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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
________________

Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
FOR THE TRANSITION PERIOD FROM                              TO                               
  
Commission File Number 333-91093
______________________

CenterPoint Energy Transition Bond Company, LLC

(Exact name of registrant as specified in its charter)
Delaware
76-0624152
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
1111 Louisiana, Suite 4667
Houston, Texas 77002
(713) 207-8272
(Address and zip code of principal executive offices)
(Registrant’s telephone number, including area code)
  
   
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o
   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
        Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ

As of October 16, 2012, all outstanding membership interests in CenterPoint Energy Transition Bond Company, LLC were held by CenterPoint Energy Houston Electric, LLC.
 



CenterPoint Energy Transition Bond Company, LLC

TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
 
 
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
 
 
Three and Nine Months Ended September 30, 2011 and 2012 (unaudited)
 
 
 
 
 
 
 
 
 
December 31, 2011 and September 30, 2012 (unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2011 and 2012 (unaudited)
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 6.
 
 
 

 
 


i


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. In some cases, you can identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.
 
We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.
 
The following are some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements:

changes in market demand, including the effects of energy efficiency measures, and demographic patterns;

weather variations and other natural phenomena, including, among others, hurricanes, tropical storms, ice or snow storms, floods and other weather-related events and natural disasters, affecting retail electric customer energy usage in CenterPoint Energy Houston Electric, LLC’s (CenterPoint Houston) service territory;

damage to and the general operating performance of CenterPoint Houston’s facilities and third-party suppliers of electric energy in CenterPoint Houston’s service territory;

state and federal legislative and regulatory actions or developments affecting various aspects of CenterPoint Houston’s business, including, among others, energy deregulation or re-regulation, health care reform, financial reform, tax legislation and actions regarding the rates charged by CenterPoint Houston;

the accuracy of the servicer’s forecast of electrical consumption or the payment of transition charges;

non-payment of transition charges by retail electric providers;

the reliability of the systems, procedures and other infrastructure necessary to operate the retail electric business in CenterPoint Houston’s service territory, including the systems owned and operated by the independent system operator in the Electric Reliability Council of Texas, Inc.;

any direct or indirect effects of cyber attacks, data security breaches or other attempts to disrupt the business of CenterPoint Houston or retail electric providers operating in CenterPoint Houston’s service territory;

the servicer's ability to perform its billing, collection and other functions;

national or regional economic conditions affecting retail electric customer energy usage in CenterPoint Houston’s service territory;

acts of war or terrorism or other catastrophic events affecting retail electric customer energy usage in CenterPoint Houston’s service territory; and

other factors we discuss in “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, which is incorporated herein by reference, and our other Securities and Exchange Commission filings.

You should not place undue reliance on forward-looking statements.  Each forward-looking statement speaks only as of the date of the particular statement. 






ii


PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF INCOME
AND CHANGES IN MEMBERS EQUITY
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2011
 
2012
 
2011
 
2012
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Transition charge revenue
$
32,739

 
$
35,201

 
$
82,181

 
$
90,826

Investment income
4

 
19

 
8

 
46

Total operating revenues
32,743

 
35,220

 
82,189

 
90,872

Expenses:
 
 
 

 
 

 
 

Interest expense
3,597

 
2,287

 
11,428

 
7,578

Amortization of transition property
28,502

 
31,925

 
69,102

 
80,161

Amortization of transition bond discount and issuance costs
90

 
57

 
286

 
189

Administrative and general expenses
554

 
951

 
1,373

 
2,944

Total operating expenses
32,743

 
35,220

 
82,189

 
90,872

Net Income

 

 

 

Member’s Equity at Beginning of Period
3,745

 
3,745

 
3,745

 
3,745

Contributed Capital

 

 

 

Member’s Equity at End of Period
$
3,745

 
$
3,745

 
$
3,745

 
$
3,745


See Notes to Interim Unaudited Financial Statements

1


CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

BALANCE SHEETS
(Unaudited)

