e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 333-121505
CenterPoint Energy Transition Bond Company II, LLC
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
59-3790472 |
(State or other jurisdiction of incorporation
|
|
(I.R.S. Employer Identification Number) |
or organization) |
|
|
|
|
|
1111 Louisiana, Suite 4655B |
|
|
Houston, Texas 77002
|
|
(713) 207-5222 |
(Address and zip code of principal executive
offices)
|
|
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K and is therefore filing this Form 10-K with the reduced disclosure format.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the members equity held by non-affiliates of the registrant
as of June 30, 2006: None
CenterPoint Energy Transition Bond Company II, LLC
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time we make statements concerning our expectations, beliefs, plans, objectives,
goals, strategies, future events or performance and underlying assumptions and other statements
that are not historical facts. These statements are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from
those expressed or implied by these statements. In some cases, you can identify our forward-looking
statements by the words anticipate, believe, continue, could, estimate, expect,
forecast, goal, intend, may, objective, plan, potential, predict, projection,
should, will, or other similar words.
We have based our forward-looking statements on our managements beliefs and assumptions based
on information available to our management at the time the statements are made. We caution you that
assumptions, beliefs, expectations, intentions and projections about future events may and often do
vary materially from actual results. Therefore, we cannot assure you that actual results will not
differ materially from those expressed or implied by our forward-looking statements.
The following list identifies some of the factors that could cause actual results to differ
from those expressed or implied by our forward-looking statements:
|
|
|
state and federal legislative and regulatory actions or developments, including
deregulation, re-regulation, changes in or application of laws or regulations applicable to
other aspects of our business; |
|
|
|
|
changes in market demand and demographic patterns; |
|
|
|
|
weather variations and other natural phenomena affecting retail electric customer energy usage; |
|
|
|
|
the operating performance of CenterPoint Energy Houston Electric, LLCs
(CenterPoint Houston) facilities and third-party suppliers of electric energy in
CenterPoint Houstons service territory; |
|
|
|
|
the accuracy of the servicers forecast of electrical consumption or the payment of transition charges; |
|
|
|
|
non-payment of transition charges by retail electric providers; |
|
|
|
|
the reliability of the systems, procedures and other infrastructure necessary
to operate the retail electric business in CenterPoint Houstons service territory,
including the systems owned and operated by the independent system operator in the Electric
Reliability Council of Texas, Inc.; and |
|
|
|
|
other factors we discuss in this Form 10-K and our other Securities and
Exchange Commission filings. |
You should not place undue reliance on forward-looking statements. Each forward-looking
statement speaks only as of the date of the particular statement.
ii
PART I
Item 1. Business
General
We are a special purpose Delaware limited liability company whose sole member is CenterPoint
Energy Houston Electric, LLC (CenterPoint Houston). We were organized on December 3, 2004, and
amended and restated our certificate of formation and limited liability company agreement on
December 14, 2005 and December 16, 2005, respectively. Our principal purposes are:
|
|
|
purchasing and owning transition property, as described below, established by a
financing order from the Public Utility Commission of Texas (Texas Utility Commission) and
other transition bond collateral; |
|
|
|
|
registering and issuing the transition bonds; |
|
|
|
|
pledging our interest in transition property and other transition bond
collateral to the trustee pursuant to the terms of the indenture governing the transition
bonds in order to secure the transition bonds; |
|
|
|
|
making payments on the transition bonds; and
· performing other activities that are necessary, suitable or convenient to accomplish these purposes. |
Our organizational documents require us to operate in a manner designed to avoid consolidation
with the bankruptcy estate of CenterPoint Houston in the event CenterPoint Houston becomes subject
to such a proceeding.
We have no employees and have entered into a servicing agreement with CenterPoint Houston, as
servicer. Pursuant to the servicing agreement, the servicer will manage, service, administer and
make collections in respect of the transition property. In addition, we have entered into an
administration agreement with CenterPoint Houston pursuant to which CenterPoint Houston provides
administrative services to us.
We purchased the transition property described below and issued $1.851 billion of Senior
Secured Transition Bonds Series A (transition bonds) on December 16, 2005, with interest rates
ranging from 4.84 percent to 5.302 percent and final maturity dates ranging from February 2011 to
August 2020. The specific interest rate and maturity of each class of transition bonds is
disclosed in Note 3 of the notes to financial statements included in Item 8 of this Form 10-K. The
transition bonds were issued pursuant to an indenture between us and Wilmington Trust Company, as
trustee.
Transition Property
The transition property that we purchased from CenterPoint Houston includes the irrevocable
right to impose, collect and receive, through the transition charges payable by retail electric
customers within CenterPoint Houstons certificated service area as it existed on May 1, 1999, an
amount sufficient to recover the qualified costs authorized in the financing order issued by the
Texas Utility Commission dated May 16, 2005 (financing order) approving the issuance of the
transition bonds including the right to receive transition charges in amounts and at times
sufficient to pay principal and interest and to make other deposits in connection with the
transition bonds. All revenues and collections resulting from transition charges are part of the
transition property. CenterPoint Houstons qualified costs authorized in the financing order
include:
|
|
|
CenterPoint Houstons stranded cost balance as of August 31, 2004, which is an amount
associated with the transition to competitive retail electric markets in Texas determined
by the Texas Utility Commission to be recoverable under the Texas Electric Choice Plan,
plus: |
1
|
|
|
excess mitigation credits provided on the bills of retail electric customers (as
required by prior order of the Texas Utility Commission) from August 31, 2004 through the
date the transition bonds are issued or the date of the termination of such excess
mitigation credits, whichever is earlier; and |
|
|
|
|
interest on stranded costs accrued from August 31, 2004 through the date the
transition bonds are issued; |
|
|
|
|
costs of issuing, supporting and servicing the transition bonds; and |
|
|
|
|
any costs of retiring and refunding CenterPoint Houstons existing debt and equity
securities in connection with the issuance of the transition bonds (excluding costs of
retiring or refunding debt or equity securities held by an affiliate of CenterPoint
Houston). |
We purchased the transition property from CenterPoint Houston with the proceeds from the
issuance of $1.851 billion principal amount of transition bonds. The servicer will bill and
collect transition charges allocable to the transition bonds from retail electric providers, which
are entities certified under state law that provide electricity and related services to retail
electric customers within CenterPoint Houstons service territory, and will remit the collections
to Deutsche Bank Trust Company Americas, as the trustees administrative agent. The retail electric
providers will in turn bill and collect the transition charges from retail electric customers in
CenterPoint Houstons service territory. Each retail electric provider includes the transition
charges in its bill to its retail electric customers but is not required to show the transition
charges as a separate line item or footnote. However, each retail electric provider is required to
provide annual written notice to its customers that transition charges have been included in the
customers bills. Each retail electric provider is required to pay the transition charges on or
before the 35th day after it receives the bill from the servicer, less an agreed allowance for
expected uncollectible amounts, whether or not the retail electric provider has collected all
amounts owed to it by its retail electric customers. Prior to the date on which the retail electric
provider remits the transition charges to the servicer, the transition charges may be commingled
with the retail electric providers other funds. The servicer has only limited rights to collect
the transition charges directly from retail electric customers if a retail electric provider does
not remit such payments to the servicer but has certain rights against the retail electric
provider. Because the amount of transition charge collections will largely depend on the amount of
electricity consumed by customers within CenterPoint Houstons service territory, the amount of
collections may vary substantially from year to year.
In all material respects, each materially significant retail electric provider (i) has been
billed in accordance with the financing order, (ii) has made all payments in compliance with the
requirements outlined in the financing order, and (iii) has satisfied the creditworthiness
requirements of the financing order.
Credit enhancement for the transition bonds, which includes mandatory periodic review and
adjustment to the transition charges to be billed and collected from the retail electric customers
within CenterPoint Houstons service territory and the allocation of those charges among the
various classes of customers, is intended to ensure that sufficient funds are available to make
payments of principal and interest on the transition bonds as scheduled. The servicer is required
to make a filing with the Texas Utility Commission for an adjustment of transition charges
annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to
timely provide payment of scheduled principal and interest on the transition bonds. The amount of
the adjustment will be determined by using a formula established by the financing order. The
adjustments will be made to correct any undercollections or overcollections and are intended to
provide that the transition charges generate amounts sufficient to:
|
|
|
make timely interest and principal payments on the transition bonds; |
|
|
|
|
pay fees and expenses of the trustee, our independent managers, the
administrator and the servicer, and other fees, expenses, costs and charges; |
|
|
|
|
reconcile the actual and expected charge-offs for delinquent customer accounts
of the retail electric providers; and |
|
|
|
|
fund the various subaccounts required by the transition bond indenture to their
required levels. |
2
CenterPoint Houston is required to true up transition charges annually on December 1 in
compliance with the financing order. CenterPoint Houstons first true-up filing to adjust
transition charges was filed with the Texas Utility Commission on November 1, 2006 and became
effective December 1, 2006. The adjusted transition charges are designed to collect $186.6 million
during the twelve-month period ending November 30, 2007. This amount reflects an increase of $18.4
million to assure funds are available on the payment dates based on the expected timing of revenue
and payments.
Item 1A. Risk Factors
Material payment delays or a loss on investments in the transition bonds may occur because the
source of funds for payment is limited.
The only source of funds for payment of transition bonds are our assets, which consist of the
transition property securing the transition bonds, including:
|
|
|
the right to impose, collect and receive related transition charges; |
|
|
|
|
the funds on deposit in the accounts held by the trustee; |
|
|
|
|
our rights under various contracts; and |
|
|
|
|
the credit enhancement. |
The transition bonds are not a charge on the full faith and credit or taxing power of the
State of Texas or any governmental agency or instrumentality, nor are the transition bonds insured
or guaranteed by CenterPoint Houston, including in its capacity as the servicer, or by its ultimate
parent, CenterPoint Energy, Inc., any of its affiliates (other than us), the trustee or by any
other person or entity. Thus, holders of transition bonds (bondholders) must rely for payment of
transition bonds solely upon collections of the transition charges, funds on deposit in the related
accounts held by the trustee and the credit enhancement described under BusinessTransition
Property in Item 1. Our organizational documents restrict our right to acquire other assets
unrelated to the transactions described under BusinessGeneral in Item 1.
Risks Associated with Potential Judicial, Legislative or Regulatory Actions
Future judicial action could reduce the value of the transition bonds.
