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                                                                     Exhibit 1.1

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

            $1,851,000,000 SENIOR SECURED TRANSITION BONDS, SERIES A

                             UNDERWRITING AGREEMENT


                                                                December 9, 2005


To the Representatives named in Schedule I hereto
of the Underwriters named in Schedule II hereto

Ladies and Gentlemen:

     1. Introduction. CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company (the "Issuer"), proposes to issue and sell
$1,851,000,000 aggregate principal amount of its Senior Secured Transition
Bonds, Series A (the "Bonds"), identified in Schedule I hereto. The Issuer and
CenterPoint Energy Houston Electric, LLC, a Texas limited liability company and
the Issuer's direct parent (the "Company"), hereby confirm their agreement with
the several Underwriters (as defined below) as set forth herein.

     The term "Underwriters" as used herein shall be deemed to mean the entity
or several entities named in Schedule II hereto and any underwriter substituted
as provided in Section 7 hereof and the term "Underwriter" shall be deemed to
mean any one of such Underwriters. If the entity or entities listed in Schedule
I hereto (the "Representatives") are the same as the entity or entities listed
in Schedule II hereto, then the terms "Underwriters" and "Representatives", as
used herein, shall each be deemed to refer to such entity or entities. All
obligations of the Underwriters hereunder are several and not joint. If more
than one entity is named in Schedule I hereto, any action under or in respect of
this underwriting agreement ("Underwriting Agreement") may be taken by such
entities jointly as the Representatives or by one of the entities acting on
behalf of the Representatives and such action will be binding upon all the
Underwriters.

     Capitalized terms used and not otherwise defined in this Underwriting
Agreement shall have the meanings given to them in the Indenture (as defined
below).

     2. Description of the Bonds. The Bonds will be issued pursuant to an
indenture to be dated as of December 16, 2005, as supplemented by the First
Supplemental Indenture thereto, to be dated as of December 16 (as so
supplemented and as it may be further supplemented from time to time, the
"Indenture"), between the Issuer and Wilmington Trust Company, as indenture
trustee (the "Indenture Trustee"). The Bonds will be secured primarily by
transition property (as more fully described in the Financing Order relating to
the Bonds, "Series A Transition Property"), to be sold to the Issuer by the
Company pursuant to the Transition Property Sale Agreement, to be dated on or
about December 16, 2005, between the Company and the Issuer (the "Sale
Agreement"). The Series A Transition Property securing the



     Bonds will be serviced pursuant to the Series A Transition Property
     Servicing Agreement, to be dated on or about December 16, 2005, between the
     Company, as servicer, and the Issuer, as owner of the Series A Transition
     Property sold to it pursuant to the Sale Agreement (the "Servicing
     Agreement").

     3. Representations and Warranties of the Issuer. The Issuer represents and
warrants to the several Underwriters that:

          (a) The Issuer has filed with the Securities and Exchange Commission
     (the "Commission") a registration statement on Form S-3 on December 21,
     2004 (Registration No. 333-121505), as amended by Amendment No. 1 thereto,
     including a prospectus and form of prospectus supplement, for the
     registration under the Securities Act of 1933, as amended (the "Securities
     Act"), of up to $1,857,000,000 aggregate principal amount of its transition
     bonds. Such registration statement, as amended ("Registration Statement No.
     333-121505"), has been declared effective by the Commission and no stop
     order suspending such effectiveness has been issued under the Securities
     Act and no proceedings for that purpose have been instituted or are pending
     or, to the knowledge of the Issuer, threatened by the Commission. No
     transition bonds registered with the Commission under the Securities Act
     pursuant to Registration Statement No. 333-121505 have been previously
     issued. References herein to the term "Registration Statement" shall be
     deemed to refer to Registration Statement No. 333-121505, including all
     documents incorporated by reference therein pursuant to Item 12 of Form S-3
     ("Incorporated Documents") at the time it became effective, in the form in
     which it was declared effective by the Commission, and including any
     required information deemed to be a part thereof at the time of
     effectiveness pursuant to Rule 430B under the Securities Act. The final
     prospectus and the final prospectus supplement relating to the Bonds, as
     filed with the Commission pursuant to Rule 424(b) under the Securities Act,
     are referred to herein as the "Final Prospectus;" and the most recent
     preliminary prospectus and prospectus supplement that omitted information
     to be included upon pricing in a form of prospectus filed with the
     Commission pursuant to Rule 424(b) under the Securities Act and that was
     used after the initial effectiveness of the Registration Statement and
     prior to the Applicable Time (as defined below) is referred to herein as
     the "Pricing Prospectus."

          (b) (i) At the earliest time after the filing of the Registration
     Statement that the Issuer or another offering participant made a bona fide
     offer (within the meaning of Rule 164(h)(2)) of the Bonds and (ii) at the
     date hereof, the Issuer was not and is not an "ineligible issuer," as
     defined in Rule 405 under the Securities Act.

          (c) At any date as of which any part of the Registration Statement
     relating to the Bonds became effective in accordance with the rules and
     regulations under the Securities Act (each such date, an "Effective Date")
     the Registration Statement fully complied, and the Final Prospectus, both
     at the date and time it is filed with the Commission pursuant to Rule 424
     (such date and time, the "424 Date") and at the Closing Date, and the
     Indenture, at the Closing Date, will fully comply, in all material respects
     with the applicable provisions of the Securities Act and the Trust
     Indenture Act of 1939, as amended ("Trust Indenture Act"), respectively,
     and, in each case, the applicable instructions, rules and regulations of
     the Commission thereunder; the


                                       -2-



     Registration Statement, at each Effective Date, did not contain an untrue
     statement of a material fact or omit to state a material fact required to
     be stated therein or necessary to make the statements therein not
     misleading; the Final Prospectus, both on the 424 Date and at the Closing
     Date, will not contain an untrue statement of a material fact or omit to
     state a material fact necessary in order to make the statements therein, in
     the light of the circumstances under which they were made, not misleading;
     and on said dates the Incorporated Documents, taken together as a whole,
     fully complied or will fully comply in all material respects with the
     applicable provisions of the Securities Exchange Act of 1934, as amended
     (the "Exchange Act"), and the applicable rules and regulations of the
     Commission thereunder; provided that the foregoing representations and
     warranties in this paragraph (c) shall not apply to statements or omissions
     made in reliance upon information furnished in writing to the Issuer or the
     Company by, or on behalf of, any Underwriter through the Representatives
     expressly for use in connection with the preparation of the Registration
     Statement or the Final Prospectus or to any statements in or omissions from
     any Statements of Eligibility on Form T-1 (or amendments thereto) of the
     Indenture Trustee under the Indenture filed as exhibits to the Registration
     Statement or Incorporated Documents or to any statements or omissions made
     in the Registration Statement or the Final Prospectus relating to The
     Depository Trust Company ("DTC") Book-Entry System that are based solely on
     information contained in published reports of the DTC.

          (d) As of the Applicable Time (as defined below), the Pricing
     Prospectus and each Issuer Free Writing Prospectus (as defined below),
     considered together, did not include any untrue statement of a material
     fact or omit to state any material fact necessary in order to make the
     statements therein, in the light of the circumstances under which they were
     made, not misleading (except that the principal amount of the Bonds, the
     tranches, the initial principal balances, the scheduled final payment
     dates, the final maturity dates, the expected average lives, the Expected
     Amortization Schedule and the Expected Sinking Fund Schedule described in
     the Pricing Prospectus were subject to change based on market conditions,
     and the interest rate, price to the public and underwriting discounts and
     commissions for each tranche was not included in the Pricing Prospectus).
     The preceding sentence does not apply to statements in or omissions from
     the Pricing Prospectus and each Issuer Free Writing Prospectus in reliance
     upon and in conformity with written information furnished to the Issuer or
     the Company by any Underwriter through the Representatives specifically for
     use therein, it being understood and agreed that the only such information
     furnished by any Underwriter consists of the information described as such
     in Section 11(b) hereof. "Issuer Free Writing Prospectus" means any "issuer
     free writing prospectus," as defined in Rule 433, relating to the Bonds and
     issued prior to the Applicable Time that is listed on Schedule IV hereto
     (and only to the extent listed on such Schedule), in the form filed or
     required to be filed with the Commission or, if not required to be filed,
     in the form retained in the Issuer's records pursuant to Rule 433(g).
     References to the term "Free Writing Prospectus" shall mean a free writing
     prospectus, as defined in Rule 405 under the Securities Act. References to
     the term "Applicable Time" means 4:00 PM, central time, on the date hereof.


                                       -3-



          (e) Each Issuer Free Writing Prospectus, as of its issue date and at
     all subsequent times through the completion of the public offer and sale of
     the Bonds or until any earlier date that the Issuer notified or notifies
     the Representatives as described in the next sentence, did not, does not
     and will not include any information that conflicted, conflicts or will
     conflict with the information then contained in the Registration Statement.
     If at any time following issuance of an Issuer Free Writing Prospectus
     there occurred or occurs an event or development as a result of which such
     Issuer Free Writing Prospectus conflicted or would conflict with the
     information then contained in the Registration Statement or included or
     would include an untrue statement of a material fact or omitted or would
     omit to state a material fact necessary in order to make the statements
     therein, in the light of the circumstances prevailing at that subsequent
     time, not misleading, (i) the Company or the Issuer has promptly notified
     or will promptly notify the Representatives and (ii) the Company or the
     Issuer has promptly amended or will promptly amend or supplement such
     Issuer Free Writing Prospectus to eliminate or correct such conflict,
     untrue statement or omission. The foregoing two sentences do not apply to
     statements in or omissions from any Issuer Free Writing Prospectus in
     reliance upon and in conformity with written information furnished to the
     Issuer or the Company by any Underwriter through the Representatives
     specifically for use therein, it being understood and agreed that the only
     such information furnished by any Underwriter consists of the information
     described as such in Section 11(b) hereof.

          (f) The Issuer has been duly formed and is validly existing as a
     limited liability company in good standing under the Limited Liability
     Company Act of the State of Delaware, as amended, with full limited
     liability company power and authority to execute, deliver and perform its
     obligations under this Underwriting Agreement, the Bonds, the Sale
     Agreement, the Servicing Agreement, the Indenture, the Issuer LLC
     Agreement, the Intercreditor Agreement, the Administration Agreement and
     the other agreements and instruments contemplated by the Pricing Prospectus
     (collectively, the "Issuer Documents") and to own its properties and
     conduct its business as described in the Pricing Prospectus; the Issuer has
     been duly qualified as a foreign limited liability company for the
     transaction of business and is in good standing under the laws of each
     other jurisdiction in which it owns or leases properties or conducts any
     business so as to require such qualification, except where failure to so
     qualify or to be in good standing would not have a material adverse effect
     on the business, properties or financial condition of the Issuer; the
     Issuer has conducted and will conduct no business in the future that would
     be inconsistent with the description of the Issuer's business set forth in
     the Pricing Prospectus; the Issuer is not a party to or bound by any
     agreement or instrument other than the Issuer Documents and other
     agreements or instruments incidental to its formation; the Issuer has no
     material liabilities or obligations other than those arising out of the
     transactions contemplated by the Issuer Documents and as described in the
     Pricing Prospectus; the Company is the beneficial owner of all of the
     limited liability company interests of the Issuer; and based on current
     law, the Issuer is not classified as an association taxable as a
     corporation for United States federal income tax purposes.

          (g) The issuance and sale of the Bonds by the Issuer, the purchase of
     the Series A Transition Property by the Issuer from the Company and the
     consummation of the transactions herein contemplated by the Issuer, and the
     fulfillment of the terms hereof


                                       -4-


     on the part of the Issuer to be fulfilled, will not result in a breach of
     any of the terms or provisions of, or constitute a default under the
     Issuer's certificate of formation or limited liability company agreement
     (collectively, the "Issuer Charter Documents"), or any indenture, mortgage,
     deed of trust or other agreement or instrument to which the Issuer is now a
     party.

          (h) This Underwriting Agreement has been duly authorized, executed and
     delivered by the Issuer, which has the necessary limited liability company
     power and authority to execute, deliver and perform its obligations under
     this Underwriting Agreement, and constitutes a valid and binding obligation
     of the Issuer, enforceable against the Issuer in accordance with its terms,
     except as the enforceability thereof may be limited by bankruptcy,
     insolvency, reorganization, receivership, moratorium or other similar laws
     relating to or affecting creditors' or secured parties' rights generally
     and by general principles of equity (including concepts of materiality,
     reasonableness, good faith and fair dealing), regardless of whether
     considered in a proceeding in equity or at law; and limitations on
     enforceability of rights to indemnification or contribution by federal or
     state securities laws or regulations or by public policy.

          (i) The Issuer (i) is not in violation of the Issuer Charter
     Documents, (ii) is not in default and no event has occurred which, with
     notice or lapse of time or both, would constitute such a default, in the
     due performance or observance of any term, covenant or condition contained
     in any indenture, mortgage, deed of trust or other agreement or instrument
     to which it is a party or by which it is bound or to which any of its
     properties is subject, except for any such defaults that would not,
     individually or in the aggregate, have a material adverse effect on its
     business, property or financial condition, and (iii) is not in violation of
     any law, ordinance, governmental rule, regulation or court decree to which
     it or its property may be subject, except for any such violations that
     would not, individually or in the aggregate, have a material adverse effect
     on its business, property or financial condition.

          (j) The Indenture has been duly authorized by the Issuer, and, on the
     Closing Date, will have been duly executed and delivered by the Issuer and
     will be a valid and binding instrument, enforceable against the Issuer in
     accordance with its terms, except as the enforceability thereof may be
     limited by bankruptcy, insolvency, reorganization, receivership, moratorium
     or other similar laws relating to or affecting creditors' or secured
     parties' rights generally and by general principles of equity (including
     concepts of materiality, reasonableness, good faith and fair dealing),
     regardless of whether considered in a proceeding in equity or at law; and
     limitations on enforceability of rights to indemnification by federal or
     state securities laws or regulations or by public policy. On the Closing
     Date, the Indenture will (i) comply as to form in all material respects
     with the requirements of the Trust Indenture Act and (ii) conform in all
     material respects to the description thereof in the Pricing Prospectus and
     Final Prospectus.

          (k) The Bonds have been duly authorized by the Issuer for issuance and
     sale to the Underwriters pursuant to this Underwriting Agreement and, when
     executed by the Issuer and authenticated by the Indenture Trustee in
     accordance with the Indenture and delivered to the Underwriters against
     payment therefor in accordance with the terms of


                                       -5-


     this Underwriting Agreement, will constitute valid and binding obligations
     of the Issuer entitled to the benefits of the Indenture and enforceable
     against the Issuer in accordance with their terms, except as the
     enforceability thereof may be limited by bankruptcy, insolvency,
     reorganization, receivership, moratorium or other similar laws relating to
     or affecting creditors' or secured parties' rights generally and by general
     principles of equity (including concepts of materiality, reasonableness,
     good faith and fair dealing), regardless of whether considered in a
     proceeding in equity or at law; and limitations on enforceability of rights
     to indemnification by federal or state securities laws or regulations or by
     public policy, and the Bonds conform in all material respects to the
     description thereof in the Pricing Prospectus and Final Prospectus. The
     Issuer has all requisite limited liability company power and authority to
     issue, sell and deliver the Bonds in accordance with and upon the terms and
     conditions set forth in this Underwriting Agreement and in the Pricing
     Prospectus and Final Prospectus.

          (l) Other than as set forth or contemplated in the Pricing Prospectus,
     there is no litigation or governmental proceeding to which the Issuer is a
     party or to which any property of the Issuer is subject or which is pending
     or, to the knowledge of the Issuer, threatened against the Issuer that
     could reasonably be expected to, individually or in the aggregate, result
     in a material adverse effect on the Issuer's business, property or
     financial condition.

          (m) Other than any necessary action of the PUCT, any filings required
     under the Restructuring Act or Financing Order or as otherwise set forth or
     contemplated in the Pricing Prospectus, no approval, authorization, consent
     or order of any public board or body (except such as have been already
     obtained and other than in connection or in compliance with the provisions
     of applicable blue-sky laws or securities laws of any state, as to which
     the Issuer makes no representations or warranties), is legally required for
     the issuance and sale by the Issuer of the Bonds.

          (n) The Issuer is not, and after giving effect to the sale and
     issuance of the Bonds, will not be an "investment company" within the
     meaning of the Investment Company Act of 1940, as amended (the "1940 Act").

          (o) The financial statements, together with the related notes,
     included in the Pricing Prospectus present fairly in all material respects
     the financial position, and member's equity of the Issuer as of the
     respective dates and for the respective periods specified and, except as
     otherwise stated in the Pricing Prospectus, such financial statements have
     been prepared in conformity with generally accepted accounting principles
     in the United States applied on a consistent basis during the periods
     involved.

          (p) Deloitte & Touche LLP, who have certified certain financial
     statements of the Issuer, are independent public accountants as required by
     the Securities Act and the rules and regulations of the Commission
     thereunder.

          (q) Each of the Sale Agreement and Servicing Agreement has been duly
     authorized by the Issuer, and when executed and delivered by the Issuer and
     the other parties thereto, will constitute a valid and legally binding
     obligation of the Issuer,


                                       -6-


     enforceable against the Issuer in accordance with its terms, except as the
     enforceability thereof may be limited by bankruptcy, insolvency,
     reorganization, receivership, moratorium or other similar laws relating to
     or affecting creditors' or secured parties' rights generally and by general
     principles of equity (including concepts of materiality, reasonableness,
     good faith and fair dealing), regardless of whether considered in a
     proceeding in equity or at law, and limitations on enforceability of rights
     to indemnification by federal or state securities laws or regulations or by
     public policy. Each of the Intercreditor Agreement, the Administration
     Agreement and Issuer LLC Agreement has been duly authorized by the Issuer,
     and when executed and delivered by the Issuer and other parties thereto,
     will constitute a valid and legally binding obligation of the Issuer,
     enforceable against the Issuer in accordance with its terms, except as the
     enforceability thereof may be limited by bankruptcy, insolvency,
     reorganization, receivership, moratorium or other similar laws relating to
     or affecting creditors' or secured parties' rights generally and by general
     principles of equity (including concepts of materiality, reasonableness,
     good faith and fair dealing), regardless of whether considered in a
     proceeding in equity or at law; and limitations on enforceability of rights
     to indemnification by federal or state securities laws or regulations or by
     public policy.

     4. Representations and Warranties of the Company. The Company represents
and warrants to the several Underwriters that:

          (a) The Issuer has filed with the Commission Registration Statement
     No. 333-121505 for the registration under the Securities Act of up to
     $1,857,000,000 aggregate principal amount of its transition bonds.
     Registration Statement No. 333-121505 has been declared effective by the
     Commission and no stop order suspending such effectiveness has been issued
     under the Securities Act and no proceedings for that purpose have been
     instituted or are pending or, to the knowledge of the Company, threatened
     by the Commission.

          (b) The Registration Statement at each Effective Date fully complied,
     and the Final Prospectus, both on the 424 Date and at the Closing Date, and
     the Indenture, at the Closing Date, will fully comply, in all material
     respects with the applicable provisions of the Securities Act and the Trust
     Indenture Act, respectively, and, in each case, the applicable
     instructions, rules and regulations of the Commission thereunder; the
     Registration Statement, at each Effective Date, did not contain an untrue
     statement of a material fact, or omit to state a material fact required to
     be stated therein or necessary to make the statements therein not
     misleading; the Final Prospectus, both on the 424 Date and at the Closing
     Date, will not include an untrue statement of a material fact or omit to
     state a material fact necessary in order to make the statements therein, in
     the light of the circumstances under which they were made, not misleading;
     provided, that the foregoing representations and warranties in this
     paragraph (b) shall not apply to statements or omissions made in reliance
     upon and in conformity with information furnished in writing to the Issuer
     or the Company by, or on behalf of, any Underwriter through the
     Representatives expressly for use in connection with the preparation of the
     Registration Statement or the Final Prospectus, or to any statements in or
     omissions from any Statement of Eligibility on Form T-1, or amendments
     thereto, of the Indenture Trustee under the Indenture filed as exhibits to
     the Registration Statement or Incorporated


                                       -7-


     Documents or to any statements or omissions made in the Registration
     Statement or Final Prospectus relating to the DTC Book-Entry-Only System
     that are based solely on information contained in published reports of DTC.

          (c) As of the Applicable Time, the Pricing Prospectus and each Issuer
     Free Writing Prospectus, considered together, did not include any untrue
     statement of a material fact or omit to state any material fact necessary
     in order to make the statements therein, in the light of the circumstances
     under which they were made, not misleading (except that the principal
     amount of the Bonds, the tranches, the initial principal balances, the
     scheduled final payment dates, the final maturity dates, the expected
     average lives, the Expected Amortization Schedule and the Expected Sinking
     Fund Schedule described in the Pricing Prospectus were subject to change
     based on market conditions, and the interest rate, price to the public and
     underwriting discounts and commissions for each tranche was not included in
     the Pricing Prospectus). The preceding sentence does not apply to
     statements in or omissions from the Pricing Prospectus and each Issuer Free
     Writing Prospectus in reliance upon and in conformity with written
     information furnished to the Issuer or Company by any Underwriter through
     the Representatives specifically for use therein, it being understood and
     agreed that the only such information furnished by any Underwriter consists
     of the information described as such in Section 11(b) hereof.

          (d) Each Issuer Free Writing Prospectus, as of its issue date and at
     all subsequent times through the completion of the public offer and sale of
     the Bonds or until any earlier date that the Issuer or the Company notified
     or notifies the Representatives as described in the next sentence, did not,
     does not and will not include any information that conflicted, conflicts or
     will conflict with the information then contained in the Registration
     Statement. If at any time following issuance of an Issuer Free Writing
     Prospectus there occurred or occurs an event or development as a result of
     which such Issuer Free Writing Prospectus conflicted or would conflict with
     the information then contained in the Registration Statement or included or
     would include an untrue statement of a material fact or omitted or would
     omit to state a material fact necessary in order to make the statements
     therein, in the light of the circumstances prevailing at that subsequent
     time, not misleading, (i) the Company or the Issuer has promptly notified
     or will promptly notify the Representatives and (ii) the Company or the
     Issuer has promptly amended or will promptly amend or supplement such
     Issuer Free Writing Prospectus to eliminate or correct such conflict,
     untrue statement or omission. The foregoing two sentences do not apply to
     statements in or omissions from any Issuer Free Writing Prospectus in
     reliance upon and in conformity with written information furnished to the
     Issuer or the Company by any Underwriter through the Representatives
     specifically for use therein, it being understood and agreed that the only
     such information furnished by any Underwriter consists of the information
     described as such in Section 11(b) hereof.

          (e) The Company has been duly formed and is validly existing as a
     limited liability company in good standing under the laws of the
     jurisdiction of its formation, has the limited liability company power and
     authority to own, lease and operate its properties and to conduct its
     business as presently conducted and as set forth in or contemplated by the
     Pricing Prospectus, and is qualified as a foreign limited liability company
     to transact business and is in good standing in each jurisdiction in which
     such qualification is




                                       -8-


     required, whether by reason of the ownership or leasing of property or the
     conduct of business, except where the failure to so qualify or be in good
     standing would not have a material adverse effect on the business, property
     or financial condition of the Company and its subsidiaries considered as a
     whole. The Company is the beneficial owner of all of the limited liability
     company interests of the Issuer.

          (f) The Company has no significant subsidiaries within the meaning of
     Rule 1-02(w) of Regulation S-X.

          (g) The transfer by the Company of all of its rights and interests
     under the Financing Order relating to the Bonds to the Issuer and the
     consummation of the transactions herein contemplated by the Company, and
     the fulfillment of the terms hereof on the part of the Company to be
     fulfilled, will not result in a breach of any of the terms or provisions
     of, or constitute a default under, the Company's Articles of Formation or
     limited liability company agreement (collectively, the "Company Charter"),
     or in a material breach of any of the terms of, or constitute a material
     default under, any indenture, mortgage, deed of trust or other agreement or
     instrument to which the Company is now a party.

          (h) This Underwriting Agreement has been duly authorized, executed and
     delivered by the Company, which has the necessary limited liability company
     power and authority to execute, deliver and perform its obligations under
     this Underwriting Agreement, and constitutes a valid and binding obligation
     of the Company, enforceable against the Company in accordance with its
     terms, except as the enforceability thereof may be limited by bankruptcy,
     insolvency, reorganization, receivership, moratorium or other similar laws
     relating to or affecting creditors' or secured parties' rights generally
     and by general principles of equity (including concepts of materiality,
     reasonableness, good faith and fair dealing), regardless of whether
     considered in a proceeding in equity or at law, and limitations on
     enforceability of rights to indemnification or contribution by federal or
     state securities laws or regulations or by public policy.

          (i) The Company (i) is not in violation of the Company Charter, (ii)
     is not in default and no event has occurred which, with notice or lapse of
     time or both, would constitute such a default, in the due performance or
     observance of any term, covenant or condition contained in any indenture,
     mortgage, deed of trust or other agreement or instrument to which it is a
     party or by which it is bound or to which any of its properties is subject,
     except for any such defaults that would not, individually or in the
     aggregate, have a material adverse effect on the business, property or
     financial condition of the Company and its subsidiaries considered as a
     whole, or (iii) is not in violation of any law, ordinance, governmental
     rule, regulation or court decree to which it or its property may be
     subject, except for any such violations that would not, individually or in
     the aggregate, have a material adverse effect on the business, property or
     financial condition of the Company and its subsidiaries considered as a
     whole.

          (j) Except as set forth or contemplated in the Pricing Prospectus,
     there is no litigation or governmental proceeding to which the Company or
     any of its subsidiaries is a party or to which any property of the Company
     or any of its subsidiaries is subject or


                                       -9-


     which is pending or, to the knowledge of the Company, threatened against
     the Company or any of its subsidiaries that could reasonably be expected
     to, individually or in the aggregate, result in a material adverse effect
     on the Company and its subsidiaries taken as a whole.

          (k) Other than any necessary action of the PUCT, any filings required
     under the Restructuring Act (as such term is defined in the Pricing
     Prospectus) or Financing Order or as otherwise set forth or contemplated in
     the Pricing Prospectus, no approval, authorization, consent or order of any
     public board or body (except such as have been already obtained and other
     than in connection or in compliance with the provisions of applicable
     blue-sky laws or securities laws of any state, as to which the Company
     makes no representations or warranties), is legally required for the
     issuance and sale by the Issuer of the Bonds.

          (l) The Company is not, and after giving effect to the sale and
     issuance of the Bonds, will not be an "investment company" within the
     meaning of the 1940 Act.

          (m) Each of the Sale Agreement and Servicing Agreement has been duly
     and validly authorized by the Company, and when executed and delivered by
     the Company and the other parties thereto will constitute a valid and
     legally binding obligation of the Company, enforceable against the Company
     in accordance with its terms, except as the enforceability thereof may be
     limited by bankruptcy, insolvency, reorganization, receivership, moratorium
     or other similar laws relating to or affecting creditors' or secured
     parties' rights generally and by general principles of equity (including
     concepts of materiality, reasonableness, good faith and fair dealing),
     regardless of whether considered in a proceeding in equity or at law, and
     limitations on enforceability of rights to indemnification by federal or
     state securities laws or regulations or by public policy. Each of the
     Administration Agreement and Intercreditor Agreement has been duly
     authorized by the Company, and when executed and delivered by the Company
     and other parties thereto will constitute a valid and legally binding
     obligation of the Company, enforceable against the Company in accordance
     with its terms, except as the enforceability thereof may be limited by
     bankruptcy, insolvency, reorganization, receivership, moratorium or other
     similar laws relating to or affecting creditors' or secured parties' rights
     generally and by general principles of equity (including concepts of
     materiality, reasonableness, good faith and fair dealing), regardless of
     whether considered in a proceeding in equity or at law, and limitations on
     enforceability of rights to indemnification by federal or state securities
     laws or regulations or by public policy.

          (n) There are no Texas transfer taxes related to the transfer of the
     Series A Transition Property or the issuance and sale of the Bonds to the
     Underwriters pursuant to this Underwriting Agreement required to be paid at
     or prior to the Closing Date by the Company or the Issuer.

     5. Representations and Warranties of the Underwriters. Each Underwriter
represents and warrants to the Company and the Issuer that:



                                       -10-


          (a) If and to the extent it has provided any prospective investors
     with any Computational Materials or ABS Term Sheets (as such terms are
     hereinafter defined) prior to the date hereof in connection with the
     offering of the Bonds, all of the conditions set forth in Section 8A hereof
     have been satisfied with respect thereto.

          (b) [Reserved]

     6. Purchase and Sale. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth, the
Issuer shall sell to each of the Underwriters, and each Underwriter shall
purchase from the Issuer, at the time and place herein specified, severally and
not jointly, at the purchase price set forth in Schedule I hereto, the principal
amount of the Bonds set forth opposite such Underwriter's name in Schedule II
hereto. The Underwriters agree to make a public offering of the Bonds. The
Issuer shall pay (in the form of a discount to the principal amount of the
offered Bonds) to the Underwriters a commission equal to $7,022,925.

     7. Time and Place of Closing. Delivery of the Bonds against payment of the
aggregate purchase price therefor by wire transfer in federal funds shall be
made at the place, on the date and at the time specified in Schedule I hereto,
or at such other place, time and date as shall be agreed upon in writing by the
Issuer and the Representatives. The hour and date of such delivery and payment
are herein called the "Closing Date". The Bonds shall be delivered to DTC or to
Wilmington Trust Company, as custodian for DTC, in fully registered global form
registered in the name of Cede & Co., for the respective accounts specified by
the Representatives not later than the close of business on the business day
preceding the Closing Date or such other time as may be agreed upon by the
Representatives. The Issuer agrees to make the Bonds available to the
Representatives for checking purposes not later than 1:00 P.M. New York Time on
the last business day preceding the Closing Date at the place specified for
delivery of the Bonds in Schedule I hereto, or at such other place as the Issuer
may specify.

      If any Underwriter shall fail or refuse to purchase and pay for the
aggregate principal amount of Bonds that such Underwriter has agreed to purchase
and pay for hereunder, the Issuer shall immediately give notice to the other
Underwriters of the default of such Underwriter, and the other Underwriters
shall have the right within 24 hours after the receipt of such notice to
determine to purchase, or to procure one or more others, who are members of the
National Association of Securities Dealers, Inc. ("NASD") (or, if not members of
the NASD, who are not eligible for membership in the NASD and who agree (i) to
make no sales within the United States, its territories or its possessions or to
persons who are citizens thereof or residents therein and (ii) in making sales
to comply with the NASD's Conduct Rules) and satisfactory to the Issuer, to
purchase, upon the terms herein set forth, the aggregate principal amount of
Bonds that the defaulting Underwriter had agreed to purchase. If any
non-defaulting Underwriter or Underwriters shall determine to exercise such
right, such Underwriter or Underwriters shall give written notice to the Issuer
of the determination in that regard within 24 hours after receipt of notice of
any such default, and thereupon the Closing Date shall be postponed for such
period, not exceeding three business days, as the Issuer shall determine.
If in the event of such a default no non-defaulting Underwriter shall give
such notice, then this Underwriting Agreement may be terminated by the Issuer,
 upon like notice given to the non-defaulting Underwriters, within a

                                       -11-


     further period of 24 hours. If in such case the Issuer shall not elect to
     terminate this Underwriting Agreement it shall have the right, irrespective
     of such default:

          (a) to require each non-defaulting Underwriter to purchase and pay for
     the respective aggregate principal amount of Bonds that it had agreed to
     purchase hereunder as hereinabove provided and, in addition, the aggregate
     principal amount of Bonds that the defaulting Underwriter shall have so
     failed to purchase up to aggregate principal amount of Bonds equal to
     one-ninth (1/9) of the aggregate principal amount of Bonds that such
     non-defaulting Underwriter has otherwise agreed to purchase hereunder,
     and/or

          (b) to procure one or more persons, reasonably acceptable to the
     Representatives, who are members of the NASD (or, if not members of the
     NASD, who are not eligible for membership in the NASD and who agree (i) to
     make no sales within the United States, its territories or its possessions
     or to persons who are citizens thereof or residents therein and (ii) in
     making sales to comply with the NASD's Conduct Rules), to purchase, upon
     the terms herein set forth, either all or a part of the aggregate principal
     amount of Bonds that such defaulting Underwriter had agreed to purchase or
     that portion thereof that the remaining Underwriters shall not be obligated
     to purchase pursuant to the foregoing clause (a).

     In the event the Issuer shall exercise its rights under (a) and/or (b)
above, the Issuer shall give written notice thereof to the non-defaulting
Underwriters within such further period of 24 hours, and thereupon the Closing
Date shall be postponed for such period, not exceeding three business days, as
the Issuer shall determine.

     In the computation of any period of 24 hours referred to in this Section 7,
there shall be excluded a period of 24 hours in respect of each Saturday, Sunday
or legal holiday that would otherwise be included in such period of time.

     Any action taken by the Issuer or the Company under this Section 7 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Underwriting Agreement. Termination by the Issuer
under this Section 7 shall be without any liability on the part of the Issuer,
the Company or any non-defaulting Underwriter, except as otherwise provided in
Sections 8(a)(vii) and 11 hereof.

     8. Covenants.

     (a) Covenants of the Issuer. The Issuer covenants and agrees with the
several Underwriters that:

          (i) The Issuer will upon request promptly deliver to the
     Representatives and Counsel to the Underwriters a signed copy of the
     Registration Statement as originally filed or, to the extent a signed copy
     is not available, a conformed copy, certified by an officer of the Issuer
     to be in the form as originally filed, including all Incorporated Documents
     and exhibits and all amendments thereto.



                                       -12-


          (ii) The Issuer will deliver to the Underwriters, as soon as
     practicable after the date hereof, as many copies of the Final Prospectus
     as they may reasonably request.

          (iii) The Issuer will cause the Final Prospectus to be filed with the
     Commission pursuant to Rule 424 as soon as practicable and advise the
     Underwriters of any stop order suspending the effectiveness of the
     Registration Statement or the institution of any proceeding therefor of
     which Issuer shall have received notice. The Issuer will use its reasonable
     best efforts to prevent the issuance of any such stop order and, if issued,
     to obtain as soon as possible the withdrawal thereof. The Issuer has
     complied and will comply with Rule 433 under the Securities Act in
     connection with the offering of the Bonds.

          (iv) If, during such period of time (not exceeding nine months) after
     the Final Prospectus has been filed with the Commission pursuant to Rule
     424 as in the opinion of Counsel for the Underwriters a prospectus covering
     the Bonds is required by law to be delivered in connection with sales by an
     Underwriter or dealer (including in circumstances where such requirement
     may be satisfied pursuant to Rule 172 under the Securities Act), any event
     relating to or affecting the Issuer, the Bonds or the Series A Transition
     Property or of which the Issuer shall be advised in writing by the
     Representatives shall occur that in the Issuer's reasonable judgment after
     consultation with Counsel for the Underwriters (as defined below) should be
     set forth in a supplement to, or an amendment of, the Final Prospectus in
     order to make the Final Prospectus not misleading in the light of the
     circumstances when it is delivered to a purchaser (including in
     circumstances where such requirement may be satisfied pursuant to Rule 172
     under the Securities Act), the Issuer will, at its expense, amend or
     supplement the Final Prospectus by either (A) preparing and furnishing to
     the Underwriters at the Issuer's expense a reasonable number of copies of a
     supplement or supplements or an amendment or amendments to the Final
     Prospectus or (B) making an appropriate filing pursuant to Section 13 or
     Section 15 of the Exchange Act, which will supplement or amend the Final
     Prospectus so that, as supplemented or amended, it will not contain any
     untrue statement of a material fact or omit to state any material fact
     necessary in order to make the statements therein, in the light of the
     circumstances when the Final Prospectus is delivered to a purchaser
     (including in circumstances where such requirement may be satisfied
     pursuant to Rule 172 under the Securities Act), not misleading; provided
     that should such event relate solely to the activities of any of the
     Underwriters, then such Underwriters shall assume the expense of preparing
     and furnishing any such amendment or supplement.

          (v) As soon as practicable, but not later than 16 months, after the
     date hereof, the Issuer will make generally available to its security
     holders, an earnings statement (which need not be audited) that will
     satisfy the provisions of Section 11(a) of the Securities Act.


                                       -13-


          (vi) The Issuer will furnish such proper information as may be
     lawfully required and otherwise cooperate in qualifying the Bonds for offer
     and sale under the blue-sky laws of such jurisdictions as the
     Representatives may designate; provided that the Issuer shall not be
     required to qualify as a foreign limited liability company or dealer in
     securities, to file any consents to service of process under the laws of
     any jurisdiction, or meet any other requirements deemed by the Issuer to be
     unduly burdensome.

          (vii) The Issuer or the Company will, except as herein provided, pay
     or cause to be paid all expenses and taxes (except transfer taxes) in
     connection with (i) the preparation and filing by it of the Registration
     Statement, Pricing Prospectus and Final Prospectus, (ii) the issuance and
     delivery of the Bonds as provided in Section 7 hereof (including, without
     limitation, reasonable fees and disbursements of Counsel for the
     Underwriters and all trustee, rating agency and PUCT financial advisor
     fees), (iii) the qualification of the Bonds under blue-sky laws (including
     counsel fees not to exceed $20,000), and (iv) the printing and delivery to
     the Underwriters of reasonable quantities of the Registration Statement
     and, except as provided in Section 8(a)(iv) hereof, of the Pricing
     Prospectus and Final Prospectus. The Issuer shall not, however, be required
     to pay any amount for any expenses of the Underwriters or for any fees and
     expenses of counsel for the PUCT financial advisor, except that, if this
     Underwriting Agreement shall be terminated in accordance with the
     provisions of Section 7 (but excluding terminations arising thereunder out
     of an Underwriter default), 9 or 13 hereof, the Issuer will reimburse the
     Underwriters for the reasonable fees and disbursements of Counsel for the
     Underwriters, and will reimburse the Underwriters for their reasonable
     out-of-pocket expenses, in an aggregate amount not exceeding $200,000,
     incurred in contemplation of the performance of this Underwriting
     Agreement. The Issuer shall not in any event be liable to any of the
     several Underwriters for damages on account of loss of anticipated profits.

          (viii) During the period from the date of this Underwriting Agreement
     to the date that is five days after the Closing Date, the Issuer will not,
     without the prior written consent of the Representatives, offer, sell or
     contract to sell, or otherwise dispose of, directly or indirectly, or
     announce the offering of, any asset-backed securities (other than the
     Bonds).

          (ix) To the extent, if any, that any rating necessary to satisfy the
     condition set forth in Section 9(z) of this Underwriting Agreement is
     conditioned upon the furnishing of documents or the taking of other actions
     by the Issuer on or after the Closing Date, the Issuer shall furnish such
     documents and take such other actions.

          (x) The Issuer will file with the Commission a report on Form 8-K
     setting forth all Computational Materials and ABS Term Sheets (as such
     terms are hereinafter defined) provided to the Issuer by any Underwriter
     and identified by it as such within the time period allotted for such
     filing pursuant to the No-Action Letters (as hereinafter defined);
     provided, however, that, prior to any filing of the


                                       -14-


     Computational Materials and ABS Term Sheets by the Issuer, such Underwriter
     must comply with its obligations pursuant to Section 8A hereof, and the
     Issuer must receive, prior to the Closing Date, an agreed upon procedures
     report from Deloitte & Touche LLP as determined by the Issuer and such
     Underwriter. The Issuer shall file any corrected Computational Materials or
     ABS Terms Sheets described in Section 8A hereof as soon as practicable
     following receipt thereof.

          (xi) For a period from the date of this Underwriting Agreement until
     the retirement of the Bonds or until such time as the Underwriters shall
     cease to maintain a secondary market in the Bonds, whichever occurs first,
     the Issuer shall file with the Commission, and to the extent permitted by
     and consistent with the Issuer's obligations under applicable law, make
     available on the website associated with the Issuer's parent, such periodic
     reports, if any, as are required (without regard to the number of holders
     of Bonds to the extent permitted by and consistent with the Issuer's
     obligations under applicable law) from time to time under Section 13 or
     Section 15(d) of the Exchange Act, and the Issuer shall not voluntarily
     suspend or terminate its filing obligations with the Commission. The Issuer
     shall also, to the extent permitted by and consistent with the Issuer's
     obligations under applicable law, include in the periodic and other reports
     to be filed with the Commission as provided above, such information as
     required by Section 3.07(d) of the Indenture with respect to the Bonds. To
     the extent that the Issuer's obligations are terminated or limited by an
     amendment to Section 3.07(d) of the Indenture, or otherwise, such
     obligations shall be correspondingly terminated or limited hereunder.

          (xii) The Issuer will not file any amendment to the Registration
     Statement or amendment or supplement to the Final Prospectus during the
     period when a prospectus relating to the Bonds is required to be delivered
     under the Securities Act, without prior notice to the Underwriters, or to
     which Thelen Reid & Priest LLP, who are acting as counsel for the
     Underwriters ("Counsel for the Underwriters"), shall reasonably object in
     writing.

          (xiii) The Issuer agrees that, unless it has obtained or will obtain,
     as the case may be, the prior written consent of the Representatives, and
     each Underwriter, severally and not jointly, agrees with the Issuer and
     Company that, unless it has obtained or will obtain, as the case may be,
     the prior written consent of the Company or Issuer and the Representatives,
     it has not made and will not make any offer relating to the Bonds that
     would constitute an Issuer Free Writing Prospectus or that would otherwise
     constitute a Free Writing Prospectus required to be filed by the Issuer
     with the Commission or retained by the Issuer under Rule 433 under the
     Securities Act; provided that (a) the prior written consent of the parties
     hereto shall be deemed to have been given in respect of the Free Writing
     Prospectus identified in item 1 in Schedule IV hereto and (b) any such
     consent by the Company, the Issuer or the Representatives may be given
     orally by authorized representatives with respect to the pricing sheet
     containing the final terms of the Bonds, dated December 9, 2005. Any such
     Free Writing Prospectus consented to by the Representatives or the Issuer
     (or Company) is hereinafter referred to as a


                                       -15-


     "Issuer Permitted Free Writing Prospectus." The Issuer agrees that (x) it
     has treated and will treat, as the case may be, each Issuer Permitted Free
     Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has
     complied and will comply, as the case may be, with the requirements of
     Rules 164 and 433 under the Securities Act applicable to any Issuer
     Permitted Free Writing Prospectus, including in respect of timely filing
     with the Commission where required, legending and record keeping.

     (b) Covenants of the Company. The Company covenants and agrees with the
several Underwriters that, to the extent that the Issuer has not already
performed such act pursuant to Section 8(a):

          (i) To the extent permitted by applicable law and the agreements and
     instruments that bind the Company, the Company will use its reasonable best
     efforts to cause the Issuer to comply with the covenants set forth in
     Section 8(a) hereof.

          (ii) The Company will use its reasonable best efforts to prevent the
     issuance by the Commission of any stop order suspending the effectiveness
     of the Registration Statement and, if issued, to obtain as soon as possible
     the withdrawal thereof.

          (iii) If, during such period of time (not exceeding nine months) after
     the Final Prospectus has been filed with the Commission pursuant to Rule
     424 as in the opinion of Counsel for the Underwriters a prospectus covering
     the Bonds is required by law to be delivered in connection with sales by an
     Underwriter or dealer, any event relating to or affecting the Company, the
     Bonds or the Series A Transition Property or of which the Company shall be
     advised in writing by the Representatives shall occur that in the Company's
     reasonable judgment after consultation with Counsel for the Underwriters
     should be set forth in a supplement to, or an amendment of, the Final
     Prospectus in order to make the Final Prospectus not misleading in the
     light of the circumstances when it is delivered to a purchaser, the Company
     will cause the Issuer, at the Company's or the Issuer's expense, to amend
     or supplement the Final Prospectus by either (A) preparing and furnishing
     to the Underwriters at the Company's or the Issuer's expense a reasonable
     number of copies of a supplement or supplements or an amendment or
     amendments to the Final Prospectus or (B) causing the Issuer to make an
     appropriate filing pursuant to Section 13 or Section 15 of the Exchange
     Act, which will supplement or amend the Final Prospectus so that, as
     supplemented or amended, it will not contain any untrue statement of a
     material fact or omit to state any material fact necessary in order to make
     the statements therein, in the light of the circumstances when the Final
     Prospectus is delivered to a purchaser, not misleading; provided that
     should such event relate solely to the activities of any of the
     Underwriters, then such Underwriters shall assume the expense of preparing
     and furnishing any such amendment or supplement.


                                       -16-


          (iv) During the period from the date of this Underwriting Agreement to
     the date that is five days after the Closing Date, the Company will not,
     without the prior written consent of the Representatives, offer, sell or
     contract to sell, or otherwise dispose of, directly or indirectly, or
     announce the offering of, any asset-backed securities (other than the
     Bonds).

          (v) The Company will cause the proceeds for the issuance and sale of
     the Bonds to be applied for the purposes described in the Pricing
     Prospectus.

          (vi) To the extent, if any, that any rating necessary to satisfy the
     condition set forth in Section 9(z) of this Underwriting Agreement is
     conditioned upon the furnishing of documents or the taking of other actions
     by the Company on or after the Closing Date, the Company shall furnish such
     documents and take such other actions.

     8A. Obligations of Underwriters Relating to Computational Materials and
Terms Sheets. In connection with the offering of the Bonds, each Underwriter may
prepare and provide to prospective investors (x) items similar to computational
materials ("Computational Materials"), as defined in the no-action letter of May
20, 1994 issued by the Commission to Kidder, Peabody Acceptance Corporation I,
Kidder, Peabody & Co. Incorporated and Kidder Structured Asset Corporation, as
made applicable to other issuers and underwriters by the Commission in response
to the request of the Public Securities Association dated May 24, 1994, as well
as the no-action letter of February 17, 1995 issued by the Commission to the
Public Securities Association (the "PSA Letter") (collectively, the "No-Action
Letters") and (y) items similar to ABS term sheets ("ABS Term Sheets") as
defined in the PSA Letter, subject to the following conditions:

          (a) All Computational Materials and ABS Term Sheets provided to
     prospective investors that are required to be filed pursuant to the
     No-Action Letters shall include a legend substantially in the form attached
     hereto as Schedule III. The Issuer shall have the right to require
     additional specific legends or notations to appear on any Computational
     Materials or ABS Term Sheets, the right to require changes regarding the
     use of terminology and the right to determine the types of information
     appearing therein. Notwithstanding the foregoing, this Section 8A(a) will
     be satisfied if all Computational Materials and ABS Term Sheets referred to
     herein bear a legend in a form previously approved by the Issuer.

          (b) Such Underwriter shall provide to the Issuer, for approval by the
     Issuer, representative forms of all Computational Materials and ABS Term
     Sheets prior to their first use, to the extent such forms have not
     previously been approved by the Issuer for use by such Underwriter. Such
     Underwriter shall provide to the Issuer, for filing on Form 8-K as provided
     in Section 8(a)(x) hereof, copies (in such format as required by the
     Issuer) of all Computational Materials and ABS Term Sheets that are
     required to be filed with the Commission pursuant to the No-Action Letters.
     Such Underwriter may provide copies of the foregoing in a consolidated or
     aggregated form including all information required to be filed if filing in
     such format is permitted by the No-Action Letters. All Computational
     Materials and ABS Term Sheets described in this Section 8A(b) must be


                                       -17-


     provided to the Issuer no later than 10:00 a.m. New York City time one
     business day before filing thereof is required pursuant to the terms of
     this Underwriting Agreement. Such Underwriter shall not provide to any
     investor or prospective investor in the Bonds any Computational Materials
     or ABS Term Sheets on or after the day on which Computational Materials or
     ABS Term Sheets are required to be provided to the Issuer pursuant to this
     Section 8A(b) (other than copies of Computational Materials or ABS Term
     Sheets previously submitted to the Issuer in accordance with this Section
     8A(b) for filing pursuant to Section 8(a)(x) hereof), unless such
     Computational Materials or ABS Term Sheets are preceded or accompanied by
     the delivery of a Pricing Prospectus to such investor or prospective
     investor. No Underwriter may, without the prior consent of the Company or
     the Issuer, convey or deliver any Computational Materials or ABS Term
     Sheets in connection with the offering of the Bonds.

          (c) All information included in the Computational Materials and ABS
     Term Sheets shall be generated based on substantially the same methodology
     and assumptions that are used to generate the information in the
     Registration Statement as set forth therein. If any Computational Materials
     or ABS Term Sheets are based on assumptions with respect to the
     information, whether in written or electronic format or otherwise,
     regarding the Series A Transition Property initially provided to the
     Underwriters by or on behalf of the Company or the Issuer (the "Transition
     Property Information") that differ from the final Transition Property
     Information in any material respect or on Bond structuring terms that were
     revised in any material respect prior to the printing of the Final
     Prospectus, the Underwriters shall prepare revised Computational Materials
     or ABS Term Sheets, as the case may be, based on the final Transition
     Property Information and structuring assumptions, deliver with the Final
     Prospectus such revised Computational Materials and ABS Term Sheets to each
     recipient of the preliminary versions thereof that indicated orally to any
     Underwriter that such recipient would purchase all or any portion of the
     Bonds, and include such revised Computational Materials and ABS Term Sheets
     (marked "AS REVISED") in the materials delivered to the Issuer pursuant to
     Section 8A(b) hereof. The expenses of each Underwriter relating to the
     preparation and transmission of its Computational Material and ABS Term
     Sheets, including, without limitation, fees and expenses of accountants,
     shall be the responsibility of the Issuer.

          (d) The Issuer shall not be obligated to file any Computational
     Materials or ABS Term Sheets that have been determined to contain any
     material error or omission; provided, that, at the request of any
     Underwriter, the Issuer will file Computational Materials or ABS Term
     Sheets that contain a material error or omission if clearly marked
     "SUPERSEDED BY MATERIALS DATED _______________" and accompanied by
     corrected Computational Materials or ABS Term Sheets that are marked
     "MATERIAL PREVIOUSLY DATED ____________ AS CORRECTED". If, within the
     period during which a prospectus relating to the Bonds is required to be
     delivered under the Securities Act, any Computational Materials or ABS Term
     Sheets are determined, in the reasonable judgment of the Issuer or such
     Underwriter, to contain a material error or omission, such Underwriter
     shall prepare a corrected version of such Computational Materials or ABS
     Term Sheets, shall circulate such corrected Computational Materials or ABS
     Term Sheets to all recipients of the prior versions thereof that either
     indicated orally to such Underwriter they would purchase all or any portion
     of the Bonds, or actually purchased


                                       -18-


     all or any portion thereof, and shall deliver copies of such corrected
     Computational Materials or ABS Term Sheets (marked "AS CORRECTED") to the
     Issuer for filing with the Commission in a subsequent Form 8-K submission
     (subject to the Issuer's obtaining an accountant's agreed upon procedures
     report in respect of such corrected Computational Materials and ABS Term
     Sheets, which the parties acknowledge shall be at the expense of the
     Issuer).

          (e) Each Underwriter shall be deemed to have represented, as of the
     Closing Date, that, except for Computational Materials and ABS Term Sheets
     provided to the Issuer pursuant to Section 8A(b) hereof, such Underwriter
     did not provide any prospective investors with any information in written
     or electronic form in connection with the offering of the Bonds that is
     required to be filed with the Commission in accordance with the No-Action
     Letters.

          (f) In the event of any delay in the delivery by any Underwriter to
     the Issuer of all Computational Materials and ABS Term Sheets required to
     be delivered in accordance with Section 8A(b) hereof, or in the delivery of
     the accountant's agreed upon procedures report in respect thereof pursuant
     to Section 8(a)(x) hereof, the Issuer shall have the right to delay the
     release of the Final Prospectus to investors or to any Underwriter, to
     delay the Closing Date and to take other appropriate actions, in each case
     set forth in Section 8(a)(x) hereof, to file the Computational Materials
     and ABS Term Sheets by the time specified therein.

          (g) Each Underwriter represents that it has in place, and covenants
     that it shall maintain, internal controls and procedures that it reasonably
     believes to be sufficient to ensure full compliance with all applicable
     legal requirements of the No-Action Letters with respect to the generation
     and use of Computational Materials and ABS Term Sheets in connection with
     the offering of the Bonds.

     9. Conditions to the Obligations of the Underwriters. The obligations of
the Underwriters to purchase the Bonds shall be subject to the accuracy of the
representations and warranties on the part of the Issuer and the Company
contained in this Underwriting Agreement, on the part of the Company contained
in Article III of the Sale Agreement, and on the part of the Company contained
in Section 5.01 of the Servicing Agreement as of the Closing Date, to the
accuracy of the statements of the Issuer and the Company made in any
certificates pursuant to the provisions hereof, to the performance by the Issuer
and the Company of their obligations hereunder, and to the following additional
conditions:

          (a) The Final Prospectus shall have been filed with the Commission
     pursuant to Rule 424 prior to 5:30 P.M., New York time, on the second
     business day after the date of this Underwriting Agreement, or such other
     time and date as may be approved by the Underwriters. In addition, all
     material required to be filed by the Issuer or Company pursuant to Rule
     433(d) under the Securities Act that was prepared by either of them or that
     was prepared by any Underwriter and timely provided to the Issuer or the
     Company shall have been filed with the Commission within the applicable
     time period prescribed for such filing by such Rule 433(d).


                                       -19-


          (b) No stop order suspending the effectiveness of the Registration
     Statement shall be in effect, and no proceedings for that purpose shall be
     pending before, or threatened by, the Commission on the Closing Date; and
     the Underwriters shall have received one or more certificates, dated the
     Closing Date and signed by an officer of the Company and the Issuer, as
     appropriate, to the effect that no such stop order is in effect and that no
     proceedings for such purpose are pending before, or to the knowledge of the
     Company or the Issuer, as the case may be, threatened by, the Commission.

          (c) Thelen Reid & Priest LLP, counsel for the Underwriters, shall have
     furnished to the Representatives their written opinion (substantially in
     the form attached as Annex I (a) hereto), dated the Closing Date, with
     respect to the issuance and sale of the Bonds, the Indenture, the other
     Issuer Documents, the Registration Statement and other related matters; and
     such counsel shall have received such papers and information as they may
     reasonably request to enable them to pass upon such matters.

          (d) Richards, Layton & Finger, P.A., special Delaware counsel for the
     Company and the Issuer, shall have furnished to the Representatives their
     written opinion (substantially in the form attached as Annex I (b) hereto),
     dated the Closing Date, regarding the filing of a voluntary bankruptcy
     petition.

          (e) Richards, Layton & Finger, P.A., special Delaware counsel for the
     Company and the Issuer, shall have furnished to the Representatives their
     written opinion (substantially in the form attached as Annex I (c) hereto),
     dated the Closing Date, regarding certain Delaware Uniform Commercial Code
     matters.

          (f) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (d) hereto), dated the Closing Date,
     regarding certain aspects of the transactions contemplated by the Issuer
     Documents.

          (g) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (e) hereto), dated the Closing Date, to the
     effect that a court sitting in bankruptcy would not order the substantive
     consolidation of the assets and liabilities of the Issuer with those of the
     Company in connection with a bankruptcy, reorganization or other insolvency
     proceeding involving the Company; that if the Company were to become a
     debtor in such insolvency proceeding, such court would hold that the
     Transition Property is not property of the estate of the Company.

          (h) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (f) hereto), dated the Closing Date,
     regarding certain Federal and Texas constitutional matters relating to the
     Series A Transition Property.

          (i) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (g) hereto), dated the Closing Date,
     regarding certain tax matters.



                                      -20-

          (j) In-house counsel for the Company and the Issuer, shall have
     furnished to the Representatives their written opinion (substantially in
     the form attached as Annex I (h) hereto), dated the Closing Date, regarding
     certain aspects of the transactions contemplated by the Issuer Documents.

          (k) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (i) hereto), dated the Closing Date, with
     respect to the characterization of the transfer of the Series A Transition
     Property by the Company to the Issuer as a "true sale" for Texas law
     purposes.

          (l) Baker Botts L.L.P. and Morris, James, Hitchens & Williams LLP,
    counsel for the Issuer and the Company, shall have furnished to the
    Representatives its written respective opinions (substantially in the form
    attached as Annex I (j) hereto), dated the Closing Date, to the effect that
    the Series A Transition Property is not subject to the lien of the Company's
    Mortgage and Deed of Trust, dated as of November 1, 1944.

          (m) Winston & Strawn LLP and Morris, James, Hitchens & Williams LLP,
     counsel for the Indenture Trustee, shall have furnished to the
     Representatives their written opinions (each substantially in the form
     attached as Annex I (k) hereto), dated the Closing Date, regarding certain
     matters relating to the Indenture Trustee.

          (n) Baker Botts L.L.P., counsel for the Company and the Issuer, shall
     have furnished to the representatives their opinion (substantially in the
     form attached as Annex I (l) hereto), dated the Closing Date, regarding
     certain Texas regulatory issues.

          (o) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (m) hereto), dated the Closing Date,
     regarding the Trustee's security interest under the Uniform Commercial
     Code.

          (p) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (n) hereto), dated the Closing Date,
     regarding certain Texas perfection and priority issues.

          (q) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (o) hereto), dated the Closing Date,
     regarding bankruptcy and corporate governance matters.

          (r) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (p) hereto), dated the Closing Date,
     regarding certain bankruptcy matters relating to the Issuer LLC Agreement.

          (s) Richards, Layton & Finger, P.A., counsel for the Issuer and the
     Company, shall have furnished to the Representatives their written opinion
     (substantially in the form


                                       -21-


     attached as Annex I (q) hereto), dated the Closing Date, regarding certain
     matters of Delaware law.

          (t) Baker Botts L.L.P., counsel for the Issuer and the Company, shall
     have furnished to the Representatives their written opinion (substantially
     in the form attached as Annex I (r) hereto), dated the Closing Date,
     regarding the constitutionality under the United States Constitution of the
     Texas Electric Choice Plan (Tex. Util. Code Ann. Sections 11.001-64.158).

          (u) On or before the Closing Date, Deloitte & Touche LLP shall have
     furnished to the Representatives one or more agreed upon procedure reports
     regarding certain calculations and computations relating to the Bonds, in
     form or substance reasonably satisfactory to the Representatives, in each
     case in respect of which the Representatives shall have made specific
     requests therefor and shall have provided acknowledgment or similar letters
     to Deloitte & Touche LLP reasonably necessary in order for Deloitte &
     Touche LLP to issue such reports.

          (v) Subsequent to the respective dates as of which information is
     given in each of the Registration Statement, the Pricing Prospectus and the
     Final Prospectus, there shall not have been any change specified in the
     letters required by subsection (u) of this Section 9 which is, in the
     judgment of the Representatives, so material and adverse as to make it
     impracticable or inadvisable to proceed with the offering or the delivery
     of the Bonds as contemplated by the Registration Statement and the Final
     Prospectus.

          (w) The Issuer LLC Agreement, the Administrative Agreement, the
     Intercreditor Agreement, the Sale Agreement, the Servicing Agreement and
     the Indenture and any amendment or supplement to any of the foregoing shall
     have been executed and delivered.

          (x) Since the respective dates as of which information is given in
     each of the Registration Statement and in the Pricing Prospectus and as of
     the Closing Date there shall have been no (i) material adverse change in
     the business, property or financial condition of the Company and its
     subsidiaries, taken as a whole, whether or not in the ordinary course of
     business, or the Issuer or (ii) adverse development concerning the business
     or assets of the Company and its subsidiaries, taken as a whole, or the
     Issuer which would be reasonably likely to result in a material adverse
     change in the prospective business, property or financial condition of the
     Company and its subsidiaries, taken as a whole, whether or not in the
     ordinary course of business, or the Issuer or (iii) development which would
     be reasonably likely to result in a material adverse change, in the Series
     A Transition Property, the Bonds or the Financing Order.

          (y) At the Closing Date, (i) the Bonds shall be rated at least "Aaa",
     "AAA", and "AAA" by Moody's Investors Service, Inc. ("Moody's"), Standard &
     Poor's, a division of the McGraw-Hill Companies, Inc. ("S&P") and Fitch,
     Inc. ("Fitch"), respectively, and the Issuer shall have delivered to the
     Underwriters a letter from each such rating agency, or other evidence
     satisfactory to the Underwriters, confirming that the Bonds have such
     ratings, and (ii) neither Moody's, S&P nor Fitch shall have, since the

                                      -22-


     date of this Underwriting Agreement, downgraded or publicly announced that
     it has under surveillance or review, with possible negative implications,
     its ratings of the Bonds.

          (z) The Issuer and the Company shall have furnished or caused to be
     furnished to the Representatives at the Closing Date certificates of
     officers of the Company and the Issuer, reasonably satisfactory to the
     Representatives, as to the accuracy of the representations and warranties
     of the Issuer and the Company herein, in the Sale Agreement, Servicing
     Agreement and the Indenture at and as of the Closing Date, as to the
     performance by the Issuer and the Company of all of their obligations
     hereunder to be performed at or prior to such Closing Date, as to the
     matters set forth in subsections (b) and (x) of this Section and as to such
     other matters as the Representatives may reasonably request.

          (aa) An issuance advice letter, in a form consistent with the
     provisions of the Financing Order, shall have been filed with the PUCT and
     shall have become effective.

          (bb) On or prior to the Closing Date, the Issuer shall have delivered
     to the Representatives evidence, in form and substance reasonably
     satisfactory to the Representatives, that appropriate filings have been or
     are being made in accordance with the Restructuring Act, the Financing
     Order and other applicable law reflecting the grant of a security interest
     by the Issuer in the collateral relating to the Bonds to the Indenture
     Trustee, including the filing of the requisite notices in the office of the
     Secretary of State of the State of Texas.

          (cc) On or prior to the Closing Date, the Company shall have funded
     the capital subaccount of the Issuer with cash in an amount equal to
     $9,255,000.

          (dd) The Issuer and the Company shall have furnished or caused to be
     furnished or agree to furnish to the Rating Agencies at the Closing Date
     such opinions and certificates as the Rating Agencies may reasonably
     request.

          (ee) On or prior to the Closing Date, the Issuer and the Company shall
     have furnished to the Underwriters such further certificates as the
     Underwriters may reasonably request, including such certificates as the
     Representatives may reasonably request to evidence the authorization and
     execution of any interest rate swap agreement entered into in connection
     with any class of floating rate Bonds and the qualification or listing of
     any floating rate Bonds as contemplated by the Final Prospectus.

     10. Conditions of Issuer's Obligations. The obligation of the Issuer to
deliver the Bonds shall be subject to the conditions that the Final Prospectus
shall have been filed with the Commission pursuant to Rule 424 prior to 5:30
P.M., New York time, on or before the second business day after the date of this
Underwriting Agreement or such other time and date as may be approved by the
Issuer, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect at the Closing Date and no proceedings for that
purpose shall be pending before, or threatened by, the Commission at the Closing
Date. In case these conditions shall not have been fulfilled, this Underwriting
Agreement may be terminated by the


                                       -23-


     Issuer upon notice thereof to the Underwriters. Any such termination shall
     be without liability of any party to any other party except as otherwise
     provided in Sections 8(a)(vii) and 11 hereof.

          11. Indemnification and Contribution.

          (a) The Company and the Issuer, jointly and severally, shall
     indemnify, defend and hold harmless each Underwriter, each Underwriter's
     officers and directors and each person who controls any Underwriter within
     the meaning of Section 15 of the Securities Act from and against any and
     all losses, claims, damages or liabilities, joint or several, to which they
     or any of them may become subject under the Securities Act or any other
     statute or common law and shall reimburse each such Underwriter and
     controlling person for any reasonable legal or other expenses (including,
     to the extent hereinafter provided, reasonable counsel fees) as and when
     incurred by them in connection with investigating any such losses, claims,
     damages or liabilities or in connection with defending any actions, insofar
     as such losses, claims, damages, liabilities, expenses or actions arise out
     of or are based upon (i) any untrue statement or alleged untrue statement
     of a material fact contained in the Registration Statement or any omission
     or alleged omission to state therein a material fact required to be stated
     therein or necessary to make the statements therein not misleading or (ii)
     any untrue statement or alleged untrue statement of a material fact
     contained in the Pricing Prospectus, the Final Prospectus and, together
     with the Pricing Prospectus, the Issuer Free Writing Prospectuses,
     collectively (but not with regard to the principal amount of the Bonds, the
     tranches, the initial principal balances, the scheduled final payment
     dates, the final maturity dates, the expected average lives, the Expected
     Amortization Schedule and the Expected Sinking Fund Schedule described in
     the Pricing Prospectus as subject to change based on market conditions, and
     the interest rate, price to the public and underwriting discounts and
     commissions for each tranche, which were not included in the Pricing
     Prospectus), or any omission or alleged omission to state therein a
     material fact necessary to make the statements therein, in the light of the
     circumstances under which they were made, not misleading; provided,
     however, that the indemnity agreement contained in this Section 11 shall
     not apply to any such losses, claims, damages, liabilities, expenses or
     actions arising out of, or based upon, any such untrue statement or alleged
     untrue statement, or any such omission or alleged omission, if such
     statement or omission was made in reliance upon and in conformity with
     information furnished in writing to the Issuer or Company by any
     Underwriter, through the Representatives, expressly for use in connection
     with the preparation of the Registration Statement, the Pricing Prospectus,
     the Final Prospectus or any Issuer Free Writing Prospectus or any amendment
     or supplement to either thereof, or arising out of, or based upon,
     statements in or omissions from that part of the Registration Statement
     that shall constitute the Statement of Eligibility under the Trust
     Indenture Act of the Indenture Trustee with respect to any indenture
     qualified pursuant to the Registration Statement; and provided further,
     that the indemnity agreement contained in this Section 11 shall not inure
     to the benefit of any Underwriter (or of any officer or director of such
     Underwriter or of any person controlling such Underwriter within the
     meaning of Section 15 of the Securities Act) on account of any such losses,
     claims, damages, liabilities, expenses or actions, joint or several,
     arising from the sale of the Bonds to any person if a copy of the Pricing
     Prospectus (including any amendment or supplement thereto if any amendments
     or supplements thereto shall have been furnished to the Underwriters at or
     prior to the time of the sale


                                      -24-



     involved) (exclusive of the Incorporated Documents) shall not have been
     given or sent to such person by or on behalf of such Underwriter with or
     prior to the sale of the Bonds to such person unless the alleged omission
     or alleged untrue statement was not corrected in the Pricing Prospectus
     (including any amendment or supplement thereto if any amendments or
     supplements thereto shall have been furnished to the Underwriters at or
     prior to the time of the sale involved) at the time of such sale. The
     indemnity agreement of the Company and Issuer contained in this Section 11
     and the representations and warranties of the Issuer and Company contained
     in Sections 3 and 4 hereof shall remain operative and in full force and
     effect regardless of any termination of this Underwriting Agreement or of
     any investigation made by or on behalf of any Underwriter, its officers or
     its directors or any such controlling person, and shall survive the
     delivery of the Bonds.

          (b) Each Underwriter shall severally indemnify, defend and hold
     harmless the Company and the Issuer, each of the Company's and Issuer's
     officers, directors, and managers, and each person who controls the Issuer
     or Company within the meaning of Section 15 of the Securities Act, from and
     against any and all losses, claims, damages or liabilities, joint or
     several, to which they or any of them may become subject under the
     Securities Act or any other statute or common law and shall reimburse each
     of them for any reasonable legal or other expenses (including, to the
     extent hereinafter provided, reasonable counsel fees) as and when incurred
     by them in connection with investigating any such losses, claims, damages
     or liabilities or in connection with defending any actions, insofar as such
     losses, claims, damages, liabilities, expenses or actions arise out of or
     are based upon (i) any untrue statement or alleged untrue statement of a
     material fact contained in the Registration Statement or any omission or
     alleged omission to state therein a material fact required to be stated
     therein or necessary to make the statements therein not misleading or (ii)
     any untrue statement or alleged untrue statement of a material fact
     contained in the the Final Prospectus and, together with the Pricing
     Prospectus, the Issuer Free Writing Prospectuses, collectively (but not
     with regard to the principal amount of the Bonds, the tranches, the initial
     principal balances, the scheduled final payment dates, the final maturity
     dates, the expected average lives, the Expected Amortization Schedule and
     the Expected Sinking Fund Schedule described in the Pricing Prospectus as
     subject to change based on market conditions, and the interest rate, price
     to the public and underwriting discounts and commissions for each tranche,
     which were not included in the Pricing Prospectus) or any omission or
     alleged omission to state therein a material fact necessary to make the
     statements therein, in the light of the circumstances under which they were
     made, not misleading; if such statement or omission was made in reliance
     upon and in conformity with information furnished in writing to the Company
     or Issuer by such Underwriter, through the Representatives, expressly for
     use in connection with the preparation of the Registration Statement, the
     Pricing Prospectus, the Final Prospectus or any Issuer Free Writing
     Prospectus or any amendment or supplement to any of them. The only
     information furnished to the Company by the Underwriters in writing
     expressly for use in such foregoing documents is set forth in Schedule V
     hereto. The indemnity agreement of the respective Underwriters contained in
     this Section 11 and the representations and warranties of the Underwriters
     contained in Section 5 hereof shall remain operative and in full force and
     effect regardless of any termination of this Underwriting Agreement or of
     any investigation made by or on behalf of the Company or the Issuer, their
     directors, managers or officers, any such Underwriter, or any such
     controlling person, and shall survive the delivery of the Bonds.

          (c) The Company and the several Underwriters each shall, upon the
     receipt of notice of the commencement of any action against it or any
     person controlling it as aforesaid, in respect of which indemnity may be
     sought on account of any indemnity


                                       -25-

     agreement contained herein, promptly give written notice of the
     commencement thereof to the party or parties against whom indemnity shall
     be sought under (a) or (b) above, but the failure to notify such
     indemnifying party or parties of any such action shall not relieve such
     indemnifying party or parties from any liability hereunder to the extent
     such indemnifying party or parties is/are not materially prejudiced as a
     result of such failure to notify and in any event shall not relieve such
     indemnifying party or parties from any liability which it or they may have
     to the indemnified party otherwise than on account of such indemnity
     agreement. In case such notice of any such action shall be so given, such
     indemnifying party shall be entitled to participate at its own expense in
     the defense, or, if it so elects, to assume (in conjunction with any other
     indemnifying parties) the defense of such action, in which event such
     defense shall be conducted by counsel chosen by such indemnifying party or
     parties and reasonably satisfactory to the indemnified party or parties who
     shall be defendant or defendants in such action, and such defendant or
     defendants shall bear the fees and expenses of any additional counsel
     retained by them; but if the indemnifying party shall elect not to assume
     the defense of such action, such indemnifying party will reimburse such
     indemnified party or parties for the reasonable fees and expenses of any
     counsel retained by them; provided, however, if the defendants in any such
     action (including impleaded parties) include both the indemnified party and
     the indemnifying party and counsel for the indemnifying party shall have
     reasonably concluded that there may be a conflict of interest involved in
     the representation by a single counsel of both the indemnifying party and
     the indemnified party, the indemnified party or parties shall have the
     right to select separate counsel, satisfactory to the indemnifying party,
     whose reasonable fees and expenses shall be paid by such indemnifying
     party, to participate in the defense of such action on behalf of such
     indemnified party or parties (it being understood, however, that the
     indemnifying party shall not be liable for the fees and expenses of more
     than one separate counsel (in addition to local counsel) representing the
     indemnified parties who are parties to such action). Each of the Company,
     Issuer and the several Underwriters agrees that without the other party's
     prior written consent, which consent shall not be unreasonably withheld, it
     will not settle, compromise or consent to the entry of any judgment in any
     claim in respect of which indemnification may be sought under the
     indemnification provisions of this Underwriting Agreement, unless such
     settlement, compromise or consent (i) includes an unconditional release of
     such other party from all liability arising out of such claim and (ii) does
     not include a statement as to or an admission of fault, culpability or a
     failure to act by or on behalf of such other party.

          (d) If the indemnification provided for in subparagraph (a) or (b)
     above shall be unenforceable under applicable law by an indemnified party,
     each indemnifying party agrees to contribute to such indemnified party with
     respect to any and all losses, claims, damages, liabilities and expenses
     for which each such indemnification provided for in subparagraph (a) or (b)
     above shall be unenforceable, in such proportion as shall be appropriate to
     reflect (i) the relative benefits received by the Company and the Issuer on
     the one hand and the Underwriters on the other hand from the offering of
     the Bonds pursuant to this Underwriting Agreement or (ii) if an allocation
     solely on the basis provided by clause (i) is not permitted by applicable
     law or is inequitable or against public policy, in such proportion as is
     appropriate to reflect not only the relative benefits referred to in clause
     (i) above but also the relative fault of each indemnifying party on the


                                       -26-


one hand and the indemnified party on the other in connection with the
statements or omissions which have resulted in such losses, claims, damages,
liabilities and expenses and (iii) any other relevant equitable considerations;
provided, however, that no indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party not guilty of such
fraudulent misrepresentation. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or the indemnified
party and each such party's relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Issuer and each of the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subparagraph (d) were to be
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute in excess of the amount equal to the excess of (i) the
total underwriting discount and commissions received by it, over (ii) the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission. The obligations of each Underwriter to contribute pursuant to this
Section 11 are several and not joint and shall be in the same proportion as such
Underwriter's obligation to underwrite Bonds is to the total number of Bonds set
forth in Schedule II hereto.

     12. Termination. This Underwriting Agreement may be terminated, at any time
prior to the Closing Date with respect to the Bonds by the Representatives by
written notice to the Issuer if after the date hereof and at or prior to the
Closing Date (a) there shall have occurred any general suspension of trading in
securities on the New York Stock Exchange ("NYSE"), the American Stock Exchange,
Inc. ("AMEX") or the NASDAQ Stock Market, Inc. ("NASDAQ") or there shall have
been established by the NYSE, AMEX or NASDAQ or by the Commission any general
limitation on prices for such trading or any general restrictions on the
distribution of securities, or a general banking moratorium declared by New York
or federal authorities or a material disruption in commercial banking or
securities settlement or clearance services in the United States, or (b) there
shall have occurred any (i) material outbreak of hostilities (including, without
limitation, an act of terrorism) or (ii) material other national or
international calamity or crisis, or any material adverse change in financial,
political or economic conditions affecting the United States, including, but not
limited to, an escalation of hostilities that existed prior to the date of this
Underwriting Agreement or (iii) material adverse change in the financial markets
in the United States, and the effect of any such event specified in clause (a)
or (b) above on the financial markets of the United States shall be such as to
make it impracticable or inadvisable, in the reasonable judgment of the
Representatives, to proceed with the public offering or the delivery of the
Bonds on the terms and in the manner contemplated by the Final Prospectus. Any
termination hereof pursuant to this Section 12 shall be without liability of any
party to any other party except as otherwise provided in Sections 8(a)(vii) and
11 hereof.

     13. Absence of Fiduciary Relationship. Each of the Issuer and the Company
acknowledges and agrees that:


                                      -27-


     (a) the Underwriters have been retained solely to act as underwriters in
connection with the sale of the Bonds and that no fiduciary, advisory or agency
relationship between the Underwriters, on one hand, and the Company and/or the
Issuer, on the other hand, has been created in respect of any of the
transactions contemplated by this Underwriting Agreement, irrespective of
whether the Underwriters have advised or are advising the Company and/or the
Issuer on other matters;

     (b) the price of the Bonds was established by the Issuer and the Company
following discussions and arms-length negotiations with the Underwriters, among
others;

     (c) it has been advised that the Underwriters and their affiliates are
engaged in a broad range of transactions which may involve interests that differ
from those of the Issuer and Company and that the Underwriters have no
obligation to disclose such interests and transactions to the Issuer or the
Company by virtue of any fiduciary, advisory or agency relationship; and

     (d) it waives, to the fullest extent permitted by law, any claims it may
have against the Underwriters for breach of fiduciary duty or alleged breach of
fiduciary duty and agrees that the Underwriters shall have no liability (whether
direct or indirect) to the Issuer or the Company in respect of such fiduciary
duty claim or to any person asserting a fiduciary duty claim on behalf of or in
right of the Issuer or the Company including stockholders, employees or
creditors of the Issuer and/or the Company.

     14. Notices. All communications hereunder will be in writing and may be
given by United States mail, courier service, telecopy, telefax or facsimile
(confirmed by telephone or in writing in the case of notice by telecopy, telefax
or facsimile) or any other customary means of communication, and any such
communication shall be effective when delivered, or if mailed, three days after
deposit in the United States mail with proper postage for ordinary mail prepaid,
and if sent to the Representatives, to it at the address specified in Schedule I
hereto; and if sent to the Company, to it at 1111 Louisiana, Houston, Texas
77002, Attention: Marc Kilbride; and if sent to the Issuer, to it at 1111
Louisiana Suite 4655B, Houston, Texas 77002, Attention: Marc Kilbride. The
parties hereto, by notice to the others, may designate additional or different
addresses for subsequent communications.

     15. Successors. This Underwriting Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.

     16. Applicable Law. This Underwriting Agreement will be governed by and
construed in accordance with the laws of the State of New York.

     17. Counterparts. This Underwriting Agreement may be signed in any number
of counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.

     18. Integration. This Agreement supersedes all prior agreements and
understandings (whether written or oral) among the Issuer, the Company and the
Underwriters, or any of them, with respect to the subject matter hereof.


                                      -28-


     If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, the Issuer and the several Underwriters.

                         Very truly yours,

                         CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC


                         By:    /s/ Marc Kilbride
                               ----------------------------------
                         Name:  Marc Kilbride
                         Title: Vice President and Treasurer



                         CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC


                         By:    /s/ Marc Kilbride
                               ----------------------------------
                         Name:  Marc Kilbride
                         Title: Sole Manager



                         The foregoing Underwriting Agreement is
                         hereby confirmed and accepted as of the
                         date specified in Schedule I hereto.


                                      -29-


                         LEHMAN BROTHERS INC.


                         By:    /s/ Damian Harbutt
                               ----------------------------------
                         Name:  Damian Harbutt
                         Title: Managing Director


                         CREDIT SUISSE FIRST BOSTON LLC


                         By:    /s/ Gregory Richter
                               ----------------------------------
                         Name:  Gregory Richter
                         Title: Managing Director


                         GREENWICH CAPITAL MARKETS, INC.

                         By:    /s/ Daniel McGarvey
                               ----------------------------------
                         Name:  Daniel McGarvey
                         Title: Managing Director


                                      -30-


                                   SCHEDULE I


Underwriting Agreement dated December 9, 2005

Registration Statement No. 333-121505

Representatives:

  Credit Suisse First Boston LLC.        Greenwich Capital Markets Inc.
  Lehman Brothers Inc.

c/o
Lehman Brothers Inc.
745 7th Avenue
New York, NY 10019

Attention: Damian Harbutt

Title, Purchase Price and Description of Bonds:

    Title:   CenterPoint Energy Transition Bond Company II, LLC Senior Secured
             Transition Bonds, Series A



                              Total
                            Principal                                     Underwriting
                            Amount of                      Price to       Discounts and
                             Tranche         Bond Rate      Public         Commissions     Proceeds to Issuer
                          --------------     --------      --------       -------------    ------------------
                                                                             
Per Tranche A-1 Bond        $250,000,000      4.840%       99.98928%        0.32500%         $249,160,700
Per Tranche A-2 Bond        $368,000,000      4.970%       99.96013%        0.35000%         $366,565,278
Per Tranche A-3 Bond        $252,000,000      5.090%       99.99640%        0.40000%         $250,982,928
Per Tranche A-4 Bond        $519,000,000      5.170%       99.97450%        0.42000%         $516,687,855
Per Tranche A-5 Bond        $462,000,000      5.302%       100.0000%        0.37546%         $460,265,375

                          =============                                  ===========       ==============
Total                     $1,851,000,000                                 $ 7,022,925       $1,843,662,136



Original Issue Discount (if any):      $314,939

Redemption provisions:                 None

Other provisions:                      None

Closing Date, Time and Location:       December 16, 2005, 10:00 a.m.; offices of
                                       Baker Botts L.L.P.; Houston, Texas


                                       I-1


                                   SCHEDULE II

                    Principal Amount of Bonds to be Purchased




                                        Principal Amount





Underwriter                        Tranche A-1    Tranche A-2      Tranche A-3    Tranche A-4    Tranche A-5         Total
- -----------                        ------------   ------------     ------------   ------------   ------------    --------------
                                                                                               
Lehman Brothers Inc.               $ 65,334,000   $ 95,333,000     $ 74,000,000   $147,333,000   $146,667,000    $  528,667,000
Credit Suisse First Boston LLC     $ 65,333,000   $ 95,334,000     $ 74,000,000   $147,333,000   $146,667,000    $  528,667,000
Greenwich Capital Markets, Inc.    $ 65,333,000   $ 95,333,000     $ 74,000,000   $147,334,000   $146,666,000    $  528,666,000
Barclays Capital Inc.              $  6,000,000   $ 10,000,000     $  6,000,000   $ 14,000,000              -    $   36,000,000
Deutsche Bank Securities Inc.      $  6,000,000   $ 10,000,000     $  6,000,000              -              -    $   22,000,000
Goldman, Sachs & Co.               $  6,000,000   $ 10,000,000     $  6,000,000   $ 14,000,000              -    $   36,000,000
First Albany Capital Inc.          $ 19,000,000   $ 10,500,000     $  6,000,000   $ 34,000,000   $ 12,000,000    $   81,500,000
Loop Capital Markets, LLC                     -   $  5,500,000                -   $  5,000,000              -    $   10,500,000
M.R. Beal & Company                           -   $ 12,000,000                -              -              -    $   12,000,000
Siebert Brandford Shank & Co.,                                                               -              -    $   10,000,000
L.L.C.                             $  6,000,000   $  4,000,000                -
Samuel A. Ramirez & Co., Inc.      $  5,000,000   $ 10,000,000                -   $ 10,000,000   $ 10,000,000    $   35,000,000
SunTrust Capital Markets, Inc.     $  6,000,000   $ 10,000,000     $  6,000,000              -              -    $   22,000,000
              Total                $250,000,000   $368,000,000     $252,000,000   $519,000,000   $462,000,000    $1,851,000,000
                                   ============   ============     ============   ============   ============    ==============





                                  SCHEDULE III


ALL INFORMATION IN THIS PRELIMINARY TERM SHEET IS PRELIMINARY AND SUBJECT TO
CHANGE. A REGISTRATION STATEMENT (REGISTRATION NO. 333-121505) RELATING TO THE
BONDS HAS BEEN FILED WITH THE COMMISSION AND DECLARED EFFECTIVE. THE ISSUER WILL
PREPARE, CIRCULATE AND FILE WITH THE COMMISSION A COMPLETE PROSPECTUS
SUPPLEMENT, WHICH WILL BE ACCOMPANIED BY A BASE PROSPECTUS. YOU SHOULD READ THE
COMPLETE PROSPECTUS SUPPLEMENT AND BASE PROSPECTUS BECAUSE THEY CONTAIN
IMPORTANT INFORMATION. YOU CAN OBTAIN THE REGISTRATION STATEMENT, AND, ONCE
FILED, THE PROSPECTUS SUPPLEMENT AND THE BASE PROSPECTUS FOR FREE AT THE
COMMISSION'S WEB SITE (WWW.SEC.GOV). THIS PRELIMINARY TERM SHEET HAS BEEN
PREPARED SOLELY FOR INFORMATION PURPOSES AND IS NOT AN OFFER TO BUY OR SELL OR A
SOLICITATION OF AN OFFER TO BUY OR SELL ANY SECURITY OR INSTRUMENT IN ANY
JURISDICTION WHERE SUCH OFFER OR SALE IS PROHIBITED OR TO PARTICIPATE IN ANY
TRADING STRATEGY. NEITHER THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THE BONDS OR DETERMINED IF THIS PRELIMINARY TERM
SHEET IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. The State of Texas, the PUCT, Saber Partners, LLC, Saber Capital
Partners LLC, Credit Suisse First Boston LLC, Lehman Brothers Inc., Greenwich
Capital Markets, Inc. and their affiliates make no representation or warranty
with respect to the appropriateness, usefulness, accuracy or completeness of the
information, or with respect to the terms of any future offer of securities
conforming to the terms hereof. A definitive base prospectus and prospectus
supplement prepared by the Issuer will contain material information not
contained herein, and the prospective purchasers are referred to those
materials. Such base prospectus and prospectus supplement will contain all
material information in respect of any securities offered thereby. The
information contained in this material may be based on assumptions regarding
market conditions and other matters as reflected therein and is therefore
subject to change. We make no representations regarding the reasonableness of
such assumptions or the likelihood that any of such assumptions will coincide
with actual market conditions or events, and this material should not be relied
on for such purposes. No representation is made that any returns indicated will
be achieved. Changes to the assumptions may have a material impact on any
returns detailed. Although the analyses herein may not show a negative return on
the securities referred to herein, such securities are not principal protected
and, in certain circumstances, investors in such securities may suffer a
complete or partial loss on their investment. The State of Texas, the PUCT,
Saber Partners, LLC, Saber Capital Partners LLC, Credit Suisse First Boston LLC,
Lehman Brothers Inc., Greenwich Capital Markets, Inc. and their affiliates
disclaim any and all liability relating to this information, including without
limitation any express or implied representations or warranties for, statements
contained in, and omissions from, this information. Additional information is
available upon request. Past performance is not necessarily indicative of future
results. Price and availability are subject to change without notice.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. Saber Partners, LLC is acting as financial advisor to the PUCT. Certain
financial advisory services, including any activities that may be considered
activities of a broker dealer, will be assigned to Saber Capital Partners, LLC,
as a wholly-owned subsidiary of Saber Partners, LLC. Neither the State of Texas,
the PUCT, Saber Partners, LLC, Saber Capital Partners LLC, Credit Suisse First
Boston LLC, Lehman Brothers Inc. or


                                     III-1


Greenwich Capital Markets, Inc. is acting as an agent for the Issuer or its
affiliates in connection with the proposed transaction.