 
December 31, 2011
 
September 30,
2012
 
(in thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
44,183

 
$
15,937

Restricted funds 
9,305

 
8,707

Transition charge receivable
12,126

 
18,172

Current Assets
65,614

 
42,816

 
 
 
 
Intangible transition property
154,825

 
74,664

Unamortized debt issuance costs
296

 
115

Total Assets
$
220,735

 
$
117,595

 
 
 
 
LIABILITIES AND MEMBER’S EQUITY
 

 
 

 
 
 
 
Current Liabilities:
 

 
 

Current portion of long-term debt
$
99,229

 
$
108,585

Accrued interest
3,445

 
272

Customer deposits                                                                                                                 
5,560

 
4,963

Fees payable to servicer
179

 
30

Current Liabilities
108,413

 
113,850

 
 
 
 
Long-term debt:
 

 
 

Transition bonds
108,577

 

Total Liabilities
216,990

 
113,850

 
 
 
 
Member’s Equity:
 

 
 

Contributed capital
3,745

 
3,745

Retained earnings

 

Total Member’s Equity
3,745

 
3,745

 
 
 
 
Total Liabilities and Member’s Equity
$
220,735

 
$
117,595


See Notes to Interim Unaudited Financial Statements

2


CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF CASH FLOWS
(Unaudited)

 
Nine Months Ended
September 30,
 
2011
 
2012
 
(in thousands)
Cash Flows from Operating Activities:
 
 
 
Net income
$

 
$

Adjustments for non-cash items:
 

 
 

Amortization of transition bond discount and issuance costs
286

 
189

Amortization of transition property
69,102

 
80,161

Changes in other assets and liabilities:
 

 
 
Transition charge receivable
(4,413
)
 
(6,046
)
Accrued interest
(4,384
)
 
(3,173
)
Customer deposits
(500
)
 
(597
)
Fees payable to servicer
(155
)
 
(149
)
Net cash provided by operating activities
59,936

 
70,385

 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Restricted funds
500

 
598

Net cash provided by investing activities
500

 
598

 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Payments of long-term debt
(87,996
)
 
(99,229
)
Net cash used in financing activities
(87,996
)
 
(99,229
)
 
 
 
 
Net Decrease in Cash and Cash Equivalents
(27,560
)
 
(28,246
)
 
 
 
 
Cash and Cash Equivalents, Beginning of Period
44,031

 
44,183

 
 
 
 
Cash and Cash Equivalents, End of Period
$
16,471

 
$
15,937

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Cash Payments:
 

 
 

Interest
$
15,812

 
$
10,750


See Notes to Interim Unaudited Financial Statements

3


CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(1)       Background and Basis of Presentation

General. Included in this Quarterly Report on Form 10-Q (Form 10-Q) of CenterPoint Energy Transition Bond Company, LLC (the Company) are the Company’s interim financial statements and notes (Interim Financial Statements). The Interim Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Background. The Company is a special purpose Delaware limited liability company whose sole member is CenterPoint Energy Houston Electric, LLC (CenterPoint Houston). The Company has no commercial operations and was formed for the sole purpose of purchasing and owning transition property, issuing transition bonds and performing activities incidental thereto. CenterPoint Houston is a regulated utility engaged in the transmission and distribution of electric energy in the Texas Gulf Coast area that includes the city of Houston.

Basis of Presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s Interim Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in the Company’s Statements of Income and Changes in Member’s Equity are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, seasonal variations in energy consumption.

Amortization. The transition property was recorded at acquired cost and is being amortized over 12 years, the expected life of the transition bonds, based on estimated revenue from transition charges, interest accruals and other expenses. The financing order authorizing the imposition of the transition charges and the issuance of the transition bonds limits the terms of the transition bonds to no greater than 15 years. In accordance with guidance for accounting for regulated operations, amortization is adjusted for over-collection or under-collection of transition charges. The transition charges are reviewed and adjusted at least annually by the Public Utility Commission of Texas to correct prospectively any over-collections or under-collections that occurred during the preceding 12 months and to provide for the expected recovery of amounts sufficient to timely provide all payment of debt service and other required amounts and charges in connection with the transition bonds.

