File No. 070-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Utility Holding, LLC
200 West Ninth Street Plaza
Suite 411
Wilmington, Delaware 19801
CenterPoint Energy Funding Company
CenterPoint Energy Houston Electric, LLC
CenterPoint Energy Transition Bond Company, LLC
Houston Industries FinanceCo GP, LLC
Houston Industries FinanceCo LP
Reliant Energy FinanceCo II GP, LLC
Reliant Energy FinanceCo II LP
Reliant Energy FinanceCo III GP, LLC
Reliant Energy FinanceCo III LP
Reliant Energy FinanceCo IV GP, LLC
Reliant Energy FinanceCo IV LP
CenterPoint Energy, Inc. (a Delaware corporation)
CenterPoint Energy Investment Management, Inc.
CenterPoint Energy Management Services, Inc.
CenterPoint Energy District Cooling, LLC
CenterPoint Energy Thermal Systems (Delaware), Inc.
CenterPoint Energy District Cooling, L.P.
CenterPoint Energy Power Systems, Inc.
CenterPoint Energy Products, Inc.
CenterPoint Energy Properties, Inc.
CenterPoint Energy Tegco, Inc.
HL&P Capital Trust I
HL&P Capital Trust II
HL&P Receivables, Inc.
Houston Industries Energy (UK), Inc.
NorAm Energy Corp.
REI Trust
Reliant Energy Water, Inc.
Texas Genco Holdings, Inc.
Texas Genco GP, LLC
Texas Genco LP, LLC
Texas Genco, LP
Utility Rail Services, Inc.
UFI Services, Inc.
CenterPoint Energy Resources Corp.
ALG Gas Supply Company
Allied Materials Corporation
Arkansas Louisiana Finance Corporation
Arkla Industries Inc.
Arkla Products Company
Blue Jay Gas Company
CenterPoint Energy Alternative Fuels, Inc.
CenterPoint Energy Consumer Group, Inc.
CenterPoint Energy Field Services, Inc.
CenterPoint Energy Field Services Holdings, Inc.
CenterPoint Energy Gas Processing, Inc.
CenterPoint Energy Gas Marketing Company
CenterPoint Energy Gas Receivables, LLC
CenterPoint Energy Gas Resources Corp.
CenterPoint Energy Gas Transmission Company
CenterPoint Energy Hub Services, Inc.
CenterPoint Energy - Illinois Gas Transmission Company
CenterPoint Energy Intrastate Holdings, LLC
Pine Pipeline Acquisition Company, LLC
CenterPoint Energy Marketing, Inc.
CenterPoint Energy Retail Interests, Inc.
CenterPoint Energy - Mississippi River Transmission Corporation
CenterPoint Energy MRT Holdings, Inc.
CenterPoint Energy MRT Services Company
CenterPoint Energy Pipeline Services, Inc.
CenterPoint Energy OQ, LLC
OQ Partners, a general partnership CenterPoint Energy
Trading and Transportation Group, Inc.
Entex Gas Marketing Company
Entex NGV, Inc.
Entex Oil & Gas Company
Industrial Gas Supply Corporation
Intex, Inc.
Louisiana Unit Gas Transmission Company
Minnesota Intrastate Pipeline Company
National Furnace Company
NorAm Financing
NorAm Utility Services, Inc.
Reliant Energy Funds Management, Inc.
Unit Gas Transmission Company
United Gas, Inc.
CenterPoint Energy International, Inc.
CenterPoint Energy International Holdings, LLC
Reliant Energy El Salvador, S.A. de C.V.
CenterPoint Energy International II, Inc.
HIE Ford Heights, Inc.
HIE Fulton, Inc.
Reliant Energy India, Inc.
Reliant Energy Rain, Inc.
Rain Calcining Limited
CenterPoint Energy International Services, Inc.
CenterPoint Energy Light, Inc.
HI Energy Holdings I B.V.
Reliant Energy Brasil, Ltda.
Reliant Energy Brazil Ltd.
HIE Brasil Rio Sul Ltda.
Reliant Energy International Brasil Ltda.
Reliant Energy Brazil Tiete Ltd.
Reliant Energy Colombia Ltda.
Reliant Energy Outsource Ltd.
Venus Generation El Salvador
Worldwide Electric Holdings B.V.
(Name of companies filing this statement and address of principal executive
offices)
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(Name of top registered holding company parent of each applicant or declarant)
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(713) 207-7451
(Names and addresses of agents for service)
The Commission is also requested to send copies of any
communications in connection with this matter to:
James R. Doty, Esq. Margo S. Scholin, Esq.
Joanne C. Rutkowski, Esq. Baker Botts L.L.P.
Baker Botts L.L.P. 3000 One Shell Plaza
The Warner Houston, Texas 77002-4995
1299 Pennsylvania Avenue, N.W. (713) 229-1234
Washington, D.C. 20004-2400
(202) 639-7700
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time, we make statements concerning our expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements, that are not historical facts.
These statements are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those expressed or implied by these statements. You can
generally identify our forward-looking statements by the words "anticipate,"
"believe," "continue," "could," "estimate," "expect," "forecast," "goal,"
"intend," "may," "objective," "plan," "potential," "predict," "projection,"
"should," "will," or other similar words.
We have based our forward-looking statements on our management's
beliefs and assumptions based on information available to our management at the
time the statements are made. We caution you that assumptions, beliefs,
expectations, intentions and projections about future events may and often do
vary materially from actual results. Therefore, we cannot assure you that actual
results will not differ materially from those expressed or implied by our
forward-looking statements.
The following are some of the factors that could cause actual
results to differ materially from those expressed or implied in forward-looking
statements:
- state and federal legislative and regulatory actions or
developments, including deregulation, re-regulation and
restructuring of the electric utility industry, constraints placed
on our activities or business by the Public Utility Holding Company
Act of 1935 (the "1935 Act"), changes in or application of laws or
regulations applicable to other aspects of our business and actions
with respect to:
- approval of stranded costs;
- allowed rates of return;
- rate structures;
- recovery of investments;
- operation and construction of facilities;
- non-payment for our services due to financial distress of our
customers, including Reliant Resources, Inc. ("Reliant Resources");
- the successful and timely completion of our capital projects;
- industrial, commercial and residential growth in our service
territory and changes in market demand and demographic patterns;
- changes in business strategy or development plans;
- the timing and extent of changes in commodity prices, particularly
natural gas;
- changes in interest rates or rates of inflation;
- unanticipated changes in operating expenses and capital
expenditures;
- weather variations and other natural phenomena;
- commercial bank and financial market conditions, our access to
capital, the cost of such capital, receipt of certain approvals
under the 1935 Act, and the results of our financing and refinancing
efforts, including availability of funds in the debt capital
markets;
- actions by rating agencies;
- legal and administrative proceedings and settlements;
- changes in tax laws;
- inability of various counterparties to meet their obligations with
respect to our financial instruments;
- any lack of effectiveness of our disclosure controls and procedures;
- changes in technology;
- significant changes in our relationship with our employees,
including the availability of qualified personnel and potential
adverse effects if labor disputes or grievances were to occur;
- significant changes in critical accounting policies;
- acts of terrorism or war, including any direct or indirect effect on
our business resulting from terrorist attacks such as occurred on
September 11, 2001 or any similar incidents or responses to those
incidents;
- the availability and price of insurance;
- the outcome of the pending securities lawsuits against us, Reliant
Energy, Incorporated and Reliant Resources;
- the ability of Reliant Resources to satisfy its indemnity
obligations to us;
- the reliability of the systems, procedures and other infrastructure
necessary to operate the retail electric business in our service
territory, including the systems owned and operated by the
independent system operator in the market served by the Electric
Reliability Council of Texas, Inc.;
- political, legal, regulatory and economic conditions and
developments in the United States; and
- other factors we discuss in CenterPoint Energy, Inc.'s Annual Report
on Form 10-K for the year ending December 31, 2002 (File No.
1-31447), including those outlined in Item 1 "Business" and Item 7
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", the Current Report of CenterPoint on Form
8-K dated as of May 12, 2003 and in this Form U-1.
The reader should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the
particular statement, and we undertake no obligation to publicly update or
revise any forward-looking statements.
TABLE OF CONTENTS
PAGE
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION............................. 1
A. Overview of Requested Authorization....................... 1
B. Background................................................ 4
C. The Financing Request..................................... 10
D. Retention and Reorganization of Non-Utility Interests..... 22
E. Disposition of the Texas Genco Entities................... 23
F. Securitization of Stranded Costs.......................... 25
G. Other Authority........................................... 28
H. Filing of Certificates of Notification.................... 29
ITEM 2. FEES, COMMISSIONS AND EXPENSES.................................. 31
ITEM 3. APPLICABLE STATUTORY PROVISIONS................................. 31
A. Applicable Provisions..................................... 31
B. Rule 54 Analysis.......................................... 31
ITEM 4. REGULATORY APPROVAL............................................. 32
ITEM 5. PROCEDURE....................................................... 32
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS............................... 32
A. Exhibits.................................................. 32
B. Financial Statements...................................... 35
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS......................... 36
CenterPoint Energy, Inc. ("CenterPoint" or the "Company") and its
Subsidiaries (together, the "Applicants" or the "CenterPoint System") are
seeking authorization and approvals as set forth herein.(1)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. Overview of Requested Authorization
This Application-Declaration seeks the following authorizations and
approvals of the Securities and Exchange Commission (the "Commission"):
In order to ensure that CenterPoint is able to meet its capital
requirements and plan its future financing, CenterPoint and its
Subsidiaries hereby request authorization for financing transactions for
the period beginning with the effective date of an order issued pursuant
to this filing and continuing, unless otherwise specified in this
Application, until June 30, 2005 (the "Authorization Period").
(i) CenterPoint requests authorization for: (a) securities
issuances, (b) guarantees of obligations of affiliated or
unaffiliated persons, including guarantees or support of others
for indebtedness, and (c) hedging transactions, all as described
below;
(ii) With respect to its Subsidiaries, CenterPoint requests
authorization for issuances of securities, guarantees and the
entering into of hedging transactions to the extent not exempt
pursuant to Rule 52 under the Public Utility Holding Company Act of
1935 (the "Act");
(iii) CenterPoint requests that the Commission approve the
continuation of a CenterPoint Group Money Pool (the "Money Pool");
(iv) CenterPoint and its Subsidiaries request that the Commission
approve the continuation of existing financing arrangements,
guarantees and hedging arrangements, including extending the terms
of or replacing, refunding, refinancing, or exchanging existing
obligations where the issuing entity's total capitalization is not
increased as a result of such financing transaction; (2)
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(1) The term "Subsidiaries" refers to each direct or indirect subsidiary
company of CenterPoint as listed on the cover page hereto, as well as any
direct or indirect subsidiary companies that CenterPoint may form with the
approval of the Commission or in reliance on rules or statutory exemptions.
(2) So long as the issuing entity's total capitalization is not increased as a
result, securities issued in transactions that extend the term of or
replace, refund, refinance, or exchange existing obligations do not count
as "incremental" securities issuances. Exhibit G-1 is a table setting forth
by issuer: (i) the type of securities and dollar amount of each that is
outstanding or, in the case of credit facilities that are not fully drawn,
could be outstanding as of April 30, 2003; (ii) the amount of incremental
investment authority that is being requested; and (iii) the total amount of
securities that could be outstanding pursuant to the requested authority at
any one time during the Authorization Period.
(v) CenterPoint further requests authority to issue external debt
securities in an incremental amount of $500 million such that the
total amount of outstanding CenterPoint external debt securities
will not exceed $5.847 billion at any one time outstanding during
the Authorization Period; (3)
(vi) CenterPoint requests authority to issue preferred stock and
preferred and equity-linked securities in an incremental amount of
$500 million such that the total outstanding amount of CenterPoint
preferred stock and preferred and equity-linked securities will not
exceed $1,225 million at any one time outstanding during the
Authorization Period; (4)
(vii) CenterPoint requests authority to issue an additional 200
million shares of common stock or options, warrants or other rights
to purchase an equivalent number of shares of common stock;
(viii) Texas Genco Holdings, Inc. and Texas Genco, LP (together, the
"Texas Genco entities") request authority to issue external debt in
an aggregate principal amount of $500 million at any one time
outstanding during the Authorization Period, provided, that the
Texas Genco entities ask the Commission to reserve jurisdiction over
the issuance of such securities by the Texas Genco entities in an
aggregate amount of greater than $250 million at any one time
outstanding during the Authorization Period;
(ix) The Texas Genco entities request authority to issue preferred
stock and preferred and equity-linked securities in an amount not to
exceed $250 million at any one time outstanding during the
Authorization Period;
(x) CenterPoint Energy Houston Electric, LLC (the "T&D Utility")
requests authority to issue and sell external debt securities in an
incremental amount of $500 million such that the total amount of
outstanding T&D Utility external debt
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(3) For purposes of this application, the term "external" financing refers to a
transaction in which securities are issued and sold to an entity that is
not a member of the CenterPoint System.
The "incremental" authority refers to the requested net increase in the
total amount of securities that may be outstanding at any one time during
the Authorization Period over the amount of securities issued and
outstanding as of April 30, 2003 or permitted under existing credit
facilities to be issued as of that date.
(4) For purposes of the financings limits set forth herein, securities (other
than common stock) will be counted at the principal amount of such
securities at the time of issuance or sale.
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will not exceed $3.603 billion at any one time outstanding during
the Authorization Period (in addition to the securitization debt
described in (xviii) below);
(xi) The T&D Utility requests authority to issue preferred stock and
preferred and equity-linked securities in an amount not to exceed
$250 million at any one time during the Authorization Period;
(xii) CenterPoint Energy Resources Corp. ("GasCo") requests
authority to issue external debt in an incremental amount of $500
million such that the total amount of outstanding external GasCo
debt will not exceed $3.187 billion at any one time during the
Authorization Period;
(xiii) GasCo requests authority to issue preferred stock and
preferred and equity linked securities in an amount not to exceed
$250 million at any one time outstanding during the Authorization
Period such that the amount of preferred stock and preferred and
equity-linked securities will not exceed $250.4 million at any one
time outstanding during the Authorization Period;
(xiv) The Subsidiaries may also finance their capital needs through
borrowings from CenterPoint, directly or indirectly through one or
more Intermediate Holding Companies, and each of the Intermediate
Holding Companies requests authority to issue and sell securities to
their respective parent companies and to acquire securities from
their subsidiary companies; (5)
(xv) CenterPoint requests that the Commission approve the issuance
by CenterPoint and its Subsidiaries of nonexempt guarantees in an
amount such that the total amount of nonexempt guarantees does not
exceed $6 billion outstanding at any time during the Authorization
Period;
(xvi) CenterPoint and its Subsidiaries request authority for the
payment of dividends out of capital or unearned surplus to the
extent described below;
(xvii) CenterPoint requests authority to form and capitalize
financing entities (including special purpose subsidiaries, or
affiliates) in connection with the issuance of securities as
requested in this filing; and
(xviii) The T&D Utility requests authorization to form and
capitalize one or more special-purpose subsidiary companies to issue
securitization bonds in an amount not to exceed that authorized by
the Public Utility Commission of Texas ("Texas Commission") to
monetize and recover the balance of stranded costs relating to
generation assets and other qualified costs as determined in the
2004 true-up
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(5) The "Intermediate Holding Companies" are Utility Holding, LLC, Texas Genco
Holdings, Inc. and Texas Genco GP, LLC.
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proceeding described more fully herein, such authority to be in
addition to that otherwise requested in this filing.
CenterPoint also requests continued authority for its Subsidiaries, other
than the Utility Subsidiaries and the Intermediate Holding Companies (the
"Non-Utility Subsidiaries"), to reorganize from time to time; (6)
CenterPoint requests the Commission to authorize the retention of
CenterPoint Energy Investment Management, Inc., MRT Services Company
(other than the canal discussed below) and CenterPoint Energy Trading and
Transportation Group, Inc.;
CenterPoint requests the Commission to grant it three years to divest the
canal located in California owned by MRT Services Company;
CenterPoint requests authority to sell the stock and/or assets of the
Texas Genco entities to Reliant Resources as described more fully herein;
and
CenterPoint requests authority to continue to provide goods and services
on an interim basis to the companies in the CenterPoint System, pending
the approval and formation of a subsidiary service company.
B. Background
1. Generally
In the July Order, the Commission authorized the formation of a new
registered holding company, CenterPoint, and the distribution ("Distribution")
to shareholders of the remaining stock of Reliant Resources. The Distribution,
which was made on September 30, 2002, completed the separation from CenterPoint
of the merchant power generation and energy trading and marketing business of
Reliant Resources. (7)
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(6) The term "Utility Subsidiaries" refers to Texas Genco, LP (unless and until
it is qualified as an exempt wholesale generator ("EWG")), the T&D Utility
and GasCo.
(7) As a result of the spin-off of Reliant Resources, CenterPoint recorded a
non-cash loss on the disposal of discontinued operations of $4.3 billion in
the third quarter of 2002. This loss represents the excess of the carrying
value of CenterPoint's net investment in Reliant Resources over the market
value of Reliant Resources stock. To account for the Distribution,
CenterPoint reduced its retained earnings to reflect the impairment in the
value of its investment in Reliant Resources (i.e., the difference between
book and market value of the stock) and then reduced its additional paid-in
capital by the net book value of its investment (following the adjustment)
in Reliant Resources. The impairment adjustment was made in accordance with
Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary
Transactions" and Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
4
CenterPoint's public-utility subsidiary companies own and operate
electric generation plants, electric transmission and distribution facilities,
natural gas distribution facilities and natural gas pipelines:
- - The T&D Utility engages in the electric transmission and distribution
business in a 5,000-square mile area of the Texas Gulf Coast that includes
Houston.