                                     III-2

                                                                     Exhibit 3.1

                              AMENDED AND RESTATED

                            CERTIFICATE OF FORMATION

                                       OF

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

            AMENDED AND RESTATED CERTIFICATE OF FORMATION, dated December 14,
2005 (as the same may be further amended, supplemented or otherwise modified and
in effect from time to time, this "Certificate of Formation"), of CENTERPOINT
ENERGY TRANSITION BOND COMPANY II, LLC, a Delaware limited liability company
(the "Company"), having its principal office at 1111 Louisiana, Suite 4655B,
Houston, Texas 77002.

            This Certificate of Formation has been duly executed and is being
filed by the undersigned, as an authorized person, in accordance with the
provisions of 6 Del. C. ss.18-208, to amend and restate the original Certificate
of Formation of the Company, which was filed under the name of the Company on
December 3, 2004, with the Secretary of State of the State of Delaware (the
"Original Certificate"), to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del. C. Section 18-101, et seq.).

            The Original Certificate is hereby amended and restated in its
entirety to read as follows:

            SECTION 1. NAME. The name of the limited liability company is
CenterPoint Energy Transition Bond Company II, LLC.

            SECTION 2. CAPITALIZED TERMS. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed thereto in the Amended and
Restated Limited Liability Company Agreement of the Company, dated as of
December 16, 2005 (as it may be further amended, supplemented or otherwise
modified and in effect from time to time, the "Agreement").

            SECTION 3. ADDRESS. The address of its registered office in the
State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.

            SECTION 4. TERM. The term of the Company shall continue until the
Company is dissolved and liquidated in accordance with Section 7 hereof and of
the Agreement. The existence of the Company as a separate legal entity shall
continue until the cancellation of this Certificate of Formation in accordance
with the Delaware Limited Liability Company Act, currently 6 Del. C. Sections
18-101 through 18-1109 (as amended, the "Act").

            SECTION 5. INDEPENDENT MANAGERS.

            (a) The Company shall have at all times at least two individuals who
are each Independent Managers. The Independent Managers may not delegate their
duties, authorities or responsibilities hereunder or under the Agreement. If any
Independent Manager resigns, dies or

                                       -1-



becomes incapacitated, or such position is otherwise vacant, no action requiring
the unanimous affirmative vote of the Managers shall be taken until a successor
Independent Manager is appointed by the Member and qualifies and approves such
action. In the event of a vacancy in the position of Independent Manager, the
Member shall, as soon as practicable appoint a successor Independent Manager.

            (b) Notwithstanding any other provision of this Certificate of
Formation or of the Agreement and any provision of law that otherwise so
empowers the Company, the Member, any Special Member, any Manager, any officer
or any other Person, the Company shall not, and none of the Member, any Special
Member, any Manager, any officer or any other Person on behalf of the Company
shall, without the prior unanimous consent of the Managers, including each of
the Independent Managers, do any of the following: (i) engage in any business or
activity other than those set forth in Section 2.03 of the Agreement; (ii)
except as provided in the Basic Documents, incur any indebtedness, other than
the Transition Bonds, obligations under agreements with third party credit
enhancers and swap or hedge agreement counterparties relating to any Series of
Transition Bonds and ordinary course expenses as set forth in Section 2.03 of
the Agreement, or assume or guarantee any indebtedness of any other entity;
(iii) make a general assignment for the benefit of creditors; (iv) file a
petition commencing a voluntary bankruptcy; (v) file a petition or answer
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution (to the fullest extent permitted by law) or similar relief under any
statute, law or regulation; (vi) file an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any proceeding seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution (to the fullest extent permitted by law) or similar
relief under any statute, law or regulation, or the entry of any order
appointing a trustee, liquidator or receiver of it or of its assets or any
substantial portion thereof; (vii) seek, consent to or acquiesce in the
appointment of a trustee, receiver or liquidator of it or of all or any
substantial part of its assets; (viii) file or otherwise initiate the filing of
a motion in any Bankruptcy or other insolvency proceeding in which the Member or
any of its Affiliates is a debtor to substantively consolidate the assets and
liabilities of any such debtor with the assets and liabilities of the Company;
(ix) consolidate or merge with or into any other entity or convey or transfer
substantially all of its properties and assets substantially as an entirety to
any entity, or (x) amend the Agreement, or take any other action, in furtherance
of any such action. With regard to any action contemplated by the preceding
sentence, or with regard to any action taken or determination made at any time
when the Company is insolvent, each Independent Manager will to the fullest
extent permitted by law, including Section 18-1101(c) of the Act, owe its
primary fiduciary duty to the Company (including the creditors of the Company).

            (c) No Independent Manager shall at any time serve as trustee in
bankruptcy for any Affiliate of the Company.

            SECTION 6. SPECIAL MEMBER. Upon the occurrence of any event that
causes the Member to cease to be a member of the Company (other than upon an
assignment by the Member of all of its limited liability company interest in the
Company and the admission of the transferee pursuant to Section 7.01 of the
Agreement), each person acting as an Independent Manager pursuant to Section 5
hereof and Section 4.04 of the Agreement shall, without any action of any Person
and simultaneously with the Member ceasing to be a member of the

                                       -2-




Company, automatically be admitted to the Company as a Special Member and shall
continue the Company without dissolution. No Special Member may resign from the
Company or transfer its rights as a Special Member unless (i) a successor
Special Member has been admitted to the Company as a Special Member by executing
a counterpart to the Agreement, and (ii) such successor has also accepted its
appointment as Independent Manager, provided, however, the Special Members shall
automatically cease to be members of the Company upon the admission to the
Company of a substitute Member (who may be approved by the personal
representative of the last Member that ceased to be a member of the Company).
Each Special Member shall be a member of the Company that has no interest in the
profits, losses and capital of the Company and has no right to receive any
distributions of Company assets. Pursuant to Section 18-301(d) of the Act, a
Special Member shall not be required to make any capital contributions to the
Company and shall not receive a limited liability company interest in the
Company. A Special Member, in its capacity as Special Member, may not bind the
Company. Except as required by any mandatory provision of the Act, a Special
Member, in its capacity as a Special Member, shall have no right to vote on,
approve or otherwise consent to any action by, or matter relating to, the
Company, including the merger, consolidation or conversion of the Company. In
order to implement the admission to the Company of each Special Member, each
person acting as an Independent Manager pursuant to Section 5 hereof and Section
4.04 of the Agreement shall execute a counterpart to the Agreement. Prior to its
admission to the Company as a Special Member, each person acting as an
Independent Manager pursuant to Section 5 hereof and Section 4.04 of the
Agreement shall not be a member of the Company.

            SECTION 7. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP.

            (a) The Company shall be dissolved, and its affairs shall be wound
up upon the first to occur of the following: (i) the termination of the legal
existence of the last remaining member of the Company or the occurrence of any
other event which terminates the continued membership of the last remaining
member of the Company in the Company unless the business of the Company is
continued in a manner permitted by the Agreement or the Act or (ii) the entry of
a decree of judicial dissolution under Section 18-802 of the Act.

            (b) In the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the sale of the
assets of the Company in an orderly manner), and the assets of the Company shall
be applied in the manner, and in the order of priority, set forth in Section
18-804 of the Act.

            (c) The Company shall terminate when (i) all of the assets of the
Company, after payment of or due provision for all debts, liabilities and
obligations of the Company shall have been distributed to the Member in the
manner provided for in the Agreement and (ii) this Certificate of Formation
shall have been canceled in the manner required by the Act.

            (d) Neither the sale of all or substantially all of the property or
business of the Company, nor the merger, conversion or consolidation of the
Company into or with another company or other entity, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purpose of this Section 7 and Section 7.03 of the Agreement.

                                      -3-



            (e) The commencement of a Bankruptcy, insolvency, receivership or
other similar proceeding by or against the Company shall not result in the
dissolution of the Company or in the cessation of the interest of the Member in
the Company.

            (f) Upon the occurrence of any event that causes the last remaining
member of the Company to cease to be a member of the Company, to the fullest
extent permitted by law, the personal representative of such member is hereby
authorized to, and shall, within 90 days after the occurrence of the event that
terminated the continued membership of such member in the Company, agree in
writing (i) to continue the Company and (ii) to the admission of the personal
representative or its nominee or designee, as the case may be, as a substitute
member of the Company, effective as of the occurrence of the event that
terminated the continued membership of the last remaining member of the Company
in the Company.

            (g) Notwithstanding any other provision of this Certificate of
Formation or of the Agreement, the Bankruptcy of the Member or any Special
Member shall not cause the Member or Special Member, respectively, to cease to
be a member of the Company, and upon the occurrence of such an event, the
business of the Company shall continue without dissolution.

            SECTION 8. NO BANKRUPTCY PETITION; NO DISSOLUTION.

            (a) To the fullest extent permitted by law, the Member, each Special
Member and each Manager hereby covenant and agree (or shall be deemed to have
hereby covenanted and agreed) that, prior to the date which is one year and one
day after the termination of the Indenture and the payment in full of every
Series of Transition Bonds and any other amounts owed under the Indenture,
including, without limitation, any amounts owed to third-party credit enhancers
or swap or hedge agreement counterparties with respect to any series of
Transition Bonds, it will not acquiesce, petition or otherwise invoke or cause
the Company to invoke the process of any court or Governmental Authority for the
purpose of commencing or sustaining a case against the Company under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Company or any substantial part of the property of the Company, or
ordering the winding up or liquidation of the affairs of the Company; provided,
however, that nothing in this Section 8 or Section 10.06 of the Agreement shall
constitute a waiver of any right to indemnification, reimbursement or other
payment from the Company pursuant to the Agreement. This Section 8 and Section
10.06 of the Agreement are not intended to apply to the filing of a voluntary
bankruptcy petition on behalf of the Company which is governed by Section 5(b)
of this Certificate of Formation and Section 4.04(b) of the Agreement.

            (b) To the fullest extent permitted by law, the Member, each Special
Member and each Manager hereby covenant and agree (or shall be deemed to have
hereby covenanted and agreed) that, until the termination of the Indenture and
the payment in full of any Series of the Transition Bonds and any other amounts
owed under the Indenture, including any amounts owed to third-party credit
enhancers or under any Swap Agreement or hedge agreement, the Member, such
Special Member and such Manager will not consent to, or make application for, or
institute or maintain any action for, the dissolution of the Company under
Section 18-801 or 18-802 of the Act or otherwise.

                                       -4-




            (c) In the event that the Member, any Special Member or any Manager
takes action in violation of this Section 8 or Section 10.06 of the Agreement,
the Company agrees that it shall file an answer with the court or otherwise
properly contest the taking of such action and raise the defense that the
Member, the Special Member or Manager, as the case may be, has agreed in writing
not to take such action and should be estopped and precluded therefrom and such
other defenses, if any, as its counsel advises that it may assert.

            (d) The provisions of this Section 8 and Section 10.06 of the
Agreement shall survive the termination of the Agreement and the resignation,
withdrawal or removal of the Member, any Special Member or any Manager. Nothing
contained herein or in the Agreement shall preclude participation by the Member,
any Special Member or a Manager in assertion or defense of its claims in any
such proceeding involving the Company.

            SECTION 9. CONFLICT. In the event of any conflict or inconsistency
between the provisions of this Certificate of Formation and of the Agreement, to
the fullest extent permitted by law, the provisions of this Certificate of
Formation shall govern.

            IN WITNESS WHEREOF, the undersigned has executed and delivered this
Amended and Restated Certificate of Formation of CenterPoint Energy Transition
Bond Company II, LLC this 14th day of December, 2005.

                                              CENTERPOINT ENERGY HOUSTON
                                                ELECTRIC, LLC
                                              as an authorized person

                                              By: /s/ Marc Kilbride
                                                  ------------------------------
                                              Name:  Marc Kilbride
                                              Title: Treasurer

                                      -5-

                                                                     Exhibit 3.2

            AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC



                                TABLE OF CONTENTS


                                                                                                    
ARTICLE I DEFINITIONS...............................................................................    1
         SECTION 1.01. Capitalized Terms............................................................    1
         SECTION 1.02. Other Definitional Provisions................................................    6

ARTICLE II FORMATION OF THE LIMITED LIABILITY COMPANY...............................................    7
         SECTION 2.01. Formation; Filings...........................................................    7
         SECTION 2.02. Name, Registered Agent and Office............................................    7
         SECTION 2.03. Business Purpose.............................................................    8
         SECTION 2.04. Term ........................................................................    9
         SECTION 2.05. No State Law Partnership.....................................................    9
         SECTION 2.06. Authority of Member..........................................................    9
         SECTION 2.07. Liability to Third Parties...................................................    9
         SECTION 2.08. No Personal Liability of Member, Special Members, Managers, Etc..............    9
         SECTION 2.09. Separateness.................................................................   10
         SECTION 2.10. Limited Liability and Bankruptcy Remoteness..................................   12

ARTICLE III CAPITAL CONTRIBUTIONS...................................................................   12
         SECTION 3.01. Capital Contributions........................................................   12

ARTICLE IV MANAGEMENT...............................................................................   12
         SECTION 4.01. Management by Managers.......................................................   12
         SECTION 4.02. Acts by Managers.............................................................   12
         SECTION 4.03. Number and Qualifications....................................................   13
         SECTION 4.04. Independent Managers.........................................................   13
         SECTION 4.05. Appointment and Vacancy......................................................   14
         SECTION 4.06. Term.........................................................................   14
         SECTION 4.07. Removal......................................................................   14
         SECTION 4.08. Resignation..................................................................   14
         SECTION 4.09. Place of Meetings of Managers................................................   15
         SECTION 4.10. Meetings of Managers.........................................................   15
         SECTION 4.11. Quorum; Majority Vote........................................................   15
         SECTION 4.12. Methods of Voting; Proxies...................................................   15
         SECTION 4.13. Actions Without a Meeting....................................................   15
         SECTION 4.14. Telephone and Similar Meetings...............................................   15
         SECTION 4.15. Managers.....................................................................   15
         SECTION 4.16. Compensation and Fees........................................................   16

ARTICLE V OFFICERS..................................................................................   16
         SECTION 5.01. Designation; Term; Qualifications............................................   16
         SECTION 5.02. Removal and Resignation......................................................   16
         SECTION 5.03. Vacancies....................................................................   16
         SECTION 5.04. Compensation.................................................................   16


                                        i



                                                                                                    
ARTICLE VI MEMBER ..................................................................................   16
         SECTION 6.01. Powers.......................................................................   16
         SECTION 6.02. Fees of Member...............................................................   17
         SECTION 6.03. Actions by the Member........................................................   18
         SECTION 6.04. Control by Member............................................................   18
         SECTION 6.05. Special Member...............................................................   18

ARTICLE VII COMMON INTEREST.........................................................................   19
         SECTION 7.01. General......................................................................   19
         SECTION 7.02. Distributions................................................................   20
         SECTION 7.03. Rights on Liquidation, Dissolution or Winding Up.............................   20
         SECTION 7.04. Redemption...................................................................   21
         SECTION 7.05. Voting Rights................................................................   21

ARTICLE VIII ALLOCATIONS; DISTRIBUTIONS; EXPENSES; TAXES; BOOKS; AND REPORTS........................   21
         SECTION 8.01. Allocations..................................................................   21
         SECTION 8.02. Distributions................................................................   21
         SECTION 8.03. Limitation Upon Distributions................................................   22
         SECTION 8.04. Expenses.....................................................................   22
         SECTION 8.05. Tax Elections................................................................   22
         SECTION 8.06. Annual Tax Information.......................................................   23
         SECTION 8.07. Tax Matters Member...........................................................   23
         SECTION 8.08. Maintenance of Books.........................................................   23
         SECTION 8.09. Reports......................................................................   23

ARTICLE IX INDEMNIFICATION..........................................................................   23
         SECTION 9.01. Mandatory Indemnification of Member, the Special Members and the Managers....   23
         SECTION 9.02. Mandatory Advancement of Expenses............................................   24
         SECTION 9.03. Indemnification of Officers, Employees and Agents............................   24
         SECTION 9.04. Nonexclusivity of Rights.....................................................   24
         SECTION 9.05. Contract Rights..............................................................   25
         SECTION 9.06. Insurance....................................................................   25
         SECTION 9.07. Savings Clause...............................................................   25
         SECTION 9.08. Other Ventures...............................................................   25
         SECTION 9.09. Other Arrangements Not Excluded..............................................   25
         SECTION 9.10. Survival.....................................................................   26

ARTICLE X MISCELLANEOUS PROVISIONS..................................................................   26
         SECTION 10.01. Offset......................................................................   26
         SECTION 10.02. Notices.....................................................................   26
         SECTION 10.03. Benefits of Agreement; No Third-Party Rights................................   26
         SECTION 10.04. Effect of Waiver or Consent.................................................   26
         SECTION 10.05. Governing Law; Severability.................................................   26
         SECTION 10.06. No Bankruptcy Petition; Dissolution.........................................   27
         SECTION 10.07. Amendment...................................................................   27


                                       ii



                                                                                                    
SECTION 10.08. Headings and Sections................................................................   29
SECTION 10.09. Binding Agreement....................................................................   29
SECTION 10.10. Counterparts.........................................................................   29


Schedule A    Schedule of Capital Contributions of Member

Schedule B    Certificate of Common Interest of CenterPoint Energy Transition
              Bond Company II, LLC

Schedule C    Managers and Independent Managers

Schedule D    Officers

                                      iii


            AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

      AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, dated as of
December 16, 2005 (as it may be further amended and supplemented from time to
time, this "Agreement"), of CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC,
a Delaware limited liability company (the "Company"), having its principal
office at 1111 Louisiana Street, Suite 4655B, Houston, Texas 77002, among
CenterPoint Energy Houston Electric, LLC, as the sole equity member of the
Company, and the Independent Managers.

      WHEREAS, CenterPoint Energy Houston Electric, LLC, a Texas limited
liability company ("CenterPoint Houston"), as sole Member, caused the
Certificate of Formation of the Company (the "Certificate of Formation") to be
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") on December 3, 2004, executed a Limited Liability Company Agreement
dated December 3, 2004 (the "Original LLC Agreement") and caused the amended and
restated Certificate of Formation to be filed with the Secretary of State on
December 14, 2005; and

      WHEREAS, this Agreement amends and restates the Original LLC Agreement in
all respects, and from and after the date hereof constitutes the governing
instrument of the Company;

      NOW THEREFORE, the parties hereto hereby amend and restate the Original
LLC Agreement as follows:

                                    ARTICLE I

                                   DEFINITIONS

      SECTION 1.01. Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:

      "Act" shall mean the Delaware Limited Liability Company Act, as amended,
as in effect on the date hereof (currently Chapter 18 of Title 6, Sections
18-101 through 18-1109 of the Delaware Code) and as it may be amended hereafter,
from time to time.

      "Administration Agreement" shall mean the Administration Agreement, dated
as of December 16, 2005 between the Company and CenterPoint Houston, as
Administrator, as the same may be amended and supplemented from time to time.

      "Affiliate" shall mean, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, control, when used with respect to
any specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of

                                       1


voting securities, by contract or otherwise; and the terms controlling and
controlled have meanings correlative to the foregoing.

      "Agreement" shall mean this Amended and Restated Limited Liability Company
Agreement of the Company as the same may be further amended and supplemented
from time to time in accordance with the provisions hereof.

      "Bankruptcy" shall mean, with respect to any Person, if such Person (i)
makes an assignment for the benefit of creditors, (ii) files a petition
commencing a voluntary bankruptcy, (iii) is adjudged a bankrupt or insolvent, or
has entered against it an order for relief, in any bankruptcy or insolvency
proceedings, (iv) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation or similar
relief under any statute, law or regulation, (v) files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against it in any proceeding of this nature, (vi) seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator of the Person
or of all or any substantial part of its properties, or (vii) if 120 days after
the commencement of any proceeding against the Person seeking reorganization,
arrangement, composition, readjustment, liquidation or similar relief under any
statute, law or regulation, the proceeding has not been dismissed, or if within
90 days after the appointment without such Person's consent or acquiescence of a
trustee, receiver or liquidator of such Person or of all or any substantial part
of its properties, the appointment is not vacated or stayed, or if within 90
days after the expiration of any such stay, the appointment is not vacated. The
foregoing definition of "Bankruptcy" is intended to replace and shall supersede
and replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and
18-304 of the Act.

      "Basic Documents" shall mean (i) this Agreement, the Certificate of
Formation, the Indenture, the Administration Agreement, the Transition Bonds and
(ii) any Sale Agreement, Bill of Sale, Servicing Agreement, Supplemental
Indenture, Intercreditor Agreement and Underwriting Agreement entered into in
connection with one or more Series of Transition Bonds.

      "Bill of Sale" shall mean and include any bill of sale issued by the
Member to the Company pursuant to a Sale Agreement evidencing the sale of
Transition Property to the Company.

      "Business Day" shall mean any day other than a Saturday, Sunday or other
day on which banking institutions in the City of Houston, Texas, in the City of
New York, New York or in the City of Wilmington, Delaware are required or
authorized by law or executive order to remain closed.

      "CenterPoint Houston" shall mean CenterPoint Energy Houston Electric, LLC,
a Texas limited liability company, or its successor.

      "Certificate of Formation" shall mean the Certificate of Formation of the
Company as filed in accordance with the Act with the Secretary of State on
December 3, 2004, as amended and restated and filed with the Secretary of State
on December 14, 2005, as the same may be further amended and supplemented from
time to time.

                                       2


      "Class" shall mean, with respect to any Series, any one of the classes or
tranches of Transition Bonds of that Series, as specified in the Series
Supplement for that Series.

      "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time (or any successor law), and Treasury Regulations promulgated thereunder.

      "Common Interest" shall mean the limited liability company interest of the
Member in the Company as described in Article VII. The Company shall have one
class of Common Interest.

      "Company" shall mean CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company.

      "Financing Order" shall mean and include the financing order issued by the
PUCT on March 16, 2005 in Docket No. 30485 and any subsequent financing order
issued by the PUCT to the Member pursuant to which the Member transfers its
rights and interests thereunder to the Company in connection with the issuance
of a separate Series of Transition Bonds.

      "Fiscal Year" shall mean, unless the Managers shall at any time determine
otherwise pursuant to the requirements of the Code, a calendar year.

      "GAAP" shall mean the generally accepted accounting principles promulgated
or adopted by the Financial Accounting Standards Board and its successors from
time to time.

      "Governmental Authority" shall mean any court or any federal or state
regulatory body, administrative agency or governmental instrumentality.

      "Indenture" shall mean the Indenture dated as of December 16, 2005,
between the Company, as Issuer, the Trustee and Deutsche Bank Trust Company
Americas, as the Securities Intermediary (as defined therein), as the same may
be amended and supplemented from time to time, and shall include the forms and
terms of the Transition Bonds established thereunder.

      "Independent Manager" shall mean, with respect to the Company, a Manager
who is not, and within the previous five years was not (except solely by virtue
of such Person's serving as, or affiliation with any other Person serving as, an
independent director or manager, as applicable, of CenterPoint Houston, the
Company or any bankruptcy remote special purpose entity that is an Affiliate of
CenterPoint Houston or the Company), (i) a stockholder, member, partner,
director, officer, employee, Affiliate, customer, supplier, creditor or
independent contractor of, or any Person that has received any benefit in any
form whatsoever from (other than in such Manager's capacity as a ratepayer or
customer of CenterPoint Houston in the ordinary course of business), or any
Person that has provided any service in any form whatsoever to, or any major
creditor (or any Affiliate of any major creditor) of, the Company, CenterPoint
Houston or any of their Affiliates, or (ii) any Person owning beneficially,
directly or indirectly, any outstanding shares of common stock, any limited
liability company interests or any partnership interests, as applicable, of the
Company, CenterPoint Houston, or any of their Affiliates, or of any major
creditor (or any Affiliate of any major creditor) of any of the foregoing, or a
stockholder, member, partner, director, officer, employee, Affiliate, customer,
supplier, creditor or independent contractor of, or any Person that has received
any benefit in any form whatever from (other than in such Person's

                                       3


capacity as a ratepayer or customer of CenterPoint Houston in the ordinary
course of business), or any Person that has provided any service in any form
whatever to, such beneficial owner or any of such beneficial owner's Affiliates,
or (iii) a member of the immediate family of any person described above;
provided that the indirect or beneficial ownership of stock through a mutual
fund or similar diversified investment vehicle with respect to which the owner
does not have discretion or control over the investments held by such
diversified investment vehicle shall not preclude such owner from being an
Independent Manager. For purposes of this definition, "major creditor" shall
mean a natural person or business entity to which the Company, CenterPoint
Houston or any of their Affiliates has outstanding indebtedness for borrowed
money or credit on open account in a sum sufficiently large as would reasonably
be expected to influence the judgment of the proposed Independent Manager
adversely to the interests of the Company when the interests of that Person are
adverse to those of the Company.

      "Intercreditor Agreement" shall mean and include the Intercreditor
Agreement, dated as of December 16, 2005, among Deutsche Bank Trust Company
Americas, the Company, CenterPoint Houston and CenterPoint Energy Transition
Bond Company, LLC, each in the capacities stated therein, as the same may be
amended and supplemented from time to time and any subsequent intercreditor
agreement entered into by the Company in connection with the issuance of a
separate Series of Transition Bonds in accordance with a Financing Order.

      "Manager" shall mean any Person appointed by the Member from time to time
as a manager of the Company in accordance with the provisions of this Agreement,
including the Independent Managers, in such Person's capacity as a manager of
the Company. A Manager is hereby designated as a "manager" of the Company within
the meaning of Section 18-101(10) of the Act.

      "Member" shall mean CenterPoint Houston, in its capacity as a member in
the Company under this Agreement, or any successor thereto admitted to the
Company as a member pursuant to Article VII; provided, however, the term
"Member" shall not include the Special Members.

      "Officer's Certificate" means a certificate signed by any Manager, the
chairman of the board, the chief executive officer, the president, any vice
chairman, any executive vice president, senior vice president or vice president,
the treasurer, assistant treasurer, the secretary or any assistant secretary of
the Company.

      "Person" shall mean any individual, corporation, estate, partnership,
joint venture, association, joint stock company, trust (including any
beneficiary thereof), business trust, limited liability company, unincorporated
organization or government or any agency or political subdivision thereof.

      "Proceeding" shall have the meaning set forth in Section 9.01.

      "PUCT" shall mean the Public Utility Commission of Texas or any successor
entity thereto.

      "Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and one or more Financing Orders, in each case as
applicable to the Series of Transition Bonds to which the Financing Order
relates.

                                       4


      "Rating Agency" shall mean any rating agency rating the Transition Bonds
of any Class or Series at the time of issuance thereof at the request of the
Company, which initially shall be Moody's Investors Service Inc., Standard &
Poor's, a division of The McGraw-Hill Companies, and Fitch Ratings. If no such
organization or successor is any longer in existence, "Rating Agency" shall mean
a nationally recognized statistical rating organization or other comparable
Person designated by the Company, written notice of which designation shall be
given to the Trustee, the PUCT and the Member.

      "Rating Agency Condition" shall mean, with respect to any action, the
notification in writing to each Rating Agency of such action, and confirmation
from Standard & Poor's Rating Services to the Trustee and the Company that such
action will not result in a reduction or withdrawal of the then current rating
by such Rating Agency of any outstanding Series or Class of Transition Bonds.

      "Sale Agreement" shall mean and include the Transition Property Sale
Agreement dated as of December 16, 2005, between CenterPoint Houston and the
Company, as the same may be amended and supplemented from time to time and any
subsequent transition property sale agreement entered into by the Company in
connection with the issuance of a separate Series of Transition Bonds in
accordance with a Financing Order.

      "Secretary of State" shall have the meaning given thereto in the second
recital hereof.

      "Securities Intermediary" shall mean the party named as such in the
Indenture or its successor or any successor Securities Intermediary under the
Indenture.

      "Series" shall mean any series of Transition Bonds issued by the Company
and authenticated by the Trustee pursuant to the Indenture, as specified in the
Series Supplement therefor.

      "Series Supplement" shall mean a Supplemental Indenture that authorizes a
particular Series of Transition Bonds.

      "Servicing Agreement" shall mean and include the Transition Property
Servicing Agreement dated as of December 16, 2005, between the Company and
CenterPoint Houston and acknowledged by the Trustee, as the same may be amended
and supplemented from time to time and any subsequent servicing agreement
entered into by the Company in connection with the issuance of a separate Series
of Transition Bonds in accordance with a Financing Order.

      "Special Member" shall mean, upon such Person's admission to the Company
as a member of the Company pursuant to Section 6.05, a Person acting as
Independent Manager, in such Person's capacity as a member of the Company. A
"Special Member" shall have the rights and duties expressly set forth in this
Agreement.

      "Supplemental Indenture" shall mean a supplemental indenture entered into
by the Company, the Trustee and Deutsche Bank Trust Company Americas, as
Securities Intermediary (as defined in the Indenture), pursuant to Article IX of
the Indenture.

                                       5


      "Texas Electric Choice Plan" shall mean the Act of May 21, 1999, 76th Leg.
R.S. ch. 405, 1999 (codified at Texas Utilities Code Section 39.001 et seq.).

      "Transition Bonds" shall mean any of the transition bonds (as defined in
the Texas Electric Choice Plan) issued by the Company pursuant to the Indenture.

      "Transition Charges" shall mean the nonbypassable amounts to be charged
for the use or availability of electric services, approved by the PUCT in a
Financing Order to recover Qualified Costs that may be collected by CenterPoint
Houston, its successors, assignees or other collection agents as provided in
such Financing Order.

      "Transition Property" shall mean the rights and interests of CenterPoint
Houston or its successor under a Financing Order, once those rights are first
transferred to the Company or pledged in connection with the issuance of the
related Series of Transition Bonds, including the right to impose, collect and
receive through Transition Charges payable by retail electric customers within
CenterPoint Houston's certificated service area as it existed on May 1, 1999, an
amount sufficient to cover the Qualified Costs of CenterPoint Houston authorized
in such Financing Order, the right to receive Transition Charges in amounts and
at times sufficient to pay principal and interest and make other deposits in
connection with such related Series of Transition Bonds and all revenues and
collections resulting from Transition Charges.

      "Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.

      "Trustee" shall mean the party named as such in the Indenture or its
successor or any successor Trustee under the Indenture.

      "Underwriting Agreement" shall mean and include the Underwriting
Agreement, dated December 9, 2005, between the Company, CenterPoint Houston and
the Underwriters named in Schedule II thereto and any subsequent underwriting
agreement entered into by the Company and CenterPoint Houston in connection with
the issuance of a separate Series of Transition Bonds in accordance with a
Financing Order.

      SECTION 1.02. Other Definitional Provisions.

            (a) All terms in this Agreement shall have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.

            (b) As used in this Agreement and in any certificate or other
documents made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.

                                       6


            (c) The words "hereof," "herein," "hereunder," and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section references contained
in this Agreement are references to Sections in this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."

            (d) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms.

            (e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.

                                   ARTICLE II

                   FORMATION OF THE LIMITED LIABILITY COMPANY

      SECTION 2.01. Formation; Filings. Pursuant to the Act and in accordance
with the further terms and provisions hereof, the Member and, when signed by the
Special Members, the Special Members, hereby continue the Company as a limited
liability company. The Certificate of Formation of the Company has been executed
and filed with the Secretary of State by Rufus S. Scott, as an "authorized
person" within the meaning of the Act. Upon the filing of the Certificate of
Formation with the Secretary of State, his powers as an "authorized person"
ceased, and the Member thereupon became the designated "authorized person" and
shall continue as the designated "authorized person" within the meaning of the
Act. Except as such powers may be delegated by the Member to the Managers or by
the Managers to the officers of the Company and as otherwise provided in this
Agreement, the Member shall execute or cause to be executed from time to time
all other instruments, certificates, notices and documents, and shall do or
cause to be done all such filing, recording, publishing and other acts, in each
case, as may be necessary or appropriate from time to time to comply with all
applicable requirements for the formation and/or operation and, when
appropriate, termination of a limited liability company in the State of Delaware
and all other jurisdictions where the Company shall desire to conduct its
business.

      SECTION 2.02. Name, Registered Agent and Office.

            (a) The name of the Company shall be "CenterPoint Energy Transition
Bond Company II, LLC." All business of the Company shall be conducted in such
name and all contracts, property and other assets of the Company shall be held
in that name, and the Member shall not have any ownership interests in such
contracts, property or other assets in the Company's individual name.

            (b) The address of the registered office of the Company in the State
of Delaware is the Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New

                                       7


Castle, 19801. The name of its registered agent at that address is The
Corporation Trust Company. The Delaware State file number for the Company is
#3854015.

            (c) The Company may also have offices at such other places both
within and without the State of Delaware as the Member may from time to time
determine.

      SECTION 2.03. Business Purpose. The nature of the business or purpose to
be conducted or promoted by the Company is to engage exclusively in the
following business and financial activities:

            (a) to authorize, issue, sell and deliver one or more Series or
Classes of Transition Bonds under the Indenture and, in connection therewith, to
execute and deliver Supplemental Indentures providing for the issuance of one or
more Series of Transition Bonds, each as permitted by and in accordance with the
terms of the Indenture and to enter into any agreement or document providing for
the authorization, issuance, sale and delivery of the Transition Bonds;

            (b) to purchase, acquire, own, hold, administer, service, and enter
into agreements for the servicing of, finance, manage, sell, assign, pledge,
collect amounts due on and otherwise deal with the Transition Property and other
assets to be acquired pursuant to the Basic Documents and any proceeds or rights
associated therewith;

            (c) to negotiate, authorize, execute, deliver, assume the
obligations under, and perform its duties under, the Basic Documents and any
other agreement or instrument or document relating to the activities set forth
in clauses (a) and (b) above, including agreements with third-party credit
enhancers and swap or hedge agreement counterparties relating to any Series or
Class of Transition Bonds; provided, that each party to any such agreement under
which material obligations are imposed upon the Company shall covenant that it
shall not, prior to the date which is one year and one day after the termination
of the Indenture and the payment in full of each Series of the Transition Bonds
and any other amounts owed under the Indenture, including any amounts owed to
third-party credit enhancers and any amounts owed under any swap agreement or
hedge agreement, acquiesce, petition or otherwise invoke or cause the Company to
invoke the process of any court or Governmental Authority for the purpose of
commencing or sustaining a case against the Company under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Company or any substantial part of the property of the Company; or ordering the
winding up or liquidation of the affairs of the Company; and provided, further,
that the Company shall be permitted to incur additional indebtedness or other
liabilities payable to service providers and trade creditors in the ordinary
course of business in connection with the foregoing activities;

            (d) to invest proceeds from the Transition Property and its other
assets and any capital and income of the Company in accordance with the
applicable Basic Documents or as otherwise determined by the Managers and not
inconsistent with this Section or the applicable Basic Documents; and

            (e) to do such other things and carry on any other activities which
the Managers determine to be necessary, convenient or incidental to any of the
foregoing purposes, and have

                                       8


and exercise all of the powers and rights conferred upon limited liability
companies formed pursuant to the Act that are related or incidental to any of
the foregoing.

The Company is authorized to execute, deliver and perform, and any Member,
Manager or officer on behalf of the Company is hereby authorized to execute and
deliver the Basic Documents and all documents, agreements, certificates or
financing statements contemplated thereby or related thereto, all without any
further act, vote or approval of any Member, Manager, officer or other Person
notwithstanding any other provision of this Agreement, the Act or applicable
law, rule or regulation. The foregoing authorization shall not be deemed a
restriction on the powers of the Member or any Manager or officer to enter into
other agreements on behalf of the Company.

      SECTION 2.04. Term. The term of the Company shall continue until the
Company is dissolved and liquidated in accordance with Section 7.03. The
existence of the Company as a separate legal entity shall continue until the
cancellation of the Certificate of Formation in accordance with the Act.

      SECTION 2.05. No State Law Partnership. The Member and the Special Members
intend that the Company shall not be a partnership (including a general
partnership or a limited partnership) or joint venture, and that neither the
Member, any Special Members nor any Manager shall be a partner or joint venturer
of the Member, any Special Member or any Manager with respect to the business of
the Company, for any purposes, and this Agreement shall not be construed to
suggest otherwise.

      SECTION 2.06. Authority of Member. Subject to Section 4.04, the Member,
acting in such capacity, shall have the authority or power to act for or on
behalf of the Company, to do any act that would be binding on the Company, or to
incur any expenditures, debts, liabilities or obligations on behalf of the
Company.

      SECTION 2.07. Liability to Third Parties. Except as otherwise expressly
provided by the Act, neither the Member, any Special Member nor any Manager or
officer shall be liable for the debts, obligations or liabilities of the Company
(whether arising in contract, tort or otherwise), including under a judgment,
decree or order of a court, solely by reason of being the Member or acting as a
Special Member, Manager or officer.

      SECTION 2.08. No Personal Liability of Member, Special Members, Managers,
Etc. (a) Neither the Member nor any Special Member shall be subject in such
capacity to any personal liability whatsoever to any Person in connection with
the assets or the acts, obligations or affairs of the Company, and (b) no
Manager or officer of the Company shall be subject in such capacity to any
personal liability whatsoever to any Person, other than the Company or its
Member, in connection with the assets or the affairs of the Company; and,
subject to the provisions of Article IX, all such Persons shall look solely to
the assets of the Company for satisfaction of claims of any nature arising in
connection with the affairs of the Company; provided, that such protection from
personal liability shall apply to the fullest extent permitted by applicable
law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment provides further
protection from personal liability or permits the Company

                                       9


to provide greater or broader indemnification rights than such law permitted the
Company to provide prior to such amendment).

      SECTION 2.09. Separateness.

            (a) Except as expressly permitted by the Basic Documents, the funds
and other assets of the Company shall not be commingled with those of any other
entity, and the Company shall maintain its own bank accounts separate from the
Member and any other Person. At all times, all funds and assets of the Company
shall be separately identifiable from those of the Member or any other Person.

            (b) The Company shall maintain its property and assets in such a way
that it is not difficult or costly to segregate, identify and ascertain its
property and assets as distinct from the property and assets of any other
Person.

            (c) The Company shall not guarantee or otherwise hold itself out as
being liable for the debts of any other entity, and shall conduct its own
business in its own name.

            (d) The Company shall not form, or cause to be formed, any
subsidiaries.

            (e) The Company shall act solely in its limited liability company
name and through its duly authorized Member, Special Members, Managers, officers
or agents in the conduct of its business, and shall conduct its business so as
not to mislead others as to the identity of the entity or assets with which they
are concerned.

            (f) The Company shall maintain separate records (financial and
otherwise), books of account and financial statements and shall not commingle
its records and books of account with the records and books of account of any
other entity or the Member.

            (g) The Managers shall hold appropriate meetings to authorize all of
the Company's limited liability company actions, which meetings may be held by
telephone conference call, provided, that in lieu of any such meeting and
without prior notice, the Managers may act by written consent in accordance with
Section 4.13. The Company shall observe all formalities required by this
Agreement and applicable law, and shall keep and maintain records of such
meetings and compliance.

            (h) The Company shall at all times ensure that its capitalization is
adequate (and never unreasonably small) in light of its business, purpose and
expected activities.

            (i) Neither the Member, any Special Member nor any Manager, officer
or Affiliate of the Company shall guarantee, become liable on or hold itself out
as being liable for the debts of the Company (provided that the foregoing shall
not prohibit the Member from causing to be issued one or more letters of credit
or other credit support in favor of (A) Deutsche Bank Trust Company Americas in
respect of any losses it or any of its officers, directors, employees,
representatives or agents may incur in its capacity as Transition Bond
Registrar, Securities Intermediary, authenticating agent or Paying Agent or
(B) Wilmington Trust Company in respect of any losses it or any of its officers,
directors, employees, representatives or agents may incur in its capacity as
Trustee, in each case in connection with the transactions contemplated by the
Basic Documents). The Company shall not guarantee or become obligated for the
debts of the Member, any Special Member or any Manager, any Affiliate thereof or
any

                                       10


other Person, or otherwise hold out its credit as being available to satisfy the
obligations of the Member, any Special Member, any Manager or any other Person
(except for the Company's obligations under any Basic Documents), shall not
pledge its assets for the benefit of any entity other than the Trustee, shall
not make loans or advances to any Person, and shall not acquire obligations or
securities of the Member, any Special Member, any Manager or officer or any
Affiliate thereof.

            (j) The Company shall pay its own liabilities out of its own funds,
including fees and expenses of the Administrator pursuant to the Administration
Agreement and the Servicer pursuant to any Servicing Agreement. If and to the
extent that any amount is drawn under a letter of credit or other credit support
referred to in the parenthetical at the end of the first clause of paragraph (i)
of this Section 2.09, such amount will not constitute any amount owing by the
Company to the Member or any other Person; rather, to the extent that the Member
has provided or made available such a letter of credit or other credit support,
and an amount is so drawn, such amount will be treated by the Member and the
Company as a capital contribution by the Member to the Company.

            (k) The Company shall maintain an arm's-length relationship with the
Member and its other Affiliates.

            (l) The Company shall allocate fairly and reasonably the salaries of
and the expenses related to providing the benefits of officers or other
employees shared with the Member, any Special Member or any Manager.

            (m) The Company shall allocate fairly and reasonably any overhead
for office space shared with the Member, any Special Member or any Manager.

            (n) The Company shall use its own separate taxpayer identification
number, stationery, invoices, checks and other business forms.

            (o) The Company shall conduct all of its business in its own name
and shall correct any known misunderstanding regarding its separate identity.

            (p) The Company shall treat all outstanding Transition Bonds as debt
except where a contrary treatment is required by law or by GAAP.

            (q) The Company shall at all times hold itself out to the public as
a legal entity separate from the Member and any other Person.

            (r) The Company shall file its own tax returns, if any, as may be
required under applicable law, to the extent (a) not part of a consolidated
group filing a consolidated return or returns or (b) not treated as a division
for tax purposes of another taxpayer, and pay any taxes so required to be paid
under applicable law.

            (s) The Company shall treat the transfer of the Transition Property
from the Member to the Company as a sale under the Texas Electric Choice Plan.

                                       11


      Failure of the Company, or the Member, any Special Member or any Manager
or officer on behalf of the Company, to comply with any of the foregoing
covenants or any of the covenants contained in this Agreement shall not affect
the status of the Company as a separate legal entity or the limited liability of
the Member, any Special Member or any Manager.

      SECTION 2.10. Limited Liability and Bankruptcy Remoteness. Without
limiting the generality of Section 2.09, the Company shall be operated in such a
manner as the Managers deem reasonable and necessary or appropriate to preserve
(a) the limited liability of CenterPoint Houston (or its successor) as the
Member and the limited liability of the Special Members, (b) the separateness of
the Company from the business of CenterPoint Houston (or its successor), as the
Member, or any other Affiliate thereof and (c) until the expiration of the
period of one year and one day specified in Section 10.06, the special purpose,
bankruptcy-remote status of the Company.

                                   ARTICLE III

                              CAPITAL CONTRIBUTIONS

      SECTION 3.01. Capital Contributions. The Member was admitted as the member
of the Company upon the execution and delivery of the Original LLC Agreement and
shall continue as a member of the Company upon the execution of this Agreement.
The Member has contributed the amount of cash to the Company listed on Schedule
A attached hereto. The Member is not required to make any additional capital
contribution to the Company. However, the Member may make additional capital
contributions to the Company at any time upon the written consent of such
Member. To the extent that the Member makes an additional capital contribution
to the Company, the Member shall revise Schedule A of this Agreement. The
provisions of this Agreement, including this Section 3.01, are intended to
benefit the Member and the Special Members and, to the fullest extent permitted
by law, shall not be construed as conferring any benefit upon any creditor of
the Company (and no such creditor of the Company shall be a third-party
beneficiary of this Agreement) and the Member and the Special Members shall not
have any duty or obligation to any creditor of the Company to make any
contribution to the Company or to issue any call for capital pursuant to this
Agreement.

                                   ARTICLE IV

                                   MANAGEMENT

      SECTION 4.01. Management by Managers. The powers of the Company shall be
exercised by or under the authority of, and the business and affairs of the
Company shall be managed under the direction of, the Managers, except to the
extent that such powers are otherwise retained by the Member under this
Agreement (which may be delegated by the Member to the Managers unless otherwise
specified herein).

      SECTION 4.02. Acts by Managers.

            (a) The Managers shall be obliged to devote only as much of their
time to the Company's business as shall be reasonably required in light of the
Company's business and

                                       12


objectives. A Manager shall perform his or her duties as a Manager in good
faith, in a manner he or she reasonably believes to be in the best interests of
the Company, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.

            (b) Every Manager is an agent of the Company for the purpose of its
business, and the act of every Manager, including the execution in the name of
the Company of any instrument for carrying on the business of the Company, binds
the Company, unless such act is in contravention of this Agreement or unless the
Manager so acting otherwise lacks the authority to act for the Company and the
Person with whom he or she is dealing has knowledge of the fact that he or she
has no such authority.

            (c) The Managers shall have the right and authority to take all
actions which the Managers deem necessary, useful or appropriate for the
day-to-day management and conduct of the Company's business.

            (d) The Managers may exercise all powers of the Company and do all
such lawful acts and things as are not required or directed by the Act, other
applicable law, or this Agreement to be exercised or done by the Member.
Notwithstanding any other provision of this Agreement, all instruments,
contracts, agreements and documents providing for the acquisition or disposition
of property of the Company shall be valid and binding on the Company if executed
by one or more of the Managers or by one or more officers of the Company
delegated such power by the Managers. Except as set forth in Section 2.03 of
this Agreement, all instruments, contracts, agreements and documents of
whatsoever type executed on behalf of the Company shall be executed in the name
of the Company by one or more Managers or by one or more officers of the Company
delegated such power by the Managers.

      SECTION 4.03. Number and Qualifications. The number of Managers of the
Company shall not be less than three nor more than five, as may be determined by
the Member from time to time, but no decrease in the number of Managers shall
have the effect of shortening the term of any incumbent Manager.

      SECTION 4.04. Independent Managers.

            (a) The Company shall have at all times at least two individuals who
are each Independent Managers. The Independent Managers may not delegate their
duties, authorities or responsibilities hereunder. If any Independent Manager
resigns, dies or becomes incapacitated, or such position is otherwise vacant, no
action requiring the unanimous affirmative vote of the Managers shall be taken
until a successor Independent Manager is appointed by the Member and qualifies
and approves such action. In the event of a vacancy in the position of
Independent Manager, the Member shall, as soon as practicable, appoint a
successor Independent Manager.

            (b) Notwithstanding any other provision of this Agreement and any
provision of law that otherwise so empowers the Company, the Member, any Special
Member, any Manager, officer or any other Person, the Company shall not, and no
Member, Special Member, Manager, officer or any other Person on behalf of the
Company shall, without the prior unanimous consent of the Managers, including
each of the Independent Managers, do any of the following: (i) engage in any
business or activity other than those set forth in Section 2.03; (ii) except as

                                       13


provided in the Basic Documents, incur any indebtedness, other than the
Transition Bonds, obligations under agreements with third party credit enhancers
and swap or hedge agreement counterparties relating to any Series of Transition
Bonds and ordinary course expenses as set forth in Section 2.03, or assume or
guarantee any indebtedness of any other entity; (iii) make a general assignment
for the benefit of creditors; (iv) file a petition commencing a voluntary
bankruptcy; (v) file a petition or answer seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution (to the fullest extent
permitted by law) or similar relief under any statute, law or regulation; (vi)
file an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
(to the fullest extent permitted by law) or similar relief under any statute,
law or regulation, or the entry of any order appointing a trustee, liquidator or
receiver of it or of its assets or any substantial portion thereof; (vii) seek,
consent to or acquiesce in the appointment of a trustee, receiver or liquidator
of it or of all or any substantial part of its assets; (viii) file or otherwise
initiate the filing of a motion in any Bankruptcy or other insolvency proceeding
in which the Member or any of its Affiliates is a debtor to substantively
consolidate the assets and liabilities of any such debtor with the assets and
liabilities of the Company; (ix) consolidate or merge with or into any other
entity or convey or transfer substantially all of its properties and assets
substantially as an entirety to any entity; or (x) amend this Agreement, or take
any other action, in furtherance of any such action. With regard to any action
contemplated by the preceding sentence, or with regard to any action taken or
determination made at any time when the Company is insolvent, each Independent
Manager will to the fullest extent permitted by law, including Section
18-1101(c) of the Act, owe its primary fiduciary duty to the Company (including
the creditors of the Company).

            (c) No Independent Manager shall at any time serve as trustee in
bankruptcy for any Affiliate of the Company.

      SECTION 4.05. Appointment and Vacancy. The Member will appoint each
Manager, including any Manager to be appointed by reason of an increase in the
number of Managers.

      SECTION 4.06. Term. Each Manager shall hold office until his successor
shall be selected by the Member and qualified, or until his or her earlier
death, resignation or removal as provided in this Agreement.

      SECTION 4.07. Removal. Subject to Section 4.15, the Member may remove,
with or without cause, any Manager.

      SECTION 4.08. Resignation. Any Manager may resign at any time. Such
resignation shall be made in writing and shall take effect at the time specified
therein or, if no time is specified therein, at the time of its receipt by the
remaining Managers; provided, that the resignation of an Independent Manager
shall not be effective until a replacement Independent Manager (i) shall have
accepted his or her appointment as an Independent Manager, and (ii) shall have
executed a counterpart to this Agreement as required by Section 6.05. The
acceptance of a resignation shall not be necessary to make it effective, unless
so expressly provided in the resignation.

                                       14


      SECTION 4.09. Place of Meetings of Managers. Any meetings of the Managers
may be held either within or without the State of Delaware at such place or
places as shall be determined from time to time by resolution of the Managers.

      SECTION 4.10. Meetings of Managers. Meetings of the Managers may be held
when called by any Managers or Manager. The Manager or Managers calling any
meeting shall cause notice to be given of such meeting, including therein the
time, date and place of such meeting, to each Manager at least two Business Days
before such meeting. The business to be transacted at, or the purpose of, any
meeting of the Managers shall be specified in the notice or waiver of notice of
any such meeting. If fewer than all the Managers are present in person, by
telephone or by proxy, business transacted at any such meeting shall be confined
to the business or purposes specifically stated in the notice or waiver of
notice of such meeting.

      SECTION 4.11. Quorum; Majority Vote. At all meetings of the Managers, the
presence in person, by telephone or by proxy of a majority of the Managers shall
be necessary and sufficient to constitute a quorum for the transaction of
business unless a greater number is required by this Agreement or by law. The
act of a majority of the Managers present in person, by telephone or by proxy at
a meeting at which a quorum is present in person, by telephone or by proxy shall
be the act of the Managers, except as otherwise provided by law or this
Agreement. If a quorum shall not be present in person, by telephone or by proxy
at any meeting of the Managers, the Managers present in person, by telephone or
by proxy at the meeting may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
in person, by telephone or by proxy.

      SECTION 4.12. Methods of Voting; Proxies. A Manager may vote either in
person, by telephone, by electronic transmission or by proxy granted in writing,
by means of electronic transmission or as otherwise permitted by applicable law,
by the Manager; provided that the Person designated to act as proxy for an
Independent Manager must be an Independent Manager.

      SECTION 4.13. Actions Without a Meeting. Any action required or permitted
to be taken at a meeting of the Managers may be taken without a meeting, without
prior notice, and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the Managers having not fewer than the minimum
number of votes that would be necessary to take the action at a meeting at which
all Managers entitled to vote on the action were present and voted. Copies of
any such consents shall be filed with the minutes and permanent records of the
Company.

      SECTION 4.14. Telephone and Similar Meetings. The Managers, or members of
any committee thereof, may participate in and hold meetings by means of
conference telephone or similar communications equipment by means of which all
Persons participating in the meeting can hear each other. Such participation in
any such meeting shall constitute presence in person at such meeting, except
where a Person participates in such meeting for the express purpose of objecting
to the transaction of any business on the ground that such meeting is not
lawfully called or convened.

      SECTION 4.15. Managers. The Member and each Manager shall take all actions
necessary from time to time to ensure that at all times the number of Managers
shall be not less

                                       15


than three nor more than five; provided, however, that pursuant to Section 4.04,
the Company shall at all times have at least two Independent Managers. The
Managers upon the execution of this Agreement shall be those persons identified
on Schedule C.

      SECTION 4.16. Compensation and Fees. The Managers, other than the
Independent Managers, shall not receive any compensation or fees from the
Company. The compensation for the performance of CenterPoint Houston, as
Administrator under the Administration Agreement, shall include the compensation
of Persons serving as Managers, other than the Independent Managers. The fees of
the Independent Managers shall be paid by the Company and shall be fixed by the
Managers consistent with the provisions of any applicable Financing Order.

                                    ARTICLE V

                                    OFFICERS

      SECTION 5.01. Designation; Term; Qualifications. The Managers may, from
time to time, designate one or more Persons to be officers of the Company. Any
officer so designated shall have such title and authority and perform such
duties as the Managers may, from time to time, delegate to him or her. Each
officer shall hold office for the term for which such officer is designated and
until his or her successor shall be duly designated and shall qualify or until
his or her death, resignation or removal as provided in this Agreement. Any
Person may hold any number of offices. No officer need be a Manager, the Member,
a Delaware resident or a United States citizen. The persons identified on
Schedule D are hereby designated the officers of the Company.

      SECTION 5.02. Removal and Resignation. Any officer of the Company may be
removed as such, with or without cause, by the Managers at any time. Any officer
of the Company may resign as such at any time upon written notice to the
Company. Such resignation shall be made in writing and shall take effect at the
time specified therein or, if no time is specified therein, at the time of its
receipt by the Managers.

      SECTION 5.03. Vacancies. Any vacancy occurring in any office of the
Company may be filled by the Managers.

      SECTION 5.04. Compensation. The officers of the Company shall not receive
any compensation from the Company. The compensation for the performance of
CenterPoint Houston, as Administrator under the Administration Agreement, shall
include the compensation of Persons serving as officers of the Company.

                                   ARTICLE VI

                                     MEMBER

      SECTION 6.01. Powers. Subject to the provisions of this Agreement and the
Act, all powers shall be exercised by or under the authority of, and the
business and affairs of the Company shall be controlled by, the Member pursuant
to Section 6.03. The Member may not and shall not resign from the Company.
Pursuant to Section 4.01, the Member has delegated such powers to the Managers.
Without prejudice to such general powers, but subject to the same

                                       16


limitations, it is hereby expressly declared that the Member shall have the
following powers, subject to Section 4.04 in all cases:

      First: To select and remove the Managers and prescribe such powers and
duties for them as may be consistent with the Act and other applicable law and
this Agreement.

      Second: To conduct, manage and control the affairs and business of the
Company, and to make such rules and regulations therefor consistent with the Act
and other applicable law and this Agreement.

      Third: To change the registered office of the Company in Delaware from one
location to another; to fix and locate from time to time one or more other
offices of the Company; and to designate any place within or without the State
of Delaware for the conduct of the business of the Company.

      SECTION 6.02. Fees of Member. The Company shall have authority to pay to
the Member reasonable fees for the Member's services to the Company (other than
services to be provided to the Company by the Member pursuant to the
Administration Agreement and any Servicing Agreement, the compensation for which
is governed by such agreements), subject to the approval of the PUCT or the
deemed approval by the PUCT. With respect to the PUCT's approval of the fees of
the Member,

            (a) any Manager may request the approval of the PUCT by delivering
to the PUCT's executive director and general counsel a written request for such
approval, which request shall contain:

                  (i) a reference to Docket No. 30485 or the Docket No. of any
            proceeding related to the issuance of an additional Series of
            Transition Bonds and a statement as to the possible effect of the
            proposed fees on ongoing qualified costs;

                  (ii) an Officer's Certificate stating that the proposed fees
            have been approved by the Managers; and

                  (iii) a statement identifying the person to whom the PUCT or
            its staff is to address its approval to the proposed fee amount or
            request additional time;

            (b) The PUCT shall, within 30 days of receiving the request for
approval complying with Section 6.02(a) above, either

                  (i) provide notice of its approval or lack of approval to the
            person specified in Section 6.02(a)(iii) above, or

                  (ii) be conclusively deemed to have approved the proposed
            fees,

                                       17


unless, within 30 days of receiving the request for approval complying with
Section 6.02(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 6.02(a)(iii) above a written statement requesting an
additional amount of time not to exceed 30 days in which to consider whether to
approve the proposed fees. If the PUCT or its staff requests an extension of
time in the manner set forth in the preceding sentence, then the PUCT shall
either provide notice of its approval or lack of approval to the person
specified in Section 6.02(a)(iii) above no later than the last day of such
extension of time or be conclusively deemed to have approved the proposed fees
as of the last day of such extension of time. Following delivery of a notice to
the PUCT under Section 6.02(a) above, the Manager making the request (or other
Person designated by the Managers) may at any time withdraw from the PUCT
further consideration of any notification of a requested approval. Any Member
fees requiring the consent of the PUCT as provided in this Section 6.02 shall
become effective on the later of (i) the date proposed by the Manager(s)
therefor and (ii) the first day after the expiration of the 30 day period
provided for in Section 6.02(b), or, if such period has been extended pursuant
thereto, the first day after the expiration of such period as so extended. It is
understood that the fees paid to the Member under the provisions of this Section
shall be determined without regard to the income of the Company, shall not be
deemed to constitute distributions to the recipient of any profit, loss or
capital of the Company and shall be considered as an operating expense of the
Company.

      SECTION 6.03. Actions by the Member. All actions of the Member may be
taken by written resolution of the Member which shall be signed on behalf of the
Member by an authorized officer of the Member and filed with the minutes and
records of the Company.

      SECTION 6.04. Control by Member. To the extent the Member takes any action
with respect to the Company (including by means of its appointment of any
individual Manager or its control or employment of any individual Manager in any
other capacity), the Member, or any such Manager or officer designated by the
Managers, as applicable, will act in good faith in accordance with the terms of
this Agreement, and make decisions with respect to the business and daily
operations of the Company independent of, and not dictated by, in the case of
the Manager or officer, the Member, or in either case any Affiliate of the
foregoing, and, to the fullest extent permitted by law, any such Manager or
officer shall bear a fiduciary duty to the Company (including its creditors)
under the circumstances set forth in Section 4.04.

      SECTION 6.05. Special Member. Upon the occurrence of any event that causes
the Member to cease to be a member of the Company (other than upon an assignment
by the Member of all of its limited liability company interest in the Company
and the admission of the transferee pursuant to Section 7.01), each person
acting as an Independent Manager pursuant to Section 4.04 shall, without any
action of any Person and simultaneously with the Member ceasing to be a member
of the Company, automatically be admitted to the Company as a Special Member and
shall continue the Company without dissolution. No Special Member may resign
from the Company or transfer its rights as Special Member unless (i) a successor
Special Member has been admitted to the Company as Special Member by executing a
counterpart to this Agreement, and (ii) such successor has also accepted its
appointment as Independent Manager, provided, however, the Special Members shall
automatically cease to be members of the Company upon the admission to the
Company of a substitute Member (who may be approved by the personal
representative of the last Member that ceased to be a member of the Company).

                                       18


Each Special Member shall be a member of the Company that has no interest in the
profits, losses and capital of the Company and has no right to receive any
distributions of Company assets. Pursuant to Section 18-301(d) of the Act, a
Special Member shall not be required to make any capital contributions to the
Company and shall not receive a limited liability company interest in the
Company. A Special Member, in its capacity as Special Member, may not bind the
Company. Except as required by any mandatory provision of the Act, a Special
Member, in its capacity as Special Member, shall have no right to vote on,
approve or otherwise consent to any action by, or matter relating to, the
Company, including the merger, consolidation or conversion of the Company. In
order to implement the admission to the Company of each Special Member, each
person acting as an Independent Manager pursuant to Section 4.04 shall execute a
counterpart to this Agreement. Prior to its admission to the Company as Special
Member, each person acting as an Independent Manager pursuant to Section 4.04
shall not be a member of the Company.

                                   ARTICLE VII

                                 COMMON INTEREST

      SECTION 7.01. General. (a) The Common Interest is hereby issued to the
Member and shall be deemed fully paid and non-assessable. The Common Interest
constitutes personal property and shall be freely transferable and assignable in
whole but not in part upon registration of such transfer and assignment on the
books of the Company in accordance with the procedures established for such
purpose by the Managers. Upon registration of the transfer and assignment of the
Common Interest on the books of the Company, and without any further action of
any Person, the transferee/assignee shall be admitted to the Company as a member
of the Company and shall be and become the sole Member of the Company and shall
have the rights and powers, and be subject to the restrictions and liabilities,
of the Member under this Agreement and the Act, and, immediately following such
admission, the transferor/assignor shall cease to be the Member, each as of the
date of such registration. Notwithstanding the foregoing, the Common Interest
may not be transferred unless the Rating Agency Condition is satisfied. The
Common Interest of the Member shall be evidenced by a certificate in the form
set forth in Schedule B hereto.

            (b)   Certificates.

                  (i)   The Company shall issue one or more certificates in the
                        name of the Member. Each certificate shall be signed by
                        a Manager on behalf of the Company.

                  (ii)  The Company shall issue a certificate in place of any
                        certificate previously issued if the holder of the
                        Common Interest represented by such certificate, as
                        reflected on the books and records of the Company:

                        (A)   makes proof by affidavit, in form and substance
                              satisfactory to the Managers, that such previously
                              issued certificate has been lost, stolen or
                              destroyed;

                                       19


                        (B)   requests the issuance of a new certificate before
                              the Managers have notice that such previously
                              issued certificate has been acquired by a
                              purchaser for value in good faith and without
                              notice of an adverse claim;

                        (C)   if requested by the Managers, delivers to the
                              Company a bond, in form and substance satisfactory
                              to the Managers, with such surety or sureties as
                              the Managers may direct, to indemnify the Company
                              and the Managers against any claim that may be
                              made on account of the alleged loss, destruction
                              or theft of the previously issued certificate; and

                        (D)   satisfies any other reasonable requirements
                              imposed by the Managers.

                  (iii) Upon a Member's transfer in accordance with the
                        provisions of this Agreement of the Common Interest
                        represented by a certificate, the transferee of the
                        Common Interest shall deliver such certificate to the
                        Managers for cancellation, and a Manager shall thereupon
                        issue a new certificate to such transferee.

      SECTION 7.02. Distributions. The Member shall be entitled to receive, out
of the assets of the Company legally available therefor, when, as and if
declared by unanimous vote of the Managers, distributions payable in cash in
such amounts, if any, as the Managers shall declare. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not be
required to make a distribution to the Member on account of its interest in the
Company if such distribution would violate Sections 18-607 or 18-804 of the Act
or any other applicable law or any Basic Document.

      SECTION 7.03. Rights on Liquidation, Dissolution or Winding Up.

            (a) The Company shall be dissolved, and its affairs shall be wound
up upon the first to occur of the following: (i) the termination of the legal
existence of the last remaining member of the Company or the occurrence of any
other event which terminates the continued membership of the last remaining
member of the Company in the Company unless the business of the Company is
continued in a manner permitted by this Agreement or the Act or (ii) the entry
of a decree of judicial dissolution under Section 18-802 of the Act. The
resignation or dissolution of the Member or the resignation of any Special
Member (whether or not in violation of any provision of this Agreement
prohibiting such action) shall not, by itself, constitute a dissolution of the
Company.

            (b) In the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the sale of the
assets of the Company in an orderly manner), and the assets of the Company shall
be applied in the manner, and in the order of priority, set forth in Section
18-804 of the Act.

            (c) The Company shall terminate when (i) all of the assets of the
Company, after payment of or due provision for all debts, liabilities and
obligations of the Company shall have

                                       20


been distributed to the Member in the manner provided for in this Agreement and
(ii) the Certificate of Formation shall have been canceled in the manner
required by the Act.

            (d) Neither the sale of all or substantially all of the property or
business of the Company, nor the merger, conversion or consolidation of the
Company into or with another company or other entity, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purpose of this Section 7.03.

            (e) The commencement of a Bankruptcy, insolvency, receivership or
other similar proceeding by or against the Company shall not result in the
dissolution of the Company or in the cessation of the interest of the Member in
the Company.

            (f) Upon the occurrence of any event that causes the last remaining
member of the Company to cease to be a member of the Company, to the fullest
extent permitted by law, the personal representative of such member is hereby
authorized to, and shall, within 90 days after the occurrence of the event that
terminated the continued membership of such member in the Company, agree in
writing (i) to continue the Company and (ii) to the admission of the personal
representative or its nominee or designee, as the case may be, as a substitute
member of the Company, effective as of the occurrence of the event that
terminated the continued membership of the last remaining member of the Company
in the Company.

            (g) Notwithstanding any other provision of this Agreement, the
Bankruptcy of the Member or any Special Member shall not cause the Member or
Special Member, respectively, to cease to be a member of the Company, and upon
the occurrence of such an event, the business of the Company shall continue
without dissolution.

      SECTION 7.04. Redemption. The Common Interest shall not be redeemable.

      SECTION 7.05. Voting Rights. Subject to Section 4.04, the Member shall
have the sole right to vote on all matters as to which members of a limited
liability company shall be entitled to vote pursuant to the Act and other
applicable law.

                                  ARTICLE VIII

                  ALLOCATIONS; DISTRIBUTIONS; EXPENSES; TAXES;
                               BOOKS; AND REPORTS

      SECTION 8.01. Allocations. Except as may be required by section 704(c) of
the Code and Treasury Regulation section 1.704-1(b)(2)(iv)(f)(4), all items of
income, gain, loss, deduction and credit of the Company for each Fiscal Year
shall be allocated to the Member. Any credit available for federal income tax
purposes shall be allocated to the Member in the same manner.

      SECTION 8.02. Distributions. All distributions shall be made to the Member
from surplus funds. Except as provided in Section 7.02 and Section 8.03, all
distributions shall be made in such amounts and at such times as determined by
the Managers.

                                       21


      SECTION 8.03. Limitation Upon Distributions. No distribution shall be
declared and paid unless, after the distribution is made, no default has
occurred and is continuing under the Indenture or any Series of Transition Bonds
then outstanding.

      SECTION 8.04. Expenses. Except as otherwise provided in this Agreement,
and subject to the provisions of the Basic Documents, the Company shall be
responsible for all expenses and the allocation thereof including:

            (a) all expenses incurred by the Member or its Affiliates in
organizing the Company;

            (b) all expenses related to the payment of the principal of and
interest on and other amounts in respect of the Transition Bonds issued by the
Company;

            (c) all expenses related to the business of the Company and all
administrative expenses of the Company, including any amounts payable under the
Administration Agreement and any Servicing Agreement, the maintenance of books
and records of the Company and the preparation and dispatch to the Member of
checks, financial reports, tax returns and notices required pursuant to this
Agreement;

            (d) all expenses incurred in connection with any litigation or
arbitration involving the Company (including the cost of any investigation and
preparation) and the amount of any judgment or settlement paid in connection
therewith;

            (e) all expenses for indemnity or contribution payable by the
Company to any Person;

            (f) all expenses incurred in connection with the collection of
amounts due to the Company from any Person;

            (g) all expenses incurred in connection with the preparation of
amendments to this Agreement, any other Basic Documents and any documents
required by any of the foregoing;

            (h) all expenses incurred in connection with the liquidation,
dissolution and winding up of the Company; and

            (i) all expenses otherwise allocated in good faith to the Company by
the Managers.

      SECTION 8.05. Tax Elections. The Managers shall make the following
elections on behalf of the Company:

            (a) To elect the calendar year as the Company's Fiscal Year;

            (b) To elect the accrual method of accounting;

                                       22


            (c) To elect to treat all organization and start-up costs of the
Company as deferred expenses amortizable over 60 months under Section 195 of the
Code; and

            (d) To elect with respect to such other federal, state and local tax
matters as the Managers shall agree upon from time to time.

      SECTION 8.06. Annual Tax Information. The Managers shall cause the Company
to deliver to the Member all information necessary for the preparation of the
Member's federal or state income tax return.

      SECTION 8.07. Tax Matters Member. The Member shall communicate and
negotiate with the Internal Revenue Service on any tax matter on behalf of the
Member and the Company.

      SECTION 8.08. Maintenance of Books. The Company shall keep books and
records of accounts and shall keep minutes of the proceedings of the Member, the
Managers and each committee of the Managers. The Fiscal Year shall be the
accounting year of the Company.

      SECTION 8.09. Reports. Within ninety (90) days following the end of each
Fiscal Year during the term of the Company, the Managers shall cause to be
furnished to the Member a balance sheet, an income statement and a statement of
changes in Member's capital account for, or as of the end of, that Fiscal Year.
Such financial statements shall be prepared in accordance with the accounting
method selected by the Managers consistently applied (except as therein noted),
and shall be accompanied by an audit report from a nationally recognized
accounting firm. The Managers also may cause to be prepared or delivered such
other reports as they may deem appropriate. The Company shall bear the costs of
all such financial statements and reports.

                                   ARTICLE IX

                                 INDEMNIFICATION

      SECTION 9.01. Mandatory Indemnification of Member, the Special Members and
the Managers. Any Person who was or is a party or is threatened to be made a
party to or is involved in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative (hereafter a "Proceeding"), or any appeal in such a Proceeding or
any inquiry or investigation that could lead to such a Proceeding by reason of
the fact that such Person is or was the Member, a Special Member or a Manager,
or by reason of the fact that the Member, such Special Member or such Manager is
or was serving at the request of the Company as a member, director, manager,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, limited liability
company or partnership, joint venture, partnership, trust, sole proprietorship,
employee benefit plan or other enterprise, shall be indemnified by the Company,
to the fullest extent permitted by applicable law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide greater or broader
indemnification rights than such law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar taxes
and punitive damages), fines, settlements and reasonable expenses (including
reasonable attorneys' fees) actually incurred by such Person in connection with
such Proceeding except that such

                                       23


Person shall not be entitled to indemnification for any judgment, penalty, fine,
settlement or expense directly caused by such Person's fraud, gross negligence
or willful misconduct. It is expressly acknowledged that the indemnification
provided in this Article IX could involve indemnification for negligence or
under theories of strict liability. Notwithstanding anything herein to the
contrary, for so long as any Transition Bonds are outstanding, no payment from
funds of the Company (as distinct from funds from other sources, such as
insurance) of any indemnity of the Member, Special Member or any Manager under
this Article IX shall be payable except in amounts and out of funds available
for payment of Company expenses as provided in the Indenture.

      SECTION 9.02. Mandatory Advancement of Expenses. Expenses incurred by a
Person of the type entitled to be indemnified under Section 9.01 in defending
any Proceeding shall be paid or reimbursed by the Company in advance of the
final disposition of the Proceeding to the extent that such expenses are
Qualified Costs, without any determination as to such Person's ultimate
entitlement to indemnification under Section 9.01, upon receipt of a written
affirmation by such Person of such Person's good faith belief that such Person
has met the standard of conduct necessary for indemnification under this
Agreement and a written undertaking by or on behalf of such Person to repay all
amounts so advanced if it shall ultimately be determined that such Person is not
entitled to be indemnified by the Company as authorized in Section 9.01 or
otherwise. The written undertaking shall be an unlimited general obligation of
the Person but need not be secured and shall be accepted without reference to
financial ability to make repayment.

      SECTION 9.03. Indemnification of Officers, Employees and Agents. The
Company shall indemnify and pay and advance expenses to an officer, employee or
agent of the Company to the same extent and subject to the same conditions under
which it may indemnify and pay and advance expenses to the Member, any Special
Member or any Managers under this Article IX, and the Company shall indemnify
and pay and advance expenses to any Person who is or was an officer, employee or
agent of the Company and who is or was serving at the request of the Company as
a member, manager, director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic limited
liability company or partnership, corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise against any
liability asserted against such Person and incurred by such Person in such a
capacity or arising out of such Person's status as such to the same extent and
subject to the same conditions that the Company may indemnify and pay and
advance expenses to the Member or a Special Member or any Manager under this
Article IX.

      SECTION 9.04. Nonexclusivity of Rights. The indemnification and
advancement and payment of expenses provided by this Article IX (i) shall not be
deemed exclusive of any other rights to which the Member, a Special Member, a
Manager or other Person seeking indemnification may be entitled under any
statute, agreement, decision of the Member or disinterested Managers, or
otherwise both as to action in such Person's official capacity and as to action
in another capacity while holding such office, (ii) shall continue as to any
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity and advancement and payment of expenses, and (iii) shall
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the Member, such Special Member, such Manager or other Person.

                                       24


      SECTION 9.05. Contract Rights. The rights granted pursuant to this Article
IX shall be deemed to be contract rights, and no amendment, modification or
repeal of this Article IX shall have the effect of limiting or denying any such
rights with respect to actions taken or Proceedings arising prior to any such
amendment, modification or repeal.

      SECTION 9.06. Insurance. The Company may purchase and maintain insurance
or other arrangement or both, at its expense, on behalf of itself or any Person
who is or was serving as the Member, a Special Member, a Manager, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a member, manager, director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
limited liability company or partnership, corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
against any liability, expense or loss, whether or not the Company would have
the power to indemnify such Person against such liability under the provisions
of this Article IX.

      SECTION 9.07. Savings Clause. If this Article IX or any portion of this
Agreement shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify and hold harmless
the Member, each Special Member, each Manager or any other Person indemnified
pursuant to this Article IX as to costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, to the fullest extent permitted by any applicable portion of this
Article IX that shall not have been invalidated and to the fullest extent
permitted by applicable law.

      SECTION 9.08. Other Ventures. It is expressly agreed that the Member, any
Special Member, any Manager and any Affiliates, officers, managers, members, or
employees of the Member, any Special Member or any Manager, may engage in other
business ventures of every nature and description, whether or not in competition
with the Company, independently or with others, and the Company shall not have
any rights in and to any independent venture or activity or the income or
profits derived therefrom.

      SECTION 9.09. Other Arrangements Not Excluded. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to this
Article IX:

            (a) does not exclude any other rights to which a Person seeking
indemnification or advancement of expenses may be entitled under any agreement,
decision of the Member or otherwise, for either an action of the Member, any
Special Member or any Manager, officer, employee or agent in the official
capacity of such Person or an action in another capacity while holding such
position, except that indemnification, unless ordered by a court pursuant to
Section 9.05 above, may not be made to or on behalf of the Member, any Special
Member or any Manager if a final adjudication established that its acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action; and

            (b) continues for a Person who has ceased to be the Member, a
Special Member, Manager, officer, employee or agent and inures to the benefit of
the successors, heirs, executors and administrators of such a Person.

                                       25


      SECTION 9.10. Survival. The forgoing provisions of this Article IX shall
survive any termination of this Agreement.

                                    ARTICLE X

                            MISCELLANEOUS PROVISIONS

      SECTION 10.01. Offset. Whenever the Company is to pay any sum to the
Member, any amounts the Member owes the Company may be deducted from such sum
before payment.

      SECTION 10.02. Notices. Except as expressly set forth to the contrary in
this Agreement, all notices, requests or consents provided for or permitted to
be given under this Agreement shall be in writing and shall be given either by
depositing such writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering such writing to the recipient in person, by reputable overnight
courier, or by facsimile transmission; and a notice, request or consent given
under this Agreement shall be effective on receipt by the Person to whom sent or
three business days after deposit in the United States mail, registered or
certified, postage prepaid and properly addressed. All notices, requests and
consents to be sent to the Member shall be sent to or made to 1111 Louisiana
Street, Houston, Texas 77002, Attention: Treasurer or such other address as the
Member may specify by notice to the Company and the Managers. Any notice,
request, or consent to the Company or the Managers must be given to the Managers
at the following address: 1111 Louisiana Street, Suite 4655B, Houston, Texas
77002, Attention: Manager. Whenever any notice is required to be given by law or
this Agreement, a written waiver thereof, signed by the Person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.

      SECTION 10.03. Benefits of Agreement; No Third-Party Rights. Subject to
Section 10.09, none of the provisions of this Agreement shall be for the benefit
of or enforceable by any creditor of the Company or by any creditor of the
Member. Nothing in this Agreement shall be deemed to create any right in any
Person (other than Persons indemnified pursuant to Article IX) not a party
hereto, and this Agreement shall not be construed in any respect to be a
contract in whole or in part for the benefit of any third Person.

      SECTION 10.04. Effect of Waiver or Consent. A waiver or consent, express
or implied, to or of any breach or default by any Person in the performance by
such Person of its obligations with respect to the Company shall not be a
consent or waiver to or of any other breach or default in the performance by
such Person of the same or any other obligations of such Person with respect to
the Company.

      SECTION 10.05. Governing Law; Severability. This Agreement shall be
governed by and shall be construed in accordance with the law of the State of
Delaware, excluding any conflicts-of-law rule or principle that might refer the
governance or the construction of this Agreement to the law of another
jurisdiction. In the event of a direct conflict between the provisions of this
Agreement and any mandatory provision of the Act, then the applicable provision
of the Act shall control. If any provision of this Agreement or the application
thereof to any Person or circumstance is held invalid or unenforceable to any
extent, the remainder of

                                       26


this Agreement and the application of that provision to other Persons or
circumstances shall not be affected thereby and such provision shall be enforced
to the fullest extent permitted by law.

      SECTION 10.06. No Bankruptcy Petition; Dissolution.

            (a) To the fullest extent permitted by law, the Member, each Special
Member and each Manager hereby covenant and agree (or shall be deemed to have
hereby covenanted and agreed) that, prior to the date which is one year and one
day after the termination of the Indenture and the payment in full of every
Series of Transition Bonds and any other amounts owed under the Indenture,
including, without limitation, any amounts owed to third-party credit enhancers
or swap or hedge agreement counterparties with respect to the Transition Bonds,
it will not acquiesce, petition or otherwise invoke or cause the Company to
invoke the process of any court or Governmental Authority for the purpose of
commencing or sustaining a case against the Company under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Company or any substantial part of the property of the Company, or ordering the
winding up or liquidation of the affairs of the Company; provided, however, that
nothing in this Section 10.06 shall constitute a waiver of any right to
indemnification, reimbursement or other payment from the Company pursuant to
this Agreement. This Section 10.06 is not intended to apply to the filing of a
voluntary bankruptcy petition on behalf of the Company which is governed by
Section 4.04(b) of this Agreement.

            (b) To the fullest extent permitted by law, the Member, each Special
Member and each Manager hereby covenants and agrees (or shall be deemed to have
hereby covenanted and agreed) that, until the termination of the Indenture and
the payment in full of any Series of the Transition Bonds and any other amounts
owed under the Indenture, including any amounts owed to third-party credit
enhancers or under any swap agreement or hedge agreement, the Member, such
Special Member and such Manager will not consent to, or make application for, or
institute or maintain any action for, the dissolution of the Company under
Section 18-801 or 18-802 of the Act or otherwise.

            (c) In the event that the Member, any Special Member or any Manager
takes action in violation of this Section 10.06, the Company agrees that it
shall file an answer with the court or otherwise properly contest the taking of
such action and raise the defense that the Member, the Special Member or
Manager, as the case may be, has agreed in writing not to take such action and
should be estopped and precluded therefrom and such other defenses, if any, as
its counsel advises that it may assert.

            (d) The provisions of this Section 10.06 shall survive the
termination of this Agreement and the resignation, withdrawal or removal of the
Member, any Special Member or any Manager. Nothing herein contained shall
preclude participation by the Member, any Special Member or a Manager in
assertion or defense of its claims in any such proceeding involving the Company.

      SECTION 10.07. Amendment. Subject to Section 4.04(b)(x) hereof, so long as
the Rating Agency Condition is satisfied, the Trustee shall have given its prior
approval and, in the case of any amendment to Section 4.16, 5.04 or 6.02 or any
other amendment that increases

                                       27


ongoing qualified costs as defined in the applicable Financing Order, the PUCT
shall have given its prior written approval or be deemed to have given its prior
written approval, this Agreement may be modified, altered, supplemented or
amended in writing by the Member; provided further that neither approval of the
Trustee nor satisfaction of the Rating Agency Condition shall be necessary if
such modification, alteration, supplement or amendment is necessary: (i) to cure
any ambiguity or (ii) to correct or supplement any provision in a manner
consistent with the intent of this Agreement. With respect to the PUCT's
approval of any amendment to Section 4.16, 5.04 or 6.02 or any other amendment
that increases ongoing qualified costs specified in a Financing Order,

            (a) any Manager may request the approval of the PUCT by delivering
to the PUCT's executive director and general counsel a written request for such
approval, which request shall contain:

                  (i)   a reference to Docket No. 30485 or to the Docket No. of
            any proceeding related to the issuance of an additional Series of
            Transition Bonds and a statement as to the possible effect of the
            amendment on ongoing qualified costs;

                  (ii)  an Officer's Certificate stating that the proposed
            amendment has been approved by all necessary parties; and

                  (iii) a statement identifying the person to whom the PUCT or
            its staff is to address its approval to the proposed amendment or
            request additional time;

            (b) The PUCT shall, within 30 days of receiving the request for
approval complying with Section 10.07(a) above, either

                  (i)   provide notice of its approval or lack of approval to
            the person specified in Section 10.07(a)(iii) above, or

                  (ii)  be conclusively deemed to have approved the proposed
            amendment,

unless, within 30 days of receiving the request for approval complying with
Section 10.07(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 10.07(a)(iii) above a written statement requesting
an additional amount of time not to exceed 30 days in which to consider whether
to approve the proposed amendment. If the PUCT or its staff requests an
extension of time in the manner set forth in the preceding sentence, then the
PUCT shall either provide notice of its approval or lack of approval to the
person specified in Section 10.07(a)(iii) above no later than the last day of
such extension of time or be conclusively deemed to have approved the proposed
amendment as of the last day of such extension of time. Following delivery of a
notice to the PUCT under Section 10.07(a) above, the Manager making the request
(or other Person designated by the Managers) may at any time withdraw from the
PUCT further consideration of any notification of a proposed amendment.

                                       28


            (c) Any amendment requiring the consent of the PUCT as provided in
this Section 10.07 shall become effective on the later of (i) the date proposed
by the parties to such amendment and (ii) the first day after the expiration of
the 30 day period provided for in Section 10.07(b), or, if such period has been
extended pursuant thereto, the first day after the expiration of such period as
so extended.

      SECTION 10.08. Headings and Sections. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe, interpret,
define, or limit the scope, extent or intent of this Agreement or any provision
hereof.

      SECTION 10.09. Binding Agreement. Notwithstanding any other provision of
this Agreement, the Member agrees that this Agreement constitutes a legal, valid
and binding Agreement of the Member, and is enforceable against the Member by
the Independent Managers, in accordance with its terms. In addition, the
Independent Managers shall be intended beneficiaries of this Agreement.

      SECTION 10.10. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original of this Agreement and
all of which together shall constitute one and the same instrument.

                                       29


      IN WITNESS WHEREOF, this Amended and Restated Limited Liability Company
Agreement is hereby executed by the undersigned as of the date first written
above.

                                       MEMBER:

                                       CENTERPOINT ENERGY HOUSTON
                                       ELECTRIC, LLC

                                       /s/ MARC KILBRIDE
                                       ----------------------------------------
                                       Marc Kilbride
                                       Vice President and Treasurer

                                       Agreed and consented to by the Special
                                       Members and Independent Managers:

                                       /s/ BERNARD J. ANGELO
                                       ----------------------------------------
                                       Bernard J. Angelo

                                       /s/ ANDREW L. STIDD
                                       ----------------------------------------
                                       Andrew L. Stidd

                                       30


                                   SCHEDULE A

                   Schedule of Capital Contributions of Member

                                 COMMON INTEREST



       Member             Capital Contribution     Common Interest Percentage
- ---------------------     --------------------     --------------------------
                                             
 CenterPoint Energy            $9,256,000                     100%
Houston Electric, LLC


                                      A-1


                                   SCHEDULE B

                         CERTIFICATE OF COMMON INTEREST

                                       of

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                           A Limited Liability Company

                 Formed under the Laws of the State of Delaware

      This Certificate is issued and shall be held subject to the provisions of
the Amended and Restated Limited Liability Company Agreement of CenterPoint
Energy Transition Bond Company II, LLC, dated as of December 16, 2005, as the
same may be amended from time to time.

      This Certificate of Common Interest certifies that CenterPoint Energy
Houston Electric, LLC, a Texas limited liability company, is the registered
holder of the entire Common Interest of the Company, which Common Interest shall
be transferable only on the books of the Company by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate with a
proper endorsement.

      IN WITNESS WHEREOF, the Company has caused this Certificate to be signed
by one of its duly authorized Managers this ____ day of ________.

                                       CENTERPOINT ENERGY TRANSITION BOND
                                       COMPANY II, LLC

                                       ________________________________________
                                       Manager

                                      B-1


               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

      For Value Received the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________________
the entire Common Interest of the Company represented by the within Certificate
and does hereby irrevocably constitute and appoint
____________________________________________, Attorney, to transfer said Common
Interest on the books of the Company with full power of substitution in the
premises.

Dated: __________________

                                      B-2


                                   SCHEDULE C

                                    Managers*

Names

Marc Kilbride
James S. Brian
Gary L. Whitlock

                              Independent Managers*

Names

Bernard J. Angelo
Andrew L. Stidd

* The Member adopted resolutions on December 14, 2005, appointing James S. Brian
and Gary L. Whitlock as additional Managers and upon the closing of the offering
and sale of the initial Series of Transition Bonds appointing Bernard J. Angelo
and Andrew L. Stidd as Independent Managers.

