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(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

CenterPoint Energy, Inc.

Notice of Annual Meeting of Shareholders

to be held on May 25, 2006

and Proxy Statement

Table of Contents

Notice of Annual Meeting of Shareholders

Dear Shareholder:

You are cordially invited to attend the 2006 annual meeting of shareholders of CenterPoint Energy, Inc. This is your notice for the meeting.

Dated and first mailed

to shareholders

on April 20, 2006

CENTERPOINT ENERGY, INC.

1111 Louisiana

Houston, Texas 77002

(713) 207-1111

For deliveries by U.S. Postal Service:

P.O. Box 4567

Houston, Texas 77210-4567

PROXY STATEMENT

Voting Information

(+) Denotes Chair.

Compensation of Directors

SUMMARY COMPENSATION TABLE

(notes continued on following page)

OPTION GRANTS IN 2005

      None of the named executive officers received option grants in 2005.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND

FISCAL YEAR-END OPTION VALUES

LONG-TERM INCENTIVE PLAN—AWARDS IN 2005⁽¹⁾

EQUITY COMPENSATION PLAN INFORMATION

      The following table sets forth information about CenterPoint Energy’s common stock that may be issued under our existing equity compensation plans as of December 31, 2005.

(notes continued on following page)

Retirement Plans,

Related Benefits and

Other Arrangements

PENSION PLAN TABLE

Report of the Compensation Committee

      Executive Compensation Policy. It is CenterPoint Energy’s policy to provide executive compensation programs that permit it to recruit talent on a national level, remain competitive with its peer group, align executive pay with corporate performance and encourage equity ownership.

      Compensation Components and Philosophy. There are three primary components to an executive’s compensation: base salary, short term incentives and long term incentives. Base salary is the foundation of total pay. It recognizes the job being performed and the value of that job in the Company’s competitive market. Short term incentives are designed to link each executive to annual performance objectives in his organization, group or business unit, as well as to his own individual performance. Long term incentives are designed to reward executives for sustained improvements in Company value and performance over a three-year and longer period. The Company uses a market-based pay philosophy, which means that it measures all of the primary compensation components for a position against similar positions in the competitive market. This analysis is done to determine the market value for the job being performed by the executive at the Company. The objective of the Company’s pay philosophy is to target the market median (50th percentile) for each of the primary elements of compensation. The Company considers the competitive market to be best described by a combination of those companies in its peer group plus published surveys conducted by recognized compensation consulting firms. Compensation decisions are made on an annual basis during the first quarter. Additional analysis may be done during the year for an executive whose responsibilities change significantly during the year.

      The Company also periodically evaluates its executive compensation programs in light of Section 162(m) of the Internal Revenue Code. This section generally limits the tax deductibility of compensation in excess of $1 million for certain executive officers unless it meets rules qualifying for performance-based compensation. The Company intends to structure its compensation programs in a manner that maximizes tax deductibility. The Compensation Committee recognizes, however, that there may be situations in which the best interests of shareholders are served by administering some elements of compensation such that they may not meet the requirements for performance-based compensation under Section 162(m).

      Role of Consultant. The Committee retains a consultant to provide independent advice on executive compensation matters and to perform specific project-related work. The consultant reports directly to the Committee, which preapproves the scope of the work and the fees charged. The Committee indicates to the consultant the role that management has in the analysis of executive compensation, such as the verification of executive and Company information that the consultant requires. Although a subsidiary of the consulting firm provides unrelated benefits call center services to the Company, policies and procedures are in place at the consulting firm to minimize the potential for conflicts of interest.

      Selecting the Peer Group for Compensation Purposes. For purposes of evaluating the compensation of Messrs. McClanahan, Whitlock and Rozzell, the consultant analyzes the proxies of a peer group consisting of utility companies that derive approximately 80% of their revenues from regulated operations. The peer group was jointly developed by the Company and the consultant. The peer group includes 12 publicly traded companies comparable in size to the Company in terms of the annual revenues and the value of ongoing operations. The following companies are included in the peer group: Consolidated Edison, Inc., DTE Energy Co., Energy East Corp., FirstEnergy Corp., FPL Group, Inc., Keyspan Corp., NiSource Inc., Pinnacle West Capital Corp., Pepco Holdings, Inc., Progress Energy, Inc., Public Service Enterprise Group Inc., and Sempra Energy. These peers are not identical to the companies included in the indices in the Stock Performance Graph on page 35, because those indices include companies that are considered too dissimilar in size or operations to serve as comparisons for purposes of analyzing compensation.

      Scope of the Consultant’s Work. The Committee asked the consultant to review the base pay and short term and long term incentive levels for the top 19 officers. Each officer’s position and responsibilities were analyzed and matched either to proxy data from the peer group or to published compensation surveys.

      Review of Proxy Statements and Published Compensation Surveys by the Consultant. The positions of Messrs. McClanahan, Whitlock and Rozzell were compared to the market, described as comparable positions based on proxy statement data for the peer group companies, as well as industry-specific and general industry published surveys. Other executive positions were compared to the market for comparable positions based on industry-specific and general industry published survey sources. To select the survey data, the consultant used revenues comparable in size to the Company’s revenues, which were $9.7 billion in 2005. Both the data extracted from proxy statements and the survey data represent the national average for the position. Geographical differences are not considered relevant since the Company recruits on a national basis. In conducting the analysis, the consultant valued compensation for restricted stock, performance-based shares or units, stock appreciation rights and stock options. The consultant valued stock options using a Black-Scholes model, and all other long term incentives were valued at the target level using the amounts disclosed in the proxy statements.

      To help mitigate the effect of a few large or small grants skewing the data, the consultant used a three-year average of short term and long term incentive compensation. For salary comparisons, only current salaries were used. Prior period survey data was projected forward to April 1, 2005 using an annualized trending factor of 3.7%.

      Results from the Consultant. The consultant found that base salaries of the executive officers ranged from 78% to 97% of the market median. When base salaries and short term incentive bonuses were combined, the executive officers ranged from 69% to 99% of the median. The consultant recommended that short term incentive targets should be reviewed to ensure competitiveness at expected performance levels. Long term incentive values ranged from 49% to 90% of the median. The consultant indicated that the Company’s long term incentive targets at the upper levels of senior management remain significantly below the market and that the Committee should consider improving competitiveness in this area.

      Compensation Decisions Made by the Committee. Using the information from the consultant, the Compensation Committee reviewed and approved adjustments to base pay effective April 1, 2005. Short term and long term incentive targets of some of the executive officers were increased to better align their compensation with the Company’s market-based pay philosophy. In establishing individual incentive targets, the Committee considered the data provided by the consultant, the level and nature of the executive’s responsibility, the executive’s experience and the Committee’s own subjective assessment of the executive’s

performance. In making these determinations, the Committee also took into account the Chief Executive Officer’s performance evaluations of the other executive officers.