(2)       Transition Charges

The following table shows the aggregate amount of transition charges remitted by CenterPoint Houston to the trustee under the indenture pursuant to which the transition bonds were issued (the trustee) during each month from the date of issuance of the transition bonds through September 30, 2012 (in thousands):
 
2001
 
2002
 
2003
 
2004
 
2005
 
2006
 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
January
$

 
$
4,584

 
$
4,902

 
$
4,652

 
$
6,159

 
$
5,729

 
$
6,665

 
$
7,616

 
$
6,625

 
$
6,837

 
$
7,024

 
$
7,854

February

 
3,997

 
4,693

 
4,554

 
7,804

 
5,082

 
5,970

 
7,053

 
7,229

 
7,842

 
7,195

 
8,692

March

 
4,297

 
4,698

 
5,798

 
8,136

 
5,916

 
7,003

 
7,141

 
7,040

 
9,127

 
8,460

 
8,065

April

 
5,144

 
4,986

 
4,808

 
6,582

 
5,799

 
6,349

 
7,061

 
6,855

 
7,945

 
7,019

 
6,926

May

 
3,678

 
4,236

 
3,754

 
7,028

 
5,176

 
6,414

 
7,464

 
6,434

 
6,868

 
6,812

 
9,100

June

 
5,805

 
5,378

 
6,258

 
7,952

 
7,398

 
7,019

 
7,128

 
7,490

 
8,809

 
8,991

 
9,023

July

 
5,892

 
6,195

 
6,039

 
8,481

 
7,792

 
7,572

 
9,444

 
9,533

 
10,827

 
9,036

 
10,496

August

 
7,091

 
5,948

 
6,668

 
10,429

 
8,785

 
9,092

 
9,314

 
9,350

 
11,567

 
11,076

 
11,456

September

 
7,195

 
6,359

 
7,217

 
10,164

 
7,942

 
7,919

 
9,719

 
10,647

 
12,095

 
11,235

 
10,663

October
2

 
8,799

 
6,403

 
6,137

 
9,619

 
7,423

 
9,391

 
9,301

 
9,683

 
11,337

 
10,327

 

November
414

 
6,119

 
4,667

 
7,055

 
9,788

 
7,253

 
7,866

 
5,857

 
7,765

 
9,680

 
9,683

 

December
1,937

 
5,390

 
5,516

 
6,528

 
7,273

 
6,073

 
6,801

 
9,721

 
8,834

 
8,778

 
7,695

 


4




(3)     Cash and Cash Equivalents/Restricted Funds  

For purposes of the Balance Sheet and Statement of Cash Flows, the Company considers investments purchased with a maturity of three months or less to be the equivalent of cash.  The trustee under the indenture pursuant to which the transition bonds were issued has established, as provided in the indenture, the following subaccounts for the Company’s cash balances related to its transition bonds:

The General Subaccount is comprised of collections of transition charges and interest earned from short-term investments. These amounts accumulate in the General Subaccount until they are transferred from the General Subaccount on each transition bond payment date.  The General Subaccount had a balance of $33.9 million and $5.1 million at December 31, 2011 and September 30, 2012, respectively.

The Reserve Subaccount is maintained for the purpose of holding any transition charges and investment earnings (other than investment earnings on amounts in the Capital Subaccount) not otherwise used on the payment dates of the transition bonds for payment of principal, interest, fees or expenses, or for funding the Capital Subaccount or the Overcollateralization Subaccount.  The Reserve Subaccount had a balance of $7.1 million and $7.4 million at December 31, 2011 and September 30, 2012, respectively.

The Overcollateralization Subaccount has a target funding level of approximately $3.7 million (0.5% of the initial principal amount of the transition bonds), and funding is scheduled to occur ratably over the life of the transition bonds.  The trustee may draw from this subaccount if the General Subaccount and Reserve Subaccount are not sufficient on any payment date to make scheduled payments on the transition bonds and payments of certain fees and expenses.  The Overcollateralization Subaccount had a balance of $3.1 million at December 31, 2011 with a scheduled level of $3.1 million. The Overcollateralization Subaccount had a balance of $3.4 million at September 30, 2012 with a scheduled level of $3.4 million.