The transition property is the creation of the 1999 utility restructuring amendments to the
Public Utility Regulatory Act of Texas (Restructuring Act) and the financing order. There is
uncertainty associated with investing in bonds payable from an asset that depends for its existence
on legislation because there is limited judicial or regulatory experience implementing and
interpreting the legislation. Because the transition property is a creation of the Restructuring
Act, any judicial determination affecting the validity of or interpreting the Restructuring Act,
the transition property or our ability to make payments on the transition bonds might have an
adverse effect on the transition bonds.
Other states have passed electric utility deregulation laws similar to the Restructuring Act,
and some of these laws have been challenged by judicial actions. To date, none of these challenges
has succeeded, but future judicial challenges might be made. An unfavorable decision regarding
another states law would not automatically invalidate the Restructuring Act or the financing
order, but it might provoke a challenge to the Restructuring Act, establish a legal precedent for a
successful challenge to the Restructuring Act or heighten awareness of the political and other
risks of the transition bonds, and in that way may limit the liquidity and value of the transition
bonds. Therefore, legal activity in other states may indirectly affect the value of the transition
bonds.
The federal government might preempt the Restructuring Act without full compensation.
In the past, bills have been introduced in Congress that would prohibit the recovery of all or
some types of stranded costs, but none of those bills was enacted. Congress could, however, pass a
law or adopt a rule or regulation negating the existence of or reducing the value of the transition
property.
3
If federal legislation preempting the Restructuring Act or the financing order is enacted,
there is no assurance that the courts would consider it a taking under the United States
Constitution for which the government would be required to pay just compensation or, if it is
considered a taking, that any amount provided as compensation would be sufficient to pay the full
amount of principal of and interest on the transition bonds or to pay these amounts on a timely
basis.
Future state legislative action could reduce the value of the transition bonds.
Despite its pledge in the Restructuring Act not to take or permit certain actions that would
impair the value of the transition property or the transition charges, the Texas legislature might
attempt to repeal or amend the Restructuring Act in a manner that limits or alters the transition
property so as to reduce its value. It might be possible for the Texas legislature to repeal or
amend the Restructuring Act notwithstanding the States pledge if the legislature acts in order to
serve a significant and legitimate public purpose. Any such action, as well as the costly and
time-consuming litigation that likely would ensue, might adversely affect the price and liquidity,
the dates of payment of interest and principal and the weighted average lives of the transition
bonds. Moreover, the outcome of any litigation cannot be predicted. Accordingly, bondholders might
incur a loss on or delay in recovery of their investment in the transition bonds.
If an action of the Texas legislature adversely affecting the transition property or the
ability to collect transition charges were considered a taking under the United States or Texas
Constitutions, the State of Texas might be obligated to pay compensation for the taking. However,
even in that event, there is no assurance that any amount provided as compensation would be
sufficient for bondholders to recover fully their investment in the transition bonds or to offset
interest lost pending such recovery.
The Texas Utility Commission might take actions that could reduce the value of the transition
bonds.
The Restructuring Act provides that a financing order is irrevocable and that the Texas
Utility Commission may not directly or indirectly, by any subsequent action, rescind or amend a
financing order or reduce or impair the transition charges authorized under a financing order,
except for the true-up adjustments to the transition charges. However, the Texas Utility Commission
retains the power to adopt, revise or rescind rules or regulations affecting CenterPoint Houston.
The Texas Utility Commission also retains the power to interpret the financing order, and in that
capacity might be called upon to rule on the meanings of provisions of the order that might need
further elaboration. Any new or amended regulations or orders from the Texas Utility Commission
might affect the ability of the servicer to collect the transition charges in full and on a timely
basis, the rating of the transition bonds or their price and, accordingly, the amortization of the
transition bonds and their weighted average lives.
The servicer is required to file with the Texas Utility Commission, on our behalf, certain
adjustments of the transition charges. True-up adjustment procedures have been challenged in the
past and may be challenged in the future. Challenges to or delays in the true-up process might
adversely affect the market perception and valuation of the transition bonds. Also, any litigation
might materially delay transition charge collections due to delayed implementation of true-up
adjustments and might result in missing payments or payment delays and lengthened weighted average
life of the transition bonds.
Servicing Risks
Inaccurate consumption forecasting or unanticipated delinquencies or charge-offs might reduce
scheduled payments on the transition bonds.
The transition charges are generally assessed based on forecasted customer usage. The amount
and the rate of transition charge collections depend in part on actual electricity usage and the
amount of collections and write-offs for each customer class. If the servicer inaccurately
forecasts electricity consumption or uses inaccurate customer delinquency or charge-off data when
setting or adjusting the transition charges, there could be a shortfall or material delay in
transition charge collections, which might result in missed or delayed payments of principal and
interest and lengthened weighted average life of the transition bonds.
4
The servicer has experienced difficulties from time to time in making accurate forecasts of
electricity consumption because of unexpected weather conditions. Inaccurate forecasting of
electricity consumption by the servicer might result from, among other things, unanticipated
weather or economic conditions, resulting in less electricity consumption than forecast; general
economic conditions being worse than expected, causing retail electric customers to migrate from
CenterPoint Houstons service territory or reduce their electricity consumption; the occurrence of
a natural disaster or an act of terrorism or other catastrophic event; changes in the market
structure of the electric industry; customers consuming less electricity because of increased
energy prices or increased conservation efforts; or customers switching to alternative sources of
energy, including self-generation of electric power.
The servicers use of inaccurate delinquency or charge-off rates might result also from, among
other things, unexpected deterioration of the economy or the declaration of a moratorium on
terminating electric service to customers in the event of extreme weather, either of which would
cause greater delinquencies or charge-offs than expected or force CenterPoint Houston or retail
electric providers to grant additional payment relief to more customers, or any other change in law
that makes it more difficult for CenterPoint Houston or retail electric providers to terminate
service to non-paying customers or that requires CenterPoint Houston or retail electric providers
to apply more lenient credit standards in accepting retail electric customers.
We depend on CenterPoint Houston or its successor or assignee, acting as servicer of the transition
property.
CenterPoint Houston, as servicer, is responsible for, among other things, calculating, billing
and collecting the transition charges from retail electric providers, submitting requests to the
Texas Utility Commission to adjust these charges, monitoring the collateral for the transition
bonds and taking certain actions in the event of non-payment by a retail electric provider. The
trustees receipt of collections in respect of the transition charges, which are used to make
payments on the transition bonds, depends in part on the skill and diligence of the servicer in
performing these functions. The systems the State of Texas and the servicer have in place for
transition charge billings and collections might, in particular circumstances, cause the servicer
to experience difficulty in performing these functions in a timely and completely accurate manner.
If the servicer fails to make collections for any reason, then the servicers payments to the
trustee in respect of the transition charges might be delayed or reduced. In that event, our
payments on the transition bonds might be delayed or reduced.
If we replace CenterPoint Houston as the servicer, we may experience difficulties finding and using
a replacement servicer.
If CenterPoint Houston ceases to service the transition property, it might be difficult to
find a successor servicer. Also, any successor servicer might have less experience and ability than
CenterPoint Houston and might experience difficulties in collecting transition charges and
determining appropriate adjustments to the transition charges and billing and/or payment
arrangements may change, resulting in collection disruption. A successor servicer might charge fees
that, while permitted under the financing order, are substantially higher than the fees paid to
CenterPoint Houston as servicer. In the event of the commencement of a case by or against the
servicer under the United States Bankruptcy Code or similar laws, we and the trustee might be
prevented from effecting a transfer of servicing due to operation of the bankruptcy code. Any of
these factors and others might delay the timing of payments and may reduce the value of the
transition bonds.
It might be difficult to collect transition charges from retail electric providers.
As required by the Restructuring Act, retail electric customers pay the transition charges to
retail electric providers who supply them with electric power. The retail electric providers are
obligated to remit payments of the transition charges, less a specified percentage allowance for
charge-offs of delinquent customer accounts, within 35 days of billing from the servicer, even if
they do not collect the transition charges from retail electric customers. Because the retail
electric providers bill most retail electric customers for the transition charges, we have to rely
on a relatively small number of entities for the collection of the bulk of the transition charges.
As of December 31, 2006, CenterPoint Houston did business with approximately 68 retail electric
providers. Reliant Energy, Inc., through its subsidiaries, is CenterPoint Houstons largest
customer, accounting for approximately 53% of CenterPoint Houstons outstanding receivables from
retail electric providers as of December 31, 2006.
5
Failure by the retail electric providers to remit transition charges to the servicer might
cause delays in payments on the transition bonds and adversely affect the value of the transition
bonds. The servicer does not pay any shortfalls resulting from the failure of any retail electric
provider to forward transition charge collections.
Adjustments to the transition charges and any credit support provided by a retail electric
provider, while available to compensate for a failure by a retail electric provider to pay the
transition charges to the servicer, might not be sufficient to protect the value of the transition
bonds.
The Restructuring Act provides for one or more retail electric providers in each area to be
designated the provider of last resort for that area or a specified customer class. The provider
of last resort is required to offer basic electric service to retail electric customers in its
designated area, regardless of the creditworthiness of the customers. The provider of last resort
might face greater difficulty in bill collection than other retail electric providers and therefore
the servicer may face greater difficulty in collecting transition charges from the provider of last
resort.
Retail electric providers may issue a single bill to retail customers that includes all
charges related to the purchase of electricity, without separately itemizing the transition charge
component of the bill. A retail electric providers use of a consolidated bill might increase the
risk that customers who have claims against the retail electric provider will attempt to offset
those claims against transition charges or increase the risk that, in the event of a bankruptcy of
a retail electric provider, a bankruptcy court would find that the retail electric provider has an
interest in the transition property and would make it more difficult to terminate the services of a
bankrupt retail electric provider or collect transition charges from its customers.
Competitive metering services might result in unexpected problems in receiving accurate metering
data.
Under the Restructuring Act, commercial and industrial retail customers that are required by
the Electric Reliability Council of Texas, or ERCOT, to have an interval data recorder meter may
choose to own the settlement and billing meters that are used to measure electric energy delivered
to their location or to have those meters owned by a retail electric provider, the transmission and
distribution utility or another person authorized by the customer. As of December 31, 2006,
CenterPoint Houston continued to provide metering services related to the installation and removal
of meters, meter testing and calibration, data collection and data management. Should the Texas
Utility Commission allow third parties to perform those metering services in CenterPoint Houstons
service territory, there might be problems converting to the third partys metering system, taking
accurate meter readings and collecting and processing accurate metering data. Inaccurate metering
data might lead to inaccuracies in the calculation and imposition of transition charges and might
give rise to disputes between the servicer and retail electric providers regarding payments and
payment shortfalls resulting in missing or delayed payments of principal and interest and
lengthened weighted average life of the transition bonds.
