CENTERPOINT ENERGY TRANSITION BOND CO LLC - 10-K Annual Report

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

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 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 (I.R.S. Employer Identification Number)
or organization)

1111 LOUISIANA, SUITE 4667 (713) 207-8272
HOUSTON, TEXAS 77002 (Registrant's telephone number,
(Address and zip code of principal executive including area code)
offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT.

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of each of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the member's equity held by non-affiliates of
the registrant as of June 28, 2002: None

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [ ] No [X]

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CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

TABLE OF CONTENTS

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," "intend," "may," "plan,"
"potential," "predict," "should," "will," "forecast," "goal," "objective,"
"projection," 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 list identifies some of the factors that could cause actual
results to differ from those expressed or implied by our forward-looking
statements:

o state and federal legislative and regulatory actions or developments,
including deregulation, re-regulation and restructuring of the electric
utility industry, changes in or application of laws or regulations
applicable to other aspects of our business;

o non-payment of transition charges due to financial distress of CenterPoint
Energy Houston Electric, LLC's (CenterPoint Houston's) customers;

o the accuracy of the servicer's estimates of market demand and prices for
energy;

o the accuracy of the servicer's estimates of industrial, commercial and
residential growth in CenterPoint Houston's service territory;

o changes in market demand and demographic patterns;

o weather variations and other natural phenomena affecting retail electric
customer energy usage;

o the operating performance of CenterPoint Houston's facilities and
third-party suppliers of electric energy in CenterPoint Houston's service
territory;

o the accuracy of the servicer's estimates of the payment patterns of retail
electric customers, including the rate of delinquencies and any collections
curves;

o legal and administrative proceedings and settlements;

o changes in tax laws;

o any lack of effectiveness of our disclosure controls and procedures;

o significant changes in critical accounting policies material to us;

o acts of terrorism or war, including any direct or indirect effect on our
business resulting from terrorist attacks such as occurred on September 11,
2001 or any similar incidents or responses to those incidents;

o 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.;

o political, legal, regulatory and economic conditions and developments in
the United States; and

ii

o other factors we discuss in this Form 10-K and our other SEC 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, and we undertake no obligation to publicly update or revise any
forward-looking statements.

iii

PART I

ITEM 1. BUSINESS

GENERAL

Effective August 31, 2002, Reliant Energy, Incorporated (Reliant Energy)
consummated a restructuring transaction in which it, among other things, (1)
conveyed its Texas electric generation assets to an affiliated company, Texas
Genco Holdings, Inc. (Texas Genco), (2) became an indirect, wholly owned
subsidiary of a new utility holding company, CenterPoint Energy, Inc.
(CenterPoint Energy), (3) was converted into a Texas limited liability company
named CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), and (4)
distributed the capital stock of its operating subsidiaries to CenterPoint
Energy. As part of the restructuring, each share of Reliant Energy common stock
was converted into one share of CenterPoint Energy common stock. In connection
with the restructuring, Reliant Energy Transition Bond Company LLC was renamed
CenterPoint Energy Transition Bond Company, LLC (the Company).

We are a special purpose Delaware limited liability company whose sole
member is CenterPoint Houston. We were organized on November 10, 1999, and
amended and restated our limited liability company agreement and certificate of
formation on October 24, 2001. Our principal purposes are:

a) purchasing the transition property, as described below, established by
a financing order from the Public Utility Commission of Texas (Texas
Utility Commission),

b) issuing, supporting and servicing one or more series of transition
bonds secured by transition property, and

c) engaging in only those other activities incidental thereto and
necessary, suitable or convenient thereto.

Our organizational documents require us to operate in a manner such that we
should not be consolidated in the bankruptcy estate of CenterPoint Houston in
the event that CenterPoint Houston becomes subject to such a proceeding.

We have no employees and have entered into a servicing agreement with
CenterPoint Houston (in this capacity, the Servicer). Pursuant to the servicing
agreement, the Servicer is responsible for servicing, managing, and receiving
transition charges from retail electric customers or retail electric providers
(Transition Charges). In addition, we have entered into an administration
agreement with CenterPoint Houston pursuant to which CenterPoint Houston
performs administrative and operational duties for us.

