[Federal Register Volume 68, Number 110 (Monday, June 9, 2003)]
[Notices]
[Pages 34425-34440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14367]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27683]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

June 2, 2003.
    Notice is hereby given that the following filings have been made 
with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by June 27, 2003 to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the

[[Page 34426]]

matter. After June 27, 2003, the application(s) and/or declaration(s), 
as filed or as amended, may be granted and/or permitted to become 
effective.

FirstEnergy Corp. et al. (70-10122)

    FirstEnergy Corp. (``FirstEnergy''), a registered holding company, 
its utility subsidiaries: Ohio Edison Company (``Ohio Edison''), 
American Transmission Systems, Incorporated (``ATSI''), The Cleveland 
Electric Illuminating Company (``Cleveland Electric''), The Toledo 
Edison Company (``Toledo Edison''), Pennsylvania Power Company (``Penn 
Power''), Northeast Ohio Natural Gas Corp. (``NONGC''), Jersey Central 
Power & Light Company (``JCP&L''), Pennsylvania Electric Company 
(``Penelec''), Metropolitan Edison Company (``Met-Ed''), York Haven 
Power Company (``York Haven''), and Waverly Electric Power & Light 
Company (``Waverly Electric''), and their respective subsidiaries; and 
FirstEnergy's nonutility subsidiaries: FE Acquisition Corp. (``FE 
Acquisition''), FirstEnergy Properties, Inc. (``FE Properties''), 
FirstEnergy Facilities Services Group, LLC (``FEFSG''), FE Holdings, 
LLC (``FE Holdings''), FELHC, Inc. (``FELHC''), FirstEnergy Securities 
Transfer Company (``FirstEnergy Transfer''), FirstEnergy Nuclear 
Operating Company (``FENOC''), FirstEnergy Solutions Corp. 
(``FirstEnergy Solutions''), FirstEnergy Generation Corp. (``GenCo''), 
FirstEnergy Ventures Corp. (``FirstEnergy Ventures''), MARBEL Energy 
Corporation (``MARBEL''), Centerior Indemnity Trust (``CIT''), 
Centerior Service Company (``Centerior Service''), FirstEnergy Service 
Company (``ServeCo''), GPU Capital, Inc. (``GPU Capital''), GPU 
Electric, Inc. (``GPU Electric''), GPU Diversified Holdings, LLC 
(``GPUDH''), GPU EnerTech Holdings, Inc. (``GPU EnerTech''), GPU Power, 
Inc. (``GPU Power''), GPU Advanced Resources, Inc. (``GPUAR''), GPU 
Telcom Services, Inc. (``GPU Telcom''), GPU Nuclear, Inc. (``GPU 
Nuclear''), and MYR Group, Inc. (``MYR''), and their respective 
subsidiaries; all based at 76 South Main Street, Akron, Ohio, 44308; 
(collectively, ``Applicants''), have filed an application-declaration, 
as amended (``Application''), under sections 6(a), 7, 9(a), 10, 12, and 
13(b) of the Act and rules 26(c), 42, 43, 45, 46, 53, 54, and 80-92 
under the Act.
    Applicants request authority to engage in various financing 
transactions, credit support arrangements, and other related proposals, 
as more fully discussed below, commencing on the effective date of an 
order issued in this proceeding and ending December 31, 2005 
(``Authorization Period'').

I. Introduction

    FirstEnergy is authorized under its Amended Articles of 
Incorporation to issue 375,000,000 shares of common stock, par value 
$.10 per share (``Common Stock''), of which 297,636,276 shares were 
issued and outstanding as of March 24, 2003. FirstEnergy is also 
authorized under its Amended Articles of Incorporation to issue 
5,000,000 shares of preferred stock, par value $100 per share 
(``Preferred Stock''), of which none are currently issued and 
outstanding. In addition, at December 31, 2002, FirstEnergy had 
outstanding $4,300,000,000 principal amount of senior unsecured notes 
having various maturity dates through 2032, and $395 million of 
unsecured borrowings under a $500 million revolving credit facility 
that expires in November 2004.
    FirstEnergy's senior unsecured debt is currently rated BBB-by 
Standard & Poor's Inc. (``S&P'') and Baa2 by Moody's Investor Service 
(``Moody's''). For the twelve months ended December 31, 2002, 
FirstEnergy had total operating revenues of $12,151,997,000, of which 
$9,165,805,000 (75.4%) were derived from electric utility operations 
and $2,986,192,000 (24.6%) from unregulated businesses. At December 31, 
2002, FirstEnergy had total consolidated assets of $33,580,773,000, 
including net utility plant of $11,820,797,000.
    FirstEnergy's electric and gas utility subsidiaries are referred to 
collectively as the ``Utility Subsidiaries.'' Ohio Edison, Cleveland 
Electric, Toledo Edison, JCP&L, Penelec, Penn Power and Met-Ed are 
sometimes referred to in the Application as the ``Primary Utility 
Subsidiaries.'' As used in this Application, the term ``Nonutility 
Subsidiaries'' includes the nonutility subsidiaries named above and 
their respective subsidiaries, as well as any other nonutility company 
later acquired or formed, directly or indirectly, by FirstEnergy under 
rule 58 or pursuant to an order of the Commission (including the order 
approving this Application). The Utility Subsidiaries and Nonutility 
Subsidiaries are referred to collectively as the ``Subsidiaries.'' 
FirstEnergy and the Subsidiaries are referred to collectively as the 
``Applicants.''

II. Current and Requested Financing Authority

    By order dated October 29, 2001, in File No. 70-9793 (Holding Co. 
Act Release No. 27459), as supplemented by supplemental orders dated 
November 8, 2001 (Holding Co. Act Release No. 27463) and December 23, 
2002 (Holding Co. Act Release No. 27628) (as so supplemented, the 
``Merger Order''), the Commission authorized the merger between 
FirstEnergy Corp. (``FirstEnergy''), and GPU, Inc. (``GPU''). The 
merger became effective on November 7, 2001, with FirstEnergy as the 
surviving entity, and FirstEnergy registered under the Act as a holding 
company on the same day. The Merger Order also authorized FirstEnergy 
and its subsidiaries to engage in a program of external financing, 
intrasystem financing, and other related transactions for the period 
through and including June 30, 2003.
    In the Merger Order, the Commission authorized, through June 30, 
2003, among other things:
    (i) FirstEnergy to issue and sell common stock, preferred 
securities, long-term debt, short-term debt and other securities;
    (ii) FirstEnergy to issue one purchase right (a ``Right'') together 
with each share of common stock issued in accordance with FirstEnergy's 
existing Rights Agreement (``Rights Agreement'');
    (iii) FirstEnergy to issue shares of common stock under its 
dividend reinvestment and stock-based management incentive and employee 
benefit plans (``Stock Plans'');
    (iv) FirstEnergy to enter into and perform interest rate hedging 
transactions (``Hedge Instruments'') to manage volatility of interest 
rates associated with its outstanding indebtedness and with respect to 
anticipated debt offerings (``Anticipatory Hedges'') (collectively, 
``Hedging Transactions'');
    (v) ATSI and NONGC to issue and sell additional debt or preferred 
securities on the same terms and conditions as FirstEnergy;
    (vi) the Utility Subsidiaries to enter into Hedge Instruments and 
Anticipatory Hedges subject to the same limitations as FirstEnergy;
    (vii) FirstEnergy to issue guarantees and provide other forms of 
credit support with respect to obligations of its Subsidiaries 
(``FirstEnergy Guarantees'') and Nonutility Subsidiaries (``Nonutility 
Subsidiary Guarantees'');
    (viii) FirstEnergy to establish and fund a money pool (``Utility 
Money Pool'') for the Utility Subsidiaries and the Utility Subsidiaries 
to make borrowings and extend credit to each other through the Utility 
Money Pool;
    (ix) FirstEnergy to establish and fund a separate money pool 
(``Nonutility Money Pool'') for the benefit of the Nonutility 
Subsidiaries;

[[Page 34427]]

    (x) FirstEnergy and the Nonutility Subsidiaries to make loans to 
less than wholly-owned Nonutility Subsidiaries;
    (xi) Applicants to acquire, directly or indirectly, the equity 
securities of one or more entities (``Financing Subsidiaries'') created 
specifically for the purpose of facilitating the financing of 
authorized and exempt activities of the Applicants and to provide 
guarantees and enter into expense agreements with respect to the 
securities or other obligations of Financing Subsidiaries;
    (xii) Applicants to organize and acquire the securities of one or 
more first-tier subsidiary companies (``Nonutility Holding Companies'') 
to act as holding companies for nonutility investments and to engage in 
internal reorganization transactions involving transfers of nonutility 
assets and Nonutility Subsidiaries to Nonutility Holding Companies;
    (xiii) Applicants to change the capitalization of FirstEnergy's 50% 
or more owned Subsidiaries;
    (xiv) FirstEnergy and certain of the Utility Subsidiaries to 
declare and pay dividends out of capital and unearned surplus and the 
Nonutility Subsidiaries to declare and pay dividends out of capital and 
unearned surplus;
    (xv) Applicants to acquire, directly or indirectly, the securities 
of one or more companies (``Intermediate Subsidiaries'') to acquire, 
hold and/or finance the acquisition of securities of or other interests 
in one or more exempt wholesale generators (``EWGs''), foreign utility 
companies (``FUCOs''), ``exempt telecommunications companies'' 
(``ETCs''), energy-related companies under rule 58 (``Rule 58 
Subsidiaries''), and other Nonutility Subsidiaries, and such 
Intermediate Subsidiaries are authorized to engage in preliminary 
development activities and administrative activities;
    (xvi) Certain Nonutility Subsidiaries (referred to as ``Energy 
Related Companies'') to engage in energy management and consulting 
activities anywhere outside the United States and energy marketing and 
related activities in Canada and Mexico;
    (xvii) FE ServCo, GPU ServCo and the Nonutility Subsidiaries to 
sell goods and services to associate companies at market prices in 
certain specified circumstances; and
    (xviii) FEFSG to provide maintenance and repair services to 
FirstEnergy's pre-merger Utility Subsidiaries (i.e., Ohio Edison, 
Toledo Edison, Cleveland Electric, Penn Power, NONGC and ATSI) at 
market prices (the ``At-Market Service Arrangements'').
    In addition, by orders dated May 21, 2001 (Holding Co. Act Release 
No. 27401), May 2, 2001 (Holding Co. Act Release No. 27391), December 
15, 2000 (Holding Co. Act Release No. 27302), June 22, 1999 (Holding 
Co. Act Release No. 26544), December 22, 1997 (Holding Co. Act Release 
No. 26801) and July 17, 1996 (Holding Co. Act Release No. 26544) in 
File No. 70-7926 (collectively, the ``Prior GPU Order''), JCP&L, Met-Ed 
and Penelec are currently authorized to issue and sell from time to 
time through December 31, 2003, commercial paper and other forms of 
short-term indebtedness having maturities of not more than nine months, 
and to provide security for such indebtedness.
    Applicants state that the authority sought in the Application will 
supersede and replace the current authorization of the Applicants under 
the Merger Order and Prior GPU Order to engage in the financing 
activities and related transaction described above.

