Filings Under the Public Utility Holding Company Act of 1935, as Amended (“Act”), 51388-51392 [E5-4725]
Download as PDF
<![CDATA[
51388
Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / Notices
For the Nuclear Regulatory Commission.
Ledyard B. Marsh,
Director, Division of Licensing Project
Management, Office of Nuclear Reactor
Regulation.
[FR Doc. 05–16979 Filed 8–29–05; 8:45 am]
BILLING CODE 7590–01–P
Electronic Statements
• Use the Commission’s Internet
submission form (https://www.sec.gov/
info/smallbus/acspc.shtml); or
• Send an e-mail message to rulecomments@sec.gov. Please include File
Number 265–23 on the subject line; or
Paper Statements
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–8607; 34–52329, File No.
265–23]
Advisory Committee on Smaller Public
Companies
Securities and Exchange
Commission.
ACTION: Notice of Meeting of SEC
Advisory Committee on Smaller Public
Companies.
AGENCY:
The Securities and Exchange
Commission Advisory Committee on
Smaller Public Companies is providing
notice that it will hold a public meeting
on Monday, September 19, and
Tuesday, September 20, 2005, at the
Hyatt at Fisherman’s Wharf Hotel, 555
North Point Street, San Francisco,
California 94133. The meeting is
scheduled for 8 a.m. to 12:30 p.m. on
Monday, September 19, and from 10:15
a.m. to 3:30 p.m., with a one-hour break
for lunch from 12:30 to 1:30 p.m., on
Tuesday, September 20. The meeting
will be audio webcast on the
Commission’s Web site at www.sec.gov.
The agenda for the Monday,
September 19, session includes hearing
oral testimony by participating in
roundtables with participants in the
SEC Government-Business Forum on
Small Business Capital Formation. The
roundtables will focus on the process of
capital formation for smaller companies
since the enactment of the SarbanesOxley Act of 2002. The agenda for the
Tuesday, September 20, session
includes considering written statements
that have been filed with the Advisory
Committee in connection with the
meeting and considering reports of
subcommittees of the Advisory
Committee. The Advisory Committee
will also consider on Tuesday any
recommendations proposed by Members
or Official Observers for adoption by the
full Advisory Committee.
DATES: Written statements should be
received on or before September 12,
2005.
Written statements may be
submitted by any of the following
methods:
ADDRESSES:
VerDate Aug<18>2005
15:17 Aug 29, 2005
Jkt 205001
• Send paper statements in triplicate
to Jonathan G. Katz, Committee
Management Officer, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–9303.
All submissions should refer to File
No. 265–23. This file number should be
included on the subject line if e-mail is
used. To help us process and review
your statement more efficiently, please
use only one method. The Commission
staff will post all statements on the
Advisory Committee’s Web site (https://
www.sec.gov./info/smallbus/
acspc.shtml).
Statements also will be available for
public inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549. All statements received will be
posted without change; we do not edit
personal identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
Persons wishing to provide oral
testimony at the Monday, September 19,
session should contact one of the SEC
staff persons listed below by September
9, 2005 and submit a written statement
by the deadline for written statements.
Sufficient time may not be available to
accommodate all those wishing to
provide oral testimony. The Co-Chairs
of the Advisory Committee have
reserved the right to select and limit the
time of witnesses permitted to testify at
the Advisory Committee meeting.
FOR FURTHER INFORMATION CONTACT:
Kevin M. O’Neill, Special Counsel, at
(202) 551–3260, or William A. Hines,
Special Counsel, at (202) 551–3320,
Office of Small Business Policy,
Division of Corporation Finance,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–3628.
In
accordance with Section 10(a) of the
Federal Advisory Committee Act, 5
U.S.C.-App. 1, § 10(a), and the
regulations thereunder, Gerald J.
Laporte, Designated Federal Officer of
SUPPLEMENTARY INFORMATION:
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
the Committee, has ordered publication
of this notice.
Jonathan G. Katz,
Committee Management Officer.
[FR Doc. 05–17166 Filed 8–29–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[[Release No. 35–28019]
Filings Under the Public Utility Holding
Company Act of 1935, as Amended
(‘‘Act’’)
August 24, 2005.
Notice is hereby given that the
following filing(s) has/have been made
with the Commission pursuant to
provisions of the Act and rules
promulgated under the Act. All
interested persons are referred to the
application(s) and/or declaration(s) for
complete statements of the proposed
transaction(s) summarized below. The
application(s) and/or declaration(s) and
any amendment(s) is/are available for
public inspection through the
Commission’s Branch of Public
Reference.
Interested persons wishing to
comment or request a hearing on the
application(s) and/or declaration(s)
should submit their views in writing by
September 19, 2005, to the Secretary,
Securities and Exchange Commission,
Washington, DC 20549–0609, and serve
a copy on the relevant applicant(s) and/
or declarant(s) at the address(es)
specified below. Proof of service (by
affidavit or, in the case of an attorney at
law, by certificate) should be filed with
the request. Any request for hearing
should identify specifically the issues of
facts or law that are disputed. A person
who so requests will be notified of any
hearing, if ordered, and will receive a
copy of any notice or order issued in the
matter. After September 19, 2005, the
application(s) and/or declaration(s), as
filed or as amended, may be granted
and/or permitted to become effective.
CenterPoint Energy, Inc., et al. (70–
10329)
CenterPoint Energy, Inc.
(‘‘CenterPoint’’), a registered publicutility holding company under the Act,
located at 1111 Louisiana, Houston, TX
77002, Utility Holding, LLC (‘‘Utility
Holding’’), CenterPoint’s direct, wholly
owned subsidiary limited liability
company, located at 200 West Ninth
Street Plaza, Suite 411,Wilmington, DE
19801, CenterPoint Energy Houston
Electric, LLC (‘‘CEHouston Electric’’), a
wholly owned electric utility subsidiary
E:\FR\FM\30AUN1.SGM
30AUN1
Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / Notices
limited liability company of Utility
Holding, and CenterPoint Energy
Transition Bond Company II, LLC (‘‘CE
Issuer’’), a direct, wholly owned
subsidiary limited liability company of
CEHouston Electric, both located at
1111 Louisiana, Houston, TX 77002
(together, ‘‘Applicants’’), have filed an
application-declaration, as amended
(‘‘Application’’), with the Commission
under sections 6(a), 7, 9, 10, 12(b), 12(c)
12(f), 12(g) and 13(b) of the Act and
rules 42, 43, 44, 45, 54, 90 and 91.
Applicants are requesting authority to
issue certain additional transition bonds
(‘‘Additional Transition Bonds’’) 1 in an
amount projected, at this time, to be
approximately $2 billion 2 and to engage
in certain transactions related to
Applicants’ financing and recovery of
costs associated with the State of Texas’
electric-utility industry restructuring,
administered by the Texas
Commission.3 The proposed bonds are
in addition to transition bonds issued in
2001, prior to CenterPoint’s registration
with the Commission.4
I. Summary of the Request
Applicants request authority to issue
the Additional Transition Bonds and
engage in related transactions, as
generally described below:
1. CEHouston Electric, to sell, pledge
or assign transition property
(‘‘Transition Property’’), as described
below, to CE Issuer in exchange for
1 By its order dated Nov. 30, 2004, the
Commission previously authorized CenterPoint to
form and capitalize CenterPoint Energy Transition
Bond Company II, LLC, to issue the Additional
Transition Bonds and, in its order dated June 29,
2005, the Commission previously discussed the
bonds’ financial effect on the CenterPoint system’s
capitalization. See CenterPoint Energy, Inc., et al.,
Holding Co. Act Release No. 27919; CenterPoint
Energy, Inc., et al., Holding Co. Act Release No.
