CenterPoint Energy, Inc.
CenterPoint Energy Transition Bond CO II, LLC (Form: 424B5, Received: 12/14/2005 12:31:31)
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FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-121505
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 6, 2005
$1,851,000,000
CenterPoint Energy Transition Bond Company II, LLC
Issuer
Senior Secured Transition Bonds, Series A
 
                                                             
    Initial           Underwriting       Scheduled    
    Principal   Interest   Price to   Discounts and   Proceeds to   Final Payment   Final
Tranche   Balance   Rate   Public   Commissions   the Issuer   Date   Maturity Date
                             
  A-1     $ 250,000,000       4.840 %     99.98928 %     0.32500 %   $ 249,160,700       2/1/2009       2/1/2011  
  A-2     $ 368,000,000       4.970 %     99.96013 %     0.35000 %   $ 366,565,278       8/1/2012       8/1/2014  
  A-3     $ 252,000,000       5.090 %     99.99640 %     0.40000 %   $ 250,982,928       2/1/2014       8/1/2015  
  A-4     $ 519,000,000       5.170 %     99.97450 %     0.42000 %   $ 516,687,855       8/1/2017       8/1/2019  
  A-5     $ 462,000,000       5.302 %     100.00000 %     0.37546 %   $ 460,265,375       8/1/2019       8/1/2020  
         The total price to the public is $1,850,685,061. The total amount of the underwriting discounts and commissions is $7,022,925. The total amount of proceeds to the issuer before deduction of expenses (estimated to be $5,349,919) is $1,843,662,136.
          Investing in the Senior Secured Transition Bonds, Series A involves risks. See “Risk Factors” on page 14 of the accompanying prospectus.
         CenterPoint Energy Transition Bond Company II, LLC is issuing $1,851,000,000 of Senior Secured Transition Bonds, Series A, or the “Bonds,” in multiple tranches. The Bonds are senior secured obligations of the issuer and will be supported by transition charges paid by all retail electric customers in CenterPoint Energy Houston Electric, LLC’s service territory as discussed herein. Transition charges are required to be adjusted annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to timely provide all scheduled payments of principal, interest and other required amounts and charges in connection with the Bonds. There currently is no secondary market for the Bonds, and we cannot assure you that one will develop.
         The Bonds represent obligations only of the issuer, CenterPoint Energy Transition Bond Company II, LLC, and are secured only by the assets of the issuer, consisting principally of the transition property and funds on deposit in the collection account for the Bonds and related subaccounts. For a description of the transition property, please read “The Bonds—The Transition Property” in this prospectus supplement. The transition property includes the right to impose, collect and receive from retail electric customers, including the State of Texas and other governmental entities, through a transition charge, amounts sufficient to make payments on the Bonds, as described further in this prospectus supplement and the accompanying prospectus. CenterPoint Energy Houston Electric, LLC and its affiliates, other than the issuer, are not liable for any payments on the Bonds. The Bonds are not a debt or obligation of the State of Texas, the Public Utility Commission of Texas or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the State of Texas or any governmental agency or instrumentality. However, the State of Texas and other governmental entities, as retail electric customers, will be obligated to pay transition charges securing the Bonds. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other entity, will be obligated to provide funds for the payment of the Bonds.
         The Public Utility Commission of Texas guaranteed that it will take specific actions pursuant to its irrevocable financing order, dated March 16, 2005, as expressly authorized by the utility restructuring provisions of the Public Utility Regulatory Act to ensure that expected transition charge revenues are sufficient to timely pay scheduled principal and interest on the Bonds. The Public Utility Commission of Texas’ obligations relating to the Bonds, including the specific actions that it has guaranteed to take, are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and are legally enforceable against the Public Utility Commission of Texas, a United States public sector entity.
         All matters relating to the structuring and pricing of the Bonds have been considered jointly by CenterPoint Energy Houston Electric, LLC and the Public Utility Commission of Texas, acting through its financial advisor. The financial advisor to the Public Utility Commission of Texas is
Saber Partners, LLC
         Additional information is contained in the accompanying prospectus. You should read this prospectus supplement and the accompanying prospectus carefully before you decide to invest in the Bonds. This prospectus supplement may not be used to offer or sell the Bonds unless accompanied by the prospectus.
         Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement and the accompanying prospectus are truthful or complete. Any representation to the contrary is a criminal offense.
         The underwriters expect to deliver the Bonds through the book-entry facilities of The Depository Trust Company against payment in New York, New York on December 16, 2005.
             
Lehman Brothers   Credit Suisse First Boston   RBS Greenwich Capital
Barclays Capital   Deutsche Bank Securities   Goldman, Sachs & Co.
First Albany Capital   Loop Capital Markets, LLC   M.R. Beal & Company
Siebert Brandford Shank & Co., L.L.C.   Ramirez & Co., Inc.   SunTrust Robinson Humphrey
The date of this prospectus supplement is December 9, 2005.


 

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Appendix A — Glossary of Defined Terms
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Financial Statements of CenterPoint Energy Transition Bond Company II, LLC. 
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ABOUT THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
        This prospectus supplement and the accompanying prospectus provide information about us, CenterPoint Energy Houston Electric, LLC and the transition bonds. This prospectus supplement describes the specific terms of the Bonds. The accompanying prospectus describes terms that apply to all series of transition bonds we may issue, including the Bonds offered hereby.
        References in this prospectus supplement and the accompanying prospectus to the terms “we,” “us,” “our” or “the issuer” mean CenterPoint Energy Transition Bond Company II, LLC. References to “CenterPoint Houston” or “the seller” mean CenterPoint Energy Houston Electric, LLC, and references to the “integrated utility” mean Reliant Energy, Incorporated, the legal predecessor to CenterPoint Houston, as it existed prior to its restructuring and the onset of competition in the retail electric services market in Texas on January 1, 2002, as mandated by the 1999 utility restructuring amendments to the Public Utility Regulatory Act, which we refer to as the “Restructuring Act.” Unless the context otherwise requires, the term “customer” means a retail end user of electricity and related services provided by a retail electric provider via the transmission and distribution system of an electric utility such as CenterPoint Houston. We also refer to the Public Utility Commission of Texas as the “Texas commission.” You can find a glossary of some of the other defined terms we use in this prospectus supplement and the accompanying prospectus on page A-1 of the accompanying prospectus.
        We have included cross-references to sections in this prospectus supplement and the accompanying prospectus where you can find further related discussions. You can also find references to key topics in the table of contents on the previous page.
        You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor any underwriter, agent, dealer, salesperson, the Texas commission or CenterPoint Houston has authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not offering to sell the Bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus supplement is current only as of the date of this prospectus supplement.

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SUMMARY OF TERMS
        The following section is only a summary of selected information and does not provide you with all the information you will need to make your investment decision. There is more detailed information in this prospectus supplement and in the accompanying prospectus. To understand all of the terms of the offering of the Bonds, carefully read this entire document and the accompanying prospectus.
Issuer and Capital Structure: CenterPoint Energy Transition Bond Company II, LLC, a special purpose, bankruptcy-remote limited liability company wholly-owned by CenterPoint Houston. We have no commercial operations. We were formed solely to purchase and own transition property, to issue transition bonds and to perform activities incidental thereto. Please read “The Issuer” in the accompanying prospectus.
 

In addition to the transition property, we will be capitalized with an upfront deposit of 0.5% of the Bonds’ initial principal amount (to be held in the capital subaccount) and will have an excess funds subaccount to retain, until the next payment date, any amounts collected and remaining after all payments on the Bonds have been timely made.
 

We are responsible to the State of Texas and the Texas commission. Specifically, pursuant to the financing order of the Texas commission relating to the Bonds,
 

•  our organizational documents and transaction documents prohibit us from engaging in any activities other than acquiring transition property, issuing transition bonds and performing other activities as specifically authorized by the financing order,
 

•  we must respond to representatives of the Texas commission throughout the process of offering the Bonds, with the financing order directing the Texas commission’s financial advisor to veto any proposal that does not comply with all criteria established in the financing order, and
 

•  all required true-up adjustments must be filed by the servicer on our behalf.
 

We have also agreed that certain reports will be submitted to the Texas commission by us or on our behalf.
 
Securities offered: $1,851,000,000 Senior Secured Transition Bonds, Series A, scheduled to pay principal semi-annually and sequentially in accordance with the expected sinking fund schedule.
 
Expected ratings: Aaa/AAA/AAA by Moody’s, S&P and Fitch, respectively. Please read “Ratings for the Bonds” in this prospectus supplement.
 
Issuer’s address: 1111 Louisiana, Suite 4655B, Houston, Texas 77002

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Issuer’s telephone number: (713) 207-5222
 
Payment dates and interest accrual: Interest payable semi-annually, February 1 and August 1. Interest will be calculated on a 30/360 basis. The first scheduled interest and principal payment date is August 1, 2006.
 

Interest is due on each payment date and principal is due upon the final maturity date for each tranche.
 
Optional redemption: None. Non-call for the life of the Bonds.
 
Average life: Stable. There is no prepayment risk. Extension risk is possible, but the risk is statistically insignificant. Please read “Weighted Average Life Sensitivity” in this prospectus supplement and “Weighted Average Life and Yield Considerations for the Transition Bonds” in the accompanying prospectus.
 
Credit/ security: Pursuant to the financing order issued by the Texas commission, the irrevocable right to impose, collect and receive a non-bypassable electricity consumption-based transition charge from all retail electric customers (approximately 1.9 million customers), including the State of Texas and other governmental entities, in CenterPoint Houston’s service territory. Transition charges are set and adjusted to collect amounts equal to payments of principal, interest and other required amounts and charges on a timely basis. Please refer to “Statutorily Guaranteed True-Up Mechanism for Payment of Scheduled Principal and Interest” in this prospectus supplement, as well as the chart entitled “Parties to Transaction and Responsibilities,” “The Restructuring Act” and “CenterPoint Houston’s Financing Order” in the accompanying prospectus. For information regarding consumption of electricity by the State of Texas and other governmental entities, please read “The Bonds—The Transition Property” in this prospectus supplement and “The Servicer of the Transition Property—Customer Classes” in the accompanying prospectus.
 
The transition property securing the Bonds is not a pool of receivables. It consists of all of CenterPoint Houston’s rights and interests under the financing order transferred to us in connection with the issuance of the Bonds, including the irrevocable right to impose, collect and receive non- bypassable transition charges and the right to implement the true-up mechanism. Transition property is a present property right created by the Restructuring Act and the financing order and is protected by the state pledge in the Restructuring Act described below.

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The Bonds are secured only by our assets, consisting principally of the transition property relating to the Bonds and funds on deposit in the collection account for the Bonds and related subaccounts. For a description of the transition property, please read “The Bonds—The Transition Property” in this prospectus supplement.
 
Non-bypassable transition charges: The statutorily guaranteed right from the government of the State of Texas to collect transition charges from all existing and future retail electric customers located within CenterPoint Houston’s service territory, subject to certain limitations specified in the Restructuring Act, even if those customers elect to purchase electricity from another supplier or choose to operate new on-site generation or if the utility goes out of business and its service area is acquired by another utility or is municipalized. Please read “Risk Factors—Other Risks Associated with an Investment in the Transition Bonds—Technological change might make alternative energy sources more attractive in the future” in the accompanying prospectus. The transition charges are applied to retail electric customers individually and are adjusted and reallocated among all customers as necessary under the statutorily guaranteed true-up mechanism. Please read “The Transition Charges” in this prospectus supplement and “CenterPoint Houston’s Financing Order” and “The Servicing Agreements—The Statutorily Guaranteed Transition Charge Adjustment Process” in the accompanying prospectus.
 
Statutorily guaranteed true-up mechanism for payment of scheduled principal and interest: The Restructuring Act and the irrevocable financing order guarantee that transition charges on all retail electric customers will be reviewed and adjusted annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to timely provide payment of scheduled principal and interest on the Bonds. Pursuant to the financing order, adjustments other than the annual adjustments may be made generally not more than once in any six-month period. In the financing order, the Texas commission guaranteed that it would take specific actions pursuant to the financing order as expressly authorized by the Restructuring Act to ensure that expected transition charge revenues are sufficient to timely pay scheduled principal and interest on the Bonds.
 

There is no “cap” on the level of transition charges that may be imposed on retail electric customers, including the State of Texas and other governmental entities, to timely pay scheduled principal and interest on the Bonds.
 

The financing order provides that the true-up mechanism and all other obligations of the State of Texas and the Texas commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and are legally enforceable against the State of Texas and the Texas commission. Please read

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“The Transition Charges” in this prospectus supplement and “CenterPoint Houston’s Financing Order” and “The Servicing Agreements—The Statutorily Guaranteed Transition Charge Adjustment Process” in the accompanying prospectus.
 
Initial transition charge as a percentage of customer’s total electricity bill: The charge would represent approximately 2% of the total bill received by a 1,000 kWh residential customer of the largest retail electric provider in CenterPoint Houston’s service territory as of October 1, 2005.
 
State pledge: The State of Texas has pledged in the Restructuring Act that it will not take or permit any action that would impair the value of the transition property, or reduce, alter or impair the transition charges until the Bonds are fully repaid or discharged, other than specified true-up adjustments to correct any overcollections or undercollections. Please read “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs” in the accompanying prospectus.
 
Credit risk: The broad-based nature of the true-up mechanism and the state pledge described above, along with other elements of the Bonds, will serve to effectively eliminate, for all practical purposes and circumstances, any credit risk associated with the Bonds (i.e., that sufficient funds will be available and paid to discharge all principal and interest obligations when due). Please refer to the financing order, Finding of Fact 107, as well as “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs,” “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True- Ups,” “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information” in the accompanying prospectus.
 
Tax treatment: Fully taxable; treated as debt for U.S. federal income tax purposes. Please read “Material Federal Income Tax Consequences for the Transition Bondholders” in the accompanying prospectus.
 
ERISA eligible: Yes; please read “ERISA Considerations” in the accompanying prospectus.
 
20% risk weighting: If held by financial institutions subject to regulation in countries (other than the United States) that have adopted the 1988 International Convergence of Capital Measurement and Capital Standards of the Basel Committee on Banking Supervision (as amended, the “Basel Accord”), the Bonds may attract the same risk weighting as “claims on” or “claims guaranteed by” non-central government bodies within the United States, which are accorded a 20% risk weighting.

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We understand the United Kingdom’s Financial Services Authority has issued “individual guidance” letters to one or more investors that an investment in Texas transition bonds issued under the Restructuring Act can be accorded a 20% risk weighting, which is similar to the risk weighting assigned to U. S. Agency corporate securities (FNMA, FHLMC, etc.).
 

However, we cannot assure you that the Bonds will attract a 20% risk weighting treatment under any national law, regulation or policy implementing the Basel Accord. Investors should consult their regulators before making any investment. Please read “Risk Weighting of the Bonds Under Certain International Capital Guidelines” in this prospectus supplement and “Risk Weighting Under Certain International Capital Guidelines” in the accompanying prospectus.
 
Enhanced continuing disclosure and dedicated website (surveillance): A dedicated web site will be established for the Bonds. In addition, the indenture under which the Bonds will be issued requires all of the periodic reports that we file with the SEC, the principal transaction documents and other information concerning the transition charges and security relating to the Bonds to be posted on the website associated with our parent company, located at www.centerpointenergy.com .
 
Furthermore, even if we were otherwise permitted to suspend such filings, so long as any Bonds are outstanding, we also will continue filing periodic reports under the Securities Exchange Act of 1934 and the rules, regulations or orders of the SEC. Consequently, information will continue to be publicly available and accessible to bondholders through the SEC or through the dedicated website. Please read “Enhanced Continuing Disclosure” in the accompanying prospectus.
 
Relationship to the Series 2001-1 transition bonds : In October 2001, CenterPoint Energy Transition Bond Company, LLC, which we refer to in this prospectus supplement and the accompanying prospectus as “Transition Bond Company I,” a special purpose wholly owned subsidiary of CenterPoint Houston, issued and sold $749 million of Series 2001-1 transition bonds in accordance with a financing order issued by the Texas commission on May 31, 2000. Transition Bond Company I will have no obligations under the Bonds, and we have no obligations under the Series 2001-1 transition bonds. The security pledged to secure the Bonds will be separate from the security that is securing the Series 2001-1 transition bonds or that would secure any other series of transition bonds. The outstanding Series 2001-1 transition bonds are currently rated Aaa/AAA/AAA by Moody’s, S&P and Fitch, respectively. Please read “Relationship to the Series 2001-1 Transition Bonds” in the accompanying prospectus.

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Servicer: CenterPoint Houston is a State of Texas fully regulated electric transmission and distribution utility wholly-owned indirectly by CenterPoint Energy, Inc. CenterPoint Houston is engaged in the transmission and distribution of electric energy in a 5,000 square-mile area located along the Texas Gulf Coast that has a population of approximately five million people. CenterPoint Houston, acting as the initial servicer, and any successor servicer, referred to in this prospectus supplement and the accompanying prospectus as the “servicer,” will service the transition property securing the Bonds under a servicing agreement with us. Please read “The Servicer of the Transition Property” in the accompanying prospectus.
 
CenterPoint Houston’s address: 1111 Louisiana, Houston, Texas 77002
 
CenterPoint Houston’s telephone number: (713) 207-3000
 
Texas commission financial advisor: Saber Partners, LLC (co-equal decision maker with us). Certain financial advisory services, including any activities that may be considered activities of a broker dealer, will be assigned to Saber Capital Partners, LLC, a wholly-owned subsidiary of Saber Partners, LLC.
 
Indenture trustee: Wilmington Trust Company
 
Expected settlement : December 16, 2005, settling flat. DTC, Clearstream and Euroclear.
 
Use of proceeds: Paid to CenterPoint Houston to retire debt or equity only. In accordance with the financing order, we may not use the net proceeds from the sale of the Bonds for general corporate purposes or commercial purposes. Please read “Use of Proceeds” in the accompanying prospectus.
 
Risk factors : You should consider carefully the risk factors beginning on page 14 of the accompanying prospectus before you invest in the Bonds.

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THE BONDS
        We will issue the Bonds and secure their payment under an indenture that we will enter into with Wilmington Trust Company, as trustee, referred to in this prospectus supplement and the accompanying prospectus as the “trustee.” Deutsche Bank Trust Company Americas will serve as administrative agent for the Bonds and will perform all of the obligations of the trustee other than fiduciary obligations under the basic documents relating to the Bonds, including maintaining the accounts in accordance with the indenture and executing and delivering documents on the trustee’s behalf. Deutsche Bank Trust Company Americas also will serve as the securities intermediary, paying agent, authenticating agent and transition bond registrar under the indenture. We will issue the Bonds in denominations of integral multiples of $1,000, except that we may issue one Bond in each tranche in a smaller denomination. The initial principal balance, scheduled final payment date, final maturity date and interest rate for each tranche of the Bonds are stated in the table below.
                                             
    Expected                
    Average Life   Initial Principal   Scheduled Final   Final   Interest
Tranche   (Years)   Balance   Payment Date   Maturity Date   Rate
                     
  A-1       2.0     $ 250,000,000       2/1/2009       2/1/2011       4.840 %
  A-2       5.0     $ 368,000,000       8/1/2012       8/1/2014       4.970 %
  A-3       7.5     $ 252,000,000       2/1/2014       8/1/2015       5.090 %
  A-4       10.0     $ 519,000,000       8/1/2017       8/1/2019       5.170 %
  A-5       12.7     $ 462,000,000       8/1/2019       8/1/2020       5.302 %
        The scheduled final payment date for each tranche of the Bonds is the date when the outstanding principal balance of that tranche will be reduced to zero if we make payments according to the expected amortization schedule for that tranche. The final maturity date for each tranche of the Bonds is the date when we are required to pay the entire remaining unpaid principal balance, if any, of all outstanding Bonds of that tranche. The failure to pay principal of any tranche of Bonds by the final maturity date for that tranche is an event of default, but the failure to pay principal of any tranche of Bonds by the respective scheduled final payment date will not be an event of default. Please refer to “The Transition Bonds—Payments of Interest and Principal on the Transition Bonds” and “—What Constitutes an Event of Default on the Transition Bonds” in the accompanying prospectus.
The Collateral
        The Bonds will be secured under the indenture by the indenture’s trust estate. The principal asset of the indenture’s trust estate for the Bonds is the transition property relating to the Bonds, which is a present property right created under the Restructuring Act enacted by the Texas legislature in June 1999 by the financing order issued by the Texas commission on March 16, 2005, referred to in this prospectus supplement as the “financing order.” The indenture’s trust estate also consists of:
  our rights under the sale agreement pursuant to which we will acquire the transition property relating to the Bonds, under the administration agreement and under all bills of sale delivered by CenterPoint Houston pursuant to the sale agreement,
 
  our rights under the statutorily-guaranteed true-up mechanism,
 
  our rights under the servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement,
 
  the collection account and all subaccounts of the collection account,
 
  our rights in the deposits of retail electric providers required under the financing order,
 
  all of our other property, other than any cash released to us by the trustee on any payment date from earnings on the capital subaccount,
 
  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
 
  all payments on or under and all proceeds in respect of any or all of the foregoing.

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The Transition Property
        In general terms, the portion of all of the rights and interests of CenterPoint Houston that relate to the Bonds under the financing order, upon transfer to us pursuant to the sale agreement, are referred to in this prospectus supplement as the “transition property.” The transition property includes the right to impose, collect and receive, through the applicable transition charges payable by retail electric customers within CenterPoint Houston’s service territory which, subject to certain limitations specified in the Restructuring Act, continue to consume electricity that is delivered through the distribution system or produced in new on-site generation, including the State of Texas and other governmental entities, an amount sufficient to pay principal and interest and to make other deposits in connection with the Bonds. During the twelve months ended September 30, 2005, approximately 41% of CenterPoint Houston’s total deliveries were to industrial customers, approximately 26% were to commercial customers and approximately 33% were to residential customers, with the State of Texas and other governmental entities included in all categories and comprising approximately 5% of CenterPoint Houston’s total deliveries. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other entity, will be obligated to provide funds for the payment of the Bonds.
        The transition property is not a receivable, and the principal collateral securing the Bonds is not a pool of receivables. Transition charges authorized in the financing order that relate to the Bonds are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Texas commission, except for annual and interim true-up adjustments to correct overcollections or undercollections and to provide the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Bonds. See “Credit Enhancement—Statutorily Guaranteed True-Up Mechanism for Payment of Scheduled Principal and Interest” in this prospectus supplement. All revenues and collections resulting from transition charges provided for in the financing order that relate to the Bonds are part of the transition property. CenterPoint Houston’s qualified costs authorized in the financing order approving the issuance of the Bonds include:
  CenterPoint Houston’s stranded cost balance as of August 31, 2004, which is an amount associated with the transition to competitive retail electric markets in Texas determined by the Texas commission to be recoverable under the Restructuring Act, plus:
  “excess mitigation” credits provided on the bills of retail electric customers (as required by prior order of the Texas commission) from August 31, 2004 through the date the Bonds are issued or the date of the termination of such excess mitigation credits, whichever is earlier,
 
  interest on stranded costs accrued from August 31, 2004 through the date the Bonds are issued,
  costs of issuing, supporting and servicing the Bonds, and
 
  any costs of retiring and refunding CenterPoint Houston’s existing debt and equity securities in connection with the issuance of the Bonds (excluding costs of retiring or refunding debt or equity securities held by an affiliate of CenterPoint Houston).
The transition property relating to the Bonds is described in more detail under “The Sale Agreements—CenterPoint Houston’s Sale and Assignment of the Transition Property” in the accompanying prospectus.
        We will purchase the transition property from CenterPoint Houston to support the issuance of $1,851,000,000 in principal amount of the Bonds. The servicer will bill and collect transition charges allocable to the Bonds from “retail electric providers,” which are entities certified under state law that provide electricity and related services to retail electric customers within CenterPoint Houston’s service territory, and will remit the collections to the trustee. The retail electric providers will in turn bill and collect the transition charges from retail electric customers in CenterPoint Houston’s service territory. Each retail electric provider will include the transition charges in its bill to its retail electric customers but is not required to show the transition charges as a separate line

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item or footnote. However, each retail electric provider will be required to provide annual written notice to its customers that transition charges have been included in the customers’ bills.
        Each retail electric provider will be required to pay the transition charges on or before the 35th day after it receives the bill from the servicer, less an agreed allowance for expected uncollectible amounts, whether or not the retail electric provider has collected all amounts owed to it by its retail electric customers. Prior to the date on which the retail electric provider remits the transition charges to the servicer, the transition charges may be commingled with the retail electric provider’s other funds. Please refer to “Risk Factors—Risks Associated With Potential Bankruptcy Proceedings of Retail Electric Providers,” “Retail Electric Providers” and “How a Bankruptcy May Affect Your Investment—Bankruptcy of a Retail Electric Provider” in the accompanying prospectus.
        The servicer will have only limited rights to collect the transition charges directly from retail electric customers if a retail electric provider does not remit such payments to the servicer but will have certain rights against the retail electric provider. Please refer to “Retail Electric Providers” in the accompanying prospectus. For information on how electric service to retail electric customers may be terminated, see “Risk Factors—Servicing Risks—Limits on rights to terminate service might make it more difficult to collect the transition charges” in the accompanying prospectus. Because the amount of transition charge collections will depend largely on the amount of electricity consumed by customers within CenterPoint Houston’s service territory, the amount of collections may vary substantially from year to year. Please refer to “The Servicer of the Transition Property” in the accompanying prospectus.
        Under the Restructuring Act and the indenture, the trustee or the holders of the Bonds have the right to foreclose or otherwise enforce the lien on the transition property. However, in the event of foreclosure, there is likely to be a limited market, if any, for the transition property. Therefore, foreclosure might not be a realistic or practical remedy. Please refer to “Risk Factors—Risks Associated with the Unusual Nature of the Transition Property—Foreclosure of the trustee’s lien on the transition property for a series of transition bonds might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect” in the accompanying prospectus.
The Financing Order
        On March 16, 2005, the Texas commission issued the financing order relating to the Bonds to CenterPoint Houston. The financing order authorizes CenterPoint Houston to cause us to issue transition bonds in one or more series in an aggregate amount not to exceed $1,493,747,264 plus (a) the principal portion of excess mitigation credits (which are credits on the bills of retail electric customers that were required by prior order of the Texas commission) provided by CenterPoint Houston after August 31, 2004 through the date of issuance of the transition bonds or the date of the termination of such excess mitigation credits, whichever is earlier, (b) interest on stranded costs accrued after August 31, 2004 through the date of issuance of the transition bonds, and (c) up-front qualified costs as set forth in the financing order. The financing order also authorizes transition charges in amounts sufficient to recover the principal and interest on the Bonds plus an additional amount of ongoing qualified costs. Our ability to recover certain of our ongoing costs through transition charges is subject to caps imposed by the financing order. The Texas commission guaranteed that it will take specific actions pursuant to the irrevocable financing order as expressly authorized by the Restructuring Act to ensure that expected transition charge revenues are sufficient to timely pay scheduled principal and interest on the Bonds. The financing order provides that the true-up mechanism and all other obligations of the State of Texas and the Texas commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and are legally enforceable against the State of Texas and the Texas commission. Please refer to “CenterPoint Houston’s Financing Order” in the accompanying prospectus.
Payment and Record Dates and Payment Sources
        Beginning August 1, 2006, we will make payments of interest on the Bonds semi-annually on February 1 and August 1 of each year, or, if that day is not a business day, the following business day (each, a “payment date”). So long as the Bonds are in book-entry form, on each payment date, we will make interest and principal payments to the persons who are the holders of record as of the business day immediately prior to that payment

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date, which is referred to as the “record date.” If we issue certificated transition bonds to beneficial owners of the Bonds as described in “The Transition Bonds—Definitive Certificated Transition Bonds” in the accompanying prospectus, the record date will be the last business day of the calendar month immediately preceding the payment date. On each payment date, we will pay amounts on outstanding Bonds from amounts available in the collection account and the related subaccounts held by the trustee in the priority set forth under “Credit Enhancement—How Funds in the Collection Account Will Be Allocated” in this prospectus supplement. These available amounts, which will include amounts collected by the servicer for us with respect to the transition charges, are described in greater detail under “The Transition Bonds—The Collection Account for the Transition Bonds” in the accompanying prospectus.
Principal Payments
        On each payment date, we will pay principal of the Bonds to the bondholders equal to the sum, without duplication, of:
  the unpaid principal amount of any Bond whose final maturity date is on that payment date, plus
 
  the unpaid principal amount of any Bond upon acceleration following an event of default relating to the Bonds, plus
 
  any overdue payments of principal, plus
 
  any unpaid and previously scheduled payments of principal, plus
 
  the principal scheduled to be paid on any Bond on that payment date,
but only to the extent funds are available in the collection account after payment of certain of our fees and expenses and after payment of interest as described below under “—Interest Payments.” To the extent funds are so available, we will make scheduled payments of principal of the Bonds in the following order:
  1. to the holders of the tranche A-1 Bonds, until the principal balance of that tranche has been reduced to zero,
 
  2. to the holders of the tranche A-2 Bonds, until the principal balance of that tranche has been reduced to zero,
 
  3. to the holders of the tranche A-3 Bonds, until the principal balance of that tranche has been reduced to zero,
 
  4. to the holders of the tranche A-4 Bonds, until the principal balance of that tranche has been reduced to zero, and
 
  5. to the holders of the tranche A-5 Bonds, until the principal balance of that tranche has been reduced to zero.
However, we will not pay principal of any tranche of Bonds on any payment date if making the payment would reduce the principal balance of that tranche to an amount lower than the amount specified in the expected amortization schedule below for that tranche on that payment date. Any excess funds remaining in the collection account after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the collection account will be retained in the excess funds subaccount until applied on a subsequent payment date. The entire unpaid principal balance of each tranche of the Bonds will be due and payable on the final maturity date for the tranche.
        If an event of default under the indenture has occurred and is continuing, the trustee or the holders of a majority in principal amount of the transition bonds of each affected series then outstanding may declare the unpaid principal balance of each such affected series of the transition bonds, together with accrued interest, to be due and payable. However, the nature of our business will result in payment of principal upon an acceleration of the Bonds being made as funds become available. See “Risk Factors—Risks Associated With the Unusual Nature of the Transition Property—Foreclosure of the trustee’s lien on the transition property for a series of transition bonds

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might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect” and “—You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited” in the accompanying prospectus. If there is a shortfall in the amounts available to make principal payments on transition bonds of a series that are due and payable, including upon an acceleration following an event of default, the trustee will distribute principal from the collection account for that series pro rata to each tranche of transition bonds of that series based on the principal amount then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on transition bonds of a series that are scheduled to be paid, the trustee will distribute principal from the collection account for that series pro rata to each tranche of transition bonds of that series based on the principal amount then scheduled to be paid on the payment date.
        The expected amortization schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for each tranche of the Bonds from the issuance date to the scheduled final payment date. Similarly, the expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for each tranche of the Bonds from the issuance date to the scheduled final payment date. In establishing these schedules, we have made the assumptions specified in the bullet points under the weighted average life sensitivity table below under “—Weighted Average Life Sensitivity,” among other assumptions.

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Expected Amortization Schedule
Outstanding Principal Balance Per Tranche
                                         
Semi-Annual   Tranche   Tranche   Tranche   Tranche   Tranche
Payment Date   A-1 Balance   A-2 Balance   A-3 Balance   A-4 Balance   A-5 Balance
                     
Issuance Date
  $ 250,000,000     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/06
  $ 231,435,317     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/07
  $ 179,908,675     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/07
  $ 144,571,638     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/08
  $ 89,916,590     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/08
  $ 50,875,178     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/09
        $ 360,066,563     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/09
          $ 317,117,443     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/10
          $ 253,934,484     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/10
          $ 207,053,841     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/11
          $ 139,554,687     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/11
          $ 88,537,461     $ 252,000,000     $ 519,000,000     $ 462,000,000  
2/1/12
          $ 16,503,845     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/12
                $ 213,121,395     $ 519,000,000     $ 462,000,000  
2/1/13
                  $ 136,291,216     $ 519,000,000     $ 462,000,000  
8/1/13
                  $ 76,210,864     $ 519,000,000     $ 462,000,000  
2/1/14
                        $ 513,249,049     $ 462,000,000  
8/1/14
                          $ 448,198,338     $ 462,000,000  
2/1/15
                          $ 360,804,209     $ 462,000,000  
8/1/15
                          $ 290,434,163     $ 462,000,000  
2/1/16
                          $ 197,270,773     $ 462,000,000  
8/1/16
                          $ 121,240,531     $ 462,000,000  
2/1/17
                          $ 21,943,148     $ 462,000,000  
8/1/17
                                $ 401,924,376  
2/1/18
                                  $ 296,111,800  
8/1/18
                                  $ 207,644,275  
2/1/19
                                  $ 94,860,410  
8/1/19
                                     
On each payment date, the trustee will make principal payments to the extent the principal balance of each tranche of the Bonds exceeds the amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest. If sufficient funds are available on each payment date, principal payments will be in the amounts indicated for each payment date in the schedule below.

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Expected Sinking Fund Schedule
                                         
Semi-Annual                    
Payment Date   Tranche A-1   Tranche A-2   Tranche A-3   Tranche A-4   Tranche A-5
                     
Tranche Size
  $ 250,000,000     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
8/1/06
  $ 18,564,683       -         -         -         -    
2/1/07
  $ 51,526,642       -         -         -         -    
8/1/07
  $ 35,337,037       -         -         -         -    
2/1/08
  $ 54,655,048       -         -         -         -    
8/1/08
  $ 39,041,412       -         -         -         -    
2/1/09
  $ 50,875,178     $ 7,933,437       -         -         -    
8/1/09
          $ 42,949,120       -         -         -    
2/1/10
          $ 63,182,959       -         -         -    
8/1/10
          $ 46,880,643       -         -         -    
2/1/11
          $ 67,499,154       -         -         -    
8/1/11
          $ 51,017,226       -         -         -    
2/1/12
          $ 72,033,616       -         -         -    
8/1/12
          $ 16,503,845     $ 38,878,605       -         -    
2/1/13
                  $ 76,830,179       -         -    
8/1/13
                  $ 60,080,352       -         -    
2/1/14
                  $ 76,210,864     $ 5,750,951       -    
8/1/14
                          $ 65,050,711       -    
2/1/15
                          $ 87,394,129       -    
8/1/15
                          $ 70,370,046       -    
2/1/16
                          $ 93,163,390       -    
8/1/16
                          $ 76,030,242       -    
2/1/17
                          $ 99,297,383       -    
8/1/17
                          $ 21,943,148     $ 60,075,624  
2/1/18
                                  $ 105,812,576  
8/1/18
                                  $ 88,467,525  
2/1/19
                                  $ 112,783,865  
8/1/19
                                  $ 94,860,410  
                               
Total Payments
  $ 250,000,000     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
        We cannot assure you that principal payments will be made or that the principal balance of any tranche of the Bonds will be reduced at the rates indicated in the schedules above. Principal payments and the actual reduction in tranche principal balances may occur more slowly. Principal payments and the actual reduction in tranche principal balances will not occur more quickly than indicated in the above schedules, except that the total outstanding principal balance of and interest accrued on the Bonds are accelerated upon an event of default under the indenture. The Bonds will not be in default if principal is not paid as specified in the schedules above unless the principal of any tranche is not paid in full on or before the final maturity date of that tranche.
Weighted Average Life Sensitivity
        Weighted average life refers to the average amount of time from the date of issuance of a security until each dollar of principal of the security has been repaid to the investor. The rate of principal payments on each tranche of Bonds, the aggregate amount of each interest payment on each tranche of Bonds and the actual final payment date of each tranche of Bonds will depend on the timing of the servicer’s receipt of transition charges from retail electric providers. See “Weighted Average Life and Yield Considerations for the Transition Bonds” in the accompanying prospectus for further information. Changes in the expected weighted average lives of the tranches of the Bonds in relation to variances in actual energy consumption levels (retail electric sales) from forecast levels are shown below. Severe stress cases on electricity consumption result in insignificant changes (approximately six weeks), if any, in the weighted average lives of each tranche.

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Weighted Average Life Sensitivity
                     
        WAL
         
    Expected   -5%   -15%
    Weighted   (4.8 Standard Deviations from Mean)   (11.6 Standard Deviations from Mean)
    Avg. Life        
    (“WAL”)   WAL   Change   WAL   Change
Tranche   (yrs)   (yrs)   (days)   (yrs)   (days)
                     
A-1
  2.0   2.0   0   2.1   29
A-2
  5.0   5.0   0   5.1   37
A-3
  7.5   7.5   0   7.6   29
A-4
  10.0   10.0   0   10.1   26
A-5
  12.7   12.7   0   12.8   26
        For the purposes of preparing the above table, we have assumed, among other things, that:
  the forecast error stays constant over the life of the Bonds and is equal to an overestimate of electricity consumption of 5% (4.8 Standard Deviations From Mean) or 15% (11.6 Standard Deviations From Mean) as stated in the chart above;
 
  the servicer makes timely and accurate filings to true-up the transition charges semi-annually in years one through thirteen and quarterly in the fourteenth and fifteenth years; and
 
  retail electric providers remit all transition charges 35 days after such charges are billed.
There can be no assurance that the weighted average lives of the various tranches of the Bonds will be as shown in the above table.
Distribution Following Acceleration
        Upon an acceleration of the maturity of the Bonds, the total outstanding principal balance of and interest accrued on the Bonds will be payable without priority of interest over principal or principal over interest and without regard to tranche. Although principal will be due and payable upon acceleration, the nature of our business will result in principal being paid as funds become available. See “Risk Factors—Risks Associated with the Unusual Nature of the Transition Property—Foreclosure of the trustee’s lien on the transition property for a series of transition bonds might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect” and “—You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited” in the accompanying prospectus. Also see “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs—The State Pledge” and “—Constitutional Matters” in the accompanying prospectus.
Interest Payments
        Holders of transition bonds in each tranche of Bonds will receive interest at the rate for that tranche as set forth in the table on page S-8.
        Interest on each tranche of Bonds will accrue from and including the date of issuance to but excluding the first payment date, and thereafter from and including the previous payment date to but excluding the applicable payment date until the Bonds have been paid in full, at the interest rate indicated in the table on page S-8. Each of those periods is referred to as an “interest accrual period.” On each payment date, we will pay interest on each tranche of the Bonds equal to the following amounts:
  any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any, and
 
  accrued interest on the principal balance of each tranche of the Bonds as of the close of business on the preceding payment date, or the date of the original issuance of the Bonds, after giving effect to all payments of principal made on the preceding payment date, if any.

