SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27719; 70-10148)

CenterPoint Energy, Inc., et al.

Order Authorizing Issuance of Secured Long-Term Debt

September 5, 2003

CenterPoint Energy, Inc. ("CenterPoint"), Houston, TX, a registered public-utility holding company, and its direct wholly owned registered holding company subsidiary, Utility Holding, LLC, Wilmington, DE (together, "Applicants"), have filed with the Securities and Exchange Commission ("Commission") a declaration under sections 6(a) and 7 of the Public Utility Holding Company Act of 1935, as amended ("Act"), and rules 44 and 54 under the Act. The Commission issued a notice of the declaration on July 18, 2003.¹ No request for a hearing was received.

Applicants request authority to engage in certain refinancing transactions, as more fully described below, commencing on the effective date of an order issued under this filing and ending June 30, 2005 ("Authorization Period").

I. Background

A. The CenterPoint System

CenterPoint is a registered public-utility holding company, created on August 31, 2002 as part of a corporate restructuring of Reliant Energy, Inc. CenterPoint has three public-utility subsidiary companies that are wholly owned (except as indicated below), that own and operate electric generation plants, electric transmission and distribution facilities, natural gas distribution facilities and natural gas pipelines.

CenterPoint Energy Houston Electric LLC ("T&D Utility") engages in the electric transmission and distribution business in a 5,000-square mile area of the Texas Gulf Coast that includes Houston.

Texas Genco Holdings, Inc. ("Texas Genco") is a section 3(a)(1) exempt holding company that, through Texas Genco LP, an electric utility company, owns the Texas generating plants formerly owned by the integrated electric utility that was a part of Reliant Energy, Inc.²

CenterPoint Energy Resources Corp. ("GasCo") owns gas distribution systems that together form one of the United States' largest natural gas distribution operations in terms of customers served. Through unincorporated divisions, GasCo provides natural gas distribution services in Louisiana, Mississippi and Texas (Entex Division), Arkansas, Louisiana, Oklahoma and Texas (Arkla Division) and Minnesota (Minnegasco Division). Through wholly owned subsidiaries, GasCo owns two interstate natural gas pipelines and gas gathering systems and provides various ancillary services.

Utility Holding, LLC is a Delaware limited liability company and an intermediate holding company that is registered under the Act. Utility Holding, LLC directly holds approximately 81% of the outstanding common stock of Texas Genco. For tax efficiency purposes, CenterPoint holds its utility ownership interests through Utility Holding, LLC.

B. Existing Financing Authority

By order dated May 28, 2003 ("Secured Financing Order"),³ the Commission authorized CenterPoint to pledge its interest in the common stock of Texas Genco (the "Texas Genco Stock"), in connection with the refinancing of approximately $3.85 billion of CenterPoint debt ("CenterPoint Facility"). The interest rate on borrowings under the CenterPoint Facility, currently 450 basis points over London Interbank Offered Rate, is based on CenterPoint's credit rating. These borrowings are secured by a pledge of the Texas Genco Stock. Since February 28, 2003, CenterPoint has reduced the principal amount of the CenterPoint Facility by approximately $1 billion, from $3.85 billion to $2.846 billion.

By order dated June 30, 2003 (the "Omnibus Financing Order"),⁴ the Commission authorized CenterPoint and its subsidiaries to engage in certain financing and related transactions through June 30, 2005. Among other things, the Omnibus Financing Order authorized CenterPoint to enter into transactions undertaken to extend the terms of or replace, refund or refinance existing obligations and the issuance of new obligations in exchange for existing obligations, provided in each case that the issuing entity's total capitalization is not increased as a result of such financing transaction. In the Omnibus Financing Order, CenterPoint committed that long-term debt issued by it under that order would be unsecured.

II. Proposed Transactions

Based on the current favorable market conditions, CenterPoint is considering the refinancing of the $2.846 billion CenterPoint Facility to reduce the principal amount and the cost of borrowing under the facility. CenterPoint expects to replace the CenterPoint Facility with a new three-year credit facility.

Centerpoint will repay the CenterPoint Facility with a combination of borrowings and repayments of intrasystem receivables as described below:

1. CenterPoint will enter into a new, three-year bank facility expected to be approximately $2.35 billion (the "New Facility") that would be secured by a pledge of the Texas Genco Stock. The New Facility would be composed of a revolving credit facility of approximately $1.35 billion and a term loan of approximately $1 billion from institutional investors.

2. CenterPoint will issue $200 million in unsecured debt under the authority in the Omnibus Financing Order; and

3. The T&D Utility will issue $300 million in secured debt.⁵

The proposed financing transactions will reduce the effective cost of money to the CenterPoint system as well as dependence on bank lenders under the CenterPoint Facility and are expected to extend the maturity date of associated borrowings by at least a year. Applicants state that the transactions would not increase the overall amount of debt or adversely affect the capital structure of any entity or of the CenterPoint system as a whole. Nor would the transactions involve the grant of any new or additional security. The Texas Genco Stock that is pledged as security for the CenterPoint Facility currently would be extended to a different group of lenders; there would be no increased burden on the subject asset.