IV. Financing Conditions

    Applicants' effective cost of money on new long-term debt 
securities having maturities of one year or more up to fifty years 
(``Long-term Debt'') of any series will not exceed at the time of 
issuance the greater of: (1) 500 basis points over the yield to 
maturity of a U.S. Treasury Security having a remaining term 
approximately equal to the term of such series of Long-term Debt or; 
(2) a gross spread over a U.S. Treasury Security that is consistent 
with similar securities of comparable credit quality and maturities 
issued by other companies. Applicants' dividend or distribution rate on 
any series of Preferred Stock and other forms of preferred securities 
(including trust preferred securities) (collectively, ``Preferred 
Securities'') will not exceed at the time of issuance the greater of: 
(1) 500 basis points over the yield to maturity of a U.S. Treasury 
Security having a remaining term equal to the term of such series of 
Preferred Securities or; (2) a rate that is consistent with similar 
securities of comparable credit quality and maturities (or perpetual 
preferred stock) issued by other companies. The effective cost of money 
on commercial paper, promissory notes and other forms of short-term 
indebtedness having maturities of less than one year (``Short-term 
Debt'') will not exceed the greater of: (1) 500 basis points over the 
comparable term London Interbank Offered Rate (``LIBOR''); or (2) a 
gross spread over LIBOR that is consistent with similar securities of 
comparable credit quality and maturities issued by other companies. All 
debt issued by FirstEnergy will be unsecured. Debt issued by any 
Utility Subsidiary in accordance with the authorization sought in this 
Application may be secured or unsecured. The maturity of any series of 
Long-term Debt will not exceed 50 years. All series of Preferred 
Securities (other than Preferred Stock, which may be perpetual) will be 
redeemed no later than 50 years after their issuance. The underwriting 
fees, commissions or other similar remuneration paid in connection with 
the non-competitive issue, sale or distribution of a security under the 
Application (not including any original issue discount) will not exceed 
5% of the principal or total amount of the security being issued.
    The proceeds from the sale of securities in external financing 
transactions will be used for general corporate purposes, including 
financing, in part, of the capital expenditures of FirstEnergy and its 
Subsidiaries, financing of working capital requirements of FirstEnergy 
and its Subsidiaries, the acquisition, retirement or redemption under 
rule 42 of securities previously issued by FirstEnergy or its 
Subsidiaries, and other lawful purposes, including direct or indirect 
investments in EWGs, FUCOs, ETCs, Rule 58 Subsidiaries, Energy Related 
Companies or other businesses approved by the Commission.
    In addition, financings by each Applicant will be subject to the 
following conditions: (1) FirstEnergy will maintain common equity as a 
percentage of consolidated capitalization (as reflected on the balance 
sheets contained in its most recent Form 10-K or Form 10-Q filed with 
the Commission pursuant to the Securities Exchange Act of 1934 (``1934 
Act''), and including short-term debt and current maturities of long-
term debt) at 30% or higher at all times during the Authorization 
Period; (2) each Primary Utility Subsidiary will maintain common equity 
as a percentage of consolidated capitalization (determined in the same 
manner specified above) at 30% or higher during the Authorization 
Period.
    The consequence of failing to maintain common equity of at least 
30% of consolidated capitalization when required is that FirstEnergy 
and its Subsidiaries (or if such failure were only by a Primary Utility 
Subsidiary, such company) would not be authorized to issue securities 
in a transaction subject to Commission approval except for securities 
which would result in an increase in such common equity percentage. 
FirstEnergy requests that the Commission reserve jurisdiction over the 
issuance of securities in those circumstances where FirstEnergy or a

[[Page 34428]]

Primary Utility Subsidiary does not comply with the 30% common equity 
criteria, pending completion of the record upon filing of a post-
effective amendment.
    Applicants further represent that, except for securities issued for 
the purpose of funding money pool operations, no guarantees or other 
securities, other than Common Stock, may be issued in reliance upon the 
authorization granted by the Commission pursuant to this Application, 
unless (i) the security to be issued, if rated, is rated investment 
grade; (ii) all outstanding securities of the issuer that are rated are 
rated investment grade; and (iii) all outstanding securities of the top 
level registered holding company that are rated are rated investment 
grade. For purposes of this provision, a security will be deemed to be 
rated ``investment grade'' if it is rated investment grade by at least 
one nationally recognized statistical rating organization, as that term 
is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under 
the 1934 Act. Applicants request that the Commission reserve 
jurisdiction over the issuance of any such securities that are rated 
below investment grade. Applicants further request that the Commission 
reserve jurisdiction over the issuance of any guarantee or other 
securities at any time that the conditions set forth in clauses (i) 
through (iii) above are not satisfied.

III. FirstEnergy External Financing

    FirstEnergy requests authority to increase its capitalization by 
issuing and selling from time to time during the Authorization Period, 
directly or indirectly through one or more Financing Subsidiaries: (1) 
Additional Common Stock and/or options, warrants, equity-linked 
securities or stock purchase contracts convertible into or exercisable 
for Common Stock, (2) Preferred Stock (3) Long-term Debt, and (4) 
Short-term Debt in an aggregate amount not to exceed $4.5 billion 
(excluding securities issued for purposes of refunding or replacing 
other outstanding securities where FirstEnergy's capitalization is not 
increased as a result) (``External Financing Limit''), provided that 
the aggregate amount of Short-term Debt at any time outstanding shall 
not exceed $1.5 billion. All securities issued by FirstEnergy in 
accordance with the authorization requested herein, including, without 
limitation, securities issued for the purpose of refunding or retiring 
outstanding securities, will comply with the applicable financing 
parameters set forth above. In addition, FirstEnergy seeks the 
flexibility to enter into certain hedging transactions to manage 
interest rate risk associated with indebtedness.

A. Common Stock

    FirstEnergy proposes to issue and sell Common Stock or options, 
warrants, equity-linked securities or other stock purchase rights 
exercisable for Common Stock. Common Stock financings may be effected 
in accord with underwriting agreements of a type generally standard in 
the industry. Public distributions may be made through private 
negotiation with underwriters, dealers or agents or effected through 
competitive bidding among underwriters. In addition, sales may be made 
through private placements or other non-public offerings to one or more 
persons. All such Common Stock sales will be at rates or prices and 
under conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets.
    FirstEnergy may sell Common Stock covered by this Application in 
any one of the following ways: (1) Through underwriters or dealers; (2) 
through agents; (3) directly to a limited number of purchasers or a 
single purchaser; or (4) directly to employees (or to trusts 
established for their benefit), shareholders and others through Stock 
Plans.
    Under rule 58 and sections 32, 33 and 34 of the Act, FirstEnergy is 
or will be authorized to acquire securities of companies engaged in 
functionally related businesses, Rule 58 Subsidiaries, EWGs, FUCOs, 
ETCs and, to the extent approved in this proceeding, Energy Related 
Companies. In connection with any of these transactions, FirstEnergy 
may conclude that it would be advantageous for tax or other reasons to 
issue shares of Common Stock or options, warrants or other stock 
purchase rights exercisable for Common Stock as consideration for the 
equity securities or assets of other companies to be acquired, provided 
that the acquisition of any such equity securities or assets has been 
authorized in this proceeding or in a separate proceeding or is exempt 
under the Act or the rules under the Act.
    Under the Merger Order, the Commission authorized FirstEnergy to 
implement the terms of a Rights Agreement, dated as of November 18, 
1997, between FirstEnergy and The Bank of New York, as rights agent 
(``Rights Agreement''). Under the Rights Agreement, FirstEnergy 
assigned one Right for each outstanding share of Common Stock. The 
Rights expire on November 28, 2007. Each Right entitles the registered 
holder of the associated share of Common Stock to purchase from 
FirstEnergy one share of Common Stock at a price of $70 per share (the 
``Purchase Price'') when the Rights become exercisable, subject to 
adjustment following certain specified takeover events such that a 
holder of a Right (other than any ``Acquiring Persons,'' as defined in 
the Rights Agreement) would have the right to receive, upon exercise 
thereof, shares of Common Stock having a current value equal to double 
the Purchase Price. FirstEnergy requests a continuation through the 
Authorization Period of its authority under the Merger Order to 
implement the Rights Agreement. Any shares of Common Stock issued upon 
exercise of the Rights will not be counted against the External 
Financing Limit.

B. Preferred Securities

    Applicants request authorization during the Authorization Period to 
issue Preferred Stock or other types of Preferred Securities 
(including, without limitation, trust preferred securities or monthly 
income preferred securities) directly or indirectly through one or more 
special-purpose Financing Subsidiaries organized by FirstEnergy. 
Preferred Stock or other types of Preferred Securities may be issued in 
one or more series with such rights, preferences and priorities as may 
be designated in the instrument creating each such series, as 
determined by FirstEnergy's Board of Directors. Dividends or 
distributions on Preferred Securities will be made periodically and to 
the extent funds are legally available for such purpose, but may be 
made subject to terms which allow the issuer to defer dividend payments 
for specified periods. Preferred Securities may be convertible or 
exchangeable into shares of FirstEnergy Common Stock or indebtedness. 
Preferred Securities may be sold directly through underwriters or 
dealers in connection with an acquisition.

C. Long-Term Debt

    Applicants request authority to issue Long-term Debt directly by 
FirstEnergy or indirectly through one or more Financing Subsidiaries 
organized by FirstEnergy in the form of bonds, notes, medium-term notes 
or debentures under one or more indentures (each, the ``FirstEnergy 
Indenture'') or long-term indebtedness under agreements with banks or 
other institutional lenders. Each series of Long-term Debt would have 
such designation, aggregate principal amount, maturity, interest 
rate(s) or methods of determining the

[[Page 34429]]

same, terms of payment of interest, redemption provisions, sinking fund 
terms and other terms and conditions as FirstEnergy may determine at 
the time of issuance. Any Long-term Debt (a) may be convertible into 
any other securities of FirstEnergy, (b) will have maturities ranging 
from one to 50 years, (c) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount thereof, (d) may be entitled to mandatory or 
optional sinking fund provisions, (e) may provide for reset of the 
coupon under a remarketing arrangement, (f) may be subject to tender or 
the obligation of the issuer to repurchase at the election of the 
holder or upon the occurrence of a specified event, (g) may be called 
from existing investors by a third party and (h) may be entitled to the 
benefit of affirmative or negative financial or other covenants.

D. Short-Term Debt

    FirstEnergy seeks authority to issue additional Short-term Debt in 
the form of commercial paper, promissory notes and/or other forms of 
short-term indebtedness in an aggregate principal amount at any time 
outstanding not to exceed $1.5 billion.
    FirstEnergy proposes to establish from time to time new committed 
bank lines of credit, provided that only the principal amount of any 
borrowings outstanding under these new committed bank lines of credit 
will be counted against the proposed Short-term Debt limit. Credit 
lines may be set up for use by FirstEnergy for general corporate 
purposes in addition to credit lines to support commercial paper as 
described in this subsection. FirstEnergy will borrow and repay under 
these lines of credit, from time to time, as it is deemed appropriate 
or necessary. All borrowings under these credit lines will mature in 
less than one year. FirstEnergy may also engage in other types of 
short-term financing, including borrowings under uncommitted lines, 
generally available to borrowers with comparable credit ratings as it 
may deem appropriate in light of its needs and market conditions at the 
time of issuance.
    FirstEnergy may also sell commercial paper in established domestic 
or European commercial paper markets, from time to time, and this 
commercial paper would be sold to dealers at the discount rate or the 
coupon rate per annum prevailing at the date of issuance for commercial 
paper of comparable quality and maturities sold to commercial paper 
dealers generally. It is expected that the dealers acquiring commercial 
paper from FirstEnergy will reoffer such paper at a discount to 
corporate, institutional and, with respect to European commercial 
paper, individual investors. Institutional investors are expected to 
include commercial banks, insurance companies, pension funds, 
investment trusts, foundations, colleges and universities and finance 
companies.

