Reliant Energy Inc. (RRI) said Monday that it swung to a net loss in the fourth-quarter on $543 million in write-downs and hedging losses.

The Houston-based electricity supplier also said it would sell its Texas retail business - the bulk of its distribution business - to NRG Energy Inc. (NRG) for $287.5 million in cash plus working capital. Reliant Chief Executive Mark Jacobs said the company is continuing to consider ways to boost value for shareholders, and called the sale a milestone in the strategic-alternatives process.

NRG Energy said the combination of Reliant's estimated 1.8 million customers in Texas combined with NRG's power plants in the state will provide an "ideal business model." Using NRG's power plants to meet the power demand of Reliant's customers reduces the capital needs of the business, which had become a problem for Reliant.

In a conference call, NRG Chief Executive David Crane said the company isn't looking to expand the retail electricity business beyond Texas, seeing the state's deregulated market as a unique opportunity where NRG/Reliant combination has a comparative advantage.

In addition, NRG reached an agreement with Merrill Lynch to provide collateral support at the retail enterprise for up to 18 months as NRG moves to have its own generation supply Reliant's retail business. Reliant is being sued by Merrill as the investment bank disputes the energy company's termination of a $300 million credit line, claiming it triggers the default of an additional agreement.

The deal, expected to close in the second quarter, comes as NRG's board fends off an unsolicited bid from Exelon Corp. (EXC). Exelon in November launched an exchange offer to pay a fixed ratio of 0.485 Exelon share for each NRG share. Exelon went directly to shareholders after NRG's board dismissed the same offer, saying it "grossly undervalues" the company. The Chicago company said last week 51% of NRG's shareholders had tendered their shares in support of the proposed deal by a deadline last week.

An Exelon spokesman said he couldn't comment immediately.

U.S. power generators and utilities are being hurt not only by slumping electricity demand, but also by tumbling natural-gas prices. Natural-gas prices help set the market price for electricity.

In November, Reliant said it would wind down its commercial and industrial retail power-supply business amid market turmoil and the credit crunch. The company reassured investors soon afterward it had adequate liquidity as it announced it wouldn't proceed with $1 billion in loans, which some on Wall Street said were too expensive.

Still, Reliant has continued to unload assets, selling its Northeastern electricity marketing business to Hess Corp. (HES) in December. The Texas retail operations since became the bulk of its non-generation operations.

Meanwhile, Reliant swung to a fourth-quarter net loss of $437.7 million, or $1.25 a share, from year-earlier net income of $227 million, or 64 cents a share. The prior year included $277 million in hedging gains. Revenue fell 2.9% to $2.58 billion, rising 8.9% in the retail business but slumping 35% at the wholesale end.

While the slump in electricity demand and prices has weighed heavily on power producers' shares, strategies for how to handle the change in power prices vary from company to company. Compared with some of its peers, Reliant has less of its power sales locked up, making it more susceptible to changes in market prices.

Shares of Reliant, which slashed its 2009 and 2010 earnings target to reflect the planned divestiture, closed Friday at $3.46 and were down 7.5% at $3.20 apiece in pre-open electronic trading. The stock is down 45% so far this year.

The company pegged its earnings before interest, taxes, depreciation and amortization, adjusted to reflect wholesale hedges and sales of assets and emission and exchange allowances, at $292 million for 2009, and at $529 million for 2010.

-By Mark Peters, Mike Barris and Kerry E. Grace, Dow Jones Newswires; 201-938-4604; mark.peters@dowjones.com