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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-31447
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CENTERPOINT ENERGY, INC.
(Exact name of registrant as specified in its charter)

TEXAS 74-0694415
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1111 LOUISIANA (713) 207-1111
HOUSTON, TEXAS 77002 (Registrant's telephone number,
(Address and zip code of including area code)
principal executive offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

Common Stock, $0.01 par value and associated New York Stock Exchange
rights to purchase Chicago Stock Exchange
preference stock New York Stock Exchange
REI Trust I 7.20% Trust
Originated Preferred Securities, Series C

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of each of the registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
CenterPoint Energy, Inc. (Company) was $2,475,383,918 as of June 30, 2003, using
the definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers. As of February 29, 2004, the Company had
306,736,880 shares of Common Stock outstanding, including 658,386 ESOP shares
not deemed outstanding for financial statement purposes. Excluded from the
number of shares of Common Stock outstanding are 166 shares held by the Company
as treasury stock.

Portions of the definitive proxy statement relating to the 2004 Annual
Meeting of Shareholders of the Company, which will be filed with the Securities
and Exchange Commission within 120 days of December 31, 2003, are incorporated
by reference in Item 10, Item 11, Item 12, Item 13 and Item 14 of Part III of
this Form 10-K.

TABLE OF CONTENTS

PAGE
----

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 37
Item 3. Legal Proceedings........................................... 38
Item 4. Submission of Matters to a Vote of Security Holders......... 38

PART II
Item 5. Market for Common Stock and Related Stockholder Matters..... 39
Item 6. Selected Financial Data..................................... 41
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 42
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 66
Item 8. Financial Statements and Supplementary Data of the
Company..................................................... 70
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 131
Item 9A. Controls and Procedures..................................... 131

PART III
Item 10. Directors and Executive Officers............................ 131
Item 11. Executive Compensation...................................... 131
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 131
Item 13. Certain Relationships and Related Transactions.............. 131
Item 14. Principal Accountant Fees and Services...................... 131

PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 132

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

From time to time we make statements concerning our expectations, beliefs,
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements that are not historical facts. These
statements are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those expressed or implied by these statements. You can generally identify
our forward-looking statements by the words "anticipate," "believe," "continue,"
"could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective,"
"plan," "potential," "predict," "projection," "should," "will," or other similar
words.

We have based our forward-looking statements on our management's beliefs
and assumptions based on information available to our management at the time the
statements are made. We caution you that assumptions, beliefs, expectations,
intentions and projections about future events may and often do vary materially
from actual results. Therefore, we cannot assure you that actual results will
not differ materially from those expressed or implied by our forward-looking
statements.

Some of the factors that could cause actual results to differ from those
expressed or implied by our forward-looking statements are described under "Risk
Factors" beginning on page 26 in Item 1 of this report.

You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.

PART I

ITEM 1. BUSINESS

OUR BUSINESS

OVERVIEW

We are a public utility holding company whose wholly owned subsidiaries
include:

- CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which
provides electric transmission and distribution services to approximately
1.8 million metered customers in a 5,000-square-mile area of the Texas
Gulf Coast that has a population of approximately 4.7 million people and
includes Houston, and

- CenterPoint Energy Resources Corp. (CERC Corp. and, together with its
subsidiaries, CERC), which owns gas distribution systems serving
approximately 3 million customers in Arkansas, Louisiana, Minnesota,
Mississippi, Oklahoma and Texas. Through wholly owned subsidiaries, CERC
also owns two interstate natural gas pipelines and gas gathering systems
and provides various ancillary services.

We also have an approximately 81% ownership interest in Texas Genco
Holdings, Inc. (Texas Genco), which owns and operates a portfolio of generating
assets with an aggregate net generating capacity of 14,153 megawatts (MW), of
which 2,988 MW of gas-fired capacity was mothballed as of December 31, 2003. We
distributed approximately 19% of the outstanding common stock of Texas Genco to
our shareholders in January 2003.

Our reportable business segments are Electric Transmission & Distribution,
Electric Generation, Natural Gas Distribution, Pipelines and Gathering, and
Other Operations.

We are a registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended (the 1935 Act). The 1935 Act and related
rules and regulations impose a number of restrictions on our activities and
those of our subsidiaries other than Texas Genco. The 1935 Act, among other
things, limits our ability and the ability of our regulated subsidiaries to
issue debt and equity securities without prior authorization, restricts the
source of dividend payments to current and retained earnings without prior
authorization, regulates sales and acquisitions of certain assets and businesses
and governs affiliate transactions.

In October 2003, the Federal Energy Regulatory Commission (FERC) granted
exempt wholesale generator status to Texas Genco, LP, the wholly owned
subsidiary of Texas Genco that owns and operates its electric generating plants.
As a result of the FERC's actions, Texas Genco, LP is exempt from all provisions
of the 1935 Act as long as it remains an exempt wholesale generator, and Texas
Genco is no longer a public utility holding company within the meaning of the
1935 Act.

Our principal executive offices are located at 1111 Louisiana, Houston,
Texas 77002 (telephone number: 713-207-1111).

We make available free of charge on our Internet website our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such reports with, or furnish them to, the
Securities and Exchange Commission (SEC). Additionally, we make available free
of charge on our Internet website:

- our Code of Ethics for our Chief Executive Officer and Senior Financial
Officers;

- our Ethics and Compliance Code;

- our Corporate Governance Guidelines; and

- the charters of our audit, compensation, finance and governance
committees.

Any shareholder who so requests may obtain a printed copy of any of these
documents from us. Changes in or waivers of our Code of Ethics for our Chief
Executive Officer and Senior Financial Officers and waivers of our Ethics and
Compliance Code for directors or executive officers will be posted on our
Internet website within five business days and maintained for at least twelve
months or reported on Item 10 of our Forms 8-K. Our web site address is
www.centerpointenergy.com.

Significant Events

The final reconciliation of the true-up components by the Public Utility
Commission of Texas (the Texas Utility Commission) and the expected monetization
of our remaining interest in Texas Genco are the two most significant events
facing us in 2004. Pursuant to the Texas Electric Choice Plan (the Texas
electric restructuring law), CenterPoint Houston is permitted to recover the
true-up components to the extent established in a Texas Utility Commission
proceeding. On January 23, 2004, Reliant Resources, Inc. (Reliant Resources)
announced that it would not exercise its option to purchase the common stock of
Texas Genco that we own. We expect to monetize our remaining 81% interest in
Texas Genco and have engaged a financial advisor to assist us. We expect the
proceeds from these two events will result in aggregate proceeds of over $5
billion based on Texas Utility Commission rules. We have committed to use such
proceeds to repay our indebtedness.

One of the true-up components which CenterPoint Houston is permitted to
recover under the Texas electric restructuring law is an amount designed to
true-up the difference between the Texas Utility Commission's projected market
prices for generation during 2002 and 2003 and the actual market prices for
generation as determined in the state-mandated capacity auctions during that
period. We recorded non-cash revenue for this capacity auction true-up or "ECOM
revenue" of $697 million in 2002 and $661 million in 2003. In 2004, we will no
longer be permitted under the Texas electric restructuring law to record
non-cash ECOM revenue.

For more information on these and other matters currently affecting us,
please see "-- Electric Transmission and Distribution -- True-Up Components and
Securitization" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Executive Summary -- Significant Events in 2004."

ELECTRIC TRANSMISSION & DISTRIBUTION

Electric Transmission

CenterPoint Houston transports electricity from power plants to substations
and from one substation to another and to retail electric customers taking power
above 69 kilovolts (kV) in locations throughout the control area managed by the
Electric Reliability Council of Texas, Inc. (ERCOT) on behalf of retail electric
providers. CenterPoint Houston provides transmission services under tariffs
approved by the Texas Utility Commission.

Electric Distribution

In Texas, end users purchase their electricity directly from the
certificated "retail electric providers." CenterPoint Houston distributes
electricity for retail electric providers in its certificated service area by
carrying lower-voltage power from the substation to the retail electric
customer. Its distribution network receives electricity from the transmission
grid through power distribution substations and distributes electricity to end
users through distribution feeders. CenterPoint Houston's operations include
construction and maintenance of electric transmission and distribution
facilities, metering services, outage response services and call center
operations. CenterPoint Houston provides distribution services under tariffs
approved by the Texas Utility Commission. Texas Utility Commission rules and
market protocols govern the commercial retail operations of distribution
companies and other market participants.

ERCOT Market Framework

CenterPoint Houston is a member of ERCOT. ERCOT is a network of retail
customers, investor and municipally owned electric utilities, rural electric
co-operatives, river authorities, independent generators, power marketers and
retail electric providers, which serves as the regional reliability coordinating
council for member electric power systems in Texas. Texas Genco sells electric
generation capacity, energy and ancillary services in the ERCOT market. The
ERCOT market includes much of the State of Texas, other than a portion of the
panhandle, a portion of the eastern part of the state bordering on Louisiana and
the area in and around El Paso. The ERCOT market represents approximately 85% of
the demand for power in Texas and is one of the nation's largest power markets.
The ERCOT market includes an aggregate net generating capacity of approximately
78,000 MW, approximately 14,000 MW of which are owned by Texas Genco. There are
only limited direct current interconnections between the ERCOT market and other
power markets in the United States.

The ERCOT market operates under the reliability standards set by the North
American Electric Reliability Council. The Texas Utility Commission has primary
jurisdiction over the ERCOT market to ensure the adequacy and reliability of
electricity supply across the state's main interconnected power transmission
grid. The ERCOT independent system operator (ERCOT ISO) is responsible for
maintaining reliable operations of the bulk electric power supply system in the
ERCOT market. Its responsibilities include ensuring that electricity production
and delivery are accurately accounted for among the generation resources and
wholesale buyers and sellers. Unlike certain other regional power markets, the
ERCOT market is not a centrally dispatched power pool, and the ERCOT ISO does
not procure energy on behalf of its members other than to maintain the reliable
operations of the transmission system. Members are responsible for contracting
sales and purchases of power bilaterally. The ERCOT ISO also serves as agent for
procuring ancillary services for those who elect not to provide their own
ancillary services.

CenterPoint Houston's electric transmission business supports the operation
of the ERCOT ISO and all ERCOT members. The transmission business has planning,
design, construction, operation and maintenance responsibility for the portion
of the transmission grid and for the load-serving substations it owns, primarily
within its certificated area. The transmission business is participating with
the ERCOT ISO and other ERCOT utilities to plan, design, obtain regulatory
approval for and construct new transmission lines necessary to increase bulk
power transfer capability and to remove existing constraints on the ERCOT
transmission grid.

True-Up Components and Securitization

The Texas Electric Restructuring Law. In June 1999, the Texas legislature
adopted the Texas electric restructuring law, which substantially amended the
regulatory structure governing electric utilities in order to allow and
encourage retail competition which began in January 2002. The Texas electric
restructuring law required the separation of the generation, transmission and
distribution, and retail sales functions of electric utilities into three
different units. Under the law, neither the generation function nor the retail
function is subject to traditional cost of service regulation, and the
generation function and the retail function are each operated on a competitive
basis. Through a restructuring in the third quarter of 2002 in response to this
law, we became the parent of Reliant Energy, Incorporated (Reliant Energy) (now
CenterPoint Houston), Texas Genco and CERC. Subsequent to the restructuring, our
interest in Reliant Resources, which conducts non-utility wholesale and retail
energy operations, including CenterPoint Houston's former retail sales, was
divested.

The transmission and distribution function that CenterPoint Houston
performs remains subject to traditional utility rate regulation. CenterPoint
Houston recovers the cost of its service through an energy delivery charge
approved by the Texas Utility Commission. As a result of these changes, there
are no meaningful comparisons for the Electric Transmission & Distribution and
Electric Generation business segments prior to January 2002, when retail sales
became fully competitive.

Under the Texas electric restructuring law, transmission and distribution
utilities in Texas, such as CenterPoint Houston, whose generation assets were
"unbundled" may recover, following a regulatory

proceeding to be held in 2004 (the 2004 True-Up Proceeding) as further discussed
below in "-- 2004 True-Up Proceeding":

- "stranded costs," which consist of the positive excess of the regulatory
net book value of generation assets, as defined, over the market value of
the assets;

- the difference between the Texas Utility Commission's projected market
prices for generation during 2002 and 2003 and the actual market prices
for generation as determined in the state-mandated capacity auctions
during that period;

- the Texas jurisdictional amount reported by the previously vertically
integrated electric utilities as generation-related regulatory assets and
liabilities (offset and adjusted by specified amounts) in their audited
financial statements for 1998;

- final fuel over- or under-recovery; less

- "price to beat" clawback components.

The Texas electric restructuring law permits transmission and distribution
utilities to recover the true-up components through transition charges on retail
electric customers' bills, to the extent that such components are established in
certain regulatory proceedings. These transition charges are non-bypassable,
meaning that they must be paid by essentially all customers and cannot, except
in limited circumstances, be avoided by switching to self-generation. The law
also authorizes the Texas Utility Commission to permit those utilities to issue
transition bonds based on the securitization of revenues associated with the
transition charges. CenterPoint Houston recovered a portion of its regulatory
assets in 2001 through the issuance of transition bonds. For a further
discussion of these matters, see "-- Securitization" below.

The Texas electric restructuring law also provides specific regulatory
remedies to reduce or mitigate a utility's stranded cost exposure. During a base
rate freeze period from 1999 through 2001, earnings above the utility's
authorized rate of return formula were required to be applied in a manner to
accelerate depreciation of generation-related plant assets for regulatory
purposes if the utility was expected to have stranded costs. In addition,
depreciation expense for transmission and distribution-related assets could be
redirected to generation assets for regulatory purposes during that period if
the utility was expected to have stranded costs. We undertook both of these
remedies provided in the Texas electric restructuring law, but in a rate order
issued in October 2001, the Texas Utility Commission required us to reverse
those actions. See " -- Mitigation" below.

2004 True-Up Proceeding. In 2004, the Texas Utility Commission will
conduct true-up proceedings for investor-owned utilities. The purpose of the
true-up proceeding is to quantify and reconcile the amount of the true-up
components. The true-up proceeding will result in either additional charges
being assessed on, or credits being issued to, retail electric customers.
CenterPoint Houston expects to make the filing to initiate its true-up
proceeding on March 31, 2004. The Texas electric restructuring law requires a
final order to be issued by the Texas Utility Commission not more than 150 days
after a proper filing is made by the regulated utility, although under its rules
the Texas Utility Commission can extend the 150-day deadline for good cause. Any
delay in the final order date will result in a delay in the securitization of
CenterPoint Houston's true-up components and the implementation of the
non-bypassable charges described above, and could delay the recovery of carrying
costs on the true-up components determined by the Texas Utility Commission.

2002 as CenterPoint Houston contends is required by law. On January 30, 2004,
the Texas Supreme Court granted CenterPoint Houston's petition for review of the
true-up rule. Oral arguments were heard on February 18, 2004. The decision by
the Court is pending. We have not accrued interest income on stranded costs in
our consolidated financial statements, but estimate such interest income would
be material to our consolidated financial statements.

Stranded Cost Component. CenterPoint Houston will be entitled to recover
stranded costs through a transition charge to its customers if the regulatory
net book value of generating plant assets exceeds the market value of those
assets. The regulatory net book value of generating plant assets is the balance
as of December 31, 2001 plus certain costs incurred for reductions in emissions
of oxides of nitrogen (NOx), any above-market purchased power contracts and
certain other amounts. The market value will be equal to the average daily
closing price on The New York Stock Exchange for publicly held shares of Texas
Genco common stock for 30 consecutive trading days chosen by the Texas Utility
Commission out of the last 120 trading days immediately preceding the true-up
filing, plus a control premium, up to a maximum of 10%, to the extent included
in the valuation determination made by the Texas Utility Commission. If Texas
Genco is sold to a third party at a lower price than the market value used by
the Texas Utility Commission, CenterPoint Houston would be unable to recover the
difference.

In 2003, some parties sought modifications to the true-up rules. Although
the Texas Utility Commission denied that request, we expect that issues could be
raised in the 2004 True-Up Proceeding regarding our compliance with the Texas
Utility Commission's rules regarding the ECOM true-up, including whether Texas
Genco has auctioned all capacity it is required to auction in view of the fact
that some capacity has failed to sell in the state-mandated auctions. We believe
Texas Genco has complied with the requirements under the applicable rules,
including re-offering the unsold capacity in subsequent auctions. If events were
to occur during the 2004 True-Up Proceeding that made the recovery of the ECOM
true-up regulatory asset no longer probable, we would write off the
unrecoverable balance of that asset as a charge against earnings.

Fuel Over/Under Recovery Component. CenterPoint Houston and Texas Genco
filed their joint application to reconcile fuel revenues and expenses with the
Texas Utility Commission in July 2002. This final fuel reconciliation filing
covered reconcilable fuel expense and interest of approximately $8.5 billion
incurred from August 1, 1997 through January 30, 2002. In January 2003, a
settlement agreement was reached, as a result of which certain items totaling
$24 million were written off during the fourth quarter of 2002 and items
totaling $203 million were carried forward for later resolution by the Texas
Utility Commission. In late 2003, a hearing was concluded on those remaining
issues. On March 4, 2004, an Administrative Law Judge (ALJ) recommended that
CenterPoint Houston not be allowed to recover $87 million in fuel expenses
incurred during the reconciliation period. CenterPoint Houston will contest this
recommendation when the Texas Utility Commission considers the ALJ's conclusions
on April 15, 2004. However, since the recovery of this portion of the regulatory
asset is no longer probable, CenterPoint Houston reserved $117 million,
including interest, in the fourth quarter of 2003. The ALJ also recommended that
$46 million be recovered in the 2004 True-Up Proceeding rather than in the fuel
proceeding. The results of the Texas Utility Commission's decision will be a
component of the 2004 True-Up Proceeding.

"Price to Beat" Clawback Component. In connection with the implementation
of the Texas electric restructuring law, the Texas Utility Commission has set a
"price to beat" that retail electric providers affiliated or formerly affiliated
with a former integrated utility must charge residential and small commercial
customers within their affiliated electric utility's service area. The true-up
provides for a clawback of the "price to beat"

in excess of the market price of electricity if 40% of the "price to beat" load
is not served by other retail electric providers by January 1, 2004. Pursuant to
the Texas electric restructuring law and a master separation agreement entered
into in connection with the September 30, 2002 spin-off of our interest in
Reliant Resources to our shareholders, Reliant Resources is obligated to pay
CenterPoint Houston the clawback component of the true-up. Based on an order
issued on February 13, 2004 by the Texas Utility Commission, the clawback will
equal $150 times the number of residential customers served by Reliant Resources
in CenterPoint Houston's service territory, less the number of residential
customers served by Reliant Resources outside CenterPoint Houston's service
territory, on January 1, 2004. As reported in Reliant Resources' Annual Report
on Form 10-K for the year ended December 31, 2003, Reliant Resources expects
that the clawback payment will be $175 million. The clawback will reduce the
amount of recoverable costs to be determined in the 2004 True-Up Proceeding.

Securitization. The Texas electric restructuring law provides for the use
of special purpose entities to issue transition bonds for the economic value of
generation-related regulatory assets and stranded costs. These transition bonds
will be amortized over a period not to exceed 15 years through non-bypassable
transition charges. In October 2001, a special purpose subsidiary of CenterPoint
Houston issued $749 million of transition bonds to securitize certain
generation-related regulatory assets. These transition bonds have a final
maturity date of September 15, 2015 and are non-recourse to us and our
subsidiaries other than to the special purpose issuer. Payments on the
transition bonds are made out of funds from non-bypassable transition charges.

We expect that upon completion of the 2004 True-Up Proceeding, CenterPoint
Houston will seek to securitize the amounts established for the true-up
components. Before CenterPoint Houston can securitize these amounts, the Texas
Utility Commission must conduct a proceeding and issue a financing order
authorizing CenterPoint Houston to do so. Under the Texas electric restructuring
law, CenterPoint Houston is entitled to recover any portion of the true-up
balance not securitized by transition bonds through a non-bypassable competition
transition charge.

Mitigation. In an order issued in October 2001, the Texas Utility
Commission established the transmission and distribution rates that became
effective in January 2002. The Texas Utility Commission determined that
CenterPoint Houston had over-mitigated its stranded costs by redirecting
transmission and distribution depreciation and by accelerating depreciation of
generation assets as provided under its transition plan and the Texas electric
restructuring law. In this final order, CenterPoint Houston was required to
reverse the amount of redirected depreciation and accelerated depreciation taken
for regulatory purposes as allowed under the transition plan and the Texas
electric restructuring law. In accordance with the order, CenterPoint Houston
recorded a regulatory liability to reflect the prospective refund of the
accelerated depreciation, and in January 2002 CenterPoint Houston began
refunding excess mitigation credits, which are to be refunded over a seven-year
period. The annual refund of excess mitigation credits is approximately $238
million. In the event that the excess mitigation credits prove to have been
unnecessary and CenterPoint Houston is determined to have stranded costs, the
excess mitigation credits will be included in the stranded costs to be
recovered. In June 2003, CenterPoint Houston sought authority from the Texas
Utility Commission to terminate these credits based on then current estimates of
what that final determination would be. The Texas Utility Commission denied the
request in January 2004.

Customers

CenterPoint Houston's customers consist of municipalities, electric
cooperatives, other distribution companies and approximately 43 retail electric
providers in its certificated service area. CenterPoint Houston serves nearly
all of the Houston/Galveston metropolitan area. Each retail electric provider is
licensed by, and must meet creditworthiness criteria established by, the Texas
Utility Commission. Two of these retail electric providers are subsidiaries of
Reliant Resources. Sales to subsidiaries of Reliant Resources represented
approximately 83% and 78% of CenterPoint Houston's transmission and distribution
revenues in 2002 and 2003, respectively. CenterPoint Houston's billed
receivables balance from retail electric providers as of December 31, 2003 was
$83 million. Approximately 70% of this amount was owed by subsidiaries of
Reliant Resources. CenterPoint Houston does not have long-term contracts with
any of its customers. It operates on a
6

continuous billing cycle, with meter readings being conducted and invoices being
distributed to retail electric providers each business day.

Competition

There are no other transmission and distribution utilities in CenterPoint
Houston's service area. In order for another provider of transmission and
distribution services to provide such services in CenterPoint Houston's
territory, it would be required to obtain a certificate of convenience and
necessity in proceedings before the Texas Utility Commission and, depending on
the location of the facilities, may also be required to obtain franchises from
one or more municipalities. We know of no other party intending to enter this
business in CenterPoint Houston's service area at this time.

Properties

All of CenterPoint Houston's properties are located in Texas. CenterPoint
Houston's transmission system carries electricity from power plants to
substations and from one substation to another. These substations serve to
connect power plants, the high voltage transmission lines and the lower voltage
distribution lines. Unlike the transmission system, which carries high voltage
electricity over long distances, distribution lines carry lower voltage power
from the substation to the retail electric customers. The distribution system
consists primarily of distribution lines, transformers, secondary distribution
lines and service wires and meters. Most of CenterPoint Houston's transmission
and distribution lines have been constructed over lands of others pursuant to
easements or along public highways and streets as permitted by law.

All real and tangible properties of CenterPoint Houston, subject to certain
exclusions, are currently subject to:

- the lien of a Mortgage and Deed of Trust (the Mortgage) dated November 1,
1944, as supplemented; and

- the lien of a General Mortgage (the General Mortgage) dated October 10,
2002, as supplemented, which is junior to the lien of the Mortgage.

As of March 1, 2004, CenterPoint Houston had outstanding approximately $382
million aggregate principal amount of first mortgage bonds under the Mortgage,
including approximately $280 million held in trust to secure certain pollution
control bonds for which CenterPoint Energy is obligated. Additionally, under the
General Mortgage, CenterPoint Houston had outstanding approximately $3.2 billion
aggregate principal amount of general mortgage bonds, including approximately
$527 million held in trust to secure certain additional pollution control bonds
for which CenterPoint Energy is obligated, approximately $100 million held in
trust to secure pollution control bonds for which CenterPoint Houston is
obligated and approximately $1.3 billion aggregate principal amount of general
mortgage bonds to secure the borrowings under a collateralized term loan due in
2005.

Electric Lines -- Overhead. As of December 31, 2003, CenterPoint Houston
owned 26,505 pole miles of overhead distribution lines and 3,606 circuit miles
of overhead transmission lines, including 446 circuit miles operated at 69,000
volts, 2,083 circuit miles operated at 138,000 volts and 1,077 circuit miles
operated at 345,000 volts.

Electric Lines -- Underground. As of December 31, 2003, CenterPoint
Houston owned 14,917 circuit miles of underground distribution lines and 16.6
circuit miles of underground transmission lines, including 4.5 circuit miles
operated at 69,000 volts and 12.1 circuit miles operated at 138,000 volts.

Substations. As of December 31, 2003, CenterPoint Houston owned 224 major
substation sites having total installed rated transformer capacity of 44,964
megavolt amperes.

Service Centers. CenterPoint Houston operates 15 regional service centers
located on a total of 395 acres of land. These service centers consist of office
buildings, warehouses and repair facilities that are used in the business of
transmitting and distributing electricity.

Franchises. CenterPoint Houston has franchise contracts with 90 of the 91
cities in its service area. The remaining city has enacted an ordinance that
governs the placement of utility facilities in its streets. These franchises and
this ordinance, typically having a term of 40 years, give CenterPoint Houston
the right to

construct, operate and maintain its transmission and distribution system within
the streets and public ways of these municipalities for the purpose of
delivering electric service to the municipality, its residents and businesses in
exchange for payment of a fee. The franchise for the City of Houston is
scheduled to expire in 2007.

ELECTRIC GENERATION

Texas Genco owns and operates 60 generating units at 11 power generation
facilities. Texas Genco also owns a 30.8% interest in the South Texas Project
Electric Generating Station (South Texas Project), a nuclear generating station
with two 1,250 MW nuclear generating units. As of December 31, 2003, the
aggregate net generating capacity of Texas Genco's portfolio of generating
assets was 14,153 MW. Texas Genco sells electric generation capacity, energy and
ancillary services in the ERCOT market. Collectively, Texas Genco's facilities
provide over 18% of the aggregate net generating capacity serving the ERCOT
market.

As of December 31, 2003, 2,988 MW of Texas Genco's gas-fired generation was
mothballed. We expect that 777 MW of this amount will remain mothballed through
April 2004 and the other 2,211 MW will remain mothballed through April 2005. The
decision to mothball these units was based on the lack of demand for these types
of units in Texas Genco's July and September 2003 capacity auctions combined
with high forecasted reserve margins in the ERCOT market.

Under the Texas electric restructuring law, Texas Genco and other power
generators in Texas ceased to be subject to traditional cost-based regulation.
Since January 1, 2002, Texas Genco has been selling generation capacity, energy
and ancillary services to wholesale purchasers at prices determined by the
market. Because of this change, historical financial information and operating
data for periods prior to January 1, 2002, including demand and fuel data, is
not indicative of how this business may be expected to perform in subsequent
periods.

Facilities

Texas Genco's generation facilities as of December 31, 2003 are described
in the table below.

NET
GENERATING NUMBER
CAPACITY OF
GENERATION FACILITIES (IN MW)(1) UNITS DISPATCH TYPE FUEL
- --------------------- ---------- ------ ---------------------------------------- --------

W. A. Parish........... 3,653 9 Base-load, Intermediate, Cyclic, Peaking Coal/Gas
Limestone.............. 1,602 2 Base-load Lignite
South Texas Project.... 770(2) 2 Base-load Nuclear
Cedar Bayou............ 2,258 3 Intermediate Gas/Oil
P. H. Robinson......... 2,211(3) 4 Intermediate Gas
San Jacinto............ 162 2 Intermediate Gas
T. H. Wharton.......... 1,254(4) 18 Intermediate, Cyclic, Peaking Gas/Oil
S. R. Bertron.......... 844 6 Cyclic, Peaking Gas/Oil
Greens Bayou........... 760 7 Cyclic, Peaking Gas/Oil
Webster................ 387(4) 2 Cyclic, Peaking Gas
Deepwater.............. 174(4) 1 Cyclic Gas
H. O. Clarke........... 78 6 Peaking Gas
------ --
Total................ 14,153 62
====== ==

- ---------------

(1) Net generating capacity equals gross maximum summer generating capability
less the electric energy consumed at the facility.

(2) Represents our 30.8% interest in the South Texas Project.

(3) All four units at P.H. Robinson are expected to be mothballed through April
2005.

(4) Webster Unit 3 (374 MW), T.H. Wharton Unit 2 (229 MW) and Deepwater Unit 7
(174 MW) are expected to be mothballed through at least April 2004.

In early March 2004, one of the other co-owners of the South Texas Project
announced it had entered into an agreement to sell its 25.2% ownership interest
for approximately $332.6 million, subject to certain closing adjustments. As a
result, under the terms of the ownership arrangements for the South Texas
Project, Texas Genco has the right of first refusal to purchase its
proportionate share of the interest being sold on the same terms as the third
party purchaser, but Texas Genco must give notice of its election within ninety
days.

Operations and Capacity Auctions

Since January 1, 2002, Texas Genco has operated its generation business
solely in the wholesale market. It is required by the Texas electric
restructuring law to auction 15% of its available generation capacity (in what
we refer to as state-mandated auctions) and until January 24, 2004 sold the
remaining 85% of its available generation capacity (less operating reserves) in
auctions mandated by an agreement with Reliant Resources (in what we refer to as
contractually-mandated auctions). Texas Genco's auction products are only
entitlements to capacity dispatched to specific zonal delivery points from base,
intermediate, cyclic or peaking units and do not convey a right to receive power
from a particular unit. By selling only entitlements, Texas Genco is able to
dispatch its commitments in the most cost-effective manner. Texas Genco is,
however, exposed to the risk that, depending upon the availability of its units,
it could be required to supply energy from a higher cost unit such as an
intermediate unit to meet an obligation for lower-cost generation, such as base-
load generation, or to obtain the energy on the open market at a market price
higher than its contracted price. Additionally, Texas Genco, like other power
generating companies within ERCOT, is required to purchase power from certain
qualifying facilities under the Public Utility Regulatory Policies Act of 1978
at avoided cost.

Revenues from capacity auctions come from two sources: capacity payments
and energy payments. Capacity payments are based on the final clearing prices,
in dollars per kilowatt-month, determined during the auctions. Texas Genco bills
and collects for these capacity payments on a monthly basis just prior to the
month of the entitlement. Energy payments consist of a variety of charges
related to the fuel and ancillary services scheduled through the auctioned
capacity entitlements. Energy payments for base-load products are tied to fixed
prices specified in the auction products while energy payments for gas-fired
products are recovered through heat rates specified for gas auction products
times an index based on the Houston Ship Channel Gas price. Texas Genco invoices
for these energy payments on a monthly basis in arrears.

State-Mandated Capacity Auctions. The obligation to conduct state-mandated
auctions of 15% of Texas Genco's available generation capacity will continue
until January 1, 2007, unless before that date the Texas Utility Commission
determines that an amount equal to at least 40% of the electric power consumed
before the onset of competition by residential and small commercial customers in
CenterPoint Houston's service area is being served by retail electric providers
not affiliated or formerly affiliated with us. Reliant Resources is deemed to be
our affiliate for purposes of this test. Reliant Resources currently is not
permitted under the Texas electric restructuring law to purchase capacity sold
by Texas Genco in the state-mandated auctions.

Contractually-Mandated Capacity Auctions. Through 2003, Texas Genco was
contractually obligated under an agreement with Reliant Resources to auction
entitlements to substantially all of its capacity (less operating reserves)
available after the state-mandated auctions. Texas Genco was permitted to reduce
the amount of capacity sold in the contractually-mandated auctions by the amount
of operating reserves required to back up its obligations under its capacity
auctions. Texas Genco typically reserves 1,250 MW of its capacity, including 750
MW of base-load capacity, as operating reserves, which can be sold as
interruptible power on a system-contingent basis.

Through 2003, Reliant Resources had the contractual right, but not the
obligation, to purchase 50% (but not less than 50%) of each type of capacity
entitlement Texas Genco auctioned in the contractually-mandated auctions at the
prices established in the auctions. Upon determination of the prices for the
capacity entitlements, Reliant Resources was obligated to purchase the capacity
it elected to reserve from the auction
9

process at the prices set during the auction for that entitlement. In addition
to its reservation of capacity, and whether or not it had reserved capacity in
the auction, Reliant Resources was entitled to bid for entitlements in each
contractually-mandated auction.

Beginning in 2004, Texas Genco can market the 85% of its capacity not
subject to state-mandated auctions as it deems appropriate based upon market
conditions, and sales may be conducted through auctions, bilateral contracts or
a combination of both.

Auction Results. Texas Genco sold 91% of its available capacity for 2003
through state-mandated auctions and contractually-mandated auctions. In its
capacity auctions held through February 2004, Texas Genco has sold 85% and 24%
of its available capacity for 2004 and 2005, respectively. As a result, Texas
Genco has contracted for approximately $1 billion of total revenue with respect
to its 2004 capacity and approximately $533 million of total revenue with
respect to its 2005 capacity. Texas Genco's available capacity equals its total
net generating capacity less capacity withheld as operating reserves and
capacity that is subject to planned outages. Of the 2,988 MW of capacity that
Texas Genco has "mothballed", 2,062 MW were included in its available capacity
only for the months of May through September 2003. Reliant Resources purchased
78% of Texas Genco's sold 2003 capacity and, through February 2004, had
purchased 79% and 68% of Texas Genco's sold 2004 and 2005 capacity,
respectively. Texas Genco will hold additional auctions to sell its remaining
available capacity for 2004 as well as capacity for subsequent years.

In 2003, the market-based prices established in Texas Genco's capacity
auctions continued to strengthen. Higher gas prices throughout 2003 positively
influenced the prices established in its recent capacity auctions. Generally,
higher gas prices increase the capacity prices for its base-load entitlements
since natural gas is the marginal fuel for facilities serving the ERCOT market
during most hours.

Fuel Supplies

Texas Genco relies primarily on natural gas, coal, lignite and uranium to
fuel its generation facilities. The fuel mix of Texas Genco's generating
portfolio, based on actual fuel usage during 2003, was approximately 52% coal
and lignite, 21% natural gas and 27% nuclear. As of December 31, 2003, the fuel
mix of its generating portfolio based on the capacity of its facilities
including mothballed capacity was approximately 66% natural gas, 29% coal and
lignite and 5% nuclear. Based on Texas Genco's current assumptions regarding the
cost and availability of fuel, plant operation schedules, load growth, load
management and the impact of environmental regulations, it does not expect the
mix of fuel used by its generating portfolio will vary materially during 2004
from 2003. Texas Genco substantially collects the underlying cost of fuel
through energy payments. As a result of air emissions standards imposed by
federal and state law, Texas Genco anticipates having additional costs for
certain environmental equipment in 2004 and subsequent years. These factors
could affect the mix of its future fuel usage.

Natural Gas. Texas Genco has long-term natural gas supply contracts with
several suppliers. Substantially all of its long-term natural gas supply
contracts contain pricing provisions based on fluctuating spot market prices. In
2003, 50% of Texas Genco's natural gas requirements were purchased under these
long-term contracts. Texas Genco purchased the remaining 50% of its natural gas
requirements in 2003 on the spot market. Based on current market conditions,
Texas Genco believes it will be able to replace the supplies of natural gas
covered under its long-term contracts when they expire with gas purchased on the
spot market or under new long-term or short-term contracts.

Texas Genco's natural gas requirements are generally more volatile than its
other fuel requirements because it uses natural gas to fuel intermediate, cyclic
and peaking facilities and other more economical fuels to fuel base-load
facilities. Since its intermediate and peaking facilities are dispatched to meet
the variations of demand for electricity, its gas requirements are highly
variable, on both an hour-to-hour and day-to-day basis. Although natural gas
supplies have been sufficient in recent years, available supplies are subject to
potential disruption due to weather conditions, transportation constraints and
other events. As a result of these factors, supplies of natural gas may become
unavailable from time to time or prices may increase rapidly in response to
temporary supply constraints or other factors. Although its long-term supply
contracts provide some of the flexibility needed to accommodate variations in
demands for natural gas, Texas Genco relies on its 6.3 billion
10

cubic feet of leased gas storage facilities, of which 4.2 billion cubic feet is
working capacity, to provide additional flexibility.

Coal and Lignite. In 2003, Texas Genco purchased approximately 80% of the
fuel requirements for its four coal-fired generating units at its W.A. Parish
facility under two fixed-quantity, long-term supply contracts scheduled to
expire in 2010 and 2011. The price for coal under the first contract was tied to
spot market prices in 2003. The price for coal under the second contract was at
a level approximately three times greater than the spot market prices for coal
as of December 31, 2003. The second contract does not contemplate future prices
being tied to spot market prices. The terms of this contract result from the
market conditions in effect during the 1970's when the contract was entered
into, including shortages of natural gas supplies, increased demand for low
sulfur coal as a result of new environmental regulations and uncertainty
regarding the future availability of long-term sources of coal supply. Texas
Genco purchases its remaining coal requirements for the W.A. Parish facility
under short-term contracts. It has long-term rail transportation contracts with
Burlington Northern Santa Fe Railroad and the Union Pacific Railroad Company to
transport coal to the W.A. Parish facility. Despite the higher coal prices under
these long-term contracts, Texas Genco's fuel costs associated with producing
energy from its coal-fired facilities are, based on recent natural gas prices,
significantly lower than the fuel costs associated with producing energy from
its gas-fired facilities.

Texas Genco obtains the lignite used to fuel the two generating units of
the Limestone facility from a surface mine adjacent to the facility. It owns the
mining equipment and facilities and a portion of the lignite reserves located at
the mine. Mining operations are conducted by the owner of the remaining lignite
reserves. In the past, Texas Genco has obtained its lignite requirements under a
long-term contract on a cost-plus basis. Since July 2002, Texas Genco has
obtained its lignite requirements under an amended long-term contract with the
owner/operator of the mine at a fixed price determined annually that is expected
to result in a cost of generation at the Limestone facility equivalent to the
cost of generating with low-sulphur Western coal. Texas Genco expects the
lignite reserves will be sufficient to provide all of the lignite requirements
of this facility through 2015.

Texas Genco used a blend of lignite and Wyoming coal to fuel its Limestone
facility in 2003 as a component of its NOx control strategy. A fuel unloading
and handling system was installed at the Limestone facility to accommodate the
delivery of Wyoming coal. Texas Genco expects that it will obtain Wyoming coal
through spot and long-term market-priced contracts. Texas Genco's Limestone
facility is connected with the Burlington Northern Santa Fe Railroad.

Nuclear. The South Texas Project satisfies its fuel supply requirements by
acquiring uranium concentrates, converting uranium concentrates into uranium
hexafluoride, enriching uranium hexafluoride and fabricating nuclear fuel
assemblies. Texas Genco is a party to a number of contracts covering a portion
of the fuel requirements of the South Texas Project for uranium, conversion
services, enrichment services and fuel fabrication. Other than a fuel
fabrication agreement that extends for the life of the South Texas Project,
these contracts have varying expiration dates, and most are short- to
medium-term (less than seven years). Management believes that sufficient
capacity for nuclear fuel supplies and processing exists to permit normal
operations of the South Texas Project nuclear generating units.

Fuel Pipeline. Texas Genco owns a 90-mile fuel pipeline that can transport
either fuel oil or natural gas (86 miles oil or gas and 4 miles gas only). As
part of its system, it owns over six million barrels of oil storage capacity
that can supply fuel oil to its Cedar Bayou, Greens Bayou, S.R. Bertron and T.H.
Wharton plants. For natural gas supply, its pipeline is connected to six of its
generation facilities and is interconnected with several of its suppliers. Texas
Genco's pipeline provides it with added flexibility in managing the fuel supply
requirements of its generation facilities.

Customers

Since January 1, 2002, Texas Genco has sold power to wholesale purchasers,
including retail electric providers, at unregulated rates through its capacity
auctions. In addition to retail electric providers, Texas Genco's customers in
the ERCOT market include municipal utilities, electric co-operatives, power
trading organizations and other power generating companies. Texas Genco is also
a significant provider to the ancillary
11

services market operated by the ERCOT ISO. Sales to Reliant Resources
represented approximately 71% of Texas Genco's total revenues in 2003. Texas
Genco has been granted a security interest in accounts receivable and/or
securitization notes associated with the accounts receivable of certain
subsidiaries of Reliant Resources to secure up to $250 million in purchase
obligations.

Competition

The ERCOT market is highly competitive. Texas Genco has approximately 80
competitors that include generation companies affiliated with Texas-based
utilities, independent power producers, municipal or co-operative generators and
wholesale power marketers. These competitors will compete with Texas Genco and
each other by buying and selling wholesale power in the ERCOT market, entering
into bilateral contracts and/or selling to aggregated retail customers.

At December 31, 2003, Texas Genco's facilities provided over 18% of the
aggregate net generating capacity serving the ERCOT market. Texas Genco's
competition is based primarily on price but it also may compete based on product
flexibility. A number of Texas Genco's competitors are building efficient,
combined cycle power plants that are generally not able to provide the
operational flexibility, ancillary services and fuel risk mitigation that Texas
Genco's large diversified portfolio of generating facilities can provide. Texas
Genco believes that there may be significant excess generating capacity
constructed in the ERCOT market over the next several years. This overbuilding
could result in lower prices for wholesale power in the ERCOT market. There is
currently a surplus of generating capacity in the ERCOT market, and we expect
the market for wholesale power to be highly competitive. For more information on
competition in the ERCOT market, please read "Risk Factors -- Principal Risk
Factors Associated with Our Businesses -- Risk Factors Affecting Our Electric
Generation Business" below.

NATURAL GAS DISTRIBUTION

CERC's natural gas distribution business engages in intrastate natural gas
sales to, and natural gas transportation for, residential, commercial and
industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma
and Texas through three unincorporated divisions: CenterPoint Energy Arkla
(Arkla), CenterPoint Energy Entex (Entex) and CenterPoint Energy Minnegasco
(Minnegasco). These operations are regulated as natural gas utility operations
in the jurisdictions served by these divisions. CERC's operations also include
non-rate regulated retail gas sales to and transportation services for
commercial and industrial customers in the six states listed above as well as
several other Midwestern states.

- Arkla provides natural gas distribution services to approximately 695,000
customers in over 245 communities in Arkansas, Louisiana, Oklahoma and
Texas. The largest metropolitan areas served by Arkla are Little Rock,
Arkansas and Shreveport, Louisiana. In 2003, approximately 70% of Arkla's
total throughput was attributable to retail sales of natural gas and
approximately 30% was attributable to transportation services.

- Entex provides natural gas distribution services to approximately 1.6
million customers in over 500 communities in Louisiana, Mississippi and
Texas. The largest metropolitan area served by Entex is Houston. In 2003,
approximately 94% of Entex's total throughput was attributable to retail
sales of natural gas and approximately 6% was attributable to
transportation services.

- Minnegasco provides natural gas distribution services to approximately
746,000 customers in over 240 communities in Minnesota. The largest
metropolitan area served by Minnegasco is Minneapolis. In 2003,
approximately 94% of Minnegasco's total throughput was attributable to
retail sales of natural gas and approximately 6% was attributable to
transportation services. Additionally, Minnegasco provides unregulated
services consisting of heating, ventilating and air conditioning (HVAC)
equipment and appliance sales and repair services, and home security
monitoring.

The demand for natural gas sales to, and natural gas transportation for,
residential, commercial and industrial customers is seasonal. In 2003,
approximately 74% of the total throughput of CERC's natural gas

distribution business occurred in the first and fourth quarters. These patterns
reflect the higher demand for natural gas for heating purposes during those
periods.

Supply and Transportation

Arkla. In 2003, Arkla purchased virtually all of its natural gas supply
pursuant to term contracts, with terms varying from a few months to three years.
Arkla's major third party suppliers in 2003 included BP America Production
Company (29%), Oneok Energy Marketing and Trading LLC (23%) CenterPoint Energy
Gas Services, Inc. (CEGS) (13%) and Conoco Phillips Company (9%). Numerous other
suppliers provided the remaining 26% of Arkla's natural gas supply requirements.
Arkla transports substantially all of its natural gas supplies under contracts
with our pipeline subsidiaries.

Entex. In 2003, Entex purchased virtually all of its natural gas supply
pursuant to term contracts, with terms varying from one to five years. Entex's
major third party suppliers in 2003 included American Electric Power Company,
Inc. (43%), Kinder Morgan, Inc. (20%), CEGS (11%), and Entergy-Koch, LP (11%).
Numerous other suppliers provided the remaining 15% of Entex's natural gas
supply requirements. Entex transports its natural gas supplies through various
interstate and intrastate pipelines under long-term contracts with terms varying
from one to five years.

Minnegasco. In 2003, Minnegasco purchased approximately 77% of its natural
gas supply pursuant to term contracts, with terms varying from a few months to
two years. Minnegasco purchased the remaining 23% of its natural gas supply on
the spot market. Minnegasco's major third party suppliers in 2003 included BP
Canada Energy Marketing (53%), Duke Energy Trading & Marketing (8%), Tenaska
Marketing Ventures (6%), Mirant Americas Energy Marketing (5%) and NG Energy
Trading (5%). Minnegasco transports its natural gas supplies through various
interstate pipelines under long-term contracts with terms varying from one to
five years.

Generally, the regulations of the states in which CERC's natural gas
distribution business operates allow it to pass through changes in the costs of
natural gas to its customers under purchased gas adjustment provisions in its
tariffs. There is, however, a timing difference between CERC's purchases of
natural gas and the ultimate recovery of these costs. Consequently, CERC may
incur carrying costs as a result of this timing difference that are not
recoverable from its customers.

Arkla and Minnegasco use various leased or owned natural gas storage
facilities to meet peak-day requirements and to manage the daily changes in
demand due to changes in weather. Minnegasco also supplements contracted
supplies and storage from time to time with stored liquefied natural gas and
propane-air plant production.

Minnegasco owns and operates an underground storage facility with a
capacity of 7.0 billion cubic feet (Bcf). It has a working capacity of 2.1 Bcf
available for use during a normal heating season and a maximum daily withdrawal
rate of 50 million cubic feet (MMcf). Minnegasco also owns nine propane-air
plants with a total capacity of 204 MMcf per day and on-site storage facilities
for 12 million gallons of propane (1.0 Bcf gas equivalent). Minnegasco owns a
liquefied natural gas facility with a 12 million-gallon liquefied natural gas
storage tank (1.0 Bcf gas equivalent) and a send-out capability of 72 MMcf per
day.

On an ongoing basis, CERC enters into contracts to provide sufficient
supplies and pipeline capacity to meet its firm customer requirements; however,
it is possible for limited service disruptions to occur from time to time due to
weather conditions, transportation constraints and other events. As a result of
these factors, supplies of natural gas may become unavailable from time to time
or prices may increase rapidly in response to temporary supply constraints or
other factors.

Commercial and Industrial Sales

CERC's commercial and industrial sales business, conducted through CEGS and
CenterPoint Energy Intrastate Gas Pipeline, provides comprehensive natural gas
products and services to commercial and industrial customers in the Gulf Coast
and Midwestern regions of the United States. Most services provided by CEGS are
not subject to rate regulation. In 2003, the commercial and industrial sales
business represented
13

over 50% of the throughput of CenterPoint Energy's Natural Gas Distribution
business segment. During that period, approximately 94% of the commercial and
industrial group's total throughput was attributable to natural gas sales; the
remainder was attributable to transportation services provided to third parties
and affiliates. For more information on CEGS's derivative instruments and
hedging activities, please read "Quantitative and Qualitative Disclosures About
Market Risk -- Commodity Price Risk From Non-Trading Activities" in Item 7A of
this report and Note 5 to our consolidated financial statements.

Assets

As of December 31, 2003, CERC owned approximately 63,000 linear miles of
gas distribution lines, varying in size from one-half inch to 24 inches in
diameter. Generally, in each of the cities, towns and rural areas served by
CERC, it owns the underground gas mains and service lines, metering and
regulating equipment located on customers' premises and the district regulating
equipment necessary for pressure maintenance. With a few exceptions, the
measuring stations at which CERC receives gas are owned, operated and maintained
by others, and its distribution facilities begin at the outlet of the measuring
equipment. These facilities, including odorizing equipment, are usually located
on the land owned by suppliers.

Competition

CERC competes primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other gas
distributors and marketers also compete directly for gas sales to end users. In
addition, as a result of federal regulatory changes affecting interstate
pipelines, natural gas marketers operating on these pipelines may be able to
bypass CERC's facilities and market and sell and/or transport natural gas
directly to commercial and industrial customers.

PIPELINES AND GATHERING

CERC's pipelines and gathering business operates two interstate natural gas
pipelines as well as gas gathering facilities and also provides pipeline
services.

CERC owns and operates gas transmission lines primarily located in
Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. CERC's pipeline
operations are primarily conducted by two wholly owned interstate pipeline
subsidiaries which provide gas transportation and storage services primarily to
industrial customers and local distribution companies:

- CenterPoint Energy Gas Transmission Company (CEGT) is an interstate
pipeline that provides natural gas transportation, natural gas storage
and pipeline services to customers principally in Arkansas, Louisiana,
Oklahoma and Texas.

- CenterPoint Energy -- Mississippi River Transmission Corporation (MRT) is
an interstate pipeline that provides natural gas transportation, natural
gas storage and pipeline services to customers principally in Arkansas
and Missouri.

CERC's gathering operations are conducted by a wholly owned gas gathering
subsidiary, CenterPoint Energy Field Services, Inc. (CEFS). CEFS is a natural
gas gathering and processing business serving natural gas fields in the
Midcontinent basin of the United States that interconnect with CEGT's and MRT's
pipelines, as well as other interstate and intrastate pipelines. CEFS operates
gathering pipelines, which collect natural gas from approximately 200 separate
systems located in major producing fields in Arkansas, Louisiana, Oklahoma and
Texas.

CERC's pipeline project management and facility operation services are
provided to affiliates and third parties through a wholly owned pipeline
services subsidiary, CenterPoint Energy Pipeline Services, Inc.

In 2003, approximately 25% of our total operating revenues from pipelines
and gathering was attributable to services provided to Arkla, and approximately
10% was attributable to services to Laclede Gas Company (Laclede), an
unaffiliated distribution company that provides natural gas utility service to
the greater St. Louis metropolitan area in Illinois and Missouri. Services to
Arkla and Laclede are provided under several

long-term firm storage and transportation agreements. Contracts for firm
transportation in Arkla's major service areas are currently scheduled to expire
in 2005. The Arkansas Public Service Commission (APSC) is currently reviewing
Arkla's request to enter into a seven-year contract for firm transportation with
CEGT. The agreement to provide services to Laclede expires in 2007.

Our pipelines and gathering business operations may be affected by changes
in the demand for natural gas, the available supply and relative price of
natural gas in the Midcontinent and Gulf Coast natural gas supply regions and
general economic conditions.

Assets

We own and operate approximately 8,200 miles of gas transmission lines
primarily located in Missouri, Illinois, Arkansas, Louisiana, Oklahoma and
Texas. We also own and operate six natural gas storage fields with a combined
daily deliverability of approximately 1.2 Bcf per day and a combined working gas
capacity of approximately 59.0 Bcf. We also own a 10% interest in Gulf South
Pipeline Company, LP's Bistineau storage facility. This facility has a total
working gas capacity of 73.8 Bcf and approximately 1.1 Bcf per day of
deliverability. Our storage capacity in the Bistineau facility is 8 Bcf of
working gas with 100 MMcf per day of deliverability. Most of our storage
operations are in north Louisiana and Oklahoma. We also own and operate
approximately 4,300 miles of gathering pipelines that collect gas from
approximately 200 separate systems located in major producing fields in
Arkansas, Louisiana, Oklahoma and Texas.

Competition

Our pipelines and gathering business competes with other interstate and
intrastate pipelines and gathering companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are rates,
terms of service, and flexibility and reliability of service. Our pipelines and
gathering business competes indirectly with other forms of energy available to
its customers, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability of energy and pipeline
capacity, the level of business activity, conservation and governmental
regulations, the capability to convert to alternative fuels, and other factors,
including weather, affect the demand for natural gas in areas we serve and the
level of competition for transportation and storage services. In addition,
competition for our gathering operations is impacted by commodity pricing levels
because of their influence on the level of drilling activity.

OTHER OPERATIONS

Our Other Operations business segment includes office buildings and other
real estate used in our business operations and other corporate operations which
support all of our business operations.

DISCONTINUED OPERATIONS

On September 30, 2002, we distributed to our shareholders on a pro-rata
basis all of the shares of Reliant Resources common stock owned by us. The
consolidated financial statements have been prepared to reflect the effect of
this distribution. The consolidated financial statements present the Reliant
Resources businesses (Wholesale Energy, European Energy, Retail Energy and
related corporate costs) as discontinued operations in accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (SFAS No. 144). We recorded after-tax income
from discontinued operations of $475 million and $82 million for the years ended
December 31, 2001 and 2002, respectively, related to the operations of Reliant
Resources. As a result of the spin-off of Reliant Resources, we recorded a
non-cash loss on disposal of discontinued operations of $4.4 billion in 2002,
which represented the excess of the carrying value of our investment in Reliant
Resources over the market value of Reliant Resources common stock.

Santiago del Estero S.A. We recorded an after-tax loss of $3 million in the
second quarter of 2003 related to our Latin America operations. We have
completed our strategy of exiting all of our international investments. The
consolidated financial statements present these operations as discontinued
operations in accordance with SFAS No. 144.

In November 2003, we sold a component of our Other Operations business
segment, CenterPoint Energy Management Services (CEMS), that provides district
cooling services in the Houston, Texas central business district and related
complementary energy services to district cooling customers and others. The
assets and liabilities of this business have been classified in the Consolidated
Balance Sheets as discontinued operations. We recorded an after-tax loss of $1
million from the sale of CEMS in the fourth quarter of 2003. We recorded an
after-tax loss in discontinued operations of $16 million ($25 million pre-tax)
during the second quarter of 2003 to record the impairment of the CEMS
long-lived assets based on the impending sale and to record one-time termination
benefits. The consolidated financial statements present these operations as
discontinued operations in accordance with SFAS No. 144.

FINANCIAL INFORMATION ABOUT SEGMENTS

For financial information about our segments, see Note 16 to our
consolidated financial statements, which note is incorporated herein by
reference.

REGULATION

We are subject to regulation by various federal, state and local
governmental agencies, including the regulations described below.

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

As a registered public utility holding company, we, along with our
subsidiaries except Texas Genco, are subject to a comprehensive regulatory
scheme imposed by the SEC in order to protect customers, investors and the
public interest. Although the SEC does not regulate rates and charges under the
1935 Act, it does regulate the structure, financing, lines of business and
internal transactions of public utility holding companies and their system
companies. In order to obtain financing, acquire additional public utility
assets or stock, or engage in other significant transactions, we are required to
obtain approval from the SEC under the 1935 Act.

We received an order from the SEC under the 1935 Act on June 30, 2003 and
supplemental orders thereafter relating to our financing activities and those of
our regulated subsidiaries, as well as other matters. The orders are effective
until June 30, 2005. As of December 31, 2003, the orders generally permitted us
and our subsidiaries to issue securities to refinance indebtedness outstanding
at June 30, 2003, and authorized us and our subsidiaries to issue certain
incremental external debt securities and common and preferred stock through June
30, 2005, without prior authorization from the SEC. The orders also contain
certain requirements regarding ratings of our securities, interest rates,
maturities, issuance expenses and use of proceeds. The orders require that
CenterPoint Houston and CERC maintain a ratio of common equity to total
capitalization of at least 30%. The SEC has acknowledged that prior to the
monetization of Texas Genco and the securitization of the true-up components,
our common equity as a percentage of total capitalization is expected to remain
less than 30%. In addition, after the securitization, our common equity as a
percentage of total capitalization, including securitized debt, is expected to
be less than 30%, which the SEC has permitted for other companies.

In October 2003, the FERC granted exempt wholesale generator status to
Texas Genco, LP, a wholly owned subsidiary of Texas Genco that owns and operates
our electric generating plants. As a result of the FERC's actions, Texas Genco,
LP is exempt from all provisions of the 1935 Act as long as it remains an exempt
wholesale generator and Texas Genco is no longer a public utility holding
company within the meaning of the 1935 Act.

Pursuant to requirements of the orders, we formed a service company,
CenterPoint Energy Service Company, LLC (Service Company), that began operation
as of January 1, 2004, to provide certain corporate
16

and shared services to our subsidiaries. Those services are provided pursuant to
service arrangements that are in a form prescribed by the SEC. Services are
provided by the Service Company at cost and are subject to oversight and
periodic audit from the SEC.

FEDERAL ENERGY REGULATORY COMMISSION

The transportation and sale or resale of natural gas in interstate commerce
is subject to regulation by the FERC under the Natural Gas Act and the Natural
Gas Policy Act of 1978, as amended. The FERC has jurisdiction over, among other
things, the construction of pipeline and related facilities used in the
transportation and storage of natural gas in interstate commerce, including the
extension, expansion or abandonment of these facilities. The rates charged by
interstate pipelines for interstate transportation and storage services are also
regulated by the FERC.

Our natural gas pipeline subsidiaries may periodically file applications
with the FERC for changes in their generally available maximum rates and charges
designed to allow them to recover their costs of providing service to customers
(to the extent allowed by prevailing market conditions), including a reasonable
rate of return. These rates are normally allowed to become effective after a
suspension period and, in some cases, are subject to refund under applicable law
until such time as the FERC issues an order on the allowable level of rates.

On November 25, 2003, the FERC issued Order No. 2004, the final rule
modifying the Standards of Conduct applicable to electric and natural gas
transmission providers, governing the relationship between regulated
transmission providers and certain of their affiliates. The rule significantly
changes and expands the regulatory burdens of the Standards of Conduct and
applies essentially the same standards to jurisdictional electric transmission
providers and natural gas pipelines. On February 9, 2004, our natural gas
pipeline subsidiaries filed Implementation Plans required under the new rule.
Those subsidiaries are further required to post their Implementation Procedures
on their websites by June 1, 2004, and to be in compliance with the requirements
of the new rule by that date.

CenterPoint Houston is not a "public utility" under the Federal Power Act
and therefore is not generally regulated by the FERC, although certain of its
transactions are subject to limited FERC jurisdiction. Texas Genco makes
electric sales wholly within ERCOT and, as a result, its rates are not subject
to regulation as a "public utility" under the Federal Power Act.

STATE AND LOCAL REGULATION

Electric Transmission and Distribution. CenterPoint Houston conducts its
operations pursuant to a certificate of convenience and necessity issued by the
Texas Utility Commission that covers its present service area and facilities. In
addition, CenterPoint Houston holds non-exclusive franchises, typically having a
term of forty years, from the incorporated municipalities in its service
territory. These franchises give CenterPoint Houston the right to construct,
operate and maintain its transmission and distribution system within the streets
and public ways of these municipalities for the purpose of delivering electric
service to the municipality, its residents and businesses in exchange for
payment of a fee. The franchise for the City of Houston is scheduled to expire
in 2007.

All retail electric providers in CenterPoint Houston's service area pay the
same rates and other charges for transmission and distribution services.

CenterPoint Houston's distribution rates charged to retail electric
providers for residential customers are based on amounts of energy delivered
whereas distribution rates for a majority of commercial and industrial customers
are based on peak demand. Transmission rates charged to other distribution
companies are based on amounts of energy transmitted under "postage stamp" rates
that do not vary with the distance the energy is being transmitted. All
distribution companies in ERCOT pay CenterPoint Houston the same rates and other
charges for transmission services. The current transmission and distribution
rates for CenterPoint Houston have been in effect since January 1, 2002, when
electric competition began. This regulated delivery charge includes the
transmission and distribution rate (which includes costs for nuclear
decommissioning and

municipal franchise fees), a system benefit fund fee imposed by the Texas
electric restructuring law, a transition charge associated with securitization
of regulatory assets and an excess mitigation credit imposed by the Texas
Utility Commission.

Natural Gas Distribution. In almost all communities in which CERC provides
natural gas distribution services, it operates under franchises, certificates or
licenses obtained from state and local authorities. The terms of the franchises,
with various expiration dates, typically range from 10 to 30 years, though
franchises in Arkansas are perpetual. None of CERC's material franchises expire
in the near term. CERC expects to be able to renew expiring franchises. In most
cases, franchises to provide natural gas utility services are not exclusive.

Substantially all of CERC's retail natural gas sales by its local
distribution divisions are subject to traditional cost-of-service regulation at
rates regulated by the relevant state public utility commissions and, in Texas,
by the Railroad Commission of Texas (Railroad Commission) and municipalities
CERC serves.

In August 2002, a settlement was approved by the APSC that resulted in an
increase in the base rate and service charge revenues of Arkla of approximately
$27 million annually. In addition, the APSC approved a gas main replacement
surcharge that provided $2 million of additional revenue in 2003 and is expected
to provide additional amounts in subsequent years. In December 2002, a
settlement was approved by the Oklahoma Corporation Commission that resulted in
an increase in the base rate and service charge revenues of Arkla of
approximately $6 million annually. In November 2003, Arkla filed a request with
the Louisiana Public Service Commission (LPSC) for a $16 million increase to its
base rate and service charge revenues in Louisiana. The case is expected to be
resolved in mid-2004.

In December 2003, a settlement was approved by the City of Houston that
will result in an increase in the base rate and service charge revenues of Entex
of approximately $7 million annually. Entex has submitted these settlement rates
to the 28 other cities within its Houston Division and the Railroad Commission
of Texas for consideration and approval. If all regulatory approvals are
received from these 29 jurisdictions, Entex's base rate and service charge
revenues are expected to increase by approximately $7 million annually in
addition to the $7 million discussed above. On February 10, 2004, a settlement
was approved by the LPSC that is expected to result in an increase in Entex's
base rate and service charge revenues of approximately $2 million annually.

Our gas distribution divisions generally recover the cost of gas provided
to customers through gas cost adjustment mechanisms prescribed in their tariffs
that are approved by the appropriate regulatory authority. Recently, our Arkla
and Entex divisions have been involved in both litigation and regulatory
proceedings in which parties have challenged the gas costs that have been
recovered from customers. In response to a claim by the City of Tyler, Texas
that excessive costs, ranging from $2.8 million to $39.2 million, may have been
incurred for gas purchased by Entex for resale to residential and small
commercial customers, Entex and the City of Tyler have requested that the
Railroad Commission determine whether Entex has properly and lawfully charged
and collected for gas service to its residential and commercial customers in its
Tyler distribution system for the period beginning November 1, 1992, and ending
October 31, 2002. Similarly, a complaint has been filed with the LPSC by a
private party alleging that certain gas costs recovered from Entex customers in
Louisiana were excessive and/or were not properly authorized by the LPSC.
Additionally, certain private litigants have filed suit in Louisiana state
courts, alleging that inappropriate or excessive gas costs have been recovered
from Arkla's customers.

NUCLEAR REGULATORY COMMISSION

Texas Genco is subject to regulation by the United States Nuclear
Regulatory Commission (NRC) with respect to the operation of the South Texas
Project. This regulation involves testing, evaluation and modification of all
aspects of plant operation in light of NRC safety and environmental
requirements. Continuous demonstrations to the NRC that plant operations meet
applicable requirements are also required. The NRC has the ultimate authority to
determine whether any nuclear powered generating unit may operate.

Texas Genco and the other owners of the South Texas Project are required by
NRC regulations to estimate from time to time the amounts required to
decommission that nuclear generating facility and are required to maintain funds
to satisfy that obligation when the plant ultimately is decommissioned.
CenterPoint Houston currently collects through its electric rates amounts
calculated to provide sufficient funds at the time of decommissioning to
discharge these obligations. Funds collected are deposited into nuclear
decommissioning trusts. The beneficial ownership of the nuclear decommissioning
trusts is held by Texas Genco, as a licensee of the facility. While current
funding levels exceed NRC minimum requirements, no assurance can be given that
the amounts held in trust will be adequate to cover the actual decommissioning
costs of the South Texas Project. Such costs may vary because of changes in the
assumed date of decommissioning and changes in regulatory requirements,
technology and costs of labor, materials and waste burial. In the event that
funds from the trust are inadequate to decommission the facilities, CenterPoint
Houston will be required to collect through rates or other authorized charges
all additional amounts required to fund Texas Genco's obligations relating to
the decommissioning of the South Texas Project.

DEPARTMENT OF TRANSPORTATION

In December 2002, Congress enacted the Pipeline Safety Improvement Act of
2002 (the Act). This legislation applies to our interstate pipelines as well as
our intrastate pipelines and local distribution companies. The legislation
imposes several requirements related to ensuring pipeline safety and integrity.
It requires pipeline and distribution companies to assess the integrity of their
pipeline transmission facilities in areas of high population concentration or
High Consequence Areas (HCA). The legislation further requires companies to
perform remediation activities, in accordance with the requirements of the
legislation over a 10-year period.

In December 2003, the Department of Transportation Office of Pipeline
Safety issued the final regulations to implement the Act. These regulations
became effective on February 14, 2004. These regulations provided guidance on,
among other things, the areas that should be classified as HCA.

Our Pipelines and Gathering business segment and our natural gas
distribution companies anticipate that compliance with the new regulations will
require increases in both capital and operating cost. The level of expenditures
required to comply with these regulations will be dependent on several factors,
including the age of the facility, the pressures at which the facility operates
and the number of facilities deemed to be located in areas designated as HCA.
Based on our interpretation of the rules and preliminary technical reviews, we
anticipate compliance will require average annual expenditures of approximately
$15 to $20 million during the initial 10-year period.

ENVIRONMENTAL MATTERS

We are subject to a number of federal, state and local laws and regulations
relating to the protection of the environment and the safety and health of
company personnel and the public. These requirements relate to a broad range of
our activities, including:

- the discharge of pollutants into the air, water and soil;

- the identification, generation, storage, handling, transportation,
disposal, record keeping, labeling and reporting of, and the emergency
response in connection with, hazardous and toxic materials and wastes,
including asbestos, associated with our operations;

- noise emissions from our facilities; and

- safety and health standards, practices and procedures that apply to the
workplace and the operation of our facilities.

In order to comply with these requirements, we may need to spend
substantial amounts and devote other resources from time to time to:

- construct or acquire new equipment;

- acquire permits and/or marketable allowance or other emission credits for
facility operations;

- modify or replace existing and proposed equipment; and

- clean up or decommission waste disposal areas, fuel storage and
management facilities, and other locations and facilities, including
generation facilities.

If we do not comply with environmental requirements that apply to our
operations, regulatory agencies could seek to impose on us civil, administrative
and/or criminal liabilities as well as seek to curtail our operations. Under
some statutes, private parties could also seek to impose upon us civil fines or
liabilities for property damage, personal injury and possibly other costs.

Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), owners and operators of facilities from which
there has been a release or threatened release of hazardous substances, together
with those who have transported or arranged for the disposal of those
substances, are liable for:

- the costs of responding to that release or threatened release; and

- the restoration of natural resources damaged by any such release.

AIR EMISSIONS

As part of the 1990 amendments to the Federal Clean Air Act, requirements
and schedules for compliance were developed for attainment of health-based
standards. In furtherance of the Act's requirements, standards for NOx
emissions, a product of the combustion process associated with power generation,
have been finalized by the Texas Commission on Environmental Quality (TCEQ).
These TCEQ standards, as well as provisions of the Texas electric restructuring
law, require substantial reductions in NOx emissions from electric generating
units. Texas Genco is currently installing cost-effective controls at its
generating plants to comply with these requirements. As of December 31, 2003,
Texas Genco has invested $664 million for NOx emissions controls and is planning
to make expenditures of $131 million for the remainder of 2004 through 2007.
Further revisions to these NOx standards may result from the TCEQ's future
rules, expected by 2007, implementing more stringent federal eight-hour ozone
standards.

In 1998, the United States became a signatory to the United Nations
Framework Convention on Climate Change (Kyoto Protocol). The Kyoto Protocol
calls for developed nations to reduce their emissions of greenhouse gases.
Carbon dioxide, which is a major byproduct of the combustion of fossil fuel, is
considered to be a greenhouse gas. In 2002, President Bush withdrew the United
States' support for the Kyoto Protocol while endorsing voluntary greenhouse gas
reduction measures. Congress has also explored a number of other alternatives
for regulating domestic greenhouse gas emissions. If the country re-enters and
the United States Senate ultimately ratifies the Kyoto Protocol and/or if the
United States Congress adopts other measures for the control of greenhouse
gases, any resulting limitations on power plant carbon dioxide emissions could
have a material adverse impact on all fossil fuel-fired electric generating
facilities, including those belonging to Texas Genco.

In July 2002, the White House sent to the United States Congress a Bill
proposing the Clear Skies Act, which is designed to achieve long-term reductions
of multiple pollutants produced from fossil fuel-fired power plants. If enacted,
the Clear Skies Act would target reductions averaging 70% for sulfur dioxide
(SO(2)), NOx and mercury emissions and would create a gradually imposed
market-based compliance program that would come into effect initially in 2008
with full compliance required by 2018. Fossil fuel-fired power plants owned by
companies such as Texas Genco would be affected by the adoption of this program,
or other legislation currently pending in Congress addressing similar issues. To
comply with such programs, we and other regulated entities could pursue a
variety of strategies, including the installation of pollution controls,
purchase

of emission allowances, or the curtailment of operations. To date, Congress has
taken little action to enact the Clear Skies Act.

In response to Congressional inaction on the proposed Clear Skies Act, the
Environmental Protection Agency (EPA) in December 2003 proposed the Interstate
Air Quality Rule, which would require reductions in NOx and SO(2) similar to
those found in the Clear Skies Act. However, in contrast to the Clear Skies Act,
the Interstate Air Quality Rule affects emissions in 29 states in the eastern
U.S., including Texas. As with the Clear Skies Act, emissions are reduced in two
phases, and the reduction targets are similar, but are effective in 2010 and
2015 for both NOx and SO(2). EPA has announced an intent to finalize these rules
in late 2004 or early 2005.

In December 2003, EPA proposed two alternatives for regulating emissions of
mercury from coal-fired power plants in the U.S. A final rulemaking is scheduled
to be adopted in December 2004. Under the first option, the EPA would set
Maximum Achievable Control Technology (MACT) standards under Section 112 of the
Clean Air Act, which would require mercury reductions on a facility-by-facility
basis regardless of cost. The MACT standard requires reductions to be achieved
by 2008, although it is possible that this compliance date will be delayed. The
second option would regulate coal-fired power plants under Section 111 of the
Clean Air Act. Under this option, similar mercury reductions would be achieved
on a national scale through a cap-and-trade program, allowing reductions to be
made at the most economical locations, and not requiring reductions on a
facility-by-facility basis. The MACT standard would require a reduction of about
30% from coal-fired facilities, which will require the installation of control
equipment. The cap-and-trade rule would require deeper reductions, but may be
more economical because it allows trading of emissions among facilities. The
mercury cap-and-trade rule would be accomplished in two phases, in 2010 and
2015, with reduction levels set at approximately 50% and 70%, respectively. The
cost of complying with the final rules is not yet known but is likely to be
material.

In addition to mercury control from coal-fired boilers, the MACT rule, if
adopted, would require the control of nickel emissions from oil-fired
facilities. At this point, the impact of this proposal is uncertain, but is not
expected to significantly affect our operations.

The EPA has also issued MACT standards for sources other than boilers used
for power generation. The MACT rule for combustion turbines was issued in August
2003 and there is no impact on our existing facilities. The MACT rulemaking for
engines and industrial boilers was issued in February 2004. These rules are not
expected to have a significant impact on Texas Genco's operations.

WATER

On February 16, 2004, the EPA signed final rules under Section 316(b) of
the Clean Water Act relating to the design and operation of existing cooling
water intake structures. The requirements to achieve compliance with this rule
are subject to various factors, including the results of anticipated litigation,
but we currently do not expect any capital expenditures required for compliance
to be material.

The EPA and State of Texas periodically modify water quality standards and,
where necessary, initiate total maximum daily load allocations for water-bodies
not meeting those standards. Such actions could cause our facilities to incur
significant costs to comply with revised discharge permit limitations.

NUCLEAR WASTE

Under the U.S. Nuclear Waste Policy Act of 1982, the federal government was
to create a federal repository for spent nuclear fuel produced by nuclear plants
like the South Texas Project. Also pursuant to that legislation a special
assessment has been imposed on those nuclear plants to pay for the facility.
Consistent with the Act, owners of nuclear facilities, including Texas Genco and
the other owners of the South Texas Project, entered into contracts setting out
the obligations of the owners and U.S. Department of Energy (DOE). Since 1998,
DOE has been in default on its obligations to begin moving spent nuclear fuel
from reactors to the federal repository (which still is not completed). On
January 28, 2004, Texas Genco and the

other owners of the South Texas Project, along with owners of other nuclear
plants, filed a breach of contract suit against DOE in order to protect against
the running of a statute of limitations.

LIABILITY FOR PREEXISTING CONDITIONS AND REMEDIATION

Asbestos and Other. As a result of their age, many of our facilities
contain significant amounts of asbestos insulation, other asbestos-containing
materials and lead-based paint. Existing state and federal rules require the
proper management and disposal of these potentially toxic materials. We have
developed a management plan that includes proper maintenance of existing
non-friable asbestos installations, and removal and abatement of asbestos
containing materials where necessary because of maintenance, repairs,
replacement or damage to the asbestos itself. We have planned for the proper
management, abatement and disposal of asbestos and lead-based paint at our
facilities.

We have been named, along with numerous others, as a defendant in a number
of lawsuits filed by a large number of individuals who claim injury due to
exposure to asbestos while working at sites along the Texas Gulf Coast. Most of
these claimants have been third party workers who participated in construction
of various industrial facilities, including power plants, and some of the
claimants have worked at locations owned by us. We anticipate that additional
claims like those received may be asserted in the future, and we intend to
continue our practice of vigorously contesting claims that we do not consider to
have merit.

Hydrocarbon Contamination. CERC Corp. and certain of its subsidiaries are
among some of the defendants in lawsuits filed beginning in August 2001 in Caddo
Parish and Bossier Parish, Louisiana. The suits allege that, at some unspecified
date prior to 1985, the defendants allowed or caused hydrocarbon or chemical
contamination of the Wilcox Aquifer, which lies beneath property owned or leased
by certain of the defendants and which is the sole or primary drinking water
aquifer in the area. The primary source of the contamination is alleged by the
plaintiffs to be a gas processing facility in Haughton, Bossier Parish,
Louisiana known as the "Sligo Facility," which was formerly operated by a
predecessor in interest of CERC Corp. This facility was purportedly used for
gathering natural gas from surrounding wells, separating gasoline and
hydrocarbons from the natural gas for marketing, and transmission of natural gas
for distribution.

Beginning about 1985, the predecessors of certain CERC Corp. defendants
engaged in a voluntary remediation of any subsurface contamination of the
groundwater below the property they owned or leased. This work has been done in
conjunction with and under the direction of the Louisiana Department of
Environmental Quality. The plaintiffs seek monetary damages for alleged damage
to the aquifer underlying their property, unspecified alleged personal injuries,
alleged fear of cancer, alleged property damage or diminution of value of their
property, and, in addition, seek damages for trespass, punitive, and exemplary
damages. The quantity of monetary damages sought is unspecified. The Company is
unable to estimate the monetary damages, if any, that the plaintiffs may be
awarded in these matters.

Manufactured Gas Plant Sites. CERC and its predecessors operated
manufactured gas plants (MGP) in the past. In Minnesota, remediation has been
completed on two sites, other than ongoing monitoring and water treatment. There
are five remaining sites in CERC's Minnesota service territory, two of which
CERC believes were neither owned nor operated by CERC, and for which CERC
believes it has no liability.

At December 31, 2003, CERC had accrued $19 million for remediation of
certain Minnesota sites. At December 31, 2003, the estimated range of possible
remediation costs for these sites was $8 million to $44 million based on
remediation continuing for 30 to 50 years. The cost estimates are based on
studies of a site or industry average costs for remediation of sites of similar
size. The actual remediation costs will be dependent upon the number of sites to
be remediated, the participation of other potentially responsible parties (PRP),
if any, and the remediation methods used. CERC has utilized an environmental
expense tracker mechanism in its rates in Minnesota to recover estimated costs
in excess of insurance recovery. CERC has collected or accrued $12.5 million as
of December 31, 2003 to be used for environmental remediation.

CERC has received notices from the United States Environmental Protection
Agency and others regarding its status as a PRP for other sites. CERC has been
named as a defendant in lawsuits under which contribution is sought for the cost
to remediate former MGP sites based on the previous ownership of such

sites by former affiliates of CERC or its divisions. We are investigating
details regarding these sites and the range of environmental expenditures for
potential remediation. Based on current information, we have not been able to
quantify a range of environmental expenditures for such sites.

Mercury Contamination. Our pipeline and distribution operations have in
the past employed elemental mercury in measuring and regulating equipment. It is
possible that small amounts of mercury may have been spilled in the course of
normal maintenance and replacement operations and that these spills may have
contaminated the immediate area with elemental mercury. This type of
contamination has been found by us at some sites in the past, and we have
conducted remediation at these sites. It is possible that other contaminated
sites may exist and that remediation costs may be incurred for these sites.
Although the total amount of these costs cannot be known at this time, based on
our experience and that of others in the natural gas industry to date and on the
current regulations regarding remediation of these sites, we believe that the
costs of any remediation of these sites will not be material to our financial
condition, results of operations or cash flows.

Other Environmental. From time to time, we have received notices from
regulatory authorities or others regarding our status as a PRP in connection
with sites found to require remediation due to the presence of environmental
contaminants. Although their ultimate outcome cannot be predicted at this time,
we do not believe, based on our experience to date, that these matters, either
individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or cash flows.

EMPLOYEES

As of December 31, 2003, we had 11,046 full-time employees. The following
table sets forth the number of our employees by business segment:

NUMBER REPRESENTED BY
UNIONS OR OTHER COLLECTIVE
BUSINESS SEGMENT NUMBER BARGAINING GROUPS
- ---------------- ------ --------------------------

Electric Transmission & Distribution................... 3,008 1,322
Electric Generation.................................... 1,511 1,030
Natural Gas Distribution............................... 4,813 1,549
Pipelines and Gathering................................ 651 --
Other Operations....................................... 1,063 --
------ -----
Total................................................ 11,046 3,901
====== =====

As of December 31, 2003, approximately 35% of the Company's employees are
subject to collective bargaining agreements. Three of these agreements, covering
approximately 14% of the Company's employees, have expired or will expire in
2004.

The 1,030 bargaining unit employees of Texas Genco were covered by a
collective bargaining unit agreement with the International Brotherhood of
Electrical Workers Local 66 that expired in September 2003. These bargaining
unit employees have continued to work without interruption and Texas Genco has
not had any work interruptions since 1976. Texas Genco continues to have a good
relationship with the bargaining unit and is actively negotiating to obtain a
new agreement in 2004.

The Minnegasco division of our natural gas distribution business has 512
bargaining unit employees that are covered by collective bargaining unit
agreements that have expired or will expire in 2004. An agreement with the
International Brotherhood of Electrical Workers Local 949, which expired in
December 2003, was renegotiated in February 2004 covering 267 of these
employees. The remaining 245 employees are covered by a collective bargaining
agreement with the Office and Professional Employees International Union Local
12, which expires in May 2004.

EXECUTIVE OFFICERS
(AS OF MARCH 1, 2004)

NAME AGE TITLE
- ---- --- -----

David M. McClanahan....................... 54 President and Chief Executive Officer and
Director
Scott E. Rozzell.......................... 54 Executive Vice President, General Counsel
and Corporate Secretary
Stephen C. Schaeffer...................... 56 Executive Vice President and Group
President, Gas Distribution and Sales
Gary L. Whitlock.......................... 54 Executive Vice President and Chief Financial
Officer
James S. Brian............................ 56 Senior Vice President and Chief Accounting
Officer
Byron R. Kelley........................... 56 President and Chief Operating Officer,
CenterPoint Energy Pipelines and Field
Services
Thomas R. Standish........................ 54 President and Chief Operating Officer,
CenterPoint Houston
David G. Tees............................. 59 President and Chief Executive Officer, Texas
Genco

DAVID M. MCCLANAHAN has been President and Chief Executive Officer and a
director of CenterPoint Energy since September 2002. He served as Vice Chairman
of Reliant Energy from October 2000 to September 2002 and as President and Chief
Operating Office of Reliant Energy's Delivery Group from April 1999 to September
2002. He also served as the President and Chief Operating Officer of Reliant
Energy HL&P, the electric utility division of Reliant Energy, from 1997 to 1999.
He has served in various executive capacities with CenterPoint Energy since
1986. He previously served as Chairman of the Board of Directors of ERCOT and
Chairman of the Board of the University of St. Thomas. He currently serves on
the boards of the Edison Electric Institute and the American Gas Association.

SCOTT E. ROZZELL has served as Executive Vice President, General Counsel
and Corporate Secretary of CenterPoint Energy since September 2002. He served as
Executive Vice President and General Counsel of the Delivery Group of Reliant
Energy from March 2001 to September 2002. Before joining CenterPoint Energy in
2001, Mr. Rozzell was a senior partner in the law firm of Baker Botts L.L.P.

STEPHEN C. SCHAEFFER has served as Executive Vice President and Group
President, Gas Distribution Sales and Service, since December 2002. From
September 2002 to December 2002, he served as Executive Vice
President-Government and Regulatory Affairs of CenterPoint Energy. Prior to this
position, Mr. Schaeffer served as Senior Vice President-Regulatory of Reliant
Energy beginning in 1999. From 1997 to 1998, he served as Executive Vice
President-Retail Energy Regulation of Reliant Energy's Retail Energy Group. He
has served in various executive capacities with CenterPoint Energy since 1989.

GARY L. WHITLOCK has served as Executive Vice President and Chief Financial
Officer of CenterPoint Energy since September 2002. He served as Executive Vice
President and Chief Financial Officer of the Delivery Group of Reliant Energy
from July 2001 to September 2002. Mr. Whitlock served as the Vice President,
Finance and Chief Financial Officer of Dow AgroSciences, a subsidiary of The Dow
Chemical Company, from 1998 to 2001.

JAMES S. BRIAN has served as Senior Vice President and Chief Accounting
Officer of CenterPoint Energy since August 2002. He served as Senior Vice
President, Finance and Administration of the Delivery Group of Reliant Energy
from 1999 to August 2002, and as Vice President and Chief Financial Officer of
Reliant Energy HL&P from 1997 to 1999. Mr. Brian has served in various executive
capacities with CenterPoint Energy since 1983.

BYRON R. KELLEY has served as President and Chief Operating Officer of
CenterPoint Energy Pipelines and Field Services since May 2003. Prior to joining
CenterPoint Energy he served as President of El Paso International, a subsidiary
of El Paso Corporation, for January 2001 to August 2002 and as Executive Vice
President of Development, Operations and Engineering from March 1999 through
December 2000. He currently serves on the Board of Directors of the Interstate
Natural Gas Association of America.

THOMAS R. STANDISH has served as President and Chief Operating Officer of
CenterPoint Houston since August 2002. He served as President and Chief
Operating Officer for both electricity and natural gas for Reliant Energy's
Houston area from 1999 until August 2002, and as Senior Vice President of
Distribution Customer Service for Reliant Energy HL&P from 1997 to 1999. Mr.
Standish has served in various executive capacities with CenterPoint Energy
since 1993. He currently serves on the Board of Directors of ERCOT.

DAVID G. TEES has served as President and Chief Executive Officer of Texas
Genco since August 2002. He served as Senior Vice President, Generation
Operations of Reliant Energy from 1998 through August 2002. He also served as
Vice President of Energy Production of Reliant Energy HL&P from 1986 to 1998.
Mr. Tees has also served on the executive committee of the Edison Electric
Institute Energy Supply Subcommittee and currently represents CenterPoint Energy
as a Research Advisory Committee Member of the Electric Power Research Institute
and is a director of the South Texas Project Nuclear Operating Company.

RISK FACTORS

PRINCIPAL RISK FACTORS ASSOCIATED WITH OUR BUSINESSES

RISK FACTORS AFFECTING OUR ELECTRIC TRANSMISSION & DISTRIBUTION BUSINESS

CENTERPOINT HOUSTON MAY NOT BE SUCCESSFUL IN RECOVERING THE FULL VALUE OF ITS
TRUE-UP COMPONENTS.

CenterPoint Houston expects to make a filing on March 31, 2004 in a true-up
proceeding provided for by the Texas electric restructuring law. The purpose of
this proceeding will be to quantify and reconcile the following costs or true-up
components:

- "stranded costs," which consist of the positive excess of the regulatory
net book value of generation assets, as defined, over the market value of
the assets;

- final fuel over- or under-recovery; less

- "price to beat" clawback components.

CenterPoint Houston will be required to establish and support the amounts
it seeks to recover in the 2004 True-Up Proceeding. CenterPoint Houston expects
these amounts to be substantial. Third parties will have the opportunity and are
expected to challenge CenterPoint Houston's calculation of these amounts. To the
extent recovery of a portion of these amounts is denied or if we agree to forego
recovery of a portion of the request under a settlement agreement, CenterPoint
Houston would be unable to recover those amounts in the future. Additionally, in
October 2003, a group of intervenors filed a petition asking the Texas Utility
Commission to open a rulemaking proceeding and reconsider certain aspects of its
true-up rules. In November 2003, the Texas Utility Commission voted to deny the
petition. Despite the denial of the petition, we expect that issues could be
raised in the 2004 True-Up Proceeding regarding our compliance with the Texas
Utility Commission's rules regarding ECOM recovery, including whether Texas
Genco has auctioned all capacity it is required to auction in view of the fact
that some capacity has failed to sell in the state-mandated auctions. We believe
Texas Genco has complied with the requirements under the applicable rules,
including re-offering the unsold capacity in subsequent auctions. If events were
to occur during the 2004 True-Up Proceeding that made the recovery of the ECOM
true-up regulatory asset no longer probable, we would write off the
unrecoverable balance of such asset as a charge against earnings.

In the event CenterPoint Houston has not begun to recover the amounts
established in the 2004 True-Up Proceeding prior to its $1.3 billion term loan
maturity date in November 2005, CenterPoint Houston's ability to repay or
refinance this term loan may be adversely affected.

The Texas Utility Commission's ruling that the 2004 True-Up Proceeding
filing will be made on March 31, 2004 means that the calculation of the market
value of a share of Texas Genco common stock for purposes of the Texas Utility
Commission's stranded cost determination will be based on market prices during
the 120 trading days ending on March 30, 2004 plus a control premium, if any, up
to a maximum of 10%. If Texas Genco is sold to a third party at a lower price
than the market value used by the Texas Utility Commission, CenterPoint Houston
would be unable to recover the difference.

CENTERPOINT HOUSTON'S RECEIVABLES ARE CONCENTRATED IN A SMALL NUMBER OF RETAIL
ELECTRIC PROVIDERS.

CenterPoint Houston's receivables from the distribution of electricity are
collected from retail electric providers that supply the electricity CenterPoint
Houston distributes to their customers. Currently, CenterPoint Houston does
business with approximately 43 retail electric providers. Adverse economic
26

conditions, structural problems in the new ERCOT market or financial
difficulties of one or more retail electric providers could impair the ability
of these retail providers to pay for CenterPoint Houston's services or could
cause them to delay such payments. CenterPoint Houston depends on these retail
electric providers to remit payments on a timely basis. Any delay or default in
payment could adversely affect CenterPoint Houston's cash flows, financial
condition and results of operations. Reliant Resources, through its
subsidiaries, is CenterPoint Houston's largest customer. Approximately 70% of
CenterPoint Houston's $83 million in billed receivables from retail electric
providers at December 31, 2003 was owed by subsidiaries of Reliant Resources.
Pursuant to the Texas electric restructuring law, Reliant Resources will be
obligated to make a "price to beat" clawback payment to CenterPoint Houston in
2004 which is currently estimated by Reliant Resources to be $175 million.
CenterPoint Houston's financial condition may be adversely affected if Reliant
Resources is unable to meet these obligations.

RATE REGULATION OF CENTERPOINT HOUSTON'S BUSINESS MAY DELAY OR DENY
CENTERPOINT HOUSTON'S FULL RECOVERY OF ITS COSTS.

CenterPoint Houston's rates are regulated by certain municipalities and the
Texas Utility Commission based on an analysis of its invested capital and its
expenses incurred in a test year. Thus, the rates that CenterPoint Houston is
allowed to charge may not match its expenses at any given time. While rate
regulation in Texas is premised on providing a reasonable opportunity to recover
reasonable and necessary operating expenses and to earn a reasonable return on
its invested capital, there can be no assurance that the Texas Utility
Commission will judge all of CenterPoint Houston's costs to be reasonable or
necessary or that the regulatory process in which rates are determined will
always result in rates that will produce full recovery of CenterPoint Houston's
costs.

DISRUPTIONS AT POWER GENERATION FACILITIES OWNED BY THIRD PARTIES COULD
INTERRUPT CENTERPOINT HOUSTON'S SALES OF TRANSMISSION AND DISTRIBUTION
SERVICES.

CenterPoint Houston depends on power generation facilities owned by third
parties to provide retail electric providers with electric power which it
transmits and distributes to customers of the retail electric providers.
CenterPoint Houston does not own or operate any power generation facilities. If
power generation is disrupted or if power generation capacity is inadequate,
CenterPoint Houston's services may be interrupted, and its results of
operations, financial condition and cash flows may be adversely affected.

CENTERPOINT HOUSTON'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.

A portion of CenterPoint Houston's revenues is derived from rates that it
collects from each retail electric provider based on the amount of electricity
it distributes on behalf of such retail electric provider. Thus, CenterPoint
Houston's revenues and results of operations are subject to seasonality, weather
conditions and other changes in electricity usage, with revenues being higher
during the warmer months.

RISK FACTORS AFFECTING OUR ELECTRIC GENERATION BUSINESS

TEXAS GENCO'S REVENUES AND RESULTS OF OPERATIONS ARE IMPACTED BY MARKET RISKS
THAT ARE BEYOND ITS CONTROL.

Texas Genco sells electric generation capacity, energy and ancillary
services in the ERCOT market. The ERCOT market consists of the majority of the
population centers in Texas and represents approximately 85% of the demand for
power in the state. Under the Texas electric restructuring law, Texas Genco and
other power generators in Texas are not subject to traditional cost-based
regulation and, therefore, may sell electric generation capacity, energy and
ancillary services to wholesale purchasers at prices determined by the market.
As a result, Texas Genco is not guaranteed any rate of return on its capital
investments through mandated rates, and its revenues and results of operations
depend, in large part, upon prevailing market prices for electricity in the
ERCOT market. Market prices for electricity, generation capacity, energy and
ancillary services may fluctuate substantially. Texas Genco's gross margins are
primarily derived from the sale of capacity entitlements associated with its
large, solid fuel base-load generating units, including its coal and

lignite fueled generating stations and its interest in the South Texas Project
nuclear generating station. The gross margins generated from payments associated
with the capacity of these units are directly impacted by natural gas prices.
Since the fuel costs for Texas Genco's base-load units are largely fixed under
long-term contracts, they are generally not subject to significant daily and
monthly fluctuations. However, the market price for power in the ERCOT market is
directly affected by the price of natural gas. Because natural gas is the
marginal fuel for facilities serving the ERCOT market during most hours, its
price has a significant influence on the price of electric power. As a result,
the price customers are willing to pay for entitlements to Texas Genco's solid
fuel-fired base-load capacity generally rises and falls with natural gas prices.

Market prices in the ERCOT market may also fluctuate substantially due to
other factors. Such fluctuations may occur over relatively short periods of
time. Volatility in market prices may result from:

- oversupply or undersupply of generation capacity,

- power transmission or fuel transportation constraints or inefficiencies,

- weather conditions,

- seasonality,

- availability and market prices for natural gas, crude oil and refined
products, coal, enriched uranium and uranium fuels,

- changes in electricity usage,

- additional supplies of electricity from existing competitors or new
market entrants as a result of the development of new generation
facilities or additional transmission capacity,

- illiquidity in the ERCOT market,

- availability of competitively priced alternative energy sources,

- natural disasters, wars, embargoes, terrorist attacks and other
catastrophic events, and

- federal and state energy and environmental regulation and legislation.

THERE IS CURRENTLY A SURPLUS OF GENERATING CAPACITY IN THE ERCOT MARKET AND WE
EXPECT THE MARKET FOR WHOLESALE POWER TO BE HIGHLY COMPETITIVE.

The amount by which power generating capacity exceeds peak demand (reserve
margin) in the ERCOT market has exceeded 30% since 2001, and the Texas Utility
Commission and the ERCOT Independent System Operator (ISO) have forecasted the
reserve margin for 2004 to continue to exceed 30%. The commencement of
commercial operation of new power generation facilities in the ERCOT market has
increased and will continue to increase the competitiveness of the wholesale
power market, which could have a material adverse effect on Texas Genco's
results of operations, financial condition, cash flows and the market value of
Texas Genco's assets.

Texas Genco's competitors include generation companies affiliated with
Texas-based utilities, independent power producers, municipal and co-operative
generators and wholesale power marketers. The unbundling of vertically
integrated utilities into separate generation, transmission and distribution,
and retail businesses pursuant to the Texas electric restructuring law could
result in a significant number of additional competitors participating in the
ERCOT market. Some of Texas Genco's competitors may have greater financial
resources, lower cost structures, more effective risk management policies and
procedures, greater ability to incur losses, greater potential for profitability
from ancillary services, and greater flexibility in the timing of their sale of
generating capacity and ancillary services than Texas Genco does.

TEXAS GENCO IS SUBJECT TO OPERATIONAL AND MARKET RISKS ASSOCIATED WITH ITS
CAPACITY AUCTIONS.

Texas Genco has sold entitlements to a significant portion of its available
2004 and 2005 generating capacity in its capacity auctions held to date.
Although Texas Genco's obligation to conduct contractually-

mandated auctions terminated in January 2004, it currently remains obligated to
sell 15% of its installed generation capacity and related ancillary services
pursuant to state-mandated auctions and it expects to conduct future capacity
auctions with respect to all or part of its remaining capacity from time to
time. In these auctions, Texas Genco sold firm entitlements on a forward basis
to capacity and ancillary services dispatched within specified operational
constraints. Although Texas Genco has reserved a portion of its aggregate net
generation capacity from its capacity auctions for planned or forced outages at
its facilities, unanticipated plant outages or other problems with its
generation facilities could result in its firm capacity and ancillary services
commitments exceeding its available generation capacity. As a result, an
unexpected outage at one of Texas Genco's lower-cost facilities could require it
to run one of its higher-cost plants or obtain replacement power from third
parties in the open market in order to satisfy its obligations even though the
energy payments for the dispatched power are based on the cost of its lower-cost
facilities.

THE OPERATION OF TEXAS GENCO'S POWER GENERATION FACILITIES INVOLVES RISKS THAT
COULD ADVERSELY AFFECT ITS REVENUES, COSTS, RESULTS OF OPERATIONS, FINANCIAL
CONDITION AND CASH FLOWS.

Texas Genco is subject to various risks associated with operating its power
generation facilities, any of which could adversely affect its revenues, costs,
results of operations, financial condition and cash flows. These risks include:

- operating performance below expected levels of output or efficiency,

- breakdown or failure of equipment or processes,

- disruptions in the transmission of electricity,

- shortages of equipment, material or labor,

- labor disputes,

- fuel supply interruptions,

- limitations that may be imposed by regulatory requirements, including,
among others, environmental standards,

- limitations imposed by the ERCOT ISO,

- violations of permit limitations,

- operator error, and

- catastrophic events such as fires, hurricanes, explosions, floods,
terrorist attacks or other similar occurrences.

A significant portion of Texas Genco's facilities were constructed many
years ago. Older generation equipment, even if maintained in accordance with
good engineering practices, may require significant capital expenditures to keep
it operating at high efficiency and to meet regulatory requirements. This
equipment is also likely to require periodic upgrading and improvement. Any
unexpected failure to produce power, including failure caused by breakdown or
forced outage, could result in increased costs of operations and reduced
earnings.

In December 2003, one of the three auxiliary standby diesel generators for
Unit 2 at the South Texas Project failed during a routine test. The NRC allowed
continued operation of Unit 2 while repairs to the generator were made. Repairs
are expected to be completed before the end of a scheduled refueling outage on
the unit in the spring of 2004. Should Unit 2 experience an unplanned shutdown
prior to its scheduled outage, there is a risk that the NRC would not permit
restarting the unit until the diesel generator was fully repaired. Texas Genco's
share of the ultimate cost of repairs to the diesel generator is estimated to be
approximately $5 million and is expected to be substantially covered by
insurance.

TEXAS GENCO RELIES ON POWER TRANSMISSION FACILITIES THAT IT DOES NOT OWN OR
CONTROL AND THAT ARE SUBJECT TO TRANSMISSION CONSTRAINTS WITHIN THE ERCOT
MARKET. IF THESE FACILITIES FAIL TO PROVIDE TEXAS GENCO WITH ADEQUATE
TRANSMISSION CAPACITY, IT MAY NOT BE ABLE TO DELIVER WHOLESALE ELECTRIC POWER
TO ITS CUSTOMERS AND IT MAY INCUR ADDITIONAL COSTS.

Texas Genco depends on transmission and distribution facilities owned and
operated by CenterPoint Houston and by others to deliver the wholesale electric
power it sells from its power generation facilities to its customers, who in
turn deliver power to the end users. If transmission is disrupted, or if
transmission capacity infrastructure is inadequate, Texas Genco's ability to
sell and deliver wholesale electric energy may be adversely impacted.

The single control area of the ERCOT market for 2004 is organized into five
congestion zones. Transmission congestion between the zones could impair Texas
Genco's ability to schedule power for transmission across zonal boundaries,
which are defined by the ERCOT ISO, thereby inhibiting Texas Genco's efforts to
match its facility scheduled outputs with its customer scheduled requirements.
In addition, power generators participating in the ERCOT market could be liable
for congestion costs associated with transferring power between zones.

TEXAS GENCO'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS COULD
BE ADVERSELY IMPACTED BY A DISRUPTION OF ITS FUEL SUPPLIES.

Texas Genco relies primarily on natural gas, coal, lignite and uranium to
fuel its generation facilities. Texas Genco purchases its fuel from a number of
different suppliers under long-term contracts and on the spot market. Texas
Genco sells firm entitlements to capacity and ancillary services. Therefore, any
disruption in the delivery of fuel could prevent Texas Genco from operating its
facilities, or force Texas Genco to enter into alternative arrangements at
higher than prevailing market prices, to meet its auction commitments, which
could adversely affect its results of operations, financial condition and cash
flows.

TO DATE, TEXAS GENCO HAS SOLD A SUBSTANTIAL PORTION OF ITS CAPACITY
ENTITLEMENTS TO SUBSIDIARIES OF RELIANT RESOURCES. ACCORDINGLY, TEXAS GENCO'S
RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS COULD BE ADVERSELY
AFFECTED IF RELIANT RESOURCES CEASES TO BE A MAJOR CUSTOMER OR FAILS TO MEET
ITS OBLIGATIONS.

By participating in Texas Genco's contractually-mandated auctions,
subsidiaries of Reliant Resources have purchased entitlements to 79% of Texas
Genco's sold 2004 capacity and 68% of Texas Genco's sold 2005 capacity. Reliant
Resources has made these purchases either through the exercise of its
contractual rights to purchase 50% of the entitlements Texas Genco auctioned in
its prior contractually-mandated auctions or through the submission of bids. In
the event Reliant Resources ceases to be a major customer or fails to meet its
obligations to Texas Genco, Texas Genco's results of operations, financial
condition and cash flows could be adversely affected. As of December 31, 2003,
Reliant Resources' securities ratings are below investment grade. Texas Genco
has been granted a security interest in accounts receivable and/or
securitization notes associated with the accounts receivable of certain
subsidiaries of Reliant Resources to secure up to $250 million in purchase
obligations.

TEXAS GENCO MAY INCUR SUBSTANTIAL COSTS AND LIABILITIES AS A RESULT OF ITS
OWNERSHIP OF NUCLEAR FACILITIES.

Texas Genco owns a 30.8% interest in the South Texas Project, a nuclear
powered generation facility. As a result, Texas Genco is subject to risks
associated with the ownership and operation of nuclear facilities. These risks
include:

- liability associated with the potential harmful effects on the
environment and human health resulting from the operation of nuclear
facilities and the storage, handling and disposal of radioactive
materials,

- limitations on the amounts and types of insurance commercially available
to cover losses that might arise in connection with nuclear operations,
and

- uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives.

The NRC has broad authority under federal law to impose licensing and
safety-related requirements for the operation of nuclear generation facilities.
In the event of non-compliance, the NRC has the authority to impose fines, shut
down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Any revised safety requirements
promulgated by the NRC could necessitate substantial capital expenditures at
nuclear plants. In addition, although we have no reason to anticipate a serious
nuclear incident at the South Texas Project, if an incident were to occur, it
could have a material adverse effect on Texas Genco's results of operations,
financial condition and cash flows.

TEXAS GENCO'S OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION, INCLUDING
ENVIRONMENTAL REGULATION. IF TEXAS GENCO FAILS TO COMPLY WITH APPLICABLE
REGULATIONS OR TO OBTAIN OR MAINTAIN ANY NECESSARY GOVERNMENTAL PERMIT OR
APPROVAL, IT MAY BE SUBJECT TO CIVIL, ADMINISTRATIVE AND/OR CRIMINAL PENALTIES
THAT COULD ADVERSELY IMPACT ITS RESULTS OF OPERATIONS, FINANCIAL CONDITION AND
CASH FLOWS.

Texas Genco's operations are subject to complex and stringent energy,
environmental and other governmental laws and regulations. The acquisition,
ownership and operation of power generation facilities require numerous permits,
approvals and certificates from federal, state and local governmental agencies.
These facilities are subject to regulation by the Texas Utility Commission
regarding non-rate matters. Existing regulations may be revised or
reinterpreted, new laws and regulations may be adopted or become applicable to
Texas Genco or any of its generation facilities or future changes in laws and
regulations may have a detrimental effect on its business.

Operation of the South Texas Project is subject to regulation by the NRC.
This regulation involves testing, evaluation and modification of all aspects of
plant operation in light of NRC safety and environmental requirements.
Continuous demonstrations to the NRC that plant operations meet applicable
requirements are also required. The NRC has the ultimate authority to determine
whether any nuclear powered generating unit may operate.

Water for certain of Texas Genco's facilities is obtained from public water
authorities. New or revised interpretations of existing agreements by those
authorities or changes in price or availability of water may have a detrimental
effect on Texas Genco's business.

Texas Genco's business is subject to extensive environmental regulation by
federal, state and local authorities. Texas Genco is required to comply with
numerous environmental laws and regulations and to obtain numerous governmental
permits in operating its facilities. Texas Genco may incur significant
additional costs to comply with these requirements. If Texas Genco fails to
comply with these requirements or with any other regulatory requirements that
apply to its operations, it could be subject to administrative, civil and/or
criminal liability and fines, and regulatory agencies could take other actions
seeking to curtail its operations. These liabilities or actions could adversely
impact its results of operations, financial condition and cash flows.

Existing environmental regulations could be revised or reinterpreted, new
laws and regulations could be adopted or become applicable to Texas Genco or its
facilities, and future changes in environmental laws and regulations could
occur, including potential regulatory and enforcement developments related to
air emissions. If any of these events were to occur, Texas Genco's business,
results of operations, financial condition and cash flows could be adversely
affected.

Texas Genco may not be able to obtain or maintain from time to time all
required environmental regulatory approvals. If there is a delay in obtaining
any required environmental regulatory approvals or if Texas Genco fails to
obtain and comply with them, it may not be able to operate its facilities or it
may be required to incur additional costs. Texas Genco is generally responsible
for all on-site liabilities associated with the environmental condition of its
power generation facilities, regardless of when the liabilities arose and
whether the liabilities are known or unknown. These liabilities may be
substantial.

TEXAS GENCO'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.

The demand for power in the ERCOT market is seasonal, with higher demand
occurring during the warmer months. Accordingly, Texas Genco's customers are
generally willing to pay higher prices for entitlements to Texas Genco's
capacity during warmer months. As a result, Texas Genco's revenues and results
of operations are subject to seasonality, with revenues being higher during the
warmer months.

RISK FACTORS AFFECTING OUR NATURAL GAS DISTRIBUTION AND PIPELINES AND GATHERING
BUSINESSES

RATE REGULATION OF CERC'S BUSINESS MAY DELAY OR DENY CERC'S FULL RECOVERY OF
ITS COSTS.

CERC's rates for natural gas distribution are regulated by certain
municipalities and state commissions based on an analysis of its invested
capital and its expenses incurred in a test year. Thus, the rates that CERC is
allowed to charge may not match its expenses at any given time. While rate
regulation is, generally, premised on providing a reasonable opportunity to
recover reasonable and necessary operating expenses and to earn a reasonable
return on invested capital, there can be no assurance that the municipalities
and state commissions will judge all of CERC's costs to be reasonable or
necessary or that the regulatory process in which rates are determined will
always result in rates that will produce full recovery of CERC's costs.

CERC'S BUSINESSES MUST COMPETE WITH ALTERNATIVE ENERGY SOURCES, AND ITS
PIPELINES AND GATHERING BUSINESSES MUST COMPETE DIRECTLY WITH OTHERS IN THE
TRANSPORTATION AND STORAGE OF NATURAL GAS.

CERC competes primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other natural gas
distributors and marketers also compete directly with CERC for natural gas sales
to end-users. In addition, as a result of federal regulatory changes affecting
interstate pipelines, natural gas marketers operating on these pipelines may be
able to bypass CERC's facilities and market, sell and/or transport natural gas
directly to commercial and industrial customers. Any reduction in the amount of
natural gas marketed, sold or transported by CERC as a result of competition may
have an adverse impact on CERC's results of operations, financial condition and
cash flows.

CERC's two interstate pipelines and its gathering systems compete with
other interstate and intrastate pipelines and gathering systems in the
transportation and storage of natural gas. The principal elements of competition
are rates, terms of service, and flexibility and reliability of service. They
also compete indirectly with other forms of energy, including electricity, coal
and fuel oils. The primary competitive factor is price. The actions of CERC's
competitors could lead to lower prices, which may have an adverse impact on
CERC's results of operations, financial condition and cash flows.

CERC'S NATURAL GAS DISTRIBUTION BUSINESS IS SUBJECT TO FLUCTUATIONS IN NATURAL
GAS PRICING LEVELS.

CERC is subject to risk associated with price movements of natural gas.
Movements in natural gas prices might affect CERC's ability to collect balances
due from its customers and could create the potential for uncollectible accounts
expense to exceed the recoverable levels built into CERC's tariff rates. In
addition, a sustained period of high natural gas prices could apply downward
demand pressure on natural gas consumption in CERC's service territory.
Additionally, increasing gas prices could create the need for CERC to provide
collateral in order to purchase gas.

CERC MAY INCUR CARRYING COSTS ASSOCIATED WITH PASSING THROUGH CHANGES IN THE
COSTS OF NATURAL GAS.

Generally, the regulations of the states in which CERC operates allow it to
pass through changes in the costs of natural gas to its customers through
purchased gas adjustment provisions in the applicable tariffs. There is,
however, a timing difference between its purchases of natural gas and the
ultimate recovery of these costs. Consequently, CERC may incur carrying costs as
a result of this timing difference that are not recoverable from its customers.
The failure to recover those additional carrying costs may have an adverse
effect on CERC's results of operations, financial condition and cash flows.

IF CERC WERE TO FAIL TO EXTEND CONTRACTS WITH TWO OF ITS SIGNIFICANT PIPELINE
CUSTOMERS, THERE COULD BE AN ADVERSE IMPACT ON ITS OPERATIONS.

Contracts with two of our significant pipeline customers, CenterPoint
Energy Arkla and Laclede Gas Company, are currently scheduled to expire in 2005
and 2007, respectively. To the extent the pipelines are unable to extend these
contracts or the contracts are renegotiated at rates substantially different
than the rates provided in the current contracts, there could be an adverse
effect on CERC's results of operations, financial condition and cash flows.

CERC'S INTERSTATE PIPELINES' REVENUES AND RESULTS OF OPERATIONS ARE SUBJECT TO
FLUCTUATIONS IN THE SUPPLY OF GAS.

CERC's interstate pipelines largely rely on gas sourced in the various
supply basins located in the Midcontinent region of the United States. To the
extent the availability of this supply is substantially reduced, it could have
an adverse effect on CERC's results of operations, financial condition and cash
flows.

CERC'S REVENUES AND RESULTS OF OPERATIONS ARE SEASONAL.

A substantial portion of CERC's revenues are derived from natural gas sales
and transportation. Thus, CERC's revenues and results of operations are subject
to seasonality, weather conditions and other changes in natural gas usage, with
revenues being higher during the winter months.

RISK FACTORS ASSOCIATED WITH OUR CONSOLIDATED FINANCIAL CONDITION

IF WE ARE UNABLE TO ARRANGE FUTURE FINANCINGS ON ACCEPTABLE TERMS, OUR ABILITY
TO FUND FUTURE CAPITAL EXPENDITURES AND REFINANCE EXISTING INDEBTEDNESS COULD
BE LIMITED.

As of December 31, 2003, we had $11.0 billion of outstanding indebtedness
on a consolidated basis. Approximately $3.5 billion principal amount of this
debt must be paid through 2006, excluding principal repayments of approximately
$142 million on transition bonds. In addition, the capital constraints and other
factors currently impacting our businesses may require our future indebtedness
to include terms that are more restrictive or burdensome than those of our
current indebtedness. These terms may negatively impact our ability to operate
our business, adversely affect our financial condition and results of operations
or severely restrict or prohibit distributions from our subsidiaries. The
success of our future financing efforts may depend, at least in part, on:

- our ability to recover the true-up components and to monetize our
investment in Texas Genco;

- general economic and capital market conditions;

- credit availability from financial institutions and other lenders;

- investor confidence in us and the market in which we operate;

- maintenance of acceptable credit ratings;

- market expectations regarding our future earnings and probable cash
flows;

- market perceptions of our ability to access capital markets on reasonable
terms;

- our exposure to Reliant Resources in connection with its indemnification
obligations arising in connection with its separation from us;

- provisions of relevant tax and securities laws; and

- our ability to obtain approval of specific financing transactions under
the 1935 Act.

Our capital structure and liquidity will be significantly impacted in the
2004/2005 period by our ability to recover the true-up components through the
regulatory process beginning in March 2004. To the extent our recovery is denied
or materially reduced, our liquidity and financial condition will be materially
adversely affected.
33

As of March 1, 2004, our CenterPoint Houston subsidiary has $3.2 billion
principal amount of general mortgage bonds outstanding and $382 million of first
mortgage bonds outstanding. It may issue additional general mortgage bonds on
the basis of retired bonds, 70% of property additions or cash deposited with the
trustee. Although approximately $400 million of additional first mortgage bonds
and general mortgage bonds could be issued on the basis of retired bonds and 70%
of property additions as of December 31, 2003, CenterPoint Houston has agreed
under the $1.3 billion collateralized term loan maturing in 2005 to not issue,
subject to certain exceptions, more than $200 million of incremental secured or
unsecured debt. In addition, CenterPoint Houston is contractually prohibited,
subject to certain exceptions, from issuing additional first mortgage bonds.

Our current credit ratings are discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Future Sources and Uses of Cash -- Impact on Liquidity of a
Downgrade in Credit Ratings" in Item 7 of Part II of this report. We cannot
assure you that these credit ratings will remain in effect for any given period
of time or that one or more of these ratings will not be lowered or withdrawn
entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal
of one or more of our credit ratings could have a material adverse impact on our
ability to access capital on acceptable terms.

AS A HOLDING COMPANY WITH NO OPERATIONS OF OUR OWN, WE WILL DEPEND ON
DISTRIBUTIONS FROM OUR SUBSIDIARIES TO MEET OUR PAYMENT OBLIGATIONS, AND
PROVISIONS OF APPLICABLE LAW OR CONTRACTUAL RESTRICTIONS COULD LIMIT THE
AMOUNT OF THOSE DISTRIBUTIONS.

We derive substantially all our operating income from, and hold
substantially all our assets through, our subsidiaries. As a result, we will
depend on distributions from our subsidiaries in order to meet our payment
obligations. In general, these subsidiaries are separate and distinct legal
entities and have no obligation to provide us with funds for our payment
obligations, whether by dividends, distributions, loans or otherwise. In
addition, provisions of applicable law, such as those limiting the legal sources
of dividends and those under the 1935 Act, limit their ability to make payments
or other distributions to us, and they could agree to contractual restrictions
on their ability to make distributions.

Our right to receive any assets of any subsidiary, and therefore the right
of our creditors to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. In addition, even if we were a creditor of any subsidiary, our rights
as a creditor would be subordinated to any security interest in the assets of
that subsidiary and any indebtedness of the subsidiary senior to that held by
us.

AN INCREASE IN SHORT-TERM INTEREST RATES COULD ADVERSELY AFFECT OUR CASH
FLOWS.

As of December 31, 2003, we had $2.8 billion of outstanding floating-rate
debt owed to third parties. The interest rate spreads on such debt are
substantially above our historical interest rate spreads. In addition, any
floating-rate debt issued by us in the future could be at interest rates
substantially above our historical borrowing rates. While we may seek to use
interest rate swaps in order to hedge portions of our floating-rate debt, we may
not be successful in obtaining hedges on acceptable terms. An increase in
short-term interest rates could result in higher interest costs and could
adversely affect our results of operations, financial condition and cash flows.

OTHER RISKS

WE AND CENTERPOINT HOUSTON COULD INCUR LIABILITIES ASSOCIATED WITH BUSINESSES
AND ASSETS THAT WE HAVE TRANSFERRED TO OTHERS.

Under some circumstances, we and CenterPoint Houston could incur
liabilities associated with assets and businesses we and CenterPoint Houston no
longer own. These assets and businesses were previously owned by Reliant Energy
directly or through subsidiaries and include:

- those transferred to Reliant Resources or its subsidiaries in connection
with the organization and capitalization of Reliant Resources prior to
its initial public offering in 2001,

- those transferred to Texas Genco in connection with its organization and
capitalization, and

- those transferred to us and CenterPoint Houston in connection with the
August 2002 restructuring of Reliant Energy.

