Edgar Filing: RELIANT RESOURCES INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 2003

REGISTRATION NO. 333-107295
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RELIANT RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 76-0655566
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)

1000 MAIN STREET
HOUSTON, TEXAS 77002
(713) 497-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

MICHAEL L. JINES
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
1000 MAIN STREET
HOUSTON, TEXAS 77002
(713) 497-3000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)

COPIES TO:

MICHAEL P. ROGAN RICHARD B. AFTANAS
C. KEVIN BARNETTE SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP FOUR TIMES SQUARE
1440 NEW YORK AVENUE, N.W. NEW YORK, NEW YORK 10036
WASHINGTON, D.C. 20005 (212) 735-3000
(202) 371-7000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED DECEMBER 10, 2003

(RELIANT RESOURCES LOGO)

$275,000,000

RELIANT RESOURCES, INC.
5.00% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2010 AND SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
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On June 24, 2003, we issued and sold $225,000,000 aggregate principal
amount of our 5.00% Convertible Senior Subordinated Notes due 2010 to Deutsche
Bank Securities Inc., Goldman, Sachs & Co., Banc of America Securities LLC,
Barclays Capital Inc., ABN AMRO Rothschild LLC and Commerzbank Capital Markets
Corp. (the initial purchasers) in a private placement. On July 2, 2003, we
issued and sold, at the option of the initial purchasers, an additional
$50,000,000 aggregate principal amount of the notes to the initial purchasers to
cover overallotments. This prospectus will be used by selling securityholders to
resell the notes and register the common stock issuable upon conversion of the
notes.

The notes will mature on August 15, 2010. You may convert the notes into
shares of Reliant Resources' common stock at any time prior to their maturity or
one business day prior to their redemption or repurchase by Reliant Resources.
The conversion rate is 104.8108 shares of common stock per each $1,000 principal
amount of notes, subject to adjustment in certain circumstances. This is
equivalent to a conversion price of approximately $9.54 per share. On December
5, 2003, the last reported sale price for the common stock on The New York Stock
Exchange was $6.16 per share. The common stock is listed under the symbol "RRI".

Reliant Resources will pay interest on the notes on February 15 and August
15 of each year. The first interest payment was made on August 15, 2003. The
notes are subordinated in right of payment to all of Reliant Resources' existing
and future senior debt and effectively subordinated to all indebtedness and
liabilities of Reliant Resources' subsidiaries. As of September 30, 2003, the
aggregate amount of Reliant Resources' outstanding senior debt, as defined in
this prospectus, was approximately $4.4 billion and the aggregate amount of
indebtedness and other liabilities of Reliant Resources' subsidiaries was
approximately $5.6 billion (excluding $1.9 billion related to Reliant Resources'
European energy operations and Desert Basin plant operations). The notes were
issued only in denominations of $1,000 and integral multiples of $1,000.

On or after August 20, 2008, Reliant Resources has the option to redeem the
notes, in whole or in part, at the prices described in this prospectus if the
last reported sale price of Reliant Resources' common stock is at least 125% of
the then effective conversion price for at least 20 trading days within a period
of 30 consecutive trading days ending on the trading day before the date of the
redemption notice. You have the option, subject to certain conditions, to
require Reliant Resources to repurchase any notes held by you in the event of a
change of control, as described in this prospectus, at a price equal to 100% of
the principal amount of the notes plus accrued and unpaid interest to the date
of repurchase.

The notes are evidenced by a global note deposited with a custodian for and
registered in the name of a nominee of The Depository Trust Company. Except as
described in this prospectus, beneficial interests in the global note will be
shown on, and transfers thereon will be effected only through, records
maintained by The Depository Trust Company and its direct and indirect
participants.

We will not receive any of the proceeds from the sale of the notes or the
shares of common stock by any of the selling securityholders. The notes and the
shares of common stock may be offered in negotiated transactions or otherwise,
at market prices prevailing at the time of sale or at negotiated prices. The
timing and amount of any sale are within the sole discretion of the selling
securityholders. In addition, the shares of common stock may be offered from
time to time through ordinary brokerage transactions on the New York Stock
Exchange. See "Plan of Distribution." The selling securityholders may be deemed
to be "underwriters" as defined in the Securities Act of 1933, as amended. Any
profits realized by the selling securityholders may be deemed to be underwriting
commissions. If the selling securityholders use any broker-dealers, any
commission paid to broker-dealers and, if broker-dealers purchase any notes or
shares of common stock as principals, any profits received by such
broker-dealers on the resale of the notes or shares of common stock may be
deemed to be underwriting discounts or commissions under the Securities Act.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

SEE "RISK FACTORS" BEGINNING ON PAGE 14 TO READ ABOUT IMPORTANT FACTORS YOU
SHOULD CONSIDER BEFORE BUYING THE NOTES.
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Prospectus dated December , 2003.

TABLE OF CONTENTS

PAGE
----

Where You Can Find More Information......................... i
Cautionary Statement Regarding Forward-Looking Statements... iii
Prospectus Summary.......................................... 1
Summary Selected Financial Data............................. 10
Risk Factors................................................ 14
Use of Proceeds............................................. 36
Price Range of Common Stock................................. 36
Dividend Policy............................................. 36
Capitalization.............................................. 37
Selected Financial Information and Other Data............... 38
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 42
Our Business................................................ 43
Management.................................................. 66
Description of Notes........................................ 68
Description of Capital Stock................................ 85
Selling Securityholders..................................... 92
United States Federal Income Tax Consequences............... 96
Plan of Distribution........................................ 99
Legal Matters............................................... 101
Experts..................................................... 101
Glossary of Terms........................................... A-1

WHERE YOU CAN FIND MORE INFORMATION

Reliant Resources files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission, or
SEC. You may read and copy any document Reliant Resources files at the SEC's
public reference room in Washington, D.C., 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-888-SEC-0330 for further information on the
public reference room. Our SEC filings are also available to the public from the
SEC's web site at www.sec.gov or from Reliant Resources' web site at
www.reliantresources.com. However, the information on Reliant Resources' web
site does not constitute a part of this prospectus.

In this document, Reliant Resources "incorporates by reference" the
information it files with the SEC, which means that Reliant Resources can
disclose important information to you by referring to that information. The
information incorporated by reference is considered to be a part of this
prospectus, and later information filed with the SEC will update and supersede
this information. Reliant Resources incorporates by reference the documents
listed below and any future filings made with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act,
after the date of the initial registration statement and prior to the
effectiveness of the registration statement and any filings thereafter and prior
to the termination of this offering:

- Reliant Resources' Annual Report on Form 10-K/A filed on May 1, 2003 for
the fiscal year ended December 31, 2002;

- Reliant Resources' Proxy Statement on Schedule 14A, filed on April 30,
2003;

- Reliant Resources' Quarterly Report on Form 10-Q filed on May 14, 2003
for the quarter ended March 31, 2003;

- Reliant Resources' Quarterly Report on Form 10-Q filed on August 13, 2003
for the quarter ended June 30, 2003;

- Reliant Resources' Quarterly Report on Form 10-Q filed on November 12,
2003 for the quarter ended September 30, 2003;

- Reliant Resources' Current Report on Form 8-K filed on January 10, 2003;

- Reliant Resources' Current Report on Form 8-K filed on February 3, 2003;

- Reliant Resources' Current Report on Form 8-K filed on February 24, 2003;

- Reliant Resources' Current Report on Form 8-K filed on March 17, 2003;

- Reliant Resources' Current Report on Form 8-K filed on March 24, 2003;

- Reliant Resources' Current Report on Form 8-K filed on March 28, 2003;

- Reliant Resources' Current Report on Form 8-K filed on April 1, 2003 (to
the extent filed by Reliant Resources under the Securities Exchange Act
of 1934);

- Reliant Resources' Current Report on Form 8-K filed on April 16, 2003
(other than Exhibit 99.2);

- Reliant Resources' Current Report on Form 8-K filed on May 12, 2003;

- Reliant Resources' Current Report on Form 8-K filed on June 5, 2003;

- Reliant Resources' Current Report on Form 8-K filed on June 18, 2003;

- Reliant Resources' Current Report on Form 8-K filed on June 24, 2003;

- Reliant Resources' Current Report on Form 8-K filed on June 30, 2003;

- Reliant Resources' Current Report on Form 8-K filed on July 11, 2003;

- Reliant Resources' Current Report on Form 8-K filed on July 23, 2003;

- Reliant Resources' Current Report on Form 8-K filed on August 12, 2003
(to the extent filed by Reliant Resources under the Securities Exchange
Act of 1934);

- Reliant Resources' Current Report on Form 8-K filed on August 26, 2003;

- Reliant Resources' Current Report on Form 8-K filed on September 26,
2003;

- Reliant Resources' Current Report (items 5 and 7) on Form 8-K filed on
November 14, 2003;

- Reliant Resources' Current Report on Form 8-K filed on November 26, 2003;

- Reliant Resources' Current Report on Form 8-K filed on December 9, 2003;
and

- the description of Reliant Resources' common stock, par value $.001 per
share contained in Reliant Resources' Registration Statement on Form 8-A,
filed with the SEC on April 27, 2001, as amended by Amendment No. 1
thereto on Form 8-A/A, filed with the SEC on May 1, 2001.

You may request a copy of these filings at no cost, by writing or
telephoning Reliant Resources at: P.O. Box 148, Houston, Texas 77001-0148,
Attention: Investor Relations, telephone (713) 497-7000.

For our most recent annual consolidated financial statements and notes, see
our Current Report on Form 8-K filed on November 14, 2003 and incorporated by
reference herein. For our most recent annual "Management's Discussion and
Analysis of Financial Condition and Results of Operations," see our Current
Report on Form 8-K filed on November 14, 2003 and incorporated by reference
herein. For our most recent interim consolidated financial statements and notes
and interim "Management's Discussion and Analysis of Financial Condition and
Results of Operations," see our Quarterly Report on Form 10-Q filed on November
12, 2003 and incorporated by reference herein.

You should rely only upon the information provided in this document or
incorporated in this document by reference. Reliant Resources has not authorized
anyone to provide you with different information. You should not assume that the
information in this document, including any information incorporated by
reference, is accurate as of any date other than the date indicated on the front
cover.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

When we make statements containing projections about our revenues, income,
earnings and other financial items, our plans and objectives for the future,
future economic performance, transactions for the sale of parts of our
operations and financings related thereto, or when we make statements containing
any other projections or estimates about our assumptions relating to these types
of statements, we are making "forward-looking statements." These statements
usually relate to future events and anticipated revenues, earnings, business
strategies, competitive position or other aspects of our operations or operating
results. In many cases you can identify forward-looking statements by
terminology such as "anticipate," "estimate," "believe," "continue," "could,"
"intend," "may," "plan," "potential," "predict," "should," "will," "expect,"
"objective," "projection," "forecast," "goal," "guidance," "outlook" and other
similar words. However, the absence of these words does not mean that the
statements are not forward-looking. Although we believe that the expectations
and the underlying assumptions reflected in our forward-looking statements are
reasonable, there can be no assurance that these expectations will prove to be
correct. Forward-looking statements are not guarantees of future performance or
events. Such statements involve a number of risks and uncertainties, and actual
results may differ materially from the results discussed in the forward-looking
statements.

In addition to the matters described in this prospectus, the following are
some of the factors that could cause actual results to differ materially from
those expressed or implied in our forward-looking statements:

- Changes in laws and regulations, including deregulation, re-regulation
and restructuring of the electric utility industry, changes in or
application of environmental and other laws and regulations to which we
are subject, and changes in or application of laws or regulations
applicable to other aspects of our business, such as hedging activities;

- The outcome of pending lawsuits, governmental proceedings and
investigations;

- The effects of competition, including the extent and timing of the entry
of additional competitors in our markets;

- Liquidity concerns in our markets;

- Our pursuit of potential business strategies;

- The timing and extent of changes in commodity prices and interest rates;

- The availability of adequate supplies of fuel, water, and associated
transportation necessary to operate our portfolio of generation assets;

- Weather variations and other natural phenomena, which can affect the
demand for power from or our ability to produce power at our generating
facilities;

- Financial market conditions and our access to capital, including
availability of funds in the capital markets for merchant generation
companies;

- The creditworthiness or bankruptcy or other financial distress of our
counterparties;

- Actions by rating agencies with respect to us or our competitors;

- Acts of terrorism or war;

- The availability and price of insurance;

iii

- Political, legal, regulatory and economic conditions and developments;

- The successful operation of deregulating power markets; the reliability
of the systems, procedures and other infrastructure necessary to operate
our retail electric business, including the systems owned and operated by
the independent system operator in ERCOT; and

- The resolution of the refusal by certain California market participants
to pay our receivables balances and the resolution of the refund
methodologies.

Each forward-looking statement speaks only as of the date of the particular
statement and we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.

PROSPECTUS SUMMARY

In this prospectus, the words "Reliant Resources" and "RRI" refer to
Reliant Resources, Inc. and the words, "we", "our", "ours", and "us" refer to
Reliant Resources, Inc. and its subsidiaries. The following summary contains
basic information about us, the notes and our common stock. It does not contain
all of the information that may be important to you. For a complete
understanding of us, the notes and our common stock, we encourage you to read
this entire document and the documents we have referred you to herein. We
provide a glossary of terms used in this prospectus beginning on page A-1.

COMPANY OVERVIEW

We provide electricity and energy services with a focus on the competitive
retail and wholesale segments of the electric power industry in the United
States. With respect to the retail segment of the industry, we provide
customized electricity and related energy services to large commercial,
industrial and institutional customers in Texas and, to a lesser extent, in the
Pennsylvania -- New Jersey -- Maryland (PJM) Interconnection. We also provide
standardized electricity and related services to residential and small
commercial customers in Texas. Within the wholesale segment of the industry, we
own and/or operate a substantial number of electric power generating units
dispersed broadly across the United States. These units are not subject to
traditional cost-based regulation; therefore, we can generally sell electricity
at prices determined by the market, subject to regulatory limitations. We market
electric energy, capacity and ancillary services and procure and, in some
instances, resell natural gas, coal, fuel oil, natural gas transportation
capacity and other energy-related commodities to optimize our physical assets
and manage the risk of our asset portfolio. We sell energy commodities to and
buy energy commodities from a variety of over-the-counter and exchange-based
markets, as well as directly to or from energy producers, distributors and
retailers, as appropriate.

RETAIL ENERGY

Our retail energy segment provides electricity products and services to
end-use customers, ranging from residential and small commercial customers to
large commercial, industrial and institutional customers. Our retail energy
segment acquires and manages the electric energy, capacity and ancillary
services associated with supplying these retail customers. We began serving
approximately 1.7 million electric customers in the Houston metropolitan area
when the Texas market opened to full competition in January 2002. We also began
serving customers in other areas of Texas, which were obtained through our
marketing efforts. As of September 30, 2003, our total retail customer count in
Texas, as measured by number of metered locations, had increased approximately
five percent as compared to September 30, 2002 due to customers added in markets
outside of the Houston area. We are taking steps to provide electricity and
related products and services to large commercial, industrial and institutional
customers in certain other states. In New Jersey, we are registered as an
"electric power supplier," in Pennsylvania, we are registered as an "electric
generation supplier" and in Maryland, we are licensed as an "electric supplier."
We began to deliver electricity in New Jersey effective August 1, 2003.

WHOLESALE ENERGY

Our wholesale energy segment includes our non-Texas portfolio of electric
power generation facilities and related purchased power, fuel delivery and
storage asset positions. We own and/or operate a substantial number of electric
power generating units dispersed broadly across the United States. These units
are not subject to traditional cost-based regulation; therefore, we can
generally sell electricity at prices determined by the market, subject to
regulatory limitations. We market electric energy, capacity and ancillary
services and procure and, in some instances, resell natural gas, coal, fuel oil,
natural gas transportation capacity and other energy-related commodities to
optimize our physical assets and manage the risk of our asset portfolio. We sell
energy commodities to and buy energy commodities from a variety of
over-the-counter and exchange-based markets, as well as directly to or from
energy producers, distributors and retailers, as appropriate.

We own, own an interest in, or lease 119 operating electric power
generation facilities with an aggregate net generating capacity of 19,279 MW
located in five regions of the United States -- the Mid-Atlantic, New York, the
Mid-Continent, the Southeast and the West regions. This excludes 588 MW related
to our Desert Basin plant, which was sold in October 2003, and 811 MW related to
the retirement of certain units in the West and Mid-Atlantic regions. We have
1,063 MW of additional net generating capacity under construction. One gas-fired
generating facility (541 MW) is due to reach commercial operation in the fourth
quarter of 2003 and one waste-coal fired generating facility (522 MW) is due to
reach commercial operation in the second half of 2004. The generating capacity
of these facilities consists of approximately 25% of base-load, 44% of
intermediate and 31% of peaking capacity. Our generating capacity is fueled 42%
by natural gas, 21% by coal, 3% by oil and 30% has dual-fuel capability. The
remaining 4% of our generating capacity is hydroelectric.

The following table describes our electric power generation facilities and
net generating capacity by region as of December 5, 2003:

TOTAL NET
NUMBER OF GENERATING
GENERATION CAPACITY
REGION FACILITIES(1) (MW)(2) DISPATCH TYPE(3) FUEL TYPE
------ ------------- ---------- ------------------------ ------------------

MID-ATLANTIC
Operating(4)(5)............. 21 5,161 Base, Intermediate, Peak Gas/Coal/Oil/Hydro
Under Construction(6)(7).... 1 522 Base Coal
--- ------
Combined.................... 22 5,683
NEW YORK
Operating(8)................ 77 2,952 Base, Intermediate, Peak Gas/Oil/Hydro
MID-CONTINENT
Operating................... 9 4,484 Base, Intermediate, Peak Gas/Oil/Coal
SOUTHEAST
Operating(9)(10)............ 6 3,010 Base, Intermediate, Peak Gas/Oil
WEST
Operating(11)(12)(13)(14)... 6 3,672 Base, Intermediate, Peak Gas/Oil
Under Construction(6)....... 1 541 Base, Intermediate Gas
--- ------
Combined.................... 7 4,213
TOTAL
Operating................... 119 19,279
Under Construction.......... 2 1,063
--- ------
Combined.................... 121 20,342
=== ======

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(1) Unless otherwise indicated, we own a 100% interest in each facility listed.

(2) Average summer and winter net generating capacity.

(3) We use the designations "Base," "Intermediate," and "Peak" to indicate
whether the facilities described are base-load, intermediate, or peaking
facilities, respectively.

(4) We lease a 100%, 16.67% and 16.45% interest in three Pennsylvania
facilities having 614 MW, 284 MW and 282 MW of net generating capacity,
respectively, through facility lease agreements having terms of 26.25
years, 33.75 years and 33.75 years, respectively.

(5) In October 2003, we announced the retirement of two Mid-Atlantic generation
units having 232 MW of net generating capacity, which are excluded from the
table above.

(6) We consider a project to be "under construction" once we have acquired the
necessary permits to begin construction, broken ground on the project site
and contracted to purchase machinery for the project, including the
combustion turbines.

(7) In November 2003, we retired two generation units having 197 MW of net
generating capacity at the Seward facility, which are excluded from the
table above. This retirement was necessary to continue construction of the
replacement capacity of 522 MW.

(8) Excludes two hydro plants with a net generating capacity of 5 MW, which are
not currently operational.

(9) We own a 50% interest in one of these facilities having a net generating
capacity of 108 MW. An independent third party owns the other 50%.

(10) We are party to tolling agreements entitling us to 100% of the capacity of
two Florida facilities having 630 MW and 474 MW of net generating capacity,
respectively. These tolling agreements have terms of 10 years and 5 years,
respectively, and are treated as operating leases for accounting purposes.

(11) In October 2003, we announced the retirement of two California generation
units having 264 MW of total net generating capacity due to a lack of
required environmental permits, which are excluded from the table above.

(12) At the end of December 2003, we will retire one California generation unit
having 118 MW of net generating capacity, which are excluded from the table
above, due to a lack of required environmental permits.

(13) We own a 50% interest in one Nevada facility having a total generating
capacity of 470 MW. An independent third party owns the other 50%.

(14) In November 2003, we announced that the following units in California will
be mothballed: two units at Etiwanda (640 MW); one unit at Mandalay (130
MW) and one unit at Ellwood (54 MW), which are included in the table above.

We seek to optimize our physical asset positions consisting of our power
generation asset portfolio, pipeline transportation capacity positions, pipeline
storage positions and fuel positions and provide risk management services for
our asset positions. We perform these functions through procurement, marketing
and hedging activities for power, fuels and other energy related commodities.
With the downturn in the industry, the decline in market liquidity and our
liquidity capital constraints, the principal function of our commercial
activities is to optimize our assets. In March 2003, we decided to exit our
proprietary trading activities and liquidate, to the extent practicable, our
proprietary positions. Although we have exited our proprietary trading
activities, we have legacy positions, which will be closed as economically
feasible or in accordance with their terms. We will continue to engage in
marketing and hedging activities related to our electric generating facilities,
pipeline transportation capacity positions, pipeline storage positions and fuel
positions of our wholesale energy segment and energy supply costs related to our
retail energy segment.

DISCONTINUED OPERATIONS

In February 2003, we announced the sale of our European energy business to
Nuon for approximately Euro 1.1 billion (on December 10, 2003, $1.3 billion).
The sale closed on December 10, 2003. In accordance with current accounting
standards, the results of these operations are reported as discontinued
operations.

On July 9, 2003, we entered into a definitive agreement to sell our 588 MW
Desert Basin plant, located in Casa Grande, Arizona, to SRP of Phoenix for $289
million. The sale closed on October 15, 2003. In accordance with current
accounting standards, the results of these operations have been reflected as
discontinued operations.

For additional information regarding discontinued operations, see notes 17
and 18 to our interim financial statements for the three and nine months ended
September 30, 2003 incorporated by reference herein.

RECENT DEVELOPMENTS

On November 25, 2003, we entered into a settlement with the CFTC in
connection with an investigation relating to trading and price reporting issues.
The settlement addressed the reporting of natural gas trading information to
energy industry publications that compile and report index prices and seven
offsetting and pre-arranged electricity trades (involving standard, 25-megawatt
electricity contracts) that were executed on an electronic trading platform in
2000. Pursuant to the terms of the settlement, one of our subsidiaries agreed to
pay a civil monetary penalty of $18 million.

On December 5, 2003, we announced that it is unlikely that we will exercise
our option to purchase CenterPoint's holdings of common stock of Texas Genco.
Pursuant to the terms of our credit and debt agreements, we have established an
escrow account to repay indebtedness under our credit facility and for

general corporate purposes or for possible use in the acquisition of
CenterPoint's holdings of common stock of Texas Genco.

After giving effect to the receipt of net cash proceeds expected to be
received from the sale of our European energy segment, we expect that the total
amount of cash on deposit in the escrow account will be approximately $917
million.

If as expected, we do not exercise the Texas Genco option, our credit and
debt agreements entitle us to maintain the funds in the restricted escrow
account for the possible subsequent purchase of CenterPoint's holdings of common
stock of Texas Genco (at a price not to exceed the option price) until the
earlier of September 15, 2004 or the date that CenterPoint sells more than 20%
of the outstanding common stock of Texas Genco to someone other than us.

Upon the occurrence of the earlier of those events, we would be required
under the terms of our March 2003 credit facilities to apply the funds in the
escrow account to collateralize the $300 million senior priority loan commitment
and to prepay term indebtedness under our March 2003 credit facilities. Once the
senior priority commitment has terminated, we would be permitted to use 50% of
the funds from our offering of convertible debt securities for general corporate
purposes.

For additional information regarding the Texas Genco option, see our
Current Report on Form 8-K filed December 9, 2003 incorporated by reference
herein.

OBJECTIVES AND STRATEGY

We are committed to building a balanced wholesale and retail energy
business. Achievement of this goal will be facilitated by focusing on the
following strategic priorities:

OPTIMIZE OUR BUSINESS

Our retail energy business has a strong competitive position in Texas and
has provided us with a stable source of earnings. Following deregulation, as
anticipated, we have seen a loss of residential and small business market share
in the Houston area service territory. We are pursuing customers in other
markets outside of the Houston area service territory to mitigate the loss of
this market share. As a result of such marketing efforts, we have made
out-of-territory market share gains which have helped to offset losses within
the Houston area service territory. Further, our business which provides
electricity and energy services to customers with an aggregate peak demand of
greater than approximately one MW has grown its market share substantially since
deregulation and is poised to continue to grow in Texas. In addition, we have
recently opened an office in New Jersey and are focused on building a strong
position in the surrounding region.

Our wholesale energy business consists of a portfolio of diverse generation
assets which enable us to market electric energy, capacity and ancillary
services. In addition, we procure and, in some instances, resell natural gas,
coal, fuel oil, natural gas transportation capacity and other energy-related
commodities and maintain a commercial infrastructure to optimize our physical
assets and contractual positions through marketing and hedging activities. We
focus on contracting our capacity and procuring the necessary fuel to generate
that power, to lock in energy margins. While current market conditions are
generally weak, we expect the profitability of our wholesale energy business to
improve markedly when markets return to more balanced supply and demand
fundamentals and market rules and regulations improve.

IMPROVE OUR CAPITAL STRUCTURE

Our March 2003 refinancing provided us liquidity and removed near-term debt
maturities which enhances our ability to access the capital markets. Our
business is an inherently cyclical one; consequently, we believe that we need a
more balanced capital structure, and we intend to replace the majority of our
bank debt with long-term fixed income debt and equity. Our first step in the
process was our issuances of $275 million of notes ($225 million in June 2003
and $50 million in July 2003) and $1.1 billion of senior

secured notes in July 2003. The net proceeds of the notes may be used to repay
indebtedness under our credit facilities and for general corporate purposes or
for the possible acquisition of CenterPoint's holdings of the common stock of
Texas Genco and the net proceeds of the senior secured notes were used to pay
down our bank debt. On December 5, 2003, we announced that it is unlikely that
we will exercise our option to purchase CenterPoint's holdings of common stock
of Texas Genco.

OPPORTUNISTICALLY DIVEST NON-CORE ASSETS

We continuously evaluate our non-core assets. As we demonstrated by the
sale of our European energy operations and by the sale of our 588 MW Desert
Basin plant operations, we will consider selling specific generation assets in
order to narrow our focus, bolster our liquidity and strengthen our financial
position.

CAPITALIZE ON UNIQUE OPPORTUNITIES

We will continue to pursue opportunities to enhance our businesses within
the parameters of our capital structure. The continued expansion and growth of
our residential and small commercial retail energy business in Texas and our
large commercial, industrial and institutional retail energy business both in
Texas and other strategic markets in the United States also remain top
priorities.

EVALUATION OF WHOLESALE ENERGY SEGMENT

We are engaged in an ongoing evaluation of our wholesale energy businesses,
which could lead to decisions to mothball, retire or dispose of assets. In
October 2003, we elected to retire five generation units representing a total of
614 MW and, in November 2003, we elected to mothball an additional four
generation units representing a total of 824 MW. Additionally, in November 2003,
we retired two generation units having 197 MW of net generating capacity to
allow continued construction of replacement capacity (522 MW) at the facility.
It is possible that we may retire or mothball additional assets, although to
date, we have not reached a decision to do so for any other generating assets of
our wholesale energy segment.

* * *

Our principal executive offices are located at 1000 Main Street, Houston,
Texas 77002, and our telephone number is (713) 497-3000.

CORPORATE STRUCTURE AND COMPONENTS OF DEBT

The following simplified diagram presents our general corporate structure
and the components of our banking and credit facilities and other long-term debt
to third parties of Reliant Resources and its subsidiaries (excluding our
European energy discontinued operations) as of September 30, 2003 (in millions):

(DEBT STRUCTURE CHART)
---------------

(1) In addition, as of September 30, 2003, Reliant Resources had letters of
credit outstanding of $407 million supporting the Reliant Energy Seward, LLC
tax-exempt debt.

(2) As of September 30, 2003, we had posted cash of $83 million and letters of
credit of $424 million relating to commercial activities.

(3) Includes $272 million in a restricted escrow account. Such funds may be used
for possible acquisition of CenterPoint's holdings of the common stock of
Texas Genco. On December 5, 2003, we announced that it is unlikely that we
will exercise our option to purchase CenterPoint's holdings of common stock
of Texas Genco.

(4) Debt acquired in the Orion Power acquisition was adjusted to fair market
value as of the acquisition date. Included in this amount is $68 million of
fair value adjustments related to the Orion Power senior notes.

(5) Interest rate swaps acquired in the Orion Power acquisition were adjusted to
fair market value as of the acquisition date. Included in the Orion MidWest
and Orion NY debt amounts are $29 million and $20 million, respectively,
related to the fair value adjustments of the interest rate swaps.

(6) Included in Orion MidWest is restricted cash of $72 million and $2 million
held by Orion Power Capital, LLC and Orion Power Operating Services Midwest,
Inc., respectively. Included in Orion NY is restricted cash of $3 million,
$2 million and $2 million held by Orion Power Capital, LLC, Orion Power
Operating Services Astoria, Inc. and Orion Power Operating Services
Coldwater, Inc., respectively. Included in Liberty is restricted cash of $1
million held by Orion Power Operating Services MidAtlantic, Inc. Such cash
is restricted pursuant to the applicable subsidiaries' credit agreements.

(7) Includes an aggregate of 13 generation facilities located in the states of
California, Nevada, Florida, Illinois, Pennsylvania and Mississippi.

(8) In August 2000, we entered into separate sale/leaseback transactions with
each of the three owner-lessors for our interests in three generating
stations acquired in the REMA acquisition. For additional discussion of
these lease transactions, see note 14(a) to our consolidated financial
statements incorporated by reference herein.

(9) We have a receivables facility arrangement with financial institutions to
sell an undivided interest in accounts receivable from our retail energy
segment electric customers on an ongoing basis. Pursuant to this receivables
facility, we formed a QSPE as a bankruptcy remote indirect subsidiary of
RERH. For additional information regarding this transaction, see note 14 to
our interim financial statements incorporated by reference herein.

THE OFFERING

Issuer........................ Reliant Resources, Inc.

Notes Offered................. $275,000,000 in aggregate principal amount of
5.00% Convertible Senior Subordinated Notes due
2010 issued as of July 2, 2003.

Maturity...................... August 15, 2010.

Interest Payment Dates........ Interest on the notes is payable semi-annually
on February 15 and August 15 of each year,
commencing August 15, 2003.

Conversion.................... The notes are convertible at the option of the
holder into shares of our common stock at a
conversion rate of 104.8108 shares of common
stock per $1,000 in principal amount of notes.
This is equivalent to a conversion price of
approximately $9.54 per share. The conversion
rate is subject to adjustment in certain
events. The notes are convertible at the above
conversion rate at any time on or after
issuance and prior to the close of business on
the maturity date, unless we have previously
redeemed or repurchased the notes. Holders of
notes called for redemption or submitted for
repurchase will be entitled to convert the
notes up to the close of business on the
business day immediately preceding the date
fixed for redemption or repurchase, as the case
may be. See "Description of Notes -- Conversion
Rights".

Subordination................. The notes are subordinated to our existing and
future senior debt including the senior secured
notes. As of September 30, 2003, the aggregate
amount of Reliant Resources' outstanding debt
was approximately $4.6 billion and Reliant
Resources had approximately $1.1 billion of
commitments that would have been available for
future borrowings as senior debt. As of
September 30, 2003, the aggregate amount of
indebtedness and other liabilities of our
subsidiaries was approximately $5.6 billion
(excluding $1.9 billion related to our European
energy operations and our Desert Basin plant
operations) and our subsidiaries had
approximately $52 million (excluding $181
million related to our European energy
operations) of commitments that would have been
available for future borrowings as senior debt.
We will not be restricted under the indenture
from incurring senior debt or other additional
indebtedness. See "Description of
Notes -- Subordination".

Global Note; Book-entry
System........................ The notes were issued only in fully registered
form without interest coupons and in minimum
denominations of $1,000 and integral multiples
of $1,000. The notes are evidenced by one or
more global notes deposited with the trustee
for the notes, as custodian for DTC. Beneficial
interests in the global note are shown on, and
transfers of those beneficial interest can only
be made through, records maintained by DTC and
its direct and indirect participants. See
"Description of Notes -- Form, Denomination,
Transfer, Exchange and Book-Entry Procedures".

Optional Redemption by Reliant
Resources..................... We may redeem the notes at our option at any
time on or after August 20, 2008, in whole or
in part, if the last reported sale price of our
common stock is at least 125% of the then
effective

conversion price for at least 20 trading days
within a period of 30 consecutive trading days
ending on the trading day before the date of
the redemption notice at the redemption prices
set forth below under "Description of
Notes -- Optional Redemption by RRI," plus
accrued and unpaid interest to, but excluding,
the redemption date. We will therefore be
required to make at least ten interest payments
on the notes before being able to redeem the
notes.

Repurchase at Option of
Holders Upon a Change in
Control....................... Upon a change in control, you will have the
right to require us to repurchase all or part
of your notes at 100% of the principal amount
of the notes, plus accrued and unpaid interest
to, but excluding, the repurchase date. The
repurchase price is payable in cash, or, at our
option, in shares of common stock, or other
applicable securities if we are not the
surviving corporation of the change in control
transaction or transactions, valued at 95% of
the average closing prices of our common stock
or other applicable securities for the five
trading days immediately preceding the second
trading day prior to the repurchase date,
subject to certain conditions. See "Description
of Notes -- Repurchase at Option of Holders
Upon a Change in Control".

Events of Default............. The following are events of default under the
indenture for the notes:

- we fail to pay principal of or any premium,
if any, on any note when due, whether or not
the payment is prohibited by the
subordination provisions of the indenture;

- we fail to pay any interest, including any
special interest, on any note when due, which
failure continues for 30 days, whether or not
the payment is prohibited by the
subordination provisions of the indenture;

- we fail to comply with the notice and
repurchase provisions described under
"Description of the Notes -- Repurchase at
Option of Holders Upon a Change of Control",
which failure continues for 30 days following
notice whether or not the notice or
repurchase is prohibited by the subordination
provisions of the indenture;

- we fail to perform any agreement or other
covenant in the notes or the indenture, which
failure continues for 90 days following
notice as provided in the indenture;

- we fail to pay any indebtedness under any
bond, debenture, note or other evidence of
indebtedness for money borrowed by us or any
of our subsidiaries other than RECE and its
subsidiaries, Reliant Energy Channelview,
L.P. and its subsidiaries so long as, taken
together, they would not constitute a
significant subsidiary, Liberty Electric PA,
LLC, Liberty Electric Power, LLC and their
respective subsidiaries so long as, taken
together, they would not constitute a
significant subsidiary and Reliant Energy
Retail Holdings, LLC or any subsidiary
thereof in connection with a securitization
transac-

tion in which the indebtedness incurred by
such entities is non-recourse to Reliant
Resources and its other subsidiaries (or the
payment of which is guaranteed by us) in a
principal aggregate amount then outstanding
in excess of $100,000,000 at final maturity
(either at its stated maturity or upon
acceleration);

- failure by Reliant Resources or any of our
subsidiaries other than RECE and its
subsidiaries, Reliant Energy Channelview,
L.P. and its subsidiaries so long as, taken
together, they would not constitute a
significant subsidiary, Liberty Electric PA,
LLC, Liberty Electric Power, LLC and their
respective subsidiaries so long as, taken
together, they would not constitute a
significant subsidiary and Reliant Energy
Retail Holdings, LLC or any subsidiary
thereof that has engaged in a securitization
transaction to pay final and non-appealable
judgments aggregating in excess of
$100,000,000, which are not covered by
indemnities or third-party insurance, which
judgments are not paid, discharged or stayed
for a period of 60 days; and

- certain events of bankruptcy, insolvency or
reorganization involving us or any of our
significant subsidiaries (other than RECE and
its subsidiaries).

See "Description of Notes -- Events of
Default".

Trading....................... The notes sold to qualified institutional
buyers are eligible for trading in the PORTAL
market; however, the notes resold pursuant to
this prospectus will no longer trade on the
PORTAL market. We do not intend to list the
notes on any national securities exchange or
the Nasdaq National Market.

Listing of Common Stock....... Our common stock is quoted on The New York
Stock Exchange under the symbol "RRI".

Use of Proceeds............... We will not receive any of the proceeds from
the sale by any selling securityholder of the
notes or shares of common stock offered under
this prospectus.

Common Shares................. As of December 5, 2003, there were 294,591,650
shares of our common stock issued and
outstanding, excluding 5,212,350 shares held by
us as treasury stock.