                                      C-1


                                   SCHEDULE D

                                Initial Officers



Names                                            Office
- -----                      --------------------------------------------------
                        
Gary L. Whitlock           President
Scott E. Rozzell           Executive Vice President, General Counsel and
                           Secretary
James S. Brian             Senior Vice President and Chief Accounting Officer
Walter F. Fitzgerald       Vice President and Controller
Marc Kilbride              Vice President and Treasurer
Rufus S. Scott             Vice President, Deputy General Counsel and
                           Assistant Corporate Secretary
Richard B. Dauphin         Assistant Secretary
Linda Geiger               Assistant Treasurer


                                       D-1

                                                                     EXHIBIT 4.1

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                                     Issuer

                                       and

                            WILMINGTON TRUST COMPANY

                                     Trustee

                                       and

                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                             Securities Intermediary

                                    INDENTURE

                          Dated as of December 16, 2005

                                   ----------

                            Securing Transition Bonds

                               Issuable in Series



                                TABLE OF CONTENTS


                                                                           
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.......................    2
   SECTION 1.01.  DEFINITIONS..............................................    2
   SECTION 1.02.  INCORPORATION BY REFERENCE OF THE TRUST INDENTURE ACT....    2
   SECTION 1.03.  RULES OF CONSTRUCTION....................................    2

ARTICLE II THE TRANSITION BONDS............................................    3
   SECTION 2.01.  FORM.....................................................    3
   SECTION 2.02.  EXECUTION, AUTHENTICATION AND DELIVERY...................    3
   SECTION 2.03.  DENOMINATIONS; TRANSITION BONDS ISSUABLE IN SERIES.......    4
   SECTION 2.04.  TEMPORARY TRANSITION BONDS...............................    5
   SECTION 2.05.  REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE......    6
   SECTION 2.06.  MUTILATED, DESTROYED, LOST OR STOLEN TRANSITION BONDS....    7
   SECTION 2.07.  PERSONS DEEMED OWNER.....................................    8
   SECTION 2.08.  PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST;
                     INTEREST ON OVERDUE PRINCIPAL AND PREMIUM, IF ANY;
                     PRINCIPAL, PREMIUM AND INTEREST RIGHTS PRESERVED......    8
   SECTION 2.09.  CANCELLATION.............................................    9
   SECTION 2.10.  AMOUNT; AUTHENTICATION AND DELIVERY OF TRANSITION BONDS..   10
   SECTION 2.11.  BOOK-ENTRY TRANSITION BONDS..............................   14
   SECTION 2.12.  NOTICES TO CLEARING AGENCY...............................   15
   SECTION 2.13.  DEFINITIVE TRANSITION BONDS..............................   15

ARTICLE III COVENANTS......................................................   16
   SECTION 3.01.  PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST......   16
   SECTION 3.02.  MAINTENANCE OF OFFICE OR AGENCY..........................   16
   SECTION 3.03.  MONEY FOR PAYMENTS TO BE HELD IN TRUST...................   16
   SECTION 3.04.  EXISTENCE................................................   18
   SECTION 3.05.  PROTECTION OF TRUST ESTATE...............................   18
   SECTION 3.06.  OPINIONS AS TO TRUST ESTATE..............................   18
   SECTION 3.07.  PERFORMANCE OF OBLIGATIONS; COMMISSION FILINGS...........   19
   SECTION 3.08.  NEGATIVE COVENANTS.......................................   21
   SECTION 3.09.  ANNUAL STATEMENT AS TO COMPLIANCE........................   22
   SECTION 3.10.  ISSUER MAY CONSOLIDATE, ETC..............................   22
   SECTION 3.11.  SUCCESSOR OR TRANSFEREE..................................   23
   SECTION 3.12.  NO OTHER BUSINESS........................................   23



                                       -i-




                                                                           
   SECTION 3.13.  NO BORROWING.............................................   23
   SECTION 3.14.  GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES........   23
   SECTION 3.15.  CAPITAL EXPENDITURES.....................................   24
   SECTION 3.16.  RESTRICTED PAYMENTS......................................   24
   SECTION 3.17.  NOTICE OF EVENTS OF DEFAULT..............................   24
   SECTION 3.18.  PURCHASE OF SUBSEQUENT TRANSITION PROPERTY...............   24
   SECTION 3.19.  INSPECTION...............................................   26
   SECTION 3.20.  SALE AGREEMENT, INTERCREDITOR AGREEMENT, ADMINISTRATION
                     AGREEMENT AND SERVICING AGREEMENT COVENANTS...........   26

   SECTION 3.21.  TAXES....................................................   29

ARTICLE IV SATISFACTION AND DISCHARGE; DEFEASANCE..........................   29
   SECTION 4.01.  SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE......   29
   SECTION 4.02.  CONDITIONS TO DEFEASANCE.................................   31
   SECTION 4.03.  APPLICATION OF TRUST MONEY...............................   32
   SECTION 4.04.  REPAYMENT OF MONEYS HELD BY PAYING AGENT.................   33

ARTICLE V REMEDIES.........................................................   33
   SECTION 5.01.  EVENTS OF DEFAULT........................................   33
   SECTION 5.02.  ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.......   34
   SECTION 5.03.  COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
                     BY TRUSTEE............................................   35
   SECTION 5.04.  REMEDIES; PRIORITIES.....................................   37
   SECTION 5.05.  OPTIONAL PRESERVATION OF THE TRUST ESTATE................   39
   SECTION 5.06.  LIMITATION OF PROCEEDINGS................................   39
   SECTION 5.07.  UNCONDITIONAL RIGHTS OF TRANSITION BONDHOLDERS TO RECEIVE
                     PRINCIPAL, PREMIUM, IF ANY, AND INTEREST..............   40
   SECTION 5.08.  RESTORATION OF RIGHTS AND REMEDIES.......................   40
   SECTION 5.09.  RIGHTS AND REMEDIES CUMULATIVE...........................   40
   SECTION 5.10.  DELAY OR OMISSION NOT A WAIVER...........................   40
   SECTION 5.11.  CONTROL BY TRANSITION BONDHOLDERS........................   40
   SECTION 5.12.  WAIVER OF PAST DEFAULTS..................................   41
   SECTION 5.13.  UNDERTAKING FOR COSTS....................................   41
   SECTION 5.14.  WAIVER OF STAY OR EXTENSION LAWS.........................   42
   SECTION 5.15.  ACTION ON TRANSITION BONDS...............................   42

ARTICLE VI THE TRUSTEE.....................................................   42
   SECTION 6.01.  DUTIES AND LIABILITIES OF TRUSTEE........................   42
   SECTION 6.02.  RIGHTS OF TRUSTEE........................................   44
   SECTION 6.03.  INDIVIDUAL RIGHTS OF TRUSTEE.............................   44
   SECTION 6.04.  TRUSTEE'S DISCLAIMER.....................................   45
   SECTION 6.05.  NOTICE OF DEFAULTS.......................................   45



                                      -ii-




                                                                           
   SECTION 6.06.  REPORTS BY TRUSTEE TO HOLDERS............................   45
   SECTION 6.07.  COMPENSATION AND INDEMNITY...............................   46
   SECTION 6.08.  REPLACEMENT OF TRUSTEE...................................   47
   SECTION 6.09.  SUCCESSOR TRUSTEE BY MERGER..............................   48
   SECTION 6.10.  APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE............   48
   SECTION 6.11.  ELIGIBILITY; DISQUALIFICATION............................   50
   SECTION 6.12.  PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.........   50
   SECTION 6.13.  REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE............   50
   SECTION 6.14.  RIGHTS OF THE AUTHENTICATING AGENT, TRANSITION BOND
                     REGISTRAR, PAYING AGENT, AND SECURITIES INTERMEDIARY..   50

ARTICLE VII TRANSITION BONDHOLDERS' LISTS AND REPORTS......................   52
   SECTION 7.01.  ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
                     TRANSITION BONDHOLDERS................................   52
   SECTION 7.02.  PRESERVATION OF INFORMATION; COMMUNICATIONS TO
                     TRANSITION BONDHOLDERS................................   53
   SECTION 7.03.  REPORTS BY ISSUER........................................   53
   SECTION 7.04.  REPORTS BY TRUSTEE.......................................   54
   SECTION 7.05.  PROVISION OF SERVICER REPORTS............................   54

ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES..........................   54
   SECTION 8.01.  COLLECTION OF MONEY......................................   54
   SECTION 8.02.  COLLECTION ACCOUNT.......................................   55
   SECTION 8.03.  RELEASE OF TRUST ESTATE..................................   60
   SECTION 8.04.  ISSUER OPINION OF COUNSEL................................   61
   SECTION 8.05.  REPORTS BY INDEPENDENT ACCOUNTANTS.......................   61
   SECTION 8.06.  REP DEPOSIT ACCOUNT......................................   62

ARTICLE IX SUPPLEMENTAL INDENTURES.........................................   62
   SECTION 9.01.  SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF TRANSITION
                     BONDHOLDERS...........................................   62
   SECTION 9.02.  SUPPLEMENTAL INDENTURES WITH CONSENT OF TRANSITION
                     BONDHOLDERS...........................................   64
   SECTION 9.03.  EXECUTION OF SUPPLEMENTAL INDENTURES.....................   66
   SECTION 9.04.  EFFECT OF SUPPLEMENTAL INDENTURE.........................   66
   SECTION 9.05.  CONFORMITY WITH TRUST INDENTURE ACT......................   66
   SECTION 9.06.  REFERENCE IN TRANSITION BONDS TO SUPPLEMENTAL
                     INDENTURES............................................   66
   SECTION 9.07.  PUCT CONSENT.............................................   66

ARTICLE X REDEMPTION OF TRANSITION BONDS...................................   67
   SECTION 10.01. MANDATORY REDEMPTION BY ISSUER...........................   67
   SECTION 10.02. FORM OF REDEMPTION NOTICE................................   68



                                      -iii-




                                                                           
   SECTION 10.03. PAYMENT OF REDEMPTION PRICE..............................   68

ARTICLE XI MISCELLANEOUS...................................................   69
   SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC................   69
   SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE...................   69
   SECTION 11.03. ACTS OF TRANSITION BONDHOLDERS...........................   70
   SECTION 11.04. NOTICES, ETC.............................................   70
   SECTION 11.05. NOTICES TO TRANSITION BONDHOLDERS; WAIVER................   71
   SECTION 11.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS..................   72
   SECTION 11.07. NOTICES TO LUXEMBOURG STOCK EXCHANGE.....................   72
   SECTION 11.08. CONFLICT WITH TRUST INDENTURE ACT........................   72
   SECTION 11.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS.................   72
   SECTION 11.10. SUCCESSORS AND ASSIGNS...................................   73
   SECTION 11.11. SEPARABILITY.............................................   73
   SECTION 11.12. BENEFITS OF INDENTURE....................................   73
   SECTION 11.13. LEGAL HOLIDAYS...........................................   73
   SECTION 11.14. GOVERNING LAW............................................   73
   SECTION 11.15. COUNTERPARTS.............................................   73
   SECTION 11.16. ISSUER OBLIGATION........................................   73
   SECTION 11.17. NO PETITION..............................................   73
   SECTION 11.18. INTERCREDITOR AGREEMENT..................................   74


SCHEDULE 1.  FORM OF SEMIANNUAL SERVICER'S CERTIFICATE

SCHEDULE 2a. STATUTORY TRUE-SALE OPINION

SCHEDULE 2b. STATE LAW SECURITY INTEREST OPINION

SCHEDULE 2c. UCC OPINION

APPENDIX A.  MASTER DEFINITIONS


                                      -iv-



       CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH
               318, INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:



               TRUST INDENTURE ACT SECTION                  INDENTURE SECTION(S)
               ---------------------------                  --------------------
                                                         
Section 310(a)(1)........................................   6.11
Section 310(a)(2)........................................   6.11
Section 310(a)(3)........................................   6.10(b)
Section 310(a)(4)........................................   Not Applicable
Section 310(a)(5)........................................   6.11
Section 310(b)...........................................   6.08, 6.11
Section 311(a)...........................................   6.12
Section 311(b)...........................................   6.12
Section 311(c)...........................................   Not Applicable
Section 312(a)...........................................   7.01, 7.02
Section 312(b)...........................................   7.02
Section 312(c)...........................................   7.02
Section 313(a)...........................................   7.04
Section 313(b)...........................................   7.04
Section 313(c)...........................................   7.04
Section 313(d)...........................................   7.04
Section 314(a)...........................................   3.09, 7.03
Section 314(b)...........................................   3.07
Section 314(b)(1)........................................   Not Addressed
Section 314(b)(2)........................................   3.06
Section 314(c)(1)........................................   11.01
Section 314(c)(2)........................................   11.01



                                       -v-





               TRUST INDENTURE ACT SECTION                  INDENTURE SECTION(S)
               ---------------------------                  --------------------
                                                         
Section 314(c)(3)........................................   11.02
Section 314(d)...........................................   8.03, 8.04, 9.02
Section 314(e)...........................................   11.01
Section 315(a)...........................................   6.01. 6.02
Section 315(b)...........................................   6.05
Section 315(c)...........................................   6.01
Section 315(d)...........................................   6.01
Section 315(e)...........................................   5.13
Section 316(a)...........................................   5.11, 5.12
Section 316(a)(1)(A).....................................   5.11
Section 316(a)(1)(B).....................................   5.12
Section 316(a)(2)........................................   Not Applicable
Section 316(b)...........................................   5.07
Section 316(c)...........................................   Not Addressed
Section 317(a)(1)........................................   5.03
Section 317(a)(2)........................................   5.03
Section 317(b)...........................................   3.03
Section 318(a)...........................................   11.08


NOTE: This reconciliation and tie sheet shall not, for any purpose, be deemed to
be a part of the Indenture.


                                      -vi-



     INDENTURE dated as of December 16, 2005, by and among CenterPoint Energy
Transition Bond Company II, LLC, a Delaware limited liability company (the
"Issuer"), Wilmington Trust Company, a Delaware banking corporation, in its
capacity as trustee (the "Trustee"), and Deutsche Bank Trust Company Americas, a
New York banking corporation, in its capacity as the Securities Intermediary
hereunder, (the "Securities Intermediary").

     The Issuer has duly authorized the execution and delivery of this Indenture
to provide for one or more Series of Transition Bonds, issuable as provided in
this Indenture. Each Series of Transition Bonds will be issued only under a
separate Series Supplement to this Indenture, duly executed and delivered by the
Issuer and the Trustee. The Issuer is entering into this Indenture, and the
Trustee is accepting the trusts created hereby, each for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
each intending to be legally bound hereby.

     The Transition Bonds of each Series shall be non-recourse obligations and
shall be secured by and payable solely out of the Transition Property and the
other Trust Estate securing such Series of Transition Bonds. If and to the
extent such Transition Property and the other Trust Estate are insufficient to
pay all amounts owing with respect to the Transition Bonds secured thereby,
then, except as otherwise expressly provided herein, the Holders shall have no
claim in respect of such insufficiency against the Issuer or any other Person,
and the Holders, by their acceptance of such Transition Bonds, waive any such
claim.

     All things necessary to (a) make the Transition Bonds, when executed and
duly issued by the Issuer and authenticated and delivered by the Trustee
hereunder, valid obligations, and (b) make this Indenture a valid agreement of
the Issuer, in each case, in accordance with their respective terms, have been
done.

     In consideration of the foregoing, the Issuer, the Trustee and the
Securities Intermediary agree as follows:

     That under one or more Series Supplements, the Issuer will Grant to the
Trustee a Lien on and trust interest in the property described therein (such
property with respect to a particular Series being the "Series Trust Estate" and
all such property, collectively, the "Trust Estate"). Each Series Trust Estate
shall secure the obligations of the Issuer as more particularly described in the
applicable Series Supplement.

     AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the parties hereto
that all Transition Bonds are to be issued, countersigned, registered and
delivered and the Trust Estate is to be held and applied, subject to the further
covenants, conditions, releases, uses and trusts hereinafter set forth, and the
Issuer, for itself and any successor, does hereby covenant and agree to and with
the Trustee and its successors in said trust, for the benefit of the Holders, as
follows:



                                    ARTICLE I

                   DEFINITIONS AND INCORPORATION BY REFERENCE

     SECTION 1.01. DEFINITIONS. Capitalized terms used but not otherwise defined
in this Indenture have the respective meanings set forth in Appendix A hereto
unless the context otherwise requires.

     SECTION 1.02. INCORPORATION BY REFERENCE OF THE TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. Each of the
following TIA terms used in this Indenture has the following meaning:

          "Commission" means the Securities and Exchange Commission.

          "indenture securities" means the Transition Bonds.

          "indenture security holder" means a Holder.

          "indenture to be qualified" means this Indenture.

          "indenture trustee" or "institutional trustee" means the Trustee.

          "obligor" on the indenture securities means the Issuer and any other
     obligor on the indenture securities.

All other TIA terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule have the
meaning assigned to them by such definitions.

     SECTION 1.03. RULES OF CONSTRUCTION.

          (i) An accounting term not otherwise defined has the meaning assigned
     to it in accordance with generally accepted accounting principles as in
     effect from time to time;

          (ii) "including" means including without limitation;

          (iii) with respect to terms defined in Appendix A hereto, the meanings
     shall be equally applicable to both the singular and plural forms of such
     terms and shall refer to either gender as may be appropriate;

          (iv) unless otherwise specified, references herein to Sections or
     Articles are to Sections or Articles of this Indenture; and

          (v) the words "herein," "hereof," "hereunder" and other words of
     similar import refer to this Indenture as a whole and not to any particular
     Article, Section or other subdivision.


                                      -2-



                                   ARTICLE II

                              THE TRANSITION BONDS

     SECTION 2.01. FORM. The Transition Bonds and the Trustee's certificate of
authentication shall be in substantially the forms set forth in the related
Series Supplement, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture or by the
related Series Supplement and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the Managers of the Issuer executing
such Transition Bonds, as evidenced by their execution of such Transition Bonds.
Any portion of the text of any Transition Bond may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Transition
Bond. Each Transition Bond shall be dated the date of its authentication.

     The Transition Bonds shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the Managers of the Issuer executing
such Transition Bonds, as evidenced by their execution of such Transition Bonds.

     Each Transition Bond shall bear upon its face the designation so selected
for the Series and Tranche, if any, to which it belongs. The terms of all
Transition Bonds of the same Series shall be the same, unless such Series is
comprised of one or more Tranches, in which case the terms of all Transition
Bonds of the same Tranche shall be the same.

     Each Transition Bond shall state that the Texas Electric Choice Plan
provides that the State of Texas pledges "for the benefit and protection of
financing parties and the electric utility, that it will not take or permit any
action that would impair the value of the transition property, or except as
permitted . . . [through the Transition Charge Adjustment Process] . . . reduce,
alter, or impair the transition charges to be imposed, collected, and remitted
to financing parties, until the principal, interest, and premium, and any other
charges incurred and contracts to be performed in connection with the related
transition bonds have been paid and performed in full."

     SECTION 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Transition Bonds
shall be executed on behalf of the Issuer by a Manager. The signature of any
such Manager on the Transition Bonds may be manual or facsimile.

     Transition Bonds bearing the manual or facsimile signature of individuals
who were at any time Managers shall bind the Issuer, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Transition Bonds.

     The Trustee hereby appoints Deutsche Bank Trust Company Americas as
authenticating agent to authenticate the Transition Bonds whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. The Trustee shall not be liable for any
act or any failure of the authenticating agent to perform any duty either


                                      -3-



required herein or authorized herein to be performed by such person in
accordance with this Indenture.

     At any time and from time to time after the execution and delivery of this
Indenture, the Issuer may deliver Transition Bonds executed on behalf of the
Issuer to the Trustee pursuant to an Issuer Order for authentication; and the
Trustee shall authenticate and deliver such Transition Bonds as in this
Indenture provided and not otherwise.

     No Transition Bond shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Transition
Bond a certificate of authentication substantially in the form provided for
herein executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Transition Bond shall be conclusive
evidence, and the only evidence, that such Transition Bond has been duly
authenticated and delivered hereunder.

     If and for so long as any Series of Transition Bonds is listed on the
Luxembourg Stock Exchange and the rules and regulations of such exchange so
require, a transfer or other agent appointed pursuant to Section 3.02 shall be
authorized on behalf of the Trustee to execute and deliver such certificate of
authentication.

     SECTION 2.03. DENOMINATIONS; TRANSITION BONDS ISSUABLE IN SERIES. The
Transition Bonds of each Series shall be issuable as registered Transition Bonds
in Authorized Denominations.

     The Transition Bonds may, at the election of and as authorized by a Manager
and set forth in a Series Supplement, be issued in one or more Series (each of
which may be comprised of one or more Tranches), and shall be designated
generally as the "Transition Bonds" of the Issuer, with such further particular
designations added or incorporated in such title for the Transition Bonds of any
particular Series or Tranche as a Manager of the Issuer may determine and as set
forth in the Series Supplement therefor.

     Each Series of Transition Bonds shall be created by a Series Supplement
authorized by a Manager and establishing the terms and provisions of such Series
and, if applicable, any Tranches thereof. The several Series and Tranches
thereof may differ as between Series and Tranches, in respect of any of the
following matters:

     (a) designation of the Series and, if applicable, the Tranches thereof;

     (b) the aggregate initial principal amount of the Transition Bonds of the
Series and, if applicable, each Tranche thereof;

     (c) the Bond Rate of the Series and, if applicable, each Tranche thereof or
the formula, if any, used to calculate the applicable Bond Rate or Bond Rates
for the Series and each Tranche thereof;

     (d) the Payment Dates for the Series and, if applicable, each Tranche
thereof;


                                      -4-



     (e) the Expected Final Payment Date of the Series, and, if applicable, each
Tranche thereof;

     (f) the Series Final Maturity Date for the Series and, if applicable, the
Tranche Final Maturity Date for each Tranche thereof;

     (g) the Series Issuance Date for the Series;

     (h) the Series Trust Estate;

     (i) the place or places for payments with respect to the Series and, if
applicable, each Tranche thereof;

     (j) the Authorized Denominations for the Series and, if applicable, each
Tranche thereof;

     (k) the provisions, if any, for redemption of the Series by the Issuer and,
if applicable, each Tranche thereof;

     (l) whether the Transition Bonds of the Series are to be Book-Entry
Transition Bonds and the extent to which Section 2.11 will apply;

     (m) the Expected Amortization Schedule for the Series and, if applicable,
each Tranche thereof;

     (n) the Required Capital Amount with respect to the Series;

     (o) the Calculation Dates and Adjustment Dates for the Series;

     (p) the credit enhancement, if any, applicable to the Series and each
Tranche thereof and, with respect to Floating Rate Bonds, the terms of the
applicable swap agreement and the identity of the swap counterparty; and

     (q) any other terms of the Series or Tranche that are not inconsistent with
the provisions of this Indenture and that will not result in any Rating Agency
reducing or withdrawing its rating of any Outstanding Series or Tranche of
Transition Bonds.

     SECTION 2.04. TEMPORARY TRANSITION BONDS. Pending the preparation of
definitive Transition Bonds pursuant to Section 2.13, or by agreement of the
purchasers of all Transition Bonds or, in the case of Transition Bonds held in a
book-entry only system by a Clearing Agency, a Manager on behalf of the Issuer
may execute, and upon receipt of an Issuer Order, the Trustee shall authenticate
and deliver temporary Transition Bonds which are printed, lithographed,
typewritten, mimeographed or otherwise produced of the tenor of the definitive
Transition Bonds in lieu of which they are issued and with such variations not
inconsistent with the terms of this Indenture as a Manager executing such
Transition Bonds may determine, as evidenced by its execution of such Transition
Bonds.


                                      -5-



     If temporary Transition Bonds are issued, the Issuer will cause definitive
Transition Bonds to be prepared without unreasonable delay except where
temporary Transition Bonds are held by a Clearing Agency. After the preparation
of definitive Transition Bonds, the temporary Transition Bonds shall be
exchangeable for definitive Transition Bonds upon surrender of the temporary
Transition Bonds at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Transition Bonds, a Manager on behalf
of the Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like Series (and, if applicable, Tranche) and initial
principal amount of definitive Transition Bonds in Authorized Denominations.
Until so exchanged, the temporary Transition Bonds shall in all respects be
entitled to the same benefits under this Indenture as definitive Transition
Bonds.

     SECTION 2.05. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE. The
Issuer shall cause to be kept a register (the "Transition Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the
Transition Bond Registrar shall provide for the registration of Transition Bonds
and the registration of transfers of Transition Bonds. Deutsche Bank Trust
Company Americas shall be Transition Bond Registrar for the purpose of
registering Transition Bonds and transfers of Transition Bonds as herein
provided. Upon any resignation of any Transition Bond Registrar, the Issuer
shall promptly appoint a successor or, if it elects not to make such an
appointment, assume the duties of Transition Bond Registrar.

     If a Person other than the Trustee is appointed by the Issuer as Transition
Bond Registrar, the Issuer shall give the Trustee and any transfer, paying, or
listing agent of the Issuer prompt written notice of the appointment of such
Transition Bond Registrar and of the location, and any change in the location,
of the Transition Bond Register, and the Trustee and any such agent shall have
the right to inspect the Transition Bond Register at all reasonable times and to
obtain copies thereof, and the Trustee shall have the right to rely conclusively
upon a certificate executed on behalf of the Transition Bond Registrar by a duly
authorized officer thereof as to the names and addresses of the Holders of the
Transition Bonds and the principal amounts and number of such Transition Bonds.

     Upon surrender for registration of transfer of any Transition Bond at the
office or agency of the Issuer to be maintained as provided in Section 3.02, a
Manager on behalf of the Issuer shall execute, and the Trustee shall
authenticate and the Transition Bondholder shall obtain from the Trustee, in the
name of the designated transferee or transferees, one or more new Transition
Bonds in any Authorized Denominations of a like Series (and, if applicable,
Tranche) and aggregate outstanding principal amount.

     At the option of the Holder, Transition Bonds may be exchanged for other
Transition Bonds of a like Series (and, if applicable, Tranche) and aggregate
outstanding principal amount in Authorized Denominations upon surrender of the
Transition Bonds to be exchanged at such office or agency. Whenever any
Transition Bonds are so surrendered for exchange, a Manager on behalf of the
Issuer shall execute, and the Trustee shall authenticate, and the Transition
Bondholder shall obtain from the Trustee the Transition Bonds which the
Transition Bondholder making the exchange is entitled to receive.


                                      -6-



     All Transition Bonds issued upon any registration of transfer or exchange
of Transition Bonds shall be the valid obligations of the Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Transition Bonds surrendered upon such registration of transfer or exchange.

     Every Transition Bond presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in the form set forth in the applicable Series Supplement or such
other form as is satisfactory to the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an Eligible Guarantor Institution in the form set forth
in such Transition Bond.

     No service charge shall be made to a Holder for any registration of
transfer or exchange of Transition Bonds (except as may be required by the rules
and regulations of the Luxembourg Stock Exchange with respect to any Transition
Bonds listed thereon), but, other than in respect of exchanges pursuant to
Section 2.04 or 9.05 not involving any transfer, the Issuer or the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Transition Bonds.

     The preceding provisions of this Section notwithstanding, except to the
extent otherwise required by the rules and regulations of the Luxembourg Stock
Exchange with respect to any Transition Bonds listed thereon, the Issuer shall
not be required to make, and the Transition Bond Registrar need not register,
transfers or exchanges of Transition Bonds selected for redemption or transfers
or exchanges of any Transition Bond for a period of 15 days preceding the Final
Maturity Date with respect to such Transition Bond.

     SECTION 2.06. MUTILATED, DESTROYED, LOST OR STOLEN TRANSITION BONDS. If (i)
any mutilated Transition Bond is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Transition Bond, and (ii) there is delivered to the Trustee such security or
indemnity as may be required by it to hold the Issuer and the Trustee harmless,
then, in the absence of written notice to the Issuer, the Transition Bond
Registrar or the Trustee that such Transition Bond has been acquired by a bona
fide purchaser, a Manager on behalf of the Issuer shall execute, and upon a
Manager's written request the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Transition Bond, a replacement Transition Bond of like Series (and, if
applicable, Tranche), tenor and initial principal amount in Authorized
Denominations, bearing a number not contemporaneously outstanding; provided,
however, that if any such destroyed, lost or stolen Transition Bond, but not a
mutilated Transition Bond, shall have become or within seven days shall be due
and payable, or shall have been called for redemption, instead of issuing a
replacement Transition Bond, the Issuer may pay such destroyed, lost or stolen
Transition Bond when so due or payable or upon the Redemption Date without
surrender thereof. If, after the delivery of such replacement Transition Bond or
payment of a destroyed, lost or stolen Transition Bond pursuant to the proviso
to the preceding sentence, a bona fide purchaser of the original Transition Bond
in lieu of which such replacement Transition Bond was issued, or in respect of
which such payment was made, presents for payment such original Transition Bond,
the Issuer and the Trustee shall be entitled to recover such replacement
Transition Bond (or such payment) from the Person to whom it was delivered or
any Person


                                      -7-



taking such replacement Transition Bond from such Person to whom such
replacement Transition Bond was delivered or any assignee of such Person, except
a bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Trustee in connection therewith.

     Upon the issuance of any replacement Transition Bond under this Section,
the Issuer or the Trustee may require the payment by the Holder of such
Transition Bond of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Trustee and its counsel) connected
therewith.

     Every replacement Transition Bond issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Transition Bond shall
constitute an original additional contractual obligation of the Issuer, whether
or not the mutilated, destroyed, lost or stolen Transition Bond shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Transition Bonds
duly issued hereunder.

     The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Transition Bonds.

     SECTION 2.07. PERSONS DEEMED OWNER. Prior to due presentment for
registration of transfer of any Transition Bond, the Issuer, the Trustee, the
Transition Bond Registrar and any agent of the Issuer, the Transition Bond
Registrar or the Trustee may treat the Person in whose name any Transition Bond
is registered (as of the day of determination) as the owner of such Transition
Bond for the purpose of receiving payments of Principal of and premium, if any,
and Interest on such Transition Bond and for all other purposes whatsoever,
whether or not such Transition Bond be overdue, and neither the Issuer, the
Trustee, the Transition Bond Registrar nor any agent of the Issuer, the
Transition Bond Registrar or the Trustee shall be affected by notice to the
contrary.

     SECTION 2.08. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST; INTEREST
ON OVERDUE PRINCIPAL AND PREMIUM, IF ANY; PRINCIPAL, PREMIUM AND INTEREST RIGHTS
PRESERVED.

     (a) The Transition Bonds of each Series shall accrue Interest as provided
in the related Series Supplement, at the applicable Bond Rate specified therein,
and such Interest shall be payable on each Payment Date as specified therein.
Any installment of Interest, principal or premium, if any, payable on any
Transition Bond which is punctually paid or duly provided for by the Issuer on
the applicable Payment Date shall be paid to the Person in whose name such
Transition Bond (or one or more Predecessor Transition Bonds) is registered on
the Record Date for such Payment Date, by check mailed first-class, postage
prepaid, to such Person's address as it appears on the Transition Bond Register
on such Record Date, or in such other manner as may be provided in the related
Series Supplement, except that (i) upon application to the Trustee by any Holder
owning Transition Bonds of any Series or Tranche in the principal amount of
$10,000,000 or more not later than the applicable Record Date payment will be
made by wire


                                      -8-



transfer to an account maintained and specified by such Holder and (ii) with
respect to Book-Entry Transition Bonds, payments will be made by wire transfer
in immediately available funds to the account designated by the Holder of the
applicable global Transition Bond unless and until such global Transition Bond
is exchanged for definitive Transition Bonds (in which event payments shall be
made as provided above) and except for the final installment of principal and
premium, if any, payable with respect to such Transition Bond on a Payment Date
which shall be payable as provided in clause (b) below. The funds represented by
any such checks returned undelivered shall be held in accordance with Section
3.03.

     (b) The principal of each Transition Bond of each Series (and, if
applicable, Tranche) shall be payable in installments on each Payment Date
specified in the Expected Amortization Schedule included in the form of
Transition Bond attached to the Series Supplement for such Transition Bonds, but
only to the extent that moneys are available for such payment pursuant to
Section 8.02; provided that installments of principal not paid when scheduled to
be paid shall be paid upon receipt of moneys available for such purpose, in the
manner set forth in the applicable Expected Amortization Schedule. Failure to
pay principal of each Transition Bond of a Series in accordance with such
Expected Amortization Schedule because moneys are not available pursuant to
Section 8.02 to make such payments shall not constitute a Default or Event of
Default under this Indenture with respect to that Series. Notwithstanding the
foregoing, the entire unpaid principal amount of the Transition Bonds of any
Series or Tranche shall be due and payable, if not previously paid (i) on the
Series Final Maturity Date (or, if applicable, Tranche Final Maturity Date)
therefor, (ii) on the date on which the Transition Bonds of all Series have been
declared immediately due and payable in accordance with Section 5.02 or (iii) on
the Redemption Date, if any, therefor. The Trustee shall notify the Person in
whose name a Transition Bond is registered at the close of business on the
Record Date preceding the Payment Date on which the Issuer expects that the
final installment of principal of and premium, if any, and Interest on such
Transition Bond will be paid. Such notice shall be mailed no later than five
days prior to such Expected Final Payment Date and shall specify that such final
installment of principal and premium, if any, will be payable only upon
presentation and surrender of such Transition Bond and shall specify the place
where such Transition Bond may be presented and surrendered for payment of such
installment, which, so long as any Transition Bonds are listed on the Luxembourg
Stock Exchange, shall include the office of the paying agent in Luxembourg
appointed pursuant to Section 3.02. Notices in connection with redemptions of
Transition Bonds shall be mailed to Transition Bondholders as provided in
Section 10.03.

     (c) If the Issuer defaults in a payment of Interest on the Transition Bonds
of any Series, the Issuer shall pay defaulted Interest (plus Interest on such
defaulted Interest at the applicable Bond Rate to the extent lawful) in any
lawful manner. The Issuer may pay such defaulted Interest to the Persons who are
Transition Bondholders on a subsequent special record date, which date shall be
at least fifteen Business Days prior to the special payment date. The Issuer
shall fix or cause to be fixed any such special record date and payment date,
and, at least 10 days before any such special record date, the Issuer shall mail
to each affected Transition Bondholder a notice that states the special record
date, the payment date and the amount of defaulted Interest to be paid.

     SECTION 2.09. CANCELLATION. All Transition Bonds surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the


                                      -9-



Trustee, be delivered to the Trustee and shall be promptly canceled by the
Trustee. The Issuer may at any time deliver to the Trustee for cancellation any
Transition Bonds previously authenticated and delivered hereunder which the
Issuer may have acquired in any manner whatsoever, and all Transition Bonds so
delivered shall be promptly canceled by the Trustee. No Transition Bonds shall
be authenticated in lieu of or in exchange for any Transition Bonds canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Transition Bonds may be held or disposed of by the Trustee in
accordance with its standard retention or disposal policy as in effect at the
time unless the Issuer shall direct by an Issuer Order that they be destroyed or
returned to it; provided that such Issuer Order is timely and the Transition
Bonds have not been previously disposed of by the Trustee.

     SECTION 2.10. AMOUNT; AUTHENTICATION AND DELIVERY OF TRANSITION BONDS. The
aggregate principal amount of Transition Bonds that may be authenticated and
delivered under this Indenture shall not exceed $1,851,000.00.

     Transition Bonds of each Series created and established by a Series
Supplement may from time to time be executed by a Manager on behalf of the
Issuer and delivered to the Trustee for authentication and thereupon the same
shall be authenticated and delivered by the Trustee upon Issuer Request and upon
delivery to the Trustee at the Issuer's expense of the following; provided,
however, that except with respect to items (1), (4)(a)(i) and (4)(a)(vi) below,
compliance with the following conditions and delivery of the following documents
shall be required only in connection with the original issuance of a Transition
Bond or Bonds of such Series:

     (1) Issuer Action. An Issuer Order authorizing and directing the execution,
authentication and delivery of the Transition Bonds by the Trustee or the
authenticating agent and specifying the principal amount of Transition Bonds to
be authenticated.

     (2) Authorizing Certificate. A certified resolution of the Managers
authorizing the execution and delivery of the Series Supplement for the
Transition Bonds applied for and the execution, authentication and delivery of
such Transition Bonds.

     (3) Series Supplement. A Series Supplement in form satisfactory to the
Trustee for the Series of Transition Bonds being issued, which shall set forth
the provisions and form of the Transition Bonds of such Series (and, if
applicable, each Tranche thereof).

     (4) Certificates of the Issuer and the Seller.

          (a) An Issuer Officer's Certificate dated as of the Series Issuance
     Date, stating:

               (i) that no Default has occurred and is continuing under this
          Indenture and that the issuance of the Transition Bonds being issued
          will not result in any Default;

               (ii) that the Issuer has not assigned any interest or
          participation in the Series Trust Estate, except for the Grant
          contained in the applicable Series Supplement; that the Issuer has the
          power and authority to Grant the Series Trust Estate, and to Grant a
          security interest in and a Lien upon the Series Trust Estate,


                                      -10-



          to the Trustee, free and clear of any other security interest, Liens,
          adverse claims and options; and that such security interest is a
          perfected security interest in all right, title and interest in and to
          the Series Trust Estate free and clear of any Lien, except the Lien of
          this Indenture;

               (iii) that the Issuer has appointed an Independent registered
          public accounting firm contemplated in Section 8.05 and identifying
          such firm;

               (iv) that attached thereto are duly executed, true and complete
          copies of the applicable Sale Agreement, Servicing Agreement,
          Administration Agreement, and Intercreditor Agreement;

               (v) that all filings with the PUCT pursuant to the Texas Electric
          Choice Plan and the Financing Order and all filings required under the
          Texas Electric Choice Plan and all UCC financing statements with
          respect to the Series Trust Estate for that Series of Transition Bonds
          that are required to be filed by the terms of the Financing Order, the
          Texas Electric Choice Plan, the applicable Sale Agreement, the
          applicable Servicing Agreement or this Indenture have been filed as
          required; and

               (vi) that all conditions precedent provided in the Basic
          Documents relating to the authentication and delivery of the
          Transition Bonds have been complied with.

          (b) An Officer's Certificate from the Seller, dated as of the Series
     Issuance Date, to the effect that:

               (i) in the case of the Transition Property to be transferred to
          the Issuer on such date, immediately prior to the conveyance thereof
          to the Issuer pursuant to the applicable Sale Agreement, the Seller
          was the sole owner of the rights and interests under the Financing
          Order that will comprise the Transition Property upon transfer to the
          Issuer and such ownership interest was perfected; such Transition
          Property has been validly transferred and sold to the Issuer free and
          clear of all Liens (other than Liens created by the Issuer pursuant to
          this Indenture) and such transfer is absolute, irrevocable and has
          been perfected; the Seller has the power and authority to own, sell
          and assign the rights and interests under the Financing Order that
          will comprise the Transition Property upon transfer to the Issuer; and
          the Seller has duly authorized such sale and assignment to the Issuer;
          and

               (ii) the Financing Order creating such Transition Property
          attached to such certificate is in full force and effect and the copy
          of the Financing Order attached thereto is true and complete.

     (5) Issuer Opinion of Counsel. An Issuer Opinion of Counsel, portions of
which may be delivered by counsel for the Issuer and portions of which may be
delivered by counsel for the Seller and/or the Servicer, dated as of the Series
Issuance Date subject to customary


                                      -11-



qualifications, acceptable to the Trustee, to the collective effect that (or, in
the case of subsections (d), (e) and (f) below, in the form of):

          (a) regarding the Financing Order, that (i) such Financing Order is
     final and non-appealable and in full force and effect and (ii) the
     Transition Bonds being issued are authorized to be issued under the
     Financing Order;

          (b) regarding the Issuer:

               (i) the Issuer has the power and authority to execute and deliver
          the Series Supplement and this Indenture and to issue the Transition
          Bonds being issued, each of the Series Supplement and this Indenture
          and such Transition Bonds have been duly authorized, executed and
          delivered, and the Issuer is duly organized and is validly existing in
          good standing under the laws of the jurisdiction of its organization;

               (ii) no authorization, approval or consent of any governmental
          body is required for the valid issuance, authentication or delivery of
          such Transition Bonds, except for any such authorization, approval or
          consent as already has been obtained and such registrations as are
          required under the Blue Sky and securities laws of any State;

               (iii) the Transition Bonds being issued, when executed and
          authenticated in accordance with the provisions of the Indenture and
          delivered, will constitute valid and binding obligations of the Issuer
          except as such enforceability may be subject to bankruptcy,
          insolvency, reorganization or other laws relating to or affecting
          creditors' rights generally and to general principles of equity
          (regardless of whether such enforceability is considered in a
          proceeding in equity or at law) entitled to the benefits of the
          Indenture and the related Series Supplement;

               (iv) this Indenture (including the related Series Supplement),
          the applicable Sale Agreement, the applicable Administration
          Agreement, the applicable Servicing Agreement and any applicable
          Intercreditor Agreement are valid and binding agreements of the
          Issuer, enforceable against the Issuer in accordance with their
          respective terms, except as such enforceability may be subject to
          bankruptcy, insolvency, reorganization or other laws relating to or
          affecting creditors' rights generally and to general principles of
          equity (regardless of whether such enforceability is considered in a
          proceeding in equity or at law);

          (c) regarding the Seller, the Servicer, CenterPoint Houston and the
     Administrator: the applicable Sale Agreement, the applicable Servicing
     Agreement, any applicable Intercreditor Agreement, and the applicable
     Administration Agreement are valid and binding agreements of the Seller,
     the Servicer, CenterPoint Houston and the Administrator, respectively (as
     to which any such Person is a party), enforceable against the Seller, the
     Servicer, CenterPoint Houston and the Administrator in accordance with
     their terms except as such enforceability may be subject to bankruptcy,
     insolvency,


                                      -12-



     reorganization or other laws relating to or affecting creditors' rights
     generally and to general principles of equity (regardless of whether such
     enforcement is considered in a proceeding in equity or at law);

          (d) Schedule 2a attached hereto with respect to the sale and transfer
     of the Transition Property from the Seller to the Issuer;

          (e) Schedule 2b attached hereto with respect to the Grant of a
     security interest under the Texas Electric Choice Plan in such Series Trust
     Estate to the Trustee for the benefit of the Transition Bondholders;

          (f) Schedule 2c attached hereto with respect to the Grant of a
     security interest under the UCC in such Series Trust Estate to the Trustee
     for the benefit of the Transition Bondholders;

          (g) the Indenture has been duly qualified under the Trust Indenture
     Act and either (i) the Series Supplement for the Transition Bonds applied
     for has been duly qualified under the Trust Indenture Act or (ii) no such
     qualification of such Series Supplement is necessary;

          (h) all instruments furnished to the Trustee conform to the
     requirements of this Indenture and constitute all the documents required to
     be delivered hereunder for the Trustee to authenticate and deliver the
     Transition Bonds applied for and all conditions precedent provided for in
     this Indenture relating to the authentication and delivery of such
     Transition Bonds (unless waived in writing by the Trustee) have been
     complied with;

          (i) either (A) the registration statement covering the Transition
     Bonds is effective under the Securities Act of 1933 and, to the best of
     such counsel's knowledge and information, no stop order suspending the
     effectiveness of such registration statement has been issued under the
     Securities Act of 1933 nor have proceedings therefor been instituted by the
     Commission or (B) the Transition Bonds are exempt from the registration
     requirements under the Securities Act of 1933;

          (j) the applicable Sale Agreement, the applicable Servicing Agreement,
     and the applicable Administration Agreement have been duly authorized,
     executed and delivered by the Seller, the Servicer, the Issuer and the
     Administrator, respectively (as to which any such Person is a party);

          (k) any applicable Intercreditor Agreement has been duly authorized,
     executed and delivered by CenterPoint Houston, the Servicer and the Issuer;
     and

          (l) the Issuer is not now and, following the issuance of the
     Transition Bonds will not be, required to be registered under the
     Investment Company Act of 1940, as amended.

     (6) Reserved.


                                      -13-



     (7) Rating Agency Condition. The Trustee shall receive written confirmation
from each Rating Agency that such Series of Transition Bonds will be rated as
set forth in the applicable Series Supplement.

     (8) Bill of Sale. If the issuance of a Series of Transition Bonds is a
Financing Issuance, the Bill of Sale delivered to the Issuer under the
applicable Sale Agreement with respect to the Transition Property being
purchased with the proceeds of such Financing Issuance.

     (9) Moneys for Refunding. If the issuance of a Series of Transition Bonds
is a Refunding Issuance, the amount of money necessary to pay the outstanding
Principal balance of, and premium and Interest on, the Transition Bonds being
refunded to the Redemption Date for the Transition Bonds, is to be deposited
into a separate account with the Trustee.

     (10) Required Capital Amount. Evidence satisfactory to the Trustee that the
Required Capital Amount for such Series has been credited to the Capital
Subaccount.

     SECTION 2.11. BOOK-ENTRY TRANSITION BONDS. Unless otherwise specified in
the related Series Supplement, each Series of Transition Bonds, upon original
issuance, will be issued in the form of a typewritten Transition Bond or
Transition Bonds representing the Book-Entry Transition Bonds, to be delivered
to DTC, as the initial Clearing Agency, by, or on behalf of, the Issuer. Such
Transition Bond shall initially be registered on the Transition Bond Register in
the name of Cede & Co., the nominee of the initial Clearing Agency, and no
Transition Bond Owner will receive a definitive Transition Bond representing
such Transition Bond Owner's interest in such Transition Bond, except as
provided in Section 2.13. Unless and until definitive, fully registered
Transition Bonds of any Series (the "Definitive Transition Bonds") replacing the
Book-Entry Transition Bonds have been issued to Transition Bondholders of that
Series pursuant to Section 2.13 or pursuant to any applicable Series Supplement
relating thereto:

     (a) the provisions of this Section shall be in full force and effect;

     (b) the Transition Bond Registrar and the Trustee shall be entitled to deal
with the Clearing Agency for all purposes of this Indenture (including the
payment of Principal of and premium, if any, and Interest on the Transition
Bonds and the giving of instructions or directions hereunder) as the sole Holder
of the Transition Bonds, and shall have no obligation to the Transition Bond
Owners;

     (c) to the extent that the provisions of this Section conflict with any
other provisions of this Indenture, the provisions of this Section shall
control;

     (d) the rights of Transition Bond Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such Transition Bond Owners and the Clearing Agency or the
Clearing Agency Participants. Pursuant to the DTC Agreement, unless and until
Definitive Transition Bonds are issued pursuant to Section 2.13, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of Principal of and premium, if
any, and Interest on the Transition Bonds to such Clearing Agency Participants;
and


                                      -14-



     (e) whenever this Indenture requires or permits actions to be taken based
upon instructions or directions of Holders of Transition Bonds evidencing a
specified percentage of the Outstanding Amount of the Transition Bonds or a
Series or Tranche thereof, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such effect
from Transition Bond Owners or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial interest
in the Transition Bonds or such Series or Tranche and has delivered such
instructions to the Trustee.

     SECTION 2.12. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Transition Bondholders is required under this Indenture,
unless and until Definitive Transition Bonds shall have been issued to
Transition Bond Owners pursuant to Section 2.13 and the applicable Series
Supplement, the Trustee, the Servicer and the Paying Agent shall give all such
notices and communications specified herein to be given to Transition
Bondholders to the Clearing Agency, and shall have no obligation to the
Transition Bond Owners.

     SECTION 2.13. DEFINITIVE TRANSITION BONDS. If (i) the Clearing Agency or
the Issuer advises the Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities as nominee and
depository with respect to any Book-Entry Series or Tranche of Transition Bonds
and the Issuer is unable to locate a qualified successor, (ii) the Issuer
advises the Trustee in writing that it elects to discontinue use of the
book-entry-only transfers through the Clearing Agency with respect to any Series
or Tranche of Transition Bonds and to deliver certificated Transition Bonds to
the Clearing Agency or (iii) after the occurrence of an Event of Default,
Transition Bond Owners representing beneficial interests aggregating at least a
majority of the Outstanding Amount of the Transition Bonds of all Series
maintained as Book-Entry Transition Bonds advise the Issuer and, through the
Clearing Agency, the Trustee in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interests of the
Transition Bond Owners of such Series, then the Trustee shall notify all
affected Transition Bond Owners and the Issuer of the occurrence of any such
event and of the availability of Definitive Transition Bonds to affected
Transition Bond Owners requesting the same. Upon surrender by the Clearing
Agency to the Trustee of the typewritten Transition Bond or Transition Bonds
representing the Book-Entry Transition Bonds of that Series, accompanied by
registration instructions, a Manager on behalf of the Issuer shall execute and
the Trustee shall authenticate the Definitive Transition Bonds in accordance
with the instructions of the Clearing Agency. None of the Issuer, the Transition
Bond Registrar or the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Transition Bonds, the Trustee
shall recognize the Holders of the Definitive Transition Bonds as Transition
Bondholders.

     Definitive Transition Bonds will be transferable and exchangeable at the
offices of the Transition Bond Registrar or, with respect to any Transition
Bonds listed on the Luxembourg Stock Exchange, at the offices of the transfer
agent appointed pursuant to the second paragraph of Section 3.02. With respect
to any transfer of such listed Transition Bonds, the new Definitive Transition
Bonds registered in the names specified by the transferee and the original
transferor shall be available at the offices of such transfer agent.


                                      -15-



                                   ARTICLE III

                                    COVENANTS

     SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. The
Issuer will duly and punctually pay the Principal of and premium, if any, and
Interest on the Transition Bonds in accordance with the terms of the Transition
Bonds, this Indenture and the applicable Series Supplement; provided that except
on the Series Final Maturity Date, the Tranche Final Maturity Date or the
Redemption Date for a Series or Tranche of Transition Bonds or upon the
acceleration of the Transition Bonds following the occurrence of an Event of
Default, the Issuer shall only be obligated to pay the Principal of such
Transition Bonds on each Payment Date therefor to the extent moneys are
available for such payment pursuant to Section 8.02. Amounts properly withheld
under the Code or other applicable tax laws by any Person from a payment to any
Transition Bondholder of Interest or Principal or premium, if any, shall be
considered as having been paid by the Issuer to such Transition Bondholder for
all purposes of this Indenture.

     SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain in
the Borough of Manhattan, the City of New York or in Wilmington, Delaware, an
office or agency where Transition Bonds may be surrendered for registration of
transfer or exchange, and where notices and demands to or upon the Issuer in
respect of the Transition Bonds and this Indenture may be served. The Issuer
hereby initially appoints the Corporate Trust Office of Deutsche Bank Trust
Company Americas in the Borough of Manhattan, the City of New York to serve as
its agent for the foregoing purposes. The Issuer will give prompt written notice
to the Holders and the Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish such agent with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints Deutsche Bank Trust
Company Americas as its agent to receive all such surrenders, notices and
demands.

     To the extent any of the Transition Bonds are listed on the Luxembourg
Stock Exchange and the rules of such exchange so require, (i) the Issuer will
maintain in Luxembourg (A) an office and a transfer agent where Transition Bonds
may be surrendered for registration of transfer or exchange, (B) an office and a
listing agent where notices and demands to or upon the Issuer in respect of the
Transition Bonds and this Indenture may be served, and (C) an office and a
paying agent where payments in respect of the Transition Bonds may be made and
(ii) any reference in this Indenture to the office or agency of the Issuer
referred to in this Section 3.02 shall also refer to such offices, and the
transfer, listing and paying agents, of the Issuer in Luxembourg, as applicable.
The Issuer shall give the Trustee and any other agent appointed under this
Section 3.02 written notice of the location and identity, and of any change in
the location or identity, of any such office or agency.

     SECTION 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As provided in
Section 8.02(a), all payments of Principal of, or premium and Interest on, the
Transition Bonds that are to be made from amounts withdrawn from the Collection
Account pursuant to Section 8.02(d) or (e) or Section 4.03 shall be made on
behalf of the Issuer by the Trustee or by another Paying Agent, and no amounts
so withdrawn from the Collection Account for payments


                                      -16-



of Transition Bonds shall be paid over to the Issuer except as provided in this
Section and in Section 8.02.

     The Issuer hereby appoints Deutsche Bank Trust Company Americas as the
Paying Agent hereunder and, in connection therewith the Paying Agent agrees that
it will (and the Issuer shall cause any other Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee (and during such time as the Trustee acts as
Paying Agent, it hereby so agrees that it will)), subject to the provisions of
this Section:

     (a) hold all sums held by it for the payment of Principal of, or premium or
Interest on, the Transition Bonds in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as herein
provided;

     (b) give the Trustee written notice of any Default by the Issuer (or any
other obligor upon the Transition Bonds) of which the Paying Agent has actual
knowledge in the making of any payment required to be made with respect to the
Transition Bonds;

     (c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent;

     (d) immediately resign as a Paying Agent and forthwith pay to the Trustee
all sums held by the Paying Agent in trust for the payment of Transition Bonds
if at any time the Paying Agent ceases to meet the standards required of Paying
Agents at the time of its appointment; and

     (e) comply with all requirements of the Code and other applicable tax laws
with respect to the withholding from any payments made by it on any Transition
Bonds of any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.

     The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Trustee all sums held in trust by such Paying
Agent, such sums to be held by the Trustee upon the same trusts as those upon
which the sums were held by such Paying Agent; and upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.

     Subject to applicable laws with respect to escheat of funds, any money held
by the Trustee or any Paying Agent in trust for the payment of any amount of
Principal of, premium, if any, or Interest on any Transition Bond and remaining
unclaimed for two years after such amount has become due and payable shall be
discharged from such trust and be paid to the Issuer upon delivery by the Issuer
of an Issuer Order; and the Holder of such Transition Bond shall thereafter, as
an unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Trustee or such Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Issuer cause to be published once, in a newspaper published in the English


                                      -17-



language, customarily published on each Business Day and of general circulation
in the City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee may also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including mailing notice of such repayment to Holders whose
Transition Bonds have been called but have not been surrendered for redemption
or whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Trustee or of any Paying Agent, at the last
address of record for each such Holder).

     SECTION 3.04. EXISTENCE. Subject to Section 3.10, the Issuer shall keep in
full effect its existence, rights and franchises as a statutory limited
liability company under the laws of the State of Delaware (unless it becomes, or
any successor Issuer hereunder is or becomes, organized under the laws of any
other State or of the United States of America, in which case the Issuer will
keep in full effect its existence, rights and franchises under the laws of such
other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Transition Bonds, the Trust Estate and each other instrument or agreement
included in the Trust Estate.

     SECTION 3.05. PROTECTION OF TRUST ESTATE. The Issuer shall from time to
time execute and deliver, and file if required, all such supplements and
amendments hereto and all such filings (including filings with the PUCT pursuant
to the Texas Electric Choice Plan), financing statements, continuation
statements, instruments of further assurance and other instruments, and shall
take such other action reasonably necessary to:

     (a) maintain and preserve the Grant, Lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the purposes
hereof;

     (b) perfect, publish notice of or protect the validity of any Grant made or
to be made by this Indenture, including all Series Supplements;

     (c) enforce any of the Trust Estate, including its rights under any swap
agreement;

     (d) preserve and defend title to the Trust Estate and the rights of the
Trustee and the Transition Bondholders in the Trust Estate against the claims of
all Persons and parties; or

     (e) pay any and all taxes levied or assessed upon all or any part of the
Trust Estate.

The Issuer hereby authorizes the Trustee to execute upon written direction any
filing with the PUCT, financing statement, continuation statement or other
instrument required to be filed pursuant to this Section.

     SECTION 3.06. OPINIONS AS TO TRUST ESTATE. (a) On or before March 31 in
each calendar year, while any Series is outstanding, beginning on March 31,
2006, the Issuer shall furnish to the Trustee an Issuer Opinion of Counsel
stating that, in the opinion of such counsel, either (i) all necessary action
has been taken with respect to the recording, filing, re-recording and re-filing
of this Indenture, any Supplemental Indentures and any other requisite


                                      -18-



documents and, with respect to the execution and filing of any filings pursuant
to the Texas Electric Choice Plan, the Financing Order or the UCC, financing
statements and continuation statements as are necessary to maintain the Lien and
security interest, and the first priority thereof, created by this Indenture and
reciting the details of such action or (ii) no such action is necessary to
maintain such Lien and security interest, and the first priority thereof. Such
Issuer Opinion of Counsel shall also describe the recording, filing,
re-recording and re-filing of this Indenture, any Supplemental Indentures and
any other requisite documents, and the execution and filing of any filings
pursuant to the Texas Electric Choice Plan, the Financing Order or the UCC,
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the Grant, Lien and security interest of
this Indenture until March 31 in the following calendar year.

     (b) Prior to the effectiveness of any amendment to any Sale Agreement or
Servicing Agreement, the Issuer shall furnish to the Trustee an Issuer Opinion
of Counsel either (i) stating that, in the opinion of such counsel, all filings,
including filings pursuant to the UCC, have been executed and filed that are
necessary fully to preserve and protect the interest of the Issuer and the
Trustee in the Transition Property and the proceeds thereof, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are given, or (ii) stating that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interest.

     SECTION 3.07. PERFORMANCE OF OBLIGATIONS; COMMISSION FILINGS.

     (a) The Issuer (i) shall diligently pursue any and all actions to enforce
its rights under the Basic Documents and each other instrument or agreement
included in the Trust Estate and (ii) shall not take any action and will use its
best efforts not to permit any action to be taken by others that would release
any Person from any of such Person's covenants or obligations under any such
Basic Document, instrument or agreement or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such Basic Document, instrument or agreement,
except, in each case, as expressly provided in such Basic Document or such other
instrument or agreement.

     (b) The Issuer may contract with other Persons to assist it in performing
its duties under this Indenture, and any performance of such duties by a Person
identified to the Trustee in an Issuer Officer's Certificate shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Administrator to assist the Issuer in performing its duties under this
Indenture.

     (c) The Issuer shall punctually perform and observe all of its obligations
and agreements contained in the Basic Documents and in all other instruments and
agreements included in the Trust Estate.

     (d) The Issuer shall file with the Commission such periodic reports, if
any, as are required (without regard to the number of Holders of Bonds to the
extent permitted by and consistent with the Issuer's obligations under
applicable law) from time to time under Section 13 or Section 15(d) of the
Exchange Act so long as any Transition Bonds remain Outstanding, and the Issuer
shall not voluntarily suspend or terminate its filing obligations with the
Commission.


                                      -19-



The Issuer shall also, to the extent permitted by and consistent with the
Issuer's obligations under applicable law, post on its website or furnish or
file in the periodic reports and other reports to be filed with the Commission
pursuant to the Exchange Act, as described below, the following information in
respect of each series of Outstanding Transition Bonds to the extent such
information is reasonably available to the Issuer:

          (i) a statement of Transition Charge remittances to the Trustee (to be
     included in the Form 10-Q or Form 10-K filed subsequent to the respective
     report);

          (ii) a statement reporting the balance in the Collection Account and
     the balance in each subaccount of the Collection Account as of the end of
     each quarter or the most recent date available (to be included in the Form
     10-Q or Form 10-K);

          (iii) a statement showing the balance of Outstanding Transition Bonds
     that reflects the actual periodic payments made on the Transition Bonds (to
     be included in the Form 10-Q or Form 10-K);

          (iv) the Semiannual Servicer's Certificate which is required to be
     submitted pursuant to the applicable Servicing Agreement (to be filed with
     a Form 10-Q, Form 10-K or Form 8-K);

          (v) the text (or a link to the website where a reader can find the
     text) of each true-up filing in respect of the Outstanding Series of
     Transition Bonds and the results of each true-up filing (to be included in
     either a Form 10-Q, Form 10-K or Form 8-K);

          (vi) any change in the long-term or short-term credit ratings of the
     Servicer assigned by the Rating Agencies (to be filed or furnished in a
     Form 8-K);

          (vii) material legislative or regulatory developments directly
     relevant to the Outstanding Transition Bonds (to be filed or furnished in a
     Form 8-K); and

          (viii) a quarterly statement (to be included in each Form 10-Q and
     Form 10-K) affirming that, to the Issuer's knowledge, in all material
     respects, for each materially significant REP, (A) each REP has been billed
     in compliance with the requirements outlined in the Financing Order; (B)
     each REP has made payments in compliance with the requirements outlined in
     the Financing Order; and (C) each REP satisfies the creditworthiness
     requirements of the Financing Order or describing the Servicer's actions if
     (A), (B) or (C) has not occurred.

     In addition, the Issuer shall, to the extent permitted by and consistent
with the Issuer's obligations under applicable law, cause to be posted on the
website associated with the Issuer's parent's website:

          A. the Final Prospectus for each series of Outstanding Transition
     Bonds;

          B. the Semiannual Servicer's Certificate delivered for each Series of
     Transition Bonds pursuant to each Servicing Agreement;


                                      -20-



          C. the periodic reports described above in this subsection (d); and

          D. a current organization chart for the Issuer and the Servicer
     (unless the Servicer is not related to the Issuer, in which case the
     Servicer shall post two separate organization charts), in each case
     disclosing the parents and material subsidiaries of the Issuer and the
     Servicer.

     (e) The Issuer shall make all filings required under the Texas Electric
Choice Plan relating to the transfer of the ownership or security interest in
the Transition Property other than those required to be made by the Seller or
any Servicer pursuant to the Basic Documents.

     SECTION 3.08. NEGATIVE COVENANTS. So long as any Transition Bonds are
Outstanding, the Issuer shall not:

          (i) except as expressly permitted by this Indenture, any Supplemental
     Indenture, any Sale Agreement or any Servicing Agreement, sell, transfer,
     exchange or otherwise dispose of any of the assets of the Issuer or the
     Trust Estate, unless directed to do so by the Trustee in accordance with
     Article V;

          (ii) terminate its existence, dissolve or liquidate in whole or in
     part, except as Section 3.10 permits;

          (iii) claim any credit on, or make any deduction from the Principal or
     premium, if any, or Interest payable in respect of, the Transition Bonds
     (other than amounts properly withheld from such payments under the Code) or
     assert any claim against any present or former Transition Bondholder by
     reason of the payment of taxes levied or assessed upon the Issuer or any
     part of the Trust Estate;

          (iv) (A) permit the validity or effectiveness of this Indenture to be
     impaired, or permit the Lien of this Indenture to be amended, hypothecated,
     subordinated, terminated or discharged, or permit any Person to be released
     from any covenants or obligations with respect to the Transition Bonds
     under this Indenture except as may be expressly permitted hereby, (B)
     permit any Lien (other than the Lien created by this Indenture) to be
     created on or extend to or otherwise arise upon or burden the Trust Estate
     or any part thereof or any interest therein or the proceeds thereof or (C)
     permit the Lien of this Indenture not to constitute a continuing valid
     first priority security interest in the Trust Estate;

          (v) except as contemplated by this Indenture, any Supplemental
     Indenture, any Sale Agreement, or any Servicing Agreement, enter into any
     swap, hedge or other similar financial arrangement;

          (vi) elect to be classified as an association taxable as a corporation
     for federal income tax purposes or otherwise take any action, file any tax
     return or make any election inconsistent with the treatment of the Issuer,
     for purposes of federal taxes and, to the extent consistent with applicable
     state tax law, state income and franchise tax purposes, as a disregarded
     entity that is not separate from the sole owner of the Issuer; or


                                      -21-



          (vii) take any action that is the subject of a Rating Agency Condition
     if such action would result in a reduction or withdrawal of the
     then-current rating on any Outstanding Series or Tranche of Transition
     Bonds.

     SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will deliver to
the Trustee, within 120 days after the end of each fiscal year of the Issuer
(which, as of the date hereof, is the calendar year) commencing with the fiscal
year 2005, an Issuer Officer's Certificate (a copy of which the Issuer will
deliver to each Rating Agency and the PUCT) stating, as to the Manager signing
such Issuer Officer's Certificate, that

          (i) a review of the activities of the Issuer during such year (or
     relevant portion thereof) and of performance under this Indenture has been
     made under such Manager's supervision; and

          (ii) to the best of such Manager's knowledge, based on such review,
     the Issuer has complied with all conditions and covenants under this
     Indenture throughout such fiscal year (or relevant portion thereof), or, if
     there has been a default in compliance with any such condition or covenant,
     describing each such default known to the Manager and the nature and status
     thereof.

     SECTION 3.10. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The
Issuer shall not consolidate or merge with or into or convert into any other
Person or sell substantially all of its assets to any other Person, unless:

          (i) the Person (if other than the Issuer) formed by or surviving such
     consolidation, merger or conversion or to whom substantially all of such
     assets are sold shall be a Person organized and existing under the laws of
     the United States of America or any State and shall expressly assume by a
     Supplemental Indenture, executed and delivered to the Trustee, in form
     satisfactory to the Trustee, the due and punctual payment of the Principal
     of and premium, if any, and Interest on all Outstanding Transition Bonds
     and the performance or observance of every agreement and covenant of this
     Indenture on the part of the Issuer to be performed or observed, all as
     provided herein and in the applicable Series Supplement or Series
     Supplements;

          (ii) the Person (if other than the Issuer) formed by or surviving such
     consolidation, merger or conversion or to whom substantially all of such
     assets are sold shall expressly assume all obligations and succeed to all
     rights of the Issuer under the Basic Documents to which the Issuer is a
     party (or under which the Issuer has rights) pursuant to an assignment and
     assumption agreement executed and delivered to the Trustee, in form
     satisfactory to the Trustee;

          (iii) immediately after giving effect to such consolidation, merger,
     conversion or sale, no Default or Event of Default shall have occurred and
     be continuing;

          (iv) prior notice to the Rating Agencies shall have been provided and
     the Rating Agency Condition shall have been satisfied with respect to such
     consolidation, merger, conversion or sale;


                                      -22-



          (v) the Issuer shall have received an opinion of Independent counsel
     (and shall have delivered copies thereof to the Trustee) to the effect that
     such consolidation, merger, conversion or sale (a) will not have any
     material adverse tax consequence to the Issuer or any Transition
     Bondholder, (b) complies with this Indenture and all of the conditions
     precedent herein relating to such transaction and (c) will result in the
     Trustee maintaining a continuing valid first priority perfected security
     interest in the Trust Estate;

          (vi) none of the Transition Property, any Financing Order or the
     Issuer's rights under the Texas Electric Choice Plan or the Financing Order
     shall be impaired thereby; and

          (vii) any action as is necessary to maintain the Lien created by this
     Indenture shall have been taken.

     SECTION 3.11. SUCCESSOR OR TRANSFEREE.

     (a) Upon any consolidation, merger or conversion of the Issuer in
accordance with Section 3.10, the Person formed by or surviving such
consolidation, merger or conversion (if other than the Issuer) shall succeed to,
and be substituted for, and may exercise every right and power of, the Issuer
under this Indenture with the same effect as if such Person had been named as
the Issuer herein.

     (b) Except for such obligations set forth in Section 6.07, upon any sale by
the Issuer of substantially all of its assets in a sale which complies with
Section 3.10, immediately upon the delivery of written notice to the Trustee
from the Person acquiring such assets stating that the Issuer is to be so
released, the Issuer will be released from every covenant and agreement of this
Indenture to be observed or performed on the part of the Issuer with respect to
the Transition Bonds and from every covenant and agreement of the Basic
Documents to be observed or performed on the part of the Issuer.

     SECTION 3.12. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than purchasing and owning the Transition Property provided for
in Financing Orders issued by the PUCT from time to time, issuing Transition
Bonds from time to time, pledging its interest in the Trust Estate to the
Trustee under this Indenture in order to secure the Issuer's obligations as set
forth in the Series Supplements, entering into and performing under the Basic
Documents relating to the Transition Bonds and any swap agreement executed in
connection therewith, and performing activities that are necessary, suitable or
convenient to accomplish these purposes or are incidental thereto.

     SECTION 3.13. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Transition Bonds and any obligations under any
credit enhancement or swap agreement for any Series of Transition Bonds and
except as contemplated by the Basic Documents.

     SECTION 3.14. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except as
contemplated by the Basic Documents, the Issuer shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another's payment or performance on any obligation
or capability of so doing or otherwise),


                                      -23-



endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person other than any Eligible Investments.

     SECTION 3.15. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty) other than Transition Property purchased from the
Seller pursuant to, and in accordance with, any Sale Agreement.

     SECTION 3.16. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to any owner of a beneficial interest in the Issuer or otherwise with
respect to any ownership or equity interest in, or ownership security of, the
Issuer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that if no Event
of Default shall have occurred and be continuing, the Issuer may make, or cause
to be made, any such distributions to any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer using funds distributed to the Issuer pursuant to Section
8.02(d) or which are not otherwise subject to the Lien of this Indenture to the
extent that such distributions would not cause the book value of the remaining
equity in the Issuer to decline below 0.5% of the original principal amount of
all Series of Transition Bonds which remain outstanding. The Issuer will not,
directly or indirectly, make payments to or distributions from the Collection
Account except in accordance with the Basic Documents.

     SECTION 3.17. NOTICE OF EVENTS OF DEFAULT. The Issuer agrees to deliver to
the Trustee, the PUCT, the Rating Agencies and, to the extent the rules and
regulations of the Luxembourg Stock Exchange so require, any agent in Luxembourg
appointed pursuant to the second paragraph of Section 3.02 written notice in the
form of an Issuer Officer's Certificate of any Default or Event of Default
hereunder or under any of the Basic Documents, its status and what action the
Issuer is taking or proposes to take with respect thereto within five Business
Days after the occurrence thereof.

     SECTION 3.18. PURCHASE OF SUBSEQUENT TRANSITION PROPERTY. (a) The Issuer
may from time to time purchase or acquire Subsequent Transition Property from
the Seller pursuant to a Sale Agreement, subject to the conditions specified in
paragraph (b) below.

     (b) The Issuer shall be permitted to purchase or acquire from the Seller
Subsequent Transition Property and the proceeds thereof only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:

          (i) The Seller shall have provided the Issuer, the PUCT, the Trustee
     and the Rating Agencies with an Addition Notice, which shall be given not
     later than 10 days prior to the related Subsequent Transfer Date,
     specifying the Subsequent Transfer Date for such Subsequent Transition
     Property and the aggregate amount of the Transition Charges related to such
     Subsequent Transition Property, and shall have provided any


                                      -24-



     information reasonably requested by any of the foregoing Persons with
     respect to the Subsequent Transition Property then being conveyed to the
     Issuer;

          (ii) The Texas Electric Choice Plan, such Sale Agreement and the
     related Financing Order shall be in full force and effect and a filing
     shall have been made pursuant to Section 39.309(d) of the Texas Electric
     Choice Plan;

          (iii) As of such Subsequent Transfer Date, the Seller will not be
     insolvent and will not have been made insolvent (within the meaning of the
     Bankruptcy Code or the Delaware Uniform Fraudulent Transfer Act) by such
     sale and transfer and the Seller is not aware of any pending insolvency
     with respect to itself;

          (iv) The Rating Agency Condition shall have been satisfied with
     respect to such sale and transfer;

          (v) As of such Subsequent Transfer Date, no material breach by the
     Seller of its representations, warranties or covenants in such Sale
     Agreement and no Servicer Default shall exist;

          (vi) As of such Subsequent Transfer Date, the Issuer shall have
     sufficient funds available to pay the purchase price for the Subsequent
     Transition Property to be sold to it on such date and all conditions to the
     subsequent issuance of one or more Series of new Transition Bonds intended
     to provide such funds set forth in Section 2.10 shall have been satisfied
     or waived;

          (vii) The Issuer shall have delivered to the Trustee an Officer's
     Certificate confirming the satisfaction of each condition precedent
     specified in this paragraph (b);

          (viii) (A) The Issuer shall have delivered to the Rating Agencies
     (with a copy to the PUCT) any Opinions of Counsel required by the Rating
     Agencies and (B) the Issuer shall have delivered to the Trustee the Opinion
     of Counsel required by Section 3.06(b);

          (ix) the Seller shall have received and delivered to the Issuer and
     the Trustee: (i) an opinion of outside tax counsel (as selected by the
     Seller, and in form and substance reasonably satisfactory to the Issuer and
     the Trustee) to the effect that the Issuer will not be subject to United
     States federal income tax as an entity separate from its sole owner and
     that the Transition Bonds issued in connection with the purchase of such
     Subsequent Transition Property will be treated as debt of the Issuer's sole
     owner for United States federal income tax purposes, (ii) an opinion of
     outside tax counsel (as selected by the Seller, and in form and substance
     reasonably satisfactory to the Issuer and the Trustee) or, if the Seller so
     chooses, a ruling from the Internal Revenue Service, in either case to the
     effect that, for United States federal income tax purposes, the issuance of
     such Transition Bonds will not result in gross income to the Seller, and
     (iii) an opinion of outside tax counsel (as selected by the Seller, and in
     form and substance reasonably satisfactory to the issuer and the Trustee)
     to the effect that such subsequent issuance will not adversely affect the
     characterization of any such Transition Bonds then Outstanding as
     obligations of the Issuer's sole owner. The opinion of outside tax counsel
     described above may, if the Seller so chooses, be conditioned on the
     receipt by the Seller of one or more letter


                                      -25-



     rulings from the Internal Revenue Service and in rendering such opinion
     outside tax counsel shall be entitled to rely on the rulings contained in
     such ruling letters and to rely on the representations made, and
     information supplied, to the Internal Revenue Service in connection with
     such letter rulings; and

          (x) The Seller and the Issuer shall have taken any action required to
     maintain the first perfected ownership interest of the Issuer in the
     Subsequent Transition Property and the proceeds thereof, and the Issuer
     shall have taken any action required to maintain the first priority
     perfected security interest of the Trustee in the Subsequent Transition
     Property and the proceeds thereof.

     SECTION 3.19. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Trustee, during the Issuer's
normal business hours, to examine all the books of account, records, reports,
and other papers of the Issuer, to make copies and extracts therefrom, to cause
such books to be audited annually by an Independent registered public accounting
firm, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees and an Independent registered public accounting
firm, all at such reasonable times and as often as may be reasonably requested.
The Trustee shall hold and shall cause its representatives to hold, in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Trustee may reasonably determine
that such disclosure is consistent with its obligations hereunder.

     SECTION 3.20. SALE AGREEMENT, INTERCREDITOR AGREEMENT, ADMINISTRATION
AGREEMENT AND SERVICING AGREEMENT COVENANTS.

     (a) The Issuer agrees to take all such lawful actions to enforce its rights
under any Sale Agreement, any Intercreditor Agreement, the Administration
Agreement and any Servicing Agreement and to compel or secure the performance
and observance by the Seller, the Administrator, the Servicer and CenterPoint
Houston of each of their respective obligations to the Issuer under or in
connection with any Sale Agreement, any Intercreditor Agreement, the
Administration Agreement and any Servicing Agreement in accordance with the
terms thereof. So long as no Event of Default occurs and is continuing, but
subject to Section 3.20(f), the Issuer may exercise any and all rights,
remedies, powers and privileges lawfully available to the Issuer under or in
connection with any Sale Agreement, any Intercreditor Agreement, the
Administration Agreement and any Servicing Agreement; provided that such action
shall not adversely affect the interests of the Holders in any material respect.

     (b) If an Event of Default occurs and is continuing, the Trustee may, and
at the direction (which direction shall be in writing) of the holders of a
majority of the Outstanding Amount of Transition Bonds of all Series or Tranches
affected thereby shall, exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Seller, CenterPoint Houston, the Administrator
and the Servicer, as the case may be, under or in connection with the
Administration Agreement and the applicable Sale Agreement, Intercreditor
Agreement and Servicing Agreement, including the right or power to take any
action to compel or secure performance or observance by the Seller, CenterPoint
Houston, the Administrator or the Servicer of each of their obligations to the
Issuer thereunder and to give any consent, request, notice,


                                      -26-



direction, approval, extension or waiver under the Administration Agreement and
the applicable Sale Agreement, Intercreditor Agreement and Servicing Agreement,
and any right of the Issuer to take such action shall be suspended.

     (c) Except as set forth in Section 3.20(e) of this Indenture, with the
prior written consent of the Trustee and the consent of the PUCT pursuant to
Section 9.07 if the amendment increases ongoing qualified costs as defined in
the Financing Order, the Administration Agreement, any Sale Agreement,
Intercreditor Agreement (except that any amendment to an Intercreditor Agreement
shall not require the consent of the PUCT) and Servicing Agreement may be
amended in accordance with the provisions thereof, so long as the Rating Agency
Condition is satisfied in connection therewith, at any time and from time to
time, without the consent of the Transition Bondholders of the related Series;
provided that such amendment shall not adversely affect the interest of any
Transition Bondholder of that Series in any material respect.

     (d) Except as set forth in Section 3.20(e) of this Indenture, if the
Issuer, the Seller, CenterPoint Houston, the Administrator, the Servicer or any
other party to the respective agreement proposes to amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
waiver, supplement, termination or surrender of, the terms of any Sale
Agreement, Intercreditor Agreement, Administration Agreement, or Servicing
Agreement, or waive timely performance or observance by the Seller, CenterPoint
Houston, the Administrator or the Servicer under any Sale Agreement,
Intercreditor Agreement, Administration Agreement or Servicing Agreement, in
each case in such a way as would materially and adversely affect the interests
of Transition Bondholders of any Series, the Issuer shall first notify the
Rating Agencies of the proposed amendment, modification, waiver, supplement,
termination or surrender and, upon receipt of notification regarding whether the
Rating Agency Condition has been satisfied, shall notify the Trustee, the Paying
Agent, the Securities Intermediary, the Transition Bond Registrar and the PUCT
in writing and the Trustee shall notify the Transition Bondholders of such
Series of the proposed amendment, modification, waiver, supplement, termination
or surrender and whether the Rating Agency Condition has been satisfied with
respect thereto. The Trustee shall consent to such proposed amendment,
modification, waiver, supplement, termination or surrender only with the prior
written consent of the holders of a majority of the Outstanding Amount of
Transition Bonds of the Series or Tranches materially and adversely affected
thereby and, if the proposed amendment, modification, waiver, supplement,
termination or surrender would increase ongoing qualified costs as defined in
the Financing Order, the consent of the PUCT pursuant to Section 9.07 other than
with respect to any Intercreditor Agreement. If any such amendment,
modification, waiver, supplement, termination or surrender shall be so consented
to by the Trustee or such Holders, the Issuer agrees to execute and deliver, in
its own name and at its own expense, such agreements, instruments, consents and
other documents as shall be necessary or appropriate in the circumstances. For
so long as any of the Transition Bonds are listed on the Luxembourg Stock
Exchange and the rules of that exchange so require, notice of such proposed
action will be published by an agent to be appointed by the Issuer in accordance
with such rules promptly following its effectiveness.

     (e) If the Issuer or the Servicer proposes to amend, modify, waive,
supplement, terminate or surrender, or to agree to any amendment, modification,
supplement, termination,


                                      -27-



waiver or surrender of, the Transition Charge Adjustment Process, the Issuer
shall notify the PUCT, the Trustee, the Paying Agent, the Securities
Intermediary and the Transition Bond Registrar in writing and the Trustee shall
notify the Transition Bondholders of such proposal and the Trustee shall consent
thereto only with the consent of the PUCT pursuant to Section 9.07 and the prior
written consent of the holders of a majority of the Outstanding Amount of
Transition Bonds of the Series or Tranches materially and adversely affected
thereby and only if the Rating Agency Condition has been satisfied with respect
thereto.

     (f) Promptly following a default by the Seller under any Sale Agreement, by
the Administrator under the Administration Agreement, by CenterPoint Houston or
any successor to CenterPoint Houston under any Intercreditor Agreement, or the
occurrence of a Servicer Default under any Servicing Agreement, and at the
Issuer's expense, the Issuer agrees to take all such lawful actions as the
Trustee may request to compel or secure the performance and observance by each
of the Seller, CenterPoint Houston, the Administrator or the Servicer of their
obligations under and in accordance with that Sale Agreement, Administration
Agreement, Intercreditor Agreement or Servicing Agreement, as the case may be,
in accordance with the terms thereof, and to exercise any and all rights,
remedies, powers and privileges lawfully available to the Issuer under or in
connection with such agreements to the extent and in the manner directed by the
Trustee, including the transmission of notices of any default by the Seller,
CenterPoint Houston, the Administrator or the Servicer, respectively, thereunder
and the institution of legal or administrative actions or Proceedings to compel
or secure performance of their obligations under that Sale Agreement,
Administration Agreement, Intercreditor Agreement or Servicing Agreement, as
applicable.

     (g) If the Issuer shall have knowledge of the occurrence of a Servicer
Default under any Servicing Agreement, the Issuer shall (i) promptly give
written notice thereof to the Trustee, the PUCT, the Paying Agent, the
Securities Intermediary, the Transition Bond Registrar and the Rating Agencies,
(ii) specify in such notice the action, if any, the Issuer is taking with
respect to such default and (iii) take such reasonable steps as are available to
it to remedy such defaults or shall take such actions as shall have been
directed by the Trustee, as the case may be, provided that, notwithstanding the
foregoing, the Issuer shall not take any action to terminate the Servicer's
rights and powers under that Servicing Agreement unless a Servicer Default shall
have occurred and be continuing, and the Trustee shall not direct the Issuer to
take such action unless a Servicer Default shall have occurred and be
continuing.

     (h) As promptly as possible after the giving of notice of termination to
the Servicer, the PUCT and the Rating Agencies of the Servicer's rights and
powers pursuant to that Servicing Agreement, the Trustee upon the written
direction of the majority of the Outstanding Amount of Transition Bonds of the
related Series and subject to the provisions of the related Intercreditor
Agreement shall appoint a successor Servicer (the "Successor Servicer"), and
such Successor Servicer shall accept its appointment by a written assumption in
a form acceptable to the Issuer and the Trustee. A person shall qualify as a
Successor Servicer only if such Person satisfies the requirements set forth in
that Servicing Agreement. If within 30 days after the delivery of the notice
referred to above, a Successor Servicer shall not have been appointed and
accepted its appointment as such, the Trustee may petition the PUCT or a court
of competent jurisdiction to appoint a Successor Servicer. In connection with
any such appointment, the Issuer may make such arrangements for the compensation
of such Successor Servicer as it and such Successor


                                      -28-



Servicer shall agree, subject to the limitations set forth below and in that
Servicing Agreement, and in accordance with that Servicing Agreement, the Issuer
shall enter into an agreement with such Successor Servicer for the servicing of
the Transition Property related to that Series (such agreement to be in form and
substance satisfactory to the Trustee).

     (i) Upon termination of the Servicer's rights and powers pursuant to any
Servicing Agreement, the Trustee shall promptly notify the Issuer, the PUCT, the
Transition Bondholders of the related Series and the Rating Agencies in writing
of such termination. As soon as a Successor Servicer is appointed, the Issuer
shall notify the Trustee, the PUCT, the Transition Bondholders of the related
Series, the Paying Agent, the Securities Intermediary, the Transition Bond
Registrar and the Rating Agencies of such appointment, specifying in such notice
the name and address of such Successor Servicer.

     SECTION 3.21. TAXES. So long as any of the Transition Bonds are
outstanding, the Issuer shall pay all taxes, assessments and governmental
charges imposed upon it or any of its properties or assets or with respect to
any of its franchises, business, income or property before any penalty accrues
thereon if the failure to pay any such taxes, assessments and governmental
charges would, after any applicable grace periods, notices or other similar
requirements, result in a Lien on the Trust Estate.

                                   ARTICLE IV

                     SATISFACTION AND DISCHARGE; DEFEASANCE

     SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE.

     (a) The Transition Bonds of any Series, all moneys payable with respect
thereto and this Indenture as it applies to such Series shall cease to be of
further effect and the Lien hereunder shall be released with respect to such
Series, Interest shall cease to accrue on the Transition Bonds of such Series
and the Trustee, on written demand of and at the expense of the Issuer, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to the Transition Bonds of such Series, when

          (A) either

                    (1) all Transition Bonds of such Series theretofore
               authenticated and delivered (other than (i) Transition Bonds that
               have been destroyed, lost or stolen and that have been replaced
               or paid as provided in Section 2.06 and (ii) Transition Bonds for
               whose payment money has theretofore been deposited in trust or
               segregated and held in trust by the Issuer and thereafter repaid
               to the Issuer or discharged from such trust, as provided in
               Section 3.03) have been delivered to the Trustee for
               cancellation; or

                    (2) the Issuer has irrevocably deposited or caused to be
               irrevocably deposited with the Trustee cash, in trust for such
               purpose, in an amount sufficient to make payments of Principal of
               and, premium, if


                                      -29-



               any, and Interest on the Transition Bonds of such Series and to
               pay and discharge the entire indebtedness on such Transition
               Bonds not theretofore delivered to the Trustee;

          (B) the Issuer has paid or caused to be paid all other sums payable
     hereunder by the Issuer with respect to such Series; and

          (C) the Issuer has delivered to the Trustee an Issuer Officer's
     Certificate, an Issuer Opinion of Counsel and (if required by the TIA or
     the Trustee) an Independent Certificate from an Independent registered
     public accounting firm, each stating that all conditions precedent herein
     provided for relating to the satisfaction and discharge of this Indenture
     with respect to Transition Bonds of such Series have been complied with.

     (b) Subject to Sections 4.01(c) and 4.02, the Issuer at any time may
terminate (i) all its obligations under this Indenture with respect to the
Transition Bonds of any Series ("Legal Defeasance Option") or (ii) its
obligations under Sections 3.05, 3.06 (other than with respect to the Defeasance
Subaccounts and all funds and U.S. Government Obligations therein), 3.07(a), (b)
and (c), 3.08, 3.10, 3.16 and 3.19 and the operation of Section 5.01(iv) (other
than with respect to the Defeasance Subaccount and U.S. Government Obligations
therein) ("Covenant Defeasance Option") with respect to any Series of Transition
Bonds. The Issuer may exercise the Legal Defeasance Option with respect to any
Series of Transition Bonds notwithstanding its prior exercise of the Covenant
Defeasance Option with respect to such Series.

     If the Issuer exercises the Legal Defeasance Option with respect to any
Series, the maturity of the Transition Bonds of such Series may not be (a)
accelerated because of an Event of Default or (b) except as provided in Section
4.02, redeemed. If the Issuer exercises the Covenant Defeasance Option with
respect to any Series, the maturity of the Transition Bonds of such Series may
not be accelerated because of an Event of Default specified in Section 5.01(iv).

     Upon satisfaction of the conditions set forth herein to the exercise of the
Legal Defeasance Option or the Covenant Defeasance Option with respect to any
Series of Transition Bonds, the Trustee, on written demand of and at the expense
of the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of the obligations that are terminated pursuant to such exercise.