In connection with the organization and capitalization of Reliant
Resources, Reliant Resources and its subsidiaries assumed liabilities associated
with various assets and businesses Reliant Energy transferred to them. Reliant
Resources also agreed to indemnify, and cause the applicable transferee
subsidiaries to indemnify, us and our subsidiaries, including CenterPoint
Houston, with respect to liabilities associated with the transferred assets and
businesses. The indemnity provisions were intended to place sole financial
responsibility on Reliant Resources and its subsidiaries for all liabilities
associated with the current and historical businesses and operations of Reliant
Resources, regardless of the time those liabilities arose. If Reliant Resources
is unable to satisfy a liability that has been so assumed in circumstances in
which Reliant Energy has not been released from the liability in connection with
the transfer, we or CenterPoint Houston could be responsible for satisfying the
liability.

Reliant Resources reported in its Annual Report on Form 10-K for the year
ended December 31, 2003 that as of December 31, 2003 it had $6.1 billion of
total debt and its unsecured debt ratings are currently below investment grade.
If Reliant Resources were unable to meet its obligations, it would need to
consider, among various options, restructuring under the bankruptcy laws, in
which event Reliant Resources might not honor its indemnification obligations
and claims by Reliant Resources' creditors might be made against us as its
former owner.

Reliant Energy and Reliant Resources are named as defendants in a number of
lawsuits arising out of power sales in California and other West Coast markets
and financial reporting matters. Although these matters relate to the business
and operations of Reliant Resources, claims against Reliant Energy have been
made on grounds that include the effect of Reliant Resources' financial results
on Reliant Energy's historical financial statements and liability of Reliant
Energy as a controlling shareholder of Reliant Resources. We or CenterPoint
Houston could incur liability if claims in one or more of these lawsuits were
successfully asserted against us or CenterPoint Houston and indemnification from
Reliant Resources were determined to be unavailable or if Reliant Resources were
unable to satisfy indemnification obligations owed with respect to those claims.

In connection with the organization and capitalization of Texas Genco,
Texas Genco assumed liabilities associated with the electric generation assets
Reliant Energy transferred to it. Texas Genco also agreed to indemnify, and
cause the applicable transferee subsidiaries to indemnify, us and our
subsidiaries, including CenterPoint Houston, with respect to liabilities
associated with the transferred assets and businesses. In many cases the
liabilities assumed were held by CenterPoint Houston and CenterPoint Houston was
not released by third parties from these liabilities. The indemnity provisions
were intended generally to place sole financial responsibility on Texas Genco
and its subsidiaries for all liabilities associated with the current and
historical businesses and operations of Texas Genco, regardless of the time
those liabilities arose. If Texas Genco were unable to satisfy a liability that
had been so assumed or indemnified against, and provided Reliant Energy had not
been released from the liability in connection with the transfer, CenterPoint
Houston could be responsible for satisfying the liability.

WE MAY NOT BE ABLE TO MONETIZE TEXAS GENCO ON TERMS WE FIND ACCEPTABLE.

On January 23, 2004, Reliant Resources announced that it would not exercise
its option to purchase the common stock of Texas Genco that we own. We will
continue to operate Texas Genco's facilities and are pursuing an alternative
strategy to monetize Texas Genco, and we have engaged a financial advisor to
assist us in that pursuit. We may not be able to monetize our interest in Texas
Genco under any alternative strategy on terms we find acceptable. In addition,
delays in monetization may increase the risk that the value of the ownership
interest used in the stranded cost determination, which is to be based on market
prices for Texas Genco common stock during the 120 trading days ending on March
30, 2004, will be higher than the proceeds received in the monetization process.

WE, TOGETHER WITH OUR SUBSIDIARIES, EXCLUDING TEXAS GENCO, ARE SUBJECT TO
REGULATION UNDER THE 1935 ACT. THE 1935 ACT AND RELATED RULES AND REGULATIONS
IMPOSE A NUMBER OF RESTRICTIONS ON OUR ACTIVITIES.

We and our subsidiaries, excluding Texas Genco, are subject to regulation
by the SEC under the 1935 Act. The 1935 Act, among other things, limits the
ability of a holding company and its regulated subsidiaries to issue debt and
equity securities without prior authorization, restricts the source of dividend
payments to current and retained earnings without prior authorization, regulates
sales and acquisitions of certain assets and businesses and governs affiliate
transactions.

We received an order from the SEC under the 1935 Act on June 30, 2003
relating to our financing activities, which is effective until June 30, 2005. We
must seek a new order before the expiration date. Although authorized levels of
financing, together with current levels of liquidity, are believed to be
adequate during the period the order is effective, unforeseen events could
result in capital needs in excess of authorized amounts, necessitating further
authorization from the SEC. Approval of filings under the 1935 Act can take
extended periods.

If as a result of the 2004 True-Up Proceeding or any other event we are
required to take a charge against our net income, our current earnings could be
reduced below the level which would enable us to pay the quarterly dividend on
our common stock under our current SEC financing order. We expect to file an
application with the SEC under the 1935 Act requesting an order authorizing us,
in the event that we are required to take such a charge against our net income,
to pay quarterly dividends out of capital or unearned surplus.

In addition, we would be required under the 1935 Act to obtain approval
from the SEC to issue and sell securities for purposes of funding Texas Genco's
operations or to guarantee a security of Texas Genco, except in emergency
situations (in which we could provide funding pursuant to applicable SEC rules).
Our failure to obtain approvals under the 1935 Act in a timely manner could
adversely affect our and our subsidiaries' results of operations, financial
condition and cash flows.

The United States Congress is currently considering legislation that has a
provision that would repeal the 1935 Act. We cannot predict at this time whether
this legislation or any variation thereof will be adopted or, if adopted, the
effect of any such law on our business.

OUR INSURANCE COVERAGE MAY NOT BE SUFFICIENT. INSUFFICIENT INSURANCE COVERAGE
AND INCREASED INSURANCE COSTS COULD ADVERSELY IMPACT OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.

We currently have general liability and property insurance in place to
cover certain of our facilities in amounts that we consider appropriate. Such
policies are subject to certain limits and deductibles and do not include
business interruption coverage. We cannot assure you that insurance coverage
will be available in the future at current costs or on commercially reasonable
terms or that the insurance proceeds received for any loss of or any damage to
any of our facilities will be sufficient to restore the loss or damage without
negative impact on our results of operations, financial condition and cash
flows.

damage insurance coverage, which is above the legally required minimum, but is
less than the total amount of insurance currently available for such losses.
Under the federal Price Anderson Act, the maximum liability to the public of
owners of nuclear power plants was $10.6 billion as of December 31, 2003. Owners
are required under the Price Anderson Act to insure their liability for nuclear
incidents and protective evacuations. Texas Genco and the other owners of the
South Texas Project currently maintain the required nuclear liability insurance
and participate in the industry retrospective rating plan. In addition, the
security procedures at this facility have recently been enhanced to provide
additional protection against terrorist attacks. All potential losses or
liabilities associated with the South Texas Project may not be insurable, and
the amount of insurance may not be sufficient to cover them.

In common with other companies in its line of business that serve coastal
regions, CenterPoint Houston does not have insurance covering its transmission
and distribution system because CenterPoint Houston believes it to be cost
prohibitive. If CenterPoint Houston were to sustain any loss of or damage to its
transmission and distribution properties, it would be entitled to seek to
recover such loss or damage through a change in its regulated rates, although
there is no assurance that CenterPoint Houston ultimately would obtain any such
rate recovery or that any such rate recovery would be timely granted. Therefore,
we cannot assure you that CenterPoint Houston will be able to restore any loss
of or damage to any of its transmission and distribution properties without
negative impact on its results of operations, financial condition and cash
flows.

ITEM 2. PROPERTIES

CHARACTER OF OWNERSHIP

We own or lease our principal properties in fee, including our corporate
office space and various real property and facilities relating to our generation
assets and development activities. Most of our electric lines and gas mains are
located, pursuant to easements and other rights, on public roads or on land
owned by others.

ELECTRIC TRANSMISSION & DISTRIBUTION

For information regarding the properties of our Electric Transmission &
Distribution business segment, please read "Our Business -- Electric
Transmission & Distribution" in Item 1 of this report, which information is
incorporated herein by reference.

ELECTRIC GENERATION

For information regarding the properties of our Electric Generation
business segment, please read "Our Business -- Electric Generation" in Item 1 of
this report, which information is incorporated herein by reference.

NATURAL GAS DISTRIBUTION

For information regarding the properties of our Natural Gas Distribution
business segment, please read "Our Business -- Natural Gas Distribution" in Item
1 of this report, which information is incorporated herein by reference.

PIPELINES AND GATHERING

For information regarding the properties of our Pipelines and Gathering
business segment, please read "Our Business -- Pipelines and Gathering" in Item
1 of this report, which information is incorporated herein by reference.

OTHER OPERATIONS

For information regarding the properties of our Other Operations business
segment, please read "Our Business -- Other Operations" in Item 1 of this
report, which information is incorporated herein by reference.

ITEM 3. LEGAL PROCEEDINGS

For a brief description of certain legal and regulatory proceedings
affecting us, please read "Regulation" and "Environmental Matters" in Item 1 of
this report and Notes 4 and 12 to our consolidated financial statements, which
information is incorporated herein by reference.

In addition to the matters incorporated herein by reference, the following
matters that we previously reported have been resolved:

In August and October 2003, class action lawsuits were filed against
CenterPoint Houston and Reliant Energy Services in federal court in New York on
behalf of purchasers of natural gas futures contracts on the New York Mercantile
Exchange. A third, similar class action was filed in the same court in November
2003. The complaints alleged that the defendants manipulated the price of
natural gas through their gas trading activities and price reporting practices
in violation of the Commodity Exchange Act during the period January 1, 2000
through December 31, 2002. The plaintiffs sought damages based on the effect of
such alleged manipulation on the value of the gas futures contracts they bought
or sold. In January 2004, the plaintiffs voluntarily dismissed CenterPoint
Houston from these lawsuits.

During 2003, we and Texas Genco were engaged in a dispute with Northwestern
Resources Co. (NWR), the supplier of fuel to the Limestone electric generation
facility, over the terms and pricing at which NWR supplies fuel to that facility
under a 1999 settlement agreement between the parties and under ancillary
obligations. Both sides to the dispute initiated lawsuits, but in January 2004,
NWR and Texas Genco reached a settlement under which they agreed to dismiss
those lawsuits and under which NWR would continue to provide certain quantities
of lignite at specified prices during the period from 2004 through 2007, after
which time the pricing would revert to pricing provided for under the 1999
settlement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of our security holders during
the fourth quarter of 2003.

PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

As of February 29, 2004, our common stock was held of record by
approximately 62,981 shareholders. Our common stock is listed on the New York
and Chicago Stock Exchanges and is traded under the symbol "CNP."

The following table sets forth the high and low closing prices of the
common stock of CenterPoint Energy or its predecessor on the New York Stock
Exchange composite tape during the periods indicated, as reported by
Bloomberg,and the cash dividends declared in these periods. Prior to August 31,
2002, information shown is for our predecessor, Reliant Energy. Cash dividends
paid aggregated $1.07 per share in 2002 and $0.40 per share in 2003.

MARKET PRICE DIVIDEND
----------------- DECLARED
HIGH LOW PER SHARE
------ ------ ---------

2002
First Quarter......................................... $0.375
January 7........................................... $26.85
February 25......................................... $20.35
Second Quarter........................................ $0.375
April 23............................................ $25.93
May 17.............................................. $14.30
Third Quarter......................................... $ 0.16(1)
July 8.............................................. $17.00
July 24............................................. $ 5.40
Fourth Quarter........................................ $ 0.16
October 3........................................... $ 9.00(2)
October 22.......................................... $ 5.65(2)
2003
First Quarter......................................... $ 0.10
January 6........................................... $ 8.55
February 25......................................... $ 4.50
Second Quarter........................................ $ 0.20(3)
April 2............................................. $ 7.37
May 28.............................................. $ 9.74
Third Quarter......................................... (3)
July 17............................................. $ 7.71
September 29........................................ $ 9.38
Fourth Quarter........................................ $ 0.10
November 3.......................................... $10.11
December 11......................................... $ 9.15

- ---------------

(1) The reduction in the quarterly dividend to $0.16 reflects the reduced size
of CenterPoint Energy after its distribution of all the shares of common
stock of Reliant Resources it owned.

(2) The fourth quarter 2002 stock prices reflect the distribution of our 83%
ownership interest in Reliant Resources on September 30, 2002. The closing
price of Reliant Resources' common stock on that date was $1.75 per share.

(3) The $0.20 per share dividend for the second quarter of 2003 included the
third quarter dividend declared on June 18, 2003 and paid on September 10,
2003.

The closing market price of our common stock on December 31, 2003 was $9.69
per share.

Under the terms of our $2.3 billion bank facility, we agreed that our
quarterly common stock dividend will not exceed $0.10 per share. The 1935 Act
restricts the source of our dividend payments to current and retained earnings,
in the absence of approval from the SEC under the 1935 Act to pay dividends out
of capital or unearned surplus.

In addition to the limitations imposed by our bank facility and the 1935
Act, the amount of future cash dividends will be subject to determination based
upon our results of operations and financial condition, our future business
prospects, any applicable contractual restrictions and other factors that our
board of directors considers relevant and will be declared at the discretion of
the board of directors.

Recent Sale of Unregistered Securities

The information set forth in Note 9(b) of the Notes to our Consolidated
Financial Statements and in Management's Discussion and Analysis of Financial
Condition and Results of Operations of CenterPoint Energy and Subsidiaries in
Item 7 of Part II of this report regarding the issuance on December 17, 2003 of
$255 million aggregate principal amount of our 2.875% convertible senior notes
due 2024 is incorporated by reference herein. We relied on the private placement
exemption under Section 4(2) of the Securities Act of 1933 for the sale to the
initial purchasers.

In addition, we have been advised by Citigroup Global Markets Inc. and
Deutsche Bank Securities Inc., the representatives of the initial purchasers of
the notes, that the notes were issued only to "qualified institutional buyers"
in reliance on Rule 144A under the Securities Act of 1933 and outside the United
States in accordance with Regulation S under the Securities Act of 1933. The
notes were issued at 100% of the principal amount thereof. The initial
purchasers purchased the notes from us at 97.75% of the principal amount
thereof, plus accrued interest.

The notes are convertible into shares of our common stock at a conversion
rate of 78.064 shares per $1,000 principal amount of notes (which is equal to a
conversion price of $12.81 per share), subject to adjustment, but only in
certain specified circumstances. The notes also have a contingent interest
feature requiring contingent interest to be paid to holders of the notes in
certain specified circumstances.

In October 2003, we awarded Milton Carroll 10,000 shares of our common
stock pursuant to an agreement under which he serves as Chairman of our Board of
Directors. We relied on the private placement exemption under Section 4(2) of
the Securities Act of 1933.

Repurchases of Equity Securities

During the year ended December 31, 2003, none of our equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 was
purchased by or on behalf of us or any of our "affiliated purchasers," as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial data with respect to our
consolidated financial condition and consolidated results of operations and
should be read in conjunction with our consolidated financial statements and the
related notes in Item 8 of this report.

YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999(1) 2000 2001(2) 2002 2003(3)(4)
------- ------- ------- ------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Revenues............................................. $ 7,511 $10,283 $10,559 $ 7,898 $ 9,760
------- ------- ------- ------- -------
Income from continuing operations before
extraordinary item and cumulative effect of
accounting change.................................. 1,631 245 499 369 420
Discontinued Operations.............................. 34 202 422 (4,289) (16)
Extraordinary item, net of tax....................... (183) -- -- -- --
Cumulative effect of accounting change, net of tax... -- -- 59 -- 80
------- ------- ------- ------- -------
Net income (loss) attributable to common
shareholders....................................... $ 1,482 $ 447 $ 980 $(3,920) $ 484
======= ======= ======= ======= =======
Basic earnings (loss) per common share:
Income from continuing operations before
extraordinary item and cumulative effect of
accounting change................................ $ 5.72 $ 0.86 $ 1.72 $ 1.24 $ 1.38
Discontinued Operations............................ 0.12 0.71 1.46 (14.40) (0.05)
Extraordinary item, net of tax..................... (0.64) -- -- -- --
Cumulative effect of accounting change, net of
tax.............................................. -- -- 0.20 -- 0.26
------- ------- ------- ------- -------
Basic earnings (loss) per common share............... $ 5.20 $ 1.57 $ 3.38 $(13.16) $ 1.59
======= ======= ======= ======= =======
Diluted earnings (loss) per common share:
Income from continuing operations before
extraordinary item and cumulative effect of
accounting change................................ $ 5.70 $ 0.85 $ 1.71 $ 1.23 $ 1.37
Discontinued Operations............................ 0.12 0.71 1.44 (14.31) (0.05)
Extraordinary item, net of tax..................... (0.64) -- -- -- --
Cumulative effect of accounting change, net of
tax.............................................. -- -- 0.20 -- 0.26
------- ------- ------- ------- -------
Diluted earnings (loss) per common share............. $ 5.18 $ 1.56 $ 3.35 $(13.08) $ 1.58
======= ======= ======= ======= =======
Cash dividends paid per common share................. $ 1.50 $ 1.50 $ 1.50 $ 1.07 $ 0.40
Dividend payout ratio from continuing operations..... 26% 174% 87% 86% 29%
Return from continuing operations on average common
equity............................................. 30.1% 4.6% 9.1% 9.0% 31.4%
Ratio of earnings from continuing operations to fixed
charges............................................ 5.38 1.80 2.18 1.70 1.68
At year-end:
Book value per common share........................ $ 18.70 $ 19.10 $ 22.77 $ 4.74 $ 5.77
Market price per common share...................... $ 22.88 $ 43.31 $ 26.52 $ 8.01 $ 9.69
Market price as a percent of book value............ 122% 227% 116% 169% 168%
Assets of discontinued operations.................. $ 6,095 $14,323 $12,392 $ 63 $ --
Total assets....................................... $29,308 $35,908 $31,971 $20,457 $21,377
Short-term borrowings.............................. $ 3,012 $ 4,886 $ 3,529 $ 347 $ 63
Long-term debt obligations, including current
maturities....................................... $ 8,883 $ 5,756 $ 5,552 $10,005 $10,945
Trust preferred securities(5)...................... $ 705 $ 705 $ 706 $ 706 $ --
Cumulative preferred stock......................... $ 10 $ 10 $ -- $ -- $ --
Capitalization:
Common stock equity.............................. 36% 46% 52% 12% 14%
Trust preferred securities....................... 5% 6% 5% 6% --
Long-term debt, including current maturities..... 59% 48% 43% 82% 86%
Capital expenditures, excluding discontinued
operations....................................... $ 865 $ 905 $ 1,211 $ 846 $ 648

- ---------------

(1) 1999 net income includes an aggregate non-cash, unrealized gain on our
indexed debt securities and our Time Warner Inc. (Time Warner) investment,
of $1.2 billion (after-tax), or $4.09 earnings per basic

share and $4.08 earnings per diluted share. For additional information on
the indexed debt securities and Time Warner investment, please read Note 7
to our consolidated financial statements. The extraordinary item in 1999 is
a loss related to an accounting impairment of certain generation-related
regulatory assets of our Electric Generation business segment.

(2) 2001 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ($59 million after-tax gain, or $0.20
earnings per basic and diluted share). For additional information related to
the cumulative effect of accounting change, please read Note 5 to our
consolidated financial statements.

(3) 2003 net income includes the cumulative effect of an accounting change
resulting from the adoption of SFAS No. 143, "Accounting for Asset
Retirement Obligations" ($80 million after-tax gain, or $0.26 earnings per
basic and diluted share). For additional information related to the
cumulative effect of accounting change, please read Note 2(n) to our
consolidated financial statements.

(4) Resolution of the 2004 True-Up Proceeding and monetization of our remaining
interest in Texas Genco could materially impact our results of operations,
financial condition and cash flows. Additionally, we are no longer permitted
under the Texas electric restructuring law to record non-cash ECOM revenue
in 2004. For more information on these and other matters currently affecting
us, please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Executive Summary -- Significant Events in
2004."

(5) The subsidiary trusts that issued trust preferred securities have been
deconsolidated as a result of the adoption of FIN 46 "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51" (FIN 46) and the subordinated debentures issued to those
trusts are now reported as long-term debt as of December 31, 2003. For
additional information related to the adoption of FIN 46, please read Note
2(n) to our consolidated financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in combination with
our consolidated financial statements included in Item 8 herein.

OVERVIEW

BACKGROUND

We are a public utility holding company, created on August 31, 2002 as part
of a corporate restructuring of Reliant Energy, Incorporated (Reliant Energy) in
compliance with requirements of the Texas electric restructuring law. We are the
successor to Reliant Energy for financial reporting purposes under the
Securities Exchange Act of 1934. Our operating subsidiaries own and operate
electric generation plants, electric transmission and distribution facilities,
natural gas distribution facilities and natural gas pipelines. We are a
registered holding company under the Public Utility Holding Company Act of 1935,
as amended (1935 Act). For information about the 1935 Act, please read " --
Liquidity and Capital Resources -- Future Sources and Uses of Cash -- Certain
Contractual and Regulatory Limits on Ability to Issue Securities and Pay
Dividends on Our Common Stock." Our indirect wholly owned subsidiaries include:

- CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which
owns and operates our electric transmission and distribution business in
the Texas Gulf Coast area; and

- CenterPoint Energy Resources Corp. (CERC Corp., and together with its
subsidiaries, CERC), which owns and operates our local gas distribution
companies, gas gathering systems and interstate pipelines.

We also have an approximately 81% ownership interest in Texas Genco
Holdings, Inc. (Texas Genco), which owns and operates the Texas generating
plants formerly belonging to the integrated electric utility that was a part of
Reliant Energy. We distributed the remaining 19% of the outstanding common stock
of Texas Genco to our shareholders in January 2003.

At the time of Reliant Energy's corporate restructuring, it owned an 83%
interest in Reliant Resources, Inc. (Reliant Resources). On September 30, 2002,
we distributed that interest to our shareholders (the Reliant Resources
Distribution).

BUSINESS SEGMENTS

In this section, we discuss our results from continuing operations on a
consolidated basis and individually for each of our business segments. We also
discuss our liquidity, capital resources and critical accounting policies.
CenterPoint Energy is first and foremost an energy delivery company and it is
our intention to remain focused on this segment of the energy business. The
results of our business operations are significantly impacted by weather,
customer growth, cost management and rate proceedings before regulatory
agencies. Effective with the full deregulation of sales of electric energy to
retail customers in Texas beginning in January 2002, power generators and retail
electric providers in Texas ceased to be subject to traditional cost-based
regulation. Since that date, we have sold generation capacity, energy and
ancillary services related to power generation at prices determined by the
market. The Texas generation operations are reported in the Electric Generation
business segment. Our transmission and distribution services remain subject to
rate regulation and are reported in the Electric Transmission & Distribution
business segment as are impacts of generation-related stranded costs recoverable
by the regulated utility. Although our former retail sales business is no longer
conducted by us, retail customers remained regulated customers of our former
integrated electric utility, Reliant Energy HL&P, through the date of their
first meter reading in 2002. Sales of electricity to retail customers in 2002
prior to this meter reading are reflected in the Electric Transmission &
Distribution business segment. Our reportable business segments include:

Electric Transmission and Distribution

Our electric transmission and distribution operations provide electric
transmission and distribution services to approximately 1.8 million metered
customers in a 5,000-square-mile area of the Texas Gulf coast that has a
population of approximately 4.7 million people and includes Houston.

CenterPoint Houston transports electricity from power plants to substations
and from one substation to another and to retail electric customers in locations
throughout the control area managed by the Electric Reliability Council of
Texas, Inc. (ERCOT) on behalf of retail electric providers. ERCOT is an
intrastate network which serves as the regional reliability coordinating council
for member electric power systems in Texas. The ERCOT market represents
approximately 85% of the demand for power in Texas and is one of the nation's
largest power markets. Transmission services are provided under tariffs approved
by the Public Utility Commission of Texas (the Texas Utility Commission).

Operations include construction and maintenance of electric transmission
and distribution facilities, metering services, outage response services and
other call center operations. Distribution services are provided under tariffs
approved by the Texas Utility Commission.

Electric Generation

Texas Genco owns and operates 60 generating units at 11 power generation
facilities. Texas Genco also owns a 30.8% interest in the South Texas Project
Electric Generating Station (South Texas Project), a nuclear generating station
with two 1,250 megawatt (MW) nuclear generating units. As of December 31, 2003,
the aggregate net generating capacity of Texas Genco's portfolio of generating
assets was 14,153 MW, of which 2,988 MW of gas-fired capacity are currently
mothballed. Texas Genco sells electric generation capacity, energy and ancillary
services in the ERCOT market. Collectively, Texas Genco's facilities provide
over 18% of the aggregate net generating capacity serving the ERCOT market.

Natural Gas Distribution

CERC owns and operates our natural gas distribution business, which engages
in intrastate natural gas sales to, and natural gas transportation for,
approximately 3 million residential, commercial and industrial customers in
Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. These
operations are
43

regulated as natural gas utility operations. Its operations also include
non-rate regulated retail gas sales to and transportation services for
commercial and industrial customers in the six states listed above as well as
several other Midwestern states.

Pipelines and Gathering

CERC's pipelines and gathering business operates two interstate natural gas
pipelines as well as gas gathering facilities and also provides pipeline
services. CERC's pipeline operations provides natural gas transportation,
natural gas storage and pipeline services to customers principally in Arkansas,
Louisiana, Missouri and Oklahoma. CERC's gathering operations are conducted
principally in Arkansas, Louisiana, Oklahoma and Texas.

Other Operations

Our Other Operations business segment includes office buildings and other
real estate used in our business operations and other corporate operations which
support all of our business operations.

EXECUTIVE SUMMARY

2003 HIGHLIGHTS

Our operating performance and cash flow for 2003 compared to 2002 were
affected by:

- a $355 million increase in operating income at Texas Genco due to higher
capacity auction prices;

- continued customer growth with the addition of nearly 85,000 metered
electric and gas customers since December 2002, or an annualized 2%
growth;

- an increase of $33 million in revenues in the natural gas distribution
operations from rate increases;

- an increase of $170 million in interest expense;

- an increase of $69 million in operation and maintenance expense related
to CenterPoint Houston's final fuel reconciliation;

- an increase of $58 million in pension, employee benefit and insurance
costs; and

- a reduction of $198 million in capital expenditures.

Net income for 2003 includes an $80 million after-tax non-cash gain ($0.26
per diluted share) from the adoption of SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143) as further discussed below under
"-- Consolidated Results of Operations". Excluded from the $80 million after-tax
cumulative effect of accounting change recorded during the three months ended
March 31, 2003, is minority interest of $19 million related to the Texas Genco
stock not owned by CenterPoint Energy.

In 2003, we accessed the capital markets to raise approximately $4 billion.
We used these proceeds to repay maturing debt, refinance higher coupon debt, pay
down our short-term credit facilities and enhance our liquidity.

CenterPoint Energy distributed approximately 19% of the 80 million
outstanding shares of common stock of Texas Genco to its shareholders on January
6, 2003 (Texas Genco Distribution). As a result of the Texas Genco Distribution,
CenterPoint Energy recorded an impairment charge of $399 million, which is
reflected as a regulatory asset representing stranded costs on our consolidated
balance sheet as of December 31, 2003. This impairment charge represents the
excess of the carrying value of CenterPoint Energy's net investment in Texas
Genco over the market value of the Texas Genco common stock that was
distributed. The financial impact of this impairment was offset by recording a
$399 million regulatory asset reflecting CenterPoint Energy's expectation of
stranded cost recovery of such impairment. Since this amount is expected to be
recovered in the 2004 True-Up Proceeding, CenterPoint Houston has recorded a
regulatory asset, reflecting its

right to recover this amount, and an associated payable to us. Any additional
impairment or loss that CenterPoint Energy incurs on its Texas Genco investment
that CenterPoint Houston expects to recover as stranded investment will be
recorded in the same manner.

SIGNIFICANT EVENTS IN 2004

During 2004, we expect to complete additional steps in a process that began
when Texas adopted legislation designed to deregulate and restructure the
electric utility industry in the state. That legislation (Texas electric
restructuring law) required integrated electric utilities to separate their
generating, transmission and distribution and retail sales functions pursuant to
plans approved by the Texas Utility Commission.

The Texas electric restructuring law contains provisions that allow our
transmission and distribution utility, CenterPoint Houston, to recover the
amount by which the market value of our generating assets, as determined by the
Texas Utility Commission under a formula prescribed in the law, is below the
regulatory net book value for those assets as of the end of 2001. It also allows
CenterPoint Houston to recover certain other transition costs, such as a final
fuel reconciliation balance, regulatory assets and the difference between the
Texas Utility Commission's projected market prices for generation during 2002
and 2003 and actual market prices for generation as determined in the
state-mandated capacity auctions during that period (called the ECOM true-up).
Those amounts, and certain other adjustments, are to be determined by the Texas
Utility Commission in a proceeding that will begin on March 31, 2004 (2004
True-Up Proceeding). The law requires a final order to be issued by the Texas
Utility Commission not more than 150 days after a proper filing is made by the
regulated utility, although, under its rules the Texas Utility Commission can
extend the 150 day deadline for good cause. After the Texas Utility Commission
determines the amount of the true-up components (the true-up balance) that the
utility may recover, the utility will recover those amounts through a transition
charge added to its transmission and distribution rates. Assuming receipt of a
timely final order from the Texas Utility Commission, we expect to begin earning
a non-cash rate of return on the true-up balance in the third quarter of 2004.
We intend to seek authority from the Texas Utility Commission to securitize all
or a portion of the true-up balance as early as the fourth quarter of 2004
through the issuance of transition bonds and to be in a position to issue those
bonds by early 2005. Transition bonds would be issued through a special purpose
entity that would be a subsidiary of CenterPoint Houston, but they would be non-
recourse to CenterPoint Houston. Any portion of the true-up balance not
securitized by transition bonds will be recovered through a non-bypassable
competition transition charge. CenterPoint Houston will distribute recovery of
the true-up components not used to repay indebtedness to us through either the
payment of dividends or the settlement of intercompany payables. We can then
move funds back to CenterPoint Houston, either through equity or intercompany
debt, in order to maintain CenterPoint Houston's capital structure at the
appropriate levels.

As discussed above, in accordance with the Texas electric restructuring
law, we expect to seek recovery of substantial amounts for the true-up
components. Determination of the amounts actually recovered will be made by the
Texas Utility Commission in a proceeding in which we expect that various parties
will challenge our claims, potentially resulting in an award of less than the
full amount to which we believe CenterPoint Houston is entitled. An ultimate
determination or a settlement at an amount less than that recorded in our
financial statements could lead to a charge that would materially adversely
affect our results of operations, financial condition and cash flows.

For some time, we have expected to monetize our remaining 81% interest in
Texas Genco in 2004. In January 2004, Reliant Resources did not exercise its
option to purchase our 81% interest in Texas Genco. We have engaged a financial
advisor to assist us in exploring the sale of our 81% interest in Texas Genco.
Any proceeds from the monetization of Texas Genco are expected to be used to
repay indebtedness.

The alternatives for monetization of our remaining interest in Texas Genco
may not be completed in 2004 and may result in receipt of proceeds in an amount
different from the market valuation placed on Texas Genco in the 2004 True-Up
Proceeding. To the extent that the Texas Utility Commission uses a market value
higher than the amount ultimately realized from the sale of Texas Genco, a loss
would be recognized. The

completion of the 2004 True-Up Proceeding and recovery of stranded costs is not
dependent on the sale of Texas Genco.

Resolution of the 2004 True-Up Proceeding and the monetization of our
remaining interest in Texas Genco are the two most significant events facing the
company in 2004. These events are expected to result in aggregate proceeds of
over $5 billion based on the Texas Utility Commission rules. We have committed
to use these proceeds to repay our indebtedness. Either or both events could,
however, lead to charges against earnings. If those charges occur early in the
year or are of sufficient magnitude, they could reduce our earnings below the
level required for us to continue paying our current quarterly dividends out of
current earnings as required under our Securities and Exchange Commission (SEC)
financing order. We expect to file an application with the SEC under the 1935
Act requesting an order authorizing us, in the event we are required to take
such a charge against earnings, to pay quarterly dividends out of capital or
unearned surplus.

The Texas Utility Commission issued a final order in October 2001 (October
2001 Order) that established the transmission and distribution utility rates
that became effective in January 2002. In this Order, the Texas Utility
Commission found that CenterPoint Houston had over-mitigated its stranded costs
by redirecting transmission and distribution depreciation and by accelerating
depreciation of generation assets as provided under the transition plan and
Texas electric restructuring law. As a result of the October 2001 Order,
CenterPoint Houston was required to refund $1.1 billion through excess
mitigation credits to certain retail electric customers during a seven-year
period which began in January 2002, and which amount to approximately $238
million per year. Amounts refunded will be considered in the 2004 True-Up
Proceeding, and we expect that such refunds will be discontinued as a result of
the 2004 True-Up Proceeding.

In connection with the implementation of the Texas electric restructuring
law, the Texas Utility Commission has set a "price to beat" that retail electric
providers affiliated or formerly affiliated with a former integrated utility
must charge residential and small commercial customers within their affiliated
electric utility's service area. The 2004 True-Up Proceeding provides for a
clawback of the "price to beat" in excess of the market price of electricity if
40% of the "price to beat" load is not served by a non-affiliated retail
electric provider by January 1, 2004. Pursuant to the Texas electric
restructuring law and the master separation agreement entered into in connection
with the September 30, 2002 spin-off of our interest in Reliant Resources to our
shareholders, Reliant Resources is obligated to pay CenterPoint Houston for the
clawback component of the 2004 True-Up Proceeding. Based on an order issued on
February 13, 2004 by the Texas Utility Commission, the clawback will equal $150
times the number of residential customers served by Reliant Resources in
CenterPoint Houston's service territory, less the number of residential
customers served by Reliant Resources outside CenterPoint Houston's service
territory, on January 1, 2004. As reported in Reliant Resources' Annual Report
on Form 10-K for the year ended December 31, 2003, Reliant Resources expects
that the clawback payment will be $175 million. We expect that before, or upon,
issuance of a final order in the 2004 True-Up Proceeding we will receive the
clawback payment from Reliant Resources, which will reduce the amount of
recoverable costs to be determined in the 2004 True-Up Proceeding.

The 2004 True-Up Proceeding will include the balance from the final fuel
reconciliation proceeding for the fuel component of electric rates. Prior to the
beginning of competition, fuel costs were a component of electric rates and
those costs were reviewed and reconciled periodically by the Texas Utility
Commission. Although the final fuel reconciliation is a separate proceeding that
is currently underway, the final fuel over- or under- recovery balance will be
included in the 2004 True-Up Proceeding, either as a reduction to or increase in
the amount to be recovered.

Following adoption of the true-up rule by the Texas Utility Commission in
2001, CenterPoint Houston appealed the provisions of the rule that permitted
interest to be recovered on stranded costs only from the date of the Texas
Utility Commission's final order in the 2004 True-Up Proceeding, instead of from
January 1, 2002 as CenterPoint Houston contends is required by law. On January
30, 2004, the Texas Supreme Court granted our petition for review of the true-up
rule. Oral arguments were heard on February 18, 2004. The decision by the Court
is pending. We have not accrued interest income on stranded costs in our
consolidated financial statements, but estimate such interest income would be
material to our consolidated financial statements.

We recorded non-cash ECOM revenue of $697 million in 2002 and $661 million
in 2003. We are no longer permitted under the Texas electric restructuring law
to record non-cash ECOM revenue in 2004. The reduction in interest costs that
should result from the use of proceeds of securitization and monetization to
reduce debt, to the extent received in 2004, should help offset the resulting
reductions in earnings, but both the amount and timing of these securitization
and monetization efforts is a function of the regulatory process described
above.

PROCESS IMPROVEMENT INITIATIVE

In late 2002, we launched a company-wide process improvement effort
designed to examine key aspects of how we conduct our business, and identify,
design and implement improvements to enhance service quality, improve customer
satisfaction and reduce costs. In 2003, we identified our core business
processes and established process teams. Progress was made in understanding
existing processes and identifying opportunities for improvement. Over the next
several years, we plan to design and implement processes that will improve
productivity and efficiency, reduce our cost structure and enhance service to
our customers.

CERTAIN FACTORS AFFECTING FUTURE EARNINGS

Our past earnings and results of operations are not necessarily indicative
of our future earnings and results of operations. The magnitude of our future
earnings and results of our operations will depend on or be affected by numerous
factors including:

- the timing and outcome of the regulatory process leading to the
determination and recovery of the true-up components and the
securitization of these amounts;

- the timing and results of the monetization of our interest in Texas
Genco;

- state and federal legislative and regulatory actions or developments,
including deregulation, re-regulation and restructuring of the electric
utility industry, constraints placed on our activities or business by the
1935 Act, changes in or application of laws or regulations applicable to
other aspects of our business and actions with respect to:

- allowed rates of return;

- rate structures;

- recovery of investments; and

- operation and construction of facilities;

- termination of accruals of ECOM true-up after 2003;

- industrial, commercial and residential growth in our service territory
and changes in market demand and demographic patterns;

- the timing and extent of changes in commodity prices, particularly
natural gas;

- changes in interest rates or rates of inflation;

- weather variations and other natural phenomena;

- the timing and extent of changes in the supply of natural gas;

- commercial bank and financial market conditions, our access to capital,
the cost of such capital, receipt of certain approvals under the 1935
Act, and the results of our financing and refinancing efforts, including
availability of funds in the debt capital markets;

- actions by rating agencies;

- inability of various counterparties to meet their obligations to us;

- non-payment for our services due to financial distress of our customers,
including Reliant Resources;
47

- the outcome of the pending securities lawsuits against us, Reliant Energy
and Reliant Resources;

- the ability of Reliant Resources to satisfy its obligations to us,
including indemnity obligations and obligations to pay the "price to
beat" clawback; and

- other factors discussed in Item 1 of this report under "Risk Factors."

CONSOLIDATED RESULTS OF OPERATIONS

All dollar amounts in the tables that follow are in millions, except for
per share amounts.

YEAR ENDED DECEMBER 31,
---------------------------
2001 2002 2003
------- ------- -------

Revenues................................................ $10,559 $ 7,898 $ 9,760
Operating Expenses...................................... (9,235) (6,565) (8,156)
------- ------- -------
Operating Income........................................ 1,324 1,333 1,604
Gain (Loss) on Time Warner Investment................... (70) (500) 106
Gain (Loss) on Indexed Debt Securities.................. 58 480 (96)
Interest Expense and Distribution on Trust Preferred
Securities............................................ (607) (764) (934)
Other Income (Expense), net............................. 52 18 (15)
------- ------- -------
Income From Continuing Operations Before Income Taxes,
Minority Interest and Cumulative Effect of Accounting
Change................................................ 757 567 665
Income Tax Expense...................................... (258) (198) (216)
Minority Interest....................................... -- -- (29)
------- ------- -------
Income From Continuing Operations Before Cumulative
Effect of Accounting Change........................... 499 369 420
Discontinued Operations, net of tax..................... 422 (4,289) (16)
Cumulative Effect of Accounting Change, net of tax...... 59 -- 80
------- ------- -------
Net Income (Loss) Attributable to Common
Shareholders....................................... $ 980 $(3,920) $ 484
======= ======= =======
Basic Earnings Per Share:
Income From Continuing Operations Before Cumulative
Effect of Accounting Change........................... $ 1.72 $ 1.24 $ 1.38
Discontinued Operations, net of tax..................... 1.46 (14.40) (0.05)
Cumulative Effect of Accounting Change, net of tax...... 0.20 -- 0.26
------- ------- -------
Net Income (Loss) Attributable to Common
Shareholders....................................... $ 3.38 $(13.16) $ 1.59
======= ======= =======
Diluted Earnings Per Share:
Income From Continuing Operations Before Cumulative
Effect of Accounting Change........................... $ 1.71 $ 1.23 $ 1.37
Discontinued Operations, net of tax..................... 1.44 (14.31) (0.05)
Cumulative Effect of Accounting Change, net of tax...... 0.20 -- 0.26
------- ------- -------
Net Income (Loss) Attributable to Common
Shareholders....................................... $ 3.35 $(13.08) $ 1.58
======= ======= =======

2003 COMPARED TO 2002

Income from Continuing Operations. We reported income from continuing
operations before cumulative effect of accounting change of $420 million ($1.37
per diluted share) for 2003 compared to $369 million ($1.23 per diluted share)
for 2002. The increase in income from continuing operations before the
cumulative

effect of accounting change for 2003 compared to 2002 of $51 million was
primarily due to a $355 million increase in operating income from our Electric
Generation business segment primarily resulting from increased margins from
higher capacity and energy revenues as a result of higher capacity auction
prices driven by higher natural gas prices, partially offset by a $170 million
increase in interest expense due to higher borrowing costs and increased debt
levels, a $61 million increase in expenses related to CenterPoint Houston's
final fuel reconciliation and a $36 million reduction in non-cash ECOM revenue.

Cumulative Effect of Accounting Change. In connection with the adoption in
2003 of SFAS No. 143, we have identified retirement obligations for nuclear
decommissioning at the South Texas Project and for lignite mine operations which
supply the Limestone electric generation facility. The net difference between
the amounts determined under SFAS No. 143 and the previous method of accounting
for estimated mine reclamation costs was $37 million and has been recorded as a
cumulative effect of accounting change. Upon adoption of SFAS No. 143, we
reversed $115 million of previously recognized removal costs with respect to our
non-rate regulated businesses as a cumulative effect of accounting change. The
total cumulative effect of accounting change from adoption of SFAS No. 143 was
$152 million. Excluded from the $80 million after-tax cumulative effect of
accounting change is minority interest of $19 million related to the Texas Genco
stock not owned by CenterPoint Energy. For additional discussion of the adoption
of SFAS No. 143, please read Note 2(n) to our consolidated financial statements.

2002 COMPARED TO 2001

Income from Continuing Operations. We reported income from continuing
operations before cumulative effect of accounting change of $369 million ($1.23
per diluted share) for 2002 compared to $499 million ($1.71 per diluted share)
for 2001. The $130 million decrease in income from continuing operations before
the cumulative effect of accounting change for 2002 compared to 2001 was
primarily due to a reduction in operating income from our Electric Transmission
and Distribution and Electric Generation business segments of $165 million as a
result of the transition to a deregulated ERCOT market in 2002, which includes
non-cash ECOM revenue of $697 million in 2002, and an increase in interest
expense due to higher borrowing costs ($157 million). Offsetting the above
decreases were increases in operating income of our Natural Gas Distribution and
Pipelines and Gathering business segments of $84 million, primarily resulting
from rate increases at our local gas distribution companies, the absence of $49
million in goodwill amortization expense as a result of adopting SFAS No. 142,
"Goodwill and Other Intangibles" (SFAS No. 142) in 2002 and a reduction in
income taxes of $60 million.

Cumulative Effect of Accounting Change. The 2001 results reflect a $59
million after-tax non-cash gain from the adoption of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended (SFAS No. 133).
For additional discussion of the adoption of SFAS No. 133, please read Note 5 to
our consolidated financial statements.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

The following table presents operating income (in millions) for each of our
business segments for 2001, 2002 and 2003. Some amounts from the previous years
have been reclassified to conform to the 2003 presentation of the financial
statements. These reclassifications do not affect consolidated net income.

OPERATING INCOME (LOSS) BY BUSINESS SEGMENT

YEAR ENDED DECEMBER 31,
------------------------
2001 2002 2003
------ ------ ------
(IN MILLIONS)

Electric Transmission & Distribution....................... $ 863 $1,096 $1,020
Electric Generation........................................ 265 (133) 222
Natural Gas Distribution................................... 130 198 202
Pipelines and Gathering.................................... 137 153 158
Other Operations........................................... (46) 19 2
Eliminations............................................... (25) -- --
------ ------ ------
Total Consolidated Operating Income...................... $1,324 $1,333 $1,604
====== ====== ======

ELECTRIC TRANSMISSION & DISTRIBUTION

The following tables provide summary data of our Electric Transmission &
Distribution business segment, CenterPoint Houston, for 2001, 2002 and 2003 (in
millions, except throughput data):

YEAR ENDED DECEMBER 31,
---------------------------
2001(1) 2002 2003
------- ------- -------

Operating Revenues:
Electric revenues..................................... $ 2,100 $ 1,525 $ 1,463
ECOM revenues(2)...................................... -- 697 661
------- ------- -------
Total operating revenues........................... 2,100 2,222 2,124
------- ------- -------
Operating Expenses:
Operation and maintenance............................. 650 642 636
Depreciation and amortization......................... 299 271 270
Taxes other than income taxes......................... 288 213 198
------- ------- -------
Total operating expenses........................... 1,237 1,126 1,104
------- ------- -------
Operating Income........................................ $ 863 $ 1,096 $ 1,020
======= ======= =======
Residential throughput (in GWh)......................... 21,371 23,025 23,687
Total throughput (in GWh)(3)............................ 71,325 69,585 70,815

- ---------------

(1) Certain estimates and allocations have been used to separate historical
(pre-January 2002) Electric Generation business segment data from the
Electric Transmission & Distribution business segment data. As a result,
there are no meaningful comparisons for these two business segments prior to
2002.

(2) In 2004, we will no longer be permitted under the Texas electric
restructuring law to record non-cash ECOM revenue.

(3) Usage volumes for commercial and industrial customers are included in total
throughput; however, the majority of these customers are billed on a peak
demand (KW) basis and, as a result, revenues do not vary based on
consumption.

2003 Compared to 2002. The Electric Transmission & Distribution business
segment reported a decrease in operating income of $76 million for 2003 compared
to 2002. Increased revenues from customer

growth ($40 million) were more than offset by transition period revenues that
only occurred in 2002 ($90 million) and decreased industrial demand, resulting
in an overall decrease in electric revenues from the regulated electric
transmission and distribution business of $62 million. Additionally, non-cash
ECOM revenue decreased $36 million as a result of higher operating margins at
the Electric Generation business segment based on the state-mandated capacity
auctions. Operation and maintenance expenses decreased in 2003 compared to 2002
primarily due to the absence of purchased power costs that occurred in 2002
during the transition period to deregulation ($48 million), a decrease in labor
costs as a result of work force reductions in 2002 ($13 million), non-recurring
contract services expense primarily related to transition to deregulation in
2002 ($10 million) and lower bad debt expense related to transition revenues in
2002 ($10 million). These decreases were partially offset by an increase in
expenses related to CenterPoint Houston's final fuel reconciliation ($69
million) and an increase in benefits expense primarily due to increased pension
costs ($18 million). Taxes other than income taxes decreased $15 million
primarily due to the absence of gross receipts tax associated with transition
period revenue in the first quarter of 2002 ($9 million).

2002 Compared to 2001. The Electric Transmission & Distribution business
segment, reported an increase in operating income of $233 million for 2002 as
compared to 2001, of which $697 million related to non-cash ECOM revenue
recorded pursuant to the Texas electric restructuring law. Electric revenues
from the regulated electric transmission and distribution business decreased
$575 million primarily as a result of the transition to a deregulated ERCOT
market in 2002. Throughput declined 2% during 2002 as compared to 2001. The
decrease was primarily due to reduced energy delivery in the industrial sector
resulting from self-generation by several major customers, partially offset by
increased residential usage primarily due to non-weather related factors.
Additionally, despite a slowing economy, total metered customers continued to
grow at an annual rate of approximately 2% during the year. Operation and
maintenance expenses decreased in 2002 as compared to 2001 primarily due to a
decrease in factoring expense as a result of the termination of an agreement
under which the Electric Transmission & Distribution business segment had sold
its customer accounts receivable ($77 million) and decreased transmission line
losses in 2002 as this became a cost of retail electric providers in 2002 ($16
million), partially offset by purchased power costs related to operation of the
regulated utility during the transition period to deregulation ($48 million), an
increase in benefits expense ($25 million) which included severance costs in
connection with a reduction in work force by CenterPoint Houston in 2002 and
expenses related to CenterPoint Houston's final fuel reconciliation ($18
million). Depreciation and amortization decreased in 2002 as compared to 2001
primarily as a result of decreased amortization relating to certain regulatory
assets ($64 million) partially offset by increased amortization related to
transition property associated with the transition bonds issued in November 2001
($35 million). Taxes other than income decreased largely as a result of lower
gross receipts taxes ($64 million), which became the responsibility of the
retail electric providers upon deregulation.

ELECTRIC GENERATION

The following tables provide summary data of our Electric Generation
business segment, Texas Genco, for 2001, 2002 and 2003 (in millions, except
power sales data):

YEAR ENDED DECEMBER 31,
---------------------------
2001(1) 2002 2003
------- ------- -------

Operating Revenues....................................... $3,411 $ 1,541 $ 2,002
------ ------- -------
Operating Expenses:
Fuel and purchased power............................... 2,527 1,083 1,171
Operation and maintenance.............................. 402 391 411
Depreciation and amortization.......................... 154 157 159
Taxes other than income taxes.......................... 63 43 39
------ ------- -------
Total operating expenses............................ 3,146 1,674 1,780
------ ------- -------
Operating Income (Loss).................................. $ 265 $ (133) $ 222
====== ======= =======
Power sales (in GWh)..................................... -- 51,463 47,374

- ---------------

2003 Compared to 2002. Our Electric Generation business segment's
operating income increased $355 million in 2003 compared to 2002 primarily due
to increased operating margins ($357 million) from higher capacity and energy
revenues as a result of higher capacity auction prices driven by higher natural
gas prices, partially offset by increased fuel costs due to higher natural gas
prices and lower sales volumes. Our Electric Generation business segment was
able to partially mitigate the higher cost of natural gas by switching to fuel
oil on some of its flexible natural gas units, as well as benefiting from
reductions in coal and lignite costs on its base-load units resulting from
renegotiated supply agreements and increased utilization of spot purchases.
Additionally, the sale of surplus air emission allowances, which is expected to
recur in 2004, contributed to the increase in operating margins ($16 million).
Partially offsetting the increase in operating margins was a higher level of
operation and maintenance expense primarily related to planned and unplanned
outages ($11 million) and higher pension and insurance expenses ($21 million).
These increases in operation and maintenance expense were partially offset by
expenses incurred in 2002, which did not recur in 2003, the most significant of
which were in connection with an early retirement program and business
separation costs ($28 million).

2002 Compared to 2001. Our Electric Generation business segment's
operating income decreased $398 million in 2002 compared to 2001 primarily due
to decreased revenues resulting from the change from a regulated environment in
2001 to the deregulated ERCOT market ($1.9 billion). The Electric Generation
business segment's 2001 revenue was derived based on actual recoverable
operating expenses plus an allowed regulatory rate of return based on the rate
base while its 2002 revenue was derived from open market sales of capacity and
energy at auction and spot market prices. Additionally, fuel and purchased power
expenses decreased primarily due to lower natural gas prices and a reduction in
overall demand for output from Texas Genco's facilities ($1.4 billion).
Operation and maintenance expense decreased primarily due to an absence of major
maintenance outages at certain of Texas Genco's plants ($36 million in 2001),
which was partially offset by costs related to an early retirement program
implemented in 2002 ($12 million), business separation expenses ($7 million) and
computer systems necessary for operation in the deregulated market ($6 million).
Taxes other than income taxes decreased primarily due to lower tax valuations of
generation assets ($20 million).

NATURAL GAS DISTRIBUTION

The following table provides summary data of our Natural Gas Distribution
business segment for 2001, 2002 and 2003 (in millions, except throughput data):

YEAR ENDED DECEMBER 31,
------------------------
2001 2002 2003
------ ------ ------

Operating Revenues......................................... $4,742 $3,960 $5,435
------ ------ ------
Operating Expenses:
Natural gas.............................................. 3,814 2,995 4,428
Operation and maintenance................................ 541 539 560
Depreciation and amortization............................ 147 126 136
Taxes other than income taxes............................ 110 102 109
------ ------ ------
Total operating expenses.............................. 4,612 3,762 5,233
------ ------ ------
Operating Income........................................... $ 130 $ 198 $ 202
====== ====== ======
Throughput (in billion cubic feet (Bcf)):
Residential and commercial............................... 310 324 324
Industrial............................................... 50 47 49
Transportation........................................... 49 57 50
Non-rate regulated commercial and industrial............. 445 471 511
------ ------ ------
Total Throughput...................................... 854 899 934
====== ====== ======

2003 Compared to 2002. Our Natural Gas Distribution business segment's
operating income increased $4 million in 2003 compared to 2002 primarily due to
higher revenues from rate increases implemented late in 2002 ($33 million),
improved margins from our unregulated commercial and industrial sales ($6
million) and continued customer growth with the addition of over 38,000
customers since December 2002 ($6 million). These increases were partially
offset by decreased revenues as a result of a decrease in the estimate of
margins earned on unbilled revenues ($11 million). Additionally, operating
income was negatively impacted by higher employee benefit expenses primarily due
to increased pension costs ($13 million), certain costs being included in
operating expense subsequent to the amendment of a receivables facility in
November 2002 as compared to being included in interest expense in the prior
year ($7 million) and increased bad debt expense primarily due to higher gas
prices ($9 million).

2002 Compared to 2001. Our Natural Gas Distribution business segment's
operating income increased $68 million in 2002 compared to 2001 primarily as a
result of improved margins from rate increases in 2002, a 5% increase in
throughput and changes in estimates of unbilled revenues and deferred gas costs,
which reduced operating margins in 2001 ($37 million). Depreciation and
amortization decreased primarily as a result of the discontinuance of goodwill
amortization in 2002 in accordance with SFAS No. 142 as further discussed in
Note 2(d) to our consolidated financial statements ($31 million).

PIPELINES AND GATHERING

The following table provides summary data of our Pipelines and Gathering
business segment for 2001, 2002 and 2003 (in millions, except throughput data):

YEAR ENDED DECEMBER 31,
------------------------
2001 2002 2003
------ ------ ------

Operating Revenues......................................... $ 415 $ 374 $ 407
------ ------ ------
Operating Expenses:
Natural gas.............................................. 79 32 61
Operation and maintenance................................ 121 130 129
Depreciation and amortization............................ 58 41 40
Taxes other than income taxes............................ 20 18 19
------ ------ ------
Total operating expenses.............................. 278 221 249
------ ------ ------
Operating Income........................................... $ 137 $ 153 $ 158
====== ====== ======
Throughput (Bcf):
Natural gas sales........................................ 18 14 9
Transportation........................................... 819 845 794
Gathering................................................ 300 287 292
Elimination(1)........................................... (9) (9) (4)
------ ------ ------
Total Throughput...................................... 1,128 1,137 1,091
====== ====== ======

- ---------------

(1) Elimination of volumes both transported and sold.

2003 Compared to 2002. Our Pipelines and Gathering business segment's
operating income increased $5 million in 2003 compared to 2002. The increase was
primarily a result of increased margins (revenues less fuel costs) due to higher
commodity prices ($8 million), improved margins from new transportation
contracts to power plants ($7 million) and improved margins from enhanced
services in our gas gathering operations ($4 million), partially offset by
higher pension, employee benefit and other miscellaneous expenses ($14 million).
Project work expenses included in operation and maintenance expense decreased
and were offset by a corresponding decrease in revenues billed for these
services ($14 million).

2002 Compared to 2001. Our Pipelines and Gathering business segment's
operating income increased $16 million in 2002 compared to 2001 primarily as a
result of the discontinuance of goodwill amortization in accordance with SFAS
No. 142 as further discussed in Note 2(d) to our consolidated financial
statements ($17 million).

OTHER OPERATIONS

The following table provides summary data for our Other Operations business
segment for 2001, 2002 and 2003 (in millions):

YEAR ENDED
DECEMBER 31,
------------------
2001 2002 2003
---- ---- ----

Operating Revenues.......................................... $ 4 $30 $28
Operating Expenses.......................................... 50 11 26
---- --- ---
Operating Income (Loss)..................................... $(46) $19 $ 2
==== === ===

2003 Compared to 2002. Our Other Operations business segment's operating
income in 2003 compared to 2002 decreased $17 million primarily due to changes
in unallocated corporate costs in 2002 as compared to 2003.

2002 Compared to 2001. Our Other Operations business segment's operating
income increased by $65 million in 2002 compared to 2001. The increase was
primarily due to reductions in unallocated corporate costs of ($34 million) and
reductions in corporate accruals, primarily benefits ($27 million).

DISCONTINUED OPERATIONS

On September 30, 2002, CenterPoint Energy distributed all of the shares of
Reliant Resources common stock owned by CenterPoint Energy on a pro-rata basis
to shareholders of CenterPoint Energy common stock. The consolidated financial
statements have been prepared to reflect the effect of the Reliant Resources
Distribution as described above on the CenterPoint Energy consolidated financial
statements. The consolidated financial statements present the Reliant Resources
businesses (Wholesale Energy, European Energy, Retail Energy and related
corporate costs) as discontinued operations in 2001 and 2002 in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS No. 144). We also recorded a $4.4 billion non-cash loss on disposal of
these discontinued operations in 2002. This loss represents the excess of the
carrying value of our net investment in Reliant Resources over the market value
of Reliant Resources common stock.

In February 2003, we sold our interest in Argener, a cogeneration facility
in Argentina, for $23 million. The carrying value of this investment was
approximately $11 million as of December 31, 2002. We recorded an after-tax gain
of $7 million from the sale of Argener in the first quarter of 2003. In April
2003, we sold our final remaining investment in Argentina, a 90 percent interest
in Empresa Distribuidora de Electricidad de Santiago del Estero S.A. We recorded
an after-tax loss of $3 million in the second quarter of 2003 related to our
Latin America operations. We have completed our strategy of exiting all of our
international investments. The consolidated financial statements present these
operations as discontinued operations in accordance with SFAS No. 144.

In November 2003, we sold a component of our Other Operations business
segment, CenterPoint Energy Management Services, Inc. (CEMS), that provides
district cooling services in the Houston central business district and related
complementary energy services to district cooling customers and others. We
recorded an after-tax loss of $1 million from the sale of CEMS in the fourth
quarter of 2003. We recorded an after-tax loss in discontinued operations of $16
million ($25 million pre-tax) during the second quarter of 2003 to record the
impairment of the CEMS long-lived assets based on the impending sale and to
record one-time termination benefits. The consolidated financial statements
present these operations as discontinued operations in accordance with SFAS No.
144.

FLUCTUATIONS IN COMMODITY PRICES AND DERIVATIVE INSTRUMENTS

For information regarding our exposure to risk as a result of fluctuations
in commodity prices and derivative instruments, please read "Quantitative and
Qualitative Disclosures About Market Risk" in Item 7A of this report.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL CASH FLOWS

The net cash provided by/used in operating, investing and financing
activities for 2001, 2002 and 2003 is as follows (in millions):

YEAR ENDED DECEMBER 31,
-----------------------
2001 2002 2003
------- ----- -----

Cash provided by (used in):
Operating activities..................................... $ 1,731 $ 322 $ 896
Investing activities..................................... (1,196) (766) (667)
Financing activities..................................... (1,045) 723 (439)

CASH PROVIDED BY OPERATING ACTIVITIES

Net cash provided by operating activities in 2003 increased $573 million
compared to 2002 primarily due to an increase of $355 million in Texas Genco's
operating income substantially due to higher capacity and energy revenues as a
result of higher capacity auction prices driven by higher natural gas prices,
and higher income tax refunds received of $170 million. These increases were
partially offset by higher interest paid related to outstanding borrowings of
$130 million.

Net cash provided by operating activities in 2002 decreased $1.4 billion
compared to 2001. This decrease primarily resulted from refunds of excess
mitigation credits to ratepayers in 2002 of $224 million, lower revenues in the
deregulated ERCOT market, which resulted in a $398 million decrease in Texas
Genco's operating income and a $464 million decrease in CenterPoint Houston's
operating income excluding non-cash income from ECOM, and an increase of $48
million in interest paid related to outstanding borrowings. These decreases were
partially offset by lower income taxes paid of $154 million.

CASH USED IN INVESTING ACTIVITIES

Net cash used in investing activities decreased $99 million during 2003
compared to 2002 due primarily to decreased environmental-related capital
expenditures in our Electric Generation business segment and decreased capital
expenditures in our Electric Transmission & Distribution business segment
primarily resulting from process improvements that included revised construction
and design standards.

Net cash used in investing activities decreased $430 million during 2002
compared to 2001 due primarily to decreased environmental-related capital
expenditures in our Electric Generation business segment and the absence in 2002
of capital expenditures incurred in 2001 in our Electric Transmission &
Distribution business segment related to building infrastructure in preparation
for deregulation.

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

In 2003, debt payments exceeded net loan proceeds by $328 million. In 2002,
net loan proceeds exceeded debt payments by $1.1 billion. Additionally, common
stock dividends paid by us and Texas Genco in 2003 were $187 million less than
in 2002. Since the beginning of 2003, the terms of our credit facility have
limited the common stock dividend to $0.10 per share per quarter.

In 2002, net loan proceeds exceeded debt payments by $1.1 billion. In 2001,
debt payments exceeded net loan proceeds by $702 million. Additionally, common
stock dividends paid in 2002 were $109 million less than in 2001.

FUTURE SOURCES AND USES OF CASH

Our liquidity and capital requirements will be affected by:

- capital expenditures;

- debt service requirements;

- various regulatory actions; and

- working capital requirements.

The 1935 Act regulates our financing ability, as more fully described in
"--Certain Contractual and Regulatory Limits on Ability to Issue Securities and
Pay Dividends on Our Common Stock" below.

The following table sets forth our capital expenditures for 2003, and
estimates of our capital requirements for 2004 through 2008 (in millions):

2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ----

Electric Transmission & Distribution....... $218 $282 $245 $258 $274 $257
Natural Gas Distribution................... 199 204 213 211 213 214
Pipelines and Gathering.................... 66 104 136 88 96 50
Other Operations........................... 14 10 9 9 9 10
---- ---- ---- ---- ---- ----
Subtotal................................. 497 600 603 566 592 531
Electric Generation(1)..................... 139 80 106 124 88 34
Electric Generation -- nuclear fuel(1)..... 12 14 23 25 14 28
---- ---- ---- ---- ---- ----
Total.................................... $648 $694 $732 $715 $694 $593
==== ==== ==== ==== ==== ====

- ---------------

(1) We are currently exploring the sale of our 81% interest in Texas Genco.

The following table sets forth estimates of our contractual obligations to
make future payments for 2004 through 2008 and thereafter (in millions):

2009 AND
CONTRACTUAL OBLIGATIONS TOTAL 2004 2005 2006 2007 2008 THEREAFTER
- ----------------------- ------- ------ ------ ------ ---- ---- ----------

Long-term debt, including current
portion........................... $10,925 $ 156 $1,731 $1,657 $ 67 $572 $6,742
Capital leases...................... 20 6 7 4 2 -- 1
Short-term borrowing, including
credit facilities................. 63 63 -- -- -- -- --
Operating leases(1)................. 186 42 27 24 20 17 56
Non-trading derivative
liabilities....................... 14 11 2 1 -- -- --
Pension funding requirements........ 450 -- 75 14 220 141 --
Other commodity commitments(2)...... 3,625 1,354 816 600 419 186 250
------- ------ ------ ------ ---- ---- ------
Total contractual cash
obligations..................... $15,283 $1,632 $2,658 $2,300 $728 $916 $7,049
======= ====== ====== ====== ==== ==== ======

- ---------------

(1) For a discussion of operating leases, please read Note 12(b) to our
consolidated financial statements.

(2) For a discussion of other commodity commitments, please read Note 12(a) to
our consolidated financial statements.

Texas Genco has identified retirement obligations for nuclear
decommissioning at the South Texas Project and the lignite mine operations which
supply its Limestone electric generation facility. Texas Genco has recorded
liabilities as required by SFAS No. 143 of $188 million for the nuclear
decommissioning and $6 million for the lignite mine as of December 31, 2003.
CenterPoint Houston currently funds $2.9 million a year to trusts established to
fund Texas Genco's share of the decommissioning costs for the South Texas
Project. Pursuant to the Texas electric restructuring law, costs associated with
nuclear decommissioning that

have not been recovered as of January 1, 2002, will continue to be subject to
cost-of-service rate regulation and will be included in a charge to transmission
and distribution customers. For additional information on asset retirement
obligations and the nuclear decommissioning trust, please read Notes 2(n) and
12(e) to our consolidated financial statements, respectively.

In October 2001, CenterPoint Houston was required by the Texas Utility
Commission to reverse the amount of redirected depreciation and accelerated
depreciation taken for regulatory purposes as allowed under the transition plan
and the Texas electric restructuring law. CenterPoint Houston recorded a
regulatory liability to reflect the prospective refund of the accelerated
depreciation and in January 2002 CenterPoint Houston began refunding excess
mitigation credits, which are to be refunded over a seven-year period. The
annual refund of excess mitigation credits is approximately $238 million. Under
the Texas electric restructuring law, a final determination of these stranded
costs will occur in the 2004 True-Up Proceeding.

Off-Balance Sheet Arrangements. Other than operating leases, we have no
off-balance sheet arrangements. However, we do participate in a receivables
factoring arrangement. In connection with CERC's November 2002 amendment and
extension of its $150 million receivables facility, CERC Corp. formed a
bankruptcy remote subsidiary, which we consolidate, for the sole purpose of
buying receivables created by CERC and selling those receivables to an unrelated
third party. This transaction is accounted for as a sale of receivables under
the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", and, as a result, the
related receivables are excluded from the Consolidated Balance Sheet. On June
25, 2003, we elected to reduce the receivables facility to $100 million and in
January 2004, the $100 million receivables facility was replaced with a $250
million receivables facility terminating in January 2005. For additional
information regarding this transaction please read Note 2(i) to our consolidated
financial statements.

Long-term and Short-term Debt. Our long-term debt consists of our
obligations and the obligations of our subsidiaries, including transition bonds
issued by an indirect wholly owned subsidiary (transition bonds).

In 2003 and February 2004, we and our subsidiaries completed several
capital market transactions which converted a significant amount of our interest
payment obligations from floating rates to fixed rates and refinanced current
maturities of long-term debt. The proceeds of the debt transactions in 2003 were
primarily used to refinance existing short-term debt with long-term debt,
refinance maturing debt and pay related debt issuance costs. Our 2003 capital
market transactions included the following:

PRINCIPAL INTEREST
ISSUANCE DATE BORROWER SECURITY AMOUNT RATE MATURITY DATE
- --------------------- ------------------- ------------------------ -------------- -------- --------------
(IN THOUSANDS)

March 2003 CenterPoint Houston General Mortgage Bonds $762,275 5.700- March 2013 and
6.950% 2033
March and April 2003 CERC Corp. Senior Notes 762,000 7.875% April 2013
April 2003 CenterPoint Energy Pollution Control Bonds 175,000 7.750- December 2018
8.000% and May 2029
May 2003 CenterPoint Energy Convertible Senior Notes 575,000 3.750% May 2023
May 2003 CenterPoint Houston General Mortgage Bonds 200,000 5.600% July 2023
May 2003 CenterPoint Energy Senior Notes 400,000 5.875- June 2008 and
6.850% 2015
July 2003 CenterPoint Energy Pollution Control Bonds 150,850 4.000% August and
October 2015
September 2003 CenterPoint Energy Senior Notes 200,000 7.250% September 2010
September 2003 CenterPoint Houston General Mortgage Bonds 300,000 5.750% January 2014
November 2003 CERC Corp. Senior Notes 160,000 5.950% January 2014
December 2003 CenterPoint Energy Convertible Senior Notes 255,000 2.875% January 2024

In 2003, we and our subsidiaries also entered into new credit facilities
which increased liquidity, reduced financing costs and extended the termination
dates of the facilities they replaced. As of December 31, 2003, we had the
following credit facilities.

SIZE OF AMOUNT
FACILITY AT OUTSTANDING AT
DECEMBER 31, DECEMBER 31, TYPE OF
DATE EXECUTED COMPANY 2003 2003 TERMINATION DATE FACILITY
- --------------------- ------------------ ------------ -------------- --------------------- ---------
(IN MILLIONS)

March 25, 2003 CERC Corp. $ 200 $ 63 March 23, 2004 Revolver
October 7, 2003 CenterPoint Energy 1,425 537 October 7, 2006 Revolver
October 7, 2003 CenterPoint Energy 923 923 October 7, 2006(1) Term Loan
December 23, 2003 Texas Genco, LP 75 -- December 21, 2004 Revolver

- ---------------

(1) Mandatory quarterly payments through September 30, 2005 of $2.5 million per
quarter.

CERC Corp. is currently in discussions with banks seeking to arrange a
replacement revolving credit facility and expects to have such a facility in
place prior to the termination date of the existing facility. In the first
quarter of 2004, CERC replaced its $100 million receivables facility with a $250
million committed one-year receivables facility. The bankruptcy remote
subsidiary established in 2002 continues to buy CERC's receivables and sell them
to an unrelated third party.

Additionally, in February 2004, $56 million aggregate principal amount of
collateralized 5.60% pollution control bonds due 2027 and $44 million aggregate
principal amount of 4.25% collateralized insurance-backed pollution control
bonds due 2017 were issued on behalf of CenterPoint Houston. The pollution
control bonds are collateralized by general mortgage bonds of CenterPoint
Houston with principal amounts, interest rates and maturities that match the
pollution control bonds. The proceeds were used to redeem two series of 6.7%
collateralized pollution control bonds with an aggregate principal amount of
$100 million issued on our behalf. CenterPoint Houston's 6.7% first mortgage
bonds which collateralized our payment obligations under the refunded pollution
control bonds were retired in connection with the March 2004 redemption of the
refunded pollution control bonds. CenterPoint Houston's 6.7% notes payable to us
were extinguished upon the redemption of the refunded pollution control bonds.

On December 31, 2003, we had temporary external investments of $66 million.

At December 31, 2003, CenterPoint Energy had a shelf registration statement
covering 15 million shares of common stock and CERC Corp. had a shelf
registration statement covering $50 million principal amount of debt securities.

Cash Requirements in 2004. Our liquidity and capital requirements are
affected primarily by our results of operations, capital expenditures, debt
service requirements, and working capital needs. Our principal cash requirements
during 2004, assuming we continue to own our interest in Texas Genco for the
full year, include the following:

- approximately $694 million of capital expenditures;

- an estimated $238 million in refunds by CenterPoint Houston of excess
mitigation credits;

- dividend payments on CenterPoint Energy common stock;

- $51 million of maturing long-term debt, including $41 million of
transition bonds; and

- maturity of any borrowings under CERC's $200 million revolving credit
agreement.

We expect that revolving credit borrowings and anticipated cash flows from
operations will be sufficient to meet our cash needs for 2004. Our $2.3 billion
credit facility provides that, until such time as the credit facility has been
reduced to $750 million, all of the net cash proceeds from any securitizations
relating to the recovery of the true-up components, after making any payments
required under CenterPoint Houston's term loan, and the net cash proceeds of any
sales of the common stock of Texas Genco that we own or of material portions of

Texas Genco's assets shall be applied to repay borrowings under our credit
facility and reduce the amount available under the credit facility. Our $2.3
billion credit facility contains no other restrictions with respect to our use
of proceeds from financing activities. CenterPoint Houston's term loan requires
the proceeds from the issuance of transition bonds to be used to reduce the term
loan unless refused by the lenders. CenterPoint Houston's term loan, subject to
certain exceptions, limits the application of proceeds from capital markets
transactions by CenterPoint Houston over $200 million to repayment of debt
existing in November 2002.

CenterPoint Houston will distribute recovery of the true-up components not
used to repay indebtedness to us through either the payment of dividends or the
settlement of intercompany payables. We can then move funds back to CenterPoint
Houston, either through equity or intercompany debt, in order to maintain
CenterPoint Houston's capital structure at the appropriate levels. Under the
orders described under "-- Certain Contractual and Regulatory Limits on Ability
to Issue Securities and Pay Dividends on Our Common Stock," CenterPoint
Houston's member's equity as a percentage of total capitalization must be at
least 30%, although the SEC has permitted the percentage to be below this level
for other companies taking into account non-recourse securitization debt as a
component of capitalization.

Impact on Liquidity of a Downgrade in Credit Ratings. As of March 1, 2004,
Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies (S&P), and Fitch, Inc. (Fitch) had
assigned the following credit ratings to senior debt of CenterPoint Energy and
certain subsidiaries:

MOODY'S S&P FITCH
------------------- ------------------- -------------------
COMPANY/INSTRUMENT RATING OUTLOOK(1) RATING OUTLOOK(2) RATING OUTLOOK(3)
- ------------------ ------ ---------- ------ ---------- ------ ----------

CenterPoint Energy Senior Unsecured
Debt............................. Ba2 Negative BBB- Negative BBB- Negative
CenterPoint Houston Senior Secured
Debt (First Mortgage Bonds)...... Baa2 Negative BBB Negative BBB+ Negative
CERC Corp. Senior Debt............. Ba1 Negative BBB Negative BBB Negative

- ---------------

(1) A "negative" outlook from Moody's reflects concerns over the next 12 to 18
months which will either lead to a review for a potential downgrade or a
return to a stable outlook.

(2) An S&P rating outlook assesses the potential direction of a long-term credit
rating over the intermediate to longer term.

(3) A "negative" outlook from Fitch encompasses a one-to-two year horizon as to
the likely ratings direction.

On February 27, 2004, Moody's announced that it was downgrading our senior
unsecured debt to Ba2 from Ba1. Moody's explained in its announcement that the
action was to reflect the structural differences in rights and claims afforded
to our senior secured bank lenders, who benefit from their priority claim on
proceeds from the monetization of Texas Genco and from the up-streaming of
proceeds resulting from securitization of the true-up components at CenterPoint
Houston. Moody's announced that its action concluded a review for possible
downgrade of us that it initiated in October 2003. Moody's retained a negative
ratings outlook for us and for our subsidiaries CERC Corp. and CenterPoint
Houston, but their ratings remain unchanged.

We cannot assure you that these ratings will remain in effect for any given
period of time or that one or more of these ratings will not be lowered or
withdrawn entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities and may be revised or
withdrawn at any time by the rating agency. Each rating should be evaluated
independently of any other rating. Any future reduction or withdrawal of one or
more of our credit ratings could have a material adverse impact on our ability
to obtain short- and long-term financing, the cost of such financings and the
execution of our commercial strategies.

A decline in credit ratings would increase borrowing costs under CERC's
$200 million revolving credit facility. A decline in credit ratings would also
increase the interest rate on long-term debt to be issued in the capital markets
and would negatively impact our ability to complete capital market transactions.
If we were

unable to maintain an investment-grade rating from at least one rating agency,
as a registered public utility holding company we would be required to obtain
further approval from the SEC for any additional capital markets transactions as
more fully described in "-- Certain Contractual and Regulatory Limits on Ability
to Issue Securities and Pay Dividends on Our Common Stock" below. Additionally,
a decline in credit ratings could increase cash collateral requirements that
could exist in connection with certain contracts relating to gas purchases, gas
price hedging and gas storage activities of our Natural Gas Distribution
business segment.

Our revolving credit facilities contain "material adverse change" clauses
that could impact our ability to make new borrowings under these facilities. The
"material adverse change" clauses in our revolving credit facilities generally
relate to an event, development or circumstance that has or would reasonably be
expected to have a material adverse effect on (a) the business, financial
condition or operations of the borrower and its subsidiaries taken as a whole,
or (b) the legality, validity or enforceability of the loan documents.

In September 1999, we issued 2.0% Zero-Premium Exchangeable Subordinated
Notes due 2029 (ZENS) having an original principal amount of $1.0 billion. Each
ZENS note is exchangeable at the holder's option at any time for an amount of
cash equal to 95% of the market value of the reference shares of Time Warner
Inc. (TW Common) attributable to each ZENS note. If our creditworthiness were to
drop such that ZENS note holders thought our liquidity was adversely affected or
the market for the ZENS notes were to become illiquid, some ZENS noteholders
might decide to exchange their ZENS notes for cash. Funds for the payment of
cash upon exchange could be obtained from the sale of the shares of TW Common
that we own or from other sources. We own shares of TW Common equal to 100% of
the reference shares used to calculate our obligation to the holders of the ZENS
notes. ZENS note exchanges result in a cash outflow because deferred tax
liabilities related to the ZENS notes and TW Common shares become current tax
obligations when ZENS notes are exchanged and TW Common shares are sold.

CenterPoint Energy Gas Services, Inc. (CEGS), a wholly owned subsidiary of
CERC Corp., provides comprehensive natural gas sales and services to industrial
and commercial customers which are primarily located within or near the
territories served by our pipelines and natural gas distribution subsidiaries.
In order to hedge its exposure to natural gas prices, CEGS has agreements with
provisions standard for the industry that establish credit thresholds and
require a party to provide additional collateral on two business days' notice
when that party's rating or the rating of a credit support provider for that
party (CERC Corp. in this case) falls below those levels. As of December 31,
2003, the senior unsecured debt of CERC Corp. was rated BBB by S&P and Ba1 by
Moody's. We estimate that as of December 31, 2003, unsecured credit limits
extended to CEGS by counterparties could aggregate $62 million; however,
utilized credit capacity is significantly lower.

Cross Defaults. Under our revolving credit facility and our term loan, a
payment default on, or a non-payment default that permits acceleration of, any
indebtedness exceeding $50 million by us or any of our significant subsidiaries
will cause a default. Pursuant to the indenture governing our senior notes, a
payment default by us, CERC Corp. or CenterPoint Houston in respect of, or an
acceleration of, borrowed money and certain other specified types of
obligations, in the aggregate principal amount of $50 million will cause a
default. As of February 29, 2004, we had issued five series of senior notes
aggregating $1.4 billion in principal amount under this indenture. A default by
CenterPoint Energy would not trigger a default under our subsidiaries' debt
instruments.

Pension Plan. As discussed in Note 10 to the consolidated financial
statements, we maintain a non-contributory pension plan covering substantially
all employees. Employer contributions are based on actuarial computations that
establish the minimum contribution required under the Employee Retirement Income
Security Act of 1974 (ERISA) and the maximum deductible contribution for income
tax purposes. No contributions were made to the plan during 2002. At December
31, 2002 and 2003, the projected benefit obligation exceeded the market value of
plan assets by $496 million and $498 million, respectively. In September 2003,
we elected to make a $22.7 million contribution to our pension plan. As a
result, we will not be required to make any contributions to our pension plan
prior to 2005. Changes in interest rates and the market values of the securities
held by the plan during 2004 could materially, positively or negatively, change
our under-funded status and affect the level of pension expense and required
contributions in 2005 and

beyond. Plan assets used to satisfy pension obligations have been adversely
impacted by the decline in equity market values prior to 2003.

Under the terms of our pension plan, we reserve the right to change, modify
or terminate the plan. Our funding policy is to review amounts annually and
contribute an amount at least equal to the minimum contribution required under
ERISA.

In accordance with SFAS No. 87, "Employers' Accounting for Pensions,"
changes in pension obligations and assets may not be immediately recognized as
pension costs in the income statement, but generally are recognized in future
years over the remaining average service period of plan participants. As such,
significant portions of pension costs recorded in any period may not reflect the
actual level of benefit payments provided to plan participants.

Pension costs were $39 million, $35 million and $90 million for 2001, 2002
and 2003, respectively. Included in the net pension cost in 2001 was $45 million
of expense related to Reliant Resources' participants. For 2002, a pension
benefit of $4 million was recorded related to Reliant Resources' participants.
Pension benefit and expense for Reliant Resources' participants are reflected in
the Statement of Consolidated Operations as discontinued operations.
Additionally, we maintain a non-qualified benefit restoration plan which allows
participants to retain the benefits to which they would have been entitled under
our non-contributory pension plan except for the federally mandated limits on
these benefits or on the level of compensation on which these benefits may be
calculated. The expense associated with this non-qualified plan was $25 million,
$9 million and $8 million in 2001, 2002 and 2003, respectively. Included in the
cost in 2001 and 2002 is $17 million and $3 million, respectively, of expense
related to Reliant Resources' participants, which is reflected in discontinued
operations in the Statements of Consolidated Operations.

The calculation of pension expense and related liabilities requires the use
of assumptions. Changes in these assumptions can result in different expense and
liability amounts, and future actual experience can differ from the assumptions.
Two of the most critical assumptions are the expected long-term rate of return
on plan assets and the assumed discount rate.

As of December 31, 2003, the expected long-term rate of return on plan
assets was 9.0%. We believe that our actual asset allocation on average will
approximate the targeted allocation and the estimated return on net assets. We
regularly review our actual asset allocation and periodically rebalance plan
assets as appropriate.

As of December 31, 2003, the projected benefit obligation was calculated
assuming a discount rate of 6.25%, which is a .5% decline from the 6.75%
discount rate assumed in 2002. The discount rate was determined by reviewing
yields on high-quality bonds that receive one of the two highest ratings given
by a recognized rating agency and the expected duration of pension obligation
specific to the characteristics of our plan.

Pension expense for 2004, including the benefit restoration plan, is
estimated to be $82 million based on an expected return on plan assets of 9.0%
and a discount rate of 6.25% as of December 31, 2003. If the expected return
assumption were lowered by .5% (from 9.0% to 8.5%), 2004 pension expense would
increase by approximately $6 million. Similarly, if the discount rate were
lowered by .5% (from 6.25% to 5.75%), this assumption change would increase our
projected benefit obligation, pension liabilities and 2004 pension expense by
approximately $121 million, $111 million and $10 million, respectively. In
addition, the assumption change would result in an additional charge to
comprehensive income during 2004 of $72 million, net of tax.

Primarily due to the decline in the market value of the pension plan's
assets and increased benefit obligations associated with a reduction in the
discount rate, the value of the plan's assets is less than our accumulated
benefit obligation. As a result, we recorded a non-cash minimum liability
adjustment, which resulted in a charge to other comprehensive income during the
fourth quarter of 2002 of $414 million, net of tax. In December 2003, we
recorded a minimum liability adjustment in the Consolidated Balance Sheet ($72
million decrease in pension liability) to reflect a liability equal to the
unfunded accumulated benefit obligation, with an offsetting credit of $47
million to equity, net of a $25 million deferred tax effect.

Future changes in plan asset returns, assumed discount rates and various
other factors related to the pension plan will impact our future pension expense
and liabilities. We cannot predict with certainty what these factors will be in
the future.

Other Factors that Could Affect Cash Requirements. In addition to the
above factors, our liquidity and capital resources could be affected by:

- cash collateral requirements that could exist in connection with certain
contracts, including gas purchases, gas price hedging and gas storage
activities of our Natural Gas Distribution business segment, particularly
given gas price levels and volatility;

- acceleration of payment dates on certain gas supply contracts under
certain circumstances, as a result of increased gas prices and
concentration of suppliers;

- increased costs related to the acquisition of gas for storage;

- increases in interest expense in connection with debt refinancings;

- various regulatory actions; and

- the ability of Reliant Resources and its subsidiaries to satisfy their
obligations as the principal customers of CenterPoint Houston and Texas
Genco and in respect of Reliant Resources' indemnity obligations to us
and our subsidiaries.

Money Pool. We have two "money pools" through which our participating
subsidiaries can borrow or invest on a short-term basis. Funding needs are
aggregated and external borrowing or investing is based on the net cash
position. Prior to October 2003, we had only one money pool. Following Texas
Genco's certification by FERC as an "exempt wholesale generator" under the 1935
Act in October 2003, it could no longer participate with our regulated
subsidiaries in the same money pool. In October 2003, we established a second
money pool in which Texas Genco and certain of our other unregulated
subsidiaries can participate.

The net funding requirements of the money pool in which our regulated
subsidiaries participate are expected to be met with loans and revolving credit
facilities. Except in an emergency situation (in which case we could provide
funding pursuant to applicable SEC rules), we would be required to obtain
approval from the SEC to issue and sell securities for purposes of funding Texas
Genco's operations via the money pool established in October 2003. The terms of
both money pools are in accordance with requirements applicable to registered
public utility holding companies under the 1935 Act and under an order from the
SEC relating to our financing activities and those of our subsidiaries on June
30, 2003 (June 2003 Financing Order).

Certain Contractual and Regulatory Limits on Ability to Issue Securities
and Pay Dividends on Our Common Stock. Factors affecting our ability to issue
securities, pay dividends on our common stock or take other actions that affect
our capitalization include:

- covenants and other provisions in our credit or loan facilities and the
credit facilities and receivables facility of our subsidiaries and other
borrowing agreements; and

- limitations imposed on us as a registered public utility holding company
under the 1935 Act.

The collateralized term loan of CenterPoint Houston limits its debt,
excluding transition bonds, as a percentage of its total capitalization to 68%.
CERC Corp.'s bank facility and its receivables facility limit CERC's debt as a
percentage of its total capitalization to 60% and contain an earnings before
interest, taxes, depreciation and amortization (EBITDA) to interest covenant.
CERC Corp.'s bank facility also contains a provision that could, under certain
circumstances, limit the amount of dividends that could be paid by CERC Corp.
Our $2.3 billion revolving credit and term loan facility limits dividend
payments as described above, contains a debt to EBITDA covenant, an EBITDA to
interest covenant and restrictions on the use of proceeds from certain debt
issuances and certain asset sales. These facilities include certain restrictive
covenants. We and our subsidiaries are in compliance with such covenants.

We are a registered public utility holding company under the 1935 Act. The
1935 Act and related rules and regulations impose a number of restrictions on
our activities and those of our subsidiaries other than Texas
63

Genco. The 1935 Act, among other things, limits our ability and the ability of
our regulated subsidiaries to issue debt and equity securities without prior
authorization, restricts the source of dividend payments to current and retained
earnings without prior authorization, regulates sales and acquisitions of
certain assets and businesses and governs affiliate transactions.

The June 2003 Financing Order is effective until June 30, 2005.
Additionally, we have received several subsequent orders which provide
additional financing authority. These orders establish limits on the amount of
external debt and equity securities that can be issued by us and our regulated
subsidiaries without additional authorization but generally permit us to
refinance our existing obligations and those of our regulated subsidiaries. Each
of us and our subsidiaries is in compliance with the authorized limits.
Discussed below are the incremental amounts of debt and equity that we are
authorized to issue after giving effect to our capital markets transactions in
2003 and the first two months of 2004. The orders also permit utilization of
undrawn credit facilities at CenterPoint Energy and CERC. As of March 1, 2004:

- CenterPoint Energy is authorized to issue an additional aggregate $250
million of preferred stock, preferred securities and equity-linked
securities, $160 million of debt and 199 million shares of common stock;

- CenterPoint Houston is authorized to issue an additional aggregate $161
million of debt and an aggregate $250 million of preferred stock and
preferred securities; and

- CERC is authorized to issue an additional $2 million of debt and an
additional aggregate $250 million of preferred stock and preferred
securities.

The SEC has reserved jurisdiction over, and must take further action to
permit, the issuance of $478 million of additional debt at CenterPoint Energy,
$480 million of additional debt at CERC and $250 million of additional debt at
CenterPoint Houston.

The orders require that if we or any of our regulated subsidiaries issue
securities that are rated by a nationally recognized statistical rating
organization (NRSRO), the security to be issued must obtain an investment grade
rating from at least one NRSRO and, as a condition to such issuance, all
outstanding rated securities of the issuer and of CenterPoint Energy must be
rated investment grade by at least one NRSRO. The orders also contain certain
requirements for interest rates, maturities, issuance expenses and use of
proceeds.

The 1935 Act limits the payment of dividends to payment from current and
retained earnings unless specific authorization is obtained to pay dividends
from other sources. The SEC has reserved jurisdiction over payment of $500
million of dividends from CenterPoint Energy's unearned surplus or capital.
Further authorization would be required to make those payments. As of December
31, 2003, we had a retained deficit on our Consolidated Balance Sheet. We expect
to pay dividends out of current earnings. If as a result of the 2004 True-Up
Proceeding or any other event we are required to take a charge against our net
income, our current earnings could be reduced below the level which would enable
us to pay the quarterly dividend on our common stock under our current SEC
financing order. We expect to file an application with the SEC under the 1935
Act requesting an order authorizing us, in the event that we are required to
take such a charge against our net income, to pay quarterly dividends out of
capital or unearned surplus. The June 2003 Financing Order requires that
CenterPoint Houston and CERC maintain a ratio of common equity to total
capitalization of thirty percent (30%).

Security Interests in Receivables of Reliant Resources. Pursuant to a
Master Power Purchase and Sale Agreement (as amended) with a subsidiary of
Reliant Resources related to power sales in the ERCOT market, Texas Genco has
been granted a security interest in accounts receivable and/or notes associated
with the accounts receivable of certain subsidiaries of Reliant Resources to
secure up to $250 million in purchase obligations.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both important to the
presentation of our financial condition and results of operations and requires
management to make difficult, subjective or complex accounting estimates. An
accounting estimate is an approximation made by management of a financial
statement element, item or account in the financial statements. Accounting
estimates in our historical consolidated financial statements measure the
effects of past business transactions or events, or the present status of an
asset or liability. The accounting estimates described below require us to make
assumptions about matters that are highly uncertain at the time the estimate is
made. Additionally, different estimates that we could have used or changes in an
accounting estimate that are reasonably likely to occur could have a material
impact on the presentation of our financial condition or results of operations.
The circumstances that make these judgments difficult, subjective and/or complex
have to do with the need to make estimates about the effect of matters that are
inherently uncertain. Estimates and assumptions about future events and their
effects cannot be predicted with certainty. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments. These estimates may change as new events occur, as more experience is
acquired, as additional information is obtained and as our operating environment
changes. Our significant accounting policies are discussed in Note 2 to our
consolidated financial statements. We believe the following accounting policies
involve the application of critical accounting estimates. Accordingly, these
accounting estimates have been reviewed and discussed with the audit committee
of the board of directors.

ACCOUNTING FOR RATE REGULATION

SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation"
(SFAS No. 71), provides that rate-regulated entities account for and report
assets and liabilities consistent with the recovery of those incurred costs in
rates if the rates established are designed to recover the costs of providing
the regulated service and if the competitive environment makes it probable that
such rates can be charged and collected. Application of SFAS No. 71 to the
electric generation portion of our business was discontinued as of June 30,
1999. Our Electric Transmission & Distribution business continues to apply SFAS
No. 71 which results in our accounting for the regulatory effects of recovery of
stranded costs and other regulatory assets resulting from the unbundling of the
transmission and distribution business from our electric generation operations
in our consolidated financial statements. Certain expenses and revenues subject
to utility regulation or rate determination normally reflected in income are
deferred on the balance sheet and are recognized in income as the related
amounts are included in service rates and recovered from or refunded to
customers. Significant accounting estimates embedded within the application of
SFAS No. 71 with respect to our Electric Transmission & Distribution business
segment relate to $2.1 billion of recoverable electric generation plant
mitigation assets (stranded costs) and $1.4 billion of ECOM true-up as of
December 31, 2003. The stranded costs include $1.1 billion of previously
recorded accelerated depreciation and $841 million of previously redirected
depreciation as well as $399 million related to the Texas Genco distribution.
These stranded costs are recoverable under the provisions of the Texas electric
restructuring law. The ultimate amount of stranded cost recovery is subject to a
final determination, which will occur in 2004, and is contingent upon the market
value of Texas Genco. Any significant changes in our accounting estimate of
stranded costs as a result of current market conditions or changes in the
regulatory recovery mechanism currently in place could result in a material
write-down of these regulatory assets.

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES

We review the carrying value of our long-lived assets, including goodwill
and identifiable intangibles, whenever events or changes in circumstances
indicate that such carrying values may not be recoverable, and annually for
goodwill as required by SFAS No. 142. Unforeseen events and changes in
circumstances and market condition and material differences in the value of
long-lived assets and intangibles due to changes in estimates of future cash
flows, regulatory matters and operating costs could negatively affect the fair
value of our assets and result in an impairment charge.

Fair value is the amount at which the asset could be bought or sold in a
current transaction between willing parties and may be estimated using a number
of techniques, including quoted market prices or valuations by third parties,
present value techniques based on estimates of cash flows, or multiples of
earnings or revenue performance measures. The fair value of the asset could be
different using different estimates and assumptions in these valuation
techniques.

We have engaged a financial advisor to assist in exploring alternatives for
monetizing our 81% interest in Texas Genco, including possible sale of our
ownership interest in Texas Genco. As a result of our intention to monetize our
interest in Texas Genco, we performed an impairment analysis of Texas Genco's
assets as of December 31, 2003 in accordance with the provisions of SFAS No.
144. As of December 31, 2003 no impairment had been indicated. The fair value of
our Texas Genco assets could be materially affected by a change in the estimated
future cash flows for these assets. We estimate future cash flows for Texas
Genco using a probability-weighted approach based on the fair value of its
common stock, operating projections and estimates of how long we will retain
these assets. Changes in any of these assumptions, including the timing of a
possible sale, could result in an impairment charge.

UNBILLED ENERGY REVENUES

Revenues related to the sale and/or delivery of electricity or natural gas
(energy) are generally recorded when energy is delivered to customers. However,
the determination of energy sales to individual customers is based on the
reading of their meters, which is performed on a systematic basis throughout the
month. At the end of each month, amounts of energy delivered to customers since
the date of the last meter reading are estimated and the corresponding unbilled
revenue is estimated. Unbilled electric delivery revenue is estimated each month
based on daily supply volumes, applicable rates and analyses reflecting
significant historical trends and experience. Unbilled natural gas sales are
estimated based on estimated purchased gas volumes, estimated lost and
unaccounted for gas and tariffed rates in effect. As additional information
becomes available, or actual amounts are determinable, the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2(n) to the consolidated financial statements for a discussion of
new accounting pronouncements that affect us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

IMPACT OF CHANGES IN INTEREST RATES AND ENERGY COMMODITY PRICES

We are exposed to various market risks. These risks arise from transactions
entered into in the normal course of business and are inherent in our
consolidated financial statements. Most of the revenues and income from our
business activities are impacted by market risks. Categories of market risk
include exposure to commodity prices through non-trading activities, interest
rates and equity prices. A description of each market risk is set forth below:

- Commodity price risk results from exposures to changes in spot prices,
forward prices and price volatilities of commodities, such as natural gas
and other energy commodities risk.

- Interest rate risk primarily results from exposures to changes in the
level of borrowings and changes in interest rates.

- Equity price risk results from exposures to changes in prices of
individual equity securities.

Management has established comprehensive risk management policies to
monitor and manage these market risks. We manage these risk exposures through
the implementation of our risk management policies and framework. We manage our
exposures through the use of derivative financial instruments and derivative
commodity instrument contracts. During the normal course of business, we review
our hedging strategies and determine the hedging approach we deem appropriate
based upon the circumstances of each situation.
66

Derivative instruments such as futures, forward contracts, swaps and
options derive their value from underlying assets, indices, reference rates or a
combination of these factors. These derivative instruments include negotiated
contracts, which are referred to as over-the-counter derivatives, and
instruments that are listed and traded on an exchange.

Derivative transactions are entered into in our non-trading operations to
manage and hedge certain exposures, such as exposure to changes in gas prices.
We believe that the associated market risk of these instruments can best be
understood relative to the underlying assets or risk being hedged.

INTEREST RATE RISK

We have outstanding long-term debt, bank loans, mandatory redeemable
preferred securities of subsidiary trusts holding solely our junior subordinated
debentures (trust preferred securities), securities held in our nuclear
decommissioning trusts, some lease obligations and our obligations under our
2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS) that subject
us to the risk of loss associated with movements in market interest rates. In
2003, we had interest rate swaps in place in order to hedge portions of our
floating-rate debt.

Our floating-rate obligations aggregated $5.5 billion and $2.8 billion at
December 31, 2002 and 2003, respectively. If the floating interest rates were to
increase by 10% from December 31, 2003 rates, our combined interest expense
would increase by a total of $2.0 million each month in which such increase
continued.

At December 31, 2002 and 2003, we had outstanding fixed-rate debt
(excluding indexed debt securities) and trust preferred securities aggregating
$5.4 billion and $8.1 billion, respectively, in principal amount and having a
fair value of $5.4 billion and $8.6 billion, respectively. These instruments are
fixed-rate and, therefore, do not expose us to the risk of loss in earnings due
to changes in market interest rates (please read Note 9 to our consolidated
financial statements). However, the fair value of these instruments would
increase by approximately $461 million if interest rates were to decline by 10%
from their levels at December 31, 2003. In general, such an increase in fair
value would impact earnings and cash flows only if we were to reacquire all or a
portion of these instruments in the open market prior to their maturity.

CenterPoint Houston contributed $14.8 million in 2001 to trusts established
to fund Texas Genco's share of the decommissioning costs for the South Texas
Project. In both 2002 and 2003, CenterPoint Houston contributed $2.9 million to
these trusts. The securities held by the trusts for decommissioning costs had an
estimated fair value of $189 million as of December 31, 2003, of which
approximately 37% were fixed-rate debt securities that subject us to risk of
loss of fair value with movements in market interest rates. If interest rates
were to increase by 10% from their levels at December 31, 2003, the decrease in
fair value of the fixed-rate debt securities would be approximately $1 million.
In addition, the risk of an economic loss is mitigated. Any unrealized gains or
losses are accounted for in accordance with SFAS No. 71 as a regulatory
asset/liability because we believe that CenterPoint Houston's future
contributions, which are currently recovered through the ratemaking process,
will be adjusted for these gains and losses. For further discussion regarding
the recovery of decommissioning costs pursuant to the Texas electric
restructuring law, please read Note 4(a) to our consolidated financial
statements.

As discussed in Note 7 to our consolidated financial statements, upon
adoption of SFAS No. 133 effective January 1, 2001, the ZENS obligation was
bifurcated into a debt component and a derivative component. The debt component
of $105 million at December 31, 2003 is a fixed-rate obligation and, therefore,
does not expose us to the risk of loss in earnings due to changes in market
interest rates. However, the fair value of the debt component would increase by
approximately $16 million if interest rates were to decline by 10% from levels
at December 31, 2003. Changes in the fair value of the derivative component,
$321 million at December 31, 2003, are recorded in our Statements of
Consolidated Operations and, therefore, we are exposed to changes in the fair
value of the derivative component as a result of changes in the underlying
risk-free interest rate. If the risk-free interest rate were to increase by 10%
from December 31, 2003 levels, the fair value of the derivative component would
increase by approximately $5 million, which would be recorded as an unrealized
loss in our Statements of Consolidated Operations.
67

As of December 31, 2003, we had an interest rate swap having a notional
amount of $250 million to fix the interest rate applicable to floating rate
debt. At December 31, 2003, the swap could be terminated at a cost of $1
million. The swap, which expired in January 2004, did not qualify as a cash flow
hedge under SFAS No. 133, and was marked to market in our Consolidated Balance
Sheets with changes reflected in interest expense in the Statements of
Consolidated Operations. A decrease of 10% in the December 31, 2003 level of
interest rates would have no impact.

For information regarding the accounting for interest rate swaps, please
read Note 5 to our consolidated financial statements.

EQUITY MARKET VALUE RISK

We are exposed to equity market value risk through our ownership of 21.6
million shares of TW Common, which are held by us to facilitate our ability to
meet our obligations under the ZENS. Please read Note 7 to our consolidated
financial statements for a discussion of the effect of adoption of SFAS No. 133
on our ZENS obligation and our historical accounting treatment of our ZENS
obligation. A decrease of 10% from the December 31, 2003 market value of TW
Common would result in a net loss of approximately $3 million, which would be
recorded as a loss in our Statements of Consolidated Operations.

As discussed above under "-- Interest Rate Risk," CenterPoint Houston
contributes to trusts established to fund Texas Genco's share of the
decommissioning costs for the South Texas Project, which held debt and equity
securities as of December 31, 2003. The equity securities expose us to losses in
fair value. If the market prices of the individual equity securities were to
decrease by 10% from their levels at December 31, 2003, the resulting loss in
fair value of these securities would be approximately $12 million. Currently,
the risk of an economic loss is mitigated as discussed above under "-- Interest
Rate Risk."

COMMODITY PRICE RISK FROM NON-TRADING ACTIVITIES

To reduce our commodity price risk from market fluctuations in the revenues
derived from the sale of natural gas and related transportation, we enter into
forward contracts, swaps and options (Non-Trading Energy Derivatives) in order
to hedge some expected purchases of natural gas and sales of natural gas (a
portion of which are firm commitments at the inception of the hedge).
Non-Trading Energy Derivatives are also utilized to fix the price of future
operational gas requirements.

We use derivative instruments as economic hedges to offset the commodity
exposure inherent in our businesses. The stand-alone commodity risk created by
these instruments, without regard to the offsetting effect of the underlying
exposure these instruments are intended to hedge, is described below. We measure
the commodity risk of our Non-Trading Energy Derivatives using a sensitivity
analysis. The sensitivity analysis performed on our Non-Trading Energy
Derivatives measures the potential loss in earnings based on a hypothetical 10%
movement in energy prices. A decrease of 10% in the market prices of energy
commodities from their December 31, 2002 levels would have decreased the fair
value of our Non-Trading Energy Derivatives by $12 million. A decrease of 10% in
the market prices of energy commodities from their December 31, 2003 levels
would have decreased the fair value of our Non-Trading Energy Derivatives by $50
million.

The above analysis of the Non-Trading Energy Derivatives utilized for
hedging purposes does not include the favorable impact that the same
hypothetical price movement would have on our physical purchases and sales of
natural gas to which the hedges relate. Furthermore, the Non-Trading Energy
Derivative portfolio is managed to complement the physical transaction
portfolio, reducing overall risks within limits. Therefore, the adverse impact
to the fair value of the portfolio of Non-Trading Energy Derivatives held for
hedging purposes

associated with the hypothetical changes in commodity prices referenced above
would be offset by a favorable impact on the underlying hedged physical
transactions, assuming:

- the Non-Trading Energy Derivatives are not closed out in advance of their
expected term;

- the Non-Trading Energy Derivatives continue to function effectively as
hedges of the underlying risk; and

- as applicable, anticipated underlying transactions settle as expected.

If any of the above-mentioned assumptions ceases to be true, a loss on the
derivative instruments may occur, or the options might be worthless as
determined by the prevailing market value on their termination or maturity date,
whichever comes first. Non-Trading Energy Derivatives designated and effective
as hedges, may still have some percentage which is not effective. The change in
value of the Non-Trading Energy Derivatives that represents the ineffective
component of the hedges is recorded in our results of operations.

We have established a Risk Oversight Committee, comprised of corporate and
business segment officers, that oversees commodity price and credit risk
activities, including trading, marketing, risk management services and hedging
activities. The committee's duties are to establish commodity risk policies,
allocate risk capital, approve trading of new products and commodities, monitor
risk positions and ensure compliance with the risk management policies and
procedures and trading limits established by our board of directors.

Our policies prohibit the use of leveraged financial instruments. A
leveraged financial instrument, for this purpose, is a transaction involving a
derivative whose financial impact will be based on an amount other than the
notional amount or volume of the instrument.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF THE COMPANY

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2002 2003
------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

REVENUES.................................................... $10,558,991 $ 7,898,072 $9,760,124
----------- ----------- ----------
EXPENSES:
Fuel and cost of gas sold................................. 5,085,167 3,864,733 5,367,398
Purchased power........................................... 1,222,565 93,841 72,509
Operation and maintenance................................. 1,753,718 1,605,457 1,716,279
Depreciation and amortization............................. 663,309 614,348 624,581
Taxes other than income taxes............................. 510,578 386,741 375,193
----------- ----------- ----------
Total................................................... 9,235,337 6,565,120 8,155,960
----------- ----------- ----------
OPERATING INCOME............................................ 1,323,654 1,332,952 1,604,164
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Gain (loss) on Time Warner investment..................... (70,215) (499,704) 105,820
Gain (loss) on indexed debt securities.................... 58,033 480,027 (96,473)
Interest expense and distribution on trust preferred
securities.............................................. (606,896) (764,256) (933,820)
Other, net................................................ 52,144 18,359 (14,926)
----------- ----------- ----------
Total................................................... (566,934) (765,574) (939,399)
----------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
MINORITY INTEREST, CUMULATIVE EFFECT OF ACCOUNTING CHANGE
AND PREFERRED DIVIDENDS................................... 756,720 567,378 664,765
Income Tax Expense.......................................... (257,378) (198,540) (216,301)
Minority Interest........................................... 36 (11) (28,753)
----------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND PREFERRED DIVIDENDS.............. 499,378 368,827 419,711
DISCONTINUED OPERATIONS:
Income from Reliant Resources, net of tax................. 475,078 82,157 --
Income (Loss) from Other Operations, net of tax........... (52,453) 246 (2,674)
Loss on Disposal of Reliant Resources..................... -- (4,371,464) --
Loss on Disposal of Other Operations, net of tax.......... -- -- (13,442)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX.......... 58,556 -- 80,072
----------- ----------- ----------
INCOME (LOSS) BEFORE PREFERRED DIVIDENDS.................... 980,559 (3,920,234) 483,667
PREFERRED DIVIDENDS......................................... 858 -- --
----------- ----------- ----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS....... $ 979,701 $(3,920,234) $ 483,667
=========== =========== ==========
BASIC EARNINGS PER SHARE:
Income from Continuing Operations Before Cumulative Effect
of Accounting Change.................................... $ 1.72 $ 1.24 $ 1.38
Discontinued Operations:
Income from Reliant Resources, net of tax............... 1.64 0.27 --
Income (loss) from Other Operations, net of tax......... (0.18) -- (0.01)
Loss on disposal of Reliant Resources................... -- (14.67) --
Loss on disposal of Other Operations, net of tax........ -- -- (0.04)
Cumulative Effect of Accounting Change, net of tax........ 0.20 -- 0.26
----------- ----------- ----------
Net Income (Loss) Attributable to Common Shareholders..... $ 3.38 $ (13.16) $ 1.59
=========== =========== ==========
DILUTED EARNINGS PER SHARE:
Income from Continuing Operations Before Cumulative Effect
of Accounting Change.................................... $ 1.71 $ 1.23 $ 1.37
Discontinued Operations:
Income from Reliant Resources, net of tax............... 1.62 0.27 --
Income (loss) from Other Operations, net of tax......... (0.18) -- (0.01)
Loss on disposal of Reliant Resources................... -- (14.58) --
Loss on disposal of Other Operations, net of tax........ -- -- (0.04)
Cumulative Effect of Accounting Change, net of tax........ 0.20 -- 0.26
----------- ----------- ----------
Net Income (Loss) Attributable to Common Shareholders..... $ 3.35 $ (13.08) $ 1.58
=========== =========== ==========

See Notes to the Company's Consolidated Financial Statements
70

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

YEAR ENDED DECEMBER 31,
----------------------------------
2001 2002 2003
--------- ----------- --------
(IN THOUSANDS OF DOLLARS)

Net income (loss) attributable to common shareholders..... $ 979,701 $(3,920,234) $483,667
--------- ----------- --------
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment (net of tax of
$6,873, $223,060 and $25,467)........................ 12,764 (414,254) 47,296
Cumulative effect of adoption of SFAS No. 133 (net of
tax of $20,511)...................................... 38,092 -- --
Net deferred gain (loss) from cash flow hedges (net of
tax of $23,794, $25,192 and $15,405)................. (15,549) (69,615) 21,973
Reclassification of deferred loss (gain) from cash flow
hedges realized in net income (net of tax of $18,978,
$13,539 and $3,588).................................. (59,055) 39,705 9,015
Other comprehensive income (loss) from discontinued
operations (net of tax of $84,576, $86,787 and
$366)................................................ (157,069) 161,176 680
--------- ----------- --------
Other comprehensive income (loss)......................... (180,817) (282,988) 78,964
--------- ----------- --------
Comprehensive income (loss)............................... $ 798,884 $(4,203,222) $562,631
========= =========== ========

See Notes to the Company's Consolidated Financial Statements
71

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
2002 2003
------------ ------------
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 304,281 $ 131,480
Investment in Time Warner common stock.................... 283,486 389,302
Accounts receivable, net.................................. 558,328 636,646
Accrued unbilled revenues................................. 354,497 395,351
Inventory................................................. 351,816 412,926
Non-trading derivative assets............................. 27,275 45,897
Taxes receivable.......................................... 72,027 159,646
Current assets of discontinued operations................. 12,505 --
Prepaid expense and other current assets.................. 71,138 101,457
----------- -----------
Total current assets.................................... 2,035,353 2,272,705
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 12,115,222 11,811,536
----------- -----------
OTHER ASSETS:
Goodwill, net............................................. 1,740,510 1,740,510
Other intangibles, net.................................... 65,880 79,936
Regulatory assets......................................... 4,000,646 4,930,793
Non-trading derivative assets............................. 3,866 11,273
Non-current assets of discontinued operations............. 50,272 --
Other..................................................... 444,860 529,911
----------- -----------
Total other assets...................................... 6,306,034 7,292,423
----------- -----------
TOTAL ASSETS.......................................... $20,456,609 $21,376,664
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 347,000 $ 63,000
Current portion of long-term debt......................... 810,325 162,423
Indexed debt securities derivative........................ 224,881 321,352
Accounts payable.......................................... 621,528 694,558
Taxes accrued............................................. 192,570 193,273
Interest accrued.......................................... 197,274 164,669
Non-trading derivative liabilities........................ 26,387 8,036
Regulatory liabilities.................................... 168,173 186,239
Accumulated deferred income taxes, net.................... 285,214 345,870
Deferred revenues......................................... 48,940 88,740
Current liabilities of discontinued operations............ 2,856 --
Other..................................................... 286,005 290,176
----------- -----------
Total current liabilities............................... 3,211,153 2,518,336
----------- -----------
OTHER LIABILITIES:
Accumulated deferred income taxes, net.................... 2,445,133 3,010,577
Unamortized investment tax credits........................ 230,037 211,731
Non-trading derivative liabilities........................ 873 3,330
Benefit obligations....................................... 832,152 836,459
Regulatory liabilities.................................... 959,421 1,358,030
Non-current liabilities of discontinued operations........ 6,912 --
Other..................................................... 1,448,226 715,670
----------- -----------
Total other liabilities................................. 5,922,754 6,135,797
----------- -----------
LONG-TERM DEBT.............................................. 9,194,320 10,783,064
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 12)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.............. 292 178,910
----------- -----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR
SUBORDINATED DEBENTURES OF THE COMPANY.................... 706,140 --
----------- -----------
SHAREHOLDERS' EQUITY........................................ 1,421,950 1,760,557
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $20,456,609 $21,376,664
=========== ===========

See Notes to the Company's Consolidated Financial Statements
72

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

YEAR ENDED DECEMBER 31,
---------------------------------------
2001 2002 2003
----------- ----------- -----------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to common shareholders..... $ 979,701 $(3,920,234) $ 483,667
Discontinued operations................................... (422,625) 4,289,061 16,116
----------- ----------- -----------
Income from continuing operations and cumulative effect of
accounting change, less preferred dividends............. 557,076 368,827 499,783
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization........................... 663,309 614,348 624,581
Fuel-related amortization............................... 29,410 25,113 23,385
Deferred income taxes................................... (88,291) 319,615 517,442
Amortization of deferred financing costs................ 16,051 117,218 151,957
Investment tax credit................................... (18,330) (17,370) (18,306)
Cumulative effect of accounting change, net............. (58,556) -- (80,072)
Unrealized loss (gain) on Time Warner investment........ 70,215 499,704 (105,820)
Unrealized gain (loss) on indexed debt securities....... (58,033) (480,027) 96,473
Minority interest....................................... (36) 11 28,753
Changes in other assets and liabilities:
Accounts receivable and unbilled revenues, net........ 1,124,343 (252,941) (118,551)
Inventory............................................. (15,550) 53,822 (61,110)
Taxes receivable...................................... -- (72,027) (87,619)
Accounts payable...................................... (1,121,037) 103,896 69,483
Fuel cost over (under) recovery/surcharge............. 422,672 250,191 17,831
Interest and taxes accrued............................ 269,942 (7,108) 32,926
Net regulatory assets and liabilities................. (53,785) (1,062,130) (773,537)
Non-trading derivatives, net.......................... 14,781 (144,478) 2,913
Other current assets.................................. (16,574) (39,145) (30,319)
Other current liabilities............................. (99,673) (34,007) 15,707
Other assets.......................................... 79,898 (59,498) (10,971)
Other liabilities..................................... (49,768) 102,031 71,721
Other, net.............................................. 63,424 36,423 29,205
----------- ----------- -----------
Net cash provided by operating activities........... 1,731,488 322,468 895,855
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,210,736) (846,243) (647,750)
Proceeds from sale of Time Warner investment.............. -- 43,419 --
Other, net................................................ 15,050 37,269 (19,131)
----------- ----------- -----------
Net cash used in investing activities............... (1,195,686) (765,555) (666,881)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 1,296,779 1,320,723 7,964,529
Increase (decrease) in short-term borrowings, net......... (1,356,162) 668,386 (284,000)
Payments of long-term debt................................ (632,116) (696,218) (7,768,068)
Debt issuance costs....................................... (10,608) (196,830) (240,797)
Payment of common stock dividends......................... (433,918) (324,682) (122,206)
Payment of common stock dividends by subsidiary........... -- -- (15,234)
Proceeds from issuance of common stock, net............... 100,430 12,994 9,349
Redemption of preferred stock............................. (10,227) -- --
Increase in restricted cash related to securitization
financing............................................... (6,775) -- --
Redemption of indexed debt securities..................... -- (45,085) --
Other, net................................................ 7,678 (16,525) 17,079
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ (1,044,919) 722,763 (439,348)
----------- ----------- -----------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS................ 443,858 6,997 37,573
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (65,259) 286,673 (172,801)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 82,867 17,608 304,281
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 17,608 $ 304,281 $ 131,480
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments:
Interest................................................ $ 585,174 $ 632,987 $ 763,302
Income taxes (refunds).................................. 126,231 (27,977) (197,915)

See Notes to the Company's Consolidated Financial Statements
73

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

2001 2002 2003
-------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------- ------- -----------
(IN THOUSANDS OF DOLLARS AND SHARES)

PREFERENCE STOCK, NONE OUTSTANDING............... -- $ -- -- $ -- -- $ --
CUMULATIVE PREFERRED STOCK, $0.01 PAR VALUE;
AUTHORIZED 20,000,000 SHARES
Balance, beginning of year..................... 97 9,740 -- -- -- --
Redemption of preferred stock.................. (97) (9,740) -- -- -- --
------- ---------- ------- ----------- ------- -----------
Balance, end of year........................... -- -- -- -- -- --
------- ---------- ------- ----------- ------- -----------
COMMON STOCK, $0.01 PAR VALUE; AUTHORIZED
1,000,000,000 SHARES
Balance, beginning of year..................... 299,914 2,999 302,944 3,029 305,017 3,050
Issuances related to benefit and investment
plans........................................ 3,030 30 2,073 21 1,280 13
------- ---------- ------- ----------- ------- -----------
Balance, end of year........................... 302,944 3,029 305,017 3,050 306,297 3,063
------- ---------- ------- ----------- ------- -----------
ADDITIONAL PAID-IN-CAPITAL
Balance, beginning of year..................... -- 3,254,191 -- 3,894,272 -- 3,046,043
Issuances related to benefit and investment
plans........................................ -- 130,630 -- 11,866 -- (31,364)
Gain (loss) on issuance of subsidiaries'
stock........................................ -- 509,499 -- (12,835) -- --
Distribution of Reliant Resources.............. -- -- -- (847,200) -- --
Distribution of Texas Genco.................... -- -- -- -- -- (146,263)
Other.......................................... -- (48) -- (60) -- --
------- ---------- ------- ----------- ------- -----------
Balance, end of year........................... -- 3,894,272 -- 3,046,043 -- 2,868,416
------- ---------- ------- ----------- ------- -----------
TREASURY STOCK
Balance, beginning of year..................... (4,811) (120,856) -- -- -- --
Contribution to pension plan................... 4,512 113,336 -- -- -- --
Other.......................................... 299 7,520 -- -- -- --
------- ---------- ------- ----------- ------- -----------
Balance, end of year........................... -- -- -- -- -- --
------- ---------- ------- ----------- ------- -----------
UNEARNED ESOP STOCK
Balance, beginning of year..................... (8,639) (161,158) (7,070) (131,888) (4,916) (78,049)
Issuances related to benefit plan.............. 1,569 29,270 2,154 53,839 4,004 75,207
------- ---------- ------- ----------- ------- -----------
Balance, end of year........................... (7,070) (131,888) (4,916) (78,049) (912) (2,842)
------- ---------- ------- ----------- ------- -----------
RETAINED EARNINGS (DEFICIT)
Balance, beginning of year..................... 2,520,350 3,176,533 (1,062,083)
Net income (loss).............................. 979,701 (3,920,234) 483,667
Common stock dividends -- $1.125 per share in
2001, $1.07 per share in 2002 and $0.40 per
share in 2003................................ (323,518) (318,382) (121,617)
---------- ----------- -----------
Balance, end of year........................... 3,176,533 (1,062,083) (700,033)
---------- ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year..................... (23,206) (204,023) (487,011)
---------- ----------- -----------
Other comprehensive income (loss), net of tax:
Minimum pension liability adjustment........... 12,764 (414,254) 47,296
Cumulative effect of adoption of SFAS No.
133.......................................... 38,092 -- --
Net deferred gain (loss) from cash flow
hedges....................................... (15,549) (69,615) 21,973
Reclassification of deferred loss (gain) from
cash flow hedges realized in net income...... (59,055) 39,705 9,015
Other comprehensive income (loss) from
discontinued operations...................... (157,069) 161,176 680
---------- ----------- -----------
Other comprehensive income (loss).............. (180,817) (282,988) 78,964
---------- ----------- -----------
Balance, end of year........................... (204,023) (487,011) (408,047)
---------- ----------- -----------
Total Shareholders' Equity................... $6,737,923 $ 1,421,950 $ 1,760,557
========== =========== ===========

See Notes to the Company's Consolidated Financial Statements
74

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND

CenterPoint Energy, Inc. (CenterPoint Energy or the Company) is a public
utility holding company, created on August 31, 2002 as part of a corporate
restructuring of Reliant Energy, Incorporated (Reliant Energy) that implemented
certain requirements of the Texas electric restructuring law described below. In
December 2000, Reliant Energy transferred a significant portion of its
unregulated businesses to Reliant Resources, Inc. (Reliant Resources), which, at
the time, was a wholly owned subsidiary of Reliant Energy.