SUMMARY SELECTED FINANCIAL DATA

The following tables present our summary selected consolidated financial
data for 1998 through 2002 and the nine months ended September 30, 2002 and
September 30, 2003. The financial data for 1998, 1999 and 2000 are derived from
the consolidated historical financial statements of CenterPoint. The financial
data for 2001 and 2002 are derived from our audited financial statements. The
financial data for the nine months ended September 30, 2002 and September 30,
2003 are derived from our unaudited interim consolidated financial statements.
The data set forth below should be read together with our historical
consolidated financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the three years ended December 31, 2000, 2001 and 2002 included
in our Current Report on Form 8-K filed on November 14, 2003, incorporated by
reference herein, and our interim consolidated financial statements and the
notes to those statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the nine months ended September 30,
2002 and 2003 included in our Quarterly Report on Form 10-Q filed on November
12, 2003, incorporated by reference herein. The historical financial information
may not be indicative of our future performance and the historical financial
information for 1998, 1999 and 2000 does not reflect what our financial position
and results of operations would have been had we operated as a separate,
stand-alone entity during the periods presented.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ----------------------
1998 1999 2000 2001 2002 2002 2003
(1)(4) (1)(4) (1)(4)(5) (1)(2)(4)(5) (1)(3)(4) (1)(3)(4)(5) (1)(6)
------ ------ --------- ------------ --------- ------------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)

INCOME STATEMENT DATA:
Revenues........................... $277 $601 $2,732 $5,499 $10,577 $8,712 $ 9,209
Trading margins.................... 33 88 198 378 288 281 (45)
---- ---- ------ ------ ------- ------ -------
Total............................ 310 689 2,930 5,877 10,865 8,993 9,164
---- ---- ------ ------ ------- ------ -------
Expenses:
Fuel and cost of gas sold........ 102 293 911 1,576 1,082 826 1,078
Purchased power.................. 13 149 926 2,498 7,421 6,118 6,122
Accrual for payment to
CenterPoint.................... -- -- -- -- 128 89 47
Operation and maintenance........ 65 128 336 461 786 589 645
General, administrative and
development.................... 78 94 270 471 635 476 404
Wholesale energy goodwill
impairment..................... -- -- -- -- -- -- 985
Depreciation and amortization.... 15 23 118 170 368 268 313
---- ---- ------ ------ ------- ------ -------
Total.......................... 273 687 2,561 5,176 10,420 8,366 9,594
---- ---- ------ ------ ------- ------ -------
Operating income (loss)............ 37 2 369 701 445 627 (430)
---- ---- ------ ------ ------- ------ -------
Other income (expense):
Gains (losses) from
investments.................... -- 14 (22) 23 (23) 3 2
(Loss) income of equity
investments of unconsolidated
subsidiaries................... (1) (1) 43 7 18 11 (1)
Gain on sale of development
project........................ -- -- 18 -- -- -- --
Other, net....................... 1 1 -- 2 23 6 (6)
Interest expense................. (2) -- (7) (16) (267) (178) (365)
Interest income.................. 1 1 16 22 28 14 24
Interest income
(expense) -- affiliated
companies, net................. 2 (6) (172) 12 5 5 --
---- ---- ------ ------ ------- ------ -------
Total other income (expense)... 1 9 (124) 50 (216) (139) (346)
---- ---- ------ ------ ------- ------ -------
Income (loss) from continuing
operations before income taxes... 38 11 245 751 229 488 (776)
Income tax expense............... 17 6 102 290 106 189 97
---- ---- ------ ------ ------- ------ -------
Income (loss) from continuing
operations....................... 21 5 143 461 123 299 (873)
---- ---- ------ ------ ------- ------ -------
Income (loss) from discontinued
operations before income
taxes.......................... -- 15 73 83 (341) 119 (417)
Income tax (benefit) expense..... -- (4) (7) (16) 108 95 61
---- ---- ------ ------ ------- ------ -------
Income (loss) from discontinued
operations..................... -- 19 80 99 (449) 24 (478)
---- ---- ------ ------ ------- ------ -------
Income (loss) before cumulative
effect of accounting changes..... 21 24 223 560 (326) 323 (1,351)
Cumulative effect of accounting
changes, net of tax.............. -- -- -- 3 (234) (234) (24)
---- ---- ------ ------ ------- ------ -------
Net income (loss).................. $ 21 $ 24 $ 223 $ 563 $ (560) $ 89 $(1,375)
==== ==== ====== ====== ======= ====== =======

BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations..................... $ 1.66 $ 0.43 $ 1.03 $ (2.98)
Income (loss) from discontinued
operations, net of tax......... 0.36 (1.55) 0.08 (1.64)
------ ------- ------ -------
Income (loss) before cumulative
effect of accounting changes... 2.02 (1.12) 1.11 (4.62)
Cumulative effect of accounting
changes, net of tax............ .01 (0.81) (0.80) (0.08)
------ ------- ------ -------
Net income (loss)................ $ 2.03 $ (1.93) $ 0.31 $ (4.70)
====== ======= ====== =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations..................... $ 1.66 $ 0.42 $ 1.02 $ (2.98)
Income (loss) from discontinued
operations, net of tax......... 0.36 (1.54) 0.08 (1.64)
------ ------- ------ -------
Income (loss) before cumulative
effect of accounting changes... 2.02 (1.12) 1.10 (4.62)
Cumulative effect of accounting
changes, net of tax............ .01 (0.80) (0.80) (0.08)
------ ------- ------ -------
Net income (loss)................ $ 2.03 $ (1.92) $ 0.30 $ (4.70)
====== ======= ====== =======

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ------------------
1998 1999 2000 2001 2002 2002 2003
(1) (1) (1)(5) (1)(2)(5) (1)(3) (1) (1)
------- -------- -------- --------- -------- -------- -------
(IN MILLIONS, EXCEPT OPERATING DATA AND RATIO)

STATEMENT OF CASH FLOW DATA:
Cash flows from operating
activities.................... $ (2) $ 38 $ 335 $ (152) $ 519 $ 272 $ 528
Cash flows from investing
activities.................... (365) (1,406) (3,013) (838) (3,486) (3,302) (757)
Cash flows from financing
activities.................... 379 1,408 2,721 1,000 3,981 4,291 (771)
OTHER OPERATING DATA:
Capital expenditures............ (31) (293) (747) (728) (640) (455) (472)
Trading and marketing
activity(7):
Natural gas (Bcf)(8).......... 1,115 1,481 2,273 3,265 3,449 2,925 765
Power sales (thousand
MWh)(8)..................... 61,195 128,266 125,971 222,907 306,425 244,332 67,450
Power generation activity:
Wholesale power sales
(thousand MWh)(8)........... 2,973 10,204 39,300 62,825 128,588 105,161 87,468
Retail power sales (GWh)........ -- -- -- 473 62,455 48,379 49,721
Net power generation capacity at
end of period (MW)............ 3,800 4,469 9,231 10,521 19,300 19,888 20,399
Ratio of earnings to fixed
Charges(9)(10)(11)............ 19.31 1.28 1.83 7.50 1.55 2.92 --

DECEMBER 31,
----------------------------------------------
1998 1999 2000 2001 2002 SEPTEMBER 30,
(1) (1) (1)(5) (1)(5) (1)(5) 2003(6)
------ ------- ------- ------- ------- -------------
(IN MILLIONS)

BALANCE SHEET DATA:
Property, plant and equipment, net....... $ 270 $ 592 $ 2,217 $ 2,796 $ 6,991 $ 8,508
Total assets............................. 1,409 5,624 13,475 11,726 17,669 16,624
Short-term borrowings.................... -- -- -- 92 669 307
Long-term debt to third parties,
including current maturities........... -- 69 260 297 6,159 7,218
Accounts and notes (payable)
receivable -- affiliated companies,
net.................................... (17) (1,333) (1,967) 445 -- --
Stockholders' equity..................... 652 741 2,345 5,984 5,653 4,285

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

(1) Our results of operations include the results of the following
acquisitions, all of which were accounted for using the purchase method of
accounting, from their respective acquisition dates: the five generating
facilities in California substantially acquired in April 1998, a generating
facility in Florida acquired in October 1999, the REMA acquisition that
occurred in May 2000 and the Orion Power acquisition that occurred in
February 2002. See note 5 to our consolidated financial statements
incorporated by reference herein for further information about the
acquisitions occurring in 2000 and 2002. In October 1999, we acquired
REPGB, which is part of our European energy operations. In February 2003,
we signed an agreement to sell our European energy operations to Nuon. In
the first quarter of 2003, we began to report the results of our European
energy operations as discontinued operations in accordance with SFAS No.
144 and accordingly, reclassified prior period amounts. Also, in July 2003,
we entered into a definitive agreement to sell our Desert Basin plant and
have reflected those operations as discontinued and accordingly have
reclassified prior periods. For further discussion of the sales, see notes
17 and 18 to our interim financial statements incorporated by reference
herein.

(2) Effective January 1, 2001, we adopted SFAS No. 133 which established
accounting and reporting standards for derivative instruments. See note 7
to our consolidated financial statements incorporated by reference herein
for further information regarding the impact of the adoption of SFAS No.
133.

(3) During the third quarter of 2002, we completed the transitional impairment
test for the adoption of SFAS No. 142 on our consolidated financial
statements, including the review of goodwill for impairment as of January
1, 2002. Based on this impairment test, we recorded an impairment of our
European energy segment's goodwill of $234 million, net of tax, as a
cumulative effect of accounting change. See note 6 to our consolidated
financial statements incorporated by reference herein for further
discussion.

(4) Beginning with the quarter ended September 30, 2002, we now report all
energy trading and marketing activities on a net basis in the statements of
consolidated operations. Comparative financial statements for prior periods
have been reclassified to conform to this presentation. See note 2(t) to
our consolidated financial statements incorporated by reference herein for
further discussion.

(5) As described in note 1 to our consolidated financial statements
incorporated by reference herein, our consolidated financial statements for
2000 and 2001 have been restated from amounts previously reported. The
restatement had no impact on previously reported consolidated cash flows.

(6) During the nine months ended September 30, 2003, we recorded a charge of
$985 million (pre-tax and after tax) related to an impairment of goodwill
in our wholesale energy reporting unit. See note 7 to our interim financial
statements incorporated by reference herein for discussion.

(7) Excludes financial transactions.

(8) Includes physical contracts not delivered.

(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before income
taxes less (a)(1) income of equity investments of unconsolidated
subsidiaries and (2) capitalized interest plus (b)(1) loss of equity
investments of unconsolidated subsidiaries, (2) fixed charges, (3)
amortization of capitalized interest and (4) distributed income of equity
investees. Fixed charges consist of (a) interest expense, (b) interest
expense -- affiliated companies, net, (c) capitalized interest and (d)
interest within rent expense.

(10) For the nine months ended September 30, 2003, our earnings were
insufficient to cover our fixed charges by $837 million as fixed charges
were $481 million and our loss was $356 million.

(11) The pro forma ratios of earnings to fixed charges for the year ended
December 31, 2002 and for the nine months ended September 30, 2003 for the
issuance of the notes and the senior secured notes did not change from the
historical ratios by more than 10% since the specific debt that was repaid
with the issuance of the senior secured notes has only been outstanding
since March 31, 2003. However, had we assumed the notes and the senior
secured notes had been issued and outstanding as of January 1, 2002, and
had repaid debt, with the amount of the net proceeds from the senior
secured notes, that was in place prior to our March 31, 2003 refinancing,
our fixed charges would have increased by $96 million and $32 million for
the year ended December 31, 2002 and the nine months ended September 30,
2003, respectively. In addition, our ratio of earnings to fixed charges
would have been 1.22 for the year ended December 31, 2002 and our earnings
would have been insufficient to cover our fixed charges by $869 million for
the nine months ended September 30, 2003.

RISK FACTORS

Prospective investors should carefully consider the following information
in conjunction with the other information in this prospectus and the documents
incorporated by reference.

RISKS RELATED TO OUR RETAIL ENERGY OPERATIONS

WE MAY LOSE A SIGNIFICANT NUMBER OF OUR RETAIL RESIDENTIAL AND SMALL
COMMERCIAL CUSTOMERS IN THE HOUSTON METROPOLITAN AREA.

In June 1999, the Texas legislature adopted the Texas electric
restructuring law, which substantially amended the regulatory structure
governing electric utilities in Texas in order to allow full retail competition.
Beginning in 2002, all classes of Texas customers of most investor-owned
electric utilities, and those of any municipal utility and electric cooperative
that opted to participate in the competitive marketplace, were able to choose
their retail electric provider. In January 2002, we began to provide retail
electric services to all customers of CenterPoint who did not take action to
select another retail electric provider. As an affiliated retail electric
provider, we are initially required to sell electricity to these Houston area
residential and small commercial customers at a specified price, or price to
beat, whereas other retail electric providers will be allowed to sell
electricity to these customers at any price. We are not permitted to offer
electricity to these customers at a price other than the price to beat until
January 2005, unless before that date the PUCT determines that 40% or more of
the amount of electric power that was consumed in 2000 by the relevant class of
customers in the Houston metropolitan area is being provided by retail electric
providers other than us. Because we are not able to compete for residential and
small commercial customers on the basis of price in the Houston area, we may
lose a significant number of these customers to other providers.

WE MAY LOSE A SIGNIFICANT PORTION OF OUR MARKET SHARE OF LARGE COMMERCIAL,
INDUSTRIAL AND INSTITUTIONAL CUSTOMERS IN TEXAS.

We are providing commodity services to the large commercial, industrial and
institutional customers previously served by CenterPoint who did not take action
to contract with another retail electric provider. In addition, we have signed
contracts to provide electricity and energy efficiency services to large
commercial, industrial and institutional customers, both in the Houston area, as
well as in other parts of the ERCOT Region. We or any other retail electric
provider can provide services to these customers at any negotiated price. The
market for these customers is very competitive, and any of these customers that
selects us to be their provider may subsequently decide to switch to another
provider at the conclusion of the term of their contract with us.

THE RESULTS OF OUR RETAIL ELECTRIC OPERATIONS IN TEXAS ARE LARGELY DEPENDENT
UPON THE AMOUNT OF HEADROOM AVAILABLE IN OUR PRICE TO BEAT. FUTURE ADJUSTMENTS
TO THE PRICE TO BEAT MAY BE INADEQUATE TO COVER OUR COSTS TO PURCHASE POWER TO
SERVE OUR RESIDENTIAL AND SMALL COMMERCIAL CUSTOMERS.

The results of our residential and small commercial retail electric
operations in Texas are largely dependent upon the amount of headroom available
in our price to beat. Headroom may be a positive or negative number. The PUCT's
current regulations allow us to request an adjustment of our fuel factor based
on the percentage change in the forward price of natural gas or as a result of
changes in the price of purchased energy up to twice a year. As part of a
request to change the fuel factor for changes in purchased energy prices, we
would have to show that the fuel factor must be adjusted to restore the amount
of headroom that existed at the time the initial price to beat fuel factor was
set by the PUCT. We cannot estimate with any certainty the magnitude and
frequency of the adjustments required, if any, and the eventual impact of such
adjustments on the amount of headroom available in our price to beat. If this
adjustment and any future adjustments to our price to beat are inadequate to
cover future increases in our costs to purchase power to serve our price to beat
customers or are delayed by the PUCT, our business, results of operations,
financial condition and cash flows could be materially adversely affected.

In March 2003, the PUCT approved a revised price to beat rule. The changes
from the previous rule include an increase in the number of days used to
calculate the natural gas price average from 10 trading days to 20 trading days,
and an increase in the threshold of what constitutes a significant change in the
market price of natural gas and purchased energy from 4% to 5%, except for
filings made after November 15th of a given year that must meet a 10% threshold.
The revised rule also provides that the PUCT will, after reaching a
determination of stranded costs in 2004, make downward adjustments to the price
to beat fuel factor if natural gas prices drop below the prices embedded in the
then-current price to beat fuel factor. In addition, the revised rule also
specifies that the base rate portion of the price to beat will be adjusted to
account for changes in the non-bypassable rates that result from the utilities'
final stranded cost determination in 2004. Adjustments to the price to beat will
be made following the utilities' final stranded cost determination in 2004. At
this time, we cannot predict the impact of the changes on our financial
condition or results of operations. In March 2003, the PUCT approved our request
to increase the price to beat fuel factor for residential and small commercial
customers based on a 23.4% increase in the price of natural gas from our
previous increase in December 2002. In July 2003 our second and final request
for 2003 was approved by the PUCT to increase the price to beat fuel factor
based on a 23.1% increase in the price of natural gas. Our requested increase
was based on an average forward 12-month natural gas price of $6.1000/MMbtu
during the twenty-day trading period beginning May 14, 2003 and ending June 11,
2003. The requested increase represents an increase of 9.2% in the total bill of
a residential customer using, on average, 12,000 kilowatt hours per year.

On June 26, 2003, CenterPoint petitioned the PUCT to request immediate
elimination of the transmission and distribution utility's excess mitigation
credits (EMC). EMC are credits against the transmission and distribution
utility's non-bypassable charges to retail electric providers providing service
in CenterPoint's territory. On August 6, 2003, the staff of the PUCT filed a
recommendation that the PUCT dismiss CenterPoint's petition because it does not
comply with the procedure set out in the statute for addressing the issues
raised. Subsequently, the procedural schedule was suspended. We, along with a
number of other parties, are currently engaged in settlement discussions on this
issue and other outstanding issues that CenterPoint currently has before the
PUCT. It is not known at this time what the ultimate outcome from this
proceeding will be and whether the PUCT will grant, deny or take other action
with respect to CenterPoint's petition. If CenterPoint's request is granted and
there is no corresponding increase in the price to beat rate, there could be a
material adverse impact on our financial condition, results of operations and
cash flows.

WE FACE STRONG COMPETITION FROM AFFILIATED RETAIL ELECTRIC PROVIDERS OF
INCUMBENT ELECTRIC UTILITIES AND OTHER COMPETITORS OUTSIDE OF HOUSTON.

In most retail electric markets outside the Houston area, our principal
competitor is the local incumbent electric utility company's retail affiliate.
These retail affiliates have the advantage of long-standing relationships with
their customers. In addition to competition from the incumbent electric
utilities' affiliates, we face competition from a number of other retail
electric providers, including affiliates of other non-incumbent electric
utilities, independent retail electric providers and, with respect to sales to
large commercial, industrial and institutional customers, independent power
producers and wholesale power providers acting as retail electric providers.
Some of these competitors are larger and better capitalized than we are.

OUR RETAIL ENERGY OPERATIONS ARE SUBJECT TO EXTENSIVE MARKET OVERSIGHT.
CHANGES TO MARKET PROTOCOLS OR NEW REGULATION COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH
FLOWS.

The ERCOT ISO, which oversees the ERCOT Region, has and may continue to
modify the market structure and other market mechanisms in an attempt to improve
market efficiency. Moreover, existing regulations may be revised or
reinterpreted and new laws and regulations may be adopted or become applicable
to our commercial activities. These actions could have a material adverse effect
on our results of operations, financial condition and cash flows.

PAYMENT DEFAULTS BY AND LITIGATION WITH OTHER RETAIL ELECTRIC PROVIDERS TO
ERCOT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.

In the event of a default by a retail electric provider of its payment
obligations to ERCOT, the portion of the obligation that is unrecoverable by
ERCOT from the defaulting retail electric provider is assumed by the remaining
market participants in proportion to each participant's load ratio share. As a
retail electric provider and market participant in ERCOT, we would pay a portion
of the amount owed to ERCOT should such a default occur, and ERCOT is not
successful in recovering such amounts. The default of a retail electric provider
in its obligations to ERCOT could have a material adverse effect on our
business, results of operations, financial condition and cash flows.

In March 2003, TCE, a retail electricity provider in the ERCOT market,
filed for bankruptcy protection. The bankruptcy court has approved TCE's
treatment of ERCOT's claim, which provides for payments to ERCOT of $1 million a
month beginning in July 2004. From September 15, 2003 until July 15, 2004, TCE
will pay ERCOT fifty percent of any prepetition accounts receivable collected,
as well as $25,000 per month. This treatment is also included in TCE's first
amended disclosure statement, which is awaiting the approval of the bankruptcy
court. No assurance can be given that TCE will be able to satisfy its
obligations to ERCOT. For information regarding a lawsuit filed by TCE against
ERCOT and several other electricity suppliers for antitrust and other claims,
see note 13(a) to our interim financial statements, incorporated by reference
herein.

WE ARE HEAVILY DEPENDENT UPON THIRD PARTY PROVIDERS OF CAPACITY AND ENERGY TO
SUPPLY OUR RETAIL OBLIGATIONS.

We do not own sufficient generating resources in Texas to supply our retail
business. The capacity and energy to supply our retail business is purchased at
market prices from a variety of suppliers under contracts with varying terms.
Our retail customers are concentrated in the Houston metropolitan area, and
there is limited ability to serve these customers with generation located
outside the Houston metropolitan area. Texas Genco, located in the Houston
congestion zone, is the largest supplier of capacity and energy for our retail
business and is likely to remain our largest supplier for the foreseeable
future. There is a significant risk that our business, results of operations,
financial condition and cash flows could be materially adversely affected if we
are not able to purchase the capacity and energy from Texas Genco or otherwise
obtain sufficient capacity and energy required to serve our customers. The
failure of any of our third party suppliers to perform under the terms of
existing or future contracts could have a material adverse effect on our results
of operations, financial condition and cash flows.

WE MAY BE REQUIRED TO MAKE A SUBSTANTIAL PAYMENT TO CENTERPOINT IN 2004.

We will be required to make a payment to CenterPoint in 2004 as required by
the Texas electric restructuring law, unless on or prior to January 1, 2004, 40%
or more of the amount of electric power that was consumed in 2000 by residential
or small commercial customers, as applicable, within CenterPoint's Houston
service territory is being provided by retail electric providers other than us.
This amount will be computed by multiplying $150 by the number of residential or
small commercial customers, as the case may be, that we serve on January 1, 2004
in CenterPoint's Houston service territory, less the number of residential or
small commercial electric customers, as the case may be, we serve in other areas
of Texas. Currently, we believe it is probable that we will be required to make
a payment in the range of $170 million to $180 million (pre-tax), with a most
probable estimate of $175 million to CenterPoint related to our residential
customers only.

Currently, we believe that the 40% test for small commercial customers will
be met and we will not make a payment related to those customers. If the 40%
test is not met related to our small commercial customers and a payment is
required, we estimate this payment would be approximately $30 million.

WE RELY ON THE INFRASTRUCTURE OF TRANSMISSION AND DISTRIBUTION UTILITIES AND
THE ERCOT ISO TO TRANSMIT AND DELIVER ELECTRICITY TO OUR RETAIL CUSTOMERS AND
TO OBTAIN INFORMATION ABOUT OUR RETAIL CUSTOMERS. IN ADDITION, WE RELY ON THE
RELIABILITY OF OUR OWN INFRASTRUCTURE AND SYSTEMS TO PERFORM ENROLLMENT AND
BILLING FUNCTIONS. ANY INFRASTRUCTURE FAILURE COULD NEGATIVELY IMPACT OUR
CUSTOMERS' SATISFACTION AND COULD HAVE A MATERIAL NEGATIVE IMPACT ON OUR
EARNINGS.

We are dependent on transmission and distribution utilities for maintenance
of the infrastructure through which we deliver electricity to our retail
customers. Any infrastructure failure that interrupts or impairs delivery of
electricity to our customers could negatively impact the satisfaction of our
customers with our service and could have a material adverse effect on our
results of operations, financial condition and cash flow. Additionally, we are
dependent on the transmission and distribution utilities for performing service
initiations and changes, and for reading our customers' energy meters. We are
required to rely on the transmission and distribution utility or, in some cases,
the ERCOT ISO, to provide us with our customers' information regarding energy
usage, and we may be limited in our ability to confirm the accuracy of the
information. The provision of inaccurate information or delayed provision of
such information by the transmission and distribution utilities or the ERCOT ISO
could have a material adverse effect on our business, results of operations,
financial condition and cash flow. In addition, any operational problems with
our new systems and processes could similarly have a material adverse effect on
our business, results of operations, financial condition and cash flow. For
additional information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Retail Energy" for the three years ended
December 31, 2000, 2001 and 2002 and for the nine months ended September 30,
2002 and 2003, incorporated by reference herein.

THE ERCOT ISO HAS EXPERIENCED A NUMBER OF PROBLEMS WITH ITS INFORMATION
SYSTEMS SINCE THE ADVENT OF COMPETITION IN THE TEXAS MARKET THAT HAVE RESULTED
IN DELAYS IN SWITCHING CUSTOMERS AND RECEIVING FINAL SETTLEMENT INFORMATION
FOR CUSTOMER ACCOUNTS. OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED IF
THESE PROBLEMS ARE NOT ALLEVIATED.

The ERCOT ISO is the independent system operator responsible for
maintaining reliable operations of the bulk electric power supply system in the
ERCOT Region and for acting as a central agent for the registration of customers
with their chosen retail electric supplier. Its responsibilities include
ensuring that information relating to a customer's choice of retail electric
provider, including data needed for ongoing servicing of customer accounts, is
conveyed in a timely manner to the appropriate parties. Problems in the flow of
information between the ERCOT ISO, the transmission and distribution utilities
and the retail electric providers have resulted in delays and other problems in
enrolling and billing customers. While the flow of information has improved
materially over the course of the first year of full market choice operations,
remaining system and process problems are still being addressed. When customer
enrollment transactions are not successfully processed by all involved parties,
ownership records in the various systems supporting the market are not
synchronized properly and subsequent transactions for billing and settlement are
adversely affected. The impact can include us not being the electric
provider-of-record for intended or agreed upon time periods, delays in receiving
customer consumption data from the ERCOT ISO that is necessary for billing, as
well as the incorrect application of rates or prices and imbalances in our
electricity supply and actual sales.

The ERCOT ISO is also responsible for handling, scheduling and settlement
for all electricity supply volumes in the ERCOT Region. The ERCOT ISO plays a
vital role in the collection and dissemination of metering data from the
transmission and distribution utilities to the retail electric providers. We and
other retail electric providers schedule volumes based on forecasts, which are
based, in part, on information supplied by the ERCOT ISO. To the extent that
these amounts are not accurate or timely, we could have incorrectly estimated
our scheduled volumes and supply costs.

The ERCOT ISO volume settlement process has been delayed on several
occasions since the opening of the market in order to address operational
problems with data management between the ERCOT ISO, the transmission and
distribution utilities and the retail electric providers. During the third
quarter of 2002, the ERCOT ISO issued true-up settlements for the pilot time
period of July 31, 2001 to December 31,
17

2001. True-up settlement calculations were then temporarily suspended to allow a
threshold level of consumption data for subsequent periods from the transmission
and distribution utilities to be loaded into the ERCOT ISO's systems. True-up
settlement calculations for the period January 1, 2002 through December 31, 2002
were performed by the ERCOT ISO during the second, third and early fourth
quarters of 2003. These settlement calculations indicate that our customers
utilized greater volumes of electricity than our records indicate. We are
currently pursuing the ERCOT ISO's process for disputing settlement calculations
for that time period. True-up settlement calculations for periods after December
31, 2002 are currently suspended while the ERCOT ISO provides the transmission
and distribution utilities and retail electric providers with more detailed
information on data in the ERCOT ISO's systems that are being used in the
settlement calculations. We are working closely with the ERCOT ISO and other
market participants to identify and resolve discrepancies that may have impacted
settlements already performed as well as future settlements.

The ERCOT ISO fees related to resolving local congestion have increased
substantially during 2003. Efforts are ongoing to establish the causes of the
fee increases and to correct the market design or systems, if necessary. In
addition, we may be billed a larger than expected share of these total fees if
the ERCOT ISO's records indicate that our volumes delivered were greater than
the volumes our records indicate.

For additional information regarding settlement issues, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Retail Energy" for the three years ended December 31, 2000, 2001
and 2002 and for the nine months ended September 30, 2002 and 2003, incorporated
by reference herein.

RISKS RELATED TO OUR WHOLESALE ENERGY OPERATIONS

WE MAY BE REQUIRED TO RECORD ADDITIONAL IMPAIRMENTS IN THE RECORDED VALUE OF
OUR ASSETS.

We tested our wholesale energy segment's goodwill for impairment effective
July 2003 as required under SFAS No. 142 due to the disposition of our Desert
Basin plant operations. In connection with this July 2003 impairment analysis,
we recognized an impairment of $985 million (pre-tax and after-tax) relating to
our wholesale energy reporting unit. We plan to perform our annual goodwill
impairment tests for our wholesale energy and retail energy reporting units
effective November 1, 2003. If actual results of operations are worse than
projected or our wholesale energy market outlook changes, we could have
additional impairments of goodwill and impairments of our property, plant and
equipment in future periods, which, in turn, could have a material adverse
effect on our results of operations.

OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS ARE SUBJECT TO
MARKET RISKS, THE IMPACT OF WHICH WE CANNOT FULLY MITIGATE.

As part of our merchant electric generation business, we sell electric
energy, capacity and ancillary services and purchase fuel under short and
long-term contractual obligations and through various spot markets. We are not
guaranteed any rate of return on our capital investments through cost of service
rates, and our results of operations, financial condition and cash flows from
these businesses are subject to market risks which can be partially mitigated by
hedging long-term sales agreements and other management actions. However, a
substantial portion of market risk remains beyond our control. These market
risks include commodity price risk, counterparty risk, credit risk, transmission
risk and competitor actions.

WE RELY ON MARKET LIQUIDITY AND THE ESTABLISHMENT OF VALID PRICING TO PROPERLY
MANAGE OUR RISKS.

Our commercial businesses depend on sufficient market participation to
establish market liquidity and valid pricing to properly manage the risks
inherent in our businesses. The recent reduction in the number of market
participants has significantly decreased market liquidity and may impair our
ability to manage business risks. In addition, such a reduction may increase our
management's reliance on internal models for decision-making. Our internal
models may not accurately represent the markets in which we
18

participate, potentially causing us to make incorrect decisions. These factors
could have a material adverse effect on our results of operations, financial
condition and cash flows.

WE MAY NOT BE ABLE TO SATISFY THE GUARANTEES AND INDEMNIFICATION OBLIGATIONS
RELATING TO OUR COMMERCIAL ACTIVITIES IF THEY BECOME DUE AT THE SAME TIME.

In connection with our commercial businesses, we guarantee or indemnify the
performance of a significant portion of the obligations of certain of our
subsidiaries. For example, we routinely guarantee the obligations of Reliant
Energy Services and other subsidiaries of ours under substantially all of their
gas and electricity trading, marketing and origination contracts. The
obligations underlying these guarantees and indemnities are recorded on our
consolidated balance sheet as trading and marketing liabilities and non-trading
derivative liabilities. These obligations make up a significant portion of these
line items. In addition, we have, from time to time, executed guarantees of the
obligations of our subsidiaries under leases of real property, financing
documents and certain other miscellaneous contracts such as long-term turbine
maintenance contracts. Some of these guarantees and indemnities are for fixed
amounts, others have a fixed maximum amount and others do not specify a maximum
amount. If we were unable to successfully negotiate lower amounts or alternative
arrangements, we would not be able to satisfy all of these guarantees and
indemnification obligations if they were to all come due at the same time. For
additional information regarding our guarantees and indemnification obligations,
see note 14(f) to our consolidated financial statements incorporated by
reference herein.

WE RELY ON POWER TRANSMISSION AND NATURAL GAS TRANSPORTATION FACILITIES THAT
WE DO NOT OWN OR CONTROL. IF THESE FACILITIES FAIL TO PROVIDE US WITH ADEQUATE
TRANSMISSION CAPACITY, WE MAY NOT BE ABLE TO DELIVER OUR WHOLESALE POWER TO
OUR CUSTOMERS OR RECEIVE NATURAL GAS PRODUCTS AT OUR FACILITIES.

We depend on power transmission and distribution and natural gas
transportation facilities owned and operated by utilities and others to deliver
energy products to our customers. Our customers in turn either consume these
products or deliver them to the ultimate consumer. If transmission or
transportation is disrupted, or the capacity is inadequate, our ability to sell
and deliver our products may be hindered.

AS A RESULT OF EVENTS IN CALIFORNIA OVER THE PAST FEW YEARS, OUR WHOLESALE
POWER OPERATIONS IN OUR WEST REGION HAVE EXPERIENCED DELAYS IN THE COLLECTION
OF RECEIVABLES AND ARE SUBJECT TO UNCERTAINTY, INCLUDING POTENTIALLY MATERIAL
REFUND OBLIGATIONS, RELATING TO ONGOING LITIGATION AND GOVERNMENTAL
PROCEEDINGS RELATING TO OUR ACTIVITIES IN THE ELECTRICITY AND GAS MARKETS.

We are defendants in several class action lawsuits and other lawsuits filed
against us and a number of other companies that either owned generation plants
in California or sold electricity in California markets. These lawsuits
challenge the prices for wholesale electricity in California during parts of
2000 and 2001. For information regarding these and other lawsuits, see notes
13(a) and 13(b) to our interim financial statements incorporated by reference
herein.

The FERC has established a refund proceeding to reset the market clearing
prices for sales into the Cal ISO and Cal PX spot markets for the period from
October 2000 to mid-June 2001. Although this proceeding has not yet concluded,
we are likely to have a substantial net refund obligation as a result of this
proceeding, which we estimate to be between approximately $103 million and $231
million for energy sales in California. For information regarding reserves
against receivables, the FERC refund methodology and uncertainty in the
California wholesale energy market, see note 13(b) to our interim financial
statements incorporated by reference herein.

Several state and other federal regulatory investigations are ongoing in
connection with the wholesale electricity and natural gas prices in California
and neighboring Western states to determine the causes of the high prices and
potentially to recommend remedial action. In July 2003, the City of Los Angeles
announced that it had filed suit against us and one of our employees in the
United States District Court for the Central District of California. The lawsuit
alleges that we conspired to manipulate the price for natural gas in breach of
our contract to supply the Los Angeles Department of Water and Power with

natural gas and acted in violation of federal and state antitrust laws, the
federal Racketeer Influenced and Corrupt Organization Act and the California
False Claims Act. The lawsuit seeks treble damages for the alleged overcharges
for gas purchased by the Los Angeles Department of Water and Power of an
estimated $218 million, interest, costs of suit and attorneys' fees.

We may also face more stringent state regulations in the future. There have
been efforts in California to repeal deregulation. Also, a new California state
statute may give the CPUC authority to regulate the operations of our California
generating subsidiaries, beyond the existing state regulation regarding
environmental and other health and safety matters. The CPUC has recently
initiated the process of establishing the methods through which these new
requirements will be administered.

As these investigations proceed, additional matters could be discovered
that could result in the imposition of restrictions on our businesses, fines,
penalties or other adverse events. Furthermore, as events occur to other
companies in the retail and wholesale energy industry that lead to
investigations of such companies by regulatory authorities, we may also be
investigated by such regulatory authorities if they decide to broaden their
investigation to comparable companies in the industry.

OUR WHOLESALE ENERGY SEGMENT IS SUBJECT TO EXTENSIVE MARKET REGULATION.
CHANGES IN THESE REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.

The FERC, which has jurisdiction over wholesale power rates, as well as
independent system operators that oversee some of these markets, has imposed and
may continue to impose price limitations, bidding rules and other mechanisms in
an attempt to address some of the price volatility in these markets and mitigate
market price fluctuations. These actions, along with potential changes to
existing mechanisms, could have a material adverse effect on our results of
operations, financial condition and cash flows.

We operate in a regulatory environment that is undergoing significant
changes as a result of varying restructuring initiatives at both the state and
federal levels. New regulatory policies, which may have a significant impact on
our industry, are now being developed and we cannot predict the future direction
of these changes or the ultimate effect that this changing regulatory
environment will have on our business.

Moreover, existing regulations may be revised or reinterpreted and new laws
and regulations may be adopted or become applicable to our facilities or our
commercial activities. Such future changes in laws and regulations may have a
detrimental effect on our business. In this connection, state officials, the Cal
ISO and the investor-owned utilities in California have argued to the FERC that
our California generating subsidiaries should not continue to have market-based
rate authority. (As discussed further above, in addition to these requests, the
FERC has also recently issued a number of "Show Cause" orders against various
market participants in the California markets, including a number of Reliant
Resources entities. These "Show Cause" orders relate to alleged market
manipulation and/or anomalous bidding practices, and could result in either
disgorgement of alleged profits or the loss of market-based rate authority for
various Reliant Resources entities. The FERC has also initiated an investigation
into economic withholding allegations that could result in similar remedies.) In
the event the market-based rate authority of any Reliant Resources entity is
revoked, the FERC has not provided guidance on how cost-based rates might be
implemented in a market regime. We cannot predict what actions the FERC may take
in the future. The impact of receiving cost-based rates on our California
portfolio is also not predictable given that the numerous details of any such
implementation are unknown at this time.

In addition to the FERC investigations, several state and other federal
regulatory investigations are ongoing in connection with wholesale electricity
prices to determine the causes of the high prices and potentially to recommend
remedial action. As these investigations proceed, additional matters could be
discovered that could result in the imposition of restrictions on our business,
fines, penalties or other adverse actions.

The Cal ISO has undertaken, at the FERC's direction, a market redesign
process that includes an ongoing obligation to offer available capacity in Cal
ISO markets, a $250 per MWh price cap, as well as

"automated" mitigation of all bids when any zonal clearing price for balancing
energy exceeds $91.87 per MWh. The automated mitigation is only applied to bids
that exceed certain reference prices and that would significantly increase the
market price. However, in February 2003, the Cal ISO stated that it intends to
appeal in federal court the FERC's decision regarding the application of
automated mitigation to local market power situations. While the FERC has
adopted similar thresholds for both local and system market power, Cal ISO is
seeking to have a more restrictive procedure applied to local market power.
Additional features of the California market redesign to be implemented in the
future include a revised market monitoring and mitigation structure, a revised
congestion management mechanism and an obligation for load-serving entities in
California to maintain capacity reserves. A new California state statute
purports to give the CPUC new power to regulate the operations and maintenance
practices of our California generating subsidiaries, beyond the existing state
regulation, regarding environmental and other health and safety matters. The
CPUC has recently initiated the process of establishing the methods through
which these new requirements will be administered.

The NY Market is subject to significant regulatory oversight and control.
The results of our operations in the NY Market are dependent on the continuance
of the current regulatory structure. The rules governing the current regulatory
structure are subject to change. We cannot assure you that we will be able to
adapt our business in a timely manner in response to any changes in the
regulatory structure, which could have a material adverse effect on our
financial condition, results of operations and cash flows. The primary
regulatory risk in this market is associated with the oversight activity of the
New York Public Service Commission, the NYISO and the FERC. Our assets located
in New York are subject to "lightened regulation" by the New York Public Service
Commission, including provisions of the New York Public Service Law that relate
to enforcement, investigation, safety, reliability, system improvements,
construction, excavation, and the issuance of securities. Because lightened
regulation was accomplished administratively, it could be revoked. The NYISO has
the ability to revise wholesale prices, which could lead to delayed or disputed
collection of amounts due to us for sales of electric energy and ancillary
services. The NYISO may in some cases, subject to the FERC approval, also impose
cost-based pricing and/or price caps. The NYISO has implemented automated
mitigation procedures under which day-ahead energy bids will be automatically
reviewed. If bids exceed certain pre-established thresholds and have a
significant impact on the market-clearing price, the bids are then reduced to a
pre-established market-based or negotiated reference bid. The NYISO has also
adopted, at the FERC's direction, more stringent mitigation measures for all
generating facilities in transmission-constrained New York City.

