10-Q 1 h19776e10vq.txt CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC- 9/30/2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _______________. ------------------------------ Commission file number 1-3187 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC (Exact name of registrant as specified in its charter) TEXAS 22-3865106 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1111 LOUISIANA HOUSTON, TEXAS 77002 (713) 207-1111 (Address and zip code of (Registrant's telephone number, principal executive offices) including area code) ------------------------------ CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of November 1, 2004, all 1,000 common shares of CenterPoint Energy Houston Electric, LLC were held by Utility Holding, LLC, a wholly owned subsidiary of CenterPoint Energy, Inc. CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................................... 1 Statements of Consolidated Operations Three Months and Nine Months Ended September 30, 2003 and 2004 (unaudited)..... 1 Consolidated Balance Sheets December 31, 2003 and September 30, 2004 (unaudited)........................... 2 Statements of Consolidated Cash Flows Nine Months Ended September 30, 2003 and 2004 (unaudited)...................... 4 Notes to Unaudited Consolidated Financial Statements.............................. 5 Item 2. Management's Narrative Analysis of the Results of Operations................... 13 Item 4. Controls and Procedures........................................................ 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................................. 22 Item 6. Exhibits....................................................................... 22
i CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective," "plan," "potential," "predict," "projection," "should," "will," or other similar words. We have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements: - the timing and outcome of the regulatory process related to the 1999 Texas Electric Choice Law leading to the determination and recovery of the true-up components and the securitization of these amounts, and any legal proceeding relating thereto; - state and federal legislative and regulatory actions or developments, including deregulation, re-regulation and restructuring of the electric utility industry, constraints placed on our activities or business by the Public Utility Holding Company Act of 1935, as amended (1935 Act), changes in or application of laws or regulations applicable to other aspects of our business and actions with respect to: - allowed rates of return; - rate structures; - recovery of investments; and - operation and construction of facilities; - industrial, commercial and residential growth in our service territory and changes in market demand and demographic patterns; - changes in interest rates or rates of inflation; - weather variations and other natural phenomena; - commercial bank and financial market conditions, our access to capital, the cost of such capital, receipt of certain approvals under the 1935 Act, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets; - actions by rating agencies; - non-payment for our services due to financial distress of our customers, including Reliant Energy, Inc. (formerly named Reliant Resources, Inc.) (RRI); - the outcome of the pending securities lawsuits against us, Reliant Energy, Incorporated and RRI; - the ability of RRI to satisfy its obligations to us, including indemnity obligations and obligations to pay the "price to beat" clawback; and - other factors we discuss in "Risk Factors" beginning on page 11 of the CenterPoint Energy Houston Electric, LLC Annual Report on Form 10-K for the year ended December 31, 2003. Additional risk factors are described in other documents we file with the Securities and Exchange Commission. ii You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. iii PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES (AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.) STATEMENTS OF CONSOLIDATED OPERATIONS (THOUSANDS OF DOLLARS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2003 2004 2003 2004 ----------- ----------- ----------- ----------- REVENUES .......................................... $ 653,438 $ 446,130 $ 1,582,613 $ 1,149,283 ----------- ----------- ----------- ----------- EXPENSES: Operation and maintenance ....................... 139,562 134,739 398,166 392,550 Depreciation and amortization ................... 69,779 73,819 202,628 208,719 Taxes other than income taxes ................... 61,396 59,667 158,883 157,874 ----------- ----------- ----------- ----------- Total ....................................... 270,737 268,225 759,677 759,143 ----------- ----------- ----------- ----------- OPERATING INCOME .................................. 382,701 177,905 822,936 390,140 ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest and other finance charges .............. (80,587) (76,792) (243,446) (230,984) Interest on transition bonds .................... (9,811) (9,495) (29,495) (28,716) Other, net ...................................... 8,599 8,414 25,624 33,987 ----------- ----------- ----------- ----------- Total ....................................... (81,799) (77,873) (247,317) (225,713) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.. 300,902 100,032 575,619 164,427 Income Tax Expense .............................. (106,930) (34,078) (202,089) (55,602) ----------- ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS .................. 193,972 65,954 373,530 108,825 Extraordinary Loss, net of tax .................. -- (893,618) -- (893,618) ----------- ----------- ----------- ----------- NET INCOME (LOSS) ................................. $ 193,972 $ (827,664) $ 373,530 $ (784,793) =========== =========== =========== ===========
See Notes to the Company's Interim Financial Statements 1 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES (AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.) CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) (UNAUDITED) ASSETS
DECEMBER 31, SEPTEMBER 30, 2003 2004 ------------ ------------- CURRENT ASSETS: Cash and cash equivalents ................................ $ 30,720 $ 3,766 Accounts and notes receivable, net ....................... 91,332 297,108 Accounts receivable -- affiliated companies, net ......... 3,897 -- Accrued unbilled revenues ................................ 71,507 92,350 Materials and supplies ................................... 56,008 49,701 Taxes receivable ......................................... 184,634 53,097 Prepaid expenses ......................................... 8,579 3,575 Other .................................................... 5,630 3,226 ------------ ------------- Total current assets ................................... 452,307 502,823 ------------ ------------- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment ............................ 6,084,665 6,195,372 Less accumulated depreciation and amortization ........... (2,040,382) (2,156,656) ------------ ------------- Property, plant and equipment, net ..................... 4,044,283 4,038,716 ------------ ------------- OTHER ASSETS: Other intangibles, net ................................... 39,010 38,529 Regulatory assets ........................................ 4,896,439 3,193,923 Accounts and notes receivable -- affiliated companies..... 814,513 814,513 Other .................................................... 79,770 93,393 ------------ ------------- Total other assets ..................................... 5,829,732 4,140,358 ------------ ------------- TOTAL ASSETS ......................................... $ 10,326,322 $ 8,681,897 ============ =============
See Notes to the Company's Interim Financial Statements 2 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES (AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.) CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (THOUSANDS OF DOLLARS) (UNAUDITED) LIABILITIES AND MEMBER'S EQUITY
DECEMBER 31, SEPTEMBER 30, 2003 2004 ------------ ------------- CURRENT LIABILITIES: Current portion of transition bond long-term debt..... $ 41,189 $ 46,806 Accounts payable ..................................... 35,771 39,181 Accounts payable -- affiliated companies, net ........ -- 21,612 Notes payable -- affiliated companies, net ........... 113,179 144,484 Taxes accrued ........................................ 82,650 70,143 Interest accrued ..................................... 64,769 35,882 Regulatory liabilities ............................... 185,812 217,419 Other ................................................ 62,085 73,963 ------------ ------------- Total current liabilities .......................... 585,455 649,490 ------------ ------------- OTHER LIABILITIES: Accumulated deferred income taxes, net ............... 1,799,926 1,356,096 Unamortized investment tax credits ................... 55,845 50,617 Benefit obligations .................................. 83,236 90,998 Regulatory liabilities ............................... 923,038 673,078 Notes payable -- affiliated companies ................ 379,900 150,850 Accounts payable -- affiliated companies ............. 398,984 303,360 Other ................................................ 11,424 19,671 ------------ ------------- Total other liabilities ............................ 3,652,353 2,644,670 ------------ ------------- LONG-TERM DEBT: Transition bonds ..................................... 675,665 628,893 Other ................................................ 2,672,019 2,902,807 ------------ ------------- Total long-term debt ............................... 3,347,684 3,531,700 ------------ ------------- COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 6) MEMBER'S EQUITY: Common stock ......................................... 1 1 Paid-in capital ...................................... 2,190,111 2,190,111 Retained earnings (deficit) .......................... 550,718 (334,075) ------------ ------------- Total member's equity .............................. 2,740,830 1,856,037 ------------ ------------- TOTAL LIABILITIES AND MEMBER'S EQUITY ............ $ 10,326,322 $ 8,681,897 ============ =============
