<PAGE>   1
                                                                     EXHIBIT 4.6


                            LONG-TERM INCENTIVE PLAN

                                       OF

                          RELIANT ENERGY, INCORPORATED


         1. PLAN. This Long-Term Incentive Plan of Reliant Energy, Incorporated
(the "Plan") was adopted by Reliant Energy, Incorporated (the "Company") to
reward certain corporate officers, independent contractors and employees of
Reliant Energy, Incorporated, by providing for certain cash benefits and by
enabling them to acquire shares of common stock of Reliant Energy, Incorporated.

         2. OBJECTIVES. The purpose of this Plan is to further the interests of
the Company, its Subsidiaries and its shareholders by providing incentives in
the form of awards to employees and independent contractors. Such awards will
recognize and reward outstanding performances and individual contributions and
give Participants in the Plan an interest in the Company parallel to that of the
shareholders, thus enhancing the proprietary and personal interest of such
Participants in the Company's continued success and progress. This Plan will
also enable the Company and its Subsidiaries to attract and retain such
employees and independent contractors.

         3. DEFINITIONS. As used herein, the terms set forth below shall have
the following respective meanings:

                  "AUTHORIZED OFFICER" means the Chairman of the Board or the
         Chief Executive Officer of the Company (or any other senior officer of
         the Company to whom either of them shall delegate the authority to
         execute any Award Agreement, where applicable).

                  "AWARD" means an Employee Award or an Independent Contractor
         Award.

                  "AWARD AGREEMENT" means any Employee Award Agreement or
         Independent Contractor Award Agreement.

                  "BOARD" means the Board of Directors of the Company.

                  "CASH AWARD" means an award denominated in cash.

                  "CODE" means the Internal Revenue Code of 1986, as amended
         from time to time.

                  "COMMITTEE" means the Compensation Committee of the Board or
         such other committee of the Board as is designated by the Board to
         administer the Plan.

                  "COMMON STOCK" means the Common Stock, without par value of
         the Company.



                                      -1-
<PAGE>   2

                  "COMPANY" means Reliant Energy, Incorporated, a Texas
         corporation.

                  "DIVIDEND EQUIVALENTS" means, with respect to shares of
         Restricted Stock that are to be issued at the end of the Restriction
         Period, an amount equal to all dividends and other distributions (or
         the economic equivalent thereof) that are payable to stockholders of
         record during the Restriction Period on a like number of shares of
         Common Stock.

                  "EMPLOYEE" means an employee of the Company or any of its
         Subsidiaries and an individual who has agreed to become an employee of
         the Company or any of its Subsidiaries and is expected to become such
         an employee within the following six months.

                  "EMPLOYEE AWARD" means any Option, SAR, Stock Award, Cash
         Award or Performance Award granted, whether singly, in combination or
         in tandem, to a Participant who is an Employee pursuant to such
         applicable terms, conditions and limitations (including treatment as a
         Performance Award) as the Committee may establish in order to fulfill
         the objectives of the Plan.

                  "EMPLOYEE AWARD AGREEMENT" means a written agreement setting
         forth the terms, conditions and limitations applicable to an Employee
         Award.

                  "FAIR MARKET VALUE" of a share of Common Stock means, as of a
         particular date, (i) if shares of Common Stock are listed on a national
         securities exchange, the average of the highest and lowest sales price
         per share of Common Stock on the consolidated transaction reporting
         system for the principal national securities exchange on which shares
         of Common Stock are listed on that date, or, if there shall have been
         no such sale so reported on that date, on the next preceding date on
         which such a sale was so reported, or, at the discretion of the
         Committee, the price prevailing on the exchange at the time of
         exercise, (ii) if shares of Common Stock are not so listed but are
         quoted on the Nasdaq National Market, the average of the highest and
         lowest sales price per share of Common Stock reported by the Nasdaq
         National Market on that date, or, if there shall have been no such sale
         so reported on that date, on the next preceding date on which such a
         sale was so reported, or, at the discretion of the Committee, the price
         prevailing on the Nasdaq National Market at the time of exercise, (iii)
         if the Common Stock is not so listed or quoted, the average of the
         closing bid and asked price on that date, or, if there are no
         quotations available for such date, on the next preceding date on which
         such quotations shall be available, as reported by the Nasdaq Stock
         Market, or, if not reported by the Nasdaq Stock Market, by the National
         Quotation Bureau Incorporated or (iv) if shares of Common Stock are not
         publicly traded, the most recent value determined by an independent
         appraiser appointed by the Company for such purpose.