On June 25, 2003, the FERC announced that it was proposing new rules to
prevent market abuse. The rules would prohibit certain transactions and
practices under sellers' market-based rate electric tariffs and blanket gas
certificates. The new rules relate to market manipulation, communications,
reporting and record retention. Under the proposed rules, a seller found to have
engaged in prohibited behavior would be subject to disgorgement of unjust
profits and non-monetary remedies such as revocation of the seller's
market-based rate authority or blanket certificate authority. If the FERC adopts
its proposed market behavior rules, our future earnings may be adversely
affected by an open-ended refund obligation on sales at market-based rates or
under blanket certificate authority to the extent we were determined to have
violated the new tariff provisions required by the proposed rule.

The FERC also instituted a SMD rulemaking proceeding that proposes to
eliminate discrimination in transmission service and to standardize electricity
market design. The FERC's SMD proceeding would establish standardized
transmission service throughout the United States, a standard wholesale electric
market design, including forward and spot markets for energy and an ancillary
services market. Further, this proceeding is also expected to provide all RTOs
specifications regarding the entities that administer these markets and how
these entities perform market monitoring and mitigation. While we believe SMD is
a positive development for our business, significant opposition to SMD has been
voiced, and we cannot predict at this time whether SMD will be adopted as
proposed or what effect standard market design, in whatever form it may take if
and when it is adopted, would have on our business growth prospects and
financial results.

The FERC's RTO initiative, which began in May 1999, is making progress in
all areas of the country. If RTOs are established as envisioned by the FERC,
"rate pancaking," or multiple transmission charges that apply to a single
point-to-point delivery of energy will be eliminated within a region, and
wholesale transactions within the region and between regions will be
facilitated. The end result could be a more competitive, transparent market for
the sale of energy and a more economic and efficient use and allocation of
resources. However, considerable opposition exists in some regions of the United
States to the development of RTOs as envisioned by the FERC, and the timing for
completion of the developing RTOs is uncertain.

Additionally, federal legislative initiatives have been introduced and
discussed to address the problems being experienced in some power markets and to
enhance or limit the FERC authority. We cannot predict whether such proposals
will be adopted or their impact on industry restructuring. If the trend towards
competitive restructuring of the wholesale power markets is reversed,
discontinued or delayed, the business growth prospects and financial results of
our wholesale energy and retail energy segments could be adversely affected.

OUR COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS ARE SIGNIFICANT AND THE COST
OF COMPLIANCE WITH NEW ENVIRONMENTAL LAWS COULD ADVERSELY IMPACT OUR
PROFITABILITY.

Our wholesale energy segment is subject to extensive environmental
regulation by federal, state and local authorities. We are required to comply
with numerous environmental laws and regulations, and to obtain numerous
governmental permits in operating our facilities, a number of which are
coal-fired and affected by more numerous and diverse regulations. We may incur
significant costs to comply with these requirements. If we fail to comply with
these requirements, we could be subject to civil or criminal penalties including
fines. Existing environmental regulations can be revised, reinterpreted or
become applicable to our facilities, new laws and regulations could be adopted,
and future changes in environmental laws and regulations could occur, including
potential regulatory and enforcement developments related to air emissions. If
any of these events occur, our business, results of operations, financial
condition and cash flows could be materially adversely affected. For more
information regarding compliance with environmental laws, see "Our
Business -- Environmental Matters".

THE MAJORITY OF OUR HYDROELECTRIC FACILITIES ARE REQUIRED TO BE LICENSED UNDER
THE FEDERAL POWER ACT. ANY FAILURE TO OBTAIN OR MAINTAIN A REQUIRED LICENSE
FOR ONE OR MORE OF OUR HYDROELECTRIC FACILITIES COULD HAVE AN ADVERSE IMPACT
ON US.

The Federal Power Act gives the FERC exclusive authority to license
non-federal hydroelectric projects on navigable waterways and federal lands. The
FERC hydroelectric licenses are issued for terms of 30 to 50 years. Some of our
hydroelectric facilities, representing approximately 90 MW of capacity, have
licenses that expire within the next ten years. Facilities that we own
representing approximately 160 MW of capacity have new or initial license
applications pending before the FERC. Upon expiration of a FERC license, the
federal government can take over the project and compensate the licensee, or the
FERC can issue a new license to either the existing licensee or a new licensee.
In addition, upon license expiration, the FERC can decommission an operating
project and even order that it be removed from the river at the owner's expense.
In deciding whether to issue a license, the FERC gives equal consideration to a
full range of licensing purposes related to the potential value of a stream or
river. It is not uncommon for the relicensing process to take between four and
ten years to complete. Generally, the relicensing process begins at least five
years before the license expiration date and the FERC issues annual licenses to
permit a hydroelectric facility to continue operations pending conclusion of the
relicensing process. We expect that the FERC will issue to us new or initial
hydroelectric licenses for all the facilities with pending applications.
Presently, there are no applications for competing licenses and there is no
indication that the FERC will decommission or order any of the projects to be
removed.

INCREASING COMPETITION IN WHOLESALE POWER MARKETS MAY ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS, FINANCIAL CONDITION, CASH FLOWS AND MAY REQUIRE
ADDITIONAL LIQUIDITY TO REMAIN COMPETITIVE.

Our wholesale energy segment competes with other energy merchants. In order
to successfully compete, we must have the ability to aggregate supplies at
competitive prices from different sources and locations and must be able to
efficiently utilize transportation services from third-party pipelines and
transmission services from electric utilities. We also compete against other
energy merchants on the basis of our relative skills, financial position and
access to credit sources. Energy customers, wholesale energy suppliers and
transporters often seek financial guarantees and other assurances that their
energy contracts will be satisfied. If price information becomes increasingly
available in the energy marketing and trading business, we anticipate that our
operations will experience greater competition and downward pressure on per-unit
profit margins. In addition, our merchant asset business is constrained by our
liquidity, our access to credit and the reduction in market liquidity. Other
companies with which we compete may not have similar constraints.

OUR BUSINESS OPERATIONS AND HEDGING ACTIVITIES EXPOSE US TO THE RISK OF
NON-PERFORMANCE BY COUNTERPARTIES.

Our trading, marketing and risk management services operations are exposed
to the risk that counterparties who owe us money or physical commodities and
services, such as power, natural gas or coal, will not perform their
obligations. Should the counterparties to these arrangements fail to perform, we
might be forced to acquire alternative hedging arrangements or replace the
underlying commitment at then-current market prices. In this event, we might
incur additional losses to the extent of amounts, if any, already paid to the
counterparties.

As a result of recent events, including the credit crisis in the merchant
energy sector, the bankruptcy filings of NRG Energy Inc., National Energy & Gas
Transmission, Inc. and Mirant Corp., the decreasing liquidity in our trading
markets and the related downgrading of our credit ratings and the credit ratings
of many of our trading counterparties to below investment grade, we have been
required to enter into trading and other commercial arrangements with higher
risk counterparties than those with whom we have typically contracted in the
past. These arrangements, coupled with the credit crisis in our sector, have
increased our exposure to the risk of non-performance by counterparties who owe
us money or physical commodities.

OPERATION OF POWER GENERATION FACILITIES INVOLVES SIGNIFICANT RISKS THAT COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS AND CASH FLOWS.

Our wholesale energy segment is exposed to risks relating to the breakdown
or failure of equipment or processes, fuel supply interruptions, shortages of
equipment, material and labor, and operating performance below expected levels
of output or efficiency. Significant portions of our facilities were constructed
many years ago. Older generating equipment, even if maintained in accordance
with good engineering practices, may require significant capital expenditures to
add to or upgrade equipment to keep it operating at peak efficiency, to comply
with changing environmental requirements, or to provide reliable operations.
Such changes could affect our operating costs. Any unexpected failure to produce
power, including failure caused by breakdown or forced outage, could have a
material adverse effect on our results of operations, financial condition and
cash flows.

CONSTRUCTION OF POWER GENERATION FACILITIES INVOLVES SIGNIFICANT SCHEDULE AND
COST RISKS THAT COULD NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION AND CASH FLOWS.

Currently, we have one power generation facility, and a replacement or
incremental electric power generation unit at an existing facility, under
construction. Our successful completion of these facilities is subject to the
following:

- power prices;

- shortages and inconsistent qualities of equipment, material and labor;

- availability of financing;

- failure of key contractors and vendors to fulfill their obligations;

- work stoppages due to plant bankruptcies and contract labor disputes;

- permitting and other regulatory matters;

- unforeseen weather conditions;

- unforeseen equipment problems;

- environmental and geological conditions; and

- unanticipated capital cost increases.

Any of these factors could give rise to delays, cost overruns or the
termination of the plant expansion or construction. Many of these risks cannot
be adequately covered by insurance. While we maintain insurance, obtain
warranties from vendors and obligate contractors to meet specified performance
standards, the proceeds of such insurance, warranties or performance guarantees
may not be adequate to cover lost revenues, increased expenses or liquidated
damages payments we may owe.

In addition, construction delays and contractor performance shortfalls can
result in the loss of revenues and may, in turn, adversely affect our results of
operations. At our Seward power plant, one of our facilities under construction,
a sub-contractor of one of our two main contractors at the plant, after a
dispute with such main contractor, has filed a mechanics lien against the
property to secure payment of the amount of their fees and damages, which the
subcontractor alleges to be $36 million. These fees are disputed. The failure to
complete construction according to specifications at this plant and our other
facilities under construction can result in liabilities, reduced plant
efficiency, higher operating costs and reduced earnings.

THE RECENT TERMINATION OF THE TOLLING AGREEMENT FOR OUR LIBERTY ELECTRIC
GENERATING STATION AND/OR A POTENTIAL FORECLOSURE BY THE LIBERTY LENDERS COULD
HAVE A MATERIAL ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION AND CASH FLOWS.

One of our subsidiaries owns a 530 MW combined cycle gas fired power
generation facility (the Liberty generating station). Liberty financed
substantially all of the construction costs of the Liberty generating station
through borrowings under a credit agreement of which $262 million was
outstanding as of September 30, 2003. Borrowings under the Liberty credit
agreement, which are non-recourse to Reliant Resources and its affiliates (other
than LEP and Liberty), are secured by pledges of, among other things, the assets
of the Liberty generating station, including a tolling agreement for the
purchase and sale of all of the electric energy, capacity and ancillary services
of the station which was terminated effective as of July 8, 2003.

In July 2003, the counterparty under the tolling agreement, and one of its
corporate guarantors, filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. In August 2003, the federal bankruptcy court issued an
order rejecting the tolling agreement, which had the effect of terminating it,
effective retroactively to July 8, 2003. The bankruptcy filing and the related
termination of the tolling agreement constitute an event of default under the
Liberty credit agreement. As a result, Liberty's lenders

are currently entitled to control disbursement of funds by Liberty, accelerate
the maturity date of the debt of the Liberty credit agreement and/or foreclose
upon the lenders' security interests in Liberty's assets. In addition, as a
result of the termination of the tolling agreement, and in light of current
market conditions, Liberty does not expect to have sufficient cash flow to pay
all of its expenses and to post the collateral required to buy fuel or in
respect of the gas transportation agreements, and, at the same time, meet debt
service obligations.

An event of default under the Liberty credit agreement does not constitute
an event of default under any other debt agreements of Reliant Resources or its
affiliates. Likewise, a bankruptcy or reorganization of Liberty would not
constitute an event of default under the debt agreements of Reliant Resources or
its affiliates. If, however, the lenders foreclose on the Liberty generating
station, we could incur a pre-tax loss of an amount up to our recorded net book
value, with the potential of an additional loss due to an impairment of goodwill
to be allocated to LEP, as a result of the foreclosure. As of September 30,
2003, the combined net book value of LEP and Liberty was $358 million, excluding
the non-recourse debt obligations of $262 million.

On December 4, 2003, the federal bankruptcy court held a hearing to
consider, among other things, Liberty's motion to refer the issue of the
calculation of the termination payment to arbitration (which is the dispute
mechanism provided in the agreement), and the counterparty's motion to stay
Liberty's action in the Federal District Court in Texas against one of the
corporate guarantors. The ruling by the federal bankruptcy court on these
motions is expected on or about December 18, 2003. This ruling will not resolve
the merits of Liberty's or the counterparty's damage claims but rather whether
the claims will be resolved in arbitration or in the federal bankruptcy court.

For additional information regarding the bankruptcy, see note 13(e) to our
interim financial statements incorporated herein by reference. Note 13(e) also
contains information regarding litigation among us, the counterparty to the
tolling agreement and the corporate guarantors of the counterparty to the
tolling agreement, regarding a disputed termination payment of $177 million,
including a counterclaim against us in the amount of $108 million. In its
lawsuit, the counterparty and its corporate guarantors have reserved the right
to draw upon a $35 million letter of credit issued under the senior secured
revolver of Reliant Resources.

WE COULD BE SUBJECT TO MARKET PRICES WHEN PURCHASING POWER AND/OR TO FINES
UNDER CERTAIN OF OUR PROVIDER OF LAST RESORT AGREEMENTS.

As part of our acquisition of Orion Power in February 2002, we became the
provider of last resort for Duquesne Light. Under two agreements to be such
provider of last resort, we are obligated for a specific period to provide
energy to Duquesne Light to meet its obligations to satisfy the demands of any
customer in the Duquesne Light service area that does not elect to buy energy
from a competitive supplier as allowed by the Pennsylvania state deregulation
initiatives or that elects to return to Duquesne Light as the designated
provider of last resort. Under these contracts, we must provide all of the
energy necessary to meet the contractual requirements with no minimum and no
maximum quantity and Duquesne Light must buy all of the energy needed to satisfy
its provider of last resort obligation from us. Given the historical demand for
energy from provider of last resort customers and the historical energy
generation from our assets located in Ohio, Pennsylvania and West Virginia, we
generally expect to produce more energy than needed to meet our provider of last
resort obligations under the POLR agreements. We will attempt to sell this
excess energy into the market. The provider of last resort demand, however, will
fluctuate on a continuous, real-time basis, and will likely peak during summer
and winter, on weekdays, and during some hours of the day. This could cause the
provider of last resort demand to be greater than the amount of energy we are
able to generate at any given moment. As a result, we may need to purchase
energy from the market to cover our contractual obligations. This is likely to
occur at times of higher market prices, while the price we receive will be fixed
under our provider of last resort agreements and will not fluctuate with the
market. We may also have to purchase energy from the market to cover our
contractual obligations if we have operational problems at one or more of our
generating facilities that reduce our ability to produce energy. Failure to
provide sufficient energy could give rise to penalties under both of our

provider of last resort agreements. A severe under-delivery of energy that
forces Duquesne Light to deny some customers energy could give rise to penalties
of $1,000 per MWh under the first agreement or between $100 and $1,000 per MWh
under the second agreement, depending upon the circumstances of such
under-delivery.

RISKS RELATED TO OUR BUSINESSES GENERALLY

WE DO NOT ATTEMPT TO FULLY HEDGE OUR ASSETS OR POSITIONS AGAINST CHANGES IN
COMMODITY PRICES, AND OUR RISK MANAGEMENT POLICIES AND PROCEDURES MAY NOT BE
EFFECTIVE.

Commodity price risk is an inherent component of our retail and wholesale
energy operations. Our results of operations, financial condition and cash flows
depend, in large part, upon prevailing market prices for electricity and fuel in
our markets. Market prices may fluctuate substantially over relatively short
periods of time, potentially adversely impacting our results of operations,
financial condition and cash flows. Changes in market prices for electricity and
fuel may result from the following:

- weather conditions;

- seasonality;

- demand for energy commodities and general economic conditions;

- forced or unscheduled plant outages;

- disruption of electricity or gas transmission or transportation,
infrastructure or other constraints or inefficiencies;

- addition of generating capacity;

- availability of competitively priced alternative energy sources;

- availability and levels of storage and inventory for fuel stocks;

- natural gas, crude oil and refined products, and coal production levels;

- the creditworthiness or bankruptcy or other financial distress of market
participants;

- changes in market liquidity;

- natural disasters, wars, embargoes, acts of terrorism and other
catastrophic events; and

- federal, state and foreign governmental regulation and legislation.

To mitigate our financial exposure related to commodity price fluctuations,
we routinely enter into contracts to hedge a portion of our purchase and sale
commitments, exposure to weather fluctuations, fuel requirements and
transportation and inventories of natural gas, coal, refined products, and other
commodities and services. As part of this strategy, we routinely utilize
derivative instruments (e.g., fixed-price forward physical purchase and sales
contracts, futures, financial swaps and option contracts). However, we do not
expect to cover the entire exposure of our assets or positions to market price
and volatility changes, and the coverage will vary over time. This hedging
activity fluctuates according to strategic objectives, taking into account the
desire for cash flow or earnings certainty, the availability of liquidity
resources and our view of market prices.

Our risk management procedures and our hedging strategies are constrained
by our liquidity, our access to credit and the reduction in market liquidity,
and may not be followed or work as planned. These and other factors may
adversely impact our results of operations, financial condition and cash flows.

WE MAY EXPERIENCE INADEQUATE LIQUIDITY DUE TO FACTORS WHICH LEAD TO POSTING OF
ADDITIONAL COLLATERAL RELATED TO OUR DOMESTIC OPERATIONS.

Based on current commodity prices, we estimate that as of November 1, 2003,
we could be required to post additional collateral of up to $368 million related
to our domestic operations. Factors which could
26

lead to an increase in our actual posting of collateral include adverse changes
in our industry, negative reactions to additional credit rating downgrades and
changes in commodity prices. Under certain unfavorable commodity price
scenarios, it is possible that we could experience inadequate liquidity as a
result of the posting of additional collateral.

At times we have open positions in the market (required to be within
established corporate risk management guidelines), resulting from optimizing our
power generation portfolio and eliminating our remaining trading positions. If
we have open positions, changes in commodity prices could negatively impact our
results of operations, financial condition and cash flows. We have measures and
controls in place that are designed to mitigate the impact of commodity price
changes on our positions. These measures and controls are based on statistical
analyses and estimates. Consequently, no assurance can be given that these
controls and measures will be effective in the event that anomalous commodity
price changes occur.

For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Trading and Marketing and
Non-trading Operations" and "Quantitative and Qualitative Disclosures About
Market Risk" for the three years ended December 31, 2000, 2001 and 2002 and for
the nine months ended September 30, 2002 and 2003, incorporated by reference
herein.

THE ULTIMATE OUTCOME OF THE NUMEROUS LAWSUITS AND REGULATORY PROCEEDINGS
RELATING TO OUR ACTIVITIES IN THE ELECTRICITY AND GAS MARKETS TO WHICH WE ARE
A PARTY CANNOT BE PREDICTED AT THIS TIME. ANY ADVERSE DETERMINATION COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND CASH FLOWS.

We are party to numerous lawsuits and regulatory proceedings relating to
our trading and marketing activities. In addition, various state and federal
governmental agencies have commenced investigations relating to these
activities, including the California Attorney General, the FERC, the CFTC and
criminal investigations by the United States Attorneys for the Southern District
of New York, the Northern District of California and the Southern District of
Texas and, in certain circumstances, the matters described elsewhere in this
prospectus that have been the subject of the FERC and CFTC investigations. These
lawsuits, proceedings and investigations are currently the subject of intense,
highly charged media and political attention. While their ultimate outcome
cannot be predicted at this time, the possibility of civil or criminal action
against us or our current or former employees is possible. In addition, these
lawsuits, proceedings and investigations could lead to the discovery of
additional conduct or transactions not known at this time that could result in
additional litigation or regulatory action.

We have received subpoenas and informal requests for information from the
United States Attorneys for the Southern District of New York, the Southern
District of Texas and the Northern District of California for documents,
interviews and other information pertaining to the round trip trades, price
reporting and alleged price manipulation. We have produced information to each
of the United States Attorneys' offices. The United States Attorney for the
Southern District of New York has informed us that its investigation has been
closed. In response to July 24, 2003 Grand Jury subpoenas, a number of current
and former employees have given interviews to the United States Attorney for the
Northern District of California or testified before the Grand Jury investigating
allegations of electricity price manipulation. Based on a meeting with the
United States Attorney for the Northern District of California on December 1,
2003, we understand that the United States Attorney's office anticipates making
a decision on how to proceed in this matter within the next thirty to sixty
days. This pending investigation, as well as the pending investigation by the
United States Attorney for the Southern District of Texas, could result in civil
or criminal actions being brought against us, certain of our subsidiaries or our
current or former employees. The ultimate disposition of these matters could
have a material adverse effect on us, our financial condition, results of
operations and cash flows. See note 13(a) to our interim financial statements
incorporated by reference herein.

OUR STRATEGIC PLANS MAY NOT BE SUCCESSFUL.

Our future results of operations are dependent on the success of our
strategic plans. Our strategic plans with respect to our wholesale energy
segment indicate a shift in emphasis from identifying and pursuing acquisition
and development candidates to completing facilities currently under construction
and integrating recently acquired generation facilities. The integration and
consolidation of our acquisitions with our existing business requires
substantial management, financial and other resources and may not be
successfully integrated.

IF WE FAIL TO OBTAIN OR MAINTAIN ANY NECESSARY GOVERNMENTAL PERMIT OR
APPROVAL, OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED.

Our operations are subject to complex and stringent energy, environmental
and other governmental laws and regulations. The acquisition, ownership and
operation of power generation facilities require numerous permits, approvals and
certificates from federal, state and local governmental agencies. The operation
of our generation facilities must also comply with environmental protection and
other legislation and regulations. At present, we have wholesale operations in
California, Florida, Illinois, Maryland, Mississippi, Nevada, New Jersey, New
York, Ohio, Pennsylvania, Texas and West Virginia. Most of our existing domestic
generation facilities are exempt wholesale generators that sell electricity
exclusively into the wholesale market. These facilities are subject to
regulation by the FERC regarding rate matters and by state regulatory
commissions regarding environmental and other health and safety matters. The
FERC has authorized us to sell electricity produced from these facilities at
market prices. The FERC retains the authority to modify or withdraw our
market-based rate authority and to impose "cost of service" rates. Any reduction
by the FERC of the rates we may receive for our generation activities may
materially adversely affect our business, results of operations, financial
condition and cash flows.

CHANGES IN TECHNOLOGY MAY IMPAIR THE VALUE OF OUR POWER PLANTS AND MAY
SIGNIFICANTLY IMPACT OUR BUSINESS IN OTHER WAYS AS WELL.

Research and development activities are ongoing to improve alternative
technologies to produce electricity, including fuel cells, microturbines and
photovoltaic (solar) cells. It is possible that advances in these or other
alternative technologies will reduce the costs of electricity production from
these technologies to a level below that which we have forecasted. In addition,
increased conservation efforts and advances in technology could reduce
electricity demand and significantly reduce the value of our power generation
assets. Changes in technology could also alter the channels through which retail
electric customers buy electricity.

OUR RESULTS OF OPERATIONS, OUR ABILITY TO ACCESS CAPITAL AND INSURANCE AND OUR
FUTURE GROWTH PROSPECTS COULD BE ADVERSELY AFFECTED BY THE OCCURRENCE OR RISK
OF OCCURRENCE OF FUTURE TERRORIST ATTACKS OR RELATED ACTS OF WAR.

We are currently unable to measure the ultimate impact of the terrorist
attacks on our industry and the United States economy as a whole. The
uncertainty associated with the military activity of the United States and other
nations and the risk of future terrorist activity may impact our results of
operations and financial condition in unpredictable ways. These actions could
result in adverse changes in the insurance markets and disruptions of power and
fuel markets. In addition, our generation facilities or the power transmission
and distribution facilities on which we rely could be directly or indirectly
harmed by future terrorist activity. The occurrence or risk of occurrence of
future terrorist attacks or related acts of war could also adversely affect the
United States economy. A lower level of economic activity could result in a
decline in energy consumption, which could adversely affect our revenues,
margins and cash flows and limit our future growth prospects. The occurrence or
risk of occurrence could also increase pressure to regulate or otherwise limit
the prices charged for electricity or gas. Also, these risks could cause
instability in the financial markets and adversely affect our ability to access
capital on terms and conditions acceptable to us.

OUR INSURANCE COVERAGE MAY NOT BE SUFFICIENT AND OUR INSURANCE COSTS MAY
INCREASE.

We have insurance coverage, subject to various limits and deductibles,
covering our generation facilities, including property damage insurance and
general liability insurance in amounts that we consider appropriate. However, we
cannot assure you that insurance coverage will be available in the future on
commercially reasonable terms or that the insurance proceeds received for any
loss of or any damage to any of our generation facilities will be sufficient to
restore the loss or damage without negative impact on our financial condition
and results of operations. The costs of our insurance coverage have increased
significantly during recent periods and may continue to increase in the future.

RISKS RELATED TO OUR CORPORATE AND FINANCIAL STRUCTURE

WE HAVE SIGNIFICANT DEBT THAT COULD NEGATIVELY IMPACT OUR BUSINESS.

We have a significant amount of debt outstanding. As of September 30, 2003,
we had total consolidated debt of $7.5 billion (excluding $740 million of debt
related to our European energy operations), of which $1.4 billion consisted of
the notes and the senior secured notes and the balance consisted of other debt
including all borrowings under the credit facilities. Also, after giving pro
forma effect to the offering of the notes and the concurrent offering of the
senior secured notes assuming these offerings had occurred on January 1, 2002,
and the repayment of debt, with the amount of the net proceeds from the senior
secured notes, that was in place prior to our March 2003 refinancing, our
earnings would have been insufficient to cover our fixed charges by
approximately $869 million for the nine months ended September 30, 2003, and our
ratio of earnings to fixed charges would have been 1.22 for the year ended
December 31, 2002. Our high level of debt could:

- make it difficult for us to satisfy our obligations, including debt
service requirements under our outstanding debt and the notes;

- limit our ability to obtain additional financing to operate our business;

- limit our financial flexibility in planning for and reacting to business
and industry changes;

- place us at a competitive disadvantage as compared to less leveraged
companies;

- increase our vulnerability to general adverse economic and industry
conditions, including changes in interest rates and volatility in
commodity prices; and

- require us to dedicate a substantial portion of our cash flows to
payments on our debt, thereby reducing the availability of our cash flow
for other purposes including our operations, capital expenditures and
future business opportunities.

The incurrence of additional debt could make it more likely that we will
experience some or all of the above-described risks.

DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.

We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture governing the notes do
not prohibit us or our subsidiaries from doing so. As of September 30, 2003, the
credit agreement governing our new credit facilities permit additional
borrowings of up to $1.1 billion. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could significantly increase. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Consolidated Future Uses and
Sources of Cash and Certain Factors Impacting Future Uses and Sources of Cash"
for the three years ended December 31, 2000, 2001 and 2002 and for the nine
months ended September 30, 2002 and 2003, incorporated by reference herein.

IF WE DO NOT GENERATE SUFFICIENT POSITIVE CASH FLOWS, WE MAY BE UNABLE TO
SERVICE OUR DEBT.

Our ability to pay principal and interest on our debt, including the
principal and interest on the notes, depends on our future operating
performance. Future operating performance is subject to market conditions and
business factors that often are beyond our control. If our cash flows and
capital resources are insufficient to allow us to make scheduled payments on our
debt, we may have to reduce or delay capital expenditures, sell assets, seek
additional capital or restructure or refinance our debt. We cannot assure you
that the terms of our debt will allow these alternative measures or that such
measures would satisfy our scheduled debt service obligations.

Based on our current level of anticipated cost savings and operating
improvements, we believe our cash flow from operations, available cash and
available borrowings under our credit facilities will be adequate to meet our
future needs for at least the next twelve months. However, under certain
commodity pricing scenarios, we may experience strains on our liquidity. For
further discussion of our current liquidity situation and related impacts, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for the three years ended
December 31, 2000, 2001 and 2002 and for the nine months ended September 30,
2002 and 2003, incorporated by reference herein.

We cannot assure you that our businesses will generate sufficient cash
flows from operations to enable us to pay the principal, premium, if any, and
interest on our debt, including these notes, or to fund our other liquidity
needs. We may not be successful in realizing the cost savings and operating
improvements that we currently anticipate. If commodity prices increase
substantially in the near term, our liquidity could be severely strained. We may
need to refinance all or a portion of our indebtedness, including these notes,
on or before maturity; however, we cannot assure you that we will be able to
refinance the indebtedness on commercially reasonable terms or at all. If we
cannot make scheduled payments on our debt, we will be in default and, as a
result:

- our debt holders could declare all outstanding principal and interest to
be due and payable;

- our holders of the credit agreement debt and the senior secured notes
could terminate their commitments and commence foreclosure proceedings
against our assets; and

- we could be forced into bankruptcy or liquidation.

THE TERMS OF OUR DEBT MAY SEVERELY LIMIT OUR ABILITY TO PLAN FOR OR RESPOND TO
CHANGES IN OUR BUSINESSES.

Our new credit facilities and the senior secured notes restrict our ability
to take specific actions in planning for and responding to changes in our
business without the consent of our lenders and noteholders, even if such
actions may be in our best interest. Our new credit facilities also require us
to maintain specified financial ratios and meet specific financial tests. Our
ability to comply with these covenants, as they currently exist or as they may
be amended, may be affected by many events beyond our control and our future
operating results may not allow us to comply with the covenants, or in the event
of a default, to remedy that default. Our failure to comply with those financial
covenants or to comply with the other restrictions in the credit agreement
governing our new credit facilities could result in a default, which could cause
that indebtedness (and by reason of cross-acceleration provisions, the notes and
other indebtedness) to become immediately due and payable. If we are unable to
repay those amounts, the holders of the credit agreement debt and the senior
secured notes could proceed against the collateral granted to them to secure
that indebtedness. If those holders accelerate the payment of our credit
agreement debt, it is unlikely that we could pay that indebtedness immediately
and continue to operate our business.

In addition, the credit agreement governing our new credit facilities and
the indenture governing the senior secured notes contain other covenants that
restrict, among other things, our ability to:

- pay dividends and other distributions with respect to our capital stock
and purchase, redeem or retire our capital stock;

- incur additional indebtedness and issue preferred stock;

- enter into asset sales unless the proceeds from those asset sales are
used to repay debt or, in certain circumstances and for a limited period
of time, are placed in an escrow account to be available to be used to
possibly acquire CenterPoint's holdings of the common stock of Texas
Genco in the event that we determine that such acquisition is
advantageous, although it is unlikely that we will do so;

- enter into transactions with affiliates;

- incur liens on assets to secure certain debt;

- engage in certain business activities; and

- engage in certain mergers or consolidations and transfers of assets.

See "Description of Notes."

OUR NON-INVESTMENT GRADE CREDIT RATINGS COULD ADVERSELY IMPACT OUR ABILITY TO
ACCESS CAPITAL ON ACCEPTABLE TERMS, OPTIMIZE OUR ASSETS AND OPERATE OUR RISK
MANAGEMENT ACTIVITIES.

Our credit ratings have been downgraded to below investment grade and could
be downgraded further. The downgrading of our credit ratings has limited, and
will likely continue to limit, our ability to refinance our debt obligations and
access the capital markets. A number of our commercial contracts and guarantees
associated with our asset optimization and risk management operations require us
to satisfy collateral margin requirements that vary depending on energy market
prices and contract prices. In most cases, the consequences of rating downgrades
under these contracts and guarantees require that we provide credit support to
our counterparties in the form of a pledge of cash collateral, a letter of
credit or other similar credit support. To meet future requirements, substantial
credit support could be necessary thereby reducing the availability of our cash
flows for other purposes. In certain circumstances, our liquidity could be
significantly strained, which could have a material adverse effect on our
business. In addition, certain of our contracts with commercial, industrial and
institutional retail electricity customers give the customer the right to
terminate the contract based on our receiving a below-investment-grade credit
rating from certain ratings agencies. As a result of the downgrading of our
credit ratings, we may not be able to satisfy future collateral margin
requirements under these contracts and guarantees.

AN INCREASE IN OUR INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOWS.

As of September 30, 2003, we had $5.4 billion of outstanding floating-rate
debt (excluding $699 million of floating-rate debt of our European energy
operations). Because of capital constraints impacting our business at the time
we borrowed some of this floating-rate debt, the interest rate margins are
substantially above our historical borrowing margins. In addition, any
floating-rate debt issued by us in the future could be at interest rate margins
substantially above our historical borrowing margins. While we may seek to use
interest rate swaps or other derivative instruments to hedge portions of our
floating-rate debt exposure, we may not be successful in obtaining hedges on
acceptable terms. Any increase in short-term interest rates would result in
higher interest costs and could adversely affect our results of operations,
financial condition and cash flows.

In addition, the capital constraints currently impacting our industry may
require additional future indebtedness to include terms and/or pricing that are
more restrictive or burdensome than those of our current indebtedness. This may
negatively impact our ability to operate our business and could adversely affect
our results of operations, financial condition and cash flows. As a result of
the June and July 2003 issuances of notes and senior secured notes, our interest
expense has increased substantially. For additional information regarding the
$275 million of notes and $1.1 billion of senior secured notes, see note 10 to
our interim financial statements and "Description of Notes", respectively.

RELIANT RESOURCES IS A HOLDING COMPANY WITH NO OPERATIONS OF ITS OWN. AS A
RESULT, WE DEPEND ON DISTRIBUTIONS FROM OUR SUBSIDIARIES TO MAKE PAYMENTS ON
OUR DEBT OBLIGATIONS AND MEET OUR OTHER CASH REQUIREMENTS. APPLICABLE LAWS OR
CONTRACTUAL RESTRICTIONS COULD LIMIT THE AMOUNT OF DISTRIBUTIONS MADE TO US BY
OUR SUBSIDIARIES.

We derive substantially all our operating income from, and hold
substantially all of our assets through, our subsidiaries. As a result, we
depend on distributions of cash flows and earnings of our subsidiaries in order
to meet our payment obligations under our credit facilities and other
obligations, including the notes. These subsidiaries are separate and distinct
legal entities and have no obligation, unless specifically contracted, to pay
any amounts due on our debts or other obligations, whether by dividends,
distributions, loans or otherwise. Many of our subsidiaries have guaranteed our
obligations under our new credit facilities and the senior secured notes to the
extent legally and contractually permitted and are co-borrowers under the new
$300 million senior priority revolving credit facility. The terms of some of our
subsidiaries' indebtedness restrict their ability to pay dividends or make
payments to us in some circumstances. The terms of any new or amended subsidiary
indebtedness could further restrict payments from these subsidiaries. In
addition, provisions of applicable law, such as those limiting the legal sources
of dividends, could limit their ability to make payments or other distributions
to us.

Our right to receive any assets of any subsidiary will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we are a creditor of any subsidiary, our rights
as a creditor are subordinated to the indebtedness of the subsidiary under our
new credit facilities and senior secured notes. These notes will effectively be
subordinated to the prior payment of all debts (including trade payables) of our
subsidiaries. As of September 30, 2003, these notes were effectively junior to
$5.6 billion (excluding $1.9 billion related to our European energy operations
and Desert Basin plant operations) of indebtedness and other liabilities
(including trade payables) of our subsidiaries and approximately $52 million was
available to these subsidiaries for future borrowings under their credit
facilities (excluding $181 million available for future borrowings under our
European credit facilities).

OUR HISTORICAL FINANCIAL RESULTS AS A SUBSIDIARY OF CENTERPOINT MAY NOT BE
REPRESENTATIVE OF OUR RESULTS AS A SEPARATE COMPANY.

The historical financial information relating to periods prior to the
Distribution that we have included in this prospectus does not necessarily
reflect what our results of operations, financial condition and cash flows would
have been had we been a separate, stand-alone entity during such periods. Our
costs and expenses during such periods reflect charges from CenterPoint for
centralized corporate services and infrastructure costs. These allocations have
been determined based on assumptions that we and CenterPoint considered to be
reasonable under the circumstances. This historical financial information is not
necessarily indicative of what our results of operations, financial condition
and cash flows will be in the future. We may experience significant changes in
our cost structure, funding and operations as a result of our separation from
CenterPoint, including increased costs associated with reduced economies of
scale and increased costs associated with being a publicly traded, stand-alone
company.

RISKS RELATED TO THE NOTES AND OUR COMMON STOCK

YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.

These notes rank behind all of our existing indebtedness (other than trade
payables) and all of our future borrowings (other than trade payables), except
any future indebtedness that expressly provides that it ranks equal with, or
subordinated in right of payment to, the notes. As a result, upon any
distribution to our creditors in a bankruptcy, liquidation or reorganization or
similar proceeding relating to us or our property, the holders of our senior
debt will be entitled to be paid in full and in cash before any payment may be
made with respect to these notes.

In addition, all payments on the notes will be blocked in the event of a
payment default on senior debt and may be blocked for up to 179 of 360
consecutive days in the event of certain non-payment defaults on senior debt.

In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, holders of the notes will participate with trade
creditors and all other holders of our subordinated indebtedness in the assets
remaining after we have paid all of our senior debt. However, because the
indenture requires that amounts otherwise payable to holders of the notes in a
bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the notes may receive less, ratably, than holders of trade payables
in any such proceeding. In any of these cases, we may not have sufficient funds
to pay all of our creditors and holders of notes may receive less, ratably, than
the holders of our senior debt.

As of September 30, 2003, these notes were subordinated to $4.4 billion of
senior debt of Reliant Resources and approximately $1.1 billion was available
for borrowing as additional senior debt under Reliant Resources' new credit
facilities. We will be permitted to borrow unlimited additional indebtedness,
including senior debt, in the future under the terms of the indenture.

OUR ABILITY TO REPURCHASE NOTES IN CASH UPON A CHANGE IN CONTROL MAY BE
LIMITED.