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        We will pay interest on the Bonds before we pay principal on the Bonds. Please refer to “The Transition Bonds—Payments of Interest and Principal on the Transition Bonds” in the accompanying prospectus. If there is a shortfall in the amounts available in the collection account to make interest payments on the Bonds, the trustee will distribute interest pro rata to each tranche of Bonds based on the amount of interest payable on each such outstanding tranche. Please read “Credit Enhancement—Collection Account and Subaccounts” in this prospectus supplement. We will calculate interest on tranches of the Bonds on the basis of a 360-day year consisting of twelve 30-day months.
CREDIT ENHANCEMENT
        Credit enhancement for the Bonds is intended to protect you against losses or delays in scheduled payments on your Bonds. Please refer to “Risk Factors—You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited” in the accompanying prospectus.
Statutorily Guaranteed True-Up Mechanism for Payment of Scheduled Principal and Interest
        The Restructuring Act and the irrevocable financing order guarantee that transition charges on all retail electric customers, including the State of Texas and other governmental entities, will be reviewed and adjusted annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to timely provide payment of scheduled principal and interest on the Bonds. Transition charges are required to be adjusted semi-annually if necessary to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the Bonds. In the irrevocable financing order, the Texas commission guaranteed that it would take specific actions pursuant to the financing order as expressly authorized by the Restructuring Act to ensure that expected transition charge revenues are sufficient to timely pay scheduled principal and interest on the Bonds. There is no “cap” on the level of transition charges that may be imposed on retail electric customers, including the State of Texas and other governmental entities, to timely pay scheduled principal and interest on the Bonds. The Financing Order provides that the true-up mechanism and all other obligations of the State of Texas and the Texas commission set forth in the financing order are direct, explicit, irrevocable and unconditional upon issuance of the Bonds, and are legally enforceable against the State of Texas and the Texas commission. Please read “The Transition Charges” below and “CenterPoint Houston’s Financing Order” and “The Servicing Agreements—The Statutorily Guaranteed Transition Charge Adjustment Process” in the accompanying prospectus.
Collection Account and Subaccounts
        The trustee will establish a collection account for the Bonds to hold the capital contribution from CenterPoint Houston and collected transition charges periodically remitted to the trustee by the servicer. The collection account will consist of various subaccounts, including the following:
  the general subaccount,
 
  the excess funds subaccount, and
 
  the capital subaccount.
        Withdrawals from and deposits to these subaccounts will be made as described below in this prospectus supplement and under “The Transition Bonds—The Collection Account for the Transition Bonds” and “—How Funds in the Collection Account Will Be Allocated” in the accompanying prospectus.
        The General Subaccount. The trustee will deposit collected transition charges remitted to it by the servicer with respect to the Bonds into the general subaccount. On each payment date, the trustee will allocate amounts in the general subaccount as described under “—How Funds in the Collection Account Will Be Allocated” below.

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        The Excess Funds Subaccount. The excess funds subaccount will be funded on any payment date with collected transition charges and earnings on amounts in the collection account, other than earnings on amounts allocated to the capital subaccount, in excess of the amount necessary to pay:
  fees and expenses, including any indemnity payments, of the trustee, our independent managers, the servicer and the administrator and other fees, expenses, costs and charges,
 
  principal and interest payments on the Bonds required to be paid or scheduled to be paid on that payment date, and
 
  any amount required to replenish any amounts drawn from the capital subaccount.
        The periodic adjustments of the transition charges will be calculated to eliminate any amounts held in the excess funds subaccount. These adjustments generally will occur annually. Under limited circumstances, these adjustments may occur more frequently, but not more frequently than every six months during the first thirteen years the transition charges are collected in respect of the Bonds and every three months during the fourteenth and fifteenth years.
        If amounts available in the general subaccount are not sufficient to pay the fees and expenses due on any payment date, to make required or scheduled payments to the bondholders and, to replenish any amounts drawn from the capital subaccount, the trustee will first draw on any amounts in the excess funds subaccount to make those payments.
        The Capital Subaccount. On the date we issue the Bonds, CenterPoint Houston will deposit $9,255,000 into the capital subaccount as a capital contribution to us, which is equal to 0.5% of the initial outstanding principal balance of the Bonds. The capital contribution has been set at a level sufficient to obtain the ratings on the Bonds described below under “Ratings for the Bonds.” If amounts available in the general subaccount and the excess funds subaccount are not sufficient to make required or scheduled payments to the bondholders and to pay the fees and expenses specified in the indenture due on any payment date, the trustee will draw on amounts in the capital subaccount to make those payments.
How Funds in the Collection Account Will Be Allocated
        Amounts remitted by the servicer to the trustee with respect to the Bonds, including any indemnity amounts and all investment earnings on amounts in the subaccounts in the collection account, will be deposited into the general subaccount of the collection account.
        On each payment date, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account for the Bonds in the following priority:
  1. payment of the trustee’s fees, expenses and any outstanding indemnity amounts relating to the Bonds, the total amount of which will be fixed as specified in the indenture,
 
  2. payment of the servicing fee, which will be a fixed amount specified in the servicing agreement, plus any unpaid servicing fees from prior payment dates,
 
  3. payment of a pro rata portion of the administration fee, which will be a fixed amount specified in the administration agreement between us and CenterPoint Houston, and a pro rata portion of the fees of our independent managers, which will be in an amount specified in an agreement between us and our independent managers,
 
  4. payment of all of our other ordinary periodic operating expenses relating to the Bonds, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the servicing agreement,
 
  5. payment of the interest then due on the Bonds,
 
  6. payment of (a) the principal then required to be paid on the Bonds at final maturity or upon redemption or acceleration and (b) principal then scheduled to be paid on the Bonds,

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  7. payment of any amounts payable to any credit enhancement providers with respect to the Bonds,
 
  8. payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents relating to the Bonds, including all remaining indemnity amounts owed to the trustee,
 
  9. replenishment of any amounts drawn from the capital subaccount,
 
  10. release to us of an amount equal to investment earnings on amounts in the capital subaccount, so long as no event of default has occurred and is continuing, and
 
  11. allocation of the remainder, if any, to the excess funds subaccount.
        The amounts paid during any calendar year in respect of the trustee’s fees and expenses in clause 1, the servicing fee in clause 2, the administration and independent managers’ fees in clause 3, the ordinary periodic operating expenses in clause 4 and the remaining periodic expenses in clause 8 may not exceed $1,278,500 in the aggregate for all series (for so long as CenterPoint Houston is the servicer), unless the Texas commission approves a different aggregate amount of such payments. Please read “Risk Factors—Other Risks Associated with an Investment in the Transition Bonds—We may incur expenses in excess of caps on such expenses provided in the financing order” in the accompanying prospectus.
        If, on any payment date, funds in the general subaccount are insufficient to make the allocations or payments contemplated by clauses 1 through 9 of the first paragraph of this subsection, the trustee will draw from amounts on deposit in the following subaccounts in the following order up to the amount of the shortfall:
  1. from the excess funds subaccount for allocations and payments contemplated in clauses 1 through 9, and
 
  2. from the capital subaccount for allocations and payments contemplated by clauses 1 through 8.
        If, on any payment date, available collections of transition charges allocable to the Bonds, together with available amounts in the related subaccounts, are not sufficient to pay interest due on all outstanding Bonds on that payment date, amounts available will be allocated pro rata based on the amount of interest payable on each tranche of the Bonds. If, on any payment date, remaining collections of transition charges allocable to the Bonds, together with available amounts in the subaccounts, are not sufficient to pay principal due and payable on all outstanding Bonds on that payment date, amounts available will be allocated pro rata based on the principal amount of each tranche then due and payable. If, on any payment date, remaining collections of transition charges allocable to the Bonds, together with available amounts in the subaccounts, are not sufficient to pay principal scheduled to be paid on all outstanding Bonds, amounts available will be allocated sequentially to each tranche then scheduled to be paid on the payment date. If the trustee uses amounts on deposit in the capital subaccount to pay those amounts or make those transfers, as the case may be, subsequent adjustments to the related transition charges will take into account, among other things, the need to replenish those amounts.
Retail Electric Provider Deposits and Other Credit Support
        Each retail electric provider in CenterPoint Houston’s service territory is obligated to collect and remit transition charges to the servicer as described under “Retail Electric Providers” in the accompanying prospectus. The financing order provides that each retail electric provider that does not maintain a long-term, unsecured credit rating of not less than “BBB-” and “Baa3” (or the equivalent) from S&P and Moody’s, respectively, must provide:
  a cash deposit of two months’ maximum expected transition charge collections,
 
  an affiliate guarantee, surety bond or letter of credit from an entity with a long-term, unsecured credit rating of not less than “BBB-” and “Baa3” (or the equivalent) from S&P and Moody’s, respectively, providing for payment of such amount of transition charge collections in the event that the retail electric provider defaults in its payment obligations, or

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  a combination of any of the foregoing.
A retail electric provider that does not have or maintain the requisite credit rating may select which alternate form of deposit, credit support or combination thereof it will utilize. As of September 30, 2005, there were approximately 65 retail electric providers providing service in CenterPoint Houston’s service territory, all of which did business with CenterPoint Houston. Reliant Energy, Inc., through its subsidiaries, is CenterPoint Houston’s largest customer, accounting for approximately 60% of CenterPoint Houston’s outstanding receivables from retail electric providers as of September 30, 2005 and approximately 53% of the total retail kWh billed by CenterPoint Houston in its service territory for the nine months then ended. On December 6, 2005, the Texas commission concluded that, as of that date, CenterPoint Energy, Inc. and its affiliates are not affiliates of Reliant Energy, Inc. and its affiliates for the purpose of certain sections of the Public Utility Regulatory Act. However, Reliant Energy, Inc. remains the “affiliated retail electric provider” under the Restructuring Act for CenterPoint Houston’s service territory.
        Retail electric provider cash deposits will be held by the trustee, maintained in a segregated account, and invested in short-term high quality investments, as permitted by the rating agencies rating the Bonds. If a retail electric provider defaults in making a payment of transition charges to the servicer and does not remedy the default within a 10 calendar-day grace period, the amounts on deposit or available from other credit support (up to an amount of the lesser of the payment default of the retail electric provider or the amount of the deposit or other credit support amount) will be used to make payments in respect of the Bonds. Please see “Retail Electric Providers—Rating, Deposit and Related Requirements,” “—Remedies Upon Default” and “Risk Factors—Risks Associated With Potential Bankruptcy Proceedings of Retail Electric Providers” in the accompanying prospectus.
THE TRANSITION CHARGES
        CenterPoint Houston will be the initial servicer of the Bonds. Beginning on the date we issue the Bonds, the initial transition charges listed in the table below will be imposed on retail electric customers in each transition charge customer class at the applicable rate for the class determined pursuant to the financing order. These transition charges may be adjusted annually, or more frequently under certain circumstances, by the servicer in accordance with its filings with the Texas commission. Please refer to “CenterPoint Houston’s Financing Order” in the accompanying prospectus.
Initial Transition Charges
         
Transition Charge Customer Class   Initial Transition Charge Rate
     
Residential
    $0.002899 per kWh  
MGS (miscellaneous general service) – Distribution
    $0.002648 per kWh  
MGS – Transmission
    $0.385581 per kW  
LGS (large general service) – Distribution
    $1.048704 per kVa   
LGS – Transmission
    $1.780475 per kW  
LOS-A (large overhead service – A)
    $0.881795 per kW  
LOS-B (large overhead service – B)
    $1.248428 per kW  
Non-Metered Lighting
    $0.004246 per kWh  
Standby Electric Service – Distribution
    $0.387106 per kW  
Interruptible Service Supplemental – Distribution
    $2.122377 per kW  
Interruptible Service – 30 Minute Notice
    $0.758917 per kW  
Interruptible Service – 10 Minute Notice
    $0.455760 per kW  
Interruptible Service – Instantaneous
    $0.868506 per kW  
Interruptible Service Supplemental – Transmission
    $0.869578 per kW  
Standby Electric Service – Transmission
    $0.376821 per kW  
Standby Interruptible Service
    $0.121198 per kW  
SCP (special contract pricing)
    $1.197195 per kW  
Please refer to “CenterPoint Houston’s Financing Order—Allocation” in the accompanying prospectus .

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UNDERWRITING THE BONDS
        Subject to the terms and conditions in the underwriting agreement among us, CenterPoint Houston and the underwriters, for whom Lehman Brothers Inc., Credit Suisse First Boston LLC and Greenwich Capital Markets, Inc. are acting as representatives, we have agreed to sell to the underwriters, and the underwriters have severally agreed to purchase, the principal amount of the Bonds listed opposite each underwriter’s name below:
                                           
Underwriter   Tranche A-1   Tranche A-2   Tranche A-3   Tranche A-4   Tranche A-5
                     
Lehman Brothers Inc. 
  $ 65,334,000     $ 95,333,000     $ 74,000,000     $ 147,333,000     $ 146,667,000  
Credit Suisse First Boston LLC
    65,333,000       95,334,000       74,000,000       147,333,000       146,667,000  
Greenwich Capital Markets, Inc.
    65,333,000       95,333,000       74,000,000       147,334,000       146,666,000  
Barclays Capital Inc. 
    6,000,000       10,000,000       6,000,000       14,000,000        
Deutsche Bank Securities Inc. 
    6,000,000       10,000,000       6,000,000              
Goldman, Sachs & Co. 
    6,000,000       10,000,000       6,000,000       14,000,000        
First Albany Capital Inc. 
    19,000,000       10,500,000       6,000,000       34,000,000       12,000,000  
Loop Capital Markets, LLC 
          5,500,000             5,000,000        
M.R. Beal & Company
          12,000,000                    
Siebert Brandford Shank & Co., L.L.C. 
    6,000,000       4,000,000                    
Samuel A. Ramirez & Co., Inc 
    5,000,000       10,000,000             10,000,000       10,000,000  
SunTrust Capital Markets, Inc. 
    6,000,000       10,000,000       6,000,000              
                               
 
Total
  $ 250,000,000     $ 368,000,000     $ 252,000,000     $ 519,000,000     $ 462,000,000  
                               
        Under the underwriting agreement, the underwriters will take and pay for all of the Bonds we offer, if any is taken. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
The Underwriters’ Sales Price for the Bonds
        The Bonds sold by the underwriters to the public will be initially offered at the prices to the public set forth on the cover of this prospectus supplement. The underwriters propose initially to offer the Bonds to dealers at such prices, less a selling concession not to exceed the percentage listed below for each tranche. The underwriters may allow, and dealers may reallow, a discount not to exceed the percentage listed below for each tranche.
                 
    Selling   Reallowance
    Concession   Discount
         
Tranche A-1
    0.195000%       0.097500%  
Tranche A-2
    0.210000%       0.105000%  
Tranche A-3
    0.240000%       0.120000%  
Tranche A-4
    0.252000%       0.126000%  
Tranche A-5
    0.225276%       0.112638%  
        After the initial public offering, the public offering prices, selling concessions and reallowance discounts may change.
No Assurance as to Resale Price or Resale Liquidity for the Bonds
        The Bonds are a new issue of securities with no established trading market. They will not be listed on any securities exchange. The underwriters have advised us that they intend to make a market in the Bonds, but they are not obligated to do so and may discontinue market making at any time without notice. We cannot assure you that a liquid trading market will develop for the Bonds.

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Various Types of Underwriter Transactions That May Affect the Price of the Bonds
        The underwriters may engage in overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids with respect to the Bonds in accordance with Regulation M under the Securities Exchange Act of 1934. Overallotment transactions involve syndicate sales in excess of the offering size, which create a syndicate short position. Stabilizing transactions are bids to purchase the Bonds, which are permitted, so long as the stabilizing bids do not exceed a specific maximum price. Syndicate covering transactions involve purchases of the Bonds in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the Bonds originally sold by the syndicate member are purchased in a syndicate covering transaction. These overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids may cause the prices of the Bonds to be higher than they would otherwise be. Neither we, CenterPoint Houston, the trustee, our managers nor any of the underwriters represent that the underwriters will engage in any of these transactions or that these transactions, if commenced, will not be discontinued without notice at any time.
        Certain of the underwriters and their affiliates have in the past provided, and may in the future from time to time provide, investment banking and general financing and banking services to CenterPoint Houston and its affiliates for which they have in the past received, and in the future may receive, customary fees. In addition, each underwriter may from time to time take positions in the Bonds.
        We estimate that our share of the total expenses of the offering will be $5,349,919.
        We and CenterPoint Houston have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
        The underwriters are offering the Bonds, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters, including the validity of the Bonds and other conditions contained in the underwriting agreement, such as receipt of ratings confirmations, officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject offers in whole or in part.
        Deutsche Bank Securities, Inc. is an affiliate of Deutsche Bank Trust Company Americas, the administrative agent for the Bonds.
RISK WEIGHTING OF THE BONDS UNDER CERTAIN INTERNATIONAL CAPITAL GUIDELINES
        If held by financial institutions subject to regulation in countries (other than the United States) that have adopted the 1988 International Convergence of Capital Measurement and Capital Standards of the Basel Committee on Banking Supervision (as amended, “Basel Accord”), the Bonds may attract the same risk weighting as “claims on” or “claims guaranteed by” non-central government bodies within the United States, which are accorded a 20% risk weighting. Please read “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups” and “—Statutorily Guaranteed True-Ups: Entire Private Sector Default” in the accompanying prospectus.
        We understand the United Kingdom’s Financial Services Authority has issued “individual guidance” letters to one or more investors that an investment in Texas transition bonds issued under the Restructuring Act can be accorded a 20% risk weighting, which is similar to the risk weighting assigned to U. S. Agency corporate securities (FNMA, FHLMC, etc.) and that this determination is based in part on the following factors, which are also present in our transaction:
  the issuance of transition bonds has been set up by the State of Texas under the Restructuring Act to finance the transition to a deregulated electricity market in the State of Texas;
 
  under the Restructuring Act and the financing order, CenterPoint Houston is authorized to establish us as a special purpose entity, responsible to the State of Texas and the Texas commission, to issue transition bonds;
 
  we are not owned by the Texas commission or the State of Texas;

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  transition bonds are payable through transition charges, which are a financial charge on ratepayers ( i.e. , retail electric customers who, with certain exceptions, continue to use electricity in CenterPoint Houston’s service territory even if these customers elect to purchase electricity from another supplier or choose to operate new on-site generation);
 
  the amount of transition charges in respect of each series of transition bonds will be set by the Texas commission at a level designed to ensure repayment of that series of transition bonds;
 
  should ratepayers not pay the transition charges, then there is a true-up mechanism which allows us to recalculate the transition charges such that those ratepayers who do pay will make up the difference; this increase has to be approved by the Texas commission, and the State of Texas, as long as it consumes electricity, is one of these ratepayers and therefore would be a payer of last resort;
 
  the Texas commission guaranteed that it will take action to ensure that the true-up mechanism is used;
 
  pursuant to the Restructuring Act, the State of Texas pledges not to take any action that would impair our right to impose, collect and receive transition charges, or the operation of the true-up mechanism;
 
  the indenture trustee has a first priority lien on transition property and associated transition charge payments;
 
  transition charges are directly and expressly linked to payments of principal and interest on transition bonds;
 
  ratepayers’ (including the State of Texas’ and local governments’) obligation to pay transition charges is unaffected by:
  the entity from which they purchase electricity,
 
  the quality of electricity service provided, so that ratepayers cannot refuse to pay transition charges because of poor service, or
 
  other ratepayers finding some entitlement not to pay or initiating court actions, including actions against the State of Texas, over the transition charges.
However, we cannot assure you that the Bonds would attract a 20% risk weighting under any national law, regulation or policy implementing the Basel Accord.
        Before acquiring any Bonds, prospective investors that are banks or bank holding companies, particularly those that are organized under the laws of any country other than the United States or of any state, territory or other political subdivision of the United States, and prospective investors that are U.S. branches and agencies of foreign banks, should consult all applicable laws, regulations and policies, as well as appropriate regulatory bodies and legal counsel, to confirm that an investment in the Bonds is permissible and in compliance with any applicable investment or other limits.
        Please see “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs,” “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups,” “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups: Entire Private Sector Default” and “The Issuer—Our Relationship with the State of Texas and the Texas Commission” in the accompanying prospectus for more information on certain of the points noted above.

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RATINGS FOR THE BONDS
        It is a condition of any underwriter’s obligation to purchase the Bonds that each tranche of the Bonds be rated “AAA” by S&P, “AAA” by Fitch and “Aaa” by Moody’s.
        A security rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. No person is obligated to maintain its rating on the Bonds, and accordingly, we cannot assure you that a rating assigned to any tranche of the Bonds upon initial issuance will not be revised or withdrawn by a rating agency at any time thereafter. If a rating of any tranche of the Bonds is revised or withdrawn, the liquidity of that tranche may be adversely affected. In general, ratings address credit risk and do not represent any assessment of the likelihood of any particular level of principal payments on the Bonds other than payment in full of each tranche of the Bonds by the applicable final maturity date, as well as the timely payment of interest.
WHERE YOU CAN FIND MORE INFORMATION
        We file annual and current reports and other information with the Securities and Exchange Commission. We are incorporating by reference the documents listed below (file no. 333-121505) and any future filings we make with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell all the Bonds, excluding any information that is furnished to, and not filed with, the Securities and Exchange Commission. Please also see “Where You Can Find More Information” in the accompanying prospectus.
  •  Our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 filed with the Securities and Exchange Commission on November 30, 2005
 
  •  Our Current Reports on Form 8-K dated September 15, 2005, October 30, 2005, November 14, 2005 and December 6, 2005, filed with the Securities and Exchange Commission on September 15, 2005, November 1, 2005, November 16, 2005 and December 7, 2005, respectively
LEGAL MATTERS
        Some legal matters relating to us and the issuance of the Bonds will be passed upon for CenterPoint Houston and for us by Baker Botts L.L.P., Houston, Texas and Richards, Layton & Finger, P.A., Wilmington, Delaware, and for the underwriters by Thelen Reid & Priest LLP, New York, New York. Some legal matters relating to the federal income tax consequences of the issuance of the Bonds will be passed upon for us by Baker Botts L.L.P.
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS
NOTICE TO RESIDENTS OF SINGAPORE
        THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS HAS NOT BEEN AND WILL NOT BE REGISTERED AS A PROSPECTUS WITH THE MONETARY AUTHORITY OF SINGAPORE UNDER THE SECURITIES AND FUTURES ACT (CHAPTER 289 OF SINGAPORE) (THE “SFA”). ACCORDINGLY, EACH UNDERWRITER REPRESENTS, WARRANTS AND AGREES THAT IT HAS NOT OFFERED OR SOLD ANY BONDS OR CAUSED THE BONDS TO BE MADE THE SUBJECT OF AN INVITATION FOR SUBSCRIPTION OR PURCHASE, AND WILL NOT OFFER OR SELL ANY BONDS OR CAUSE THE BONDS TO BE MADE THE SUBJECT OF AN INVITATION FOR SUBSCRIPTION OR PURCHASE, AND HAS NOT CIRCULATED OR DISTRIBUTED, NOR WILL IT CIRCULATE OR DISTRIBUTE THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR ANY OTHER DOCUMENT OR MATERIAL IN CONNECTION WITH THE OFFER OR SALE, OR INVITATION FOR SUBSCRIPTION OR PURCHASE, OF BONDS, WHETHER DIRECTLY OR INDIRECTLY, TO PERSONS IN SINGAPORE OTHER THAN (I) TO AN INSTITUTIONAL INVESTOR UNDER SECTION 274 OF THE SFA, (II) TO A RELEVANT PERSON, OR ANY PERSON PURSUANT TO SECTION 275 OF THE SFA OR

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(III) OTHERWISE PURSUANT TO, AND IN ACCORDANCE WITH THE CONDITIONS OF, ANY OTHER APPLICABLE PROVISION OF THE SFA.
        EACH UNDERWRITER FURTHER REPRESENTS, WARRANTS AND AGREES TO NOTIFY (WHETHER THROUGH THE DISTRIBUTION OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR OTHERWISE) EACH OF THE FOLLOWING RELEVANT PERSONS SPECIFIED IN SECTION 275 OF THE SFA WHICH HAS SUBSCRIBED OR PURCHASED BONDS FROM OR THROUGH THAT UNDERWRITER, NAMELY A PERSON WHICH IS:
        (1) A CORPORATION (WHICH IS NOT AN ACCREDITED INVESTOR) THE SOLE BUSINESS OF WHICH IS TO HOLD INVESTMENTS AND THE ENTIRE SHARE CAPITAL OF WHICH IS OWNED BY ONE OR MORE INDIVIDUALS, EACH OF WHOM IS AN ACCREDITED INVESTOR; OR
 
        (2) A TRUST (WHERE THE TRUSTEE IS NOT AN ACCREDITED INVESTOR) WHOSE SOLE PURPOSE IS TO HOLD INVESTMENTS AND EACH BENEFICIARY IS AN ACCREDITED INVESTOR.
        THAT BONDS OF THAT CORPORATION OR THE BENEFICIARIES’ RIGHTS AND INTEREST IN THAT TRUST SHALL NOT BE TRANSFERABLE FOR 6 MONTHS AFTER THAT CORPORATION OR THAT TRUST HAS ACQUIRED THE NOTES UNDER SECTION 275 OF THE SFA EXCEPT:
        (3) TO AN INSTITUTIONAL INVESTOR UNDER SECTION 274 OF THE SFA OR TO A RELEVANT PERSON, OR ANY PERSON PURSUANT TO SECTION 275 OF THE SFA;
 
        (4) WHERE NO CONSIDERATION IS GIVEN FOR THE TRANSFER; OR
 
        (5) BY OPERATION OF LAW.
        THE PROSPECTUS RELATING TO THE BONDS (“PROSPECTUS”) WILL, PRIOR TO ANY SALE OF SECURITIES PURSUANT TO THE PROVISIONS OF SECTION 106D OF THE COMPANIES ACT (CAP.50), BE LODGED, PURSUANT TO SAID SECTION 106D, WITH THE REGISTRAR OF COMPANIES IN SINGAPORE, WHICH WILL TAKE NO RESPONSIBILITY FOR ITS CONTENTS. HOWEVER, NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS HAS BEEN AND NOR WILL THEY BE REGISTERED AS A PROSPECTUS WITH THE REGISTRAR OF COMPANIES IN SINGAPORE. ACCORDINGLY, THE BONDS MAY NOT BE OFFERED, AND NEITHER THIS PROSPECTUS SUPPLEMENT NOR ANY OTHER OFFERING DOCUMENT OR MATERIAL RELATING TO THE BONDS MAY BE CIRCULATED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, TO THE PUBLIC OR ANY MEMBER OF THE PUBLIC IN SINGAPORE OTHER THAN TO INSTITUTIONAL INVESTORS OR OTHER PERSONS OF THE KIND SPECIFIED IN SECTION 106C AND SECTION 106D OF THE COMPANIES ACT OR ANY OTHER APPLICABLE EXEMPTION INVOKED UNDER DIVISION 5A OF PART IV OF THE COMPANIES ACT. THE FIRST SALE OF SECURITIES ACQUIRED UNDER A SECTION 106C OR SECTION 106D EXEMPTION IS SUBJECT TO THE PROVISIONS OF SECTION 106E OF THE COMPANIES ACT.
NOTICE TO RESIDENTS OF THE PEOPLE’S REPUBLIC OF CHINA
        THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES LAW OF THE PEOPLE’S REPUBLIC OF CHINA (AS THE SAME MAY BE AMENDED FROM TIME TO TIME) AND ARE NOT TO BE OFFERED OR SOLD TO PERSONS WITHIN THE PEOPLE’S REPUBLIC OF CHINA (EXCLUDING THE HONG KONG AND MACAU SPECIAL ADMINISTRATIVE REGIONS) UNLESS PERMITTED BY THE LAWS OF THE PEOPLE’S REPUBLIC OF CHINA.
NOTICE TO RESIDENTS OF JAPAN
        THE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES AND EXCHANGE LAW OF JAPAN (THE “SEL”), AND THE BONDS MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO, OR FOR THE BENEFIT OF, ANY RESIDENT OF JAPAN (INCLUDING JAPANESE CORPORATIONS) OR TO OTHERS FOR RE-OFFERING OR RESALE, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO ANY RESIDENT OF JAPAN, EXCEPT THAT THE OFFER AND SALE

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OF THE BONDS IN JAPAN MAY BE MADE ONLY THROUGH PRIVATE PLACEMENT SALE IN JAPAN IN ACCORDANCE WITH AN EXEMPTION AVAILABLE UNDER THE SEL AND WITH ALL OTHER APPLICABLE LAWS AND REGULATIONS OF JAPAN. IN THIS PARAGRAPH, “A RESIDENT/ RESIDENTS OF JAPAN” SHALL HAVE THE MEANING AS DEFINED UNDER THE FOREIGN EXCHANGE AND TRADE LAW OF JAPAN.
NOTICE TO RESIDENTS OF HONG KONG
EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT:
  IT HAS NOT OFFERED OR SOLD AND WILL NOT OFFER OR SELL IN HONG KONG, BY MEANS OF ANY DOCUMENT, ANY BONDS OTHER THAN (A) TO PERSONS WHOSE ORDINARY BUSINESS IS TO BUY OR SELL BONDS, WHETHER AS PRINCIPAL OR AGENT, OR TO “PROFESSIONAL INVESTORS” AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE (CAP. 571) OF HONG KONG AND ANY RULES MADE UNDER THAT ORDINANCE; OR (B) IN OTHER CIRCUMSTANCES WHICH DO NOT RESULT IN THE DOCUMENT BEING A “PROSPECTUS” AS DEFINED IN THE COMPANIES ORDINANCE (CAP. 32) OF HONG KONG OR WHICH DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THAT ORDINANCE; AND
 
  IT HAS NOT ISSUED OR HAD IN ITS POSSESSION FOR THE PURPOSES OF ISSUE, AND WILL NOT ISSUE OR HAVE IN ITS POSSESSION FOR THE PURPOSES OF ISSUE, WHETHER IN HONG KONG OR ELSEWHERE, ANY ADVERTISEMENT, INVITATION OR DOCUMENT RELATING TO THE BONDS, WHICH IS DIRECTED AT, OR THE CONTENTS OF WHICH ARE LIKELY TO BE ACCESSED OR READ BY, THE PUBLIC OF HONG KONG (EXCEPT IF PERMITTED TO DO SO UNDER THE SECURITIES LAWS OF HONG KONG) OTHER THAN WITH RESPECT TO BONDS WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS OUTSIDE HONG KONG OR ONLY TO “PROFESSIONAL INVESTORS” AS DEFINED IN THE SECURITIES AND FUTURES ORDINANCE (CAP. 571) OF HONG KONG AND ANY RULES MADE UNDER THAT ORDINANCE.
NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA
        IN RELATION TO EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA WHICH HAS IMPLEMENTED THE PROSPECTUS DIRECTIVE (EACH A “RELEVANT MEMBER STATE”), EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT WITH EFFECT FROM AND INCLUDING THE DATE ON WHICH THE PROSPECTUS DIRECTIVE IS IMPLEMENTED IN THAT RELEVANT MEMBER STATE (THE “RELEVANT IMPLEMENTATION DATE”) IT HAS NOT MADE AND WILL NOT MAKE AN OFFER OF THE BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE EXCEPT THAT IT MAY, WITH EFFECT FROM AND INCLUDING THE RELEVANT IMPLEMENTATION DATE, MAKE AN OFFER OF BONDS TO THE PUBLIC IN THAT RELEVANT MEMBER STATE: (A) IN THE PERIOD BEGINNING ON THE DATE OF PUBLICATION OF A PROSPECTUS IN RELATION TO THE BONDS, WHICH HAS BEEN APPROVED BY THE COMPETENT AUTHORITY IN THAT RELEVANT MEMBER STATE OR, WHERE APPROPRIATE, APPROVED IN ANOTHER RELEVANT MEMBER STATE AND NOTIFIED TO THE COMPETENT AUTHORITY IN THAT RELEVANT MEMBER STATE, ALL IN ACCORDANCE WITH THE PROSPECTUS DIRECTIVE, AND ENDING ON THE DATE WHICH IS 12 MONTHS AFTER THE DATE OF SUCH PUBLICATION; (B) AT ANY TIME TO LEGAL ENTITIES WHICH ARE AUTHORIZED OR REGULATED TO OPERATE IN THE FINANCIAL MARKETS OR, IF NOT SO AUTHORIZED OR REGULATED, WHOSE CORPORATE PURPOSE IS SOLELY TO INVEST IN SECURITIES; (C) AT ANY TIME TO ANY LEGAL ENTITY WHICH HAS TWO OR MORE OF (I) AN AVERAGE OF AT LEAST 250 EMPLOYEES DURING THE LAST FINANCIAL YEAR;(II) A TOTAL BALANCE SHEET OF MORE THAN EUR43,000,000 AND (III) AN ANNUAL NET TURNOVER OF MORE THAN EUR50,000,000, AS SHOWN IN ITS LAST ANNUAL OR CONSOLIDATED ACCOUNTS; OR (D) AT ANY TIME IN ANY OTHER CIRCUMSTANCES WHICH DO NOT REQUIRE THE PUBLICATION BY THE ISSUER OF A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS DIRECTIVE. FOR THE PURPOSES OF THIS

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PROVISION, THE EXPRESSION AN “OFFER OF THE BONDS TO THE PUBLIC” IN RELATION TO ANY BONDS IN ANY RELEVANT MEMBER STATE MEANS THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION ON THE TERMS OF THE OFFER AND THE BONDS TO BE OFFERED SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE THE BONDS, AS THE SAME MAY BE VARIED IN THAT MEMBER STATE BY ANY MEASURE IMPLEMENTING THE PROSPECTUS DIRECTIVE IN THAT MEMBER STATE AND THE EXPRESSION “PROSPECTUS DIRECTIVE” MEANS DIRECTIVE 2003/71/EC AND INCLUDES ANY RELEVANT IMPLEMENTING MEASURE IN EACH RELEVANT MEMBER STATE.
NOTICE TO RESIDENTS OF UNITED KINGDOM
        EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT (I) IT HAS ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT OF 2000 (“FSMA”)) RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR SALE OF THE BONDS IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO US OR CENTERPOINT HOUSTON AND (II) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE BONDS IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
NOTICE TO RESIDENTS OF ITALY
        THE OFFERING OF THE BONDS IN ITALY HAS NOT BEEN REGISTERED WITH THE COMMISSIONE NAZIONALE PER LA SOCIETÀ E LA BORSA (“CONSOB”) PURSUANT TO ITALIAN SECURITIES LEGISLATION AND, ACCORDINGLY, THE BONDS CANNOT BE OFFERED, SOLD OR DELIVERED IN THE REPUBLIC OF ITALY (“ITALY”) NOR MAY ANY COPY OF THIS PROSPECTUS OR ANY OTHER DOCUMENT RELATING TO THE BONDS BE DISTRIBUTED IN ITALY OTHER THAN (A) TO PROFESSIONAL INVESTORS (OPERATORI QUALIFICATI) AS DEFINED IN ARTICLE 31, SECOND PARAGRAPH, OF CONSOB REGULATION NO.11522 OF 1 JULY, 1998 AS SUBSEQUENTLY AMENDED OR (B) IN CIRCUMSTANCES WHICH ARE EXEMPTED FROM THE RULES ON SOLICITATION OF INVESTMENTS PURSUANT TO ARTICLE 100 OF THE LEGISLATIVE DECREE NO. 58 OF 24TH FEBRUARY, 1998, AS AMENDED, ITS IMPLEMENTING CONSOB REGULATIONS AND ARTICLE 33, FIRST PARAGRAPH OF CONSOB REGULATION NO 11971 OF 14TH MAY, 1999, AS AMENDED. ANY OFFER, SALE OR DELIVERY OF THE BONDS OR DISTRIBUTION OF COPIES OF THIS PROSPECTUS OR ANY OTHER DOCUMENT RELATING TO THE BONDS IN ITALY MUST BE MADE (A) BY AN INVESTMENT FIRM, BANK OR INTERMEDIARY PERMITTED TO CONDUCT SUCH ACTIVITIES IN ITALY IN ACCORDANCE WITH LEGISLATIVE DECREE NO.58 OF 24 FEBRUARY 1998 (THE “FINANCIAL SERVICES ACT”) AND LEGISLATIVE DECREE NO.385 OF 1 SEPTEMBER 1993 (THE “BANKING ACT”); (B) IN COMPLIANCE WITH ARTICLE 129 OF THE BANKING ACT AND THE IMPLEMENTING GUIDELINES OF THE BANK OF ITALY AND (C) IN COMPLIANCE WITH ANY OTHER APPLICABLE LAWS AND REGULATIONS AND OTHER POSSIBLE REQUIREMENTS OR LIMITATIONS WHICH MAY BE IMPOSED BY ITALIAN AUTHORITIES. THE BONDS CANNOT BE OFFERED, SOLD OR DELIVERED ON A RETAIL BASIS, EITHER IN THE PRIMARY OR IN THE SECONDARY MARKET, TO ANY INDIVIDUALS RESIDING IN ITALY.
NOTICE TO RESIDENTS OF IRELAND
        EACH OF THE ISSUER AND THE UNDERWRITERS HAS REPRESENTED, WARRANTED AND UNDERTAKEN THAT: (A) IT WILL NOT SELL BONDS OTHERWISE THAN IN CONFORMITY WITH THE PROVISIONS OF THE INVESTMENT INTERMEDIARIES ACT, 1995 OF IRELAND, AS AMENDED, INCLUDING, WITHOUT LIMITATION, SECTIONS 9 AND 23 (INCLUDING ADVERTISING RESTRICTIONS MADE THEREUNDER) THEREOF AND THE CODES OF CONDUCT MADE UNDER SECTION 37 THEREOF OR, IN THE CASE OF AN UNDERWRITER ACTING WITHIN THE TERMS OF AN AUTHORIZATION TO DO SO FOR THE PURPOSES OF EU COUNSEL DIRECTIVE (93/22/EC OF

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10TH MAY, 1993, AS AMENDED OR EXTENDED) IT HAS COMPLIED WITH ANY CODES OF CONDUCT MADE UNDER THE INVESTMENT INTERMEDIARIES ACT, 1995 OF IRELAND, AS AMENDED, OR, IN THE CASE OF A CREDIT INSTITUTION EXERCISING ITS RIGHTS UNDER THE BANKING CONSOLIDATION DIRECTIVE (2000/12/EC OF 20TH MARCH, 2000) IN CONFORMITY WITH THE CODES OF CONDUCT OR PRACTICE MADE UNDER SECTION 117(1) OF THE CENTRAL BANK ACT, 1989, OF IRELAND, AS AMENDED; (B) IN CONNECTION WITH OFFERS OR SALES OF BONDS, IT HAS ONLY ISSUED OR PASSED ON, AND WILL ONLY ISSUE OR PASS ON, IN IRELAND, ANY DOCUMENT RECEIVED BY IT IN CONNECTION WITH THE ISSUE OF SUCH BONDS TO PERSONS WHO ARE PERSONS TO WHOM THE DOCUMENTS MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON; AND (C) IN RESPECT OF A LOCAL OFFER (WITHIN THE MEANING OF SECTION 38(1) OF THE INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS PROVISIONS ACT 2005 OF IRELAND) OF BONDS IN IRELAND, IT HAS COMPLIED AND WILL COMPLY WITH SECTION 49 OF INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS PROVISIONS ACT 2005 OF IRELAND.
NOTICE TO RESIDENTS OF THE NETHERLANDS
        THE BONDS MAY NOT BE OFFERED, SOLD, TRANSFERRED OR DELIVERED, WHETHER DIRECTLY OR INDIRECTLY, TO ANY INDIVIDUAL OR LEGAL ENTITY IN THE NETHERLANDS OTHER THAN TO INDIVIDUALS WHO, OR LEGAL ENTITIES WHICH, IN THE COURSE OF THEIR OCCUPATION OR BUSINESS, DEAL OR INVEST IN SECURITIES (AS SET OUT IN SECTION 1 OF THE REGULATION OF 9 OCTOBER 1990 IN IMPLEMENTATION OF SECTION 14 OF THE ACT ON THE SUPERVISION OF INVESTMENT INSTITUTIONS).
NOTICE TO RESIDENTS OF SWEDEN
        THIS PROSPECTUS IS FOR THE INTENDED RECIPIENT ONLY AND MAY NOT IN ANY WAY BE FORWARDED TO ANY OTHER PERSON OR TO THE PUBLIC IN SWEDEN. ACCORDINGLY, EACH UNDERWRITER HAS REPRESENTED, WARRANTED AND AGREED THAT IT HAS NOT OFFERED OR SOLD AND WILL NOT OFFER OR SELL THE BONDS IN SWEDEN IN A MANNER THAT WOULD REQUIRE THE REGISTRATION OF A PROSPECTUS BY THE SWEDISH FINANCIAL SUPERVISORY AUTHORITY ACCORDING TO THE FINANCIAL INSTRUMENTS TRADING ACT.
NOTICE TO RESIDENTS OF PORTUGAL
        THE BONDS HAVE NOT BEEN REGISTERED WITH THE PORTUGUESE EXCHANGE COMMISSION AND THEREFORE THE BOND OFFERING IS NOT DIRECTED TO PORTUGUESE RESIDENT INVESTORS AND THE BONDS MAY NOT BE OFFERED OR SOLD TO THE PUBLIC IN PORTUGAL OR UNDER CIRCUMSTANCES WHICH ARE DEEMED TO BE A PUBLIC OFFER UNDER THE PORTUGUESE SECURITIES CODE. IN ADDITION, THE PROSPECTUS SUPPLEMENT, THE PROSPECTUS AND ANY OTHER OFFERING MATERIALS MAY NOT BE AND ARE ONLY BEING PUBLICLY DISTRIBUTED IN THE ABOVE NOTED JURISDICTIONS WHERE LAWFUL AND NO PUBLICITY OR MARKETING ACTIVITIES RELATED TO THE BOND OFFERING MAY BE AND IS NOT BEING CONDUCTED IN PORTUGAL.