See Notes to the Company's Interim Financial Statements 3 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES (AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.) STATEMENTS OF CONSOLIDATED CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2003 2004 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................................... $ 373,530 $ (784,793) Extraordinary loss, net of tax ...................................... -- 893,618 -------------- -------------- Income before extraordinary loss .................................... 373,530 108,825 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................................... 202,628 208,719 Amortization of deferred financing costs .......................... 23,884 23,354 Deferred income taxes ............................................. 253,181 84,279 Investment tax credits ............................................ (3,517) (5,228) Changes in other assets and liabilities: Accounts and notes receivable, net .............................. (26,535) (50,019) Accounts receivable/payable, affiliates ......................... (11,543) 25,509 Inventory ....................................................... 3,151 6,307 Accounts payable ................................................ (14,677) 1,909 Taxes receivable ................................................ (31,139) 131,537 Interest and taxes accrued ...................................... (50,824) (41,394) Net regulatory assets and liabilities ........................... (667,672) (253,772) Other current assets ............................................ 2,991 7,408 Other current liabilities ....................................... 12,621 11,813 Other assets .................................................... (23,448) (17,073) Other liabilities ............................................... (8,789) 20,568 Other, net ........................................................ 1,528 (119) -------------- -------------- Net cash provided by operating activities ..................... 35,370 262,623 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and other ...................................... (160,667) (163,790) -------------- -------------- Net cash used in investing activities ......................... (160,667) (163,790) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt ............................ 1,257,762 229,050 Payments of long-term debt .......................................... (531,024) (41,808) Debt issuance costs ................................................. (33,903) (15,291) Increase in short-term notes with affiliates, net ................... 62,729 31,305 Decrease in long-term notes payable, affiliates ..................... (686,500) (229,050) Dividend to parent .................................................. -- (100,000) Other, net .......................................................... 60 7 -------------- -------------- Net cash provided by (used in) financing activities ........... 69,124 (125,787) -------------- -------------- NET DECREASE IN CASH AND CASH EQUIVALENTS ............................. (56,173) (26,954) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 70,866 30,720 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 14,693 $ 3,766 ============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Payments: Interest ............................................................ $ 286,905 $ 266,571 Income taxes (refunds) .............................................. -- (52,514)
See Notes to the Company's Interim Financial Statements 4 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) BACKGROUND AND BASIS OF PRESENTATION General. Included in this Quarterly Report on Form 10-Q (Form 10-Q) of CenterPoint Energy Houston Electric, LLC (CenterPoint Houston, and together with its subsidiaries, the Company), are the Company's consolidated interim financial statements and notes (Interim Financial Statements) including its wholly owned subsidiaries. The Interim Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the Annual Report on Form 10-K of CenterPoint Houston for the year ended December 31, 2003 (CenterPoint Houston Form 10-K). Background. The Company is an indirect wholly owned subsidiary of CenterPoint Energy, Inc. (CenterPoint Energy), a public utility holding company created on August 31, 2002, as part of a corporate restructuring (Restructuring) of Reliant Energy, Incorporated (Reliant Energy). CenterPoint Energy is a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended (1935 Act). The 1935 Act and related rules and regulations impose a number of restrictions on the activities of CenterPoint Energy and those of its subsidiaries. The 1935 Act, among other things, limits the ability of CenterPoint Energy and its regulated subsidiaries to issue debt and equity securities without prior authorization, restricts the source of dividend payments to current and retained earnings without prior authorization, regulates sales and acquisitions of certain assets and businesses and governs affiliate transactions. Basis of Presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's Interim Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective periods. Amounts reported in the Company's Statements of Consolidated Operations are not necessarily indicative of amounts expected for a full year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy, (b) timing of maintenance and other expenditures and (c) acquisitions and dispositions of assets and other interests. In addition, certain amounts from the prior year have been reclassified to conform to the Company's presentation of financial statements in the current year. These reclassifications do not affect net income. Note 2(e) (Regulatory Assets and Liabilities), Note 4 (Regulatory Matters) and Note 9 (Commitments and Contingencies) to the consolidated annual financial statements in the CenterPoint Houston Form 10-K relate to certain contingencies. These notes, as updated herein, are incorporated herein by reference. For information regarding certain legal and regulatory proceedings, see Note 6 to the Interim Financial Statements. (2) REGULATORY MATTERS (a) 2004 True-Up Proceeding. On March 31, 2004, the Company, Texas Genco, LP and Reliant Energy Retail Services LLC, a subsidiary of Reliant Energy, Inc. (formerly named Reliant Resources, Inc.) (RRI), filed the final true-up application required by the 1999 Texas Electric Choice Law (Texas electric restructuring law) with the Public Utility Commission of Texas (Texas Utility Commission). The Texas electric restructuring law authorizes public utilities to recover a true-up balance composed of stranded power plant costs, the cost of environmental controls and certain other costs associated with the transition from a regulated to a competitive environment (2004 True-Up Proceeding). The Company's requested true-up balance is $3.7 billion, excluding interest and net of the retail clawback from RRI. The Company has provided testimony and documentation to support the $3.7 billion it seeks to recover in the 2004 True-Up Proceeding. The Company had recorded $3.3 billion of recoverable electric generation-related regulatory assets. 5 The Texas Utility Commission conducted hearings on the Company's true-up application and has held six public meetings between August and October 2004. Based on the Texas Utility Commission's deliberations at these public meetings, the Company estimates it will recover $2.0 billion of its recorded electric generation-related regulatory assets. The Texas Utility Commission acts only through written orders and has not yet issued a written order on the true-up application. The Texas electric restructuring law specifies that a final order is to be issued by the Texas Utility Commission 150 days after a proper filing is made by the regulated utility, subject to an extension for good cause. The Company is awaiting a decision and a written final order from the Texas Utility Commission. It is possible that the Texas Utility Commission could modify the views expressed in its public meetings prior to issuing its formal written decision. However, based on its analysis of the Texas Utility Commission's deliberations, the Company recorded an after-tax charge to earnings in the third quarter of 2004 of approximately $894 million, which is reflected as an extraordinary loss in the Company's Statements of Consolidated Operations. Once a final order is issued by the Texas Utility Commission, the extraordinary loss may be adjusted. On June 18, 2004, the Texas Supreme Court ruled that interest on stranded costs began to accrue as of January 1, 2002 and remanded the rule to the Texas Utility Commission to review the interaction between the Supreme Court's interest decision and the Texas Utility Commission's capacity auction true-up rule and the extent to which the capacity auction true-up results in the recovery of interest. The Texas Utility Commission held a hearing on this issue on September 8, 2004. While the Texas Utility Commission has discussed this issue, it has not reached a conclusion as to the calculation. Therefore, the Company has not accrued interest income on stranded costs in its consolidated financial statements. The true-up proceeding will result in additional charges being assessed to customers through the utility's non-bypassable delivery charges. Non-bypassable delivery charges are those that must be paid by essentially all customers and cannot, except in limited circumstances, be avoided by switching to self-generation. The law also authorizes the Texas Utility Commission to permit utilities to issue transition bonds based on the securitization of revenues associated with the transition charges. The Company expects to seek rehearing of certain Texas Utility Commission's rulings once they have been reduced to a final written order, and, to the extent sufficient relief is not obtained through rehearing, to contest certain of the Texas Utility Commission's rulings through appeals to Texas state courts. The Company and CenterPoint Energy believe that significant aspects of the preliminary deliberations made to date by the Texas Utility Commission are contrary to both the statute by which the legislature restructured the electric industry in Texas and the regulations and orders the Texas Utility Commission has issued in implementing that statute. Although the Company and CenterPoint Energy believe they have meritorious arguments, no prediction can be made as to the ultimate outcome or timing of rehearings or appeals. (b) Final Fuel Reconciliation. On March 4, 2004, an Administrative Law Judge (ALJ) issued