Our ability to repurchase notes upon the occurrence of a change in control
is subject to limitations. We may not have sufficient financial resources or the
ability to arrange financing to pay the repurchase price for all the notes
delivered by holders seeking to exercise their repurchase right. Although we may
elect, subject to satisfaction of certain conditions, to pay the repurchase
price for the notes in common stock or other applicable securities, our ability
to repurchase the notes in cash may be limited or prohibited by the terms of any
current or future borrowing arrangements existing at the time of a change in
control. Any failure by us to repurchase the notes upon a change in control
would result in an event of default under the indenture, whether or not the
repurchase is permitted by the subordination provisions of the indenture. Any
such default may, in turn, cause a default under our senior debt. Moreover, the
occurrence of a change in control could result in an event of default under the
terms of our then existing senior debt. As a result, any repurchase of the notes
may be prohibited until the senior debt is paid in full. See "Description of
Notes -- Repurchase at Option of Holders Upon a Change in Control".

Furthermore, because the sale price of our common stock will be determined
prior to the applicable repurchase date, holders of the notes bear the market
risk that our common stock will decline in value between the date the sale price
is calculated and the repurchase date.

WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE
NOTES, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE.

The notes are a new issue of securities with no established trading market.
The initial purchasers have advised us that they currently intend to make a
market in the notes. However, the initial purchasers are not obligated to make a
market in the notes and any market making by the initial purchasers may be
discontinued at any time at the sole discretion of the initial purchasers
without notice. We cannot assure you that a market for the notes will develop
and continue upon completion of the offering or that the market price of the
notes will not decline. Various factors, such as changes in prevailing interest
rates or changes in perceptions of our creditworthiness could cause the market
price of the notes to fluctuate significantly. In addition, the liquidity of the
trading market in the notes and the market price quoted for the notes may be
adversely affected by changes in the overall market for convertible securities,
changes in our prospects or financial performance or in the prospects of
companies in our industry generally. The trading price of the notes will also be
significantly affected by the market price of our common stock, which could be
subject to wide fluctuations in response to a variety of factors. The notes will
not be listed on any securities exchange or included for quotation in any
automated dealer system and will only be traded on the over-the-counter market.

OUR STOCK PRICE HAS BEEN VOLATILE HISTORICALLY AND MAY CONTINUE TO BE
VOLATILE. THE PRICE OF OUR COMMON STOCK, AND THEREFORE THE PRICE OF THE NOTES,
MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY MAKE IT DIFFICULT FOR HOLDERS TO RESELL
THE NOTES OR THE SHARES OF OUR COMMON STOCK ISSUABLE UPON CONVERSION OF THE
NOTES WHEN DESIRED OR AT ATTRACTIVE PRICES.

The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2002, the closing sale prices of our common
stock on The New York Stock Exchange ranged from $0.99 to $17.45 per share and
the closing sale price on December 5, 2003 was $6.16 per share. Our stock price
may fluctuate in response to a number of events and factors, such as quarterly
variations in operating results, actions by various regulatory agencies,
litigation, market perceptions of our financial reporting, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable to us,
and news reports relating to trends in our markets or general economic
conditions.

In addition, the stock market in general, and the market prices for
energy-related companies in particular, have experienced extreme volatility that
often has been unrelated to the operating performance of such companies. These
broad market and industry fluctuations may adversely affect the price of our
stock, regardless of our operating performance. Because the notes are
convertible into shares of our common stock, volatility or depressed prices for
our common stock could have a similar effect on the trading price of the notes.
Holders who receive common stock upon conversion also will be subject to the
risk of volatility and depressed prices of our common stock. In addition, the
existence of the notes may encourage short selling in our common stock by market
participants because the conversion of the notes could depress the price of our
common stock.

SECURITIES WE ISSUE TO FUND OUR OPERATIONS COULD DILUTE YOUR OWNERSHIP.

We may decide to raise additional funds through public or private debt or
equity financing to fund our operations. If we raise funds by issuing equity
securities, the percentage ownership of current stockholders will be reduced and
the new equity securities may have rights prior to those of the common stock
issuable upon conversion of the notes. We may not obtain sufficient financing on
terms that are favorable to you or us. We may delay, limit or eliminate some or
all of our proposed or existing operations if adequate funds are not available.

THE NOTES DO NOT RESTRICT OUR ABILITY TO INCUR ADDITIONAL DEBT OR TO TAKE
OTHER ACTIONS THAT COULD NEGATIVELY IMPACT HOLDERS OF THE NOTES.

We are not restricted under the terms of the notes from incurring
additional indebtedness, including secured debt. In addition, the limited
covenants applicable to the notes do not require us to achieve or maintain any
minimum financial results relating to our financial position or results of
operations. Our ability to recapitalize, incur additional debt and take a number
of other actions that are not limited by the terms of the notes could have the
effect of diminishing our ability to make payments on the notes when due.

PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW AND OUR ORGANIZATIONAL
DOCUMENTS MAY DISCOURAGE AN ACQUISITION OF US.

Our organizational documents and the Delaware General Corporation Law both
contain provisions that will impede the removal of directors and may discourage
a third party from making a proposal to acquire us. For example, our board of
directors may, without the consent of the stockholders, issue preferred stock
with greater voting rights than the common stock. The existence of these
provisions may also have a negative impact on the price of our common stock.
Furthermore, we are subject to Section 203 of the Delaware General Corporation
Law, which could have the effect of delaying or preventing a change in control.
See "Description of Capital Stock -- Delaware Antitakeover Law" for a discussion
of these anti-takeover provisions.

FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD LOWER THE STOCK
PRICE.

A substantial number of shares of our common stock are subject to stock
options and the notes may be converted into shares of common stock. In addition,
under our new credit facilities, we issued certain warrants to our lenders, some
of which vested and became exercisable immediately and the balance of which will
vest and become exercisable into a substantial number of shares of our common
stock if we do not, on or before May 2006, repay our senior secured term loans
and/or permanently reduce the commitment under our senior secured revolving
credit facility by an aggregate of $2.0 billion by May 2006. However, as of
September 30, 2003, we have paid $1.056 billion of the required $2.0 billion
permanent reduction. For a description of these warrants, see note 10 to our
interim financial statements. We cannot predict the effect, if any, that future
sales of our common stock or notes, or the availability of shares of our common
stock or notes for future sale, will have on the market price of our common
stock or notes. Sales of substantial amounts of our common stock (including
shares issued upon the exercise of stock options or warrants or the conversion
of the notes), or the perception that such sales could occur, may adversely
affect prevailing market prices for our common stock and notes.

USE OF PROCEEDS

We will not receive any of the proceeds from the sale by any selling
securityholder of the notes or shares of common stock offered under this
prospectus.

PRICE RANGE OF COMMON STOCK

Our common stock is traded on The New York Stock Exchange under the symbol
"RRI". The following table sets forth, for the periods indicated, the range of
high and low sale prices for our common stock. On December 5, 2003, the closing
price of our common stock was $6.16 per share.

COMMON
STOCK PRICE
---------------
HIGH LOW
------ ------

YEAR ENDED DECEMBER 31, 2001
Second Quarter (from May 1 through June 30)................. $37.50 $23.65
Third Quarter............................................... 28.60 14.45
Fourth Quarter.............................................. 19.85 13.20
YEAR ENDED DECEMBER 31, 2002
First Quarter............................................... $17.45 $ 9.50
Second Quarter.............................................. 17.16 7.28
Third Quarter............................................... 8.95 1.66
Fourth Quarter.............................................. 3.23 0.99
YEAR ENDING DECEMBER 31, 2003
First Quarter............................................... $ 5.70 $ 2.25
Second Quarter.............................................. 7.05 3.82
Third Quarter............................................... 6.38 3.39
Fourth Quarter (through December 5)......................... 6.69 4.63

As of December 5, 2003, there were 51,426 holders of record of our common
stock.

DIVIDEND POLICY

We have not paid or declared any dividends since our formation and
currently intend to retain earnings for use in our business. Any future
dividends will be subject to determination based upon our results of operations
and financial condition, our future business prospects, any applicable
contractual restrictions, including the restriction on our ability to pay
dividends under the refinanced credit facilities, and other factors that our
board of directors considers relevant.

CAPITALIZATION

The following table sets forth our cash and cash equivalents, restricted
cash and certain other assets and our consolidated historical capitalization as
of September 30, 2003. The information appearing in this table should be read in
conjunction with our historical and unaudited financial information, together
with the notes thereto, where applicable, incorporated by reference herein.

AS OF
SEPTEMBER 30,
2003
-------------
(IN MILLIONS)

Cash and cash equivalents................................... $ 131
=======
Restricted cash (current and long-term)..................... $ 549
=======
Margin deposits on energy trading and hedging activities.... $ 83
=======
Current maturities of long-term debt and short-term
borrowings................................................ $ 412
Reliant Resources credit facilities......................... 3,264
Convertible senior subordinated notes....................... 275
Senior secured notes........................................ 1,100
Other long-term debt........................................ 2,474
-------
Total debt.................................................. 7,525
-------
Stockholders' 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; 299,804,000 issued.................. --
Additional paid-in capital................................ 5,841
Treasury stock at cost, 5,214,806 shares.................. (90)
Retained deficit.......................................... (1,371)
Accumulated other comprehensive loss...................... (95)
-------
Total stockholders' equity.................................. 4,285
-------
Total capitalization........................................ $11,810
=======

SELECTED FINANCIAL INFORMATION AND OTHER DATA

The following tables present our selected consolidated financial data for
1998 through 2002 and the nine months ended September 30, 2002 and September 30,
2003. The financial data for 1998, 1999 and 2000 are derived from the
consolidated historical financial statements of CenterPoint. The financial data
for 2001 and 2002 are derived from our audited financial statements. The
financial data for the nine months ended September 30, 2002 and September 30,
2003 are derived from our unaudited interim consolidated financial statements.
The data set forth below should be read together with our historical
consolidated financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the three years ended December 31, 2000, 2001 and 2002 included
in our Current Report on Form 8-K filed on November 14, 2003, incorporated by
reference herein, and our interim consolidated financial statements and the
notes to those statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the nine months ended September 30,
2002 and 2003 included in our Quarterly Report on Form 10-Q filed on November
12, 2003, incorporated by reference herein. The historical financial information
may not be indicative of our future performance and the historical financial
information for 1998, 1999 and 2000 does not reflect what our financial position
and results of operations would have been had we operated as a separate,
stand-alone entity during the periods presented.

INCOME STATEMENT DATA:
Revenues.......................... $277 $601 $2,732 $5,499 $10,577 $8,712 $ 9,209
Trading margins................... 33 88 198 378 288 281 (45)
---- ---- ------ ------ ------- ------ -------
Total........................ 310 689 2,930 5,877 10,865 8,993 9,164
---- ---- ------ ------ ------- ------ -------
Expenses:
Fuel and cost of gas sold....... 102 293 911 1,576 1,082 826 1,078
Purchased power................. 13 149 926 2,498 7,421 6,118 6,122
Accrual for payment to
CenterPoint.................. -- -- -- -- 128 89 47
Operation and maintenance....... 65 128 336 461 786 589 645
General, administrative and
development.................. 78 94 270 471 635 476 404
Wholesale energy goodwill
impairment................... -- -- -- -- -- -- 985
Depreciation and amortization... 15 23 118 170 368 268 313
---- ---- ------ ------ ------- ------ -------
Total........................ 273 687 2,561 5,176 10,420 8,366 9,594
---- ---- ------ ------ ------- ------ -------
Operating income (loss)........... 37 2 369 701 445 627 (430)
---- ---- ------ ------ ------- ------ -------
Other income (expense):
Gains (losses) from
investments.................. -- 14 (22) 23 (23) 3 2
(Loss) income of equity
investments of unconsolidated
subsidiaries................. (1) (1) 43 7 18 11 (1)
Gain on sale of development
project...................... -- -- 18 -- -- -- --
Other, net...................... 1 1 -- 2 23 6 (6)
Interest expense................ (2) -- (7) (16) (267) (178) (365)
Interest income................. 1 1 16 22 28 14 24
Interest income (expense) --
affiliated companies, net.... 2 (6) (172) 12 5 5 --
---- ---- ------ ------ ------- ------ -------
Total other income
(expense).................. 1 9 (124) 50 (216) (139) (346)
---- ---- ------ ------ ------- ------ -------
Income (loss) from continuing
operations before income
taxes........................... 38 11 245 751 229 488 (776)
Income tax expense.............. 17 6 102 290 106 189 97
---- ---- ------ ------ ------- ------ -------
Income (loss) from continuing
operations...................... 21 5 143 461 123 299 (873)
---- ---- ------ ------ ------- ------ -------
Income (loss) from discontinued
operations before income
taxes........................ -- 15 73 83 (341) 119 (417)
Income tax (benefit) expense.... -- (4) (7) (16) 108 95 61
---- ---- ------ ------ ------- ------ -------
Income (loss) from discontinued
operations................... -- 19 80 99 (449) 24 (478)
---- ---- ------ ------ ------- ------ -------
Income (loss) before cumulative
effect of accounting changes.... 21 24 223 560 (326) 323 (1,351)
Cumulative effect of accounting
changes, net of tax............. -- -- -- 3 (234) (234) (24)
---- ---- ------ ------ ------- ------ -------
Net income (loss)................. $ 21 $ 24 $ 223 $ 563 $ (560) $ 89 $(1,375)
==== ==== ====== ====== ======= ====== =======

BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations................... $ 1.66 $ 0.43 $ 1.03 $ (2.98)
Income (loss)from discontinued
operations, net of tax....... 0.36 (1.55) 0.08 (1.64)
------ ------- ------ -------
Income (loss) before cumulative
effect of accounting
changes...................... 2.02 (1.12) 1.11 (4.62)
Cumulative effect of accounting
changes, net of tax.......... .01 (0.81) (0.80) (0.08)
------ ------- ------ -------
Net income (loss)............... $ 2.03 $ (1.93) $ 0.31 $ (4.70)
====== ======= ====== =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations................... $ 1.66 $ 0.42 $ 1.02 $ (2.98)
Income (loss) from discontinued
operations, net of tax....... 0.36 (1.54) 0.08 (1.64)
------ ------- ------ -------
Income (loss) before cumulative
effect of accounting
changes...................... 2.02 (1.12) 1.10 (4.62)
Cumulative effect of accounting
changes, net of tax.......... .01 (0.80) (0.80) (0.08)
------ ------- ------ -------
Net income (loss)............... $ 2.03 $ (1.92) $ 0.30 $ (4.70)
====== ======= ====== =======

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -----------------
1998 1999 2000 2001 2002 2002
(1) (1) (1)(5) (1)(2)(5) (1)(3) (5) 2003
------- -------- -------- --------- -------- ------- -------
(IN MILLIONS, EXCEPT OPERATING DATA)

STATEMENT OF CASH FLOW DATA:
Cash flows from operating
activities................. $ (2) $ 38 $ 335 $ (152) $ 519 $ 272 $ 528
Cash flows from investing
activities................. (365) (1,406) (3,013) (838) (3,486) (3,302) (757)
Cash flows from financing
activities................. 379 1,408 2,721 1,000 3,981 4,291 (771)
OTHER OPERATING DATA:
Trading and marketing
activity(7):
Natural gas (Bcf)(8)....... 1,115 1,481 2,273 3,265 3,449 2,925 765
Power sales (thousand
MWh)(8)................. 61,195 128,266 125,971 222,907 306,425 244,332 67,450
Power generation activity:
Wholesale power sales
(thousand MWh)(8)....... 2,973 10,204 39,300 62,825 128,588 105,161 87,468
Retail power sales (GWh)..... -- -- -- 473 62,455 48,379 49,721
Net power generation capacity
at end of period (MW)...... 3,800 4,469 9,231 10,521 19,300 19,888 20,399

DECEMBER 31,
----------------------------------------------
1998 1999 2000 2001 2002 SEPTEMBER 30,
(1) (1) (1)(5) (1)(5) (1) 2003(6)
------ ------- ------- ------- ------- -------------
(IN MILLIONS)

BALANCE SHEET DATA:
Property, plant and equipment,
net............................... $ 270 $ 592 $ 2,217 $ 2,796 $ 6,991 $ 8,508
Total assets........................ 1,409 5,624 13,475 11,726 17,669 16,624
Short-term borrowings............... -- -- -- 92 669 307
Long-term debt to third parties,
including current maturities...... -- 69 260 297 6,159 7,218
Accounts and notes (payable)
receivable -- affiliated
companies, net.................... (17) (1,333) (1,967) 445 -- --
Stockholders' equity................ 652 741 2,345 5,984 5,653 4,285

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

(1) Our results of operations include the results of the following acquisitions,
all of which were accounted for using the purchase method of accounting,
from their respective acquisition dates: the five generating facilities in
California substantially acquired in April 1998, a generating facility in
Florida acquired in October 1999, the REMA acquisition that occurred in May
2000 and the Orion Power acquisition that occurred in February 2002. See
note 5 to our consolidated financial statements incorporated by reference
herein for further information about the acquisitions occurring in 2000 and
2002. In October 1999, we acquired REPGB, which is part of our European
energy operations. In February 2003, we signed an agreement to sell our
European energy operations to Nuon, a Netherlands-based electricity
distributor. In the first quarter of 2003, we began to report the results of
our European energy operations as discontinued operations in accordance with
SFAS No. 144 and accordingly, reclassified prior period amounts. Also, in
July 2003, we entered into a definitive agreement to sell our Desert Basin
plant and have reflected those operations as discontinued and accordingly
have reclassified prior periods. For further discussion of the sales, see
notes 17 and 18 to our interim financial statements incorporated by
reference herein.

(2) Effective January 1, 2001, we adopted SFAS No. 133 which established
accounting and reporting standards for derivative instruments. See note 7 to
our consolidated financial statements incorporated by reference herein for
further information regarding the impact of the adoption of SFAS No. 133.

(3) During the third quarter of 2002, we completed the transitional impairment
test for the adoption of SFAS No. 142 on our consolidated financial
statements, including the review of goodwill for impairment as of January 1,
2002. Based on this impairment test, we recorded an impairment of our
European energy segment's goodwill of $234 million, net of tax, as a
cumulative effect of accounting change. See note 6 to our consolidated
financial statements incorporated by reference herein for further
discussion.

(4) Beginning with the quarter ended September 30, 2002, we now report all
energy trading and marketing activities on a net basis in the statements of
consolidated operations. Comparative financial statements for prior periods
have been reclassified to conform to this presentation. See note 2(t) to our
consolidated financial statements incorporated by reference herein for
further discussion.

(5) As described in note 1 to our consolidated financial statements incorporated
by reference herein, our consolidated financial statements for 2000 and 2001
have been restated from amounts previously reported. The restatement had no
impact on previously reported consolidated cash flows.

(6) During the nine months ended September 30, 2003, we recorded a charge of
$985 million (pre-tax and after tax) related to an impairment of goodwill in
our wholesale energy reporting unit. See note 7 to our interim financial
statements incorporated by reference herein for discussion.

(7) Excludes financial transactions.

(8) Includes physical contracts not delivered.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For our most recent annual consolidated financial statements and notes, see
our Current Report on Form 8-K filed on November 14, 2003 and incorporated by
reference herein. For our most recent annual "Management's Discussion and
Analysis of Financial Condition and Results of Operations", see our Current
Report on Form 8-K filed on November 14, 2003 and incorporated by reference
herein. For our most recent interim consolidated financial statements and notes
and interim "Management's Discussion and Analysis of Financial Condition and
Results of Operations", see our Quarterly Report on Form 10-Q filed on November
12, 2003 and incorporated by reference herein.

OUR BUSINESS

GENERAL

Our business operations consist of the following business segments:

- Retail energy -- provides electricity and related services to retail
customers primarily in Texas and acquires and manages the electric
energy, capacity and ancillary services associated with supplying these
retail customers;

- Wholesale energy -- provides electric energy and energy services in the
competitive segments of the United States wholesale energy markets;

- Other operations -- includes our venture capital investment portfolio and
unallocated corporate costs.

FORMATION, IPO AND DISTRIBUTION

In June 1999, the Texas legislature adopted an electric restructuring law
that amended the regulatory structure governing electric utilities in Texas in
order to allow retail electric competition with respect to all customer classes
beginning in January 2002. In response to this legislation, CenterPoint,
formerly Reliant Energy, adopted a business separation plan in order to separate
its regulated and unregulated electric operations. Under the business separation
plan, we were incorporated in Delaware in August 2000, and CenterPoint
transferred substantially all of its unregulated businesses to us. We completed
an initial public offering of approximately 20% of our common stock in May 2001
and received net proceeds from our initial public offering of $1.7 billion. We
used $147 million of the net proceeds of our initial public offering to repay
certain indebtedness that we owed to CenterPoint. We used the remainder of the
net proceeds of our IPO for repayment of third party borrowings, capital
expenditures, repurchases of our common stock and general corporate purposes. In
September 2002, the Distribution was completed and, as a result, we are no
longer a subsidiary of CenterPoint.

RETAIL ENERGY

We are a certified retail electric provider in Texas, which allows us to
provide electricity to residential, small commercial and large commercial,
industrial and institutional customers. In January 2002, we began to provide
retail electric service to all customers of CenterPoint that did not take action
to select another retail electric provider and to customers that selected us to
provide them electric service. All classes of customers of most investor-owned
Texas utilities can choose their retail electric provider. The law also allows
municipal utilities and electric cooperatives to participate in the competitive
marketplace, but to date, none have chosen to do so.

Our retail energy segment provides standardized electricity and related
products and services to residential and small commercial customers with an
aggregate peak demand for power up to approximately one MW (i.e., small and
mid-sized business customers) and offers customized electric commodity and
energy management services to large commercial, industrial and institutional
customers with an aggregate peak demand for power in excess of approximately one
MW (e.g., refineries, chemical plants, manufacturing facilities, real estate
management firms, hospitals, universities, school systems, governmental
agencies, multi-site retailers, restaurants, and other facilities under common
ownership or franchise arrangements with a single franchiser, which aggregate to
approximately one MW or greater of peak demand). We own certain ERCOT generation
facilities, which consist of ten power generation units completed or under
various stages of construction at seven facilities with an aggregate net
generation capacity of 805 MW located in Texas. The generating capacity of these
facilities consists of 100% base-load capacity.

We currently provide retail electric service only in Texas. However, we
entered into contracts to provide retail electric services to large commercial,
industrial and institutional customers in New Jersey that began on August 1,
2003, and we are taking steps to provide electricity and related products and
43

services to large commercial, industrial and institutional customers in certain
other states. In New Jersey, we are registered as an "electric power supplier",
in Pennsylvania, we are registered as an "electric generation supplier", and in
Maryland, we are licensed as an "electric supplier".

RESIDENTIAL AND SMALL COMMERCIAL SERVICES

We have approximately 1.6 million residential customers and over 200,000
small commercial accounts in Texas, making us the second largest retail electric
provider in Texas. The majority of our customers are in the Houston metropolitan
area, but we also have customers in other metropolitan areas, including Dallas
and Corpus Christi, Texas.

In general, the Texas regulatory structure permits retail electric
providers to procure electricity from wholesale generators at unregulated rates,
sell the electricity at generally unregulated prices to retail customers and pay
the local transmission and distribution utilities a regulated tariff rate for
delivering the electricity to the customers. By allowing retail electric
providers to provide retail electricity at any price, the Texas electric
restructuring law is designed to encourage competition among retail electric
providers. However, retail electric providers which are affiliates of, or
successors in interest to, electric utilities are restricted in the prices they
may charge to residential and small commercial customers within the affiliated
transmission and distribution utility's traditional service territory. We are
deemed to be the affiliated retail electric provider in CenterPoint's Houston
area service territory, and we are an unaffiliated retail electric provider in
all other areas. The prices that affiliated retail electric providers charge are
subject to a specified price, or "price to beat" and the affiliated retail
electric providers are not permitted to sell electricity to residential and
small commercial customers in the service territory of the affiliated
transmission and distribution utility at a price other than the price to beat
until January 2005, unless before that date 40% or more electricity consumed in
2000 by the relevant class of customers in the affiliated transmission and
distribution utility service territory is committed to be served by other retail
electric providers. Unaffiliated retail electric providers may sell electricity
to residential and small commercial customers at any price.

In addition, the Texas electric restructuring law requires the affiliated
retail electric provider to make the price to beat available to residential and
small commercial customers who request it in the affiliated transmission and
distribution utility's traditional service territory until January 1, 2007. The
price to beat only applies to electric services provided to residential and
small commercial customers (i.e., customers with an aggregate peak demand at or
below one MW).

The PUCT's regulations allow an affiliated retail electric provider to
adjust the price to beat based on the wholesale energy supply cost component or
"fuel factor" included in its price to beat up to twice a year. The PUCT's
current regulations allow us to request an adjustment of our fuel factor based
on the percentage change in the forward price of natural gas or as a result of
changes in the price of purchased energy. As part of a request to change the
fuel factor for changes in purchased energy prices, we would have to show that
the fuel factor must be adjusted to restore the amount of headroom that existed
at the time the initial price to beat fuel factor was set by the PUCT. During
2002, we requested, and the PUCT approved, two such adjustments to our price to
beat fuel factor. In January 2003, we requested, and the PUCT approved in March
2003, an increase of our price to beat fuel factor. In July 2003, our second and
final request for 2003 was approved by the PUCT to increase the price to beat
fuel factor based on a 23.1% increase in the price of natural gas. Our requested
increase was based on an average forward 12-month natural gas price of
$6.1000/MMbtu during the twenty-day trading period beginning May 14, 2003 and
ending June 11, 2003. The requested increase represents an increase of 9.2% in
the total bill of a residential customer using, on average, 12,000 kilowatt
hours per year. We cannot estimate with any certainty the magnitude and timing
of future adjustments required, if any, or the impact of such adjustments on our
headroom. To the extent that a requested adjustment is not received on a timely
basis, our results of operations, financial condition and cash flows may be
adversely affected.

days to 20 trading days, and an increase in the threshold of what constitutes a
significant change in the market price of natural gas from 4% to 5%, except for
filings made after November 15th of a given year that must meet a 10% threshold.
The revised rule also provides that the PUCT will, after reaching a
determination of stranded costs in 2004, make downward adjustments to the price
to beat fuel factor if natural gas prices drop below the prices embedded in the
then-current price to beat fuel factor. In addition, the revised rule also
specifies that the base rate portion of the price to beat will be adjusted to
account for changes in the non-bypassable rates that result from the utilities'
final stranded cost determination in 2004. Adjustments to the price to beat will
be made following the utilities' final stranded cost determination in 2004.

LARGE COMMERCIAL, INDUSTRIAL AND INSTITUTIONAL SERVICES -- SOLUTIONS BUSINESS

We provide electricity and energy services to large commercial, industrial
and institutional customers (i.e., customers with an aggregate peak demand of
greater than approximately one MW) in Texas with whom we have signed contracts.
In addition, we provide electricity to those large commercial, industrial and
institutional customers in CenterPoint's service territory who have not entered
into a contract with any retail electric provider. We also provide customized
energy solutions, including risk management and energy services products, and
demand side and energy information services to our large commercial, industrial
and institutional customers.

Our large commercial, industrial and institutional customers include
refineries, chemical plants, manufacturing facilities, real estate management
firms, hospitals, universities, school systems, governmental agencies,
multi-site retailers, restaurants and other facilities under common ownership or
franchise arrangements with a single franchiser, which aggregate to
approximately one MW or greater of peak demand. Excluding those parts of Texas
not currently open to competition, the large commercial, industrial and
institutional segment in Texas consists of approximately 2,700 buying
organizations consuming an estimated aggregate of approximately 17,000 MW of
electricity at peak demand. Our contracts with customers represent a peak demand
of approximately 5,500 MW at approximately 24,000 metered locations.

PROVIDER OF LAST RESORT

In Texas, a provider of last resort is required to offer standard retail
electric service with no interruption of service, except in the event of
non-payment, to any customer requesting electric service, to any customer whose
certified retail electric provider has failed to provide electric service or to
any customer that voluntarily requests this type of service. Through a
competitive bid process administered by the PUCT, we were appointed to serve as
the provider of last resort in many regions of the state. We do not expect to
serve a large number of customers in this capacity, as many customers are
expected to subsequently select a retail electric provider. We will serve a
two-year term as the provider of last resort ending December 31, 2004. Pricing
for service provided by a provider of last resort may include a

customer charge and an energy charge, which for residential and small commercial
customers is adjustable based upon changes in the forward price of natural gas.
For large non-residential customers, the energy charge is adjusted based upon
the ERCOT market-clearing price of energy. For all customer classes, the
adjustment to the energy charge is subject to a floor amount. Non-residential
customers will be assessed a demand charge.

RETAIL ENERGY SUPPLY

We continuously monitor and update our retail energy supply positions based
on our retail energy demand forecasts and market conditions. We enter into
bilateral contracts with third parties for electric energy, capacity and
ancillary services.

Texas Genco (currently 81% owned by CenterPoint), which owns approximately
13,900 MW of aggregate net generation capacity in Texas, is our primary source
of retail energy capacity. In total, we have contracted for approximately
two-thirds of our capacity requirements for 2004 and a significant portion of
our estimated 2005 requirements, in part, by purchasing entitlements to
generation capacity from Texas Genco.

In the future, we expect to continue to contract for a significant portion
of the supply requirements of our Texas retail energy business, but over time we
are likely to supplement our market-based purchases with the acquisition of
individual generation assets.

Unless otherwise extended, Texas Genco's obligation to sell 85% of its
generation capacity in auctions and the master purchase agreement governing
purchases of capacity and/or energy from Texas Genco will terminate on January
24, 2004, the expiration date of the Texas Genco option. The termination of
these contractual arrangements will have no impact on existing purchase
commitments with Texas Genco entered into prior to that date.

The master power purchase agreement is secured by a lien against our rights
in accounts receivable and related assets of certain of our subsidiaries. The
master power purchase agreement does not require us to post cash collateral or
letters of credit to secure our obligations so long as Texas Genco's credit
exposure to us under the contract does not exceed $250 million from May 1 to
August 31 and $200 million from September 1 through April 30.

We have an option to acquire CenterPoint's holdings of the common stock of
Texas Genco that is exercisable from January 10, 2004 until January 24, 2004. On
December 5, 2003, we announced that it is unlikely that we will exercise our
option to purchase CenterPoint's holdings of common stock of Texas Genco.

ERCOT

We are a member of ERCOT. The ERCOT ISO is responsible for maintaining
reliable operations of the bulk electric power supply system in the ERCOT
Region. Its responsibilities include ensuring that information relating to a
customer's choice of retail electric provider is conveyed in a timely manner to
anyone needing the information. It is also responsible for ensuring that
electricity production and delivery are accurately accounted for among the
generation resources and wholesale buyers and sellers in the ERCOT Region.
Unlike some independent system operators in other regions of the country, the
ERCOT ISO does not operate a centrally dispatched pool and does not procure
energy on behalf of its members other than to maintain the reliable operation of
the transmission system. Members are responsible for contracting their energy
requirements bilaterally. The ERCOT ISO also serves as agent for procuring
ancillary services for those who elect not to secure their own ancillary
services requirement.

Members of ERCOT include retail customers, investor and municipal owned
electric utilities, rural electric cooperatives, river authorities, independent
generators, power marketers and retail electric providers. The ERCOT Region
operates under the reliability standards set by the North American Electric
Reliability Council. The PUCT has primary jurisdictional authority over the
ERCOT Region to ensure the adequacy and reliability of electricity across the
state's main interconnected power grid.
46

The ERCOT Region is divided into four congestion zones: north, south, west
and Houston. While most of our retail demand and associated supply is located in
the Houston congestion zone, we serve customers and acquire supply in all four
congestion zones. In addition, ERCOT conducts annual and monthly auctions of
transmission congestion rights which provide the entity owning transmission
congestion rights the ability to financially hedge price differences between
zones (basis risk). The PUCT prohibits any single ERCOT market participant from
owning more than 25% of the available transmission congestion rights on any
congestion path.

COMPETITION

For information regarding competitive factors affecting our retail energy
segment, see "Risk Factors -- Risks Related to Our Retail Energy Operations".

WHOLESALE ENERGY

Our wholesale energy segment provides energy and energy services with a
focus on the competitive segment of the United States wholesale energy markets.
We have built a portfolio of electric power generation facilities, through a
combination of acquisitions and development, that are not subject to traditional
cost-based regulation; therefore, we can generally sell electricity at prices
determined by the market, subject to regulatory limitations. We market electric
energy, capacity and ancillary services and procure and, in some instances,
resell, natural gas, coal, fuel oil, natural gas transportation capacity and
other energy-related commodities to optimize our physical assets and manage the
risk of our asset portfolio. In March 2003, we decided to exit our proprietary
trading activities and liquidate, to the extent practicable, our proprietary
positions. Although we have exited our proprietary trading activities, we have
legacy positions, which will be closed as economically feasible or in accordance
with their terms. We will continue to engage in marketing and hedging activities
related to our electric generating facilities, pipeline transportation capacity
positions, pipeline storage positions and fuel positions.

OVERVIEW OF WHOLESALE ENERGY MARKET

Over the past two years, the wholesale energy markets in the United States
have undergone dramatic changes. In late 2000 into early 2001, power markets
across most of the United States were trading at historical highs due in large
part to tight wholesale power market conditions, gas prices being at record
levels because of falling supplies and strong demand from a growing economy, gas
trading volumes continuing their rapid growth, and power trading and generation
companies having substantial access to the debt and equity markets. However,
during the summer of 2001, market conditions began to take a downward turn when
the first significant wave of nearly 200,000 MW of new generating capacity
commenced operations and began to ease the tight wholesale power market
conditions. Also, state regulators, in concert with the FERC, began to impose
price caps and other marketplace rules that resulted in power and ancillary
service prices in certain markets being at or near the variable cost to provide
them. Energy trading activity also saw a sharp reversal during 2001. The failure
of certain energy companies damaged the reputation of the entire industry and
energy trading specifically. The heightened attention on energy trading
businesses and the subsequent findings and allegations of questionable business
practices and transactions engaged in by a number of industry participants,
including us, caused a further erosion of confidence in the industry. As a
result, liquidity in the market began to decline.

The overall market conditions in the wholesale power industry continued to
worsen during 2002. With the addition of still more generation capacity and
heightened regulatory oversight, power prices continued their downward trend,
trading at or barely above the variable cost of production in many markets.
Confronted with a weaker profit outlook in both electric generation and energy
trading and significant amounts of short-term debt to be refinanced, credit
agencies began a series of downgrades of substantially all the industry's major
market participants, leaving many with below investment grade credit ratings.
These downgrades severely curtailed the access of these companies to the debt or
equity markets and triggered credit collateral requirements relating to their
trading and hedging activities. Consequently, many companies were forced to
significantly reduce their trading activities, which further reduced market
47

liquidity. Moreover, during the second quarter of 2003, market liquidity was
negatively impacted by the filings for reorganization under Chapter 11 of the
United States Bankruptcy Code of three companies in the wholesale power
industry, NRG Energy Inc., National Energy & Gas Transmission, Inc. and Mirant
Corp.

During the second half of 2002 and continuing into 2003, investors and
government regulators, as well as many industry participants and independent
observers, urged industry reforms to provide more balanced and sustainable
long-term market conditions in both the power markets and the energy trading
markets. The most significant of these are the FERC's efforts to implement SMD
and industry efforts to develop clearing and settlement provisions at energy
exchanges that would greatly reduce collateral requirements of participating
companies.

POWER GENERATION OPERATIONS

We own, own an interest in, or lease 119 operating electric power
generation facilities with an aggregate net generating capacity of 19,279 MW
located in five regions of the United States (excluding our ERCOT generation
facilities). This excludes 588 MW related to our Desert Basin plant, which was
sold in October 2003, and 811 MW related to the retirement of certain units in
the West and Mid-Atlantic regions. We have 1,063 MW of additional net generating
capacity under construction. One gas-fired generating facility (541 MW) is due
to reach commercial operation in the fourth quarter of 2003 and one waste-coal
fired generating facility (522 MW) is due to reach commercial operation in the
second half of 2004. The generating capacity of these facilities consists of
approximately 25% of base-load, 44% of intermediate and 31% of peaking capacity.

The following table describes our electric power generation facilities and
net generating capacity by region as of December 5, 2003:

TOTAL NET
NUMBER OF GENERATING
GENERATION CAPACITY
REGION FACILITIES(1) (MW)(2) DISPATCH TYPE(3) FUEL TYPE
------ ------------- ---------- ------------------------ ------------------

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.

(2) Average summer and winter net generating capacity.

(3) We use the designations "Base," "Intermediate," and "Peak" to indicate
whether the facilities described are base-load, intermediate, or peaking
facilities, respectively.

(5) In October 2003, we announced the retirement of two Mid-Atlantic generation
units having 232 MW of net generating capacity, which are excluded from the
table above.

(8) Excludes two hydro plants with a net generating capacity of 5 MW, which are
not currently operational.

(9) We own a 50% interest in one of these facilities having a net generating
capacity of 108 MW. An independent third party owns the other 50%.

(11) In October 2003, we announced the retirement of two California generation
units having 264 MW of total net generating capacity were idled due to a
lack of required environmental permits, which are excluded from the table
above.

(13) We own a 50% interest in one Nevada facility having a total generating
capacity of 470 MW. An independent third party owns the other 50%.

MID-ATLANTIC REGION

Facilities. We own, own an interest in, or lease 21 operating electric
power generation facilities with an aggregate net generating capacity of 5,161
MW located in Pennsylvania, New Jersey and Maryland. The generating capacity of
these facilities consists of approximately 28% of base-load, 47% of intermediate
and 25% of peaking capacity.

We are constructing a 522 MW coal-fired base-load unit that will replace
two of our generating units at an existing facility located in Pennsylvania. We
expect this unit will begin commercial operation by the end of 2004. Because of
lower price conditions in the PJM Market and the rising cost of operations,
particularly with respect to emission costs, we retired an 82 MW coal-fired
facility located in our Mid-Atlantic region in September 2002. In November 2003,
we retired two generation units having 197 MW of net generating capacity to
allow continued construction of replacement capacity (522 MW) at the facility.
In addition, we plan to retire two Mid-Atlantic generation units having 232 MW
of total net generating capacity, in early 2004.