27989 (‘‘June 29, 2005 Omnibus Financing Order’’),
respectively.
2 Applicants state that the amount of the
proposed bonds is a projection, as it is based on an
assumption that issuance will be prior to Dec. 31,
2006 and the total amount of Additional Transition
Bonds is also subject to a further determination of
the Texas Public Utility Commission (‘‘Texas
Commission’’).
3 The Texas Restructuring Law (‘‘Restructuring
Law’’) became effective on Sept. 1, 1999, to permit
companies to compete for retail electric customers,
among other things. The Restructuring Law also
required the Texas Commission to administer the
requirement that integrated utilities separate their
generating, transmission and distribution and retail
sales functions.
4 Applicants state that, in October 2001,
CenterPoint Energy Transition Bond Company, LLC
(formerly known as Reliant Energy Transition Bond
Company, LLC) (‘‘Transition Bond Company I’’), a
special purpose, wholly owned subsidiary of
CEHouston Electric, issued $749 million of the
Series 2001–1 Transition Bonds. Applicants also
note that they have referred to CEHouston Electric
as the ‘‘T&D Utility’’ in previous filings and that it
may be so referred to in certain of the exhibits to
this Application.
VerDate Aug<18>2005
15:17 Aug 29, 2005
Jkt 205001
proceeds from the sale of one or more
series of Additional Transition Bonds;
2. CE Issuer, to issue and sell
Additional Transition Bonds in an
aggregate principal amount not to
exceed approximately $2 billion (as
authorized and approved by the Texas
Commission);
3. CE Issuer, to enter into hedging
transactions and arrangements and
credit enhancement transactions to
reduce certain interest rate and credit
risks associated with the Additional
Transition Bonds;
4. CEHouston Electric, or any
successor entity or another affiliate, to
provide services to CE Issuer related to
the Transition Property and to enter into
one or more Transition Property
Servicing Agreements, as described
below;
5. CEHouston Electric, or any
successor entity or another affiliate, to
provide administrative services to CE
Issuer and to enter into one or more
Administration Agreements, as
described below;
6. CE Issuer, to use the proceeds from
the Additional Transition Bonds to pay
the expenses of issuance and to
purchase the Transition Property from
CEHouston Electric;
7. CEHouston Electric and Utility
Holding, to pay dividends out of capital
or unearned surplus, from the
Transition Property sale proceeds (or
some portion of the proceeds), from
CEHouston Electric to Utility Holding
and from Utility Holding to CenterPoint;
8. CEHouston Electric, to enter into:
(a) Indemnity provisions in the
Transition Property Sale Agreement,
indemnifying CE Issuer, the trustee and
certain of their affiliates; and
(b) As a service provider, to enter into
indemnity provisions of the Transition
Property Service Agreement,
indemnifying CE Issuer, the trustee,
certain affiliates of the trustee and the
Texas Commission (for the benefit of
CEHouston Electric’s customers);
9. CE Issuer, to enter into indemnity
provisions in its limited liability
company agreement, through which it
may indemnify its managers; and
10. CEHouston Electric, to make
capital contributions to CE Issuer and,
subject to certain limitations, receive
interest and other investments earnings
on them.
II. Background
In addition to introducing
competition to the Texas electric utility
industry, by requiring integrated
utilities to separate their generating,
transmission and distribution and retail
sales functions, Applicants state that the
Texas Restructuring Law permits
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
51389
utilities to recover certain of certain
‘‘stranded’’ or other ‘‘transition’’ costs
associated with transition to a
competitive retail electric market in
Texas.5 Applicants explain that the
Restructuring Law permits recovery of
the stranded costs, and other transition
related costs, providing two
mechanisms, either, or both, of which
the Texas Commission may use to
permit a utility to recover transition
costs: (1) Non-bypassable ‘‘competition
transition charges’’ (‘‘CTCs’’) imposed
on retail electric customers’ bills or (2)
the issuance of transition bonds,
securitizing non-bypassable ‘‘transition
charges’’ imposed on customers, which
pay for the bonds (‘‘Transition
Charges’’).6 Applicants’ request in this
Application involves the latter
mechanism.7
Applicants state that the Texas
Restructuring Law requires transition
bonds to be repaid by retail customers,
over a period of no more than 15 years,
through the imposition of the nonbypassable Transition Charges.8 Under
5 Applicants state that the Restructuring Law
allows a utility to recover the amount by which the
market value of its generating assets is below the
regulatory book value of the assets as of the end of
2001. It also allows a utility to recover certain other
transition costs by a true-up procedure (i.e.,
calculating the difference between the Texas
Commission’s projected market prices for
generation during 2002 and 2003 and the actual
market prices for generation occurring in 2002 and
2003). The statute requires these determinations to
be made by the Texas Commission in ‘‘true-up
proceedings.’’
6 Applicants state that the Restructuring Law
provides, in general, that retail electric customers
within the utility’s service territory as it existed on
May 1, 1999, will be assessed CTCs, regardless of
whether the retail electric customers receive service
from the utility that historically served them or
another entity. CTCs are similar to transition
charges in the way they are imposed and collected,
but CTCs are not securitized.
7 Applicants state that, separately, in January
2005, CEHouston Electric filed an application with
the Texas Commission for a CTC order, to recover
the entire true-up balance (plus accrued interest
and excess mitigation credits), and that, on July 14,
2005, CEHouston Electric received an order
allowing it to collect approximately $570 million in
CTC over 14 years, plus interest at an annual rate
of 11.075% (‘‘CTC Order’’). Based on this interest
permitted, it is expected that the amount will total
to approximately $600 million by the end of the
third quarter of 2005, when the CTC is expected to
be implemented. Applicants state that the CTC
Order also allows CEHouston Electric to collect
approximately $24 million of rate case expenses
over three years.
8 Applicants explain that the Restructuring Law
authorizes the Texas Commission to issue financing
orders approving transition bonds to recover certain
‘‘qualified costs.’’ Qualified costs of an electric
utility include, among other things, the costs of
issuing, supporting and servicing transition bonds
and any costs of retiring and refunding existing debt
and equity securities in connection with their
issuance. The Restructuring Law permits a utility,
its successors or a third-party assignee of a utility,
to issue transition bonds. Under the Restructuring
E:\FR\FM\30AUN1.SGM
Continued
30AUN1
51390
Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / Notices
the statute, transition bonds will be
secured by, and payable from,
Transition Property, which includes the
right to impose, collect and receive the
Transition Charges.9 Applicants state
that transition bonds may be issued
through a special purpose entity
designed to be a bankruptcy remote
entity.10 The obligations on the bonds
are required to be non-recourse to the
utility and to all other entities in the
electric utility system, other than issuer,
the special purpose entity.
In December 2004, the Texas
Commission authorized CEHouston
Electric 11 to recover about $2.4 billion
of stranded costs and interest accrued
through Aug. 31, 2004 (‘‘True-Up
Order’’). Applicants state that, on Mar.
