File No. 070- 10299
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 2
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 Investment Management, Inc.
CenterPoint Energy Properties, Inc.
CenterPoint Energy Resources Corp.
Arkansas Louisiana Finance Corporation
Arkla Industries Inc.
CenterPoint Energy Alternative Fuels, Inc.
CenterPoint Energy Field Services, Inc.
CenterPoint Energy Gas Receivables, LLC
CenterPoint Energy Gas Transmission Company
CenterPoint Energy - Illinois Gas Transmission Company
CenterPoint Energy Intrastate Holdings, LLC
Pine Pipeline Acquisition Company, LLC
CenterPoint Energy Gas Services, Inc.
CenterPoint Energy - Mississippi River Transmission Corporation
CenterPoint Energy MRT Services Company
CenterPoint Energy Pipeline Services, Inc.
CenterPoint Energy OQ, LLC
CenterPoint Energy Intrastate Pipelines, Inc.
Minnesota Intrastate Pipeline Company
NorAm Financing I
HL&P Capital Trust II
CenterPoint Energy Funds Management, Inc.
CenterPoint Energy International, Inc.
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..................................... 3
C. THE FINANCING REQUEST.......................... 10
D. RESTRUCTURING OF NON-UTILITY INTERESTS......... 26
E. FILING OF CERTIFICATES OF NOTIFICATION......... 26
ITEM 2. FEES, COMMISSIONS AND EXPENSES.......................... 29
ITEM 3. APPLICABLE STATUTORY PROVISIONS......................... 30
A. APPLICABLE PROVISIONS.......................... 30
B. RULE 54 ANALYSIS............................... 30
ITEM 4. REGULATORY APPROVAL..................................... 30
ITEM 5. PROCEDURE............................................... 31
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS....................... 31
A. EXHIBITS....................................... 31
B. FINANCIAL STATEMENTS........................... 32
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS................. 33
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 the CenterPoint System 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"). Applicants request authority to engage in these
transactions through September 30, 2006, and ask the Commission to reserve
jurisdiction over transactions during the remainder of the Authorization
Period, pending completion of the record. Based on their business plans
and the current condition in the financial markets, Applicants anticipate
that the Current Authority sought in this Application will be used during
the Authorization Period primarily to refinance currently outstanding debt
obligations and to meet ongoing operational needs of their respective
businesses.(2)
(i) CenterPoint requests authorization for: (a) securities
issuances,(3) (b) guarantees and other forms of credit support, as
well as performance guarantees ("Guarantees"), and (c) hedging
transactions, 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, as described more fully
herein.
-----------------------
(1) The term "Subsidiaries" refers to the companies listed on the cover
page (other than CenterPoint and Utility Holding), 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. "Inactive
Subsidiaries" refers to the entities listed on Exhibit L-1. CenterPoint's
Subsidiaries in existence as of March 31, 2005 and its Inactive Subsidiaries are
further described in Exhibit K-1.
(2) 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 the date of the
order requested by this Application; (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. "Current Authority" is the total amount of securities
that are outstanding or could be outstanding (in the case of credit facilities
that are not fully drawn) under the 2003 Omnibus Financing Order, as set forth
in the first column of Ex. G-1.
(3) The term "issuance" refers to the issue or sale of the subject
security.
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(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 issuing
entity's Consolidated Capitalization (as defined herein) is not
increased as a result of such financing transaction.
(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
aggregate amount (including the outstanding securities referenced in
(iv) above) not to exceed $4.334 billion at any one time outstanding
during the Authorization Period, CenterPoint requests that the
Commission reserve jurisdiction over $500 million of the requested
authority.(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), and to issue one Right (as
defined herein) in connection with each share of common stock and to
issue securities in connection with such Right, in the event such
Right is exercised.
(vii) CEHE(5) requests authority to issue or sell external debt
securities, preferred stock and preferred securities (including
trust preferred securities) in an aggregate amount (including the
outstanding securities referenced in (iv) above) not to exceed
$4.280 billion at any one time outstanding during the Authorization
Period. CEHE requests that the Commission reserve jurisdiction over
$500 million of the requested authority.
(viii) CERC(6) requests authority to issue or sell external debt
securities, preferred stock and preferred securities (including
trust preferred securities) in an aggregate amount (including the
outstanding securities referenced in (iv) above) not to exceed
$3.256 billion at any one time during the Authorization Period. CERC
--------------------------
(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 authority to issue and sell external debt or equity
securities.