The following table describes the electric power generation facilities we
owned, leased or had under construction in the Mid-Atlantic region of the United
States as of December 5, 2003:

SUMMER/WINTER
NET GENERATING
GENERATION FACILITIES(1) LOCATION CAPACITY(MW) FUEL TYPE DISPATCH TYPE(2)
------------------------ ------------ -------------- ------------ ----------------

Operating
Blossburg.............. Pennsylvania 23 Gas Peak
Conemaugh(3)........... Pennsylvania 282 Coal/Oil Base/Peak
Deep Creek............. Maryland 19 Hydro Base
Gilbert................ New Jersey 615 Dual Inter/Peak
Glen Gardner........... New Jersey 184 Dual Peak
Hamilton............... Pennsylvania 23 Oil Peak
Hunterstown............ Pennsylvania 866 Dual/Gas Inter/Peak
Keystone(3)............ Pennsylvania 284 Coal/Oil Base/Peak
Liberty................ Pennsylvania 568 Gas Base
Mountain............... Pennsylvania 47 Dual Peak
Orrtanna............... Pennsylvania 23 Oil Peak
Piney.................. Pennsylvania 28 Hydro Base
Portland............... Pennsylvania 584 Coal/Gas/Oil Base/Inter/Peak
Sayreville(5).......... New Jersey 264 Dual Peak
Shawnee................ Pennsylvania 23 Oil Peak
Shawville(3)........... Pennsylvania 614 Coal/Oil Base/Peak
Titus.................. Pennsylvania 281 Coal/Dual Inter/Peak
Tolna Station.......... Pennsylvania 47 Oil Peak
Warren................. Pennsylvania 68 Dual Peak
Wayne.................. Pennsylvania 66 Oil Peak
Werner................. New Jersey 252 Oil Peak
-----
Total Operating.......... 5,161
-----
Under Construction
Seward(4).............. Pennsylvania 522 Coal Base
-----
Total Under
Construction........... 522
-----
TOTAL COMBINED........... 5,683
=====

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.
All of these facilities are operational.

(2) We use the designations "Base," "Inter" and "Peak" to indicate whether the
facilities described are base-load, intermediate or peaking facilities,
respectively.

(3) We lease a 100% interest in the Shawville Station, a 16.67% interest in the
Keystone Station and a 16.45% interest in the Conemaugh Station under
facility interest lease agreements with original terms of 26.25 years, 33.75
years and 33.75 years, respectively.

(4) In November 2003, we retired two generation units having 197 MW of net
generating capacity at the Seward facility, which are excluded from the
table above. This retirement was necessary to continue construction of the
replacement capacity of 522 MW.

(5) In October 2003, we announced the retirement of two Sayreville generation
units having 232 MW of net generating capacity, which are excluded from the
table above.

Market Framework. We currently sell the power generated by our
Mid-Atlantic facilities in the PJM Market and occasionally to buyers in adjacent
power markets, such as the ECAR Market and NY Market. We also expect to sell
power in a newly created PJM West Market. Each of the PJM, the NY and the

PJM West Markets operates as centralized power pools with open-access,
non-discriminatory transmission systems. The PJM and PJM West Markets are
administered by PJM, a FERC-approved RTO.

Although the transmission infrastructure within these markets is generally
well developed and independently operated, transmission constraints exist
between, and to a certain extent within, these markets. In particular,
transmission of power from western Pennsylvania and upstate New York to eastern
Pennsylvania, New Jersey and New York City may be constrained. Depending on the
timing and nature of transmission constraints, market prices may vary from
market to market, or between sub-regions of a particular market. Market prices
are generally higher in New York City than in other parts of New York due to the
transmission constraints.

In addition to managing the transmission system, PJM is responsible for
maintaining competitive wholesale markets, operating the spot wholesale electric
energy, capacity and ancillary services markets and determining the market
clearing price based on bids submitted by participating generators in each
market. PJM generally matches sellers with buyers within a particular market
that meet specified minimum credit standards. We sell electric energy, capacity
and ancillary services into the markets maintained by PJM on both a real-time
basis and a forward basis for periods of up to one year. Our customers consist
of the members of each market, including municipalities, electric cooperatives,
integrated utilities, transmission and distribution utilities, retail electric
providers and power marketers. We also sell electric energy, capacity and
ancillary services to customers in our Mid-Atlantic region under negotiated
bilateral contracts.

PJM has an internal market monitor. The internal market monitor reports on
issues relating to the operation of the PJM Market, including the determination
of transmission congestion costs or the potential of any market participation to
exercise market power within the PJM Market or PJM West Market. The internal
market monitor evaluates the operation of both spot and bilateral markets to
detect either design or structural flaws in the PJM Market and evaluates any
proposed enforcement mechanisms that are necessary to assure compliance with the
PJM Protocols.

The PJM Protocols allow energy demand to respond to price changes. The lack
of sufficient energy demand that may respond has been cited as the primary
reason for retaining the electric energy, capacity and ancillary service market
caps, which are currently set at $1,000 per MWh in the PJM Market and the energy
price mitigation measures in the PJM Market.

Energy market price mitigation measures are implemented for some generating
facilities when, in the opinion of PJM, transmission constraints are present.
This is commonly referred to as price capping. In such instances, PJM requires,
for purposes of system reliability, the dispatch of specific units. In the
opinion of PJM, these units are not needed to meet energy demand and are only
necessary to maintain the stability of the PJM transmission system. When price
capping is imposed, the asking price submitted by these generating facilities is
disregarded in setting the PJM market price and the subject units receive a
mitigated price that is generally equal to incremental operating costs of the
generating unit plus 10%. Historically, 11 generating facilities, representing
over 250 MW, in our Mid-Atlantic region have been consistently impacted by this
procedure. In addition, a few other generating facilities in our Mid-Atlantic
region have experienced occasional price capping during selective hours.

PJM attempts to ensure that there is sufficient generation capacity to meet
energy demand and ancillary services requirements through a capacity market. All
power retailers are required to demonstrate commitments for capacity sufficient
to meet their peak forecasted load plus a reserve above this level, currently
set at 18%. Prices for capacity are capped by PJM at approximately $175 per MW
per day.

NEW YORK REGION

Facilities. We own 77 operating electric power generation facilities with
an aggregate net generating capacity of 2,952 MW located in New York. Our
generating facilities in the New York region consist of two distinct groups,
intermediate and peaking facilities located in New York City and, with the
exception of one gas-fired facility, 73 small run-of-river hydro facilities
located in central and northern New York

State. The overall generating capacity of these facilities consists of
approximately 23% of base-load, 41% of intermediate and 36% of peaking capacity.
With the exception of one facility, all of our New York facilities were acquired
as a result of utility divestitures.

The following table describes the electric power generation facilities we
owned, leased or had under construction in the New York region of the United
States as of December 5, 2003:

SUMMER/WINTER
NET GENERATING
GENERATION FACILITIES(1) LOCATION CAPACITY (MW) FUEL TYPE DISPATCH TYPE(2)
------------------------ -------- -------------- --------- ----------------

Operating
Astoria....................... New York 1,277 Gas/Dual Inter/Peak
Carr Street................... New York 101 Gas Inter
Gowanus....................... New York 597 Dual/Oil Peak
Narrows....................... New York 305 Dual Peak
Hydroelectric assets(3)....... New York 672 Hydro Base
-----
Total Operating................. 2,952
=====

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.
All of these facilities are operational.

(2) We use the designations "Base," "Inter" and "Peak" to indicate whether the
facilities described are base-load, intermediate or peaking facilities,
respectively.

(3) Excludes two hydro plants with a net generating capacity of 5 MW, which are
not currently operational.

Market Framework. We currently sell the power generated by our New York
regional facilities in the NY Market. In New York City, we sell electric energy
and ancillary services into both day-ahead and real-time markets and capacity in
the monthly and six month forward markets. Our customers include municipalities,
electric cooperatives, integrated utilities, transmission and distribution
utilities, retail electric providers and power marketers. Our hydro facilities
are currently under contract to sell all electric energy, capacity and ancillary
services to Niagara Mohawk under contract through September 2004.

Our sales into markets administered by NYISO are governed by the NYISO
Protocols. The NYISO Protocols allow energy demand to respond to high prices in
emergency and non-emergency situations. The lack of sufficient energy demand
that may respond to prices has been cited as one of the primary reasons for
retaining wholesale energy bid caps, which are currently set at $1,000 per MWh
in the NY Market.

The NYISO Protocols established a capacity market in order to ensure that
there is enough generation capacity to meet retail energy demand and ancillary
services requirements. All power retailers are required to demonstrate
commitments for capacity sufficient to meet their peak forecasted load plus a
reserve requirement, currently set at 18%. As an additional local reliability
measure, power retailers located in New York City are required to procure the
majority of this capacity, currently 80% of their peak forecasted load, from
generating units located in New York City. Because only a few suppliers own the
existing in-city capacity, previously divested utility generation is subject to
a capacity price cap of $105 per KW per year, and sales capacity from
substantially all our existing in-city generating units are subject to this cap.
Any generation capacity added following divestiture is not subject to a capacity
price cap.

NYISO has implemented a measure known as the "automated mitigation
procedure" under which day-ahead energy bids will be automatically reviewed. If
bids exceed certain pre-established thresholds and have a significant impact on
the market-clearing price, the bids are then reduced to a pre-established market
based or negotiated reference bid. NYISO has also adopted, at the FERC's
direction, more stringent mitigation measures for all generating facilities in
transmission-constrained New York City.

NYISO has an internal market monitoring organization. The market monitor
assesses the efficiency and effectiveness of the electric energy, capacity and
ancillary services. In performing these functions, the internal market monitor
develops reference price levels for each generator, oversees the operation of
NYISO's automatic mitigation procedure, investigates potential anti-competitive
behavior by market

participants, recommends changes in market Protocols and prepares periodic
reports for submission to the FERC and other agencies. In addition, NYISO also
has an external market advisor that works closely with the market monitor and
has the independent authority to suggest changes in Protocols or recommend
sanctions or penalties directly to the NYISO governing board. The NYISO market
advisor issues written reports containing analyses and recommendations, which
are made available to the public.

MID-CONTINENT REGION

Facilities. We own 9 operating electric power generation facilities with
an aggregate net generating capacity of 4,484 MW located in Illinois, Ohio,
Pennsylvania and West Virginia. The generating capacity of these facilities
consists of approximately 51% of base-load, 7% of intermediate and 42% of
peaking capacity.

The following table describes the electric power generation facilities we
owned or had under construction in the Mid-Continent region of the United States
as of December 5, 2003:

SUMMER/WINTER
NET GENERATING
GENERATION FACILITIES(1) LOCATION CAPACITY (MW) FUEL TYPE DISPATCH TYPE(2)
------------------------ ------------- -------------- --------- ----------------

Operating
Aurora...................... Illinois 912 Gas Peak
Avon Lake................... Ohio 721 Coal/Oil Base/Peak
Brunot Island............... Pennsylvania 367 Gas/Oil Inter/Peak
Ceredo...................... West Virginia 475 Gas Peak
Cheswick.................... Pennsylvania 566 Coal Base
Elrama...................... Pennsylvania 487 Coal Base
New Castle.................. Pennsylvania 339 Coal/Gas Base/Peak
Niles....................... Ohio 246 Coal/Gas Base/Peak
Shelby County............... Illinois 371 Gas Peak
-----
Total Operating............... 4,484
=====

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.

(2) We use the designations "Base," "Inter" and "Peak" to indicate whether the
facilities described are base-load, intermediate or peaking facilities,
respectively.

Market Framework. We generally sell the electric energy, capacity and
ancillary services generated and/or provided by our Mid-Continent region
portfolio into the PJM West Market, the ECAR Market and the MAIN Market. These
markets include all or portions of Illinois, Wisconsin, Missouri, Indiana, Ohio,
Michigan, Virginia, West Virginia, Tennessee, Maryland and Pennsylvania. The PJM
West Market operates as part of the PJM centralized power pool with an
open-access, non-discriminatory transmission system administered by an
independent system operator approved by the FERC that is responsible for, among
other things, maintaining competitive wholesale markets, operating the spot
wholesale energy market and determining the market clearing price.

The ECAR and MAIN Markets continue to be in a state of transition and are
in the process of establishing RTOs that would define the rules and requirements
around which competitive wholesale markets in the region would develop. The FERC
has granted RTO status to the MISO, which administers a substantial portion of
the transmission facilities in the Mid-Continent region. The FERC has also
approved the various RTO selections made by the members of the former Alliance
RTO. Some of the members of this group will join the MISO and others will join
PJM. The final market structure for the Mid-Continent region remains unsettled.
Some states within the ECAR and MAIN Markets have restructured their retail
electric power markets to competitive markets from traditional utility monopoly
markets, while others have not.

The FERC has also required MISO to engage the services of an independent
market monitor. The independent market monitor's duties include monitoring the
functioning of the markets run by the MISO to ensure that they are functioning
efficiently. This includes identifying factors that might contribute to economic
inefficiency such as design flaws, inefficient market rules and barriers to
entry. The independent market monitor must also monitor the conduct of
individual market participants. MISO is currently waiting on approval by the
FERC for a market mitigation plan that resembles the automated mitigation
procedure utilized by NYISO.

Our generating facilities located in Pennsylvania, Ohio, and West Virginia
straddle the PJM West and other ECAR Markets. Currently, these generating
facilities are primarily dedicated to serving the power demands of Duquesne
Light in the greater Pittsburgh area under one contract through December 2004
and another which does not have a fixed termination date. During periods when
the capacity of the generating facilities in our Mid-Continent region exceeds
the power demands of the Duquesne Light, we may sell the excess power into the
market.

We currently sell electric energy, capacity and ancillary services from our
Illinois generating facilities under bilateral contracts that have terms and
conditions tailored to meet the customers' requirements. Our customers include
municipalities, electric cooperatives, vertically integrated utilities,
transmission and distribution utilities and power marketers.

SOUTHEAST REGION

Facilities. We own, own an interest in, or lease six power generation
facilities with an aggregate net generating capacity of 3,010 MW located in
Florida, Mississippi and Texas. The generating capacity of these facilities
consists of approximately 2% of base-load, 46% of intermediate and 52% of
peaking capacity.

The following table describes the electric power generation facilities we
owned in the Southeast region of the United States as of December 5, 2003:

NET GENERATING
GENERATION FACILITIES(1) LOCATION CAPACITY (MW) FUEL TYPE DISPATCH TYPE(2)
------------------------ -------- -------------- --------- ----------------

Operating
Sabine(3)...................... Texas 54 Gas Base
Choctaw........................ Mississippi 800 Gas Inter
Indian River................... Florida 587 Dual Inter
Osceola........................ Florida 465 Dual Peak
Leased facilities(4)........... Florida 1,104 Dual Peak
-----
Total Operating.................. 3,010
=====

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.

(2) We use the designations "Base," "Inter" and "Peak" to indicate whether the
facilities described are base-load, intermediate or peaking facilities,
respectively.

(3) We own a 50% interest in this facility. An independent third party owns the
other 50%.

(4) We are party to tolling agreements entitling us to 100% of the capacity of
two Florida facilities having 630 MW and 474 MW of net generating capacity,
respectively. These tolling agreements have terms of 10 years and 5 years,
respectively, and are treated as operating leases for accounting purposes.
One of these facilities is currently owned by Mirant Corp., which filed for
reorganization under Chapter 11 of the United States Bankruptcy Code on July
14, 2003.

Market Framework. We currently conduct the majority of our Southeast
regional operations in Florida. Florida, other than a portion of the western
panhandle, constitutes a single reliability council and contains approximately
5% of the United States population. Although dominated by incumbent utilities,
Florida is in the process of transitioning to a competitive wholesale generation
market by developing rules for new capacity procurement and establishing the
GridFlorida RTO. The FPSC has implemented new capacity procurement rules that
require utilities to seek bids to purchase electricity from independent

power producers and other utilities before embarking on self-build options for
new capacity requirements. Additionally, the FPSC has approved a proposal to
increase the level of planning reserve capacity from 15% to 20%. This new
criterion applies to the three investor-owned utilities operating in peninsular
Florida and becomes effective in the summer of 2004.

The Florida markets are expected to be administered by the GridFlorida RTO.
For the past year, the GridFlorida RTO's activities have focused on concerns
expressed by the FPSC. However, recent progress has been slow due to a legal
challenge by the state's consumer advocate division, which is disputing the
FPSC's authority to authorize the transfer of assets to an RTO. A decision on
this matter may not be reached until early 2004. At this time, the GridFlorida
RTO has not finalized its proposal for market monitoring, but it will be
obligated to establish a market monitor.

We currently sell electric energy and capacity into the Florida market
primarily under bilateral contracts that are non-standard and negotiated for
terms and conditions. An OTC trading and ancillary services market has yet to
fully develop. Customers who participate in power transactions in this region
include municipalities, electric cooperatives and integrated utilities.

In the rest of the Southeast Region, RTO formation is occurring under the
auspices of the SeTrans RTO. The SeTrans RTO will cover the area from Georgia to
eastern Texas. While the FERC has currently approved the basic formation of this
entity, significant details of this market will not be known until mid or late
2003. Because the SeTrans RTO is still in the formative stages of development,
it has only recently begun the process of selecting the independent entity that
will become its market monitor.

WEST REGION

Facilities. We own, or own an interest in, six electric power generation
facilities with an aggregate net generating capacity of 3,790 MW located in
California and Nevada. The generating capacity of these facilities consists of
approximately 6% of base-load, 89% of intermediate and 5% of peaking capacity.
We are constructing a 541 MW gas-fired, base-load and intermediate generation
facility in southern Nevada. We expect this facility will begin commercial
operation in the fourth quarter of 2003.

The following table describes the electric power generation facilities we
owned or had under construction in the West region of the United States as of
December 5, 2003:

SUMMER/WINTER
NET GENERATING
GENERATION FACILITIES(1) LOCATION CAPACITY (MW) PRIMARY FUEL DISPATCH TYPE(2)
------------------------ ---------- -------------- ------------ ----------------

Operating
Coolwater..................... California 658 Gas/Dual Inter
El Dorado(3).................. Nevada 235 Gas Base
Ormond Beach.................. California 1,525 Gas Inter
Etiwanda(4)(5)(6)............. California 640 Gas Inter/Peak
Mandalay(7)................... California 560 Gas Inter/Peak
Ellwood(8).................... California 54 Gas Peak
-----
Total Operating................. 3,672
Under Construction
Bighorn(9).................... Nevada 541 Gas Base/Inter
-----
TOTAL COMBINED.................. 4,213
=====

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

(1) Unless otherwise indicated, we own a 100% interest in each facility listed.

(2) We use the designations "Base," "Inter" and "Peak" to indicate whether the
facilities described are base-load, intermediate or peaking facilities,
respectively.

(3) We own a 50% interest in the El Dorado facility. Sempra Energy owns the
other 50%.

(4) In October 2003, we announced the retirement of two Etiwanda generation
units having 264 MW of total net generating capacity, due to a lack of
required environmental permits, which are excluded from the table above.

(5) At the end of December 2003, we will retire one California generation unit
having 118 MW of net generating capacity, which are excluded from the table
above, due to a lack of required environmental permits.

(6) Includes 640 MW of capacity mothballed in November 2003.

(7) Includes 130 MW of capacity mothballed in November 2003.

(8) Includes 54 MW of capacity mothballed in November 2003.

(9) We expect this facility will begin commercial operation in the fourth
quarter of 2003.

Market Framework. Our West regional market includes the states of Arizona,
California, Oregon, Nevada, New Mexico, Utah and Washington. Generally we sell
the electric energy, capacity and ancillary services generated and/or provided
by our California and Nevada facilities to customers located in the greater Los
Angeles metropolitan area and in southern Nevada. We believe that our portfolio
of intermediate and peaking facilities in southern California is important to
the reliability of the California market given its production flexibility and
close proximity to Los Angeles. Our customers in these states include power
marketers, investor-owned utilities, electric cooperatives, municipal utilities
and the Cal ISO acting on behalf of load-serving entities. We sell electric
energy, capacity and ancillary services to these customers through a combination
of bilateral contracts and sales made in the Cal ISO's day-ahead and hour-ahead
ancillary services markets and its real-time energy market. The Cal ISO does not
currently maintain a capacity market to ensure resource adequacy; however,
California regulatory authorities are in the process of developing such a
mechanism.

On July 9, 2003, we entered into a definitive agreement to sell our 588 MW
Desert Basin plant to SRP. The sale closed on October 15, 2003. In addition,
although we do not own generation facilities in the states of Oregon, New
Mexico, Utah and Washington, our trading and marketing operations have
historically purchased and delivered energy commodities in these states.

Two units at our Etiwanda facility in California totaling 264 MW of
intermediate capacity, under their current configuration, do not satisfy the
more stringent emissions standards that went into effect in 2003. As such, in
October 2003, we announced our intention to retire those units.

In November 2003, given that no bids were received in the auction process
on our offer of 824 MW of generation to the market in 2004 in connection with
our FERC settlement agreement, we announced our decision to mothball four units
in California through March 2005, at a minimum, pending results of the auction
process for the 12-month period beginning April 1, 2005. The following units
will be mothballed: Etiwanda Units 3 and 4 (640 MW); Mandalay Unit 3 (130 MW);
and Ellwood (54 MW).

In response to California's energy crisis of 2000 and 2001, the FERC and
the Cal ISO have instituted energy price caps, formerly set below $100 per MWh
and currently set at $250 per MWh, and must-offer requirements affecting all
merchant generators in California. Furthermore, the Western region has seen
significant new generation capacity become operational as well as a return to
more normal hydro and temperature conditions. The impact of these regulatory and
market changes has been to significantly lower power prices and spark spreads in
the West region.

The Cal ISO has a department of market analysis that acts as its internal
market monitor. The department of market analysis monitors the efficiency and
effectiveness of the ancillary services, congestion management and real-time
energy markets. In performing these functions, the department of market analysis
develops and publishes market performance indices, investigates potential
anti-competitive behavior by market participants, recommends changes in market
rules and protocols, and prepares periodic reports for submission to the FERC
and other agencies. In addition to the department of market analysis, the Cal
ISO also has a market surveillance committee that acts as its external advisor.
The market surveillance committee works closely with the department of market
analysis and has the independent authority to suggest changes in Cal ISO
Protocols or recommend sanctions or penalties directly to the Cal ISO governing
board. The market surveillance committee periodically produces written reports
containing its analyses and recommendations, which are made available to the
public subject to restrictions on confidential information. The Cal ISO has
initiated, at the FERC's direction, automated mitigation

procedures when any zonal clearing price for balancing energy exceeds $91.87 per
MWh with any resulting zonal clearing price subject to the price cap of $250 per
MWh. The automated mitigation procedures are only applied to bids that exceed
certain reference prices and that would significantly increase the market price.
However, in February 2003, the Cal ISO stated that it intends to appeal the
FERC's decision regarding the application of automated mitigation procedures to
local market power situations. While the FERC had adopted similar thresholds for
both local and system market power, the Cal ISO is seeking to have a more
restrictive procedure applied to local market power.

A number of initiatives currently under consideration could materially
impact our California operations. These initiatives include:

- a California law directing the CPUC to seek approval from the FERC to
allow the CPUC to enforce state-established maintenance and operation
standards of our California plants;

- implementation of a CPUC procurement process directing California
utilities to procure, on a forward basis, electricity and capacity to
serve the demand on their systems;

- efforts by the Cal ISO to redesign the spot markets in California; and

- the effect of the FERC's SMD effort, including its impact on the FERC
approved western RTOs.

In Nevada and Arizona, there is presently no RTO in place to manage the
transmission systems or to operate energy markets, although the utilities in
both states are participating in the development of RTOs. The West Connect RTO,
which includes Arizona, and the RTO West, which includes Nevada, have both been
approved by the FERC and are in process of developing operating rules and
tariffs. Both RTOs are expected to be operational and assume control over
transmission of facilities of participating utilities within the next several
years. The FERC has also approved the establishment of market monitoring
organizations as part of RTO West and West Connect RTO. The FERC is encouraging
the RTOs to coordinate in the development of a region-wide market monitoring
function. Additionally, in Nevada and Arizona, state-level regulatory
initiatives may impact competition in the electric sector. In Nevada, the state
legislature has passed legislation prohibiting the state's investor-owned
utilities from divesting generation. Nevada also passed legislation and adopted
regulations allowing large commercial and industrial customers to seek
competitive alternatives to utility generation. In Arizona, proceedings are
pending before the Arizona Corporate Commission that would require the state's
investor owned utilities to seek competitive supply offers to serve 2,500 to
3,200 MW of local system demand.

LONG-TERM PURCHASE AND SALE AGREEMENTS

In the ordinary course of business, and as part of our hedging strategy, we
enter into long-term sales arrangements for electric energy, capacity and
ancillary services, as well as long-term purchase arrangements. For information
regarding our long-term fuel supply contracts, purchase power and electric
capacity contracts and commitments, electric energy and electric sale contracts
and tolling arrangements, see note 14(e) to our consolidated financial
statements incorporated by reference herein. For information regarding our
hedging strategy relating to such long-term commitments, see "Risk
Factors -- Risks Related to Our Wholesale Energy Operations".

COMMERCIAL OPERATIONS -- MARKETING, TRADING, POWER ORIGINATION AND RISK
MANAGEMENT

Strategy. Our domestic commercial business seeks to optimize our physical
asset positions consisting of our power generation asset portfolio, pipeline
transportation capacity positions, pipeline storage positions and fuel positions
and provides risk management services for our asset positions. We perform these
functions through procurement, marketing and hedging activities for power, fuels
and other energy related commodities. With the downturn in the industry, the
decline in market liquidity, and our liquidity capital constraints, the
principal function of our commercial activities has shifted to optimizing our
assets. Previous large volume activities primarily involving risk management to
customers, gas marketing to third parties and trading of power and gas have been
significantly reduced, and in some cases eliminated. As a result, we reduced our
workforce and support staff. In March 2003, we decided to exit our proprietary
57

trading activities and liquidate, to the extent practicable, our proprietary
positions. Although we have exited our proprietary trading activities, we have
legacy positions, which will be closed as economically feasible or in accordance
with their terms. We will continue to engage in marketing and hedging activities
related to our electric generating facilities, pipeline transportation capacity
positions, pipeline storage positions and fuel positions of our wholesale energy
segment and energy supply costs related to our retail energy segment.

Asset Optimization and Risk Management. Our domestic commercial businesses
complement our merchant power generation business by providing a full range of
energy management services. These services focus on two core functions,
optimizing our physical asset position and providing risk management services
for our portfolio. To perform these functions, we trade, market and hedge
electric energy, capacity and ancillary services, as well as manage the purchase
and sale of fuels and emission allowances.

Asset optimization is maximizing the financial performance of an asset
position. Our commercial groups optimize our assets by employing different
products (e.g., on-peak power), geographic markets (e.g., buying from and
selling into adjacent markets), fuel types (e.g., burning oil rather than
natural gas at our fuel switching capable plants) and transaction terms (spot to
multi-year term).

Risk management services focus on managing the performance risk and price
risk (of both purchases and sales) inherent in the asset position. The ultimate
purpose of this activity is to identify the risks and reduce the volatility they
could cause in our financial performance. Our commercial groups assist our risk
control personnel and management in the identification of these risks and
execute the transactions necessary to achieve this goal. As an example of this,
we generally seek to sell a portion of the capacity of our domestic facilities
under fixed-price sale contracts (energy or capacity) or contracts to sell
energy at a predetermined multiple of fuel prices. Generally, we also seek to
hedge our fuel needs associated with our forward power sale obligations. These
power sales and fuel purchases provide us with certainty as to a portion of our
margins. With respect to performance risk, we also take into account plant
operational constraints and operating risk in making these determinations.

Physical power and services from our assets portfolios are sold in
real-time, hour-ahead, day-ahead, or multi-month or multi-year term markets. For
purposes of supplying our generation, we purchase fuel from a variety of
suppliers under daily, monthly and term, variable-load and base-load contracts
that include either market-based or fixed pricing provisions. We use derivative
instruments to execute these transactions.

In addition, as part of our efforts to commercialize our asset portfolio
and provide risk management services, we arrange for, schedule and balance the
transportation rights of the natural gas from the supply receipt point to our
plants. We generally obtain pipeline transportation to perform this function.
Accordingly, we use a variety of transportation arrangements including
short-term and long-term firm and interruptible agreements with intrastate and
interstate pipelines. We also utilize brokered firm transportation agreements
when dealing on the interstate pipeline system. In the normal course of
business, it is common for us to hedge the risk of pipeline transportation
expenses through "basis swap" transactions.

We also enter into various short-term and long-term firm and interruptible
agreements for natural gas storage in order to offer peak delivery services to
satisfy electric generating demands. Natural gas storage capacity allows us to
better manage the unpredictable daily or seasonal imbalances between supply
volumes and demand levels.

In support of our optimization and risk management effects, our power
origination group, working closely with our other commercial groups, focuses on
developing customized near-term products and long-term contracts. These are
designed and negotiated on a case-by-case basis to meet the specific energy
requirements of our customers. The target customer group generally includes
investor-owned utilities, municipalities, cooperatives and other companies that
serve end users.

Risk Management Services to Customers. In addition to optimizing our power
asset portfolio, our trading and marketing businesses provide risk management
services to a variety of customers, which
58

include natural gas distribution companies, electric utilities, municipalities,
cooperatives, power generators, marketers or other retail energy providers,
aggregators and large volume industrial customers. Risk management services
primarily focus on mitigating customers' commodity price exposure and providing
firm delivery services. To provide these services to these customers, we utilize
the same skills and physical and financial instruments used to optimize and
manage the risks of our asset portfolio. See below for the discussion of our
decision to exit proprietary trading in March 2003.

Proprietary Trading. Our commercial business obtains proprietary market
knowledge and develops proprietary analysis through its efforts to manage our
asset portfolio and provide risk management services to our customers. This
enabled our commercial groups to take selective market positions, typically on a
short-term basis, in power, fuel and other energy related commodities. Our
commercial groups used derivative instruments to execute these transactions. In
March 2003, we decided to exit our proprietary trading activities and liquidate,
to the extent practicable, our proprietary positions. Although we have exited
our proprietary trading activities, we have legacy positions, which will be
closed as economically feasible or in accordance with their terms. We will
continue to engage in marketing and hedging activities related to our electric
generating facilities, pipeline transportation capacity positions, pipeline
storage positions and fuel positions of our wholesale energy segment and energy
supply costs related to our retail energy segment.

Risk Management Controls. For information regarding our risk management
structure and policies relating to our trading and marketing operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Trading and Marketing and Non-Trading Operations" and
"Quantitative and Qualitative Disclosures About Market Risk" for the three years
ended December 31, 2000, 2001 and 2002 and for the nine months ended September
30, 2002 and 2003, incorporated by reference herein.

REGULATION

Electricity. The FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and the transmission of electricity in interstate
commerce by "public utilities." Public utilities that are subject to the FERC's
jurisdiction must file rates with the FERC applicable to their wholesale sales
or transmission of electricity in interstate commerce. All of our public utility
subsidiaries sell electric energy, capacity and ancillary services at wholesale
and are public utilities with the exception of those facilities that are
classified as qualifying facilities and not regulated as public utilities. The
FERC has authorized all of our generation subsidiaries to sell electricity and
related services at wholesale market-based rates. In its orders authorizing
market-based rates, the FERC also has granted certain of these subsidiaries
waivers of many of the accounting, record keeping and reporting requirements
that are imposed on public utilities with cost-based rate schedules.

The FERC's orders accepting the market-based rate schedules filed by our
subsidiaries or their predecessors, as is customary with such orders, reserve
the right to revoke or limit our market-based rate authority if the FERC
subsequently determines that any of our affiliates possess and exercise market
power. If the FERC were to revoke or limit our market-based rate authority, we
would have to file, and obtain the FERC's acceptance of, cost-based rate
schedules for all or some of our sales. In addition, the loss of market-based
rate authority could subject us to the accounting, record keeping and reporting
requirements that the FERC imposes on public utilities with cost-based rate
schedules. In October 2003, the FERC issued an order approving an agreement with
certain subsidiaries in our wholesale energy segment to settle inquiries,
investigations, and proceedings instituted by the FERC in connection with the
FERC's ongoing review of western energy markets. Under the terms of the
settlement, we retain the ability to make sales of power at market-based rates.

The FERC has issued a notice of proposed rulemaking describing its
intention to standardize electricity markets and eliminate continuing
discrimination in transmission service, with a proposed implementation date of
September 2004. The goal of SMD is to promote a more economically efficient
market design that will lower delivered energy costs, maintain reliability,
mitigate market power and

increase customer choice options. SMD proposes to eliminate discrimination in
transmission service by requiring that all users of the grid take service
pursuant to the same rates and terms and conditions of service, thus eliminating
certain existing preferences enjoyed by some classes of customers. In addition,
transmission-owning public utilities will be required to turn over the operation
of their transmission systems to an independent transmission provider. SMD also
seeks to establish day-ahead and real-time electric energy and ancillary service
markets modeled after the energy markets that currently exist in the Northeast.
Finally, SMD proposes to establish a capacity obligation on load serving
entities and establishes nationwide price mitigation measures. However, there is
substantial controversy surrounding the development of SMD, and it is unclear
whether SMD would be implemented and what form it would take.

The FERC also continues to promote the formation of large RTOs and has
issued numerous orders on the various RTO proposals. The FERC's goal is to
promote the formation of a robust wholesale market for electricity. While RTO
participation by public utilities is voluntary, the overwhelming majority of the
FERC jurisdictional utilities have indicated that they will join the proposed
RTO for their region. At this time there are approximately nine proposed RTOs
covering the vast majority of the continental United States. In addition, large
portions of the nation's transmission system are currently operated by an
independent entity. The Midwest grid is operated by the MISO and the Northeast
grid is operated by three separate independent entities: New England ISO, NYISO
and PJM. The ERCOT ISO independently operates the Texas grid. MISO and PJM have
received RTO status from the FERC.

Commercial Activities. As a gas marketer, we make sales of natural gas in
interstate commerce and the FERC has issued us a blanket certificate, but the
FERC does not otherwise regulate the rates, terms or conditions of these gas
sales.

Hydroelectric Facilities. Our hydroelectric generation facilities are
subject to the FERC's exclusive authority to license non-federal hydroelectric
projects located on navigable waterways and federal lands. These FERC licenses
must be renewed periodically and can include conditions on operation of the
project at issue.

SEC. A company engaged exclusively in the business of owning and/or
operating facilities used for the generation of electric energy exclusively for
sale at wholesale and selling electric energy at wholesale may be exempted from
regulation under the PUHCA as an exempt wholesale generator. Our electric
generation subsidiaries have received determinations of exempt wholesale
generator status from the FERC or are companies that own or operate qualifying
facilities. If we lose our exempt wholesale generator status or qualifying
facility status, we would have to restructure our organization or risk being
subjected to further regulation by the SEC.

COMPETITION

For a discussion of competitive factors affecting our wholesale energy
segment, see "Risk Factors -- Risks Related to Our Wholesale Energy Operations".

OTHER OPERATIONS

Our other operations business segment includes the following:

- our venture capital investment portfolio; and

- unallocated corporate costs.

We are currently managing our venture capital investment portfolio and do
not have plans to expand this business. As of September 30, 2003, the net book
value of these investments was $35 million.

ENVIRONMENTAL MATTERS

GENERAL

We are subject to numerous federal, state and local requirements relating
to the protection of the environment and the safety and health of personnel and
the public. These requirements relate to a broad range of our activities,
including the discharge of compounds into air, water, and soil, the proper
handling of solid, hazardous, and toxic materials and waste, noise, and safety
and health standards applicable to the workplace. In order to comply with these
requirements, we will, as necessary, spend substantial funds to construct,
modify and retrofit equipment, and clean up or decommission disposal or fuel
storage areas and other locations as necessary. We anticipate spending
approximately $246 million for the remainder of 2003 through 2007 for such
environmental compliance and remediation. As of September 30, 2003, we have
accrued $44 million related to these remediation costs.

If we do not comply with environmental requirements that apply to our
operations, regulatory agencies could seek to impose on us civil, administrative
and/or criminal liabilities as well as seek to curtail our operations. Under
some statutes, private parties could also seek to impose civil fines or
liabilities for property damage, personal injury and possibly other costs.

AIR QUALITY MATTERS

As part of the 1990 amendments to the Federal Clean Air Act, additional
requirements for the emission of nitrogen oxide, a product of the combustion
process associated with power generation, have been developed. This compound is
a precursor to ozone, fine particulate matter and regional haze. While new
requirements have been developed, it is possible that additional requirements
could be required in the future to provide for the attainment and maintenance of
the National Ambient Air Quality Standards (NAAQS) and visibility standards.
These requirements affect our power generating facilities in the United States.

The EPA has announced its determination to regulate hazardous air
pollutants, including mercury, from coal-fired and oil-fired steam electric
generating facilities under Section 112 of the Clean Air Act. The EPA plans to
develop maximum achievable control technology (MACT) standards for these types
of generating facilities as well as for turbines, engines and industrial
boilers. The rulemaking for coal and oil-fired steam electric generating
facilities must be completed by December 2004. Compliance with the rules will be
required within three years thereafter. The MACT standards that will be
applicable to coal- and oil-fired facilities cannot be predicted at this time
and may adversely impact our operations. The MACT rule for combustion turbines
was issued in August 2003 and there is no impact on existing facilities. The
MACT rulemaking for engines and industrial boilers is expected to be completed
in early 2004. Based on the rules currently proposed for engines and industrial
boilers, we do not anticipate a material adverse impact on our financial
condition, results of operations and cash flows.

In 1998, the United States became a signatory to the United Nations
Framework Convention on Climate Change or "Kyoto Protocol". The Kyoto Protocol
calls for developed nations to reduce their emissions of greenhouse gases.
Carbon dioxide, which is a major byproduct of the combustion of fossil fuel, is
considered to be a greenhouse gas. If the United States Senate ultimately
ratifies the Kyoto Protocol, any resulting limitations on power plant carbon
dioxide emissions could have a material adverse impact on all fossil fuel fired
facilities, including those belonging to us.

