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Mail Stop 0308 April 6, 2005
Rufus S. Scott
Vice President, Deputy General Counsel
and Assistant Corporate Secretary
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Re: CenterPoint Energy, Inc.
Registration Statement on Form S-4
Filed March 8, 2005
File No. 333-123182
CenterPoint Energy Houston Electric, LLC
Form 10-K for the fiscal year ended December 31, 2004
Filed March 24, 2005
File No. 1-03187
CenterPoint Energy Resources Corp.
Form 10-K for the fiscal year ended December 31, 2004
Filed March 24, 2005
File No. 1-13265
Dear Mr. Scott:
We have limited our review of the filing to disclosure
related
to the terms of the transaction and the financial statements and
related information in the periodic reports of CenterPoint Energy
Houston Electric, LLC and CenterPoint Energy Resources Corp., and
we
have the following comments. Where indicated, we think you should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why one or more of our
comments are inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. In some of our
comments,
we may ask you to provide us with supplemental information so we
may
better understand your disclosure. After reviewing this
information,
we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-4
General
1. Your draft exchange offer appears to be a pre-commencement
tender
offer communication that must be filed under cover of a Schedule
TO.
Please see Instruction 1 to Rule 13e-4(c) under the Exchange Act.
2. We note that you have incorporated certain information by
reference to your Exchange Act reports and other information in
response to Item 11 of Form S-4 as a registrant that meets the
requirement of Form S-3. However, it appears that you filed late
an
Item 2.01 Form 8-K on December 16, 2004. Please tell us whether
you
are currently eligible to provide the Form S-3 level of
disclosure.
3. Please file your legal opinion, tax opinion, and other exhibits
as
soon as practicable as we may have comments after reviewing them.
4. Please disclose the amount of any additional indebtedness you
may
incur.
5. The forepart of your prospectus should include only the cover
page, table of contents, summary, and risk factors. Please
relocate
the sections "Where You Can Find More Information" and "Cautionary
Statement Regarding Forward-Looking Information" to an appropriate
location later in the document. However, on the inside front
cover
page of the prospectus, please retain the disclosure that this
prospectus incorporates certain important business and financial
information about you and the advisory on how readers can obtain
this
information from you. See Item 2 of Form S-4.
6. Please confirm that the offer will be open for at least 20 full
business days to ensure compliance with Rule 14e-1(a). As
currently
represented, the offer could be open for less than 20 business
days
due to the 5:00 p.m. expiration time instead of midnight on what
ultimately may be the twentieth business day following
commencement.
See Question and Answer Eight in Exchange Act Release No. 16623
(March 5, 1980). Further, confirm that the expiration date will be
included in the final prospectus disseminated to security holders
and
filed pursuant to the applicable provisions of Rule 424.
Prospectus Cover Page
7. Your cover page should be no longer than one page. Please
revise
to shorten the cover page while retaining all of the information
required by Item 501 of Regulation S-K and other information that
is
key to an investment decision.
Where You Can Find More Information, page ii
8. You state that you are incorporating by reference into this
document "any subsequent filings" you make with the Commission
until
this offering is terminated. Please be aware that the Schedule TO
you will file does not authorize forward incorporation by
reference.
Therefore, please confirm that you will amend the Schedule TO to
specifically incorporate by reference any future periodic reports
that are filed after the date of offer commencement.
The Exchange Offer, page 3
9. On page 3 you state that you are offering to pay an exchange
fee
of $1.50 for each $1,000 principal amount of old notes accepted.
Disclose the specific sources and total amount of funds to be used
in
this transaction, assuming the maximum number of old notes you may
receive for exchange. See Item 1007(a) of Regulation M-A. Also,
to
the extent that there are material conditions to the financing or
you
are borrowing all or a portion of the funds necessary in this
offering, please disclose. See Item 1007(b) and (d) of Regulation
M-
A.
10. On page 5 you state that you will return the old notes that
you
do not exchange "as promptly as practicable" after the expiration
or
termination of the tender offer. Please revise to delete the
words
"as practicable" and state that you will return the notes
"promptly,"
in keeping with Rule 14e-1(c).
Material Differences Between the Old Notes and New Notes, page 7
11. Please clearly and concisely describe the material differences
between the old notes and the new notes without over reliance on
legalistic terminology.