16, 2005, the Texas Commission
authorized the proposed Additional
Transition Bonds, allowing CEHouston
Electric to securitize approximately
$1.494 billion, plus (1) the amount of
excess mitigation credits provided by
CEHouston Electric after Aug. 31, 2004,
(2) interest on the stranded cost amount
accrued after Aug. 31, 2004, and
through the date of issuance of the
Law, proceeds of transition bonds must be used to
reduce the amount of recoverable qualified costs
through the refinancing or retirement of the electric
utility’s debt or equity, and may have a maximum
maturity of 15 years.
9 Applicants also state that the State of Texas
pledged in the Restructuring Law that it will not
take or permit any action that would impair the
value of the transition property or, except as
permitted in connection with the true-up
adjustment authorized by the statute, reduce, alter
or impair the transition charges until the principal,
interest and premium, and any other charges
incurred and contracts to be performed in
connection with transition bonds, have been paid
and performed in full. Applicants state that the
Restructuring Law does require the Texas
Commission to review and adjust the transition
charges at least annually, within 45 days of the
anniversary of the date of the issuance of the
transition bonds in order to: (1) Correct any
overcollections or undercollections during the
preceding 12 months and (2) provide for recovery
of amounts sufficient to pay timely all debt service
and other amounts and charges associated with the
transition bonds.
10 See notes 1 and 8, above. The Commission
previously authorized CenterPoint to form and
capitalize CenterPoint Energy Transition Bond
Company II, LLC, to issue the Additional Transition
Bonds. CenterPoint Energy, Inc., et al., Holding Co.
Act Release No. 27919 (Nov. 30, 2004). As noted
above, the Restructuring Law permits a utility, its
successors or a third party assignee of a utility, to
issue transition bonds.
11 Applicants explain that, on Mar. 31, 2004,
CEHouston Electric, Texas Genco, LP and Reliant
Energy Retail Services, LLC, applied to the Texas
Commission for an order determining CEHouston
Electric’s 2004 true-up balance. Applicants state
that the Restructuring Law requires the power
generation company and the retail electric provider
that are ‘‘affiliated with’’ the former integrated
electric utility to be parties to the application.
Reliant Energy Retail Services was an applicant
even though, at the time, it no longer had any legal
affiliation with CenterPoint Energy or its
subsidiaries.
VerDate Aug<18>2005
15:17 Aug 29, 2005
Jkt 205001
transition bonds, and (3) certain upfront qualified costs related to the
issuance of the Additional Transition
Bonds (‘‘Texas Financing Order’’).12 On
Nov. 30, 2004, as noted previously, the
Commission authorized Centerpoint to
form and capitalize CE Issuer (i.e.,
Centerpoint Energy Transition Bond
Company II, LLC), for the purpose of
issuing the Additional Transition
Bonds.13
III. The Proposed Transactions
A. Additional Transition Bonds
Applicants request authority to issue
the Additional Transition Bonds
through CE Issuer, in one or more series,
each made up of one or more classes, up
to an amount, anticipated to be
approximately $2 billion (as authorized
by the Texas Commission), secured by
CE Issuer’s right, title and interest in
and to the Transition Property.
Applicants also ask that they be
authorized to issue the different series,
with different interest rates (which may
be at fixed or floating rates) and
amortizations of principal and that each
series have classes with different
interest rates and amortizations of
principal. Applicants state that, in
accordance with the requirements of the
Restructuring Law, the Additional
Transition Bonds will be required to be
fully repaid within 15 years of the date
of issuance.14 CenterPoint projects that,
with interest from Aug. 31, 2004 to the
date of issuance (and assuming the
Additional Transition Bonds are issued
no later than Dec. 31, 2006), the amount
of Additional Transition Bonds issued
would be no more than $2 billion,
although the total amount of Additional
Transition Bonds issued will be
determined by the Texas Commission
before the bonds are issued.
Applicants further request that
CEHouston Electric be authorized to
transfer its right to receive Transition
12 Applicants state that this amount was also
subject to adjustments reflecting certain deferred
taxes, accrual of interest and payment of excess
mitigation credits after Aug. 31, 2004. Applicants
also explain that a financing order, once effective,
is irrevocable and not subject to reduction,
impairment or adjustment by the Texas
Commission (including the transition charges
authorized in the order), except for annual and
interim true-up adjustments made under the
Restructuring Law.
13 See notes 1 and 10, above.
14 Applicants expect that it will be a condition of
issuance that each series of Additional Transition
Bonds 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. In addition, Applicants state
that CEHouston Electric will comply with the
Commission’s investment grade criteria contained
in the Commission’s June 29, 2005 Omnibus
Financing Order. See also note 1, above.
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
Charges to CE Issuer. Applicants state
that, once CEHouston Electric transfers
its right to receive Transition Charges to
CE Issuer, all revenues and collections
resulting from them, and its other rights
and interests received under the Texas
Financing Order, will constitute
Transition Property. Applicants state
that the Transition Property includes
the right to impose, collect and receive
(through the transition charges payable
by retail electric customers within
CEHouston Electric’s service territory)
an amount sufficient to recover the
CEHouston Electric’s ‘‘qualified costs,’’
including the right to receive transition
charges in amounts and at times
sufficient to pay principal and interest
and to make other deposits in
connection with the Additional
Transition Bonds (authorized in the
Texas Financing Order).15
Applicants also state that the
Restructuring Law provides that the
issuer of the transition bonds will have
a valid and enforceable lien and security
interest in the transition property
derived from the transition charges and
created by a Texas financing Order.
Applicants state, as well, that the
Restructuring Law also provides that an
electric utility’s (or an assignee’s)
transfer of transition property is a ‘‘true
sale’’ under state law.
Applicants state that a trustee will be
appointed under the indenture
governing the Additional Transition
Bonds and that the trustee, and its
investment authority, will be subject to
certain constraints.16 The trustee will
provide to the holders of record of the
Additional Transition Bonds regular
reports (containing information
concerning, among other things,
CEHouston Electric and the bonds’
collateral) prepared by the servicer,
described below.17
15 See also notes 9, 10 and 13, above. Under the
Texas Financing Order, CEHouston Electric’s
qualified costs include a portion of CEHouston
Electric’s 2004 true-up balance, up-front costs of
issuing, supporting and servicing the Additional
Transition Bonds and certain related costs of
retiring and refunding CEHouston Electric’s existing
debt and equity securities.
16 Deutsche Bank Trust Company Americas will
be the initial trustee under the indenture governing
the Additional Transition Bonds.
17 As noted above, other transition bonds have
been issued by Applicants. Applicants note with
respect to the previous bonds that, although
CEHouston Electric is the servicer of the Series
2001–1 Transition Bonds and is expected to be the
initial servicer of the Additional Transition Bonds,
CE Issuer is a separate legal entity from Transition
Bond Company I and the Additional Transition
Bonds issued by CE Issuer will be payable from
collateral that is separate from the collateral
securing the Series 2001–1 Transition Bonds.
Moreover, Applicants note that Transition Bond
Company I has no obligations for the Additional
Transition Bonds that will be issued by CE Issuer
E:\FR\FM\30AUN1.SGM
30AUN1
Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / Notices
In addition, Applicants request
authority to enter into certain
transactions for the purpose of
protecting CE Issuer against certain
credit risks that may be associated with
the Additional Transition Bonds.
Applicants explain that these
transactions or instruments, which may
include surety bonds, financial guaranty
insurance policies or letters of credit,
among other things, are intended to
protect against losses or delays in
scheduled payments on the Additional
Transition Bonds.