- - Texas Genco, LP owns and operates the Texas generating plants formerly
belonging to the integrated electric utility that was a part of Reliant
Energy, Incorporated.
- - GasCo owns gas distribution systems that together form one of the United
States' largest natural gas distribution operations in terms of customers
served. Through unincorporated divisions, GasCo provides natural gas
distributions services in Louisiana, Mississippi and Texas (Entex
Division), Arkansas, Louisiana, Oklahoma and Texas (Arkla Division) and
Minnesota (Minnegasco Division). Through wholly owned subsidiaries, GasCo
owns two interstate natural gas pipelines and gas gathering systems and
provides various ancillary services.
CenterPoint also engages in financing transactions and energy-related and other
functionally related businesses through its nonutility subsidiary companies.
For the year ended December 31, 2002, CenterPoint had revenues of
$7.9 billion, and operating income of $1.3 billion. As of December 31, 2002,
CenterPoint had assets totaling $19.6 billion.
The Distribution significantly reduced CenterPoint's common equity
in the short term. As the Commission has noted, however, CenterPoint's capital
structure will be improved significantly with the sale of Texas Genco Holdings,
Inc. and the securitization of any stranded investment in 2004 and 2005, as
contemplated by Texas law. (8) On the basis of current projections, it is
CenterPoint's intention that the CenterPoint System will achieve consolidated
equity capitalization net of securitization debt of 34.4% in 2006 (19.7% if
securitization debt is included) and continue to increase the equity component.
(9) Pending the issuance of the
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The impairment adjustment resulted in negative retained earnings for
CenterPoint. Subject to certain conditions, including a revaluation of all
assets and liabilities, generally accepted accounting principles ("GAAP")
would permit but do not require an accounting or quasi-reorganization to
eliminate deficits in retained earnings. See Financial Reporting Release
210.
(8) In the July Order, the Commission also noted that the Distribution would
not affect the capitalization of the Utility Subsidiaries and, further,
that "the separation of regulated and unregulated businesses is consistent
with the policies and provisions of the Act."
(9) As of December 31, 2002, CenterPoint had 12.1% common equity as a
percentage of consolidated capitalization net of securitization debt (11.4%
if securitization debt is included). Consolidated capitalization is the sum
of common equity, trust preferred securities and long-term and short-term
debt, including current maturities of long-term debt.
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securitization bonds, the CenterPoint System's financing transactions will be
largely limited to refinancing, replacing, exchanging or extending the term of
existing obligations.
It is important to note that any financing must comply not only with
the restrictions under this Act but also with the various restrictions imposed
by the lenders under existing financing arrangements. Attached as Exhibit G-2 is
a memorandum describing these restrictions in detail. As a general proposition,
however, under the existing loan documents, the proceeds of any new debt
financing must be applied to pay down existing debt. There is a limited
exception for certain debt: (i) up to $200 million in additional external debt
at GasCo, and (ii) up to $250 million additional external debt at CenterPoint or
any Subsidiary. In addition, there is a negative covenant limiting the Texas
Genco entities to $250 million in external debt.
Under normal conditions, it is projected that Applicants would need
to rely on little of the requested incremental authority (other than the
authority for the Texas Genco entities to issue external debt and the authority
for the T&D Utility to form and capitalize subsidiaries to issue securitization
debt) during the Authorization Period. The requested incremental authority is
thus largely intended to ensure access to the capital markets in the event of an
emergency -- such as a hurricane or an extended outage at a generating plant or,
perhaps less dramatically, a protracted run-up in the price of gas. (10)
2. Existing Financing Authority
The July Order authorized CenterPoint and its Subsidiaries to engage
in certain non-exempt financing transactions through June 30, 2003. Among other
things, the July Order authorized CenterPoint to issue up to $2 billion in
common stock, $1 billion in preferred securities, $5 billion in long-term debt
and $6 billion in short-term debt, subject to an overall limit of no more than
$6 billion in issuances under the July Order at any one time outstanding through
June 30, 2003. The July Order further authorized the Subsidiaries to engage in
certain non-exempt financing transactions. The July Order authorized the
Subsidiaries to issue up to $1 billion in common stock, $1 billion in preferred
securities, $4 billion in long-term debt and $3 billion in short-term debt,
subject to an overall limit of no more than $4 billion in issuances under the
July Order at any one time outstanding through June 30, 2003.
3. Transactions Pursuant to Authority Granted in the July Order
Since the July Order was issued, the Applicants have successfully
met a number of challenges. They have addressed short-term liquidity concerns
by, among other things,
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(10) While the banks' consent might be required in these circumstances,
CenterPoint in the past has been able to obtain such consent within a day
or two. Even with a reservation of jurisdiction, it would necessarily take
longer to obtain a supplemental Commission order. Applicants have provided
on a confidential basis financial projections reflecting the impact of such
additional financing authority.
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extending the maturity of CenterPoint's largest debt obligation into 2005 (thus
matching debt terms and cash flows anticipated from the sale of Texas Genco and
securitization of stranded costs). They have also relieved what had been a heavy
reliance on short-term bank financing and recurring need to extend those
maturities.
Pursuant to the authority granted in the July Order, CenterPoint and
its Subsidiaries have engaged in the following financing transactions:
On October 10, 2002, CenterPoint entered into amended and restated
agreements with its existing bank syndicate for one-year credit facilities
aggregating $4.7 billion. The first credit facility was a $3.85 billion, 364-day
facility at CenterPoint (the "CenterPoint Facility"). Pricing under the
CenterPoint Facility was based on London Interbank Offered Rate ("LIBOR") rates
under a pricing grid tied to the company's credit rating. Interest rates for the
term loans at CenterPoint's then-current ratings were the LIBOR rate plus 450
basis points.
The second credit facility, at the T&D Utility, was an $850 million,
364-day facility. Interest rates for loans under that facility were LIBOR plus
350 basis points on the first $400 million and LIBOR plus 400 basis points for
the next $450 million. Loans under the facility were secured by General Mortgage
Bonds of the T&D Utility.
As part of these agreements, CenterPoint agreed to pay certain
fees, including $50 million at the end of February 2003, and $25 million at
the end of June 2003. In addition, the banks insisted on mandatory
commitment reductions of the principal. On the CenterPoint Facility, the
banks required two $600 million prepayments, one by February 28, 2003, and
the second by June 30, 2003. A $450 million prepayment was required on April
1, 2003 in connection with the $850 million bank facility at the T&D
Utility. Perhaps most significantly, the banks insisted that CenterPoint
and/or the T&D Utility obtain $400 million in new borrowings by November 15,
2002, to pay other indebtedness, the majority of which would come due on that
date. Failure to obtain this additional borrowing would have enabled the
banks to terminate their commitments as of November 15.
On November 12, 2002, the T&D Utility entered into a new $1.310
billion collateralized term loan (the "T&D Utility Term Loan"), which removed
the immediate acceleration requirement contained in the $4.7 billion of bank
credit facilities. The proceeds were used to repay all amounts outstanding under
the T&D Utility's $850 million bank credit facility dated October 10, 2002, to
repay $400 million of debt, which included $300 million of senior debentures of
Reliant Energy FinanceCo II, LP due to mature on November 15, 2002, and $100
million of debt of CenterPoint, and to pay fees and related expenses. The T&D
Utility Term Loan has a three-year term, and carries an interest rate of LIBOR
plus 9.75%, subject to a minimum LIBOR rate of 3%. The T&D Utility Term Loan is
secured by General Mortgage Bonds.
On February 28, 2003, CenterPoint reached agreement with a
syndicate of banks on a second amendment to the CenterPoint Facility (the
"Second Amendment"). The Second Amendment provides significant improvements for
CenterPoint and its financial health:
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- - The maturity date of the CenterPoint Facility has been extended from
October 2003 to June 30, 2005.
- - The $1.2 billion in mandatory prepayments that would have been required
this year (including $600 million due on February 28, 2003) have been
eliminated.
- - Pricing for loans under the Second Amendment remains the same as under the
original CenterPoint Facility at current credit ratings.(11)
To provide additional security to the lenders, CenterPoint has
committed, subject to the Commission's approval under the 1935 Act, to grant the
banks a security interest in its 81% stock ownership of Texas Genco Holdings,
Inc. If the Company is unable to provide that security in a timely manner, the
interest rates will be increased by 25 basis points beginning May 28, 2003.
As additional compensation to the banks for the extended maturity
and the elimination of the mandatory prepayments, CenterPoint has committed
under the Second Amendment to grant the banks, on or before May 28, 2003,
warrants to purchase 10%, on a fully diluted basis, of the Company's common
stock.(12) The exercise price for the warrants would be equal to the greater of
(i) $6.56 or (ii) 110% of the closing price of CenterPoint common stock on the
New York Stock Exchange on the date the warrants are issued. The warrants would
be issued upon receipt of Commission approval and would remain outstanding for
four years. They would not, however, be exercisable for a year after issuance.
CenterPoint has the opportunity to reduce or extinguish the warrants to the
extent it reduces the bank facility during 2003 by specified amounts. (13)
The warrants and the underlying common stock would be registered
with the Commission and could be exercised either through the payment of the
purchase price or on a
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(11) CenterPoint has agreed to pay the banks an extension fee of 75 basis points
on the amounts outstanding under the bank facility on October 9, 2003, the
maturity date of the original CenterPoint Facility. CenterPoint also paid
$41 million in fees that were due on February 28, 2003 and agreed to
accelerate payment of $20 million in fees that were otherwise due on June
30, 2003, under the terms of the existing facility.
(12) There is pending a request by CenterPoint in File No. 70-9895 for authority
to pledge the stock of Texas Genco Holdings, Inc. and to issue warrants in
connection with the Second Amendment.
(13) The Second Amendment provides that the Company may extinguish up to $400
million of warrants by reducing the bank facility by a like amount on or
before May 28, 2003. Similarly, the Company is able to extinguish the
remaining 50% of the warrants, again on a proportionate basis, if it
reduces the bank facility by up to $400 million by the end of 2003.
It is CenterPoint's plan to eliminate the warrants entirely before they
vest by accessing the capital markets to fund the total payments of $800
million during 2003. To date, CenterPoint has reduced the bank facility by
$607 million and anticipates that it will obtain sufficient funds from
recently announced financings to eliminate the vesting of the remainder of
the warrants.
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"cashless" basis under which CenterPoint would issue a number of shares based
upon the difference between the then-current market price and the warrant
exercise price. Issuance of the warrants is also subject to obtaining Commission
approval under the 1935 Act. If Commission approval to issue the warrants is not
obtained on or before May 28, 2003, CenterPoint is obligated to further
negotiate with the banks and bank counsel to provide the banks equivalent cash
compensation over the term that the warrants would have been exercisable (to the
extent they are not otherwise extinguished). Such arrangement must be in place
by May 28, 2003.
On March 18, 2003, the T&D Utility issued General Mortgage Bonds
totaling over $762 million, comprising $450 million 10-year bonds with a coupon
rate of 5.7%, and $312.275 million 30-year bonds with a coupon rate of 6.95%.
Proceeds were used to repay $150 million of medium term notes maturing on April
21, 2003, to redeem $312.275 million of First Mortgage Bonds and to repay $279
million of a $537 million intercompany note to CenterPoint.(14)
On March 25, 2003, GasCo issued $650 million of 7.875% senior
unsecured notes. A portion of the proceeds was used to retire $260 million of
GasCo's 6 3/8% Term Enhanced ReMarketable Securities ("TERMS"). Proceeds were
also used to repay loans under a $350 million bank revolving credit facility
that was due to expire on March 31, 2003.
On March 25, 2003, GasCo closed a $200 million revolving credit
facility which will be used for working capital needs, including the financing
of capital expenditures. This 364-day facility has a drawn cost of LIBOR plus
250 basis points, including the facility fee, at existing credit ratings.
On April 14, 2003, GasCo issued an additional $112 million of 7.875%
senior unsecured notes. Proceeds were used to retire $100 million of TERMS and
to pay costs associated with the refinancing of the TERMS. The remaining $140
million of TERMS are due to be refinanced or remarketed by November 2003.
On April 9, 2003, $175 million of tax-exempt bonds were remarketed.
CenterPoint, which had owned the bonds since the fourth quarter of 2002, has the
obligation to make installment payments sufficient to pay debt service on the
remarketed bonds. Bonds aggregating $100 million have a 2018 maturity and an
interest rate of 7.75%. Bonds aggregating $75 million have a 2029 maturity and
an interest rate of 8%. Proceeds from the remarketing were used to repay bank
debt.
On May 19, 2003, CenterPoint sold $575 million of 3.75% convertible
senior notes due 2023. The proceeds from this offering have been used to repay a
portion of the outstanding indebtedness under the CenterPoint Facility.
On May 16, 2003, CenterPoint announced that the T&D Utility had
priced $200 million of 5.60% General Mortgage Bonds due July 1, 2023. The
proceeds from the offering
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(14) Part of the proceeds from this repayment were used by CenterPoint in March,
2003 to repay bank loans and permanently reduce the CenterPoint Facility by
$50 million.
9
will be used to redeem $200 million principal amount of the T&D Utility's 7-1/2%
First Mortgage Bonds due July 1, 2023.
On May 21, 2003, CenterPoint announced that it had priced $200
million of 5.875% senior notes due June 1, 2008 and $200 million of 6.85% senior
notes due June 1, 2015. The proceeds from the offering will be used to repay a
portion of the outstanding indebtedness under the CenterPoint Facility.
C. THE FINANCING REQUEST
1. Parameters for Financing Authority
Authorization is requested herein to engage in certain financing
transactions during the Authorization Period for which the specific terms and
conditions are not at this time known, and which may not be covered by Rule 52
under the Act, without further prior approval by the Commission. The following
general terms will be applicable where appropriate to the financing transactions
requested to be authorized hereby:
(a) Effective Cost of Money. The effective cost of money on debt
financings occurring pursuant to the authorizations granted under
this Application-Declaration will not exceed the greater of (i) 700
basis points over (a) the comparable-term LIBOR rates or (b) the
yield to maturity of a U.S. Treasury security having a remaining
term equal to the term of the subject debt, as appropriate, or (ii)
a rate that is consistent with similar securities of comparable
credit quality and maturities issued by other companies of
reasonably comparable credit quality as determined by the capital
markets.
The dividend rate on any series of preferred stock or preferred
securities will not exceed the greater of (i) 700 basis points over
(a) the comparable-term LIBOR rates or (b) the yield to maturity of
a U.S. Treasury security having a remaining term equal to the term
of the series of preferred stock or preferred securities or (ii) a
rate that is consistent with similar securities of comparable credit
quality and maturities issued by other companies of reasonably
comparable credit quality as determined by the capital markets.
(b) Maturity. The maturity of long-term indebtedness will not exceed
50 years. All series of preferred and equity-linked securities
(other than preferred stock, which may be perpetual) will be
redeemed no later than 50 years after the issuance thereof.
(c) Issuance Expenses. The underwriting fees, commissions or other
similar remuneration paid in connection with the non-competitive
issue, sale or distribution of securities pursuant to this
Application will not exceed 7% of the principal or total amount of
the securities being issued.(15)
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(15) Issuance Expenses will not count toward the Effective Cost of Money
discussed above.
10
(d) Use of Proceeds. The proceeds from the sale of securities in
external financing transactions will be used for general corporate
purposes including (i) the financing, in part, of the capital
expenditures of the CenterPoint System, (ii) the financing of
working capital requirements of the CenterPoint System, (iii) the
refinancing or acquisition, retirement or redemption pursuant to
Rule 42 under the Act of securities previously issued by CenterPoint
or its Subsidiaries or as otherwise authorized by the Commission,
(iv) direct or indirect investment in companies authorized under the
Act, (v) to meet unexpected contingencies, payment and timing
differences, and cash requirements, and (vi) other lawful purposes.
The Applicants represent that no such financing proceeds will be
used to acquire a new Subsidiary unless such financing is
consummated in accordance with an order of the Commission or an
available exemption under the Act.
(e) Common Equity Ratio. At all times during the Authorization
Period, each of the Utility Subsidiaries will maintain common equity
of at least 30% of its consolidated capitalization (common equity,
preferred stock, long-term debt and short-term debt) as reflected in
the most recent Form 10-K or Form 10-Q filed with the Commission
adjusted to reflect changes in capitalization since the balance
sheet date therein; (16)
(f) Investment Grade Ratings. Except as otherwise authorized,
any security to be issued, if rated, will be rated investment
grade by at least one nationally recognized statistical rating
organization ("NRSRO").(17)
(g) Authorization Period. No security will be issued pursuant to
the authority sought herein after the last day of the
Authorization Period (which is June 30, 2005).
2. CenterPoint External Financing
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(16) Upon the issuance of the securitization bonds described herein, the T&D
Utility may have common equity capitalization of less than 20% if the
securitization debt is included. The Applicants ask the Commission take
into account the unique nature of securitization debt when it passes upon
the request to form and capitalize special-purpose subsidiaries to issue
securitization debt.
(17) The Applicants ask the Commission to reserve jurisdiction pending
completion of the record over the issuance of any rated security that is
not rated investment grade when issued. In particular, in view of the
volatility of the energy markets, it is unclear whether an NRSRO would
issue an investment grade rating to any securities issued by the Texas
Genco entities. Nonetheless, it is important in view of the intended
disposition of these entities that they establish their own borrowings and
repay any loans from CenterPoint. Cf. Allegheny Energy, Inc., Holding Co.