(5) CEHE was sometimes referred to as "the T&D Utility" in other
CenterPoint filings.
(6) CERC was referred to as "GasCo" in other CenterPoint filings.
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requests that the Commission reserve jurisdiction over $500 million
of the requested financing authority.
(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 as described herein.
(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 and the Non-Utility Subsidiaries requests
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 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.
(xiv) CenterPoint and its Subsidiaries request authority during the
Authorization Period in an aggregate amount of up to $5 million for
the Inactive Subsidiaries as described more fully 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.
-----------------------------
(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.
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CenterPoint's public-utility subsidiary companies own and operate
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 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.
In addition to the gas pipeline and gathering Subsidiaries discussed
above, CenterPoint has Non-Utility Subsidiaries engaged in, among other things,
financing activities, real estate and energy and gas-related activities.(8)
Utility Holding is an intermediate registered holding company formed to minimize
tax inefficiencies, and it serves merely as a conduit.(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 their business plans and the current condition in the
financial markets, Applicants anticipate that the Current Authority sought in
this Application will be used during the Authorization Period primarily to
refinance
----------------------------
(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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currently outstanding debt obligations and to meet ongoing operational needs of
their respective businesses. 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. In addition, certain incremental authority is
sought to address potential incremental needs during the Authorization Period
due to changes 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.
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, which collectively have provided the CenterPoint System greater
liquidity at more favorable terms than existed at the time of the June 2003
Omnibus Financing Order:
- 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
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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)
- 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%
------------------
(10) This $1 billion credit facility is further explained infra Section
B.3.
(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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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. 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. Under this facility, (i) 100%
of the net proceeds from the issuance of transition bonds and (ii) the proceeds,
in excess of $200 million, from certain other new net indebtedness for borrowed
money incurred by CEHE must be used to repay borrowings under the 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.
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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 $1.31
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)
- 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
---------------------------------------
(12) This summary does not include the CEHE Backstop Facility, which is
available only to refinance CEHE's $1.31 billion term loan.
(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. Those credits terminated as of April 29, 2005 under a settlement
approved by the Texas Commission.
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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)
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 had hoped to be in a position to issue
approximately $1.8 billion in Transition Bonds by mid-2005, but several parties
have appealed the Texas Commission's Financing Order. In light of those appeals,
CEHE will be unable to issue Transition Bonds until the appeals are resolved.
That delay may cause CEHE to rely on the CEHE Backstop Facility when its
existing $1.31 billion term loan matures in November 2005.
CEHE will seek authority in a separate application for the issuance
of the Transition Bonds by Transition Bond II.
-----------------------------------
(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 to earn a return on the unamortized true-up balance to be
recovered through the competition transition charge. Hearings in this proceeding
occurred in April, 2005.
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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.
(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
repayment and/or refinancing of debt; (iv) the acquisition, retirement,
or redemption of securities previously issued by the issuing party, (v)
direct or indirect investment in companies authorized under the Act,
-------------------------------
(16) Issuance Expenses will not count toward the Effective Cost of Money
discussed above.
10
as discussed herein, and (vi) other lawful purposes. The Applicants
represent that no such financing proceeds will be used to acquire a
new Rule 58 Subsidiary unless such transaction is consummated in
accordance with an order of the Commission or an available exemption
under the Act.
The Applicants submit to a reservation of jurisdiction over use of
such financing proceeds to invest in one or more new lines of
business, that is, any line of business other than utility and
non-utility businesses in which CenterPoint and its Subsidiaries are
currently engaged, as described on Exhibit K-1.
CenterPoint asks the Commission to reserve jurisdiction over any
investment by CenterPoint or any of its Subsidiaries in any new
energy- or gas-related companies within the meaning of Rule 58
("Rule 58 Companies") at any time CenterPoint's ratio of common
equity to total capitalization (net of securitization obligations)
is less than 30%; provided, however, that CenterPoint may increase
its investment in an existing Rule 58 Company to the extent
necessary to complete any project or desirable to preserve or
enhance the value of CenterPoint's investment in the company.
(e) Common Equity Ratio. Net of securitization debt, CenterPoint's
projected equity capitalization will be 30% or more of its
Consolidated Capitalization by the end of the Authorization Period.
Consolidated Capitalization is defined to include, where applicable,
all common stock equity (comprised of common stock, additional paid
in capital, retained earnings, treasury stock and other
comprehensive income), minority interests, preferred stock,
preferred securities, equity-linked securities, long-term debt,
short-term debt and current maturities ("Consolidated
Capitalization"). 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.