B. Hedging Transactions
Applicants request that CE Issuer be
authorized to hedge its interest rate risk
using interest rate swaps or other
financial derivatives.18 Applicants state
that each hedging arrangement will be
treated for accounting purposes in
accordance with U.S. generally accepted
accounting principles and that
Applicants will comply with Statement
of Financial Accounting Standards 133
and Statement of Financial Accounting
Standards 138 (‘‘Accounting for Certain
Derivative Instruments and Certain
Hedging Activities’’) or other standards
applicable to accounting for derivative
transactions as are adopted and
implemented by the Financial
Accounting Standards Board.
C. Various Agreements
1. Transition Property Servicing
Agreement
Applicants request that CEHouston
Electric be authorized to act on behalf
of CE Issuer, as the servicer, of the
Additional Transition Bonds. They
propose that the servicer of the bonds,
as the agent of CE Issuer, manage,
service, administer and make
collections related to the Transition
Property.19 Applicants state that, while
they anticipate that CEHouston Electric
will be the servicer, they request that
the trustee be authorized to appoint an
unaffiliated third party as the servicer
under certain conditions. Applicants
state that the appointment of a third
and, similarly, CE Issuer will have no obligations
for the Series 2001–1 Transition Bonds.
18 Applicants state that CE Issuer may enter into
certain interest rate swaps or other transactions for
the purpose of hedging a series or class of floating
rate Additional Transition Bonds. They explain that
interest rate swaps and other hedging arrangements
may be used, among other things, to fix
synthetically the interest on floating rate Additional
Transition Bonds.
19 The servicer will be responsible for, among
other things, calculating, billing and collecting the
transition charges from retail electric providers,
submitting requests to the Texas Commission to
adjust these charges, monitoring the collateral for
the transition bonds and taking certain actions in
the event of non-payment by a retail electric
provider.
VerDate Aug<18>2005
15:17 Aug 29, 2005
Jkt 205001
party as the servicer will not adversely
affect Additional Transition Bonds’
investment grade ratings.
Applicants also request an exemption
from the ‘‘at cost’’ requirements in
connection with the servicing fee.
Applicants propose that the servicer be
entitled to receive an aggregate annual
servicing fee under the terms of the
transition property servicing agreement.
Applicants state that the servicing fee
must be comparable to similar fees
charged in market-based, arm’s length
transactions for CE Issuer to qualify for
the status of a bankruptcy remote entity
and to satisfy related rating agency and
other legal requirements. Applicants
propose that the fee be set at an annual
level of not more than one percent of the
initial principal amount of the
Additional Transition Bonds.
Applicants state that, although they
expect the servicing fee to approximate
the actual costs of providing the
services, they cannot be certain that the
servicing fee will meet the ‘‘at cost’’
requirements of section 13(b) of the Act
and other applicable rules.
2. Administration Agreement
Applicants request that CEHouston
Electric be authorized to provide
administrative services to CE Issuer.
They propose that CEHouston Electric
provide administrative services to CE
Issuer under an administration
agreement, providing ordinary clerical,
bookkeeping and other corporate
administrative services necessary and
appropriate.20
Applicants also request an exemption
from the ‘‘at cost’’ requirements in
connection with the administration fee.
Applicants propose that the
administrator be entitled to receive a
fixed fee, plus reimbursable expenses.
Applicants state that the administrative
fee must be comparable to similar fees
charged in market-based, arm’s length
transactions for CE Issuer to qualify for
the status of a bankruptcy remote entity
and to satisfy related rating agency and
other, legal requirements. Applicants
state that, although they expect the
20 These services may include, without limitation:
(1) Maintaining CE Issuer’s general accounting
records; (2) preparing and filing required
documents; (3) preparing and filing income,
franchise or other tax returns; (4) preparing minutes
of meetings of CE Issuer’s managers; (5) maintaining
executed copies of CE Issuer documents; (6) taking
actions necessary for CE Issuer to keep in full effect
its existence, rights and franchises as a limited
liability company; (7) providing for the issuance
and delivery of the Additional Transition Bonds; (8)
providing for the performance by CE Issuer of its
obligations and enforcement each of its rights under
the indenture, the servicing agreement and the sale
agreement; (9) providing for defense of any action,
suit or proceeding; and (10) providing office space
and ancillary services.
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
51391
administrative fee to approximate the
actual costs of providing the services,
they cannot be certain that the fee will
meet the ‘‘at cost’’ requirements of
section 13(b) of the Act and other
applicable rules.
D. Dividend Authority and Use of
Proceeds
Applicants request that CE Issuer be
authorized to use the proceeds from the
issuance of the Additional Transition
Bonds to pay associated issuance
expenses and to purchase the Transition
Property from CEHouston Electric. In
addition, Applicants request that
CEHouston Electric be authorized to use
proceeds received from CE Issuer to
reduce stranded costs, through the
retirement of debt or equity or both, or
to be distributed to Utility Holding and
to CenterPoint through either the
payment of dividends or the settlement
of intercompany payables.21 Applicants
state that they intend to maintain
CEHouston Electric’s capital structure at
the approximately 60% debt to 40%
equity target levels (exclusive of the
Additional Transition Bonds).22
E. Indemnifications
Applicants also request that they be
authorized to enter into various
indemnity agreements associated with
the transition property sale agreement
and transition property servicing
agreement. Applicants explain that
CEHouston Electric will be required to
indemnify the Texas Commission (for
the benefit of CEHouston Electric’s
customers), CE Issuer, the trustee and
certain of their affiliates for various
activities required in connection with
the issuance and administration of the
Additional Transition Bonds and,
similarly, under the limited liability
company agreement, CE Issuer will be
21 Applicants state that the specific amount of
proceeds to be used to retire debt and/or equity will
depend on CEHouston Electric’s capital structure
and market conditions. They expect that
approximately $1.3 billion of the securitization
proceeds will be used to repay CEHouston Electric’s
term loan maturing in November 2005 (or any
replacement credit facility or debt issuance if the
proceeds have not been received by the maturity
date). To the extent that proceeds may not be
applied to repay that loan, they may be distributed
to Utility Holding and CenterPoint, either through
dividend payments or the settlement of
intercompany payables. Applicants state that
proceeds that are paid as a dividend by CEHouston
Electric to Utility Holding and by Utility Holding
then to CenterPoint may be used to reduce debt at
CenterPoint and to otherwise improve the capital
structure of the CenterPoint system. To the extent
that proceeds received prior to the November 2005
maturity of the term loan may not be used to repay
the loan, Applicants state that they may be
contributed back to CEHouston Electric when the
term loan matures.
22 See also June 29, 2005 Omnibus Financing
Order.
E:\FR\FM\30AUN1.SGM
30AUN1
51392
Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / Notices
required to indemnify its managers in
certain situations, as described in the
Application.
SECURITIES AND EXCHANGE
COMMISSION
F. CEHouston Electric Capitalization
[Release No. 34–52325; File No. SR–Amex–
2005–052]
Finally, Applicants also request an
exemption from the Commission’s 30%
common equity ratio in order to carry
out the Texas Financing Order, as
discussed in the Commission’s June 29,
2005 Omnibus Financing Order.23
Applicants state that CEHouston
Electric’s common equity ratio is
projected to decrease below the
Commission’s standard of 30% during
part of the period that the Additional
Transition Bonds are outstanding,
because the Additional Transition
Bonds are categorized as debt.
