File No. 070- 10162
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1/A
AMENDMENT NO. 2
TO
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
Utility Holding, LLC
200 West Ninth Street Plaza
Suite 411
Wilmington, Delaware 19801
(Name of companies filing this statement and address of
principal executive offices)
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(Name of top registered holding company parent of each applicant or declarant)
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 77002
(713) 207-7451
(Names and addresses of agents for service)
The Commission is also requested to send copies
of any communications in connection with this matter to:
James R. Doty Margo S. Scholin
Joanne C. Rutkowski Baker Botts L.L.P.
Stephanie Smith 3000 One Shell Plaza
Baker Botts L.L.P. Houston, Texas 77002-4995
The Warner (713) 229-1234
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2400
(202) 639-7700
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CenterPoint Energy, Inc. ("CenterPoint" or the "Company") and Utility
Holding, LLC (together the "Applicants") hereby amend and restate their request
for authorization and approval as set forth herein.(1)
Item 1. Description of the Proposed Transactions
A. Introduction and General Request
1. General
By order dated July 5, 2002 (HCAR No. 27548) (the "July Order"), the
Securities and Exchange Commission (the "Commission") authorized the formation
of a new registered holding company, CenterPoint, and the distribution
("Distribution") to shareholders of the remaining common stock of Reliant
Resources, Inc. The formation of CenterPoint and the Distribution was part of a
plan adopted in 2000, and approved by the Public Utility Commission of Texas
(the "Texas Commission"), for the restructuring of Reliant Energy, Incorporated
pursuant to requirements of the Texas Electric Restructuring Legislation adopted
in 1999. The Distribution, which was made on September 30, 2002, completed the
separation from CenterPoint of the merchant power generation and energy trading
and marketing business of Reliant Resources. As it expected to qualify for
exemption from registration within a year of the initial order, CenterPoint did
not intend to form a service company following the restructuring. Instead,
CenterPoint requested authority to provide certain goods and services to its
Subsidiaries on an interim basis.(2) The July Order authorized CenterPoint to
provide a variety of services in areas such as accounting, rates and regulation,
internal auditing, strategic planning, external relations, legal services, risk
management, marketing, financial services and information systems and
technology. For the third quarter of 2002, the cost of these services was
approximately $30 million; for the fourth quarter of 2002, the cost was
approximately $65.2 million.(3)
Since the July Order, CenterPoint has announced that it will remain a
registered holding company. In its order dated June 30, 2003 (HCAR No. 27692)
(the "Omnibus Financing Order"), the Commission granted CenterPoint certain
authorizations through June 30, 2005. The Omnibus Financing Order noted that the
Company intended to form a service company and granted CenterPoint interim
authority to continue to provide goods and services to Subsidiaries through
December 31, 2003.
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(1) CenterPoint holds its utility interests through Utility Holding, LLC, a
Delaware limited liability company that is a conduit entity formed solely to
minimize tax liability.
(2) The term "Subsidiaries" refers to each direct or indirect subsidiary
company of CenterPoint as well as any direct or indirect subsidiary companies
that CenterPoint may form with the approval of the Commission or in reliance on
rules or statutory exemptions.
(3) See Exhibits F-3 and F-4 to CenterPoint's Annual Report on Form U-5S for
the year ended December 31, 2002.
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2. General Request
This Application/Declaration seeks the authorization and approval by
the Commission with respect to the provision of intra-system services and goods,
the form of the Master Services Agreement, the Form of Services Agreement for
services rendered by other system companies, the Service Agreement Procedures
Manual pursuant to Section 13 of the Public Utility Holding Company Act of 1935,
as amended (the "Act") and the Rules thereunder.(4) Specifically, Applicants
request that the Commission approve the formation and capitalization of
CenterPoint Energy Service Company, LLC ("ServiceCo"), as well as the
designation of ServiceCo as a subsidiary service company in accordance with the
provisions of Rule 88 under the Act and the Service Agreement (as defined below)
and the provision of services to third parties, as discussed herein. Applicants
further request that the Commission find that ServiceCo is so organized and will
conduct its operations so as to meet the requirements of Section 13 of the Act
and the Commission's Rules under the Act. Applicants also request authority, to
the extent not exempted under Rules 81 and 87, for their Subsidiaries to provide
certain services and goods to associate companies, as more fully described
below.
