


3



22012


3



22013-2017


24



12   (b)
    Savings
    Plan.    (c)
    Other
    Employee Matters.    (8)
    Income
    Taxes  (a) Summary.
    2007


2006


2005(in millions)Current:Federal

$



$



$
(26
)State


(4
)


(4
)


6Total current


(4
)


(4
)


(20
)Deferred:Federal


(18
)


11



57State


(4
)


(38
)


(13
)Total deferred


(22
)


(27
)


44Income tax expense (benefit) from continuing operations

$
(26
)

$
(31
)

$
24Income tax expense (benefit) from discontinued operations

$



$
(1
)

$
6  F-144




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Federal 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
)


4Effective 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


$
1Other


4



6Total current deferred tax assets


5



7Non-current:Employee benefits


18



21Net operating loss carryforwards


29



29Other


13



14Valuation allowance


(3
)


(5
)Total non-current deferred tax assets


57



59Total deferred tax assets

$
62


$
66Deferred tax liabilities:Non-current:Depreciation and amortization


215



209Other






7Total non-current deferred tax liabilities


215



216Total deferred tax liabilities

$
215


$
216Accumulated deferred income taxes, net

$
(153
)

$
(150
)  F-145




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Tax
    Attribute Carryovers.  StatutoryDecember 31,

Carryforward

Expiration2007

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

$
25Changes in valuation allowance


(1
)As of December 31, 2005


24Changes in valuation allowance


(19
)As of December 31, 2006


5Changes in valuation allowance


(2
)As of December 31, 2007

$
3   (d)
    Adoption
    of FIN 48 and Tax Uncertainties.      Adoption Effect onJanuary 1, 2007Increase (Decrease)(in millions)Goodwill

$
(2
)Other long-term liabilities


(3
)Retained deficit


(1
)  F-146




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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 AuditFederal


1997 to 2007



1997 to 2005Pennsylvania


2004 to 2007



2006New York state and city


2003 to 2006



2003 to 2006     (9)
    Commitments  (a)
    Lease
    Commitments.  Operating Lease Expense.
  (b)
    Guarantees
    and Indemnifications.  Equity Pledged as Collateral for Reliant
    Energy.
  Interests Pledged as Collateral to Reliant
    Energy.
  Other. and/or
   F-147




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (c)
    Other
    Commitments.  Property, Plant and Equipment Commitments. 2
  (10)
    Contingencies    New Source Review Matters.
  Ash Disposal Site Closures.
  (11)
    Estimated
    Fair Value of Financial Instruments    December 31,2007

2006Carrying

Fair

Carrying

FairValue

Value(1)

Value

Value(1)(in millions)Fixed rate debt

$
428


$
436


$
439


$
456Total 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  Emission Allowances.
  (13)
    Discontinued
    Operations  (a)
    New
    York Plants.  General.
  Use of Proceeds.
 F-148




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##### Table of Contents



ORION
    POWER HOLDINGS, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assumptions Related to Debt, Deferred Financing Costs and
    Interest Expense on Discontinued
    Operations.
  (b)
    Ceredo
    Plant.    (c)
    All
    Discontinued Operations.    New YorkPlants


Ceredo Plant


Total2006Revenues

$
104


$



$
104Income before income tax expense/benefit


4
(1)






42005Revenues

$
1,014


$



$
1,014Loss 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.   F-149