File No. 070-10329
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1/A
AMENDMENT NO. 1
TO
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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CenterPoint Energy, Inc.
CenterPoint Energy Houston Electric, LLC
CenterPoint Energy Transition Bond Company II, LLC
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 addresses
of principal executive offices)
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CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(Name of top registered holding company parent)
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Rufus S. Scott
CenterPoint Energy, Inc.
Vice President, Deputy General Counsel and Assistant Corporate Secretary
1111 Louisiana
Houston, Texas 77002
(713) 207-7451
(Name and address of agent for service)
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The Commission is also requested to send copies
of any communications in connection with this matter to:
James R. Doty Margo S. Scholin
Joanne C. Rutkowski Baker Botts L.L.P.
Baker Botts L.L.P. 3000 One Shell Plaza
The Warner Houston, Texas 77002-4995
1299 Pennsylvania Ave., NW (713) 229-1234
Washington, DC 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 Energy, Inc. on Form 10-K for the fiscal year ended December 31,
2004.
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.
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TABLE OF CONTENTS
ITEM 1 Description of Proposed Transaction................................................................1
A. Introduction.............................................................................................1
B. Summary of Request.......................................................................................1
C. Regulatory History.......................................................................................3
D. Transition Bonds.........................................................................................5
E. Transition Property Servicing Agreement..................................................................7
F. Administration Agreement.................................................................................8
G. Dividend Authority and Use of Proceeds...................................................................9
H. Hedging Transactions.....................................................................................9
I. Indemnifications.........................................................................................9
J. CEHE Capitalization.....................................................................................10
ITEM 2 Fees, Commissions and Expenses....................................................................10
ITEM 3 Applicable Statutory Provisions...................................................................10
ITEM 4 Regulatory Approval...............................................................................11
ITEM 5 Procedure.........................................................................................11
ITEM 6 Exhibits and Financial Statements.................................................................12
ITEM 7 Information as to Environmental Effects...........................................................13
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CenterPoint Energy, Inc., Utility Holding, LLC, CenterPoint
Energy Houston Electric, LLC, and CenterPoint Energy Transition Bond Company II,
LLC (together, "Applicants") hereby amend and restate their
Application-Declaration as follows.
ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION.
A. Introduction
By Holding Company Act Release No. 27919, File No. 70-10128,
dated November 30, 2004, the Securities and Exchange Commission (the
"Commission") authorized CenterPoint Energy, Inc. ("CenterPoint"), a registered
holding company under the Public Utility Holding Company Act of 1935 (the
"Act"), and CenterPoint Energy Houston Electric, LLC ("CEHE")(1) to form and
capitalize CenterPoint Energy Transition Bond Company II, LLC (the "Issuer") as
a direct, wholly-owned subsidiary of CEHE, to issue securitized transition bonds
(the "Transition Bonds").(2) Applicants request authorization in this
application/declaration (this "Application") to issue the Transition Bonds, as
more fully described below.(3)
B. Summary of Request.
To facilitate the issuance of Transition Bonds, CenterPoint,
Utility Holding, LLC ("Utility Holding"), CEHE and the Issuer (together, the
"Applicants"), for the period beginning with the effective date of an order
issued pursuant to this filing and continuing through the effective date of the
repeal of the Act pursuant to the Energy Policy Act of 2005 (the "Authorization
Period"), seek authority for:
1. CEHE to sell, pledge or assign transition property (as
described herein) to the Issuer from time to time in exchange
for the net proceeds from the sale of one or more series of
Transition Bonds, as described more fully in the transition
property sale agreement, a form of which is attached as
Exhibit B-1;
2. The Issuer to issue and sell Transition Bonds from time to
time, pursuant to an underwriting or purchase agreement, in an
aggregate principal amount authorized and approved by the
Texas Commission, not to exceed approximately $2 billion, as
described more fully in the section entitled "Financing Order"
in Item 1.C. below and the Registration Statement on Form S-3
(File No. 333-121505) attached as Exhibit A-4, as amended from
time to time (the "Form S-3");
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(1) CEHE has been referred to as the "T&D Utility" in previous filings and may
be referred to as such in certain of the exhibits to this Amendment.
(2) Applicants are also subject to general financing parameters pursuant to
Holding Company Act Release No. 27989, File No. 70-10299, dated June 29, 2005
(the "Omnibus Financing Order").