We purchased the transition property described below and issued Series
2001-1 Transition Bonds (the Transition Bonds) on October 24, 2001, with
expected principal repayments ranging from eleven months to twelve years and
final maturities of the four classes of Transition Bonds ranging from six years
to fourteen years. The specific interest rate and maturity of each class of
Transition Bonds is disclosed in Note 3 of the Notes to Financial Statements
included in Item 8 of this Form 10-K. The Transition Bonds were issued pursuant
to an indenture between us and Deutsche Bank Trust Company Americas (formerly
Bankers Trust Company), as trustee.

TRANSITION PROPERTY

The transition property (Transition Property) that we purchased from
Reliant Energy (now CenterPoint Houston) includes the irrevocable right to
impose, collect and receive, through the Transition Charges payable by retail
electric customers within CenterPoint Houston's certificated service area as it
existed on May 1, 1999, an amount sufficient to recover the qualified costs
authorized in the financing order (Financing Order) issued by the Texas Utility
Commission, including the right to receive Transition Charges in amounts and at
times sufficient to pay principal and interest and to make other deposits in
connection with the Transition Bonds. All revenues and collections resulting
from Transition Charges are part of the Transition Property. CenterPoint
Houston's qualified costs authorized in the Financing Order approving the
issuance of the Transition Bonds include:

1

o certain of CenterPoint Houston's generation-related regulatory assets,
as determined in the Financing Order, and

o certain costs of issuing, supporting and servicing the Transition
Bonds.

We purchased the Transition Property from CenterPoint Houston with the
proceeds from the issuance of $748.9 million principal amount of Transition
Bonds. Prior to January 2002, the Servicer collected the Transition Charges
primarily from retail electric customers within CenterPoint Houston's service
territory on the Company's behalf. Beginning in January 2002, and in limited
circumstances earlier, retail electric customers in CenterPoint Houston's
service territory began to purchase electricity and related services from retail
electric providers, rather than from electric utilities. Certain of these retail
electric providers were affiliates of CenterPoint Houston through September 30,
2002. Each retail electric provider includes the Transition Charges in its bill
to its retail electric customers but is not required to show the Transition
Charges as a separate line item or footnote. Each retail electric provider,
however, is required to provide annual written notice to its customers that
Transition Charges have been included in their bills. The retail electric
providers are obligated to remit payments of Transition Charges, less an
allowance for charge-offs of delinquent customer accounts, to the Servicer,
whether or not the Transition Charges are actually collected from retail
electric customers. The Servicer has only limited rights to collect the
Transition Charges directly from retail electric customers if a retail electric
provider does not remit such payments to the Servicer, but has certain rights
against the retail electric provider. Because the amount of Transition Charge
collections will largely depend on the amount of electricity consumed by
customers within CenterPoint Houston's service territory, the amount of
collections may vary substantially from year to year.

Credit enhancement for the Transition Bonds, which includes mandatory
periodic review and adjustment to the Transition Charges to be billed and
collected from the retail electric customers within CenterPoint Houston's
service territory and the allocation of those charges among the various classes
of customers, is intended to ensure that sufficient funds are available to make
payments of principal and interest on the Transition Bonds as scheduled. The
Servicer is required to make a filing with the Texas Utility Commission for an
adjustment at least annually to correct any significant undercollection or
overcollection of Transition Charges. In addition, if after application of
collections in accordance with the indenture, the actual principal balance of
Transition Bonds outstanding at the next payment date will be more than 5%
higher or lower than the expected principal balance on the expected amortization
schedule, interim true-up adjustments may be made, but not more frequently than
every six months. The amount of the adjustment will be determined by using a
formula established by the financing order approving the issuance of the
Transition Bonds. The adjustments will be made to correct any undercollections
or overcollections and are intended to provide that the Transition Charges
generate amounts sufficient to:

o make timely interest and principal payments on the Transition Bonds,

o pay fees and expenses of the trustee, our independent managers, the
administrator and the Servicer and other fees, expenses, costs and
charges,

o reconcile the retail electric provider payments, net of expected
charge-offs for delinquent customer accounts, and

o fund the various subaccounts required by the Transition Bond Indenture
to their required levels.