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PROSPECTUS
CenterPoint Energy Transition Bond Company II, LLC
Issuer
Transition Bonds
CenterPoint Energy Houston Electric, LLC
Seller and Initial Servicer
 
        You should carefully consider the risk factors beginning on page 14 of this prospectus before you invest in the transition bonds.
       We may issue from time to time one or more series of the transition bonds as described in this prospectus. Each series of transition bonds may have one or more tranches. The transition bonds represent only our obligations and are backed only by our assets. CenterPoint Energy Houston Electric, LLC and its affiliates, other than us, are not liable for any payments on the transition bonds. The transition bonds are not a debt or obligation of the State of Texas, the Public Utility Commission of Texas or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the State of Texas or any governmental agency or instrumentality. However, the State of Texas and other governmental entities, as retail electric customers, will be obligated to pay transition charges securing the transition bonds. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other public or private entity, will be obligated to provide funds for the payment of the transition bonds.
       We are a special purpose entity and own no property other than the collateral described in this prospectus. The collateral is the sole source of payment for the transition bonds.
       There currently is no secondary market for the transition bonds, and we cannot assure you that one will develop.
       We may offer and sell the transition bonds by use of this prospectus. We will provide the specific terms of any offerings in one or more supplements to this prospectus. You should read this prospectus and the related prospectus supplement carefully before you invest in the transition bonds. This prospectus may not be used to offer and sell the transition bonds unless accompanied by a prospectus supplement.
        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is December 6, 2005.


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Appendix A — Glossary of Defined Terms
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Financial Statements of CenterPoint Energy Transition Bond Company II, LLC. 
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ABOUT THIS PROSPECTUS
        This prospectus is part of a registration statement we have filed with the SEC using a “shelf” registration process. By using this process, we may offer the transition bonds in one or more offerings. This prospectus provides you with a description of the transition bonds we may offer. Each time we offer transition bonds, we will provide a supplement to this prospectus. The prospectus supplement will describe the specific terms of the offering. The prospectus supplement may also add, update or change the information contained in this prospectus. Please carefully read this prospectus, the prospectus supplement and the information, if any, contained in the documents we refer to in this prospectus under the heading “Where You Can Find More Information.”
        References in this prospectus and the prospectus supplement to the terms “we,” “us,” “our” or “the issuer” mean CenterPoint Energy Transition Bond Company II, LLC. References to “CenterPoint Houston” or “the seller” mean CenterPoint Energy Houston Electric, LLC, and references to the “integrated utility” mean Reliant Energy, Incorporated, the legal predecessor to CenterPoint Houston, as it existed prior to its restructuring and the onset of competition in the retail electric services market in Texas on January 1, 2002, as mandated by the 1999 utility restructuring amendments to the Public Utility Regulatory Act, which we refer to as the “Restructuring Act.” Unless the context otherwise requires, the term “customer” means a retail end user of electricity and related services provided by a retail electric provider via the transmission and distribution system of an electric utility such as CenterPoint Houston. We also refer to the Public Utility Commission of Texas as the “Texas commission.” You can find a glossary of some of the other defined terms we use in this prospectus on page A-1 of this prospectus.
        You should rely only on the information contained or incorporated by reference in this prospectus and the prospectus supplement. We have not authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell the transition bonds in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is current only as of the date of this prospectus.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
        Some statements contained in this prospectus and the prospectus supplement concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts, including statements in the documents that are incorporated by reference as discussed in this prospectus under the heading “Where You Can Find More Information,” are forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from those expressed or implied by these statements. In some cases, you can 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, expectations 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.
        The following are some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements:
  state and federal legislative and regulatory actions or developments, including deregulation, re-regulation and restructuring of the electric utility industry, changes in or application of laws or regulations applicable to other aspects of our business;
 
  non-payment of transition charges due to financial distress of retail electric providers;
 
  the accuracy of the servicer’s estimates of market demand and prices for energy;
 
  the accuracy of the servicer’s estimates of industrial, commercial and residential growth in CenterPoint Houston’s service territory;
 
  changes in market demand and demographic patterns;
 
  weather variations and other natural phenomena affecting retail electric customer energy usage;
 
  the operating performance of CenterPoint Houston’s facilities and the facilities of third-party suppliers of electric energy in CenterPoint Houston’s service territory;
 
  the accuracy of the servicer’s forecast of electrical consumption or the payment of transition charges;
 
  the reliability of the systems, procedures and other infrastructure necessary to operate the retail electric business in CenterPoint Houston’s service territory, including the systems owned and operated by the independent system operator in the Electric Reliability Council of Texas, Inc.; and
 
  other factors we discuss in this prospectus, any prospectus supplement and our other Securities and Exchange Commission filings.
You 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 update or revise any forward-looking statement.

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PROSPECTUS SUMMARY
        This summary contains a brief description of the transition bonds and applies to all series of transition bonds we may offer by use of this prospectus. You may find information relating to a specific series of our transition bonds in the prospectus supplement relating to that series. You will find a more detailed description of the terms of the offering of the transition bonds following this summary.
        You should carefully consider the risk factors beginning on page 14 of this prospectus before you invest in the transition bonds.
Summary of the Transition Bonds
The issuer of the transition bonds: CenterPoint Energy Transition Bond Company II, LLC, a direct, wholly owned subsidiary of CenterPoint Houston and a limited liability company formed under Delaware law. We were formed solely to purchase and own transition property, to issue one or more series of transition bonds secured by transition property and to perform any activity incidental thereto.
 
We are responsible to the State of Texas and the Texas commission. Specifically, pursuant to the financing order of the Texas commission relating to the initial series of transition bonds,
 
•  our organizational documents and transaction documents for the initial series of transition bonds prohibit us from engaging in any activities other than acquiring transition property, issuing transition bonds and performing other activities as specifically authorized by that financing order,
 
•  we must respond to representatives of the Texas commission throughout the process of offering the initial series of transition bonds, with the financing order directing the Texas commission’s financial advisor to veto any proposal that does not comply with all criteria established in the financing order, and
 
•  the servicer will file periodic adjustments to transition charges with the Texas commission on our behalf.
 
We have also agreed that certain reports concerning transition charge collections will be provided to the Texas commission.
 
Subsequent financing orders relating to additional series of transition bonds may impose additional or different requirements. Please read “CenterPoint Houston’s Financing Order.”
 
The issuer’s address: 1111 Louisiana, Suite 4655B, Houston, Texas 77002
 
The issuer’s telephone number: (713) 207-5222
 
The seller of the transition property: CenterPoint Energy Houston Electric, LLC, a regulated utility organized under Texas law. CenterPoint Houston is engaged in the transmission and distribution of electric

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energy in a 5,000 square-mile area located along the Texas Gulf Coast that has a population of approximately 5 million people. As of September 30, 2005, CenterPoint Houston provided electric transmission and distribution service to approximately 1.9 million metered customers in this area. CenterPoint Houston is an indirect, wholly owned subsidiary of CenterPoint Energy, Inc., a public utility holding company created in August 2002 as part of the corporate restructuring of Reliant Energy, Incorporated. CenterPoint Energy is a holding company registered under the Public Utility Holding Company Act of 1935, which Act has been repealed by the Energy Policy Act of 2005.
 
CenterPoint Houston’s address: 1111 Louisiana, Houston, Texas 77002
 
CenterPoint Houston’s telephone number: (713) 207-3000
 
The servicer of the transition property: CenterPoint Houston, acting as the initial servicer, and any successor servicer, referred to in this prospectus as the “servicer,” will service the transition property under one or more servicing agreements with us. CenterPoint Houston currently services under a separate servicing agreement other transition property securing the Series 2001-1 Transition Bonds issued by CenterPoint Energy Transition Bond Company, LLC, also a wholly owned subsidiary of CenterPoint Houston, which we refer to in this prospectus as “Transition Bond Company I.” Please read “Relationship to the Series 2001-1 Transition Bonds.”
 
The trustee: The trustee for each series of transition bonds will be named in the applicable prospectus supplement.
 
Transaction overview: The Restructuring Act’s mandate to transition to a competitive electric market created stranded investment and other balances for electric utilities within the State of Texas. The Restructuring Act permits electric utilities to recover certain of these stranded investments and other balances through the issuance of transition bonds pursuant to and supported by an irrevocable financing order issued by the Texas commission. The Restructuring Act also permits the Texas commission to impose an irrevocable nonbypassable transition charge on all retail electric customers, including the State of Texas and other governmental entities, within a utility’s certificated service territory as it existed on May 1, 1999, for payment of the transition bonds. We refer to this area in this prospectus and the prospectus supplement, with regard to CenterPoint Houston and the integrated utility, as “CenterPoint Houston’s service territory.” The amount and terms for collections of these transition charges are governed by one or more financing orders issued to an electric utility by the Texas commission. The Restructuring Act permits an electric utility to transfer its rights and interests under a financing order, including the right to impose, collect and

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receive transition charges, to a special purpose entity formed by the electric utility to issue debt securities secured by the right to receive revenues arising from the transition charges. The electric utility’s right to receive the transition charges, all revenues and collections resulting from the transition charges and its other rights and interests under a financing order, upon transfer to the issuer, constitute transition property. Under the Restructuring Act, transition property does not come into existence until an electric utility first transfers to an assignee or pledges in connection with the issuance of transition bonds its rights under a related financing order. However, for convenience of reference in this prospectus and the prospectus supplement, the transfer of CenterPoint Houston’s rights under such a financing order is sometimes referred to as the sale or purchase of transition property. References in this prospectus to a “financing order” are to a financing order of the Texas commission as described above, unless the context indicates that the reference is to the financing order issued by the Texas commission on March 16, 2005 which is further described below. Any subsequent financing order relating to a separate series of transition bonds will be described in the applicable prospectus supplement.
 
On March 16, 2005, the Texas commission issued a financing order to CenterPoint Houston authorizing the issuance of transition bonds in one or more series in an aggregate amount not to exceed $1,493,747,264 plus (a) the principal portion of excess mitigation credits (which are credits on the bills of retail electric customers that were required by prior order of the Texas commission) provided by CenterPoint Houston after August 31, 2004 through the date of issuance of the transition bonds, or the date of the termination of such excess mitigation credits, whichever is earlier, (b) interest on stranded costs accrued after August 31, 2004 through the date of issuance of the transition bonds, and (c) up-front qualified costs as set forth in the financing order. The qualified costs authorized in the financing order, which we refer to in this prospectus and any applicable prospectus supplement as “qualified costs,” include CenterPoint Houston’s stranded cost balance (plus the excess mitigation credits, interest and up-front costs described above), certain costs of issuing, supporting and servicing the transition bonds and certain costs of retiring and refunding CenterPoint Houston’s existing debt and equity securities in connection with the issuance of the transition bonds. The Texas commission guarantees that it will take specific action pursuant to the irrevocable financing order as expressly authorized by the Restructuring Act to ensure that expected transition charge revenues are sufficient to timely pay scheduled principal and interest on the applicable series of transition bonds.

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The primary transactions underlying the offering of each series of transition bonds are as follows:
 
• CenterPoint Houston will sell transition property to us in exchange for the net proceeds from the sale of a series of transition bonds,
 
• we will sell the series of transition bonds, which will be secured primarily by the related transition property, to the underwriters named in the prospectus supplement, and
 
• CenterPoint Houston will act as the servicer of the transition property.
 
The transition bonds are not obligations of the trustee, our managers, CenterPoint Houston, CenterPoint Energy or of any of their affiliates other than us. The transition bonds are also not obligations of the State of Texas or any governmental agency, authority or instrumentality of the State of Texas. However, the State of Texas and other governmental entities, as retail electric customers, will be obligated to pay transition charges securing the transition bonds. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other public or private entity, will be obligated to provide funds for the payment of the transition bonds.

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Parties to Transaction and Responsibilities
        The following chart represents a general summary of the parties to the transactions underlying the offering of a series of transition bonds, their roles and their various relationships to the other parties:
LOGO
Flow of Funds
        The following chart represents a general summary of the flow of funds:
LOGO
 
* During the 12 months ended September 30, 2005, CenterPoint Houston’s total deliveries were approximately 41% industrial, 26% commercial and 33% residential, with the State of Texas and other governmental entities included in all categories and comprising approximately 5% of CenterPoint Houston’s total deliveries.

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The Collateral
        Each series of transition bonds will be secured under the indenture by the indenture’s trust estate relating to that series. The principal asset of the trust estate will be transition property, which is a present property right created under the Restructuring Act enacted by the Texas legislature in June 1999 by a financing order issued by the Texas commission. The indenture’s trust estate will also consist of:
  our rights under a sale agreement pursuant to which we will acquire the related transition property, under an administration agreement and under all bills of sale delivered by CenterPoint Houston pursuant to the sale agreement,
 
  our rights under a servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement,
 
  the collection account for the particular series of transition bonds and all subaccounts of the collection account,
 
  our rights under any interest rate swap agreement or hedging agreement entered into with respect to the issuance of a floating rate tranche of a particular series of transition bonds,
 
  our rights in the deposits of retail electric providers required under the applicable financing order,
 
  all of our other property related to the series of transition bonds, other than any cash released to us by the trustee on any payment date from earnings on the capital subaccount,
 
  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
 
  all payments on or under and all proceeds in respect of any or all of the foregoing.
        The collateral for each series of transition bonds will be separate from the collateral for any other series, and holders of one series of transition bonds will have no recourse to collateral for a different series. Please read “The Transition Bonds—The Security for the Transition Bonds.”
The Transition Property
        In general terms, all of the rights and interests of CenterPoint Houston under a financing order that are transferred to us pursuant to a sale agreement are referred to in this prospectus and the prospectus supplement as “transition property.” Transition property includes the right to impose, collect and receive transition charges in amounts sufficient to pay principal and interest and to make other deposits in connection with the related series of transition bonds. Transition charges are payable by retail electric customers within CenterPoint Houston’s service territory, including the State of Texas and other governmental entities, who, subject to certain limitations specified in the Restructuring Act, continue to consume electricity that is delivered through the distribution system or produced in new on-site generation. During the twelve months ended September 30, 2005, approximately 41% of CenterPoint Houston’s total deliveries were to industrial customers, approximately 26% were to commercial customers and approximately 33% were to residential customers, with the State of Texas and other governmental entities included in all categories and comprising approximately 5% of CenterPoint Houston’s total deliveries. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other public or private entity, will be obligated to provide funds for the payment of the transition bonds.
        The transition property is not a receivable, and the principal collateral securing a series of transition bonds will not be a pool of receivables. Transition charges authorized in a financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the Texas commission, except for annual and interim true-up adjustments to correct overcollections or undercollections and to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with a series of transition bonds. See “CenterPoint Houston’s Financing Order — True-Ups.” All

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revenues and collections resulting from transition charges are part of the transition property with respect to a particular series of transition bonds.
        We will purchase transition property from CenterPoint Houston to support the issuance of the related series of transition bonds. The servicer will collect the applicable transition charges from “retail electric providers,” which are entities certified under Texas law that provide electricity and related services to retail electric customers within CenterPoint Houston’s service territory, and will remit the collections to the trustee. The retail electric providers will in turn bill and collect the transition charges from retail electric customers in CenterPoint Houston’s service territory. Each retail electric provider will include the transition charges in its bills to its retail electric customers but is not required to show the transition charges as a separate line item or footnote. However, each retail electric provider will be required to provide annual written notice to its customers that transition charges have been included in the customers’ bills.
        Each retail electric provider will be required to pay the transition charges on or before the 35th day after it receives the bill from the servicer, less an agreed allowance for expected uncollectible amounts, whether or not the retail electric provider has collected all amounts owed to it by its retail electric customers. Prior to the date on which the retail electric provider remits the transition charges to the servicer, the transition charges may be commingled with the retail electric provider’s other funds. Please refer to “Risk Factors—Risks Associated With Potential Bankruptcy Proceedings of Retail Electric Providers,” “Retail Electric Providers” and “How a Bankruptcy May Affect Your Investment—Bankruptcy of a Retail Electric Provider” in this prospectus.
        The servicer will have only limited rights to collect the transition charges directly from retail electric customers if a retail electric provider does not remit such payments to the servicer, but will have certain rights against the retail electric provider. Please refer to “Retail Electric Providers” in this prospectus. For information on how electric service to retail electric customers may be terminated, see “Risk Factors—Servicing Risks—Limits on rights to terminate service might make it more difficult to collect the transition charges” in this prospectus. Because the amount of transition charge collections will largely depend on the amount of electricity consumed by customers within CenterPoint Houston’s service territory, the amount of collections may vary substantially from year to year. Please refer to “The Servicer of the Transition Property” in this prospectus.
Interest Payments
        Interest on each tranche or series of transition bonds will accrue from the date we issue the tranche or series of transition bonds at the interest rate stated in the related prospectus supplement. On each payment date, we will pay interest on each tranche or series of transition bonds equal to the following amounts:
  if there has been a payment default, any interest payable but unpaid on any prior payment dates, together with interest on such unpaid interest, if any, and
 
  accrued interest on the principal balance of each tranche or series of transition bonds as of the close of business on the preceding payment date, or the date of the original issuance of each tranche or series of transition bonds, as applicable, after giving effect to all payments of principal made on the preceding payment date, if any.
        We will pay interest on each tranche or series of transition bonds before we pay the principal of each tranche or series of transition bonds. Please refer to “The Transition Bonds—Payments of Interest and Principal on the Transition Bonds.” If there is a shortfall in the amounts available in the applicable collection account to make interest payments, the trustee will distribute interest pro rata to each series and tranche of transition bonds based on the amount of interest payable on each outstanding series and tranche. Unless otherwise specified in the prospectus supplement, we will calculate interest on the basis of a 360-day year of twelve 30-day months.
Principal Payments and Record Dates and Payment Sources
        On each payment date specified in the prospectus supplement for each series of transition bonds, referred to in this prospectus as a “payment date,” we will pay amounts then due or scheduled to be paid on outstanding series of the transition bonds from amounts available in the collection account for that series and the related subaccounts held by the trustee. We will make these payments to the holders of record of the transition bonds on

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each record date specified in the prospectus supplement, referred to in this prospectus as a “record date.” These available amounts, which will include the applicable transition charges collected by the servicer for us since the last payment date, are described in greater detail under “The Transition Bonds — The Collection Account for the Transition Bonds.”
Priority of Distributions
        Unless otherwise specified in a prospectus supplement, on each payment date for a series of transition bonds, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account for that series in the following order of priority:
  1. payment of the trustee’s fees, expenses and any outstanding indemnity amounts relating to that series, the total amount of which will be fixed as specified in the indenture,
 
  2. payment of the servicing fee, which will be a fixed amount specified in the servicing agreement for that series, plus any unpaid servicing fees from prior payment dates,
 
  3. payment of a pro rata portion of the administration fee, which will be a fixed amount specified in the administration agreement between us and CenterPoint Houston, and a pro rata portion of the fees of our independent managers, which will be in an amount specified in an agreement between us and our independent managers,
 
  4. payment of all of our other ordinary periodic operating expenses relating to that series, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the applicable servicing agreement,
 
  5. payment of the interest then due on that series of transition bonds, and payment of amounts, if any, specified in the prospectus supplement that are payable in respect of interest to the swap counterparty under any interest rate swap agreement,
 
  6. payment of the principal then required to be paid on that series of transition bonds at final maturity or upon redemption or acceleration,
 
  7. payment of the principal then scheduled to be paid on that series of transition bonds,
 
  8. payment of any amounts payable to any other credit enhancement providers with respect to that series,
 
  9. payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents relating to that series, including all remaining indemnity amounts owed to the trustee, and any other amounts owed pursuant to any interest rate swap agreement, other than swap termination payments,
 
  10. replenishment of any amounts drawn from the capital subaccount for that series,
 
  11. any swap termination payments, which will be payable only after all of the transition bonds have been paid in full unless the swap termination payments are payable as a result of (i) failure to pay as a result of insufficient collection of transition charges (up to a cap specified in the prospectus supplement), (ii) breach of the swap agreement by us or the indenture trustee (up to a cap specified in the prospectus supplement), (iii) our bankruptcy, (iv) our merger without assumption or (v) failure or termination of the security interest of the trustee under the indenture,
 
  12. release to us of an amount equal to investment earnings on amounts in the capital subaccount for that series, so long as no event of default has occurred and is continuing, and
 
  13. allocation of the remainder, if any, to the excess funds subaccount.
        The amounts paid during any calendar year in respect of the trustee’s fees and expenses in clause 1, the servicing fee in clause 2, the administration and independent managers’ fees in clause 3, the ordinary periodic

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operating expenses in clause 4 and the remaining periodic expenses in clause 9 may not exceed $1,055,500 in the aggregate for all series (for so long as CenterPoint Houston is the servicer), unless the Texas commission approves a different aggregate amount of such payments. If more than one series of transition bonds is outstanding, the payments described in the preceding sentence will be made pro rata from the respective collection accounts of each series. Please read “Risk Factors—Other Risks Associated with an Investment in the Transition Bonds—We may incur expenses in excess of caps on such expenses provided in the financing order.”
        The trustee’s fees, expenses and indemnity amounts referred to in clause 1 above and the amount of the servicer’s fee referred to in clause 2 above will be described in the prospectus supplement for the related series of the transition bonds. The priority of distributions for the collected transition charges, as well as available amounts in the subaccounts, are described in more detail under “The Transition Bonds—How Funds in the Collection Account Will Be Allocated,” as well as in the prospectus supplement for each series of the transition bonds.
Floating Rate Transition Bonds
        If, in connection with the issuance of any tranche of transition bonds paying interest at a floating rate, referred to as a floating rate tranche, we arrange for any interest rate swap transactions, the material terms of those transactions will be described in the related prospectus supplement.
Credit Enhancement
        Unless otherwise specified in the prospectus supplement, credit enhancement for the transition bonds will be as follows:
  The Texas commission will approve adjustments to the transition charges, but only upon petition of the servicer, to make up for any shortfall or reduce any excess in collected transition charges. We sometimes refer to these adjustments as the statutorily guaranteed “true-up adjustments” or the “true-up mechanism.” These adjustments will be made semi-annually if necessary to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the transition bonds. Please refer to “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups.”
 
  Collection Account—Under the indenture, the trustee will hold a collection account for each series of transition bonds, divided into various subaccounts. The primary subaccounts for credit enhancement purposes are:
  the capital subaccount—CenterPoint Houston will deposit an amount specified in the prospectus supplement into the capital subaccount on the date of issuance of each series of the transition bonds and
 
  the excess funds subaccount—any excess amount of collected transition charges and investment earnings not released to us will be held in the excess funds subaccount.
        Each of these subaccounts for each series of transition bonds will be available to make payments on the transition bonds of such series on each payment date. Interest rate swaps and other hedging arrangements may be used to fix synthetically the interest on floating rate transition bonds. Tranche subaccounts for related floating rate transition bonds may also be established in the event interest rate swaps or other hedging arrangements are utilized.
        Retail electric providers in CenterPoint Houston’s service territory that do not maintain a long-term, unsecured credit rating of not less than “BBB-” and “Baa3” (or the equivalent) from S&P and Moody’s, respectively, are required to provide a cash deposit of two months’ maximum expected transition charge collections, an affiliate guarantee, surety bond or letter of credit from an entity with such a credit rating providing for payment of such amount of transition charge collections in the event that the retail electric provider defaults in its payment obligations or a combination of any of the foregoing. If a retail electric provider defaults in making a payment of transition charges to the servicer and does not remedy the default within a 10 calendar-day grace period, amounts on deposit or available from other credit support (up to an amount of the lesser of the payment default of the retail electric provider or the amount of the deposit or other credit support amount) will be used to make payments in

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respect of transition bonds of the related series. Please see “Retail Electric Providers—Rating, Deposit and Related Requirements” and “—Remedies Upon Default.”
        Additional credit enhancement for any series may include other surety bonds or letters of credit or other forms of credit enhancement. Any additional forms of credit enhancement for each series will be specified in the related prospectus supplement. Credit enhancement for the transition bonds is intended to protect you against losses or delays in scheduled payments on your transition bonds.
State Pledge
        The State of Texas has pledged in the Restructuring Act that it will not take or permit any action that would impair the value of the transition property, or, except as permitted in connection with a true-up adjustment authorized by the Restructuring Act, reduce, alter or impair the transition charges until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the transition bonds, have been paid and performed in full. The transition bonds are not a debt or an obligation of the State of Texas, the Texas commission or any other governmental agency or instrumentality and are not a charge on the full faith and credit or the taxing power of the State of Texas or any governmental agency or instrumentality.
Optional Redemption
        The prospectus supplement may provide for redemption of a series of the transition bonds at our option at a redemption price not less than the outstanding principal of and accrued interest on that series of the transition bonds.
Payment and Record Dates
        The payment and record dates for each series of transition bonds will be specified in the related prospectus supplement.
Scheduled Final Payment Dates and Final Maturity Dates
        Failure to pay a scheduled principal payment on any payment date or the entire outstanding amount of the transition bonds of any tranche or series by the scheduled final payment date will not result in a default with respect to that tranche or series. The failure to pay the entire outstanding principal balance of the transition bonds of any tranche or series will result in a default only if such payment has not been made by the final maturity date for the tranche or series, or on any date set for redemption of the series. We will specify the scheduled final payment date and the final maturity date of each series and tranche of transition bonds in the related prospectus supplement.
Ratings for the Transition Bonds
        It will be a condition of issuance for each series of transition bonds that the series be rated “Aaa” by Moody’s Investors Service, Inc., “AAA” by Standard and Poor’s, a division of The McGraw-Hill Companies, Inc. and “AAA” by Fitch, Inc. See “Ratings for the Transition Bonds” in this prospectus.
Reports to Transition Bondholders
        Pursuant to the indenture, the trustee will provide to the holders of record of the transition bonds regular reports prepared by the servicer containing information concerning, among other things, us and the collateral for the related series of transition bonds. Unless and until the transition bonds of a series are issued in definitive certificated form, the reports for such series will be provided to The Depository Trust Company. The reports will be available to beneficial owners of the transition bonds upon written request to the trustee or the servicer. These reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Please refer to “The Transition Bonds— The Trustee Must Provide an Annual Report to All Transition Bondholders.”

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Servicing Compensation
        We will pay the servicer on each payment date the servicing fee with respect to all series of the transition bonds. As long as CenterPoint Houston or any affiliated entity acts as servicer, this fee will be 0.05% of the initial principal balance of the transition bonds on an annualized basis. If a successor servicer is appointed, the servicing fee will be negotiated by the successor servicer and the trustee, but will not, unless the Texas commission consents, exceed 0.60% of the initial principal balance of the transition bonds on an annualized basis. In no event will the trustee be liable for any servicing fee in its individual capacity.
Federal Income Tax Status
        In the opinion of Baker Botts L.L.P., counsel to us and CenterPoint Houston, for United States federal income tax purposes, we will not be considered an entity separate from CenterPoint Energy and the transition bonds will constitute debt of CenterPoint Energy. This opinion is based upon recently released guidance from the Internal Revenue Service and certain representations that we have made to tax counsel. If you purchase a transition bond, you agree to treat it as debt of CenterPoint Energy for United States federal income tax purposes. Please refer to “Material Federal Income Tax Consequences for the Transition Bondholders.”
ERISA Considerations
        Pension plans and other investors subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), may acquire the transition bonds subject to specified conditions. The acquisition and holding of the transition bonds could be treated as an indirect prohibited transaction under ERISA. Accordingly, by purchasing the transition bonds, each investor purchasing on behalf of a pension plan, or other investor subject to ERISA, will be deemed to certify that the purchase and subsequent holding of the transition bonds would be exempt from the prohibited transaction rules of ERISA. For further information regarding the application of ERISA, please refer to “ERISA Considerations.”

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RISK FACTORS
        Please carefully consider all the information we have included or incorporated by reference in this prospectus and the prospectus supplement, including the risks described below and in “Cautionary Statement Regarding Forward-Looking Information,” before deciding whether to invest in the transition bonds. We will describe material risks of investing in any tranches of floating rate transition bonds in the applicable prospectus supplement.
You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited.
        The only source of funds for payment of a series of transition bonds will be our assets relating to such series, which consist of the transition property securing that series of transition bonds, including:
  the right to impose, collect and receive related transition charges;
 
  the funds on deposit in the accounts held by the trustee;
 
  our rights under various contracts we describe in this prospectus; and
 
  any credit enhancement as set forth in the related prospectus supplement.
        The transition bonds are not a charge on the full faith and credit or taxing power of the State of Texas or any governmental agency or instrumentality, nor will the transition bonds be insured or guaranteed by CenterPoint Houston, including in its capacity as the servicer, or by its ultimate parent, CenterPoint Energy, any of its affiliates (other than us), the trustee or by any other person or entity. Thus, you must rely for payment of a series of transition bonds solely upon collections of the transition charges relating to such series, funds on deposit in the related accounts held by the trustee relating to such series and any other credit enhancement relating to such series described in the prospectus supplement. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please refer to “The Issuer” in this prospectus.
RISKS ASSOCIATED WITH POTENTIAL JUDICIAL, LEGISLATIVE OR REGULATORY ACTIONS
        Neither we nor CenterPoint Houston will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Restructuring Act, that may affect the value of your transition bonds. CenterPoint Houston will agree in each sale agreement to institute any action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Restructuring Act that would be materially adverse to us, the trustee or transition bondholders. Please refer to “The Sale Agreements—CenterPoint Houston’s Covenants” in this prospectus. However, we cannot assure you that CenterPoint Houston would be able to take this action or that any such action would be successful.
Future judicial action could reduce the value of your investment in the transition bonds.
        The transition property is the creation of the Restructuring Act and one or more financing orders that have been or may be issued by the Texas commission to CenterPoint Houston. There is uncertainty associated with investing in bonds payable from an asset that depends for its existence on legislation because there is limited judicial or regulatory experience implementing and interpreting the legislation. Because the transition property is a creation of the Restructuring Act, any judicial determination affecting the validity of or interpreting the Restructuring Act, the transition property or our ability to make payments on the transition bonds might have an adverse effect on the transition bonds. Several parties appealed the financing order described in this prospectus, but the financing order was affirmed on appeal to the district court of Travis County, Texas and the deadline established under the Restructuring Act for further appeal has expired. If the Restructuring Act is invalidated, however, the financing order might also be invalidated.
        Other states have passed electric utility deregulation laws similar to the Restructuring Act, and some of these laws have been challenged by judicial actions. To date, none of these challenges has succeeded, but future judicial challenges might be made. An unfavorable decision regarding another state’s law would not automatically

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invalidate the Restructuring Act or the financing order, but it might provoke a challenge to the Restructuring Act, establish a legal precedent for a successful challenge to the Restructuring Act or heighten awareness of the political and other risks of the transition bonds, and in that way may limit the liquidity and value of the transition bonds. Therefore, legal activity in other states may indirectly affect the value of your investment in the transition bonds.
The federal government might preempt the Restructuring Act without full compensation.
        In the past, bills have been introduced in Congress that would prohibit the recovery of all or some types of stranded costs, but none of those bills was enacted. Congress could, however, pass a law or adopt a rule or regulation negating the existence of or reducing the value of the transition property.
        If federal legislation preempting the Restructuring Act or the financing order is enacted, there is no assurance that the courts would consider it a “taking” under the United States Constitution for which the government would be required to pay just compensation or, if it is considered a “taking,” that any amount provided as compensation would be sufficient to pay the full amount of principal of and interest on the transition bonds or to pay these amounts on a timely basis.
Future state legislative action could reduce the value of your investment in the transition bonds.
        Despite its pledge in the Restructuring Act not to take or permit certain actions that would impair the value of the transition property or the transition charges, the Texas legislature might attempt to repeal or amend the Restructuring Act in a manner that limits or alters the transition property so as to reduce its value. For a description of the State’s pledge, please refer to “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs” in this prospectus. It might be possible for the Texas legislature to repeal or amend the Restructuring Act notwithstanding the State’s pledge if the legislature acts in order to serve a significant and legitimate public purpose. Any such action, as well as the costly and time-consuming litigation that likely would ensue, might adversely affect the price and liquidity, the dates of payment of interest and principal and the weighted average lives of the transition bonds. Moreover, the outcome of any litigation cannot be predicted. Accordingly, you might incur a loss on or delay in recovery of your investment in the transition bonds.
        If an action of the Texas legislature adversely affecting the transition property or the ability to collect transition charges were considered a “taking” under the United States or Texas Constitutions, the State of Texas might be obligated to pay compensation for the taking. However, even in that event, there is no assurance that any amount provided as compensation would be sufficient for you to recover fully your investment in the transition bonds or to offset interest lost pending such recovery.
        Unlike the citizens of California, Massachusetts, Michigan and some other states, the citizens of the State of Texas currently do not have the constitutional right to adopt or revise state laws by initiative or referendum. Thus, absent an amendment of the Texas Constitution, the Restructuring Act cannot be amended or repealed by direct action of the electorate.
The Texas commission might take actions that could reduce the value of your investment in the transition bonds.
        The Restructuring Act provides that a financing order is irrevocable and that the Texas commission may not directly or indirectly, by any subsequent action, rescind or amend a financing order or reduce or impair the transition charges authorized under a financing order, except for the true-up adjustments to the transition charges. However, the Texas commission retains the power to adopt, revise or rescind rules or regulations affecting CenterPoint Houston. The Texas commission also retains the power to interpret the financing order granted to CenterPoint Houston, and in that capacity might be called upon to rule on the meanings of provisions of the order that might need further elaboration. Any new or amended regulations or orders from the Texas commission might affect the ability of the servicer to collect the transition charges in full and on a timely basis, the rating of the transition bonds or their price and, accordingly, the amortization of the transition bonds and their weighted average lives.

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        The servicer is required to file with the Texas commission, on our behalf, certain adjustments of the transition charges. Please refer to “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups” and “—Adjustments to Allocation of Transition Charges” in this prospectus. True-up adjustment procedures have been challenged in the past and may be challenged in the future. Challenges to or delays in the true-up process might adversely affect the market perception and valuation of the transition bonds. Also, any litigation might materially delay transition charge collections due to delayed implementation of true-up adjustments and might result in missing payments or payment delays and lengthened weighted average life of the transition bonds.
SERVICING RISKS
Inaccurate consumption forecasting or unanticipated delinquencies or charge-offs might reduce scheduled payments on the transition bonds.
        The transition charges are generally assessed based on forecasted customer usage. The amount and the rate of transition charge collections will depend in part on actual electricity usage and the amount of collections and write-offs for each customer class. If the servicer of these transition bonds inaccurately forecasts electricity consumption or uses inaccurate customer delinquency or charge-off data when setting or adjusting the transition charges, there could be a shortfall or material delay in transition charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the transition bonds. Please refer to “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups” and “—Adjustments to Allocation of Transition Charges” in this prospectus.
        The servicer of Transition Bond Company I’s transition charges (which will also be the servicer for the transition bonds unless otherwise specified) has experienced difficulties from time to time in making accurate forecasts of electricity consumption because of unexpected weather conditions. Inaccurate forecasting of electricity consumption by the servicer might result from, among other things, unanticipated weather or economic conditions, resulting in less electricity consumption than forecast; general economic conditions being worse than expected, causing retail electric customers to migrate from CenterPoint Houston’s service territory or reduce their electricity consumption; the occurrence of a natural disaster or an act of terrorism or other catastrophic event; changes in the market structure of the electric industry; customers consuming less electricity because of increased energy prices, increased conservation efforts; or customers switching to alternative sources of energy, including self-generation of electric power.
        The servicer’s use of inaccurate delinquency or charge-off rates might result also from, among other things, unexpected deterioration of the economy or the declaration of a moratorium on terminating electric service to customers in the event of extreme weather, either of which would cause greater delinquencies or charge-offs than expected or force CenterPoint Houston or retail electric providers to grant additional payment relief to more customers, or any other change in law that makes it more difficult for CenterPoint Houston or retail electric providers to terminate service to nonpaying customers or that requires CenterPoint Houston or retail electric providers to apply more lenient credit standards in accepting retail electric customers.
Your investment in the transition bonds depends on CenterPoint Houston or its successor or assignee, acting as servicer of the transition property.
        CenterPoint Houston, as servicer, will be responsible for, among other things, calculating, billing and collecting the transition charges from retail electric providers, submitting requests to the Texas commission to adjust these charges, monitoring the collateral for a series of transition bonds and taking certain actions in the event of non-payment by a retail electric provider. The trustee’s receipt of collections in respect of the transition charges, which will be used to make payments on the related series of transition bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems the State of Texas and servicer have in place for transition charge billings and collections might, in particular circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. CenterPoint Houston, as servicer of the transition charges of Transition Bond Company I, experienced some difficulties in implementing and maintaining the systems and procedures required to perform the duties required of it by the servicing agreement relating to Transition Bond Company I. If the servicer fails to make collections for any reason, then the servicer’s

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payments to the trustee in respect of the transition charges might be delayed or reduced. In that event, our payments on the transition bonds might be delayed or reduced.
If we replace CenterPoint Houston as the servicer, we may experience difficulties finding and using a replacement servicer.
        If CenterPoint Houston ceases to service the transition property related to a series of transition bonds, it might be difficult to find a successor servicer. Also, any successor servicer might have less experience and ability than CenterPoint Houston and might experience difficulties in collecting transition charges and determining appropriate adjustments to the transition charges and billing and/or payment arrangements may change, resulting in collection disruption. A successor servicer might charge fees that, while permitted under the financing order, are substantially higher than the fees paid to CenterPoint Houston as servicer. In the event of the commencement of a case by or against the servicer under the United States Bankruptcy Code or similar laws, we and the trustee might be prevented from effecting a transfer of servicing due to operation of the bankruptcy code. Any of these factors and others might delay the timing of payments and may reduce the value of your investment. Please refer to “The Servicing Agreements” in this prospectus.
It might be difficult to collect transition charges from retail electric providers.
        As required by the Restructuring Act, retail electric customers will pay the transition charges to retail electric providers who supply them with electric power. The retail electric providers will be obligated to remit payments of the transition charges, less a specified percentage allowance for charge-offs of delinquent customer accounts, within 35 days of billing from the servicer, even if they do not collect the transition charges from retail electric customers. Please refer to “Retail Electric Providers” in this prospectus. Because the retail electric providers will bill most retail electric customers for the transition charges, we will have to rely on a relatively small number of entities for the collection of the bulk of the transition charges. As of September 30, 2005, CenterPoint Houston did business with approximately 65 retail electric providers. Reliant Energy, through its subsidiaries, is CenterPoint Houston’s largest customer, accounting for approximately 60% of CenterPoint Houston’s outstanding receivables from retail electric providers as of September 30, 2005.
        Failure by the retail electric providers to remit transition charges to the servicer might cause delays in payments on the transition bonds and adversely affect your investment in the transition bonds. The servicer will not pay any shortfalls resulting from the failure of any retail electric provider to forward transition charge collections.
        Adjustments to the transition charges and any credit support provided by a retail electric provider, while available to compensate for a failure by a retail electric provider to pay the transition charges to the servicer, might not be sufficient to protect the value of your investment in the transition bonds. Please refer to “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-ups” in this prospectus.
        The Restructuring Act provides for one or more retail electric providers in each area to be designated the “provider of last resort” for that area or a specified customer classes. The provider of last resort is required to offer basic electric service to retail electric customers in its designated area, regardless of the creditworthiness of the customer. The provider of last resort might face greater difficulty in bill collection than other retail electric providers and therefore the servicer may face greater difficulty in collecting transition charges from the provider of last resort.
        Retail electric providers may issue a single bill to retail customers that includes all charges related to the purchase of electricity, without separately itemizing the transition charge component of the bill. A retail electric provider’s use of a consolidated bill might increase the risk that customers who have claims against the retail electric provider will attempt to offset those claims against transition charges or increase the risk that, in the event of a bankruptcy of a retail electric provider, a bankruptcy court would find that the retail electric provider has an interest in the transition property and would make it more difficult to terminate the services of a bankrupt retail electric provider or collect transition charges from its customers.

