FIRST SUPPLEMENTAL INDENTURE

Exhibit 4.2

CENTERPOINT ENERGY TRANSITION BOND COMPANY III, LLC

Issuer

and

DEUTSCHE BANK TRUST COMPANY AMERICAS

Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of February 12, 2008

2008 Senior Secured Transition Bonds

This FIRST SUPPLEMENTAL INDENTURE dated as of February 12, 2008 (this “ Supplement ”), by and among CenterPoint Energy Transition Bond Company III, LLC, a Delaware limited liability company (the “ Issuer ”), and Deutsche Bank Trust Company Americas, a New York banking corporation, in its capacity as trustee (the “ Trustee ”), is entered into pursuant to the Indenture dated as of even date herewith between the Issuer and the Trustee (the “ Indenture ”).

PRELIMINARY STATEMENT; GRANTING CLAUSE

The Issuer has duly authorized the execution and delivery of this Supplement and the creation of Transition Bonds with an initial aggregate principal amount of $488,472,000 to be known as the Issuer’s 2008 Senior Secured Transition Bonds (the “ 2008 Senior Secured Transition Bonds ”). All acts and all things necessary to make the 2008 Senior Secured Transition Bonds, when duly executed by the Issuer and authenticated by or on behalf of the Trustee as provided in the Indenture and this Supplement and issued by the Issuer, the valid, binding and legal obligations of the Issuer and to make this Supplement a valid and enforceable supplement to the Indenture have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly and lawfully authorized. The Issuer and the Trustee are executing and delivering this Supplement in order to provide for the 2008 Senior Secured Transition Bonds. In connection with the execution and delivery of this Supplement, the Issuer undertakes and confirms that it will not issue any Transition Bonds other than the 2008 Senior Secured Transition Bonds provided for hereby.

The “ Trust Estate ” shall consist of, and the Issuer hereby absolutely and irrevocably Grants to the Trustee, as trustee for the benefit of the Holders of the 2008 Senior Secured Transition Bonds issued and outstanding, all of the Issuer’s right, title and interest whether now owned or hereafter acquired (and whether now existing or hereafter arising), in, to and under (a) the Transition Property relating to the 2008 Senior Secured Transition Bonds purchased by the Issuer pursuant to the Sale Agreement relating to the 2008 Senior Secured Transition Bonds and all proceeds thereof, (b) the Sale Agreement relating to the 2008 Senior Secured Transition Bonds, (c) the Bill of Sale delivered by the Seller pursuant to the Sale Agreement relating to the 2008 Senior Secured Transition Bonds, (d) the Servicing Agreement relating to the 2008 Senior Secured Transition Bonds and the Intercreditor Agreement executed in connection therewith, (e) the Administration Agreement, (f) the Collection Account relating to the 2008 Senior Secured Transition Bonds and all subaccounts thereof (including, without limitation, the General Subaccount, the Capital Subaccount and the Excess Funds Subaccount relating to the 2008 Senior Secured Transition Bonds) and all cash, securities, instruments, investment property or other assets credited to or deposited in that Collection Account or any subaccount thereof from time to time or purchased with funds therefrom, and all financial assets and securities entitlements carried therein or credited thereto, (g) the REP Deposit Account relating to the 2008 Senior Secured Transition Bonds, (h) all other property of whatever kind owned from time to time by the Issuer other than any cash released to the Issuer by the Trustee pursuant to Section 8.02 of the Indenture, (i) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing and (j) all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion, voluntary or involuntary, into cash or other liquid property of any or all of the foregoing, all cash proceeds, accounts, accounts receivable, general intangibles,

notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, payment intangibles, letter-of-credit rights, investment property, commercial tort claims, documents, rights to payment of any and every kind, and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing.

Such Grant is made to the Trustee to have and to hold in trust to secure the payment of principal of and premium, if any, and interest on, and any other amounts (including all fees, expenses, counsel fees and other amounts due and owing to the Trustee) owing in respect of, the 2008 Senior Secured Transition Bonds equally and ratably without prejudice, preference, priority or distinction, except as expressly provided in the Indenture and this Supplement and to secure performance by the Issuer of all of the Issuer’s obligations under the Indenture and this Supplement with respect to the 2008 Senior Secured Transition Bonds, all as provided in the Indenture and this Supplement; provided , however , that in no event shall the proceeds of the issuance of the 2008 Senior Secured Transition Bonds constitute a portion of the Trust Estate.

