File No. 070- 10299
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 3
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
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.....................................1
A. Requested Authorization.............................1
B. Background..........................................3
C. The Financing Request..............................10
D. Restructuring of Non-Utility Subsidiaries..........27
E. Filing of Certificates of Notification.............27
ITEM 2. FEES, COMMISSIONS AND EXPENSES.........................................30
ITEM 3. APPLICABLE STATUTORY PROVISIONS........................................31
A. Applicable Provisions..............................31
B. Rule 54 Analysis...................................31
ITEM 4. REGULATORY APPROVAL....................................................31
ITEM 5. PROCEDURE.32
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS......................................32
A. Exhibits...........................................32
B. Financial Statements...............................33
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS................................34
CenterPoint Energy, Inc. ("CenterPoint" or the "Company"),
Utility Holding, LLC ("Utility Holding") and their respective 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, Applicants 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 authority sought in this Application
will be used during the Authorization Period primarily to refinance the
Current Authority (defined below) 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.
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(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. 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) "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. Ex. 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 at any one time during the Authorization
Period, if the Commission were to grant all of the requested authority and upon
the release of all of the reservations of jurisdiction.
(3) The term "issuance" refers to the issue or sale of the subject
security.
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(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.
(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.
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(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 affiliated with 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.
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(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 $3.257 billion at any one time during the
Authorization Period. CERC 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, and request that the Commission reserve
jurisdiction over the requested authority.
(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, and request that the Commission reserve
jurisdiction over the requested authority.
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
-----------------------
(6) CERC was referred to as "GasCo" in other CenterPoint filings.
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distribution ("Distribution") to shareholders of the remaining stock of Reliant
Resources, Inc. ("RRI").(7) The Distribution, which was made on September 30,
2002, completed the separation from CenterPoint of the merchant power generation
and energy trading and marketing business of RRI.
CenterPoint's public-utility subsidiary companies own and
operate electric 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)
---------------------------
(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.
(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.
4
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 authority sought in this
Application will be used during the Authorization Period primarily to refinance
the Current Authority (defined above) 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.
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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 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%.
-------------------------
(10) This $1 billion credit facility is further explained infra Section
B.3.
6
- In February 2004, $56 million aggregate principal amount of collateralized
5.6% pollution control bonds due 2027 and $44 million aggregate principal amount
of 4.25% collateralized insurance-backed pollution control bonds due 2017 were
issued on behalf of CEHE. The pollution control bonds are collateralized by
general mortgage bonds of CEHE with principal amounts, interest rates and
maturities that match the pollution control bonds. The proceeds were used to
extinguish two series of 6.7% collateralized pollution control bonds with an
aggregate principal amount of $100 million issued on behalf of CenterPoint.(11)
CEHE's 6.7% first mortgage bonds, which collateralized CenterPoint's payment
obligations under the refunded pollution control bonds were retired in
connection with the extinguishment of the refunded pollution control bonds.
CEHE's 6.7% notes payable to CenterPoint were also cancelled upon the
extinguishment of the refunded pollution control bonds.
- In March 2004, $45 million aggregate principal amount of 3.625% collateralized
insurance-backed pollution control bonds due 2012 and $84 million aggregate
principal amount of 4.25% collateralized insurance-backed pollution control
bonds due 2017 were issued on behalf of CEHE. The pollution control bonds are
collateralized by general mortgage bonds of CEHE with principal amounts,
interest rates and maturities that match the pollution control bonds. The
proceeds were used to extinguish two series of 6.375% collateralized pollution
control bonds with an aggregate principal amount of $45 million and one series
of 5.6% collateralized pollution control bonds with an aggregate principal
amount of $84 million issued on behalf of CenterPoint.(11) 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
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(11) The pollution control bonds extinguished represent debt that was
incurred by the integrated utility prior to the formation of CenterPoint, but
became an obligation of the holding company, upon its formation, under the terms
of the underlying installment payment agreements.
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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.
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
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(12) This summary does not include the CEHE Backstop Facility, which is
available only to refinance CEHE's $1.31 billion term loan.
8
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 (PUC Docket No. 30485).(14) The
Financing Order authorizes CEHE to securitize approximately $1.494 billion plus
(i) the amount of excess mitigation credits provided by CEHE after August 31,
2004, (ii) interest on the stranded cost amount through the date of issuance of
the Transition Bonds and (iii) certain up-front qualified costs related to the
issuance of the Transition Bonds.(15)
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.