     (c) Notwithstanding Sections 4.01(a) and (b) above, (i) rights of
registration of transfer and exchange, (ii) rights of substitution of mutilated,
destroyed, lost or stolen Transition Bonds, (iii) rights of Transition
Bondholders to receive payments of Principal, premium, if any, and Interest, but
only from the amounts deposited with the Trustee for such payments, (iv)
Sections 4.03 and 4.04, (v) the rights, obligations and immunities of the
Trustee hereunder (including the rights of the Trustee under Section 6.07 and
the obligations of the Trustee under Section 4.03) and (vi) the rights of
Transition Bondholders under this Indenture with respect to the property
deposited with the Trustee payable to all or any of them, shall survive until
the Transition Bonds of the Series as to which this Indenture or certain
obligations hereunder have been satisfied and discharged pursuant to Section
4.01(a) or 4.01(b) and have been paid in full. Thereafter, the obligations in
Sections 6.07 and 4.04 with respect to such Series shall survive.


                                      -30-



     SECTION 4.02. CONDITIONS TO DEFEASANCE. The Issuer may exercise the Legal
Defeasance Option or the Covenant Defeasance Option with respect to any Series
of Transition Bonds only if:

     (a) the Issuer irrevocably deposits or causes to be deposited in trust with
the Trustee cash or U.S. Government Obligations for the payment of Principal of
and premium, if any, and Interest on such Series of Transition Bonds to the
Expected Payment Date or Redemption Date therefor, as applicable, and all other
amounts due and payable hereunder, such deposit to be made in the Defeasance
Subaccount for such Series of Transition Bonds;

     (b) the deposit in the Defeasance Subaccount pursuant to subsection (a) of
this Section 4.02 constitutes proceeds from a refunding of the Transition Bonds;

     (c) the Issuer delivers to the Trustee a certificate from a nationally
recognized Independent registered public accounting firm expressing its opinion
that the payments of Principal and Interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited cash without
investment will provide cash at such times and in such amounts (but, in the case
of the Legal Defeasance Option only, not more than such amounts) as will be
sufficient to pay in respect of the Transition Bonds of such Series (i) subject
to clause (ii), Principal in accordance with the Expected Amortization Schedule
therefor, (ii) if such Series is to be redeemed, the redemption price therefor
on the Redemption Date therefor and (iii) Interest when due;

     (d) in the case of the Legal Defeasance Option, the expiration of 95 days
after the deposit is made and during such 95-day period no Default specified in
Section 5.01(v) or (vi) shall have occurred and be continuing at the end of the
period; provided, however, that in determining whether a default under Section
5.01(v) has occurred, the requirement that the decree or order shall remain
unstayed and in effect for 90 days shall be disregarded;

     (e) no Default has occurred and is continuing on the day of such deposit
and after giving effect thereto;

     (f) in the case of the Legal Defeasance Option, the Issuer delivers to the
Trustee an Issuer Opinion of Counsel stating that (i) the Issuer has received
from, or there has been published by, the Internal Revenue Service a ruling, or
(ii) since the date of execution of this Indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of the Transition
Bonds of such Series will not recognize income, gain or loss for federal income
tax purposes as a result of the exercise of such Legal Defeasance Option and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;

     (g) in the case of the Covenant Defeasance Option, the Issuer delivers to
the Trustee an Issuer Opinion of Counsel to the effect that the Holders of the
Transition Bonds of such Series will not recognize income, gain or loss for
federal income tax purposes as a result of the exercise of such Covenant
Defeasance Option and will be subject to federal income tax on the same


                                      -31-



amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;

     (h) the Issuer delivers to the Trustee an Issuer Officer's Certificate and
an Issuer Opinion of Counsel, each stating that all conditions precedent to the
satisfaction and discharge of the Transition Bonds of such Series to the extent
contemplated by this Article IV have been complied with;

     (i) the Issuer delivers to the Trustee an Opinion of Counsel to the effect
that (i) in a case under the Bankruptcy Code in which CenterPoint Houston (or
any of its Affiliates, other than the Issuer) is the debtor, the court would
hold that the deposited cash or U.S. government obligations would not be in the
bankruptcy estate of CenterPoint Houston (or any of its Affiliates, other than
the Issuer, that deposited the cash or U.S. government obligations); and (ii) in
the event CenterPoint Houston (or any of its Affiliates, other than the Issuer,
that deposited the cash or U.S. government obligations), were to be a debtor in
a case under the Bankruptcy Code, the court would not disregard the separate
legal existence of CenterPoint Houston (or any of its Affiliates, other than the
Issuer, that deposited the cash or U.S. government obligations) and the Issuer
so as to order substantive consolidation under the Bankruptcy Code of the
Issuer's assets and liabilities with the assets and liabilities of CenterPoint
Houston (or any of its Affiliates, other than the Issuer, that deposited the
cash or U.S. government obligations), and

     (j) the Rating Agency Condition shall have been satisfied with respect to
the exercise of any Legal Defeasance Option or Covenant Defeasance Option.

     Notwithstanding any other provision of this Section 4.02 to the contrary,
no delivery of cash or U.S. Government Obligations to the Trustee under this
Section shall terminate any obligations of the Issuer under this Indenture with
respect to any Transition Bonds which are to be redeemed prior to the Expected
Final Payment Date therefor until such Transition Bonds shall have been
irrevocably called or designated for redemption on a date thereafter on which
such Transition Bonds may be redeemed in accordance with the provisions of this
Indenture and proper notice of such redemption shall have been given in
accordance with the provisions of this Indenture or the Issuer shall have given
the Trustee, in form satisfactory to the Trustee, irrevocable written
instructions to give, in the manner and at the times prescribed herein, notice
of redemption of such Series.

     SECTION 4.03. APPLICATION OF TRUST MONEY. All moneys or U.S. Government
Obligations deposited with the Trustee pursuant to Section 4.01 or 4.02 hereof
with respect to any Series of Transition Bonds shall be held in trust in the
Defeasance Subaccount for such Series and applied by it, in accordance with the
provisions of the Transition Bonds and this Indenture, to the payment, either
directly or through any Paying Agent, as the Trustee may determine, to the
Holders of the particular Transition Bonds for the payment or redemption of
which such moneys have been deposited with the Trustee, of all sums due and to
become due thereon for Principal, premium, if any, and Interest. Such moneys
shall be segregated and held apart solely for paying such Transition Bonds and
such Transition Bonds shall not be entitled to any amounts on deposit in the
Collection Account other than amounts on deposit in the Defeasance Subaccount
for such Transition Bonds.


                                      -32-



     SECTION 4.04. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with
the satisfaction and discharge of this Indenture or the Covenant Defeasance
Option or Legal Defeasance Option with respect to the Transition Bonds of any
Series, all moneys then held by any Paying Agent other than the Trustee under
the provisions of this Indenture or any Intercreditor Agreement with respect to
such Transition Bonds shall, upon written demand of the Issuer, be paid to the
Trustee to be held and applied according to Section 3.03 and thereupon such
Paying Agent shall be released from all further liability with respect to such
moneys.

                                   ARTICLE V

                                    REMEDIES

     SECTION 5.01. EVENTS OF DEFAULT. "Event of Default" with respect to any
Series, wherever used herein, means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

          (i) default in the payment of any Interest on any Transition Bond of
     such Series when the same becomes due and payable and the continuation of
     such default for five Business Days;

          (ii) default in the payment of the then unpaid Principal of any
     Transition Bond of such Series on the Series Final Maturity Date for such
     Series or, if applicable, any Tranche of such Series on the Tranche Final
     Maturity Date for such Tranche;

          (iii) default in the payment of the redemption price for any
     Transition Bond on the Redemption Date therefor;

          (iv) default in the observance or performance of any covenant or
     agreement of the Issuer made in this Indenture (other than a covenant or
     agreement, a default in the observance or performance of which is
     specifically dealt with in clause (i), (ii) or (iii) above), any covenant
     or agreement of the Issuer made in any interest rate swap agreement, hedge
     agreement or credit enhancement agreement permitted under Section 3.13
     hereof and any Series Supplement, or any representation or warranty of the
     Issuer made herein or therein or in any certificate or other writing
     delivered pursuant hereto or in connection herewith proving to have been
     incorrect in any material respect as of the time when made (other than a
     covenant, agreement or representation or warranty expressly included herein
     or in a Series Supplement solely for the benefit of a different Series of
     Transition Bonds), and any such default shall continue or not be cured, for
     a period of 30 days after the earlier of (A) there shall have been given,
     by registered or certified mail, to the Issuer by the Trustee or to the
     Issuer and the Trustee by the Holders of at least 25% of the Outstanding
     Amount of Transition Bonds of such Series, a written notice specifying such
     default or incorrect representation or warranty and requiring it to be
     remedied and stating that such notice is a "Notice of Default" hereunder or
     (B) the date the Issuer has knowledge of the default;


                                      -33-



          (v) the filing of a decree or order for relief by a court having
     jurisdiction in respect of the Issuer or any substantial part of the Trust
     Estate securing such Series in an involuntary case or Proceeding under any
     applicable federal or state bankruptcy, insolvency or other similar law now
     or hereafter in effect, or appointing a receiver, liquidator, assignee,
     custodian, trustee, sequestrator or similar official for the Issuer or its
     property or for any substantial part of the Series Trust Estate securing
     such Series, or ordering the winding-up or liquidation of the Issuer's
     affairs, and such decree or order shall remain unstayed and in effect for a
     period of 90 consecutive days;

          (vi) the commencement by the Issuer of a voluntary case or Proceeding
     under any applicable federal or state bankruptcy, insolvency or other
     similar law now or hereafter in effect, or the consent by the Issuer to the
     entry of an order for relief in an involuntary case under any such law, or
     the consent by the Issuer to the appointment or taking possession by a
     receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
     official of the Issuer or for any substantial part of the Series Trust
     Estate securing such Series, or the making by the Issuer of any general
     assignment for the benefit of creditors, or the failure by the Issuer
     generally to pay its debts as such debts become due, or the taking of
     action by the Issuer in furtherance of any of the foregoing;

          (vii) any act or failure to act by the State of Texas or any of its
     agencies (including the PUCT), officers or employees that violates or is
     not in accordance with the pledge of the State of Texas in Section 39.310
     of the Texas Electric Choice Plan, including the failure of the PUCT to
     implement the statutorily guaranteed true-up mechanism in accordance with
     the Financing Order; or

          (viii) any other event designated as an Event of Default in the
     related Series Supplement.

     SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default other than an Event of Default under Section 5.01(vii) occurs
and is continuing, then and in every such case either the Trustee or the Holders
holding not less than a majority of the Outstanding Amount of Transition Bonds
of the Series with respect to which an Event of Default has occurred, voting as
a class, may, but need not, declare all the Transition Bonds of such Series to
be immediately due and payable, by a notice in writing to the Issuer (and to the
Trustee if given by Transition Bondholders), and upon any such declaration the
unpaid principal amount of the Transition Bonds of such Series, together with
accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable.

     At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article V provided, the Holders
holding not less than a majority of the Outstanding Amount of Transition Bonds
of such Series, by written notice to the Issuer and the Trustee, may rescind and
annul such declaration and its consequences if:

          (i) the Issuer has paid or deposited with the Trustee, for deposit in
     the General Subaccount of the Collection Account of such Series, a sum
     sufficient to pay


                                      -34-



          (A) all payments of Principal of and premium, if any, and Interest on
     all Transition Bonds of such Series due and owing at such time as if such
     Event of Default had not occurred and was not continuing and all other
     amounts that would then be due hereunder or upon such Transition Bonds as
     if the Event of Default giving rise to such acceleration had not occurred
     and was not continuing; and

          (B) all sums paid or advanced by the Trustee hereunder with respect to
     such Series and the reasonable compensation, expenses, disbursements and
     advances of the Trustee and its agents and counsel with respect to such
     Series; and

          (ii) all Events of Default other than the nonpayment of the Principal
     of the Transition Bonds of the Series that has become due solely by such
     acceleration have been cured or waived as provided in Section 5.12.

     No such rescission shall affect any subsequent Default or impair any right
consequent thereto.

     SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.

     (a) The Issuer covenants that if (i) Default is made in the payment of any
Interest on any Transition Bond when such Interest becomes due and payable and
such Default continues for five Business Days, (ii) Default is made in the
payment of the then unpaid Principal of any Transition Bond on the Series Final
Maturity Date or Tranche Final Maturity Date, as applicable, therefor, or (iii)
Default is made in the payment of the redemption price for any Transition Bond
on the Redemption Date therefor, the Issuer shall, upon demand of the Trustee,
pay to it, for the benefit of the Holders of the Transition Bonds of such
Series, such amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee and its agents and counsel and the whole amount then due
and payable on such Transition Bonds for Principal, premium, if any, and
Interest, with interest upon the overdue Principal and premium, if any, and, to
the extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of Interest, at the respective Bond Rate of such Series or
the applicable Tranche of such Series.

     (b) In case the Issuer shall fail forthwith to pay the amounts specified in
clause (a) above upon such demand, the Trustee, in its own name and as trustee
of an express trust, may institute a Proceeding for the collection of the sums
so due and unpaid, and may prosecute such Proceeding to judgment or final
decree, and may enforce the same against the Issuer or other obligor upon such
Transition Bonds and collect in the manner provided by law out of the Series
Trust Estate and the proceeds thereof, the whole amount then due and payable on
the Transition Bonds of such Series for Principal, premium, if any, and
Interest, with interest upon the overdue principal and premium, if any, and, to
the extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest, at the respective rate borne by the Transition
Bonds of such Series or the applicable Tranche of such Series and in addition
thereto such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel.


                                      -35-



     (c) If an Event of Default other than the Event of Default described in
Section 5.01(vii) occurs and is continuing, the Trustee may, as more
particularly provided in Section 5.04, proceed to protect and enforce its rights
and the rights of the Transition Bondholders of all materially and adversely
affected Series by such appropriate Proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Trustee by this Indenture or by law,
including foreclosing or otherwise enforcing the Lien on the Series Trust Estate
securing those Series of Transition Bonds or applying to the PUCT or a court of
competent jurisdiction for sequestration of revenues arising with respect to
such Transition Property.

     (d) In case there shall be pending, relative to the Issuer or any other
obligor upon any Series of Transition Bonds or any Person having or claiming an
ownership interest in the Series Trust Estate securing that Series, Proceedings
under Title 11 of the United States Code or any other applicable federal or
State bankruptcy, insolvency or other similar law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or
similar official shall have been appointed for or taken possession of the Issuer
or its property or such other obligor or Person, or in case of any other
comparable judicial Proceedings relative to the Issuer or other obligor upon
that Series of Transition Bonds, or to the creditors or property of the Issuer
or such other obligor, the Trustee, irrespective of whether the principal of
that Series of Transition Bonds shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered to the extent permitted by applicable law, by
intervention in such Proceedings or otherwise:

          (i) to file and prove a claim or claims for the whole amount of
     Principal, premium, if any, and Interest owing and unpaid in respect of the
     Transition Bonds and to file such other papers or documents as may be
     necessary or advisable in order to have the claims of the Trustee
     (including any claim for reasonable compensation to the Trustee and each
     predecessor Trustee, and their respective agents, attorneys and counsel,
     and for reimbursement of all expenses and liabilities incurred, and all
     advances made, by the Trustee and each predecessor Trustee, except as a
     result of negligence or bad faith) and of the Transition Bondholders
     allowed in such Proceedings;

          (ii) unless prohibited by applicable law and regulations, to vote on
     behalf of the Holders of Transition Bonds in any election of a trustee, a
     standby trustee or Person performing similar functions in any such
     Proceedings;

          (iii) to collect and receive any moneys or other property payable or
     deliverable on any such claims and to distribute all amounts received with
     respect to the claims of the Transition Bondholders and of the Trustee on
     their behalf;

          (iv) to file such proofs of claim and other papers or documents as may
     be necessary or advisable in order to have the claims of the Trustee or the
     Holders of Transition Bonds allowed in any judicial Proceedings relative to
     the Issuer, its creditors and its property; and


                                      -36-



          (v) to participate as a member, voting or otherwise, of any official
     committee of creditors appointed in such matter,

and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Transition Bondholders
to make payments to the Trustee, and, in the event that the Trustee shall
consent to the making of payments directly to such Transition Bondholders, to
pay to the Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith.

     (e) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Transition Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting the Transition Bonds or the rights of any Holder thereof
or to authorize the Trustee to vote in respect of the claim of any Transition
Bondholder in any such Proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.

     (f) All rights of action and of asserting claims under this Indenture, or
under any Series of Transition Bonds, may be enforced by the Trustee without the
possession of any of those Transition Bonds or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Trustee, each predecessor
Trustee and their respective agents and attorneys, shall be for the ratable
benefit of the Holders of those Transition Bonds.

     (g) In any Proceedings brought by the Trustee (and also any Proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Transition Bonds, and it shall not be necessary to make any
Transition Bondholder a party to any such Proceedings.

     SECTION 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default other than
the Event of Default described in Section 5.01(vii) occurs and is continuing,
the Trustee shall do one or more of the following at the written direction of
the holders of a majority of the Outstanding Amount of Transition Bonds of such
Series or Tranche affected thereby or may do one or more of the following in
reliance upon Sections 6.01 and 6.02 of this Indenture (subject, in either
event, to Section 5.05):

          (i) institute Proceedings in its own name and as trustee of an express
     trust for the collection of all amounts then payable on the Transition
     Bonds or under this Indenture with respect thereto, whether by declaration
     or otherwise, enforce any judgment obtained and collect from the Issuer or
     the Servicer moneys adjudged due;

          (ii) institute Proceedings from time to time for the complete or
     partial foreclosure of this Indenture with respect to the Series Trust
     Estate securing such Series;


                                      -37-



          (iii) exercise any remedies of a secured party under the UCC or
     Section 39.309(f) of the Texas Electric Choice Plan or any other applicable
     law and take any other appropriate action to protect and enforce the rights
     and remedies of the Trustee and the Holders of the Transition Bonds of such
     Series;

          (iv) sell the Series Trust Estate securing such Series or any portion
     thereof or rights or interest therein, at one or more public or private
     sales called and conducted in any manner permitted by law; and

          (v) exercise all rights, remedies, powers, privileges and claims of
     the Issuer against the Seller, the Administrator, CenterPoint Houston and
     the Servicer under or in connection with, and pursuant to the terms of, the
     Administration Agreement or any applicable Sale Agreement, Intercreditor
     Agreement or Servicing Agreement or against any swap counterparty under or
     in connection with, and pursuant to the terms of, any applicable swap
     agreement;

provided, however, that the Trustee may not sell or otherwise liquidate any
portion of the Series Trust Estate securing such Series following an Event of
Default, other than an Event of Default described in Section 5.01(i), (ii) or
(iii), with respect to such Series unless (A) the Holders of 100% of the
Outstanding Amount of the Transition Bonds of all Series consent thereto, (B)
the proceeds of such sale or liquidation distributable to the Transition
Bondholders of such Series are sufficient to discharge in full all amounts then
due and unpaid upon such Transition Bonds for Principal, premium, if any, and
Interest on all Outstanding Transition Bonds or (C) the Trustee determines that
the Series Trust Estate securing such Series will not continue to provide
sufficient funds for all payments on the Transition Bonds of such Series as they
would have become due if the Transition Bonds had not been declared due and
payable, and the Trustee obtains the written consent of Holders of 66-2/3% of
the Outstanding Amount of the Transition Bonds of such Series. In determining
such sufficiency or insufficiency with respect to clause (B) and (C), the
Trustee may, but need not, obtain and conclusively rely upon an opinion of an
Independent investment banking firm or Independent registered public accounting
firm of national reputation as to the feasibility of such proposed action and as
to the sufficiency of the Series Trust Estate for such purpose.

     If an Event of Default occurs and is continuing, the amounts on deposit in
the Collection Account shall continue to be distributed in accordance with
Sections 8.02(d) and (e) (including the last paragraph of Section 8.02(e), upon
acceleration in accordance with Section 5.02).

     (b) If an Event of Default under Section 5.01(vii) occurs and is
continuing, the Trustee, for the benefit of the Transition Bondholders, shall be
entitled and empowered to the extent permitted by applicable law to institute or
participate in Proceedings reasonably necessary to compel performance of or to
enforce the pledge of the State of Texas in Section 39.310 of the Texas Electric
Choice Plan and to collect any monetary damages incurred by the Transition
Bondholders or the Trustee as a result of any such Event of Default, and may
prosecute any such Proceeding to final judgment or decree. Such remedy shall be
the only remedy that the Trustee may exercise if the only Event of Default that
has occurred and is continuing is an Event of Default under Section 5.01(vii).


                                      -38-



     (c) If the Trustee collects any money pursuant to this Article V, it shall
pay out such money in accordance with the priorities set forth in Section
8.02(d) and (e).

     SECTION 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Transition
Bonds of a Series have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Trustee may, but need not, elect, as provided
in Section 5.11(iii), to maintain possession of the Series Trust Estate securing
that Series in accordance with Section 5.04(a). It is the desire of the parties
hereto and the Transition Bondholders that there be at all times sufficient
funds for the payment of Principal of and premium, if any, and Interest on the
Transition Bonds of any Series, and the Trustee shall take such desire into
account when determining whether or not to maintain possession of the Series
Trust Estate securing that Series or sell or liquidate the same. In determining
whether to maintain possession of the Series Trust Estate or sell or liquidate
the same, the Trustee may, but need not, obtain and conclusively rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Series Trust Estate for such purpose.

     SECTION 5.06. LIMITATION OF PROCEEDINGS. No Holder of any Transition Bond
of any Series shall have any right to institute any Proceeding, judicial or
otherwise, or to avail itself of the remedies provided in Section 39.309(f) of
the Texas Electric Choice Plan, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:

          (i) such Holder has previously given written notice to the Trustee of
     a continuing Event of Default with respect to the affected Series;

          (ii) the Holders of not less than a majority of the Outstanding Amount
     of the Transition Bonds of such Series have made written request to the
     Trustee to institute such Proceeding in respect of such Event of Default in
     its own name as Trustee hereunder;

          (iii) such Holder or Holders have offered to the Trustee security or
     indemnity reasonably satisfactory to the Trustee against the costs,
     expenses and liabilities to be incurred in complying with such request;

          (iv) the Trustee for 60 days after its receipt of such notice, request
     and offer of indemnity has failed to institute such Proceedings; and

          (v) no direction inconsistent with such written request has been given
     to the Trustee during such 60-day period by the Holders of a majority of
     the Outstanding Amount of the Transition Bonds of such Series,

it being understood and intended that no one or more Holders of Transition Bonds
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Transition Bonds or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided.


                                      -39-



     In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Holders of Transition Bonds, each
representing less than a majority of the Outstanding Amount of the Transition
Bonds of all Series, the Trustee may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.

     SECTION 5.07. UNCONDITIONAL RIGHTS OF TRANSITION BONDHOLDERS TO RECEIVE
PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. Notwithstanding any other provisions
in this Indenture, the Holder of any Transition Bond shall have the right, which
is absolute and unconditional, and shall not be impaired without the consent of
each such Holder, (a) to receive payment of (i) the Interest, if any, on such
Transition Bond on or after the due dates thereof expressed in such Transition
Bond or in this Indenture, (ii) the unpaid Principal, if any, of such Transition
Bonds on or after the Final Maturity Date therefor or (iii) in the case of
redemption, the unpaid Principal, if any, of and premium, if any, and Interest,
if any, on such Transition Bond on or after the Redemption Date therefor and (b)
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.

     SECTION 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any
Transition Bondholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Trustee or to
such Transition Bondholder, then and in every such case the Issuer, the Trustee
and the Transition Bondholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Transition Bondholders shall continue as though no such Proceeding had been
instituted.

     SECTION 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Trustee or to the Transition Bondholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

     SECTION 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission by the
Trustee or any Transition Bondholder to exercise any right or remedy accruing
upon any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Trustee
or to the Transition Bondholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Transition
Bondholders, as the case may be.

     SECTION 5.11. CONTROL BY TRANSITION BONDHOLDERS. The Majority Holders (or,
if less than all Series or Tranches are affected, the Holders of a majority of
the Outstanding Amount of the Transition Bonds of the affected Series or Tranche
or Tranches) shall have the right to direct the time, method and place of
conducting any Proceeding for any remedy available to the Trustee with respect
to the Transition Bonds (or the Transition Bonds of such


                                      -40-



affected Series or Tranche or Tranches) or exercising any trust or power
conferred on the Trustee with respect to the Transition Bonds (or the Transition
Bonds of such affected Series or Tranche or Tranches); provided that

          (i) such direction shall not be in conflict with any rule of law or
     with this Indenture;

          (ii) subject to the express terms of Section 5.04, any direction to
     the Trustee to sell or liquidate the Trust Estate shall be by the Holders
     of Transition Bonds representing not less than 100% of the Outstanding
     Amount of the Transition Bonds of all Series;

          (iii) if the conditions set forth in Section 5.05 have been satisfied
     and the Trustee elects to retain the Series Trust Estate securing such
     Series pursuant to such Section and elects not to sell or liquidate the
     same, then any direction to the Trustee by Holders of Transition Bonds
     representing less than 100% of the Outstanding Amount of the Transition
     Bonds of all affected Series to sell or liquidate such Series Trust Estate
     shall be of no force and effect; and

          (iv) the Trustee may take any other action deemed proper by the
     Trustee that is not inconsistent with such direction;

provided, however, that, subject to Section 6.01, the Trustee need not take any
action that it determines might involve it in liability for which it reasonably
believes it will not be indemnified to its reasonable satisfaction against the
costs, expenses and liabilities which might be incurred by it in complying with
this request. The Trustee also need not take any action that it determines might
materially and adversely affect the rights of any Transition Bondholders not
consenting to such action.

     SECTION 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Transition Bonds of a Series or Tranche
affected as provided in Section 5.02, the holders of a majority of the
Outstanding Amount of Transition Bonds of such Series or Tranche affected
thereby, by written notice to the Trustee, may waive any past Default or Event
of Default and its consequences except a Default (i) in payment of Principal of
or premium, if any, or Interest on any of the Transition Bonds or (ii) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Transition Bond of such Series or
Tranche affected. In the case of any such waiver, the Issuer, the Trustee and
the Holders of the Transition Bonds shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereto.

     Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.

     SECTION 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture agree,
and each Holder of any Transition Bond by such Holder's acceptance thereof shall
be deemed to


                                      -41-



have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to (a)
any suit instituted by the Trustee, (b) any suit instituted by any Transition
Bondholder, or group of Transition Bondholders, in each case holding in the
aggregate more than 10% of the Outstanding Amount of the Transition Bonds of a
Series or (c) any suit instituted by any Transition Bondholder for the
enforcement of the payment of (i) Interest on any Transition Bond on or after
the due dates expressed in such Transition Bond and in this Indenture, (ii) the
unpaid Principal, if any, of any Transition Bond on or after the Series Final
Maturity Date or Tranche Final Maturity Date, if applicable, therefor or (iii)
in the case of redemption, the unpaid Principal of and premium, if any, and
Interest on any Transition Bond on or after the Redemption Date therefor.

     SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.

     SECTION 5.15. ACTION ON TRANSITION BONDS. The Trustee's right to seek and
recover judgment on the Transition Bonds or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the Lien of this Indenture nor any
rights or remedies of the Trustee or the Transition Bondholders shall be
impaired by the recovery of any judgment by the Trustee against the Issuer or by
the levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the other assets of the Issuer.

                                   ARTICLE VI

                                   THE TRUSTEE

     SECTION 6.01. DUTIES AND LIABILITIES OF TRUSTEE.

     (a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.


                                      -42-



     (b) Except during the continuance of an Event of Default:

          (i) the Trustee is hereby authorized and undertakes to execute,
     deliver and perform the Basic Documents to the extent called for by such
     documents and otherwise to perform such duties and only such duties as are
     specifically set forth in this Indenture and no implied covenants or
     obligations shall be read into this Indenture against the Trustee; and

          (ii) in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture.

     (c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:

          (i) this paragraph (c) does not limit the effect of paragraph (b) of
     this Section;

          (ii) the Trustee shall not be liable for any error of judgment made in
     good faith by a Responsible Officer unless it is proved that the Trustee
     was negligent in ascertaining the pertinent facts; and

          (iii) the Trustee shall not be liable with respect to any action it
     takes or omits to take in good faith in accordance with a direction
     received by it hereunder.

     (d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 6.01.

     (e) The Trustee shall not be liable for interest on any money received by
it except as provided in this Indenture.

     (f) Money held in trust by the Trustee need not be segregated from other
funds held by the Trustee except to the extent required by law or the terms of
this Indenture, the Administration Agreement, the applicable Sale Agreement,
Intercreditor Agreement or Servicing Agreement or any applicable swap agreement.

     (g) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any liability, financial or otherwise, in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds to believe that repayments
of such funds or indemnity reasonably satisfactory to it against such risk or
liability is not reasonably assured to it.

     (h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 6.01 and to the provisions of the TIA.


                                      -43-



     (i) Under no circumstances shall the Trustee be liable for any indebtedness
of the Issuer, the Seller, the Administrator or the Servicer evidenced by or
arising under the Transition Bonds or any Basic Document.

     SECTION 6.02. RIGHTS OF TRUSTEE.

     (a) The Trustee may rely conclusively and shall be fully protected in
acting or refraining from acting in accordance with any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.

     (b) Before the Trustee acts or refrains from acting, it may require an
Issuer Officer's Certificate or an Issuer Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on an Issuer Officer's Certificate or an Issuer Opinion of Counsel.

     (c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be responsible
for any misconduct or negligence on the part of, or for the supervision of, any
such agent, attorney, custodian or nominee appointed with due care by it
thereunder.

     (d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
willful misconduct, negligence or bad faith.

     (e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Transition Bonds shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.

     (f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by or pursuant to this Indenture at the request, order or
direction of any of the Holders unless such Holders shall have offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that might be incurred by it in compliance with such request, order
or direction.

     (g) In the event that the Trustee is also acting in the capacity of Paying
Agent, Securities Intermediary or Transition Bond Registrar hereunder, the
rights, protections, immunities and indemnities afforded to the Trustee pursuant
to this Article VI shall also be afforded to the Trustee in its capacity as
Paying Agent, Securities Intermediary or Transition Bond Registrar.

     SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual
or any other capacity may become the owner or pledgee of Transition Bonds and
may otherwise deal with the Issuer or its affiliates with the same rights it
would have if it were not Trustee. Any


                                      -44-



Paying Agent, Transition Bond Registrar, co-registrar or co-paying agent may do
the same with like rights. However, the Trustee must comply with Sections 6.11
and 6.12.

     SECTION 6.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Transition Bonds. The Trustee shall not be accountable for the Issuer's
use of the proceeds from the Transition Bonds, and the Trustee shall not be
responsible for any statement of the Issuer in the Indenture or in any document
issued in connection with the sale of the Transition Bonds or in the Transition
Bonds other than the Trustee's certificate of authentication. The Trustee shall
not be responsible for the form, character, genuineness, sufficiency, value or
validity of any of the Trust Estate, or for or in respect of the validity or
sufficiency of the Transition Bonds (other than the certificate of
authentication for the Transition Bonds) or the Basic Documents and the Trustee
shall in no event assume or incur any liability, duty or obligation to any
Holder of a Transition Bond, other than as expressly provided for in this
Indenture. The Trustee shall not be liable for the default or misconduct of the
Issuer, the Seller, the Administrator, the Servicer or a Manager or any Manager
of the Issuer under any Basic Document or otherwise and the Trustee shall have
no obligation or liability to perform the obligations of the Issuer.

     SECTION 6.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing
with respect to any Tranche or Series and if it is actually known to a
Responsible Officer of the Trustee, the Trustee shall mail to the PUCT, each
Rating Agency and to each Holder of Transition Bonds of all Series affected
thereby notice of the Default within 10 Business Days after it is actually known
to a Responsible Officer of the Trustee. Except in the case of a Default in
payment of Principal of or premium, if any, or Interest on any Transition Bond,
the Trustee may withhold the notice if and so long as a Responsible Officer of
the Trustee in good faith determines that withholding the notice is in the
interests of Transition Bondholders.

     SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS.

     (a) So long as Transition Bonds are Outstanding, within the prescribed
period of time for tax reporting purposes after the end of each calendar year,
the Transition Bond Registrar or, in its absence or failure the Paying Agent,
shall deliver to each relevant current or former Holder of Transition Bonds such
information as may be required to enable such Holder to prepare its federal and
State income tax returns.

     (b) With respect to each Series and Tranche of Transition Bonds, on or
prior to each Payment Date therefor, upon receipt by the Trustee from the
Servicer of the "Semiannual Servicer's Certificate," the form of which is
attached hereto as Schedule 1, the Transition Bond Registrar or, in its absence
or failure the Paying Agent, shall deliver such Semiannual Servicer's
Certificate to each Holder of Transition Bonds, to the PUCT and to each Rating
Agency which will include (to the extent applicable) the following information
(and any other information so specified in the Series Supplement for such
Series) as to the Transition Bonds of such Series and Tranche with respect to
such Payment Date or the period since the previous Payment Date, as applicable:


                                      -45-



          (i) the amount to be paid to Holders of the Transition Bonds of such
     Series and Tranche in respect of principal, such amount also to be
     expressed as a dollar amount per thousand;

          (ii) the amount to be paid to Holders of the Transition Bonds of such
     Series and Tranche in respect of interest, such amount also to be expressed
     as a dollar amount per thousand;

          (iii) the Transition Bond Balance, after giving effect to the payments
     to be made on such Payment Date, and the Projected Transition Bond Balance,
     in each case for such Series and Tranche and as of such Payment Date;

          (iv) the amount on deposit in the Capital Subaccount for such Series
     as of such Payment Date;

          (v) the amount, if any, on deposit in the Excess Funds Subaccount for
     such Series as of such Payment Date;

          (vi) the amount to be paid to and by any counterparty under any swap
     agreement for such Series;

          (vii) the amount to be paid to the Trustee relating to that Series on
     such Payment Date;

          (viii) the amount to be paid to the Servicer relating to that Series
     on such Payment Date; and

          (ix) any other transfers and payments relating to that Series made
     pursuant to this Indenture.

     (c) If any Transition Bonds are listed on the Luxembourg Stock Exchange and
rules of such exchange so require, the Issuer's listing agent shall arrange for
publication in accordance with such rules a notice that such certificate shall
be available with the Issuer's listing agent in Luxembourg appointed pursuant to
the second paragraph of Section 3.02.

     (d) The Transition Bond Registrar's or Paying Agent's responsibility for
disbursing the information described in subsection (b) above to Holders of a
Series of Transition Bonds is limited to the availability, timeliness and
accuracy of the information provided by the Servicer pursuant to Section 3.04
and Annex 1 of the applicable Servicing Agreement and pursuant to any applicable
Intercreditor Agreement.

     SECTION 6.07. COMPENSATION AND INDEMNITY. SUBJECT IN ALL RESPECTS TO THE
PROVISIONS OF ARTICLE VIII HEREOF, THE ISSUER SHALL PAY TO THE TRUSTEE FROM TIME
TO TIME REASONABLE COMPENSATION FOR ITS SERVICES. TO THE EXTENT PERMITTED BY
LAW, THE TRUSTEE'S COMPENSATION SHALL NOT BE LIMITED BY ANY LAW ON COMPENSATION
OF A TRUSTEE OF AN EXPRESS TRUST. THE ISSUER SHALL REIMBURSE THE TRUSTEE FOR ALL
REASONABLE OUT-OF-POCKET EXPENSES, DISBURSEMENTS AND ADVANCES INCURRED OR MADE
BY IT, INCLUDING COSTS OF COLLECTION, IN ADDITION TO THE COMPENSATION FOR ITS
SERVICES. SUCH EXPENSES SHALL INCLUDE THE REASONABLE


                                      -46-



COMPENSATION AND EXPENSES, DISBURSEMENTS AND ADVANCES OF THE TRUSTEE'S AGENTS,
COUNSEL, ACCOUNTANTS AND EXPERTS. THE ISSUER SHALL INDEMNIFY AND HOLD HARMLESS
THE TRUSTEE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FROM AND AGAINST
ANY AND ALL LOSSES OR OTHER AMOUNTS WHATSOEVER (INCLUDING COUNSEL FEES AND
EXPENSES) DIRECTLY OR INDIRECTLY INCURRED BY THE TRUSTEE IN CONNECTION WITH THE
ADMINISTRATION OF THIS TRUST, THE ENFORCEMENT OF THIS TRUST AND ALL OF THE
TRUSTEE'S RIGHTS, POWERS AND DUTIES UNDER THIS INDENTURE (INCLUDING THIS SECTION
6.07) AND THE PERFORMANCE BY THE TRUSTEE OF THE DUTIES AND OBLIGATIONS OF THE
TRUSTEE UNDER OR PURSUANT TO THIS INDENTURE AND ANY SALE AGREEMENT,
ADMINISTRATION AGREEMENT, SERVICING AGREEMENT AND INTERCREDITOR AGREEMENT;
PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE FOREGOING, THE FAILURE TO PAY TO THE
TRUSTEE BY THE ISSUER (INCLUDING WITHOUT LIMITATION FROM COLLECTIONS DEPOSITED
INTO THE COLLECTION ACCOUNT OR THROUGH THE TRANSITION CHARGE ADJUSTMENT PROCESS)
ANY AMOUNTS IN RESPECT OF INDEMNIFICATION HEREUNDER IN EXCESS OF AN AGGREGATE
AMOUNT EQUAL TO ANY INDEMNITY AMOUNTS PAYABLE TO THE TRUSTEE IN ACCORDANCE WITH
SECTION 8.02(D) OF THIS INDENTURE SHALL NOT CONSTITUTE A DEFAULT OR EVENT OF
DEFAULT UNDER SECTION 5.01 OF THIS INDENTURE. THE TRUSTEE SHALL NOTIFY THE
ISSUER PROMPTLY OF ANY CLAIM FOR WHICH IT MAY SEEK INDEMNITY. FAILURE BY THE
TRUSTEE SO TO NOTIFY THE ISSUER SHALL NOT RELIEVE THE ISSUER OF ITS OBLIGATIONS
HEREUNDER. THE ISSUER SHALL DEFEND THE CLAIM AND THE TRUSTEE MAY HAVE SEPARATE
COUNSEL AND THE ISSUER SHALL PAY THE FEES AND EXPENSES OF SUCH COUNSEL.
NOTWITHSTANDING THE FOREGOING, THE ISSUER NEED NOT REIMBURSE ANY EXPENSE OR
INDEMNIFY AGAINST ANY LOSS INCURRED BY THE TRUSTEE (I) THROUGH THE TRUSTEE'S OWN
WILLFUL MISCONDUCT, NEGLIGENCE OR BAD FAITH OR (II) TO THE EXTENT THE TRUSTEE
WAS REIMBURSED FOR OR INDEMNIFIED AGAINST ANY SUCH LOSS BY THE SELLER OR THE
SERVICER PURSUANT TO ANY SALE AGREEMENT, ADMINISTRATION AGREEMENT, INTERCREDITOR
AGREEMENT OR SERVICING AGREEMENT. THE OBLIGATIONS OF THE ISSUER UNDER THIS
SECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE EARLIER
RESIGNATION OR REMOVAL OF THE TRUSTEE.

     When the Trustee incurs expenses after the occurrence of a Default
specified in Section 5.01(v) or (vi) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or State bankruptcy,
insolvency or similar law.

     SECTION 6.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time
upon 30 days' written notice to the Issuer. The Issuer shall remove the Trustee
by written notice if:

          (i) the Trustee fails to comply with Section 6.11;

          (ii) the Trustee is adjudged a bankrupt or insolvent;

          (iii) a receiver or other public officer takes charge of the Trustee
     or its property; or

          (iv) the Trustee otherwise becomes incapable of acting.


                                      -47-



     If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason (the Trustee in such event being referred to herein as
the "Retiring Trustee"), the Issuer shall promptly appoint a successor Trustee.

     In addition, the Majority Holders may remove the Trustee by so notifying
the Issuer and the Trustee in writing and such Holders may appoint a successor
Trustee.

     A successor Trustee shall deliver a written acceptance of its appointment
to the Retiring Trustee and to the Issuer. Thereupon the resignation or removal
of the Retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture and
any Intercreditor Agreement. No resignation or removal of the Trustee will
become effective until the acceptance of the appointment by a successor Trustee.
The successor Trustee shall mail a notice of its succession to the Transition
Bondholders. The Retiring Trustee shall promptly transfer all property held by
it as Trustee to the successor Trustee.

     If a successor Trustee does not take office within 60 days after the
Retiring Trustee resigns or is removed, the Retiring Trustee at the expense of
the Issuer, the Issuer or the Majority Holders may petition any court of
competent jurisdiction for the appointment of a successor Trustee.

     If the Trustee fails to comply with Section 6.11, any Transition Bondholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.

     Notwithstanding the replacement of the Trustee pursuant to this Section
6.08, the Issuer's obligations under Section 6.07 shall continue for the benefit
of the Retiring Trustee.

     SECTION 6.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or banking
association shall, without any further act, be the successor Trustee. Notice of
any such event shall be promptly given to the PUCT and to each Rating Agency by
the successor Trustee and any agent in Luxembourg appointed pursuant to the
second paragraph of Section 3.02.

     In case at the time such successor or successors by merger, conversion,
consolidation or transfer shall succeed to the trusts created by this Indenture
any of the Transition Bonds shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
Retiring Trustee, and deliver such Transition Bonds so authenticated; and in
case at that time any of the Transition Bonds shall not have been authenticated,
any successor to the Trustee may authenticate such Transition Bonds either in
the name of any Retiring Trustee hereunder or in the name of the successor to
the Trustee; and in all such cases such certificates shall have the full force
and effect granted by the Transition Bonds or by this Indenture and this force
and effect shall be equal to any certificate issued by the Trustee.

     SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.


                                      -48-



     (a) Notwithstanding any other provisions of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Trust Estate may at the time be located, the Trustee shall have
the power and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust Estate, and to vest in such Person or
Persons, in such capacity and for the benefit of the Transition Bondholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section 6.10, such powers, duties, obligations, rights and
trusts as the Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Transition Bondholders
of the appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof. Notice of any such appointment shall be promptly given to
each Rating Agency and the PUCT by the Trustee.

     (b) Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:

          (i) all rights, powers, duties and obligations conferred or imposed
     upon the Trustee shall be conferred or imposed upon and exercised or
     performed by the Trustee and such separate trustee or co-trustee jointly
     (it being understood that such separate trustee or co-trustee is not
     authorized to act separately without the Trustee joining in such act),
     except to the extent that under any law of any jurisdiction in which any
     particular act or acts are to be performed, the Trustee shall be
     incompetent or unqualified to perform such act or acts, in which event such
     rights, powers, duties and obligations (including the holding of title to
     the Trust Estate or any portion thereof in any such jurisdiction) shall be
     exercised and performed singly by such separate trustee or co-trustee, but
     solely at the direction of the Trustee;

          (ii) no trustee hereunder shall be personally liable by reason of any
     act or omission of any other trustee hereunder; and

          (iii) the Trustee may at any time accept the resignation of or remove
     any separate trustee or co-trustee.

     (c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Indenture and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to the Trustee. Every
such instrument shall be filed with the Trustee.

     (d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,


                                      -49-



properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.

     SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The Trustee and any co-trustee
shall at all times satisfy the requirements of TIA Section 310(a)(1) and (a)(5)
and Section 26(a)(1) of the Investment Company Act of 1940, as amended. In
addition, the Trustee and any co-trustee shall have a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition and it shall have a long term debt rating of "Baa3" or
better by Moody's, "BBB-" or better by S&P and, if Fitch provides a rating
thereon, "BBB-" or better by Fitch. The Trustee and any co-trustee shall comply
with TIA Section 310(b), including the optional provision permitted by the
second sentence of TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9); provided, however,
that there shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.

     SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The Trustee
shall comply with TIA Section 311(a), excluding any creditor relationship listed
in TIA Section 311(b). A Trustee who has resigned or been removed shall be
subject to TIA Section 311(a) to the extent indicated

     SECTION 6.13. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE. The Trustee
hereby represents and warrants that:

     (a) the Trustee is a banking corporation validly existing in good standing
under the laws of the State of Delaware; and

     (b) the Trustee has full power, authority and legal right to execute,
deliver and perform this Indenture and all the Basic Documents to which the
Trustee is a party and has taken all necessary action to authorize the
execution, delivery and performance by it of this Indenture and such Basic
Documents.

     SECTION 6.14. RIGHTS OF THE AUTHENTICATING AGENT, TRANSITION BOND
REGISTRAR, PAYING AGENT, AND SECURITIES INTERMEDIARY.

     (a) Each of the authenticating agent, Transition Bond Registrar, Paying
Agent and Securities Intermediary undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture. The authenticating
agent, Transition Bond Registrar, Paying Agent and Securities Intermediary shall
not have any duties or responsibilities except those expressly set forth in this
Indenture or be a trustee for or have any fiduciary obligation to any party
hereto.

     (b) In the absence of bad faith on the part of the authenticating agent,
Transition Bond Registrar, Paying Agent or Securities Intermediary,
respectively, such party may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to such party that conform to the
requirements of this Indenture.


                                      -50-



     (c) None of the authenticating agent, Transition Bond Registrar, Paying
Agent and Securities Intermediary shall be liable for any error of judgment made
in good faith by an officer or officers of that party, unless it shall be
conclusively determined by a court of competent jurisdiction that such party was
grossly negligent.

     (d) None of the authenticating agent, Transition Bond Registrar, Paying
Agent or Securities Intermediary shall be liable with respect to any action
taken or omitted to be taken by that party in good faith in accordance with any
direction of the Issuer or the Trustee given under this Indenture.

     (e) None of the provisions of this Indenture shall require any of the
authenticating agent, Transition Bond Registrar, Paying Agent or Securities
Intermediary to expend or risk its own funds or otherwise to incur any
liability, financial or otherwise, in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.

     (f) Each of the authenticating agent, Transition Bond Registrar, Paying
Agent, and Securities Intermediary may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.

     (g) Each of the authenticating agent, Transition Bond Registrar, Paying
Agent and Securities Intermediary may consult with counsel and the advice or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by that party hereunder in good faith and
in accordance with such advice or opinion of counsel.

     (h) None of the authenticating agent, Transition Bond Registrar, Paying
Agent or Securities Intermediary shall be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, entitlement order,
approval or other paper or document.

     (i) None of the authenticating agent, Transition Bond Registrar, Paying
Agent or Securities Intermediary shall have any obligation to invest and
reinvest any cash held in the accounts in the absence of timely and specific
written investment direction from the Issuer or, with respect to any REP Deposit
Account, the REP or the Servicer. In no event shall any of the authenticating
agent, Transition Bond Registrar, Paying Agent or Securities Intermediary be
liable for the selection of investments or for investment losses incurred
thereon. None of the authenticating agent, Transition Bond Registrar, Paying
Agent or Securities Intermediary shall have any liability in respect of losses
incurred as a result of the liquidation of any investment prior to its stated
maturity or the failure of the Issuer to provide timely written investment
direction.

     (j) Each of the authenticating agent, Transition Bond Registrar, Paying
Agent and Securities Intermediary may at any time resign by giving 30 days'
written notice of resignation to the Issuer and the Trustee. Upon receiving such
notice of resignation, the Issuer shall


                                      -51-



promptly appoint a successor and, upon the acceptance by the successor of such
appointment, release the resigning party from its obligations hereunder by
written instrument, a copy of which instrument shall be delivered to the Issuer,
the Trustee, the resigning party and the successor. If no successor shall have
been so appointed and have accepted appointment within 45 days after the giving
of such notice of resignation, the resigning party may petition any court of
competent jurisdiction for the appointment of a successor.

     (k) Any corporation into which any of the authenticating agent, Transition
Bond Registrar, Paying Agent or Securities Intermediary may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the authenticating agent,
Transition Bond Registrar, Paying Agent or Securities Intermediary,
respectively, shall be a party, or any corporation succeeding to the business of
the authenticating agent, Transition Bond Registrar, Paying Agent or Securities
Intermediary, respectively, shall be the successor of the authenticating agent,
Transition Bond Registrar, Paying Agent or Securities Intermediary,
respectively, hereunder without the execution or filing of any paper with any
party hereto or any further act on the part of any of the parties hereto except
where an instrument of transfer or assignment is required by law to effect such
succession, anything herein to the contrary notwithstanding.

     (l) The Issuer shall indemnify, defend and hold harmless each of the
authenticating agent, Transition Bond Registrar, Paying Agent and Securities
Intermediary and its respective officers, directors, employees, representatives
and agents, from and against and reimburse each such party for any and all
claims, expenses, obligations, liabilities, losses, damages, injuries (to
person, property, or natural resources), penalties, stamp or other similar
taxes, actions, suits, judgments, reasonable costs and expenses (including
reasonable attorney's and agent's fees and expenses) of whatever kind or nature
regardless of their merit, demanded, asserted or claimed against such party
directly or indirectly relating to, or arising from, claims against such party
by reason of its participation in the transactions contemplated hereby,
including without limitation all reasonable costs required to be associated with
claims for damages to persons or property, and reasonable attorneys' and
consultants' fees and expenses and court costs except to the extent caused by
such party's willful misconduct, negligence or bad faith. The provisions of this
Section 6.14(l) shall survive the termination of this Agreement or the earlier
resignation or removal of the authenticating agent, Transition Bond Registrar,
Paying Agent or Securities Intermediary, as applicable.

                                   ARTICLE VII

                    TRANSITION BONDHOLDERS' LISTS AND REPORTS

     SECTION 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF TRANSITION
BONDHOLDERS. The Issuer shall furnish or cause to be furnished to the Trustee
(a) not more than five days after the earlier of (i) each Record Date with
respect to each Series and (ii) six months after the last Record Date with
respect to each Series, a list, in such form as the Trustee may reasonably
require, of the names and in the event the Trustee is acting as the Transition
Bond Registrar the addresses of the Holders of Transition Bonds of such Series
as of such Record Date, and (b) at such other times as the Trustee may request
in writing, within 30 days after receipt by the Issuer of any such request, a
list of similar form and content as of a


                                      -52-



date not more than 10 days prior to the time such list is furnished; provided,
however, that so long as the Trustee is the Transition Bond Registrar, no such
list shall be required to be furnished. In addition, the Issuer shall furnish
such list to any listing, transfer or paying agent appointed under the second
paragraph of Section 3.02 to the extent such information is required by the
rules and regulations of the Luxembourg Stock Exchange.

     SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO TRANSITION
BONDHOLDERS.

     (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Transition Bonds
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of Transition Bonds received
by the Trustee in its capacity as Transition Bond Registrar. The Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.

     (b) Transition Bondholders may communicate with other Transition
Bondholders pursuant to Section 312(b) of the TIA, with respect to their rights
under this Indenture or under the Transition Bonds.

     (c) The Issuer, the Trustee and the Transition Bond Registrar shall have
the protection of Section 312(c) of the TIA.

     SECTION 7.03. REPORTS BY ISSUER.

          (a) The Issuer shall:

               (i) so long as the Issuer is required to file such documents with
          the Commission, provide to the Trustee and, so long as any Transition
          Bonds are listed on the Luxembourg Stock Exchange and its rules so
          require, with the listing agent of the Issuer in Luxembourg appointed
          pursuant to the second paragraph of Section 3.02, within 15 days after
          the Issuer is required to file the same with the Commission, copies of
          the annual reports and of the information, documents and other reports
          (or copies of such portions of any of the foregoing as the Commission
          may from time to time by rules and regulations prescribe) which the
          Issuer may be required to file with the Commission pursuant to Section
          13 or 15(d) of the Exchange Act;

               (ii) provide to the Trustee, file with the Commission and, so
          long as any Transition Bonds are listed on the Luxembourg Stock
          Exchange and its rules so require, provide to the listing agent of the
          Issuer in Luxembourg appointed pursuant to the second paragraph of
          Section 3.02, in accordance with rules and regulations prescribed from
          time to time by the Commission or the Luxembourg Stock Exchange,
          respectively, such additional information, documents and reports with
          respect to compliance by the Issuer with the conditions and covenants
          of this Indenture as may be required from time to time by such rules
          and regulations; and


                                      -53-



               (iii) supply to the Trustee (and the Trustee shall transmit by
          mail to all Transition Bondholders described in TIA Section 313(c))
          and, so long as any Transition Bonds are listed on the Luxembourg
          Stock Exchange and its rules so require, to the listing agent of the
          Issuer in Luxembourg appointed pursuant to the second paragraph of
          Section 3.02, such summaries of any information, documents and reports
          required to be filed by the Issuer pursuant to clauses (i) and (ii) of
          this Section 7.03(a) as may be required by rules and regulations
          prescribed from time to time by the Commission.

          (b) Unless the Issuer otherwise determines, the fiscal year of the
     Issuer shall end on December 31 of each year.

     SECTION 7.04. REPORTS BY TRUSTEE. If required by TIA Section 313(a), within
60 days after the end of each fiscal year of the Issuer, commencing with the
year after the issuance of the Transition Bonds of any Series, the Trustee shall
mail to each Holder of Transition Bonds of such Series as required by TIA
Section 313(c) a brief report dated as of such date that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Section 313(b); provided,
however, that the initial report so issued shall be delivered not more than 12
months after the initial issuance of each Series.

     A copy of each report at the time of its mailing to Transition Bondholders
shall be filed by the Trustee with the Commission and each stock exchange, if
any, on which the Transition Bonds are listed (to the extent required by the
rules of such exchange). The Issuer shall notify the Trustee if and when the
Transition Bonds are listed on any stock exchange.

     SECTION 7.05. PROVISION OF SERVICER REPORTS. Upon the written request of
any Transition Bondholder, the PUCT or any Rating Agency to the Trustee
addressed to the Corporate Trust Office, the Transition Bond Registrar, or in
its absence or failure the Paying Agent, shall provide such requesting party,
the Trustee and the Paying Agent or Transition Bond Registrar, as applicable,
with a copy of any Semiannual Servicer's Certificate, Annual Accountant's Report
and any other report of the Servicer referred to in the applicable Servicing
Agreement. If any Transition Bonds are listed on the Luxembourg Stock Exchange
and its rules so require, the Transition Bond Registrar, or in its absence or
failure the Paying Agent, at the written direction of the Issuer shall also
arrange for publication in accordance with such rules of a notice that a copy of
such Servicer's certificate, Annual Accountant's Report or other report shall be
available with the Issuer's listing agent in Luxembourg appointed pursuant to
the second paragraph of Section 3.02.

                                  ARTICLE VIII

                      ACCOUNTS, DISBURSEMENTS AND RELEASES

     SECTION 8.01. COLLECTION OF MONEY. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Trustee pursuant to this Indenture. The Trustee shall apply all such money
received by it as provided in this Indenture. Except as otherwise


                                      -54-



expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Trust Estate, the Trustee may take such action as may be appropriate to enforce
such payment or performance, including the institution and prosecution of
appropriate Proceedings. Any such action shall be without prejudice to any right
to claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.

     SECTION 8.02. COLLECTION ACCOUNT.

               (a) (i) On or prior to the Series Issuance Date for each Series
          issued hereunder, the Issuer shall open, at the Paying Agent's
          Corporate Trust Office, or at another Eligible Institution, one or
          more segregated non-interest-bearing trust accounts in the Trustee's
          name for the deposit of Collections for that Series of Transition
          Bonds and all other amounts received with respect to the Series Trust
          Estate securing that Series (each a "Collection Account" and
          collectively, the "Collection Accounts"). The Collection Account for
          each Series shall initially be divided into subaccounts, which need
          not be separate accounts: a general subaccount (the "General
          Subaccount"), an overcollateralization subaccount (the
          "Overcollateralization Subaccount"), a capital subaccount (the
          "Capital Subaccount"), an excess funds subaccount (the "Excess Funds
          Subaccount") and one or more class subaccounts for any Tranche of any
          Series of Transition Bonds that has a floating rate of interest as
          specified in any Series Supplement (each, a "Tranche Subaccount"). On
          or prior to the Series Issuance Date for any Series of Transition
          Bonds, the Member shall deposit into the Capital Subaccount for that
          Series an amount equal to the Required Capital Amount for that Series.
          Unless otherwise specified in any Series Supplement, the
          overcollateralization amount and scheduled overcollateralization level
          for the Overcollateralization Subaccount of each Series shall at all
          times be zero. All amounts in the Collection Account for any Series
          not allocated to any other subaccount shall be allocated to the
          General Subaccount for that Series. Prior to the initial Payment Date
          for a Series, all amounts in the Collection Account for that Series
          (other than funds deposited into the Capital Subaccount, up to the
          Required Capital Amount for that Series) shall be allocated to the
          General Subaccount for that Series. All payments received by the
          Trustee from any swap counterparty in respect of any swap agreement
          related to that Series shall be deposited in the related Tranche
          Subaccount. Prior to depositing funds or U.S. Government Obligations
          in the Collection Account pursuant to Section 4.01 or 4.02, the Issuer
          shall establish defeasance subaccounts (each a "Defeasance
          Subaccount") for each Series for which funds shall be deposited, as
          subaccounts of the Collection Account. All references to the
          Collection Account shall be deemed to include reference to all
          subaccounts contained therein. Withdrawals from and deposits to each
          of the foregoing subaccounts of any Collection Account shall be made
          as set forth in Section 4.03 and Section 8.02(d) and (e). Each
          Collection Account shall at all times be maintained as an Eligible
          Securities Account and only the Trustee shall have access to that
          Collection Account for the purpose of making deposits in and
          withdrawals from that Collection Account in accordance with this
          Indenture. Funds in a Collection Account shall not be commingled with
          any other moneys,


                                      -55-



          including moneys in any other Collection Account. All moneys deposited
          from time to time in a Collection Account, all deposits therein
          pursuant to this Indenture, and all investments made in Eligible
          Investments with such moneys, including all income or other gain from
          such investments, shall be held by the Trustee in that Collection
          Account as part of the Series Trust Estate securing that Series as
          herein provided.

               (ii) The Securities Intermediary also agrees that (A) each of the
          Collection Accounts is, or on the date of its creation will be, and
          shall at all times be maintained by the Securities Intermediary as, a
          "securities account" (within the meaning of Section 8-501 of the New
          York UCC), (B) the "securities intermediary's jurisdiction" (within
          the meaning of Article 8 of the New York UCC) of the Securities
          Intermediary is the State of New York, (C) all cash and other property
          in each of the Accounts shall be treated by the Securities
          Intermediary as a "financial asset" (as defined in Section 8-102(a)(9)
          of the New York UCC), (E) the "entitlement holder" (as such term is
          defined in Section 8-102(a)(7) of the New York UCC or, with respect to
          Book-Entry Securities, in the applicable Federal Book-Entry
          Regulations) shall be the Trustee for the benefit of the Transition
          Bondholders, (E) any financial asset in registered form or payable to,
          or to the order of, a Person, and credited to any of the Accounts
          shall be registered in the name of, payable to the order of, or
          specially indorsed to, the Securities Intermediary or in blank, or
          credited to another securities account maintained in the name of the
          Securities Intermediary, and in no case will any financial assets
          credited to any of the Accounts be registered in the name of, payable
          to or to the order of, or specially indorsed to the Issuer or the
          Trustee, except to the extent the foregoing have been specially
          indorsed by the Issuer or the Trustee, as applicable, to the
          Securities Intermediary or in blank, (F) the Securities Intermediary
          shall not change the names or account numbers of any of the Accounts
          without the prior written consent of the Trustee and shall not change
          the entitlement holder, and (G) the Securities Intermediary shall at
          all times act as a "securities intermediary" (within the meaning of
          Section 8-102(a)(14) of the New York UCC or, with respect to
          Book-Entry Securities, in the applicable Federal Book-Entry
          Regulations) and shall credit to each of the Accounts each financial
          asset to be held in or credited to each of the Accounts pursuant to
          this Indenture.

               (iii) Each of the Accounts shall remain at all times with a
          securities intermediary (within the meaning of Section 8-102(a)(14) of
          the New York UCC or, with respect to Book-Entry Securities, in the
          applicable Federal Book-Entry Regulations) having a combined capital
          and surplus of at least $50,000,000 and having a long-term debt rating
          of at least "A2" by Moody's and at least "AA-" by S&P. The Securities
          Intermediary shall give notice to the Issuer and the Transition
          Bondholders of the location of the Accounts and of any change thereof
          (provided that no such change shall be made without the prior approval
          of the Majority Holders), prior to the use thereof.


                                      -56-



               (iv) Anything herein to the contrary notwithstanding, the Issuer
          irrevocably agrees that the Securities Intermediary may, and the
          Securities Intermediary agrees that it shall, comply with "entitlement
          orders" (as defined in Section 8-102(8) of the New York UCC)
          originated by the Trustee and relating to each of the Accounts (and
          all securities entitlements within the meaning of Section 8-102(a)(17)
          of the New York UCC or, with respect to Book-Entry Securities, within
          the meaning of applicable Federal Book-Entry Regulations carried in
          such Account) without further consent by the Issuer or any other
          Person so long as this Indenture is in effect. The Securities
          Intermediary agrees that it shall at all times comply with the
          "entitlement orders" (as defined in Section 8-102(8) of the New York
          UCC) originated by the Trustee and shall not comply with "entitlement
          orders" of any other Person. The Trustee and the Securities
          Intermediary hereby represent that they have not, and hereby agree
          that they will not, enter into any agreement or take any action which
          gives any Person other than the Trustee, "control" (as defined in
          Section 8-106 of the New York UCC) over any of the Accounts.

               (v) The Trustee shall have sole dominion and exclusive control
          over all property in each Collection Account and the Securities
          Intermediary shall apply such amounts therein as provided in this
          Section 8.02. The Trustee at the written direction of the Servicer
          shall also pay from the Collection Account any amounts requested to be
          paid by or to the Servicer pursuant to of the applicable Servicing
          Agreement.

               (vi) Collections shall be deposited in the applicable General
          Subaccount as provided in the applicable Servicing Agreement. All
          deposits to and withdrawals from a Collection Account, all allocations
          to the subaccounts of such Collection Account and any amounts to be
          paid to the applicable Servicer under Section 8.02(d) shall be made by
          the Trustee in accordance with the written instructions provided by
          such Servicer in the Servicer's Certificate or upon other written
          notice provided by such Servicer pursuant to such Servicing Agreement,
          as applicable.

               (vii) There are no other agreements entered into between the
          Securities Intermediary, the Trustee and the Issuer with respect to
          the Accounts, other than this Indenture. In the event of any conflict
          between this Section 8.02 (or any portion thereof), any other
          provision of this Indenture or any other agreement now existing or
          hereafter entered into, the terms of this Section 8.02 shall prevail.

          (b) So long as no Default or Event of Default has occurred and is
     continuing, the Trustee upon written direction of the Servicer will, as
     entitlement holder, cause the Securities Intermediary to invest and
     reinvest all or a portion of the funds in the Collection Account (other
     than as set forth in Section 8.06) for each Series in Eligible Investments;
     provided, however, that (i) such Eligible Investments shall not mature
     later than the next Payment Date for such Series (except as otherwise
     provided in any Series Supplement), (ii) such Eligible Investments shall
     not be sold, liquidated or otherwise disposed of at a loss prior to the
     maturity thereof, and (iii) no funds in the Defeasance Subaccount for any
     Series of Transition Bonds shall be invested in


                                      -57-



     Eligible Investments or otherwise, except that U.S. Government Obligations
     deposited by the Issuer with the Trustee pursuant to Sections 4.01 or 4.02
     shall remain as such. All income or other gain from investments of moneys
     deposited in the Collection Account for that Series shall be deposited by
     the Trustee in the Collection Account for that Series, and any loss
     resulting from such investments shall be charged to that Collection
     Account. The Servicer shall not direct the Trustee to make any investment
     of any funds or to sell any investment held in the Collection Account for a
     Series unless the security interest granted and perfected in such account
     will continue to be perfected in such investment or the proceeds of such
     sale, in either case without any further action by any Person, and, in
     connection with any direction to the Trustee to make any such investment or
     sale, if requested by the Trustee, the Issuer shall deliver to the Trustee
     an Issuer Opinion of Counsel, acceptable to the Trustee, to such effect.
     Subject to Section 6.01(c), the Trustee shall not in any way be held liable
     for the selection of Eligible Investments or for investment Losses incurred
     thereon except for Losses attributable to the Trustee's failure to make
     payments on such Eligible Investments issued by the Trustee, in its
     commercial capacity as principal obligor and not as Trustee, in accordance
     with their terms. The Trustee shall have no liability in respect of Losses
     incurred as a result of the liquidation of any Eligible Investment prior to
     its stated maturity or the failure of the Issuer to provide timely and
     specific written investment direction. The Trustee shall have no obligation
     to invest or reinvest any amounts held hereunder in the absence of written
     investment direction pursuant to an Issuer Order.

          (c) Any Collections remitted by the Servicer to the Trustee with
     respect to a Series of Transition Bonds, any Indemnity Amounts with respect
     to that Series remitted to the Trustee by the Seller, the Issuer or the
     Servicer, any amounts paid by a swap counterparty in accordance with a swap
     agreement relating to that Series, any other amount otherwise received by
     the Trustee or the Issuer related to that Series, and any other proceeds of
     Series Trust Estate securing that Series received by the Servicer, the
     Issuer or the Trustee shall be deposited in the General Subaccount for that
     Series, except that the Trustee shall deposit in the Capital Subaccount for
     that Series the Required Capital Amount.

          (d) On each Payment Date for a particular Series or other date
     specified in the Series Supplement with respect to that Series, the Paying
     Agent pursuant to the written direction provided in the Semiannual
     Servicer's Certificate shall by 12:00 noon (New York City time) allocate or
     apply all amounts on deposit in the General Subaccount of the Collection
     Account for that Series and any investment earnings on the subaccounts in
     the Collection Account for that Series (other than earnings on amounts in
     any REP Deposit Account) in the following priority unless otherwise set
     forth in any Series Supplement herein (provided, that no Series Supplement
     may modify the Pro Rata payment of amounts described herein as being paid
     Pro Rata):

               (i) fees and expenses (including reasonable legal fees and
          expenses) and Indemnity Amounts owed to the Trustee for such Payment
          Date shall be paid to the Trustee and, to the extent those amounts are
          not separately identified by the Trustee as being payable with respect
          to a Series, allocated among all Series of Transition Bonds
          Outstanding on a Pro Rata basis; provided that the Indemnity Amounts
          with respect to that Series paid during any calendar year pursuant to
          this clause (i) may not exceed the amount fixed therefor in the
          applicable Series Supplement;


                                      -58-



               (ii) the Servicing Fee, which will be a fixed percentage of the
          initial principal amount of that Series of Transition Bonds specified
          in the related Servicing Agreement, and all unpaid Servicing Fees from
          prior Payment Dates shall be paid to the Servicer;

               (iii) the administration fee payable under the Administration
          Agreement for such Payment Date shall be paid to the Administrator and
          fees of the Issuer's independent managers in connection with their
          acting as managers under the Issuer LLC Agreement shall be paid to
          such independent managers;

               (iv) all ordinary periodic Operating Expenses (such as accounting
          and audit fees, rating agency fees, legal fees and Servicer expenses
          under Sections 3.10 and 5.05 or equivalent provisions of the
          applicable Servicing Agreement) other than those referred to in
          clauses (i), (ii) and (iii) above shall be paid to the Persons
          entitled thereto;

               (v) an amount equal to the Interest payable on such Series of
          Transition Bonds on such Payment Date;

               (vi) (A) an amount equal to any Principal of that Series or
          Tranche of Transition Bonds payable as a result of acceleration
          pursuant to Section 5.02 shall be allocated to that Series or Tranche
          and, if there are insufficient funds to make that allocation in full,
          on a Pro Rata basis, (B) an amount equal to any Principal of that
          Series or Tranche payable on a Series Final Maturity Date or Tranche
          Final Maturity Date for that Series or Tranche and any Principal of
          and premium, if any, on that Series or Tranche of Transition Bonds
          payable on a Redemption Date shall be allocated to that Series and, if
          there are insufficient funds to make that allocation in full, on a Pro
          Rata basis and (C) an amount equal to Principal scheduled to be paid
          on that Series or Tranche of Transition Bonds on such Payment Date
          according to the Expected Amortization Schedule, excluding any amounts
          provided for elsewhere in this clause (vi), shall be allocated to the
          corresponding Series and if there are insufficient funds to make that
          allocation in full, on a Pro Rata basis;

               (vii) any amounts payable to credit enhancement providers with
          respect to that Series, if any, shall be paid to such credit
          enhancement providers;

               (viii) all remaining unpaid Operating Expenses and any other
          amounts due and owing pursuant to the Basic Documents (including all
          remaining Indemnity Amounts) shall be paid to the Persons entitled
          thereto without duplication of any other payment from any other
          source;

               (ix) any amount necessary to replenish amounts drawn from the
          Capital Subaccount shall be allocated to the Capital Subaccount;

               (x) so long as no Event of Default has occurred and is
          continuing, an amount equal to investment earnings on amounts in the
          Capital Subaccount for that Series shall be released to the Issuer;
          and

               (xi) the balance, if any, shall be allocated to the Excess Funds
          Subaccount for that Series.


                                      -59-



     The amounts paid during any calendar year in respect of the Trustee's fees
and expenses in clause (i) above, the Servicing Fee in clause (ii), the
administration and independent managers' fees in clause (iii), the ordinary
periodic Operating Expenses in clause (iv) and the remaining Operating Expenses
in clause (viii) above may not exceed in the aggregate for all Series an amount
specified in the related Supplemental Indenture (which amount may be based in
part on whether CenterPoint Houston is the Servicer of that Series of Transition
Bonds) unless the PUCT approves a different aggregate amount of such payments.
If more than one Series of Transition Bonds is outstanding, the payments
described in the preceding sentence will be made Pro Rata from the respective
Collection Accounts of each Series.

     Following repayment of all Transition Bonds of a Series, the balance, if
any, shall be released to the Issuer free from the Lien of the Indenture.

     "Pro Rata" means with respect to any Series or Tranche of Transition Bonds
a ratio:

     (1) in the case of clause (d)(v) above, the numerator of which is the
aggregate amount of Interest payable or net amount payable to a counterparty
under an interest rate protection agreement, as applicable, with respect to such
Series or Tranche on such Payment Date and the denominator of which is the sum
of the aggregate amounts of Interest payable and aggregate of the net amounts
payable under interest rate protection agreements with respect to all
Outstanding Series or Tranches on such Payment Date; and

     (2) in the case of all other clauses in (d) above, the numerator of which
is the aggregate amount of Principal to be paid or payable pursuant to each such
clause with respect to such Series or Tranche on such Payment Date and the
denominator of which is the sum of the aggregate amounts of Principal to be paid
or payable pursuant to each such clause with respect to all Outstanding Series
or Tranches on such Payment Date, unless and to the extent, with respect to
either clause (A) or (B) of this paragraph, in the case of a Series comprised of
two or more Tranches, the Series Supplement for such Series provides otherwise.

     If, on any Payment Date for a Series of Transition Bonds, funds on deposit
in the General Subaccount for that Series are insufficient to make the payments
or transfers contemplated by clauses (i) through (ix) above, the Paying Agent
shall draw from amounts on deposit in the following subaccounts in the following
order up to the amount of such shortfall, in order to make such payments and
transfers:

          (i) from the Excess Funds Subaccount for such Series for allocations
     and payments contemplated by clauses (i) through (ix); and

          (ii) from the Capital Subaccount for such Series for allocations and
     payments contemplated by clauses (i) through (viii).

     (e) Upon an acceleration of the maturity of any Series of Transition Bonds
pursuant to Section 5.02, the aggregate amount of Principal of and Interest
accrued on each Transition Bond of that Series shall be payable, without
priority of interest over principal or of principal over interest and without
regard to Tranche.

     SECTION 8.03. RELEASE OF TRUST ESTATE.


                                      -60-



     (a) All money and other property withdrawn from a Collection Account by the
Paying Agent for payment to the Issuer as provided in this Indenture in
accordance with Section 8.02 hereof shall be deemed released from the Indenture
when so withdrawn and applied in accordance with the provisions of Article VIII,
without further notice to, or release or consent by, the Trustee.

     (b) Other than as provided for in clause (a) above, the Trustee or the
Paying Agent, as applicable, shall release property from the Lien of this
Indenture only as and to the extent permitted by the Basic Documents and only
upon receipt of an Issuer Request accompanied by an Issuer Officer's
Certificate, an Issuer Opinion of Counsel and Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(1) or an Issuer Opinion of
Counsel in lieu of such Independent Certificates to the effect that the TIA does
not require any such Independent Certificate.

     (c) Subject to the payment of its fees and expenses pursuant to Section
6.07, the Trustee may, and when required by the provisions of this Indenture
shall, execute instruments to release property from the Lien of this Indenture,
or convey the Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Trustee as provided in this
Article VIII shall be bound to ascertain the Trustee's authority, inquire into
the satisfaction of any conditions precedent or see to the application of any
moneys.

     (d) Subject to Section 8.03(b), the Trustee shall, at such time as there
are no Transition Bonds of a Series Outstanding and all sums due the Trustee
with respect to that Series pursuant to Section 6.07 have been paid, release any
remaining portion of the Series Trust Estate that secured that Series of
Transition Bonds from the Lien of this Indenture and release to the Issuer or
any other Person entitled thereto any funds or investments then on deposit in or
credited to the Collection Account for that Series of Transition Bonds.

     SECTION 8.04. ISSUER OPINION OF COUNSEL. The Trustee shall receive at least
five days' notice when requested by the Issuer to take any action pursuant to
Section 8.03, accompanied by copies of any instruments involved, and the Trustee
may also require, as a condition to such action, an Issuer Opinion of Counsel,
in form and substance satisfactory to the Trustee, stating the legal effect of
any such action, outlining the steps required to complete the same, and
concluding that all conditions precedent to the taking of such action have been
complied with and such action will not materially and adversely impair the
security for the Transition Bonds or the rights of the Transition Bondholders in
contravention of the provisions of this Indenture; provided, however, that such
Issuer Opinion of Counsel shall not be required to express an opinion as to the
fair value of the Trust Estate. Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Trustee in connection with any
such action.

     SECTION 8.05. REPORTS BY INDEPENDENT ACCOUNTANTS. The Issuer shall appoint
a firm of Independent certified public accountants of recognized national
reputation for purposes of preparing and delivering the reports or certificates
of such accountants required by this Indenture and the related Series
Supplements. Upon any resignation by such firm, the Issuer shall promptly
appoint a successor thereto that shall also be a firm of Independent certified


                                      -61-



public accountants of recognized national reputation. If the Issuer shall fail
to appoint a successor to a firm of Independent certified public accountants
that has resigned within 15 days after such resignation, the Trustee shall
promptly notify the Issuer of such failure in writing. If the Issuer shall not
have appointed a successor within 10 days thereafter, the Trustee shall promptly
appoint a successor firm of Independent certified public accountants of
recognized national reputation. The fees of such firm of Independent certified
public accountants and its successor shall be payable by the Issuer.

     SECTION 8.06. REP DEPOSIT ACCOUNT. Pursuant to the written direction of the
Servicer, the Issuer shall open, at the Trustee's Corporate Trust Office, or at
another Eligible Institution, one or more segregated non-interest-bearing trust
accounts in the Trustee's name (each a "REP Deposit Account"), each such account
for the benefit of one Depositing REP with respect to one Series of Transition
Bonds. Pursuant to and in accordance with the Financing Order, amounts received
from any REP as a security deposit with respect to a Series of Transition Bonds
shall be deposited into the applicable REP Deposit Account for that Series. The
REP Deposit Accounts shall at all times be maintained in an Eligible Securities
Account and only the Trustee shall have access to the REP Deposit Accounts for
the purpose of making deposits in and withdrawals from the REP Deposit Accounts
in accordance with this Indenture, any Servicing Agreement and any Financing
Order. Funds in the REP Deposit Accounts shall not be commingled by the Issuer
with any other moneys, and shall not be commingled by the Trustee. All or a
portion of the funds in the REP Deposit Accounts shall be invested in Eligible
Investments and reinvested by the Trustee pursuant to the written direction of
the Servicer or the REP making the deposit. All income or other gain from
investments of moneys deposited in any REP Deposit Account shall be deposited by
the Trustee into such REP Deposit Account, and any loss resulting from such
investments shall be charged to such REP Deposit Account. In addition, each
Depositing REP shall be responsible for the payment of income taxes with respect
to such investments. The Trustee shall not in any way be held liable for the
selection of Eligible Investments for the REP Deposit Accounts or for investment
losses incurred thereon. The Trustee shall have no obligation to invest or
reinvest any amounts held hereunder in the absence of timely and specific
written investment direction from the Servicer and appropriate documents from
the applicable REP. The Trustee shall release property from any REP Deposit
Account only as and to the extent directed by the Servicer pursuant to the
Financing Order and Servicing Agreement.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

     SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF TRANSITION
BONDHOLDERS.

     (a) Without the consent of the Holders of any Transition Bonds but with
prior notice to the Rating Agencies, the Issuer and the Trustee, when authorized
by an Issuer Order, with the consent of the PUCT pursuant to Section 9.07 if
such supplemental indenture increases ongoing qualified costs as defined in the
Financing Order (which consent shall not be required with regard to the first
Series Supplement), at any time and from time to time, may enter into one or
more indentures supplemental hereto (which shall conform to the provisions of
the Trust


                                      -62-



Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Trustee, for any of the following purposes:

          (i) to correct or amplify the description of any Series Trust Estate,
     or to better assure, convey and confirm unto the Trustee any Series Trust
     Estate, or to subject additional property to the Lien of this Indenture;

          (ii) to evidence the succession, in compliance with the applicable
     provisions hereof, of another Person to the Issuer, and the assumption by
     any applicable successor of the covenants of the Issuer contained herein
     and in the Transition Bonds;

          (iii) to add to the covenants of the Issuer, for the benefit of the
     Transition Bondholders, or to surrender any right or power herein conferred
     upon the Issuer;

          (iv) to convey, transfer, assign, mortgage or pledge any property to
     the Trustee for the benefit of the Holders, the Trustee and any swap
     counterparty;

          (v) to cure any ambiguity, to correct or supplement any provision
     herein or in any Supplemental Indenture which may be inconsistent with any
     other provision herein or in any Supplemental Indenture, to make any other
     provisions with respect to matters or questions arising under this
     Indenture or in any Supplemental Indenture, to change in any manner or
     eliminate any provisions of this Indenture or to modify in any manner the
     rights of the Transition Bondholders under this Indenture; provided,
     however, that (i) such action shall not, as evidenced by an Issuers'
     Opinion of Counsel, adversely affect in any material respect the interests
     of any Transition Bondholder and (ii) the Rating Agency Condition shall
     have been satisfied with respect thereto;

          (vi) to evidence and provide for the acceptance of the appointment
     hereunder by a successor Trustee with respect to the Transition Bonds and
     to add to or change any of the provisions of this Indenture as shall be
     necessary to facilitate the administration of the trusts hereunder by more
     than one Trustee, pursuant to the requirements of Article VI;

          (vii) to modify, eliminate or add to the provisions of this Indenture
     to such extent as shall be necessary to effect the qualification of this
     Indenture under the TIA or under any similar federal statute hereafter
     enacted and to add to this Indenture such other provisions as may be
     expressly required by the TIA;

          (viii) to set forth the terms of any Series that has not theretofore
     been authorized by a Series Supplement;

          (ix) to qualify the Transition Bonds for registration with a Clearing
     Agency; or

          (x) to satisfy any Rating Agency requirements.

     The Trustee is hereby authorized to join in the execution of any such
Supplemental Indenture and to make any further appropriate agreements and
stipulations that may be therein contained.


                                      -63-



     (b) The Issuer and the Trustee, when authorized by an Issuer Order, may,
also without the consent of any of the Holders of the Transition Bonds, with the
consent of the PUCT pursuant to Section 9.07 if such indenture or supplemental
indenture increases ongoing qualified costs as defined in the Financing Order,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Transition Bonds under this Indenture; provided, however, that
(i) as evidenced by an Issuer's Opinion of Counsel, such action shall not
adversely affect in any material respect the interests of any Transition
Bondholder and (ii) the Rating Agency Condition shall have been satisfied with
respect thereto;

     (c) The Trustee may, but shall not be required to, enter into any indenture
supplemental hereto or to consent to or enter into any amendment of the Basic
Documents unless it shall have received an Opinion of Counsel, addressed to the
Trustee, satisfactory to it, that such supplement or amendment is authorized or
permitted by this Article IX.

     SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF TRANSITION
BONDHOLDERS. The Issuer and the Trustee, when authorized by an Issuer Order,
also may, with the consent of the PUCT pursuant to Section 9.07 if the indenture
or supplemental increases ongoing qualified costs as defined in the Financing
Order, prior notice to the Rating Agencies and the consent of the Holders of not
less than a majority of the Outstanding Amount of the Transition Bonds of the
Series or Tranches to be affected, by Act of such Holders delivered to the
Issuer and the Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Transition Bonds under this Indenture;
provided, however, that no such Supplemental Indenture shall, without the
consent of the Holder of each Outstanding Transition Bond of the Series or
Tranches affected thereby:

          (i) change the date of payment of any installment of Principal of or
     premium, if any, or Interest on any Transition Bond, or reduce the
     principal amount thereof, the Bond Rate thereon or the redemption price or
     the premium, if any, with respect thereto, change the provisions of this
     Indenture and the related applicable Series Supplement relating to the
     application of collections on, or the proceeds of the sale of, the Trust
     Estate to payment of Principal of or premium, if any, or Interest on the
     Transition Bonds, or change the currency in which any Transition Bond or
     the Interest thereon is payable;

          (ii) impair the right to institute suit for the enforcement of the
     provisions of this Indenture requiring the application of funds available
     therefor, as provided in Article V, to the payment of any such amount due
     on the Transition Bonds on or after the respective due dates thereof (or,
     in the case of redemption, on or after the Redemption Date);

          (iii) reduce the percentage of the Outstanding Amount of the
     Transition Bonds or of a Series or Tranche thereof, the consent of the
     Holders of which is required for any such Supplemental Indenture, or the
     consent of the Holders of which is required for any waiver of compliance
     with provisions of this Indenture or defaults hereunder and their


                                      -64-



     consequences provided for in this Indenture or modify or alter the
     provisions of the proviso to the definition of the term "Outstanding";

          (iv) reduce the percentage of the Outstanding Amount of Transition
     Bonds of affected Series required to direct the Trustee to direct the
     Issuer to sell or liquidate the Series Trust Estate securing such Series
     pursuant to Section 5.04 or to preserve the Series Trust Estate related to
     such Series pursuant to Section 5.05;

          (v) modify any provision of this Section 9.02 except to increase any
     percentage specified herein or to provide that those provisions of this
     Indenture or the other Basic Documents referenced in this Section cannot be
     modified or waived without the consent of the Holder of each Outstanding
     Transition Bond affected thereby;

          (vi) modify any of the provisions of this Indenture in such manner so
     as to affect the amount of any payment of Interest, Principal or premium,
     if any, payable on any Transition Bond on any Payment Date or change the
     Redemption Dates, Expected Amortization Schedules or Series Final Maturity
     Dates or Tranche Final Maturity Dates of any Transition Bonds;

          (vii) decrease the Required Capital Amount with respect to any Series;

          (viii) modify or alter the provisions of this Indenture regarding the
     voting of Transition Bonds held by the Issuer, CenterPoint Houston, an
     Affiliate of either of them or any obligor on the Transition Bonds;

          (ix) decrease the percentage of the aggregate principal amount of
     Transition Bonds required to amend the sections of this Indenture which
     specify the applicable percentage of the aggregate principal amount of the
     Transition Bonds necessary to amend any Basic Document; or

          (x) permit the creation of any Lien ranking prior to or on a parity
     with the Lien of this Indenture with respect to any part of the Trust
     Estate or, except as otherwise permitted or contemplated herein, terminate
     the Lien of this Indenture on any property at any time subject hereto or
     deprive the Holder of any Transition Bond of the security provided by the
     Lien of this Indenture.

     It shall not be necessary for the PUCT or any Act of Transition Bondholders
under this Section 9.02 to approve the particular form of any proposed
Supplemental Indenture, but it shall be sufficient if the PUCT or such Act of
Transition Bondholders shall approve the substance thereof.

     Promptly after the execution by the Issuer and the Trustee of any
Supplemental Indenture pursuant to this Section, the Trustee shall mail to the
PUCT and the Holders of the Transition Bonds to which such amendment or
Supplemental Indenture relates a notice setting forth in general terms the
substance of such Supplemental Indenture. Any failure of the Trustee to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such Supplemental Indenture. If any Transition Bonds
are listed on the Luxembourg Stock Exchange and the rules of such exchange so
require, the Issuer's listing agent shall arrange for


                                      -65-



publication in accordance with such rules of a notice that the notice regarding
the Supplemental Indenture shall be available with the Issuer's listing agent in
Luxembourg appointed pursuant to the second paragraph of Section 3.02.

     SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by any Supplemental Indenture permitted
by this Article IX or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and subject to Sections
6.01 and 6.02, shall be fully protected in relying upon, an Issuer Opinion of
Counsel stating that the execution of such Supplemental Indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such Supplemental Indenture that affects the Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.

     SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of any
Supplemental Indenture pursuant to the provisions hereof, this Indenture shall
be deemed to be modified and amended in accordance therewith with respect to
each Series or Tranche of Transition Bonds affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and immunities
under this Indenture of the Trustee, the Issuer and the Holders of the
Transition Bonds shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments, and all
the terms and conditions of any such Supplemental Indenture shall be and be
deemed to be part of the terms and conditions of this Indenture for any and all
purposes.

     SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of this
Indenture and every Supplemental Indenture executed pursuant to this Article IX
shall conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.

     SECTION 9.06. REFERENCE IN TRANSITION BONDS TO SUPPLEMENTAL INDENTURES.
Transition Bonds authenticated and delivered after the execution of any
Supplemental Indenture pursuant to this Article IX may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such Supplemental Indenture. If the Issuer or the Trustee shall
so determine, new Transition Bonds so modified as to conform, in the opinion of
the Trustee and the Issuer, to any such Supplemental Indenture may be prepared
and executed by the Issuer and authenticated and delivered by the Trustee in
exchange for Outstanding Transition Bonds.