(3) As described more fully below, Applicants had been unable to issue
Transition Bonds due to the pendency of an appeal taken by several parties from
the Financing Order issued by the Public Utility Commission of Texas ("Texas
Commission"). On August 4, 2005, the Texas district court considering that
appeal affirmed the Financing Order, which became final and unappealable on
August 19, 2005. Applicants are seeking to issue Transition Bonds prior to the
repeal of the Act, upon receipt of the Commission's order in this matter.
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3. The Issuer to enter into interest rate swaps, interest rate
hedging programs, and credit enhancement arrangements to
reduce the interest rate and credit risks with respect to, and
to facilitate the issuance of, Transition Bonds as described
more fully in the Form S-3;
4. CEHE or any successor entity, or another affiliate to act as
the servicer of the transition property for the Issuer and
enter into one or more transition property servicing
agreements, a form of which is attached as Exhibit B-2;
5. CEHE or any successor entity, or another affiliate to act as
the administrator for the Issuer and enter into one or more
administration agreements, a form of which is attached as
Exhibit B-3;
6. The Issuer to use the proceeds from the issuance of Transition
Bonds to pay the expenses of issuance and to purchase the
transition property from CEHE. CEHE will use these proceeds to
reduce stranded costs through the retirement of debt or
equity, or both, to adjust its capitalization on its
regulatory books, and to pay related expenses;
7. CEHE and Utility Holding to dividend the transition property
sale proceeds (or a portion thereof) from CEHE to Utility
Holding and from Utility Holding to CenterPoint.(4)
CenterPoint will use such proceeds to reduce debt at
CenterPoint and otherwise improve the capital structure of the
CenterPoint system;
8. CEHE to enter into the indemnity provisions of the transition
property sale agreement through which it may indemnify the
Issuer, the trustee and certain of their affiliates pursuant
to the terms of the transition property sale agreement; CEHE,
as servicer, to enter into the indemnity provisions of the
transition property servicing agreement through which it may
indemnify the Issuer, the trustee, certain affiliates of the
trustee and the Texas Commission (for the benefit of CEHE's
customers) pursuant to the terms of the transition property
servicing agreement; and the Issuer to enter into the
indemnity provisions of its limited liability company
agreement, a copy of which is attached as Exhibit A-2,(5)
through which it may indemnify its managers pursuant to the
limited liability company agreement, all as further described
herein and therein; and
9. CEHE to make capital contributions to the Issuer and, subject
to limitations, receive interest and other investment earnings
thereon, as is standard in transition charge securitization
financing, all as authorized and approved by the Texas
Commission.
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(4) The payment of dividends will represent a return of capital rather than a
return on capital. Consistent with accounting treatment, authority is requested
to pay dividends out of capital or unearned surplus pursuant to Section 12(c) of
the Act.
(5) A form of the Issuer's Amended and Restated Limited Liability Company
Agreement is attached as Exhibit A-3.
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The Applicants request such other authority not enumerated
above as may be described herein.
C. Regulatory History.
The Texas Electric Restructuring Law. The Texas Electric
Restructuring Law (the "Restructuring Law") was enacted by the Texas legislature
in June 1999 and became effective on September 1, 1999. The Restructuring Law
substantially amended the regulatory structure governing electric utilities in
Texas in order to allow retail competition for electric customers. It also
required integrated utilities to separate their generating, transmission and
distribution and retail sales functions pursuant to plans approved by the Texas
Commission.
True-Up Proceeding. The Restructuring Law allows utilities to
recover certain costs associated with the transition to a competitive retail
electric market in Texas. It 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 the
Restructuring 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. The Restructuring Law provides for recovery of the
stranded costs and other transition related costs, as determined in a final
true-up proceeding, through non-bypassable competition transition charges on
retail electric customers' bills or through the issuance of Transition Bonds to
be paid and secured by non-bypassable transition charges.