From the date of their formation until the date hereof, each of CERC
and CEHE has at all times maintained common equity of at least 30%
of its Consolidated Capitalization.
At all times during the Authorization Period, CERC will maintain
common equity of at least 30% of its 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 Consolidated 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 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 Consolidated Capitalization at all times during the
Authorization Period.(17)
----------------------------------
(17) Following issuance of the Transition Bonds, CEHE is expected to have
member's equity capitalization of slightly less than 30% of Consolidated
Capitalization if the securitization debt is included. CEHE will improve its
equity ratio as securitization obligations are paid down. It is anticipated that
CEHE will reach a level of at least 30% of Consolidated Capitalization by 2009.
11
Other than with respect to the Money Pool, Applicants submit to a
reservation of jurisdiction over all authority granted in this order
during any portion of the Authorization Period when: (1) the common
equity ratio of CenterPoint (net of securitization debt), on a
consolidated basis, falls below its common equity ratio as of March
31, 2005;(18) (2) the member's equity ratio of CEHE, on a consolidated
basis (net of securitization debt) falls below 30% of Consolidated
Capitalization, or (3) the common equity ratio of CERC, on a
consolidated basis, falls below 30%.
(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.(19)
(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 as described
herein.(20) CenterPoint also requests authorization to enter into obligations
with respect to tax-exempt debt issued on behalf of CenterPoint by governmental
------------------------------
(18) Based on CenterPoint's Quarterly Report on Form 10-Q for the quarter
ended March 30, 2005, CenterPoint's common equity represented 11.4% of its
Consolidated Capitalization (excluding securitization debt).
(19) 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 or
equity securities.
(20) 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
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.
Based on their business plans and the current condition in the financial
markets, Applicants anticipate that the Current Authority sought in this
Application will be used during the Authorization Period primarily to refinance
currently outstanding debt obligations and to meet ongoing operational needs of
their respective businesses.
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. 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 under specified
circumstances, as described in Exhibit I-1. 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.(21) As of February 28,
---------------------------
(21) 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
13
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, and to buy and sell derivative
securities to hedge these transactions. CenterPoint will not engage in
speculative transactions.
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.(22)
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, time-based
restricted stock, performance awards and other securities pursuant to those
plans. 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
-------------------------------
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 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, including the authority to issue shares of CenterPoint Series A
Preferred Stock or CenterPoint common stock, or to provide other consideration
issued upon exercise of the Rights. Such securities issuances will not be
counted against the external financing limits requested in this filing.
(22) 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
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.
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.(23) 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.(24) 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.(25)
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
anyshort-term
----------------------
(23) Debt will be convertible only into such securities as are otherwise
authorized under the Act.
(24) Currently certain pollution control bonds outstanding at CenterPoint
are secured by mortgage bond obligations of CEHE.
(25) 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
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
generally accepted accounting principles ("GAAP").
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.
Equity-linked securities issued by CenterPoint will be exercisable
or exchangeable for or convertible, either mandatorily or at the option of the
holder, into common stock or indebtedness or allow the holder to surrender to
the issuer or apply the value of a security issued by CenterPoint, as approved
by the Commission, to such holder's obligation to make a payment on another
security of CenterPoint issued as permitted by the Commission. Any convertible
or equity-linked securities will be convertible into or linked to common stock,
preferred securities or unsecured debt that CenterPoint is otherwise authorized
to issue by Commission order directly, or indirectly through Financing
Subsidiaries on behalf of CenterPoint.
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.(26)
(c) Risk Management Devices
CenterPoint requests authority to enter into hedging arrangements
intended to reduce or manage interest rate risks. These arrangements may
include, but are not limited to
-----------------------
(26) The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9,
2000); Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001).
16
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 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 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
17
Activities") or such other standards relating to accounting for derivative
transactions as are adopted and implemented by the Financial Accounting
Standards Board.
