File No. 070-10265
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.1
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Utility Holding, LLC
200 West Ninth Street Plaza
Suite 411
Wilmington, Delaware 19801
(Name of companies filing this statement and address of principal executive
offices)
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(Name of top registered holding company parent of each applicant or declarant)
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(713) 207-7451
The Commission is also requested to send copies
of any communications in connection with this matter to:
James R. Doty, Esq. Margo S. Scholin, Esq.
Joanne C. Rutkowski, Esq. Baker Botts L.L.P.
Baker Botts L.L.P. 3000 One Shell Plaza
The Warner Houston, Texas 77002-4995
1299 Pennsylvania Avenue, N.W. (713) 229-1234
Washington, D.C. 20004-2400
(202) 639-7700
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time, we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements, that are not historical facts.
These statements are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those expressed or implied by these statements. You can
generally identify our forward-looking statements by the words "contemplate,"
"may," "propose," "should," "will," "would" or other similar words.
We have based our forward-looking statements on our management's
beliefs and assumptions based on information available to our management at the
time the statements are made. We caution you that assumptions, beliefs,
expectations, intentions and projections about future events may and often do
vary materially from actual results. Therefore, we cannot assure you that actual
results will not differ materially from those expressed or implied by our
forward-looking statements.
Some of the factors that could cause actual results to differ
materially from those expressed or implied in forward-looking statements are
discussed under "Risk Factors" in Item 1 of Part I of the Annual Report of
CenterPoint on Form 10-K for the fiscal year ended December 31, 2003.
The reader should not place undue reliance on forward-looking
statements. 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 statements.
TABLE OF CONTENTS
PAGE
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ITEM 1. DESCRIPTION OF POSSIBLE TRANSACTION............................... 1
A. REQUESTED AUTHORIZATION.................................... 1
B. BACKGROUND................................................. 1
ITEM 2. FEES, COMMISSIONS AND EXPENSES.................................... 4
ITEM 3. APPLICABLE STATUTORY PROVISIONS................................... 4
A. APPLICABLE PROVISIONS...................................... 4
B. RULE 54 ANALYSIS........................................... 4
ITEM 4. REGULATORY APPROVAL............................................... 5
ITEM 5. PROCEDURE......................................................... 5
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS................................. 5
A. EXHIBITS................................................... 5
B. FINANCIAL STATEMENTS....................................... 5
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS........................... 5
ITEM 1. DESCRIPTION OF POSSIBLE TRANSACTION
A. REQUESTED AUTHORIZATION
CenterPoint Energy, Inc. ("CenterPoint") and Utility Holding, LLC
("Utility Holding" and, together with CenterPoint, the "Applicants") hereby
amend and restate in its entirety their Application-Declaration pursuant to
Section 12(c) of the Public Utility Holding Company Act of 1935 (the "1935 Act"
or "Act") and Rule 46 thereunder, asking the Commission to authorize Utility
Holding to declare and pay a dividend to CenterPoint in respect of the sale of
Texas Genco Holdings, Inc. ("Texas Genco").
B. BACKGROUND
1. Applicants
CenterPoint is a registered holding company, and Utility Holding is
its wholly-owned registered holding company subsidiary. As explained in the
Commission's order dated July 5, 2002, CenterPoint holds its utility interests
through Utility Holding, a Delaware limited liability company that is a conduit
entity formed solely to minimize tax liability. Reliant Energy, Inc., Holding
Co. Act Release No. 27548. Utility Holding also holds CenterPoint's interests in
non-utility subsidiaries such as Texas Genco.(1)
2. Update on Texas Restructuring and Sale of Texas Genco
As explained in more detail below, CenterPoint expects to receive
approximately $2.9 billion in cash proceeds from the sale of Texas Genco. These
proceeds will flow through Utility Holding, which will dividend them to
CenterPoint, which will use the proceeds to repay parent company debt. Because
of impacts on its capital structure from the accounting charges described below,
Utility Holding is expected to have insufficient retained earnings to dividend
the proceeds from that sale to CenterPoint without specific authorization from
the Commission.
