File No. 070- 10299
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 1
TO
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Utility Holding, LLC
1011 Centre Road, Suite 324
Wilmington, Delaware 19805
CenterPoint Energy Service Company, LLC
CenterPoint Energy Funding Company
CenterPoint Energy Houston Electric, LLC
CenterPoint Energy Transition Bond Company, LLC
CenterPoint Energy Transition Bond Company II, LLC
Houston Industries FinanceCo GP, LLC
CenterPoint Energy, Inc. (a Delaware corporation)
CenterPoint Energy Investment Management, Inc.
CenterPoint Energy Power Systems, Inc.
CenterPoint Energy Products, Inc.
CenterPoint Energy Properties, Inc.
CenterPoint Energy Tegco, Inc.
NorAm Energy Corp.
Utility Rail Services, Inc.
Block 368 GP, LLC
CenterPoint Energy Resources Corp.
ALG Gas Supply Company
Allied Materials Corporation
Arkansas Louisiana Finance Corporation
Arkla Industries Inc.
Arkla Products Company
CenterPoint Energy Alternative Fuels, Inc.
CenterPoint Energy Consumer Group, Inc.
CenterPoint Energy Field Services, Inc.
CenterPoint Energy Field Services Holdings, Inc.
CenterPoint Energy Gas Processing, Inc.
CenterPoint Energy Gas Receivables, LLC
CenterPoint Energy Gas Transmission Company
CenterPoint Energy Hub Services, Inc.
CenterPoint Energy - Illinois Gas Transmission Company
CenterPoint Energy Intrastate Holdings, LLC
Pine Pipeline Acquisition Company, LLC
CenterPoint Energy Gas Services, Inc.
CenterPoint Energy Retail Interests, Inc.
CenterPoint Energy - Mississippi River Transmission Corporation
CenterPoint Energy MRT Holdings, Inc.
CenterPoint Energy MRT Services Company
CenterPoint Energy Pipeline Services, Inc.
CenterPoint Energy OQ, LLC
CenterPoint Energy Trading and Transportation Group, Inc.
Entex Gas Marketing Company
Entex NGV, Inc.
Entex Oil & Gas Company
Intex, Inc.
CenterPoint Energy Intrastate Pipelines, Inc.
Minnesota Intrastate Pipeline Company
National Furnace Company
NorAm Utility Services, Inc.
NorAm Financing I
HL&P Capital Trust II
CenterPoint Energy Funds Management, Inc.
United Gas, Inc.
CenterPoint Energy International, Inc.
CenterPoint Energy International Holdings, LLC
Reliant Energy El Salvador, S.A. de C.V.
CenterPoint Energy International II, Inc.
HIE Ford Heights, Inc.
HIE Fulton, Inc.
CenterPoint Energy International Services, Inc.
CenterPoint Energy Light, Inc.
Reliant Energy Brasil, Ltda.
Reliant Energy Brazil Ltd.
HIE Brasil Rio Sul Ltda.
Reliant Energy International Brasil Ltda.
Reliant Energy Brazil Tiete Ltd.
Reliant Energy Colombia Ltda.
Reliant Energy Outsource Ltd.
Venus Generation El Salvador
Worldwide Electric Holdings B.V
CenterPoint Energy Avco Holdings, LLC
CenterPoint Energy Offshore Management Services, LLC
c/o CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(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
(Names and addresses of agents for service)
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 "anticipate,"
"believe," "continue," "could," "estimate," "expect," "forecast," "goal,"
"intend," "may," "objective," "plan," "potential," "predict," "projection,"
"should," "will," 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.
TABLE OF CONTENTS
PAGE
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.............................. 1
A. REQUESTED AUTHORIZATION...................................... 1
B. BACKGROUND................................................... 4
C. THE FINANCING REQUEST........................................ 10
D. RESTRUCTURING OF NON-UTILITY INTERESTS....................... 24
E. FILING OF CERTIFICATES OF NOTIFICATION....................... 24
ITEM 2. FEES, COMMISSIONS AND EXPENSES................................... 28
ITEM 3. APPLICABLE STATUTORY PROVISIONS.................................. 28
A. APPLICABLE PROVISIONS........................................ 28
B. RULE 54 ANALYSIS............................................. 28
ITEM 4. REGULATORY APPROVAL.............................................. 29
ITEM 5. PROCEDURE........................................................ 29
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS................................ 29
A. EXHIBITS..................................................... 29
B. FINANCIAL STATEMENTS......................................... 30
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.......................... 31
CenterPoint Energy, Inc. ("CenterPoint" or the "Company") and its
Subsidiaries (together, the "Applicants" or the "CenterPoint System") hereby
amend and restate their Application-Declaration as follows:(1)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. REQUESTED AUTHORIZATION
This Application-Declaration seeks the following authorizations and
approvals of the Securities and Exchange Commission (the "Commission"):
In order to ensure that CenterPoint is able to meet its capital
requirements and plan its future financing, CenterPoint and its
Subsidiaries hereby request authorization as more fully described herein
for financing transactions for the period beginning with the effective
date of an order issued pursuant to this filing through June 30,
2008 (the "Authorization Period").
(i) CenterPoint requests authorization for: (a) securities
issuances,(2) (b) guarantees and other forms of credit support, as
well as performance guarantees ("Guarantees"), and (c) hedging
transactions, and derivative instruments with respect to any of the
foregoing, as described more fully herein;
(ii) With respect to its Subsidiaries, CenterPoint requests such
authorization as may be required for issuances of securities,
Guarantees, and hedging transactions, and derivative instruments
with respect to any of the foregoing, as described more fully
herein;
(iii) CenterPoint requests that the Commission approve the
continuation of a CenterPoint Group Money Pool (the "Money Pool");
(iv) CenterPoint and its Subsidiaries request that the Commission
approve the continuation of existing financing arrangements,
Guarantees and hedging arrangements, as well as any transactions
undertaken to extend the terms of or replace, refund or refinance
existing obligations and the issuance of new obligations in exchange
for existing obligations, provided in each case that the
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(1) The term "Subsidiaries" refers to each direct or indirect subsidiary
company of CenterPoint as listed on the cover page hereto, as well as any direct
or indirect subsidiary companies that CenterPoint may form with the approval of
the Commission or in reliance on rules or statutory exemptions. The term
"Utility Subsidiaries" refers to CenterPoint Energy Houston Electric, LLC
("CEHE") and CenterPoint Energy Resources Corp. ("CERC"). The term "Non-Utility
Subsidiaries" refers to Subsidiaries, other than the Utility Subsidiaries and
Utility Holding, LLC ("Utility Holding").
(2) The term "issuance" refers to the issue or sale of the subject security.
issuing entity's total capitalization is not increased as a result
of such financing transaction;(3)
(v) CenterPoint further requests authority to issue or sell external
debt securities, preferred stock, preferred securities (including
trust preferred securities) and equity-linked securities in an
incremental amount of $500 million (the "CenterPoint Incremental
Debt and Preferred Limit"), such that the total amount of
CenterPoint external debt, preferred stock, preferred securities and
equity-linked securities will not exceed $4.334 billion at any one
time outstanding during the Authorization Period (the "CenterPoint
Aggregate Debt and Preferred Limit"), provided that CenterPoint
requests that the Commission reserve jurisdiction over $150 million
of the CenterPoint Incremental Debt and Preferred Limit such that
the amount of CenterPoint external debt, preferred stock, preferred
securities (including trust preferred securities) and equity-linked
securities under the authorized CenterPoint Aggregate Debt and
Preferred Limit will not exceed $4.184 billion at any one time
outstanding during the Authorization Period;(4)
(vi) CenterPoint requests authority to issue or sell an additional
200 million shares of common stock or options, warrants or other
rights to purchase an equivalent number of shares of common stock
(and to issue or deliver common stock upon the exercise of such
options, warrants or other rights) (the "CenterPoint Additional
Common Stock Limit"), and to issue one Right (as defined herein) in
connection with each share of common stock;
(vii) CEHE(5) requests authority to issue or sell external debt
securities, preferred stock and preferred securities (including
trust preferred securities) in an incremental amount not to exceed
$500 million at any one time outstanding
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(3) So long as the issuing entity's total capitalization is not increased as
a result, securities issued in transactions undertaken to extend the terms of or
replace, refund or refinance existing obligations and the issuance of new
obligations in exchange for existing obligations do not count as "incremental"
securities issuances. Exhibit G-1 is a table setting forth by issuer: (i) the
type of securities and amount of each that is outstanding or, in the case of
credit facilities that are not fully drawn, could be outstanding as of March 7,
2005; (ii) the amount of incremental investment authority that is being
requested; and (iii) the total amount of securities that could be outstanding
pursuant to the requested authority at any one time during the Authorization
Period.
(4) For purposes of this application, the term "external" financing refers to
a transaction in which securities are issued and sold to an entity that is not a
member of the CenterPoint System. Each of CenterPoint, CEHE and CERC is
requesting authority on a corporate, rather than a consolidated basis. Utility
Holding is not seeking any external debt financing authority.
The "incremental" authority refers to the requested net increase in the total
amount of securities in each relevant category that may be outstanding at any
one time during the Authorization Period over the amount of securities in that
category issued and outstanding as of March 7, 2005, or which would be permitted
under existing credit facilities if fully drawn down at that date.
(5) CEHE was sometimes referred to as "the T&D Utility" in other CenterPoint
filings.