-------------------------
(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.
(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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CEHE will seek authority in a separate application for the
issuance of the Transition Bonds by Transition Bond II.
C. THE FINANCING REQUEST
1. Parameters for Financing Authority
Authorization is requested herein to engage in certain
financing transactions during the Authorization Period for which the specific
terms and conditions are not at this time known, without further prior approval
by the Commission. The following general terms will be applicable 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
-------------------
(16) Issuance Expenses will not count toward the Effective Cost of
Money discussed above.
10
acquisition, retirement, or redemption of securities
previously issued by the issuing party, (v) direct or indirect
investment in companies authorized by an order of the
Commission, and (vi) other lawful purposes.
The Applicants represent that no such financing proceeds will
be used to acquire a new Rule 58, Electric Wholesale Generator
("EWG"), or Foreign Utility Company ("FUCO") subsidiary (as
those terms are defined by rule or statute) unless such
transaction is consummated in accordance with an order of the
Commission 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 or desirable to preserve or enhance the value
of CenterPoint's investment in the company as long as
CenterPoint's aggregate investment in energy- or gas-related
companies is within the limit stated in Rule 58 and is
otherwise in compliance with Rule 58 and upon the condition
that CenterPoint has filed, and continues to file, a Form
U-9C-3 for any and all energy- or gas-related subsidiaries
(including those held since the formation of CenterPoint by
the July Order of 2002 to the present). Provided further that
any acquisition of an EWG or FUCO will be in compliance with
Rule 53 or in accordance with an order of the Commission.
(e) Common Equity Ratio. Net of securitization debt,
CenterPoint's projected equity capitalization will be 30% or
more of its Consolidated Capitalization by June 30, 2008.
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, 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 issued
on March 16, 2005 (PUC Docket No. 30485), 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
11
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)
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% of its Consolidated
Capitalization.
(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)
--------------------------
(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 2010,
if the securitization debt is included as debt.
(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, and Utility Holding does not currently have any outstanding
external debt or equity securities.
As of May 1, 2005, Moody's Investor Service ("Moody's"), Standard & Poor's and
Fitch, Inc. ("Fitch") had assigned credit ratings to: (1) the CenterPoint Senior
Unsecured Debt of Ba2, BBB- and BBB-, respectively; (2) the CEHE Senior Secured
Debt (First Mortgage Bonds) of Baa2, BBB and BBB+ respectively; and (3) the CERC
Senior Debt of Ba1, BBB and BBB. All of these ratings, except for the ratings by
Moody's for CenterPoint's Senior Unsecured Debt and CERC's Senior Debt, are
investment grade. As of May 1, 2005, both Moody's and Fitch had
12
(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 either September 30, 2006 or June 30, 2008, whichever
is the current authorization expiry date, and 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 authorities and requests that the Commission reserve jurisdiction
over the request.(21) 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 in connection
with the foregoing issuances of tax-exempt securities, and enter into certain
hedging transactions, as discussed below under the section entitled, "Risk
Management Devices.". Based on their business plans and the current condition in
the financial markets, Applicants anticipate that the authority sought in this
Application will be used during the Authorization Period primarily to refinance
the Current Authority (defined above) 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
-----------------------------
designated CEHE's senior debt as "stable" outlook, and Moody's had placed
CenterPoint's and CERC's senior debt on credit watch for possible upgrade.
(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 an order in this
file.
(21) The total amount of such tax-exempt debt outstanding is
$1,196,750,000, and is listed in detail in Ex. G-1.2. See n.25 and the section
entitled "Utility Subsidiary Financing" for additional information.
13
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.(22) As of February 28, 2005,
CenterPoint had 308,501,031 shares of common stock outstanding. CenterPoint
seeks authority to issue 200 million additional shares of common stock
(including Rights) and to issue
---------------------------
(22) The Rights will become exercisable shortly after (i) any public
announcement that a person or group of associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of CenterPoint common stock; or (ii) the start of a tender or
exchange offer that would result in a person or group of associated persons
becoming a 20% owner. The Rights are also exercisable for shares of (i)
CenterPoint common 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.