The Capital Subaccount received a deposit of approximately $3.7 million (0.5% of the initial principal amount of the transition bonds) on the date of issuance of the transition bonds. CenterPoint Houston contributed this amount to the Company. If amounts available in the General, Reserve and Overcollateralization Subaccounts are not sufficient on any payment date to make scheduled payments on the transition bonds and payments of certain fees and expenses, the trustee will draw on amounts in the Capital Subaccount. At both December 31, 2011 and September 30, 2012, the Capital Subaccount had a balance of $3.7 million and is classified as Restricted Funds in the Balance Sheets.

At December 31, 2011 and September 30, 2012, cash deposits provided by retail electric providers (REPs) totaled $5.6 million and $5.0 million, respectively, and are classified as Restricted Funds in the Balance Sheets.

(4)       Fair Value Measurement

Assets and liabilities recorded at fair value in the Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value are investments listed in active markets.  At December 31, 2011 and September 30, 2012, the Company held Level 1 investments of $8.7 million and $8.3 million, respectively, which are primarily money market funds.

Level 2:  Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. The Company had no Level 2 assets and liabilities at either December 31, 2011 or September 30, 2012.

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value. The Company had no Level 3 assets and liabilities at either December 31, 2011 or September 30, 2012.

5



The Company determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes any transfers at the end of the reporting period.  For the three months ended September 30, 2012, there were no transfers between levels.

The fair values of cash and cash equivalents are estimated to be equivalent to carrying amounts and have been excluded from the table below.  The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by the market price. These assets and liabilities, which are not measured at fair value in the Balance Sheets but for which the fair value is disclosed, would be classified as Level 1 in the fair value hierarchy.
 
December 31, 2011
 
September 30, 2012
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial liabilities:
 
 
 
 
 
 
 
Long-term debt
$
208

 
$
218

 
$
109

 
$
113


(5)       Long-Term Debt

Principal and interest payments on the transition bonds are due semi-annually on March 15 and September 15 of each year and are paid from funds deposited with the trustee by CenterPoint Houston as servicer of the transition property.

The transition bonds are secured primarily by the transition property, which includes the irrevocable right to recover, through non-bypassable transition charges payable by certain retail electric customers, the qualified costs of CenterPoint Houston authorized by the financing order.  The holders of the transition bonds have no recourse to any assets or revenues of CenterPoint Houston, and the creditors of CenterPoint Houston have no recourse to any assets or revenues (including, without limitation, the transition charges) of the Company.  CenterPoint Houston has no payment obligations with respect to the transition bonds except to remit collections of transition charges as set forth in a servicing agreement between CenterPoint Houston and the Company and in an intercreditor agreement among CenterPoint Houston, the Company and other parties.

The source of repayment for the transition bonds is the transition charges.  The servicer collects this non-bypassable charge from REPs in CenterPoint Houston’s service territory.  The servicer deposits transition charge collections into the Company’s General Subaccount maintained by the trustee.

The outstanding transition bonds, which have an aggregate principal amount of $108.6 million, a scheduled final payment date of September 15, 2013, a final maturity date of September 15, 2015 and an interest rate of 5.63%, are reflected on the Balance Sheet as current portion of long-term debt (based on scheduled payments) at September 30, 2012.