a Proposal for Decision (PFD) relating to the Company's final fuel reconciliation. The Company reserved $117 million, including $30 million of interest, in the fourth quarter of 2003 reflecting the ALJ's recommendation. On April 15, 2004, the Texas Utility Commission affirmed the PFD's finding in part, reversed in part, and remanded one issue back to the ALJ. On May 28, 2004, the Texas Utility Commission approved a settlement of the remanded issue and issued a final order which reduced the disallowance. As a result of the final order, the Company reversed $23 million, including $8 million of interest, of the $117 million reserve recorded in the fourth quarter of 2003. The results of the Texas Utility Commission's final decision will be a component of the 2004 True-Up Proceeding. The Company has appealed certain portions of the Texas Utility Commission's final order involving a disallowance of approximately $67 million plus interest of $10 million. (3) NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46 "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51" (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have 6 sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. On December 24, 2003, the FASB issued a revision to FIN 46 (FIN 46-R). For special-purpose entities (SPE's) created before February 1, 2003, the Company applied the provisions of FIN 46 or FIN 46-R as of December 31, 2003. The revised FIN 46-R is effective for all other entities for financial periods ending after March 15, 2004. The adoption of FIN 46-R had no effect on the Company's consolidated financial statements. On December 23, 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 132 (Revised 2003), "Employer's Disclosures about Pensions and Other Postretirement Benefits" (SFAS No. 132(R)), which increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies are required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS No. 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. The Company has adopted the disclosure requirements of SFAS No. 132(R) in Note 7 to these Interim Financial Statements. On May 19, 2004, the FASB issued a FASB Staff Position (FSP) addressing the appropriate accounting and disclosure requirements for companies that sponsor a postretirement health care plan that provides prescription drug benefits. The new guidance from the FASB was deemed necessary as a result of the 2003 Medicare prescription law, which includes a federal subsidy for qualifying companies. FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FAS 106-2)," requires that the effects of the federal subsidy be considered an actuarial gain and treated like similar gains and losses and requires certain disclosures for employers that sponsor postretirement health care plans that provide prescription drug benefits. The FASB's related existing guidance, FSP FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," will be superseded upon the effective date of FAS 106-2. The effective date of the new FSP is the first interim or annual period beginning after June 15, 2004. The Company adopted FAS 106-2 prospectively in July 2004 with no material effect on its results of operations or financial condition. (4) LONG-TERM DEBT In February 2004, $56 million aggregate principal amount of collateralized 5.6% pollution control bonds due 2027 and $44 million aggregate principal amount of 4.25% collateralized insurance-backed pollution control bonds due 2017 were issued on behalf of the Company. The pollution control bonds are collateralized by general mortgage bonds of the Company with principal amounts, interest rates and maturities that match the pollution control bonds. The proceeds were used to extinguish two series of 6.7% collateralized pollution control bonds with an aggregate principal amount of $100 million issued on behalf of CenterPoint Energy. The Company's 6.7% first mortgage bonds which collateralized CenterPoint Energy's payment obligations under the refunded pollution control bonds were retired in connection with the extinguishment of the refunded pollution control bonds. The Company's 6.7% notes payable to CenterPoint Energy were also cancelled upon the extinguishment of the refunded pollution control bonds. In March 2004, $45 million aggregate principal amount of 3.625% collateralized insurance-backed pollution control bonds due 2012 and $84 million aggregate principal amount of 4.25% collateralized insurance-backed pollution control bonds due 2017 were issued on behalf of the Company. The pollution control bonds are collateralized by general mortgage bonds of the Company with principal amounts, interest rates and maturities that match the pollution control bonds. The proceeds were used to extinguish two series of 6.375% collateralized pollution control bonds with an aggregate principal amount of $45 million and one series of 5.6% collateralized pollution control bonds with an aggregate principal amount of $84 million issued on behalf of CenterPoint Energy. The Company's 6.375% and 5.6% first mortgage bonds which collateralized CenterPoint Energy's payment obligations under the refunded pollution control bonds were retired in connection with the extinguishment of the refunded pollution control bonds. The Company's 6.375% and 5.6% notes payable to CenterPoint Energy were also cancelled upon the extinguishment of the refunded pollution control bonds. 7 (5) RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS Related Party Transactions. The following table summarizes receivables from, or payables to, CenterPoint Energy or its subsidiaries:
DECEMBER 31, SEPTEMBER 30, 2003 2004 ------------ ------------- (IN MILLIONS) Accounts receivable from affiliates .................................. $ 50 $ 9 Accounts payable to affiliates ....................................... (46) (31) --------- --------- Accounts receivable/(payable) -- affiliated companies, net ........ $ 4 $ (22) ========= ========= Notes payable -- affiliated companies(1) ............................. $ (113) $ (144) ========= ========= Long-term accounts and notes receivable -- affiliated companies(2) ... $ 815 $ 815 ========= ========= Long-term notes payable -- affiliated companies(3) ................... $ (380) $ (151) ========= ========= Long-term accounts payable -- affiliated companies(4) ................ $ (399) $ (303) ========= =========
------------- (1) This note represents money pool borrowings. (2) Included in the $815 million notes receivable -- affiliated companies is a $750 million note receivable from CenterPoint Energy payable on demand and bearing interest at the prime rate that originated when the Company converted its money fund investment at the time of the Restructuring. The $750 million note receivable is included in long-term notes receivable from affiliate in the Consolidated Balance Sheets because the Company does not plan to demand repayment of the note within the next twelve months. (3) For more information on the long-term notes payable to affiliate, see Note 4. (4) In 2003, CenterPoint Energy recorded a $399 million impairment related to the partial distribution of its investment in Texas Genco Holdings, Inc. (Texas Genco). Since this amount was expected to be recovered in the 2004 True-Up Proceeding, the Company originally recorded a regulatory asset reflecting its right to recover this amount and an associated payable to CenterPoint Energy. In the third quarter of 2004, the payable to CenterPoint Energy and regulatory assets were reduced by $96 million to reflect the transfer of a liability from CenterPoint Energy which had been established in 1999 in connection with the passage of the Texas electric restructuring law. The Company recorded net interest income (expense) related to affiliate borrowings of $(4) million and $5 million for the three months ended September 30, 2003 and 2004, respectively. The Company recorded net interest income (expense) related to affiliate borrowings of $(18) million and $11 million for the nine months ended September 30, 2003 and 2004, respectively. The 1935 Act generally prohibits borrowings by CenterPoint Energy from its subsidiaries, including the Company, either through the money pool or otherwise. CenterPoint Energy provides some corporate services to the Company. The costs of services have been charged directly to the Company using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on assets, operating expenses and employees. These charges are not necessarily indicative of what would have been incurred had the Company not been an affiliate. Amounts charged to the Company for these services were $27 million and $26 million for the three months ended September 30, 2003 and 2004, respectively, and are included primarily in operation and maintenance expenses. Amounts charged to the Company for these services were $84 million and $75 million for the nine months ended September 30, 2003 and 2004, respectively, and are included primarily in operation and maintenance expenses. 