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during the Authorization Period (the "CEHE Incremental Debt and
Preferred Limit"), such that the total amount of CEHE external debt,
preferred stock and preferred securities will not exceed $4.280
billion at any one time outstanding during the Authorization Period
(in addition to the securitization debt described in (xiv) below)
(the "CEHE Aggregate Debt and Preferred Limit"), provided that CEHE
requests that the Commission reserve jurisdiction over $150 million
of the CEHE Incremental Debt and Preferred Limit such that the
amount of CEHE external debt securities, preferred stock and
preferred securities under the authorized CEHE Aggregate Debt Limit
will not exceed $4.130 billion at any one time outstanding during
the Authorization Period;
(viii) CERC(6) requests authority to issue or sell external debt
securities, preferred stock and preferred securities (including
trust preferred securities) in an incremental amount not to exceed
$500 million (the "CERC Incremental Debt and Preferred Limit"), such
that the total amount of external CERC debt securities, preferred
stock and preferred securities will not exceed $3.256 billion at any
one time during the Authorization Period (the "CERC Aggregate Debt
and Preferred Limit"), provided that CERC requests that the
Commission reserve jurisdiction over the issuance of CERC external
debt securities, preferred stock and preferred securities in the
amount of $150 million of the CERC Incremental Debt and Preferred
Limit, such that the amount of CERC external debt securities,
preferred stock and preferred securities under the authorized CERC
Aggregate Debt Limit will not exceed $3.106 billion at any one time
outstanding during the Authorization Period;
(ix) The Subsidiaries may also finance their capital needs through
borrowings from CenterPoint, directly or indirectly through Utility
Holding, and Utility Holding requests authority to issue and sell
securities to its parent company, CenterPoint, and to acquire
securities from its subsidiary companies;
(x) CenterPoint requests that the Commission approve the issuance by
CenterPoint and its Subsidiaries of nonexempt Guarantees in an
amount such that the total amount of nonexempt Guarantees issued by
CenterPoint and its Subsidiaries, in the aggregate, does not exceed
$4 billion outstanding at any time during the Authorization Period
(the "CenterPoint System Guarantee Limit");
(xi) Each of CenterPoint, Utility Holding and the Non-Utility
Subsidiaries request authority for the declaration and payment of
dividends out of capital or unearned surplus to the extent described
below;
(xii) CenterPoint requests authority to form and capitalize
financing entities (including special purpose subsidiaries)
(collectively "Financing Subsidiaries" or "Financing Subsidiary") in
connection with the issuance of securities as requested
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(6) CERC was referred to as "GasCo" in other CenterPoint filings.
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in this filing as well as authority for the financing entities to
issue such securities and to transfer the proceeds of any financing
to their respective parent companies;
(xiii) CenterPoint also requests continued authority for the
Non-Utility Subsidiaries to restructure their duly authorized
businesses from time to time; and
(xiv) CenterPoint requests such other authority not enumerated above
as may be described herein.
B. BACKGROUND
1. Generally
By order dated July 5, 2002 (HCAR No. 27548) (the "July Order"), the
Commission authorized the formation of a new registered holding company,
CenterPoint, and the distribution ("Distribution") to shareholders of the
remaining stock of Reliant Resources, Inc. ("RRI").(7) The Distribution, which
was made on September 30, 2002, completed the separation from CenterPoint of the
merchant power generation and energy trading and marketing business of RRI.
CenterPoint's public-utility subsidiary companies own and operate
electric generation plants, electric transmission and distribution facilities,
natural gas distribution facilities and natural gas pipelines:
- CEHE engages in the electric transmission and distribution business in a
5,000- square mile area of the Texas Gulf Coast that includes Houston.
- CERC owns gas distribution systems. Through unincorporated divisions, CERC
provides natural gas distributions services in Louisiana, Mississippi,
Texas, Arkansas, Oklahoma and Minnesota. Through wholly owned
subsidiaries, CERC owns two interstate natural gas pipelines and gas
gathering systems, provides various ancillary services and offers variable
and fixed price physical natural gas supplies to commercial and industrial
customers and natural gas distributors.
In July 2004, CenterPoint announced its agreement to sell its
majority owned subsidiary, Texas Genco Holdings, Inc. ("Texas Genco"), to Texas
Genco LLC (formerly known as GC Power Acquisition LLC), an entity owned in equal
parts by affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg
Kravis Roberts & Co. L.P. and Texas Pacific Group. On December 15, 2004, Texas
Genco completed the sale of its fossil generation assets (coal, lignite and
gas-fired plants) to Texas Genco LLC for $2.813 billion in cash. Following the
sale, Texas Genco distributed $2.231 billion in cash to CenterPoint. Texas
Genco's principal remaining asset then was its ownership interest in the South
Texas Project, a nuclear generating facility. The final step of the transaction,
the merger of Texas Genco with a subsidiary of Texas
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(7) On April 26, 2004, RRI changed its corporate name to Reliant Energy, Inc.
For ease of reference, the Application/Declaration will continue to refer to the
company as RRI herein.
4
Genco LLC in exchange for an additional cash payment of $700 million to
CenterPoint, was completed on April 13, 2005, following receipt of approval from
the Nuclear Regulatory Commission.
CenterPoint also engages in financing transactions and
energy-related and other functionally related businesses through its Non-Utility
Subsidiaries.(8) Utility Holding is an intermediate registered holding company
formed to minimize tax inefficiencies.(9)
For the year ended December 31, 2004, CenterPoint had revenues of
$8.5 billion, and income from continuing operations before income taxes and
extraordinary loss of $344 million. As of December 31, 2004, CenterPoint had
assets totaling $18 billion.
Based on its business plans and current condition in the financial
markets, CenterPoint anticipates that its financing activities during the
Authorization Period will consist primarily of refinancing currently outstanding
debt obligations. Those activities are expected to consist primarily of the
issuance of debt securities with the proceeds utilized to retire existing debt
and to pay costs of issuance of new debt and any tender or call premiums
associated with retired debt. The largest part of the requested incremental
financing authority, however, is sought to address uncertainties in both
CenterPoint's businesses and the financial markets. For example, if either of
CEHE or CERC experienced significant damage to its facilities, such as a result
of a hurricane or some other event, additional capital amounts might be required
for repairs or replacement of facilities. Even though insurance may cover some
of these costs, the need to respond quickly to restore service in an emergency
may require CenterPoint to access the capital markets on short notice in order
to finance repairs or to procure other equipment. The amount of any such
unexpected requirement for additional capital is of necessity not readily
quantifiable, but CenterPoint needs flexibility to move expeditiously and hence
is seeking additional financing authority to address such possibilities.
Similarly, rapid changes in the capital markets require CenterPoint
to maintain flexibility in the types of financing it pursues. If CenterPoint
were to find itself unable to finance at one of its subsidiaries, the parent
company would need the flexibility to raise funds itself and loan or contribute
them to the subsidiary. Also, there may be changes in the market's appetite for
a given type of security. For example, although Applicants are seeking authority
for the issuance of preferred stock, at least until recently, that type of
security has not generally been in favor in the market. In the event, however,
that preferred stock becomes a more attractive financing alternative,
CenterPoint seeks authority to issue that security.
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(8) A list and description of the businesses of the Non-Utility Subsidiaries
is included in Schedule 4.1 to the Joint Registration Statement of CenterPoint
and Utility Holding on Form U5B, as modified by Form U5S, all of which are
incorporated herein by reference.
(9) The Commission in Reliant Energy, Inc., Holding Co. Act Release No. 27548
(July 5, 2002) noted that "Applicants request the Commission to `look through'
Utility Holding LLC." Id. at n. 13.
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2. Existing Financing Authority
CenterPoint currently has an aggregate external debt authority of
$5.169 billion, with the Commission reserving jurisdiction over an additional
$478 million. CEHE holds an aggregate external debt authority of $3.853 billion,
with the Commission reserving jurisdiction over an additional $250 million, and
CERC holds an aggregate external debt authority of $2.607 billion, with the
Commission reserving jurisdiction over an additional $430 million.
By Holding Company Act Release No. 27692, File No. 70-10128, dated
June 30, 2003, and by various supplemental orders (collectively, the "2003
Omnibus Financing Order"), the Commission authorized CenterPoint and its
Subsidiaries to effect certain financial transactions.
3. Transactions Pursuant to Authority Granted in the 2003 Omnibus
Financing Order
Pursuant to the authority granted in the 2003 Omnibus Financing
Order, CenterPoint and its Subsidiaries have engaged in the following financing
transactions:
- In July 2003, CenterPoint remarketed two series of insurance-backed pollution
control bonds aggregating $151 million, reducing the interest rate from 5.8% to
4%. Of the total amount of bonds remarketed, $92 million mature on August 1,
2015 and $59 million mature on October 15, 2015.
- On September 9, 2003, CEHE issued $300 million aggregate principal amount of
5.75% general mortgage bonds due January 15, 2014. Proceeds were used to repay
approximately $258 million of intercompany notes payable to CenterPoint and to
repay approximately $40 million of money pool borrowings. Proceeds in the amount
of approximately $292 million from the note and money pool repayments were
ultimately used by CenterPoint to repay a portion of the term loan under
CenterPoint's February 28, 2003 credit facility.
- On September 9, 2003, CenterPoint issued $200 million aggregate principal
amount of 7.25% senior notes due September 1, 2010. Proceeds in the amount of
approximately $198 million were used to repay a portion of the term loan under
CenterPoint's February 28, 2003 credit facility.
- On October 7, 2003, CenterPoint entered into a new three-year credit facility
composed of a revolving credit facility of $1.4 billion and a $925 million term
loan. Proceeds from the first step of the Texas Genco disposition, which were
received in December 2004, together with cash from a $177 million "price to
beat" clawback payment received from RRI in November 2004, were used to retire
the term loan, redeem $375 million in trust preferred securities and temporarily
repay all borrowings under the revolving credit facility, which was reduced to
$750 million. The $750 million facility was replaced in March 2005 with a $1
billion revolving credit facility having a 5-year term, which is summarized
below.(10)
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(10) This $1 billion credit facility is further explained infra Section B.3.
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- On November 3, 2003, CERC issued $160 million aggregate principal amount of
its 5.95% senior notes due 2014. CERC accepted $140 million aggregate principal
amount of CERC's 6 3/8% Term Enhanced ReMarketable Securities (the "TERMS")
maturing in November 2003 and $1.25 million as consideration for the unsecured
senior notes. CERC retired the TERMS received and used the remaining proceeds to
finance remaining costs of issuance of the notes and for general corporate
purposes.