14
warrants, options and other rights to acquire an equivalent amount of common
stock, and to buy and sell derivative securities to hedge anticipated common or
preferred stock offerings. The proposed anticipatory hedging strategies and the
derivative securities to be used for that purpose are discussed below, under the
section entitled "Risk Management Devices." 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.(23)
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 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 by an order of the Commission.
(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 (defined under
the section entitled "Financing Subsidiaries," below) 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) in an amount not
to exceed that authorized by an order in this file.
-----------------------
(23) 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.
15
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.(24) 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.(25) 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.(26)
Short-term debt issued by CenterPoint will be unsecured. Types
of short-term debt securities may include borrowings under one or more bank
loans, commercial paper, short-term notes, bid notes, institutional borrowings,
and privately placed notes. Specific terms of any short-term borrowings will be
determined by CenterPoint at the time of issuance and will comply with the
parameters for financing authorization set forth above. The maturity of any
short-term debt issued will not exceed 364 days or, if the notional maturity is
greater than 364 days, the debt security will include put options at appropriate
points in time to cause the security to be accounted for as a current liability
under generally accepted accounting principles ("GAAP").(27)
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.
-------------------------
(24) Debt will be convertible only into such securities as are
otherwise authorized by an order in this file.
(25) Currently certain pollution control bonds outstanding at
CenterPoint are secured by mortgage bond obligations of CEHE. See n.21, Ex.
G-1.2 and the sections entitled "CenterPoint External Financing" and "Utility
Subsidiary Financing" for additional information.
(26) 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).
(27) Applicants state that the CenterPoint treasury department
communicates with the CenterPoint accounting department regarding the timing of
put options to ensure the proper accounting.
16
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 in this file.
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.(28)
(c) Risk Management Devices
As stated above, CenterPoint requests authority to enter into
hedging transactions solely related to interest rates on outstanding debt, and
to enter into anticipatory hedging transactions that may relate either to
anticipated debt or to anticipated common or preferred stock offerings.
CenterPoint requests authority to enter into hedging
transactions intended to reduce or manage interest rate risks. These
transactions may include, but are not limited to interest rate swaps, caps,
floors, collars, forward agreements, issuance of structured notes (i.e., a debt
instrument in which the principal and/or interest payments are indirectly linked
to the value of an underlying asset or index), or transactions involving the
purchase or sale, including short sales, of U.S. Treasury or U.S. governmental
agency (e.g., Fannie Mae) obligations or LIBOR based swap instruments
(collectively referred to as "Hedging Instruments"). The transactions would be
for fixed periods and stated notional amounts as generally accepted as prudent
in the capital markets. In no case will the notional principal amount of any
Hedging Instrument exceed
-----------------------
(28) The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9,
2000); Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001).
17
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, as amended ("Accounting for Derivative
Instruments and Hedging Activities"). Transaction fees, commissions and other
amounts payable to brokers in connection with a Hedging Instrument will not
exceed those generally obtainable in capital markets for parties of comparable
credit quality. CenterPoint may employ interest rate hedging 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, and (iii) limiting the impact
of changes in interest rates resulting from variable rate debt. CenterPoint will
only enter into agreements with counterparties having a senior debt rating at
the time the transaction is executed of an investment grade, as published by a
NRSRO ("Approved Counterparties").
In addition, CenterPoint requests authorization to enter into
hedging transactions with respect to anticipated debt and common or preferred
stock offerings (the "Anticipatory Hedges"), subject to the limitations and
restrictions expressed below. Such Anticipatory Hedges would only be entered
into with Approved Counterparties (or on approved exchanges, if applicable), and
would be utilized to fix and/or limit the risk associated with any future
issuance of securities through appropriate means, including (i) a forward sale
of exchange-traded hedging instruments (of the types listed as interest rate
Hedging Instruments, defined above), (ii) the purchase of put options on Hedging
Instruments, (iii) a put options purchase in combination with the sale of call
options Hedging Instruments, and (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. 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 Approved Counterparties, or a
combination of the two. CenterPoint will determine the structure of each
Anticipatory Hedge transaction at the time of execution.
