March 24, 2005
CenterPoint Bond Sale Faces Delay on Scrapped Searc
By Darrell Preston
CenterPoint Energy Inc.’s plan to sell $1.5 billion in bonds backed by a portion of customers’ electric bills may be delayed after Texas regulators halted a search for a financial adviser to oversee the offering.
The announcement by the Texas Public Utility Commission yesterday marked the second time in a year the search for an adviser to help Houston-based CenterPoint organize the sale was aborted. The commission began a second search Dec. 6 after canceling the first on June 21.
“There was a technical reason the commission felt it needed to pull it,” Floyd LeBlanc, a CenterPoint spokesman, said. “CenterPoint remains interested in having the process move along as quickly as possible.”
The halt occurred because the commission decided after it had begun its search to cap the fees paid related to the CenterPoint sale, said Commission Executive Director W. Lane Lanford in a telephone interview today. The initial search, begun in December 2003, was halted amid concern commission member Barry Smitherman’s previous employment as a consultant for Bear Stearns Cos., one of the firms applying for the job, created a potential conflict of interest.
Cost Recovery
Lanford, 58, said the commission will begin a new search April 1 and that he expects the commission will reach a decision within 10 days.
“We don’t think this will leave us behind,” he said.
The three commissioners — Smitherman, Paul Hudson and Julie Parsley — didn’t return telephone calls seeking comment. Parsley, a lawyer, previously worked in the Texas Attorney General’s office, while Hudson, the commission’s chairman, is a former staff member for Perry and commission employee.
Under the law that deregulated Texas’s electric industry, CenterPoint and two other utilities planning sales — American Electric Power Inc.’s AEP Texas Central Co. and TNP Enterprise Inc.’s Texas New Mexico Power Co. — can issue bonds backed by customer billings at a low interest rate to recover costs from before the market was opened to competition.
Three firms initially applied for the job last year to help manage the sale of the so-called stranded cost bonds, which are to be backed by a promise the state will allow utilities to raise electricity rates to ensure repayment. These firms were Bear Stearns and Saber Partners, both based in New York, and Dallas-based First Southwest Co.
Fees
Bear Stearns spokesman Russell Sherman and First Southwest Chairman Hillel Feinberg didn’t return calls seeking comment.
Saber, led by Chief Executive Officer Joseph Fichera, is the state’s current financial adviser on such sales, and has earned fees of $5.75 million for the $2.8 billion of bonds sold so far by utilities including TXU Corp. Fichera, 50, declined to comment about the withdrawal of the second request.
Saber helped save about $26 million in borrowing costs and also ensured the documents contained protections that would prevent some future costs from flowing through to ratepayers, according to the transcript of comments by Martha Elvey, who oversees the stranded-cost sales as director of the commission’s finance review division, at a January hearing.
“A financial adviser is a wise investment to make,” Parsley said during a Feb. 24 meeting. “We don’t have the day-to-day experience to oversee the sale.”
Postponed
CenterPoint, the second-largest power distributor in Texas, is selling the bonds so it can repay part of its $9 billion of debt and keep its investment-grade credit rating by Standard & Poor’s. Houston customers would see an average charge of $3.54 a month added to electric bills to repay the $1.5 billion of bonds, CenterPoint said in a commission filing.
“The sooner we get them to market, the better,” said CenterPoint’s LeBlanc. “It’s taken longer every step of the way than we would have predicted.”
Lanford wouldn’t provide the names of the firms that applied during its second search for an adviser.
“I expect that the same people who bid last time will bid this time,” he said, without elaborating.
Lanford postponed the initial search for an adviser last June after Governor Rick Perry appointed Smitherman, 47, a former investment banker, to the three-person commission. Lanford halted the search after learning that Smitherman worked as a consultant for Bear Stearns before joining the commission.
Cap on Fees
When the commission resumed its search in December, it delegated the hiring decision to Lanford after changing the wording of its request for proposal to prevent possible conflicts of interest. The timetable in December called for hiring an adviser in January to begin work on the financing order that would let CenterPoint sell its bonds.
The commission voted Feb. 24 to put a cap of $1 million on fees for the CenterPoint sale. Smitherman was against the $1 million cap and said he would only approve fees of $500,000 or less.
“I am still trying to figure out why we need to pay a financial adviser so much,” Smitherman said in a telephone interview from Austin after the Feb. 24 meeting.
Lanford told a commission meeting on March 9 that “we have somebody that’s working for free at this point.’’ Lanford didn’t identify the firm. The comment came in response to a question from Smitherman about hiring an adviser.
Hadley declined to provide additional details on the informal agreement with the firm that agreed to provide advisory work for free, other than to confirm that no final contract was signed.
–Editor: Williams, Merz, Wiegold, Williams, Merz
To contact the reporter on this story:
Darrell Preston in Dallas at (1)(214) 954-9454 or dpreston@bloomberg.net.
To contact the editor responsible for this story:
Beth Williams in New York at (1) (212) 318-2307 or at bewilliams@bloomberg.net.