     SECTION 9.07. PUCT CONSENT. To the extent the consent of the PUCT is
required to effect any amendment to, modification of, or supplemental indenture
to this Indenture or any provision of this Indenture,

     (a) The Issuer may request the consent of the PUCT by delivering to the
PUCT's executive director and general counsel a written request for such
consent, which request shall contain:


                                      -66-



          (i) a reference to Docket No. 30485 and to any other Docket No. under
     which a Financing Order has been issued and a statement as to the possible
     effect of the amendment, modification or supplemental indenture on ongoing
     qualified costs;

          (ii) an Officer's Certificate stating that the proposed amendment,
     modification or supplemental indenture, as the case may be, has been
     approved by all parties to this Indenture; and

          (iii) a statement identifying the person to whom the PUCT or its staff
     is to address its consent to the proposed amendment, modification or
     supplemental indenture or request additional time;

     (b) The PUCT shall, within 30 days of receiving the request for consent
complying with Section 9.07(a) above, either

          (i) provide notice of its consent or lack of consent to the person
     specified in Section 9.07(a)(iii) above, or

          (ii) be conclusively deemed to have consented to the proposed
     amendment, modification or supplemental indenture,

unless, within 30 days of receiving the request for consent complying with
Section 9.07(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 9.07(a)(iii) above a written statement requesting an
additional amount of time not to exceed 30 days in which to consider whether to
consent to the proposed amendment, modification or supplemental indenture. If
the PUCT or its staff requests an extension of time in the manner set forth in
the preceding sentence, then the PUCT shall either provide notice of its consent
or lack of consent to the person specified in Section 9.07(a)(iii) above no
later than the last day of such extension of time or be conclusively deemed to
have consented to the proposed amendment, modification or supplemental indenture
on the last day of such extension of time. Any amendment, modification or
supplemental indenture requiring the consent of the PUCT shall become effective
on the later of (i) the date proposed by the parties to such amendment,
modification or supplemental indenture and (ii) the first day after the
expiration of the 30-day period provided for in Section 9.07(b)(ii), or, if such
period has been extended pursuant thereto, the first day after the expiration of
such period as so extended.

                                    ARTICLE X

                         REDEMPTION OF TRANSITION BONDS

     SECTION 10.01. MANDATORY REDEMPTION BY ISSUER. The Issuer shall redeem all
Transition Bonds of a Series that have been called for redemption pursuant to
this Indenture on the Redemption Date or Dates, if any, in the amounts required,
if any, and at the redemption price specified in the Series Supplement for such
Series, which in any case shall be not less than the outstanding Principal
amount of the Bonds to be redeemed, plus accrued Interest thereon to, but
excluding, such Redemption Date. If the Issuer is required to redeem the
Transition Bonds of a Series pursuant to this Section 10.01, it shall furnish
written notice of such requirement to the Trustee not later than 25 days prior
to the Redemption Date for such


                                      -67-



redemption and shall deposit with the Trustee the redemption price of the
Transition Bonds to be redeemed plus all other amounts due and payable hereunder
whereupon all such Transition Bonds shall be due and payable on the Redemption
Date upon the furnishing of a notice complying with Section 10.02 hereof to each
Holder of the Transition Bonds of such Series pursuant to this Section 10.01.

     SECTION 10.02. FORM OF REDEMPTION NOTICE. Unless otherwise specified in the
Series Supplement relating to a Series of Transition Bonds, notice of redemption
under Section 10.01 hereof shall be given by the Trustee by first-class mail,
postage prepaid, mailed not less than five days nor more than 45 days prior to
the applicable Redemption Date to each Holder of Transition Bonds to be
redeemed, as of the close of business on the Record Date preceding the
applicable Redemption Date at such Holder's address appearing in the Transition
Bond Register.

     All notices of redemption shall state:

     (1) the Redemption Date;

     (2) if less than all Outstanding Transition Bonds of any Series are to be
redeemed, the identification (and in the case of partial redemption of any
Transition Bonds, the principal amounts) of the particular Transition Bonds to
be redeemed;

     (3) the redemption price;

     (4) the place where such Transition Bonds are to be surrendered for payment
of the redemption price and accrued interest (which shall be the office or
agency of the Issuer to be maintained as provided in the first paragraph of
Section 3.02 hereof);

     (5) the CUSIP number, if applicable; and

     (6) the principal amount of Transition Bonds to be redeemed.

     Notice of redemption of the Transition Bonds to be redeemed shall be given
by the Trustee in the name and at the expense of the Issuer. For so long as any
Transition Bonds are listed on the Luxembourg Stock Exchange and the rules of
such exchange so require, the Issuer's listing agent shall arrange that such
notice will also be given by publication pursuant to such rules at least ten
(10) days prior to the Redemption Date. Failure to give notice of redemption, or
any defect therein, to any Holder of any Transition Bond selected for redemption
shall not impair or affect the validity of the redemption of any other
Transition Bond. Notice of optional redemption shall be irrevocable once given.

     SECTION 10.03. PAYMENT OF REDEMPTION PRICE. If notice of redemption has
been duly mailed, or duly waived by the Holders of all Transition Bonds called
for redemption, and the redemption moneys have been duly deposited with the
Trustee, then the Transition Bonds called for redemption shall be payable on the
applicable Redemption Date at the applicable redemption price. No further
Interest will accrue on the principal amount of any Transition Bonds called for
redemption after the Redemption Date for such redemption if payment of the
redemption price thereof has been duly provided for, and the Holder of such


                                      -68-



Transition Bonds will have no rights with respect thereto, except to receive
payment of the redemption price thereof and unpaid interest accrued to the
Redemption Date. Payment of the redemption price together with accrued Interest
shall be made by the Trustee to or upon the order of the Holders of the
Transition Bonds called for redemption upon surrender of such Transition Bonds,
and the Transition Bonds so redeemed shall cease to be of further effect and the
Lien of this Indenture shall be released with respect to such Transition Bonds.

                                   ARTICLE XI

                                  MISCELLANEOUS

     SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. Upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee (i) an
Issuer Officer's Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Issuer Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with and
(iii) (if required by the TIA) an Independent Certificate from a firm of
certified public accountants meeting the applicable requirements of this Section
11.01, except that, in the case of any such application or request as to which
the furnishing of such documents is specifically required by any provision of
this Indenture, no additional certificate or opinion need be furnished.

          Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

          (i) a statement that each signatory of such certificate or opinion has
     read or has caused to be read such covenant or condition and the
     definitions herein relating thereto;

          (ii) a brief statement as to the nature and scope of the examination
     or investigation upon which the statements or opinions contained in such
     certificate or opinion are based;

          (iii) a statement that, in the opinion of each such signatory, such
     signatory has made such examination or investigation as is necessary to
     enable such signatory to express an informed opinion as to whether or not
     such covenant or condition has been complied with; and

          (iv) a statement as to whether, in the opinion of each such signatory,
     such condition or covenant has been complied with.

     SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such


                                      -69-



matters in one or several documents. Any certificate or opinion of the Issuer
may be based, insofar as it relates to legal matters, upon, in the absence of
bad faith, an Opinion of Counsel.

     Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

     Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely conclusively upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.

     SECTION 11.03. ACTS OF TRANSITION BONDHOLDERS.

     (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Transition
Bondholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Transition Bondholders in person or
by agents duly appointed in writing; and except as herein otherwise expressly
provided such action shall become effective when such instrument or instruments
are delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Transition Bondholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.01)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.

     (b) The fact and date of the execution by any person of any such instrument
or writing may be proved in any manner that the Trustee deems sufficient.

     (c) The ownership of Transition Bonds shall be proved by the Transition
Bond Register.

     (d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Transition Bonds shall bind the Holder of
every Transition Bond issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Transition Bond.

     SECTION 11.04. NOTICES, ETC., TO TRUSTEE, PAYING AGENT, SECURITIES
INTERMEDIARY, TRANSITION BOND REGISTRAR, ISSUER, PUCT AND RATING AGENCIES. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Transition Bondholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:


                                      -70-



     (a) the Trustee, the Paying Agent, the Securities Intermediary or the
Transition Bond Registrar by any Transition Bondholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing, delivered personally, via facsimile transmission, by reputable
overnight courier or by first-class mail, postage prepaid, to the Trustee, the
Paying Agent or the Transition Bond Registrar, as applicable, at its Corporate
Trust Office, or

     (b) the Issuer by the Trustee, the Paying Agent, the Securities
Intermediary, the Transition Bond Registrar or any Transition Bondholder shall
be sufficient for every purpose hereunder if in writing, delivered personally,
via facsimile transmission, by reputable overnight courier or by first-class
mail, postage prepaid, to the Issuer addressed to: CenterPoint Energy Transition
Bond Company II, LLC, 1111 Louisiana Street, Suite 4655B, Houston, Texas 77002,
Attention: Manager, or at any other address previously furnished in writing to
the Trustee by the Issuer. The Issuer shall promptly transmit any notice
received by it from the Transition Bondholders to the Trustee, the Paying Agent
and the Transition Bond Registrar.

     Notices required to be given to the Rating Agencies by the Issuer, the
Trustee, the Paying Agent, the Securities Intermediary, the Transition Bond
Registrar or a Manager shall be in writing, delivered personally, via facsimile
transmission, by reputable overnight courier or by first-class mail, postage
prepaid, to: (i) in the case of Moody's: Moody's Investors Service, Inc.,
Attention: ABS Monitoring Department, 99 Church Street, New York, New York
10007; (ii) in the case of Standard & Poor's: Standard & Poor's, a division of
The McGraw-Hill Companies, 55 Water Street New York, NY 10041, Attention: Asset
Backed Surveillance Department; and (iii) in the case of Fitch: Fitch, Inc., 1
State Street Plaza, New York, New York 10004, Attention: ABS Surveillance.

     Notices required to be given to the PUCT shall be in writing, delivered
personally, via facsimile transmission, by reputable overnight courier or by
first-class mail, postage prepaid, to Public Utility Commission of Texas, 1701
N. Congress Avenue, Austin, Texas 78711-3326, Attention: Executive Director and
General Counsel.

     SECTION 11.05. NOTICES TO TRANSITION BONDHOLDERS; WAIVER. Where this
Indenture provides for notice to Transition Bondholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and delivered by first-class mail, postage prepaid, to each
Transition Bondholder affected by such event, at the address of such Transition
Bondholder as it appears on the Transition Bond Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Transition Bondholders is given by
mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Transition Bondholder shall affect the sufficiency of
such notice with respect to other Transition Bondholders, and any notice that is
mailed in the manner herein provided shall conclusively be presumed to have been
duly given.

     Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Transition Bondholders shall


                                      -71-



be filed with the Trustee but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such a waiver.

     In case it shall be impractical to deliver notice in accordance with the
first paragraph of this Section 11.05 to the Holders of Transition Bonds when
such notice is required to be given pursuant to any provision of this Indenture,
then any manner of giving such notice as shall be satisfactory to the Trustee
shall be deemed to be a sufficient giving of such notice.

     Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.

     SECTION 11.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding any
provision of this Indenture or any of the Transition Bonds to the contrary, the
Issuer may enter into any agreement with any Holder of a Transition Bond
providing for a method of payment, or notice by the Trustee or any Paying Agent
to such Holder, that is different from the methods provided for in this
Indenture for such payments or notices. The Issuer will furnish to the Trustee a
copy of each such agreement and the Trustee will cause payments to be made and
notices to be given in accordance with such agreements.

     SECTION 11.07. NOTICES TO LUXEMBOURG STOCK EXCHANGE.

     (a) For so long as any Transition Bonds are listed on the Luxembourg Stock
Exchange and to the extent the rules of such exchange so require, the Issuer
shall notify the Luxembourg Stock Exchange and any agent appointed pursuant to
the second paragraph of Section 3.02 if any rating assigned to such Transition
Bonds is reduced or withdrawn and shall arrange for such notice to be published
pursuant to the rules of such exchange.

     (b) For so long as any Transition Bonds are listed on the Luxembourg Stock
Exchange and the rules of such exchange so require, the Trustee shall make
available to the Holders of such Transition Bonds and shall deposit in
accordance with the written direction of the Issuer on file with the Issuer's
listing agent in Luxembourg appointed pursuant to Section 3.02 copies of any
documents executed in connection with this Indenture reasonably requested by the
Issuer's listing agent and the reports of independent certified public
accountants obtained with respect to the Issuer pursuant to this Indenture.

     SECTION 11.08. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this Indenture by any of the provisions of the TIA, such required
provision shall control.

     The provisions of TIA Sections 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.

     SECTION 11.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.


                                      -72-



     SECTION 11.10. SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Indenture and the Transition Bonds by the Issuer shall bind its successors and
permitted assigns, whether so expressed or not.

     All agreements of the Trustee in this Indenture shall bind its successors.

     The Trustee shall provide written notice to the Rating Agencies of any
assignment of its obligations under this Agreement.

     SECTION 11.11. SEPARABILITY. In case any provision in this Indenture or in
the Transition Bonds shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

     SECTION 11.12. BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Transition Bonds, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Transition Bondholders,
and any other party secured hereunder, and any other Person with an ownership
interest in any part of the Trust Estate, any benefit or any legal or equitable
right, remedy or claim under this Indenture.

     SECTION 11.13. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Transition Bonds or this Indenture) payment need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the date on which nominally due, and no interest
shall accrue for the period from and after any such nominal date.

     SECTION 11.14. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS. NOTWITHSTANDING THE FOREGOING, FOR PURPOSES OF CHAPTER 8 OF THE
UCC AS ENACTED IN THE STATE OF TEXAS AND ARTICLE 8 OF THE UCC AS ENACTED IN THE
STATE OF NEW YORK, OR CHAPTER 8 OR ARTICLE 8 (OR CORRESPONDING PROVISION) OF THE
UCC AS ENACTED IN ANY OTHER STATE, THE JURISDICTION OF THE SECURITIES
INTERMEDIARY SHALL BE THE STATE OF NEW YORK.

     SECTION 11.15. COUNTERPARTS. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.

     SECTION 11.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Trustee on the
Transition Bonds or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Member or any
Manager, employee or agent of the Issuer or (ii) any stockholder, officer,
director, employee or agent of the Trustee (it being understood that none of the
Trustee's obligations are in its individual capacity).

     SECTION 11.17. NO PETITION. The Trustee, by entering into this Indenture,
and each Holder, by accepting a Transition Bond (or interest therein) issued
hereunder, hereby


                                      -73-



covenant and agree that they shall not, prior to the date that is one year and
one day after the termination of this Indenture, acquiesce, petition or
otherwise invoke or cause the Issuer or any Manager to invoke the process of any
court or government authority for the purpose of commencing or sustaining a case
against the Issuer under any insolvency law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its respective property, or ordering
the dissolution, winding up or liquidation of the affairs of the Issuer. Nothing
in this paragraph shall preclude, or be deemed to estop, such Holder (A) from
taking or omitting to take any action prior to such date in (i) any case or
proceeding voluntarily filed or commenced by or on behalf of the Issuer under or
pursuant to any such law or (ii) any involuntary case or proceeding pertaining
to the Issuer that is filed or commenced by or on behalf of a person other than
such Holder and is not joined in by such Holder (or any person to which such
holder shall have assigned, transferred or otherwise conveyed any part of the
obligations of the Issuer hereunder) under or pursuant to any such law, or (B)
from commencing or prosecuting any legal action that is not an involuntary case
or proceeding under or pursuant to any such law against the Issuer or any of its
properties.

     SECTION 11.18. INTERCREDITOR AGREEMENT. The Trustee is hereby authorized,
upon receipt of an Issuer Request, to execute and deliver any Intercreditor
Agreement provided to it by the Issuer that does not materially and adversely
affect any Holder's rights in and to any Series Trust Estate, or otherwise
hereunder. Such request shall be accompanied by an Officer's Certificate, upon
which the Trustee may rely conclusively with no duty of independent
investigation or inquiry, to the effect that such Intercreditor Agreement does
not materially and adversely affect any Holder's rights in and to any Series
Trust Estate or otherwise hereunder. Each Intercreditor Agreement shall be
binding on the Holders.


                                      -74-



     IN WITNESS WHEREOF, the Issuer, the Trustee and the Securities Intermediary
have caused this Indenture to be duly executed by their respective managers or
officers thereunto duly authorized, all as of the day and year first above
written.

                                        CENTERPOINT ENERGY TRANSITION BOND
                                        COMPANY II, LLC


                                        By: /s/ MARC KILBRIDE
                                            ------------------------------------
                                        Name: Marc Kilbride
                                        Title: Manager


                                        WILMINGTON TRUST COMPANY, as Trustee


                                        By: /s/ ERWIN M. SORIANO
                                            ------------------------------------
                                        Name: Erwin M. Soriano
                                        Title: Assistant Vice President


                                        DEUTSCHE BANK TRUST COMPANY AMERICAS,
                                        as Securities Intermediary


                                        By: /s/ JENNA KAUFMAN
                                           -------------------------------------
                                        Name: Jenna Kaufman
                                        Title: Vice President



DEUTSCHE BANK TRUST COMPANY AMERICAS
hereby agrees to act as Paying Agent, Transition Bond Registrar, authenticating
agent and agent under Section 3.02 hereof, all as set forth in this Indenture.


By: /s/ JENNA KAUFMAN
    ---------------------------------
Name: Jenna Kaufman
Title: Vice President



                                      -75-


                                   SCHEDULE 1

                    FORM OF SEMIANNUAL SERVICER'S CERTIFICATE
               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
                    $1,851,000,000 SERIES A TRANSITION BONDS

               Pursuant to Section 6 of Annex 1 to the Transition
                        Property Servicing Agreement (the
                  "Agreement"), dated as of December 16, 2005,
                  between CenterPoint Energy Houston Electric,
                    LLC, as Servicer, and CenterPoint Energy
                   Transition Bond Company II, LLC, as Issuer,
                  the Servicer does hereby certify as follows:

                         Capitalized terms used in this
                        Semiannual Servicer's Certificate
                        have their respective meanings as
                           set forth in the Agreement.
                          References herein to certain
                          sections and subsections are
                                   references
          to the respective sections and subsections of the Agreement.

        Collection Periods:                    through
                            ------------------         -----------------
                        Payment Date:
                                      -------------------
                      Today's Date:
                                    ----------------------


                                                                                                   
1. COLLECTIONS ALLOCABLE AND AGGREGATE AMOUNTS AVAILABLE FOR CURRENT
   PAYMENT DATE:
      i.     Remittances for the December 16 through 31, 2005
             Collection Period                                                              0.00
      ii.    Remittances for the January 1 through 31, 2006
             Collection Period                                                              0.00
      iii.   Remittances for the February 1 through 28, 2006
             Collection Period                                                              0.00
      iv.    Remittances for the March 1 through 31, 2006 Collection Period                 0.00
      v.     Remittances for the April 1 through 30, 2006 Collection Period                 0.00
      vi.    Remittances for the May 1 through 31, 2006 Collection Period                   0.00
      vii.   Remittances for the June 1 through 30, 2006 Collection Period                  0.00
      viii.  Remittances for the July 1 through 31, 2006 Collection Period                  0.00
      ix.    Net Earnings on Collection Account                                             0.00
                                                                                            ----
      x.     General Subaccount Balance (sum of i through ix above)                         0.00

      xi.    Excess Funds Subaccount Balance as of Closing Date                             0.00
      xii.   Capital Subaccount Balance as of Closing Date                          9,255,000.00
                                                                                    ------------
      xiii.  Collection Account Balance (sum of x through xii above)                        0.00
                                                                                            ====

2. OUTSTANDING AMOUNTS AS OF CLOSING DATE:
      i.     Tranche A-1 Principal Balance                                                  0.00
      ii.    Tranche A-2 Principal Balance                                                  0.00
      iii.   Tranche A-3 Principal Balance                                                  0.00
      iv.    Tranche A-4 Principal Balance                                                  0.00
      v.     Tranche A-5 Principal Balance                                                  0.00
                                                                                            ----
      vi.    Aggregate Principal Balance of all Series A Transition Bonds                   0.00
                                                                                            ====

3. REQUIRED FUNDING/PAYMENTS AS OF CURRENT PAYMENT DATE:
                                                                               Projected
                                                                               Principal                  Semiannual
             Series A Principal                                                 Balance                  Principal Due

      i.     Tranche A-1                                                                    0.00                          0.00
      ii.    Tranche A-2                                                                    0.00                          0.00
      iii.   Tranche A-3                                                                    0.00                          0.00
      iv.    Tranche A-4                                                                    0.00                          0.00
      v.     Tranche A-4                                                                    0.00                          0.00
                                                                                            ----                          ----
      vi.    For all Series A Transition Bonds                                              0.00                          0.00
                                                                                            ====                          ====


                                                                              Transition                    Days in
                                                                                 Bond                      Interest
                                                                             Interest Rate                Period (1)    Interest Due

      vii.   Required Tranche A-1 Interest                                                4.840%               0                0.00
      viii.  Required Tranche A-2 Interest                                                4.970%               0                0.00
      ix.    Required Tranche A-3 Interest                                                5.090%               0                0.00
      x.     Required Tranche A-4 Interest                                                5.170%               0                0.00
      xi.    Required Tranche A-5 Interest                                                5.302%               0                0.00

      (1) On 30/360 Day basis.





                                                                                                

                                                                                                            Funding
                                                                            Required Level                 Required

      xii.   Capital Subaccount                                                     9,255,000.00                          0.00




4. ALLOCATION OF REMITTANCES AS OF CURRENT PAYMENT DATE PURSUANT
   TO SECTION [8.02(d)] OF INDENTURE:
      i.     Trustee Fees and Expenses                                                      0.00
      ii.    Servicing Fee                                                                  0.00
      iii.   Administration Fee and Independent Managers Fee                                0.00
      iv.    Operating Expenses                                                             0.00
      v.     Semiannual Interest (including any past-due Semiannual
             Interest for prior periods)
                                                                                                          Per $1,000
                                                                                                          of Original
             Series A                                                          Aggregate               Principal Amount

             1. Tranche A-1 Interest Payment                                                0.00                          0.00
             2. Tranche A-2 Interest Payment                                                0.00                          0.00
             3. Tranche A-3 Interest Payment                                                0.00                          0.00
             4. Tranche A-4 Interest Payment                                                0.00                          0.00
             5. Tranche A-5 Interest Payment                                                0.00                          0.00

      vi.    Principal Due and Payable as a result of Event of Default
             or on Final Maturity Date
                                                                                                          Per $1,000
                                                                                                          of Original
             Series A                                                          Aggregate               Principal Amount

             1. Tranche A-1 Principal Payment                                               0.00                          0.00
             2. Tranche A-2 Principal Payment                                               0.00                          0.00
             3. Tranche A-3 Principal Payment                                               0.00                          0.00
             4. Tranche A-4 Principal Payment                                               0.00                          0.00
             5. Tranche A-5 Principal Payment                                               0.00                          0.00

      vii.   Semiannual Principal
                                                                                                          Per $1,000
                                                                                                          of Original
             Series A                                                          Aggregate               Principal Amount

             1. Tranche A-1 Principal Payment                                               0.00                          0.00
             2. Tranche A-2 Principal Payment                                               0.00                          0.00
             3. Tranche A-3 Principal Payment                                               0.00                          0.00
             4. Tranche A-4 Principal Payment                                               0.00                          0.00
             5. Tranche A-5 Principal Payment                                               0.00                          0.00

      viii.  Amounts Payable to Credit Enhancement Providers
             (if applicable)                                                                 N/A
      ix.    Operating Expenses not Paid under Clause (iv) above                            0.00
      x.     Funding of Capital Subaccount (to required level)                              0.00
      xi.    Net Earnings in Capital Subaccount Released to Issuer                          0.00
      xii.   Deposits to Excess Funds Subaccount                                            0.00
      xiii.  Released to Issuer upon Series Retirement: Collection
             Account                                                                        0.00


5. SUBACCOUNT WITHDRAWALS AS OF CURRENT PAYMENT DATE
    (IF APPLICABLE, PURSUANT TO SECTION [8.02(e)] OF INDENTURE):
      i.     Excess Funds Subaccount (available for 4.i. through 4.xi.)                     0.00
      ii.    Capital Subaccount (available for 4.i. through 4.ix.)                          0.00
                                                                                            ----
      iii.   Total Withdrawals                                                              0.00
                                                                                            ====






                                                                                                
6. OUTSTANDING AMOUNT AND COLLECTION ACCOUNT BALANCE AS OF
   CURRENT PAYMENT DATE
(AFTER GIVING EFFECT TO PAYMENTS TO BE MADE ON SUCH PAYMENT DATE):

             Series A
      i.     Tranche A-1 Principal Balance                                                  0.00
      ii.    Tranche A-2 Principal Balance                                                  0.00
      iii.   Tranche A-3 Principal Balance                                                  0.00
      iv.    Tranche A-4 Principal Balance                                                  0.00
      v.     Tranche A-5 Principal Balance                                                  0.00
                                                                                            ----
      vi.    Aggregate Principal Balance for all Series A Transition Bonds                  0.00
                                                                                            ====

      vii.   Excess Funds Subaccount Balance                                                0.00
      viii.  Capital Subaccount Balance                                                     0.00
                                                                                            ----
      ix.    Aggregate Collection Account Balance                                           0.00
                                                                                            ====

7. SHORTFALLS IN INTEREST AND PRINCIPAL PAYMENTS AS OF CURRENT PAYMENT DATE
(AFTER GIVING EFFECT TO PAYMENTS TO BE MADE ON SUCH PAYMENT DATE):
      i.     Semiannual Interest
             Series A
             1. Tranche A-1 Bond Interest Payment                                           0.00
             2. Tranche A-2 Bond Interest Payment                                           0.00
             3. Tranche A-3 Bond Interest Payment                                           0.00
             4. Tranche A-4 Bond Interest Payment                                           0.00
             5. Tranche A-5 Bond Interest Payment                                           0.00

      ii.    Semiannual Principal
             Series A
             1. Tranche A-1 Principal Payment                                               0.00
             2. Tranche A-2 Principal Payment                                               0.00
             3. Tranche A-3 Principal Payment                                               0.00
             4. Tranche A-4 Principal Payment                                               0.00
             5. Tranche A-5 Principal Payment                                               0.00

8. SHORTFALLS IN REQUIRED SUBACCOUNT LEVELS AS OF CURRENT PAYMENT DATE (AFTER
GIVING EFFECT TO PAYMENTS TO BE MADE ON SUCH PAYMENT DATE):
      i.     Capital Subaccount                                                             0.00




       IN WITNESS HEREOF, the undersigned has duly executed and delivered
       this Semiannual Servicer's Certificate this       day of
                                                  -------
                       , 20    .
       ----------------    ----

       CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, as Servicer

       by:
                ----------------------------------------------------------------
                [Name]
                [Title]


                                   SCHEDULE 2a

                           STATUTORY TRUE-SALE OPINION

                             [omitted from filing]


                                   SCHEDULE 2b

                       STATE LAW SECURITY INTEREST OPINION

                             [omitted from filing]


                                  SCHEDULE 2c

                                  UCC OPINION

                             [omitted from filing]



                                   APPENDIX A

                               MASTER DEFINITIONS

     The definitions contained in this Appendix A are applicable to the singular
as well as the plural forms of such terms.

     "Accounts" means, collectively, the Collection Account (and each
sub-account thereof, including, without limitation, the General Subaccount, the
Capital Subaccount, the Overcollateralization Subaccount, the Defeasance
Subaccount, the Excess Funds Subaccount and each Tranche Subaccount) and each
REP Deposit Account.

     "Act" has the meaning specified in Section 11.03 of the Indenture.

     "Addition Notice" means, with respect to the transfer of Subsequent
Transition Property to the Issuer, notice, which shall be given by the Seller to
the Issuer, the PUCT and the Rating Agencies not later than 10 days prior to the
related Subsequent Transfer Date, specifying the Subsequent Transfer Date for
such Subsequent Transition Property.

     "Adjustment Date" has the meaning specified in the applicable Servicing
Agreement.

     "Administration Agreement" means the Administration Agreement dated as of
December 16, 2005, between CenterPoint Houston, as Administrator, and the
Issuer, as the same may be amended and supplemented from time to time.

     "Administrator" means CenterPoint Houston as administrator under the
Administration Agreement and each successor to or assignee of CenterPoint
Houston in the same capacity.

     "Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, control, when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms controlling and controlled
have meanings correlative to the foregoing.

     "Annual Accountant's Report" has the meaning assigned to that term in the
applicable Servicing Agreement.

     "Authorized Denominations" means, with respect to any Series or Tranche of
Transition Bonds, $1,000 and integral multiples thereof, or such other
denominations as may be specified in the Series Supplement therefor.

     "Authorized Officer" means (i) with respect to any Person that is a
corporation or a limited liability company, any manager, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice Chairman, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or any Assistant Treasurer, the Secretary or any Assistant Secretary of such
Person, (ii) with respect to any Person that is a partnership, the President,
any Vice President, Treasurer or Secretary (or Assistant Secretary) of a general
partner or managing


                                        1



partner of such Person; provided that in respect of the Issuer, Authorized
Officer means any Manager or the Member and, with respect to the Member, any
officer who is authorized to act for the Member in matters relating to the
Issuer and who is identified on the list of Authorized Officers delivered by the
Member to the Trustee as of the date hereof (as such list may be modified or
supplemented from time to time thereafter).

     "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time.

     "Basic Documents" means the Issuer LLC Agreement, the Issuer Certificate of
Formation, each Sale Agreement, each Servicing Agreement, each Intercreditor
Agreement, each swap agreement, the Administration Agreement, the Indenture, any
Supplemental Indentures, each DTC Agreement, each Underwriting Agreement and any
Bills of Sale.

     "Bill of Sale" means any bill of sale issued by the Seller to the Issuer
pursuant to any Sale Agreement evidencing the sale of Transition Property by the
Seller to the Issuer.

     "Bond Rate" means, with respect to each Series or, if applicable, each
Tranche of Transition Bonds, the rate at which interest accrues on the principal
balance of Transition Bonds of such Series or Tranche, as specified in the
Series Supplement therefor.

     "Book-Entry Security" means a security maintained in the form of entries
(including, without limitation, the security entitlements in, and the financial
assets based on, such security) in the commercial book-entry system of the
Federal Reserve System.

     "Book-Entry Transition Bonds" means beneficial interests in the Transition
Bonds, ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.11 of the Indenture.

     "Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of Houston, Texas, or in the City of New
York, New York, are required or authorized by law or executive order to remain
closed.

     "Calculation Date" means, with respect to each Series of Transition Bonds,
the date on which the calculations and filings set forth in Annex 1 to the
applicable Servicing Agreement will be made each year.

     "Capital Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.

     "CenterPoint Houston" means CenterPoint Energy Houston Electric, LLC, a
Texas limited liability company, or its successors.

     "Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

     "Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.


                                        2



     "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.

     "Collection Account" has the meaning specified in Section 8.02(a) of the
Indenture.

     "Collections" means amounts collected in respect of Transition Charges.

     "Commission" means the U.S. Securities and Exchange Commission, and any
successor thereof.

     "Corporate Trust Office" means, as the context requires, either (1) the
principal office of the Trustee at which at any particular time its corporate
trust business shall be administered, which office as of the date of the
execution of this Indenture is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust Administration,
Ref: CenterPoint Energy Transition Bond Company II, LLC, or at such other
address as the Trustee may designate from time to time by notice to the
Transition Bondholders and the Issuer, or the principal corporate trust office
of any successor Trustee (the address of which the successor Trustee will
provide to the Transition Bondholders and the Issuer) or (2) the principal
office of the Paying Agent or Transition Bond Registrar at which at any
particular time its corporate trust business shall be administered, each of
which offices as of the date of the execution of this Indenture is located at
Deutsche Bank Trust Company Americas, Attn: Peter Becker, Structured Finance
Services, Trust & Securities Services, 60 Wall Street, 26th floor, Mail Stop
NYC60-2606, New York, NY 10005, with a copy to Deutsche Bank National Trust
Company, Attn: Peter Becker, Structured Finance Services, MS: 01-0105, 25
Deforest Ave, Summit, New Jersey 07901, or at such other address as the Paying
Agent or Transition Bond Registrar respectively may designate from time to time
by notice to the Transition Bondholders and the Issuer, or the principal
corporate trust office of any successor Paying Agent or Transition Bond
Registrar (the address of which the successor will provide to the Transition
Bondholders, the Trustee and the Issuer).

     "Covenant Defeasance Option" has the meaning specified in Section 4.01(b)
of the Indenture.

     "Customers" means all existing and future retail electric customers located
within CenterPoint Houston's service territory as it existed on May 1, 1999,
except for (A) certain categories of existing customers whose load had been
lawfully served (i) by a fully operational qualifying facility before September
1, 2001 if the facility was supported by substantially complete filings for
site-specific environmental permits on or before December 31, 1999, or (ii) by
an on-site power production facility with a rated capacity of 10 megawatts or
less or (B) customers in a multiple certificated service territory who requested
to switch providers on or before May 1, 1999 or were not taking service from the
CenterPoint Houston on, and do not do so after, May 1, 1999.

     "Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.

     "Defeasance Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.


                                        3



     "Definitive Transition Bonds" has the meaning specified in Section 2.11 of
the Indenture.

     "Depositing REP" means a retail electric provider, as that term is defined
in the Texas Electric Choice Plan, who provides the Trustee with a cash deposit
pursuant to the Financing Order.

     "DTC" means The Depository Trust Company.

     "DTC Agreement" means any applicable Letter of Representations among the
Issuer, the Transition Bond Registrar and DTC or other applicable Clearing
Agency, relating to the Clearing Agency's rights and obligations (in its
capacity as Clearing Agency) with respect to any Book-Entry Transition Bonds, as
the same may be amended and supplemented from time to time.

     "Eligible Guarantor Institution" means a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein):

          (a)  a bank;

          (b) a broker, dealer, municipal securities broker or dealer or
     government securities broker or dealer;

          (c) a credit union;

          (d) a national securities exchange, registered securities association
     or clearing agency; or

          (e) a savings association that is a participant in a securities
     transfer association.

     "Eligible Institution" means:

          (a) the corporate trust department of the Trustee, so long as any of
     the securities of the Trustee have a credit rating from each Rating Agency
     in one of its generic rating categories which signifies investment grade,
     or

          (b) the trust department of a depository institution organized under
     the laws of the United States of America or any State (or any domestic
     branch of a foreign bank), which

               (i) has either

                    (A) with respect to any Eligible Investment having a
               maturity of greater than one month, a long-term unsecured debt
               rating of "AA-" by Standard & Poor's, "A2" by Moody's and, if
               Fitch provides a rating thereon, the equivalent of the lower of
               those two ratings by Fitch or


                                        4



                    (B) with respect to any Eligible Investment having a
               maturity of one month or less, a certificate of deposit rating of
               "A-1+" by Standard & Poor's, "P-1" by Moody's and, if Fitch
               provides a rating thereon, "F-1+" by Fitch, or any other
               long-term, short-term or certificate of deposit rating acceptable
               to the Rating Agencies, and

               (ii) whose deposits are insured by the FDIC.

     "Eligible Investments" mean Book-Entry Securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:

          (a) direct obligations of, and obligations fully and unconditionally
     guaranteed as to timely payment by, the United States of America;

          (b) demand deposits, time deposits or certificates of deposit of any
     depository institution or trust company incorporated under the laws of the
     United States of America or any State thereof (or any domestic branch of a
     foreign bank) and subject to supervision and examination by federal or
     State banking or depository institution authorities; provided, however,
     that at the time of the investment or contractual commitment to invest
     therein, the commercial paper or other short-term unsecured debt
     obligations (other than such obligations the rating of which is based on
     the credit of a Person other than such depository institution or trust
     company) thereof shall have either (i) a long-term unsecured debt rating
     from Moody's, Standard & Poor's and, if Fitch provides a rating thereon,
     Fitch of at least "Aa3," "AA" and "AA," respectively, or (ii) a certificate
     of deposit rating from Moody's and Standard & Poor's of at least "P-1" and
     "A-1+," respectively, and, if Fitch provides a rating thereon, "F-1+" by
     Fitch;

          (c) commercial paper or other short term obligations of any Person
     organized under the laws of any State (other than CenterPoint Houston,
     Reliant Energy, Inc. or any of their affiliates) whose ratings, at the time
     of the investment or contractual commitment to invest therein, from Moody's
     and Standard & Poor's shall be at least "P-1" and "A-1+," respectively and,
     if Fitch provides a rating thereon, "F-1+" by Fitch;

          (d) investments in money market funds having a rating from Moody's,
     Standard & Poor's and, if Fitch provides a rating thereon, Fitch of "Aaa,"
     "AAA" and "AAA," respectively (including funds for which the Trustee or any
     of its Affiliates act as investment manager or advisor);

          (e) bankers' acceptances issued by any depository institution or trust
     company referred to in clause (b) above;

          (f) repurchase obligations with respect to any security that is a
     direct obligation of, or fully guaranteed by, the United States of America
     or any agency or instrumentality thereof the obligations of which are
     backed by the full faith and credit of the United States of America, in
     either case entered into with a depository institution or trust company
     (acting as principal) described in clause (b) above;


                                        5



          (g) repurchase obligations with respect to any security or whole loan
     entered into with

               (i) a depository institution or trust company (acting as
          principal) described in clause (b) above (any depository institution
          or trust company being referred to in this definition as a "financial
          institution"),

               (ii) a broker/dealer (acting as principal) registered as a broker
          or dealer under Section 15 of the Exchange Act (any broker/dealer
          being referred to in this definition as a "broker/dealer"), the
          unsecured short-term debt obligations of which are rated at least
          "P-1" by Moody's, "A-1+" by Standard & Poor's and, if Fitch provides a
          rating thereon, "F-1+" by Fitch at the time of entering into this
          repurchase obligation, or

               (iii) an unrated broker/dealer, acting as principal, that is a
          wholly-owned subsidiary of a non-bank or bank holding company the
          unsecured short-term debt obligations of which are rated at least
          "P-1" by Moody's, "A-1+" by Standard & Poor's and, if Fitch provides a
          rating thereon, "F-1+" by Fitch at the time of purchase so long as the
          obligations of such unrated broker/dealer are unconditionally
          guaranteed by such non-bank or bank holding company; or

          (h) any other investment permitted by each of the Rating Agencies;

provided, that (a) any Book-Entry Security, instrument or security having a
maturity of one month or less that would be an Eligible Investment but for its
failure, or the failure of the obligor thereon, to have the rating specified
above shall be an eligible investment if such Book-Entry Security, instrument or
security, or the obligor thereon, has a short-term unsecured debt rating of at
least "P-1" by Moody's, "A-1+" by S&P and, if Fitch provides a rating thereon,
"F-1+" by Fitch, and (b) any Book-Entry Security, instrument or security having
a maturity of greater than one month that would be an eligible investment but
for its failure, or the failure of the obligor thereon, to have the rating
specified above shall be an eligible investment if such Book-Entry Security,
instrument or security, or the obligor thereon, has a long-term unsecured debt
rating of at least "AA-" by S&P or "Aa3" by Moody's (and, if Fitch provides a
rating thereon, "AA-" by Fitch) and a short-term unsecured debt rating of at
least "P-1" by Moody's or the equivalent thereof by S&P (and Fitch, if Fitch
provides a rating thereon);

provided, further, that unless otherwise permitted by the applicable Rating
Agencies, upon the failure of any Eligible Institution to maintain any
applicable rating set forth in this definition or the definition of Eligible
Institution, the related investments at that institution shall be reinvested in
Eligible Investments at a successor Eligible Institution within 10 days.

     "Eligible Securities Account" means either:

          (a) a segregated non-interest-bearing trust account with an Eligible
     Institution or

          (b) a segregated non-interest-bearing trust account with the corporate
     trust department of a depository institution organized under the laws of
     the United States of


                                        6



     America or any State (or any domestic branch of a foreign bank), having
     corporate trust powers and acting as trustee for funds deposited in such
     account, so long as any of the unsecured securities of such depository
     institution shall have a credit rating from each Rating Agency in one of
     its generic rating categories which signifies investment grade.

     "Event of Default" has the meaning specified in Section 5.01 of the
Indenture.

     "Excess Funds Subaccount" has the meaning specified in Section 8.02(a) of
the Indenture.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Expected Final Payment Date" means, with respect to each Series or, if
applicable, each Tranche of Transition Bonds, the date when all interest and
principal is scheduled to be paid for that Series or Tranche in accordance with
the Expected Amortization Schedule, as specified in the Series Supplement
therefor.

     "Expected Amortization Schedule" means, with respect to each Series or, if
applicable, each Tranche of Transition Bonds, the expected amortization schedule
for principal thereof, as specified in the Series Supplement therefor.

     "FDIC" means the Federal Deposit Insurance Corporation or any successor.

     "Federal Book-Entry Regulations" means (a) the federal regulations
contained in Subpart B ("Treasury/Reserve Automated Debt Entry System (TRADES)")
governing Book-Entry Securities consisting of U.S. Treasury bonds, notes and
bills, and Subpart D ("Additional Provisions") of 31 C.F.R. part 357, Section
357.10 through Section 357.14 and Section 357.41 through Section 357.44
(including related defined terms in 31 C.F.R. Section 357.2); and (b) to the
extent substantially identical to the federal regulations referred to in clause
(a) above (as in effect from time to time), the federal regulations governing
other Book-Entry Securities.

     "Final Maturity Date" means, for each Series or, if applicable, each
Tranche of Transition Bonds, the date by which all Principal and Interest on the
Transition Bonds is required to be paid, as specified in the Series Supplement
therefor.

     "Financing Issuance" means an issuance of a new Series of Transition Bonds
under the Indenture to provide funds to finance the purchase by the Issuer of
Transition Property.

     "Financing Order" means the Financing Order issued by the PUCT on March 16,
2005, in Docket No. 30485 and any subsequent financing order issued by the PUCT
to CenterPoint Houston pursuant to which CenterPoint Houston transfers its
rights and interests thereunder to the Issuer in connection with the issuance of
a separate Series of Transition Bonds.

     "Fitch" means Fitch Ratings or any successor thereto.

     "Floating Rate Bonds" means any Series or Tranche of Transition Bonds that
accrues interest at a variable rate determined as described in the related
Series Supplement, if any.


                                        7



     "General Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.

     "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, deliver, create and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Trust Estate or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the Granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
principal, interest and other payments in respect of the Trust Estate and all
other moneys payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the Granting party or otherwise and
generally to do and receive anything that the Granting party is or may be
entitled to do or receive thereunder or with respect thereto.

     "Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond of any Series or Tranche is registered on the Transition Bond
Register.

     "Indemnity Amounts" means any indemnification obligations payable by the
Servicer pursuant to any Servicing Agreement, the Seller pursuant to any Sale
Agreement or the Issuer pursuant to Section 6.07 of the Indenture.

     "Indenture" means this Indenture dated as of December 16, 2005, among the
Issuer, the Trustee and the Securities Intermediary, as the same may be amended
and supplemented from time to time by one or more Series Supplements or
Supplemental Indentures, and shall include the forms and terms of the Transition
Bonds established thereunder.

     "Independent" means, when used with respect to any specified Person, that
the Person

          (a) is in fact independent of the Issuer, any other obligor upon the
     Transition Bonds, CenterPoint Houston and any Affiliate of any of the
     foregoing Persons,

          (b) does not have any direct financial interest or any material
     indirect financial interest in the Issuer, any such other obligor,
     CenterPoint Houston or any Affiliate of any of the foregoing Persons and

          (c) is not connected with the Issuer, any such other obligor,
     CenterPoint Houston or any Affiliate of any of the foregoing Persons as an
     officer, employee, promoter, underwriter, trustee, partner, director or
     person performing similar functions.

     "Independent Certificate" means a certificate or opinion to be delivered to
the Trustee made by an Independent appraiser from a nationally reputable
appraisal firm or other expert appointed by an Issuer Order in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read the definition of "Independent" in this Appendix A and that the signer is
Independent within the meaning thereof.

     "Initial Transfer Date" means the Series Issuance Date for the first Series
of Transition Bonds.


                                        8



     "Intercreditor Agreement" means any intercreditor agreement that
CenterPoint Houston, as Seller, enters into with the Trustee, the Issuer,
CenterPoint Energy Transition Bond Company, LLC, Deutsche Bank Trust Company
Americas, as successor in interest to Bankers Trust Co., as trustee under that
certain indenture dated as of October 24, 2001, related to the transition bonds
issued by CenterPoint Energy Transition Bond Company, LLC, and other parties.

     "Interest" means, for any Payment Date for any Series or Tranche of
Transition Bonds, the sum, without duplication, of:

          (a) an amount equal to the amount of interest accrued at the
     applicable interest rates from the prior Payment Date or, with respect to
     the first Payment Date, the amount of interest accrued since the Initial
     Transfer Date, with respect to that Series or Tranche;

          (b) any unpaid interest plus, to the extent permitted by law, any
     interest accrued on this unpaid interest at the applicable interest rate;

          (c) if the Transition Bonds have been declared due and payable, all
     accrued and unpaid interest thereon; and

          (d) with respect to a Series or Tranche to be redeemed prior to the
     next Payment Date, the amount of interest that will be payable as interest
     on such Series or Tranche upon such redemption.

     "Issuer" means CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company, or any successor thereto pursuant to Section
3.11 of the Indenture.

     "Issuer Certificate of Formation" means the Certificate of Formation of the
Issuer that was filed with the Delaware Secretary of State on December 3, 2004,
as amended and restated on December 14, 2005, as the same may be amended and
restated from time to time.

     "Issuer LLC Agreement" means the Limited Liability Company Agreement
between the Issuer and CenterPoint Houston, as sole Member, effective as of
December 3, 2004, as amended and restated on December 16, 2005, as the same may
be amended and supplemented from time to time.

     "Issuer Opinion of Counsel" means one or more written opinions of counsel
who may, except as otherwise expressly provided in the Indenture, be employees
of or counsel to the Issuer and who shall be satisfactory to the Trustee and the
PUCT, and which opinion or opinions shall be addressed to the Trustee, as
Trustee, and shall be in a form reasonably satisfactory to the Trustee.

     "Issuer Officer's Certificate" means a certificate on behalf of the Issuer
signed by any Authorized Officer of the Issuer and delivered to the Trustee.

     "Issuer Order" or "Issuer Request" means a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Trustee.

     "Legal Defeasance Option" has the meaning specified in Section 4.01(b) of
the Indenture.


                                        9



     "Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.

     "Losses" means collectively, any and all liabilities, obligations, losses,
damages, payments, costs or expenses of any kind whatsoever.

     "Majority Holders" means the Holders of a majority of the Outstanding
Amount of the Transition Bonds of all Series.

     "Manager" means any manager of the Issuer.

     "Member" means CenterPoint Houston, as the sole member of the Issuer, or
any successor thereto.

     "Moody's" means Moody's Investors Service, Inc., or any successor thereto.

     "Officer's Certificate" means, in respect of any Person, an officer's
certificate signed by an Authorized Officer of such Person; provided that unless
otherwise specified, any reference in the Indenture to an Officer's Certificate
shall be to an Officer's Certificate of any Authorized Officer of the Issuer.

     "Operating Expenses" means, with respect to the Issuer, all fees, costs and
expenses owed by the Issuer with respect to a Series of Transition Bonds,
including all amounts owed by the Issuer to the Trustee relating to that Series,
the Servicing Fee relating to that Series (but excluding costs and expenses
incurred by the Servicer except as specifically set forth in Section 5.08 of the
Servicing Agreement relating to that Series), the fees and expenses relating to
that Series payable by the Issuer to the Administrator under the Administration
Agreement (but excluding any costs and expenses incurred by the Administrator in
carrying out its duties under the Administration Agreement other than costs and
expenses for services provided by unaffiliated third parties relating to that
Series incurred by the Administrator in accordance with Sections 2 and 3 of the
Administration Agreement), the fees and expenses relating to that Series payable
by the Issuer to the independent managers of the Issuer, legal fees and expenses
of the Servicer pursuant to the applicable Servicing Agreement relating to that
Series, and legal and accounting fees, costs and expenses of the Issuer relating
to that Series.

     "Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to CenterPoint Houston or the Issuer, which counsel
shall be reasonably acceptable to the Trustee, the PUCT, the Issuer or the
Rating Agencies and which shall be in form reasonably satisfactory to the
Trustee or the PUCT, if applicable.

     "Outstanding" with respect to Transition Bonds means, as of the date of
determination, all Transition Bonds theretofore authenticated and delivered
under the Indenture except:

          (a) Transition Bonds theretofore canceled by the Transition Bond
     Registrar or delivered to the Transition Bond Registrar for cancellation;

          (b) Transition Bonds or portions thereof the payment for which money
     in the necessary amount has been theretofore deposited with the Trustee or
     any Paying Agent in trust for the Holders of such Transition Bonds;
     provided, however, that if such Transition


                                       10



     Bonds are to be redeemed, notice of such redemption has been duly given
     pursuant to the Indenture or provision therefor, satisfactory to the
     Trustee; and

          (c) Transition Bonds in exchange for or in lieu of other Transition
     Bonds which have been authenticated and delivered pursuant to the Indenture
     unless proof satisfactory to the Trustee is presented that any such
     Transition Bonds are held by a bona fide purchaser;

     provided that in determining whether the Holders of the requisite
     Outstanding Amount of the Transition Bonds or any Series or Tranche thereof
     have given any request, demand, authorization, direction, notice, consent
     or waiver hereunder or under any Basic Document, Transition Bonds owned by
     the Issuer, any other obligor upon the Transition Bonds, CenterPoint
     Houston or any Affiliate of any of the foregoing Persons shall be
     disregarded and deemed not to be Outstanding, except that, in determining
     whether the Trustee shall be fully protected in relying upon any such
     request, demand, authorization, direction, notice, consent or waiver, only
     Transition Bonds that a Responsible Officer of the Trustee knows to be so
     owned shall be so disregarded. Transition Bonds so owned that have been
     pledged in good faith may be regarded as Outstanding if the pledgee
     establishes to the satisfaction of the Trustee the pledgee's right so to
     act with respect to such Transition Bonds and that the pledgee is not the
     Issuer, any other obligor upon the Transition Bonds, the Servicer or any
     Affiliate of any of the foregoing Persons.

     "Outstanding Amount" means the aggregate principal amount of all
Outstanding Transition Bonds or, if the context requires, all Outstanding
Transition Bonds of a Series or Tranche Outstanding at the date of
determination.

     "Overcollateralization Subaccount" has the meaning specified in Section
8.02(a) of the Indenture.

     "Paying Agent" means the entity so designated in Section 3.03 of the
Indenture or any other Person that meets the eligibility standards for the
Trustee specified in Section 6.11 of the Indenture and is authorized by the
Issuer to make the payments of Principal of or premium, if any, or Interest on
the Transition Bonds on behalf of the Issuer.

     "Payment Date" means, with respect to each Series or, if applicable, each
Tranche of Transition Bonds, each date or dates specified as Payment Dates for
such Series or Tranche in the Series Supplement therefor, provided that if any
such date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date.

     "Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.

     "Predecessor Transition Bond" means, with respect to any particular
Transition Bond, every previous Transition Bond evidencing all or a portion of
the same debt as that evidenced by such particular Transition Bond; and, for the
purpose of this definition, any Transition Bond authenticated and delivered
under Section 2.06 of the Indenture in lieu of a mutilated, lost,


                                       11



destroyed or stolen Transition Bond shall be deemed to evidence the same debt as
the mutilated, lost, destroyed or stolen Transition Bond.

     "Principal" means, with respect to any Payment Date and each Series or, if
applicable, each Tranche of Transition Bonds the sum, without duplication, of:

          (a) the amount of principal scheduled to be paid on such Payment Date
     in accordance with the Expected Amortization Schedule;

          (b) the amount of principal due on the Final Maturity Date of any
     Series or Tranche if such Payment Date is the final Maturity Date;

          (c) the amount of principal due as a result of the occurrence and
     continuance of an Event of Default and acceleration of the Transition
     Bonds;

          (d) the amount of principal and premium, if any, due as a result of a
     redemption of Transition Bonds prior to such Payment Date; and

          (e) any unpaid and previously scheduled payments of principal and
     overdue payments of principal.

     "Pro Rata" has the meaning specified for such term in Section 8.02(d) of
the Indenture.

     "Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.

     "Projected Transition Bond Balance" means, as of any date, the anticipated
Outstanding Amount of Transition Bonds after giving effect to payment of the sum
of the amounts provided for in the Expected Amortization Schedules for each
outstanding Series of Transition Bonds and such date.

     "PUCT" means the Public Utility Commission of Texas or any successor entity
thereto.

     "Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and one or more Financing Orders, in each case as
applicable to the Series of Transition Bonds to which that Financing Order
relates.

     "Rating Agency" means any rating agency rating the Transition Bonds of any
Tranche or Series at the time of issuance thereof at the request of the Issuer,
which initially shall be Moody's, Fitch and S&P. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable Person designated
by the Issuer, written notice of which designation shall be given to the Trustee
and the Servicer.

     "Rating Agency Condition," with respect to the issuance of a new Series of
Transition Bonds, has the meaning set forth in Section 2.10(7) of the Indenture
and, with respect to any other action, means the notification in writing to each
Rating Agency of such action, and confirmation from S&P to the Trustee and the
Issuer that such action will not result in a


                                       12



reduction or withdrawal of the then current rating by such Rating Agency of any
outstanding Series or Tranche of Transition Bonds.

     "Record Date" means, with respect to any Payment Date for a Series or
Tranche, the date set forth as such in the Series Supplement therefor.

     "Redemption Date" means, with respect to each Series or, if applicable,
each Tranche of Transition Bonds, the date for the redemption of the Transition
Bonds of such Series or Tranche pursuant to Section 10.01 of the Indenture or
the Series Supplement for such Series or Tranche, which in each case shall be a
Payment Date.

     "Refunding Issuance" means issuance of a new Series of Transition Bonds
hereunder to pay the cost of refunding, through redemption or payment on the
Expected Final Payment Date for a Series or Tranche of Transition Bonds, all or
part of the Transition Bonds of such Series or Tranche to the extent permitted
by the terms thereof.

     "REP" means a retail electric provider under the Financing Order.

     "REP Deposit Account" has the meaning specified in Section 8.06 of the
Indenture.

     "Required Capital Amount" means a capital contribution in an amount equal
to the amount specified in the related Series Supplement, representing a capital
contribution from CenterPoint Houston.

     "Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Director, Managing Officer, associate, Assistant Vice President, Secretary,
Assistant Secretary, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.

     "Retiring Trustee" means a Trustee that resigns or vacates the office of
Trustee for any reason.

     "Sale Agreement" means the Sale Agreement for any Transition Property, in
each case, between the Seller and the Issuer, as the same may be amended and
supplemented from time to time.

     "Securities Intermediary" means Deutsche Bank Trust Company Americas, as
securities intermediary, or its successor or any successor securities
intermediary under the Indenture.

     "Seller" means CenterPoint Houston, or its successor, in its capacity as
seller of the Transition Property to the Issuer pursuant to any Sale Agreement.

     "Semiannual Servicer's Certificate" means the statement prepared by the
Servicer and delivered to the Trustee with respect to each Series of Transition
Bonds on or prior to each Payment Date therefor, the form of which is attached
hereto as Schedule 1.


                                       13



     "Series" means any series of Transition Bonds issued by the Issuer and
authenticated by the Trustee pursuant to the Indenture, as specified in the
Series Supplement therefor.

     "Series Final Maturity Date" means the Final Maturity Date for a Series.

     "Series Issuance Date" means, with respect to any Series, the date on which
the Transition Bonds of such Series are to be originally issued in accordance
with Section 2.10 of the Indenture and the Series Supplement for such Series.

     "Series Supplement" means a Supplemental Indenture that authorizes a
particular Series of Transition Bonds.

     "Series Trust Estate" has the meaning specified in a Series Supplement for
a particular Series of Transition Bonds.

     "Servicer" means CenterPoint Houston and each successor to or assignee of
CenterPoint Houston, in its capacity as Servicer under the applicable Servicing
Agreement for a Series of Transition Bonds.

     "Servicer Default" means an event specified in the applicable Servicing
Agreement.

     "Servicing Agreement" means any Transition Property Servicing Agreement
between the Issuer and the Servicer for the related Transition Property and
acknowledged by the Trustee, as the same may be amended and supplemented from
time to time.

     "Servicing Fee" means the fee payable by the Issuer to the Servicer on each
Payment Date with respect to each Series of Transition Bonds in the amount to be
specified in the applicable Servicing Agreement.

     "Standard & Poor's" or "S&P" means Standard & Poor's, a division of The
McGraw-Hill Companies, or any successor thereto.

     "State" means any one of the 50 states of the United States of America or
the District of Columbia.

     "Subsequent Sale" means the sale of Transition Property after the date
hereof, subject to the satisfaction of the conditions specified in any Sale
Agreement and the Indenture.

     "Subsequent Transfer Date" means any date on which a Subsequent Sale will
be effective, specified in an Addition Notice.

     "Subsequent Transition Property" means Transition Property (identified in
the related Bill of Sale) sold by the Seller to the Issuer as of a Subsequent
Transfer Date pursuant to a Sale Agreement.

     "Successor Servicer" means a successor Servicer appointed by the Trustee
pursuant to the applicable Servicing Agreement which will succeed to all the
rights and duties of the Servicer under the Servicing Agreement.


                                       14



     "Supplemental Indenture" means a supplemental indenture entered into by the
Issuer and the Trustee pursuant to Article IX of the Indenture.

     "Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
ch. 405, 1999 (codified at Texas Utilities Code Section 39.001 et seq.).

     "Tranche" means, with respect to any Series, any one of the classes of
Transition Bonds of that Series, as specified in the Series Supplement for that
Series.

     "Tranche Final Maturity Date" means the Final Maturity Date of a Tranche,
as specified in the Series Supplement for the related Series.

     "Tranche Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.

     "Transition Bond" means any of the transition bonds issued by the Issuer
pursuant to the Indenture and one or more Supplemental Indentures authorizing
such Series and also has the meaning given such term in the Texas Electric
Choice Plan, as applicable to such Series.

     "Transition Bond Balance" means, as of any date, the aggregate Outstanding
Amount of all Series of Transition Bonds on such date.

     "Transition Bond Owner" means, with respect to a Book-Entry Transition
Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond,
as reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).

     "Transition Bond Register" has the meaning specified in Section 2.05 of the
Indenture.

     "Transition Bond Registrar" means Deutsche Bank Trust Company Americas, in
its capacity as keeper of the Transition Bond Register, or any other Person
appointed to act in such capacity by the Issuer pursuant to Section 2.05 of the
Indenture.

     "Transition Charge Adjustment Process" means the process by which
Transition Charges are adjusted pursuant to the applicable Servicing Agreement
and the Texas Electric Choice Plan.

     "Transition Charges" means the nonbypassable amounts to be charged for the
use or availability of electric services, approved by the PUCT in the Financing
Order to recover Qualified Costs, that may be collected by CenterPoint Houston,
its successors, assignees or other collection agents as provided for in the
Financing Order.

     "Transition Property" means the rights and interests of the Seller or its
successor under any Financing Order once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the irrevocable right to impose, collect and receive through
Transition Charges payable by retail electric customers within the Seller's
certificated service area as it existed on May 1, 1999, an amount sufficient to
cover the Qualified Costs of the Seller authorized in the Financing Order, the
right to receive Transition Charges in amounts and at times sufficient to pay
principal and interest and make other deposits in


                                       15



connection with the Transition Bonds and all revenues and collections resulting
from Transition Charges, and all Subsequent Transition Property.

     "Trust Estate" means all Series Trust Estate securing all Transition Bonds
issued under the Indenture.

     "Trust Indenture Act or TIA" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.

     "Trustee" means Wilmington Trust Company, as trustee, or its successor or
any successor Trustee under the Indenture.

     "UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.

     "Underwriters" means the underwriters who purchase Transition Bonds of any
Series or Tranche from the Issuer and sell such Transition Bonds in a public
offering.

     "Underwriting Agreement" means any underwriting agreement entered into by
the Issuer, CenterPoint Houston and the underwriters parties thereto in
connection with the issuance of a separate Series of Transition Bonds in
accordance with a Financing Order.

     "U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.


                                       16

                                                                     EXHIBIT 4.3

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                                     Issuer

                                       and

                            WILMINGTON TRUST COMPANY

                                     Trustee

                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                             Securities Intermediary

                          FIRST SUPPLEMENTAL INDENTURE

                          Dated as of December 16, 2005

                             ----------------------

                    Senior Secured Transition Bonds, Series A



This FIRST SUPPLEMENTAL INDENTURE dated as of December 16, 2005 (this
"Supplement"), by and among CenterPoint Energy Transition Bond Company II, LLC,
a Delaware limited liability company (the "Issuer"), Wilmington Trust Company, a
Delaware banking corporation, in its capacity as trustee (the "Trustee"), and
Deutsche Bank Trust Company Americas, a New York banking corporation, in its
capacity as securities intermediary (the "Securities Intermediary") is entered
into pursuant to the Indenture dated as of even date herewith among the Issuer,
the Trustee and the Securities Intermediary (the "Indenture").

                     PRELIMINARY STATEMENT; GRANTING CLAUSE

      Section 9.01 of the Indenture provides, among other things, that the
Issuer and the Trustee may at any time and from time to time enter into one or
more Supplemental Indentures for the purpose of authorizing the issuance by the
Issuer of a Series of Transition Bonds and specifying the terms thereof. The
Issuer has duly authorized the execution and delivery of this Supplement and the
creation of a Series of Transition Bonds with an initial aggregate principal
amount of $1,851,000,000 to be known as the Issuer's Senior Secured Transition
Bonds, Series A (the "Senior Secured Transition Bonds, Series A"). All acts and
all things necessary to make the Senior Secured Transition Bonds, Series A, when
duly executed by the Issuer and authenticated by or on behalf of the Trustee as
provided in the Indenture and this Supplement and issued by the Issuer, the
valid, binding and legal obligations of the Issuer and to make this Supplement a
valid and enforceable supplement to the Indenture have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects duly
and lawfully authorized. The Issuer and the Trustee are executing and delivering
this Supplement in order to provide for the Senior Secured Transition Bonds,
Series A.

            The "Series Trust Estate" shall consist of, and the Issuer hereby
absolutely and irrevocably Grants to the Trustee, as trustee for the benefit of
the Holders of the Senior Secured Transition Bonds, Series A issued and
outstanding, all of the Issuer's right, title and interest whether now owned or
hereafter acquired (and whether now existing or hereafter arising), in, to and
under (a) the Transition Property relating to the Senior Secured Transition
Bonds, Series A purchased by the Issuer pursuant to the Sale Agreement relating
to the Senior Secured Transition Bonds, Series A and all proceeds thereof, (b)
the Sale Agreement relating to the Senior Secured Transition Bonds, Series A,
(c) the Bill of Sale delivered by the Seller pursuant to the Sale Agreement
relating to the Senior Secured Transition Bonds, Series A, (d) the Servicing
Agreement relating to the Senior Secured Transition Bonds, Series A and the
Intercreditor Agreement executed in connection therewith, (e) the Administration
Agreement, (f) the Collection Account relating to the Senior Secured Transition
Bonds, Series A and all subaccounts thereof (including, without limitation, the
General Subaccount, the Overcollateralization Subaccount, the Capital Subaccount
and the Excess Funds Subaccount relating to the Senior Secured Transition Bonds,
Series A) and all cash, securities, instruments, investment property or other
assets credited to or deposited in that Collection Account or any subaccount
thereof from time to time or purchased with funds therefrom, and all financial
assets and securities entitlements carried therein or credited thereto, (g) the
REP Deposit Account relating to the Senior Secured Transition Bonds, Series A,
(h) all other property of whatever kind owned from time to time by the Issuer
other than any cash released to the Issuer by the Trustee pursuant to Section
8.02 of the Indenture, (i) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and (j) all payments
on or under and all



proceeds of every kind and nature whatsoever in respect of any or all of the
foregoing, including all proceeds of the conversion, voluntary or involuntary,
into cash or other liquid property, all cash proceeds, accounts, accounts
receivable, general intangibles, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, insurance proceeds, condemnation awards, payment
intangibles, letter-of-credit rights, investment property, commercial tort
claims, documents, rights to payment of any and every kind, and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing; provided, however, that, for the avoidance of doubt, the Series
Trust Estate does not include any funds received by the issuer representing
payments in respect of letters of credit for which each of Deutsche Bank Trust
Company Americas and Wilmington Trust Company is the beneficiary.

            Such Grant is made to the Trustee to have and to hold in trust to
secure the payment of principal of and premium, if any, and interest on, and any
other amounts (including all fees, expenses, counsel fees and other amounts due
and owing to the Trustee, and any credit enhancement provider) owing in respect
of, the Senior Secured Transition Bonds, Series A equally and ratably without
prejudice, preference, priority or distinction, except as expressly provided in
the Indenture and this Supplement and to secure performance by the Issuer of all
of the Issuer's obligations under the Indenture and this Supplement with respect
to the Senior Secured Transition Bonds, Series A, all as provided in the
Indenture and this Supplement; provided, however, that in no event shall the
proceeds of the issuance of the Senior Secured Transition Bonds, Series A
constitute a portion of the Series Trust Estate.

            The Trustee, as trustee on behalf of the Holders of the Transition
Bonds, acknowledges such Grant, accepts the trusts hereunder in accordance with
the provisions hereof and agrees to perform its duties as set forth in the
Indenture and this Supplement.

                                    ARTICLE I

                                   DEFINITIONS

            All terms used in this Supplement that are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to such
terms in the Indenture, except to the extent such terms are defined or modified
in this Supplement or the context clearly requires otherwise.

                                   ARTICLE II

                          OTHER DEFINITIONAL PROVISIONS

                  SECTION 2.01. "Authorized Denominations" means $1,000 and
integral multiples thereof, except for one Transition Bond of each Tranche which
may be of a smaller denomination.

                  SECTION 2.02. "Calculation Period" means, with respect to a
Payment Date, the period from and including the preceding Payment Date to but
excluding such Payment Date, or in the case of the first Calculation Period,
from and including the Series Issuance Date to but excluding the initial Payment
Date.

                  SECTION 2.03. "Expected Amortization Schedule" means Schedule
A to this Supplement.

                                       2


                  SECTION 2.04. "Expected Final Payment Date" means, with
respect to any Tranche of the Senior Secured Transition Bonds, Series A, the
expected final payment date therefor, as specified in Article IV of this
Supplement.

                  SECTION 2.05. "Final Maturity Date" means, with respect to any
Tranche of the Senior Secured Transition Bonds, Series A, the final maturity
date thereof, as specified in Article IV of this Supplement.

                  SECTION 2.06. "Interest Rate" has the meaning set forth in
Article IV of this Supplement.

                  SECTION 2.07. "Overcollateralization Amount" has the meaning
set forth in Section 5.04 of this Supplement.

                  SECTION 2.08. "Payment Date" has the meaning set forth in
Section 5.01 of this Supplement.

                  SECTION 2.09. "Record Date" shall mean, with respect to any
Payment Date, the close of business on the Business Day prior to such Payment
Date.

                  SECTION 2.10. "Required Capital Amount" has the meaning set
forth in Section 5.05 of this Supplement.

                  SECTION 2.11. "Series Issuance Date" has the meaning set forth
in Section 3.02 of this Supplement.

                                  ARTICLE III

                       DESIGNATION; SERIES ISSUANCE DATES

                  SECTION 3.01. DESIGNATION. The Senior Secured Transition
Bonds, Series A shall be designated generally as the Issuer's Senior Secured
Transition Bonds, Series A and further denominated as Tranches A-1, A-2, A-3,
A-4 and A-5.

                  SECTION 3.02. SERIES ISSUANCE DATE. The Senior Secured
Transition Bonds, Series A that are authenticated and delivered by the Trustee
to or upon the written order of the Issuer on December 16, 2005 (the "Series
Issuance Date") shall have as their date of authentication December 16, 2005.
Each other Senior Secured Transition Bond, Series A shall be dated the date of
its authentication.

                  SECTION 3.03. BOOK-ENTRY. Upon original issuance, the Senior
Secured Transition Bonds, Series A will be issued in the form of a typewritten
Transition Bond or Transition Bonds representing the Book-Entry Transition
Bonds, to be delivered to DTC, as the initial Clearing Agency, by, or on behalf
of, the Issuer, pursuant to Section 2.11 of the Indenture.

                                       3


                                   ARTICLE IV

               INITIAL PRINCIPAL BALANCE; INTEREST RATE; EXPECTED
                     FINAL PAYMENT DATE; FINAL MATURITY DATE

            (a) The Transition Bonds of each Tranche of the Senior Secured
      Transition Bonds, Series A shall have the initial principal balance,
      Expected Final Payment Date and Final Maturity Date and bear interest at
      the interest rate (the "Interest Rate") as set forth below:



           Initial Principal    Expected Final       Final
Series          Balance          Payment Date    Maturity Date    Interest Rate
- -----      -----------------    --------------   -------------    -------------
                                                      
A-1          $250,000,000           2/1/09          2/1/11           4.84%
A-2          $368,000,000           8/1/12          8/1/14           4.97%
A-3          $252,000,000           2/1/14          8/1/15           5.09%
A-4          $519,000,000           8/1/17          8/1/19           5.17%
A-5          $462,000,000           8/1/19          8/1/20          5.302%


            (b) The Expected Final Payment Date for each Tranche of the Senior
      Secured Transition Bonds, Series A will be the date when the outstanding
      principal balance of that Tranche will be reduced to zero if payments are
      made according to the Expected Amortization Schedule for that Tranche. The
      Final Maturity Date for each Tranche of the Senior Secured Transition
      Bonds, Series A will be the date when the Issuer is required to pay the
      entire remaining unpaid principal balance, if any, of all outstanding
      Senior Secured Transition Bonds, Series A of that Tranche.

            (c) Interest on the Senior Secured Transition Bonds, Series A will
      be paid before Principal of the Senior Secured Transition Bonds, Series A.
      If there is a shortfall in the amounts available in the Collection Account
      to make interest payments, the Trustee will distribute Interest Pro Rata
      to each Outstanding Tranche of Senior Secured Transition Bonds, Series A
      based on the amount of Interest payable on each Outstanding Tranche.
      Interest on the Senior Secured Transition Bonds, Series A will be
      calculated on the basis of a 360-day year of twelve 30-day months.

                                   ARTICLE V
                  PAYMENT DATES; EXPECTED AMORTIZATION SCHEDULE
                 FOR PRINCIPAL; INTEREST; OVERCOLLATERALIZATION
                 AMOUNT; REQUIRED CAPITAL AMOUNT; WATERFALL CAPS

                  SECTION 5.01. PAYMENT DATES. The "Payment Dates" for the
Senior Secured Transition Bonds, Series A are February 1 and August 1 of each
year or, if any such date is not a Business Day, the next succeeding Business
Day, commencing on August 1, 2006, and continuing until the earlier of repayment
of such Tranche in full and the applicable Final Maturity Date.

                  SECTION 5.02. EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL.
Unless an Event of Default has occurred and is continuing and the unpaid

                                       4


principal amount of all Tranches of Senior Secured Transition Bonds, Series A
has been declared to be due and payable together with accrued and unpaid
interest thereon, on each Payment Date the Trustee shall distribute to the
Holders of record of the Senior Secured Transition Bonds, Series A as of the
related Record Date amounts payable in respect of the Senior Secured Transition
Bonds, Series A pursuant to Section 8.02(d) of the Indenture as Principal, in
accordance with the Expected Amortization Schedule. To the extent that more than
one Tranche of the Senior Secured Transition Bonds, Series A is to receive
payments of Principal in accordance with the Expected Amortization Schedule on
any Payment Date, such amounts will be allocated Pro Rata between such Tranches
based on the Principal scheduled to be paid to such Tranches in accordance with
the Expected Amortization Schedule on such Payment Date; provided, however, that
if one or more Tranches did not receive Principal on the prior Payment Date and
as a result the aggregate Outstanding Amount of such Tranche or Tranches was not
reduced to the balance indicated in the Expected Amortization Schedule on such
Payment Date, then such Tranches will be:

            (a) allocated funds from the applicable subaccount to make up such
      shortfalls prior to any Tranches receiving funds in respect of Principal
      scheduled to be paid on the current Payment Date, and

            (b) allocated funds from the applicable subaccount in respect of
      prior shortfalls on a Pro Rata basis based on the amount each such
      shortfall bears to the aggregate shortfalls;

provided, however, that other than in the event of an acceleration in no event
shall a Principal payment pursuant to this Section 5.02 on any Tranche on a
Payment Date be greater than the amount that reduces the Outstanding Amount of
such Tranche of Senior Secured Transition Bonds, Series A to the amount
specified in the Expected Amortization Schedule for such Tranche and Payment
Date.

                  SECTION 5.03. INTEREST.

            (a) Interest will be payable on each Tranche of the Senior Secured
      Transition Bonds, Series A on each Payment Date as follows:

      1     if there has been a payment default, any Interest payable but unpaid
            on any prior Payment Date, together with Interest on such unpaid
            Interest, if any, and

      2     accrued Interest on the principal balance of each Tranche of the
            Senior Secured Transition Bonds, Series A as of the close of
            business on the preceding Payment Date, or the date of the original
            issuance of the Tranche of the Senior Secured Transition Bonds,
            Series A, as applicable, after giving effect to all payments of
            Principal made on the preceding Payment Date;

      provided, however, that, with respect to the initial Payment Date or if no
      payment has yet been made, interest on the outstanding principal balance
      shall accrue from and including the Series Issuance Date to, but
      excluding, the following Payment Date, and thereafter from and including
      the previous Payment Date to, but excluding, the applicable

                                       5


      Payment Date until the Transition Bonds have been paid in full, at the
      interest rate indicated in Article IV.

                  SECTION 5.04. OVERCOLLATERALIZATION AMOUNT. The
"Overcollateralization Amount" for the Senior Secured Transition Bonds, Series A
shall be zero dollars ($0).

                  SECTION 5.05. REQUIRED CAPITAL AMOUNT. The "Required Capital
Amount" for the Senior Secured Transition Bonds, Series A shall be $9,255,000,
which is equal to 0.5% of the initial outstanding principal balance of the
Senior Secured Transition Bonds, Series A.

                  SECTION 5.06. PREMIUM. There will be no early redemption of
the Senior Secured Transition Bonds, Series A, and therefore no Premium will be
payable in connection with the early redemption of the Senior Secured Transition
Bonds, Series A.

                  SECTION 5.07. WATERFALL CAPS The Indemnity Amounts payable
with respect to the Senior Secured Transition Bonds, Series A pursuant to
Section 8.02(d)(i) shall not exceed $800,000 during any calendar year. The
amounts paid in respect of the Trustee's fees and expenses in Section
8.02(d)(i), the Servicing Fee in Section 8.02(d)(ii), the administration and
independent managers' fees in Section 8.02(d)(iii), the ordinary periodic
Operating Expenses in Section 8.02(d)(iv) and the remaining Operating Expenses
in Section 8.02(d)(ix) shall not exceed $1,278,500 in the aggregate during any
calendar year unless the PUCT approves a different aggregate amount of such
payments.

                                   ARTICLE VI

                            AUTHORIZED DENOMINATIONS

                  The Senior Secured Transition Bonds, Series A shall be
issuable in the Authorized Denominations.

                                  ARTICLE VII

                                   REDEMPTION

                  The Senior Secured Transition Bonds, Series A shall not be
subject to mandatory or optional redemption.

                                  ARTICLE VIII

                               CREDIT ENHANCEMENT

                  No credit enhancement (other than the Overcollateralization
Amount, the Excess Funds Account, the Required Capital Amount and any
adjustments to the Transition Charges approved by the PUCT as provided in the
Texas Electric Choice Plan) is provided for the Senior Secured Transition Bonds,
Series A.

                                       6


                                   ARTICLE IX

             DELIVERY AND PAYMENT FOR THE SENIOR SECURED TRANSITION
         BONDS, SERIES A; FORM OF THE SENIOR SECURED TRANSITION BONDS,
                                    SERIES A

            The Trustee shall deliver or cause to be delivered the Senior
Secured Transition Bonds, Series A to the Issuer when authenticated in
accordance with Section 2.02 of the Indenture. Each Senior Secured Transition
Bond, Series A shall be in the form of Exhibit A hereto, which is incorporated
herein by reference.

                                    ARTICLE X

                                  MISCELLANEOUS

                  SECTION 10.01. CONFIRMATION OF INDENTURE. As supplemented by
this Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Supplement, shall be read, taken, and
construed as one and the same instrument.

                  SECTION 10.02. EFFECTS OF HEADINGS. The Article and Section
headings herein are for convenience only and shall not affect the construction
hereof.

                  SECTION 10.03. COUNTERPARTS. This Supplement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original, but all of such counterparts shall together constitute but one
and the same instrument.

                  SECTION 10.04. GOVERNING LAW. This Supplement shall be
construed in accordance with the laws of the State of Texas, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.

                  SECTION 10.05. RIGHTS OF TRUSTEE, SECURITIES INTERMEDIARY and
OTHERS. The Trustee, the Securities Intermediary, the authenticating agent, the
Transition Bond Registrar and the Paying Agent shall be entitled to the same
rights, protections, immunities, and indemnities set forth in the Indenture as
if specifically set forth herein.

                                       7


IN WITNESS WHEREOF, the Issuer, the Trustee and the Securities Intermediary have
caused this Supplement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.

                                     CENTERPOINT ENERGY TRANSITION BOND
                                         COMPANY II, LLC,
                                         as Issuer

                                     By: /s/ MARC KILBRIDE
                                         --------------------------------------
                                         Name: Marc Kilbride
                                         Title: Manager

                                     WILMINGTON TRUST COMPANY,
                                        not in its individual capacity but
                                        solely as Trustee on behalf of the
                                        Transition Bondholders

                                     By: /s/ ERWIN M. SORIANO
                                         --------------------------------------
                                         Name: Erwin M. Soriano
                                         Title: Assistant Vice President

                                     DEUTSCHE BANK TRUST COMPANY AMERICAS,
                                        not in its individual capacity but
                                        solely as Securities Intermediary

                                     By: /s/ JENNA KAUFMAN
                                         --------------------------------------
                                         Name: Jenna Kaufman
                                         Title: Vice President

                                       8


                                   SCHEDULE A

                         Expected Amortization Schedule

                          Outstanding Principal Balance



              TRANCHE          TRANCHE          TRANCHE          TRANCHE          TRANCHE
 PAYMENT        A-1              A-2              A-3              A-4              A-5
  DATE        BALANCE          BALANCE          BALANCE          BALANCE          BALANCE
- ---------   ------------     ------------     ------------     ------------     ------------
                                                                 
 Series
Issuance
  Date      $250,000,000     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 8/1/06     $231,435,317     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 2/1/07     $179,908,675     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 8/1/07     $144,571,638     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 2/1/08     $ 89,916,590     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 8/1/08     $ 50,875,178     $368,000,000     $252,000,000     $519,000,000     $462,000,000
 2/1/09                -     $360,066,563     $252,000,000     $519,000,000     $462,000,000
 8/1/09                -     $317,117,443     $252,000,000     $519,000,000     $462,000,000
 2/1/10                -     $253,934,484     $252,000,000     $519,000,000     $462,000,000
 8/1/10                -     $207,053,841     $252,000,000     $519,000,000     $462,000,000
 2/1/11                -     $139,554,687     $252,000,000     $519,000,000     $462,000,000
 8/1/11                -     $ 88,537,461     $252,000,000     $519,000,000     $462,000,000
 2/1/12                -     $ 16,503,845     $252,000,000     $519,000,000     $462,000,000
 8/1/12                -                -     $213,121,395     $519,000,000     $462,000,000
 2/1/13                -                -     $136,291,216     $519,000,000     $462,000,000
 8/1/13                -                -     $ 76,210,864     $519,000,000     $462,000,000
 2/1/14                -                -                -     $513,249,049     $462,000,000
 8/1/14                -                -                -     $448,198,338     $462,000,000
 2/1/15                -                -                -     $360,804,209     $462,000,000
 8/1/15                -                -                -     $290,434,163     $462,000,000
 2/1/16                -                -                -     $197,270,773     $462,000,000
 8/1/16                -                -                -     $121,240,531     $462,000,000
 2/1/17                -                -                -     $ 21,943,148     $462,000,000
 8/1/17                -                -                -                -     $401,924,376
 2/1/18                -                -                -                -     $296,111,800
 8/1/18                -                -                -                -     $207,644,275
 2/1/19                -                -                -                -     $ 94,860,410
 8/1/19                -                -                -                -                -




                    EXHIBIT A TO FIRST SUPPLEMENTAL INDENTURE

REGISTERED                                                $

No. _______

                       SEE REVERSE FOR CERTAIN DEFINITIONS

                                    CUSIP NO.

THE PRINCIPAL OF THIS TRANCHE [ ] SENIOR SECURED TRANSITION BOND, SERIES A WILL
BE PAID IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS TRANCHE [ ] SENIOR SECURED TRANSITION BOND, SERIES A AT
ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE HOLDER OF
THIS TRANCHE [ ] SENIOR SECURED TRANSITION BOND, SERIES A HEREBY COVENANTS AND
AGREES THAT PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE PAYMENT IN
FULL OF THE TRANCHE [ ] SENIOR SECURED TRANSITION BONDS, SERIES A, IT WILL NOT
INSTITUTE AGAINST OR JOIN ANY OTHER PERSON IN INSTITUTING AGAINST THE ISSUER ANY
BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS
OR OTHER SIMILAR PROCEEDINGS UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF
THE UNITED STATES.

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

             SENIOR SECURED TRANSITION BONDS, SERIES A, Tranche [ ].



                Initial       Expected Final    Tranche Final
Bond Rate   Principal Amount   Payment Date     Maturity Date
- ---------   ----------------  --------------    -------------
                                       
  ____%        $_______            ____             ______


            CenterPoint Energy Transition Bond Company II, LLC, a limited
liability company organized and existing under the laws of the State of Delaware
(herein referred to as the "Issuer"), for value received, hereby promises to pay
to the registered holder under Section 2.05 of the Indenture ("Registered
Holder"), or registered assigns, the Initial Principal Amount shown above in
semiannual installments on the Payment Dates (as defined below) and in the
amounts specified on the reverse hereof or, if less, the amounts determined
pursuant to Section 8.02(d) of the Indenture, in each year, commencing on the
date determined as provided on the reverse hereof and ending on or before the
Final Maturity Date of this Tranche [ ] Senior Secured Transition Bond, Series
A, to pay the entire unpaid principal hereof on such Final Maturity Date and to
pay Interest, at the Bond Rate shown above, on each February 1 and August 1, or
if any such day is not a Business Day, the next succeeding Business Day,
commencing on August 1, 2006 and continuing until the earlier of the payment of
the Principal hereof and the Final Maturity Date of this Tranche [ ] Senior
Secured Transition Bond, Series A

                                      A-1


(each a "Payment Date"), on the Principal amount of this Tranche [ ] Senior
Secured Transition Bond, Series A outstanding from time to time. Interest on
this Tranche [ ] Senior Secured Transition Bond, Series A will accrue for each
Payment Date from the most recent Payment Date on which Interest has been paid
to but excluding such Payment Date or, if no Interest has yet been paid, from
December 16, 2005. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. Such Principal of and Interest on this Tranche [ ] Senior
Secured Transition Bond, Series A shall be paid in the manner specified on the
reverse hereof.

            The Principal of and Interest on this Tranche [ ] Senior Secured
Transition Bond, Series A are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments made by the Issuer with respect to this
Tranche [ ] Senior Secured Transition Bond, Series A shall be applied first to
Interest due and payable on this Tranche [ ] Senior Secured Transition Bond,
Series A as provided above and then to the unpaid Principal of and premium, if
any, on this Tranche [ ] Senior Secured Transition Bond, Series A, all in the
manner set forth in Section 8.02(d) of the Indenture.

            This Tranche [ ] Senior Secured Transition Bond, Series A is a
"transition bond" as such term is defined in the Texas Electric Choice Plan.
Principal and Interest on this Tranche [ ] Senior Secured Transition Bond,
Series A are payable from and secured primarily by the transition property
authorized by the Financing Order. The Texas Electric Choice Plan provides that
the State of Texas pledges "for the benefit and protection of financing parties
and the electric utility, that it will not take or permit any action that would
impair the value of the transition property, or except as permitted . . .
[through the Transition Charge Adjustment Process] . . . reduce, alter, or
impair the transition charges to be imposed, collected, and remitted to
financing parties, until the principal, interest, and premium, and any other
charges incurred and contracts to be performed in connection with the related
transition bonds have been paid and performed in full."

            Reference is made to the further provisions of this Tranche [ ]
Senior Secured Transition Bond, Series A set forth on the reverse hereof, which
shall have the same effect as though fully set forth on the face of this Tranche
[ ] Senior Secured Transition Bond, Series A.

            Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Tranche [ ]
Senior Secured Transition Bond, Series A shall not be entitled to any benefit
under the Indenture referred to on the reverse hereof, or be valid or obligatory
for any purpose.

                                      A-2


            Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

                                      A-3


            IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by an Authorized Officer of the Issuer.

Date: ______________

                                              CENTERPOINT ENERGY TRANSITION BOND
                                                COMPANY II, LLC

                                              By: _____________________________
                                                  Name:  ____________
                                                  Title: ____________

                                      A-4


                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

Dated: ______________, 200_

            This is one of the Tranche [ ] Senior Secured Transition Bonds,
Series A designated above and referred to in the within-mentioned Indenture.