Act Release No. 27579 (Oct. 17, 2002) (waiving the investment-grade
requirement for securities issued by a public-utility company engaged in
owning and operating generation but not transmission or distribution
assets).
11
CenterPoint requests authority to issue and sell securities
including common stock, preferred stock and preferred and equity-linked
securities (either directly or through a subsidiary), long-term and short-term
debt securities and convertible securities and derivative instruments with
respect to any of the foregoing.(18) CenterPoint also requests authorization to
enter into obligations with respect to tax-exempt debt issued on behalf of
CenterPoint by governmental authorities. Such obligations may relate to the
refunding of outstanding tax-exempt debt or to the remarketing of tax-exempt
debt. CenterPoint seeks authorization to enter into lease arrangements, and
certain hedging transactions in connection with the foregoing issuances of
taxable or tax-exempt securities.
CenterPoint may sell securities covered by this Application in any
one of the following ways: (i) through underwriters, to initial purchasers in
transactions in reliance on Rule 144A under the Securities Act of 1933 or
dealers; (ii) through agents; (iii) directly to a limited number of purchasers
or a single purchaser; (iv) in exchange for already outstanding securities; or
(iv) directly to employees (or to trusts established for their benefit),
shareholders and others. If underwriters are used in the sale of the securities,
such securities may be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The securities may be offered to the public
either through underwriting syndicates (which may be represented by a managing
underwriter or underwriters designated by CenterPoint) or directly by one or
more underwriters acting alone. The securities may be sold directly by
CenterPoint or through agents designated by CenterPoint from time to time. If
dealers are utilized in the sale of any of the securities, CenterPoint may sell
such securities to the dealers as principals. Any dealer may then resell such
securities to the public at varying prices to be determined by such dealer at
the time of resale. If common stock is being sold in an underwritten offering,
CenterPoint may grant the underwriters thereof a "green shoe" option permitting
the purchase from CenterPoint at the same price of additional shares then being
offered solely for the purpose of covering over-allotments.
Public distributions may be registered under the Securities Act of
1933 or be made pursuant to private negotiation with underwriters, dealers or
agents as discussed above or effected through competitive bidding among
underwriters. In addition, sales may be made through private placements, sales
to initial purchasers in Rule 144A transactions or other non-public offerings to
one or more persons. All such sales will be with terms and conditions, at rates
or prices and under conditions negotiated or based upon, or otherwise determined
by, competitive capital markets.
(a) Common Stock
CenterPoint is authorized under its restated articles of
incorporation to issue 1 billion shares of common stock, par value $.01 per
share, and related preferred stock purchase
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(18) Any convertible or equity-linked securities would be convertible into or
linked to only securities that CenterPoint and its Subsidiaries are
otherwise authorized to issue pursuant to rule or Commission order.
12
rights. As of March 31, 2003, there were issued and outstanding 305,436,670
shares of CenterPoint common stock. CenterPoint seeks authority to issue 200
million additional shares of common stock (including "Rights" as defined below)
and to issue warrants, options and other rights to acquire an equivalent amount
of common stock. Each share of common stock includes one purchase right
("Right") to acquire preferred stock in accordance with the authorization
pursuant to CenterPoint's existing Rights Agreement.
Such issuances may be used for the general corporate purposes
described above in Section C.1.(d). In addition, CenterPoint proposes, from time
to time during the Authorization Period, to issue and/or acquire in open market
transactions or negotiated block purchases, shares of CenterPoint common stock
for allocation under certain incentive compensation plans and certain other
employee benefit plans, and for the Investor's Choice Plan.(19) Such
transactions would comply with applicable law and Commission interpretations
then in effect. Any newly issued shares of common stock will be counted toward
the overall limit on common stock; shares of common stock purchased in the open
market or otherwise acquired for the purpose of reissuance under Stock Based
Plans will not be counted toward this limit.
(b) Preferred Stock and Preferred and Equity-Linked Securities
CenterPoint requests Commission authorization during the
Authorization Period to issue preferred stock and to issue directly or
indirectly through one or more financing Subsidiaries (collectively, "Financing
Subsidiaries" or the "Financing Subsidiary") preferred stock, preferred
securities (including, trust preferred securities), equity-linked securities
(including, specifically, preferred securities that are convertible, either
mandatorily or at the option of the holder, into common stock, or forward
purchase contracts for common stock) and other similar securities.
There are many different variations of equity-linked products
offered in the marketplace. Typically, these products combine a security with a
fixed obligation (e.g., preferred stock or debt) with a conversion feature that
is exercisable (often mandatorily) initially within a relatively short period
(e.g., three to six years after issuance). These instruments may also be tax
advantaged. From the issuer's standpoint, an equity-linked security may offer a
means to raise capital at a lower overall economic or after-tax cost than other
types of long-term securities, in that the fixed obligation component may have a
lower after-tax cost than straight preferred stock
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(19) As part of the holding company restructuring, CenterPoint assumed the
Reliant Energy, Incorporated Investor's Choice Plan. CenterPoint also
assumed Reliant Energy's obligations under existing stock-related employee
plans: the Reliant Energy Incorporated Savings Plan, the Houston Industries
Incorporated Long-Term Incentive Compensation Plan, the 1994 Houston
Industries Long-Term Incentive Compensation Plan, the Long-Term Incentive
Plan of Reliant Energy, Incorporated, the Reliant Energy Incorporated
Business Unit Performance Share Plan, the Reliant Energy Incorporated and
Subsidiaries Common Stock Participation Plan for Designated New Employees
and Non-Officer Employees, the NorAm Energy Corp. 1994 Incentive Equity
Plan and the Houston Industries Incorporated Stock Plan for Outside
Directors (collectively, the "Stock Based Plans").
13
and all or a portion of the interest or dividends paid may be tax deductible.
From an economic standpoint, these types of securities also generally carry a
lower cost than common equity. Preferred or equity-linked securities may be
issued in one or more series with such rights, preferences, and priorities as
may be designated in the instrument creating each such series. Dividends,
distributions or interest on preferred or equity-linked securities will be made
periodically and to the extent funds are legally available for such purpose, but
may be made subject to terms that allow the issuer to defer dividend or interest
payments or distributions for specified periods. Preferred or equity-linked
securities may be convertible or exchangeable into shares of common or preferred
stock (as applicable) that have otherwise been authorized under the Act.
Preferred stock and equity-linked securities may be sold directly or
indirectly through underwriters, initial purchasers or dealers, pursuant to a
method of distribution similar to that described for common stock in Section 2
above. The Commission has approved the issuance of such securities on several
occasions.(20)
(c) Long-Term Debt
Long-term debt securities may be comprised of bonds, notes,
medium-term notes or debentures under one or more indentures, long-term
indebtedness under agreements with banks or other institutional lenders,
directly or indirectly, convertible debt and other similar securities.(21)
Long-term securities could also include obligations relating to the refunding or
remarketing of tax-exempt debt issued on behalf of CenterPoint or its
Subsidiaries by governmental authorities.
Long-term debt issued pursuant to the requested authority will be
unsecured.(22) Specific terms of any borrowings will continue to be determined
by CenterPoint at the time of issuance and will comply in all regards with the
parameters on financing authorization set forth above. The request for
authorization for CenterPoint to issue long-term debt securities is consistent
with the current authority under the July Order and authorization that the
Commission has granted to other combination gas and electric holding
companies.(23)
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(20) The Southern Company, Holding Co. Act Release No. 27134 (Feb. 9, 2000);
Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001)
(21) Debt will be convertible only into such securities as are otherwise
authorized under the Act.
(22) There is a pending request in File No. 70-9895 for authority for
CenterPoint to pledge the stock of Texas Genco Holdings, Inc.
(23) See, e.g., E.ON AG, Holding Co. Act Release No. 27539 (June 14, 2002);
Allegheny Energy, Inc., Holding Co. Act Release No. 27486 (Dec. 31, 2001);
Exelon Corporation, Holding Co. Act Release No. 27266 (Nov. 2, 2000); New
Century Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000).
14
(d) Short-Term Debt
CenterPoint seeks authority to issue short-term debt to provide
financing for general corporate purposes, working capital requirements and
temporary financing of Subsidiary capital expenditures. Short-term debt issued
by CenterPoint will be unsecured.
Types of short-term debt securities may include borrowings under one
or more revolving credit facilities or bank loans, commercial paper, short-term
notes, bid notes, institutional borrowings, privately placed notes and other
similar securities. Specific terms of any short-term borrowings will be
determined by CenterPoint at the time of issuance and will comply with the
parameters for financing authorization set forth above. The maturity of any
short-term debt issued will not exceed 364 days or, if the notional maturity is
greater than 364 days, the debt security will include put options at appropriate
points in time to cause the security to be accounted for as a current liability
under GAAP.
CenterPoint may sell commercial paper or privately placed notes
("commercial paper"), from time to time, in established domestic or European
commercial paper markets. Such commercial paper may be sold at a discount or
bear interest at a rate per annum prevailing at the date of issuance for
commercial paper of a similarly situated company. CenterPoint may, without
counting against the limit on parent financings set forth above, maintain
back-up lines of credit in connection with one or more commercial paper programs
in an aggregate amount not to exceed the amount of authorized commercial paper.
CenterPoint may sell short-term notes through one or more private
placements or public offerings primarily to traditional money market investors.
CenterPoint may enter into individual agreements with one or more commercial
banks that may or may not be lenders under CenterPoint credit facilities. These
agreements would permit CenterPoint to negotiate with one or more banks on any
given day for such lender, or any affiliate or subsidiary of such lender, to
purchase promissory notes directly from CenterPoint.
(e) Financing Risk Management Devices
CenterPoint requests authority to enter into hedging arrangements
intended to reduce or manage the volatility of financial and other business
risks to which CenterPoint is subject. These arrangements may include, but are
not limited to interest rate swaps, caps, floors, collars, forward agreements,
issuance of structured notes (i.e., a debt instrument in which the principal
and/or interest payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale, including short
sales, of U.S. Treasury or U.S. governmental agency (e.g., Fannie Mae)
obligations or LIBOR based swap instruments (collectively referred to as
"Hedging Instruments"). The transactions would be for fixed periods and stated
notional amounts. CenterPoint may employ interest rate derivatives as a means of
prudently managing the risk associated with any of its outstanding debt issued
pursuant to this authorization or an applicable exemption by, in effect,
synthetically (i) converting variable rate debt to fixed rate debt, (ii)
converting fixed rate debt to variable rate debt, (iii) limiting the impact of
changes in interest rates resulting from variable rate debt and (iv) managing
other risks that may attend outstanding securities. Transactions will be entered
into for a fixed or
15
determinable period. CenterPoint will only enter into agreements with
counterparties having a senior debt rating at the time the transaction is
executed of at least "BBB-" or its equivalent, as published by a NRSRO
("Approved Counterparties").
In addition, CenterPoint requests authorization to enter into
hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to certain limitations and restrictions. Such
Anticipatory Hedges would only be entered into with Approved Counterparties, and
would be utilized to fix and/or limit the risk associated with any issuance of
securities through appropriate means, including (i) a forward sale of
exchange-traded Hedging Instruments, (ii) the purchase of put options on Hedging
Instruments, (iii) a put options purchase in combination with the sale of call
options Hedging Instruments, (iv) some combination of the above and/or other
derivative or cash transactions, including, but not limited to, structured
notes, caps and collars, appropriate for the Anticipatory Hedges, and (v) other
financial derivatives or other products including Treasury rate locks, swaps,
forward starting swaps, and options on the foregoing. Anticipatory Hedges may be
executed on-exchange with brokers through the opening of futures and/or options
positions traded on the Chicago Board of Trade, the opening of over-the-counter
positions with one or more counterparties), or a combination of the two.
CenterPoint or its appropriate Subsidiary will determine the optimal structure
of each Anticipatory Hedge transaction at the time of execution. CenterPoint or
its appropriate Subsidiary may decide to lock in interest rates and/or limit its
exposure to interest rate increases.
Each Hedging Instrument and Anticipatory Hedge will be treated for
accounting purposes as provided for under GAAP. Fees, commissions and other
amounts payable to the counterparty or exchange (excluding, however, the swap or
option payments) in connection with Hedging Instruments will not exceed those
generally obtainable in competitive markets for similarly-situated parties of
comparable credit quality. CenterPoint will comply with Statement of Financial
Accounting Standards ("SFAS") 133 ("Accounting for Derivative Instruments and
Hedging Activities") and SFAS 138 ("Accounting for Certain Derivative
Instruments and Certain Hedging Activities") or such other standards relating to
accounting for derivative transactions as are adopted and implemented by the
Financial Accounting Standards Board.
2. Subsidiary Financing
To the extent such transactions are not otherwise exempted, the
Subsidiaries request authority to issue and sell securities, including common
equity, preferred shares and preferred and equity-linked securities (either
directly or through a subsidiary), long-term and short-term debt securities and
derivative instruments with respect to any of the foregoing on the same terms
and conditions discussed above for CenterPoint, except that Subsidiary debt may
be secured or unsecured.(24) The Subsidiaries also request authorization to
enter into obligations with respect to new tax-exempt debt issued on behalf of a
Subsidiary by governmental authorities as well as obligations entered into in
connection with the refunding of outstanding tax-exempt debt assumed by
CenterPoint in connection with the August 31, 2002 restructuring by which
CenterPoint and Utility Holding, LLC became holding companies for the Utility
Subsidiaries. To the extent not exempt
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(24) To the extent that GasCo issues secured debt, such debt will be secured by
a pledge of the stock of its nonutility subsidiary companies.
16
pursuant to Rule 52, the Subsidiaries also request authority to enter into
hedging transactions to manage their risk in connection with the foregoing
issuance of securities subject to the limitations and requirements applicable to
CenterPoint, provided, that the Intermediate Holding Companies will not enter
into such hedging transactions.
3. Guarantees and Intra-System Advances
(a) Guarantees
Authorization is requested for CenterPoint during the Authorization
Period to enter into guarantees to third parties, obtain letters of credit,
enter into support or expense agreements or liquidity support agreements or
otherwise provide credit support with respect to the obligations of the
Subsidiaries, including performance guarantees, as may be appropriate to carry
on in the ordinary course of CenterPoint or its Subsidiaries' duly-authorized
utility and related businesses, and the Subsidiaries request authority to
provide to their respective Subsidiaries guarantees and other forms of credit
support in an aggregate amount not to exceed $6 billion (the "CenterPoint
Guarantee Limit"). Excluded from the CenterPoint Guarantee Limit are obligations
exempt pursuant to Rule 45 under the Act.
Certain of the guarantees may be in support of obligations that are
not capable of exact quantification. In such cases, CenterPoint will determine
the exposure under a guarantee for purposes of measuring compliance with the
CenterPoint Guarantee Limit by appropriate means, including estimation of
exposure based on loss experience or potential payment amounts. As appropriate,
these estimates will be made in accordance with GAAP and/or sound financial
practices.
The guarantor may charge each Subsidiary a fee for any guarantee
provided on its behalf that is not greater than the cost, if any, of obtaining
the liquidity necessary to perform the guarantee (for example, bank line
commitment fees or letter of credit fees, plus other transactional expenses) for
the period of time the guarantee remains outstanding.
The amount of any guarantees will be counted toward the applicable
limits under Rules 53 and 58.
(b) Money Pool
CenterPoint and certain of its Subsidiaries (together, the
"Parties") hereby request authorization to continue to conduct the Money Pool as
approved in the July Order, and the Subsidiaries, to the extent not exempted by
Rule 52 under the Act, also request authorization to make, from time to time,
unsecured short-term borrowings from the Money Pool and to contribute surplus
funds to the Money Pool and to lend and extend credit to (and acquire promissory
notes from) one another through the Money Pool.(25)
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(25) The Participants in the Money Pool will be CenterPoint, Texas Genco
Holdings, Inc., Texas Genco GP, LLC, the Utility Subsidiaries, Houston
Industries FinanceCo GP, LLC, Houston Industries FinanceCo LP, by Houston
Industries FinanceCo GP, LLC, its General Partner, Reliant Energy FinanceCo
II GP, LLC, Reliant Energy FinanceCo II LP, by Reliant Energy FinanceCo GP,
LLC, its General Partner, CenterPoint Energy Properties, Inc., CenterPoint
Energy International, Inc., CenterPoint Energy Products, Inc. and
CenterPoint Energy Management Services, Inc. CenterPoint Energy
International, Inc. is an entity through which CenterPoint funded or
acquired foreign utility companies within the meaning of Section 33 of the
Act and so, this company will be an investor in but not a borrower from the
Money Pool. No exempt wholesale generator or foreign utility company will
be a borrower from the Money Pool.
17
CenterPoint is requesting authorization to contribute surplus funds
and to lend and extend credit to the Utility Subsidiaries through the Money
Pool. CenterPoint will not be a borrower from the Money Pool.
Under the terms of the Money Pool, each Party determines each day
the amount of funds each desires to contribute to the Money Pool, and
contributes such funds to the Money Pool. The determination of whether a Party
has funds to contribute (either from surplus funds or from external borrowings)
and the determination whether a Party shall lend such funds to the Money Pool is
made by such Party's treasurer, or by a designee thereof, in such Party's sole
discretion. Each Party may withdraw any of its funds at any time upon notice to
CenterPoint as administrative agent of the Money Pool.
Short-term funds will be available from the following sources: (1)
surplus funds in the treasuries of the Parties, and (2) proceeds from external
borrowings, including bank loans, the sale of notes and/or the sale of
commercial paper by the Parties, in each case to the extent permitted by
applicable laws and regulatory orders.
