CENTERPOINT ENERGY TRANSITION BOND CO LLC - 10-Q Quarterly Report

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

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

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 (I.R.S. Employer
incorporation or organization) Identification Number)

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

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 [X] No [ ]

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

As of May 1, 2004, all outstanding membership interests in CenterPoint Energy
Transition Bond Company, LLC were held by CenterPoint Energy Houston Electric,
LLC.

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CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements...............................................1
Statements of Income and Changes in Member's Equity
Three Months Ended March 31, 2003 and 2004 (unaudited)...............1
Balance Sheets
December 31, 2003 and March 31, 2004 (unaudited).....................2
Statements of Cash Flows
Three Months Ended March 31, 2003 and 2004 (unaudited)...............3
Notes to Unaudited Financial Statements................................4
Item 2. Management's Narrative Analysis of Results of
Operations of CenterPoint Energy Transition Bond Company, LLC..........7
Item 4. Controls and Procedures............................................8

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K...................................9

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:

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 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.; and

o other factors we discuss in this report 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.

ii

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF INCOME
AND CHANGES IN MEMBER'S EQUITY
(UNAUDITED)

See Notes to the Company's Interim Financial Statements

1

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

BALANCE SHEETS
(UNAUDITED)

See Notes to the Company's Interim Financial Statements

2

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2004
--------- ---------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ -- $ --
Adjustments for non-cash items:
Amortization of transition property ......................... 3,565 5,063
Amortization of transition bond discount and issuance costs . 413 386
Changes in other assets and liabilities:
Transition charge receivable ................................ 839 165
Restricted funds ............................................ (2,937) 146
Other current assets ........................................ 16 --
Accrued interest ............................................ (9,547) (9,335)
Customer deposits ........................................... 332 (137)
Fees payable to servicer .................................... (139) (141)
--------- ---------
Net cash used in operating activities ................... (7,458) (3,853)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt .................................... (6,366) (14,004)
--------- ---------
Net cash used in financing activities ................... (6,366) (14,004)
--------- ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... (13,824) (17,857)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 25,263 29,795
--------- ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 11,439 $ 11,938
========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest .................................................... $ 18,982 $ 18,622

See Notes to the Company's Interim Financial Statements

3

CENTERPOINT ENERGY TRANSITION BOND COMPANY, LLC

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(1) 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 Annual Report on Form 10-K of the
Company for the year ended December 31, 2003.

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.

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 and results of operations for the respective periods.
Amounts reported in the Company's Statements of Income are not necessarily
indicative of amounts expected for a full year period due to the effects of,
among other things, (a) seasonal variations in energy consumption, (b) timing of
maintenance and other expenditures and (c) acquisitions and dispositions of
assets and other interests.

Certain amounts from the prior year have been reclassified to conform to
the presentation of financial statements in the current year. These
reclassifications do not affect net income.

(2) TRANSITION CHARGE REVENUE

The following table shows the aggregate amount of transition charges
collected by the Company during each month from the date of issuance of the
transition bonds through March 31, 2004 (in thousands):

In all material respects for each materially significant retail electric
provider, each such retail provider (i) has been billed in accordance with the
applicable financing order of the Public Utility Commission of Texas (Texas
Utility Commission), (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.

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 (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. The
General Subaccount had a balance of $3.3 million at March 31, 2004.

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
balance of $7.9 million at March 31, 2004.

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 balance of $0.8 million at
March 31, 2004, with a scheduled level of $0.8 million.

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. As of March
31, 2004, the Capital Subaccount had a balance of $3.7 million.

(4) LONG-TERM DEBT

Interest payments on the transition bonds are due semi-annually and, are
paid from funds deposited daily with the Trustee by CenterPoint Energy Houston
Electric, LLC (CenterPoint Houston) as servicer of the transition property.
Principal payments on the transition bonds are due semi-annually.

