Power generation company NRG Energy Inc. said Monday it will buy retailer Reliant Energy Inc., a combination that eliminates expensive credit requirements at a time when other retailers struggle to meet them.

The $388 million deal, including $287.5 million in cash and about $100 million in working capital, is a lifeline to Reliant, and it reunites the Houston retailer with some of the power plants that have long supplied its customers. Both Reliant and NRG's Texas power plants were part of Houston Power & Light before electricity deregulation.

Now that credit is expensive, some retail electricity providers are finding a benefit to hooking up with power generators. The combination eliminates some collateral requirements and helps retailers manage volatile wholesale power prices.

"We think that by taking out the middleman, we expect to be very competitive and that Texas consumers will benefit from that," said NRG chief executive David Crane.

NRG aims to complete the deal late in the second quarter.

Reliant, a Houston-based retailer with 1.8 million customers, put itself up for sale last year. The company hadn't protected itself from wholesale price spikes during the summer and then lost money when electricity use dropped in Houston after Hurricane Ike hit.

Reliant reported Monday that it lost $438 million in the fourth quarter, down from a profit of $227 million the year before.

The deal could turn up the heat on Exelon Corp., a Chicago power company that wants to buy NRG.

Last week, Exelon reported that NRG shareholders have tendered 51 percent of their shares, a nonbinding agreement to sell the shares to Exelon should a deal take place. NRG interpreted the results to mean that a majority of its shareholders would like executives to explore a merger.

Wachovia analysts said in a research note Monday that the Reliant purchase "could force Exelon to revisit (and, from NRG's vantage point, raise) its offer."

Crane said Reliant customers shouldn't notice any change in service.

The announcement comes as the Texas Legislature convenes, with electricity an important topic. During the last legislative session two years ago, TXU Corp. announced that it would be purchased by private equity companies. Some lawmakers were skeptical that such a big buyout could be good for consumers, and TXU lobbied heavily to block laws that could have sunk the deal.

This time, key lawmakers sound less worried about a merger.

"In this context, it may be in the best interest for a variety of folks to have this take place," said Rep. Burt Solomons, R-Carrollton, chairman of the State Affairs Committee, which handles electricity issues.

His counterpart in the Senate, Troy Fraser, R-Horseshoe Bay, said he plans to monitor the deal.

Last session, Fraser, chairman of the Business and Commerce Committee, proposed legislation that would have caused big power companies to shrink.

"TXU, after the end of last session, made some very major concessions to the customers in their marketing area, and I'm anxious to see if that same type of thing is offered to customers in the Houston area" by NRG, Fraser said.

He referred to TXU's promises to cut retail rates, shelve plans to build some coal-fired power plants and invest in energy efficiency.