E. Hedging Transactions

1. Interest Rate Hedges
    FirstEnergy requests a continuation of its authority to enter into 
and perform Hedge Instruments in order to reduce or manage the 
volatility of interest rates on its or its Subsidiaries' outstanding 
indebtedness, including but not limited to interest rate swaps, caps, 
floors, collars and forward agreements or any other similar agreements. 
Hedge Instruments may also include issuance of structured notes (i.e., 
a debt instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury or Agency (e.g., FNMA) obligations or LIBOR-based swap 
instruments. The transactions would be for fixed periods and stated 
notional amounts. FirstEnergy would employ Hedge Instruments as a means 
of prudently managing the risk associated with any of its or its 
Subsidiaries' outstanding debt issued under this authorization or an 
applicable exemption by, in effect, synthetically (i) converting 
variable rate debt to fixed rate debt, (ii) converting fixed rate debt 
to variable rate debt and (iii) limiting the impact of changes in 
interest rates resulting from variable rate debt. In no case will the 
notional principal amount of any interest rate swap exceed the greater 
of the value of the underlying debt instrument or the present market 
value of the underlying debt instrument and related interest rate 
exposure. Each Hedge Instrument will be entered into for a fixed or 
determinable period. Thus, FirstEnergy will not engage in speculative 
transactions. FirstEnergy will only enter into agreements with 
counterparties (``Approved Counterparties'') whose senior debt ratings, 
as published by a national recognized rating agency, are greater than 
or equal to ``BBB,'' or an equivalent rating.
2. Anticipatory Hedges
    In addition, FirstEnergy requests authorization to enter into and 
perform Anticipatory Hedges with respect to its or its Subsidiaries' 
anticipated debt offerings, subject to certain limitations and 
restrictions. These Anticipatory Hedges would only be entered into with 
Approved Counterparties, and would be utilized to fix and/or limit the 
interest rate risk associated with any new issuance through (1) a 
forward sale of exchange-traded Hedge Instruments (a ``Forward Sale''), 
(2) the purchase of put options on Hedge Instruments (a ``Put Options 
Purchase''), (3) a Put Options Purchase in combination with the sale of 
call options Hedge Instruments (a ``Zero Cost Collar''), (4) 
transactions involving the purchase or sale, including short sales, of 
Hedge Instruments, or (5) some combination of a Forward Sale, Put 
Options Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including, but not limited to, structured notes, caps and 
collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges 
may be executed on-exchange (``On-Exchange Trades'') with brokers 
through the opening of futures and/or options positions traded on the 
Chicago Board of Trade, the opening of over-the-counter positions with 
one or more counterparties (``Off-Exchange Trades''), or a combination 
of On-Exchange Trades and Off-Exchange Trades. FirstEnergy or the 
appropriate Subsidiary will determine the optimal structure of each 
Anticipatory Hedge transaction at the time of execution. FirstEnergy or 
the appropriate Subsidiary may decide to lock in interest rates and/or 
limit its exposure to interest rate increases.
    FirstEnergy will comply with Statement of Financial Accounting 
Standards (``SFAS'') 133 (``Accounting for Derivative Instruments and 
Hedging Activities'') and SFAS 138 (``Accounting for Certain Derivative 
Instruments and Certain Hedging Activities'') or such other standards 
relating to accounting for derivative transactions as are adopted and 
implemented by the Financial Accounting Standards Board (``FASB''). The 
Hedge Instruments and Anticipatory Hedges approved hereunder will 
qualify for hedge accounting treatment under the current FASB standards 
in effect and as determined at the date such Hedge Instruments or 
Anticipatory Hedges are entered into. FirstEnergy also requests 
authority to enter into Hedge Instruments and Anticipatory Hedges which 
do not qualify for hedge accounting treatment by the FASB, and requests 
that the Commission reserve jurisdiction on this request until the 
record is complete.

[[Page 34430]]

V. Utility Subsidiary Financing

    JCP&L, Penn Power, Penelec, Met-Ed, ATSI and NONGC will rely on 
rule 52 for all securities issuances except for the issuance of short-
term debt securities, which is exempt from approval in the applicable 
states and therefore is subject to Commission approval under the Act. 
As previously indicated, JCP&L, Penelec and Met-Ed are currently 
authorized under the Prior GPU Order to issue and sell short-term 
indebtedness from time to time through December 31, 2003.\1\ In this 
proceeding, JCP&L, Penelec and Met-Ed are requesting authority to 
increase and extend their current authorization to issue short-term 
debt securities through the Authorization Period.
---------------------------------------------------------------------------

    \1\ York Haven and Waverly Electric will continue to obtain 
financing through intercompany borrowings from their parent 
corporations or otherwise through the Utility Money Pool and likely 
will not engage in third-party financing.
---------------------------------------------------------------------------

    Specifically, JCP&L, Penn Power, Met-Ed, Penelec, ATSI and NONGC 
propose to issue and sell Short-term Debt in the form of commercial 
paper, promissory notes and/or other forms of short-term indebtedness 
in an aggregate principal amount at any time outstanding not to exceed 
(i) in the case of JCP&L and Penn Power, the limitation on short-term 
indebtedness contained in their respective charters ($428 million and 
$50 million, respectively, as of December 31, 2002), (ii) $250 million 
in the case of each of Penelec and Met-Ed, (iii) $500 million in the 
case of ATSI, and (iv) $20 million in the case of NONGC. Commercial 
paper may be sold to dealers in established domestic or European 
commercial paper markets from time to time in the manner described 
above. In addition, JCP&L, Penn Power, Penelec, Met-Ed, ATSI and NONGC 
may establish and renew from time to time committed bank lines of 
credit, and engage in other types of short-term financing, including 
borrowings under uncommitted lines, generally available to borrowers 
with comparable credit ratings as they deem appropriate in light of 
their needs and market conditions at the time of borrowing. All Short-
term Debt issued by JCP&L, Penn Power, Penelec, Met-Ed, ATSI and NONGC 
will comply with the parameters for Short-term Debt set forth above.
    To the extent not exempt under rule 52, the Utility Subsidiaries 
request authority to enter into and perform Hedge Instruments and 
Anticipatory Hedges subject to the limitations and requirements 
applicable to FirstEnergy described above.

VI. Guarantees and Intrasystem Money Pools

A. Guarantees
    FirstEnergy requests a continuation of its current authorization to 
provide FirstEnergy Guarantees with respect to the obligations of its 
Subsidiaries as may be appropriate or necessary to enable the 
Subsidiaries to carry on in the ordinary course of their respective 
businesses, including guarantees of non-affiliated third-party 
obligations in the ordinary course of FirstEnergy's business, in an 
aggregate amount that together with Nonutility Subsidiary Guarantees, 
shall not exceed $4.0 billion (``Guarantee Limit'') outstanding at any 
one time, including obligations exempt under rule 45 and guarantees and 
other forms of credit support provided by FirstEnergy or any Nonutility 
Subsidiary that are outstanding on the effective date of the order 
issued in this proceeding. FirstEnergy requests that the Commission 
reserve jurisdiction over the issuance of guarantees for the benefit of 
non-affiliated third parties.
    In addition to guarantees that may be provided by FirstEnergy, the 
Nonutility Subsidiaries request authority during the Authorization 
Period to provide to other Nonutility Subsidiaries guarantees and other 
forms of credit support (``Nonutility Subsidiary Guarantees''). The 
Nonutility Subsidiary Guarantees, together with FirstEnergy Guarantees, 
will not exceed the Guarantee Limit outstanding at any one time. The 
Nonutility Subsidiary providing any such credit support may charge its 
associate company a fee for each guarantee provided on its behalf 
determined in the same manner as specified above. Any guarantees or 
other credit support arrangements outstanding at the end of the 
Authorization Period will remain in place and expire or terminate in 
accordance with their terms.
B. Money Pools
    FirstEnergy and the Utility Subsidiaries request authorization to 
continue to maintain and fund the Utility Money Pool, and the Utility 
Subsidiaries, to the extent not exempt by rule 52, also request 
authorization to make unsecured short-term borrowings from the Utility 
Money Pool and to contribute surplus funds to the Utility Money Pool 
and to lend and extend credit to (and acquire promissory notes from) 
one another through the Utility Money Pool. No loans through the 
Utility Money Pool may be made to, and no borrowings through the 
Utility Money Pool may be made by, FirstEnergy.
    In addition, FirstEnergy and the remaining Subsidiaries, all of 
which are Nonutility Subsidiaries, request authorization to continue to 
maintain and fund the Nonutility Money Pool. Borrowings and extensions 
of credit under the Nonutility Money Pool by the Nonutility 
Subsidiaries are exempt from the prior approval requirements of the Act 
under rules 45(b) and 52. To the extent not exempt under rules 45(b) 
and 52, FirstEnergy is requesting authorization to contribute surplus 
funds and to lend and extend credit to (i) the Utility Subsidiaries 
through the Utility Money Pool and (ii) the Nonutility Subsidiaries 
through the Nonutility Money Pool.
    Under the Utility Money Pool agreement, short-term funds are 
available from the following sources for short-term loans to the 
Utility Subsidiaries from time to time: (1) surplus funds in the 
treasuries of Utility Money Pool participants other than FirstEnergy; 
(2) surplus funds in the treasury of FirstEnergy (funds in clauses (1) 
and (2) being referred to as ``Internal Funds''); and (3) proceeds from 
bank borrowings by Utility Money Pool participants or the sale of 
commercial paper by FirstEnergy or the Utility Subsidiaries for loan to 
the Utility Money Pool (such funds being referred to as ``External 
Funds''). Utility Money Pool participants that borrow would borrow pro 
rata from each company that lends, in the proportion that the total 
amount loaned by each such lending company bears to the total amount 
then loaned through the Utility Money Pool. On any day when more than 
one fund source (e.g., if there are External Funds as well as Internal 
Funds), with different rates of interest, is used to fund loans through 
the Utility Money Pool, each borrower would borrow pro rata from each 
such fund source in the Utility Money Pool in the same proportion that 
the amount of funds provided by that fund source bears to the total 
amount of short-term funds available to the Utility Money Pool. ATSI, 
NONGC, Waverly Electric and York Haven each requests authorization to 
borrow up to $50 million at any time outstanding under the Utility 
Money Pool.
    If only Internal Funds make up the funds available in the Utility 
Money Pool, the interest rate applicable and payable to or by Utility 
Subsidiaries for all loans of such Internal Funds will be the greater 
of the 30-day LIBOR rate as quoted in The Wall Street Journal or the 
money market rate that a lending participant could have obtained if it 
placed its excess cash in such an investment.

[[Page 34431]]

    If only External Funds comprise the funds available in the Utility 
Money Pool, the interest rate applicable to loans of such External 
Funds would be equal to the lending company's cost for such External 
Funds (or, if more than one Utility Money Pool participant had made 
available External Funds on such day, the applicable interest rate 
would be a composite rate equal to the weighted average of the cost 
incurred by the respective Utility Money Pool participants for such 
External Funds).
    In cases where both Internal Funds and External Funds are 
concurrently borrowed through the Utility Money Pool, the rate 
applicable to all loans comprised of such ``blended'' funds would be a 
composite rate equal to the weighted average of (a) the cost of all 
Internal Funds contributed by Utility Money Pool participants (as 
determined pursuant to the second-preceding paragraph above) and (b) 
the cost of all such External Funds (as determined pursuant to the 
immediately preceding paragraph above). In circumstances where Internal 
Funds and External Funds are available for loans through the Utility 
Money Pool, loans may be made exclusively from Internal Funds or 
External Funds, rather than from a ``blend'' of such funds, to the 
extent it is expected that such loans would result in a lower cost of 
borrowings.
    Funds not required by the Utility Money Pool to make loans (with 
the exception of funds required to satisfy the Utility Money Pool's 
liquidity requirements) would ordinarily be invested in one or more 
short-term investments, including: (i) Interest-bearing accounts with 
banks; (ii) obligations issued or guaranteed by the U.S. government 
and/or its agencies and instrumentalities, including obligations under 
repurchase agreements; (iii) obligations issued or guaranteed by any 
state or political subdivision thereof, provided that such obligations 
are rated not less than ``A'' by a nationally recognized rating agency; 
(iv) commercial paper rated not less than ``A-1'' or ``P-1'' or their 
equivalent by a nationally recognized rating agency; (v) money market 
funds; (vi) bank certificates of deposit; (vii) Eurodollar funds; and 
(viii) such other investments as are permitted by section 9(c) of the 
Act and rule 40 under the Act.
    The Nonutility Money Pool is operated on the same terms and 
conditions as the Utility Money Pool, except that FirstEnergy funds 
made available to the two money pools are made available to the Utility 
Money Pool first and thereafter to the Nonutility Money Pool. Under the 
Nonutility Money Pool agreement, no loans may be made to, and no 
borrowings may be made by, FirstEnergy. All contributions to, and 
borrowings from, the Nonutility Money Pool are exempt pursuant to the 
terms of rule 52 under the Act.
    Under the Merger Order, all existing Nonutility Subsidiaries of 
FirstEnergy and GPU at the time of the merger were authorized to 
participate in the Nonutility Money Pool.

VII. Other Borrowings

    In the limited circumstances where the Nonutility Subsidiary making 
the borrowing is not wholly owned by FirstEnergy, directly or 
indirectly, authority is requested under the Act for FirstEnergy or a 
Nonutility Subsidiary, as the case may be, to make such loans to such 
Subsidiaries at interest rates and maturities designed to provide a 
return to the lending company of not less than its effective cost of 
capital. If these loans are made to a less than wholly-owned Nonutility 
Subsidiary, such company will not sell any services to any associate 
Nonutility Subsidiary unless such purchasing company falls within one 
of the categories of companies to which goods and services may be sold 
on a basis other than ``at cost'' as described in the Application.

