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U.S. Securities and Exchange Commission


(Release No. 35-27921; 70-10265)

CenterPoint Energy, Inc., et al.

Order Authorizing Declaration and Payment of Dividends Out of Capital or Unearned Surplus

December 10, 2004

CenterPoint Energy, Inc. ("CenterPoint"), Houston, Texas, a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), and Utility Holding, LLC, ("Utility Holding"), Wilmington, Delaware, have filed with the Securities and Exchange Commission ("Commission") a declaration ("Declaration") under section 12(c) of the Act and rules 46 and 54 under the Act asking the Commission to authorize Utility Holding to declare and pay two dividends out of its capital account to CenterPoint consisting of the proceeds it receives from the first and second phase of the sale of its interest in Texas Genco Holdings, Inc. ("Texas Genco"). The Commission issued a notice of the proposed transaction on November 16, 2004 (Holding Company Act Release No. 27910). No request for a hearing was received.

CenterPoint holds its utility interests through Utility Holding, a Delaware limited liability company that is a conduit entity formed solely to minimize tax liability. Utility Holding is wholly-owned by CenterPoint and a registered holding company subsidiary. Utility Holding owns the stock of Texas Genco and CenterPoint Energy Houston Electric, LLC ("T&D Utility").1

CenterPoint is in the process of completing the final steps in a restructuring process that began when Texas adopted legislation designed to deregulate and restructure the electric utility industry in the state. That legislation required integrated electric utilities to separate their generating, transmission and distribution, and retail sales functions in accordance with plans approved by the Public Utility Commission of Texas ("Texas Commission"). CenterPoint's predecessor, Reliant Energy, Incorporated ("REI"), accomplished its restructuring in the fall of 2002 when, after CenterPoint became the parent entity, CenterPoint distributed to its shareholders its remaining ownership interest in its unregulated retail electric sales, merchant power generation and energy trading and marketing business.2 In order to facilitate compliance with the Texas restructuring law, CenterPoint retained ownership of the newly deregulated Texas generating assets (which were placed in Texas Genco), pending determination of stranded costs by the Texas Commission.3

On July 21, 2004, CenterPoint announced the sale of Texas Genco, which will be accomplished in two steps. The first step is expected to be completed in the fourth quarter of 2004 and will involve Texas Genco purchasing the approximately 19% of its shares owned by the public at a price of $47 per share, and then selling its fossil-fueled generating business to the buyer. In the second step, expected to take place in the first half of 2005 following receipt of approval by the Nuclear Regulatory Commission, Texas Genco will merge with a subsidiary of the buyer, thus transferring its remaining asset, an interest in a nuclear generating facility.4

Total cash proceeds to Texas Genco from both steps will be approximately $2.9 billion. CenterPoint intends to use the net after-tax proceeds of about $2.5 billion to retire existing debt. In the first stage of the sale transaction, Texas Genco will receive cash for the sale of its fossil generating business and will dividend $2.231 billion of those proceeds to Utility Holding. Utility Holding in turn will simultaneously dividend that amount to CenterPoint, which will repay bank debt and release a pledge that banks hold on the Texas Genco common stock. In the second step, Utility Holding will receive $700 million in cash for the sale of its stock in Texas Genco and will dividend that amount to CenterPoint.

Because it is the vehicle through which CenterPoint holds its utility interests, Utility Holding has recorded a substantial charge to its retained earnings account in connection with the extraordinary events of the sale of Texas Genco and the stranded cost proceeding. That charge affects Utility Holding's ability to pay dividends to CenterPoint out of its retained earnings account. During the third quarter of 2004, Utility Holdings retained earnings decreased from approximately $1.1 billion to $20 million as a result of the impairment associated with the sale of Texas Genco and the stranded cost proceeding. In addition, the magnitude of the proposed dividends in respect of the two steps of the sale of Texas Genco would exceed Utility Holding's ability to dividend to CenterPoint the proceeds from each step out of retained earnings, necessitating an order of the Commission allowing Utility Holdings to declare and pay the dividends out of its capital account.

The proposed transactions are subject to rule 54 under the Act, which refers to rule 53. Rule 54 provides that, in determining whether to approve certain transactions other than those involving exempt wholesale generators ("EWGs") or foreign utility companies ("FUCOs"), as defined under the Act, the Commission will not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or FUCO if rule 53(a), (b) and (c) under the Act are satisfied. CenterPoint has no investments in FUCOs, and its only EWG investments are in two subsidiaries of Texas Genco. As of September 30, 2004, CenterPoint's aggregate investment in the EWGs was approximately $2.331 billion.

As a result of the distribution of REI discussed above, CenterPoint has negative retained earnings as of December 31, 2003, and so is not in compliance with rule 53(a)(1) under the Act. As a result, the Commission has considered the effect on the CenterPoint system of the capitalization and earnings of all subsidiary companies of CenterPoint in determining whether to grant the authority requested in the Declaration.5

CenterPoint states that no state or federal commission, other than this Commission, has jurisdiction over the proposed transactions. CenterPoint states that the fees, commissions and expenses paid or incurred or to be incurred in connection with the Declaration are estimated to be $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 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 the Declaration is 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.

J. Lynn Taylor
Assistant Secretary



Modified: 12/21/2004