On September 30, 2002, following Reliant Resources' initial public offering
of approximately 20% of its common stock in May 2001, CenterPoint Energy
distributed all of the shares of Reliant Resources common stock owned by
CenterPoint Energy to its common shareholders on a pro-rata basis (the Reliant
Resources Distribution).

CenterPoint Energy is the successor to Reliant Energy for financial
reporting purposes under the Securities Exchange Act of 1934. The Company's
operating subsidiaries own and operate electric transmission and distribution
facilities, natural gas distribution facilities, natural gas pipelines and
electric generating plants. CenterPoint Energy is a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as amended
(1935 Act). The 1935 Act and related rules and regulations impose a number of
restrictions on the activities of the Company and those of its subsidiaries
other than Texas Genco Holdings, Inc. (Texas Genco). The 1935 Act, among other
things, limits the ability of the Company and its regulated subsidiaries to
issue debt and equity securities without prior authorization, restricts the
source of dividend payments to current and retained earnings without prior
authorization, regulates sales and acquisitions of certain assets and businesses
and governs affiliate transactions.

As of December 31, 2003, the Company's indirect wholly owned subsidiaries
included:

- CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which
engages in the electric transmission and distribution business in a
5,000-square mile area of the Texas Gulf Coast that includes Houston; and

- CenterPoint Energy Resources Corp. (CERC Corp., and, together with its
subsidiaries, CERC), which owns gas distribution systems. Through wholly
owned subsidiaries, CERC owns two interstate natural gas pipelines and
gas gathering systems and provides various ancillary services.

CenterPoint Energy also has an approximately 81% ownership interest in
Texas Genco, which owns and operates a portfolio of generating assets located in
Texas. CenterPoint Energy distributed approximately 19% of the 80 million
outstanding shares of common stock of Texas Genco to its shareholders on January
6, 2003 (Texas Genco Distribution). As a result of the Texas Genco Distribution,
CenterPoint Energy recorded an impairment charge of $399 million, which is
reflected as a regulatory asset representing stranded costs in the Consolidated
Balance Sheets as of December 31, 2003. This impairment charge represents the
excess of the carrying value of CenterPoint Energy's net investment in Texas
Genco over the market value of the Texas Genco common stock that was
distributed. The financial impact of this impairment was offset by recording a
$399 million regulatory asset reflecting CenterPoint Energy's expectation of
stranded cost recovery of such impairment. Additionally, in connection with the
Texas Genco Distribution, CenterPoint Energy recorded minority interest
ownership in Texas Genco of $146 million in its Consolidated Balance Sheets in
the first quarter of 2003.

BASIS OF PRESENTATION

The consolidated financial statements have been prepared to reflect the
effect of the Reliant Resources Distribution on the CenterPoint Energy financial
statements. The consolidated financial statements present the Reliant Resources
businesses (Wholesale Energy, European Energy, Retail Energy and related
corporate
75

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs) as discontinued operations, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS No. 144). Accordingly, the consolidated financial
statements for 2001 and 2002 reflect these operations as discontinued
operations.

In 2003, the Company sold all of its remaining Latin America operations.
The consolidated financial statements present these remaining Latin America
operations as discontinued operations in accordance with SFAS No. 144.

In November 2003, the Company sold a component of its Other Operations
business segment that provides district cooling services in the Houston central
business district and related complementary energy services to district cooling
customers and others. The consolidated financial statements present these
operations as discontinued operations in accordance with SFAS No. 144.

The Company's reportable business segments include the following: Electric
Transmission & Distribution, Electric Generation, Natural Gas Distribution,
Pipelines and Gathering and Other Operations. Effective with the deregulation of
the Texas electric industry beginning January 1, 2002, the basis of business
segment reporting changed for the Company's electric operations. The Texas
generation operations of CenterPoint Energy's former integrated electric utility
(Texas Genco) became a separate reportable business segment, Electric
Generation, whereas they previously had been part of the Electric Operations
business segment. The remaining transmission and distribution function
(CenterPoint Houston) is reported separately in the Electric Transmission &
Distribution business segment. Natural Gas Distribution consists of intrastate
natural gas sales to, and natural gas transportation and distribution for,
residential, commercial, industrial and institutional customers and non-rate
regulated retail gas marketing operations to commercial and industrial
customers. Pipelines and Gathering includes the interstate natural gas pipeline
operations and the natural gas gathering and pipeline services businesses. Other
Operations consists primarily of other corporate operations which support all of
the Company's business operations.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) RECLASSIFICATIONS AND USE OF ESTIMATES

In addition to the items discussed in Note 3, some amounts from the
previous years have been reclassified to conform to the 2003 presentation of
financial statements. These reclassifications do not affect net income.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(b) PRINCIPLES OF CONSOLIDATION

The accounts of CenterPoint Energy and its wholly owned and majority owned
subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions and balances are eliminated in
consolidation. The Company uses the equity method of accounting for investments
in entities in which the Company has an ownership interest between 20% and 50%
and exercises significant influence. Other investments, excluding marketable
securities, are generally carried at cost.

The Company records revenue for electricity and natural gas sales and
services to retail customers under the accrual method and these revenues are
generally recognized upon delivery. Natural gas sales and services

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not billed by month-end are accrued based upon estimated purchased gas volumes,
estimated lost and unaccounted for gas and currently effective tariff rates. The
Pipelines and Gathering business segment records revenues as transportation
services are provided. Energy sales and services not billed by month-end are
accrued based upon estimated energy and services delivered. The Electric
Generation business segment has two primary components of revenue: (1) capacity
payments, which entitles the owner to power, and (2) energy payments, which are
intended to cover the costs of fuel for the actual electricity produced.
Capacity payments are billed and collected one month prior to actual energy
deliveries and are recorded as deferred revenue until the month of actual energy
delivery. Upon delivery, both capacity and energy payment revenues are
recognized.

(d) LONG-LIVED ASSETS AND INTANGIBLES

The Company records property, plant and equipment at historical cost. The
Company expenses repair and maintenance costs as incurred. Property, plant and
equipment includes the following:

DECEMBER 31,
ESTIMATED USEFUL -----------------
LIVES (YEARS) 2002 2003
---------------- ------- -------
(IN MILLIONS)

Electric transmission & distribution............... 5-75 $ 5,960 $ 6,085
Electric generation................................ 5-60 9,610 9,436
Natural gas distribution........................... 5-50 2,151 2,316
Pipelines and gathering............................ 5-75 1,686 1,722
Other property..................................... 3-40 446 446
------- -------
Total............................................ 19,853 20,005
Accumulated depreciation and amortization.......... (7,738) (8,194)
------- -------
Property, plant and equipment, net............ $12,115 $11,811
======= =======

For further information regarding removal costs previously recorded as a
component of accumulated depreciation, see Note 2(n).

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which provides
that goodwill and certain intangibles with indefinite lives will not be
amortized into results of operations, but instead will be reviewed periodically
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles with
indefinite lives is more than its fair value. On January 1, 2002, the Company
adopted the provisions of the statement that apply to goodwill and intangible
assets acquired prior to June 30, 2001.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

With the adoption of SFAS No. 142, the Company ceased amortization of
goodwill as of January 1, 2002. A reconciliation of previously reported net
income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization follows (in millions, except per share amounts):

YEAR ENDED
DECEMBER 31,
2001
------------

Reported income from continuing operations before cumulative
effect of accounting change............................... $ 499
Add: Goodwill amortization, net of tax...................... 49
-----
Adjusted income from continuing operations before cumulative
effect of accounting change............................... $ 548
=====
Basic Earnings Per Share:
Reported income from continuing operations before cumulative
effect of accounting change............................... $1.72
Add: Goodwill amortization, net of tax...................... 0.17
-----
Adjusted income from continuing operations before cumulative
effect of accounting change............................... $1.89
=====
Diluted Earnings Per Share:
Reported income from continuing operations before cumulative
effect of accounting change............................... $1.71
Add: Goodwill amortization, net of tax...................... 0.17
-----
Adjusted income from continuing operations before cumulative
effect of accounting change............................... $1.88
=====

The components of the Company's other intangible assets consist of the
following:

DECEMBER 31, 2002 DECEMBER 31, 2003
----------------------- -----------------------
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------
(IN MILLIONS)

Land Use Rights............................ $61 $(12) $61 $(14)
Other...................................... 19 (2) 38 (5)
--- ---- --- ----
Total.................................... $80 $(14) $99 $(19)
=== ==== === ====

The Company recognizes specifically identifiable intangibles, including
land use rights and permits, when specific rights and contracts are acquired.
The Company has no intangible assets with indefinite lives recorded as of
December 31, 2003. The Company amortizes other acquired intangibles on a
straight-line basis over the lesser of their contractual or estimated useful
lives that range from 40 to 75 years for land rights and 4 to 25 years for other
intangibles.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization expense for other intangibles for 2001, 2002 and 2003 was $1
million, $2 million and $4 million, respectively. Estimated amortization expense
for the five succeeding fiscal years is as follows (in millions):

2004........................................................ $ 5
2005........................................................ 3
2006........................................................ 2
2007........................................................ 2
2008........................................................ 2
---
Total..................................................... $14
===

Goodwill by reportable business segment is as follows (in millions):

DECEMBER 31,
2002 AND 2003
-------------

Natural Gas Distribution.................................... $1,085
Pipelines and Gathering..................................... 601
Other Operations............................................ 55
------
Total..................................................... $1,741
======

The Company completed its review during the second quarter of 2003 pursuant
to SFAS No. 142 for its reporting units in the Natural Gas Distribution,
Pipelines and Gathering and Other Operations business segments. No impairment
was indicated as a result of this assessment.

The Company periodically evaluates long-lived assets, including property,
plant and equipment, goodwill and specifically identifiable intangibles, when
events or changes in circumstances indicate that the carrying value of these
assets may not be recoverable. The determination of whether an impairment has
occurred is based on an estimate of undiscounted cash flows attributable to the
assets, as compared to the carrying value of the assets. An impairment analysis
of generating facilities requires estimates of possible future market prices,
load growth, competition and many other factors over the lives of the
facilities. A resulting impairment loss is highly dependent on these underlying
assumptions.

The Company has engaged a financial advisor to assist in exploring
alternatives for monetizing its 81% interest in Texas Genco, including possible
sale of its ownership interest in Texas Genco. As a result of the Company's
intention to monetize its interest in Texas Genco, the Company performed an
impairment analysis of Texas Genco's assets as of December 31, 2003 in
accordance with the provisions of SFAS No. 144. As of December 31, 2003 no
impairment had been indicated. The fair value of Texas Genco's assets could be
materially affected by a change in the estimated future cash flows for these
assets. Future cash flows for Texas Genco are estimated using a
probability-weighted approach based on the fair value of its common stock,
operating projections and estimates of how long these assets will be retained.
Changes in any of these assumptions could result in an impairment charge.

(e) REGULATORY ASSETS AND LIABILITIES

The Company applies the accounting policies established in SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71) to the
accounts of the Electric Transmission & Distribution business segment and the
utility operations of the Natural Gas Distribution business segment and to some
of the accounts of the Pipelines and Gathering business segment.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a list of regulatory assets/liabilities reflected on the
Company's Consolidated Balance Sheets as of December 31, 2002 and 2003:

DECEMBER 31,
---------------
2002 2003
------ ------
(IN MILLIONS)

Recoverable Electric Generation-Related Regulatory Assets,
net:
Recoverable electric generation plant mitigation....... $2,051 $2,116
Excess mitigation liability............................ (969) (778)
------ ------
Net electric generation plant mitigation asset.... 1,082 1,338
Excess cost over market (ECOM/capacity auction)
true-up............................................... 697 1,357
Texas Genco distribution/impairment.................... -- 399
Regulatory tax asset................................... 175 119
Final fuel under/(over) recovery balance............... 64 (98)
Other 2004 True-Up Proceeding items.................... 53 119
------ ------
Total Recoverable Electric Generation-Related
Regulatory Assets................................... 2,071 3,234
Securitized regulatory asset................................ 706 682
Unamortized loss on reacquired debt......................... 58 80
Estimated removal costs..................................... -- (647)
Other long-term regulatory assets/liabilities............... 38 38
------ ------
Total..................................................... $2,873 $3,387
====== ======

If events were to occur that would make the recovery of these assets and
liabilities no longer probable, the Company would be required to write off or
write down these regulatory assets and liabilities. In addition, the Company
would be required to determine any impairment of the carrying costs of plant and
inventory assets. Because estimates of the fair value of Texas Genco are
required, the financial impacts of the Texas electric restructuring law with
respect to the final determination of stranded costs are subject to material
changes. Factors affecting such changes may include estimation risk, uncertainty
of future energy and commodity prices and the economic lives of the plants. See
Note 4 for additional discussion of regulatory assets.

(f) DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation is computed using the straight-line method based on economic
lives or a regulatory-mandated recovery period. Other amortization expense
includes amortization of regulatory assets and other intangibles. See Notes 2(e)
and 4(a) for additional discussion of these items.

The following table presents depreciation, goodwill amortization and other
amortization expense for 2001, 2002 and 2003.

YEAR ENDED DECEMBER 31,
---------------------------
2001 2002 2003
---- ------------- ----
(IN MILLIONS)

Depreciation expense....................................... $282 $537 $557
Goodwill amortization expense.............................. 49 -- --
Other amortization expense................................. 332 77 68
---- ---- ----
Total depreciation and amortization expense.............. $663 $614 $625
==== ==== ====

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(g) CAPITALIZATION OF INTEREST AND ALLOWANCE FOR FUNDS USED DURING
CONSTRUCTION

Allowance for funds used during construction (AFUDC) represents the
approximate net composite interest cost of borrowed funds and a reasonable
return on the equity funds used for construction. Although AFUDC increases both
utility plant and earnings, it is realized in cash through depreciation
provisions included in rates for subsidiaries that apply SFAS No. 71. Interest
and AFUDC for subsidiaries that apply SFAS No. 71 are capitalized as a component
of projects under construction and will be amortized over the assets' estimated
useful lives. During 2001, 2002 and 2003, the Company capitalized interest and
AFUDC of $9 million, $12 million and $13 million, respectively.

(h) INCOME TAXES

The Company files a consolidated federal income tax return and follows a
policy of comprehensive interperiod income tax allocation. The Company uses the
liability method of accounting for deferred income taxes and measures deferred
income taxes for all significant income tax temporary differences. Investment
tax credits were deferred and are being amortized over the estimated lives of
the related property. For additional information regarding income taxes, see
Note 11.

(i) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are net of an allowance for doubtful accounts of $24
million and $31 million at December 31, 2002 and 2003, respectively. The
provision for doubtful accounts in the Company's Statements of Consolidated
Operations for 2001, 2002 and 2003 was $59 million, $26 million and $24 million,
respectively.

In connection with CERC's November 2002 amendment and extension of its $150
million receivables facility, CERC Corp. formed a bankruptcy remote subsidiary
for the sole purpose of buying receivables created by CERC and selling those
receivables to an unrelated third party. This transaction was accounted for as a
sale of receivables under the provisions of SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and, as a result, the related receivables are excluded from the Consolidated
Balance Sheets. Effective June 25, 2003, CERC elected to reduce the purchase
limit under the receivables facility from $150 million to $100 million. As of
December 31, 2002 and 2003, CERC had utilized $107 million and $100 million of
its receivables facility, respectively.

The bankruptcy remote subsidiary purchases receivables with cash and
subordinated notes. In July 2003, the subordinated notes owned by CERC were
pledged to a gas supplier to secure obligations incurred in connection with the
purchase of gas by CERC.

In the first quarter of 2004, CERC replaced the receivables facility with a
$250 million committed one-year receivables facility. The bankruptcy remote
subsidiary continues to buy CERC's receivables and sell them to an unrelated
third party.

(j) INVENTORY

Inventory consists principally of materials and supplies, coal and lignite
and natural gas. Inventories used in the production of electricity and in the
retail natural gas distribution operations are primarily valued at the

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lower of average cost or market except for coal and lignite, which are valued
under the last-in, first-out method.

DECEMBER 31,
-------------
2002 2003
----- -----
(IN MILLIONS)

Materials and supplies...................................... $185 $175
Coal and lignite............................................ 43 50
Natural gas................................................. 119 182
Other....................................................... 5 6
---- ----
Total inventory........................................... $352 $413
==== ====

(k) INVESTMENT IN OTHER DEBT AND EQUITY SECURITIES

In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115), the Company reports
"available-for-sale" securities at estimated fair value within other long-term
assets in the Company's Consolidated Balance Sheets and any unrealized gain or
loss, net of tax, as a separate component of shareholders' equity and
accumulated other comprehensive income. In accordance with SFAS No. 115, the
Company reports "trading" securities at estimated fair value in the Company's
Consolidated Balance Sheets, and any unrealized holding gains and losses are
recorded as other income (expense) in the Company's Statements of Consolidated
Operations.

As of December 31, 2002 and 2003, the Company held debt and equity
securities in its nuclear decommissioning trust, which is reported at its fair
value of $163 million and $189 million, respectively, in the Company's
Consolidated Balance Sheets in other long-term assets. Any unrealized losses or
gains are accounted for as a long-term asset/liability as the Company will not
benefit from any gains, and losses will be recovered through the rate-making
process.

As of December 31, 2002 and 2003, the Company held an investment in Time
Warner Inc. common stock, which was classified as a "trading" security. For
information regarding this investment, see Note 7.

(l) ENVIRONMENTAL COSTS

The Company expenses or capitalizes environmental expenditures, as
appropriate, depending on their future economic benefit. The Company expenses
amounts that relate to an existing condition caused by past operations, and that
do not have future economic benefit. The Company records undiscounted
liabilities related to these future costs when environmental assessments and/or
remediation activities are probable and the costs can be reasonably estimated.

(m) STATEMENTS OF CONSOLIDATED CASH FLOWS

For purposes of reporting cash flows, the Company considers cash
equivalents to be short-term, highly liquid investments with maturities of three
months or less from the date of purchase. In connection with the issuance of
transition bonds in October 2001, the Company was required to establish
restricted cash accounts to collateralize the bonds that were issued in this
financing transaction. These restricted cash accounts are not available for
withdrawal until the maturity of the bonds. Cash and Cash Equivalents does not
include restricted cash. For additional information regarding the securitization
financing, see Note 4(a).

(n) NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting
for Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 requires the fair
value of an asset retirement obligation to be
82

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized as a liability is incurred and capitalized as part of the cost of the
related tangible long-lived assets. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Retirement obligations associated with
long-lived assets included within the scope of SFAS No. 143 are those for which
a legal obligation exists under enacted laws, statutes and written or oral
contracts, including obligations arising under the doctrine of promissory
estoppel.

The Company has identified retirement obligations for nuclear
decommissioning at the South Texas Project Electric Generating Station (South
Texas Project) and for lignite mine operations which supply the Limestone
electric generation facility. Prior to adoption of SFAS No. 143, the Company had
recorded liabilities for nuclear decommissioning and the reclamation of the
lignite mine. Liabilities were recorded for estimated decommissioning
obligations of $140 million and $40 million for reclamation of the lignite mine
at December 31, 2002. Upon adoption of SFAS No. 143 on January 1, 2003, the
Company reversed the $140 million previously accrued for the nuclear
decommissioning of the South Texas Project and recorded a plant asset of $99
million offset by accumulated depreciation of $36 million as well as a
retirement obligation of $187 million. The $16 million difference between
amounts previously recorded and the amounts recorded upon adoption of SFAS No.
143 is being deferred as a liability due to regulatory requirements. The Company
also reversed the $40 million it had previously recorded for the lignite mine
reclamation and recorded a plant asset of $1 million as well as a retirement
obligation of $4 million. The $37 million difference between amounts previously
recorded and the amounts recorded upon adoption of SFAS No. 143 was recorded as
a cumulative effect of accounting change. The Company has also identified other
asset retirement obligations that cannot be estimated because the assets
associated with the retirement obligations have an indeterminate life.

The following represents the balances of the asset retirement obligation as
of January 1, 2003 and the additions and accretion of the asset retirement
obligation for the year ended December 31, 2003:

BALANCE, BALANCE,
JANUARY 1, LIABILITIES LIABILITIES CASH FLOW DECEMBER 31,
2003 INCURRED SETTLED ACCRETION REVISIONS 2003
---------- ----------- ----------- --------- --------- ------------
(IN MILLIONS)

Nuclear decommissioning................... $187 -- -- $1 -- $188
Lignite mine.............................. 4 -- -- 2 -- 6
---- ----- ----- -- ----- ----
$191 -- -- $3 -- $194
==== ===== ===== == ===== ====

The Company's rate-regulated businesses recognize removal costs as a
component of depreciation expense in accordance with regulatory treatment. As of
December 31, 2002 and 2003, these removal costs of $635 million and $647
million, respectively, have been reclassified from accumulated depreciation to
other long-term liabilities and regulatory liabilities, respectively, in the
Consolidated Balance Sheets. The Company's non-rate regulated businesses have
previously recognized removal costs as a component of depreciation expense. As
of December 31, 2002, these removal costs of $115 million have been reclassified
from accumulated depreciation to other long-term liabilities in the Consolidated
Balance Sheets. The Company reversed $115 million during the three months ended
March 31, 2003 of previously recognized removal costs with respect to these
non-rate regulated businesses as a cumulative effect of accounting change. The
total cumulative effect of accounting change from adoption of SFAS No. 143 was
$152 million. Excluded from the $80 million after-tax cumulative effect of
accounting change recorded for the three months ended March 31, 2003, is
minority interest of $19 million related to the Texas Genco stock not owned by
CenterPoint Energy.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following represents the pro-forma effect on the Company's net income
for the year ended December 31, 2002, as if the Company had adopted SFAS No. 143
as of January 1, 2002 (in millions, except per share amounts):

YEAR ENDED
DECEMBER 31, 2002
-----------------

Income from continuing operations before cumulative effect
of accounting change as reported.......................... $ 369
Pro-forma income from continuing operations before
cumulative effect of accounting change.................... 376
Net loss as reported........................................ (3,920)
Pro-forma net loss.......................................... (3,913)
DILUTED EARNINGS PER SHARE:
Income from continuing operations before cumulative effect
of accounting change as reported.......................... $ 1.23
Pro-forma income from continuing operations before
cumulative effect of accounting change.................... 1.25
Net loss as reported........................................ (13.08)
Pro-forma net loss.......................................... (13.06)

The following represents the Company's asset retirement obligations on a
pro-forma basis as if it had adopted SFAS No. 143 as of December 31, 2002:

AS REPORTED PRO-FORMA
----------- ---------
(IN MILLIONS)

Nuclear decommissioning..................................... $140 $187
Lignite mine................................................ 40 4
---- ----
Total..................................................... $180 $191
==== ====

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS No. 145). SFAS No. 145
eliminates the current requirement that gains and losses on debt extinguishment
must be classified as extraordinary items in the income statement. Instead, such
gains and losses will be classified as extraordinary items only if they are
deemed to be unusual and infrequent. SFAS No. 145 also requires that capital
leases that are modified so that the resulting lease agreement is classified as
an operating lease be accounted for as a sale-leaseback transaction. The changes
related to debt extinguishment are effective for fiscal years beginning after
May 15, 2002, and the changes related to lease accounting are effective for
transactions occurring after May 15, 2002. The Company has applied this guidance
as it relates to lease accounting and the accounting provision related to debt
extinguishment. Upon adoption of SFAS No. 145, any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods is required to be reclassified. The Company has reclassified the $26
million loss on debt extinguishment related to the fourth quarter of 2002 from
an extraordinary item to interest expense.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS No. 149). SFAS No. 149 has
added additional criteria, which were effective on July 1, 2003, for new,
acquired, or newly modified forward contracts. The Company engages in forward
contracts for the sale of power. The majority of these forward contracts are
entered into either through state-mandated Public Utility Commission of Texas
(Texas Utility Commission) auctions or auctions mandated by an agreement with
Reliant Resources. All of the Company's contracts resulting from these auctions
specify the product types, the plant or group of plants from which the auctioned
products are derived,

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the delivery location and specific delivery requirements, and pricing for each
of the products. The Company has applied the criteria from current accounting
literature, including SFAS No. 133 Implementation Issue No. C-15 -- "Scope
Exceptions: Normal Purchases and Normal Sales Exception for Option-Type
Contracts and Forward Contracts in Electricity", to both the state-mandated and
the contractually-mandated auction contracts and believes they meet the
definition of capacity contracts. Accordingly, the Company considers these
contracts normal sales contracts rather than derivatives. The Company has
evaluated its forward commodity contracts under the new requirements of SFAS No.
149. The adoption of SFAS No. 149 did not change previous accounting conclusions
relating to forward power sales contracts entered into in connection with the
state-mandated or contractually-mandated auctions, and did not have a material
effect on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" (SFAS
No. 150). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Effective July 1, 2003,
upon the adoption of SFAS No. 150, the Company reclassified $725 million of
trust preferred securities as long-term debt and began to recognize the
dividends paid on the trust preferred securities as interest expense. Prior to
July 1, 2003, the dividends were classified as "Distribution on Trust Preferred
Securities" in the Statements of Consolidated Operations. Additionally, $19
million of debt issuance costs previously netted against the balance of the
trust preferred securities was reclassified to unamortized debt issuance costs.
SFAS No. 150 does not permit restatement of prior periods. The adoption of SFAS
No. 150 did not impact the Company's income from continuing operations, net
income or earnings per share. See discussion of FIN 46, "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51" (FIN 46) below regarding the accounting for the trust preferred
securities at December 31, 2003.

In January 2003, the FASB issued FIN 46. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003, subject to the following
additional releases by the FASB. On October 9, 2003, the FASB deferred the
application for FIN 46 until the end of the first interim period or annual
period ending after December 15, 2003 if the variable interest was created
before February 1, 2003 and a public entity had not issued financial statements
reporting the variable interest entity in accordance with FIN 46. On December
24, 2003, the FASB issued a revision to FIN 46 (FIN 46-R). The effective dates
and impact of FIN 46 and FIN 46R are as follows: (a) for special-purpose
entities (SPE's) created before February 1, 2003, the Company must apply the
provisions of FIN 46 or FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003, (b) for variable interest
entities created before February 1, 2003 which do not meet the definition of an
SPE provided by FIN 46-R, the Company is required to adopt FIN 46-R at the end
of the first interim or annual period ending after March 15, 2004 and (c) for
all entities, regardless of whether an SPE, that were created subsequent to
December 31, 2003, the Company is required to apply the provisions of FIN 46-R
immediately. The Company has subsidiary trusts that have Mandatorily Redeemable
Preferred Securities outstanding with a liquidation value of $725 million as of
December 31, 2003. These securities were issued in 1996 and 1997 and were
previously reported on the Company's Consolidated Balance Sheet as Company
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated Debentures of the Company (see disclosure
above on SFAS No. 150). The trusts were determined to be SPE's, and therefore,
the provisions of FIN 46 or FIN 46-R were applicable to the trusts for the
December 31, 2003 financial statements. The trusts were determined to be
variable interest entities under FIN 46-R. The Company also determined that it
is not the primary beneficiary of the trusts. Therefore, the trusts and the
mandatorily

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redeemable preferred securities issued by the trusts are no longer reported on
the Company's Consolidated Balance Sheet as of December 31, 2003. Instead, the
Company reports its junior subordinated debentures due to the trusts as
long-term debt. See Note 9. The Company has made this reclassification as of
December 31, 2003 and has elected not to restate prior period information. The
Company is currently evaluating the impact of adopting FIN 46-R applicable to
non-SPE's created prior to February 1, 2003 but does not expect a material
impact.

On December 23, 2003, the FASB issued SFAS No. 132 (Revised 2003),
"Employer's Disclosures about Pensions and Other Postretirement Benefits" (SFAS
No. 132(R)) which increases the existing disclosure requirements by requiring
more details about pension plan assets, benefit obligations, cash flows, benefit
costs and related information. Companies will be required to segregate plan
assets by category, such as debt, equity and real estate, and to provide certain
expected rates of return and other informational disclosures. SFAS No. 132(R)
also requires companies to disclose various elements of pension and
postretirement benefit costs in interim-period financial statements for quarters
beginning after December 15, 2003. The Company has adopted the disclosure
requirements of SFAS No. 132(R) in Note 10 to these consolidated financial
statements.

In December 2003, Congress passed the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) which will become effective
in 2006. The Act contains incentives for the Company, if it continues to provide
prescription drug benefits for its retirees, through the provision of a
non-taxable reimbursement to the Company of specified costs. The Company has
many different alternatives available under the Act, and, until clarifying
regulations are issued with respect to the Act, the Company is unable to
determine the financial impact. On January 12, 2004, the FASB issued FASB Staff
Position (FSP) FAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FAS
106-1)." In accordance with FSP FAS 106-1, the Company's postretirement benefits
obligations and net periodic postretirement benefit cost in the financial
statements and accompanying notes do not reflect the effects of the legislation.
Specific authoritative guidance on the accounting for the legislation is pending
and that guidance, when issued, may require the Company to change previously
reported information.

(3) DISCONTINUED OPERATIONS

Reliant Resources. On September 30, 2002, CenterPoint Energy distributed
to its shareholders its 83% ownership interest in Reliant Resources by means of
a tax-free spin-off in the form of a dividend. Holders of CenterPoint Energy
common stock on the record date received 0.788603 shares of Reliant Resources
common stock for each share of CenterPoint Energy stock that they owned on the
record date. The Reliant Resources Distribution was recorded in the third
quarter of 2002.

As a result of the Reliant Resources Distribution, CenterPoint Energy
recorded a non-cash loss on disposal of discontinued operations of $4.4 billion
in 2002. This loss represents the excess of the carrying value of CenterPoint
Energy's net investment in Reliant Resources over the market value of Reliant
Resources' common stock. CenterPoint Energy's financial statements reflect the
reclassifications necessary to present Reliant Resources as discontinued
operations for all periods shown.

Reliant Resources' revenues included in discontinued operations for the
year ended December 31, 2001 and nine months ended September 30, 2002 were $6.5
billion and $9.5 billion, respectively, as reported in Reliant Resources' Annual
Report on Form 10-K/A, Amendment No. 1, filed with the Securities and Exchange
Commission (SEC) on May 1, 2003. These amounts have been restated to reflect
Reliant Resources' adoption of Emerging Issues Task Force (EITF) Issue No. 02-3,
"Issues Related to Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." Income from these discontinued operations for the year
ended December 31, 2001 and nine months ended September 30, 2002 is reported net
of income tax expense of $274 million and $284 million, respectively.
86

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Latin America. In February 2003, the Company sold its interest in Argener,
a cogeneration facility in Argentina, for $23 million. The carrying value of
this investment was approximately $11 million as of December 31, 2002. The
Company recorded an after-tax gain of $7 million from the sale of Argener in the
first quarter of 2003. In April 2003, the Company sold its final remaining
investment in Argentina, a 90 percent interest in Empresa Distribuidora de
Electricidad de Santiago del Estero S.A. The Company recorded an after-tax loss
of $3 million in the second quarter of 2003 related to its Latin America
operations. The consolidated financial statements present these Latin America
operations as discontinued operations in accordance with SFAS No. 144.
Accordingly, the consolidated financial statements include the necessary
reclassifications to reflect these operations as discontinued operations for
each of the three years in the period ended December 31, 2003.

Revenues related to the Company's Latin America operations included in
discontinued operations for the years ended December 31, 2001, 2002 and 2003
were $92 million, $15 million and $2 million, respectively. Income from these
discontinued operations for the year ended December 31, 2001 is reported net of
income tax benefit of $28 million. Income from these discontinued operations for
each of the years ended December 31, 2002 and 2003 is reported net of income tax
expense of $2 million.

Summarized balance sheet information related to discontinued operations of
Latin America is as follows as of December 31, 2002:

DECEMBER 31, 2002
-----------------
(IN MILLIONS)

CURRENT ASSETS:
Cash...................................................... $ 6
Accounts receivable, principally trade.................... 3
Other current assets...................................... 1
---
Total current assets................................... 10
OTHER NON-CURRENT ASSETS.................................... 5
---
TOTAL ASSETS........................................... 15
TOTAL LIABILITIES...................................... --
---
NET ASSETS OF DISCONTINUED OPERATIONS....................... $15
===

CenterPoint Energy Management Services, Inc. As discussed in Note 1, in
November 2003, the Company completed the sale of a component of its Other
Operations business segment, CenterPoint Energy Management Services, Inc.
(CEMS), that provides district cooling services in the Houston central business
district and related complementary energy services to district cooling customers
and others. The Company recorded an after-tax loss of $1 million from the sale
of CEMS in the fourth quarter of 2003. The Company recorded an after-tax loss in
discontinued operations of $16 million ($25 million pre-tax) during the second
quarter of 2003 to record the impairment of the long-lived asset based on the
impending sale and to record one-time employee termination benefits. The
consolidated financial statements present these CEMS operations as discontinued
operations in accordance with SFAS No. 144. Accordingly, the consolidated
financial statements include the necessary reclassifications to reflect these
operations as discontinued operations for each of the three years in the period
ended December 31, 2003.

Revenues related to CEMS included in discontinued operations for the years
ended December 31, 2001, 2002 and 2003 were $5 million, $9 million and $10
million, respectively. Income from these discontinued operations for the years
ended December 31, 2001, 2002 and 2003 is reported net of income tax benefit of
$2 million, $1 million and $2 million, respectively.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized balance sheet information related to discontinued operations of
CEMS is as follows as of December 31, 2002:

DECEMBER 31, 2002
-----------------
(IN MILLIONS)

CURRENT ASSETS:
Cash...................................................... $ 1
Accounts receivable, principally trade.................... 1
Other current assets...................................... 1
---
Total current assets................................... 3
OTHER NON-CURRENT ASSETS.................................... 45
---
TOTAL ASSETS........................................... 48
---
CURRENT LIABILITIES:
Accounts payable, principally trade....................... 2
Other current liabilities................................. 1
---
Total current liabilities.............................. 3
OTHER LONG-TERM LIABILITIES................................. 7
---
TOTAL LIABILITIES...................................... 10
---
NET ASSETS OF DISCONTINUED OPERATIONS....................... $38
===

(4) REGULATORY MATTERS

(a) TRUE-UP COMPONENTS AND SECURITIZATION

The Texas Electric Restructuring Law. In June 1999, the Texas legislature
adopted the Texas Electric Choice Plan (the Texas electric restructuring law),
which substantially amended the regulatory structure governing electric
utilities in order to allow and encourage retail competition which began in
January 2002. The Texas electric restructuring law required the separation of
the generation, transmission and distribution, and retail sales functions of
electric utilities into three different units. Under the law, neither the
generation function nor the retail function is subject to traditional cost of
service regulation, and the generation and the retail function are each operated
on a competitive basis.

Under the Texas electric restructuring law, transmission and distribution
utilities in Texas, such as CenterPoint Houston, whose generation assets were
"unbundled" may recover, following a regulatory proceeding to be held in 2004
(2004 True-Up Proceeding) as further discussed below in "-- 2004 True-Up
Proceeding":

- "stranded costs," which consist of the positive excess of the regulatory
net book value of generation assets, as defined, over the market value of
the assets, taking specified factors into account;

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- final fuel over- or under-recovery; less

- "price to beat" clawback components.

The Texas electric restructuring law also provides specific regulatory
remedies to reduce or mitigate a utility's stranded cost exposure. During a base
rate freeze period from 1999 through 2001, earnings above the utility's
authorized rate of return formula were required to be applied in a manner to
accelerate depreciation of generation-related plant assets for regulatory
purposes if the utility was expected to have stranded costs. In addition,
depreciation expense for transmission and distribution-related assets could be
redirected to generation assets for regulatory purposes during that period if
the utility was expected to have stranded costs. CenterPoint Houston undertook
both of these remedies provided in the Texas electric restructuring law, but in
a rate order issued in October 2001, the Texas Utility Commission required
CenterPoint Houston to reverse those actions. For a further discussion of these
matters, see "-- Mitigation" below.

2004 True-Up Proceeding. In 2004, the Texas Utility Commission will
conduct true-up proceedings for investor-owned utilities. The purpose of the
true-up proceeding is to quantify and reconcile the amount of the true-up
components. The true-up proceeding will result in either additional charges
being assessed on, or credits being issued to, retail electric customers.
CenterPoint Houston expects to make the filing to initiate its final true-up
proceeding on March 31, 2004. The Texas electric restructuring law requires a
final order to be issued by the Texas Utility Commission not more than 150 days
after a proper filing is made by the regulated utility, although under its rules
the Texas Utility Commission can extend the 150-day deadline for good cause. Any
delay in the final order date will result in a delay in the securitization of
CenterPoint Houston's true-up components and the implementation of the
non-bypassable charges described above, and could delay the recovery of carrying
costs on the true-up components determined by the Texas Utility Commission.

Following adoption of the true-up rule by the Texas Utility Commission in
2001, CenterPoint Houston appealed the provisions of the rule that permitted
interest to be recovered on stranded costs only from the date of the Texas
Utility Commission's final order in the 2004 True-Up Proceeding, instead of from
January 1, 2002 as CenterPoint Houston contends is required by law. On January
30, 2004, the Texas Supreme Court granted CenterPoint Houston's petition for
review of the true-up rule. Oral arguments were heard on February 18, 2004. The
decision by the Court is pending. The Company has not accrued interest income on
stranded costs in its consolidated financial statements, but estimates such
interest income would be material to the Company's consolidated financial
statements.
89

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ECOM True-Up Component. The Texas Utility Commission used a computer model
or projection, called an excess cost over market (ECOM) model, to estimate
stranded costs related to generation plant assets. Accordingly, the Texas
Utility Commission estimated the market power prices that would be received in
the generation capacity auctions mandated by the Texas electric restructuring
law during 2002 and 2003. Any difference between the Texas Utility Commission's
projected market prices for generation during 2002 and 2003 and the actual
market prices for generation as determined in the state-mandated capacity
auctions during that period will be a component of the 2004 True-Up Proceeding.
In accordance with the Texas Utility Commission's rules regarding the ECOM
True-Up, for the years ended December 31, 2002 and 2003, CenterPoint Energy
recorded approximately $697 million and $661 million, respectively, in non-cash
ECOM True-Up revenue. ECOM True-Up revenue is recorded as a regulatory asset and
totaled $1.4 billion as of December 31, 2003.

In 2003, some parties sought modifications to the true-up rules. Although
the Texas Utility Commission denied that request, the Company expects that
issues could be raised in the 2004 True-Up Proceeding regarding its compliance
with the Texas Utility Commission's rules regarding the ECOM true-up, including
whether Texas Genco has auctioned all capacity it is required to auction in view
of the fact that some capacity has failed to sell in the state-mandated
auctions. The Company believes Texas Genco has complied with the requirements
under the applicable rules, including re-offering the unsold capacity in
subsequent auctions. If events were to occur during the 2004 True-Up Proceeding
that made the recovery of the ECOM true-up regulatory asset no longer probable,
the Company would write off the unrecoverable balance of that asset as a charge
against earnings.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

within their affiliated electric utility's service area. The true-up provides
for a clawback of the "price to beat" in excess of the market price of
electricity if 40% of the "price to beat" load is not served by other retail
electric providers by January 1, 2004. Pursuant to the Texas electric
restructuring law and a master separation agreement entered into in connection
with the September 30, 2002 spin-off of the Company's interest in Reliant
Resources to the Company's shareholders, Reliant Resources is obligated to pay
CenterPoint Houston the clawback component of the true-up. Based on an order
issued on February 13, 2004 by the Texas Utility Commission, the clawback will
equal $150 times the number of residential customers served by Reliant Resources
in CenterPoint Houston's service territory, less the number of residential
customers served by Reliant Resources outside CenterPoint Houston's service
territory, on January 1, 2004. As reported in Reliant Resources' Annual Report
on Form 10-K for the year ended December 31, 2003, Reliant Resources expects
that the clawback payment will be $175 million. The clawback will reduce the
amount of recoverable costs to be determined in the 2004 True-Up Proceeding.

Securitization. The Texas electric restructuring law provides for the use
of special purpose entities to issue transition bonds for the economic value of
generation-related regulatory assets and stranded costs. These transition bonds
will be amortized over a period not to exceed 15 years through non-bypassable
transition charges. In October 2001, a special purpose subsidiary of CenterPoint
Houston issued $749 million of transition bonds to securitize certain
generation-related regulatory assets. These transition bonds have a final
maturity date of September 15, 2015 and are non-recourse to the Company and its
subsidiaries other than to the special purpose issuer. Payments on the
transition bonds are made out of funds from non-bypassable transition charges.

The Company expects that upon completion of the 2004 True-Up Proceeding,
CenterPoint Houston will seek to securitize the amounts established for the
true-up components. Before CenterPoint Houston can securitize these amounts, the
Texas Utility Commission must conduct a proceeding and issue a financing order
authorizing CenterPoint Houston to do so. Under the Texas electric restructuring
law, CenterPoint Houston is entitled to recover any portion of the true-up
balance not securitized by transition bonds through a non-bypassable competition
transition charge.

Mitigation. In an order issued in October 2001, the Texas Utility
Commission established the transmission and distribution rates that became
effective in January 2002. The Texas Utility Commission determined that
CenterPoint Houston had over-mitigated its stranded costs by redirecting
transmission and distribution depreciation and by accelerating depreciation of
generation assets as provided under its transition plan and the Texas electric
restructuring law. In this final order, CenterPoint Houston was required to
reverse the amount of redirected depreciation ($841 million) and accelerated
depreciation ($1.1 billion) taken for regulatory purposes as allowed under the
transition plan and the Texas electric restructuring law. In accordance with the
order, CenterPoint Houston recorded a regulatory liability of $1.1 billion to
reflect the prospective refund of the accelerated depreciation, and in January
2002 CenterPoint Houston began refunding excess mitigation credits, which are to
be refunded over a seven-year period. The annual refund of excess mitigation
credits is approximately $238 million. As of December 31, 2002 and 2003, the
Company had recorded net electric plant mitigation regulatory assets of $1.1
billion and $1.3 billion, respectively, based on the Company's expectation that
these amounts will be recovered in the 2004 True-Up Proceeding as stranded
costs. In the event that the excess mitigation credits prove to have been
unnecessary and CenterPoint Houston is determined to have stranded costs, the
excess mitigation credits will be included in the stranded costs to be
recovered. In June 2003, CenterPoint Houston sought authority from the Texas
Utility Commission to terminate these credits based on then current estimates of
what that final determination would be. The Texas Utility Commission denied the
request in January 2004.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) RATE CASES

In August 2002, a settlement was approved by the Arkansas Public Service
Commission (APSC) that resulted in an increase in the base rate and service
charge revenues of CenterPoint Energy Arkla (Arkla) of approximately $27 million
annually. In addition, the APSC approved a gas main replacement surcharge that
provided $2 million of additional revenue in 2003 and is expected to provide
additional amounts in subsequent years.

In December 2002, a settlement was approved by the Oklahoma Corporation
Commission that resulted in an increase in the base rate and service charge
revenues of Arkla of approximately $6 million annually.

In November 2003, Arkla filed a request with the Louisiana Public Service
Commission (LPSC) for a $16 million increase to its base rate and service charge
revenues in Louisiana. The case is expected to be resolved in mid-2004.

In December 2003, a settlement was approved by the City of Houston that
will result in an increase in the base rate and service charge revenues of
CenterPoint Energy Entex (Entex) of approximately $7 million annually. Entex has
submitted these settlement rates to the 28 other cities within its Houston
Division and the Railroad Commission of Texas for consideration and approval. If
all regulatory approvals are received from these 29 jurisdictions, Entex's base
rate and service charge revenues are expected to increase by approximately $7
million annually in addition to the $7 million increase discussed above.

On February 10, 2004, a settlement was approved by the LPSC that is
expected to result in an increase in Entex's base rate and service charge
revenues of approximately $2 million annually.

Texas Genco is the beneficiary of decommissioning trusts that have been
established to provide funding for decontamination and decommissioning of a
nuclear electric generation station in which Texas Genco owns a 30.8% interest
(see Notes 6 and 12(e)). CenterPoint Houston collects through rates or other
authorized charges to its electric utility customers amounts designated for
funding the decommissioning trusts, and deposits these amounts into the
decommissioning trusts. Upon decommissioning of the facility, in the event funds
from the trusts are inadequate, CenterPoint Houston or its successor will be
required to collect through rates or other authorized charges to customers as
contemplated by the Texas Utilities Code all additional amounts required to fund
Texas Genco's obligations relating to the decommissioning of the facility.
Following the completion of the decommissioning, if surplus funds remain in the
decommissioning trust, the excess will be refunded to the ratepayers of
CenterPoint Houston or its successor.

(d) OTHER REGULATORY PROCEEDINGS

City of Tyler, Texas Dispute. In July 2002, the City of Tyler, Texas,
asserted that Entex had overcharged residential and small commercial customers
in that city for excessive gas costs under supply agreements in effect since
1992. That dispute has been referred to the Texas Railroad Commission by
agreement of the parties for a determination of whether Entex has properly and
lawfully charged and collected for gas service to its residential and commercial
customers in its Tyler distribution system for the period beginning November 1,
1992, and ending October 31, 2002. The Company believes that all costs for
Entex's Tyler distribution system have been properly included and recovered from
customers pursuant to Entex's filed tariffs.

FERC Contract Inquiry. On September 15, 2003, the FERC issued a Show Cause
Order to CenterPoint Energy Gas Transmission Company (CEGT), one of CERC's
natural gas pipeline subsidiaries. In its Show Cause Order, the FERC contends
that CEGT has failed to file with the FERC and post on the internet certain
information relating to negotiated rate contracts that CEGT had entered into
pursuant to 1996

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FERC orders. Those orders authorized CEGT to enter into negotiated rate
contracts that deviate from the rates prescribed under its filed FERC tariffs.
The FERC also alleges that certain of the contracts contain provisions that CEGT
was not authorized to negotiate under the terms of the 1996 orders.

Following issuance of the Show Cause Order, CEGT made certain compliance
filings, met with members of the FERC's staff and provided additional
information relating to the FERC's Show Cause Order. On March 4, 2004, the FERC
issued orders accepting CEGT's compliance filings and approving a Stipulation
and Consent Agreement with CEGT that resolved the issues raised by the Show
Cause Order. The resolution of these issues did not have a material impact on
our results of operations, financial condition and cash flows.

(5) DERIVATIVE INSTRUMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement requires that derivatives be recognized at
fair value in the balance sheet and that changes in fair value be recognized
either currently in earnings or deferred as a component of other comprehensive
income, depending on the intended use of the derivative instrument as hedging
(a) the exposure to changes in the fair value of an asset or liability (Fair
Value Hedge) or (b) the exposure to variability in expected future cash flows
(Cash Flow Hedge) or (c) the foreign currency exposure of a net investment in a
foreign operation. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in earnings in the period it occurs.

Adoption of SFAS No. 133 on January 1, 2001 resulted in an after-tax
increase in net income of $59 million and a cumulative after-tax increase in
accumulated other comprehensive income of $38 million.

The Company is exposed to various market risks. These risks arise from
transactions entered into in the normal course of business. The Company utilizes
derivative financial instruments such as physical forward contracts, swaps and
options (Energy Derivatives) to mitigate the impact of changes and cash flows of
its natural gas businesses on its operating results and cash flows.

(a) NON-TRADING ACTIVITIES

Cash Flow Hedges. To reduce the risk from market fluctuations associated
with purchased gas costs, the Company enters into energy derivatives in order to
hedge certain expected purchases and sales of natural gas (non-trading energy
derivatives). The Company applies hedge accounting for its non-trading energy
derivatives utilized in non-trading activities only if there is a high
correlation between price movements in the derivative and the item designated as
being hedged. The Company analyzes its physical transaction portfolio to
determine its net exposure by delivery location and delivery period. Because the
Company's physical transactions with similar delivery locations and periods are
highly correlated and share similar risk exposures, the Company facilitates
hedging for customers by aggregating physical transactions and subsequently
entering into non-trading energy derivatives to mitigate exposures created by
the physical positions.

During 2003, no hedge ineffectiveness was recognized in earnings from
derivatives that are designated and qualify as Cash Flow Hedges. No component of
the derivative instruments' gain or loss was excluded from the assessment of
effectiveness. If it becomes probable that an anticipated transaction will not
occur, the Company realizes in net income the deferred gains and losses
recognized in accumulated other comprehensive loss. Once the anticipated
transaction occurs, the accumulated deferred gain or loss recognized in
accumulated other comprehensive loss is reclassified and included in the
Company's Statements of Consolidated Operations under the caption "Fuel and Cost
of Gas Sold." Cash flows resulting from these transactions in non-trading energy
derivatives are included in the Statements of Consolidated Cash Flows in the
same category as the item being hedged. As of December 31, 2003, the Company
expects $38 million in accumulated other comprehensive loss to be reclassified
into net income during the next twelve months.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The maximum length of time the Company is hedging its exposure to the
variability in future cash flows for forecasted transactions on existing
financial instruments is primarily two years with a limited amount of exposure
up to five years. The Company's policy is not to exceed five years in hedging
its exposure.

Interest Rate Swaps. As of December 31, 2003, the Company had an
outstanding interest rate swap with a notional amount of $250 million to fix the
interest rate applicable to floating rate short-term debt. This swap, which
expired in January 2004, did not qualify as a cash flow hedge under SFAS No.
133, and was marked to market in the Company's Consolidated Balance Sheets with
changes reflected in interest expense in the Statements of Consolidated
Operations.

During the year ended December 31, 2002, the Company settled its
forward-starting interest rate swaps having an aggregate notional amount of $1.5
billion at a cost of $156 million, which was recorded in other comprehensive
income and reclassified $36 million and $12 million to interest expense in 2002
and 2003, respectively. The remaining $108 million in other comprehensive income
is being amortized into interest expense in the same period during which the
interest payments are made for the designated fixed-rate debt.

Embedded Derivative. The Company's $575 million of convertible senior
notes, issued May 19, 2003 and $255 million of convertible senior notes, issued
December 17, 2003 (see Note 9), contain contingent interest provisions. The
contingent interest component is an embedded derivative as defined by SFAS No.
133, and accordingly, must be split from the host instrument and recorded at
fair value on the balance sheet. The value of the contingent interest components
was not material at issuance or at December 31, 2003.

(b) CREDIT RISKS

In addition to the risk associated with price movements, credit risk is
also inherent in the Company's non-trading derivative activities. Credit risk
relates to the risk of loss resulting from non-performance of contractual
obligations by a counterparty. The following table shows the composition of the
non-trading derivative assets of the Company as of December 31, 2002 and 2003
(in millions):

DECEMBER 31, 2002 DECEMBER 31, 2003
------------------- ----------------------
INVESTMENT INVESTMENT
GRADE(1)(2) TOTAL GRADE(1)(2) TOTAL(3)
----------- ----- ----------- --------

Energy marketers............................. $ 7 $22 $24 $35
Financial institutions....................... 9 9 21 21
Other........................................ -- -- -- 1
--- --- --- ---
Total...................................... $16 $31 $45 $57
=== === === ===

- ---------------

(1) "Investment grade" is primarily determined using publicly available credit
ratings along with the consideration of credit support (such as parent
company guarantees) and collateral, which encompass cash and standby letters
of credit.

(2) For unrated counterparties, the Company performs financial statement
analysis, considering contractual rights and restrictions and collateral, to
create a synthetic credit rating.

(3) The $35 million non-trading derivative asset includes an $11 million asset
due to trades with Reliant Energy Services, Inc. (Reliant Energy Services),
an affiliate until the date of the Reliant Resources Distribution. As of
December 31, 2003, Reliant Energy Services did not have an investment grade
rating.

The Company has established a Risk Oversight Committee composed of
corporate and business segment officers that oversees all commodity price and
credit risk activities, including the Company's trading,

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

marketing, risk management services and hedging activities. The committee's
duties are to establish the Company's commodity risk policies, allocate risk
capital within limits established by the Company's board of directors, approve
trading of new products and commodities, monitor risk positions and ensure
compliance with the Company's risk management policies and procedures and
trading limits established by the Company's board of directors.

The Company's policies prohibit the use of leveraged financial instruments.
A leveraged financial instrument, for this purpose, is a transaction involving a
derivative whose financial impact will be based on an amount other than the
notional amount or volume of the instrument.

(6) JOINTLY OWNED ELECTRIC UTILITY PLANT

Texas Genco owns a 30.8% interest in the South Texas Project, which
consists of two 1,250 MW nuclear generating units and bears a corresponding
30.8% share of capital and operating costs associated with the project. The
South Texas Project is owned as a tenancy in common among Texas Genco and three
other co-owners, with each owner retaining its undivided ownership interest in
the two generating units and the electrical output from those units. Texas Genco
is severally liable, but not jointly liable, for the expenses and liabilities of
the South Texas Project. Texas Genco and the three other co-owners organized the
STP Nuclear Operating company (STPNOC) to operate and maintain the South Texas
Project. STPNOC is managed by a board of directors comprised of one director
appointed by each of the four co-owners, along with the chief executive officer
of STPNOC. Texas Genco's share of direct expenses of the South Texas Project is
included in the corresponding operating expense categories in the accompanying
consolidated financial statements. As of December 31, 2002 and 2003, Texas
Genco's total utility plant for the South Texas Project was $385 million and
$431 million, respectively (net of $2.2 billion accumulated depreciation which
includes an impairment loss recorded in 1999 of $745 million). As of December
31, 2002 and 2003, Texas Genco's investment in nuclear fuel was $42 million (net
of $302 million amortization) and $40 million (net of $316 million
amortization), respectively.

(7) INDEXED DEBT SECURITIES (ZENS) AND TIME WARNER SECURITIES

(a) ORIGINAL INVESTMENT IN TIME WARNER SECURITIES

In 1995, the Company sold a cable television subsidiary to Time Warner Inc.
(TW) and received TW convertible preferred stock (TW Preferred) as partial
consideration. On July 6, 1999, the Company converted its 11 million shares of
TW Preferred into 45.8 million shares of Time Warner common stock (TW Common).
Unrealized gains and losses resulting from changes in the market value of the TW
Common are recorded in the Company's Statements of Consolidated Operations.

(b) ZENS

In September 1999, the Company issued its 2.0% Zero-Premium Exchangeable
Subordinated Notes due 2029 (ZENS) having an original principal amount of $1.0
billion. ZENS are exchangeable for cash equal to the market value of a specified
number of shares of TW common. The Company pays interest on the ZENS at an
annual rate of 2% plus the amount of any quarterly cash dividends paid in
respect of the shares of TW Common attributable to the ZENS. The principal
amount of ZENS is subject to being increased to the extent that the annual yield
from interest and cash dividends on the reference shares of TW Common is less
than 2.309%. At December 31, 2003, ZENS having an original principal amount of
$840 million and a contingent principal amount of $848 million were outstanding
and were exchangeable, at the option of the holders, for cash equal to 95% of
the market value of 21.6 million shares of TW Common deemed to be attributable
to the ZENS. At December 31, 2003, the market value of such shares was
approximately $389 million, which would provide an exchange amount of $440 for
each $1,000 original principal amount of ZENS. At maturity, the holders of the
ZENS will receive in cash the higher of the original principal amount of the
ZENS (subject to

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adjustment as discussed above) or an amount based on the then-current market
value of TW Common, or other securities distributed with respect to TW Common.

Through December 31, 2003, holders of approximately 16% of the 17.2 million
ZENS originally issued had exercised their right to exchange their ZENS for
cash, resulting in aggregate cash payments by CenterPoint Energy of
approximately $45 million.

A subsidiary of the Company owns shares of TW Common and elected to
liquidate a portion of such holdings to facilitate the Company's making the cash
payments for the ZENS exchanged in 2002. In connection with the exchanges in
2002, the Company received net proceeds of approximately $43 million from the
liquidation of approximately 4.1 million shares of TW Common at an average price
of $10.56 per share. The Company now holds 21.6 million shares of TW Common
which are classified as trading securities under SFAS No. 115 and are expected
to be held to facilitate the Company's ability to meet its obligation under the
ZENS.

Upon adoption of SFAS No. 133 effective January 1, 2001, the ZENS
obligation was bifurcated into a debt component and a derivative component (the
holder's option to receive the appreciated value of TW Common at maturity). The
derivative component was valued at fair value and determined the initial
carrying value assigned to the debt component ($121 million) as the difference
between the original principal amount of the ZENS ($1 billion) and the fair
value of the derivative component at issuance ($879 million). Effective January
1, 2001 the debt component was recorded at its accreted amount of $122 million
and the derivative component was recorded at its fair value of $788 million, as
a current liability, resulting in a transition adjustment pre-tax gain of $90
million ($59 million net of tax). The transition adjustment gain was reported in
the first quarter of 2001 as the effect of a change in accounting principle.
Subsequently, the debt component accretes through interest charges at 17.5%
annually up to the minimum amount payable upon maturity of the ZENS in 2029
(approximately $915 million) which reflects exchanges and adjustments to
maintain a 2.309% annual yield, as discussed above. Changes in the fair value of
the derivative component are recorded in the Company's Statements of
Consolidated Operations. During 2001, 2002 and 2003, the Company recorded a loss
of $70 million, a loss of $500 million and a gain of $106 million, respectively,
on the Company's investment in TW Common. During 2001, 2002 and 2003, the
Company recorded a gain of $58 million, a gain of $480 million and a loss of $96
million, respectively, associated with the fair value of the derivative
component of the ZENS obligation. Changes in the fair value of the TW Common
held by the Company are expected to substantially offset changes in the fair
value of the derivative component of the ZENS.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth summarized financial information regarding
the Company's investment in TW securities and the Company's ZENS obligation (in
millions).

DEBT DERIVATIVE
TW COMPONENT COMPONENT
INVESTMENT OF ZENS OF ZENS
---------- --------- ----------

Balance at December 31, 2000......................... $897 $1,000 $ --
Transition adjustment from adoption of SFAS No.
133................................................ -- (90) --
Bifurcation of ZENS obligation....................... -- (788) 788
Accretion of debt component of ZENS.................. -- 1 --
Gain on indexed debt securities...................... -- -- (58)
Loss on TW Common.................................... (70) -- --
---- ------ -----
Balance at December 31, 2001......................... 827 123 730
Accretion of debt component of ZENS.................. -- 1 --
Gain on indexed debt securities...................... -- -- (480)
Loss on TW Common.................................... (500) -- --
Liquidation of TW Common............................. (43) -- --
Liquidation of ZENS, net of gain..................... -- (20) (25)
---- ------ -----
Balance at December 31, 2002......................... 284 104 225
Accretion of debt component of ZENS.................. -- 1 --
Loss on indexed debt securities...................... -- -- 96
Gain on TW Common.................................... 106 -- --
---- ------ -----
Balance at December 31, 2003......................... $390 $ 105 $ 321
==== ====== =====

(8) EQUITY

(a) CAPITAL STOCK

At December 31, 2003, CenterPoint Energy has 1,020,000,000 authorized
shares of capital stock, composed of 1,000,000,000 shares of $0.01 par value
common stock and 20,000,000 shares of $0.01 par value preferred stock.

(b) SHAREHOLDER RIGHTS PLAN

The Company has a Shareholder Rights Plan that states that each share of
its common stock includes one associated preference stock purchase right (Right)
which entitles the registered holder to purchase from the Company a unit
consisting of one-thousandth of a share of Series A Preference Stock. The
Rights, which expire on December 11, 2011, are exercisable upon some events
involving the acquisition of 20% or more of the Company's outstanding common
stock. Upon the occurrence of such an event, each Right entitles the holder to
receive common stock with a current market price equal to two times the exercise
price of the Right. At anytime prior to becoming exercisable, the Company may
repurchase the Rights at a price of $0.005 per Right. There are 700,000 shares
of Series A Preference Stock reserved for issuance upon exercise of the Rights.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) LONG-TERM DEBT AND SHORT-TERM BORROWINGS

DECEMBER 31, 2002 DECEMBER 31, 2003
------------------- --------------------
LONG- LONG-
TERM CURRENT(1) TERM CURRENT(1)
------ ---------- ------- ----------
(IN MILLIONS)

Short-term borrowings:
Bank loans.................................... $ 347 $ --
Revolving credit facility..................... -- 63
------ ----
Total short-term borrowings................ 347 63
------ ----
Long-term debt:
CenterPoint Energy:
ZENS(2)....................................... $ -- 104 $ -- 105
Senior notes 5.875% to 7.25% due 2008 to
2010....................................... -- -- 600 --
Convertible senior notes 2.875% to 3.75% due
2023 to 2024............................... -- -- 830 --
Pollution control bonds 5.60% to 6.70% due
2012 to 2027(3)............................ 380 167 380 --
Pollution control bonds 4.70% to 8.00% due
2011 to 2030(4)............................ 871 -- 1,046 --
Loans due 2006(5)............................. 3,850 -- 1,450 10
Junior subordinated debentures payable to
affiliate 7.20% to 8.257% due 2037 to
2048(6).................................... -- -- 747 --
CenterPoint Houston:
First mortgage bonds 7.50% to 9.15% due 2021
to 2023.................................... 615 -- 102 --
Series 2001-1 Transition Bonds 3.84% to 5.63%
due 2004 to 2013(7)........................ 717 19 676 41
Term loan, LIBOR plus 9.75%, due 2005(8)...... 1,310 -- 1,310 --
General mortgage bonds 5.60% to 6.95% due
2013 to 2033............................... -- -- 1,262 --
CERC Corp.:
Convertible subordinated debentures 6.00% due
2012....................................... 76 -- 74 --
Senior notes 5.95% to 8.90% due 2005 to
2014....................................... 1,331 500 2,251 --
Junior subordinated debentures payable to
affiliate 6.25% due 2026(6)................ -- -- 6 --
Other........................................... 52 7 51 6
Unamortized discount and premium(9)............. (8) 13 (2) --
------ ------ ------- ----
Total long-term debt....................... 9,194 810 10,783 162
------ ------ ------- ----
Total borrowings........................... $9,194 $1,157 $10,783 $225
====== ====== ======= ====

- ---------------

(1) Includes amounts due or exchangeable within one year of the date noted.

(2) Upon adoption of SFAS No. 133 effective January 1, 2001, the Company's ZENS
obligation was bifurcated into a debt component and an embedded derivative
component. For additional information regarding ZENS, see Note 7(b). As ZENS
are exchangeable for cash at any time at the option of the holders, these
notes are classified as a current portion of long-term debt.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) These series of debt are secured by first mortgage bonds of CenterPoint
Houston.

(4) $527 million of these series of debt is secured by general mortgage bonds of
CenterPoint Houston.

(5) Classified as long-term debt because of the termination dates of the
facilities under which the funds were borrowed.

(6) The junior subordinated debentures were issued to subsidiary trusts in
connection with the issuance by those trusts of preferred securities. The
trust preferred securities were deconsolidated effective December 31, 2003
pursuant to the adoption of FIN 46. This resulted in the junior subordinated
debentures held by the trusts being reported as long-term debt. For further
discussion, see Note 2(n).

(7) For further discussion of the securitization financing, see Note 4(a).

(8) London inter-bank offered rate (LIBOR) has a minimum rate of 3% under the
terms of this debt. This term loan is secured by general mortgage bonds of
CenterPoint Houston.

(9) Debt acquired in business acquisitions is adjusted to fair market value as
of the acquisition date. Included in long-term debt is additional
unamortized premium related to fair value adjustments of long-term debt of
$7 million and $6 million at December 31, 2002 and 2003, respectively, which
is being amortized over the respective remaining term of the related
long-term debt.

(a) SHORT-TERM BORROWINGS

Credit Facilities. As of December 31, 2003, CERC Corp. had a revolving
credit facility that provided for an aggregate of $200 million in committed
credit and Texas Genco had a revolving credit facility that provided for an
aggregate of $75 million of committed credit. As of December 31, 2003, $63
million was borrowed under the CERC Corp. revolving credit facility and there
were no borrowings under the Texas Genco facility. The CERC Corp. revolver
terminates on March 23, 2004 and the Texas Genco revolver terminates on December
21, 2004.

Rates for borrowings under CERC Corp.'s facility, including the facility
fee, are the London interbank offered rate (LIBOR) plus 250 basis points based
on current credit ratings and the applicable pricing grid. CERC Corp.'s
revolving credit facility contains various business and financial covenants.
CERC Corp. is prohibited from making loans to or other investments in the
Company. CERC Corp. is currently in compliance with the covenants under the
credit agreement. CERC Corp. is currently in discussions with banks seeking to
arrange a replacement revolving credit facility and expects to have such a
facility in place on or prior to the termination date of the existing facility.

Rates for borrowings under Texas Genco's facility, including the facility
fee, are LIBOR plus 150 basis points. Texas Genco's revolving credit facility
contains various business and financial covenants. Texas Genco is currently in
compliance with the covenants under the credit agreement.

The weighted average interest rate on short-term borrowings at December 31,
2002 and December 31, 2003 was 5.4% and 5.0%, respectively. These interest rates
exclude facility fees and other fees paid in connection with the arrangement of
the bank facilities. As of December 31, 2003, cash aggregating $65.5 million was
invested in a money market fund.

(b) LONG-TERM DEBT

On October 7, 2003, the Company entered into a three-year credit facility
composed of a revolving credit facility of $1.4 billion and a $925 million term
loan from institutional investors. The facility matures on October 7, 2006 and
requires prepayments aggregating $20 million. Borrowings under the revolver
($523 million at December 31, 2003) bear interest based on LIBOR rates under a
pricing grid tied to the Company's credit ratings. At the Company's current
ratings, the interest rate for borrowings under the revolver is LIBOR plus 300
basis points. The interest rate for borrowings under the term loan is LIBOR plus
350 basis points.

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's Texas Genco stock is pledged to the lenders under the facility and
the Company has agreed to limit the dividend paid on its common stock to $0.10
per share per quarter. The facility provides that until such time as the
facility has been reduced to $750 million, 100% of the net cash proceeds from
any securitizations relating to the recovery of the true-up components, after
making any payments required under CenterPoint Houston's $1.3 billion term loan,
and the net cash proceeds of any sales of the common stock of Texas Genco owned
by the Company or of material portions of Texas Genco's assets shall be applied
to repay loans under the facility and reduce that facility. Any money raised in
other future capital markets offerings and in the sale of other significant
assets is not required to be used to pay down the facility. The facility
requires the Company not to fall below a minimum interest coverage ratio and not
to exceed a maximum leverage ratio. The facility refinanced and replaced a prior
bank facility that, as of September 30, 2003, consisted of an $856 million term
loan and a $1.5 billion revolver. In connection with entering into the new
facility, the Company paid up-front fees of approximately $16 million and
avoided a payment of $18 million which would have been due under the prior
facility on October 9, 2003. Additionally, in October 2003, the Company expensed
$21 million of unamortized loan costs associated with the prior facility.

On March 18, 2003, CenterPoint Houston issued $762 million aggregate
principal amount of general mortgage bonds composed of $450 million principal
amount of 10-year bonds with an interest rate of 5.7% and $312 million principal
amount of 30-year bonds with an interest rate of 6.95%. Proceeds were used to
redeem approximately $312 million aggregate principal amount of CenterPoint
Houston's first mortgage bonds and to repay $429 million of intercompany notes
payable to CenterPoint Energy by CenterPoint Houston. Proceeds from the note
repayment were ultimately used by CenterPoint Energy to repay $150 million
aggregate principal amount of medium-term notes maturing on April 21, 2003 and
to repay borrowings under the Company's prior facility, including $50 million of
term loan repayments.

On March 25 and April 14, 2003, CERC issued $650 million aggregate
principal amount and $112 million aggregate principal amount, respectively, of
7.875% senior notes due in 2013. A portion of the proceeds was used to refinance
$360 million aggregate principal amount of CERC's 6 3/8% Term Enhanced
ReMarketable Securities (TERM Notes) and to pay costs associated with the
refinancing. Proceeds were also used to repay approximately $340 million of bank
borrowings under CERC's $350 million revolving credit facility prior to its
expiration on March 31, 2003.

On April 9, 2003, the Company remarketed $175 million aggregate principal
amount of pollution control bonds that it had owned since the fourth quarter of
2002. Remarketed bonds maturing in 2029 have a principal amount of $75 million
and an interest rate of 8%. Remarketed bonds maturing in 2018 have a principal
amount of $100 million and an interest rate of 7.75%. Proceeds from the
remarketing were used to repay bank debt. At December 31, 2002, the $175 million
of bonds owned by the Company were not reflected as outstanding debt in the
Company's Consolidated Balance Sheets.

On May 19, 2003, the Company issued $575 million aggregate principal amount
of convertible senior notes due May 15, 2023 with an interest rate of 3.75%.
Holders may convert each of their notes into shares of CenterPoint Energy common
stock, initially at a conversion rate of 86.3558 shares of common stock per
$1,000 principal amount of notes at any time prior to maturity, under the
following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% or, following May 15, 2008, 110% of the
conversion price per share of CenterPoint Energy common stock on such last
trading day, (2) if the notes have been called for redemption, (3) during any
period in which the credit ratings assigned to the notes by both Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Ratings Services (S&P),
a division of The McGraw-Hill Companies, are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of

100

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CenterPoint Energy common stock at less than the last reported sale price of a
share of CenterPoint Energy common stock on the trading day prior to the
declaration date of the distribution or the distribution to all holders of
CenterPoint Energy common stock of the Company's assets, debt securities or
certain rights to purchase the Company's securities, which distribution has a
per share value exceeding 15% of the last reported sale price of a share of
CenterPoint Energy common stock on the trading day immediately preceding the
declaration date for such distribution. The convertible senior notes also have a
contingent interest feature requiring contingent interest to be paid to holders
of notes commencing on or after May 15, 2008, in the event that the average
trading price of a note for the applicable five trading day period equals or
exceeds 120% of the principal amount of the note as of the day immediately
preceding the first day of the applicable six-month interest period. For any
six-month period, contingent interest will be equal to 0.25% of the average
trading price of the note for the applicable five-trading-day period. Proceeds
from the issuance of the convertible senior notes were used for term loan
repayments and to repay revolver borrowings under the Company's prior facility
in the amount of $557 million and $0.75 million, respectively.

On May 23, 2003, CenterPoint Houston issued $200 million aggregate
principal amount of 20-year general mortgage bonds with an interest rate of
5.6%. Proceeds were used to redeem $200 million aggregate principal amount of
CenterPoint Houston's 7.5% first mortgage bonds due 2023 at 103.51% of their
principal amount.

On May 27, 2003, the Company issued $400 million aggregate principal amount
of senior notes composed of $200 million principal amount of 5-year notes with
an interest rate of 5.875% and $200 million principal amount of 12-year notes
with an interest rate of 6.85%. Proceeds in the amount of $397 million were used
for repayments of the term loan under the Company's prior facility.

In July 2003, the Company remarketed two series of insurance-backed
pollution control bonds aggregating $151 million, reducing the interest rate
from 5.8% to 4%. Of the total amount of bonds remarketed, $92 million mature on
August 1, 2015 and $59 million mature on October 15, 2015.

On September 2, 2003, CenterPoint Houston and the lender parties thereto
amended the $1.3 billion term loan to, among other things, allow CenterPoint
Houston to issue an additional $500 million of debt secured by its general
mortgage bonds without requiring that the net proceeds be applied to prepay the
loans outstanding under that term loan.

On September 9, 2003, CenterPoint Houston issued $300 million aggregate
principal amount of 5.75% general mortgage bonds due January 15, 2014. This
issuance utilized $300 million of the additional debt capacity of CenterPoint
Houston described in the preceding paragraph. Proceeds were used to repay
approximately $258 million of intercompany notes payable to CenterPoint Energy
and to repay approximately $40 million of money pool borrowings. Proceeds in the
amount of approximately $292 million from the note and money pool repayments
were ultimately used by CenterPoint Energy to repay a portion of the term loan
under the Company's prior facility.

As a result of the term loan repayments made from the proceeds of the
September 9, 2003 debt issuances by CenterPoint Houston and the Company
discussed above, in September 2003, the Company expensed $12.2 million of
unamortized loan costs that were associated with the term loan under the
Company's prior facility.

On November 3, 2003, CERC issued $160 million aggregate principal amount of
its 5.95% senior notes due 2014. CERC accepted $140 million aggregate principal
amount of CERC's TERM Notes maturing in November 2003 and $1.25 million as
consideration for the unsecured senior notes. CERC retired the

101

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TERM notes received and used the remaining proceeds to finance remaining costs
of issuance of the notes and for general corporate purposes.

On December 17, 2003, the Company issued $255 million aggregate principal
amount of convertible senior notes due January 15, 2024 with an interest rate of
2.875%. Holders may convert each of their notes into shares of CenterPoint
Energy common stock, initially at a conversion rate of 78.064 shares of common
stock per $1,000 principal amount of notes at any time prior to maturity, under
the following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% of the conversion price per share of
CenterPoint Energy common stock on such last trading day, (2) if the notes have
been called for redemption, (3) during any period in which the credit ratings
assigned to the notes by both Moody's and S&P are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of CenterPoint
Energy common stock at less than the last reported sale price of a share of
CenterPoint Energy common stock on the trading day prior to the declaration date
of the distribution or the distribution to all holders of CenterPoint Energy
common stock of the Company's assets, debt securities or certain rights to
purchase the Company's securities, which distribution has a per share value
exceeding 15% of the last reported sale price of a share of CenterPoint Energy
common stock on the trading day immediately preceding the declaration date for
such distribution. CenterPoint Energy may elect to satisfy part or all of its
conversion obligation by delivering cash in lieu of shares of CenterPoint Energy
common stock. The convertible senior notes also have a contingent interest
feature requiring contingent interest to be paid to holders of notes commencing
on or after January 15, 2007, in the event that the average trading price of a
note for the applicable five-trading-day period equals or exceeds 120% of the
principal amount of the note as of the day immediately preceding the first day
of the applicable six-month interest period. For any six-month period,
contingent interest will be equal to 0.25% of the average trading price of the
note for the applicable five-trading-day period. Proceeds from the issuance of
the convertible senior notes were used to redeem, in January 2004, $250 million
liquidation amount of the 8.125% trust preferred securities issued by HL&P
Capital Trust I. Pending such use, the net proceeds were used to repay a portion
of the outstanding borrowings under the Company's revolving credit facility.

In February 2004, $56 million aggregate principal amount of collateralized
5.6% pollution control bonds due 2027 and $44 million aggregate principal amount
of 4.25% collateralized insurance-backed pollution control bonds due 2017 were
issued on behalf of CenterPoint Houston. The pollution control bonds are
collateralized by general mortgage bonds of CenterPoint Houston with principal
amounts, interest rates and maturities that match the pollution control bonds.
The proceeds were used to redeem two series of 6.7% collateralized pollution
control bonds with an aggregate principal amount of $100 million issued on
behalf of CenterPoint Energy. CenterPoint Houston's 6.7% first mortgage bonds
which collateralized CenterPoint Energy's payment obligations under the refunded
pollution control bonds were retired in connection with the March 2004
redemption of the refunded pollution control bonds. CenterPoint Houston's 6.7%
notes payable to CenterPoint Energy were also extinguished upon the redemption
of the refunded pollution control bonds.

Junior Subordinated Debentures (Trust Preferred Securities). In February
1997, two Delaware statutory business trusts created by CenterPoint Energy (HL&P
Capital Trust I and HL&P Capital Trust II) issued to the public (a) $250 million
aggregate amount of preferred securities and (b) $100 million aggregate amount
of capital securities, respectively. In February 1999, a Delaware statutory
business trust created by CenterPoint Energy (REI Trust I) issued $375 million
aggregate amount of preferred securities to the public. Each of the trusts used
the proceeds of the offerings to purchase junior subordinated debentures issued
by CenterPoint Energy having interest rates and maturity dates that correspond
to the distribution rates and the mandatory redemption dates for each series of
preferred securities or capital securities. As discussed in

102

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Note 2(n), upon the Company's adoption of FIN 46, the junior subordinated
debentures discussed above are included in long-term debt as of December 31,
2003.

The junior subordinated debentures are the trusts' sole assets and their
entire operations. CenterPoint Energy considers its obligations under the
Amended and Restated Declaration of Trust, Indenture, Guaranty Agreement and,
where applicable, Agreement as to Expenses and Liabilities, relating to each
series of preferred securities or capital securities, taken together, to
constitute a full and unconditional guarantee by CenterPoint Energy of each
trust's obligations with respect to the respective series of preferred
securities or capital securities.

The preferred securities and capital securities are mandatorily redeemable
upon the repayment of the related series of junior subordinated debentures at
their stated maturity or earlier redemption. Subject to some limitations,
CenterPoint Energy has the option of deferring payments of interest on the
junior subordinated debentures. During any deferral or event of default,
CenterPoint Energy may not pay dividends on its capital stock. As of December
31, 2003, no interest payments on the junior subordinated debentures had been
deferred.

The outstanding aggregate liquidation amount, distribution rate and
mandatory redemption date of each series of the preferred securities or capital
securities of the trusts described above and the identity and similar terms of
each related series of junior subordinated debentures are as follows:

AGGREGATE
LIQUIDATION MANDATORY
AMOUNTS AS OF DISTRIBUTION REDEMPTION
DECEMBER 31, RATE/ DATE/
TRUST 2002 AND 2003 INTEREST RATE MATURITY DATE JUNIOR SUBORDINATED DEBENTURES
- ----- ------------- ------------- ------------- -------------------------------
(IN MILLIONS)

REI Trust I.................... $375 7.20% March 2048 7.20% Junior Subordinated
Debentures
HL&P Capital Trust I(1)........ $250 8.125% March 2046 8.125% Junior Subordinated
Deferrable Interest Debentures
Series A
HL&P Capital Trust II.......... $100 8.257% February 2037 8.257% Junior Subordinated
Deferrable Interest Debentures
Series B

- ---------------

(1) The preferred securities issued by HL&P Capital Trust I having an aggregate
liquidation amount of $250 million were redeemed at 100% of their aggregate
liquidation amount in January 2004.

In June 1996, a Delaware statutory business trust created by CERC Corp.
(CERC Trust) issued $173 million aggregate amount of convertible preferred
securities to the public. CERC Trust used the proceeds of the offering to
purchase convertible junior subordinated debentures issued by CERC Corp. having
an interest rate and maturity date that correspond to the distribution rate and
mandatory redemption date of the convertible preferred securities. The
convertible junior subordinated debentures represent CERC Trust's sole asset and
its entire operations. CERC Corp. considers its obligation under the Amended and
Restated Declaration of Trust, Indenture and Guaranty Agreement relating to the
convertible preferred securities, taken together, to constitute a full and
unconditional guarantee by CERC Corp. of CERC Trust's obligations with respect
to the convertible preferred securities.

The convertible preferred securities are mandatorily redeemable upon the
repayment of the convertible junior subordinated debentures at their stated
maturity or earlier redemption. Effective January 7, 2003, the convertible
preferred securities are convertible at the option of the holder into $33.62 of
cash and 2.34 shares of CenterPoint Energy common stock for each $50 of
liquidation value. As of December 31, 2002 and 2003, $0.4 million liquidation
amount of convertible preferred securities were outstanding. The securities, and
their

103

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

underlying convertible junior subordinated debentures, bear interest at 6.25%
and mature in June 2026. Subject to some limitations, CERC Corp. has the option
of deferring payments of interest on the convertible junior subordinated
debentures. During any deferral or event of default, CERC Corp. may not pay
dividends on its common stock to CenterPoint Energy. As of December 31, 2003, no
interest payments on the convertible junior subordinated debentures had been
deferred.

Maturities. The Company's maturities of long-term debt, capital leases and
sinking fund requirements, excluding the ZENS obligation and $250 million of
securities called for redemption in 2004, are $57 million in 2004, $1.7 billion
in 2005, $1.7 billion in 2006, $69 million in 2007 and $572 million in 2008. The
2004 amount is net of sinking fund payments that can be satisfied with bonds
that had been acquired and retired as of December 31, 2003.

Liens. As of December 31, 2003, CenterPoint Houston's assets were subject
to liens securing approximately $482 million of first mortgage bonds. Sinking or
improvement fund and replacement fund requirements on the first mortgage bonds
may be satisfied by certification of property additions. Sinking fund and
replacement fund requirements for 2001, 2002 and 2003 have been satisfied by
certification of property additions. The replacement fund requirement to be
satisfied in 2004 is approximately $142 million, and the sinking fund
requirement to be satisfied in 2004 is approximately $4 million. The Company
expects CenterPoint Houston to meet these 2004 obligations by certification of
property additions. At December 31, 2003, CenterPoint Houston's assets were also
subject to liens securing approximately $3.1 billion of general mortgage bonds
which are junior to the liens of the first mortgage bonds. Texas Genco's $75
million revolving credit facility is secured by a series of first mortgage bonds
issued by Texas Genco LP, in an aggregate principal amount of $75 million under
a First Mortgage Indenture (the Texas Genco Mortgage) dated December 23, 2003
between JPMorgan Chase Bank, as trustee, and Texas Genco, LP. All of Texas
Genco's real and tangible properties, subject to certain exclusions, are
currently subject to the lien of the Texas Genco Mortgage. Under the terms of
the facility, if CenterPoint Energy ceases to own, directly or indirectly, at
least a 50% voting and economic interest in Texas Genco, LP, an event of default
will occur and any borrowings thereunder may become immediately due and payable.

Securitization. For a discussion of the securitization financing completed
in October 2001, see Note 4(a).

Transportation Agreement. A subsidiary of CERC Corp. had an agreement (ANR
Agreement) with ANR Pipeline Company (ANR) that contemplated that this
subsidiary would transfer to ANR an interest in some of CERC Corp.'s pipeline
and related assets. In 2001, this subsidiary was transferred to Reliant
Resources as a result of CenterPoint Energy's planned divestiture of certain
unregulated business operations. However, CERC retained the pipelines covered by
the ANR Agreement. Therefore, the subsequent divestiture of Reliant Resources by
CenterPoint Energy on September 30, 2002, resulted in a conversion of CERC's
obligation to ANR into an obligation to Reliant Resources. As of December 31,
2002, the Company had recorded $5 million and $36 million in current portion of
long-term debt and long-term debt, respectively, and as of December 31, 2003,
the Company had recorded $-0- and $36 million in current portion of long-term
debt and long-term debt, respectively, in its Consolidated Balance Sheets to
reflect this obligation for the use of 130 million cubic feet (Mmcf)/day of
capacity in some of CERC's transportation facilities. The volume of
transportation declined to 100 Mmcf/day in the year 2003 and CERC refunded $5
million to Reliant Resources. The ANR Agreement will terminate in 2005 with a
refund of $36 million to Reliant Resources.

(10) STOCK-BASED INCENTIVE COMPENSATION PLANS AND EMPLOYEE BENEFIT PLANS

(a) INCENTIVE COMPENSATION PLANS

The Company has long-term incentive compensation plans (LICPs) that provide
for the issuance of stock-based incentives, including performance-based shares,
performance-based units, restricted shares, stock

104

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options and stock appreciation rights to directors, officers and key employees.
A maximum of approximately 37 million shares of CenterPoint Energy common stock
may be issued under these plans.

Performance-based shares, performance-based units and restricted shares are
granted to employees without cost to the participants. The performance shares
and units vest three years after the grant date based upon the performance of
the Company over a three-year cycle, except as discussed below. The restricted
shares vest at various times ranging from immediately to at the end of a
three-year period. Upon vesting, the shares are issued to the plan participants.

During 2001, 2002 and 2003, the Company recorded compensation expense of $6
million, $2 million and $9 million, respectively, related to performance-based
shares, performance-based units and restricted share grants. Included in these
amounts is $5 million in compensation expense for 2001 related to Reliant
Resources' participants. In addition, compensation benefit of $1 million was
recorded in 2002 related to Reliant Resources' participants. Amounts for Reliant
Resources' participants are reflected in discontinued operations in the
Statements of Consolidated Operations.

The following table summarizes the Company's performance-based units,
performance-based shares and restricted share grant activity for the years 2001
through 2003:

NUMBER OF NUMBER OF
PERFORMANCE-BASED PERFORMANCE-BASED NUMBER OF
UNITS SHARES RESTRICTED SHARES
----------------- ----------------- -----------------

Outstanding at December 31, 2000..... -- 1,067,867 458,612
Granted............................ 83,670 -- 2,623
Canceled........................... -- (17,154) (2,778)
Released to participants........... -- (424,623) (249,895)
------- ---------- ---------
Outstanding at December 31, 2001..... 83,670 626,090 208,562
Granted............................ -- 451,050 --
Canceled........................... (5,625) (176,258) (41,892)
Released to participants........... (120) (447,060) (78,768)
------- ---------- ---------
Outstanding at December 31, 2002..... 77,925 453,822 87,902
Granted............................ -- 840,920 583,613
Shares converted at Texas Genco
Distribution.................... -- 25,746 23,219
Canceled........................... (29,515) (43,386) (14,240)
Released to participants........... (1,441) (7,042) (113,056)
------- ---------- ---------
Outstanding at December 31, 2003..... 46,969 1,270,060 567,438
======= ========== =========
Weighted average fair value granted
for 2001........................... $ -- $ 38.13
========== =========
Weighted average fair value granted
for 2002........................... $ 12.00 $ --
========== =========
Weighted average fair value granted
for 2003........................... $ 5.70 $ 5.83
========== =========

The maximum value associated with the performance-based units granted in
2001 was $150 per unit.

Effective with the Reliant Resources Distribution which occurred on
September 30, 2002, the Company's compensation committee authorized the
conversion of outstanding CenterPoint Energy performance-based

105

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares for the performance cycle ending December 31, 2002 to a number of
restricted shares of CenterPoint Energy's common stock equal to the number of
performance-based shares that would have vested if the performance objectives
for the performance cycle were achieved at the maximum level for substantially
all shares. These restricted shares vested if the participant holding the shares
remained employed with the Company or with Reliant Resources and its
subsidiaries through December 31, 2002. On the date of the Reliant Resources
Distribution, holders of these restricted shares received shares of Reliant
Resources common stock in the same manner as other holders of CenterPoint Energy
common stock, but these shares of common stock were subject to the same vesting
schedule, as well as to the terms and conditions of the plan under which the
original performance shares were granted. Thus, following the Reliant Resources
Distribution, employees who held performance-based shares under the LICP for the
performance cycle ending December 31, 2002 held restricted shares of CenterPoint
Energy common stock and restricted shares of Reliant Resources common stock,
which vested following continuous employment through December 31, 2002.

Effective with the Reliant Resources Distribution, the Company converted
all outstanding CenterPoint Energy stock options granted prior to the Reliant
Resources Offering to a combination of adjusted CenterPoint Energy stock options
and Reliant Resources stock options. For the converted stock options, the sum of
the intrinsic value of the CenterPoint Energy stock options immediately prior to
the record date of the Reliant Resources Distribution equaled the sum of the
intrinsic values of the adjusted CenterPoint Energy stock options and the
Reliant Resources stock options granted immediately after the record date of the
Reliant Resources Distribution. As such, Reliant Resources employees who do not
work for the Company hold stock options of the Company. Both the number and the
exercise price of all outstanding CenterPoint Energy stock options that were
granted on or after the Reliant Resources Offering were adjusted to maintain the
total intrinsic value of the grants.

During January 2003, due to the Texas Genco Distribution, the Company
granted additional CenterPoint Energy shares to participants with
performance-based and restricted shares that had not yet vested as of the record
date of December 20, 2002. These additional shares are subject to the same
vesting schedule and the terms and conditions of the plan under which the
original shares were granted. Also in connection with this distribution, both
the number and the exercise price of all outstanding CenterPoint Energy stock
options were adjusted to maintain the total intrinsic value of the stock option
grants.

Under the Company's plans, stock options generally become exercisable in
one-third increments on each of the first through third anniversaries of the
grant date. The exercise price is the average of the high and low sales price of
the common stock on the New York Stock Exchange on the grant date. The Company
applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25), and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been

106

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized for these fixed stock options. The following table summarizes stock
option activity related to the Company for the years 2001 through 2003:

NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------

Outstanding at December 31, 2000......................... 10,042,435 $24.13
Options granted........................................ 1,887,668 46.23
Options exercised...................................... (1,812,022) 24.11
Options canceled....................................... (289,610) 27.38
----------
Outstanding at December 31, 2001......................... 9,828,471 28.34
Options granted........................................ 3,115,399 7.12
Options converted at Reliant Resources Distribution.... 742,636 29.01
Options exercised...................................... (71,273) 20.59
Options canceled....................................... (1,155,351) 16.11
----------
Outstanding at December 31, 2002......................... 12,459,882 18.26
Options granted........................................ 2,217,546 5.69
Options converted at Texas Genco Distribution.......... 751,867 17.21
Options exercised...................................... (80,750) 6.44
Options canceled....................................... (275,408) 16.40
----------
Outstanding at December 31, 2003......................... 15,073,137 $15.59
========== ======
Options exercisable at December 31, 2001................. 3,646,228 $25.38
========== ======
Options exercisable at December 31, 2002................. 6,854,910 $19.78
========== ======
Options exercisable at December 31, 2003................. 10,285,689 $18.09
========== ======

Exercise prices for CenterPoint Energy stock options outstanding held by
Company employees ranged from $4.78 to $32.26. The following tables provide
information with respect to outstanding CenterPoint Energy stock options held by
the Company's employees on December 31, 2003:

REMAINING AVERAGE
OPTIONS AVERAGE CONTRACTUAL LIFE
OUTSTANDING EXERCISE PRICE (YEARS)
----------- -------------- -----------------

Ranges of Exercise Prices:
$4.78-$10.00.............................. 4,970,404 $ 6.11 8.3
$10.01-$15.00............................. 3,780,686 13.99 4.4
$15.01-$20.00............................. 3,155,294 18.05 3.4
$20.01-$30.00............................. 718,592 22.96 5.2
$30.01-$32.26............................. 2,448,161 31.96 6.8
----------
Total.................................. 15,073,137 15.59 5.9
==========

107

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table provides information with respect to CenterPoint Energy
stock options exercisable at December 31, 2003:

OPTIONS AVERAGE
EXERCISABLE EXERCISE PRICE
----------- --------------

Ranges of Exercise Prices:
$4.78-$10.00.............................................. 973,821 $ 6.42
$10.01-$15.00............................................. 3,780,686 13.99
$15.01-$20.00............................................. 3,131,858 18.06
$20.01-$30.00............................................. 695,012 22.89
$30.01-$32.26............................................. 1,704,312 31.97
----------
Total.................................................. 10,285,689 18.09
==========

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123), and SFAS No. 148, "Accounting for Stock-Based Compensation
Transition and Disclosure -- an Amendment of SFAS No. 123", the Company applies
the guidance contained in APB Opinion No. 25 and discloses the required
pro-forma effect on net income of the fair value based method of accounting for
stock compensation. The weighted average fair values at date of grant for
CenterPoint Energy options granted during 2001, 2002 and 2003 were $9.25, $1.40
and $1.66, respectively. The fair values were estimated using the Black-Scholes
option valuation model with the following assumptions:

2001 2002 2003
------ ------ ------

Expected life in years..................................... 5 5 5
Interest rate.............................................. 4.87% 2.83% 2.62%
Volatility................................................. 31.91% 48.95% 52.60%
Expected common stock dividend............................. $ 1.50 $ 0.64 $ 0.40

Pro-forma information for 2001, 2002 and 2003 is provided to take into
account the amortization of stock-based compensation to expense on a
straight-line basis over the vesting period. Had compensation costs been
determined as prescribed by SFAS No. 123, the Company's net income and earnings
per share would have been as follows:

2001 2002 2003
------ -------- ------
(IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)

Net income (loss) as reported............................... $ 980 $(3,920) $ 484
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects................................ (12) (9) (10)
----- ------- -----
Pro-forma net income(loss).................................. $ 968 $(3,929) $ 474
===== ======= =====
Basic Earnings Per Share:
As reported............................................... $3.38 $(13.16) $1.59
Pro-forma................................................. $3.34 $(13.16) $1.56
Diluted Earnings Per Share:
As reported............................................... $3.35 $(13.08) $1.58
Pro-forma................................................. $3.31 $(13.08) $1.55

108

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) PENSION AND POSTRETIREMENT BENEFITS

The Company maintains a non-contributory qualified defined benefit plan
covering substantially all employees, with benefits determined using a cash
balance formula. Under the cash balance formula, participants accumulate a
retirement benefit based upon 4% of eligible earnings and accrued interest.
Prior to 1999, the pension plan accrued benefits based on years of service,
final average pay and covered compensation. As a result, certain employees
participating in the plan as of December 31, 1998 are eligible to receive the
greater of the accrued benefit calculated under the prior plan through 2008 or
the cash balance formula.

The Company provides certain healthcare and life insurance benefits for
retired employees on a contributory and non-contributory basis. Employees become
eligible for these benefits if they have met certain age and service
requirements at retirement, as defined in the plans. Under plan amendments,
effective in early 1999, healthcare benefits for future retirees were changed to
limit employer contributions for medical coverage.

Such benefit costs are accrued over the active service period of employees.
The net unrecognized transition obligation, resulting from the implementation of
accrual accounting, is being amortized over approximately 20 years.

On January 12, 2004, the FASB issued FSP FAS 106-1. In accordance with FSP
FAS 106-1, the Company's postretirement benefits obligations and net periodic
postretirement benefit cost in the financial statements and accompanying notes
do not reflect the effects of the legislation. Specific authoritative guidance
on the accounting for the legislation is pending and that guidance, when issued,
may require the Company to change previously reported information.

The Company's net periodic cost includes the following components relating
to pension and postretirement benefits:

YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2001 2002 2003
------------------------- ------------------------- -------------------------
PENSION POSTRETIREMENT PENSION POSTRETIREMENT PENSION POSTRETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS
-------- -------------- -------- -------------- -------- --------------
(IN MILLIONS)

Service cost........... $ 35 $ 5 $ 32 $ 5 $ 37 $ 4
Interest cost.......... 99 31 104 32 102 31
Expected return on plan
assets............... (138) (13) (126) (13) (92) (11)
Net amortization....... (3) 14 16 13 43 13
Curtailment............ (23) 40 -- -- -- --
Benefit enhancement.... 69 -- 9 3 -- --
Settlement............. -- -- -- (18) -- --
----- ---- ----- ---- ---- ----
Net periodic cost...... $ 39 $ 77 $ 35 $ 22 $ 90 $ 37
===== ==== ===== ==== ==== ====
Above amounts reflect
the following net
periodic cost
(benefit) related to
discontinued
operations........... $ 45 $ 42 $ (4) $(16) $ -- $ --
===== ==== ===== ==== ==== ====

109

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company used the following assumptions to determine net periodic cost
relating to pension and postretirement benefits:

Discount rate.......... 7.50% 7.50% 7.25% 7.25% 6.75% 6.75%
Expected return on plan
assets............... 10.0% 10.0% 9.5% 9.5% 9.0% 9.0%
Rate of increase in
compensation
levels............... 4.1% -- 4.1% -- 4.1% --

In determining net periodic benefits cost, the Company uses fair value, as
of the beginning of the year, as its basis for determining expected return on
plan assets.

110

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table displays the change in the benefit obligation, the fair
value of plan assets and the amounts included in the Company's Consolidated
Balance Sheets as of December 31, 2002 and 2003 for the Company's pension and
postretirement benefit plans:

DECEMBER 31,
-------------------------------------------------------------
2002 2003
----------------------------- -----------------------------
PENSION POSTRETIREMENT PENSION POSTRETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
------------ -------------- ------------ --------------
(IN MILLIONS)

CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of
year................................ $ 1,485 $ 456 $ 1,550 $ 479
Service cost.......................... 32 5 37 4
Interest cost......................... 104 32 102 31
Participant contributions............. -- 7 -- 8
Benefits paid......................... (136) (26) (142) (43)
Plan amendments....................... -- -- 4 (5)
Actuarial loss........................ 56 20 141 44
Curtailment, benefit enhancement and
settlement.......................... 9 (15) -- --
------------ ------------ ------------ ------------
Benefit obligation, end of year....... $ 1,550 $ 479 $ 1,692 $ 518
============ ============ ============ ============
CHANGE IN PLAN ASSETS
Plan assets, beginning of year........ $ 1,376 $ 139 $ 1,054 $ 131
Employer contributions................ -- 30 23 34
Participant contributions............. -- 7 -- 8
Benefits paid......................... (136) (26) (142) (43)
Actual investment return.............. (186) (19) 259 20
------------ ------------ ------------ ------------
Plan assets, end of year.............. $ 1,054 $ 131 $ 1,194 $ 150
============ ============ ============ ============
RECONCILIATION OF FUNDED STATUS
Funded status......................... $ (496) $ (348) $ (498) $ (368)
Unrecognized actuarial loss........... 811 27 733 63
Unrecognized prior service cost....... (84) 60 (71) 49
Unrecognized transition (asset)
obligation.......................... -- 87 -- 79
------------ ------------ ------------ ------------
Net amount recognized................. $ 231 $ (174) $ 164 $ (177)
============ ============ ============ ============
AMOUNTS RECOGNIZED IN BALANCE SHEETS
Benefit obligations................... $ (392) $ (174) $ (395) $ (177)
Accumulated other comprehensive
income.............................. 623 -- 559 --
------------ ------------ ------------ ------------
Prepaid (accrued) pension cost........ $ 231 $ (174) $ 164 $ (177)
============ ============ ============ ============
ACTUARIAL ASSUMPTIONS
Discount rate......................... 6.75% 6.75% 6.25% 6.25%
Expected return on plan assets........ 9.0% 9.0% 9.0% 8.5%
Rate of increase in compensation
levels.............................. 4.1% -- 4.1% --
Healthcare cost trend rate assumed for
the next year....................... -- 11.25% -- 10.50%
Rate to which the cost trend rate is
assumed to decline (the ultimate
trend rate)......................... -- 5.5% -- 5.5%
Year that the rate reaches the
ultimate trend rate................. -- 2011 -- 2011

111

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31,
----------------------------------------------------------------------------
2002 2003
---------------------------------- ----------------------------------
PENSION POSTRETIREMENT PENSION POSTRETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
------------ -------------- ------------ --------------
(IN MILLIONS)

ADDITIONAL INFORMATION
Accumulated benefit obligation........ $ 1,446 $ 479 $ 1,589 $ 518
Change in minimum liability included
in other comprehensive income....... 623 -- (64) --
Measurement date used to determine
plan obligations and assets......... December 31, 2002 December 31, 2002 December 31, 2003 December 31, 2003

Assumed healthcare cost trend rates have a significant effect on the
reported amounts for the Company's postretirement benefit plans. A 1% change in
the assumed healthcare cost trend rate would have the following effects:

1% 1%
INCREASE DECREASE
-------- --------
(IN MILLIONS)

Effect on total of service and interest cost................ $ 2 $ 2
Effect on the postretirement benefit obligation............. 30 26

The following table displays the weighted-average asset allocations as of
December 31, 2002 and 2003 for the Company's pension and postretirement benefit
plans:

DECEMBER 31,
-----------------------------------------------------
2002 2003
------------------------- -------------------------
PENSION POSTRETIREMENT PENSION POSTRETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
-------- -------------- -------- --------------

Domestic equity securities................ 55% 35% 60% 41%
International equity securities........... 12 8 15 9
Debt securities........................... 29 54 22 48
Real estate............................... 4 -- 3 --
Cash...................................... -- 3 -- 2
--- --- --- ---
Total................................... 100% 100% 100% 100%
=== === === ===

In managing the investments associated with the benefit plans, the
Company's objective is to preserve and enhance the value of plan assets while
maintaining an acceptable level of volatility. These objectives are expected to
be achieved through an investment strategy, that manages liquidity requirements
while maintaining a long-term horizon in making investment decisions and
efficient and effective management of plan assets.

As part of the investment strategy discussed above, the Company has adopted
and maintains the following weighted average allocation targets for its benefit
plans:

PENSION POSTRETIREMENT
BENEFITS BENEFITS
-------- --------------

Domestic equity securities.................................. 50-60% 28-38%
International equity securities............................. 10-20% 5-15%
Debt securities............................................. 20-30% 52-62%
Real estate................................................. 0-5% --
Cash........................................................ 0-2% 0-2%

The expected rate of return assumption was developed by reviewing the
targeted asset allocations and historical index performance of the applicable
asset classes over a 15-year period, adjusted for investment fees and
diversification effects.

Equity securities for the pension plan include CenterPoint Energy common
stock in the amounts of $38 million (4.7% of total pension plan assets) and $44
million (3.7% of total pension plan assets) and as of December 31, 2002 and
2003, respectively.
112

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company expects to contribute $38 million to its postretirement
benefits plan in 2004. Contributions to the pension plan are not required or
expected in 2004.

In addition to the non-contributory pension plans discussed above, the
Company maintains a non-qualified benefit restoration plan which allows
participants to retain the benefits to which they would have been entitled under
the Company's non-contributory pension plan except for the federally mandated
limits on these benefits or on the level of compensation on which these benefits
may be calculated. The expense associated with this non-qualified plan was $25
million, $9 million and $8 million in 2001, 2002 and 2003, respectively.
Included in the net benefit cost in 2001 and 2002 is $17 million and $3 million,
respectively, of expense related to Reliant Resources' participants, which is
reflected in discontinued operations in the Statements of Consolidated
Operations. The accrued benefit liability for the non-qualified pension plan was
$83 million and $75 million at December 31, 2002 and 2003, respectively. In
addition, these accrued benefit liabilities include the recognition of minimum
liability adjustments of $23 million as of December 31, 2002 and $15 million as
of December 31, 2003, which are reported as a component of other comprehensive
income, net of income tax effects.

The following table displays the Company's plans with accumulated benefit
obligations in excess of plan assets:

DECEMBER 31,
---------------------------------------------------------------------------------
2002 2003
--------------------------------------- ---------------------------------------
PENSION RESTORATION POSTRETIREMENT PENSION RESTORATION POSTRETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS
-------- ----------- -------------- -------- ----------- --------------
(IN MILLIONS)

Accumulated benefit
obligation................ $1,446 $83 $479 $1,589 $75 $518
Projected benefit
obligation................ 1,550 86 479 1,692 77 518
Plan assets................. 1,054 -- 131 1,194 -- 150

The Company has a qualified employee savings plan that includes a cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986,
as amended (the Code) and an Employee Stock Ownership Plan (ESOP) under Section
4975(e)(7) of the Code. Under the plan, participating employees may contribute a
portion of their compensation, on a pre-tax or after-tax basis, generally up to
a maximum of 16% of compensation. The Company matches 75% of the first 6% of
each employee's compensation contributed. The Company may contribute an
additional discretionary match of up to 50% of the first 6% of each employee's
compensation contributed. These matching contributions are fully vested at all
times. A substantial portion of the Company's match is initially invested in
CenterPoint Energy common stock through the ESOP.

Participating employees may elect to invest all or a portion of their
contributions to the plan in CenterPoint Energy common stock, to have dividends
reinvested in additional shares or to receive dividend payments in cash on any
investment in CenterPoint Energy common stock, and to transfer all or part of
their investment in CenterPoint Energy common stock to other investment options
offered by the plan.

The ESOP includes company stock which is encumbered by a loan. Upon the
release from the encumbrance of the loan, the Company may use released shares to
satisfy its obligation to make matching contributions under the Company's
savings plan. Generally, debt service on the loan is paid using all dividends on
shares currently or formerly encumbered by the loan, interest earnings on funds
held in trust and cash contributions by the Company. Shares of CenterPoint
Energy common stock are released from the encumbrance of the loan based on the
proportion of debt service paid during the period. It is anticipated that the
loan will be repaid in full in 2004 and all remaining shares of Company common
stock that secure the loan will be released from the encumbrance and allocated
to participant accounts under the plan in 2004.

The Company recognizes benefit expense equal to the fair value of the
shares committed to be released. The Company credits to unearned shares the
original purchase price of shares committed to be released to

113

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plan participants with the difference between the fair value of the shares and
the original purchase price recorded to common stock. Dividends on allocated
shares are recorded as a reduction to retained earnings. Dividends on
unallocated shares are recorded as a reduction of principal or accrued interest
on the loan.

Share balances currently or formerly encumbered by a loan at December 31,
2002 and 2003 were as follows:

DECEMBER 31,
-------------------------
2002 2003
----------- -----------

Allocated shares transferred/distributed from the savings
plan..................................................... 5,943,297 6,329,002
Allocated shares........................................... 8,734,810 13,076,801
Unearned shares(1)(2)...................................... 4,915,577 911,847
----------- -----------
Total ESOP shares(1)(2).................................. 19,593,684 20,317,650
=========== ===========
Fair value of unearned ESOP shares......................... $41,782,405 $ 8,832,890
=========== ===========

- ---------------

(1) During 2002, unearned shares and total shares were increased by 831,500
shares due to additional shares purchased with proceeds from the sale of
Reliant Resources common stock, which was received in connection with the
Reliant Resources Distribution.

(2) During 2003, unearned shares and total shares were increased by 723,966
shares due to additional shares purchased with proceeds from the sale of
Texas Genco common stock, which was received in connection with the Texas
Genco Distribution.

As a result of the ESOP, the savings plan has significant holdings of
CenterPoint Energy common stock. As of December 31, 2003, an aggregate of
34,749,760 shares of CenterPoint Energy's common stock were held by the savings
plan, which represented 28% of its investments. Given the concentration of the
investments in CenterPoint Energy's common stock, the savings plan and its
participants have market risk related to this investment.

The Company's savings plan benefit expense was $51 million, $47 million and
$38 million in 2001, 2002 and 2003, respectively. Included in these amounts are
$16 million and $6 million of savings plan benefit expense for 2001 and 2002,
respectively, related to Reliant Resources' participants, which is reflected as
discontinued operations in the Statements of Consolidated Operations.

(d) POSTEMPLOYMENT BENEFITS

Net postemployment benefit costs for former or inactive employees, their
beneficiaries and covered dependents, after employment but before retirement
(primarily healthcare and life insurance benefits for participants in the
long-term disability plan) were $6 million, $12 million and $10 million in 2001,
2002 and 2003, respectively.

The Company's postemployment obligation is presented as a liability in the
Consolidated Balance Sheets under the caption "Benefit Obligations."

(e) OTHER NON-QUALIFIED PLANS

The Company has non-qualified deferred compensation plans that provide
benefits payable to directors, officers and certain key employees or their
designated beneficiaries at specified future dates, upon termination, retirement
or death. Benefit payments are made from the general assets of the Company.
During 2001, 2002 and 2003, the Company recorded benefit expense relating to
these programs of $17 million, $11 million and $13 million, respectively.
Included in the amounts are $4 million and $0.2 million of benefit expense for
2001 and 2002, related to Reliant Resources participants, which is reflected as
discontinued operations in the Statements of Consolidated Operations. Included
in "Benefit Obligations" in the accompanying Consolidated Balance Sheets at
December 31, 2002 and 2003 was $132 million and $127 million, respectively,
relating to deferred compensation plans.

114

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(f) CHANGE OF CONTROL AGREEMENTS AND OTHER EMPLOYEE MATTERS

In December 2003, the Company entered into agreements with certain of its
executive officers that generally provide, to the extent applicable, in the case
of a change of control of the Company and termination of employment, severance
benefits of up to three times annual base salary plus bonus and other benefits.

The 1,030 bargaining unit employees of Texas Genco were covered by a
collective bargaining unit agreement with the International Brotherhood of
Electrical Workers Local 66 that expired in September 2003. These bargaining
unit employees have continued to work without interruption and have not had any
work interruptions since 1976. Texas Genco continues to have a good relationship
with the bargaining unit and is actively negotiating to obtain a new agreement
in 2004.

(11) INCOME TAXES

The Company's current and deferred components of income tax expense
(benefit) were as follows:

YEAR ENDED DECEMBER 31,
------------------------
2001 2002 2003
------ ------ ------
(IN MILLIONS)

Current:
Federal................................................... $ 367 $(113) $(288)
State..................................................... (2) 9 5
----- ----- -----
Total current.......................................... 365 (104) (283)
----- ----- -----
Deferred:
Federal................................................... (107) 291 485
State..................................................... -- 11 14
----- ----- -----
Total deferred......................................... (107) 302 499
----- ----- -----
Income tax expense.......................................... $ 258 $ 198 $ 216
===== ===== =====

115

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:

2001 2002 2003
---- ---- ----
(IN MILLIONS)

Income from continuing operations before income taxes....... $757 $567 $665
Federal statutory rate...................................... 35% 35% 35%
---- ---- ----
Income taxes at statutory rate.............................. 265 198 233
---- ---- ----
Net addition (reduction) in taxes resulting from:
State income taxes, net of valuation allowances and
federal income tax benefit............................. (2) 13 12
Capital loss benefit(1)................................... -- (72) --
Amortization of investment tax credit..................... (18) (13) (15)
Excess deferred taxes..................................... (5) (3) (4)
Goodwill amortization..................................... 16 -- --
Valuation allowance, capital loss(1)...................... -- 72 --
Other, net................................................ 2 3 (10)
---- ---- ----
Total.................................................. (7) -- (17)
---- ---- ----
Income tax expense.......................................... $258 $198 $216
==== ==== ====
Effective rate.............................................. 34.0% 35.0% 32.5%

- ---------------

(1) See discussion below, under tax attribute carryforwards.

Following are the Company's tax effects of temporary differences between
the carrying amounts of assets and liabilities in the financial statements and
their respective tax bases:

DECEMBER 31,
---------------
2002 2003
------ ------
(IN MILLIONS)

Deferred tax assets:
Current:
Allowance for doubtful accounts........................ $ 9 $ 9
Non-trading derivative assets, net..................... 35 20
Current portion of capital loss........................ 8 --
------ ------
Total current deferred tax assets.................... 52 29
------ ------
Non-current:
Employee benefits...................................... 374 299
Disallowed plant cost, net............................. -- 18
Operating and capital loss carryforwards............... 86 141
Contingent liabilities associated with discontinuance
of SFAS No. 71........................................ 108 74
Foreign exchange gains................................. 16 16
Impairment of foreign asset............................ 51 --
Other.................................................. 90 125
Valuation allowance.................................... (83) (73)
------ ------
Total non-current deferred tax assets................ 642 600
------ ------
Total deferred tax assets............................ 694 629
------ ------
Deferred tax liabilities:
Current:
Unrealized gain on indexed debt securities............. 276 284
Unrealized gain on Time Warner investment.............. 61 91
------ ------
Total current deferred tax liabilities............... 337 375
------ ------

116

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31,
---------------
2002 2003
------ ------
(IN MILLIONS)

Non-current:
Depreciation........................................... 2,397 2,570
Regulatory assets, net................................. 634 951
Deferred gas costs..................................... 3 --
Other.................................................. 53 89
------ ------
Total non-current deferred tax liabilities........... 3,087 3,610
------ ------
Total deferred tax liabilities....................... 3,424 3,985
------ ------
Accumulated deferred income taxes, net............ $2,730 $3,356
====== ======

CenterPoint Energy's consolidated federal income tax returns have been
audited and settled through the 1996 tax year. The 1997 through 2000
consolidated federal income tax returns are currently under audit.