B. Description of the Parties to the Transaction
CenterPoint is a registered holding company under the Act, and
currently has three public-utility subsidiaries: CenterPoint Energy Houston
Electric, LLC (the "T&D Utility"), Texas Genco, LP ("Texas Genco"), and
CenterPoint Energy Resources Corp ("GasCo") as well as certain non-utility
subsidiaries that are engaged in duly-authorized non-utility businesses. These
subsidiaries are described in more detail in the following paragraphs. A
corporate organization chart of CenterPoint, showing the identity, relationship
and classification of the current direct and indirect subsidiaries of
CenterPoint, is attached hereto as Exhibit A-3. CenterPoint is proposing in this
proceeding to create ServiceCo as a subsidiary service company.
1. T&D Utility
The T&D Utility engages in the electric transmission and distribution
business in a 5,000-square mile area of the Texas Gulf Coast that includes
Houston.
2. Texas Genco
Texas Genco owns and operates the Texas generating plants formerly
belonging to the integrated electric utility that was a part of Reliant Energy,
Incorporated. CenterPoint currently is seeking regulatory approval in connection
with a determination by the Federal Energy Regulatory Commission that Texas
Genco is an exempt wholesale generator ("EWG") within the meaning of Section 32
of the Act.
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(4) Applicants ask the Commission to reserve jurisdiction, as appropriate,
over the Service Agreement Procedures Manual. Applicants undertake to submit the
Service Agreement Procedures Manual by 60-day letter on or before May 1, 2003.
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3. GasCo
GasCo owns gas distribution systems that together form one of the
United States' largest natural gas distribution operations in terms of customers
served. Through unincorporated divisions, GasCo provides natural gas
distributions services in Louisiana, Mississippi and Texas (Entex Division),
Arkansas, Louisiana, Oklahoma and Texas (Arkla Division) and Minnesota
(Minnegasco Division). Through wholly owned subsidiaries, GasCo owns two
interstate natural gas pipelines and gas gathering systems and provides various
ancillary services.
4. ServiceCo
CenterPoint proposes that ServiceCo will be a direct, wholly-owned
subsidiary of Utility Holding, LLC. ServiceCo, as a subsidiary service company,
will enter into service agreements (each a "Service Agreement") with
CenterPoint, the T&D Utility, Texas Genco, GasCo, and certain other Subsidiaries
(associate companies who execute Service Agreements are referred to as
"Recipients"). A copy of the proposed form of the Service Agreement is filed
herewith as Exhibit B-1. Applicants are also preparing a ServiceCo Service
Agreement Procedures manual that will be filed by amendment.
Following the Commission's authorization, ServiceCo will provide the
Recipients with a variety of administrative, management and support services,
either directly or through agreements with associate or non-associate companies,
as needed. ServiceCo will begin operations no later than January 1, 2004.
ServiceCo is a limited liability company, formed in reliance on Rule
58, but it does not currently hold any assets. It is anticipated that ServiceCo
will have a minimal equity capitalization - not more than 1,000 membership
interests with total equity capital of not more than $1,000, and that it will
derive substantially all of its needs for additional working capital from
borrowings under CenterPoint's money pool (the "Money Pool") and/or additional
investments by CenterPoint pursuant to Rule 45 and/or Rule 52 as applicable.
ServiceCo will only borrow from CenterPoint or the Money Pool and will not
borrow directly from any other Subsidiary.
C. Intra-system Provision of Services
1. ServiceCo
In order to ensure adequate oversight and realize economies of scale,
certain administrative and service functions for the CenterPoint system may be
provided on a centralized basis through ServiceCo. As a general rule, the
individual system companies will maintain services that can benefit from
individualized application at the company level, with ServiceCo offering
system-wide coordination and strategy, compliance, oversight and other services
where economies can be captured by the centralization of services.
In particular, it is anticipated that, subject to the requirements or
limitations of state and federal law, the following services will be offered by
ServiceCo, through departments
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that will be established following its formation.(5) A description of each of
the services performed by ServiceCo, which may be modified from time to time, is
presented below. In addition to these services, ServiceCo will be the
administrator of the CenterPoint System Money Pool, as created by the July
Order.
a) Accounting Services
ServiceCo may provide various services to the Recipients including
corporate accounting and reporting, general ledger maintenance and all
accounting record keeping, guidance regarding adoption and application of
accounting policies, risk oversight and financial reporting for Commission,
regulatory and other purposes and support to rate and other regulatory
proceedings. Each Recipient may also maintain its own corporate and accounting
group and engage ServiceCo to provide advice and assistance on accounting
matters, including the development of accounting practices, procedures and
controls, the preparation and analysis of financial reports and the filing of
financial reports with regulatory bodies, on a system-wide basis. Costs of a
general nature may be allocated using the Total Assets Ratio, Operating Expense
or Cash Flow Ratio.