                  "GRANT DATE" means the date an Award is granted to a
         Participant pursuant to the Plan.



                                      -2-
<PAGE>   3

                  "GRANT PRICE" means the price at which a Participant may
         exercise his or her right to receive cash or Common Stock, as
         applicable, under the terms of an Award.

                  "INCENTIVE STOCK OPTION" means an Option that is intended to
         comply with the requirements set forth in Section 422 of the Code.

                  "INDEPENDENT CONTRACTOR" means a person providing services to
         the Company or any of its Subsidiaries, or who will provide such
         services, except an Employee.

                  "INDEPENDENT CONTRACTOR AWARD" means any Nonqualified Stock
         Option, SAR, Stock Award, Cash Award or Performance Award granted,
         whether singly, in combination or in tandem, to a Participant who is an
         Independent Contractor pursuant to such applicable terms, conditions
         and limitations as the Committee may establish in order to fulfill the
         objectives of the Plan.

                  "INDEPENDENT CONTRACTOR AWARD AGREEMENT" means a written
         agreement setting forth the terms, conditions and limitations
         applicable to an Independent Contractor Award.

                  "NONQUALIFIED STOCK OPTION" means an Option that is not an
         Incentive Stock Option.

                  "OPTION" means a right to purchase a specified number of
         shares of Common Stock at a specified Grant Price, which may be an
         Incentive Stock Option or a Nonqualified Stock Option.

                  "PARTICIPANT" means an Employee or Independent Contractor to
         whom an Award has been granted under this Plan.

                  "PERFORMANCE AWARD" means an award made pursuant to this Plan
         to a Participant who is an Employee or Independent Contractor that is
         subject to the attainment of one or more Performance Goals.

                  "PERFORMANCE GOAL" means a standard established by the
         Committee, to determine in whole or in part whether a Performance Award
         shall be earned.

                  "RESTRICTED STOCK" means Common Stock that is restricted or
         subject to forfeiture provisions.

                  "RESTRICTION PERIOD" means a period of time beginning as of
         the Grant Date of an Award of Restricted Stock and ending as of the
         date upon which the Common Stock subject to such Award is no longer
         restricted or subject to forfeiture provisions.

                  "STOCK APPRECIATION RIGHT" OR "SAR" means a right to receive a
         payment, in cash or Common Stock, equal to the excess of the Fair
         Market Value



                                      -3-
<PAGE>   4

         or other specified valuation of a specified number of shares of Common
         Stock on the date the right is exercised over a specified Grant Price,
         in each case, as determined by the Committee.

                  "STOCK AWARD" means an Award in the form of shares of Common
         Stock or units denominated in shares of Common Stock, including an
         award of Restricted Stock.

                  "SUBSIDIARY" means (i) in the case of a corporation, any
         corporation of which the Company directly or indirectly owns shares
         representing 50% or more of the combined voting power of the shares of
         all classes or series of capital stock of such corporation which have
         the right to vote generally on matters submitted to a vote of the
         stockholders of such corporation and (ii) in the case of a partnership
         or other business entity not organized as a corporation, any such
         business entity of which the Company directly or indirectly owns 50% or
         more of the voting, capital or profits interests (whether in the form
         of partnership interests, membership interests or otherwise).

         4. ELIGIBILITY.

                  (a) EMPLOYEES. All Employees are eligible for the grant of
         Employee Awards under this Plan.