Tax Attribute Carryforwards. At December 31, 2003 the Company had $45
million and $348 million of federal and state net operating loss carryforwards,
respectively. The losses are available to offset future federal and state
taxable income through the year 2022. Substantially all of the state loss
carryforwards will expire between 2014 and 2020. The Company also had $333
million of capital loss carryforwards which will expire in 2007 and 2008.

In conjunction with the Reliant Resources Distribution in 2002, the Company
realized a previously unrecorded capital loss attributable to the excess of the
tax basis over the book carrying value in former subsidiaries sold to Reliant
Resources. The tax benefit of this excess tax basis is recorded under SFAS No.
109, "Accounting for Income Taxes", when realizable under the facts, such as a
loss from a previously deferred taxable disposition that is triggered by a
spin-off. In 2003, the Company realized additional capital losses attributable
to the disposition of the stock of foreign subsidiaries. Capital losses may be
used in the three taxable years preceding the year of the loss or the five
taxable years following the year of the loss. Federal tax law only allows
utilization of capital losses to offset capital gains. The Company believes that
some uncertainty exists with respect to the Company's ability to generate
capital gains during the utilization period; therefore, a valuation allowance
has been established for the carryforwards not expected to be realized.

The valuation allowance reflects a net increase of $68 million in 2002 and
a net decrease of $10 million in 2003. These net changes resulted from a
reassessment of the Company's future ability to use federal capital loss
carryforwards and state tax net operating loss carryforwards.

Tax Refunds. In 2003, the Company received income tax refunds from the
Internal Revenue Service of $203 million related to the federal tax net
operating loss and capital loss generated in 2002. Of this amount, $8 million
related to refunds generated from the carryback of the federal capital loss.

117

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) COMMITMENTS AND CONTINGENCIES

(a) COMMITMENTS

Environmental Capital Commitments. CenterPoint Energy anticipates
investing up to $131 million in capital and other special project expenditures
between 2004 and 2008 for environmental compliance. CenterPoint Energy
anticipates expenditures to be as follows (in millions):

2004........................................................ $ 42
2005........................................................ 32
2006........................................................ 43
2007........................................................ 14
2008(1)..................................................... --
----
Total..................................................... $131
====

- ---------------

(1) NOx control estimates for 2008 have not been finalized.

Fuel and Purchased Power. Fuel commitments include several long-term coal,
lignite and natural gas contracts related to Texas power generation operations
and natural gas contracts related to the Company's natural gas distribution
operations, which have various quantity requirements and durations that are not
classified as non-trading derivatives assets and liabilities in the Company's
Consolidated Balance Sheets as of December 31, 2003 as these contracts meet the
SFAS No. 133 exception to be classified as "normal purchases contracts" or do
not meet the definition of a derivative. Minimum payment obligations for coal
and transportation agreements and lignite mining and lease agreements that
extend through 2012 are approximately $309 million in 2004, $251 million in
2005, $256 million in 2006, $248 million in 2007 and $162 million in 2008.
Minimum payment obligations for natural gas supply contracts are approximately
$1 billion in 2004, $565 million in 2005, $344 million in 2006, $171 million in
2007 and $24 million in 2008. Purchase commitments related to purchased power
are not material to CenterPoint Energy's operations.

(b) LEASE COMMITMENTS

The following table sets forth information concerning the Company's
obligations under non-cancelable long-term operating leases at December 31,
2003, which primarily consist of rental agreements for building space, data
processing equipment and vehicles, including major work equipment (in millions):

2004........................................................ $ 42
2005........................................................ 27
2006........................................................ 24
2007........................................................ 20
2008........................................................ 17
2009 and beyond............................................. 56
----
Total..................................................... $186
====

Total lease expense for all operating leases was $45 million, $47 million
and $46 million during 2001, 2002 and 2003, respectively.

Legal Matters

Reliant Resources Indemnified Litigation

The Company, CenterPoint Houston or their predecessor, Reliant Energy, and
certain of their former subsidiaries are named as defendants in several lawsuits
described below. Under a master separation agreement between Reliant Energy and
Reliant Resources, the Company and its subsidiaries are entitled to be
indemnified by Reliant Resources for any losses, including attorneys' fees and
other costs, arising out of the lawsuits described below under Electricity and
Gas Market Manipulation Cases and Other Class Action Lawsuits. Pursuant to the
indemnification obligation, Reliant Resources is defending the Company and its

118

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subsidiaries to the extent named in these lawsuits. The ultimate outcome of
these matters cannot be predicted at this time.

Electricity and Gas Market Manipulation Cases. A large number of lawsuits
have been filed against numerous market participants and remain pending in both
federal and state courts in California and Nevada in connection with the
operation of the electricity and natural gas markets in California and certain
other western states in 2000-2001, a time of power shortages and significant
increases in prices. These lawsuits, many of which have been filed as class
actions, are based on a number of legal theories, including violation of state
and federal antitrust laws, laws against unfair and unlawful business practices,
the federal Racketeer Influenced Corrupt Organization Act, false claims statutes
and similar theories and breaches of contracts to supply power to governmental
entities. Plaintiffs in these lawsuits, which include state officials and
governmental entities as well as private litigants, are seeking a variety of
forms of relief, including recovery of compensatory damages (in some cases in
excess of $1 billion), a trebling of compensatory damages and punitive damages,
injunctive relief, restitution, interest due, disgorgement, civil penalties and
fines, costs of suit, attorneys' fees and divestiture of assets. To date, some
of these complaints have been dismissed by the trial court and are on appeal,
but most of the lawsuits remain in early procedural stages. Our former
subsidiary, Reliant Resources, was a participant in the California markets,
owning generating plants in the state and participating in both electricity and
natural gas trading in that state and in western power markets generally.
Reliant Resources, some of its subsidiaries and in some cases, corporate
officers of some of those companies, have been named as defendants in these
suits.

The Company, CenterPoint Houston or their predecessor, Reliant Energy, have
also been named in approximately 25 of these lawsuits, which were instituted in
2002 and 2003 and are pending in state courts in San Diego, San Francisco and
Los Angeles Counties and in federal district courts in San Francisco, San Diego,
Los Angeles and Nevada. However, neither the Company nor Reliant Energy was a
participant in the electricity or natural gas markets in California. The Company
and Reliant Energy have been dismissed from certain of the lawsuits, either
voluntarily by the plaintiffs or by order of the court and the Company believes
it is not a proper defendant in the remaining cases and will continue to seek
dismissal from the remaining cases.

Other Class Action Lawsuits. Fifteen class action lawsuits filed in May,
June and July 2002 on behalf of purchasers of securities of Reliant Resources
and/or Reliant Energy have been consolidated in federal district court in
Houston. Reliant Resources and certain of its former and current executive
officers are named as defendants. Reliant Energy is also named as a defendant in
seven of the lawsuits. Two of the lawsuits also name as defendants the
underwriters of the initial public offering of Reliant Resources common stock in
May 2001 (Reliant Resources Offering). One lawsuit names Reliant Resources' and
Reliant Energy's independent auditors as a defendant. The consolidated amended
complaint seeks monetary relief purportedly on behalf of purchasers of common
stock of Reliant Energy or Reliant Resources during certain time periods ranging
from February 2000 to May 2002, including purchasers of common stock that can be
traced to the Reliant Resources Offering. The plaintiffs allege, among other
things, that the defendants misrepresented their revenues and trading volumes by
engaging in round-trip trades and improperly accounted for certain structured
transactions as cash-flow hedges, which resulted in earnings from these
transactions being accounted for as future earnings rather than being accounted
for as earnings in fiscal year 2001. In January 2004 the trial judge dismissed
the plaintiffs' allegations that the defendants had engaged in fraud, but claims
based on alleged misrepresentations in the registration statement issued in the
Reliant Resources Offering remain.

In February 2003, a lawsuit was filed by three individuals in federal
district court in Chicago against CenterPoint Energy and certain former and
current officers of Reliant Resources for alleged violations of federal
securities laws. The plaintiffs in this lawsuit allege that the defendants
violated federal securities laws by issuing false and misleading statements to
the public, and that the defendants made false and misleading statements as part
of an alleged scheme to inflate artificially trading volumes and revenues. In
addition, the plaintiffs assert claims of fraudulent and negligent
misrepresentation and violations of Illinois consumer law.

119

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In January 2004 the trial judge ordered dismissal of plaintiffs' claims on the
ground that they did not set forth a claim, but granted the plaintiffs leave to
amend their complaint.

In May 2002, three class action lawsuits were filed in federal district
court in Houston on behalf of participants in various employee benefits plans
sponsored by Reliant Energy. Reliant Energy and its directors are named as
defendants in all of the lawsuits. Two of the lawsuits have been dismissed
without prejudice. The remaining lawsuit alleges that the defendants breached
their fiduciary duties to various employee benefits plans, directly or
indirectly sponsored by Reliant Energy, in violation of the Employee Retirement
Income Security Act. The plaintiffs allege that the defendants permitted the
plans to purchase or hold securities issued by Reliant Energy when it was
imprudent to do so, including after the prices for such securities became
artificially inflated because of alleged securities fraud engaged in by the
defendants. The complaints seek monetary damages for losses suffered on behalf
of the plans and a putative class of plan participants whose accounts held
Reliant Energy or Reliant Resources securities, as well as equitable relief in
the form of restitution. In January 2004 the trial judge dismissed the
complaints against a number of defendants, but allowed the case to proceed
against members of the Reliant Energy benefits committee.

In October 2002, a derivative action was filed in the federal district
court in Houston, against the directors and officers of the Company. The
complaint sets forth claims for breach of fiduciary duty, waste of corporate
assets, abuse of control and gross mismanagement. Specifically, the shareholder
plaintiff alleges that the defendants caused the Company to overstate its
revenues through so-called "round trip" transactions. The plaintiff also alleges
breach of fiduciary duty in connection with the spin-off of Reliant Resources
and the Reliant Resources Offering. The complaint seeks monetary damages on
behalf of the Company as well as equitable relief in the form of a constructive
trust on the compensation paid to the defendants. In March 2003, the court
dismissed this case on the grounds that the plaintiff did not make an adequate
demand on the Company before filing suit. Thereafter, the plaintiff sent another
demand asserting the same claims.

The Company's board of directors investigated that demand and similar
allegations made in a June 28, 2002 demand letter sent on behalf of a Company
shareholder. The latter letter demanded that the Company take several actions in
response to alleged round-trip trades occurring in 1999, 2000, and 2001. In June
2003, the Board determined that these proposed actions would not be in the best
interests of the Company.

The Company believes that none of the lawsuits described under "Other Class
Action Lawsuits" has merit because, among other reasons, the alleged
misstatements and omissions were not material and did not result in any damages
to any of the plaintiffs.

Other Legal Matters

Texas Antitrust Action. In July 2003, Texas Commercial Energy filed a
lawsuit against Reliant Energy, Reliant Resources, Reliant Electric Solutions,
LLC, several other Reliant Resources subsidiaries and several other participants
in the ERCOT power market in federal court in Corpus Christi, Texas. The
plaintiff, a retail electricity provider in the Texas market served by ERCOT,
alleges that the defendants conspired to illegally fix and artificially increase
the price of electricity in violation of state and federal antitrust laws and
committed fraud and negligent misrepresentation. The lawsuit seeks damages in
excess of $500 million, exemplary damages, treble damages, interest, costs of
suit and attorneys' fees. In February 2004, this complaint was amended to add
the Company and CenterPoint Houston, as successors to Reliant Energy, and Texas
Genco, LP as defendants. The plaintiff's principal allegations have previously
been investigated by the Texas Utility Commission and found to be without merit.
The Company also believes the plaintiff's allegations are without merit and will
seek their dismissal.

Municipal Franchise Fee Lawsuits. In February 1996, the cities of Wharton,
Galveston and Pasadena (Three Cities) filed suit, for themselves and a proposed
class of all similarly situated cities in Reliant Energy's electric service
area, against Reliant Energy and Houston Industries Finance, Inc. (formerly a
wholly owned subsidiary of the Company's predecessor, Reliant Energy) alleging
underpayment of municipal franchise fees. The plaintiffs claimed that they were
entitled to 4% of all receipts of any kind for business conducted within these
cities over the previous four decades. After a jury trial of the original
claimant cities (but not the class of

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cities), the trial court decertified the class and reduced the damages awarded
by the jury to $1.7 million, including interest, plus an award of $13.7 million
in legal fees. Despite other jury findings for the plaintiffs, the trial court's
judgment was based on the jury's finding in favor of Reliant Energy on the
affirmative defense of laches, a defense similar to a statute of limitations
defense, due to the original claimant cities having unreasonably delayed
bringing their claims during the 43 years since the alleged wrongs began.
Following this ruling, 45 cities filed individual suits against Reliant Energy
in the District Court of Harris County.

On February 27, 2003, a state court of appeals in Houston rendered an
opinion reversing the judgment against the Company and rendering judgment that
the Three Cities take nothing by their claims. The court of appeals found that
the jury's finding of laches barred all of the Three Cities' claims and that the
Three Cities were not entitled to recovery of any attorneys' fees. The Three
Cities filed a petition for review at the Texas Supreme Court, which declined to
hear the case, although the time period for the Three Cities to file a motion
for rehearing has not yet expired. The extent to which issues in the Three
Cities case may affect the claims of the other cities served by CenterPoint
Houston cannot be assessed until judgments are final and no longer subject to
appeal.

Natural Gas Measurement Lawsuits. CERC Corp. and certain of its
subsidiaries are defendants in a suit filed in 1997 under the Federal False
Claims Act alleging mismeasurement of natural gas produced from federal and
Indian lands. The suit seeks undisclosed damages, along with statutory
penalties, interest, costs, and fees. The complaint is part of a larger series
of complaints filed against 77 natural gas pipelines and their subsidiaries and
affiliates. An earlier single action making substantially similar allegations
against the pipelines was dismissed by the federal district court for the
District of Columbia on grounds of improper joinder and lack of jurisdiction. As
a result, the various individual complaints were filed in numerous courts
throughout the country. This case has been consolidated, together with the other
similar False Claims Act cases, in the federal district court in Cheyenne,
Wyoming.

In addition, CERC Corp. and certain of its subsidiaries are defendants in
two mismeasurement lawsuits against approximately 245 pipeline companies and
their affiliates pending in state court in Stevens County, Kansas. In one case
(originally filed in May 1999 and amended four times), the plaintiffs purport to
represent a class of royalty owners who allege that the defendants have engaged
in systematic mismeasurement of the volume of natural gas for more than 25
years. The plaintiffs amended their petition in this suit in July 2003 in
response to an order from the judge denying certification of the plaintiffs'
alleged class. In the amendment the plaintiffs dismissed their claims against
certain defendants (including two CERC subsidiaries), limited the scope of the
class of plaintiffs they purport to represent and eliminated previously asserted
claims based on mismeasurement of the Btu content of the gas. The same
plaintiffs then filed a second lawsuit, again as representatives of a class of
royalty owners, in which they assert their claims that the defendants have
engaged in systematic mismeasurement of the Btu content of natural gas for more
than 25 years. In both lawsuits, the plaintiffs seek compensatory damages, along
with statutory penalties, treble damages, interest, costs and fees.

Gas Cost Recovery Litigation. In October 2002, a suit was filed in state
district court in Wharton County, Texas against the Company, CERC, Entex Gas
Marketing Company, and others alleging fraud, violations of the Texas Deceptive
Trade Practices Act, violations of the Texas Utilities Code, civil conspiracy
and violations of the Texas Free Enterprise and Antitrust Act. The plaintiffs
seek class certification, but no class has been certified. The plaintiffs allege
that defendants inflated the prices charged to certain consumers of natural gas.
In February 2003, a similar suit was filed against CERC in state court in Caddo
Parish, Louisiana purportedly on behalf of a class of residential or business
customers in Louisiana who allegedly have been overcharged for gas or gas
service provided by CERC. In February 2004, another suit was filed against CERC
in Calcasieu Parish, Louisiana, seeking to recover alleged overcharges for gas
or gas services allegedly provided by Entex without advance approval by the
LPSC. The plaintiffs in these cases seek injunctive and declaratory relief,
restitution for the alleged overcharges, exemplary damages or trebling of actual
damages and civil penalties. In these cases, the Company, CERC and Entex Gas
Marketing Company deny that they have overcharged any of their customers

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CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for natural gas and believe that the amounts recovered for purchased gas have
been in accordance with what is permitted by state regulatory authorities.

Environmental Matters

Clean Air Standards. The Texas electric restructuring law and regulations
adopted by the Texas Commission on Environmental Quality (TCEQ) in 2001 require
substantial reductions in emission of oxides of nitrogen (NOx) from electric
generating units. The Company is currently installing cost-effective controls at
its generating plants to comply with these requirements. Through December 31,
2003, the Company has invested $664 million for NOx emission control, and plans
to make expenditures of up to approximately $131 million during the years 2004
through 2007. Further revisions to these NOx standards may result from the
TCEQ's future rules, expected by 2007, implementing more stringent federal
eight-hour ozone standards. The Texas electric restructuring law provides for
stranded cost recovery for expenditures incurred before May 1, 2003 to achieve
the NOx reduction requirements. Incurred costs include costs for which
contractual obligations have been made. The Texas Utility Commission has
determined that the Company's emission control plan is the most cost-effective
option for achieving compliance with applicable air quality standards for the
Company's generating facilities and the final amount for recovery will be
determined in the 2004 True-Up Proceeding.

CERC has received notices from the United States Environmental Protection
Agency and others regarding its status as a PRP for other sites. CERC has been
named as a defendant in lawsuits under which

122

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contribution is sought for the cost to remediate former MGP sites based on the
previous ownership of such sites by former affiliates of CERC or its divisions.
The Company is investigating details regarding these sites and the range of
environmental expenditures for potential remediation. Based on current
information, the Company has not been able to quantify a range of environmental
expenditures for such sites.

Mercury Contamination. The Company's pipeline and distribution operations
have in the past employed elemental mercury in measuring and regulating
equipment. It is possible that small amounts of mercury may have been spilled in
the course of normal maintenance and replacement operations and that these
spills may have contaminated the immediate area with elemental mercury. This
type of contamination has been found by the Company at some sites in the past,
and the Company has conducted remediation at these sites. It is possible that
other contaminated sites may exist and that remediation costs may be incurred
for these sites. Although the total amount of these costs cannot be known at
this time, based on experience by the Company and that of others in the natural
gas industry to date and on the current regulations regarding remediation of
these sites, the Company believes that the costs of any remediation of these
sites will not be material to the Company's financial condition, results of
operations or cash flows.

Other Environmental. From time to time the Company has received notices
from regulatory authorities or others regarding its status as a PRP in
connection with sites found to require remediation due to the presence of
environmental contaminants. In addition, the Company has been named as a
defendant in litigation related to such sites and in recent years has been
named, along with numerous others, as a defendant in several lawsuits filed by a
large number of individuals who claim injury due to exposure to asbestos while
working at sites along the Texas Gulf Coast. Most of these claimants have been
workers who participated in construction of various industrial facilities,
including power plants, and some of the claimants have worked at locations owned
by the Company. The Company anticipates that additional claims like those
received may be asserted in the future and intends to continue vigorously
contesting claims which it does not consider to have merit. Although their
ultimate outcome cannot be predicted at this time, the Company does not believe,
based on its experience to date, that these matters, either individually or in
the aggregate, will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.

Other Proceedings

The Company is involved in other legal, environmental, tax and regulatory
proceedings before various courts, regulatory commissions and governmental
agencies regarding matters arising in the ordinary course of business. Some of
these proceedings involve substantial amounts. The Company's management
regularly analyzes current information and, as necessary, provides accruals for
probable liabilities on the eventual disposition of these matters. The Company's
management believes that the disposition of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.

(d) NUCLEAR INSURANCE

Texas Genco and the other owners of the South Texas Project maintain
nuclear property and nuclear liability insurance coverage as required by law and
periodically review available limits and coverage for additional protection. The
owners of the South Texas Project currently maintain $2.75 billion in property
damage insurance coverage, which is above the legally required minimum, but is
less than the total amount of insurance currently available for such losses.

Pursuant to the Price Anderson Act, the maximum liability to the public of
owners of nuclear power plants was $10.6 billion as of December 31, 2003. Owners
are required under the Price Anderson Act to insure their liability for nuclear
incidents and protective evacuations. Texas Genco and the other owners of the
South Texas Project currently maintain the required nuclear liability insurance
and participate in the industry retrospective rating plan under which the owners
of the South Texas Project are subject to maximum retrospective assessments in
the aggregate per incident of up to $100.6 million per reactor. The owners are
jointly and severally liable at a rate not to exceed $10 million per incident
per year. In addition, the security procedures at this facility have been
enhanced to provide additional protection against terrorist attacks.

123

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There can be no assurance that all potential losses or liabilities will be
insurable, or that the amount of insurance will be sufficient to cover them. Any
substantial losses not covered by insurance would have a material effect on the
Company's financial condition, results of operations and cash flows.

(e) NUCLEAR DECOMMISSIONING

CenterPoint Houston contributed $14.8 million in 2001 to trusts established
to fund Texas Genco's share of the decommissioning costs for the South Texas
Project. CenterPoint Houston contributed $2.9 million in both 2002 and 2003 to
these trusts. There are various investment restrictions imposed upon Texas Genco
by the Texas Utility Commission and the United States Nuclear Regulatory
Commission (NRC) relating to Texas Genco's nuclear decommissioning trusts. Texas
Genco and CenterPoint Energy have each appointed two members to the Nuclear
Decommissioning Trust Investment Committee which establishes the investment
policy of the trusts and oversees the investment of the trusts' assets. The
securities held by the trusts for decommissioning costs had an estimated fair
value of $189 million as of December 31, 2003, of which approximately 37% were
fixed-rate debt securities and the remaining 63% were equity securities. For a
discussion of the accounting treatment for the securities held in the nuclear
decommissioning trust, see Note 2(k). In July 1999, an outside consultant
estimated Texas Genco's portion of decommissioning costs to be approximately
$363 million. While the funding levels currently exceed minimum NRC
requirements, no assurance can be given that the amounts held in trust will be
adequate to cover the actual decommissioning costs of the South Texas Project.
Such costs may vary because of changes in the assumed date of decommissioning
and changes in regulatory requirements, technology and costs of labor, materials
and equipment. Pursuant to the Texas electric restructuring law, costs
associated with nuclear decommissioning that have not been recovered as of
January 1, 2002, will continue to be subject to cost-of-service rate regulation
and will be included in a charge to transmission and distribution customers. For
information regarding the effect of the business separation plan on funding of
the nuclear decommissioning trust fund, see Note 4(c).

(13) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of cash and cash equivalents, investments in debt and
equity securities classified as "available-for-sale" and "trading" in accordance
with SFAS No. 115, and short-term borrowings are estimated to be approximately
equivalent to carrying amounts and have been excluded from the table below. The
fair values of non-trading derivative assets and liabilities are equivalent to
their carrying amounts in the Consolidated Balance Sheets at December 31, 2002
and 2003 and have been determined using quoted market prices for the same or
similar instruments when available or other estimation techniques (see Note 5).
Therefore, these financial instruments are stated at fair value and are excluded
from the table below.

DECEMBER 31, 2002 DECEMBER 31, 2003
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -------
(IN MILLIONS)

Financial liabilities:
Long-term debt (excluding capital leases)..... $6,135 $6,349 $10,820 $11,325
Trust preferred securities.................... 706 476 -- --

The trust preferred securities were deconsolidated effective December 31,
2003 pursuant to the adoption of FIN 46. This resulted in the junior
subordinated debentures held by the trusts being reported as long-term debt. For
further discussion, see Note 2(n).

124

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) EARNINGS PER SHARE

The following table reconciles numerators and denominators of the Company's
basic and diluted earnings per share (EPS) calculations:

FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2002 2003
-------------- -------------- --------------
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)

Basic EPS calculation:
Income from continuing operations before cumulative
effect of accounting change............................ $ 499 $ 369 $ 420
Discontinued Operations:
Income from Reliant Resources, net of tax.............. 475 82 --
Income from Other Operations, net of tax............... (53) -- (3)
Loss on disposal of Reliant Resources.................. -- (4,371) --
Loss on disposal of Other Operations, net of tax....... -- -- (13)
Cumulative effect of accounting change, net of tax....... 59 -- 80
------------ ------------ ------------
Net income (loss) attributable to common shareholders.... $ 980 $ (3,920) $ 484
============ ============ ============
Weighted average shares outstanding........................ 289,776,000 297,997,000 303,867,000
Basic EPS:
Income from continuing operations before cumulative
effect of accounting change............................ $ 1.72 $ 1.24 $ 1.38
Discontinued Operations:
Income from Reliant Resources, net of tax.............. 1.64 0.27 --
Income from Other Operations, net of tax............... (0.18) -- (0.01)
Loss on disposal of Reliant Resources.................. -- (14.67) --
Loss on disposal of Other Operations, net of tax....... -- -- (0.04)
Cumulative effect of accounting change, net of tax....... 0.20 -- 0.26
------------ ------------ ------------
Net income (loss) attributable to common shareholders.... $ 3.38 $ (13.16) $ 1.59
============ ============ ============
Diluted EPS calculation:
Net income (loss) attributable to common shareholders.... $ 980 $ (3,920) $ 484
Plus: Income impact of assumed conversions:
Interest on 6 1/4% convertible trust preferred
securities........................................... -- -- --
------------ ------------ ------------
Total earnings effect assuming dilution.................. $ 980 $ (3,920) $ 484
============ ============ ============
Weighted average shares outstanding........................ 289,776,000 297,997,000 303,867,000
Plus: Incremental shares from assumed conversions(1)
Stock options.......................................... 1,650,000 846,000 851,000
Restricted stock....................................... 754,000 784,000 1,484,000
6 1/4% convertible trust preferred securities.......... 13,000 17,000 18,000
------------ ------------ ------------
Weighted average shares assuming dilution................ 292,193,000 299,644,000 306,220,000
============ ============ ============
Diluted EPS:
Income from continuing operations before cumulative
effect of accounting change............................ $ 1.71 $ 1.23 $ 1.37
Discontinued Operations:
Income from Reliant Resources, net of tax.............. 1.62 0.27 --
Income from Other Operations, net of tax............... (0.18) -- (0.01)
Loss on disposal of Reliant Resources.................. -- (14.58) --
Loss on disposal of Other Operations, net of tax....... -- -- (0.04)
Cumulative effect of accounting change, net of tax....... 0.20 -- 0.26
------------ ------------ ------------
Net income (loss) attributable to common shareholders.... $ 3.35 $ (13.08) $ 1.58
============ ============ ============

- ---------------

(1) Options to purchase 2,074,437, 9,709,272 and 10,106,673 shares were
outstanding for the years ended December 31, 2001, 2002 and 2003,
respectively, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares for the respective years.

125

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) UNAUDITED QUARTERLY INFORMATION

The consolidated financial statements have been prepared to reflect the
effect of the Reliant Resources Distribution, the sale of the Company's
remaining Latin America operations subsequent to December 31, 2002 and the sale
of CEMS in November 2003 as described in Note 3. The consolidated financial
statements present the Reliant Resources businesses and the Company's Latin
America and CEMS operations as discontinued operations, in accordance with SFAS
No. 144. Accordingly, the consolidated financial statements reflect these
operations as discontinued operations for each of the three years in the period
ended December 31, 2003.

Summarized quarterly financial data is as follows:

YEAR ENDED DECEMBER 31, 2002
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Revenues.......................................... $2,077 $1,798 $ 1,917 $2,106
Operating income.................................. 352 290 431 260
Income (loss) from continuing operations.......... 145 87 161 (24)
Discontinued operations........................... (114) 149 (4,285) (39)
Net income (loss) attributable to common
shareholders.................................... 31 236 (4,124) (63)
Basic earnings (loss) per share:(1)
Income (loss) from continuing operations........ $ 0.49 $ 0.29 $ 0.54 $(0.08)
Discontinued operations......................... (0.38) 0.50 (14.34) (0.13)
------ ------ ------- ------
Net income (loss) attributable to common
shareholders................................. $ 0.11 $ 0.79 $(13.80) $(0.21)
====== ====== ======= ======
Diluted (loss) earnings per share:(1)
Income (loss) from continuing operations........ $ 0.49 $ 0.29 $ 0.54 $(0.08)
Discontinued operations......................... (0.38) 0.50 (14.31) (0.13)
------ ------ ------- ------
Net income (loss) attributable to common
shareholders................................. $ 0.11 $ 0.79 $(13.77) $(0.21)
====== ====== ======= ======

126

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31, 2003
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Revenues.......................................... $2,900 $2,091 $ 2,250 $2,519
Operating income.................................. 361 346 549 348
Income from continuing operations................. 82 83 183 72
Discontinued operations........................... 7 (20) (1) (2)
Cumulative effect of accounting change, net of
tax............................................. 80 -- -- --
Net income attributable to common shareholders.... 169 63 182 70
Basic earnings per share:(1)
Income from continuing operations............... $ 0.27 $ 0.27 $ 0.60 $ 0.24
Discontinued operations......................... 0.02 (0.06) -- (0.01)
Cumulative effect of accounting change, net of
tax.......................................... 0.27 -- -- --
------ ------ ------- ------
Net income attributable to common
shareholders................................. $ 0.56 $ 0.21 $ 0.60 $ 0.23
====== ====== ======= ======
Diluted earnings per share:(1)
Income from continuing operations............... $ 0.27 $ 0.27 $ 0.60 $ 0.23
Discontinued operations......................... 0.02 (0.06) (0.01) --
Cumulative effect of accounting change, net of
tax.......................................... 0.27 -- -- --
------ ------ ------- ------
Net income attributable to common
shareholders................................. $ 0.56 $ 0.21 $ 0.59 $ 0.23
====== ====== ======= ======

- ---------------

(1) Quarterly earnings per common share are based on the weighted average number
of shares outstanding during the quarter, and the sum of the quarters may
not equal annual earnings per common share.

(16) REPORTABLE BUSINESS SEGMENTS

The Company's determination of reportable business segments considers the
strategic operating units under which the Company manages sales, allocates
resources and assesses performance of various products and services to wholesale
or retail customers in differing regulatory environments. The accounting
policies of the business segments are the same as those described in the summary
of significant accounting policies except that some executive benefit costs have
not been allocated to business segments. Effective with the deregulation of the
Texas electric industry beginning January 1, 2002, the basis of business segment
reporting changed for the Company's electric operations. The Texas generation
operations of CenterPoint Energy's former integrated electric utility, Reliant
Energy HL&P, are a separate reportable business segment, Electric Generation,
whereas they previously had been part of the Electric Operations business
segment. The remaining transmission and distribution function is reported
separately in the Electric Transmission & Distribution business segment. Note
that certain estimates and allocations have been used to separate historical,
(pre-January 1, 2002) Electric Generation business segment data from the
Electric Transmission & Distribution business segment data. Reportable business
segments presented herein do not include the operations of Reliant Resources
which are presented as discontinued operations within these consolidated
financial statements. Additionally, the Company's Latin America operations and
its energy management services business, which were previously reported in the
Other Operations business segment, are presented as discontinued operations
within these consolidated financial statements.

Long-lived assets include net property, plant and equipment, net goodwill
and other intangibles and equity investments in unconsolidated subsidiaries. The
Company accounts for intersegment sales as if the sales were to third parties,
that is, at current market prices.

The Company has identified the following reportable business segments:
Electric Transmission & Distribution, Electric Generation, Natural Gas
Distribution, Pipelines and Gathering and Other Operations.

127

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For a description of the financial reporting business segments, see Note 1.
Financial data for business segments and products and services are as follows:

ELECTRIC NATURAL PIPELINES
TRANSMISSION & ELECTRIC GAS AND OTHER DISCONTINUED
DISTRIBUTION GENERATION DISTRIBUTION GATHERING OPERATIONS OPERATIONS
-------------- ---------- ------------ --------- ---------- ------------
(IN MILLIONS)

AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2001:
Revenues from external
customers............... 2,100 3,411 4,737 307 4 --
Intersegment revenues..... -- -- 5 108 -- --
Depreciation and
amortization............ 299 154 147 58 5 --
Operating income (loss)... 863 265 130 137 (46) --
Total assets.............. 7,910 4,438 4,083 2,379 1,145 12,392
Expenditures for
long-lived assets....... 527 409 209 54 12 --
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2002:
Revenues from external
customers............... 2,222(1) 1,488(2) 3,927 253 8 --
Intersegment revenues..... -- 5 33 121 22 --
Depreciation and
amortization............ 271 157 126 41 19 --
Operating income (loss)... 1,096 (133) 198 153 19 --
Total assets.............. 9,321 4,508 4,428 2,500 1,345 63
Expenditures for
long-lived assets....... 261 280 196 70 39 --
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2003:
Revenues from external
customers............... 2,124(1) 2,002(2) 5,378 241 15 --
Intersegment revenues..... -- -- 57 166 13 --
Depreciation and
amortization............ 270 159 136 40 20 --
Operating income.......... 1,020 222 202 158 2 --
Total assets.............. 10,326 4,640 4,661 2,519 1,347 --
Expenditures for
long-lived assets....... 218 151 199 66 14 --

RECONCILING
ELIMINATIONS CONSOLIDATED
------------ ------------
(IN MILLIONS)

AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2001:
Revenues from external
customers............... -- 10,559
Intersegment revenues..... (113) --
Depreciation and
amortization............ -- 663
Operating income (loss)... (25) 1,324
Total assets.............. (376) 31,971
Expenditures for
long-lived assets....... -- 1,211
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2002:
Revenues from external
customers............... -- 7,898
Intersegment revenues..... (181) --
Depreciation and
amortization............ -- 614
Operating income (loss)... -- 1,333
Total assets.............. (1,708) 20,457
Expenditures for
long-lived assets....... -- 846
AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2003:
Revenues from external
customers............... -- 9,760
Intersegment revenues..... (236) --
Depreciation and
amortization............ -- 625
Operating income.......... -- 1,604
Total assets.............. (2,116) 21,377
Expenditures for
long-lived assets....... -- 648

- ---------------

(1) Sales to subsidiaries of Reliant Resources in 2002 and 2003 represented
approximately $820 million and $948 million, respectively, of CenterPoint
Houston's transmission and distribution revenues since deregulation began in
2002.

(2) Sales to subsidiaries of Reliant Resources represented approximately 67% and
71% of Texas Genco's total revenues in 2002 and 2003, respectively. Sales to
another major customer in 2002 and 2003 represented approximately 15% and
10%, respectively, of Texas Genco's total revenues.

128

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31,
-------------------------
2001 2002 2003
------- ------ ------
(IN MILLIONS)

REVENUES BY PRODUCTS AND SERVICES:
Retail electricity sales.................................. $ 5,511 $ -- $ --
Wholesale electricity sales............................... -- 1,488 2,002
Electric delivery sales................................... -- 1,525 1,463
ECOM revenue.............................................. -- 697 661
Retail gas sales.......................................... 4,645 3,832 5,282
Gas transport............................................. 307 253 241
Energy products and services.............................. 96 103 111
------- ------ ------
Total................................................... $10,559 $7,898 $9,760
======= ====== ======

129

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
CenterPoint Energy, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of CenterPoint
Energy, Inc. and its subsidiaries (the Company) as of December 31, 2002 and
2003, and the related consolidated statements of operations, shareholders'
equity, comprehensive income and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial statement
schedules listed in the Index at Item 15(a)(2). These financial statements and
the financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
2002 and 2003, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the
Company distributed its 83% ownership interest in Reliant Resources, Inc. on
September 30, 2002. The loss on distribution and the results of operations for
Reliant Resources, Inc. for periods prior to the distribution are included in
discontinued operations in the accompanying consolidated financial statements.

As discussed in Note 2(d) to the consolidated financial statements, on
January 1, 2002, the Company changed its method of accounting for goodwill and
certain intangible assets to conform to Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."

As discussed in Note 2(n) to the consolidated financial statements, on
January 1, 2003, the Company recorded asset retirement obligations to conform to
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations."

DELOITTE & TOUCHE LLP

Houston, Texas
March 12, 2004

130

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our principal executive officer and principal financial officer, of
the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of December 31, 2003 to provide assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

There has been no change in our internal controls over financial reporting
that occurred during the three months ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information called for by Item 10, to the extent not set forth in
"Executive Officers" in Item 1, is or will be set forth in the definitive proxy
statement relating to CenterPoint Energy's 2004 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a
meeting of shareholders involving the election of directors and the portions
thereof called for by Item 10 are incorporated herein by reference pursuant to
Instruction G to Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information called for by Item 11 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2004 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 11 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information called for by Item 12 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2004 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 12 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2004 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 13 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by Item 14 is or will be set forth in the
definitive proxy statement relating to CenterPoint Energy's 2004 annual meeting
of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement
relates to a meeting of shareholders involving the election of directors and the
portions thereof called for by Item 14 are incorporated herein by reference
pursuant to Instruction G to Form 10-K.

131

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements.
Statements of Consolidated Operations for the Three
Years Ended December 31, 2003......................... 70
Statements of Consolidated Comprehensive Income for the
Three Years Ended December 31, 2003................... 71
Consolidated Balance Sheets at December 31, 2003 and
2002.................................................. 72
Statements of Consolidated Cash Flows for the Three
Years Ended December 31, 2003......................... 73
Statements of Consolidated Shareholders' Equity for the
Three Years Ended December 31, 2003................... 74
Notes to Consolidated Financial Statements............. 75
Independent Auditors' Report........................... 130

(a)(2) Financial Statement Schedules for the Three Years
Ended December 31, 2003.
I -- Condensed Financial Information of CenterPoint
Energy, Inc. (Parent Company) ........................ 134
II -- Qualifying Valuation Accounts.................... 141

The following schedules are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements:

III, IV and V.

(a)(3) Exhibits.

See Index of Exhibits on page 143, which index also includes the management
contracts or compensatory plans or arrangements required to be filed as exhibits
to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.

(g) Reports on Form 8-K.

On October 21, 2003, we filed a Current Report on Form 8-K dated October
21, 2003 in which we furnished information under Item 12 of that form relating
to our third quarter 2003 earnings.

On October 29, 2003, we filed a Current Report on Form 8-K dated October
28, 2003 to furnish under Item 9 of that form a slide presentation and
information regarding our external debt balances expected to be presented to
various members of the utility industry and the financial and investment
community at the 38th Annual Edison Electric Institute Financial conference.

On November 5, 2003, we filed a Current Report on Form 8-K dated October
29, 2003 announcing the pricing and closing of $160 million of senior notes by
our subsidiary, CenterPoint Energy Resources Corp., in a private placement with
institutions pursuant to Rule 144A under the Securities Act of 1933, as amended,
and Regulation S. The notes bear interest at a rate of 5.95% and will be due
January 15, 2014.

On November 7, 2003, we filed a Current Report on Form 8-K dated November
7, 2003 to provide information giving effect to certain reclassifications within
our historical consolidated financial statements, Selected Financial Data, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations as reported in our Current Report on Form 8-K dated May 12, 2003.

On December 9, 2003, we filed a Current Report on Form 8-K dated December
5, 2003 to report that Standard & Poor's Ratings Services affirmed its corporate
credit ratings on us, CenterPoint Houston and CERC and that the outlook was
revised to negative from stable.

On December 10, 2003, we filed a Current Report on Form 8-K dated December
20, 2003 to report that Fitch, Inc. affirmed its outstanding credit ratings on
us, CenterPoint Houston and CERC and that the outlook was revised to negative
from stable.

On December 12, 2003, we filed a Current Report on Form 8-K dated December
11, 2003 to report a failure at a diesel generator during a routine monthly
surveillance test at the South Texas Project nuclear facility.

132

On December 19, 2003, we filed a Current Report on Form 8-K dated December
10, 2003 to announce that we had priced and closed the sale of $225 million
aggregate principal amount of our convertible senior notes due 2024 through a
private offering (including $30 million received upon exercise of the initial
purchasers' option).

On January 29, 2004, we filed a Current Report on Form 8-K dated January
23, 2004 to report that Reliant Resources notified us it would not exercise its
option to purchase our 81% interest in Texas Genco.

On February 12, 2004, we filed a Current Report on Form 8-K dated February
12, 2004, in which we furnished information under Item 12 of that form relating
to our fourth quarter 2004 earnings.

On March 3, 2004, we filed a Current Report on Form 8-K dated March 3, 2004
to furnish under Item 9 of that form a slide presentation we expect will be
presented to various members of the financial and investment community from time
to time.

On March 10, 2004, we filed a Current Report on Form 8-K dated March 4,
2004 to report the administrative law judge's recommendation regarding
CenterPoint Houston's final fuel reconciliation proceeding and its effect on our
previously reported 2003 earnings.

133

CENTERPOINT ENERGY, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS

FOR THE PERIOD
SEPTEMBER 1, 2002
THROUGH FOR THE YEAR
DECEMBER 31, ENDED
2002 DECEMBER 31, 2003
----------------- -----------------
(IN THOUSANDS)

Equity Income (Losses) of Subsidiaries...................... $ (4,907) $ 850,394
Interest Income from Subsidiaries........................... 29,878 63,266
Loss on Disposal of Subsidiary.............................. (4,371,464) --
Loss on Indexed Debt Securities............................. (7,964) (96,473)
Operation and Maintenance Expenses.......................... (5,793) (12,944)
Depreciation and Amortization............................... (5,978) (14,029)
Taxes Other than Income..................................... (6,024) (5,091)
Interest Expense to Subsidiaries............................ (31,198) (93,100)
Interest Expense............................................ (188,027) (393,717)
Income Tax Benefit.......................................... 64,916 185,361
----------- ---------
Net Income (Loss)........................................... $(4,526,561) $ 483,667
=========== =========

See CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
134

CENTERPOINT ENERGY, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)
BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
2002 2003
------------ ------------
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 222,511 $ 21,617
Notes receivable -- affiliated companies.................. 492,246 201,887
Accounts receivable -- affiliated companies............... 130,712 89,835
Other assets.............................................. 10,197 13,675
----------- ----------
Total current assets................................... 855,666 327,014
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 114,240 111,533
----------- ----------
OTHER ASSETS:
Investment in subsidiaries................................ 8,090,581 8,620,685
Notes receivable -- affiliated companies.................. 984,063 443,090
Accumulated deferred tax asset............................ 319,675 213,858
Other assets.............................................. 185,719 125,115
----------- ----------
Total other assets..................................... 9,580,038 9,402,748
----------- ----------
TOTAL ASSETS......................................... $10,549,944 $9,841,295
=========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- affiliated companies..................... $ 37,292 $ 6,018
Current portion of long-term debt......................... 272,422 119,564
Indexed debt securities derivative........................ 224,881 321,352
Accounts payable:
Affiliated companies................................... 50,948 79,647
Other.................................................. 8,869 13,362
Taxes accrued............................................. 609,512 594,476
Interest accrued.......................................... 89,206 41,246
Other..................................................... 73,334 32,277
----------- ----------
Total current liabilities.............................. 1,366,464 1,207,942
----------- ----------
OTHER LIABILITIES:
Benefit obligations....................................... 622,284 603,845
Notes payable -- affiliated companies..................... 1,679,706 1,677,720
Other..................................................... 365,646 314,366
----------- ----------
Total non-current liabilities.......................... 2,667,636 2,595,931
----------- ----------
LONG-TERM DEBT.............................................. 5,104,474 4,311,394
----------- ----------
SHAREHOLDERS' EQUITY:
Common stock.............................................. 3,050 3,063
Additional paid-in capital................................ 3,046,043 2,868,416
Retained deficit.......................................... (1,062,083) (700,033)
Unearned ESOP stock....................................... (78,049) (2,842)
Accumulated other comprehensive loss...................... (497,591) (442,576)
----------- ----------
Total shareholders' equity............................. 1,411,370 1,726,028
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $10,549,944 $9,841,295
=========== ==========

See CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
135

CENTERPOINT ENERGY, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS

FOR THE PERIOD
SEPTEMBER 1, 2002 FOR THE YEAR
THROUGH ENDED
DECEMBER 31, 2002 DECEMBER 31, 2003
----------------- -----------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income (loss)......................................... $(4,526,561) $ 483,667
Add: Loss on disposal of subsidiary....................... 4,371,464 --
----------- -----------
Adjusted income (loss).................................... (155,097) 483,667
Non-cash items included in net income (loss):
Equity losses (income) of subsidiaries................. 4,907 (850,394)
Deferred income tax expense (benefit).................. (52,117) 65,778
Depreciation and amortization.......................... 5,978 14,029
Amortization of debt issuance costs.................... 32,649 112,046
Loss on indexed debt securities........................ 7,964 96,473
Changes in working capital:
Accounts receivable to affiliates, net............... 39,540 89,076
Accounts payable..................................... (1,302) 4,493
Other current assets................................. (6,571) (3,478)
Other current liabilities............................ (101,273) (42,631)
Common stock dividends received from subsidiaries......... 57,645 121,695
Other..................................................... (12,681) 72,747
----------- -----------
Net cash provided by (used in) operating activities......... (180,358) 163,501
----------- -----------
INVESTING ACTIVITIES:
Investment in subsidiaries................................ (181,654) 32,832
Short-term notes receivable from affiliates............... (178,127) 290,359
Long-term notes receivable from affiliates................ 1,067,280 540,973
Capital expenditures, net................................. (4,274) (6,596)
----------- -----------
Net cash provided by investing activities................... 703,225 857,568
----------- -----------
FINANCING ACTIVITIES:
Changes in short-term borrowings.......................... (21,000) --
Payments on long-term debt................................ (168,558) (6,727,055)
Proceeds from long-term debt.............................. -- 5,778,242
Debt issuance costs....................................... (87,798) (117,641)
Common stock dividends paid............................... (48,672) (122,249)
Short-term notes payable to affiliates.................... 25,177 (31,274)
Long-term notes payable to affiliates..................... 495 (1,986)
----------- -----------
Net cash used in financing activities....................... (300,356) (1,221,963)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 222,511 (200,894)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ -- 222,511
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 222,511 $ 21,617
=========== ===========

See CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
136

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY)

(1) The condensed parent company financial statements and notes should be
read in conjunction with the consolidated financial statements and notes of
CenterPoint Energy, Inc. (CenterPoint Energy or the Company) appearing in the
Annual Report on Form 10-K. CenterPoint Energy, Inc. is a public utility holding
company that became the parent of Reliant Energy, Incorporated (Reliant Energy)
and its subsidiaries on August 31, 2002 as part of a corporate restructuring of
Reliant Energy (the Restructuring). CenterPoint Energy is a registered public
utility holding company under the 1935 Act. Prior to the Restructuring, Reliant
Energy was a public utility holding company that was exempt from registration
under the 1935 Act. After the Restructuring, an exemption was no longer
available for the corporate structure that the Texas Utility Commission required
CenterPoint Energy to adopt under the Texas electric restructuring law.
CenterPoint Energy did not conduct any activities other than those incident to
its formation until September 1, 2002. Accordingly, statements of operations and
cash flows would not provide meaningful information and have been omitted for
periods prior to September 1, 2002.

(2) As a registered public utility holding company, CenterPoint Energy and
its subsidiaries except Texas Genco Holdings, Inc. (Texas Genco) are subject to
a comprehensive regulatory scheme imposed by the Securities and Exchange
Commission (SEC) in order to protect customers, investors and the public
interest. Although the SEC does not regulate rates and charges under the 1935
Act, it does regulate the structure, financing, lines of business and internal
transactions of public utility holding companies and their system companies. In
order to obtain financing, acquire additional public utility assets or stock, or
engage in other significant transactions, CenterPoint Energy is required to
obtain approval from the SEC under the 1935 Act.

Prior to the Restructuring, CenterPoint Energy and Reliant Energy obtained
an order from the SEC that authorized the Restructuring transactions and granted
those companies certain authority with respect to system financing, dividends
and other matters.

CenterPoint Energy received an order from the SEC under the 1935 Act on
June 30, 2003 and supplemental orders thereafter relating to its financing
activities and those of its regulated subsidiaries, as well as other matters.
The orders are effective until June 30, 2005. As of December 31, 2003, the
orders generally permitted CenterPoint Energy and its regulated subsidiaries to
issue securities to refinance indebtedness outstanding at June 30, 2003, and
authorized CenterPoint Energy and its regulated subsidiaries to issue certain
incremental external debt securities and common and preferred stock through June
30, 2005, without prior authorization from the SEC. Further, the SEC has
reserved jurisdiction over the issuance by CenterPoint Energy and its regulated
subsidiaries of certain amounts of incremental external debt securities, so that
CenterPoint Energy is required to obtain SEC approval prior to issuing those
incremental amounts.

The orders require that if CenterPoint or any of its regulated subsidiaries
issues any security that is rated by a nationally recognized statistical rating
organization (NRSRO), the security to be issued must obtain an investment grade
rating from at least one NRSRO and, as a condition to such issuance, all
outstanding rated securities of the issuer and of CenterPoint Energy must be
rated investment grade by at least one NRSRO. The orders also contain certain
requirements for interest rates, maturities, issuance expenses and use of
proceeds. Under the orders, CenterPoint Energy's common equity as a percentage
of total capitalization must be at least 30%. The SEC has acknowledged that
prior to the monetization of Texas Genco and the securitization of the true-up
components, the Company's common equity as a percentage of total capitalization
is expected to remain less than 30%. In addition, after the securitization, the
Company's common equity as a percentage of total capitalization, including
securitized debt, is expected to be less than 30%, which the SEC has permitted
for other companies.

(3) On September 30, 2002, CenterPoint Energy distributed to its
shareholders 240 million shares of Reliant Resources common stock, which
represented CenterPoint Energy's approximately 83% ownership interest in Reliant
Resources, by means of a tax-free spin-off in the form of a dividend. Holders of
CenterPoint Energy common stock on the record date received 0.788603 shares of
Reliant Resources common stock for

137

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

each share of CenterPoint Energy stock that they owned on the record date. The
total value of the Reliant Resources Distribution, after the impairment charge
discussed below, was $847 million.

As a result of the spin-off of Reliant Resources, CenterPoint Energy
recorded a non-cash loss on disposal of discontinued operations of $4.4 billion
in 2002. This loss represented the excess of the carrying value of CenterPoint
Energy's net investment in Reliant Resources over the market value of Reliant
Resources' common stock. CenterPoint Energy's financial statements reflect the
reclassifications necessary to present Reliant Resources as discontinued
operations for all periods shown. Through the date of the spin-off, Reliant
Resources' assets and liabilities are shown in CenterPoint Energy's Consolidated
Balance Sheets as current and non-current assets and liabilities of discontinued
operations.

(4) CenterPoint Energy distributed approximately 19% of the 80 million
outstanding shares of common stock of Texas Genco to its shareholders on January
6, 2003. As a result of the distribution of Texas Genco common stock,
CenterPoint Energy recorded a pre-tax impairment charge of $399 million, which
was reflected as a regulatory asset in the Consolidated Balance Sheet as of
December 31, 2003. This impairment charge represents the excess of the carrying
value of CenterPoint Energy's net investment in Texas Genco over the market
value of Texas Genco's common stock. Additionally, in connection with the
distribution, CenterPoint Energy recorded minority interest ownership in Texas
Genco of $146 million in its Consolidated Balance Sheet in the first quarter of
2003.

(5) On October 7, 2003, the Company entered into a three-year credit
facility composed of a revolving credit facility of $1.4 billion and a $925
million term loan from institutional investors. The facility matures on October
7, 2006 and requires prepayments aggregating $20 million. Borrowings under the
revolver ($523 million at December 31, 2003) bear interest based on the London
inter-bank offered rate (LIBOR) under a pricing grid tied to the Company's
credit ratings. At the Company's current ratings, the interest rate for
borrowings under the revolver is LIBOR plus 300 basis points. The interest rate
for borrowings under the term loan is LIBOR plus 350 basis points. The Company's
Texas Genco stock is pledged to the lenders under the facility and the Company
has agreed to limit the dividend paid on its common stock to $0.10 per share per
quarter. The facility provides that until such time as the facility has been
reduced to $750 million, 100% of the net cash proceeds from any securitizations
relating to the recovery of the true-up components, after making any payments
required under CenterPoint Energy Houston Electric, LLC's $1.3 billion term
loan, and the net cash proceeds of any sales of the common stock of Texas Genco
owned by the Company or of material portions of Texas Genco's assets shall be
applied to repay loans under the facility and reduce that facility. Any money
raised in other future capital markets offerings and in the sale of other
significant assets is not required to be used to pay down the facility. The
facility requires the Company not to fall below a minimum interest coverage
ratio and not to exceed a maximum leverage ratio. The facility refinanced and
replaced a prior bank facility that, as of September 30, 2003, consisted of an
$856 million term loan and a $1.5 billion revolver. In connection with entering
into the new facility, the Company paid up-front fees of approximately $16
million and avoided a payment of $18 million which would have been due under the
prior facility on October 9, 2003. Additionally, in October 2003, the Company
expensed $21 million of unamortized loan costs associated with the prior
facility.

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

per $1,000 principal amount of notes at any time prior to maturity, under the
following circumstances: (1) if the last reported sale price of CenterPoint
Energy common stock for at least 20 trading days during the period of 30
consecutive trading days ending on the last trading day of the previous calendar
quarter is greater than or equal to 120% or, following May 15, 2008, 110% of the
conversion price per share of CenterPoint Energy common stock on such last
trading day, (2) if the notes have been called for redemption, (3) during any
period in which the credit ratings assigned to the notes by both Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Ratings Services (S&P),
a division of The McGraw-Hill Companies, are lower than Ba2 and BB,
respectively, or the notes are no longer rated by at least one of these ratings
services or their successors, or (4) upon the occurrence of specified corporate
transactions, including the distribution to all holders of CenterPoint Energy
common stock of certain rights entitling them to purchase shares of CenterPoint
Energy common stock at less than the last reported sale price of a share of
CenterPoint Energy common stock on the trading day prior to the declaration date
of the distribution or the distribution to all holders of CenterPoint Energy
common stock of the Company's assets, debt securities or certain rights to
purchase the Company's securities, which distribution has a per share value
exceeding 15% of the last reported sale price of a share of CenterPoint Energy
common stock on the trading day immediately preceding the declaration date for
such distribution. The convertible senior notes also have a contingent interest
feature requiring contingent interest to be paid to holders of notes commencing
on or after May 15, 2008, in the event that the average trading price of a note
for the applicable five trading day period equals or exceeds 120% of the
principal amount of the note as of the day immediately preceding the first day
of the applicable six-month interest period. For any six-month period,
contingent interest will be equal to 0.25% of the average trading price of the
note for the applicable five-trading-day period. Proceeds from the issuance of
the convertible senior notes were used for term loan repayments and to repay
revolver borrowings under the Company's prior facility in the amount of $557
million and $0.75 million, respectively.

On September 9, 2003, the Company issued $200 million aggregate principal
amount of 7.25% senior notes due September 1, 2010. Proceeds in the amount of
approximately $198 million were used to repay a portion of the term loan under
the Company's prior facility. As a result of the term loan repayments made from
the proceeds of the September 9, 2003 debt issuance, in September 2003, the
Company expensed $12.2 million of unamortized loan costs that were associated
with the term loan under the Company's prior facility.

139

CENTERPOINT ENERGY, INC.

SCHEDULE I -- NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

entitling them to purchase shares of CenterPoint Energy common stock at less
than the last reported sale price of a share of CenterPoint Energy common stock
on the trading day prior to the declaration date of the distribution or the
distribution to all holders of CenterPoint Energy common stock of the Company's
assets, debt securities or certain rights to purchase the Company's securities,
which distribution has a per share value exceeding 15% of the last reported sale
price of a share of CenterPoint Energy common stock on the trading day
immediately preceding the declaration date for such distribution. CenterPoint
Energy may elect to satisfy part or all of its conversion obligation by
delivering cash in lieu of shares of CenterPoint Energy common stock. The
convertible senior notes also have a contingent interest feature requiring
contingent interest to be paid to holders of notes commencing on or after
January 15, 2007, in the event that the average trading price of a note for the
applicable five-trading-day period equals or exceeds 120% of the principal
amount of the note as of the day immediately preceding the first day of the
applicable six-month interest period. For any six-month period, contingent
interest will be equal to 0.25% of the average trading price of the note for the
applicable five-trading-day period. Proceeds from the issuance of the
convertible senior notes were used to redeem, in January 2004, $250 million
liquidation amount of the 8.125% trust preferred securities issued by HL&P
Capital Trust I. Pending such use, the net proceeds were used to repay a portion
of the outstanding borrowings under the Company's revolving credit facility.

140

CENTERPOINT ENERGY, INC.

SCHEDULE II -- QUALIFYING VALUATION ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- --------- ----------- ----------
ADDITIONS
BALANCE AT --------- DEDUCTIONS BALANCE AT
BEGINNING CHARGED FROM END OF
DESCRIPTION OF PERIOD TO INCOME RESERVES(1) PERIOD
- ----------- ---------- --------- ----------- ----------
(IN THOUSANDS)

Year Ended December 31, 2003:
Accumulated provisions:
Uncollectible accounts receivable............. $24,294 $24,312 $17,531 $31,075
Deferred tax asset valuation allowance........ 82,929 (9,681) -- 73,248
Year Ended December 31, 2002:
Accumulated provisions:
Uncollectible accounts receivable............. $46,047 $25,883 $47,636 $24,294
Deferred tax asset valuation allowance........ 15,439 67,490 -- 82,929
Year Ended December 31, 2001:
Accumulated provisions:
Uncollectible accounts receivable............. $37,521 $58,745 $50,219 $46,047
Deferred tax asset valuation allowance........ 47,677 (32,238) -- 15,439

- ---------------

(1) Deductions from reserves represent losses or expenses for which the
respective reserves were created. In the case of the uncollectible accounts
reserve, such deductions are net of recoveries of amounts previously written
off.

141

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, the State of Texas, on the 12th day of March, 2004.

CENTERPOINT ENERGY, INC.
(Registrant)

By: /s/ DAVID M. MCCLANAHAN
------------------------------------
David M. McClanahan,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 12, 2004.

SIGNATURE TITLE
--------- -----

/s/ DAVID M. MCCLANAHAN President, Chief Executive Officer and Director
------------------------------------------------ (Principal Executive Officer and Director)
David M. McClanahan

/s/ GARY L. WHITLOCK Executive Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Gary L. Whitlock

/s/ JAMES S. BRIAN Senior Vice President and
------------------------------------------------ Chief Accounting Officer
James S. Brian (Principal Accounting Officer)

/s/ MILTON CARROLL Chairman of the Board of Directors
------------------------------------------------
Milton Carroll

/s/ JOHN T. CATER Director
------------------------------------------------
John T. Cater

/s/ DERRILL CODY Director
------------------------------------------------
Derrill Cody

/s/ O. HOLCOMBE CROSSWELL Director
------------------------------------------------
O. Holcombe Crosswell

/s/ THOMAS F. MADISON Director
------------------------------------------------
Thomas F. Madison

/s/ MICHAEL E. SHANNON Director
------------------------------------------------
Michael E. Shannon

142

CENTERPOINT ENERGY, INC.

EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2003

INDEX OF EXHIBITS

Exhibits not incorporated by reference to a prior filing are designated by
a cross (+); all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated. Exhibits designated by an asterisk (*) are
management contracts or compensatory plans or arrangements required to be filed
as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

2 -- Agreement and Plan of CenterPoint Energy's Form 10-K 1-31447 2
Merger, dated as of October for the year ended December 31,
19, 2001, by and among 2001
Reliant Energy, Incorporated
("Reliant Energy"),
CenterPoint Energy, Inc.
("CenterPoint Energy") and
Reliant Energy MergerCo,
Inc.
3(a)(1) -- Amended and Restated CenterPoint Energy's 3-69502 3.1
Articles of Incorporation of Registration Statement on Form
CenterPoint Energy S-4
3(a)(2) -- Articles of Amendment to CenterPoint Energy's Form 10-K 1-31447 3.1.1
Amended and Restated for the year ended December 31,
Articles of Incorporation of 2001
CenterPoint Energy
3(b) -- Amended and Restated Bylaws CenterPoint Energy's Form 10-K 1-31447 3.2
of CenterPoint Energy for the year ended December 31,
2001
3(c) -- Statement of Resolution CenterPoint Energy's Form 10-K 1-31447 3.3
Establishing Series of for the year ended December 31,
Shares designated Series A 2001
Preferred Stock of
CenterPoint Energy
4(a) -- Form of CenterPoint Energy CenterPoint Energy's 3-69502 4.1
Stock Certificate Registration Statement on Form
S-4
4(b) -- Rights Agreement dated CenterPoint Energy's Form 10-K 1-31447 4.2
January 1, 2002, between for the year ended December 31,
CenterPoint Energy and 2001
JPMorgan Chase Bank, as
Rights Agent
4(c) -- Contribution and CenterPoint Energy's Form 10-K 1-31447 4.3
Registration Agreement dated for the year ended December 31,
December 18, 2001 among 2001
Reliant Energy, CenterPoint
Energy and the Northern
Trust Company, trustee under
the Reliant Energy,
Incorporated Master
Retirement Trust

143

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(d)(1) -- Mortgage and Deed of Trust, HL&P's Form S-7 filed on August 2-59748 2(b)
dated November 1, 1944 25, 1977
between Houston Lighting and
Power Company ("HL&P") and
Chase Bank of Texas,
National Association
(formerly, South Texas
Commercial National Bank of
Houston), as Trustee, as
amended and supplemented by
20 Supplemental Indentures
thereto
4(d)(2) -- Twenty-First through HL&P's Form 10-K for the year 1-3187 4(a)(2)
Fiftieth Supplemental ended December 31, 1989
Indentures to Exhibit
4(a)(1)
4(d)(3) -- Fifty-First Supplemental HL&P's Form 10-Q for the quarter 1-3187 4(a)
Indenture to Exhibit 4(a)(1) ended June 30, 1991
dated as of March 25, 1991
4(d)(4) -- Fifty-Second through HL&P's Form 10-Q for the quarter 1-3187 4
Fifty-Fifth Supplemental ended March 31, 1992
Indentures to Exhibit
4(a)(1) each dated as of
March 1, 1992
4(d)(5) -- Fifty-Sixth and HL&P's Form 10-Q for the quarter 1-3187 4
Fifty-Seventh Supplemental ended September 30, 1992
Indentures to Exhibit
4(a)(1) each dated as of
October 1, 1992
4(d)(6) -- Fifty-Eighth and Fifty-Ninth HL&P's Form 10-Q for the quarter 1-3187 4
Supplemental Indentures to ended March 31, 1993
Exhibit 4(a)(1) each dated
as of March 1, 1993
4(d)(7) -- Sixtieth Supplemental HL&P's Form 10-Q for the quarter 1-3187 4
Indenture to Exhibit 4(a)(1) ended June 30, 1993
dated as of July 1, 1993
4(d)(8) -- Sixty-First through HL&P's Form 10-K for the year 1-3187 4(a)(8)
Sixty-Third Supplemental ended December 31, 1993
Indentures to Exhibit
4(a)(1) each dated as of
December 1, 1993
4(d)(9) -- Sixty-Fourth and Sixty-Fifth HL&P's Form 10-K for the year 1-3187 4(a)(9)
Supplemental Indentures to ended December 31, 1995
Exhibit 4(a)(1) each dated
as of July 1, 1995
4(e)(1) -- General Mortgage Indenture, CenterPoint Houston's Form 10-Q 1-3187 4(j)(1)
dated as of October 10, for the quarter ended September
2002, between CenterPoint 30, 2002
Energy Houston Electric, LLC
and JPMorgan Chase Bank, as
Trustee
4(e)(2) -- First Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(2)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002

144

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(e)(3) -- Second Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(3)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(4) -- Third Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(4)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(5) -- Fourth Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(5)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
4(e)(6) -- Fifth Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(6)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(7) -- Sixth Supplemental Indenture CenterPoint Houston's Form 10-Q 1-3187 4(j)(7)
to Exhibit 4(e)(1), dated as for the quarter ended September
of October 10, 2002 30, 2002
4(e)(8) -- Seventh Supplemental Inden- CenterPoint Houston's Form 10-Q 1-3187 4(j)(8)
ture to Exhibit 4(e)(1), for the quarter ended September
dated as of October 10, 2002 30, 2002
4(e)(9) -- Eighth Supplemental CenterPoint Houston's Form 10-Q 1-3187 4(j)(9)
Indenture to Exhibit for the quarter ended September
4(e)(1), dated as of October 30, 2002
10, 2002
+4(e)(10) -- Officer's Certificates dated
October 10, 2002 setting
forth the form, terms and
provisions of the First
through Eighth Series of
General Mortgage Bonds
4(e)(11) -- Ninth Supplemental Indenture CenterPoint Energy's Form 10-K 1-31447 4(e)(10)
to Exhibit 4(e)(1), dated as for the year ended December 31,
of November 12, 2002 2002
+4(e)(12) -- Officer's Certificate dated
November 12, 2002 setting
forth the form, terms and
provisions of the Ninth
Series of General Mortgage
Bonds
4(e)(13) -- Tenth Supplemental Indenture CenterPoint Energy's Form 8-K 1-31447 4.1
to Exhibit 4(e)(1), dated as dated March 13, 2003
of March 18, 2003
4(e)(14) -- Officer's Certificate dated CenterPoint Energy's Form 8-K 1-31447 4.2
March 18, 2003 setting forth dated March 13, 2003
the form, terms and
provisions of the Tenth
Series and Eleventh Series
of General Mortgage Bonds
4(e)(15) -- Eleventh Supplemental Inden- CenterPoint Energy's Form 8-K 1-31447 4.1
ture to Exhibit 4(e)(1), dated May 16, 2003
dated as of May 23, 2003

145

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(e)(16) -- Officer's Certificate dated CenterPoint Energy's Form 8-K 1-31447 4.2
May 23, 2003 setting forth dated May 16, 2003
the form, terms and
provisions of the Twelfth
Series of General Mortgage
Bonds
4(e)(17) -- Twelfth Supplemental CenterPoint Energy's Form 8-K 1-31447 4.2
Indenture to Exhibit dated September 9, 2003
4(e)(1), dated as of
September, 9, 2003
4(e)(18) -- Officer's Certificate dated CenterPoint Energy's Form 8-K 1-31447 4.3
September 9, 2003 setting dated September 9, 2003
forth the form, terms and
provisions of the Thirteenth
Series of General Mortgage
Bonds
4(f)(1) -- Indenture, dated as of RERC Corp.'s Form 8-K dated 1-13265 4.1
February 1, 1998, between February 5, 1998
Reliant Energy Resources
Corp. ("RERC Corp.") and
Chase Bank of Texas,
National Association, as
Trustee
4(f)(2) -- Supplemental Indenture No. 1 RERC Corp.'s Form 8-K dated 1-13265 4.2
to Exhibit 4(f)(1), dated as November 9, 1998
of February 1, 1998,
providing for the issuance
of RERC Corp.'s 6 1/2%
Debentures due February 1,
2008
4(f)(3) -- Supplemental Indenture No. 2 RERC Corp.'s Form 8-K dated 1-13265 4.1
to Exhibit 4(f)(1), dated as November 9, 1998
of November 1, 1998,
providing for the issuance
of RERC Corp.'s 6 3/8% Term
Enhanced ReMarketable
Securities
4(f)(4) -- Supplemental Indenture No. 3 RERC Corp.'s Registration 333-49162 4.2
to Exhibit 4(f)(1), dated as Statement on Form S-4
of July 1, 2000, providing
for the issuance of RERC
Corp.'s 8.125% Notes due
2005
4(f)(5) -- Supplemental Indenture No. 4 RERC Corp.'s Form 8-K dated 1-13265 4.1
to Exhibit 4(f)(1), dated as February 21, 2001
of February 15, 2001,
providing for the issuance
of RERC Corp.'s 7.75% Notes
due 2011
4(f)(6) -- Supplemental Indenture No. 5 CenterPoint Energy's Form 8-K 1-31447 4.1
to Exhibit 4(f)(1), dated as dated March 18, 2003
of March 25, 2003, providing
for the issuance of
CenterPoint Energy Resources
Corp.'s ("CERC Corp.'s")
7.875% Senior Notes due 2013

146

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(f)(7) -- Supplemental Indenture No. 6 CenterPoint Energy's Form 8-K 1-31447 4.2
to Exhibit 4(f)(1), dated as dated April 7, 2003
of April 1, 2003, providing
for the issuance of CERC
Corp.'s 7.875% Senior Notes
due 2013
4(f)(8) -- Supplemental Indenture No. 7 CenterPoint Energy's Form 8-K 1-31447 4.2
to Exhibit 4(f)(1), dated as dated October 29, 2003
of November 3, 2003,
providing for the issuance
of CERC Corp.'s 5.95% Senior
Notes due 2014
4(f)(9) -- Registration Rights CenterPoint Energy's Form 8-K 1-31447 4.3
Agreement, dated as of dated October 29, 2003
November 3, 2003, among CERC
Corp. and the initial
purchasers named therein
relating to CERC Corp.'s
5.95% Senior Notes due 2014
4(g)(1) -- Indenture, dated as of May CenterPoint Energy's Form 8-K 1-31447 4.1
19, 2003, between dated May 19, 2003
CenterPoint Energy and
JPMorgan Chase Bank, as
Trustee
4(g)(2) -- Supplemental Indenture No. 1 CenterPoint Energy's Form 8-K 1-31447 4.2
to Exhibit 4(g)(1), dated as dated May 19, 2003
of May 19, 2003, providing
for the issuance of
CenterPoint Energy's 3.75%
Convertible Senior Notes due
2023
4(g)(3) -- Supplemental Indenture No. 2 CenterPoint Energy's Form 8-K 1-31447 4.3
to Exhibit 4(g)(1), dated as dated May 19, 2003
of May 27, 2003, providing
for the issuance of
CenterPoint Energy's 5.875%
Senior Notes due 2008 and
6.85% Senior Notes due 2015
4(g)(4) -- Supplemental Indenture No. 3 CenterPoint Energy's Form 8-K 1-31447 4.2
to Exhibit 4(g)(1), dated as dated September 9, 2003
of September 9, 2003,
providing for the issuance
of CenterPoint Energy's
7.25% Senior Notes due 2010

147

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(g)(5) -- Supplemental Indenture No. 4 CenterPoint Energy's Form 8-K 1-31447 4.2
to Exhibit 4(g)(1), dated as dated December 10, 2003
of December 17, 2003,
providing for the issuance
of CenterPoint Energy's
2.875% Convertible Senior
Notes due 2024
4(g)(6) -- Registration Rights CenterPoint Energy's Form 8-K 1-31447 4.3
Agreement, dated as of dated December 10, 2003
December 17, 2003, among
CenterPoint Energy and the
representatives of the
initial purchasers named
therein relating to
CenterPoint Energy's 2.875%
Convertible Senior Notes due
2024
4(h) -- Supplemental Indenture No. 2 CenterPoint Energy's Form 8-K12B 1-31447 4(e)
dated as of August 31, 2002, dated August 31, 2002
among CenterPoint Energy,
Reliant Energy, Incorporated
("REI") and JPMorgan Chase
Bank (supplementing the Sub-
ordinated Indenture dated as
of September 1, 1999 under
which REI's 2% Zero-Premium
Exchangeable Subordinated
Notes Due 2029 were issued)
4(i) -- Supplemental Indenture No. 2 CenterPoint Energy's Form 8-K12B 1-31447 4(f)
dated as of August 31, 2002, dated August 31, 2002
among CenterPoint Energy,
REI and The Bank of New York
(supplementing the Junior
Subordinated Indenture dated
as of February 15, 1999
under which REI's Junior
Subordinated Debentures
related to REI Trust I's
7.20% trust originated
preferred securities were
issued)
4(j) -- Supplemental Indenture No. 3 CenterPoint Energy's Form 8-K12B 1-31447 4(g)
dated as of August 31, 2002 dated August 31, 2002
among CenterPoint Energy,
REI and The Bank of New York
(supplementing the Junior
Subordinated Indenture dated
as of February 1, 1997 under
which REI's Junior Subordi-
nated Debentures related to
8.125% trust preferred
securities issued by HL&P
Capital Trust I and 8.257%
capital securities issued by
HL&P Capital Trust II were
issued)

148

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(k) -- Third Supplemental Indenture CenterPoint Energy's Form 8-K12B 1-31447 4(h)
dated as of August 31, 2002 dated August 31, 2002
among CenterPoint Energy,
REI, RERC and The Bank of
New York (supplementing the
Indenture dated as of June
15, 1996 under which RERC's
6.25% Convertible Junior
Subordinated Debentures were
issued)
4(l) -- Second Supplemental CenterPoint Energy's Form 8-K12B 1-31447 4(i)
Indenture dated as of August dated August 31, 2002
31, 2002 among CenterPoint
Energy, REI, RERC and
JPMorgan Chase Bank
(supplementing the Indenture
dated as of March 1, 1987
under which RERC's 6%
Convertible Subordinated De-
bentures due 2012 were
issued)
4(m) -- Assignment and Assumption CenterPoint Energy's Form 8-K12B 1-31447 4(j)
Agreement for the Guarantee dated August 31, 2002
Agreements dated as of Au-
gust 31, 2002 between
CenterPoint Energy and REI
(relating to (i) the
Guarantee Agreement dated as
of February 4, 1997 between
REI and The Bank of New York
providing for the guaranty
of certain amounts relating
to the 8.125% trust
preferred securities issued
by HL&P Capital Trust I and
(ii) the Guarantee Agreement
dated as of February 4, 1997
between REI and The Bank of
New York providing for the
guaranty of certain amounts
relating to the 8.257%
capital securities issued by
HL&P Capital Trust II)

149

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

4(n) -- Assignment and Assumption CenterPoint Energy's Form 8-K12B 1-311447 4(k)
Agreement for the Guarantee dated August 31, 2002
Agreement dated as of August
31, 2002 between CenterPoint
Energy and REI (relating to
the Guarantee Agreement
dated as of February 26,
1999 between REI and The
Bank of New York providing
for the guaranty of certain
amounts relating to the
7.20% Trust Originated
Preferred Securities issued
by REI Trust I)
4(o) -- Assignment and Assumption CenterPoint Energy's Form 8-K12B 1-31447 4(l)
Agreement for the Expense dated August 31, 2002
and Liability Agreements and
the Trust Agreements dated
as of August 31, 2002
between CenterPoint Energy
and REI (relating to the (i)
Agreement as to Expenses and
Liabilities dated as of June
4, 1997 between REI and HL&P
Capital Trust I, (ii)
Agreement as to Expenses and
Liabilities dated as of
February 4, 1997 between REI
and HL&P Capital Trust II,
(iii) HL&P Capital Trust I's
Amended and Restated Trust
Agreement dated February 4,
1997 and (iv) HL&P Capital
Trust II's Amended and
Restated Trust Agreement
dated February 4, 1997

Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy
has not filed as exhibits to this Form 10-K certain long-term debt instruments,
including indentures, under which the total amount of securities authorized does
not exceed 10% of the total assets of CenterPoint Energy and its subsidiaries on
a consolidated basis. CenterPoint Energy hereby agrees to furnish a copy of any
such instrument to the SEC upon request.

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

150

*10(a)(1) -- Executive Benefit Plan of HI's Form 10-Q for the 1-7629 10(a)(1),
Houston Industries quarter ended March 31, 10(a)(2),
Incorporated ("HI") and 1987 and
First and Second 10(a)(3)
Amendments thereto
effective as of June 1,
1982, July 1, 1984, and
May 7, 1986, respectively
*10(a)(2) -- Third Amendment dated Sep- Reliant Energy's Form 10-K 1-3187 10(a)(2)
tember 17, 1999 to Ex- for the year ended Decem-
hibit 10(a)(1) ber 31, 2000
*10(a)(3) -- CenterPoint Energy CenterPoint Energy's Form 1-31447 10.4
Executive Benefits Plan, 10-Q for the quarter ended
as amended and restated September 30, 2003
effective June 18, 2003
*10(b)(1) -- Executive Incentive HI's Form 10-K for the 1-7629 10(b)
Compensation Plan of HI year ended December 31,
effective as of January 1, 1991
1982
*10(b)(2) -- First Amendment to Ex- HI's Form 10-Q for the 1 -7629 10(a)
hibit 10(b)(1) effective quarter ended March 31,
as of March 30, 1992 1992
*10(b)(3) -- Second Amendment to Ex- HI's Form 10-K for the 1-7629 10(b)
hibit 10(b)(1) effective year ended December 31,
as of November 4, 1992 1992
*10(b)(4) -- Third Amendment to Ex- HI's Form 10-K for the 1-7629 10(b)(4)
hibit 10(b)(1) effective year ended December 31,
as of September 7, 1994 1994
*10(b)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the 1-3187 10(b)(5)
hibit 10(b)(1) effective year ended December 31,
as of August 6, 1997 1997
*10(c)(1) -- Executive Incentive HI's Form 10-Q for the 1-7629 10(b)(1)
Compensation Plan of HI quarter ended March 31,
effective as of January 1, 1987
1985
*10(c)(2) -- First Amendment to Ex- HI's Form 10-K for the 1-7629 10(b)(3)
hibit 10(c)(1) effective year ended December 31,
as of January 1, 1985 1988
*10(c)(3) -- Second Amendment to Ex- HI's Form 10-K for the 1-7629 10(c)(3)
hibit 10(c)(1) effective year ended December 31,
as of January 1, 1985 1991
*10(c)(4) -- Third Amendment to Ex- HI's Form 10-Q for the 1-7629 10(b)
hibit 10(c)(1) effective quarter ended March 31,
as of March 30, 1992 1992
*10(c)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the 1-7629 10(c)(5)
hibit 10(c)(1) effective year ended December 31,
as of November 4, 1992 1992
*10(c)(6) -- Fifth Amendment to Ex- HI's Form 10-K for the 1-7629 10(c)(6)
hibit 10(c)(1) effective year ended December 31,
as of September 7, 1994 1994
*10(c)(7) -- Sixth Amendment to Ex- HI's Form 10-K for the 1-3187 10(c)(7)
hibit 10(c)(1) effective year ended December 31,
as of August 6, 1997 1997

151

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(d) -- Executive Incentive HI's Form 10-Q for the quarter 1-7629 10(b)(2)
Compensation Plan of HL&P ended March 31, 1987
effective as of January 1,
1985
*10(e)(1) -- Executive Incentive HI's Form 10-Q for the quarter 1-7629 10(b)
Compensation Plan of HI as ended June 30, 1989
amended and restated on
January 1, 1989
*10(e)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(e)(2)
hibit 10(e)(1) effective ended December 31, 1991
as of January 1, 1989
*10(e)(3) -- Second Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(c)
hibit 10(e)(1) effective ended March 31, 1992
as of March 30, 1992
*10(e)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-7629 10(c)(4)
hibit 10(e)(1) effective ended December 31, 1992
as of November 4, 1992
*10(e)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the year 1 -7629 10(e)(5)
hibit 10(e)(1) effective ended December 31, 1994
as of September 7, 1994
*10(f)(1) -- Executive Incentive HI's Form 10-K for the year 1-7629 10(b)
Compensation Plan of HI as ended December 31, 1990
amended and restated on
January 1, 1991
*10(f)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(f)(2)
hibit 10(f)(1) effective ended December 31, 1991
as of January 1, 1991
*10(f)(3) -- Second Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(d)
hibit 10(f)(1) effective ended March 31, 1992
as of March 30, 1992
*10(f)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-7629 10(f)(4)
hibit 10(f)(1) effective ended December 31, 1992
as of November 4, 1992
*10(f)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(f)(5)
hibit 10(f)(1) effective ended December 31, 1992
as of January 1, 1993
*10(f)(6) -- Fifth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(f)(6)
hibit 10(f)(1) effective ended December 31, 1994
in part, January 1, 1995,
and in part, September 7,
1994
*10(f)(7) -- Sixth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(a)
hibit 10(f)(1) effective ended June 30, 1995
as of August 1, 1995
*10(f)(8) -- Seventh Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(a)
hibit 10(f)(1) effective ended June 30, 1996
as of January 1, 1996
*10(f)(9) -- Eighth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(a)
hibit 10(f)(1) effective ended June 30, 1997
as of January 1, 1997

152

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(f)(10) -- Ninth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(f)(10)
hibit 10(f)(1) effective ended December 31, 1997
in part, January 1, 1997,
and in part, January 1,
1998
*10(g) -- Benefit Restoration Plan HI's Form 10-Q for the quarter 1-7629 10(c)
of HI effective as of June ended March 31, 1987
1, 1985
*10(h) -- Benefit Restoration Plan HI's Form 10-K for the year 1-7629 10(g)(2)
of HI as amended and ended December 31, 1991
restated effective as of
January 1, 1988
*10(i)(1) -- Benefit Restoration Plan HI's Form 10-K for the year 1-7629 10(g)(3)
of HI, as amended and ended December 31, 1991
restated effective as of
July 1, 1991
*10(i)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-3187 10(i)(2)
hibit 10(i)(1) effective ended December 31, 1997
in part, August 6, 1997,
in part, September 3,
1997, and in part, October
1, 1997
*10(j)(1) -- Deferred Compensation Plan HI's Form 10-Q for the quarter 1-7629 10(d)
of HI effective as of ended March 31, 1987
September 1, 1985
*10(j)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(d)(2)
hibit 10(j)(1) effective ended December 31, 1990
as of September 1, 1985
*10(j)(3) -- Second Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(e)
hibit 10(j)(1) effective ended March 31, 1992
as of March 30, 1992
*10(j)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-7629 10(h)(4)
hibit 10(j)(1) effective ended December 31, 1993
as of June 2, 1993
*10(j)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(h)(5)
hibit 10(j)(1) effective ended December 31, 1994
as of September 7, 1994
*10(j)(6) -- Fifth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(d)
hibit 10(j)(1) effective ended June 30, 1995
as of August 1, 1995
*10(j)(7) -- Sixth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(b)
hibit 10(j)(1) effective ended June 30, 1995
as of December 1, 1995
*10(j)(8) -- Seventh Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(b)
hibit 10(j)(1) effective ended June 30, 1997
as of January 1, 1997
*10(j)(9) -- Eighth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(j)(9)
hibit 10(j)(1) effective ended December 31, 1997
as of October 1, 1997
*10(j)(10) -- Ninth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(j)(10)
hibit 10(j)(1) effective ended December 31, 1997
as of September 3, 1997

153

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(j)(11) -- Tenth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(j)(11)
hibit 10(j)(1) effective for the year ended December 31,
as of January 1, 2001 2002
*10(j)(12) -- Eleventh Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(j)(12)
hibit 10(j)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(j)(13) -- CenterPoint Energy 1985 CenterPoint Energy's Form 10-Q 1-31447 10.1
Deferred Compensation for the quarter ended September
Plan, as amended and 30, 2003
restated effective January
1, 2003
*10(k)(1) -- Deferred Compensation Plan HI's Form 10-Q for the quarter 1-7629 10(a)
of HI effective as of ended June 30, 1989
January 1, 1989
*10(k)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(e)(3)
hibit 10(k)(1) effective ended December 31, 1989
as of January 1, 1989
*10(k)(3) -- Second Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(f)
hibit 10(k)(1) effective ended March 31, 1992
as of March 30, 1992
*10(k)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-7629 10(i)(4)
hibit 10(k)(1) effective ended December 31, 1993
as of June 2, 1993
*10(k)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(i)(5)
hibit 10(k)(1) effective ended December 31, 1994
as of September 7, 1994
*10(k)(6) -- Fifth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(c)
hibit 10(k)(1) effective ended June 30, 1995
as of August 1, 1995
*10(k)(7) -- Sixth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(c)
hibit 10(k)(1) effective ended June 30, 1995
December 1, 1995
*10(k)(8) -- Seventh Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(c)
hibit 10(k)(1) effective ended June 30, 1997
as of January 1, 1997
*10(k)(9) -- Eighth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(k)(9)
hibit 10(k)(1) effective ended December 31, 1997
in part October 1, 1997
and in part January 1,
1998
*10(k)(10) -- Ninth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(k)(10)
hibit 10(k)(1) effective ended December 31, 1997
as of September 3, 1997
*10(k)(11) -- Tenth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(k)(11)
hibit 10(k)(1) effective for the year ended December 31,
as of January 1, 2001 2002
*10(k)(12) -- Eleventh Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(k)(12)
hibit 10(k)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(l)(1) -- Deferred Compensation Plan HI's Form 10-K for the year 1-7629 10(d)(3)
of HI effective as of ended December 31, 1990
January 1, 1991

154

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(l)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(j)(2)
hibit 10(l)(1) effective ended December 31, 1991
as of January 1, 1991
*10(l)(3) -- Second Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(g)
hibit 10(l)(1) effective ended March 31, 1992
as of March 30, 1992
*10(l)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-7629 10(j)(4)
hibit 10(l)(1) effective ended December 31, 1993
as of June 2, 1993
*10(l)(5) -- Fourth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(j)(5)
hibit 10(l)(1) effective ended December 31, 1993
as of December 1, 1993
*10(l)(6) -- Fifth Amendment to Ex- HI's Form 10-K for the year 1-7629 10(j)(6)
hibit 10(l)(1) effective ended December 31, 1994
as of September 7, 1994
*10(l)(7) -- Sixth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(b)
hibit 10(l)(1) effective ended June 30, 1995
as of August 1, 1995
*10(l)(8) -- Seventh Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(d)
hibit 10(l)(1) effective ended June 30, 1996
as of December 1, 1995
*10(l)(9) -- Eighth Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(d)
hibit 10(l)(1) effective ended June 30, 1997
as of January 1, 1997
*10(l)(10) -- Ninth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(l)(10)
hibit 10(l)(1) effective ended December 31, 1997
in part August 6, 1997, in
part October 1, 1997, and
in part January 1, 1998
*10(l)(11) -- Tenth Amendment to Ex- HI's Form 10-K for the year 1-3187 10(i)(11)
hibit 10(l)(1) effective ended December 31, 1997
as of September 3, 1997
*10(l)(12) -- Eleventh Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(l)(12)
hibit 10(l)(1) effective for the year ended December 31,
as of January 1, 2001 2002
*10(l)(13) -- Twelfth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(l)(13)
hibit 10(l)(1) effective for the year ended December 31,
as of August 31, 2002 2002
*10(m)(1) -- Long-Term Incentive Com- HI's Form 10-Q for the quarter 1-7629 10(c)
pensation Plan of HI ended June 30, 1989
effective as of January 1,
1989
*10(m)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(f)(2)
hibit 10(m)(1) effective ended December 31, 1989
as of January 1, 1990
*10(m)(3) -- Second Amendment to Ex- HI's Form 10-K for the year 1-7629 10(k)(3)
hibit 10(m)(1) effective ended December 31, 1992
as of December 22, 1992

155

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(m)(4) -- Third Amendment to Ex- HI's Form 10-K for the year 1-3187 10(m)(4)
hibit 10(m)(1) effective ended December 31, 1997
as of August 6, 1997
*10(m)(5) -- Fourth Amendment to Ex- Reliant Energy's Form 10-Q for 1-3187 10.4
hibit 10(m)(1) effective the quarter ended June 30, 2002
as of January 1, 2001
*10(n) -- Form of stock option HI's Form 10-Q for the quarter 1-7629 10(h)
agreement for ended March 31, 1992
non-qualified stock
options granted under Ex-
hibit 10(m)(1)
*10(o) -- Forms of restricted stock HI's Form 10-Q for the quarter 1-7629 10(i)
agreement for restricted ended March 31, 1992
stock granted under Ex-
hibit 10(m)(1)
*10(p)(1) -- 1994 Long-Term Incentive HI's Form 10-K for the year 1-7629 10(n)(1)
Compensation Plan of HI ended December 31, 1993
effective as of January 1,
1994
*10(p)(2) -- Form of stock option HI's Form 10-K for the year 1-7629 10(n)(2)
agreement for ended December 31, 1993
non-qualified stock
options granted under Ex-
hibit 10(p)(1)
*10(p)(3) -- First Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10(e)
hibit 10(p)(1) effective ended June 30, 1997
as of May 9, 1997
*10(p)(4) -- Second Amendment to Ex- HI's Form 10-K for the year 1-3187 10(p)(4)
hibit 10(p)(1) effective ended December 31, 1997
as of August 6, 1997
*10(p)(5) -- Third Amendment to Ex- HI's Form 10-K for the year 1-3187 10(p)(5)
hibit 10(p)(1) effective ended December 31, 1998
as of January 1, 1998
*10(p)(6) -- Reliant Energy 1994 Long- Reliant Energy's Form 10-Q for 1-3187 10.6
Term Incentive the quarter ended June 30, 2002
Compensation Plan, as
amended and restated
effective January 1, 2001
*+10(p)(7) -- First Amendment to Ex-
hibit 10(p)(6), effective
December 1, 2003
*10(q)(1) -- Savings Restoration Plan HI's Form 10-K for the year 1-7629 10(f)
of HI effective as of ended December 31, 1990
January 1, 1991
*10(q)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(l)(2)
hibit 10(q)(1) effective ended December 31, 1991
as of January 1, 1992
*10(q)(3) -- Second Amendment to Ex- HI's Form 10-K for the year 1-3187 10(q)(3)
hibit 10(q)(1) effective ended December 31, 1997
in part, August 6, 1997,
and in part, October 1,
1997

156

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(r)(1) -- Director Benefits Plan HI's Form 10-K for the year 1-7629 10(m)
effective as of January 1, ended December 31, 1991
1992
*10(r)(2) -- First Amendment to Ex- HI's Form 10-K for the year 1-7629 10(m)(1)
hibit 10(r)(1) effective ended December 31, 1998
as of August 6, 1997
*10(r)(3) -- CenterPoint Energy Outside CenterPoint Energy's Form 10-Q 1-31447 10.6
Director Benefits Plan, as for the quarter ended September
amended and restated 30, 2003
effective June 18, 2003
*10(s)(1) -- Executive Life Insurance HI's Form 10-K for the year 1-7629 10(q)
Plan of HI effective as of ended December 31, 1993
January 1, 1994
*10(s)(2) -- First Amendment to Ex- HI's Form 10-Q for the quarter 1-7629 10
hibit 10(s)(1) effective ended June 30, 1995
as of January 1, 1994
*10(s)(3) -- Second Amendment to Ex- HI's Form 10-K for the year 1-3187 10(s)(3)
hibit 10(s)(1) effective ended December 31, 1997
as of August 6, 1997
*10(s)(4) -- CenterPoint Energy CenterPoint Energy's Form 10-Q 1-31447 10.5
Executive Life Insurance for the quarter ended September
Plan, as amended and 30, 2003
restated effective June
18, 2003
*10(t) -- Employment and Supplemen- HI's Form 10-Q for the quarter 1-7629 10(f)
tal Benefits Agreement be- ended March 31, 1987
tween HL&P and Hugh Rice
Kelly
*10(u)(1) -- Reliant Energy Savings Reliant Energy's Form 10-K for 1-3187 10(cc)(1)
Plan, as amended and the year ended December 31, 1999
restated effective April
1, 1999
*10(u)(2) -- First Amendment to Ex- Reliant Energy's Form 10-Q for 1-3187 10.9
hibit 10(u)(1) effective the quarter ended June 30, 2002
January 1, 1999
*10(u)(3) -- Second Amendment to Ex- Reliant Energy's Form 10-Q for 1-3187 10.10
hibit 10(u)(1) effective the quarter ended June 30, 2002
January 1, 1997
*10(u)(4) -- Third Amendment to Ex- Reliant Energy's Form 10-Q for 1-3187 10.11
hibit 10(u)(1) effective the quarter ended June 30, 2002
January 1, 2001
*10(u)(5) -- Fourth Amendment to Ex- Reliant Energy's Form 10-Q for 1-3187 10.12
hibit 10(u)(1) effective the quarter ended June 30, 2002
May 6, 2002
*10(u)(6) -- Fifth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(6)
hibit 10(u)(1) effective for the year ended December 31,
January 1, 2002 and as 2002
renamed effective October
2, 2002

157

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(u)(7) -- Reliant Energy Savings CenterPoint Energy's Form 10-K 1-31447 10(u)(7)
Trust between Reliant for the year ended December 31,
Energy and The Northern 2002
Trust Company, as Trustee,
as amended and restated
effective April 1, 1999
*10(u)(8) -- First Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(8)
hibit 10(u)(7) effective for the year ended December 31,
September 30, 2002 2002
*+10(u)(9) -- Second Amendment to Ex-
hibit 10(u)(7) effective
January 6, 2003
10(u)(10) -- Note Purchase Agreement HI's Form 10-K for the year 1-7629 10(j)(3)
between HI and the ESOP ended December 31, 1990
Trustee, dated as of Octo-
ber 5, 1990
*10(u)(11) -- Reliant Energy Retirement CenterPoint Energy's Form 10-K 1-31447 10(u)(10)
Plan between Reliant for the year ended December 31,
Energy and The Northern 2002
Trust Company, as Trustee,
as amended and restated
effective January 1, 1999
*10(u)(12) -- First Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(11)
hibit 10(u)(11) effective for the year ended December 31,
as of January 1, 1995 2002
*10(u)(13) -- Second Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(12)
hibit 10(u)(11) effective for the year ended December 31,
as of January 1, 1995 2002
*10(u)(14) -- Third Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(13)
hibit 10(u)(11) effective for the year ended December 31,
as of January 1, 2001 2002
*10(u)(15) -- Fourth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(14)
hibit 10(u)(11) effective for the year ended December 31,
as of January 1, 2001 2002
*10(u)(16) -- Fifth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(15)
hibit 10(u)(11) effective for the year ended December 31,
as of November 15, 2002, 2002
and as renamed effective
October 2, 2002
*10(u)(17) -- Sixth Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(u)(16)
hibit 10(u)(11) effective for the year ended December 31,
as of January 1, 2002 2002
*+10(u)(18) -- Seventh Amendment to Ex-
hibit 10(u)(11) effective
December 1, 2003

158

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

10(u)(19) -- Reliant Energy, Reliant Energy's Form 10-K for 1-3187 10(u)(3)
Incorporated Master the year ended December 31, 1999
Retirement Trust (as
amended and restated
effective January 1, 1999
and renamed effective May
5, 1999)
10(u)(20) -- Contribution and Reliant Energy's Form 10-K for 1-3187 10(u)(4)
Registration Agreement the year ended December 31, 2001
dated December 18, 2001
among the Company,
CenterPoint Energy, Inc.
and the Northern Trust
Company, trustee under the
Reliant Energy,
Incorporated Master
Retirement Trust
10(v)(1) -- Stockholder's Agreement Schedule 13-D dated July 6, 1995 5-19351 2
dated as of July 6, 1995
between the Company and
Time Warner Inc.
10(v)(2) -- Amendment to Exhibit HI's Form 10-K for the year 1-7629 10(x)(4)
10(v)(1) dated November ended December 31, 1996
18, 1996
*10(w)(1) -- Houston Industries HI's Form 10-K for the year 1-7629 10(7)
Incorporated Executive ended December 31, 1995
Deferred Compensation
Trust effective as of
December 19, 1995
*10(w)(2) -- First Amendment to Ex- HI's Form 10-Q for the quarter 1-3187 10
hibit 10(w)(1) effective ended June 30, 1998
as of August 6, 1997
*10(x) -- Supplemental compensation CenterPoint Energy's Form 10-K 1-31447 10(x)
agreement, dated Novem- for the year ended December 31,
ber 27, 2002, between 2002
CenterPoint Energy and
Milton Carroll
*10(y)(1) -- Reliant Energy, Reliant Energy's Form 10-K for 1-3187 10(y)
Incorporated and the year ended December 31, 2000
Subsidiaries Common Stock
Participation Plan for
Designated New Employees
and Non-Officer Employees
effective as of March 4,
1998
*10(y)(2) -- Reliant Energy, CenterPoint Energy's Form 10-K 1-31447 10(y)(2)
Incorporated and for the year ended December 31,
Subsidiaries Common Stock 2002
Participation Plan for
Designated New Employees
and Non-Officer Employees,
as amended and restated
effective January 1, 2001

159

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(z) -- Reliant Energy, Reliant Energy's Definitive 1-3187 Appendix I
Incorporated Annual Proxy Statement for 2000 Annual
Incentive Compensation Meeting of Shareholders
Plan, as amended and
restated effective January
1, 1999
*10(aa)(1) -- Long-Term Incentive Plan Reliant Energy's Registration 333-60260 4.6
of Reliant Energy, Statement on Form S-8 dated May
Incorporated effective as 4, 2001
of January 1, 2001
*10(aa)(2) -- First Amendment to Ex- Reliant Energy's Registration 333-60260 4.7
hibit 10(aa)(1) effective Statement on Form S-8 dated May
as of January 1, 2001 4, 2001
*+10(aa)(3) -- Second Amendment to Ex-
hibit 10(aa)(1) effective
November 5, 2003
10(bb)(1) -- Master Separation Reliant Energy's Form 10-Q for 1-3187 10.1
Agreement entered into as the quarter ended March 31, 2001
of December 31, 2000
between Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(2) -- Transition Services Agree- Reliant Energy's Form 10-Q for 1-3187 10.2
ment, dated as of Decem- the quarter ended March 31, 2001
ber 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(3) -- Technical Services Agree- Reliant Energy's Form 10-Q for 1-3187 10.3
ment, dated as of Decem- the quarter ended March 31, 2001
ber 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(4) -- Texas Genco Option Agree- Reliant Energy's Form 10-Q for 1-3187 10.4
ment, dated as of Decem- the quarter ended March 31, 2001
ber 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(5) -- First Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(bb)(5)
hibit 10(bb)(4) effective for the year ended December 31,
as of February 1, 2003 2002
10(bb)(6) -- Employee Matters Agree- Reliant Energy's Form 10-Q for 1-3187 10.5
ment, entered into as of the quarter ended March 31, 2001
December 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(7) -- Retail Agreement, entered Reliant Energy's Form 10-Q for 1-3187 10.6
into as of December 31, the quarter ended March 31, 2001
2000, between Reliant En-
ergy, Incorporated and
Reliant Resources, Inc.

160

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

10(bb)(8) -- Registrations Rights Reliant Energy's Form 10-Q for 1-3187 10.7
Agreement, dated as of the quarter ended March 31, 2001
December 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(bb)(9) -- Tax Allocation Agreement, Reliant Energy's Form 10-Q for 1-3187 10.8
entered into as of Decem- the quarter ended March 31, 2001
ber 31, 2000, between
Reliant Energy,
Incorporated and Reliant
Resources, Inc.
10(cc)(1) -- Separation Agreement en- CenterPoint Energy's Form 10-K 1-31447 10(cc)(1)
tered into as of August for the year ended December 31,
31, 2002 between 2002
CenterPoint Energy and
Texas Genco Holdings, Inc.
("Texas Genco")
10(cc)(2) -- Transition Services Agree- CenterPoint Energy's Form 10-K 1-31447 10(cc)(2)
ment, dated as of August for the year ended December 31,
31, 2002, between 2002
CenterPoint Energy and
Texas Genco
10(cc)(3) -- Tax Allocation Agreement, CenterPoint Energy's Form 10-K 1-31447 10(cc)(3)
dated as of August 31, for the year ended December 31,
2002, between CenterPoint 2002
Energy and Texas Genco
10(cc)(4) -- Assignment and Assumption Texas Genco's Registration 1-31449 10.11
Agreement for the Statement on Form 10
Technical Services
Agreement entered into as
of August 31, 2002, by and
between CenterPoint En-
ergy and Texas Genco, LP
*10(dd) -- Retention Agreement effec- Reliant Energy's Form 10-K for 1-3187 10(jj)
tive October 15, 2001 be- the year ended December 31, 2001
tween Reliant Energy,
Incorporated and David G.
Tees
*10(ee) -- Retention Agreement effec- Reliant Energy's Form 10-K for 1-3187 10(kk)
tive October 15, 2001 be- the year ended December 31, 2001
tween Reliant Energy,
Incorporated and Michael
A. Reed
*10(ff)(1) -- Non-Qualified Executive CenterPoint Energy's Form 10-K 1-31447 10(ff)(1)
Disability Income Plan of for the year ended December 31,
Arkla, Inc. effective as 2002
of August 1, 1983
*10(ff)(2) -- Executive Disability CenterPoint Energy's Form 10-K 1-31447 10(ff)(2)
Income Agreement effective for the year ended December 31,
July 1, 1984 between 2002
Arkla, Inc. and T. Milton
Honea

161

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

*10(gg) -- Non-Qualified Unfunded Ex- CenterPoint Energy's Form 10-K 1-31447 10(gg)
ecutive Supplemental for the year ended December 31,
Income Retirement Plan of 2002
Arkla, Inc. effective as
of August 1, 1983
*10(hh)(1) -- Deferred Compensation Plan CenterPoint Energy's Form 10-K 1-31447 10(hh)(1)
for Directors of Arkla, for the year ended December 31,
Inc. effective as of 2002
November 10, 1988
*10(hh)(2) -- First Amendment to Ex- CenterPoint Energy's Form 10-K 1-31447 10(hh)(2)
hibit 10(hh)(1) effective for the year ended December 31,
as of August 6, 1997 2002
10(ii) -- Pledge Agreement dated as CenterPoint Energy's Form 10-Q 1-31447 10.1
of May 28, 2003 by Utility for the quarter ended June 30,
Holding, LLC in favor of 2003
JP Morgan Chase Bank, as
administrative agent
*10(jj) -- CenterPoint Energy CenterPoint Energy's Form 10-Q 1-31447 10.2
Deferred Compensation for the quarter ended June 30,
Plan, as amended and 2003
restated effective January
1, 2003
*10(kk) -- CenterPoint Energy Short CenterPoint Energy's Form 10-Q 1-31447 10.3
Term Incentive Plan, as for the quarter ended June 30,
amended and restated 2003
effective January 1, 2003
*+10(ll) -- CenterPoint Energy Stock
Plan for Outside
Directors, as amended and
restated effective May 7,
2003
10(mm)(1) -- $1,310,000,000 Credit CenterPoint Energy's Form 10-K 1-31447 4(g)(1)
Agreement, dated as of for the year ended December 31,
November 12, 2002, among 2002
CenterPoint Houston and
the banks named therein
10(mm)(2) -- First Amendment to Ex- CenterPoint Energy's Form 10-Q 1-31447 10.7
hibit 10(mm)(1), dated as for the quarter ended September
of September 3, 2003 30, 2003
10(mm)(3) -- Pledge Agreement, dated as CenterPoint Energy's Form 10-K 1-31447 4(g)(2)
of November 12, 2002 exe- for the year ended December 31,
cuted in connection with 2002
Exhibit 10(mm)(1)
10(nn) -- $200,000,000 Credit Agree- CenterPoint Energy's Form 10-Q 1-31447 4.5
ment, dated as of March for the quarter ended March 31,
25, 2003, among CERC 2003
Corp., as Borrower, and
the Initial Lenders named
therein, as Initial
Lenders

162

SEC FILE
OR
EXHIBIT REGISTRATION EXHIBIT
NUMBER DESCRIPTION REPORT OR REGISTRATION STATEMENT NUMBER REFERENCE
------- ----------- -------------------------------- ------------ ---------

10(oo)(1) -- Credit Agreement, dated as CenterPoint Energy's Form 10-Q 1-31447 10.8
of October 7, 2003 among for the quarter ended September
CenterPoint Energy and the 30, 2003
banks named therein
10(oo)(2) -- Pledge Agreement, dated as CenterPoint Energy's Form 10-Q 1-31447 10.9
of October 7, 2003, for the quarter ended September
executed in connection 30, 2003
with Exhibit 10(oo)(1)
+10(pp)(1) -- $75,000,000 revolving
credit facility dated as
of December 23, 2003 among
Texas Genco, LP and the
banks named therein
+10(pp)(2) -- First mortgage indenture,
dated as of December 23,
2003 among Texas Genco, LP
and JPMorgan Chase Bank,
as trustee
+10(pp)(3) -- First supplemental
indenture to Exhibit
10(pp)(2) dated as of
December 23, 2003
+12 -- Computation of Ratios of
Earnings to Fixed Charges
+21 -- Subsidiaries of
CenterPoint Energy
+23 -- Consent of Deloitte &
Touche LLP
+31.1 -- Rule 13a-14(a)/15d-14(a)
Certification of David M.
McClanahan
+31.2 -- Rule 13a-14(a)/15d-14(a)
Certification of Gary L.
Whitlock
+32.1 -- Section 1350 Certification
of David M. McClanahan
+32.2 -- Section 1350 Certification
of Gary L. Whitlock

163



                                                                EXHIBIT 4(e)(10)

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture, unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the first series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series A, due
         October 9, 2003" (the "Series A Bonds").

         (2)      The Series A Bonds shall be authenticated and delivered in the
         aggregate principal amount of $850,000,000.

         (3)      Not applicable.

         (4)      The principal of all Series A Bonds shall be payable by the
         Company in whole or in installments on such date or dates as the
         Company has any obligations under the Credit Agreement, dated as of
         October 10, 2002 (the "Credit Agreement"), among Citibank, N.A., as
         syndication agent, JPMorgan Chase Bank, as administrative agent (the
         "Administrative Agent") and the Banks from time to time parties
         thereto, to repay any Loans (as defined in the Credit Agreement) to the
         Banks (whether upon scheduled maturity, required prepayment,
         acceleration, demand or otherwise), but not later than October 9, 2003.
         The amount of principal of the Series A Bonds payable by the Company on
         any such date shall equal the aggregate principal amount of the Loans
         due and payable on such date pursuant to the Credit Agreement (but, in
         no event, shall exceed the aggregate principal amount of the Series A
         Bonds). The obligation of the Company to make any payment of the
         principal on the Series A Bonds shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent that the Company has paid the principal then
         due and payable on the Loans made pursuant to the Credit Agreement.

         (5)      The Series A Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment



         Date (as hereinafter defined) on the Series A Bonds to equal the amount
         of interest payable on such Interest Payment Date under the Credit
         Agreement. Such interest on the Series A Bonds shall be payable on the
         same dates as interest is payable from time to time pursuant to the
         Credit Agreement (each such date herein called an "Interest Payment
         Date"), until the maturity of the Series A Bonds, or, in the case of
         any default by the Company in the payment of the principal due on the
         Series A Bonds, until the Company's obligation with respect to the
         payment of such principal shall be discharged as provided in the
         Indenture. The amount of interest payable from time to time under the
         Credit Agreement, the basis on which such interest is computed and the
         dates on which such interest is payable are set forth in the Credit
         Agreement. Each Series A Bond shall bear interest (a) from the date of
         initial authentication of this Bond to but excluding the Interest
         Payment Date next succeeding, and (b) from each Interest Payment Date
         to but excluding the Interest Payment Date next succeeding. The
         obligation of the Company to make any payment of interest on the Series
         A Bonds shall be fully or partially, as the case may be, deemed to have
         been paid or otherwise satisfied and discharged to the extent that the
         Company has paid the interest on the Loans then due and payable
         pursuant to the Credit Agreement.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of and interest on
         the Series A Bonds shall be payable, (ii) registration of transfer of
         the Series A Bonds may be effected, (iii) exchanges of the Series A
         Bonds may be effected and (iv) notices and demands to or upon the
         Company in respect of the Series A Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series A Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series A Bonds. The principal of the
         Series A Bonds shall be payable without the presentment or surrender
         thereof.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series A Bonds are issuable only in denominations of
         $850,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     See subsection (4) above.

         (14)     Not applicable.

         (15)     Not applicable.



         (16)     Not applicable.

         (17)     The Series A Bonds shall be evidenced by a single registered
         Series A Bond in the principal amount and denomination of Eight Hundred
         Fifty Million Dollars ($850,000,000). The Series A Bonds shall be dated
         October 10, 2002, shall mature no later than October 9, 2003, unless
         sooner paid, and shall bear interest at the rate specified in
         subsection (5) above. The Series A Bonds may be executed by the Company
         and delivered to the Trustee for authentication and delivery. The
         principal of and interest on the Series A Bonds shall be payable at the
         Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series A Bond shall be identified by the number A-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Administrative Agent, on behalf of itself and the
         Banks, and shall be transferable only as required to effect an
         assignment thereof to a successor or an assign of the Administrative
         Agent under the Credit Agreement and provided that all obligations of
         the Administrative Agent under the Pledge Agreement (as defined below)
         shall also be transferred to, and assumed by, any such successor or
         assign. The Series A Bonds are to be issued to the Administrative Agent
         as security for the payment by the Company of its Obligations (as
         defined in the Pledge Agreement). The single Series A Bond shall be
         held by the Administrative Agent subject to the terms of the Pledge
         Agreement, dated as of October 10, 2002, between the Company and the
         Administrative Agent (the "Pledge Agreement").

         Series A Bonds issued upon transfer shall be numbered consecutively
         from A-2 upwards and issued in the same $850,000,000 denomination but,
         to the extent that the Loans are repaid, the registered holder thereof
         shall duly note on the Series A Bonds like reduction in the amount of
         principal in the Schedule of Prepayments to such Series A Bond and upon
         any transfer of said Series A Bond, such Schedule of Prepayments shall
         transfer to the subsequently issued Series A Bond. See also subsection
         (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series A Bond by acceptance of the Series A
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series A Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         series A Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series A Bonds, "Business Day" shall mean
         a day other than a Saturday, Sunday or other day on which commercial
         banks in New York City are authorized or required by law to close.

         (21)     Not Applicable.



         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series A Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Administrative Agent,
         signed by an authorized officer of the Administrative Agent and
         attested by the Secretary or an Assistant Secretary of the
         Administrative Agent within 90 days after the applicable Interest
         Payment Date, stating that the payment of principal of or interest on
         the Series A Bond has not been fully paid when due and specifying the
         amount of funds required to make such payment.

         The Series A Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series A Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.



         IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate on this 10th day of October, 2002.

                                            By: /s/ Marc Kilbride
                                                --------------------------------
                                            Name: Marc Kilbride
                                            Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    ----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer



                                                                       EXHIBIT A








                             FORM OF SERIES A BOND











NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT COLLATERAL TO A SUCCESSOR OR ASSIGN OF THE
ADMINISTRATIVE AGENT UNDER THE COLLATERAL AGREEMENT REFERRED TO HEREIN AMONG THE
COMPANY AND THE SEVERAL PARTIES THERETO.


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
              General Mortgage Bonds, Series A, due October 9, 2003


                                                                                               
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes [ ]   No [X]
Stated Maturity:                    October 9, 2003           Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A





               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                                   ----------

Principal Amount
$850,000,000                                                         No. A-1


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company duly
organized and existing under the laws of the State of Texas (herein called the
"Company," which term includes any successor under the Indenture referred to
below), for value received, hereby promises to pay to JPMorgan Chase Bank, as
Administrative Agent (the "Administrative Agent"), or its registered assigns, on
behalf of itself and the Banks (as defined below), the principal sum of EIGHT
HUNDRED FIFTY MILLION DOLLARS, or such lesser principal amount as shall be equal
to the aggregate principal amount of Loans (as defined in the Credit Agreement
defined below) outstanding from time to time under the Credit Agreement (as
defined below), in whole or in installments on such date or dates as the Company
has any obligations under the Credit Agreement to repay any Loans to the Banks
(whether upon scheduled maturity, required prepayment, acceleration, demand or
otherwise), but not later than the Stated Maturity specified above. The amount
of principal of this Bond payable by the Company on any such date shall equal
the aggregate principal amount of the Loans due and payable on such date
pursuant to the Credit Agreement (but, in no event, shall exceed the principal
amount of this Bond). The obligation of the Company to make any payment of the
principal on this Bond shall be fully or partially, as the case may be, deemed
to have been paid or otherwise satisfied and discharged to the extent that the
Company has paid the principal then due and payable on the Loans made pursuant
to the Credit Agreement.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of interest payable on such Interest Payment Date under the Credit Agreement.
Such interest shall be payable on the same dates as interest is payable from
time to time in respect of the Loans pursuant to the Credit Agreement (each such
date herein called an "Interest Payment Date"), until the maturity of this Bond,
or, if the Company shall default in the payment of the principal due on this
Bond, until the Company's obligation with respect to the payment of such
principal shall be discharged as provided in the Indenture. The amount of
interest payable from time to time under the Credit Agreement, the basis on
which such interest is computed and the dates on which such interest is payable



are set forth in the Credit Agreement. This Bond shall bear interest (a) from
the date of initial authentication of this Bond to but excluding the Interest
Payment Date next succeeding, and (b) from each Interest Payment Date to but
excluding the Interest Payment Date next succeeding. The obligation of the
Company to make any payment of interest on this Bond shall be fully or
partially, as the case may be, deemed to have been paid or otherwise satisfied
and discharged to the extent that the Company has paid the interest on the Loans
then due and payable pursuant to the Credit Agreement.

This Bond is issued to the Administrative Agent by the Company pursuant to the
Company's obligations under the Credit Agreement, dated as of October 10, 2002
(as amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"), among the Company, Citibank, N.A., as Syndication Agent,
JPMorgan Chase Bank, as Administrative Agent, and the banks and other financial
institutions from time to time parties thereto (the "Banks"). This Bond shall be
held by the Administrative Agent subject to the terms of the Pledge Agreement,
dated as of October 10, 2002, between the Company, the Administrative Agent and
the Administrative Agent in such capacity under the Credit Agreement. Any
capitalized terms used herein and not defined herein shall have the meanings
specified in the Indenture (as defined below), unless otherwise noted.