On March 31, 2004, CEHE, Texas Genco, LP and Reliant Energy
Retail Services, LLC(6) jointly applied to the Texas Commission for an order
determining CEHE's 2004 true-up balance pursuant to the Restructuring Law, as
described above. In December 2004, the Texas Commission approved a final order
in CEHE's true-up proceeding (the "True-Up Order") authorizing CEHE to recover
approximately $2.3 billion of stranded costs and interest accrued through August
31, 2004, subject to adjustments to reflect the benefit of certain deferred
taxes and the accrual of interest and payment of excess mitigation credits after
August 31, 2004.(7)
Financing Order. The Restructuring Law authorizes the Texas
Commission to issue financing orders approving the issuance of Transition Bonds
to recover certain qualified costs of an electric utility. Qualified costs are
the costs of an electric utility recoverable through the issuance of Transition
Bonds, the costs of issuing, supporting and servicing the Transition Bonds, and
any costs of retiring and refunding existing debt and equity securities in
connection
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(6) The Restructuring Law requires the power generation company and the retail
electric provider that are "affiliated with" the former integrated electric
utility to be parties to the application. Thus Reliant Energy Retail Services
was an applicant even though at the time it no longer had any legal affiliation
with CenterPoint Energy or its subsidiaries.
(7) CEHE and other parties to the True-Up Proceeding have appealed certain of
the Texas Commission's rulings through appeals to Texas state courts
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with the issuance of Transition Bonds. The Restructuring Law permits a utility,
its successors or a third-party assignee of a utility to issue Transition Bonds.
As a practical matter, Transition Bonds are issued through a special purpose
entity like CenterPoint Energy Transition Bond Company II, LLC which is designed
to be a bankruptcy remote entity. Under the Restructuring Law, proceeds of
Transition Bonds must be used to reduce the amount of recoverable qualified
costs through the refinancing or retirement of the electric utility's debt or
equity, and may have a maximum maturity of 15 years. The Transition Bonds are
secured by, and payable from, transition property, which includes the right to
impose, collect and receive the transition charges.
On December 2, 2004, CEHE filed an application with the Texas
Commission for a financing order to permit securitization of the sum of the
total balance determined by the Texas Commission in the True-Up Order, which
balance would be adjusted downward to reflect the benefit of certain deferred
taxes previously recovered through rates, and upward to reflect the accrual of
interest and payment of excess mitigation credits occurring after August 31,
2004. On March 16, 2005, the Texas Commission issued the financing order (the
"Financing Order") allowing CEHE to securitize approximately $1.494 billion plus
(i) the amount of excess mitigation credits provided by CEHE after August 31,
2004, (ii) interest on the stranded cost amount accrued after August 31, 2004
through the date of issuance of the Transition Bonds and (iii) certain up-front
qualified costs related to the issuance of the Transition Bonds.(8) As a result
of a settlement reached in a separate proceeding, excess mitigation credits were
terminated as of April 29, 2005. Assuming the Transition Bonds are issued no
later than December 31, 2006, CenterPoint projects that, with interest from
August 31, 2004 to the date of issuance, the amount of Transition Bonds issued
would be no more than $2 billion. The total amount of Transition Bonds to be
issued will be determined by the Texas Commission prior to their issuance.
The Transition Bonds will be issued by the Issuer and the
principal amount and interest on the bonds will be amortized through
non-bypassable transition charges imposed on
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(8) Texas Commission Docket No. 30485. Several parties filed appeals of the
Financing Order with the district court in Travis County, Texas. The pendency of
those appeals precluded the issuance of the Transition Bonds until those appeals
were resolved. Prior to the appeals, it had been expected that approximately
$1.8 billion in Transition Bonds could be issued by mid-2005 under the terms of
the Financing Order. During the delay, the amount of bonds that could be issued
under the Financing Order increased as interest accrued on the un-recovered
balance of stranded costs. On August 4, 2005, the District Court affirmed the
Financing Order, which became final and unappealable on August 19, 2005.
The Restructuring Law also provides an alternative mechanism for the recovery of
stranded costs: a utility may recover all or a portion of the amounts it is
authorized to recover under the True-Up Order through a competition transition
charge (or CTC) approved by the Texas Commission. In general, the retail
electric customers within the utility's service territory as it existed on May
1, 1999 will be assessed CTCs regardless of whether the retail electric
customers receive service from the utility that historically served them or
another entity. CTCs are similar to transition charges in the way they are
imposed and collected, but CTCs are not securitized. In January 2005, CEHE filed
an application for a CTC to recover the entire true-up balance (plus accrued
interest and excess mitigation credits). On July 14, 2005, CEHE received an
order from the Texas Commission allowing CEHE to implement a CTC to collect
approximately $570 million over 14 years plus interest at an annual rate of
11.075%. Based on the accrual of interest provided for in the CTC order, this
amount increased to approximately $597 million by the time the CTC was
implemented on September 13, 2005. The CTC order also allows CEHE to collect
approximately $24 million of rate case expenses over three years.