6


The following table shows scheduled and actual principal payments on the transition bonds from the issuance date through September 30, 2012 (in thousands):
 
Class A-1
 
Class A-2
 
Class A-3
 
Class A-4
 
Scheduled
 
Actual
 
Scheduled
 
Actual
 
Scheduled
 
Actual
 
Scheduled
 
Actual
March 15, 2002
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

September 15, 2002
13,106

 
13,106

 

 

 

 

 

 

March 15, 2003
6,366

 
6,366

 

 

 

 

 

 

September 15, 2003
12,357

 
12,357

 

 

 

 

 

 

March 15, 2004
14,004

 
14,004

 

 

 

 

 

 

September 15, 2004
27,185

 
27,185

 

 

 

 

 

 

March 15, 2005
15,914

 
15,914

 

 

 

 

 

 

September 15, 2005
26,068

 
26,068

 
4,824

 
4,824

 

 

 

 

March 15, 2006

 

 
18,460

 
18,460

 

 

 

 

September 15, 2006

 

 
35,835

 
35,835

 

 

 

 

March 15, 2007

 

 
20,370

 
20,370

 

 

 

 

September 15, 2007

 

 
38,512

 
38,512

 
1,030

 
1,030

 

 

March 15, 2008

 

 

 

 
22,280

 
22,280

 

 

September 15, 2008

 

 

 

 
43,249

 
43,249

 

 

March 15, 2009

 

 

 

 
24,826

 
24,826

 

 

September 15, 2009

 

 

 

 
38,615

 
38,615

 
9,576

 
9,576

March 15, 2010

 

 

 

 

 

 
27,372

 
27,372

September 15, 2010

 

 

 

 

 

 
53,135

 
53,135

March 15, 2011

 

 

 

 

 

 
29,918

 
29,918

September 15, 2011

 

 

 

 

 

 
58,077

 
58,077

March 15, 2012

 

 

 

 

 

 
33,738

 
33,738

September 15, 2012

 

 

 

 

 

 
65,491

 
65,491


(6)       Related Party Transactions and Major Customers

Related Party Transactions. As the servicer, CenterPoint Houston manages and administers the transition property of the Company and collects the transition charges on behalf of the Company. The Company pays a fixed annual servicing fee to CenterPoint Houston for these services. Pursuant to an administration agreement entered into between the Company and CenterPoint Houston, CenterPoint Houston also provides administrative services to the Company. The Company pays CenterPoint Houston a fixed fee for performing these services, plus all reimbursable expenses. The Company recorded administrative and servicing fees of $0.1 million and $0.4 million during each of the three and nine months ended September 30, 2011 and 2012, respectively.

Major Customers. A significant portion of the transition charges are collected by affiliates of NRG Energy, Inc. (NRG) and by affiliates of Energy Future Holdings Corp. (Energy Future Holdings). During the three and nine months ended September 30, 2011, revenues derived from transition charges to REPs that are currently affiliates of NRG accounted for approximately 33% and 31%, respectively, of total transition charge revenues. During the three and nine months ended September 30, 2012, revenues derived from transition charges to REPs that are currently affiliates of NRG accounted for approximately 35% and 33%, respectively, of total transition charge revenues. During the three and nine months ended September 30, 2011, revenues derived from transition charges to REPs that are currently affiliates of Energy Future Holdings accounted for approximately 11% and 10%, respectively, of total transition charge revenues. During both the three and nine months ended September 30, 2012, revenues derived from transition charges to REPs that are currently affiliates of Energy Future Holdings accounted for approximately 9% of total transition charge revenues. Affiliates of NRG had letters of credit aggregating $7.3 million and $8.3 million on deposit with the trustee at December 31, 2011 and September 30, 2012, respectively. Affiliates of Energy Future Holdings had letters of credit aggregating $2.4 million and $2.7 million on deposit with the trustee at December 31, 2011 and September 30, 2012, respectively. As with any REP that may default in its payment obligations in respect of transition charges, the servicer is expected to direct the trustee to seek recourse against such cash deposits or alternate form of credit support as a remedy for any payment default that may occur.

7



Item 2.  MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

This analysis should be read in combination with the Interim Financial Statements included in Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).

We meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and therefore are providing the following analysis of our results of operations using the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, we have omitted from this report the information called for by Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a Vote of Security Holders).