Each borrowing Party will borrow pro rata from each fund source in
the same proportion that the amount of funds provided from that fund source
bears to the total amount then loaned through the Money Pool. On a day when more
than one source of funds is invested in the Money Pool with different rates of
interest used to fund loans through the Money Pool, each borrower will borrow
pro rata from each such funding source from the Money Pool in the same
proportion that the amount of funds provided by that fund source bears to the
total amount of funds invested into the Money Pool. If there are insufficient
funds to meet all borrowing requests, the needs of the Utility Subsidiaries will
be met before loans are made to any Non-Utility Subsidiaries.
The determination of whether a Party has funds to lend to the Money
Pool will be made by its Treasurer, or by a designee thereof. CenterPoint, as
administrator of the Money Pool, will provide each Party with a report for each
business day that includes, among other things, cash activity for the day and
the balance of loans outstanding.(26) All borrowings from the Money Pool shall
be authorized by the borrowing Party's treasurer, or by a designee thereof. No
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(26) Applicants intend to seek authority to form a service company that, among
other things, will serve as the administrator of the Money Pool.
18
Party shall be required to effect a borrowing through the Money Pool if such
Party determines that it can (and is authorized to) effect such borrowing more
advantageously directly from banks or through the sale of its own notes or
commercial paper.
Funds which are loaned by Parties and are not utilized to satisfy
borrowing needs of other Parties will be invested by CenterPoint on behalf of
the lending Parties in one or more short term instruments, including (i)
interest-bearing deposits with banks; (ii) obligations issued or guaranteed by
the U.S. government and/or its agencies; (iii) commercial paper rated not less
than A-1 by Standard & Poor's and P-1 by Moody's Investors Services, Inc.; (iv)
money market funds; (v) bank certificates of deposit; (vi) Eurodollar funds;
(vii) repurchase agreements collateralized by securities issued or guaranteed by
the U.S. government; and (viii) such other investments as are permitted by
Section 9(c) of the Act and Rule 40 thereunder.
The interest rate applicable on any day to then outstanding loans
through the Money Pool, whether or not evidenced by a promissory demand note,
will be the composite weighted average daily effective cost incurred by
CenterPoint for external borrowings outstanding on that date. The daily
effective cost shall be inclusive of interest rate swaps related to such
external funds. If there are no external borrowings outstanding on that date,
then the rate will be the certificate of deposit yield equivalent of the 30-day
Federal Reserve "AA" Non-Financial Commercial Paper Composite Rate or if no
composite is established for that day, then the applicable rate will be the
composite for the next preceding day for which a composite is established. If
the composite shall cease to exist, then the rate will be the composite which
then most closely resembles the Composite and/or most closely mirrors the
pricing CenterPoint would expect if it had external borrowings.
Interest income related to external investments will be calculated
daily and allocated back to lending Parties on the basis of their relative
contribution to the Investment Pool on that date.
Each Party receiving a loan from the Money Pool hereunder shall
repay the principal amount of such loan, together with all interest accrued
thereon, on demand by the administrator and in any event not later than the
expiration date of the Commission authorization for the operation of the Money
Pool. All loans made through the Money Pool may be prepaid by the borrower
without premium or penalty.
Borrowings by the Utility Subsidiaries from the Money Pool shall not
exceed the following amounts at any one time outstanding during the
Authorization Period:
Texas Genco LP $1 billion
T&D Utility $1 billion
GasCo. $1 billion
(c) Other Intra-System Financing
The Subsidiaries may also finance their capital needs through
borrowings from CenterPoint, directly or indirectly through one or more
Intermediate Holding Companies. Any
19
financings by Utility Subsidiaries pursuant to this request would be counted
toward the Money Pool limits above.
Each of the Intermediate Holding Companies requests authority to
issue and sell securities to its respective parent companies and to acquire
securities from its subsidiary companies.
4. Changes in Capital Stock of Majority Owned Non-Utility Subsidiaries
Request is made for authority to change the terms of any 50% or more
owned Non-Utility Subsidiary's authorized capital stock capitalization or other
equity interests by an amount deemed appropriate by CenterPoint or other
intermediate parent company. A Non-Utility Subsidiary would be able to change
the par value, or change between par value and no-par stock, without additional
Commission approval, provided that no such action would be taken without the
consent of any minority shareholders. CenterPoint will be subject to all
applicable laws regarding the fiduciary duty of fairness of a majority
shareholder to minority shareholders in any such 50% or more owned Non-Utility
Subsidiary and will undertake to ensure that any change implemented under this
paragraph comports with such legal requirements.
5. Payment of Dividends Out of Capital or Unearned Surplus
Each of the Non-Utility Subsidiaries is requesting authority to
declare and pay dividends out of capital or unearned surplus to the extent
permitted by state law.
CenterPoint also requests authority to declare and pay dividends out
of capital or unearned surplus in an amount up to $500 million through the
Authorization Period. Such authority is required because of the accounting
consequences of the Distribution. As a result of the spin-off of Reliant
Resources, CenterPoint recorded a non-cash loss on the disposal of discontinued
operations of $4.3 billion in the third quarter of 2002. This loss represents
the excess of the carrying value of CenterPoint's net investment in Reliant
Resources over the market value of Reliant Resources stock. To account for the
Distribution, CenterPoint reduced its retained earnings to reflect the
impairment in the value of its investment in Reliant Resources (i.e., the
difference between book and market value of the stock) and then reduced its
additional paid-in capital by the net book value of its investment (following
the adjustment) in Reliant Resources. The impairment adjustment was made in
accordance with Accounting Principles Board Opinion No. 29, "Accounting for
Nonmonetary Transactions" and Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The impairment adjustment resulted in negative retained earnings for
CenterPoint. Subject to certain conditions, including a revaluation of all
assets and liabilities, generally accepted accounting principles would permit
but do not require an accounting or quasi-reorganization to eliminate deficits
in retained earnings. See Financial Reporting Release 210.
As of December 31, 2002, CenterPoint had a negative retained
earnings of approximately $1.1 billion. It is CenterPoint's intention to declare
and pay dividends out of
20
current earnings. Accordingly, CenterPoint requests the Commission to reserve
jurisdiction over this request.
6. Financing Subsidiaries
CenterPoint proposes to organize and acquire, directly or
indirectly, the common stock or other equity interests of one or more Financing
Subsidiaries for the purpose of effecting various financing transactions from
time to time through the Authorization Period. The amount of securities issued
by such Financing Subsidiaries will count toward the respective financing limits
set forth above. Any security issued pursuant to the authority granted in this
filing will be appropriately disclosed in the system's financial statements. It
is anticipated that the Financing Subsidiaries will be wholly-owned indirect
subsidiaries of CenterPoint. No Financing Subsidiary shall acquire or dispose
of, directly or indirectly, any interest in any utility asset, as that term is
defined under the Act, without first obtaining such further approval as may be
required.
The business of the Financing Subsidiary will be limited to
effecting financing transactions that have been otherwise authorized for
CenterPoint and its associates. In connection with such financing transactions,
CenterPoint or its Subsidiaries may enter into one or more guarantees or other
credit support agreements in favor of the Financing Subsidiary.
Any Financing Subsidiary organized pursuant to this filing shall be
organized only if, in management's opinion, the creation and utilization of such
Financing Subsidiary will likely result in tax savings, increased access to
capital markets and/or lower cost of capital for CenterPoint or its
Subsidiaries.
The ability to use finance subsidiaries in financing transactions
can sometimes offer increased state and/or federal tax efficiency. Increased tax
efficiency can result if a financing subsidiary is located in a state or country
that has tax laws that make the proposed financing transaction more tax
efficient relative to the sponsor's existing taxing jurisdiction. For example,
foreign finance subsidiaries, depending upon the identity of the borrowers, can
often earn income that is not subject to current U.S. federal income taxation.
However, decreasing tax exposure is usually not the primary goal when
establishing a financing subsidiary. Because of the potential significant
non-tax benefits of such transactions, discussed below, use of a financing
subsidiary can benefit an issuer even without a net improvement in its tax
position.
Financing subsidiaries can increase a company's ability to access
new sources of capital by enabling it to undertake financing transactions with
features and terms attractive to a wider investor base. Financing subsidiaries
can be established in jurisdictions and/or in forms that have terms favorable to
its sponsor and that at the same time provide targeted investors with attractive
incentives to provide financing. Many of these investors would not be
participants in the sponsor's bank group, and they typically would not hold
sponsor bonds or commercial paper. Thus they represent potential new sources of
capital.
One aspect of transactions involving finance subsidiaries is that
they can enable a more efficient allocation of risks among investors and the
sponsor, resulting in a lower all-in
21
financing rate. In a simple example, finance subsidiaries can be used to
securitize specific assets, or pools of assets, at reasonable-to-attractive
rates. The financing cost could be lower because the assets may have a unique
risk profile that is especially appealing to specific investors, or because the
diversification achieved by pooling assets reduces the total level of risk.
Each of CenterPoint and its Subsidiaries also requests authorization
to enter into an expense agreement with its respective financing entity,
pursuant to which it would agree to pay all expenses of such entity. Any amounts
issued by such financing entities to third parties pursuant to this
authorization will be included in the additional external financing limitation
authorized herein for the immediate parent of such financing entity. However,
the underlying intra-system mirror debt and parent guarantee shall not be so
included. Applicants also seek authority for the Financing Subsidiaries to
transfer the proceeds of any financing to their respective parent companies.
D. RETENTION AND REORGANIZATION OF NON-UTILITY INTERESTS
1. Retention of Non-Utility Interests
In the July Order, the Commission reserved jurisdiction over the
retention of CenterPoint Energy Investment Management, Inc., MRT Services
Company and CenterPoint Energy Trading and Transportation Group, Inc. Applicants
hereby request that the Commission authorize the retention of these nonutility
interests except with respect to the canal currently owned by MRT Services
Company.
CenterPoint Energy Investment Management, Inc., a Delaware
corporation that is a wholly-owned subsidiary of CenterPoint, holds shares of
stock of AOL Time Warner that was received in connection with the 1995 sale of
cable television businesses.
Prior to its acquisition of NorAm Energy Corp. in 1997, the
regulated electric-utility operations were a subsidiary of a holding company
then known as Houston Industries. One of Houston Industries' unregulated
business ventures was the acquisition and operation of cable television systems
in a variety of locations. In 1995, Houston Industries sold its systems to Time
Warner, receiving in consideration a substantial number of shares of convertible
preferred stock of Time Warner. To avoid the risks inherent in holding a
volatile stock such as Time Warner and to capture the value of its appreciation,
Houston Industries monetized the stock in 1999 by the issuance of Zero-Premium
Exchangeable Subordinated Notes, or ZENS. The notes, which mature in 2029, bear
interest at 2% per annum plus the amount of any cash dividends paid on the
related Time Warner shares and are redeemable at a price tied to the price of
Time Warner (now AOL Time Warner) common stock. CenterPoint still holds title to
the underlying AOL Time Warner common stock, which serves as a hedge against
changes in the value of the ZENS, through CenterPoint Energy Investment
Management, Inc. Changes in the fair value of the AOL Time Warner common stock
held by CenterPoint are expected to substantially offset changes in the fair
value of the derivative component of the ZENS.
Applicants believe that CenterPoint Energy Investment Management,
Inc. is a retainable finance subsidiary consistent with Commission precedent,
see, e.g., Exelon Corporation, Holding Co. Act Release No. 27256 (Oct. 19,
2000), or, in the alternative, the
22
underlying securities were acquired "in the ordinary course of business"
consistent with Commission precedent under Section 9(c)(3) of the Act, see,
e.g., Alabama Power Co., Holding Co. Act Release No. 24951 (Sept. 11, 1989).
Although CenterPoint Energy Investment Management, Inc. is not in the business
of providing telecommunication or other services, clearly the business of AOL
Time Warner is of the nature contemplated by Section 34 of the Act concerning
"exempt telecommunications companies." CenterPoint currently expects to hold the
AOL Time Warner stock so long as it has outstanding ZENS and will seek such
additional authority as may be required if it retires or otherwise disposes of
the ZENS.
MRT Services Company provides marketing services in connection with
CenterPoint's gas pipeline subsidiaries. It also is the lessor of real estate
associated with telecommunications towers that are used to provide services to
CenterPoint System pipelines. As such, it is retainable as an energy-related
company pursuant to Rule 58(b)(1)(vii) and Rule 58(b)(2). MRT Services Company
also owns a canal that had been acquired in connection with Reliant Resources'
California generation projects. CenterPoint asks the Commission to grant it
three years to divest the canal. CenterPoint further requests that any order of
the Commission that requires CenterPoint to divest this canal pursuant to
Section 11(b)(1) of the Act make the necessary findings to enable CenterPoint to
obtain the tax treatment provided by Section 1081 of the Internal Revenue Code,
as amended, in connection with the ordered disposition.
CenterPoint Energy Trading and Transportation Group, Inc. provides
administrative payroll services to associated pipeline companies at cost
determined in accordance with Rules 90 and 91. The subsidiary is not engaged in
other businesses.
2. Authority to Reorganize Nonutility Interests
The Commission previously authorized CenterPoint to restructure its
nonutility interests from time to time as may be necessary or appropriate.
CenterPoint seeks a continuation of this authority, provided that companies in
the CenterPoint System will engage, directly or indirectly, only in businesses
that are duly authorized, whether by order, rule or statute.
E. DISPOSITION OF THE TEXAS GENCO ENTITIES
CenterPoint seeks authority to sell the stock and/or assets of the
Texas Genco entities to Reliant Resources.
It is CenterPoint's stated intention to monetize the assets held by
the Texas Genco entities (approximately $2.8 billion equity capitalization as of
December 31, 2002) as part of the Business Separation Plan approved in December
2000 by the Texas Commission pursuant to the Texas electric restructuring law.
Indeed, in the July Order, the Commission noted that "the sale of Texas Genco,
LP and securitization of any stranded investment in 2004 and 2005, as
contemplated by Texas law" are an integral part of CenterPoint's plan to achieve
a more traditional capital structure.
As of December 31, 2002, Texas Genco, LP owned and operated 11 power
generating stations (60 generating units) and had a 30.8% interest in the South
Texas Project Electric Generating Station ("South Texas Project"), for a total
net generating capacity of 14,175
23
MW. The South Texas Project is a nuclear generating station with two 1,250 MW
nuclear generating units. The following table contains information regarding the
electric generating assets:
NET GENERATING CAPACITY
AS OF
GENERATION FACILITIES DECEMBER 31, 2002 (IN MW)
W. A. Parish 3,661
Limestone 1,612
South Texas Project 770
San Jacinto 162
Cedar Bayou 2,260
P. H. Robinson 2,213
T. H. Wharton 1,254
S. R. Bertron 844
Greens Bayou 760
Webster 387
Deepwater 174
H. O. Clarke 78
------
Total 14,175
Texas Genco, LP sells electric generation capacity, energy and ancillary
services in the Electric Reliability Council of Texas, Inc. ("ERCOT") market,
which is the largest power market in the State of Texas. Since January 1, 2002,
Texas Genco, LP's generation business has been operated as an independent power
producer, with output sold at market prices to a variety of purchasers. As
authorized by this Commission under the July Order, on January 6, 2003,
CenterPoint distributed to its shareholders approximately 19% of the common
stock of Texas Genco Holdings, Inc. The stock of Texas Genco Holdings, Inc. is
traded on the New York Stock Exchange under the symbol "TGN".
Reliant Resources has an option that may be exercised between
January 10, 2004 and January 24, 2004 to purchase all of the shares of Texas
Genco Holdings, Inc. common stock then owned by CenterPoint. The exercise price
under the option will equal:
- - the average daily closing price per share of Texas Genco Holdings, Inc.
common stock on the New York Stock Exchange for the 30 consecutive trading
days with the highest average closing price for any 30-day trading period
during the 120 trading days immediately preceding January 10, 2004,
multiplied by the number of shares of Texas Genco Holdings, Inc. common
stock then owned by CenterPoint, plus
- - a control premium, up to a maximum of 10%, to the extent a control premium
is included in the valuation determination made by the Texas Commission
relating to the market value of Texas Genco Holdings, Inc.'s common stock
equity.
24
The exercise price formula is based upon the generation asset valuation
methodology in the Texas electric restructuring law that CenterPoint will use to
calculate the market value of Texas Genco Holdings, Inc. The exercise price is
also subject to adjustment based on the difference between the per share
dividends Texas Genco Holdings, Inc. paid to CenterPoint during the period from
the distribution date through the option closing date and Texas Genco Holdings,
Inc.'s actual per share earnings during that period. To the extent Texas Genco
Holdings, Inc.'s per share dividends are less than its actual per share earnings
during that period, the per share option price will be increased. To the extent
its per share dividends exceed its actual per share earnings, the per share
option price will be reduced.
Reliant Resources has agreed that if it exercises its option,
Reliant Resources will purchase from CenterPoint all notes and other payables
owed by Texas Genco Holdings, Inc. to CenterPoint as of the option closing date,
at their principal amount plus accrued interest. Similarly, if there are notes
or payables owed to Texas Genco Holdings, Inc. by CenterPoint as of the option
closing date, Reliant Resources will assume those obligations in exchange for a
payment from CenterPoint of an amount equal to the principal plus accrued
interest.
If Reliant Resources does not exercise the option, CenterPoint
currently plans to sell or otherwise monetize its interest in the Texas Genco
entities.(27) To facilitate these transactions, CenterPoint intends to qualify
one or more of the Texas Genco entities as EWGs and no further approval will be
required under the Act for their disposition. In the event that CenterPoint is
unable to obtain the necessary EWG determination in a timely fashion, the
Company requests authority pursuant to Section 12(d) of the Act to sell the
stock and/or assets of the Texas Genco entities to Reliant Resources as
described above.