United States Federal Income Tax Consequences, page 12
12. Please include disclosure regarding the tax treatment of the
exchange fee. Also, please identify tax counsel in this section.
Risk Factors
General
13. Many of your captions do not fully describe the risk to
investors
and merely state a fact about your offering or your business. As
one
example only, on page 14 you state that your board does not make a
recommendation concerning the exchange offer and you have not
obtained a fairness opinion on the transaction, but do not
establish
a cause-and-effect link between this statement of fact and the
specific consequent risk faced by investors. Please revise so
that
each risk factor caption identifies the risk as it applies to your
business, industry, or offering.
14. Please delete the mitigating language that appears in the risk
factors. For example, we note that you include mitigating
language
in the first sentence of the risk factor captioned "We cannot
assure
you that an active trading market will develop for the new notes."
Please review your risk factors to eliminate mitigating language.
Risk Factors Relating to the Exchange Offer
The United States federal income tax consequences of the exchange
offer are unclear..., page 14
15. You only state that the tax consequences of this offering "are
unclear" but not the extent to which the tax consequences are
unclear. Please highlight adequately the degree of uncertainty
that
surrounds the tax consequences of this offering.
Risk Factors Related to the New Notes, page 15
16. Your current disclosure describes risks associated with the
new
notes only. Please include a section specifically contrasting any
new risks associated with the new notes that are different from
those
pertaining to the old notes.
We may issue additional shares of common stock..., page 16
17. If you have any current plan, commitment, or arrangement to
issue
additional shares of common stock, please disclose the number of
shares you will issue and when you will issue them.
Our articles of incorporation and bylaw provisions, and several
other
factors, could limit another party`s ability to acquire us...,
page
16
18. Please briefly summarize here your articles of incorporation
provisions, bylaws, and other "factors" that may limit another
company`s ability to acquire you.
Summary Consolidated Financial Data, page 28
19. We note that you have incorporated by reference your quarterly
report on Form 10-Q for the fiscal quarter ended September 30,
2004.
Please make an express statement that the financial statements are
incorporated by reference and clearly identify the information
incorporated by reference by page, paragraph, caption, or
otherwise,
as required by Instruction 3 to Item 10 of Schedule TO.
20. Where financial statements are material in the context of an
offer or where you incorporate by reference financial statements
found in other documents filed with the SEC, we require you to
include in the document disseminated to investors the summary
financial statements required by Item 1010(c) of Regulation M-A.
See
Instruction 6 to Item 10 of Schedule TO and Q&A 7 in Section I.H
of
the Division of Corporation Finance`s Manual of Publicly Available
Telephone Interpretations (July 2001). We note your section
entitled
"Summary Consolidated Financial Data." It appears that you are
missing certain item requirements of Item 1010(c) of Regulation M-
A,
including, but not limited to, current and noncurrent assets, and
gross profit as required by Item 1010(c)(1). Please revise to
include all of the items required in the summary financial
statements.
The Exchange Offer
Securities Subject to the Exchange Offer, page 32
21. Please revise to indicate the trading characteristics and
trading
market, if any, of the old notes, and state when the old notes
were
issued and their maturity date.
Conditions To The Exchange Offer, page 32
22. We note on page 32 that you reserve the right to terminate or
amend this offer in the event the failure of a condition to the
offer
is triggered "regardless of the circumstances giving rise to the
failure of the condition." Allowing acts or omissions by the
company
to trigger the failure of a condition may render the offer
illusory
in that the circumstances giving rise to the failure of a
condition
are within the control of the company. Please confirm to us your
understanding of our position.
23. We also note on page 32 that you may terminate or amend this
offer if a condition "makes it impractical" to proceed with the
offer. Please note that, when a condition is triggered and the
company decides to proceed with the exchange offer anyway, we
believe
that this constitutes a waiver of the triggered condition. You
may
not rely on this language to tacitly waive a condition to the
offer
by failing to assert it. Please confirm to us your understanding
of
our position.
24. You state on page 32 that "there shall not have occurred any
outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any
other
substantial national or international calamity or emergency..."
Given the continued deployment of U.S. armed forces in Afghanistan
and Iraq and the persistent threat of terrorism against the United
States, we are concerned that your condition is phrased so broadly
as
to make it difficult for note holders to determine whether it has
been triggered by events as they occur. Please tailor your
condition
so that note holders may objectively verify when this condition
has
been triggered. For example, you may confirm whether these
conditions are implicated only if such event has a material
adverse
effect on your business.