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Competitive metering services might result in unexpected problems in receiving accurate metering data.
        Under the Restructuring Act, commercial and industrial retail customers that are required by ERCOT to have an interval data recorder meter may choose to own the settlement and billing meters that are used to measure electric energy delivered to their location or to have those meters owned by a retail electric provider, the transmission and distribution utility or another person authorized by the customer. As of September 30, 2005, CenterPoint Houston continued to provide metering services related to the installation and removal of meters, meter testing and calibration, data collection and data management. Please refer to “The Restructuring Act—The Restructuring Act’s General Effect on the Electric Utility Industry in Texas—‘Price to Beat’ and Services” in this prospectus. Should the Texas commission allow third parties to perform those metering services in CenterPoint Houston’s service territory, there might be problems converting to the third party’s metering system, taking accurate meter readings and collecting and processing accurate metering data. Inaccurate metering data might lead to inaccuracies in the calculation and imposition of transition charges and might give rise to disputes between the servicer and retail electric providers regarding payments and payment shortfalls resulting in missing or delayed payments of principal and interest and lengthened weighted average life of the transition bonds.
Changes to billing and collection practices might reduce the value of your investment in the transition bonds.
        The financing order specifies the methodology for determining the amount of the transition charges we may impose. The servicer may not change this methodology without approval from the Texas commission. However, the servicer may set its own billing and collection arrangements with retail electric providers and retail electric customers, if any, from whom it collects transition charges directly, provided that these arrangements comply with the Texas commission’s customer safeguards. For example, to recover part of an outstanding bill, the servicer may agree to extend a retail electric provider’s payment schedule or to write off the remaining portion of the bill, including the transition charges. Also, the servicer may change billing and collection practices, which might adversely impact the timing and amount of retail electric customer payments and might reduce transition charge collections, thereby limiting our ability to make scheduled payments on the transition bonds. Separately, the Texas commission might require changes to these practices. Any changes in billing and collection practices regulations might make it more difficult for the servicer to collect the transition charges and adversely affect the value of your investment in the transition bonds. Please refer to “The Servicer of the Transition Property—How CenterPoint Houston Forecasts the Number of Retail Electric Customers and the Amount of Electricity Usage” in this prospectus.
Limits on rights to terminate service might make it more difficult to collect the transition charges.
        The financing order expressly provides that we may authorize the servicer to disconnect service for nonpayment of transition charges to the same extent as an electric utility. Moreover, if the servicer is billing customers for transition charges, the servicer may terminate transmission and distribution service to the customer for non-payment of transition charges pursuant to the applicable rules of the Texas commission. Nonetheless, Texas statutory requirements and the rules and regulations of the Texas commission, which may change from time to time, regulate and control the right to disconnect service. For example, retail electric providers generally may not terminate service to a customer (1) on a holiday or weekend day or the day immediately preceding a holiday or weekend, (2) during certain extreme weather conditions, (3) if such disconnection would cause a person to become seriously ill or more seriously ill, (4) if such customer is an energy assistance client under certain circumstances or (5) if the customer is a master-metered apartment complex unless certain notices are given. To the extent these retail electric customers do not pay for their electric service, retail electric providers will not be able to collect transition charges from these retail electric customers. Although retail electric providers will have to pay the servicer the transition charges on behalf of those customers (subject to any charge-off allowance and reconciliation rights if non-paying customers make up a sufficiently large part of the retail electric providers customers), required service to non-paying customers could affect the ability of retail electric providers to make such payment.
Future adjustments to transition charges by customer class might result in insufficient collections.
        The customers who pay transition charges are divided into customer classes. Transition charges for each series of transition bonds will be allocated among customer classes and assessed in accordance with the formula

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required under the Restructuring Act and specified in the financing order relating to such series. A shortfall in collections of transition charges in one customer class may be corrected by making adjustments to the transition charges payable by that customer class and any other customer class. If customers in a class fail to pay transition charges or cease to be customers, the servicer might have to substantially increase the transition charges for the remaining customers in that customer class and for other customer classes. This effect might be more extreme in the case of the large industrial and the interruptible customer classes, which consist of a small number of large customers. These increases could lead to further failures by the remaining customers to pay transition charges, thereby increasing the risk of a shortfall in funds to pay the transition bonds.
RISKS ASSOCIATED WITH THE UNUSUAL NATURE OF THE TRANSITION PROPERTY
We will not receive transition charges for any series of transition bonds in respect of electric service provided more than 15 years from the date of issuance of that series of transition bonds.
        CenterPoint Houston will not be entitled to charge transition charges for any series of transition bonds for electricity delivered after the fifteenth anniversary of the issuance of that series of transition bonds. If transition charges collected for electricity delivered through the fifteenth anniversary of a series of transition bonds, or from any credit enhancement funds, are not sufficient to repay that series of the transition bonds in full, no other funds will be available to pay the unpaid balance due on that series of the transition bonds.
Foreclosure of the trustee’s lien on the transition property for a series of transition bonds might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect.
        Under the Restructuring Act and the indenture, the trustee or the transition bondholders have the right to foreclose or otherwise enforce the lien on the transition property securing a series of transition bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the transition property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover, although principal of such series of transition bonds will be due and payable upon acceleration of such series of transition bonds before maturity, transition charges relating to such series likely would not be accelerated and the nature of our business will result in principal of such series of transition bonds being paid as funds become available. If there is an acceleration of a series of transition bonds, all tranches of such series of transition bonds will be paid pro rata; therefore, some tranches might be paid earlier than expected and some tranches might be paid later than expected.
RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY PROCEEDINGS OF
THE SELLER OR THE SERVICER
        For a detailed discussion of the following bankruptcy risks, please refer to “How a Bankruptcy Might Affect Your Investment” in this prospectus.
The servicer will commingle the transition charges with other revenues it collects, which might obstruct access to the transition charges in case of the servicer’s bankruptcy and reduce the value of your investment in the transition bonds.
        The servicer will be required to remit collections to the trustee within two business days of receipt. The servicer will not segregate the transition charges from the other funds it collects from retail electric customers or retail electric providers or its general funds. The transition charges will be segregated only when the servicer pays them to the trustee.
        Despite this requirement, the servicer might fail to pay the full amount of the transition charges to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of transition charge collections available to make payments on the transition bonds.
        The Restructuring Act provides that our rights to the transition property are not affected by the commingling of these funds with any other funds of the servicer. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law does not recognize our right to collections of the transition charges that are

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commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the transition charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the transition bonds. In this case, we would have only a general unsecured claim against the servicer for those amounts. This decision could cause material delays in payments of principal or interest, or losses, on your transition bonds and could materially reduce the value of your investment in the transition bonds, particularly if it occurred in the fifteenth year of the transition bonds after the completion of which no transition charges can be charged. Please refer to “How a Bankruptcy May Affect Your Investment” in this prospectus.
The bankruptcy of CenterPoint Houston or any successor seller might result in losses or delays in payments on the transition bonds.
        The Restructuring Act and the financing order provide that as a matter of Texas state law:
  the rights and interests of a selling utility under a financing order, including the right to impose, collect and receive transition charges, are contract rights of the seller,
 
  the seller may make a present transfer of its rights under a financing order, including the right to impose, collect and receive future transition charges that retail customers do not yet owe,
 
  upon the transfer to us, the rights will become transition property, and transition property constitutes a present property right, even though the imposition and collection of transition charges depend on further acts that have not yet occurred, and
 
  a transfer of the transition property from the seller, or its affiliate, to us that expressly states the transfer is a sale or other absolute transfer is a true sale of the transition property, not a pledge of the transition property to secure a financing by the seller.
Please refer to “The Restructuring Act” in this prospectus. These provisions are important to maintaining payments on a series of transition bonds in accordance with their terms during any bankruptcy of CenterPoint Houston. In addition, the transaction has been structured with the objective of keeping us legally separate from CenterPoint Houston and its affiliates in the event of a bankruptcy of CenterPoint Houston or any such affiliates.
        A bankruptcy court generally follows state property law on issues such as those addressed by the state law provisions described above. However, a bankruptcy court does not follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a CenterPoint Houston bankruptcy refused to enforce one or more of the state property law provisions described above, the effect of this decision on you as a beneficial owner of the transition bonds might be similar to the treatment you would receive in a CenterPoint Houston bankruptcy if the transition bonds had been issued directly by CenterPoint Houston. A decision by the bankruptcy court that, despite our separateness from CenterPoint Houston, our assets and liabilities and those of CenterPoint Houston should be consolidated would have a similar effect on you as a bondholder.
        We have taken steps together with CenterPoint Houston, as the seller, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with those of CenterPoint Houston or an affiliate. Nonetheless, these steps might not be completely effective, and thus if CenterPoint Houston or an affiliate of the seller were to become a debtor in a bankruptcy case, a court might order that our assets and liabilities be consolidated with those of CenterPoint Houston or an affiliate of the seller. This might cause material delays in payment of, or losses on, your transition bonds and might materially reduce the value of your investment in the transition bonds. For example:
  without permission from the bankruptcy court, the trustee might be prevented from taking actions against CenterPoint Houston or recovering or using funds on your behalf or replacing CenterPoint Houston as the servicer,
 
  the bankruptcy court might order the trustee to exchange the transition property for other property, of lower value,

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  tax or other government liens on CenterPoint Houston’s property might have priority over the trustee’s lien and might be paid from collected transition charges before payments on the related series of transition bonds,
 
  the trustee’s lien might not be properly perfected in the collected transition property collections prior to or as of the date of CenterPoint Houston’s bankruptcy, with the result that the transition bonds would represent only general unsecured claims against CenterPoint Houston,
 
  the bankruptcy court might rule that neither our property interest nor the trustee’s lien extends to transition charges in respect of electricity consumed after the commencement of CenterPoint Houston’s bankruptcy case, with the result that the related series of transition bonds would represent only general unsecured claims against CenterPoint Houston,
 
  we and CenterPoint Houston might be relieved of any obligation to make any payments on the transition bonds during the pendency of the bankruptcy case and might be relieved of any obligation to pay interest accruing after the commencement of the bankruptcy case,
 
  CenterPoint Houston might be able to alter the terms of each series of transition bonds as part of its plan of reorganization,
 
  the bankruptcy court might rule that the transition charges should be used to pay, or that we should be charged for, a portion of the cost of providing electric service, or
 
  the bankruptcy court might rule that the remedy provisions of the applicable sale agreement are unenforceable, leaving us with an unsecured claim for actual damages against CenterPoint Houston that may be difficult to prove or, if proven, to collect in full.
        Furthermore, if CenterPoint Houston enters bankruptcy proceedings, it might be permitted to stop acting as servicer and it may be difficult to find a third party to act as servicer. The failure of the servicer to perform its duties or the inability to find a successor servicer might cause payment delays or losses on your investment in the transition bonds. Also, the mere fact of a servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the transition bonds and on the value of the transition bonds.
The sale of the transition property might be construed as a financing and not a sale in a case of CenterPoint Houston’s bankruptcy which might delay or limit payments on the transition bonds.
        The Restructuring Act provides that the characterization of a transfer of transition property as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and CenterPoint Houston will treat the transaction as a sale under applicable law, although for financial reporting and state income and franchise tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of CenterPoint Houston, a party in interest in the bankruptcy might assert that the sale of the transition property to us was a financing transaction and not a “sale or other absolute transfer” and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the transaction as a financing, we expect that we would, on behalf of ourselves and the trustee, be treated as a secured creditor of CenterPoint Houston in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against CenterPoint Houston. See “—The servicer will commingle the transition charges with other revenues it collects, which might obstruct access to the transition charges in case of the servicer’s bankruptcy and reduce the value of your investment in the transition bonds” above. Even if we had a security interest in the transition property, we would not likely have access to the related transition charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of a series of transition bonds might be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to us of the related transition charge collections and therefore the amount and timing of funds available to us to pay transition bondholders.

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If the servicer enters bankruptcy proceedings, the collections of the transition charges held by the servicer as of the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the transition bonds.
        In the event of a bankruptcy of the servicer, a party in interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement or intercreditor agreement, constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that transition charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. Also, we or the servicer may be considered an “insider” with any retail electric provider that is affiliated with us or the servicer. If the servicer or we are considered to be an “insider” of the retail electric provider, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, we or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, we would expect that the amount of any future transition charges would be increased through the true-up mechanism to recover such amount.
Claims against CenterPoint Houston or any successor seller might be limited in the event of a bankruptcy of the seller.
        If the seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement would be unsecured claims and would be disposed of in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A party in interest in the bankruptcy of the seller might challenge the enforceability of the indemnity provisions in a sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against the seller based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving the seller.
The bankruptcy of CenterPoint Houston or any successor seller might limit the remedies available to the trustee.
        Upon an event of default for a series of transition bonds under the indenture, the Restructuring Act permits the trustee to enforce the security interest in the related transition property in accordance with the terms of the indenture. In this capacity, the trustee is permitted to request the Texas commission or a Travis County, Texas district court to order the sequestration and payment to bondholders of such series of all revenues arising with respect to the related transition property. There can be no assurance, however, that the Texas commission or the Travis County, Texas district court would issue this order after a CenterPoint Houston bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the Texas court, and an order requiring an accounting and segregation of the revenues arising from the transition property. There can be no assurance that a court would grant either order.

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RISKS ASSOCIATED WITH POTENTIAL BANKRUPTCY
PROCEEDINGS OF RETAIL ELECTRIC PROVIDERS
Retail electric providers may commingle the transition charges with other revenues they collect. This may cause losses on or reduce the value of your investment in the transition bonds in the event a retail electric provider enters bankruptcy proceedings.
        A retail electric provider is not required to segregate from its general funds the transition charges it collects, either on a series basis or otherwise, but will be required to remit to the servicer amounts billed to it for transition charges, less an amount relating to expected customer charge-offs, within 35 days of the billing by the servicer. A retail electric provider nevertheless might fail to remit the full amount of the transition charges owed to the servicer or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of transition charge collections available on the next payment date to make timely payments on one or more series of the transition bonds.
        The Restructuring Act provides that our rights to the transition property are not affected by the commingling of these funds with other funds. In a bankruptcy of a retail electric provider, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the Restructuring Act and does not recognize our right to receive the collected transition charges that are commingled with other funds of a retail electric provider as of the date of bankruptcy. If so, the collections of the transition charges held by a retail electric provider as of the date of bankruptcy would not be available to pay amounts owing on the related series of transition bonds. In this case, we would have only a general unsecured claim against the retail electric provider for those amounts. This decision might cause material delays in payments of principal or interest or losses on your transition bonds and could materially reduce the value of your investment in the transition bonds, particularly if it occurred in the fifteenth year of the transition bonds after the completion of which no transition charges can be charged. Please refer to “How a Bankruptcy May Affect Your Investment” in this prospectus.
If a retail electric provider enters bankruptcy proceedings, any cash deposit of the retail electric provider held by the trustee might not be available to cover amounts owed by the retail electric provider.
        If a retail electric provider does not have the credit rating required by the financing order, it may nevertheless qualify to act as a retail electric provider if, among other alternatives, it provides a cash deposit equal to two months’ maximum expected transition charge collections. Please refer to “Retail Electric Providers” in this prospectus. That cash deposit will be held by the trustee under the indenture. However, it is unclear whether the Restructuring Act creates a lien on the cash deposit in favor of the trustee. If the retail electric provider becomes bankrupt, the trustee would be stayed from applying that cash deposit to cover amounts owed by the retail electric provider, and the trustee might be required to return that cash deposit to the retail electric provider’s bankruptcy estate if the bankruptcy court determines there is no valid right of set-off or recoupment. In that case, the issuer might only have an unsecured claim for any amounts owed by the retail electric provider in the retail electric provider’s bankruptcy proceedings. Two retail electric providers with which CenterPoint Houston has done business have filed for bankruptcy. CenterPoint Houston, as servicer under the transition bonds issued by Transition Bond Company I, was able to recover the full amount or a substantial majority of the transition charges relating to those transition bonds from cash deposits or a combination of cash deposits and payments from these retail electric providers, but there is no assurance that CenterPoint Houston will be able to recover such amounts from any bankrupt retail electric providers in the future. For additional information regarding the bankruptcies of these retail electric providers, please read “The Servicer of the Transition Property—Customer Classes—Relationship With Retail Electric Providers.”
If a retail electric provider enters bankruptcy proceedings, transition charge payments made by that retail electric provider to the servicer might constitute preferences, and the servicer may be required to return such funds to the bankruptcy estate of the retail electric provider.
        In the event of a bankruptcy of a retail electric provider, a party in interest might take the position that the remittance of funds by the retail electric provider to the servicer, pursuant to the financing order, prior to bankruptcy constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a preexisting debt. If a court were to hold that the remittance of funds constitutes preferences, any

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remittance of such funds made within 90 days of the filing of the bankruptcy petition might be avoidable, and the funds might be required to be returned to the bankruptcy estate of the retail electric provider by us or the servicer. To the extent that transition charges have been commingled with the general funds of the retail electric provider, the risk that a court would hold that a remittance of funds was a preference would increase. Also, we or the servicer might be considered an “insider” with any retail electric provider that is affiliated with us or the servicer. If the servicer or we are considered to be an “insider” of the retail electric provider, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, we or the servicer would merely be an unsecured creditor of the retail electric provider. If any funds were required to be returned to the bankruptcy estate of the retail electric provider, we would expect that the amount of any future transition charges would be increased through the true-up mechanism to recover the amount returned.
        Furthermore, the mere fact of a retail electric provider bankruptcy proceeding could have an adverse effect on the resale market for the transition bonds and on the value of the transition bonds. Please refer to “How a Bankruptcy May Affect Your Investment” in this prospectus.
OTHER RISKS ASSOCIATED WITH AN INVESTMENT IN THE TRANSITION BONDS
We may incur expenses in excess of caps on such expenses provided in the financing order.
        Under the financing order, transition charges may not be imposed for certain of our ongoing expenses to the extent they exceed caps provided in the financing order for such amounts. In addition, our other assets, substantially all of which are pledged to the trustee for the related series of transition bonds under the indenture, may not be used by the trustee to pay such excess amounts. Examples of these caps include payment of specified fees and expenses of the trustee and the servicer and other specified operating expenses. Please refer to “The Transition Bonds—How Funds in the Collection Account Will Be Allocated.” We cannot be sure that we will not incur expenses for these purposes in excess of the cap levels and, if this were to occur, we would not have funds to make payments for these excess amounts. Creditors of ours which are owed these amounts and not paid may obtain judgment liens against our assets or seek to place us in bankruptcy.
CenterPoint Houston’s indemnification obligations under the sale and servicing agreements are limited and might not be sufficient to protect your investment in the transition bonds.
        CenterPoint Houston is obligated under each sale agreement to indemnify us and the trustee, for itself and on behalf of the transition bondholders, only in specified circumstances and will not be obligated to repurchase any transition property in the event of a breach of any of its representations, warranties or covenants regarding the transition property. Similarly, CenterPoint Houston is obligated under each servicing agreement to indemnify us, the trustee, for itself and on behalf of the transition bondholders, and the Texas commission only in specified circumstances. Please refer to “The Sale Agreements” and “The Servicing Agreements” in this prospectus.
        Neither the trustee nor the transition bondholders will have the right to accelerate payments on a series of transition bonds as a result of a breach under the related sale agreement or servicing agreement, absent an event of default under the indenture relating to such series of transition bonds as described in “The Transition Bonds—What Constitutes an Event of Default on the Transition Bonds.” Furthermore, CenterPoint Houston might not have sufficient funds available to satisfy its indemnification obligations under these agreements, and the amount of any indemnification paid by CenterPoint Houston might not be sufficient for you to recover all of your investment in the transition bonds. In addition, if CenterPoint Houston becomes obligated to indemnify transition bondholders, the ratings on the transition bonds will likely be downgraded as a result of the circumstances causing the breach and the fact that transition bondholders will be unsecured creditors of CenterPoint Houston with respect to any of these indemnification amounts.
CenterPoint Houston’s ratings might affect the market value of the transition bonds.
        A downgrading of the credit ratings on the debt of CenterPoint Houston might have an adverse effect on the market value of your transition bonds.

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Technological change might make alternative energy sources more attractive in the future.
        Technological developments might result in the introduction of economically attractive alternatives to purchasing electricity through CenterPoint Houston’s distribution facilities for increasing numbers of retail customers. Manufacturers of self-generation facilities may develop smaller-scale, more fuel-efficient generating units that can be cost-effective options for a greater number of retail customers. Electric customers within CenterPoint Houston’s service territory whose load is served by an on-site power production facility with a rated capacity of 10 megawatts or less are not required to pay transition charges under the Restructuring Act except for transition charges associated with services actually provided by the transmission and distribution utility. Technological developments might allow greater numbers of retail customers to avoid transition charges under such provisions, which may reduce the total number of retail customers from which transition charges will be collected.
The absence of a secondary market for a series of transition bonds might limit your ability to resell your transition bonds of such series.
        The underwriters for a series of transition bonds might assist in resales of the transition bonds of such series, but they are not required to do so. A secondary market for a series of transition bonds might not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your transition bonds of such series. Please refer to “Plan of Distribution for the Transition Bonds” in this prospectus.
You might receive principal payments for a series of transition bonds later than you expect.
        The amount and the rate of collection of the transition charges for a series of transition bonds, together with the related transition charge adjustments, will generally determine whether there is a delay in the scheduled repayments of transition bond principal for such series. If the servicer collects the transition charges at a slower rate than expected from any retail electric provider, it might have to request adjustments of the transition charges. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in such series of transition bonds. Please refer to “The Transition Bonds” in this prospectus.
We may issue additional series of transition bonds.
        We may issue one or more additional series of transition bonds under the financing order or under a subsequent financing order, and CenterPoint Houston may also sell transition property to one or more entities other than us in connection with the issuance of a new series of transition bonds, in any such case without your prior review or approval. Any new series may include terms and provisions that would be unique to that particular series. We may not issue additional transition bonds if the issuance would result in the credit ratings on any outstanding series of transition bonds being reduced or withdrawn. However, we cannot assure you that a new series would not cause reductions or delays in payments on your transition bonds. In addition, some matters relating to the transition bonds issued by us require the vote of the holders of all series and classes of transition bonds issued by us. Your interests in these votes may conflict with the interests of the beneficial owners of transition bonds of another series or of another class. Thus, these votes could result in an outcome that is materially unfavorable to you.

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THE RESTRUCTURING ACT
The Restructuring Act’s General Effect on the Electric Utility Industry in Texas
        An Overview of the Restructuring Act. The Restructuring Act was enacted by the Texas legislature in June 1999 and became effective on September 1, 1999. The Restructuring Act substantially amended the regulatory structure governing electric utilities in Texas in order to transition to a competitive electric market, thereby creating stranded investment and other balances for electric utilities within the State of Texas. The Restructuring Act, among other things,
  authorized competition in the retail electric market and the electricity generation market for electricity beginning in January 2002, and in some instances sooner,
 
  required a rate freeze for all retail electric customers until January 2002, and access to certain reduced rates for residential and small commercial retail electric customers through the so-called “price to beat” mechanism for up to five years thereafter,
 
  permitted electric utilities to recover certain stranded investments and other balances through the issuance of transition bonds pursuant to and supported by an irrevocable financing order issued by the Texas commission,
 
  permitted the Texas commission to impose an irrevocable nonbypassable transition charge on all retail electric customers, including the State of Texas and other governmental entities, within a utility’s certificated service territory as it existed on May 1, 1999, for payment of transition bonds, and
 
  provided for a proceeding in 2004 to determine the recoverable stranded cost and other true-up balances.
        Unbundling. Each electric utility was required to separate its customer-related energy services activities that are otherwise already widely available in the competitive market from its regulated activities by September 1, 2000. By January 1, 2002, each electric utility was required to separate its business into the following units:
  a power generation company,
 
  a retail electric provider, and
 
  a transmission and distribution utility or separate transmission and distribution utilities.
A power generation company generates electricity that is intended to be sold at wholesale. In general, a power generation company may not own a transmission or distribution facility and may not have a certificated service territory. A retail electric provider sells electric energy to retail electric customers. A retail electric provider may not own or operate generation assets. A transmission and distribution utility owns or operates facilities to transmit or distribute electricity. Pursuant to the unbundling provisions of the Restructuring Act, the terms of a business separation plan approved by the Texas commission and separation agreements among the companies, the integrated electric utility business of the integrated utility that was a predecessor of CenterPoint Houston was split among three separate companies. Texas Genco, LP was, until December 2004 as described below, the power generation company which owned and operated the electric generation assets formerly owned by the integrated utility and sold electricity in wholesale transactions. CenterPoint Houston is a transmission and distribution utility that now owns and operates the transmission and distribution facilities used to transmit and distribute electricity. Reliant Energy Retail Services, LLC and Reliant Energy Solutions, LLC are the retail electric providers that succeeded to the retail customers which, prior to January 2002, had been served by the integrated utility. CenterPoint Houston is a wholly owned indirect subsidiary of CenterPoint Energy. Texas Genco, LP is a wholly owned indirect subsidiary of Texas Genco Holdings, Inc., approximately 81% of the common stock of which was indirectly owned by CenterPoint Energy prior to December 2004. In December 2004, Texas Genco Holdings and Texas Genco, LP completed the sale of all of Texas Genco, LP’s fossil generation assets to third parties for approximately $2.2 billion. In the second step of the transaction, which was completed in April 2005, the buyers acquired Texas Genco Holdings and the remaining nuclear generation assets for approximately $700 million. Reliant Energy Retail Services and Reliant Energy Solutions are wholly owned subsidiaries of Reliant Energy, Inc. (Reliant Energy), formerly Reliant

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Resources, Inc., which was formed as a subsidiary of the integrated utility and the equity of which was then either sold or distributed to the public in connection with the business separation plan. Reliant Energy is and has been a separate legal entity from Reliant Energy, Incorporated, the integrated utility and predecessor to CenterPoint Houston. Reliant Energy and CenterPoint Energy have no overlapping board members or executive officers, and neither owns any stock in the other; however, under provisions of the Restructuring Act, Reliant Energy Retail Services and Reliant Energy Solutions are considered to be the “affiliated retail electric providers.”
        Retail Competition. Beginning in January 2002, all retail electric customers in most of Texas, including the area historically served by the integrated utility, were able to choose their own retail electric provider. Any customer in the CenterPoint Houston service territory that has not chosen a new retail electric provider is served by Reliant Energy Retail Services and Reliant Energy Solutions as the affiliated retail electric providers. As of September 30, 2005, there were approximately 65 retail electric providers providing electric service in CenterPoint Houston’s service territory. Reliant Energy Retail Services and Reliant Energy Solutions are the largest retail electric providers in CenterPoint Houston’s service territory. Together, the retail electric providers owned by Reliant Energy accounted for approximately 53% of the total retail kWh billed by CenterPoint Houston for the nine months ended September 30, 2005.
        “Price to Beat” and Services . From January 1, 2002 until January 1, 2007, the affiliated retail electric provider of a utility is required to make available a “price to beat” to residential and small commercial retail electric customers in the electric utility’s service territory. The “price to beat” is a rate that, on a bundled basis, is six percent less than the affiliated electric utility’s corresponding average residential and small commercial rates, on a bundled basis, that were in effect on January 1, 1999, adjusted to take into account changes in the cost of fuel. The Restructuring Act prohibits the affiliated retail electric provider from charging residential and most small commercial retail electric customers rates that are different than the “price to beat” until the earlier of January 1, 2005 or the date 40% of the electric load of retail electric customers in that class in that service territory have chosen new retail electric providers. Thereafter, it requires the affiliated retail electric provider to offer to sell to residential and most small commercial retail electric customers at the “price to beat” but does not prohibit the affiliated retail electric provider and its customers from agreeing to rates that are either higher or lower than the “price to beat”.
        The Texas commission designates a “provider of last resort” for each customer class in each service territory in the state. The provider of last resort is required to offer, in its service territory, a standard retail service package for its class of retail electric customers at a fixed rate approved by the Texas commission. The provider of last resort is required to offer the service to any retail electric customer in the class it serves in that service territory who requests service, whose selected retail electric provider goes out of business, or who is transferred to the provider of last resort by other retail electric providers for reasons other than non-payment. The providers of last resort for CenterPoint Houston’s service territory are CPL Retail Energy, LP (for Direct Energy, LP) (for the residential class), Constellation NewEnergy, Inc. (for the small non-residential class) and Tenaska Power Service Company d/b/a TPS III (for the large non-residential class).
        Under the Restructuring Act, commercial and industrial retail customers that are required by ERCOT to have an interval data recorder meter are able to choose to own the settlement and billing meters that are used to measure electric energy delivered to their location or to have those meters owned by a retail electric provider, the transmission and distribution utility or another person authorized by the customer. As of September 30, 2005, however, no such commercial or industrial retail customer has requested competitive metering services. Whether or not the commercial or industrial retail customer chooses an alternative meter owner, until the Texas commission authorizes otherwise, CenterPoint Houston will continue to provide metering services related to the installation and removal of meters, meter maintenance, meter testing and calibration, data collection and data management, including the transfer of meter data to ERCOT. The Texas commission’s rules require ERCOT to file with the Texas commission quarterly updates as to the operational readiness of the support systems necessary for the Texas commission to authorize an entity other than the transmission and distribution utility to provide these metering services. For residential and nonresidential customers other than those required by ERCOT to have an interval data recorder meter within CenterPoint Houston’s service territory, metering services shall continue to be provided by CenterPoint Houston.

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Recovery of Qualified Costs for CenterPoint Houston and Other Texas Utilities
        The Restructuring Act allows utilities to recover certain costs associated with the transition to competitive retail electric markets in Texas. Final determination of the amount of utilities’ recoverable transition costs was required to be made by the Texas commission in a final true-up proceeding in 2004. In CenterPoint Houston’s case, the Texas commission issued an order on December 17, 2004 determining that CenterPoint Houston is entitled pursuant to the Restructuring Act to recover approximately $2.3 billion plus the principal portion of all excess mitigation credits provided by CenterPoint Houston after August 31, 2004 and plus interest accrued after August 31, 2004 on certain balances until collected. Of that amount, approximately $1.343 billion plus the principal portion of all excess mitigation credits provided by CenterPoint Houston after August 31, 2004 represents stranded costs and approximately $150 million represents regulatory assets. The remaining amount represents other recoverable true-up balances. The Restructuring Act provides for recovery of stranded costs and regulatory assets as determined in the final true-up proceeding through non-bypassable competition transition charges on retail electric customers’ bills or through issuance of transition bonds to be paid and secured by non-bypassable transition charges. The Texas commission has determined that the other true-up balances cannot be securitized and may only be collected through competition transition charges. 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.
CenterPoint Houston and Other Utilities May Securitize Qualified Costs
        We May Issue Transition Bonds to Recover CenterPoint Houston’s Qualified Costs . The Restructuring Act authorizes the Texas commission to issue financing orders approving the issuance of transition bonds to recover certain qualified costs of an electric utility. A utility, its successors or a third-party assignee of a utility may issue transition bonds. Under the Restructuring Act, proceeds of transition bonds must be used to reduce the amount of recoverable transition costs through the refinancing or retirement of the electric utility’s debt or equity. The transition bonds are secured by, and payable from, transition property, which includes the right to impose, collect and receive transition charges, and may have a maximum maturity of 15 years. The amounts of transition charges must be allocated to customer classes based in part on the methodology used to allocate the costs of the underlying assets in the utility’s most recent Texas commission order addressing rate design and in part based on the energy consumption of the customer classes. Transition charges can be imposed only when and to the extent that transition bonds are issued.
        The Restructuring Act contains a number of provisions designed to facilitate the securitization of qualified costs.
        Creation of Transition Property. Under the Restructuring Act, transition property is created when the rights and interests of an electric utility or successor under a financing order, including the right to impose, collect and receive transition charges authorized in the order, are first transferred to an assignee or pledged in connection with the issuance of transition bonds.
        A Financing Order is Irrevocable . A financing order, once effective, together with the transition charges authorized in the order, is irrevocable and not subject to reduction, impairment or adjustment by the Texas commission except for adjustments pursuant to the Restructuring Act in order to correct overcollections or undercollections and to provide that sufficient funds are available to timely provide for payments of debt service and other required amounts in connection with the related series of transition bonds. Although a financing order is irrevocable, the Restructuring Act allows applicants to apply for one or more new financing orders to provide for retiring and refunding of transition bonds.
        The State Pledge. Under the Restructuring Act, the State of Texas has pledged, for the benefit and protection of transition bondholders and the electric utilities covered by the Restructuring Act, that it will not take or permit any action that would impair the value of the transition property or, except for adjustments discussed in “CenterPoint Houston’s Financing Order— Statutorily Guaranteed True-ups,” reduce, alter or impair the transition charges to be imposed, collected and remitted to transition bondholders, until the principal, interest and premium, if

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any, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full. For a description of risks related to the enforcement of this pledge, see “Risks Associated with Potential Judicial, Legislative or Regulatory Actions” in this prospectus.
        Constitutional Matters. To date, no cases addressing the repeal or amendment of securitization provisions such as those contained in the Restructuring Act have been decided in Texas or other states. There have been cases in other states in which courts have applied the Contract Clause of the United States Constitution and parallel state constitutional provisions to strike down legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing other types of bonds issued by public instrumentalities or private issuers, or otherwise reducing or eliminating the security for bonds. Based upon this case law, Baker Botts L.L.P., counsel to CenterPoint Houston and us, expects to deliver an opinion prior to the closing of an offering of a series of transition bonds described in a prospectus supplement accompanying this prospectus to the effect that the pledge described above creates a binding contractual obligation for purposes of the Contract Clauses of the United States and Texas constitutions, and provides a basis upon which the bondholders (or the trustee acting on their behalf) could challenge successfully, under the Contract Clauses of the United States and Texas constitutions, the constitutionality of any action by the State of Texas (including the Texas commission) of a legislative character, including the repeal or amendment of the securitization provisions of the Restructuring Act, that a court would determine violates the pledge described above in a way that would substantially reduce, alter or impair the value of the related transition property or substantially reduce, alter or impair the related transition charges, unless such action is a reasonable exercise of the sovereign powers of the State of Texas and of a character reasonable and appropriate to the public purpose justifying such action. It may be possible for the Texas legislature to repeal or amend the Restructuring Act notwithstanding the State’s pledge, if the legislature acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety.
        In addition, any action of the Texas legislature adversely affecting the transition property or the ability to collect transition charges may be considered a “taking” under the United States or Texas Constitutions. Baker Botts L.L.P. has advised us that they are not aware of any federal or Texas court cases addressing the applicability of the federal or Texas Takings Clauses in a situation analogous to that which could be involved in an amendment or repeal of the Restructuring Act. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Restructuring Act, since, for example, a court might determine that a Contract Clause analysis rather than a Takings Clause analysis should be applied. Assuming a Takings Clause analysis were applied under the United States or Texas Constitution, Baker Botts L.L.P. expects to render an opinion prior to the closing of an offering of a series of transition bonds described in a prospectus supplement accompanying this prospectus to the effect that under existing case law, if a court concludes that the related transition property is protected by the Takings Clauses of the United States or Texas constitutions, it would find a compensable taking if the State were to enact a law that, without paying just compensation to the bondholders of such series of transition bonds (i) permanently appropriates the related transition property or denies all economically productive use of the related transition property; or (ii) destroys the related transition property, other than in response to emergency conditions; or (iii) substantially reduces, alters or impairs the value of the related transition property, if the law unduly interferes with such bondholders’ reasonable investment backed expectations.
        In connection with the foregoing, Baker Botts L.L.P. has advised us that issues relating to the Contract and Takings Clauses of the United States and Texas constitutions are essentially decided on a case by case basis and that the courts’ determinations, in most cases, appear to be strongly influenced by the facts and circumstances of the particular case. Baker Botts L.L.P. has further advised us that there are no reported controlling judicial precedents that are directly on point. The degree of impairment necessary to meet the standards for relief under a Takings analysis or Contract Clause analysis could be substantially in excess of what a transition bondholder would consider material. If a legislative action were determined to be a taking, the State of Texas might be obligated to pay compensation for the taking, but there is no assurance that any amount provided as compensation would be sufficient for you to fully recover your investment in the transition bonds. We will file a copy of the Baker Botts L.L.P. opinion as an exhibit to an amendment to the registration statement of which this prospectus is a part, or to one of our periodic filings with the SEC.
        For a discussion of risks associated with potential judicial, legislation or regulatory actions, see “Risk Factors—Risks Associated with Potential Judicial, Legislative or Regulatory Actions” in this prospectus.

