I1 I1I Ill II I1 I1Ill I I I1 Control Number: 30485

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1 I1 I1I Ill II I1 I1Ill I I I1 Control Number: I1 I1I Ill I Ill I Ill I1 Item Number: 326 Addendum StartPage: 0

2 PUC DOCKET NO APPLICATION OF CENTERPOINT 4 muc UTILITY COMMISSION ENERGY HOUSTON ELECTRIC, LLC 0 FOR A FINANCING ORDER 6 OF TEXAS CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC S LIST OF FINANCING ORDER PROVISIONS REGARDING TEIE DUTIES OF A FINANCIAL ADVISOR The Commission is hiring a financial advisor to assist it in connection with Centerpoint Energy Houston Electric LLC s ( CenterPoint Houston ) proposed securitization. The proposcd Financing Order submitted with Centerpoint Houston s Application in this docket was drafted to reflect the role of the Commission s financial advisor in prior Texas secdtizations. At the February 10,2005 and February 24,2005 open meetings, the Commissioners discussed possible changes to the respomibility of the financial advisor. Centerpoint Energy Houston Electric takes no position regarding the role to be played by the financial advisor and is filing this pleading solely to be sure the Commission is aware of the various provisions in the draft Financing Order that discuss the role and responsibilities of the financial advisor. Lf the role and responsibilities of the financial advisor arc changed, it may be necessary to modify some of the provisions of the Financing Order to reff act the &sed role. The draft Financing Order submitted with Centerpoint Houston s application con.tains the following statements describing the roles and responsibilities of the financial advisor: Introduction D. 7 [TW Commission, acting through its designated representative or financial advisor, will participate in the pricing and structure of the transition bonds and will make the decision, in conjunction with CcnterPoint Houston, as to whether to issue the bonds. 1

3 Djscussion and Starnary Overview p. 9 To obtain the most favorable issuance of transition b o n d d the greatest benefits to ratepayers-consistent with market conditions and the terms of this Financing Order, the Commission, acting through its designated representative or financial advisor, will participate in the pricing, marketing and structuring of the bonds. Centerpoint Houston must submit to the Commission an issuance advice letter in which it demonstrates, based upon the actual market conditions at the time of pricing, that the proposed structure and pricing of the transition bonds will provide real economic benefits to rdl consumm and comply with this Financing Order. Centerpoint Houston must also cdfy to the Commission that the structure and pricing of the transition bonds results in the lowest transition bond charges consistent with market conditions at the time of pricing and the general parameters set out in this Financing Order. The precise certification that must be submitted by CenterPoint Houston and the Commission s designated representative or financial advisor are set out in Appendix A to this Financing Order. F ipdcnp of Fact 28 CenterPoint Houston should be permitted to recover the up-front and ongoing costs of credit enbancements and arrangements to reduce interest rate risk or enhance marketability, provided that the Commission s designated representative or financial advisor and Centerpoint Houston agree in advance that such enhancements and arrangements provide benefits greater than their tangible and intangible costs. If the use of original issue discount, credit enhancements, or other arrangements is proposed by Centerpoint Houston, CenterPoint Houston shall provide the Commission s designated representative or financial advisor copies of all costhenefit analyses performed by or for CenterPoint Houston that support the request to use 2

4 such arrangements. Lf the use of original issue discount, credit enhancement, or other arrangements is proposed by the Commission s designated rcpresentative or financial advisor, the designated representative or financial advisor shall provide CenterPoint Houston a cost/benefit analysis supporting the request to use such arrangements. FindlnP of Fact 29 CenterPoint Houston s proposed use of credit enhancemmts and arrangements to reduce interest rate risk or enhance marketability is reasonable and shouid be approved, provided that CenterPoint Houston certifies that the enhancemmts or arrangements provide benefits greater than their cost and that such certifications are agreed with by the Commission s designated representative or financial advisor. Findiw of Fact 44 The legal final maturity date of each series and class within a series and amounts in each series will be finally determined by CenterPoint Houston and the Commission s designated representative or financial advisor, consistent with market conditions and indications of the rating agencies, at the time the transition bonds are issued, but subject to ultimate Commission review through the issuance advice letter process. CenterPoint Houston will retain sole discretion regarding whether or when to assign, sell, or otherwise transfer any rights concerning &hon property arising under this Financing Order, or to cause the issuance of any tramitian bonds authorized in this Financing Order, subject to the right of the Commission s designated representative or financial advisor to participate in thc pricing and structure of the transition bonds. 3