We are a Delaware limited liability company established in November 1999 for limited purposes. On October 24, 2001 we issued $748.9 million aggregate principal amount of transition bonds and used the net proceeds to purchase the transition property from Reliant Energy, Incorporated, now CenterPoint Energy Houston Electric, LLC (CenterPoint Houston). As we are restricted by our organizational documents from engaging in activities other than those described under “Business” in Item 1 of our 2011 Form 10-K, income statement effects are limited primarily to revenue generated from the transition charges, interest expense on the transition bonds, amortization of the transition property, debt issuance expenses and the discount on the transition bonds, transition property servicing and administration fees and incidental investment interest income. Net income is expected to be zero for each reporting period.

For the three months ended September 30, 2012, revenue from transition charges was $35.2 million and investment income was less than $0.1 million. Amortization of transition property was $31.9 million. Interest expense was $2.3 million related to interest on the transition bonds and amortization expense was $0.1 million related to amortization of debt issuance expenses and the discount on the transition bonds. We recorded administrative expenses of $1.0 million for the three months ended September 30, 2012.

For the three months ended September 30, 2011, revenue from transition charges was $32.7 million and investment income was less than $0.1 million. Amortization of transition property was $28.5 million. Interest expense was $3.6 million related to interest on the transition bonds and amortization expense was $0.1 million related to amortization of debt issuance expenses and the discount on the transition bonds. We recorded administrative expenses of $0.6 million for the three months ended September 30, 2011.

For the nine months ended September 30, 2012, revenue from transition charges was $90.8 million and investment income was less than $0.1 million. Amortization of transition property was $80.2 million. Interest expense was $7.6 million related to interest on the transition bonds and amortization expense was $0.2 million related to amortization of debt issuance expenses and the discount on the transition bonds. We recorded administrative expenses of $2.9 million for the nine months ended September 30, 2012, which included $0.7 million related to the annual bad debt true-up.

For the nine months ended September 30, 2011, revenue from transition charges was $82.2 million and investment income was less than $0.1 million. Amortization of transition property was $69.1 million. Interest expense was $11.4 million related to interest on the transition bonds and amortization expense was $0.3 million related to amortization of debt issuance expenses and the discount on the transition bonds. We recorded administrative expenses of $1.4 million for the nine months ended September 30, 2011.

We use collections of transition charges to make scheduled principal and interest payments on the transition bonds.  Transition charges, together with interest earned on collected transition charges, are expected to offset (1) interest expense on the transition bonds, (2) the principal amount of the transition bonds scheduled to be paid and (3) fees and expenses, including fees charged by CenterPoint Houston for servicing the transition property and providing administrative services to us and expenses related to such administrative services.

The transition charges are reviewed and adjusted at least annually by the Public Utility Commission of Texas (Texas Utility Commission) to correct prospectively any over-collections or under-collections that occurred during the preceding 12 months and to provide for the expected recovery of amounts sufficient to timely provide all payment of debt service and other required amounts and charges in connection with the transition bonds.

CenterPoint Houston is required to true-up transition charges annually on November 1 in compliance with the financing order. CenterPoint Houston’s most recent true-up filing to adjust transition charges was filed with the Texas Utility Commission on

8


September 28, 2012 and became effective November 1, 2012.  The adjusted transition charges are designed to collect $109.5 million during the twelve-month period ending October 31, 2013. Such adjusted transition charges reflect the impact of an estimated over-collection of $12.2 million for the twelve-month period ended October 31, 2012. The scheduled final payment date of the Class A-4 transition bonds is September 15, 2013.

In all material respects, each materially significant retail electric provider (i) has been billed in accordance with the financing order, (ii) has made all payments in compliance with the requirements outlined in the financing order and (iii) has satisfied the creditworthiness requirements of the financing order.

Item 4.  CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2012 to provide assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

There has been no change in our internal controls over financial reporting that occurred during the three months ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our 2011 Form 10-K.

9



Item 6. EXHIBITS

The following exhibits are filed herewith:

Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Transition Bond Company, LLC.