25. In addition, we believe that it is difficult for a note holder
to
assess whether events as they occur have triggered a condition to
the
offer that would allow you to terminate this offer. If an event
occurs while this offer is pending that you believe triggers a
condition, it is our position that you must promptly inform note
holders whether you intend to waive the relevant condition or
terminate the offer. You may not wait until the offer expires to
terminate it based on an event that occurred early in the offer
period. Please confirm your understanding supplementally.
26. Please confirm supplementally your understanding that all
conditions to the offer, other than regulatory approvals, must be
satisfied or waived prior to expiration of the offer, and that a
delay in payment to note holders because of the actions of a court
or
government agency would not necessarily be consistent with Rule
14e-
1(c).
27. You state on page 33 that you may waive any condition in whole
or
in part. Please explain how you waive a condition to the offer
"in
part" or revise this language.
Expiration Date; Extensions; Amendments, page 33
28. We note on page 33 that if you "amend the exchange offer" to
effect "a material or significant change," you will extend the
exchange offer for a period of "five to twenty business days..."
Please revise your disclosure to add that if you decrease the
percentage of the old notes you are seeking, or the consideration
you
have offered in exchange, or the soliciting fee you are paying
your
dealer, you are required to extend the tender offer for at least
ten
business days from the date you first publish or provide to
shareholders the notice of any such change. See Rule 13e-
4(e)(3)(ii)
under the Exchange Act.
Dealer Manager, page 38
29. We note that you will pay customary fees to the dealer
manager.
We object to fees paid to a dealer manager based on tenders of
subject securities it holds for its own account. Please indicate
whether you intend to pay fees under those circumstances. If you
do
not, indicate how you will ensure that you do not pay fees under
such
circumstances. For example, what mechanism will you use to
determine
who holds the tendered securities when calculating the fee owed to
Banc of America Securities LLC?
Description of the New Notes, page 39
30. Please supplementally address the following matters.
Accounting treatment for the exchange transaction
We assume that you have determined that the new notes do not have
substantially different terms, as defined in EITF 96-19, than the
old
notes. Therefore, you will not record the old notes as
extinguished
with related gain or loss recognition. Please confirm our
understanding and, if correct, please show us how you arrived at
this
conclusion including how you assessed the change in the
consideration
payable and the payment of exchange fees in your calculation. If
this is not the case, please tell us your anticipated accounting
treatment and provide the accounting rationale including any
supporting calculations to support your accounting. *
Accounting treatment for the exchange fee
* Please tell us how you will account for the exchange fee paid at
the time of exchange and going forward. Please also cite the
applicable authoritative GAAP that supports your policy.
Accounting treatment for the new notes
* Please tell us how you will account for the new notes in your
future financial statements. In doing so, please ensure that you
describe how you will account for the conversion feature at the
time
of issuance and at a point in time when the sale price condition,
as
defined on page 42 of your registration statement, is met. You
should support your accounting in the event that the conversion
feature is triggered citing appropriate accounting literature. We
may
have further comment upon review of your response.
Income tax accounting
* Please tell us how you will account for the tax consequences of
the
new notes under the guidelines of SFAS 109 and contrast
supplementally for us this treatment to your treatment of the old
notes. As part of your response, please ensure that you detail
your
anticipated accounting treatment in the event that the sale price
conversion trigger is met. Please specifically address how the
additional payment will be treated for tax purposes. Please
consider the need to disclose this information in your
registration
statement to more fully disclose the impact of the exchange on the
future results of operations.
31. Please disclose your anticipated accounting treatment for the
exchange of old notes for new notes under the guidelines of EITF
96-
19. Additionally, please disclose how you anticipate accounting
for
the new notes going forward. Please ensure that your disclosure
includes a discussion of the anticipated accounting treatment of
the
exchange fee paid, classification on the notes within your balance
sheet, treatment of the conversion features related to the new
notes
at the time of issuance and upon triggering the sales price
conversion feature.
Fundamental Change Requires Purchase of New Notes by Us at the
Option
of the Holder, page 49
32. Please disclose that any repurchase offer made pursuant to the
fundamental change provisions will comply with any applicable
regulations under the federal securities laws, including Rule 13e-
4
under the Exchange Act.