b) Internal Auditing
ServiceCo may conduct periodic audits of administration and accounting
processes. Audits would include examinations of Recipients' service agreements,
accounting systems, source documents, allocation methods and billings to assure
proper authorization and accounting for services. Costs may be allocated using
the Operating Expense Ratio.
c) Finance and Treasury
ServiceCo may provide various services to the Recipients including
budgeting, corporate tax, treasury, risk management (insurance), strategic
planning, financing, money pool administration and cash management. ServiceCo
may also provide investor relations services to provide information to the
investment community regarding CenterPoint and its subsidiary companies and
provide stock transfer agent services to holders of its securities and to
shareholders of Texas Genco Holdings, Inc. and Reliant Resources. CenterPoint is
providing shareholder services regarding the common stock of Reliant Resources
on a temporary basis pursuant to the separation arrangements between CenterPoint
and Reliant Resources. It is currently anticipated that services for Reliant
Resources will terminate by January 2004. Costs of a general nature may be
allocated using the Total Assets Ratio, Operating Expense or Cash Flow Ratio.
d) Communications
ServiceCo may assist the Recipients to develop and support branding and
corporate promotions, advertising and brand equity. Individually, the Recipients
may maintain
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(5) These services, with a more detailed explanation of each service, are
contained in Exhibit I to the Service Agreement, Exhibit B-1.
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independent marketing personnel to handle the day-to-day details of marketing
campaigns. Costs of a general nature may be allocated using the Total Assets
Ratio.
e) Legal Services
ServiceCo may provide various legal services, processing of claims,
administration of CenterPoint's corporate compliance program and general legal
oversight, as well as corporate secretarial functions and filing of reports
under securities laws and the 1935 Act for the benefit of the Recipients. Costs
of a general nature may be allocated using the Operating Expense Ratio.
f) Human Resources
ServiceCo may assist the Recipients in developing policy and planning
for total compensation plans, workforce planning and training, employee
relations policies and programs, and in training personnel in a coordinated
manner throughout the CenterPoint System Companies. It may also design and
provide administration for corporate welfare and benefit plans, including
pension plans and executive benefits, and support for the negotiation of labor
contracts for the CenterPoint companies. ServiceCo may provide corporate
oversight for health and safety services for CenterPoint and its system
companies to comply with government regulation. Each Recipient may maintain a
human resources group to handle the individualized application of policies and
programs. Costs of a general nature may be allocated using the Head Count Ratio.
Costs of providing employee and executive benefits will be allocated directly to
the Recipient based on costs incurred for its employees and retirees, and any
costs of a general nature which are not otherwise recovered, such as through
payroll burden charges, will be allocated using the Head Count Ratio.
g) Executive
ServiceCo may provide the executive staff to provide executive
management and governance for CenterPoint, including supplying personnel to
serve on boards of directors of CenterPoint system companies, and assist the
Recipients in formulating and executing general plans and policies, including
operations, issuance of securities, appointment of executive personnel, budgets
and financing plans, expansion of services, acquisitions and dispositions of
property, public relations and other related matters. The executive staff will
oversee any corporate aircraft, the costs of which will not be allocated to
Recipients except in connection with the direct cost of flights on behalf of a
Recipient. Costs of a general nature may be allocated using the Total Asset
Ratio.
h) Regulatory and Governmental Affairs
ServiceCo may assist the Recipients in developing policy for regulatory
strategy, implementation of electric restructuring legislation, and support for
litigation and regulatory proceedings. Governmental Affairs will develop
strategy for legislative and other governmental initiatives and monitor
activities affecting the Company in the state and federal legislative arenas.
Costs of a general nature may be allocated using the Total Asset Ratio to the
extent such costs may be allocated to CenterPoint business units. Recipients may
maintain individual regulatory and governmental affairs units to support local
activities.