Agreements included as exhibits are included only to provide information to investors regarding their terms. Agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and no such agreement should be relied upon as constituting or providing any factual disclosures about CenterPoint Energy Transition Bond Company, LLC, any other persons, any state of affairs or other matters.


Exhibit
Number
 
Description
 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
Reference
4.1
 
Amended and Restated Limited Liability Company Agreement of Reliant Energy Transition Bond Company LLC
 
Current Report on Form 8-K filed with the SEC on October 23, 2001
 
333-91093
 
4.3
4.2
 
Amended and Restated Certificate of Formation of Reliant Energy Transition Bond Company LLC
 
Current Report on Form 8-K filed with the SEC on October 23, 2001
 
333-91093
 
4.7
4.3
 
Certificate of Amendment to the Certificate of Formation of Reliant Energy Transition Bond Company LLC
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
 
333-91093
 
4.3
+10.1
 
Semiannual Servicer’s Certificate dated as of September 13, 2012, as to the transition bond balances, the balances of the collection account and its sub-accounts, and setting forth transfers and payments to be made on the September 17, 2012 payment date.
 
 
 
 
 
 
+31.1
 
Section 302 Certification of Gary L. Whitlock
 
 
 
 
 
 
+31.2
 
Section 302 Certification of Marc Kilbride
 
 
 
 
 
 
+32.1
 
Section 906 Certification of Gary L. Whitlock
 
 
 
 
 
 
+32.2
 
Section 906 Certification of Marc Kilbride
 
 
 
 
 
 
+101.INS
 
XBRL Instance Document (1)
 
 
 
 
 
 
+101.SCH
 
XBRL Taxonomy Extension Schema Document (1)
 
 
 
 
 
 
+101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (1)
 
 
 
 
 
 
+101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document (1)
 
 
 
 
 
 
+101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (1)
 
 
 
 
 
 
(1)Furnished, not filed.



10


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC
(Registrant)
 
By: /s/ Walter L. Fitzgerald
Walter L. Fitzgerald
Senior Vice President and Chief Accounting Officer

Date: November 13, 2012

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Index to Exhibits

The following exhibits are filed herewith:

Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Energy Transition Bond Company, LLC.

Agreements included as exhibits are included only to provide information to investors regarding their terms. Agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and no such agreement should be relied upon as constituting or providing any factual disclosures about CenterPoint Energy Transition Bond Company, LLC, any other persons, any state of affairs or other matters.

Exhibit
Number
 
Description
 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
Reference
4.1
 
Amended and Restated Limited Liability Company Agreement of Reliant Energy Transition Bond Company LLC
 
Current Report on Form 8-K filed with the SEC on October 23, 2001
 
333-91093
 
4.3
4.2
 
Amended and Restated Certificate of Formation of Reliant Energy Transition Bond Company LLC
 
Current Report on Form 8-K filed with the SEC on October 23, 2001
 
333-91093
 
4.7
4.3
 
Certificate of Amendment to the Certificate of Formation of Reliant Energy Transition Bond Company LLC
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
 
333-91093
 
4.3
+10.1
 
Semiannual Servicer’s Certificate dated as of September 13, 2012, as to the transition bond balances, the balances of the collection account and its sub-accounts, and setting forth transfers and payments to be made on the September 17, 2012 payment date.
 
 
 
 
 
 
+31.1
 
Section 302 Certification of Gary L. Whitlock
 
 
 
 
 
 
+31.2
 
Section 302 Certification of Marc Kilbride
 
 
 
 
 
 
+32.1
 
Section 906 Certification of Gary L. Whitlock
 
 
 
 
 
 
+32.2
 
Section 906 Certification of Marc Kilbride
 
 
 
 
 
 
+101.INS
 
XBRL Instance Document (1)
 
 
 
 
 
 
+101.SCH
 
XBRL Taxonomy Extension Schema Document (1)
 
 
 
 
 
 
+101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (1)
 
 
 
 
 
 
+101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document (1)
 
 
 
 
 
 
+101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (1)
 
 
 
 
 
 
(1)Furnished, not filed.


  

12