The EPA is conducting a nationwide investigation regarding the historical
compliance of coal-fueled electric generating stations with various permitting
requirements of the Clean Air Act. Specifically, the EPA and the United States
Department of Justice have initiated formal enforcement actions and litigation
against several other utility companies that operate these stations, alleging
that these companies modified their facilities without proper pre-construction
permit authority. Since June 1998, six of our coal-fired facilities have
received requests for information related to work activities conducted at those
sites, as have two of our recently acquired Orion Power facilities. The EPA has
not filed an enforcement action or initiated litigation in connection with these
facilities at this time. Nevertheless, any litigation, if pursued

successfully by the EPA, could accelerate the timing of emission reductions
currently contemplated for the facilities and result in the imposition of
penalties. In addition to the EPA's requests for information, the New Jersey
Department of Environmental Protection (NJDEP) recently requested a copy of all
correspondence relating to the EPA requests for information. We have recently
signed a confidentiality agreement with the NJDEP relative to the information
they have received from the EPA. To date, NJDEP has taken no further legal
action in connection with this request for one of the six stations.

In February 2001, the United States Supreme Court upheld previously adopted
EPA ambient air quality standards for fine particulate matter and ozone. While
attaining these new standards may ultimately require expenditures for air
quality control system upgrades for our facilities, regulations addressing
affected sources and required controls are not expected until after 2005.
Consequently, it is not possible to determine the impact on our operations at
this time.

In February 2002, the White House announced its "Clear Skies Initiative".
The proposal is aimed at long-term reductions of multiple pollutants produced
from fossil fuel-fired power plants. Reductions averaging 70% are targeted for
sulfur dioxide, nitrogen oxide and mercury. If approved by the United States
Congress, this program would entail a market-based approach using emission
allowances; compliance with emission limits would be phased in over a period
from 2008 to 2018. The Clear Skies Initiative has the potential to revise or
eliminate several of the programs discussed above, including the maximum
achievable control technology standards, the coal-fired utility enforcement
initiative and fine particulate controls. In addition, a voluntary program for
reducing greenhouse gas emissions was proposed as an alternative to the Kyoto
Protocol. Fossil fuel-fired power plants in the United States would be affected
by the adoption of this program, or other legislation that may be enacted by the
United States Congress addressing similar issues. Such programs would require
compliance to be achieved by the installation of pollution controls, the
purchase of emission allowances or curtailment of operations.

In April 2003, the Group Against Smog and Pollution (GASP), a private
citizens organization, notified the Allegheny County Health Department (ACHD)
and Pennsylvania Department of Environmental Protection (PDEP) of GASP's intent
to initiate an action under the citizens' suit provisions of the state and
federal clean air laws to compel Orion Power to comply with ACHD air quality
regulations at one of its plants. Under applicable PDEP environmental
regulations, potential penalties in an action for past violations could exceed
$100,000. We are currently in discussions with GASP in an effort to resolve the
issue, but the outcome cannot be predicted at this time.

FERC

Last year the FERC granted ten new licenses for 23 of our hydroelectric
facilities in New York. (For additional information related to the FERC, see
"Risk Factors -- Risks Related to Our Wholesale Energy Operations"). The FERC
imposed conditions in such licenses which will require us to spend approximately
$21 million in capital expenditures in order to comply with such conditions.
Applications for three new FERC licenses remain pending for five of our
hydroelectric facilities in New York. Conditions which may be imposed in such
additional new licenses may also result in capital expenditures.

In the course of the FERC licensing proceedings various agencies have
requested increased flow rates downstream of the dams in order to enhance fish
habitats and for other purposes. The FERC has imposed conditions in the new
licenses to increase such flow rates and we expect that the FERC will also
impose similar conditions in the licenses for which applications remain pending.
Increased flow rates may affect revenues for these facilities due to the loss of
use of water for power generation. However, all of the minimum flow requirements
and other environmental conditions in the respective licenses are the result of
settlement agreements negotiated by us and our predecessors and settlement
agreements are being pursued for the remaining pending license applications.
Therefore, we do not expect such lost revenues to be material to the economic
viability of such facilities.

WATER QUALITY MATTERS

As a result of litigation and technological improvements, state and federal
efforts toward implementing the total maximum daily load provisions of the Clean
Water Act have substantially increased in recent years. The establishment of
total maximum daily loads to restore water bodies currently designated as
impaired may result in more stringent discharge limitations for our facilities.
Compliance with such limitations may require our facilities to install
additional water treatment systems, modify operational practices or implement
other wastewater control measures, the costs of which cannot be estimated at
this time.

In April 2002, the EPA proposed rules under Section 316(b) of the Clean
Water Act relating to the design and operation of cooling water intake
structures. This proposal is the second of three current phases of rulemaking
dealing with Section 316(b) and generally would affect existing facilities that
use significant quantities of cooling water. Under the amended court deadline,
the EPA is to issue final rules for these Phase II facilities by February 2004.
While the requirements of the final rule cannot be predicted at this time, there
are significant potential implications under the EPA proposal for our generating
facilities.

Under a separate consent order issued by the New York State Department of
Environmental Conservation (NYSDEC) in 2000, Orion Power is required to evaluate
certain technical changes to modify the intake cooling system of one of its
plants. Orion Power and the NYSDEC will discuss the technical changes to be
implemented. Depending on the outcome of these discussions, including the form
of technology ultimately selected, we estimate that capital expenditures
necessary to comply with the order could meet or exceed $65 million. We expect
to begin construction on a portion of the cooling water intake in 2004.

EPA and states periodically review and revise water quality criteria for
parameters such as copper, selenium and temperature that can be associated with
our facility discharges. For certain parameters, the water quality criteria have
been established at levels at or below the current analytical detection limits.
Advancing technology is anticipated to allow the detection of such parameters at
increasingly lower levels. As a result, more stringent water quality criteria
and lower analytical detection limits could affect facility compliance
requirements. This may require our facilities to install additional water
treatment systems, modify operational practices or implement other wastewater
control measures, the costs of which cannot be estimated at this time.

LIABILITY FOR PREEXISTING CONDITIONS AND REMEDIATIONS

In connection with our acquisition of facilities, we, with a few
exceptions, assumed liability for preexisting conditions, including some ongoing
remediations. Funds for carrying out identified remediations have been included
in our planning for future funding requirements, and we are not currently aware
of any environmental condition at any of our facilities that we expect to have a
material adverse effect on our financial position, results of operations or cash
flows.

We are responsible for the costs of closing a number of active ash and
related waste disposal sites associated with certain of our facilities, located
in Pennsylvania. A number of such sites have already been closed (for which we
are responsible for long-term maintenance costs), some will be closed within the
next five years, and the remainder are anticipated to be closed thereafter. We
have estimated that the total cost of our share to close these active sites
(including future maintenance costs at closed sites) is approximately $29
million with $6 million estimated in years 2003 through 2007.

Under the New Jersey Industrial Site Recovery Act, owners and operators of
industrial properties are responsible for performing all necessary remediation
at a facility prior to the closing of the facility and the termination of
operations, or ensuring that in connection with the transfer of such a facility
the property will be remediated after the closing of the facility and the
termination of operations. We have responsibility for costs relating to the
transfer of four New Jersey properties we purchased from Sithe Energies, Inc. We
estimate that the remaining costs to fulfill our obligations under the act will
be approximately $8 million, which we expect to pay out through 2007. However,
these remedial activities are

still in the early stage. Following further investigation the scope of the
necessary remedial work could increase and we could, as a result, incur greater
costs.

One of our Florida generation facilities discharges wastewater to
percolation ponds, which in turn, percolate into the groundwater. Elevated
levels of vanadium and sodium have been detected in groundwater monitoring
wells. A noncompliance letter was received in 1999 from the Florida Department
of Environmental Protection. In response to that letter, a study to evaluate the
cause of the elevated constituents was undertaken and operational procedures
were modified. At this time, if remediation is required, the cost, if any, is
not anticipated to be material.

Our subsidiary, Orion Power, is liable under the terms of a consent order
issued in 2000 with NYSDEC for past releases of petroleum and other substances
at two of its generation facilities. Based on investigations by third-party
consultants and current engineering assessments, we have developed remediation
plans for both facilities. As of September 30, 2003, we have recorded the
estimated liability for the remediation costs of $7 million, which we expect to
pay out through 2006.

As a result of their age, many of our facilities contain significant
amounts of asbestos insulation, other asbestos containing materials, as well as
lead-based paint. Existing state and federal rules require the proper management
and disposal of these potentially toxic materials. We have developed a
management plan that includes proper maintenance of existing non-friable
asbestos installations, and removal and abatement of asbestos containing
materials where necessary because of maintenance, repairs, replacement or damage
to the asbestos itself. We have planned for the proper management, abatement and
disposal of asbestos and lead-based paint at our facilities in our financial
planning.

Under CERCLA and similar state laws, owners and operators of facilities
from or at which there has been a release or threatened release of hazardous
substances, together with those who have transported or arranged for the
disposal of those substances, are liable for the costs of responding to that
release or threatened release, and the restoration of natural resources damaged
by any such release. We are not aware of any liabilities under the act that
would have a material adverse effect on our results of operations, financial
position or cash flows.

LEGAL PROCEEDINGS

On December 1, 2003 Enron North America Corp. (ENA), a subsidiary of Enron
Corp., filed a complaint in the United States Bankruptcy Court for the Southern
District of New York seeking recovery of $85 million from Reliant Energy
Services. ENA alleges that a series of related natural gas financial swap
transactions executed by and among ENA, Reliant Energy Services and the Bank of
Montreal on November 5, 2001, resulted in setoffs against debts with ENA which
should be invalidated under the preference, setoff and fraudulent conveyance
provisions of the Bankruptcy Code. ENA has also sued the Bank of Montreal and is
seeking recovery of $80 million. When we are formally served with the notice of
the complaint, we intend to vigorously contest the recovery sought. The outcome
of this litigation cannot be predicted at this time.

For a discussion regarding additional legal proceedings affecting us, see
note 13(a) to our interim financial statements and our Current Report on Form
8-K dated November 26, 2003, each of which are incorporated by reference herein.

EMPLOYEES

As of December 10, 2003, we had 5,286 full-time employees. Of these
employees, 1,442 are covered by collective bargaining agreements. The collective
bargaining agreements expire on various dates until May 14, 2007. The following
table sets forth the number of our employees by business segment as of December
10, 2003:

SEGMENT NUMBER
------- ------

Retail energy............................................... 1,784
Wholesale energy............................................ 2,924
Other operations............................................ 578
-----
Total..................................................... 5,286
=====

PROPERTIES

During 2003, we relocated our corporate offices to approximately 520,000
square feet of leased space in downtown Houston. The lease term expires in 2018,
subject to two five-year renewal options. In addition to the corporate
headquarters, we lease another 400,000 square feet of office space in the
greater Houston area with various lease terms.

In addition to office space in Houston, we lease or own real property and
facilities around the country. These properties support a combination of retail
and wholesale activities. Our principal generation facilities are described
under "-- Wholesale Energy." We believe we have satisfactory title to our
facilities in accordance with standards generally accepted in the electric power
industry, subject to exceptions, which, in our opinion, would not have a
material adverse effect on the use or value of the facilities.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers, including their ages as of December
5, 2003, are as follows:

NAME AGE PRESENT POSITION
---- --- ----------------

Joel V. Staff.......................... 59 Chairman and Chief Executive Officer
Robert W. Harvey....................... 48 Executive Vice President and Group
President -- Wholesale Business
Mark M. Jacobs......................... 41 Executive Vice President and Chief
Financial Officer
Jerry J. Langdon....................... 51 Executive Vice President and Chief
Administrative Officer
Michael L. Jines....................... 45 Senior Vice President, General Counsel
and Corporate Secretary
Thomas C. Livengood.................... 48 Vice President and Controller
Laree E. Perez......................... 50 Director
William L. Transier.................... 49 Director
E. William Barnett..................... 70 Director
Donald J. Breeding..................... 68 Director
Kirbyjon H. Caldwell................... 50 Director
Steven L. Miller....................... 58 Director

JOEL V. STAFF is our Chairman and Chief Executive Officer. Mr. Staff was
appointed Chairman and Chief Executive Officer in April 2003. Until May 2002, he
was with National-Oilwell, Inc., where he served as chairman, president and
chief executive officer from July 1993 until May 2001 and as executive chairman
from May 2001 until May 2002. Previously, Mr. Staff spent 17 years with Baker
Hughes, Inc. where he held various financial and general management positions,
including senior vice president of the parent company and president of both the
drilling and production groups. Mr. Staff serves on the board of directors of
National-Oilwell, Inc. where he is a member of its executive committee and Ensco
International, Incorporated, where he is a member of its audit committee.

ROBERT W. HARVEY is our Executive Vice President and Group
President -- Wholesale Business. Prior to being appointed to such position in
May 2003, he served as our Executive Vice President and Group
President -- Retail Business. Mr. Harvey served as Vice Chairman of CenterPoint
from June 1999 until the Distribution. From 1982 to 1999, Mr. Harvey was
employed with the Houston office of McKinsey & Co., Inc. He was a director
(senior partner) and was the leader of the firm's North American electric power
and natural gas practice.

MARK M. JACOBS is our Executive Vice President and Chief Financial Officer.
Mr. Jacobs served as Executive Vice President and Chief Financial Officer of
CenterPoint from July 2002 until the Distribution. From 1989 to 2002, Mr. Jacobs
was employed by Goldman, Sachs & Co. He was a Managing Director in the firm's
Natural Resources Group.

JERRY J. LANGDON has served as our Executive Vice President and Chief
Administrative Officer since May 2003. Mr. Langdon served as president of EPGT
Texas Pipeline, L.P. from June 2001 until May 2003. He served as the Managing
Partner and Chief Operating Officer of CARLANG Partners, L.P. from September
1999 until November 2001 and the President of Republic Gas Corporation from June
1993 until June 2001. In October 1988, Mr. Langdon was appointed by President
Reagan to be a Commissioner to the Federal Energy Regulatory Commission, where
he served until 1993. He has served as a director on the Gas Industry Standards
Board (now the North American Energy Standards Board) since 1999 and is Chairman
of the National Petroleum Council Coordinating Subcommittee. Mr. Langdon has
served as an advisory director of Highland Energy Company since 1998, an
advisory director of DLJ Global Energy

Partners from 1999 until 2000 and a director of Costilla Energy Inc., Quanta
Services, Inc. and Midcoast Energy, Inc. at various times from June 1996 to
February 2002.

MICHAEL L. JINES is our senior vice president, corporate secretary and
general counsel. Until mid-2003, he was our deputy general counsel and senior
vice president and general counsel of our Wholesale Group. Until the
Distribution, Mr. Jines served as deputy general counsel of CenterPoint and
senior vice president and general counsel of Reliant Resources' Wholesale Group.
He joined CenterPoint in 1982.

THOMAS C. LIVENGOOD is our Vice President and Controller. Prior to joining
us in August 2002, he served as Executive Vice President and Chief Financial
Officer of Carriage Services, Inc., a publicly traded consumer services company,
since 1996. From 1991 to 1996, he served as Vice President and Chief Financial
Officer of Tenneco Energy Company, a division of Tenneco, Inc.

LAREE E. PEREZ has been a Director of Reliant Resources since April 2002.
Ms. Perez is an independent financial consultant in Albuquerque, New Mexico with
The Medallion Company. From February 1996 until September 2002, she was Vice
President of Loomis, Sayles & Company, L.P. Ms. Perez was co-founder, president
and chief executive officer of Medallion Investment Company, Inc. from November
1991 until it was acquired by Loomis Sayles in 1996.

WILLIAM L. TRANSIER has been a Director of Reliant Resources since December
2002. Mr. Transier served as executive vice president and chief financial
officer of Ocean Energy, Inc. from March 1999 until April 2003. Mr. Transier has
served as co-chief executive officer of North Sea New Ventures, LLC since
October 2003. From September 1998 to March 1999, he served as executive vice
president and chief financial officer of Seagull Energy Corporation. From May
1996 to September 1998, he served as senior vice president and chief financial
officer of Seagull Energy Corporation. Mr. Transier is also a director of Cal
Dive International, Inc. and chairman of its audit committee.

E. WILLIAM BARNETT has been a Director of Reliant Resources since October
2002. Mr. Barnett is a retired partner and currently senior counsel with Baker
Botts LLP. He began practicing law with Baker Botts in 1958 and served as
managing partner from 1984 through the end of 1997. He serves on the board of
directors of numerous educational, health care and community organizations
including chairman of the board of trustees of Rice University and life trustee
of The University of Texas Law School Foundation.

DONALD J. BREEDING has been a Director of Reliant Resources since October
2002. Mr. Breeding has been president and chief executive officer of Airline
Management, LLC, engaged in aviation and airline consulting, since 1997. From
1992 to 1997, he was president and chief executive officer of Continental
Micronesia, a majority-owned subsidiary of Continental Airlines. From 1988 to
1992, he was senior vice president of operations for Continental Airlines with
responsibility for all flying operations activities of the company and
responsibility for Continental Express. Mr. Breeding serves as a member of the
board of directors of Pinnacle Airlines, Inc. and Miami Air International.

KIRBYJON H. CALDWELL has been a Director of Reliant Resources since August
2003. Reverend Caldwell has been the senior pastor of Windsor Village United
Methodist Church since June 1982. Reverend Caldwell has served as a director of
Continental Airlines, Inc. since 1999. He also serves on the board of directors
of numerous corporate, educational, health care and community organizations,
including J.P. Morgan Chase Bank Houston, The Greater Houston Partnership,
Memorial Hermann Health Care System and Baylor College of Medicine.

STEVEN L. MILLER has been a Director of Reliant Resources since August
2003. Mr. Miller is chairman and president of SLM Discovery Ventures, Inc.,
engaged in commercial ventures in support of volunteerism, social outreach, and
higher education and academic achievement. He is also chairman of Momentum Bio
Ventures, Inc., a venture capital and management services company focused on
biotechnology and life sciences opportunities in southeast Texas. Prior to his
retirement in September 2002, Mr. Miller served as chairman of the board of
directors, president and chief executive officer of Shell Oil Company. Mr.
Miller serves as a director of Applied Materials, Inc.

DESCRIPTION OF NOTES

RRI issued the notes under an indenture, dated as of June 24, 2003, between
itself and Wilmington Trust Company, as trustee, in a private transaction that
was not subject to the registration requirements of the Securities Act. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended.

The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. Copies of the indenture and the
registration rights agreement have been filed as exhibits to the registration
statement of which this prospectus is a part.

The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture. In this
description, when we refer to "RRI," "we," "our" or "us," we are referring to
Reliant Resources, Inc. and not any of its current and future subsidiaries,
unless the context otherwise requires.

BRIEF DESCRIPTION OF THE NOTES

The notes are limited to $275,000,000 in aggregate principal amount. The
notes will mature on August 15, 2010, and will be payable at a price of 100% of
the principal amount of the notes. The notes will bear interest at the interest
rate of 5.00% per year from June 24, 2003. We will pay interest semi-annually on
February 15 and August 15 of each year, commencing on August 15, 2003.

The notes are general unsecured obligations of RRI and are subordinated to
all of our current and future senior debt, and are pari passu in right of
payment with any future senior subordinated indebtedness of RRI. The notes are
also effectively subordinated in right of payment to all indebtedness and other
liabilities, including trade payables, of our subsidiaries. Neither we nor our
subsidiaries are restricted from incurring additional indebtedness or providing
guarantees of indebtedness under the indenture. The indenture does not impose
any financial or similar covenants on us or our subsidiaries. All future
indebtedness of RRI will be treated as senior to these notes unless that future
indebtedness states that it is not senior to these notes.

You may convert the notes into shares of our common stock initially at the
conversion rate of 104.8108 shares of common stock per each $1,000 principal
amount of notes, subject to adjustment in certain circumstances, at any time
before the close of business on the maturity date, unless the notes have been
previously redeemed or repurchased. Holders of notes called for redemption or
submitted for repurchase upon a change in control will be entitled to convert
the notes up to and including the close of business on the business day
immediately preceding the date fixed for redemption or repurchase, as the case
may be. The conversion rate may be adjusted as described below under
"-- Conversion Rights."

We may redeem the notes at our option at any time on or after August 20,
2008 in whole or in part, if the last reported sale price of our common stock is
at least 125% of the then effective conversion price for at least 20 trading
days within a period of 30 consecutive trading days ending on the trading day
before the date of the redemption notice at the redemption prices set forth
below under "-- Optional Redemption by RRI," plus accrued and unpaid interest
to, but excluding, the redemption date. We will therefore be required to make at
least ten interest payments on the notes before being able to redeem the notes.
If we experience a change in control, you will have the right to require us to
repurchase your notes as described below under "-- Repurchase at Option of
Holders Upon a Change in Control."

FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES

The notes were issued:

- only in fully registered form;

- without interest coupons; and

- in denominations of $1,000 and multiples of $1,000.

The notes are evidenced by one or more global notes, which was deposited
with the trustee as custodian for DTC and registered in the name of Cede & Co.,
as nominee of DTC. The global note issued during the offering of the notes and
any notes issued in exchange for the global note are subject to restrictions on
transfer and bear a legend regarding such restrictions. The notes that are
resold under this prospectus will be represented by a new unrestricted global
note. Upon issuance of this global note, DTC will credit the accounts of persons
holding through it with the respective principal amounts of the notes
represented by the new unrestricted global note. Except as set forth below,
record ownership of the global note may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee.

The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
DTC or its nominee unless one of the following occurs:

- DTC notifies us that it is unwilling, unable or no longer qualified to
continue acting as the depositary for the global note; or

- an event of default with respect to the notes represented by the global
note has occurred and is continuing; or

- we decide to discontinue use of the system of book-entry transfer through
DTC or any successor depositary.

In those circumstances, DTC will determine in whose names any securities
issued in exchange for the global note will be registered.

DTC or its nominee is considered the sole owner and holder of the global
note for all purposes, and as a result:

- you cannot have notes registered in your name if they are represented by
the global note;

- except as described above, you cannot receive physical certificated notes
in exchange for your beneficial interest in the global note;

- you will not be considered to be the owner or holder of the global note
or any note it represents for any purpose; and

- all payments on the global note will be made to DTC or its nominee.

The laws of some jurisdictions require that certain kinds of purchasers,
such as insurance companies, can only own securities in definitive certificated
form. These laws may limit your ability to transfer your beneficial interests in
the global note to these types of purchasers.

Only institutions, such as a securities broker or dealer, that have
accounts with DTC or its nominee (called participants) and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made will be on the records kept by DTC (for each participants' interests) and
the records kept by those participants (for interests of persons held by
participants on their behalf).

Secondary trading in bonds and notes of corporate issuers is generally
settled in clearinghouse (that is, next-day) funds. In contrast, beneficial
interests in global notes usually trade in DTC's same-day funds

settlement system, and settle in immediately available funds. We make no
representations as to the effect that settlement in immediately available funds
will have on trading activity in those beneficial interests.

We will make cash payments of interest, principal, redemption price or
repurchase price of the global note, as well as any payment of special interest,
to the trustee for payment on to Cede & Co., the nominee for DTC, as the
registered owner of the global note. We will make these payments by wire
transfer of immediately available funds on each payment date.

We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in street
name.

We will send any redemption or repurchase notices to Cede. We understand
that if less than all the notes are being redeemed, DTC's practice is to
determine by lot the amount of the holdings of each participant to be redeemed.

We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an omnibus proxy to us as soon as possible after the record date. The
omnibus proxy assigns Cede's consenting or voting rights to those participants
to whose accounts the notes are credited on the record date identified in a
listing attached to the omnibus proxy.

Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge such
interest to persons or entities that do not participate in the DTC book-entry
system, or otherwise take actions in respect of that interest, may be affected
by the lack of a physical certificate evidencing its interest.

DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange) only at the
direction of one or more participants to whose account with DTC interests in the
global note are credited, and only in respect of such portion of the principal
amount of the notes represented by the global note as to which such participant
or participants has or have given such direction.

DTC has also advised us as follows:

- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the Uniform Commercial Code, as
amended, and a clearing agency registered pursuant to the provisions of
Section 17A of the Exchange Act;

- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants;

- Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations;

- Certain participants, or their representatives, together with other
entities, own DTC; and

- Indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.

The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. We and the trustee

have no responsibility or liability for any aspect of DTC's or any participants'
records relating to beneficial interests in the global note, including for
payments made on the global note. Further, we and the trustee are not
responsible for maintaining, supervising or reviewing any of those records.

CONVERSION RIGHTS

You have the option to convert any portion of the principal amount of any
note that is an integral multiple of $1,000 into shares of our common stock at
any time on or prior to the close of business on the maturity date, unless the
notes have been previously redeemed or repurchased. The initial conversion rate
is equal to 104.8108 shares per $1,000 in principal amount of notes, as shown on
the cover page of this prospectus. The conversion rate is equivalent to a
conversion price of approximately $9.54 per share. The conversion rate is
subject to adjustment as described below. Your right to convert a note called
for redemption or delivered for repurchase will terminate at the close of
business on the business day immediately preceding the redemption date or
repurchase date for that note, unless we default in making the payment due upon
redemption or repurchase.

You may convert all or part of any note by delivering the note at the
office or agency of the trustee in the Borough of Manhattan, The City of New
York, accompanied by a duly signed and completed conversion notice, a copy of
which may be obtained from the trustee. The conversion date will be the date on
which the note and the duly signed and completed conversion notice are so
delivered. Beneficial owners of an interest in a global security may exercise
their right of conversion pursuant to DTC's conversion program. This notice of
conversion can be obtained at the office of the conversion agent. The conversion
date will be the date on which the note and the duly signed and completed notice
of conversion are delivered.

As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of our common stock issuable upon conversion, together with a cash
payment in lieu of any fraction of a share. The certificate or certificates will
then be sent by the trustee to the conversion agent for delivery to the holders.
The shares of our common stock issuable upon conversion of the notes will be
fully paid and nonassessable and will be of the same class as the shares of our
common stock that are currently outstanding.

If you surrender a note for conversion on a date that is not an interest
payment date, you will not be entitled to receive any interest for the period
from the immediately preceding interest payment date to the conversion date,
except as described below in this paragraph. However, if you are a holder of a
note on a regular record date, including a note surrendered for conversion after
the regular record date, you will receive the interest payable on such note on
the next succeeding interest payment date. Accordingly, to correct for the
resulting overpayment of interest, any note surrendered for conversion during
the period from the close of business on a regular record date to the opening of
business on the next succeeding interest payment date must be accompanied by
payment of an amount equal to the interest payable on such interest payment date
on the principal amount of notes being surrendered for conversion. However, you
will not be required to make that payment if you are converting a note, or a
portion of a note, that we have called for redemption, or that you are entitled
to require us to repurchase from you upon a change in control, if your
conversion right would terminate because of the redemption or repurchase between
the regular record date and the close of business on the next succeeding
interest payment date.

No other payment or adjustment for interest, or for any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash for such fractional shares based on
the market price of our common stock at the close of business on the conversion
date.

You will not be required to pay any taxes or duties relating to the issue
or delivery of our common stock on conversion but you will be required to pay
any tax or duty relating to any transfer involved in the issue or delivery of
our common stock in a name other than that of the holder of the note.
Certificates
71

representing shares of common stock will not be issued or delivered unless all
taxes and duties, if any, payable by you have been paid.

The conversion rate is subject to adjustment for, among other things:

- dividends and other distributions payable in our common stock on shares
of our common stock;

- the issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase our common stock at
less than the then current market price of such common stock as of the
record date for shareholders entitled to receive such rights, options or
warrants, provided that the conversion rate will be readjusted to the
extent any of these rights, options or warrants are not exercised prior
to their expiration;

- subdivisions, combinations and reclassifications of our common stock;

- distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock, cash or assets, including
securities, but excluding:

- those dividends, distributions, rights, options and warrants referred to
above;

- dividends or distributions paid exclusively in cash; and

- distributions upon mergers or consolidations referred to below;

- distributions consisting exclusively of cash (excluding any cash
distributed upon a merger or consolidation referred to below) to all
holders of common stock in an aggregate amount that, combined together
with:

- other such all-cash distributions made within the preceding 12 months in
respect of which no adjustment has been made; and

- any cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for our
common stock concluded within the preceding 12 months in respect of
which no adjustment has been made,

exceeds 1.0% of our market capitalization (for this purpose being the
product of the current market price per share of common stock on the
record date for such distribution multiplied by the number of shares of
common stock outstanding) on such date; and

- the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with:

- any cash and the fair market value of other consideration payable in a
tender offer by us or any of our subsidiaries for common stock expiring
within the 12 months preceding the expiration of such tender offer in
respect of which no adjustment has been made; and

- the aggregate amount of any such all-cash distributions referred to
above to all holders of our common stock within the 12 months preceding
the expiration of such tender offer in respect of which no adjustments
have been made,

exceeds 1.0% of our market capitalization (for this purpose being the
product of the current market price per share of common stock as of the
last time tenders could have been made pursuant to such tender offer
multiplied by the number of shares of common stock outstanding) on the
expiration of such tender offer.

We will not make any adjustment for any transaction if the holders of the
notes actually participate in such transaction on an equal and ratable basis.

To the extent that we have a rights plan in effect upon conversion of the
notes into common stock, the holder will receive, in addition to the common
stock, the rights under the rights plan whether or not the rights have separated
from the common stock at the time of conversion, subject to limited exceptions,
and no adjustments to the conversion rate will be made, except in limited
circumstances.
72

We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order to avoid or diminish any income tax to the holder of common
stock resulting from stock distribution. We will not be required to make any
adjustment to the conversion rate until the cumulative adjustments amount to
1.0% or more of the conversion rate (except in the case of a cash dividend). We
will compute all adjustments to the conversion rate and will give notice by mail
to holders of the registered notes of any such adjustments.

If we merge or consolidate with another person or sell or transfer all or
substantially all of our assets, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
common stock into which the note was convertible immediately prior to the
merger, consolidation or sale. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a merger that does not result in any
reclassification, conversion, exchange or cancellation of our common stock.

We may temporarily increase the conversion rate for any period of at least
20 days if our board of directors determines that the increase would be in our
best interest. The board of directors' determination in this regard will be
conclusive. We will give holders of notes at least 15 days' notice of such an
increase in the conversion rate. Any such increase, however, will not be taken
into account for purposes of determining whether the closing price of our common
stock exceeds the conversion price by 110% in connection with an event that
otherwise would be a change in control as defined below.

MERGERS AND SALES OF ASSETS BY RRI

We may not, directly or indirectly, consolidate with or merge into any
other person or convey, transfer, sell or lease our properties and assets
substantially as an entirety to any person, other than to one or more of our
subsidiaries, unless:

- the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so conveyed,
transferred, sold or leased, shall be a corporation organized and
existing under the laws of the United States, any State within the United
States or the District of Columbia and, if we are not the surviving
person, the surviving person assumes the payment of the principal of,
premium, if any, and interest on the notes (including special interest,
if any) and the performance of our other covenants under the indenture
pursuant to an agreement reasonably satisfactory to the trustee; provided
that if the person formed by or surviving any such consolidation or
merger with us is not a corporation, a corporate co-issuer shall also be
an obligor with respect to the convertible notes, and

- immediately after giving effect to the transaction, no event of default,
and no event that, after notice or lapse of time or both, would become an
event of default, shall have occurred and be continuing.

In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions to any
person, other than to one or more of our subsidiaries.

SUBORDINATION

The indebtedness evidenced by the notes is subordinated to the extent
provided in the indenture to the prior payment in full of all our senior debt
(as defined below). In the event of our insolvency, bankruptcy, receivership,
liquidation, reorganization, debt restructuring or similar proceeding or
liquidation, dissolution or winding up or any assignment for the benefit of
creditors or marshalling of assets and liabilities, payments on the notes will
be subordinated in right of payment to the prior payment in full in cash of all
senior debt. As a result of these subordination provisions, in the event of our
liquidation, insolvency or any similar event described above, holders of senior
debt may receive more, ratably, and holders of the notes may receive less,
ratably, than our other creditors. In the event of any acceleration of

the notes because of an event of default, holders of any senior debt would be
entitled to payment in full in cash of all senior debt before the holders of
notes are entitled to receive any payment or distribution. We are required to
promptly notify holders of senior debt if payment of the notes is accelerated
because of an event of default.

We may also not make payment of principal, interest or other amounts on the
notes or redeem or repurchase the notes if any of the following occurs:

- a default in the payment of the principal, interest or other amounts on
designated senior debt (as defined below) occurs;

- any other default on designated senior debt occurs and the maturity of
such designated senior debt is accelerated; or

- any other default (other than the ones specified above) occurs and is
continuing with respect to designated senior debt that permits holders or
their representatives of designated senior debt to accelerate its
maturity, and the trustee receives a payment blockage notice from us or
some other person permitted to give the payment blockage notice under the
indenture.

The foregoing prohibitions regarding payments on the notes shall end:

- in case of a prohibition based on a payment default or a nonpayment
default where the maturity of such designated senior debt is accelerated,
when all amounts in respect of such designated senior debt have been paid
in full in cash or the default is cured, waived or ceases to exist and
any acceleration has been rescinded; and

- in case of a prohibition based on a nonpayment default (other than the
ones specified above), 179 days after the receipt of the payment blockage
notice, unless (1) earlier terminated by the written notice of the person
who gave the payment blockage notice, (2) all amounts on the designated
senior debt have been paid in full in cash or (3) the default giving rise
to the payment blockage notice is cured, waived or ceases to exist,
unless the designated senior debt has been accelerated.

No new payment blockage period based on a nonpayment default may start
unless 360 days have elapsed since the effectiveness of the prior payment
blockage notice. No nonpayment default that existed or was continuing on the
date of delivery of any payment blockage notice to the trustee may be the basis
for a subsequent payment blockage notice, unless such default has been cured or
waived for a period of at least 90 days. The subordination provisions will not
prevent the occurrence of any event of default under the indenture. If the
trustee or any holder receives any payment that should not have been made to it
in contravention of subordination provisions before all senior debt is paid in
full in cash, then such payment will be held in trust for the holders of senior
debt.

"designated senior debt" means any and all indebtedness outstanding under
our credit agreement and our obligations under any particular senior debt having
an aggregate principal amount in excess of $50,000,000 in which the instrument
creating or evidencing the same or the assumption or guarantee thereof, or
related agreements to which we are a party, expressly provides that such senior
debt shall be "designated senior debt" for purposes of the indenture. The
instrument, agreement or other document evidencing such designated senior debt
may place limitations and conditions on the right of such senior debt to
exercise the rights of designated senior debt.

"senior debt" means, as to any person:

- all indebtedness for money borrowed, for reimbursement of drawings under
letters of credit and all hedging obligations unless the instrument under
which such indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes;

- any and all indebtedness and obligations outstanding under our credit
agreement; and

- any deferrals, renewals, refinancings, replacements or extensions of any
of the above.

Notwithstanding anything to the contrary in the preceding, senior debt will
not include:

- any liability for federal, state, local or other taxes owed or owing by
RRI;

- any intercompany Indebtedness of RRI to any of its affiliates; or

- any trade payables.

The notes are structurally subordinated to all indebtedness and other
liabilities, including trade payables, of our subsidiaries. Our right to receive
any assets of our subsidiaries upon their liquidation or reorganization, and
your consequent right to participate in those assets, will be effectively
subordinated to the claims of the subsidiary's creditors, including trade
creditors, except to the extent that we are recognized as a creditor of such
subsidiary. Even in the event that we are recognized as a creditor of one our
subsidiaries, our claims would still be subordinate to any security interest in
the assets of the subsidiary and any indebtedness of such subsidiary senior to
that held by us.

As of September 30, 2003, we had approximately $4.4 billion of indebtedness
and other liabilities that would have constituted senior debt.

Neither we nor our subsidiaries are limited or prohibited from incurring
senior debt or any other indebtedness or liabilities under the indenture. We
expect from time to time to incur additional indebtedness and other liabilities,
including senior debt. We also expect that our subsidiaries may from time to
time incur additional indebtedness and other liabilities.

OPTIONAL REDEMPTION BY RRI

On or after August 20, 2008, we may redeem the notes, in whole or in part,
if the last reported sale price of our common stock is at least 125% of the then
effective conversion price for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day before the date of the
redemption notice at the redemption prices set forth below. If we elect to
redeem all or part of the notes, we will give at least 30, but no more than 60,
days' prior notice to you.

The redemption price, expressed as a percentage of principal amount, is as
follows for the following periods:

REDEMPTION
PERIOD PRICE
------ ----------

Beginning on August 20, 2008 and ending on August 14,
2009...................................................... 101.429%
Beginning on August 15, 2009 and ending on August 14,
2010...................................................... 100.714%

and thereafter at 100% of the principal amount. In each case, we will pay
accrued and unpaid interest (including special interest) to, but excluding, the
redemption date.

If we do not redeem all of the notes, the trustee will select the notes to
be redeemed in principal amounts of $1,000 or whole multiples of $1,000 by lot
or on a pro rata basis. If any notes are to be redeemed in part only, we will
issue a new note or notes in principal amount equal to the unredeemed principal
portion thereof. If a portion of your notes is selected for partial redemption
and you convert a portion of your notes, the converted portion will be deemed to
be taken from the portion selected for redemption.

No sinking fund is provided for the notes, which means that the indenture
does not require us to redeem or retire the notes periodically.

PAYMENT AND CONVERSION

We will make all payments of principal and interest (including special
interest) on the notes by dollar check. If you hold registered notes with a face
value greater than $2,000,000, at your request we will make payments of
principal or interest to you by wire transfer to an account maintained by you at
a bank in The City of New York. Payment of any interest on the notes will be
made to the person in whose name the

note, or any predecessor note, is registered at the close of business on
February 1 or August 1, whether or not a business day, immediately preceding the
relevant interest payment date (a "regular record date"). If you hold registered
notes with a face value in excess of $2,000,000 and you would like to receive
payments by wire transfer, you will be required to provide the trustee with wire
transfer instructions at least 15 days prior to the relevant payment date.