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i) Information Systems and Technology
ServiceCo may provide the Recipients with the following services:
Mainframe Operations, Enterprise Document Management, Data Circuit Management,
Voice Services, IT Solutions Delivery, and Desktop Data Device services. Costs
are billed to Recipients based on various metrics (e.g., CU second, billable
hour, phone line, login ID) on cost allocations (e.g., headcount, operating
expenses and direct dollars billed).
j) Mainframe Operations
Methodology
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Legacy Mainframe CPU Utilization Client Unit Usage
Legacy Mainframe Data Storage Client Unit Usage
SAP Mainframe Data Storage Client Unit Usage
SAP Mainframe CPU Utilization Client Unit Usage
Enterprise Recipient Specific Client Unit Usage
Enterprise Document Management
Methodology: Client Unit Usage
Data Circuit Management
Methodology: Client Unit Usage
Voice Services
Methodology
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Telephone Basic Line Client Unit Usage
Moves/Adds/Change (MAC) Client Unit Usage
Call Center Basic Line Client Unit Usage
Video Conferencing Client Unit Usage
IT Solutions Delivery
Methodology: Client Unit Usage
SAP Production Support
Allocation Methodology: Headcount and Operating Expense
Desktop Data Device Services
Methodology
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Equipment Client Unit Usage
Lotus Notes Messaging Client Unit Usage
LAN and Security Account Creation Client Unit Usage
Network WAN/LAN Client Unit Usage
Client Support Center Help Desk Client Unit Usage
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k) Business Services
Real Estate and Facilities Management -- ServiceCo may provide
Recipients with general operating maintenance, administrative and management
duties for building operations, including project management services for
facility-related projects. Costs for Facilities Management not directly
assignable are allocated based on the square footage utilized.
Security - ServiceCo may provide security and security monitoring for
managed properties, security assessments and internal investigations.
Office Support Services -- ServiceCo may provide Recipients with
copying, inserting, mailing, call center, and graphic design functionality. This
service also includes records management and managing office supplies, forms and
convenience copiers. Costs for Office Support Services may be allocated based on
Recipient unit usage (e.g., number of forms, mail pieces, billable hours, direct
dollars spent).
Financial Services -- ServiceCo may provide payroll, bank
reconciliation, processing certain accounts such as accounts payable and others
as may be deemed necessary, check disbursements, escheat processing/reporting
and remittance processing. This service may also provide Recipients with
assistance in Corporate Travel. Costs for Financial Services are generally
allocated based on client unit usage (e.g., number of payments processed,
checks, billable hours).
Purchasing and Logistics -- ServiceCo may provide Recipients with
procurement and Accounts Payable services. This service may also provide
Recipients with oversight of logistics operations and investment recovery
services. Costs for purchasing and logistics may be allocated based on client
unit usage (e.g., number of transactions, billable hours, managed dollars).
l) Administration of the Money Pool
In the July Order, the Commission authorized CenterPoint to establish a
Money Pool. ServiceCo will provide various services connected to the
administration of such Money Pool. Such services may include accounting and
bookkeeping and responsibility for investment in appropriate short-term
instruments of funds that are loaned by participants but not currently needed to
satisfy borrowing needs of other participants.
m) Leasing Services
ServiceCo may, in the future, enter into various leases of personal
property or licenses where such leases or licenses will pertain to more than a
single company in the CenterPoint system. ServiceCo will charge each affected
Recipient for the cost thereof pursuant to the Service Agreement and associated
Service Requests and office space subleases (where applicable) and the
Commission's rules.
* * * * *
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Applicants wish to note that no core public utility operations or
functions, such as the dispatch or delivery of energy, will be performed by
ServiceCo. There are three public utilities currently in the CenterPoint system,
the T&D Utility, Texas Genco and GasCo, and it is anticipated that no economies
would be realized by transferring these functions and related personnel to
ServiceCo at this time. Changes to the scope or character of the services to be
rendered by ServiceCo shall be done pursuant to the Act and its regulations.
As compensation for the services to be rendered under the Service
Agreements, Recipients shall pay to ServiceCo all costs that reasonably can be
identified and related to particular services performed by Service Company for
or on their behalf. All charges for services shall be distributed among
Recipients, to the extent possible, based on direct assignment. The amounts
remaining after direct assignment shall be allocated among the Recipients in a
fair and equitable manner, using the allocation methods set forth in Exhibit I
of the Service Agreement, Exhibit B-1. Thus, charges for all services provided
by ServiceCo to its affiliated utility companies and non-utility companies under
the Service Agreements will be on an "at cost" basis as determined under Rules
90 and 91 of the Act. Each Recipient will conduct a periodic evaluation to
determine whether such Recipient would be better served to buy the services from
a source other than ServiceCo.