CenterPoint Houston is required to true-up Transition Charges annually on
November 1 in compliance with the Financing Order issued by the Texas Utility
Commission in Application of Reliant Energy, Incorporated for Financing Order to
Securitize Regulatory Assets and Other Qualified Costs, Docket No. 21665. On
August 2, 2002, CenterPoint Houston filed with the Texas Utility Commission, in
Docket No. 26402, the Transition Charges to become effective November 1, 2002.
The adjusted Transition Charges are designed to permit the collection of $60.0
million during the year ending October 31, 2003. The Texas Utility Commission
referred this docket to the State Office of Hearings (SOAH Docket No.
473-03-0277) on September 24, 2002 to conduct a hearing and issue a proposal for
decision. The Financing Order provides that the Texas Utility Commission will
issue a final order in a true-up filing by the date stated in the filing
(November 1, 2002) but that the Servicer will be permitted to implement its
proposed changes to the Transition Charges if the Texas Utility Commission
cannot issue an order by that date. CenterPoint Houston implemented the new
rates on that date. Any modifications subsequently ordered by the Texas Utility
Commission will be made by the Servicer in the next true-up filing.

2

ITEM 2. PROPERTIES

We have no material physical properties. Our primary asset is the
Transition Property described above in Item 1 (Business - Transition Property).

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to Instruction I of Form 10-K.

3

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Sale of Unregistered Securities. There is no established public trading
market for our equity securities. All of our equity is owned by CenterPoint
Houston. We were formed by CenterPoint Houston in November 1999. The acquisition
of shares by CenterPoint Houston in the formation was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, because no public
offering was involved. We have made no other sales of unregistered securities.

Restricted Payments. The Transition Bond Indenture prohibits us from making
any distributions from the capital subaccount of the trust established for the
Transition Bonds to any owner of our beneficial interests unless no default has
occurred and is continuing thereunder and such distributions would not cause the
balance of such capital subaccount to decline below 0.50% of the initial
principal amount of Transition Bonds issued and outstanding. We will not, except
as contemplated by our organizational documents, make any loan or advance credit
to, or guarantee, endorse, or otherwise become contingently liable in connection
with the obligations, stocks or dividends of, or own, purchase, repurchase or
acquire (or agree contingently to do so) any stock, obligations, assets or
securities of, or any other interest in, or make any capital contribution to,
any other person. We will not directly or indirectly make payments to or
distributions from the collection account except in accordance with the
Transition Bond Indenture. As of December 31, 2002, we had not made any
distributions to our sole member.

Bondholders. As of December 31, 2002, the sole record holder of the
Transition Bonds was Cede & Co., as nominee of The Depository Trust Company. The
Transition Bonds are not listed on any national securities exchange.

ITEM 6. SELECTED FINANCIAL DATA

Omitted pursuant to Instruction I of Form 10-K.

4

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

The following is an analysis of our consolidated results of operations in
an abbreviated format pursuant to Instruction I of Form 10-K. This analysis
should be read in combination with our financial statements included in Item 8
of this Form 10-K.

As discussed above under Item 1 (Business), we are a Delaware limited
liability company established in November 1999 for limited purposes. On October
24, 2001 we issued Transition Bonds and used the net proceeds to purchase the
Transition Property from CenterPoint Houston. As we are restricted by our
organizational documents from engaging in activities other than those described
in Item 1 (Business), income statement effects were limited primarily to income
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.

In 2002, revenue from Transition Charges was $74.1 million and investment
income was $0.2 million. Interest expense of $38.4 million related to interest
on the Transition Bonds and amortization expense of $1.7 million related to
amortization of debt issuance expenses and the discount on the Transition Bonds.
Amortization of the Transition Property included regulatory adjustments of $28.0
million in 2002 to defer amortization costs until periods in which Transition
Charge revenue is recorded. We recorded administrative expenses of $0.8 million,
including bad debt expense of $0.2 million and servicing fees of $0.3 million in
2002.