Changes to billing and collection practices might reduce the value of the transition bonds.
The financing order specifies the methodology for determining the amount of the transition
charges we may impose. The servicer may not change this methodology without approval from the Texas
Utility Commission. However, the servicer may set its own billing and collection arrangements with
retail electric providers and retail electric customers, if any, from whom it collects transition
charges directly, provided that these arrangements comply with the Texas Utility Commissions
customer safeguards. For example, to recover part of an outstanding bill, the servicer may agree to
extend a retail electric providers payment schedule or to write off the remaining portion of the
bill, including the transition charges. Also, the servicer may change billing and collection
practices, which might adversely impact the timing and amount of retail electric customer payments
and might reduce transition charge collections, thereby limiting our ability to make scheduled
payments on the transition bonds. Separately, the Texas Utility Commission might require changes to
these practices. Any changes in billing and collection practices regulations might make it more
difficult for the servicer to collect the transition charges and adversely affect the value of the
transition bonds.
6
Limits on rights to terminate service might make it more difficult to collect the transition
charges.
Texas statutory requirements and the rules and regulations of the Texas Utility Commission,
which may change from time to time, regulate and control the right of the retail electric provider
to initiate disconnection of service. For example, retail electric providers generally may not
terminate service to a customer (1) on a holiday or weekend day or the day immediately preceding a
holiday or weekend, (2) during certain extreme weather conditions, (3) if such disconnection would
cause a person to become seriously ill or more seriously ill, (4) if such customer is an energy
assistance client under certain circumstances or (5) if the customer is a master-metered apartment
complex unless certain notices are given. To the extent these retail electric customers do not pay
for their electric service, retail electric providers will not be able to collect transition
charges from these retail electric customers. Although retail electric providers have to pay the
servicer the transition charges on behalf of those customers (subject to any charge-off allowance
and reconciliation), required service to non-paying customers could affect the ability of retail
electric providers to make such payment.
Future adjustments to transition charges by customer class might result in insufficient
collections.
The customers who pay transition charges are divided into customer classes. Transition charges
are allocated among customer classes and assessed in accordance with the formula required under the
Restructuring Act and specified in the financing order. A shortfall in collections of transition
charges in one customer class may be corrected by making adjustments to the transition charges
payable by that customer class and any other customer class. If customers in a class fail to pay
transition charges or cease to be customers, the servicer might have to substantially increase the
transition charges for the remaining customers in that customer class and for other customer
classes. This effect might be more extreme in the case of the large industrial and the
interruptible customer classes, which consist of a small number of large customers. These increases
could lead to further failures by the remaining customers to pay transition charges, thereby
increasing the risk of a shortfall in funds to pay debt service on the transition bonds.
Risks Associated with the Unusual Nature of the Transition Property
We will not receive transition charges in respect of electric service provided more than 15 years
from the date of issuance of the transition bonds.
CenterPoint Houston will not be entitled to charge transition charges for electricity
delivered after the fifteenth anniversary of the issuance of the transition bonds. If transition
charges collected for electricity delivered through the fifteenth anniversary of the transition
bonds, or from any credit enhancement funds, are not sufficient to repay the transition bonds in
full, no other funds will be available to pay the unpaid balance due on the transition bonds.
Foreclosure of the trustees lien on the transition property might not be practical, and
acceleration of the transition bonds before maturity might have little practical effect.
Under the Restructuring Act and the indenture, the trustee or the bondholders have the right
to foreclose or otherwise enforce the lien on the transition property securing the transition
bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for
the transition property. Therefore, foreclosure might not be a realistic or practical remedy.
Moreover, although principal of the transition bonds will be due and payable upon acceleration of
the transition bonds before maturity, the transition charges likely would not be accelerated and
the nature of our business will result in principal of the transition bonds being paid as funds
become available. If there is an acceleration of the transition bonds, all tranches of the
transition bonds will be paid pro rata; therefore, some tranches might be paid earlier than
expected and some tranches might be paid later than expected.
7
Risks Associated with Potential Bankruptcy Proceedings of CenterPoint Houston or a Successor
Servicer
The servicer will commingle the transition charges with other revenues it collects, which might
obstruct access to the transition charges in case of the servicers bankruptcy and reduce the value
of the transition bonds.
The servicer is required to remit collections to the trustee within two business days of
receipt. The servicer does not segregate the transition charges from the other funds it collects
from retail electric customers or retail electric providers or its general funds. The transition
charges are segregated only when the servicer pays them to the trustee.
Despite this requirement, the servicer might fail to pay the full amount of the transition
charges to the trustee or might fail to do so on a timely basis. This failure, whether voluntary or
involuntary, might materially reduce the amount of transition charge collections available to make
payments on the transition bonds.
The Restructuring Act provides that our rights to the transition property are not affected by
the commingling of these funds with any other funds of the servicer. In a bankruptcy of the
servicer, however, a bankruptcy court might rule that federal bankruptcy law does not recognize our
right to collections of the transition charges that are commingled with other funds of the servicer
as of the date of bankruptcy. If so, the collections of the transition charges held by the servicer
as of the date of bankruptcy would not be available to pay amounts owing on the transition bonds.
In this case, we would have only a general unsecured claim against the servicer for those amounts.
This decision could cause material delays in payments of principal or interest, or losses, on the
transition bonds and could materially reduce the value of the transition bonds, particularly if it
occurred in the fifteenth year of the transition bonds after the completion of which no transition
charges can be charged.
The bankruptcy of CenterPoint Houston, as seller of the transition property, might result in losses
or delays in payments on the transition bonds.
The Restructuring Act and the financing order provide that as a matter of Texas state law:
|
|
|
the rights and interests of a selling utility under a financing order, including the
right to impose, collect and receive transition charges, are contract rights of the
seller; |
|
|
|
|
the seller may make a present transfer of its rights under a financing order,
including the right to impose, collect and receive future transition charges that
retail customers do not yet owe; |
|
|
|
|
upon the transfer to us, the rights became transition property, and transition
property constitutes a present property right, even though the imposition and
collection of transition charges depend on further acts that have not yet occurred; and |
|
|
|
|
a transfer of the transition property from the seller, or its affiliate, to us that
expressly states the transfer is a sale or other absolute transfer is a true sale of
the transition property, not a pledge of the transition property to secure a financing
by the seller. |
These provisions are important to maintaining payments on the transition bonds in accordance with
their terms during any bankruptcy of CenterPoint Houston.
A bankruptcy court generally follows state property law on issues such as those addressed by
the state law provisions described above. However, a bankruptcy court does not follow state law if
it determines that the state law is contrary to a paramount federal bankruptcy policy or interest.
If a bankruptcy court in a CenterPoint Houston bankruptcy refused to enforce one or more of the
state property law provisions described above, the effect of this decision on beneficial owners of
the transition bonds might be similar to the treatment they would receive in a CenterPoint Houston
bankruptcy if the transition bonds had been issued directly by CenterPoint Houston. A decision by
the bankruptcy court that, despite our separateness from CenterPoint Houston, our assets and
liabilities and those of CenterPoint Houston should be consolidated would have a similar effect on
bondholders.
We have taken steps together with CenterPoint Houston, as seller of the transition property,
to reduce the risk that in the event the seller or an affiliate of the seller were to become the
debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively
consolidated with those of CenterPoint Houston or an affiliate. Nonetheless, these steps might not
be completely effective, and thus if CenterPoint Houston or one of its affiliates
8
were to become a debtor in a bankruptcy case, a court might order that our assets and
liabilities be consolidated with those of CenterPoint Houston or such affiliate. This might cause
material delays in payment of, or losses on, the transition bonds and might materially reduce the
value of the transition bonds. For example:
|
|
|
without permission from the bankruptcy court, the trustee might be prevented from
taking actions against CenterPoint Houston or recovering or using funds on behalf of
bondholders or replacing CenterPoint Houston as the servicer; |
|
|
|
|
the bankruptcy court might order the trustee to exchange the transition property for
other property, of lower value; |
|
|
|
|
tax or other government liens on CenterPoint Houstons property might have priority
over the trustees lien and might be paid from collected transition charges before
payments on the transition bonds; |
|
|
|
|
the trustees lien might not be properly perfected in the collected transition
property collections prior to or as of the date of CenterPoint Houstons bankruptcy,
with the result that the transition bonds would represent only general unsecured claims
against CenterPoint Houston; |
|
|
|
|
the bankruptcy court might rule that neither our property interest nor the trustees
lien extends to transition charges in respect of electricity consumed after the
commencement of CenterPoint Houstons bankruptcy case, with the result that the
transition bonds would represent only general unsecured claims against CenterPoint
Houston; |
|
|
|
|
we and CenterPoint Houston might be relieved of any obligation to make any payments
on the transition bonds during the pendency of the bankruptcy case and might be
relieved of any obligation to pay interest accruing after the commencement of the
bankruptcy case; |
|
|
|
|
CenterPoint Houston might be able to alter the terms of the transition bonds as part
of its plan of reorganization; |
|
|
|
|
the bankruptcy court might rule that the transition charges should be used to pay,
or that we should be charged for, a portion of the cost of providing electric service;
or |
|
|
|
|
the bankruptcy court might rule that the remedy provisions of the transition
property sale agreement are unenforceable, leaving us with an unsecured claim for
actual damages against CenterPoint Houston that may be difficult to prove or, if
proven, to collect in full. |
Furthermore, if CenterPoint Houston enters bankruptcy proceedings, it might be permitted to
stop acting as servicer and it may be difficult to find a third party to act as servicer. The
failure of the servicer to perform its duties or the inability to find a successor servicer might
cause payment delays or losses on the transition bonds. Also, the mere fact of a servicer or seller
bankruptcy proceeding might have an adverse effect on the resale market for the transition bonds
and on the value of the transition bonds.
The sale of the transition property might be construed as a financing and not a sale in a case of
CenterPoint Houstons bankruptcy which might delay or limit payments on the transition bonds.