      Short Term Incentive Plan. All employees other than certain bargaining unit employees participate in the short term incentive plan. The purpose of the short term incentive plan is to provide an annual cash award to employees upon the achievement of predetermined corporate, business unit, departmental and/or individual goals.

      Funding the Short Term Incentive Plan. To ensure that shareholders received a return on their investment first, the Committee determined that for the Short Term Incentive Plan to be funded for the 2005 plan year, the Company must have paid a minimum of $.40 per share in dividends to its shareholders during the year. Based on that funding trigger being met, the Compensation Committee then determined the amount of the pool of funds available for the payment of all awards based on the actual levels of achievement for corporate, business unit and/or departmental goals.

      The Committee determines each executive officer’s short term incentive target percentage of base salary taking into account the market analysis performed annually by the consultant as described above. The maximum available funding pool is determined by multiplying 150% of each employee’s short term incentive target by their plan eligible earnings (with the exception of Mr. Kelley), which are generally defined as the actual base salary paid during the plan year. Mr. Kelley has a different funding pool due to the business units that he manages. His maximum available funding pool is 177% to more properly align with opportunities at competitor pipeline companies and to reward growth in the Company’s pipeline businesses. The maximum payout for any employee is 200% (250% for Mr. Kelley) of his short term incentive plan target. The Chief Executive Officer is limited to 150% of his target to qualify such payment as tax-deductible compensation under Section 162(m). Targets for the executive officers approved for the 2005 plan year were as follows:

      For the 2005 plan year, the executive officers’ funding pool was based upon the following performance criteria, weighted as indicated:

     Payout of the Short Term Incentive Plan. For each of the executive officers, the Committee has discretion in determining the actual bonuses paid. Individual bonuses for executive officers other than the Chief Executive Officer are subject to adjustment above or below the funding pool as determined by the funding criteria. The Committee also considers the Chief Executive Officer’s subjective assessment of individual and/or business unit performance when determining the executive officers’ payouts. The bonus for the Chief Executive Officer is determined solely by the Committee and may be at or below the level based on

the achievement of the funding criteria, but not above that level permitting the Company to retain the tax deductibility of the entire bonus under Section 162(m).

      For the 2005 plan year, the funding trigger was met. The Compensation Committee approved the funding achievement of the 2005 short term incentive goals on February 22, 2006. Actual bonuses earned by each of the named executive officers are disclosed in the “Bonus” column of the Summary Compensation Table included in this proxy statement.

      Impact of Base Salary and Short Term Incentive Compensation on Other Benefits. Base salary and short term incentive compensation are included as eligible plan compensation in the Company’s retirement plan, benefit restoration plan, savings plan and savings restoration plan. As a result, changes in base salary and/or short term incentive compensation affect benefits payable under those plans. The range of annual pensions or account balances from the retirement plan and the benefit restoration plan is disclosed in the “Retirement Plans, Related Benefits and Other Arrangements” section on page 19 of this proxy statement. Company contributions to the savings plan and savings restoration plan for the named executive officers are disclosed in the “All Other Compensation” column of the Summary Compensation Table.

      In 2005, all of the executive officers were eligible to participate in the deferred compensation plan, which provides for the deferral of base salary and/or short term incentive compensation. Interest accrues on current contributions at the annual Moody’s Long-Term Corporate Bond Index plus two percentage points.

      All of the executive officers, except Mr. Kelley, are covered under a single life split-dollar insurance policy under the provisions of the executive life insurance plan with a coverage amount equivalent to two times current base salary. Changes in base salary generally affect the specified face amount of the policy accordingly. Since the Company pays the annual premiums due, the executive receives imputed income based upon the coverage amount, the age of the executive and the carrier’s group term table rates. The executive is also provided a tax gross-up for all taxes due on the imputed income associated with the policy value so that coverage is provided at no cost to the executive. During 2005, the executive officer group received imputed income of $9,000 in total, and the Company paid premiums totaling $171,000 and tax gross-ups totaling $5,000. If the executive leaves after age 55 and prior to age 65, benefits under the plan will cease unless the Committee elects, in its sole discretion, to continue the coverage.

      Messrs. McClanahan, Standish and Brian participate in the executive benefits plan, which provides salary continuation benefits and supplemental retirement, death and/or disability benefits to their beneficiaries upon death. Changes in base salary have a corresponding effect on this plan benefit. If the executive leaves the Company prior to reaching age 65, all plan benefits are forfeited. Coverage under this plan has not been provided to persons attaining executive officer status after July 1, 1996.

      Long-Term Incentive Plan. The primary objective of the long-term incentive plan is to attract and retain the services of key employees and to provide incentives to those employees which align their interests to the long-term interests of shareholders. This plan awards participants with the Company’s common stock which also assists them in reaching their Stock Ownership Guideline, as described below, within the required time frame.

      Each executive officer is assigned a long term incentive target expressed as a percentage of base salary. This target is based upon the market analysis described earlier. Targets approved in 2005 for the executive officers were as follows:

      Plan grants are typically made on an annual basis in the form of one or more of the following types of awards: (1) performance-based shares or units; (2) restricted stock; and/or (3) nonqualified stock options. Performance-based share or unit awards are granted with a three-year performance cycle, so that in any given year, each executive officer has outstanding grants in three concurrent performance cycles. Restricted stock awards usually vest three years after the date of grant.

      Grants Made in 2005. In February 2005, the Compensation Committee approved grants of performance shares, weighted at 70% of the long term incentive target value, and restricted stock, weighted at 30% of the target value, for the executive officer group. To calculate the number of shares granted, a common stock price of $11.90 per share, each executive officer’s base salary as of December 31, 2004 and the long term incentive targets were used. The grants were rounded to the nearest 100 shares. The common stock price of $11.90 per share was an early February 2005 price and was used to calculate the number of grants in advance of the actual Committee meeting. This value is not the same fair market value that was used for accounting purposes. The following table presents the grant information for the executive officers:

(1) Value is determined by multiplying the executive’s Base Salary as of December 31, 2004 by his Long-Term Incentive Plan target.

     The performance shares were granted for the performance cycle commencing January 1, 2005 and ending December 31, 2007. Payouts, if any, for the performance shares will be based on the achievement of two goals: (1) the Company’s total shareholder return for the three-year period compared to the companies in the S&P Utility Index; and (2) an increase in the Company’s common equity capitalization as a percentage of total

capitalization. At the end of the performance cycle, the payouts of performance shares can be authorized by the Committee if the goals are achieved as indicated:

      Included in this proxy statement, the Long-Term Incentive Plan — Awards in 2005 table shows the number of shares that would be awarded under the Threshold, Target and Maximum achievement levels.