                  (b) INDEPENDENT CONTRACTORS. All Independent Contractors are
         eligible for the grant of Independent Contractor Awards under this
         Plan.

         5. COMMON STOCK AVAILABLE FOR AWARDS. Subject to the provisions of
paragraph 14 hereof, no Award shall be granted if it shall result in the
aggregate number of shares of Common Stock issued under the Plan plus the number
of shares of Common Stock covered by or subject to Awards then outstanding
(after giving effect to the grant of the Award in question) to exceed 15,000,000
shares. No more than 2,000,000 shares of Common Stock shall be available for
Incentive Stock Options. The number of shares of Common Stock that are subject
to Awards under this Plan that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the shares covered by an Award are not issued to a Participant or are
exchanged for Awards that do not involve Common Stock, shall again immediately
become available for Awards hereunder. The Committee may from time to time adopt
and observe such procedures concerning the counting of shares against the Plan
maximum as it may deem appropriate. The Board and the appropriate officers of
the Company shall from time to time take whatever actions are necessary to file
any required documents with governmental authorities, stock exchanges and
transaction reporting systems to ensure that shares of Common Stock are
available for issuance pursuant to Awards.

         6. ADMINISTRATION.

                  (a) This Plan shall be administered by the Committee except as
         otherwise provided herein.



                                      -4-
<PAGE>   5

                  (b) Subject to the provisions hereof, the Committee shall have
         full and exclusive power and authority to administer this Plan and to
         take all actions that are specifically contemplated hereby or are
         necessary or appropriate in connection with the administration hereof.
         The Committee shall also have full and exclusive power to interpret
         this Plan and to adopt such rules, regulations and guidelines for
         carrying out this Plan as it may deem necessary or proper, all of which
         powers shall be exercised in the best interests of the Company and in
         keeping with the objectives of this Plan. The Committee may, in its
         discretion, provide for the extension of the exercisability of an
         Award, accelerate the vesting or exercisability of an Award, eliminate
         or make less restrictive any restrictions applicable to an Award, waive
         any restriction or other provision of this Plan or an Award or
         otherwise amend or modify an Award in any manner that is either (i) not
         adverse to the Participant to whom such Award was granted or (ii)
         consented to by such Participant. The Committee may grant an Award to
         an Employee who it expects to become an employee of the Company or any
         of its Subsidiaries within the following six months, with such Award
         being subject to the individual's actually becoming an employee within
         such time period, and subject to such other terms and conditions as may
         be established by the Committee. The Committee may correct any defect
         or supply any omission or reconcile any inconsistency in this Plan or
         in any Award in the manner and to the extent the Committee deems
         necessary or desirable to further the Plan purposes. Any decision of
         the Committee in the interpretation and administration of this Plan
         shall lie within its sole and absolute discretion and shall be final,
         conclusive and binding on all parties concerned.

                  (c) No member of the Committee or officer of the Company to
         whom the Committee has delegated authority in accordance with the
         provisions of paragraph 7 of this Plan shall be liable for anything
         done or omitted to be done by him or her, by any member of the
         Committee or by any officer of the Company in connection with the
         performance of any duties under this Plan, except for his or her own
         willful misconduct or as expressly provided by statute.

         7. DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish. The Committee may engage or authorize the engagement of a third party
administrator to carry out administrative functions under the Plan.