CenterPoint is in the process of completing the final steps in a
process that began when Texas adopted legislation designed to deregulate and
restructure the electric utility industry in the state. As discussed in previous
applications, that legislation (the "Texas Electric Restructuring Law") required
integrated electric utilities like CenterPoint's predecessor, Reliant Energy,
Incorporated ("REI") to separate their generating, transmission and distribution
and retail sales functions pursuant to plans approved by the Public Utility
Commission of Texas (the "Texas Commission").
The separation plan approved for REI provided for the complete
separation of (i) REI's transmission and distribution functions and its other
regulated operations (including its gas distribution and pipeline businesses)
from (ii) the unregulated retail electric business and other unregulated
businesses of REI, such as its trading, marketing and competitive generation
businesses. That separation was accomplished in the fall of 2002 when, after a
restructuring in which it became the parent entity, CenterPoint distributed to
its shareholders its remaining ownership interest in its subsidiary, Reliant
Resources. In order to facilitate compliance with the
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(1) Texas Genco is a sister company, and not a subsidiary, of CenterPoint Energy
Houston Electric, LLC (the "T&D Utility "). Nothing in the proposed transaction
will affect the ability of the T&D Utility and CenterPoint Energy Resources
Corp. (together, the "Utility Subsidiaries") to continue to comply with the
terms and conditions of the order dated June 30, 2003 (HCAR No. 27692) (the
"Omnibus Financing Order"), including the requirement that each of the Utility
Subsidiaries maintain a minimum of 30% consolidated common equity
capitalization.
1
Texas Electric Restructuring Law, CenterPoint retained ownership of the newly
deregulated Texas generating assets (which were placed in Texas Genco at the
time of CenterPoint's formation) pending determination of stranded costs by the
Texas Commission under the law.
The Texas Electric Restructuring Law contains provisions that allow
the utility to recover the amount by which the market value of its generating
assets, as determined by the Texas Commission under a formula prescribed in such
law, is below its regulatory book value for those assets as of the end of 2001.
It also allows the utility to recover certain other transition costs, such as a
final fuel reconciliation balance, regulatory assets and an amount (called
"ECOM") designed to true-up the difference between the Texas Commission's
projected market prices for generation during 2002 and 2003 and the actual
market prices for generation as determined in the state-mandated capacity
auctions during that period. That determination is currently underway in a
proceeding that began for CenterPoint on March 31, 2004 (the "True-Up
Proceeding"). Hearings on CenterPoint's application were held before the Texas
Commission in June, July and September. In addition, during August, September
and October, the Texas Commission held open meetings to consider various issues
raised in the hearings, but a written decision is not expected until later in
November, 2004.
Once the amounts that the T&D Utility may recover have been
determined, the T&D Utility will file to begin to recover those amounts, plus a
return, through a non-bypassable charge to customers. CenterPoint will then also
seek an order by the Texas Commission (the "Financing Order") that will permit
CenterPoint to recover the amounts determined by the Texas Commission through
the issuance of securitization or "transition" bonds.(2) Proceeds from any
securitization bond offerings would be used to reduce debt both at the T&D
Utility, including its $1.31 billion term loan that matures in November 2005,
and at CenterPoint.
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(2) Those securitization bonds will be issued through a special purpose entity
that will be a subsidiary of the T&D Utility, but they will be non-recourse to
the utility. In the Omnibus Financing Order, the Commission reserved
jurisdiction over a request by CenterPoint to form and capitalize one or more
special-purpose subsidiaries of the T&D Utility to issue securitization bonds to
monetize and recover the balance of stranded costs related to previously owned
electric generation assets and other qualified costs as may be determined in
proceedings before the Texas Commission and, as may be required, for authority
for such subsidiaries to transfer the proceeds to the T&D Utility, Utility
Holding, LLC and CenterPoint.