The Restructuring Act provides that the characterization of a transfer of transition property
as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer
as a financing for federal or state tax purposes or financial reporting purposes. We and
CenterPoint Houston treated the transaction as a sale under applicable law, although for financial
reporting and state income and franchise tax purposes the transaction was intended to be treated as
a financing. In the event of a bankruptcy of CenterPoint Houston, a party in interest in the
bankruptcy might assert that the sale of the transition property to us was a financing transaction
and not a sale or other absolute transfer and that the treatment of the transaction for financial
reporting and tax purposes as a financing and not a sale lends weight to that position. If a court
were to characterize the transaction as a financing, we expect that we would, on behalf of
ourselves and the trustee, be treated as a secured creditor of CenterPoint Houston in the
bankruptcy proceedings, although a court might determine that we only have an unsecured claim
against CenterPoint Houston. See The servicer will commingle the transition charges with other
revenues it collects, which might obstruct access to the transition charges in case of the
servicers bankruptcy and reduce the value of the transition bonds above. Even if we had a
security interest in the transition property, we would not likely have access to the related
transition charge collections during the bankruptcy and would be subject to the risks of a secured
creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately
preceding risk factor. As a result, repayment of the transition bonds might be significantly
delayed and a plan of
9
reorganization in the bankruptcy might permanently modify the amount and timing of payments to
us of the related transition charge collections and therefore the amount and timing of funds
available to us to pay bondholders.
If the servicer enters bankruptcy proceedings, the collections of the transition charges held by
the servicer as of the date of bankruptcy might constitute preferences, which means these funds
might be unavailable to pay amounts owing on the transition bonds.
In the event of a bankruptcy of the servicer, a party in interest might take the position that
the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement or
intercreditor agreement, constitutes a preference under bankruptcy law if the remittance of those
funds was deemed to be paid on account of a pre-existing debt. If a court were to hold that the
remittance of funds constitutes a preference, any such remittance within 90 days of the filing of
the bankruptcy petition could be avoidable, and the funds could be required to be returned to the
bankruptcy estate of the servicer. To the extent that transition charges have been commingled with
the general funds of the servicer, the risk that a court would hold that a remittance of funds was
a preference would increase. Also, we or the servicer may be considered an insider with any
retail electric provider that is affiliated with us or the servicer. If the servicer or we are
considered to be an insider of the retail electric provider, any such remittance made within one
year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold
that such remittance constitutes a preference. In either case, we or the trustee would merely be an
unsecured creditor of the servicer.
Claims against CenterPoint Houston might be limited in the event of its bankruptcy.
If CenterPoint Houston were to become a debtor in a bankruptcy case, claims, including
indemnity claims, by us against it, as seller, under the transition property sale agreement and the
other documents executed in connection with the transition property sale agreement would be
unsecured claims and would be disposed of in the bankruptcy case. In addition, the bankruptcy court
might estimate any contingent claims that we have against the seller and, if it determines that the
contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower
amount. A party in interest in the bankruptcy of the seller might challenge the enforceability of
the indemnity provisions in the transition property sale agreement. If a court were to hold that
the indemnity provisions were unenforceable, we would be left with a claim for actual damages
against the seller based on breach of contract principles, which would be subject to estimation
and/or calculation by the court. We cannot give any assurance as to the result if any of the
above-described actions or claims were made. Furthermore, we cannot give any assurance as to what
percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding
involving the seller.
The bankruptcy of CenterPoint Houston might limit the remedies available to the trustee.
Upon an event of default under the indenture, the Restructuring Act permits the trustee to
enforce the security interest in the transition property in accordance with the terms of the
indenture. In this capacity, the trustee is permitted to request the Texas Utility Commission or a
Travis County, Texas district court to order the sequestration and payment to bondholders of all
revenues arising with respect to the transition property. There can be no assurance, however, that
the Texas Utility Commission or the Travis County, Texas district court would issue this order
after a CenterPoint Houston bankruptcy in light of the automatic stay provisions of Section 362 of
the United States Bankruptcy Code. In that event, the trustee would be required to seek an order
from the bankruptcy court lifting the automatic stay to permit this action by the Texas court, and
an order requiring an accounting and segregation of the revenues arising from the transition
property. There can be no assurance that a court would grant either order.
Risks Associated with Potential Bankruptcy Proceedings of Retail Electric Providers
Retail electric providers may commingle the transition charges with other revenues they collect.
This may cause losses on or reduce the value of the transition bonds in the event a retail electric
provider enters bankruptcy proceedings.
A retail electric provider is not required to segregate from its general funds the transition
charges it collects but is required to remit to the servicer amounts billed to it for transition
charges, less an amount relating to expected
10
customer charge-offs, within 35 days of the billing by the servicer. A retail electric
provider nevertheless might fail to remit the full amount of the transition charges owed to the
servicer or might fail to do so on a timely basis. This failure, whether voluntary or involuntary,
might materially reduce the amount of transition charge collections available on the next payment
date to make timely payments on the transition bonds.
The Restructuring Act provides that our rights to the transition property are not affected by
the commingling of these funds with other funds. In a bankruptcy of a retail electric provider,
however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the
Restructuring Act and does not recognize our right to receive the collected transition charges that
are commingled with other funds of a retail electric provider as of the date of bankruptcy. If so,
the collections of the transition charges held by a retail electric provider as of the date of
bankruptcy would not be available to pay amounts owing on the transition bonds. In this case, we
would have only a general unsecured claim against the retail electric provider for those amounts.
This decision might cause material delays in payments of principal or interest or losses on the
transition bonds and could materially reduce the value of the transition bonds, particularly if it
occurred in the fifteenth year of the transition bonds after the completion of which no transition
charges can be charged.
If a retail electric provider enters bankruptcy proceedings, any cash deposit of the retail
electric provider held by the trustee might not be available to cover amounts owed by the retail
electric provider.
If a retail electric provider does not have the credit rating required by the financing order,
it may nevertheless qualify to act as a retail electric provider if, among other alternatives, it
provides a cash deposit equal to two months maximum expected transition charge collections. That
cash deposit will be held by the trustee under the indenture. However, it is unclear whether the
Restructuring Act creates a lien on the cash deposit in favor of the trustee. If the retail
electric provider becomes bankrupt, the trustee would be stayed from applying that cash deposit to
cover amounts owed by the retail electric provider, and the trustee might be required to return
that cash deposit to the retail electric providers bankruptcy estate if the bankruptcy court
determines there is no valid right of set-off or recoupment. In that case, the issuer might only
have an unsecured claim for any amounts owed by the retail electric provider in the retail electric
providers bankruptcy proceedings. Several retail electric providers with which CenterPoint Houston
has done business have filed for bankruptcy. CenterPoint Houston, as servicer of the transition
bonds, was able to recover the full amount or a substantial majority of the transition charges from
cash deposits or a combination of cash deposits and payments from these retail electric providers,
but there is no assurance that CenterPoint Houston will be able to recover such amounts from any
bankrupt retail electric providers in the future.
If a retail electric provider enters bankruptcy proceedings, transition charge payments made by
that retail electric provider to the servicer might constitute preferences, and the servicer may be
required to return such funds to the bankruptcy estate of the retail electric provider.
In the event of a bankruptcy of a retail electric provider, a party in interest might take the
position that the remittance of funds by the retail electric provider to the servicer, pursuant to
the financing order, prior to bankruptcy constitutes a preference under bankruptcy law if the
remittance of those funds was deemed to be paid on account of a pre-existing debt. If a court were
to hold that the remittance of funds constitutes preferences, any remittance of such funds made
within 90 days of the filing of the bankruptcy petition might be avoidable, and the funds might be
required to be returned to the bankruptcy estate of the retail electric provider by us or the
servicer. To the extent that transition charges have been commingled with the general funds of the
retail electric provider, the risk that a court would hold that a remittance of funds was a
preference would increase. Also, we or the servicer might be considered an insider with any
retail electric provider that is affiliated with us or the servicer. If the servicer or we are
considered to be an insider of the retail electric provider, any such remittance made within one
year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold
that such remittance constitutes a preference. In either case, we or the servicer would merely be
an unsecured creditor of the retail electric provider.
Furthermore, the mere fact of a retail electric provider bankruptcy proceeding could have an
adverse effect on the resale market for the transition bonds and on the value of the transition
bonds.
11
Other Risks Associated with an Investment in the Transition Bonds
We may incur expenses in excess of caps on such expenses provided in the financing order.
Under the financing order, transition charges may not be imposed for certain of our ongoing
expenses to the extent they exceed caps provided in the financing order for such amounts. In
addition, our other assets, substantially all of which are pledged to the trustee under the
indenture, may not be used by the trustee to pay such excess amounts. Examples of these caps
include payment of specified fees and expenses of the trustee and the servicer and other specified
operating expenses. We cannot be sure that we will not incur expenses for these purposes in excess
of the cap levels and, if this were to occur, we would not have funds to make payments for these
excess amounts. Creditors of ours which are owed these amounts and not paid may obtain judgment
liens against our assets or seek to place us in bankruptcy.
CenterPoint Houstons indemnification obligations under the transition property sale and servicing
agreements are limited and might not be sufficient to protect the value of the transition bonds.
CenterPoint Houston is obligated under the transition property sale agreement to indemnify us
and the trustee, for itself and on behalf of the bondholders, only in specified circumstances and
will not be obligated to repurchase the transition property in the event of a breach of any of its
representations, warranties or covenants regarding the transition property. Similarly, CenterPoint
Houston is obligated under the transition property servicing agreement to indemnify us, the
trustee, for itself and on behalf of the bondholders, and the Texas Utility Commission only in
specified circumstances.
Neither the trustee nor the bondholders have the right to accelerate payments on the
transition bonds as a result of a breach under the transition property sale agreement or the
transition property servicing agreement, absent an event of default under the indenture.
Furthermore, CenterPoint Houston might not have sufficient funds available to satisfy its
indemnification obligations under these agreements, and the amount of any indemnification paid by
CenterPoint Houston might not be sufficient for bondholders to recover all of their investment in
the transition bonds. In addition, if CenterPoint Houston becomes obligated to indemnify
bondholders, the ratings on the transition bonds will likely be downgraded as a result of the
circumstances causing the breach and the fact that bondholders will be unsecured creditors of
CenterPoint Houston with respect to any of these indemnification amounts.
