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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27919; 70-10128)

CenterPoint Energy, Inc., et al.

Supplemental Order Releasing Jurisdiction to Form and Capitalize Special Purpose Entity

November 30, 2004

CenterPoint Energy, Inc. ("CenterPoint"), a registered holding company, its public-utility subsidiary company, CenterPoint Energy Houston Electric, LLC ("T&D Utility"), both of Houston, TX and Utility Holding, LLC, an intermediate subsidiary holding company of CenterPoint, Wilmington, DE (collectively, "Applicants"), have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment ("Amendment") under sections 9 and 10 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 45 and 54 under the Act, to their previously filed application-declaration ("Application"). On June 2, 2003, the Commission issued a notice of the Application (HCAR No. 27863). No request for a hearing was received.

I. Previously Reserved Jurisdiction

By order dated June 30, 2003, in this filing ("Omnibus Financing Order") (HCAR No. 27692), the Commission reserved jurisdiction over CenterPoint's request to form and capitalize one or more special purpose entities ("SPE") of the T&D Utility to issue, in an amount not to exceed that authorized by the Texas Public Utilities Commission ("Texas Commission"), securitization bonds ("Transition Bonds") in 2004 or 2005 to monetize and recover the balance of stranded costs relating to previously owned electric generation assets and other qualified costs as determined in a 2004 true-up proceeding. On November 23, 2004, the Texas Commission signed and formally issued an order in the true-up proceeding that will allow the T&D Utility to recover approximately $2.3 billion of stranded costs and interest.

II. Proposed Transaction

Applicants propose to form and capitalize a direct, wholly-owned subsidiary of the T&D Utility, anticipated to be named CenterPoint Energy Transition Bond Company II, LLC (the "Issuer").1 The T&D Utility, the sole member of the Issuer, will capitalize it with a contribution in the amount of $1,000.2 The sole purpose of the Issuer is to issue the Transition Bonds.3 The obligations on the bonds will be non-recourse to the T&D Utility and to all other entities in the CenterPoint system other than the Issuer.

The Transition Bonds will be issued pursuant to a financing order to be issued by the Texas Commission to the T&D Utility ("Texas Commission Financing Order"), as well as authority to be sought from the Commission. The Transition Bonds will be issued in one or more series by the Issuer. Applicants expect that a condition of issuance of the Transition Bonds is that each series will be rated "Aaa" by Moody's Investors Service, Inc., "AAA" by Standard and Poor's Rating Services, a Division of The McGraw-Hill Companies, and "AAA" by Fitch, Inc. Applicants state that, under the Texas Electric Restructuring Law ("Restructuring Law"), the Transition Bonds must be fully repaid within fifteen years of the date of issuance. Applicants expect the Issuer to be in a position to issue the Transition Bonds in the first half of 2005.4 The principal amount and interest on the Transition Bonds will be amortized through non-bypassable charges to the retail electric customers within the T&D Utility's service territory, as authorized by the Texas Commission.

Applicants state that the Restructuring Law permits electric utilities, such as the T&D Utility, to recover stranded costs and generation-related regulatory assets through irrevocable non-bypassable transition charges assessed on substantially all retail electric customers within a utility's service territory as it existed on May 1, 1999. The amount and terms for collections of these transition charges will be governed by the Texas Commission Financing Order.

Applicants also state that the Restructuring Law permits an electric utility, such as the T&D Utility, to form an SPE, like the Issuer, and to transfer to that SPE its rights and interests under a financing order, including the right to receive transition charges. And such an entity is authorized to issue transition bonds that are secured by the right to receive revenues arising from the transition charges.

Once transferred to the Issuer, the T&D Utility's right to receive the transition charges, all revenues and collections resulting from the transition charges and its other rights and interests under the Texas Commission Financing Order, will constitute transition property ("Transition Property"). The T&D Utility will sell the Transition Property to the Issuer in exchange for the net proceeds from the sale of the Transition Bonds. The Issuer will sell the Transition Bonds, which will be secured by the related Transition Property, to underwriters. The T&D Utility will act as the servicer of the Transition Property.

III. Requested Authority

Applicants request a supplemental order of the Commission releasing jurisdiction previously reserved in the Omnibus Financing Order to form and capitalize the Issuer. Applicants will seek from the Commission a further release of jurisdiction for the issuance of the Transition Bonds.

IV. Rule 54

The proposed transactions are subject to rule 54 under the Act. Rule 54 provides that, in determining whether to approve certain transactions other than those involving exempt wholesale generators, as defined in the Act ("EWGs"), the Commission will not consider the effect of the capitalization or earnings of any subsidiary company which is an EWG if rule 53(a), (b) and (c) under the Act are satisfied. Rule 54 is interpreted to include FUCOs.

Applicants state that CenterPoint has no investments in FUCOs. CenterPoint holds its EWG investments in Texas Genco, LP and Texas Genco II, LP through a partially-owned indirect subsidiary company, Texas Genco Holdings, Inc. ("Texas Genco"). These investments in Texas Genco, LP and Texas Genco II, LP are CenterPoint's only EWG investments. On July 21, 2004, CenterPoint and Texas Genco announced a definitive agreement for GC Power Acquisition LLC ("GC Power"), a newly formed entity owned in equal parts by affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas Pacific Group, to acquire Texas Genco. As of September 30, 2004, CenterPoint's aggregate investment in Texas Genco was approximately $2.331 billion.

Applicants state that, as a result of the restructuring authorized by Commission order dated July 5, 2002 (HCAR No. 27548), CenterPoint had negative retained earnings as of December 31, 2003 and is not in compliance with rule 53(a)(1). As a result, the Commission has considered the effect on the CenterPoint system of the capitalization and earnings of all subsidiaries of CenterPoint in determining whether to grant the requested authority.

Applicants further state that CenterPoint complies with, and will continue to comply with, the record-keeping requirements of rule 53(a)(2), the limitation under rule 53(a)(3) on the use of domestic public-utility company personnel to render services to EWGs and FUCOs, and the requirements of rule 53(a)(4) 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) has occurred or is continuing. Rule 53(c), by its terms, is inapplicable to the transactions proposed herein that do not involve the issue and sale of securities (including guarantees) to finance an acquisition of an EWG or FUCO.

V. Conclusion

Applicants state that no state or federal commission other than this Commission has jurisdiction over the Applicants' request to form and capitalize the Issuer. Applicants state that fees and expenses in connection with the Amendment will be approximately $20,000.

Due notice of the filing of the Application was given in the manner prescribed by rule 23 under the Act, and no hearing was requested of or ordered by the Commission. Based on the facts in the record, it is found that the applicable standards of the Act and the rules under the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED, that jurisdiction be released over authority for Applicants to form and capitalize the Issuer.

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

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


Margaret H. McFarland
Deputy Secretary


Endnotes


http://www.sec.gov/divisions/investment/opur/filing/35-27919.htm

Modified: 12/08/2004