In 2001, revenue from Transition Charges was $6.1 million and investment
income was $.02 million. Interest expense of $7.2 million related to interest on
the Transition Bonds and amortization expense of $0.3 million related to
amortization of debt issuance expenses and the discount on the Transition Bonds.
Amortization of the Transition Property included regulatory adjustments of $1.5
million in 2001 to defer amortization costs until periods in which Transition
Charge revenue is recorded. We recorded administrative expenses and servicing
fees of $0.1 million in 2001.

We expect to 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) amortization of the
Transition Property, debt issuance expenses and the discount on the Transition
Bonds and (3) the fees charged by CenterPoint Houston for servicing the
Transition Property and providing administrative services to us. From the
October 2001 issuance date of the Transition Bonds to the March 15, 2003
semi-annual debt service payment date, the aggregate amount of collected
Transition Charges and interest thereon was $82.4 million, and the aggregate
amount expected to have been collected was $74.0 million. As a result of the
overcollections, $8.4 million has been deposited into the Reserve Subaccount.

The Transition Charges are expected to be reviewed and adjusted at least
annually by the Public Utility Commission of Texas (Texas Utility Commission) to
correct any overcollections or undercollections 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 issued by the Texas Utility
Commission in Application of Reliant Energy, Incorporated for Financing Order to
Securitize Regulatory Assets and Other Qualified Costs, Docket No. 21665. On
August 2, 2002, CenterPoint Houston filed with the Texas Utility Commission, in
Docket No. 26402, the Transition Charges to become effective November 1, 2002.
The adjusted Transition Charges are designed to permit the collection of $60.0
million during the year ending October 31, 2003. The Texas Utility Commission
referred this docket to the State Office of Hearings (SOAH Docket No.
473-03-0277) on September 24, 2002 to conduct a hearing and issue a proposal for
decision. The Financing Order provides that the Texas Utility Commission will
issue a final order in a true-up filing by the date stated in the filing
(November 1, 2002) but that the Servicer will be permitted to implement its
proposed changes to the Transition Charges if the Texas Utility Commission
cannot issue an order by that date.

5

CenterPoint Houston implemented the new rates on that date. Any modifications
subsequently ordered by the Texas Utility Commission will be made by the
Servicer in the next true-up filing.

As of December 31, 2002, one of the retail electric providers with which we
do business was in default and currently is in bankruptcy. Their deposit with
the trustee is more than sufficient to satisfy their outstanding transition
charge balance. Nevertheless, the bankruptcy court has ruled that the entire
deposit is the property of CenterPoint Houston.

Holders of Transition Bonds may experience payment delays or incur losses
if our assets are not sufficient to pay interest or the scheduled principal of
the Transition Bonds. Funds for payments are dependent upon the Transition
Property and the right to collect the Transition Charges over a period limited
by Texas law to 15 years.

In addition, collections are dependent on the amount of electricity
consumed within CenterPoint Houston's service territory.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have long-term debt, which subjects us to the risk of loss associated
with movements in market interest rates.

At December 31, 2001 and 2002, we had outstanding fixed-rate debt
aggregating $748.9 million and $735.8 million in principal amount and having a
fair value of $724.3 million and $781.0 million, respectively. This fixed-rate
debt does not expose us to the risk of loss in earnings due to changes in market
interest rates. However, the fair value of this debt would increase by
approximately $14.7 million if interest rates were to decline by 10% from their
levels at December 31, 2002. In general, such an increase in fair value would
impact earnings and cash flows only if we were to reacquire all or a portion of
this debt in the open market prior to its maturity.

6

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF THE COMPANY

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF INCOME
AND CHANGES IN MEMBER'S EQUITY

See Notes to the Company's Financial Statements

7

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

BALANCE SHEETS

See Notes to the Company's Financial Statements

8

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF CASH FLOWS

See Notes to the Company's Financial Statements

9

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

NOTES TO FINANCIAL STATEMENTS

(1) BACKGROUND AND BASIS OF PRESENTATION

Effective August 31, 2002, Reliant Energy, Incorporated (Reliant Energy)
consummated a restructuring transaction in which it, among other things, (1)
conveyed its Texas electric generation assets to an affiliated company, Texas
Genco Holdings, Inc. (Texas Genco), (2) became an indirect, wholly owned
subsidiary of a new utility holding company, CenterPoint Energy, Inc.
(CenterPoint Energy), (3) was converted into a Texas limited liability company
named CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), and (4)
distributed the capital stock of its operating subsidiaries to CenterPoint
Energy. As part of the restructuring, each share of Reliant Energy common stock
was converted into one share of CenterPoint Energy common stock. In connection
with the restructuring, Reliant Energy Transition Bond Company LLC was renamed
CenterPoint Energy Transition Bond Company, LLC (the Company).