      The 2005 restricted stock grant fully vests as of February 21, 2008, which is three years after the grant date, as long as the Company declares a minimum of $1.20 per share in dividends on its common stock during the vesting period. The Committee believes that the dividend trigger should be attached to the restricted stock grant as a performance measure to ensure the executives’ focus on delivering value to the shareholder.

      Effective January 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004) “Share-Based Payment.” In connection with the implementation of this new accounting standard, and in view of the low volatility of the Company’s common stock in the market, the Committee decided that nonqualified stock option grants would not be a component of its long term incentive plan in 2005.

      Long-Term Incentive Plan Three-Year Performance Cycle Ending December 31, 2005.     In 2003, the Compensation Committee approved the grant of performance-based shares for the 2003-2005 performance cycle. The performance goals were based upon the following criteria:

      All companies in the internally-generated peer group referred to in the table above were primarily rate-regulated and yield-oriented. They were selected based upon revenues and other financial indicators. This peer group was a mix of electric and gas companies with market capitalization similar to the Company’s. Operating cash flow was defined as earnings before interest and taxes less capital expenditures, excluding Texas Genco Holdings, Inc., a former subsidiary of the Company. Also excluded in determining achievement were capital expenditures related to acquisitions and significant expenditures related to customer growth in excess of the amounts included in the Company’s annual budget.

      In January 2006, the Company’s Audit Services Department performed a limited review of the goal achievements for the 2003-2005 performance cycle. The Company ranked 2nd in the 18-company peer group, resulting in a 150% maximum achievement level on this goal. For the second goal, the Company had operating cash flow in excess of the maximum amount, which resulted in a 150% maximum achievement level. The overall achievement level for this performance cycle was 150%. The Committee reviewed and approved the achievement levels for these goals in January 2006.

      The actual values of these long term incentive distributions, including dividend equivalents of $1.20 per share, for the named executive officers are shown in the “LTIP Payout” column of the Summary Compensation Table included in this proxy statement. After-tax shares of the Company’s common stock were

distributed to the executive officer group as follows based upon a common stock price of $12.845 per share, which was the average of the high and low price on the date the Committee approved the goal achievements:

      Stock Ownership Guidelines. The Company has established executive stock ownership guidelines which are administered and interpreted by the Company’s Human Resources Department. The guidelines, as approved by the Committee, require ownership of a number of shares of the Company’s common stock based on a multiple of the executive’s base salary at the time that executive becomes covered by the guidelines, or at the time of promotion to another level covered by the guidelines. The base salary multiple is converted to a fixed number of shares using the Company’s prior 365-day average closing common stock price as reported by the New York Stock Exchange. The result is then rounded to the nearest 100 shares. The base salary multiples are four times for the Chief Executive Officer and three times for the other executive officers.

      In addition to shares owned outright, equivalent shares held in the Company’s Savings Plan, unvested restricted stock and performance-based shares or units from the Company’s Long-Term Incentive Plan and shares held in trust are counted towards the guidelines. Current executive officers are expected to reach their stock ownership guideline by December 31, 2008. Until the guideline is reached, the executive officer is expected to retain at least 50% of the after-tax shares delivered through the Company’s Long-Term Incentive Plan. Certain exclusions apply to the retention expectation, such as estate planning, gifts to charity, education and the purchase of a primary residence. Executive officers are required to verify their stock holdings on an annual basis. As of April 1, 2006, all executive officers were in compliance with the guidelines.

      Health and Welfare Benefits. The executive officers participate in the Company’s health and welfare benefit plans and share in the costs of such plans in the same manner as all other employees, except that they do not participate in the Company’s vacation policy that permits buying and selling vacation hours.

      Corporate Aircraft Usage. The Company’s executive officers have use of a corporate aircraft for travel on Company business. Nine times during 2005, the spouse of an executive officer accompanied the executive officer on a business trip, seven occasions of which were on the corporate aircraft. In all required cases, an imputed income amount for spousal travel was included in the applicable executive’s taxable income. Also during 2005, Mr. Rozzell used the corporate aircraft once for an emergency personal use as approved by Mr. McClanahan. An imputed income amount was included in Mr. Rozzell’s taxable income.

      Financial Planning Program. The Company’s executive officers participate in a financial planning program sponsored by the Company. This program provides reimbursement of financial planning expenses such as the preparation of state and federal income tax returns, comprehensive financial plans (including monitoring), estates and wills. The maximum annual benefit for each executive officer is $5,000, with an additional one-time benefit of $5,000. Reimbursed expenses are treated as additional income to the executive, for which no tax gross-ups are provided. During 2005, the Company reimbursed a gross amount of $5,123 to the executive officer group under this program.

      Security Monitoring at Personal Residence. The Company’s Corporate Security Department provides security monitoring at the personal residence of Messrs. McClanahan and Standish. The value of such monitoring is de minimis.

      In all cases, the perquisites provided to any executive officer do not exceed the lesser of $50,000 or 10% of the executive officer’s base salary.

      Review of Tally Sheets. In late 2005, the Company prepared and presented to the Committee tally sheets for each of the named executive officers. The tally sheets included all elements of executive pay and benefits as follows:

      On the basis of the tally sheet information presented, the independent analysis provided by the consultant and the other information available, the Compensation Committee considers that it has a complete understanding of the compensation of the named executive officers, including the estimated amounts and types of payments or benefits that would occur in the event of termination of employment or upon a change of control. The Committee also understands the effect of a base pay increase on all types of executive pay and benefits. The Committee will continue to use tally sheets to ensure that future pay increases and changes to incentive targets result in compensation that is reasonable and competitive.

      Compensation of the Chief Executive Officer. As described earlier, the consultant to the Committee reviewed and analyzed the Chief Executive Officer’s compensation as compared to proxy statement data from peer group companies. Mr. McClanahan’s base salary, short term and long term incentive target compensation were the furthest below the market median as compared to the other executive officers. In evaluating Mr. McClanahan’s total compensation, the Compensation Committee considered the financial performance of CenterPoint Energy and Mr. McClanahan’s contributions to the overall success of CenterPoint Energy through his leadership and individual performance. While Mr. McClanahan’s current compensation remains below the 50th percentile of the market, the Committee believes that Mr. McClanahan’s compensation package, in conjunction with anticipated future base pay increases, is sufficient to ensure his continuing focus on creating substantial improvements in shareholder value. During 2005, the Committee set Mr. McClanahan’s base salary at $880,000, which was a 10% increase. His short term incentive target increased from 75% to 85% of his base salary. Mr. McClanahan’s long term incentive target increased from 150% to 200% of base salary. Mr. McClanahan’s short term incentive payout for the 2005 plan year was at 150% of target, which was made at the discretion of the Committee and represented the maximum achievement level.