3. Subsidiary Financing
The Utility Subsidiaries and the Non-Utility Subsidiaries, to the
extent not exempted pursuant to Rule 52, request authority to issue and sell
securities, including preferred stock, preferred securities (including trust
preferred securities) (either directly or through a subsidiary), and long-term
and short-term debt securities (including convertible debt, commercial paper and
privately placed short-term notes) on the same terms and conditions discussed
above for CenterPoint, except that Subsidiary debt may be secured or unsecured,
and Utility Subsidiary debt will be subject to the limits on 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 and the Non-Utility
Subsidiaries, to the extent not exempted pursuant to Rule 52, also request
authority to enter into hedging transactions intended to reduce or manage
interest rate risks in connection with the foregoing issuance of securities,
subject to the limitations and requirements applicable to CenterPoint. Based on
their business plans and the current condition in the financial markets,
Applicants anticipate that the Current Authority sought in this Application will
be used during the Authorization Period primarily to refinance currently
outstanding debt obligations and to meet ongoing operational needs of their
respective businesses.
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
----------------------
(27) To the extent CEHE issues secured debt, the debt will be secured by
assets or securities owned by CEHE. To the extent CERC issues secured debt, such
debt will be secured by a pledge of the stock of its nonutility subsidiary
companies. CERC currently does not have outstanding secured debt. To the extent
a Non-Utility Subsidiary issue secured debt, the debt will be secured by assets
or securities owned by that Non-Utility Subsidiary.
18
System Guarantee Limit.(28) Excluded from the CenterPoint System Guarantee Limit
are obligations exempt pursuant to Rule 45 under the Act.
CenterPoint currently has a number of types of guarantees in effect.
Among other things, it has issued guarantees with respect to payment obligations
of certain of its Subsidiaries, both to counterparties and, in some cases, to
regulatory authorities where required under applicable laws; entered into
indemnification agreements to support the issuance of surety bonds on behalf of
itself and its Subsidiaries, entered into agreements to guarantee certain
amounts related to the issuance of securities by certain Subsidiaries and to
guarantee certain other Subsidiary expenses and liabilities. In addition, CERC
has guaranteed the office space lease of one of its subsidiaries.
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.
----------------------
(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 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.
19
(b) Money Pool
The Participants as defined below hereby request authorization to
continue to conduct the Money Pool as approved in the 2003 Omnibus Financing
Order. To the extent not authorized pursuant to Rule 52, the Participants other
than CenterPoint 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)
CenterPoint is requesting authorization to contribute surplus funds
and to lend and extend credit to the Participants through the Money Pool.
CenterPoint will not be a borrower from the Money Pool.
Under the terms of the Money Pool, each Participant 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
Participant has funds to contribute and the determination whether a Participant
shall lend such funds to the Money Pool is made by such Participant's treasurer,
or by a designee thereof, in such Participant's sole discretion.(31) Each
Participant 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 Participants, and (2) proceeds from
external borrowings, including bank loans, the sale of notes and/or the sale of
commercial paper by the Participants, in each case to the extent permitted by
applicable laws and regulatory orders.
Each borrowing Participant 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
-----------------------
(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. (owner of CenterPoint's office building,
parking garage and dispatch facility), CenterPoint Energy Products, Inc.
(inactive), and CenterPoint Energy Funding Company (collectively, the
"Participants"). 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 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.
(31) Participants other than Utility Subsidiaries may contribute amounts
to the Money Pool from either surplus funds or external borrowings. Utility
Subsidiaries will only contribute surplus funds to the Money Pool.
20
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 Participant 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 Participant 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 Participant's treasurer, or by a
designee thereof. No Participant shall be required to effect a borrowing through
the Money Pool if such Participant 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 Participants and are not utilized to
satisfy borrowing needs of other Participants will be invested by the Service
Company on behalf of the lending Participants in one 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 Participants on the basis of their relative
contribution to the Money Pool on that date.
Each Participant 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
21
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(32)
CERC $600 million
(c) Other Intra-System Financing
In addition to external financings and borrowings as described
above through the Money Pool, the Subsidiaries may also finance their capital
needs through both short-term and long-term borrowings from CenterPoint,
directly or indirectly through Utility Holding. Applicants request
authorization, consistent with the requirements of Section 12(a) of the Act, to
engage in intra-system financings with each other.
Authority is sought for the Utility Subsidiaries to acquire
securities from their respective subsidiaries and to issue and sell securities
to their respective parents. Any short-term borrowings by Utility Subsidiaries
pursuant to this request would be counted toward the Money Pool limits above.