In connection with proposed hedging transactions and
derivative instruments related to CenterPoint's debt and equity issuances,
CenterPoint here provides an explanation of its hedging strategies and the
instruments to be used for those purposes. CenterPoint has no program or
specific plan with respect to its hedging activities, but would utilize a given
risk management device depending on then current market conditions and the
expected economic results from a hedging transaction. In connection with
tax-exempt financing, CenterPoint is obligated to pay principal and interest on
the underlying bonds and thus could need to hedge against changes in interest
rates to preserve the expected economic benefit of the transaction.
Fees, commissions and other amounts payable to the broker or
exchange (excluding, however, the swap or option payments) in connection with
Hedging Instruments or Anticipatory Hedges will not exceed those generally
obtainable in competitive markets for similarly-situated parties of comparable
credit quality. Each Hedging Instrument and Anticipatory Hedge will be treated
for accounting purposes as provided for under GAAP. CenterPoint will comply with
SFAS 133 and SFAS 138, as amended, ("Accounting for Certain Derivative
Instruments and Certain Hedging Activities") or such other standards relating to
accounting for derivative transactions as are adopted and implemented by the
Financial
18
Accounting Standards Board. CenterPoint represents that each hedging transaction
and each anticipatory hedging transaction will qualify for hedge accounting on a
continuing basis under U.S. GAAP.
3. Utility Subsidiary Financing
The Utility Subsidiaries request authority to issue and sell
securities, including preferred stock, preferred securities (including trust
preferred securities) (either directly or through a subsidiary), 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 Utility Subsidiary debt will be subject to
the respective CEHE and CERC limits on aggregate amounts of securities
outstanding at any one time, as set by an order in this file.(29) 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.(30) The Utility Subsidiaries
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 authority sought in this
Application will be used during the Authorization Period primarily to refinance
the Current Authority (defined above) 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
------------------
(29) 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.
(30) See nn. 21 & 25, Ex. G-1.2 and the section entitled "CenterPoint
External Financing" for additional information.
19
System Guarantee Limit.(31) 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.
(b) Money Pool
-----------------------
(31) 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.
20
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.(32)
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.(33) 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.(34) 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.(35)
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
-------------------------
(32) 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.
(33) An Amended and Restated Form of Money Pool Agreement is attached
hereto as Exhibit J-1.
(34) 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.
(35) As noted above, Utility Subsidiaries will only contribute surplus
funds to the Money Pool.
21
invested in the Money Pool with different rates of interest used to fund loans
through the Money Pool, each borrower will borrow pro rata from each such
funding source from the Money Pool in the same proportion that the amount of
funds provided by that fund source bears to the total amount of funds invested
into the Money Pool. If there are insufficient funds to meet all borrowing
requests, the needs of the Utility Subsidiaries will be met before loans are
made to any Non-Utility Subsidiaries.
The determination of whether a 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
22
and in any event not later than the expiration date of the Commission
authorization for the operation of the Money Pool. All loans made through the
Money Pool may be prepaid by the borrower without premium or penalty.
Borrowings by the Utility Subsidiaries from the Money Pool
should not exceed the following amounts at any one time outstanding during the
Authorization Period:
CEHE $600 million(36)
CERC $600 million
(c) Other Intra-System Financing
The Subsidiaries may finance their capital needs through both
short-term and long-term borrowings from CenterPoint, directly or indirectly
through Utility Holding. The Financing Parameters (set forth above) will be
applicable to intra-system financing transactions.
Authority is sought for the Utility Subsidiaries to acquire
securities from their respective subsidiaries and to issue and sell securities
to their respective parents, subject to the financing limitations set by order
for CEHE and for CERC, respectively. 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. CenterPoint's issuance of securities will be
only as approved by the Commission's order in this file and subject to the
limitations imposed in such order, including the overall financing limitation,
Utility Holding will also be subject to the CenterPoint overall financing
limitation. 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. The approval sought for Utility Holding is necessary because, as a
holding company, it cannot avail itself of the exemptions offered by operation
of Rule 52 and its securities issuances must be approved, even 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.
----------------------
(36) 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.
23
(d) Authority for Inactive Subsidiaries
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.(37) 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.(38)
--------------------------
(37) The Commission has previously approved substantially similar
proposals. See, e.g., FirstEnergy Corp., Holding Co. Act Release No. 27694 (June
30, 2003).
(38) 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.
24
6. Payment of Dividends Out of Capital or Unearned Surplus
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.(39)
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 by an order in this file.(40) 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 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.