ServiceCo's accounting and cost allocation methods and procedures are
structured so as to comply with the Commission's standards for service companies
in registered holding company systems. ServiceCo's billing system will use the
"Uniform System of Accounts for Mutual Service Companies," established by the
Commission for holding company systems, as may be adjusted to use the FERC
uniform system of accounts.
As noted above, Applicants are preparing a proposed Service Agreement
Procedures to be used in implementing and administering the Service
Agreements.(6) Services will be provided pursuant to work orders, in the form of
"Service Requests", specifying the services to be performed by ServiceCo for
each Recipient.(7) Each Service Request will be approved by ServiceCo and the
Recipient, and will contain one or more Project IDs which will be used to
accumulate the costs of providing services under the Service Request. The
ServiceCo Accounting Division will be responsible for authorizing new Service
Requests, and for reviewing, monitoring and maintaining the Service Request
system, including assignment of Project IDs.
The Service Agreement Procedures require all ServiceCo employees,
including executives, to keep time records supporting labor charged to
separately identifiable goods and services performed for Recipients. Employees
will record time daily in a minimum of half-hour increments. The employee's
supervisor or authorized delegate will review and approve time reports.
ServiceCo will use an electronic time entry system for its employees. Time
records will be maintained in accordance with record retention requirements set
forth in 17 CFR 257, but in
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(6) A 60-day letter with a copy of the Service Agreement Procedures will be
filed no later than May 1, 2004.
(7) The form of Service Request is attached as Exhibit B to Exhibit B-2.
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any event will be maintained for at least six years. Prior to the commencement
of operations by ServiceCo, training sessions regarding time keeping
requirements will be held with employees who are expected to be transferred to
ServiceCo, and periodic training sessions regarding the Service Agreement
procedures, including time keeping, will be held after the establishment of
ServiceCo.
The ServiceCo Internal Audit Department will conduct periodic reviews
of ServiceCo's business processes and systems to ensure that the services
provided are properly documented and charged to the Recipients on an appropriate
basis.
It is anticipated that ServiceCo will be initially staffed by transfers
of approximately 1100 personnel from CenterPoint and approximately 6 personnel
from GasCo. A preliminary functional organization chart of ServiceCo is attached
as Exhibit B-4.
No change in the organization of ServiceCo, the type and character of
the companies to be serviced, the methods of allocating cost to Recipients, or
in the scope or character of the services to be rendered subject to Section 13
of the Act, or any rule, regulation or order thereunder, shall be made unless
and until ServiceCo shall first have given the Commission written notice of the
proposed change not less than 60 days prior to the proposed effectiveness of any
such change. If, upon the receipt of any such notice, the Commission shall
notify ServiceCo within the 60-day period that a question exists as to whether
the proposed change is consistent with the provisions of Section 13 of the Act,
or of any rule, regulation or order thereunder then the proposed change shall
not become effective unless and until ServiceCo shall have filed with the
Commission an appropriate declaration regarding such proposed change and the
Commission shall have permitted such declaration to become effective.
Rule 88(b) provides that "(A) finding by the commission that a
subsidiary company of a registered holding company ... is so organized and
conducted, or is to be so conducted, as to meet the requirements of Section
13(b) of the Act with respect to reasonable assurance of efficient and
economical performance of services or construction or sale of goods for the
benefit of associate companies, at cost fairly and equitably allocated among
them (or as permitted by Rule 90), will be made only pursuant to a declaration
filed with the Commission on Form U-13-1, as specified in the instructions for
that form, by such company or the persons proposing to organize it."
Notwithstanding the foregoing language, the Commission has on at least two
recent occasions made findings under Section 13(b) based on information set
forth in an application on Form U-1, without requiring the formal filing on Form
U-13-1. See Unitil Corp., 51 SEC Docket 562 (April 24, 1992); CINergy Corp., 57
SEC Docket 2353 (October 21, 1994). In this Application/Declaration, CenterPoint
has submitted substantially the same application information as would have been
submitted in a Form U-13-1.
Accordingly, it is submitted that it is appropriate to find that
ServiceCo will be so organized and shall be so conducted as to meet the
requirements of Section 13(b) of the Act, and that the filing of a Form U-13-1
is unnecessary or, alternatively, that this Application/Declaration should be
deemed to constitute a filing on Form U-13-1 for purposes of Rule 88.
2. Provision of Goods and Services by Other System Companies
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a) Goods and Services Provided to ServiceCo.