The Trustee, as trustee on behalf of the Holders of the Transition Bonds, acknowledges such Grant, accepts the trusts hereunder in accordance with the provisions hereof and agrees to perform its duties as set forth in the Indenture and this Supplement.

ARTICLE I

DEFINITIONS

All terms used in this Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to such terms in the Indenture, except to the extent such terms are defined or modified in this Supplement or the context clearly requires otherwise.

ARTICLE II

OTHER DEFINITIONAL PROVISIONS

SECTION 2.01. “ Authorized Denominations ” means $1,000 and integral multiples thereof, except for one Transition Bond of each Tranche which may be of a smaller denomination.

SECTION 2.02. “ Expected Amortization Schedule ” means Schedule A to this Supplement.

SECTION 2.03. “ Expected Final Payment Date ” means, with respect to any Tranche of the 2008 Senior Secured Transition Bonds, the expected final payment date therefor, as specified in Article IV of this Supplement.

SECTION 2.04. “ Final Maturity Date ” means, with respect to any Tranche of the 2008 Senior Secured Transition Bonds, the final maturity date thereof, as specified in Article IV of this Supplement.

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SECTION 2.05. “ Interest Rate ” has the meaning set forth in Article IV of this Supplement.

SECTION 2.06. “ Issuance Date ” has the meaning set forth in Section 3.02 of this Supplement.

SECTION 2.07. “ Payment Date ” has the meaning set forth in Section 5.01 of this Supplement.

SECTION 2.08. “ Record Date” shall mean, with respect to any Payment Date, the close of business on the Business Day immediately prior to such Payment Date.

SECTION 2.09. “ Required Capital Amount ” has the meaning set forth in Section 5.04 of this Supplement.

ARTICLE III

DESIGNATION; ISSUANCE DATE; SOLE SERIES

SECTION 3.01. DESIGNATION. The 2008 Senior Secured Transition Bonds shall be designated generally as the Issuer’s 2008 Senior Secured Transition Bonds and further denominated as Tranche A-1 or Tranche A-2, as applicable.

SECTION 3.02. ISSUANCE DATE. The 2008 Senior Secured Transition Bonds that are authenticated and delivered by the Trustee to or upon the written order of the Issuer on February 12, 2008 (the “ Issuance Date ”) shall have as their date of authentication February 12, 2008.

SECTION 3.03. BOOK-ENTRY. Upon original issuance, the 2008 Senior Secured Transition Bonds will be issued in the form of a typewritten Transition Bond or Transition Bonds representing the Book-Entry Transition Bonds, to be delivered to DTC, as the initial Clearing Agency, by, or on behalf of, the Issuer, pursuant to Section 2.11 of the Indenture.

SECTION 3.04. NO ADDITIONAL SERIES. The Issuer commits that the 2008 Senior Secured Transition Bonds are the only Transition Bonds that the Issuer will issue and that no additional series of Transition Bonds will be issued by the Issuer.

ARTICLE IV

INITIAL PRINCIPAL BALANCE; INTEREST RATE; EXPECTED

FINAL PAYMENT DATE; FINAL MATURITY DATE

(a) The Transition Bonds of each Tranche of the 2008 Senior Secured Transition Bonds shall have the initial principal balance, Expected Final Payment Date and Final Maturity Date and bear interest at the interest rate (the “ Interest Rate ”) as set forth below:

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(b) The Expected Final Payment Date for each Tranche of the 2008 Senior Secured Transition Bonds will be the date when the outstanding principal balance of that Tranche will be reduced to zero if payments are made according to the Expected Amortization Schedule for that Tranche. The Final Maturity Date for each Tranche of the 2008 Senior Secured Transition Bonds will be the date when the Issuer is required to pay the entire remaining unpaid principal balance, if any, of all outstanding 2008 Senior Secured Transition Bonds of that Tranche.

(c) Interest on the 2008 Senior Secured Transition Bonds will be paid before Principal of the 2008 Senior Secured Transition Bonds. If there is a shortfall in the amounts available in the Collection Account to make interest payments, the Trustee will distribute Interest Pro Rata to each Outstanding Tranche of 2008 Senior Secured Transition Bonds based on the amount of Interest payable on each Outstanding Tranche. Interest on the 2008 Senior Secured Transition Bonds will be calculated on the basis of a 360-day year of twelve 30-day months.