------------------------
(39) CEHE will be seeking authority to declare and pay dividends in a
separate application in connection with the issuance of Transition Bonds.
(40) As noted above in n.39, CEHE will be seeking authority in a
separate order for Transition Bond II to issue Transition Bonds, and such
authority would be subject to the financing limits set forth in the order in
that matter.
25
It is anticipated that the Financing Subsidiaries will be
wholly-owned subsidiaries of CenterPoint and fully consolidated for purposes of
financial reporting. No Financing Subsidiary shall acquire or dispose of,
directly or indirectly, any interest in any utility asset, as that term is
defined under the Act, without first obtaining such further approval as may be
required.
The business of the Financing Subsidiary will be limited to
effecting financing transactions that have been otherwise authorized for
CenterPoint and its Subsidiaries. In connection with such financing
transactions, CenterPoint or its Subsidiaries may enter into one or more
guarantees or other credit support agreements in favor of the Financing
Subsidiary.
Any Financing Subsidiary organized pursuant to this filing
shall be organized only if, in management's opinion, the creation and
utilization of such Financing Subsidiary will likely result in tax savings,
increased access to capital markets and/or lower cost of capital for CenterPoint
or its Subsidiaries.
The ability to use financing subsidiaries in financing
transactions can sometimes offer increased state and/or federal tax efficiency.
Increased tax efficiency can result if a financing subsidiary is located in a
state or country that has tax laws that make the proposed 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
26
external financing limitation authorized herein for the immediate parent of such
financing entity. However, the underlying intra-system mirror debt and parent
guarantee shall not be so included. Applicants also seek authority for the
Financing Subsidiaries to transfer the proceeds of any financing to their
respective parent companies.
D. RESTRUCTURING OF NON-UTILITY SUBSIDIARIES
The Commission previously authorized CenterPoint to
restructure its non-utility subsidiaries from time to time as may be necessary
or appropriate.(41) CenterPoint seeks a continuation of this authority, provided
that companies in the CenterPoint System will engage, directly or indirectly,
only in businesses that CenterPoint has been authorized to engage in by order or
that are duly authorized by rule or statute.(42)
E. FILING OF CERTIFICATES OF NOTIFICATION
Applicants propose that, 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") be integrated
with the reporting system under the 1935 Act. 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 will be incorporated
by reference into this proceeding through Rule 24 certificates of notification.
The certificates will also 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 will be filed
within 60 days after the end of the calendar quarter in which the transactions
occurred for the first three calendar quarters, and within 90 days after the end
of the quarter for transactions which occur in the end-of-the-year calendar
quarter.
The Rule 24 certificates will contain the following
information as of the end of the applicable quarter (unless otherwise stated
below):
(i) 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 which shall also separately
show the amount issued during the Authorization
Period for each type of issued securities;
------------------------
(41) 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.
(42) Id.
27
(ii) The total number of shares of CenterPoint common
stock issued or issuable pursuant to options granted
during the quarter under incentive compensation plans
and other equity compensation and employee benefit
plans, dividend reinvestment plans, and for the
CenterPoint Investor's Choice Plan, including any
plans hereafter adopted, together with the number of
shares issued or issuable during the Authorization
Period;
(iii) 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;
(iv) The market-to-book ratio of CenterPoint's common
stock;
(v) 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;
(vi) With regard to short-term, long-term, intrasystem and
external debt: the amount and terms of any debt
issued by CenterPoint during the quarter; and a chart
showing: the aggregate amount of debt issued by
CenterPoint during the Authorization Period; the
aggregate amount of debt outstanding (as it may
change from time to time) during the Authorization
Period; and the total amount of debt authorized for
CenterPoint during the Authorization Period;
(vii) With regard to short-term and long-term intrasystem
debt (Utility Holding is not authorized to issue
external debt): the amount and terms of any debt
issued by Utility Holding during the quarter; and a
chart showing: the aggregate amount of debt issued by
Utility Holding during the Authorization Period; the
aggregate amount of debt outstanding (as it may
change from time to time) during the Authorization
Period; and the total amount of debt authorized for
Utility Holding during the Authorization Period;
(viii) With regard to short-term, long-term, intrasystem and
external debt: the amount and terms of any debt