The Company is a special purpose Delaware limited liability company whose
sole member is CenterPoint Houston. CenterPoint Houston is a regulated utility
engaged in the transmission and distribution of electric energy in a 5,000
square mile area located along the Texas Gulf Coast, including the City of
Houston.

In June 1999, the State of Texas enacted the Texas Electric Choice Plan
(Texas electric restructuring law). The Texas electric restructuring law
authorizes competition in the retail and generation markets for electricity
beginning in January 2002 and provides for recovery of stranded costs (i.e., the
excess of net regulatory book value of generation assets (as defined by the
Texas electric restructuring law) over the market value of those assets) and
generation-related regulatory assets (as defined by the Texas electric
restructuring law) through irrevocable non-bypassable transition charges
assessed on all retail electric customers within a utility's geographical
certificated service area as it existed on May 1, 1999 (Transition Charges). The
Texas electric restructuring law authorizes the Public Utility Commission of
Texas (Texas Utility Commission) to issue financing orders approving the
issuance of transition bonds to recover generation-related regulatory assets and
stranded costs. The Texas electric restructuring law and the financing order
permit an electric utility to transfer its rights and interests in the financing
order, including the right to collect Transition Charges pursuant to the Texas
electric restructuring law, to a special purpose entity formed by the electric
utility to issue debt securities secured by the right to receive revenues
arising from the Transition Charges. The electric utility's right to receive the
Transition Charges and its other rights and interests under the financing order
constitute Transition Property. The Texas Utility Commission issued a financing
order to CenterPoint Houston on May 31, 2000 (Financing Order) that authorized
CenterPoint Houston to cause the Company to issue transition bonds (Transition
Bonds) in an aggregate principal amount not to exceed $740 million plus up-front
qualified costs not to exceed $10.7 million in the aggregate.

The Company was organized on November 10, 1999 under the laws of the State
of Delaware for the sole purpose of acquiring and holding the Transition
Property to be acquired from CenterPoint Houston. The Company had no operations
until October 24, 2001.

On October 24, 2001, the Company issued $748.9 million of Transition Bonds
and used the net proceeds to purchase the Transition Property from CenterPoint
Houston and pay expenses of issuance. For additional information relating to the
Transition Bonds, see Note 3.

The Company is restricted by its organizational documents from engaging in
any activity not directly related to the specific purposes for which the Company
was created. The Company is a separate and distinct legal entity from
CenterPoint Houston, and the Company's organizational documents require it to
operate in a manner to avoid consolidation with the bankruptcy estate of
CenterPoint Houston in the event CenterPoint Houston becomes subject to such a
proceeding. CenterPoint Houston is not the owner of the Transition Property
described herein, and the assets of the Company are not available to pay
creditors of CenterPoint Houston or any of its affiliates.

10

(2) SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES. 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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

REGULATION AND REGULATORY ASSETS AND LIABILITIES. The Company's business
meets the criteria of Statement of Financial Accounting Standards (SFAS) No. 71
(SFAS No. 71), Accounting for the Effects of Certain Types of Regulation. This
accounting standard recognizes the cost based rate making process which may
result in differences in the application of generally accepted accounting
principles between regulated and non-regulated businesses. The Company's purpose
is to purchase the Transition Property, issue one or more series of Transition
Bonds secured by the Transition Property and perform any activity incidental
thereto. The Transition Charges are designed to provide the necessary revenues
to make such payments. Continued applicability of SFAS No. 71 requires that
rates be designed to recover specific costs of providing regulated services and
products, and that it be reasonable to assume that the Transition Charges are
set at levels that will recover an entity's costs and can be charged to and
collected from customers. The Company believes it satisfies such requirements,
and applies the provisions of SFAS No. 71 to its business.