                                       WILMINGTON TRUST COMPANY,
                                          not in its individual capacity but
                                          solely as Trustee on behalf of the
                                          Transition Bondholders

                                       By: DEUTSCHE BANK TRUST COMPANY AMERICAS,
                                           as Authenticating Agent

                                       By: ____________________________________
                                           Name:
                                           Title:

                                      A-5


                           REVERSE OF TRANSITION BOND

            This Tranche [ ] Senior Secured Transition Bond, Series A is one of
a duly authorized issue of Transition Bonds of the Issuer, designated as its
Transition Bonds, Series A (herein called the "Senior Secured Transition Bonds,
Series A"), issued and to be issued in one or more Series, which Series are
issuable in one or more Tranches, and this Series, in which this Tranche [ ]
Senior Secured Transition Bond, Series A represents an interest, consists of
Tranches, including the Tranche [ ] Senior Secured Transition Bonds, Series A
(herein called the "Tranche [ ] Senior Secured Transition Bonds, Series A"), all
issued and to be issued under an indenture dated as of December 16, 2005, and a
supplemental indenture thereto dated as of even date therewith (such
supplemental indenture, as supplemented or amended, the "Series A Supplement"
and, collectively with such indenture, as supplemented or amended, the
"Indenture"), each among the Issuer, Wilmington Trust Company, as Trustee (the
"Trustee," which term includes any successor trustee under the Indenture), and
Deutsche Bank Trust Company Americas, as Securities Intermediary, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the Series Trust Estate pledged, the nature and extent of the
security, the respective rights, obligations and immunities thereunder of the
Issuer, the Trustee and the Transition Bondholders and the terms and conditions
under which additional Transition Bonds may be issued. All terms used in this
Tranche [ ] Transition Bond that are defined in the Indenture, as supplemented
or amended, shall have the meanings assigned to them in the Indenture.

            The Tranche [ ] Senior Secured Transition Bonds, Series A, the other
Tranches of Senior Secured Transition Bonds, Series A and any other Series of
Transition Bonds issued by the Issuer are and will be equally and ratably
secured by the Series Trust Estate pledged as security therefor as provided in
the Indenture or the Series A Supplement.

            The Principal of this Tranche [ ] Senior Secured Transition Bond,
Series A shall be payable on each Payment Date only to the extent that amounts
in the Collection Account are available therefor, and only until the outstanding
Principal balance thereof on such Payment Date (after giving effect to all
payments of Principal, if any, made on such Payment Date) has been reduced to
the Principal balance specified in the Expected Amortization Schedule which is
attached to the Series A Supplement as Schedule A, unless payable earlier
because an Event of Default shall have occurred and be continuing and the
Trustee or the Transition Bondholders representing not less than a majority of
the Outstanding Amount of the Transition Bonds of all Series have declared the
Transition Bonds to be immediately due and payable in accordance with Section
5.02 of the Indenture. However, actual Principal payments may be made in less
than expected amounts and at later than expected times as determined pursuant to
Section 8.02(d) of the Indenture and Section 5.02 of the Series A Supplement.
The entire unpaid Principal amount of this Tranche [ ] Senior Secured Transition
Bond, Series A shall be due and payable on the Final Maturity Date of this
Tranche [ ] Senior Secured Transition Bond, Series A. Notwithstanding the
foregoing, the entire unpaid Principal amount of the Transition Bonds shall be
due and payable, if not then previously paid, on the date on which an Event of
Default shall have occurred and be continuing and the Trustee or the Transition
Bondholders representing a majority of the Outstanding Amount of the Transition
Bonds have declared the Transition Bonds to be immediately due and payable in
the manner provided in Section 5.02 of the Indenture. All

                                      A-6


Principal payments on the Tranche [ ] Senior Secured Transition Bonds, Series A
shall be made pro rata to the Tranche [ ] Transition Bondholders entitled
thereto based on the respective Principal amounts of the Senior Secured
Transition Bonds, Series A held by them.

                Payments of Interest on this Tranche [ ] Senior Secured
Transition Bond, Series A due and payable on each Payment Date, together with
the installment of Principal or premium, if any, due on this Tranche [ ] Senior
Secured Transition Bond, Series A on such Payment Date shall be made by check
mailed first-class, postage prepaid, to the Person whose name appears as the
Holder of this Tranche [ ] Senior Secured Transition Bond, Series A in the
Transition Bond Register as of the close of business on the Record Date or in
such other manner as may be provided in the Series A Supplement, except that
with respect to Tranche [ ] Senior Secured Transition Bonds, Series A registered
on the Record Date in the name of a Clearing Agency, payments will be made by
wire transfer in immediately available funds to the account designated by such
Clearing Agency and except for the final installment of Principal and premium,
if any, payable with respect to this Tranche [ ] Senior Secured Transition Bond,
Series A on a Payment Date which shall be payable as provided below. Such checks
shall be mailed to the Person entitled thereto at the address of such Person as
it appears in the Transition Bond Register as of the applicable Record Date
without requiring that this Tranche [ ] Senior Secured Transition Bond, Series A
be submitted for notation of payment. Any reduction in the Principal amount of
this Tranche [ ] Senior Secured Transition Bond, Series A (or any one or more
predecessors to such Transition Bond) effected by any payments made on any
Payment Date shall be binding upon all future Transition Bondholders of this
Tranche [ ] Senior Secured Transition Bond, Series A and of any Tranche [ ]
Senior Secured Transition Bond, Series A issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid Principal amount of this Tranche [
] Senior Secured Transition Bond, Series A on a Payment Date, then the Trustee,
in the name of and on behalf of the Issuer, will notify the Person who was the
Holder hereof as of the second preceding Record Date to such Payment Date by
notice mailed no later than five days prior to such final Payment Date and shall
specify that such final installment will be payable to the Holder hereof as of
the Record Date immediately preceding such final Payment Date and only upon
presentation and surrender of this Tranche [ ] Senior Secured Transition Bond,
Series A and shall specify the place where this Tranche [ ] Senior Secured
Transition Bond, Series A may be presented and surrendered for payment of such
installment.

            The Issuer shall pay Interest on overdue installments of Interest on
this Tranche [ ] Senior Secured Transition Bond, Series A at the Bond Rate for
Tranche [ ] to the extent lawful.

            As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Tranche [ ] Senior Secured Transition Bond,
Series A may be registered in the Transition Bond Register upon surrender of
this Tranche [ ] Senior Secured Transition Bond, Series A for registration of
transfer at the office or agency designated by the Issuer pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder hereof or his
attorney duly authorized in writing, with such signature guaranteed by an
Eligible Guarantor Institution, and thereupon one or more new Tranche [ ] Senior
Secured Transition Bonds, Series A of any Authorized Denominations and in the
same aggregate unpaid Principal amount will be issued to the

                                      A-7


designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Tranche [ ] Transition Bond, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange.

            Prior to the due presentment for registration of transfer of this
Tranche [ ] Senior Secured Transition Bond, Series A, the Issuer, the Trustee
and any agent of the Issuer or the Trustee may treat the Person in whose name
this Tranche [ ] Senior Secured Transition Bond, Series A is registered (as of
the day of determination) as the owner hereof for the purpose of receiving
payments of Principal of and premium, if any, and Interest on this Tranche [ ]
Senior Secured Transition Bond, Series A and for all other purposes whatsoever,
whether or not this Tranche [ ] Senior Secured Transition Bond, Series A be
overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by notice to the contrary.

            The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Transition Bondholders under the Indenture at any
time by the Issuer with the consent of the Transition Bondholders representing a
majority of the Outstanding Amount of all Transition Bonds at the time
Outstanding of each Series or Tranche to be affected. The Indenture also
contains provisions permitting the Transition Bondholders representing specified
percentages of the Outstanding Amount of the Transition Bonds of all Series, on
behalf of all Transition Bondholders, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Transition
Bondholders of this Tranche [ ] Senior Secured Transition Bond, Series A (or any
one or more predecessors of such Transition Bonds) shall be conclusive and
binding upon such Transition Bondholder and upon all future Transition
Bondholders of this Tranche [ ] Senior Secured Transition Bond, Series A and of
any Tranche [ ] Senior Secured Transition Bond, Series A issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Tranche [ ] Senior
Secured Transition Bond, Series A The Indenture also permits the Trustee to
amend or waive certain terms and conditions set forth in the Indenture without
the consent of the Transition Bondholders.

            The term "Issuer" as used in this Tranche [ ] Senior Secured
Transition Bond, Series A includes any successor to the Issuer under the
Indenture.

            The Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate.

            The Tranche [ ] Senior Secured Transition Bonds, Series A are
issuable only in registered form in Authorized Denominations as provided in the
Indenture and the Series A Supplement, subject to certain limitations therein
set forth.

            This Tranche [ ] Senior Secured Transition Bond, Series A, the
Indenture and the Series A Supplement shall be construed in accordance with the
laws of the State of Texas, without reference to its conflict of law provisions,
and the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.

                                      A-8


            No reference herein to the Indenture and no provision of this
Tranche [ ] Senior Secured Transition Bond, Series A or of the Indenture shall
alter or impair the obligation of the Issuer, which is absolute and
unconditional, to pay the Principal of and Interest on this Tranche [ ] Senior
Secured Transition Bond, Series A at the times, place, and rate, and in the coin
or currency herein prescribed.

                                   ASSIGNMENT

            Social Security or taxpayer I.D. or other identifying number of
assignee ______________.

            FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _______________

                         (name and address of assignee)

the Tranche [ ] Senior Secured Transition Bond, Series A and all rights
thereunder, and hereby irrevocably constitutes and appoints

                         (name and address of appointee)

attorney, to transfer said Tranche [ ] Senior Secured Transition Bond, Series A
on the books kept for registration thereof, with full power of substitution in
the premises.

Dated:

______________________          _________________________________*
                                Signature Guaranteed:

_______________________         _________________________________

* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the Tranche [ ] Senior Secured
Transition Bond, Series A in every particular, without alteration, enlargement
or any change whatsoever.


                                                                             A-9

                                                                     Exhibit 5.1


                       [Letterhead of Baker Botts L.L.P.]

                                                               December 16, 2005


CenterPoint Energy Transition Bond Company II, LLC
1111 Louisiana, Suite 4655B
Houston, Texas  77002

Ladies and Gentlemen:

         We have acted as counsel for CenterPoint Energy Transition Bond Company
II, LLC, a Delaware limited liability company (the "Company"), in connection
with its offering and sale of $1,851,000,000 aggregate principal amount of its
Senior Secured Transition Bonds, Series A (the "Bonds"), which offering and sale
have been registered by the Company's Registration Statement on Form S-3
(Registration No. 333-121505, as amended to date, the "Registration Statement")
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the proposed issuance and sale of up to $1,857,000,000 in
aggregate principal amount of transition bonds of the Company to be offered from
time to time. Capitalized terms used in this letter and not defined herein have
the meanings given to such terms in that certain Indenture (the "Indenture")
dated as of December 16, 2005 by and among the Company, Wilmington Trust
Company, as Trustee, and Deutsche Bank Trust Company Americas, as Securities
Intermediary, governing the issuance of the Bonds. At your request, this opinion
is being furnished to you for filing as Exhibit 5.1 to your Current Report on
Form 8-K of even date herewith.

         In our capacity as your counsel, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such records of the
Company and such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein, including the Issuer Certificate
of Formation, the Issuer LLC Agreement, the Registration Statement, the
Indenture, the Series Supplement, the Administration Agreement, the
Intercreditor Agreement, the Sale Agreement and the Bill of Sale relating
thereto, the Servicing Agreement, the DTC Agreement, the Financing Order, the
Underwriting Agreement and a Certificate of Good Standing for the Company, dated
December 16, 2005, obtained from the Secretary of State of the State of
Delaware.

         In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or


photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of documents, we have assumed that the
parties thereto, other than the Company, had or will have the power, limited
liability company or other, to enter into and perform all obligations thereunder
and have also assumed the due authorization by all requisite action, limited
liability company or other, and execution and delivery by such parties of such
documents and the validity and binding effect thereof on such parties. As to any
facts material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
managers, officers and other representatives of the Company, CenterPoint Houston
and others. We have not reviewed any document (other than the documents listed
above) that is referred to in or incorporated by reference into the documents
reviewed by us. We have assumed that there exists no provision in any document
that we have not reviewed that is inconsistent with the opinions stated herein.
We have conducted no independent factual investigation of our own but rather
have relied solely upon the foregoing documents, the statements and information
set forth therein and the additional matters recited or assumed herein, all of
which we have assumed to be true, complete and accurate in all material
respects.

         Based on and subject to the foregoing, we are of the opinion that:

         1. The Company has been duly formed and is validly existing and in good
standing as a limited liability company under the Delaware Limited Liability
Company Act (the "Act").

         2. Under the Act and the Issuer LLC Agreement, the Company has all
necessary limited liability company power and authority to execute and deliver
the Indenture and to issue the Bonds, and to perform its obligations under the
Indenture and the Bonds.

         3. Under the Act and the Issuer LLC Agreement, the execution and
delivery by the Company of the Indenture and the Bonds, and the performance by
the Company of its obligations under the Indenture and the Bonds, have been duly
authorized by all necessary limited liability company action on the part of the
Company.

         4. When properly executed, authenticated and issued in accordance with
the Indenture and delivered against payment of the purchase price provided for
in the Underwriting Agreement, and upon satisfaction of all other conditions
contained in the Indenture and the Underwriting Agreement, the Bonds will
constitute valid and binding obligations of the Company and will be enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditor's rights generally and (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).

         The opinions set forth above are limited in all respects to matters of
Texas law and the Delaware Limited Liability Company Act as in effect on the day
hereof. We consent to


the filing of this opinion as an Exhibit to your Current Report on Form 8-K of
even date herewith and to the references to this Firm under the heading "Legal
Matters" in the Prospectus, dated December 6, 2005, as supplemented by the
Prospectus Supplement, dated December 9, 2005 relating to the Bonds. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.


                                             Very truly yours,

                                             /s/ Baker Botts L.L.P.

                                                                    Exhibit 10.1

                       TRANSITION PROPERTY SALE AGREEMENT

                                     between

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                                     Issuer

                                       and

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                     Seller

                          Dated as of December 16, 2005



                                TABLE OF CONTENTS


                                                                                                  
ARTICLE I DEFINITIONS............................................................................     1
   Section 1.01       Definitions................................................................     1
   Section 1.02       Other Definitional Provisions..............................................     1

ARTICLE II CONVEYANCE OF THE TRANSITION PROPERTY.................................................     2
   Section 2.01       Conveyance of the Transition Property......................................     2
   Section 2.02       Conditions to Conveyance of the Transition Property........................     3

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.............................................     4
   Section 3.01       Organization and Good Standing.............................................     4
   Section 3.02       Due Qualification..........................................................     4
   Section 3.03       Power and Authority........................................................     4
   Section 3.04       Binding Obligation.........................................................     4
   Section 3.05       No Violation...............................................................     4
   Section 3.06       No Proceedings.............................................................     5
   Section 3.07       Approvals..................................................................     5
   Section 3.08       The Transition Property....................................................     5
   Section 3.09       Solvency...................................................................     6
   Section 3.10       The Financing Order........................................................     7
   Section 3.11       State Action...............................................................     7
   Section 3.12       No Court Order.............................................................     8
   Section 3.13       Approvals Concerning the Transition Property...............................     8
   Section 3.14       Assumptions................................................................     8
   Section 3.15       Creation of the Transition Property........................................     8
   Section 3.16       Prospectus.................................................................     9
   Section 3.17       Nature of Representations and Warranties...................................     9

ARTICLE IV COVENANTS OF THE SELLER...............................................................     9
   Section 4.01       Seller's Existence.........................................................     9
   Section 4.02       No Liens or Conveyances....................................................     9
   Section 4.03       Delivery of Collections....................................................    10
   Section 4.04       Notice of Liens............................................................    10
   Section 4.05       Compliance With Law........................................................    10
   Section 4.06       Covenants Related to the Transition Property...............................    10
   Section 4.07       Protection of Title........................................................    11
   Section 4.08       Taxes......................................................................    12
   Section 4.09       Filings Pursuant to Financing Order........................................    12

ARTICLE V ADDITIONAL UNDERTAKINGS OF SELLER......................................................    12
   Section 5.01       Liability of the Seller; Indemnities.......................................    12
   Section 5.02       Merger or Consolidation of, or Assumption of the Obligations of, the Seller    14
   Section 5.03       Limitation on Liability of the Seller And Others...........................    16

ARTICLE VI MISCELLANEOUS PROVISIONS..............................................................    16
   Section 6.01       Amendment..................................................................    16


                                       -i-



                                                                                                  
   Section 6.02       Notices....................................................................    17
   Section 6.03       Assignment by the Seller...................................................    18
   Section 6.04       Assignment to the Indenture Trustee........................................    18
   Section 6.05       Limitations on Rights of Others............................................    18
   Section 6.06       Severability...............................................................    18
   Section 6.07       Separate Counterparts......................................................    18
   Section 6.08       Headings...................................................................    19
   Section 6.09       Governing Law..............................................................    19
   Section 6.10       Nonpetition Covenants......................................................    19

APPENDIX A            DEFINITIONS

SCHEDULE 1


                                      -ii-


      TRANSITION PROPERTY SALE AGREEMENT (this "Agreement") dated as of December
16, 2005, between CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC, a Delaware
limited liability company (the "Issuer"), and CENTERPOINT ENERGY HOUSTON
ELECTRIC, LLC, a Texas limited liability company, as seller (the "Seller").

      WHEREAS, the Issuer desires to purchase the Transition Property created
pursuant to the Texas Electric Choice Plan and the Financing Order;

      WHEREAS, the Seller is willing to sell its rights and interests under the
Financing Order to the Issuer whereupon such rights and interests will become
the Transition Property;

      WHEREAS, the Issuer, in order to finance the purchase of the Transition
Property, will issue the Transition Bonds under the Indenture; and

      WHEREAS, the Issuer, to secure its obligations under the Transition Bonds
and the Indenture, will pledge its right, title and interest in the Transition
Property and this Agreement to the Indenture Trustee for the benefit of the
Transition Bondholders.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.01 Definitions. Capitalized terms used herein and not otherwise
defined herein have the meanings assigned to them in Appendix A to this
Agreement.

      Section 1.02 Other Definitional Provisions.

            (a) "Agreement" means this Transition Property Sale Agreement, as
      the same may be amended and supplemented from time to time.

            (b) Non-capitalized terms used herein which are defined in the Texas
      Electric Choice Plan, as the context requires, have the meanings assigned
      to such terms in the Texas Electric Choice Plan, but without giving effect
      to amendments to the Texas Electric Choice Plan after the date hereof
      which have a material adverse effect on the Issuer or the Transition
      Bondholders.

            (c) All terms defined in this Agreement shall have such defined
      meanings when used in any certificate or other document made or delivered
      pursuant hereto unless otherwise defined therein.

            (d) The words "hereof," "herein," "hereunder" and words of similar
      import when used in this Agreement shall refer to this Agreement as a
      whole and not to any particular provision of this Agreement; Section,
      Schedule and Exhibit references contained in this Agreement are references
      to Sections, Schedules and Exhibits in or to

                                      -1-


      this Agreement unless otherwise specified; and the term "including" shall
      mean "including without limitation."

            (e) The definitions contained in this Agreement are applicable to
      the singular as well as the plural forms of such terms.

                                   ARTICLE II

                      CONVEYANCE OF THE TRANSITION PROPERTY

      Section 2.01 Conveyance of the Transition Property.

            (a) In consideration of the Issuer's payment to or upon the order of
      the Seller of $1,837,990,612 (the "Purchase Price"), subject to the
      satisfaction or waiver of the conditions specified in Section 2.02, the
      Seller does hereby irrevocably sell, transfer, assign, set over and
      otherwise convey to the Issuer, without recourse (subject to the
      obligations of the Seller herein) or warranty, except as set forth herein,
      all right, title and interest of the Seller in, to and under the Financing
      Order as identified in the Bill of Sale delivered pursuant to Section
      2.02(i) on or prior to the Transfer Date whereupon such rights and
      interests under the Financing Order shall become the Transition Property
      (such sale, transfer, assignment, setting over and conveyance of the
      Transition Property to include, to the fullest extent permitted by the
      Texas Electric Choice Plan, the right to impose, collect and receive the
      Transition Charges, as the same may be adjusted from time to time). Such
      sale, transfer, assignment, setting over and conveyance of the Transition
      Property is hereby expressly stated to be a sale or other absolute
      transfer and, pursuant to Section 39.308 of the Texas Electric Choice Plan
      and other applicable law, is a true sale and is not a secured transaction
      and title, legal and equitable, has passed to the Issuer. The preceding
      sentence is the statement referred to in Section 39.308 of the Texas
      Electric Choice Plan. The Seller agrees and confirms that upon payment of
      the Purchase Price and the execution and delivery of this Agreement and
      the Bill of Sale, the sale, transfer and assignment hereunder shall be
      effective and the Seller shall have no right, title or interest in, to or
      under the Transition Property.

            (b) Subject to the satisfaction or waiver of conditions specified in
      Section 2.02, the Issuer does hereby purchase the Transition Property from
      the Seller for the consideration set forth in paragraph (a) above.

            (c) The Seller and the Issuer each acknowledge and agree that the
      purchase price for the Transition Property sold pursuant to this Agreement
      is equal to its fair market value at the time of sale.

            (d) Notwithstanding the foregoing, in the event that the sale,
      transfer, assignment, setting over and conveyance of the Transition
      Property is determined by any court of competent jurisdiction not to be a
      true sale as contemplated by the parties and as provided in Section 39.308
      of the Texas Electric Choice Plan, then such sale, transfer, assignment,
      setting over and conveyance shall be treated as a pledge of and grant of a
      security interest in the Transition Property under Section 39.309 of the
      Texas Electric

                                      -2-


      Choice Plan and under Articles 8 and 9 of the Uniform Commercial Code as
      enacted in the State of Texas and each other applicable jurisdiction (the
      "UCC"), and the Seller shall be deemed to have granted, and does hereby
      grant, as of the date hereof, a security interest to the Issuer on behalf
      of itself and the Indenture Trustee in the Transition Property to secure a
      payment obligation incurred by the Seller in the amount paid by the Issuer
      for the Transition Property.

      Section 2.02 Conditions to Conveyance of the Transition Property . The
obligation of the Seller to sell, and the obligation of the Issuer to purchase
the Transition Property on the Transfer Date shall be subject to and conditioned
upon the satisfaction or waiver of each of the following conditions:

            (i) on or prior to the Transfer Date, the Seller shall deliver to
      the Issuer a duly executed Bill of Sale identifying the Transition
      Property, substantially in the form of Exhibit A hereto;

            (ii) as of the Transfer Date, the representations and warranties of
      the Seller in this Agreement shall be true and correct in all material
      respects and no material breach by the Seller of its covenants in this
      Agreement shall exist and the Seller shall have delivered to the Issuer
      and the Indenture Trustee an Officer's Certificate to such effect and no
      Servicer Default shall have occurred and be continuing;

            (iii) as of the Transfer Date:

                  (A) the Issuer shall have sufficient funds available to pay
            the purchase price for the Transition Property to be purchased on
            such date, and

                  (B) all conditions set forth in the Indenture to the issuance
            of the Transition Bonds intended to provide such funds shall have
            been satisfied or waived;

            (iv) on or prior to the Transfer Date, the Seller shall have taken
      all actions required under the Texas Electric Choice Plan, the Financing
      Order and other applicable law for the Issuer to have ownership of the
      Transition Property, free and clear of all Liens other than Liens created
      by the Issuer pursuant to the Indenture; and the Issuer, or the Servicer
      on behalf of the Issuer, shall have taken any action required for the
      Issuer to grant the Indenture Trustee a first priority perfected security
      interest in the Trust Estate and maintain such security interest as of
      such date (including all actions required under the Texas Electric Choice
      Plan, the Financing Order and the UCC);

            (v) the Seller shall have delivered to each Rating Agency and to the
      Issuer any Opinions of Counsel requested by the Rating Agencies;

            (vi) the Seller shall have delivered to the Indenture Trustee and
      the Issuer an Officer's Certificate confirming the satisfaction of each
      relevant condition precedent specified in this Section 2.02; and

                                      -3-


            (vii) the Seller shall have received the Purchase Price in funds
      immediately available on the Transfer Date.

                                  ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF SELLER

      As of the Transfer Date, the Seller makes the following representations
and warranties on which the Issuer has relied and will rely in acquiring the
Transition Property. The following representations and warranties are made under
existing law as in effect as of the Transfer Date. The Seller shall not be in
breach of any representation or warranty herein as a result of a change in law
occurring after the Transfer Date, including by means of legislative enactment,
constitutional amendment or voter initiative. The representations and warranties
shall survive the sale of the Transition Property to the Issuer and the pledge
thereof on the Transfer Date to the Indenture Trustee pursuant to the Indenture.

      Section 3.01 Organization and Good Standing. The Seller is a limited
liability company duly organized and in good standing under the laws of the
State of Texas, with limited liability company power and authority to own its
properties and to conduct its business as currently owned or conducted.

      Section 3.02 Due Qualification. The Seller is duly qualified to do
business as a foreign limited liability company in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires such
qualifications, licenses or approvals (except where the failure to so qualify or
obtain such licenses and approvals would not be reasonably likely to have a
material adverse effect on the Seller's business, operations, assets, revenues
or properties).

      Section 3.03 Power and Authority. The Seller has the limited liability
company power and authority to obtain the Financing Order and to execute and
deliver this Agreement and to carry out its terms; the Seller has the limited
liability company power and authority to own the rights and interests under the
Financing Order, and to sell and assign the rights and interests under the
Financing Order to the Issuer, whereupon (subject to the effectiveness of the
Issuance Advice Letter) such rights and interests will become the Transition
Property; and the execution, delivery and performance of this Agreement have
been duly authorized by the Seller by all necessary limited liability company
action.

      Section 3.04 Binding Obligation. This Agreement constitutes a legal, valid
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, subject to bankruptcy, receivership, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors' or
secured parties' rights generally from time to time in effect and to general
principles of equity (including concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.

      Section 3.05 No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not:
(i) conflict with or result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a

                                      -4-


default under, the articles of organization or limited liability company
regulations of the Seller, or any indenture, mortgage, credit agreement or other
agreement or instrument to which the Seller is a party or by which it or its
properties is bound; (ii) result in the creation or imposition of any Lien upon
any of the Seller's properties pursuant to the terms of any such indenture,
agreement or other instrument (except for any Lien created in favor of the
Transition Bondholders pursuant to Section 39.309 of the Texas Electric Choice
Plan or any Lien created by the Issuer under the Basic Documents); or (iii)
violate any existing law or any existing order, rule or regulation applicable to
the Seller of any Governmental Authority having jurisdiction over the Seller or
its properties.

      Section 3.06 No Proceedings. Except as disclosed in the Issuer's
prospectus dated December 6, 2005 and the related prospectus supplement dated
December 9, 2005 relating to the Transition Bonds (together, the "Prospectus"),
there are no proceedings pending and, to the Seller's knowledge, (x) there are
no proceedings threatened and (y) there are no investigations pending or
threatened before any Governmental Authority having jurisdiction over the Seller
or its properties involving or relating to the Seller or the Issuer or, to the
Seller's knowledge, any other Person:

            (i) asserting the invalidity of this Agreement, any of the other
      Basic Documents, the Transition Bonds, the Texas Electric Choice Plan or
      the Financing Order;

            (ii) seeking to prevent the issuance of the Transition Bonds or the
      consummation of any of the transactions contemplated by this Agreement or
      any of the other Basic Documents;

            (iii) seeking any determination or ruling that could reasonably be
      expected to materially and adversely affect the performance by the Seller
      of its obligations under, or the validity or enforceability of, this
      Agreement, any of the other Basic Documents or the Transition Bonds; or

            (iv) challenging the Seller's treatment of the Transition Bonds as
      debt of CenterPoint Energy, Inc. for federal or state income, gross
      receipts or franchise tax purposes.

      Section 3.07 Approvals. Except for filings under the UCC and the Texas
Electric Choice Plan, no approval, authorization, consent, order or other action
of, or filing with, any Governmental Authority is required under an applicable
law, rule or regulation in connection with the execution and delivery by the
Seller of this Agreement, the performance by the Seller of the transactions
contemplated hereby or the fulfillment by the Seller of the terms hereof, except
those that have been obtained or made and those that the Seller, in its capacity
as Servicer under the Servicing Agreement, is required to make in the future
pursuant to the Servicing Agreement.

      Section 3.08 The Transition Property.

            (a) Information. Subject to Section 3.14, all written information,
      as amended or supplemented from time to time prior to the date this
      representation is made, provided by the Seller to the Issuer with respect
      to the Transition Property (including the Financing Order and the Issuance
      Advice Letter) is correct in all material respects.

                                      -5-


            (b) Effect of Transfer. It is the intention of the parties hereto
      that (other than for United States federal income tax purposes and, to the
      extent consistent with applicable state tax laws, state income and
      franchise tax purposes) the sale, transfer, assignment, setting over and
      conveyance herein contemplated constitutes a sale or other absolute
      transfer of all right, title and interest of the Seller in, to and under
      the Financing Order from the Seller to the Issuer whereupon (subject to
      the effectiveness of the Issuance Advice Letter) such rights and interests
      shall become the Transition Property; upon execution and delivery of this
      Agreement and the Bill of Sale and payment of the Purchase Price, the
      Seller will have no right, title or interest in, to or under the
      Transition Property; and that such Transition Property would not be a part
      of the estate of the Seller as debtor in the event of the filing of a
      bankruptcy petition by or against the Seller under any bankruptcy law.

            (c) Transfer Filings.

                  (i) The Seller is the sole owner of the rights and interests
            under the Financing Order to be sold to the Issuer on the Transfer
            Date.

                  (ii) On the Transfer Date, immediately upon the sale
            hereunder, the Transition Property will have been validly sold,
            assigned, transferred, set over and conveyed to the Issuer free and
            clear of all Liens (except for any Lien created in favor of the
            Transition Bondholders pursuant to Section 39.309 of the Texas
            Electric Choice Plan or any Lien created by the Issuer under the
            Basic Documents).

                  (iii) All actions or filings (including filings with the Texas
            Secretary of State in accordance with the rules prescribed under the
            Texas Electric Choice Plan and the UCC) necessary in any
            jurisdiction to give the Issuer a perfected ownership interest
            (subject to any Lien created in favor of the Transition Bondholders
            pursuant to Section 39.309 of the Texas Electric Choice Plan or any
            Lien created by the Issuer under the Basic Documents) in the
            Transition Property and to grant to the Indenture Trustee a first
            priority perfected security interest in the Transition Property,
            free and clear of all Liens of the Seller or anyone else (except for
            any Lien created in favor of the Transition Bondholders pursuant to
            Section 39.309 of the Texas Electric Choice Plan or any Lien created
            by the Issuer under the Basic Documents), have been taken or made.

      Section 3.09 Solvency. After giving effect to the sale of the Transition
Property hereunder, the Seller:

            (i) is solvent and expects to remain solvent,

            (ii) is adequately capitalized to conduct its business and affairs
      considering its size and the nature of its business and intended purposes,

            (iii) is not engaged and does not expect to engage in a business for
      which its remaining property represents an unreasonably small portion of
      its capital,

                                      -6-


            (iv) reasonably believes that it will be able to pay its debts as
      they come due, and

            (v) is able to pay its debts as they come due and does not intend to
      incur, or believe that it will incur, indebtedness that it will not be
      able to repay at its maturity.

      Section 3.10 The Financing Order.

            (a) The Financing Order was issued by the Texas Commission on March
      16, 2005 in accordance with the Texas Electric Choice Plan; the Financing
      Order and the process by which it was issued comply with all applicable
      laws, rules and regulations of the State of Texas and the federal laws of
      the United States, and the Financing Order is final, non-appealable and in
      full force and effect.

            (b) As of the date of issuance of the Transition Bonds, the
      Transition Bonds will be entitled to the protections provided by the Texas
      Electric Choice Plan and the Financing Order, and the Financing Order and
      the Transition Charges authorized therein will have become irrevocable and
      not subject to reduction, impairment or adjustment by further action of
      the Texas Commission, except as permitted by Section 39.307 of the Texas
      Electric Choice Plan, and the Issuance Advice Letter has been filed in
      accordance with the Financing Order. The Texas Commission has not issued
      any order prior to noon on the fourth business day after submission of the
      Issuance Advice Letter that the Transition Bonds do not comply with
      Ordering Paragraph Four of the Financing Order and the initial Transition
      Charges and the final terms of the Transition Bonds set forth in the
      Issuance Advice Letter have become effective.

      Section 3.11 State Action.

            (a) Under the Texas Electric Choice Plan, the State of Texas has
      pledged that it will not take or permit any action that would impair the
      value of the Transition Property or, except as permitted in Section 39.307
      of the Texas Electric Choice Plan, reduce, alter or impair the Transition
      Charges until the principal, interest and premium, if any, and any other
      charges incurred and contracts to be performed in connection with the
      Transition Bonds, have been paid and performed in full.

            (b) Under the laws of the State of Texas and the federal laws of the
      United States, the State of Texas could not constitutionally take any
      action of a legislative character, including the repeal or amendment of
      the Texas Electric Choice Plan, which would substantially limit, alter or
      impair the Transition Property or other rights vested in the Transition
      Bondholders pursuant to the Financing Order, or substantially limit,
      alter, impair or reduce the value or amount of the Transition Property,
      unless such action is a reasonable exercise of the State of Texas'
      sovereign powers and of a character reasonable and appropriate to the
      important public purpose justifying such action, and, under the takings
      clauses of the State of Texas and United States Constitutions, the State
      of Texas could not repeal or amend the Texas Electric Choice Plan or take
      any other action in contravention of its pledge quoted above without
      paying just compensation to the Transition Bondholders, as determined by a
      court of competent jurisdiction, if doing so

                                      -7-


      would constitute a permanent appropriation of a substantial property
      interest of the Transition Bondholders in the Transition Property and
      deprive the Transition Bondholders of their reasonable expectations
      arising from their investments in the Transition Bonds; however, there is
      no assurance that, even if a court were to award just compensation, it
      would be sufficient to pay the full amount of principal of and interest on
      the Transition Bonds.

      Section 3.12 No Court Order. There is no order by any court providing for
the revocation, alteration, limitation or other impairment of the Texas Electric
Choice Plan, the Financing Order, the Issuance Advice Letter, the Transition
Property or the Transition Charges or any rights arising under any of them or
that seeks to enjoin the performance of any obligations under the Financing
Order.

      Section 3.13 Approvals Concerning the Transition Property. Under the laws
of the State of Texas and the federal laws of the United States, no other
approval, authorization, consent, order or other action of, or filing with any
Governmental Authority is required in connection with the creation or transfer
of the Seller's rights and interests under the Financing Order and the Issuer's
purchase of the Transition Property from the Seller, except those that have been
obtained or made.

      Section 3.14 Assumptions. Based on information available to the Seller on
the date hereof, the assumptions used in calculating the Transition Charges in
the Issuance Advice Letter are reasonable and made in good faith; however,
notwithstanding the foregoing, THE SELLER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, THAT AMOUNTS ACTUALLY COLLECTED ARISING FROM THE TRANSITION
CHARGES WILL IN FACT BE SUFFICIENT TO MEET THE PAYMENT OBLIGATIONS ON THE
TRANSITION BONDS OR THAT THE ASSUMPTIONS USED IN CALCULATING SUCH TRANSITION
CHARGES WILL IN FACT BE REALIZED.

      Section 3.15 Creation of the Transition Property.

            (a) Upon the effectiveness of the Issuance Advice Letter, the
      transfer of the Seller's rights and interests under the Financing Order
      related to the Transition Bonds and the Issuer's purchase of the
      Transition Property from the Seller pursuant to this Agreement, the
      Transition Property will constitute a present property right.

            (b) Upon the effectiveness of the Issuance Advice Letter, the
      transfer of the Seller's rights and interests under the Financing Order
      and the Issuer's purchase of the Transition Property from the Seller
      pursuant to this Agreement, the Transition Property includes:

                  (1)   the right to impose, collect and receive the Transition
                        Charges, including the right to receive Transition
                        Charges in amounts and at times sufficient to pay
                        principal and interest on the Transition Bonds,

                  (2)   all rights and interest of the Seller under the
                        Financing Order,

                                      -8-


                  (3)   the rights to file for periodic adjustments of the
                        Transition Charges as provided in the Financing Order,
                        and

                  (4)   all revenues and collections resulting from Transition
                        Charges.

            (c) Upon the effectiveness of the Issuance Advice Letter, the
      transfer of the Seller's rights and interests under the Financing Order
      and the Issuer's purchase of the Transition Property from the Seller on
      such Transfer Date pursuant to this Agreement, the Transition Property
      will not be subject to any Lien created by a previous indenture.

      Section 3.16 Prospectus. As of the date hereof, the information describing
the Seller under the caption "The Servicer of the Transition Property" in the
Prospectus is true and correct in all material respects.

      Section 3.17 Nature of Representations and Warranties. The representations
and warranties set forth in Section 3.08 and Section 3.10 through Section 3.16,
insofar as they involve conclusions of law, are made not on the basis that the
Seller purports to be a legal expert or to be rendering legal advice, but rather
to reflect the parties' good faith understanding of the legal basis on which the
parties are entering into this Agreement and the other Basic Documents and the
basis on which the Transition Bondholders are purchasing the Transition Bonds,
and to reflect the parties' agreement that, if such understanding turns out to
be incorrect or inaccurate, the Seller will be obligated to indemnify the Issuer
and its permitted assigns (to the extent required by and in accordance with
Section 5.01), and that the Issuer and its permitted assigns will be entitled to
enforce any rights and remedies under the Basic Documents on account of such
inaccuracy to the same extent as if the Seller had breached any other
representations or warranties hereunder.

                                   ARTICLE IV

                             COVENANTS OF THE SELLER

      Section 4.01 Seller's Existence. Subject to Section 5.02, so long as any
of the Transition Bonds are outstanding, the Seller (i) shall keep in full force
and effect its existence and remain in good standing under the laws of the state
of its organization, and shall obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or will be
necessary to protect the validity and enforceability of this Agreement and each
other instrument or agreement to which the Seller is a party necessary to the
proper administration of this Agreement and the transactions contemplated hereby
and (ii) hereby agrees to continue to operate its transmission and distribution
system in order to provide electric services to retail electric customers in the
Seller's certificated service area, provided that this clause (ii) shall not
prohibit Seller from selling, assigning or otherwise divesting its transmission
and distribution system or any part thereof in accordance with this Agreement
and the Financing Order.

      Section 4.02 No Liens or Conveyances. Except for the conveyances hereunder
or any Lien under Section 39.309 of the Texas Electric Choice Plan for the
benefit of the Issuer, the Indenture Trustee and the Transition Bondholders, the
Seller shall not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on, any of

                                      -9-


the Transition Property, whether now existing or hereafter created, or any
interest therein. The Seller shall not at any time assert any Lien against or
with respect to the Transition Property, and shall defend the right, title and
interest of the Issuer and the Indenture Trustee, as assignee of the Issuer, in,
to and under the Transition Property against all claims of third parties
claiming through or under the Seller.

      Section 4.03 Delivery of Collections. In the event that the Seller
receives any payment under the terms and provisions of the Intercreditor
Agreement in respect of the Transition Charges or the proceeds thereof other
than in its capacity as the Servicer, the Seller shall pay the Servicer all
payments received by the Seller in respect thereof, in accordance with the
Intercreditor Agreement, as soon as practicable after receipt thereof by the
Seller.

      Section 4.04 Notice of Liens. The Seller shall notify the Issuer and the
Indenture Trustee promptly after becoming aware of any Lien on the Transition
Property, other than the conveyance hereunder, any Lien created in favor of the
Transition Bondholders pursuant to Section 39.309 of the Texas Electric Choice
Plan or any Lien created by the Issuer under the Indenture.

      Section 4.05 Compliance With Law. The Seller shall comply with its
organizational or governing documents and all laws, treaties, rules, regulations
and determinations of any Governmental Authority applicable to the Seller,
except to the extent that failure to so comply would not materially adversely
affect the Issuer's or the Indenture Trustee's interests in the Transition
Property or under any of the Basic Documents or the Seller's performance of its
obligations hereunder.

      Section 4.06 Covenants Related to the Transition Property.

            (a) So long as any of the Transition Bonds are outstanding, the
      Seller shall:

                  (i) treat the Transition Bonds as debt of the Issuer and not
            of the Seller, except for financial reporting or tax purposes or as
            required in connection with the SEC's administration of the 1935
            Act,

                  (ii) disclose in its financial statements that it is not the
            owner of the Transition Property and that the assets of the Issuer
            are not available to pay creditors of the Seller or any of its
            Affiliates (other than the Issuer),

                  (iii) disclose the effects of all transactions between the
            Seller and the Issuer in accordance with generally accepted
            accounting principles, and

                  (iv) not own or purchase any Transition Bonds.

            (b) So long as any of the Transition Bonds is outstanding,

                  (i) in all proceedings relating directly or indirectly to the
            Transition Property, the Seller shall: (A) affirmatively certify and
            confirm that it has sold all of its rights and interests under the
            Financing Order to the Issuer (other than for financial reporting or
            tax purposes or as required in connection with the SEC's

                                      -10-


            administration of the 1935 Act), and (B) not make any statement or
            reference in respect of the Transition Property that is inconsistent
            with the ownership thereof by the Issuer (other than for financial
            reporting or tax purposes or as required in connection with the
            SEC's administration of the 1935 Act);

                  (ii) the Seller shall not take any action in respect of the
            Transition Property except solely in its capacity as the Servicer
            thereof pursuant to the Servicing Agreement or as contemplated by
            the Basic Documents, including the Intercreditor Agreement; and

                  (iii) the Issuer shall not sell transition bonds under a
            separate financing order in connection with the issuance of
            additional transition bonds unless the Rating Agency Condition shall
            have been satisfied with respect to the Transition Bonds
            outstanding.

            (c) The Seller agrees that upon the sale by the Seller of all of its
      rights and interests under the Financing Order to the Issuer pursuant to
      this Agreement, any payment to the Servicer by any Person responsible for
      remitting Transition Charges to the Servicer under the terms of the
      Financing Order or the Texas Electric Choice Plan or applicable tariff
      shall discharge such Person's obligations in respect of the Transition
      Property to the extent of such payment, notwithstanding any objection or
      direction to the contrary by the Seller.

      Section 4.07 Protection of Title. The Seller shall execute and file such
filings, and cause to be executed and filed such filings, in such manner and in
such places as may be required by law fully to preserve, maintain and protect
the interests of the Issuer and the Indenture Trustee in the Transition
Property, including all filings required under the Texas Electric Choice Plan
and the UCC relating to the transfer of the ownership of the rights and
interests under the Financing Order by the Seller to the Issuer and the pledge
of the Transition Property by the Issuer to the Indenture Trustee. The Seller
shall deliver (or cause to be delivered) to the Issuer and the Indenture Trustee
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing. The Seller shall institute
any action or proceeding reasonably necessary to compel performance by the Texas
Commission or the State of Texas of any of their obligations or duties under the
Texas Electric Choice Plan, the Financing Order or the Issuance Advice Letter
relating to the transfer of the rights and interests under the Financing Order
by the Seller to the Issuer, and the Seller agrees to take such legal or
administrative actions, including defending against or instituting and pursuing
legal actions and appearing or testifying at hearings or similar proceedings, in
each case as may be reasonably necessary:

            (a) to protect the Issuer and the Transition Bondholders from
      claims, state actions or other actions or proceedings of third parties
      which, if successfully pursued, would result in a breach of any
      representation set forth in Article III; or

            (b) so long as the Seller is also the Servicer, to block or overturn
      any attempts to cause a repeal of, modification of or supplement to the
      Texas Electric Choice Plan, the Financing Order, the Issuance Advice
      Letter or the rights of Transition Bondholders by

                                      -11-


      legislative enactment or constitutional amendment that would be materially
      adverse to the Issuer, the Indenture Trustee or the Transition
      Bondholders.

The costs of any such actions or proceedings shall be reimbursed by the Issuer
to the Seller from amounts on deposit in the Collection Account as an Operating
Expense (as such terms are defined in the Indenture) in accordance with the
terms of the Indenture. The Seller's obligations pursuant to this Section 4.07
shall survive and continue notwithstanding that the payment of Operating
Expenses pursuant to the Indenture may be delayed (it being understood that the
Seller may be required to advance its own funds to satisfy its obligation
hereunder). The Seller designates the Issuer as its agent and attorney-in-fact
to execute any filings of financing statements, continuation statements or other
instruments required of the Seller pursuant to this Section, it being understood
that the Issuer shall have no obligation to execute any such instruments.

      Section 4.08 Taxes. So long as any of the Transition Bonds are
outstanding, the Seller shall pay all material taxes, assessments and
governmental charges imposed upon it or any of its properties or assets or with
respect to any of its franchises, businesses, income or property before any
penalty accrues thereon if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods, notices or other
similar requirements, result in a Lien on the Transition Property; provided that
no such tax need be paid if the Seller or any of its Affiliates is contesting
the same in good faith by appropriate proceedings promptly instituted and
diligently conducted and if the Seller or such Affiliate has established
appropriate reserves as shall be required in conformity with generally accepted
accounting principles.

      Section 4.09 Filings Pursuant to Financing Order. The Seller shall comply
with all filing requirements imposed upon the Seller in its capacity as such by
the Financing Order, including making any such post-closing filings.

                                    ARTICLE V

                        ADDITIONAL UNDERTAKINGS OF SELLER

      The Seller hereby undertakes the obligations contained in this Article V
and acknowledges that the Issuer shall have the right to assign its rights with
respect to such obligations to the Indenture Trustee for the benefit of the
Transition Bondholders.

      SECTION 5.01 LIABILITY OF THE SELLER; INDEMNITIES.

            (a) THE SELLER SHALL BE LIABLE IN ACCORDANCE HEREWITH ONLY TO THE
      EXTENT OF THE OBLIGATIONS SPECIFICALLY UNDERTAKEN BY THE SELLER UNDER THIS
      AGREEMENT.

            (b) THE SELLER SHALL INDEMNIFY THE ISSUER AND THE INDENTURE TRUSTEE,
      FOR ITSELF AND ON BEHALF OF THE TRANSITION BONDHOLDERS, AND EACH OF THEIR
      RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES AND AGENTS FOR, AND
      DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL
      TAXES (OTHER THAN ANY TAXES IMPOSED ON TRANSITION BONDHOLDERS SOLELY AS A
      RESULT OF THEIR OWNERSHIP OF TRANSITION BONDS) THAT MAY AT ANY

                                      -12-


      TIME BE IMPOSED ON OR ASSERTED AGAINST ANY SUCH PERSON UNDER EXISTING LAW
      AS OF THE TRANSFER DATE AS A RESULT OF THE SALE AND ASSIGNMENT OF THE
      SELLER'S RIGHTS AND INTERESTS UNDER THE FINANCING ORDER BY THE SELLER TO
      THE ISSUER, THE ACQUISITION OR HOLDING OF THE TRANSITION PROPERTY BY THE
      ISSUER OR THE ISSUANCE AND SALE BY THE ISSUER OF THE TRANSITION BONDS,
      INCLUDING ANY SALES, GROSS RECEIPTS, TANGIBLE PERSONAL PROPERTY,
      PRIVILEGE, FRANCHISE OR LICENSE TAXES, BUT EXCLUDING ANY TAXES IMPOSED AS
      A RESULT OF A FAILURE OF SUCH PERSON TO PROPERLY WITHHOLD OR REMIT TAXES
      IMPOSED WITH RESPECT TO PAYMENTS ON ANY TRANSITION BOND, IN THE EVENT AND
      TO THE EXTENT SUCH TAXES ARE NOT RECOVERABLE AS QUALIFIED COSTS, IT BEING
      UNDERSTOOD THAT THE TRANSITION BONDHOLDERS SHALL BE ENTITLED TO ENFORCE
      THEIR RIGHTS AGAINST THE SELLER UNDER THIS SECTION 5.01(B) SOLELY THROUGH
      A CAUSE OF ACTION BROUGHT FOR THEIR BENEFIT BY THE INDENTURE TRUSTEE IN
      ACCORDANCE WITH THE TERMS OF THE INDENTURE.

            (c) THE SELLER SHALL INDEMNIFY THE ISSUER AND THE INDENTURE TRUSTEE,
      FOR ITSELF AND ON BEHALF OF THE TRANSITION BONDHOLDERS, AND EACH OF THEIR
      RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES AND AGENTS FOR, AND
      DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL
      AMOUNTS OF PRINCIPAL OF AND INTEREST ON THE TRANSITION BONDS NOT PAID WHEN
      DUE OR WHEN SCHEDULED TO BE PAID IN ACCORDANCE WITH THEIR TERMS AND THE
      AMOUNT OF ANY DEPOSITS TO THE ISSUER REQUIRED TO HAVE BEEN MADE IN
      ACCORDANCE WITH THE TERMS OF THE BASIC DOCUMENTS WHICH ARE NOT MADE WHEN
      SO REQUIRED, IN EACH CASE AS A RESULT OF THE SELLER'S BREACH OF ANY OF ITS
      REPRESENTATIONS, WARRANTIES OR COVENANTS CONTAINED IN THIS AGREEMENT.

            (d) THE SELLER SHALL INDEMNIFY THE ISSUER AND THE INDENTURE TRUSTEE,
      FOR ITSELF AND ON BEHALF OF THE TRANSITION BONDHOLDERS, AND EACH OF THEIR
      RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES AND AGENTS FOR, AND
      DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL
      LIABILITIES, OBLIGATIONS, CLAIMS, ACTIONS, SUITS OR PAYMENTS OF ANY KIND
      WHATSOEVER THAT MAY BE IMPOSED ON OR ASSERTED AGAINST ANY SUCH PERSON
      (OTHER THAN ANY LIABILITIES, OBLIGATIONS OR CLAIMS FOR OR PAYMENTS OF
      PRINCIPAL OF OR INTEREST ON THE TRANSITION BONDS) TOGETHER WITH ANY
      REASONABLE COSTS AND EXPENSES INCURRED BY SUCH PERSON, IN EACH CASE AS A
      RESULT OF THE SELLER'S BREACH OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR
      COVENANTS CONTAINED IN THIS AGREEMENT.

            (e) THE INDEMNIFICATION OBLIGATIONS OF THE SELLER UNDER THIS SECTION
      5.01 SHALL RANK PARI PASSU WITH ALL OTHER GENERAL UNSECURED OBLIGATIONS OF
      THE SELLER.

            (f) INDEMNIFICATION UNDER THIS SECTION 5.01 SHALL SURVIVE THE
      RESIGNATION OR REMOVAL OF THE INDENTURE TRUSTEE AND THE TERMINATION OF
      THIS AGREEMENT AND SHALL INCLUDE REASONABLE FEES AND EXPENSES OF
      INVESTIGATION AND LITIGATION (INCLUDING REASONABLE ATTORNEYS' FEES AND
      EXPENSES). THE SELLER SHALL NOT INDEMNIFY ANY PARTY UNDER THIS SECTION
      5.01

                                      -13-


      FOR ANY CHANGES IN LAW AFTER THE TRANSFER DATE, INCLUDING BY MEANS OF
      LEGISLATIVE ENACTMENT, CONSTITUTIONAL AMENDMENT OR VOTER INITIATIVE, OR
      FOR ANY LIABILITY RESULTING SOLELY FROM A DOWNGRADE IN ANY RATING OF THE
      TRANSITION BONDS BY ANY RATING AGENCY. THE SELLER SHALL NOT INDEMNIFY THE
      INDENTURE TRUSTEE OR ITS OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES OR
      AGENTS UNDER THIS SECTION 5.01 AGAINST ANY LIABILITY, OBLIGATION, CLAIM,
      ACTION, SUIT OR PAYMENT OF ANY KIND ARISING OUT OF THE WILLFUL MISCONDUCT,
      NEGLIGENCE OR BAD FAITH OF ANY SUCH PERSON.

NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL ANY SUCH FOREGOING INDEMNITY
EXTEND TO THE COLLECTIBILITY OF THE TRANSITION CHARGES FROM ANY PERSON
RESPONSIBLE FOR REMITTING TRANSITION CHARGES TO THE SERVICER UNDER THE TERMS OF
THE FINANCING ORDER, THE TEXAS ELECTRIC CHOICE PLAN OR AN APPLICABLE TARIFF, OR
THE CREDITWORTHINESS OF ANY SUCH PERSON. THE REMEDIES PROVIDED IN THIS AGREEMENT
ARE THE SOLE AND EXCLUSIVE REMEDIES AGAINST THE SELLER FOR BREACH OF ITS
REPRESENTATIONS, WARRANTIES OR COVENANTS IN THIS AGREEMENT.

      Section 5.02 Merger or Consolidation of, or Assumption of the Obligations
of, the Seller.

Any Person:

            (a) into which the Seller may be merged, converted or consolidated
      and which succeeds to all or substantially all of the electric
      transmission and distribution business of the Seller (or, if the
      transmission and distribution business is split, which provides
      distribution service directly to a majority of the retail electric
      customers in the Seller's certificated service area as it existed on May
      1, 1999),

            (b) which results from the division of the Seller into two or more
      Persons and which succeeds to all or substantially all of the electric
      transmission and distribution business of the Seller (or, if the
      transmission and distribution business is split, which provides
      distribution service directly to a majority of the retail electric
      customers in the Seller's certificated service area as it existed on May
      1, 1999),

            (c) which may result from any merger, conversion or consolidation to
      which the Seller shall be a party and which succeeds to all or
      substantially all of the electric transmission and distribution business
      of the Seller (or, if the transmission and distribution business is split,
      which provides distribution service directly to a majority of the retail
      electric customers in the Seller's certificated service area as it existed
      on May 1, 1999),

            (d) which may purchase or otherwise succeed to the properties and
      assets of the Seller substantially as a whole and which purchases or
      otherwise succeeds to all or substantially all of the electric
      transmission and distribution business of the Seller (or, if the
      transmission and distribution business is split, which provides
      distribution service directly to a majority of the retail electric
      customers in the Seller's certificated service area as it existed on May
      1, 1999), or

                                      -14-


            (e) which may otherwise purchase or succeed to all or substantially
      all of the electric transmission and distribution business of the Seller
      (or, if the transmission and distribution business is split, which
      provides distribution service directly to a majority of the retail
      electric customers in the Seller's certificated service area as it existed
      on May 1, 1999),

which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the Seller under this Agreement, shall be the
successor to the Seller hereunder without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
however, that

            (i) immediately after giving effect to such transaction, no
      representation or warranty made pursuant to Article III shall have been
      breached in any material respect and no Servicer Default, and no event
      that, after notice or lapse of time, or both, would become a Servicer
      Default, shall have occurred and be continuing,

            (ii) the Rating Agencies shall have received prior written notice of
      such transaction,

            (iii) the Seller shall have delivered to the Issuer and the
      Indenture Trustee an Officer's Certificate and an Opinion of Counsel each
      stating that such consolidation, conversion, merger, division or
      succession and such agreement of assumption comply with this Section 5.02
      and that all conditions precedent, if any, provided for in this Agreement
      relating to such transaction have been complied with,

            (iv) the Seller shall have delivered to the Issuer and the Indenture
      Trustee an Opinion of Counsel either

                  (A) stating that, in the opinion of such counsel, all filings
            to be made by the Seller, including filings with the Texas
            Commission pursuant to the Texas Electric Choice Plan and the UCC,
            that are necessary fully to preserve and protect the respective
            interests of the Issuer and the Indenture Trustee in the Transition
            Property have been executed and filed, and reciting the details of
            such filings, or

                  (B) stating that, in the opinion of such counsel, no such
            action is necessary to preserve and protect such interests, and

            (v) the Seller shall have delivered to the Issuer, the Indenture
      Trustee and the Rating Agencies an opinion of independent tax counsel (in
      form and substance satisfactory to the Seller, and which may be based on a
      ruling from the Internal Revenue Service) to the effect that, for federal
      income tax purposes, such transaction will not result in a material
      adverse federal income tax consequence to the Issuer, the Indenture
      Trustee or the Transition Bondholders.

The Seller shall not consummate any transaction referred to in clauses (a), (b),
(c), (d) or (e) above except upon execution of the above described agreement of
assumption and compliance with clauses (i), (ii), (iii), (iv) and (v) above.
When any Person acquires the properties and assets of the Seller substantially
as a whole and succeeds to all or substantially all of the electric

                                      -15-


transmission and distribution business of the Seller (or, if the transmission
and distribution business is split, which provides distribution service directly
to a majority of the retail electric customers in the Seller's certificated
service area as it existed on May 1, 1999), or otherwise becomes the successor
to the Seller in accordance with the terms of this Section 5.02, then upon the
satisfaction of all of the other conditions of this Section 5.02, the Seller
shall automatically and without further notice be released from its obligations
hereunder.

      Section 5.03 Limitation on Liability of the Seller And Others. The Seller
and any manager, officer, employee or agent of the Seller may rely in good faith
on the advice of counsel or on any document of any kind, prima facie properly
executed and submitted by any Person, respecting any matters arising hereunder.
Subject to Section 4.07, the Seller shall not be under any obligation to appear
in, prosecute or defend any legal action that is not incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

      Section 6.01 Amendment.

            (a) This Agreement may be amended in writing by the Seller and the
      Issuer, provided that (i) the Rating Agency Condition has been satisfied
      in connection therewith, (ii) the Indenture Trustee has consented thereto
      and (iii) in the case of any amendment that increases ongoing qualified
      costs as defined in the Financing Order, the Texas Commission has
      consented thereto or shall be conclusively deemed to have consented
      thereto. Promptly after the execution of any such amendment or consent,
      the Issuer shall furnish written notification of the substance of such
      amendment or consent to each of the Rating Agencies. With respect to the
      Texas Commission's consent to any amendment to this Agreement,

                  (i) the Seller may request the consent of the Texas Commission
            by delivering to the Texas Commission's executive director and
            general counsel a written request for such consent, which request
            shall contain:

                        (A) a reference to Docket No. 30485 and a statement as
                  to the possible effect of the amendment on ongoing qualified
                  costs;

                        (B) an Officer's Certificate stating that the proposed
                  amendment has been approved by all relevant parties; and

                        (C) a statement identifying the person to whom the Texas
                  Commission or its staff is to address its consent to the
                  proposed amendment or request additional time;

                  (ii) The Texas Commission shall, within 30 days of receiving
            the request for consent complying with Section 6.01(a)(i) above,
            either

                                      -16-


                        (A) provide notice of its consent or lack of consent to
                  the person specified in Section 6.01(a)(i)(C) above, or

                        (B) be conclusively deemed to have consented to the
                  proposed amendment,

            unless, within 30 days of receiving the request for consent
            complying with Section 6.01(a)(i) above, the Texas Commission or its
            staff delivers to the office of the person specified in Section
            6.01(a)(i)(C) above a written statement requesting an additional
            amount of time not to exceed 30 days in which to consider whether to
            consent to the proposed amendment. If the Texas Commission or its
            staff requests an extension of time in the manner set forth in the
            preceding sentence, then the Texas Commission shall either provide
            notice of its consent or lack of consent to the person specified in
            6.01(a)(i)(C) above no later than the last day of such extension of
            time or be conclusively deemed to have consented to the proposed
            amendment as of the last day of such extension of time.

      Any amendment requiring the consent of the Texas Commission as provided in
      this Section 6.01(a) shall become effective on the later of (i) the date
      proposed by the parties to such amendment and (ii) the first day after the
      expiration of the 30 day period provided for in Section 6.01(a)(ii), or,
      if such period has been extended pursuant thereto, the first day after the
      expiration of such period as so extended.

            (b) Prior to the execution of any amendment to this Agreement, the
      Issuer and the Indenture Trustee shall be entitled to receive and rely
      upon an Opinion of Counsel stating that the execution of such amendment is
      authorized or permitted by this Agreement. The Issuer and the Indenture
      Trustee may, but shall not be obligated to, enter into any such amendment
      that affects their own rights, duties or immunities under this Agreement
      or otherwise. Following delivery of a notice to the Texas Commission by
      the Seller under Section 6.01(a) above, the Seller and Issuer may at any
      time withdraw from the Texas Commission further consideration of any
      notification of a proposed amendment.

      Section 6.02 Notices. Unless otherwise specifically provided herein, all
demands, notices and communications upon or to the Seller, the Issuer, the
Indenture Trustee, the Texas Commission or the Rating Agencies under this
Agreement shall be in writing, delivered personally, via facsimile, reputable
overnight courier or by certified mail, return-receipt requested, and shall be
deemed to have been duly given upon receipt

            (a) in the case of the Seller, to CenterPoint Energy Houston
      Electric, LLC, 1111 Louisiana, Houston, Texas 77002, Attention: Treasurer,

            (b) in the case of the Issuer, to CenterPoint Energy Transition Bond
      Company II, LLC, 1111 Louisiana, Suite 4655B, Houston, Texas 77002,
      Attention: Manager,

            (c) in the case of Moody's, to Moody's Investors Service, Inc., ABS
      Monitoring Department, 99 Church Street, New York, New York 10007,

                                      -17-


            (d) in the case of Standard & Poor's, to Standard & Poor's, a
      Division of the McGraw-Hill Companies, 55 Water Street, New York, New York
      10041, Attention: Asset Backed Surveillance Department,

            (e) in the case of Fitch, to Fitch Ratings, 1 State Street Plaza,
      New York, New York 10004, Attention: ABS Surveillance,

            (f) in the case the Indenture Trustee, at the address provided for
      notices or communications to the Indenture Trustee in the Indenture, and

            (g) in the case of the Texas Commission, to 1701 N. Congress Avenue,
      Austin, Texas 78711-3326, Attention: Executive Director and General
      Counsel;

or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.

      Section 6.03 Assignment by the Seller. Notwithstanding anything to the
contrary contained herein, except as provided in Section 5.02, this Agreement
may not be assigned by the Seller.

      Section 6.04 Assignment to the Indenture Trustee. The Seller hereby
acknowledges and consents to any pledge, assignment and grant of a security
interest by the Issuer to the Indenture Trustee pursuant to the Indenture for
the benefit of the Transition Bondholders of all right, title and interest of
the Issuer in, to and under the Transition Property and the proceeds thereof and
the assignment of any or all of the Issuer's rights hereunder to the Indenture
Trustee. Notwithstanding such assignment, in no event shall the Indenture
Trustee have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.

      Section 6.05 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the Issuer and the Indenture
Trustee, on behalf of itself and the Transition Bondholders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.

      Section 6.06 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

      Section 6.07 Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

                                      -18-



      Section 6.08 Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.

      Section 6.09 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

      Section 6.10 Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement or the Indenture, the Seller shall not, prior to
the date which is one year and one day after the termination of the Indenture,
petition or otherwise invoke or cause the Issuer to invoke the process of any
Governmental Authority for the purpose of commencing or sustaining a case
against the Issuer under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or any substantial part of
the property of the Issuer, or ordering the winding-up or liquidation of the
affairs of the Issuer.

            (b) Notwithstanding any prior termination of this Agreement or the
Indenture, the Issuer shall not, prior to the date which is one year and one day
after the termination of the Indenture, petition or otherwise invoke or cause
the Seller to invoke the process of any Governmental Authority for the purpose
of commencing or sustaining a case against the Seller under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Seller or any substantial part of the property of the Seller, or ordering the
winding-up or liquidation of the affairs of the Seller.

                     [Rest of page intentionally left blank]

                                      -19-



      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

                                      CENTERPOINT ENERGY TRANSITION BOND
                                      COMPANY II, LLC,
                                        as Issuer,

                                      By: /s/ MARC KILBRIDE
                                          --------------------------------------
                                          Name: Marc Kilbride
                                          Title: Manager

                                      CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC,
                                        as Seller,

                                      By: /s/ MARC KILBRIDE
                                          --------------------------------------
                                          Name: Marc Kilbride
                                          Title: Vice President and Treasurer

                                      -20-


                            APPENDIX A - DEFINITIONS

The definitions contained in this Appendix A are applicable to the singular as
well as the plural forms of such terms.

      "1935 Act" means the Public Utility Holding Company Act of 1935, as
amended.

      "Administration Agreement" means the Administration Agreement, dated as of
December 16, between the Issuer and the Seller, as the same may be amended and
supplemented from time to time.

      "Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, control, when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms controlling and controlled
have meanings correlative to the foregoing.

      "Agreement" or this "Sale Agreement" or the "Sale Agreement" means this
Transition Property Sale Agreement, as the same may be amended and supplemented
from time to time.

      "Basic Documents" means the Certificate of Formation of the Issuer which
was filed with the Secretary of State of the State of Delaware on December 3,
2004, as amended and restated on December 14, 2005, the Amended and Restated
Limited Liability Company Agreement of the Issuer dated as of December 16, 2005,
this Sale Agreement, the Bill of Sale, the Servicing Agreement, the
Intercreditor Agreement, the Administration Agreement, the Indenture and the
Series Supplement.

      "Bill of Sale" means any bill of sale issued by the Seller to the Issuer
pursuant to the Sale Agreement evidencing the sale of the Transition Property by
the Seller to the Issuer.

      "Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of Houston, Texas, or in the City of New
York, New York, are required or authorized by law or executive order to remain
closed.

      "CenterPoint Houston" means CenterPoint Energy Houston Electric, LLC, a
Texas limited liability company, or its successor.

      "Financing Order" means the Financing Order issued by the Texas Commission
on March 16, 2005 in Docket No. 30485 pursuant to the Texas Electric Choice
Plan.

      "Fitch" means Fitch Ratings, or its successor.

      "Governmental Authority" means any court or any federal or state
regulatory body, administrative agency or governmental instrumentality.

      "Indenture" means the Indenture, dated as of December 16, 2005, among the
Issuer, the Indenture Trustee and the Securities Intermediary (as defined
therein) and the Series Supplement

                                      A-1


(including the forms and terms of the Transition Bonds established thereunder),
as the same may be amended and supplemented with respect to the Transition Bonds
from time to time.

      "Indenture Trustee" means Wilmington Trust Company, a Delaware banking
corporation, or its successor or any successor Indenture Trustee under the
Indenture.

      "Intercreditor Agreement" means the Intercreditor Agreement dated as of
December 16, 2005, among the Indenture Trustee, Deutsche Bank Trust Company
Americas, the Issuer, the Seller and CenterPoint Energy Transition Bond Company,
LLC, each in the capacities stated therein, as the same may be amended and
supplemented from time to time.

      "Issuance Advice Letter" means the issuance advice letter submitted to the
Texas Commission on December 12, 2005 by the Seller pursuant to the Financing
Order in connection with the issuance of the Transition Bonds.

      "Issuer" means CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company, or its successor under the Indenture.

      "Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.

      "Moody's" means Moody's Investors Service, Inc., or any successor thereto.

      "Officer's Certificate" means a certificate signed, in the case of the
Seller, by any manager, the chairman of the board, the chief executive officer,
the president, any vice chairman, any executive vice president, senior vice
president or vice president, the treasurer, assistant treasurer, the secretary
or any assistant secretary of the Seller.

      "Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Issuer or the Seller, which counsel shall be
reasonably acceptable to the Indenture Trustee, the Issuer or the Rating
Agencies, as applicable, and which shall be in form reasonably satisfactory to
the Indenture Trustee, if applicable.

      "Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.

      "proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.

      "Prospectus" has the meaning specified in Section 3.06 hereof.

      "Purchase Price" has the meaning specified in Section 2.01(a) hereof.

      "Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and the Financing Order.

                                      A-2


      "Rating Agency" means any rating agency rating the Transition Bonds at the
time of issuance thereof at the request of the Issuer, which initially shall be
Moody's, Fitch and S&P. If no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Issuer, written notice
of which designation shall be given to the Indenture Trustee, the Texas
Commission and the Servicer.

      "Rating Agency Condition" means, with respect to any action, the
notification in writing to each Rating Agency of such action, and confirmation
from S&P to the Indenture Trustee and the Issuer that such action will not
result in a reduction or withdrawal of the then current rating by such Rating
Agency of any outstanding class or tranche of Transition Bonds.

      "SEC" means the Securities and Exchange Commission.

      "Seller" means CenterPoint Houston, or its successor, in its capacity as
seller of the Transition Property to the Issuer pursuant to the Sale Agreement.

      "Series Supplement" means the Supplemental Indenture dated as of December
16, 2005, which authorizes the issuance of the Transition Bonds.

      "Servicer" means CenterPoint Houston, in its capacity as the servicer
under the Servicing Agreement, and each successor to or assignee of CenterPoint
Houston (in the same capacity) pursuant to the relevant sections of the
Servicing Agreement.

      "Servicer Default" means an event specified in Section 6.01 of the
Servicing Agreement.

      "Servicing Agreement" means the Transition Property Servicing Agreement,
dated as of December 16, 2005, between the Issuer and the Servicer and
acknowledged by the Indenture Trustee, as the same may be amended and
supplemented from time to time.

      "Standard & Poor's" or "S&P," means Standard & Poor's, a division of The
McGraw-Hill Companies, or its successor.

      "Supplemental Indenture" means a supplemental indenture entered into by
the Issuer and the Indenture Trustee pursuant to Article IX of the Indenture.

      "Texas Commission" means the Public Utility Commission of Texas or any
successor.

      "Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
ch. 405, 1999 (codified at Texas Utilities Code Section 39.001 et seq.).

      "Transfer Date" means the date on which the Transition Bonds are to be
originally issued in accordance with Section 2.10 of the Indenture.

      "Transition Bond" means any of the Senior Secured Transition Bonds, Series
A issued by the Issuer pursuant to the Indenture and one or more Supplemental
Indentures authorizing such series and also has the meaning given such term in
the Texas Electric Choice Plan, as applicable to such series.

                                      A-3


      "Transition Bondholder" means the Person in whose name a Transition Bond
is registered on the Transition Bond Register.

      "Transition Bond Register" has the meaning specified in Section 2.05 of
the Indenture.

      "Transition Charges" means the nonbypassable amounts to be charged for the
use or availability of electric services, approved by the Texas Commission in
the Financing Order to recover Qualified Costs that may be collected by the
Seller, its successors, assignees or other collection agents as provided for in
the Financing Order.

      "Transition Property" means the rights and interests of the Seller or its
successor under the Financing Order, once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the right to impose, collect and receive through Transition Charges
payable by retail electric customers within Seller's certificated service area
as it existed on May 1, 1999, an amount sufficient to cover the Qualified Costs
of the Seller authorized in the Financing Order, the right to receive Transition
Charges in amounts and at times sufficient to pay principal and interest and
make other deposits in connection with the Transition Bonds and all revenues and
collections resulting from Transition Charges.

      "Trust Estate" has the meaning specified in the Series Supplement.

      "UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.

                                      A-4


                                    EXHIBIT A

                                  BILL OF SALE

      1. This Bill of Sale is being delivered pursuant to the Transition
Property Sale Agreement, dated as of December 16, 2005 (the "Sale Agreement"),
between CenterPoint Energy Houston Electric, LLC (the "Seller") and CenterPoint
Energy Transition Bond Company II, LLC (the "Issuer"). All capitalized terms
used but not defined herein have the respective meanings ascribed thereto in the
Sale Agreement.

      2. In consideration of the Issuer's payment to the Seller of
$1,837,990,612, receipt of which is hereby acknowledged, the Seller does hereby
irrevocably sell, transfer, assign, set over and otherwise convey to the Issuer,
without recourse or warranty, except as set forth in the Sale Agreement, all
right, title and interest of the Seller in, to and under the Transition Property
identified on Schedule 1 hereto (such sale, transfer, assignment, setting over
and conveyance of the Transition Property includes, to the fullest extent
permitted by the Texas Electric Choice Plan, the right to impose, collect and
receive the Transition Charges related to the Transition Property, as the same
may be adjusted from time to time). Such sale, transfer, assignment, setting
over and conveyance is hereby expressly stated to be a sale or other absolute
transfer and, pursuant to Section 39.308 of the Texas Electric Choice Plan and
other applicable law, is a true sale and is not a secured transaction and title,
legal and equitable, has passed to the Issuer. The preceding sentence is the
statement referred to in Section 39.308 of the Texas Electric Choice Plan. The
Seller agrees and confirms that, after giving effect to the sale evidenced by
this Bill of Sale, the Seller has no right, title or interest in, to or under
the Transition Property.

      3. The Issuer does hereby purchase the Transition Property identified on
Schedule 1 hereto from the Seller for the consideration set forth in paragraph 2
above.

      4. The Seller and the Issuer each acknowledge and agree that the purchase
price for the Transition Property sold pursuant to this Bill of Sale and the
Sale Agreement is equal to its fair market value on the date hereof.

      5. The Seller confirms that each of the representations and warranties on
the part of the Seller contained in the Sale Agreement are true and correct in
all respects on the date hereof as if made on the date hereof.

      6. This Bill of Sale may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.

      7. THIS BILL OF SALE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.

                                  Exhibit A-1


      IN WITNESS WHEREOF, the Seller and the Issuer have duly executed this Bill
of Sale as of the 16th day of December, 2005.

                                        CENTERPOINT ENERGY TRANSITION BOND
                                        COMPANY II, LLC,
                                           as Issuer,

                                        By: /s/ Marc Kilbride
                                            ------------------------------------
                                              Marc Kilbride
                                              Manager

                                        CENTERPOINT ENERGY HOUSTON
                                        ELECTRIC, LLC,
                                           as Seller,

                                        By: /s/ Marc Kilbride
                                            ------------------------------------
                                              Marc Kilbride
                                              Vice President and Treasurer

                                  Exhibit A-2


                                   SCHEDULE 1
                                       to
                                  BILL OF SALE

                               Transition Property

All of the Seller's rights, title and interest in, to and under the Financing
Order issued by the Texas Commission on March 16, 2005 (PUC Docket No. 30485),
pursuant to the Texas Electric Choice Plan, including rights to impose, collect
and receive the "transition charges" (as defined in the Texas Electric Choice
Plan) approved in such Financing Order.

                                                                    EXHIBIT 10.2

                     TRANSITION PROPERTY SERVICING AGREEMENT

                                     between

               CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC

                                     Issuer

                                       and

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                    Servicer

                          Dated as of December 16, 2005



                                               TABLE OF CONTENTS


                                                                                
ARTICLE I DEFINITIONS...........................................................    2
   SECTION 1.01. DEFINITIONS....................................................    2
   SECTION 1.02. OTHER DEFINITIONAL PROVISIONS..................................    2

ARTICLE II APPOINTMENT AND AUTHORIZATION OF SERVICER............................    2
   SECTION 2.01. APPOINTMENT OF THE SERVICER;
                     ACCEPTANCE OF APPOINTMENT..................................    2
   SECTION 2.02. AUTHORIZATION..................................................    2
   SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY..................    3

ARTICLE III BILLING AND OTHER SERVICES..........................................    3
   SECTION 3.01. DUTIES OF THE SERVICER.........................................    3
   SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES................    5
   SECTION 3.03. PAYMENT OF TC COLLECTIONS......................................    6
   SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS............................    6
   SECTION 3.05. SERVICER'S CERTIFICATES........................................    7
   SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE;
                     NOTICE OF DEFAULT..........................................    7
   SECTION 3.07. ANNUAL REGISTERED INDEPENDENT PUBLIC
                     ACCOUNTING FIRM REPORT.....................................    7
   SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION..............................    8
   SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION......................    8
   SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS...................    9
   SECTION 3.11. OPINIONS OF COUNSEL............................................    9

ARTICLE IV SERVICES RELATED TO TRANSITION CHARGE
                     ADJUSTMENTS AND PBRAF ADJUSTMENTS..........................   10
   SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS
                     AND PBRAF ADJUSTMENTS......................................   10

ARTICLE V THE SERVICER..........................................................   10
   SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER.................   10
   SECTION 5.02. INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS.................   12
   SECTION 5.03. MERGER OR CONSOLIDATION OF,
                     OR ASSUMPTION OF THE OBLIGATIONS OF, THE SERVICER..........   15
   SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS.......................   17
   SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.............   17
   SECTION 5.06. CENTERPOINT HOUSTON NOT TO RESIGN AS SERVICER..................   17
   SECTION 5.07. SERVICING FEE..................................................   18
   SECTION 5.08. SERVICER EXPENSES..............................................   19
   SECTION 5.09. APPOINTMENTS...................................................   19
   SECTION 5.10. NO SERVICER ADVANCES...........................................   19
   SECTION 5.11. REMITTANCES....................................................   19
   SECTION 5.12. PROTECTION OF TITLE............................................   19





                                                                                
ARTICLE VI SERVICER DEFAULT.....................................................   19
   SECTION 6.01. SERVICER DEFAULT...............................................   19
   SECTION 6.02. NOTICE OF SERVICER DEFAULT.....................................   21
   SECTION 6.03. WAIVER OF PAST DEFAULTS........................................   21
   SECTION 6.04. APPOINTMENT OF SUCCESSOR.......................................   21
   SECTION 6.05. COOPERATION WITH SUCCESSOR.....................................   22

ARTICLE VII MISCELLANEOUS PROVISIONS............................................   23
   SECTION 7.01. AMENDMENT......................................................   23
   SECTION 7.02. NOTICES........................................................   23
   SECTION 7.03. ASSIGNMENT.....................................................   23
   SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS................................   24
   SECTION 7.05. SEVERABILITY...................................................   24
   SECTION 7.06. SEPARATE COUNTERPARTS..........................................   24
   SECTION 7.07. HEADINGS.......................................................   24
   SECTION 7.08. GOVERNING LAW..................................................   24
   SECTION 7.09. ASSIGNMENT TO THE TRUSTEE......................................   24
   SECTION 7.10. NONPETITION COVENANTS..........................................   25
   SECTION 7.11. TERMINATION....................................................   25
   SECTION 7.12. PUCT CONSENT...................................................   25
   SECTION 7.13. EFFECT OF SUBSEQUENT PUCT REGULATIONS..........................   26


SCHEDULE A TO SERVICING AGREEMENT

ANNEX 1 TO SERVICING AGREEMENT

APPENDIX A  -  MASTER DEFINITIONS

EXHIBIT A - SERVICER PROCEDURES

                                       ii


TRANSITION PROPERTY SERVICING AGREEMENT dated as of December 16, 2005 (this
"Agreement") between CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC, a
Delaware limited liability company (the "Issuer"), and CENTERPOINT ENERGY
HOUSTON ELECTRIC, LLC, a Texas limited liability company ("CenterPoint
Houston"), as the servicer of the Transition Property hereunder (together with
each successor to CenterPoint Houston in such capacity pursuant to Section 5.03
or 6.04, the "Servicer").

      WHEREAS, pursuant to the Texas Electric Choice Plan and the Financing
Order, the Seller and the Issuer are concurrently entering into the Sale
Agreement dated as of the date hereof pursuant to which the Seller is selling
and the Issuer is purchasing the Transition Property created pursuant to the
Texas Electric Choice Plan and the Financing Order;

      WHEREAS the Servicer is willing to service the Transition Property
purchased from the Seller by the Issuer;

      WHEREAS the Issuer, in connection with ownership of the Transition
Property, desires to engage the Servicer to carry out the functions described
herein;

      WHEREAS, the Transition Charges may not be itemized on Customers' bills
and the TC Collections initially will be commingled with other funds collected
from Customers and REPs (as applicable);

      WHEREAS, the Financing Order calls for the Servicer to execute a servicing
agreement with the Issuer pursuant to which the Servicer will be required, among
other things, to impose and collect applicable Transition Charges for the
benefit and account of the Issuer, to make periodic Transition Charge
Adjustments required or allowed by the Financing Order, and to account for and
remit the applicable Transition Charges to or for the account of the Issuer in
accordance with the remittance procedures contained in the Servicing Agreement
without any charge, deduction or surcharge of any kind (other than the Servicing
Fee specified in the Servicing Agreement);

      WHEREAS, a number of parties may have an interest in such commingled
collections, and such parties have entered into an Intercreditor Agreement as of
the date hereof that allows the party acting as the Utility (as defined therein)
to allocate the collected, commingled funds according to each interested party's
interest; and

      WHEREAS, the Financing Order provides that the PUCT, acting through its
authorized legal representative and for the benefit of Texas ratepayers, will
enforce the Servicer's obligations imposed under this Agreement pursuant to the
Financing Order to the extent permitted by law.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:



                                    ARTICLE I

                                   DEFINITIONS

      SECTION 1.01. DEFINITIONS. Capitalized terms used but not otherwise
defined in this Agreement have the respective meanings set forth in Appendix A
hereto.

      SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.

            (a) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section, Appendix, Annex,
Exhibit and Schedule references contained in this Agreement are references to
Sections, Appendices, Annexes, Exhibits and Schedules in or to this Agreement
unless otherwise specified; and the term "including" shall mean "including
without limitation."

            (b) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms.

            (c) All terms defined in this Agreement have the same defined
meanings when used in any certificate or other document made or delivered
pursuant to this Agreement unless otherwise defined therein.

                                   ARTICLE II

                    APPOINTMENT AND AUTHORIZATION OF SERVICER

      SECTION 2.01. APPOINTMENT OF THE SERVICER; ACCEPTANCE OF APPOINTMENT. The
Issuer hereby appoints the Servicer, and the Servicer hereby accepts such
appointment, to perform the Servicer's obligations pursuant to this Agreement on
behalf of and for the benefit of the Issuer or any assignee thereof in
accordance with the terms of this Agreement and applicable law. This appointment
and the Servicer's acceptance thereof may not be revoked except in accordance
with the express terms of this Agreement.

      SECTION 2.02. AUTHORIZATION. With respect to all or any portion of the
Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Issuer to:

            (a) execute and deliver, on behalf of itself or the Issuer, as the
case may be, any and all instruments, documents or notices, and

            (b) on behalf of itself or the Issuer, as the case may be, make any
filing and participate in Proceedings related to the duties of the Servicer
hereunder with any governmental authorities, including with the PUCT.

      The Issuer shall furnish the Servicer with all executed documents as have
been prepared by the Servicer for execution by the Issuer, and with such other
documents as may be in the Issuer's possession, as necessary or appropriate to
enable the Servicer to carry out its servicing

                                       2


and administrative duties hereunder. Upon the written request of the Servicer,
the Issuer shall furnish the Servicer with any powers of attorney or other
documents necessary or appropriate to enable the Servicer to carry out its
duties hereunder.

      SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY.
Notwithstanding any other provision contained herein, the Servicer and the
Issuer agree that the Issuer shall have dominion and control over the Transition
Property, and the Servicer, in accordance with the terms hereof, is acting
solely as the servicing agent of and custodian for the Issuer with respect to
the Transition Property. The Servicer hereby agrees that it shall not take any
action that is not authorized by this Agreement, the Texas Electric Choice Plan
or the Financing Order, that is not consistent with its customary procedures and
practices, or that shall impair the rights of the Issuer with respect to the
Transition Property, in each case unless such action is required by law or court
or regulatory order.

                                   ARTICLE III

                           BILLING AND OTHER SERVICES

      SECTION 3.01. DUTIES OF THE SERVICER. The Servicer, as agent for the
Issuer (to the extent provided herein), shall have the following duties:

            (a)   Duties of Servicer Generally. The Servicer shall manage,
service, administer and make collections in respect of the Transition Property.
The Servicer's duties will include:

            (i)   calculating and billing the Transition Charges;

            (ii)  obtaining meter reads and providing such metering information
      to the REPs, as necessary (unless another entity assumes metering
      responsibilities in accordance with the Financing Order, applicable
      tariffs or the Texas Electric Choice Plan);

            (iii) collecting payments of Transition Charges and payments with
      respect to Transition Property from all persons or entities responsible
      for remitting Transition Charges and other payments with respect to
      Transition Property to the Servicer under the Financing Order, the Texas
      Electric Choice Plan, PUCT Regulations or applicable tariffs; provided,
      however, the Issuer and the Servicer acknowledge and agree that pursuant
      to the Intercreditor Agreement, payments in respect of Transition Charges
      and Transition Property may be deposited initially into an account held
      and processed by CenterPoint Houston in its capacity as the Utility for
      the benefit of the Servicer, and that CenterPoint Houston in its
      individual capacity may be replaced as the holder of such account by a
      Replacement Servicer or Designated Account Holder as those terms are
      defined and as set forth more fully in the Intercreditor Agreement;

            (iv) posting all TC Collections remitted to the Servicer and posting
      all late-payment penalties assessed against REPs (as described in Section
      3.02);

                                       3


            (v)   responding to inquiries by Customers, REPs, the PUCT or any
      other State, local or federal governmental authority with respect to the
      Transition Property and the Transition Charges;

            (vi)  accounting for TC Collections and late-payment penalties of
      REPs, investigating and resolving delinquencies (including, where
      permitted by the Financing Order, Schedule TC2 and/or PUCT Regulations,
      terminating transmission and distribution service for nonpayment of
      charges), processing and depositing collections, making periodic
      remittances to the Trustee and furnishing periodic reports to the Issuer,
      the PUCT, the Trustee and each Rating Agency;

            (vii) providing certified calculations and other information
      reasonably requested by agents appointed by the Servicer to collect the
      charges to enable the agents to perform collection services properly under
      the Intercreditor Agreement and monitoring the collections of the agents
      for compliance with the Intercreditor Agreement;

            (viii) providing information reasonably requested by CenterPoint
      Houston in connection with the allocation of collections between
      Transition Charges and Transition Property on one hand, and other charges
      and fees on the other;

            (ix)  monitoring payments by each REP, reviewing reports provided by
      each REP and monitoring compliance by each REP with the credit standards
      and deposit obligations set forth in the Financing Order;

            (x)   notifying each REP of any defaults by such REP in its payment
      obligations and other obligations (including its credit standards) under
      Schedule TC2, and enforcing against such REP at the earliest date
      permitted by the Financing Order and Schedule TC2 any remedies provided by
      such Schedule TC2, the Financing Order or other applicable law and
      regulations;

            (xi)  making all filings with the PUCT and taking all other actions
      necessary to perfect the Issuer's ownership interests in and the Trustee's
      Lien on the Series Trust Estate;

            (xii) selling, as the agent for the Issuer, as its interest may
      appear, defaulted or written-off accounts in accordance with the
      Servicer's usual and customary practices;

            (xiii) taking action in connection with Transition Charge
      Adjustments and PBRAF Adjustments as is set forth herein; and

            (xiv) any other duties specified for a servicer under the Financing
      Order, Schedule TC2, the Texas Electric Choice Plan or other applicable
      law.