Applicants state, however, that
inasmuch as the bonds will be (1) nonrecourse to CEHouston Electric and (2)
serviced by Transition Charges cash
flows in accordance with the Texas
Financing Order (not CEHouston
Electric utility operation revenues), the
Additional Transition Bonds do not
represent the type of financial leverage
that the Commission’s 30% common
equity standard is intended to address.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4725 Filed 8–29–05; 8:45 am]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Integration of Regulatory Staff Into
Floor Official Rulings and the Review
of Floor Official Rulings and
Expediting the Process for Appealing
Floor Official Rulings
August 23, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 11,
2005, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Amex. On August 12,
2005, the Exchange submitted
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
BILLING CODE 8010–01–P
The Exchange proposes to (1) amend
Amex Rules 22(c), 115, 958A(d), 958A–
ANTE(d), 118(n), 135A and Amex Rule
155, Commentary .05 to integrate
regulatory staff into Floor Official
rulings and the review of Floor Official
rulings; and (2) amend Amex Rule 22(d)
to expedite the process for appealing a
Floor Official’s ruling.
The text of the proposed rule change,
as amended, is available on the Amex’s
Web site at https://www.amex.com, the
Office of the Secretary, the Amex, and
at the Commission’s Public Reference
Room.
23 See
note 1, above. As discussed in the June 29,
2005 Omnibus Financing Order, CEHouston
Electric may have less than the Commission’s
common equity ratio standard 30% when the
securitization debt of the Additional Transition
Bonds is included. Applicants anticipate, however,
that its equity ratio will improve as the Additional
Transition Bonds are paid down, although it is not
expected to reach 30% until 2010 with
securitization debt included in the calculation.
Applicants note that, in their request for the June
29, 2005 Omnibus Financing Order, they asked the
Commission to take into account the particular
nature of this debt in issuing that order.
VerDate Aug<18>2005
15:17 Aug 29, 2005
Jkt 205001
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1 Amex made minor
revisions to the proposed rule text and clarified
certain details of its proposal. Amendment No. 1
replaced and superseded Amex’s original filing in
its entirety. The Commission made clarifications to
the description in Item II, pursuant to telephone
conversations with Amex, as noted herein.
Telephone conversations between Nyieri Nazarian,
Assistant General Counsel, Amex, and Rahman
Harrison, Attorney, Commission, on August 23,
2005.
2 17
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Amex included statements concerning
the purpose of, and basis for, the
proposed rule change, as amended, and
discussed any comments it received on
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Incorporation of Regulatory Staff into
Floor Official Rulings
Floor Officials are officers of the
Exchange,4 who are authorized to (1)
make rulings on behalf of the Exchange
with respect to certain matters that
require a decision by the Exchange, and
(2) resolve trading disputes submitted to
them by members. Floor Official
decisions are currently subject to same
day, on-floor appeal at the request of an
aggrieved member, first by an Exchange
Official, then by a Governor and finally
by a panel of three Governors.5 The
Exchange proposes to integrate
regulatory staff into specified categories
of Floor Official rulings and the review
of Floor Official rulings (‘‘Covered
Rulings and Reviews’’) on an advisory,
i.e., non-approving, basis. The Exchange
believes that incorporation of regulatory
staff in Covered Rulings and Reviews
will contribute to a more consistent
application of Exchange rules, and
better ensure that proper documentation
is completed.
The proposed rules would require a
member of the regulatory staff to be
present during a Floor Official’s ruling
on an advisory basis. This member of
the regulatory staff would give his or her
4 There are three levels of Floor Officials on the
floor, each with ascending levels of responsibility:
Floor Officials, Exchange Officials and Senior Floor
Officials. All are considered to be Floor Officials.
Article II, Section 3 of the Amex Constitution
provides that the Chairman of the Board of
Governors may appoint members of the Exchange
and individuals employed by, or associated with, a
member organization in a senior capacity as
Exchange Officials to serve on committees of the
Board. Amex Rule 21 provides for the appointment
of Senior Floor Officials and Floor Officials.
5 Telephone conversation between Nyieri
Nazarian, Assistant General Counsel, Amex, and
Rahman Harrison, Attorney, Commission, on
August 23, 2005.
E:\FR\FM\30AUN1.SGM
30AUN1
]]>Agencies
[Federal Register Volume 70, Number 167 (Tuesday, August 30, 2005)]
[Notices]
[Pages 51388-51392]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4725]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[[Release No. 35-28019]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
August 24, 2005.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by September 19, 2005, to the Secretary, Securities and
Exchange Commission, Washington, DC 20549-0609, and serve a copy on the
relevant applicant(s) and/or declarant(s) at the address(es) specified
below. Proof of service (by affidavit or, in the case of an attorney at
law, by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After September 19, 2005, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
CenterPoint Energy, Inc., et al. (70-10329)
CenterPoint Energy, Inc. (``CenterPoint''), a registered public-
utility holding company under the Act, located at 1111 Louisiana,
Houston, TX 77002, Utility Holding, LLC (``Utility Holding''),
CenterPoint's direct, wholly owned subsidiary limited liability
company, located at 200 West Ninth Street Plaza, Suite 411,Wilmington,
DE 19801, CenterPoint Energy Houston Electric, LLC (``CEHouston
Electric''), a wholly owned electric utility subsidiary
[[Page 51389]]
limited liability company of Utility Holding, and CenterPoint Energy
Transition Bond Company II, LLC (``CE Issuer''), a direct, wholly owned
subsidiary limited liability company of CEHouston Electric, both
located at 1111 Louisiana, Houston, TX 77002 (together,
``Applicants''), have filed an application-declaration, as amended
(``Application''), with the Commission under sections 6(a), 7, 9, 10,
12(b), 12(c) 12(f), 12(g) and 13(b) of the Act and rules 42, 43, 44,
45, 54, 90 and 91.
Applicants are requesting authority to issue certain additional
transition bonds (``Additional Transition Bonds'') \1\ in an amount
projected, at this time, to be approximately $2 billion \2\ and to
engage in certain transactions related to Applicants' financing and
recovery of costs associated with the State of Texas' electric-utility
industry restructuring, administered by the Texas Commission.\3\ The
proposed bonds are in addition to transition bonds issued in 2001,
prior to CenterPoint's registration with the Commission.\4\
---------------------------------------------------------------------------
\1\ By its order dated Nov. 30, 2004, the Commission previously
authorized CenterPoint to form and capitalize CenterPoint Energy
Transition Bond Company II, LLC, to issue the Additional Transition
Bonds and, in its order dated June 29, 2005, the Commission
previously discussed the bonds' financial effect on the CenterPoint
system's capitalization. See CenterPoint Energy, Inc., et al.,
Holding Co. Act Release No. 27919; CenterPoint Energy, Inc., et al.,
Holding Co. Act Release No. 27989 (``June 29, 2005 Omnibus Financing
Order''), respectively.
\2\ Applicants state that the amount of the proposed bonds is a
projection, as it is based on an assumption that issuance will be
prior to Dec. 31, 2006 and the total amount of Additional Transition
Bonds is also subject to a further determination of the Texas Public
Utility Commission (``Texas Commission'').
