ELECTRIC TRANSMISSION & DISTRIBUTION

In 2005, our electric utility business improved in nearly every area.

We increased the number of new metered customers by 3.2 percent, bringing the total number of electric delivery customers we serve to almost 2 million. Operating income for the year, excluding amounts related to our transition bonds, was $448 million – in line with amounts earned in 2004 – and a clear demonstration of this unit’s consistent earning power.

IMPROVING SYSTEM RELIABILITY:

Last year we stood out in restoring power in the Houston area and excelled in assisting other utilities when they needed help. In our own service territory, we continued to improve the quality of our electric delivery service, with electric reliability, as measured by our “System Average Interruption Duration Index,” improving 6.6 percent over 2004.

The dedication and skill of our employees in providing reliable electric service was most evident when Hurricane Rita struck our service territory, knocking out power to more than 700,000 customers. Working 16-hour days, CenterPoint Energy employees – joined by 2,400 workers from as far away as Ohio – restored power to 500,000 customers during the first 36 hours after the storm. Within four days, we had restored power to 97 percent of those affected by the hurricane.

Our crews also answered the call for help from neighboring utilities. CenterPoint Energy employees assisted Westar Energy, Mississippi Power, Alabama Power, Entergy and Florida Power & Light (FPL) following a severe ice storm and devastating hurricanes. We dispatched 426 employees and 261 vehicles to work a total of 69,000 hours to help fellow utilities get their customers’ power back on.

We increased distribution and meter reading automation and expanded mobile data, all of which are expected to reduce costs and improve system reliability.

Looking ahead, our electric operations face a number of challenges. In addition to the rate case and increasing customer and regulator expectations discussed on page 3, we also face the challenge of improving employee safety. This was the only internal goal that we failed to meet last year, so we are implementing a proactive safety process that involves employees identifying unsafe behaviors and recommending changes. This program has a proven record of success, and we anticipate noticeable improvements in 2006.

POSITIONING FOR GROWTH:

Despite these challenges, we believe we have laid a solid foundation for long-term success and growth. In 2005, we:

• Agreed to a 30-year extension of our franchise agreement with the city of Houston. Our new agreement with the city became effective July 1, 2005, ensuring we will be able to maintain our poles and power lines in the city’s rights-of-way for the next 30 years. The franchise agreement we signed with the city in 1957 was due to expire in 2007.
• Received approval to build the Hillje transmission project. This new, 345,000 high-voltage transmission line, expected to cost about $94 million, is designed to improve reliability and relieve congestion, both essential to electric service in Texas. After an extensive review, the Texas PUC approved the project and the route. The Electric Reliability Council of Texas estimates that the new line will reduce energy costs for Texas consumers by more than $60 million annually.
• Successfully completed our Broadband Over Powerlines (BPL) pilot, which has enabled us to begin limited deployment of our “Intelligent Grid” system. In the first quarter of 2006, we began installing the new system to about 40,000 electric and 23,000 gas customers. With IBM as our technology partner, the Intelligent Grid uses BPL technology to provide real-time data and remote operations capabilities. This allows us to use automation to read electric and gas meters, detect power outages and, in many cases, restore power remotely. If our field evaluation validates the system’s potential benefits, we plan to phase in this new technology across our service territory.

AWARD-WINNING PERFORMANCE:

We received several major awards in 2005. Our most coveted included two Edison Electric Institute (EEI) awards in one year; the U.S. Environmental Protection Agency’s Excellence in Energy Efficiency and Environmental Education Award; the Mayor’s (Houston) Proud Partner Award; and the Vietnamese Cultural and Science Association Corporate Citizen Award.

“ALWAYS THERE” IN TIME OF DISASTER

Centerpoint Energy crews Helped restore power in Wichita, Kan., and in cities all along the Gulf Coast.

After an ice storm and four hurricanes wrought damage and destruction, our crews toiled more than 124,000 hours to restore normalcy at home and away.

Early in the year, we helped Westar Energy restore power after an ice storm paralyzed Wichita. We also assisted Alabama Power after Hurricane Dennis swept through Thomasville, Ala., FPL after Hurricane Katrina swamped Florida and, later, helped Entergy in Louisiana after Katrina left Florida and struck again on the Louisiana-Mississippi border. We assisted Entergy again after Hurricane Rita and helped FPL following Hurricane Wilma. At one point, CenterPoint Energy simultaneously had crews assisting FPL, Mississippi Power and Entergy in restoring power.

In addition, CenterPoint Energy’s assistance role was expanded far beyond the typical wires and poles: more than 230 company volunteers helped many of the 20,000 Louisiana evacuees who fled Hurricane Katrina and took up residence in Houston’s Astrodome stadium and the downtown George R. Brown Convention Center. The mayor of Houston asked CenterPoint Energy to head the city’s effort to provide for and take care of the evacuees at the city’s convention center.

Less than a month after Katrina struck, Hurricane Rita slammed onto the Texas-Louisiana coast, leaving more than 700,000 CenterPoint Energy customers without power. While we were working to restore power to our customers, Houston’s mayor called on CenterPoint Energy again, asking us to assist neighboring utility, Entergy, in restoring power to a pumping station that supplied water to the city of Houston and industrial facilities in the area.

For excellence in the face of these disasters, CenterPoint Energy accomplished a rare double recognition by EEI, capturing both the 2005 Emergency Response and Emergency Assistance awards.

Hurricane Katrina also greatly affected our natural gas operations, inundating 80 percent of our service territory in Mississippi. More than 350 of our natural gas employees from other parts of our service territory helped Mississippi employees respond to more than 10,000 emergencies to make the system safe. Nearly 10,000 customers are no longer there to receive gas service due to the devastation, but we remain ready to serve as the area redevelops.