CenterPoint Energy is committed to providing shareholders a well-managed company dedicated to paying competitive dividends and building shareholder value. As described on the inside front cover of this report, we are focused on using proceeds from the sale of Texas Genco and the true-up proceeding to reduce debt and interest costs. While we reported losses in 2004 related to the sale of our generating assets and stranded cost proceedings, our core electric, gas and pipeline delivery businesses posted solid gains in operating income.

All core segments report higher operating income

Our electric transmission and distribution business continued to perform well in 2004, ending the year with core operating income of $441 million (excluding the impact of ECOM revenues, the transition bond company and the final fuel reconciliation). Driven primarily by the addition of nearly 47,000 new metered customers, core operating income increased by $33 million (excluding the impact of ECOM revenues, the transition bond company and the final fuel reconciliation). Operating income also benefited from lower employee-related costs and proceeds from a land sale, but was partially offset by decreased usage due to milder weather and higher transmission costs.

Our natural gas distribution segment reported operating income of $222 million, an increase from $202 million in 2003. This higher income was the result of rate increases, a higher customer count and more efficient operations.

An aggressive restructuring plan that improved operational efficiencies and lowered ongoing operating expenses contributed to the income gains. However, one-time charges related to the restructuring plan, and mild winter weather that led to lower customer gas usage, partially offset these gains.

Our pipelines and gathering segment increased operating income to $180 million from $158 million in 2003. The increase was driven by favorable market pricing and higher demand by our interstate pipelines business, increased throughput, an increase in treating and processing on our gas gathering unit and higher third party earnings in Pipeline Services.

Customer base growing across our business

We experienced customer growth in each of our energy delivery businesses in 2004. These increases provided both current revenue growth and, we expect, the basis for future earnings growth. Houston and Minneapolis, two of the nation’s fastest growing metropolitan areas, together added more than 91,000 electric and natural gas customers in 2004.

In the Houston area, we added a total of 47,000 new electric meters to our previous base of 1.8 million and 27,000 new natural gas customers to the 1 million we currently serve. The strong residential housing market in the Minneapolis area accounted for most of the approximately 17,000 new customers in Minnesota, where we serve 750,000 customers. We also added gas distribution customers in Little Rock, Ark., Shreveport, La., suburban Jackson, Miss., and the corridor between Austin and San Antonio, Texas.

Our interstate pipelines operations signed new seven-year contracts with our Arkansas, Louisiana and Texas gas distribution operations that will provide long-term stability. The gas gathering business enjoyed a record-setting year, connecting 393 new natural gas wells, completing eight new major gathering projects and installing 1,800 additional ServiceStar units, our remote wellhead monitoring and measuring product. Pipeline Services continued to make progress providing pipeline operations, maintenance and technical services to third party clients.