         8. EMPLOYEE AND INDEPENDENT CONTRACTOR AWARDS.

                  (a) The Committee shall determine the type or types of
         Employee Awards to be made under this Plan and shall designate from
         time to time the Employees who are to be the recipients of such Awards.
         Each Employee Award shall be embodied in an Employee Award Agreement,
         which shall contain such terms, conditions and limitations as shall be
         determined by the Committee in its sole discretion and, if required by
         the Committee, shall be signed by the Participant to whom the Employee
         Award is granted and by an Authorized Officer for and on behalf of the
         Company. Employee Awards may consist of



                                      -5-
<PAGE>   6

         those listed in this paragraph 8(a) and may be granted singly, in
         combination or in tandem. Employee Awards may also be granted in
         combination or in tandem with, in replacement of, or as alternatives
         to, grants or rights under this Plan or any other employee plan of the
         Company or any of its Subsidiaries, including the plan of any acquired
         entity. An Employee Award may provide for the grant or issuance of
         additional, replacement or alternative Employee Awards upon the
         occurrence of specified events, including the exercise of the original
         Employee Award granted to a Participant. All or part of an Employee
         Award may be subject to conditions established by the Committee, which
         may include, but are not limited to, continuous service with the
         Company and its Subsidiaries, achievement of specific business
         objectives, increases in specified indices, attainment of specified
         growth rates and other comparable measurements of performance. Upon the
         death, disability or termination of employment by a Participant who is
         an Employee, any unexercised, deferred, unvested or unpaid Employee
         Awards shall be treated as set forth in the applicable Employee Award
         Agreement.

                           (i) OPTION. An Employee Award may be in the form of
                  an Option, which may be an Incentive Stock Option or a
                  Nonqualified Stock Option. The Grant Price of an Option shall
                  be not less than the Fair Market Value of the Common Stock on
                  the Grant Date; provided, however, that the Committee may, in
                  its sole discretion, make grants of Nonqualified Stock Options
                  as Employee Awards with an exercise price per share that is
                  less than the Fair Market Value of the Common Stock on the
                  Grant Date with respect to no more than 1,000,000 shares of
                  Common Stock. Subject to the foregoing provisions, the terms,
                  conditions and limitations applicable to any Options awarded
                  to Employees pursuant to this Plan, including the Grant Price,
                  the term of the Options and the date or dates upon which they
                  become exercisable, shall be determined by the Committee.

                           (ii) STOCK APPRECIATION RIGHTS. An Employee Award may
                  be in the form of an SAR. The terms, conditions and
                  limitations applicable to any SARs awarded to Employees
                  pursuant to this Plan, including the Grant Price, the term of
                  any SARs and the date or dates upon which they become
                  exercisable, shall be determined by the Committee.

                           (iii) STOCK AWARD. An Employee Award may be in the
                  form of a Stock Award. The terms, conditions and limitations
                  applicable to any Stock Awards granted pursuant to this Plan
                  shall be determined by the Committee.

                           (iv) CASH AWARD. An Employee Award may be in the form
                  of a Cash Award. The terms, conditions and limitations
                  applicable to any Cash Awards granted pursuant to this Plan
                  shall be determined by the Committee.



                                      -6-
<PAGE>   7
                           (v) PERFORMANCE AWARD. Without limiting the type or
                  number of Employee Awards that may be made under the other
                  provisions of this Plan, an Employee Award may be in the form
                  of a Performance Award. A Performance Award shall be paid,
                  vested or otherwise deliverable solely on account of the
                  attainment of one or more pre-established, objective
                  Performance Goals established by the Committee prior to the
                  earlier to occur of (x) 90 days after the commencement of the
                  period of service to which the Performance Goal relates or (y)
                  the lapse of 25% of the period of service (as scheduled in
                  good faith at the time the goal is established), and in any
                  event while the outcome is substantially uncertain. A
                  Performance Goal is objective if a third party having
                  knowledge of the relevant facts could determine whether the
                  goal is met. Such a Performance Goal may be based on one or
                  more business criteria that apply to the Employee, one or more
                  business units of the Company, or the Company as a whole, and
                  may include one or more of the following: earnings per share,
                  earnings per share growth, total shareholder return, economic
                  value added, cash return on capitalization, increased revenue,
                  revenue ratios (per employee or per customer), net income,
                  stock price, market share, return on equity, return on assets,
                  return on capital, return on capital compared to cost of
                  capital, return on capital employed, return on invested
                  capital, shareholder value, net cash flow, operating income,
                  earnings before interest and taxes, cash flow, cash from
                  operations, cost reductions, cost ratios (per employee or per
                  customer), proceeds from dispositions, project completion time
                  and budget goals, net cash flow before financing activities,
                  customer growth and total market value. Goals may also be
                  based on performance relative to a peer group of companies.
                  Unless otherwise stated, such a Performance Goal need not be
                  based upon an increase or positive result under a particular
                  business criterion and could include, for example, maintaining
                  the status quo or limiting economic losses (measured, in each
                  case, by reference to specific business criteria). In
                  interpreting Plan provisions applicable to Performance Goals
                  and Performance Awards, it is the intent of the Plan to
                  conform with the standards of Section 162(m) of the Code and
                  Treasury Regulation Section 1.162-27(e)(2)(i), and the
                  Committee in establishing such goals and interpreting the Plan
                  shall be guided by such provisions. Prior to the payment of
                  any compensation based on the achievement of Performance
                  Goals, the Committee must certify in writing that applicable
                  Performance Goals and any of the material terms thereof were,
                  in fact, satisfied. Subject to the foregoing provisions, the
                  terms, conditions and limitations applicable to any
                  Performance Awards made pursuant to this Plan shall be
                  determined by the Committee.