      Anything to the contrary notwithstanding, the duties of the Servicer set
forth in this Agreement shall be qualified in their entirety by, and the
Servicer shall at all times comply with, the Financing Order, the Texas Electric
Choice Plan and any PUCT Regulations, orders or directions as in effect at the
time such duties are to be performed. Without limiting the generality of this
Section 3.01(a), in furtherance of the foregoing, the Servicer hereby agrees
that it shall

                                       4


also have, and shall comply with, the duties and responsibilities relating to
data acquisition, usage and bill calculation, billing, customer service
functions, collections, payment processing and remittance set forth in Exhibit A
hereto.

            (b) Notification of Laws and Regulations. The Servicer shall
immediately notify the Issuer, the PUCT, the Trustee and each Rating Agency in
writing of any laws or PUCT Regulations, orders or directions hereafter
promulgated that have a material adverse effect on the Servicer's ability to
perform its duties under this Agreement.

            (c) Other Information. Upon the reasonable request of the Issuer,
the Trustee, the PUCT or any Rating Agency, the Servicer shall provide to the
Issuer, the Trustee, the PUCT or such Rating Agency, as the case may be, any
public financial information in respect of the Servicer, or any material
information regarding the Transition Property to the extent it is reasonably
available to the Servicer, that may be reasonably necessary and permitted by law
for the Issuer, the Trustee, the PUCT or such Rating Agency to monitor the
performance by the Servicer hereunder. In addition, so long as any of the
Transition Bonds are Outstanding, the Servicer shall provide to the Issuer, to
the PUCT and to the Trustee, within a reasonable time after written request
therefor, any information available to the Servicer or reasonably obtainable by
it that is necessary to calculate the Transition Charges applicable to each
Customer Class.

SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES.

            (a) The Servicer shall use all reasonable efforts, subject to
applicable law, to collect all amounts owed in respect of Transition Charges and
late-payment penalties (as set forth in Section 3.02(c) below) as and when the
same shall become due and shall follow such collection procedures as it follows
with respect to collection activities that the Servicer conducts for itself or
others. The Servicer shall not change the amount of or reschedule the due date
of any scheduled payment of Transition Charges, except as contemplated in this
Agreement or as required by law or court or PUCT order. The Servicer shall
enforce at the earliest possible date the obligations with respect to the
Transition Charges of each REP and each other Person owing or collecting
Transition Charges, provided that any REP shall be entitled to hold back from
its payment of Transition Charges to the Servicer an allowance for charge-offs
according to the procedure and calculations set forth in the Financing Order,
Schedule TC2 and the Issuer Annex.

            (b) If an REP does not pay the full amount it has been billed by the
Servicer, the amount paid by the REP will first be proportioned between the
Transition Charges and other fees and charges (including amounts billed and due
in respect of transition charges associated with transition bonds issued under
other financing orders), other than late fees, and second, any remaining portion
of the payment will be attributed to late fees owed to CenterPoint Houston or
any successor.

            (c) Each REP must pay Transition Charges within 35 days following
the date of each billing by the Servicer to such REP ("REP Billing Day"),
without regard to whether or when the REP receives payment from its retail
customers. The Servicer shall accept payment by electronic funds transfer, wire
transfer, and/or check. Payment will be considered received the date the
electronic funds transfer or wire transfer is received by the Servicer or, if
payment is made by check, the date the check clears. The Servicer shall assess
and collect a 5% late-

                                       5


payment penalty (the "Penalty") on all Transition Charges billed to an REP but
not paid by that REP by the close of business on the 35th day after the date on
which the Transition Charges were billed to the REP. Any and all such Penalty
payments shall be paid to the Trustee for deposit in the Collection Account and
shall be applied against Transition Charge obligations. An REP shall not be
obligated to pay the overdue Transition Charges of another REP. If an REP agrees
to assume the responsibility for the payment of overdue Transition Charges as a
condition of receiving the customers of another REP that has decided to
terminate service to those customers for any reason, the new REP shall not be
assessed the Penalty upon such Transition Charges; provided, however, that the
prior REP shall not be relieved of the previously assessed Penalties. Disputes
regarding whether and when an REP has made payment of billed Transition Charges
shall be resolved in accordance with Section 8(b) of the Issuer Annex.

      SECTION 3.03. PAYMENT OF TC COLLECTIONS.

            (a) The Servicer shall collect and remit to the Trustee, for deposit
in the Collection Account on a daily basis in accordance with Section 5.11, the
Transition Charges plus any Accrued Interest thereon from the date or dates such
Transition Charges were actually received in accordance with Section 3.02 upon
receipt of such collection from any source.

            (b) The Servicer agrees and acknowledges that it will hold all TC
Collections and other Transition Property collected by it for the benefit of the
Issuer and the Trustee and that all amounts will be remitted by the Servicer in
accordance with this Agreement without any surcharge, fee, offset, charge or
other deduction other than as expressly permitted in the Financing Order and
without making any claim to reduce its obligation to remit all TC Collections
and any other proceeds of the Transition Property collected by it.

      SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS. The Servicer shall, on
behalf of the Issuer:

            (a) manage, service, administer and make collections in respect of
the Transition Property with reasonable care and in material compliance with
applicable law, including all applicable PUCT Regulations and guidelines, using
the same degree of care and diligence that the Servicer exercises with respect
to billing and collection activities that the Servicer conducts for itself and
others;

            (b) follow standards, policies and procedures in performing its
duties as Servicer that are customary in the electric transmission and
distribution industry or that the PUCT has mandated and that are consistent with
the terms and provisions of the Financing Order, Schedule TC2 and existing law;

            (c) use all reasonable efforts, consistent with its customary
servicing procedures, to enforce and maintain the Issuer's and the Trustee's
rights in respect of the Transition Property;

            (d) calculate Transition Charges and PBRAFs in compliance with the
Texas Electric Choice Plan, the Financing Order, any PUCT order related to
Transition Charge allocation and any applicable tariffs;

                                       6


            (e)   provide all reports to such parties to the Intercreditor
Agreement regarding the Transition Charges and PBRAFs as are necessary to effect
collection, allocation and remittance of payments in respect of Transition
Charges and other collected funds in accordance with this Agreement and the
Intercreditor Agreement; and

            (f)   make all filings required under the Texas Electric Choice Plan
or the UCC to maintain the perfected security interest of the Trustee in the
Series Trust Estate and use all reasonable efforts to otherwise enforce and
maintain the Trustee's rights in respect of the Transition Property and the
Series Trust Estate;

except where the failure to comply with any of the foregoing would not
materially and adversely affect the Issuer's or the Trustee's respective
interests in the Transition Property. The Servicer shall follow such customary
and usual practices and procedures as it shall deem necessary or advisable in
its servicing of all or any portion of the Transition Property, which, in the
Servicer's judgment, may include the taking of legal action pursuant to Section
3.10 hereof or otherwise.

      SECTION 3.05. SERVICER'S CERTIFICATES. The Servicer shall provide to the
Issuer, the PUCT, the Trustee and the Rating Agencies the statements and
certificates specified in the Issuer Annex at the time and in the manner set
forth therein.

      SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT. The
Servicer shall deliver to the Issuer, the PUCT, the Trustee and each Rating
Agency, on or before March 31 of each year beginning March 31, 2006, an
Officers' Certificate, stating that:

            (i)   a review of the activities of the Servicer during the
      preceding calendar year (or relevant portion thereof) and of its
      performance under this Agreement has been made under such officers'
      supervision; and

            (ii)  to the best of such officers' knowledge, based on such review,
      the Servicer has fulfilled all its obligations under this Agreement
      throughout such period or, if there has been a Servicer Default, stating
      that there has been a default and describing each such default.

      SECTION 3.07. ANNUAL REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM REPORT.

            (a)   The Servicer shall cause a registered independent public
accounting firm (which may also provide other services to the Servicer or the
Seller) to prepare, and the Servicer shall deliver to the Issuer, the PUCT, the
Trustee and each Rating Agency, on or before March 31 of each year, beginning
March 31, 2006, to and including the March 31 succeeding the retirement of all
Transition Bonds, a report addressed to the Servicer (the "Annual Accountant's
Report"), which may be included as part of the Servicer's customary auditing
activities, to the effect that such firm has performed certain procedures
related to financial matters in connection with the Servicer's compliance with
its obligations under this Agreement during the preceding calendar year (or, in
the case of the first Annual Accountant's Report, the period of time from the
Sale Date through December 31, 2005), identifying the results of such procedures
and including any exceptions noted. In the event such accounting firm requires
the Trustee or the Issuer to

                                       7


agree or consent to the procedures performed by such firm, the Issuer shall
direct the Trustee in writing to so agree; it being understood and agreed that
the Trustee shall deliver such letter of agreement or consent in conclusive
reliance upon the direction of the Issuer, and the Trustee shall not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.

            (b) The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.

      SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION. To assure uniform quality
in servicing the Transition Property and to reduce administrative costs, the
Servicer shall keep on file, in accordance with its customary procedures, all
Transition Property Documentation, it being understood that the Servicer is
acting only as the servicing agent and custodian for the Issuer with respect to
the Transition Property Documentation.

      SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION.

            (a) Safekeeping. The Servicer shall maintain accurate and complete
accounts, records and computer systems pertaining to the Transition Property and
the Transition Property Documentation in accordance with its standard accounting
procedures and in sufficient detail to permit reconciliation between payments or
recoveries on (or with respect to) Transition Charges and the TC Collections
from time to time remitted to the Trustee pursuant to Section 5.11 and to enable
the Issuer to comply with this Agreement and the Indenture. The Servicer shall
conduct, or cause to be conducted, periodic audits of the Transition Property
Documentation held by it under this Agreement and of the related accounts,
records and computer systems, in such a manner as shall enable the Issuer and
the Trustee, as pledgee of the Issuer, to verify the accuracy of the Servicer's
record keeping. The Servicer shall promptly report to the Issuer, to the PUCT,
and to the Trustee any failure on the Servicer's part to hold the Transition
Property Documentation and maintain its accounts, records and computer systems
as herein provided and promptly take appropriate action to remedy any such
failure. Nothing herein shall be deemed to require an initial review or any
periodic review by the Issuer or the Trustee of the Transition Property
Documentation. The Servicer's duties to hold the Transition Property
Documentation on behalf of the Issuer set forth in this Section 3.09, to the
extent such Transition Property Documentation has not been previously
transferred to a successor Servicer, shall terminate three years after the
earlier of the date on which (i) the Servicer is succeeded by a successor
Servicer pursuant to the provisions of this Agreement or (ii) no Transition
Bonds of any Series are Outstanding.

            (b) Maintenance of and Access to Records. The Servicer shall
maintain the Transition Property Documentation at 1111 Louisiana Street,
Houston, Texas or at such other office as shall be specified to the Issuer, to
the PUCT and to the Trustee by written notice not later than 30 days prior to
any change in location. The Servicer shall permit the Issuer and the Trustee or
their respective duly authorized representatives, attorneys, agents or auditors
at any time during normal business hours to inspect, audit and make copies of
and abstracts from the Servicer's records regarding the Transition Property, the
Transition Charges and the Transition Property Documentation. The failure of the
Servicer to provide access to such information as a

                                       8


result of an obligation or applicable law (including PUCT Regulations)
prohibiting disclosure of information regarding customers shall not constitute a
breach of this Section 3.09(b).

            (c)   Release of Documents. Upon written instruction from the
Trustee in accordance with the Indenture, the Servicer shall release any
Transition Property Documentation to the Trustee, the Trustee's agent or the
Trustee's designee, as the case may be, and to the PUCT at such place or places
as the Trustee may designate, as soon as practicable.

      SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS. The Servicer
shall, subject to applicable law, institute any action or Proceeding necessary
to compel performance by each REP and each party to the Intercreditor Agreement
(and in the case of each REP at the earliest possible time) of any of their
respective obligations or duties under the Texas Electric Choice Plan, the
Financing Order or the Intercreditor Agreement with respect to the Transition
Property, and the Servicer agrees, subject to applicable law, to take such legal
or administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or similar
proceedings as may be reasonably necessary to block or overturn any attempts to
cause a repeal of, modification of, or supplement to, the Texas Electric Choice
Plan or the Financing Order. The costs of any such action shall be payable from
TC Collections as an Operating Expense (and shall not be deemed to constitute a
portion of the Servicing Fee) in accordance with the Indenture. The Servicer's
obligations pursuant to this Section 3.10 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to the
Indenture may be delayed (it being understood that the Servicer may be required
initially to advance its own funds to satisfy its obligations hereunder).

      SECTION 3.11. OPINIONS OF COUNSEL. The Servicer shall deliver to the
Issuer, to the PUCT and to the Trustee:

            (a)   promptly after the execution and delivery of this Agreement
and of each amendment hereto, an Opinion of Counsel either:

            (i)   to the effect that, in the opinion of such counsel, all
      filings, including filings with the PUCT and the Secretary of State of the
      State of Texas pursuant to the Texas Electric Choice Plan and the UCC,
      that are necessary to perfect the interests of each of the Issuer and the
      Trustee in the Transition Property have been executed and filed and are in
      full force and effect, and reciting the details of such filings or
      referring to prior Opinions of Counsel in which such details are given, or

            (ii)  to the effect that, in the opinion of such counsel, no such
      action shall be necessary to preserve and protect such interests; and

            (b)   within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Sale Date, an Opinion of Counsel, dated as of a date during such 90-day
period, either:

            (i)   to the effect that, in the opinion of such counsel, all
      filings, including filings with the PUCT and the Secretary of State of the
      State of Texas pursuant to the Texas Electric Choice Plan and the UCC,
      that are necessary to maintain the perfection of the interests of each of
      the Issuer and the Trustee in the Transition Property have been

                                       9


      executed and filed and are in full force and effect, and reciting the
      details of such filings or referring to prior Opinions of Counsel in which
      such details are given, or

            (ii)  to the effect that, in the opinion of such counsel, no such
      action shall be necessary to preserve and protect such interest.

Each Opinion of Counsel referred to in clause (a) or (b) above shall specify any
action necessary (as of the date of such opinion) to be taken in the following
year to preserve and protect such interests.

                                   ARTICLE IV

     SERVICES RELATED TO TRANSITION CHARGE ADJUSTMENTS AND PBRAF ADJUSTMENTS

      SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS AND PBRAF ADJUSTMENTS. The
Servicer shall perform the calculations and take the actions relating to
adjusting the Transition Charges and PBRAFs as set forth in the Issuer Annex at
the time and in the manner set forth therein.

                                    ARTICLE V

                                  THE SERVICER

      SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
makes the following representations and warranties as of the Sale Date, on which
the Issuer has relied in acquiring Transition Property. The representations and
warranties shall survive the execution and delivery of this Agreement, the sale
of any of the Transition Property to the Issuer and the pledge thereof to the
Trustee pursuant to the Indenture.

            (a) Organization and Good Standing. The Servicer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Texas, with the limited liability company power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted and to execute,
deliver and carry out the terms of this Agreement and the Intercreditor
Agreement and has the power, authority and legal right to service the Transition
Property.

            (b) Due Qualification. The Servicer is duly qualified to do business
and is in good standing, and has obtained all necessary licenses and approvals,
in all jurisdictions in which the ownership or lease of property or the conduct
of its business (including the servicing of the Transition Property as required
by this Agreement and the Intercreditor Agreement) requires such qualifications,
licenses or approvals (except where the failure to so qualify would not be
reasonably likely to have a material adverse effect on the Servicer's business,
operations, assets, revenues, properties or prospects or adversely affect the
servicing of the Transition Property).

            (c) Power and Authority. The Servicer has the limited liability
company or corporate, as the case may be, power and authority to execute and
deliver this Agreement and the Intercreditor Agreement and to carry out the
terms of each; and the execution, delivery

                                       10


and performance of this Agreement and the Intercreditor Agreement have been duly
authorized by the Servicer by all necessary limited liability company or
corporate, as the case may be, action.

            (d)   Binding Obligation. This Agreement and the Intercreditor
Agreement both constitute legal, valid and binding obligations of the Servicer
enforceable against the Servicer in accordance with their terms subject to
applicable bankruptcy, receivership, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally from time to time in effect and
to general principles of equity (regardless of whether considered in a court
proceeding in equity or at law).

            (e)   No Violation. The consummation of the transactions
contemplated by this Agreement and the Intercreditor Agreement (to the extent
applicable to the Servicer's responsibilities thereunder) and the fulfillment of
the terms of each will not conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of time)
a default under, the limited liability company agreement or articles of
incorporation or by-laws, as the case may be, of the Servicer, or any material
agreement to which the Servicer is a party or by which it is bound or result in
the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such agreement (other than any Lien that may be granted under
the Basic Documents or any Lien created pursuant to Section 39.909 of the Texas
Electric Choice Plan); or violate any law or any existing order, rule or
regulation applicable to the Servicer of any court or of any federal or State
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its properties.

            (f)   Approvals. No approval, authorization, consent, order or other
action of, or filing with, any court, federal or State regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this Agreement or
the Intercreditor Agreement, the performance by the Servicer of the transactions
contemplated hereby or thereby or the fulfillment by the Servicer of the terms
of each, except those that have been obtained or made or that are required by
this Agreement to be made in the future by the Servicer, including the Issuance
Advice Letter, filings with the PUCT for adjusting Transition Charges and PBRAFs
pursuant to Section 4.01 and the Issuer Annex and filings with the Secretary of
State of the State of Texas under the Texas Electric Choice Plan and Article 9
of the UCC.

            (g)   No Proceedings. Except as disclosed by the Servicer on
Schedule A hereto, there are no Proceedings pending or, to the Servicer's
knowledge, threatened before any court, federal or State regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties:

            (i)   asserting the invalidity of this Agreement or any of the other
      Basic Documents;

            (ii)  seeking any determination or ruling that might materially and
      adversely affect the Transition Property or the performance by the
      Servicer of its obligations under, or the validity or enforceability
      against the Servicer of, this Agreement;

                                       11


            (iii) relating to the Servicer and which might materially and
      adversely affect the federal income tax or State income, gross receipts or
      franchise tax attributes of the Transition Property or the Transition
      Bonds; or

            (iv)  seeking to prevent the issuance of the Transition Bonds or the
      consummation of any of the transactions contemplated by this Agreement or
      any of the other Basic Documents.

            (h)   Reports and Certificates. Each report and certificate
delivered in connection with any filing made to the PUCT by the Servicer on
behalf of the Issuer with respect to Transition Charges, Transition Charge
Adjustments or PBRAF Adjustments will be true and correct in all material
respects; provided, however, that to the extent any such report or certificate
is based in part upon or contains assumptions, forecasts or other predictions of
future events, the representation and warranty of the Servicer with respect
thereto will be limited to the representation and warranty that such
assumptions, forecasts or other predictions of future events are reasonable
based upon historical performance.

      SECTION 5.02. INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS.

            (a)   THE SERVICER SHALL BE LIABLE IN ACCORDANCE HEREWITH ONLY TO
THE EXTENT OF THE OBLIGATIONS SPECIFICALLY UNDERTAKEN BY THE SERVICER UNDER THIS
AGREEMENT AND THE INTERCREDITOR AGREEMENT.

            (b)   THE SERVICER SHALL INDEMNIFY THE ISSUER AND THE TRUSTEE (FOR
ITSELF AND ON BEHALF OF THE TRANSITION BONDHOLDERS) AND EACH OF THEIR RESPECTIVE
TRUSTEES, MEMBERS, MANAGERS, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FOR, AND
DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL LOSSES
THAT MAY BE IMPOSED UPON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON AS A
RESULT OF:

            (I)   THE SERVICER'S WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE IN
      THE PERFORMANCE OF ITS DUTIES OR OBSERVANCE OF ITS COVENANTS UNDER THIS
      AGREEMENT OR THE SERVICER'S RECKLESS DISREGARD OF ITS OBLIGATIONS AND
      DUTIES UNDER THIS AGREEMENT OR THE INTERCREDITOR AGREEMENT;

            (II)  THE SERVICER'S BREACH OF ANY OF ITS REPRESENTATIONS OR
      WARRANTIES IN THIS AGREEMENT OR THE INTERCREDITOR AGREEMENT; OR

            (III) LITIGATION AND RELATED EXPENSES RELATING TO ITS STATUS AND
      OBLIGATIONS AS SERVICER (OTHER THAN ANY PROCEEDINGS THE SERVICER IS
      REQUIRED TO INSTITUTE UNDER THIS AGREEMENT);

                                       12


PROVIDED, HOWEVER, THAT THE SERVICER SHALL NOT BE LIABLE FOR ANY LOSSES
RESULTING FROM THE BAD FAITH, WILLFUL MISCONDUCT OR NEGLIGENCE OF ANY PERSON
INDEMNIFIED PURSUANT TO THIS SECTION 5.02 (EACH, AN "INDEMNIFIED PERSON") OR
RESULTING FROM A BREACH OF A REPRESENTATION OR WARRANTY MADE BY SUCH INDEMNIFIED
PERSON TO THE SERVICER IN ANY BASIC DOCUMENT THAT GIVES RISE TO THE SERVICER'S
BREACH.

            (c) PROMPTLY AFTER RECEIPT BY AN INDEMNIFIED PERSON OF WRITTEN
NOTICE OF ITS INVOLVEMENT IN ANY ACTION, PROCEEDING OR INVESTIGATION, SUCH
INDEMNIFIED PERSON SHALL, IF A CLAIM FOR INDEMNIFICATION IN RESPECT THEREOF IS
TO BE MADE AGAINST THE SERVICER UNDER THIS SECTION 5.02, NOTIFY THE SERVICER IN
WRITING OF SUCH INVOLVEMENT. FAILURE BY AN INDEMNIFIED PERSON TO SO NOTIFY THE
SERVICER SHALL RELIEVE THE SERVICER FROM THE OBLIGATION TO INDEMNIFY AND HOLD
HARMLESS SUCH INDEMNIFIED PERSON UNDER THIS SECTION 5.02 ONLY TO THE EXTENT THAT
THE SERVICER SUFFERS ACTUAL PREJUDICE AS DETERMINED BY A COURT OF COMPETENT
JURISDICTION AS A RESULT OF SUCH FAILURE. WITH RESPECT TO ANY ACTION, PROCEEDING
OR INVESTIGATION BROUGHT BY A THIRD PARTY FOR WHICH INDEMNIFICATION MAY BE
SOUGHT BY AN INDEMNIFIED PERSON UNDER THIS SECTION 5.02, THE SERVICER SHALL BE
ENTITLED TO ASSUME THE DEFENSE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION
UNLESS (X) SUCH ACTION, PROCEEDING OR INVESTIGATION EXPOSES THE INDEMNIFIED
PERSON TO A RISK OF CRIMINAL LIABILITY OR FORFEITURE, (Y) THE SERVICER AND SUCH
INDEMNIFIED PERSON HAVE A CONFLICT OF INTEREST IN THEIR RESPECTIVE DEFENSES OF
SUCH ACTION, PROCEEDING OR INVESTIGATION OR (Z) THERE EXISTS AT THE TIME THE
SERVICER WOULD ASSUME SUCH DEFENSE AN ONGOING SERVICER DEFAULT. UPON ASSUMPTION
BY THE SERVICER OF THE DEFENSE OF ANY SUCH ACTION, PROCEEDING OR INVESTIGATION,
THE INDEMNIFIED PERSON SHALL HAVE THE RIGHT TO PARTICIPATE IN SUCH ACTION OR
PROCEEDING AND TO RETAIN ITS OWN COUNSEL (INCLUDING LOCAL COUNSEL), AND THE
SERVICER SHALL BEAR THE REASONABLE FEES, COSTS AND EXPENSES OF SUCH SEPARATE
COUNSEL. THE INDEMNIFIED PERSON SHALL NOT SETTLE OR COMPROMISE OR CONSENT TO THE
ENTRY OF ANY JUDGMENT WITH RESPECT TO ANY PENDING OR THREATENED CLAIM, ACTION,
SUIT OR PROCEEDING IN RESPECT OF WHICH INDEMNIFICATION MAY BE SOUGHT UNDER THIS
SECTION 5.02 (WHETHER OR NOT THE SERVICER IS AN ACTUAL OR POTENTIAL PARTY TO
SUCH CLAIM OR ACTION) UNLESS THE SERVICER AGREES IN WRITING TO SUCH SETTLEMENT,
COMPROMISE OR CONSENT AND SUCH SETTLEMENT, COMPROMISE OR CONSENT INCLUDES AN
UNCONDITIONAL RELEASE OF THE SERVICER FROM ALL LIABILITY ARISING OUT OF SUCH
CLAIM, ACTION, SUIT OR PROCEEDING.

            (d) THE SERVICER SHALL INDEMNIFY THE TRUSTEE AND ITS RESPECTIVE
TRUSTEES, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS

                                       13


FOR, AND DEFEND AND HOLD HARMLESS EACH SUCH PERSON FROM AND AGAINST, ANY AND ALL
LOSSES THAT MAY BE IMPOSED UPON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON
AS A RESULT OF THE ACCEPTANCE OR PERFORMANCE OF THE TRUSTS AND DUTIES CONTAINED
HEREIN AND IN THE INDENTURE, EXCEPT TO THE EXTENT THAT ANY SUCH LOSS (I) SHALL
BE DUE TO THE WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE OF THE TRUSTEE OR (II)
SHALL ARISE FROM THE TRUSTEE'S BREACH OF ANY OF ITS REPRESENTATIONS OR
WARRANTIES SET FORTH IN THE INDENTURE; PROVIDED, HOWEVER, THAT THE FOREGOING
INDEMNITY IS EXTENDED TO THE TRUSTEE SOLELY IN ITS INDIVIDUAL CAPACITY AND NOT
FOR THE BENEFIT OF THE TRANSITION BONDHOLDERS OR ANY OTHER PERSON. SUCH AMOUNTS
WITH RESPECT TO THE TRUSTEE SHALL BE DEPOSITED AND DISTRIBUTED IN ACCORDANCE
WITH THE INDENTURE.

            (e) THE SERVICER'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 5.02(B)
AND (D) FOR EVENTS OCCURRING PRIOR TO THE REMOVAL OR RESIGNATION OF THE TRUSTEE
OR THE TERMINATION OF THIS AGREEMENT SHALL SURVIVE THE RESIGNATION OR REMOVAL OF
THE TRUSTEE OR THE TERMINATION OF THIS AGREEMENT AND SHALL INCLUDE REASONABLE
COSTS, FEES AND EXPENSES OF INVESTIGATION AND LITIGATION (INCLUDING THE ISSUER'S
AND THE TRUSTEE'S REASONABLE ATTORNEYS' FEES AND EXPENSES).

            (f) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED FOR IN THIS AGREEMENT,
THE SALE AGREEMENT OR THE FORMATION DOCUMENTS (INCLUDING THE SERVICER'S CLAIMS
WITH RESPECT TO THE SERVICING FEES AND THE SELLER'S CLAIM FOR PAYMENT OF THE
PURCHASE PRICE OF TRANSITION PROPERTY), THE SERVICER HEREBY RELEASES AND
DISCHARGES THE ISSUER (INCLUDING ITS MEMBERS, MANAGERS, EMPLOYEES AND AGENTS, IF
ANY), AND THE TRUSTEE (INCLUDING ITS RESPECTIVE OFFICERS, DIRECTORS AND AGENTS)
(COLLECTIVELY, THE "RELEASED PARTIES") FROM ANY AND ALL ACTIONS, CLAIMS AND
DEMANDS WHATSOEVER, WHICH THE SERVICER, IN ITS CAPACITY AS SERVICER, SHALL OR
MAY HAVE AGAINST ANY SUCH PERSON RELATING TO THE TRANSITION PROPERTY OR THE
SERVICER'S ACTIVITIES WITH RESPECT THERETO OTHER THAN ANY ACTIONS, CLAIMS AND
DEMANDS ARISING OUT OF THE WILLFUL MISCONDUCT, BAD FAITH OR NEGLIGENCE OF THE
RELEASED PARTIES.

            (g) THE SERVICER AND THE ISSUER HEREBY ACKNOWLEDGE THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE TRUSTEE IS A THIRD-PARTY
BENEFICIARY OF THIS SECTION 5.02 AND IS ENTITLED TO THE BENEFITS OF THE
INDEMNITY FROM THE SERVICER CONTAINED HEREIN AND TO BRING ANY ACTION TO ENFORCE
SUCH INDEMNIFICATION DIRECTLY AGAINST THE SERVICER.

                                       14


            (h) THE SERVICER SHALL INDEMNIFY THE PUCT (FOR THE BENEFIT OF
CUSTOMERS), THE ISSUER, THE TRUSTEE (FOR ITSELF AND ON BEHALF OF THE TRANSITION
BONDHOLDERS), AND EACH OF THEIR RESPECTIVE TRUSTEES, MEMBERS, MANAGERS,
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FOR, AND DEFEND AND HOLD HARMLESS EACH
SUCH PERSON FROM AND AGAINST, ANY AND ALL LOSSES THAT MAY BE IMPOSED UPON,
INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON AS A RESULT OF ANY INCREASE IN
THE SERVICING FEE THAT BECOMES PAYABLE PURSUANT TO SECTION 5.07(B) OF THIS
AGREEMENT AS A RESULT OF A DEFAULT RESULTING FROM THE SERVICER'S WILLFUL
MISCONDUCT, BAD FAITH OR NEGLIGENCE IN PERFORMANCE OF ITS DUTIES OR OBSERVANCE
OF ITS COVENANTS UNDER THIS AGREEMENT. THE INDEMNIFICATION OBLIGATION SET FORTH
IN THIS PARAGRAPH MAY BE ENFORCED BY THE PUCT BUT IS NOT ENFORCEABLE BY ANY REP
OR ANY CUSTOMER. ANY INDEMNITY PAYMENTS MADE TO THE PUCT UNDER THIS PARAGRAPH
FOR THE BENEFIT OF CUSTOMERS SHALL BE REMITTED TO THE TRUSTEE PROMPTLY FOR
DEPOSIT INTO THE COLLECTION ACCOUNT.

      SECTION 5.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE SERVICER. Any Person:

            (a) into which the Servicer may be merged, converted or consolidated
and which succeeds to all or substantially all of the electric transmission and
distribution business of the Servicer (or, if the Servicer's transmission and
distribution business is split, which provides distribution service directly to
a majority of the retail electric customers in the Seller's certificated service
area as it existed on May 1, 1999),

            (b) which results from the division of the Servicer into two or more
Persons and which succeeds to all or substantially all of the electric
transmission and distribution business of the Servicer (or, if the Servicer's
transmission and distribution business is split, which provides distribution
service directly to a majority of the retail electric customers in the Seller's
certificated service area as it existed on May 1, 1999),

            (c) which may result from any merger, conversion or consolidation to
which the Servicer shall be a party and which succeeds to all or substantially
all of the electric transmission and distribution business of the Servicer (or,
if the Servicer's transmission and distribution business is split, which
provides distribution service directly to a majority of the retail electric
customers in the Seller's certificated service area as it existed on May 1,
1999),

            (d) which may purchase or otherwise succeed to the properties and
assets of the Servicer substantially as a whole and which purchases or otherwise
succeeds to all or substantially all of the electric transmission and
distribution business of the Servicer (or, if the Servicer's transmission and
distribution business is split, which provides distribution service directly to
a majority of the retail electric customers in the Seller's certificated service
area as it existed on May 1, 1999), or

                                       15


            (e) which may otherwise purchase or succeed to all or substantially
all of the electric transmission and distribution business of the Servicer (or,
if the Servicer's transmission and distribution business is split, which
provides distribution service directly to a majority of the retail electric
customers in the Seller's certificated service area as it existed on May 1,
1999),

which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the Servicer under this Agreement, shall be the
successor to the Servicer under this Agreement without the execution or filing
of any document or any further act by any of the parties to this Agreement;
provided, however, that:

            (i)   immediately after giving effect to such transaction, the
      representations and warranties made pursuant to Section 5.01 shall be true
      and correct and no Servicer Default, and no event that, after notice or
      lapse of time, or both, would become a Servicer Default, shall have
      occurred and be continuing;

            (ii)  the Servicer shall have delivered to the Issuer, the PUCT and
      the Trustee an Officers' Certificate and an opinion of Independent counsel
      each stating that such consolidation, merger, conversion or succession and
      such agreement of assumption comply with this Section 5.03 and that all
      conditions precedent, if any, provided for in this Agreement relating to
      such transaction have been complied with;

            (iii) the Servicer shall have delivered to the Issuer, the PUCT, the
      Trustee and the Rating Agencies an Opinion of Counsel either

                  (A) stating that, in the opinion of such counsel, all filings
            to be made by the Servicer, including filings with the PUCT pursuant
            to the Texas Electric Choice Plan and the UCC, that are necessary
            fully to preserve and protect the interests of each of the Issuer
            and the Trustee in the Transition Property have been executed and
            filed and are in full force and effect, and reciting the details of
            such filings or

                  (B) stating that, in the opinion of such counsel, no such
            action is necessary to preserve and protect such interests;

            (iv)  the Rating Agencies shall have received prior written notice
      of such transaction and, if such Person is not an Affiliate of CenterPoint
      Houston, the Rating Agency Condition shall be satisfied; and

            (v)   the Servicer shall have delivered to the Issuer, the PUCT, the
      Trustee and the Rating Agencies an opinion of independent tax counsel (as
      selected by, and in form and substance satisfactory to, the Servicer, and
      which may be based on a ruling from the Internal Revenue Service) to the
      effect that, for federal income tax purposes, such transaction will not
      result in a material adverse federal income tax consequence to the Issuer
      or the Transition Bondholders.

The Servicer shall not consummate any transaction referred to in clauses (a),
(b), (c), (d) or (e) above except upon execution of the above-described
agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and
(v) above. When any Person acquires the properties and assets

                                       16


of the Servicer substantially as a whole or otherwise becomes the successor to
the Servicer in accordance with the terms of this Section 5.03, then upon the
satisfaction of all of the other conditions of this Section 5.03, the Servicer
shall automatically and without further notice be released from its obligations
hereunder.

      SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS. Upon written
notice to the Trustee, the PUCT and the Rating Agencies, the Servicer may assign
a portion of its obligations hereunder to an assignee (A) in accordance with the
Intercreditor Agreement with respect to the obligations to maintain and process
any account into which initial collections may be deposited and process payments
in respect of Transition Charges or (B) subject to the satisfaction of Section
5.03.

      SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS. The
Servicer shall not be liable to the Issuer, its managers, the Transition
Bondholders, the Trustee or any other person, except as provided under this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; provided, however, that
this provision shall not protect the Servicer against any liability that would
otherwise be imposed by reason of willful misconduct, bad faith or negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement or the Intercreditor Agreement. The
Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on the advice of counsel reasonably acceptable to the Trustee
or on any document of any kind, reasonably believed to be genuine and to have
been signed by the proper party respecting any matters arising under this
Agreement.

      Except as provided in this Agreement (including but not limited to Section
3.10 of this Agreement), the Servicer shall not be under any obligation to
appear in, prosecute or defend any Proceeding that is not directly related to
one of the Servicer's enumerated duties in this Agreement or related to its
obligation to pay indemnification, and that in its reasonable opinion may cause
it to incur any expense or liability; provided, however, that the Servicer may,
in respect of any Proceeding, undertake any reasonable action that is not
specifically identified in this Agreement as a duty of the Servicer but that the
Servicer may deem necessary or desirable in respect of this Agreement and the
rights and duties of the parties to this Agreement and the interests of the
Transition Bondholders under this Agreement. The Servicer's costs and expenses
incurred in connection with any such Proceeding shall be payable from TC
Collections as an Operating Expense (and shall not be deemed to constitute a
portion of the Servicing Fee) in accordance with the Indenture. The Servicer's
obligations pursuant to this Section 5.05 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to the
Indenture may be delayed (it being understood that the Servicer may be required
initially to advance its own funds to satisfy its obligations hereunder).

      SECTION 5.06. CENTERPOINT HOUSTON NOT TO RESIGN AS SERVICER. Subject to
the provisions of Sections 5.03 and 5.04, CenterPoint Houston shall not resign
from the obligations and duties imposed on it as Servicer under this Agreement
unless the Servicer delivers to the Issuer, the Trustee, the PUCT and each
Rating Agency written notice of such resignation at the earliest practicable
time and, concurrently therewith or promptly thereafter, an opinion of
Independent legal counsel that the Servicer's performance of its duties under
this Agreement shall no longer be permissible under applicable law. No such
resignation shall

                                       17


become effective until a successor Servicer shall have assumed the servicing
obligations and duties hereunder of the Servicer in accordance with Section
6.04.

      SECTION 5.07. SERVICING FEE. (a) The Issuer agrees to pay the Servicer on
each Payment Date, solely to the extent amounts are available therefor in
accordance with the Indenture, the Servicing Fee with respect to all Series of
Transition Bonds. For so long as:

            (i)   CenterPoint Houston or one of its Affiliates is the Servicer,

            (ii)  a successor to CenterPoint Houston or one of its Affiliates is
      the Servicer due to the operation of the provisions of Section 5.03, or

            (iii) any Person is the successor Servicer hereunder pursuant to the
      provisions of Section 5.04 if the predecessor Servicer was CenterPoint
      Houston or one of its Affiliates,

the amount of the Servicing Fee paid to the Servicer annually shall equal 0.05%
of the Transition Bond Balance on the Series Issuance Date and shall be prorated
based on the fraction of a calendar year during which the Servicer provides any
of the services set forth in this Agreement).

            (b)   In the event that a successor Servicer not an Affiliate of
CenterPoint Houston is appointed in accordance with Section 6.04, the amount of
Servicing Fee paid to the Servicer annually shall be agreed upon by the
successor Servicer and the Trustee but shall in no event exceed 0.60% of the
Transition Bond Balance on the Series Issuance Date without the consent of the
PUCT and shall be prorated based on the fraction of a calendar year during which
the successor Servicer provides any of the services set forth in this Agreement.
The foregoing fees set forth in paragraph (a) above and this paragraph (b)
constitute a fair and reasonable price for the obligations to be performed by
the Servicer. The Servicer and any successor Servicer agrees to pay from amounts
received as the Servicing Fee all fees due and owing pursuant to the
Intercreditor Agreement, and neither the Servicer nor any successor Servicer
shall seek or be entitled to any other or additional reimbursement therefor. The
Trustee shall not be responsible or liable for the Servicing Fee or any fees
arising from the Intercreditor Agreement or for any increase or differential in
such fees.

            (c)   The Servicer will be entitled to retain any interest earnings
on such TC Collections prior to remittance to the Collection Account for the
applicable Series; provided, however, that if the Servicer fails to remit the TC
Collections to the Trustee on or before the second business day after the
Servicer received such TC Collections on more than three occasions during the
period that the Transition Bonds of a Series are outstanding, then thereafter
the Servicer will be required to pay the Trustee any actual interest earned on
TC Collections received by the Servicer and invested by the Servicer during each
collection period prior to remittance to the Trustee for so long as that Series
of Transition Bonds remains outstanding. All late payment charges will be
remitted to the Trustee.

                                       18


      SECTION 5.08. SERVICER EXPENSES. Except as otherwise expressly provided in
Sections 3.10 and 5.05, the Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder and under the
Intercreditor Agreement, including fees and disbursements of independent
accountants and counsel, taxes imposed on the Servicer and expenses incurred in
connection with reports to Transition Bondholders.

      SECTION 5.09. APPOINTMENTS. The Servicer, with written notice to the
Trustee and the PUCT, may at any time appoint a subservicer or agent to perform
all or any portion of its obligations as Servicer hereunder; provided, however,
that the Rating Agency Condition shall have been satisfied in connection
therewith; provided further that the Servicer shall remain obligated and be
liable to the Issuer for the servicing and administering of the Transition
Property in accordance with the provisions hereof without diminution of such
obligation and liability by virtue of the appointment of such subservicer or
agent and to the same extent and under the same terms and conditions as if the
Servicer alone were servicing and administering the Transition Property. The
fees and expenses of the subservicer or agent shall be as agreed between the
Servicer and its subservicer or agent from time to time, and none of the Issuer,
the Trustee or the Transition Bondholders shall have any responsibility
therefor. Any such appointment shall not constitute a Servicer resignation under
Section 5.06. The Designated Account Holder shall constitute a subservicer for
purposes of this Section 5.09.

      SECTION 5.10. NO SERVICER ADVANCES. The Servicer shall not make any
advances of interest on or principal of the Transition Bonds.

      SECTION 5.11. REMITTANCES. The Servicer will make periodic payments on
account of TC Collections to the Trustee for deposit in the Collection Account
for the applicable series of Transition Bonds. The Servicer will remit TC
Collections to the Trustee on a daily basis, which daily remittance shall be
made as soon as reasonably practicable but in no event later than the second
Business Day after the Servicer receives those TC Collections.

      SECTION 5.12. PROTECTION OF TITLE. The Servicer shall execute and file all
filings, including filings with the Secretary of State of the State of Texas
pursuant to the Texas Electric Choice Plan and Article 9 of the UCC, and cause
to be executed and filed all filings, all in such manner and in such places as
may be required by law fully to preserve, maintain and protect the interests of
the Issuer and the Trustee in the Transition Property, including all filings
required under the Texas Electric Choice Plan and Article 9 of the UCC relating
to the transfer of the ownership or security interest in the Transition Property
by the Seller to the Issuer or any security interest granted by the Issuer in
the Transition Property. The Servicer shall deliver (or cause to be delivered)
to the Issuer, the PUCT and the Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.

                                   ARTICLE VI

                                SERVICER DEFAULT

      SECTION 6.01. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") occurs and is continuing:

                                       19


            (a)   any failure by the Servicer to remit to the Trustee, on behalf
of the Issuer, any required remittance by the date that such remittance must be
made that continues unremedied for a period of five Business Days; or

            (b)   any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement of the Servicer set forth in
this Agreement (other than as provided in Section 6.01(a) or (c)) or any other
Basic Document to which it is a party in such capacity, which failure

            (i)   materially and adversely affects the Transition Property or
      the timely collection of the Transition Charges or the rights of the
      Trustee or the Transition Bondholders, and

            (ii)  continues unremedied for a period of 60 days after the earlier
      to occur of (A) the Trustee, the PUCT or the Issuer delivers written
      notice of such failure to the Servicer or (B) an officer of the Servicer
      discovers such failure;

            (c)   any failure by the Servicer duly to perform its obligations
under Section 7 of Annex 1 to this Agreement in the time and manner set forth
therein, which failure continues unremedied for a period of five business days;

            (d)   any representation or warranty made by the Servicer in this
Agreement or any Basic Document proves to have been incorrect when made, which
has a material adverse effect on the Transition Property or the Issuer's
ownership interest therein, the security interest of the Trustee in the
Transition Property, the Issuer, the Transition Bondholders or the investment of
the Transition Bondholders in the Transition Bonds, and which material adverse
effect continues unremedied for a period of 60 days after the date on which
written notice thereof shall have been given to the Servicer (with a copy to the
Trustee) by the Issuer, the PUCT or the Trustee or after discovery of such
failure by an officer of the Servicer, as the case may be; or

            (e)   an Insolvency Event occurs with respect to the Servicer;

then, so long as the Servicer Default shall not have been remedied, and in no
other circumstances, the Trustee may, or shall upon the written instruction of
the Majority Holders, terminate all the rights and obligations (other than the
indemnification obligations set forth in Section 5.02 hereof and the obligation
under Section 6.04 to continue performing its functions as Servicer until a
successor Servicer is appointed) of the Servicer under this Agreement by notice
then given in writing to the Servicer (a "Termination Notice") and the Trustee
shall comply with the provisions of Section 5 of the Intercreditor Agreement.
The Servicer shall notify each Rating Agency promptly upon the Servicer's
receipt of a Termination Notice.

      In addition, upon a Servicer Default, the Issuer and the Trustee shall be
entitled to (x) apply to a state district court located in Travis County, Texas,
for sequestration and payment to the Trustee of revenues arising with respect to
the Transition Property, (y) foreclose on or otherwise enforce the Lien on and
security interests in the Transition Property and (z) apply to the PUCT for an
order that amounts arising from the Transition Charges be transferred to a
separate account for the benefit of the Transition Bondholders, in accordance
with the Texas Electric Choice Plan.

                                       20


      On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Transition Property, the related Transition Charges or otherwise, shall,
upon appointment of a successor Servicer pursuant to Section 6.04 and pursuant
to the provisions of the Intercreditor Agreement, without further action, pass
to and be vested in such successor Servicer and, without limitation, the Trustee
is hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination Notice,
whether to complete the transfer of the Transition Property Documentation and
related documents, or otherwise. The predecessor Servicer shall cooperate with
the successor Servicer, the Trustee and the Issuer in effecting the termination
of the responsibilities and rights of the predecessor Servicer under this
Agreement and the Intercreditor Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the predecessor Servicer for remittance, or shall thereafter
be received by it with respect to the Transition Property or the related
Transition Charges. As soon as practicable after receipt by the Servicer of such
Termination Notice, the Servicer shall deliver the Transition Property
Documentation to the successor Servicer. All reasonable costs and expenses
(including attorneys' fees and expenses) incurred in connection with
transferring the Transition Property Documentation to the successor Servicer and
amending this Agreement or the Intercreditor Agreement to reflect such
succession as Servicer pursuant to this Section shall be paid by the predecessor
Servicer upon presentation of documentation of such costs and expenses. All
costs and expenses (including attorneys' fees and expenses) incurred in
connection with transferring the Transition Property Documentation to the
successor Servicer and amending this Agreement or the Intercreditor Agreement to
reflect the succession as Servicer other than pursuant to this Section shall be
paid by the party incurring such costs and expenses. Termination of CenterPoint
Houston's rights as a Servicer shall not terminate CenterPoint Houston's rights
or obligations in its individual capacity under the Sale Agreement or the
Intercreditor Agreement (except rights thereunder deriving from its rights as
the Servicer hereunder).

      SECTION 6.02. NOTICE OF SERVICER DEFAULT. The Servicer shall deliver to
the Issuer, to the Trustee, to the PUCT, and to each Rating Agency promptly
after having obtained actual knowledge thereof, but in no event later than two
Business Days thereafter, written notice in an Officers' Certificate of any
event or circumstance which, with the giving of notice or the passage of time,
would become a Servicer Default under Section 6.01.

      SECTION 6.03. WAIVER OF PAST DEFAULTS. The Trustee, with the written
consent of the Majority Holders, may waive in writing in whole or in part any
default by the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required remittances to the Trustee
of TC Collections from Transition Property in accordance with Section 5.11 of
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto.

      SECTION 6.04. APPOINTMENT OF SUCCESSOR.

                                       21


            (a)   Upon the Servicer's receipt of a Termination Notice pursuant
to Section 6.01 or the Servicer's resignation in accordance with the terms of
this Agreement, the Servicer shall continue to perform its functions as Servicer
under this Agreement and shall be entitled to receive the requisite portion of
the Servicing Fee, until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's removal or resignation hereunder, the Trustee at the written
direction and with the consent of the Majority Holders shall appoint a successor
Servicer, and the successor Servicer shall accept its appointment by a written
assumption in form acceptable to the Issuer and the Trustee. In no event shall
the Trustee be liable for its appointment of a successor Servicer appointed with
due care. If, within 30 days after the delivery of the Termination Notice, a new
Servicer shall not have been appointed and accepted such appointment, the
Trustee may petition the PUCT or a court of competent jurisdiction to appoint a
successor Servicer under this Agreement. A Person shall qualify as a successor
Servicer only if:

            (i)   such Person is permitted under PUCT Regulations to perform the
      duties of the Servicer pursuant to the Texas Electric Choice Plan, the
      Financing Order and this Agreement,

            (ii)  either (A) the PUCT has approved the appointment of the
      successor Servicer or (B) 45 days have lapsed since the PUCT received
      notice of appointment of the successor Servicer and the PUCT has neither
      approved nor disapproved that appointment,

            (iii) the Rating Agency Condition shall have been satisfied, and

            (iv)  such Person enters into a servicing agreement with the Issuer
      having substantially the same provisions as this Agreement and into the
      Intercreditor Agreement (as Additional TC Servicer).

            (b)   Upon appointment, the successor Servicer shall be the
successor in all respects to the predecessor Servicer under this Agreement and
shall be subject to all the responsibilities, duties and liabilities arising
thereafter relating thereto placed on the predecessor Servicer and shall be
entitled to the Servicing Fee and all the rights granted to the predecessor
Servicer by the terms and provisions of this Agreement.

            (c)   The successor Servicer may not resign unless it is prohibited
from serving as such by law.

      SECTION 6.05. COOPERATION WITH SUCCESSOR. The predecessor Servicer
covenants and agrees with the Issuer that it will, on an ongoing basis,
cooperate with the successor Servicer and provide whatever information is, and
take whatever actions are, reasonably necessary to assist the successor Servicer
in performing its obligations hereunder.

                                       22


                                   ARTICLE VII

                            MISCELLANEOUS PROVISIONS

      SECTION 7.01. AMENDMENT. This Agreement may be amended by the Servicer and
the Issuer, with the prior written consent of the Trustee, the consent of the
PUCT pursuant to Section 7.12 if the contemplated amendment increases ongoing
qualified costs as defined in the Financing Order and the satisfaction of the
Rating Agency Condition. Promptly after the execution of any such amendment or
consent, the Issuer shall furnish written notification of the substance of such
amendment or consent to each of the Rating Agencies.

      Prior to the execution of any amendment to this Agreement, the Issuer and
the Trustee shall be entitled to receive and conclusively rely upon an Opinion
of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and the Opinion of Counsel referred to in Section
3.11. The Issuer and the Trustee may, but shall not be obligated to, enter into
any such amendment which affects their own rights, duties or immunities under
this Agreement or otherwise.

      SECTION 7.02. NOTICES. All demands, notices and communications upon or to
the Servicer, the Issuer, the PUCT, the Trustee or the Rating Agencies under
this Agreement shall be in writing, delivered personally, via facsimile, by
reputable overnight courier or by first class mail, postage prepaid, and shall
be deemed to have been duly given upon receipt

            (a) in the case of the Servicer, to CenterPoint Houston, 1111
Louisiana Street, Houston, Texas 77002, Attention: Treasurer;

            (b) in the case of the Issuer, to CenterPoint Energy Transition Bond
Company II, LLC, 1111 Louisiana Street, Suite 4655B, Houston, Texas 77002,
Attention: Manager;

            (c) in the case of the Trustee, at its Corporate Trust Office;

            (d) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007;

            (e) in the case of Standard & Poor's, to Standard & Poor's, a
division of The McGraw-Hill Companies, 55 Water Street, New York, New York
10041; and

            (f) in the case of Fitch, to Fitch Ratings, 1 State Street Plaza,
New York, New York 10004;

            (g) in the case of the PUCT, to 1701 N. Congress Avenue, Austin,
Texas 78711-3326, Attention: Executive Director and General Counsel;

or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.

      SECTION 7.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.03 and 5.04 and as provided
in the provisions of this

                                       23


Agreement concerning the resignation or termination of the Servicer, this
Agreement may not be assigned by the Servicer. Any purported assignment not in
compliance with this Agreement shall be void.

      SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Servicer, the Issuer and, to the
extent provided herein or in the other Basic Documents, Customers and the other
Persons expressly referred to herein and the Trustee, on behalf of itself and
the Transition Bondholders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Series Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
Notwithstanding anything to the contrary contained herein, for the avoidance of
doubt, any right, remedy or claim to which any Customer may be entitled pursuant
to the Financing Order and this Agreement may be asserted or exercised only by
the PUCT (or by the Attorney General of the State of Texas in the name of the
PUCT) for the benefit of such Customer.

      SECTION 7.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

      SECTION 7.06. SEPARATE COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

      SECTION 7.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.

      SECTION 7.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.

      SECTION 7.09. ASSIGNMENT TO THE TRUSTEE. The Servicer hereby acknowledges
and consents to any pledge, assignment and grant of a security interest by the
Issuer to the Trustee pursuant to the Indenture for the benefit of any
Transition Bondholders of all right, title and interest of the Issuer in, to and
under the Transition Property owned by the Issuer and the proceeds thereof and
the assignment of any or all of the Issuer's rights hereunder and under the
Intercreditor Agreement to the Trustee. Notwithstanding such assignment, in no
event shall the Trustee have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer, hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.

                                       24


      SECTION 7.10. NONPETITION COVENANTS. Notwithstanding any prior termination
of this Agreement or the Indenture, but subject to a court's rights to order the
sequestration and payment of revenues arising with respect to the Transition
Property pursuant to Section 39.309(f) of the Texas Electric Choice Plan, the
Servicer shall not, prior to the date which is one year and one day after the
termination of the Indenture, petition or otherwise invoke or cause the Issuer
to invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of the property of the Issuer, or ordering the
winding up or liquidation of the affairs of the Issuer.

      SECTION 7.11. TERMINATION. This Agreement shall terminate when all
Transition Bonds have been retired or redeemed in full.

      SECTION 7.12. PUCT CONSENT. Except as specifically set forth in Section
6.04, to the extent the consent of the PUCT is required to effect any amendment
to or modification of this Agreement or any provision of this Agreement,

            (a)   CenterPoint Houston may request the consent of the PUCT by
delivering to the PUCT's executive director and general counsel a written
request for such consent, which request shall contain:

            (i)   a reference to Docket No. 30485 and a statement as to the
      possible effect of the amendment on ongoing qualified costs;

            (ii)  an Officer's Certificate stating that the proposed amendment
      or modification has been approved by all parties to this Agreement; and

            (iii) a statement identifying the person to whom the PUCT or its
      staff is to address its consent to the proposed amendment or modification
      or request additional time;

            (b)   The PUCT shall, within 30 days of receiving the request for
consent complying with Section 7.12(a) above, either

            (i)   provide notice of its consent or lack of consent to the person
      specified in Section 7.12(a)(iii) above, or

            (ii)  be conclusively deemed, on the 31st day after receiving the
      request for consent, to have consented to the proposed amendment or
      modification,

unless, within 30 days of receiving the request for consent complying with
Section 7.12(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 7.12(a)(iii) above a written statement requesting an
additional amount of time not to exceed thirty days in which to consider whether
to consent to the proposed amendment or modification. If the PUCT or its staff
requests an extension of time in the manner set forth in the preceding sentence,
then the PUCT shall either provide notice of its consent or lack of consent to
the person specified in Section 7.12(a)(iii) above no later than the last day of
such extension of time or be conclusively

                                       25


deemed to have consented to the proposed amendment or modification on the last
day of such extension of time. Any amendment or modification requiring the
consent of the PUCT shall become effective on the later of (i) the date proposed
by the parties to such amendment or modification and (ii) the first day after
the expiration of the 30-day period provided for in Section 7.12(b)(ii), or, if
such period has been extended pursuant thereto, the first day after the
expiration of such period as so extended.

      SECTION 7.13. EFFECT OF SUBSEQUENT PUCT REGULATIONS. Notwithstanding
anything to the contrary contained in this Agreement (including Annex 1 hereto),
to the extent the PUCT promulgates any PUCT Regulation permitted by the
Financing Order or the Texas Electric Choice Plan whose effect is to modify or
supplement any provision of this Agreement relating to REP standards, this
Agreement shall be deemed to have been so modified or supplemented on the
effective date of such regulation, and all other provisions contained herein
shall be deemed modified accordingly without the necessity of any further action
by any party hereto. The Servicer will notify the Issuer, the Rating Agencies
and the Trustee of any such PUCT Regulation and the corresponding modification
of or supplement to this Agreement promptly upon obtaining knowledge thereof.

                                       26


      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.

                                        CENTERPOINT ENERGY TRANSITION BOND
                                        COMPANY II, LLC

                                        By: /s/ MARC KILBRIDE
                                            -----------------------------------
                                            Name: Marc Kilbride
                                            Title: Manager

                                        CENTERPOINT ENERGY HOUSTON
                                        ELECTRIC, LLC, as Servicer

                                        By: /s/ Marc Kilbride
                                            -----------------------------------
                                            Name: Marc Kilbride
                                            Title: Vice President and Treasurer

Acknowledged and Accepted:
Wilmington Trust Company,
not in its individual capacity but solely as
Trustee on behalf of the Holders
of the Transition Bonds

By: /s/ ERWIN M. SORIANO
    ---------------------------------
      Name: Erwin M. Soriano
      Title: Assistant Vice President

                                       27


                                   SCHEDULE A
                                       TO
                     TRANSITION PROPERTY SERVICING AGREEMENT

Proceedings pending or, to the Servicer's best knowledge, threatened before any
court, federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties seeking any determination or ruling that might materially and
adversely affect the Transition Property or the performance by the Servicer of
its obligations under, or the validity or enforceability against the Servicer
of, this Agreement:

NONE.

                                       28

                                     ANNEX 1
                                       TO
                     TRANSITION PROPERTY SERVICING AGREEMENT

      The Servicer agrees to comply with the following with respect to
CenterPoint Energy Transition Bond Company II, LLC (the "Issuer"):

      SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Appendix A to the Transition
Property Servicing Agreement dated as of December 16, 2005 between the Issuer
and CenterPoint Houston, as Servicer.

      SECTION 2. CHANGES TO PBRAF METHODOLOGY PURSUANT TO PUCT ORDER.
CenterPoint Houston's methodology for allocating qualified costs and developing
the initial PBRAFs will not be changed except in the limited circumstance where
total retail stranded costs on a statewide basis exceed $5 billion as described
in Part D of Section 6 of Schedule TC2. The Servicer shall file the adjustments
required therein, within 45 days after the PUCT issues any order that causes the
total statewide stranded costs (determined pursuant to Section 39.253(f) of the
Texas Electric Choice Plan) to exceed $5 billion or changes the amount by which
the total statewide stranded costs (determined pursuant to Section 39.253(f) of
the Texas Electric Choice Plan) exceed $5 billion.

      SECTION 3. CALCULATION DATE STATEMENTS TO ISSUER AND TRUSTEE. For each
Calculation Date, the Servicer shall provide to the Issuer, the PUCT, the
Trustee and the Rating Agencies a statement indicating:

            (a) the Transition Bond Balance and the Projected Transition Bond
      Balance as of the immediately preceding Payment Date,

            (b) the amount on deposit in the Capital Subaccount and the Required
      Capital Amount as of the immediately preceding Payment Date;

            (c) the Projected Transition Bond Balance and the Servicer's
      projection of the Transition Bond Balance on the Payment Date immediately
      preceding the next succeeding Adjustment Date; and

            (d) the Servicer's projection of the amount on deposit in the Excess
      Funds Subaccount for the Payment Date immediately preceding the next
      succeeding Adjustment Date.

      SECTION 4. CALCULATION DATE ACTIVITY BETWEEN THE SERVICER AND REPS.

            (a) In accordance with the Financing Order and Schedule TC2, each
REP will be permitted to hold back an allowance for charge-offs in its
Transition Charge payments to the Servicer. Such charge-off rate will be
recalculated each year in connection with the annual Transition Charge
Adjustment. Until the first Calculation Date, each REP that has chosen to hold
back an allowance for charge-offs in its payments of TC Collections to the
Servicer will remit to the Servicer TC Collections based on the charge-off
percentage in effect for transition

                                       1


charges related to the transition bonds issued by CenterPoint Energy Transition
Bond Company, LLC on October 24, 2001. Thereafter, on or about each Calculation
Date, the REP and the Servicer will be responsible for reconciling the amounts
held back with amounts actually written off as uncollectible in accordance with
the terms agreed to by the REP and the Servicer, provided that:

            (i) The REP's right to reconciliation for write-offs will be limited
      to customers whose service has been permanently terminated and whose
      entire accounts (i.e., all amounts due the REP for its own account as well
      as the portion representing all Transition Charges) have been written off.

            (ii) The REP's recourse will be limited to a credit against future
      Transition Charge payments unless the REP and the Servicer agree to
      alternative arrangements, but, in accordance with the Financing Order and
      Schedule TC2, in no event will the REP have recourse to the Trustee, the
      Issuer or the Issuer's funds for such payments.

            (iii) In accordance with the Financing Order and Schedule TC2, the
      REP shall provide information on a timely basis to the Servicer so that
      the Servicer can include the REP's default experience and any subsequent
      credits into its calculation of the adjusted Transition Charge rates for
      the next Transition Charge billing period. The REP's rights to credits
      will not take effect until after such adjusted Transition Charges rates
      have been implemented.

            (b) If the REP has held back less than the amount actually written
off as uncollectible during the time period, the REP shall be entitled to a
credit against future Transition Charge payments over the twelve-month period
immediately following the next Adjustment Date in the amount of the hold-back
shortfall and no other remedy. If the REP has held back more than the amount
actually written off as uncollectible during the time period, the permitted
charge-off percentage shall be adjusted so that it is projected that the REP
will remit to the Servicer the amount of such underpayment of TC Collections
over the twelve-month period immediately following the next subsequent
Adjustment Date.

            (c) The Servicer will incorporate the REPs' Customer default
information and any subsequent credits to the REPs for Transition Charges
already paid by the REPs to the Servicer in its calculation of the Transition
Charge Adjustments on the Calculation Date. The REPs' right described in this
Section 4 to receive a credit against future payments of TC Collections to the
Servicer shall not take effect until after the next subsequent Adjustment Date.

            (d) In any case the Servicer shall bill to and collect from each REP
such REP's share of the amount required to meet the requirements of the
Financing Order, provided that in addition each bill shall also include the
amount of the holdback allowed for charge-offs.

      SECTION 5. REMITTANCE STATEMENTS. On or before each remittance by the
Servicer to the Trustee, the Servicer shall prepare and furnish to the Issuer,
the PUCT and the Trustee a statement setting forth the aggregate amount remitted
or to be remitted by the Servicer to the Trustee for deposit on such date
pursuant to the Indenture.

                                       2


      SECTION 6. PAYMENT DATE STATEMENTS. By 12:00 noon Central Time on the
Business Day immediately preceding each Payment Date, the Servicer shall prepare
and furnish to the Issuer, the PUCT, the Trustee and the Rating Agencies a
Semiannual Servicer's Certificate setting forth the transfers and payments to be
made in respect of such Payment Date pursuant to Section 8.02(d) of the
Indenture and the amounts thereof and the amounts to be paid to Holders of
Transition Bonds of each Series pursuant to Section 8.02(e) of the Indenture.

      SECTION 7. TRANSITION CHARGE AND PBRAF ADJUSTMENTS.

            (a) Prior to each Calculation Date, the Servicer shall calculate

            (i) the PBRAF Adjustments to be made in accordance with the
      methodology set forth in Schedule TC2, as may be modified from time to
      time by order from the PUCT,

            (ii) the Transition Bond Balance as of each Calculation Date (a
      written copy of which shall be delivered by the Servicer to the Trustee
      and the PUCT within five business days following such Calculation Date),
      and

            (iii) the Transition Charge Adjustment with respect to the
      Transition Property for the twelve-month period preceding and including
      the next upcoming Adjustment Date and each subsequent twelve-month period,
      such that the Servicer projects that TC Collections therefrom allocable to
      the Issuer will be sufficient so that:

                  (A) the Transition Bond Balance on the Payment Date
            immediately preceding the next Adjustment Date will equal the
            Projected Transition Bond Balance as of such date or, if earlier
            with respect to any Series or Tranche of Transition Bonds, by the
            Expected Final Payment Date therefor, taking into account any
            amounts on deposit in the Excess Funds Subaccount,

                  (B) the amount on deposit in the Capital Subaccount on the
            Payment Date immediately preceding the next Adjustment Date, or if
            earlier with respect to the Senior Secured Transition Bonds, Series
            A or any Tranche thereof, by the Expected Final Payment Date
            therefor, will equal the Required Capital Amount, taking into
            account any amounts on deposit in the Excess Funds Subaccount and
            taking into account any prior withdrawals of interest or earnings on
            deposits in the Capital Subaccount used to meet payment obligations
            on the Senior Secured Transition Bonds, Series A,

                  (C) thereafter, the TC Collections will provide for
            amortization of the remaining outstanding principal amount of the
            Senior Secured Transition Bonds, Series A in accordance with the
            Expected Amortization Schedule therefor and payment of interest on
            the Senior Secured Transition Bonds, Series A when due,

                  (D) the Servicer can reconcile past overpayments and
            underpayments by all REPs of Transition Charges arising out of
            hold-backs for charge-offs in accordance with Section 4 of this
            Annex,

                                       3


                  (E) the Servicer can recover out of TC Collections the
            interest paid to all REPs arising out of a dispute between the
            Servicer and any REP resolved pursuant to Section 8(b) of this Annex
            for which the Servicer's claim to the funds in dispute was not
            clearly unfounded, and

                  (F) the fees and expenses of the Servicer, the Trustee, the
            independent managers of the Issuer and the Administrator and other
            fees expenses, charges and costs authorized in the Financing Order
            will be paid.

            (b) On each Calculation Date, the Servicer shall make annual
reconciliation filings with the PUCT for that Calculation Date. The Servicer
shall promptly thereafter provide notice and a copy of such filings to each
Rating Agency. The Servicer's Calculation Date filings shall include:

            (i) any PBRAF Adjustments to take effect on the next Adjustment Date
      (in which case, the Servicer shall provide notice of such filing to all
      parties in PUCT Docket No. 30485 and shall participate in a contested case
      proceeding at the PUCT, the purpose of which will be to determine whether
      any proposed adjustment complies with the Financing Order, as set forth
      therein), and

            (ii) a tariff supplement setting forth Transition Charge Adjustments
      to become effective on the next Adjustment Date and supporting data,
      including the calculation of the Transition Charge Adjustments.

            (c) The Servicer shall calculate any interim Transition Charge
Adjustments to be requested between Calculation Dates to correct
under-collection or over-collection of Transition Charges, as set forth in the
Financing Order and Schedule TC2, in order to provide for the timely payment of
the Transition Bonds. More particularly, the Servicer shall calculate and file
for interim Transition Charge Adjustments:

            (i) as needed to meet any Rating Agency requirement that the
      Transition Bonds of any Series be paid in full at scheduled maturity; or

            (ii) to correct any undercollection of Transition Charges,
      regardless of cause, in order to assure timely payment of the Transition
      Bonds of that Series based on Rating Agency and Transition Bondholder
      considerations, including a mandatory interim Transition Charge Adjustment
      in connection with each Payment Date if the Servicer forecasts that TC
      Collections during the next payment period will be insufficient to make
      all scheduled payments of interest, principal and other amounts in respect
      of the Transition Bonds of that Series and to replenish the Capital
      Subaccount for that Series to the Required Capital Amount.

            In the event an interim Transition Charge Adjustment is permitted
under Schedule TC2, the Servicer will file for such an adjustment with the PUCT
not less than fifteen days prior to the proposed Interim Adjustment Date. The
Servicer shall promptly thereafter provide notice and a copy of such filings to
each Rating Agency. The Servicer will make the interim filing described in this
Section 7(c) no more frequently than every three months if quarterly payments
are made to Transition Bond Owners and no more frequently than every six months
(except that

                                       4


interim filings will be made no more frequently than every three months in the
fourteenth and fifteenth years of the Transition Bonds).

            (d) The Servicer shall take reasonable steps to monitor the
Transition Charge rate for each class of Customers to determine whether any such
rate exceeds the maximum rate that class of Customers is obligated to pay under
Section 39.202(a) of the Texas Electric Choice Plan. If such maximum rate is
being exceeded for any class of Customers ("Affected Class"), then the Servicer
shall cause the billing entity for Customers in the Affected Class to apply the
maximum rate allowed under that section to the Affected Class, and the rates for
all other classes of Customers ("Remaining Classes") shall be recalculated using
the maximum rate for the Affected Class. The Servicer will allocate any
resulting deficiency in Transition Charges to the Remaining Classes based on the
ratio of the PBRAFs then in effect.

            (e) On each Adjustment Date and Interim Adjustment Date, the
Servicer shall

            (i) take all reasonable actions and make all reasonable efforts in
      order to effectuate all adjustments approved by the PUCT to the Transition
      Charges and/or PBRAFs, and

            (ii) promptly send to the Trustee copies of all material notices and
      documents relating to such adjustments.

      SECTION 8. OTHER ACTIVITY BETWEEN THE SERVICER AND REPS.

            (a) In the event an REP provides any of (A) a cash deposit to the
Trustee in the form of up to two months' maximum expected transition charge
collections, (B) a surety bond or affiliate guarantee or (C) a letter of credit
(each, an "REP Deposit") pursuant to the Financing Order and Schedule TC2,

            (i) the Servicer shall agree with the REP as to the size of the
      initial REP Deposit,

            (ii) no more frequently than quarterly, upon the request of either
      the REP or the Servicer, the Servicer shall cooperate with the REP as
      required by the Financing Order and Schedule TC2 to ensure that the REP
      Deposit accurately reflects up to two months' maximum TC Collections.
      Within 10 days following the review by the REP and Servicer of the size of
      the REP Deposit, either the REP shall remit to the Trustee the amount of
      any shortfall in the REP Deposit or the Servicer shall instruct the
      Trustee to remit or release to the REP any portion of the REP Deposit no
      longer required to be on deposit,

            (iii) The Servicer shall instruct the Trustee in writing to remit or
      release to the REP the REP Deposit, plus any investment earnings thereon,
      upon the Final Maturity Date of the final Tranche, if applicable, of the
      final Series of Transition Bonds except such portion of the REP Deposit as
      was utilized in satisfaction of the REP's obligation to remit billed
      Transition Charges, and

                                       5


            (iv) The Servicer shall instruct the Trustee to remit to the REP the
      REP Deposit, plus any investment earnings thereon, within 30 days of the
      date on which the REP Deposit is no longer required under the Financing
      Order or Schedule TC2.

            (b) In the event an REP disputes any amount of billed Transition
Charges, the Servicer shall require the REP to pay the disputed amount under
protest within the time for payment set forth in Section 3.02 of this Agreement.
The Servicer shall attempt to resolve informally the dispute with the REP, or
any dispute related to the date of receipt of Transition Charge payments,
Penalties, or the size of the required REP Deposit. If the REP and the Servicer
cannot reach an informal resolution to the dispute, either party may file a
complaint with the PUCT as set forth in the Financing Order and Schedule TC2. If
the REP prevails in the informal dispute process or before the PUCT, the
Servicer shall provide the REP with a refund of the disputed amount paid to the
Servicer plus interest at a rate approved by the PUCT. As provided in the
Financing Order, Schedule TC2 and Section 7(a)(iii)(F) of this Annex, interest
paid by the Servicer shall be recoverable through Transition Charges if the
Servicer's claim to the funds is not clearly unfounded. In addition, as provided
in the Financing Order and Schedule TC2, the Servicer shall not be required to
pay interest to the REP if the Servicer has received inaccurate metering data
from another entity providing competitive metering services pursuant to the
Texas Electric Choice Plan.

            (c) The Servicer shall adhere to the instructions of an REP that
bills Customers for Transition Charges to terminate transmission and
distribution service to a Customer for nonpayment by the Customer pursuant to
the Financing Order and Schedule TC2.

      SECTION 9. OTHER ACTIVITIES BY THE SERVICER.

            (a) In addition to the obligation set forth in Section 8(c) of this
Annex, the Servicer shall have the rights and obligations to terminate electric
service for non-payment of Transition Charges under the circumstances set forth
in Schedule TC2 and PUCT Regulations.

            (b) If an REP fails to remit payment in full of all Transition
Charges billed to such REP by the day that is 45 calendar days after the REP
Billing Day, the Servicer shall, in addition to assessing the Penalty against
such REP described in Section 3.02(c) of the Servicing Agreement, direct the
Trustee by written instruction to apply from such REP's REP Deposit (by making a
withdrawal from a deposit account, a demand under a surety bond or a guarantee,
and/or a draw under a letter of credit, as applicable) into the Collection
Account the lesser of the amount of Transition Charges such REP has failed to
remit or the amount of the REP Deposit. The Servicer shall notify the REP of
such withdrawal, demand and/or draw from the REP Deposit to the Collection
Account and instruct the REP to remit, or otherwise restore, immediately the
amount of such withdrawal, demand and/or draw to the Trustee for replenishment
of such REP's REP Deposit. The Servicer shall require the REP to immediately
replenish its REP Deposit and shall avail itself of such legal remedies as may
be appropriate to collect any remaining unpaid Transition Charges and associated
penalties due to the Servicer after application of the REP Deposit, in
accordance with the Financing Order and Schedule TC2.

                                       6


            (c) If an REP is in default pursuant to Section 9 of Schedule TC2
and Finding of Fact 60 of the Financing Order (such default an "REP Default"),
the Servicer shall perform such duties as are required of the Servicer therein,
including but not limited to the following:

            (i) in the event the REP in REP Default seeks to implement
      alternative arrangements with the Servicer regarding the billing and
      collection of Transition Charges pursuant to Section 9 of Schedule TC2 and
      Finding of Fact 60 of the Financing Order, the Servicer shall consider
      proposals from such REP but shall not accept any proposal, and no proposal
      shall be deemed mutually suitable and agreeable, other than the options
      set forth in Section 9 of Schedule TC2 unless (i) the Servicer is directed
      promptly in writing by the Trustee to accept a proposal of such REP
      following the approval of such proposal by the Majority Holders, (ii) such
      proposal would not materially and adversely affect the interests of the
      Transition Bondholders and (iii) the Rating Agency Condition has been
      satisfied; and

            (ii) in the event the REP in REP Default fails to immediately select
      and implement an alternative method of billing and collecting Transition
      Charges as specified in Section 9 of Schedule TC2 and Finding of Fact 60
      of the Financing Order or fails to adequately meet its responsibilities
      thereunder, the Servicer shall immediately allow the appropriate Provider
      of Last Resort or another qualified REP of a Customer's choosing to
      immediately assume responsibility for the billing and collection of
      Transition Charges from such Customer.

            (d) In the event the appropriate Provider of Last Resort defaults or
is ineligible to provide billing and collection of Transition Charges when
requested by a Customer or the Servicer, as applicable, the Servicer shall
assume responsibility for billing and collection of Transition Charges until a
new Provider of Last Resort is named by the PUCT or the Customer requests the
services of another REP, in accordance with Schedule TC2 and PUCT Regulations.
In any case, the Servicer shall enforce the obligations, and exercise its
remedies against, each REP including any Provider of Last Resort, as permitted
under the Financing Order and Schedule TC2.

                                       7


                                   APPENDIX A

                                   DEFINITIONS

      The definitions contained in this Appendix A are applicable to the
singular as well as the plural forms of such terms.

      "Accrued Interest" means interest accrued at the Federal Funds Rate on
amounts held by the Servicer prior to, on, or after the date such amounts are
due and payable to the Trustee under this Agreement.

      "Act" has the meaning specified in Section 11.03 of the Indenture.

      "Additional TC Servicer" has the meaning specified in the Intercreditor
Agreement.

      "Adjustment Date" means the date other than an Interim Adjustment Date on
which any Transition Charge Adjustment (other than an interim (non-annual)
Transition Charge Adjustment) and/or any PBRAF Adjustment, as applicable,
becomes effective. The first Adjustment Date will be on or about December 1,
2006, and all subsequent Adjustment Dates shall be on or about the same day of
the year in subsequent years.

      "Administration Agreement" means the Administration Agreement dated as of
December 16, 2005, between CenterPoint Houston, as Administrator, and the
Issuer, as the same may be amended and supplemented from time to time.

      "Administrator" means CenterPoint Houston as administrator under the
Administration Agreement and each successor to or assignee of CenterPoint
Houston in the same capacity.

      "Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, control, when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms controlling and controlled
have meanings correlative to the foregoing.

      "Annual Accountant's Report" has the meaning assigned to that term in
Section 3.07 of the Servicing Agreement.

      "Basic Documents" means the Issuer LLC Agreement, the Issuer Certificate
of Formation, the Sale Agreement, the Servicing Agreement, the Intercreditor
Agreement, each Swap Agreement (as defined in the Indenture) relating to the
Senior Secured Transition Bonds, Series A, the Administration Agreement, the
Indenture, the Series Supplement, the Underwriting Agreement relating to the
Senior Secured Transition Bonds, Series A and the Bill of Sale.

      "Bill of Sale" has the meaning assigned to that term in the Sale
Agreement.

                                       8


      "Book-Entry Transition Bonds" means beneficial interests in the Transition
Bonds, ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 2.11 of the Indenture.

      "Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of Houston, Texas, or in the City of New
York, New York, are required or authorized by law or executive order to remain
closed.

      "Calculation Date" means, with respect to the Senior Secured Transition
Bonds, Series A, the date on which the calculations and filings set forth in the
Issuer Annex will be made each year. The first Calculation Date will be no later
than November 16, 2006, if the Servicer requests only Transition Charge
Adjustments, and no later than September 1, 2006, if the Servicer requests any
PBRAF Adjustments (whether or not the Servicer also requests Transition Charge
Adjustments). Subsequent Calculation Dates will be on or about the same
applicable day of the year in subsequent years.

      "Capital Subaccount" has the meaning specified in Section 8.02(a) of the
Indenture.

      "CenterPoint Houston" means CenterPoint Energy Houston Electric, LLC, a
Texas limited liability company, or its successor.

      "Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

      "Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.

      "Collection Account" has the meaning specified in Section 8.02(a) of the
Indenture.

      "Collection Period" means the period from and including the first day of a
calendar month to but excluding the first day of the next calendar month.

      "Corporate Trust Office" has the meaning specified in Appendix A to the
Indenture.

      "Customer Class" means each of the Transition Charge classes specified in
the Financing Order.

      "Customers" means each Person from whom CenterPoint Houston is authorized
to recover Qualified Costs as defined in and pursuant to the Texas Electric
Choice Plan or any PUCT Regulation, as more specifically set forth in the
Indenture.

      "Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.

      "Designated Account Holder" has the meaning specified in the Intercreditor
Agreement.

      "DTC" means The Depository Trust Company.

                                       9


      "Event of Default" has the meaning specified in Section 5.01 of the
Indenture.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Expected Amortization Schedule" means, with respect to the Senior Secured
Transition Bonds, Series A, or any Tranche thereof, the expected amortization
schedule for principal thereof, as specified in the Series Supplement.

      "Expected Final Payment Date" means, with respect to the Senior Secured
Transition Bonds, Series A, or, if applicable, each Tranche thereof, the date
when all interest and principal is scheduled to be paid for that Series or
Tranche in accordance with the Expected Amortization Schedule, as specified in
the Series Supplement.

      "Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Servicer from three federal funds brokers of
recognized standing selected by it.

      "Final Maturity Date" means, for the Senior Secured Transition Bonds,
Series A, or, if applicable, each Tranche thereof, the date by which all
principal and interest on the Transition Bonds is required to be paid, as
specified in the Series Supplement.

      "Financing Order" means the Financing Order issued by the PUCT on March
16, 2005 in Docket No. 30485 pursuant to the Texas Electric Choice Plan.

      "Fitch" means Fitch Ratings or any successor thereto.

      "Formation Documents" means, collectively, the Issuer Certificate of
Formation, the Issuer LLC Agreement and any other document pursuant to which the
Issuer is formed or governed, as the same may be amended and supplemented from
time to time.

      "Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond of any Series or Tranche is registered on the Transition Bond
Register.

      "Indenture" means the Indenture, dated as of December 16, 2005, between
the Issuer and the Trustee and the Series Supplement thereto dated as of
December 16, 2005 relating to the Senior Secured Transition Bonds, Series A
(including the forms and terms of the Senior Secured Transition Bonds, Series A
established thereunder), as the same may be amended and supplemented with
respect to the Senior Secured Transition Bonds, Series A from time to time.

      "Independent" means, when used with respect to any specified Person, that
the Person

            (a) is in fact independent of the Issuer, any other obligor upon the
      Transition Bonds, the Servicer and any Affiliate of any of the foregoing
      Persons,

                                       10


            (b) does not have any direct financial interest or any material
      indirect financial interest in the Issuer, any such other obligor, the
      Servicer or any Affiliate of any of the foregoing Persons and

            (c) is not connected with the Issuer, any such other obligor, the
      Servicer or any Affiliate of any of the foregoing Persons as an officer,
      employee, promoter, underwriter, trustee, partner, director or person
      performing similar functions.

      "Insolvency Event" means, with respect to a specified Person,

            (a) the filing of a decree or order for relief by a court having
      jurisdiction in the premises in respect of such Person or any substantial
      part of its property in an involuntary case under any applicable federal
      or State bankruptcy, insolvency or other similar law now or hereafter in
      effect, or appointing a receiver, liquidator, assignee, custodian,
      trustee, sequestrator or similar official for such Person or for any
      substantial part of its property, or ordering the winding-up or
      liquidation of such Person's affairs, and such decree or order shall
      remain unstayed and in effect for a period of 90 consecutive days, or

            (b) the commencement by such Person of a voluntary case under any
      applicable federal or State bankruptcy, insolvency or other similar law
      now or hereafter in effect, or the consent by such Person to the entry of
      an order for relief in an involuntary case under any such law, or the
      consent by such Person to the appointment of or taking possession by a
      receiver, liquidator, assignee, custodian, trustee, sequestrator or
      similar official for such Person or for any substantial part of its
      property, or the making by such Person of any general assignment for the
      benefit of creditors, or the failure by such Person generally to pay its
      debts as such debts become due, or the taking of action by such Person in
      furtherance of any of the foregoing.

      "Intercreditor Agreement" means the Intercreditor Agreement dated as of
December 16, 2005, among the Issuer, CenterPoint Houston, CenterPoint Energy
Transition Bond Company, LLC, the Trustee and the other parties thereto, each in
the capacities stated therein, as the same may be amended from time to time.

      "Interim Adjustment Date" means the effective date of any interim
(non-annual) Transition Charge Adjustment.

      "Issuance Advice Letter" means the issuance advice letter submitted to the
PUCT by CenterPoint Houston pursuant to the Financing Order in connection with
the issuance of the Senior Secured Transition Bonds, Series A.

      "Issuer" means CenterPoint Energy Transition Bond Company II, LLC, a
Delaware limited liability company, or any successor thereto pursuant to the
Indenture.

      "Issuer Annex" means Annex 1 of the Servicing Agreement.

                                       11


      "Issuer Certificate of Formation" means the Certificate of Formation of
the Issuer that was filed with the Delaware Secretary of State on December 3,
2004, as amended and restated on December 14, 2005, as the same may be amended
and restated from time to time.

      "Issuer LLC Agreement" means the Limited Liability Company Agreement
between the Issuer and CenterPoint Houston, as sole Member, effective as of
December 3, 2004, as amended and restated on December 16, 2005, as the same may
be amended and supplemented from time to time.

      "Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.

      "Losses" means collectively, any and all liabilities, obligations, losses,
damages, payments, costs or expenses of any kind whatsoever.

      "Majority Holders" means the Holders of a majority of the Outstanding
Amount of the Senior Secured Transition Bonds, Series A.

      "Moody's" means Moody's Investors Service Inc., or any successor thereto.

      "Officers' Certificate" means a certificate signed, in the case of
CenterPoint Houston, by:

            (a) any manager, the chairman of the board, the chief executive
      officer, the president, the vice chairman or any executive vice president,
      senior vice president or vice president; and

            (b) the treasurer, any assistant treasurer, the secretary or any
      assistant secretary.

      "Operating Expenses" means, with respect to the Issuer, all fees, costs
and expenses owed by the Issuer with respect to the Senior Secured Transition
Bonds, Series A, including all amounts owed by the Issuer to the Trustee, the
Servicing Fee, the fees and expenses relating to the Senior Secured Transition
Bonds, Series A, payable by the Issuer to the Administrator under the
Administration Agreement, the fees and expenses relating to the Senior Secured
Transition Bonds, Series A, payable by the Issuer to the Independent managers of
the Issuer, legal fees and expenses of the Servicer pursuant to this Servicing
Agreement, and legal and accounting fees, costs and expenses of the Issuer
relating to the Senior Secured Transition Bonds, Series A.

      "Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to CenterPoint Houston and the Issuer, which
counsel shall be reasonably acceptable to the Trustee, the Issuer or the Rating
Agencies, as applicable, and which shall be in form reasonably satisfactory to
the Trustee, if applicable.

      "Outstanding" with respect to Transition Bonds means, as of the date of
determination, all Transition Bonds theretofore authenticated and delivered
under the Indenture except:

            (a) Transition Bonds theretofore canceled by the Transition Bond
      Registrar or delivered to the Transition Bond Registrar for cancellation;

                                       12


            (b) Transition Bonds or portions thereof the payment for which money
      in the necessary amount has been theretofore deposited with the Trustee or
      any Paying Agent in trust for the Holders of such Transition Bonds;
      provided, however, that if such Transition Bonds are to be redeemed,
      notice of such redemption has been duly given pursuant to the Indenture or
      provision therefor, satisfactory to the Trustee; and

            (c) Transition Bonds in exchange for or in lieu of other Transition
      Bonds which have been authenticated and delivered pursuant to the
      Indenture unless proof satisfactory to the Trustee is presented that any
      such Transition Bonds are held by a bonafide purchaser;

provided that in determining whether the Holders of the requisite Outstanding
Amount of the Transition Bonds or any Series or Tranche thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Transition Bonds owned by the Issuer, any other
obligor upon the Transition Bonds, CenterPoint Houston or any Affiliate of any
of the foregoing Persons shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be fully protected in
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Transition Bonds that a Responsible Officer of the Trustee knows
to be so owned shall be so disregarded. Transition Bonds so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Transition Bonds and that the pledgee is not the Issuer, any other obligor
upon the Transition Bonds, the Servicer or any Affiliate of any of the foregoing
Persons.

      "Outstanding Amount" means the aggregate principal amount of all
Outstanding Senior Secured Transition Bonds, Series A, or, if the context
requires, all Outstanding Transition Bonds of a Tranche of Senior Secured
Transition Bonds, Series A, Outstanding at the date of determination.

      "Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 of the Indenture
and is authorized by the Issuer to make the payments of principal of or premium,
if any, or interest on the Transition Bonds on behalf of the Issuer.

      "Payment Date" means, with respect to the Senior Secured Transition Bonds,
Series A, or, if applicable, each Tranche thereof, the date or dates specified
as Payment Dates for such Series or Tranche in the Series Supplement therefor,
provided that if any such date is not a Business Day, the Payment Date shall be
the Business Day immediately succeeding such date.

      "PBRAF" means the periodic billing requirement allocation factor used to
allocate Transition Charges among different classes of Customers, as set forth
in Schedule TC2 and any other applicable tariff or order.