Material United States Federal Income Tax Considerations, page 71
33. Please revise the caption to refer to the material tax
"consequences."
34. Given that Baker Botts L.L.P. is providing a tax opinion,
revise
this section to identify the firm as tax counsel. In addition, in
the event your tax counsel intends to provide a short-form
opinion,
remove all references in the opinion contained in the prospectus
indicating that it is a "discussion" as opposed to counsel`s tax
opinion. In that event, please identify the specific matters set
forth in this section that constitute counsel`s opinion.
35. Please include a complete discussion of the CPDI Regulations
instead of referring to the registration statement relating to the
old notes.
36. When rendering its opinion, counsel should be clear as to the
degree of uncertainty associated with the tax consequences of the
exchange offer. Please revise to clarify the degree of
uncertainty.
Further, the opinion and this section should not include ambiguous
statements such as "we cannot assure."
CenterPoint Energy Houston, LLC - Form 10-K for the year ended
December 31, 2004
General
37. Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. You should include these
revisions in your future filings. Furthermore, we have included
comments specific to CenterPoint Energy Resources Corporation in
this
letter to facilitate the review process. Please confirm to us
your
agreement with this objective.
Item 1. Business - True-Up Proceeding Developments, page 1
38. We note that you recorded a regulatory asset of $374 million
related to an approved final order in your true-up proceeding. In
this regard, please explain how you calculated the finance
component
and the allowance for earnings on shareholders` investment.
Furthermore, you recognized the debt component immediately into
earnings, although you deferred the earnings related to the
shareholders` investment component. Please explain the reason for
the disparity in accounting treatment.
Item 7. Management`s Narrative Analysis of Results of Operations
Consolidated Results of Operations, page 18
39. Please explain in detail the nature of the non-cash ECOM
revenues
that totaled $697 million and $661 million in 2002 and 2003,
respectively. Also, please explain how you reflected these
amounts
on your consolidated statement of cash flows. We may have further
comment.
Liquidity, page 21
40. Please consider revising your table of contractual cash
obligations to include the following:
(a) Estimated interest payments on your debt, and
(b) Required funding of pension and other postretirement benefit
obligations.
Because the table is aimed at increasing transparency of cash
flow,
we believe you should include these payments in the table. If you
choose not to include these payments, a footnote to the table
should
clearly identify the excluded items and provide any additional
information that is material to an understanding of your cash
requirements.
Other Significant Matters, page 26
41. We note that you adopted a plan for an accounting
reorganization
to eliminate your accumulated retained earnings deficit. Please
explain to us any accounting changes that you intend to make
concurrently with this reorganization. Furthermore, please
explain
to us what effect this will have on current rates or any rate
matters.
Item 8. Statement of Consolidated Operations, page 28
42. We note that your business was deregulated in 1999, and you
dis-
applied SFAS 71 at that time related to your generation assets and
recorded an extraordinary charge. We note that as part of your
true-
up proceedings you recorded an after-tax extraordinary charge of
$977
million in 2004. You indicate that part of the true-up process
related to determining the differences between projected market
prices for generation during 2002 and 2003 and the actual market
prices for generation as determined in the state-mandated capacity
auctions during that period. Please explain exactly what was
disallowed in the true-up proceeding that ultimately led to the
write-down of approximately $1.5 billion in regulatory assets.
Also,
please indicate if any non-deregulation rate issues were addressed
in
the true-up proceedings. In short, please explain the rationale
for
recording an extraordinary charge related to this true-up
proceeding.
We may have further comment.
43. Please revise in future filings the other net line to present
other income and other expenses on a gross basis on the face or in
the notes. Net presentation is not appropriate unless it is
clearly
immaterial. See paragraphs 7 to 9 of Rule 5-03(b) of Regulation
S-X.
Statements of Consolidated Cash Flows, page 31
44. You disclose that you participate in a money pool through
which
you can borrow or invest funds on a short-term basis. You
disclose
in your related party note that you were in a payable position at
December 31, 2003 of $113 million and a receivable position at
December 31, 2004 of $73 million. We would anticipate that the
repayment of the $113 million loan would have been reflected as a
financing activity, and your investment of $73 million would have
been reflected as an investing cash flow activity. Please explain
in
detail why you reflected the entire amount in financing
activities.
We may have further comment.