                                      -7-
<PAGE>   8

                  (b) Notwithstanding anything to the contrary contained in this
         Plan, the following limitations shall apply to any Employee Awards made
         hereunder:

                           (i) no Participant may be granted, during any
                  calendar year, Employee Awards consisting of Options or SARs
                  that are exercisable for more than 1,500,000 shares of Common
                  Stock;

                           (ii) no Participant may be granted, during any
                  calendar year, Stock Awards covering or relating to more than
                  500,000 shares of Common Stock (the limitation set forth in
                  this clause (ii), together with the limitation set forth in
                  clause (i) above, being hereinafter collectively referred to
                  as the "Stock Based Awards Limitations"); and

                           (iii) no Participant may be granted Employee Awards
                  consisting of cash or in any other form permitted under this
                  Plan (other than Employee Awards consisting of Options or SARs
                  or Stock Awards) in respect of any calendar year having a
                  value determined on the Grant Date in excess of $3,500,000.

                  (c) The Committee shall have the sole responsibility and
         authority to determine the type or types of Independent Contractor
         Awards to be made under this Plan and the terms, conditions and
         limitations applicable to such Awards, except that Independent
         Contractor Awards may not be in the form of Incentive Stock Options.

         9. PAYMENT OF AWARDS.

                  (a) GENERAL. Payment made to a Participant pursuant to an
         Award may be made in the form of cash or Common Stock, or a combination
         thereof, and may include such restrictions as the Committee shall
         determine, including, in the case of Common Stock, restrictions on
         transfer and forfeiture provisions. If such payment is made in the form
         of Restricted Stock, the applicable Award Agreement relating to such
         shares shall specify whether they are to be issued at the beginning or
         end of the Restriction Period. In the event that shares of Restricted
         Stock are to be issued at the beginning of the Restriction Period, the
         certificates evidencing such shares (to the extent that such shares are
         so evidenced) shall contain appropriate legends and restrictions that
         describe the terms and conditions of the restrictions applicable
         thereto. In the event that shares of Restricted Stock are to be issued
         at the end of the Restricted Period, the right to receive such shares
         shall be evidenced by book entry registration or in such other manner
         as the Committee may determine.

                  (b) DEFERRAL. With the approval of the Committee, amounts
         payable in respect of Awards may be deferred and paid either in the
         form of installments or as a lump-sum payment. The Committee may permit
         selected Participants to elect to defer payments of some or all types
         of Awards or any other compensation otherwise payable by the Company in
         accordance with procedures established by



                                      -8-
<PAGE>   9

         the Committee. Any deferred payment pursuant to an Award, whether
         elected by the Participant or specified by the Award Agreement or by
         the Committee, may be forfeited if and to the extent that the Award
         Agreement so provides.