\3\ The Texas Restructuring Law (``Restructuring Law'') became
effective on Sept. 1, 1999, to permit companies to compete for
retail electric customers, among other things. The Restructuring Law
also required the Texas Commission to administer the requirement
that integrated utilities separate their generating, transmission
and distribution and retail sales functions.
\4\ Applicants state that, in October 2001, CenterPoint Energy
Transition Bond Company, LLC (formerly known as Reliant Energy
Transition Bond Company, LLC) (``Transition Bond Company I''), a
special purpose, wholly owned subsidiary of CEHouston Electric,
issued $749 million of the Series 2001-1 Transition Bonds.
Applicants also note that they have referred to CEHouston Electric
as the ``T&D Utility'' in previous filings and that it may be so
referred to in certain of the exhibits to this Application.
---------------------------------------------------------------------------
I. Summary of the Request
Applicants request authority to issue the Additional Transition
Bonds and engage in related transactions, as generally described below:
1. CEHouston Electric, to sell, pledge or assign transition
property (``Transition Property''), as described below, to CE Issuer in
exchange for proceeds from the sale of one or more series of Additional
Transition Bonds;
2. CE Issuer, to issue and sell Additional Transition Bonds in an
aggregate principal amount not to exceed approximately $2 billion (as
authorized and approved by the Texas Commission);
3. CE Issuer, to enter into hedging transactions and arrangements
and credit enhancement transactions to reduce certain interest rate and
credit risks associated with the Additional Transition Bonds;
4. CEHouston Electric, or any successor entity or another
affiliate, to provide services to CE Issuer related to the Transition
Property and to enter into one or more Transition Property Servicing
Agreements, as described below;
5. CEHouston Electric, or any successor entity or another
affiliate, to provide administrative services to CE Issuer and to enter
into one or more Administration Agreements, as described below;
6. CE Issuer, to use the proceeds from the Additional Transition
Bonds to pay the expenses of issuance and to purchase the Transition
Property from CEHouston Electric;
7. CEHouston Electric and Utility Holding, to pay dividends out of
capital or unearned surplus, from the Transition Property sale proceeds
(or some portion of the proceeds), from CEHouston Electric to Utility
Holding and from Utility Holding to CenterPoint;
8. CEHouston Electric, to enter into:
(a) Indemnity provisions in the Transition Property Sale Agreement,
indemnifying CE Issuer, the trustee and certain of their affiliates;
and
(b) As a service provider, to enter into indemnity provisions of
the Transition Property Service Agreement, indemnifying CE Issuer, the
trustee, certain affiliates of the trustee and the Texas Commission
(for the benefit of CEHouston Electric's customers);
9. CE Issuer, to enter into indemnity provisions in its limited
liability company agreement, through which it may indemnify its
managers; and
10. CEHouston Electric, to make capital contributions to CE Issuer
and, subject to certain limitations, receive interest and other
investments earnings on them.
II. Background
In addition to introducing competition to the Texas electric
utility industry, by requiring integrated utilities to separate their
generating, transmission and distribution and retail sales functions,
Applicants state that the Texas Restructuring Law permits utilities to
recover certain of certain ``stranded'' or other ``transition'' costs
associated with transition to a competitive retail electric market in
Texas.\5\ Applicants explain that the Restructuring Law permits
recovery of the stranded costs, and other transition related costs,
providing two mechanisms, either, or both, of which the Texas
Commission may use to permit a utility to recover transition costs: (1)
Non-bypassable ``competition transition charges'' (``CTCs'') imposed on
retail electric customers' bills or (2) the issuance of transition
bonds, securitizing non-bypassable ``transition charges'' imposed on
customers, which pay for the bonds (``Transition Charges'').\6\
Applicants' request in this Application involves the latter
mechanism.\7\
---------------------------------------------------------------------------
\5\ Applicants state that the Restructuring Law allows a utility
to recover the amount by which the market value of its generating
assets is below the regulatory book value of the assets as of the
end of 2001. It also allows a utility to recover certain other
transition costs by a true-up procedure (i.e., calculating the
difference between the Texas Commission's projected market prices
for generation during 2002 and 2003 and the actual market prices for
generation occurring in 2002 and 2003). The statute requires these
determinations to be made by the Texas Commission in ``true-up
proceedings.''
\6\ Applicants state that the Restructuring Law provides, in
general, that retail electric customers within the utility's service
territory as it existed on May 1, 1999, will be assessed CTCs,
regardless of whether the retail electric customers receive service
from the utility that historically served them or another entity.
CTCs are similar to transition charges in the way they are imposed
and collected, but CTCs are not securitized.
\7\ Applicants state that, separately, in January 2005,
CEHouston Electric filed an application with the Texas Commission
for a CTC order, to recover the entire true-up balance (plus accrued
interest and excess mitigation credits), and that, on July 14, 2005,
CEHouston Electric received an order allowing it to collect
approximately $570 million in CTC over 14 years, plus interest at an
annual rate of 11.075% (``CTC Order''). Based on this interest
permitted, it is expected that the amount will total to
approximately $600 million by the end of the third quarter of 2005,
when the CTC is expected to be implemented. Applicants state that
the CTC Order also allows CEHouston Electric to collect
approximately $24 million of rate case expenses over three years.
---------------------------------------------------------------------------
Applicants state that the Texas Restructuring Law requires
transition bonds to be repaid by retail customers, over a period of no
more than 15 years, through the imposition of the non-bypassable
Transition Charges.\8\ Under
[[Page 51390]]
the statute, transition bonds will be secured by, and payable from,
Transition Property, which includes the right to impose, collect and
receive the Transition Charges.\9\ Applicants state that transition
bonds may be issued through a special purpose entity designed to be a
bankruptcy remote entity.\10\ The obligations on the bonds are required
to be non-recourse to the utility and to all other entities in the
electric utility system, other than issuer, the special purpose entity.
---------------------------------------------------------------------------
\8\ Applicants explain that the Restructuring Law authorizes the
Texas Commission to issue financing orders approving transition
bonds to recover certain ``qualified costs.'' Qualified costs of an
electric utility include, among other things, the costs of issuing,
supporting and servicing transition bonds and any costs of retiring
and refunding existing debt and equity securities in connection with
their issuance. The Restructuring Law permits a utility, its
successors or a third-party assignee of a utility, to issue
transition bonds. Under the Restructuring Law, proceeds of
transition bonds must be used to reduce the amount of recoverable
qualified costs through the refinancing or retirement of the
electric utility's debt or equity, and may have a maximum maturity
of 15 years.
\9\ Applicants also state that the State of Texas pledged in the
Restructuring Law that it will not take or permit any action that
would impair the value of the transition property or, except as
permitted in connection with the true-up adjustment authorized by
the statute, reduce, alter or impair the transition charges until
the principal, interest and premium, and any other charges incurred
and contracts to be performed in connection with transition bonds,
have been paid and performed in full. Applicants state that the
Restructuring Law does require the Texas Commission to review and
adjust the transition charges at least annually, within 45 days of
the anniversary of the date of the issuance of the transition bonds
in order to: (1) Correct any overcollections or undercollections
during the preceding 12 months and (2) provide for recovery of
amounts sufficient to pay timely all debt service and other amounts
and charges associated with the transition bonds.
\10\ See notes 1 and 8, above. The Commission previously
authorized CenterPoint to form and capitalize CenterPoint Energy
Transition Bond Company II, LLC, to issue the Additional Transition
Bonds. CenterPoint Energy, Inc., et al., Holding Co. Act Release No.