- On December 17, 2003, CenterPoint issued $255 million aggregate principal
amount of convertible senior notes due January 15, 2024 with an interest rate of
2.875%.
- In February 2004, $56 million aggregate principal amount of collateralized
5.6% pollution control bonds due 2027 and $44 million aggregate principal amount
of 4.25% collateralized insurance-backed pollution control bonds due 2017 were
issued on behalf of CEHE. The pollution control bonds are collateralized by
general mortgage bonds of CEHE with principal amounts, interest rates and
maturities that match the pollution control bonds. The proceeds were used to
extinguish two series of 6.7% collateralized pollution control bonds with an
aggregate principal amount of $100 million issued on behalf of CenterPoint.(11)
CEHE's 6.7% first mortgage bonds, which collateralized CenterPoint's payment
obligations under the refunded pollution control bonds were retired in
connection with the extinguishment of the refunded pollution control bonds.
CEHE's 6.7% notes payable to CenterPoint were also cancelled upon the
extinguishment of the refunded pollution control bonds.
- In March 2004, $45 million aggregate principal amount of 3.625% collateralized
insurance-backed pollution control bonds due 2012 and $84 million aggregate
principal amount of 4.25% collateralized insurance-backed pollution control
bonds due 2017 were issued on behalf of CEHE. The pollution control bonds are
collateralized by general mortgage bonds of CEHE with principal amounts,
interest rates and maturities that match the pollution control bonds. The
proceeds were used to extinguish two series of 6.375% collateralized pollution
control bonds with an aggregate principal amount of $45 million and one series
of 5.6% collateralized pollution control bonds with an aggregate principal
amount of $84 million issued on behalf of CenterPoint.(10) CEHE's 6.375% and
5.6% first mortgage bonds, which collateralized CenterPoint's payment
obligations under the refunded pollution control bonds were retired in
connection with the extinguishment of the refunded pollution control bonds.
CEHE's 6.375% and 5.6% notes payable to CenterPoint were also cancelled upon the
extinguishment of the refunded pollution control bonds.
- In March 2005, CenterPoint replaced its $750 million revolving credit facility
with a $1 billion five-year revolving credit facility under which borrowings may
be made at LIBOR plus 100 basis points based on current credit ratings. An
additional utilization fee of 12.5 basis points applies to borrowings any time
more than 50% of the facility is utilized.
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(11) The pollution control bonds extinguished represent debt that was
incurred by the integrated utility prior to the formation of CenterPoint, but
became an obligation of the holding company, upon its formation, under the terms
of the underlying installment payment agreements.
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Changes in credit ratings would lower or raise the increment to LIBOR depending
on whether ratings improved or were lowered.
- In March 2005, CEHE established a $200 million five-year revolving credit
facility under which borrowings may be made at LIBOR plus 75 basis points based
on CenterPoint Houston's current credit rating. An additional utilization fee of
12.5 basis points applies to borrowings any time more than 50% of the facility
is utilized. Changes in credit ratings would lower or raise the increment to
LIBOR depending on whether ratings improved or were lowered.
- CEHE also established a $1.31 billion senior secured credit facility in March
2005 (the "CEHE Backstop Facility"). This facility is available to be utilized
only to refinance CEHE's $1.31 billion term loan maturing in November 2005 in
the event that proceeds from the issuance of the Transition Bonds are not
sufficient to repay such term loan. Drawings may be made under this credit
facility until November 2005, at which time any outstanding borrowings are
converted to term loans maturing in November 2007. Net proceeds from the
issuance of the Transition Bonds and certain new net indebtedness for borrowed
money issued by CEHE in excess of $200 million must be used to repay borrowings
under the new facility. Based on CEHE's current credit ratings, borrowings under
the facility can be made at LIBOR plus 75 basis points. Changes in credit
ratings would lower or raise the increment to LIBOR depending on whether ratings
improved or were lowered. Any drawings under this facility must be secured by
CEHE's general mortgage bonds in the same principal amount and bearing the same
interest rate as such drawings.
4. Existing Financing Arrangements
As of March 7, 2005, CenterPoint had outstanding borrowings or
capacity under existing credit facilities totaling $3.834 billion. These
included a $1 billion bank facility, $519 million in uncollateralized pollution
control bonds, $678 million in collateralized pollution control bonds, $600
million in senior unsecured notes, $830 million of convertible senior notes and
$107 million, representing the debt component of the Zero-Premium Exchangeable
Subordinated Notes ("ZENS"). Financing entities that were indirect subsidiaries
of CenterPoint had issued $100 million of trust preferred securities.
Also as of that date:
- CEHE and its subsidiaries had outstanding borrowings or capacity
under existing credit facilities totaling approximately $3.779
billion. These included a $200 million bank facility, the $1.310
billion term loan, $102 million in First Mortgage Bonds, $1.262
billion in General Mortgage Bonds, $229 million in collateralized
pollution control bonds, and $676 million in transition bonds issued
by its subsidiary, CenterPoint Energy Transition Bond Company,
LLC.(12)
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(12) This summary does not include the CEHE Backstop Facility, which is
available only to refinance CEHE's $1.3 billion term loan.
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- CERC had outstanding borrowings or capacity under existing credit
facilities totaling $2.605 billion. These obligations included
$2.242 billion in notes and debentures, $77 million in convertible
subordinated debentures, $36 million in notes payable and $250
million in unused capacity under a bank facility. CERC had also
received advances totaling $181 million under a $375 million
receivables facility. CERC's subsidiary, NorAm Financing I, had
issued $334,000 of trust preferred securities.
5. Texas Financing Order
Pursuant to the Texas Electric Choice Law, the Public Utility
Commission of Texas (the "Texas Commission") determined in a true-up proceeding
the stranded and certain other costs that CEHE would be entitled to recover from
customers. On December 2, 2004, CEHE filed an application with the Texas
Commission for a financing order (the "Financing Order") to permit
securitization of the sum of the total balance determined by the Texas
Commission in its order issued in December 2004 (the "True-Up Order"), which
will be adjusted upward to reflect the accrual of interest and payment of excess
mitigation credits after August 31, 2004.(13) The Financing Order was issued on
March 16, 2005.(14) The Financing Order authorizes 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 through the date of issuance of the Transition Bonds and (iii) certain
up-front qualified costs related to the issuance of the Transition Bonds.(15)
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(13) In a previous order, the Texas Commission ordered CEHE to provide
certain credits for what were then viewed as excess mitigation costs over a
period of time. It is anticipated that those credits will terminate on April 29,
2005 under a settlement approved by the Texas Commission.
(14) A number of parties have filed appeals of the financing order with the
district court in Travis County, Texas, and CenterPoint anticipates that the
issuance of the Transition Bonds will be delayed while those appeals remain
pending.
(15) Under the Restructuring Law, CEHE is entitled to recover any portion of
the true-up balance not securitized by the Transition Bonds through a
non-bypassable competition transition charge. In general, the retail electric
customers within the utility's service territory as it existed on May 1, 1999
will be assessed competition transition charges regardless of whether the retail
electric customers receive service from the utility that historically served
them or another entity. Competition transition charges are similar to transition
charges in the way they are imposed and collected, but competition transition
charges are not securitized. In January 2005, CEHE filed an application for a
competition transition charge to recover the entire true-up balance (plus
accrued interest and excess mitigation credits). CEHE adjusted the amount sought
through the competition transition charge to the extent that it was authorized
to securitize any portion of such amount. In an order issued at the same time as
the Financing Order, the Texas Commission required that the benefit of certain
deferred taxes be reflected as a reduction in the competition transition charge
rather than as a reduction to the balance on which Transition Bonds could be
issued. Under the Texas Commission's rules, the competition transition charge
will allow CEHE
9
Pursuant to the Financing Order, the Transition Bonds will be issued
by Transition Bond II, with the net proceeds paid by Transition Bond II to CEHE
in exchange for the right to collect transition charges imposed under the
Financing Order. The principal amount and interest on the bonds will be
amortized through non-bypassable transition charges to 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 Transition Bond II. CenterPoint hopes to be in a position to issue the
bonds during 2005, but the schedule may be affected by the timing of the
completion of any appeals of the order and market conditions.
In a separate application, CEHE has applied for an order covering
the issuance of the Transition Bonds by Transition Bond II.
C. THE FINANCING REQUEST
1. Parameters for Financing Authority
Authorization is requested herein to engage in certain financing
transactions during the Authorization Period for which the specific terms and
conditions are not at this time known, and which may not be covered by Rule 52
under the Act, without further prior approval by the Commission. The following
general terms will be applicable where appropriate to the financing transactions
requested to be authorized hereby:
(a) Effective Cost of Money. The effective cost of capital for
long-term debt, short-term debt, preferred securities and
equity-linked securities will not exceed competitive market rates
available at the time of issuance for securities having the same or
reasonably similar terms and conditions issued by similar companies
of reasonably comparable credit quality; provided that in no event
will the effective cost of capital on (i) any long-term debt
securities exceed 500 basis points over comparable term U.S.
Treasury securities; or (ii) any short-term debt securities exceed
300 basis points over the comparable-term London Interbank Offered
Rate. The dividend rate on any series of preferred stock or
preferred or equity-linked securities will not exceed at the time of
issuance) 700 basis points over comparable term U.S. Treasury
securities.
(b) Maturity. The final maturity of long-term indebtedness will not
exceed 50 years. All series of preferred stock, preferred securities
and equity-linked securities will be required to be redeemed no
later than 50 years after the issuance thereof, except for preferred
stock or preferred securities that are perpetual in duration.
---------------
to earn a return on the unamortized true-up balance to be recovered through the
competition transition charge. Hearings in this proceeding began on April 6,
2005.