                  (c) DIVIDENDS, EARNINGS AND INTEREST. Rights to dividends or
         Dividend Equivalents may be extended to and made part of any Stock
         Award, subject to such terms, conditions and restrictions as the
         Committee may establish. The Committee may also establish rules and
         procedures for the crediting of interest or other earnings on deferred
         cash payments and Dividend Equivalents for Stock Awards.

                  (d) SUBSTITUTION OF AWARDS. Subject to the limitations set
         forth in Section 8(a)(i) and 8(b), at the discretion of the Committee,
         a Participant may be offered an election to substitute an Award for
         another Award or Awards of the same or different type.

                  (e) CASH-OUT OF AWARDS. At the discretion of the Committee, an
         Award that is an Option or SAR may be settled by a cash payment equal
         to the difference between the Fair Market Value per share of Common
         Stock on the date of exercise and the Grant Price of the Award,
         multiplied by the number of shares with respect to which the Award is
         exercised.

         10. OPTION EXERCISE. The Grant Price shall be paid in full at the time
of exercise in cash or, if permitted by the Committee and elected by the
optionee, the optionee may purchase such shares by means of tendering Common
Stock or surrendering another Award, including Restricted Stock, valued at Fair
Market Value on the date of exercise, or any combination thereof. The Committee
shall determine acceptable methods for Participants to tender Common Stock or
other Awards. The Committee may provide for procedures to permit the exercise or
purchase of such Awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are tendered
as consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of Restricted
Stock used as consideration therefor, shall be subject to the same restrictions
as the Restricted Stock so submitted as well as any additional restrictions that
may be imposed by the Committee. The Committee may adopt additional rules and
procedures regarding the exercise of Options from time to time, provided that
such rules and procedures are not inconsistent with the provisions of this
paragraph.

         11. TAXES. The Company or its designated third party administrator
shall have the right to deduct applicable taxes from any Employee Award payment
and withhold, at the time of delivery or vesting of cash or shares of Common
Stock under this Plan, an appropriate amount of cash or number of shares of
Common Stock or a combination thereof for payment of taxes or other amounts
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes,
provided that withholding obligations with respect to Options may only be
satisfied in cash. The Committee may also permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock theretofore owned by the
holder of the Employee Award with respect to which withholding is required,
except with respect to Options. If shares of Common Stock are used to satisfy
tax



                                      -9-
<PAGE>   10

withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made.

         12. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION OF THE PLAN. The
Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
required by applicable legal requirements.

         13. ASSIGNABILITY. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 13
shall be null and void.

                  Subject to approval by the Committee in its sole discretion,
all or a portion of the Awards granted to a Participant under the Plan may be
transferable by the Participant, to the extent and only to the extent specified
in such approval, to (i) the spouse, parent, brother, sister, children or
grandchildren (including adopted and stepchildren and grandchildren) of the
Participant ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members ("Immediate Family Member
Trusts"), or (iii) a partnership or partnerships in which such Immediate Family
Members have at least 99% of the equity, profit and loss interests ("Immediate
Family Member Partnerships"); provided that the Award Agreement pursuant to
which such Awards are granted (or an amendment thereto) must expressly provide
for transferability in a manner consistent with this paragraph. Subsequent
transfers of transferred Awards shall be prohibited except by will or the laws
of descent and distribution, unless such transfers are made to the original
Participant or a person to whom the original Participant could have made a
transfer in the manner described herein. No transfer shall be effective unless
and until written notice of such transfer is provided to the Committee, in the
form and manner prescribed by the Committee. Following transfer, any such Awards
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, and, except as otherwise provided herein, the
term "Participant" shall be deemed to refer to the transferee. The consequences
of termination of employment or service shall continue to be applied with
respect to the original Participant, following which the Awards shall be
exercisable by the transferee only to the extent and for the periods specified
in this Plan and the Award Agreement.