The Administrative Agent shall surrender this Bond to the Trustee when all of
the principal of and interest on the Loans made pursuant to the Credit Agreement
shall have been duly paid and the Credit Agreement shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and



PROVIDED, FURTHER, that the Indenture permits the Trustee to enter into one or
more supplemental indentures for limited purposes without the consent of any
Holders of Securities. The Indenture also contains provisions permitting the
Holders of a majority in principal amount of the Securities then Outstanding, on
behalf of the Holders of all Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Security issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

This Bond has been issued by the Company to the Administrative Agent for the
benefit of the holders of the Loans to (i) provide security for the payment of
the Company's obligations on the Loans under the Credit Agreement and (ii)
provide to the holders of such Loans the benefits of the security provided for
this Bond pursuant to the Indenture.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Administrative Agent, signed by an authorized officer of the Administrative
Agent and attested by the Secretary or an Assistant Secretary of the
Administrative Agent within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall note the amounts of all reductions in the principal
of the Loans under the Credit Agreement, and shall notify the Company and the
Trustee of the name and address of the transferee and shall afford the Company
and the Trustee the opportunity of verifying the notation as to such reductions.
By acceptance hereof the holder of this Bond and each transferee shall be deemed
to have agreed to indemnify and hold harmless the Company and the Trustee
against all losses, claims, damages or liability arising out of any failure on
part of the holder or of any such transferee to comply with the requirements of
the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.

           [The remainder of this page is intentionally left blank.]






         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.


                                   CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC



                                   By:
                                       --------------------------------------
                                        Name:
                                        Title:



                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: October 10, 2002

                                    JPMORGAN CHASE BANK, as Trustee



                                    By:
                                       --------------------------------------
                                       Authorized Signatory









                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the second series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series B, due
         November 1, 2018" (the "Series B Bonds").

         (2)      The Series B Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $50,000,000.

         (3)      Not applicable.

         (4)      The Series B Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on November 1, 2018. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1997 BR Bonds").

         (5)      The Series B Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series B Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date

                                       1



         under the Trust Indenture dated as of January 1, 1997 (as amended and
         supplemented, the "Trust Indenture") between Brazos River Authority
         (the "Issuer") and Bank One Trust Company, National Association
         (successor to The First National Bank of Chicago), as trustee (the
         "Trust Indenture Trustee") in respect of the Series 1997 BR Bonds. Such
         interest on the Series B Bonds shall be payable on the same dates as
         interest is payable from time to time in respect of the Series 1997 BR
         Bonds pursuant to the Trust Indenture (each such date herein called an
         "Interest Payment Date"), until the maturity of the Series B Bonds, or,
         in the case of any default by the Company in the payment of the
         principal due on the Series B Bonds, until the Company's obligation
         with respect to the payment of such principal shall be discharged as
         provided in the Indenture. The amount of interest payable from time to
         time in respect of the Series 1997 BR Bonds under the Trust Indenture,
         the basis on which such interest is computed and the dates on which
         such interest is payable are set forth in the Trust Indenture. Each
         Series B Bond shall bear interest from the later of the date of initial
         authentication of such Series B Bond or the most recent Interest
         Payment Date to which interest has been paid. The obligation of the
         Company to make any payment of interest on the Series B Bonds shall be
         fully or partially, as the case may be, deemed to have been paid or
         otherwise satisfied and discharged to the extent that CenterPoint has
         paid to the Trust Indenture Trustee the Installment Payment in respect
         of the interest then due and payable on the Series 1997 BR Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas, shall be the place at which (i) the principal of, premium and
         interest on, the Series B Bonds shall be payable, (ii) registration of
         transfer of the Series B Bonds may be effected, (iii) exchanges of the
         Series B Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series B Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series B Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series B Bonds.

         (7)      Not applicable.

                                       2



         (8)      Not applicable.

         (9)      The Series B Bonds are issuable only in denominations of
         $50,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable

         (16)     Not applicable.

         (17) The Series B Bonds shall be evidenced by a single registered
         Series B Bond in the principal amount and denomination of Fifty Million
         Dollars ($50,000,000). The Series B Bonds shall be dated October 10,
         2002, shall mature no later than November 1, 2018, unless sooner paid,
         and shall bear interest at the rate specified in subsection (5) above.
         The Series B Bonds may be executed by the Company and delivered to the
         Trustee for authentication and delivery. The principal of and interest
         on the Bonds shall be payable at the Corporate Trust Office of the
         Trustee in Houston, Texas.

         The single Series B Bond shall be identified by the number B-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series B Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         January 1, 1997, by and between the Issuer and CenterPoint (as
         successor). The single Series B Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series B Bonds Collateral
         Agreement (Series B Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series B Bonds issued upon transfer shall be numbered consecutively
         from B-2 upwards and issued in the same $50,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series B Bond by acceptance of the Series B
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series B Bonds have not
         been registered under the Securities Act of 1933 and may

                                       3



         not be offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series B Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series B Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series B Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture Trustee, signed
         by an authorized officer of the Indenture Trustee and attested by the
         Secretary or an Assistant Secretary of the Indenture Trustee within 90
         days after the applicable Interest Payment Date, stating that the
         payment of principal of or interest on the Series B Bond has not been
         fully paid when due and specifying the amount of funds required to make
         such payment.

         The Series B Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series B Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate on
this 10th day of October, 2002.

                                     By: /s/ Marc Kilbride
                                         -------------------------------------
                                     Name: Marc Kilbride
                                     Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    -----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                                                                       EXHIBIT A

                              FORM OF SERIES B BOND

                                        6



NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
             General Mortgage Bonds, Series B, due November 1, 2018

                                                                      
Original Interest Accrual Date:   October 10, 2002   Redeemable by Company:    Yes _  No X
Stated Maturity:                  November 1, 2018   Redemption Date:  N/A
Interest Rate:                    See below          Redemption Price: N/A
Interest Payment Dates:           See below
Regular Record Dates:             N/A



               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$50,000,000                                                      No. B-1


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to Bank One Trust Company, National
Association as Trustee under the Trust Indenture (as herein defined) or its
registered assigns (the "Indenture Trustee"), the principal sum of FIFTY MILLION
DOLLARS, in whole or in installments on such date or dates as the Issuer (as
defined herein) has any obligations under the Trust Indenture (as amended and
supplemented, the "Trust Indenture"), dated as of January 1, 1997, between
Brazos River Authority (the "Issuer") and the Indenture Trustee (as successor)
to repay any principal in respect of the Bonds (as such term is defined in the
Trust Indenture, and hereinafter referred to as the "Series 1997 BR Bonds"),
excluding any payment of principal in advance of the final scheduled maturity
date thereof, but not later than the Stated Maturity specified above. The
obligation of the Company to make any payment of principal on this Bond, whether
at maturity or otherwise, shall be fully or partially, as the case may be,
deemed to have been paid or otherwise satisfied and discharged to the extent
CenterPoint Energy, Inc. ("CenterPoint") has paid to the Indenture Trustee the
Installment Payment (as defined below) in respect of the principal then due and
payable on the Series 1997 BR Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1997 BR Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1997 BR Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1997 BR Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest is



payable are set forth in the Trust Indenture. This Bond shall bear interest (a)
from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Indenture Trustee the Installment Payment in respect of the interest then
due and payable on the Series 1997 BR Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of January 1,
1997, between the Brazos River Authority and CenterPoint (as successor). This
Bond shall be held by the Trust Indenture Trustee subject to the terms of the
Collateral Agreement (Series B Bonds), dated as of October 10, 2002, between the
Company and the Indenture Trustee. Any capitalized terms used herein and not
defined herein shall have the meanings specified in the Indenture (as defined
below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1997 BR Bonds shall have been duly paid,
and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any



purpose.

            [The remainder of this page is intentionally left blank.]



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                 By: _____________________________________
                                     Name:
                                     Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                 JPMORGAN CHASE BANK, as Trustee

                                 By: _____________________________________
                                     Authorized Signatory


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the third series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series C, due
         November 1, 2028" (the "Series C Bonds").

         (2)      The Series C Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $68,000,000.

         (3)      Not applicable.

         (4)      The Series C Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on November 1, 2028. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1997 MC Bonds").

         (5)      The Series C Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series C Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date under the
         Trust Indenture dated as of January 1, 1997 (as amended and
         supplemented, the "Trust Indenture") between Matagorda County
         Navigation District Number One (the "Issuer") and Bank One Trust
         Company, National Association (successor to The First National Bank of
         Chicago), as trustee (the "Trust Indenture Trustee") in respect of the
         Series 1997 MC Bonds. Such

                                       1



         interest on the Series C Bonds shall be payable on the same dates as
         interest is payable from time to time in respect of the Series 1997 PC
         Bonds pursuant to the Trust Indenture (each such date herein called an
         "Interest Payment Date"), until the maturity of the Series C Bonds, or,
         in the case of any default by the Company in the payment of the
         principal due on the Series C Bonds, until the Company's obligation
         with respect to the payment of such principal shall be discharged as
         provided in the Indenture. The amount of interest payable from time to
         time in respect of the Series 1997 MC Bonds under the Trust Indenture,
         the basis on which such interest is computed and the dates on which
         such interest is payable are set forth in the Trust Indenture. Each
         Series C Bond shall bear interest from the later of the date of initial
         authentication of such Series C Bond or the most recent Interest
         Payment Date to which interest has been paid. The obligation of the
         Company to make any payment of interest on the Series C Bonds shall be
         fully or partially, as the case may be, deemed to have been paid or
         otherwise satisfied and discharged to the extent that CenterPoint has
         paid to the Trustee the Installment Payment in respect of the interest
         then due and payable on the Series 1997 MC Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series C Bonds shall be payable, (ii) registration of
         transfer of the Series C Bonds may be effected, (iii) exchanges of the
         Series C Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series C Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series C Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series C Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series C Bonds are issuable only in denominations of
         $68,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

                                       2



         (17)     The Series C Bonds shall be evidenced by a single registered
         Series C Bond in the principal amount and denomination of Sixty-Eight
         Million Dollars ($68,000,000). The Series C Bonds shall be dated
         October 10, 2002, shall mature no later than November 1, 2028, unless
         sooner paid, and shall bear interest at the rate specified in
         subsection (5) above. The Series C Bonds may be executed by the Company
         and delivered to the Trustee for authentication and delivery. The
         principal of and interest on the Bonds shall be payable at the
         Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series C Bond shall be identified by the number C-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series C Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         January 1, 1997, by and between the Issuer and CenterPoint (as
         successor). The single Series C Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series C Bonds Collateral
         Agreement (Series B Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series C Bonds issued upon transfer shall be numbered consecutively
         from C-2 upwards and issued in the same $68,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series C Bond by acceptance of the Series C
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series C Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series C Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series C Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series C Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture

                                       3



         Trustee, signed by an authorized officer of the Indenture Trustee and
         attested by the Secretary or an Assistant Secretary of the Indenture
         Trustee within 90 days after the applicable Interest Payment Date,
         stating that the payment of principal of or interest on the Series C
         Bond has not been fully paid when due and specifying the amount of
         funds required to make such payment.

         The Series C Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series C Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                                By: /s/ Marc Kilbride
                                    ----------------------------------------
                                Name: Marc Kilbride
                                Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    ----------------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                                                                       EXHIBIT A

                              FORM OF SERIES C BOND

                                        6



NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
             General Mortgage Bonds, Series C, due November 1, 2028

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _  No X
Stated Maturity:                    November 1, 2028          Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$68,000,000                                                        No. C-1


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to Bank One Trust Company, National
Association as Trustee under the Trust Indenture (as herein defined) or its
registered assigns (the "Indenture Trustee"), the principal sum of SIXTY EIGHT
MILLION DOLLARS, in whole or in installments on such date or dates as the Issuer
(as defined herein) has any obligations under the Trust Indenture (as amended
and supplemented, the "Trust Indenture"), dated as of January 1, 1997, between
Matagorda County Navigation District Number One (the "Issuer") and the Indenture
Trustee (as successor) to repay any principal in respect of the Bonds (as such
term is defined in the Trust Indenture, and hereinafter referred to as the
"Series 1997 MC Bonds"), excluding any payment of principal in advance of the
final scheduled maturity date thereof, but not later than the Stated Maturity
specified above. The obligation of the Company to make any payment of principal
on this Bond, whether at maturity or otherwise, shall be fully or partially, as
the case may be, deemed to have been paid or otherwise satisfied and discharged
to the extent CenterPoint Energy, Inc. ("CenterPoint") has paid to the Indenture
Trustee the Installment Payment (as defined below) in respect of the principal
then due and payable on the Series 1997 MC Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1997 MC Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1997 MC Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as

                                        1



provided in the Indenture. The amount of interest payable from time to time in
respect of the Series 1997 MC Bonds under the Trust Indenture, the basis on
which such interest is computed and the dates on which such interest is payable
are set forth in the Trust Indenture. This Bond shall bear interest (a) from the
Interest Payment Date next preceding the date of this Bond to which interest has
been paid, or (b) if the date of this Bond is an Interest Payment Date to which
interest has been paid, then from such date, or (c) if no interest has been paid
on this Bond, then from the date of initial authentication of this Bond. The
obligation of the Company to make any payment of interest on this Bond shall be
fully or partially, as the case may be, deemed to have been paid or otherwise
satisfied and discharged to the extent that CenterPoint has paid to the
Indenture Trustee the Installment Payment in respect of the interest then due
and payable on the Series 1997 MC Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of January 1,
1997, between Matagorda County Navigation District Number One and CenterPoint
(as successor). This Bond shall be held by the Indenture Trustee subject to the
terms of the Collateral Agreement (Series C Bonds), dated as of October 10,
2002, between the Company and the Trust Indenture Trustee. Any capitalized terms
used herein and not defined herein shall have the meanings specified in the
Indenture (as defined below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1997 MC Bonds shall have been duly paid,
and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and

                                       2



PROVIDED, FURTHER, that the Indenture permits the Trustee to enter into one or
more supplemental indentures for limited purposes without the consent of any
Holders of Securities. The Indenture also contains provisions permitting the
Holders of a majority in principal amount of the Securities then Outstanding, on
behalf of the Holders of all Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Bond shall be conclusive and binding upon such Holder and upon all future
Holders of this Bond and of any Security issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

                                       3



Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                     CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                     By: _____________________________________
                                         Name:
                                         Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                     JPMORGAN CHASE BANK, as Trustee

                                     By: _____________________________________
                                         Authorized Signatory

                                       5


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the fourth series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series D, due
         May 1, 2019" (the "Series D Bonds").

         (2)      The Series D Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $100,000,000.

         (3)      Not applicable.

         (4)      The Series D Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on May 1, 2019. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1998A BR Bonds").

         (5)      The Series D Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series D Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date under the
         Trust Indenture dated as of February 1, 1998 (as amended and
         supplemented, the "Trust Indenture") between Brazos River Authority
         (the "Issuer") and JPMorgan Chase Bank (successor to Chase Bank of
         Texas, National Association, as trustee (the "Trust Indenture Trustee")
         in respect of the Series 1998A BR Bonds. Such interest on the Series D
         Bonds shall be payable on

                                       1



         the same dates as interest is payable from time to time in respect of
         the Series 1998A BR Bonds pursuant to the Trust Indenture (each such
         date herein called an "Interest Payment Date"), until the maturity of
         the Series D Bonds, or, in the case of any default by the Company in
         the payment of the principal due on the Series D Bonds, until the
         Company's obligation with respect to the payment of such principal
         shall be discharged as provided in the Indenture. The amount of
         interest payable from time to time in respect of the Series 1998A BR
         Bonds under the Trust Indenture, the basis on which such interest is
         computed and the dates on which such interest is payable are set forth
         in the Trust Indenture. Each Series D Bond shall bear interest from the
         later of the date of initial authentication of such Series D Bond or
         the most recent Interest Payment Date to which interest has been paid.
         The obligation of the Company to make any payment of interest on the
         Series D Bonds shall be fully or partially, as the case may be, deemed
         to have been paid or otherwise satisfied and discharged to the extent
         that CenterPoint has paid to the Trust Indenture Trustee the
         Installment Payment in respect of the interest then due and payable on
         the Series 1998A BR Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series D Bonds shall be payable, (ii) registration of
         transfer of the Series D Bonds may be effected, (iii) exchanges of the
         Series D Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series D Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series D Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series D Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series D Bonds are issuable only in denominations of
         $100,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

                                       2



         (17)     The Series D Bonds shall be evidenced by a single registered
         Series D Bond in the principal amount and denomination of One Hundred
         Million Dollars ($100,000,000). The Series D Bonds shall be dated
         October 10, 2002, shall mature no later than May 1, 2019, unless sooner
         paid, and shall bear interest at the rate specified in subsection (5)
         above. The Series D Bonds may be executed by the Company and delivered
         to the Trustee for authentication and delivery. The principal of and
         interest on the Bonds shall be payable at the Corporate Trust Office of
         the Trustee in Houston, Texas.

         The single Series D Bond shall be identified by the number D-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series D Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         February 1, 1998, by and between the Issuer and CenterPoint (as
         successor). The single Series D Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series D Bonds Collateral
         Agreement (Series D Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series D Bonds issued upon transfer shall be numbered consecutively
         from D-2 upwards and issued in the same $100,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series D Bond by acceptance of the Series D
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series D Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series D Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series D Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series D Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture

                                       3



         Trustee, signed by an authorized officer of the Indenture Trustee and
         attested by the Secretary or an Assistant Secretary of the Indenture
         Trustee within 90 days after the applicable Interest Payment Date,
         stating that the payment of principal of or interest on the Series D
         Bond has not been fully paid when due and specifying the amount of
         funds required to make such payment.

         The Series D Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series D Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                                     By: /s/ Marc Kilbride
                                         ---------------------------------------
                                     Name: Marc Kilbride
                                     Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    ----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                             FORM OF SERIES D BONDS


NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
                General Mortgage Bonds, Series D, due May 1, 2019

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _   No X
Stated Maturity:                    May 1, 2019               Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$100,000,000                                                      No. D-1

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to JPMorgan Chase Bank as Trustee under
the Trust Indenture (as herein defined) or its registered assigns (the
"Indenture Trustee"), the principal sum of ONE HUNDRED MILLION DOLLARS, in whole
or in installments on such date or dates as the Issuer (as defined herein) has
any obligations under the Trust Indenture (as amended and supplemented, the
"Trust Indenture"), dated as of February 1, 1998, between Brazos River Authority
(the "Issuer") and the Indenture Trustee (as successor) to repay any principal
in respect of the 1998A Bonds (as such term is defined in the Trust Indenture,
and hereinafter referred to as the "Series 1998A BR Bonds"), excluding any
payment of principal in advance of the final scheduled maturity date thereof,
but not later than the Stated Maturity specified above. The obligation of the
Company to make any payment of principal on this Bond, whether at maturity or
otherwise, shall be fully or partially, as the case may be, deemed to have been
paid or otherwise satisfied and discharged to the extent CenterPoint Energy,
Inc. ("CenterPoint") has paid to the Indenture Trustee the Installment Payment
(as defined below) in respect of the principal then due and payable on the
Series 1998A BR Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1998A BR Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1998A BR Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1998A BR Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest

                                       1



is payable are set forth in the Trust Indenture. This Bond shall bear interest
(a) from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Trust Indenture Trustee the Installment Payment in respect of the interest
then due and payable on the Series 1998A BR Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of February 1,
1998, between the Brazos River Authority and CenterPoint (as successor). This
Bond shall be held by the Trust Indenture Trustee subject to the terms of the
Collateral Agreement, (Series D Bonds) dated as of October 10, 2002, between the
Company and the Indenture Trustee. Any capitalized terms used herein and not
defined herein shall have the meanings specified in the Indenture (as defined
below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1998A BR Bonds shall have been duly
paid, and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions

                                       2



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any

                                       3



purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                    By: _____________________________________
                                        Name:
                                        Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                    JPMORGAN CHASE BANK, as Trustee

                                    By: _____________________________________
                                        Authorized Signatory

                                       5


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the fifth series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series E, due
         November 1, 2020" (the "Series E Bonds").

         (2)      The Series E Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $90,000,000.

         (3)      Not applicable.

         (4)      The Series E Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on November 1, 2020. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1998B BR Bonds").

         (5)      The Series E Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series E Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date under the
         Trust Indenture dated as of February 1, 1998 (as amended and
         supplemented, the "Trust Indenture") between Brazos River Authority
         (the "Issuer") and JPMorgan Chase Bank (successor to Chase Bank of
         Texas, National Association), as trustee (the "Trust Indenture
         Trustee") in respect of the Series 1998A BR Bonds. Such interest on the
         Series E Bonds shall be



         payable on the same dates as interest is payable from time to time in
         respect of the Series 1998B BR Bonds pursuant to the Trust Indenture
         (each such date herein called an "Interest Payment Date"), until the
         maturity of the Series E Bonds, or, in the case of any default by the
         Company in the payment of the principal due on the Series E Bonds,
         until the Company's obligation with respect to the payment of such
         principal shall be discharged as provided in the Indenture. The amount
         of interest payable from time to time in respect of the Series 1998B BR
         Bonds under the Trust Indenture, the basis on which such interest is
         computed and the dates on which such interest is payable are set forth
         in the Trust Indenture. Each Series E Bond shall bear interest from the
         later of the date of initial authentication of such Series E Bond or
         the most recent Interest Payment Date to which interest has been paid.
         The obligation of the Company to make any payment of interest on the
         Series E Bonds shall be fully or partially, as the case may be, deemed
         to have been paid or otherwise satisfied and discharged to the extent
         that CenterPoint has paid to the Trust Indenture Trustee the
         Installment Payment in respect of the interest then due and payable on
         the Series 1998B BR Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series E Bonds shall be payable, (ii) registration of
         transfer of the Series E Bonds may be effected, (iii) exchanges of the
         Series E Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series E Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series E Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series E Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series E Bonds are issuable only in denominations of
         $90,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

                                       2



         (17)     The Series E Bonds shall be evidenced by a single registered
         Series E Bond in the principal amount and denomination of Ninety
         Million Dollars ($90,000,000). The Series E Bonds shall be dated
         October 10, 2002, shall mature no later than November 1, 2020, unless
         sooner paid, and shall bear interest at the rate specified in
         subsection (5) above. The Series E Bonds may be executed by the Company
         and delivered to the Trustee for authentication and delivery. The
         principal of and interest on the Bonds shall be payable at the
         Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series E Bond shall be identified by the number E-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series E Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         February 1, 1998, by and between the Issuer and CenterPoint (as
         successor). The single Series E Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series E Bonds Collateral
         Agreement (Series E Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series E Bonds issued upon transfer shall be numbered consecutively
         from E-2 upwards and issued in the same $90,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series E Bond by acceptance of the Series E
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series E Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series E Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series E Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series E Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture

                                       3



         Trustee, signed by an authorized officer of the Indenture Trustee and
         attested by the Secretary or an Assistant Secretary of the Indenture
         Trustee within 90 days after the applicable Interest Payment Date,
         stating that the payment of principal of or interest on the Series E
         Bond has not been fully paid when due and specifying the amount of
         funds required to make such payment.

         The Series E Bonds shall have such other terms and provisions as are
provided in the form thereof attached hereto as Exhibit A, and shall be issued
in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series E Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                               By: /s/ Marc Kilbride
                                   ----------------------------------------
                               Name: Marc Kilbride
                               Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    ----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                             FORM OF SERIES E BONDS


NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
             General Mortgage Bonds, Series E, due November 1, 2020

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _   No X
Stated Maturity:                    November 1, 2020          Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$90,000,000                                                          No. E-1


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to JPMorgan Chase Bank as Trustee under
the Trust Indenture (as herein defined) or its registered assigns (the
"Indenture Trustee"), the principal sum of NINETY MILLION DOLLARS, in whole or
in installments on such date or dates as the Issuer (as defined herein) has any
obligations under the Trust Indenture (as amended and supplemented, the "Trust
Indenture"), dated as of February 1, 1998, between Brazos River Authority (the
"Issuer") and the Indenture Trustee (as successor) to reply any principal in
respect of the 1998B Bonds (as such term is defined in the Trust Indenture, and
hereinafter referred to as the "Series 1998B BR Bonds"), excluding any payment
of principal in advance of the final scheduled maturity date thereof, but not
later than the Stated Maturity specified above. The obligation of the Company to
make any payment of principal on this Bond, whether at maturity or otherwise,
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent CenterPoint Energy, Inc.
("CenterPoint") has paid to the Indenture Trustee the Installment Payment (as
defined below) in respect of the principal then due and payable on the Series
1998B BR Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1998B BR Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1998B BR Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1998B BR Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest

                                       1



is payable are set forth in the Trust Indenture. This Bond shall bear interest
(a) from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Indenture Trustee the Installment Payment in respect of the interest then
due and payable on the Series 1998B BR Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of February 1,
1998, between the Brazos River Authority and CenterPoint (as successor). This
Bond shall be held by the Trust Indenture Trustee subject to the terms of the
Collateral Agreement (Series E Bonds), dated as of October 10, 2002, between the
Company and the Indenture Trustee. Any capitalized terms used herein and not
defined herein shall have the meanings specified in the Indenture (as defined
below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1998B BR Bonds shall have been duly
paid, and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions

                                       2



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any

                                       3



purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                   CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                   By: _____________________________________
                                       Name:
                                       Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                   JPMORGAN CHASE BANK, as Trustee

                                   By: _____________________________________
                                       Authorized Signatory

                                       5


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the sixth series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series F, due
         May 1, 2019" (the "Series F Bonds").

         (2)      The Series F Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $100,000,000.

         (3)      Not applicable.

         (4)      The Series F Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on May 1, 2019. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1998C BR Bonds").

         (5)      The Series F Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series F Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date under the
         Trust Indenture dated as of February 1, 1998 (as amended and
         supplemented, the "Trust Indenture") between Brazos

                                       1



         River Authority (the "Issuer") and JPMorgan Chase Bank (successor to
         Chase Bank of Texas, National Association), as trustee (the "Trust
         Indenture Trustee") in respect of the Series 1998C BR Bonds. Such
         interest on the Series F Bonds shall be payable on the same dates as
         interest is payable from time to time in respect of the Series 1998C BR
         Bonds pursuant to the Trust Indenture (each such date herein called an
         "Interest Payment Date"), until the maturity of the Series F Bonds, or,
         in the case of any default by the Company in the payment of the
         principal due on the Series F Bonds, until the Company's obligation
         with respect to the payment of such principal shall be discharged as
         provided in the Indenture. The amount of interest payable from time to
         time in respect of the Series 1998C BR Bonds under the Trust Indenture,
         the basis on which such interest is computed and the dates on which
         such interest is payable are set forth in the Trust Indenture. Each
         Series F Bond shall bear interest from the later of the date of initial
         authentication of such Series F Bond or the most recent Interest
         Payment Date to which interest has been paid. The obligation of the
         Company to make any payment of interest on the Series F Bonds shall be
         fully or partially, as the case may be, deemed to have been paid or
         otherwise satisfied and discharged to the extent that CenterPoint has
         paid to the Trust Indenture Trustee the Installment Payment in respect
         of the interest then due and payable on the Series 1998C BR Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series F Bonds shall be payable, (ii) registration of
         transfer of the Series F Bonds may be effected, (iii) exchanges of the
         Series F Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series F Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series F Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series F Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series F Bonds are issuable only in denominations of
         $100,000,000.

                                       2



         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

         (17)     The Series F Bonds shall be evidenced by a single registered
         Series F Bond in the principal amount and denomination of One Hundred
         Million Dollars ($100,000,000). The Series F Bonds shall be dated
         October 10, 2002, shall mature no later than May 1, 2019, unless sooner
         paid, and shall bear interest at the rate specified in subsection (5)
         above. The Series F Bonds may be executed by the Company and delivered
         to the Trustee for authentication and delivery. The principal of and
         interest on the Bonds shall be payable at the Corporate Trust Office of
         the Trustee in Houston, Texas.

         The single Series F Bond shall be identified by the number F-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by any such successor or assign. The Series F Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         February 1, 1998, by and between the Issuer and CenterPoint (as
         successor). The single Series F Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series F Bonds Collateral
         Agreement (Series F Bonds) , dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series F Bonds issued upon transfer shall be numbered consecutively
         from F-2 upwards and issued in the same $100,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series F Bond by acceptance of the Series F
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series F Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series F Bonds, or any Tranche thereof; provided, however,

                                       3



         that the Company may require payment of a sum sufficient to cover any
         tax or other governmental charge payable in connection with the
         exchange or transfer.

         (20)     For purposes of the Series F Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series F Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture Trustee, signed
         by an authorized officer of the Indenture Trustee and attested by the
         Secretary or an Assistant Secretary of the Indenture Trustee within 90
         days after the applicable Interest Payment Date, stating that the
         payment of principal of or interest on the Series F Bond has not been
         fully paid when due and specifying the amount of funds required to make
         such payment.

         The Series F Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series F Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                                 By: /s/ Marc Kilbride
                                     ----------------------------------------
                                 Name: Marc Kilbride
                                 Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    ----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                                                                       EXHIBIT A

                              FORM OF SERIES F BOND

                                        6



NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
                General Mortgage Bonds, Series F, due May 1, 2019

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _   No X
Stated Maturity:                    May 1, 2019               Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
             within the meaning of the within-mentioned Indenture.

                         -----------------------------

Principal Amount
$100,000,000                                                       No. F-1

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to JPMorgan Chase Bank as Trustee under
the Trust Indenture (as herein defined) or its registered assigns (the
"Indenture Trustee"), the principal sum of ONE HUNDRED MILLION DOLLARS, in whole
or in installments on such date or dates as the Issuer (as defined herein) has
any obligations under the Trust Indenture (as amended and supplemented, the
"Trust Indenture"), dated as of February 1, 1998, between Brazos River Authority
(the "Issuer") and the Indenture Trustee (as successor) to repay any principal
in respect of the 1998C Bonds (as such term is defined in the Trust Indenture,
and hereinafter referred to as the "Series 1998C BR Bonds"), excluding any
payment of principal in advance of the final scheduled maturity date thereof,
but not later than the Stated Maturity specified above. The obligation of the
Company to make any payment of principal on this Bond, whether at maturity or
otherwise, shall be fully or partially, as the case may be, deemed to have been
paid or otherwise satisfied and discharged to the extent CenterPoint Energy,
Inc. ("CenterPoint") has paid to the Indenture Trustee the Installment Payment
(as defined below) in respect of the principal then due and payable on the
Series 1998C BR Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1998C BR Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1998C BR Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1998C BR Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest

                                       1



is payable are set forth in the Trust Indenture. This Bond shall bear interest
(a) from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Indenture Trustee the Installment Payment in respect of the interest then
due and payable on the Series 1998C BR Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of February 1,
1998, between the Brazos River Authority and CenterPoint (as successor). This
Bond shall be held by the Trust Indenture Trustee subject to the terms of the
Collateral Agreement (Series F Bonds), dated as of October 10, 2002, between the
Company and the Indenture Trustee. Any capitalized terms used herein and not
defined herein shall have the meanings specified in the Indenture (as defined
below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1998C BR Bonds shall have been duly
paid, and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions

                                       2



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any

                                       3



purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                   CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                   By: _____________________________________
                                       Name:
                                       Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                   JPMORGAN CHASE BANK, as Trustee

                                   By: _____________________________________
                                       Authorized Signatory

                                       5


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the seventh series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series G, due
         January 1, 2011" (the "Series G Bonds").

         (2)      The Series G Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $19,200,000.

         (3)      Not applicable.

         (4)      The Series G Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on January 1, 2011. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1999 GC Bonds").

         (5)      The Series G Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series G Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Dates under the
         Trust Indenture dated as of April 1, 1999 (as amended and supplemented,
         the "Trust Indenture") between Gulf Coast Waste



         Disposal Authority (the "Issuer") and JPMorgan Chase Bank (successor to
         Chase Bank of Texas, National Association), as trustee (the "Trust
         Indenture Trustee") in respect of the Series 1999 GC Bonds". Such
         interest on the Series G Bonds shall be payable on the same dates as
         interest is payable from time to time in respect of the Series 1999 GC
         Bonds pursuant to the Trust Indenture (each such date herein called an
         "Interest Payment Date"), until the maturity of the Series G Bonds, or,
         in the case of any default by the Company in the payment of the
         principal due on the Series G Bonds, until the Company's obligation
         with respect to the payment of such principal shall be discharged as
         provided in the Indenture. The amount of interest payable from time to
         time in respect of the Series 1999 GC Bonds under the Trust Indenture,
         the basis on which such interest is computed and the dates on which
         such interest is payable are set forth in the Trust Indenture. Each
         Series G Bond shall bear interest from the later of the date of initial
         authentication of such Series G Bond or the most recent Interest
         Payment Date to which interest has been paid. The obligation of the
         Company to make any payment of interest on the Series G Bonds shall be
         fully or partially, as the case may be, deemed to have been paid or
         otherwise satisfied and discharged to the extent that CenterPoint has
         paid to the Trust Indenture Trustee the Installment Payment in respect
         of the interest then due and payable on the Series 1999 GC Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series G Bonds shall be payable, (ii) registration of
         transfer of the Series G Bonds may be effected, (iii) exchanges of the
         Series G Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series G Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series G Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series G Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series G Bonds are issuable only in denominations of
         $19,200,000.



         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

         (17)     The Series G Bonds shall be evidenced by a single registered
         Series G Bond in the principal amount and denomination of Nineteen
         Million Two Hundred Thousand Dollars ($19,200,000). The Series G Bonds
         shall be dated October 10, 2002, shall mature no later than January 1,
         2011, unless sooner paid, and shall bear interest at the rate specified
         in subsection (5) above. The Series G Bonds may be executed by the
         Company and delivered to the Trustee for authentication and delivery.
         The principal of and interest on the Bonds shall be payable at the
         Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series G Bond shall be identified by the number G-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series G Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         April 1, 1999, by and between the Issuer and CenterPoint (as
         successor). The single Series G Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series G Bonds Collateral
         Agreement (Series G Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series G Bonds issued upon transfer shall be numbered consecutively
         from G-2 upwards and issued in the same $19,200,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series G Bond by acceptance of the Series G
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series G Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series G Bonds, or any Tranche thereof; provided, however,



         that the Company may require payment of a sum sufficient to cover any
         tax or other governmental charge payable in connection with the
         exchange or transfer.

         (20)     For purposes of the Series G Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series G Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture Trustee, signed
         by an authorized officer of the Indenture Trustee and attested by the
         Secretary or an Assistant Secretary of the Indenture Trustee within 90
         days after the applicable Interest Payment Date, stating that the
         payment of principal of or interest on the Series G Bond has not been
         fully paid when due and specifying the amount of funds required to make
         such payment.

         The Series G Bonds shall have such other terms and provisions as are
provided in the form thereof attached hereto as Exhibit A, and shall be issued
in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series G Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                                  By: /s/ Marc Kilbride
                                      ----------------------------------------
                                  Name: Marc Kilbride
                                  Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    -----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer



                                                                       EXHIBIT A

                              FORM OF SERIES G BOND



NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
              General Mortgage Bonds, Series G, due January 1, 2011

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _   No X
Stated Maturity:                    January 1, 2011           Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
             within the meaning of the within-mentioned Indenture.

                         -----------------------------

Principal Amount
$19,200,000                                                        No. G-1

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to JPMorgan Chase Bank as Trustee under
the Trust Indenture (as herein defined) or its registered assigns (the
"Indenture Trustee"), the principal sum of NINETEEN MILLION TWO HUNDRED THOUSAND
DOLLARS, in whole or in installments on such date or dates as the Issuer (as
defined herein) has any obligations under the Trust Indenture (as amended and
supplemented, the "Trust Indenture"), dated as of April 1, 1999, between Gulf
Coast Waste Disposal Authority (the "Issuer") and the Indenture Trustee (as
successor) to repay any principal in respect of the Bonds (as such term is
defined in the Trust Indenture, and hereinafter referred to as the "Series 1999
GC Bonds"), excluding any payment of principal in advance of the final scheduled
maturity date thereof, but not later than the Stated Maturity specified above.
The obligation of the Company to make any payment of principal on this Bond,
whether at maturity or otherwise, shall be fully or partially, as the case may
be, deemed to have been paid or otherwise satisfied and discharged to the extent
CenterPoint Energy, Inc. ("CenterPoint") has paid to the Indenture Trustee the
Installment Payment (as defined below) in respect of the principal then due and
payable on the Series 1999 GC Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1999 GC Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1999 GC Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1999 GC Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest is

                                       1



payable are set forth in the Trust Indenture. This Bond shall bear interest (a)
from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Indenture Trustee the Installment Payment in respect of the interest then
due and payable on the Series 1999 GC Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of April 1, 1999,
between Gulf Coast Waste Disposal Authority and CenterPoint (as successor). This
Bond shall be held by the Trust Indenture Trustee subject to the terms of the
Collateral Agreement (Series G Bonds), dated as of October 10, 2002, between the
Company and the Indenture Trustee. Any capitalized terms used herein and not
defined herein shall have the meanings specified in the Indenture (as defined
below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1999 GC Bonds shall have been duly paid,
and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions

                                       2



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any

                                       3



purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                 CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                 By: _____________________________________
                                     Name:
                                     Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                 JPMORGAN CHASE BANK, as Trustee

                                 By: _____________________________________
                                     Authorized Signatory

                                       5


                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                October 10, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated October 10, 2002, and Sections 105, 201, 301, 401(1) and 402(2)(A)
of the General Mortgage Indenture dated as of October 10, 2002, as heretofore
supplemented to the date hereof (as heretofore supplemented, the "Indenture"),
between the Company and JPMorgan Chase Bank, as Trustee (the "Trustee"). Terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Indenture unless the context clearly requires otherwise. Based upon
the foregoing, I hereby certify on behalf of the Company as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the eighth series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series H, due
         June 1, 2026" (the "Series H Bonds").

         (2)      The Series H Bonds shall be initially authenticated and
         delivered in the aggregate principal amount of $100,000,000.

         (3)      Not applicable.

         (4)      The Series H Bonds shall mature and the principal thereof
         shall be due and payable together with all accrued and unpaid interest
         thereon on June 1, 2026. The obligation of the Company to make any
         payment of principal on this Bond shall be fully or partially, as the
         case may be, deemed to have been paid or otherwise satisfied and
         discharged to the extent CenterPoint Energy, Inc. ("CenterPoint") has
         paid to the Trust Indenture Trustee the Installment Payment (as defined
         below) in respect of the principal then due and payable on the Bonds
         (as such term is defined in the Trust Indenture, and hereinafter
         referred to as the "Series 1999A MC Bonds").

         (5)      The Series H Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment Date (as hereinafter
         defined) on the Series H Bonds to equal the amount of regularly
         scheduled interest payable on such Interest Payment Date under the
         Trust Indenture dated as of April 1, 1999 (as amended and supplemented,
         the "Trust Indenture") between Matagorda

                                       1



         County Navigation District Number One (the "Issuer") and JPMorgan Chase
         Bank (successor to Chase Bank of Texas, National Association, as
         trustee (the "Trust Indenture Trustee") in respect of the Series 1999A
         MC Bonds. Such interest on the Series H Bonds shall be payable on the
         same dates as interest is payable from time to time in respect of the
         Series 1999A MC Bonds pursuant to the Trust Indenture (each such date
         herein called an "Interest Payment Date"), until the maturity of the
         Series H Bonds, or, in the case of any default by the Company in the
         payment of the principal due on the Series H Bonds, until the Company's
         obligation with respect to the payment of such principal shall be
         discharged as provided in the Indenture. The amount of interest payable
         from time to time in respect of the Series 1999A MC Bonds under the
         Trust Indenture, the basis on which such interest is computed and the
         dates on which such interest is payable are set forth in the Trust
         Indenture. Each Series H Bond shall bear interest from the later of the
         date of initial authentication of such Series H Bond or the most recent
         Interest Payment Date to which interest has been paid. The obligation
         of the Company to make any payment of interest on the Series H Bonds
         shall be fully or partially, as the case may be, deemed to have been
         paid or otherwise satisfied and discharged to the extent that
         CenterPoint has paid to the Trust Indenture Trustee the Installment
         Payment in respect of the interest then due and payable on the Series
         1999A MC Bonds.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of, premium and
         interest on, the Series H Bonds shall be payable, (ii) registration of
         transfer of the Series H Bonds may be effected, (iii) exchanges of the
         Series H Bonds may be effected and (iv) notices and demands to or upon
         the Company in respect of the Series H Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series H Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series H Bonds.

         (7)      Not applicable.

         (8)      Not applicable.

                                       2



         (9)      The Series H Bonds are issuable only in denominations of
         $100,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     Not applicable.

         (14)     Not applicable.

         (15)     Not applicable.

         (16)     Not applicable.

         (17)     The Series H Bonds shall be evidenced by a single registered
         Series H Bond in the principal amount and denomination of One Hundred
         Million Dollars ($100,000,000). The Series H Bonds shall be dated
         October 10, 2002, shall mature no later than June 1, 2026, unless
         sooner paid, and shall bear interest at the rate specified in
         subsection (5) above. The Series H Bonds may be executed by the Company
         and delivered to the Trustee for authentication and delivery. The
         principal of and interest on the Bonds shall be payable at the
         Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series H Bond shall be identified by the number H-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Trust Indenture Trustee, and shall be transferable
         only as required to effect an assignment thereof to a successor or an
         assign of the Trust Indenture Trustee under the Trust Indenture, and
         provided that all obligations of the Trust Indenture Trustee under the
         Collateral Agreement (as defined herein) shall also be transferred to,
         and assumed by, any such successor or assign. The Series H Bonds are to
         be issued to the Trust Indenture Trustee as security for the payment by
         CenterPoint of the Installment Payments, as defined in, and pursuant to
         the Installment Payment and Bond Amortization Agreement, dated as of
         April 1, 1999, by and between the Issuer and CenterPoint (as
         successor). The single Series H Bond shall be held by the Trust
         Indenture Trustee subject to the terms of the Series H Bonds Collateral
         Agreement (Series H Bonds), dated as of October 10, 2002, between the
         Company and the Trust Indenture Trustee (the "Collateral Agreement").

         Series H Bonds issued upon transfer shall be numbered consecutively
         from H-2 upwards and issued in the same $100,000,000 denomination. See
         also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series H Bond by acceptance of the Series H
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series H Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of

                                       3



         transfer or exchange of the Series H Bonds, or any Tranche thereof;
         provided, however, that the Company may require payment of a sum
         sufficient to cover any tax or other governmental charge payable in
         connection with the exchange or transfer.

         (20)     For purposes of the Series H Bonds, "Business Day" means any
         day other than (i) a Saturday or Sunday, (ii) a day on which commercial
         banks in New York, New York, Houston, Texas, or the city in which the
         principal corporate trust office of the Indenture Trustee is located,
         are authorized by law to close or (iii) a day on which the New York
         Stock Exchange is closed.

         (21)     Not applicable.

         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series H Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Indenture Trustee, signed
         by an authorized officer of the Indenture Trustee and attested by the
         Secretary or an Assistant Secretary of the Indenture Trustee within 90
         days after the applicable Interest Payment Date, stating that the
         payment of principal of or interest on the Series H Bond has not been
         fully paid when due and specifying the amount of funds required to make
         such payment.

         The Series H Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series H Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.

                                       4



                  IN WITNESS WHEREOF, the undersigned has executed this
Officer's Certificate on this 10th day of October, 2002.

                                    By: /s/ Marc Kilbride
                                        ----------------------------------------
                                    Name: Marc Kilbride
                                    Title: Vice President and Treasurer

Acknowledged and Received on
October 10, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    -----------------------------------------
Name: Ronda L. Parmen
Title: Vice President and Trust Officer

                                       5



                                                                       EXHIBIT A

                              FORM OF SERIES H BOND

                                       6


NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT, AS FURTHER PROVIDED HEREIN, TO A SUCCESSOR
OR ASSIGN OF THE TRUST INDENTURE TRUSTEE UNDER THE TRUST INDENTURE REFERRED TO
HEREIN AMONG THE ISSUER AND THE TRUST INDENTURE TRUSTEE.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
               General Mortgage Bonds, Series H, due June 1, 2026

                                                                                        
Original Interest Accrual Date:     October 10, 2002          Redeemable by Company:             Yes _   No X
Stated Maturity:                    June 1, 2026              Redemption Date:  N/A
Interest Rate:                      See below                 Redemption Price: N/A
Interest Payment Dates:             See below
Regular Record Dates:               N/A



               This Security is not an Original Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$100,000,000                                                        No. H-1

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a corporation duly organized and
existing under the laws of the State of Texas (herein called the "Company,"
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to JPMorgan Chase Bank as Trustee under
the Trust Indenture (as herein defined) or its registered assigns (the
"Indenture Trustee"), the principal sum of ONE HUNDRED MILLION DOLLARS, in whole
or in installments on such date or dates as the Issuer (as defined herein) has
any obligations under the Trust Indenture (as amended and supplemented, the
"Trust Indenture"), dated as of April 1, 1999, between Matagorda County
Navigation District Number One (the "Issuer") and the Indenture Trustee (as
successor) to repay any principal in respect of the Bonds (as such term is
defined in the Trust Indenture, and hereinafter referred to as the "Series 1999A
MC Bonds"), excluding any payment of principal in advance of the final scheduled
maturity date thereof, but not later than the Stated Maturity specified above.
The obligation of the Company to make any payment of principal on this Bond,
whether at maturity or otherwise, shall be fully or partially, as the case may
be, deemed to have been paid or otherwise satisfied and discharged to the extent
CenterPoint Energy, Inc. ("CenterPoint") has paid to the Indenture Trustee the
Installment Payment (as defined below) in respect of the principal then due and
payable on the Series 1999A MC Bonds.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of regularly scheduled interest payable on such Interest Payment Date in respect
of the Series 1999A MC Bonds under the Trust Indenture. Such interest shall be
payable on the same dates as interest is payable from time to time in respect of
the Series 1999A MC Bonds pursuant to the Trust Indenture (each such date herein
called an "Interest Payment Date"), until the maturity of this Bond, or, if the
Company shall default in the payment of the principal due on this Bond, until
the Company's obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture. The amount of interest payable from
time to time in respect of the Series 1999A MC Bonds under the Trust Indenture,
the basis on which such interest is computed and the dates on which such
interest

                                       1



is payable are set forth in the Trust Indenture. This Bond shall bear interest
(a) from the Interest Payment Date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an Interest Payment
Date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from the date of initial authentication of this
Bond. The obligation of the Company to make any payment of interest on this Bond
shall be fully or partially, as the case may be, deemed to have been paid or
otherwise satisfied and discharged to the extent that CenterPoint has paid to
the Indenture Trustee the Installment Payment in respect of the interest then
due and payable on the Series 1999A MC Bonds.

This Bond is issued to the Trust Indenture Trustee as security for the payment
by CenterPoint of the Installment Payments, as defined in, and pursuant to the
Installment Payment and Bond Amortization Agreement, dated as of April 1, 1999,
between Matagorda County Navigation District Number One and CenterPoint (as
successor). This Bond shall be held by the Trust Indenture Trustee subject to
the terms of the Collateral Agreement (Series H Bonds), of October 10, 2002,
between the Company and the Indenture Trustee. Any capitalized terms used herein
and not defined herein shall have the meanings specified in the Indenture (as
defined below), unless otherwise noted.

The Indenture Trustee shall surrender this Bond to the Trustee when all of the
principal of and interest on the Series 1999A MC Bonds shall have been duly
paid, and the Trust Indenture shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions

                                       2



permitting the Holders of a majority in principal amount of the Securities then
Outstanding, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Bond shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Security issued upon the registration
of transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Trust Indenture Trustee, signed by an authorized officer of the Trust Indenture
Trustee and attested by the Secretary or an Assistant Secretary of the Trust
Indenture Trustee within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall notify the Company and the Trustee of the name and
address of the transferee. By acceptance hereof the holder of this Bond and each
transferee shall be deemed to have agreed to indemnify and hold harmless the
Company and the Trustee against all losses, claims, damages or liability arising
out of any failure on part of the holder or of any such transferee to comply
with the requirements of the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of the indebtedness thereby authorized, or under
or by reason of any of the obligations, covenants or agreements contained in the
Indenture or in any indenture supplemental thereto or in any of the Bonds or
coupons thereby secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any

                                       3



purpose.

            [The remainder of this page is intentionally left blank.]

                                       4



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                    By: _____________________________________
                                        Name:
                                        Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: ______, 2002

                                    JPMORGAN CHASE BANK, as Trustee

                                    By: _____________________________________
                                        Authorized Signatory

                                       5



                                                                EXHIBIT 4(e)(12)

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                              OFFICER'S CERTIFICATE

                                November 12, 2002

I, the undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas
limited liability company (the "Company"), do hereby certify that I am an
Authorized Officer of the Company as such term is defined in the Indenture (as
defined herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the Manager of the
Company dated November 12, 2002, and Sections 105, 201, 301, 401(1) and
402(2)(A) of the General Mortgage Indenture dated as of October 10, 2002, as
heretofore supplemented to the date hereof (as heretofore supplemented, the
"Indenture"), between the Company and JPMorgan Chase Bank, as Trustee (the
"Trustee"). Terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Indenture, unless the context clearly requires
otherwise. Based upon the foregoing, I hereby certify on behalf of the Company
as follows:

1.       The terms and conditions of the Securities of the series described in
this Officer's Certificate are as follows (the numbered subdivisions set forth
in this Paragraph 1 corresponding to the numbered subdivisions of Section 301 of
the Indenture):

         (1)      The Securities of the ninth series to be issued under the
         Indenture shall be designated "General Mortgage Bonds, Series I, due
         November 12, 2005" (the "Series I Bonds").

         (2)      The Series I Bonds shall be authenticated and delivered in the
         aggregate principal amount of $1,310,000,000.

         (3)      Not applicable.

         (4)      The principal of all Series I Bonds shall be payable by the
         Company in whole or in installments on such date or dates as the
         Company has any obligations under the Credit Agreement, dated as of
         November 12, 2002 (the "Credit Agreement"), among the Company, Credit
         Suisse First Boston, as administrative agent (the "Administrative
         Agent") and the Banks from time to time parties thereto, to repay any
         Loans (as defined in the Credit Agreement) to the Banks (whether upon
         scheduled maturity, required prepayment, acceleration, demand or
         otherwise, but not later than November 12, 2005). The amount of
         principal of the Series I Bonds payable by the Company on any such date
         shall equal the aggregate principal amount of the Loans due and payable
         on such date pursuant to the Credit Agreement (but, in no event, shall
         exceed the aggregate principal amount of the Series I Bonds). The
         obligation of the Company to make any payment of the principal on the
         Series I Bonds shall be fully or partially, as the case may be, deemed
         to have been paid or otherwise satisfied and discharged to the extent
         that the Company has paid the principal then due and payable on the
         Loans made pursuant to the Credit Agreement.

         (5)      The Series I Bonds shall bear interest from the time
         hereinafter provided at such rate per annum as shall cause the amount
         of interest payable on each Interest Payment


         Date (as hereinafter defined) on the Series I Bonds to equal the amount
         of interest payable on such Interest Payment Date under the Credit
         Agreement. Such interest on the Series I Bonds shall be payable on the
         same dates as interest is payable from time to time pursuant to the
         Credit Agreement (each such date herein called an "Interest Payment
         Date"), until the maturity of the Series I Bonds, or, in the case of
         any default by the Company in the payment of the principal due on the
         Series I Bonds, until the Company's obligation with respect to the
         payment of such principal shall be discharged as provided in the
         Indenture. The amount of interest payable from time to time under the
         Credit Agreement, the basis on which such interest is computed and the
         dates on which such interest is payable are set forth in the Credit
         Agreement. Each Series I Bond shall bear interest (a) from the date of
         initial authentication of this Bond to but excluding the Interest
         Payment Date next succeeding, and (b) from each Interest Payment Date
         to but excluding the Interest Payment Date next succeeding. The
         obligation of the Company to make any payment of interest on the Series
         I Bonds shall be fully or partially, as the case may be, deemed to have
         been paid or otherwise satisfied and discharged to the extent that the
         Company has paid the interest on the Loans then due and payable
         pursuant to the Credit Agreement.

         (6)      The Corporate Trust Office of JPMorgan Chase Bank in Houston,
         Texas shall be the place at which (i) the principal of and interest on
         the Series I Bonds shall be payable, (ii) registration of transfer of
         the Series I Bonds may be effected, (iii) exchanges of the Series I
         Bonds may be effected and (iv) notices and demands to or upon the
         Company in respect of the Series I Bonds and the Indenture may be
         served; and JPMorgan Chase Bank shall be the Security Registrar for the
         Series I Bonds; provided, however, that the Company reserves the right
         to change, by one or more Officer's Certificates, any such place or the
         Security Registrar; and provided, further, that the Company reserves
         the right to designate, by one or more Officer's Certificates, its
         principal office in Houston, Texas as any such place or itself as the
         Security Registrar; provided, however, that there shall be only a
         single Security Registrar for the Series I Bonds. The principal of the
         Series I Bonds shall be payable without the presentment or surrender
         thereof.

         (7)      Not applicable.

         (8)      Not applicable.

         (9)      The Series I Bonds are issuable only in denominations of
                  $1,310,000,000.

         (10)     Not applicable.

         (11)     Not applicable.

         (12)     Not applicable.

         (13)     See subsection (4) above.

         (14)     Not applicable.

         (15)     Not applicable.



         (16)     Not applicable.

         (17)     The Series I Bonds shall be evidenced by a single registered
         Series I Bond in the principal amount and denomination of One Billion
         Three Hundred Ten Million Dollars ($1,310,000,000). The Series I Bonds
         shall be dated November 12, 2002, shall mature no later than November
         12, 2005, unless sooner paid, and shall bear interest at the rate
         specified in subsection (5) above. The Series I Bonds may be executed
         by the Company and delivered to the Trustee for authentication and
         delivery. The principal of and interest on the Series I Bonds shall be
         payable at the Corporate Trust Office of the Trustee in Houston, Texas.

         The single Series I Bond shall be identified by the number I-1 and
         shall upon issuance be delivered by the Company to, and registered in
         the name of, the Administrative Agent, on behalf of itself and the
         Banks, and shall be transferable only as required to effect an
         assignment thereof to a successor or an assign of the Administrative
         Agent under the Credit Agreement and provided that all obligations of
         the Administrative Agent under the Pledge Agreement (as defined below)
         shall also be transferred to, and assumed by, any such successor or
         assign. The Series I Bonds are to be issued to the Administrative Agent
         as security for the payment by the Company of its Obligations (as
         defined in the Pledge Agreement). The single Series I Bond shall be
         held by the Administrative Agent subject to the terms of the Pledge
         Agreement, dated as of November 12, 2002, between the Company and the
         Administrative Agent (the "Pledge Agreement").

         Series I Bonds issued upon transfer shall be numbered consecutively
         from I-2 upwards and issued in the same $1,310,000,000 denomination
         but, to the extent that the Loans are repaid, the registered holder
         thereof shall duly note on the Series I Bonds like reduction in the
         amount of principal in the Schedule of Prepayments to such Series I
         Bond and upon any transfer of said Series I Bond, such Schedule of
         Prepayments shall transfer to the subsequently issued Series I Bond.
         See also subsection (19) below.

         (18)     Not applicable.

         (19)     The holder of the Series I Bond by acceptance of the Series I
         Bond agrees to restrictions on transfer and to waivers of certain
         rights of exchange as set forth herein. The Series I Bonds have not
         been registered under the Securities Act of 1933 and may not be
         offered, sold or otherwise transferred in the absence of such
         registration or an applicable exemption therefrom. No service charge
         shall be made for the registration of transfer or exchange of the
         Series I Bonds, or any Tranche thereof; provided, however, that the
         Company may require payment of a sum sufficient to cover any tax or
         other governmental charge payable in connection with the exchange or
         transfer.

         (20)     For purposes of the Series I Bonds, "Business Day" shall mean
         a day other than a Saturday, Sunday or other day on which commercial
         banks in New York City are authorized or required by law to close.

         (21)     Not Applicable.



         (22)     The Trustee may conclusively presume that the obligation of
         the Company to pay the principal of and interest on the Series I Bond
         shall have been fully satisfied and discharged unless and until it
         shall have received a written notice from the Administrative Agent,
         signed by an authorized officer of the Administrative Agent and
         attested by the Secretary or an Assistant Secretary of the
         Administrative Agent within 90 days after the applicable Interest
         Payment Date, stating that the payment of principal of or interest on
         the Series I Bond has not been fully paid when due and specifying the
         amount of funds required to make such payment.

         The Series I Bonds shall have such other terms and provisions as are
         provided in the form thereof attached hereto as Exhibit A, and shall be
         issued in substantially such form.

2.       The undersigned has read all of the covenants and conditions contained
in the Indenture, and the definitions in the Indenture relating thereto,
relating to the issuance of the Series I Bonds and in respect of compliance with
which this certificate is made.

3.       The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein.

4.       In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenants and conditions have been complied with.

         In the opinion of the undersigned, such conditions and covenants have
been complied with.



         IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate on this 12th day of November, 2002.

                                By: /s/ Marc Kilbride
                                    -------------------------------------------
                                    Name:  Marc Kilbride
                                    Title: Vice President and Treasurer

Acknowledged and Received on
November 12, 2002

JPMORGAN CHASE BANK,
as Trustee

By: /s/ Ronda L. Parmen
    --------------------------------------
Name:  Ronda L. Parmen
Title: Vice President and Treasurer



                                    EXHIBIT A

                                  FORM OF BOND



NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON
TRANSFER AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE
BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE
WITH APPLICABLE SECURITIES LAWS.

THIS BOND IS NOT TRANSFERABLE EXCEPT AS COLLATERAL TO A SUCCESSOR OR ASSIGN OF
THE ADMINISTRATIVE AGENT UNDER THE COLLATERAL AGREEMENT REFERRED TO HEREIN AMONG
THE COMPANY AND THE SEVERAL PARTIES THERETO.

                    CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
             General Mortgage Bonds, Series I, due November 12, 2005

                                                                   
Original Interest Accrual Date:  November 12, 2002  Redeemable by Company:  Yes _ No X
Stated Maturity:                 November 12, 2005  Redemption Date:  N/A
Interest Rate:                   See below          Redemption Price: N/A
Interest Payment Dates:          See below
Regular Record Dates:            N/A



            This Security is not an Original Issue Discount Security
              within the meaning of the within-mentioned Indenture.

                          -----------------------------

Principal Amount
$1,310,000,000                                                         No. I-1

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC, a limited liability company duly
organized and existing under the laws of the State of Texas (herein called the
"Company," which term includes any successor under the Indenture referred to
below), for value received, hereby promises to pay to Credit Suisse First
Boston, as Administrative Agent (the "Administrative Agent"), or its registered
assigns, on behalf of itself and the Banks (as defined below), the principal sum
of ONE BILLION THREE HUNDRED TEN MILLION DOLLARS, or such lesser principal
amount as shall be equal to the aggregate principal amount of Loans (as defined
in the Credit Agreement defined below) outstanding from time to time under the
Credit Agreement (as defined below), in whole or in installments on such date or
dates as the Company has any obligations under the Credit Agreement to repay any
Loans to the Banks (whether upon scheduled maturity, required prepayment,
acceleration, demand or otherwise), but not later than the Stated Maturity
specified above. The amount of principal of this Bond payable by the Company on
any such date shall equal the aggregate principal amount of the Loans due and
payable on such date pursuant to the Credit Agreement (but, in no event, shall
exceed the principal amount of this Bond). The obligation of the Company to make
any payment of the principal on this Bond shall be fully or partially, as the
case may be, deemed to have been paid or otherwise satisfied and discharged to
the extent that the Company has paid the principal then due and payable on the
Loans made pursuant to the Credit Agreement.

Interest shall be payable on this Bond on each Interest Payment Date (as
hereinafter defined) at such rate per annum as shall cause the amount of
interest payable on such Interest Payment Date on this Bond to equal the amount
of interest payable on such Interest Payment Date under the Credit Agreement.
Such interest shall be payable on the same dates as interest is payable from
time to time in respect of the Loans pursuant to the Credit Agreement (each such
date herein called an "Interest Payment Date"), until the maturity of this Bond,
or, if the Company shall default in the payment of the principal due on this
Bond, until the Company's obligation with respect to the payment of such
principal shall be discharged as provided in the Indenture. The amount of
interest payable from time to time under



the Credit Agreement, the basis on which such interest is computed and the dates
on which such interest is payable are set forth in the Credit Agreement. This
Bond shall bear interest (a) from the date of initial authentication of this
Bond to but excluding the Interest Payment Date next succeeding, and (b) from
each Interest Payment Date to but excluding the Interest Payment Date next
succeeding. The obligation of the Company to make any payment of interest on
this Bond shall be fully or partially, as the case may be, deemed to have been
paid or otherwise satisfied and discharged to the extent that the Company has
paid the interest on the Loans then due and payable pursuant to the Credit
Agreement.

This Bond is issued to the Administrative Agent by the Company pursuant to the
Company's obligations under the Credit Agreement, dated as of November 12, 2002
(as amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"), among the Company, Credit Suisse First Boston, as
Administrative Agent, and the banks and other financial institutions from time
to time parties thereto (the "Banks"). This Bond shall be held by the
Administrative Agent subject to the terms of the Pledge Agreement, dated as of
November 12, 2002, between the Company, the Administrative Agent and the
Administrative Agent in such capacity under the Credit Agreement. Any
capitalized terms used herein and not defined herein shall have the meanings
specified in the Indenture (as defined below), unless otherwise noted.

The Administrative Agent shall surrender this Bond to the Trustee when all of
the principal of and interest on the Loans made pursuant to the Credit Agreement
shall have been duly paid and the Credit Agreement shall have been terminated.

Payments of the principal of and interest on this Bond shall be made at the
Corporate Trust Office of JPMorgan Chase Bank, as Trustee, located at 600 Travis
Street, Suite 1150, Houston, Texas 77002, or at such other office or agency as
may be designated for such purpose by the Company from time to time. Payment of
the principal of and interest on this Bond, as aforesaid, shall be made in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

This Bond is one of a duly authorized issue of securities of the Company (herein
called the "Securities"), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002
(such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Securities, being herein called the
"Indenture"), between the Company and JPMorgan Chase Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the property mortgaged, pledged and held in
trust, the nature and extent of the security and the respective rights,
limitations of rights, duties and immunities of the Company, the Trustee and the
Holders of the Securities thereunder and of the terms and conditions upon which
the Securities are, and are to be, authenticated and delivered and secured. The
acceptance of this Bond shall be deemed to constitute the consent and agreement
by the Holder hereof to all of the terms and provisions of the Indenture. This
Bond is one of the series designated above.

The Bonds of this series will not be entitled to the benefit of any sinking fund
or voluntary redemption provisions.

If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of this Bond may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Trustee
to enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there
shall be Securities of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such series, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that if the Securities of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only of the Holders of a majority in aggregate principal amount of the



Outstanding Securities of all Tranches so directly affected, considered as one
class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the
Trustee to enter into one or more supplemental indentures for limited purposes
without the consent of any Holders of Securities. The Indenture also contains
provisions permitting the Holders of a majority in principal amount of the
Securities then Outstanding, on behalf of the Holders of all Securities, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Bond shall be conclusive and binding
upon such Holder and upon all future Holders of this Bond and of any Security
issued upon the registration of transfer hereof or in exchange therefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Bond.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Bond is registrable in the Security Register, upon
surrender of this Bond for registration of transfer at the Corporate Trust
Office of JPMorgan Chase Bank in Houston, Texas or such other office or agency
as may be designated by the Company from time to time, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of this
series of authorized denominations and of like tenor and aggregate principal
amount, will be issued to the designated transferee or transferees.

This Bond has been issued by the Company to the Administrative Agent for the
benefit of the holders of the Loans to (i) provide security for the payment of
the Company's obligations on the Loans under the Credit Agreement and (ii)
provide to the holders of such Loans the benefits of the security provided for
this Bond pursuant to the Indenture.

The Company, the Trustee and any agent of the Company or the Trustee may deem
and treat the person in whose name this Bond shall be registered upon the
Security Register for the Bonds of this series as the absolute owner of such
Bond for the purpose of receiving payment of or on account of the principal of
and interest on this Bond and for all other purposes, whether or not this Bond
be overdue, and neither the Company nor the Trustee shall be affected by any
notice to the contrary; and all such payments so made to such registered owner
or upon his order shall be valid and effectual to satisfy and discharge the
liability upon this Bond to the extent of the sum or sums paid.

The Trustee may conclusively presume that the obligation of the Company to pay
the principal of and interest on this Bond shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
Administrative Agent, signed by an authorized officer of the Administrative
Agent and attested by the Secretary or an Assistant Secretary of the
Administrative Agent within 90 days after the applicable Interest Payment Date,
stating that the payment of principal of or interest on this Bond has not been
fully paid when due and specifying the amount of funds required to make such
payment.

Before any transfer of this Bond by the registered holder or his or its legal
representative will be recognized or given effect by the Company or the Trustee,
the registered holder shall note the amounts of all reductions in the principal
of the Loans under the Credit Agreement, and shall notify the Company and the
Trustee of the name and address of the transferee and shall afford the Company
and the Trustee the opportunity of verifying the notation as to such reductions.
By acceptance hereof the holder of this Bond and each transferee shall be deemed
to have agreed to indemnify and hold harmless the Company and the Trustee
against all losses, claims, damages or liability arising out of any failure on
part of the holder or of any such transferee to comply with the requirements of
the preceding sentence.

No recourse under or upon any obligation, covenant or agreement contained in the
Indenture or in any indenture supplemental thereto, or in any Bond or coupon
thereby secured, or because of any indebtedness thereby secured, shall be had
against any incorporator, member, manager, stockholder, officer, director or
employee, as such, past, present or future, of the Company or any predecessor or
successor corporation or company, either directly or through the Company or any
predecessor or successor corporation or company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture, any indenture supplemental thereto and the obligations thereby
secured, are solely corporate obligations of the Company, and that no personal
liability whatsoever shall attach to, or be incurred by, such incorporators,
members, managers, stockholders, officers, directors or employees, as such, of
the Company or of any predecessor or successor corporation or company, or any of
them, because of the creation of



the indebtedness thereby authorized, or under or by reason of any of the
obligations, covenants or agreements contained in the Indenture or in any
indenture supplemental thereto or in any of the Bonds or coupons thereby
secured, or implied therefrom.

This Bond shall be governed by and construed in accordance with the law of the
State of New York except as provided in the Indenture.

Unless the certificate of authentication hereon has been executed by the Trustee
or an Authenticating Agent by manual signature, this Bond shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.

            [The remainder of this page is intentionally left blank.]



         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                        CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

                                        By: ____________________________________
                                            Name:
                                            Title:

                          CERTIFICATE OF AUTHENTICATION

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

Date of Authentication: November __, 2002

                                        JPMORGAN CHASE BANK, as Trustee

                                        By: ____________________________________
                                            Authorized Signatory



                                                                EXHIBIT 10(p)(7)

                          RELIANT ENERGY, INCORPORATED
                   1994 LONG-TERM INCENTIVE COMPENSATION PLAN

              (As Amended and Restated Effective January 1, 2001)
                                First Amendment

                  Reliant Energy, Incorporated, a Texas corporation (the
"Company"), having established the Reliant Energy, Incorporated 1994 Long-Term
Incentive Compensation Plan, as amended and restated effective January 1, 2001
(the "Plan"), and having reserved the right under Section 11.1 thereof to amend
the Plan, does hereby amend the Plan, effective as of the dates specified
herein, as follows:

         1.       Effective as of August 31, 2002, the Plan is hereby amended to
provide that all references to "Reliant Energy, Incorporated" are deleted and
replaced in lieu thereof with "CenterPoint Energy, Inc." and the definition of
"Company" in Section 2.1(e) of the Plan is hereby amended to read as follows:

                  "(e) `Company' means CenterPoint Energy, Inc., a Texas
         corporation, and any successor thereto."

         2.       Effective as of October 2, 2002, the Plan is hereby renamed
the CenterPoint Energy, Inc. 1994 Long-Term Incentive Compensation Plan, with
all related references in the Plan amended accordingly, and the definition of
"Plan" in Section 2.1(r) of the Plan is hereby amended to read as follows:

                  "(r) `Plan' means the CenterPoint Energy, Inc. 1994 Long-Term
         Incentive Compensation Plan, as set forth herein and as from time to
         time amended."

         3.       Effective as of December 1, 2003, Section 8.1(d) of the Plan
is hereby amended by changing the heading to "Transferability of Options:" and
by adding the following new sentence to the end thereof:

                                       1



         "The foregoing notwithstanding, an Option granted under this Plan shall
         become transferable by the Key Employee upon or after his termination
         of employment with the Company, to the extent the Option is vested and
         exercisable at the time of such transfer, if (i) the former Key
         Employee assumes an office or position with a federal, state or local
         government or agency or instrumentality thereof (whether by employment,
         appointment or election, and whether legislative, executive, judicial
         or administrative) and (ii) following written request to the Committee
         identifying the office or position and the basis for the requested
         determination, the Committee determines, in its sole discretion, that
         by reason of the former Key Employee's holding of such office or
         position, the holding of such Option, the exercise thereof or the
         acquisition, holding or voting of the Common Stock issuable upon
         exercise thereof 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 of
         such office or position."

                  IN WITNESS WHEREOF, CenterPoint Energy, Inc. has caused these
presents to be executed by its duly authorized officer in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 1st day of December,
2003, but effective as of the dates specified above.

                                      CENTERPOINT ENERGY, INC.

                                      By: /s/ David M. McClanahan
                                          -------------------------------
                                          David M. McClanahan
                                          President and Chief Executive Officer

ATTEST:

/s/ Richard B. Dauphin
- ------------------------
Assistant Secretary

                                       2



                                                               EXHIBIT 10 (u)(9)

                               SECOND AMENDMENT TO
                     CENTERPOINT ENERGY, INC. SAVINGS TRUST

                  THIS AGREEMENT is made by and between CENTERPOINT ENERGY, INC.
(the "Company"), and THE NORTHERN TRUST COMPANY, an Illinois corporation
(hereinafter referred to as "Trustee");

                  WHEREAS, the Company and the Trustee entered into the
CenterPoint Energy, Inc. Savings Trust (formerly the Reliant Energy,
Incorporated Savings Trust) effective April 1, 1999 and as thereafter amended
(hereinafter referred to as the "Trust"); and

                  WHEREAS the Company and the Trustee desire to amend the Trust
pursuant to Section 10.4 of the
Trust;

                  NOW, THEREFORE, effective as of January 6, 2003, the sections
of the Trust set forth below are amended as follows, but all other sections of
the Trust shall remain in full force and effect:

                  1.       Section 1.1 of the Trust is hereby amended by adding
the following new definition of "TGN Stock":

                  "TGN STOCK: The common stock of Texas Genco. TGN Stock shall
         be `qualifying employer securities' within the meaning of Section
         409(l) of the Code and Section 407(d)(5) of ERISA for so long as Texas
         Genco is a member of the Company's controlled group for purposes of
         Section 409(l) of the Code."

                  2.       Section 1.1 of the Trust is hereby amended by adding
the following new definition of "Texas Genco":

                  "TEXAS GENCO: Texas Genco Holdings, Inc., a Texas
corporation."

                  3.       Section 4.2 of the Trust is hereby amended by
inserting the following new sentences at the end of subparagraph (b) as follows:

         "Notwithstanding any provision of this Trust to the contrary, with
         respect to all TGN Stock received as a dividend in the unallocated
         portion of the ESOP Fund, the Committee may appoint an Investment
         Manager for purposes of liquidating such TGN Stock and for purposes of
         reinvesting such proceeds into Company Stock. Such Investment Manager
         shall acknowledge by a writing delivered to the Committee that it is a
         fiduciary with respect to the TGN Stock or other assets allocated
         thereto. The Trustee shall act with respect to such TGN Stock or other
         assets allocated to such Investment Manager only as directed by the
         Investment Manager. The Trustee shall not make any investment review
         of, consider the propriety of holding or selling, or vote, any TGN
         Stock or other assets allocated to such Investment Manager, except as
         directed by the Investment Manager thereof."

                  4.       Section 4.2 of the Trust is hereby amended by
inserting a new subparagraph (h) immediately after subparagraph (g) as follows:



                  "(h)     TGN Stock Fund: The TGN Stock Fund shall be a `frozen
         fund' for which no purchases of TGN Stock shall be made, except with
         respect to the reinvestment of dividends as described below. The
         Trustee shall not be required to advance funds to make any transfers or
         distributions from the TGN Stock Fund. Dividends, if any, received in
         the TGN Stock Fund shall be reinvested in the TGN Stock Fund. Any cash
         held by the Trustee from time to time in the TGN Stock Fund may be
         invested in the collective short term investment fund of the Trustee.
         All TGN Stock held in the TGN Stock Fund shall be voted or tendered, as
         applicable, by the Trustee, in its sole discretion. No provision of
         this paragraph (h) shall prevent the Trustee from taking any action
         relating to its duties under this paragraph (h) if the Trustee
         determines in its sole discretion that such action is necessary in
         order for the Trustee to fulfill its fiduciary responsibilities under
         ERISA."

                  5.       Section 6.7 of the Trust is hereby amended by adding
the following new paragraph to the end thereof:

                  "Except for the short-term investment of cash and the purchase
         of stock for the reinvestment of dividends, if any, into the TGN Stock
         Fund, the Company has limited the investment power of the Trustee in
         the TGN Stock Fund to the retention and sale of TGN Stock. The Trustee
         shall not be liable for the purchase, retention, or sale of TGN Stock
         in accordance with the provisions of Section 4.2 hereof, and the
         Company (which has the authority to do so under the laws of the state
         of its incorporation) agrees to indemnify The Northern Trust Company
         from any liability, loss and expense, including legal fees and expenses
         which The Northern Trust Company may sustain by reason of purchase,
         retention, or sale of TGN Stock in accordance with the provisions of
         Section 4.2 hereof; provided, however, that to the extent that such
         liability, loss or expense arises from the Trustee's willful
         misconduct, bad faith or negligence in carrying out its ministerial
         functions under Section 4.2. This paragraph shall survive the
         termination of this Trust."

                  IN WITNESS WHEREOF, the Company and the Trustee have caused
this Amendment to be executed and attested to by their respective officers, in a
number of copies, all of which shall constitute one and the same instrument,
which may be sufficiently evidenced by any executed copy hereof, on the day and
year first written above.

                                 CENTERPOINT ENERGY, INC.

                                 By: /s/ David M. McClanahan
                                     -----------------------------------------
                                     David M. McClanahan
                                     President and Chief Executive Officer
/s/ Richard B. Dauphin
- -----------------------------
Assistant  Secretary

                                 THE NORTHERN TRUST COMPANY

                                 By:         ILLEGIBLE
                                     -----------------------------

                                 Its:
                                      ----------------------------

                                       2



                                                               EXHIBIT 10(u)(18)

                    CENTERPOINT ENERGY, INC. RETIREMENT PLAN

            (As Amended and Restated Effective as of January 1, 1999)

                                Seventh Amendment

                  CenterPoint Energy, Inc., a Texas corporation (the "Company"),
having reserved the right under Section 15.1 of the CenterPoint Energy, Inc.
Retirement Plan, as amended and restated effective as of January 1, 1999, and as
thereafter amended (the "Plan"), to amend the Plan, does hereby amend certain
provisions of the Plan relating to the NorAm Energy Corp. Employees Retirement
Plan (the "NorAm Plan"), which was merged with and into the Plan effective as of
January 1, 1999, as in effect on such date, that continue to apply with respect
to certain "Grandfathered Benefits" under the Plan for participants who had a
benefit under the NorAm Plan prior to January 1, 1999, effective as of January
1, 2003, as follows:

                  1.       The first sentence of Section 4.5 of the NorAm Plan
document is hereby amended to read as follows:

         "Notwithstanding any other provision of this Article, the retirement
         benefit payable to a Participant will not be less than the retirement
         benefit that the Participant had accrued as of December 31, 1991 (or,
         if the Participant commenced benefits before January 1, 2003 and was a
         Super Highly Compensated Employee for any Plan Year before 1992, as of
         his Benefit Protection Date as hereafter defined) under the terms of
         the Retirement Plan in effect on December 31, 1988 (including early
         retirement age and factors and other actuarial assumptions), determined
         as if the Participant had a Separation from Service on December 31,
         1991, or his Benefit Protection Date, whichever applies."

                  2.       Section 4.9 of the NorAm Plan document is hereby
amended in its entirety to read as follows:

                  "4.9     Special Rule - Preservation of Prior Formula. For any
         Participant who commences retirement benefits on or after January 1,
         2003, the retirement benefit will be the greater of (i) the retirement
         benefit determined under the foregoing provisions of this Article for
         all years of Credited Service or (ii) the retirement benefit the
         Participant would be entitled to receive under the Retirement Plan
         formula applicable to such Participant on December 31, 1991 (as if this
         Plan had not been adopted, including all relevant early retirement
         factors and actuarial assumptions) applied to the same Credited Service
         period as applied to (i) above.

                                       1



                  Notwithstanding, the retirement benefit of any other
         Participant who (i) was not a Highly Compensated Employee (as defined
         in Code Section 414(q)) on December 31, 1991, and (ii) was an active
         Employee on December 31, 1991, or had a Separation from Service prior
         to such date and is later rehired under circumstances in which his
         prior service is taken into account under Article 2, will be the
         greater of (1) the benefit determined under the foregoing provisions of
         this Article for all years of Credited Service or (2) in lieu of such
         benefit, the benefit the Participant would be entitled to receive under
         the Retirement Plan formula applicable to such Participant on December
         31, 1991 (as if this Plan had not been adopted, including all relevant
         early retirement factors and actuarial assumptions, except as otherwise
         provided in this Section), applied to the period of Credited Service
         ending with the close of the Plan Year (after 1991) in which the
         Participant first becomes a Highly Compensated Employee. For purposes
         of determining benefits accruing under this Section in Plan Years
         beginning after 1994, Section 4.5(a) of the benefit formula under Part
         Three of the Retirement Plan will be applied by replacing `5 years of
         Vesting Service' with `10 years of Vesting Service.' If a Participant
         is entitled to a benefit under this Section, the benefit will be
         payable only in the forms of payment applicable under Article 5, except
         to the extent that a form of payment provided under the Retirement Plan
         is protected under Section 5.10."

                  IN WITNESS WHEREOF, CenterPoint Energy, Inc. has caused these
presents to be executed by its duly authorized officer in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 5th day of November
2003, but effective as of the date specified above.

                                  CENTERPOINT ENERGY, INC.

                                  By: /s/ David M. McClanahan
                                      ------------------------------------
                                      David M. McClanahan
                                      President and Chief Executive Officer

ATTEST:

/s/ Richard B.Dauphin
- ---------------------------
Assistant Secretary

                                       2



                                                              EXHIBIT 10 (aa)(3)

                            LONG-TERM INCENTIVE PLAN
                                       OF
                          RELIANT ENERGY, INCORPORATED

                   (As Established Effective January 1, 2001)

                                Second Amendment

                  Reliant Energy, Incorporated, a Texas corporation (the
"Company"), having established the Long-Term Incentive Plan of Reliant Energy,
Incorporated, effective as of January 1, 2001, and as thereafter amended (the
"Plan"), and having reserved the right under Section 12 thereof to amend the
Plan, does hereby amend the Plan, effective as of the dates specified herein, as
follows:

                  1.       Effective as of August 31, 2002, the Plan is hereby
amended to provide that all references to "Reliant Energy, Incorporated" are
deleted and replaced in lieu thereof with "CenterPoint Energy, Inc." and the
definition of "Company" in Section 3 of the Plan is hereby amended to read as
follows:

                  "`COMPANY' means CenterPoint Energy, Inc., a Texas
corporation."

                  2.       Effective as of October 2, 2002, the Plan is hereby
renamed the Long-Term Incentive Plan of CenterPoint Energy, Inc., with all
related references in the Plan amended accordingly.

                  3.       Effective as of December 1, 2003, Section 13 of the
Plan is hereby amended by adding the following new paragraph to the end thereof:

                           "The foregoing notwithstanding, an Option granted
                  under this Plan shall become transferable by the Employee upon
                  or after his termination of employment with the Company, to
                  the extent the Option is vested and exercisable at the time of
                  such transfer, if (i) the former Employee assumes an office or
                  position with a federal, state or local government or agency
                  or instrumentality thereof (whether by employment, appointment
                  or election, and whether legislative, executive, judicial or
                  administrative) and (ii) following written request to the
                  Committee identifying the office



                  or position and the basis for the requested determination, the
                  Committee determines, in its sole discretion, that by reason
                  of the former Employee's holding of such office or position,
                  the holding of such Option, the exercise thereof or the
                  acquisition, holding or voting of the Common Stock issuable
                  upon exercise thereof 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."

                  IN WITNESS WHEREOF, CenterPoint Energy, Inc. has caused these
presents to be executed by its duly authorized officer in a number of copies,
all of which shall constitute one and the same instrument, which may be
sufficiently evidenced by any executed copy hereof, this 1st day of December
2003, but effective as of the dates specified above.

                                      CENTERPOINT ENERGY, INC.

                                      By /s/ David M. McClanahan
                                         ---------------------------------------
                                         David M. McClanahan
                                         President and Chief Executive Officer

ATTEST:

/s/ Richard B. Dauphin
- -----------------------------
Assistant Secretary



                                                                  EXHIBIT 10(ll)

                            CENTERPOINT ENERGY, INC.
                        STOCK PLAN FOR OUTSIDE DIRECTORS
                 (AS AMENDED AND RESTATED EFFECTIVE MAY 7, 2003)

                               ------------------

                                    ARTICLE I

                                     PURPOSE

                  The purpose of this CenterPoint Energy, Inc. Stock Plan for
Outside Directors, as amended and restated effective May 7, 2003 (the "Plan") is
to provide for a method of compensation of Outside Directors of CenterPoint
Energy, Inc. and any successor thereto (the "Company") that will strengthen the
alignment of their financial interests with those of the Company's shareholders
through increased ownership of shares of the Company's Common Stock by such
Outside Directors. The Plan is intended to (i) enhance the Company's ability to
maintain a competitive position in attracting and retaining qualified Outside
Directors who contribute, and are expected to contribute, materially to the
success of the Company and its Subsidiaries; (ii) provide a means of
compensating such Outside Directors whereby the compensation received will have
a value dependent on the price of the Common Stock; and (iii) enhance the
interest of such Outside Directors in the Company's continued success and
progress by further aligning each Outside Director's interests with those of the
Company's shareholders. Stock Awards under this Plan shall be in addition to the
annual retainer fee and meeting fees earned by Outside Directors of the Company.

                                   ARTICLE II

                                   DEFINITIONS

                  For purposes of the Plan, the terms set forth below shall have
the following meanings:

                  "ANNUAL AWARD DATE" means the first business day of the month
         immediately following each Annual Meeting of Shareholders, commencing
         with the June 2nd following the May 7, 2003 Annual Meeting of
         Shareholders of the Company.

                  "BOARD" means the Board of Directors of the Company.

                  A "CHANGE OF CONTROL" shall be deemed to have occurred upon
the occurrence of any of the following events:

                  (a)      30% Ownership Change: Any Person makes an acquisition
         of Outstanding Voting Stock and is, immediately thereafter, the
         beneficial owner of 30% or more of the then Outstanding Voting Stock,
         unless such acquisition is made directly from the Company in a
         transaction approved by a majority of the Incumbent Directors; or any
         group is formed that is the beneficial owner of 30% or more of the
         Outstanding Voting Stock; or

                                  Page 1 of 8



                  (b)      Board Majority Change: Individuals who are Incumbent
         Directors cease for any reason to constitute a majority of the members
         of the Board; or

                  (c)      Major Mergers and Acquisitions: Consummation of a
         Business Combination unless, immediately following such Business
         Combination, (i) all or substantially all of the individuals and
         entities that were the beneficial owners of the Outstanding Voting
         Stock immediately prior to such Business Combination beneficially own,
         directly or indirectly, more than 70% of the then outstanding shares of
         voting stock of the parent corporation resulting from such Business
         Combination in substantially the same relative proportions as their
         ownership, immediately prior to such Business Combination, of the
         Outstanding Voting Stock, (ii) if the Business Combination involves the
         issuance or payment by the Company of consideration to another entity
         or its shareholders, the total fair market value of such consideration
         plus the principal amount of the consolidated long-term debt of the
         entity or business being acquired (in each case, determined as of the
         date of consummation of such Business Combination by a majority of the
         Incumbent Directors) does not exceed 50% of the sum of the fair market
         value of the Outstanding Voting Stock plus the principal amount of the
         Company's consolidated long-term debt (in each case, determined
         immediately prior to such consummation by a majority of the Incumbent
         Directors), (iii) no Person (other than any corporation resulting from
         such Business Combination) beneficially owns, directly or indirectly,
         30% or more of the then outstanding shares of voting stock of the
         parent corporation resulting from such Business Combination and (iv) a
         majority of the members of the board of directors of the parent
         corporation resulting from such Business Combination were Incumbent
         Directors of the Company immediately prior to consummation of such
         Business Combination; or

                  (d)      Major Asset Dispositions: Consummation of a Major
         Asset Disposition unless, immediately following such Major Asset
         Disposition, (i) individuals and entities that were beneficial owners
         of the Outstanding Voting Stock immediately prior to such Major Asset
         Disposition beneficially own, directly or indirectly, more than 70% of
         the then outstanding shares of voting stock of the Company (if it
         continues to exist) and of the entity that acquires the largest portion
         of such assets (or the entity, if any, that owns a majority of the
         outstanding voting stock of such acquiring entity) and (ii) a majority
         of the members of the board of directors of the Company (if it
         continues to exist) and of the entity that acquires the largest portion
         of such assets (or the entity, if any, that owns a majority of the
         outstanding voting stock of such acquiring entity) were Incumbent
         Directors of the Company immediately prior to consummation of such
         Major Asset Disposition.

         For purposes of the foregoing,

                  (1)      the term "Person" means an individual, entity or
         group;

                  (2)      the term "group" is used as it is defined for
         purposes of Section 13(d)(3) of the Securities Exchange Act of 1934
         (the "Exchange Act");

                                  Page 2 of 8



                  (3)      the term "beneficial owner" is used as it is defined
         for purposes of Rule 13d-3 under the Exchange Act;

                  (4)      the term "Outstanding Voting Stock" means outstanding
         voting securities of the Company entitled to vote generally in the
         election of directors; and any specified percentage or portion of the
         Outstanding Voting Stock (or of other voting stock) shall be determined
         based on the combined voting power of such securities;

                  (5)      the term "Incumbent Director" means a director of the
         Company (x) who was a director of the Company on May 7, 2003 or (y) who
         becomes a director subsequent to such date and whose election, or
         nomination for election by the Company's shareholders, was approved by
         a vote of a majority of the Incumbent Directors at the time of such
         election or nomination, except that any such director shall not be
         deemed an Incumbent Director if his or her initial assumption of office
         occurs as a result of an actual or threatened election contest or other
         actual or threatened solicitation of proxies by or on behalf of a
         Person other than the Board;

                  (6)      the term "election contest" is used as it is defined
         for purposes of Rule 14a-11 under the Exchange Act;

                  (7)      the term "Business Combination" means (x) a merger or
         consolidation involving the Company or its stock or (y) an acquisition
         by the Company, directly or through one or more subsidiaries, of
         another entity or its stock or assets;

                  (8)      the term "parent corporation resulting from a
         Business Combination" means the Company if its stock is not acquired or
         converted in the Business Combination and otherwise means the entity
         which as a result of such Business Combination owns the Company or all
         or substantially all the Company's assets either directly or through
         one or more subsidiaries; and

                  (9)      the term "Major Asset Disposition" means the sale or
         other disposition in one transaction or a series of related
         transactions of 70% or more of the assets of the Company and its
         subsidiaries on a consolidated basis; and any specified percentage or
         portion of the assets of the Company shall be based on fair market
         value, as determined by a majority of the Incumbent Directors.

                  "CODE" means the Internal Revenue Code of 1986, as amended.

                  "COMMON STOCK" means, subject to the provisions of Section
         7.3, the presently authorized common stock, $0.01 par value, of the
         Company.

                  "COMPANY" means CenterPoint Energy, Inc., a Texas corporation,
         and any successor thereto.

                                  Page 3 of 8



                  "DIVIDEND EQUIVALENTS" means, with respect to shares of Common
         Stock issued or delivered at the end of the Restriction Period
         applicable to a Stock Award, an amount equal to all dividends and other
         distributions (or the economic value thereof) that are payable to
         shareholders of record during the Restriction Period on a like number
         of shares of Common Stock.

                  "OUTSIDE DIRECTOR" means a person who is a member of the Board
         on an Annual Award Date and who is not a current employee of the
         Company or a Subsidiary.

                  "PLAN" means the CenterPoint Energy, Inc. Stock Plan for
         Outside Directors, as set forth herein and as from time to time
         amended.

                  "RESTRICTION PERIOD" means the period of time beginning as of
         the grant date of a Stock Award and ending on the third anniversary of
         the grant date or such earlier time at which the Common Stock subject
         to such Stock Award is no longer subject to forfeiture provisions as
         provided in Section 5.3.

                  "STOCK AWARD" means an award of the right to receive shares of
         Common Stock granted by the Company to an Outside Director pursuant to,
         and subject to the terms, conditions and limitations specified in,
         Article V.

                  "SUBSIDIARY" means a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.

                                   ARTICLE III

                   SHAREHOLDER APPROVAL, RESERVATION OF SHARES
                             AND PLAN ADMINISTRATION

         3.1      Shareholder Approval: This Plan was originally effective as of
May 22, 1996, and approved by the shareholders of the Company at the May 22,
1996 Annual Meeting of Shareholders ("Prior Plan"). The Plan, as amended and
restated, shall become effective as of May 7, 2003, only if approved by the
affirmative vote, in person or by proxy, of the holders of a majority of the
shares of Common Stock present and entitled to vote at the May 7, 2003 Annual
Meeting of Shareholders. This Plan, as amended and restated, shall automatically
terminate should such shareholder approval not be obtained (and the Prior Plan
as in effect immediately prior to May 7, 2003, shall continue in operation as
then in effect).

         3.2      Shares Reserved Under Plan: The aggregate number of shares of
Common Stock which may be issued or delivered under this Plan shall not exceed
350,000 shares, subject to adjustment as hereinafter provided. All or any part
of such 350,000 shares may be issued pursuant to Stock Awards. The shares of
Common Stock which may be granted pursuant to Stock Awards may consist of either
authorized but unissued shares of Common Stock or shares of Common Stock which
have been issued and which shall have been heretofore or are hereafter
reacquired by the Company. The number of shares of Common Stock that are subject
to Stock Awards under this Plan that are forfeited or terminated shall again
immediately become available for Stock Awards hereunder. The Board may from time
to time adopt and observe such

                                  Page 4 of 8



procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate. The total number of shares authorized under this Plan shall be
subject to increase or decrease in order to give effect to the adjustment
provision of Section 7.3 and to give effect to any amendment adopted as provided
in Section 6.1.

         3.3      Plan Administration:

                  (a)      This Plan shall be administered by the Board. Subject
         to the provisions hereof, the Board shall have full and exclusive power
         and authority to administer this Plan and to take all actions that are
         specifically contemplated hereby or are necessary or appropriate in
         connection with the administration hereof. The Board shall also have
         full and exclusive power to interpret this Plan and to adopt such
         rules, regulations and guidelines for carrying out this Plan as it may
         deem necessary or proper, all of which powers shall be exercised in the
         best interests of the Company and in keeping with the objectives of
         this Plan. The Board may correct any defect or supply any omission or
         reconcile any inconsistency in this Plan or in any Stock Award in the
         manner and to the extent the Board deems necessary or desirable. Any
         decision of the Board in the interpretation and administration of this
         Plan shall lie within its sole and absolute discretion and shall be
         final, conclusive and binding on all parties concerned. The Board may
         engage in or authorize the engagement of a third party administrator to
         carry out administrative functions under the Plan.

                  (b)      No member of the Board or officer of the Company to
         whom the Board has delegated authority in accordance with the
         provisions of this Section shall be liable for anything done or omitted
         to be done by him or her, by any member of the Board or by any officer
         of the Company in connection with the performance of any duties under
         this Plan, except for his or her own willful misconduct or as expressly
         provided by statute.

                                   ARTICLE IV

                              PARTICIPATION IN PLAN

         4.1      Eligibility to Receive Stock Awards: Stock Awards under this
Plan shall be granted only to persons who are Outside Directors who are eligible
to receive awards under Section 5.1 and/or 5.2.

         4.2      Participation Not a Guarantee of Continuing Service as a
Member of the Board: Nothing in this Plan shall in any manner be construed to
(a) limit in any way the right or power of the Company's stockholders to remove
an Outside Director, without regard to the effect of such removal on any rights
such Outside Director would otherwise have under this Plan, or (b) give any
right to such an Outside Director (i) to be nominated for reelection or to be
reelected as such and/or (ii) after ceasing to be an Outside Director, to
receive any shares of Common Stock of the Company under this Plan to which such
Outside Director is not entitled under the express provisions of this Plan.

                                  Page 5 of 8



                                   ARTICLE V

                                  STOCK AWARDS

         5.1      Initial Awards: On or after the date an individual first
becomes an Outside Director, at the discretion of the Board, such Outside
Director may be granted a one-time, initial Stock Award consisting of the right
to receive up to, but not to exceed, 5,000 shares of Common Stock, as determined
by the Board, with such award subject to the terms, conditions and limitations
set forth in this Plan; provided, however, that such Outside Director is then in
office as of the grant date of such initial Stock Award. Any Stock Award under
this Section 5.1 shall be in addition to, and not in lieu of, any Stock Award
granted under Section 5.2.

         5.2      Annual Awards: As of each Annual Award Date, at the discretion
of the Board, each Outside Director then in office may be granted a Stock Award
consisting of the right to receive up to, but not to exceed, 5,000 shares of
Common Stock, as determined by the Board, with such awards subject to the terms,
conditions and limitations set forth in this Plan.

         5.3      Vesting of Stock Awards: Each Stock Award granted under this
Plan shall be subject to a Restriction Period and shall vest in increments of
one-third (1/3) of the total number of shares of Common Stock that are subject
thereto on the first, second and third anniversaries of the grant date of the
Stock Award such that all shares of Common Stock that are subject thereto shall
be fully vested on the third anniversary of such grant date. Notwithstanding the
foregoing, a Stock Award shall become immediately vested in full with respect to
all shares of Common Stock that are subject to a Stock Award as of such date (a)
if the Outside Director terminates his or her status as a member of the Board by
reason of the Outside Director's death or (b) upon the date of a Change of
Control. If an Outside Director's service on the Board is terminated for any
reason whatsoever, other than due to death or a Change of Control, all rights to
the unvested portion of his or her Stock Award(s) as of such termination date
shall be immediately and completely forfeited as of such termination date. For
purposes of this Plan, an Outside Director's service on the Board shall be
deemed to have terminated at the close of business on the day preceding the
first date on which he or she ceases to be a member of the Board, unless his or
her termination of service on the Board occurs on or after attaining age 70, in
which case the Outside Director's termination date shall be deemed to be the
last day of the year in which such termination occurs.

         5.4      Form of Award: Upon vesting in accordance with Section 5.3,
the number of vested shares of Common Stock subject to the Stock Award shall be
registered in the name of the Outside Director and certificates representing
such Common Stock (unless the Company shall elect to use uncertificated shares)
shall be delivered to the Outside Director as soon as practicable after the date
upon which the Outside Director's right to such shares vested. Upon delivery of
the vested shares of Common Stock pursuant to this Section, the Outside Director
shall also be entitled to receive a cash payment equal to the sum of all
Dividend Equivalents, if any.

                                  Page 6 of 8



                                   ARTICLE VI

                        AMENDMENT AND TERMINATION OF PLAN

         6.1      Amendment, Modification, Suspension or Termination: The Board
may from time to time amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law except that no amendment or alteration shall be
effective prior to approval by the Company's shareholders to the extent such
approval is determined to be required by applicable legal requirements or the
listing standards of the New York Stock Exchange.

         6.2      Termination: Subject to satisfaction of the requirements of
Section 3.1, this Plan shall continue indefinitely until all shares of Common
Stock authorized for issuance or delivery hereunder by Section 3.2 hereof have
been issued, except the Board may at any time terminate this Plan as of any date
specified in a resolution adopted by the Board. No Stock Awards may be granted
after this Plan has terminated. The termination of the Plan shall not affect the
applicability of any provision of the Plan to Stock Awards made prior to such
termination.

                                  ARTICLE VII

                            MISCELLANEOUS PROVISIONS

         7.1      Restrictions Upon Grant of Stock Awards: The listing on the
New York Stock Exchange or the registration or qualification under any federal
or state law of any shares of Common Stock to be granted pursuant to this Plan
(whether to permit the grant of Stock Awards or the resale or other disposition
of any such shares of Common Stock by or on behalf of the Outside Directors
receiving such shares) may be necessary or desirable and, in any such event, if
the Company so determines, issuance or delivery of such shares of Common Stock
shall not be made until such listing, registration or qualification shall have
been completed. In such connection, the Company agrees that it will use its best
efforts to effect any such listing, registration or qualification, provided,
however, that the Company shall not be required to use its best efforts to
effect such registration under the Securities Act of 1933, as amended, other
than on Form S-8, as presently in effect, or other such forms as may be in
effect from time to time calling for information comparable to that presently
required to be furnished under Form S-8.

         7.2      Restrictions Upon Resale of Unregistered Stock: If the shares
of Common Stock that have been transferred to an Outside Director pursuant to
the terms of this Plan are not registered under the Securities Act of 1933, as
amended, pursuant to an effective registration statement, such Outside Director,
if the Company deems it advisable, may be required to represent and agree in
writing (a) that any shares of Common Stock acquired by such Outside Director
pursuant to this Plan will not be sold except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or pursuant
to an exemption from registration under said Act and (b) that such Outside
Director is acquiring such shares of Common Stock for such Outside Director's
own account and not with a view to the distribution thereof.

                                  Page 7 of 8



         7.3      Adjustments: In the event of any subdivision or combination of
outstanding shares of Common Stock or declaration of a dividend payable in
shares of Common Stock or other stock split, then (a) the number of shares of
Common Stock reserved under this Plan and (b) the number of shares delivered
under Section 5.4 on any date occurring after the applicable record date or
effective date shall be proportionately adjusted to reflect such transaction.

         7.4      Withholding of Taxes: Unless otherwise required by applicable
federal or state laws or regulations, the Company shall not withhold or
otherwise pay on behalf of any Outside Director any federal, state, local or
other taxes arising in connection with a Stock Award under this Plan. The
payment of any such taxes shall be the sole responsibility of each Outside
Director.

         7.5      Governing Law: This Plan and all determinations made and
actions taken pursuant hereto shall be governed by the internal laws of the
State of Texas, except as federal law may apply.

         7.6      Unfunded Status of Plan; Establishment of Stock Award Account:
This Plan shall be an unfunded plan. The grant of shares of Common Stock
pursuant to a Stock Award under this Plan shall be implemented by a credit to a
bookkeeping account maintained by the Company evidencing the accrual in favor of
the Outside Director of the unfunded and unsecured right to receive shares of
Common Stock of the Company, which right shall be subject to the terms,
conditions and restrictions set forth in the Plan. Such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
establish any special or separate fund or reserve or to make any other
segregation of assets to assure the issuance of any shares of Common Stock
granted under this Plan. Except as otherwise provided in this Plan, the shares
of Common Stock credited to the Outside Director's bookkeeping account may not
be sold, assigned, transferred, pledged or otherwise encumbered until the
Outside Director has been registered as the holder of such shares of Common
Stock on the records of the Company as provided in Section 5.4. Neither the
Company nor the Board shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.

         7.7      No Assignment or Transfer: No rights to receive Stock Awards
under the Plan shall be assignable or transferable by an Outside Director except
by will or the laws of descent and distribution.

                                                        CENTERPOINT ENERGY, INC.

                                   Page 8 of 8



                                                               EXHIBIT 10(pp)(1)

                                [TEXASGENCO LOGO]

================================================================================

                                CREDIT AGREEMENT

                                      among

                           TEXAS GENCO HOLDINGS, INC.,

                              TEXAS GENCO GP, LLC,

                              TEXAS GENCO LP, LLC,

                            TEXAS GENCO SERVICES, LP,

                                TEXAS GENCO, LP,

                                VARIOUS LENDERS,

                        DEUTSCHE BANK AG NEW YORK BRANCH,

                  as Administrative Agent and Collateral Agent

                                       and

                                  COMPASS BANK,

                             as Documentation Agent

                  --------------------------------------------

                          Dated as of December 23, 2003

                  --------------------------------------------

                                   $75,000,000

                         DEUTSCHE BANK SECURITIES INC.,

                        as LEAD ARRANGER and BOOK RUNNER

================================================================================

[DEUTSCHE BANK LOGO]                                         [COMPASS BANK LOGO]



                                TABLE OF CONTENTS



                                                                                                       Page
                                                                                                       ----
                                                                                                    
SECTION 1.        Amount and Terms of Credit.....................................................        1

         1.01     The Commitments................................................................        1
         1.02     Minimum Amount of Each Borrowing...............................................        1
         1.03     Notice of Borrowing............................................................        1
         1.04     Disbursement of Funds..........................................................        2
         1.05     Revolving Notes................................................................        3
         1.06     Conversions....................................................................        3
         1.07     Pro Rata Borrowings............................................................        4
         1.08     Interest.......................................................................        4
         1.09     Interest Periods...............................................................        5
         1.10     Increased Costs, Illegality, etc...............................................        6
         1.11     Compensation...................................................................        8
         1.12     Change of Lending Office.......................................................        8
         1.13     Replacement of Lenders.........................................................        8
         1.14     Recommitment; Replacement of Non-Continuing Lender.............................        9

SECTION 2.        Letters of Credit..............................................................       10

         2.01     Letters of Credit..............................................................       10
         2.02     Minimum Stated Amount..........................................................       11
         2.03     Letter of Credit Requests......................................................       11
         2.04     Letter of Credit Participations................................................       11
         2.05     Agreement to Repay Letter of Credit Drawings...................................       13
         2.06     Increased Costs................................................................       14

SECTION 3.        Commitment Commission; Fees; Reductions of Commitment..........................       15

         3.01     Fees...........................................................................       15
         3.02     Optional Commitment Reductions.................................................       16
         3.03     Mandatory Reduction of Commitments.............................................       16

SECTION 4.        Prepayments; Payments; Taxes...................................................       16

         4.01     Voluntary Prepayments..........................................................       16
         4.02     Mandatory Repayments and Cash Collateralizations...............................       17
         4.03     Method and Place of Payment....................................................       18
         4.04     Net Payments...................................................................       18

SECTION 5.        Conditions Precedent to the Effective Date.....................................       20

         5.01     Execution of Agreement; Revolving Notes........................................       20
         5.02     Officer's Certificate..........................................................       20
         5.03     Opinions of Counsel............................................................       20
         5.04     Corporate Documents; Proceedings; etc..........................................       20




                                                                                                    
         5.05     Security Documents.............................................................       21
         5.06     Guaranties.....................................................................       21
         5.07     Adverse Change; Governmental and Third Party Approvals; etc....................       22
         5.08     Litigation.....................................................................       22
         5.09     Financial Statements; Projections..............................................       22
         5.10     Fees, etc......................................................................       23
         5.11     Insurance......................................................................       23

SECTION 6.        Conditions Precedent to All Credit Events......................................       23

         6.01     Effective Date.................................................................       23
         6.02     No Default; Representations and Warranties.....................................       23
         6.03     Notice of Borrowing; Letter of Credit Request..................................       23

SECTION 7.        Representations, Warranties and Agreements.....................................       23

         7.01     Corporate Status...............................................................       24
         7.02     Corporate Power and Authority..................................................       24
         7.03     No Violation...................................................................       24
         7.04     Governmental Approvals.........................................................       25
         7.05     Financial Statements; Financial Condition......................................       25
         7.06     Litigation.....................................................................       25
         7.07     True and Complete Disclosure...................................................       25
         7.08     Use of Proceeds; Margin Regulations............................................       26
         7.09     Tax Returns and Payments.......................................................       26
         7.10     Compliance with ERISA..........................................................       26
         7.11     Solvency.......................................................................       27
         7.12     Security Documents.............................................................       27
         7.13     Compliance with Statutes, etc..................................................       27
         7.14     Investment Company Act.........................................................       27
         7.15     Environmental Matters..........................................................       27
         7.16     Existing Indebtedness..........................................................       28

SECTION 8.        Affirmative Covenants..........................................................       28

         8.01     Information Covenants..........................................................       28
         8.02     Keeping of Books...............................................................       30
         8.03     Maintenance of Insurance.......................................................       30
         8.04     Preservation of Existence, Etc.................................................       30
         8.05     Maintenance of Properties, Etc.................................................       31
         8.06     Maintenance of Existing Business...............................................       31
         8.07     Compliance with Statutes, etc..................................................       31
         8.08     Visitation Rights..............................................................       31
         8.09     Use of Proceeds................................................................       32
         8.10     Payment of Taxes...............................................................       32
         8.11     Further Assurances.............................................................       32
         8.12     Future Guarantors..............................................................       32





                                                                                                    
SECTION 9.        Negative Covenants.............................................................       32

         9.01     Liens..........................................................................       32
         9.02     Consolidation, Mergers or Disposal of Assets...................................       33
         9.03     Accounting Changes.............................................................       33
         9.04     Restrictions on Dividends, Intercompany Loans, or Investments..................       33
         9.05     Affiliate Transactions.........................................................       34
         9.06     Payments on Preferred Stock....................................................       35
         9.07     Use of Proceeds; Regulation U..................................................       35
         9.08     Maximum Total Debt for Borrowed Money to Consolidated Capitalization Ratio.....       35
         9.09     Minimum EBITDA to Cash Interest Ratio..........................................       35

SECTION 10.       Events of Default..............................................................       35

         10.01    Payment........................................................................       36
         10.02    Representations, etc...........................................................       36
         10.03    Covenants......................................................................       36
         10.04    Default Under Other Agreements.................................................       36
         10.05    Bankruptcy, etc................................................................       36
         10.06    Judgments......................................................................       37
         10.07    Non-Monetary Judgments.........................................................       37
         10.08    Change of Control..............................................................       37
         10.09    ERISA..........................................................................       37
         10.10    Security Documents.............................................................       37
         10.11    Guaranty.......................................................................       38

SECTION 11.       Definitions and Accounting Terms...............................................       38

         11.01    Defined Terms..................................................................       38
         11.02    Accounting Terms...............................................................       57

SECTION 12.       The Agents.....................................................................       58

         12.01    Appointment....................................................................       58
         12.02    Nature of Duties...............................................................       58
         12.03    Lack of Reliance on the Agents.................................................       58
         12.04    Certain Rights of the Agents...................................................       59
         12.05    Reliance.......................................................................       59
         12.06    Indemnification................................................................       59
         12.07    The Agents in Their Individual Capacity........................................       59
         12.08    Holders........................................................................       60
         12.09    Resignation....................................................................       60
         12.10    Documentation Agent............................................................       61

SECTION 13.       Miscellaneous..................................................................       61

         13.01    Payment of Expenses, etc.......................................................       61
         13.02    Right of Setoff................................................................       62
         13.03    Notices........................................................................       62





                                                                                                     
         13.04    Benefit of Agreement...........................................................       63
         13.05    No Waiver; Remedies Cumulative.................................................       64
         13.06    Payments Pro Rata..............................................................       65
         13.07    Calculations; Computations.....................................................       65
         13.08    GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE...............................       65
         13.09    Counterparts...................................................................       66
         13.10    Effectiveness..................................................................       66
         13.11    Headings Descriptive...........................................................       67
         13.12    Amendment or Waiver; Removal of Lender etc.....................................       67
         13.13    Survival.......................................................................       68
         13.14    Domicile of Loans..............................................................       68
         13.15    Confidentiality................................................................       68
         13.16    Register.......................................................................       70

SECTION 14.       Guaranty.......................................................................       70

         14.01    Guaranty.......................................................................       70
         14.02    Bankruptcy.....................................................................       71
         14.03    Nature of Liability............................................................       71
         14.04    Independent Obligation.........................................................       71
         14.05    Authorization..................................................................       71
         14.06    Reliance.......................................................................       72
         14.07    Rights of Contribution.........................................................       72
         14.08    Waiver.........................................................................       73
         14.09    Payment........................................................................       74
         14.10    Savings Clause.................................................................       74



               
SCHEDULE I        Commitments
SCHEDULE II       Lender Addresses
SCHEDULE III      Governmental Approvals
SCHEDULE IV       Existing Indebtedness
EXHIBIT A-1       Form of Notice of Borrowing
EXHIBIT A-2       Form of Notice of Conversion/Continuation
EXHIBIT B         Form of Revolving Note
EXHIBIT C         Form of Letter of Credit Request
EXHIBIT D         Form of Section 4.04(b)(ii) Certificate
EXHIBIT E         Form of Opinion of Baker Botts LLP, special counsel to the Credit Parties
EXHIBIT F         Form of Officers' Certificate
EXHIBIT G         Form of Pledge Agreement
EXHIBIT H         Form of Indenture
EXHIBIT I         Form of Assignment and Assumption Agreement





                  CREDIT AGREEMENT, dated as of December 23, 2003, among TEXAS
GENCO HOLDINGS, INC., a Texas corporation (the "Parent"), TEXAS GENCO GP, LLC, a
Texas limited liability company ("Genco GP"), TEXAS GENCO LP, LLC, a Texas
limited liability company ("Genco LP"), TEXAS GENCO SERVICES, LP, a Texas
limited partnership ("Genco Services") TEXAS GENCO, LP, a Texas limited
partnership (the "Borrower"), the Lenders from time to time party hereto,
DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent and Collateral Agent
and COMPASS BANK, as Documentation Agent. Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 11 are used herein as so
defined.

                              W I T N E S S E T H:

                  WHEREAS, subject to the terms and conditions set forth herein,
the Lenders are willing to make available to the Borrower the credit facility
provided herein;

                  NOW, THEREFORE, IT IS AGREED:

                  SECTION 1. Amount and Terms of Credit.

                  1.01 The Commitments. Subject to and upon the terms and
conditions set forth herein, each Lender severally agrees, at any time and from
time to time on and after the Effective Date and prior to the Maturity Date, to
make a revolving loan or revolving loans (each, a "Loan" and, collectively, the
"Loans") to the Borrower, which Loans (i) shall be denominated in Dollars, (ii)
shall, at the option of the Borrower, be incurred and maintained as, and/or
converted into, Base Rate Loans or Eurodollar Loans, provided that except as
otherwise specifically provided in Section 1.10(b), all Loans comprising the
same Borrowing shall at all times be of the same Type, (iii) may be repaid and
reborrowed in accordance with the provisions hereof, (iv) shall not exceed for
any Lender at any time outstanding that aggregate principal amount which, when
added to (I) the aggregate principal amount of all other then outstanding Loans
made by such Lender and (II) the product of (x) such Lender's Percentage and (y)
the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid
Drawings which are repaid with the proceeds of, and simultaneously with the
incurrence of Loans) at such time, equals the Commitment of such Lender at such
time and (v) shall not exceed for all Lenders at any time outstanding that
aggregate principal amount which, when added to (I) the aggregate principal
amount of all Loans then outstanding and (II) the aggregate amount of all Letter
of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of Loans) at such time,
equals the Total Commitment at such time.

                  1.02 Minimum Amount of Each Borrowing. The aggregate principal
amount of each Borrowing of Loans shall be not less than the Minimum Borrowing
Amount. More than one Borrowing may occur on the same date, but at no time shall
there be outstanding more than five Borrowings of Eurodollar Loans.

                  1.03 Notice of Borrowing. Whenever the Borrower desires to
incur Loans hereunder, a Responsible Officer of the Borrower shall give the
Administrative Agent at the Notice Office, written notice (or telephonic notice
promptly confirmed in writing) on the date of each Borrowing of Base Rate Loans
and at least three Business Days' prior written notice (or



telephonic notice promptly confirmed in writing) of each Eurodollar Loan to be
made hereunder, provided that any such notice shall be deemed to have been given
on a certain day only if given before 11:00 A.M. (New York City time) on such
day. Each such written notice or written confirmation of telephonic notice (each
a "Notice of Borrowing"), except as otherwise expressly provided in Section
1.10, shall be irrevocable and shall be given by a Responsible Officer of the
Borrower in the form of Exhibit A-1, appropriately completed to specify the
aggregate principal amount of the Loans to be made pursuant to such Borrowing,
the date of such Borrowing (which shall be a Business Day) and whether the Loans
being made pursuant to such Borrowing are to be initially maintained as Base
Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest
Period to be applicable thereto. The Administrative Agent shall promptly give
each Lender notice of such proposed Borrowing, of such Lender's proportionate
share thereof and of the other matters required by the immediately preceding
sentence to be specified in the Notice of Borrowing.

                  (a)      Without in any way limiting the obligation of the
Borrower to confirm in writing any telephonic notice of any Borrowing,
conversion or prepayment of Loans, the Administrative Agent may act without
liability upon the basis of telephonic notice of such Borrowing, conversion or
prepayment, believed by the Administrative Agent in good faith to be from a
Responsible Officer of the Borrower prior to receipt of written confirmation. In
each such case, the Borrower hereby waives the right to dispute the
Administrative Agent's record of the terms of such telephonic notice of such
Borrowing, conversion or prepayment.

                  1.04 Disbursement of Funds. Except as otherwise specifically
provided in the immediately succeeding sentence, no later than 12:00 Noon (New
York City time) on the date specified in each Notice of Borrowing, each Lender
will make available its to the Administrative Agent such Lender's Percentage of
each Borrowing to be made on such date. All such amounts shall be made available
in Dollars and in immediately available funds at the Payment Office, and the
Administrative Agent will make available to the Borrower at the Payment Office
the aggregate of the amounts so made available by the Lenders. Unless the
Administrative Agent shall have been notified by any Lender prior to the date of
Borrowing that such Lender does not intend to make available to the
Administrative Agent such Lender's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Lender has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Lender, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from such
Lender. If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the Borrower to immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to recover
on demand from such Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to the Borrower until the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (i) if recovered from such Lender, the overnight Federal
Funds Rate for the first three days and at the interest rate otherwise
applicable to such Loans for each day thereafter and (ii) if recovered from the
Borrower, the rate of interest applicable to the respective Borrowing, as
determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be

                                      -2-


deemed to relieve any Lender from its obligation to make Loans hereunder or to
prejudice any rights which the Borrower may have against any Lender as a result
of any failure by such Lender to make Loans hereunder.