      As Mr. McClanahan’s base salary reaches market levels, his long term incentive target, when combined with his short term incentive target, is intended to position Mr. McClanahan’s compensation at the 50th percentile in accordance with the Company’s pay philosophy.

Stock Performance Graph

      The following line graph compares the yearly percentage change in the cumulative total shareholder return on the common stock of CenterPoint Energy (and its predecessor) with the cumulative total return of the S&P 500 Electric Utilities Index, the S&P 500 Index and the S&P 500 Utilities Index for the period commencing December 31, 2000 and ending December 31, 2005.

      On September 30, 2002 we distributed to our shareholders our remaining equity interest in Reliant Resources, Inc., to which substantially all of our unregulated businesses had previously been transferred. The performance information shown in the graph for periods prior to that date reflects the effect of our ownership of those subsequently disposed-of businesses. For purposes of the performance graph, the market value of the distributed stock (including a subsequent distribution in 2003 of approximately 19% of the common stock of Texas Genco Holdings, Inc.) was deemed to be reinvested in common stock of CenterPoint Energy as indicated in footnote 1 to the graph.

      The S&P 500 Electric Utilities Index is a subindex of the S&P 500 Utilities Index. In 2005, Standard & Poor’s modified the composition of the Electric Utilities Index and, as a result, CenterPoint Energy is no longer one of the companies in that subindex. Therefore, we believe that the broader S&P 500 Utilities Index, which continues to include our company, is now a more appropriate published industry index of peer companies.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG

CENTERPOINT ENERGY, THE S&P 500 ELECTRIC UTILITIES INDEX, THE

S&P 500 INDEX AND THE S&P 500 UTILITIES INDEX

FOR THE FISCAL YEAR ENDED DECEMBER 31⁽¹⁾⁽²⁾

Report of the Audit Committee

      The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of CenterPoint Energy. During 2005, the Audit Committee met ten times, including meetings to discuss the interim financial information contained in each quarterly earnings announcement with management and Deloitte & Touche, LLP, CenterPoint Energy’s independent auditors, prior to public release.

      In discharging its oversight responsibility as to the audit process, the Audit Committee (a) obtained from the independent auditors a formal written statement describing all relationships between the auditors and CenterPoint Energy that might bear on the auditors’ independence consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees” and (b) discussed with the auditors any relationships that may impact their objectivity and independence. The Audit Committee also discussed with management and the independent auditors the quality and adequacy of CenterPoint Energy’s internal controls. The Audit Committee reviewed with the independent auditors their audit plans, audit scope, and identification of audit risks.

      The Audit Committee discussed and reviewed with the independent auditors all communications and other matters required to be discussed by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees” and discussed and reviewed the results of the independent auditors’ examination of the financial statements. The Audit Committee also discussed the results of the internal audit examinations.

      Management has the responsibility for the preparation of CenterPoint Energy’s financial statements and for its internal controls and the independent auditors have the responsibility for the examination of those statements and the related audit of internal control over financial reporting. The Audit Committee reviewed and discussed the audited financial statements of CenterPoint Energy as of and for the fiscal year ended December 31, 2005, with management and the independent auditors. The Audit Committee also reviewed and discussed with management and the independent auditors management’s report and the report and attestation of the independent auditors on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

      Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board that CenterPoint Energy’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, for filing with the Securities and Exchange Commission. The Audit Committee also reappointed, subject to ratification, Deloitte & Touche as CenterPoint Energy’s independent auditors.

MATTERS TO BE VOTED ON BY SHAREHOLDERS

Ratification of Appointment of Independent Auditors

      The Audit Committee has appointed Deloitte & Touche LLP as independent auditors to conduct the annual audit of CenterPoint Energy’s accounts for the year 2006. Deloitte & Touche LLP (and their predecessors) have served as independent auditors for CenterPoint Energy and its predecessors since 1932. Ratification requires the affirmative vote of a majority of shares of common stock voted for or against the matter. If the appointment is not ratified by the shareholders, the Audit Committee will reconsider the appointment.

      Representatives of Deloitte & Touche LLP will be present at the annual meeting and will have an opportunity to make a statement if they wish. They will be available to respond to appropriate questions from shareholders at the meeting.

      Your Board of Directors recommends a vote FOR the ratification of the appointment of Deloitte & Touche LLP as independent auditors.

Reapproval of Material Terms of Performance Goals under Short Term Incentive Plan

      The Company established and maintains the Short Term Incentive Plan (the “STI Plan”) to encourage a high level of corporate performance through the establishment of predetermined corporate, subsidiary or business unit goals. You are being asked to reapprove the material terms of the performance-based goals under the STI Plan so that awards made to certain of our officers will continue to qualify as performance-based compensation deductible under Section 162(m) of the Internal Revenue Code (the “Code”). We are not proposing any amendment to the terms of the STI Plan in connection with this reapproval of the material terms of the performance-based goals under the STI Plan.

      Section 162(m) of the Code limits our ability to deduct for federal income tax purposes certain compensation in excess of $1 million paid to our Chief Executive Officer and our four other most highly compensated officers, unless it is qualified performance-based compensation. Pursuant to the requirements of the Section 162(m) regulations, the material terms of the performance goals of the STI Plan are being submitted for reapproval by the shareholders. The performance goals are specifically described under the caption “Performance Goals” below.

      Provided below is a summary of the principal features of the STI Plan. The summary does not purport to be a complete description of all of the plan provisions.

      Plan Administration and Eligibility. The Compensation Committee administers the STI Plan. The Committee may delegate its duties under the plan to the Chief Executive Officer and to other senior officers of the Company. Employees of the Company or any of its subsidiaries who (a) are regular or part-time employees, (b) regularly work at least 20 hours per week, and (c) are employed at least 90 calendar days during the plan year are eligible to participate in the STI Plan.

      Awards. The Committee determines the terms and conditions of awards and designates the recipients. Generally, awards are based on a percentage of actual base salary or gross wages paid to the participant during the plan year, including vacation, holiday and sick time. For any participant covered by a collective bargaining agreement, compensation is calculated in the manner specified in the collective bargaining agreement. All or part of an award may be subject to conditions established by the Committee, which may include continuous service, achievement of specific individual and/or business objectives and other measures of performance.