F. SECURITIZATION OF STRANDED COSTS
In June 1999, the Texas legislature enacted a law that substantially
amended the regulatory structure governing electric utilities in Texas. Under
this law, the power generation and retail sales functions of integrated
utilities in Texas ceased to be subject to traditional cost-based regulation and
utilities were required to separate their generation, retail and transmission
and distribution functions into separate units. Since January 1, 2002, Texas
Genco, LP has been selling generation capacity, energy and ancillary services to
wholesale purchasers at prices determined by the market. The transmission and
distribution services provided by the T&D Utility remain subject to rate
regulation.
Since January 1, 2002, the former retail customers of most
investor-owned electric utilities in Texas have been entitled to purchase their
electricity from any of several "retail electric providers" that have been
certified by the Texas Commission. Retail electric providers cannot own
generation assets in Texas. Neither CenterPoint nor any of its subsidiary
companies is a retail electric provider or engages in retail electric sales.
Texas transmission and distribution utilities such as the T&D
Utility whose generation assets were "unbundled" pursuant to the Texas electric
restructuring law, may in 2004
- ----------
27 CenterPoint will seek such additional authority as may be required in
this regard.
25
recover generation-related (i) "regulatory assets," and (ii) "stranded costs,"
which consist of the positive excess of the net regulatory book value of
generation assets over the market value of the assets, taking specified factors
into account.
The Texas electric restructuring law provides CenterPoint an
opportunity to recover its "regulatory assets" and "stranded costs" resulting
from the unbundling of the transmission and distribution utility from the
generation facilities and the related onset of retail electric competition. The
Texas electric restructuring law allows alternative methods of third party
valuation of the fair market value of generation assets, including outright
sale, full and partial stock valuation and asset exchanges. CenterPoint has
committed in the business separation plan approved by the Texas Commission that
the fair market value of the Texas Genco assets will be determined using the
partial stock valuation method. Under this methodology, the publicly traded
common stock of Texas Genco Holdings, Inc. will be used to determine the market
value of the Texas Genco assets.
Beginning in January 2004, the Texas Commission will conduct true-up
proceedings for each investor-owned utility. The purpose of the true-up
proceeding is to quantify and reconcile the amount of stranded costs, the
capacity auction true-up, unreconciled fuel costs and other regulatory assets
associated with the generating assets that were not previously securitized. The
true-up proceeding will result in either additional charges or credits being
assessed on certain retail electric providers.
The regulatory net book value of generating assets will be compared
to the market value based on the partial stock valuation method. The resulting
difference, if positive, is stranded cost that will be recovered through a
transition charge, which is a non-bypassable charge assessed to customers taking
delivery service from the T&D Utility, that may be securitized as discussed
below. If the difference is negative, the amount of over-mitigation not returned
to customers by that time (redirected depreciation and excess earnings directed
to depreciation) will be returned to customers through lower transmission and
distribution charges.
The publicly traded common stock of Texas Genco Holdings, Inc. will
be used to determine the market value of the Texas Genco assets. The market
value will be equal to the average daily closing price on a national exchange
for publicly held shares of common stock in Texas Genco Holdings, Inc. for the
30 consecutive trading days chosen by the Texas Commission out of the 120
trading days immediately preceding the true-up filing, plus a control premium,
up to a maximum of 10%. The regulatory net book value is the balance as of
December 31, 2001 plus certain costs incurred for reductions in emissions of
oxides of nitrogen and any above-market purchase power costs. The regulatory net
book value will also include any mitigation returned to ratepayers through
return of "excess earnings depreciation" or reversal of redirected depreciation.
The Texas Commission used a computer model or projection, called an
excess-cost-over-market model or "ECOM model," to estimate stranded costs
related to generation plant assets. In connection with using the ECOM model to
calculate the stranded cost estimate, the Texas Commission estimated the market
power prices that will be received in the generation capacity auctions mandated
by the Texas electric restructuring law during the period January 1,
26
2002 through December 31, 2003. Any difference between the actual market power
prices received in those auctions and the Texas Commission's earlier estimates
of those market prices will be a component of the 2004 true-up to which the T&D
Utility will be a party.
The fuel component will be determined in a final fuel
reconciliation. In that proceeding, the amount of any over- or under-recovery of
fuel costs from the period August 1, 1997 through January 30, 2002 will be
determined. Any over- or under-recovery, plus interest thereon, will either be
returned to or recovered from our customers, as appropriate, as a component of
the 2004 true-up.
In connection with the implementation of the Texas electric
restructuring law, the Texas Commission has set a "price to beat" for retail
electric providers affiliated with a formerly integrated utility that serve
residential and small commercial customers within the utility's service
territory. The true-up provides for a clawback of "price to beat" in excess of
the market price of electricity if 40% of the "price to beat" load is not served
by a non-affiliated retail electric provider by January 1, 2004. Pursuant to the
master separation agreement between Reliant Energy, Incorporated and Reliant
Resources, Reliant Resources is obligated to reimburse the T&D Utility for the
clawback component of the true-up. The clawback will not exceed $150 times the
number of customers served by the affiliated retail electric provider in the
transmission and distribution utility's service territory less the number of
customers served by the affiliated retail electric provider outside the
transmission and distribution utility's service territory on January 1, 2004.
The Texas electric restructuring law provides for the use of special
purpose entities to issue securitization bonds for the economic value of
generation-related regulatory assets and stranded costs. These bonds will be
amortized through non-bypassable charges to the T&D Utility's customers that are
authorized by the Texas Commission. Any stranded costs not recovered through the
securitization bonds will be recovered through a non-bypassable charge assessed
to customers taking delivery service from the T&D Utility.
In October 2001, a special-purpose subsidiary of the T&D Utility
issued $749 million of transition bonds to securitize generation-related
regulatory assets. The bonds have a final maturity date of September 15, 2015
and are non-recourse to CenterPoint or its subsidiaries other than to the
special purpose issuer of the transition bonds. The T&D Utility has no payment
obligations with respect to the transition bonds except to remit collections of
transition charges as set forth in a servicing agreement between the T&D Utility
and the transition bond company and in an intercreditor agreement among the T&D
Utility, its transition bond subsidiary and other parties.
CenterPoint seeks authority to form and capitalize one or more
special-purpose subsidiaries of the T&D Utility to issue in an amount as
determined by the Texas Commission, in securitization bonds in 2004 or 2005 to
monetize and recover the balance of stranded costs relating to previously owned
electric generation assets and other qualified costs as determined in the 2004
true-up proceeding. The issuance will be done pursuant to a financing order
issued by the Texas Commission. As with the debt of its existing transition bond
company, the holders of the securitization bonds will not have recourse to any
assets or revenues of CenterPoint or its
27
subsidiary companies (other than those of the special purpose transition bond
company), nor would the system's creditors have recourse to any assets or
revenues of the entity issuing the securitization bonds (again other than those
of the special purpose transition bond company). All or a portion of the
proceeds from the issuance of bonds will be used to repay debt of CenterPoint
and its subsidiary companies.(28) Any issuance would be subject to the financing
parameters described previously herein.
The Applicants ask the Commission to reserve jurisdiction over this
request, pending completion of the record.
G. OTHER AUTHORITY
In the July Order, the Commission authorized CenterPoint to provide
a variety of services to its Subsidiaries in areas such as accounting, rates and
regulation, internal auditing, strategic planning, external relations, legal
services, risk management, marketing, financial services and information systems
and technology. CenterPoint intends to form a service company and is in the
process of preparing the request for authorization for same. In the interim,
CenterPoint seeks continuing authority to provide jurisdictional services and
goods to its Subsidiaries through December 31, 2003. Charges for all services
will be on an at-cost basis, as determined under Rules 90 and 91 of the Act.(29)
- ----------
(28) A portion of the proceeds will be used to repay an existing $1.31
billion loan at the T&D Utility and retire the associated General Mortgage
Bonds. Other third-party indebtedness then outstanding at the T&D Utility, such
as callable debt, may also be repaid.
It is contemplated that all or a portion of the proceeds would be transferred to
CenterPoint by means of a combination of dividends and repayment of intercompany
debt from the T&D Utility to Utility Holding, LLC and from Utility Holding, LLC
to CenterPoint. While the specific means of transferring the monies will be
determined based on the then-existing facts and circumstances, it is currently
projected that the T&D Utility will have sufficient capacity to accomplish the
desired transfer.
As a limited liability company organized under Texas law, the T&D Utility may
make distributions unless its liabilities would exceed the fair value of its
assets following the distribution. CenterPoint currently estimates that a
distribution of approximately $2.6 billion may be made from the T&D Utility to
CenterPoint in 2005. The proceeds transferred to CenterPoint will be used to pay
down bank facilities and other parent company debt. At the time the transfer is
made, CenterPoint projects that the T&D Utility will have equity of over 55%,
excluding securitization debt, or approximately 19% if securitization debt of
subsidiaries is included.
Applicants will seek such additional authority as may be required in connection
with the transfer of proceeds.
- ----------
(29) Section 13(a) of the Act authorizes the Commission to exempt "such
transactions, involving special or unusual circumstances or not in the ordinary
course of business" from the general prohibition on a registered holding company
providing goods and services to subsidiary public-utility companies. Cf. Emera
Inc., Holding Co. Act Release No. 27445, 2001 WL 1159971 (Oct. 1, 2001)
(authorizing registered holding company to provide services for a limited period
of time).
28
H. FILING OF CERTIFICATES OF NOTIFICATION
As approved in the July Order, with respect to CenterPoint, the
reporting systems of the Securities Exchange Act of 1934, as amended (the "1934
Act") and the Securities Act of 1933, as amended (the "1933 Act") are integrated
with the reporting system under the 1935 Act. To effect such integration, the
portion of the 1933 Act and 1934 Act reports containing or reflecting
disclosures of transactions occurring pursuant to the authorizations granted in
this proceeding are incorporated by reference into this proceeding through Rule
24 certificates of notification. The certificates contain all other information
required by Rule 24, including the certification that each transaction being
reported had been carried out in accordance with the terms and conditions of and
for the purposes represented in this Application. Such certificates of
notification are to be filed within 60 days after the end of the first three
calendar quarters and within 90 days after the end of the last calendar quarter
in which transactions occur.
A copy of relevant documents (e.g., underwriting agreements,
indentures, bank agreements) for the relevant quarter are filed with, or
incorporated by reference from 1933 Act or 1934 Act filings in such Rule 24
certificates.
The Rule 24 certificates will contain the following information as
of the end of the applicable quarter (unless otherwise stated below):
(i) The sales of any common stock or preferred securities by
CenterPoint or a Financing Subsidiary and the purchase price
per share and the market price per share at the date of the
agreement of sale;
(ii) The total number of shares of CenterPoint common stock issued
or issuable pursuant to options granted during the quarter
under employee benefit plans and dividend reinvestment plans,
including any employee benefit plans or dividend reinvestment
plans hereafter adopted;
(iii) If CenterPoint common stock has been transferred to a seller
of securities of a company being acquired, the number of
shares so issued, the value per share and whether the shares
are restricted in the hands of the acquirer;
(iv) If a guarantee is issued during the quarter, the name of the
guarantor, the name of the beneficiary of the guarantee and
the amount, terms and purpose of the guarantee;
(v) The amount and terms of any long-term debt issued by
CenterPoint during the quarter, and the aggregate amount of
short-term debt outstanding as of the end of the quarter, as
well as the weighted average interest rate for such short-term
debt as of such date;
(vi) The amount and terms of any long-term debt issued by any
Utility Subsidiary during the quarter, and the aggregate
amount of short-term debt
29
outstanding as of the end of the quarter, as well as the
weighted average interest rate for such short-term debt as of
such date;
(vii) The amount and terms of any financings consummated by any
Non-Utility Subsidiary that are not exempt under Rule 52;
(viii) The notional amount and principal terms of any Hedging
Instruments or Anticipatory Hedges entered into during the
quarter and the identity of the other parties thereto;
(ix) The name, parent company and amount of equity in any
intermediate subsidiary during the quarter and the amount and
terms of any securities issued by such subsidiaries during the
quarter;
(x) The information required by a Certificate of Notification on
Form U-6B-2;(30)
(xi) Consolidated balance sheets for CenterPoint and/or a Utility
Subsidiary as of the end of the quarter and separate balance
sheets as of the end of the quarter for each company that has
engaged in jurisdictional financing transactions during the
quarter;
(xii) A table showing, as of the end of the quarter, the dollar and
percentage components of the capital structure of CenterPoint
on a consolidated basis and of each Utility Subsidiary;
(xiii) A retained earnings analysis of CenterPoint on a consolidated
basis and of each Utility Subsidiary detailing gross earnings,
dividends paid out of each capital account and the resulting
capital account balances at the end of the quarter;
(xiv) A table showing, as of the end of the quarter, the Money Pool
participants and amount of outstanding borrowings for each;
(xv) As to each financing subsidiary, (a) the name of the
subsidiary; (b) the value of CenterPoint's investment account
in such subsidiary; (c) the balance sheet account where the
investment and the cost of the investment are booked; (d) the
amount invested in the subsidiary by CenterPoint; (e) the type
of corporate entity; (f) the percentage owned by CenterPoint;
(g) the identification of other owners if not 100% owned by
CenterPoint; (h) the purpose of the investment in the
subsidiary; and (i) the amounts and types of securities to be
issued by the subsidiary.
The Applicants also will report service transactions among CenterPoint (or any
other system service provider) and the Utility Subsidiaries. The report will
contain the following information: (i) a narrative description of the services
rendered; (ii) disclosure of the dollar amount of services rendered in (i) above
according to category or department; (iii) identification of companies rendering
services described in (i) above and recipient companies, including disclosure of
the allocation of services costs; and (iv) disclosure of the number of
CenterPoint System employees engaged in rendering services to other CenterPoint
System companies on an annual basis, stated as an absolute and as a percentage
of total employees.
- ---------------
(30) Under the July Order, Applicants are exempt from the requirement to file
Forms U-6B-2 because the information contained therein will be set forth in
their quarterly Rule 24 Certificates.
30
Applicants shall file a report with the Commission within two
business days after the occurrence of any of the following: (i) a 10% or greater
decline in common stock equity for U.S. GAAP purposes since the end of the last
reporting period for CenterPoint or any of the Utility Subsidiaries; (ii)
CenterPoint or any of the Utility Subsidiaries defaults on any debt obligation
in principal amount equal to or exceeding $10 million if the default permits the
holder of the debt obligation to demand payment; (iii) an NRSRO has downgraded
the senior debt ratings of CenterPoint or any of the Utility Subsidiaries; or
(iv) any event that would have a material adverse effect on the ability of
CenterPoint or any of its subsidiaries to comply with any condition or
requirement in this order on an ongoing basis. The report shall describe all
material circumstances giving rise to the event.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The fees, commissions and expenses paid or incurred or to be
incurred in connection with this Application are estimated to be $120,000.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
A. APPLICABLE PROVISIONS
Sections 6(a), 7, 9, 10 and 12 of the Act and Rules 42, 43, 44, 45,
46, 52, 53, 54, 58 and 62 thereunder are considered applicable to the proposed
transactions. To the extent that the proposed transactions are considered by the
Commission to require authorizations, exemption or approval under any section of
the Act or the rules and regulations thereunder other than those set forth
above, request for such authorization, exemption or approval is hereby made.
B. RULE 54 ANALYSIS.
The proposed transaction is subject to Rule 54 under the Act, which
refers to Rule 53. Rule 54 under the Act provides that in determining whether to
approve certain transactions other than those involving EWGs or foreign utility
companies ("FUCOs"), as defined in the Act, the Commission will not consider the
effect of the capitalization or earnings of any Subsidiary which is an EWG or
FUCO if Rule 53(a), (b) and (c) under the Act are satisfied.
As a result of the Restructuring authorized in the July Order (as
such term is defined in the July Order), CenterPoint had negative retained
earnings as of December 31, 2002. Thus, although CenterPoint's aggregate
investment (as defined in Rule 53(a)(1)(i) under the Act), in EWGs and FUCOs as
of December 31, 2002 was approximately $8 million, the Company is not currently
in compliance with the requirements of Rule 53(a)(1) under the Act. As
previously explained, CenterPoint is attempting to dispose of its remaining
interests in EWGs and FUCOs and is not planning to invest any more monies in
those businesses.
CenterPoint complies with, and will continue to comply with, the
record-keeping requirements of Rule 53(a)(2) under the Act, the limitation under
Rule 53(a)(3) under the Act on the use of domestic public-utility company
personnel to render services to EWGs and FUCOs, and the requirements of Rule
53(a)(4) under the Act concerning the submission of copies of
31
certain filings under the Act to retail regulatory commissions. Further, none of
the circumstances described in Rule 53(b) under the Act has occurred or is
continuing. Rule 53(c) under the Act is by its terms inapplicable to the
transactions proposed herein that do not involve the issue and sale of
securities (including guarantees) to finance an acquisition of an EWG or FUCO.
ITEM 4. REGULATORY APPROVAL.
No state or federal commission other than the Commission has
jurisdiction with respect to any of the proposed transactions described in this
Application-Declaration.
ITEM 5. PROCEDURE.