                  1.05 Revolving Notes. Subject to the provisions of Section
1.05(d), the Borrower's obligation to pay the principal of, and interest on, the
Loans made by each Lender shall be evidenced in the Register maintained by the
Administrative Agent pursuant to Section 13.16 and shall, if requested by such
Lender, also be evidenced by a promissory note duly executed and delivered by
the Borrower substantially in the form of Exhibit B, with blanks appropriately
completed in conformity herewith (each a "Revolving Note" and, collectively, the
"Revolving Notes").

                  (a)      Each Revolving Note issued to a Lender shall (i) be
executed by the Borrower, (ii) be payable to such Lender or its registered
assigns and be dated the Effective Date (or if issued thereafter, the date of
issuance), (iii) be in a stated principal amount equal to the Commitment of such
Lender (or, if issued after the termination thereof, be in a stated principal
amount equal to the outstanding Loans of such Lender at such time) and be
payable in the principal amount of the Loans evidenced thereby, (iv) mature on
the Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided
in Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.

                  (b)      Each Lender will note on its internal records the
amount of each Loan made by it and each payment in respect thereof and will
prior to any transfer of any of its Revolving Notes endorse on the reverse side
thereof the outstanding principal amount of Loans evidenced thereby. Failure to
make any such notation or any error in any such notation or endorsement shall
not affect the Borrower's obligations in respect of such Loans.

                  (c)      Notwithstanding anything to the contrary contained
above or elsewhere in this Agreement, Revolving Notes shall only be delivered to
Lenders which at any time (or from time to time) specifically request the
delivery of such Revolving Notes. No failure of any Lender to request or obtain,
produce or maintain a Revolving Note evidencing its Loans to the Borrower shall
affect or in any manner impair the obligations of the Borrower to pay the Loans
(and all related Obligations) which would otherwise be evidenced thereby in
accordance with the requirements of this Agreement, and shall not in any way
affect (i) the guaranties therefor provided pursuant to the Guaranty or any
Credit Document or (ii) the security interests therefor granted pursuant to any
Security Document or any other Credit Document. Any Lender which does not have a
Revolving Note evidencing its outstanding Loans shall in no event be required to
make the notations otherwise described in preceding clause (c) of this Section
1.05. At any time when any Lender requests the delivery of a Revolving Note to
evidence any of its Loans, the Borrower shall promptly execute and deliver to
the respective Lender the requested Revolving Note or Revolving Notes in the
appropriate amount or amounts to evidence such Loans.

                  1.06 Conversions. The Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least the Minimum
Borrowing Amount of the outstanding principal amount of Loans made pursuant to
one or more Borrowings of one or more Types

                                      -3-


of Loans into a Borrowing of another Type of Loan, provided that (i) except as
otherwise provided in Section 1.10(b), Eurodollar Loans may be converted into
Base Rate Loans only on the last day of an Interest Period applicable thereto
and no partial conversion of Eurodollar Loans shall reduce the outstanding
principal amount of such Eurodollar Loans made pursuant to a single Borrowing to
less than the Minimum Borrowing Amount applicable thereto, (ii) unless the
Required Lenders otherwise agree, Base Rate Loans may only be converted into
Eurodollar Loans if no Default or Event of Default is in existence on the date
of the conversion, and (iii) no conversion pursuant to this Section 1.06 shall
result in a greater number of Borrowings of Eurodollar Loans than is permitted
under Section 1.02. Each such conversion shall be effected by the Borrower by
giving the Administrative Agent at the Notice Office prior to 12:00 Noon (New
York City time) at least three Business Days' prior notice (each a "Notice of
Conversion/Continuation") in the form of Exhibit A-2, appropriately completed to
specify the Loans to be so converted, the Borrowing or Borrowings pursuant to
which such Loans were made and, if to be converted into Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Lender prompt notice of any such proposed conversion.

                  1.07 Pro Rata Borrowings. Each Borrowing of Loans under this
Agreement shall be incurred from the Lenders pro rata on the basis of their
Commitments. It is understood that no Lender shall be responsible for any
default by any other Lender of its obligation to make Loans hereunder and that
each Lender shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to make its Loans
hereunder.

                  1.08 Interest. The Borrower agrees to pay interest in respect
of the unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Base Rate Loan or (ii) the
conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06,
at a rate per annum which shall be equal to the sum of the Applicable Margin
plus the Base Rate in effect from time to time.

                  (a)      The Borrower agrees to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Eurodollar Loan or (ii) the
conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06,
1.09 or 1.10, as applicable, at a rate per annum which shall, during each
Interest Period applicable thereto, be equal to the sum of the Applicable Margin
plus the Eurodollar Rate for such Interest Period.

                  (b)      Overdue principal and to the extent permitted by law,
overdue interest and any other amounts payable hereunder or under any other
Credit Document shall, in each case bear interest at a rate per annum equal to
the greater of (x) the rate which is 2% in excess of the rate then borne by such
Loans and (y) the rate which is 2% in excess of the rate otherwise applicable to
Base Rate Loans from time to time, and all other overdue amounts payable
hereunder and under any other Credit Document shall bear interest at a rate per
annum equal to the rate which is 2% in excess of the rate applicable to Base
Rate Loans from time to time. Interest which accrues under this Section 1.08(c)
shall be payable by the Borrower on demand.

                                      -4-


                  (c)      Accrued (and theretofore unpaid) interest shall be
payable (i) in respect of each Base Rate Loan (x) quarterly in arrears on each
Quarterly Payment Date, (y) in the case of a repayment in full of all
outstanding Base Rate Loans, on the date of such repayment or prepayment, and
(z) at maturity (whether by acceleration or otherwise) or such earlier date upon
which the Total Commitment is terminated and, after such date, on demand, and
(ii) in respect of each Eurodollar Loan (x) on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (y) on any repayment or prepayment (on the
amount repaid or prepaid), at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand.

                  (d)      Upon each Interest Determination Date, the
Administrative Agent shall determine the Eurodollar Rate for the respective
Interest Period or Interest Periods and shall promptly notify the Borrower and
the Lenders thereof. Each such determination shall, absent manifest error, be
final and conclusive and binding on all parties hereto.

                  1.09 Interest Periods. At the time the Borrower gives any
Notice of Borrowing or Notice of Conversion/Continuation in respect of the
making of, or conversion into, any Eurodollar Loan (in the case of the initial
Interest Period applicable thereto) or on the third Business Day prior to the
expiration of an Interest Period applicable to such Eurodollar Loan (in the case
of any subsequent Interest Period), the Borrower shall have the right to elect,
by having a Responsible Officer of the Borrower give the Administrative Agent
notice thereof (including, without limitation, in any Notice of Borrowing made
in connection with a Eurodollar Loan), the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six-month period (or, if agreed
by all Lenders, nine months), provided that:

                  (i)      all Eurodollar Loans comprising a Borrowing shall at
all times have the same Interest Period;

                  (ii)     the initial Interest Period for any Eurodollar Loan
shall commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Loan of a different Type) and each
Interest Period occurring thereafter in respect of such Eurodollar Loan shall
commence on the day on which the next preceding Interest Period applicable
thereto expires;

                  (iii)    if any Interest Period relating to a Eurodollar Loan
begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period shall
end on the last Business Day of such calendar month; (iv) if any Interest Period
would otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; provided, however, that
if any Interest Period for a Eurodollar Loan would otherwise expire on a day
which is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;

                                      -5-


                  (v)      unless the Required Lenders otherwise agree, no
Interest Period may be selected at any time when a Default or an Event of
Default is then in existence; and

                  (vi)     no Interest Period in respect of any Borrowing of
Eurodollar Loans shall be selected which extends beyond the Maturity Date.

                  If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.

                  1.10 Increased Costs, Illegality, etc. (a) In the event that
any Lender shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Administrative Agent):

                  (i)      on any Interest Determination Date that, by reason of
any changes arising after the Effective Date affecting the interbank Eurodollar
market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of Eurodollar Rate; or

                  (ii)     at any time, that such Lender shall incur increased
costs or reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loan because of any change since the Effective Date in any
applicable law or governmental rule, regulation, order, guideline or request
(whether or not having the force of law) or in the interpretation or
administration thereof and including the introduction of any new law or
governmental rule, regulation, order, guideline or request, such as, for
example, but not limited to: (A) a change in the basis of taxation of payment to
any Lender of the principal of or interest on the Loans or the Revolving Notes
or any other amounts payable hereunder (except for changes in the rate of tax
on, or determined by reference to, the net income or net profits of such Lender
pursuant to the laws of the jurisdiction in which it is organized or in which
its principal office or applicable lending office is located or any subdivision
thereof or therein), or (B) a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the extent
included in the computation of the Eurodollar Rate; or

                  (iii)    at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by any Lender in good faith
with any governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the Effective Date
which materially and adversely affects the interbank Eurodollar market;

                  then, and in any such event, such Lender (or the
Administrative Agent, in the case of clause (i) above) shall promptly give
notice (by telephone confirmed in writing) to the Borrower and, except in the
case of clause (i) above, to the Administrative Agent of such determination
(which notice the Administrative Agent shall promptly transmit to each of the
other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans
shall no longer

                                      -6-


be available until such time as the Administrative Agent notifies the Borrower
and the Lenders that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion/Continuation given by the Borrower with respect to Eurodollar Loans
which have not yet been incurred (including by way of conversion) shall be
deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the
Borrower agrees to pay to such Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Lender in its sole discretion
shall determine) as shall be required to compensate such Lender for such
increased costs or reductions in amounts received or receivable hereunder (a
written notice as to the additional amounts owed to such Lender, showing the
basis for the calculation thereof, submitted to the Borrower by such Lender in
good faith shall, absent manifest error, be final and conclusive and binding on
all the parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.

                  (b)      At any time that any Eurodollar Loan is affected by
the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may
(and in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Lender
or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if
the affected Eurodollar Loan is then outstanding, upon at least three Business
Days' written notice to the Administrative Agent, require the affected Lender to
convert such Eurodollar Loan into a Base Rate Loan, provided that if more than
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 1.10(b).

                  (c)      If at any time after the Effective Date any Lender
determines that the introduction of or any change in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender based on the existence of such Lender's Commitment
hereunder or its obligations hereunder, then the Borrower agrees to pay to such
Lender, upon its written demand therefor, such additional amounts as shall be
required to compensate such Lender or such other corporation for the increased
cost to such Lender or such other corporation or the reduction in the rate of
return to such Lender or such other corporation as a result of such increase of
capital. In determining such additional amounts, each Lender will act reasonably
and in good faith and will use averaging and attribution methods which are
reasonable, provided that such Lender's determination of compensation owing
under this Section 1.10(c) shall, absent manifest error, be final and conclusive
and binding on all the parties hereto. Each Lender, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
written notice thereof to the Borrower, which notice shall show the basis for
calculation of such additional amounts.

                  (d)      The provisions contained in this Section 1.10 shall
survive the termination of this Agreement and the payment of all amounts payable
hereunder; provided, however, that in

                                      -7-


no event shall the Borrower be obligated to reimburse or compensate any Lender
for amounts contemplated by this Section 1.10 for any period prior to the date
that is 90 days prior to the date upon which such Lender requests in writing
such reimbursement or compensation from the Borrower. This Section 1.10(d) shall
have no applicability to any other Section of this Agreement.

                  1.11 Compensation. The Borrower agrees to compensate each
Lender, upon its written request (which request shall set forth the basis for
requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund its Eurodollar Loans but excluding any loss of
anticipated profit) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender) a Borrowing of, or conversion from or into,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion/Continuation (whether or not withdrawn by the
Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment
(including any repayment made pursuant to Section 1.13, 1.14, 4.02 or 13.12(b)
or as a result of an acceleration of the Loans pursuant to Section 10) or
conversion of any of its Eurodollar Loans occurs on a date which is not the last
day of an Interest Period with respect thereto; (iii) if any prepayment of any
of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Loans when required by the terms of this
Agreement or any Revolving Note held by such Lender or (y) any election made
pursuant to Section 1.10(b). The provisions contained in this Section 1.11 shall
survive the termination of this Agreement and the payment of all amounts payable
hereunder; provided, however, that in no event shall the Borrower be obligated
to reimburse or compensate any Lender for amounts contemplated by this Section
1.11 for any period prior to the date that is 90 days prior to the date upon
which such Lender requests in writing such reimbursement or compensation from
the Borrower, provided, further, that this sentence shall have no applicability
to any other Section of this Agreement

                  1.12 Change of Lending Office. Each Lender agrees that upon
the occurrence of any event giving rise to the operation of Section 1.10(a)(ii)
or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such
Lender, it will, if requested by the Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans or Letters of Credit affected by such event, provided that
such designation is made on such terms that such Lender and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of such
Section. Nothing in this Section 1.12 shall affect or postpone any of the
obligations of the Borrower or the rights of any Lender provided in Sections
1.10, 2.06 and 4.04.

                  1.13 Replacement of Lenders. If any Lender becomes a
Defaulting Lender or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings, (b) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or
Section 4.04 with respect to any Lender which results in such Lender charging to
the Borrower increased costs in excess of those being generally charged by the
other Lenders, (c) if any Lender becomes a Non-Continuing Lender pursuant to
Section 1.14 or (d) if the Borrower elects to terminate a Lender's Commitment as
provided in Section 13.12(b), then, in each case the Borrower shall have the
right, if no Default or Event of Default will exist immediately after

                                      -8-


giving effect to the respective replacement, to replace such Lender (the
"Replaced Lender") with one or more other Eligible Transferee or Transferees,
none of whom shall constitute a Defaulting Lender at the time of such
replacement (collectively, the "Replacement Lender") reasonably acceptable to
the Administrative Agent, provided that (i) at the time of any replacement
pursuant to this Section 1.13, the Replacement Lender shall enter into one or
more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with
all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement
Lender) pursuant to which the Replacement Lender shall acquire all of the
Commitments and outstanding Loans of, and participations in Letters of Credit
by, the Replaced Lender and, in connection therewith, shall pay to (x) the
Replaced Lender in respect thereof an amount equal to the sum of (A) an amount
equal to the principal of, and all accrued interest on, all outstanding Loans of
the Replaced Lender, (B) an amount equal to all Unpaid Drawings that have been
funded by (and not reimbursed to) such Replaced Lender, together with all then
unpaid interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to
Section 3.01 and (y) each Issuing Lender an amount equal to such Replaced
Lender's Percentage of any Unpaid Drawing (which at such time remains an Unpaid
Drawing) to the extent such amount was not theretofore funded by such Replaced
Lender to such Issuing Lender, and (ii) all obligations of the Borrower owing to
the Replaced Lender (other than those specifically described in clause (i) above
in respect of which the assignment purchase price has been, or is concurrently
being, paid) shall be paid in full to such Replaced Lender concurrently with
such replacement. Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) above
and, if so requested by the Replacement Lender, delivery to the Replacement
Lender of the appropriate Revolving Notes executed by the Borrower, the
Replacement Lender shall become a Lender hereunder and the Replaced Lender shall
cease to constitute a Lender hereunder, except with respect to indemnification
provisions under this Agreement (including, without limitation, Sections 1.10,
1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such Replaced
Lender.

                  1.14 Recommitment; Replacement of Non-Continuing Lender. So
long as no Default or Event of Default has occurred and is continuing, the
Borrower may, prior to (but not less than 30 days nor more than 45 days prior
to) the Maturity Date then in effect, by written notice (each such notice, a
"Recommitment Request") to the Administrative Agent (which notice the
Administrative Agent shall promptly transmit to each Lender), request that the
Maturity Date then in effect be extended to a date occurring 364 days after such
Maturity Date. Each Recommitment Request shall be accompanied by a certificate
of a Responsible Officer of the Borrower stating that no Default or Event of
Default has occurred and is continuing. Each Lender shall, in its sole
discretion, consent to such Recommitment Request no less than 10 Business Days
prior to the Maturity Date then in effect (each such date, a "Recommitment
Deadline"), in writing to the Borrower and the Administrative Agent, with the
failure of any Lender to consent on or prior to the Recommitment Deadline being
deemed to be a negative response. If each Lender, in its sole discretion, shall
consent to such Recommitment Request, by the relevant Recommitment Deadline, the
Maturity Date then in effect shall be automatically extended to the date
occurring 364 days following such Maturity Date and the term "Maturity Date"
shall automatically be deemed amended to such date with no further action on the
part of the Lenders or the Borrower. If the consent of each Lender in respect of
such Recommitment Request shall not have been obtained, the Borrower may prior
to the Maturity Date then in effect, (i) replace each such Lender failing to
consent to such Recommitment Request (each such

                                      -9-


Lender, a "Non-Continuing Lender") in accordance with Section 1.13, and in the
event that the Replacement Lender with respect to each such Non-Continuing
Lender shall consent to such Recommitment Request prior to the Maturity Date
then in effect, such Recommitment Request shall be effective as if each Lender
had originally consented to such request or (ii) terminate each such
Non-Continuing Lender's Commitment and repay such Non-Continuing Lender's Loans
pursuant to Section 3.02(b), 4.01(b) and 13.12(b), and upon taking all actions
required thereby in connection with such removal, such Recommitment Request
shall be effective as if each Lender had originally consented to such request.
Promptly upon the effectiveness of any extension of the Maturity Date pursuant
to this Section 1.14, the Administrative Agent shall notify each Lender and the
Borrower of such effectiveness and the Maturity Date then in effect (after
giving effect to the extension thereof) which Maturity Date shall absent
manifest error, be final, conclusive and binding on all parties hereto.

                  SECTION 2. Letters of Credit.

                  2.01 Letters of Credit. Subject to and upon the terms and
conditions herein set forth, the Borrower may request that any Issuing Lender
issue, at any time and from time to time on and after the Effective Date and
prior to the fifth Business Day prior to the Maturity Date, for the account of
the Borrower and in support of, such obligations (that arise in the ordinary
course of business in respect of general corporate purposes and are not
otherwise prohibited hereunder) of the Borrower and its Subsidiaries to any
other Person, an irrevocable standby letter of credit, in a form customarily
used by such Issuing Lender (including Letters of Credit governed by ISP98) or
in such other form as has been approved by such Issuing Lender (each such letter
of credit, together with any amendments thereto and any extensions thereof, a
"Letter of Credit" and, collectively, the "Letters of Credit"). All Letters of
Credit shall be denominated in Dollars and shall be issued on a sight basis
only.

                  (a)      Subject to and upon the terms and conditions set
forth herein, each Issuing Lender agrees that it will, at any time and from time
to time on or after the Effective Date and prior to the fifth Business Day prior
to the Maturity Date, following its receipt of the respective Letter of Credit
Request, issue for the account of the Borrower one or more Letters of Credit as
is permitted to exist pursuant to this Agreement without giving rise to a
Default or Event of Default hereunder, provided that the respective Issuing
Lender shall be under no obligation to issue any Letter of Credit of the types
described above if at the time of such issuance:

                  (i)      any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or restrain such
Issuing Lender from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Lender or any request or directive (whether or not
having the force of law) from any governmental authority with jurisdiction over
such Issuing Lender shall prohibit, or request that such Issuing Lender refrain
from, the issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon such Issuing Lender with respect to such Letter
of Credit any restriction or reserve or capital requirement (for which such
Issuing Lender is not otherwise compensated), in any such case not in effect on
the date hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to such Issuing Lender as of the date hereof and
which such Issuing Lender in good faith deems material to it; or

                                      -10-


                  (ii)     such Issuing Lender shall have determined or shall
have received notice from the Administrative Agent or any Lender prior to the
issuance of such Letter of Credit of the type described in the second sentence
of Section 2.03(b).

                  (b)      Notwithstanding the foregoing, (i) no Letter of
Credit shall be issued the Stated Amount of which, when added to the Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date
of, and prior to the issuance of, the respective Letter of Credit) at such time
would exceed when added to the aggregate principal amount of all Loans then
outstanding, an amount equal to the Total Commitment at such time, and (ii) each
Letter of Credit shall by its terms expire on or before the fifth Business Day
prior to the Maturity Date.

                  2.02 Minimum Stated Amount. The Stated Amount of each Letter
of Credit shall not be less than $50,000 or such lesser amount as is acceptable
to the respective Issuing Lender.

                  2.03 Letter of Credit Requests. Whenever the Borrower desires
that a Letter of Credit be issued hereunder for its account, the Borrower shall
have (x) executed and delivered to the Administrative Agent and the respective
Issuing Lender at least three Business Days prior to the issuance thereof (or
such shorter period as may be acceptable to the respective Issuing Lender), a
Letter of Credit Request in the form of Exhibit C attached hereto (each a
"Letter of Credit Request").

                  (a)      The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that (i) such Letter
of Credit may be issued in accordance with, and will not violate the
requirements of, Section 2.01(c) and (ii) the matters set forth in Section 7 are
true and correct in all material respects on the date thereof and the matters
set forth in Section 6 have been satisfied in accordance with the terms thereof.
Unless the respective Issuing Lender has determined or has received notice from
the Administrative Agent or any Lender before it issues a Letter of Credit that
one or more of the conditions specified in Section 6 are not then satisfied, or
that the issuance of such Letter of Credit would violate Section 2.01(c), then
such Issuing Lender may issue the requested Letter of Credit for the account of
the Borrower in accordance with such Issuing Lender's usual and customary
practices. Upon the issuance of, or modification or amendment to, any Letter of
Credit, the Issuing Lender thereof shall notify the Administrative Agent and the
Borrower, in writing, of such issuance, modification or amendment and such
notice shall be accompanied by a copy of such Letter of Credit, or modification
or amendment thereto, as the case may be. Upon receipt of such notice, the
Administrative Agent shall promptly notify each Lender, in writing of such
issuance, modification or amendment. Notwithstanding anything to the contrary
contained in this Agreement, in the event that a Lender Default exists, no
Issuing Lender shall be required to issue any Letter of Credit unless such
Issuing Lender has entered into arrangements satisfactory to it and the Borrower
to eliminate such Issuing Lender's risk with respect to the participation in
Letters of Credit by the Defaulting Lender or Lenders, including by cash
collateralizing such Defaulting Lender's or Lenders' Percentage or Percentages
of the Letter of Credit Outstandings.

                  2.04 Letter of Credit Participations. Immediately upon the
issuance by any Issuing Lender of any Letter of Credit, such Issuing Lender
shall be deemed to have sold and transferred to each Lender, other than such
Issuing Lender (each such Lender, in its capacity under this Section 2.04, a
"Participant"), and each such Participant shall be deemed irrevocably

                                      -11-


and unconditionally to have purchased and received from such Issuing Lender,
without recourse or warranty, an undivided interest and participation, to the
extent of such Participant's Percentage, in such Letter of Credit and each
drawing or payment made thereunder and the obligations of the Borrower under
this Agreement with respect thereto, and any security therefor or guaranty
pertaining thereto. Upon any change in the Commitments or Percentages of the
Lenders pursuant to Section 1.13, 1.14, 3.02(b), 13.04 or 13.12(b), it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings with respect thereto, there shall be an automatic adjustment to the
participations pursuant to this Section 2.04 to reflect the new Percentages of
the assignor and assignee Lender or of all Lenders, as the case may be.

                  (a)      In determining whether to pay under any Letter of
Credit, such Issuing Lender shall have no obligation relative to the other
Lenders other than to confirm that any documents required to be delivered under
such Letter of Credit have been delivered and that they substantially comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by any Issuing Lender under or in connection with any Letter
of Credit shall not create for such Issuing Lender any resulting liability to
the Borrower or any other Lender, unless such action taken or omitted to be
taken was the result of gross negligence or willful misconduct (as determined by
a court of competent jurisdiction in a final and non-appealable proceeding) of
such Issuing Lender.

                  (b)      In the event that any Issuing Lender makes any
payment under any Letter of Credit issued by it and the Borrower shall not have
reimbursed such amount in full to such Issuing Lender pursuant to Section
2.05(a), such Issuing Lender shall promptly notify the Administrative Agent,
which shall promptly notify each Participant of such failure, and each
Participant shall promptly and unconditionally pay to such Issuing Lender the
amount of such Participant's Percentage of such unreimbursed payment in Dollars
and in same day funds. If the Administrative Agent so notifies, prior to 11:00
A.M. (New York City time) on any Business Day, any Participant required to fund
a payment under a Letter of Credit, such Participant shall make available to
such Issuing Lender in Dollars such Participant's Percentage of the amount of
such payment on such Business Day in same day funds. If and to the extent such
Participant shall not have so made its Percentage of the amount of such payment
available to such Issuing Lender, such Participant agrees to pay to such Issuing
Lender, forthwith on demand, such amount, together with interest thereon, for
each day from such date until the date such amount is paid to such Issuing
Lender at the overnight Federal Funds Rate for the first three days and at the
interest rate applicable to Base Rate Loans for each day thereafter. The failure
of any Participant to make available to such Issuing Lender its Percentage of
any payment under any Letter of Credit shall not relieve any other Participant
of its obligation hereunder to make available to such Issuing Lender its
Percentage of any payment with respect to any Letter of Credit on the date
required, as specified above, but no Participant shall be responsible for the
failure of any other Participant to make available to such Issuing Lender such
other Participant's Percentage of any such payment.

                  (c)      Whenever any Issuing Lender receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, such Issuing Lender shall pay to each
Participant which has paid its Percentage thereof, in Dollars and in same day
funds, an amount equal to such Participant's share (based upon the proportionate
aggregate amount originally funded by such Participant to the aggregate

                                      -12-


amount funded by all Participants) of the principal amount of such reimbursement
obligation and interest thereon accruing after the purchase of the respective
participations.

                  (d)      Upon the request of any Participant, the
Administrative Agent shall deliver to such Participant copies of any Letters of
Credit or modifications or amendments thereto and such other documentation as
may be reasonably requested by such Participant.

                  (e)      The obligations of the Participants to make payments
to each Issuing Lender with respect to Letters of Credit issued thereunder shall
be irrevocable and not subject to any qualification or exception whatsoever (the
respective Issuing Lender's only obligation being to confirm that any documents
required to be delivered under such Letter of Credit have been delivered and
that they substantially comply on their face with the requirements of such
Letter of Credit) and shall be made in accordance with the terms and conditions
of this Agreement under all circumstances, including, without limitation, any of
the following circumstances:

                  (i)      any lack of validity or enforceability of this
Agreement or any of the other Credit Documents;

                  (ii)     the existence of any claim, setoff, defense or other
right which the Borrower or any of its Subsidiaries may have at any time against
a beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), the
Administrative Agent, any Participant, or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transaction between any Borrower and the beneficiary named in any such Letter of
Credit);

                  (iii)    any draft, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;

                  (iv)     the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit Documents; or

                  (v)      the occurrence of any Default or Event of Default.

                  2.05 Agreement to Repay Letter of Credit Drawings. The
Borrower hereby agrees to reimburse the respective Issuing Lender, by making
payment in Dollars to the Administrative Agent at the Payment Office in
immediately available funds for the account of such Issuing Lender, for any
payment or disbursement made by such Issuing Lender under any Letter of Credit
(each such amount so paid until reimbursed, an "Unpaid Drawing"), within one
Business Day following the Issuing Lender's or the Administrative Agent's notice
to the Borrower of such payment or disbursement (provided that any such notice
shall be deemed to have been given on a certain day only if given before 11:00
A.M. (New York City time) on such day), with interest on the amount so paid or
disbursed by such Issuing Lender, to the extent not reimbursed prior to 12:00
Noon (New York City time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but excluding the date such Issuing
Lender was reimbursed by the Borrower therefor at a rate per annum which shall
be the Base Rate in effect from time to time plus the Applicable Margin,
provided, however, to the extent

                                      -13-


such amounts are not reimbursed prior to 12:00 Noon (New York City time) on the
second Business Day following notice by the Issuing Lender to the Borrower of
such payment or disbursement, interest shall thereafter accrue on the amounts so
paid or disbursed by such Issuing Lender (and until reimbursed by the Borrower)
at a rate per annum which shall be the Base Rate in effect from time to time
plus the Applicable Margin plus 2%, in each such case, with interest to be
payable by the Borrower on demand (it being understood that the Borrower may
simultaneously incur Loans in accordance with Section 1.01 and 1.03, in order to
repay such Unpaid Drawing).

                  (a)      The obligations of the Borrower under this Section
2.05 to reimburse the respective Issuing Lender with respect to drawings on
Letters of Credit (including interest thereon) (each, a "Drawing") shall be
absolute and unconditional under any and all circumstances and irrespective of
(i) any setoff, counterclaim or defense to payment which the Borrower may have
or have had against any Lender (including in its capacity as issuer of the
Letter of Credit or as Participant), (ii) any draft, certificate or any other
document presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect or (iii) any nonapplication or misapplication by the
beneficiary of the proceeds of such Drawing. It being understood that, the
respective Issuing Lender's only obligation to the Borrower being to confirm
that any documents required to be delivered under such Letter of Credit have
been delivered and that they substantially comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by any Issuing Lender under or in connection with any Letter of Credit if taken
or omitted in the absence of gross negligence or willful misconduct, as
determined by a court of competent jurisdiction in a final and non-appealable
proceeding, shall not create for such Issuing Lender any resulting liability to
the Borrower.

                  2.06 Increased Costs. If at any time after the date of this
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Lender or
any Participant with any request or directive by any such authority (whether or
not having the force of law), or any change in generally acceptable accounting
principles, shall either (i) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against Letters of Credit
issued by any Issuing Lender or participated in by any Participant, or (ii)
impose on any Issuing Lender or any Participant any other conditions relating,
directly or indirectly, to this Agreement, any Letter of Credit; and the result
of any of the foregoing is to increase the cost to any Issuing Lender or any
Participant of issuing, maintaining or participating in any Letter of Credit or
reduce the amount of any sum received or receivable by any Issuing Lender or any
Participant hereunder or reduce the rate of return on its capital with respect
to Letters of Credit (except for changes in the rate of tax on, or determined by
reference to, the net income or net profits of such Issuing Lender or such
Participant pursuant to the laws of the jurisdiction in which it is organized or
in which its principal office or applicable lending office is located or any
subdivision thereof or therein), then, upon demand to the Borrower by such
Issuing Lender or any Participant (a copy of which demand shall be sent by such
Issuing Lender or such Participant to the Administrative Agent), the Borrower
agrees to pay to such Issuing Lender or such Participant such additional amount
or amounts as will compensate such Lender for such increased cost or reduction
in the amount receivable or reduction on the rate of return on its capital. Any
Issuing

                                      -14-


Lender or any Participant, upon determining that any additional amounts will be
payable pursuant to this Section 2.06, will give prompt written notice thereof
to the Borrower, which notice shall include a certificate submitted to the
Borrower by such Issuing Lender or such Participant (a copy of which certificate
shall be sent by such Issuing Lender or such Participant to the Administrative
Agent), setting forth in reasonable detail the basis for the calculation of such
additional amount or amounts necessary to compensate such Issuing Lender or such
Participant. The certificate required to be delivered pursuant to this Section
2.06 shall, and absent manifest error, be final and conclusive and binding on
the Borrower.

                  SECTION 3. Commitment Commission; Fees; Reductions of
Commitment.

                  3.01 Fees. The Borrower agrees to pay to the Administrative
Agent for distribution to each Non-Defaulting Lender a commitment commission
(the "Commitment Commission") for the period from the Effective Date to but
excluding the Maturity Date (or such earlier date as the Total Commitment shall
have been terminated), computed at a rate per annum equal to the Applicable
Commitment Commission Percentage on the Unutilized Commitment of each such
Non-Defaulting Lender as in effect from time to time. Accrued Commitment
Commission shall be due and payable quarterly in arrears on each Quarterly
Payment Date and at maturity (whether by acceleration or otherwise) or such
earlier date upon which the Total Commitment is terminated and after such date,
upon demand.

                  (a)      The Borrower agrees to pay to the Administrative
Agent for pro rata distribution to each Non-Defaulting Lender (based on each
such Lender's respective Percentage) a fee in respect of each Letter of Credit
(the "Letter of Credit Fee") for the period from and including the date of
issuance of such Letter of Credit to and including the date of termination or
expiration of such Letter of Credit, computed at a rate per annum equal to the
Applicable Margin as in effect from time to time with respect to Eurodollar
Loans on the daily Stated Amount of each such Letter of Credit. Accrued Letter
of Credit Fees shall be due and payable quarterly in arrears on each Quarterly
Payment Date and upon the first day on or after the termination of the Total
Commitment upon which no Letters of Credit remain outstanding.

                  (b)      The Borrower agrees to pay to the respective Issuing
Lender, for its own account, a facing fee in respect of each Letter of Credit
issued for its account hereunder (the "Facing Fee") for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination or expiration of such Letter of Credit, computed at a rate
per annum equal to 1/8 of 1% on the daily Stated Amount of such Letter of
Credit, provided that in any event the minimum amount of Facing Fees payable in
any twelve-month period for each Letter of Credit shall be not less than $500;
it being agreed that, on the date of issuance of any Letter of Credit and on
each anniversary thereof prior to the termination or expiration of such Letter
of Credit, if $500 will exceed the amount of Facing Fees that will accrue with
respect to such Letter of Credit for the immediately succeeding twelve-month
period, the full $500 shall be payable on the date of issuance of such Letter of
Credit and on each such anniversary thereof. Except as otherwise provided in the
proviso to the immediately preceding sentence, accrued Facing Fees shall be due
and payable quarterly in arrears on each Quarterly Payment Date and on the date
upon which the Total Commitment has been terminated and all Letters of Credit
have been terminated in accordance with their terms.

                                      -15-


                  (c)      The Borrower agrees to pay, upon each drawing under,
issuance of, or amendment to any Letter of Credit, such amount as shall at the
time of such event be the administrative charge and out-of-pocket expenses which
the respective Issuing Lender customarily imposes in connection with such
occurrence with respect to letters of credit, as the case may be.

                  (d)      The Borrower agrees to pay to the Administrative
Agent, for its own account, such other fees as have been agreed to in writing by
the Borrower and the Administrative Agent.

                  3.02 Optional Commitment Reductions. Upon three Business Days'
prior notice from a Responsible Officer of the Borrower to the Administrative
Agent at the Notice Office (which notice the Administrative Agent shall promptly
transmit to each of the Lenders), the Borrower shall have the right, at any time
or from time to time, without premium or penalty, to terminate the Total
Unutilized Commitment in whole or reduce it in part, pursuant to this Section
3.02(a), in an integral multiple of $5,000,000, provided that each such
reduction shall apply proportionately to permanently reduce the Commitment of
each Lender.

                  (a)      In connection with the Borrower's rights under
Section 1.14 or 13.12(b), the Borrower may upon ten Business Days' prior written
notice to the Administrative Agent at the Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Lenders) terminate
the Commitment of such Lender so long as all Loans, together with accrued and
unpaid interest, Fees and all other amounts, owing to such Lender are repaid
concurrently with the effectiveness of such termination pursuant to Section
4.01(b) (at which time Schedule I shall be deemed modified to reflect such
changed amounts), and at such time, such Lender shall no longer constitute a
"Lender" for purposes of this Agreement, except with respect to indemnifications
under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06,
4.04, 13.01 and 13.06), which shall survive as to such repaid Lender.

                  3.03 Mandatory Reduction of Commitments. The Total Commitment
(and the Commitment of each Lender) shall terminate in its entirety on December
31, 2003 unless this Agreement has been executed and delivered by all of the
parties hereto and the Effective Date has occurred.

                  (a)      In addition to any other mandatory commitment
reductions pursuant to this Section 3.03, the Total Commitment (and the
Commitment of each Lender) shall terminate in its entirety on the Maturity Date.

                  SECTION 4. Prepayments; Payments; Taxes.

                  4.01 Voluntary Prepayments. The Borrower shall have the right
to prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) a Responsible
Officer of the Borrower shall give the Administrative Agent prior to 12:00 Noon
(New York City time) at the Notice Office (x) at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of the
Borrower's intent to prepay Base Rate Loans and (y) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of their intent to prepay

                                      -16-


Eurodollar Loans, the amount of such prepayment and the Types of Loans to be
prepaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, which notice the Administrative Agent shall
promptly transmit to each of the Lenders; (ii) each prepayment shall be in an
aggregate principal amount of at least $1,000,000, provided that if any partial
prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount applicable thereto, then such Borrowing may
not be continued as a Borrowing of Eurodollar Loans and any election of an
Interest Period with respect thereto given by the Borrower shall have no force
or effect; and (iii) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans, provided that at the
Borrowers' election in connection with any prepayment of Loans pursuant to this
Section 4.01(a), such prepayment shall not, so long as no Default or Event of
Default then exists, be applied to the prepayment of Loans of a Defaulting
Lender.

                  (a)      In connection with rights of the Borrower under
Section 1.14 or 13.12(b), the Borrower may, upon ten Business Days' prior
written notice to the Administrative Agent at the Notice Office (which notice
the Administrative Agent shall promptly transmit to each of the Lenders) repay
all Loans, together with accrued and unpaid interest, Fees, and other amounts
owing to such Lender so long as the Commitment of such Lender is terminated
concurrently with such repayment pursuant to Section 3.02(b) (at which time
Schedule I shall be deemed modified to reflect the changed Commitments).

                  4.02 Mandatory Repayments and Cash Collateralizations. (a) On
any day on which the sum of (i) the aggregate outstanding principal amount of
all Loans (after giving effect to all other repayments thereof on such date) and
(ii) the aggregate amount of all Letter of Credit Outstandings (after giving
effect to all other repayments thereof on such date) exceeds Total Commitment as
then in effect, the Borrower agrees to prepay on such day the principal of Loans
in an amount equal to such excess. If, after giving effect to the prepayment of
all outstanding Loans, the aggregate amount of the Letter of Credit Outstandings
exceeds the Total Commitment as then in effect, the Borrower agrees to pay to
the Administrative Agent at the Payment Office on such date an amount of cash
equal to the amount of such excess (up to a maximum amount equal to the Letter
of Credit Outstandings at such time), such cash to be held as security for all
obligations of the Borrower to Lenders hereunder in a cash collateral account to
be established by the Administrative Agent on terms reasonably satisfactory to
the Administrative Agent.

                  (b)      With respect to each repayment of Loans required by
Section 4.02(a), the Borrower may designate the Types of Loans which are to be
repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, provided that: (i) repayments of Eurodollar
Loans pursuant to Section 4.02(a) may only be made on the last day of an
Interest Period applicable thereto unless all Eurodollar Loans with Interest
Periods ending on such date of required repayment and all Base Rate Loans have
been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing shall be converted at the end of the then current
Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of
Loans required by Section 4.02(a) shall be applied pro rata among such Loans. In
the absence of a designation by the Borrower as described in the preceding
sentence, the Administra-

                                      -17-


tive Agent shall, subject to the above, make such designation in its sole
discretion with a view, but no obligation, to minimize breakage costs owing
under Section 1.11.

                  (c)      In addition to any other mandatory repayments
required pursuant to this Section 4.02, all then outstanding Loans shall be
repaid in full on the Maturity Date.

                  4.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement or any Revolving
Note shall be made to the Administrative Agent for the account of the Lender or
Lenders entitled thereto not later than 12:00 Noon (New York City time) on the
date when due and shall be made in Dollars in immediately available funds at the
Payment Office. Any payments received by the Administrative Agent after such
time shall be deemed to have been received on the next Business Day. Whenever
any payment to be made hereunder or under any Revolving Note shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable at the applicable rate during such
extension.

                  4.04 Net Payments. (a) All payments made by the Borrower
hereunder or under any Revolving Note will be made without setoff, counterclaim
or other defense. Except as provided in Section 4.04(b), all such payments will
be made free and clear of, and without deduction or withholding for, any present
or future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Lender pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Lender is
located or any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect thereto (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Revolving Note, after withholding or deduction for or on account of
any Taxes, will not be less than the amount provided for herein or in such
Revolving Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located and for any withholding or similar taxes as such Lender shall
determine are payable by, or withheld from, such Lender but only in respect of
such amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. The Borrower will furnish to the Administrative Agent
within 45 days after the date the payment or other documentary proof providing
evidence of such payment that is satisfactory to the Administrative Agent of any
Taxes is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by the Borrower. The Borrower agrees to indemnify and
hold harmless each

                                      -18-


Lender, and reimburse such Lender upon its written request, for the amount of
any Taxes so levied or imposed and paid by such Lender.

                  (b)      Each Lender that is not a United States person (as
such term is defined in Section 7701(a)(30) of the Internal Revenue Code) agrees
to deliver to the Borrower and the Administrative Agent on or prior to the
Effective Date, or in the case of a Lender that is an assignee or transferee of
an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the
respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Lender, (i) two accurate and complete original signed copies of Internal Revenue
Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under
an income tax treaty) (or successor forms) certifying to such Lender's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Revolving
Note, or (ii) if the Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the Internal Revenue Code and cannot deliver either Internal
Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption
under an income tax treaty) pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit D (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio
interest exemption) (or successor form) certifying to such Lender's entitlement
to a complete exemption from United States withholding tax with respect to
payments of interest to be made under this Agreement and under any Revolving
Note. In addition, each Lender agrees that from time to time after the Effective
Date, when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver to
the Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect
to the benefits of any income tax treaty), or Form W-8BEN (with respect to the
portfolio interest exemption) and a Section 4.04(b)(ii) Certificate, as the case
may be, and such other forms as may be required in order to confirm or establish
the entitlement of such Lender to a continued exemption from or reduction in
United States withholding tax with respect to payments under this Agreement and
any Revolving Note, or it shall immediately notify the Borrower and the
Administrative Agent of its inability to deliver any such Form or Certificate,
in which case such Lender shall not be required to deliver any such Form or
Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the
contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the
immediately succeeding sentence, (x) the Borrower shall be entitled, to the
extent it is required to do so by law, to deduct or withhold income or similar
taxes imposed by the United States (or any political subdivision or taxing
authority thereof or therein) from interest, fees or other amounts payable
hereunder for the account of any Lender which is not a United States person (as
such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for
U.S. Federal income tax purposes to the extent that such Lender has not provided
to the Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to
a Lender, or to indemnify, hold harmless or reimburse such Lender, in respect of
income or similar taxes imposed by the United States if (I) such Lender has not
provided to the Borrower the Internal Revenue Service Forms required to be
provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case of
a payment, other than interest, to a Lender described in clause (ii) above, to
the extent that such forms do not establish a complete exemption from
withholding of such taxes.

                                      -19-


Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the
Borrower agrees to pay additional amounts and to indemnify each Lender in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any amounts
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar Taxes
(except for changes in the rate of tax on, or determined by reference to, the
net income or net profits of such Lender pursuant to the laws of the
jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein
provided that this parenthetical exception shall not apply for purposes of
applying the fourth sentence of Section 4.04(a)).

                  SECTION 5.Conditions Precedent to the Effective Date. The
occurrence of the Effective Date pursuant to Section 13.10 is subject to the
satisfaction of the following conditions:

                  5.01 Execution of Agreement; Revolving Notes. On or prior to
the Effective Date (i) this Agreement shall have been executed and delivered as
provided in Section 13.10 and (ii) there shall have been delivered to the
Administrative Agent for the account of each Lender that has requested same, the
appropriate Revolving Note executed by the Borrower, in each case in the amount,
maturity and as otherwise provided herein.

                  5.02 Officer's Certificate. On the Effective Date, the
Administrative Agent shall have received a certificate, dated the Effective
Date, and signed on behalf of the Borrower by a Responsible Officer, stating
that all conditions in Sections 5.05, 5.07 and 6.02 have been satisfied on such
date.

                  5.03 Opinions of Counsel. The Administrative Agent shall have
received legal opinions addressed to each Agent and the Lenders from (i) New
York counsel opinion of Baker Botts LLP, (ii) the Deputy General Counsel of
CenterPoint Energy and (iii) local counsel opinion of Baker Botts LLP, and, in
each case covering matters, reasonably acceptable to the Administrative Agent
including, without limitation, (x) a no-conflicts opinion as to (1) the
Indebtedness of any Credit Party which will remain outstanding of the Effective
Date (if any) and (2) the CNP Credit Agreement, the RRI Option Agreement and any
other material contracts of CenterPoint Energy and any material contracts of
Parent or its subsidiaries, (y) title, perfection and priority of the security
interests securing the Bond and (z) and such other matters incident to the
transactions contemplated hereby as the Administrative Agent may reasonably
request.

                  5.04 Corporate Documents; Proceedings; etc. On the Effective
Date, the Administrative Agent shall have received from each Credit Party, a
certificate, dated the Effective Date, signed by a Responsible Officer of such
Credit Party, and attested to by the Secretary or Assistant Secretary of such
Credit Party, in the form of Exhibit F with appropriate insertions, together
with copies of (i) the certificate of incorporation and by-laws (or equivalent
organizational documents), (ii) long-form good standing certificates (or
equivalent thereof) of such Credit Party and (iii) the resolutions of such
Credit Party referred to in such certificate, and the foregoing shall be in form
and substance reasonably acceptable to the Administrative Agent.

                                      -20-


                  (a)      All corporate, partnership, limited liability company
and legal proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be reasonably satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received all information and copies of
all documents and papers, including governmental approvals, good standing
certificates and bring-down telegrams, if any, which the Administrative Agent
reasonably may have requested in connection therewith, such documents and papers
where appropriate to be certified by proper corporate or governmental
authorities.

                  5.05 (a) Security Documents. On the Effective Date, the
Borrower shall have duly authorized, executed and delivered the Pledge Agreement
in the form of Exhibit G (as modified, supplemented or amended from time to
time, the "Pledge Agreement") and shall have delivered to the Collateral Agent,
as pledgee thereunder, the Pledge Agreement Collateral, and the Pledge Agreement
shall be in full force and effect.

                  (b)      Indenture. On the Effective Date, the Borrower and
the Trustee shall have duly authorized, executed and delivered the Indenture,
dated December 23, 2003 made by the Borrower in favor of JPMorgan Chase Bank as
Trustee in the form of Exhibit H (as modified, supplemented or amended from time
to time the "Indenture") covering all of the Borrower's present and future
Indenture Collateral, together with:

                  (i)      proper Financing Statements (Form UCC-1 or the
         appropriate equivalent) fully executed for filing under the UCC of each
         jurisdiction as may be necessary or, in the opinion of the Collateral
         Agent, desirable to perfect the security interests purported to be
         created by the Indenture;

                  (ii)     certified copies of Requests for Information or
         Copies (Form UCC-11), or equivalent reports, listing all effective
         Financing Statements that name the Parent or any of its Subsidiaries,
         in each case as debtor and that are filed in the jurisdictions referred
         to in clause (1) above, together with copies of such other Financing
         Statements filed in any other jurisdiction that name the Parent or any
         of its Subsidiaries as debtor (none of which shall cover the Indenture
         Collateral except to the extent evidencing Permitted Liens);

                  (iii)    evidence of the completion of all other recordings
         and filings of, or with respect to, the Indenture as may be necessary
         or, in the reasonable opinion of the Collateral Agent, desirable to
         effectively to create a valid and enforceable first priority mortgage
         Lien and otherwise perfect the security interests purported to be
         created by the Indenture; and

                  (iv)     evidence that all other actions necessary or, in the
         reasonable opinion of the Collateral Agent, desirable to perfect and
         protect the security interests purported to be created by the Indenture
         have been taken;

and the Indenture shall be in full force and effect.

                  5.06 Guaranties. On the Effective Date, each Guarantor shall
have duly authorized, executed and delivered the Guaranty and the Guaranty shall
be in full force and effect.

                                      -21-


                  5.07 Adverse Change; Governmental and Third Party Approvals;
etc. (a) Since December 31, 2002, nothing shall have occurred (and neither the
Administrative Agent nor any Lender shall have become aware of any facts or
conditions not previously known) which the Administrative Agent or the Required
Lenders shall determine could reasonably be expected to have a Material Adverse
Effect.

                  (b)      On or prior to the Effective Date, all necessary
governmental (domestic and foreign) and third party approvals and/or consents in
connection with the transactions contemplated by the Credit Documents and
otherwise referred to herein shall have been obtained and remain in effect, and
all applicable waiting periods shall have expired without any action being taken
by any competent authority which in the reasonable judgment of the
Administrative Agent or the Required Lenders restrains, prevents or imposes
materially adverse conditions upon the consummation of the transactions
contemplated by the Credit Documents. Additionally, there shall not exist any
judgment, order, injunction or other restraint issued or filed or a hearing
seeking injunctive relief or other restraint pending or notified prohibiting or
imposing materially adverse conditions upon the making of any Loan, issuance of
any Letter of Credit or the consummation of the transactions contemplated by the
Credit Documents.

                  (c)      On the Effective Date, no consents or approvals shall
be required to be obtained by CenterPoint Energy or any of its Affiliates or any
Credit Party or any of their Affiliates from (i) the lenders under CenterPoint
Energy's senior credit agreement, dated as of October 7, 2003 and agented by
JPMorgan Chase (as in effect on the Effective Date, the "CNP Credit Agreement")
or (ii) the holders of any option under the RRI Option Agreement, dated as of
December 31, 2000 between CenterPoint Energy (as successor in interest to
Reliant Energy Incorporated) and Reliant Resources Inc. (as in effect on the
Effective Date, the "RRI Option Agreement"), in each case, in connection with
the entering into of (1) this Agreement (and the incurrence of Loans hereunder),
(2) any Security Document (and the granting of Liens thereunder) or (3) any of
the other Credit Document or any other documents referred to therein or herein
(and any transaction contemplated hereby or thereby).

                  5.08 Litigation. On the Effective Date, no litigation by any
entity (private or governmental) shall be pending or threatened with respect to
this Agreement, any other Credit Document or any other documentation executed in
connection herewith and therewith or the transactions contemplated hereby and
thereby, or which the Administrative Agent or the Required Lenders shall
determine has had, or could reasonably be expected to have, a Material Adverse
Effect.

                  5.09 Financial Statements; Projections. On or prior to the
Effective Date, there shall have been delivered to the Administrative Agent and
each Lender (i) true and correct copies of the historical financial statements
referred to in Section 7.05(a) and (ii) detailed projected consolidated
financial statements of the Parent and its Subsidiaries for the period through
December 31, 2008 (the "Projections"), which Projections and historical
financial statements shall (x) in the case of the Projections, reflect the
forecasted financial condition and results of operations of the Parent and its
Subsidiaries after giving effect to the transactions contemplated hereby and by
the other Credit Documents and (y) in each case, be in form and substance
reasonably satisfactory to the Administrative Agent and the Required Lenders.

                                      -22-


                  5.10 Fees, etc. On the Effective Date, all costs, fees and
expenses (including, without limitation, the reasonable legal fees and expenses
of White & Case LLP) payable to the Lead Arranger, the Agents and the Lenders
shall have been paid to the extent due.

                  5.11 Insurance. On or prior to the Effective Date, the
Administrative Agent shall have received evidence of insurance maintained by the
Parent and its Subsidiaries with responsible and reputable insurance companies
or associations in such amounts, subject to customary self-insurance, and
covering such risks as is customarily carried by companies engaged in the
electric generation industry with similar assets in similar areas which the
Parent and such Subsidiaries operate which insurance shall name the Trustee as
an additional insured and/or loss payee and shall state that such insurance
shall not be cancelled without at least 30 days' prior written notice to the
Trustee.

                  SECTION 6. Conditions Precedent to All Credit Events. The
obligation of each Lender to make Loans (including Loans made on the Effective
Date), and the obligation of an Issuing Lender to issue any Letter of Credit, is
subject, at the time of each such Credit Event, to the satisfaction of the
following conditions:

                  6.01 Effective Date. The Effective Date shall have occurred.

                  6.02 No Default; Representations and Warranties. At the time
of each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date).

                  6.03 (a) Notice of Borrowing; Letter of Credit Request. Prior
to the making of each Loan, the Administrative Agent shall have received the
notice required by Section 1.03(a).

                  (b)      Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Lender shall have received a
Letter of Credit Request meeting the requirements of Section 2.03.

The acceptance of the benefit of each Credit Event shall constitute a
representation and warranty by the Borrower to the Agents and each of the
Lenders that all the conditions specified (x) in the case of Credit Events
occurring on the Effective Date, in Section 5 and (y) in the case of Credit
Events occurring on or after the Effective Date, in this Section 6 and
applicable to such Credit Event have been satisfied as of that time. All of the
Revolving Notes, certificates, legal opinions and other documents and papers
referred to in Section 5 and in this Section 6, unless otherwise specified,
shall be delivered to the Administrative Agent at the Notice Office for the
account of each of the Lenders and, except for the Revolving Notes, in
sufficient counterparts or copies for each of the Lenders and shall be in form
and substance reasonably satisfactory to the Lenders.

                  SECTION 7. Representations, Warranties and Agreements. In
order to induce the Lenders to enter into this Agreement and to make the Loans,
and issue (or participate in) the

                                      -23-


Letters of Credit as provided herein, each Credit Party makes the following
representations, warranties and agreements, in each case after giving effect to
the occurrence of the Effective Date, all of which shall survive the execution
and delivery of this Agreement and the Revolving Notes and the making of the
Loans and issuance of the Letters of Credit, with the occurrence of each Credit
Event on or after the Effective Date being deemed to constitute a representation
and warranty that the matters specified in this Section 7 are true and correct
in all material respects on and as of the Effective Date and on the date of each
such Credit Event (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date).

                  7.01 Corporate Status. Each Credit Party and each of its
Subsidiaries (i) is a duly organized and validly existing corporation, limited
partnership or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its organization, (ii) has the corporate,
limited partnership or limited liability company power and authority, as the
case may be, to own its property and assets and to transact the business in
which it is engaged and presently proposes to engage and (iii) is duly qualified
as a foreign corporation, limited partnership or limited liability company, as
the case may be, and is authorized to do business and is in good standing in
each jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualifications, except, in the case of
preceding clause (iii), in those jurisdictions where the failure to be so
qualified could not reasonably be expected to, either individually or in the
aggregate, have a Material Adverse Effect.

                  7.02 Corporate Power and Authority. Each Credit Party has the
corporate, limited partnership or limited liability company power and authority,
as the case may be, to execute, deliver and carry out the terms and provisions
of each of the Credit Documents to which it is party and has taken all necessary
corporate, limited partnership or limited liability company action, as the case
may be, to authorize the execution, delivery and performance by it of each
Credit Document to which it is a party. Each Credit Party has duly executed and
delivered each Credit Document to which it is party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit
Party enforceable in accordance with its terms, except to the extent that the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by equity principles (regardless of whether enforcement is sought in equity or
at law).

                  7.03 No Violation. Neither the execution, delivery or
performance by any Credit Party of any Credit Document to which it is a party,
nor compliance by it with any of the terms and provisions thereof, (i) will
contravene any provision of any law, statute, rule or regulation or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien (except pursuant to the Security Documents) upon (x) any property or
asset of such Credit Party or any of its Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, credit agreement, loan agreement or any
other material agreement, contract or instrument to which such Credit Party or
any of its Subsidiaries is a party or by which it or any of their respective
property or assets are bound or to which it may be subject or (y) under the CNP
Credit Agreement or the RRI Option Agreement or (iii) will violate

                                      -24-


any provision of the articles of incorporation or by-laws (or equivalent
organizational documents) of such Credit Party or any of its Subsidiaries.

                  7.04 Governmental Approvals. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with (except as have been obtained or made and are listed in Schedule III
attached hereto, if any, and except for any filings of financing statements,
mortgages and other documents required by the Security Documents, all of which
have been made), or exemption by, any governmental or public body or authority,
or any subdivision thereof, is required to authorize, or is required in
connection with, (i) the execution, delivery and performance of any Credit
Document or (ii) the legality, validity, binding effect or enforceability of any
such Credit Document.

                  7.05 (a) Financial Statements; Financial Condition. The
statements of Consolidated financial condition of the Parent and its
Subsidiaries for the fiscal year ending December 31, 2002 and the nine-month
period ending September 30, 2003 and the related Consolidated statements of
income and cash flows of the Parent and its Subsidiaries for the fiscal year and
nine-month period ended on such dates, as the case may be (which (x) in the case
of the financial statements for the fiscal year ended on December 31, 2002, have
been certified by nationally recognized independent certified public accountants
satisfactory to the Administrative Agent and (y) in the case of all such
financial statements, have heretofore been furnished to the Lenders), fairly
present, in all material respects, the Consolidated financial condition of the
Parent and its Subsidiaries as at such dates and the Consolidated results of the
operations of the Parent and its Subsidiaries for the periods ended on such
dates, all in accordance with generally accepted accounting principles
consistently applied, except for the inclusion of detailed footnotes and subject
to year-end audit adjustments.

                  (b)      Since December 31, 2002, there has been no Material
Adverse Change.

                  7.06 Litigation. There is no pending or threatened action,
suit, investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting any Credit Party or any of its Subsidiaries
before any court, agency of any Governmental Authority, or arbitrator that (i)
could reasonably be expected to have a Material Adverse Effect or (ii) purports
to affect the legality, validity or enforceability of this Agreement or any
other Credit Document or the consummation of the transactions contemplated
hereby.

                  7.07 True and Complete Disclosure. All written information
heretofore furnished by or on behalf of any Credit Party to the Administrative
Agent or any Lender for purposes of or in connection with this Agreement, any
Credit Document or any transaction contemplated hereby or thereby is, and all
such information hereafter furnished by or on behalf of any Credit Party to the
Administrative Agent or any Lender will be, true and accurate in all material
respects on the date as of which such information is stated in the light of the
circumstances under which such information was provided (as modified or
supplemented by other information so furnished, when taken together as a whole
as of the date so stated); provided, that, with respect to the Projections, such
Credit Party represents only that such information was prepared in good faith
based on assumptions believed to be reasonable at the time, it being recognized
by the Lenders that such Projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by any such
projections may differ from the projected results. Each

                                      -25-


Credit Party has disclosed to the Administrative Agent any and all facts
specific to such Credit Party and its Subsidiaries and known as of the Effective
Date to a Responsible Officer of such Credit Party that could reasonably be
expected to result in a Material Adverse Effect or which could reasonably be
expected to result in a Material Adverse Change.

                  7.08 Use of Proceeds; Margin Regulations. All proceeds of
Loans shall be used (i) to pay fees and expenses incurred in connection with
this Agreement and the other Credit Documents and (ii) for the Borrower's and
its Subsidiaries' ongoing working capital and general corporate purposes
(including, without limitation, the repayment of intercompany loans).

                  (a)      No Credit Party is engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Loan will be used to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying any Margin
Stock.

                  7.09 Tax Returns and Payments. Each of Parent and each of its
Subsidiaries has timely filed or caused to be timely filed with the appropriate
taxing authority all federal and state income tax returns and all other material
tax returns, statements, forms and reports for taxes, domestic and foreign (the
"Returns") required to be filed by, or with respect to the income, properties or
operations of, Parent and/or any of its Subsidiaries, except to the extent
failure to make such filings could not reasonably be expected to have a Material
Adverse Effect. The Returns accurately reflect in all material respects all
liability for taxes of Parent and its Subsidiaries for the periods covered
thereby. Each of Parent and each of its Subsidiaries has paid all taxes and
assessments payable, other than those that are being contested in good faith and
adequately disclosed and fully provided for on the financial statements of
Parent and its Subsidiaries in accordance with GAAP, except to the extent
failure to make such payment could not reasonably be expected to have a Material
Adverse Effect. There is no material action, suit, proceeding, investigation,
audit or claim now pending or, to the best knowledge of Parent or any of its
Subsidiaries, threatened by any authority regarding any taxes relating to Parent
or any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect. Neither Parent nor any of its Subsidiaries has entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of Parent or any of its Subsidiaries which could reasonably be expected to
have a Material Adverse Effect.

                  7.10 Compliance with ERISA. Each Credit Party and each of its
Subsidiaries are in compliance with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder), and have obtained and are in compliance with, all Environmental
Permits required for the operation of the Borrower's business except for any
non-compliance that could not reasonably be expected to have a Material Adverse
Effect. No ERISA Event has occurred which could reasonably be expected to have a
Material Adverse Effect. No Plan has an Unfunded Current Liability which, when
added to the aggregate amount of Unfunded Current Liabilities with respect to
all other Plans, could reasonably be expected to have a Material Adverse Effect.

                                      -26-


                  7.11 Solvency. On the Effective Date and after giving effect
to the Loans incurred thereon, the transactions and financings contemplated
hereby and by each of the other Credit Documents, (i) the Borrower on a stand
alone basis and (ii) each of the Parent and its Subsidiaries taken as a whole
is, in each case Solvent.

                  7.12 Security Documents.

                  (a)      The security interests created in favor of the
Collateral Agent for the benefit of the Lenders under the Pledge Agreement
constitute first priority perfected security interests in the Pledge Agreement
Collateral subject to no Lien of any other Person. No consents, filings or
recordings are required in order to perfect, and/or maintain the perfection and
priority of, the security interests purported to be created by the Pledge
Agreement.

                  (b)      The Indenture creates, in favor of the Trustee for
the benefit of the Collateral Agent on behalf of the Lenders, a valid and
enforceable perfected first priority security interest in and Lien on all of the
Indenture Collateral, as may be perfected by the filing of the Indenture (and
related UCC fixture filings), superior to and prior to the rights and Liens
(other than Permitted Liens) of all third Persons and subject to no other Liens
other than Permitted Liens. No consents, filings or recordings are required to
maintain the perfection and priority of the security interests purported to be
created by the Indenture. At the time of the granting of any security interests
pursuant to the Indenture the Borrower thereunder has good and marketable title
to all Indenture Collateral referred to therein free and clear of all Liens
(other than Permitted Liens).

                  7.13 Compliance with Statutes, etc. The Borrower and each of
its Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of their business and the
ownership of their property, except such noncompliances as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

                  7.14 Investment Company Act. No Credit Party nor any
Subsidiary of any Credit Party is an "investment company" as defined in, or
otherwise subject to regulation under, the Investment Company Act of 1940, as
amended. Neither the execution, delivery or performance by any Credit Party of
any Credit Document to which it is a party, nor compliance by it with any of the
terms and provisions thereof will violate any regulation under the Public
Utility Holding Company Act of 1935, as amended or any order or approval issued
in connection therewith.

                  7.15 Environmental Matters. There are no facts, circumstances
or conditions relating to the past or present business or operations of each
Credit Party or any of its Subsidiaries or any of their predecessors (including
the disposal of any wastes, hazardous substances or other materials), or to any
Real Property at any time owned, leased or operated by any of them, that could
reasonably be expected (i) to give rise to any Environmental Action which could
reasonably be expected to have a Material Adverse Effect, or (ii) to subject any
Real Property owned, leased or operated by each Credit Party or any of its
Subsidiaries to any restrictions on the ownership, lease, occupancy, use or
transfer of such Real Property under any Environmental Law which could
reasonably be expected to have a Material Affect Effect.

                                      -27-


                  7.16 Existing Indebtedness. On the Effective Date (after
giving effect to the use of proceeds from the Loans made on such date), the
Parent and its Subsidiaries shall have no (x) outstanding Indebtedness for
Borrowed Money (including, without limitation, intercompany Indebtedness for
Borrowed Money) or (y) preferred equity, in each case, except as set forth on
Schedule IV hereto.

                  SECTION 8. Affirmative Covenants. Each Credit Party hereby
covenants and agrees that on and after the Effective Date and until the Total
Commitment and all Letters of Credit have terminated and the Loans, Revolving
Notes and Unpaid Drawings (in each case together with interest thereon), Fees
and all other Obligations (other than indemnities described in Section 13.13
which are not then due and payable) incurred hereunder and thereunder, are paid
in full:

                  8.01 Information Covenants. The Parent and the Borrower shall
furnish to each Lender:

                  (a)      as soon as practicable and in any event within 60
days after the end of each of the first three quarters of each fiscal year of
the Parent, unaudited Consolidated balance sheets of the Parent and its
Subsidiaries, prepared in conformity with GAAP consistently applied, as of the
end of such quarter and Consolidated statements of income and cash flows of the
Parent and its Subsidiaries, prepared in conformity with GAAP consistently
applied, for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, duly certified (subject to year-end audit
adjustments and the inclusion of abbreviated footnotes) by a Responsible Officer
of the Parent as having been prepared in accordance with GAAP and certificates
of a Responsible Officer of the Parent as to compliance with the terms of this
Agreement and setting forth in reasonable detail the calculations necessary to
demonstrate compliance with Sections 9.08 and 9.09 (which requirement may be
satisfied by delivering the Parent's quarterly report on Form 10-Q with respect
to such fiscal quarter as filed with the Securities and Exchange Commission);

                  (b)      as soon as practicable and in any event within 120
days after the end of each fiscal year of the Parent commencing 2003, a copy of
the annual audit report for such year for the Parent and its Subsidiaries,
containing Consolidated balance sheets of the Parent and its Subsidiaries as of
the end of such fiscal year and Consolidated statements of income and cash flows
of the Parent and its Subsidiaries for such fiscal year accompanied by an
opinion of an independent public accountants, in each case prepared in
conformity with GAAP consistently applied (which requirement may be satisfied by
delivering the Borrower's annual report on Form 10-K with respect to such fiscal
year as filed with the Securities and Exchange Commission) together with a
certificate of a Responsible Officer of the Parent identifying Significant
Subsidiaries determined with respect to such financial statements;

                  (c)      without duplication of any other certificate
described in Section 8.01(a), with each set of statements to be delivered
pursuant to Section 8.01(a) and (b) above, a certificate in a form reasonably
satisfactory to the Administrative Agent, signed by a Responsible Officer of the
Parent certifying compliance with Sections 9.08 and 9.09 and setting out in
reasonable detail the calculations necessary to demonstrate such compliance as
at the date of the most recent balance sheet included in such financial
statements and stating that no Default or Event of

                                      -28-


Default has occurred and is continuing or, if there is any Default or Event of
Default, describing it and the steps, if any, being taken to cure it.

                  (d)      as soon as practicable and in any event, within seven
Business Days after a Responsible Officer of the Borrower becomes aware of the
occurrence of each Default or Event of Default continuing on the date of such
statement, a statement of a Responsible Officer of the Borrower setting forth
details of such Default or Event of Default and the action that the Borrower has
taken and proposes to take with respect thereto;

                  (e)      within ten (10) days of the filing thereof, copies of
all periodic reports (other than (x) reports on Form 11-K or any successor form,
(y) current reports on Form 8-K that contain no information other than exhibits
filed therewith and (z) reports on Form 10-Q or 10-K or any successor forms)
under the Exchange Act (in each case other than exhibits thereto and documents
incorporated by reference therein)) filed by the Parent with the Securities and
Exchange Commission;

                  (f)      promptly after the commencement thereof, notice of
all actions and proceedings before any court, governmental agency or arbitrator
affecting the Borrower or any of its Subsidiaries of the type described in
Section 7.06;

                  (g)      within ten Business Days after any officer of a
Credit Party or any of its Subsidiaries obtains knowledge thereof, notice of any
of the following environmental matters, to the extent such matters individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect: (i) any claim against any Credit Party or any of its Subsidiaries, or
any Real Property owned, leased or occupied by any Credit Party or any of its
Subsidiaries, under any Environmental Law; (ii) any condition or occurrence that
results in noncompliance by any Credit Party or any of its Subsidiaries with
Environmental Law or that could reasonably be expected to form the basis of any
Environmental Action against, or to any liability on the part of any Credit
Party or any of its Subsidiaries under any Environmental Law; and (iii) any
condition or occurrence that could reasonably be expected to cause any Real
Property owned, leased or occupied by any Credit Party or any of its
Subsidiaries to be subject to any restrictions on the ownership, lease,
occupancy, use or transfer of such Real Property under any Environmental Law;
such notices shall describe in reasonable detail the nature of the claim,
threatened claim, notice of potential liability, condition or occurrence and the
Credit Party's or such Subsidiary's response thereto;

                  (h)      with reasonable promptness, upon the Borrower or any
ERISA Affiliate becoming aware of (A) the occurrence of any ERISA Event that
could, individually or in the aggregate, be reasonably expected to result in a
liability in excess of $50,000,000 to any Credit Party or any ERISA Affiliate or
that could reasonably be expected to have a Material Adverse Effect, or (B) a
Plan that has an Unfunded Current Liability which, when added to the aggregate
amount of Unfunded Current Liabilities with respect to all other Plans could
reasonably be expected to have a Material Adverse Effect, a written notice
specifying the nature thereof, what action the Credit Party or any ERISA
Affiliate has taken, is taking or proposes to take with respect thereto and,
when known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;

                                      -29-


                  (i)      with reasonable promptness, copies of (a) all written
notices received by the Borrower or any ERISA Affiliate from a Multiemployer
Plan sponsor concerning an ERISA Event that could reasonably be expected to
result in a liability in excess of $50,000,000 or that could reasonably be
expected to have a Material Adverse Effect; and (b) such other documents or
governmental reports or filings relating to any Plan or Multiemployer Plan as
the Lenders shall reasonably request;

                  (j)      upon and after the receipt of any Debt Rating the
Borrower shall deliver to the Administrative Agent, notice of any change by S&P
or Moody's in such Debt Rating, promptly upon the effectiveness of any such
change (it being understood that a change in outlook status (e.g. watch status,
negative outlook status) is not a change in rating as contemplated hereby); and

                  (k)      such other information respecting the Parent or any
of its Subsidiaries as any Lender through the Administrative Agent may from time
to time reasonably request.

                  Information required to be delivered pursuant to this Section
8.01 shall be deemed to have been delivered on the date on which the
Administrative Agent receives such Information or notice (which notice the
Administrative Agent shall convey promptly to the Lenders) that such information
has been posted on the Securities and Exchange Commission website on the
internet at sec.gov/edgar/searches.htm or at another website identified in such
notice and accessible by the Lenders without charge; provided that such notice
may be included in a certificate delivered pursuant to Section 8.01(c).

                  8.02 Keeping of Books. Each Credit Party shall keep, and cause
each of its Subsidiaries to keep, proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of such Credit Party and each such Subsidiary in accordance
with GAAP.

                  8.03 Maintenance of Insurance. Each Credit Party shall, and
shall cause each of its respective Subsidiaries to, maintain, insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties; provided, however, that any Credit
Party or its Subsidiaries may self-insure to the extent consistent with prudent
business practice.

                  8.04 Preservation of Existence, Etc. Each Credit Party shall
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its existence, rights (charter and statutory) and franchises, except
(other than in the case of the Borrower) to the extent such failure could not
reasonably be expected to have a Material Adverse Effect; provided, however,
that the Credit Parties and their Subsidiaries may consummate any merger or
consolidation permitted under Section 9.02 and provided further that no the
Credit Party nor any of its Subsidiaries shall be required to preserve any right
or franchise if the board of directors of the such Credit Party or such
Subsidiary shall determine that the preservation thereof is no longer desirable
in the conduct of the business of such Credit Party or such Subsidiary, as the
case may be, and that the loss thereof is not disadvantageous in any material
respect to such Credit Party, such Subsidiary or the Lenders.

                                      -30-


                  8.05 Maintenance of Properties, Etc. Each Credit Party shall
maintain and preserve, and cause each of its Subsidiaries to maintain and
preserve, all of its properties that are used or useful in the conduct of its
business in good working order and condition, ordinary wear and tear excepted;
provided, however, the foregoing shall not prohibit the Borrower from (i)
mothballing any of its generating units from time to time in its reasonable
commercial judgment if mothballing such units could not reasonably be expected
to have a Material Adverse Effect or (ii) failing to preserve or maintain any
such properties, the preservation and maintenance of which in the good faith
judgment of the Borrower is inadvisable or unnecessary to the business of the
Borrower or its Subsidiaries, taken as a whole and if the failure to so preserve
or maintain could not reasonably be expected to result in a Material Adverse
Effect.

                  8.06 Maintenance of Existing Business. Each Credit Party shall
maintain and preserve, and cause each of its respective Subsidiaries to maintain
and preserve, its fundamental business of being a company and/or an owner
(directly or indirectly) and operator of power generation facilities; provided,
however, the foregoing shall not prohibit the Borrower from mothballing any of
its generating units from time to time in its reasonable commercial judgment, if
the operation of such units in the good faith judgment of the Borrower is
inadvisable or unnecessary to the business of the Borrower and its Subsidiaries,
taken as a whole and if mothballing such units could not reasonably be expected
to have a Material Adverse Effect.

                  8.07 Compliance with Statutes, etc. Each Credit Party shall
comply, and cause each of its Subsidiaries to comply, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA, Environmental Laws and Environmental Permits, except to
the extent the failure to so comply could not reasonably be expected to have a
Material Adverse Effect. Each Credit Party shall pay, or cause to be paid, all
costs and expenses incurred in connection with such compliance, and shall keep
or cause to be kept all Real Property free and clear of any Liens imposed under
Environmental Laws, except to the extent failure to do so could not reasonably
be expected to have a Material Adverse Effect.

                  8.08 Visitation Rights. Each Credit Party shall, and shall
cause each of its Subsidiaries to, at any reasonable time and from time to time,
permit up to six representatives of the Lenders designated by the Required
Lenders, or representatives of the Agents, on not less than five (5) Business
Days' notice, to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, such Credit Party and each
Subsidiary of such Credit Party and to discuss the general business affairs of
such Credit Party and each of its Subsidiaries with their respective officers
and independent certified public accountants; subject, however, in all cases to
the imposition of such reasonable conditions as such Credit Party and each of
its Subsidiaries shall deem necessary based on reasonable considerations of
safety and security; provided, however, that no Credit Party nor any of its
Subsidiaries shall be required to disclose to any Agent, any Lender or any
agents or representatives thereof any information which is the subject of
attorney-client privilege or attorney work-product privilege properly asserted
by the applicable Person to prevent the loss of such privilege in connection
with such information or which is prevented from disclosure pursuant to a
confidentiality agreement with third parties. Notwithstanding the foregoing,
none of the conditions precedent to the exercise of the right of access
described in the preceding sentence that relate to notice requirements or
limitations on the Persons permitted to exercise such right shall apply at any
time when a Default or an Event of Default shall have occurred.

                                      -31-


                  8.09 Use of Proceeds. The Borrower shall use the proceeds of
each Credit Event for general corporate purposes, including the repayment of
intercompany obligations owed to CenterPoint Energy and its Subsidiaries,
capital expenditures and working capital of the Borrower and its Subsidiaries
and the repayment of commercial paper.

                  8.10 Payment of Taxes. Each Credit Party shall pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all lawful
claims that, if unpaid, might become a Lien upon its property or unless the
failure to pay could not reasonably be expected to result in a Material Adverse
Effect; provided, however, that no Credit Party nor any of its Subsidiaries
shall be required to pay or discharge any such tax, assessment, charge or claim
that is being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained in accordance with GAAP or unless the
failure to pay could not reasonably be expected to result in a Material Adverse
Effect.

                  8.11 Further Assurances. Each of the Credit Parties shall, and
shall cause each of its Subsidiaries to, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Agent from time to
time such vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
real property surveys, reports, landlord-lender agreements and other assurances
or instruments and take such further steps relating to the collateral covered by
any of the Security Documents as the Collateral Agent may reasonably require.
Furthermore, the Credit Parties shall cause to be delivered to the Collateral
Agent such opinions of counsel and other related documents as may be reasonably
requested by the Administrative Agent to assure themselves that this Section
8.11 has been complied with. Each of the Credit Parties agree that each action
required above by this Section 8.11 shall be completed as soon as possible, but
in no event later than 90 days after such action is requested to be taken by the
Administrative Agent or the Required Lenders.

                  8.12 Future Guarantors. Each of the Credit Parties shall and
shall cause each of its Subsidiaries to promptly upon any Person becoming a
direct or indirect Subsidiary of the Parent to become a guarantor under the
Guaranty by executing an accession agreement in respect of this Agreement in
form and substance reasonably satisfactory to the Administrative Agent, provided
that no such Subsidiary that is not a Domestic Subsidiary shall be required to
become a guarantor under the Guaranty, unless such Subsidiary shall at such time
guarantee any Indebtedness of the Parent or any Domestic Subsidiary.

                  SECTION 9. Negative Covenants. Each Credit Party covenants and
agrees that on and after the Effective Date and until the Total Commitment and
all Letters of Credit have terminated and the Loans, Revolving Notes and Unpaid
Drawings (in each case together with interest thereon), Fees and all other
Obligations (other than indemnities described in Section 13.13 which are not
then due and payable) incurred hereunder and thereunder, are paid in full:

                  9.01 Liens. The Credit Parties shall not pledge, mortgage or
hypothecate, or permit to exist, and shall not permit any Subsidiary (other than
a Project Finance Subsidiary) to pledge, mortgage or hypothecate, or permit to
exist, except in favor of the Borrower or any

                                      -32-


Wholly-Owned Subsidiary of the Parent (other than a Project Finance Subsidiary),
any Lien upon, any Property at any time owned by such Credit Party or a
Subsidiary of such Credit Party (other than a Project Finance Subsidiary);
provided, however, that this restriction shall not apply to or prevent the
creation or existence of any Permitted Lien.

                  9.02 Consolidation, Mergers or Disposal of Assets. The Credit
Parties shall not, and shall not permit any Subsidiary to, (i) consolidate with,
or merge into or amalgamate with or into, any other Person; (ii) liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution); or (iii)
convey, sell, transfer, lease or otherwise dispose of all or substantially all
of its assets to any Person, or permit any Subsidiary (other than a Project
Finance Subsidiary) to do so; provided, however, that nothing contained in this
Section 9.02 shall prohibit (A) a merger in which any Credit Party is the
surviving entity thereof; (B) mergers involving Subsidiaries of the Parent in
which any Credit Party or, if no Credit Party is a party to such merger, a
Wholly-Owned Significant Subsidiary of any Credit Party (other than a Project
Finance Subsidiary, except for the case where all parties to such merger are
Project Finance Subsidiaries) is the surviving entity; (C) so long as no Default
or Event of Default has occurred or would result therefrom, a merger involving
any Credit Party other than the Borrower, in which a Wholly-Owned domestic
Subsidiary of CenterPoint Energy is the surviving Person, provided, that, such
surviving Person shall (I) expressly agree in writing to assume all obligations
and liabilities of such Credit Party under this Agreement and each of the other
Credit Documents (including, without limitation, the Guaranty) and (II) take all
actions and deliver all documents reasonably requested by the Administrative
Agent to evidence the assumption of such obligations including, without
limitation, those actions and documents described in Section 5 of this
Agreement, as if such surviving Person were a Credit Party on the Effective
Date; (D) the liquidation, winding up or dissolution of a Significant Subsidiary
of any Credit Party if all of the assets of such Subsidiary are conveyed,
transferred or distributed to any Credit Party or a Wholly-Owned Subsidiary of
any Credit Party (other than a Project Finance Subsidiary, unless such Person is
also a Project Finance Subsidiary); (E) the conveyance, sale, transfer, lease or
other disposal of all or substantially all (or any lesser portion) of the assets
of any Credit Party to another Credit Party or a Wholly-Owned Significant
Subsidiary of any Credit Party (other than a Project Finance Subsidiary, unless
such Significant Subsidiary is also a Project Finance Subsidiary); or (F)
additional conveyances, sales, transfers, leases or other disposals of assets of
any Credit Party and its Subsidiaries, provided, that the aggregate net book
value of all assets of the Credit Parties and their Subsidiaries conveyed, sold,
transferred, leased or otherwise disposed of pursuant to this clause (F) shall
not exceed $200,000,000 or shall constitute assets that are no longer necessary
for the operation of the business of the Credit Parties and their Subsidiaries;
provided that, in each case covered by this Section 9.02, immediately before and
after giving effect to any such merger, dissolution or liquidation, or
conveyance, sale, transfer, lease or other disposition, no Default or Event of
Default shall have occurred and be continuing.

                  9.03 Accounting Changes. The Credit Parties shall not make or
permit, or permit any of its Subsidiaries to make or permit, any change in
accounting policies or reporting practices, except as required or permitted by
GAAP.

                  9.04 Restrictions on Dividends, Intercompany Loans, or
Investments. The Credit Parties shall not permit, or permit any Significant
Subsidiary (other than a Project Finance Subsidiary) to, create or otherwise
cause or permit to exist or become effective any explicit and

                                      -33-


direct restriction under any agreement evidencing or providing for the issuance
of Indebtedness for Borrowed Money (other than this Agreement) on the ability of
any Significant Subsidiary (other than a Project Finance Subsidiary) to (i) pay
dividends or make any other distributions on its capital stock or pay any
Indebtedness owed to any Credit Party or any Subsidiary of any Credit Party,
(ii) make any loans or advances to or investments in the Borrower or any
Subsidiary of the Borrower, or (iii) transfer any of its property or assets to
the Borrower or any Subsidiary of the Borrower; provided, that the foregoing
shall not prohibit financial incurrence, maintenance and similar covenants that
indirectly have the practical effect of prohibiting or restricting the ability
of a Significant Subsidiary to make such payments or provisions that require
that a certain amount of capital be maintained, or prohibit the return of
capital to shareholders above certain dollar limits; provided, further, that the
foregoing shall not apply to (i) restrictions and conditions imposed by law or
by this Agreement, (ii) restrictions and conditions existing on the date hereof,
any amendment or modification thereof (other than an amendment or modification
expanding the scope of any such restriction or condition and any restrictions or
conditions) that (x) replace restrictions or conditions existing on the date
hereof and (y) are substantially similar to such existing restriction or
condition, (iii) restrictions (including any extension of such restrictions that
does not expand the scope of any such restrictions) existing at the time at
which any such Subsidiary first becomes a Significant Subsidiary, so long as
such restriction was in existence prior to such time in accordance with the
other provisions of this Agreement and was not agreed to or incurred in
contemplation of such change of status and (iv) any restrictions with respect to
a Significant Subsidiary imposed pursuant to an agreement that has been entered
into in connection with a disposition of all or substantially all of the Equity
Interests or assets of such Subsidiary, so long as such disposal is otherwise
permitted under this Agreement.

                  9.05 Affiliate Transactions. The Credit Parties shall not, and
shall not permit any Subsidiary of such Credit Party to, make, directly or
indirectly, (i) any transfer, sale, lease or other disposition of any Property
to any Affiliate of such Credit Party or any Subsidiary of such Credit Party or
any purchase or acquisition of any Property from any such Affiliate; or (ii) any
other arrangement or transaction directly or indirectly with or for the benefit
of any such Affiliate (including without limitation, guaranties and assumptions
of obligations of any such Affiliate); provided, that (A) any Credit Party and
their Subsidiaries may enter into any arrangement or other transaction with any
such Affiliate if the monetary or business consideration arising therefrom would
be substantially at least as advantageous to such Credit Party or such
Subsidiary as the monetary or business consideration which would be obtained in
a comparable arm's length transaction with a Person not an Affiliate of such
Credit Party or any Subsidiary of such Credit Party; (B) the Credit Parties and
their Subsidiaries may become liable in connection with guaranties of the
obligations of any such Affiliate in the ordinary course of business, (C) the
Credit Parties and their Subsidiaries may make purchases of receivables of any
kind from the Credit Parties and their Subsidiaries on terms that any of them
deem acceptable; (D) the Credit Parties may enter into any arrangement or other
transaction with any Wholly-Owned Subsidiary of the any Credit Party, and any
Wholly-Owned Subsidiary of any Credit Party may enter into any arrangement or
other transaction with any Credit Party or any other Wholly-Owned Subsidiary of
any Credit Party, in each case under this clause (D) only if such arrangements
and other transactions do not involve any Person other than a Credit Party or
any Wholly-Owned Subsidiaries of a Credit Party; (E) the Credit Parties may
enter into arrangements or other transactions permitted by Section 9.02(D) and
(F) any Credit Party and any Subsidiary

                                      -34-


of a Credit Party may, directly or indirectly, enter into any arrangement or
transaction with any Affiliate (including with CenterPoint Energy or its
Subsidiaries) (i) that is authorized by order of the Securities and Exchange
Commission ("SEC") under the Public Utility Holding Company Act of 1935, as
amended; (ii) that is in existence on the Effective Date or is described in
Parent's filings with the SEC on the Effective Date; or (iii) on terms not
substantially less favorable to the Credit Party or its Subsidiaries than the
terms of similar arrangements or transactions that are entered into from time to
time among CenterPoint Energy or any of its Affiliates that are not a Credit
Party or its Subsidiaries. Notwithstanding anything to the contrary contained in
this Section 9.05 no Credit Party may make any loan, investment, advance or any
extension of credit to CenterPoint Energy or its Affiliates that are not Credit
Parties or their Subsidiaries, provided, however, that (i) at any time any Loan
or Letter of Credit is outstanding hereunder and so long as no Default or Event
of Default is in existence or would result therefrom, the Credit Parties may
make intercompany loans under and pursuant to the Money Pool, in each case up to
an aggregate principal amount of $100,000,000 (determined without giving effect
to any write-downs or write-offs thereof) outstanding at any time and (ii) at
any time no Loan or Letter of Credit is outstanding hereunder and so long as no
Default or Event of Default is in existence or would result therefrom, the
Credit Parties may make intercompany loans under and pursuant to the Money Pool
in excess of $100,000,000 (determined without giving effect to any write-downs
or write-offs thereof).

                  9.06 Payments on Preferred Stock. The Credit Parties shall
not, and shall not permit any Subsidiary of the Borrower to, make or agree to
make any payment or other distribution on or in connection with, or purchase,
redeem or otherwise acquire or agree to do so, or convert or exchange or agree
to convert or exchange, in whole or in part, any capital stock or other equity
interest of the Borrower or any Subsidiary of the Borrower, in whole or in part
(including, without limitation, dividends), in each case if prior to and
immediately after giving effect thereto, any Default or Event of Default exists
or would occur.

                  9.07 Use of Proceeds; Regulation U. The Borrower shall not
directly or indirectly use the proceeds of any Borrowing (i) to purchase or
carry, within the meaning of Regulation U, any Margin Stock, (ii) to participate
in any tender offer for the securities of any Person, unless such tender offer
has been approved by the board of directors, general partners or other governing
body of such Person or (iii) for any purpose that would violate or result in a
violation of any law or regulation. No Credit Party shall, nor shall permit any
of its Subsidiaries to engage principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying, within the meaning of Regulation U, any Margin Stock.

                  9.08 Maximum Total Debt for Borrowed Money to Consolidated
Capitalization Ratio. The Borrower shall not permit the ratio of Total Debt for
Borrowed Money to Consolidated Capitalization to be greater than 0.50:1.00,
calculated on a quarterly basis.

                  9.09 Minimum EBITDA to Cash Interest Ratio. The Borrower shall
not permit the ratio of EBITDA to Cash Interest for the immediately preceding
four calendar quarters to be less than 4.00:1.00, calculated on a quarterly
basis.

                  SECTION 10. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):

                                      -35-


                  10.01 Payments. The Borrower shall fail (i) to pay any
principal of any Loan or Revolving Note, or any Unpaid Drawing when the same
becomes due and payable; or the Borrower shall fail to pay any interest on any
Loan or Revolving Note or any Unpaid Drawing or (ii) make any other payment of
fees or other amounts payable under this Agreement or any Revolving Note within
five Business Days after the same becomes due and payable; or

                  10.02 Representations, etc. Any representation or warranty
made by or on behalf of any Credit Party (or any of its officers) in this
Agreement or any other Credit Document shall prove to have been incorrect in any
material respect when made; or

                  10.03 Covenants. (i) any Credit Party shall fail to perform or
observe any term, covenant or agreement contained in Sections 8.01(d), 8.04,
8.06 or 8.08, Section 9 or Section 14, or (ii) any Credit Party shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if such failure shall not have
been remedied within 30 days; or

                  10.04 Default Under Other Agreements. Any Credit Party or any
of its Significant Subsidiaries (other than a Project Finance Subsidiary) shall
fail to pay any principal of or premium or interest on any Indebtedness for
Borrowed Money that is outstanding in a principal amount of at least $30,000,000
individually or in the aggregate (but excluding Indebtedness outstanding
hereunder) of such Credit Party or such Subsidiary (as the case may be), when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Indebtedness shall be required to be
made, in each case prior to the stated maturity thereof; or

                  10.05 Bankruptcy, etc. Any Credit Party or any of its
Significant Subsidiaries (other than a Project Finance Subsidiary) shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
such Credit Party or any of its Significant Subsidiaries (other than any Project
Finance Subsidiary) seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 30
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall

                                      -36-


occur; or any Credit Party or any of its Significant Subsidiaries (other than
any Project Finance Subsidiary) shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
described in this Section 10.05; or

                  10.06 Judgments. Judgments or orders for the payment of money
in excess of $30,000,000 individually or in the aggregate shall be rendered
against any Credit Party or any of its Significant Subsidiaries (other than a
Project Finance Subsidiary) and either (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or

                  10.07 Non-Monetary Judgments. Any non-monetary judgment or
order shall be rendered against any Credit Party or any of its Significant
Subsidiaries (other than a Project Finance Subsidiary) that could be reasonably
expected to have a Material Adverse Effect, and there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or

                  10.08 Change of Control. For any reason, (i) CenterPoint
Energy fails to own, directly or indirectly, at least 50% of the economic
interest in the Borrower or (ii) CenterPoint Energy fails to own, directly or
indirectly, at least 50% of the outstanding shares of stock, Voting Stock or
other ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening of a
contingency) to elect directors or other managers of the general partner of the
Borrower or (iii) the Parent fails to own, directly or indirectly, at least 50%
of the economic interest in the Borrower or (iv) the Parent fails to own at
least 50% of the outstanding shares of stock, Voting Stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect directors or other managers of the general partner of the Borrower; or

                  10.09 ERISA. Any Credit Party or any of its ERISA Affiliates
shall incur, or could be reasonably expected to incur, any liability in excess
of $50,000,000 individually or in the aggregate as a result of the occurrence of
any ERISA Event, or a Plan has an Unfunded Current Liability which, when added
to the aggregate amount of Unfunded Current Liabilities with respect to all
other Plans, could reasonably be expected to have a Material Adverse Effect, in
each case, if such liability or Unfunded Current Liability, as the case may be,
is not discharged, satisfied or otherwise reduced below the respective threshold
amounts described or set forth above in this Section 10.09 within 30 days from
the date such liability or Unfunded Current Liability, as the case may be,
exceeded such threshold amount;

                  10.10 Security Documents. Any Security Document shall cease to
be in full force and effect in all material respects, or shall cease to give the
Collateral Agent or the Trustee for the benefit of the Collateral Agent, as the
case may be the Liens, rights, powers and privileges purported to be created
thereby in favor of the Collateral Agent or the Trustee for the benefit of the
Collateral Agent, as the case may be, or (b) any Credit Party shall default in
the due performance or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to any such Security Document and such
default shall continue beyond any

                                      -37-


cure or grace period specifically applicable thereto pursuant to the terms of
such Security Document; or

                  10.11 Guaranty. The Guaranty or any provision thereof shall
cease to be in full force and effect in all material respects, or any Guarantor
or any Person acting by or on behalf of such Guarantor shall deny or disaffirm
such Guarantor's obligations under any Guaranty;

then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the Borrower, take any or all
of the following actions, without prejudice to the rights of any Agent, any
Lender or the holder of any Revolving Note to enforce its claims against any
Credit Party (provided that, if an Event of Default specified in Section 10.05
shall occur with respect to the Borrower, the result of which would occur upon
the giving of such written notice by the Administrative Agent to the Borrower as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitment terminated,
whereupon the Commitment of each Lender shall forthwith terminate immediately
and any Commitment Commission and other Fees shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of and
any accrued interest in respect of all Loans and the Revolving Notes and all
Obligations owing hereunder and thereunder to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protect or other
notice of any kind, all of which are hereby waived by each Credit Party; (iii)
terminate any Letter of Credit which may be terminated in accordance with its
terms; and (iv) direct the Borrower to pay (and the Borrower agrees that upon
receipt of such notice, or upon the occurrence of an Event of Default specified
in Section 10.05 with respect to the Borrower, it will pay) to the
Administrative Agent at the Payment Office such additional amount of cash, to be
held as security by the Administrative Agent, as is equal to the aggregate
Stated Amount of all Letters of Credit issued for the account of the Borrower
then outstanding.

                  SECTION 11. Definitions and Accounting Terms.

                  11.01 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

                  "Acquired Entity" shall have the meaning set forth in the
definition of "Permitted Liens".

                  "Administrative Agent" shall mean DBAG, in its capacity as
Administrative Agent for the Lenders hereunder, and shall include any successor
to the Administrative Agent appointed pursuant to Section 12.09.

                  "Affiliate" of any Person shall mean any other Person that,
directly or indirectly, Controls or is Controlled by or is under common Control
with such first Person.

                  "Agents" shall mean and include (i) the Administrative Agent,
(ii) the Collateral Agent, (iii) for the purposes of Section 12 only, the
Documentation Agent and (iv) for purposes of Sections 12, 13.01, 13.12 and 13.15
only, the Lead Arranger.

                                      -38-


                  "Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated, extended, renewed or replaced from time to
time.

                  "Applicable Commitment Commission Percentage" and "Applicable
Margin" shall mean (i) at all times when there is not a Debt Rating from both
Moody's and S&P (x) with respect to Commitment Commission, a percentage per
annum equal to 0.25% and (y) with respect to Loans maintained as (i) Eurodollar
Loans, a percentage per annum equal to 1.50% and (ii) Base Rate Loans, a
percentage per annum equal to 0.50% and (2) at all times after the receipt of an
initial Debt Rating from both Moody's and S&P by the Borrower (A) with respect
to Commitment Commission, the respective percentage per annum set forth below
under the column "Applicable Commitment Commission Percentage" and (B) with
respect to Loans, maintained as (i) Eurodollar Loans, the respective percentage
per annum set forth below under the column "Eurodollar Margin" below and (ii)
Base Rate Loans, the respective percentage per annum set forth below under the
column "Base Rate Margin" and, in the case of preceding clauses (A) and (B),
opposite the respective Level (i.e., Level 1, Level 2, Level 3, Level 4, Level 5
or Level 6, as the case may be) that is currently then in effect based on the
Debt Rating:



                                                                                          Applicable
                                                                                          Commitment
                                                                 Eurodollar   Base Rate   Commission
Level                                                              Margin      Margin     Percentage
- ----------------------------------------------------------------------------------------------------
                                                                                 
Level 1
a rating from S&P of A- or above and a rating from
Moody's of A3 or above                                              0.75%        0.0%        0.10%
- ----------------------------------------------------------------------------------------------------
Level 2
does not qualify for Level 1, with a rating from S&P of
BBB+ or above and a rating from Moody's of Baa1 or
above                                                              0.875%        0.0%       0.125%
- ----------------------------------------------------------------------------------------------------
Level 3
does not qualify for Level 1 or Level 2, with a
rating from S&P of BBB or above and a rating from
Moody's of Baa2 or above.                                           1.00%        0.0%        0.15%
- ----------------------------------------------------------------------------------------------------
Level 4
does not qualify for Level 1, Level 2 or Level 3 with a
rating from S&P of BBB- or above and a rating from
Moody's of Baa3 or above                                            1.25%       0.25%        0.20%
- ----------------------------------------------------------------------------------------------------
Level 5
does not qualify for Level 1, Level 2, Level 3 or Level 4,
but has a rating from S&P of at least BB+ or above or a
rating from Moody's of Ba1 or above, and the other
such rating agency shall have a rating in the case of S&P, of
BBB- or above or in the case of Moody's, of Baa3 or
above, as the case may be.                                          1.50%       0.50%        0.25%
- ----------------------------------------------------------------------------------------------------
Level 6
does not qualify for Level 1, Level 2, Level 3, Level 4 or
Level 5                                                             1.75%       0.75%        0.30%
- ----------------------------------------------------------------------------------------------------


                                      -39-


; provided that (I) Level 6 pricing shall apply at all times (x) when a Default
under Section 10.01 or 10.05 or an Event of Default is in existence or (y) after
the Borrower has received an initial Debt Rating, either or both rating agencies
no longer maintain any such rating and (II) any change in the Applicable Margin
or the Applicable Commitment Commission Percentage due to a change in the Debt
Rating shall be effective on the effective date of such change in the applicable
Debt Rating.

                  "Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement substantially in the form of Exhibit I
(appropriately completed).

                  "Bankruptcy Code" shall mean Title 11 of the United States
Code entitled "Bankruptcy" as now or hereafter in effect or any successor
thereto.

                  "Base Rate" shall mean the higher of (x) the Prime Lending
Rate and (y) 1/2 of 1% in excess of the overnight Federal Funds Rate.

                  "Base Rate Loan" shall mean each Loan designated or deemed
designated as such by the Borrower at the time of the incurrence thereof or
conversion thereto.

                  "Board" shall mean the Board of Governors of the Federal
Reserve System of the United States (or any successor).

                  "Bond" shall mean the bond in the original principal amount of
the Total Commitment as in effect on the Effective Date issued under the
Indenture and pledged pursuant to the Pledge Agreement.

                  "Borrowed Money" of any Person shall mean any Indebtedness of
such Person for or in respect of money borrowed or raised by whatever means
(including acceptances, deposits and lease obligations under Capital Leases);
provided, however, that Borrowed Money shall not include (a) any guarantees that
may be incurred by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business or similar transactions, (b) any
obligations or guarantees of performance of obligations under a franchise,
performance bonds, franchise bonds, obligations to reimburse drawings under
letters of credit issued in accordance with the terms of any safe harbor lease
or franchise or in lieu of performance or in lieu of franchise bonds or other
obligations that do not represent money borrowed or raised, which reimbursement
obligations in each case shall be payable in full within ten (10) Business Days
after the date upon which such obligation arises, (c) trade payables, (d)
customer advance payments and deposits arising in the ordinary course of such
Person's business, (e) operating leases and (f) obligations under swap
agreements.

                  "Borrower" shall have the meaning provided in the first
paragraph of this Agreement.

                  "Borrowing" shall mean the incurrence of one Type of Loan by
the Borrower from all of the Lenders on a pro rata basis on a given date (or
resulting from conversions on a given date), having in the case of Eurodollar
Loans the same Interest Period; provided that Base

                                      -40-


Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of any
related Borrowing of Eurodollar Loans.

                  "Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday and any day which
shall be in New York City a legal holiday or a day on which banking institutions
are authorized or required by law or other government action to close and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the New York interbank Eurodollar market.

                  "Capital Lease" shall mean a lease that, in accordance with
GAAP, would be recorded as a capital lease on the balance sheet of the lessee.

                  "Cash Interest" shall mean interest expense of the Parent and
its Subsidiaries, to the extent actually paid in cash, during the relevant
period; provided that Cash Interest for the quarter ended December 31, 2002
shall be deemed to be an amount equal to $1,956,000.

                  "CenterPoint Energy" shall mean CenterPoint Energy, Inc., a
Texas corporation.

                  "CNP Credit Agreement" shall have the meaning provided in
Section 5.07(c).

                  "Collateral Agent" shall mean Deutsche Bank AG New York
Branch, in its capacity of collateral agent under the Credit Documents.

                  "Commitment" shall mean, for each Lender, the amount set forth
opposite such Lender's name in Schedule I hereto directly below the column
entitled "Commitment," as same may be (x) reduced from time to time pursuant to
Sections 1.14, 3.02, 3.03 and/or 10 or (y) adjusted from time to time as a
result of assignments to or from such Lender pursuant to Section 1.13 or
13.04(b).

                  "Commitment Commission" shall have the meaning provided in
Section 3.01(a).

                  "Consolidated" refers to the consolidation of accounts in
accordance with GAAP.

                  "Consolidated Capitalization" shall mean the sum of (a)
Consolidated Shareholders' Equity, (b) Consolidated Indebtedness for Borrowed
Money and (c) without duplication, any Mandatory Payment Preferred Stock.

                  "Consolidated Net Tangible Assets" shall mean the total amount
of assets of the Parent and its Subsidiaries less, without duplication, (a)
total current liabilities (excluding Indebtedness for Borrowed Money due within
12 months); (b) all reserves for depreciation and other asset valuation
reserves, but, excluding reserves for deferred federal income taxes arising from
accelerated amortization or otherwise; (c) all intangible assets such as
goodwill, trademarks, trade names, patents and unamortized debt discount and
expense carried as an asset; and (d) all appropriate adjustments on account of
minority interests of other persons holding common stock of any Subsidiary; all
as reflected in the Parent's audited consolidated balance

                                      -41-


sheet most recently delivered pursuant hereto prior to the date of a
determination of Consolidated Net Tangible Assets hereunder.

                  "Consolidated Shareholders' Equity" shall mean, as of any date
of determination, the total assets of the Parent and its Consolidated
Subsidiaries less all liabilities of the Parent and its Consolidated
Subsidiaries. (As used in this definition, "liabilities" means all obligations
that, in accordance with GAAP consistently applied, would be classified on a
balance sheet as liabilities, including, without limitation, (a) Indebtedness;
(b) deferred liabilities; and (c) Indebtedness of the Parent or any of its
Consolidated Subsidiaries that is expressly subordinated in right and priority
of payment to other liabilities of the Parent or such Consolidated Subsidiaries,
as the case may be, but in any case excluding as at such date of determination
any adjustment, non-cash charge to net income or other non-cash charges or
write-offs resulting thereto from the application of SFAS No. 142 and similar
provisions of GAAP).

                  "Controlled" shall mean, with respect to any Person, the
ability of another Person (whether directly or indirectly and whether by the
ownership of voting securities, contract or otherwise) to appoint and/or remove
the majority of the members of the board of directors or other governing body of
that Person (and "Control" and "Controls" shall be similarly construed).

                  "Credit Documents" shall mean this Agreement (including,
without limitation, the Guaranty), the Revolving Notes, the Security Documents,
each Letter of Credit and all other documents executed in connection herewith
and therewith, including, without limitation, each Notice of Borrowing.

                  "Credit Event" shall mean the making of any Loan or the
issuance of any Letter of Credit.

                  "Credit Party" shall mean the Borrower and each Guarantor.

                  "DBAG" shall mean Deutsche Bank AG New York Branch, in its
individual capacity.

                  "Debt Rating" shall mean, on any date, each of the ratings
most recently publicly announced by Moody's and S&P for the Borrower's
non-credit enhanced senior secured long-term Indebtedness.

                  "Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.

                  "Defaulting Lender" shall mean any Lender with respect to
which a Lender Default is in effect.

                  "Documentation Agent" shall mean Compass Bank, in its capacity
as Documentation Agent.

                  "Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.

                                      -42-


                  "Domestic Subsidiary" shall mean each Subsidiary of the Parent
that is incorporated or organized in the United States, any State or territory
thereof or the District of Columbia or which is treated as a partnership by the
Parent or any Domestic Subsidiary thereof or a disregarded entity pursuant to
the provisions of Treasury Regulations Section 301.7701-3.

                  "Drawing" shall have the meaning provided in Section 2.05(b).

                  "EBITDA" shall mean, for any period, net income (or net loss)
plus the sum of (a) interest expense, (b) income tax expense, (c) depreciation
expense, (d) amortization expense and (e) to the extent reflected as a charge in
the computation of net income for such period, any other non-cash charges, in
each case determined in accordance with GAAP for such period, provided that,
EBITDA for the quarter ended December 31, 2002 will be deemed to be an amount
equal to -$27,878,000.

                  "Effective Date" shall have the meaning provided in Section
13.10.

                  "Eligible Transferee" shall mean and include a commercial
bank, a financial institution, any fund that regularly invests in bank loans or
other "accredited investor" (as defined in Regulation D of the Securities Act)
but in any event excluding the Borrower and its Subsidiaries.

                  "Environmental Action" shall mean any action, suit, demand,
demand letter, claim, notice of non-compliance or violation, notice of liability
or potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental Permit or
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any governmental or
regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.

                  "Environmental Law" shall mean any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, judgment, rule
of common law, decree or judicial or agency interpretation, policy or guidance
having the force of law relating to pollution or protection of the environment,
health, safety or natural resources, including, without limitation, those
relating to the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials.

                  "Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under any
Environmental Law.

                  "Equity Interests" shall mean any capital stock, partnership,
joint venture, member or limited liability or unlimited liability company
interest, beneficial interest in a trust or similar entity or other equity
interest or investment of whatever nature.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.

                                      -43-


                  "ERISA Affiliate" shall mean any Person that for purposes of
Title IV of ERISA is a member of the Borrower's controlled group, or under
common control with the Borrower, within the meaning of Section 414 of the
Internal Revenue Code.

                  "ERISA Event" shall mean (a) (i) the occurrence of a
reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Plan unless the 30-day notice requirement with respect to such event has
been waived by the PBGC, or (ii) the requirements of subsection (1) of Section
4043(b) of ERISA (without regard to subsection (2) of such Section) are met with
respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA,
of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of
Section 4043(c) of ERISA is reasonably expected to occur with respect to such
Plan within the following 30 days; (b) the application for a minimum funding
waiver with respect to a Plan; (c) the provision by the administrator of any
Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2)
of ERISA (including any such notice with respect to a plan amendment referred to
in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of
the Borrower or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from
a Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the
imposition of a lien under Section 302(f) of ERISA or Section 412(n) of the
Internal Revenue Code shall have been met with respect to any Plan; (g) the
adoption of an amendment to a Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA; (h) the institution by the PBGC of
proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of a trustee to
administer, a Plan; (i) using actuarial assumptions and computation methods
consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of the Borrower and its ERISA Affiliates to all Multiemployer Plans
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Multiemployer Plan ended prior to the date of
the most recent Credit Event, exceed $50,000,000; (j) the partial or complete
withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer
Plan; and (k) the reorganization or termination of a Multiemployer Plan.

                  "Eurodollar Loan" shall mean each Loan designated as such by
the Borrower at the time of the incurrence thereof or conversion thereto.

                  "Eurodollar Rate" shall mean with respect to each Interest
Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest
1/100 of 1%) of the offered quotation to first-class banks in the New York
interbank Eurodollar market by DBAG for U.S. dollar deposits of amounts in same
day funds comparable to the outstanding principal amount of the Eurodollar Loan
of DBAG for which an interest rate is then being determined with maturities
comparable to the Interest Period to be applicable to such Eurodollar Loan,
determined as of 10:00 A.M. (New York City time) on the Interest Determination
Date for such Interest Period divided (and rounded upward to the next whole
multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of Eurocurrency liabilities
as defined in Regulation D (or any successor category of liabilities under
Regulation D).

                                      -44-


                  "Event of Default" shall have the meaning provided in Section
10.

                  "Exchange Act" shall mean the Securities Exchange Act of 1933,
as amended.

                  "Excess Funding Guarantor" shall have the meaning provided in
Section 14.07(b).

                  "Excess Payment" shall have the meaning provided in Section
14.07(b).

                  "Facing Fee" shall have the meaning provided in Section
3.01(c).

                  "Federal Funds Rate" shall mean for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.

                  "Fees" shall mean all amounts payable pursuant to or referred
to in Section 3.01.

                  "First Mortgage Bond" shall mean any bond, note or similar
instrument issued pursuant to the Indenture.

                  "GAAP" shall have the meaning specified in Section 11.02.

                  "Genco GP" shall have the meaning provided in the first
paragraph of this Agreement.

                  "Genco LP" shall have the meaning provided in the first
paragraph of this Agreement.

                  "Genco Services" shall have the meaning provided in the first
paragraph of this Agreement.

                  "Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

                  "Guarantee" shall mean, as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or in effect
guaranteeing any principal of any Indebtedness for Borrowed Money (the "primary
obligations") of any other third Person in any manner, whether directly or
indirectly, including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds for the purchase or payment of any such primary

                                      -45-


obligation or (iii) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof. The amount of any Guarantee
of any guaranteeing person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Guarantee is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee, unless such primary obligation and the maximum amount
for which such guaranteeing person may be liable are not stated or determinable,
in which case the amount of such Guarantee shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith (and "guaranteed" and "guarantor" shall be construed
accordingly).

                  "Guaranteed Creditors" shall mean and include the
Administrative Agent, the Collateral Agent, the Documentation Agent, the Issuing
Lender and each of the Lenders.

                  "Guaranteed Obligations" shall mean the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations, liabilities and indebtedness (including, without limitation,
all principal, premium, interest (including, without limitation, all interest
that accrues after the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency, reorganization or similar proceeding of
the Borrower or any Subsidiary thereof at the rate provided for in the
respective documentation, whether or not a claim for post-petition interest is
allowed in any such proceeding), reimbursement obligations under Letters of
Credit, fees, costs and indemnities) of the Borrower to the Guaranteed
Creditors, whether now existing or hereafter incurred under, arising out of, or
in connection with, this Agreement and the other Credit Documents and the due
performance and compliance by each Borrower with all of the terms, conditions
and agreements contained in this Agreement and in the other Credit Documents.

                  "Guarantor" shall mean each of the Parent, Genco GP, Genco
Services and Genco LP and any other Person required to become a guarantor under
the Guaranty from time to time as contemplated by Section 8.12 of this
Agreement.

                  "Guaranty" shall mean the guaranty of the Guarantors pursuant
to Section 14 of this Agreement.

                  "Hazardous Materials" shall mean (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas and (b)
any other chemicals, materials or substances designated, classified or regulated
as hazardous or toxic or as a pollutant or contaminant under any Environmental
Law.

                  "Indebtedness" of any Person shall mean the sum of (a) all
items (other than capital stock, capital surplus and retained earnings) that, in
accordance with GAAP consistently applied, would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as at the date on which the Indebtedness is to be determined and (b) the
amount of all Guarantees by such Person.

                  "Indenture" shall have the meaning set forth in Section
5.05(b) of this Agreement.

                                      -46-


                  "Indenture Collateral" shall mean all of the power generation
assets of Parent and its Subsidiaries securing the Obligations of the Borrower
under and in connection with the Bond, as provided in the Indenture.

                  "Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.

                  "Interest Period" shall have the meaning provided in Section
1.09.

                  "Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.

                  "Issuing Lender" shall mean Compass Bank (which for purposes
of this definition also shall include any banking affiliate of Compass Bank) and
any other Lender which at the request of the Borrower and with the consent of
the Administrative Agent (which shall not be unreasonably withheld or delayed)
agrees, in such Lender's sole discretion, to become an Issuing Lender for the
purpose of issuing Letters of Credit pursuant to Section 2. It being understood
and agreed that on the Effective Date the sole Issuing Lender is Compass Bank.

                  "Lead Arranger" shall mean Deutsche Bank Securities Inc., in
its capacity as Lead Arranger.

                  "Leaseholds" of any Person shall mean all of the right, title
and interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.

                  "Lender" shall mean each financial institution listed on
Schedule I, as well as any Person which becomes a "Lender" hereunder pursuant to
Section 1.13 or 13.04(b).

                  "Lender Default" shall mean (i) the refusal (which has not
been retracted) or the failure of a Lender to make available its pro rata
portion of any Borrowing or to fund its portion of any unreimbursed payment
under Section 2.04(c) or (ii) a Lender having notified in writing the Borrower
and/or the Administrative Agent that it does not intend to comply with its
obligations under Section 1.01 or Section 2, in the case of either clause (i) or
(ii) above as a result of the appointment of a receiver or conservator with
respect to such Lender at the direction or request of any regulatory agency or
authority.

                  "Letter of Credit" shall have the meaning provided in Section
2.01(a).

                  "Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).

                  "Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings.

                  "Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).

                                      -47-


                  "Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, charge, security interest,
encumbrance or lien of any kind whatsoever (including any Capital Lease).

                  "Loan" shall have the meaning provided in Section 1.01(a).

                  "Mandatory Payment Preferred Stock" shall mean any preference
or preferred stock of the Parent or of any of its Subsidiaries (in each case
other than any issued to the Parent or its Subsidiaries that is subject to
mandatory redemption, sinking fund or retirement provisions; provided, that any
amounts subject to any mandatory redemption, sinking fund or retirement
provisions due and payable prior to the Maturity Date or within one year
following the Maturity Date will not be considered Mandatory Payment Preferred
Stock.

                  "Margin Stock" shall mean any margin stock (as defined in
Regulation U) and any margin security (as defined in Regulation T).

                  "Material Adverse Change" shall mean any material adverse
change in the business, condition (financial or otherwise), operations,
performance or properties of the Parent, the Borrower, the Parent and its
Subsidiaries taken as a whole, or the Borrower and its Subsidiaries taken as a
whole.

                  "Material Adverse Effect" shall mean a material adverse effect
on the ability of any Credit Party to perform its obligations under this
Agreement or any other Credit Document to which it is a party.

                  "Maturity Date" shall mean December 21, 2004.

                  "Minimum Borrowing Amount" shall mean an amount equal to
$1,000,000.

                  "Moody's" shall mean Moody's Investors Service, Inc.

                  "Money Pool" shall have the meaning provided in the Texas
Genco Money Pool Agreement, dated as of October 22, 2003, among CenterPoint
Energy and certain of its direct and indirect subsidiaries, as in effect on the
Effective Date, as may be amended from time to time.

                  "Multiemployer Plan" shall mean a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions.

                  "Multiple Employer Plan" shall mean a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees
of, or is contributed to (or to which there is an obligation to contribute of)
by, the Borrower or any ERISA Affiliate and at least one Person other than the
Borrower and the ERISA Affiliates or (b) was so maintained, or contributed to
by, and in respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such plan has been or
were to be terminated.

                                      -48-


                  "Non-Continuing Lender" shall have the meaning provided in
Section 1.14.

                  "Non-Defaulting Lender" shall mean and include each Lender
other than a Defaulting Lender.

                  "Non-Recourse Debt" shall mean (i) any Indebtedness for
Borrowed Money incurred by any Project Finance Subsidiary to finance the
acquisition, improvement, installation, design, engineering, construction,
development, completion, maintenance or operation of, or otherwise to pay costs
and expenses relating to or providing financing for any project, which
Indebtedness for Borrowed Money does not provide for recourse against the Parent
or any Subsidiary of the Parent (other than a Project Finance Subsidiary and
such recourse as exists under a Performance Guaranty) or any property or asset
of the Parent or any Subsidiary of the Parent (other than Equity Interests in,
or the property or assets of, a Project Finance Subsidiary and such recourse as
exists under a Performance Guaranty) and (ii) any refinancing of such
Indebtedness for Borrowed Money that does not increase the outstanding principal
amount thereof (other than to pay costs incurred in connection therewith and the
capitalization of any interest, fees, premium or penalties) at the time of the
refinancing or increase the property subject to any Lien securing such
Indebtedness for Borrowed Money or otherwise add additional security or support
for such Indebtedness for Borrowed Money.

                  "Notice of Borrowing" shall have the meaning provided in
Section 1.03.

                  "Notice of Conversion/Continuation" shall have the meaning
provided in Section 1.06.