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CEHE's customers, as authorized by the Texas Commission. The obligations on the
bonds will be non-recourse to CEHE and to all other entities in the CenterPoint
system other than the Issuer.
D. Transition Bonds.
Basic Characteristics. The Issuer may issue Transition Bonds
in one or more series, each made up of one or more classes, up to an amount
authorized by the Texas Commission, secured by its right, title and interest in
and to the transition property. Different series may have different interest
rates, which may be at fixed or floating rates, and amortizations of principal,
and each series may have classes with different interest rates and amortizations
of principal. Under the Restructuring Law, the Transition Bonds must be fully
repaid within 15 years of the date of issuance. It is expected to be a condition
of issuance that each series of Transition Bonds be rated "Aaa" by Moody's
Investors Service, Inc., "AAA" by Standard and Poor's Rating Services, a
Division of The McGraw-Hill Companies, and "AAA" by Fitch, Inc, but in any
event, CEHE will comply with the investment grade criteria set forth in the
Omnibus Financing Order.
Creation of Transition Property. The Restructuring Law permits
an electric utility, such as CEHE, to form a special purpose entity like the
Issuer and to transfer to that entity its rights and interests under the
Financing Order, including the right to impose, collect and receive transition
charges. Such an entity is authorized to issue Transition Bonds, secured by the
right to receive revenues arising from the transition charges. Once transferred
to the Issuer, CEHE's right to receive the transition charges, all revenues and
collections resulting from the transition charges and its other rights and
interests under the Financing Order will constitute transition property. The
transition property includes the right to impose, collect and receive, through
the applicable transition charges payable by retail electric customers within
CEHE's service territory, an amount sufficient to recover the qualified costs of
CEHE authorized in the financing order, including the right to receive
transition charges in amounts and at times sufficient to pay principal and
interest and to make other deposits in connection with the Transition Bonds.
Under the terms of the Financing Order, CEHE's qualified costs include a portion
of CEHE's 2004 true-up balance, up-front costs of issuing, supporting and
servicing the Transition Bonds and certain costs of retiring and refunding
CEHE's existing debt and equity securities in connection with the issuance of
the Transition Bonds.
Protection of Transition Property. A financing order, once
effective, including the transition charges authorized in the order, is
irrevocable and not subject to reduction, impairment or adjustment by the Texas
Commission except for annual and interim true-up adjustments pursuant to the
Restructuring Law described below.(9) In addition, the State of Texas has
pledged in the Restructuring Law that it will not take or permit any action that
would impair the value of the transition property, or, except as permitted in
connection with the true-up adjustment authorized by the statute, reduce, alter
or impair the transition charges until the
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(9) Although a financing order is irrevocable, the Restructuring Law allows
applicants to apply for one or more new financing orders to provide for retiring
and refunding of Transition Bonds.
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principal, interest and premium, and any other charges incurred and contracts to
be performed in connection with the Transition Bonds, have been paid and
performed in full.(10)
o The Texas Commission May Adjust Transition Charges. The
Restructuring Law requires the Texas Commission to provide in
all financing orders a mechanism requiring that transition
charges be reviewed and adjusted at least annually, within 45
days of the anniversary of the date of the issuance of the
Transition Bonds:
o to correct any overcollections or undercollections during
the preceding 12 months, and
o to provide for the expected recovery of amounts sufficient
to timely provide all payments of debt service and other
required amounts and charges in connection with the
Transition Bonds.
o Current Retail Electric Customers Cannot Avoid Paying
Transition Charges. The Restructuring Law provides that the
transition charges are non-bypassable.(11)
o The Restructuring Law Protects the Transition Bonds' Lien on
Transition Property. The Restructuring Law provides that a
valid and enforceable lien and security interest in transition
property is created by a financing order and the execution and
delivery of a security agreement in connection with the
issuance of Transition Bonds. The security interest
automatically attaches from the time value is received for the
Transition Bonds. On perfection through the filing of a notice
with the Secretary of State of the State of Texas, the
security interest (1) will be a continuously perfected lien
and security interest in the transition property and all
proceeds of the property, whether accrued or not, and (2) will
have a priority in the order of filing and take precedence
over any subsequent judicial or other lien creditor.
o The Restructuring Law Characterizes the Transfer of Transition
Property as a True Sale. The Restructuring Law provides that
an electric utility's or an assignee's transfer of transition
property is a "true sale" under state law and is not a secured
transaction and that legal and equitable title passes to the
transferee, if the agreement governing that transfer expressly
states that the transfer is a sale or other absolute transfer.