      Performance Goals. The Committee will establish objective goals within the first 90 days of the performance period or within the first 25% of the performance period, whichever is earlier, and in any event, while the outcome is substantially uncertain. A performance goal is objective if a third party having knowledge of the relevant facts could determine whether the goal has been met. A performance goal may be based on one or more business criteria that apply to the individual, one or more of our business units, or the Company as a

whole. Performance goals are based on one or more of the following financial or operational factors, as applied to the Company or a business unit, as applicable: earnings per share, earnings per share growth, total shareholder return, economic value added, cash return on capitalization, increased revenue, revenue ratios (per employee or per customer), net income, stock price, market share, return on equity, return on assets, return on capital, return on capital compared to cost of capital, shareholder value, net cash flow, operating income, earnings before interest and taxes, cash flow, cash flow from operations, cost reductions, cost ratios (per employee or per customer), proceeds from dispositions, project completion time and budget goals, net cash flow before financing activities, customer growth, total market value, customer satisfaction, and employee safety. Performance goals need not be based on an increased or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses. Performance goals may also be based on performance relative to companies in the S&P 500 Electric Utilities Panel or other designated peer group. The Committee may decrease the amount payable pursuant to a performance award, but in no event may the Committee increase such amount other than as provided in Section 162(m). No participant may be granted performance awards that would result in the payment of more than $3,500,000 per plan year.

      Certification of Goals and Payment of Awards. Before paying any performance award, the Committee must certify in writing that the applicable performance goals were satisfied. Awards are paid in cash as soon as practicable after the close of the plan year. A participant must generally be an employee on the payment date in order to receive payment of an award. However, if prior to the payment date, a participant dies or terminates employment due to (i) being disabled as defined in the Company’s long-term disability plan or (ii) reaching age 55 with five years of service, as soon as practicable following such death or termination, the participant will receive a prorated award payment based on the participant’s eligible earnings. If a participant is an employee on the last day of the plan year but is not an employee on the payment date, then the participant may receive, at the discretion of the Committee, an award payment. Award payments under the STI Plan are considered compensation under our retirement plan, benefit restoration plan, savings plan and savings restoration plan.

      Amendment and Termination of Plan. The STI Plan may be amended, modified, suspended, or terminated by the Board of Directors in order to address any changes in legal requirements or for any other purpose permitted by law, except that no amendment that would adversely affect the rights of any participant under any award previously granted may be made without the consent of the participant, and no amendment may be effective prior to its approval by the shareholders of the Company, if such approval is required by law.

      Named Executive Officers’ Contingent 2006 Awards. Goals have been established under the STI Plan for the named executive officers for the 2006 plan year performance period, but any awards that would be made to the named executive officers are subject to, and contingent upon, our shareholders reapproving the plan’s material terms of the performance-based goals at the meeting. The table below describes the specific performance goals and the target annual incentive (expressed as a percentage of base salary earned in 2006) for our named executive officers for the 2006 plan year. Depending on the level of achievement against the performance goals, actual performance-based payouts may vary from 0% to 150% of target annual incentive amount for Mr. McClanahan, from 0% to 200% of target annual incentive amount for Messrs. Whitlock, Rozzell and Standish and from 0% to 250% of target annual incentive amount for Mr. Kelley.

      Your Board of Directors recommends a vote FOR reapproval of the material terms of the performance goals of the Short Term Incentive Plan.

Reapproval of Material Terms of Performance Goals under Long-Term Incentive Plan

      The Company established and maintains our Long-Term Incentive Plan (the “LTIP”) to recognize and reward outstanding performance and individual contributions, give certain executives and other key employees and personnel an interest in the Company parallel to that of the Company’s shareholders and enable the Company to attract and retain such individuals, by providing incentives in the form of stock awards, cash awards, options, and stock appreciation rights. You are being asked to reapprove the material terms of the performance-based goals under the LTIP so that performance-based awards made to certain of our officers will continue to qualify as performance-based compensation deductible under Section 162(m) of the Code. We are not proposing any amendment to the terms of the LTIP in connection with the reapproval of the material terms of the performance-based goals.

      As discussed in connection with our STI Plan, Section 162(m) of the Code limits our ability to deduct for federal income tax purposes certain compensation in excess of $1 million paid to our Chief Executive Officer and our four other most highly compensated officers, unless it is qualified performance-based compensation. Pursuant to the requirements of the Section 162(m) regulations, the material terms of the performance goals of the LTIP are being submitted for reapproval by the shareholders. The performance goals are specifically described under the caption “Performance Goals” below.

      Provided below is a summary of the principal features of the LTIP. The summary does not purport to be a complete description of all the provisions of the LTIP.

      Plan Administration. The Compensation Committee administers the LTIP. The Committee selects the participants and determines the type or types of awards and the number of shares to be granted to each participant under the plan. All or part of an award may be subject to conditions established by the Committee, which may include continuous service with CenterPoint Energy and its subsidiaries and affiliates, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other

comparable measurements of performance. The Committee has full and final authority to interpret the LTIP and may, from time to time, adopt rules and regulations in order to carry out the terms of the LTIP. The Committee may delegate to the Chief Executive Officer and other senior officers its duties under the LTIP. It may also engage or authorize the engagement of third-party administrators to carry out administrative functions under the plan.

      Shares Subject to the Plan. When established, 15,000,000 shares of common stock were reserved for issuance under the plan, with no more than 7,500,000 shares available for stock awards and no more than 2,000,000 shares available for incentive stock options. As of March 20, 2006, a total of approximately 3,800,000 shares of common stock remain available for issuance under the plan, of which approximately 3,100,000 are available for stock awards. The shares to be issued consist of authorized but unissued shares or shares which have been issued and reacquired as treasury shares. Shares subject to awards that are forfeited, terminated, exchanged for awards that do not involve common stock, expire unexercised, settled in cash in lieu of common stock, or otherwise lapse, again become available for awards. The Committee may make appropriate adjustments in the number of shares under the LTIP to reflect any amendment to the plan, stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event. As of March 20, 2006, the closing price of a share of common stock on the New York Stock Exchange Composite Transactions reporting system (“NYSE”) was $12.20.

      Eligibility. All employees of CenterPoint Energy and all employees of our subsidiaries and affiliates in which we have a 50% or more direct or indirect ownership are eligible to be considered for awards under the plan. Awards may also be granted to independent contractors providing services to us or our subsidiaries or affiliates. The Committee selects the participants for the plan. Any participant may receive more than one award under the plan. As of March 20, 2006, 244 employees were selected to participate in the LTIP and received grants or awards for 2006.

      Types of Awards. Awards under the LTIP may be granted to eligible employees and independent contractors at the discretion of the Committee in the form of stock awards, cash awards, incentive stock options (employees only), nonqualified stock options or stock appreciation rights, as described below. At the discretion of the Compensation Committee, any award under the LTIP may be granted subject to the attainment of specified performance goals (as described below).