5 1,.... FindInP of Fact 45 To further ensure benefits to ratepayers, the Commission s designated representative or financial advisor should be charged with the obligation to ensure on behalf of the Commission that the structure and pricing of the transition bonds results in the lowest transition bond charges consistent with market conditions and achievement of the amortization pattern set out on Appendix E. )?indlnp of Fact 88. In order to ensure, as required by PURA , that the structuring and pricing of the transition bonds result in the lowest transition bond charges consistent with market conditions and the terms of this Financing Order, the Commission finds that it is necessary far the Commission, acting through its designated representative or fmancial advisor, to have a decision- making role co-equal with Centerpaint Houston with respect to the structuring and pricing of the transition bonds and that all matters relating to the structuring and pricing of the transition bonds shall be determined through a joint decision of CentmPoint Houston and the Commission s designated representative or financial advisor. The primary responsibilities of the Commission s designated representative or financial advisor are to ensure that the structuring and pricieg of the transition bonds result is the lowest transition bond charges consistent with market conditions and the terms of this Financing Order. FindinP of Fact 89 a TO properly advise the Cornmission, any financial advisor to the Commission must not participate in the underwriting of the transition bonds and its fee should not be based upon a percentage of the transition bond issuance. Its role should be limited to advising the Commission or acting OD behalf of the Commission regarding the structure and pricing of the transition bonds. 4

6 The Commission s designated representative or financial advisor must, however, have an integral role in the pricing, marketing and structuring of the tmmition bonds in order to provide competent advice M thc Commission. This requires the Codssion s dcsignated representative or financial advisor to participate fully and in advance it1 all plans and decisions related to the pricing, marketing, and structuring of the transition bonds and that it be provided timely information as neccssary to Eulfill its obligation to advise the Commission in a timely manner. The financial advisor s fee and fees of any attorneys or other professionals hired to assist the financial advisor or the Commission are determined pursuant to the Commission s contract with the financial advisor or other professionals and will be included in the up-fkmt qualified costs that may be securitized. Findim of Fact 90 CenterPoint Houston ha limitcd to): propos transaction structure that is expecicd to include (but is not (g) participation by the Commission, acting through its designated representative or financial advisor, on an equal basis with CenterPoint Houston in det& the pricing and structure of the transition bonds, which will help to ensure that benefits to ratepayers as the result of securitization are realized; and (h) hedging and swap agreements used to mitigate the risk of future rate increases if CenterPoint Houston and the Commission s designated reprcsentative or financial advisor jointly determine that it is prudent to enter into these types of agreements. Conclusion of Law 42 CenterPoint Houston retains sole discretion regarding whether or when to assign, sell or othenvise transfer the rights and interests created by this Financing Order or any interest therein, 5