Credit Enhancement. Credit enhancement for the Transition
Bonds is intended to protect against losses or delays in scheduled payments on
the Transition Bonds. Credit
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(10) The Transition Bonds are not a debt or an obligation of the State of Texas
and are not a charge on its full faith and credit or its taxing power.
(11) Non-bypassable means that a utility collects transition charges
attributable to all existing and future retail electric customers located within
the utility's service territory as it existed on May 1, 1999, with certain
defined exceptions. The utility is generally entitled to collect transition
charges attributable to non-exempted customers even if they are receiving
transmission or distribution service from another utility or choose to operate
self-generation equipment.
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enhancement with respect to the Transition Bonds will be provided principally by
adjustments to the transition charges and amounts on deposit in a collection
account which will be held by the trustee and divided into various subaccounts.
The payments to be made to and from the subaccounts are described in the Form
S-3. Additional credit enhancement for any series may include surety bonds,
financial guaranty insurance policies or letters of credit or other forms of
credit enhancement. A description of credit enhancement for the Transition Bonds
is provided in the Form S-3.
Trustee. The trustee will establish a collection account for
the Transition Bonds, divided into various subaccounts.(12) Certain constraints
will be imposed on the trustee and its investment of funds from the collection
account. A description of the restrictions on the trustee and a list of the
eligible investments is provided in the Form S-3. The trustee will provide to
the holders of record of the Transition Bonds regular reports prepared by the
servicer containing information concerning, among other things, CEHE and the
collateral for the Transition Bonds.
Relationship to the Series 2001-1 Transition Bonds. In October
2001, CenterPoint Energy Transition Bond Company, LLC ("Transition Bond Company
I"), a special purpose, wholly owned subsidiary of CEHE, issued $749 million of
Series 2001-1 Transition Bonds. These bonds were issued to securitize CEHE's
generation-related regulatory assets recoverable through irrevocable
non-bypassable transition charges provided for in the Restructuring Law and a
financing order issued by the Texas Commission on May 31, 2000.
Although CEHE is the servicer with respect to the Series
2001-1 transition bonds and is expected to be the initial servicer with respect
to the Transition Bonds issued by the Issuer, the Issuer is a separate legal
entity from Transition Bond Company I, and the Transition Bonds issued by the
Issuer will be payable from collateral that is separate from that securing the
Series 2001-1 transition bonds. Transition Bond Company I has no obligations
under the Transition Bonds issued by the Issuer, and the Issuer will have no
obligations under the Series 2001-1 transition bonds.
E. Transition Property Servicing Agreement.
The servicer, as the agent of the Issuer, will manage,
service, administer and make collections in respect of transition property.
CEHE expects to serve as the servicer, but the trustee may remove CEHE as the
servicer and appoint a third party as the servicer under certain conditions.
The appointment of a third party as the servicer will not adversely affect
the investment grade ratings of the Transition Bonds described in Section 1.D
of this Application.
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(12) The trustee may resign at any time upon 30 days' notice. The holders of a
majority in principal amount of the Transition Bonds then outstanding may remove
the trustee and appoint a successor trustee. CEHE will remove the trustee by
written notice if the trustee ceases to be eligible to continue in its capacity
under the indenture, the trustee becomes a debtor in a bankruptcy proceeding or
is adjudged insolvent, or a receiver, administrator or other public officer
takes charge of the trustee or its property or the trustee becomes incapable of
acting.
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The servicer will be responsible for, among other things,
calculating, billing and collecting the transition charges from retail
electric providers, submitting requests to the Texas Commission to adjust
these charges, monitoring the collateral for the transition bonds and taking
certain actions in the event of non-payment by a retail electric provider.
The specific duties of the servicer are more fully discussed in the Form S-3.
The servicer will be entitled to receive an aggregate annual servicing fee
pursuant to the transition property servicing agreement.