10
(c) Issuance Expenses. The underwriting fees, commissions or other
similar remuneration paid in connection with the issue, sale or
distribution of securities pursuant to this Application will not
exceed the competitive market rates that are consistent with similar
securities of comparable credit quality and maturities issued by
other companies; provided that in no event will such fees and
commissions exceed seven percent (7%) of the principal or face
amount of the securities being issued or gross proceeds of the
financing.(16)
(d) Use of Proceeds. The proceeds from the sale of securities in
external financing transactions approved herein will be used for
general corporate purposes including (i) the financing, in part, of
the capital expenditures of the CenterPoint System, (ii) the
financing of working capital requirements of the CenterPoint System,
(iii) the refinancing or acquisition, retirement or redemption
pursuant to Rule 42 under the Act of securities previously issued by
CenterPoint or its Subsidiaries or as otherwise authorized by the
Commission, (iv) direct or indirect investment in companies
authorized under the Act, (v) to meet unexpected contingencies,
payment and timing differences, and cash requirements, and (vi)
other lawful purposes. The Applicants represent that no such
financing proceeds will be used to acquire a new Subsidiary unless
such financing is consummated in accordance with an order of the
Commission or an available exemption under the Act.
(e) Common Equity Ratio. Net of securitization debt, CenterPoint's
projected equity capitalization will be 30% or greater by the end of
2007; however, it is possible that this may not occur until 2008. In
connection with the requested authority, CenterPoint is undertaking
to provide the Commission on a quarterly basis confidential exhibits
updating CenterPoint's financial projections and assumptions through
2008.
At all times during the Authorization Period, CERC will maintain
common equity of at least 30% of its Total Capitalization, which is
defined as common equity, preferred stock, long-term debt and
short-term debt, as reflected in the most recent Form 10-K or Form
10-Q filed with the Commission adjusted to reflect changes in
capitalization since the balance sheet date therein.
As used herein, "Consolidated Capitalization" means Total
Capitalization excluding securitization obligations. Although CEHE
will at all times during the Authorization Period have member's
equity of greater than 30% of Consolidated Capitalization, in
carrying out the Texas Commission's Financing Order, CEHE's
consolidated member's equity ratio is projected to decrease below
the Commission's target of 30% of Total Capitalization during part
of the period that the Transition Bonds are outstanding, if the
securitization debt is included. The decrease in CEHE's consolidated
member's equity ratio below 30% is due to the Transition Bonds being
shown as debt in the consolidated financial statements of
---------------
(16) Issuance Expenses will not count toward the Effective Cost of Money
discussed above.
11
CEHE. The Transition Bonds will be non-recourse to CEHE and will be
serviced by the cash flows from the transition charges imposed under
the Financing Order, not the revenues of CEHE's utility operations.
Excluding the Transition Bonds from the consolidated pro forma
capital structure of CEHE, the member's equity ratio would be least
30% of its Total Capitalization at all times during the
Authorization Period.(17)
(f) Investment Grade Ratings. Apart from common stock, member
interests or securities issued for the purpose of funding the
operations of subsidiaries through the Money Pool, no guarantees or
other securities may be issued in reliance on the authority
requested herein unless: (i) the security to be issued, if rated, is
rated investment grade by at least one nationally recognized
statistical rating organization as that term is used in paragraphs
(c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities
Exchange Act of 1934 ("NRSRO"); (ii) all outstanding rated
securities of the issuer are rated investment grade by at least one
NRSRO; and (iii) all outstanding rated securities of CenterPoint are
rated investment grade by at least one NRSRO.(18)
(g) Authorization Period. No security will be issued pursuant to the
authority sought herein after the last day of the Authorization
Period (which is June 30, 2008), provided, however, that securities
issuable or deliverable upon exercise or conversion of, or in
exchange for, securities issued on or before June 30, 2008 in
accordance with the terms of such authorization may be issued or
delivered after such date.
2. CenterPoint External Financing
CenterPoint requests authority to issue and sell securities
including common stock, preferred stock and preferred and equity-linked
securities (either directly or through a subsidiary), warrants, long-term and
short-term debt securities and convertible securities and derivative instruments
with respect to any of the foregoing.(19) CenterPoint also requests
--------------
(17) Following issuance of the Transition Bonds, CEHE will have member's
equity capitalization of less than 20% of Total Capitalization if the
securitization debt is included. CEHE will improve its equity ratio as
securitization obligations are paid down. However, it is not anticipated that
CEHE will reach a level of at least 30% of Total Capitalization within five
years. Accordingly, Applicants request an exemption from the generally required
30% common equity ratio in order to carry out the Texas Commission's Financing
Order.
(18) The Applicants ask the Commission to reserve jurisdiction of the
issuance of securities subject to the Investment Grade Ratings criteria where
one or more of the Investment Grade Ratings criteria are not met. As noted
previously, Utility Holding is not seeking authority to issue external debt.
(19) Any convertible or equity-linked securities or warrants would be
convertible into or linked only to securities that CenterPoint and its
Subsidiaries are otherwise authorized to issue pursuant to rule or Commission
order and will count against the authorized limits for those securities granted
pursuant to the authority sought herein.
12
authorization to enter into obligations with respect to tax-exempt debt issued
on behalf of CenterPoint by governmental authorities. Such obligations may
relate to the refunding of outstanding tax-exempt debt or to the remarketing of
tax-exempt debt. CenterPoint seeks authorization to enter into lease
arrangements, and certain hedging transactions in connection with the foregoing
issuances of taxable or tax-exempt securities.
CenterPoint may sell securities covered by this Application in any
one of the following ways: (i) through underwriters; (ii) to initial purchasers
in transactions in reliance on Rule 144A under the Securities Act of 1933 or
dealers; (iii) through agents; (iv) directly to a limited number of purchasers
or a single purchaser; (v) in exchange for already outstanding securities,
including tender offers; or (vi) directly to employees (or to trusts established
for their benefit), shareholders and others. Certain of these sales may be made
via forward sales contracts. If underwriters are used in the sale of the
securities, such securities may be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The securities may be offered to
the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by CenterPoint) or directly by
one or more underwriters acting alone. The securities may be sold directly by
CenterPoint or through agents designated by CenterPoint from time to time. If
common or preferred stock or convertible debt is being sold in an underwritten
offering, CenterPoint may grant the underwriters thereof a "green shoe" option
permitting the purchase from CenterPoint at the same price of additional shares
or debt then being offered solely for the purpose of covering over-allotments.
Sales may be registered under the Securities Act of 1933 or effected
through competitive bidding among underwriters. In addition, sales may be made
through private placements, sales to initial purchasers in Rule 144A
transactions or other non-public offerings to one or more persons. All such
sales will be upon terms and conditions, at rates or prices and under conditions
negotiated or based upon, or otherwise determined by, competitive capital
markets.
(a) Common Stock
CenterPoint is authorized under its restated articles of
incorporation to issue one billion shares of common stock, par value $.01 per
share, and related preferred stock purchase rights. Each share of common stock
includes one right ("Right") to purchase from CenterPoint a unit consisting of
one one-thousandth of a share of CenterPoint Series A Preferred Stock at a
purchase price of $42.50 per unit, subject to adjustment. The Rights are issued
pursuant to the Rights Agreement dated as of January 1, 2002 between CenterPoint
and JPMorgan Chase Bank (the "Rights Agreement"), a copy of which was filed with
CenterPoint's Annual Report on Form 10-K for the year ended December 31, 2001
(File No. 1-31447) and incorporated by reference.(20)
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(20) The Rights will become exercisable shortly after (i) any public
announcement that a person or group of associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of CenterPoint common stock; or (ii) the start of a tender or
exchange offer that would result in a person or group of associated persons
becoming a 20% owner. The Rights are also exercisable for shares of (i)
CenterPoint common
13
As of February 28, 2005, CenterPoint had 308,501,031 shares of common stock
outstanding CenterPoint seeks authority to issue 200 million additional shares
of common stock (including Rights) and to issue warrants, options and other
rights to acquire an equivalent amount of common stock.
Such issuances may be used for the general corporate purposes
described above in Section C.1.(d). In addition, CenterPoint proposes, from time
to time during the Authorization Period, to issue and/or acquire in open market
transactions or negotiated block purchases, shares of CenterPoint common stock
for allocation under incentive compensation plans and other equity compensation
and employee benefit plans, and for the CenterPoint Investor's Choice Plan.(21)
Such transactions would comply with applicable law and Commission
interpretations then in effect. The requested authority to issue or deliver
CenterPoint common stock under these plans includes the authority to issue
related options, warrants, stock appreciation rights, stock units and other
derivative securities pursuant to those plans, including derivative securities
with respect to Subsidiaries provided they are not settled in stock of such
Subsidiaries. Any newly issued shares of common stock, including shares of
common stock issued upon the conversion or exercise of warrants, convertible
debt or other equity-linked securities, will be counted toward the overall limit
on common stock; shares of common stock purchased in the open market or
otherwise acquired for the purpose of reissuance under Stock Based Plans will
not be counted toward this limit to the extent that the net effect of the
purchase and reissuance does not increase the number of shares of common stock
outstanding.
----------------
stock in the event of certain tender or exchange offers not approved by the
CenterPoint board; and (ii) the common stock of an acquiring company in the
event of certain mergers, business combinations, or substantial sales or
transfers of assets or earning power. Under certain circumstances, CenterPoint
may substitute cash, property, other equity securities or debt, or may reduce
the exercise price of the Rights. The Rights attach to all certificates
representing the outstanding shares of common stock and are transferable only
with such certificates. The Rights are redeemable at CenterPoint's option prior
to their becoming exercisable and expire on December 31, 2011.
CenterPoint seeks continued authority to continue to implement the Rights
Agreement. Any shares of CenterPoint Series A Preferred Stock, CenterPoint
common stock or other consideration issued upon exercise of the Rights will not
be counted against the external financing limits requested in this filing.
(21) CenterPoint's existing stock-related employee plans are: CenterPoint
Energy, Inc. Savings Plan; CenterPoint Energy, Inc. 1994 Long-Term Incentive
Compensation Plan; Long-Term Incentive Plan of CenterPoint Energy, Inc.;
CenterPoint Energy, Inc. and Subsidiaries Common Stock Participation Plan for
Designated New Employees and Non-Officer Employees; NorAm Energy Corp. 1994
Incentive Equity Plan; and CenterPoint Energy, Inc. Stock Plan for Outside
Directors (collectively, the "Stock Based Plans"). The requested authority
relating to benefit and compensation plans is intended to apply to these plans,
as they may be amended or supplemented from time to time, and similar plans or
arrangements that may be adopted in the future without any additional prior
Commission order.