Payments on any global note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee in its capacity as the
registered holder under the indenture. Under the terms of the indenture, we and
the trustee will treat the persons in whose names the notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither we, the trustee nor any of our
agents or the trustee's agents has or will have any responsibility or liability
for:

- any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interests in the global note, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial ownership
interests in the global note; or

- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.

We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.

Notes may be surrendered for conversion at the office or agency of the
trustee in the Borough of Manhattan, New York. Notes surrendered for conversion
must be accompanied by appropriate notices and any payments in respect of
interest or taxes, as applicable, as described above under "-- Conversion
Rights."

We have initially appointed the trustee as registrar, paying agent and
conversion agent. We may terminate the appointment of the registrar or any
paying agent or conversion agent and appoint an additional registrar or
additional or other paying agents and conversion agents. However, until the
notes have been delivered to the trustee for cancellation, or moneys sufficient
to pay the principal of, premium, if any, and interest on the notes have been
made available for payment and either paid or returned to us as provided in the
indenture, the trustee will maintain an office or agency in the Borough of
Manhattan, New York for surrender of notes for conversion. Notice of any
termination or appointment and of any change in the office through which the
registrar or any paying agent or conversion agent will act will be given in
accordance with "-- Notices" below.

All moneys deposited with the trustee or any paying agent, or then held by
us, in trust for the payment of principal of, premium, if any, or interest
(including special interest) on any notes which remain unclaimed at the end of
two years after the payment has become due and payable will be repaid to us, and
you will then look only to us for payment.

REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL

If a change in control (as defined below) occurs, you will have the right,
at your option, to require us to repurchase all of your notes not previously
called for redemption, or any portion of the principal amount thereof, that is
$1,000 or an integral multiple of $1,000. We will repurchase the notes upon a
change in control at a price equal to 100% of the principal amount of the notes
to be repurchased, together with accrued and unpaid interest to, but excluding,
the repurchase date.

At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price, in whole or in part, in our common stock (or in the case
of a merger, consolidation or similar transaction in which we are not the
surviving corporation, common stock, common equity interests, ordinary shares or

American Depository Shares of the surviving corporation or its direct or
indirect parent corporation) valued at 95% of the average of the closing prices
of our common stock for the five trading days immediately preceding the second
trading day prior to the repurchase date. We may only pay the repurchase price
in our common stock or applicable securities if we satisfy conditions provided
in the indenture.

Within 30 days after the occurrence of a change in control, we are
obligated to give to you notice of the occurrence of the change in control, of
the type of consideration to be paid and of the repurchase right arising as a
result of the change in control. We must also deliver a copy of this notice to
the trustee. To exercise the repurchase right, you must deliver on or before the
second business day immediately preceding the 20th day after the date of our
notice a written notice to the trustee of your exercise of your repurchase
right, together with the notes with respect to which the right is being
exercised. You may withdraw this notice by delivering to the trustee a notice of
withdrawal prior to the close of business on the second business day immediately
preceding the repurchase date. We are required to repurchase the notes
surrendered for repurchase on a repurchase date that is 20 days after our
notice.

Because the value of any shares of our common stock that we may use to
satisfy our repurchase obligation will be determined prior to the repurchase
date, holders of the notes bear the market risk that our common stock will
decline in value between the date the repurchase price is calculated and the
repurchase date.

A change in control means the occurrence of any of the following:

(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of RRI and its subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d) of the Exchange Act, but
excluding any employee benefit plan of RRI or any of its subsidiaries, and
any person or entity acting in its capacity as trustee, agent or other
fiduciary or administrator of any such plan);

(2) the adoption of a plan relating to the liquidation or dissolution
of RRI other than (i) the consolidation with, merger into or transfer of
all or part of the properties and assets of any of our subsidiaries to us
or any of our other subsidiaries and (ii) the merger of us with an
affiliate solely for the purpose of our re-incorporating or our re-forming
in another jurisdiction;

(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the beneficial owner, directly or
indirectly, of more than 50% of the voting stock of RRI, measured by voting
power rather than number of shares;

(4) the first day on which a majority of the members of the board of
directors of RRI are not continuing directors;

(5) RRI consolidates with, or merges with or into, any person, or any
person consolidates with, or merges with or into, RRI, in any such event
pursuant to a transaction in which any of the outstanding voting stock of
RRI or such other person is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
voting stock of RRI outstanding immediately prior to such transaction is
converted into or exchanged for voting stock (other than disqualified
stock) of the surviving or transferee person constituting a majority of the
outstanding shares of such voting stock of such surviving or transferee
person (immediately after giving effect to such issuance); or

(6) a termination of listing, which means that the common stock is
neither listed for trading on a United States national securities exchange
nor quoted on the Nasdaq National Market.

However, a change in control shall not be deemed to have occurred if
either:

- the closing price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of the change in control or the public announcement of the
change in control (in the case of a change in control under clause (3)
above) or the period of 10 consecutive trading days ending immediately
before the change in control (in the case of a change in control under
clause (5) above) shall equal or exceed 110% of the conversion price of
the notes in effect on each such trading day; or

- all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in a
merger or consolidation otherwise constituting a change in control
described in clause (3) and/or clause (5) above consists of shares of
common stock, depositary receipts or other certificates representing
common equity interests traded on a national securities exchange or
quoted on the Nasdaq National Market, or will be so traded or quoted
immediately following such change in control, and as a result of such
transaction or transactions the notes become convertible solely into such
common stock, depositary receipts or other certificates representing
common equity interests.

For purposes of these provisions:

- whether a person is a "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Exchange Act;

- "voting stock" of any person as of any date means the capital stock of
such person that is at the time entitled to vote in the election of the
board of directors of such person;

- "capital stock" means: (1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock; (3) in the case of a partnership or
limited liability company, partnership interests (whether general or
limited) or membership interests; and (4) any other interest or
participation that confers on a person the right to receive a share of
the profits and losses of, or distributions of assets of, the issuing
person, but excluding from all of the foregoing any debt securities
convertible into capital stock, whether or not such debt securities
include any right of participation with capital stock;

- "disqualified stock" means any capital stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it
is exchangeable, in each case, at the option of the holder of the capital
stock), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder of the capital stock, in whole or
in part, on or prior to the date that is 91 days after the date on which
the notes mature. Notwithstanding the preceding sentence, any capital
stock that would constitute disqualified stock solely because the holders
of the capital stock have the right to require RRI to repurchase such
capital stock upon the occurrence of a change of control or an asset sale
will not constitute disqualified stock. The amount of disqualified stock
deemed to be outstanding at any time for purposes of the indenture shall
be equal to the maximum amount that RRI and its subsidiaries may become
obligated to pay upon the maturity of, or pursuant to any mandatory
redemption provisions of, such disqualified stock, exclusive of accrued
dividends.

- "board of directors" means: (1) with respect to a corporation, the board
of directors of the corporation or any committee thereof duly authorized
to act on behalf of such board; (2) with respect to a partnership, the
board of directors of the general partner of the partnership; (3) with
respect to a limited liability company, the managing member or members or
any controlling committee of managing members or board of directors
thereof; and (4) with respect to any other person, the board or committee
of such person serving a similar function;

- "continuing director" means, as of any date of determination, any member
of the board of directors of RRI who: (1) was a member of such board of
directors on the date of the indenture; or (2) was

nominated for election or elected to such board of directors with the
approval of a majority of the continuing directors who were members of
such board at the time of such nomination or election;

- the "conversion price" is equal to $1,000 divided by the conversion rate;
and

- "person" includes any syndicate or group which would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.

The rules and regulations under the Exchange Act require the dissemination
of prescribed information to security holders in the event of an issuer tender
offer. These rules may apply in the event that the repurchase option becomes
available to you. We will comply with these rules to the extent applicable at
that time.

We may, to the extent permitted by applicable law, at any time purchase
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us may, to the extent permitted by applicable law and,
subject to certain conditions, be reissued or resold or may, at our option, be
surrendered to the trustee for cancellation. Any notes surrendered for
cancellation may not be reissued or resold and will be canceled promptly.

Our ability to repurchase notes upon the occurrence of a change in control
is subject to limitations. We may not have sufficient financial resources or the
ability to arrange financing to pay the repurchase price in cash for all the
notes delivered by holders seeking to exercise their repurchase right. Although
our ability to repurchase the notes in cash may be limited or prohibited by the
terms of any future borrowing arrangements existing at the time of a change in
control, we may elect, subject to satisfaction of certain conditions, to pay the
repurchase price for the notes in common stock or applicable securities. Any
failure by us to repurchase the notes upon a change in control would result in
an event of default under the indenture, whether or not the repurchase is
permitted by the subordination provisions of the indenture. Any such default
may, in turn, cause a default under our senior debt. Moreover, the occurrence of
a change in control could result in an event of default under the terms of our
then existing indebtedness. As a result, any repurchase of the notes may be
prohibited until the senior debt is paid in full.

The change in control repurchase provision of the notes may, in certain
circumstances, make more difficult or discourage a takeover of our company. The
change in control repurchase feature, however, is not the result of our
knowledge or any specific effort to accumulate shares of our common stock, to
obtain control of us by means of a merger, tender offer solicitation or
otherwise by management to adopt a series of anti-takeover provisions. Instead,
the change in control purchase feature is a standard term contained in
convertible securities similar to the notes.

The definition of change in control includes a phrase relating to the
transfer or sale of all or substantially all of our assets. There is no precise,
established definition of the phrase "substantially all" under applicable law.
Accordingly, your ability to require us to repurchase your notes as a result of
a transfer or sale of less than all of our assets may be uncertain.

The foregoing provisions would not necessarily afford you protection in the
event of highly leveraged or other transactions involving us that may adversely
affect you.

EVENTS OF DEFAULT

The following are events of default under the indenture:

- we fail to pay principal of or premium, if any, on any note when due,
whether or not prohibited by the subordination provisions of the
indenture;

- we fail to pay any interest, including any special interest, on any note
when due, which failure continues for 30 days, whether or not prohibited
by the subordination provisions of the indenture;

- we fail to comply with the notice and repurchase provisions described
under "-- Repurchase at Option of Holders Upon a Change of Control,"
whether or not the notice or repurchase is

prohibited by the subordination provisions of the indenture, which
failure continues for 30 days following notice as provided in the
indenture;

- we fail to perform any agreement or other covenant in the notes or the
indenture, which failure continues for 90 days following notice as
provided in the indenture;

- we fail to pay any indebtedness under any bond, debenture, note or other
evidence of indebtedness for money borrowed by us or any of our
subsidiaries, other than (1) Reliant Energy Retail Holdings, LLC or any
subsidiary thereof in connection with a securitization transaction in
which the indebtedness incurred by such entities is non-recourse to
Reliant Resources and its other subsidiaries (2) Reliant Energy Capital
(Europe) Inc. and its subsidiaries, (3) Reliant Energy Channelview, L.P.
and its subsidiaries so long as, taken together, they would not
constitute a significant subsidiary and (4) Liberty Electric PA, LLC,
Liberty Electric Power, LLC and their respective subsidiaries so long as,
taken together, they would not constitute a significant subsidiary (or
the payment of which is guaranteed by us), in a principal aggregate
amount then outstanding in excess of $100,000,000 at final maturity
(either at its stated maturity or upon acceleration thereof), and such
indebtedness is not discharged, or such acceleration is not rescinded or
annulled, within the grace period provided in such bond, debenture, note,
or other evidence of indebtedness;

- failure by us or any of our subsidiaries, other than (1) Reliant Energy
Retail Holdings, LLC or any subsidiary thereof that has engaged in a
securitization transaction (2) Reliant Energy Capital (Europe) Inc. and
its subsidiaries, (3) Reliant Energy Channelview, L.P. and its
subsidiaries so long as, taken together, they would not constitute a
significant subsidiary and (4) Liberty Electric PA, LLC, Liberty Electric
Power, LLC and their respective subsidiaries so long as, taken together,
they would not constitute a significant subsidiary, to pay final and
non-appealable judgments aggregating in excess of $100,000,000, which are
not covered by indemnities or third-party insurance, which judgments are
not paid, discharged, vacated or stayed for a period of 60 days; and

- certain events of bankruptcy, insolvency or reorganization involving us
or any of our significant subsidiaries (other than Reliant Energy Capital
(Europe) Inc. and its subsidiaries).

Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holder, unless the holder shall
have offered and provided indemnity satisfactory to the trustee. Subject to
providing indemnification of the trustee, the holders of a majority in aggregate
principal amount of the outstanding notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee. The
trustee may withhold from holders of the notes notice of any continuing event of
default if it determines that withholding notice is in their interest, except an
event of default relating to the payment of principal, premium, if any, or
interest or special interest.

In general, the trustee is required to give notice of a default with
respect to the notes to the holders of those notes. However, the trustee may
withhold notice of any such default (except a default in payment of principal of
or interest on any note) if the trustee determines it is in the best interests
of the holders of the notes to do so.

If an event of default other than an event of default arising from events
of insolvency, bankruptcy or reorganization occurs and is continuing, either the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding notes may accelerate the maturity of all notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding notes may, under
certain circumstances, rescind and annul the acceleration if all events of
default, other than the non-payment of principal of the notes that have become
due solely by such declaration of acceleration, have been cured or waived as
provided in the indenture. If an event of default arising from events of
insolvency, bankruptcy or reorganization relating to us occurs and is
continuing, then the principal of, and accrued interest on, all of the notes
will automatically become immediately due and payable without any declaration or
other act on the part of the holders of the notes

or the trustee. For information as to waiver of defaults, see "-- Meetings,
Modification and Waiver" below.

You will not have any right to institute any proceeding with respect to the
indenture, or for any remedy under the indenture, unless:

- you give the trustee written notice of a continuing event of default;

- the holders of at least 25% in aggregate principal amount of the
outstanding notes have made written request and offered indemnity
satisfactory to the trustee to institute proceedings;

- the trustee shall have failed to institute such proceeding within 60 days
of the written request; and

- the trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding notes a direction inconsistent with
the written request within such 60 day period.

However, these limitations do not apply to a suit instituted by you for the
enforcement of payment of the principal of, premium, if any, or interest,
including special interest, on your note on or after the respective due dates
expressed in your note or your right to convert your note in accordance with the
indenture.

We will be required to furnish to the trustee annually a statement as to
our performance of certain of our obligations under the indenture and as to any
default in such performance. Upon becoming aware of any event of default, RRI is
required to deliver to the trustee a statement specifying such event of default.

MEETINGS, MODIFICATION AND WAIVER

The indenture contains provisions for convening meetings of the holders of
notes to consider matters affecting their interests.

The indenture may be amended or modified without the necessity of obtaining
the consent of the holders of the notes in order to, among other things:

- provide for our successor pursuant to a consolidation, merger or sale of
assets;

- add to our covenants for the benefit of the holders of all or any of the
notes or to surrender any right or power conferred upon us by the
indenture;

- provide for a successor trustee with respect to the notes;

- cure any ambiguity or correct or supplement any provision in the
indenture which may be defective or inconsistent with any other
provision, or to make any other provisions with respect to matters or
questions arising under the indenture which, in each case, will not
adversely affect the interests of the holders of the notes;

- add any additional events of default with respect to all or any of the
notes;

- secure the notes; or

- increase the conversion rate or reduce the conversion price, provided
that the increase or reduction, as the case may be, is in accordance with
the terms of the indenture or will not adversely affect the interests of
the holders of the notes.

Other modifications and amendments of the indenture may be made, compliance
by us with certain restrictive provisions of the indenture may be waived, and
any past defaults by us under the indenture (except: (1) a default in the
payment of principal, premium, if any, or interest, (2) failure to convert a
note into common stock or (3) failure to comply with any of the provisions of
the indenture that would require the consent of the holder of each outstanding
note affected) may be waived with the written consent of the holders of not less
than a majority in aggregate principal amount of the notes at the time
outstanding.

The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount.

However, a modification or amendment requires the consent of the holder of
each outstanding note affected if it would:

- change the stated maturity of the principal or interest of a note;

- reduce the principal amount of, or any premium or interest on, any note;

- reduce the amount payable upon a redemption or mandatory repurchase;

- modify the provisions with respect to the repurchase rights of holders of
notes in a manner adverse to the holders;

- modify our rights to redeem the notes in a manner adverse to the holders;

- change the place or currency of payment on a note;

- impair the right to institute suit for the enforcement of any payment on
any note;

- modify our obligation to maintain an office or agency in New York City;

- modify the subordination provisions in a manner that is adverse to the
holders of the notes;

- adversely affect the right to convert the notes other than a modification
or amendment permitted by the terms of the indenture;

- modify our obligation to deliver information required under Rule 144A to
permit resales of the notes and common stock issued upon conversion of
the notes if we cease to be subject to the reporting requirements under
the Exchange Act;

- reduce the above-stated percentage of the principal amount of the holders
whose consent is needed to modify or amend the indenture;

- reduce the percentage of the principal amount of the holders whose
consent is needed to waive compliance with certain provisions of the
indenture or to waive certain defaults;

- reduce the percentage of the principal amount of the holders required for
the adoption of a resolution or the quorum required at any meeting of
holders of notes at which a resolution is adopted; or

- modify the provisions with respect to meetings, modification and waiver.

We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding notes that are entitled to
take any action under the indenture. In limited circumstances, the trustee will
be entitled to set a record date for action by holders. If a record date is set
for any action to be taken by holders, such action may be taken only by persons
who are holders of outstanding notes on the record date and must be taken within
180 days following the record date or such other period as we may specify (or as
the trustee may specify, if it set the record date). This period may be
shortened or lengthened (but not beyond 180 days) from time to time.

REGISTRATION RIGHTS

We entered into a registration rights agreement with the initial purchasers
of the notes. If you sell the notes or shares of common stock issued upon
conversion of the notes under this registration statement, you generally will be
required to be named as a selling securityholder in this prospectus, deliver
this prospectus to purchasers and be bound by applicable provisions of the
registration rights agreement, including some indemnification provisions.

In the registration rights agreement, we agreed to use our reasonable best
efforts to keep the registration statement effective until the earlier of (1)
the sale pursuant to this shelf registration statement of all securities
registered hereunder; (2) the expiration of the period referred to in Rule
144(k) of the Securities Act with respect to all the notes and the shares of
common stock issuable upon conversion of the notes held by persons that are not
our affiliates; or (3) June 24, 2005.

We may suspend the use of this prospectus under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events for a period not to exceed 45 days in any 90-day period and not
to exceed an aggregate of 90 days in any 365-day period. We also agreed to pay
special interest to holders of the notes and shares of common stock issued upon
conversion of the notes if this registration statement is not timely filed or
made effective or if the prospectus is unavailable for periods in excess of
those permitted above. You should refer to the registrations rights agreement
for a description of this special interest.

NOTICES

Notice to holders of the registered notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.

Notice of a redemption of notes will be given not less than 30 nor more
than 60 days prior to the redemption date and will specify the redemption date.
A notice of redemption of the notes will be irrevocable.

REPLACEMENT OF NOTES

We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.

PAYMENT OF STAMP AND OTHER TAXES

We will pay all stamp and other duties, if any, that may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the notes or of shares of stock upon
conversion of the notes. We will not be required to make any payment with
respect to any other tax, assessment or governmental charge imposed by any
government or any political subdivision thereof or taxing authority thereof or
therein.

SATISFACTION AND DISCHARGE

We may satisfy and discharge our obligations under the indenture while the
notes remain outstanding, subject to certain conditions, if:

- all outstanding notes will become due and payable at their scheduled
maturity within one year; or

- all outstanding notes are scheduled for redemption within one year,

and in either case, we have deposited with the trustee an amount in cash or cash
equivalents sufficient to pay and discharge all outstanding notes on the date of
their scheduled maturity or the scheduled date of redemption.

GOVERNING LAW

The indenture, the notes and the registration rights agreement are governed
by and construed in accordance with the laws of the State of New York, United
States of America.

THE TRUSTEE

If an event of default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of notes, unless they shall have
furnished to the trustee reasonable security or indemnity satisfactory to it.

The indenture contains certain limitations on the rights of the trustee, if
it or any of its affiliates is then our creditor, to obtain payment of claims in
certain cases or to realize on certain property received on any claims as
security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions with us. However, if the trustee or any affiliate
continues to have any conflicting interest and a default occurs with respect to
the notes, the trustee must eliminate such conflict or resign.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following descriptions are summaries of material terms of our common
stock, preferred stock, restated certificate of incorporation and amended and
restated bylaws. This summary is qualified by reference to our restated
certificate of incorporation and amended and restated bylaws, copies of which
have been filed as exhibits to the registration statement of which this
prospectus is a part, and by the provisions of applicable law.

Our authorized capital stock consists of 2,000,000,000 shares of common
stock, par value $0.001 per share, and 125,000,000 shares of preferred stock,
par value $0.001 per share. Of the 125,000,000 shares of preferred stock,
2,000,000 shares have been designated Series A preferred stock. As of December
5, 2003, there were 294,591,650 shares of common stock outstanding, 5,212,350
shares of common stock held in treasury and there were no outstanding shares of
preferred stock.

COMMON STOCK

Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors. There
are no cumulative voting rights. Accordingly, holders of a majority of the total
votes entitled to vote in an election of directors will be able to elect all of
the directors standing for election. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of our common stock
are entitled to dividends when, as and if declared by our board of directors out
of funds legally available for that purpose. If we are liquidated, dissolved or
wound up, the holders of our common stock will be entitled to a pro rata share
in any distribution to stockholders, but only after satisfaction of all of our
liabilities and of the prior rights of any outstanding series of our preferred
stock. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of our common stock are
fully paid and nonassessable.

PREFERRED STOCK

Our board of directors has the authority, without stockholder approval, to
issue shares of preferred stock from time to time in one or more series, and to
fix the number of shares and terms of each such series. The board may determine
the designation and other terms of each series, including:

- dividend rates,

- redemption rights,

- liquidation rights,

- sinking fund provisions,

- conversion rights,

- voting rights, and

- any other designations, powers, preferences, rights, qualifications,
limitations, or restrictions.

The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of our common stock. It could also
affect the likelihood that holders of our common stock will receive dividend
payments and payments upon liquidation.

The issuance of shares of preferred stock, or the issuance of rights to
purchase shares of preferred stock, could be used to discourage an attempt to
obtain control of our company. For example, if, in the exercise of its fiduciary
obligations, our board were to determine that a takeover proposal was not in our
best interest, the board could authorize the issuance of a series of preferred
stock containing class voting

rights that would enable the holder or holders of the series to prevent or make
the change of control transaction more difficult. Alternatively, a change of
control transaction deemed by the board to be in our best interest could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders.

Holders of our common stock may purchase shares of our Series A preferred
stock if the rights associated with their common stock are exercisable and the
holders exercise the rights. Please read the "-- Stockholder Rights Plan"
section below.

SERIES A PREFERRED STOCK

Our Series A preferred stock ranks junior to all other series of our
preferred stock, and senior to our common stock with respect to dividend and
liquidation rights. If we liquidate, dissolve or wind up, we may not make any
distributions to holders of our common stock unless we first pay holders of our
Series A preferred stock an amount equal to:

- $1,000 per share, plus

- accrued and unpaid dividends and distributions on our Series A preferred
stock, whether or not declared, to the date of such payment.

If the dividends or distributions payable on our Series A preferred stock are in
arrears, we may not:

- declare or pay dividends on,

- make any other distributions on,

- redeem,

- purchase, or

- otherwise acquire for consideration, any shares of our common stock or
our Series A preferred stock, until we have paid all such unpaid
dividends or distributions, except in accordance with a purchase offer to
all holders of our Series A preferred stock upon terms that our board of
directors determines will be fair and equitable.

We may redeem shares of our Series A preferred stock at any time at a
redemption price determined in accordance with the provisions of our certificate
of incorporation.

Holders of shares of our Series A preferred stock are entitled to vote
together with holders of our common stock as one class on all matters submitted
to a vote of our stockholders. Each share of our Series A preferred stock
entitles its holder to a number of votes equal to the "adjustment number"
specified in our restated certificate of incorporation. The adjustment number is
initially equal to 1,000 and is subject to adjustment in the event we:

- declare any dividend on our common stock payable in shares of common
stock,

- subdivide our outstanding shares of common stock, or

- combine our outstanding shares of common stock into a smaller number of
shares.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAWS AND OUR CHARTER AND BYLAW PROVISIONS

Some provisions of Delaware law and our restated certificate of
incorporation and bylaws could make the following more difficult:

- acquisition of us by means of a tender offer,

- acquisition of control of us by means of a proxy contest or otherwise, or

- removal of our incumbent officers and directors.

These provisions, as well as our stockholder rights plan and our ability to
issue preferred stock, are designed to discourage coercive takeover practices
and inadequate takeover bids. These provisions are also designed to encourage
persons seeking to acquire control of us to first negotiate with our board of
directors. We believe that the benefits of increased protection give us the
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us, and that the benefits of this
increased protection outweigh the disadvantages of discouraging those proposals,
because negotiation of those proposals could result in an improvement of their
terms.

CHARTER AND BYLAW PROVISIONS

ELECTION AND REMOVAL OF DIRECTORS

Our board of directors may be comprised of between one and fifteen
directors, the exact number to be fixed from time to time by resolution of our
board of directors. Currently, our board of directors has five members. Our
board of directors is divided into three classes. The directors in each class
will serve for a three-year term, with only one class being elected each year by
our stockholders. This system of electing and removing directors may discourage
a third party from making a tender offer or otherwise attempting to obtain
control of us, because it generally makes it more difficult for stockholders to
replace a majority of our directors. In addition, no director may be removed
except for cause, and directors may be removed for cause by a majority of the
shares then entitled to vote at an election of directors. Any vacancy occurring
on the board of directors and any newly created directorship may only be filled
by a majority of the remaining directors in office.

STOCKHOLDER MEETINGS

Our bylaws provide that special meetings of our stockholders may be called
only by the chairman of our board of directors, our president and chief
executive officer, or a majority of the board of directors and may not be called
by the holders of common stock. In addition, our restated certificate of
incorporation and our bylaws specifically deny any power of the stockholders to
call a special meeting.

ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT

Our restated certificate of incorporation and our bylaws provide that
holders of our common stock will not be able to act by written consent without a
meeting.

AMENDMENT OF CERTIFICATE OF INCORPORATION

The provisions described above under "-- Election and Removal of
Directors", "-- Stockholder Meetings" and "-- Elimination of Stockholder Action
by Written Consent" may be amended only by the affirmative vote of holders of at
least 66 2/3% of the voting power of outstanding shares of our capital stock
entitled to vote in the election of directors, voting together as a single
class.

AMENDMENT OF BYLAWS

Our board of directors has the power to alter, amend or repeal our bylaws
or adopt new bylaws by the affirmative vote of at least 80% of all directors
then in office at any regular or special meeting of the board of directors
called for that purpose. This right is subject to repeal or change by the
affirmative vote of holders of at least 80% of the voting power of all
outstanding shares of our capital stock entitled to vote in the election of
directors, voting together as a single class.

OTHER LIMITATIONS ON STOCKHOLDER ACTIONS

Our bylaws also impose some procedural requirements on stockholders who
wish to:

- make nominations in the election of directors,

- propose that a director be removed,

- propose any repeal or change in our bylaws, or

- propose any other business to be brought before an annual or special
meeting of stockholders.

With respect to special meetings of stockholders, our bylaws provide that
only such business shall be conducted as shall have been stated in the notice of
the meeting or shall otherwise have been brought before the meeting by or at the
direction of the chairman of the meeting or the board of directors.

Under these procedural requirements, in order to bring a proposal or
nomination before an annual meeting of stockholders, or in order to bring a
nomination before a meeting of stockholders, a stockholder must deliver timely
notice to our corporate secretary along with the following:

- a description of the business or nomination to be brought before the
meeting and the reasons for conducting such business at the meeting,

- the stockholder's name and address,

- the number of shares beneficially owned by the stockholder and evidence
of such ownership,

- the names and addresses of all persons with whom the stockholder is
acting in concert and a description of all arrangements and
understandings with such persons, and

- the number of shares such persons beneficially own.

To be timely, a stockholder must deliver notice:

- of a nomination or other business in connection with an annual meeting of
stockholders, not less than 90 nor more than 180 days prior to the date
on which the immediately preceding year's annual meeting of stockholders
was held, or

- of a nomination in connection with a special meeting of stockholders, not
less than 40 nor more than 60 days prior to the date of the special
meeting.

In order to submit a nomination for our board of directors, a stockholder
must also submit information with respect to the nominee that we would be
required to include in a proxy statement, as well as some other information. If
a stockholder fails to follow the required procedures, the stockholder's nominee
or proposal will be ineligible and will not be voted on by our stockholders.

LIMITATION ON LIABILITY OF DIRECTORS

Our restated certificate of incorporation provides that no director shall
be personally liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director, except as required by law, as in effect from
time to time. Currently, Delaware law requires that liability be imposed for the
following:

- any breach of the director's duty of loyalty to our company or our
stockholders,

- any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law,

- unlawful payments of dividends or unlawful stock repurchases or
redemptions, and

- any transaction from which the director derived an improper personal
benefit.

Our bylaws provide that, to the fullest extent permitted by law, we will
indemnify any officer or director of our company against all damages, claims and
liabilities arising out of the fact that the person is or was our director or
officer, or served any other enterprise at our request as a director, officer,
employee, agent or fiduciary. We will reimburse the expenses, including
attorneys' fees, incurred by a person indemnified by this provision when we
receive an undertaking to repay such amounts if it is ultimately determined that
the person is not entitled to be indemnified by us. Amending this provision will
not reduce our indemnification obligations relating to actions taken before an
amendment.

STOCKHOLDER RIGHTS PLAN

Each share of common stock includes one right to purchase from us a unit
consisting of one-thousandth of a share of our Series A preferred stock at a
purchase price of $150.00 per unit, subject to adjustment. The rights are issued
pursuant to a rights agreement between us and JP Morgan Chase Bank, as successor
to The Chase Manhattan Bank, as rights agent. We have summarized selected
portions of the rights agreement and the rights below. For a complete
description of the rights, we encourage you to read the summary below and the
rights agreement, which we have filed as an exhibit to the registration
statement of which this prospectus is a part.

DETACHMENT OF RIGHTS; EXERCISABILITY

The rights are evidenced by the certificates representing our currently
outstanding common stock and all common stock certificates we issue prior to the
"distribution date". That date will occur, except in some cases, on the earlier
of:

- ten days following a public announcement that a person or group of
affiliated or associated persons, who we refer to collectively as an
"acquiring person", has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of our
common stock, or

- ten business days following the start of a tender offer or exchange offer
that would result in a person becoming an acquiring person.

Our board of directors may defer the distribution date in some
circumstances. Also, some inadvertent acquisitions of our common stock will not
result in a person becoming an acquiring person if the person promptly divests
itself of sufficient common stock.

Until the distribution date:

- common stock certificates will evidence the rights,

- the rights will be transferable only with those certificates,

- new common stock certificates will contain a notation incorporating the
rights agreement by reference, and

- the surrender for transfer of any common stock certificate will also
constitute the transfer of the rights associated with the common stock
represented by the certificate.

The rights are not exercisable until the distribution date and will expire
at the close of business on January 15, 2011, unless we redeem or exchange them
at an earlier date as described below or we extend the expiration date prior to
January 15, 2011.

As soon as practicable after the distribution date, the rights agent will
mail certificates representing the rights to holders of record of common stock
as of the close of business on the distribution date. From that date on, only
separate rights certificates will represent the rights. We will issue rights
with all shares of common stock issued prior to the distribution date. We will
also issue rights with shares of common stock issued after the distribution date
in connection with some employee benefit plans or upon conversion of some
securities. Except as otherwise determined by our board of directors, we will
not issue rights with any other shares of common stock issued after the
distribution date.

FLIP-IN EVENT

A "flip-in event" will occur under the rights agreement when a person
becomes an acquiring person otherwise than pursuant to a "permitted offer". The
rights agreement defines "permitted offer" as a tender or exchange offer for all
outstanding shares of our common stock at a price and on terms that a majority
of the independent directors on our board of directors determines to be fair to
and otherwise in our best interests and the best interests of our stockholders.

If a flip-in event occurs, each right, other than any right that has become
null and void as described below, will become exercisable to receive the number
of shares of common stock, or in some specified circumstances, cash, property or
other securities, which has a "current market price" equal to two times the
exercise price of the right. Please refer to the rights agreement for the
definition of "current market price".

FLIP-OVER EVENT

A "flip-over event" will occur under the rights agreement when, at any time
from and after the time a person becomes an acquiring person:

- we are acquired by any person or we acquire any person in a merger or
other business combination transaction, other than specified mergers that
follow a permitted offer, or

- 50% or more of our assets, cash flow or earning power is sold, leased or
transferred.

If a flip-over event occurs, each holder of a right, except rights that are
voided as described below, will thereafter have the right to receive, on
exercise of the right, a number of shares of common stock of the acquiring
company that has a current market price equal to two times the exercise price of
the right.

When a flip-in event or a flip-over event occurs, all rights that then are,
or under the circumstances the rights agreement specifies previously were,
beneficially owned by an acquiring person or specified related parties will
become null and void in the circumstances the rights agreement specifies.

SERIES A PREFERRED STOCK

After the distribution date, each right will entitle the holder to purchase
a fractional share of our Series A preferred stock, which will be essentially
the economic equivalent of one share of common stock. Please refer to the
"-- Preferred Stock -- Series A Preferred Stock" section above for additional
information about our Series A preferred stock.

ANTIDILUTION

The number of rights associated with a share of outstanding common stock,
the number of fractional shares of Series A preferred stock issuable upon
exercise of a right and the exercise price of the right are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, our common stock occurring prior to the distribution date.
The exercise price of the rights and the number of fractional shares of Series A
preferred stock or other securities or property issuable on exercise of the
rights are subject to adjustment from time to time to prevent dilution in the
event of some specified transactions affecting the Series A preferred stock.

With some exceptions, we will not be required to adjust the exercise price
of the rights until cumulative adjustments amount to at least 1% of the exercise
price. The rights agreement also will not require us to issue fractional shares
of Series A preferred stock that are not integral multiples of the specified
fractional share and, in lieu thereof, we will make a cash payment based on the
market price of the Series A preferred stock on the last trading date prior to
the date of exercise. Pursuant to the rights agreement, we reserve the right to
require prior to the occurrence of any flip-in event or flip-over event that, on
any exercise of rights, a number of rights be exercised so that we will issue
only whole shares of Series A preferred stock.

REDEMPTION OF RIGHTS

At any time until the time a person becomes an acquiring person, we may
redeem the rights in whole, but not in part, at a price of $.005 per right,
payable, at our option, in cash, shares of common stock or such other
consideration as our board of directors may determine. Upon such redemption, the
rights will terminate and the only right of the holders of rights will be to
receive the $.005 redemption price.

EXCHANGE OF RIGHTS

At any time after the occurrence of a flip-in event and prior to a person
becoming the beneficial owner of 50% or more of our outstanding common stock or
the occurrence of a flip-over event, we may exchange the rights, other than
rights owned by an acquiring person or an affiliate or an associate of an
acquiring person, which will have become void, in whole or in part, at an
exchange ratio of one share of common stock, and/or other equity securities
deemed to have the same value as one share of common stock, per right, subject
to adjustment.

SUBSTITUTION

If we have an insufficient number of authorized but unissued shares of
common stock available to permit an exercise or exchange of rights upon the
occurrence of a flip-in event, we may substitute other specified types of
property for common stock so long as the total value received by the holder of
the rights is equivalent to the value of the common stock that the stockholder
would otherwise have received. We may substitute cash, property, equity
securities or debt, reduce the exercise price of the rights or use any
combination of the foregoing.

NO RIGHTS AS A STOCKHOLDER; TAXES

Until a right is exercised, a holder of rights will have no rights to vote
or receive dividends or any other rights as a stockholder of our common stock.
Stockholders may, depending upon the circumstances, recognize taxable income in
the event that the rights become exercisable for our common stock, or other
consideration, or for the common stock of the acquiring company or are exchanged
as described above.

AMENDMENT OF TERMS OF RIGHTS

Our board of directors may amend any of the provisions of the rights
agreement, other than some specified provisions relating to the principal
economic terms of the rights and the expiration date of the rights, at any time
prior to the time a person becomes an acquiring person. Thereafter, our board of
directors may only amend the rights agreement in order to cure any ambiguity,
defect or inconsistency or to make changes that do not materially and adversely
affect the interests of holders of the rights, excluding the interests of any
acquiring person.

RIGHTS AGENT

JP Morgan Chase Bank, as successor to The Chase Manhattan Bank, serves as
rights agent with regard to the rights.

ANTITAKEOVER EFFECTS

The rights will have anti-takeover effects. They will cause substantial
dilution to any person or group that attempts to acquire us without the approval
of our board of directors. As a result, the overall effect of the rights may be
to make more difficult or discourage any attempt to acquire us even if such
acquisition may be favorable to the interests of our stockholders. Because our
board of directors can redeem the rights or approve a permitted offer, the
rights should not interfere with a merger or other business combination approved
by our board of directors.

DELAWARE ANTITAKEOVER LAW

We are subject to Section 203 of the Delaware General Corporation Law.
Section 203 prohibits Delaware corporations from engaging in a wide range of
specified transactions with any interested stockholder. An interested
stockholder is any person, other than the corporation and any of its majority-
owned subsidiaries, who owns 15% or more of any class or series of stock
entitled to vote generally in the election of directors. Section 203 may tend to
deter any potential unfriendly offers or other efforts to

obtain control of our company that are not approved by our board. This may
deprive the stockholders of opportunities to sell shares of our common stock at
prices higher than the prevailing market price.

SELLING SECURITYHOLDERS

The notes were originally issued by us and sold by Deutsche Bank Securities
Inc., Goldman, Sachs & Co., Banc of America Securities LLC, Barclays Capital
Inc., ABN AMRO Rothschild LLC and Commerzbank Capital Markets Corp. (the
"initial purchasers") in transactions exempt from the registration requirements
of the Securities Act to persons reasonably believed by the initial purchasers
to be "qualified institutional buyers" as defined by Rule 144A under the
Securities Act. The selling securityholders may from time to time offer and sell
pursuant to this prospectus any or all of the notes listed below and the shares
of common stock issued upon conversion of such notes. When we refer to the
"selling securityholders" in this prospectus, we mean those persons listed in
the table below, as well as the pledgees, donees, assignees, transferees,
successors and others who later hold any of the selling securityholders'
interests.