Certain office space and other space currently occupied by CenterPoint
personnel is owned by CenterPoint Energy Properties, Inc. ("Properties"), a
wholly-owned indirect subsidiary of CenterPoint, and from time to time other
space may be acquired by Properties, either in fee or by lease. It is
anticipated that ServiceCo will occupy portions of the owned or leased office
space. ServiceCo will enter one or more lease agreements with Properties and
will enter into a sublease in the form attached as Exhibit B-3 with Recipients
that will occupy such space. Each Recipient will be allocated costs associated
with the occupancy of such office space in proportion to its occupancy of such
space.
CenterPoint is currently the owner or lessee of certain computer
hardware, communications facilities (including local, long distance, internet
and wireless services), office equipment and furnishings and vehicles, and is
the licensee under certain software license agreements. It is anticipated that
ServiceCo will use portions of the owned or leased computer hardware,
communications facilities, office equipment and furnishings and vehicles.
Further, ServiceCo will also use software currently licensed by CenterPoint or
by the T&D Utility.
The lessor in these arrangements will provide for such use under
license, lease, sublease or service arrangements with ServiceCo which will be at
cost in accordance with Rules 87, 90 and 91. Applicants state that none of the
property proposed to be occupied or used by, or provided to, ServiceCo
constitute facilities used for the production, transmission, transportation or
distribution of electric energy or natural or manufactured gas.
Such transactions, which will not involve the transfer of utility
assets, will be in accordance with Rules 87, 90 and 91.
b) Goods and Services Provided by Other System Companies
The following associate companies currently provide services to other
associate companies as indicated: (i) the T& D Utility provides various services
to the Entex division of GasCo in their overlapping service territory and
provides other common services such as surveying and mapping to GasCo, Texas
Genco and other system companies; (ii) the Entex division of GasCo provides line
locating services to the T&D Utility, and (iii) the Arkla Division of GasCo and
GasCo's pipelines subsidiaries share some facilities and services, as described
below. These arrangements have arisen from the historic operation of the
companies and the Applicants believe it is more economical to continue the
existing arrangements then to transfer the associated resources to ServiceCo.
Such services will be provided pursuant to the form of services agreement
attached hereto as Exhibit B-5.
A portion of the service territory of GasCo's Entex division overlaps
the service territory of the T&D Utility. CenterPoint seeks to obtain the
synergies that are inherent in this overlap. Thus, meter reading, trenching
operations, vehicle maintenance, line locating, call center and credit and
collection functions are shared between the two utility operations when the
companies determine it is efficient and cost effective to do so. The companies
also share some common warehouse space. Some of these functions, such as line
locating, are provided by Entex to the T&D Utility, and others are provided by
the T&D Utility to Entex. In addition, the T&D
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Utility provides a smaller group of services, GIS mapping, to other GasCo
divisions, GasCo's pipelines and other CenterPoint System companies. Where such
services are provided, costs of the shared services are allocated on appropriate
cost allocation measures, such as number of meters with respect to meter
reading, square footage occupied, where location is shared.
Prior to its acquisition by CenterPoint's predecessor in 1997, GasCo
operated as an independent local gas distribution company. Its pipeline
subsidiary provided a significant portion of the natural gas supply for one if
its distribution divisions. GasCo provided corporate and shared services to its
pipeline and other subsidiaries. ServiceCo will assume most corporate and shared
services functions for GasCo and its subsidiaries. However, environmental
services are provided to the local distribution company ("LDC") divisions of
GasCo by personnel from the pipeline subsidiaries, which are also providing
support to the LDCs for compliance with the new pipeline integrity law. Arkla's
telephone operations provide some services to the pipelines, and pipeline
personnel share office and warehouse space in Arkla's facilities. In connection
with operations, Arkla and CenterPoint Energy Gas Transmission Company ("CEGT")
share SCADA signals, with CEGT maintaining the equipment.(8) They also share
meter testing responsibilities, with Arkla testing small pipeline meter stations
and CEGT testing large distribution meters. Similarly, Arkla and CEGT share some
cathodic protection from rectifiers at certain points on the system, and Arkla
reads some rural and town border station meters where CEGT maintains the
equipment.
All such services are provided at cost be in accordance with Rules 90
and 91.(9)
D. Provision of Goods and Services to Third Parties
Prior to the formation of CenterPoint, its predecessor Reliant Energy,
Incorporated ("Reliant Energy") entered into certain agreements with Reliant
Resources, relating to the separation of Reliant Resources from Reliant Energy.
