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U.S. Securities and Exchange Commission


(Release No. 35-27778; 70-10128)

CenterPoint Energy, Inc., et al.

Supplemental Order Authorizing the Issuance of an Additional $300 Million Principal Amount of Debt by CenterPoint Energy Houston Electric, LLC; and Reservation of Jurisdiction

December 19, 2003

CenterPoint Energy, Inc. ("CenterPoint"), Houston, Texas, a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"); its subsidiary, Utility Holding, LLC, Wilmington, Delaware; and CenterPoint Energy Houston Electric, LLC ("T&D Utility"), Houston, Texas, an indirect electric public utility subsidiary of CenterPoint (together, "Applicants") have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment under sections 6 and 7 of the Act and rules 44 and 54 under the Act, to their previously filed application-declaration ("Declaration"). A notice of the Declaration was issued on November 25, 2003 (Holding Company Act Release No. 35- 27768).

By order dated June 30, 2003 (Holding Company Act Release No. 35-27692) ("Omnibus Financing Order"), as supplemented by the order dated August 1, 2003 (Holding Company Act Release No. 35-27705) (collectively, "T&D Utility Financing Orders"), the Commission authorized the T&D Utility to: (1) issue up to $500 million principal amount of incremental external debt securities through June 30, 2005 ("Authorization Period") so that the total amount of T&D Utility external debt would not exceed $3.603 billion principal amount ("T&D Utility Additional Debt Limit") at any one time outstanding during the Authorization Period; and (2) enter into obligations with respect to tax-exempt debt issued on its behalf by governmental authorities in connection with the refunding of outstanding tax-exempt debt assumed by CenterPoint in connection with the electric restructuring by which CenterPoint and Utility Holding, LLC became holding companies for the T&D Utility.

The T&D Utility has issued $300 million principal amount of debt securities under the authority granted in the T&D Utility Financing Orders. The T&D Utility has remaining authority to issue up to $200 million principal amount of incremental external debt securities during the Authorization Period.

Applicants request the Commission to modify the existing authority under the T&D Utility Financing Orders to permit the T&D Utility to issue an additional $300 million principal amount of external debt securities during the Authorization Period, so that the amount of the T&D Utility Additional Debt Limit would increase to $3.903 billion principal amount during the Authorization Period. Applicants request that the Commission reserve jurisdiction over the issuance of $250 million principal amount of this additional external debt, out of the $300 million principal amount of debt authority requested, pending completion of the record.

Prior to the electric restructuring, a utility to which the T&D Utility is the corporate successor entered into agreements with certain governmental authorities ("Authorities") for the issuance of pollution control bonds ("Bonds") by those Authorities. Under these agreements, the proceeds of the Bonds were used by the utility to finance qualifying pollution control facilities used in its business or to refund bonds previously issued for that purpose. In connection with the electric restructuring: (1) CenterPoint assumed the installment payment obligations of the utility; (2) the mortgage bonds that secured certain of these obligations remained with the T&D Utility as corporate successor to the utility; and (3) the T&D Utility issued promissory notes payable to CenterPoint with payment terms equivalent to CenterPoint's installment payment obligations for each series of secured bonds.

Certain of these currently outstanding Bonds are, or soon will become, callable. The Applicants believe, on the basis of currently available information, including current interest rates and other factors, that it would be in the best interest of the T&D Utility to cause some or all of these Bonds to be refunded prior to their maturity. Applicants believe that interest costs will likely be reduced as a result of the requested authority. In connection with any refunding, the T&D Utility would request the relevant Authorities to issue a new series of revenue refunding bonds, the proceeds of which would ultimately be used to redeem up to approximately $250 million of Bonds supported by CenterPoint installment payment obligations. The new series of revenue refunding bonds would be issued by the applicable Authority on behalf of the T&D Utility, and supported by credit support in the form of: (1) T&D Utility installment payment obligations; (2) possibly, a separate series of T&D Utility first mortgage bonds or general mortgage bonds; and (3) possibly, bond insurance. As noted above, the T&D Utility has outstanding promissory notes payable to CenterPoint for each series of outstanding Bonds. These intercompany notes that the T&D Utility owes to CenterPoint would be "deemed paid" when the outstanding Bonds are redeemed. In addition, the redemption of the outstanding Bonds would result in a corresponding satisfaction of the related series of currently outstanding mortgage bonds.

The precise amount of the costs associated with the refunding will not be known until the refinancing is complete but the fees and terms and conditions of the refinancing will comply with the terms and conditions established in the Omnibus Financing Order. Among other things, Applicants would continue to comply with the investment grade and equity capitalization criteria in the Omnibus Financing Order. In particular, the T&D Utility will continue to maintain a minimum of 30% common equity, as required by the Omnibus Financing Order.

The proposed transaction is subject to rule 54 under the Act, which provides that, in determining whether to approve an application which does not relate to any "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"), the Commission shall not consider the effect of the capitalization or earnings of any EWG or FUCO which is a subsidiary of a registered holding company if the requirements of rule 53(a), (b) and (c) under the Act are satisfied.

As a result of the electric restructuring authorized in the order dated July 5, 2002 (Holding Company Act Release No. 27548 (the "July Order")), CenterPoint had negative retained earnings as of December 31, 2002. Thus, although CenterPoint's aggregate investment (as defined in rule 53(a)(1)(i) under the Act), in EWGs and FUCOs as of December 31, 2002 was approximately $8 million, the Company is not currently in compliance with the requirements of rule 53(a)(1) under the Act. As a result, 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. Further, CenterPoint is attempting to dispose of its remaining interests in EWGs and FUCOs and is not planning to invest any more monies in those businesses.

Applicants state that CenterPoint complies with, and will continue to comply with, the record-keeping requirements of rule 53(a)(2) under the Act, the limitation under rule 53(a)(3) under the Act on the use of domestic public-utility company personnel to render services to EWGs and FUCOs, and the requirements of rule 53(a)(4) under the Act concerning the submission of copies of certain filings under the Act to retail regulatory commissions. Further, none of the circumstances described in rule 53(b) under the Act has occurred or is continuing. Rule 53(c) under the Act is by its terms inapplicable to the proposed transaction as it does not involve the issue and sale of securities (including guarantees) to finance an acquisition of an EWG or FUCO.

Applicants state that no state or federal commission, other than this Commission, has jurisdiction over the proposed transaction. Applicants state that the expenses to be incurred in connection with the preparation and filing of the Declaration are estimated to be approximately $20,000, plus the fees paid in connection with the proposed refunding transactions.

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, as to the incremental $50 million principal amount of external debt securities to be issued, the applicable standards of the Act are satisfied and no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that the Declaration is permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED, that jurisdiction continues to be reserved over the T&D Utility's issuance and sale of $250 million principal amount of incremental external debt securities so that the total amount of T&D Utility's external debt will not exceed $3.653 billion at any one time outstanding during the Authorization Period.

IT IS FURTHER ORDERED, that jurisdiction continues to be reserved, pending completion of the record, over the other matters listed in the T&D Utility Financing Orders.

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

Margaret H. McFarland
Deputy Secretary



Modified: 12/30/2003