7 or, subject to the approval of the Commission acting through its designated representative or financial advisor, to cause the issuance of any transition bonds authorized by this Financing Order. Conclusion of Law 43 I The finality of this Financing Order is not impaired in any manner by the participation of the Commission through its designated represenktive or financial advisor in any decisions related to issuance of the transition bonds or by the CosnmissionDs review of or issuance of an order relatcd to the issuance advice letter required to be filed with the Commission by this Financing Order. Orderinne Paramaah 4 e Following determination of the final terms of the transition bonds and prior to issuance of the transition bonds, Centerpoint Houston, in consultation with the Commission acting through its designated representative or hcial advisor, shall file With the Commission an issuance advice letter in substantially the form of the issuance advice letta attached as Appdx A to this Financing Order. Ordedne Parwraph 18 The decision to use such arrangements to enhance credits, promote marketability or reduce interest rate risks shall be made in conjunction with the Commisskm acbg through its designated representative or financial advisor, CenterPoint Houston may include the costs of original issue discount, credit enhancements, swaps or otha arrangcments to promote credit quality, marketability or mitigate interest rate risks a5 qualified costs only if CenterPoht Houston certifies that such arrangements are reasonably expected to provide benefits greater than their cost and such certifications are agreed with by the Commission s designated representative or 6

8 I. financial advisor. CenterPoint Houston shall not be required to enter any arrangements to promote credit quality, marketability or mitigatc interest rate risks unless all related costs and liabilities can be included in qualified costs. CenterPoint Houston and the Commission s designated representative or financial advisor shall evaluate the relative benefits of the mangements in the same way that benefits arc quantified under the quantifiable benefits test. Orderhw Pnraerauh 22 The Commission, acting through its designated representative or financial advisor, shall participate directly with CenterPokt Houston in negotiations regarding the pricing and strucluhg of the transition bonds, and shall have equal rights with CenterPoint Houston to approve cu disapprove the proposed pricing, marketing and structuring of the transition bonds. The Commission s designatcd representative or hancial advisor shall have the right to participate fully and in advance regarding all aspects of the pricing, markem and structuring of the transition bonds (and all parties shall be notified of the designated representative s or financial advisor s role) and shall be provided timely information that is necessary to fulfill its obligation to the Commission. The Commission directs its designated representative or financial advisor to veto any proposal that does not comply in any material respect with the criteria established in this Financing Order, The Commission s designated representative or financial advisor shall ensure that the structuring and pricing of the transition bonds result in the lowest transition bond charges consistent with marker conditions that exist at the the and with the terms of this Financing Order. The Cammission s designated representative or financial advisor shall inform the Commission of any items that, in the design3ted representative s or hancial advisor s opinion, are not reasonable. The Commission s designated represenbtive or financial advisor shall notify CenterPoint Houston and the Commission no later than 12:OO p.m. CST on 7

9 I,,... the second business day after CoIz1ITLission s receipt of the issuance advice letter for each series of transition bonds whether the pricing and structuring of that scries of transition bonds complies with the criteria established in thrs Financing Order. Zn addition, the proposed additional findings of fact Centerpoint Houston jointly proposed on February 23, 2005 include the following description of the financial advisor s responsibility. New findl la^ of Fact 1 Centerpoint Houston submitted drafl transaction documents with its application, specifically forms of the Administration Agreement, the Indenture Agreemat, the LLC Agreement, S-3 Registration Statement, Servicing Agreement, Transition Properly Sale Agreement, and Term Sheet (attachments 2A, 2C, 2D, 2E, 2F, 2G, and Attachment 3, the respectively). Thcse draft documents have not been reviewed or approved by the Commission. The Commission s financial advisor or designated representative shall review and comment on these documents before they are finalized. New Flndiw of Fact 4 The Commission s financial advisor or designated representative shall require a certificate flom the bookrunning undcrwriter(s) codinning that the marketing, structuring and pricing of the transition bonds resulted in the lowest transition bond charges consistent with market conditions and tern of this Financing Order. 8

10 Respectfully submittal, I. Jay Golub State Bar No Jason M. Ryan State Bar No Baka Botts L.L.P. 910 Louisiana Street Houston, Texas (713) (713) (fax) Senior Counsel State Bar No P. 0. Box Houston, Texas (713) (713) (fax) ATTORNEYS FOR CENTEWON ENERGY HOUSTON ELECTRIC, LLC CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing docummt was served on all parties of record in this proceeding by facsimile, hand delivery, overnight delivery, or United a& States first class mail on this - day of February, 2 U 9