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
(the Trustee) has established, as provided in the indenture, the following
subaccounts for the Transition Bonds:

o 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.

o 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 zero
balance at December 31, 2002. As of the March 15, 2003 semi-annual
debt service payment date, the Reserve Subaccount had a balance of $8.4
million.

o 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 zero balance at December 31, 2002 and a $0.5 million
balance as of the March 15, 2003 semi-annual debt service payment date,
with scheduled levels of $0.3 million and $0.5 million, respectively.

o 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. Any remaining amounts collateralizing the
Transition Bonds will be released to the Company upon final payment of the
Transition Bonds. Approximately $2.9 million was drawn from the Capital
Subaccount in connection with the March 15, 2002 interest payment on the
Transition Bonds, and approximately $1.5 million of such drawing was
replenished in connection with the September 15, 2002 debt service
payment. As of December 31, 2002, the Capital Subaccount had a balance of
$2.3 million. In connection with the March 15, 2003 debt service payment,
the Capital Subaccount was replenished to its $3.7 million initial funding
level.

TRANSITION CHARGE RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS. The
Transition Charge Receivable is net of an allowance for doubtful accounts of
$0.2 million at December 31, 2002.

CUSTOMER DEPOSITS. The Trustee holds cash deposits, affiliate guarantees,
surety bonds and letters of credit provided by retail electric providers. Retail
electric providers are required to meet creditworthiness criteria

11

established by the Texas Utility Commission with respect to transition charges.
Each retail electric provider must (1) have a long-term, unsecured credit rating
of not less than BBB- and Baa3 (or the equivalent) from Standard & Poor's
Ratings Services (S&P) and Moody's Investors Service, Inc. (Moody's),
respectively, or (2) provide (a) a cash deposit of two months' maximum expected
transition charge collections, (b) an affiliate guarantee, surety bond or letter
of credit providing for payment of such amount of transition charge collections
in the event that the retail electric provider defaults in its payment
obligations, or (c) a combination of any of the foregoing. The provider of any
affiliate guarantee, surety bond or letter of credit must have and maintain
long-term unsecured credit ratings of not less than BBB- and Baa3 (or the
equivalent) from S&P and Moody's, respectively. As of December 31, 2002, retail
electric providers had satisfied the creditworthiness criteria through cash
deposits, letters of credit and surety bonds aggregating approximately $1.2
million, $11.6 million and $0.04 million, respectively. Affiliate guarantees
aggregated approximately $1.7 million as of December 31, 2002.

DEBT ISSUANCE COSTS. The costs associated with the issuance of the
Transition Bonds are capitalized and are being amortized over the life of the
Transition Bonds utilizing the effective interest method.

REVENUE. Beginning on October 25, 2001 and pursuant to the Financing Order,
CenterPoint Houston, as Servicer, implemented the nonbypassable Transition
Charge on behalf of the Company. The Company records revenue for Transition
Charges under the accrual method. These revenues are generally recognized upon
delivery of services by CenterPoint Houston to retail electric providers.

AMORTIZATION. The Transition Property was recorded at acquired cost and is
being amortized over twelve years, the 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 SFAS No. 71, amortization is adjusted
for over/under collection of Transition Charges. At December 31, 2002,
Transition Property included $28.0 million for undercollection of Transition
Charges. The Transition Charges are expected to be reviewed and adjusted at
least annually by the Texas Utility Commission to correct any overcollections or
undercollections 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.

INCOME TAXES. The Company is organized as a single member limited liability
company and will not be subject to United States federal income tax as an entity
separate from CenterPoint Energy. In addition, the Company has received a ruling
from the Comptroller of Public Accounts of the State of Texas to the effect that
(i) the Company's receipt of the Transition Property, (ii) the Company's receipt
of the Transition Charges and (iii) the Company's short-term earnings from
investment of the Transition Charges will be excluded from taxable capital and
taxable earned surplus for purposes of the Texas franchise tax. Accordingly,
there is no provision for income or Texas franchise taxes.