Under the terms of those agreements, Reliant Energy was obligated to provide
certain services and facilities, including business services, corporate
services, and information technology services to Reliant Resources during a
defined transition period.(10) Reliant Resources also agreed to provide certain
services to Texas Genco. CenterPoint succeeded to the obligations of Reliant
Energy under these agreements and is currently providing those services on the
same cost basis as services are
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(8) The term SCADA refers to a Supervisory Control and Data Acquisition
("SCADA") system that electronically monitors the physical operating conditions
of the distribution system.
(9) Copies of the agreements memorializing these arrangements are attached
hereto.
(10) Transition Services Agreement, dated as of December 31, 2000, between
Reliant Energy, Incorporated and Reliant Resources, Inc., filed as Exhibit 10.2
to the Quarterly Report of Reliant Energy, Incorporated on Form 10-Q for the
quarter ended March 31, 2001 (File No. 1-3187), and Technical Services
Agreement, dated as of December 31, 2000, between Reliant Energy, Incorporated
and Reliant Resources, Inc., filed as Exhibit 10.3 to the Quarterly Report of
Reliant Energy, Incorporated on Form 10-Q for the quarter ended March 31, 2001
(File No. 1-3187), both incorporated here by reference.
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currently provided to companies in the CenterPoint System. These arrangements
will largely terminate in early 2004.
In addition, at the time CenterPoint distributed a portion of its stock
in Texas Genco to shareholders, CenterPoint and Texas Genco entered into similar
transition services agreements (11) These agreements largely mirror the business
services to be provided to Texas Genco under CenterPoint's Master Services
Agreement and are priced on the same basis. The transition services agreements
were needed to document the relation between CenterPoint and Texas Genco for
corporate law purposes. It is contemplated that those services will continue to
be provided at least until the monetization of Texas Genco and, depending on the
terms of any sale of Texas Genco, for a brief transition period after that
monetization.
Upon commencement of its functions as a service company, ServiceCo will
assume the obligations for any transition services that continue to be provided
under those agreements. Such services will be provided at cost.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses incurred or to be incurred in
connection with the transactions proposed herein are anticipated to not exceed
$50,000.
Item 3. Applicable Statutory Provisions.
Sections 6, 7, 9, 10, 12 and 13 of the Act and Rules 88, 90 and 91 are
considered applicable to the proposed transactions.
The proposed transaction is subject to Rule 54 under the Act, which
refers to Rule 53. Rule 54 under the Act provides that in determining whether to
approve certain transactions other than those involving exempt wholesale
generators ("EWGs") or foreign utility companies ("FUCOs"), as defined in the
Act, the Commission will not consider the effect of the capitalization or
earnings of any Subsidiary which is an EWG or FUCO if Rule 53(a), (b) and (c)
under the Act are satisfied.
As a result of the Restructuring authorized in the July Order (as such
term is defined in the July Order), CenterPoint had negative retained earnings
as of December 31, 2002. Thus, although CenterPoint's aggregate investment (as
defined in Rule 53(a)(1)(i) under the Act), in EWGs and FUCOs as of December 31,
2002 was approximately $8 million, the Company is not currently in compliance
with the requirements of Rule 53(a)(1) under the Act.
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(11) Transition Services Agreement, as of August 31, 2002, CenterPoint
Energy and Texas Genco, filed as Exhibit 10(cc)(2) to Annual Report of
CenterPoint Energy, Inc. on Form 10-K for the year ending December 31, 2002
(File No. 1-31447) and Assignment and Assumption Agreement for the Technical
Services Agreement entered into as of August 31, 2002, by and between
CenterPoint Energy and Texas Genco, LP, Exhibit 10.11 to the Registration
Statement of Texas Genco Holdings, Inc. on Form 10 (File No. 1-31449), and both
incorporated herein by reference.
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As previously explained, CenterPoint is attempting to dispose of its remaining
interests in EWGs and FUCOs and is not planning to invest any more monies in
those businesses.(12)
CenterPoint complies with, and will continue to comply with, the
record-keeping requirements of Rule 53(a)(2) under the Act, the limitation under
Rule 53(a)(3) under the Act on the use of domestic public-utility company
personnel to render services to EWGs and FUCOs, and the requirements of Rule
53(a)(4) under the Act concerning the submission of copies of certain filings
under the Act to retail regulatory commissions. Further, none of the
circumstances described in Rule 53(b) under the Act has occurred or is
continuing. Rule 53(c) under the Act is by its terms inapplicable to the
transactions proposed herein that do not involve the issue and sale of
securities (including guarantees) to finance an acquisition of an EWG or FUCO.