8 As of September 30, 2004, the Company has a guarantee issued to a third party related to a performance obligation of Texas Genco for lignite mine reclamation costs of up to $50 million. As of September 30, 2004, Texas Genco's recorded liability for estimated lignite mine reclamation costs is $4 million. In June 2004, the Company paid a dividend of $100 million to Utility Holding, LLC. Major Customer Transactions. During the three months ended September 30, 2003 and 2004, revenues derived from energy delivery charges provided by the Company to a subsidiary of RRI totaled $290 million and $265 million, respectively. During the nine months ended September 30, 2003 and 2004, revenues derived from energy delivery charges provided by the Company to a subsidiary of RRI totaled $727 million and $666 million, respectively. (6) COMMITMENTS AND CONTINGENCIES RRI Indemnified Litigation The Company, CenterPoint Energy or their predecessor, Reliant Energy, and certain of their former subsidiaries are named as defendants in several lawsuits described below. Under a master separation agreement between CenterPoint Energy and RRI, the Company, CenterPoint Energy and its other subsidiaries are entitled to be indemnified by RRI for any losses, including attorneys' fees and other costs, arising out of the lawsuits described below under Electricity and Gas Market Manipulation Cases and Other Class Action Lawsuits. Pursuant to the indemnification obligation, RRI is defending the Company, CenterPoint Energy and its other subsidiaries to the extent named in these lawsuits. The ultimate outcome of these matters cannot be predicted at this time. Electricity and Gas Market Manipulation Cases. A large number of lawsuits have been filed against numerous market participants and remain pending in both federal and state courts in California and Nevada in connection with the operation of the electricity and natural gas markets in California and certain other western states in 2000-2001, a time of power shortages and significant increases in prices. These lawsuits, many of which have been filed as class actions, are based on a number of legal theories, including violation of state and federal antitrust laws, laws against unfair and unlawful business practices, the federal Racketeer Influenced Corrupt Organization Act, false claims statutes and similar theories and breaches of contracts to supply power to governmental entities. Plaintiffs in these lawsuits, which include state officials and governmental entities as well as private litigants, are seeking a variety of forms of relief, including recovery of compensatory damages (in some cases in excess of $1 billion), a trebling of compensatory damages and punitive damages, injunctive relief, restitution, interest due, disgorgement, civil penalties and fines, costs of suit, attorneys' fees and divestiture of assets. To date, some of these complaints have been dismissed by the trial court and are on appeal, several of which dismissals have been affirmed by the appellate courts, but most of the lawsuits remain in early procedural stages. CenterPoint Energy's former subsidiary, RRI, was a participant in the California markets, owning generating plants in the state and participating in both electricity and natural gas trading in that state and in western power markets generally. RRI, some of its subsidiaries and in some cases, corporate officers of some of those companies, have been named as defendants in these suits. The Company, CenterPoint Energy or their predecessor, Reliant Energy, have been named in approximately 25 of these lawsuits, which were instituted between 2001 and 2004 and are pending in state courts in Alameda County, Los Angeles County and San Diego County, in federal district courts in San Francisco, San Diego, Los Angeles, Fresno, Sacramento and Nevada and before the Ninth Circuit Court of Appeals. However, the Company, CenterPoint Energy and Reliant Energy were not participants in the electricity or natural gas markets in California. The Company and Reliant Energy have been dismissed from certain of the lawsuits, either voluntarily by the plaintiffs or by order of the court and the Company believes it is not a proper defendant in the remaining cases and will continue to seek dismissal from such remaining cases. On July 6, 2004 and on October 12, 2004, the Ninth Circuit affirmed the Company's removal to federal district court of two electric cases brought by the California Attorney General and affirmed the federal court's dismissal of these cases based upon the filed rate doctrine and federal preemption. Other Class Action Lawsuits. Fifteen class action lawsuits filed in May, June and July 2002 on behalf of purchasers of securities of RRI and/or Reliant Energy have been consolidated in federal district court in Houston. RRI and certain of its former and current executive officers are named as defendants. The consolidated complaint 9 also names RRI, Reliant Energy, the underwriters of the initial public offering of RRI common stock in May 2001 (RRI Offering), and RRI's and Reliant Energy's independent auditors as defendants. The consolidated amended complaint seeks monetary relief purportedly on behalf of purchasers of common stock of Reliant Energy or RRI during certain time periods ranging from February 2000 to May 2002, and purchasers of common stock that can be traced to the RRI Offering. The plaintiffs allege, among other things, that the defendants misrepresented their revenues and trading volumes by engaging in round-trip trades and improperly accounted for certain structured transactions as cash-flow hedges, which resulted in earnings from these transactions being accounted for as future earnings rather than being accounted for as earnings in fiscal year 2001. In January 2004 the trial judge dismissed the plaintiffs' allegations that the defendants had engaged in fraud, but claims based on alleged misrepresentations in the registration statement issued in the RRI Offering remain. In June 2004, the plaintiffs filed a motion for class certification, which the defendants have asked the court to deny. In February 2003, a lawsuit was filed by three individuals in federal district court in Chicago against CenterPoint Energy and certain former officers of RRI for alleged violations of federal securities laws. The plaintiffs in this lawsuit allege that the defendants violated federal securities laws by issuing false and misleading statements to the public, and that the defendants made false and misleading statements as part of an alleged scheme to artificially inflate trading volumes and revenues. In addition, the plaintiffs assert claims of fraudulent and negligent misrepresentation and violations of Illinois consumer law. In January 2004 the trial judge ordered dismissal of plaintiffs' claims on the ground that they did not set forth a claim. The plaintiffs filed an amended complaint in March 2004, which the defendants asked the court to dismiss. On August 18, 2004, the court granted the defendants' motion to dismiss with prejudice. In May 2002, three class action lawsuits were filed in federal district court in Houston on behalf of participants in various employee benefits plans sponsored by Reliant Energy. Two of the lawsuits have been dismissed without prejudice. Reliant Energy and certain current and former members of its benefits committee are the remaining defendants in the third lawsuit. That lawsuit alleges that the defendants breached their fiduciary duties to various employee benefits plans, directly or indirectly sponsored by Reliant Energy, in violation of the Employee Retirement Income Security Act of 1974. The plaintiffs allege that the defendants permitted the plans to purchase or hold securities issued by Reliant Energy when it was imprudent to do so, including after the prices for such securities became artificially inflated because of alleged securities fraud engaged in by the defendants. The complaint seeks monetary damages for losses suffered on behalf of the plans and a putative class of plan participants whose accounts held Reliant Energy or RRI securities, as well as equitable relief in the form of restitution. In July 2004, another class action suit was filed in federal court on behalf of the Reliant Energy Savings Plan and a class consisting of participants in that plan against Reliant Energy and the Reliant Energy Benefits Committee. The allegations and the relief sought in the new suit are substantially similar to those in the previously pending suit; however, the new suit also alleges that Reliant Energy and its Benefits Committee breached their fiduciary duties to the Savings Plan and its participants by investing plan funds in Reliant Energy stock when Reliant Energy or its subsidiaries were allegedly manipulating the California energy market. On October 14, 2004, the plaintiff voluntarily dismissed the newly filed lawsuit. In October 2002, a derivative action was filed in the federal district court in Houston, against the directors and officers of CenterPoint Energy. The complaint set forth claims for breach of fiduciary duty, waste of corporate assets, abuse of control and gross mismanagement. Specifically, the shareholder plaintiff alleged that the defendants caused CenterPoint Energy to overstate its revenues through so-called "round trip" transactions. The plaintiff also alleged breach of fiduciary duty in connection with the spin-off of RRI and the RRI Offering. The complaint sought monetary damages on behalf of CenterPoint Energy as well as equitable relief in the form of a constructive trust on the compensation paid to the defendants. CenterPoint Energy's board of directors investigated that demand and similar allegations made in a June 28, 2002 demand letter sent on behalf of a CenterPoint Energy shareholder. The latter letter demanded that CenterPoint Energy take several actions in response to alleged round-trip trades occurring in 1999, 2000, and 2001. In June 2003, the board determined that these proposed actions would not be in the best interests of CenterPoint Energy. In March 2003, the court dismissed this case on the grounds that the plaintiff did not make an adequate demand on CenterPoint Energy before filing suit. Thereafter, the plaintiff sent another demand asserting the same claims. The Company believes that none of the lawsuits described under Other Class Action Lawsuits has merit because, among other reasons, the alleged misstatements and omissions were not material and did not result in any damages to the plaintiffs. 