The Commission is respectfully requested to publish the requisite
notice under Rule 23 under the Act with respect to this Application-Declaration
as soon as possible, such notice to specify a date by which comments must be
entered and such date being the date when an order of the Commission granting
and permitting this Application to become effective may be entered by the
Commission. The Applicants request that the Commission's order be issued as soon
as the rules allow, and that there should not be a 30-day waiting period between
issuance of the Commission's order and the date on which the order is to become
effective. The Applicants hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission and consent that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
A. EXHIBITS.
A-1 Amended and Restated Articles of Incorporation of CenterPoint as adopted on
November 2, 2001 (filed with the Commission on November 5, 2001 as Exhibit 3.1
to Registration Statement on Form S-4 (File No. 333-69502) and incorporated by
reference herein).
A-2 Articles of Amendment to Amended and Restated Articles of Incorporation of
CenterPoint, dated March 27, 2002 (filed with the Commission as Exhibit 3.1.1 to
the Annual Report of CenterPoint on Form 10-K for the year ended December 31,
2001 (File No. 333-69502) and incorporated by reference herein).
A-3 Amended and Restated By-Laws of CenterPoint as adopted on March 26, 2002
(filed with the Commission as Exhibit 3.2 to the Annual Report of CenterPoint on
Form 10-K for the year ended December 31, 2001 (File No. 333-69502) and
incorporated by reference herein).
B-1 Not applicable.
C-1 Not applicable.
D-1 Not applicable.
32
E-1 Not applicable.
F-1 Opinion of counsel (to be filed by amendment).
G-1 Table setting forth by issuer: (i) the type of securities and dollar amount
of each that is outstanding at present; (ii) the amount of incremental
investment authority that is being requested; and (iii) the combined
(outstanding as of June 30, 2003 and incremental) amount of securities that
could be outstanding pursuant to the requested authority (to be filed by
amendment).
G-2 Memorandum describing certain restrictions under existing financing
arrangements.
G-3 Annual Report of CenterPoint on Form 10-K for the year ended December 31,
2002 (File No. 1-31447) (filed with the Commission on March 10, 2003 and
incorporated by reference herein).
G-4 Quarterly Report of CenterPoint on Form 10-Q for the three months ended
March 31, 2002 (File No. 1-31447) (filed with the Commission on May 12, 2003 and
incorporated by reference herein).
G-5 Current Report of CenterPoint on Form 8-K dated as of April 7, 2003 (File
No. 1-31447) (filed with the Commission on May 1, 2003 and incorporated by
reference herein).
G-6 Current Report of CenterPoint on Form 8-K dated as of April 8, 2003 (File
No. 1-31447) (filed with the Commission on April 8, 2003 and incorporated by
reference herein).
G-7 Current Report of CenterPoint on Form 8-K dated as of April 16, 2003 (File
No. 1-31447) (filed with the Commission on April 23, 2003 and incorporated by
reference herein).
G-8 Current Report of CenterPoint on Form 8-K dated as of April 24, 2003 (File
No. 1-31447) (filed with the Commission on April 24, 2003 and incorporated by
reference herein).
G-9 Current Report of CenterPoint on Form 8-K dated as of May 12, 2003 (File No.
1-31447) (filed with the Commission on May 12, 2003 and incorporated by
reference herein).
G-10 Current Report of CenterPoint on Form 8-K dated as of May 16, 2003 (File
No. 1-31447) (filed with the Commission on May 16, 2003 and incorporated by
reference herein).
G-11 Annual Report of CenterPoint Energy Houston Electric, LLC on Form 10-K for
the year ended December 31, 2002 (File No. 1-03187) (filed with the Commission
on March 11, 2003 and incorporated by reference herein).
G-12 Quarterly Report of CenterPoint Energy Houston Electric, LLC on Form 10-Q
for the three months ended March 31, 2003 (File No. 1-03187) (filed with the
Commission on May 15, 2003 and incorporated by reference herein).
33
G-13 Current Report of CenterPoint Energy Houston Electric, LLC on Form 8-K
dated as of April 8, 2003 (File No. 1-03187) (filed with the Commission on April
8, 2003 and incorporated by reference herein).
G-14 Current Report of CenterPoint Energy Houston Electric, LLC on Form 8-K
dated as of May 15, 2003 (File No. 1-03187) (filed with the Commission on May
16, 2003 and incorporated by reference herein).
G-15 Annual Report of CenterPoint Energy Resources Corp. on Form 10-K for the
year ended December 31, 2002 (File No. 1-13265) (filed with the Commission on
March 12, 2003 and incorporated by reference herein).
G-16 Quarterly Report of CenterPoint Energy Resources Corp. on Form 10-Q for the
three months ended March 31, 2003 (File No. 1-13265) (filed with the Commission
on May 13, 2003 and incorporated by reference herein).
G-17 Current Report of CenterPoint Energy Resources Corp. on Form 8-K dated as
of April 8, 2003 (File No. 1-13265) (filed with the Commission on April 8, 2003
and incorporated by reference herein).
G-18 Current Report of CenterPoint Energy Resources Corp. on Form 8-K dated as
of April 7, 2003 (File No. 1-13265) (filed with the Commission on May 1, 2003
and incorporated by reference herein).
G-19 Annual Report of Texas Genco Holdings, Inc. on Form 10-K for the year ended
December 31, 2002 (File No. 1-31449) (filed with the Commission on March 12,
2003 and incorporated by reference herein).
G-20 Quarterly Report of Texas Genco Holdings, Inc. on Form 10-Q for the three
months ended March 31, 2003 (File No. 1-31449) (filed with the Commission on May
13, 2003 and incorporated by reference herein).
G-21 Current Report of Texas Genco Holdings, Inc. on Form 8-K dated as of April
19, 2003 (File No. 1-31449) (filed with the Commission on April 23, 2003 and
incorporated by reference herein).
G-22 Current Report of Texas Genco Holdings, Inc. on Form 8-K dated as of April
24, 2003 (File No. 1-31449) (filed with the Commission on April 24, 2003 and
incorporated by reference herein).
G-23 Current Report of Texas Genco Holdings, Inc. on Form 8-K dated as of April
24, 2003 (File No. 1-31449) (filed with the Commission on May 1, 2003 and
incorporated by reference herein).
34
G-24 Annual Report of CenterPoint Energy Transition Bond Co., LLC on Form 10-K
for the year ended December 31, 2002 (File No. 333-91093) (filed with the
Commission on March 26, 2003 and incorporated by reference herein).
G-25 Quarterly Report of CenterPoint Energy Transition Bond Co., LLC on Form
10-Q for the three months ended March 31, 2003 (File No. 333-91093) (filed with
the Commission on May 14, 2003 and incorporated by reference herein).
H-1 Proposed Form of Notice.
J-1 Form of Money Pool Agreement (to be filed by amendment).
J-2 Form of Master Services Agreement.
B. FINANCIAL STATEMENTS.
FS-1 Consolidated Balance Sheets of CenterPoint as of December 31, 2002 and
Statements of Consolidated Operations, Statements of Consolidated Comprehensive
Income and Statements of Consolidated Cash Flows for the year ended December 31,
2002 (incorporated by reference to CenterPoint's Annual Report on Form 10-K for
the year ended December 31, 2002 (File No. 1-31447)).
FS-2 Consolidated Balance Sheets of CenterPoint as of March 31, 2003 (unaudited)
and Statements of Consolidated Income and Statements of Consolidated Cash Flows
for the three months ended March 31, 2003 (unaudited) (incorporated by reference
to CenterPoint's Quarterly Report on Form 10-Q for the three months ended March
31, 2003 (File No. 1-31447)).
FS-3 Consolidated Balance Sheets of CenterPoint as of December 31, 2002, and
Statements of Consolidated Operations, Statements of Consolidated Comprehensive
Income and Statements of Consolidated Cash Flows for the year ended December 31,
2002 (incorporated by reference to the Current Report of CenterPoint on Form 8-K
dated as of May 12, 2003 (File No. 1-31447)).
FS-4 Consolidated Balance Sheets of CenterPoint Energy Houston Electric, LLC as
of December 31, 2002 and Statements of Consolidated Income, Statements of
Consolidated Comprehensive Income and Statements of Consolidated Cash Flows for
the year ended December 31, 2002 (incorporated by reference to CenterPoint
Energy Houston Electric, LLC's Annual Report on Form 10-K for the year ended
December 31, 2002 (File No. 1-03187)).
FS-5 Consolidated Balance Sheets of CenterPoint Energy Houston Electric, LLC as
of March 31, 2003 (unaudited) and Statements of Consolidated Income and
Statements of Consolidated Cash Flows for the three months ended March 31, 2003
(unaudited) (incorporated by reference to CenterPoint Energy Houston Electric,
LLC's Quarterly Report on Form 10-Q for the three months ended March 31, 2003
(File No. 1-03187)).
FS-6 Consolidated Balance Sheets of CenterPoint Energy Houston Electric, LLC as
of December 31, 2002 and Statements of Consolidated Income, Statements of
Consolidated Comprehensive Income and Statements of Consolidated Cash Flows for
the year ended
35
December 31, 2002 (incorporated by reference to the Current Report of
CenterPoint Energy Houston Electric, LLC on Form 8-K dated as of May 15, 2003
(File No. 1-03187)).
FS-7 Consolidated Balance Sheets of CenterPoint Energy Resources Corp. as of
December 31, 2002 and Statements of Consolidated Income, Statements of
Consolidated Comprehensive Income and Statements of Consolidated Cash Flows of
CenterPoint Energy Resources Corp. for the year ended December 31, 2002
(incorporated by reference to CenterPoint Energy Resources Corp.'s Annual Report
on Form 10-K for the year ended December 31, 2002 (File No. 1-13265)).
FS-8 Consolidated Balance Sheets of CenterPoint Energy Resources Corp. as of
March 31, 2003 (unaudited) and Statements of Consolidated Income and Statements
of Consolidated Cash Flows for the three months ended March 31, 2003 (unaudited)
(incorporated by reference to CenterPoint Energy Resources Corp.'s Quarterly
Report on Form 10-Q for the three months ended March 31, 2003 (File No.
1-13265)).
FS-9 Consolidated Balance Sheets of Texas Genco Holdings, Inc. as of December
31, 2002 and Statements of Consolidated Operations and Statements of
Consolidated Cash Flows for the year ended December 31, 2002 (incorporated by
reference to Texas Genco Holdings, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2002 (File No. 1-31449)).
FS-10 Consolidated Balance Sheets of Texas Genco Holdings, Inc. as of March 31,
2003 (unaudited) and Statements of Consolidated Operations and Statements of
Consolidated Cash Flows for the three months ended March 31, 2003 (unaudited)
(incorporated by reference to CenterPoint Energy Resources Corp.'s Quarterly
Report on Form 10-Q for the three months ended March 31, 2003 (File No.
1-31449)).
FS-11 Balance Sheets of CenterPoint Energy Transition Bond Co., LLC as of
December 31, 2002 and Statements of Income and Changes in Member's Equity and
Statements of Cash Flows for the year ended December 31, 2002 (incorporated by
reference to CenterPoint Energy Transition Bond Co., LLC's Annual Report on Form
10-K for the year ended December 31, 2002 (File No. 333-91093)).
FS-12 Balance Sheets of CenterPoint Energy Transition Bond Co., LLC as of March
31, 2003 (unaudited) and Statements of Income and Changes in Member's Equity and
Statements of Cash Flows for the three months ended March 31, 2003 (unaudited)
(incorporated by reference to CenterPoint Energy Transition Bond Co., LLC's
Quarterly Report on Form 10-Q for the three months ended March 31, 2003 (File
No. 333-91093)).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The proposed transaction involves neither a "major federal action"
nor "significantly affects the quality of the human environment" as those terms
are used in Section 102(2)(C) of the National Environmental Policy Act, 42
U.S.C. Sec. 4321 et seq. No federal agency is preparing an environmental impact
statement with respect to this matter.
36
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, as amended, the Applicants have duly caused this
Application/Declaration to be signed on their behalf by the undersigned
thereunto duly authorized.
Date: May 23, 2003
CENTERPOINT ENERGY, INC.
and its Subsidiaries
By: /s/ Rufus S. Scott
-----------------------------------------------
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
37
Exhibit G-2
RESTRICTIONS ON INDEBTEDNESS IN CNP GROUP BANK FACILITIES
CenterPoint Energy, Inc. ("CenterPoint"), CenterPoint Energy Houston Electric
(the "T&D Utility") and CenterPoint Energy Resources Corp. ("GasCo") are each
subject to provisions in their bank facilities that limit their ability to raise
additional debt.
A. CenterPoint
In the $3,850,000,000 Amended and Restated Credit Agreement, dated as
of October 10, 2002, among CenterPoint, the banks and other financial
institutions from time to time parties thereto, Citibank, N.A., as syndication
agent and JPMorgan Chase Bank, as administrative agent, as amended by the First
Amendment to Credit Agreement, dated December 5, 2002, and the Second Amendment
to Credit Agreement, dated February 28, 2003 (the "CNP Credit Agreement"),
CenterPoint is subject to restrictions on additional group indebtedness in the
form of a coverage ratios covenant and a mandatory prepayment obligation. In
addition, under the CNP Credit Agreement, aggregate indebtedness at Texas Genco
Holdings, Inc. and its subsidiaries (the "Texas Genco entities") is limited by
means of a negative covenant setting a maximum aggregate amount of debt that may
be outstanding at any time.
1. Coverage Ratios Covenant
Under the coverage ratios covenant, CenterPoint must not permit at any
time (i) the ratio of Consolidated Indebtedness for Borrowed Money at such time
to Consolidated EBITDA for the most recently ended twelve-month period to exceed
3.75:1.00 or (ii) the ratio of Consolidated EBITDA for the most recently ended
twelve-month period to Adjusted Interest Expense for such period to be less than
1.75:1.00.
"Consolidated Indebtedness" means, as of any date of determination, the
sum of (i) the total Indebtedness as shown on the consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries, determined without duplication
of any Guarantee of Indebtedness of the Borrower by any of its Consolidated
Subsidiaries or of any Guarantee of Indebtedness of any such Consolidated
Subsidiary by the Borrower or any other Consolidated Subsidiary of the Borrower,
plus (ii) any Mandatory Payment Preferred Stock, less (iii) the amount of
Indebtedness described in clause (i) attributable to amounts then outstanding
under receivables facilities or arrangements to the extent that such amounts
would not have been shown as Indebtedness on a balance sheet prepared in
accordance with GAAP prior to January 1, 1997, less (iv) the aggregate amount of
liabilities in respect of any Indexed Debt Securities as shown on the
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
less (v) the present value of the projected recovery, pursuant to applicable
legislation and agreement, of the (a) net amount of stranded costs, (b) the
market value of generating assets and (c) certain power market price and fuel
cost recovery true-ups, determined in a manner substantially consistent with the
calculations set forth on a schedule to the CNP Credit Agreement.
"Borrowed Money" of any Person means any Indebtedness of such Person
for or in respect of money borrowed or raised by whatever means (including
acceptances, deposits, lease obligations under Capital Leases, Mandatory Payment
Preferred Stock and synthetic leases);
provided, however, that Borrowed Money shall not include (a) any guarantees that
may be incurred by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business or similar transactions, (b) any
obligations or guarantees of performance of obligations under a franchise,
performance bonds, franchise bonds, obligations to reimburse drawings under
letters of credit issued in accordance with the terms of any safe harbor lease
or franchise or in lieu of performance or franchise bonds or other obligations
incurred in the ordinary course of business that do not represent money borrowed
or raised, in each case to the extent that such reimbursement obligations are
payable in full within ten (10) Business Days after the date upon which such
obligation arises, (c) trade payables, (d) any obligations of such Person under
Swap Agreements, (e) customer advance payments and deposits arising in the
ordinary course of business or (f) operating leases.
"Consolidated EBITDA" means, for any twelve-month period ending on the
date of determination, Consolidated Net Income for such period plus, without
duplication and to the extent reflected as a charge in the statement of such
Consolidated Net Income for such period, the sum of (a) income tax expense, (b)
interest expense, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans) and amortization of settlement payments
previously made on forward-starting Swap Agreements, (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring expenses or losses (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of business),
(f) any other non-cash charges and (g) Pre-Tax ECOM, and minus, to the extent
included as income in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary, unusual or
non-recurring income or gains (including, whether or not otherwise includable as
a separate item in the statement of such Consolidated Net Income for such
period, gains on the sales of assets outside of the ordinary course of
business), (c) any other non-cash income, (d) Pre-Tax Securitization Principal
and Interest and (e) Pre-Tax Excess Mitigation Credit and Pre-Tax ECOM, all as
determined on a consolidated basis.
"Adjusted Interest Expense" means, for any period, the difference
between (a) total interest expense (including that attributable to Capital Lease
obligations and capitalized interest) determined in accordance with GAAP of the
Borrower and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Borrower and its Subsidiaries (including all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financings and net costs under Swap Agreements in respect of
interest rates to the extent such net costs are allocable to such period in
accordance with GAAP) less (b) the sum of the following for such period (i)
total interest income determined in accordance with GAAP and (ii) (but only to
the extent included in the amount calculated pursuant to clause (a) above): (x)
interest expense on Hybrid Preferred Securities, (y) interest expense in respect
of the securitization programs of the Borrower and its Subsidiaries set forth on
a schedule to the CNP Credit Agreement and (z) amortization of settlement
payments previously made on forward-starting Swap Agreements and of any upfront
fees and other costs associated with financings for the Borrower and its
Subsidiaries.
2. Mandatory Prepayment Obligations
Under the CNP Credit Agreement, CenterPoint is required to prepay 100%
of the Net Cash Proceeds of any Capital Stock or Indebtedness issued or incurred
by the Borrower or any of its Subsidiaries (other than Excluded Transactions).