                  "Notice Office" shall mean the office of the Administrative
Agent located at 90 Hudson Street, Fifth Floor, Jersey City, New Jersey 07302,
Attention: Peter Medina, or such other office as the Administrative Agent may
hereafter designate in writing as such to the other parties hereto.

                  "Obligation" shall mean, with respect to any Person, any
payment, performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or not
the right of any creditor to payment in respect of such claim is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, disputed,
undisputed, legal, equitable, secured or unsecured, and whether or not claim is
discharged, stayed or otherwise affected by any proceeding referred to in
Section 10.05. Without limiting the generality of the foregoing, the Obligations
of any Credit Party under each Credit Document to which it is a party include
(a) the obligation to pay principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, indemnities and other amounts payable by such
Credit Party under any Credit Document and (b) the obligation of such Credit
Party to reimburse any amount in respect of any of the foregoing that any
Lender, in its sole discretion, may elect to pay or advance on behalf of such
Credit Party.

                  "Parent" shall have the meaning provided in the first
paragraph of this Agreement.

                  "Participant" shall have the meaning provided in Section
2.04(a).

                                      -49-


                  "Payment Office" shall mean the office of the Administrative
Agent located at 90 Hudson Street, Fifth Floor, Jersey City, New Jersey 07302,
or such other office as the Administrative Agent may hereafter designate in
writing as such to the other parties hereto.

                  "PBGC" shall mean the Pension Benefit Guaranty Corporation (or
any successor).

                  "Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Commitment of such
Lender at such time and the denominator of which is the Total Commitment at such
time, provided that if the Percentage of any Lender is to be determined after
the Total Commitment has been terminated, then the Percentages of the Lenders
shall be determined immediately prior (and without giving effect) to such
termination.

                  "Performance Guaranty" shall mean any guaranty issued in
connection with any Non-Recourse Debt that (i) if secured, is secured only by
assets of or Equity Interests in a Project Finance Subsidiary, and (ii)
guarantees to the provider of such Non-Recourse Debt or any other Person (a)
performance of the improvement, installation, design, engineering, construction,
acquisition, development, completion, maintenance or operation of, or otherwise
affects any such act in respect of, all or any portion of the project that is
financed by such Non-Recourse Debt, (b) completion of the minimum agreed equity
or other contributions or support to the relevant Project Finance Subsidiary, or
(c) performance by a Project Finance Subsidiary of obligations to Persons other
than the provider of such Non-Recourse Debt.

                  "Permitted Liens" shall mean:

                           (a)      Liens securing Indebtedness under any First
                  Mortgage Bond issued pursuant to and in accordance with the
                  Indenture (or secured by a First Mortgage Bond) in an
                  aggregate principal amount which, together with all other
                  Indebtedness of the Parent and its Subsidiaries secured by a
                  Lien permitted by this clause (a) (not including Indebtedness
                  permitted to be secured under clauses (b)-(w) below unless
                  such Indebtedness is secured pursuant to the Indenture or by a
                  First Mortgage Bond issued pursuant to the Indenture) and the
                  sum of the Value of all Sale and Leaseback Transactions of
                  Parent and its Subsidiaries in existence at such time (other
                  than any Sale and Leaseback Transaction which, if such Sale
                  and Leaseback Transaction had been a Lien, would have been
                  permitted by clauses (k) or (m) below), does not at the time
                  of incurrence of such Indebtedness exceed $250,000,000,
                  provided that all such Liens shall rank pari passu with the
                  Liens securing the Obligations of the Credit Parties pursuant
                  to the Security Documents and shall be subject to the
                  intercreditor provisions contained in the Indenture;

                           (b)      undetermined or inchoate Liens and charges
                  incidental to construction, maintenance, development or
                  operation;

                           (c)      the Lien of taxes and assessments for the
                  then current year, the Lien of taxes and assessments not at
                  the time delinquent and the Lien of specified taxes and
                  assessments which are delinquent but the validity of which is
                  being contested

                                      -50-


                  at the time by the Parent or such Subsidiary of the Parent in
                  good faith and by appropriate proceedings or for which its
                  non-payment could not reasonably be expected to have a
                  Material Adverse Effect;

                           (d)      Liens in existence on the date hereof;

                           (e)      Liens arising in connection with the
                  securitization of accounts receivable of the Parent and its
                  Subsidiaries or any securitization Subsidiary, in the case of
                  the Parent and its Subsidiaries, to the extent affecting only
                  the accounts receivable of the Parent and its Subsidiaries and
                  assets customarily related thereto and Liens on the stock or
                  assets of securitization Subsidiaries;

                           (f)      the Lien reserved in leases for rent and for
                  compliance with the terms of the lease in the case of
                  leasehold estates;

                           (g)      any obligations or duties, affecting the
                  property of the Parent or such Subsidiary, to any municipality
                  or public authority with respect to any franchise, grant,
                  license, permit or similar arrangement;

                           (h)      the Liens of any judgments or attachments in
                  an aggregate amount not in excess of $30,000,000, or the Lien
                  of any judgment or attachment the execution or enforcement of
                  which has been stayed or which has been appealed and secured,
                  if necessary, by the filing of an appeal bond;

                           (i)      Liens upon any property heretofore or
                  hereafter acquired, constructed or improved, created at the
                  time of acquisition or commercial operation thereof within one
                  year thereafter (and the accessions thereto and proceeds
                  thereof) to secure all or a portion of the purchase price
                  thereof or the cost of such construction or improvement, or
                  existing thereon at the date of acquisition or within one year
                  thereafter to secure all or a portion of the purchase price
                  thereof or the cost of such construction or improvement, or
                  existing thereon at the date of acquisition, whether or not
                  assumed by the Parent or any Subsidiary of the Parent,
                  provided, that every such Lien shall apply only to the
                  property so acquired or constructed and fixed improvements
                  thereon (and the accessions thereto and proceeds thereof);

                           (j)      any extension, renewal or refunding, in
                  whole or in part, of any mortgage, pledge, Lien or encumbrance
                  permitted by subparagraph (i) above, if limited to the same
                  property or any portion thereof subject to, and securing not
                  more than the amount secured by, the mortgage, pledge, Lien or
                  encumbrance extended, renewed or refunded and related
                  transaction costs and expenses;

                           (k)      Liens upon any property heretofore or
                  hereafter acquired by any Person that is or becomes a
                  Subsidiary after the date hereof ("Acquired Entity"),
                  provided, that (1) every such Lien shall either (A) exist
                  prior to the time the Acquired Entity becomes a Subsidiary or
                  (B) be created at the time the Acquired Entity becomes a
                  Subsidiary or within one year thereafter to secure all or a
                  portion of the acquisition price thereof and (2) every such
                  Lien shall only apply to

                                      -51-


                  those properties owned by the Acquired Entity at the time it
                  becomes a Subsidiary or thereafter acquired by it from sources
                  other than the Parent or any Subsidiary of the Parent;

                           (l)      the pledge of current assets, in the
                  ordinary course of business, to secure current liabilities;

                           (m)      mechanics' or materialmen's Liens, any Liens
                  or charges arising by reason of pledges or deposits to secure
                  payment of workmen's compensation or other insurance, good
                  faith deposits in connection with tenders, leases of real
                  estate, bids or contracts (other than contracts for the
                  payment of money), deposits to secure duties or public or
                  statutory obligations, deposits to secure, or in lieu of,
                  surety, stay or appeal bonds, and deposits as security for the
                  payment of taxes or assessments or similar charges;

                           (n)      any Lien arising by reason of deposits with,
                  or the giving of any form of security to, any governmental
                  regulation for any purpose at any time in connection with the
                  financing of the acquisition or construction of property to be
                  used in the business of the Parent or a Subsidiary or as
                  required by law or governmental regulation as a condition to
                  the transaction of any business or the exercise of any
                  privilege or license, or to enable the Parent or a Subsidiary
                  to maintain self-insurance or to participate in any funds
                  established to cover any insurance risks or in connection with
                  workmen's compensation, unemployment insurance, old age
                  pensions or other social security, or to share in the
                  privileges or benefits required for companies participating in
                  such arrangements;

                           (o)      any Lien of or upon any office equipment,
                  data processing equipment (including, without limitation,
                  computer and computer peripheral equipment), or transportation
                  equipment (including, without limitation, motor vehicles,
                  tractors, trailers, marine vessels, barges, towboats, rolling
                  stock and aircraft);

                           (p)      any Lien created or assumed by the Parent or
                  a Subsidiary in connection with the issuance of debt
                  securities the interest on which is excludable from gross
                  income of the holder of such security pursuant to the Internal
                  Revenue Code, as amended, for the purpose of financing, in
                  whole or in part, the acquisition or construction or property
                  to be used by the Parent or a Subsidiary;

                           (q)      the pledge or assignment of accounts
                  receivable, or the pledge or assignment of conditional sales
                  contracts or chattel mortgages and evidences of indebtedness
                  secured thereby, received in connection with the sale by the
                  Parent or such Subsidiary or others of goods or merchandise to
                  customers of the Parent or such Subsidiary;

                           (r)      any other Liens securing obligations under
                  agreements to which the Parent or any of its Subsidiaries is a
                  party or by which it is bound as of the Effective Date, which
                  the Parent is obligated to equally and ratably secure as a
                  result of granting the Liens to secure Indebtedness hereunder;

                                      -52-


                           (s)      Liens on Property of the Parent or any of
                  its Subsidiaries securing non-recourse Indebtedness of the
                  Parent or any such Subsidiary;

                           (t)      Liens on cash collateral to secure
                  obligations of the Parent and its Subsidiaries in respect of
                  cash management arrangements with any Lender or Affiliate
                  thereof;

                           (u)      Liens on cash and short-term investments (i)
                  deposited by the Borrower or any of its Subsidiaries in
                  accounts with or on behalf of futures contract brokers or
                  other counterparties or (ii) pledged by the Parent or any of
                  its Subsidiaries, in the case of clause (i) or (ii) to secure
                  its obligations with respect to contracts (including without
                  limitation, physical delivery, option (whether cash or
                  financial), exchange, swap and futures contracts) for the
                  purchase or sale of any energy-related commodity or interest
                  rate or currency rate management contracts;

                           (v)      Liens on (i) Property owned by a Project
                  Finance Subsidiary or (ii) equity interests in a Project
                  Finance Subsidiary (including in each case a pledge of a
                  partnership interest, common stock or a membership interest in
                  a limited liability company) securing Indebtedness incurred in
                  connection with a project financing; or

                           (w)      Liens not otherwise permitted by Section
                  9.01 securing Indebtedness or other obligations of the Parent
                  and its Subsidiaries so long as the aggregate principal amount
                  outstanding at any time of the obligations secured thereby
                  does not at any time exceed (as to the Parent and all of its
                  Subsidiaries) $20,000,000 at such time.

                  "Person" shall mean an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.

                  "Plan" shall mean a Single Employer Plan or a Multiple
Employer Plan.

                  "Pledge Agreement" shall have the meaning provided in Section
5.05(a).

                  "Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreement.

                  "Prime Lending Rate" shall mean the rate which DBAG announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. DBAG may make commercial loans or other loans
at rates of interest at, above or below the Prime Lending Rate.

                  "Project Finance Subsidiary" and "Project Finance
Subsidiaries" shall mean any Subsidiary of the Parent designated by the Borrower
whose principal purpose is to incur Non-Recourse Debt and/or construct, lease,
own or operate the assets financed thereby, or to become

                                      -53-


a direct or indirect partner, member or other equity participant or owner in a
Person created for such purpose, and substantially all the assets of which
Subsidiary or Person are limited to (x) those assets being financed (or to be
financed), or the operation of which is being financed (or to be financed), in
whole or in part by Non-Recourse Debt, or (y) Equity Interests in, or
Indebtedness or other obligations of, one or more other such Subsidiaries or
Persons, or (z) Indebtedness or other obligations of the Borrower or its
Subsidiaries or other Persons; provided, however, that the sum of the net book
value of all Project Finance Subsidiaries shall at no time exceed 10% of
Consolidated Net Tangible Assets.

                  "Projections" shall have the meaning provided in Section 5.09.

                  "Property" shall mean any interest or right in any kind of
property or asset, whether real, personal or mixed, owned or leased, tangible or
intangible and whether now held or hereafter acquired.

                  "Pro Rata Share" shall have the meaning provided in Section
14.07(b).

                  "Quarterly Payment Date" shall mean the last Business Day of
each March, June, September and December, occurring after the Effective Date.

                  "Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.

                  "Recommitment Deadline" shall have the meaning provided in
Section 1.14.

                  "Recommitment Request" shall have the meaning provided in
Section 1.14.

                  "Register" shall have the meaning provided in Section 13.16.

                  "Regulation D" shall mean Regulation D of the Board as from
time to time in effect and any successor to all or a portion thereof
establishing reserve requirements.

                  "Regulation T" and "Regulation U" shall mean Regulation T and
U, respectively, of the Board, in each case, as from time to time in effect and
any successor to all or a portion thereof.

                  "Replaced Lender" shall have the meaning provided in Section
1.13.

                  "Replacement Lender" shall have the meaning provided in
Section 1.13.

                  "Required Lenders" shall mean Non-Defaulting Lenders, the sum
of whose outstanding Commitments (or after the termination thereof, outstanding
Loans and Percentage of Letter of Credit Outstandings) represent greater than
50% of the Total Commitment less the Commitments of all Defaulting Lenders (or
after the termination thereof, the sum of the then total outstanding Loans of
Non-Defaulting Lenders and the aggregate Percentages of all Non-Defaulting
Lenders of the Letter of Credit Outstandings at such time).

                                      -54-


                  "Responsible Officer" shall mean, with respect to any Person,
its chief financial officer, chief accounting officer, assistant treasurer,
treasurer or comptroller of such Person or any other officer of such Person
whose primary duties are similar to the duties of any of the previously listed
officers of such Person.

                  "Returns" shall have the meaning provided in Section 7.09.

                  "Revolving Note" shall have the meaning provided in Section
1.05(a).

                  "RRI Option Agreement" shall have the meaning provided in
Section 5.07(c).

                  "S&P" shall mean Standard & Poor's Rating Services.

                  "Sale and Leaseback Transaction" shall mean any arrangement
with any Person providing for the leasing to the Parent or any Subsidiary of the
Parent of any Property (except for temporary leases for a term, including any
renewal thereof of not more than three years and except for leases between the
Parent and a Subsidiary of the Parent or between Subsidiaries of the Parent),
which Property has been or is to be sold or transferred by the Parent or any
Subsidiary of the Parent to such Person.

                  "SEC" shall have the meaning provided in Section 9.05.

                  "Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b)(ii).

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Security Documents" shall mean the Indenture, the Bond and
Pledge Agreement and each other document or instrument entered into pursuant to
Section 5.05 or 8.11, if any, in each case as and when delivered in accordance
with this Agreement as same may be amended, modified or supplemented from time
to time in accordance with the terms thereof and/or hereof.

                  "Significant Subsidiary" shall mean (i) for the purposes of
determining what constitutes an "Event of Default" under Sections 10.04, 10.05,
10.06 and 10.07, a Subsidiary of any Credit Party (other than a Project Finance
Subsidiary) whose total assets, as determined in accordance with GAAP, represent
at least 10% of the total assets of such Credit Party, on a consolidated basis,
as determined in accordance with GAAP and (ii) for all other purposes the
"Significant Subsidiaries" shall be those Subsidiaries whose total assets, as
determined in accordance with GAAP, represent at least 10% of the total assets
of such Credit Party on a consolidated basis, as determined in accordance with
GAAP for such Credit Party's most recently completed fiscal year and identified
in the certificate most recently delivered pursuant to Section 8.01(b).

                  "Single Employer Plan" shall mean a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees
of, or is contributed to (or to which there is an obligation to contribute of)
by, the Borrower or any ERISA Affiliate and no Person other than the Borrower
and the ERISA Affiliates, or (b) was so maintained, or

                                      -55-


contributed to by, and in respect of which the Borrower or any ERISA Affiliate
could have liability under Section 4069 of ERISA in the event such plan has been
or were to be terminated.

                  "Solvent" shall mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay such debts and liabilities as they mature and (d) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.

                  "Stated Amount" of each Letter of Credit shall, at any time,
mean the maximum amount available to be drawn thereunder (in each case
determined without regard to whether any conditions to drawing could then be
met).

                  "Subsidiary" of any Person shall mean any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits of
such limited liability company, partnership, joint venture or other Person or
(c) the beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.

                  "Taxes" shall have the meaning provided in Section 4.04(a).

                  "Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Lenders at such time.

                  "Total Debt" shall mean, as of any date of determination, the
sum of the total Indebtedness for Borrowed Money as shown on the consolidated
balance sheet of the Parent and its Consolidated Subsidiaries, determined
without duplication of any Guarantee of Indebtedness for Borrowed Money of the
Parent by any of its Consolidated Subsidiaries or of any Guarantee of
Indebtedness of any such Consolidated Subsidiary by the Parent or any other
Consolidated Subsidiary of the Parent, and any Mandatory Payment Preferred
Stock, less Non-Recourse Debt of the Parent and its Subsidiaries.

                  "Total Unutilized Commitment" shall mean, at any time, an
amount equal to the remainder of (i) the Total Commitment then in effect, less
(ii) the sum of the aggregate principal amount of Loans plus the then aggregate
amount of Letter of Credit Outstandings.

                                      -56-


                  "Trustee" shall mean JPMorgan Chase Bank, in its capacity as
Trustee under the Indenture.

                  "Type" shall mean the type of Loan determined with regard to
the interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.

                  "UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.

                  "Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the value of the accumulated plan benefits under the
Plan determined on a plan termination basis in accordance with actuarial
assumptions at such time consistent with those prescribed by the PBGC for
purposes of Section 4044 of ERISA, exceeds the fair market value of all plan
assets allocable to such liabilities under Title IV of ERISA (excluding any
accrued but unpaid contributions).

                  "United States" and "U.S." shall each mean the United States
of America.

                  "Unpaid Drawing" shall have the meaning provided for in
Section 2.05(a).

                  "Unutilized Commitment" with respect to any Lender, at any
time, shall mean such Lender's Commitment at such time less the sum of (i) the
aggregate outstanding principal amount of Loans made by such Lender and (ii)
such Lender's Percentage of the Letter of Credit Outstandings at such time.

                  "Value" shall mean, with respect to a Sale and Leaseback
Transaction, as of any particular time, the amount equal to the greater of (1)
the net proceeds from the sale or transfer of the property leased pursuant to
such Sale and Leaseback Transaction or (2) the fair value, in the opinion of the
board of directors, of such property at the time of entering into such Sale and
Leaseback Transaction, in either case divided first by the number of full years
of the term of the lease and then multiplied by the number of full years of such
term remaining at the time of determination, without regard to any renewal or
extension options contained in the lease.

                  "Voting Stock" shall mean capital stock issued by a
corporation, or equivalent interests in any other Person, the holders of which
are ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such Person,
even if the right so to vote has been suspended by the happening of such a
contingency.

                  "Wholly-Owned" shall mean, with respect to any Subsidiary of
any Person, a Subsidiary, all the outstanding capital stock (other than
directors' qualifying shares required by law) or other ownership interest of
which are at the time owned by such Person or by one or more Wholly-Owned
Subsidiaries of such Person, or both.

                  11.02 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles in effect from time to time in the United States of
America ("GAAP"); provided that, if the Borrower notifies the Administrative
Agent that the Borrower requests an amendment to any provision of the Credit
Documents to eliminate the effect of any change occurring after the date hereof
in GAAP

                                      -57-


or in the application thereof or in federal or foreign tax laws which adversely
affects any of the Borrower and its Subsidiaries' ability to comply with its
obligations under the Credit Documents, regardless of whether any such notice is
given before or after such change or in the application thereof, then such
provision shall be interpreted on the basis of GAAP or such tax laws as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.

                  SECTION 12. The Agents.

                  12.01 Appointment. The Lenders hereby designate (i) DBAG as
Administrative Agent and Collateral Agent to act as specified herein and in the
other Credit Documents, (ii) Compass Bank as Documentation Agent and (iii)
Deutsche Bank Securities, Inc. as Lead Arranger, in each case to act as
specified herein and in the other Credit Documents. Each Lender hereby
irrevocably authorizes, and each holder of any Revolving Note by the acceptance
of such Revolving Note shall be deemed irrevocably to authorize, each Agent to
take such action on its behalf under the provisions of this Agreement, the other
Credit Documents and any other instruments and agreements referred to herein or
therein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of each Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. Each Agent may perform any of their duties hereunder by or through
their respective officers, directors, agents, employees or affiliates.

                  12.02 Nature of Duties. The Agents shall not have any duties
or responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. No Agent nor any of its respective officers, directors,
agents, employees or affiliates shall be liable for any action taken or omitted
by them hereunder or under any other Credit Document or in connection herewith
or therewith, unless caused by their gross negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final and non-appealable
decision). The duties of the Agents shall be mechanical and administrative in
nature; no Agent shall have by reason of this Agreement or any other Credit
Document a fiduciary relationship in respect of any Lender or the holder of any
Revolving Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
any Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein.

                  12.03 Lack of Reliance on the Agents. Independently and
without reliance upon any Agent, each Lender and the holder of each Revolving
Note, to the extent it deems appropriate, has made and shall continue to make
(i) its own independent investigation of the financial condition and affairs of
the Parent and its Subsidiaries in connection with the making and the
continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Parent and its Subsidiaries and, except as expressly provided in this Agreement,
no Agent shall have any duty or responsibility, either initially or on a
continuing basis, to provide any Lender or the holder of any Revolving Note with
any credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter. No
Agent nor any of its affiliates or any of its officers, directors, agents or
employees shall be responsible to any Lender or the holder of any Revolving Note
for any recitals, statements, information, representations or

                                      -58-


warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of this
Agreement or any other Credit Document or the financial condition of the Parent
and its Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of the Parent
and its Subsidiaries or the existence or possible existence of any Default or
Event of Default.

                  12.04 Certain Rights of the Agents. If any Agent shall request
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders; and such Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender nor any
holder of any Revolving Note shall have any right of action whatsoever against
any Agent as a result of such Agent acting or refraining from acting hereunder
or under any other Credit Document in accordance with the instructions of the
Required Lenders.

                  12.05 Reliance. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype, facsimile or telecopier message,
cablegram, radiogram, order or other document or telephone message signed, sent
or made by any Person that such Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Credit Document and its duties hereunder and thereunder, upon advice of counsel
selected by such Agent (which may be counsel for the Credit Parties).

                  12.06 Indemnification. To the extent that any Agent is not
reimbursed and indemnified by the Borrower, each Lender will reimburse and
indemnify such Agent, in proportion to its "percentage" as used in determining
the Required Lenders (determined as if there were no Defaulting Lenders) for and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses or disbursements of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by such Agent in performing its duties hereunder or under any other Credit
Document, in any way relating to or arising out of this Agreement or any other
Credit Document; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final and non-appealable decision).

                  12.07 The Agents in Their Individual Capacity. With respect to
its obligation to make Loans and participate in Letters of Credit under this
Agreement, each Agent shall have the rights and powers specified herein for a
"Lender" and may exercise the same rights and powers as though it were not
performing the duties specified herein; and the term "Lenders," "Required
Lenders," "holders of Revolving Notes" or any similar terms shall, unless the
context clearly otherwise indicates, include each Agent in its individual
capacity. Each Agent may accept deposits from, lend money to, and generally
engage in any kind of banking, trust or other business with any Credit Party or
any Affiliate of any Credit Party as if it were not performing the

                                      -59-


duties specified herein, and may accept fees and other consideration from the
Borrower, or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.

                  12.08 Holders. The Administrative Agent may deem and treat the
payee of any Revolving Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment, transfer or endorsement thereof,
as the case may be, shall have been filed with the Administrative Agent. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any Revolving Note
shall be conclusive and binding on any subsequent holder, transferee, assignee
or endorsee, as the case may be, of such Revolving Note or of any Revolving Note
or Revolving Notes issued in exchange therefor.

                  12.09 (a) Resignation. The Administrative Agent may resign
from the performance of all its functions and duties hereunder and/or under the
other Credit Documents at any time by giving 15 Business Days' prior written
notice to the Borrower and the Lenders. Any such resignation by any Agent
hereunder shall also constitute its resignation as an Issuing Lender (if
applicable), in which case upon the effectiveness of such resignation in
accordance with this Section 12.09 such resigning Agent (x) shall not be
required to issue any further Letters of Credit hereunder and (y) shall maintain
all of its rights as an Issuing Lender with respect to any Letters of Credit
issued by it, in each case prior to the effective date of such resignation. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.

                  (b)      Upon any such notice of resignation, the Required
Lenders shall, with the consent of the Borrower (which consent shall not be
unreasonably withheld or delayed and shall not be required at any time when an
Event of Default exists), appoint a successor Administrative Agent hereunder or
thereunder who shall be a commercial bank or trust company.

                  (c)      If a successor Administrative Agent shall not have
been so appointed within such 15 Business Day period, the Administrative Agent,
with the consent of the Borrower (which consent shall not be unreasonably
withheld or delayed and shall not be required at any time when an Event of
Default exists), shall then appoint a commercial bank or trust company as
successor Administrative Agent who shall serve as Administrative Agent hereunder
or thereunder until such time, if any, as the Required Lenders appoint a
successor Administrative Agent as provided above.

                  (d)      If no successor Administrative Agent has been
appointed pursuant to clause (b) or (c) above by the 20th Business Day after the
date such notice of resignation was given by the Administrative Agent, the
Administrative Agent's resignation shall become effective and the Required
Lenders shall thereafter perform all the duties of the Administrative Agent
hereunder and/or under any other Credit Document until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided in clause
(b) above.

                  (e)      Upon a resignation of any Agent pursuant to this
Section 12.09, such Agent shall remain indemnified to the extent provided in
this Agreement and the other Credit

                                      -60-


Documents and the provisions of this Section 12 shall continue in effect for the
benefit of such Agent for all of its actions and inactions while serving as an
Agent.

                  12.10 Documentation Agent. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall impose on the
Documentation Agent, in such capacity, any duties or obligations.

                  SECTION 13. Miscellaneous.

                  13.01 Payment of Expenses, etc. The Borrower shall: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of (x) the Administrative Agent
(including, without limitation, the reasonable fees and disbursements of White &
Case LLP) in connection with the preparation, execution and delivery of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, it being understood that for purposes of this clause (x), the
Administrative Agent shall use no more than one transaction counsel and such
local counsel as reasonably necessary, (y) each Agent in connection with its
syndication efforts with respect to this Agreement and (z) the Administrative
Agent and, following and during the continuation of an Event of Default, each of
the Lenders in connection with the enforcement of this Agreement and the other
Credit Documents and the documents and instruments referred to herein and
therein (including, without limitation, the reasonable fees and disbursements of
counsel and consultants for the Administrative Agent and, following and during
the continuation of an Event of Default, for each of the Lenders) in each case
promptly following receipt of a reasonably detailed invoice therefor; (ii)
without duplication of any other payments paid or payable pursuant to any other
provision of this Agreement or any other Credit Document, pay and hold each of
the Lenders harmless from and against any and all present and future stamp,
excise and other similar taxes with respect to the foregoing matters and hold
each of the Lenders harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such taxes; and (iii) without duplication of
any other payments paid or payable pursuant to any other provision of this
Agreement or any other Credit Document, indemnify each Agent and each Lender
(including in its capacity as an Issuing Lender), and each of their respective
officers, directors, employees, representatives, affiliates and agents from and
hold each of them harmless against any and all liabilities, obligations
(including removal or remedial actions), losses, damages, penalties, claims,
actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not any Agent or any Lender is a party thereto)
related to the entering into and/or performance of this Agreement or any other
Credit Document or the use of any Letter of Credit or the proceeds of any Loans
hereunder or the consummation of any transactions contemplated herein or in any
other Credit Document or the exercise of any of their rights or remedies
provided herein or in the other Credit Documents, or (b) the actual or alleged
presence of Hazardous Materials in the air, surface water or groundwater or on
the surface or subsurface of any Real Property owned or at any time operated by
the Borrower or any of its Subsidiaries, the generation, storage,
transportation, handling or disposal of Hazardous Materials at any location,
whether or not owned or operated by the Borrower or any of its Subsidiaries, the
non-compliance of any Real Property with

                                      -61-


foreign, federal, state and local laws, regulations, and ordinances (including
applicable permits thereunder) applicable to any Real Property, or any
Environmental Action asserted against the Borrower, any of its Subsidiaries, or
any Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries, including, in each case, without limitation, the reasonable fees
and disbursements of counsel and other consultants incurred in connection with
any such investigation, litigation or other proceeding (but excluding any
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified (as determined by a court of competent jurisdiction in a final and
non-appealable decision)). To the extent that the undertaking to indemnify, pay
or hold harmless any Agent or any Lender set forth in the preceding sentence may
be unenforceable because it is violative of any law or public policy, the
Borrower shall make the maximum contribution to the payment and satisfaction of
each of the indemnified liabilities which is permissible under applicable law.

                  13.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Lender
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of any Credit Party against and on
account of the Obligations and liabilities of all Credit Parties to such Lender
under this Agreement or under any of the other Credit Documents, including,
without limitation, all interests in Obligations purchased by such Lender
pursuant to Section 13.06(b), and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit Document,
irrespective of whether or not such Lender shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.

                  13.03 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at
the Borrower's address specified opposite its signature below; if to any other
Credit Party, at such Credit Party's address set forth opposite its signature
below; if to any Lender, at its address specified on Schedule II below; and if
to the Administrative Agent, at the Notice Office; or, as to any Credit Party or
the Administrative Agent, at such other address as shall be designated by such
party in a written notice to the other parties hereto and, as to each Lender, at
such other address as shall be designated by such Lender in a written notice to
the Borrower and the Administrative Agent. All such notices and communications
shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, be effective when deposited in the mails, delivered to the
telegraph company, cable company or overnight courier, as the case may be, or
sent by telex or telecopier, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.

                                      -62-

                  13.04 (a) Benefit of Agreement. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, however, that the
Borrower may not assign or transfer any of its rights, obligations or interest
hereunder or under any other Credit Document without the prior written consent
of all of the Lenders and the Administrative Agent and, provided further, that
although any Lender may transfer, assign or grant participations in its rights
hereunder, such Lender shall remain a "Lender" for all purposes hereunder (and
may not transfer or assign all or any portion of its Commitment hereunder except
as provided in Section 13.04(b)) and the transferee, assignee or participant, as
the case may be, shall not constitute a "Lender" hereunder and, provided
further, that no Lender shall transfer or grant any participation under which
the participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (i) extend the final scheduled maturity of any Loan or Revolving
Note or extend the expiry date of any Letter of Credit beyond the Maturity Date,
or reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that waivers or modifications of conditions
precedent, covenants, Defaults or Events of Default or of a mandatory reduction
in the Total Commitment shall not constitute a change in the terms of such
participation, and that an increase in any Commitment shall be permitted without
the consent of any participant if the participant's participation is not
increased as a result thereof) or (ii) consent to the assignment or transfer by
the Borrower of any of their rights and obligations under this Agreement. In the
case of any such participation, the participant shall not have any rights under
this Agreement or any of the other Credit Documents (the participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement executed by such Lender in favor of the participant relating
thereto) and all amounts payable by the Borrower hereunder shall be determined
as if such Lender had not sold such participation.

                  (b)      Notwithstanding the foregoing, any Lender (or any
Lender together with one or more other Lenders) may (x) assign all or a portion
of its Commitment and related outstanding Obligations hereunder (or, if the
Commitments have terminated, its outstanding Obligations) to (i) its parent
company and/or any affiliate of such Lender which is at least 50% owned by such
Lender or its parent company or to one or more other Lenders or (ii) in the case
of any Lender that is a fund that invests in bank loans, any other fund that
invests in bank loans and is managed by the same investment advisor of such
Lender or by an Affiliate of such investment advisor or (y) assign all, or if
less than all, a portion equal to at least $1,000,000 in the aggregate for the
assigning Lender or assigning Lenders, of such Commitments and related
outstanding Obligations hereunder (or, if the Commitments have terminated, its
outstanding Obligations) to one or more Eligible Transferees, each of which
assignees shall become a party to this Agreement as a Lender by execution of an
Assignment and Assumption Agreement, provided that (i) at such time Schedule I
shall be deemed modified to reflect the Commitment of such new Lender and of the
existing Lenders, (ii) at the request of the assignee Lender, and upon surrender
of the relevant Revolving Notes or the provision of a customary lost note
indemnification agreement from the assignor or assignee Lender, as the case may
be, new Revolving Notes will be issued, at the Borrowers' expense, to such new
Lender and to the assigning Lender, such new Revolving Notes to be in conformity
with the requirements of Section 1.05 (with appropriate modifications) to the
extent needed to reflect the revised

                                      -63-


Commitments, (iii) the consent of the Administrative Agent, any Issuing Lender
and, at any time when no Default or Event of Default is in existence, the
Borrower shall be required in connection with any such assignment pursuant to
clause (y) above (each of which consents shall not to be unreasonably withheld
or delayed), and (iv) the Administrative Agent shall receive at the time of each
such assignment, from the assigning or assignee Lender, the payment of a
non-refundable assignment fee of $3,500 and, provided further, that such
transfer or assignment will not be effective until recorded by the
Administrative Agent on the Register pursuant to Section 13.16 hereof. To the
extent of any assignment pursuant to this Section 13.04(b), the assigning Lender
shall be relieved of its obligations hereunder with respect to its assigned
Commitments. At the time of each assignment pursuant to this Section 13.04(b) to
a Person which is not already a Lender hereunder and which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Internal
Revenue Code) for Federal income tax purposes, the respective assignee Lender
shall provide to the Borrower and the Administrative Agent the appropriate
Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii)
Certificate) described in Section 4.04(b). To the extent that an assignment of
all or any portion of a Lender's Commitments and related outstanding Obligations
pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such
assignment, result in increased costs under Section 1.10, 1.11 or 4.04 greater
than those being charged by the respective assigning Lender prior to such
assignment, then the Borrower shall not be obligated to pay such greater
increased costs (although the Borrower shall be obligated to pay any other
increased costs of the type described above resulting from changes after the
date of the respective assignment).

                  (b)      Nothing in this Agreement shall prevent or prohibit
any Lender from pledging its Loans and Revolving Notes hereunder to a Federal
Reserve Bank in support of borrowings made by such Lender from such Federal
Reserve Bank and, with the consent of the Administrative Agent, any Lender which
is a fund may pledge all or any portion of its Revolving Notes or Loans to its
trustee or to a collateral agent providing credit or credit support to such
Lender in support of its obligations to its trustee or such collateral agent, as
the case may be. No pledge pursuant to this clause (c) shall release the
transferor Lender from any of its obligations hereunder.

                  13.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of any Agent or any Lender or any holder of any Revolving Note in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Borrower or any other Credit Party
and any Agent or any Lender or the holder of any Revolving Note shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which any Agent or any Lender or the holder of any
Revolving Note would otherwise have. No notice to or demand on any Credit Party
in any case shall entitle any Credit Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
any Agent or any Lender or the holder of any Revolving Note to any other or
further action in any circumstances without notice or demand.

                                      -64-

                  13.06 (a) Payments Pro Rata. Except as otherwise provided in
this Agreement, the Administrative Agent agrees that promptly after its receipt
of each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Lenders (other than any
Lender that has consented in writing to waive its pro rata share of any such
payment) pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.

                  (b)      Each of the Lenders agrees that, if it should receive
any amount hereunder (whether by voluntary payment, by realization upon
security, by the exercise of the right of setoff or banker's lien, by
counterclaim or cross action, by the enforcement of any right under the Credit
Documents, or otherwise), which is applicable to the payment of the principal
of, or interest on, the Loans, Unpaid Drawings, Commitment Commission or other
Fees, of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligation then owed
and due to such Lender bears to the total of such Obligation then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Borrower
to such Lenders in such amount as shall result in a proportional participation
by all the Lenders in such amount; provided that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.

                  (c)      Notwithstanding anything to the contrary contained
herein, the provisions of the preceding Sections 13.06(a) and (b) shall be
subject to the express provisions of this Agreement which require, or permit,
differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting
Lenders.

                  13.07 Calculations; Computations. (a) The financial statements
to be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Lenders), provided that except as otherwise specifically provided herein, all
computations of Applicable Commitment Commission Percentage and the Applicable
Margin, and all computations and all definitions (including accounting terms)
used in determining compliance with Sections 9.08 and 9.09, shall utilize
accounting principles and policies in conformity with those used to prepare the
historical financial statements referred to in Section 7.05(a).

                  (b)      All computations of interest on Eurodollar Loans
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest is payable. All computations of interest on Base
Rate Loans and computations of Fees hereunder shall be made on the basis of a
year of 365/366 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or Fees
are payable.

                  13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CON-

                                      -65-


STRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE WHICH ARE
LOCATED IN THE COUNTY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH CREDIT PARTY HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER IT, AND AGREES NOT TO PLEAD
OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT
SUCH COURTS LACK PERSONAL JURISDICTION OVER IT. EACH CREDIT PARTY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO EACH CREDIT PARTY AT ITS
ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE
30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT,
ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANY CREDIT PARTY IN ANY OTHER JURISDICTION.

                  (a)      EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  13.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.

                  13.10 Effectiveness. This Agreement shall become effective on
the date (the "Effective Date") on which (i) the Borrower, each Lender and the
Administrative Agent shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of facsimile)
the same to the Administrative Agent at the Notice Office or, in the case of the
Lenders, shall have given the Administrative Agent telephonic (confirmed in
writing), written or telex notice (actually received) at such office that same
has been signed and mailed to it and (ii) the conditions contained in Section 5
are met to the satis-

                                      -66-


faction of the Agents and the Required Lenders. Unless the Administrative Agent
has received actual notice from any Lender that the conditions contained in
Section 5 have not been met to its reasonable satisfaction, upon the
satisfaction of the condition described in clause (i) of the immediately
preceding sentence and upon the Administrative Agent's good faith determination
that the conditions described in clause (ii) of the immediately preceding
sentence have been met, then the Effective Date shall have been deemed to have
occurred, regardless of any subsequent determination that one or more of the
conditions thereto had not been met (although the occurrence of the Effective
Date shall not release the Borrower from any liability for failure to satisfy
one or more of the applicable conditions contained in Section 5). The
Administrative Agent will give the Borrower and each Lender prompt written
notice of the occurrence of the Effective Date.

                  13.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.

                  13.12 (a) Amendment or Waiver; Removal of Lender etc. Neither
this Agreement nor any other Credit Document nor any terms hereof or thereof may
be changed, waived, discharged or terminated unless such change, waiver,
discharge or termination is in writing signed by the respective Credit Parties
party thereto and the Required Lenders, provided that no such change, waiver,
discharge or termination shall, without the consent of each Lender (other than a
Defaulting Lender) (with Obligations being directly affected thereby in the case
of following clause (i)), (i) extend the final scheduled maturity of any Loan or
Revolving Note, or extend the stated maturity of, or any reimbursement
obligation under, any Letter of Credit beyond the Maturity Date, or reduce the
rate or extend the time of payment of interest or Fees (it being understood that
any amendment or modification to the financial definitions in this Agreement or
to Section 13.07(a) shall not constitute a reduction in the rate of interest or
Fees for the purposes of this clause (i)), or reduce the principal amount
thereof, or reduce any reimbursement obligations under any Letter of Credit,
(ii) amend, modify or waive any provision of this Section 13.12 (except for
technical amendments with respect to additional extensions of credit under this
Agreement of the type which afford the protections to such additional extensions
of credit provided to the Commitments on the Effective Date), (iii) reduce the
percentage specified in the definition of Required Lenders (it being understood
and agreed that, with the consent of the Required Lenders, additional extensions
of credit pursuant to this Agreement may be included in the determination of the
Required Lenders on substantially the same basis as the Commitments are included
on the Effective Date) or (iv) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement; provided
further, that no such change, waiver, discharge or termination shall (1)
increase the Commitment of any Lender over the amount thereof then in effect
without the consent of such Lender (it being understood and agreed that waivers
or modifications of conditions precedent, covenants (including, without
limitation, by means of modifications to the financial definitions or
modifications in the method of calculation of any financial covenants), Defaults
or Events of Default or of a mandatory reduction in the Total Commitments shall
not constitute an increase of the Commitment of any Lender, and that an increase
in the available portion of any Commitment of any Lender shall not constitute an
increase in the Commitment of such Lender), (2) without the consent of the
respective Issuing Lender or Issuing Lenders, amend, modify or waive any
provision of Section 2 with respect to Letters of Credit issued by it or alter
its rights or

                                      -67-


obligations with respect to Letters of Credit, or (3) without the consent of
each Agent affected thereby, amend, modify or waive any provision of Section 12
as same applies to such Agent or any other provision as same relates to the
rights or obligations of such Agent.

                  (b)      Notwithstanding anything herein to the contrary, the
Borrower may in accordance with and subject to the provisions of Sections
3.02(b) and/or 4.01(b) as applicable, at any time in its sole discretion,
terminate any Lender's Commitment upon ten Business Days' prior written notice
to such Lender and the Administrative Agent (the contents of which notices shall
be promptly communicated by the Administrative Agent to each other Lender),
provided that notwithstanding the foregoing, it is understood and agreed that no
Lender's Commitment may be terminated hereunder at a time when an Event of
Default shall have occurred and be continuing or solely as a result of the
exercise of such Lender's rights pursuant to the second proviso to Section
13.12(a) (including the withholding of any required consent by such Lender
pursuant thereto). Concurrently with any termination made pursuant to this
Section 13.12(b), the Borrower shall pay to such removed Lender all amounts
owing to such Lender hereunder and under each other Credit Document in
immediately available funds and take all other actions, in each case in
accordance with Sections 3.02(b) and/or 4.01(b) as applicable, in connection
with such termination and immediately upon making such payments and taking such
actions, such Lender shall no longer constitute a "Lender" for purposes of this
Agreement, except with respect to indemnifications under this Agreement
(including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and
13.06), which shall survive as to such Lender. Each notice by the Borrower under
this Section 13.12(b) shall constitute a representation by Borrower that the
removal described in such notice is permitted under this Section 13.12(b).

                  13.13 Survival. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06 shall,
survive the execution, delivery and termination of this Agreement and the
Revolving Notes and the making and repayment of the Loans.

                  13.14 Domicile of Loans. Each Lender may transfer and carry
its Loans at, to or for the account of any office, Subsidiary or Affiliate of
such Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 13.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06
or 4.04 from those being charged by the respective Lender prior to such
transfer, then the Borrower shall not be obligated to pay such increased costs
(although the Borrower shall be obligated to pay any other increased costs of
the type described above resulting from changes after the date of the respective
transfer).

                  13.15 Confidentiality. Subject to the provisions of clause (b)
of this Section 13.15, each Lender agrees that it will not disclose without the
prior consent of the Parent (other than to its employees, auditors, advisors or
counsel or to another Lender if the Lender or such Lender's holding or parent
company in its sole discretion determines that any such party should have access
to such information, provided such Persons shall be subject to the provisions of
this Section 13.15 to the same extent as such Lender) any information with
respect to the Parent or any of its Subsidiaries which is now or in the future
furnished pursuant to this Agreement or any other Credit Document and which is
designated by the Parent to the Lenders in writing as confidential, provided
that any Lender may disclose any such information (a) as has become

                                      -68-


generally available to the public, (b) as may be required or appropriate in any
report, statement or testimony submitted to any municipal, state or Federal
regulatory body having or claiming to have jurisdiction over such Lender or to
the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (c) as may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Lender, (e) to any Agent,
(f) to any prospective or actual transferee or participant in connection with
any contemplated transfer or participation of any of the Revolving Notes or
Commitments or any interest therein by such Lender, provided that such
prospective transferee agrees to be subject to the provisions contained in this
Section 13.15 and (g) to any nationally recognized rating agency that requires
access to information about such Lender's investment portfolio in connection
with ratings issued to such Lender.

                  (b)      Each Credit Party hereby acknowledges and agrees that
each Lender may share with any of its Affiliates any information related to the
Parent or any of its Subsidiaries (including, without limitation, any nonpublic
customer information regarding the creditworthiness of the Parent and its
Subsidiaries), provided such Persons shall be subject to the provisions of this
Section 13.15 to the same extent as such Lender.

                  (c)      Each Credit Party hereby represents and acknowledges
that, to the best of its knowledge, no Agent nor any Lender, nor any employees
or agents of, or other persons affiliated with, any Agent or any Lender, have
directly or indirectly made or provided any statement (oral or written) to such
Credit Party or to any of their respective employees or agents, or other persons
affiliated with or related to such Credit Party (or, so far as such Credit Party
is aware, to any other Person), as to the potential tax consequences of this
Agreement, any other Credit Document or any of the transactions contemplated
hereby or thereby.

                  (d)      Neither the Agents, the Lenders or any of their
respective affiliates nor any Credit Party provide accounting, tax, or legal
advice and each party has consulted, or will consult, its own advisors regarding
its participation in the transactions contemplated by this Agreement.
Notwithstanding anything provided herein, in the other Credit Documents or in
any other document or agreement relating to the transactions contemplated herein
and in the other Credit Documents, and any express or implied claims of
exclusivity or proprietary rights, the Agents, the Lenders and each of the
Credit Parties hereby agree and acknowledge that each Credit Party, the Agents,
the Lenders and any of their respective affiliates (and each of their respective
employees, representatives or other agents) are authorized to disclose to any
and all persons, beginning immediately upon commencement of their discussions
regarding such transactions and without limitation of any kind, the U.S.
federal, state, or local tax treatment and tax structure of such transactions,
and all materials of any kind (including opinions or other tax analyses) that
are provided by either any Credit Party, any Agent, any Lender or any of their
respective affiliates (and any of their respective employees, representatives or
other agents) to any other such party relating to such tax treatment and tax
structure, except to the extent that such disclosure is subject to restrictions
reasonably necessary to comply with securities laws. For purposes of this
authorization, "tax treatment" of a transaction means the purported or claimed
tax treatment of the transaction and "tax structure" of a transaction means any
fact that may be relevant to understanding the purported or claimed tax
treatment of the transaction. Nothing herein is intended to imply that any oral
or written statement as to any potential tax

                                      -69-


consequences that are related to, or may result from, the transactions
contemplated by the Agreement and the other Credit Documents have been made or
provided to, or for the benefit of, any Agent, Lender, Credit Party or any of
their respective affiliates by any other such party.

                  13.16 Register. The Borrower hereby designates the
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 13.16, to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the Lenders, the Loans made
by each of the Lenders and each repayment in respect of the principal amount of
the Loans of each Lender. The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error. Failure to make any such
recordation, or any error in such recordation shall not affect the Borrower's
obligations in respect of such Loans. With respect to any Lender, the transfer
of the Commitments of such Lender and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitments shall not be effective
until such transfer is recorded on the Register maintained by the Administrative
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery
of such an Assignment and Assumption Agreement to the Administrative Agent for
acceptance and registration of assignment or transfer of all or part of a Loan,
or as soon thereafter as practicable, the assigning or transferor Lender shall
surrender the Revolving Note evidencing such Loan, and thereupon one or more new
Revolving Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Lender and/or the new Lender. The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this Section 13.16.

                  SECTION 14. Guaranty.

                  14.01 Guaranty. In order to induce the Lenders to enter into
this Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by each Guarantor from the proceeds of the Loans and the
issuance of, and participations in, the Letters of Credit, each Guarantor hereby
agrees with the Lenders as follows: Each Guarantor hereby unconditionally and
irrevocably guarantees, as primary obligor and not merely as surety the full and
prompt payment when due in cash, whether upon maturity, acceleration or
otherwise, of any and all of the Guaranteed Obligations to the Guaranteed
Creditors. If any or all of the Guaranteed Obligations to the Guaranteed
Creditors becomes due and payable hereunder, each Guarantor unconditionally
promises to pay such indebtedness to the Guaranteed Creditors, or order, on
demand, together with any and all expenses which may be incurred by the
Guaranteed Creditors in collecting any of the Guaranteed Obligations. This
Guaranty is a continuing one and the Guaranteed Obligations shall be
conclusively presumed to have been created in reliance hereon. If claim is ever
made upon any Guaranteed Creditor for repayment or recovery of any amount or
amounts received in payment or on account of any of the Guaranteed Obligations
and any of the Guaranteed Creditors repays all or part of said amount by reason
of (i) any judgment, decree or order of any court or administrative body having
jurisdiction over such Guaranteed

                                      -70-


Creditor or any of its property or (ii) any settlement or compromise of any such
claim effected by such Guaranteed Creditor with any such claimant (including the
Borrower), then and in such event each Guarantor agrees that any such judgment,
decree, order, settlement or compromise shall be binding upon the Guarantors,
notwithstanding any revocation of this Guaranty or any other instrument
evidencing any liability of the Borrower, and each Guarantor shall be and remain
liable to the Guaranteed Creditors hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such payee.

                  14.02 Bankruptcy. Additionally, each Guarantor unconditionally
and irrevocably guarantees the payment of any and all of the Guaranteed
Obligations to the Guaranteed Creditors whether or not due or payable by the
Borrower upon the occurrence of any of the events specified in Section 10.05,
and unconditionally promises to pay such indebtedness to the Guaranteed
Creditors, or order, on demand.

                  14.03 Nature of Liability. The liability of each Guarantor
hereunder is exclusive and independent of any security for or other guaranty of
the Guaranteed Obligations whether executed by any Guarantor, any other
guarantor or by any other party, and the liability of each Guarantor hereunder
is not affected or impaired by (a) any direction as to application of payment by
any Borrower or by any other party, or (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the Guaranteed Obligations, or (c) any payment on or in reduction of any
such other guaranty or undertaking, or (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrower, or (e) any payment
made to the Guaranteed Creditors on the Guaranteed Obligations which any such
Guaranteed Creditor repays to the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Guarantor waives any right to the deferral or modification
of its obligations hereunder by reason of any such proceeding.

                  14.04 Independent Obligation. No invalidity, irregularity or
unenforceability of all or any part of the Guaranteed Obligations or of any
security therefor shall affect, impair or be a defense to this Guaranty, and
this Guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the Guaranteed Obligations. The obligations of each Guarantor
hereunder are independent of the obligations of the Borrower, any other
guarantor or any other Person, and a separate action or actions may be brought
and prosecuted against each Guarantor whether or not action is brought against
any Borrower, any other guarantor or any other Person and whether or not any
Borrower, any other guarantor or any other Person be joined in any such action
or actions. Each Guarantor waives, to the full extent permitted by law, the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by a Borrower or other circumstance which
operates to toll any statute of limitations as to such Borrower shall operate to
toll the statute of limitations as to the Guarantors.

                  14.05 Authorization. Each Guarantor authorizes the Guaranteed
Creditors without notice or demand (except as shall be required by applicable
law and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:

                                      -71-


                  (a)      change the manner, place or terms of payment of,
and/or change or extend the time of payment of, renew, increase, accelerate or
alter, any of the Guaranteed Obligations (including any increase or decrease in
the rate of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and this Guaranty shall apply to the
Guaranteed Obligations as so changed, extended, renewed or altered;

                  (b)      take and hold security for the payment of the
Guaranteed Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by whomsoever at
any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
thereagainst;

                  (c)      exercise or refrain from exercising any rights
against the Borrower or others, or otherwise act or refrain from acting;

                  (d)      release or substitute any one or more endorsers,
guarantors, the Borrower or other obligors;

                  (e)      settle or compromise any of the Guaranteed
Obligations, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to its creditors other than the
Guaranteed Creditors;

                  (f)      apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of the Borrower to the Guaranteed
Creditors regardless of what liability or liabilities of the Borrower remain
unpaid;

                  (g)      consent to or waive any breach of, or any act,
omission or default under, this Agreement, any other Credit Document or any of
the instruments or agreements referred to herein or therein, or otherwise amend,
modify or supplement this Agreement, any other Credit Document or any of such
other instruments or agreements; and/or

                  (h)      take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable discharge
of any Guarantor from its liabilities under this Guaranty.

                  14.06 Reliance. It is not necessary for the Guaranteed
Creditors to inquire into the capacity or powers of the Borrower or the
officers, directors, partners or agents acting or purporting to act on its or
their behalf, and any Guaranteed Obligations made or created in reliance upon
the professed exercise of such powers shall be guaranteed hereunder.

                  14.07 Rights of Contribution. (a) The Guarantors hereby agree,
as between themselves, that if any Guarantor shall become an Excess Funding
Guarantor (as defined below) by reason of the payment by such Guarantor of any
Guaranteed Obligations, each other Guarantor shall, on demand of such Excess
Funding Guarantor (but subject to the next sentence),

                                      -72-


pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro
Rata Share (as defined below and determined, for this purpose, without reference
to the properties, debts and liabilities of such Excess Funding Guarantor) of
the Excess Payment (as defined below) in respect of such Guaranteed Obligations.
The payment obligation of a Guarantor to any Excess Funding Guarantor under this
Section shall be subordinate and subject in right of payment to the prior
payment in full of the obligations of such Guarantor under the other provisions
of this Article 14 and such Excess Funding Guarantor shall not exercise any
right or remedy with respect to such excess until payment in full of all
Guaranteed Obligations.

                  (b)      For purpose of this Section, (i) "Excess Funding
Guarantor" means, in respect of any Guaranteed Obligations, a Guarantor that has
paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations,
(ii) "Excess Payment" means, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of
such Guaranteed Obligations and (iii) "Pro Rata Share" means, for any Guarantor,
the ratio (expressed as percentage) or (x) the amount by which the aggregate
present fair saleable value of all properties of such Guarantor (excluding any
shares of stock of any other Guarantor) exceeds the amount of all the debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder and any obligations of any other Guarantor that have been Guaranteed
by such Guarantor) to (y) the amount by which the aggregate fair saleable value
of all properties of all the Guarantors exceeds the amount of all the debts and
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities, but excluding the obligations of the Borrower and the Guarantors
hereunder and under the other Credit Documents) of all the Guarantors,
determined (A) with respect to any Guarantor that is a party hereto on the
Effective Date, as of the Effective Date, and (B) with respect to any other
Guarantor, as of the date such Guarantor becomes a Guarantor hereunder.

                  14.08 Waiver. (a) Each Guarantor waives any right (except as
shall be required by applicable law and cannot be waived) to require any
Guaranteed Creditor to (i) proceed against the Borrower, any other guarantor or
any other party, (ii) proceed against or exhaust any security held from the
Borrower, any other guarantor or any other party or (iii) pursue any other
remedy in any Guaranteed Creditor's power whatsoever. Each Guarantor waives any
defense based on or arising out of any defense of the Borrower any other
guarantor or any other party, other than payment in full in cash of the
Guaranteed Obligations, based on or arising out of the disability of the
Borrower, any other guarantor or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment in full of the
Guaranteed Obligations. The Guaranteed Creditors may, at their election,
foreclose on any security held by the Administrative Agent, the Collateral Agent
or any other Guaranteed Creditor by one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable (to the
extent permitted by applicable law and subject to the relevant provisions of the
applicable Security Documents), or exercise any other right or remedy the
Guaranteed Creditors may have against the Borrower or any other party, or any
security, without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Guaranteed Obligations have been
irrevocably and indefeasibly paid in full in cash. Each Guarantor waives any
defense arising out of any such election by the Guaranteed Creditors, even
though such election operates to impair or extinguish

                                      -73-


any right of reimbursement or subrogation or other right or remedy of any
Guarantor against the Borrower or any other party or any security.

                  (b)      Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional Guaranteed Obligations. Each Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Guaranteed Obligations and the nature, scope and extent of the risks which
such Guarantor assumes and incurs hereunder, and agrees that the Guaranteed
Creditors shall have no duty to advise any Guarantor of information known to
them regarding such circumstances or risks.

                  (c)      Until such time as the Guaranteed Obligations have
been paid in full in cash, each Guarantor hereby waives all rights of
subrogation which it may at any time otherwise have as a result of this Guaranty
(whether contractual, under Section 509 of the Bankruptcy Code, or otherwise) to
the claims of the Guaranteed Creditors against the Borrower or any other
guarantor of the Guaranteed Obligations and all contractual, statutory or common
law rights of reimbursement, contribution or indemnity from the Borrower or any
other guarantor which it may at any time otherwise have as a result of this
Guaranty.

                  (d)      Each Guarantor warrants and agrees that each of the
waivers set forth above is made with full knowledge of its significance and
consequences and that if any of such waivers are determined to be contrary to
any applicable law of public policy, such waivers shall be effective only to the
maximum extent permitted by law.

                  14.09 Payment. All payments made by any Guarantor pursuant to
this Section 14 shall be made in Dollars in immediately available funds. All
payments made by any Guarantor pursuant to this Section 14 will be made without
setoff, counterclaim or other defense, and shall be subject to the provisions of
Sections 4.03 and 4.04.

                  14.10 Savings Clause. Each Lender and each Guarantor hereby
confirms that it is its intention that this Guaranty not constitute a fraudulent
transfer or conveyance for purposes of the Bankruptcy Code, the Uniform
Fraudulent Transfer Act or any similar federal or state law. To effectuate the
foregoing intention, each Lender and each Guarantor hereby irrevocably agrees
that Guaranteed Obligations guaranteed by each Guarantor under this Guaranty
shall be limited to such amount as will, after giving effect to such maximum
amount and all of such Guarantor's other (contingent or otherwise) liabilities
that are relevant under such laws (but excluding, to the maximum extent
permitted by applicable law, any liabilities of a Guarantor arising under any
other indebtedness that is subordinated to the Guaranteed Obligations or any
obligations under this Guarantee), and after giving effect to any rights to
contribution pursuant to Section 14.07 hereof, result in the Guaranteed
Obligations of such Guarantor in respect of such maximum amount not constituting
a fraudulent transfer or conveyance.

                                     ******

                                      -74-



                  IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

Address:                                 TEXAS GENCO, LP
c/o Texas Genco GP, LLC
1111 Louisiana Street                    By: TEXAS GENCO GP, LLC,
Houston, Texas 77002                     its General Partner
Attn: Linda Geiger, Assistant Treasurer
Facsimile: (713) 207-3301                By: /s/ MARC KILBRIDE
copy to: Marc Kilbride, Treasurer            -----------------------------------
Facsimile: (713) 207-3301                    Name:  Marc Kilbride
                                             Title: Vice President and Treasurer

Address:                                 TEXAS GENCO HOLDINGS, INC.
1111 Louisiana Street
Houston, Texas 77002                     By: /s/ MARC KILBRIDE
Attn: Linda Geiger, Assistant Treasurer      -----------------------------------
Facsimile: (713) 207-3301                    Name:  Marc Kilbride
copy to: Marc Kilbride, Treasurer            Title: Vice President and Treasurer
Facsimile: (713) 207-3301

Address:                                 TEXAS GENCO GP, LLC
1111 Louisiana Street
Houston, Texas 77002                     By: /s/ MARC KILBRIDE
Attn: Linda Geiger, Assistant Treasurer      -----------------------------------
Facsimile: (713) 207-3301                    Name:  Marc Kilbride
copy to: Marc Kilbride, Treasurer            Title: Vice President and Treasurer
Facsimile: (713) 207-3301

                 SIGNATURE PAGE TO TEXAS GENCO CREDIT AGREEMENT


Address:                                 TEXAS GENCO LP, LLC
1011 Centre Road, Suite 324
Wilmington, DE 19805                     By: /s/ PATRICIA F. GENZEL
Telephone: 302-225-0600                      -----------------------------------
Facsimile: 302-225-0625                      Name:  Patricia F. Genzel
Attn: President                              Title: President and Secretary

with a copy to:
c/o Texas Genco Holdings, Inc.
1111 Louisiana Street
Houston, Texas 77002
Attn: Linda Geiger, Assistant Treasurer
Facsimile: (713) 207-3301
copy to: Marc Kilbride, Treasurer
Facsimile: (713) 207-3301

Address:                                 TEXAS GENCO SERVICES , LP
c/o Texas Genco GP, LLC
1111 Louisiana Street                     By:  TEXAS GENCO GP, LLC,
Houston, Texas 77002                      its General Partner
Attn: Linda Geiger, Assistant Treasurer
Facsimile: (713) 207-3301                By: /s/ MARC KILBRIDE
copy to: Marc Kilbride, Treasurer            -----------------------------------
Facsimile: (713) 207-3301                    Name:  Marc Kilbride
                                             Title: Vice President and Treasurer


                 SIGNATURE PAGE TO TEXAS GENCO CREDIT AGREEMENT


                                         DEUTSCHE BANK AG NEW YORK BRANCH,
                                         individually and as
                                         Administrative Agent and
                                         Collateral Agent

                                         By: /s/ RICHARD HENSHALL
                                             -----------------------------------
                                             Name:  Richard Henshall
                                             Title: Director

                                         By: /s/ JOEL MAKOWSKY
                                             -----------------------------------
                                             Name:  Joel Makowsky
                                             Title: Director


                 SIGNATURE PAGE TO TEXAS GENCO CREDIT AGREEMENT


                                         COMPASS BANK, individually and as
                                         Documentation Agent

                                         By:  /s/ COLLIN G. SANDERS
                                             -----------------------------------
                                             Name:  Collin G. Sanders
                                             Title: Senior Vice President

                 SIGNATURE PAGE TO TEXAS GENCO CREDIT AGREEMENT


                                             BANK OF AMERICA N.A.

                                             By: /s/ RICHARD L. STEIN
                                                 ----------------------
                                                 Name: Richard L. Stein
                                                 Title: Principal

                                             CITIBANK, N.A.

                                             By: /s/ STUART J. GLEN
                                                 -----------------------
                                                 Name: Stuart J. Glen
                                                 Title: Vice President

                                             CREDIT SUISSE FIRST BOSTON ACTING
                                             THROUGH ITS CAYMAN ISLANDS BRANCH

                                             By: /s/ S. WILLIAM FOX
                                                 -------------------------
                                                 Name: S. William Fox
                                                 Title: Director

                                             By: /s/ DAVID J. DODD
                                                 --------------------------
                                                 Name: David J. Dodd
                                                 Title: Associate

                                             JPMORGAN CHASE BANK

                                             By: /s/ ROBERT TRUBAND
                                                 ---------------------------
                                                 Name: Robert Truband
                                                 Title: Vice President

                                             WACHOVIA BANK, NATIONAL ASSOCIATION

                                             By: /s/ D. MITCH WILSON
                                                 --------------------------
                                                 Name: D. Mitch Wilson
                                                 Title: Vice President



                                                                      SCHEDULE 7

                                   COMMITMENTS



Lender                                                 Commitment
- ------                                                 ----------
                                                    
Deutsche Bank AG New York Branch                       $15,000,000
Bank of America, N.A.                                  $10,000,000
Citibank N.A.                                          $10,000,000
Compass Bank                                           $10,000,000
Credit Suisse First Boston, acting through its         $10,000,000
Cayman Islands Branch
JPMorgan Chase Bank                                    $10,000,000
Wachovia                                               $10,000,000

                                               Total:  $75,000,000
                                                       ===========




                                                                     SCHEDULE II

                                LENDER ADDRESSES

DEUTSCHE BANK AG NEW YORK BRANCH
60 Wall Street
New York, NY  10005-2858
Telephone: (212) 250-3968
Facsimile: (212) 797-4346
Attention: Richard Henshall

COMPASS BANK
24 Greenway Plaza, Suite 1400
Houston, TX  77046
Telephone: (713) 968-8234
Facsimile: (713) 968-8211
Attention: Collis Sanders

BANK OF AMERICA, N.A.
901 Main Street, 14th Floor
Dallas, TX  75202
Telephone: (214) 209-1228
Facsimile: (214) 290-9415
Attention: Marija Salic

CITIBANK, N.A.
2 Penns Way, Suite 110
New Castle, DE  19720
Telephone: (302) 894-6084
Facsimile: (212) 994-0847
Attention: Karen Riley

CREDIT SUISSE FIRST BOSTON, ACTING THROUGH ITS
CAYMAN ISLANDS BRANCH
One Madison Avenue
New York, NY  10010
Telephone: (212) 538-3380
Facsimile: (212) 325-9049
Attention: Ed Markowski

JPMORGAN CHASE BANK
1111 Fannin Street, 10th Floor
Houston, TX  77002
Telephone: (713) 750-2355
Facsimile: (713) 427-6307
Attention: Claudette Reid



                                                                          Page 2

WACHOVIA BANK, NATIONAL ASSOCIATION
201 S. College St. 9th Floor
NC 1183
Charlotte, NC 28288-1183
Telephone: (704) 374-4425
Facsimile: (704) 715-0097
Attention: Cynthia Rawson



                                                                    SCHEDULE III

                             Governmental Approvals

                                      None



                                                                     SCHEDULE IV

                              Existing Indebtedness

      OUTSTANDING INDEBTEDNESS FOR BORROWED MONEY AS OF THE EFFECTIVE DATE
                                 (IN THOUSANDS)

                                                       
Kilman Note                              12.50%    8/25/2017    $   436
Capitalized Lease Obligations                                     6,784
Money Pool Borrowings                                                 0
Credit Agreement Borrowings                                      26,000
                                                                -------
Total for Parent and its Subsidiaries                           $33,220
                                                                =======




                             FORM OF REVOLVING NOTE

THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE AGREEMENT REFERRED TO BELOW.
TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE RECORDED
IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF
SUCH AGREEMENT.

$_________________                                            New York, New York
                                                             __________ __, 200_

FOR VALUE RECEIVED, TEXAS GENCO, LP (the "Borrower") hereby promises to pay to
______________ or its registered assigns (the "Lender"), in Dollars (as defined
in the Agreement referred to below) in immediately available funds, at the
office of Deutsche Bank AG New York Branch (the "Administrative Agent") located
at 90 Hudson Street, First Floor, Jersey City, New Jersey 07302 on the Maturity
Date (as defined in the Agreement) the principal sum of ________ DOLLARS ($____)
or, if less, the unpaid principal amount of all Loans (as defined in the
Agreement) made by the Lender pursuant to the Agreement.

The Borrower promises also to pay interest on the unpaid principal amount hereof
in like money at said office from the date hereof until paid at the rates and at
the times provided in Section 1.08 of the Agreement.

This Note is one of the Revolving Notes referred to in the Credit Agreement,
dated as of December 23, 2003, among the Borrower, Texas Genco Holdings, Inc.,
Texas Genco GP, LLC, Texas Genco LP, LLC, Texas Genco Services, LP, certain
financial institutions from time to time party thereto (including the Lender),
Compass Bank, as Documentation Agent and the Administrative Agent in such
capacity and as Collateral Agent (as amended, modified or supplemented from time
to time, the "Agreement") and is entitled to the benefits thereof and of the
other Credit Documents (as defined in the Agreement). This Note is secured by
the Security Documents (as defined in the Agreement) to the extent provided
therein, and is entitled to the benefits of the Guaranty (as defined in the
Agreement). This Note is subject to voluntary prepayment and mandatory repayment
prior to the Maturity Date (as defined in the Agreement), in whole or in part,
as provided in the Agreement.

In case an Event of Default (as defined in the Agreement) shall occur and be
continuing, the principal of and accrued interest on this Note may become or be
declared to be due and payable in the manner and with the effect provided in the
Agreement.

The Borrower hereby waives presentment, demand, protest or notice of any kind in
connection with this Note.



THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE WITH THE
REGISTRATION AND OTHER PROVISIONS OF SECTION 13.16 OF THE AGREEMENT.

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.

                                       TEXAS GENCO, LP

                                       By:  TEXAS GENCO GP, LLC,
                                       its General Partner

                                       By:______________________________________
                                          Name:
                                          Title:



                          FORM OF OFFICER'S CERTIFICATE
                             [NAME OF CREDIT PARTY]

         The undersigned, the duly elected or appointed, authorized and acting
Responsible Officer of [Name of Credit Party], a _________ corporation, pursuant
to Section 5.04 of the Credit Agreement dated as of December 23, 2003 (the
"Credit Agreement") among Texas Genco, Texas Genco, LP, Texas Genco GP, LLC,
Texas Genco LP, LLC, Texas Genco Services, LP, the lenders from time party
thereto, Deutsche Bank AG New York Branch, as Administrative Agent and
Collateral Agent, and Compass Bank, as Documentation Agent (all capitalized
terms not defined herein have the meaning ascribed to them in the Credit
Agreement), hereby certifies as follows:

         a.       The following named individuals are Responsible Officers of
[Name of Credit Party], each of which holds the office of [Name of Credit Party]
set forth opposite his name as of the date hereof. The signature written
opposite the name and title of each such officer is his genuine signature.



     Name                               Office                     Signature
- ------------------------        -----------------------      -------------------------
                                                       
________________________        ________________________     _________________________
________________________        ________________________     _________________________
________________________        ________________________     _________________________


         b.       Attached hereto as Exhibits "A" and "B," respectively, are
true and correct copies of (i) the [Articles of Incorporation or equivalent
organizational document] of [Name of Credit Party] as filed in the Office of the
Secretary of State of the State of _____ on ______ as in full force and effect
on the date hereof and (ii) the [Bylaws or equivalent organizational document]
of [Name of Credit Party] as in full force and effect on the date hereof.

         c.       Attached hereto as Exhibit "C" are true and correct copies of
certain resolutions (the "Resolutions") duly adopted by the [Board of
Directors][Sole Manager] of [Name of Credit Party] approving and authorizing the
execution, delivery and performance by [Name of Credit Party] of each Credit
Document to which such person is a party and authorizing the borrowings and
other transactions contemplated thereunder. The Resolutions have not been
amended, modified or revoked since their adoption and remain in full force and
effect as of the date hereof. Except as attached hereto as Exhibit C, no
resolutions have been adopted by the [Board of Directors][Sole Manager] of [Name
of Credit Party] which deal with the execution, delivery or performance of any
of the Credit Documents to which [Name of Credit Party] is party.

         d.       Attached hereto as Exhibit "D" is a true and correct copy of a
[long form good standing certificate][certificate of existence and a certificate
of account status] of [Name of Credit Party] in its jurisdiction of
organization.

                 REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK



         IN WITNESS WHEREOF, the undersigned has executed this certificate as of
December __, 2003.

                                           _____________________________________
                                           Name:________________________________
                                           Title:_______________________________

         I, the undersigned, [Responsible Officer] of [Name of Credit Party], do
hereby certify on behalf of [Name of Credit Party] that:

         1.       [Name of Person making above certifications] is the duly
elected and qualified [Responsible Officer] of [Name of Credit Party] and the
signature above is his genuine signature.

         2.       The certifications made by [name of Person making above
certifications] on behalf of [Name of Credit Party] in items a, b, c and d above
are true and correct.

         IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
December, 2003.

                                         [NAME OF CREDIT PARTY]

                                         By: ___________________________________
                                             Name:
                                             Title:



                            FORM OF PLEDGE AGREEMENT

PLEDGE AGREEMENT, dated as of ______, 200_, made by and among Texas Genco, LP, a
Texas limited partnership (the "Company"), with and in favor of the Collateral
Agent (as defined below).

                              W I T N E S S E T H:

WHEREAS, the Company, Texas Genco Holdings, Inc., Texas Genco GP, LLC, Texas
Genco GP, LLC, Texas Genco, LP, Texas Genco Services, LP, the lenders from time
to time party thereto (the "Lenders"), Deutsche Bank AG New York Branch, as
Administrative Agent and Compass Bank, as Documentation Agent, have entered into
a Credit Agreement, dated the date hereof (as amended, modified or supplemented
from time to time, the "Credit Agreement"), providing for the making of Loans
to, and the issuance of Letters of Credit for the account of, the Company as
contemplated therein;

                  WHEREAS, it is a condition precedent to the making of Loans
and the issuance of, and participation in, Letters of Credit for the account of
the Company under the Credit Agreement that the Company shall have executed and
delivered to the Collateral Agent this Agreement; and

WHEREAS, the Company will obtain benefits from the incurrence of Loans by, and
the issuance of, and participation in, Letters of Credit for its account under
the Credit Agreement and, accordingly, the Company desires to enter into this
Agreement in order to satisfy the condition described in the preceding
paragraph;

NOW, THEREFORE, in consideration of the premises and to induce the Lenders to
maintain or make Loans and issue Letters of Credit under the Credit Agreement,
the parties hereto hereby agree as follows:

                  1.       Defined Terms. (a) Unless otherwise defined herein,
each term defined in the Credit Agreement and used herein shall have the meaning
given to such term in the Credit Agreement.

                  (b)      The following terms shall have the following
meanings:

"Agreement": this Pledge Agreement, as the same may be amended, modified or
otherwise supplemented from time to time.

"Bonds": bonds issued by the Company pursuant to the Indenture, including
without limitation, the Pledged Bonds.

                                      -5-



"Collateral": the collective reference to (i) the Pledged Bonds, all documents
and instruments issued or delivered in respect of any Pledged Bonds, the rights
and interest of the holder or registered owner of each Pledged Bond in and under
the Pledged Bonds (including such rights and interest in any and all collateral
securing the Pledged Bonds), such documents and instruments, any and all other
documents and instruments that from time to time secure payment of such Pledged
Bond, (ii) all Investment Property constituting or arising from any Collateral,
and (iii) all Proceeds of any of the foregoing.

"Collateral Agent": Deutsche Bank AG New York Branch, in its capacity as
Collateral Agent under the Credit Agreement.

"Credit Agreement": the Credit Agreement, dated as of December 23, 2003, among
Texas Genco Holdings, Inc., Texas Genco GP, LLC, Texas Genco GP, LLC, Texas
Genco, LP, the lenders from time to time party thereto, Deutsche Bank AG New
York Branch, as Administrative Agent and Compass Bank, as Documentation Agent,
as amended, supplemented or otherwise modified from time to time.

"Indenture": the First Mortgage Indenture, dated as of December 23, 2003,
between the Company and the Trustee, as amended or supplemented from time to
time.

"Investment Property": the collective reference to (i) all "investment property"
as such term is defined in Section 9-102(a)(49) of the New York UCC as in effect
in the State of New York on the date hereof and (ii) whether or not constituting
"investment property" as so defined, all Pledged Bonds.

"New York UCC": the Uniform Commercial Code as from time to time in effect in
the State of New York.

"Obligations": shall mean and include all of the following:

                  (1)      the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations, liabilities
and indebtedness (including, without limitation, principal, premium, interest
(including, without limitation, all interest that accrues after the commencement
of any case, proceeding or other action relating to the bankruptcy, insolvency,
reorganization or similar proceeding of any Credit Party at the rate provided
for in the respective documentation, whether or not a claim for post-petition
interest is allowed in any such proceeding), reimbursement obligations under
Letters of Credit, fees, costs and indemnities) of each Credit Party to the
Secured Parties, whether now existing or hereafter incurred under, arising out
of, or in connection with, the Credit Agreement and the other Credit Documents
(including, in the case of each Credit Party that is a Guarantor, all such
obligations, liabilities and indebtedness of such Credit Party under the
Guaranty) and the due performance and compliance by each Credit Party with all
of the terms, conditions and agreements contained in the Credit Agreement and in
such other Credit Documents;

                  (2)      any and all sums advanced by the Collateral Agent in
order to preserve the Collateral or preserve its security interest in the
Collateral;

                                      -6-



                  (3)      in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of any Credit Party
referred to in clause (1), after an Event of Default shall have occurred and be
continuing, the reasonable expenses of retaking, holding, preparing for sale or
lease, selling or otherwise disposing of or realizing on the Collateral, or of
any exercise by the Collateral Agent of its rights hereunder, together with
reasonable attorneys' fees and court costs;

                  (4)      all amounts paid by any Agent or Lender as to which
such Agent or Lender has the right to reimbursement under the relevant Sections
described in Section 13.13 of the Credit Agreement; and

                  (5)      all amounts owing to the Administrative Agent
pursuant to any of the Credit Documents in its capacity as such;

it being acknowledged and agreed that the "Obligations" shall include extensions
of credit of the types described above, whether outstanding on the date of this
Agreement or extended from time to time after the date of this Agreement.

"Pledged Bonds": shall mean the First Mortgage Indenture Bonds Series A,
initially authenticated and delivered in the aggregate principal amount of
Seventy-five Million Dollars ($75,000,000), established in the First
Supplemental Indenture, dated as of December 23, 2003, between the Company and
the Trustee.

"Primary Obligations" shall have the meaning provided in Section 6(c) of this
Agreement.

"Pro Rata Share" shall have the meaning provided in Section 6(c) of this
Agreement.

"Proceeds": all "proceeds" as such term is defined in Section 9-102(a)(64) of
the New York UCC in effect in the State of New York on the date hereof and, in
any event, including, without limitation, principal, interest and other income
from the Pledged Bonds and all collections thereon and any money or property
realized or collected in connection with any collateral security or guarantee
with respect to the Pledged Bonds.

"Secondary Obligations" shall have the meaning provided in Section 6(c) of this
Agreement.

"Secured Party": each Lender under the Credit Agreement, the Issuing Lenders,
the Collateral Agent and each other Agent.

"Securities Act": the Securities Act of 1933, as amended.

"Termination Date": shall have the meaning provided in Section 21 of this
Agreement.

"Trustee": JPMorgan Chase Bank, in its capacity as Trustee under the Indenture.

                  (c)      The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any

                                      -7-



particular provision of this Agreement, and section and paragraph references are
to this Agreement unless otherwise specified.

                  (d)      The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

                  2.       Delivery and Pledge. (a) The Company hereby delivers,
transfers, assigns, pledges and issues to the Collateral Agent, for the ratable
benefit of the Secured Parties, the Pledged Bonds, and hereby grants to the
Collateral Agent, for the ratable benefit of the Secured Parties, a first
priority security interest in the Collateral, in each case as collateral
security for the prompt and complete payment and performance by the Company when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations. The Company hereby agrees that (i) subject to the terms hereof, the
Collateral Agent is, and will have all the rights and interests of a holder and
registered owner of each Pledged Bond, and all rights and interests under and in
the Collateral, and (ii) the Collateral Agent may exercise such rights and any
other rights set forth herein or under applicable law, and realize on such
interests, in each case for the ratable benefit of the Secured Parties, to
satisfy, in whole or in part, the Obligations, in accordance with, and subject
to, the terms hereof and the terms of the Credit Agreement.

                  (b)      The Company shall cause the physical delivery of the
Pledged Bonds in certificated form to the Collateral Agent, registered in its
name as Collateral Agent.

                  3.       Restrictions on Transfer of Pledged Bonds; Voting of
Pledged Bonds. (a) unless an Event of Default shall have occurred and be
continuing, the Collateral Agent shall not sell, assign or transfer the Pledged
Bonds.

                  (b)      Unless an Event of Default shall have occurred or
unless otherwise instructed by the Required Lenders, where consent of holders of
Bonds of the Company is sought, the Collateral Agent shall vote, or shall
consent with respect thereto, as follows: (i) the Collateral Agent shall vote
all Pledged Bonds then held by it, or consent with respect thereto, in favor of
any or all amendments or modifications of the Indenture which the Company has
requested in connection with the supplemental indentures thereto for the
issuance of additional Bonds to the extent permitted under the Credit Agreement;
and (ii) with respect to any other amendments or modifications of the Indenture,
the Collateral Agent shall vote all Pledged Bonds then held by it, or consent
with respect thereto, in accordance with the written direction of the Required
Lenders. Notwithstanding the foregoing, if an Event of Default shall have
occurred and be continuing, the Collateral Agent may vote the Pledged Bonds as
contemplated by Section 6 of this Agreement.

                  4.       Representations and Warranties. The Company
represents and warrants that:

                  (a)      The Pledged Bonds in certificated form delivered to
         the Collateral Agent and registered in its name as Collateral Agent
         represents all of the Bonds authenticated and delivered on the date
         hereof.

                                      -8-



                  (b)      Each of the Pledged Bonds constitutes the legal,
         valid and binding obligation of the Company, enforceable in accordance
         with its terms, subject to the effects of bankruptcy, insolvency,
         fraudulent conveyance, reorganization, moratorium and other similar
         laws relating to or affecting creditors' rights generally, general
         equitable principles (whether considered in a proceeding in equity or
         at law) and an implied covenant of good faith and fair dealing.

                  (c)      Upon delivery in certificated form to the Collateral
         Agent of the Pledged Bonds, (i) subject to Section 3(b) hereof, the
         Collateral Agent shall be entitled to all voting, consensual and other
         rights accruing to the holders of Bonds under the Indenture, and (ii)
         the security interest created pursuant to this Agreement will
         constitute a valid, perfected first priority security interest in the
         Collateral, enforceable in accordance with its terms against all
         creditors of the Company and any persons purporting to purchase any
         Collateral from the Company, subject to the effects of bankruptcy,
         insolvency, fraudulent conveyance, reorganization, moratorium and other
         similar laws relating to or affecting creditors' rights generally,
         general equitable principles (whether considered in a proceeding in
         equity or at law) and an implied covenant of good faith and fair
         dealing.

                  (d)      There exists no default under any Pledged Bond.

                  5.       Covenants. The Company covenants and agrees with the
Collateral Agent, for the benefit of the Secured Parties, that, from and after
the date of this Agreement until this Agreement is terminated and the security
interests created hereby are released:

                  (a)      The Company shall (i) not take or omit to take any
         action, the taking or the omission of which would result in an
         alteration or impairment of the security interest created by this
         Agreement, it being understood that the foregoing is not intended to
         restrict any supplement to the Indenture that is effected from time to
         time in accordance with the terms thereof to the extent permitted by
         the Credit Agreement and (ii) defend such security interest against
         claims and demands of all persons whomsoever. At any time and from time
         to time, upon the written request of the Collateral Agent and at the
         sole expense of the Company, the Company shall promptly and duly
         execute and deliver, and have recorded, such further instruments and
         documents and take such further actions as the Collateral Agent
         reasonably may request for the purposes of obtaining or preserving the
         full benefits of this Agreement and of the rights and powers herein
         granted, including, without limitation, in the case of any relevant
         Collateral, taking any actions necessary to enable the Collateral Agent
         to obtain "control" (within the meaning of the New York UCC) with
         respect thereto.

                  (b)      The Company shall not enter into any agreement
         amending or supplementing the Collateral except in accordance with, and
         subject to the terms of, the Indenture and to the extent permitted by
         the Credit Agreement.

                  (c)      The Company shall pay, and save the Collateral Agent
         and the Secured Parties harmless from, any and all liabilities with
         respect to, or resulting from any delay in paying, any and all stamp,
         excise, sales or other taxes and any and all recording and

                                      -9-



         filing fees which may be payable or determined to be payable with
         respect to any of the Collateral or in connection with any of the
         transactions contemplated by this Agreement.

                  (d)      Any sums paid upon or in respect of the Pledged Bonds
         upon the liquidation or dissolution of the Company shall be paid over
         to the Collateral Agent to be held by it or applied hereunder, for the
         ratable benefit of the Secured Parties, as additional collateral
         security for the Obligations, and in case any distribution of capital
         shall be made on or in respect of the Pledged Bonds or any property
         shall be distributed upon or with respect to the Pledged Bonds pursuant
         to the recapitalization or reclassification of the capital of the
         Company or pursuant to the reorganization thereof, the property so
         distributed shall, unless otherwise subject to a perfected security
         interest in favor of the Collateral Agent, be delivered to the
         Collateral Agent to be held or applied hereunder, for the ratable
         benefit of the Secured Parties, as additional collateral security for
         the Obligations. If any sums of money or property so paid or
         distributed in respect of the Pledged Bonds shall be received by the
         Company, the Company shall, until such money or property is paid or
         delivered to the Collateral Agent, hold such money or property in trust
         for the Collateral Agent and the Secured Parties, segregated from other
         funds of the Company, as additional collateral security for the
         Obligations.

                  (e)      The Company shall not (i) create, incur or permit to
         exist any Lien or option in favor of, or any claim of any person with
         respect to, any of the Pledged Bonds, or any interest therein, except
         for the security interests created by this Agreement or by the
         Indenture or (ii) enter into any agreement or undertaking restricting
         the right or ability of the Company or the Collateral Agent to sell,
         assign, transfer or apply to the Obligations any of the Collateral.

                  6.       Remedies; Application of Proceeds. (a) If an Event of
Default shall have occurred and be continuing, the rights and remedies of the
Collateral Agent with respect to the Company and the Collateral shall include
(without limitation of the other rights and remedies available to the Collateral
Agent or any Secured Party under the Credit Agreement, the Indenture, each other
Credit Document or otherwise available to it under applicable law) (i) the right
to collect all amounts payable under the Pledged Bonds or any other Collateral
for the benefit of the Secured Parties and hold it for their benefit or apply it
to the Obligations, (ii) the right to attend or be represented by proxy at any
meeting of bondholders under the Indenture without regard to Section 3(b)
hereof, (iii) the right to vote the Pledged Bonds in accordance with the terms
of the Indenture without regard to Section 3(b) hereof, (iv) the right to issue
consents and waivers with respect to the Pledged Bonds without regard to Section
3(b) hereof, (v) the right to issue any and all instructions and requests for
action to the Trustee that are permitted to a bondholder under the Indenture
without regard to Section 3(b) hereof, and (vi) the right to exercise all other
rights and remedies of a registered "holder" of a Pledged Bond under the
Indenture without regard to Section 3(b) hereof.

                  (b)      Application of Proceeds by the Collateral Agent
hereunder, or any other application by the Collateral Agent of sums or property
hereunder to be made to, or for the benefit of, the Secured Parties shall be as
follows:

                                      -10-



                  (i)      first, to the payment of all amounts owing to the
Collateral Agent of the type described in clauses (2), (3) and (4) of the
definition of "Obligations";

                  (ii)     second, to the extent proceeds remain after the
application pursuant to the preceding clause (i), to the payment of all amounts
owing to the Administrative Agent of the type described in clauses (4) and (5)
of the definition of "Obligations";

                  (iii)    third, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) and (ii), an amount equal to
the outstanding Primary Obligations shall be paid to the Secured Parties as
provided in Section 6(f) hereof, with each Secured Party receiving an amount
equal to its outstanding Primary Obligations or, if the proceeds are
insufficient to pay in full all such Primary Obligations, its Pro Rata Share of
the amount remaining to be distributed;

                  (iv)     fourth, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) through (iii), inclusive, an
amount equal to the outstanding Secondary Obligations shall be paid to the
Secured Parties as provided in Section 6(f) hereof, with each Secured Party
receiving an amount equal to its outstanding Secondary Obligations or, if the
proceeds are insufficient to pay in full all such Secondary Obligations, its Pro
Rata Share of the amount remaining to be distributed; and

                  (v)      fifth, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) through (iv), inclusive, and
following the termination of this Agreement pursuant to Section 21 hereof, to
the Company or to whomever may be lawfully entitled to receive such surplus.

                  (c)      For purposes of this Agreement (x) "Pro Rata Share"
shall mean, when calculating a Secured Party's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Party's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean all
principal of, premium and interest on, all Loans, all Unpaid Drawings, the
Stated Amount on all outstanding Letters of Credit and all Fees and (z)
"Secondary Obligations" shall mean all Obligations other than Primary
Obligations.

                  (d)      When payments to the Secured Parties are based upon
their respective Pro Rata Shares, the amounts received by such Secured Parties
hereunder shall be applied (for purposes of making determinations under this
Section 6 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Party of its Pro Rata
Share of any distribution would result in overpayment to such Secured Party,
such excess amount shall instead be distributed in respect of the unpaid Primary
Obligations or Secondary Obligations, as the case may be, of the other Secured
Parties, with each Secured Party whose Primary Obligations or Secondary
Obligations, as the case may be, have not been paid in full to receive an amount
equal to such excess amount multiplied by a fraction the numerator of which is
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
such Secured Party and the denominator of which is the unpaid Primary
Obligations or Secondary Obligations, as the case may be, of all Secured Parties
entitled to such distribution.

                                      -11-



                  (e)      Each of the Secured Parties, by their acceptance of
the benefits hereof, agrees and acknowledges that if the Secured Parties are to
receive a distribution on account of undrawn amounts with respect to Letters of
Credit issued under the Credit Agreement (which shall only occur after all
outstanding Loans and Unpaid Drawings with respect to such Letters of Credit
have been paid in full), such amounts shall be paid to the Administrative Agent
under the Credit Agreement and held by it, for the equal and ratable benefit of
the Secured Parties, as cash security for the repayment of Obligations owing to
the Secured Parties as such. If any amounts are held as cash security pursuant
to the immediately preceding sentence, then upon the termination of all
outstanding Letters of Credit, and after the application of all such cash
security to the repayment of all Obligations owing to the Secured Parties after
giving effect to the termination of all such Letters of Credit, if there remains
any excess cash, such excess cash shall be returned by the Administrative Agent
to the Collateral Agent for distribution in accordance with Section 6(b) hereof.

                  (f)      All payments required to be made hereunder shall be
made to the Administrative Agent under the Credit Agreement for the account of
the Secured Parties.

                  (g)      For purposes of applying payments received in
accordance with this Section 6, the Collateral Agent shall be entitled to rely
upon the Administrative Agent under the Credit Agreement or, in the absence
thereof, upon the Required Lenders for a determination of the outstanding
Primary Obligations and Secondary Obligations owed to the Secured Parties.
Unless the Collateral Agent has received written notice from a Secured Party to
the contrary, the Administrative Agent, in furnishing information pursuant to
the preceding sentence, the Collateral Agent, in acting hereunder, shall be
entitled to assume that no Secondary Obligations are outstanding.

                  (h)      It is understood that the Company and the Guarantors
shall remain liable to the extent of any deficiency between the amount of the
proceeds of the Collateral and the aggregate amount of the Obligations.

                  (i)      If an Event of Default shall have occurred and be
continuing, the Collateral Agent, on behalf of the Secured Parties, may
exercise, in addition to all other rights and remedies granted in this Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC.
Without limiting the generality of the foregoing, the Collateral Agent, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Company or any other person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of the
Collateral Agent or Secured Party or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Collateral Agent or any Secured Party shall have the right upon any such public
sale or sales, and, to the extent permitted

                                      -12-



by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Company, which right or equity is hereby waived or released. The Collateral
Agent shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, as set forth in Section 6(b) hereof, and
only after such application and after the payment by the Collateral Agent of any
other amount required by any provision of law, including, without limitation,
Section 9-615(a)(3) of the New York UCC, need the Collateral Agent account for
the surplus, if any, to the Company. To the extent permitted by applicable law,
the Company waives all claims, damages and demands it may acquire against the
Collateral Agent or any Secured Party arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given in writing at least 10 days before such sale or other
disposition.

                  (i)      (i) The Company recognizes that the Collateral Agent
may be unable to effect a public sale of any or all the Pledged Bonds, by reason
of certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. The
Company acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Collateral
Agent shall be under no obligation to delay a sale of any of the Pledged Bonds
for the period of time necessary to permit the Company to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Company would agree to do so.

                  (ii)     The Company agrees to use its reasonable efforts to
do or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Bonds pursuant to this Section
6(j) valid and binding and in compliance with any and all other applicable
requirements of law.

                  7.       Collateral Agent's Appointment as Attorney-in-Fact.
At any time after the occurrence and during the continuance of an Event of
Default, the Company hereby irrevocably constitutes and appoints the Collateral
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Company and in the name of the Company or in its own
name, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement. All powers, authorizations and agencies contained in this Agreement
are coupled with an interest and are irrevocable until this Agreement is
terminated and the security interests created hereby are released.

                  8.       Duty of Collateral Agent. The Collateral Agent's sole
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as

                                      -13-



the Collateral Agent deals with its securities and property for its own
accounts. None of the Collateral Agent, any Lender nor any of their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Company or any other person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Collateral Agent hereunder are solely to protect the Secured
Parties' interests in the Collateral and shall not impose any duty upon the
Collateral Agent to exercise any such powers. The Collateral Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Company for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.

                  9.       Authority of Collateral Agent. The Company
acknowledges that the rights and responsibilities of the Collateral Agent under
this Agreement with respect to any action taken by it or the exercise or
non-exercise by it of any option, voting right, request, judgment or other right
or remedy provided for herein or resulting or arising out of this Agreement
shall, as between the Collateral Agent and the Secured Parties, be governed by
the Credit Agreement and by such other agreements with respect thereto as may
exist from time to time among them, but, as between the Collateral Agent and the
Company, the Collateral Agent shall be conclusively presumed to be acting as an
agent for the Lenders with full and valid authority so to act or refrain from
acting, and the Company shall not be under any obligation, or entitlement, to
make any inquiry respecting such authority.

                  10.      Execution of Financing Statements. Pursuant to any
applicable law, the Company authorizes the Collateral Agent to file or record
financing statements and other filing or recording documents or instruments with
respect to the Collateral without the signature of the Company in such form and
in such offices as the Collateral Agent reasonably determines appropriate to
perfect the security interests of the Collateral Agent under this Agreement. A
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement or other filing or recording document or instrument for
filing or recording for filing in any jurisdiction.

                  11.      Notices. All notices, requests and demands to or upon
the Company or the Collateral Agent to be effective shall be in writing (or by
telex, fax or similar electronic transfer confirmed in writing) and shall be
deemed to have been duly given or made (i) when delivered by hand or (ii) if
given by mail, when deposited in the mails by certified mail, return receipt
requested, or (iii) if by telex, fax or similar electronic transfer, when sent
and receipt has been confirmed, addressed to the Company or the Collateral Agent
at the following:

                  (x)      if to the Company: c/o Texas Genco GP, LLC, 1111
         Louisiana, Houston, Texas 77002, Attention of Linda Geiger, Assistant
         Treasurer (Telecopy No. 713-207-3301), copy to Marc Kilbride, Treasurer
         (Telecopy No. 713 207-3301); and

                  (y)      if to the Collateral Agent: Deutsche Bank AG New York
         Branch, 90 Hudson Street, First Floor, Jersey City, NJ 07302,
         Attention: Peter Medina.

                                      -14-



                  12.      Return of Documents; Cooperation. Upon the payment in
full of all Obligations and termination of this Agreement, the Collateral Agent
shall (a) surrender the Pledged Bonds to the Trustee and (b) return to the
Company all other Collateral previously delivered to the Collateral Agent and
then held by it, in each case without recourse, representation or warranty, and
execute and deliver to the Trustee or the Company, as the case may be, such
documents of assignment as are reasonably necessary to terminate the Collateral
Agent's security interest in the Collateral interest hereunder.

                  13.      Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

                  14.      Amendments. (a) Except as set forth in clause (b)
below, none of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Company and the Collateral Agent (as instructed by the Required Lenders
pursuant to the terms of the Credit Agreement).

                  (b)      The Collateral Agent is authorized (but is under no
obligation) to enter into amendments and modifications of a technical nature
that do not materially impair the rights of the Secured Parties hereunder taken
as a whole.

                  15.      No Waiver; Cumulative Remedies. (a) None of the
Secured Parties shall by any act (except by a written instrument pursuant to
Section 14(a) hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of any Secured
Party, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by any Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which such Secured Party would otherwise have on any future
occasion.

                  (b)      The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.

                  16.      Headings. The headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

                  17.      Successors and Assigns. This Agreement shall be
binding upon the successors and assigns of the Company and shall inure to the
benefit of each of the Secured Parties and its successors and assigns.

                  18.      Governing Law. This Agreement shall be governed by,
and construed and interpreted in accordance with, the law of the State of New
York.

                                      -15-



                  19.      Integration. This Agreement, the Credit Agreement and
the other Credit Documents represent the agreement of the Company and the
Secured Parties with respect to the subject matter hereof and thereof, and there
are no promises, undertakings, representations or warranties by the Secured
Parties relative to subject matter hereof and thereof not expressly set forth or
referred to herein, in the Credit Agreement or in the other Credit Documents.

                  20.      Submission To Jurisdiction; Waivers. The Company
hereby irrevocably and unconditionally:

                  (a)      submits for itself and its property in any legal
         action or proceeding relating to this Agreement and time other Credit
         Documents, or for recognition and enforcement of any judgment in
         respect thereof, to the non-exclusive general jurisdiction of the
         courts of the State of New York, the courts of the United States of
         America for the Southern District of New York, and appellate courts
         from any thereof;

                  (b)      consents that any such action or proceeding may be
         brought in such courts and waives any objection that it may now or
         hereafter have to the venue of any such action or proceeding in any
         such court or that such action or proceeding was brought in an
         inconvenient court and agrees not to plead or claim the same;

                  (c)      agrees that service of process in any such action or
         proceeding may be effected by mailing a copy thereof by registered or
         certified mail (or any substantially similar form of mail), postage
         prepaid, to the Company at its address referred to in Section 11 or at
         such other address of which the Collateral Agent shall have been
         notified pursuant thereto;

                  (d)      agrees that nothing herein shall affect the right to
         effect service of process in any other manner permitted by law or shall
         limit the right to sue in any other jurisdiction; and

                  (e)      waives, to the maximum extent not prohibited by law,
         any right it may have to claim or recover in any legal action or
         proceeding referred to in this Section any special, exemplary, punitive
         or consequential damages.

                  21.      Termination. After the Termination Date, this
Agreement shall terminate and the Collateral Agent, at the request and expense
of the Company, will promptly execute and deliver to the Company a proper
instrument or instruments (including Uniform Commercial Code termination
statements on Form UCC-3) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to the Company (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Collateral Agent and as has not theretofore been
sold or otherwise applied or released pursuant to this Agreement. As used in
this Agreement, "Termination Date" shall mean the date upon which the Total
Commitment has been terminated, no Revolving Note, Loan or Letter of Credit is
outstanding and all other Obligations (other than indemnities described in
Section 13.13 of the Credit Agreement, and any other indemnities set forth in
any other Security Document, in each case which are not then due and payable)
have been paid in full in cash.

                                      -16-



IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.

                                 TEXAS GENCO, LP

                                 By:  TEXAS GENCO GP, LLC, its General Partner
                                 By:____________________________________________
                                    Name:
                                    Title:



                                 DEUTSCHE BANK AG NEW YORK BRANCH, as
                                     Collateral Agent

                                 By:___________________________________________
                                    Name:______________________________________
                                    Title:_____________________________________



                  FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT(1)

This Assignment and Assumption Agreement (this "Assignment"), is dated as of the
Effective Date set forth below and is entered into by and between [the][each]
Assignor identified in item [1][2] below ([the] [each, an] "Assignor") and [the]
[each] Assignee identified in item 2 below ([the] [each, an] "Assignee"). [It is
understood and agreed that the rights and obligations of such [Assignees][and
Assignors] hereunder are several and not joint.] Capitalized terms used herein
but not defined herein shall have the meanings given to them in the Credit
Agreement identified below (as amended, restated, supplemented and/or otherwise
modified from time to time, the "Credit Agreement"). The Standard Terms and
Conditions for Assignment and Assumption Agreement set forth in Annex 1 hereto
(the "Standard Terms and Conditions") are hereby agreed to and incorporated
herein by reference and made a part of this Assignment as if set forth herein in
full.

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and
assigns to [the] [each] Assignee, and [the] [each] Assignee hereby irrevocably
purchases and assumes from [the][each] Assignor, subject to and in accordance
with the Standard Terms and Conditions and the Credit Agreement, as of the
Effective Date inserted by the Administrative Agent as contemplated below, the
interest in and to all of [the][each] Assignor's rights and obligations under
the Credit Agreement and any other document or instrument delivered pursuant
thereto that represents the amount and percentage interest identified below of
all of the [respective] Assignor's outstanding rights and obligations under the
respective facilities identified below (including, to the extent included in any
such facilities, Letters of Credit) ([the] [each, an] "Assigned Interest").
[Each] [Such] sale and assignment is without recourse to [the][any] Assignor
and, except as expressly provided in this Assignment, without representation or
warranty by [the][any] Assignor.

[1. Assignor:              ___________________________________

2.  Assignee:              ___________________________________](2)


[1][3]. Credit Agreement:  Credit Agreement, dated as of December 23, 2003,
                           among Texas Genco Holdings, Inc. ("Parent"), Texas
                           Genco GP, LLC, Texas Genco LP, LLC, Texas Genco
                           Services, LP, Texas Genco, LP (the "Borrower"), the
                           lenders from time to time party thereto, Deutsche
                           Bank AG New York Branch, as Administrative Agent and
                           Collateral Agent, Compass Bank, as Documentation
                           Agent, and [Deutsche Bank Securities Inc., as Lead
                           Arranger and Bookrunner].

- -------------------
(1)      This Form of Assignment and Assumption Agreement should be used by
         Lenders for an assignment to a single Assignee or to funds managed by
         the same or related investment managers.

(2)      If the form is used for a single Assignor and Assignee, items 1 and 2
         should list the Assignor and the Assignee, respectively. In the case of
         an assignment to funds managed by the same or related investment
         managers, or an assignment by multiple Assignors, the Assignors and the
         Assignee(s) should be listed in the table under bracketed item 2 below.



[2.  Assigned Interest:(3)



                                    Aggregate Amount of
                                 Commitment/Loans for all            Amount of           Percentage of Assigned
 Assignor         Assignee                Lenders            Commitment/Loans Assigned      Commitment/Loans(4)
- ---------         ---------      ------------------------    -------------------------   ----------------------
                                                                             
 [Name of         [Name of
Assignor]         Assignee]              ----------                  ----------                 ----------%

[Name of          [Name of
Assignor]         Assignee]              ----------                  ----------                 ----------%]


- ------------------

(3)      Insert this chart if this Form of Assignment and Assumption Agreement
         is being used for assignments to funds managed by the same or related
         investment managers or for an assignment by multiple Assignors. Insert
         additional rows as needed.

(4)      Set forth, to at least 9 decimals, as a percentage of the
         Commitment/Loans of all Lenders.



[4. Assigned Interest:(5)



       Aggregate Amount of              Amount of Commitment/Loans       Percentage of Assigned
Commitment/Loans for all Lenders                Assigned                   Commitment/Loans (6)
- --------------------------------        --------------------------       ----------------------
                                                                   

      $--------------                         $--------------                %--------------


Effective Date ___________, ____, 200__.


ASSIGNOR[S] INFORMATION                 ASSIGNEE[S] INFORMATION
                                  
Payment Instructions:  _______________    Payment Instructions: __________________

                       ---------------                          ------------------

                       ---------------                          ------------------

                       ---------------                          ------------------

                       Reference:_____                          Reference:_________

Notice Instructions:   _______________  Notice Instructions:    __________________

                       ---------------                          ------------------

                       ---------------                          ------------------

                       ---------------                          ------------------

                       Reference:______                         Reference:_________


The terms set forth in this Assignment are hereby agreed to:

ASSIGNOR                                  ASSIGNEE
[NAME OF ASSIGNOR]                        [NAME OF ASSIGNEE](7)

By:_______________________________        By:__________________________________
   Name:                                     Name:
   Title:                                    Title:

- ----------------

(5)      Insert this chart if this Form of Assignment and Assumption Agreement
         is being used by a single Assignor for an assignment to a single
         Assignee.

(6)      Set forth, to at least 9 decimals, as a percentage of the
         Commitment/Loans of all Lenders thereunder.

(7)      Add additional signature blocks, as needed, if this Form of Assignment
         and Assumption Agreement is being used by funds managed by the same or
         related investment managers.



[Consented to and](8) Accepted:

DEUTSCHE BANK AG NEW YORK BRANCH,
     as Administrative Agent

By:____________________________
    Name:
    Title:

TEXAS GENCO, LP

By:  TEXAS GENCO GP, LLC,
    its General Partner

By:____________________________
    Name:
    Title:](9)

[[NAME OF EACH ISSUING LENDER],
    as Issuing Lender

By:____________________________
    Name:
    Title:](10)

- -----------------

(8)      Insert only if assignment is being made to an Eligible Transferee
         pursuant to Section 13.04(b)(y) of the Credit Agreement. Consent of the
         Administrative Agent shall not be unreasonably withheld or delayed.

(9)      Insert only if (i) no Event of Default or Default of the Credit
         Agreement is then in existence and, (ii) the assignment is being made
         to an Eligible Transferee pursuant to 13.04(b)(y) of the Credit
         Agreement. Consent of the Borrower shall not be unreasonably withheld
         or delayed.

(10)     Insert for any assignment of a Commitment pursuant to clause (x) or (y)
         of Section 13.04(b) of the Credit Agreement.



                                TEXAS GENCO, LP

                                CREDIT AGREEMENT

                  STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT
                            AND ASSUMPTION AGREEMENT

1.       Representations and Warranties.

1.1.     Assignor. [The] [Each] Assignor (a) represents and warrants that (i) it
is the legal and beneficial owner of [the] [its] Assigned Interest, (ii) [the]
[its] Assigned Interest is free and clear of any lien, encumbrance or other
adverse claim and (iii) it has full power and authority, and has taken all
action necessary, to execute and deliver this Assignment and to consummate the
transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements, warranties or representations made in or in connection
with any Credit Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement, any
other Credit Document or any other instrument or document delivered pursuant
thereto (other than this Assignment) or any collateral thereunder, (iii) the
financial condition of the Parent, any of its Subsidiaries or affiliates or any
other Person obligated in respect of any Credit Document or (iv) the performance
or observance by the Parent, any of its Subsidiaries or affiliates or any other
Person of any of their respective obligations under any Credit Document.

1.2.     Assignee. [The] [Each] Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and to consummate the transactions contemplated hereby
and to become a Lender under the Credit Agreement, (ii) confirms that it is (A)
a Lender, (B) a parent company and/or an affiliate of [the][each] Assignor which
is at least 50% owned by [the][each] Assignor or its parent company, (C) a fund
that invests in bank loans and is managed by the same investment advisor as a
Lender, by an affiliate of such investment advisor or by a Lender or (D) an
Eligible Transferee under Section 13.04(b) of the Credit Agreement; (iii) from
and after the Effective Date, it shall be bound by the provisions of the Credit
Agreement and, to the extent of [the][its] Assigned Interest, shall have the
obligations of a Lender thereunder, (iv) it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 8.01 thereof, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and to purchase [the][its]
Assigned Interest on the basis of which it has made such analysis and decision
and (v) if it is organized under the laws of a jurisdiction outside the United
States, it has attached to this Assignment any tax documentation required to be
delivered by it pursuant to the terms of the Credit Agreement, duly completed
and executed by it; (b) agrees that it will, independently and without reliance
upon the Administrative Agent, [the][each] Assignor, or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (c) appoints and authorizes each of the
Administrative Agent, the Documentation Agent and the Collateral Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement and the other Credit Documents as are delegated to or otherwise
conferred upon the Administrative Agent, the Documentation Agent or the
Collateral



Agent, as the case may be, by the terms thereof, together with such powers as
are reasonably incidental thereto; and (d) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Documents are required to be performed by it as a Lender.

2.       Payment. From and after the Effective Date, the Administrative Agent
shall make all payments in respect [the] [each] Assigned Interest (including
payments of principal, interest, fees, commissions and other amounts) to
[the][each] Assignor for amounts which have accrued to but excluding the
Effective Date and to [the] [each] Assignee for amounts which have accrued from
and after the Effective Date.

3.       Effect of Assignment. Upon the delivery of a fully executed original
hereof to the Administrative Agent, as of the Effective Date, (i) [the][each]
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment, have the rights and obligations of a Lender thereunder and
under the other Credit Documents and (ii) [the][each] Assignor shall, to the
extent provided in this Assignment, relinquish its rights and be released from
its obligations under the Credit Agreement and the other Credit Documents.

4.       General Provisions. This Assignment shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
This Assignment may be executed in any number of counterparts, which together
shall constitute one instrument. Delivery of an executed counterpart of a
signature page of this Assignment by telecopy shall be effective as delivery of
a manually executed counterpart of the Assignment. THIS ASSIGNMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.

                                      * * *

                                      -8-


                                                               EXHIBIT 10(pp)(2)

                   This Instrument Grants a Security Interest
                                  by a Utility

================================================================================

                                 TEXAS GENCO, LP

                                       To

                               JPMORGAN CHASE BANK

                                     Trustee

                                 ---------------

                            First Mortgage Indenture

                          Dated as of December 23, 2003

================================================================================

           This Instrument Contains After-Acquired Property Provisions



                 CERTAIN SECTIONS OF THIS INDENTURE RELATING TO
                            SECTIONS 310 THROUGH 318,
                 INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:



TRUST INDENTURE
  ACT SECTION                                                                   INDENTURE SECTION(S)
                                                                             
Section 310(a)(1)........................................................            1009
        (a)(2)...........................................................            1009
        (a)(3)...........................................................            1014(3)
        (a)(4)...........................................................            Not Applicable
        (b)..............................................................            1008, 1010
Section 311(a)...........................................................            1013
        (b)..............................................................            1013
        (c)..............................................................            Not Applicable
Section 312(a)...........................................................            1101, 1102
        (b)..............................................................            1102
        (c)..............................................................            1102
Section 313(a)...........................................................            1103
         (b).............................................................            1103
         (c).............................................................            1103
         (d).............................................................            1103
Section 314(a)...........................................................            610, 1102
        (b)..............................................................            608
        (c)(1)...........................................................            105
        (c)(2)...........................................................            105
        (c)(3)...........................................................            106
        (d)..............................................................            402, 607(2), 703,
                                                                                     704, 709
        (e)..............................................................            105
Section 315(a)...........................................................            1001, 1003
        (b)..............................................................            1002
        (c)..............................................................            1001
        (d)..............................................................            1001
        (e)..............................................................            918
Section 316(a)...........................................................            916, 917
        (a)(1)(A)........................................................            916
        (a)(1)(B)........................................................            917
        (a)(2)...........................................................            Not Applicable
        (b)..............................................................            912
        (c)..............................................................            107
Section 317(a)(1)........................................................            906
        (a)(2)...........................................................            909
        (b)..............................................................            603
Section 318(a)...........................................................            110


- ----------

      NOTE: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.