10 Other Legal Matters Texas Antitrust Action. In July 2003, Texas Commercial Energy filed in federal court in Corpus Christi, Texas a lawsuit against Reliant Energy, the Company and CenterPoint Energy, as successors to Reliant Energy, Texas Genco, LP, RRI, Reliant Electric Solutions, LLC, several other RRI subsidiaries and a number of other participants in the Electric Reliability Council of Texas (ERCOT) power market. The plaintiff, a retail electricity provider in the Texas market served by ERCOT, alleged that the defendants conspired to illegally fix and artificially increase the price of electricity in violation of state and federal antitrust laws and committed fraud and negligent misrepresentation. The lawsuit sought damages in excess of $500 million, exemplary damages, treble damages, interest, costs of suit and attorneys' fees. The plaintiff's principal allegations had previously been investigated by the Texas Utility Commission and found to be without merit. In June 2004, the federal court dismissed the plaintiff's claims and in July 2004, the plaintiff filed a notice of appeal. CenterPoint Energy intends to contest the appeal. The ultimate outcome of this matter cannot be predicted at this time. Municipal Franchise Fee Lawsuits. In February 1996, the cities of Wharton, Galveston and Pasadena (Three Cities) filed suit in state district court in Harris County, Texas for themselves and a proposed class of all similarly situated cities in Reliant Energy's electric service area, against Reliant Energy and Houston Industries Finance, Inc. (formerly a wholly owned subsidiary of the Company's predecessor, Reliant Energy) alleging underpayment of municipal franchise fees. The plaintiffs claimed that they were entitled to 4% of all receipts of any kind for business conducted within these cities over the previous four decades. After a jury trial involving the Three Cities' claims (but not the class of cities), the trial court entered a judgment on the Three Cities' breach of contract claims for $1.7 million, including interest, plus an award of $13.7 million in legal fees. It also decertified the class. Following this ruling, 45 cities filed individual suits against Reliant Energy in the District Court of Harris County. On February 27, 2003, a state court of appeals in Houston rendered an opinion reversing the judgment against the Company and rendering judgment that the Three Cities take nothing by their claims. The court of appeals held that all of the Three Cities' claims were barred by the jury's finding of laches, a defense similar to the statute of limitations, due to the Three Cities' having unreasonably delayed bringing their claims during the more than 30 years since the alleged wrongs began. The court also held that the Three Cities were not entitled to recover any attorneys' fees. The Three Cities filed a petition for review to the Texas Supreme Court, which declined to hear the case. Thus, the Three Cities' claims have been finally resolved in the Company's favor, but the individual claims of the 45 other cities remain pending in the same court. Other Proceedings The Company is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. Some of these proceedings involve substantial amounts. The Company's management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. The Company's management believes that the disposition of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. (7) EMPLOYEE BENEFIT PLANS The Company's employees participate in CenterPoint Energy's postretirement benefits plan. The Company's net periodic cost includes the following components relating to postretirement benefits:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2003 2004 2003 2004 ------------ ------------ ------------ ------------ (IN MILLIONS) Service cost..................................... $ -- $ -- $ 1 $ 1 Interest cost.................................... 3 4 9 12 Expected return on plan assets................... (1) (2) (5) (7) Net amortization................................. 1 1 4 6 ------------ ------------ ------------ ------------ Net periodic cost.......................... $ 3 $ 3 $ 9 $ 12 ============ ============ ============ ============
11 The Company expects to contribute $9 million to CenterPoint Energy's postretirement benefits plan in 2004. As of September 30, 2004, $7 million has been contributed. 12 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS The following narrative analysis should be read in combination with our Interim Financial Statements contained in Item 1 of this Form 10-Q. We are an indirect wholly owned subsidiary of CenterPoint Energy, Inc. (CenterPoint Energy), a public utility holding company created on August 31, 2002, as part of a corporate restructuring of Reliant Energy, Incorporated (Reliant Energy). CenterPoint Energy is a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended (1935 Act). For information about the 1935 Act, please read " -- Liquidity -- Certain Contractual and Regulatory Limits on Ability to Issue Securities and Pay Dividends." We meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, we have omitted from this report the information called for by Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) and Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a Vote of Security Holders). The following discussion explains material changes in our results of operations between the three and nine months ended September 30, 2004 and the three and nine months ended September 30, 2003. Reference is made to "Management's Narrative Analysis of Results of Operations" in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2003 (CenterPoint Houston Form 10-K). UPDATE OF SIGNIFICANT EVENTS IN 2004 Resolution of our true-up proceeding (2004 True-Up Proceeding) is the most significant event facing us in 2004. We expect to use the proceeds received from the 2004 True-Up Proceeding to repay a portion of our indebtedness. We recorded an after-tax extraordinary loss of $894 million in the third quarter of 2004 related to the 2004 True-Up Proceeding as discussed below. Our requested true-up balance is $3.7 billion, excluding interest and net of the retail clawback from Reliant Energy, Inc. (formerly Reliant Resources, Inc.) (RRI). We have provided testimony and documentation to support the $3.7 billion we seek to recover in the 2004 True-Up Proceeding. We had recorded $3.3 billion of recoverable electric generation-related regulatory assets. The Public Utility Commission of Texas (Texas Utility Commission) conducted hearings on our true-up application and has held six public meetings between August and October 2004. Based on the Texas Utility Commission's deliberations at these public meetings, we estimate that we will recover approximately $2.0 billion of our recorded electric generation-related regulatory assets. Based on our analysis of the Texas Utility Commission's deliberations, we recorded an after-tax charge to earnings in the third quarter of 2004 of approximately $894 million to write-down our electric generation-related regulatory assets to their realizable value, which is reflected as an extraordinary loss in the Statements of Consolidated Operations. The ultimate amount of such charge will depend upon the final action of the Texas Utility Commission. The Texas Utility Commission acts only through written orders and has not yet issued a written order on the true-up application. Once a final order is issued by the Texas Utility Commission, the extraordinary loss may be adjusted. We expect to seek rehearing of certain Texas Utility Commission's rulings once they have been reduced to a final written order, and, to the extent sufficient relief is not obtained through rehearing, to contest certain of the Texas Utility Commission's rulings through appeals to Texas state courts. We and CenterPoint Energy believe that significant aspects of the preliminary deliberations made to date by the Texas Utility Commission are contrary to both the statute by which the legislature restructured the electric industry in Texas and the regulations and orders the Texas Utility Commission has issued in implementing that statute. Although we and CenterPoint Energy believe we have meritorious arguments, no prediction can be made as to the ultimate outcome or timing of rehearings or appeals. After the issuance of the order in the 2004 True-Up Proceeding, we will seek authority from the Texas Utility Commission to securitize all or a portion of the true-up balance through the issuance of transition bonds and expect to be in a position to issue those bonds in the first half of 2005. Appeals of the true-up or securitization orders could delay the issuance of such bonds. Any portion of the true-up balance not securitized by transition bonds will be recovered through a non-bypassable competition transition charge. We will distribute recovery of the true-up 13 components not used to repay our indebtedness to CenterPoint Energy or our external debt through either the payment of dividends or the settlement of intercompany payables. The Securities and Exchange Commission (SEC) must take action to permit the issuance of any transition bonds and approve any dividends by us in excess of our current and retained earnings. To maintain our capital structure at the appropriate levels, CenterPoint Energy may reinvest funds in our company in the form of equity contributions or intercompany loans. Following adoption of the true-up rule by the Texas Utility Commission in 2001, we appealed the provisions of the rule that permitted interest to be recovered on stranded costs only from the date of the Texas Utility Commission's final order in the 2004 True-Up Proceeding, instead of from January 1, 2002 as we contend is required by law. On June 18, 2004, the Texas Supreme Court ruled that interest on stranded costs began to accrue as of January 1, 2002 and remanded the rule to the Texas Utility Commission to review the interaction between the Supreme Court's interest decision and the Texas Utility Commission's capacity auction true-up rule and the extent to which the capacity auction true-up results in the recovery of interest. The Texas Utility Commission held a hearing on this issue on September 8, 2004. While the Texas Utility Commission has discussed this issue, it has not reached a conclusion as to the calculation. Therefore, we have not accrued interest income on stranded costs in our consolidated financial statements. CONSOLIDATED RESULTS OF OPERATIONS Our results of operations are affected by, among other things, seasonal fluctuations and other changes in the demand for electricity, the actions of various governmental authorities having jurisdiction over the rates we charge, debt service costs, income tax expense, our ability to collect receivables from retail electric providers and our ability to recover our stranded costs and regulatory assets. For more information regarding factors that may affect the future results of operations of our business, please read "Business -- Risk Factors" in Item 1 of the CenterPoint Houston Form 10-K and "Management's Narrative Analysis of Results of Operations -- Certain Factors Affecting Future Earnings" in Item 7 of the CenterPoint Houston Form 10-K, each of which is incorporated herein by reference. The following table sets forth our consolidated results of operations for the three months and nine months ended September 30, 2003 and 2004, followed by a discussion of our consolidated results of operations based on operating income. We have provided a reconciliation of consolidated operating income to net income below.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2003 2004 2003 2004 ------------ ----------- ------------ ------------ (IN MILLIONS) Revenues: Electric revenues .................. $ 414 $ 425 $ 1,080 $ 1,095 ECOM true-up ....................... 222 -- 455 -- Transition bond revenues ........... 18 21 48 54 -------- -------- -------- -------- Total revenues .................... 654 446 1,583 1,149 -------- -------- -------- -------- Expenses: Operation and maintenance .......... 139 134 398 390 Depreciation and amortization ...... 62 63 184 186 Taxes other than income taxes ...... 62 59 159 158 Transition bond expenses ........... 8 12 19 25 -------- -------- -------- -------- Total expenses .................... 271 268 760 759 -------- -------- -------- -------- Operating Income ..................... 383 178 823 390 Interest and Other Finance Charges ... (90) (86) (273) (260) Other Income, net .................... 8 8 26 34 -------- -------- -------- -------- Income Before Income Taxes ........... 301 100 576 164 Income Tax Expense ................... (107) (34) (202) (55) Extraordinary Loss, net of tax ....... -- (894) -- (894) -------- -------- -------- -------- Net Income (Loss) .................... $ 194 $ (828) $ 374 $ (785) ======== ======== ======== ======== Actual gigawatt-hours (GWh) delivered: Residential ........................ 8,134 8,512 19,183 18,714 Total (1) .......................... 20,896 22,568 54,770 56,634