CenterPoint Houstons ratings might affect the market value of the transition bonds.
A downgrading of the credit ratings on the debt of CenterPoint Houston might have an adverse
effect on the market value of the transition bonds.
Technological change might make alternative energy sources more attractive in the future.
Technological developments might result in the introduction of economically attractive
alternatives to purchasing electricity through CenterPoint Houstons distribution facilities for
increasing numbers of retail customers. Manufacturers of self-generation facilities may develop
smaller-scale, more fuel-efficient generating units that can be cost-effective options for a
greater number of retail customers. Electric customers within CenterPoint Houstons service
territory whose load is served by an on-site power production facility with a rated capacity of 10
megawatts or less are not required to pay transition charges under the Restructuring Act except for
transition charges associated with services actually provided by the transmission and distribution
utility. Technological developments might allow greater numbers of retail customers to avoid
transition charges under such provisions, which may reduce the total number of retail customers
from which transition charges will be collected.
Bondholders might receive principal payments on the transition bonds later than expected.
The amount and the rate of collection of the transition charges, together with the related
transition charge adjustments, will generally determine whether there is a delay in the scheduled
repayments of transition bond principal. If the servicer collects the transition charges at a
slower rate than expected from any retail electric provider, it might have to request adjustments
of the transition charges. If those adjustments are not timely and
12
accurate, bondholders might experience a delay in payments of principal and interest and a
decrease in the value of the transition bonds.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We have no material physical properties. Our primary asset is the transition property
described above in Item 1. Business Transition Property.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted pursuant to Instruction I of Form 10-K.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Sale of Unregistered Securities. There is no established public trading market for our equity
securities. All of our equity is owned by CenterPoint Houston. We were formed by CenterPoint
Houston in December 2004. CenterPoint Houstons acquisition of our membership interests at our
formation was exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, because no public offering was involved. We have made no other sales of unregistered
securities.
Restricted Payments. The indenture governing the transition bonds prohibits us from making
any distributions from the capital subaccount of the trust established for the transition bonds to
any owner of our beneficial interests unless no default has occurred and is continuing thereunder
and such distributions would not cause the balance of such capital subaccount to decline below
0.50% of the initial outstanding principal amount of the transition bonds. We will not, except as
contemplated by our organizational documents, make any loan or advance credit to, or guarantee,
endorse, or otherwise become contingently liable 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. We will not directly or indirectly make payments to or distributions from
the collection account except in accordance with the transition bond indenture. As of December 31,
2006, we had not made any distributions to our sole member.
Bondholders. As of December 31, 2006, the sole record holder of the transition bonds was Cede
& Co., as nominee of The Depository Trust Company. The transition bonds are not listed on any
national securities exchange.
13
Item 6. Selected Financial Data
Omitted pursuant to Instruction I of Form 10-K.
Item 7. Managements Narrative Analysis of Results of Operations
The following is an analysis of our consolidated results of operations in an abbreviated
format pursuant to Instruction I of Form 10-K. This analysis should be read in combination with
our financial statements included in Item 8 of this Form 10-K.
As discussed above under Business in Item 1, we are a Delaware limited liability company
established in December 2004 for limited purposes. As discussed above under Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
in Item 5, we issued $1.851 billion aggregate principal amount of transition bonds on December 16,
2005 and used the net proceeds to purchase the transition property from CenterPoint Houston. As we
are restricted by our organizational documents from engaging in activities other than those
described above under Business in Item 1, income statement effects are limited primarily to
revenue generated from the transition charges, interest expense on the transition bonds,
amortization of the transition property, debt issuance expenses and the discount on the transition
bonds, transition property servicing and administration fees and incidental investment interest
income. Net income is expected to be zero for each reporting period.
For the year ended December 31, 2006, revenue from transition charges was $185.6 million and
investment income was $2.2 million. Amortization of transition property was $88.7 million.
Interest expense of $94.2 million related to interest on the transition bonds and amortization
expense of $2.2 million related to amortization of debt issuance expenses and the discount on the
transition bonds. We recorded administrative expenses of $2.8 million for the year ended December
31, 2006.
For the period December 16, 2005 (date of initial operations) through December 31, 2005,
revenue from transition charges was $6.9 million, amortization of transition property was $2.9
million and interest expense related to interest on the transition bonds was $3.9 million.
We use collections of transition charges to make scheduled principal and interest payments on
the transition bonds. Transition charges, together with interest earned on collected transition
charges, are expected to offset (1) interest expense on the transition bonds, (2) the principal
amount of the transition bonds and (3) fees and expenses, including fees charged by CenterPoint
Houston for servicing the transition property and providing administrative services to us and
expenses related to such administrative services.
The transition charges are reviewed and adjusted at least annually by the Public Utility
Commission of Texas (Texas Utility Commission) to correct prospectively any overcollections or
undercollections during the preceding 12 months and to provide for the expected recovery of amounts
sufficient to timely provide all payment of debt service and other required amounts and charges in
connection with the transition bonds.
CenterPoint Houston is required to true up transition charges annually on December 1 in
compliance with the financing order. CenterPoint Houstons first true-up filing to adjust
transition charges was filed with the Texas Utility Commission on November 1, 2006 and became
effective December 1, 2006. The adjusted transition charges are designed to collect $186.6 million
during the twelve-month period ending November 30, 2007. This amount reflects an increase of $18.4
million over the amount of transition charges that had been forecasted to be collected during the
period from December 16, 2005 (the date of initial operations) through November 30, 2006
to assure funds are available on the payment dates based on the expected timing of revenue
and payments. The increase is net of a reduction of $4.4 million due to transition charge collections during
the period from December 16, 2005 (the date of initial operations) through November 30, 2006 in
excess of the amount that had been forecasted to be collected during such period. This
over-recovery resulted from growth in billings in the residential and small commercial sectors
which exceeded the previous forecasts for the twelve-month period ended October 31, 2006. The $4.4
million over-recovery reduces, by 2%, the revenues that are otherwise required for the twelve-month
collection period ending November 30, 2007.
Holders of transition bonds may experience payment delays or incur losses if our assets are
not sufficient to pay interest or the scheduled principal of the transition bonds. Funds for
payments depend on the transition property and the right to collect the transition charges over a
period that Texas law limits to 15 years. In addition, collections depend on the amount of
electricity consumed within CenterPoint Houstons service territory and our ability to collect
transition charges from retail electric providers.
14
In all material respects, each materially significant retail electric provider (i) has been
billed in accordance with the financing order, (ii) has made all payments in compliance with the
requirements outlined in the financing order, and (iii) has satisfied the creditworthiness
requirements of the financing order.
Immediately following the February 1, 2007 debt service payment, the aggregate balance in the
Capital Subaccount was at the targeted aggregate balance for this account of $9.3 million, and an
additional $4.7 million was held in the Excess Funds Subaccount.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2005 and 2006, we had outstanding fixed-rate debt aggregating $1.851 billion
and $1.832 billion in principal amount and having a fair value of $1.83 billion and $1.83 billion,
respectively. This fixed-rate debt does not expose us to the risk of loss in earnings due to
changes in market interest rates. However, the fair value of this debt would increase by
approximately $62.6 million if interest rates were to decline by 10% from their levels at December
31, 2006.
15
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member of
CenterPoint Energy Transition Bond Company II, LLC
Houston, Texas
We have audited the accompanying balance sheets of CenterPoint Energy Transition Bond Company II,
LLC (the Company) as of December 31, 2006 and 2005, and the related statements of income and
changes in members equity for the year ended December 31, 2006 and the period from December 16,
2005 (date of initial operations) through December 31, 2005 and statements of cash flows for the
year ended December 31, 2006, the period from December 16, 2005 (date of initial operations)
through December 31, 2005 and the period from December 3,
2004 (inception) through December 31, 2004.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of CenterPoint Energy Transition Bond Company II, LLC at December
31, 2006 and 2005, and the results of its operations for the year ended December 31, 2006 and the
period from December 16, 2005 (date of initial operations) through December 31, 2005 and its cash
flows for the year ended December 31, 2006, the period from December 16, 2005 (date of initial
operations) through December 31, 2005 and the period from
December 3, 2004 (inception) through December
31, 2004, in conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Houston, Texas
March 29, 2007
16
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
STATEMENTS OF INCOME
AND CHANGES IN MEMBERS EQUITY (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
December 16, 2005 (date |
|
|
|
|
|
|
of initial operations) |
|
|
|
|
|
|
through December 31, |
|
|
Year Ended |
|
|
|
2005 |
|
|
December 31, 2006 |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
Transition charge revenue |
|
$ |
6,931 |
|
|
$ |
185,649 |
|
Investment income |
|
|
|
|
|
|
2,234 |
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
6,931 |
|
|
|
187,883 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,939 |
|
|
|
94,170 |
|
Amortization of transition property |
|
|
2,855 |
|
|
|
88,715 |
|
Amortization of transition bond discount and issuance costs |
|
|
94 |
|
|
|
2,221 |
|
Administrative and general expenses |
|
|
43 |
|
|
|
2,777 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,931 |
|
|
|
187,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Equity at Beginning of Period |
|
|
1 |
|
|
|
9,256 |
|
|
|
|
|
|
|
|
|
|
Contributed Capital |
|
|
9,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Equity at End of Period |
|
$ |
9,256 |
|
|
$ |
9,256 |
|
|
|
|
|
|
|
|
See Notes to the Companys Financial Statements
17
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
BALANCE SHEETS (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
|
(in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,461 |
|
|
$ |
90,827 |
|
Restricted funds |
|
|
9,255 |
|
|
|
33,243 |
|
Transition charge receivable |
|
|
6,931 |
|
|
|
24,411 |
|
|
|
|
|
|
|
|
Current Assets |
|
|
17,647 |
|
|
|
148,481 |
|
|
|
|
|
|
|
|
|
|
Intangible transition property |
|
|
1,835,136 |
|
|
|
1,746,421 |
|
Unamortized debt issuance costs |
|
|
12,603 |
|
|
|