(3) LONG-TERM DEBT

On October 17, 2001, the Company entered into an underwriting agreement
pursuant to which the Company agreed to sell to the underwriters, and the
underwriters severally agreed to purchase $748.9 million aggregate principal
amount of the Transition Bonds. On October 24, 2001, the Company amended and
restated its limited liability company agreement, entered into the agreements
described in Note 4 as well as the indenture and other documents related to the
issuance of the Transition Bonds, and issued $748.9 million aggregate principal
amount of its Series 2001-1 Transition Bonds pursuant to the Financing Order.
Net proceeds to the Company from the issuance after payment of all allowed costs
of issuance payable from bond proceeds were $738.2 million. The Company paid
CenterPoint Houston $738.2 million for all of CenterPoint Houston's interest in
the Transition Property.

The Transition Bonds are secured primarily by the Transition Property,
which includes the irrevocable right to recover, through nonbypassable
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

12

forth in a servicing agreement between CenterPoint Houston and the Company and
in an intercreditor agreement among CenterPoint Houston, the Company and other
parties.

Interest payments on the Transition Bonds are due semi-annually beginning
March 15, 2002 and are paid from funds deposited daily with the Trustee for the
Transition Bonds by CenterPoint Houston as Servicer of the Transition Property.
Principal payments on the Transition Bonds are due semi-annually beginning on
September 15, 2002. Scheduled final payment dates, final maturity dates and
interest rates for the Transition Bonds at December 31, 2002, are as follows:

Principal payments of $13.1 million and $6.4 million were made on
September 16, 2002 and March 17, 2003, respectively. Scheduled principal
payments through 2007 for the Transition Bonds outstanding at December 31, 2002
are as follows: 2003 - $18.7 million, 2004 - $41.2 million, 2005 - $46.8
million, 2006 - $54.3 million and 2007 - $59.9 million.

The estimated fair value of the Transition Bonds at December 31, 2002 was
$781.0 million.

The source of repayment for the Transition Bonds is the Transition Charges.
The Servicer collects this non-bypassable charge from retail consumers of
electricity in CenterPoint Houston's service territory. The Servicer deposits
Transition Charge collections into a General Subaccount maintained by the
Trustee under the Indenture. The Transition Charges collected from January 1,
2002 through December 31, 2002 were $68.0 million.

Effective March 8, 2002, the Company deregistered all securities that
remained unissued under its Registration Statement No. 333-91093, which
registered $750.7 million aggregate principal amount of Transition Bonds.

CenterPoint Houston is required to true-up Transition Charges annually on
November 1 in compliance with the Financing Order issued by the Texas Utility
Commission in Application of Reliant Energy, Incorporated for Financing Order to
Securitize Regulatory Assets and Other Qualified Costs, Docket No. 21665. On
August 2, 2002, CenterPoint Houston filed with the Texas Utility Commission, in
Docket No. 26402, the Transition Charges to become effective November 1, 2002.
The adjusted Transition Charges are designed to permit the collection of $60.0
million during the year ending October 31, 2003. The Texas Utility Commission
referred this docket to the State Office of Hearings (SOAH Docket No.
473-03-0277) on September 24, 2002 to conduct a hearing and issue a proposal for
decision. The Financing Order provides that the Texas Utility Commission will
issue a final order in a true-up filing by the date stated in the filing
(November 1, 2002) but that the Servicer will be permitted to implement its
proposed changes to the Transition Charges if the Texas Utility Commission
cannot issue an order by that date. CenterPoint Houston implemented the new
rates on that date. Any modifications subsequently ordered by the Texas Utility
Commission will be made by the Servicer in the next true-up filing.

(4) SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS

Under a sale agreement between the Company and CenterPoint Houston dated
October 24, 2001, CenterPoint Houston sold the Transition Property to the
Company. Pursuant to a servicing agreement entered into between the Company and
CenterPoint Houston concurrently with the issuance of the Transition Bonds,
CenterPoint Houston is the Servicer of the Transition Property. As the Servicer,
CenterPoint Houston manages and administers the

13

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 2001 and 2002, respectively.

The Company also entered into an intercreditor agreement with CenterPoint
Houston and other parties related to the servicing of the Transition Bonds. In
addition, CenterPoint Houston has agreed to indemnify the Trustee under the
Transition Bond Indenture on the Company's behalf to the extent such
indemnification is not recoverable from the Company as a fixed expense.