      Stock Awards. The Committee may provide for awards to employees in the form of stock awards that consist of restricted or unrestricted grants of common stock or units denominated in common stock. The terms, conditions and limitations applicable to any stock award will be decided by the Committee and embodied in an award agreement. At the discretion of the Committee, any such award agreement may contain provisions providing for special treatment favorable to the award recipient upon a change of control (as described below). Rights to dividends, dividend equivalents or interest credits may be extended to and made part of any stock award at the discretion of the Committee. When a restricted stock award is granted, the Committee must indicate whether the underlying shares of common stock are to be issued at the beginning or the end of the relevant restricted period. If the shares are issued at the beginning of the period, any certificates evidencing those shares must contain legends stating the restrictions applicable to those shares, but the employee will have the rights of a shareholder of CenterPoint Energy (subject to the restrictions). If the shares are to be issued when the restrictions lapse, the grant of those shares will be implemented by a credit to a bookkeeping account and the Committee may award dividend equivalents in connection with the award. If dividend equivalents are awarded, as of each dividend payment date an amount equal to dividends paid on shares of our common stock is credited to each bookkeeping account based upon the number of shares credited to such account on the dividend record date, which will not be paid until the distribution date of the award. Stock awards are distributable at the time or times designated by the Committee; distribution may be contingent upon the completion of a specified period of employment and/or the attainment of specific performance goals. Such awards may be distributed in the form of cash or common stock or a combination thereof in the discretion of the Committee. Employees granted stock awards are not entitled to the rights of a shareholder of CenterPoint Energy prior to the issuance of shares of common stock with respect to the awards. No employee may be granted stock awards covering or relating to more than 500,000 shares of common stock during any calendar year.

      Cash Awards. The LTIP also provides for the granting of cash awards to employees. The terms, conditions and limitations applicable to any cash award will be determined by the Committee and set forth in an award agreement. At the Committee’s discretion, cash awards may be contingent upon the completion of a specified period of employment and/or the attainment of performance goals, and the award agreement may contain provisions providing for special treatment favorable to the award recipient upon a change of control. Furthermore, the Committee may establish rules and procedures for the crediting of interest or other earnings on cash awards. No employee may be granted cash awards under the plan in any calendar year having a value, as determined on the date of grant, in excess of $3,500,000.

      Stock Options and Stock Appreciation Rights. In addition to stock and cash awards, the plan provides for the granting of (1) incentive stock options, (2) nonqualified stock options and (3) stock appreciation rights (“SARs”) to employees. At the Committee’s discretion, such awards may be contingent upon the completion of a specified period of employment and/or the attainment of specific performance goals.

      A stock option is a right to purchase a specified number of shares of common stock at a specified grant price. An SAR is a right to receive a payment, in cash or common stock, equal to the excess of the fair market value of a specified number of shares of common stock over a specified grant price. Under the LTIP, the “fair market value” of a share of our common stock is the average of the high and low sales price per share on the NYSE on the date the value is determined or, if no sales are reported on that day, the immediately preceding day on which a sale occurs. An SAR may be granted to the holder of a stock option with respect to all or a portion of the shares of common stock subject to such option or may be granted separately.

      An option granted to an employee as an incentive stock option is intended to qualify as such under Code Section 422. The aggregate fair market value, determined at the time of the grant, of the shares granted under an incentive stock option that are exercisable for the first time by an individual during any calendar year may not exceed $100,000. Nonqualified stock options are not subject to this limitation. However, under the plan, no employee may be granted stock options or SARs during any calendar year that are exercisable for more than 1,500,000 shares of common stock.

      The number of shares, the exercise price, the terms and conditions of exercise, whether an option is intended to be an incentive stock option or a nonqualified stock option, and other terms of grant will be fixed by the Committee as of the grant date and set forth in an award agreement. At the discretion of the Committee, any such award agreement may contain provisions providing for special treatment favorable to the award recipient upon a change of control. Stock options must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant.

      The exercise price of any stock option must be paid in full at the time the stock option is exercised in cash or, if permitted by the Committee and elected by the participant, by means of tendering common stock or surrendering another award. At the discretion of the Committee, an award that is a stock option or an SAR may be settled by a cash payment to the participant equal to the difference between the fair market value per share of common stock on the date of exercise and the exercise price of the award, multiplied by the number of shares with respect to which the award is exercised.

      Independent Contractor Awards. The Committee, at its discretion, may grant awards under the LTIP to independent contractors in the form of stock awards, cash awards, nonqualified stock options or stock appreciation rights, as described above. Independent contractor awards may not be in the form of incentive stock options. Any such award may be granted by the Committee subject to the completion of a specific period of service and/or the attainment of specified performance goals (as described below).

      Generally Applicable Terms of Awards. As described above, the terms, conditions and limitations applicable to an award will be decided by the Committee and embodied in an award agreement. Any such agreement will specify the intended treatment of the award upon the death, disability, or termination of the participant. An award agreement may also allow for deferral of amounts payable in respect of awards under the LTIP. Any deferred payment may be forfeited if and to the extent the applicable award agreement so provides.

      Except to the extent such discretion would cause a performance award that is intended under Section 162(m) of the Code to cease to qualify as performance-based compensation, the Committee may, in its discretion, extend or accelerate the exercisability of, accelerate the vesting of or eliminate or make less restrictive any restriction contained in any award granted under the LTIP or waive any restriction or other provision of the LTIP in any manner that is either: (i) not adverse to the employee or independent contractor holding such award; or (ii) consented to by such employee or independent contractor.

      Performance Awards. At the discretion of the Committee, any of the above-described employee or independent contractor awards may be made in the form of a performance award that is subject to the attainment of one or more pre-established, objective performance goals. As noted above, performance awards under the LTIP are intended to qualify as performance-based compensation under Code Section 162(m). The Committee will establish objective goals within the first 90 days of the performance period or within the first 25% of the performance period, whichever is earlier, and in any event, while the outcome is substantially uncertain. A performance goal is objective if a third party having knowledge of the relevant facts could determine whether the goal has been met. A performance goal may be based on one or more business criteria that apply to the individual, one or more of our business units, or the Company as a whole. Performance goals are based on one or more of the following business criteria: earnings per share, earnings per share growth, total shareholder return, economic value added, cash return on capitalization, increased revenue, revenue ratios (per employee or per customer), net income, stock price, market share, return on equity, return on assets, return on capital, return on capital compared to cost of capital, return on capital employed, return on invested capital, shareholder value, net cash flow, operating income, earnings before interest and taxes, cash flow, cash from operations, cost reductions, cost ratios (per employee or per customer), proceeds from dispositions, project completion time and budget goals, net cash flow before financing activities, customer growth and total market value. Performance goals may also be based on performance relative to a peer group of companies. The Committee may decrease the amount payable pursuant to a performance award, but in no event may the Committee increase such amount other than as provided in Section 162(m). Before paying any performance award, the Committee must certify in writing that the applicable performance goals were satisfied.