In order to support the Issuer's status as a bankruptcy remote
entity, separate and apart from CEHE, and to satisfy related rating agency
and legal opinion requirements, the servicing fee must be comparable to those
charged in a market-based, arm's-length transaction. The servicing fees will
be set at an annual level of not more than 0.05 percent of the initial
principal amount of the Transition Bonds, assuming that CEHE remains the
servicer.(13) Although the servicing fee is expected to approximate the
actual costs of providing these services, Applicants cannot be certain that
the servicing fees will meet the "at cost" requirements of Section 13(b) and
the rules thereunder. Accordingly, Applicants request an exemption from the
"at cost" requirements in connection with the provision of these
services.(14)
F. Administration Agreement.
CEHE expects to provide administrative services to the Issuer
pursuant to an administration agreement between the administrator and the
Issuer. The administrator will furnish the Issuer with ordinary clerical,
bookkeeping and other corporate administrative services necessary and
appropriate for the Issuer, including, without limitation, the following
services: (i) maintaining general accounting records of the Issuer; (ii)
preparing and filing documents required to be filed with the Commission and any
applicable state agencies; (iii) preparing and filing income, franchise or other
tax returns of the Issuer; (iv) preparing minutes of meetings of the Issuer's
managers; (v) maintaining executed copies of Issuer documents; (vi) taking
actions necessary for the Issuer to keep in full effect its existence, rights
and franchises as a limited liability company; (vii) providing for the issuance
and delivery of Transition Bonds; (viii) providing for the performance by the
Issuer of its obligations and enforcing each of its rights under the indenture,
the servicing agreement and the sale agreement; (ix) providing for the defense
of any action, suit or proceeding brought against the Issuer; and (x) providing
office space and ancillary services for the Issuer. The Issuer will pay the
administrator a fixed fee for performing these services, plus all reimbursable
expenses.
Again, in order to support the Issuer's status as a bankruptcy
remote entity, separate and apart from CEHE, and to satisfy related rating
agency and legal opinion requirements, the administrative fee must be comparable
to those charged in a market-based, arm's-length transaction. Although the
administrative fee is expected to approximate the actual costs of providing
these services, Applicants cannot be certain that the administrative fees will
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(13) Pursuant to the Financing Order, recoverable ongoing costs, including
service fees, for the period of 2005 through 2018 will not exceed a total of
approximately $19 million, assuming that CEHE remains the servicer. In the
unlikely event that CEHE is replaced by a third-party in accordance with the
provisions of the Financing Order, annual fees paid to a third-party servicer
must not exceed 0.6 percent of the initial principal amount of the Transition
Bonds unless a higher rate is approved by the Texas Commission.
(14) See Connecticut Light and Power Company, Holding Co. Act Release No. 27319
(Dec. 26, 2000), supplemented by Holding Co. Act Release No. 27364 (March 23,
2001.
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meet the "at cost" requirements of Section 13(b) and the rules thereunder.
Accordingly, Applicants request an exemption from the "at cost" requirements in
connection with the provision of these services.(15)
G. Dividend Authority and Use of Proceeds.
The Issuer will use the proceeds from the issuance of the
Transition Bonds to pay the expenses of issuance of the Transition Bonds and to
purchase the transition property from CEHE. CEHE will use these sale proceeds to
reduce stranded costs through the retirement of debt or equity, or both and to
adjust its capitalization on its regulatory books, and to pay related expenses.
The specific amount of proceeds to be used to retire debt and/or equity will be
dependent on CEHE's capital structure and market conditions at the time of
retirement. Approximately $1.3 billion of the securitization proceeds will be
used to repay CEHE's term loan maturing in November 2005 (or any replacement
credit facility or debt issuance if the proceeds have not been received by the
maturity date). To the extent that proceeds cannot be applied to repay that loan
at the time they are received, they may be distributed to CenterPoint through
either the payment of dividends or the settlement of intercompany payables.
Proceeds that are dividended by CEHE and Utility Holding to CenterPoint may be
used to reduce debt at CenterPoint and to otherwise improve the capital
structure of the CenterPoint system. To the extent that proceeds received prior
to the November 2005 maturity of the term loan cannot be used then to repay the
loan, those amounts may be contributed back to CEHE when the term loan matures.
Applicants intend to maintain CEHE's capital structure at the approximately 60%
debt to 40% equity target levels (exclusive of Transition Bonds).