14
CenterPoint may also issue common stock as consideration, in whole
or in part, for acquisitions of securities or businesses or assets where such
acquisition is otherwise authorized under the Act.
(b) External Debt, Preferred Stock, Preferred and Equity-Linked
Securities
CenterPoint requests Commission authorization during the
Authorization Period to issue debt securities and preferred stock, and to issue
directly or indirectly through one or more Financing Subsidiaries long-term debt
securities, preferred stock, preferred securities (including, trust preferred
securities), and equity-linked securities (including preferred stock, preferred
securities that are convertible, either mandatorily or at the option of the
holder, into common stock, or forward purchase contracts for common stock).
Long-term debt securities may be comprised of bonds, notes,
medium-term notes or debentures under one or more indentures, long-term
indebtedness under agreements with banks or other institutional lenders,
directly or indirectly, and convertible debt.(22) Long-term securities could
also include obligations relating to the refunding or remarketing of tax-exempt
debt issued on behalf of CenterPoint or its Subsidiaries by governmental
authorities.
Long-term debt issued pursuant to the requested authority will be
unsecured.(23) Specific terms of any borrowings may include one or more
revolving credit facilities, and will also continue to be determined by
CenterPoint at the time of issuance. Any borrowings will comply in all regards
with the parameters on financing authorization set forth above. The request for
authorization for CenterPoint to issue long-term debt securities is consistent
with the current authority under the 2003 Omnibus Financing Order and
authorization that the Commission has granted to other combination gas and
electric holding companies.(24)
Short-term debt issued by CenterPoint will be unsecured. Types of
short-term debt securities may include borrowings under one or more bank loans,
commercial paper, short-term notes, bid notes, institutional borrowings, and
privately placed notes. Specific terms of any short-term borrowings will be
determined by CenterPoint at the time of issuance and will comply with the
parameters for financing authorization set forth above. The maturity of any
short-term debt issued will not exceed 364 days or, if the notional maturity is
greater than 364 days, the debt security will include put options at appropriate
points in time to cause the security to be accounted for as a current liability
under GAAP.
---------------
(22) Debt will be convertible only into such securities as are otherwise
authorized under the Act.
(23) Currently outstanding debt at CenterPoint that is secured by obligations
at CEHE may be similarly secured upon a refinancing or refunding.
(24) See, e.g., E.ON AG, Holding Co. Act Release No. 27539 (June 14, 2002);
Allegheny Energy, Inc., Holding Co. Act Release No. 27486 (Dec. 31, 2001);
Exelon Corporation, Holding Co. Act Release No. 27266 (Nov. 2, 2000); New
Century Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000).
15
CenterPoint may sell commercial paper or privately placed notes
("commercial paper"), from time to time, in established domestic or European
commercial paper markets. Such commercial paper may be sold at a discount or
bear interest at a rate per annum prevailing at the date of issuance for
commercial paper of a similarly situated company. CenterPoint may, without
counting against the limit on parent financings set forth above, maintain
back-up lines of credit in connection with one or more commercial paper programs
in an aggregate amount not to exceed the amount of authorized commercial paper.
CenterPoint may sell shares of preferred stock with terms of each
series as may be designated in the instrument creating each such series. Shares
of preferred stock may be convertible or exchangeable into CenterPoint common
stock, provided that preferred stock will be convertible only into such common
stock as is otherwise authorized under the Act.
CenterPoint may sell short-term notes through one or more private
placements or public offerings primarily to traditional money market investors.
CenterPoint may enter into individual agreements with one or more commercial
banks that may or may not be lenders under CenterPoint credit facilities. These
agreements would permit CenterPoint to negotiate with one or more banks on any
given day for such lender, or any affiliate or subsidiary of such lender, to
purchase promissory notes directly from CenterPoint.
There are many different variations of equity-linked products
offered in the marketplace. Equity-linked securities will be linked to common
stock or preferred stock or preferred securities that CenterPoint is otherwise
authorized to issue. Typically, these products combine a security with a fixed
obligation (e.g., preferred stock or debt) with a conversion feature that is
exercisable (often mandatorily) initially within a relatively short period
(e.g., three to six years after issuance). These instruments may also be tax
advantaged. Preferred or equity-linked securities may be issued in one or more
series with such rights, preferences, and priorities as may be designated in the
instrument creating each such series. Dividends, distributions or interest on
preferred or equity-linked securities will be made periodically and to the
extent funds are legally available for such purpose, but may be made subject to
terms that allow the issuer to defer dividend or interest payments or
distributions or to satisfy them with payments in-kind rather than in cash, for
specified periods. Preferred or equity-linked securities may be convertible or
exchangeable into shares of common or preferred stock (as applicable) that have
otherwise been authorized pursuant to authority herein requested.
Preferred stock and equity-linked securities may be sold directly or
indirectly to or through underwriters, initial purchasers or dealers or pursuant
to any other method of distribution described for common stock in Section 2
above. The Commission has approved the issuance of such securities on several
occasions.(25)
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(25) The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9, 2000);
Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001).
16
(c) Financing Risk Management Devices
CenterPoint requests authority to enter into hedging arrangements
intended to reduce or manage financial risks to which CenterPoint is subject.
These arrangements may include, but are not limited to interest rate swaps,
caps, floors, collars, forward agreements, issuance of structured notes (i.e., a
debt instrument in which the principal and/or interest payments are indirectly
linked to the value of an underlying asset or index), or transactions involving
the purchase or sale, including short sales, of U.S. Treasury or U.S.
governmental agency (e.g., Fannie Mae) obligations or LIBOR based swap
instruments (collectively referred to as "Hedging Instruments"). The
transactions would be for fixed periods and stated notional amounts as generally
accepted as prudent in the capital markets. In no case will the notional
principal amount of any interest rate hedge exceed that of the underlying debt
instrument. CenterPoint will not engage in "speculative transactions" as that
term is described in Statement of Financial Accounting Standards ("SFAS") 133
("Accounting for Derivative Instruments and Hedging Activities"). Transaction
fees, commissions and other amounts payable to brokers in connection with an
interest rate hedge will not exceed those generally obtainable in capital
markets for parties of comparable credit quality. CenterPoint may employ
interest rate derivatives as a means of prudently managing the risk associated
with any of its outstanding debt issued pursuant to this authorization or an
applicable exemption by, in effect, synthetically (i) converting variable rate
debt to fixed rate debt, (ii) converting fixed rate debt to variable rate debt,
(iii) limiting the impact of changes in interest rates resulting from variable
rate debt and (iv) managing other risks that may attend outstanding securities.
Transactions will be entered into for a fixed or determinable period.
CenterPoint will only enter into agreements with counterparties having a senior
debt rating at the time the transaction is executed of at least "BBB-" or its
equivalent, as published by a NRSRO ("Approved Counterparties").
In addition, CenterPoint requests authorization to enter into
hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to the limitations and restrictions expressed
below. Such Anticipatory Hedges would only be entered into with Approved
Counterparties, and would be utilized to fix and/or limit the risk associated
with any issuance of securities through appropriate means, including (i) a
forward sale of exchange-traded Hedging Instruments, (ii) the purchase of put
options on Hedging Instruments, (iii) a put options purchase in combination with
the sale of call options Hedging Instruments, (iv) some combination of the above
and/or other derivative or cash transactions, including, but not limited to,
structured notes, caps and collars, appropriate for the Anticipatory Hedges, and
(v) other financial derivatives or other products including Treasury rate locks,
swaps, forward starting swaps, and options on the foregoing. Anticipatory Hedges
may be executed on-exchange with brokers through the opening of futures and/or
options positions traded on the Chicago Board of Trade, the opening of
over-the-counter positions with one or more counterparties, or a combination of
the two. CenterPoint or its applicable Subsidiary will determine the structure
of each Anticipatory Hedge transaction at the time of execution. CenterPoint may
decide to lock in interest rates and/or limit its exposure to interest rate
increases.
Each Hedging Instrument and Anticipatory Hedge will be treated for
accounting purposes as provided for under GAAP. Fees, commissions and other
amounts payable to the counterparty or exchange (excluding, however, the swap or
option payments) in connection with
17
Hedging Instruments will not exceed those generally obtainable in competitive
markets for similarly-situated parties of comparable credit quality. CenterPoint
will comply with SFAS 133 and SFAS 138 ("Accounting for Certain Derivative
Instruments and Certain Hedging Activities") or such other standards relating to
accounting for derivative transactions as are adopted and implemented by the
Financial Accounting Standards Board.
3. Utility Subsidiary Financing(26)
The Utility Subsidiaries request authority to issue and sell
securities, including preferred stock, preferred securities (including trust
preferred securities) (either directly or through a subsidiary), long-term and
short-term debt securities (including convertible debt, commercial paper and
privately placed short-term notes), and derivative instruments with respect to
any of the foregoing on the same terms and conditions discussed above for
CenterPoint, except that Utility Subsidiary debt may be secured or unsecured in
the amounts and subject to aggregate amounts of securities outstanding in the
applicable categories as set forth on Exhibit G-1 and referenced in Item
1.A.(27) The Utility Subsidiaries also request authorization to enter into
obligations with respect to new tax-exempt debt issued on behalf of a Utility
Subsidiary by governmental authorities as well as obligations entered into in
connection with the refunding of outstanding tax-exempt debt assumed by
CenterPoint in connection with the August 31, 2002 restructuring by which
CenterPoint and Utility Holding became holding companies for the Utility
Subsidiaries. The Utility Subsidiaries also request authority to enter into
hedging transactions to manage their financial risk in connection with the
foregoing issuance of securities subject to the limitations and requirements
applicable to CenterPoint.