45. Please reconcile your change in regulatory assets and
liabilities
on your consolidated balance sheets to your net regulatory asset
and
liability change on your statement of consolidated cash flows for
the
year ended December 31, 2004 of $518 million.
Note 1. Background and Basis of Presentation - Regulatory Assets
and
Liabilities, page 35
46. Please reconcile the regulatory amounts disclosed in this note
to
your consolidated balance sheets. Also, please ensure that your
regulatory disclosure meets the requirements of paragraph 20 of
SFAS
71.
Note 7. Employee Benefit Plans, page 43
47. Please reconcile the amount recorded on your consolidated
balance
sheets related to benefit obligations of $128 million, as of
December
31, 2004, to the amount disclosed in this note. In this regard,
you
disclose that the net amount recognized as of December 31, 2004
was
$89 million.
48. Please explain to us how you calculate the market-related
value
of plan assets as that term is defined in SFAS 87. Since there
are
alternative ways to calculate the market value of plan assets and
it
has a direct impact on your pension expense, we believe you should
disclose how you determine this amount in future filings.
CenterPoint Energy Resources Corporation - Form 10-K for the year
ended December 31, 2004
Item 7. Management`s Narrative Analysis of Results of Operations
Natural Gas Distribution, page 17
49. Please describe in detail your accounting policy with respect
to
unbilled revenues. In this regard, please explain your change in
estimating unbilled revenues that occurred in 2003 that led to the
favorable $11 million increase in revenue for 2004.
50. Prospectively, consider explaining your results of operations
by
class of customer, for example, sales to retail, commercial, or
industrial customers.
Liquidity, page 19
51. Please consider revising your table of contractual cash
obligations to include the following:
(c) Estimated interest payments on your debt, and
(d) Required funding of pension and other postretirement benefit
obligations.
Because the table is aimed at increasing transparency of cash
flow,
we believe you should include these payments in the table. If you
choose not to include these payments, a footnote to the table
should
clearly identify the excluded items and provide any additional
information that is material to an understanding of your cash
requirements.
Item 8. Statement of Consolidated Operations, page 26
52. Please revise in future filings the other net line to present
other income and other expenses on a gross basis on the face or in
the notes. Net presentation is not appropriate unless it is
clearly
immaterial. See paragraphs 7 to 9 of Rule 5-03(b) of Regulation
S-X.
Statement of Consolidated Comprehensive Income, page 26
53. Please explain in detail the $68 million reclassification of
deferred gain from de-designation of cash flow hedges to
over/under
recovery of gas costs.
Note 2. Summary of Significant Accounting Policies, page 31
54. Please enhance your discussion of revenue recognition with
respect to your Pipeline and Gathering Business. In this regard,
please explain what impact the price of gas has on revenues.
Furthermore, a detailed example would be helpful to our
understanding. You also should consider disclosing what portion
of
the Pipeline and Gathering Business is regulated versus
unregulated,
and include a meaningful discussion of the revenue recognition
issues
that impact both a regulated and an unregulated company.
Long-Lived Assets and Intangibles, page 32
55. You disclose the estimated useful lives of your long-lived
assets. Please disclose the weighted average useful lives related
to
each category and the accumulated depreciation by asset category.
56. Prospectively, consider disclosing your accounting treatment
for
maintenance and repairs.
Derivative Instruments, page 37
57. Please discuss any credit enhancements you have requested to
mitigate any potential losses from counterparties, such as letters
of
credit.
Note 7. Employee Benefit Plans, page 40
58. Please reconcile the amount recorded on your consolidated
balance
sheets related to benefit obligations of $128 million, as of
December
31, 2004, to the amount disclosed in this note. In this regard,
you
disclose that the net amount recognized as of December 31, 2004
was
$94 million.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Robert Babula, Staff Accountant, at (202)
824-
5562 or Michael Moran, Accounting Branch Chief, at (202) 942-2823
if
you have questions regarding comments on the financial statements
and
related matters. Please contact Pradip Bhaumik, Attorney-Advisor,
at
(202) 942-1776, Ellie Quarles, Special Counsel, at (202) 942-1859,
or
me at (202) 942-1900 with any questions.
Sincerely,
H. Christopher Owings
Assistant Director
cc: Gerald M. Spedale, Esq.
Baker Botts L.L.P.
910 Louisiana, One Shell Plaza
Houston, Texas 77002
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CenterPoint Energy, Inc. et al.
April 6, 2005
Page 1