VIII. Other Transactions

A. Financing Subsidiaries
    FirstEnergy and the Subsidiaries request authority to acquire, 
directly or indirectly, the equity securities of one or more Financing 
Subsidiaries. Financing Subsidiaries may be corporations, trusts, 
partnerships or other entities created specifically for the purpose of 
facilitating the financing of the authorized and exempt activities 
(including exempt and authorized acquisitions) of FirstEnergy and the 
Subsidiaries through the issuance of Long-term Debt or Preferred 
Securities, to third parties and the transfer of the proceeds of such 
financings to FirstEnergy or these Subsidiaries.
    FirstEnergy and, to the extent not exempt under rule 52, 
Subsidiaries also request authorization to issue their subordinated 
unsecured notes (``Subordinated Notes'') to any Financing Subsidiary to 
evidence the loan of financing proceeds by a Financing Subsidiary to 
its parent company. The principal amount, maturity and interest rate on 
any such Subordinated Notes will be designed to parallel the amount, 
maturity and interest or distribution rate on the securities issued by 
a Financing Subsidiary in respect of which the Subordinated Note is 
issued. FirstEnergy or a Subsidiary may, if required, guarantee or 
enter into support or expense agreements in respect of the obligations 
of any such Financing Subsidiaries. Subsidiaries may also provide 
guarantees and enter into support or expense agreements, if required, 
on behalf of Financing Subsidiaries. The guarantees of securities 
issued by Financing Subsidiaries shall not be counted against the 
Guarantee Limit. The amount of securities issued by any Financing 
Subsidiary to third parties in accordance with the authorization 
requested in this Application will be included in the overall external 
financing limitation, if any, authorized for the immediate parent 
company of such Financing Subsidiary. However, the amount of 
Subordinated Notes issued by a parent company to its Financing 
Subsidiary will not be counted against such external financing 
limitation. Securities issued by any Financing Subsidiary to third 
parties shall be exempt under rule 52 (and therefore reportable on Form 
U-6B-2) only if such securities, if issued directly by the parent 
company of the Financing Subsidiary, would be exempt under rule 52.
B. Nonutility Subsidiary Reorganizations
    FirstEnergy requests authority, to the extent needed, to sell or 
otherwise transfer (i) nonutility businesses, (ii) the securities of 
current Subsidiaries engaged in some or all of these nonutility 
businesses or (iii) investments which do not involve a Subsidiary 
(i.e., less than 10% voting interest) to a Nonutility Holding Company 
or a Subsidiary of Nonutility Holding Company, and, to the extent 
approval is required, such Nonutility Holding Company or any such 
Subsidiary of a Nonutility Holding Company requests authority to 
acquire the assets of such businesses, securities or other investment 
interests. Alternatively, transfers of such securities or assets may be 
effected by share exchanges, share distributions or dividends followed 
by contribution of such securities or assets to the receiving 
entity.\2\
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    \2\ The transactions proposed will not involve the sale or other 
disposition of any utility assets of the Utility Subsidiaries and 
will not involve any corporate reorganization involving the Utility 
Subsidiaries. The approval sought also does not extend to the 
acquisitions of any new businesses or activities.
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    Following its direct or indirect acquisition of the securities of 
new Nonutility Subsidiaries, FirstEnergy may determine to transfer such

[[Page 34432]]

securities or the assets of such Nonutility Subsidiaries and/or 
Nonutility Subsidiaries existing as of the date of the Merger, to other 
direct or indirect Nonutility Subsidiaries or to liquidate or merge 
Nonutility Subsidiaries. FirstEnergy requests authority to engage in 
these transactions, to the extent that they are not exempt under the 
Act, through the Authorization Period.
C. Changes in Capital Stock of Majority Owned Subsidiaries
    Applicants state that proposed sales of capital securities (i.e., 
common stock or Preferred Stock) may in some cases exceed the then 
authorized capital stock of a Subsidiary. In addition, the Subsidiary 
may choose to use capital stock with no par value. Therefore, 
Applicants request authority to change the terms of any 50% or more 
owned Subsidiary's authorized capital stock capitalization or other 
equity interests by an amount deemed appropriate by FirstEnergy or 
other intermediate parent company; provided that the consents of all 
other shareholders have been obtained for the proposed change. This 
request for authorization is limited to FirstEnergy's 50% or more owned 
Subsidiaries and will not affect the aggregate limits or other 
conditions contained in this Application. A Subsidiary would be able to 
change the par value, or change between par value and no-par stock, or 
change the form of such equity from common stock to limited partnership 
or limited liability company interests or similar instruments, or from 
such instruments to common stock, without additional Commission 
approval. Any such action by a Utility Subsidiary would be subject to 
and would only be taken upon the receipt of any necessary approvals by 
the state commission in the state or states where the Utility 
Subsidiary is incorporated and doing business. FirstEnergy will be 
subject to all applicable laws regarding the fiduciary duty of fairness 
of a majority shareholder to minority shareholders in any such 50% or 
more owned Subsidiary and will undertake to ensure that any change 
implemented under this paragraph is consistent with such legal 
requirements.
D. Payment of Dividends
    FirstEnergy also proposes, on behalf of every direct or indirect 
Nonutility Subsidiary, that such companies be permitted to pay 
dividends with respect to the securities of such companies and/or 
acquire, retire or redeem any securities of such companies that are 
held by an associate company or affiliate, from time to time, through 
the Authorization Period, out of capital or unearned surplus, to the 
extent permitted under applicable corporate law. Without further 
approval of the Commission, no Nonutility Subsidiary will declare or 
pay any dividend and/or acquire, retire or redeem any security of such 
company held by any associate company or affiliate out of capital or 
unearned surplus if that Nonutility Subsidiary derives any material 
part of its revenues from sales of goods, services, electricity or 
natural gas to any of the Utility Subsidiaries.
E. EWGs and FUCOs
    Under the Merger Order, FirstEnergy was authorized to utilize the 
proceeds of authorized financing to increase its ``aggregate 
investment'' in EWGs and FUCOs to $5 billion, which includes 
FirstEnergy's and GPU's investments in EWGs and FUCOs at the time of 
the merger (``Current Investment'') and amounts relating to certain 
facilities owned by Ohio Edison, Cleveland Electric, Toledo Edison, and 
Penn Power that may be transferred to EWGs (``GenCo Investments''). 
FirstEnergy committed that, during the authorization period under the 
Merger Order, new investments in EWGs and FUCOs would not exceed $1.5 
billion and requested the Commission to reserve jurisdiction over an 
``aggregate investment'' in EWGs and FUCOs, other than Current 
Investment and GenCo Investments, in an amount over $1.5 billion 
(``Other Investments''). FirstEnergy is requesting a continuation, 
without change, of these limitations through the Authorization Period 
as applied to utilization of proceeds of financing authorized in this 
proceeding. FirstEnergy requests that the Commission continue to 
reserve jurisdiction over Other Investments that exceed such $1.5 
billion amount.
F. Stock and Incentive Plans
    FirstEnergy proposes, from time to time during the Authorization 
Period, to issue and/or acquire in open market transactions or by some 
other method which complies with applicable law and Commission 
interpretations then in effect for the purpose of reissuance up to 30 
million additional shares of Common Stock under the FirstEnergy Stock 
Investment Plan and other existing dividend reinvestment and stock-
based management incentive and employee benefit plans (``Stock Plans'') 
described in the Application. Any newly issued shares of Common Stock 
will be counted against the External Financing Limit; shares of Common 
Stock purchased in the open market or otherwise acquired for the 
purpose of reissuance under Stock Plans will not be counted against the 
External Financing Limit.
G. Tax Allocation Agreement
    In the Merger Order, the Commission reserved jurisdiction over, 
among other things, a proposed tax allocation agreement (``Tax 
Allocation Agreement'') that will allocate consolidated tax liability 
among FirstEnergy and its Subsidiaries.
    FirstEnergy financed the cash portion of the consideration paid in 
connection with the merger with GPU, approximately $2.2 billion, with 
borrowings under a credit agreement with a group of banks (the ``Bank 
Bridge Loan''). Amounts outstanding under the Bank Bridge Loan were to 
be repaid by October 1, 2002 and carried an initial interest rate of 
LIBOR plus 1.25% per annum. Additional funds from the Bank Bridge Loan 
were used to repay approximately $1.5 billion of the short-term 
indebtedness of GPU and its subsidiaries outstanding immediately prior 
to the consummation of the Merger and to repay approximately $300 
million of FirstEnergy's short-term indebtedness. Subsequently, on 
November 15, 2001, FirstEnergy issued $4 billion aggregate principal 
amount of unsecured notes (``Notes'') having maturities of 2006 through 
2031, the proceeds of which were used to repay in full the amounts 
outstanding under the Bank Bridge Loan.
    As used in the Application, the term ``Acquisition Debt'' includes 
that portion of the proceeds of the Notes used to repay the portions of 
the Bank Bridge Loan related to the $2.2 billion merger-related cash 
consideration and the $1.5 billion GPU-related short-term indebtedness. 
The term also includes indebtedness that may be incurred by FirstEnergy 
during the Authorization Period for the purposes of refinancing any of 
the foregoing indebtedness.
    Applicants request that the Commission authorize FirstEnergy and 
its Subsidiaries to enter into and allocate consolidated income taxes 
in accordance with the Tax Allocation Agreement. Under the proposed Tax 
Allocation Agreement, the consolidated tax would be allocated among the 
members of the group in proportion to the separate return tax liability 
of each member, provided that the tax apportioned to any subsidiary 
company of FirstEnergy will not exceed the ``separate return tax'' 
liability of such subsidiary. The Tax Allocation Agreement further 
provides that FirstEnergy will retain the benefit (in the form of the 
reduction in

[[Page 34433]]