      "PBRAF Adjustment" means each adjustment to any PBRAF made in accordance
with Section 4.01 of the Servicing Agreement, Schedule TC2 and any other
applicable tariff, any order issued by the PUCT pursuant to Section 39.253 of
the Texas Electric Choice Plan, and the Issuer Annex.

                                       13


      "Penalty" means a late-fee penalty assessed by the Servicer against an REP
for the REP's failure to remit timely payments of Transition Charges as set
forth in Section 3.02(c) of this Agreement.

      "Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.

      "Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.

      "Projected Transition Bond Balance" means, as of any date, the anticipated
Outstanding Amount of Senior Secured Transition Bonds, Series A, after giving
effect to payment of the sum of the payment amounts provided for in the Expected
Amortization Schedules for the Senior Secured Transition Bonds, Series A, to be
paid on or before such date.

      "Provider of Last Resort" has the meaning specified in Section 39.106 of
the Texas Electric Choice Plan.

      "PUCT" means the Public Utility Commission of Texas or any successor
entity thereto.

      "PUCT Regulations" means any regulations, rules, orders or directives
promulgated, issued or adopted by the PUCT.

      "Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and the Financing Order.

      "Rating Agency" means any rating agency rating the Senior Secured
Transition Bonds, Series A, at the time of issuance at the request of the
Issuer, which initially shall be Moody's, Fitch and Standard & Poor's. If no
such organization or successor is any longer in existence, "Rating Agency" shall
be a nationally recognized statistical rating organization or other comparable
Person designated by the Issuer, written notice of which designation shall be
given to the Trustee, the PUCT and the Servicer.

      "Rating Agency Condition" means, with respect to any action, the
notification in writing to each Rating Agency of such action, and confirmation
from S&P to the Trustee and the Issuer that such action will not result in a
reduction or withdrawal of the then current rating by such Rating Agency of the
Senior Secured Transition Bonds, Series A.

      "Redemption Date" means, with respect to the Senior Secured Transition
Bonds, Series A, or, if applicable, each Tranche thereof, the date for the
redemption of the Transition Bonds of such Series or Tranche pursuant to
Sections 10.01 or 10.02 of the Indenture or the Series Supplement for such
Series or Tranche, which in each case shall be a Payment Date.

      "Released Parties" has the meaning specified in Section 5.02(f) of the
Servicing Agreement.

                                       14


      "REP" means a retail electric provider under the Financing Order.

      "REP Billing Day" has the meaning specified in Section 3.02(c) of the
Servicing Agreement.

      "REP Default" has the meaning specified in Section 9(c) of the Issuer
Annex.

      "REP Deposit" has the meaning specified in Section 8 of the Issuer Annex.

      "Required Capital Amount" means a capital contribution in an amount equal
to the amount specified in the Series Supplement, representing a capital
contribution from CenterPoint Houston.

      "Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Director, Managing Officer, associate, Assistant Vice President, Secretary,
Assistant Secretary, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.

      "Retiring Trustee" means a Trustee that resigns or vacates the office of
Trustee for any reason.

      "Sale Agreement" means the Transition Property Sale Agreement dated as of
December 16, 2005 relating to the Transition Property, between the Seller and
the Issuer, as the same may be amended and supplemented from time to time.

      "Sale Date" means the date on which the Seller sells, transfers, assigns
and conveys the Transition Property to which this Agreement relates to the
Issuer.

      "Schedule TC2" means the tariff on the form entitled "Schedule TC2"
approved by the PUCT in the Financing Order and filed by CenterPoint Houston
prior to the issuance of any Transition Bonds.

      "Seller" means CenterPoint Houston, or its successor, in its capacity as
seller of the Transition Property to the Issuer pursuant to the Sale Agreement.

      "Semiannual Servicer's Certificate" means the statement prepared by the
Servicer and delivered to the Transition Bond Registrar or in its absence or
failure the Paying Agent with respect to the Senior Secured Transition Bonds,
Series A, on or prior to each Payment Date therefor, the form of which is
attached to the Indenture as Schedule 1.

      "Series" means the Senior Secured Transition Bonds, Series A issued by the
Issuer and authenticated by the Trustee pursuant to the Indenture, as specified
in the Series Supplement.

      "Series Issuance Date" means the date on which the Senior Secured
Transition Bonds, Series A, are to be originally issued in accordance with the
Indenture and the Series Supplement.

                                       15


      "Series Supplement" means the First Supplemental Indenture dated of even
date herewith to the Indenture that authorizes the Senior Secured Transition
Bonds, Series A.

      "Series Trust Estate" has the meaning specified in the Series Supplement.

      "Servicer" means CenterPoint Houston, as the servicer of the Transition
Property, and each successor to or assignee of CenterPoint Houston (in the same
capacity) pursuant to Section 5.03, 5.04, or 6.04 of the Servicing Agreement.

      "Servicer Default" means an event specified in Section 6.01 of the
Servicing Agreement.

      "Servicing Agreement" means the Transition Property Servicing Agreement
dated as of December 16, 2005, between the Issuer and the Servicer, and
acknowledged by the Trustee, relating to the Transition Property as the same may
be amended and supplemented from time to time.

      "Servicing Fee" means the fee payable by the Issuer to the Servicer on
each Payment Date with respect to the Senior Secured Transition Bonds, Series A,
in an amount specified in Section 5.07 of the Servicing Agreement.

      "Standard & Poor's" or "S&P" means Standard & Poor's, a division of The
McGraw-Hill Companies, or any successor thereto.

      "State" means any one of the 50 states of the United States of America or
the District of Columbia.

      "Successor Servicer" means a successor Servicer appointed by the Trustee
pursuant to Section 6.04 of the Servicing Agreement which will succeed to all
the rights and duties of the Servicer under the Servicing Agreement.

      "TC Collections" means amounts constituting good funds collected by any
Person in respect of Transition Charges and Transition Property.

      "Termination Notice" has the meaning specified in Section 6.01 of the
Servicing Agreement.

      "Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
ch. 405, 1999 (codified at Texas Utilities Code Section 39.001 et seq.).

      "Tranche" means any one of the tranches of Senior Secured Transition
Bonds, Series A, as specified in the Series Supplement.

      "Transition Bond" means any of the Senior Secured Transition Bonds, Series
A issued by the Issuer pursuant to the Indenture.

      "Transition Bond Balance" means, as of any date, the aggregate Outstanding
Amount of Senior Secured Transition Bonds, Series A on such date.

                                       16


      "Transition Bond Owner" means, with respect to a Book-Entry Transition
Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond,
as reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).

      "Transition Bond Register" has the meaning specified in Section 2.05 of
the Indenture.

      "Transition Bond Registrar" means the Trustee, in its capacity as keeper
of the Transition Bond Register, or any successor to the Trustee in such
capacity.

      "Transition Charge Adjustment" means each adjustment to Transition Charges
related to the Transition Property made in accordance with Section 4.01 of the
Servicing Agreement and the Issuer Annex or in connection with the redemption or
refunding by the Issuer of Transition Bonds.

      "Transition Charges" means the nonbypassable amounts to be charged for the
use or availability of electric services, approved by the PUCT in the Financing
Order to recover Qualified Costs, that shall be collected by CenterPoint
Houston, its successors, assignees or other collection agents as provided for in
the Financing Order.

      "Transition Property" means the rights and interests of Seller or its
successor under the Financing Order, once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the right to impose, collect and receive through Transition Charges
payable by retail electric customers within Seller's certificated service area
as it existed on May 1, 1999, an amount sufficient to cover the Qualified Costs
of the Seller authorized in the Financing Order, the right to receive Transition
Charges in amounts and at times sufficient to pay principal and interest and
make other deposits in connection with the Transition Bonds and all revenues and
collections resulting from Transition Charges.

      "Transition Property Documentation" means all documents relating to the
Transition Property, including copies of the Financing Order and all documents
filed with the PUCT in connection with any Transition Charges Adjustment.

      "Trustee" means Wilmington Trust Company, a Delaware banking corporation,
as trustee, or its successor or any successor Trustee under the Indenture.

      "UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.

      "Underwriting Agreement" has the meaning specified in the Indenture.

      "Utility" has the meaning specified in the Intercreditor Agreement.

                                       17

                                                                    Exhibit 10.3

                            ADMINISTRATION AGREEMENT

      ADMINISTRATION AGREEMENT, dated as of December 16, 2005 (this
"Administration Agreement"), is by and between CENTERPOINT ENERGY TRANSITION
BOND COMPANY II, LLC, a Delaware limited liability company, as Issuer (the
"Issuer"), and CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a Texas limited
liability company ("CenterPoint Houston"), as Administrator (in such capacity,
the "Administrator"). Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to such terms in Appendix A to the Indenture
more fully described below.

                              W I T N E S S E T H:

      WHEREAS, the Issuer is issuing Transition Bonds pursuant to the Indenture,
dated as of the date hereof and a First Supplemental Indenture thereto, also
dated as of the date hereof (the "First Supplement") (as amended, supplemented
or otherwise modified and in effect from time to time, the "Indenture"), between
the Issuer and Wilmington Trust Company, as the Trustee, and Deutsche Bank Trust
Company Americas, as Securities Intermediary;

      WHEREAS, the Issuer has entered into certain agreements in connection with
the issuance of the Transition Bonds, including (i) the Indenture and the First
Supplement, (ii) the Transition Property Servicing Agreement, dated as of the
date hereof (the "Servicing Agreement"), between the Issuer and CenterPoint
Energy Houston Electric, LLC, as Servicer, (iii) the Transition Property Sale
Agreement, dated as of the date hereof (the "Sale Agreement"), between the
Issuer and CenterPoint Energy Houston Electric, LLC, as Seller, and (iv) the
Letter of Representations, dated as of December 13, 2005 (the "Depository
Agreement"), among the Issuer, the Trustee and The Depository Trust Company
relating to the Transition Bonds (the Indenture, the First Supplement, the
Servicing Agreement, the Sale Agreement and the Depository Agreement, as such
agreements may be amended and supplemented from time to time, being referred to
hereinafter collectively as the "Initial Related Agreements");

      WHEREAS, pursuant to the Initial Related Agreements, the Issuer is
required to perform certain duties in connection with the Initial Related
Agreements, the Transition Bonds and the Trust Estate pledged to the Trustee
pursuant to the Indenture;

      WHEREAS, the Issuer may from time to time enter into and be required to
perform certain duties under additional agreements similar to the Initial
Related Agreements in connection with the issuance of one or more additional
series of Transition Bonds (together with the Initial Related Agreements, the
"Related Agreements");

      WHEREAS, the Issuer has no employees, other than its officers, and does
not intend to hire any employees, and consequently desires to have the
Administrator perform certain of the duties of the Issuer referred to in the
preceding clauses and to provide such additional services consistent with the
terms of this Administration Agreement and the Related Agreements as the Issuer
may from time to time request; and

      WHEREAS, the Administrator has the capacity to provide the services and
the facilities required thereby and is willing to perform such services and
provide such facilities for the Issuer on the terms set forth herein;

                                        1


      NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

            1. Duties of the Administrator: Management Services. The
      Administrator hereby agrees to provide the following corporate management
      services to the Issuer and to cause third parties to provide professional
      services required for or contemplated by such services in accordance with
      the provisions of this Administration Agreement:

            (i) furnish the Issuer with ordinary clerical, bookkeeping and other
      corporate administrative services necessary and appropriate for the
      Issuer, including, without limitation, the following services:

                  (A) maintain at the Premises (as defined below) general
            accounting records of the Issuer (the "Account Records"), subject to
            year-end audit, in accordance with generally accepted accounting
            principles, separate and apart from its own accounting records,
            prepare or cause to be prepared such quarterly and annual financial
            statements as may be necessary or appropriate and arrange for
            year-end audits of the Issuer's financial statements by the Issuer's
            independent accountants;

                  (B) prepare and, after execution by the Issuer, file with the
            Securities and Exchange Commission (the "Commission") and any
            applicable state agencies documents required to be filed with the
            Commission and any applicable state agencies, including, without
            limitation, periodic reports required to be filed under the
            Securities Exchange Act of 1934, as amended;

                  (C) prepare for execution by the Issuer and cause to be filed
            such income, franchise or other tax returns of the Issuer as shall
            be required to be filed by applicable law (the "Tax Returns") and
            cause to be paid on behalf of the Issuer from the Issuer's funds any
            taxes required to be paid by the Issuer under applicable law;

                  (D) prepare or cause to be prepared for execution by the
            Issuer's Managers minutes of the meetings of the Issuer's Managers
            and such other documents deemed appropriate by the Issuer to
            maintain the separate limited liability company existence and good
            standing of the Issuer (the "Company Minutes") or otherwise required
            under the Related Agreements (together with the Account Records, the
            Tax Returns, the Company Minutes, the Issuer LLC Agreement, and the
            Issuer Certificate of Formation, the "Issuer Documents"); and any
            other documents deliverable by the Issuer thereunder or in
            connection therewith; and

                  (E) hold, maintain and preserve at the Premises (or such other
            place as shall be required by any of the Related Agreements)
            executed copies (to the extent applicable) of the Issuer Documents
            and other documents executed by the Issuer thereunder or in
            connection therewith;

                                       2


            (ii) take such actions on behalf of the Issuer, as are necessary or
      desirable for the Issuer to keep in full effect its existence, rights and
      franchises as a limited liability company under the laws of the state of
      Delaware and obtain and preserve its qualification to do business in each
      jurisdiction in which it becomes necessary to be so qualified;

            (iii) provide for the issuance and delivery of one or more series of
      Transition Bonds;

            (iv) provide for the performance by the Issuer of its obligations
      under each of the Related Agreements, and prepare, or cause to be
      prepared, all documents, reports, filings, instruments, notices,
      certificates and opinions that it shall be the duty of the Issuer to
      prepare, file or deliver pursuant to the Related Agreements;

            (v) enforce each of the rights of the Issuer under the Related
      Agreements, at the direction of the Trustee;

            (vi) provide for the defense, at the direction of the Issuer's
      Managers, of any action, suit or proceeding brought against the Issuer or
      affecting the Issuer or any of its assets;

            (vii) provide office space (the "Premises") for the Issuer and such
      reasonable ancillary services as are necessary to carry out the
      obligations of the Administrator hereunder, including telecopying,
      duplicating and word processing services;

            (viii) obtaining, maintaining or facilitating one or more letters of
      credit or obtaining, maintaining or facilitating other credit support for
      the obligations of the Issuer contemplated by any Related Agreement;

            (ix) undertake such other administrative services as may be
      appropriate, necessary or requested by the Issuer; and

            (x) provide such other services as are incidental to the foregoing
      or as the Issuer and the Administrator may agree.

      In providing the services under this Section 1 and as otherwise provided
under this Administration Agreement, the Administrator will not knowingly take
any actions on behalf of the Issuer which (i) the Issuer is prohibited from
taking under the Related Agreements, or (ii) would cause the Issuer to be in
violation of any federal, state or local law or the Issuer LLC Agreement.

      2. Compensation. As compensation for the performance of the
Administrator's obligations under this Administration Agreement (including the
compensation of Persons serving as Managers, other than the independent
managers, and officers of the Issuer, but, for the avoidance of doubt, excluding
the performance by CenterPoint Houston of its obligations in its capacity as
Servicer), the Administrator shall be entitled to $100,000 annually (the
"Administration Fee"), payable by the Issuer in arrears proportionately on each
Payment Date. In addition, the Administrator shall be entitled to be reimbursed
by the Issuer for all costs and expenses of services performed by unaffiliated
third parties and actually incurred by the

                                       3


Administrator in connection with the performance of its obligations under this
Administration Agreement in accordance with Section 3 (but, for the avoidance of
doubt, excluding any such costs and expenses incurred by CenterPoint Houston in
its capacity as Servicer), to the extent that such costs and expenses are
supported by invoices or other customary documentation and reasonably allocated
to the Issuer ("Reimbursable Expenses"). The Administration Fee shall be
modified, and this Section 2 shall be deemed to have been amended, without
further act or deed by any Person to reflect any such modification or amendment,
to the extent provided in any financing order issued by the PUCT providing for
the issuance of an additional series of Transition Bonds.

      3. Third Party Services. Any services or fees required for or contemplated
by the performance of the above-referenced services by the Administrator to be
provided by unaffiliated third parties (including independent auditors' fees and
counsel fees) may, if provided for or otherwise contemplated by any related
financing order issued by the PUCT and if the Issuer deems it necessary or
desirable, be arranged by the Issuer or by the Administrator at the direction
(which may be general or specific) of the Issuer. Costs and expenses associated
with the contracting for such third-party services may be paid directly by the
Issuer or paid by the Administrator and reimbursed by the Issuer in accordance
with Section 2, or otherwise as the Administrator and the Issuer may mutually
arrange.

      4. Additional Information to be Furnished to the Issuer. The Administrator
shall furnish to the Issuer from time to time such additional information
regarding the Trust Estate as the Issuer shall reasonably request.

      5. Independence of the Administrator. For all purposes of this
Administration Agreement, the Administrator shall be an independent contractor
and shall not be subject to the supervision of the Issuer with respect to the
manner in which it accomplishes the performance of its obligations hereunder.
Unless expressly authorized by the Issuer, the Administrator shall have no
authority, and shall not hold itself out as having the authority, to act for or
represent the Issuer in any way and shall not otherwise be deemed an agent of
the Issuer.

      6. No Joint Venture. Nothing contained in this Administration Agreement
(a) shall constitute the Administrator and the Issuer as partners or co-members
of any partnership, joint venture, association, syndicate, unincorporated
business or other separate entity, (b) shall be construed to impose any
liability as such on either of them or (c) shall be deemed to confer on either
of them any express, implied or apparent authority to incur any obligation or
liability on behalf of the other.

      7. Other Activities of Administrator. Nothing herein shall prevent the
Administrator or any of its members, managers, officers, employees, subsidiaries
or affiliates from engaging in other businesses or, in its sole discretion, from
acting in a similar capacity as an Administrator for any other person or entity
even though such person or entity may engage in business activities similar to
those of the Issuer.

      8. Term of Agreement; Resignation and Removal of Administrator. (a) This
Administration Agreement shall continue in force until the payment in full of
the Transition

                                       4


Bonds and any other amount which may become due and payable under the Indenture,
upon which event this Administration Agreement shall automatically terminate.

      (b) Subject to Sections 8(e) and 8(f), the Administrator may resign its
duties hereunder by providing the Issuer with at least sixty (60) days' prior
written notice.

      (c) Subject to Sections 8(e) and 8(f), the Issuer may remove the
Administrator without cause by providing the Administrator with at least sixty
(60) days' prior written notice.

      (d) Subject to Sections 8(e) and 8(f), at the sole option of the Issuer,
the Administrator may be removed immediately upon written notice of termination
from the Issuer to the Administrator if any of the following events shall occur:

            (i) The Administrator shall default in the performance of any of its
      duties under this Administration Agreement and, after notice of such
      default, shall fail to cure such default within ten (10) days (or, if such
      default cannot be cured in such time, shall (A) fail to give within ten
      (10) days such assurance of cure as shall be reasonably satisfactory to
      the Issuer and (B) fail to cure such default within 30 days thereafter);

            (ii) a court of competent jurisdiction shall enter a decree or order
      for relief, and such decree or order shall not have been vacated within
      sixty (60) days, in respect of the Administrator in any involuntary case
      under any applicable bankruptcy, insolvency or other similar law now or
      hereafter in effect, or such court shall appoint a receiver, liquidator,
      assignee, custodian, Trustee, sequestrator or similar official for the
      Administrator or any substantial part of its property or order the
      winding-up or liquidation of its affairs; or

            (iii) the Administrator shall commence a voluntary case under any
      applicable bankruptcy, insolvency or other similar law now or hereafter in
      effect, shall consent to the entry of an order for relief in an
      involuntary case under any such law, shall consent to the appointment of a
      receiver, liquidator, assignee, Trustee, custodian, sequestrator or
      similar official for the Administrator or any substantial part of its
      property, shall consent to the taking of possession by any such official
      of any substantial part of its property, shall make any general assignment
      for the benefit of creditors or shall fail generally to pay its debts as
      they become due.

The Administrator agrees that if any of the events specified in clauses (ii) or
(iii) of this Section 8(d) shall occur, it shall give written notice thereof to
the Issuer and the Trustee as soon as practicable but in any event within seven
(7) days after the happening of such event.

      (e) No resignation or removal of the Administrator pursuant to this
Section shall be effective until a successor Administrator has been appointed by
the Issuer, and such successor Administrator has agreed in writing to be bound
by the terms of this Administration Agreement in the same manner as the
Administrator is bound hereunder.

      (f) The appointment of any successor Administrator shall be effective only
after satisfaction of the Rating Agency Condition with respect to the proposed
appointment.

                                       5


      9. Action upon Termination, Resignation or Removal. Promptly upon the
effective date of termination of this Administration Agreement pursuant to
Section 8(a), the resignation of the Administrator pursuant to Section 8(b) or
the removal of the Administrator pursuant to Section 8(c) or 8(d), the
Administrator shall be entitled to be paid a pro-rated portion of the annual fee
described in Section 2 hereof through the date of termination and all
Reimbursable Expenses incurred by it through the date of such termination,
resignation or removal. The Administrator shall forthwith upon such termination
pursuant to Section 8(a) deliver to the Issuer all property and documents of or
relating to the Trust Estate then in the custody of the Administrator. In the
event of the resignation of the Administrator pursuant to Section 8(b) or the
removal of the Administrator pursuant to Section 8(c) or 8(d), the Administrator
shall cooperate with the Issuer and take all reasonable steps requested to
assist the Issuer in making an orderly transfer of the duties of the
Administrator.

      10. Administrator's Liability. Except as otherwise provided herein, the
Administrator assumes no liability other than to render or stand ready to render
the services called for herein, and neither the Administrator nor any of its
members, managers, officers, employees, subsidiaries or affiliates shall be
responsible for any action of the Issuer or any of the members, managers,
officers, employees, subsidiaries or affiliates of the Issuer (other than the
Administrator itself). The Administrator shall not be liable for nor shall it
have any obligation with regard to any of the liabilities, whether direct or
indirect, absolute or contingent of the Issuer or any of the members, managers,
officers, employees, subsidiaries or affiliates of the Issuer (other than the
Administrator itself).

      11. INDEMNITY.

            (a) SUBJECT TO THE PRIORITY OF PAYMENTS SET FORTH IN THE INDENTURE,
THE ISSUER SHALL INDEMNIFY THE ADMINISTRATOR, ITS MEMBERS, MANAGERS, OFFICERS,
EMPLOYEES AND AFFILIATES AGAINST ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES
OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT THE ADMINISTRATOR IS A
PARTY THERETO) WHICH ANY OF THEM MAY PAY OR INCUR ARISING OUT OF OR RELATING TO
THIS ADMINISTRATION AGREEMENT AND THE SERVICES CALLED FOR HEREIN; PROVIDED,
HOWEVER, THAT SUCH INDEMNITY SHALL NOT APPLY TO ANY SUCH LOSS, CLAIM, DAMAGE,
PENALTY, JUDGMENT, LIABILITY OR EXPENSE RESULTING FROM THE ADMINISTRATOR'S
NEGLIGENCE OR WILLFUL MISCONDUCT IN THE PERFORMANCE OF ITS OBLIGATIONS
HEREUNDER.

            (b) THE ADMINISTRATOR SHALL INDEMNIFY THE ISSUER, ITS MEMBERS,
MANAGERS, OFFICERS AND EMPLOYEES AGAINST ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES
OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT THE ISSUER IS A PARTY
THERETO) WHICH ANY OF THEM MAY INCUR AS A RESULT OF THE ADMINISTRATOR'S
NEGLIGENCE OR WILLFUL MISCONDUCT IN THE PERFORMANCE OF ITS OBLIGATIONS
HEREUNDER.

      12. Notices. Any notice, report or other communication given hereunder
shall be in writing and addressed as follows:

                                       6


            (a)   if to the Issuer, to:

                  CenterPoint Energy Transition Bond Company II, LLC
                  1111 Louisiana Street, Suite 4655B
                  Houston, Texas 77002
                  Attention:  Manager

            (b)   if to the Administrator, to:

                  CenterPoint Energy Houston Electric, LLC
                  1111 Louisiana Street
                  Houston, Texas 77002
                  Attention:  Treasurer

or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand-delivered
to the address of such party as provided above.

      13. Amendments. This Administration Agreement may be amended from time to
time by a written amendment duly executed and delivered by each of the Issuer
and the Administrator, provided that (i) the Rating Agency Condition has been
satisfied in connection therewith, (ii) the Trustee shall have consented and
(iii) in the case of any amendment that increases ongoing qualified costs as
defined in the applicable financing order of the PUCT relating to a series of
Transition Bonds, the PUCT shall have consented thereto or shall be conclusively
deemed to have consented thereto. With respect to the PUCT's consent to any
amendment to this Administration Agreement,

            (a) the Administrator may request the consent of the PUCT by
delivering to the PUCT's executive director and general counsel a written
request for such consent, which request shall contain:

                  (i) a reference to Docket No. 30485 or to the Docket No. of
      any proceeding related to the issuance of an additional series of
      Transition Bonds and a statement as to the possible effect of the
      amendment on ongoing qualified costs;

                  (ii) an Officer's Certificate stating that the proposed
      amendment has been approved by all parties to this Administration
      Agreement; and

                  (iii) a statement identifying the person to whom the PUCT or
      its staff is to address its consent to the proposed amendment or request
      additional time;

            (b) The PUCT shall, within 30 days of receiving the request for
consent complying with Section 13(a) above, either

                  (i) provide notice of its consent or lack of consent to the
      person specified in Section 13(a)(iii) above, or

                                       7


                  (ii) be conclusively deemed to have consented to the proposed
      amendment,

unless, within 30 days of receiving the request for consent complying with
Section 13(a) above, the PUCT or its staff delivers to the office of the person
specified in Section 13(a)(iii) above a written statement requesting an
additional amount of time not to exceed 30 days in which to consider whether to
consent to the proposed amendment. If the PUCT or its staff requests an
extension of time in the manner set forth in the preceding sentence, then the
PUCT shall either provide notice of its consent or lack of consent to the person
specified in Section 13(a)(iii) above no later than the last day of such
extension of time or be conclusively deemed to have consented to the proposed
amendment as of the last day of such extension of time. Following delivery of a
notice to the PUCT by the Administrator under Section 13(a) above, the
Administrator and Issuer may at any time withdraw from the PUCT further
consideration of any notification of a proposed amendment.

            (c) Any amendment requiring the consent of the PUCT as provided in
this Section 13 shall become effective on the later of (i) the date proposed by
the parties to such amendment and (ii) the first day after the expiration of the
30 day period provided for in Section 13(b), or, if such period has been
extended pursuant thereto, the first day after the expiration of such period as
so extended.

      14. Successors and Assigns. This Administration Agreement may not be
assigned by the Administrator unless such assignment is previously consented to
in writing by the Issuer and the Trustee and subject to the satisfaction of the
Rating Agency Condition in connection therewith. Any assignment with such
consent and satisfaction, if accepted by the assignee, shall bind the assignee
hereunder in the same manner as the Administrator is bound hereunder.
Notwithstanding the foregoing, this Administration Agreement may be assigned by
the Administrator without the consent of the Issuer or the Trustee to a
corporation or other organization that is a successor (by merger, consolidation
or purchase of assets) to the Administrator; provided that such successor
organization executes and delivers to the Issuer an Agreement in which such
corporation or other organization agrees to be bound hereunder by the terms of
said assignment in the same manner as the Administrator is bound hereunder.
Subject to the foregoing, this Administration Agreement shall bind any
successors or assigns of the parties hereto.

      15. Governing Law. This Administration Agreement shall be construed in
accordance with the laws of the State of Texas, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.

      16. Headings. The Section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Administration Agreement.

      17. Counterparts. This Administration Agreement may be executed in
counterparts, each of which when so executed shall be an original, but all of
which together shall constitute but one and the same Administration Agreement.

                                       8


      18. Severability. Any provision of this Administration Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

      19. Nonpetition Covenant. Notwithstanding any prior termination of this
Administration Agreement, the Administrator covenants that it shall not, prior
to the date which is one year and one day after payment in full of the
Transition Bonds, acquiesce, petition or otherwise invoke or cause the Issuer to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Issuer.

                                       9


      IN WITNESS WHEREOF, the parties have caused this Administration Agreement
to be duly executed and delivered as of the day and year first above written.

                                            CENTERPOINT ENERGY TRANSITION BOND
                                            COMPANY II, LLC,
                                                  as Issuer

                                            By: /s/ Marc Kilbride
                                                --------------------------------
                                                Marc Kilbride
                                                Manager

                                            CENTERPOINT ENERGY HOUSTON ELECTRIC,
                                            LLC,
                                                  as Administrator,

                                            By: /s/ Marc Kilbride
                                                --------------------------------
                                                Marc Kilbride
                                                Vice President and Treasurer

                                       10

                                                                    Exhibit 99.1


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December 16, 2005

To Each Person Listed on
 the Attached Schedule I

         Re:      CenterPoint Energy Houston Electric, LLC;
                  CenterPoint Energy Transition Bond Company II, LLC
                  Constitutional Issues

Ladies and Gentlemen:

     We have acted as counsel to CenterPoint Energy Transition Bond Company II,
LLC, a Delaware limited liability company (the "Issuer"), and CenterPoint Energy
Houston Electric, LLC ("CenterPoint"), an operating electric utility
incorporated under the laws of the State of Texas, in connection with the
purchase by the Issuer on the date hereof of the Transition Property, as defined
in the Sale Agreement referred to below, from CenterPoint, the issuance by the
Issuer of the Transition Bonds referred to below, and the related transactions
described below.

                                 THE TRANSACTION

     On the date hereof, CenterPoint has sold its rights and interests under the
Financing Order, which became the Transition Property upon such transfer, to the
Issuer under the Transition Property Sale Agreement dated as of December 16,
2005 (the "Sale Agreement"), by and between CenterPoint and the Issuer and the
related bill of sale dated as of December 16, 2005. Under the Transition
Property Servicing Agreement dated as of December 16, 2005, by and between
CenterPoint, in its capacity as Servicer, and the Issuer, CenterPoint has agreed
to service the Transition Property. Under the Administration Agreement dated as
of December 16, 2005, by and between CenterPoint, in its capacity as
Administrator, and the Issuer, CenterPoint has agreed to perform certain
administrative services on behalf of the Issuer. On the date hereof, the Issuer
has issued its Senior Secured Transition Bonds, Series A (the "Transition
Bonds") under an Indenture dated as of December 16, 2005 ("Indenture"), by and
between the Issuer, Wilmington Trust Company, as trustee (the "Trustee"), and
Deutsche Bank Trust Company Americas, as securities intermediary.

     As used herein, "Transaction Documents" means the above-referenced
documents, and "Transaction" means the transactions contemplated by the
Transaction Documents. Capitalized terms used and not otherwise defined herein
have the meanings set forth in the Sale Agreement.




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                               OPINIONS REQUESTED

     You have requested our opinion as to:

     (a) whether the holders of the Transition Bonds (the "Bondholders") could
challenge successfully under the Contract Clause of the United States
Constitution (Article I, Section 10; and herein "Federal Contract Clause") or
under the Contract Clause of the Texas Constitution (Article I, Section 16; and
herein "Texas Contract Clause") the constitutionality of any action by the State
of Texas (including the Commission) of a legislative character, including the
repeal or amendment of the securitization provisions of the Electric Choice
Plan, that a court of competent jurisdiction would determine repeals, amends or
violates the Pledge set forth in Section 39.310 of the Texas Electric Choice
Plan ("Electric Choice Plan") (codified in the Public Utility Regulatory Act
("PURA"), TEX. UTIL. CODE ANN. Sections 11.001-64.158) in a manner that
substantially reduces, alters or impairs the value of the Transition Property or
substantially reduces, alters or impairs the Transition Charges, (any such
impairment being referred to herein as "an impairment") prior to the time that
the Transition Bonds are fully paid and discharged; and

     (b) whether, under the Fifth Amendment to the United States Constitution,
which provides in relevant part, "nor shall private property be taken for public
use, without just compensation" ("Federal Takings Clause"), or Article I,
Section 17 of the Texas Constitution, which provides that "[n]o person's
property shall be taken, damaged, or destroyed for or applied to public use
without adequate compensation being made, unless by the consent of such person"
("Texas Takings Clause"), a reviewing court would find a compensable taking if
the State takes action of a legislative character that repeals, amends or
violates the Pledge or takes other action in contravention of the Pledge that
the court concludes (i) permanently appropriates the Transition Property or
denies all economically productive use of the Transition Property; or (ii)
destroys the Transition Property other than in response to emergency conditions;
or (iii) substantially reduces, alters or impairs the value of the Transition
Property or a substantial property interest of the Bondholders in the Transition
Property and deprives the Transition Bondholders of their reasonable
expectations arising from their investments in the Transition Bonds (a
"taking").

     You have also inquired as to the circumstances under which injunctive
relief would be available to address a legislative act which will cause such
impairments.


                              FACTS AND ASSUMPTIONS

     In connection with rendering the opinions set forth below, we have examined
and relied upon originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Sale Agreement; (ii) the Indenture; (iii) the
Registration Statement (including the prospectus and



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prospectus supplement included therein) initially filed with the Securities and
Exchange Commission on September 12, 2005, as amended and as declared effective
by the Securities and Exchange Commission with respect to the Transition Bonds
("Registration Statement"); (iv) the Electric Choice Plan; (v) the Financing
Order issued by the Texas Public Utility Commission ("Commission") on March 16,
2005 ("Financing Order"), PUC Docket No. 30485; and (vi) such other documents
relating to the Transaction as we have deemed necessary or advisable as a basis
for such opinions.

     In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents, we have assumed that the parties to such documents had
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such
documents, including the Transaction Documents, and the validity and binding
effect thereof. We have assumed that any Texas legislation impairing the value
of Transition Bonds and Transition Properties would constitute a "substantial"
modification of the Electric Choice Plan provisions that provide support for
Transition Properties or Transition Bonds.

     We have made no independent investigation of the facts referred to herein,
and with respect to such facts have relied, for the purpose of rendering this
opinion and except as otherwise stated herein, exclusively on the statements
contained and matters provided for in the Transaction Documents, the
Registration Statement, and such other documents relating to the Transaction as
we deemed advisable, including the factual representations, warranties, and
covenants contained therein as made by the respective parties thereto.

     Members of this firm are admitted to the Bar of the State of Texas. We
express no opinion herein as to the laws of any jurisdiction other than the laws
of the State of Texas and the federal laws of the United States of America to
the extent specifically referred to herein.


                          PLEDGE OF THE STATE OF TEXAS

     Section 39.310 of PURA sets forth a pledge ("Pledge") by the State of
Texas, "for the benefit and protection of financing parties and the electric
utility," in a securitization transaction contemplated by the Electric Choice
Plan:

     Transition bonds are not a debt or obligation of the state and are not a
     charge on its full faith and credit or taxing power. The state pledges,
     however, for the benefit and protection of financing parties and the
     electric utility, that it will not take or permit any action that would
     impair the value of transition property, or, except as permitted by Section
     39.307, reduce, alter, or impair the





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     transition charges to be imposed, collected, and remitted to financing
     parties, until the principal, interest and premium, and any other charges
     incurred and contracts to be performed in connection with the related
     transition bonds have been paid and performed in full.

TEX. UTIL. CODE ANN. Section 39.310 (2005)(1) Section 39.310 also authorizes the
Issuer "to include this pledge in any documentation relating to those bonds."
Id. We note that the State's pledge is set forth on the Transition Bonds and in
the Indenture.


                                    ANALYSIS

     If Texas were to take action of a legislative character, including the
repeal or amendment of the securitization provisions of the Electric Choice
Plan, that a court would determine violates the Pledge in a manner that
substantially reduces, alters or impairs the value of the Transition Property or
substantially reduces, alters or impairs the Transition Charges, such action
would raise issues under the Contract Clause of the Texas Constitution, the
Contract Clause of the United States Constitution, the Takings Clause of the
Texas Constitution, and the Takings Clause of the United States Constitution.
Such action may be invalidated if it violates any one of those four
constitutional provisions. We address each of those provisions in turn.


A.       THE CONTRACT CLAUSES

     The Texas and Federal Constitutions, through their respective Contract
Clauses, limit the power of the Texas legislature to enact laws "impairing the
obligation of contracts." U.S. CONST. art. I Section 10; TEX. CONST. art. I
Section 16. The Texas Supreme Court has authoritatively interpreted the Texas
Contract Clause to prohibit laws that directly target the terms of a private
contract; that provision, however, does not prohibit the State from taking
action under the police power that only incidentally affects the subject matter
of the contract. The federal provision relies on a multi-factor balancing test
to determine whether an impairment is justified by the government's exercise of
its police power.

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(1) Section 39.307, entitled "True-Up," provides:

     A financing order shall include a mechanism requiring that transition
     charges be reviewed and adjusted at least annually, within 45 days of the
     anniversary date of the issuance of the transition bonds, to correct any
     overcollections or undercollections of the preceding 12 months and to
     ensure the expected recovery of amounts sufficient to timely provide all
     payments of debt service and other required amounts and charges in
     connection with the transition bonds.



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  1. THE TEXAS CONSTITUTION'S CONTRACT CLAUSE

     Article I, Section 16 of the Texas Constitution provides that "[n]o . . .
law impairing the obligation of contracts . . . shall be made." That provision
applies in different ways to two types of contracts: (1) contracts between
private parties ("private contracts"); and (2) contracts between a private party
and the State of Texas ("state contracts").


     a. PRIVATE CONTRACTS

     The contractual obligations between private parties - including those
between a creditor and debtor - may not be "impaired" by an act of the
legislature. TEX. CONST. art. I Section 16; see Travelers Ins. Co. v. Marshall,
76 S.W.2d 1007 (Tex. 1934). While the Texas Supreme Court has not defined with
precision what constitutes an "impair[ment of] the obligation of contracts,"
Langever v. Miller, 76 S.W.2d 1025, 1029-35 (Tex. 1934) (quoting cases and other
authorities), that court has understood an "impairment" generally to be a
legislative act that "nullifies that portion of the contract, read in the light
of the then existing statute, which entitled" a party to a right under the
contract. Id. at 1029. More particularly, the Texas Supreme Court has
distinguished legislation having only "incidental effects" on contracts from
legislation "specifically directed at the terms of a contract." Barshop v.
Medina County Underground Water Conservation Dist., 925 S.W.2d 618, 634 (Tex.
1996). When the legislature passes a statute of the former type, it does not
violate the Texas Constitution so long as it is "a valid exercise of the police
power necessary to safeguard the public safety and welfare." Id. at 635. But
when the legislature enacts a statute specifically directed at the terms of a
contract, it violates the Texas Contract Clause.

     Although the case law delineating those two types of legislation is far
from comprehensive,(2) three decisions offer guidance. The first is Travelers
Ins. Co. v. Marshall, 76 S.W.2d 1007 (Tex. 1934). The legislation at issue in
that case was a "moratorium act" that delayed banks' recourse in collecting
collateral property upon borrower default; the contract at issue was the loan
agreement between the bank and the borrower. 76 S.W.2d at 1008-09. The Texas
Supreme Court held that the act violated the Texas Contract Clause. Describing
its holding in broad terms, the Texas Supreme Court declared that any law
impairing the obligation of a contract is unconstitutional, regardless of the
emergency conditions that the legislature might cite to justify the impairment.
Id. at 1011. "The limitation thus imposed is emphatic, unambiguous and without
exception; it applies alike to all contracts and protects all obligations of
contracts from destruction or impairment by subsequent legislation." Id.

     Three years later, the U.S. Supreme Court decided Henderson Co. v.
Thompson, 300 U.S. 258 (1937), in which the court applied the Texas Contract
Clause and interpreted

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(2) In 1996, the Texas Supreme Court noted that it had not considered the scope
of the Contract Clause in the preceding sixty-two years. See Barshop, 925 S.W.2d
at 634.



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Travelers.(3) In Henderson, the challenged legislation regulated the natural gas
industry: It defined "sweet" and "sour" gas; it prohibited certain uses of sweet
gas; and it prohibited the extraction of sweet gas from particular sources. Id.
at 260. The plaintiff's gas wells were classified as "sweet gas," and the
extraction of the gas was therefore prohibited. Id. at 261. Plaintiff alleged
that the legislation impaired two sets of contracts: (1) contracts between a gas
processing plant and its suppliers for the receipt of sweet gas; and (2)
contracts between the processing plant and its customers for the delivery of
sweet gas residue. 300 U.S. at 266. The U.S. Supreme Court held that the state
statute did not impair the contracts because it was not "specifically directed
against the terms of the contract." Id. at 266. Rather, the court concluded, the
legislation "deal[t] merely with the use of an article of commerce; and its
effect upon contracts [wa]s incidental." Id. The U.S. Supreme Court noted that
"the Constitution of the State of Texas has never been held to avoid a police
statute dealing directly with physical things in the interest of the public
welfare, and touching contractual relationships only incidentally as they may
have attached to those physical things prior to the passage of the statute." Id.
(internal quotation marks omitted). The U.S. Supreme Court distinguished the
facts before it from those in Travelers on the same ground: In Travelers, the
challenged law directly regulated the enforcement of contracts, whereas in
Henderson the challenged law regulated only the articles of commerce at issue in
the contracts and not the terms of the contracts themselves.

     Returning to the issue more recently in Barshop, 925 S.W.2d at 634, the
Texas Supreme Court ratified the reasoning of Henderson. In Barshop, the State
had enacted legislation regulating the extraction of water from Texas's Edwards
Aquifer. The plaintiffs - two county water conservation districts, a cattle
raisers organization, a cattle company, and a private individual - alleged that
the act violated the Texas Contract Clause. They argued that the law impaired
the obligation of contracts between suppliers of potable water who drew their
water from the aquifer and the customers of those suppliers, because the new
Texas law threatened the ability of the suppliers to satisfy their customers'
contractual demands. See Findings of Fact and Conclusions of Law, Medina County
Underground Water Conservation Dist. v. Barshop, No. 95-08-13471-CV at Paragraph
323 (Dist. Ct. of Medina County, Dec. 18, 1995). The Texas Supreme Court
rejected that claim, holding that the obligation was not unconstitutionally
impaired "because the Act [was] a valid exercise of the police power necessary
to safeguard the public safety and welfare," and the law was not directly aimed
at the terms of the contract. 925 S.W.2d at 634-35.

     Taken together, Barshop, Henderson, and Travelers indicate that legislation
that substantially modifies the terms of a private contract to which the State
is not a party, or that materially delays the recourse available to parties of
the contract, would constitute a violation of the Texas Contract Clause. Here,
Texas authorized Transition Bond issuers to include the State's

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(3) The Supreme Court reviewed the legislation under the Texas Constitution as
well as under several provisions of the U.S. Constitution. 300 U.S. at 261. The
Texas Supreme Court has stated that the U.S. Supreme Court's interpretation of
the State Constitution is not binding on Texas state courts, although the U.S.
Supreme Court's analysis has been viewed as persuasive. See, e.g., Barshop, 925
S.W.2d at 634-35 ("While the Supreme Court's decision in Henderson was not
controlling on Texas courts, several courts of appeals have noted its holding in
concluding that an exercise of the police power necessary to safeguard the
public safety and welfare can justify the impairment of contractual rights and
obligations.").



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pledge not to "reduce, alter, or impair the transition charges" in bond
documentation, and issuers included those terms in bond documentation. Any state
action of a legislative character, including the repeal or amendment of the
securitization provisions of the Electric Choice Plan, that a court would
determine violates the Pledge in a manner that substantially reduces, alters or
impairs the value of the Transition Property or substantially reduces, alters or
impairs the Transition Charges, would contravene Section 39.310, and as such
would constitute an act specifically directed at a term of the contract. Such an
act would be directed specifically at the Pledge as reproduced in the Transition
Bonds, contract terms the State had authorized by legislation.


     b. STATE CONTRACTS

     The Pledge itself may also constitute a binding contract between the State
of Texas and the issuers and holders of Transition Bonds. In enacting the
legislation, not only did the State of Texas pledge that it would not interfere
with the Transition Bonds, but it also authorized "any party issuing transition
bonds" to include that Pledge in the bonds and in associated agreements. TEX.
UTIL. CODE. ANN. Section 39.310. As described in detail below, see infra pp.
11-13, the U.S. Supreme Court has found that, for the purposes of the Federal
Constitution, a statute may constitute a binding contractual obligation with
private parties despite "the presumption . . . that a law is not intended to
create private contractual or vested rights but merely declares a policy to be
pursued until the legislature shall ordain otherwise." Nat'l R.R. Passenger
Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 466 (1985) (internal
quotation marks omitted); see also U.S. Trust Co. v. New Jersey, 431 U.S. 1,
17-18 & n.14 (1977) (noting that parties stipulated that the state legislation
at issue constituted a contractual obligation of the State). Consistent with the
analysis below, see infra pp. 11-13, Section 39.310 of PURA may convey an intent
to bind the State of Texas contractually. Section 39.310 does not merely contain
a Pledge from the State of Texas. It also authorizes the inclusion of the Pledge
in specified contracts, expressly incorporating Texas's promises and obligations
into those contracts.

     The Texas Supreme Court has not specifically addressed whether PURA or
similar laws should be construed as binding contractual obligations. But two
illustrative cases suggest that the Texas Supreme Court may hold that they are.
See Morris & Cummings v. Texas, 62 Tex. 728, 1884 WL 8989 at *11-*12 (Tex.
1884); Basset v. City of El Paso, 30 S.W. 893, 895 (Tex. 1895). In Morris &
Cummings, Morris & Cummings had contracted with the city of Corpus Christi in
1872 to collect tolls on behalf of the city. 1884 WL at *11. In 1873, the State
of Texas re-incorporated Corpus Christi with legislation that explicitly
"recognized previous [city ordinances and contracts] as valid and binding
contracts between the city and Morris & Cummings, who had acted under and
availed themselves of [the provisions of said ordinances and contracts]." 1884
WL at * 6. In 1875, the State of Texas repealed the act incorporating Corpus
Christi, purportedly extinguishing the city's contracts with Morris & Cummings.
The Texas Supreme Court held that, although "[t]he power of the legislature to
alter or repeal an act chartering a municipal corporation is undoubted," id. at
*11, the State could not repeal the 1875 charter in such a way as would
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between Morris & Cummings and the city, id. at *12-*13. The State was obligated
not "to absolve [the municipality] from its liabilities to creditors . . . ."
Id. at *12.

     In Basset, the city of El Paso had issued bonds to fund its waterworks. 30
S.W. at 894. The city council passed an ordinance "creat[ing] a special fund, in
the city treasury, to be known as the waterworks bonds sinking fund," to repay
the bonds, and levying property taxes to raise the necessary revenue. Id. The
court held that city officials had authority to levy the tax. One reason given
by the Texas Supreme Court was that "[t]he bonds, when issued, would be based
upon and relate back to this order providing for the interest and sinking fund,
and the order would be part of the contract between the city and the holder of
the bonds." Id. at 895 (emphasis added). Because the tax was an implicit
obligation in the bond contract, a "[bond]holder could compel the levy of a
sufficient tax" if the city failed to do so of its own volition. Id.

     Thus, in Basset and Morris & Cummings, the Texas Supreme Court recognized
that legislation providing funding, authorization, and support for particular
contractual relationships cannot be repealed if it will impermissibly impair
contractual obligations. Regrettably, Basset and Morris & Cummings are not of
recent vintage; each is more than 100 years old. In addition, they are factually
distinguishable from the legislation at issue here. In both of those cases,
there were written contracts executed by a governmental entity, and the
statutory promise was held to be incorporated into that governmental agreement.
Here, by contrast, there is no explicit contractual instrument executed by a
governmental entity to which the Pledge might be appended. Texas did, however,
authorize the Issuer and Bondholders to include Texas's Pledge in their
agreements. That is evidence that the State of Texas intended its Pledge to
become an enforceable part of those agreements, much as the charter became part
of the contract between the city and the contractor in Morris & Cummings, and as
the property-tax ordinance became part of the contract between the city and
bondholders in Bassett.

     c. CONCLUSION: AVAILABILITY OF INJUNCTIVE AND DECLARATORY RELIEF

     Based on our analysis of relevant judicial authority, as set forth above,
and subject to all of the qualifications, limitations and assumptions (including
the assumption that any impairment would be "substantial") set forth in this
letter, it is our opinion that a reviewing court would conclude (i) that the
State Pledge creates a binding contractual obligation of the State of Texas for
purposes of the Texas Contract Clause and (ii) unless the State's action is a
reasonable exercise of its sovereign powers and is of a character reasonable and
appropriate to the public purpose justifying such action, provides a basis upon
which the Bondholders (or the Trustee acting on their behalf) could challenge
successfully, under the Texas Contract Clause, the constitutionality of any
action by the State (including the Commission) of a legislative character,
including the repeal or amendment of the securitization provisions of the
Electric Choice Plan, that a court would determine violates the Pledge in a
manner that substantially reduces, alters or impairs the value of the Transition
Property or substantially reduces, alters or impairs the Transition Charges.

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     If Texas legislation did violate the Texas Contract Clause, then the
parties to the contract could obtain an injunction prohibiting state executive
branch officials from enforcing the legislation. See Travelers, 76 S.W.2d at
1008; Dir. of Dept. of Agric. and Env't v. Printing Indus. Ass'n of Texas, 600
S.W.2d 264, 265-66 (Tex. 1980). The complainants could, in the alternative,
secure a declaratory judgment that the State's actions violated the Texas
Contract Clause. "Private parties may seek declaratory relief against state
officials who allegedly act without legal or statutory authority. . . . This is
because suits to compel state officers to act within their official capacity do
not attempt to subject the State to liability. . . . Therefore, certain
declaratory-judgment actions against state officials do not implicate the
sovereign-immunity doctrine." Texas Natural Res. Conservation Comm'n v. IT-Davy,
74 S.W.3d 849, 855 (Tex. 2002) (citations omitted).(4)

     The entry by a court of an injunction to enjoin an impairment would be
subject to a showing that (1) immediate and irreparable harm would occur if the
injunction does not issue, (2) the claim for relief is based upon an established
legal right, (3) there is no adequate remedy at law, (4) the equities
preponderate in favor of the moving party, and (5) there has been a violation of
the Texas Contract Clause and such action is not necessary to further a
significant and legitimate public purpose. The availability of such injunctive
relief would be further subject to the discretion of the courts: "The decision
to grant or deny a temporary injunction lies in the sound discretion of the
trial court, and the court's grant or denial is subject to reversal only for a
clear abuse of discretion." Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993)
(citing State v. Walker, 679 S.W.2d 484 (Tex. 1984)). Whether to provide
declaratory relief is likewise subject to the courts' discretion: "A trial court
has discretion to enter a declaratory judgment so long as it will serve a useful
purpose or will terminate the controversy between the parties." Bonham State
Bank v. Beadle, 907 S.W.2d 465, 468 (Tex. 1995). We note that, to the extent
that any impairment also constitutes a "taking" under the Texas or Federal
Takings Clauses so as to require the State to pay just compensation, see infra
Part B ("The Takings Clauses"), the availability of such compensation might
constitute an adequate remedy at law and equitable relief and declaratory relief
might be unavailable. Cf. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1016
(1984).

  2.  THE FEDERAL CONSTITUTION'S CONTRACT CLAUSE


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(4) The phrase "certain declaratory-judgment actions" refers to those that, in
substance or effect, do not seek to establish the State's monetary liability
under a contract. As the Texas Supreme Court explained in Federal Sign v. Texas
Southern University, "we distinguish suits to determine a party's rights against
the State from suits seeking damages. A party can maintain a suit to determine
its rights without legislative permission." 951 S.W.2d 401, 404 (Tex. 1997),
cited in IT-Davy, 74 S.W.3d at 856. Suits that would have the practical effect
of extracting money damages from the State for breach of contract can only be
filed pursuant to Texas's "comprehensive schemes that allow contracting parties
to resolve breach-of-contract claims against the State." Id. at 857 (citing TEX.
CIV. PRAC. & REM. CODESS.107.001; TEX. GOV'T CODESS.SS.2260.001-.108). Because a
Contract Clause claim against state executives seeking to enjoin the enforcement
of an impairment of contract would not, in name or in effect, impose financial
obligations on the State, such a claim would not be governed by the State's
"comprehensive schemes."



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     The Federal Constitution also prohibits Texas from passing any law
"impairing the Obligation of Contracts." U.S. CONST. art. I Section 10. The
Federal Contract Clause, like its Texas counterpart, operates differently on
private contracts on the one hand and government contracts on the other. The
U.S. Supreme Court has indicated that "impairments of a State's own contracts
would face more stringent examination under the Contract Clause than would laws
regulating contractual relationships between private parties," although "private
contracts are not subject to unlimited modification under the police power."
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 n.15 (1978) (quoting
U.S. Trust, 431 U.S. at 22-23) (citation and internal quotation marks omitted).

     a. PRIVATE CONTRACTS

     To prevail on a claim that federal legislation unconstitutionally impairs
the obligation of a contract to which the State is not a party, the plaintiff
must demonstrate that the statute alters contractual rights or obligations.
Nat'l R.R., 470 U.S. at 1455. If there is an impairment, then the reviewing
court must determine whether that impairment is substantial enough to constitute
an unconstitutional impairment of the rights or obligations.

     In determining whether a law unconstitutionally impairs the obligations of
a private contract, the courts consider a variety of factors. In Allied
Structural Steel, supra, and Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398
(1934), the U.S. Supreme Court explicitly weighed five such considerations: (1)
Whether the law was enacted pursuant to an "emergency"; (2) whether the law was
enacted to "protect a basic societal interest, not a favored group"; (3) whether
the relief was "appropriately tailored to the emergency that it was designed to
meet"; (4) whether the imposed conditions were "reasonable"; and (5) whether the
legislation was limited to the duration of the emergency. Allied Structural
Steel, 438 U.S. at 242 (citing Blaisdell, 290 U.S. at 434-447).

     The U.S. Supreme Court has since marshaled those considerations into a
three-step test. See Energy Reserves Group, Inc. v. Kansas Power and Light Co.,
459 U.S. 400 (1983). Courts first consider whether the state law operates as a
substantial impairment of a contractual relationship. (For the purposes of this
letter, we assume that the impairment is substantial.) Where there is a
substantial impairment, the State must demonstrate that the regulation had a
significant and legitimate public purpose. Once such a purpose is identified,
courts will consider whether the regulation's adjustment of rights and
responsibilities is based upon reasonable conditions and is of a character
appropriate to the public purpose justifying the measure's adoption. Id. at
411-13.

       i. LEGITIMATE PUBLIC PURPOSE

     If Texas were to pass legislation that substantially impairs contractual
obligations, then courts would inquire whether "the adjustment of the rights and
responsibilities is based upon reasonable conditions and is of a character
appropriate to the public purpose justifying the legislation's adoption." Energy
Reserves Group, 459 U.S. at 412. Where the State is not a party to the contract,
the court will "defer to legislative judgment as to the necessity and




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reasonableness of a particular measure." Id. at 413. "[T]he State . . . must
have a significant and legitimate public purpose behind the regulation, such as
the remedying of a broad and general social or economic problem." Id. at 411-12.
The State must be acting pursuant to its "police power, rather than providing a
benefit to special interests." Id. at 412.

     In judging necessity, the U.S. Supreme Court has considered the context in
which the law was enacted. In Blaisdell, the state legislation was justified as
a response to the lodestar of economic emergencies, the Great Depression. 290
U.S. at 242. In Allied Structural Steel, by contrast, the Court held that
general concern about pensions was not by itself a sufficient emergency; nor had
the government declared an official emergency. 438 U.S. at 249. Finally, in
Energy Reserves Group, the Court noted that the Kansas statute at issue had been
enacted to protect consumers from the escalation of natural gas prices caused by
recent deregulation. 459 U.S. at 416-17. Judgment of this factor's application
to hypothetical Texas legislation is impossible without knowledge of the context
in which that legislation is passed; in any event, a more urgent context would
receive greater deference from the courts than would a nonemergency.

     The U.S. Supreme Court has also considered, on the question of
justification, whether the challenged law was passed to protect broad societal
interests or merely to benefit some to the detriment of others. In Blaisdell,
the Supreme Court approved a law treating all debtors and creditors alike. The
statute had not been passed "for the mere advantage of particular individuals
but for the protection of a basic interest of society." 290 U.S. at 445.
(Notably, this assertion was largely a priori, and the opinion offered no
further explanation.) In Allied Structural Steel, by contrast, the Supreme Court
criticized a law that affected only some employers (those closing offices in
Minnesota) and that took aim "only at those who had in the past been
sufficiently enlightened as voluntarily to agree to establish pension plans for
their employees." Id. at 249-250.


       ii. REASONABLENESS

     Finally, the conditions set by the law must be reasonable in light of their
justification. In Blaisdell, the emergency-justified regulations regarding
mortgage recourse were deemed "reasonable" because they did not wholly
eviscerate mortgage obligations; rather, they merely extended the period for
redemption following a foreclosure. Moreover, the act was not of indefinite
duration, but was time-limited (albeit subject to extension). 290 U.S. at
446-48. In Allied Structural Steel, by contrast, the statute - which "impos[ed]
a sudden, totally unanticipated, and substantial retroactive obligation upon the
company to its employees" - "was not enacted to deal with a situation remotely
approaching the broad and desperate emergency economic conditions of the early
1930's - conditions of which the Court in Blaisdell took judicial notice." 438
U.S. at 249. In Energy Reserves Group, the U.S. Supreme Court noted that the
Kansas gas price caps applied to only a small amount of gas consumed in the
State, and that the law reintroduced certainty to a market otherwise operating
under "indefinite price escalator clauses." 459 U.S. at 418. Importantly, the
court conducted that analysis "in light of the deference to which the Kansas
Legislature's judgment is entitled." Id. If Texas were to enact



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legislation substantially impairing obligations of contract, then the courts
would invalidate the legislation if it was unreasonable in relation to the
conditions put forth to justify its enactment.


     b. STATE CONTRACTS

       i. EXISTENCE OF A CONTRACT

     To prevail on a claim that state legislation unconstitutionally impairs the
obligation of a contract to which the State is a party, the plaintiff must first
demonstrate the existence of such a contract. As noted above, supra p. 7, courts
have held that, "absent some clear indication that the legislature intends to
bind itself contractually, the presumption is that 'a law is not intended to
create private contractual or vested rights but merely declares a policy to be
pursued until the legislature shall ordain otherwise.'" Nat'l R.R. Passenger
Corp., 470 U.S. at 465-66 (quoting Dodge v. Bd. of Educ., 302 U.S. 74, 79
(1937)). "Policies, unlike contracts, are inherently subject to revision and
repeal, and to construe laws as contracts when the obligation is not clearly and
unequivocally expressed would be to limit drastically the essential powers of a
legislative body." Id. at 466. National Railroad identified two principal
considerations in determining whether a legislative act creates a contractual
obligation.

     First, if the legislation "provides for the execution of a written contract
on behalf of the state, then the case for an obligation binding upon the state
is clear. Absent an adequate expression of an actual intent of the state to bind
itself," however, the finding of a contract is less likely. Nat'l R.R., 470 U.S.
at 466-67 (internal quotation marks and citations omitted) (emphasis in
original). PURA's Section 39.310, detailing the State's Pledge, authorizes
parties to execute written contracts incorporating the Pledge, but whether that
suffices to manifest the State's intent to "bind" itself is less obvious.
Section 39.310 maintains that "[t]ransition bonds are not a debt or obligation
of the state" - a statement that appears to disclaim governmental financial
liability for the bonds themselves. But to say that Texas did not bind itself,
by contractual obligation, to make payment on or financially backstop Transition
Bonds is not the same as to say that the State did not bind itself to not enact
countervailing legislation. In Section 39.310, the State expressly "pledges . .
.. for the benefit and protection" of bondholders and electric utilities, "that
it will not take or permit" countervailing legislation. That statement is, by
its terms, a promise. And the State evinced its intent for parties to rely on
the promise when ordering their affairs by authorizing the Pledge's inclusion in
specified contracts, albeit ones to which the State is not a signatory.

     The text of Section 39.310 of PURA compares favorably with the legislation
at issue in National Railroad. Indeed, in authorizing inclusion of the Pledge in
contracts and thereby outlining the terms on which private parties may execute
contracts, Texas included none of the express reservations found in the statute
at issue in National Railroad. For example, in National Railroad, the U.S.
Supreme Court noted that, "lest there be any doubt . . . Congress 'expressly
reserved' its rights to 'repeal, alter, or amend the Act at any time.'" Id. at
467. In marked contrast, Texas issued no such reservation in PURA and, indeed,
"pledge[d]," for the "protection" of parties, to "not take or permit" any
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contracts. TEX. UTIL. CODE ANN. Section 39.310. That language weighs in favor of
finding a binding contractual obligation on the State. Indeed, it is similar to
the language conceded to create a contractual obligation in U.S. Trust. Unlike
the statute construed in National Railroad, the Texas Pledge expressly uses the
word "pledge" in its assurance. The language indicates the State's intent to be
bound vis-a-vis any holders of transition bonds and supports the conclusion that
the Pledge constitutes a contractual relationship between the State and the
Bondholders.

     Second, National Railroad suggests that an "atmosphere of pervasive prior
regulation" weighs against finding a contract. 470 U.S. at 468-69. In that case,
however, the atmosphere was explicitly reinforced by express reservation of the
power to repeal. Id. at 469. The Texas Pledge here has no such express
reservation and actually promises that "the state will not take or permit any
action that would impair the value of transition property, or . . . reduce,
alter, or impair the transition charges to be imposed, collected, and remitted
to financing parties . . . ." TEX. UTIL. CODE. ANN. Section 39.310 (emphasis
added). An "atmosphere of pervasive prior regulation" may weigh against the
reasonable expectation that further regulation is not forthcoming. But the Texas
Pledge's strong statement appears specifically designed to disavow and forestall
the expectation of further regulation that would interfere with the collection
of charges financing the Transition Bonds (e.g., reducing, altering, or
impairing the transition charges), or that would otherwise substantially impair
the value of Transition Property.(5)


       ii. RESERVED-POWERS DOCTRINE

     Assuming a contract and legislation that substantially impairs the
obligation of that contract, the contract would not be enforceable if it
purported to "bargain[] away" the "reserved powers" of the State. U.S. Trust,
431 U.S. at 23. That is, even if Texas intended to be contractually bound, it
must be within the State's power to create that obligation. Generally speaking,
while a State can "contract[] away" its power to tax and spend in the future, it
cannot do the same with its power of eminent domain or its police power. Id. at
23-24 & n. 21. Regulation of utilities is one of the police powers of the
States. Pacific Gas & Elec. v. State Energy Resources Conservation & Dev.
Comm'n, 461 U.S. 190, 206 (1983).

     In our opinion, the Pledge does not constitute an impermissible attempt to
"contract away" the police power of the State of Texas. The State has merely
pledged not to reduce, alter, or impair the transition charges that will fund
repayment of the Transition Bonds or


- -------------------------

(5)The U.S. Supreme Court has, in other contexts, found binding contractual
obligations, but it has done so under circumstances materially different from
those here. In one of those cases, the obligation was appended to another
existing contract between a state government and the complaining party. See
State of Indiana ex rel. Anderson v. Brand, 303 U.S. 95 (1938) (holding that
state Tenure Act created binding contractual obligations enforceable by teachers
with contractual relationships with public schools). In another case, the U.S.
Supreme Court held that a general act modifying corporate charters constituted a
contractual relationship, but there the legislation provided that it would
"shall not go into effect or be binding upon [a] company until the said company
.. . . shall have signified its assent hereto . . . ." New Jersey v. Yard, 95
U.S. 104, 110 (1887). In effect, the State had given private parties the power
to "accept" its "offer." See also U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S.
1, 17 (1976) (noting that parties conceded that legislation created a
contractual obligation).



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impair the value of the Transition Property, which presumably includes the right
to impose and collect charges under the terms of the Financing Order. Health and
safety regulations regarding the transmission of electricity going forward will
not affect these charges. Nor can the Pledge be read as contracting away any
power to regulate the safety of utility properties. Therefore, the
reserved-powers doctrine would not preclude a court from holding that violation
of the terms of the Pledge constitutes an unconstitutional violation of the
Contract Clause of the United States Constitution.

     c. CONCLUSION: AVAILABILITY OF INJUNCTIVE AND DECLARATORY RELIEF

     Based on our analysis of relevant judicial authority, as set forth above,
it is our opinion, subject to all of the qualifications, limitations and
assumptions (including the assumption that any impairment would be
"substantial") set forth in this letter, that a reviewing court would conclude
that the State Pledge (i) creates a binding contractual obligation of the State
of Texas for purposes of the Federal Contract Clause and (ii) unless the State's
action is a reasonable exercise of its sovereign powers and is of a character
reasonable and appropriate to the public purpose justifying such action,
provides a basis upon which the Bondholders (or the Trustee acting on their
behalf) could challenge successfully, under the Federal Contract Clause, the
constitutionality of any action by the State (including the Commission) of a
legislative character, including the repeal or amendment of the securitization
provisions of the Electric Choice Plan, that a court would determine violates
the pledge in a manner that substantially reduces, alters or impairs the value
of the Transition Property or substantially reduces, alters or impairs the
Transition Charges.

     If Texas legislation did violate the Federal Contract Clause, then holders
and issuers of Transition Bonds could file suit in federal court against the
governor or other state executive officers responsible for enforcing the
unconstitutional legislation, requesting injunctive relief to prevent
enforcement of the new measure. Ex Parte Young, 209 U.S. 123, 159-60 (1908). In
order to obtain injunctive relief, the plaintiff must also show that enforcement
of the unconstitutional legislation is imminent. Morales v. TWA, 504 U.S. 374,
381 (1992).(6) The provision of injunctive relief would be subject to judicial
discretion, and would be subject to a showing that (1) immediate and irreparable
harm would occur if the injunction does not issue, (2) the claim for relief is
based upon an established legal right, (3) there is no adequate remedy at law,
and (4) the equities preponderate in favor of the moving party. See supra p. 9.
In addition, declaratory relief would be available subject to the court's
discretion. 28 U.S.C. Section 2201; Wilton v. Seven Falls Co., 515 U.S. 277,
282-83 (1995). Finally, as noted above, supra p. 9, the availability of
injunctive and declaratory relief might be limited where the State's actions


- -------------------------
(6)The complainants would not be able to sue the State of Texas for damages
resulting from the Federal constitutional violation, because the State would be
immune from suit under the 11th Amendment to the United States Constitution.
See, e.g., North Carolina v. Temple, 134 U.S. 22, 25, 30 (1890) (holding that
North Carolina enjoys sovereign immunity from claimed violation of federal
Contract Clause) (citing Ex Parte Ayers, 123 U.S. 443 (1887)). The complainants,
however, would be able to sue individual officers for injunctive relief under Ex
Parte Young.



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constitute an unconstitutional "taking" for which the aggrieved party can recoup
money damages at law.

   3. CONCLUSION: THE FEDERAL AND TEXAS CONSTITUTIONS' CONTRACT CLAUSES

     Based on our analysis of relevant judicial authority, as set forth above,
it is our opinion, subject to all of the qualifications, limitations and
assumptions (including the assumption that any impairment would be
"substantial") set forth in this letter, that a reviewing court would conclude
that (i) the Pledge creates a binding contractual obligation of the State of
Texas for purposes of the Federal Contract Clause and the Texas Contract Clause,
and (ii) the Pledge provides a basis upon which the Bondholders (or the Trustee
acting on their behalf) could challenge successfully, under the Federal Contract
Clause and the Texas Contract Clause, the constitutionality of any action by the
State (including the Commission) of a legislative character, including the
repeal or amendment of the securitization provisions of the Electric Choice
Plan, that a court would determine violates the Pledge in a way that
substantially reduces, alters or impairs the value of the Transition Property or
substantially reduces, alters or impairs the Transition Charges, prior to the
time that the Transition Bonds are fully paid and discharged, unless the action
is a reasonable exercise of the State's sovereign powers and is of a character
reasonable and appropriate to the public purpose justifying such action.

B.  THE TAKINGS CLAUSES

     Because the Texas Takings Clause largely has been assumed to be coextensive
with the Federal Takings Clause, see infra p. 18 (citing, inter alia, Sheffield
Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 669 (Tex. 2004)), we begin
with a review of the Federal Takings Clause.

   1. THE FEDERAL CONSTITUTION'S TAKINGS CLAUSE

     The Takings Clause of the Fifth Amendment to the United States Constitution
states: "nor shall private property be taken for public use, without just
compensation." That provision is made applicable to the States via the
Fourteenth Amendment. Webb's Fabulous Pharmacies v. Beckwith, 449 U.S. 155
(1980). The Takings Clause covers both tangible and intangible property.
Ruckelshaus, 467 U.S. at 1003. Outside of a limited category of "per se"
regulatory takings, challenges to legislation pursuant to the Takings Clause are
essentially decided on an ad hoc factual basis. Penn Central Transp. Corp. v.
New York, 438 U.S. 104, 124 (1978); Ruckelshaus, 467 U.S. at 1005.

     a. EXISTENCE OF PROPERTY RIGHTS

     Whether the enactment of legislation that repeals, amends, or modifies the
provisions of the Electric Choice Plan providing for, authorizing, or supporting
the collection of charges financing the Transition Bonds, or that otherwise
substantially impairs the value of Transition Property, in violation of the
Pledge, constitutes an unlawful "taking" turns primarily on whether a court
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The Supreme Court has stated broadly that "contracts . . . are property and
create vested rights" for the purposes of the Takings Clause. Lynch v. United
States, 292 U.S. 571, 577 (1934). It has clarified more recently, however, that
"the fact that legislation disregards or destroys existing contractual rights
does not always transform the regulation into an illegal taking." Connolly v.
Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986). "Contracts may create
rights of property, but when contracts deal with a subject matter which lies
within the control of Congress, they have a congenital infirmity. Parties cannot
remove their transactions from the reach of dominant constitutional power by
making contracts about them." Id. at 223-24.

     To determine whether a property right has been unconstitutionally invaded,
the U.S. Supreme Court has focused on three factors of "particular
significance": (1) "the economic impact of the regulation on the claimant"; (2)
"the extent to which the regulation has interfered with distinct
investment-backed expectations"; and (3) "the character of the governmental
action." Connolly, 475 U.S. at 225 (quoting Penn Central, 438 U.S. at 124).

     In Connolly, Congress enacted a requirement that employers pay a fixed and
certain amount to the Pension Benefit Guaranty Corporation to cover the
company's "unfunded vested benefits." 475 U.S. at 211. The plaintiffs, a group
of employers, sued on the grounds that, because the terms of the trust
agreements that they had executed with their employees required the employers to
pay a lesser contribution, the new federal requirements of additional payments
impaired the employers' rights under the trust agreements. Id. at 217-20.
Although the U.S. Supreme Court acknowledged that the legislation "completely
deprives" employers of the additional funds that they would now have to pay to
satisfy the statutory requirement, 475 U.S. at 225-26, it noted that pension
plans were long the subject of extensive government oversight: "Those who do
business in the regulated field cannot object if the legislative scheme is
buttressed by subsequent amendments to achieve the legislative end." Id. at 227
(quoting FHA v. The Darlington, Inc., 358 U.S. 84, 91 (1958)). Consequently,
those operating in an area subject to pervasive government regulation generally
cannot have a reasonable investment-backed expectation that regulations will not
change. Id. The U.S. Supreme Court further observed that the government, in
passing the challenged legislation, did not "physically invade or permanently
appropriate any of the employer's assets for its own use." Id. at 225.

     In United States v. Security Industrial Bank, 459 U.S. 70 (1982), the U.S.
Supreme Court considered a challenge to a bankruptcy reform statute. The
creditor plaintiffs argued that the bill's modification of a bankruptcy law -
allowing debtors to avoid pre-modification liens on debtor property -
constituted an unconstitutional "taking" of the creditors' property rights in
the liens. Although the government's action involved no physical occupation of
the plaintiffs' property, the U.S. Supreme Court stressed that "[t]he total
destruction by the government of all compensable value of these liens, which
constitute compensable property, has every possible element of a Fifth Amendment
taking and is not a mere consequential incidence of a valid regulatory measure."
Id. at 77. To avoid this apparent constitutional infirmity, the U.S. Supreme
Court construed the legislation as applying only to lien interests vesting after
the legislation took effect. 475 U.S. at 82.



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     It is our opinion that the enactment of legislation that repeals, amends,
or modifies the provisions of the Electric Choice Plan providing for,
authorizing, or supporting the collection of charges financing the Transition
Bonds, or that otherwise substantially impairs the value of Transition Property,
without just compensation, would be deemed an unconstitutional taking of
property akin to that in Security Industrial Bank if the act appropriates a
substantial property interest of the Bondholders in the bondable Transition
Property and deprives the Bondholders of their reasonable expectations arising
from their investments in the Transition Bonds. That conclusion is based
primarily on the application of the second of the three Connolly factors, "the
extent to which the regulation has interfered with distinct investment-backed
expectations." The enactment of such legislation would levy retroactive burdens
on the contracting parties despite clear "investment-backed" expectations -
expectations specifically promoted and endorsed by the Texas legislature in
promulgating the Pledge and in encouraging contracting parties to include the
Pledge in Transition Bond documentation. That the Texas legislature made the
Pledge "for the benefit and protection" of utilities and financing parties makes
the expectations of those parties all the more reasonable.

     The first of the Connolly factors - "the economic impact of the regulation
on the claimant" - would also favor holders and issuers of Transition Bonds
where, as is assumed for present purposes, the modification of relevant portions
of the Electric Choice Plan is substantial and the act appropriates a
substantial property interest of the Bondholders in the bondable Transition
Property and deprives the Bondholders of their reasonable expectations arising
from their investments in the Transition Bonds. If Texas were to enact
legislation that repeals, amends, or modifies the provisions of the Electric
Choice Plan providing for, authorizing, or supporting the collection of charges
financing the Transition Bonds, or that otherwise substantially impairs the
value of Transition Property, then the economic impact on bondholders would be
great.

     The third Connolly factor - the character of the government's action - does
not appear significant. There is no actual physical invasion of property. But
actual physical invasion of the property is not a necessary condition to a
successful takings claim.

     b. ENFORCEMENT OF THE "JUST COMPENSATION" PROVISION

     An aggrieved property owner generally may not claim a violation of the U.S.
Constitution's Takings Clause until after attempting to recover compensation
through state processes. "The Fifth Amendment does not require that compensation
precede the taking." Ruckelshaus, 467 U.S. at 1016. Injunctions are not
available against a state government to remedy an alleged Takings Clause
violation when a suit for compensation can be brought against the sovereign
after the taking. Id.; see Williamson County Regional Planning Comm'n v.
Hamilton Bank of Johnson City, 473 U.S. 172, 194-95 (1985). Because Texas
provides for "inverse condemnation" proceedings by aggrieved property owners -
even in the case of nonphysical "regulatory takings," Tower of Flower Mound v.
Stafford Estates Ltd. P'ship, 135 S.W.3d 620, 645-46 (Tex. 2004) - a federal
cause of action may not arise until the aggrieved property owner has requested
compensation from the State and resort to that process failed to



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"yield just compensation." Ruckelshaus, 467 U.S. at 1013 (quoted in Williamson
County, 473 U.S. at 195). To the extent that Texas's inverse condemnation
procedure is unavailable or inadequate, however, a federal claim could be
brought. 473 U.S. at 196-97.(7)

     The case law does not clearly indicate whether, if a federal suit claiming
compensation under the Federal Takings Clause is brought directly against the
State of Texas, the State can assert sovereign immunity. Although the Texas
Supreme Court has held that Texas has waived its sovereign immunity against
Takings Clause claims under the Texas Constitution, Steele v. City of Houston,
603 S.W.2d 786, 791 (1996), a State's waiver of sovereign immunity in one forum
or against one class of claims cannot necessarily be construed to be a waiver of
sovereign immunity in other forums or against other claims. According to the
U.S. Supreme Court, "[t]he government cannot be sued, except with its own
consent. It can declare in what court it may be sued, and prescribe the forms of
pleading and the rules of practice to be observed in such suits. It may restrict
the jurisdiction of the court to a consideration of only certain classes of
claims against the [the government]." McElrath v. United States, 102 U.S. 426,
440 (1880); see also West v. Gibson, 527 U.S. 212, 226 (1999) (Kennedy, J.,
dissenting). The U.S. Supreme Court, however, has noted uncertainty as to
whether a State's declaration of sovereign immunity against a federal takings
claim would have effect. City of Monterey v. Del Monte Dunes at Monterey, Ltd.,
526 U.S. 687, 713-714 (1999) (assuming arguendo that "the sovereign immunity
rationale retains its vitality in cases where [the Fifth] Amendment is
applicable"). Nonetheless, the enforcement of legislation that effects a taking
could be enjoined by a suit against state officers if monetary relief were
unavailable, subject to the five considerations set forth above. See supra p. 9.
Thus, to the extent that there is a taking without just compensation and just
compensation is unavailable through state (or federal) procedures, aggrieved
bondholders and issuers could seek to enjoin enforcement of the state
legislation by suing individual officers under Ex Parte Young and 42 U.S.C.
Section 1983.

     c. CONCLUSION

     Based on our analysis of relevant judicial authority, as set forth above,
it is our opinion, subject to all of the qualifications, limitations and
assumptions set forth in this letter, that, under the Federal Takings Clause, a
reviewing court would hold that the State would be required to pay just
compensation to Bondholders if the State's repeal or amendment of the Electric
Choice Plan or other action in violation of the Pledge constitutes a permanent
appropriation of a substantial property interest of the Bondholders in the
bondable Transition Property and deprives the Bondholders of their reasonable
expectations arising from their investments in the Transition Bonds. There can
be no assurance, however, that any such award of just compensation would be
sufficient to pay the full amount of principal of and interest on the Transition
Bonds.

   2. THE TEXAS CONSTITUTION'S TAKINGS CLAUSE


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(7)As noted above, Texas has established procedures for obtaining
compensation.



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     Article I, Section 17 of the Texas Constitution provides that "[n]o
person's property shall be taken, damaged or destroyed for or applied to public
use without adequate compensation being made, unless by the consent of such
person." The Texas Supreme Court does not appear to have decided whether the
protections of the Takings Clauses of the Federal and Texas Constitutions are
coextensive. In a number of recent cases, however, that court has assumed that
the clauses are equivalent. Tower of Flower Mound, 135 S.W.3d at 630-31;
Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660, 669 (Tex. 2004);
City of Austin v. Travis County Landfill Co., 73 S.W.3d 234, 238-39 (Tex. 2002);
Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 932 (Tex. 1998).

     Under the Texas Takings Clause, all property is subject to the valid
exercise of the police power and compensation is generally not required for
incidental losses. City of College Station v. Turtle Rock Corp., 680 S.W.2d 802,
804 (Tex. 1984). However, if a governing body, in the exercise of its police
power, enacts a regulation that goes "too far" in the regulation of private
property, then that governing body may be held to have taken property pursuant
to its power of eminent domain, requiring that the government pay compensation
to the owner. Id.

     a. THE EXISTENCE OF PROPERTY RIGHTS

     Several Texas courts of appeals have expressed doubt that the Texas Takings
Clause covers the deprivation of rights and interests not attached to real
property. Bates v. Texas State Technical Coll., 983 S.W.2d 821, 826 n.8 (Tex.
App.-Waco 1999, writ denied) ("In our search, we could find no cases that hold
that 'property' applies to an individual's property interest in continued
employment. Rather, our search indicated that 'property' as stated in the Texas
constitution refers to real property."); De Mino v. Sheridan, 2004 WL 1794558 at
*6 (Tex. App.-Houston (1 Dist.) 2004, no writ); De Mino v. Univ. of Houston,
2004 WL 2296131 at *4 (Tex. App.-Austin 2004, writ filed Mar. 30, 2005).

     But the Texas Supreme Court has held that a franchise is "property"
protected by the Texas Takings Clause. Brazosport Sav. and Loan Ass'n v.
American Sav. and Loan Ass'n 342 S.W.2d 747, 750 (Tex. 1961) (explaining that
"[i]n character and nature a franchise is essentially in all respects property,
and is governed by the same rules as to its enjoyment and protection and is
regarded by the law precisely as other property"). A "franchise" is "a special
privilege conferred by government upon an individual or organization which does
not belong to the citizenry at large and in which activity one otherwise could
not engage without the franchise." State of Texas v. Operating Contractors, 985
S.W.2d 646, 653 (Tex. App.-Austin 1999, writ denied) (summarizing Texas case law
regarding franchises and the Takings Clause). In view of those cases, we believe
that the Texas Supreme Court would consider a contract (like a franchise) to be
"property" protected by the Texas Takings Clause.

     b. CONCLUSION: ENFORCEMENT OF THE "JUST COMPENSATION" PROVISION

     Based on our analysis of relevant judicial authority, as set forth above,
it is our opinion, subject to all of the qualifications, limitations and
assumptions set forth in this letter,



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that, under the Texas Takings Clause, a reviewing court would hold that the
State is required to pay just compensation to Bondholders if the State were to
enact legislation that repeals, amends, or modifies the provisions of the
Electric Choice Plan providing for, authorizing, or supporting the collection of
charges financing the Transition Bonds, or that otherwise substantially impairs
the value of Transition Property, where that legislation constitutes a permanent
appropriation of a substantial property interest of the Bondholders in the
bondable Transition Property and deprives the Bondholders of their reasonable
expectations arising from their investments in the Transition Bonds.

     In the event of such a taking, the aggrieved party would seek damages
through an inverse condemnation proceeding against the State. Tarrant Reg'l
Water Dist. v. Gragg, 151 S.W.3d 546, 554 (Tex. 2004). The Texas Takings Clause
is self-effectuating, as the Texas Supreme Court has recognized the existence of
"a lawful cause of action under Section 17, Article I, of the Texas
Constitution." Steele, 603 S.W.2d at 791. "The Constitution itself is the
authorization for compensation for the destruction of property . . . ." Id. For
that same reason, the court has authoritatively held, Texas waives its sovereign
immunity against inverse condemnation suits under the Texas Takings Clause. Id.
Injunctive relief is not available in advance of the unlawful taking where the
property owner can sue for damages under inverse condemnation. Town of Flower
Mound, 135 S.W.3d at 646.

    3. CONCLUSION: THE FEDERAL AND TEXAS CONSTITUTIONS' TAKINGS CLAUSES

     Based on our analysis of relevant judicial authority, as set forth above,
it is our opinion, subject to all of the qualifications, limitations and
assumptions set forth in this letter, that if it concludes that the Transition
Property is protected by the Federal and Texas Takings Clauses, a reviewing
court of competent jurisdiction would find a compensable taking if the State
were to enact a law that, without paying just compensation to the bondholders
(i) permanently appropriates the Transition Property or denies all economically
productive use of the Transition Property; or (ii) destroys the Transition
Property, other than in response to emergency conditions; or (iii) substantially
reduces, alters or impairs the value of the Transition Property, if the law
unduly interferes with the bondholders' reasonable investment backed
expectations.

     There can be no assurance, however, that any award of compensation would be
sufficient to pay the full amount of principal of and interest on the Transition
Bonds.


                                 GENERAL MATTERS

     We note that judicial analysis of issues relating to the Federal Contract
Clause, the Federal Takings Clause, the Texas Contract Clause, and the Texas
Takings Clause, and the retroactive effect to be given to judicial decisions has
typically proceeded on a case-by-case basis and that the courts' determinations,
in most instances, are usually strongly influenced by the facts and
circumstances of the particular case. We further note that there are no reported
controlling



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judicial precedents of which we are aware directly on point. Our analysis is
necessarily a reasoned application of judicial decisions involving similar or
analogous circumstances. Moreover, the application of equitable principles
(including the availability of injunctive relief or the issuance of a stay
pending appeal) is subject to the discretion of the court which is asked to
apply them. We cannot predict the facts and circumstances which will be present
in the future and may be relevant to the exercise of such discretion. The
foregoing opinions are based upon our evaluation of existing judicial decisions
and arguments related to the factual circumstances likely to exist at the time
of a Federal Contract Clause, Federal Takings Clause, Texas Contract Clause, or
Texas Takings Clause challenge to a law passed by the legislature; such
precedents and such circumstances could change materially from those discussed
above in this letter. Consequently, there can be no assurance that a court will
follow our reasoning or reach the conclusions which we believe current judicial
precedent supports. It is our and your understanding that none of the foregoing
opinions is intended to be a guaranty as to what a particular court would
actually hold; rather each such opinion is only an expression as to the decision
a court should reach if the issue were properly prepared and presented to it and
the court followed what we believe to be the applicable legal principles under
existing judicial precedent. The recipients of this letter should take these
considerations into account in analyzing the risks associated with the subject
transaction.

     This letter is limited to the federal laws of the United States of America
and to the laws of the State of Texas.

     This letter is being delivered solely for the benefit of the persons to
whom it is addressed. We assume no obligation to update or supplement the
opinions or statements expressed herein to reflect any facts or circumstances
which may hereafter come to our attention with respect to such opinions or
statements, including any changes in applicable law which may hereafter occur.

                               Very truly yours,

                               /s/ BAKER BOTTS L.L.P.







                                   SCHEDULE I


CenterPoint Energy Transition Bond Company II, LLC
1111 Louisiana, Suite 4655B
Houston, Texas  77002


CenterPoint Energy Houston Electric, LLC
1111 Louisiana
Houston, Texas  77002

Wilmington Trust Company
Rodney Square North
1100 North Market St.
Wilmington, DE 19890-0001
Attn:  Corporate Trust Administration

Standard & Poor's, a division of The McGraw-Hill Companies
Attention: Asset Backed Surveillance Department
55 Water Street
New York, New York  10041

Moody's Investors Service, Inc.
Attention: ABS Monitoring Department
99 Church Street
New York, New York  10007

Fitch, Inc.
Attention: ABS Surveillance
1 State Street Plaza
New York, New York  10004

Lehman Brothers Inc.
Credit Suisse First Boston LLC
Greenwich Capital Markets Inc.
c/o Lehman Brothers Inc.
745 7th Avenue
New York, NY  10019