4. Guarantees and Intra-System Advances
(a) Guarantees
Authorization is requested for CenterPoint and its Subsidiaries
during the Authorization Period to enter into guarantees on their own behalf and
on behalf of their respective Subsidiaries to third parties, obtain letters of
credit, enter into support or expense agreements or liquidity support agreements
or otherwise provide credit support with respect to the obligations of the
Subsidiaries, including performance guarantees, as may be appropriate to carry
on in the ordinary course of CenterPoint or its Subsidiaries' duly-authorized
utility and related businesses, and the Subsidiaries request authority to
provide to their respective Subsidiaries guarantees and other forms of credit
support such that in the aggregate, CenterPoint and its Subsidiaries will not
enter into guarantees in an amount exceeding the CenterPoint System Guarantee
Limit.(28) Excluded from the CenterPoint System Guarantee Limit are obligations
exempt pursuant to Rule 45 under the Act.
----------------
(26) The Non-Utility Subsidiaries will rely on Rules 45 and 52 under the Act
for financings described in this Section C.(3).
(27) To the extent that CERC issues secured debt, such debt will be secured
by a pledge of the stock of its non-utility subsidiary companies.
(28) The amount of the requested authority is intended to accommodate
situations such as the CenterPoint System's exposure to, among other things, the
volatility of natural gas prices. Although natural gas supplies have been
sufficient in recent years, available supplies are subject
18
Certain of the guarantees may be in support of obligations that are
not capable of exact quantification. In such cases, CenterPoint will determine
the exposure under a guarantee for purposes of measuring compliance with the
CenterPoint System Guarantee Limit by appropriate means, including estimation of
exposure based on loss experience or potential payment amounts. As appropriate,
these estimates will be made in accordance with GAAP and sound financial
practices. Such estimation will be reevaluated periodically.
The guarantor may charge each Subsidiary a fee for any guarantee
provided on its behalf that is not greater than the cost, if any, of obtaining
the liquidity necessary to perform the guarantee (for example, bank line
commitment fees or letter of credit fees, plus other transactional expenses) for
the period of time the guarantee remains outstanding.
The amount of any guarantees will be counted toward the applicable
limits under Rules 53 and 58.
(b) Money Pool
CenterPoint and certain of its Subsidiaries (together, the
"Parties") hereby request authorization to continue to conduct the Money Pool as
approved in the 2003 Omnibus Financing Order, and the Subsidiaries, to the
extent not exempted by Rule 52 under the Act, also request authorization to
make, from time to time, unsecured short-term borrowings from the Money Pool and
to contribute surplus funds to the Money Pool and to lend and extend credit to
(and acquire promissory notes from) one another through the Money Pool.(29)
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to disruption from a variety of events, which can have the effect of creating
rapid change in pricing.
As explained in CenterPoint's Annual Report on Form 10-K for the year ended
December 31, 2004, CERC is subject to volatility in gas prices. Additionally,
CERC must commit to gas purchases in advance of receipt of the revenues under
which they recover those costs. During periods of rapid increase in prices, the
volumes involved in such purchases can significantly increase the dollar value
of the credit that suppliers effectively extend to their purchasers. In view of
the recent experience of many energy companies, suppliers generally are more
cautious in making large commitments to customers and maintain careful scrutiny
of customers' credit. When prices go up, CenterPoint and its subsidiaries may be
required to demonstrate increased financial commitments to purchasers.
Depending on the circumstances, increased exposures may impact borrowing costs
and certainly will require commitments of credit capacity to the supply
contracts.
(29) The Participants in the Money Pool will be CenterPoint, CenterPoint
Energy Service Company, LLC (the "Service Company"), the Utility Subsidiaries,
CenterPoint Energy Properties, Inc., CenterPoint Energy Products, Inc., and
CenterPoint Energy Funding Company. CenterPoint Energy Funding Company is an
entity through which CenterPoint had funded or acquired foreign utility
companies within the meaning of Section 33 of the Act and so, this company will
be an investor in but not a borrower from the Money Pool. No exempt wholesale
19
CenterPoint is requesting authorization to contribute surplus funds
and to lend and extend credit to the Utility Subsidiaries through the Money
Pool. CenterPoint will not be a borrower from the Money Pool.
Under the terms of the Money Pool, each Party determines each day
the amount of funds each desires to contribute to the Money Pool, and
contributes such funds to the Money Pool.30 The determination of whether a Party
has funds to contribute (either from surplus funds or from external borrowings)
and the determination whether a Party shall lend such funds to the Money Pool is
made by such Party's treasurer, or by a designee thereof, in such Party's sole
discretion. Each Party may withdraw any of its funds at any time upon notice to
the Service Company, as administrative agent of the Money Pool.
Short-term funds will be available from the following sources: (1)
surplus funds in the treasuries of the Parties, and (2) proceeds from external
borrowings, including bank loans, the sale of notes and/or the sale of
commercial paper by the Parties, in each case to the extent permitted by
applicable laws and regulatory orders.
Each borrowing Party will borrow pro rata from each fund source in
the same proportion that the amount of funds provided from that fund source
bears to the total amount then loaned through the Money Pool. On a day when more
than one source of funds is invested in the Money Pool with different rates of
interest used to fund loans through the Money Pool, each borrower will borrow
pro rata from each such funding source from the Money Pool in the same
proportion that the amount of funds provided by that fund source bears to the
total amount of funds invested into the Money Pool. If there are insufficient
funds to meet all borrowing requests, the needs of the Utility Subsidiaries will
be met before loans are made to any Non-Utility Subsidiaries.
The determination of whether a Party has funds to lend to the Money
Pool will be made by its Treasurer, or by a designee thereof. The Service
Company, as administrator of the Money Pool, will provide each Party with a
report for each business day that includes, among other things, cash activity
for the day and the balance of loans outstanding. All borrowings from the Money
Pool shall be authorized by the borrowing Party's treasurer, or by a designee
thereof. No Party shall be required to effect a borrowing through the Money Pool
if such Party determines that it can (and is authorized to) effect such
borrowing more advantageously directly from banks or through the sale of its own
notes or commercial paper. The Utility Subsidiaries will have the right to have
priority with respect to borrowings from the Money Pool.
Funds which are loaned by Parties and are not utilized to satisfy
borrowing needs of other Parties will be invested by the Service Company on
behalf of the lending Parties in one
-------------
generator, foreign utility company or exempt telecommunications company will be
a borrower from the Money Pool.
(30) An Amended and Restated Form of Money Pool Agreement is attached hereto
as Exhibit J-1.
20
or more short term instruments, including (i) interest-bearing deposits with
banks; (ii) obligations issued or guaranteed by the U.S. government and/or its
agencies; (iii) commercial paper rated not less than A-1 by Standard & Poor's
and P-1 by Moody's Investors Services, Inc.; (iv) money market funds; (v) bank
certificates of deposit; (vi) Eurodollar funds; (vii) repurchase agreements
collateralized by securities issued or guaranteed by the U.S. government; and
(viii) such other investments as are permitted by Section 9(c) of the Act and
Rule 40 thereunder.
The interest rate applicable on any day to then outstanding loans
through the Money Pool, whether or not evidenced by a promissory demand note,
will be the composite weighted average daily effective cost incurred by
CenterPoint for external borrowings outstanding on that date. The daily
effective cost shall be inclusive of interest rate swaps related to such
external funds. If there are no external borrowings outstanding on that date,
then the rate will be the certificate of deposit yield equivalent of the 30-day
Federal Reserve "AA" Non-Financial Commercial Paper Composite Rate or if no
composite is established for that day, then the applicable rate will be the
composite for the next preceding day for which a composite is established. If
the composite shall cease to exist, then the rate will be the composite which
then most closely resembles the composite and/or most closely mirrors the
pricing CenterPoint would expect if it had external borrowings.
Interest income related to external investments will be calculated
daily and allocated back to lending Parties on the basis of their relative
contribution to the Money Pool on that date.
Each Party receiving a loan from the Money Pool shall repay the
principal amount of such loan, together with all interest accrued thereon, on
demand by the administrator and in any event not later than the expiration date
of the Commission authorization for the operation of the Money Pool. All loans
made through the Money Pool may be prepaid by the borrower without premium or
penalty.
Borrowings by the Utility Subsidiaries from the Money Pool should
not exceed the following amounts at any one time outstanding during the
Authorization Period:
CEHE $600 million(31)
CERC $600 million
(c) Other Intra-System Financing
The Subsidiaries may also finance their capital needs through
borrowings from CenterPoint, directly or indirectly through Utility Holding. Any
short-term borrowings by Utility Subsidiaries pursuant to this request would be
counted toward the Money Pool limits above.
---------------
(31) CEHE's external borrowings under the $200 million revolving credit
facility authorized in CenterPoint Energy, Inc., Holding Co. Act Release No.
27949 (Feb. 28, 2005), and through the Money Pool will not exceed $600 million
in the aggregate during the Authorization Period.
21
Utility Holding requests authority to issue and sell securities to
its parent company and to acquire securities from its subsidiary companies on
the same terms and conditions as specified above. Applicants also seek authority
for Utility Holding to transfer any dividends or financing proceeds received
from its subsidiaries to CenterPoint.
5. Changes in Capital Stock of Majority Owned Subsidiaries
The portion of an individual Subsidiary's aggregate financing to be
effected through the sale of stock or other equity securities to CenterPoint or
other immediate parent company during the Authorization Period pursuant to Rule
52 and/or pursuant to an order issued pursuant to this filing cannot be
ascertained at this time. It may happen that the proposed sale of capital
securities (i.e., common stock or preferred stock) may in some cases exceed the
then authorized capital stock of such Subsidiary. In addition, the Subsidiary
may choose to use capital stock with no par value.
As needed to accommodate such proposed transactions and to provide
for future issues, request is made for authority to change the terms of any 50%
or more owned Subsidiary's authorized capital stock capitalization or other
equity interests by an amount deemed appropriate by CenterPoint or other
intermediate parent company; provided that the consents of all other
shareholders or other equity holders have been obtained for the proposed change.
