We are maintaining our fair value estimate for RRI Energy RRI after the company reported third-quarter results largely in line with our expectations and, more important, confirmed our outlook for 2010. The GAAP net loss from continuing operations for the quarter was $18.3 million, or $0.05 per share, versus net income of $93.6 million or $0.27 per share in the year-ago period. However, with large swings in mark to market, we do not consider net income to be a very useful number. On an EBITDA basis, the company generated roughly $135 million in the quarter after adjusting for mark to market, versus roughly $203 million in 2008. Weak demand because of the recession and cool weather in Pennsylvania, along with low natural gas prices and above-market coal hedges, combined for a very difficult operating environment for this coal-heavy generator, leading to weak results as anticipated. Management provided revised estimates for 2010 earnings before interest, taxes, depreciation, and amortization of $455 million, adjusted for mark to market, close to our estimate of $420 million. We also heard some confirmation that smaller, less efficient coal plants are increasingly less attractive to operate. RRI is not going to invest in controls and performance at its lower-margin plants, signaling a high probability of shutdown in the next few years if power prices remain low, additional emission regulation notwithstanding.

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