      Assignability of Awards. Except as provided below, no grant or award under the LTIP may be transferred, assigned, pledged, alienated or otherwise transferred, assigned or encumbered, except in the event of death or pursuant to a qualified domestic relations order as defined by the Code or the Employee Retirement Income Security Act. The Committee, in its discretion, may permit the transfer of any grant or award under the LTIP, other than incentive stock options and SARs related thereto, to members of an employee’s or independent contractor’s immediate family, any trust for the benefit of such family members, and/or partnership comprised of family members. An option, to the extent it is vested and exercisable, will become transferable on or after an employee’s termination of employment if (i) the former employee assumes an office or position with a federal, state or local government or agency (whether by employment, appointment or election, and whether legislative, executive, judicial or administrative) and (ii) following a written request to the Committee identifying the office or position and the basis for the requested determination, the Committee determines, in its discretion, that by reason of the former employee’s holding of such office or position, the holding or exercise of the option or acquisition, holding or voting of our common stock due to exercise of the option is, or is likely to, (x) be prohibited or restricted by law, regulation or order, or (y) give rise to or result in an actual or potential conflict of interest, disqualification or similar impediment in or to the exercise of the duties and responsibilities or such office or position. As a condition of any transfer, the employee or independent contractor and the transferee will be required to enter into an agreement with the Committee pursuant to which the employee agrees to satisfy his or her applicable income and employment tax obligations and the transferee agrees to be bound by such terms and conditions as the Committee deems necessary or appropriate.

      Change of Control. A change of control under the LTIP is defined in substantially the same manner as in the executive severance agreements described under “Retirement Plans, Related Benefits and Other Arrangements — Severance Agreements” on page 23.

      Amendment and Termination. The Board of Directors may amend, modify, suspend or terminate the LTIP at any time for the purpose of addressing changes in legal requirements or for other purposes permitted

by law. However, no amendment shall (i) be effective prior to its approval by the shareholders to the extent such approval is required by applicable legal or exchange requirements or (ii) adversely affect the rights of a participant with respect to awards granted prior to the date of the amendment.

      Awards under the LTIP are granted at the discretion of the Committee. Thus, we are not able to determine the amount of awards that may be granted to the named executive officers or to any of the other LTIP participants if the plan amendment is approved by our shareholders. On February 22, 2006, the Committee established performance goals for our named executive officers’ 2006 awards under the LTIP. Depending on the level of achievement against the performance goals, actual performance-based shares may vary from 0% to 150% of the target performance-based shares granted to the named executive officers. With respect to the other 2006 stock awards granted, all or none of the awards may be realized by the named executive officers depending upon whether the performance goals are met. No awards or grants have been made under the LTIP that are contingent on shareholder reapproval of the material terms of the performance goals.

      The following summary is based upon current interpretations of existing federal income tax laws. The discussion below is not purported to be complete, and it does not discuss the tax consequences arising in the context of the participant’s death or the income tax laws of any local, state or foreign country in which the participant’s income or gain may be taxable.

      Nonqualified Stock Options. There are no federal income tax consequences to either an employee or independent contractor upon the grant of a nonqualified stock option. Upon exercise, the employee or independent contractor recognizes taxable income in an amount equal to the excess of the then fair market value of our common stock over the exercise price, and we are generally entitled to a deduction equal to the amount included in income by the optionee. Any taxable income recognized in connection with the exercise of a nonqualified option is added to the basis of the stock acquired on the exercise of the option. An employee is subject to withholding for income and employment taxes at the time he or she exercises an option. When shares acquired on the exercise of the option are sold, any difference between the sales price and the employee’s or independent contractor’s basis is treated as long-term or short-term capital gain or loss, depending upon the holding period.

      Incentive Stock Options. There are no federal income tax consequences to an employee upon the grant or exercise of an incentive stock option within the meaning of Section 422 of the Code; however, the exercise of an incentive stock option may subject the employee to the alternative minimum tax under the Code (incentive stock options may not be granted to independent contractors). Upon the subsequent disposition of shares of common stock acquired by exercise of an incentive stock option, the employee will recognize capital gain or loss in an amount equal to the difference between the exercise price and the sales price if the option shares are not disposed of (i) within two years of the date of grant of the option and (ii) one year from the date of exercise of the option. If an employee disposes of the option shares prior to the expiration of either of these holding periods, which is referred to as a “disqualifying disposition,” the employee must recognize taxable income in an amount equal to the difference between the option exercise price and the fair market value of the option shares on the exercise date. We are not entitled to a deduction in connection with the exercise of an incentive stock option unless there is a disqualifying disposition. If there is a disqualifying disposition, we are entitled to a deduction at the same time that the employee realizes taxable income from a disqualifying disposition. Except in the case of death or, in some cases, disability, the employee (or his or her representative in the case of death) has three months after termination of employment in which to exercise an incentive stock option and retain favorable tax treatment at exercise. An incentive stock option exercised more than three months after an optionee’s termination of employment (other than upon death or disability) will be treated as a nonqualified stock option.

      Stock Appreciation Rights. The grant of an SAR generally does not result in income to an employee or independent contractor or a deduction for CenterPoint Energy. Upon the exercise of a stock appreciation right, however, an employee or independent contractor will recognize ordinary income and we will be entitled to a deduction in an amount equal to the fair market value of our common stock or cash received by the employee or independent contractor.

      Stock Awards. Federal income tax consequences with respect to stock awards depend on the facts and circumstances of each award and, in particular, the nature of any restrictions imposed with respect to the award. Generally, absent an 83(b) election (as described below), there are no immediate federal income tax consequences to an employee, independent contractor or us upon the grant of a stock award, provided that the stock award is subject to a “substantial risk of forfeiture,” that is, ownership of the stock is conditioned upon the future performance of substantial services by the employee or independent contractor and restrictions on transfer. A taxable event occurs only when the risk of forfeiture or restrictions on transfer cease. When the stock award is no longer subject to a substantial risk of forfeiture or the restrictions on transfer lapse, an employee or independent contractor recognizes ordinary income in an amount equal to the then fair market value of our common stock reduced by the employee’s or independent contractor’s cost for such stock, if any. At the same time, we are entitled to a deduction in an amount equal to the amount the employee or independent contractor is required to recognize as ordinary income, subject to any limitations imposed under Code Section 162(m). Any dividends paid on the stock award are taxable to the employee or independent contractor as ordinary income and deductible by us.

      Pursuant to Code Section 83(b), other than in the case of units, an employee or independent contractor may elect to accelerate the date on which he or she recognizes ordinary income and begins his or her capital gains holding period by filing an election within 30 days after the grant date of the award (an “83(b) election”). The ordinary income recognized on account of an 83(b) election is equal to the fair market value of our common stock on the date of the award. Any ordinary income recognized by an employee on account of an 83(b) election is subject to withholding for income and employment taxes. We are entitled to a corresponding deduction at that time, subject to any limitations imposed under Section 162(m). Any dividends received by an employee or independent contractor after an 83(b) election has been made are taxable to such individual as dividends and not compensation.