"Net Cash Proceeds," in relation to any issuance or sale of Capital
Stock or any incurrence of Indebtedness for Borrowed Money, means the cash
proceeds received from such issuance or incurrence, net of (i) attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts, escrow fees,
reserves, related swap costs and commissions and other customary fees and
expenses actually incurred in connection therewith and other similar payment
obligations resulting therefrom (other than the obligations under the CNP Credit
Agreement) that are required to be paid concurrently or otherwise as a result of
such issuance or incurrence and (ii) other amounts that are to be refinanced or
otherwise paid with all or part of the proceeds thereof.
"Indebtedness" of any Person means the sum of (a) all items (other than
Capital Stock, capital surplus and retained earnings) that, in accordance with
GAAP consistently applied, would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date on
which the Indebtedness is to be determined, (b) all obligations of the Borrower
or any Subsidiary, contingent or otherwise, as account party or applicant (or
equivalent status) in respect of any standby letters of credit or equivalent
instruments, and (c) without duplication, the amount of all Guarantees by such
Person of items described in clauses (a) and (b); provided, however, that
Indebtedness of a Person shall not include (i) any Junior Subordinated Debt
owned by any Hybrid Preferred Securities Subsidiary, (ii) any Guarantee by the
Borrower or its Subsidiaries of payments with respect to any Hybrid Preferred
Securities or (iii) any Securitization Securities.
"Excluded Transactions" means the incurrence or issuance by the
Borrower and its Subsidiaries of the following:
(a) Indebtedness for Borrowed Money in respect of any refinancing,
refunding, remarketing, renewal or extension (on or prior to the maturity
thereof) of (without any increase in the principal amount thereof plus any
expenses (including any redemption premium, penalty, broken funding, settlement
and other costs) or any shortening of the final maturity thereof) Indebtedness
for Borrowed Money outstanding on the Closing Date (and any refinancing,
refunding, remarketing, renewal or extension thereof) and additional
Indebtedness for Borrowed Money incurred by (x) GasCo and/or its Subsidiaries in
an aggregate principal amount not to exceed $200,000,000 outstanding at any time
and (y) the Borrower and/or its Subsidiaries (including, without limitation,
GasCo and its Subsidiaries) in an aggregate principal amount not to exceed
$250,000,000 outstanding at any time;
(b) Intercompany Indebtedness;
(c) Indebtedness permitted hereunder to the extent constituting
(i) the issuance by the Borrower or any of its Subsidiaries of commercial paper,
(ii) any backup credit or liquidity facilities in respect of any such commercial
paper issuance, (iii) other short-term
instruments in lieu of the issuance of commercial paper, (iv) letters of credit
issued for the account of the Borrower or any of its Subsidiaries in respect of
any of the foregoing and (v) drawings on letters of credit, bonds or similar
obligations permitted under this Agreement if the proceeds are applied to the
underlying obligation secured or supported thereby;
(d) Indebtedness of the Borrower pursuant to the Loan Documents;
(e) Indebtedness in respect of performance, surety and similar
bonds and completion guarantees provided by the Borrower or any of its
Subsidiaries in the ordinary course of business;
(f) Indebtedness in respect of Capital Leases entered into by the
Borrower or any of its Subsidiaries in the ordinary course of business;
(g) Indebtedness in respect of Swap Agreements entered into in the
ordinary course of business and not entered into for speculative purposes;
(h) Capital Stock to employees, directors or consultants of the
Borrower or any of its Subsidiaries under, or upon the exercise of any warrants,
options, conversion rights or other rights in respect of, any employee stock
option plan, other employee benefit or compensation plans, dividend reinvestment
plans, including the Borrower's Investors Choice Plan, or arrangements of the
Borrower or any of its Subsidiaries existing on the Closing Date;
(i) Capital Stock issued by any Subsidiary of the Borrower solely
to the Borrower or any of its Subsidiaries; and
(j) Capital Stock of the Borrower to the extent issued as
consideration to effect acquisitions permitted under Section 8.2(g) and expenses
incurred in connection therewith.
"Subsidiary" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which more than 50% of the
outstanding shares of Capital Stock or other ownership interests having ordinary
voting power (other than Capital Stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect directors
or other managers of such corporation, partnership or other entity are at the
time owned, directly or indirectly, through one or more Subsidiaries of such
Person, by such Person; provided, however, that no Securitization Subsidiary
shall be deemed to be a Subsidiary for purposes of the CNP Credit Agreement.
3. Texas Genco Entities
In the CNP Credit Agreement, CenterPoint further covenants that it will
not permit the Texas Genco entities to incur aggregate Indebtedness for Borrowed
Money in excess of $250,000,000.
B. T&D Utility
In the $1,310,000,000 Credit Agreement, dated as of November 12, 2002,
among the T&D Utility, the banks and other lenders from time to time parties
thereto and Credit Suisse First
Boston, as administrative agent, (the "T&D Utility Credit Agreement"), the T&D
Utility is subject to restrictions on additional indebtedness in the form of a
leverage ratio covenant and a mandatory prepayment obligation.
1. Leverage Ratio Covenant
Under the leverage ratio covenant, the T&D Utility must maintain a
ratio of Consolidated Indebtedness for Borrowed Money to Consolidated
Capitalization of no greater than 0.68:1
"Consolidated Indebtedness" means, as of any date of determination, the sum of
(i) the total Indebtedness as shown on the consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries, determined without duplication of
any Guarantee of Indebtedness of the Borrower by any of its Consolidated
Subsidiaries or of any Guarantee of Indebtedness of any such Consolidated
Subsidiary by the Borrower or any other Consolidated Subsidiary of the Borrower,
plus (ii) any Mandatory Payment Preferred Stock.
"Borrowed Money" of any Person means any Indebtedness of such Person
for or in respect of money borrowed or raised by whatever means (including
acceptances, deposits, lease obligations under Capital Leases, Mandatory Payment
Preferred Stock and synthetic leases); provided, however, that Borrowed Money
shall not include (a) any guarantees that may be incurred by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business or similar transactions, (b) any obligations or guarantees of
performance of obligations under a franchise, performance bonds, franchise
bonds, obligations to reimburse drawings under letters of credit issued in
accordance with the terms of any safe harbor lease or franchise or in lieu of
performance or franchise bonds or other obligations incurred in the ordinary
course of business that do not represent money borrowed or raised, in each case
to the extent that such reimbursement obligations are payable in full within ten
(10) Business Days after the date upon which such obligation arises, (c) trade
payables, (d) any obligations of such Person under Swap Agreements, (e) customer
advance payments and deposits arising in the ordinary course of business or (f)
operating leases.
"Consolidated Capitalization" means, as of any date of determination,
the sum of (a) Consolidated Shareholders' Equity, (b) Consolidated Indebtedness
for Borrowed Money and, without duplication, (c) Mandatory Payment Preferred
Stock; provided that for the purpose of calculating compliance with Section
8.2(a), Consolidated Capitalization shall be determined excluding any
adjustment, non-cash charge to net income or other non-cash charges or writeoffs
resulting thereto from application of SFAS No. 142.
2. Mandatory Prepayments
Under the T&D Utility Credit Agreement, the T&D Utility is required to
prepay 100% of the Net Cash Proceeds of any Capital Stock or Indebtedness issued
or incurred by the Borrower or any of its Subsidiaries (other than Excluded
Transactions).
"Net Cash Proceeds," in relation to any issuance or sale of Capital
Stock or any incurrence of Indebtedness for Borrowed Money, means the cash
proceeds received from such issuance or incurrence, net of (i) attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts, escrow fees,
reserves, related swap costs and commissions and other
customary fees and expenses actually incurred in connection therewith and other
similar payment obligations resulting therefrom (other than the obligations
under the CNP Credit Agreement) that are required to be paid concurrently or
otherwise as a result of such issuance or incurrence and (ii) other amounts that
are to be refinanced or otherwise paid with all or part of the proceeds thereof.
"Indebtedness" of any Person means the sum of (a) all items (other than
Capital Stock, capital surplus and retained earnings) that, in accordance with
GAAP consistently applied, would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date on
which the Indebtedness is to be determined, (b) all obligations of the Borrower
or any Subsidiary, contingent or otherwise, as account party or applicant (or
equivalent status) in respect of any standby letters of credit or equivalent
instruments, and (c) without duplication, the amount of all Guarantees by such
Person of items described in clauses (a) and (b); provided, however, that
Indebtedness of a Person shall not include (i) any Junior Subordinated Debt
owned by any Hybrid Preferred Securities Subsidiary, (ii) any Guarantee by the
Borrower or its Subsidiaries of payments with respect to any Hybrid Preferred
Securities or (iii) any Securitization Securities.
"Excluded Transactions" means the incurrence or issuance by the
Borrower and its Subsidiaries of the following:
(a) Indebtedness in respect of any refinancing refundings,
renewals or extensions (on or prior to the maturity thereof) of (without any
increase in the principal amount thereof plus any expenses (including any
redemption premium or penalty) or any shortening of the final maturity thereof)
Indebtedness outstanding on the Closing Date (excluding Indebtedness in respect
of the Reliant Energy FinanceCo II LP 7.40% Senior Notes due November 15, 2002
and the Existing Credit Facilities);
(b) Intercompany Indebtedness;
(c) Indebtedness permitted hereunder to the extent constituting
(i) the issuance by the Borrower or any of its Subsidiaries of commercial paper,
(ii) any backup credit or liquidity facilities in respect of any such commercial
paper issuance, (iii) other short-term instruments in lieu of the issuance of
commercial paper, (iv) letters of credit issued for the account of the Borrower
or any of its Subsidiaries in respect of any of the foregoing and (v) drawings
on letters of credit, bonds or similar obligations permitted under this
Agreement if the proceeds are applied to the underlying obligation secured or
supported thereby;
(d) Indebtedness of the Borrower in respect of the Loans and the
Pledged Bonds;
(e) Indebtedness in respect of performance, surety and similar
bonds and completion guarantees provided by the Borrower or any of its
Subsidiaries in the ordinary course of business;
(f) Indebtedness in respect of Capital Leases entered into by the
Borrower or any of its Subsidiaries in the ordinary course of business;
(g) Indebtedness in respect of Swap Agreements entered into in the
ordinary course of business and not entered into for speculative purposes;
(h) Capital Stock to employees, directors or consultants of the
Borrower or any of its Subsidiaries under, or upon the exercise of any warrants,
options, conversion rights or other rights in respect of, any employee stock
option plan, other employee benefit or compensation plans, dividend reinvestment
plans, including CenterPoint's Investors Choice Plan, or arrangements of the
Borrower or any of its Subsidiaries existing on the Closing Date;
(i) Capital Stock issued by any Subsidiary of the Borrower solely
to the Borrower or any of its Subsidiaries;
(j) Capital Stock of the Borrower to the extent issued as
consideration to effect acquisitions permitted under Section 8.2(g) and expenses
incurred in connection therewith; and
(k) Indebtedness incurred by the Borrower or any of its
Subsidiaries after the date hereof at any time outstanding in aggregate
principal amount not to exceed $300,000,000.
"Subsidiary" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which more than 50% of the
outstanding shares of Capital Stock or other ownership interests having ordinary
voting power (other than Capital Stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect directors
or other managers of such corporation, partnership or other entity are at the
time owned, directly or indirectly, through one or more Subsidiaries of such
Person, by such Person; provided, however, that no Securitization Subsidiary
shall be deemed to be a Subsidiary for purposes of the T&D Utility Credit
Agreement.
C. GasCo
In the $200,000,000 Credit Agreement, dated as of March 25, 2003, among
GasCo, the banks, financial institutions and other institutional lenders listed
on the signature pages thereof, Salomon Smith Barney Inc. and J.P. Morgan
Securities Inc. as lead arrangers and as joint bookrunners, Wachovia Bank,
National Association and Banc One Capital Markets, Inc., as syndication agents,
Credit Suisse First Boston, Cayman Islands Branch, as documentation agent,
Citicorp North America, Inc., as collateral agent and Citicorp USA, Inc., as
administrative agent (the "GasCo Credit Agreement"), GasCo is subject to
restrictions on additional indebtedness in the form of a leverage ratio covenant
and a coverage ratio covenant.
A. Leverage Ratio Covenant
Under the leverage ratio covenant, GasCo must maintain a ratio of Total
Debt for Borrowed Money to Consolidated Capitalization of no greater than
0.68:1.
"Total Debt" means, as of any date of determination, the sum of (i) the
total Indebtedness for Borrowed Money as shown on the consolidated balance sheet
of Borrower and its Consolidated Subsidiaries, determined without duplication of
any Guarantee of Indebtedness for Borrowed Money of Borrower by any of its
Consolidated Subsidiaries or of any Guarantee of
Indebtedness of any such Consolidated Subsidiary by Borrower or any other
Consolidated Subsidiary of Borrower, and any Mandatory Payment Preferred Stock,
less (ii) such amount of Indebtedness for Borrowed Money attributable to amounts
then outstanding under receivables facilities or arrangements to the extent that
such amount would not have been shown as Indebtedness for Borrowed Money on a
balance sheet prepared in accordance with GAAP prior to January 1, 1997, less
(iii) with respect to any Indexed Debt Securities that are Fully Hedged and the
liabilities in respect of which as shown on the consolidated balance sheet of
Borrower and its Consolidated Subsidiaries have increased from the amount of
liabilities in respect thereof at the time of their issuance by reason of an
increase in the price of the Indexed Asset relating thereto, the excess of (a)
the aggregate amount of liabilities in respect of such Indexed Debt Securities
at the time of determination over (b) the initial amount of liabilities in
respect of such Indexed Debt Securities at the time of their issuance, provided
that at the time of determination such increase in the price of the Indexed
Asset relating to such Indexed Debt Securities has not been recorded on such
consolidated balance sheet, less (iv) funds segregated to repay bonds maturing
in November, 2003, and less (v) Non-Recourse Debt of the Borrower and its
Subsidiaries.
"Borrowed Money" of any Person means any Indebtedness of such Person
for or in respect of money borrowed or raised by whatever means (including
acceptances, deposits and lease obligations under Capital Leases); provided,
however, that Borrowed Money shall not include (a) any guarantees that may be
incurred by endorsement of negotiable instruments for deposit or collection in
the ordinary course of business or similar transactions, (b) any obligations or
guarantees of performance of obligations under a franchise, performance bonds,
franchise bonds, obligations to reimburse drawings under letters of credit
issued in accordance with the terms of any safe harbor lease or franchise or in
lieu of performance or in lieu of franchise bonds or other obligations that do
not represent money borrowed or raised, which reimbursement obligations in each
case shall be payable in full within ten (10) Business Days after the date upon
which such obligation arises, (c) trade payables, (d) customer advance payments
and deposits arising in the ordinary course of such Person's business, (e)
operating leases and (f) obligations under swap agreements.
"Consolidated Capitalization" means the sum of (a) Consolidated
Shareholders' Equity, (b) Consolidated Indebtedness for Borrowed Money and (c)
without duplication, any Mandatory Payment Preferred Stock.
B. Coverage Ratio Covenant
Under the coverage ratio covenant, GasCo must maintain a ratio of
EBITDA to Cash Interest for the immediately preceding four calendar quarters of
no less than 2.25:1.00.
"EBITDA" means, for any period, net income (or net loss) plus the sum
of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d)
amortization expense and (e) to the extent reflected as a charge in the
computation of net income for such period, any other non-cash charges, in each
case determined in accordance with GAAP for such period.
"Cash Interest" means interest expense of the Borrower and its
Subsidiaries, to the extent actually paid in cash, during the relevant period.
Exhibit H-1
Before the
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. , 2003
- ------------------------
In the Matter of:
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Utility Holding, LLC
200 West Ninth Street Plaza
Suite 411
Wilmington, Delaware 19801
CenterPoint Energy, Inc., a registered holding company, and its subsidiary
Utility Holding, LLC, also a registered holding company, have filed an
Application/Declaration seeking authority for certain financing and other
transactions through March 31, 2006 under the Public Utility Holding Company Act
of 1935.
The filing and any amendments thereto are available for public inspection
through the Commission's Office of Public Reference. Interested persons wishing
to comment or request a hearing should submit their views in writing by ______,
2003 to the Secretary, Securities and Exchange Commission, 450 Fifth St., N.W.,
Washington, D.C. 20549.
Exhibit J-2
Form of
Master Services Agreement
between
CenterPoint Energy, Inc.
and
its Associate Companies
This Master Services Agreement (the "Agreement"), dated as of _________,
2003, is entered into in multiple parts by and between the companies whose names
appear on the signature pages hereof, (each, a "Company" or "Recipient" and
collectively, the "CenterPoint Companies" or "Recipients"), and CenterPoint
Energy, Inc., a Texas corporation ("CenterPoint").
RECITALS
A. In connection with the authorizations provided by order dated July 5,
2002 (HCAR No. 27548), CenterPoint registered as a holding company under the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
B. CenterPoint has filed an Application seeking authority (the "Financing
Order") for certain financing and other transactions through March 31, 2006. It
is contemplated that CenterPoint will file an Application regarding the
formation of a subsidiary service company to provide services to CenterPoint and
its subsidiaries.
C. During the interim period before service company authority is granted,
which is not intended to exceed one year, CenterPoint will provide services, as
set forth herein, to its Associate Companies.
Accordingly, CenterPoint and the CenterPoint Companies desire to enter into
this Master Services Agreement to allow for the provision of temporary services
by CenterPoint to the CenterPoint Companies.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
I. TERM OF AGREEMENT.
This Agreement shall be effective beginning on the date of the Financing
Order up to one year from the date of such order or such other period as
permitted by the Securities and
Exchange Commission (the period during which this Agreement remains effective
being referred to herein as the "Term").