III. Requested Authority

CenterPoint seeks authority to issue debt that is secured by a pledge of the Texas Genco Stock in an amount of up to $2.35 billion at any one time outstanding during the Authorization Period, where the proceeds of the financing transactions will be used to extend the terms of or replace, refund or refinance existing secured obligations, provided in each case that CenterPoint's total capitalization is not increased as a result of the financing transactions. Any financings under the requested authority would be subject to the following general terms, as modified from those established in the Omnibus Financing Order:

1. Effective Cost of Money. The effective cost of money on any long-term debt financings would not exceed the greater of (i) 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term approximately equal to the term of the subject debt, but in no event greater than the current rates under the CenterPoint Facility or (ii) a rate that is consistent with similar securities of comparable credit quality and maturities issued by other companies of reasonably comparable credit quality as determined by the competitive capital markets.

2. Maturity. The maturity of long-term indebtedness would not exceed 5 years.

3. Issuance Expenses. The underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of securities would not exceed 7% of the principal or total amount of the securities being issued.

4. Use of Proceeds. The proceeds from the sale of securities in external financing transactions would be used to refinance or acquire, retire or redeem, under rule 42 under the Act, securities previously issued by CenterPoint or its subsidiaries.

5. Common Equity Ratio. At all times during the Authorization Period, each of the T&D Utility, GasCo, and Texas Genco, LP (the "Utility Subsidiaries") will maintain common equity of at least 30% of its consolidated capitalization (common equity, preferred stock, long-term debt and short-term debt) as reflected in the most recent Form 10-K or Form 10-Q filed with the Commission and as adjusted to reflect changes in capitalization since the balance sheet date;⁶

6. Investment Grade Ratings. No securities may be issued in reliance on the authority requested herein unless: (i) the security to be issued, if rated, is rated investment grade by at least one nationally recognized statistical rating organization as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of 1934 ("NRSRO"); (ii) all outstanding rated securities of the issuer are rated investment grade by at least one NRSRO; and (iii) all outstanding rated securities of CenterPoint are rated investment grade by at least one NRSRO.⁷

7. Authorization Period. No security will be issued under the authority sought after the last day of the Authorization Period (which is June 30, 2005), provided, however, that securities issuable or deliverable upon exercise or conversion of, or in exchange for, securities issued on or before June 30, 2005 in accordance with the terms of the authorization may be issued or delivered after June 30, 2005.

IV. Rule 54 Analysis

Applicants state, for purposes of rule 54, that the conditions specified in rule 53(a) are satisfied, with the exception of 53(a)(1),⁸ and that none of the adverse conditions specified in rule 53(b) exist. The Commission has considered the effect on the CenterPoint system of the capitalization or earnings of any CenterPoint subsidiary that is an EWG or FUCO, as each is defined in sections 32 and 33 of the Act, respectively, in determining whether to approve the proposed transactions. Further, CenterPoint states that it is attempting to dispose of its remaining interests in EWGs and FUCOs. CenterPoint represents that it will remain in compliance with the requirements of rule 53(a), other than rule 53(a)(1), at all times during the Authorization Period.

V. Conclusion

Applicants state that no federal or state commission other than this Commission has jurisdiction over the proposed transactions. Applicants state that fees and expenses to be incurred in connection with the declaration will be approximately $20,000.

Due notice of the filing of the declaration has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that, except over that matter over which jurisdiction is reserved, the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that, except as to that matter as to which jurisdiction has been reserved, the declaration, as amended, be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED that jurisdiction is reserved, pending completion of the record, over the issuance of securities subject to the investment grade ratings criteria where one or more of the investment grade ratings criteria are not met.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

¹ Holding Co. Act Release No. 27697.

² On January 6, 2003, CenterPoint distributed to its shareholders approximately 19% of the common stock of Texas Genco. CenterPoint indirectly owns the remaining approximately 81% of the common stock of Texas Genco.

³ Holding Co. Act Release No. 27680.

⁴ Holding Co. Act Release No. 27692.

⁵ CenterPoint was granted the authority necessary to effectuate this part of the refinancing by order dated August 1, 2003 (HCAR No. 27705).

⁶ Applicants state that net of securitization debt, CenterPoint's projected equity capitalization will be 30% or greater by the end of 2006.

⁷ Applicants request that the Commission reserve jurisdiction over the issuance of securities subject to the investment grade ratings criteria where one or more of the investment grade ratings criteria are not met.

⁸ As of December 31, 2002, the amount of CenterPoint's aggregate investment in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") was approximately $8 million. As a result of the restructuring, CenterPoint had negative retained earnings as of December 31, 2002. Therefore, CenterPoint is not in compliance with the requirements of rule 53(a)(1).

http://www.sec.gov/divisions/investment/opur/filing/35-27719.htm