To the extent that the proposed transactions are considered by the
Commission to require authorization, exemption or approval under any section of
the Act or the rules and regulations other than those set forth above, request
for such authorization, exemption or approval is hereby made.
Item 4. Regulatory Approvals.
The formation of ServiceCo will not require prior approval from
regulatory authorities other than the Commission. The subject services
agreements will be submitted for review and/or approval by the Minnesota Public
Utilities Commission (the "Minnesota Commission"), the Mississippi Public
Service Commission (the "Mississippi Commission"), and the Louisiana Public
Service Commission (the "Louisiana Commission").
Item 5. Procedure
Applicants respectfully request the Commission issue and publish not
later than October 15, 2003, the requisite notice under Rule 23 with respect to
the filing of this Application/Declaration, such notice to specify a date not
later than November 10, 2003 by which comments may be entered and a date not
later than November 30, 2003 as a date after which an order of the Commission
granting and permitting this Application/Declaration to become effective may be
entered by the Commission.
Applicants submit that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the requests
made herein. The Division of Investment Management may assist in the preparation
of the Commission's decision. The Applicants further request that there be no
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
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(12) Texas Genco has been qualified as an EWG. As noted previously, Reliant
Resources, Inc. has an option to acquire CenterPoint's remaining interest in
Texas Genco. CenterPoint does not intend to seek any permanent financing
authority in this regard.
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Item 6. Exhibits and Financial Statements
Exhibits
A-1 Organization of ServiceCo*
A-2 Limited Liability Company Regulations of ServiceCo*
A-3 Corporate Organization Chart of CenterPoint Energy Incorporated
and Subsidiaries (filed with Form U5S and incorporated herein by
reference)
B-1 Form of Master Services Agreement
B-2 Form of Service Agreement Procedures Manual*
B-3 Form of Sublease Agreement*
B-4 Functional Organization Chart of ServiceCo*
B-5 Form of Services Agreement for services rendered by other system
companies
D-1 Filing with the Minnesota Commission*
D-2 Filing with the Mississippi Commission*
D-3 Filing with the Louisiana Commission*
F-1 Opinion of Counsel*
F-2 Past Tense Opinion of Counsel*
H-1 Form of Notice
* To be filed by amendment.
Financial Statements
FS-1 Consolidated Balance Sheets of CenterPoint as of December 31, 2002
and Statements of Consolidated Operations, Statements of Consolidated
Comprehensive Income and Statements of Consolidated Cash Flows for the year
ended December 31, 2002 (incorporated by reference to CenterPoint's Annual
Report on Form 10-K for the year ended December 31, 2002 (File No. 1-31447)).
FS-2 Consolidated Balance Sheets of CenterPoint as of June 30, 2003
(unaudited) and Statements of Consolidated Income and Statements of Consolidated
Cash Flows for the three
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months ended June 30, 2003 (unaudited) (incorporated by reference to
CenterPoint's Quarterly Report on Form 10-Q for the three months ended June 30,
2003 (File No. 1-31447)).
FS-3 Consolidated Balance Sheets of CenterPoint as of December 31,
2002, and Statements of Consolidated Operations, Statements of Consolidated
Comprehensive Income and Statements of Consolidated Cash Flows for the year
ended December 31, 2002 (incorporated by reference to the Current Report of
CenterPoint on Form 8-K dated as of May 12, 2003 (File No. 1-31447)).
Item 7. Information as to Environmental Effects.
The transactions proposed herein will not involve major federal actions
significantly affecting the quality of human environment as those terms are used
in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. 4321 et
seq. Second, consummation of these transactions will not result in changes in
the operations of CenterPoint or its subsidiaries that would have any
significant impact on the environment. To the knowledge of Applicants, no
federal agency is preparing an environmental impact statement with respect to
this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of 1935,
as amended, the Applicants have duly caused this Application/Declaration to be
signed on their behalf by the undersigned thereunto duly authorized.
Date: December 2, 2003
CENTERPOINT ENERGY, INC.
and its Subsidiaries
By: /s/ Rufus S. Scott
-----------------------------------
Rufus S. Scott
Vice President, Deputy General Counsel and Assistant Corporate Secretary
CenterPoint Energy, Inc.
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