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II. SERVICES OFFERED.
Exhibit I to the Agreement lists and describes the services that may be
available from CenterPoint. CenterPoint offers to supply those services to each
Recipient that is a party to the Agreement. The services are and will be
provided to the Recipient only at the request of the Recipient. From time to
time, the parties may identify additional services that CenterPoint may provide
to Recipients under this Agreement. CenterPoint will consult with the Recipients
to delineate the scope and terms of additional services that may be offered.
The services offered may be further described in Service Level Agreements
that define performance metrics or standards and other procedures and
requirements with respect to the provision of a particular category of services.
To the extent a category of service is more fully described in a Service Level
Agreement, it is incorporated into this Agreement by reference.
CenterPoint shall maintain sufficient resources to perform its obligations
under this Agreement and shall perform its obligations in a commercially
reasonable manner. If no specific performance metrics for the provision of a
service are established, CenterPoint shall provide the service exercising the
same care and skill as it exercises in performing similar services for itself.
If a Recipient requests the level at which any service to be provided to be
scaled up to a level in excess of the level in effect during the prior twelve
months, the Recipient shall give CenterPoint such advance notice as it may
reasonably require sufficient to make any necessary preparations to perform such
services on the scaled up or modified basis. The level of a service shall be
considered scaled up if providing the service at the proposed level involves an
increase in personnel, equipment or other resources that is not de minimis and
is not reasonably embraced by the agreed definition and scope of that service
prior to the proposed increase.
II. SERVICES SELECTED
A. Initial Selection of Services.
Each Recipient shall designate on Exhibit II to the Agreement, which may be
amended when additional services are offered, the services that it agrees to
receive from CenterPoint. Designation may also be in the form of an opt-out
where each company agrees to receive all services from CenterPoint except those
specifically enumerated in Exhibit II.
B. Annual Selection of Services.
CenterPoint shall send an annual service proposal form to each Recipient on
or about July 1 listing services proposed for the next fiscal year. By July 31,
the Recipient shall notify CenterPoint of the services it has elected to receive
during the next fiscal year.
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III. PERSONNEL
CenterPoint will provide services by using the services of executives,
accountants, financial advisers, technical advisers, attorneys, engineers and
other persons with the necessary qualifications.
If necessary, CenterPoint, after consultation with the Recipient, may also
arrange for the services of affiliated or unaffiliated experts, consultants,
attorneys and others in connection with the performance of any of the services
supplied under this Agreement. CenterPoint also may serve as administrative
agent, arranging and monitoring services provided by third parties to Recipient,
whether such services are billed directly to Recipient or through CenterPoint.
CenterPoint's sole responsibility to the Recipient for errors or omissions
in services shall be to furnish correct information and/or adjustments in the
services, at no additional cost or expense to Recipient; provided, Recipient
must promptly advise CenterPoint of any such error or omission of which it
becomes aware after having used reasonable efforts to detect any such errors or
omissions. In no event shall CenterPoint have any liability under this Agreement
or otherwise arising out of or resulting from the performance of, or the failure
to perform, services for loss of anticipated profits by reason of any business
interruption, facility shutdown or non-operation, loss of data or otherwise or
for any incidental, indirect, special or consequential damages, whether or not
caused by or resulting from negligence, including gross negligence, or breach of
obligations hereunder and whether or not Recipient was informed of the
possibility of the existence of such damages.
CenterPoint may contract for the services of certain employees of the
CenterPoint System Companies for the purpose of staffing its service operations.
These arrangements will comply with the applicable provisions under the 1935
Act, including the provisions of Rule 90 thereunder requiring the performance of
services on the basis of cost.
IV. COMPENSATION AND ALLOCATION
As and to the extent required by law, CenterPoint will provide such
services at cost allocated on a fair nondiscriminatory basis. The CenterPoint
Policies and Procedures Manual contains rules for determining and allocating
costs. The parties shall use good faith efforts to discuss any situation in
which the actual charge for a service is reasonably expected to exceed the
estimated charge, if any, set forth in a Service Level Agreement, provided,
however, that charges incurred in excess of any such estimate shall not justify
stopping the provision of, or payment for, services under this Agreement.
V. TAXES.
Recipient shall bear all taxes, duties and other similar charges (and any
related interest and penalties), imposed as a result of its receipt of services
under this Agreement, including any tax which Recipient is required to withhold
or deduct from payments to CenterPoint. CenterPoint may collect from Recipient
any sales, use and similar taxes imposed
3
on the provision of services and shall pay such tax to the appropriate
governmental or taxing authority.
VI. BILLING
Charges will be rendered during the first week of each month covering
amounts incurred during the prior month. Charges will be based on actual amounts
paid. If allocations are required, they may be based on estimated values based
on estimates in budget plans for the relevant values. Estimated amounts will be
adjusted on subsequent charges either in a subsequent month or at the end of the
year. Any amount remaining unpaid after fifteen days following receipt of the
bill shall bear interest thereon from the date of the bill at the lesser of the
prime rate announced by JPMorgan Bank and in effect from time to time plus 2%
per annum or the maximum non-usurious rate of interest permitted by applicable
law.
CenterPoint will support its charges with reasonable documentation (which
may be maintained in electronic form). CenterPoint will make adjustments to
charges as required to reflect the discovery of errors or omissions in the
charges.
VII. TERMINATION AND MODIFICATION.
A. Modification of Services.
The Recipient may modify its selection of services at any time during the
fiscal year by giving CenterPoint written notice sixty (60) days in advance for
the additional services it wishes to receive, and/or the services it no longer
wishes to receive, from CenterPoint.
B. Modification of Other Terms and Conditions.
No other amendment, change or modification of this Agreement shall be
valid, unless made in writing and signed by all parties hereto.
C. Termination of this Agreement.
The Recipient may terminate this Agreement with CenterPoint by providing
sixty (60) days advance written notice of such termination to CenterPoint.
CenterPoint may terminate this Agreement as to the Recipient by providing sixty
(60) days advance written notice of such termination to the Recipient.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the 1935 Act, or with
any rule, regulation or order of the Securities and Exchange Commission ("SEC")
adopted before or after the making of this Agreement. This Agreement shall be
subject to the approval of any state commission or other state regulatory body
whose approval is, by the laws of said state, a legal prerequisite to the
execution and delivery or the performance of this Agreement.
4
VIII. NOTICE.
Where written notice is required by this Agreement, said notice shall be
deemed given when delivered in person, by electronic mail, or when mailed by
United States registered or certified mail, postage prepaid, return receipt
requested, addressed, if to CenterPoint, to the Chief Financial Officer and, if
to Recipient, to its President at the address listed on the most recent Exhibit
II received by CenterPoint.
IX. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, without regard to its conflict of laws provisions.
X. ENTIRE AGREEMENT
This Agreement, together with its exhibits, constitutes the entire
understanding and agreement of the parties with respect to its subject matter,
and effective upon the execution of this Agreement by the respective parties
hereof and thereto, any and all prior agreements, understandings or
representations with respect to this subject matter are hereby terminated and
cancelled in their entirety and of no further force or effect.
XI. WAIVER
No waiver by any party hereto of a breach of any provision of this
Agreement shall constitute a waiver of any preceding or succeeding breach of the
same or any other provision hereof.
XII. ASSIGNMENT
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their respective successors and assigns. No assignment of this
Agreement or any party's rights, interests or obligations hereunder may be made
without the other party's consent, which shall not be unreasonably withheld,
delayed or conditioned.
XIII. SEVERABILITY
If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall in no way be affected or impaired thereby.
XIV. EFFECTIVE DATE
This Agreement is effective as of the date of the Financing Order.
5
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above mentioned.
By Recipient:
By CenterPoint:
6
EXHIBIT I
Cost Accumulation and Assignment, Allocation Methods, and Description of
Services Offered by CenterPoint to Recipient
This document sets forth the methodologies used to accumulate the costs of
services that may be performed by CenterPoint and to assign or allocate such
costs to other subsidiaries and business units within the CenterPoint registered
holding company system that receive services from CenterPoint.
Cost of Services Performed
CenterPoint shall maintain an accounting system that enables costs to be
identified by Cost Center, Account Number or Capital Project ("Account Codes").
The primary inputs to the accounting system shall be payroll records for
CenterPoint's employees, accounts payable transactions and journal entries.
Charges for labor shall be made at the employees' effective hourly rate,
including the cost of pensions, other employee benefits and payroll taxes. To
the extent practicable, costs of services shall be directly assigned to the
applicable Account Codes. The full cost of providing services shall also include
certain indirect costs, e.g., departmental overheads, administrative and general
costs, and taxes. Indirect costs shall be associated with the services performed
in proportion to the directly assigned costs of the services or other relevant
cost allocators.
Cost Assignment and Allocation
CenterPoint's costs shall be directly assigned, distributed or allocated to
Recipients in the manner described below:
1. Costs accumulated in Cost Centers for services specifically performed
for a single Recipient shall be directly assigned or charged to such Recipient;
2. Costs accumulated in Cost Centers for services specifically performed
for two or more Recipients shall be distributed among and charged to such
Recipients using methods determined on a case-by-case basis consistent with the
nature of the work performed and based on one of the allocation methods
described below; and
3. Costs accumulated in Cost Centers for services of a general nature which
are applicable to all Recipients or to a class or classes of Recipients shall be
allocated among or charged to such Recipients by application of one or more of
the allocation methods described below.
Allocation Methods
The following methods shall be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Operating Expense - A ratio based on operating expense minus fuel and
purchase power. This ratio will be determined annually based on annual plan
operating expense and will be adjusted for any known and reasonably quantifiable
events and will be trued-up at the end of the fiscal year based on actual
operating expense.
2. Total Assets Ratio - A ratio based on the total assets minus investments
in subsidiaries and goodwill. This ratio will be determined annually based on
annual plan assets and will be adjusted for any known and reasonably
quantifiable events and will be trued-up at the end of the fiscal year based on
twelve month average of actual assets.
3. Cash Flow- A ratio based on operating expense including fuel, purchase
power, capital expenditures; less depreciation expense. This ratio will be
determined annually based on annual plan cash flow and will be adjusted for any
known and reasonably quantifiable events and will be trued-up at the end of the
fiscal year based on actual cash flow.
4. Head Count - A ratio based on active and retiree headcount. This ratio
will be determined annually based on annual plan head count and will be adjusted
for any known and reasonably quantifiable events and will be trued-up at the end
of the fiscal year based on actual head count.
5. Direct Labor - A ratio based on billable hours. This ratio will be
determined monthly based monthly billable hours.
6. Client Unit Usage - This factor is determined based on the actual unit
/usage that is utilized by the applicable Recipients. This factor will be
determined annually based on units/ usage utilized at the end of the previous
fiscal year and may be adjusted for any known and reasonably quantifiable
events, or at such time as may be required due to significant changes.
7. Square Footage - This factor will be determined based on actual square
footage used by the applicable Recipients. This factor will be determined
annually based on square footage utilized at the end of the previous fiscal year
and may be adjusted for any known and reasonably quantifiable events, or at such
time as may be required due to significant changes.
Description of Services
A description of each of the services performed by CenterPoint, which may
be modified from time to time, is presented below. As discussed above, where
identifiable, costs will be directly assigned or distributed to Recipients. For
costs accumulated in Cost Centers which are for services of a general nature
that cannot be directly assigned or distributed, the method or methods of
allocation are also set forth. Substitution or changes may be made in the
methods of allocation hereinafter specified, as may be appropriate and to the
extent permitted under the SEC 60-day letter procedure, and will be provided to
state regulatory agencies and to each affected Recipient.
1. Accounting Services
CenterPoint may provide various services to the Recipients including
corporate tax, treasury, strategic planning, planning, corporate accounting and
reporting, general ledger maintenance and all accounting record keeping,
processing certain accounts such as accounts payable, cash management, and
others as may be deemed necessary, hedging policy and oversight, financial
planning and rates. Each Recipient may also maintain its own corporate and
accounting group and engage CenterPoint to provide advice and assistance on
accounting matters, including the development of accounting practices,
procedures and controls, the preparation and analysis of financial reports and
the filing of financial reports with regulatory bodies, on a system-wide basis.
Costs of a general nature may be allocated using the Operating Expense or Cash
Flow Ratio.
2. Internal Auditing
CenterPoint may conduct periodic audits of administration and accounting
processes. Audits would include examinations of Recipients' service agreements,
accounting systems, source documents, allocation methods and billings to assure
proper authorization and accounting for services. Costs of a general nature may
be allocated using the Direct Labor Ratio.
3. Communications
CenterPoint may assist the Recipients to develop and support branding and
corporate promotions, advertising and brand equity. Individually, the Recipients
may maintain independent marketing personnel to handle the day-to-day details of
marketing campaigns. Costs of a general nature may be allocated using the Total
Assets Ratio.
4. Legal Services
CenterPoint may provide various legal services and general legal oversight,
as well as corporate secretarial functions and filing of reports under
securities laws and the 1935 Act for the benefit of the Recipients. Costs of a
general nature may be allocated using the Operating Expense Ratio.
5. Human Resources
CenterPoint may assist the Recipients in developing policy and planning for
total compensation plans, workforce planning and training, employee relations
policies and programs, and in training personnel in a coordinated manner
throughout the CenterPoint System Companies. Each Recipient may maintain a human
resources group to handle the individualized application of policies and
programs. Costs of a general nature may be allocated using the Head Count Ratio.
Costs of providing employee and executive benefits will be allocated directly to
the Recipient based on costs incurred for its employees and retirees, and any
costs of a general nature which are not otherwise recovered, such as through
payroll burden charges, will be allocated using the Head Count Ratio.
6. Executive
CenterPoint may use the executive staff of CenterPoint in order to assist
the Recipients in formulating and executing general plans and policies,
including operations, issuance of securities, appointment of executive
personnel, budgets and financing plans, expansion of services, acquisitions and
dispositions of property, public relations and other related matters. Costs of a
general nature may be allocated using the Total Asset Ratio.
7. Regulatory and Governmental Affairs
CenterPoint may assist the Recipients in developing policy for regulatory
strategy, Senate Bill 7 Implementation, and support litigation and regulatory
proceedings. Costs of a general nature may be allocated using the Total Asset
Ratio.
8. Information Systems and Technology
CenterPoint may provide the Recipients with the following services:
Mainframe Operations, Enterprise Document Management, Data Circuit Management,
Voice Services, IT Solutions Delivery, and Desktop Data Device services. Costs
are billed to Recipients based on various metrics and cost allocations.
Mainframe Operations
METHODOLOGY METRIC
----------- ------
Legacy Mainframe CPU Utilization Client Unit Usage CPU Second
Legacy Mainframe Data Storage Client Unit Usage Megabyte
SAP Mainframe Data Storage Client Unit Usage Megabyte
SAP Mainframe CPU Utilization Client Unit Usage CPU Second
Enterprise Client Specific Client Unit Usage Direct Billed
Enterprise Document Management
Methodology: Client Unit Usage
Metric: Hour
Data Circuit Management
Methodology: Client Unit Usage
Metric: Hour
Voice Services
METHODOLOGY METRIC
----------- ------
Telephone Basic Line Client Unit Usage telephone line
Moves/Adds/Change (MAC) Client Unit Usage hour
Call Center Basic Line Client Unit Usage telephone line
Video Conferencing Client Unit Usage conference + long distance
IT Solutions Delivery
Methodology: Client Unit Usage
Metric: Hour
SAP Production Support
Allocation Methodology: Headcount and Operating Expense
Desktop Data Device Services
METHODOLOGY METRIC
----------- ------
Equipment Client Unit Usage login ID
Lotus Notes Messaging Client Unit Usage login ID
LAN and Security Account Creation Client Unit Usage login ID
Network WAN/LAN Client Unit Usage login ID
Client Support Center Help Desk Client Unit Usage login ID
9. Business Support
FACILITY MANAGEMENT - Provide clients with general operating maintenance,
administrative and management duties for building operations. This service also
include project management and security for managed properties. Costs for
Facility Management are allocated based on the Square Footage utilized.
OFFICE SUPPORT SERVICES - Provide clients with copying, inserting, mailing, call
center, and graphic design functionality. This service also includes records
management and managing office supplies. Costs for Office Support Services are
generally allocated based on client unit usage.
FINANCIAL SERVICES - Provides payroll, bank reconciliation, check disbursements,
and escheat processing/reporting. This service also provides clients with
assistance in Corporate Travel. Costs for FS are generally allocated based on
client unit usage.
PURCHASING & LOGISTICS - Provides clients with procurement and Accounts Payable
services. Costs for purchasing and logistics are generally allocated based on
client unit usage.
EXHIBIT II
AGREED UPON SERVICES TO BE RECEIVED FROM CENTERPOINT
SERVICES YES NO
1. Regulatory and Govt. Affairs _____ _____
2. Internal Auditing _____ _____
3. Accounting Services _____ _____
4. Communications _____ _____
5. Human Resources _____ _____
6. Legal Services _____ _____
7. Financial Services _____ _____
8. Information Systems and Technology _____ _____
9. Executive _____ _____
10. Customer Services _____ _____
11. Employee Services _____ _____
12. Engineering _____ _____
13. Business Support _____ _____
i. Purchasing _____ _____
ii. Facilities Management _____ _____
14. Other _____ _____
[Signature Blocks]
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(Company Name)
---------------------------
(President)
---------------------------
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(Address)
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(Date)