ARTICLE V

PAYMENT DATES; EXPECTED AMORTIZATION SCHEDULE

FOR PRINCIPAL; INTEREST; REQUIRED CAPITAL AMOUNT; WATERFALL CAPS

SECTION 5.01. PAYMENT DATES. The “ Payment Dates ” for the 2008 Senior Secured Transition Bonds are February 1 and August 1 of each year or, if any such date is not a Business Day, the next succeeding Business Day, commencing on February 1, 2009, and continuing until the earlier of repayment of such Tranche in full and the applicable Final Maturity Date.

SECTION 5.02. EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL. Unless an Event of Default has occurred and is continuing and the unpaid principal amount of all Tranches of 2008 Senior Secured Transition Bonds has been declared to be due and payable together with accrued and unpaid interest thereon, on each Payment Date the Trustee shall distribute to the Holders of record of the 2008 Senior Secured Transition Bonds as of the related Record Date amounts payable in respect of the 2008 Senior Secured Transition Bonds pursuant to Section 8.02(d) of the Indenture as Principal, so that the outstanding Principal balance as of such Payment Date (after giving effect to all payments of Principal, if any, made on such Payment Date) has been reduced to the extent possible to the Principal balance specified in the Expected Amortization Schedule but not less than such Principal balance. Unless an Event of Default has occurred and is continuing and the unpaid principal amount of all Tranches of 2008 Senior Secured Transition Bonds has been declared to be due and payable together with accrued and unpaid interest thereon, payments of Principal on any Tranche A-2 2008 Senior Secured Transition Bonds shall not be made on any Payment Date until the Principal balance of the Tranche A-1 2008 Senior Secured Transition Bonds has been reduced to zero; provided ,

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however , that payments of Principal on the Tranche A-2 2008 Senior Secured Transition Bonds may be made on the Payment Date that the Principal balance of the Tranche A-1 2008 Senior Secured Transition Bonds has been reduced to zero.

SECTION 5.03. INTEREST. Interest will be payable on each Tranche of the 2008 Senior Secured Transition Bonds on each Payment Date as follows:

(a) if there has been a payment default, any Interest payable but unpaid on any prior Payment Date, together with Interest on such unpaid Interest, if any, and

(b) accrued Interest on the principal balance of each Tranche of the 2008 Senior Secured Transition Bonds as of the close of business on the preceding Payment Date, or the date of the original issuance of the Tranche of the 2008 Senior Secured Transition Bonds, as applicable, after giving effect to all payments of Principal made on the preceding Payment Date;

provided , however , that, with respect to the initial Payment Date or if no payment has yet been made, Interest on the outstanding principal balance shall accrue from and including the Issuance Date to, but excluding, the following Payment Date, and thereafter from and including the previous Payment Date to, but excluding, the applicable Payment Date until the Transition Bonds have been paid in full, at the interest rate indicated in Article IV.

SECTION 5.04. REQUIRED CAPITAL AMOUNT. The “ Required Capital Amount ” for the 2008 Senior Secured Transition Bonds shall be $2,442,360, which is equal to 0.5% of the initial outstanding principal balance of the 2008 Senior Secured Transition Bonds.

SECTION 5.05. PREMIUM. There will be no early redemption of the 2008 Senior Secured Transition Bonds, and therefore no Premium will be payable in connection with the early redemption of the 2008 Senior Secured Transition Bonds.

SECTION 5.06. WATERFALL CAPS. The amount payable with respect to the 2008 Senior Secured Transition Bonds pursuant to Section 8.02(d)(i) shall not exceed $800,000 during any calendar year.

ARTICLE VI

AUTHORIZED DENOMINATIONS

The 2008 Senior Secured Transition Bonds shall be issuable in the Authorized Denominations.

ARTICLE VII

REDEMPTION

The 2008 Senior Secured Transition Bonds shall not be subject to mandatory or optional redemption.

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ARTICLE VIII

CREDIT ENHANCEMENT

No credit enhancement (other than the Excess Funds Subaccount, the Required Capital Amount and any adjustments to the Transition Charges approved by the PUCT as provided in the Texas Electric Choice Plan) is provided for the 2008 Senior Secured Transition Bonds.

ARTICLE IX

DELIVERY AND PAYMENT FOR THE 2008 SENIOR SECURED TRANSITION

BONDS; FORM OF THE 2008 SENIOR SECURED TRANSITION BONDS

The Trustee shall deliver or cause to be delivered the 2008 Senior Secured Transition Bonds to the Issuer when authenticated in accordance with Section 2.02 of the Indenture. Each 2008 Senior Secured Transition Bond shall be in the form of Exhibit A hereto, which is incorporated herein by reference.

ARTICLE X

MISCELLANEOUS

SECTION 10.01. CONFIRMATION OF INDENTURE. A