H. Hedging Transactions.
The Issuer may enter into interest rate swaps or other hedging
arrangements (collectively, the "Hedging Transactions") with respect to a series
or class of floating rate Transition Bonds. The Hedging Transactions may be used
to fix synthetically the interest on floating rate Transition Bonds. Class
subaccounts for related floating rate Transition Bonds may also be established
in the event Hedging Transactions are utilized. Each interest rate swap or
hedging arrangement will be treated for accounting purposes as provided for
under generally accepted accounting principles. Applicants will comply with
Statement of Financial Accounting Standards 133 and Statement of Financial
Accounting Standards 138 ("Accounting for Certain Derivative Instruments and
Certain Hedging Activities") or other standards relating to accounting for
derivative transactions as are adopted and implemented by the Financial
Accounting Standards Board. Any such Hedging Transactions will not adversely
affect the investment grade ratings of the Transition Bonds described in Section
1.D of this Application.
I. Indemnifications.
Under each transition property sale agreement and transition
property servicing agreement, CEHE will agree to indemnify the Texas Commission
(for the benefit of CEHE's customers), the Issuer, the trustee and certain of
their affiliates for certain items. In addition,
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(15) Id.
9
under its limited liability company agreement, the Issuer will agree to
indemnify its managers in certain situations. A description of the
indemnification provisions is provided in the Form S-3.(16)
J. CEHE Capitalization.
As of June 30, 2005, CEHE had member's equity equal to 43% of
its consolidated capitalization (member's equity, preferred stock, short-term
debt and long-term debt, referred to herein as "Total Capitalization"). As used
herein, "Consolidated Capitalization" means Total Capitalization excluding
securitization obligations.
CEHE will comply with all of the financing parameters in the
Omnibus Financing Order, including the investment grade and equity
capitalization criteria set forth in the Omnibus Financing Order. As discussed
in the Omnibus Financing Order, upon the issuance of the Transition Bonds, CEHE
may have member's equity capitalization of less than 30% if the securitization
debt is included. CEHE's equity ratio will improve as the Transition Bonds are
paid down. However, it is not anticipated that CEHE will reach a level of at
least 30% of Total Capitalization until 2010 if securitization debt is included
in the calculation.(17) The Applicants, in their request for the Omnibus
Financing Order, asked the Commission to take into account the unique nature of
the securitization debt when it passed upon the request to form and capitalize
special-purpose subsidiaries to issue securitization debt. Accordingly,
Applicants request an exemption from the generally required 30% common equity
ratio in order to carry out the Texas Commission's Financing Order.
ITEM 2 FEES, COMMISSIONS AND EXPENSES.
The amount of fees, commissions and expenses to be paid and
included in the amount of Transition Bonds to be issued in connection with the
proposed issuance will not exceed approximately $16.2 million, in accordance
with the Financing Order.(18) The Financing Order authorizes CenterPoint to seek
to recover costs in excess of $16.2 million through other rates.
ITEM 3 APPLICABLE STATUTORY PROVISIONS.
A Applicable Provisions
Sections 6(a), 7, 9, 10, 12(b), 12(c) 12(f), 12(g) and 13(b)
and Rules 42, 43, 44, 45, 54, 90 and 91 thereunder govern the proposed
transaction. To the extent the Commission believes other sections or rules are
applicable to the proposed transaction, Applicants deem that they be included in
this item.
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(16) Additional information regarding indemnification is provided in the Form of
Transition Property Sale Agreement attached as Exhibit B-1, the Form of
Transition Property Servicing Agreement attached as Exhibit B-2 and the Limited
Liability Company Agreement attached as Exhibit A-2.
(17) This projection had assumed that Transition Bonds would be issued by
mid-2005. Significant delay in the issuance of the Transition Bonds beyond that
date could have the effect of extending the date by which CEHE will reach a
level of at least 30% of Total Capitalization if securitization debt is
included.
(18) This amount is based on an assumed offering of $2 billion and is subject
to change based upon the size of the ultimate offering.
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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 company which is an EWG or FUCO if Rule 53(a), (b)
and (c) under the Act are satisfied.
CenterPoint has no investments in FUCOs. It previously held an
EWG investment in Texas Genco, LP, which was qualified as an EWG, through an
indirect subsidiary company, Texas Genco Holdings, Inc. ("Texas Genco"). The
investment in Texas Genco, LP was CenterPoint's only EWG investment. On April
13, 2005, CenterPoint completed the two step sale of its investment in Texas
Genco for total cash proceeds of approximately $3.5 billion. As of that closing,
CenterPoint no longer has an investment in an EWG or a FUCO.