14 -------------- (1) Usage volumes for commercial and industrial customers are included in total GWh delivered; however, the majority of these customers are billed on a peak demand (KW) basis and, as a result, revenues do not vary based on consumption. THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2003 We reported operating income of $178 million for the three months ended September 30, 2004, consisting of $169 million for the regulated electric transmission and distribution utility and $9 million for the transition bond company. For the three months ended September 30, 2003, operating income totaled $383 million, consisting of $151 million for the regulated electric transmission and distribution utility, $10 million for the transition bond company and $222 million of non-cash income associated with Excess Cost Over Market (ECOM). The amount of non-cash income associated with ECOM was included in our true-up application. Beginning in 2004, there is no ECOM contribution to earnings. The transition bond company's operating income represents the amount necessary to pay interest on the transition bonds. The regulated transmission and distribution utility continued to benefit from solid customer growth, which contributed $9 million in operating income from the addition of nearly 51,000 metered customers since September 2003. Additionally, we recorded an $11 million gain on the sale of land in the third quarter. These amounts were offset by higher net transmission costs ($2 million) and environmental remediation costs ($4 million). Net loss for the three months ended September 30, 2004 included an after-tax extraordinary loss of $894 million from a write-down of regulatory assets based on our analysis of the Texas Utility Commission's deliberations on the 2004 True-Up Proceeding. NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2003 We reported operating income of $390 million for the nine months ended September 30, 2004, consisting of $361 million for the regulated electric transmission and distribution utility and $29 million for the transition bond company. For the nine months ended September 30, 2003, operating income totaled $823 million, consisting of $339 million for the regulated electric transmission and distribution utility, $29 million for the transition bond company and $455 million of non-cash income associated with ECOM. Milder weather and decreased usage negatively impacted the first nine months of 2004 by $25 million in addition to higher net transmission costs of $6 million. These amounts were more than offset by increased operating income from continued customer growth of $23 million and a gain of $11 million on the sale of land in the third quarter. Additionally, operating income included $15 million due to a reversal of a portion of an $87 million reserve, excluding interest, related to the final fuel reconciliation recorded in the fourth quarter of 2003. Net loss for the nine months ended September 30, 2004 included an after-tax extraordinary loss of $894 million from a write-down of regulatory assets based on our analysis of the Texas Utility Commission's deliberations on the 2004 True-Up Proceeding. CERTAIN FACTORS AFFECTING FUTURE EARNINGS For information on other developments, factors and trends that may have an impact on our future earnings, please read the factors listed under "Cautionary Statement Regarding Forward-Looking Information" on page ii of this Form 10-Q, "Management's Narrative Analysis of Results of Operations -- Certain Factors Affecting Future Earnings" in Item 7 of Part II of the CenterPoint Houston Form 10-K and "Risk Factors" in Item 1 of Part I of the CenterPoint Houston Form 10-K, each of which is incorporated herein by reference. The actual terms of the order issued by the Texas Utility Commission in the 2004 True-Up Proceeding will affect our results for the fourth quarter of 2004 to the extent materially different from that assumed when we recorded the charge to earnings in the third quarter for the assumed terms of the order. In addition to these factors, the discontinuance of non-cash operating income associated with ECOM will negatively impact our earnings in 2004 as compared to 2003. 15 LIQUIDITY Off-Balance Sheet Arrangements. Other than operating leases, we have no off-balance sheet arrangements. Long-term Debt. Our long-term debt consists of our obligations and the obligations of our subsidiaries, including transition bonds issued by an indirect wholly owned subsidiary (transition bonds). The following table shows future maturity dates of long-term debt issued by us to third parties and affiliates and expected future maturity dates of transition bonds issued by our subsidiary, CenterPoint Energy Transition Bond Company, LLC (Bond Company), as of September 30, 2004. Amounts are expressed in thousands.
CENTERPOINT HOUSTON -------------------------- TRANSITION YEAR THIRD-PARTY AFFILIATE SUB-TOTAL BONDS TOTAL ---- ------------- ----------- ------------ ------------ ------------ 2005....................... $ 1,310,000 $ -- $ 1,310,000 $ 46,806 $ 1,356,806 2006....................... -- -- -- 54,295 54,295 2007....................... -- -- -- 59,912 59,912 2008....................... -- -- -- 65,529 65,529 2009....................... -- -- -- 73,018 73,018 2010....................... -- -- -- 80,506 80,506 2011....................... -- -- -- 87,995 87,995 2012....................... 45,570 -- 45,570 99,229 144,799 2013....................... 450,000 -- 450,000 108,590 558,590 2014....................... 300,000 -- 300,000 -- 300,000 2015....................... -- 150,850 150,850 -- 150,850 2017....................... 127,385 -- 127,385 -- 127,385 2021....................... 102,442 -- 102,442 -- 102,442 2023....................... 200,000 -- 200,000 -- 200,000 2027....................... 56,095 -- 56,095 -- 56,095 2033....................... 312,275 -- 312,275 -- 312,275 ------------- ----------- ------------ ------------ ------------ Total...................... $ 2,903,767 $ 150,850 $ 3,054,617 $ 675,880 $ 3,730,497 ============= =========== ============ ============ ============
First mortgage bonds and general mortgage bonds in aggregate principal amounts of $102 million and $1.3 billion, respectively, have been issued directly to third parties. External debt of $1.5 billion is senior and secured by general mortgage bonds. The affiliate debt is senior and unsecured. CenterPoint Energy's $2.3 billion credit facility provides that, until such time as that facility has been reduced to $750 million, 100% of the net cash proceeds from any securitizations relating to the recovery of stranded costs, after making any payments required under our $1.3 billion term loan, and the net cash proceeds from any sales of the common stock of Texas Genco Holdings, Inc. (Texas Genco) owned by CenterPoint Energy or of material portions of Texas Genco's assets, shall be applied to repay loans under the CenterPoint Energy credit facility and reduce the credit facility. CenterPoint Energy's $2.3 billion credit facility contains no other restrictions with respect to our use of proceeds from financing activities. As of September 30, 2004, outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.6 billion as shown in the following table. Amounts are expressed in thousands.
ISSUED AS ISSUED AS COLLATERAL ISSUED DIRECTLY COLLATERAL FOR THE FOR CENTERPOINT TO THIRD PARTIES COMPANY'S DEBT ENERGY'S DEBT TOTAL ---------------- ------------------ -------------------- ------------ First Mortgage Bonds $ 102,442 $ -- $ 150,850 $ 253,292 General Mortgage Bonds 1,262,275 1,539,050 527,200 3,328,525 -------------- -------------- --------------- ------------ Total $ 1,364,717 $ 1,539,050 $ 678,050 $ 3,581,817 ============== ============== =============== ============
The lien of the general mortgage indenture is junior to that of the mortgage, pursuant to which the first mortgage bonds are issued. The aggregate amount of incremental general mortgage bonds and first mortgage bonds that could be issued as of September 30, 2004 is approximately $500 million based on estimates of the value of our property encumbered by the general mortgage, the cost of such property, the amount of retired bonds that could be used as the basis for issuing new bonds and the 70% bonding ratio contained in the general mortgage. However, contractual limitations on us and CenterPoint Energy expiring in November 2005 limit the incremental aggregate amount of first 16 mortgage bonds and general mortgage bonds that may be issued to $200 million. Generally, first mortgage bonds and general mortgage bonds can be issued to refinance outstanding first mortgage bonds or general mortgage bonds in the same principal amount. The following table shows the maturity dates of the $678 million of first mortgage bonds and general mortgage bonds that we have issued as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected in the financial statements of CenterPoint Houston because of the contingent nature of the obligations. Amounts are expressed in thousands.