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        The Texas Commission May Adjust Transition Charges. The Restructuring Act requires the Texas commission to provide in all financing orders a mechanism requiring that transition charges relating to a series of transition bonds be reviewed and adjusted at least annually, within 45 days of the anniversary of the date of the issuance of such series of transition bonds:
  to correct any overcollections or undercollections during the preceding 12 months, and
 
  to provide for the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with such series of transition bonds.
        Transition Charges are Nonbypassable . The Restructuring Act provides that the transition charges are nonbypassable. Nonbypassable means that a utility collects transition charges attributable to all existing and future retail electric customers located within the utility’s service territory as it existed on May 1, 1999, except for certain categories of existing customers whose load had been lawfully served by a fully operational qualifying facility before September 1, 2001 if the facility was supported by substantially complete filings for site-specific environmental permits on or before December 31, 1999, or by an on-site power production facility with a rated capacity of 10 megawatts or less, or customers in a multiply certificated service territory that requested to switch providers on or before May 1, 1999, or were not taking service from the utility on, and do not do so after, May 1, 1999. The utility is generally entitled to collect transition charges attributable to non-exempted customers even if they are receiving transmission or distribution service from another utility or choose to operate self-generation equipment.
        The Restructuring Act Protects the Transition Bonds’ Lien on Transition Property . The Restructuring Act provides that a valid and enforceable lien and security interest in transition property may be created only by a financing order and the execution and delivery of a security agreement in connection with the issuance of a series of transition bonds. The security interest automatically attaches from the time value is received for such series of transition bonds.
        On perfection through the filing of a notice with the Secretary of State, the security interest (1) will be a continuously perfected lien and security interest in the related transition property and all proceeds of the property, whether accrued or not, and (2) will have a priority in the order of filing and take precedence over any subsequent judicial or other lien creditor. If notice is filed within 10 days after value is received for a series of transition bonds, the security interest is perfected retroactive to the date value was received. Otherwise, the security interest is perfected as of the date of filing.
The Restructuring Act provides that priority of security interests in transition property relating to a series of transition bonds will not be impaired by:
  commingling of funds collected from related transition charges with other funds, or
 
  modifications to the financing order resulting from any true-up adjustment.
Please refer to “Risk Factors—Risks Associated With the Unusual Nature of the Transition Property.”
        The Restructuring Act Characterizes the Transfer of Transition Property as a True Sale . The Restructuring Act provides that an electric utility’s or an assignee’s transfer of transition property is a “true sale” under state law and is not a secured transaction and that legal and equitable title passes to the transferee, if the agreement governing that transfer expressly states that the transfer is a sale or other absolute transfer. Please refer to “The Sale Agreements” and “Risk Factors—Risks Associated With Potential Bankruptcy Proceedings of the Seller or the Servicer” in this prospectus.
        Tax Exemption. The Restructuring Act provides that transactions involving the transfer and ownership of transition property and the receipt of transition charges are exempt from state and local income, sales, franchise, gross receipts and other taxes or similar charges.

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CENTERPOINT HOUSTON’S FINANCING ORDER
        Background. On March 31, 2004, CenterPoint Houston, Texas Genco and Reliant Energy Retail Services jointly applied to the Texas commission for an order determining CenterPoint Houston’s stranded cost and other true-up balances pursuant to the Restructuring Act. On December 17, 2004, the Texas commission issued its final order determining that CenterPoint Houston is entitled pursuant to the Restructuring Act to recover approximately $2.3 billion plus the principal portion of all excess mitigation credits provided by CenterPoint Houston after August 31, 2004 and plus interest accrued after August 31, 2004 on certain balances until collected. Of that amount, approximately $1.343 billion plus the principal portion of all excess mitigation credits provided by CenterPoint Houston after August 31, 2004 represents stranded costs and approximately $150 million represents regulatory assets. The remaining amount represents other recoverable true-up balances. In December 2004, CenterPoint Houston filed an application with the Texas commission for a financing order to permit securitization of the approximately $2.3 billion determined by the Texas commission in its December 17, 2004 order, plus (a) the principal portion of excess mitigation credits provided by CenterPoint Houston after August 31, 2004 through the date of issuance of the transition bonds or the date of the termination of such excess mitigation credit, whichever is earlier, (b) interest on stranded costs accrued after August 31, 2004 through the date of issuance of the transition bonds, and (c) up-front qualified costs. The Texas commission determined that the true-up balances other than stranded costs and regulatory assets cannot be securitized and may only be recovered through competition transition charges. The Texas commission issued the financing order on March 16, 2005 authorizing CenterPoint Houston to securitize an amount not to exceed $1,493,747,264 plus the amounts specified in (a), (b) and (c) above. Several parties appealed the financing order, but the financing order was affirmed on appeal by the district court in Travis County, Texas and the deadline established under the Restructuring Act for further appeal has expired.
        We are responsible to the State of Texas and the Texas commission. Specifically, pursuant to the financing order,
  our organizational documents and transaction documents prohibit us from engaging in any activities other than acquiring transition property, issuing transition bonds and performing other activities as specifically authorized by that financing order,
 
  we must respond to representatives of the Texas commission throughout the process of offering the transition bonds provided for therein, with the financing order directing the Texas commission’s financial advisor to veto any proposal that does not comply with all criteria established in the financing order, and
 
  the servicer will file periodic adjustments to transition charges with the Texas commission on our behalf.
We have also agreed that certain reports concerning transition charge collections will be provided to the Texas commission.
        We have filed the financing order with the SEC as an exhibit to the registration statement of which this prospectus forms a part. This summary does not purport to be complete and is subject to and qualified by reference to the provisions of the financing order.
        The Texas commission guarantees that it will take specific actions pursuant to the irrevocable financing order as expressly authorized by the Restructuring Act to ensure that expected transition charge revenues relating to a series of transition bonds are sufficient to timely pay scheduled principal and interest on such series of transition bonds. The financing order provides that the true-up mechanism and all other obligations of the State of Texas and the Texas commission set forth in the financing order that relate to a series of transition bonds are direct, explicit, irrevocable and unconditional upon issuance of such series of transition bonds, and are legally enforceable against the State of Texas and the Texas commission.
        Issuance of Transition Bonds. The financing order authorizes CenterPoint Houston to cause us to issue transition bonds in an aggregate principal amount not to exceed $1,493,747,264 plus the amounts described in (a), (b) and (c) above.

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        Collection of Transition Charges. The financing order authorizes CenterPoint Houston to collect transition charges from the retail electric providers serving retail electric customers in CenterPoint Houston’s service territory in an amount sufficient to recover its aggregate qualified costs which include principal and interest and certain ongoing fees and expenses associated with the transition bonds. There is no “cap” on the level of transition charges that may be imposed on consumers of electricity, including the State of Texas and other governmental entities, to meet scheduled principal and interest on the transition bonds. However, we may not charge transition charges for a series of transition bonds for electricity delivered after the fifteenth anniversary of the date of issuance of that series of transition bonds.
        Issuance Advice Letter. Within twenty-four hours following the determination of the final terms of a series of transition bonds and prior to their issuance, CenterPoint Houston is required to file with the Texas commission an issuance advice letter, which will:
  demonstrate compliance with the requirements of the financing order,
 
  evidence the actual terms on which such series of transition bonds will be issued,
 
  show the actual dollar amount of the initial transition charges relating to such series of transition bonds,
 
  identify the transition property relating to such series of transition bonds we will purchase,
 
  identify us, and
 
  certify that, based on information reasonably available, the structuring and pricing of such series of transition bonds will result in the lowest transition bond charges consistent with market conditions and the terms of the financing order.
        Both the issuance advice letter and the accompanying compliance tariff become effective on the date of issuance of a series of transition bonds unless the Texas commission issues an order prior to noon on the fourth business day after the determination of the final terms of such series of transition bond, that the proposed issuance does not comply with the requirements of the Restructuring Act or the financing order.
        Allocation. Under the terms of the financing order, CenterPoint Houston will initially allocate the qualified costs among its transition charge customer classes as follows (each allocation factor percentage has been rounded to two decimal places):
         
    Allocation
Transition Charge Customer Class   Factor
     
Residential
    40.04 %
MGS (miscellaneous general service)
    29.03 %
LGS (large general service)
    16.12 %
LOS-A (large overhead service—A)
    4.80 %
LOS-B (large overhead service—B)
    2.30 %
Non-Metered Lighting
    0.66 %
Standby Electric Service—Distribution
    0.04 %
Interruptible Service Supplemental—Distribution
    0.16 %
Interruptible Service—30 Minute Notice
    1.12 %
Interruptible Service—10 Minute Notice
    2.20 %
Interruptible Service—Instantaneous
    0.25 %
Interruptible Service Supplemental—Transmission
    0.07 %
Standby Electric Service—Transmission
    0.25 %
Standby Interruptible Service
    0.23 %
SCP (special contract pricing)
    2.73 %
The allocation factors for each class are subject to periodic adjustment. See “—Adjustments to Allocation of Transition Charges” below.

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        Statutorily Guaranteed True-Ups. The Restructuring Act and the irrevocable financing order guarantee that transition charges relating to a series of transition bonds will be reviewed and adjusted annually and, if necessary, semi-annually to ensure the expected recovery of amounts sufficient to provide timely payment of principal and interest on such series of transition bonds. The financing order requires CenterPoint Houston and any successor servicer to make periodic adjustment filings pursuant to the following true-up mechanism and reconciliation procedures:
        True-up adjustments will be based upon the cumulative differences between the periodic payment requirement, which is discussed in the paragraph below (including scheduled principal and interest payments on the transition bonds), and the amount of transition charge remittances to the trustee. In order to provide for adequate revenues from the transition charges, the servicer will calculate the adjusted transition charges using its most recent forecast of electric consumption and its most current estimates of ongoing transaction-related expenses. The calculation of the transition charges will reflect both a projection of uncollectible transition charges and payment lags between the billing and collection of transition charges based upon the servicer’s and the retail electric provider’s most recent experience regarding collection of transition charges. The calculation of transition charges will also take into account any amounts due any retail electric providers as a result of the reconciliation of the remittances and collections. There is no “cap” on the level of transition charges that may be imposed on consumers of electricity, including the State of Texas and other governmental entities, to meet scheduled principal and interest on a series of transition bonds.
        There are two types of true-ups that may occur under the financing order.
  First, pursuant to the Restructuring Act, the servicer is required to make a filing with the Texas commission for an adjustment at least annually
  to correct any undercollection or overcollection of transition charges relating to a series of transition bonds and
 
  to provide for the billing of transition charges relating to such series of transition bonds necessary to generate the collection of amounts sufficient to timely provide all scheduled payments of principal and interest (or deposits to sinking funds in respect of principal and interest) and any other amounts due in connection with such series of transition bonds (including ongoing fees and expenses, amounts required to be deposited in or allocated to any collection account or subaccount relating to such series of transition bonds, trustee indemnities, payments due in connection with any swap agreements relating to such series of transition bonds and any expenses incurred by the trustee to enforce bondholder rights and all other payments pursuant to the waterfall of payments described under “The Transition Bonds—How Funds in the Collection Account Will Be Allocated” or otherwise in the waterfall of payments set forth in a prospectus supplement applicable to such series of transition bonds) during the period for which such adjusted transition charges are to be in effect.
                These amounts are referred to as the “periodic payment requirement.”
  Second, the servicer will be required under each servicing agreement to seek an interim true-up adjustment with respect to a series of transition bonds once every six months, or quarterly in the fourteenth and fifteenth years:
  if the servicer expects, at the next payment date, more than a 5% variation between (a) the actual principal balance of the transition bonds of that series, taking into account amounts on deposit in the excess collections subaccount for that series, and (b) the expected principal balance on the expected amortization schedule,
 
  as needed to meet any rating agency requirement that the transition bonds of that series be paid in full at scheduled maturity, or
 
  to correct any undercollection of transition charges, regardless of cause, in order to assure timely payment of the transition bonds of that series based on rating agency and transition

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  bondholder considerations, including a mandatory interim true-up in connection with each semi-annual payment date if the servicer forecasts that collections of transition charges during the next semi-annual payment period will be insufficient to make all scheduled payments of interest, principal and other amounts in respect of the transition bonds of that series and to replenish the capital subaccount for that series to its required level.
        For more discussion of the statutorily guaranteed true-up mechanism, see “The Servicing Agreements—The Statutorily Guaranteed Transaction Charge Adjustment Process” in this prospectus.
        Statutorily Guaranteed True-Ups—Credit Risk. The State of Texas has pledged in the Restructuring Act that it will not take or permit any action that would impair the value of the transition property, or, except as permitted in connection with a true-up adjustment authorized by the statute, reduce, alter or impair the transition charges until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related series of transition bonds, have been paid and performed in full.
        The broad-based nature of the true-up mechanism and this pledge by the State of Texas, along with other elements of the transition bonds, will serve to effectively eliminate, for all practical purposes and circumstances, any credit risk associated with a series of transition bonds ( i.e. , sufficient funds will be available and paid to discharge all principal and interest obligations on such series of transition bonds when due). See the financing order, Finding of Fact 107, and “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs,” “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information” for further information. With respect to the foregoing, interest is due on each payment date and principal is due upon the final maturity date for each tranche.
        Statutorily Guaranteed True-Ups: Entire Private Sector Default . In the unlikely events that (i) all retail electric customers in CenterPoint Houston’s service territory (other than state and local government accounts) leave the CenterPoint Houston service territory or for whatever reason fail to pay the transition charges that service a series of transition bonds and (ii) the state and local government accounts physically located within the CenterPoint Houston service territory continue to use electricity either delivered through CenterPoint Houston’s transmission and distribution system or produced from new on-site generation, these entities, pursuant to the statutorily guaranteed true-up mechanism described above, would be responsible for paying transition charges sufficient to service the transition bonds of such series. Such transition charges would be a direct claim on such governments, but only in their capacity as retail electric customers. The State of Texas and other governmental entities, subdivisions, agencies, authorities and instrumentalities of the State of Texas, only in their capacity as retail electric customers, will be obligated to provide funds to make payments on the transition bonds of such series. The diagram below depicts the operation of the statutorily guaranteed true-up mechanism if these unlikely events were ever to occur. There is no assurance that the State of Texas or such local government agencies, even though there is a direct claim on them, would pay such transition charges.
LOGO
        Adjustments to Allocation of Transition Charges. In the financing order, the Texas commission requires CenterPoint Houston and any successor servicer to request periodic adjustments to the allocation of the transition charges among various classes of customers. The allocation may be adjusted to reflect load losses that a transition

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charge class or group of transition charge classes may suffer or to reflect certain changes to the allocation methodology that may be ordered by the Texas commission. The financing order specifically provides for an additional true-up and adjustment of allocation applicable to industrial customers, whereby the first 10% of load loss within an industrial class is borne by that class, with the excess load loss over 10% allocated to the remaining industrial classes. Adjustments to the allocation of the transition charges will take place at the same time as the annual true-up adjustments described above.
        Servicing Agreement. In the financing order, the Texas commission authorized CenterPoint Houston, as the servicer, to enter into a servicing agreement described under “The Servicing Agreements” in this prospectus.
        Binding on Successors. The financing order, along with the transition charges authorized in the financing order, is binding on:
  CenterPoint Houston,
 
  any successor to CenterPoint Houston that provides transmission or distribution service in CenterPoint Houston’s service territory,
 
  any other entity that provides transmission or distribution service to retail electric customers within CenterPoint Houston’s service territory,
 
  each retail electric provider that sells electric energy to retail electric customers located within CenterPoint Houston’s service territory or any such retail electric provider’s successor,
 
  any other entity responsible for imposing, billing, collecting and remitting transition charges on our behalf, or
 
  any successor to the Texas commission.
        Subsequent Financing Orders. We may issue additional series of transition bonds secured by separate transition property under a subsequent financing order of the Texas commission. We will describe the material terms of any such financing order in the related prospectus supplement.
RETAIL ELECTRIC PROVIDERS
        Under the Restructuring Act, beginning in January 2002, certain electric utilities, including CenterPoint Houston, were required to cease selling electricity to their retail customers. Since that time, only retail electric providers have been allowed to sell electricity to retail customers formerly served by those utilities. Each retail customer may choose a retail electric provider from among those who have been certified under standards set by the Texas commission. As of the date of this prospectus, neither CenterPoint Houston nor its parent CenterPoint Energy directly or indirectly owns or controls or is owned or controlled by any retail electric provider. In the future, either company may directly or indirectly own or control a retail electric provider. Under the Restructuring Act, Reliant Energy Retail Services and Reliant Energy Solutions, retail electric providers owned by Reliant Energy, are considered “affiliated retail electric providers.”
        CenterPoint Houston and any successor servicer will bill and collect transition charges from the retail electric providers in CenterPoint Houston’s service territory. The retail electric providers will in turn bill and collect the transition charges from retail electric customers in CenterPoint Energy’s service territory. Each retail electric provider will be required to pay the transition charges on or before the 35th day after it receives the bill from the servicer, less an agreed allowance for expected uncollectible amounts, whether or not the retail electric provider has collected all amounts owed to it by its retail electric customers. Please refer to “—Payment of Transition Charges.” Prior to the date on which the retail electric provider remits the transition charges to the servicer, the transition charges may be commingled with the retail electric provider’s other funds. Please refer to “Risk Factors—Risks Associated With Potential Bankruptcy Proceedings of Retail Electric Providers” and “How a Bankruptcy May Affect Your Investment— Bankruptcy of a Retail Electric Provider” in this prospectus.
        Each retail electric provider will deliver a combined bill to each retail electric customer for the electric power sold by it to the retail electric customer, for the related transmission and distribution service provided by the

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electric utility, for the transition charge, for transition charges associated with the transition bonds issued in 2001 by Transition Bond Company I and for other charges approved by the Texas commission. The retail electric providers will collect the combined amounts and then allocate the appropriate amounts to itself, to the electric utility, to the servicer, to the servicer of the Series 2001-1 Transition Bonds issued by Transition Bond Company I and to other parties, if any, entitled to receive a portion of such amounts. Transition charges will be remitted to the servicer, less an estimated allowance for charge-offs. Please refer to “Risk Factors—Servicing Risks—It might be difficult to collect transition charges from retail electric providers” in this prospectus. The retail electric provider will have custody of the transition charges collected from its retail electric customers until remitted to the servicer and may commingle the transition charges with its other funds.
        Rating, Deposit and Related Requirements. The financing order will allow a retail electric provider to provide retail electric service within CenterPoint Houston’s service territory and collect transition charges if it either (1) has a long-term, unsecured credit rating of not less than “BBB-” and “Baa3” (or the equivalent) from S&P and Moody’s, respectively, or (2) provides (A) a cash deposit of two months’ maximum expected transition charge collections, (B) an affiliate guarantee, surety bond or letter of credit providing for payment of such amount of transition charge collections in the event that the retail electric provider defaults in its payment obligations, or (C) a combination of any of the foregoing. The provider of any affiliate guarantee, surety bond or letter of credit must have and maintain long-term, unsecured credit ratings of not less than “BBB-” and “Baa3” (or the equivalent) from S&P and Moody’s, respectively. A retail electric provider that does not have or maintain the requisite long-term, unsecured credit rating may select, in its sole discretion, which alternate form of deposit, credit support or combination thereof it will utilize.
        If the long-term, unsecured credit rating from either S&P or Moody’s of a retail electric provider that did not previously provide the alternate form of deposit, credit support or combination thereof or of any provider of an affiliate guarantee, surety bond or letter of credit is suspended, withdrawn or downgraded below “BBB-” or “Baa3” (or the equivalent), the retail electric provider must provide an alternate form of deposit, credit support or combination thereof, in each case from providers with the requisite ratings, within 10 business days following such suspension, withdrawal or downgrade. A retail electric provider failing to make such provision must comply with the provisions set forth below in “—Remedies Upon Default.”
        The computation of the size of a required deposit must be agreed upon by the servicer and the retail electric provider and reviewed no more frequently than quarterly to ensure that the deposit accurately reflects two months’ maximum collections. Within 10 business days following such review, (1) the retail electric provider must remit to the trustee the amount of any shortfall in such required deposit or (2) the servicer must instruct the trustee to remit to the retail electric provider any amount in excess of such required deposit. A retail electric provider failing to so remit any such shortfall must comply with the provisions set forth below in “—Remedies Upon Default.” Retail electric provider cash deposits will be held by the trustee, maintained in a segregated account, and invested in short-term high quality investments, as permitted by the rating agencies rating the transition bonds. Investment earnings on retail electric provider cash deposits will be considered part of such cash deposits so long as they remain on deposit with the trustee. At the instruction of the servicer, cash deposits will be remitted with investment earnings to the retail electric provider at the end of the term of the transition bonds unless otherwise utilized for the payment of the retail electric provider’s obligations for transition charges. Once the deposit is no longer required, the servicer must promptly (but not later than 30 days after such event) instruct the trustee in writing to remit the amount in the segregated account to the retail electric provider.
        Billing and Collection Standards. Retail electric providers must comply with the billing, collection and remittance procedures and information access requirements established by the financing order. These standards relate only to the billing and collection of transition charges authorized under the financing order and do not apply to collection of any other nonbypassable charges or other charges. The standards apply to all retail electric providers other than retail electric providers, if any, that have contracted with the transmission and distribution utility to have it bill and collect transition charges from retail electric customers. Retail electric providers may contract with parties other than the transmission and distribution utility to bill and collect transition charges from retail customers, but such retail electric providers will remain subject to these standards. If the Texas commission later determines that different standards are to be applied to retail electric providers in particular areas ( e.g. , payment terms), then those new standards, with appropriate modifications to related provisions, may replace the specific portions of the standards approved in the financing order, but only if the rating agency condition (as

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described below) is satisfied. Upon adoption of any rule addressing any of these retail electric provider standards, the Texas commission’s staff will open a proceeding to investigate the need to modify the standards to conform to that rule, with the understanding that such modifications may not be implemented absent written notification to each of the rating agencies that have rated the transition bonds and confirmation from S&P that such modifications will not cause a reduction or withdrawal of the ratings on the transition bonds, referred to in this prospectus and the prospectus supplement as the “rating agency condition.”
        Payment of Transition Charges. On a daily basis, the servicer will bill each retail electric provider for transition charges owed by the retail electric provider’s retail customers. Payments of transition charges are due 35 days following each billing by the servicer to the retail electric provider, without regard to whether or when the retail electric provider receives payment from its retail electric customers. The servicer must accept payment by electronic funds transfer, wire transfer and/or check. Payment will be considered received the date the electronic funds transfer or wire transfer is received by the servicer, or the date the check clears. A 5% penalty is to be charged on amounts received after 35 days; however, a 10 calendar-day grace period will be allowed before the retail electric provider is considered to be in default. A retail electric provider in default must comply with the provisions set forth below in “—Remedies Upon Default.” The 5% penalty will be a one-time assessment measured against the current amount overdue from the retail electric provider to the servicer. The “current amount” consists of the total unpaid transition charges existing on the 36th day after the billing by the servicer. Any and all penalty payments will be made to the trustee to be applied against transition charge obligations. If there is a shortfall in a retail electric provider’s payment of an amount billed, the amount paid shall first be proportioned between the transition charges and other fees and charges (including transition charges attributable to the transition bonds issued by Transition Bond Company I), other than late fees, and second, any remaining portion of the payment shall be attributed to late fees. A retail electric provider will not be obligated to pay the overdue transition charges of another retail electric provider. If a retail electric provider agrees to assume the responsibility for the payment of overdue transition charges as a condition of receiving the customers of another retail electric provider that has decided to terminate service to those customers for any reason, the new retail electric provider will not be assessed the 5% penalty upon such transition charges; however, the prior retail electric provider will not be relieved of the previously assessed penalties.
        Remedies Upon Default. After the 10 calendar-day grace period (the 46th day after the billing date) referred to above under the heading “—Payment of Transition Charges,” the servicer will direct the trustee to seek recourse against any cash deposit, affiliate guarantee, surety bond, letter of credit or combination thereof provided by the retail electric provider, and will avail itself of such legal remedies as may be appropriate to collect any remaining unpaid transition charges and associated penalties due the servicer after the application of the retail electric provider’s deposit or alternate form of credit support. In addition, a retail electric provider that is in default with respect to the requirements set forth above in “—Rating, Deposit and Related Requirements” and “—Payment of Transition Charges” must select and implement one of the following options:
  allow its billing and collection responsibilities to be immediately assumed by another retail electric provider of the retail electric customer’s choosing or by the applicable provider of last resort,
 
  arrange that all amounts owed by retail electric customers for services rendered be timely billed and immediately paid directly into a lock-box controlled by the servicer with such amounts to be applied first to pay transition charges before remaining amounts are released to the retail electric provider and with all costs associated with the lock-box to be borne solely by the retail electric provider, or
 
  immediately implement other mutually suitable and agreeable arrangements with the servicer consistent with the terms of the servicing agreement and rating agency requirements to avoid a suspension, withdrawal or downgrade of the ratings of the transition bonds.
If a retail electric provider that is in default fails to immediately select and implement one of the foregoing options or, after so selecting one of the foregoing options, fails to adequately meet its responsibilities thereunder, then the servicer is required to immediately implement the first option listed above. Upon re-establishment of compliance with the requirements set forth above in “—Rating, Deposit, and Related Requirements” and “—Payment of Transition Charges” and the payment of all past-due amounts and associated penalties, the retail electric provider will no longer be required to comply with this paragraph.

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        Billing by Providers of Last Resort. The provider of last resort appointed by the Texas commission must meet the minimum credit rating or deposit/ credit support requirements described above in “—Rating, Deposit and Related Requirements” in addition to any other standards that may be adopted by the Texas commission. If the provider of last resort defaults or is not eligible to provide such services, responsibility for billing and collection of transition charges will immediately be transferred to and assumed by the servicer until a new provider of last resort can be named by the Texas commission or the customer requests the services of another retail electric provider. Retail electric customers may never be re-billed by the successor retail electric provider (although future transition charges will reflect retail electric provider and other system-wide charge-offs).
        Disputes. In the event that a retail electric provider disputes any amount of billed transition charges, the retail electric provider must pay the disputed amount under protest according to the timelines detailed above in “—Payment of Transition Charges.” The retail electric provider and the servicer must first attempt to informally resolve the dispute, but if they fail to do so within 30 days, either party may file a complaint with the Texas commission. If the retail electric provider is successful in the dispute process (informal or formal), the retail electric provider will be entitled to interest on the disputed amount paid to the servicer at the Texas commission-approved interest rate. Disputes about the date of receipt of transition charge payments and related penalties or the size of a required retail electric provider deposit will be handled in a like manner. It is expressly intended that any interest paid by the servicer on disputed amounts may not be recovered through transition charges if it is determined that the servicer’s claim to the funds is clearly unfounded. No interest will be paid by the servicer if it is determined that the servicer has received inaccurate metering data from another entity providing competitive metering services.
        Metering Data. If the servicer is providing metering services, metering data will be provided to the retail electric provider at the same time the servicer bills the retail electric provider. If the servicer is not providing metering services, the entity providing the metering services will be responsible for complying with Texas commission rules and ensuring that the servicer and the retail electric provider receive timely and accurate metering data in order for the servicer to meet its obligations under the servicing agreement and the financing order with respect to billing and true-ups.
        Charge-Off Allowance. The retail electric provider will be allowed to hold back an allowance for charge-offs in its payments to the servicer. Such charge-off rate will be recalculated each year in connection with the annual true-up procedure. For the initial year of the initial series of transition bonds, the retail electric provider will remit payments based on the charge-off percentage in effect on the first day of the month preceding issuance of the initial series of transition bonds for transition charges being collected on behalf of Transition Bond Company I or, in the case of a new retail electric provider, based on the same system-wide charge-off percentage then being used for payments to the servicer for Transition Bond Company I. On an annual basis in connection with the true-up process, the retail electric provider and the servicer will be responsible for reconciling the amounts held back with amounts actually written off as uncollectible in accordance with the terms agreed to by the retail electric provider and the servicer, provided that:
  the retail electric provider’s right to reconciliation for charge-offs will be limited to retail electric customers whose service has been permanently terminated and whose entire accounts ( i.e. , all amounts due the retail electric provider for its own account as well as the portion representing transition charges) have been written off,
 
  the retail electric provider’s recourse will be limited to a credit against future transition charge payments unless the retail electric provider and the servicer agree to alternative arrangements, but in no event will the retail electric provider have recourse to the trustee, us or our funds for such payments, and
 
  the retail electric provider is required to provide information on a timely basis to the servicer so that the servicer can include the retail electric provider’s default experience and any subsequent credits into its calculation of the adjusted transition charge rates for the next transition charge billing period and the retail electric provider’s rights to credit will not take effect until after such adjusted transition charge rates have been implemented.

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        Service Termination. In the event that the servicer is billing retail electric customers for transition charges, the servicer will have the right to terminate transmission and distribution service to the retail electric customer for non-payment by the retail electric customer pursuant to applicable Texas commission rules. Under current rules of the Texas commission adopted in April 2004 and effective June 2004, any non-paying residential or small non-residential customers are subject to disconnection by any retail electric provider. Non-paying large non-residential customers can be disconnected by any retail electric provider if the customer’s contract does not preclude disconnection.
THE SERVICER OF THE TRANSITION PROPERTY
About CenterPoint Houston
        Background Information. CenterPoint Houston is a fully regulated utility engaged in the transmission and distribution of electric energy in a 5,000-square mile area located along the Texas Gulf Coast, including the City of Houston. CenterPoint Houston is an indirect wholly owned subsidiary of CenterPoint Energy, a public utility holding company created on August 31, 2002 as part of the corporate restructuring of the integrated utility in response to the Restructuring Act. The transmission and distribution function that CenterPoint Houston performs remains subject to traditional utility rate regulation. CenterPoint Houston recovers the cost of its service through an energy delivery charge approved by the Texas commission.
        CenterPoint Energy is a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended (1935 Act). The 1935 Act and related rules and regulations impose a number of restrictions on the activities of CenterPoint Energy and its subsidiaries, including CenterPoint Houston. The 1935 Act has been repealed by the Energy Policy Act of 2005. CenterPoint Houston obtained approval from the SEC under the 1935 Act on September 30, 2005 for us to issue up to $2.0 billion of transition bonds.
        CenterPoint Houston’s principal executive offices are located at 1111 Louisiana, Houston, Texas 77002 (telephone number: (713) 207-3000).
        Service Territory. CenterPoint Houston provides electric transmission and distribution service to approximately 1.9 million metered customers in its service territory, which has a population of approximately 5 million people. With the exception of Texas City, CenterPoint Houston serves nearly all of the Houston/ Galveston metropolitan area. Effective January 2002, electric utilities, including CenterPoint Houston, were required to cease selling their electricity to their retail electric customers. Since that time, only retail electric providers have been allowed to sell electricity to retail customers formerly served by those utilities. The retail electric providers in CenterPoint Houston’s service territory are CenterPoint Houston’s primary customers.
        Area Economic Profile. Although the city has undergone a decade of diversification, Houston’s economy is still primarily centered around its key roles in international energy sectors. These roles include (1) an operations center for global exploration and drilling activities of major oil firms, (2) one of the world’s largest concentrations of petrochemical and refining facilities, (3) home office and base of operations for several of the world’s largest industrial and petrochemical construction firms and (4) a major distribution and processing center for the natural gas industry. Other important sectors of the Houston economy include the Port of Houston, the Johnson Space Center, the Texas Medical Center and a growing technology industry. Together, Houston’s energy and nonenergy sectors provide the city with a strong technical and engineering employment base.
        Area Economic Outlook. Most sectors in Houston’s economy are currently performing well, and the outlook is for moderate growth over the next several years. As a result of the current economic outlook, CenterPoint Houston expects the number of residential retail electric customers to increase by approximately 2% per year for the next 5 years. KWh sales to the residential class are expected to grow at about the same rate. KWh sales to the commercial class, which have increased rapidly for several years, are expected to moderate to an approximate 2% growth rate. The industrial sector, which already has a large amount of self-generation capacity in place, is forecast to remain relatively flat.
        In recent years, the number of customers in CenterPoint Houston’s service territory has grown steadily. Reflecting the strength of the local economy, CenterPoint Houston’s service territory has added over 25,000 residential customers in each year since 1994, including over 42,000 new residential customers in 2004. As

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a consequence, energy sales in CenterPoint Houston’s service territory have also increased for all customer classes other than the large industrial customer class. Energy sales to large industrial customers in 2004 were approximately 9% above levels in 1994. Industrial sales are sensitive to increased use of self-generation and the unfavorable impact that high natural gas prices have had on the competitiveness of Houston’s petrochemical industry. On a weather-adjusted basis, energy sales to the residential, commercial and small industrial customer classes have increased an average of 3.3%, 3.7% and 1.0%, respectively, over the ten-year period ended December 31, 2003. There can be no assurance that future usage rates will be similar to historical experience.
        Electric Transmission. CenterPoint Houston transports electricity from power plants to substations and from one substation to another and to retail electric customers taking power above 69 kilovolts (kV) in locations throughout the control area managed by ERCOT on behalf of retail electric providers. CenterPoint Houston provides transmission services under tariffs approved by the Texas commission.
        Electric Distribution. CenterPoint Houston distributes electricity for retail electric providers in its certificated service territory by carrying lower-voltage power from the substation to the retail electric customer. CenterPoint Houston’s distribution network receives electricity from the transmission grid through power distribution substations and distributes electricity to end users through distribution feeders. Its operations include construction and maintenance of electric transmission and distribution facilities, metering services, outage response services and call center operations. CenterPoint Houston provides distribution services under tariffs approved by the Texas commission. Texas commission rules and market protocols govern the commercial retail operations of distribution companies and other market participants.
        ERCOT Market Framework. CenterPoint Houston is a member of ERCOT. ERCOT is a network of retail customers, investor and municipally owned electric utilities, rural electric co-operatives, river authorities, independent generators, power marketers and retail electric providers, which serves as the regional reliability coordinating council for member electric power systems in Texas. The ERCOT market includes much of the State of Texas, other than a portion of the panhandle, a portion of the eastern part of the state bordering on Louisiana and the area in and around El Paso. The ERCOT market represents approximately 85% of the demand for power in Texas and is one of the nation’s largest power markets. The ERCOT market includes an aggregate net generating capacity of approximately 77,000 megawatts (MW). There are only limited direct current interconnections between the ERCOT market and other power markets in the United States.
        The ERCOT market operates under the reliability standards set by the North American Electric Reliability Council. The Texas commission has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of electricity supply across the state’s main interconnected power transmission grid. The ERCOT independent system operator (ERCOT ISO) is responsible for maintaining reliable operations of the bulk electric power supply system in the ERCOT market. Its responsibilities include ensuring that electricity production and delivery are accurately accounted for among the generation resources and wholesale buyers and sellers. Unlike certain other regional power markets, the ERCOT market is not a centrally dispatched power pool, and the ERCOT ISO does not procure energy on behalf of its members other than to maintain the reliable operations of the transmission system. Members are responsible for contracting sales and purchases of power bilaterally. The ERCOT ISO also serves as agent for procuring ancillary services for those who elect not to provide their own ancillary services.
        CenterPoint Houston’s electric transmission business supports the operation of the ERCOT ISO and all ERCOT members. The transmission business has planning, design, construction, operation and maintenance responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated area. The transmission business is participating with the ERCOT ISO and other ERCOT utilities to plan, design, obtain regulatory approval for and construct new transmission lines necessary to increase bulk power transfer capability and to remove existing constraints on the ERCOT transmission grid.

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Customer Classes
        General. CenterPoint Houston will recover transition charges from the following customer classes:
  residential,
 
  commercial,
 
  industrial, and
 
  other, which includes government and municipal street lighting.
Residential customers are those in individually metered single-family or multi-family homes, apartments or mobile homes. Master-metered apartments are included in the commercial class. Commercial customers typically have a maximum usage level less than 500 kVA and include such customers as offices, retail stores, schools and other businesses. Industrial customers, which generally use more than 600 kVA on a sustained basis, range from large office buildings and small manufacturing concerns (small industrials) to massive chemical, oil refining and other process plants and facilities (large industrials). Other is primarily municipal street lighting. During the twelve months ended September 30, 2005, approximately 41% of CenterPoint Houston’s total deliveries were to industrial customers, approximately 26% were to commercial customers and approximately 33% were to residential customers, with the State of Texas and other governmental entities included in all categories and comprising approximately 5% of CenterPoint Houston’s total deliveries. Except in their capacity as retail electric customers, neither the State of Texas nor any political subdivision, agency, authority or instrumentality of the State of Texas, nor any other public or private entity, will be obligated to provide funds for the payment of the transition bonds.
        Customer classes may include a number of rate schedules. Rate schedules and customer classes are created by CenterPoint Houston and approved by the Texas commission and are subject to change. The rate classes from which transition charges will be billed and collected have been established as part of the financing order. These rate classes are not subject to change and will remain in effect for the duration of the securitization financing.
        Statistics Regarding Retail Electric Customers in CenterPoint Houston’s Service Territory . The following table shows various operating statistics by customer class. CenterPoint Houston will bill transition charges according to rate schedules for each customer class. For the transition charges assessed to individual rate schedules as of any series issuance date and any adjustment thereto, in each case giving effect to the issuance of transition bonds on that date, see the related prospectus supplement.
        CenterPoint Houston has changed its method of accounting for some customers as a result of the implementation of the Restructuring Act. Before January 1, 2002, some points of delivery were combined into a single point of delivery and accounted for as a single customer. CenterPoint Houston is now required to account for those points separately.
        The transmission and distribution revenue data for the years ended December 31, 2002, 2003 and 2004 represents CenterPoint Houston’s revenues for transmission and distribution charges billed to retail electric providers.
        Actual usage fluctuations are highly dependent on weather conditions. On a weather adjusted basis, the compound annual growth rate for actual usage for the ten-year period ended December 31, 2004 was 3.0% for the residential customer class and 2.5% for the combined commercial and small industrial classes. We cannot assure you that future usage rates will be similar to historical experience. In particular, we cannot assure you that total retail electric customers, the composition of total retail electric customers by customer class, usage levels or revenues for each customer class will remain at or near the levels reflected in the following table. See “Risk Factors—Servicing Risks” in this prospectus.
        Retail Electric Customers. Over the past ten years, there has been growth in residential retail electric usage as well as in usage by the combined commercial and small industrial classes, in each case on a weather adjusted basis. However, trends are less discernible and less meaningful within the commercial and industrial classes since customer counts within specific rates can change as a result of reclassification within these classes due to voltage and usage level determinants. The following table sets forth customer usage for each year shown and for the six

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months ended September 30, 2005, and the number of metered retail electric customers at the end of each of those periods.
Historical Sales, Revenue and Customer Statistics
                                                                                                 
    Retail Electric Usage (As Measured by Billed MWH Sales) by Customer Class and Percentage Composition
     
        Nine Months    
Customer       Ended    
Class   2000       2001       2002       2003       2004       9/30/05    
                                                 
Residential
    22,415,359       30.7%       21,764,703       30.6%       22,867,470       32.9%       23,588,983       33.4%       23,583,782       32.1%       18,464,051       33.1%  
Commercial
    17,489,472       24.0%       17,809,507       25.0%       18,289,012       26.3%       18,777,800       26.6%       19,052,995       26.0%       14,689,549       26.4%  
Industrial
    32,915,840       45.1%       31,398,075       44.2%       28,201,753       40.6%       28,103,027       39.8%       30,598,650       41.7%       22,426,913       40.3%  
Other
    145,184       0.2%       141,758       0.2%       150,544       0.2%       153,075       0.2%       156,433       0.2%       118,509       0.2%  
                                                                         
Total Retail
    72,965,855       100.0%       71,114,043       100.0%       69,508,779       100.0%       70,622,885       100.0%       73,391,860       100%       55,699,022       100.0%  
                                                                 
    Transmission and Distribution Revenue by Customer Class and Percentage Composition (Dollars in thousands)
     
        Nine Months    
        Ended    
Customer Class   2002       2003       2004       9/30/05    
                                 
Residential
  $ 608,778       51.8%     $ 632,612       52.1%     $ 643,818       51.6%     $ 505,880       51.8%  
Commercial
    355,605       30.2%       375,528       30.9%       389,789       31.2%       300,381       30.7%  
Industrial
    185,854       15.8%       180,967       14.9%       187,958       15.1%       150,682       15.4%  
Other
    25,496       2.2%       25,712       2.1%       26,473       2.1%       20,194       2.1%  
                                                 
Total Retail
  $ 1,175,733       100.0%     $ 1,214,819       100.0%     $ 1,248,038       100.0%     $ 977,137       100.0%  
                                                                                                 
    Service Territory Number of Metered Retail Electric Customers and Percentage Composition
     
    December 31,    
            September 30,    
Customer Class   2000       2001       2002       2003       2004       2005    
                                                 
Residential
    1,501,148       87.9%       1,529,103       87.9%       1,569,230       87.7%       1,615,921       88.0%       1,658,076       88.0%       1,698,320       88.0%  
Commercial
    204,069       12.0%       209,689       12.0%       218,720       12.2%       218,739       11.9%       223,174       11.9%       229,223       11.9%  
Industrial
    1,729       0.1%       1,824       0.1%       1,863       0.1%       1,981       0.1%       2,038       0.1%       2,057       0.1%  
                                                                         
Total Retail
    1,706,946       100.0%       1,740,616       100.0%       1,789,813       100.0%       1,836,641       100.0%       1,883,288       100.0%       1,929,600       100.0%  
        Relationship with Retail Electric Providers. In accordance with the Restructuring Act, in January 2002, CenterPoint Houston ceased selling electricity to its retail customers. Those retail customers became customers of the various retail electric providers which were providing service in CenterPoint Houston’s service territory. Those retail electric providers became CenterPoint Houston’s primary customers in its service territory. As of September 30, 2005, CenterPoint Houston did business with approximately 65 retail electric providers. Reliant Energy, through its subsidiaries, is CenterPoint Houston’s largest customer, accounting for approximately 60% of CenterPoint Houston’s outstanding receivables from retail electric providers as of September 30, 2005. Since January 2002, other than the bankruptcies described below and minor delays and payment discrepancies, these retail electric providers generally have made timely payments for the electricity and other services provided by CenterPoint Houston and have generally been cooperative in coordinating billing and payment systems with CenterPoint Houston’s and the State of Texas’ systems in the implementation of the Restructuring Act. CenterPoint Houston has no long-term contract with any retail electric provider.
        Two retail electric providers with which CenterPoint Houston has done business filed for bankruptcy in June 2002 and March 2003, respectively. CenterPoint Houston, as servicer under the transition bonds issued by Transition Bond Company I, recovered from one of these retail electric providers the full amount of the transition charges relating to those transition bonds from a cash deposit provided by that retail electric provider. CenterPoint Houston recovered all but a minimal amount of the pre-petition balance of transition charges relating to the transition bonds issued by Transition Bond Company I from payments and a cash deposit provided by the other retail electric provider. For additional information regarding retail electric providers’ obligation to make cash deposits in order to provide retail electric service and collect transition charges within CenterPoint Houston’s service territory, please read “Retail Electric Providers—Rating, Deposit and Related Requirements.” For discussions of potential difficulties in collecting transition charges from retail electric providers and risks associated with the bankruptcy of a retail electric provider, please read “Risk Factors—Servicing Risks—It might be difficult to collect transition charges from retail electric providers” and “—Risks Associated With Potential Bankruptcy Proceedings of Retail Electric Providers,” respectively.