CenterPoint had negative retained earnings as of June 30,
2005, 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.
The proposed securitization is subject only to the approval of
the Texas Commission, which was granted on March 16, 2005. CEHE's applications
to the Texas Commission are described in Item 1.C.
ITEM 5 PROCEDURE.
The Commission is respectfully requested to publish the
requisite notice under Rule 23 under the Act with respect to this
Application/Declaration as soon as possible, such notice to specify a date by
which comments must be entered and such date being the date when an order of the
Commission granting and permitting this Application to become effective may be
entered by the Commission. Applicants request that the Commission's order be
issued as soon as the rules allow, 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. Applicants hereby waive a recommended decision by
a hearing officer or any other responsible officer of the Commission and consent
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.
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ITEM 6 EXHIBITS AND FINANCIAL STATEMENTS.
Exhibits
A-1 Certificate of Formation of the Issuer (incorporated by reference to
the Form S-3, Exhibit 3.1, File No. 333-121505)
A-2 Limited Liability Company Agreement of the Issuer (incorporated by
reference to the Form S-3, Exhibit 3.2, File No. 333-121505)
A-3 Form of Amended and Restated Limited Liability Company Agreement of the
Issuer (incorporated by reference to the Form S-3, Exhibit 3.3, File
No. 333-121505)
A-4 Registration Statement on Form S-3, as amended (incorporated by
reference, File No. 333-121505)
B-1 Form of Transition Property Sale Agreement (incorporated by reference
to the Form S-3, Exhibit 10.1, File No. 333-121505)
B-2 Form of Transition Property Servicing Agreement (incorporated by
reference to the Form S-3, Exhibit 10.2, File No. 333-121505)
B-3 Form of Administration Agreement (incorporated by reference to the Form
S-3, Exhibit 10.3, File No. 333-121505)
B-4 Form of Indenture (incorporated by reference to the Form S-3, Exhibit
4.1, File No. 333-121505)
B-5 Form of the Transition Bonds (incorporated by reference to the Form
S-3, Exhibit 4.2, File No. 333-121505)
B-6 Form of Supplemental Indenture relating to the issuance of a series of
transition bonds (incorporated by reference to the Form S-3, Exhibit
4.3, File No. 333-121505)
D-1 Application for Financing Order before the Texas Commission
(incorporated by reference to the Form S-3, Exhibit 99.1, File No.
333-121505)
D-2 Financing Order of the Texas Commission (incorporated by reference to
the Form S-3, Exhibit 99.2, File No. 333-121505)
F-1 Opinion of Counsel
F-2 Past-Tense Opinion of Counsel (to be filed by amendment)
H-1 Proposed Form of Notice (filed previously)
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Financial Statements
FS-1 Independent Auditors' Report (incorporated by reference to the Form
S-3, File No. 333-121505)
FS-2 Balance Sheets as of December 31, 2004 and as of June 30, 2005
(incorporated by reference to the Form S-3, File No. 333-121505)
FS-3 Statement of Member's Equity for the period from December 3, 2004 (date
of inception) to December 31, 2004, as of December 31, 2004 and as of
June 30, 2005 (incorporated by reference to the Form S-3, File No.
333-121505)
FS-4 Statement of Cash Flows for the period from December 3, 2004 (date of
inception) to December 31, 2004, and for the six months ended June 30,
2005 (incorporated by reference to the Form S-3, File No. 333-121505)
FS-5 Notes to Financial Statements (incorporated by reference to the Form
S-3, File No. 333-121505)
ITEM 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS.
This application/declaration and the proposed transactions do
not involve a "major federal action" nor do they "significantly affect the
quality of the human environment" as those terms are used in Section 102(2)(C)
of the National Environmental Policy Act. The transactions that are the subject
of this application/declaration will not result in changes in the operation of
the company that will have an impact on the environment. Applicants are not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
application/declaration.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused this
application/declaration to be signed on their behalf by the undersigned
thereunto duly authorized. The signature of the applicants, through the
undersigned, is restricted to the information contained in this
application/declaration which is pertinent to the instant
application/declaration.
September 29, 2005
CenterPoint Energy, Inc.
Utility Holding, LLC
CenterPoint Energy Houston Electric, LLC
CenterPoint Energy Transition Bond Company II, LLC
/s/ Rufus S. Scott
---------------------------------
Name: Rufus S. Scott
Title: Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
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