2
CenterPoint and Utility Holding recorded an after-tax charge to
earnings in the third quarter of 2004 of approximately $894 million.(3) The
charge was recorded before the Texas Commission rendered its final decision and
was based on CenterPoint's understanding of the Texas Commission's deliberations
during previous public meetings. On November 10, 2004, the Texas Commission
voted to approve a draft order and, based on that order, CenterPoint and
Utility Holding do not believe that they will be required to take any
additional material charges to earnings in connection with the True-Up
Proceeding.
A second part of CenterPoint's plan to achieve a more traditional
capital structure involves the sale of Texas Genco. On July 21, 2004,
CenterPoint and Texas Genco announced a definitive agreement for GC Power
Acquisition LLC ("GC Power"), a newly formed entity owned in equal parts by
affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis
Roberts & Co. L.P. and Texas Pacific Group, to acquire Texas Genco.
The transaction will be accomplished in two steps. In the first
step, expected to be completed in the fourth quarter of 2004, Texas Genco will
purchase the approximately 19% of its shares owned by the public, at a price of
$47 per share, and will sell its fossil-fueled generating business to GC Power.
In that sale, CenterPoint expects to receive substantial cash proceeds from the
closing of the first stage in its sale of Texas Genco.
In the second step of the transaction, expected to take place in the
first half of 2005, following receipt of approval by the Nuclear Regulatory
Commission, Texas Genco will merge with a subsidiary of GC Power and thus will
transfer its interest in the South Texas Project nuclear facility, which will
then be Texas Genco's only remaining generating asset. Total cash proceeds to
CenterPoint from both steps will be approximately $2.9 billion for CenterPoint's
81% interest in Texas Genco. CenterPoint intends to use the net after-tax
proceeds of about $2.5 billion to retire existing debt.
Under generally accepted accounting principles ("GAAP"), Texas Genco
is now treated as discontinued operations. Therefore, effective in the third
quarter of 2004, CenterPoint has adjusted its investment account to reflect the
net realizable value for Texas Genco. Because the net realizable value was less
than the carrying amount, CenterPoint reduced its investment account accordingly
and recognized a loss on the sale of Texas Genco of $253 million in the third
quarter of 2004.(4)
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(3) See Quarterly Report on Form 10-Q, for the period ended September 30, 2004
(SEC File No. 1-31447).
(4) Id.
3
Proceeds received from the sale of Texas Genco will be used to repay
CenterPoint debt. In the first stage of the sale transaction, Texas Genco will
receive cash for the sale of its fossil generating business to GC Power and will
dividend $2.231 billion of those proceeds to Utility Holding. Utility Holding in
turn will simultaneously dividend that amount to CenterPoint, which will repay
bank debt and release the pledge that the banks hold on the Texas Genco common
stock owned by CenterPoint. In the second step, Utility Holding will receive
$700 million in cash for the sale of its stock in Texas Genco and will dividend
that amount to CenterPoint.
4. Request for Relief
Because it is the vehicle through which CenterPoint holds its
utility interests, Utility Holding has also recorded a substantial charge to its
retained earnings account in connection with the extraordinary events of the
sale of Texas Genco and the True-Up Proceeding. That charge affects Utility
Holding's ability to pay dividends to CenterPoint. In addition, the magnitude
of the proposed dividends in respect of the two steps of the sale of Texas
Genco would exceed the ability of Utility Holding to proceed without
Commission order. As noted previously, Utility Holding is essentially a
pass-through entity without operating activities. Applicants seek an order to
authorize Utility Holding to declare and pay dividends to CenterPoint of the
proceeds received from the sale of Texas Genco, where such dividends would be
declared and paid from Utility Holding's capital account. As explained
previously, CenterPoint intends to use these proceeds to pay down debt and
otherwise improve the credit profile of the system.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses paid or incurred or to be
incurred in connection with this Amendment are estimated to be $20,000, plus the
fees paid in connection with the proposed refunding transactions.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
A. APPLICABLE PROVISIONS
Section 12(c) of the Act and Rule 46 thereunder are considered
applicable to the proposed transactions. To the extent that the proposed
transactions are considered by the Commission to require authorizations,
exemption or approval under any section of the Act or the rules and regulations
thereunder other than those set forth above, request for such authorization,
exemption or approval is hereby made.