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Percentage Concentration of Large End-Use Retail Customers Served by CenterPoint Houston
        For the year ended December 31, 2004, the largest end-use retail electric customer served by retail electric providers in CenterPoint Houston’s service territory represented approximately 2.28%, and the ten largest end-use retail electric customers represented approximately 10.04%, of the total electric usage by end-use retail electric customers in CenterPoint Houston’s service territory. All of those customers were in the industrial customer class. We cannot assure you that the current end-use customers in CenterPoint Houston’s service territory will remain in the territory or that the levels of end-use customer concentration in the future will be similar to those experienced in the past.
How CenterPoint Houston Forecasts the Number of Retail Electric Customers and the Amount of Electricity Usage
        Accurate projections of the number of retail electric customers, usage and retail electric revenue are important in setting, maintaining and adjusting the transition charges. The transition charges must be sufficient to make principal and interest payments on the transition bonds, to replenish any amounts drawn from the capital subaccount and to pay the trustee’s fee, the servicing fee and the other expenses and costs included in qualified costs. Please refer to “CenterPoint Houston’s Financing Order” and “Risk Factors—Risks Associated With the Unusual Nature of the Transition Property” in this prospectus.
        Historical Forecasting Methodology. Prior to 2002, CenterPoint Houston’s forecast of energy deliveries and peak demand focused primarily on supporting the long-term planning needs of an integrated utility. In this capacity, the forecast played a key role in the long-term planning for new generation resources and for transmission facilities. Forecasts were routinely prepared for all customer classes and reviewed by the Texas commission for reasonableness and accuracy in regulatory proceedings.
        Currently, CenterPoint Houston relies extensively on the use of end-use modeling, particularly in the preparation of its residential and commercial forecasts. These models combine information on weather, appliance saturation and energy intensity along with key economic parameters as part of the process of developing the forecast. For example, residential usage of electricity is forecast utilizing economic data on electricity prices and real income in conjunction with average household size, the number of appliances, appliance efficiency and normal weather. The commercial and small industrial models forecast electric energy deliveries based on electricity price, employment, floor space and energy intensity by commercial building type. Large industrial customers are forecast in detail based on knowledge of their past activity and expected activity and how it relates to their energy needs. Known and measurable industrial plant additions, expansions and closures are incorporated into the electricity delivery projections, based on information CenterPoint Houston obtains through multiple sources, including in-house research. CenterPoint Houston uses economic forecasts, prepared by independent economic forecasting and consulting firms, as inputs to its forecasting models.
        Sales Forecast Variances. CenterPoint Houston will use its annual forecast to determine the appropriate levels of transition charges. Actual deliveries can deviate from forecast deliveries for many reasons, including the general economic climate in the service territory, the impact of weather on air-conditioning and heating usage, levels of business activity, the availability of more energy efficient appliances, new energy conservation technologies and the customers’ ability to acquire these new products. CenterPoint Houston’s ability to predict energy consumption accurately may affect the timing of collections of transition charges.
        The table below compares actual usage in MWh for a particular period to the most recent forecast, usually prepared during the preceding year. For example, the annual 2004 variance is based on a forecast prepared in 2003. The variances for the residential customer class ranged from -1.7% to 8.2%. The variances for the commercial customer class ranged from 0.0% to 4.6% and for the industrial class from -5.6% to 9.1%. Variances for the other customer class ranged from -3.1% to 13.2%. We cannot assure you that the future variance between actual and expected consumption in the aggregate or by customer class will be similar to the historical experience set forth

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below. In the following table, “variance” represents percentage deviation from the forecast amount of electricity usage.
Forecast Variance For the Amount of Electricity Consumed
                                                 
                        Nine Months
    2000   2001   2002   2003   2004   ended 9/30/05
                         
Residential
                                               
Forecast (MWH)
    20,710,864       21,338,085       22,177,812       23,591,423       23,990,031       18,683,221  
Actual (MWH)
    22,415,359       21,764,703       22,867,470       23,588,983       23,583,782       18,464,051  
Variance
    8.2%       2.0%       3.1%       0.0%       -1.7%       -1.2%  
Commercial
                                               
Forecast (MWH)
    16,728,189       17,209,406       17,645,969       18,768,660       18,978,028       14,524,242  
Actual (MWH)
    17,489,472       17,809,507       18,289,012       18,777,800       19,052,995       14,689,549  
Variance
    4.6%       3.5%       3.6%       0.0%       0.4%       1.1%  
Industrial
                                               
Forecast (MWH)
    32,351,426       32,100,649       29,861,371       28,617,844       28,036,906       21,799,428  
Actual (MWH)
    32,915,840       31,398,075       28,201,753       28,103,027       30,598,650       22,426,913  
Variance
    1.7%       -2.2%       -5.6%       -1.8%       9.1%       2.9%  
Other
                                               
Forecast (MWH)
    130,214       131,575       132,936       157,891       155,172       119,114  
Actual (MWH)
    145,184       141,758       150,544       153,075       156,433       118,509  
Variance
    11.5%       7.7%       13.2%       -3.1%       0.8%       -0.5%  
Total
                                               
Forecast (MWH)
    69,920,693       70,779,715       69,818,088       71,135,818       71,160,137       55,126,005  
Actual (MWH)
    72,965,855       71,114,043       69,508,779       70,622,885       73,391,861       55,699,022  
Variance
    4.4%       0.5%       -0.4%       -0.7%       3.1%       1.0%  
        The table below compares the actual number of customers at the end of a particular period to the related forecast of the number of customers for such date prepared during the previous year. Variance, expressed as a percentage, represents the difference between forecast and actual numbers of customers. A positive variance means there were more customers than forecast. A negative variance means there were fewer customers than forecast. The variances for the residential customer class ranged from 0.6% to 1.1%. The variances for the commercial customer class ranged from -2.1% to 5.3%. The variances for the industrial customer class ranged from -2.5% to 5.6%. We cannot assure you that the future variance between actual and expected numbers of customers in the aggregate or by customer class will be similar to the historical experience set forth below. Any updated information relating to this table will be set forth in a prospectus supplement. In this table, “variance” represents percentage deviation from the forecast number of customers.

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Forecast Variance For the Number of Metered Customers
                                                 
                        Nine months
    2000   2001   2002   2003   2004   ended 9/30/05
                         
Residential
                                               
Forecast
    1,487,206       1,520,206       1,554,206       1,602,916       1,640,280       1,684,700  
Actual
    1,501,148       1,529,103       1,569,230       1,615,921       1,658,076       1,698,320  
Variance
    0.9%       0.6%       1.0%       0.8%       1.1%       0.8%  
Commercial
                                               
Forecast
    196,917       202,619       207,712       223,415       224,265       227,102  
Actual
    204,069       209,689       218,720       218,739       223,174       229,223  
Variance
    3.6%       3.5%       5.3%       -2.1%       -0.5%       0.9%  
Industrial
                                               
Forecast
    1,773       1,820       1,853       1,903       1,930       1,999  
Actual
    1,729       1,824       1,863       1,981       2,038       2,057  
Variance
    -2.5%       0.2%       0.5%       4.1%       5.6%       2.9%  
Total
                                               
Forecast
    1,685,896       1,724,645       1,763,771       1,828,234       1,866,475       1,913,801  
Actual
    1,706,946       1,740,616       1,789,813       1,836,641       1,883,288       1,929,600  
Variance
    1.2%       0.9%       1.5%       0.5%       0.9%       0.8%  
The Billing Process
        Retail electric providers issue a single bill to retail electric customers purchasing electricity from a retail electric provider. This single bill includes all charges related to purchasing electricity from the retail electric provider, transmission and distribution services from CenterPoint Houston, the applicable transition charges and any other charges authorized by the Texas commission.
        Under a servicing agreement, any changes CenterPoint Houston institutes to customary billing and collection practices will apply to the servicing of the related transition property so long as CenterPoint Houston is the servicer. CenterPoint Houston expects that any such changes would be designed to enhance its ability to make timely recovery of amounts billed.
The Collection Process
        Retail electric customers will pay the transition charges to retail electric providers who supply them with electric power as part of their single bill for electric service. The retail electric providers will be obligated to remit to the servicer payments of the transition charges as described under “Retail Electric Providers—Payment of Transition Charges.” The servicer will have rights only under very limited circumstances to collect transition charges directly from retail electric customers. The servicer will not pay any shortfalls resulting from the failure of any retail electric provider to forward transition charge collections. If a retail electric provider defaults in the payment of transition charges, the retail electric provider must implement one of the courses of action described under “Retail Electric Providers—Remedies Upon Default.”
        Write-Off Experience. The table below sets forth net write-off experience with respect to payments owed to the retail electric providers CenterPoint Houston serves. The information in the table is derived from data provided to the servicer by retail electric providers. Neither we nor the servicer has independently verified this information. We cannot assure you that this historical data will be indicative of future experiences. The statutorily guaranteed true-up mechanism mitigates the effect of any write-offs on the scheduled payment of a series of transition bonds. Please read “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups.”
                         
    Net write-off for 12 months ended May 31,
     
    2003   2004   2005
             
Residential customers
    2.7%       3.4%       1.9%  
Non-residential customers
    0.5%       0.6%       0.4%  

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THE ISSUER
General
        We are a limited liability company formed under the Delaware Limited Liability Company Act pursuant to the limited liability company agreement executed by our sole member, CenterPoint Houston, and the filing of a certificate of formation with the Secretary of State of the State of Delaware. The limited liability company agreement will be amended and restated in its entirety prior to the date we enter into the sale agreement relating to the initial series of transition bonds with CenterPoint Houston. We have filed the form of the amended and restated limited liability company agreement with the SEC as an exhibit to the registration statement of which this prospectus forms a part. We have summarized selected provisions of the amended and restated limited liability company agreement below.
        As of the date of this prospectus, we have not carried on any business activities and have no operating history. We have included our audited financial statements as a part of this prospectus. Our fiscal year is the calendar year. We are not an agency or instrumentality of the State of Texas but are responsible to the State of Texas and the Texas commission as described below under the caption “—Our Relationship with the State of Texas and the Texas Commission.” Immediately following our issuance of the initial series of transition bonds, our assets will include:
  the related transition property,
 
  our rights under the applicable sale agreement, under the administration agreement and under all bills of sale delivered by CenterPoint Houston pursuant to such sale agreement,
 
  our rights under the applicable servicing agreement and any subservicing, agency, administration, intercreditor or collection agreements executed in connection with such servicing agreement,
 
  the applicable collection account and all subaccounts of such collection account,
 
  our rights under any interest rate swap agreement or hedging agreement entered into with respect to the issuance of a tranche series of floating rate bonds within such series,
 
  our rights in the deposits of retail electric providers required under the applicable financing order,
 
  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and
 
  all payments on or under and all proceeds in respect of any or all of the foregoing.
Following the issuance of subsequent series of transition bonds our assets will include similar property related to each such series. The indenture provides that the transition property, as well as our other assets, other than any cash released to us by the trustee semi-annually from earnings on the capital subaccount, will be pledged by us to the trustee. Pursuant to the indenture, the collected transition charges remitted to the trustee by the servicer must be used to pay principal and interest on the related series of transition bonds and our other obligations specified in the indenture.
Our Purpose
        We were created for the specific purposes of:
  purchasing and owning transition property and other transition bond collateral,
 
  issuing and registering one or more series of transition bonds,
 
  pledging our interest in transition property and other transition bond collateral to the trustee pursuant to the terms of the indenture in order to secure the related series of transition bonds,
 
  making payments on the transition bonds,
 
  distributing amounts released to us, and

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  performing other activities that are necessary, suitable or convenient to accomplish these purposes, including the execution of any interest rate swap or hedging agreement related to the issuance of a series of transition bonds.
        The amended and restated limited liability company agreement does not permit us to engage in any activities not directly related to these purposes.
Our Relationship With CenterPoint Houston
        On the issue date for each series of the transition bonds, except in the event of a permitted refunding of outstanding transition bonds, CenterPoint Houston will sell transition property to us pursuant to a sale agreement between us and CenterPoint Houston. Pursuant to a servicing agreement between us and CenterPoint Houston, CenterPoint Houston will serve as the initial servicer of the transition property. We will pay CenterPoint Houston fixed fees for performing these services. Pursuant to an administration agreement between us and CenterPoint Houston, CenterPoint Houston will provide administrative services to us.
Our Relationship With the State of Texas and the Texas Commission
        We are responsible to the State of Texas and the Texas commission. Specifically, pursuant to a financing order,
  our organizational documents and transaction documents prohibit us from engaging in any activities other than acquiring transition property, issuing transition bonds and performing other activities as specifically authorized by that financing order,
 
  we must respond to representatives of the Texas commission throughout the process of offering the transition bonds provided for therein, with the financing order directing the Texas commission’s financial advisor to veto any proposal that does not comply with all criteria established in the financing order, and
 
  the servicer will file periodic adjustments to transition charges with the Texas commission on our behalf.
We have also agreed that certain reports concerning transition charge collections will be provided to the Texas commission.
Our Managers
        Pursuant to the amended and restated limited liability company agreement, our affairs will be managed by managers, whom we refer to in this prospectus and the prospectus supplement as our “managers.” CenterPoint Houston will appoint our managers from time to time or, in the event CenterPoint Houston transfers its interest in us, the new owner or owners will appoint our managers. Following the initial issuance of the initial series of transition bonds, we will have at least two independent managers at all times who, among other things, are not and have not been for at least five years prior to the date of their appointment:
  a direct or indirect legal or beneficial owner of us, CenterPoint Houston, any of our affiliates or any of CenterPoint Houston’s affiliates,
 
  a relative, supplier, employee, officer, director or manager (other than as an independent director or manager of us, CenterPoint Houston or any of its affiliates, as the case may be), contractor or material creditor of us, CenterPoint Houston or any of its affiliates, or
 
  a person who controls CenterPoint Houston or any of its affiliates.
The persons who serve as independent managers of Transition Bond Company I may also serve as our independent managers. The remaining managers will be employees or officers of CenterPoint Houston. The managers will devote the time necessary to conduct our affairs. As of the date of this prospectus, Marc Kilbride, who is 53 years of age and the Vice President and Treasurer of CenterPoint Houston, is our sole manager. We expect that

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CenterPoint Houston will appoint two of its employees or officers to serve as managers with Mr. Kilbride and the independent managers in connection with the initial issuance of transition bonds.
        None of our managers has been involved in any legal proceedings which are specified in Item 401(k) of the SEC’s regulation S-K.
Manager Fees and Limitation on Liabilities
        As of the date of this prospectus, we have not paid any compensation to any manager since the date we were formed. We will not compensate our managers, other than our independent managers, for their services performed on our behalf. The independent managers will be paid a manager’s fee from our assets and will be reimbursed for their reasonable expenses including, without limitation, the reasonable compensation, expenses and disbursements of any agents, representatives, experts and counsel the independent managers may employ in connection with the performance of their respective duties under the amended and restated limited liability company agreement.
        Under the amended and restated limited liability company agreement, our managers will not be liable under any circumstances except for:
  liabilities arising from their own willful misconduct or gross negligence,
 
  liabilities arising from the failure by any manager to perform obligations expressly undertaken in the amended and restated limited liability company agreement, or
 
  taxes, fees or other charges, based on or measured by any fees, commissions or compensation received by our managers in connection with the transactions described in this prospectus.
        Under the amended and restated limited liability company agreement, we will indemnify our managers to the fullest extent permitted by law against any liability incurred with respect to their services as managers under the amended and restated limited liability company agreement, except in the circumstances described above.
We Are a Separate and Distinct Legal Entity from CenterPoint Houston
        Under the amended and restated limited liability company agreement, we may not file a voluntary petition for relief under the bankruptcy code without a unanimous vote of our managers (including our independent managers). CenterPoint Houston has agreed that it will not cause us to file a voluntary petition for relief under the bankruptcy code. The amended and restated limited liability company agreement, except for financing reporting purposes and for federal and state income tax purposes, requires us to:
  take all reasonable steps to continue our identity as a separate legal entity,
 
  make it apparent to third persons that we are an entity with assets and liabilities distinct from those of CenterPoint Houston, other affiliates of CenterPoint Houston, our managers or any other person, and
 
  make it apparent to third persons that we are not a division of CenterPoint Houston or any of its affiliates or any other person.
        Our principal place of business is 1111 Louisiana, Suite 4655B, Houston, Texas 77002, and our telephone number at such address is (713) 207-5222.
Administration Agreement
        CenterPoint Houston will provide administrative services to us pursuant to an administration agreement between CenterPoint Houston and us. We will pay CenterPoint Houston a fixed fee for performing these services, plus all reimbursable expenses.

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USE OF PROCEEDS
        We will use the proceeds of the issuance of a series of transition bonds to pay the expenses of the issuance and sale of the transition bonds of such series and to purchase related transition property from CenterPoint Houston. In accordance with the applicable financing order, CenterPoint Houston will use the proceeds it receives from the sale of the transition property to reduce its debt and equity and to adjust its capitalization on its regulatory books.
RELATIONSHIP TO THE SERIES 2001-1 TRANSITION BONDS
        In October 2001, Transition Bond Company I, a special purpose, wholly owned subsidiary of CenterPoint Houston, issued $749 million of Series 2001-1 transition bonds. These bonds were issued to securitize CenterPoint Houston’s generation-related regulatory assets recoverable through irrevocable nonbypassable transition charges provided for in the Restructuring Act and a financing order issued by the Texas commission on May 31, 2000.
        Although CenterPoint Houston is the servicer with respect to the Series 2001-1 transition bonds and will be the initial servicer with respect to transition bonds described in this prospectus, as more fully described under “The Servicer of the Transition Property,” we are a separate legal entity from Transition Bond Company I, and the transition bonds described herein will be payable from collateral that is separate from that securing the Series 2001-1 transition bonds. Transition Bond Company I will have no obligations under our transition bonds, and we will have no obligations under the Series 2001-1 transition bonds. Please read “The Restructuring Act—CenterPoint Houston and Other Utilities May Securitize Qualified Costs,” “CenterPoint Houston’s Financing Order” and “The Transition Bonds—The Security for the Transition Bonds.”
THE TRANSITION BONDS
        We will issue the transition bonds under an indenture between us and the trustee to be named in the applicable prospectus supplement. We have filed the form of the indenture with the SEC as an exhibit to the registration statement of which this prospectus forms a part. The particular terms of each series of the transition bonds will be provided in the indenture and a related supplemental indenture. We have summarized selected provisions of the indenture and the transition bonds below. This summary does not purport to be complete and is subject to and qualified by reference to the provisions of the indenture. We will describe the particular terms of each series of the transition bonds in a supplement to this prospectus. You should carefully read the summary below, the applicable prospectus supplement and the terms and provisions of the indenture that may be important to you before investing in the transition bonds. Please refer to “Where You Can Find More Information” in this prospectus.
General Terms of the Transition Bonds
        Transition bonds may be issued under the indenture from time to time to finance the purchase by us of transition property. The aggregate principal amount of the transition bonds that may be authenticated and delivered under the indenture and the financing order issued by the Texas commission on March 16, 2005 may not exceed $1,493,747,264 plus (a) the principal portion of excess mitigation credits provided by CenterPoint Houston after August 31, 2004 through the date of issuance of the transition bonds or the date of the termination of such excess mitigation credits, whichever is earlier, (b) interest on stranded costs accrued after August 31, 2004 through the date of issuance of the transition bonds, and (c) up-front qualified costs as set forth in the financing order, although the indenture permits the issuance of additional series of transition bonds secured by other transition property in accordance with one or more subsequent financing orders of the Texas commission. Any series of the transition bonds may include one or more tranches which differ, among other things, as to interest rate and amortization of principal. The terms of all transition bonds of the same series will be identical, unless a series includes more than one tranche, in which case the terms of all transition bonds of the same tranche will be identical. The particular terms of the transition bonds of any series and, if applicable, tranches thereof, will be set forth in the supplemental indenture for that series. The terms of a series of transition bonds, and any tranches thereof, will not be subject to consent of the transition bondholders of any previously issued series. Please refer to “Risk Factors—Other Risks Associated with an Investment in the Transition Bonds” in this prospectus. Each series of transition bonds may

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include one or more tranches that accrue interest at a variable rate, and one or more interest rate swap agreements may be entered into in connection with the issuance of any such variable rate transition bonds. Please refer to “—Floating Rate Transition Bonds” below.
        The prospectus supplement for a series of transition bonds will describe the following terms of that series of transition bonds and, if applicable, the tranches of that series:
  the designation of the series and, if applicable, the tranches of that series,
 
  the principal amount of the series and, if applicable, the tranches of that series,
 
  the annual rate at which interest accrues or the method or methods of determining such annual rate,
 
  the payment dates,
 
  the scheduled final payment date and the final maturity date of the series and, if applicable, the tranches of that series,
 
  the issuance date of the series,
 
  the collateral for the series,
 
  the authorized denominations,
 
  any provisions for optional redemption of the series or tranche,
 
  the expected amortization schedule for principal of the series and, if applicable, the tranches of that series,
 
  any other material terms of the tranche that are not inconsistent with the provisions of the indenture and that will not result in any rating agency’s reducing or withdrawing its rating of any outstanding tranche of transition bonds,
 
  the identity of the trustee, and
 
  only if a series includes floating rate transition bonds, the terms of any swap agreement executed to permit such issuance and the identity of any swap counterparty related thereto.
        The transition bonds are not a debt, liability or other obligation of the State of Texas or of any political subdivision, agency or instrumentality of the State and do not represent an interest in or legal obligation of CenterPoint Energy, CenterPoint Houston or any of their affiliates, other than us. None of CenterPoint Energy, CenterPoint Houston or any of their affiliates will guarantee or insure the transition bonds. A financing order authorizing the issuance of transition bonds does not constitute a pledge of the full faith and credit of the State of Texas or of any of its political subdivisions. The issuance of the transition bonds under the Restructuring Act will not directly, indirectly or contingently obligate the State of Texas or any of its political subdivisions to levy or to pledge any form of taxation for the transition bonds or to make any appropriation for their payment.
Payments of Interest and Principal on the Transition Bonds
        Interest will accrue on the principal balance of a series of transition bonds at the interest rate specified in or determined in the manner specified in the related prospectus supplement. Interest will be payable to the transition bondholders on each payment date, commencing on the payment date specified in the related prospectus supplement. Interest payments for each series will be made from collections of related transition charges, including amounts available in the excess funds subaccount and, if necessary, the amounts available in the capital subaccount for each series. In the event of default by a retail electric provider, the amounts in the retail electric provider security deposit subaccount or available from other credit support (up to an amount of the lesser of the payment default of that retail electric provider or the amount of that retail electric provider’s deposit or other credit support amount) will be used to make payments in respect of the transition bonds of the related series.

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        On any payment date with respect to any series, we generally will pay principal of transition bonds only until the outstanding principal balance has been reduced to the principal balance specified for that payment date in the expected amortization schedule for that series, but only to the extent funds are available for that series as described in this prospectus. Accordingly, principal of the series of transition bonds may be paid later, but generally not sooner, than reflected in the expected amortization schedule for such series, except in the case of an applicable optional redemption or acceleration. Please refer to “Risk Factors—Other Risks Associated With an Investment in the Transition Bonds” and “Weighted Average Life and Yield Considerations for the Transition Bonds” in this prospectus.
        The trustee will retain in the excess funds subaccount for that series for payment on later payment dates any collections of transition charges in excess of amounts payable as:
  fees and expenses of the servicer (including the servicing fee), the independent managers and the trustee,
 
  payments of interest and principal on the transition bonds for that series,
 
  allocations to the capital subaccount for that series, and
 
  investment earnings on amounts in the capital subaccount released to us.
        If the trustee receives insufficient collections of transition charges for a series of transition bonds for any payment date, and amounts in the collection account for that series (and the applicable subaccounts of that collection account) are not sufficient to make up the shortfall, principal of that series of transition bonds may be paid later than expected, as described in this prospectus. The failure to make a scheduled payment of principal on the transition bonds of a series because there are not sufficient funds in the collection account for that series does not constitute a default or an event of default with respect to such series under the indenture, except for the failure to make the scheduled payment of principal due upon the final maturity of the transition bonds.
        The trustee will distribute on each payment date to the transition bondholders of a particular series to the extent of available funds in the related collection account all payments of principal and interest then due on such transition bonds (other than special payments as defined in the indenture). The trustee will make each such payment to the transition bondholders, other than the final payment, on the applicable record date. If the transition bonds are ever issued in definitive certificated form, however, the final payment with respect to the transition bonds will be made only upon presentation and surrender of such transition bond at the office or agency of the trustee specified in the notice given by the trustee with respect to such final payment. The trustee will mail notice of the final payment to the transition bondholders no later than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.
        The transition bonds will originally be issued in book-entry form, and we do not expect that the transition bonds will be issued in definitive certificated form. At the time, if any, we issue the transition bonds of any series in the form of definitive transition bonds and not to The Depository Trust Company (“DTC”) or its nominee, the trustee will make payments with respect to that tranche as described below under “—Definitive Certificated Transition Bonds.” Upon application by a holder of any tranche of transition bonds in the principal amount of $10,000,000 or more to the trustee not later than the applicable record date, the trustee will make payments by wire transfer to an account maintained by the payee in New York, New York.
        On each payment date, the amount to be paid as principal on the transition bonds of each series will equal:
  the unpaid principal amount of each series due on the final maturity date of that series, plus
 
  the unpaid principal amount of each series upon acceleration following an event of default, plus
 
  the unpaid principal amount of any transition bonds of each series called for redemption, plus
 
  the overdue payments of principal, plus
 
  the unpaid and previously scheduled payments of principal, plus
 
  the principal scheduled to be paid on each series on that payment date.

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        Except as otherwise specified in a prospectus supplement with respect to floating rate transition bonds, the failure to pay accrued interest on a series of transition bonds on any payment date (even if the failure is caused by a shortfall in transition charges received) will result in an event of default for that series of transition bonds unless such failure is cured within five business days. If interest is not paid within that five-day period, the issuer will pay such defaulted interest (plus interest on such defaulted interest at the applicable interest rate to the extent lawful) to the persons who are transition bondholders on a special record date (as defined in the indenture). The special record date will be at least fifteen business days prior to the date on which the trustee is to make a special payment (a special payment date). The issuer will fix any special record date and special payment date and, at least 10 days before such special record date, the issuer will mail to each affected transition bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on such defaulted interest) to be paid. An event of default under one series of transition bonds will not automatically trigger an event of default under other outstanding series of transition bonds. See “—What Constitutes an Event of Default on the Transition Bonds” below.
        The entire unpaid principal amount of a series of transition bonds will be due and payable:
  on the final maturity date of that series,
 
  on the date of redemption, if any, and
 
  if an event of default under the indenture occurs and is continuing and the trustee or the holders of a majority in principal amount of that series of transition bonds have declared that series of transition bonds to be immediately due and payable.
However, the nature of our business will result in payment of principal upon an acceleration of a series of transition bonds being made as funds become available. See “Risk Factors— Risks Associated with the Unusual Nature of the Transition Property— Foreclosure of the trustee’s lien on the transition property for a series of transition bonds might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect” and “—You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited.”
        If any special payment date or other date specified herein for distribution of any payments to transition bondholders is not a business day, payments scheduled to be made on such special payment date or other date may be made on the next succeeding business day, and no interest will accrue upon such payment during the intervening period. “Business day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York, or Houston, Texas, are required or authorized by law or executive order to remain closed.
        Neither we nor CenterPoint Houston makes any representation or warranty that any amounts actually collected arising from transition charges will in fact be sufficient to meet payment obligations on related series of transition bonds or that assumptions made in calculating transition charges will in fact be realized.
Floating Rate Transition Bonds
        If we issue any tranche of floating rate transition bonds, we may enter into or arrange for one or more interest rate swap transactions. Generally, a swap agreement, on each payment date, will obligate us to pay to the swap counterparty, solely from payments of transition charges, an amount equal to the fixed interest due under the swap agreement on the payment date. The swap agreement will obligate the swap counterparty to pay to us an amount equal to the product of (1) a floating rate comparable to the rate accruing on the floating rate transition bonds and (2) the principal balance of the floating rate transition bonds as of the close of business on the preceding payment date, after giving effect to all payments of principal made to the floating rate transition bond holders on the preceding payment date.
        The related prospectus supplement will include a description of:
  the material terms of any interest rate swap transaction,
 
  the identity of any interest rate swap counterparty,

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  any payments due to be paid by or to us or the trustee under any interest rate swap transaction,
 
  scheduled deposits in and withdrawals from any tranche subaccount of the collection account with respect to any interest rate swap transaction,
 
  the formula for calculating the floating rate of interest of any floating interest rate tranche, and
 
  the rights of transition bondholders with respect to any interest rate swap transaction, including any right of termination of or amendment to the interest rate swap agreement.
        Under the indenture, we are obligated to perform all of our obligations pursuant to any interest rate swap agreement to which we are a party.
Redemption of the Transition Bonds
        We will specify the redemption provisions, if any, for any series of the transition bonds in the related prospectus supplement, including the premiums, if any, payable upon redemption. Unless the context requires otherwise, all references in this prospectus to principal of the transition bonds of a series as it relates to redemption include any premium that might be payable on the transition bonds if the transition bonds of the series are redeemed. The trustee will give notice of redemption of any series of the transition bonds to each registered holder of a transition bond of such series by first-class mail, postage prepaid, mailed not less than five days nor more than 45 days prior to the date of redemption or in another manner or at another time as we may specify in the related prospectus supplement. The redemption price will, in each case, include accrued interest to, but excluding, the date of redemption. All transition bonds called for redemption will cease to bear interest on the specified redemption date, provided the redemption price is on deposit with the trustee at that time, and will no longer be considered “outstanding” under the indenture. The transition bondholders will have no further rights to transition bonds called for redemption after the specified redemption date, except to receive from the trustee payment of the redemption price of such transition bonds and unpaid interest accrued to the date fixed for redemption.
Credit Enhancement for the Transition Bonds
        Credit enhancement with respect to the transition bonds of each series will be provided principally by adjustments to the related transition charges, amounts on deposit in the excess funds subaccount and the capital subaccount for that series and cash deposits and other credit support provided in respect of transition charges allocable to a series by retail electric providers who do not meet specified credit rating requirements. In addition, for any series of the transition bonds or one or more tranches of the transition bonds, additional credit enhancement may be provided. We will describe the amounts and types of credit enhancement, if any, and the provider of credit enhancement with respect to each series of the transition bonds or one or more tranches of the transition bonds in the applicable prospectus supplement. Additional credit enhancement may be in the form of:
  an additional excess funds subaccount,
 
  subordination,
 
  a financial guaranty insurance policy,
 
  a letter of credit,
 
  a credit or liquidity facility,
 
  a repurchase obligation for certain obligations and warranties,
 
  a third-party payment or other support,
 
  a cash deposit or other credit enhancement, or
 
  any combination of the foregoing, as we may describe in the applicable prospectus supplement.

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        If specified in the applicable prospectus supplement, credit enhancement for a series of the transition bonds may cover one or more other series of the transition bonds.
Transition Bonds Will Be Issued in Book-Entry Form
        Unless we specify otherwise in the related prospectus supplement, the transition bonds will be available to investors only in the form of book-entry transition bonds. You may hold your bonds through DTC in the U.S., Clearstream Banking, Luxembourg, S.A., referred to as Clearstream, or Euroclear in Europe or in any other manner we describe in the related prospectus supplement. You may hold your notes directly with one of these systems if you are a participant in the system or indirectly through organizations that are participants.
        The Role of DTC, Clearstream and Euroclear. Cede & Co., as nominee for DTC, will hold the global bond or bonds representing the transition bonds. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream customers and Euroclear participants, respectively, through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries. These depositaries will, in turn, hold these positions in customers’ securities accounts in the depositaries’ names on the books of DTC.
        The Function of DTC. DTC is a limited purpose trust company organized under the laws of the State of New York and is a member of the Federal Reserve System. DTC is a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entries, thereby eliminating the need for physical movement of bonds. Direct participants of DTC include securities brokers and dealers, banks, trust companies and clearing corporations and may include other organizations. Indirect access to the DTC system also is available to others, including banks, brokers, dealers and trust companies, as indirect participants, that clear through or maintain a custodial relationship with a participant, either directly or indirectly.
        The Function of Clearstream. Clearstream is incorporated under the laws of Luxembourg. Clearstream holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream customers through electronic book-entry changes in accounts of Clearstream customers, thereby eliminating the need for physical movement of securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in Luxembourg and therefore is subject to regulation by the Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream’s customers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of any series of transition bonds. Clearstream’s United States customers are limited to securities brokers and dealers and banks. Clearstream has customers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has established an electronic bridge with Euroclear Bank S.A./N.V. as the operator of the Euroclear System in Brussels to facilitate settlement of trades between Clearstream and Euroclear.
        The Function of Euroclear. Euroclear was created in 1968 to hold securities for Euroclear participants and to clear and settle transactions between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Such transactions may be settled in any of various currencies, including United States dollars. The Euroclear System includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. The Euroclear System is operated by Euroclear Bank S.A./N.V. as the Euroclear operator. All operations are conducted by the Euroclear operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear operator. Euroclear participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of any series of transition bonds. Indirect access to the Euroclear System is also

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available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.
        Terms and Conditions of Euroclear. Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System. These terms and conditions govern transfers of securities and cash within the Euroclear System, withdrawals of securities and cash from the Euroclear System and receipts of payments with respect to securities in the Euroclear System. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. The Euroclear operator acts under these rules and laws only on behalf of Euroclear participants and has no record of or relationship with persons holding through Euroclear participants.
        The Rules for Transfers Among DTC, Clearstream or Euroclear Participants . Transfers between DTC participants will occur in accordance with DTC rules. Transfers between Clearstream customers or Euroclear participants will occur in the ordinary way in accordance with their respective rules and operating procedures.
        Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream customers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving transition bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream customers and Euroclear participants may not deliver instructions directly to Clearstream’s and Euroclear’s depositaries.
        Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream customer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream customer or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.
        DTC Will Be the Holder of the Transition Bonds. Transition bondholders that are not participants or indirect participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, transition bonds may do so only through participants and indirect participants. In addition, transition bondholders will receive all distributions of principal of and interest on the transition bonds from the trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, transition bondholders may experience some delay in their receipt of payments because payments will be forwarded by the trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its participants, who thereafter will forward them to indirect participants or transition bondholders. It is anticipated that the only “bondholder” will be Cede & Co., as nominee of DTC. The trustee will not recognize transition bondholders as bondholders, as that term is used in the indenture, and transition bondholders will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of transition bondholders through DTC.
        Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers among participants on whose behalf it acts with respect to the transition bonds and is required to receive and transmit distributions of principal and interest on the transition bonds. Participants and indirect participants with whom transition bondholders have accounts with respect to the transition bonds similarly are required to make book-entry transfers and receive and transmit those payments on behalf of their respective transition bondholders. Accordingly, although transition bondholders will not possess transition bonds, transition bondholders will receive payments and will be able to transfer their interests.