The source of repayment for the transition bonds is the transition charges.
The servicer collects this non-bypassable charge from retail providers of
electricity in CenterPoint Houston's service territory. The servicer deposits
transition charge collections into a General Subaccount maintained by the
Trustee.

5

The following table shows scheduled and actual principal payments on the
transition bonds from the issuance date through March 31, 2004 (in thousands):

(5) 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 during each
of the three-month periods ended March 31, 2003 and 2004.

Subsidiaries of Reliant Energy, Inc. (formerly named Reliant Resources,
Inc.) (RRI), a former affiliate of the Company, collect the majority of the
transition charges from retail electric customers. RRI has at all times been in
compliance with the creditworthiness criteria for retail electric providers as
set forth in the financing order of the Texas Utility Commission. At March 31,
2004, subsidiaries of RRI had letters of credit aggregating approximately $8.8
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 that may occur.

6

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS OF CENTERPOINT
ENERGY TRANSITION BOND COMPANY, LLC

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 3 (Quantitative and Qualitative Disclosures About
Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2
(Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of
Matters to a Vote of Security Holders). This analysis should be read in
combination with the Interim Financial Statements included in Item 1 of this
Form 10-Q.

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 Reliant Energy,
Incorporated (now CenterPoint Houston). As we are restricted by our
organizational documents from engaging in activities other than those described
in Item 1 (Business) of our Annual Report on Form 10-K for the year ended
December 31, 2003, 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.

For the three months ended March 31, 2004, revenue from transition charges
was $15.0 million and investment income was $0.07 million. Interest expense of
$9.3 million related to interest on the transition bonds and amortization
expense of $0.4 million related to amortization of debt issuance expenses and
the discount on the transition bonds. Amortization of the transition property
included regulatory adjustments of $10.3 million for the three months ended
March 31, 2004 to defer amortization costs until periods in which transition
charge revenue is recognized. We recorded administrative expenses of $0.3
million for the three months ended March 31, 2004.

For the three months ended March 31, 2003, revenue from transition charges
was $13.4 million and investment income was $0.1 million. Interest expense of
$9.4 million related to interest on the transition bonds and amortization
expense of $0.4 million related to amortization of debt issuance expenses and
the discount on the transition bonds. Amortization of the transition property
included regulatory adjustments of $11.8 million for the three months ended
March 31, 2003 to defer amortization costs until periods in which transition
charge revenue is recognized. We recorded administrative expenses of $0.09
million for the three months ended March 31, 2003.

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) 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, 2004 semi-annual debt
service payment date, the aggregate amount of collected transition charges and
interest thereon was $146.6 million, and the aggregate amount expected to have
been collected was $138.8 million. As a result of the overcollections, $7.9
million has been deposited into the Reserve Subaccount.

The transition charges are reviewed and adjusted at least annually by the
Public Utility Commission of Texas (Texas Utility Commission) to correct
prospectively 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 1st in compliance with the financing order adopted in Application of
Reliant Energy, Incorporated for Financing Order to Securitize Regulatory Assets
and Other Qualified Costs, Docket No. 21665. CenterPoint Houston's most recent
true-up filing to adjust transition charges was approved by the Texas Utility
Commission and became effective November 1, 2003. A link to that filing is
available at www.centerpointenergy.com/investors/bond/1,2776,103343,00.html. The
adjusted transition charges are designed to collect $70.4 million during the
year ended October 31, 2004.

7

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 depend on the transition property and
the right to collect the transition charges over a period limited by Texas law
to 15 years. In addition, collections depend on the amount of electricity
consumed within CenterPoint Houston's service territory.

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 March 31, 2004 to provide assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

There has been no change in our internal controls over financial reporting
that occurred during the three months ended March 31, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.

8

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) 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.

(b) Reports on Form 8-K.

None.

9

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

By: /s/ James S. Brian
---------------------------------------
James S. Brian
Senior Vice President and
Chief Accounting Officer

Date: May 12, 2004

10

INDEX TO EXHIBITS

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.