consolidated tax) that is attributable to the interest expense on the 
Acquisition Debt, rather than reallocate that tax savings to its 
subsidiary companies.
H. Investments in Nonutility Subsidiaries
    First Energy seeks approvals to engage in certain activities 
described below relating to EWGs, FUCOs, ETCs (collectively, ``Exempt 
Subsidiaries''), Rule 58 Subsidiaries and Energy Related Companies and 
make additional investments in other Nonutility Subsidiaries approved 
by the Commission (collectively, ``Non-Exempt Subsidiaries''). 
Applicants state that to the extent any of these activities described 
in this Application constitute the providing of goods, services or 
construction from one associate company to another in the FirstEnergy 
system which would be subject to section 13 of the Act, these goods, 
services or construction will be provided at-cost as defined in rules 
90 and 91 unless an exemption from the at cost requirement is available 
under rule 90(d) or otherwise approved in the Commission's order in 
this proceeding.
    In the future, FirstEnergy proposes to make additional investments 
in Energy Related Companies (which, but for non-U.S. activities, would 
be Rule 58 Subsidiaries) in the form of purchases of common stock and 
other securities, capital contributions, loans or open account 
advances, guarantees, or any combination of the foregoing. It is also 
contemplated that Energy Related Companies may issue securities from 
time to time under the exemption provided in rule 52 to investors other 
than FirstEnergy for the purpose of financing their operations. Direct 
or indirect investments by FirstEnergy in Energy Related Companies 
would be subject to the limitations applicable to investments in Rule 
58 Subsidiaries. However, to the extent approved by the Commission, 
Energy Related Companies will not be subject to the ``U.S. only'' 
restriction of rule 58.
    In connection with existing and future nonutility businesses, 
FirstEnergy will engage directly or through Subsidiaries in preliminary 
development activities (``Development Activities'') and administrative 
and management activities (``Administrative Activities'') associated 
with such investments. Development Activities will be limited to: due 
diligence and design review; market studies; preliminary engineering; 
site inspection; preparation of bid proposals, including, in connection 
therewith, posting of bid bonds; application for required permits and/
or regulatory approvals; acquisition of site options and options on 
other necessary rights; negotiation and execution of contractual 
commitments with owners of existing facilities, equipment vendors, 
construction firms, power purchasers, thermal ``hosts,'' fuel suppliers 
and other project contractors; negotiation of financing commitments 
with lenders and other third-party investors; and such other 
preliminary activities as may be required in connection with the 
purchase, acquisition or construction of facilities or the securities 
of other companies. FirstEnergy proposes to expend directly or through 
Nonutility Subsidiaries up to $300 million in the aggregate outstanding 
at any time during the Authorization Period on all such Development 
Activities. Administrative Activities will include ongoing personnel, 
accounting, engineering, legal, financial and other support activities 
necessary to manage Development Activities and investments in 
Subsidiaries.
    FirstEnergy proposes to acquire directly or indirectly the 
securities of one or more corporations, trusts, partnerships, limited 
liability companies or other entities (collectively, ``Intermediate 
Subsidiaries''), which would be organized exclusively for the purpose 
of acquiring, holding and/or financing the acquisition of the 
securities of or other interest in one or more Exempt Subsidiaries, 
Rule 58 Subsidiaries, Energy Related Companies or other Non-Exempt 
Subsidiaries, provided that Intermediate Subsidiaries may also engage 
in Development Activities and Administrative Activities. To the extent 
such transactions are not exempt from the Act or otherwise authorized 
or permitted by rule, regulation or order of the Commission, 
FirstEnergy requests authority for Intermediate Subsidiaries to engage 
in the activities described above. To the extent that FirstEnergy 
provides funds directly or indirectly to an Intermediate Subsidiary 
which are used for the purpose of making an investment in any EWG or 
FUCO, a Rule 58 Subsidiary or an Energy Related Company, the amount of 
such funds will be included in FirstEnergy's ``aggregate investment'' 
in these entities, as calculated in accordance with rule 53 or rule 58, 
as applicable.
I. Sale of Certain Goods and Services Outside the United States
    FirstEnergy requests that the Commission authorize the Energy 
Related Companies to engage in sales of certain goods and services 
outside the United States. Specifically, Applicants request that the 
Commission: (i) Approve the sale of energy management services and 
consulting services anywhere outside the United States, (ii) approve 
the sale of energy marketing in Canada and Mexico and retain 
jurisdiction with respect to energy marketing elsewhere outside the 
United States, and (iii) retain jurisdiction over the sale of 
infrastructure services anywhere outside the United States. The 
descriptions of these activities and the terms of the requests for 
reservation of jurisdiction are the same as in the Merger Order.
    In addition, FirstEnergy requests authority to provide through 
Subsidiaries other energy-related goods and services. These include 
incidental goods and services closely related to the consumption of 
energy and the maintenance of energy consuming property by customers. 
The need for these goods and services would arise as a result of, or 
evolve out of, the goods and services described above and do not differ 
materially from those goods and services. The proposed incidental goods 
and services would not involve the manufacture of energy consuming 
equipment but could be related to, among other things, the maintenance, 
financing, sale or installation of such equipment.

IX. Service Company Approvals

A. Transactions Involving Certain Categories of Nonutility Companies
    The Applicants request authorization for FE ServCo, GPUS and the 
Nonutility Subsidiaries to enter into agreements to provide 
construction, goods or services to certain associate companies at fair 
market prices determined without regard to cost and therefore requests 
an exemption (to the extent that rule 90(d) of the Act does not apply) 
under section 13(b) from the cost standards of rules 90 and 91.
    FirstEnergy requests relief, if the client company is: (1) A FUCO 
or an EWG that derives no part of its income, directly or indirectly, 
from the generation, transmission, or distribution of electric energy 
for sale within the United States; (2) an EWG that sells electricity at 
market-based rates which have been approved by FERC or an appropriate 
state public utility commission, provided that the purchaser of the 
EWG's electricity is not an affiliated public utility or an affiliate 
that re-sells such power to an affiliated public utility; (3) a QF that 
sells electricity exclusively at rates negotiated at arm's length to 
one or more industrial or commercial customers purchasing such 
electricity for their own use and not for resale, or

[[Page 34434]]

to an electric utility company other than an affiliated electric 
utility at the purchaser's ``avoided cost'' determined under PURPA; (4) 
an EWG or a QF that sells electricity at rates based upon its costs of 
service, as approved by FERC or any state public utility commission 
having jurisdiction, provided that the purchaser of the electricity is 
not an affiliated public utility; or (5) a Rule 58 Subsidiary or any 
other Nonutility Subsidiary that (a) is partially owned, provided that 
the ultimate purchaser of goods or services is not a Utility 
Subsidiary, (b) is engaged solely in the business of developing, 
owning, operating and/or providing services or goods to Nonutility 
Companies described in (1) through (4) above or (c) does not derive, 
directly or indirectly, any part of its income from sources within the 
United States and is not a public-utility company operating within the 
United States.
B. Continuation of Interim Exemption
    Under the Merger Order, FEFSG is authorized to provide maintenance 
and repair services to FirstEnergy's pre-merger Utility Subsidiaries 
(namely, Ohio Edison, Toledo Edison, Cleveland Electric, Penn Power, 
NONGC and ATSI) under certain At-Market Service Arrangements. The 
Merger Order granted an interim exemption under section 13(b) of the 
Act permitting FEFSG to provide such services at market rates 
determined without regard to cost. This interim exemption will expire 
on June 30, 2003. Applicants note that several of the longer-term At-
Market Service Arrangements are still in place. FEFSG therefore 
requests that the Commission extend such interim exemption from June 
30, 2003 to December 31, 2003, and reserve jurisdiction over any 
further extension after December 31, 2003.

CenterPoint Energy, Inc., et al. (70-10128)

    CenterPoint Energy, Inc. (``CenterPoint''), a registered holding 
company and its three public-utility subsidiary companies Texas Genco, 
LP, (``Texas Genco''), CenterPoint Energy Houston Electric, LLC (``T&D 
Utility'') and CenterPoint Energy Resources Corp. (``GasCo''), 
CenterPoint's intermediate holding companies, Utility Holding, LLC, 200 
West Ninth Street Plaza, Suite 411, Wilmington, Delaware 19801, Texas 
Genco Holdings, Inc., Texas Genco GP, LLC and CenterPoint's nonutility 
subsidiary companies: CenterPoint Energy Funding Company, CenterPoint 
Energy Transition Bond Company, LLC, Houston Industries FinanceCo GP, 
LLC, Houston Industries FinanceCo LP, Reliant Energy FinanceCo II GP, 
LLC, Reliant Energy FinanceCo II LP, Reliant Energy FinanceCo III GP, 
LLC, Reliant Energy FinanceCo III LP, Reliant Energy FinanceCo IV GP, 
LLC, Reliant Energy FinanceCo IV LP, CenterPoint Energy Investment 
Management, Inc., CenterPoint Energy Management Services, Inc., 
CenterPoint Energy District Cooling, LLC, CenterPoint Energy Thermal 
Systems (Delaware), Inc., CenterPoint Energy District Cooling, L.P., 
CenterPoint Energy Power Systems, Inc., CenterPoint Energy Products, 
Inc., CenterPoint Energy Properties, Inc., CenterPoint Energy Tegco, 
Inc., HL&P Capital Trust I, HL&P Capital Trust II, HL&P Receivables, 
Inc., Houston Industries Energy (UK), Inc., NorAm Energy Corp., REI 
Trust, Reliant Energy Water, Inc., Texas Genco LP, LLC, Utility Rail 
Services, Inc., UFI Services, Inc., ALG Gas Supply Company, Allied 
Materials Corporation, Arkansas Louisiana Finance Corporation, Arkla 
Industries Inc., Arkla Products Company, Blue Jay Gas Company, 
CenterPoint Energy Alternative Fuels, Inc., CenterPoint Energy Consumer 
Group, Inc., CenterPoint Energy Field Services, Inc., CenterPoint 
Energy Field Services Holdings, Inc., CenterPoint Energy Gas 
Processing, Inc., CenterPoint Energy Gas Marketing Company, CenterPoint 
Energy Gas Receivables, LLC, CenterPoint Energy Gas Resources Corp., 
CenterPoint Energy Gas Transmission Company, CenterPoint Energy Hub 
Services, Inc., CenterPoint Energy--Illinois Gas Transmission Company, 
CenterPoint Energy Intrastate Holdings, LLC, Pine Pipeline Acquisition 
Company, LLC, CenterPoint Energy Marketing, Inc., CenterPoint Energy 
Retail Interests, Inc., CenterPoint Energy--Mississippi River 
Transmission Corporation, CenterPoint Energy MRT Holdings, Inc., 
CenterPoint Energy MRT Services Company, CenterPoint Energy Pipeline 
Services, Inc., CenterPoint Energy OQ, LLC, OQ Partners, a general 
partnership, CenterPoint Energy Trading and Transportation Group, Inc., 
Entex Gas Marketing Company, Entex NGV, Inc., Entex Oil & Gas Company, 
Industrial Gas Supply Corporation, Intex, Inc., Louisiana Unit Gas 
Transmission Company, Minnesota Intrastate Pipeline Company, National 
Furnace Company, NorAm Financing, NorAm Utility Services, Inc., Reliant 
Energy Funds Management, Inc., Unit Gas Transmission Company, United 
Gas, Inc., CenterPoint Energy International, Inc., CenterPoint Energy 
International Holdings, LLC, Reliant Energy El Salvador, S.A. de C.V., 
CenterPoint Energy International II, Inc., HIE Ford Heights, Inc., HIE 
Fulton, Inc., Reliant Energy India, Inc., Reliant Energy Rain, Inc., 
Rain Calcining Limited, CenterPoint Energy International Services, 
Inc., CenterPoint Energy Light, Inc., HI Energy Holdings I B.V., 
Reliant Energy Brasil, Ltda., Reliant Energy Brazil Ltd., HIE Brasil 
Rio Sul Ltda., Reliant Energy International Brasil Ltda., Reliant 
Energy Brazil Tiete Ltd., Reliant Energy Colombia Ltda., Reliant Energy 
Outsource Ltd., Venus Generation El Salvador Worldwide Electric 
Holdings B.V., c/o CenterPoint Energy, Inc., 1111 Louisiana, Houston, 
TX 77002 (together, ``Applicants''), have filed an amended and restated 
application-declaration under sections 6(a), 7, 9(a), 10, 12 and 13 and 
rules 42, 43, 44, 45, 46, 52, 53, 54, 58, 62, 90 and 91 of the Act 
(``Application'').\3\
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    \3\ Texas Genco, LP, T&D Utility and GasCo shall collectively be 
referred to as the ``Utility Subsidiaries.'' Utility Holding, LLC, 
Texas Genco Holdings, Inc. and Texas Genco GP, LLC, shall 
collectively be referred to as the ``Intermediate Holding 
Companies.'' All of CenterPoint's direct and indirect subsidiaries, 
other than the Utility Subsidiaries and the Intermediate Holding 
Companies, are referred to as the ``Nonutility Subsidiaries.'' The 
Utility Subsidiaries, Nonutility Subsidiaries and Intermediate 
Holding Companies are collectively referred to as the 
``Subsidiaries.''
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    Applicants request authority to engage in a variety of financing 
transactions, credit support arrangements, and other related proposals, 
as more fully described below, commencing on the effective date of an 
order issued under this filing and ending June 30, 2005 
(``Authorization Period'').

I. Background

    By order dated July 5, 2002 (Holding Co. Act Release No. 27548) 
(the ``July Order''), the Commission authorized the formation of 
CenterPoint as a new registered holding company and the distribution 
(``Distribution'') to shareholders of the remaining stock of Reliant 
Resources, Inc. (``Reliant Resources''). 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.
    While the Distribution was necessary and appropriate both from a 
business perspective and in view of the policies and provisions of the 
Act, it did have the effect of significantly reducing CenterPoint's 
common equity in the short term. As the Commission has noted, however, 
CenterPoint's capital

[[Page 34435]]

structure will be improved significantly with the sale of Texas Genco, 
LP and the securitization of any stranded investment in 2004 and 2005, 
as contemplated by Texas law. Pending the issuance of the 
securitization bonds, the CenterPoint system's financing transactions 
will be largely limited to refinancing, replacing or extending the term 
of existing obligations.