The table below sets forth the name of each selling securityholder, the
principal amount of notes that each selling securityholder may offer pursuant to
this prospectus and the number of shares of common stock into which such notes
are convertible. Unless set forth below, to our knowledge, none of the selling
securityholders has, or within the past three years has had, any material
relationship with us or any of our predecessors or affiliates or beneficially
owns in excess of 1% of the outstanding common stock.

The principal amounts of the notes provided in the table below is based on
information provided to us by each of the selling securityholders as of December
10, 2003, and the percentages are based on $275,000,000 principal amount of
notes outstanding. The number of shares of common stock that may be sold is
calculated based on the current conversion rate of 104.8108 shares of common
stock per each $1,000 principal amount of notes. Since the date on which each
selling securityholder provided this information, each selling securityholder
identified below may have sold, transferred or otherwise disposed of all or a
portion of its notes in a transaction exempt from the registration requirements
of the Securities Act. Information concerning the selling securityholders may
change from time to time and any changed information will be set forth in
supplements to this prospectus to the extent required. In addition, the
conversion ratio, and therefore the number of shares of our common stock
issuable upon conversion of the notes, is subject to adjustment. Accordingly,
the number of shares of common stock issuable upon conversion of the notes may
increase or decrease.

The selling securityholders may from time to time offer and sell any or all
of the securities under this prospectus. Because the selling securityholders are
not obligated to sell the notes or the shares of common stock issuable upon
conversion of the notes, we cannot estimate the amount of the notes or how many
shares of common stock that the selling securityholders will hold upon
consummation of any such sales.

PERCENTAGE OF
AGGREGATE PRINCIPAL NUMBER OF SHARES SHARES OF
AMOUNT OF NOTES PERCENTAGE OF OF COMMON STOCK COMMON STOCK
NAME THAT MAY BE SOLD NOTES OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ------------------- ----------------- ------------------- --------------

Van Kampen Equity and Income Fund..... $ 29,774,000 10.83% 3,120,637 *
Marathon Global Convertible Master
Fund, Ltd. ......................... $ 25,500,000 9.27% 2,672,675 *
Clinton Riverside Convertible
Portfolio Limited................... $ 19,815,000 7.21% 2,076,826 *
Vanguard Convertible Securities Fund,
Inc. ............................... $ 14,685,000 5.34% 1,539,147 *
Deutsche Bank Securities, Inc. ....... $ 12,648,000 4.60% 1,325,647 *
Arbitex Master Fund, L.P. ............ $ 9,200,000 3.35% 964,259 *
DBAG -- London........................ $ 9,100,000 3.31% 953,778 *
Clinton Multistrategy Master Fund,
Ltd. ............................... $ 8,685,000 3.16% 910,282 *

Silverback Master, LTD................ $ 8,500,000 3.09% 890,892 *
Windmill Master Fund, LP.............. $ 8,000,000 2.91% 838,486 *
Canyon Value Realization Fund
(Cayman), Ltd. ..................... $ 8,200,000 2.98% 859,449 *
Nations Convertible Securities Fund... $ 5,950,000 2.16% 623,624 *
Quattro Fund LTD...................... $ 5,714,000 2.08% 598,889 *
Argent Classic Convertible Arbitrage
Fund (Bermuda) Ltd. ................ $ 6,200,000 2.25% 649,827 *
Alexandra Global Master Fund LTD...... $ 6,000,000 2.18% 628,865 *
Canyon Capital Arbitrage Master Fund,
Ltd. ............................... $ 6,000,000 2.18% 628,865 *
Argent Low Lev Convertible Arbitrage
Fund Ltd. .......................... $ 5,500,000 2.00% 576,459 *
Royal Bank of Canada.................. $ 5,000,000 1.82% 524,054 *
Grace Convertible Arbitrage Fund,
LTD................................. $ 4,500,000 1.64% 471,649 *
Van Kampen Harbor Fund................ $ 4,300,000 1.56% 450,686 *
Lyxor Master Fund..................... $ 4,000,000 1.45% 419,243 *
The Northwestern Mutual Life Insurance
Company............................. $ 4,000,000 1.45% 419,243 *
Chrysler Corporation Master Retirement
Trust............................... $ 3,705,000 1.35% 388,324 *
Canyon Value Realization Fund,
L.P. ............................... $ 3,000,000 1.09% 314,432 *
OCM Convertible Trust................. $ 2,965,000 1.08% 310,765 *
Lehman Brothers, Inc. ................ $ 2,600,000 * 272,508 *
Microsoft Corporation................. $ 2,425,000 * 254,166 *
New York Life Insurance Company (Post
82)................................. $ 2,145,000 * 224,819 *
Raptor Global Portfolio LTD. ......... $ 1,997,000 * 209,307 *
Mainstay Convertible Fund............. $ 1,940,000 * 203,333 *
Sage Capital.......................... $ 1,900,000 * 199,141 *
Zurich Institutional Benchmarks Master
Fund, LTD. ......................... $ 1,851,000 * 194,005 *
TQA Master Plus Fund, LTD. ........... $ 1,723,100 * 180,600 *
State Employees' Retirement Fund of
the State of Delaware............... $ 1,720,000 * 180,275 *
Mainstay VP Convertible Fund.......... $ 1,540,000 * 161,409 *
Delta Air Lines Master Trust -- CV.... $ 1,530,000 * 160,361 *
Zurich Institutional Benchmark
Management.......................... $ 1,304,000 * 136,673 *
Van Kampen Utility Fund............... $ 1,300,000 * 136,254 *
Partner Reinsurance Company Ltd. ..... $ 1,295,000 * 135,730 *
Argent Classic Convertible Arbitrage
Fund L.P. .......................... $ 1,200,000 * 125,773 *
Canyon Value Realization MAC 18, Ltd.
(RMF)............................... $ 1,200,000 * 125,773 *

Laurel Ridge Capital, LP.............. $ 1,000,000 * 104,811 *
McMahan Securities Co. L.P. .......... $ 1,000,000 * 104,811 *
Onyx Fund Holdings, LDC............... $ 1,000,000 * 104,811 *
New York Life Insurance Company (Pre
82)................................. $ 985,000 * 103,239 *
TQA Master Fund, LTD. ................ $ 862,900 * 90,441 *
BP Amoco PLC Master Trust............. $ 839,000 * 87,936 *
PRS Convertible Arbitrage Master Fund
L.P. ............................... $ 750,000 * 78,608 *
Delta Pilots Disability & Survivorship
Trust -- CV......................... $ 740,000 * 77,560 *
SSI Blended Market Neutral L.P. ...... $ 559,000 * 58,589 *
CNH CA Master Account, L.P. .......... $ 500,000 * 52,405 *
JP Morgan Securities, Inc............. $ 500,000 * 52,405 *
Qwest Occupational Health Trust....... $ 425,000 * 44,545 *
Argent LowLev Convertible Arbitrage
Fund LLC............................ $ 400,000 * 41,924 *
Motion Picture Industry Health Plan --
Active Member Fund.................. $ 380,000 * 39,828 *
Universal Institutional Funds Equity &
Income Fund......................... $ 329,000 * 34,483 *
Tudor BUI Global Portfolio LTD. ...... $ 326,000 * 34,168 *
Travelers Indemnity Company --
Commercial Lines.................... $ 320,000 * 33,539 *
Hotel Union & Hotel Industry of Hawaii
Pension Plan........................ $ 314,000 * 32,911 *
SSI Hedged Convertible Market Neutral,
L.P. ............................... $ 309,000 * 32,387 *
Lyxor Master Fund c/o Arbitex Capital
Limited............................. $ 300,000 * 31,443 *
Argent Classic Convertible Arbitrage
Fund II , L.P. ..................... $ 300,000 * 31,443 *
Xavex Convertible Arbitrage 10 Fund... $ 300,000 * 31,443 *
Sphinx Convertible Arb Fund SPC....... $ 285,000 * 29,871 *
Motion Picture Industry Health Plan --
Retiree Member Fund................. $ 255,000 * 26,727 *
Xavex Convertible Arbitrage 7 Fund.... $ 248,000 * 25,993 *
Travelers Indemnity Company --
Personal Lines...................... $ 215,000 * 22,534 *
OCM Global Convertible Securities
Fund -- DC.......................... $ 190,000 * 19,914 *
Tudor Proprietary Trading, L.L.C. .... $ 177,000 * 18,552 *
LDG Limited........................... $ 120,000 * 12,577 *
RBC Alternative Assets, L.P. ......... $ 100,000 * 10,481 *
Aftra Health Fund..................... $ 90,000 * 9,433 *

Fidelity Advisor Series I: Fidelity
Advisor Equity Value Fund........... $ 55,000 * 5,765 *
Sphinx Fund........................... $ 46,000 * 4,821 *
Convertible Securities Fund........... $ 30,000 * 3,144 *
Viacom Inc. Pension Plan Master
Trust............................... $ 28,000 * 2,935 *
New York Life Separate Account #7..... $ 25,000 * 2,620 *
Lexington Vantage Fund................ $ 23,000 * 2,411 *
Jefferies & Company, Inc. ............ $ 7,000 * 734 *
All other holders of notes or future
transferees, pledgees, donees,
assignees or successors of any such
holders (3) (4)..................... $ 12,056,000 4.39% 1,263,599 *
------------ ------- ------------- ------
$275,000,000 100.00% 28,822,970(5) 8.91%(6)
============ ======= ============= ======

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

* Less than one percent.

(1) Assumes conversion of all of the holder's notes at a conversion rate of
104.8108 shares of common stock per $1,000 principal amount of the notes.
This conversion rate is subject to adjustment, however, as described under
"Description of Notes -- Conversion Rights." As a result, the number of
shares of common stock issuable upon conversion of the notes may increase or
decrease in the future.

(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act, using common
shares outstanding as of December 5, 2003. In calculating this amount for
each holder, we treated as outstanding the number of shares of common stock
issuable upon conversion of all that holder's notes, but we did not assume
conversion of any other holder's notes.

(3) Information about other selling shareholders will be set forth in prospectus
supplements, if required.

(4) Assumes that any other holders of the notes or any future pledgees, donees,
assignees, transferees or successors of or from any other such holders of
the notes, do not beneficially own any shares of common stock other than the
common stock issuable upon conversion of the notes at the initial conversion
rate.

(5) Represents the number of shares of common stock into which $275,000,000 of
notes would be convertible at the conversion rate described in footnote 1
above.

(6) Represents the amount which the selling securityholders may sell under this
prospectus divided by the sum of the common stock outstanding as of December
5, 2003 plus the 28,822,970 shares of common stock into which the
$275,000,000 notes are convertible.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material United States federal income tax
consequences of an investment in the notes and common stock received pursuant to
a conversion of the notes. This summary is based upon United States federal
income tax law in effect on the date of this prospectus, which is subject to
change or different interpretations, possibly with retroactive effect. This
summary does not discuss all aspects of United States federal income taxation
which may be important to particular investors in light of their individual
investment circumstances, such as notes held by investors subject to special tax
rules (e.g., financial institutions, insurance companies, broker-dealers, and
domestic and foreign tax-exempt organizations (including private foundations))
or to persons that will hold the notes or common stock received pursuant to a
conversion of the notes as part of a straddle, hedge, conversion, constructive
sale, or other integrated security transaction for United States federal income
tax purposes or that have a functional currency other than the United States
dollar, all of whom may be subject to tax rules that differ significantly from
those summarized below. In addition, this summary does not discuss any (i)
United States federal income tax consequences to a Non-U.S. Holder (as defined
below) that is (A) engaged in the conduct of a United States trade or business
or (B) a nonresident alien individual and such individual is present in the
United States for 183 or more days during the taxable year and (ii) state,
local, or non-United States tax considerations. This summary assumes that
investors will hold their notes, and common stock received pursuant to a
conversion of notes, as "capital assets" (generally, property held for
investment) under the Internal Revenue Code of 1986 (the "Code"). Each
prospective investor is urged to consult his tax advisor regarding the United
States federal, state, local, and non-United States income and other tax
considerations of an investment in the notes, including as a result of changes
to United States federal income tax law after the date of this prospectus.

For purposes of this summary, a "U.S. Holder" is a beneficial owner of
notes, or common stock received pursuant to a conversion of the notes, that is,
for United States federal income tax purposes, (i) an individual who is a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created in, or organized under the law of, the United States or any
State or political subdivision thereof, (iii) an estate the income of which is
includible in gross income for United States federal income tax purposes
regardless of its source, or (iv) a trust (A) the administration of which is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust, or (B) that was in existence on August 20, 1996, was
treated as a United States person on the previous day, and elected to continue
to be so treated. A beneficial owner of notes, or common stock received pursuant
to a conversion of the notes, that is not a U.S. Holder is referred to herein as
a "Non-U.S. Holder."

U.S. HOLDERS

PAYMENTS OF INTEREST

Payments of interest on the notes made to a U.S. Holder will be subject to
tax as ordinary income at the time the interest is received or accrued in
accordance with such holder's method of accounting for United States federal
income tax purposes.

MARKET DISCOUNT

If a U.S. Holder acquires the notes at a price that is less than their
issue price, the holder will generally be treated as acquiring the notes with
"market discount." A holder who acquires the notes at a market discount that is
more than a statutorily-defined "de minimis" amount will generally be required
to recognize ordinary income upon a sale or other taxable disposition of the
notes to the extent of the lesser of the accrued market discount on the notes or
any gain recognized upon such disposition. Such market discount will accrue
ratably or, at the election of the holder, under a constant yield method over
the remaining term of the notes. A U.S. Holder will also be required to defer
the deduction of a portion of the interest paid or accrued on indebtedness
incurred to purchase or carry the notes acquired with market discount. In the
alternative, a U.S. Holder may elect to include market discount in income
currently as it

accrues on all market discount instruments acquired by such holder in the
taxable year of the election and thereafter, in which case the foregoing rules
will not apply. In addition, a U.S. Holder will not recognize income for any
accrued market discount attributable to notes converted into common stock. Upon
disposition of such common stock received, however, any gain will be treated as
ordinary income to the extent of such accrued market discount not previously
included in income.

BOND PREMIUM

If a U.S. Holder acquires notes at a price that is greater than the stated
principal amount of the notes, the holder will generally be treated as acquiring
the notes with "bond premium" for United States federal income tax purposes. The
amount of such premium will be included in the adjusted tax basis of the notes
which may result in a capital loss upon the sale or other taxable disposition of
the notes. In lieu of the foregoing, the holder may elect to amortize such
premium, as an offset to the payments of interest on the notes using a constant
yield method during the period commencing with the purchase date of the notes
and ending on the maturity date of the notes (or, if it would result in a
smaller amount of amortizable bond premium, an earlier call date).

CONVERSION OF THE NOTES INTO COMMON STOCK

If a U.S. Holder converts the notes into common stock, such holder will
generally not recognize gain or loss except to the extent of cash received in
lieu of a fractional share of common stock. In the case of cash received in lieu
of a fractional share, a holder will generally recognize capital gain or loss,
for United States federal income tax purposes, equal to the difference between
the amount of cash received and the tax basis in such fractional share, except
to the extent of accrued market discount allocable to such share but not
previously included in income which shall be treated as ordinary income to the
extent of any recognized gain. Such gain or loss will generally be long-term if
the holder's holding period in respect of the notes is more than one year. A
U.S. Holder's tax basis in the common stock received upon such conversion should
generally equal such holder's adjusted tax basis in the notes (taking into
account any previously recognized accrued market discount or any adjustments
pursuant to the bond premium rules and hereinafter referred to as the "adjusted
tax basis" in the notes) tendered in exchange therefor, less the tax basis
allocated to any fractional share for which cash is received. A U.S. Holder's
holding period in the common stock received upon conversion of the notes will
include the holding period of notes so converted.

SALE, EXCHANGE, OR OTHER DISPOSITION OF THE NOTES OR COMMON STOCK

Upon a sale, exchange, or other disposition of the notes (other than a
conversion of the notes into common stock as described under "-- Conversion of
the Notes into Common Stock" above), or common stock previously received
pursuant to a conversion of the notes, a U.S. Holder will generally recognize
capital gain or loss equal to the difference between (i) the amount of cash and
the fair market value of any property received upon such disposition and (ii)
the holder's adjusted tax basis in the notes or common stock previously received
pursuant to a conversion or exchange of the notes. Such gain or loss will be (i)
capital gain or loss, except in the case of gain, to the extent of accrued
market discount not previously included in income and (ii) long-term if the
holder's holding period in respect of such notes or common stock is more than
one year.

CONSTRUCTIVE DIVIDENDS

If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for United States federal
income tax purposes and, in accordance with the anti-dilution provisions of the
notes, the conversion rate of the notes is increased, such increase may be
deemed to be the payment of a taxable dividend, for United States federal income
tax purposes, to holders of the notes. For example, an increase in the
conversion rate in the event of distributions of our debt instruments, or our
assets, or an increase in the event of an extraordinary cash dividend, generally
will result in deemed dividend treatment to holders of the notes, but an
increase in the event of stock dividends or the distribution of rights to
subscribe for our common stock generally will not.
97

NON-U.S. HOLDERS

PAYMENTS OF INTEREST

Payments of interest on the notes made to a Non-U.S. Holder will not be
subject to United States federal income or withholding tax provided that (i)
such holder is not a controlled foreign corporation that is related to us
through stock ownership and (ii) the statement requirement set forth in section
871(h) or 881(c) of the Code is satisfied (the "Statement Requirement"). The
Statement Requirement generally will be satisfied if the beneficial owner of the
notes certifies on United States Internal Revenue Service Form W-8BEN (or a
suitable substitute form), under penalties of perjury, that it is not a United
States person and provides its name and address or otherwise satisfies
applicable documentation requirements.

DIVIDENDS AND CONSTRUCTIVE DIVIDENDS

Dividends paid or constructive dividends deemed paid (see "U.S.
Holders -- Constructive Dividends" above) to a Non-U.S. Holder generally will be
subject to United States federal withholding tax at a 30% rate subject to
reduction or complete exemption under an applicable treaty if the Non-U.S.
Holder provides a United States Internal Revenue Service Form W-8BEN (or a
suitable substitute form) certifying that it is entitled to such treaty
benefits.

SALE, EXCHANGE, CONVERSION, OR OTHER DISPOSITION OF THE NOTES AND CONVERSION
INTO COMMON STOCK

Upon a sale, exchange, conversion, or other disposition of the notes and
common stock received pursuant to a previous conversion of the notes, a Non-U.S.
Holder will generally not be subject to United States federal income tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Information returns will be filed annually with the United States Internal
Revenue Service and provided to each Non-U.S. Holder with respect to any
payments on the notes or common stock received pursuant to a previous conversion
of the notes and the proceeds from their sale or other disposition that are
subject to withholding or that are exempt from United States withholding tax
pursuant to an applicable income tax treaty or other reason. Copies of these
information returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides. Under certain circumstances, the Code imposes a backup
withholding obligation. Interest, dividends, or constructive dividends paid to a
Non-U.S. Holder of the notes or common stock generally will be exempt from
backup withholding if the Non-U.S. Holder satisfies the Statement Requirement
described above.

The payment of the proceeds from the disposition of the notes or common
stock received pursuant to a previous conversion of the notes to or through the
United States office of any broker, United States or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-United States status, under penalties of perjury, or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge or reason to know that the holder is a United States person or that
the conditions of any other exemption are not, in fact, satisfied. The payment
of the proceeds from the disposition of the notes or common stock to or through
a non-United States office of a non-United States broker will not be subject to
information reporting or backup withholding unless the non-United States broker
has certain types of relationships with the United States (a "United States
related person"). In the case of the payment of the proceeds from the
disposition of the notes or common stock to or through a non-United States
office of a broker that is either a United States person or a United States
related person, information reporting (but not backup withholding) will apply to
the payment unless the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no knowledge or reason to know
otherwise.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder may be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, if the Non-U.S. Holder provides, on a timely basis, the
required information to the United States Internal Revenue Service.
98

PLAN OF DISTRIBUTION

The selling securityholders will be offering and selling all of the
securities offered and sold under this prospectus. We will not receive any of
the proceeds from the offering of the notes or the shares of common stock by the
selling securityholders. In connection with the initial offering of the notes,
we entered into a registration rights agreement dated as of June 24, 2003 with
the initial purchasers of the notes. Securities may only be offered or sold
under this prospectus pursuant to the terms of the registration rights
agreement. However, selling securityholders may resell all or a portion of the
securities in open market transactions in reliance upon Rule 144 or Rule 144A
under the Securities Act, provided they meet the criteria and conform to the
requirements of one of these rules. We are registering the notes and shares of
common stock covered by this prospectus to permit holders to conduct public
secondary trading of these securities from time to time after the date of this
prospectus. We have agreed, among other things, to bear all expenses, other than
underwriting discounts and selling commissions, in connection with the
registration and sale of the notes and the shares of common stock covered by
this prospectus.

The selling securityholders may sell all or a portion of the notes and
shares of common stock beneficially owned by them and offered hereby from time
to time:

- directly; or

- through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, commissions or concessions from
the selling securityholders and/or from the purchasers of the notes and
shares of common stock for whom they may act as agent.

The notes and the shares of common stock may be sold from time to time in
one or more transactions at:

- fixed prices, which may be changed;

- prevailing market prices at the time of sale;

- varying prices determined at the time of sale; or

- negotiated prices.

These prices will be determined by the securityholders or by agreement
between these holders and underwriters or dealers who may receive fees or
commissions in connection with the sale. The aggregate proceeds to the selling
securityholders from the sale of the notes or shares of common stock offered by
them hereby will be the purchase price of the notes or shares of common stock
less discounts and commissions, if any. The sales described in the preceding
paragraph may be effected in transactions:

- on any national securities exchange or quotation service on which the
notes or shares of common stock may be listed or quoted at the time of
sale, including the New York Stock Exchange in the case of the shares of
common stock;

- in the over-the counter market;

- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or

- through the writing of options.

These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade. In connection with sales of the notes and shares of common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
notes and shares of common stock in the course of hedging their positions. The
selling securityholders may also sell the notes and shares of common stock short
and deliver the notes and shares of common stock to close out short positions,
or loan or pledge notes and shares of common stock to broker-dealers that in
turn may sell the notes and shares of common stock.

To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes and the shares of common
stock by the selling securityholders. Selling securityholders may not sell any,
or may not sell all, of the notes and the shares of common stock offered by them
pursuant to this prospectus. In addition, we cannot assure you that a selling
securityholder will not transfer, devise or gift the notes and the shares of
common stock by other means not described in this prospectus. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than pursuant to this prospectus.

The notes were issued and sold in June and July 2003 in transactions exempt
from the registration requirements of the Securities Act to persons reasonably
believed by the initial purchasers to be "qualified institutional buyers," as
defined in Rule 144A under the Securities Act. Pursuant to the registration
rights agreement, we have agreed to indemnify the initial purchasers and each
selling securityholder, and each selling securityholder has agreed to indemnify
us against specified liabilities arising under the Securities Act. The selling
securityholders may also agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the securities against some
liabilities, including liabilities that arise under the Securities Act.

The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the shares of common stock issuable
upon conversion of the notes by the selling securityholders and any such other
person. In addition, Regulation M of the Exchange Act may restrict the ability
of any person engaged in the distribution of the notes and the shares of common
stock issuable upon conversion of the notes to engage in market-making
activities with respect to the particular notes and the shares of common stock
issuable upon conversion of the notes being distributed for a period of up to
five business days prior to the commencement of distribution. This may affect
the marketability of the notes and the shares of common stock issuable upon
conversion of the notes and the ability of any person or entity to engage in
market-making activities with respect to the notes and the shares of common
stock issuable upon conversion of the notes.

Under the registration rights agreement, we are obligated to use our
reasonable best efforts to keep the registration statement of which this
prospectus is a part effective until the earlier of:

- the sale, pursuant to the registration statement to which this prospectus
relates, of all the securities registered thereunder;

- the expiration of the period referred to in Rule 144(k) of the Securities
Act with respect to all the notes and the shares of common stock issuable
upon conversion of the notes held by persons that are not our affiliates;
and

- June 24, 2005.

Our obligation to keep the registration statement to which this prospectus
relates effective is subject to specified, permitted exceptions set forth in the
registration rights agreement. In these cases, we may prohibit offers and sales
of the notes and shares of common stock issuable upon conversion of the notes
pursuant to the registration statement to which this prospectus relates.

We may suspend the use of this prospectus if we learn of any event that
causes this prospectus to include an untrue statement of a material fact
required to be stated in the prospectus or necessary to make the statements in
the prospectus not misleading in light of the circumstances then existing. If
this type of event occurs, a prospectus supplement or post-effective amendment,
if required, will be distributed to each selling securityholder. Each selling
securityholder has agreed to suspend the use of such prospectus from the time
the selling securityholder receives notice from us of this type of event until
the selling securityholder receives a prospectus supplement or amendment.

100

LEGAL MATTERS

Certain legal matters regarding the notes and shares of common stock into
which notes are convertible will be passed upon for Reliant Resources, Inc. by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.

EXPERTS

The consolidated financial statements and the related financial statement
schedules of Reliant Resources, Inc. as of December 31, 2001 and 2002 and for
each of the three years in the period ended December 31, 2002, incorporated in
this prospectus by reference from the Current Report on Form 8-K of Reliant
Resources, Inc. dated November 14, 2003, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report (which report expresses an
unqualified opinion and includes explanatory paragraphs relating to (i) the
change in method of accounting for derivatives and hedging activities in 2001,
(ii) the change in method of accounting for goodwill and other intangibles in
2002, (iii) the change in method of presenting trading and marketing activities
from a gross basis to net basis in 2002, (iv) the change in method of accounting
for early debt extinguishment, (v) accounting for European energy operations as
discontinued operations, (vi) accounting for Desert Basin plant operations as
discontinued operations, and (vii) the restatement of the 2000 and 2001
consolidated financial statements) which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

The financial statements of El Dorado Energy, LLC as of December 31, 2002
and 2001 and for each of the three years in the period ended December 31, 2002,
incorporated in this prospectus by reference from the Current Report on Form 8-K
of Reliant Resources, Inc. dated November 14, 2003, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the change in method of accounting for derivatives and hedging
activities in 2001) which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

101

APPENDIX A
GLOSSARY OF TERMS

The following terms are used in this prospectus:

Alliance RTO.................. the proposed RTO for all or parts of Missouri,
Illinois, Indiana, Michigan, Ohio, Kentucky,
West Virginia, Pennsylvania, Tennessee,
Virginia and North Carolina.

Bcf........................... one billion cubic feet of natural gas.

Cal ISO....................... California Independent System Operator.

Cal PX........................ California Power Exchange.

CenterPoint................... CenterPoint Energy, Inc., on and after August
31, 2002 and Reliant Energy, Incorporated prior
to August 31, 2002.

CERCLA........................ Comprehensive Environmental Response
Corporation and Liability Act of 1980.

CFTC.......................... Commodity Futures Trading Commission.

Channelview................... Reliant Energy Channelview L.P., one of our
subsidiaries.

CPUC.......................... California Public Utility Commission.

Distribution.................. the distribution of approximately 83% of our
common stock owned by CenterPoint to its
stockholders on September 30, 2002.

Duquesne Light................ Duquesne Light Company

EBITDA........................ earnings (loss) before interest expense,
interest income, income taxes, depreciation and
amortization expense.

ECAR.......................... East Central Area Reliability Coordination
Council.

ECAR Market................... the wholesale electric market operated by ECAR.

EPA........................... Environmental Protection Agency.

ERCOT......................... Electric Reliability Council of Texas.

ERCOT ISO..................... ERCOT Independent System Operator.

ERCOT Region.................. the electric market operated by ERCOT.

FERC.......................... Federal Energy Regulatory Commission.

FPA........................... the Federal Power Act.

FPSC.......................... Florida Public Service Commission.

GridFlorida RTO............... the FERC approved RTO for Florida.

GWh........................... gigawatt hour.

headroom...................... the difference between the price to beat and
the sum of (a) the charges, fees and
transportation and distribution utility rates
approved by the PUCT and (b) the price paid for
electricity to serve price to beat customers.

IPO........................... our initial public offering in May 2001.

A-1

LEP........................... Liberty Electric Power, LLC, one of our
subsidiaries.

Liberty....................... Liberty Electric PA, LLC, one of our
subsidiaries.

MAIN.......................... Mid-America Interconnected Network.

MAIN Market................... the wholesale electric market operated by MAIN.

MISO.......................... Midwest Independent Transmission System
Operator.

MMbtu......................... one million British thermal units.

MW............................ megawatt.

MWh........................... megawatt hour.

Nuon.......................... N.V. Nuon, a Netherlands-based electricity
distributor.

NYISO......................... New York Independent System Operator.

NY Market..................... the wholesale electric market operated by
NYISO.

Orion MidWest................. Orion Power MidWest, L.P., one of our
subsidiaries.

Orion NY...................... Orion Power New York, L.P., one of our
subsidiaries.

Orion Power................... Orion Power Holdings, Inc., one of our
subsidiaries.

OTC........................... over-the-counter market.

PJM........................... PJM Interconnection, LLC.

PJM Market.................... the wholesale electric market operated by PJM
regional transmission organization in all or
part of Delaware, the District of Columbia,
Maryland, New Jersey and Virginia.

PJM West Market............... the wholesale electric market operated by PJM
in the Midwest.

Protocols..................... structure, agreements, tariffs, rules,
regulations, mechanisms and requirements that
govern rates, terms and conditions for
electricity services.

PUCT.......................... Public Utility Commission of Texas.

PUHCA......................... Public Utility Holding Company Act of 1935.

QSPE.......................... qualified special purpose entity.

RECE.......................... Reliant Energy Capital (Europe), Inc., one of
our subsidiaries.

REDB.......................... Reliant Energy Desert Basin, LLC, one of our
subsidiaries.

Reliant Energy................ Reliant Energy, Incorporated and its
subsidiaries.

Reliant Energy Services....... Reliant Energy Services, Inc., one of our
subsidiaries.

REMA.......................... Reliant Energy Mid-Atlantic Power Holdings,
LLC, one of our subsidiaries, and its
subsidiaries.

REPG.......................... Reliant Energy Power Generation, Inc., one of
our subsidiaries.

REPGB......................... Reliant Energy Power Generation Benelux, N.V.,
one of our subsidiaries.

RERH.......................... Reliant Energy Retail Holdings, LLC, one of our
subsidiaries.

RTO........................... regional transmission organizations.

A-2

RTO West...................... the FERC approved RTO for Idaho, Montana,
Nevada, Oregon, Utah and Washington.

SEC........................... Securities and Exchange Commission.

SeTrans RTO................... the FERC approved RTO for all or parts of
Georgia, Alabama, Louisiana, Mississippi,
Arkansas and eastern Texas.

SFAS.......................... Statement of Financial Accounting Standards.

SFAS No. 133.................. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as
amended.

SFAS No. 142.................. SFAS No. 142, "Goodwill and Other Intangible
Assets".

SFAS No. 144.................. SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets".

Share Purchase Agreement...... Share Purchase Agreement, dated as of February
28, 2003, among Reliant Energy Europe Inc.,
Reliant Energy Wholesale (Europe) Holdings
B.V., N.V. Nuon and Reliant Resources, Inc.

SMD........................... the standard market design for the wholesale
electric market proposed by the FERC.

SRP........................... Saltwater River Project Agricultural
Improvement and Power District of the State of
Arizona.

TCE........................... Texas Commercial Energy, a retail electric
provider to ERCOT.

Texas electric restructuring
law........................... Texas Electric Choice Plan adopted by the Texas
legislature in June 1999.

Texas Genco................... Texas Genco Holdings, Inc., a subsidiary of
CenterPoint, and Texas Genco, LP, its
wholly-owned subsidiary.

West Connect RTO.............. the FERC approved RTO for all or part of
Colorado, Arizona, New Mexico and a portion of
Texas.

A-3

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES AND ISSUANCES OF DISTRIBUTION

The following table sets forth all fees and expenses in connection with the
issuance and distribution of the securities being registered hereby (other than
underwriting discounts and commissions). All of such expenses, except the SEC
registration fee are estimated.

SEC registration fee........................................ $ 22,247.50
Attorney's fees and expenses................................ 175,000.00
Independent auditor's fees and expenses..................... 30,000.00
Printing and engraving expenses............................. 55,000.00
Trustee's fees and expenses................................. 3,500.00
Miscellaneous expenses...................................... 25,000.00
-----------
Total............................................. $310,747.50
===========

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of Title 8 of the Delaware Code gives a corporation
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful.

Section 102 of the General Corporation Law of the State of Delaware allows
a corporation to eliminate the personal liability of directors to a corporation
or its stockholders for monetary damages for a breach of a fiduciary duty as a
director, except where the director breached his duty of loyalty, failed to act
in good faith, engaged in intentional misconduct or knowingly violated a law,
authorized the payment of a dividend or approved a stock repurchase or
redemption in violation of Delaware corporate law or obtained an improper
personal benefit.

Section 145 also gives a corporation power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Section 145 further provides that, to the extent that a

II-1

present or former director or officer of a corporation has been successful on
the merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.

Section 145 also authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, arising out of his status as such,
whether or not the corporation would otherwise have the power to indemnify him
under Section 145.

The Registrant's Amended and Restated Bylaws provide for the
indemnification of officers and directors to the fullest extent permitted by the
Delaware General Corporation Law, and the Registrant's Restated Certificate of
Incorporation provides that no director shall be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except as required by law.

All of the Registrant's directors and officers are covered by insurance
policies maintained by the Registrant against certain liabilities for actions
taken in their capacities as such, including liabilities under the Securities
Act of 1933, as amended.

Any of the agents, dealers or underwriters who execute any of the
agreements filed as Exhibit 1 to this Registration Statement will agree to
indemnify the Registrant's directors and their officers who signed the
Registration Statement against certain liabilities that may arise under the
Securities Act with respect to information furnished to the Registrant by or on
behalf of any such indemnifying party.

See "Item 17. Undertakings" for a description of the SEC's position
regarding such indemnification provisions.

ITEM 16. EXHIBITS

See Index to Exhibits at page II-5.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in
II-2

periodic reports filed by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, the State of
Texas, on December 10, 2003.

RELIANT RESOURCES, INC.
(Registrant)

By: /s/ JOEL V. STAFF
------------------------------------
Name: Joel V. Staff
Title: Chairman and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JOEL V. STAFF Chairman and Chief Executive December 10, 2003
-------------------------------------- Officer (Principal Executive
Joel V. Staff Officer)

* Executive Vice President and December 10, 2003
-------------------------------------- Chief Financial Officer
Mark M. Jacobs (Principal Financial Officer)

* Vice President and Controller December 10, 2003
-------------------------------------- (Principal Accounting Officer)
Thomas C. Livengood

* Director December 10, 2003
--------------------------------------
E. William Barnett

* Director December 10, 2003
--------------------------------------
Donald J. Breeding

* Director December 10, 2003
--------------------------------------
Laree E. Perez

* Director December 10, 2003
--------------------------------------
William L. Transier

*By: /s/ JOEL V. STAFF December 10, 2003
------------------------------
Attorney-in-fact

II-4

INDEX TO EXHIBITS

SEC FILE OR
EXHIBIT REPORT OR REGISTRATION EXHIBIT
NUMBER DOCUMENT DESCRIPTION REGISTRATION STATEMENT NUMBER REFERENCE
------- -------------------- ---------------------- ------------ ---------

4.1 Restated Certificate of Incorporation Registration Statement 333-48038 3.1
on Form S-1
4.2 Amended and Restated Bylaws Quarterly Report on 1-16455 3
Form 10-Q for the
Quarterly Period Ended
March 31, 2001
4.3 Specimen Stock Certificate Registration Statement 333-48038 4.1
on Form S-1, dated
October 16, 2000
4.4 Rights Agreement effective as of January 15, Amendment No. 4 to 333-48038 4.2
2001 between Reliant Resources, Inc. and The Registration Statement
Chase Manhattan Bank, as Rights Agent, on Form S-1, dated
including a form of Rights Certificate January 18, 2001
4.5 Indenture, dated as of June 24, 2003, between Registration Statement 333-107295 4.5
Reliant Resources, Inc. and Wilmington Trust on Form S-3, dated
Company, as Trustee July 24, 2003
4.6 Form of 5.00% Convertible Senior Subordinated Registration Statement 333-107295 4.6
Notes due 2010 (included in Exhibit 4.5) on Form S-3, dated
July 24, 2003
4.7 Registration Rights Agreement dated as of June Registration Statement 333-107295 4.7
24, 2003 among Reliant Resources, Inc, on Form S-3, dated
Deutsche Bank Securities Inc., Goldman, Sachs July 24, 2003
& Co. and Banc of America Securities LLC
5 Opinion of Skadden, Arps, Slate, Meagher & Registration Statement 333-107295 5
Flom LLP. on Form S-3, dated
December 10, 2003
8 Opinion of Skadden, Arps, Slate, Meagher & Registration Statement 333-107295 8
Flom LLP on Form S-3, dated
December 10, 2003
12 Ratio of Earnings to Fixed Charges Registration Statement 333-107295 12
on Form S-3, dated
December 10, 2003
*23.1 Consent of Deloitte & Touche LLP
23.2 Consents of Skadden, Arps, Slate, Meagher & Registration Statement 333-107295 23.2
Flom LLP (included in Exhibit 5 and Exhibit 8, on Form S-3, dated
respectively) December 10, 2003
24 Power of Attorney Registration Statement 333-107295 24
on Form S-3, dated
July 24, 2003
25.1 Form T-1 Statement of Eligibility and Registration Statement 333-107295 25.1
Qualification under the Trust Indenture Act of on Form S-3, dated
1939, under the Indenture July 24, 2003

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

* Filed herewith.

II-5