      Performance Units. There are generally no federal income tax consequences to either an employee or independent contractor or us upon the grant of performance units or the crediting of dividend equivalents to a bookkeeping account. The employee or independent contractor recognizes taxable income upon the distribution of shares of common stock or cash free of any substantial risk of forfeiture or restriction, and the amount of such income will be equal to the value of the units plus dividend equivalents at such time over the participant’s cost, if any. The same amount is then deductible by us at the time of distribution, subject to the limitations of Code Section 162(m).

      Cash Awards. Upon the receipt of a cash award, an employee or independent contractor recognizes taxable income in an amount equal to the cash received. In the case of an employee, the amount of the award is subject to withholding for income and employment taxes. Unless limited by Code Section 162(m), CenterPoint will be entitled to a tax deduction in the amount and at the time the employee or independent contractor recognizes ordinary income.

      Code Section 409A. Code Section 409A imposes new restrictions on nonqualified deferred compensation. Some awards under the LTIP may be subject to these new rules. Failure to comply with the requirements of Section 409A and the related Treasury Department guidance and regulations may result in the early taxation of deferred compensation and the imposition of a 20% penalty. Section 409A is effective with respect to amounts deferred after December 31, 2004 and amounts deferred prior to 2005 that were not vested as of December 31, 2004. Section 409A may also apply to amounts deferred earlier under arrangements which are materially modified after October 3, 2004. The reapproval of the performance goals does not increase or modify awards granted under the LTIP prior to December 31, 2004. The Treasury Department has provided interim guidance and proposed regulations on the application and meaning of various provisions of Section 409A and certain transition rules under Section 409A. Additional guidance is expected from the Treasury

Department later in 2006. It is intended that awards granted under the LTIP will satisfy the requirements of the Section 409A to avoid the imposition of excise tax thereunder. We anticipate that we may be required to amend the LTIP and potentially outstanding award agreements before December 31, 2006, to make changes necessary to comply with Section 409A.

      Your Board of Directors recommends a vote FOR reapproval of the material terms of the performance goals of the Long-Term Incentive Plan.

Shareholder Proposal

      We have been notified that a shareholder intends to present the following proposal for consideration at the annual meeting. Approval of any shareholder proposal presented at the meeting requires the favorable vote of a majority of the shares of common stock represented at the meeting. Abstentions and broker non-votes have the same effect as a vote against any shareholder proposal submitted. Broker non-votes occur when a broker returns a proxy but does not have authority to vote on a particular proposal. The name, address and stock ownership of the proponent are included in the text of the proposal set forth below. The text of the shareholder proposal is as submitted by the proponent, and CenterPoint Energy assumes no responsibility for its content or accuracy.

REASONS

REGISTER YOUR VIEWS ON THE TOTAL BOARD’S PERFORMANCE EACH YEAR.

PLEASE MARK YOUR PROXY IN FAVOR OF THIS PROPOSAL.”

      Your Board of Directors recommends a vote AGAINST this proposal.

      CenterPoint Energy’s Board has thoroughly considered this proposal and continues to believe that its existing system of electing directors in three classes with staggered three-year terms helps assure that the Company has experienced directors with an understanding of the history of the Company and its operations. This, in turn, provides continuity and stability in pursuing the Company’s business strategies and policies and reinforces the Company’s commitment to a long-term perspective. Your Board also believes that experience accumulated and knowledge gained over time makes directors more effective in fulfilling their responsibilities, and that a three-year term helps the Company attract and retain qualified individuals who are willing to make the commitment and take on the responsibilities that service as a director entails. Your Board believes that directors elected for three-year terms approach their responsibilities with at least as much focus and accountability as would be the case if they were elected annually. Your Board also believes that a nominee’s agreeing to serve a three-year term demonstrates the nominee’s commitment to serving on your Board over the long term.

      Your Board believes that retaining a classified structure protects shareholder interests and preserves or enhances shareholder value. In case of an unsolicited proposal to take over the Company, a classified board prevents the unilateral removal of directors by an acquirer at a single annual meeting and thereby affords time to negotiate or consider and develop other appropriate responses your Board believes are in the best interests of the shareholders and the Company. A classified board can also increase a board’s negotiating leverage when dealing with a potential acquirer, and thus can further shareholder interests in a potential change of control transaction. A classified board structure also provides a deterrent to coercive two-tier takeover proposals that could result in the unequal treatment of the Company’s shareholders, such as a tender offer at one price followed by a merger in which shares not purchased in the tender offer are required to be surrendered for less value. Although the percentage of companies with classified boards has declined in recent years, approximately half of the S&P 500 companies currently have classified Boards.

      In connection with a similar proposal presented by this proponent at the 2005 annual meeting, your Board stated its intention, if the proposal received the support of a majority of shares represented in person or by proxy at the 2005 annual meeting, and subject to the proper exercise of its fiduciary duties, to introduce a binding proposal at the 2006 annual meeting to amend the Company’s Restated Articles of Incorporation to eliminate the classified board structure. The voting threshold that was specified by your Board is the vote required by the Company’s Bylaws to approve a proposal of this nature. At the 2005 annual meeting the

number of votes cast in favor of the proposal was greater than the number cast against, but was less than the required majority of the shares represented at the annual meeting as a result of broker non-votes and abstentions. In addition, the 2005 vote was substantially less than the 66²/3% of the outstanding shares of the Company’s common stock that would be required for approval of a binding proposal to amend the Restated Articles of Incorporation to eliminate the classified board structure.

      In connection with its evaluation of the proposal included above for submission at the 2006 annual meeting, the Governance Committee of your Board and the entire Board have considered the level of shareholder support for the prior proposals for declassification. The Governance Committee and the entire Board continue to believe that retention of a classified board structure remains in the best interests of the shareholders and the Company. Accordingly, your Board recommends a vote AGAINST this proposal. However, in light of the level of support the prior proposals received in 2004 and 2005, your Board has concluded that it will once again evaluate its position after the 2006 annual meeting, taking into account the level of shareholder support the proposal receives at the 2006 annual meeting. If the current proposal receives the support of a majority of the shares represented at the 2006 annual meeting, your Board intends, subject to the proper exercise of its fiduciary duties, to introduce a binding proposal at the Company’s 2007 annual meeting of shareholders to amend the Company’s Restated Articles of Incorporation in order to eliminate your Board’s classified structure.

      An amendment to the Company’s Restated Articles of Incorporation to eliminate the classified board would require the affirmative vote of holders of at least 66²/3 % of the voting power of all outstanding shares of capital stock of the Company generally entitled to vote in the election of directors, voting together as a single class. The effect of such an amendment, if adopted in 2007, would be that beginning at the 2008 annual meeting, persons elected as directors to fill positions whose terms expire at or after the 2008 annual meeting would be elected for one-year terms.

April 20, 2006