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        Because DTC can act only on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a transition bondholder to pledge transition bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those notes, may be limited due to the lack of a physical certificate for those transition bonds.
        DTC has advised us that it will take any action permitted to be taken by a transition bondholder under the indenture only at the direction of one or more participants to whose account with DTC the transition bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of participants whose holdings include those interests.
        How Transition Bond Payments Will Be Credited by Clearstream and Euroclear . Distributions with respect to transition bonds held through Clearstream or Euroclear will be credited to the cash accounts of Clearstream customers or Euroclear participants in accordance with the relevant system’s rules and procedures, to the extent received by its depositary. Those distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Please refer to “Material Federal Income Tax Consequences for the Transition Bondholders” in this prospectus. Clearstream or the Euroclear operator, as the case may be, will take any other action permitted to be taken by a transition bondholder under the indenture on behalf of a Clearstream customer or Euroclear participant only in accordance with its relevant rules and procedures and subject to its depositary’s ability to effect those actions on its behalf through DTC.
        Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the transition bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.
Definitive Certificated Transition Bonds
        The Circumstances That Will Result in the Issuance of Definitive Certificated Transition Bonds . Unless we specify otherwise in the related prospectus supplement, each tranche of the transition bonds will be issued in fully registered, certificated form to beneficial owners of transition bonds or other intermediaries, rather than to DTC or its nominee, only if:
  DTC or we advise the trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as nominee and depository with respect to the book-entry certificates for the transition bonds and we are unable to locate a qualified successor,
 
  we advise the trustee in writing that we elect to discontinue use of book-entry-only transfers through DTC and deliver certificated transition bonds to DTC, or
 
  after the occurrence of an event of default under the indenture, transition bondholders representing at least a majority of the outstanding principal balance of the transition bonds of all affected series advise us, the trustee and DTC through the financial intermediaries and the DTC participants in writing that the continuation of a book-entry system through DTC, or a successor to DTC, is no longer in the transition bondholders’ best interest.
        The Delivery of Definitive Certificated Transition Bonds . Upon the occurrence of any event described in the immediately preceding paragraph (unless otherwise specified), the trustee will be required to notify all affected beneficial owners of transition bonds of the occurrence of the event and the availability through DTC of definitive certificated transition bonds. Upon surrender by DTC of the global bond or bonds in the possession of DTC that had represented the applicable transition bonds and receipt of instructions for re-registration, the trustee will authenticate and deliver definitive certificated transition bonds to the beneficial owners, and the trustee will recognize the holders of the definitive certificate transition bonds as bondholders under the indenture.
        The Payment Mechanism for Definitive Certificated Transition Bonds . Payments of principal of, and interest on, definitive certificated transition bonds will be made by the trustee, as paying agent, in accordance with the

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procedures set forth in the indenture. These payments will be made directly to holders of definitive certificated transition bonds in whose names the definitive certificated transition bonds were registered at the close of business on the related record date specified in each prospectus supplement. These payments will be made by check mailed to the address of the holder as it appears on the register maintained by the trustee or, in certain cases, by wire transfer.
        The Transfer or Exchange of Definitive Certificated Transition Bonds . Definitive certificated transition bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which will initially be the trustee. No service charge will be imposed for any registration of transfer or exchange, but we and the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection with the transfer or exchange.
        Final Payments on Definitive Certificated Transition Bonds . The final payment on any transition bond, however—whether a definitive certificated note or a note registered in the name of Cede & Co.—will be made only upon presentation and surrender of the transition bond at the office or agency specified in the notice of final payment to transition bondholders. The trustee will be required to mail that notice to registered bondholders not later than the fifth day of the month of the final payment.
Registration and Transfer of the Transition Bonds
        If specified in the related prospectus supplement, we may issue one or more tranches of transition bonds in definitive form, which will be transferable and exchangeable as described above under “—Definitive Certificated Transition Bonds.” Unless otherwise specified in the related prospectus supplement, there will be no service charge for any registration or transfer of the transition bonds, but the trustee may require the owner to pay a sum sufficient to cover any tax or other governmental charge.
        We will issue each tranche of transition bonds in the minimum initial denominations set forth in the related prospectus supplement and, except as otherwise provided in the related prospectus supplement, in integral multiples thereof.
        The trustee will make payments of interest and principal on each payment date to the bondholders in whose names the transition bonds were registered on the applicable record date.
The Transition Bonds May Be Issued in Various Series or Tranches
        Under the indenture, the trustee will authenticate and deliver an additional series of the transition bonds only on the satisfaction of specified conditions, including the following:
  all parties required to do so by the terms of the relevant documents must have authorized, executed and delivered appropriate documentation required by the indenture and our limited liability company agreement, as amended or restated,
 
  the seller must have irrevocably assigned all of its right, title and interest in the applicable transition property to us and made the filing required by Section 39.309 of the Restructuring Act with respect to the assignment,
 
  the trustee must have received written confirmation from each rating agency that the new series of transition bonds will be rated as set forth in the related prospectus supplement,
 
  the seller must receive and deliver to us and the trustee:
  an opinion of outside tax counsel (as selected by the seller, and in form and substance reasonably satisfactory to us and the trustee) to the effect that we will not be subject to United States federal income tax as an entity separate from CenterPoint Energy and that the new series of transition bonds will be treated as debt of CenterPoint Energy for United States federal income tax purposes,

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  an opinion of outside tax counsel (as selected by the seller, and in form and substance reasonably satisfactory to us and the trustee) or, if the seller so chooses, a ruling from the IRS, in either case to the effect that, for United States federal income tax purposes, the issuance of the new series of transition bonds will not result in gross income to the seller, and
 
  an opinion of outside tax counsel (as selected by the seller, and in form and substance reasonably satisfactory to us and the trustee) to the effect that such issuance of the additional series of transition bonds will not adversely affect the characterization of any then outstanding transition bonds as obligations of CenterPoint Energy.
  The opinion of outside tax counsel described above may, if the seller so chooses, be conditioned on the receipt by the seller of one or more letter rulings from the IRS and in rendering such opinion outside tax counsel shall be entitled to rely on the rulings contained in such letter rulings and to rely on the representations made, and information supplied, to the IRS in connection with such letter rulings, and
  we must deliver certain certificates and opinions specified in the indenture to the trustee and, in certain instances, to the Texas commission.
The Security for the Transition Bonds
        To secure the payment of principal, premium, if any, and interest on, and any other amounts owing in respect of, the transition bonds of each series pursuant to the indenture, we will grant to the trustee for the benefit of the transition bondholders of each series a security interest in all of our right, title and interest, whether now owned or later acquired, in and to the following collateral with respect to that series, which collectively constitutes the trust estate under the indenture:
  the transition property related to that series,
 
  our rights under the statutorily guaranteed true-up mechanism,
 
  our rights under the applicable sale agreement,
 
  all bills of sale delivered by CenterPoint Houston pursuant to the applicable sale agreement,
 
  our rights under the applicable servicing agreement and any subservicing, agency, intercreditor or collection agreements executed in connection with the servicing agreement,
 
  our rights under the administration agreement,
 
  our rights in the applicable collection account and all subaccounts of the collection account, including the general subaccount, the capital subaccount and the excess funds subaccount and all cash, securities, instruments, investment property or other assets credited to or deposited in the collection account or any subaccount of the collection account from time to time or purchased with funds from the collection account, and all financial assets and securities entitlements carried therein or credited thereto,
 
  our rights under any interest rate swap agreement or hedging agreement entered into with respect to the issuance of a floating rate tranche of a particular series of transition bonds,
 
  our rights in the deposits of retail electric providers required under the applicable financing order,
 
  all of our other property related to the series of transition bonds, other than any cash released to us by the trustee semi-annually from earnings on the capital subaccount,
 
  all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, and

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  all payments on or under and all proceeds in respect of any or all of the foregoing, including all proceeds of the conversion, voluntary or involuntary, into cash or other liquid property of any or all of the foregoing, all cash proceeds, accounts, accounts receivable, general intangibles, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, payment intangibles, letter-of-credit rights, investment property, commercial tort claims, documents, rights to payment of any and every kind, and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing.
        The security interest does not extend to:
  amounts (including net investment earnings) on deposit in a retail electric provider security deposit subaccount that have been released to the servicer or a retail electric provider,
 
  amounts representing investment earnings on the capital subaccount released to us,
 
  amounts deposited in the capital subaccount for that series that have been released to us or as we direct following retirement of that series of transition bonds,
 
  amounts deposited with us on any series issuance date for payment of costs of issuance with respect to the related series of transition bonds (together with any interest earnings thereon), and
 
  amounts in the segregated trust account held for the benefit of the trustee to pay certain expenses of the trustee.
        The collateral for each series of transition bonds will be separate from the collateral for any other series, and holders of one series of transition bonds will have no recourse to collateral for a different series. Please refer to “—How Funds in the Collection Account Will Be Allocated.”
        Section 39.309(b) of the Restructuring Act provides that a valid and enforceable security interest in transition property will attach and be perfected by the means set forth in Section 39.309. Specifically, Section 39.309(b) provides that a valid and enforceable lien and security interest in transition property may be created only by a financing order and the execution and delivery of a security agreement in connection with issuance of financing instruments such as the transition bonds. The lien and security interest attach automatically at the time when value is received for the instruments. Upon perfection by filing notice with the Secretary of State of Texas under Section 39.309(d) of the Restructuring Act, the lien and security interest will be a continuously perfected lien and security interest in the transition property and all proceeds of the property, whether accrued or not, and will have priority in the order of filing and take precedence over any subsequent judicial or other lien creditor.
The Collection Account for the Transition Bonds
        Under the indenture, we will establish a collection account with the trustee or at another eligible institution for each series of transition bonds. The collection account will be under the sole dominion and exclusive control of the trustee. The trustee will hold the collection account for our benefit as well as the benefit of the bondholders of the related series of transition bonds. Funds received from collections of the applicable transition charges will be deposited into the collection account. The collection account for each series of transition bonds will be divided into the following subaccounts, which need not be separate bank accounts:
  the general subaccount,
 
  the capital subaccount,
 
  the excess funds subaccount, and
 
  one or more tranche subaccounts with respect to floating rate transition bonds, if any.
        All amounts in the collection account for each series of transition bonds not allocated to any other subaccount by the servicer will be allocated to the general subaccount. Unless the context indicates otherwise,

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references in this prospectus and the prospectus supplement to the collection account for any series of transition bonds include all of the subaccounts contained therein. All monies deposited from time to time in the collection account, all deposits therein pursuant to the indenture, and all investments made in eligible investments with these monies will be held by the trustee in the collection account as part of the collateral. The following institutions are eligible institutions for the establishment of the collection account:
  the corporate trust department of the trustee so long as any of the securities of the trustee are rated investment grade by each rating agency, or
 
  the trust department of a depository institution organized under the laws of the United States of America or any state or domestic branch of a foreign bank, which:
  has deposits insured by the Federal Deposit Insurance Corporation, and has either:
  a long-term unsecured debt rating of “AA-” by S&P and “A2” by Moody’s and, if applicable, the equivalent of the lower of those two ratings by Fitch, or
 
  a certificate of deposit rating of “A-1+” by S&P and “P-1” by Moody’s and, if applicable, the equivalent of the lower of those two ratings by Fitch, or any other long-term, short-term or certificate of deposit rating acceptable to the rating agencies.
        Appropriate Investments for Funds in the Collection Account. So long as no default or event of default has occurred and is continuing, all or a portion of the funds in the collection account for each series of transition bonds must be invested by the trustee in accordance with the written direction of the servicer in any of the following, each of which is referred to as an eligible investment:
  1. direct obligations of, and obligations fully guaranteed as to timely payment by, the United States of America,
 
  2. demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof, or any domestic branch of a foreign bank, and subject to supervision and examination by federal or state banking or depository institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations, other than any obligations thereof where the rating is based on the credit of a person other than such depository institution or trust company, shall have either (A) a long-term unsecured debt rating from Moody’s and S&P of at least “Aa3” and “AA”, respectively, or (B) a certificate of deposit rating by Moody’s and S&P of at least “P-1” and “A-1+”, respectively,
 
  3. commercial paper or other short-term obligations of any corporation (other than CenterPoint Houston, Reliant Energy, Inc. or any of their affiliates), whose ratings, at the time of the investment or contractual commitment to invest therein, from Moody’s and S&P of at least “P-1” and “A-1+”, respectively,
 
  4. investments in money market funds having a rating from Moody’s and S&P of “Aaa” and “AAA”, respectively, including funds for which the trustee or any of its affiliates act as investment manager or advisor,
 
  5. bankers’ acceptances issued by any depository institution or trust company referred to in clause 2 above,
 
  6. repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company, acting as principal, described in clause 2 above,

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  7. repurchase obligations with respect to any security or whole loan entered into with:
  a. depository institution or trust company, acting as principal, described in clause 2 above,
 
  b. broker/ dealer, acting as principal, registered as a broker or dealer under Section 15 of the Securities Exchange Act of 1934 the unsecured short-term debt obligations of which are rated at least “P-1” by Moody’s and at least “A-1+” by S&P at the time of entering into this repurchase obligation, or
 
  c. an unrated broker/ dealer, acting as principal, that is a wholly owned subsidiary of a nonbank or bank holding company the unsecured short-term debt obligations of which are rated at least “P-1” by Moody’s and at least “A-1+” by S&P at the time of purchase, or
  8. any other investment permitted by each of the rating agencies;
provided, however, that:
  a. any book-entry security, instrument or security having a maturity of one month or less that would be an eligible investment but for its failure, or the failure of the obligor thereon, to have the rating specified above shall be an eligible investment if such book-entry security, instrument or security, or the obligor thereon, has an unsecured short-term debt rating of at least “P-1” by Moody’s, and at least “A-1+” by S&P, and
 
  b. any book-entry security, instrument or security having a maturity of greater than one month that would be an eligible investment but for its failure, or the failure of the obligor thereon, to have the rating specified above shall be an eligible investment if such book-entry security, instrument or security, or the obligor thereon, has an unsecured long-term debt rating of at least “AA-” by S&P or “Aa3” by Moody’s and an unsecured short-term debt rating of at least “P-1” by Moody’s or the equivalent thereof by S&P,
provided, that unless otherwise permitted by the applicable rating agencies, upon the failure of any Eligible Institution to maintain any applicable rating set forth in this definition or the definition of Eligible Institution, the related investments at that institution shall be reinvested in Eligible Investments at a successor Eligible Institution within 10 days.
        If Fitch provides a rating for any of the securities, instruments or entities described above, then such security, instrument or entity must have a rating from Fitch not less than the equivalent of the lower of the ratings thereon from Moody’s and S&P.
        These eligible investments may not:
  unless otherwise provided in the prospectus supplement, mature later than the next payment date, or
 
  be sold, liquidated or otherwise disposed of at a loss prior to the maturity thereof.
        No moneys held in the collection account may be invested, and no investment held in the collection account may be sold, unless the security interest granted and perfected in the collection account will continue to be perfected in the investment or the proceeds of the sale in either case without any further action by any person.
        Remittances to the Collection Account. On each remittance date, the servicer will remit all collected transition charges, any indemnity amounts and any other proceeds of the trust estate securing that series to the trustee for deposit in the related collection account. Indemnity amount means any amount paid by the servicer or CenterPoint Houston to the trustee, for the trustee or on behalf of the transition bondholders, in respect of indemnification obligations pursuant to the applicable servicing agreement or sale agreement. Please refer to “The Servicing Agreements” and “The Sale Agreements” in this prospectus. To the extent that the combined amounts remitted by a retail electric provider are insufficient to satisfy amounts owed in respect of transition charges relating to the transition bonds or any other bonds being serviced by the servicer or transmission and distribution service provided to the retail electric provider (other than late fees), the remitted amounts will be allocated pro rata among such transition charges and transmission and distribution charges. If a retail electric provider defaults in the

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payment of transition charges, it must implement one of the actions described under “Retail Electric Providers—Remedies Upon Default.”
        General Subaccount. Collected transition charges and any indemnity amounts remitted to the trustee will be deposited into the general subaccount. On each payment date, the trustee will allocate amounts in the general subaccount among the other subaccounts as described under “—How Funds in the Collection Account Will Be Allocated.” Amounts in the general subaccount will be invested in the eligible investments described above.
        Capital Subaccount. Upon the issuance of each series of the transition bonds, CenterPoint Houston will make a capital contribution to us in an amount stated in the prospectus supplement. We will pay this amount to the trustee for deposit into the capital subaccount which will be invested in eligible investments by the trustee in accordance with the written direction of the servicer. The trustee will draw on amounts in the capital subaccount to the extent that, in allocating funds in accordance with clauses 1 through 9 in “—How Funds in the Collection Account Will Be Allocated,” below, amounts on deposit in the general subaccount and, the excess funds subaccount are insufficient to make scheduled payments on the transition bonds and payments of fees and expenses specified in clauses 1 through 9. The trustee will allocate collected transition charges available on any payment date that are not necessary to pay amounts described in clauses 1 through 9 in “—How Funds in the Collection Account Will Be Allocated,” below, to the capital subaccount in an amount sufficient to replenish any amounts drawn from the capital subaccount. If any series of the transition bonds has been retired as of any payment date, the amounts on deposit in the capital subaccount allocable to that series will be released to us, free of the lien of the indenture.
        Excess Funds Subaccount. The trustee will allocate collected transition charges available on any payment date that are not necessary to pay clauses 1 through 12 in “—How Funds in the Collection Account Will Be Allocated,” below, to the excess funds subaccount. The trustee will invest amounts in the excess funds subaccount in eligible investments in accordance with the written direction of the servicer. On each payment date, the trustee will draw on the excess funds subaccount in allocating funds in accordance with clauses 1 through 11 in “—How Funds in the Collection Account Will Be Allocated,” below, to the extent that amounts on deposit in the general subaccount are insufficient to make scheduled payments on the transition bonds and payments of fees and expenses specified in clauses 1 through 11.
        Tranche Subaccount. If specified in the prospectus supplement, upon the issuance of a specified tranche of floating rate transition bonds, a tranche subaccount will be established with respect to that tranche. On or before each payment date, a fixed amount specified in the prospectus supplement will be allocated to that tranche subaccount from the general subaccount and payments to and from any swap counterparty pursuant to the related interest rate swap agreement will be made from or allocated to, as applicable, that tranche subaccount as described in the prospectus supplement. On or before each payment date, amounts on deposit in the tranche subaccount will be applied to make payments with respect to the related tranche, as specified in the prospectus supplement.
How Funds in the Collection Account Will Be Allocated
        Amounts remitted by the servicer to the trustee with respect to a series of transition bonds, including any indemnity amounts, amounts paid by a swap counterparty in accordance with any interest rate swap agreement, if any, and all investment earnings on amounts in the subaccounts in the collection account will be deposited into the general subaccount of the collection account. Unless otherwise specified in the prospectus supplement, on each payment date or other date specified in the prospectus supplement with respect to a particular tranche or series, the trustee will allocate or pay all amounts on deposit in the general subaccount of the collection account for that series in the following priority:
  1. payment of the trustee’s fees, expenses and any outstanding indemnity amounts relating to that series, the total amount of which will be fixed as specified in the indenture,
 
  2. payment of the servicing fee, which will be a fixed amount specified in the servicing agreement for that series, plus any unpaid servicing fees from prior payment dates,
 
  3. payment of a pro rata portion of the administration fee, which will be a fixed amount specified in the administration agreement between us and CenterPoint Houston, and a pro rata portion of the fees of

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  our independent managers, which will be in an amount specified in an agreement between us and our independent managers,
 
  4. payment of all of our other ordinary periodic operating expenses relating to that series, such as accounting and audit fees, rating agency fees, legal fees and certain reimbursable costs of the servicer under the applicable servicing agreement,
 
  5. payment of the interest then due on that series of transition bonds, and payment of amounts, if any, specified in the prospectus supplement that are payable in respect of interest to the swap counterparty under any interest rate swap agreement,
 
  6. payment of the principal then required to be paid on that series of transition bonds at final maturity or upon redemption or acceleration,
 
  7. payment of the principal then scheduled to be paid on that series of transition bonds,
 
  8. payment of any amounts payable to any other credit enhancement providers with respect to that series,
 
  9. payment of any of our remaining unpaid operating expenses and any remaining amounts owed pursuant to the basic documents relating to that series, including all remaining indemnity amounts owed to the trustee, and any other amounts owed pursuant to any interest rate swap agreement, other than swap termination payments,
 
  10. replenishment of any amounts drawn from the capital subaccount for that series,
 
  11. any swap termination payments, which will be payable only after all of the transition bonds have been paid in full unless the swap termination payments are payable as a result of (i) failure to pay as a result of insufficient collection of transition charges (up to a cap specified in the prospectus supplement), (ii) breach of the swap agreement by us or the indenture trustee (up to a cap specified in the prospectus supplement), (iii) our bankruptcy, (iv) our merger without assumption or (v) failure or termination of the security interest of the trustee under the indenture,
 
  12. release to us of an amount equal to investment earnings on amounts in the capital subaccount for that series, so long as no event of default has occurred and is continuing, and
 
  13. allocation of the remainder, if any, to the excess funds subaccount.
        The amounts paid during any calendar year in respect of the trustee’s fees and expenses in clause 1, the servicing fee in clause 2, the administration and independent managers’ fees in clause 3, the ordinary periodic operating expenses in clause 4 and the remaining periodic expenses in clause 9 may not exceed $1,055,500 in the aggregate for all series (for so long as CenterPoint Houston is the servicer), unless the Texas commission approves a different aggregate amount of such payments. If more than one series of transition bonds is outstanding, the payments described in the preceding sentence will be made pro rata from the respective collection accounts of each series. Please read “Risk Factors—Other Risks Associated with an Investment in the Transition Bonds—We may incur expenses in excess of caps on such expenses provided in the financing order.”
        Interest means, for any payment date for any series or tranche of the transition bonds, the sum, without duplication, of:
  an amount equal to the interest accrued on that series or tranche at the applicable interest rate from the prior payment date or, with respect to the first payment date, the amount of interest accrued since the issuance date, with respect to that series or tranche,
 
  any unpaid interest plus, to the fullest extent permitted by law, any interest accrued on this unpaid interest,
 
  if the transition bonds have been declared due and payable, all accrued and unpaid interest thereon, and

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  with respect to a series or tranche to be redeemed prior to the next payment date, the amount of interest that will be payable as interest on such series or tranche upon such redemption.
        Principal means, with respect to any payment date and any series or tranche of the transition bonds, the sum, without duplication, of:
  the amount of principal due as a result of the occurrence and continuance of an event of default and acceleration of the transition bonds,
 
  the amount of principal due on the final maturity date of any series or tranche,
 
  the amount of principal and premium, if any, due as a result of a redemption of the transition bonds prior to such payment date pursuant to the indenture,
 
  any overdue payments of principal, and
 
  the amount of principal scheduled to be paid on such payment date in accordance with the expected amortization schedule.
        If on any payment date funds in the general subaccount are insufficient to make the allocations or payments contemplated by clauses 1 through 11 of the first paragraph of this subsection with respect to a series of transition bonds, the trustee will draw from amounts on deposit in the following subaccounts in the following order up to the amount of the shortfall:
  1. from the excess funds subaccount for allocations and payments contemplated in clauses 1 through 11, and
 
  2. from the capital subaccount for allocations and payments contemplated by clauses 1 through 9.
        If, on any payment date, available collections of transition charges allocable to a series of transition bonds, together with available amounts in the related subaccounts, are not sufficient to pay interest due on all outstanding transition bonds of that series on that payment date, amounts available will be allocated pro rata based on the amount of interest payable on each tranche in that series. If, on any payment date, remaining collections of transition charges allocable to a series of transition bonds, together with available amounts in the subaccounts, are not sufficient to pay principal due and payable on all outstanding transition bonds of that series on that payment date, amounts available will be allocated pro rata based on the principal amount of each tranche then due and payable. If, on any payment date, remaining collections of transition charges allocable to a series of transition bonds, together with available amounts in the subaccounts, are not sufficient to pay principal scheduled to be paid on all outstanding transition bonds of that series, amounts available will be allocated pro rata based on the principal amounts of each tranche then scheduled to be paid on the payment date. If the trustee uses amounts on deposit in the capital subaccount to pay those amounts or make those transfers, as the case may be, subsequent adjustments to the transition charges related to that series or tranche will take into account, among other things, the need to replenish those amounts.
Reports to Holders of the Transition Bonds
        With respect to each series of the transition bonds, on or prior to each payment date, the trustee will deliver a statement prepared by the servicer to each transition bondholder of that series, to the Texas commission and to the rating agencies. This statement will include, to the extent applicable, the following information, as well as any other information so specified in the applicable supplemental indenture, as to the transition bonds of that series with respect to that payment date or the period since the previous payment date, as applicable:
  the amount to be paid to transition bondholders of that series and the related tranches in respect of principal,
 
  the amount to be paid to transition bondholders of that series and the related tranches in respect of interest,

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  the transition bond balance and the projected transition bond balance of that series and the related tranches as of that payment date,
 
  the amount on deposit in the capital subaccount for that series as of that payment date,
 
  the amount, if any, on deposit in the excess funds subaccount for that series as of that payment date,
 
  the amount to be paid to and by any counterparty under any interest rate swap agreement or hedge agreement relating to that series,
 
  the amount to be paid to the trustee relating to that series on that payment date,
 
  the amount to be paid to the servicer relating to that series on that payment date, and
 
  any other transfers and payments relating to that series made pursuant to the indenture.
Enhanced Continuing Disclosure
        We will not voluntarily suspend or terminate our filing obligations with the SEC and, to the extent permitted by and consistent with our legal obligations, we will post on our website or furnish or file in the periodic reports and other reports to be filed with the SEC pursuant to the Exchange Act, as described below, the following information with respect to each series of outstanding transition bonds to the extent such information is reasonably available to us:
  statements of transition charge remittances made to the trustee (to be included in a Form 10-Q or Form 10-K),
 
  a statement reporting the balances in the collection account and in each subaccount of the collection account as of the end of each quarter or the most recent date available (to be included in a Form 10-Q or Form 10-K),
 
  a statement showing the balance of outstanding transition bonds that reflects the actual periodic payments made on each series of the transition bonds versus the expected periodic payments (to be included in the next Form 10-Q or Form 10-K filed),
 
  the semi-annual servicer’s certificate which is required to be submitted pursuant to the servicing agreement (to be filed with a Form 10-Q, Form 10-K or Form 8-K),
 
  the text (or a link to the website where a reader can find the text) of each true-up filing and the results of each true-up filing following the issuance of the series of transition bonds (to be included in either a Form 10-Q, Form 10-K or Form 8-K),
 
  any change in the long-term or short-term credit ratings of the servicer assigned by the rating agencies (to be filed or furnished in a Form 8-K),
 
  material legislative or regulatory developments directly relevant to the outstanding transition bonds (to be filed or furnished in a Form 8-K); and
 
  a quarterly statement (to be included in each Form 10-Q and Form 10-K) either affirming that, to our knowledge, in all material respects, for each materially significant retail electric provider, (a) each such retail electric provider has been billed in compliance with the requirements outlined in the applicable financing order; (b) each such retail electric provider has made payments in compliance with the requirements outlined in the applicable financing order, and (c) each such retail electric provider satisfies the creditworthiness requirements of the applicable financing order or describing the servicer’s actions if (a), (b) or (c) has not occurred.

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        Internet-Based Information and Special Website. In addition, we will, to the extent permitted by and consistent with the issuer’s obligations under applicable law, cause to be posted on the website associated with CenterPoint Houston:
  the final prospectus for each series of outstanding transition bonds,
 
  the semi-annual servicer’s certificate delivered for each series of transition bonds pursuant to the servicing agreements,
 
  the periodic reports described above, and
 
  a current organization chart for the issuer and servicer (unless the servicer is not related to us in which case the servicer will post two separate organization charts), in each case disclosing the parent company and material subsidiaries of the servicer and us.
We and the Trustee May Modify the Indenture
        Modifications of the Indenture That Do Not Require Consent of Transition Bondholders. Without the consent of any of the holders of the outstanding transition bonds but with prior notice to the rating agencies and, with respect to amendments that would increase ongoing qualified costs as defined in the applicable financing order, with the consent or deemed consent of the Texas commission (other than with respect to the supplemental indenture establishing the initial series of transition bonds), we and the trustee may execute a supplemental indenture for any of the following purposes:
  to correct or amplify the description of the collateral, or to better assure, convey and confirm unto the trustee the collateral, or to subject additional property to the lien of the indenture,
 
  to evidence the succession, in compliance with the applicable provisions of the indenture, of another entity to us, and the assumption by any applicable successor of our covenants contained in the indenture and in the transition bonds,
 
  to add to our covenants, for the benefit of the holders of the transition bonds, or to surrender any right or power therein conferred upon us,
 
  to convey, transfer, assign, mortgage or pledge any property to the trustee,
 
  to cure any ambiguity, to correct or supplement any provision of the indenture or in any supplemental indenture which may be inconsistent with any other provision of the indenture or in any supplemental indenture, to make any other provisions with respect to matters or questions arising under the indenture or in any supplemental indenture, to change in any manner or eliminate any provisions of the indenture or to modify in any manner the rights of the transition bondholders under the indenture; provided, however, that:
  this action shall not adversely affect in any material respect the interests of any transition bondholder, and
 
  the rating agency condition shall have been satisfied with respect thereto,
  to evidence and provide for the acceptance of the appointment under the indenture by a successor trustee with respect to the transition bonds and to add to or change any of the provisions of the indenture as shall be necessary to facilitate the administration of the trust estate under the indenture by more than one trustee, pursuant to the requirements specified in the indenture,
 
  to qualify the transition bonds for registration with a clearing agency,
 
  to modify, eliminate or add to the provisions of the indenture to the extent necessary to effect the qualification of the indenture under the Trust Indenture Act or under any similar federal statute hereafter enacted and to add to the indenture any other provisions as may be expressly required by the Trust Indenture Act,

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  to set forth the terms of any series that has not theretofore been authorized by a supplemental indenture, or
 
  to satisfy any rating agency requirements.
        Additional Modifications to the Indenture That Do Not Require the Consent of Transition Bondholders. We may also, without the consent of any of the transition bondholders but, with respect to amendments that would increase ongoing qualified costs as defined in the applicable financing order, with the consent or deemed consent of the Texas commission, execute one or more other agreements supplemental to the indenture as long as:
  the supplemental agreement does not adversely affect in any material respect the interests of any transition bondholder, and
 
  the rating agency condition shall have been satisfied with respect thereto.
        Modifications to the Indenture That Require the Approval of the Transition Bondholders. We and the trustee also may, with the consent of the holders of not less than a majority of the outstanding amount of the transition bonds of each series or tranche to be affected by the supplemental indenture and, with respect to amendments that would increase ongoing qualified costs as defined in the applicable financing order, with the consent or deemed consent of the Texas commission, execute a supplemental indenture to add any provisions to, or change in any manner or eliminate any of the provisions of, the indenture or modify in any manner the rights of the transition bondholders under the indenture. However, supplemental indenture may not, without the consent of the holder of each outstanding transition bond of each series or tranche affected thereby:
  change the date of payment of any installment of principal of or premium, if any, or interest on any transition bond of such series or tranche, or reduce the principal amount thereof, the interest rate thereon or the redemption price or the premium, if any, with respect thereto,
 
  change the provisions of the indenture and the related applicable supplemental indenture relating to the application of collections on, or the proceeds of the sale of, the collateral to payment of principal of or premium, if any, or interest on the transition bonds of such series or tranche, or change the coin or currency in which any transition bond or any interest thereon is payable,
 
  impair the right to institute suit for the enforcement of those provisions of the indenture specified therein regarding payment, reduce the percentage of the aggregate amount of the outstanding transition bonds, or of a series or tranche thereof, the consent of the transition bondholders of which is required for any supplemental indenture, or the consent of the transition bondholders of which is required for any waiver of compliance with those provisions of the indenture specified therein or of defaults specified therein and their consequences provided for in the indenture,
 
  reduce the percentage of the outstanding amount of the transition bonds of such series or tranche required to direct the trustee to direct us to sell or liquidate the collateral,
 
  modify any provision of the section of the indenture relating to the consent of transition bondholders of such series or tranche with respect to supplemental indentures, except to increase any percentage specified therein or to provide that those provisions of the indenture or the basic documents specified in the indenture cannot be modified or waived without the consent of each outstanding transition bondholder affected thereby,
 
  modify any of the provisions of the indenture in a manner so as to affect the amount of any payment of interest, principal or premium, if any, payable on any transition bond of such series or tranche on any payment date or change the redemption dates, expected amortization schedules, series final maturity dates or tranche final maturity dates of any transition bonds of such series or tranche,
 
  decrease the required capital amount with respect to such series, modify or alter the provisions of the indenture regarding the voting of the transition bonds held by us, CenterPoint Houston, an affiliate of either of them or any obligor on the transition bonds of such series,

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  decrease the percentage of the aggregate principal amount of the transition bonds of such series or tranche required to amend the sections of the indenture which specify the applicable percentage of the aggregate principal amount of the transition bonds necessary to amend the indenture or other related agreements specified therein, or
 
  permit the creation of any lien ranking prior to or on a parity with the lien of the indenture with respect to any of the collateral for the transition bonds of such series or tranche or, except as otherwise permitted or contemplated in the indenture, terminate the lien of the indenture on any property at any time subject thereto or deprive the holder of any transition bond of the security provided by the lien of the indenture.
        Enforcement of the Sale Agreement, the Administration Agreement, the Intercreditor Agreement and the Servicing Agreement. The indenture provides that we will take all lawful actions to enforce our rights under the sale agreement, the administration agreement, the intercreditor agreement and the servicing agreement applicable to each series of transition bonds. The indenture also provides that we will take all lawful actions to compel or secure the performance and observance by CenterPoint Houston, the administrator and the servicer of their respective obligations to us under or in connection with the sale agreement, the administration agreement, the intercreditor agreement and the servicing agreement applicable to each series of transition bonds. So long as no event of default occurs and is continuing, we may exercise any and all rights, remedies, powers and privileges lawfully available to us under or in connection with the sale agreement, the administration agreement, the intercreditor agreement and the servicing agreement applicable to each series of transition bonds. However, if we or the servicer propose to amend, modify, waive, supplement, terminate or surrender in any material respect, or agree to any material amendment, modification, supplement, termination, waiver or surrender of, the process for adjusting the transition charges, we must notify the trustee and the Texas commission in writing and the trustee must notify the transition bondholders of this proposal. In addition, the trustee may consent to this proposal only with the written consent of the holders of a majority of the principal amount of the outstanding transition bonds of the series or tranches materially and adversely affected thereby and only if the rating agency condition is satisfied. In addition, any proposed amendment of the indenture, the sale agreement or the servicing agreement that would increase ongoing qualified costs as defined in the applicable financing order requires the prior written consent or deemed consent of the Texas commission.
        If an event of default occurs and is continuing, the trustee may, and, at the written direction of the holders of a majority of the outstanding amount of the transition bonds of all affected series shall, exercise all of our rights, remedies, powers, privileges and claims against CenterPoint Houston, the administrator and servicer, under or in connection with the related sale agreements, administration agreements, intercreditor agreements and servicing agreements, and any right of ours to take this action shall be suspended.
        Modifications to the Sale Agreement, the Intercreditor Agreement, the Administration Agreement and the Servicing Agreement. With the prior written consent of the trustee, the sale agreement, the intercreditor agreement, the administration agreement and the servicing agreement, in each case relating to a particular series of transition bonds, may be amended, so long as the rating agency condition is satisfied in connection therewith, at any time and from time to time, without the consent of the transition bondholders of the related series but, with respect to amendments that would increase ongoing qualified costs as defined in the applicable financing order, with the consent or deemed consent of the Texas commission (other than with respect to an intercreditor agreement). However, any such amendment may not adversely affect the interest of any transition bondholder in any material respect without the consent of the holders of a majority of the outstanding principal amount of the transition bonds of the affected series. The parties to the servicing agreement acknowledge that the financing order provides that the Texas commission, acting through its authorized legal representative and for the benefit of Texas ratepayers, may enforce the servicer’s obligations imposed under the servicing agreement pursuant to the financing order to the extent permitted by law.
        Notification of the Rating Agencies, the Texas Commission, the Trustee and the Transition Bondholders of Any Modification. If we, CenterPoint Houston or the servicer or any other party to the applicable agreement:
  proposes to amend, modify, waive, supplement, terminate or surrender, or agree to any other amendment, modification, waiver, supplement, termination or surrender of, the terms of the sale agreement or the servicing agreement, or

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  waives timely performance or observance by CenterPoint Houston or the servicer under the sale agreement, the intercreditor agreement or the servicing agreement,
in each case in a way which would materially and adversely affect the interests of transition bondholders, we must first notify the rating agencies of the proposed amendment. Upon receiving notification regarding the rating agency condition, we must thereafter notify the trustee and the Texas commission in writing and the trustee shall notify the transition bondholders of the proposed amendment and whether the rating agency condition has been satisfied with respect thereto. The trustee will consent to this proposed amendment, modification, supplement or waiver only with the written consent of the holders of a majority of the outstanding principal amount of the transition bonds of the series or tranches materially and adversely affected thereby.
What Constitutes an Event of Default on the Transition Bonds
        An event of default with respect to a series of transition bonds is defined in the indenture as being:
  1. a default in the payment of any interest on any transition bond of that series when the same becomes due and payable and the continuation of this default for five business days,
 
  2. a default in the payment of the then unpaid principal of any transition bond of that series on the final maturity date for that series or, if applicable, any tranche on the final maturity date for that tranche,
 
  3. a default in the payment of the redemption price for any transition bond of that series on the redemption date therefor,
 
  4. a default in the observance or performance of any of our covenants or agreements made in the indenture, other than those specifically dealt with in clause 1, 2 or 3 above, or any of our covenants or agreements made in any interest rate swap agreement, hedge agreement or credit enhancement agreement permitted under the indenture or any supplemental indenture or any of our representations or warranties made in the indenture or in any certificate or other writing delivered pursuant to the indenture or in connection with the indenture proving to have been incorrect in any material respect as of the time when made (other than a covenant, agreement or representation or warranty expressly included in the indenture solely for the benefit of a different series of transition bonds), and this default continues or is not cured for a period of 30 days after the earlier of (a) written notice of the default is given to us by the trustee or to us and the trustee by the holders of at least 25% of the outstanding principal amount of the transition bonds of the affected series or (b) the date we have actual notice of the default,
 
  5. the filing of a decree or order for relief by a court having jurisdiction in respect of us or any substantial part of the collateral securing that series in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of us or our property or for any substantial part of the collateral securing that series, or ordering the winding- up or liquidation of our affairs, and such decree or order remains unstayed and in effect for a period of 90 consecutive days,
 
  6. the commencement by us of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by us to the entry of an order for relief in an involuntary case under any such law, or the consent by us to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of us or our property for any substantial part of the collateral securing that series, or the making by us of any general assignment for the benefit of creditors, or the failure by us generally to pay our debts as such debts become due, or the taking of action by us in furtherance of any of the foregoing,
 
  7. any act or failure to act by the State of Texas or any of its agencies (including the Texas commission), officers or employees that violates or is not in accordance with the pledge of the State

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  of Texas in Section 39.310 of the Restructuring Act including, without limitation, the failure of the Texas Commission to implement the statutorily guaranteed true-up mechanism, or
 
  8. any other event designated as an event of default in the related series supplement.
        Remedies Available Following an Event of Default. If an event of default with respect to a series of transition bonds, other than event number 7 above, occurs and is continuing, the trustee or holders of a majority in principal amount of the transition bonds of that series may declare the unpaid principal balance of that series of transition bonds, together with accrued interest, to be immediately due and payable. This declaration may, under the circumstances specified therein, be rescinded by the holders of a majority in principal amount of that series of the transition bonds. The nature of our business will result in payment of principal upon such a declaration being made as funds become available. See “Risk Factors—Risks Associated with the Unusual Nature of the Transition Property— Foreclosure of the trustee’s lien on the transition property for a series of transition bonds might not be practical, and acceleration of the transition bonds of such series before maturity might have little practical effect” and “—You may experience material payment delays or incur a loss on your investment in the transition bonds because the source of funds for payment is limited.”
        In addition to acceleration of the transition bonds described above, the trustee may, and upon the written direction of the holders of a majority in principal amount of the transition bonds of the series with respect to which a default has occurred, shall, exercise one or more of the following remedies upon an event of default (other than event number 7 above):
  the trustee may institute proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the transition bonds or under the indenture with respect to the transition bonds, whether by declaration or otherwise, enforce any judgment obtained, and collect from us or the servicer moneys adjudged due,
 
  the trustee may institute proceedings from time to time for the complete or partial foreclosure of the indenture with respect to the collateral securing that series,
 
  the trustee may exercise any remedies of a secured party under the Uniform Commercial Code or the Restructuring Act or any other applicable law and take any other appropriate action to protect and enforce the rights and remedies of the trustee and the transition bondholders,
 
  the trustee may sell the collateral securing that series or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law provided that certain conditions set forth in the indenture are met, and
 
  the trustee may exercise all of our rights, remedies, powers, privileges and claims against the seller, administrator and the servicer under or in connection with the administration agreement or the applicable sale agreement, intercreditor agreement or servicing agreement or against any swap counterparty under or in connection with, and pursuant to the terms of, any applicable swap agreement.
        If event of default number 7 above occurs, the trustee may to the extent allowed by law institute or participate in proceedings reasonably necessary to compel performance of or to enforce the pledge of the State of Texas and to collect any monetary damages incurred by the transition bondholders or the trustee as a result of such event of default. This is the only remedy the trustee may exercise if this event of default has occurred.
        When the Trustee Can Sell the Collateral. If a series of transition bonds has been declared to be due and payable following an event of default, the trustee may, at the written direction of the holders of a majority in principal amount of the transition bonds of such affected series, either:
  subject to the paragraph immediately below, sell the collateral securing such series,
 
  elect to have us maintain possession of the collateral securing such series, or
 
  take such other remedial action as the trustee, at the written direction of the holders of a majority in principal amount of the transition bonds of such series then outstanding and declared to have been

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  due and payable, may direct and continue to apply distributions on the collateral securing such series as if there had been no declaration of acceleration.
        The trustee is prohibited from selling the collateral securing such series of transition bonds following an event of default on such series other than (1) a default for five days or more in the payment of any interest on the transition bonds of such series, (2) a default in the payment of the then unpaid principal of the transition bonds of such series on the final maturity date for that series or (3) if applicable, any tranche on the final maturity date for that tranche, or a default in the payment of the redemption price for any transition bond of such series on the redemption date therefor unless:
  the holders of 100% of the principal amount of all series of the transition bonds consent to the sale,
 
  the proceeds of the sale or liquidation are sufficient to pay in full the principal of and premium, if any, and accrued interest on the outstanding transition bonds of such series, or
 
  the trustee determines (based upon a report from an independent auditor) that funds provided by the collateral securing such series would not be sufficient on an ongoing basis to make all payments on the transition bonds of such series as these payments would have become due if the transition bonds of such series had not been declared due and payable, and the trustee obtains the written consent of the holders of 66 2/3% of the aggregate outstanding principal amount of the transition bonds of such series.
        Right of Transition Bondholders to Direct Proceedings. Subject to the provisions for indemnification and the limitations contained in the indenture, the holders of a majority in principal amount of the outstanding transition bonds of the affected series, tranche or tranches will have the right to direct the time, method and place of conducting any proceeding or any remedy available to the trustee or exercising any trust or power conferred on the trustee; provided that, among other things:
  this direction does not conflict with any rule of law or with the indenture,
 
  the trustee may sell the collateral securing the affected series or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law provided that certain conditions set forth in the indenture are met,
 
  so long as the conditions specified in the indenture have been satisfied and the trustee elects to retain the collateral securing the affected series pursuant to the indenture and elects not to sell or liquidate that collateral, any direction to the trustee to sell or liquidate the collateral securing the affected series is by the holders of 100% of the principal amount of the affected series of the transition bonds then outstanding, and
 
  the trustee may take any other action deemed proper by the trustee that is not inconsistent with this direction.
However, in case an event of default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders of the transition bonds of any series if:
  it reasonably believes it will not be indemnified to its reasonable satisfaction against the costs, expenses and liabilities which might be incurred by it in complying with this request, or
 
  it determines that this action might materially adversely affect the rights of any transition bondholder not consenting to the action.
        Waiver of Default. The holders of a majority in principal amount of the transition bonds of a series may, in those cases specified in the indenture, waive any default with respect to that series. However, they may not waive a default in the payment of principal of or premium, if any, or interest on any of the transition bonds or a default in respect of a covenant or provision of the indenture that cannot be modified without the waiver or consent of all of the holders of the outstanding transition bonds of all affected series and tranches.