issued by any Utility Subsidiary during the quarter;
and a chart showing: the aggregate amount of debt
issued by each Utility Subsidiary during the
Authorization Period; the aggregate amount of debt
outstanding (as it may change from time to time) for
each Utility Subsidiary during the Authorization
Period; and the total amount of debt authorized for
each Utility Subsidiary during the Authorization
Period;
(ix) A separate statement of the amount and terms of each
intrasystem financing consummated by any Utility or
Non-Utility Subsidiary;
28
(x) The notional amount and principal terms of any
Hedging Instruments or Anticipatory Hedges entered
into during the quarter and the identity of the
parties thereto, as well as the aggregate notional
amount of Hedging Instruments and Anticipatory Hedges
entered into during the Authorization Period;
(xi) The notational amount and principal terms of any
derivative instruments issued, bought or sold during
the quarter and the identity of the parties thereto,
as well as the aggregate notational amount of
derivative instruments entered into during the
Authorization Period;
(xii) The name, parent company and amount of equity in any
intermediate subsidiary (including any financing
conduit) during the quarter and the amount and terms
of any securities issued by such subsidiaries during
the quarter, which shall also show the amount of all
securities issued by such subsidiaries during the
Authorization Period;
(xiii) A summary of the previously filed information
required by a Certificate of Notification on Form
U-6B-2;
(xiv) The amount and terms of any other securities issued
during the quarter under the authority granted by an
order in this file, with a chart showing the
aggregate issued during the Authorization Period;
(xv) (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.
(xvi) 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;
(xvii) A table showing, as of the end of the quarter, the
dollar and percentage components of the capital
structure on a consolidated basis of CenterPoint and
of each Utility Subsidiary;
(xviii) 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;
(xix) A table showing, as of the end of the quarter, the
Money Pool participants and amount of outstanding
borrowings for each;
29
(xx) 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;
(xxi) A confidential exhibit updating CenterPoint's
financial projections and assumptions through 2008;
(xxii) 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 into the next Rule 24 certificate in
this file;
(xxiii) A computation in accordance with Rule 58(a) showing
CenterPoint's "aggregate investment" in all energy-
or gas-related companies, its "consolidated
capitalization," a calculation of the amount
remaining under its Rule 58 authority, a breakdown
showing CenterPoint's aggregate investment in each
energy- or gas-related company counting against the
Rule 58 authority, and identification of any new
energy- or gas-related company in which CenterPoint
has invested or committed to invest during the
preceding quarter;
(xxiv) With respect to any internal reorganization of any
Subsidiaries during the quarter, a description of the
nature of such reorganization.
In addition, 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.
30
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 "aggregate investments" in FUCOs, as that
term is defined in Rule 53(a)(1)(i). 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 any "aggregate
investment" in an EWG or a FUCO, as that term is defined in Rule 53(a)(1)(i).
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.
31
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.
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 (previously filed).
32
G-1.2 Principal amount of external debt and trust preferred securities of
CenterPoint and its Subsidiaries as of March 31, 2005.
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 (previously filed).
J-1 Form of Second Amended and Restated Money Pool Agreement (previously filed).
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
33
Corp.'s Annual Report on Form 10-K for the year ended December 31, 2004 (File
No. 1-13265)).
FS-4 Balance Sheets of CenterPoint Energy Transition Bond Co., LLC as of March
31, 2005 (unaudited) and Statements of Income and Changes in Member's Equity and
Statements of Cash Flows for the three months ended March 31, 2005 (unaudited)
(incorporated by reference to CenterPoint Energy Transition Bond Co., LLC's
Quarterly Report on Form 10-Q for the three months ended March 31, 2005 (File
No. 333-91093)).
FS-5 CenterPoint consolidated financials (forecasts through 2009) (previously
filed).
FS-6 CenterPoint Energy Houston Electric, LLC financials (forecasts through
2009) (previously filed).
FS-7 CenterPoint Energy Resources Corp. financials (forecasts through 2009)
(previously filed).
FS-8 CenterPoint equity percentages as of December 31, 2004 (forecasts through
2009) (previously filed).
FS-9 CenterPoint Energy Houston Electric, LLC equity percentages (forecasts
through 2009) (previously filed).
FS-10 CenterPoint Energy Resources Corp. equity percentages (forecasts through
2009) (previously filed).
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.
34
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: June 9, 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.
35