Applicants state that Utility Holding is a subsidiary of CenterPoint
and is the direct or indirect parent of all of the Subsidiaries. Applicants
state that Utility Holding may have occasion to issue its debt or equity
securities to CenterPoint in exchange for funds. Utility Holding could then
purchase debt or equity securities of its Subsidiaries with those funds, adding
to the capitalization of those Subsidiaries. Applicants state that no such
issuance by Utility Holding will increase the CenterPoint system's securities
held by third-parties. If CenterPoint obtains funds to purchase such securities
from an external source, CenterPoint's issuance of securities will be only as
approved by the Commission's order in this docket and subject to the limitations
imposed in such order, including the overall financing limitation of $4.334
billion. All securities issuances by a Subsidiary to Utility Holding, will be
subject to limitations imposed on that Subsidiary regarding securities issuances
and will be within the dollar limitations imposed by the order in this docket,
if any. Consequently, there is no need to impose a separate dollar limitation on
these conduit securities issuances by Utility Holding. Applicants state that the
approval sought for Utility Holding is merely to cover the technical requirement
that all of its securities issuances be approved, as it is acting as a conduit
to invest funds by CenterPoint in the Subsidiaries. Applicants also seek
authority for Utility Holding to transfer any financing proceeds received from
the Subsidiaries to CenterPoint.
(d) Authority for Inactive Subsidiaries
----------------------
(32) 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.
22
The Applicants request authority in an aggregate amount of up to $5
million during the Authorization Period to pay, on behalf of the Inactive
Subsidiaries, administrative expenses and dissolution costs; to resolve claims
and lawsuits of any Inactive Subsidiary, if any; and to pay any other costs and
expenses that any Inactive Subsidiaries may incur from time to time. Applicants
request that the Commission reserve jurisdiction this request.
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 issuances, 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.(33) 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.(34)
6. Payment of Dividends Out of Capital or Unearned Surplus
-----------------------
(33) The Commission has previously approved substantially similar
proposals. See, e.g., FirstEnergy Corp., Holding Co. Act Release No. 27694 (June
30, 2003).
(34) 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.
23
CenterPoint requests 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.(35)
Applicants also request a continuation of authority for the
Non-Utility Subsidiaries to pay dividends with respect to the securities of the
Non-Utility Subsidiaries and/or acquire, retire or redeem any securities of the
Non-Utility Subsidiaries that are held by an associated company or affiliate,
from time to time, through the Authorization Period, out of capital or unearned
surplus, to the extent permitted under applicable corporate law; provided that
no Non-Utility Subsidiary will declare or pay any dividend out of capital or
unearned surplus unless it: (i) has received excess cash as a result of the sale
of its assets, (ii) has engaged in a restructuring or reorganization; and/or
(iii) is returning capital to an associate company. Further, no Non-Utility
Subsidiary that derives any material part of its revenues from the sale of
goods, services or electricity to Utility Subsidiaries will declare or pay any
dividend out or capital or unearned surplus. The Applicants request that the
Commission reserve jurisdiction over the payment of such dividends out of
capital or unearned surplus when any of these conditions are not met.
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
----------------------
(35) CEHE will be seeking authority to declare and pay dividends in a
separate application in connection with the issuance of Transition Bonds.
24
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 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.
25
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.(36)
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.(37)
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 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;
-----------------------
(36) Section 9(a)(1) of the Act requires prior Commission approval
(whether by rule, regulation or order) for the acquisition of, among other
things, "any securities . . . . or any other interest in any business." The
requested authority is intended to provide CenterPoint flexibility to reorganize
its duly-authorized non-utility businesses. Such reorganization may include
transactions, such as the transfer of a business from one subsidiary to another,
that technically would not involve the restructuring of a Subsidiary.
(37) Id.
26
(iii) Consolidated 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 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
27
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;(38)
(xviii) The amount and terms of any other securities issued under
the authority sought herein during the quarter;
(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;
-----------------------
(38) 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.
28
(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 other than the Service Company) and the Utility
Subsidiaries. The report will contain the following information: (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, in this file,
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.
29
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.
CenterPoint has no investments in FUCOs. Until recently, it held an
EWG investment in Texas Genco, LP through its indirect subsidiary company, Texas
Genco. The investment in Texas Genco, LP was 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 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.
30
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).
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 (previously filed).
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 the date of the order requested by this
Application; (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.
31
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).
I-1 Description of CenterPoint's Shareholder Rights Plan.
J-1 Form of Second Amended and Restated Money Pool Agreement.
K-1 Organizational Structure of CenterPoint Energy, Inc. and Subsidiary
Descriptions.
L-1 List of Inactive Subsidiaries.
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 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)).
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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.
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: May 20, 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.
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