27919 (Nov. 30, 2004). As noted above, the Restructuring Law permits
a utility, its successors or a third party assignee of a utility, to
issue transition bonds.
---------------------------------------------------------------------------
In December 2004, the Texas Commission authorized CEHouston
Electric \11\ to recover about $2.4 billion of stranded costs and
interest accrued through Aug. 31, 2004 (``True-Up Order''). Applicants
state that, on Mar. 16, 2005, the Texas Commission authorized the
proposed Additional Transition Bonds, allowing CEHouston Electric to
securitize approximately $1.494 billion, plus (1) the amount of excess
mitigation credits provided by CEHouston Electric after Aug. 31, 2004,
(2) interest on the stranded cost amount accrued after Aug. 31, 2004,
and through the date of issuance of the transition bonds, and (3)
certain up-front qualified costs related to the issuance of the
Additional Transition Bonds (``Texas Financing Order'').\12\ On Nov.
30, 2004, as noted previously, the Commission authorized Centerpoint to
form and capitalize CE Issuer (i.e., Centerpoint Energy Transition Bond
Company II, LLC), for the purpose of issuing the Additional Transition
Bonds.\13\
---------------------------------------------------------------------------
\11\ Applicants explain that, on Mar. 31, 2004, CEHouston
Electric, Texas Genco, LP and Reliant Energy Retail Services, LLC,
applied to the Texas Commission for an order determining CEHouston
Electric's 2004 true-up balance. Applicants state that the
Restructuring Law requires the power generation company and the
retail electric provider that are ``affiliated with'' the former
integrated electric utility to be parties to the application.
Reliant Energy Retail Services was an applicant even though, at the
time, it no longer had any legal affiliation with CenterPoint Energy
or its subsidiaries.
\12\ Applicants state that this amount was also subject to
adjustments reflecting certain deferred taxes, accrual of interest
and payment of excess mitigation credits after Aug. 31, 2004.
Applicants also explain that a financing order, once effective, is
irrevocable and not subject to reduction, impairment or adjustment
by the Texas Commission (including the transition charges authorized
in the order), except for annual and interim true-up adjustments
made under the Restructuring Law.
\13\ See notes 1 and 10, above.
---------------------------------------------------------------------------
III. The Proposed Transactions
A. Additional Transition Bonds
Applicants request authority to issue the Additional Transition
Bonds through CE Issuer, in one or more series, each made up of one or
more classes, up to an amount, anticipated to be approximately $2
billion (as authorized by the Texas Commission), secured by CE Issuer's
right, title and interest in and to the Transition Property. Applicants
also ask that they be authorized to issue the different series, with
different interest rates (which may be at fixed or floating rates) and
amortizations of principal and that each series have classes with
different interest rates and amortizations of principal. Applicants
state that, in accordance with the requirements of the Restructuring
Law, the Additional Transition Bonds will be required to be fully
repaid within 15 years of the date of issuance.\14\ CenterPoint
projects that, with interest from Aug. 31, 2004 to the date of issuance
(and assuming the Additional Transition Bonds are issued no later than
Dec. 31, 2006), the amount of Additional Transition Bonds issued would
be no more than $2 billion, although the total amount of Additional
Transition Bonds issued will be determined by the Texas Commission
before the bonds are issued.
---------------------------------------------------------------------------
\14\ Applicants expect that it will be a condition of issuance
that each series of Additional Transition Bonds 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. In addition, Applicants state that CEHouston Electric will
comply with the Commission's investment grade criteria contained in
the Commission's June 29, 2005 Omnibus Financing Order. See also
note 1, above.
---------------------------------------------------------------------------
Applicants further request that CEHouston Electric be authorized to
transfer its right to receive Transition Charges to CE Issuer.
Applicants state that, once CEHouston Electric transfers its right to
receive Transition Charges to CE Issuer, all revenues and collections
resulting from them, and its other rights and interests received under
the Texas Financing Order, will constitute Transition Property.
Applicants state that the Transition Property includes the right to
impose, collect and receive (through the transition charges payable by
retail electric customers within CEHouston Electric's service
territory) an amount sufficient to recover the CEHouston Electric's
``qualified costs,'' including the right to receive transition charges
in amounts and at times sufficient to pay principal and interest and to
make other deposits in connection with the Additional Transition Bonds
(authorized in the Texas Financing Order).\15\
---------------------------------------------------------------------------
\15\ See also notes 9, 10 and 13, above. Under the Texas
Financing Order, CEHouston Electric's qualified costs include a
portion of CEHouston Electric's 2004 true-up balance, up-front costs
of issuing, supporting and servicing the Additional Transition Bonds
and certain related costs of retiring and refunding CEHouston
Electric's existing debt and equity securities.
---------------------------------------------------------------------------
Applicants also state that the Restructuring Law provides that the
issuer of the transition bonds will have a valid and enforceable lien
and security interest in the transition property derived from the
transition charges and created by a Texas financing Order. Applicants
state, as well, that the Restructuring Law also provides that an
electric utility's (or an assignee's) transfer of transition property
is a ``true sale'' under state law.
Applicants state that a trustee will be appointed under the
indenture governing the Additional Transition Bonds and that the
trustee, and its investment authority, will be subject to certain
constraints.\16\ The trustee will provide to the holders of record of
the Additional Transition Bonds regular reports (containing information
concerning, among other things, CEHouston Electric and the bonds'
collateral) prepared by the servicer, described below.\17\
---------------------------------------------------------------------------
\16\ Deutsche Bank Trust Company Americas will be the initial
trustee under the indenture governing the Additional Transition
Bonds.
\17\ As noted above, other transition bonds have been issued by
Applicants. Applicants note with respect to the previous bonds that,
although CEHouston Electric is the servicer of the Series 2001-1
Transition Bonds and is expected to be the initial servicer of the
Additional Transition Bonds, CE Issuer is a separate legal entity
from Transition Bond Company I and the Additional Transition Bonds
issued by CE Issuer will be payable from collateral that is separate
from the collateral securing the Series 2001-1 Transition Bonds.
Moreover, Applicants note that Transition Bond Company I has no
obligations for the Additional Transition Bonds that will be issued
by CE Issuer and, similarly, CE Issuer will have no obligations for
the Series 2001-1 Transition Bonds.
---------------------------------------------------------------------------
[[Page 51391]]
In addition, Applicants request authority to enter into certain
transactions for the purpose of protecting CE Issuer against certain
credit risks that may be associated with the Additional Transition
Bonds. Applicants explain that these transactions or instruments, which
may include surety bonds, financial guaranty insurance policies or
letters of credit, among other things, are intended to protect against
losses or delays in scheduled payments on the Additional Transition
Bonds.
B. Hedging Transactions
Applicants request that CE Issuer be authorized to hedge its
interest rate risk using interest rate swaps or other financial
derivatives.\18\ Applicants state that each hedging arrangement will be
treated for accounting purposes in accordance with U.S. generally
accepted accounting principles and that Applicants will comply with
Statement of Financial Accounting Standards 133 and Statement of
Financial Accounting Standards 138 (``Accounting for Certain Derivative
Instruments and Certain Hedging Activities'') or other standards
applicable to accounting for derivative transactions as are adopted and
implemented by the Financial Accounting Standards Board.