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        Limitation of Proceedings. Under the indenture, no transition bondholder of any series will have the right to institute any proceeding, judicial or otherwise, or to avail itself of the right to foreclose on the transition property or otherwise enforce the lien in the transition property pursuant to Section 39.309 of the Restructuring Act, unless:
  the holder previously has given to the trustee written notice of a continuing event of default,
 
  the holders of not less than a majority in principal amount of the outstanding transition bonds of the affected series have made written request of the trustee to institute the proceeding in its own name as trustee,
 
  the holder or holders have offered the trustee security or indemnity reasonably satisfactory to the trustee against the costs, expenses and liabilities to be incurred in complying with the request,
 
  the trustee for 60 days after its receipt of the notice, request and offer of indemnity has failed to institute the proceeding, and
 
  no direction inconsistent with this written request has been given to the trustee during the 60-day period referred to above by the holders of a majority in principal amount of the outstanding transition bonds of the affected series.
        In addition, each of the trustee, the transition bondholders and the servicer will covenant that it will not, prior to the date that is one year and one day after the termination of the indenture, institute against us or against our managers or our member or members any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law. By purchasing transition bonds, each transition bondholder will be deemed to have made this covenant.
Our Covenants
        Consolidation, Merger or Sale of Assets. We will keep in effect our existence, rights and franchises as a limited liability company under Delaware law, provided that we may consolidate with, merge into or convert into another entity or sell substantially all of our assets to another entity if:
  the entity formed by or surviving the consolidation, merger or conversion or to whom substantially all of our assets are sold is organized under the laws of the United States or any state thereof and expressly assumes by a supplemental indenture the due and punctual payment of the principal of and premium, if any, and interest on all outstanding transition bonds and the performance of our obligations under the indenture,
 
  the entity formed by or surviving the consolidation, merger or conversion or to whom substantially all of our assets are sold expressly assumes all obligations and succeeds to all of our rights under the sale agreement, the administration agreement, the intercreditor agreement, the servicing agreement and any other basic document specified in the indenture to which we are a party or under which we have rights pursuant to an assignment and assumption agreement executed and delivered to the trustee,
 
  no default or event of default will have occurred and be continuing immediately after giving effect to the merger, consolidation, conversion or sale,
 
  prior notice will have been given to the rating agencies and the rating agency condition will have been satisfied with respect to the merger, consolidation, conversion or sale,
 
  we have received an opinion of independent counsel to the effect that the merger, consolidation, conversion or sale:
  will have no material adverse tax consequence to us or any transition bondholder,
 
  complies with the indenture and all conditions precedent therein provided relating to the merger, consolidation, conversion or sale, and

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  will result in the trustee maintaining a continuing valid first priority perfected security interest in the collateral,
  none of the transition property, the financing order or our rights under the Restructuring Act or the financing order are impaired thereby, and
 
  any action that is necessary to maintain the lien and security interest created by the indenture has been taken.
        Additional Covenants. We will from time to time execute and deliver all documents, make all filings and take any other action necessary or advisable to, among other things, maintain and preserve the lien of the indenture and the priority thereof. We will not, among other things:
  permit the validity of the indenture to be impaired or the lien to be amended, subordinated or terminated or discharged,
 
  permit any person to be released from any covenants or obligations except as expressly permitted by the indenture,
 
  permit any lien, charge, claim, security interest, mortgage or other encumbrance, other than the lien of the indenture, to be created on or extend to or otherwise arise upon or burden the collateral or any part thereof or any interest therein or the proceeds thereof,
 
  except as expressly permitted by the indenture, any supplemental indenture, the sale agreement or the servicing agreement, sell, transfer, exchange or otherwise dispose of any of the collateral unless directed to do so by the trustee in accordance with the indenture,
 
  claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the transition bonds, other than amounts properly withheld under the Internal Revenue Code of 1986, or assert any claim against any present or former transition bondholder because of the payment of taxes levied or assessed upon us or any part of the collateral,
 
  terminate our existence, dissolve or liquidate in whole or in part, except as otherwise permitted by the indenture,
 
  enter into any swap, hedge or other similar financial arrangement except as permitted by the indenture, any supplement thereto, the sale agreement or the servicing agreement,
 
  take any action which is the subject of a rating agency condition if such action would result in a downgrade, or
 
  elect to be classified as an association taxable as a corporation for federal income tax purposes or otherwise take any action inconsistent with our treatment for federal income tax purposes as a disregarded entity not separate from our sole owner.
        We may not engage in any business other than purchasing and owning transition property, issuing transition bonds from time to time, pledging our interest in the collateral to the trustee under the indenture in order to secure the transition bonds, and performing activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto.
        We may not issue, incur, assume or guarantee any indebtedness except for the transition bonds and any obligations under any credit enhancement or any swap or hedge for any series of the transition bonds. Also, we may not guarantee or otherwise become contingently liable in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire, or agree contingently to acquire, any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other person, other than the eligible investments. We may not, except as contemplated by the indenture, the sale agreement, the servicing agreement and related documents, including the amended and restated limited liability company agreement, make any loan or advance or credit to any person. We will not make any expenditure for capital assets or lease any capital asset other than the transition property purchased from CenterPoint Houston pursuant to, and in accordance with, any sale

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agreement. We may not make any payments, distributions or dividends to any member in respect of its membership interest except in accordance with the indenture.
        The servicer will deliver to the trustee the annual accountant’s report, compliance certificates and reports regarding distributions and other statements required by the servicing agreement. Please refer to “The Servicing Agreements” in this prospectus.
Access to the List of Transition Bondholders
        Any transition bondholder who has owned a transition bond for at least six months may, by written request to the trustee, obtain access to the list of all transition bondholders maintained by the trustee for the purpose of communicating with other transition bondholders with respect to their rights under the indenture or the transition bonds. In addition, a group of transition bondholders each of whom has owned a transition bond for at least six months may also obtain access to the list of all transition bondholders for the same purpose. The trustee may elect not to afford the requesting transition bondholders access to the list of transition bondholders if it agrees to mail the desired communication or proxy, on behalf and at the expense of the requesting transition bondholders, to all transition bondholders.
We Must File an Annual Compliance Statement
        We will be required to file annually with the trustee a written statement, a copy of which we will provide to each of the rating agencies and the Texas commission, as to the fulfillment of our obligations under the indenture. In addition, we will furnish to the trustee an opinion of counsel concerning filings made by us on an annual basis and before the effectiveness of any amendment to the sale agreement or the servicing agreement.
The Trustee Must Provide an Annual Report to All Transition Bondholders
        If required by the Trust Indenture Act, the trustee will be required to mail each year to all transition bondholders a brief report. This report may state, in accordance with the requirements of the Trust Indenture Act, among other items:
  the trustee’s eligibility and qualification to continue as the trustee under the indenture,
 
  any amounts advanced by it under the indenture,
 
  the amount, interest rate and maturity date of specific indebtedness owing by us to the trustee in the trustee’s individual capacity,
 
  the property and funds physically held by the trustee,
 
  any additional issue of a series of the transition bonds not previously reported, and
 
  any action taken by it that materially affects the transition bonds of any series and that has not been previously reported.
What Will Trigger Satisfaction and Discharge of the Indenture
        The transition bonds of any series, all moneys payable with respect to the transition bonds of that series and the indenture as it applies to that series will cease to be of further effect and the lien of the indenture will be released with respect to that series, interest will cease to accrue on the transition bonds of that series and the trustee, on our written demand and at our expense, will execute instruments acknowledging satisfaction and discharge of the indenture with respect to the transition bonds of that series, when:
  either all transition bonds of that series which have already been authenticated or delivered, with certain exceptions set forth in the indenture, have been delivered to the trustee for cancellation or we have irrevocably deposited with the trustee cash, in trust for this purpose, in an amount sufficient to

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  make payments of principal of and interest on the transition bonds of that series and to pay and discharge the entire indebtedness on those transition bonds not previously delivered to the trustee,
 
  we have paid all other sums payable by us under the indenture with respect to the transition bonds of that series, and
 
  we have delivered to the trustee an officer’s certificate, an opinion of counsel, and if required by the Trust Indenture Act or the trustee, a certificate from a firm of independent certified public accountants, each stating that there has been compliance with the conditions precedent in the indenture or relating to the satisfaction and discharge of the indenture with respect to the transition bonds of that series.
Our Legal Defeasance and Covenant Defeasance Options
        We may, at any time, terminate:
  all of our obligations under the indenture with respect to the transition bonds of any series, or
 
  our obligations to comply with some of the covenants in the indenture, including some of the covenants described under “—Our Covenants.”
        The legal defeasance option is our right to terminate at any time our obligations under the indenture with respect to the transition bonds of any series. The covenant defeasance option is our right at any time to terminate our obligations to comply with some of the covenants in the indenture. We may exercise the legal defeasance option with respect to any series of the transition bonds notwithstanding our prior exercise of the covenant defeasance option with respect to that series. If we exercise the legal defeasance option with respect to any series, that series will be entitled to payment only from the funds or other obligations set aside under the indenture for payment thereof on the scheduled final payment date or redemption date therefor as described below. That series will not be subject to payment through redemption or acceleration prior to the scheduled final payment date or redemption date, as applicable. If we exercise the covenant defeasance option with respect to any series, the final payment of the transition bonds of that series may not be accelerated because of an event of default relating to a default in the observance or performance of any of our covenants or agreements made in the indenture.
        We may exercise the legal defeasance option or the covenant defeasance option with respect to any series of the transition bonds only if:
  we irrevocably deposit or cause to be deposited in trust with the trustee cash or U.S. government obligations specified in the indenture for the payment of principal of and premium, if any, and interest on the transition bonds of that series to the scheduled final payment date or redemption date therefor, as applicable, the deposit to be made in the defeasance subaccount for that series,
 
  we deliver to the trustee a certificate from a nationally recognized firm of independent accountants expressing its opinion that the payments of principal and interest on the U.S. government obligations when due and without reinvestment plus any cash deposited in the defeasance subaccount will provide cash at times and in sufficient amounts to pay in respect of the transition bonds of that series:
  principal in accordance with the expected amortization schedule therefor, and/or if that series is to be redeemed, the redemption price on the redemption date therefor, and
 
  interest when due,
  in the case of the legal defeasance option, 95 days pass after the deposit is made and during the 95-day period no default relating to events of our bankruptcy, insolvency, receivership or liquidation occurs and is continuing at the end of the period,
 
  no default has occurred and is continuing on the day of this deposit and after giving effect thereto,

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  in the case of the legal defeasance option, we deliver to the trustee an opinion of counsel stating that:
  we have received from, or there has been published by, the Internal Revenue Service a ruling, or
 
  since the date of execution of the indenture, there has been a change in the applicable federal income tax law, and
  in either case confirming that the holders of the transition bonds of that series will not recognize income, gain or loss for federal income tax purposes as a result of the exercise of the legal defeasance option and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the legal defeasance had not occurred,
  in the case of the covenant defeasance option, we deliver to the trustee an opinion of counsel to the effect that the holders of the transition bonds of that series will not recognize income, gain or loss for federal income tax purposes as a result of the exercise of the covenant defeasance option and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the covenant defeasance had not occurred,
 
  we deliver to the trustee a certificate of one of our managers and an opinion of counsel, each stating that all conditions precedent to the legal defeasance option or the covenant defeasance option, as applicable, have been complied with as required by the indenture,
 
  we deliver to the trustee an opinion of counsel to the effect that (a) in a case under the bankruptcy code in which CenterPoint Houston (or any of its affiliates, other than us) is the debtor, the court would hold that the deposited cash or U.S. government obligations would not be in the bankruptcy estate of CenterPoint Houston (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations); and (b) in the event CenterPoint Houston (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations), were to be a debtor in a case under the bankruptcy code, the court would not disregard the separate legal existence of CenterPoint Houston (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations) and us so as to order substantive consolidation under the bankruptcy code of our assets and liabilities with the assets and liabilities of CenterPoint Houston (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations), and
 
  each rating agency has notified us and the trustee that the exercise of the proposed defeasance option will not result in a downgrade or withdrawal of the then current rating of any then outstanding transition bonds.

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The Trustee
        The trustee for each series of transition bonds will be named in the applicable prospectus supplement. The trustee may resign at any time upon 30 days’ notice by so notifying us. The holders of a majority in principal amount of the transition bonds of all series then outstanding may remove the trustee by so notifying the trustee and us in writing and may appoint a successor trustee. We will remove the trustee by written notice if the trustee ceases to be eligible to continue in this capacity under the indenture, the trustee becomes a debtor in a bankruptcy proceeding or is adjudged insolvent, a receiver, administrator or other public officer takes charge of the trustee or its property or the trustee becomes incapable of acting. If the trustee resigns or is removed or a vacancy exists in the office of trustee for any reason, we will be obligated promptly to appoint a successor trustee eligible under the indenture. No resignation or removal of the trustee will become effective until acceptance of the appointment by a successor trustee. The trustee shall at all times satisfy the requirements of the Trust Indenture Act, as amended, and the Investment Company Act of 1940, as amended, and have a combined capital and surplus of at least $50 million and a long-term debt rating of “Baa3” or better by Moody’s, BBB- or better by S&P and, if applicable, BBB- by Fitch. If the trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another entity, the resulting, surviving or transferee entity shall without any further action be the successor trustee. We and our affiliates may, from time to time, maintain various banking, investment banking and trust relationships with the trustee and its affiliates.
Governing Law
        The indenture will be governed by the laws of the State of Texas.

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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE TRANSITION BONDS
        The rate of principal payments, the amount of each interest payment and the actual final payment date of each series or tranche of the transition bonds and the weighted average life thereof will depend primarily on the timing of receipt of collected transition charges by the trustee and the statutorily guaranteed true-up mechanism. The aggregate amount of collected transition charges and the rate of principal amortization on the transition bonds will depend, in part, on actual energy usage and energy demands, and the rate of delinquencies and write-offs. The transition charges are required to be adjusted from time to time based in part on the actual rate of collected transition charges. However, we can give no assurance that the servicer will be able to forecast accurately actual electricity usage and the rate of delinquencies and write-offs or implement adjustments to the transition charges that will cause collected transition charges to be received at any particular rate. Please refer to “Risk Factors—Servicing Risks,” “—Other Risks Associated With an Investment in the Transition Bonds” and “CenterPoint Houston’s Financing Order—Statutorily Guaranteed True-Ups” in this prospectus.
        If the servicer receives transition charges at a slower rate than expected, the transition bonds may be retired later than expected. Except in the event of a redemption or the acceleration of the final payment date of the transition bonds after an event of default, however, the transition bonds will not be paid at a rate faster than that contemplated in the expected amortization schedule for each series or tranche of the transition bonds even if the receipt of collected transition charges is accelerated. Instead, receipts in excess of the amounts necessary to amortize the transition bonds in accordance with the applicable expected amortization schedules, to pay interest and related fees and expenses and to fund subaccounts of the collection account will be allocated to the excess funds subaccount. Redemption of any tranche or series of the transition bonds and acceleration of the final maturity date after an event of default in accordance with the terms thereof will result in payment of principal earlier than the related scheduled final payment dates. A payment on a date that is earlier than forecast might result in a shorter weighted average life, and a payment on a date that is later than forecast might result in a longer weighted average life. In addition, if a larger portion of the delayed payments on the transition bonds is received in later years, the transition bonds may have a longer weighted average life.
THE SALE AGREEMENTS
        The following summary describes particular material terms and provisions of each sale agreement pursuant to which we will purchase transition property from CenterPoint Houston. We have filed the form of the sale agreements with the SEC as an exhibit to the registration statement of which this prospectus forms a part. This summary does not purport to be complete and is subject to and qualified by reference to the provisions of the applicable sale agreement.
CenterPoint Houston’s Sale and Assignment of the Transition Property
        Any sale of transition property to us by CenterPoint Houston will be financed through the corresponding issuance of a series of transition bonds. Pursuant to a sale agreement, CenterPoint Houston will on each transfer date sell and assign to us, without recourse, except as provided therein, its rights and interests under the applicable financing order that relate to the series of transition bonds to be issued and sold, which will become transition property upon such transfer pursuant to the Restructuring Act. The transition property will represent all rights and interests of CenterPoint Houston under the applicable financing order that relate to the series of transition bonds to be issued and sold, including the right to impose, collect and receive the transition charges and the revenues and collections resulting from such transition charges authorized in the financing order with respect to the related series of the transition bonds. We will apply the net proceeds that we receive from the sale of each series of transition bonds to the purchase of the transition property acquired on that date.
        As provided by the Restructuring Act, our purchase of transition property from CenterPoint Houston pursuant to a sale agreement, which will expressly provide that such transfer is a sale, will be a true sale, and all title to the transition property, legal or equitable, will pass to us. Under the Restructuring Act, such sale will constitute a true sale under state law whether or not
  we have any recourse against CenterPoint Houston,

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  CenterPoint Houston retains any equity interest in the transition property under state law,
 
  CenterPoint Houston acts as a collector of transition charges relating to the transition property, or
 
  CenterPoint Houston treats the transfer as a financing for tax, financial reporting or other purposes.
        Under the Restructuring Act, all rights and interests under the applicable financing order will become transition property upon transfer of such rights to us by CenterPoint Houston in connection with the issuance of a series of transition bonds. The transition property will constitute our present property right for purposes of contracts concerning the sale or pledge of property.
        Upon the issuance of a financing order, the execution and delivery of the related sale agreement and bill of sale and the filing of a notice with the Secretary of State of the State of Texas in accordance with the rules prescribed under the Restructuring Act, our purchase of the applicable transition property from CenterPoint Houston will be perfected as against all third persons, including subsequent judicial or other lien creditors. In accordance with the Restructuring Act, a valid and enforceable lien and security interest in the transition property will be created upon the issuance of the related financing order and the execution and delivery of the sale agreement in connection with the issuance of a series of the transition bonds. The lien and security interest attaches automatically from the time that value is received for the series of the transition bonds and, on perfection through the timely filing of a notice with the Secretary of State of the State of Texas in accordance with the rules prescribed under the Restructuring Act, will be a continuously perfected lien and security interest in the related transition property and all proceeds of the related transition property.
        The records and computer systems of CenterPoint Houston and CenterPoint Energy will reflect each sale and assignment of CenterPoint Houston’s rights and interests under a financing order to us. However, we expect that each series of transition bonds will be reflected as debt on CenterPoint Energy’s consolidated financial statements. In addition, we anticipate that each series of transition bonds will be treated as debt of CenterPoint Energy for federal income tax purposes. Please read “Material Federal Income Tax Consequences for the Transition Bondholders.”
CenterPoint Houston’s Representations and Warranties
        In each sale agreement, CenterPoint Houston will make representations and warranties to us as of the applicable transfer date to the effect, among other things, that:
  1. subject to clause 9 below (assumptions used in calculating the transition charges as of the applicable transfer date), all written information, as amended or supplemented from time to time, provided by CenterPoint Houston to us with respect to the transferred transition property (including the applicable financing order and the issuance advice letter) is correct in all material respects;
 
  2. it is the intention of the parties to each sale agreement that, other than for specified tax purposes, each sale, transfer, assignment, setting over and conveyance contemplated by the sale agreement constitutes a sale or other absolute transfer of all right, title and interest of CenterPoint Houston related to the applicable series of transition bonds in, to and under the applicable financing order to us, whereupon (subject to the effectiveness of the related issuance advice letter) such rights and interests will become transition property; upon execution and delivery of the sale agreement and the related bill of sale and payment of the purchase price, CenterPoint Houston will have no right, title or interest in, to or under the transferred transition property; and that such transferred transition property would not be a part of the estate of CenterPoint Houston in the event of the filing of a bankruptcy petition by or against CenterPoint Houston under any bankruptcy law;
  3.     a. CenterPoint Houston is the sole owner of the rights and interests under the financing order being sold to us on the applicable transfer date,
  b. on the applicable transfer date, immediately upon the sale under the sale agreement, the transferred transition property will have been validly sold, assigned, transferred, set over and conveyed to us free and clear of all liens (except for any lien created in favor of the transition

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  bondholders pursuant to Section 39.309 of the Restructuring Act or any lien created by us under the basic documents), and
 
  c. all actions or filings (including filings with the Secretary of State of the State of Texas in accordance with the rules prescribed under the Restructuring Act and the Uniform Commercial Code) necessary in any jurisdiction to give us a perfected ownership interest (subject to any lien created in favor of the transition bondholders pursuant to Section 39.309 of the Restructuring Act or any lien created by us under the basic documents) in the transferred transition property and to grant to the trustee a first priority perfected security interest in the transferred transition property, free and clear of all liens of CenterPoint Houston or anyone else (except for any lien created in favor of the transition bondholders pursuant to Section 39.309 of the Restructuring Act or any lien created by us under the basic documents) have been taken or made;
  4. the applicable financing order has been issued by the Texas commission in accordance with the Restructuring Act, the applicable financing order and the process by which it was issued comply with all applicable laws, rules and regulations of the State of Texas and the federal laws of the United States, and the applicable financing order is final, non-appealable and in full force and effect;
 
  5. as of the date of issuance of the related transition bonds, those transition bonds will be entitled to the protections provided by the Restructuring Act and the applicable financing order, and the applicable financing order and the transition charges authorized therein will have become irrevocable and not subject to reduction, impairment or adjustment by further action of the Texas commission, except as permitted by Section 39.307 of the Restructuring Act, the issuance advice letter relating to the transferred transition property to be sold on such a date will have been filed in accordance with the applicable financing order, and the Texas commission will not have issued any order prior to noon on the fourth business day after submission of the issuance advice letter that those transition bonds do not comply with specified ordering provisions of the applicable financing order and the initial transition charges and the final term of the transition bonds set forth in the related issuance advice letter will have become effective;
  6.     a. under the Restructuring Act, the State of Texas has pledged that it will not take or permit any action that would impair the value of the transition property transferred under the applicable sale agreement or, except as permitted in Section 39.307 of the Restructuring Act, reduce, alter or impair the related transition charges until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds, have been paid and performed in full,
  b. under the laws of the State of Texas and the federal laws of the United States, the State of Texas could not constitutionally take any action of a legislative character, including the repeal or amendment of the Restructuring Act, which would substantially limit, alter or impair the transition property or other rights vested in the transition bondholders pursuant to the applicable financing order, or substantially limit, alter, impair or reduce the value or amount of the transition property, unless that action is a reasonable exercise of the State of Texas’s sovereign powers and of a character reasonable and appropriate to the important public purpose justifying that action, and, under the takings clauses of the Texas and United States Constitutions, the State of Texas could not repeal or amend the Restructuring Act or take any other action in contravention of its pledge quoted above without paying just compensation to the related transition bondholders, as determined by a court of competent jurisdiction, if doing so would constitute a permanent appropriation of a substantial property interest of those transition bondholders in the transition property and deprive those transition bondholders of their reasonable expectations arising from their investments in the transition bonds; however, there is no assurance that, even if a court were to award just compensation, it would be sufficient to pay the full amount of principal and interest on those transition bonds;
  7. there is no order by any court providing for the revocation, alteration, limitation or other impairment of the Restructuring Act, the applicable financing order or issuance advice letter, the transferred

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  transition property or the related transition charges or any rights arising under any of them or that seeks to enjoin the performance of any obligations under the applicable financing order;
 
  8. under the laws of the State of Texas and the federal laws of the United States in effect on the applicable transfer date, no other approval, authorization, consent, order or other action of, or filing with any court, federal or state regulatory body, administrative agency or other governmental instrumentality is required in connection with the creation or transfer of CenterPoint Houston’s rights and interests related to the applicable series of transition bonds under the applicable financing order and our purchase of the transition property from CenterPoint Houston, except those that have been obtained or made;
 
  9. based on information available to CenterPoint Houston on the applicable transfer date, the assumptions used in calculating the transition charges in the applicable issuance advice letter are reasonable and made in good faith; however, notwithstanding the foregoing, CenterPoint Houston makes no representation or warranty, express or implied, that amounts actually collected arising from those transition charges will in fact be sufficient to meet the payment obligations on the related transition bonds or that the assumptions used in calculating such transition charges will in fact be realized;
  10.    a. upon the effectiveness of the applicable issuance advice letter, the transfer of CenterPoint Houston’s rights and interests related to the applicable series of transition bonds under the related financing order and our purchase of the transition property from CenterPoint Houston pursuant to the applicable sale agreement, the transferred transition property will constitute a present property right,
  b. upon the effectiveness of the applicable issuance advice letter, the transfer of CenterPoint Houston’s rights and interests under the applicable financing order that relate to the series of transition bonds to be issued and sold and our purchase of the transition property from CenterPoint Houston pursuant to the applicable sale agreement, the transferred transition property will include, without limitation:
  (1) the right to impose, collect and receive transition charges authorized in the related financing order that relate to such series of transition bonds, including, without limitation, the right to receive transition charges in amounts and at times sufficient to pay principal and interest on such series of transition bonds,
 
  (2) all rights and interests of CenterPoint Houston under the applicable financing order that relate to such series of transition bonds,
 
  (3) the rights to file for periodic adjustments of the related transition charges as provided in the applicable financing order, and
 
  (4) all revenues and collections resulting from the related transition charges,
  c. upon the effectiveness of the applicable issuance advice letter and the transfer of CenterPoint Houston’s rights and interests under the applicable financing order that relate to such series of transition bonds and our purchase of the transition property from CenterPoint Houston on such transfer date pursuant to such sale agreement, the transferred transition property will not be subject to any lien created by a previous indenture;
  11. CenterPoint Houston is a limited liability company duly organized and in good standing under the laws of the State of Texas, with limited liability company power and authority to own its properties and conduct its business as currently owned or conducted;
 
  12. CenterPoint Houston has the limited liability company power and authority to obtain the applicable financing order and to execute and deliver the applicable sale agreement and to carry out its terms; CenterPoint Houston has the limited liability company power and authority to own the rights and interests under the applicable financing order related to the applicable series of transition bonds, to

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  sell and assign those rights and interests under the applicable financing order to us, whereupon (subject to the effectiveness of the related issuance advice letter) such rights and interests will become transition property; and the execution, delivery and performance of the applicable sale agreement have been duly authorized by CenterPoint Houston by all necessary limited liability company action;
 
  13. the applicable sale agreement constitutes a legal, valid and binding obligation of CenterPoint Houston, enforceable against CenterPoint Houston in accordance with its terms, subject to customary exceptions relating to bankruptcy, creditors’ rights and equitable principles;
 
  14. the consummation of the transactions contemplated by the applicable sale agreement and the fulfillment of the terms thereof do not (a) conflict with or result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or limited liability company regulations of CenterPoint Houston, or any indenture, mortgage, credit agreement or other agreement or instrument to which CenterPoint Houston is a party or by which it or its properties is bound; (b) result in the creation or imposition of any lien upon any of CenterPoint Houston’s properties pursuant to the terms of any such indenture or agreement or other instrument (except for any lien created in favor of the transition bondholders pursuant to Section 39.309 of the Restructuring Act or any lien created by us under the basic documents) or (c) violate any existing law or any existing order, rule or regulation applicable to CenterPoint Houston of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over CenterPoint Houston or its properties;
 
  15. except for continuation filings under the Uniform Commercial Code and other filings under the Restructuring Act and the Uniform Commercial Code, no approval, authorization, consent, order or other action of, or filing with, any court, federal or state regulatory body, administrative agency or other governmental instrumentality is required under any applicable law, rule or regulation in connection with the execution and delivery by CenterPoint Houston of the applicable sale agreement, the performance by CenterPoint Houston of the transactions contemplated by such sale agreement or the fulfillment by CenterPoint Houston of the terms of such sale agreement, except those that have previously been obtained or made and those that CenterPoint Houston, in its capacity as servicer under the related servicing agreement, is required to make in the future pursuant to that servicing agreement;
 
  16. except as disclosed in this prospectus or a prospectus supplement, there are no proceedings pending, and to CenterPoint Houston’s knowledge, (a) there are no proceedings threatened and (b) there are no investigations pending or threatened before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over CenterPoint Houston or its properties involving or related to CenterPoint Houston or us or, to CenterPoint Houston’s knowledge, to any other person:
  a. asserting the invalidity of the applicable sale agreement, any of the other basic documents, the related series of transition bonds, the Restructuring Act or the applicable financing order,
 
  b. seeking to prevent the issuance of the related series of transition bonds or the consummation of the transactions contemplated by the applicable sale agreement or any of the other basic documents,
 
  c. seeking any determination or ruling that could reasonably be expected to materially and adversely affect the performance by CenterPoint Houston of its obligations under, or the validity or enforceability of, the applicable sale agreement or any of the other basic documents or the related series of transition bonds, or
 
  d. challenging CenterPoint Houston’s treatment of the related series of transition bonds as debt of CenterPoint Energy for federal or state income, gross receipts or franchise tax purposes;

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  17. after giving effect to the sale of any transferred transition property under the applicable sale agreement, CenterPoint Houston:
  a. is solvent and expects to remain solvent,
 
  b. is adequately capitalized to conduct its business and affairs considering its size and the nature of its business and intended purposes,
 
  c. is not engaged and does not expect to engage in a business for which its remaining property represents an unreasonably small portion of its capital,
 
  d. reasonably believes that it will be able to pay its debts as they become due, and
 
  e. is able to pay its debts as they become due and does not intend to incur, or believes that it will incur, indebtedness that it will not be able to repay at its maturity; and
  18. CenterPoint Houston is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualifications, licenses or approvals (except where the failure to so qualify or obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on CenterPoint Houston’s business, operations, assets, revenues or properties).
        The representations and warranties made by CenterPoint Houston survive the sale of the transferred transition property to us and the pledge thereof on the applicable transfer date to the trustee. Any change in the law occurring after the applicable transfer date that renders any of the representations and warranties untrue does not constitute a breach under the related sale agreement.
CenterPoint Houston’s Covenants
        In each sale agreement, CenterPoint Houston will make the following covenants:
  1. subject to its rights to assign its rights and obligations under the sale agreement, so long as the transition bonds of any series are outstanding, CenterPoint Houston will (i) keep in full force and effect its existence and remain in good standing under the laws of the state of its organization, and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or will be necessary to protect the validity and enforceability of the applicable sale agreement and each other instrument or agreement to which CenterPoint Houston is a party necessary to the proper administration of such sale agreement and the transactions contemplated by such sale agreement and (ii) continue to operate its transmission and distribution system in order to provide electric services to retail electric customers in its certificated service area, provided that CenterPoint Houston is not prohibited from selling, assigning or otherwise divesting its transmission and distribution system or any part thereof in accordance with the sale agreement and the applicable financing order;
 
  2. except for the conveyances under the applicable sale agreement or any lien under Section 39.309 of the Restructuring Act for our benefit, the transition bondholders and the trustee, CenterPoint Houston may not sell, pledge, assign or transfer to any other person, or grant, create, incur, assume or suffer to exist any lien on, any of the applicable transferred transition property, whether then existing or thereafter created, or any interest therein. CenterPoint Houston may not at any time assert any lien against or with respect to the applicable transferred transition property, and CenterPoint Houston shall defend the right, title and interest of us and of the trustee, as our assignee, in, to and under the transferred transition property against all claims of third parties claiming through or under CenterPoint Houston;
 
  3. in the event that CenterPoint Houston receives any payments under the terms of an intercreditor agreement in respect of the related transition charges or the proceeds thereof other than in its capacity as the servicer, CenterPoint Houston agrees to pay all those payments to the servicer, in

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  accordance with such intercreditor agreement, as soon as practicable after receipt thereof by CenterPoint Houston;
 
  4. CenterPoint Houston will notify us and the trustee promptly after becoming aware of any lien on any of the transferred transition property, other than the conveyances under the applicable sale agreement, any lien created in favor of the transition bondholders under Section 39.309 of the Restructuring Act or any lien created by us under the indenture;
 
  5. CenterPoint Houston agrees to comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any court or federal or state regulatory body, administrative agency or governmental instrumentality applicable to it, except to the extent that failure to so comply would not materially adversely affect our or the trustee’s interests in the applicable transferred transition property or under the basic documents or CenterPoint Houston’s performance of its obligations under the applicable sale agreement;
 
  6. so long as any transition bonds of the applicable series are outstanding, CenterPoint Houston
  a. will treat the transition bonds as our debt and not debt of CenterPoint Houston, except for financial reporting or tax purposes or as required in connection with the SEC’s administration of the 1935 Act;
 
  b. will disclose in its financial statements that it is not the owner of the applicable transferred transition property and that our assets are not available to pay creditors of CenterPoint Houston or its affiliates (other than us);
 
  c. will not own or purchase any transition bonds; and
 
  d. will disclose the effects of all transactions between us and CenterPoint Houston in accordance with generally accepted accounting principles;
  7. so long as any transition bonds of the applicable series are outstanding:
  a. in all proceedings relating directly or indirectly to the applicable transferred transition property, CenterPoint Houston will affirmatively certify and confirm that it has sold all of its rights and interests under the applicable financing order that relate to such series of transition bonds to us (other than for financial reporting or tax purposes or as required in connection with the SEC’s administration of the 1935 Act), and will not make any statement or reference in respect of such transferred transition property that is inconsistent with our ownership interest (other than for financial reporting or tax purposes or as required in connection with the SEC’s administration of the 1935 Act),
 
  b. CenterPoint Houston will not take any action in respect of the applicable transferred transition property except solely in its capacity as servicer thereof pursuant to the related servicing agreement or as contemplated by the basic documents,
 
  c. CenterPoint Houston will not sell a new series of transition bonds unless the rating agency condition has been satisfied with respect to the series of transition bonds related to that sale agreement;
  8. CenterPoint Houston agrees that, upon the sale by CenterPoint Houston of all of its rights and interests related to the applicable series of transition bonds under the applicable financing order to us pursuant to the applicable sale agreement any payment to the servicer by any person responsible for remitting transition charges to the servicer under the terms of the applicable financing order or the Restructuring Act or applicable tariff shall discharge such person’s obligations in respect of such transferred transition property to the extent of such payment, notwithstanding any objection or direction to the contrary by CenterPoint Houston;
 
  9. CenterPoint Houston will execute and file such filings, and cause to be executed and filed such filings in such manner and in such places as may be required by law fully to preserve, maintain and

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  protect our and the trustee’s interests in the transferred transition property, including all filings required under the Restructuring Act and the Uniform Commercial Code relating to the transfer of the ownership of the rights and interests related to the applicable series of transition bonds under the applicable financing order by CenterPoint Houston to us and the pledge of the transferred transition property by us to the trustee. CenterPoint Houston will deliver (or cause to be delivered) to us and the trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. CenterPoint Houston will institute any action or proceeding reasonably necessary to compel performance by the Texas commission or the State of Texas of any of their obligations or duties under the Restructuring Act, the applicable financing order or the issuance advice letter relating to the transfer of the rights and interests under the applicable financing order that relate to such series of transition bonds by CenterPoint Houston to us, and CenterPoint Houston agrees to take such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, in each case as may be reasonably necessary:
  a. to protect us and the transition bondholders from claims, state actions or other actions or proceedings of third parties which, if successfully pursued, would result in a breach of any representation described above under the caption “—CenterPoint Houston’s Representations and Warranties”; or
 
  b. so long as CenterPoint Houston is also the servicer, to block or overturn any attempts to cause a repeal of, modification of or supplement to the Restructuring Act, the applicable financing order, the applicable issuance advice letter or the rights of transition bondholders by legislative enactment or constitutional amendment that would be materially adverse to us, the trustee or the transition bondholders.
  The costs of any such actions or proceedings would be reimbursed by us to CenterPoint Houston from amounts on deposit in the collection acc