10,439 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,865,386 |
|
|
$ |
1,905,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
18,565 |
|
|
$ |
86,864 |
|
Accrued interest |
|
|
3,939 |
|
|
|
39,019 |
|
Customer deposits |
|
|
|
|
|
|
23,743 |
|
Fees payable to servicer |
|
|
43 |
|
|
|
1,143 |
|
Other |
|
|
1,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
24,007 |
|
|
|
150,769 |
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
Transition bonds, net of unamortized discount of $0.3 million |
|
|
1,832,123 |
|
|
|
1,745,316 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,856,130 |
|
|
|
1,896,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Equity: |
|
|
|
|
|
|
|
|
Contributed capital |
|
|
9,256 |
|
|
|
9,256 |
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Members Equity |
|
|
9,256 |
|
|
|
9,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members Equity |
|
$ |
1,865,386 |
|
|
$ |
1,905,341 |
|
|
|
|
|
|
|
|
See Notes to the Companys Financial Statements
18
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
STATEMENTS OF CASH FLOWS (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 16, 2005 |
|
|
|
|
|
|
December 3, 2004 |
|
|
(date of initial |
|
|
|
|
|
|
(inception) through |
|
|
operations) through |
|
|
Year Ended |
|
|
|
December 31, 2004 |
|
|
December 31, 2005 |
|
|
December 31, 2006 |
|
|
|
(in thousands) |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Adjustment for non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of transition bond discount and issuance costs |
|
|
|
|
|
|
94 |
|
|
|
2,221 |
|
Amortization of transition property |
|
|
|
|
|
|
2,855 |
|
|
|
88,715 |
|
Changes in other assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition charge receivable |
|
|
|
|
|
|
(6,931 |
) |
|
|
(17,480 |
) |
Other current liabilities |
|
|
|
|
|
|
1,460 |
|
|
|
(1,460 |
) |
Accrued interest |
|
|
|
|
|
|
3,939 |
|
|
|
35,080 |
|
Customer deposits |
|
|
|
|
|
|
|
|
|
|
23,743 |
|
Fees payable to servicer |
|
|
|
|
|
|
43 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
1,460 |
|
|
|
131,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of transition property |
|
|
|
|
|
|
(1,837,991 |
) |
|
|
|
|
Restricted funds |
|
|
|
|
|
|
(9,255 |
) |
|
|
(23,988 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(1,847,246 |
) |
|
|
(23,988 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of transition bonds, net of issuance
costs and original issue discount of $13 million |
|
|
|
|
|
|
1,837,991 |
|
|
|
|
|
Payments of long-term debt |
|
|
|
|
|
|
|
|
|
|
(18,565 |
) |
Equity contribution from member |
|
|
1 |
|
|
|
9,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
1 |
|
|
|
1,847,246 |
|
|
|
(18,565 |
) |
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
1 |
|
|
|
1,460 |
|
|
|
89,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
|
1 |
|
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
1 |
|
|
$ |
1,461 |
|
|
$ |
90,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
59,090 |
|
See Notes to the Companys Financial Statements
19
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
NOTES TO FINANCIAL STATEMENTS
(1) Background and Basis of Presentation
CenterPoint Energy Transition Bond Company II, LLC (the Company) is a special purpose Delaware
limited liability company whose sole member is CenterPoint Energy Houston Electric, LLC
(CenterPoint Houston). The Company has no commercial operations and was formed for the principal
purpose of purchasing and owning transition property, issuing transition bonds and performing
activities incidental thereto. CenterPoint Houston is a regulated utility engaged in the
transmission and distribution of electric energy in a 5,000 square mile area located along the
Texas Gulf Coast, including the City of Houston.
The Texas Electric Choice Plan (Texas electric restructuring law), which became effective in
September 1999, substantially amended the regulatory structure governing electric utilities in
order to allow retail competition for electric customers beginning in January 2002. The Texas
electric restructuring law requires the Public Utility Commission of Texas (Texas Utility
Commission) to conduct a true-up proceeding to determine CenterPoint Houstons stranded costs and
certain other costs resulting from the transition to a competitive retail electric market and to
provide for recovery of certain of those costs through irrevocable non-bypassable transition
charges assessed on all retail electric customers within a utilitys geographical certificated
service area as it existed on May 1, 1999. The Texas electric restructuring law authorizes the
Texas Utility Commission to issue financing orders approving the issuance of transition bonds to
recover generation-related regulatory assets and stranded costs. The Texas electric restructuring
law and the financing order permit an electric utility to transfer its rights and interests in the
financing order, including the right to collect transition charges pursuant to the Texas electric
restructuring law, to a special purpose entity formed by the electric utility to issue debt
securities secured by the right to receive revenues arising from the transition charges. The
electric utilitys right to receive the transition charges and its other rights and interests under
the financing order constitute transition property. The Texas Utility Commission issued a
financing order to CenterPoint Houston on March 16, 2005 (financing order) that authorized
CenterPoint Houston to cause the Company to issue transition bonds in an aggregate principal amount
not to exceed $1.5 billion plus (a) the amount of excess mitigation credits provided by CenterPoint
Houston after August 31, 2004 through the date of issuance of the transition bonds or the date of
the termination of such excess mitigation credits, whichever is earlier, (b) interest on stranded
costs accrued after August 31, 2004 through the date of issuance of the transition bonds, and (c)
up-front qualified costs as set forth in the financing order. The excess mitigation credits were
terminated as of April 29, 2005.
The Company was organized on December 3, 2004 under the laws of the State of Delaware for the
sole purpose of issuing transition bonds, using proceeds therefrom to acquire transition property
from CenterPoint Houston, holding the transition property and taking certain other actions related
thereto. The Company had no operations or financial activity during the period from December 3,
2004 (date of inception) to December 16, 2005 (date of initial operations).
On December 16, 2005, the Company issued $1.851 billion in transition bonds and used the net
proceeds to purchase the transition property from CenterPoint Houston and pay expenses of issuance.
For additional information relating to the transition bonds, see Note 3.
The Company is restricted by its organizational documents from engaging in any activity not
directly related to the specific purposes for which the Company was created. The Company is a
separate and distinct legal entity from CenterPoint Houston, and the Companys organizational
documents require it to operate in a manner designed to avoid consolidation with the bankruptcy
estate of CenterPoint Houston in the event CenterPoint Houston becomes subject to such a
proceeding. CenterPoint Houston is not the owner of the transition property described herein, and
the assets of the Company are not available to pay creditors of CenterPoint Houston or any of its
affiliates.
20
(2) Significant Accounting Policies
Use of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Regulation and Regulatory Assets and Liabilities. The Companys business meets the criteria
of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of
Certain Types of Regulation (SFAS No. 71). This accounting standard recognizes the cost-based
rate-making process which may result in differences in the application of generally accepted
accounting principles between regulated and non-regulated businesses. The Companys purpose is to
purchase the transition property, issue one or more series of transition bonds secured by the
transition property and perform any activity incidental thereto. The transition charges are
designed to provide the necessary revenues to timely provide payment of principal and interest on
the transition bonds. Continued applicability of SFAS No. 71 requires that rates be designed to
recover specific costs of providing regulated services and products, and that it be reasonable to
assume that the transition charges are set at levels that will recover an entitys costs and can be
charged to and collected from customers. The Company believes it satisfies such requirements, and
applies the provisions of SFAS No. 71 to its business.
Cash and Cash Equivalents/Restricted Funds. For purposes of the Balance Sheet and Statement
of Cash Flows, the Company considers investments purchased with a maturity of three months or less
to be the equivalent of cash. The administrative agent for the trustee under the indenture
pursuant to which the transition bonds were issued has established, as provided in the indenture,
the following subaccounts for the Companys cash balances related to its transition bonds:
|
|
|
The General Subaccount is comprised of collections of transition charges
remitted to the trustees administrative agent by the servicer with respect to the
transition bonds. These amounts accumulate in the General Subaccount until they are
transferred from the General Subaccount on each transition bond payment date. The General
Subaccount had a balance of $88.2 million at December 31, 2006. |
|
|
|
|
The Excess Funds Subaccount is maintained for the purpose of holding any
collected transition charges and earnings on amounts in the collection account (other than
earnings on amounts allocated to the Capital Subaccount) not otherwise used on the payment
dates of the transition bonds for payment of principal, interest, fees or expenses, or for
funding the Capital Subaccount. The Excess Funds Subaccount had a balance of $1.9 million
at December 31, 2006. |
|
|
|
|
The Capital Subaccount received a deposit of approximately $9.3 million (0.5%
of the initial principal amount of the transition bonds) on the date of issuance of the
transition bonds. CenterPoint Houston contributed this amount to the Company. If amounts
available in the General and Excess Funds Subaccounts are not sufficient on any payment
date to make scheduled payments on the transition bonds and payments of certain fees and
expenses, the trustees administrative agent will draw on amounts in the Capital
Subaccount. As of December 31, 2006, the Capital Subaccount had a balance of $9.5 million
and is classified as Restricted Funds in the Balance Sheets. |
As of December 31, 2006, cash deposits provided by retail electric providers
totaled $23.7 million and are classified as Restricted Funds in the Balance Sheets.
Debt Issuance Costs. The costs associated with the issuance of the transition bonds are
capitalized and are being amortized over the life of the transition bonds utilizing the effective
interest method.
Transition Charges. Beginning on December 16, 2005, pursuant to the financing order,
CenterPoint Houston, as servicer, implemented the non-bypassable transition charge on behalf of the
Company. The Company records revenue for transition charges under the accrual method. These
revenues are generally recognized upon delivery of services by CenterPoint Houston to retail
electric providers.
21
The following table shows the aggregate amount of transition charges remitted by CenterPoint
Houston to the trustees administrative agent during each month from the date of issuance of the
transition bonds through December 31, 2006 (in thousands):
|
|
|
|
|
|
|
2006 |
January |
|
$ |
402 |
|
February |
|
|
8,525 |
|
March |
|
|
13,257 |
|
April |
|
|
11,862 |
|
May |
|
|
12,589 |
|
June |
|
|
16,704 |
|
July |
|
|
16,302 |
|
August |
|
|
19,329 |
|
September |
|
|
18,528 |
|
October |
|
|
18,118 |
|
November |
|
|
17,263 |
|
December |
|
|
13,646 |
|
Amortization. The transition property was recorded at acquired cost and is being amortized
over fourteen years, the expected life of the transition bonds, based on estimated revenue from
transition charges, interest accruals and other expenses. The financing order authorizing the
imposition of the transition charges and the issuance of the transition bonds limits the terms of
the transition bonds to no greater than 15 years. In accordance with SFAS No. 71, amortization is
adjusted for over/under collection of transition charges. The transition charges are reviewed and
adjusted at least annually, and semi-annually as necessary, by the Texas Utility Commission to
correct any overcollections or undercollections during the preceding 12 months and to provide for
the expected recovery of amounts sufficient to timely provide all payment of debt service and other
required amounts and charges in connection with the transition bonds.
