File No. 070-10265
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
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.
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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.................. 5
ITEM 4. REGULATORY APPROVAL........................ 5
ITEM 5. PROCEDURE.................................. 5
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.......... 5
A. Exhibits.......................... 5
B. Financial Statements.............. 6
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.... 6
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Amendment No. 1 to the Application/Declaration previously filed in
this proceeding is hereby amended and restated to read as follows:
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 dividends 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
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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.
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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, Inc.(2) In order to facilitate compliance with the 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. On March 31, 2004, the T&D Utility, Texas Genco, LP
and Reliant Energy Retail Services, LLC jointly applied to the Texas Commission
for an order determining the T&D Utility's stranded cost and true-up balance
pursuant to the Texas Electric Restructuring Law, as described above (the
"True-Up Order"). On November 23, 2004, the Texas Commission signed and formally
issued the True-Up Order, which will allow the T&D Utility to recover
approximately $2.3 billion of stranded costs and interest.
The Texas Electric Restructuring Law permits electric utilities,
such as the T&D Utility, to recover amounts determined in the True-Up Order,
plus a return, through irrevocable nonbypassable charges assessed on
substantially all retail electric customers within a utility's certificated
service territory as it existed on May 1, 1999. On December 2, 2004, the T&D
Utility filed a request for the Texas Commission to issue a financing order (the
"Financing Order"), that will permit the T&D Utility to recover the amounts
determined by the Texas Commission through the issuance of securitization or
"transition" bonds.(3) Proceeds from any
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(2) Reliant Resources, Inc., which has changed its name to Reliant Energy, Inc.,
is a business that conducts unregulated retail electric sales, merchant power
generation and energy trading and marketing.
(3) 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. The bonds will be repaid through nonbypassable charges, called
Transition Charges, authorized under the Financing Order. In the Omnibus
Financing Order, the Commission reserved jurisdiction over a
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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. To the extent the T&D Utility is unable to obtain a
Financing Order for the amounts it is entitled to recover under the True-Up
Order, the T&D Utility will seek to recover those amounts over time through a
nonbypassable charge, called a Competition Transition Charge.
CenterPoint and Utility Holding recorded an after-tax charge to
earnings in the third quarter of 2004 of approximately $894 million.(4) 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 23, 2004, the Texas Commission
signed and formally issued the True-Up Order. 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 Order.
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 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.
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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.
(4) See Quarterly Report on Form 10-Q, for the period ended September 30, 2004
(SEC File No. 1-31447).
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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.(5) Utility Holding recognized a corresponding loss on the sale
of Texas Genco in the third quarter of 2004. During the same period, Utility
Holding's retained earnings decreased from approximately $1.1 billion to $20
million as a result of the impairments associated with the sale of Texas Genco
and the True-Up Order.
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. 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.
3. 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 Order. 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.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
A. APPLICABLE PROVISIONS
Section 12(c) of the Act and Rules 46 and 54 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.
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(5) Id.
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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. 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.
CenterPoint has no investments in FUCOs. It holds its EWG
investments in Texas Genco, LP and Texas Genco II, LP through Texas Genco. These
investments in Texas Genco, LP and Texas Genco II, LP are CenterPoint's only EWG
investments. As described above, on July 21, 2004, CenterPoint and Texas Genco
announced a definitive agreement for GC Power to acquire Texas Genco.(6) As of
September 30, 2004, CenterPoint's aggregate investment in Texas Genco was
approximately $2.331 billion.
As a result of the restructuring authorized in the Commission order
dated July 5, 2002 (HCAR No. 27548), 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
B-1 Transaction Agreement, dated as of July 21, 2004, by and among CenterPoint,
Utility Holding, Texas Genco, NN Houston Sub, Inc., GC Power Acquisition LLC and
HPC Merger
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(6) Texas Genco II, LP was formed solely for the purpose of facilitating the
sale of Texas Genco.
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Sub, Inc. (incorporated by reference to Texas Genco's Current Report on Form 8-K
dated July 21, 2004 (File No. 1-31449)).
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-1 Adjusted Balance Sheet of Utility Holding as of September 30, 2004 and
Statement of Income and Surplus for the 12 months ended September 30, 2004
(filed in connection herewith with a request for confidential treatment).
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 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.
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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: December 9, 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.
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