II. Financing Parameters

    Financing by each Applicant will be subject to the following 
limitations (``Financing Parameters'').
A. Interest Rates
    The effective cost of money on any long-term debt financings will 
not exceed the greater of (i) 700 basis points over the yield to 
maturity of a U.S. Treasury security having a remaining term 
approximately equal to the term of the subject debt, or (ii) a rate 
that is consistent with similar securities of comparable credit quality 
and maturities issued by other companies, of reasonably comparable 
credit quality, as determined by competitive capital markets.
    The effective cost of money on any short-term debt financings will 
not exceed the greater of (i) 700 basis points over the comparable-term 
London Interbank Offered Rate (``LIBOR'') rates, or (ii) a rate that is 
consistent with similar securities of comparable credit quality and 
maturities issued by other companies of reasonably comparable credit 
quality as determined by the competitive capital markets.
    The dividend rate on any series of preferred stock or preferred 
securities will not exceed the greater of (i) 700 basis points over the 
yield to maturity of a U.S. Treasury security having a remaining term 
approximately equal to the term of the series of preferred stock or 
preferred or equity-linked securities or (ii) a rate that is consistent 
with similar securities of comparable credit quality and maturities 
issued by other companies, of reasonably comparable credit quality, as 
determined by competitive capital markets.
B. Maturity
    The maturity of long-term debt will not exceed 50 years. All series 
of preferred stock, preferred securities and equity-linked securities 
(other than preferred stock, which may be perpetual) will be required 
to be redeemed no later than 50 years after the issuance thereof.
C. Issuance Expenses
    The underwriting fees, commissions or other similar renumeration 
paid in connection with the non-competitive issue, sale or distribution 
of a security will not exceed 7% of the principal or total amount of 
the securities being issued;\4\
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    \4\ Issuance Expenses will not count toward the effective cost 
of money discussed above.
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D. Use of Proceeds
    The proceeds from the sale of securities in external financing 
transactions will be used for general corporate purposes, including: 
(i) the financing, in part, of the capital expenditures of the 
CenterPoint system; (ii) the financing of working capital requirements 
of the CenterPoint system; (iii) the refinancing or acquisition, 
retirement or redemption under rule 42 of securities previously issued 
by CenterPoint or its Subsidiaries or as otherwise authorized by the 
Commission; (iv) direct or indirect investment in companies authorized 
under the Act; (v) to meet unexpected contingencies, payment and timing 
differences, and cash requirements, and (vi) other lawful purposes.
E. Common Equity Ratio
    At all times during the Authorization Period, each Utility 
Subsidiary will maintain common equity of at least 30% of its 
consolidated capitalization (common equity, preferred stock, long-term 
and short-term debt) as reflected in the most recent 10-K or 10-Q filed 
with the Commission adjusted to reflect changes in capitalization since 
the balance sheet date therein.\5\
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    \5\ Upon the issuance of the securitization bonds described 
below, the T&D Utility may have common equity capitalization of less 
than 20% if the securitization debt is included. The Applicants 
request the Commission take into account the unique nature of 
securitization debt when it passes upon the request to form and 
capitalize special-purpose subsidiaries to issue securitization 
debt.
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F. Investment Grade Ratings
    Apart from securities issued for the purpose of funding money pool 
operations, no guarantees or other securities (other than common stock) 
may be issued in reliance on the authority requested herein unless: (i) 
the security to be issued, if rated, is rated investment grade by at 
least one nationally recognized statistical rating organization as that 
term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 
under the 1934 Act (``NRSRO''); (ii) all outstanding rated securities 
of the issuer are rated investment grade by at least one NRSRO; and 
(iii) all outstanding rated securities of the top-level registered 
holding company are rated investment grade by at least one NRSRO. The 
Applicants ask the Commission to reserve jurisdiction over the issuance 
of securities subject to the Investment Grade Ratings criteria where 
one or more of the Investment Grade Ratings criteria are not met.

III. Proposed Financing Program

A. CenterPoint External Financing
    CenterPoint requests authority to issue and sell securities, 
including common stock, preferred stock and preferred and equity-linked 
securities (either directly or through a subsidiary), long-term and 
short-term debt securities and convertible securities and derivative 
instruments with respect to any of these securities.\6\ CenterPoint 
also requests authorization to enter into obligations with respect to 
tax-exempt debt issued on behalf of CenterPoint by governmental 
authorities. These obligations may relate to the refunding of 
outstanding tax-exempt debt or to the remarketing of tax-exempt debt. 
CenterPoint seeks authorization to enter into lease arrangements, and 
certain hedging transactions in connection with issuances of taxable or 
tax-exempt securities.
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    \6\ Any convertible or equity-linked securities would be 
convertible into or linked to only securities that CenterPoint and 
its Subsidiaries are otherwise authorized to issue pursuant to rule 
or Commission order.
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    CenterPoint requests authority to sell securities covered by this 
Application in any one of the following ways: (i) through underwriters; 
(ii) to initial purchasers in transactions in reliance on Rule 144A 
under the Securities Act of 1933 or dealers; (iii) through agents; (iv) 
directly to a limited number of purchasers or a single purchaser; (v) 
in exchange for already outstanding securities; or (vi) directly to 
employees (or to trusts established for their benefit), shareholders 
and others. If underwriters are used in the sale of the securities, 
such securities may be acquired by the underwriters for their own 
account and may be resold from time to time in one or more 
transactions, including negotiated transactions, at a fixed public 
offering price or at varying prices determined at the time of sale. The 
securities may be offered to the public either through underwriting 
syndicates (which may be represented by a managing underwriter or 
underwriters designated by CenterPoint) or directly by one or more 
underwriters acting alone. The securities may be sold directly by 
CenterPoint or through agents designated by CenterPoint from time to 
time. If common stock is being sold in an underwritten offering, 
CenterPoint may grant the underwriters a ``green shoe'' option 
permitting the

[[Page 34436]]

purchase from CenterPoint at the same price of additional shares then 
being offered solely for the purpose of covering over-allotments.
1. Common Stock
    CenterPoint requests authority to issue 200 million additional 
shares of common stock (including ``Rights'') \7\ and to issue 
warrants, options and other rights to acquire an equivalent number of 
shares of common stock. In addition, CenterPoint proposes, from time to 
time during the Authorization Period, to issue and/or acquire in open 
market transactions or negotiated block purchases, shares of 
CenterPoint common stock for allocation under incentive compensation 
plans and other equity compensation and employee benefit plans, and for 
the Investor's Choice Plan.\8\ These transactions would comply with 
applicable law and Commission interpretations then in effect. Any newly 
issued shares of common stock, including shares of common stock issued 
upon the conversion or exercise of warrants, convertible debt or other 
equity-linked securities, will be counted toward the overall limit on 
common stock; shares of common stock purchased in the open market or 
otherwise acquired for the purpose of reissuance under Stock Based 
Plans will also be counted toward this limit.
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    \7\ Each share of common stock includes one right (``Right'') to 
purchase from CenterPoint a unit consisting of one one-thousandth of 
a share of CenterPoint Series A Preferred Stock at a purchase price 
of $42.50 per unit, subject to adjustment. The Rights are issued 
pursuant to the Rights Agreement dated as of January 1, 2002 between 
CenterPoint and JPMorgan Chase Bank (the ``Rights Agreement'').
    \8\ These plans include the CenterPoint Energy, Inc. Investor's 
Choice Plan; existing stock-related employee plans: CenterPoint 
Energy, Inc. Savings Plan, CenterPoint Energy, Inc. Long-Term 
Incentive Compensation Plan, CenterPoint Energy, Inc. 1994 Long-Term 
Incentive Compensation Plan, Long-Term Incentive Plan of CenterPoint 
Energy, Inc., CenterPoint Energy, Inc. Business Unit Performance 
Share Plan, CenterPoint Energy, Inc. and Subsidiaries Common Stock 
Participation Plan for Designated New Employees and Non-Officer 
Employees, and the CenterPoint Energy, Inc. Stock Plan for Outside 
Directors (collectively, the ``Stock Based Plans''). The requested 
authority relating to benefit and compensation plans is intended to 
apply to these plans, as they may be amended or supplemented from 
time to time, and similar plans or arrangements that may be adopted 
in the future without any additional prior Commission order.
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2. Preferred Stock and Preferred and Equity-Linked Securities
    CenterPoint requests Commission authority during the Authorization 
Period to issue preferred stock and to issue directly or indirectly 
through one or more financing subsidiaries (``Financing Subsidiaries'') 
preferred stock, preferred securities (including trust preferred 
securities), and equity-linked securities (including, specifically, 
preferred securities that are convertible, either mandatorily or at the 
option of the holder, into common stock or forward purchase contracts 
for common stock).
    CenterPoint requests authority to issue preferred stock and 
preferred and equity-linked securities in a net incremental amount of 
$250 million such that the total outstanding amount of CenterPoint 
preferred stock and preferred and equity-linked securities will not 
exceed $975 million at any one time outstanding during the 
Authorization Period.
    Preferred stock and equity-linked securities may be sold directly 
or indirectly to or through underwriters, initial purchasers or dealers 
or pursuant to a method of distribution similar to those described for 
common stock above.
3. Long-Term Debt
    CenterPoint requests authority to issue or sell external debt 
securities in a net incremental amount of $500 million (including long-
term and short-term debt securities) (the ``CenterPoint Additional Debt 
Limit'') such that the total amount of CenterPoint debt securities will 
not exceed $5.847 billion at any one time outstanding during the 
Authorization Period (``CenterPoint Aggregate Debt Limit''). Long-term 
debt securities may be comprised of bonds, notes, medium-term notes or 
debentures under one or more indentures or long-term indebtedness under 
agreements with banks or other institutional lenders directly or 
indirectly and convertible debt. Long-term debt issued under the 
requested authority will be unsecured. Specific terms of any borrowings 
will be determined by CenterPoint at the time of issuance and will 
comply in all regards with the parameters on financing authorization 
set forth above.
4. Short-Term Debt
    CenterPoint seeks authority to issue short-term debt subject to the 
CenterPoint Additional Debt Limit to provide financing for general 
corporate purposes, working capital requirements and temporary 
financing of Subsidiary capital expenditures. Short-term debt issued by 
CenterPoint will be unsecured.
    Types of short-term debt securities may include borrowings under 
one or more revolving credit facilities or bank loans, commercial 
paper, short-term notes, bid notes, institutional borrowings and 
privately placed notes. Specific terms of any short-term borrowings 
will be determined by CenterPoint at the time of issuance and will 
comply in all regards with the parameters for financing authorization 
set forth above. The maturity of any short-term debt issued will not 
exceed 364 days or, if the notional maturity is greater than 364 days, 
the debt security will include put options at appropriate points in 
time to cause the security to be accounted for as a current liability 
under generally accepted accounting principles (``GAAP'').
    CenterPoint may sell commercial paper or privately placed notes 
(``commercial paper'') from time to time, in established domestic or 
European commercial paper markets. Commercial paper may be sold at a 
discount or bear interest at a rate per annum prevailing at the date of 
issuance for commercial paper of a similarly situated company.
    CenterPoint may, without counting against the limit on parent 
financing set forth above, maintain back-up lines of credit in 
connection with one or more commercial paper programs in an aggregate 
amount not to exceed the amount of authorized commercial paper.
    CenterPoint may sell short-term notes through one or more private 
placements or public offerings primarily to traditional money market 
investors. CenterPoint may enter into individual agreements with one or 
more commercial banks that may or may not be lenders under CenterPoint 
credit facilities. These agreements would permit CenterPoint to 
negotiate with one or more banks on any given day for such lender, or 
any affiliate or subsidiary of such lender, to purchase promissory 
notes directly from CenterPoint.
5. Financing Risk Management Devices
    CenterPoint requests authority to enter into hedging arrangements 
intended to reduce or manage the volatility of financial or other 
business risks to which CenterPoint is subject. These arrangements may 
include, but are not limited to, interest rate swaps, caps, floors, 
collars, forward agreements, issuance of structured notes (i.e., a debt 
instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index) or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury or U.S. governmental agency (e.g. Fannie Mae) obligations 
or LIBOR based swap instruments (collectively referred to as ``Hedging 
Instruments''). The transactions would be for fixed periods and stated 
notional amounts, as are generally accepted as prudent in the