Certain debt issuance costs paid by CenterPoint Houston were reimbursed by
the Company upon issuance of the Transition Bonds.

In order to obtain the desired ratings on the Transition Bonds, CenterPoint
Houston deposited $3 million in a specified reserve account for the benefit of
Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as
Trustee, as cash collateral for an indemnification obligation of CenterPoint
Houston arising in connection with the issuance of the Transition Bonds. All
funds remaining in the specified reserve account less any amounts then due and
owing to Deutsche Bank Trust Company Americas will be released to CenterPoint
Houston upon final payment of the Transition Bonds.

Subsidiaries of Reliant Resources, Inc. (Reliant Resources), a former
affiliate of the Company, collect the majority of the Transition Charges from
retail electric customers. Reliant Resources has at all times been in compliance
with the creditworthiness criteria for retail electric providers as set forth in
the Financing Order. At December 31, 2002, subsidiaries of Reliant Resources had
letters of credit aggregating approximately $10.9 million on deposit with the
Trustee. As with any retail electric provider, the Servicer is expected to
direct the Trustee to seek recourse against such letters of credit or alternate
form of credit support as a remedy for any payment default.

14

INDEPENDENT AUDITORS' REPORT

To the Member of
CenterPoint Energy Transition Bond Company, LLC

We have audited the accompanying balance sheets of CenterPoint Energy
Transition Bond Company, LLC (the Company, formerly Reliant Energy Transition
Bond Company LLC), a wholly owned subsidiary of CenterPoint Energy Houston
Electric, LLC, as of December 31, 2001 and 2002, and the related statements of
income and changes in member's equity for the years ended December 31, 2001 and
2002, and statements of cash flows for each of the years in the three year
period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2001 and
2002, and its results of operations for the years ended December 31, 2001 and
2002, and its cash flows for each of the years in the three year period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.

Deloitte & Touche LLP
Houston, Texas
March 21, 2003

15

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to Instruction I of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to Instruction I of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Omitted pursuant to Instruction I of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to Instruction I of Form 10-K.

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our principal executive officer and our principal financial officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based
on that evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to us (including our
consolidated subsidiaries) required to be included in our periodic SEC filings.
Subsequent to the date of their evaluation, there were no significant changes in
our internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements.
Statements of Income and Changes in Member's Equity
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
Report of Independent Public Accountants

2. Financial Statement Schedules.
None.

3. Exhibits.
See the Index to Exhibits which appears following the signature
page to this report.

(b) Reports on Form 8-K.

None.

16

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Houston, the State of Texas, on the 26th day of March, 2003.

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC
(Registrant)

By: /s/ Marc Kilbride
---------------------------------
Marc Kilbride
Manager

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 26, 2003.

SIGNATURE TITLE

/s/ Gary L. Whitlock President and Manager
- ----------------------- (Principal Executive Officer)
(Gary L. Whitlock)

/s/ Marc Kilbride Vice President, Treasurer and Manager
- ----------------------- (Principal Financial Officer)
(Marc Kilbride)

/s/ James S. Brian Manager
- ----------------------- (Principal Accounting Officer)
(James S. Brian)

/s/ Bernard J. Angelo Manager
- -----------------------
(Bernard J. Angelo)

/s/ Andrew L. Stidd Manager
- -----------------------
(Andrew L. Stidd)

17

CERTIFICATIONS

I, Gary L. Whitlock, certify that:

1. I have reviewed this annual report on Form 10-K of CenterPoint Energy
Transition Bond Company, LLC;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 26, 2003

By: /s/ Gary L. Whitlock
----------------------------------------------
Gary L. Whitlock
President and Principal Executive Officer

18

CERTIFICATIONS

I, Marc Kilbride, certify that:

1. I have reviewed this annual report on Form 10-K of CenterPoint Energy
Transition Bond Company, LLC;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 26, 2003

By: /s/ Marc Kilbride
-------------------------------------------------------------
Marc Kilbride
Vice President, Treasurer and Principal Financial Officer

19

INDEX TO EXHIBITS