---------------------------------------------------------------------------
\18\ Applicants state that CE Issuer may enter into certain
interest rate swaps or other transactions for the purpose of hedging
a series or class of floating rate Additional Transition Bonds. They
explain that interest rate swaps and other hedging arrangements may
be used, among other things, to fix synthetically the interest on
floating rate Additional Transition Bonds.
---------------------------------------------------------------------------
C. Various Agreements
1. Transition Property Servicing Agreement
Applicants request that CEHouston Electric be authorized to act on
behalf of CE Issuer, as the servicer, of the Additional Transition
Bonds. They propose that the servicer of the bonds, as the agent of CE
Issuer, manage, service, administer and make collections related to the
Transition Property.\19\ Applicants state that, while they anticipate
that CEHouston Electric will be the servicer, they request that the
trustee be authorized to appoint an unaffiliated third party as the
servicer under certain conditions. Applicants state that the
appointment of a third party as the servicer will not adversely affect
Additional Transition Bonds' investment grade ratings.
---------------------------------------------------------------------------
\19\ The servicer will be responsible for, among other things,
calculating, billing and collecting the transition charges from
retail electric providers, submitting requests to the Texas
Commission to adjust these charges, monitoring the collateral for
the transition bonds and taking certain actions in the event of non-
payment by a retail electric provider.
---------------------------------------------------------------------------
Applicants also request an exemption from the ``at cost''
requirements in connection with the servicing fee. Applicants propose
that the servicer be entitled to receive an aggregate annual servicing
fee under the terms of the transition property servicing agreement.
Applicants state that the servicing fee must be comparable to similar
fees charged in market-based, arm's length transactions for CE Issuer
to qualify for the status of a bankruptcy remote entity and to satisfy
related rating agency and other legal requirements. Applicants propose
that the fee be set at an annual level of not more than one percent of
the initial principal amount of the Additional Transition Bonds.
Applicants state that, although they expect the servicing fee to
approximate the actual costs of providing the services, they cannot be
certain that the servicing fee will meet the ``at cost'' requirements
of section 13(b) of the Act and other applicable rules.
2. Administration Agreement
Applicants request that CEHouston Electric be authorized to provide
administrative services to CE Issuer. They propose that CEHouston
Electric provide administrative services to CE Issuer under an
administration agreement, providing ordinary clerical, bookkeeping and
other corporate administrative services necessary and appropriate.\20\
---------------------------------------------------------------------------
\20\ These services may include, without limitation: (1)
Maintaining CE Issuer's general accounting records; (2) preparing
and filing required documents; (3) preparing and filing income,
franchise or other tax returns; (4) preparing minutes of meetings of
CE Issuer's managers; (5) maintaining executed copies of CE Issuer
documents; (6) taking actions necessary for CE Issuer to keep in
full effect its existence, rights and franchises as a limited
liability company; (7) providing for the issuance and delivery of
the Additional Transition Bonds; (8) providing for the performance
by CE Issuer of its obligations and enforcement each of its rights
under the indenture, the servicing agreement and the sale agreement;
(9) providing for defense of any action, suit or proceeding; and
(10) providing office space and ancillary services.
---------------------------------------------------------------------------
Applicants also request an exemption from the ``at cost''
requirements in connection with the administration fee. Applicants
propose that the administrator be entitled to receive a fixed fee, plus
reimbursable expenses. Applicants state that the administrative fee
must be comparable to similar fees charged in market-based, arm's
length transactions for CE Issuer to qualify for the status of a
bankruptcy remote entity and to satisfy related rating agency and
other, legal requirements. Applicants state that, although they expect
the administrative fee to approximate the actual costs of providing the
services, they cannot be certain that the fee will meet the ``at cost''
requirements of section 13(b) of the Act and other applicable rules.
D. Dividend Authority and Use of Proceeds
Applicants request that CE Issuer be authorized to use the proceeds
from the issuance of the Additional Transition Bonds to pay associated
issuance expenses and to purchase the Transition Property from
CEHouston Electric. In addition, Applicants request that CEHouston
Electric be authorized to use proceeds received from CE Issuer to
reduce stranded costs, through the retirement of debt or equity or
both, or to be distributed to Utility Holding and to CenterPoint
through either the payment of dividends or the settlement of
intercompany payables.\21\ Applicants state that they intend to
maintain CEHouston Electric's capital structure at the approximately
60% debt to 40% equity target levels (exclusive of the Additional
Transition Bonds).\22\
---------------------------------------------------------------------------
\21\ Applicants state that the specific amount of proceeds to be
used to retire debt and/or equity will depend on CEHouston
Electric's capital structure and market conditions. They expect that
approximately $1.3 billion of the securitization proceeds will be
used to repay CEHouston Electric's term loan maturing in November
2005 (or any replacement credit facility or debt issuance if the
proceeds have not been received by the maturity date). To the extent
that proceeds may not be applied to repay that loan, they may be
distributed to Utility Holding and CenterPoint, either through
dividend payments or the settlement of intercompany payables.
Applicants state that proceeds that are paid as a dividend by
CEHouston Electric to Utility Holding and by Utility Holding then to
CenterPoint may be used to reduce debt at CenterPoint and to
otherwise improve the capital structure of the CenterPoint system.
To the extent that proceeds received prior to the November 2005
maturity of the term loan may not be used to repay the loan,
Applicants state that they may be contributed back to CEHouston
Electric when the term loan matures.
\22\ See also June 29, 2005 Omnibus Financing Order.
---------------------------------------------------------------------------
E. Indemnifications
Applicants also request that they be authorized to enter into
various indemnity agreements associated with the transition property
sale agreement and transition property servicing agreement. Applicants
explain that CEHouston Electric will be required to indemnify the Texas
Commission (for the benefit of CEHouston Electric's customers), CE
Issuer, the trustee and certain of their affiliates for various
activities required in connection with the issuance and administration
of the Additional Transition Bonds and, similarly, under the limited
liability company agreement, CE Issuer will be
[[Page 51392]]
required to indemnify its managers in certain situations, as described
in the Application.
F. CEHouston Electric Capitalization
Finally, Applicants also request an exemption from the Commission's
30% common equity ratio in order to carry out the Texas Financing
Order, as discussed in the Commission's June 29, 2005 Omnibus Financing
Order.\23\ Applicants state that CEHouston Electric's common equity
ratio is projected to decrease below the Commission's standard of 30%
during part of the period that the Additional Transition Bonds are
outstanding, because the Additional Transition Bonds are categorized as
debt. Applicants state, however, that inasmuch as the bonds will be (1)
non-recourse to CEHouston Electric and (2) serviced by Transition
Charges cash flows in accordance with the Texas Financing Order (not
CEHouston Electric utility operation revenues), the Additional
Transition Bonds do not represent the type of financial leverage that
the Commission's 30% common equity standard is intended to address.
---------------------------------------------------------------------------
\23\ See note 1, above. As discussed in the June 29, 2005
Omnibus Financing Order, CEHouston Electric may have less than the
Commission's common equity ratio standard 30% when the
securitization debt of the Additional Transition Bonds is included.
Applicants anticipate, however, that its equity ratio will improve
as the Additional Transition Bonds are paid down, although it is not
expected to reach 30% until 2010 with securitization debt included
in the calculation. Applicants note that, in their request for the
June 29, 2005 Omnibus Financing Order, they asked the Commission to
take into account the particular nature of this debt in issuing that
order.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4725 Filed 8-29-05; 8:45 am]
BILLING CODE 8010-01-P
