LETTER TO SHAREHOLDERS

Dear Shareholder,

Over the last three years, our company has been in transition. Following deregulation of the Texas electricity market and our emergence as an independent company, we’ve focused on restructuring the company, improving our balance sheet and preparing to achieve our vision of being recognized as America’s leading energy delivery company … and more. We’ve successfully completed our transition and we’re optimistically looking to the future.

REDUCING DEBT, RAISING THE DIVIDEND:

Reducing our debt to a level more typical for a company our size has been a key focus for us. In order to accomplish this, we needed to sell our electric generation assets and recover our electric market transition costs. Completing these steps would strengthen our balance sheet, provide us with financial flexibility and position us for future growth. We’re pleased to report we made solid progress on all fronts:

• In April 2005, we completed the final step in the sale of Texas Genco Holdings, Inc., for $700 million in cash, bringing total sale proceeds to $2.9 billion. As a result, we no longer own any power generation assets.
• Last December, we closed on $1.85 billion in transition bonds authorized by the Public Utility Commission of Texas (Texas PUC). This was one of the final steps in the transition to a competitive retail electric market that began in 2001.
• We reduced our debt levels, excluding transition bonds, from a high of almost $11 billion to $6.4 billion at the end of 2005, and successfully renegotiated our credit facilities to improve their terms and extend maturity dates. These transactions kept us true to our financing strategy to reduce borrowing costs, ensure adequate liquidity and provide financial flexibility for our company and subsidiaries.

These activities, along with continued solid results from our operating businesses, allowed us to raise our dividend in the first quarter of 2006. On an annualized basis, this change represents a 50 percent increase and reflects the confidence the board of directors has in our ability to deliver sustainable earnings and cash flow.

BUILDING ON A SOLID FOUNDATION:

A quick review of each of our business segment’s 2005 results demonstrates that we are prepared to run a strong race. Anchoring our team are our regulated gas and electric delivery operations. Together they generated about 70 percent of our 2005 operating income and continue to produce strong, predictable cash flow and earnings.

In addition, our pipelines and field services business reported outstanding results in 2005. This business segment produced $235 million in operating income last year, an increase of 31 percent over 2004 and approximately 24 percent of our total.

Finally, last year we began reporting separately the results of our competitive natural gas sales unit, CenterPoint Energy Services. This business, which we had previously included as part of our natural gas distribution group, recorded a 36 percent increase in operating income over 2004. Though representing only 6 percent of CenterPoint Energy’s 2005 operating income, we believe this business will play an important supporting role in our overall growth strategy.

GROWTH ON THE HORIZON:

We are optimistic about our future growth. In October, we signed an agreement with an anchor shipper, XTO Energy Inc., to transport approximately 600 million cubic feet per day of XTO’s natural gas production for 10 years. To fulfill the

Operational improvements and completion of our transition period allow us to deliver dividends to shareholders in line with our stated dividend payout target.

agreement, we will construct a 172-mile pipeline between Carthage, Texas, and our Perryville Hub in northeast Louisiana, and we expect it to be in service next year. In another project, CenterPoint Energy and Duke Energy subsidiaries signed an agreement to evaluate, market and develop a potential southeast pipeline connecting our Perryville Hub to Duke’s partially owned affiliate, Gulfstream Natural Gas Systems. Potential shippers have expressed considerable interest in the project and, if we obtain enough binding agreements, this pipeline could be operational in mid-2008.

CHALLENGES:

Amid our success, however, challenges still lie ahead. The Texas PUC ordered our Houston electric group to file a rate case by April 2006 to demonstrate that our current rates are just and reasonable. The Texas PUC also initiated a rulemaking regarding the appropriate rate of return for the Competition Transition Charge. We expect some changes as a result of these proceedings, but will work hard to achieve a fair outcome for our customers and the company.

Another hurdle we’re working to manage is the recent rise in natural gas commodity prices. While this environment may present opportunities for our pipelines, field services and competitive gas sales businesses, it can also lead to more uncollectible customer accounts and bad debt write-offs for our regulated gas distribution operations. We will continue to assist our customers with their higher bills and will seek appropriate rate recovery if expenses increase.

Like many corporations, we’re facing the challenges posed by an aging workforce as baby boomers near retirement. In addition, we recognize that demands on us continue to increase with rising expectations from our customers and regulators.

Although we believe we have a strong operating model and excellent business practices, we see opportunities to strengthen our performance. We are restructuring our regulated operations to improve service to our customers and increase our efficiency and effectiveness. And to prepare our workforce for the future, we are also evaluating our processes, seeking automated solutions and enhancing employee development.

GIVING OUR BEST:

While we were focused on executing our strategy and building our business, we also felt compelled to help people in need. When a tsunami in southeast Asia killed thousands and left countless people without food or shelter and when hurricanes Katrina and Rita left thousands homeless, including many of our employees and customers in south Louisiana and Mississippi, we matched employee contributions dollar-for-dollar to help provide much-needed financial assistance to the victims. More importantly, along the Gulf Coast, our employees were directly involved on the front lines restoring utility services and doing volunteer work to help people get their lives back in order.

Achieving our corporate vision means more than just doing business. It means doing business the right way – guided by a set of core values that define who we are and what we believe in. At CenterPoint Energy, we’re committed to operating with integrity, accountability, initiative and respect – respect for our customers, employees, shareholders and our communities.

Your company and its employees performed well in 2005. We pledge to continue to keep our business on course, execute our strategy and increase shareholder value. We believe that our steady stride and measured pace will serve us well in achieving our vision.

Thank you for your continued trust and confidence in us.

Sincerely,

MILTON CARROLL Chairman	DAVID M. MCCLANAHAN President and CEO