B. RULE 54 ANALYSIS
The proposed transactions are subject to Rule 54 under the Act,
which refers to Rule 53. Rule 54 under the Act provides that in determining
whether to approve certain transactions other than those involving exempt
wholesale generators ("EWGs") or foreign utility companies ("FUCOs"), as defined
in the Act, the Commission will not consider the effect of the capitalization or
earnings of any Subsidiary which is an EWG or FUCO if Rule 53(a), (b) and (c)
under the Act are satisfied. Texas Genco, LP and Texas Genco II, LP, a newly
formed entity, have been qualified as EWGs, but CenterPoint does not intend to
seek any long-term financing authority in connection therewith.(5)
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(5) Texas Genco II, LP was formed solely for the purpose of facilitating the
sale of Texas Genco.
4
As a result of the Restructuring authorized in the Initial Order (as
such term is defined in the Initial Order), CenterPoint had negative retained
earnings as of December 31, 2003, and so is not in compliance with Rule
53(a)(1). CenterPoint complies with, and will continue to comply with, the
record-keeping requirements of Rule 53(a)(2) under the Act, the limitation under
Rule 53(a)(3) under the Act on the use of domestic public-utility company
personnel to render services to EWGs and FUCOs, and the requirements of Rule
53(a)(4) under the Act concerning the submission of copies of certain filings
under the Act to retail regulatory commissions. Further, none of the
circumstances described in Rule 53(b) under the Act has occurred or is
continuing. Rule 53(c) under the Act is by its terms inapplicable to the
transactions proposed herein that do not involve the issue and sale of
securities (including guarantees) to finance an acquisition of an EWG or FUCO.
ITEM 4. REGULATORY APPROVAL
No state or federal commission other than the Commission has
jurisdiction with respect to any of the proposed transactions described in this
Amendment.
ITEM 5. PROCEDURE
Applicant requests that the Commission's order be issued as soon as
possible, and that there should not be a 30-day waiting period between issuance
of the Commission's order and the date on which the order is to become
effective. Applicant hereby waives a recommended decision by a hearing officer
or any other responsible officer of the Commission and consents that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
F-1 Opinion of Counsel (to be filed by amendment)
F-2 Past Tense Opinion of Counsel (to be filed by amendment)
H-1 Form of Notice (previously filed)
B. FINANCIAL STATEMENTS
FS-2 Consolidated Balance Sheets of CenterPoint as of December 31, 2003 and
Statements of Consolidated Income and Statements of Consolidated Cash Flows for
the twelve months ended December 31, 2003 (incorporated by reference to
CenterPoint's Annual Report on Form 10-K for the year ended December 31, 2003
(File No. 1-31447)).
FS-3 Consolidated Balance Sheets of CenterPoint as of September 30, 2004
(unaudited) and Statements of Consolidated Income and Statements of
Consolidated Cash Flows for the nine months ended September 30, 2004
(unaudited) (incorporated by reference to CenterPoint's Quarterly Report on
Form 10-Q for the nine months ended September 30, 2004 (File No. 1-31447)).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The proposed transaction involves neither a "major federal action"
nor "significantly affects the quality of the human environment" as those terms
are used in Section
5
102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321 et seq.
No federal agency is preparing an environmental impact statement with respect to
this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, as amended, the Applicant has duly caused this Amendment No. 1 to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 17, 2004
CENTERPOINT ENERGY, INC.
and its Subsidiaries
By: /s/ Rufus S. Scott
--------------------------
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
6