                                      -10-
<PAGE>   11

         14. ADJUSTMENTS.

                  (a) The existence of outstanding Awards shall not affect in
         any manner the right or power of the Company or its stockholders to
         make or authorize any or all adjustments, recapitalizations,
         reorganizations or other changes in the capital stock of the Company or
         its business or any merger or consolidation of the Company, or any
         issue of bonds, debentures, preferred or prior preference stock
         (whether or not such issue is prior to, on a parity with or junior to
         the Common Stock) or the dissolution or liquidation of the Company, or
         any sale or transfer of all or any part of its assets or business, or
         any other corporate act or proceeding of any kind, whether or not of a
         character similar to that of the acts or proceedings enumerated above.

                  (b) In the event of any subdivision or consolidation of
         outstanding shares of Common Stock, declaration of a dividend payable
         in shares of Common Stock or other stock split, then (i) the number of
         shares of Common Stock reserved under this Plan, (ii) the number of
         shares of Common Stock covered by outstanding Awards, (iii) the Grant
         Price or other price in respect of such Awards, (iv) the appropriate
         Fair Market Value and other price determinations for such Awards, and
         (v) the Stock Based Awards Limitations shall each be proportionately
         adjusted by the Board as appropriate to reflect such transaction. In
         the event of any other recapitalization or capital reorganization of
         the Company, any consolidation or merger of the Company with another
         corporation or entity, the adoption by the Company of any plan of
         exchange affecting the Common Stock or any distribution to holders of
         Common Stock of securities or property (other than normal cash
         dividends or dividends payable in Common Stock), the Board shall make
         appropriate adjustments to (i) the number of shares of Common Stock
         covered by Awards, (ii) the Grant Price or other price in respect of
         such Awards, (iii) the appropriate Fair Market Value and other price
         determinations for such Awards, and (iv) the Stock Based Awards
         Limitations to reflect such transaction; provided that such adjustments
         shall only be such as are necessary to maintain the proportionate
         interest of the holders of the Awards and preserve, without increasing,
         the value of such Awards. In the event of a corporate merger,
         consolidation, acquisition of property or stock, separation,
         reorganization or liquidation, the Board shall be authorized (x) to
         issue or assume Awards by means of substitution of new Awards, as
         appropriate, for previously issued Awards or to assume previously
         issued Awards as part of such adjustment or (y) to cancel Awards that
         are Options or SARs and give the Participants who are the holders of
         such Awards notice and opportunity to exercise for 30 days prior to
         such cancellation.

         15. RESTRICTIONS. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system



                                      -11-
<PAGE>   12

upon which the Common Stock is then listed or to which it is admitted for
quotation and any applicable federal or state securities law. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.

         16. UNFUNDED PLAN. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets for purposes of this Plan or
Awards hereunder, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any benefit to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to an Award under this
Plan shall be based solely upon any contractual obligations that may be created
by this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.

         17. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE THE UNITED
STATES. To the extent the Committee deems it necessary, appropriate or desirable
to comply with foreign law or practice and to further the purpose of the Plan,
the Committee may, without amending the Plan, (i) establish special rules
applicable to Awards granted to Participants who are foreign nationals, are
employed outside the United States, or both, including rules that differ from
those set forth in this Plan, and (ii) grant Awards to such Participants in
accordance with those rules.

         18. GOVERNING LAW. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Texas.

         19. EFFECTIVENESS. The Plan, as approved by the Board on March 7, 2001,
shall be effective as of January 1, 2001, subject to the approval of the
shareholders of the Company at its annual meeting on May 2, 2001.




                                      -12-
<PAGE>   13

         IN WITNESS WHEREOF, the Company has executed this Plan this _____day of
___________________, 2001, but effective as of January 1, 2001.

                                        RELIANT ENERGY, INCORPORATED



                                        By
                                          --------------------------------------
                                          R. S. Letbetter
                                          Chairman and Chief Executive Officer

ATTEST:


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




                                      -13-