[[Page 34437]]

capital markets. In no case will the notional principal amount of any 
interest rate hedge exceed that of the underlying debt instrument. 
CenterPoint will not engage in speculative transactions as that term is 
described in Statement of Financial Accounting Standard 133, as amended 
(``SFAS 133''). Transaction fees, commissions and other amounts payable 
to brokers in connection with an interest rate hedge will not exceed 
those generally obtainable in competitive markets for parties of 
comparable credit quality.
    CenterPoint may employ interest rate derivatives as a means of 
prudently managing the risk associated with any of its outstanding debt 
issued under this authorization or an applicable exemption by, in 
effect, synthetically (i) converting variable rate debt to fixed-rate 
debt; (ii) converting fixed-rate debt to variable rate debt; (iii) 
limiting the impact of changes in interest rates resulting from 
variable rate debt; and (iv) managing other risks that may attend 
outstanding securities. Transactions will be entered into for a fixed 
or determinable period. CenterPoint will only enter into agreements 
with counterparties having a senior debt rating at the time the 
transaction is executed of at least BBB-, or its equivalent, as 
published by a NRSRO (``Approved Counterparties'').
    In addition, CenterPoint requests authorization to enter into 
hedging transactions with respect to anticipated debt offerings 
(``Anticipatory Hedges''), subject to the limitations and restrictions 
expressed below. Anticipatory Hedges would only be entered into with 
Approved Counterparties, and would be used to fix and/or limit the risk 
associated with any issuance of securities through appropriate means, 
including (i) a forward sale of exchange-traded Hedging Instruments (a 
``Forward Sale''); (ii) the purchase of put options on Hedging 
Instruments (a ``Put Options Purchase''); (iii) a Put Options Purchase 
in combination with the sale of call options Hedge Instruments (a 
``Zero Cost Collar''); (iv) some combination of a Forward Sale, Put 
Options Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including, but not limited to structured notes, caps and 
collars, appropriate for the Anticipatory Hedges; and (v) other 
financial derivatives or other products including Treasury rate locks, 
swaps, forward starting swaps, and options on the foregoing. 
Anticipatory Hedges may be executed on-exchange (``On-Exchange 
Trades'') with brokers through the opening of futures and/or options 
positions traded on the Chicago Board of Trade (``CBOT''), the opening 
of over-the-counter positions with one or more counterparties (``Off-
Exchange Trades''), or a combination of On-Exchange Trades and Off-
Exchange Trades. CenterPoint or its applicable Subsidiary will 
determine the structure of each Anticipatory Hedge transaction at the 
time of execution. CenterPoint or a Subsidiary may decide to lock in 
interest rates and/or limit its exposure to interest rate increases.
    Each Hedging Instrument and Anticipatory Hedge will be treated for 
accounting purposes as provided for under GAAP. CenterPoint and its 
Subsidiaries will comply with Statement of Financial Accounting 
Standards (``SFAS'') 133 (``Accounting for Derivatives Instruments and 
Hedging Activities'') and SFAS 138 (``Accounting for Certain Derivative 
Instruments and Certain Hedging Activities'') or other standards 
relating to accounting for derivative transactions as are adopted and 
implemented by the Financial Accounting Standards Board.
B. Subsidiary Financing
    To the extent not otherwise exempted,\9\ the Utility Subsidiaries 
and the Intermediate Holding Companies request authority to issue and 
sell securities, including common equity, preferred shares and 
preferred securities (including trust preferred securities) (either 
directly or through a subsidiary), long-term and short-term debt 
securities, including convertible debt and derivative instruments with 
respect to any of the foregoing on the same terms and conditions as 
discussed above for CenterPoint, except that Utility Subsidiary and 
Intermediate Holding Company debt may be secured or unsecured.\10\
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    \9\ The Nonutility Subsidiaries will rely on rules 45 and 52 
under the Act for financings described in this section.
    \10\ To the extent that GasCo issues secured debt, such debt 
will be secured by a pledge of the stock of its nonutility 
subsidiary companies.
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    Texas Genco Holdings, Inc. and Texas Genco, LP (together, the 
``Texas Genco Entities'') request authority to issue or sell external 
debt in an aggregate amount of $250 million at any one time outstanding 
during the Authorization Period.
    CenterPoint Energy Houston Electric, LLC (the ``T&D Utility'') 
requests authority to issue and sell external debt securities in a net 
incremental amount of $500 million such that the amount of T&D Utility 
external debt will not exceed $3.603 billion at any one time 
outstanding during the Authorization Period. The T&D Utility requests 
authority to issue or sell preferred stock and preferred securities 
(including trust preferred securities) in an amount not to exceed $250 
million at any one time outstanding during the Authorization Period.
    CenterPoint Energy Resources Corp. (``GasCo'') requests authority 
to issue or sell external debt in a net incremental amount of $500 
million such that the amount of external GasCo debt will not exceed 
$3.187 billion at any one time outstanding during the Authorization 
Period. GasCo requests authority to issue or sell preferred stock and 
preferred securities (including trust preferred securities) in an 
amount not to exceed $250 million during the Authorization Period such 
that the amount of preferred stock and preferred securities (including 
trust preferred securities) will not exceed $250.4 million at any one 
time outstanding during the Authorization Period.
    The Utility Subsidiaries and Intermediate Holding Companies also 
request authorization to enter into obligations with respect to new 
tax-exempt debt issued on behalf of a Utility Subsidiary or an 
Intermediate Holding Company by governmental authorities as well as 
obligations entered into in connection with the refunding of 
outstanding tax-exempt debt assumed by CenterPoint in connection with 
the August 31, 2002 restructuring by which CenterPoint and Utility 
Holding, LLC became holding companies for the Utility Subsidiaries.
    The Utility Subsidiaries also request authority to enter into 
hedging transactions to manage their risk in connection with the 
issuance of securities subject to the limitations and requirements 
applicable to CenterPoint, provided, that the Intermediate Holding 
Companies will not enter into such hedging transactions.
C. Guarantees and Intra-System Advances
1. Guarantees
    CenterPoint requests authorization during the Authorization Period 
to enter into guarantees to third parties, obtain letters of credit, 
enter into support or expense agreements or liquidity support 
agreements or otherwise provide credit support with respect to the 
obligations of its Subsidiaries, including performance guarantees, as 
may be appropriate to carry on in the ordinary course of CenterPoint or 
its Subsidiaries' duly-authorized utility and related businesses, and 
the Subsidiaries request authority to provide to their respective 
Subsidiaries guarantees and other forms of credit support in an 
aggregate amount not to

[[Page 34438]]

exceed $4 billion outstanding at any one time. Excluded from the 
CenterPoint Guarantee Limit are obligations exempt under rule 45 under 
the Act. Any guarantees shall also be subject to the limitations of 
rules 53 and 58, as applicable.
    The guarantor may charge each Subsidiary a fee for any guarantee 
provided on its behalf that is not greater than the cost, if any, of 
obtaining the liquidity necessary to perform the guarantee (for 
example, bank line commitment fees or letter of credit fees, plus other 
transactional expenses) for the period of time the guarantee remains 
outstanding.
    Certain of the guarantees referred to above may be in support of 
obligations that are not capable of exact quantification. In these 
cases, CenterPoint will determine the exposure under the guarantee by 
appropriate means, including estimation of exposure based on loss 
experience or projected potential payment amounts. As appropriate, 
these estimates will be made in accordance with GAAP and sound 
financial practices. Such estimation will be re-evaluated periodically.
2. Money Pool
    CenterPoint and certain of its Subsidiaries (together, the 
``Parties'') request authorization to continue to conduct the Money 
Pool as approved in the July Order, and the Subsidiaries, to the extent 
not exempted by rule 52 under the Act, also request authorization to 
make, from time to time, unsecured short-term borrowings from the Money 
Pool and to contribute surplus funds to the Money Pool and to lend and 
extend credit to (and acquire promissory notes from) one another 
through the Money Pool.\11\
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    \11\ The Parties to the Money Pool will be CenterPoint, Texas 
Genco Holdings, Inc., Texas Genco GP, LLC, the Utility Subsidiaries, 
Houston Industries FinanceCo GP, LLC, Houston Industries FinanceCo 
LP, Reliant Energy FinanceCo II GP, LLC, Reliant Energy FinanceCo II 
LP, CenterPoint Energy Properties, Inc., CenterPoint Energy 
International, Inc., CenterPoint Energy Products, Inc., CenterPoint 
Energy Management Services, Inc. and CenterPoint Energy Funding 
Company. CenterPoint Energy International, Inc. and CenterPoint 
Energy Funding Company are entities through which CenterPoint funded 
or acquired foreign utility companies within the meaning of section 
33 of the Act and so, these companies will be investors in but not 
borrowers from the Money Pool. No exempt wholesale generator or 
foreign utility company will be a borrower from the Money Pool.
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    CenterPoint requests authorization to contribute surplus funds and 
to lend and extend credit to the Utility Subsidiaries through the Money 
Pool. CenterPoint will not be a borrower from the Money Pool.
    Under the terms of the Money Pool, each Party determines each day 
the amount of funds each desires to contribute to the Money Pool, and 
contributes such funds to the Money Pool. The determination of whether 
a Party has funds to contribute (either from surplus funds or from 
external borrowings) and the determination whether a Party shall lend 
such funds to the Money Pool is made by such Party's treasurer, or by a 
designee thereof, in such Party's sole discretion. Each Party may 
withdraw any of its funds at any time upon notice to CenterPoint as 
administrative agent of the Money Pool.
    Short-term funds will be available from the following sources: (1) 
surplus funds in the treasuries of the Parties, and (2) proceeds from 
external borrowings, including bank loans, the sale of notes and/or the 
sale of commercial paper by the Parties, in each case to the extent 
permitted by applicable laws and regulatory orders.
    Each borrowing Party will borrow pro rata from each fund source in 
the same proportion that the amount of funds provided from that fund 
source bears to the total amount then loaned through the Money Pool. On 
a day when more than one source of funds is invested in the Money Pool 
with different rates of interest used to fund loans through the Money 
Pool, each borrower will borrow pro rata from each such funding source 
from the Money Pool in the same proportion that the amount of funds 
provided by that fund source bears to the total amount of funds 
invested into the Money Pool. If there are insufficient funds to meet 
all borrowing requests, the needs of the Utility Subsidiaries will be 
met before loans are made to any Nonutility Subsidiaries.
    The determination of whether a Party has funds to lend to the Money 
Pool will be made by its Treasurer, or by a designee thereof. 
CenterPoint, as administrator of the Money Pool, will provide each 
Party with a report for each business day that includes, among other 
things, cash activity for the day and the balance of loans outstanding. 
All borrowings from the Money Pool shall be authorized by the borrowing 
Party's treasurer, or by a designee thereof. No Party shall be required 
to effect a borrowing through the Money Pool if such Party determines 
that it can (and is authorized to) effect such borrowing more 
advantageously directly from banks or through the sale of its own notes 
or commercial paper.
    Funds which are loaned by Parties and are not utilized to satisfy 
borrowing needs of other Parties will be invested by CenterPoint on 
behalf of the lending Parties in one or more short term instruments, 
including (i) interest-bearing deposits with banks; (ii) obligations 
issued or guaranteed by the U.S. government and/or its agencies; (iii) 
commercial paper rated not less than A-1 by Standard & Poor's and P-1 
by Moody's Investors Services, Inc.; (iv) money market funds; (v) bank 
certificates of deposit; (vi) Eurodollar funds; (vii) repurchase 
agreements collateralized by securities issued or guaranteed by the 
U.S. government; and (viii) such other investments as are permitted by 
section 9(c) of the Act and rule 40.
    The interest rate applicable on any day to then outstanding loans 
through the Money Pool, whether or not evidenced by a promissory demand 
note, will be the composite weighted average daily effective cost 
incurred by CenterPoint for external borrowings outstanding on that 
date. The daily effective cost shall be inclusive of interest rate 
swaps related to such external funds. If there are no external 
borrowings outstanding on that date, then the rate will be the 
certificate of deposit yield equivalent of the 30-day Federal Reserve 
``AA'' Non-Financial Commercial Paper Composite Rate or if no composite 
is established for that day, then the applicable rate will be the 
composite for the next preceding day for which a composite is 
established. If the composite shall cease to exist, then the rate will 
be the composite which then most closely resembles the Composite and/or 
most closely mirrors the pricing CenterPoint would expect if it had 
external borrowings.
    Interest income related to external investments will be calculated 
daily and allocated back to lending Parties on the basis of their 
relative contribution to the Money Pool on that date.
    Each Party receiving a loan from the Money Pool shall repay the 
principal amount of such loan, together with all interest accrued, on 
demand by the administrator and in any event not later than the 
expiration date of the Commission authorization for the operation of 
the Money Pool. All loans made through the Money Pool may be prepaid by 
the borrower without premium or penalty.
    Borrowings by the Utility Subsidiaries from the Money Pool shall 
not exceed the following amounts at any one time outstanding during the 
Authorization Period: Texas Genco LP--$600 million; T&D Utility--$600 
million; GasCo--$600 million.
3. Other Intra-System Financing
    The Subsidiaries may also finance their capital needs through 
borrowings