This request for authorization is limited to CenterPoint's 50% or more owned
Subsidiaries and will not affect the aggregate limits or other conditions
contained herein. A Subsidiary would be able to change the par value, or change
between par value and no-par stock, or change the form of such equity from
common stock to limited partnership or limited liability company interests or
similar instruments, or from such instruments to common stock, without
additional Commission approval. Any such action by a Utility Subsidiary would be
subject to and would only be taken upon the receipt of any necessary approvals
by the state commission in the state or states where the Utility Subsidiary is
incorporated and doing business.(32) CenterPoint will be subject to all
applicable laws regarding the fiduciary duty of fairness of a majority
shareholder to minority shareholders in any such 50% or more owned Subsidiary
and will undertake to ensure that any change implemented under this paragraph
comports with such legal requirements.(33)
6. Payment of Dividends Out of Capital or Unearned Surplus
CenterPoint and Utility Holding each request authority to declare
and pay dividends out of capital or unearned surplus in an amount up to $300
million during the Authorization Period. CenterPoint requests that the
Commission reserve jurisdiction over this request.(34)
---------------
(32) The Commission has previously approved substantially similar proposals.
See e.g., FirstEnergy Corp., Holding Co. Act Release No. 27694 (June 30, 2003).
(33) Applicants state that, in the event that proxy solicitations are
necessary with respect to the internal corporate reorganizations, Applicants
will seek the necessary Commission approvals under Sections 6(a)(2) and 12(e) of
the Act through the appropriate filing of a declaration.
(34) CEHE is also seeking authority to declare and pay dividends in a
separate application in connection with the issuance of transition bonds.
22
Applicants also request a continuation of authority for the
Non-Utility Subsidiaries to pay dividends out of capital or unearned surplus to
the extent permitted by state law.(35)
7. Financing Subsidiaries
CenterPoint and its Subsidiaries propose to organize and acquire the
common stock or other equity interests of one or more Financing Subsidiaries for
the purpose of effecting various financing transactions from time to time
through the Authorization Period. Financing Subsidiaries may be corporations,
trusts, partnerships or other entities created specifically for the purposes
described herein. The amount of securities issued by the Financing Subsidiaries
to third parties will count toward the respective financing limits of its
immediate parent as set forth on Exhibit G-1. Authorization is hereby requested
for the issuance of such securities by the Financing Subsidiaries and for the
transfer of proceeds from such issuance to the respective parent companies.
CenterPoint and, to the extent such issuances are not exempt
pursuant to Rule 52, the Subsidiaries also request authorization to issue their
subordinated unsecured notes ("Subordinated Notes") to any Financing Subsidiary
to evidence the loan of financing proceeds by a Financing Subsidiary to its
parent company. The principal amount, maturity and interest rate on such
Subordinated Notes will be designed to parallel the amount, maturity and
interest or distribution rate on the securities issued by a Financing
Subsidiary, in respect of which the Subordinated Note is issued. CenterPoint or
a Subsidiary may, if required, guarantee or enter into support or expense
agreements in respect of the obligations of such Financing Subsidiaries.
It is anticipated that the Financing Subsidiaries will be
wholly-owned subsidiaries of CenterPoint and fully consolidated for purposes of
financial reporting. No Financing Subsidiary shall acquire or dispose of,
directly or indirectly, any interest in any utility asset, as that term is
defined under the Act, without first obtaining such further approval as may be
required.
The business of the Financing Subsidiary will be limited to
effecting financing transactions that have been otherwise authorized for
CenterPoint and its Subsidiaries. In connection with such financing
transactions, CenterPoint or its Subsidiaries may enter into one or more
guarantees or other credit support agreements in favor of the Financing
Subsidiary.
Any Financing Subsidiary organized pursuant to this filing shall be
organized only if, in management's opinion, the creation and utilization of such
Financing Subsidiary will likely result in tax savings, increased access to
capital markets and/or lower cost of capital for CenterPoint or its
Subsidiaries.
The ability to use financing subsidiaries in financing transactions
can sometimes offer increased state and/or federal tax efficiency. Increased tax
efficiency can result if a financing subsidiary is located in a state or country
that has tax laws that make the proposed
----------------
(35) See CenterPoint Energy, Inc., Holding Co. Act Release No. 27692 (June
30, 2003).
23
financing transaction more tax efficient relative to the sponsor's existing
taxing jurisdiction. For example, foreign finance subsidiaries, depending upon
the identity of the borrowers, can often earn income that is not subject to
current U.S. federal income taxation. However, decreasing tax exposure is
usually not the primary goal when establishing a financing subsidiary. Because
of the potential significant non-tax benefits of such transactions, discussed
below, use of a financing subsidiary can benefit an issuer even without a net
improvement in its tax position.
Financing subsidiaries can increase a company's ability to access
new sources of capital by enabling it to undertake financing transactions with
features and terms attractive to a wider investor base. Financing subsidiaries
can be established in jurisdictions and/or in forms that have terms favorable to
its sponsor and that at the same time provide targeted investors with attractive
incentives to provide financing. Many of these investors would not be
participants in the sponsor's bank group, and they typically would not hold
sponsor bonds or commercial paper. Thus they represent potential new sources of
capital.
One aspect of transactions involving finance subsidiaries is that
they can enable a more efficient allocation of risks among investors and the
sponsor, resulting in a lower all-in financing rate. In a simple example,
finance subsidiaries can be used to securitize specific assets, or pools of
assets, at reasonable-to-attractive rates. The financing cost could be lower
because the assets may have a unique risk profile that is especially appealing
to specific investors, or because the diversification achieved by pooling assets
reduces the total level of risk.
Each of CenterPoint and its Subsidiaries also requests authorization
to enter into an expense-related agreement with its respective Financing
Subsidiary, pursuant to which it would agree to pay all expenses of such entity.
Any amounts issued by such Financing Subsidiaries to third parties pursuant to
this authorization will be included in the additional external financing
limitation authorized herein for the immediate parent of such financing entity.
However, the underlying intra-system mirror debt and parent guarantee shall not
be so included. Applicants also seek authority for the Financing Subsidiaries to
transfer the proceeds of any financing to their respective parent companies.
D. RESTRUCTURING OF NON-UTILITY INTERESTS
The Commission previously authorized CenterPoint to restructure its
non-utility interests from time to time as may be necessary or appropriate.
CenterPoint seeks a continuation of this authority, provided that companies in
the CenterPoint System will engage, directly or indirectly, only in businesses
that are duly authorized, whether by order, rule or statute.(36)
E. FILING OF CERTIFICATES OF NOTIFICATION
As approved in the 2003 Omnibus Financing Order, with respect to
CenterPoint, the reporting systems of the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the Securities Act of 1933, as amended (the "1933
Act") are integrated with the reporting system under the 1935 Act. To effect
such integration, the portion of the 1933 Act and 1934 Act reports
----------------
(36) Id.
24
containing or reflecting disclosures of transactions occurring pursuant to the
authorizations granted in this proceeding are incorporated by reference into
this proceeding through Rule 24 certificates of notification. The certificates
contain all other information required by Rule 24, including the certification
that each transaction being reported had been carried out in accordance with the
terms and conditions of and for the purposes represented in this Application.
Such certificates of notification are to be filed within 60 days after the end
of the first three calendar quarters and within 90 days after the end of the
last calendar quarter in which transactions occur.
A copy of relevant documents (e.g., underwriting agreements,
indentures, bank agreements) for the relevant quarter are filed with, or
incorporated by reference from 1933 Act or 1934 Act filings in such Rule 24
certificates.
The Rule 24 certificates will contain the following information as
of the end of the applicable quarter (unless otherwise stated below):
(i) A computation in accordance with Rule 53(a) showing
CenterPoint's "aggregate investment" in all EWGs and FUCOs, and
its "consolidated retained earnings;"
(ii) A breakdown showing CenterPoint's aggregate investment in each
EWG or FUCO;
(iii) Total Capitalization ratio of CenterPoint, with consolidated
debt to include all short-term debt and nonrecourse debt of all
EWGs and FUCOs;
(iv) The market-to-book ratio of CenterPoint's common stock;
(v) Identification of any new EWG or FUCO in which CenterPoint has
invested or committed to invest during the preceding quarter;
(vi) Analysis of the growth in consolidated retained earnings that
segregates total earnings growth of EWGs and FUCOs from that
attributable to other subsidiaries of CenterPoint;
(vii) A statement of revenues and net income for each EWG and FUCO for
the twelve months ending as of the end of that quarter;
(viii) The sales of any common stock or preferred stock, preferred
securities or equity-linked securities by CenterPoint or a
Subsidiary and the purchase price per share and the market price
per share at the date of the agreement of sale, as well as the
amount of each type of security issued during the Authorization
Period;
(ix) The total number of shares of CenterPoint common stock issued or
issuable pursuant to options granted during the quarter under
employee benefit plans and dividend reinvestment plans,
including any employee
25
benefit plans or dividend reinvestment plans hereafter adopted,
together with the number of shares issued or issuable during
the Authorization Period;
(x) If CenterPoint common stock has been transferred to a seller of
securities of a company being acquired, the number of shares so
issued, the value per share and whether the shares are
restricted in the hands of the acquirer;
(xi) If a guarantee is issued during the quarter, the name of the
guarantor, the name of the beneficiary of the guarantee and the
amount, terms and purpose of the guarantee;
(xii) The amount and terms of any CenterPoint indebtedness issued
during the quarter, as well as the aggregate amount of
indebtedness issued by CenterPoint during the Authorization
Period;
(xiii) The amount and terms of any indebtedness issued by any Utility
Subsidiary during the quarter, as well as the aggregate amount
of indebtedness issued by each Utility Subsidiary during the
Authorization Period;
(xiv) The amount and terms of any financings consummated by any
Non-Utility Subsidiary that are not exempt under Rule 52, as
well as the amount of non-exempt securities issued by the
Non-Utility Subsidiaries during the Authorization Period;
(xv) The notional amount and principal terms of any Hedging
Instruments or Anticipatory Hedges entered into during the
quarter and the identity of the other parties thereto;, as well
as the aggregate notional amount of Hedging Instruments and
Anticipatory Hedges entered into during the Authorization
Period;
(xvi) The name, parent company and amount of equity in any
intermediate subsidiary during the quarter and the amount and
terms of any securities issued by such subsidiaries during the
quarter;
(xvii) The information required by a Certificate of Notification on
Form U-6B-2;(37)
(xviii) The amount and terms of any other securities issued under the
authority sought herein during the quarter;
---------------
(37) Applicants are exempt from the requirement to file Forms U-6B-2 because
the information contained therein will be set forth in their quarterly Rule 24
Certificates.