FIRST MORTGAGE GENERAL MORTGAGE YEAR BONDS BONDS TOTAL ---- -------------- ---------------- ---------- 2011 $ -- $ 19,200 $ 19,200 2015 150,850 -- 150,850 2018 -- 50,000 50,000 2019 -- 200,000 200,000 2020 -- 90,000 90,000 2026 -- 100,000 100,000 2028 -- 68,000 68,000 -------------- ---------------- ---------- Total $ 150,850 $ 527,200 $ 678,050 ============== ================ ==========
The Bond Company has $676 million aggregate principal amount of outstanding transition bonds that were issued in 2001 in accordance with the Texas electric restructuring law. The transition bonds are secured by "transition property," as defined in the Texas electric restructuring law, which includes the irrevocable right to recover, through non-bypassable transition charges payable by retail electric customers, qualified costs provided in the Texas electric restructuring law. The transition bonds are reported as our long-term debt, although the holders of the transition bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition charges) of the transition bond company. We have no payment obligations with respect to the transition bonds except to remit collections of transition charges as set forth in a servicing agreement between us and the Bond Company and in an intercreditor agreement among us, the Bond Company and other parties. Bank Facilities. As of September 30, 2004, we had no bank facilities available to meet our short-term liquidity needs. Cash Requirements in 2004. Our liquidity and capital requirements are affected primarily by our results of operations, capital expenditures, debt service requirements, and working capital needs. Our principal cash requirements during the fourth quarter of 2004 include the following: - approximately $76 million of capital expenditures; and - an estimated $56 million in refunds of excess mitigation credits through December 31, 2004. We expect that anticipated cash flows from operations and intercompany borrowings will be sufficient to meet our cash needs for 2004. We also anticipate receiving payment of the retail clawback of approximately $177 million from RRI. We will distribute to CenterPoint Energy recovery of the true-up components not used to repay our indebtedness to CenterPoint Energy or our external debt through either the payment of dividends or the settlement of intercompany payables. The SEC must take action to permit the issuance of any transition bonds and approve any dividends by us in excess of our current and retained earnings. To maintain our capital structure at the appropriate levels, CenterPoint Energy may reinvest funds in our company, in the form of equity contributions or intercompany loans. Under the orders described under " -- Certain Contractual and Regulatory Limits on Ability to Issue Securities and Pay Dividends," our member's equity as a percentage of total capitalization must be at least 30%, although the SEC has permitted the percentage to be below this level for other companies taking into account non-recourse securitization debt as a component of capitalization. Our liquidity and capital requirements will be affected by the amount and timing of receipt of the true-up proceeds, including the effects of any appeal from the true-up proceeding and whether or not transition bonds are issued. 17 Impact on Liquidity of a Downgrade in Credit Ratings. As of September 30, 2004, Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services, a division of The McGraw Hill Companies (S&P), and Fitch, Inc. (Fitch) had assigned the following credit ratings to our senior debt.
MOODY'S S&P FITCH ------------------ ------------------- ---------------------- COMPANY/INSTRUMENT RATING OUTLOOK (1) RATING OUTLOOK (2) RATING OUTLOOK (3) ------------------ ------ ----------- ------ ----------- ------ -------------- CenterPoint Houston Senior Secured Debt (First Mortgage Bonds)...... Baa2 Negative BBB Negative BBB+ Negative
---------- (1) A "negative" outlook from Moody's reflects concerns over the next 12 to 18 months which will either lead to a review for a potential downgrade or a return to a stable outlook. (2) An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term. (3) A "negative" outlook from Fitch encompasses a one-to-two year horizon as to the likely ratings direction. We cannot assure you that these ratings will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. In the near term, our ratings may be affected by the results of the 2004 True-Up Proceeding. We note that these credit ratings are not recommendations to buy, sell or hold our securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing, the cost of such financings and the execution of our business strategies. Cross Defaults. The terms of our debt instruments generally provide that a default on obligations by CenterPoint Energy does not cause a default under our debt instruments. A payment default on debt for borrowed money and certain other specified types of obligations by us exceeding $50 million will cause a default under our $1.3 billion loan maturing in 2005. A payment default on, or a non-payment default that permits acceleration of, any of our indebtedness exceeding $50 million will caused a default under CenterPoint Energy's $2.3 billion credit facility entered into on October 7, 2003. A payment default by us in respect of, or an acceleration of, borrowed money and certain other specified types of obligations, in the aggregate principal amount of $50 million, will cause a default on senior debt of CenterPoint Energy aggregating $1.4 billion. Pension Plan. As discussed in Note 7(a) to the consolidated annual financial statements in the CenterPoint Houston Form 10-K (CenterPoint Houston 10-K Notes), which is incorporated herein by reference, we participate in CenterPoint Energy's qualified non-contributory pension plan covering substantially all employees. Pension expense for 2004 is estimated to be $23 million based on an expected return on plan assets of 9.0% and a discount rate of 6.25% as of December 31, 2003. Future changes in plan asset returns, assumed discount rates and various other factors related to the pension will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future. Other Factors that Could Affect Cash Requirements. In addition to the above factors, our liquidity and capital resources could be affected by: - various regulatory actions; and - the ability of Reliant Energy, Inc. (formerly named Reliant Resources, Inc.) (RRI) and its subsidiaries to satisfy their obligations as our principal customer and in respect of RRI's indemnity obligations to us. Money Pool. We participate in a "money pool" through which we and certain of our affiliates can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The money pool's net funding requirements are generally met by borrowings of CenterPoint Energy. The terms of the money pool are in accordance with requirements applicable to registered public utility holding companies under the 1935 Act and under an order from the SEC relating to our financing activities on June 30, 2003 (June 2003 Financing Order). Our money pool borrowing limit under such financing order is $600 million. At 18 September 30, 2004, we had borrowings from the money pool of $144 million. The money pool may not provide sufficient funds to meet our cash needs. Certain Contractual and Regulatory Limits on Ability to Issue Securities and Pay Dividends. Factors affecting our ability to issue securities, pay dividends on our common stock or to take other actions to adjust our capitalization include: - covenants and other provisions in our borrowing agreements; and - limitations imposed on us under the 1935 Act. Our collateralized term loan limits our debt, excluding transition bonds, as a percentage of total capitalization to 68%. Our parent, CenterPoint Energy, is a registered public utility holding company under the 1935 Act. The 1935 Act and related rules and regulations impose a number of restrictions on our parent's activities and those of its subsidiaries, including us. The 1935 Act, among other things, limits our parent's ability and the ability of its regulated subsidiaries, including us, to issue debt and equity securities without prior authorization, restricts the source of dividend payments to current and retained earnings without prior authorization, regulates sales and acquisitions of certain assets and businesses and governs affiliate transactions. The June 2003 Financing Order is effective until June 30, 2005. Additionally, CenterPoint Energy has received several subsequent orders which provide additional financing authority. These orders establish limits on the amount of external debt and equity securities that can be issued by CenterPoint Energy and its regulated subsidiaries, including us, without additional authorization but generally permit CenterPoint Energy and its subsidiaries, including us, to refinance our existing obligations. We are in compliance with the authorized limits. As of September 30, 2004, we are authorized to issue an additional aggregate $73 million of debt and an aggregate $250 million of preferred stock and preferred securities. The SEC has reserved jurisdiction over, and must take further action to permit, the issuance of $250 million of additional debt by us. The orders require that if CenterPoint Energy or any of its regulated subsidiaries, including us, issue any securities that are rated by a nationally recognized statistical rating organization (NRSRO), the security to be issued must obtain an investment grade rating from at least one NRSRO and, as a condition to such issuance, all outstanding rated securities of the issuer and of CenterPoint Energy must be rated investment grade by at least one NRSRO. The orders also contain certain requirements for interest rates, maturities, issuance expenses and use of proceeds. The 1935 Act limits the payment of dividends to payment from current and retained earnings unless specific authorization is obtained to pay dividends from other sources. As of September 30, 2004, we had a retained deficit on our Consolidated Balance Sheets as a result of an after-tax extraordinary loss of $894 million recorded in the third quarter of 2004 related to the 2004 True-Up Proceeding. We expect to pay dividends out of current