[[Page 34439]]

from CenterPoint, directly or indirectly through one or more 
Intermediate Holding Companies. Any financings by Utility Subsidiaries 
pursuant to this request would be counted toward the Money Pool limits 
above.
    Each of the Intermediate Holding Companies requests authority to 
issue and sell securities to its respective parent companies and to 
acquire securities from its subsidiary companies on the same terms and 
conditions as specified above.
D. Changes in Capital Stock of Majority Owned Nonutility Subsidiaries
    Applicants request authority to change the terms of any 50% or more 
owned Nonutility Subsidiary's authorized capital stock capitalization 
or other equity interests by an amount deemed appropriate by 
CenterPoint or other intermediate parent company, provided that no such 
action would be taken without the consents necessary under applicable 
law.
E. Payment of Dividends Out of Capital or Unearned Surplus
    Each of the Nonutility Subsidiaries requests authority to declare 
and pay dividends out of capital or unearned surplus to the extent 
permitted by state law.
    CenterPoint also requests authority to declare and pay dividends 
out of capital or unearned surplus in an amount up to $500 million 
through the Authorization Period. Such authority is required because of 
the accounting consequences of the Distribution. Accordingly, 
CenterPoint requests the Commission to reserve jurisdiction over this 
request. As of December 31, 2002, CenterPoint had negative retained 
earnings of approximately $1.1 billion. It is CenterPoint's intention 
to declare and pay dividends out of current earnings.
F. Financing Subsidiaries
    CenterPoint and its Subsidiaries proposes to organize and acquire, 
directly or indirectly, the common stock or other equity interests of 
one or more financing subsidiaries (collectively, the ``Financing 
Subsidiary'') for the purpose of effecting various financing 
transactions from time to time through the Authorization Period.\12\ 
Financing Subsidiaries may be corporations, trusts, partnerships or 
other entities created specifically for the purposes described in this 
Application. The amount of securities issued by the Financing 
Subsidiaries to third parties will count toward the respective 
financing limits of its immediate parent. Authorization is requested 
for the issuance of such securities by the Financing Subsidiaries and 
for the transfer of proceeds from such issuance to the respective 
parent companies.
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    \12\ This request is in addition to the request for authority in 
connection with the securitization of stranded costs infra. 
Applicants are requesting the Commission to reserve jurisdiction 
over that request, pending completion of the record.
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    CenterPoint and, to the extent such issuances are not exempt under 
rule 52, the Subsidiaries also request authorization to issue their 
subordinated unsecured notes (``Subordinated Notes'') to any Financing 
Subsidiary to evidence the loan of financing proceeds by a Financing 
Subsidiary to its parent company. The principal amount, maturity and 
interest rate on such Subordinated Notes will be designed to parallel 
the amount, maturity and interest or distribution rate on the 
securities issued by a Financing Subsidiary, in respect of which the 
Subordinated Note is issued. CenterPoint or a Subsidiary may, if 
required, guarantee or enter into support or expense agreements in 
respect of the obligations of such Financing Subsidiaries.
    Any security issued to third parties under the requested authority 
will be appropriately disclosed in the system's financial statements. 
Applicants anticipate that the Financing Subsidiaries will be wholly-
owned indirect subsidiaries of CenterPoint. No Financing Subsidiary 
shall acquire or dispose of, directly or indirectly, any interest in 
any utility asset, as that term is defined under the Act, without first 
obtaining any necessary approval.
    The business of the Financing Subsidiary will be limited to 
effecting financing transactions that have been otherwise authorized 
for CenterPoint and its Subsidiaries. In connection with these 
transactions, CenterPoint or the Subsidiaries may enter into one or 
more guarantees or other credit support agreements in favor of the 
Financing Subsidiary.
    Any Financing Subsidiary shall be organized only if, in 
management's opinion, the creation and utilization of the Financing 
Subsidiary will likely result in tax savings, increased access to 
capital markets and/or lower cost of capital for CenterPoint or its 
Subsidiaries.
    Each of CenterPoint and the Subsidiaries also requests 
authorization to enter into an expense agreement with its respective 
Financing Subsidiary, under which it would agree to pay all expenses of 
the entity. Any amounts issued by the Financing Subsidiaries to third 
parties will be included in the additional external financing 
limitation for the immediate parent of the financing entity. However, 
the underlying intra-system mirror debt and parent guarantee will not 
be included. Applicants also seek authority for the Financing 
Subsidiaries to transfer the proceeds of any financing to their 
respective parent companies.

IV. Retention and Reorganization of Nonutility Interests

    A. Retention of Nonutility Interests
    In the July Order, the Commission reserved jurisdiction over the 
retention of CenterPoint Energy Investment Management, Inc., MRT 
Services Company and CenterPoint Energy Trading and Transportation 
Group, Inc. Applicants request that the Commission authorize the 
retention of these nonutility interests except with respect to the 
canal currently owned by MRT Services Company.
    CenterPoint Energy Investment Management, Inc., a Delaware 
corporation that is a wholly-owned subsidiary of CenterPoint, holds 
shares of stock of AOL Time Warner that were received in connection 
with the 1995 sale of certain cable television businesses.
    MRT Services Company provides marketing services in connection with 
CenterPoint's gas pipeline subsidiaries. It also is the lessor of real 
estate associated with telecommunications towers that are used to 
provide services to CenterPoint system. CenterPoint asks the Commission 
to grant it three years to divest the canal. CenterPoint further 
requests that any order of the Commission that requires CenterPoint to 
divest the canal pursuant to section 11(b)(1) of the Act make the 
necessary findings to enable CenterPoint to obtain the tax treatment 
provided by Section 1081 of the Internal Revenue Code, as amended, in 
connection with the ordered disposition.
    CenterPoint Energy Trading and Transportation Group, Inc. provides 
administrative payroll services to associated pipeline companies at 
cost determined in accordance with rules 90 and 91. Applicants state 
that the subsidiary is not engaged in other businesses.
B. Authority to Restructure Nonutility Interests
    CenterPoint proposes to restructure its nonutility interests from 
time to time as may be necessary or appropriate. CenterPoint will 
engage, directly or indirectly, only in businesses that are duly 
authorized, whether by order, rule or statute.

[[Page 34440]]

V. Disposition of the Texas Genco Entities

    CenterPoint intends to qualify Texas Genco, LP as an exempt 
wholesale generator (``EWG'') as expeditiously as possible. In the 
event that EWG status is not obtained in a timely fashion, CenterPoint 
seeks authority under section 12(d) to sell the stock and/or assets of 
the Texas Genco Entities to Reliant Resources.
    As of December 31, 2002, Texas Genco, LP owned and operated 11 
power generating stations (60 generating units) and had a 30.8% 
interest in the South Texas Project Electric Generating Station 
(``South Texas Project''), for a total net generating capacity of 
14,175 MW. The South Texas Project is a nuclear generating station with 
two 1,250 MW nuclear generating units.
    Texas Genco, LP sells electric generation capacity, energy and 
ancillary services in the Electric Reliability Council of Texas, Inc. 
(``ERCOT'') market, which is the largest power market in the State of 
Texas. Since January 1, 2002, Texas Genco, LP's generation business has 
been operated as an independent power producer, with output sold at 
market prices to a variety of purchasers. As authorized by this 
Commission under the July Order, on January 6, 2003, CenterPoint 
distributed to its shareholders approximately 19% of the common stock 
of Texas Genco Holdings, Inc.
    Reliant Resources has an option that may be exercised between 
January 10, 2004 and January 24, 2004 to purchase all of the shares of 
Texas Genco Holdings, Inc. common stock then owned by CenterPoint. The 
exercise price under the option would equal:

    [sbull] The average daily closing price per share of Texas Genco 
Holdings, Inc. common stock on the New York Stock Exchange for the 
30 consecutive trading days with the highest average closing price 
for any 30-day trading period during the 120 trading days 
immediately preceding January 10, 2004, multiplied by the number of 
shares of Texas Genco Holdings, Inc. common stock then owned by 
CenterPoint, plus
    [sbull] A control premium, up to a maximum of 10%, to the extent 
a control premium is included in the valuation determination made by 
the Texas Commission relating to the market value of Texas Genco 
Holdings, Inc.'s common stock equity.

    The exercise price formula is based upon the generation asset 
valuation methodology in the Texas electric restructuring law that 
CenterPoint will use to calculate the market value of Texas Genco 
Holdings, Inc. The exercise price is also subject to adjustment based 
on the difference between the per share dividends Texas Genco Holdings, 
Inc. paid to CenterPoint during the period from the distribution date 
through the option closing date and Texas Genco Holdings, Inc.'s actual 
per share earnings during that period. To the extent Texas Genco 
Holdings, Inc.'s per share dividends are less than its actual per share 
earnings during that period, the per share option price would be 
increased. To the extent its per share dividends exceed its actual per 
share earnings, the per share option price would be reduced.
    Reliant Resources has agreed that if it exercises its option, 
Reliant Resources would purchase from CenterPoint all notes and other 
payables owed by Texas Genco Holdings, Inc. to CenterPoint as of the 
option closing date, at their principal amount plus accrued interest. 
Similarly, if there are notes or payables owed to Texas Genco Holdings, 
Inc. by CenterPoint as of the option closing date, Reliant Resources 
would assume those obligations in exchange for a payment from 
CenterPoint of an amount equal to the principal plus accrued interest.
    If Reliant Resources does not exercise the option, CenterPoint 
currently plans to sell or otherwise monetize its interest in the Texas 
Genco Entities.\13\
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    \13\ CenterPoint will seek such additional authority as may be 
required in this regard.
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VI. Securitization of Stranded Costs

    The Texas electric restructuring law provides for the use of 
special purpose entities to issue securitization bonds for the economic 
value of generation-related regulatory assets and stranded costs. These 
bonds would be amortized through non-bypassable charges to the T&D 
Utility's customers that are authorized by the Texas Commission. Any 
stranded costs not recovered through the securitization bonds would be 
recovered through a non-bypassable charge assessed to customers taking 
delivery service from the T&D Utility.
    CenterPoint seeks authority to form and capitalize one or more 
special-purpose subsidiaries of the T&D Utility to issue in an amount 
of up to $6 billion, as determined by the Texas Commission, in 
securitization bonds in 2004 or 2005 to monetize and recover the 
balance of stranded costs relating to previously owned electric 
generation assets and other qualified costs as determined in a 2004 
true-up proceeding, and, as may be required, for such subsidiaries to 
transfer the proceeds to the T&D Utility, Utility Holding, LLC and 
CenterPoint. The issuance will be done pursuant to a financing order 
issued by the Texas Commission. As with the debt of its existing 
transition bond company, the holders of the securitization bonds would 
not have recourse to any assets or revenues of CenterPoint or its 
subsidiary companies (other than those of the special purpose 
transition bond company), nor would the system's creditors have 
recourse to any assets or revenues of the entity issuing the 
securitization bonds (again other than those of the special purpose 
transition bond company). All or a portion of the proceeds from the 
issuance of bonds will be used to repay debt of CenterPoint and its 
subsidiary companies. Any issuance would be subject to the financing 
parameters described above. CenterPoint requests that the Commission 
reserve jurisdiction over this request, pending completion of the 
record.

VII. Other Authority

    In the July Order, the Commission authorized CenterPoint to provide 
a variety of services to its Subsidiaries 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. CenterPoint states 
that it intends to form a service company and is in the process of 
preparing the request for authorization. In the interim, CenterPoint 
seeks continuing authority to provide jurisdictional services and goods 
to its Subsidiaries through December 31, 2003. CenterPoint states that 
charges for all services will be on an at-cost basis, as determined 
under rules 90 and 91 of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-14367 Filed 6-6-03; 8:45 am]
BILLING CODE 8010-01-P