Income Taxes. The Company is organized as a single member limited liability company and will
not be subject to United States federal income tax as an entity separate from CenterPoint Energy.
In addition, the Company has received a ruling from the Comptroller of Public Accounts of the State
of Texas to the effect that (i) the Companys receipt of the transition property, (ii) the
Companys receipt of the transition charges and (iii) the Companys short-term earnings from
investment of the transition charges will be excluded from taxable capital and taxable earned
surplus for purposes of the Texas franchise tax. Accordingly, there is no provision for income or
Texas franchise taxes.
(3) Long-Term Debt
Principal and interest payments on the transition bonds are due semi-annually on February 1
and August 1 of each year and are paid from funds deposited with the trustees administrative agent
by CenterPoint Houston as servicer of the transition property.
The transition bonds are secured primarily by the transition property, which includes the
irrevocable right to recover, through non-bypassable transition charges payable by certain retail
electric customers, the qualified costs of CenterPoint Houston authorized by the financing order.
The holders of the transition bonds have no recourse to any assets or revenues of CenterPoint
Houston, and the creditors of CenterPoint Houston have no recourse to any assets or revenues
(including, without limitation, the transition charges) of the Company. CenterPoint Houston has no
payment obligations with respect to the transition bonds except to remit collections of transition
charges as set forth in a servicing agreement between CenterPoint Houston and the Company and in an
intercreditor agreement among CenterPoint Houston, the Company and other parties.
The source of repayment for the transition bonds is the transition charges. The servicer
collects this non-bypassable charge from retail electric providers in CenterPoint Houstons service
territory. The servicer deposits transition charge collections into the Companys General
Subaccount maintained by the trustees administrative agent.
22
Scheduled final payment dates, final maturity dates and interest rates for the transition
bonds at December 31, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled |
|
|
|
|
Interest |
|
|
Amount |
|
Tranche |
|
Final Payment Date |
|
Final Maturity Date |
|
|
Rate |
|
|
(in millions) |
|
|
A-1 |
|
February 1, 2009 |
|
February 1, 2011 |
|
|
4.84 |
% |
|
$ |
231 |
|
A-2 |
|
August 1, 2012 |
|
August 1, 2014 |
|
|
4.97 |
% |
|
|
368 |
|
A-3 |
|
February 1, 2014 |
|
August 1, 2015 |
|
|
5.09 |
% |
|
|
252 |
|
A-4 |
|
August 1, 2017 |
|
August 1, 2019 |
|
|
5.17 |
% |
|
|
519 |
|
A-5 |
|
August 1, 2019 |
|
August 1, 2020 |
|
|
5.302 |
% |
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,832 |
|
Less: Current Maturities (scheduled payments) |
|
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt, net |
|
|
|
|
|
|
|
$ |
1,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows scheduled and actual principal payments on the transition bonds
from the issuance date through February 1, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche A-1 |
|
Tranche A-2 |
|
Tranche A-3 |
|
Tranche A-4 |
|
Tranche A-5 |
|
|
Scheduled |
|
Actual |
|
Scheduled |
|
Actual |
|
Scheduled |
|
Actual |
|
Scheduled |
|
Actual |
|
Scheduled |
|
Actual |
August 1, 2006 |
|
$ |
18,565 |
|
|
$ |
18,565 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
February 1, 2007 |
|
|
51,527 |
|
|
|
51,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled principal payments through 2011 for the transition bonds outstanding at
December 31, 2006 are as follows: 2007 $87 million, 2008 $94 million, 2009 $102 million, 2010
- - $110 million and 2011 $119 million.
The estimated fair value of the transition bonds at December 31, 2006 was $1.83 billion.
(4) Significant Agreements and Related Party Transactions
Under a sale agreement between the Company and CenterPoint Houston dated December 16, 2005
CenterPoint Houston sold the transition property to the Company. Pursuant to a servicing agreement
entered into between the Company and CenterPoint Houston concurrently with the issuance of the
transition bonds, CenterPoint Houston, as servicer, manages, services, administers and makes
collections in respect of the transition property. The servicers duties include calculating and
billing transition charges, obtaining meter reads, collecting the transition charges, remitting the
transition charges to the trustees administrative agent for the transition bonds and petitioning
the Texas Utility Commission for adjustments to the transition charges as necessary. CenterPoint
Houstons annual servicing fee will be 0.05% of the aggregate initial principal amount of the
transition bonds. CenterPoint Houston as servicer agrees to indemnify the Company and the trustee
of the transition bonds, for itself and on behalf of the bondholders, for the servicers willful
misconduct, bad faith or negligence in the performance of, or reckless disregard of, its duties and
for breaches of its representations, warranties and covenants in this agreement. The Company
recorded administrative and servicing fees of $.04 million and $1.1 million in 2005 and 2006,
respectively.
Subsidiaries of Reliant Energy, Inc. (formerly named Reliant Resources, Inc.) (RRI) collect
the majority of the transition charges from retail electric customers. At December 31, 2006,
subsidiaries of RRI had cash of approximately $19.3 million on deposit with the trustees
administrative agent. As with any retail electric provider that may default in its payment
obligations in respect of transition charges, the servicer is expected to direct the trustee to
seek recourse against such cash deposits or alternate form of credit support as a remedy for any
payment default that may occur.
23
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under
the supervision and with the participation of management, including our principal executive officer
and principal financial officer, of the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls and procedures were
effective as of December 31, 2006 to provide assurance that information required to be disclosed in
our reports filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and
forms and such information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding disclosure.
There has been no change in our internal controls over financial reporting that occurred
during the three months ended December 31, 2006 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Omitted pursuant to Instruction I of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to Instruction I of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Omitted pursuant to Instruction I of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Omitted pursuant to Instruction I of Form 10-K.
Item 14. Principal Accountant Fees and Services
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
Audit fees |
|
$ |
15,000 |
|
|
$ |
28,000 |
|
Audit-related fees (1) |
|
|
12,000 |
|
|
|
24,000 |
|
|
|
|
|
|
|
|
Total audit and audit-related fees |
|
|
27,000 |
|
|
|
52,000 |
|
Tax fees |
|
|
|
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees |
|
$ |
27,000 |
|
|
$ |
52,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Agreed upon procedures related to securitization financing. |
24
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements.
Report of Independent Registered Public Accounting Firm
Statements of Income and Changes in Members Equity
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedules.
None.
3. Exhibits.
See the Index to Exhibits which appears following the signature page to this report.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, the State of Texas, on the 29th day of March, 2007.
|
|
|
|
|
|
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
(Registrant)
|
|
|
By: |
/s/ Marc Kilbride
|
|
|
|
Marc Kilbride |
|
|
|
Manager |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities indicated
on March 29, 2007.
|
|
|
Signature |
|
Title |
/s/ Gary L. Whitlock
|
|
President and Manager |
|
|
(Principal
Executive Officer) |
|
|
|
/s/ Marc Kilbride
|
|
Vice President, Treasurer and Manager |
|
|
(Principal
Financial Officer) |
|
|
|
/s/ James S. Brian
|
|
Manager |
|
|
(Principal
Accounting Officer) |
|
|
|
/s/ Bernard J. Angelo
|
|
Manager |
|
|
|
|
|
|
/s/ Andrew L. Stidd
|
|
Manager |
|
|
|
26
CENTERPOINT ENERGY TRANSITION BOND COMPANY II, LLC
EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 2006
INDEX TO EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all
exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Report or |
|
|
|
|
|
|
|
|
Registration |
|
SEC File or |
|
|
Exhibit Number |
|
Description |
|
Statement |
|
Registration Number |
|
Exhibit References |
|
4.1
|
|
Limited Liability
Company Agreement
of CenterPoint
Energy Transition
Bond Company II,
LLC
|
|
Amendment No. 1 to
the Companys
Registration
Statement on Form
S-3 filed with the
SEC on September
12, 2005
|
|
333-121505
|
|
3.2 |
|
|
|
|
|
|
|
|
|
4.2
|
|
Certificate of
Formation of
CenterPoint Energy
Transition Bond
Company II, LLC
|
|
Amendment No. 1 to
the Companys
Registration
Statement on Form
S-3 filed with the
SEC on September
12, 2005
|
|
333-121505
|
|
3.1 |
|
|
|
|
|
|
|
|
|
4.3
|
|
Amended and
Restated
Certificate of
Formation of
CenterPoint Energy
Transition Bond
Company II, LLC
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
3.1 |
|
|
|
|
|
|
|
|
|
4.4
|
|
Amended and
Restated Limited
Liability Company
Agreement of
CenterPoint Energy
Transition Bond
Company II, LLC
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
3.2 |
|
|
|
|
|
|
|
|
|
4.5
|
|
Indenture dated as
of December 16,
2005
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
4.1 |
|
|
|
|
|
|
|
|
|
4.6
|
|
First Supplemental
Indenture relating
to the transition
bonds dated as of
December 16, 2005
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
4.3 |
|
|
|
|
|
|
|
|
|
4.7
|
|
Form of the
transition bonds
(included in
Exhibit 4.5)
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
4.2 |
|
|
|
|
|
|
|
|
|
10.1
|
|
Transition Property
Sale Agreement
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
10.1 |