26
(xix) (a) A description of any financing transactions conducted
during the quarter, the proceeds of which were used to fund a
Subsidiary that is a Variable Interest Entity ("VIE") as that
term is defined under FASB Interpretation 46R, Consolidation of
Variable Interest Entities; " and (b) a description of the
accounting for each such transaction.
(xx) Consolidated balance sheets for CenterPoint and/or a Utility
Subsidiary as of the end of the quarter and separate balance
sheets as of the end of the quarter for each company that has
engaged in jurisdictional financing transactions during the
quarter;
(xxi) A table showing, as of the end of the quarter, the dollar and
percentage components of the capital structure of CenterPoint
on a consolidated basis and of each Utility Subsidiary;
(xxii) A retained earnings analysis of CenterPoint on a consolidated
basis and of each Utility Subsidiary detailing gross earnings,
dividends paid out of each capital account and the resulting
capital account balances at the end of the quarter;
(xxiii) A table showing, as of the end of the quarter, the Money Pool
participants and amount of outstanding borrowings for each;
(xxiv) As to each financing subsidiary, (a) the name of the
subsidiary; (b) the value of CenterPoint's investment account
in such subsidiary; (c) the balance sheet account where the
investment and the cost of the investment are booked; (d) the
amount invested in the subsidiary by CenterPoint; (e) the type
of corporate entity; (f) the percentage owned by CenterPoint;
(g) the identification of other owners if not 100% owned by
CenterPoint; (h) the purpose of the investment in the
subsidiary; and (i) the amounts and types of securities to be
issued by the subsidiary;
(xxv) A confidential exhibit updating CenterPoint's financial
projections and assumptions through 2008;
(xxvi) Future registration statements filed under the Securities Act
of 1933 with respect to securities that are subject of the
instant Application-Declaration will be filed or incorporated
by reference to the next Rule 24 certificate in this file;
(xxvii) With respect to any internal reorganization of any Subsidiaries
during the quarter, a description of the nature of such
reorganization.
The Applicants also will report service transactions among CenterPoint (or any
other system service provider) and the Utility Subsidiaries. The report will
contain the following information:
27
(i) a narrative description of the services rendered; (ii) disclosure of the
dollar amount of services rendered in (i) above according to category or
department; (iii) identification of companies rendering services described in
(i) above and recipient companies, including disclosure of the allocation of
services costs; and (iv) disclosure of the number of CenterPoint System
employees engaged in rendering services to other CenterPoint System companies on
an annual basis, stated as an absolute and as a percentage of total employees.
Applicants shall file a report with the Commission within two
business days after the occurrence of any of the following: (i) a 10% or greater
decline in common stock equity for U.S. GAAP purposes since the end of the last
reporting period for CenterPoint or any of the Utility Subsidiaries; (ii)
CenterPoint or any of the Utility Subsidiaries defaults on any debt obligation
in principal amount equal to or exceeding $10 million if the default permits the
holder of the debt obligation to demand payment; (iii) an NRSRO has downgraded
the senior debt ratings of CenterPoint or any of the Utility Subsidiaries; or
(iv) any event that would have a material adverse effect on the ability of
CenterPoint or any of its subsidiaries to comply with any condition or
requirement in this order on an ongoing basis. The report shall describe all
material circumstances giving rise to the event.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The fees, commissions and expenses paid or incurred or to be
incurred in connection with this Application are estimated to be $120,000.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
A. APPLICABLE PROVISIONS
Sections 6(a), 7, 9(a), 10 and 12(b) and (c) of the Act and Rules
42, 43, 44, 45, 46, 52, 53, 54, 58 and 62 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 company which is an EWG or FUCO if Rule 53(a), (b)
and (c) under the Act are satisfied. Texas Genco, LP has been qualified as an
EWG, 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 investment
in Texas Genco, LP through its indirect subsidiary company, Texas Genco. The
investment in Texas Genco, LP is CenterPoint's only EWG investment. In December
2004, Texas Genco and Texas Genco, LP completed the sale of all of Texas Genco,
LP's fossil generation assets to a third party
28
for $2.813 billion in cash. In the second step of the transaction, which closed
on April 13, 2005, the third party acquired Texas Genco and the remaining
nuclear generation assets for approximately $700 million cash. CenterPoint no
longer has an investment in an EWG or a FUCO.
CenterPoint had negative retained earnings as of December 31, 2004,
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
Application-Declaration.
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. The 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. The 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.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
A. EXHIBITS.
A-1 Amended and Restated Articles of Incorporation of CenterPoint as adopted on
November 2, 2001 (filed with the Commission on November 5, 2001 as Exhibit 3.1
to Registration Statement on Form S-4 (File No. 333-69502) and incorporated by
reference herein).
A-2 Articles of Amendment to Amended and Restated Articles of Incorporation of
CenterPoint, dated March 27, 2002 (filed with the Commission as Exhibit 3.1.1 to
the Annual Report of CenterPoint on Form 10-K for the year ended December 31,
2001 (File No. 333-69502) and incorporated by reference herein).
29
A-3 Amended and Restated By-Laws of CenterPoint as adopted on March 26, 2002
(filed with the Commission as Exhibit 3.2 to the Annual Report of CenterPoint on
Form 10-K for the year ended December 31, 2001 (File No. 333-69502) and
incorporated by reference herein).
B-1 Not applicable.
C-1 Not applicable.
D-1 Not applicable.
E-1 Not applicable.
F-1 Opinion of counsel.
G-1 Table setting forth by issuer: (i) the type of securities and amount of
each that is outstanding or, in the case of credit facilities that are not fully
drawn, could be outstanding as of March 7, 2005; (ii) the amount of incremental
investment authority that is being requested; and (iii) the total amount of
securities that could be outstanding pursuant to the requested authority
(previously filed).
G-2 Annual Report of CenterPoint on Form 10-K for the year ended December 31,
2004 (File No. 1-31447) (filed with the Commission on March 16, 2005 and
incorporated by reference herein).
G-3 Annual Report of CenterPoint Energy Houston Electric, LLC on Form 10-K for
the year ended December 31, 2004 (File No. 1-03187) (filed with the Commission
on March 24, 2005 and incorporated by reference herein).
G-4 Annual Report of CenterPoint Energy Resources Corp. on Form 10-K for the
year ended December 31, 2004 (File No. 1-13265) (filed with the Commission on
March 24, 2005 and incorporated by reference herein).
G-5 Annual Report of CenterPoint Energy Transition Bond Co., LLC on Form 10-K
for the year ended December 31, 2004 (File No. 333-91093) (filed with the
Commission on March 31, 2005 and incorporated by reference herein).
H-1 Proposed Form of Notice (previously filed).
J-1 Form of Second Amended and Restated Money Pool Agreement.
B. FINANCIAL STATEMENTS.
FS-1 Consolidated Balance Sheets of CenterPoint as of December 31, 2004 and
Statements of Consolidated Operations, Statements of Consolidated Comprehensive
Income and Statements of Consolidated Cash Flows for the year ended December 31,
2004 (incorporated by reference to CenterPoint's Annual Report on Form 10-K for
the year ended December 31, 2004 (File No. 1-31447)).
FS-2 Consolidated Balance Sheets of CenterPoint Energy Houston Electric, LLC as
of December 31, 2004 and Statements of Consolidated Income, Statements of
Consolidated
30
Comprehensive Income and Statements of Consolidated Cash Flows for the year
ended December 31, 2004 (incorporated by reference to CenterPoint Energy Houston
Electric, LLC's Annual Report on Form 10-K for the year ended December 31, 2004
(File No. 1-03187)).
FS-3 Consolidated Balance Sheets of CenterPoint Energy Resources Corp. as of
December 31, 2004 and Statements of Consolidated Income, Statements of
Consolidated Comprehensive Income and Statements of Consolidated Cash Flows of
CenterPoint Energy Resources Corp. for the year ended December 31, 2004
(incorporated by reference to CenterPoint Energy Resources Corp.'s Annual Report
on Form 10-K for the year ended December 31, 2004 (File No. 1-13265)).
FS-4 Balance Sheets of CenterPoint Energy Transition Bond Co., LLC as of March
31, 2005 (unaudited) and Statements of Income and Changes in Member's Equity and
Statements of Cash Flows for the three months ended March 31, 2005 (unaudited)
(incorporated by reference to CenterPoint Energy Transition Bond Co., LLC's
Quarterly Report on Form 10-Q for the three months ended March 31, 2005 (File
No. 333-91093)).
FS-5 CenterPoint consolidated financials (forecasts through 2009) (filed in
connection herewith with a request for confidential treatment).
FS-6 CenterPoint Energy Houston Electric, LLC financials (forecasts through
2009) (filed in connection herewith with a request for confidential treatment).
FS-7 CenterPoint Energy Resources Corp. financials (forecasts through 2009)
(filed in connection herewith with a request for confidential treatment).
FS-8 CenterPoint equity percentages as of December 31, 2004 (forecasts through
2009) (filed in connection herewith with a request for confidential treatment).
FS-9 CenterPoint Energy Houston Electric, LLC equity percentages (forecasts
through 2009) (filed in connection herewith with a request for confidential
treatment).
FS-10 CenterPoint Energy Resources Corp. equity percentages (forecasts through
2009) (filed in connection herewith with a request for confidential treatment).
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.
31
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, as amended, the Applicants have duly caused this
Application/Declaration to be signed on their behalf by the undersigned
thereunto duly authorized.
Date: April 29, 2005
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.
32