earnings or obtain SEC approval for any dividends in excess of our current and retained earnings. The June 2003 Financing Order requires that we maintain a ratio of common equity to total capitalization of at least 30%. On October 27, 2004, CenterPoint Energy's board of directors authorized us to undertake such accounting and legal review, valuation studies and other analyses as may be deemed necessary in order to prepare an accounting reorganization (quasi-reorganization) for presentation to CenterPoint Energy's board. Such quasi-reorganization, if approved, may be effective as of December 31, 2004. A quasi-reorganization is an accounting procedure that eliminates an accumulated deficit in retained earnings and permits the company to proceed on much the same basis as if it had been legally reorganized. A quasi-reorganization involves restating a company's assets and its liabilities to their fair values. The balance in the retained earnings account is then closed through a reduction in paid-in-capital accounts, giving the company a "fresh start" with a zero balance in retained earnings. Relationship with CenterPoint Energy. We are an indirect wholly owned subsidiary of CenterPoint Energy. As a result of this relationship, the financial condition and liquidity of our parent company could affect our access to capital, our credit standing and our financial condition. CRITICAL ACCOUNTING POLICIES A critical accounting policy is one that is both important to the presentation of our financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are highly uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are 19 reasonably likely to occur could have a material impact on the presentation of our financial condition or results of operations. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to the CenterPoint Houston 10-K Notes. We believe the following accounting policies involve the application of critical accounting estimates. Accordingly, these accounting estimates have been reviewed and discussed with the audit committee of the board of directors of CenterPoint Energy. ACCOUNTING FOR RATE REGULATION Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), provides that rate-regulated entities account for and report assets and liabilities consistent with the recovery of those incurred costs in rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. We apply SFAS No. 71, which results in our accounting for the regulatory effects of recovery of stranded costs and other regulatory assets resulting from the unbundling of the transmission and distribution business from our electric generation operations in our consolidated financial statements. Certain expenses and revenues subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. Significant accounting estimates embedded within the application of SFAS No. 71 relate to $2.0 billion of recoverable electric generation-related regulatory assets as of September 30, 2004. These costs are recoverable under the provisions of the Texas electric restructuring law. The ultimate amount of cost recovery is subject to a final determination, which is expected to occur in 2004. Based on our analysis of the Texas Utility Commission's deliberations, we recorded an after-tax charge to earnings in the third quarter of 2004 of approximately $894 million to write-down our electric generation-related regulatory assets to their realizable value, which is reflected as an extraordinary loss in the Statements of Consolidated Operations. The ultimate amount of such charge will depend upon the final action of the Texas Utility Commission. IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES We review the carrying value of our long-lived assets, including identifiable intangibles, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Unforeseen events and changes in circumstances and market conditions and material differences in the value of long-lived assets and intangibles due to changes in estimates of future cash flows, regulatory matters and operating costs could negatively affect the fair value of our assets and result in an impairment charge. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value of the asset could be different using different estimates and assumptions in these valuation techniques. UNBILLED REVENUES Revenues related to the delivery of electricity are generally recorded when electricity is delivered to customers. However, the determination of electricity deliveries to individual customers is based on the reading of their meters, which is performed on a systematic basis throughout the month. At the end of each month, amounts of electricity delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Unbilled electric delivery revenue is estimated each month based on daily supply volumes, applicable rates and analyses reflecting significant historical trends and experience. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. 20 NEW ACCOUNTING PRONOUNCEMENTS See Note 3 to the Interim Financial Statements for a discussion of new accounting pronouncements that affect us. ITEM 4. CONTROLS AND PROCEDURES In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2004 to provide assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There has been no change in our internal controls over financial reporting that occurred during the three months ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a description of certain legal and regulatory proceedings affecting us, please review Notes 2 and 6 to our Interim Financial Statements, "Business -- Regulation" and " -- Environmental Matters" in Item 1 of the CenterPoint Houston Form 10-K, "Legal Proceedings" in Item 3 of the CenterPoint Houston Form 10-K and Notes 4 and 9(b) to the CenterPoint Houston 10-K Notes, each of which is incorporated herein by reference. ITEM 6. EXHIBITS Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Houston Electric, LLC or CenterPoint Energy, Inc. as indicated.
Report or Registration SEC File or Exhibit Number Description Statement Registration Number Exhibit References -------------- ------------------- ---------------------- ------------------- ------------------ 3.1 Articles of CenterPoint 1-3187 3(b) Organization of Houston's Form 8-K CenterPoint Energy dated August 31, Houston Electric, 2002 filed with LLC the SEC on September 3, 2002 3.2 Limited Liability CenterPoint 1-3187 3(c) Company Regulations Houston's Form 8-K of CenterPoint dated August 31, Energy Houston 2002 filed with Electric, LLC the SEC on September 3, 2002 4.1.1 $1,310,000,000 CenterPoint 1-31447 4(g)(1) Credit Agreement Energy's Form 10-K dated as of for the year ended November 12, 2002, December 31, 2002 among CenterPoint Houston and the banks named therein 4.1.2 First Amendment to CenterPoint 1-31447 10.7 Exhibit 4.1.1, Energy's Form 10-Q dated as of for the quarter September 3, 2003 ended September 30, 2003 4.1.3 Pledge Agreement, CenterPoint 1-31447 4(g)(2) dated as of Energy's Form 10-K November 12, 2002 for the year ended executed in December 31, 2002 connection with Exhibit 4.1.1 +31.1 Rule 13a-14(a)/15d-14(a) Certification of David M. McClanahan +31.2 Rule 13a-14(a)/15d-14(a) Certification of Gary L. Whitlock +32.1 Section 1350 Certification of David M. McClanahan +32.2 Section 1350 Certification of Gary L. Whitlock
22
Report or Registration SEC File or Exhibit Number Description Statement Registration Number Exhibit References -------------- ------------------- ---------------------- ------------------- ------------------ +99.1 Items incorporated by reference from the CenterPoint Houston Form 10-K. Item 1 "Business -- Regulation," " -- Environmental Matters," " -- Risk Factors," Item 3 "Legal Proceedings" and Item 7 "Management's Narrative Analysis of Results of Operations -- Certain Factors Affecting Future Earnings" and Notes 2(e) (Regulatory Assets and Liabilities), 4 (Regulatory Matters), 7(a) (Pension Plans) and 9 (Commitments and Contingencies).
23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC By: /s/ James S. Brian -------------------------------------- James S. Brian Senior Vice President and Chief Accounting Officer Date: November 9, 2004 24 EXHIBIT INDEX Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Houston Electric, LLC or CenterPoint Energy, Inc. as indicated.
Report or Registration SEC File or Exhibit Number Description Statement Registration Number Exhibit References -------------- ------------------- ---------------------- ------------------- ------------------ 3.1 Articles of CenterPoint 1-3187 3(b) Organization of Houston's Form 8-K CenterPoint Energy dated August 31, Houston Electric, 2002 filed with LLC the SEC on September 3, 2002 3.2 Limited Liability CenterPoint 1-3187 3(c) Company Regulations Houston's Form 8-K of CenterPoint dated August 31, Energy Houston 2002 filed with Electric, LLC the SEC on September 3, 2002 4.1.1 $1,310,000,000 CenterPoint 1-31447 4(g)(1) Credit Agreement Energy's Form 10-K dated as of for the year ended November 12, 2002, December 31, 2002 among CenterPoint Houston and the banks named therein 4.1.2 First Amendment to CenterPoint 1-31447 10.7 Exhibit 4.1.1, Energy's Form 10-Q dated as of for the quarter September 3, 2003 ended September 30, 2003 4.1.3 Pledge Agreement, CenterPoint 1-31447 4(g)(2) dated as of Energy's Form 10-K November 12, 2002 for the year ended executed in December 31, 2002 connection with Exhibit 4.1.1 +31.1 Rule 13a-14(a)/15d-14(a) Certification of David M. McClanahan +31.2 Rule 13a-14(a)/15d-14(a) Certification of Gary L. Whitlock +32.1 Section 1350 Certification of David M. McClanahan +32.2 Section 1350 Certification of Gary L. Whitlock
Report or Registration SEC File or Exhibit Number Description Statement Registration Number Exhibit References -------------- ------------------- ---------------------- ------------------- ------------------ +99.1 Items incorporated by reference from the CenterPoint Houston Form 10-K. Item 1 "Business -- Regulation," " -- Environmental Matters," " -- Risk Factors," Item 3 "Legal Proceedings" and Item 7 "Management's Narrative Analysis of Results of Operations -- Certain Factors Affecting Future Earnings" and Notes 2(e) (Regulatory Assets and Liabilities), 4 (Regulatory Matters), 7(a) (Pension Plans) and 9 (Commitments and Contingencies).