|
|
|
|
|
|
|
|
|
10.2
|
|
Transition Property
Servicing Agreement
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
10.2 |
|
|
|
|
|
|
|
|
|
10.3
|
|
Administration
Agreement
|
|
Current Report on
Form 8-K filed with
the SEC on December
16, 2005
|
|
333-121505
|
|
10.3 |
|
|
|
|
|
|
|
|
|
10.4
|
|
Semiannual
Servicers
Certificate, dated
as of July 30,
2006, as to the
transition bond
balances,
|
|
Form 10-Q for the
quarterly period
ended June 30, 2006
|
|
333-121505
|
|
10.1 |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
Report or |
|
|
|
|
|
|
|
|
Registration |
|
SEC File or |
|
|
Exhibit Number |
|
Description |
|
Statement |
|
Registration Number |
|
Exhibit References |
|
|
|
the
balances of the
collection account
and its
sub-accounts, and
setting forth
transfers and
payments to be made
on the August 1,
2006 payment date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10.5
|
|
Semiannual
Servicers
Certificate, dated
as of January 31,
2007, as to the
transition bond
balances, the
balances of the
collection account
and its
sub-accounts, and
setting forth
transfers and
payments to be made
on the February 1,
2007 payment date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+31.1
|
|
Section 302
Certification of
Gary L. Whitlock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+31.2
|
|
Section 302
Certification of
Marc Kilbride |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+32.1
|
|
Section 906
Certification of
Gary L. Whitlock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+32.2
|
|
Section 906
Certification of
Marc Kilbride |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.1
|
|
Application for the
Financing Order
|
|
Amendment No. 1 to
the Companys
Registration
Statement on Form
S-3 filed with the
SEC on September
12, 2005
|
|
333-121505
|
|
99.1 |
|
|
|
|
|
|
|
|
|
99.2
|
|
Financing Order
|
|
Amendment No. 1 to
the Companys
Registration
Statement on Form
S-3 filed with the
SEC on September
12, 2005
|
|
333-121505
|
|
99.2 |
|
|
|
|
|
|
|
|
|
99.3
|
|
State of Texas
Comptroller of
Public Accounts
rulings relating to
the transition
bonds
|
|
Amendment No. 1 to
the Companys
Registration
Statement on Form
S-3 filed with the
SEC on September
12, 2005
|
|
333-121505
|
|
99.3 |
28
exv10w5
Exhibit 10.5
Schedule 2 to Indenture
Semiannual Servicers 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 Servicers 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: August 1, 2006 through January 31, 2007
Payment Date: February 1, 2007
Todays Date: January 31, 2007
1. Collections Allocable and Aggregate Amounts Available for Current Payment Date:
|
|
|
|
|
|
|
|
|
i. |
|
Remittances for the August 1 through 31, 2006 Collection Period |
|
|
19,328,665.86 |
|
|
|
ii. |
|
Remittances for the September 1 through 30, 2006 Collection Period |
|
|
18,528,034.18 |
|
|
|
iii. |
|
Remittances for the October 1 through 31, 2006 Collection Period |
|
|
18,117,960.75 |
|
|
|
iv. |
|
Remittances for the November 1 through 30, 2006 Collection Period |
|
|
17,263,035.90 |
|
|
|
v. |
|
Remittances for the December 1 through 31, 2006 Collection Period |
|
|
13,646,439.87 |
|
|
|
vi. |
|
Remittances for the January 1 through 31, 2007 Collection Period |
|
|
13,524,861.42 |
|
|
|
vii. |
|
Net Earnings on Collection Account |
|
|
1,607,663.07 |
|
|
[7/1/06 through 12/31/06] |
|
|
|
|
|
|
|
|
|
viii. |
|
General Subaccount Balance (sum of i through vii above) |
|
|
102,016,661.05 |
|
|
|
|
|
|
|
|
|
|
|
|
ix. |
|
Excess Funds Subaccount Balance as of Prior Payment Date |
|
|
1,883,170.01 |
|
|
|
x |
|
Capital Subaccount Balance as of Prior Payment Date |
|
|
9,255,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
xi. |
|
Collection Account Balance (sum of viii through x above) |
|
|
113,154,831.06 |
|
|
|
|
|
|
|
|
|
|
|
|
2. Outstanding Amounts as of Prior Payment Date:
|
|
|
|
|
|
|
i. |
|
Tranche A-1 Principal Balance |
|
|
231,435,317.00 |
|
ii. |
|
Tranche A-2 Principal Balance |
|
|
368,000,000.00 |
|
iii. |
|
Tranche A-3 Principal Balance |
|
|
252,000,000.00 |
|
iv. |
|
Tranche A-4 Principal Balance |
|
|
519,000,000.00 |
|
v. |
|
Tranche A-5 Principal Balance |
|
|
462,000,000.00 |
|
|
|
|
|
|
|
|
vi. |
|
Aggregate Principal Balance of all Series A Transition Bonds |
|
|
1,832,435,317.00 |
|
|
|
|
|
|
|
|
3. Required Funding/Payments as of Current Payment Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected |
|
|
|
|
|
|
Principal |
|
Semiannual |
|
|
Series A Principal |
|
Balance |
|
Principal Due |
i. |
|
Tranche A-1 |
|
|
179,908,675.00 |
|
|
|
51,526,642.00 |
|
ii. |
|
Tranche A-2 |
|
|
368,000,000.00 |
|
|
|
0.00 |
|
iii. |
|
Tranche A-3 |
|
|
252,000,000.00 |
|
|
|
0.00 |
|
iv. |
|
Tranche A-4 |
|
|
519,000,000.00 |
|
|
|
0.00 |
|
v. |
|
Tranche A-5 |
|
|
462,000,000.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
vi. |
|
For all Series A Transition Bonds |
|
|
1,780,908,675.00 |
|
|
|
51,526,642.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition |
|
Days in |
|
|
|
|
|
|
Bond |
|
Interest |
|
|
|
|
|
|
Interest Rate |
|
Period (1) |
|
Interest Due |
vii. |
|
Required Tranche A-1 Interest |
|
|
4.840 |
% |
|
180 |
|
|
5,600,734.67 |
|
viii. |
|
Required Tranche A-2 Interest |
|
|
4.970 |
% |
|
180 |
|
|
9,144,800.00 |
|
ix. |
|
Required Tranche A-3 Interest |
|
|
5.090 |
% |
|
180 |
|
|
6,413,400.00 |
|
x. |
|
Required Tranche A-4 Interest |
|
|
5.170 |
% |
|
180 |
|
|
13,416,150.00 |
|
xi. |
|
Required Tranche A-5 Interest |
|
|
5.302 |
% |
|
180 |
|
|
12,247,620.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
462,750.00 |
(1) |
iii. Administration Fee and Independent Managers Fee |
|
|
52,500.00 |
(2) |
iv. Operating Expenses |
|
|
76,596.42 |
(3) |
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 |
|
|
5,600,734.67 |
|
|
|
22.40 |
|
2. Tranche A-2 Interest Payment |
|
|
9,144,800.00 |
|
|
|
24.85 |
|
3. Tranche A-3 Interest Payment |
|
|
6,413,400.00 |
|
|
|
25.45 |
|
4. Tranche A-4 Interest Payment |
|
|
13,416,150.00 |
|
|
|
25.85 |
|
5. Tranche A-5 Interest Payment |
|
|
12,247,620.00 |
|
|
|
26.51 |
|
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 |
|
|
51,526,642.00 |
|
|
|
206.11 |
|
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 |
|
|
244,969.08 |
|
xii. |
|
Deposit to Excess Funds Subaccount |
|
|
2,830,498.88 |
|
xiii. |
|
Released to Issuer upon Series Retirement: Collection Account |
|
|
0.00 |
|
|
|
|
(1) |
|
Servicing fee: $1,851,000,000 x .05% x 180/360 = $462,750.00 |
|
(2) |
|
Administration fee: $100,000 x 180/360 = $50,000.00; Independent Managers fee: $2,500.00 |
|
(3) |
|
Reimbursement to Administrator for fees/expenses paid to independent accountant ($28,000.00),
printer ($10,449.00), rating agencies ($7,500.00), outside legal counsel ($20,612.50) and L/C
issuing bank ($10,034.92) |
5. Subaccount Withdrawals as of Current Payment Date (if applicable, pursuant to Section 8.02(d) 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 Amounts 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 |
|
|
179,908,675.00 |
|
ii. |
|
Tranche A-2 Principal Balance |
|
|
368,000,000.00 |
|
iii. |
|
Tranche A-3 Principal Balance |
|
|
252,000,000.00 |
|
iv. |
|
Tranche A-4 Principal Balance |
|
|
519,000,000.00 |
|
v. |
|
Tranche A-5 Principal Balance |
|
|
462,000,000.00 |
|
|
|
|
|
|
|
|
vi. |
|
Aggregate Principal Balance for all Series A Transition Bonds |
|
|
1,780,908,675.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vii. |
|
Excess Funds Subaccount Balance |
|
|
4,713,668.89 |
|
viii. |
|
Capital Subaccount Balance |
|
|
9,255,000.00 |
|
|
|
|
|
|
|
|
ix. |
|
Aggregate Collection Account Balance |
|
|
13,968,668.89 |
|
|
|
|
|
|
|
|
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. Shortfall in Required Subaccount Level 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 Servicers Certificate this 31st day of January, 2007.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, as Servicer
|
|
|
|
|
by:
|
|
/s/ Marc Kilbride
Marc Kilbride
|
|
|
|
|
Vice President and Treasurer |
|
|
exv31w1
EXHIBIT 31.1
CERTIFICATIONS
I, Gary L. Whitlock, certify that:
1. |
|
I have reviewed this Annual Report on Form 10-K of CenterPoint Energy Transition Bond
Company II, LLC; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
(b) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
(c) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
control over financial reporting. |
|
|
|
|
|
|
|
|
Date: March 29, 2007 |
/s/ Gary L. Whitlock
|
|
|
Gary L. Whitlock |
|
|
President and Manager (Principal Executive Officer) |
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATIONS
I, Marc Kilbride, certify that:
1. |
|
I have reviewed this Annual Report on Form 10-K of CenterPoint Energy Transition Bond
Company II, LLC; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
(b) |
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
(c) |
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
(b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
control over financial reporting. |
|
|
|
|
|
|
|
|
Date: March 29, 2007 |
/s/ Marc Kilbride
|
|
|
Marc Kilbride |
|
|
Vice President and Treasurer (Principal Financial Officer) |
|
|
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CenterPoint Energy Transition Bond Company II, LLC
(the Company) on Form 10-K for the year ended December 31, 2006 (the Report), as filed with the
Securities and Exchange Commission on the date hereof, I, Gary L. Whitlock, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of my knowledge, that:
1. |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and |
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
/s/ Gary L. Whitlock
Gary L. Whitlock
President and Manager (Principal Executive Officer)
March 29, 2007
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CenterPoint Energy Transition Bond Company II, LLC
(the Company) on Form 10-K for the year ended December 31, 2006 (the Report), as filed with the
Securities and Exchange Commission on the date hereof, I, Marc Kilbride, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of my knowledge, that:
1. |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and |
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
/s/ Marc Kilbride
Marc Kilbride
Vice President and Treasurer (Principal Financial Officer)
March 29, 2007