                                TABLE OF CONTENTS



                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.....................................       5

SECTION 101.  General Definitions........................................................................       5
"Accountant".............................................................................................       6
"Act"....................................................................................................       6
"Adjusted Net Earnings"..................................................................................       6
"Affiliate"..............................................................................................       6
"Annual Interest Requirements"...........................................................................       7
"Authenticating Agent"...................................................................................       7
"Authorized Officer".....................................................................................       7
"Authorized Publication".................................................................................       7
"Authorized Purposes"....................................................................................       7
"Business Day"...........................................................................................       7
"Commission".............................................................................................       7
"Company"................................................................................................       7
"Company Request"........................................................................................       8
"Corporate Trust Office".................................................................................       8
"Corporation"............................................................................................       8
"Cost"...................................................................................................       8
"Defaulted Interest".....................................................................................       8
"Dollar".................................................................................................       8
"Eligible Obligations"...................................................................................       8
"Event of Default".......................................................................................       8
"Excepted Property"......................................................................................       8
"Exchange Act"...........................................................................................       8
"Exchange Rate"..........................................................................................       8
"Expert".................................................................................................       8
"Expert's Certificate"...................................................................................       8
"Expiration Date"........................................................................................       9
"Fair Value".............................................................................................       9
"Funded Cash"............................................................................................       9
"Funded Property"........................................................................................       9
"General Partner"........................................................................................       9
"General Partner Resolution".............................................................................       9
"Governmental Authority".................................................................................       9
"Government Obligations".................................................................................       9
"Holder".................................................................................................      10
"Indenture"..............................................................................................      10
"Independent"............................................................................................      10



                                        i


                         TABLE OF CONTENTS - CONTINUED -


                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
"Independent Expert's Certificate".......................................................................      10
"Initial Expert's Certificate"...........................................................................      10
"Initial Series".........................................................................................      10
"Interest"...............................................................................................      11
"Interest Payment Date"..................................................................................      11
"Investment Securities"..................................................................................      11
"Lien"...................................................................................................      12
"Maturity"...............................................................................................      12
"Maximum Interest Rate"..................................................................................      12
"Mortgaged Property".....................................................................................      12
"Net Earnings Certificate"...............................................................................      12
"Notice of Default"......................................................................................      12
"Officer's Certificate"..................................................................................      12
"Opinion of Counsel".....................................................................................      12
"Original Issue Discount Security".......................................................................      12
"Outstanding"............................................................................................      12
"Paying Agent"...........................................................................................      13
"Periodic Offering"......................................................................................      13
"Permitted Liens"........................................................................................      13
"Person".................................................................................................      16
"Place of Payment".......................................................................................      16
"Predecessor Security"...................................................................................      16
"Prepaid Lien"...........................................................................................      16
"Property Additions".....................................................................................      16
"Purchase Money Lien"....................................................................................      17
"Redemption Date"........................................................................................      17
"Redemption Price".......................................................................................      17
"Regular Record Date"....................................................................................      17
"Responsible Officer"....................................................................................      17
"Retired Securities".....................................................................................      17
"Securities".............................................................................................      18
"Security Register"......................................................................................      18
"Special Record Date"....................................................................................      18
"Stated Interest Rate"...................................................................................      18
"Stated Maturity"........................................................................................      18
"Successor Corporation"..................................................................................      18
"Tranche"................................................................................................      18
"Transaction Costs"......................................................................................      18
"Trust Indenture Act"....................................................................................      18
"Trustee"................................................................................................      18
"Trustee's Lien".........................................................................................      19
"United States"..........................................................................................      19
SECTION 102.  Funded Property; Funded Cash...............................................................      19
SECTION 103.  Property Additions; Cost...................................................................      20
SECTION 104.  Net Earnings Certificate; Adjusted Net Earnings; Annual Interest Requirements..............      22



                                       ii


                         TABLE OF CONTENTS - CONTINUED -


                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
SECTION 105.  Compliance Certificates and Opinions.......................................................      24
SECTION 106.  Content and Form of Documents Delivered to Trustee.........................................      25
SECTION 107.  Acts of Holders; Record Dates..............................................................      26
SECTION 108.  Notices, Etc., to Trustee and Company......................................................      29
SECTION 109.  Notice to Holders; Waiver..................................................................      29
SECTION 110.  Conflict with Trust Indenture Act..........................................................      29
SECTION 111.  Effect of Headings and Table of Contents...................................................      29
SECTION 112.  Successors and Assigns.....................................................................      30
SECTION 113.  Separability Clause........................................................................      30
SECTION 114.  Benefits of Indenture......................................................................      30
SECTION 115.  Governing Law..............................................................................      30
SECTION 116.  Legal Holidays.............................................................................      30
SECTION 117.  Investment of Cash Held by Trustee.........................................................      30

ARTICLE TWO. SECURITY FORMS..............................................................................      31

SECTION 201.  Forms Generally............................................................................      31
SECTION 202.  Form of Trustee's Certificate of Authentication............................................      32

ARTICLE THREE. THE SECURITIES............................................................................      32

SECTION 301.  Amount Unlimited; Issuable in Series.......................................................      32
SECTION 302.  Denominations..............................................................................      35
SECTION 303.  Execution, Authentication, Delivery and Dating.............................................      36
SECTION 304.  Temporary Securities.......................................................................      36
SECTION 305.  Registration, Registration of Transfer and Exchange........................................      37
SECTION 306.  Mutilated, Destroyed, Lost and Stolen Securities...........................................      38
SECTION 307.  Payment of Interest; Interest Rights Preserved.............................................      39
SECTION 308.  Persons Deemed Owners......................................................................      40
SECTION 309.  Cancellation...............................................................................      40
SECTION 310.  Computation of Interest; Usury Not Intended................................................      41
SECTION 311.  CUSIP Numbers..............................................................................      41

ARTICLE FOUR. ISSUANCE OF SECURITIES.....................................................................      42

SECTION 401.  General....................................................................................      42
SECTION 402.  Issuance of Securities on the Basis of Property Additions..................................      44
SECTION 403.  Issuance of Securities on the Basis of Retired Securities..................................      47
SECTION 404.  Issuance of Securities on the Basis of Deposit of Cash.....................................      47

ARTICLE FIVE. REDEMPTION OF SECURITIES...................................................................      48

SECTION 501.  Applicability of Article...................................................................      48
SECTION 502.  Election to Redeem; Notice to Trustee......................................................      48
SECTION 503.  Selection by Trustee of Securities to Be Redeemed..........................................      49
SECTION 504.  Notice of Redemption.......................................................................      50
SECTION 505.  Deposit of Redemption Price................................................................      51
SECTION 506.  Securities Payable on Redemption Date......................................................      51



                                      iii


                         TABLE OF CONTENTS - CONTINUED -


                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
SECTION 507.  Securities Redeemed in Part................................................................      51

ARTICLE SIX. COVENANTS...................................................................................      52

SECTION 601.  Payment of Securities; Lawful Possession; Maintenance of Lien..............................      52
SECTION 602.  Maintenance of Office or Agency............................................................      52
SECTION 603.  Money for Securities Payments to Be Held in Trust..........................................      53
SECTION 604.  Existence..................................................................................      54
SECTION 605.  Maintenance of Properties..................................................................      54
SECTION 606.  Payment of Taxes; Discharge of Liens.......................................................      54
SECTION 607.  Insurance..................................................................................      55
SECTION 608.  Recording, Filing, etc.....................................................................      58
SECTION 609.  Waiver of Certain Covenants................................................................      59
SECTION 610.  Annual Officer's Certificate as to Compliance..............................................      59

ARTICLE SEVEN. POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY.........................................      60

SECTION 701.  Quiet Enjoyment............................................................................      60
SECTION 702.  Dispositions without Release...............................................................      60
SECTION 703.  Release of Funded Property.................................................................      61
SECTION 704.  Release of Property Not Constituting Funded Property.......................................      66
SECTION 705.  Release of Minor Properties................................................................      67
SECTION 706.  Withdrawal or Other Application of Funded Cash; Purchase Money Obligations.................      68
SECTION 707.  Release of Property Taken by Eminent Domain, etc...........................................      71
SECTION 708.  Disclaimer or Quitclaim....................................................................      71
SECTION 709.  Miscellaneous..............................................................................      72

ARTICLE EIGHT. SATISFACTION AND DISCHARGE................................................................      73

SECTION 801.  Satisfaction and Discharge of Securities...................................................      73
SECTION 802.  Satisfaction and Discharge of Indenture....................................................      76
SECTION 803.  Application of Trust Money.................................................................      77

ARTICLE NINE. EVENTS OF DEFAULT; REMEDIES................................................................      77

SECTION 901.  Events of Default..........................................................................      77
SECTION 902.  Acceleration of Maturity; Rescission and Annulment.........................................      79
SECTION 903.  Entry upon Mortgaged Property..............................................................      80
SECTION 904.  Power of Sale; Suits for Enforcement.......................................................      80
SECTION 905.  Incidents of Sale..........................................................................      82
SECTION 906.  Collection of Indebtedness and Suits for Enforcement by Trustee............................      83
SECTION 907.  Application of Money Collected.............................................................      83
SECTION 908.  Receiver...................................................................................      84
SECTION 909.  Trustee May File Proofs of Claim...........................................................      84
SECTION 910.  Trustee May Enforce Claims Without Possession of Securities................................      85
SECTION 911.  Limitation on Suits........................................................................      85



                                       iv


                         TABLE OF CONTENTS - CONTINUED -


                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
SECTION 912.  Unconditional Right of Holders to Receive Principal, Premium and Interest..................      86
SECTION 913.  Restoration of Rights and Remedies.........................................................      86
SECTION 914.  Rights and Remedies Cumulative.............................................................      86
SECTION 915.  Delay or Omission Not Waiver...............................................................      87
SECTION 916.  Control by Holders.........................................................................      87
SECTION 917.  Waiver of Past Defaults....................................................................      87
SECTION 918.  Undertaking for Costs......................................................................      88
SECTION 919.  Waiver of Appraisement, Usury, Stay and Other Laws.........................................      88

ARTICLE TEN. THE TRUSTEE.................................................................................      88

SECTION 1001. Certain Duties and Responsibilities........................................................      88
SECTION 1002. Notice of Defaults.........................................................................      89
SECTION 1003. Certain Rights of Trustee..................................................................      90
SECTION 1004. Not Responsible for Recitals or Issuance of Securities or Application of Proceeds..........      91
SECTION 1005. May Hold Securities........................................................................      91
SECTION 1006. Money Held in Trust........................................................................      92
SECTION 1007. Compensation and Reimbursement.............................................................      92
SECTION 1008. Conflicting Interests......................................................................      93
SECTION 1009. Corporate Trustee Required; Eligibility....................................................      93
SECTION 1010. Resignation and Removal; Appointment of Successor..........................................      93
SECTION 1011. Acceptance of Appointment by Successor.....................................................      95
SECTION 1012. Merger, Conversion, Consolidation or Succession to Business................................      95
SECTION 1013. Preferential Collection of Claims Against Company..........................................      95
SECTION 1014. Co-trustees and Separate Trustees..........................................................      96
SECTION 1015. Appointment of Authenticating Agent........................................................      97
SECTION 1016. Environmental Matters......................................................................      99

ARTICLE ELEVEN. LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY.........................................     100

SECTION 1101. Company to Furnish Trustee Names and Addresses of Holders..................................     100
SECTION 1102. Preservation of Information; Communications to Holders.....................................     100
SECTION 1103. Reports by Trustee.........................................................................     100
SECTION 1104. Reports by Company.........................................................................     101

ARTICLE TWELVE. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.....................................     101

SECTION 1201. Company May Consolidate, Etc., Only on Certain Terms.......................................     101
SECTION 1202. Successor Corporation Substituted..........................................................     102
SECTION 1203. Extent of Lien Hereof on Property of Successor Corporation.................................     103
SECTION 1204. Release of Company upon Conveyance or Other Transfer.......................................     103
SECTION 1205. Merger into Company; Extent of Lien Hereof.................................................     103

ARTICLE THIRTEEN. SUPPLEMENTAL INDENTURES................................................................     104



                                       v


                         TABLE OF CONTENTS - CONTINUED -


                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
SECTION 1301. Supplemental Indentures Without Consent of Holders.........................................     104
SECTION 1302. Supplemental Indentures With Consent of Holders............................................     105
SECTION 1303. Execution of Supplemental Indentures.......................................................     107
SECTION 1304. Effect of Supplemental Indentures..........................................................     107
SECTION 1305. Conformity with Trust Indenture Act........................................................     107
SECTION 1306. Reference in Securities to Supplemental Indentures.........................................     107
SECTION 1307. Modification Without Supplemental Indenture................................................     107

ARTICLE FOURTEEN. MEETINGS OF HOLDERS; ACTION WITHOUT MEETING............................................     108

SECTION 1401. Purposes for Which Meetings May Be Called..................................................     108
SECTION 1402. Call, Notice and Place of Meetings.........................................................     108
SECTION 1403. Persons Entitled to Vote at Meetings.......................................................     109
SECTION 1404. Quorum; Action.............................................................................     109
SECTION 1405. Attendance at Meetings; Determination of Voting Rights; Conduct and Adjournment of Meetings     110
SECTION 1406. Counting Votes and Recording Action of Meetings............................................     111
SECTION 1407. Action Without Meeting.....................................................................     111

ARTICLE FIFTEEN. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES..............     111

SECTION 1501. Exemption from Individual Liability........................................................     111

Exhibit A Real Property..................................................................................     A-1
Exhibit B Previously Conveyed Property...................................................................     B-1



                                       vi


      FIRST MORTGAGE INDENTURE (herein called this "Indenture"), dated as of
December 23, 2003, between TEXAS GENCO, LP, a Texas limited partnership (herein
called the "Company"), having its principal office at 1111 Louisiana, Houston,
Texas 77002, and JPMORGAN CHASE BANK, a New York state bank having an office at
600 Travis Street, Suite 1150, Houston, Texas 77002, as Trustee (hereinafter
called the "Trustee").

                             RECITALS OF THE COMPANY

      The Company has duly authorized the execution and delivery of this
Indenture, as originally executed and delivered, to provide for the issuance
from time to time of its bonds, notes or other evidences of indebtedness (herein
called the "Securities"), to be issued in one or more series as contemplated
herein, and to provide security for the payment of the principal of and premium,
if any, and interest, if any, on the Securities. All acts necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been performed. For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires, capitalized terms
used herein shall have the meanings assigned to them in Article One of this
Indenture.

                                GRANTING CLAUSES

      NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in consideration of the
premises and of the purchase of the Securities by the Holders thereof, and in
order to secure the payment of the principal of and premium, if any, and
interest, if any, on all Securities from time to time Outstanding and the
performance of the covenants therein and herein contained and to declare the
terms and conditions on which such Securities are secured, the Company hereby
grants, bargains, sells, conveys, assigns, transfers, mortgages, pledges, sets
over and confirms to the Trustee, and grants to the Trustee a security interest
in, the following (subject, however, to the terms and conditions set forth in
this Indenture):

                              GRANTING CLAUSE FIRST

      All right, title and interest of the Company, as of the date of the
execution and delivery of this Indenture, as originally executed and delivered,
in and to all property, real, personal and mixed (other than Excepted Property)
including without limitation all right, title and interest of the Company in and
to the following property so located (other than Excepted Property): (a) all
real property owned in fee, easements and other interests in real property
located in the State of Texas including, without limitation, the real property
interests described in Exhibit A hereto, save and except the real property,
easements and other interests described therein title to which has been conveyed
by the Company to any third party prior to the date hereof, including, without
limitation, the real property and other interests described in Exhibit B hereto;
(b) all licenses, permits to use the real property of others, franchises to use
public roads, streets and other public properties, rights of way and other
rights or interests relating to the occupancy or use of real property located in
the State of Texas; (c) all facilities, machinery, equipment and fixtures
located in the State of Texas for the generation, transmission and distribution
of electric energy including, but not limited to, all plants, powerhouses, dams,
diversion works, generators,


                                       1


turbines, engines, boilers, fuel handling and transportation facilities, air and
water pollution control and sewage and solid waste disposal facilities,
switchyards, towers, substations, transformers, poles, lines, cables, conduits,
ducts, conductors, meters, regulators and all other property used or to be used
for any or all of such purposes; (d) all buildings, offices, warehouses,
structures or improvements located in the State of Texas in addition to those
referred to or otherwise included in clauses (a) and (c) above; (e) all
computers, data processing, data storage, data transmission and/or
telecommunications facilities, equipment and apparatus necessary for the
operation or maintenance of any facilities, machinery, equipment or fixtures
described or referred to in clause (c) above; and (f) all of the foregoing
property in the process of construction;

                             GRANTING CLAUSE SECOND

      Subject to the applicable exceptions permitted by Section 709(3), Section
1203 and Section 1205, all right, title and interest of the Company in all
property, real, personal and mixed located in the State of Texas (other than
Excepted Property) which may be hereafter acquired by the Company, it being the
intention of the Company that all such property acquired by the Company after
the date of the execution and delivery of this Indenture, as originally executed
and delivered, shall be as fully embraced within and subjected to the Lien
hereof as if such property were owned by the Company as of the date of the
execution and delivery of this Indenture, as originally executed and delivered;

                              GRANTING CLAUSE THIRD

      Any Excepted Property, which may, from time to time after the date of the
execution and delivery of this Indenture, as originally executed and delivered,
by delivery or by an instrument supplemental to this Indenture, be subjected to
the Lien hereof by the Company, the Trustee being hereby authorized to receive
the same at any time as additional security hereunder; it being understood that
any such subjection to the Lien hereof of any Excepted Property as additional
security may be made subject to such reservations, limitations or conditions
respecting the use and disposition of such property or the proceeds thereof as
shall be set forth in such instrument; and

                             GRANTING CLAUSE FOURTH

      All tenements, hereditaments, servitudes and appurtenances belonging or in
any wise appertaining to the aforesaid property, with the reversions and
remainders thereof;

                                EXCEPTED PROPERTY

      Expressly excepting and excluding, however, from the Lien of this
Indenture all right, title and interest of the Company in and to the following
property, whether now owned or hereafter acquired (herein sometimes called
"Excepted Property"):


      (1) all cash on hand or in banks or other financial institutions, deposit
accounts, shares of stock, interests in general or limited partnerships, bonds,
membership interests in limited liability companies, notes, other evidences of
ownership, equity, indebtedness and other


                                       2


securities, of whatsoever kind and nature, not hereafter paid or delivered to,
deposited with or held by the Trustee hereunder or required so to be;

      (2) all contracts, leases, operating agreements and other agreements of
whatsoever kind and nature; all contract rights, bills, notes and other
instruments and chattel paper (except to the extent that any of the same
constitute securities, in which case they are separately excepted from the Lien
of this Indenture under clause (1) above); all revenues, income and earnings,
all accounts, accounts receivable and unbilled revenues, and all rents, tolls,
issues, product and profits, claims, credits, demands and judgments; all
governmental and other licenses, permits, franchises, consents and allowances
(except to the extent that any of the same are specifically described in clause
(b) of Granting Clause First of this Indenture, in which case they are included
within the Lien of this Indenture); and all patents, patent licenses and other
patent rights, patent applications, trade names, trademarks, copyrights, domain
names, claims, credits, choses in action and other intangible property and
general intangibles including, but not limited to, computer software;

      (3) all automobiles, buses, trucks, truck cranes, tractors, trailers and
similar vehicles and movable equipment; all rolling stock, rail cars and other
railroad equipment; all vessels, boats, barges and other marine equipment; all
airplanes, helicopters, aircraft engines and other flight equipment; all parts,
accessories and supplies used in connection with any of the foregoing; and all
personal property of such character that the perfection of a security interest
therein or other Lien thereon is not governed by the Uniform Commercial Code as
in effect in the jurisdiction in which such property is located;

      (4) all goods, stock in trade, wares, merchandise and inventory held for
the purpose of sale or lease in the ordinary course of business; all materials,
supplies, inventory and other items of personal property which are consumable
(otherwise than by ordinary wear and tear) in their use in the operation or
ownership of the Mortgaged Property; all fuel, whether or not any such fuel is
in a form consumable in the operation or ownership of the Mortgaged Property,
including separate components of any fuel in the forms in which such components
exist at any time before, during or after the period of the use thereof as fuel;
all hand and other portable tools and equipment; all furniture and furnishings;
and computers and data processing, data storage, data transmission,
telecommunications and other facilities, equipment and apparatus, which, in any
case, are used primarily for administrative or clerical purposes or are
otherwise not necessary for the operation or maintenance of the facilities,
machinery, equipment or fixtures described or referred to in clause (c) or (d)
of Granting Clause First of this Indenture;

      (5) all coal, lignite, ore, sand, gravel, gas, oil and other minerals and
all timber, and all rights and interests in any of the foregoing, whether or not
such minerals or timber shall have been mined or extracted or otherwise
separated from the land; and all electric energy, gas (natural or artificial),
steam, water and other products generated, produced, manufactured, purchased or
otherwise acquired by the Company;

      (6) all real property, leaseholds, gas rights, wells, gas works, stations
and substations, transmission pipelines, storage facilities, holders, tanks,
retorts, purifiers, odorizers, scrubbers, compressors, valves, regulators,
pumps, mains, pipes, service pipes, conduits, ducts, fittings and connections,
services, meters, gathering, tap or other pipe lines, facilities, equipment,
apparatus


                                       3


or any other property used or to be used for the production, gathering,
transmission, storage or distribution of natural gas, crude oil or other
hydro-carbons or minerals;

      (7) all property which is the subject of a lease agreement designating the
Company as lessee and all right, title and interest of the Company in and to
such property and in, to and under such lease agreement, whether or not such
lease agreement is intended as security;

      (8) all facilities, machinery, equipment and fixtures for the
appropriation, storage, transmission and distribution of water including, but
not limited to, water works, reservoirs, diversion works, stations and
substations, transmission pipelines, canals, raceways, flumes, waterways,
aqueducts, storage facilities, tanks, purifiers, valves, regulators, pumps,
mains, pipes, service pipes, conduits, fittings and connections, services,
meters and any and all other property used or to be used for any or all of such
purposes; and

      (9) all right, title and interest of the Company in personal or mixed
property related to real property located outside of the State of Texas;

provided, however, that subject to the provisions of Section 1203, (x) if,
at any time after the occurrence of an Event of Default, the Trustee, or any
separate trustee or co-trustee appointed under Section 1014 or any receiver
appointed pursuant to Section 908 or otherwise, shall have entered into
possession of all or substantially all of the Mortgaged Property, all the
Excepted Property described or referred to in the foregoing clauses (2), (3) and
(4), then owned or held or thereafter acquired by the Company, to the extent
that the same is used in connection with, or otherwise relates or is
attributable to, the Mortgaged Property, shall immediately, and, in the case of
any Excepted Property described or referred to in clause (7), to the extent that
the same is used in connection with, or otherwise relates or is attributable to,
the Mortgaged Property, upon demand of the Trustee or such other trustee or
receiver, become subject to the Lien of this Indenture to the extent not
prohibited by law or by the terms of any other Lien or encumbrance on such
Excepted Property, and the Trustee or such other trustee or receiver may, to the
extent not prohibited by law or by the terms of any such other Lien (and subject
to the rights of the holders of all such other Liens), at the same time likewise
take possession thereof, and (y) whenever all Events of Default shall have been
cured and the possession of all or substantially all of the Mortgaged Property
shall have been restored to the Company, such Excepted Property shall again be
excepted and excluded from the Lien hereof to the extent set forth above; it
being understood that the Company may, however, pursuant to Granting Clause
Third, subject to the Lien of this Indenture any Excepted Property, whereupon
the same shall cease to be Excepted Property;

      TO HAVE AND TO HOLD all such property, real, personal and mixed, unto the
Trustee, its successors in trust and their assigns forever;

      SUBJECT, HOWEVER, to (a) Liens existing at the date of the execution and
delivery of this Indenture, as originally executed and delivered, (b) as to
property acquired by the Company after the date of the execution and delivery of
this Indenture, as originally executed and delivered, Liens existing or placed
thereon at the time of the acquisition thereof (including, but not limited to,
Purchase Money Liens), (c) Permitted Liens and all other Liens permitted to
exist under Section 606;


                                       4


      IN TRUST, NEVERTHELESS, for the equal and ratable benefit and security of
the Holders from time to time of all Outstanding Securities without any priority
of any such Security over any other such Security;

      PROVIDED, HOWEVER, that the right, title and interest of the Trustee in
and to the Mortgaged Property shall cease, terminate and become void in
accordance with, and subject to the conditions set forth in, Article Eight or
Article Thirteen hereof, and if, thereafter, the principal of and premium, if
any, and interest, if any, on the Securities shall have been paid to the Holders
thereof, or shall have been paid to the Company pursuant to Section 603 hereof,
then and in that case this Indenture shall terminate, and the Trustee shall
execute and deliver to the Company such instruments as the Company shall require
to evidence such termination; otherwise this Indenture, and the estate and
rights hereby granted, shall be and remain in full force and effect; and

      IT IS HEREBY COVENANTED AND AGREED by and between the Company and the
Trustee that all the Securities are to be authenticated and delivered, and that
the Mortgaged Property is to be held, subject to the further covenants,
conditions and trusts hereinafter set forth, and the Company hereby covenants
and agrees to and with the Trustee, for the equal and ratable benefit of all
Holders, as follows:

                                  ARTICLE ONE.

                        DEFINITIONS AND OTHER PROVISIONS
                             OF GENERAL APPLICATION

SECTION 101. General Definitions.

      For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:

            (1) the terms defined in this Article One have the meanings assigned
to them in this Article One and include the plural as well as the singular;

            (2) all other terms used herein without definition which are defined
in the Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;

            (3) all terms used herein without definition which are defined in
the Uniform Commercial Code as in effect in any jurisdiction in which any
portion of the Mortgaged Property is located shall have the meanings assigned to
them therein with respect to such portion of the Mortgaged Property;

            (4) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with respect to
any computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States at the date of such


                                       5


computation or, at the election of the Company from time to time, at the date of
the execution and delivery of this Indenture, as originally executed and
delivered;

            (5) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture;

            (6) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;

            (7) words importing either gender include the other gender;

            (8) references to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute referred
to;

            (9) references to "writing" include printing, typing, lithography
and other means of reproducing words in a visible form;

            (10) the words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation"; and

            (11) unless otherwise provided, references to agreements and other
instruments shall be deemed to include all amendments and other modifications to
such agreements and instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Indenture.

      "Accountant" means a Person engaged in the accounting profession or
otherwise qualified to pass on accounting matters (including, but not limited
to, a Person certified or licensed as a public accountant, whether or not then
engaged in the public accounting profession), which Person, unless required to
be Independent, may be an employee or Affiliate of the Company.

      "Act", when used with respect to any Holder, has the meaning specified in
Section 107.

      "Adjusted Net Earnings" means the amount calculated in accordance with
Section 104(1); provided, however, that if any of the property of the Company
owned by it at the time of the making of any Net Earnings Certificate (a) shall
have been acquired during or after any period for which Adjusted Net Earnings of
the Company are to be computed, (b) shall not have been acquired in exchange or
substitution for property the net earnings of which have been included in the
Adjusted Net Earnings of the Company, and (c) had been operated as a separate
unit and items of revenue and expense attributable thereto are readily
ascertainable, then the net earnings of such property (computed in the manner
provided for the computation of the Adjusted Net Earnings of the Company) during
such period or such part of such period as shall have preceded the acquisition
thereof, to the extent that the same have not otherwise been included in the
Adjusted Net Earnings of the Company, shall be so included.

      "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified


                                       6


Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

      "Annual Interest Requirements" means the amount calculated in accordance
with Section 104(2).

      "Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 1015 to act on behalf of the Trustee to authenticate Securities of
one or more series.

      "Authorized Officer" means the President, any Vice President or the
Treasurer of the General Partner, or any other duly authorized officer, agent or
attorney-in-fact of the General Partner named in an Officer's Certificate signed
by any of such officers.

      "Authorized Publication" means a newspaper or financial journal of general
circulation, printed in the English language and customarily published on each
Business Day, whether or not published on Saturdays, Sundays or holidays; or, in
the alternative, shall mean such form of communication as may have come into
general use for the dissemination of information of import similar to that of
the information specified to be published by the provisions hereof. In the event
that successive weekly publications in an Authorized Publication are required
hereunder they may be made (unless otherwise expressly provided herein) on the
same or different days of the week and in the same or in different Authorized
Publications. In case, by reason of the suspension of publication of any
Authorized Publication, or by reason of any other cause, it shall be impractical
without unreasonable expense to make publication of any notice in an Authorized
Publication as required by this Indenture, then such method of publication or
notification as shall be made with the approval of the Trustee shall be deemed
the equivalent of the required publication of such notice in an Authorized
Publication.

      "Authorized Purposes" means the authentication and delivery of Securities,
the release of property and/or the withdrawal of cash under any of the
provisions of this Indenture.

      "Business Day", when used with respect to any Place of Payment or any
other particular location specified in the Securities or this Indenture, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.

      "Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture, as originally executed and delivered, such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.

      "Company" means the Person named as the "Company" in the first paragraph
of this Indenture until a Successor Corporation shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such Successor Corporation.


                                       7


      "Company Request" or "Company Order" mean, respectively, a written request
or order signed in the name of the Company by the Chief Executive Officer, the
Chief Financial Officer, the President or a Vice President of the General
Partner, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the General Partner, and delivered to the Trustee.

      "Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of the execution and delivery of this Indenture, as
originally executed and delivered, is as follows: at 600 Travis Street, Suite
1150, Houston, Texas 77002.

      "Corporation" means a corporation, limited liability company, company,
association, joint-stock company or business trust.

      "Cost" has the meaning specified in Section 103.

      "Defaulted Interest" has the meaning specified in Section 307.

      "Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.

      "Eligible Obligations" means:

      (1) with respect to Securities denominated in Dollars, Government
Obligations; or

      (2) with respect to Securities denominated in a currency other than
Dollars or in a composite currency, such other obligations or instruments as
shall be specified with respect to such Securities as contemplated by Section
301.

      "Event of Default" has the meaning specified in Section 901.

      "Excepted Property" has the meaning specified in the Granting Clauses of
this Indenture.

      "Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.

      "Exchange Rate" has the meaning specified in Section 901.

      "Expert" means a Person which is an engineer, appraiser or other expert
and which, with respect to any certificate to be signed by such Person and
delivered to the Trustee, is qualified to pass upon the matters set forth in
such certificate. For purposes of this definition, (a) "engineer" means a Person
engaged in the engineering profession or otherwise qualified to pass upon
engineering matters (including, but not limited to, a Person licensed as a
professional engineer) and (b) "appraiser" means a Person engaged in the
business of appraising property or otherwise qualified to pass upon the Fair
Value or fair market value of property.

      "Expert's Certificate" means a certificate signed by an Authorized Officer
and by an Expert (which Expert (a) shall be selected by an Authorized Officer,
the execution of such


                                       8


certificate by such Authorized Officer to be conclusive evidence of such
selection, and (b) except as otherwise required in Sections 402, 607 and 709,
may be an employee or Affiliate of the Company duly authorized by an Authorized
Officer) and delivered to the Trustee. The amount stated in any Expert's
Certificate as to the Cost or Fair Value of property shall be conclusive and
binding upon the Company, the Trustee and the Holders.

      "Expiration Date" has the meaning specified in Section 107.

      "Fair Value", with respect to property, means the fair value of such
property as may reasonably be determined by reference to (a) the amount which
would be likely to be obtained in an arm's-length transaction with respect to
such property between an informed and willing buyer and an informed and willing
seller, under no compulsion, respectively, to buy or sell, (b) the amount of
investment with respect to such property which, together with a reasonable
return thereon, would be likely to be recovered through ordinary business
operations or otherwise, (c) the Cost, accumulated depreciation and replacement
cost with respect to such property and/or (d) any other relevant factors;
provided, however, that (x) the Fair Value of property shall be determined
without deduction for any Liens on such property prior to the Lien of this
Indenture (except as otherwise provided in Section 703) and (y) the Fair Value
to the Company of Property Additions shall not reflect any reduction relating to
the fact that such Property Additions may be of less value to a Person which is
not the owner or operator of the Mortgaged Property or any portion thereof than
to a Person which is such owner or operator. Fair Value may be determined, in
the discretion of the Expert certifying the same, without physical inspection,
by the use of accounting and/or engineering records and/or other data maintained
by the Company or otherwise available to such Expert.

      "Funded Cash" has the meaning specified in Section 102.

      "Funded Property" has the meaning specified in Section 102.

      "General Partner" means Texas Genco GP, LLC, the general partner of the
Company.

      "General Partner Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the General Partner to have been duly
adopted by the managers of the General Partner and to be in full force and
effect on the date of such certification, and delivered to the Trustee.

      "Governmental Authority" means the government of the United States or of
any State or Territory thereof or of the District of Columbia or of any county,
municipality or other political subdivision of any thereof, or any department,
agency, authority or other instrumentality of any of the foregoing.

      "Government Obligations" means:

      (1) any security which is (A) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged or (B) an obligation of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the payment of which is unconditionally guaranteed as a full


                                       9


faith and credit obligation by the United States of America, which, in either
case (A) or (B), is not callable or redeemable at the option of the issuer
thereof; and

      (2) certificates, depositary receipts or other instruments which evidence
a direct ownership interest in obligations described in clause (1) above or in
any specific interest or principal payments due in respect thereof; provided,
however, that the custodian of such obligations or specific interest or
principal payments shall be a bank or trust company (which may include the
Trustee or any Paying Agent) subject to Federal or State supervision or
examination with a combined capital and surplus of at least Fifty Million
Dollars ($50,000,000); and provided, further, that except as may be otherwise
required by law, such custodian shall be obligated to pay to the holders of such
certificates, depositary receipts or other instruments the full amount received
by such custodian in respect of such obligations or specific payments and shall
not be permitted to make any deduction therefrom.

      "Holder" means a Person in whose name a Security is registered in the
Security Register.

      "Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively. The term "Indenture" shall also include the terms of particular
series of Securities established as contemplated by Section 301.

      "Independent", when applied to any Accountant or Expert, means such a
Person who (a) is in fact independent, (b) does not have any direct material
financial interest in the Company or in any other obligor upon the Securities or
in any Affiliate of the Company or of such other obligor, (c) is not connected
with the Company or such other obligor as an officer, employee, promoter,
underwriter, trustee, partner, director or any person performing similar
functions and (d) is approved by the Trustee in the exercise of reasonable care.

      "Independent Expert's Certificate" means a certificate signed by an
Independent Expert and delivered to the Trustee.

      "Initial Expert's Certificate" means an Expert's certificate delivered
upon the earliest of (a) the first authentication and delivery of Securities,
subsequent to the initial authentication and delivery of the Securities of the
Initial Series (excluding Securities of the Initial Series issued in connection
with a transfer, exchange or replacement of any Predecessor Securities of such
series), upon the basis of Property Additions pursuant to Section 402, (b) the
first release of any part of the Mortgaged Property pursuant to Section 703 or
704 and (c) the first withdrawal of cash on the basis of Property Additions
pursuant to Section 706.

      "Initial Series" means:

      (1) the series of Securities, initially authenticated and delivered in the
aggregate principal amount of Seventy Five Million Dollars ($75,000,000)
established in the First Supplemental Indenture, dated as of December 23, 2003,
between the Company and the Trustee,


                                       10


the form and terms of which are established in the Officer's Certificate, dated
December 23, 2003, pursuant to the First Supplemental Indenture; and

      (2) each additional series of Securities, provided that the aggregate
principal amount of the Securities to be authenticated and delivered in respect
of such series, when added to the aggregate principal amount of Securities
Outstanding immediately prior to the issuance thereof (other than any Securities
for the payment or redemption of which such Securities are to be issued and any
Securities pledged as security for the payment obligations of the Company in
respect of indebtedness for the satisfaction of which such Securities are to be
issued), shall not exceed an amount equal to the sum of Two Hundred Fifty
Million Dollars ($250,000,000) and the aggregate amount of all Transaction Costs
relating to any such series.

      "Interest" when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.

      "Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.

      "Investment Securities" means any of the following obligations or
securities on which neither the Company, any other obligor on the Securities nor
any Affiliate of either is the obligor: (a) Government Obligations; (b) interest
bearing deposit accounts (which may be represented by certificates of deposit)
in any national or state bank (which may include the Trustee or any Paying
Agent) or savings and loan association which has outstanding securities rated by
a nationally recognized rating organization in either of the two (2) highest
rating categories (without regard to modifiers) for short term securities or in
any of the three (3) highest rating categories (without regard to modifiers) for
long term securities; (c) bankers' acceptances drawn on and accepted by any
commercial bank (which may include the Trustee or any Paying Agent) which has
outstanding securities rated by a nationally recognized rating organization in
either of the two (2) highest rating categories (without regard to modifiers)
for short term securities or in any of the three (3) highest rating categories
(without regard to modifiers) for long term securities; (d) direct obligations
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, any State or Territory of the United States or the District of
Columbia, or any political subdivision of any of the foregoing, which are rated
by a nationally recognized rating organization in either of the two (2) highest
rating categories (without regard to modifiers) for short term securities or in
any of the three (3) highest rating categories (without regard to modifiers) for
long term securities; (e) bonds or other obligations of any agency or
instrumentality of the United States; (f) corporate debt securities which are
rated by a nationally recognized rating organization in either of the two (2)
highest rating categories (without regard to modifiers) for short term
securities or in any of the three (3) highest rating categories (without regard
to modifiers) for long term securities; (g) repurchase agreements with respect
to any of the foregoing obligations or securities with any banking or financial
institution (which may include the Trustee or any Paying Agent) which has
outstanding securities rated by a nationally recognized rating organization in
either of the two (2) highest rating categories (without regard to modifiers)
for short term securities or in any of the three (3) highest rating categories
(without regard to modifiers) for long term securities; (h) securities issued by
any regulated investment company (including any investment company for which the
Trustee or any Paying Agent is the advisor), as defined in Section 851 of the
Internal Revenue Code of 1986, as


                                       11


amended, or any successor Section of such Code or successor federal statute,
provided that the portfolio of such investment company is limited to obligations
or securities of the character and investment quality contemplated in clauses
(a) through (f) above and repurchase agreements which are fully collateralized
by any of such obligations or securities; and (i) any other obligations or
securities which may lawfully be purchased by the Trustee in its capacity as
such.

      "Lien" means any mortgage, deed of trust, pledge, security interest,
encumbrance, easement, lease, reservation, restriction, servitude, charge or
similar right and any other lien of any kind, including, without limitation, the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or title retention agreement.

      "Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.

      "Maximum Interest Rate" has the meaning specified in Section 310.

      "Mortgaged Property" means, as of any particular time, all property which
at such time is subject to the Lien of this Indenture.

      "Net Earnings Certificate" has the meaning specified in Section 104.

      "Notice of Default" has the meaning specified in Section 901.

      "Officer's Certificate" means a certificate signed by an Authorized
Officer and delivered to the Trustee.

      "Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or other counsel acceptable to the Trustee and who may
be an employee or Affiliate of the Company.

      "Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 902.

      "Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:

      (1) Securities theretofore canceled or delivered to the Securities
Registrar or the Trustee for cancellation;

      (2) Securities deemed to have been paid for all purposes of this Indenture
in accordance with Section 801 (whether or not the Company's indebtedness in
respect thereof shall be satisfied and discharged for any other purpose); and

      (3) Securities which have been paid pursuant to Section 306 or in exchange
for or in lieu of which other Securities have been authenticated and delivered
pursuant to this Indenture,


                                       12


other than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it and the Company that such
Securities are held by a bona fide purchaser in whose hands such Securities are
valid obligations of the Company; provided, however, that in determining whether
or not the Holders of the requisite principal amount of the Outstanding
Securities under this Indenture, or the Outstanding Securities of any series or
Tranche, have given, made or taken any request, demand, authorization,
direction, notice, consent, election, waiver or other action hereunder or
whether or not a quorum is present at a meeting of Holders, as of any date, (A)
the principal amount of an Original Issue Discount Security which shall be
deemed to be Outstanding shall be the amount of the principal thereof which
would be due and payable as of such date upon acceleration of the Maturity
thereof to such date pursuant to Section 902; (B) if, as of such date, the
principal amount payable at the Stated Maturity of a Security is not
determinable, the principal amount of such Security which shall be deemed to be
Outstanding shall be the amount as specified or determined as contemplated by
Section 301; (C) the principal amount of a Security denominated in one or more
foreign currencies or currency units which shall be deemed to be Outstanding
shall be the U.S. dollar equivalent, determined as of such date in the manner
provided as contemplated by Section 301, of the principal amount of such
Security (or, in the case of a Security described in clause (A) or (B) above, of
the amount determined as provided in such clause); and (D) Securities owned by
the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, election, waiver or other action, only Securities which the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.

      "Paying Agent" means any Person, including the Company or any of its
Affiliates, authorized by the Company to pay the principal of or any premium or
interest on any Securities on behalf of the Company.

      "Periodic Offering" means an offering of Securities of a series from time
to time any or all of the specific terms of which Securities, including without
limitation the rate or rates of interest, if any, thereon, the Stated Maturity
or Maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Company or its agents from time to time
subsequent to the initial request for the authentication and delivery of such
Securities by the Trustee, all as contemplated in Section 301 and clause (2) of
Section 401.

      "Permitted Liens" means, as of any particular time, any of the following:

      (1) Liens for taxes, assessments and other governmental charges or
requirements which are not delinquent or which are being contested in good faith
by appropriate proceedings or which secure charges that do not exceed Five
Million Dollars ($5,000,000);

      (2) mechanics', workmen's, repairmen's, materialmen's, warehousemen's and
carriers' Liens, other Liens incident to construction, improvement, repair or
maintenance of


                                       13


property, Liens or privileges of any officers or employees of the Company for
compensation earned which is not delinquent, and other Liens, including without
limitation Liens for worker's compensation awards, arising in the ordinary
course of business for charges or requirements which are not delinquent or which
are being contested in good faith and by appropriate proceedings;

      (3) Liens in respect of attachments, judgments or awards arising out of
judicial or administrative proceedings (i) in an amount not exceeding the
greater of (A) Thirty Million Dollars ($30,000,000) and (B) three percentum (3%)
of the principal amount of the Securities Outstanding at the time such Lien
arises or (ii) with respect to which the Company shall (X) in good faith be
prosecuting an appeal or other proceeding for review and with respect to which
the Company shall have secured a stay of execution pending such appeal or other
proceeding or (Y) have the right to prosecute an appeal or other proceeding for
review;

      (4) easements, leases, reservations or other rights of others in, on, over
and/or across, and laws, regulations and restrictions affecting, and defects,
irregularities, deficiencies, exceptions and limitations in title to, the
Mortgaged Property or any part thereof; provided, however, that such easements,
leases, reservations, rights, laws, regulations, restrictions, defects,
irregularities, deficiencies, exceptions and limitations do not in the aggregate
materially impair the use by the Company of the Mortgaged Property considered as
a whole for the purposes for which it is held by the Company;

      (5) Liens, defects, irregularities, exceptions and limitations in title to
property subject to rights-of-way in favor of the Company or otherwise or used
or to be used by the Company primarily for right-of-way purposes or property
held by the Company under lease, easement, license or similar right; provided,
however, that (i) the Company shall have obtained from the apparent owner or
owners of such property a sufficient right, by the terms of the instrument
granting such right-of-way, lease, easement, license or similar right, to the
use thereof for the purposes for which the Company acquired the same, (ii) the
Company has power under eminent domain or similar statutes to remove such
defects, irregularities, exceptions or limitations or (iii) such defects,
irregularities, exceptions and limitations may be otherwise remedied without
undue effort or expense; and defects, irregularities, exceptions and limitations
in title to flood lands, flooding rights and/or water rights;

      (6) Liens securing indebtedness or other obligations neither created,
assumed nor guaranteed by the Company, nor on account of which it customarily
pays interest, upon real property or rights in or relating to real property of
the Company existing at the date of execution and delivery of this Indenture,
or, as to property thereafter acquired, at the time of the acquisition thereof
by the Company;

      (7) leases existing at the date of the execution and delivery of this
Indenture, as originally executed and delivered, affecting properties owned by
the Company at such date and renewals and extensions thereof; and leases
affecting such properties entered into after such date or affecting properties
acquired by the Company after such date which, in either case, (i) have
respective terms (or periods at the end of which the Company may terminate the
lease) of not more than fifteen (15) years (including extensions or renewals at
the option of the tenant) or (ii)


                                       14


do not in the aggregate materially impair the use by the Company of such
properties considered as a whole for the purpose for which they are held by the
Company;

      (8) Liens vested in lessors, licensors, franchisors, permitters or others
for rent or other amounts to become due or for other obligations or acts to be
performed, the payment of which rent or the performance of which other
obligations or acts is required under leases, subleases, licenses, franchises or
permits, so long as the payment of such rent or other amounts or the performance
of such other obligations or acts is not delinquent or is being contested in
good faith and by appropriate proceedings;

      (9) controls, restrictions, obligations, duties and/or other burdens
imposed by federal, state, municipal or other law, or by rules, regulations or
orders of Governmental Authorities, upon the Mortgaged Property or any part
thereof or the operation or use thereof or upon the Company with respect to the
Mortgaged Property or any part thereof or the operation or use thereof or with
respect to any franchise, grant, license, permit or public purpose requirement,
or any rights reserved to or otherwise vested in Governmental Authorities to
impose any such controls, restrictions, obligations, duties and/or other
burdens;

      (10) rights which Governmental Authorities may have by virtue of
franchises, grants, licenses, permits or contracts, or by virtue of law, to
purchase, recapture or designate a purchaser of or order the sale of the
Mortgaged Property or any part thereof, to terminate franchises, grants,
licenses, permits, contracts or other rights or to regulate the property and
business of the Company; and any and all obligations of the Company correlative
to any such rights;

      (11) Liens required by law or governmental regulations (i) as a condition
to the transaction of any business or the exercise of any privilege or license,
(ii) to enable the Company to maintain self-insurance or to participate in any
funds established to cover any insurance risks, (iii) in connection with
workmen's compensation, unemployment insurance, social security, any pension or
welfare benefit plan or (iv) to share in the privileges or benefits required for
companies participating in one or more of the arrangements described in clauses
(ii) and (iii) above;

      (12) Liens on the Mortgaged Property or any part thereof which are granted
by the Company to secure (or to obtain letters of credit that secure) the
performance of duties or public or statutory, bid or performance obligations or
to secure, or serve in lieu of, surety, stay or appeal bonds;

      (13) rights reserved to or vested in others to take or receive any part of
any coal, ore, gas, oil and other minerals, any timber and/or any electric
capacity or energy, gas, water, steam and any other products, developed,
produced, manufactured, generated, purchased or otherwise acquired or used by
the Company or by others on property of the Company;

      (14) (i) rights and interests of Persons other than the Company arising
out of contracts, agreements and other instruments to which the Company is a
party and which relate to the common ownership or joint use of property; and
(ii) all Liens on the interests of Persons other than the Company in property
owned in common by such Persons and the Company if and to the


                                       15


extent that the enforcement of such Liens would not adversely affect the
interests of the Company in such property in any material respect;

      (15) any restrictions on assignment and/or requirements of any assignee to
qualify as a permitted assignee and/or public utility or public service
corporation or company;

      (16) any Liens which have been bonded for the full amount in dispute or
for the payment of which other adequate security arrangements have been made;

      (17) rights and interests granted pursuant to Section 702(4);

      (18) Liens granted on air or water pollution control, sewage or solid
waste disposal, or other similar facilities of the Company in connection with
the issuance of pollution control revenue bonds, in connection with financing
the cost of, or the construction, acquisition, improvement, repair or
maintenance of, such facilities;

      (19) the Trustee's Lien; and

      (20) Prepaid Liens.

      "Person" means any individual, Corporation, partnership, limited liability
partnership, joint venture, trust, unincorporated organization or any
Governmental Authority.

      "Place of Payment", when used with respect to the Securities of any
series, or any Tranche thereof, means the place or places where the principal of
and any premium and interest on the Securities of that series are payable as
specified as contemplated by Section 301.

      "Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed (to the extent
lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.

      "Prepaid Lien" means any Lien securing indebtedness for the payment,
prepayment or redemption of which there shall have been irrevocably deposited in
trust with the trustee or other holder of such Lien moneys and/or Investment
Securities which (together with the interest reasonably expected to be earned
from the investment and reinvestment in Investment Securities of the moneys
and/or the principal of and interest on the Investment Securities so deposited)
shall be sufficient for such purpose; provided, however, that if such
indebtedness is to be redeemed or otherwise prepaid prior to the stated maturity
thereof, any notice requisite to such redemption or prepayment shall have been
given in accordance with the instrument creating such Lien or irrevocable
instructions to give such notice shall have been given to such trustee or other
holder.

      "Property Additions" has the meaning specified in Section 103.


                                       16


      "Purchase Money Lien" means, with respect to any property (and any
improvements or accessions thereto) being acquired or disposed of by the Company
or being released from the Lien of this Indenture, a Lien on such property
which:

      (1) is taken or retained by the transferor of such property to secure all
or part of the purchase price thereof;

      (2) is granted to one or more Persons other than the transferor which, by
making advances or incurring an obligation, give value to enable the grantor of
such Lien to acquire rights in or the use of such property;

      (3) is granted to any other Person in connection with the release of such
property from the Lien of this Indenture on the basis of the deposit with the
Trustee or the trustee or other holder of a Lien prior to the Lien of this
Indenture of obligations secured by such Lien on such property (as well as any
other property subject thereto);

      (4) is held by a trustee or agent for the benefit of one or more Persons
described in clause (1), (2) and/or (3) above, provided that such Lien may be
held, in addition, for the benefit of one or more other Persons which shall have
theretofore given, or may thereafter give, value to or for the benefit or
account of the grantor of such Lien for one or more other purposes; or

      (5) otherwise constitutes a purchase money mortgage or a purchase money
security interest under applicable law; and, without limiting the generality of
the foregoing, for purposes of this Indenture, the term Purchase Money Lien
shall be deemed to include any Lien described above whether or not such Lien (x)
shall permit the issuance or other incurrence of additional indebtedness secured
by such Lien on such property, (y) shall permit the subjection to such Lien of
additional property and the issuance or other incurrence of additional
indebtedness on the basis thereof and/or (z) shall have been granted prior to
the acquisition, disposition or release of such property, shall attach to or
otherwise cover property other than the property being acquired, disposed of or
released and/or shall secure obligations issued prior and/or subsequent to the
issuance of the obligations delivered in connection with such acquisition,
disposition or release.

      "Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

      "Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.

      "Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.

      "Responsible Officer", when used with respect to the Trustee, means an
officer in the Institutional Trust Services department of the Trustee having
direct responsibility for administration of this Indenture.

      "Retired Securities" means any Securities authenticated and delivered
under this Indenture which (a) no longer remain Outstanding by reason of the
applicability of clause (1) or


                                       17


(2) in the definition of "Outstanding" (other than any Predecessor Security of
any Security), (b) have not been made the basis under any of the provisions of
this Indenture of one or more Authorized Purposes and (c) have not been paid,
redeemed, purchased or otherwise retired by the application thereto of Funded
Cash; provided, however, that, after the delivery to the Trustee of the Initial
Expert's Certificate, no Security shall be deemed to be a Retired Security
unless the retirement thereof shall have occurred after such delivery of the
Initial Expert's Certificate.

      "Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.

      "Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.

      "Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.

      "Stated Interest Rate" means a rate (whether fixed or variable) at which
an obligation by its terms is stated to bear simple interest. Any calculation or
other determination to be made under this Indenture by reference to the Stated
Interest Rate on a Security shall be made (a) without regard to the effective
interest cost to the Company of such Security and (b) without regard to the
Stated Interest Rate on, or the effective cost to the Company of, any other
obligation for which such Security is pledged or otherwise delivered as
security.

      "Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of or interest on such
Security, or such installment of principal or interest, is due and payable.

      "Successor Corporation" has the meaning specified in Section 1201.

      "Tranche" means a group of Securities which (a) are of the same series and
(b) have identical terms except as to principal amount and/or date of issuance.

      "Transaction Costs" means all costs associated with any transaction
involving the issuance and sale of Securities, including but not limited to the
fees and disbursements of counsel, the compensation of underwriters, and
accountants' or other professional fees.

      "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.

      "Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to the Securities of that
series.


                                       18


      "Trustee's Lien" has the meaning specified in Section 1007.

      "United States" means the United States of America, its Territories, its
possessions and other areas subject to its political jurisdiction.

SECTION 102. Funded Property; Funded Cash.

      "Funded Property" means:

      (1) all Property Additions to the extent that the same shall have been
designated in an Initial Expert's Certificate to be deemed to be Funded
Property;

      (2) all Property Additions to the extent that the same shall have been
made the basis of the authentication and delivery of Securities under this
Indenture pursuant to Section 402;

      (3) all Property Additions to the extent that the same shall have been
made the basis of the release of property from the Lien of this Indenture
pursuant to Section 703;

      (4) all Property Additions to the extent that the same shall have been
substituted for Funded Property retired pursuant to Section 702;

      (5) all Property Additions to the extent that the same shall have been
made the basis of the withdrawal of cash held by the Trustee pursuant to Section
404 or 706; and

      (6) all Property Additions to the extent that the same shall have been
used as the basis of a credit against, or otherwise in satisfaction of, the
requirements of any sinking, improvement, maintenance, replacement or similar
fund or analogous provision established with respect to the Securities of any
series, or any Tranche thereof, as contemplated by Section 301; provided,
however, that any such Property Additions shall cease to be Funded Property when
all of the Securities of such series or Tranche shall have been paid.

      In the event that in any certificate filed with the Trustee in connection
with any of the transactions referred to in clauses (1), (2), (3), (5) and (6)
of this Section, only a part of the Cost or Fair Value of the Property Additions
described in such certificate shall be required for the purposes of such
certificate, then such Property Additions shall be deemed to be Funded Property
only to the extent so required for the purpose of such certificate.

      All Funded Property that shall be abandoned, destroyed, released or
otherwise disposed of shall for the purpose of Section 103 hereof be deemed
Funded Property retired and for other purposes of this Indenture shall thereupon
cease to be Funded Property but as in this Indenture provided may at any time
thereafter again become Funded Property. Neither any reduction in the cost or
book value of property recorded in the plant account of the Company, nor the
transfer of any amount appearing in such account to intangible and/or adjustment
or expense accounts, otherwise than in connection with actual retirements of
physical property abandoned, destroyed, released or disposed of, and otherwise
than in connection with the removal of such property in its entirety from plant
account, shall be deemed to constitute a retirement of Funded Property.


                                       19


      The Company may make allocations, on a pro-rata or other reasonable basis
(including, but not limited to, the designation of specific properties or the
designation of all or a specified portion of the properties reflected in one or
more generic accounts or subaccounts in the Company's books of account), for the
purpose of determining the extent to which fungible properties, or other
properties not otherwise identified, reflected in the same generic account or
subaccount in the Company's books of account constitute Funded Property or
Funded Property retired.

      "Funded Cash" means:

      (1) cash, held by the Trustee hereunder, to the extent that it represents
the proceeds of insurance on Funded Property (except as otherwise provided in
Section 607), or cash deposited in connection with the release of Funded
Property pursuant to Article Seven, or the payment of the principal of, or the
proceeds of the release of, obligations secured by Purchase Money Lien and
delivered to the Trustee pursuant to Article Seven, all subject, however, to the
provisions of Section 607 and Section 706; and

      (2) any cash deposited with the Trustee under Section 404.

SECTION 103. Property Additions; Cost.

            (1) "Property Additions" means, as of any particular time, any item,
unit or element of property which at such time is owned by the Company and is
subject to the Lien of this Indenture; provided, however, that Property
Additions shall not include:

                  (A) goodwill, going concern value rights or intangible
property except as provided in clause (3) of this Section; or

                  (B) any property the cost of acquisition or construction of
which is, in accordance with generally accepted accounting principles, properly
chargeable to an operating expense account of the Company.

            (2) When any Property Additions are certified to the Trustee as the
basis of any Authorized Purpose (except as otherwise provided in Section 703 and
Section 706):

                  (A) there shall be deducted from the Cost or Fair Value to the
Company thereof, as the case may be (as of the date so certified), an amount
equal to the Cost (or as to Property Additions of which the Fair Value to the
Company at the time the same became Funded Property was certified to be an
amount less than the Cost as determined pursuant to this Section, then such Fair
Value, as so certified, in lieu of Cost) of all Funded Property of the Company
retired to the date of such certification (other than the Funded Property, if
any, in connection with the application for the release of which such
certificate is filed) and not theretofore deducted from the Cost or Fair Value
to the Company of Property Additions theretofore certified to the Trustee; and

                  (B) there may, at the option of the Company, be added to such
Cost or Fair Value, as the case may be, the sum of:


                                       20


                        (i) the principal amount of any obligations secured by
Purchase Money Lien, not theretofore so added and which the Company then elects
so to add, which shall theretofore have been delivered to the Trustee or the
trustee or other holder of a Lien prior to the Lien of this Indenture as the
basis of the release of Funded Property retired from the Lien of this Indenture
or such prior Lien, as the case may be;

                        (ii) ten-sevenths (10/7) of the amount of any cash, not
theretofore so added and which the Company then elects so to add, which shall
theretofore have been delivered to the Trustee or the trustee or other holder of
a Lien prior to the Lien of this Indenture as the proceeds of insurance on
Funded Property retired (to the extent of the portion thereof deemed to be
Funded Cash) or as the basis of the release of Funded Property retired from the
Lien of this Indenture or from such prior Lien, as the case may be;

                        (iii) ten-sevenths (10/7) of the principal amount of any
Security or Securities, or portion of such principal amount, not theretofore so
added and which the Company then elects so to add, (I) which shall theretofore
have been delivered to the Trustee as the basis of the release of Funded
Property retired or (II) the right to the authentication and delivery of which
under the provisions of Section 403 shall at any time theretofore have been
waived under Section 703(4)(C) as the basis of the release of Funded Property
retired;

                        (iv) the Cost or Fair Value to the Company (whichever
shall be less), after making any deductions and any additions pursuant to this
Section, of any Property Additions, not theretofore so added and which the
Company then elects so to add, which shall theretofore have been made the basis
of the release of Funded Property retired (such Fair Value to be the amount
shown in the Expert's Certificate delivered to the Trustee in connection with
such release); and

                        (v) the Cost to the Company of any Property Additions
not theretofore so added and which the Company then elects so to add, to the
extent that the same shall have been substituted for Funded Property retired;

provided, however, that the aggregate of the amounts added under clause (B)
above shall in no event exceed the amounts deducted under clause (A) above.

            (3) Except as otherwise provided in Section 703, the term "Cost"
with respect to Property Additions shall mean the sum of (i) any cash delivered
in payment therefor or for the acquisition thereof, (ii) an amount equivalent to
the fair market value in cash (as of the date of delivery) of any securities or
other property delivered in payment therefor or for the acquisition thereof,
(iii) the principal amount of any obligations secured by prior Lien upon such
Property Additions outstanding at the time of the acquisition thereof, (iv) the
principal amount of any other obligations incurred or assumed in connection with
the payment for such Property Additions or for the acquisition thereof and (v)
any other amounts which, in accordance with generally accepted accounting
principles, are properly charged or chargeable to the plant or other property
accounts of the Company with respect to such Property Additions as part of the
cost of construction or acquisition thereof, including, but not limited to any
allowance for funds used during construction or any similar or analogous amount;
provided, however, that, notwithstanding any other provision of this Indenture,


                                       21


                  (A) with respect to Property Additions owned by a Successor
Corporation immediately prior to the time it shall have become such by
consolidation or merger or acquired by a Successor Corporation in or as a result
of a consolidation or merger (excluding, in any case, Property Additions owned
by the Company immediately prior to such time), Cost shall mean the amount or
amounts at which such Property Additions are recorded in the plant or other
property accounts of such Successor Corporation, or the predecessor corporation
from which such Property Additions are acquired, as the case may be, immediately
prior to such consolidation or merger;

                  (B) with respect to Property Additions which shall have been
acquired (otherwise than by construction) by the Company without any
consideration consisting of cash, securities or other property or the incurring
or assumption of indebtedness or other obligation, no determination of Cost
shall be required, and, wherever in this Indenture provision is made for Cost or
Fair Value, Cost with respect to such Property Additions shall mean an amount
equal to the Fair Value to the Company thereof or, if greater, the aggregate
amount reflected in the Company's books of account with respect thereto upon the
acquisition thereof; and

                  (C) in no event shall the Cost of Property Additions be
required to reflect any depreciation or amortization in respect of such Property
Additions, or any adjustment to the amount or amounts at which such Property
Additions are recorded in plant or other property accounts due to the
non-recoverability of investment or otherwise.

      If any Property Additions are shown by the Expert's Certificate provided
for in Section 402 (2)(B) to include property which has been used or operated by
others than the Company in a business similar to that in which it has been or is
to be used or operated by the Company, the Cost thereof need not be reduced by
any amount in respect of any goodwill, going concern value rights and/or
intangible property simultaneously acquired and in such case the term Property
Additions as defined herein may include such goodwill, going concern value
rights and intangible property.

SECTION 104. Net Earnings Certificate; Adjusted Net Earnings; Annual Interest
             Requirements.

      A "Net Earnings Certificate" means a certificate signed by an Authorized
Officer and an accountant (who may be employed by or Affiliated with the
Company), stating:

            (1) the "Adjusted Net Earnings" of the Company for a period of
twelve (12) consecutive calendar months within the eighteen (18) calendar months
immediately preceding the first day of the month in which the Company Order
requesting the authentication and delivery under this Indenture of Securities is
delivered to the Trustee, specifying:

                  (A) its operating revenues (which may include revenues of the
Company subject when collected or accrued to possible refund at a future date);

                  (B) its operating expenses, excluding (i) expenses for taxes
on income or profits and other taxes measured by, or dependent on, net income,
(ii) provisions for reserves for renewals, replacements, depreciation, depletion
or retirement of property (or any expenditures therefor), or provisions for
amortization of property, (iii) expenses or provisions for


                                       22


interest on any indebtedness of the Company, for the amortization of debt
discount, premium, expense or loss on reacquired debt, for any maintenance and
replacement, improvement or sinking fund or other device for the retirement of
any indebtedness, or for other amortization, (iv) expenses or provisions for any
non-recurring charge to income or to retained earnings of whatever kind or
nature (including without limitation the recognition of expense or impairment
due to the non-recoverability of assets or expense), whether or not recorded as
a non-recurring charge in the Company's books of account, and (v) provisions for
any refund of revenues previously collected or accrued by the Company subject to
possible refund;

                  (C) the amount remaining after deducting the amount required
to be stated in such certificate by clause (B) above from the amount required to
be stated therein by clause (A) above;

                  (D) its other income, net of related expenses (excluding
expenses or provisions for any non-recurring charge to the income or retained
earnings of the entity which is the source of such other income of whatever kind
or nature (including without limitation the recognition of expense or impairment
due to the non-recoverability of assets or expense), whether or not recorded and
a non-recurring charge in such entity's books of account), which other income
may include any portion of the allowance for funds used during construction and
other deferred costs (or any analogous amounts) which is not included in "other
income" (or any analogous item) in the Company's books of account; and

                  (E) the Adjusted Net Earnings of the Company for such period
of twelve (12) consecutive calendar months (being the sum of the amounts
required to be stated in such certificate by clauses (C) and (D) above); and

            (2) the "Annual Interest Requirements," being the interest
requirements for one year, at the respective Stated Interest Rates, if any,
borne prior to Maturity, upon:

                  (A) all Securities Outstanding hereunder at the date of such
certificate, except any for the payment or redemption of which the Securities
applied for are to be issued; provided, however, that, if Outstanding Securities
of any series bear interest at a variable rate or rates, then the interest
requirement on the Securities of such series shall be determined by reference to
the rate or rates in effect on the day immediately preceding the date of such
certificate;

                  (B) all Securities then applied for in pending applications
for the original issuance of Securities, including the application in connection
with which such certificate is made; provided, however, that if Securities of
any series are to bear interest at a variable rate or rates, then the interest
requirement on the Securities of such series shall be determined by reference to
the rate or rates to be in effect at the time of the initial authentication and
delivery of such Securities; and provided, further, that the determination of
the interest requirement on Securities of a series subject to a Periodic
Offering shall be further subject to the provisions of clause (6) of Section
401; and

                  (C) the principal amount of all other indebtedness (except (i)
indebtedness of the Company the repayment of which supports or is supported by
other


                                       23


indebtedness included in Annual Interest Requirements pursuant to one of the
other clauses of this definition, (ii) indebtedness for the payment of which the
Securities applied for are to be issued, and (iii) indebtedness secured by a
Prepaid Lien prior to the Lien of this Indenture upon property subject to the
Lien of this Indenture) outstanding on the date of such certificate and secured
by a Lien on a parity with or prior to the Lien of this Indenture upon property
subject to the Lien of this Indenture, if such indebtedness has been issued,
assumed or guaranteed by the Company or if the Company customarily pays the
interest upon the principal thereof or collections from the Company's customers
are applied to, or pledged as security for the payment of such interest;
provided, however, that if any such indebtedness bears interest at a variable
rate or rates, then the interest requirement on such indebtedness shall be
determined by reference to the rate or rates in effect on the day immediately
preceding the date of such certificate; and provided, further, that any amounts
collected by others to be applied to debt service on indebtedness of the
Company, and not otherwise treated on the Company's books as revenue, shall be
added to the Company's operating revenues when determining Adjusted Net
Earnings.

      In any case where a Net Earnings Certificate is required as a condition
precedent to the authentication and delivery of Securities, such certificate
shall be accompanied by a certificate signed by an Independent Accountant if the
aggregate principal amount of Securities then applied for plus the aggregate
principal amount of Securities authenticated and delivered hereunder since the
commencement of the then current calendar year (other than those with respect to
which a Net Earnings Certificate is not required, or with respect to which a Net
Earnings Certificate accompanied by a certificate signed by an Independent
Accountant has previously been furnished to the Trustee) is ten percent (10%) or
more of the principal amount of the Securities at the time Outstanding, which
certificate shall provide that such Independent Accountant has reviewed the Net
Earnings Certificate and that such Independent Accountant has no knowledge that
any statements in such Net Earnings Certificate are not true.

SECTION 105. Compliance Certificates and Opinions.

      Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.

      Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:

            (1) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;

            (2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;


                                       24


            (3) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and

            (4) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.

SECTION 106. Content and Form of Documents Delivered to Trustee.

            (1) Any Officer's Certificate may be based (without further
examination or investigation), insofar as it relates to or is dependent upon
legal matters, upon an opinion of, or representations by, counsel, and, insofar
as it relates to or is dependent upon matters which are subject to verification
by Accountants, upon a certificate or opinion of, or representations by, an
Accountant, and, insofar as it relates to or is dependent upon matters which are
required in this Indenture to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless, in any case, such officer has actual
knowledge that the certificate or opinion or representations with respect to the
matters upon which such Officer's Certificate may be based as aforesaid are
erroneous.

      Any Expert's Certificate may be based (without further examination or
investigation), insofar as it relates to or is dependent upon legal matters,
upon an opinion of, or representations by, counsel, and insofar as it relates to
or is dependent upon factual matters, information with respect to which is in
the possession of the Company and which are not subject to verification by
Experts, upon a certificate or opinion of, or representations by, an officer or
officers of the Company, unless such Expert has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion may be based as aforesaid are erroneous.

      Any certificate of an Accountant may be based (without further examination
or investigation), insofar as it relates to or is dependent upon legal matters,
upon an opinion of, or representations by, counsel, and insofar as it relates to
or is dependent upon factual matters, information with respect to which is in
the possession of the Company and which are not subject to verification by
Accountants, upon a certificate of, or representations by, an officer or
officers of the Company, unless such Accountant has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion may be based as aforesaid are erroneous.

      Any Opinion of Counsel may be based (without further examination or
investigation), insofar as it relates to or is dependent upon factual matters,
information with respect to which is in the possession of the Company, upon a
certificate of, or representations by, an officer or officers of the Company,
and, insofar as it relates to or is dependent upon matters which are subject to
verification by Accountants upon a certificate or opinion of, or representations
by, an Accountant, and, insofar as it relates to or is dependent upon matters
required in this Indenture to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless such counsel has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his opinion may be based as aforesaid are erroneous. In addition, any Opinion of
Counsel may be based (without


                                       25


further examination or investigation), insofar as it relates to or is dependent
upon matters covered in an Opinion of Counsel rendered by other counsel, upon
such other Opinion of Counsel, unless such counsel has actual knowledge that the
Opinion of Counsel rendered by such other counsel with respect to the matters
upon which his Opinion of Counsel may be based as aforesaid are erroneous.
Further, any Opinion of Counsel with respect to the status of title to or the
sufficiency of descriptions of property, and/or the existence of Liens thereon,
and/or the recording or filing of documents, and/or any similar matters, may be
based (without further examination or investigation) upon (i) title insurance
policies or commitments and reports, lien search certificates and other similar
documents or (ii) certificates of, or representations by, officers, employees,
agents and/or other representatives of the Company or (iii) any combination of
the documents referred to in (i) and (ii), unless, in any case, such counsel has
actual knowledge that the document or documents with respect to the matters upon
which his opinion may be based as aforesaid are erroneous. If, in order to
render any Opinion of Counsel provided for herein, the signer thereof shall deem
it necessary that additional facts or matters be stated in any Officer's
Certificate, certificate of an Accountant or Expert's Certificate provided for
herein, then such certificate may state all such additional facts or matters as
the signer of such Opinion of Counsel may request.

            (2) In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents. Where any
Person is required to make, give or execute two or more applications, requests,
consents, certificates, statements, opinions or other instruments under this
Indenture, they may, but need not, be consolidated and form one instrument.

            (3) Whenever, subsequent to the receipt by the Trustee of any
General Partner Resolution, Officer's Certificate, Expert's Certificate, Net
Earnings Certificate, Opinion of Counsel or other document or instrument, a
material clerical, typographical or other inadvertent or unintentional error or
omission shall be discovered therein, a new document or instrument shall be
substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall be
and remain in full force and effect, except to the extent that such action was a
result of willful misconduct or bad faith. Without limiting the generality of
the foregoing, any Securities issued under the authority of such defective
document or instrument shall nevertheless be the valid obligations of the
Company entitled to the benefit of the Lien of this Indenture equally and
ratably with all other Outstanding Securities, except as aforesaid.

SECTION 107. Acts of Holders; Record Dates.


                                       26


      Any request, demand, authorization, direction, notice, consent, election,
waiver or other action provided or permitted by this Indenture to be given, made
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; or, alternatively, may be embodied in and evidenced
by the record of Holders voting in favor thereof, either in person or by proxies
duly appointed in writing, at any meeting of Holders duly called and held in
accordance with the provisions of Article Fourteen, or a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments and so voting
at any such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security, shall
be sufficient for any purpose of this Indenture and (subject to Section 1001)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section 107. The record of any meeting of Holders shall be
proved in the manner provided in Section 1406.

      The fact and date of the execution by any Person of any such instrument or
writing may be proved in any reasonable manner which the Trustee and the Company
deem sufficient. Where such execution is by a signer acting in a capacity other
than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the execution
of any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee and the Company
deem sufficient.

      The ownership of Securities shall be proved by the Security Register.

      Any request, demand, authorization, direction, notice, consent, election,
waiver or other Act of a Holder shall bind every future Holder of the same
Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.

      The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, election, waiver or other action provided or permitted by this
Indenture to be given, made or taken by Holders of Securities of such series,
provided that the Company may not set a record date for, and the provisions of
this paragraph shall not apply with respect to, the giving or making of any
notice, declaration, request or direction referred to in the next paragraph. If
any record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a


                                       27


record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 109.

      The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 902, (iii) any request to institute
proceedings referred to in Section 911 or (iv) any direction referred to in
Section 916, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 109.

      With respect to any record date set pursuant to this Section 107, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities of the relevant series in the manner
set forth in Section 109, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section 107, the party hereto which set such record date shall be deemed
to have initially designated the one hundred eightieth (180th) day after such
record date as the Expiration Date with respect thereto, subject to its right to
change the Expiration Date as provided in this paragraph. Notwithstanding the
foregoing, no Expiration Date shall be later than the one hundred eightieth
(180th) day after the applicable record date.

      Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents, each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.


                                       28


SECTION 108. Notices, Etc., to Trustee and Company.

      Except as otherwise provided herein, any request, demand, authorization,
direction, notice, consent, election, waiver or Act of Holders or other document
provided or permitted by this Indenture to be made upon, given or furnished to,
or filed with

            (1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Institutional Trust
Services, or

            (2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to the
attention of the Treasurer of the Company at the address of the Company's
principal office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the Company.

SECTION 109. Notice to Holders; Waiver.

      Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event otherwise to be specified
therein, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.

      In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

SECTION 110. Conflict with Trust Indenture Act.

      If any provision of this Indenture limits, qualifies or conflicts with a
provision of the Trust Indenture Act which is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act which may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.

SECTION 111. Effect of Headings and Table of Contents.


                                       29


      The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

SECTION 112. Successors and Assigns.

      All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.

SECTION 113. Separability Clause.

      In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 114. Benefits of Indenture.

      Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

SECTION 115. Governing Law.

      This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York (including without limitation
Section 5-1401 of the New York General Obligations Law or any successor to such
statute), except to the extent that the Trust Indenture Act shall be applicable
and except to the extent that the law of any jurisdiction wherein any portion of
the Mortgaged Property is located shall mandatorily govern the creation of a
mortgage lien on and security interest in, or perfection, priority or
enforcement of the Lien of this Indenture or exercise of remedies with respect
to, such portion of the Mortgaged Property.

SECTION 116. Legal Holidays.

      In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
(other than a provision of any Security which specifically states that such
provision shall apply in lieu of this Section 116)) payment of interest or
principal (and premium, if any) need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date
or Redemption Date, or at the Stated Maturity, and no additional interest shall
accrue as the result of such delayed payment.

SECTION 117. Investment of Cash Held by Trustee.

      Any cash held by the Trustee or any Paying Agent under any provision of
this Indenture shall, except as otherwise provided in Section 706 or in Article
Eight, at the request of the Company evidenced by Company Order, be invested or
reinvested in Investment Securities designated by the Company (such Company
Order to contain a representation to the effect that the securities designated
therein constitute Investment Securities), and any interest on such


                                       30


Investment Securities shall be promptly paid over to the Company as received
free and clear of any Lien. Such Investment Securities shall be held subject to
the same provisions hereof as the cash used to purchase the same, but upon a
like request of the Company shall be sold, in whole or in designated part, and
the proceeds of such sale shall be held subject to the same provisions hereof as
the cash used to purchase the Investment Securities so sold. If such sale shall
produce a net sum less than the cost of the Investment Securities so sold, the
Company shall pay to the Trustee or any such Paying Agent, as the case may be,
such amount in cash as, together with the net proceeds from such sale, shall
equal the cost of the Investment Securities so sold, and if such sale shall
produce a net sum greater than the cost of the Investment Securities so sold,
the Trustee or any such Paying Agent, as the case may be, shall promptly pay
over to the Company an amount in cash equal to such excess, free and clear of
any Lien. In no event shall the Trustee be liable for any loss incurred in
connection with the sale of any Investment Security pursuant to this Section.

      Notwithstanding the foregoing, if an Event of Default shall have occurred
and be continuing, interest on Investment Securities and any gain upon the sale
thereof shall be held as part of the Mortgaged Property until such Event of
Default shall have been cured or waived, whereupon such interest and gain shall
be promptly paid over to the Company free and clear of any Lien.

                                  ARTICLE TWO.

                                 SECURITY FORMS

SECTION 201. Forms Generally.

      The definitive Securities of each series shall be in substantially the
form or forms established in the indenture supplemental hereto establishing such
series, or in a General Partner Resolution establishing such series, or in an
Officer's Certificate pursuant to such a supplemental indenture or General
Partner Resolution, in any case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with applicable tax laws or the rules of any securities exchange or automated
quotation system on which the Securities of such series may be listed or traded
or as may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution thereof. If the form of Securities
of any series is established by action taken pursuant to a General Partner
Resolution, a copy of an appropriate record of such action shall be certified by
the Secretary or an Assistant Secretary of the General Partner and delivered to
the Trustee at or prior to the delivery of the Company Order contemplated by
Section 401 for the authentication and delivery of such Securities.

      The Securities of each series shall be issuable in registered form without
coupons. The definitive Securities of each series shall be typewritten, printed,
lithographed or engraved or produced by any combination of these methods, if
required by any securities exchange or automated quotation system on which the
Securities of such series may be listed or traded, on steel engraved borders or
may be produced in any other manner permitted by the rules of any securities
exchange or automated quotation system on which the Securities of such series
may be


                                       31


listed or traded, all as determined by the officers executing such Securities,
as evidenced by their execution of such Securities.

SECTION 202. Form of Trustee's Certificate of Authentication.

      The Trustee's certificates of authentication shall be in substantially the
following form:

      This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.


Date of Authentication: ____________                  __________________________
                                                                      As Trustee


                                                    By: ________________________
                                                            Authorized Signatory

                                 ARTICLE THREE.

                                 THE SECURITIES

SECTION 301. Amount Unlimited; Issuable in Series.

      Subject to the provisions of Article Four, the aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is
unlimited.

      The Securities may be issued in one or more series each of which may be
issued in Tranches. Subject to the penultimate paragraph of this Section, prior
to the authentication and delivery of Securities of any series there shall be
established by specification in a supplemental indenture or in a General Partner
Resolution, or in an Officer's Certificate pursuant to a supplemental indenture
or a General Partner Resolution:

            (1) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of all other series);

            (2) any limit upon the aggregate principal amount of the Securities
of such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of such series pursuant
to Section 304, 305, 306, 507 or 1306 and except for any Securities which,
pursuant to Section 303, are deemed never to have been authenticated and
delivered hereunder);

            (3) the Persons (without specific identification) to whom interest
on Securities of such series, or any Tranche thereof, shall be payable on any
Interest Payment Date, if other than the Persons in whose names such Securities
(or one or more Predecessor Securities) are registered at the close of business
on the Regular Record Date for such interest;


                                       32


            (4) the date or dates on which the principal of the Securities of
such series, or any Tranche thereof, is payable or any formulary or other method
or other means by which such date or dates shall be determined, by reference to
an index or other fact or event ascertainable outside of this Indenture or
otherwise (without regard to any provisions for redemption, prepayment,
acceleration, purchase or extension);

            (5) the rate or rates at which the Securities of such series, or any
Tranche thereof, shall bear interest, if any (including the rate or rates at
which overdue principal shall bear interest, if different from the rate or rates
at which such Securities shall bear interest prior to Maturity, and, if
applicable, the rate or rates at which overdue premium or interest shall bear
interest, if any), or any formulary or other method or other means by which such
rate or rates shall be determined, by reference to an index or other fact or
event ascertainable outside of this Indenture or otherwise; the date or dates
from which such interest shall accrue; the Interest Payment Dates on which such
interest shall be payable and the Regular Record Date, if any, for the interest
payable on such Securities on any Interest Payment Date; and the basis of
computation of interest, if other than as provided in Section 310;

            (6) the place or places at which and/or the methods (if other than
as provided elsewhere in this Indenture) by which (i) the principal of and
premium, if any, and interest, if any, on Securities of such series, or any
Tranche thereof, shall be payable, (ii) registration of transfer of Securities
of such series, or any Tranche thereof, may be effected, (iii) exchanges of
Securities of such series, or any Tranche thereof, may be effected and (iv)
notices and demands to or upon the Company in respect of the Securities of such
series, or any Tranche thereof, and this Indenture may be served; the Security
Registrar and any Paying Agent or Agents for such series or Tranche; and, if
such is the case, that the principal of such Securities shall be payable without
the presentment or surrender thereof;

            (7) the period or periods within which or the date or dates on
which, the price or prices at which and the terms and conditions upon which the
Securities of such series, or any Tranche thereof, may be redeemed, in whole or
in part, at the option of the Company;

            (8) the obligation or obligations, if any, of the Company to redeem
or purchase the Securities of such series, or any Tranche thereof, pursuant to
any sinking fund or other mandatory redemption provisions or at the option of a
Holder thereof and the period or periods within which or the date or dates on
which, the price or prices at which and the terms and conditions upon which such
Securities shall be redeemed or purchased, in whole or in part, pursuant to such
obligation, and applicable exceptions to the requirements of Section 504 in the
case of mandatory redemption or redemption at the option of the Holder;

            (9) the denominations in which Securities of such series, or any
Tranche thereof, shall be issuable if other than denominations of One Thousand
Dollars ($1,000) and any integral multiple thereof;

            (10) the currency or currencies, including composite currencies, in
which payment of the principal of and premium, if any, and interest, if any, on
the Securities of such series, or any Tranche thereof, shall be payable (if
other than in Dollars); it being understood that, for purposes of calculations
under this Indenture (including calculations of principal amount


                                       33


under Article Four), any amounts denominated in a currency other than Dollars or
in a composite currency shall be converted to Dollar equivalents by calculating
the amount of Dollars which could have been purchased by the amount of such
other currency based on such quotations or methods of determination as shall be
specified pursuant to this clause (10);

            (11) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable, at the
election of the Company or a Holder thereof, in a coin or currency other than
that in which the Securities are stated to be payable, the coin or currency in
which payment of any amount as to which such election is made will be payable,
the period or periods within which, and the terms and conditions upon which,
such election may be made; it being understood that, for purposes of
calculations under this Indenture (including calculations of principal amount
under Article Four), any such election shall be required to be taken into
account, in the manner contemplated in clause (10) of this paragraph, only after
such election shall have been made;

            (12) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable, or are
to be payable at the election of the Company or a Holder thereof, in securities
or other property, the type and amount of such securities or other property, or
the formulary or other method or other means by which such amount shall be
determined, and the period or periods within which, and the terms and conditions
upon which, any such election may be made; it being understood that all
calculations under this Indenture (including calculations of principal amount
under Article Four) shall be made on the basis of the fair market value of such
securities or the Fair Value of such other property, in either case determined
as of the most recent practicable date, except that, in the case of any amount
of principal or interest that may be so payable at the election of the Company
or a Holder, if such election shall not yet have been made, such calculations
shall be made on the basis of the amount of principal or interest, as the case
may be, that would be payable if no such election were made;

            (13) if the amount payable in respect of principal of or premium, if
any, or interest, if any, on the Securities of such series, or any Tranche
thereof, may be determined with reference to an index or other fact or event
ascertainable outside of this Indenture, the manner in which such amounts shall
be determined (to the extent not established pursuant to clause (5) of this
paragraph); it being understood that all calculations under this Indenture
(including calculations of principal amount under Article Four) shall be made on
the basis of the amount that would be payable as principal if such principal
were due, or on the basis of the interest rates in effect, as the case may be,
on the date next preceding the date of such calculation;

            (14) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series, or any Tranche thereof, which
shall be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 902;

            (15) the terms, if any, pursuant to which the Securities of such
series, or any Tranche thereof, may be converted into or exchanged for
membership interests or shares of capital stock or other securities of the
Company or any other Person;


                                       34


            (16) the obligations or instruments, if any, which shall be
considered to be Eligible Obligations in respect of the Securities of such
series, or any Tranche thereof, denominated in a currency other than Dollars or
in a composite currency, and any additional or alternative provisions for the
reinstatement of the Company's indebtedness in respect of such Securities after
the satisfaction and discharge thereof as provided in Section 801;

            (17) if the Securities of such series, or any Tranche thereof, are
to be issued in global form, (i) any limitations on the rights of the Holder or
Holders of such Securities to transfer or exchange the same or to obtain the
registration of transfer thereof, (ii) any limitations on the rights of the
Holder or Holders thereof to obtain certificates therefor in definitive form in
lieu of temporary form and (iii) any and all other matters incidental to such
Securities;

            (18) if the Securities of such series, or any Tranche thereof, are
to be issuable as bearer securities, any and all matters incidental thereto
which are not specifically addressed in a supplemental indenture as contemplated
by clause (4) of Section 1301;

            (19) to the extent not established pursuant to clause (17) of this
paragraph, any limitations on the rights of the Holders of the Securities of
such series, or any Tranche thereof, to transfer or exchange such Securities or
to obtain the registration of transfer thereof; and if a service charge will be
made for the registration of transfer or exchange of Securities of such series,
or any Tranche thereof, the amount or terms thereof;

            (20) any exceptions to Section 116, or variation in the definition
of Business Day, with respect to the Securities of such series, or any Tranche
thereof;

            (21) the terms of any sinking, improvement, maintenance, replacement
or analogous fund for any series; and

            (22) any other terms of the Securities of such series, or any
Tranche thereof.

      With respect to Securities of a series subject to a Periodic Offering, the
indenture supplemental hereto or the General Partner Resolution which
establishes such series, or the Officer's Certificate pursuant to such
supplemental indenture or General Partner Resolution, as the case may be, may
provide general terms or parameters for Securities of such series and provide
either that the specific terms of Securities of such series, or any Tranche
thereof, shall be specified in a Company Order or that such terms shall be
determined by the Company or its agents in accordance with procedures specified
in a Company Order as contemplated by clause (2) of Section 401.

Anything herein to the contrary notwithstanding, the Trustee shall be under no
obligation to authenticate and deliver Securities of any series the terms of
which, established as contemplated by this Section, would affect the rights,
duties, obligations, liabilities or immunities of the Trustee under this
Indenture or otherwise.

SECTION 302. Denominations.


                                       35


      Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, or any Tranche thereof, the Securities of each series
shall be issuable in denominations of One Thousand Dollars ($1,000) and any
integral multiple thereof.

SECTION 303. Execution, Authentication, Delivery and Dating.

      The Securities shall be executed on behalf of the Company by an Authorized
Officer, under seal reproduced or impressed thereon and attested by the
Secretary or one of the Assistant Secretaries of the General Partner. The
signature of any of these officers on the Securities may be manual or facsimile.

      Securities bearing the manual or facsimile signatures of individuals who
were at time of execution the proper officers of the General Partner shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.

      Unless otherwise specified as contemplated by Section 301 with respect to
any series of Securities, or any Tranche thereof, each Security shall be dated
the date of its authentication.

      Unless otherwise specified as contemplated by Section 301 with respect to
any series of Securities, or any Tranche thereof, no Security shall be entitled
to any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on such Security a certificate of authentication
substantially in the form provided for herein executed by the Trustee by the
manual signature of one of its authorized signatories, and such certificate upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder. Notwithstanding
the foregoing, if (a) any Security shall have been authenticated and delivered
hereunder to the Company, or any Person acting on its behalf, but shall never
have been issued and sold by the Company, (b) the Company shall deliver such
Security to the Security Registrar for cancellation or shall cancel such
Security and deliver evidence of such cancellation to the Trustee, in each case
as provided in Section 309, and (c) the Company, at its election, shall deliver
to the Trustee a written statement (which need not comply with Section 105 and
need not be accompanied by an Officer's Certificate or an Opinion of Counsel)
stating that such Security has never been issued and sold by the Company, then,
for all purposes of this Indenture, such Security shall be deemed never to have
been authenticated and delivered hereunder and shall never be entitled to the
benefits hereof.

SECTION 304. Temporary Securities.

      Pending the preparation of definitive Securities of any series, or any
Tranche thereof, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities of such
series in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Securities may determine, as evidenced by their execution of such Securities.

      Except as otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, after the preparation
of definitive Securities of


                                       36


such series or Tranche, the temporary Securities of such series or Tranche shall
be exchangeable, without charge to the Holder thereof, for definitive Securities
of such series or Tranche upon surrender of such temporary Securities at the
office or agency of the Company maintained pursuant to Section 602 in a Place of
Payment for such Securities. Upon such surrender of temporary Securities, the
Company shall, except as aforesaid, execute and the Trustee shall authenticate
and deliver in exchange therefor definitive Securities of the same series and
Tranche, of authorized denominations and of like tenor and aggregate principal
amount.

SECTION 305. Registration, Registration of Transfer and Exchange.

      The Company shall cause to be kept, with respect to the Securities of each
series, or any Tranche thereof, at the Corporate Trust Office of the Trustee a
register (the register maintained in such office and in any other office or
agency of the Company in a Place of Payment being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities of such series or Tranche and the registration of transfer
thereof. The Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers of Securities as herein provided. If any
indenture supplemental hereto refers to any transfer agents (in addition to the
Security Registrar) initially designated by the Company with respect to any
series of Securities, the Company may at any time rescind the designation of any
such transfer agent or approve a change in the location through which such
transfer agent acts, provided that the Company maintains a transfer agent in
each Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to the Securities of any series, or any
Tranche thereof.

      Upon surrender for registration of transfer of any Security of such series
or Tranche at the office or agency of the Company in a Place of Payment for such
series or Tranche, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of the same series and Tranche, of authorized denominations
and of like tenor and aggregate principal amount.

      Except as otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, any Security of such
series or Tranche may be exchanged at the option of the Holder, for one or more
new Securities of the same series and Tranche, of authorized denominations and
of like tenor and aggregate principal amount, upon surrender of the Securities
to be exchanged at any such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.

      All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

      Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee or the Security
Registrar) be duly endorsed or shall be accompanied by a written instrument of
transfer in form satisfactory to the Company, the


                                       37


Trustee or the Security Registrar, as the case may be, duly executed by the
Holder thereof or his attorney duly authorized in writing.

      Unless otherwise specified as contemplated by Section 301 with respect to
Securities of any series, or any Tranche thereof, no service charge shall be
made for any registration of transfer or exchange of Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Securities, other than exchanges pursuant to Section 304, 507 or
1306 not involving any transfer.

      Neither the Trustee nor the Company shall be required, pursuant to the
provisions of this Section 305, (A) to issue, register the transfer of or
exchange any Securities of any series (or of any Tranche thereof) during a
period beginning at the opening of business fifteen (15) days before the day of
the mailing of a notice of redemption of any such Securities of such series or
Tranche selected for redemption under Section 503 and ending at the close of
business on the day of such mailing, or (B) to register the transfer of or
exchange any Security so selected for redemption, in whole or in part, except,
in the case of any Security to be redeemed in part, any portion not to be
redeemed.

SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.

      If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them and any agent of either of them harmless, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of the same series and Tranche, and of like tenor and principal amount
and bearing a number not contemporaneously outstanding and shall cancel and
destroy such mutilated Security.

      If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security is held by a Person purporting to be
the owner of such Security, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and Tranche, and of like tenor and
principal amount and bearing a number not contemporaneously outstanding. If,
after the delivery of such new Security, a bona fide purchaser of the original
Security in lieu of which such new Security was issued presents for payment or
registration such original Security, the Trustee shall be entitled to recover
such new Security from the party to whom it was delivered or any party taking
therefrom, except a bona fide purchaser, and shall be entitled to recover upon
the security or indemnity provided therefor to the extent of any loss, damage,
cost or expense incurred by the Company and the Trustee in connection therewith
and shall cancel and destroy such new Security.

      In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.


                                       38


      Upon the issuance of any new Security under this Section 306, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of counsel to the Company and the fees
and expenses of the Trustee, its agents and counsel) connected therewith.

      Every new Security of any series issued pursuant to this Section 306 in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.

      The provisions of this Section 306 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 307. Payment of Interest; Interest Rights Preserved.

      Except as otherwise provided as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest in respect of Securities of such
series, or any Tranche thereof, except that, unless otherwise provided in the
Securities of such series, or any Tranche thereof, interest payable on the
Stated Maturity of the principal of a Security shall be paid to the Person to
whom principal is paid. The initial payment of interest on any Security of any
series which is issued between a Regular Record Date and the related Interest
Payment Date shall be payable as provided in such Security or in the General
Partner Resolution pursuant to Section 301 with respect to the related series of
Securities. Except in the case of a Security in global form, at the option of
the Company, interest on any series of Securities may be paid (i) by check
mailed to the address of the Person entitled thereto as it shall appear on the
Security Register of such series or (ii) by wire transfer in immediately
available funds at such place and to such account as designated in writing by
the Person entitled thereto as specified in the Security Register of such
series.

      Any Paying Agents will be identified in a supplemental indenture hereto.
The Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; however, the Company at all times will be
required to maintain a Paying Agent in each Place of Payment for each series of
Securities.

      Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, any interest on any Security of any series which is
payable, but is not timely paid or duly provided for, on any Interest Payment
Date for Securities of such series (herein called "Defaulted Interest") shall
forthwith cease to be payable to the registered Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:


                                       39


            (1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a date (herein called a "Special Record
Date") for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on each Security of such series and
the date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as provided in this clause (1).
Thereupon the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than fifteen (15) days and not less
than ten (10) days prior to the date of the proposed payment and not less than
ten (10) days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to each Holder of Securities of such series in the manner
set forth in Section 109, not less than ten (10) days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2).

            (2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange or automated quotation system on which
such Securities may be listed or traded, and upon such notice as may be required
by such exchange or automated quotation system, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.

      Subject to the foregoing provisions of this Section 307 and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

SECTION 308. Persons Deemed Owners.

      The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the absolute owner
of such Security for the purpose of receiving payment of principal of and
premium, if any, and (subject to Sections 305 and 307) interest, if any, on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.

SECTION 309. Cancellation.


                                       40


      All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section 309, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be treated in
accordance with the Trustee's document retention policies.

SECTION 310. Computation of Interest; Usury Not Intended.

      Except as otherwise specified as contemplated by Section 301 for
Securities of any series, or any Tranche thereof, interest on the Securities of
each series shall be computed on the basis of a three hundred sixty (360)-day
year of twelve (12) thirty (30)-day months and interest on the Securities of
each series for any partial period shall be computed on the basis of a three
hundred sixty (360)-day year of twelve (12) thirty (30)-day months and the
actual number of days elapsed in any partial month.

      The amount of interest (or amounts deemed to be interest under applicable
law) payable or paid on any Security shall be limited to an amount which shall
not exceed the maximum nonusurious rate of interest allowed by the applicable
laws of the State of Texas or any applicable law of the United States permitting
a higher maximum nonusurious rate that preempts such applicable Texas laws,
which could lawfully be contracted for, taken, reserved, charged or received
(the "Maximum Interest Rate"). If, as a result of any circumstances whatsoever,
the Company or any other Person is deemed to have paid interest (or amounts
deemed to be interest under applicable law) or any Holder is deemed to have
contracted for, taken, reserved, charged or received interest (or amounts deemed
to be interest under applicable law), in excess of the Maximum Interest Rate,
then, ipso facto, the obligation to be fulfilled shall be reduced to the limit
of validity, and if from any such circumstance, the Trustee, acting on behalf of
the Holders, or any Holder shall ever receive interest or anything that might be
deemed interest under applicable law that would exceed the Maximum Interest
Rate, such amount that would be excessive interest shall be applied to the
reduction of the principal amount owing on the applicable Security or Securities
and not to the payment of interest, or if such excessive interest exceeds the
unpaid principal balance of any such Security or Securities, such excess shall
be refunded to the Company. In addition, for purposes of determining whether
payments in respect of any Security are usurious, all sums paid or agreed to be
paid with respect to such Security for the use, forbearance or detention of
money shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such Security.

SECTION 311. CUSIP Numbers.

      The Company in issuing the Securities may use "CUSIP" or other similar
numbers (if then generally in use), and, if so, the Trustee or Security
Registrar may use "CUSIP" or such other numbers in notices of redemption as a
convenience to Holders; provided that any such


                                       41


notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, in which case none of the Company or, as the
case may be, the Trustee or the Security Registrar, or any agent of any of them,
shall have any liability in respect of any CUSIP number used on any such notice,
and any such redemption shall not be affected by any defect in or omission of
such numbers. The Company shall promptly notify the Trustee in writing of any
change in "CUSIP" numbers.

                                 ARTICLE FOUR.

                             ISSUANCE OF SECURITIES

SECTION 401. General.

      Subject to the provisions of Section 402, 403 or 404, whichever may be
applicable, the Trustee shall authenticate and deliver Securities of a series,
for original issue, at one time or from time to time in accordance with the
Company Order referred to below, upon receipt by the Trustee of:

            (1) the instrument or instruments establishing the form or forms and
terms of such series, as provided in Sections 201 and 301;

            (2) a Company Order requesting the authentication and delivery of
such Securities and, to the extent that the terms of such Securities shall not
have been established in an indenture supplemental hereto or in a General
Partner Resolution, or in an Officer's Certificate pursuant to a supplemental
indenture or General Partner Resolution, all as contemplated by Section 301,
either (i) establishing such terms or (ii) in the case of Securities of a series
subject to a Periodic Offering, specifying procedures, acceptable to the
Trustee, by which such terms are to be established (which procedures may provide
for authentication and delivery pursuant to oral or electronic instructions from
the Company or any agent or agents thereof, which oral instructions are to be
promptly confirmed electronically or in writing), in either case in accordance
with the instrument or instruments delivered pursuant to clause (1) above;

            (3) the Securities of such series, executed on behalf of the Company
by an Authorized Officer; (4) an Opinion of Counsel to the effect that:

                  (A) the form or forms of such Securities have been duly
authorized by the Company and have been established in conformity with the
provisions of this Indenture;

                  (B) the terms of such Securities have been duly authorized by
the Company and have been established in conformity with the provisions of this
Indenture; and

                  (C) when such Securities shall have been authenticated and
delivered by the Trustee and issued and delivered by the Company in the manner
and subject to any conditions specified in such Opinion of Counsel, such
Securities will constitute valid and legally binding obligations of the Company,
enforceable against the Company (subject to customary


                                       42


exceptions) and entitled to the benefit of the Lien of this Indenture equally
and ratably with all other Securities then Outstanding;

provided, however, that, with respect to Securities of a series subject to a
Periodic Offering, the Trustee shall be entitled to receive such Opinion of
Counsel only once at or prior to the time of the first authentication and
delivery of such Securities (provided that such Opinion of Counsel addresses the
authentication and delivery of all such Securities) and that, in lieu of the
opinions described in clauses (B) and (C) above, counsel may opine that:

            (X)   when the terms of such Securities shall have been established
                  pursuant to a Company Order or Orders or pursuant to such
                  procedures as may be specified from time to time by a Company
                  Order or Orders, all as contemplated by and in accordance with
                  the instrument or instruments delivered pursuant to clause (1)
                  above, such terms will have been duly authorized by the
                  Company and will have been established in conformity with the
                  provisions of this Indenture; and

            (Y)   when such Securities shall have been authenticated and
                  delivered by the Trustee in accordance with this Indenture and
                  the Company Order or Orders or the specified procedures
                  referred to in paragraph (X) above and issued and delivered by
                  the Company in the manner and subject to any conditions
                  specified in such Opinion of Counsel, such Securities will
                  constitute valid and legally binding obligations of the
                  Company, entitled to the benefit of the Lien of this Indenture
                  equally and ratably with all other Securities then
                  Outstanding, and enforceable against the Company (subject to
                  customary exceptions);

            (5) an Officer's Certificate to the effect that, to the knowledge of
the signer, no Event of Default has occurred and is continuing; provided,
however, that with respect to Securities of a series subject to a Periodic
Offering, either (i) such an Officer's Certificate shall be delivered at the
time of the authentication and delivery of each Security of such series or (ii)
the Officer's Certificate delivered at or prior to the time of the first
authentication and delivery of the Securities of such series shall state that
the statements therein shall be deemed to be made at the time of each, or each
subsequent, authentication and delivery of Securities of such series;

            (6) a Net Earnings Certificate showing the Adjusted Net Earnings of
the Company for the period therein specified to have been not less than an
amount equal to two (2) times the Annual Interest Requirements therein
specified, all in accordance with the provisions of Section 104; provided,
however, that the Trustee shall not be entitled to receive a Net Earnings
Certificate hereunder if the Securities of such series are to have no Stated
Interest Rate prior to Maturity; and provided, further, that, with respect to
Securities of a series subject to a Periodic Offering, other than Securities
theretofore authenticated and delivered, (i) it shall be assumed in the Net
Earnings Certificate delivered in connection with the authentication and
delivery of Securities of such series that none of the Securities of such series
not yet authenticated and delivered shall have a Stated Interest Rate in excess
of a maximum rate to be stated therein, and thereafter no Securities of such
series which would have a Stated Interest Rate at the time of the initial
authentication and delivery thereof in excess of such maximum rate shall


                                       43


be authenticated and delivered under the authority of such Net Earnings
Certificate but instead shall only be authenticated and delivered under the
authority of a new Net Earnings Certificate which complies with the requirements
of this clause (6), including the proviso relating to Securities of a series
subject to a Periodic Offering, and (ii) so long as the Stated Interest Rate
that Securities of a series subject to a Periodic Offering bear at the time of
the initial authentication and delivery thereof does not exceed the maximum rate
assumed in the most recent Net Earnings Certificate delivered with respect to
the Securities of such series, the Trustee shall not be entitled to receive a
new Net Earnings Certificate at the time of any subsequent authentication and
delivery of the Securities of such series (unless such Securities are
authenticated and delivered on or after the date which is two years after the
most recent Net Earnings Certificate with respect to such series was delivered
pursuant to this clause (6), in which case this subclause (ii) shall not apply),
provided that no Net Earnings Certificate shall be required in connection with
the initial authentication and delivery of the Securities in the Initial Series;
and

            (7) such other Opinions of Counsel, certificates and other documents
as may be required under Section 402, 403 or 404, whichever may be applicable to
the authentication and delivery of the Securities of such series.

      With respect to Securities of a series subject to a Periodic Offering, the
Trustee may conclusively rely, as to the authorization by the Company of any of
such Securities, the forms and terms thereof, the validity thereof and the
compliance of the authentication and delivery thereof with the terms and
conditions of this Indenture, upon the Opinion or Opinions of Counsel and the
certificates and other documents delivered pursuant to this Article Four at or
prior to the time of the first authentication and delivery of Securities of such
series until any of such opinions, certificates or other documents have been
superseded or revoked or expire by their terms. In connection with the
authentication and delivery of Securities of a series subject to a Periodic
Offering, the Trustee shall be entitled to assume that the Company's
instructions to authenticate and deliver such Securities do not violate any
applicable law or any applicable rule, regulation or order of any Governmental
Authority having jurisdiction over the Company.

      Anything herein to the contrary notwithstanding, none of the conditions
specified in Sections 402, 403 and 404 shall be required to be satisfied in
connection with the initial authentication and delivery of the Securities of the
Initial Series.

SECTION 402. Issuance of Securities on the Basis of Property Additions.

            (1) Securities of any one or more series may be authenticated and
delivered on the basis of Property Additions which do not constitute Funded
Property in a principal amount not exceeding seventy percentum (70%) of the
balance of the Cost or the Fair Value to the Company of such Property Additions
(whichever shall be less) after making any deductions and any additions pursuant
to Section 103(2) except as otherwise specified in clause (2) with respect to
the Initial Expert's Certificate.

            (2) Securities of any series shall be authenticated and delivered by
the Trustee on the basis of Property Additions upon receipt by the Trustee of:


                                       44


                  (A) the documents with respect to the Securities of such
series specified in Section 401;

                  (B) an Expert's Certificate dated as of a date not more than
ninety (90) days prior to the date of the Company Order requesting the
authentication and delivery of such Securities:

                        (i) describing generally all property constituting
Property Additions and designated by the Company, in its discretion, to be made
the basis of the authentication and delivery of such Securities (such
description of property to be made by reference, at the election of the Company,
either to specified items, units and/or elements of property or portions
thereof, on a percentage or Dollar basis, or to properties reflected in
specified accounts or subaccounts in the Company's books of account or portions
thereof, on a Dollar basis), and stating the Cost of such property;

                        (ii) stating that all such property constitutes Property
Additions;

                        (iii) stating that such Property Additions are desirable
for use in the conduct of the business, or one of the businesses, of the
Company;

                        (iv) stating that such Property Additions, to the extent
of the Cost or Fair Value to the Company thereof (whichever is less) to be made
the basis of the authentication and delivery of such Securities, do not
constitute Funded Property;

                        (v) stating, except as to Property Additions acquired,
made or constructed wholly through the delivery of securities or other property
or the incurrence of other obligations, that the amount of cash forming all or
part of the Cost thereof was equal to or more than an amount to be stated
therein;

                        (vi) briefly describing, with respect to any Property
Additions acquired, made or constructed in whole or in part through the delivery
of securities or other property or the incurrence of other obligations, the
securities or other property so delivered or obligations so incurred and stating
the date of such delivery or incurrence;

                        (vii) stating what part, if any, of such Property
Additions includes property which within six months prior to the date of
acquisition thereof by the Company had been used or operated by others than the
Company in a business similar to that in which it has been or is to be used or
operated by the Company and stating whether or not, in the judgment of the
signers, the Fair Value thereof to the Company, as of the date of such
certificate, is less than One Hundred Thousand Dollars ($100,000) and whether or
not such Fair Value is less than one percentum (1%) of the aggregate principal
amount of Securities then Outstanding;

                        (viii) stating, in the judgment of the signers, the Fair
Value to the Company, as of the date of such certificate, of such Property
Additions, except any thereof with respect to the Fair Value to the Company of
which a statement is to be made in an Independent Expert's Certificate pursuant
to clause (C) below;


                                       45


                        (ix) stating the amount required to be deducted under
Section 103(2)(A) and the amounts elected to be added under Section 103(2)(B) in
respect of Funded Property retired of the Company;

                        (x) if any property included in such Property Additions
is subject to a Lien of the character described (a) in clause (4) of the
definition of Permitted Liens, stating that such Lien does not, in the judgment
of the signers, materially impair the use by the Company of the Mortgaged
Property considered as a whole, or (b) in clause (7)(ii) of the definition of
Permitted Liens, stating that such Lien does not, in the judgment of the
signers, in the aggregate materially impair the use by the Company of such
properties, considered as a whole for the purposes for which it is held by the
Company or (c) in clause (14)(ii) of the definition of Permitted Liens, stating
that the enforcement of such Lien would not, in the judgment of the signers,
adversely affect the interests of the Company in such property in any material
respect;

                        (xi) stating the lower of the Cost or the Fair Value to
the Company of such Property Additions, after the deductions therefrom and
additions thereto specified in such Expert's Certificate pursuant to clause (ix)
above;

                        (xii) stating the amount equal to seventy percentum
(70%) of the amount required to be stated pursuant to clause (xi) above; and

                        (xiii) stating the aggregate principal amount of the
Securities to be authenticated and delivered on the basis of such Property
Additions (such amount not to exceed the amount stated pursuant to clause (xii)
above); provided, however, that in the Initial Expert's Certificate there shall
be stated, in lieu of such principal amount, the sum of (a) the principal amount
of Securities to be authenticated and delivered on the basis of Property
Additions and (b) the aggregate principal amount of all Securities then
Outstanding (such sum not to exceed the amount stated pursuant to clause (xii)
above);

                  (C) in case any Property Additions are shown by the Expert's
Certificate provided for in clause (B) above to include property which, within
six months prior to the date of acquisition thereof by the Company, had been
used or operated by others than the Company in a business similar to that in
which it has been or is to be used or operated by the Company and such
certificate does not show the Fair Value thereof to the Company, as of the date
of such certificate, to be less than One Hundred Thousand Dollars ($100,000) or
less than one percentum (1%) of the aggregate principal amount of Securities
then Outstanding, an Independent Expert's Certificate stating, in the judgment
of the signer, the Fair Value to the Company, as of the date of such Independent
Expert's Certificate, of (X) such Property Additions which have been so used or
operated and (at the option of the Company) as to any other Property Additions
included in the Expert's Certificate provided for in clause (B) above and (Y) in
case such Independent Expert's Certificate is being delivered in connection with
the authentication and delivery of Securities, any property so used or operated
which has been subjected to the Lien of this Indenture since the commencement of
the then current calendar year as the basis for the authentication and delivery
of Securities and as to which an Independent Expert's Certificate has not
previously been furnished to the Trustee;


                                       46


                  (D) in case any Property Additions are shown by the Expert's
Certificate provided for in clause (B) above to have been acquired, made or
constructed in whole or in part through the delivery of securities or other
property or the incurrence of an obligation, an Expert's Certificate stating, in
the judgment of the signers, the fair market value in cash of such securities or
other property or other obligation at the time of delivery thereof in payment
for or for the acquisition of such Property Additions;

                  (E) an Opinion of Counsel to the effect that:

                        (i) this Indenture constitutes, or, upon the delivery
of, and/or the filing and/or recording in the proper places and manner of, the
instruments of conveyance, assignment or transfer, if any, specified in said
opinion, will constitute, a Lien on all the Property Additions to be made the
basis of the authentication and delivery of such Securities, subject to no Lien
thereon prior to the Lien of this Indenture except Permitted Liens; and

                        (ii) the Company has limited partnership authority to
operate such Property Additions; and

                  (F) copies of the instruments of conveyance, assignment and
transfer, if any, specified in the Opinion of Counsel provided for in clause (E)
above.

SECTION 403. Issuance of Securities on the Basis of Retired Securities.

            (1) Securities of any one or more series may be authenticated and
delivered on the basis of, and in an aggregate principal amount not exceeding
the aggregate principal amount of, Retired Securities.

            (2) Securities of any series shall be authenticated and delivered by
the Trustee on the basis of Retired Securities upon receipt by the Trustee of:

                  (A) the documents with respect to the Securities of such
series specified in Section 401; provided, however, that no Net Earnings
Certificate shall be required to be delivered unless the maximum Stated Interest
Rate, if any, on such Retired Securities at the time of their authentication and
delivery was less than the maximum Stated Interest Rate, if any, on such
Securities to be in effect upon the initial authentication and delivery thereof;
and

                  (B) an Officer's Certificate stating that Retired Securities,
specified by series, in an aggregate principal amount not less than the
aggregate principal amount of Securities to be authenticated and delivered, have
theretofore been authenticated and delivered and, as of the date of such
Officer's Certificate, constitute, or will constitute upon the application of
the proceeds of issuance of the Securities to be authenticated and delivered on
the basis of such Retired Securities to the repayment of the aggregate principal
amount of such Retired Securities, Retired Securities and are the basis for the
authentication and delivery of such Securities.

SECTION 404. Issuance of Securities on the Basis of Deposit of Cash.


                                       47


            (1) Securities of any one or more series may be authenticated and
delivered on the basis of, and in an aggregate principal not exceeding the
amount of, any deposit with the Trustee of cash for such purpose.

            (2) Securities of any series shall be authenticated and delivered by
the Trustee on the basis of the deposit of cash when the Trustee shall have
received, in addition to such deposit, the documents with respect to the
Securities of such series specified in Section 401.

            (3) All cash deposited with the Trustee under the provisions of this
Section shall be held by the Trustee as a part of the Mortgaged Property and may
be withdrawn from time to time by the Company, upon application of the Company
to the Trustee, in an amount equal to the aggregate principal amount of
Securities to the authentication and delivery of which the Company shall be
entitled under any of the provisions of this Indenture by virtue of compliance
with all applicable provisions of this Indenture (except as hereinafter in this
clause (3) otherwise provided).

      Upon any such application for withdrawal, the Company shall comply with
all applicable provisions of this Indenture relating to the authentication and
delivery of Securities except that the Company shall not in any event be
required to deliver the documents specified in Section 401.

      Any withdrawal of cash under this clause (3) shall operate as a waiver by
the Company of its right to the authentication and delivery of the Securities on
which it is based and such Securities may not thereafter be authenticated and
delivered hereunder. Any Property Additions which have been made the basis of
any such right to the authentication and delivery of Securities so waived shall
be deemed to have been made the basis of the withdrawal of such cash and any
Retired Securities which have been made the basis of any such right to the
authentication and delivery of Securities so waived shall be deemed to have been
made the basis of the withdrawal of such cash.

            (4) If at any time the Company shall so direct, any sums deposited
with the Trustee under the provisions of this Section may be used or applied to
the purchase, payment or redemption of Securities in the manner and subject to
the conditions provided in clauses (4) and (5) of Section 706.

                                 ARTICLE FIVE.

                            REDEMPTION OF SECURITIES

SECTION 501. Applicability of Article.

      Securities of any series, or any Tranche thereof, which are redeemable
before their Stated Maturity shall be redeemable in accordance with their terms
and (except as otherwise specified as contemplated by Section 301 for Securities
of such series or Tranche) in accordance with this Article.

SECTION 502. Election to Redeem; Notice to Trustee.


                                       48


      The election of the Company to redeem any Securities shall be evidenced by
a General Partner Resolution or in another manner specified as contemplated by
Section 301 for such Securities. In case of any redemption at the election of
the Company of less than all the Securities of any series (including any such
redemption affecting only a single Security), the Company shall, not less than
forty-five (45) nor more than sixty (60) days prior to the Redemption Date fixed
by the Company (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee of such Redemption Date, of the principal amount of
Securities of such series, or any Tranche thereof, to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In the case of any
redemption of Securities (a) prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture, or (b) pursuant to an election of the Company which is subject to a
condition specified in the terms of such Securities, the Company shall furnish
the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing
compliance with such restriction or condition.

SECTION 503. Selection by Trustee of Securities to Be Redeemed.

      If less than all the Securities of any series, or any Tranche thereof, are
to be redeemed (unless all the Securities of such series or Tranche and of a
specified tenor are to be redeemed or unless such redemption affects only a
single Security), the particular Securities to be redeemed shall be selected not
more than sixty (60) days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series, or any Tranche thereof, not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security of such series, or any Tranche thereof,
provided that the unredeemed portion of the principal amount of any Security
shall be in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security. If less than all the Securities of
such series, or any Tranche thereof, and of a specified tenor are to be redeemed
(unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than sixty (60) days prior
to the Redemption Date by the Trustee, from the Outstanding Securities of such
series, or any Tranche thereof, and specified tenor not previously called for
redemption in accordance with the preceding sentence.

      The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.

      The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.

      For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
If the Company shall so direct, Securities registered in the name of


                                       49


the Company or any Affiliate thereof shall not be included in the Securities
selected for redemption.

SECTION 504. Notice of Redemption.

      Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than thirty (30) nor more than sixty (60) days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.

      With respect to Securities of each series, or any Tranche thereof, to be
redeemed, each notice of redemption shall identify the Securities to be redeemed
(including CUSIP numbers) and shall state:

            (1) the Redemption Date;

            (2) the Redemption Price;

            (3) if less than all the Outstanding Securities of any series, or
any Tranche thereof, consisting of more than a single Security are to be
redeemed, the identification (and, in the case of partial redemption of any such
Securities, the principal amounts) of the particular Securities to be redeemed
and, if less than all the Outstanding Securities of any series, or any Tranche
thereof, consisting of a single Security are to be redeemed, the principal
amount of the particular Security to be redeemed;

            (4) that on the Redemption Date the Redemption Price, together with
accrued interest, if any, to the Redemption Date, will become due and payable
upon each such Security to be redeemed and, if applicable, that interest thereon
will cease to accrue on and after said date;

            (5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any, unless it
shall have been specified as contemplated by Section 301 with respect to such
Securities that such surrender shall not be required;

            (6) that the redemption is for a sinking fund, if such is the case;

            (7) such other matters as the Company shall deem desirable or
appropriate; and

            (8) with respect to any notice of redemption of Securities at the
election of the Company, unless, upon the giving of such notice, such Securities
shall be deemed to have been paid in accordance with Section 801, such notice
may state that such redemption shall be conditional upon the receipt by the
Paying Agent or Agents for such Securities, on or prior to the date fixed for
such redemption, of money sufficient to pay the principal of and premium, if
any, and interest, if any, on such Securities and that if such money shall not
have been so received such notice shall be of no force or effect and the Company
shall not be required to redeem such Securities. In the event that such notice
of redemption contains such a condition and such money is not so received, the
redemption shall not be made and within a reasonable time thereafter notice
shall be given, in the manner in which the notice of redemption was given, that
such


                                       50


money was not so received and such redemption was not required to be made, and
the Paying Agent or Agents for the Securities otherwise to have been redeemed
shall promptly return to the Holders thereof any of such Securities which had
been surrendered for payment upon such redemption.

      Notice of redemption of Securities to be redeemed at the election of the
Company, and any notice of non-satisfaction of a condition for redemption as
aforesaid, shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice. In any case, a failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Security.

SECTION 505. Deposit of Redemption Price.

      On or before the Redemption Date specified in the notice of redemption
given as provided in Section 504, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 603) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date.

SECTION 506. Securities Payable on Redemption Date.

      Notice of redemption having been given as aforesaid, and the conditions,
if any, set forth in such notice having been satisfied, the Securities or
portions thereof so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless, in the case of an unconditional notice of redemption, the Company shall
default in the payment of the Redemption Price and accrued interest, if any)
such Securities or portions thereof, if interest bearing, shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
such notice, such Security or portion thereof shall be paid by the Company at
the Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that no such surrender shall be a condition to such
payment if so specified as contemplated by Section 301 with respect to such
Security; and provided, further, that, except as otherwise specified as
contemplated by Section 301 with respect to such Security, any installment of
interest on any Security the Stated Maturity of which installment is on or prior
to the Redemption Date shall be payable to the Holder of such Security, or one
or more Predecessor Securities, registered as such at the close of business on
the related Record Date according to the terms of such Security and subject to
the provisions of Section 307.

      If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.

SECTION 507. Securities Redeemed in Part.


                                       51


      Any Security which is to be redeemed only in part shall be surrendered at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.

                                  ARTICLE SIX.

                                    COVENANTS

SECTION 601. Payment of Securities; Lawful Possession; Maintenance of Lien.

            (1) The Company covenants and agrees that it will duly and
punctually pay the principal of and any premium and interest on the Securities
of each series in accordance with the terms of such Securities and this
Indenture.

            (2) At the date of the execution and delivery of this Indenture, as
originally executed and delivered, the Company is lawfully possessed of the
Mortgaged Property.

            (3) The Company shall maintain and preserve the Lien of this
Indenture so long as any Securities shall remain Outstanding, subject, however,
to the provisions of Article Seven and Article Thirteen.

SECTION 602. Maintenance of Office or Agency.

      The Company will maintain in each Place of Payment for the Securities of
each series, or any Tranche thereof, an office or agency where Securities of
that series or Tranche may be presented or surrendered for payment, where
Securities of that series or Tranche may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities of that series or Tranche and this Indenture may be
served. The Company initially appoints the Trustee, acting through its Corporate
Trust Office, as its agent for said purpose. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency and prompt notice to the Holders of any such change in
the manner specified in Section 109. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

      The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series, or any Tranche thereof,
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in each Place of Payment for Securities of any
series for such purposes. The Company will give prompt written notice to the


                                       52


Trustee, and prompt notice to the Holders in the manner specified in Section
109, of any such designation or rescission and of any change in the location of
any such other office or agency.

      Anything herein to the contrary notwithstanding, any office or agency
required by this Section may be maintained at an office of the Company, in which
event the Company shall perform all functions to be performed at such office or
agency.

SECTION 603. Money for Securities Payments to Be Held in Trust.

      If the Company shall at any time act as its own Paying Agent with respect
to the Securities of any series, or any Tranche thereof, it will, on or before
each due date of the principal of or any premium or interest on any such
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and any premium and interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.

      Whenever the Company shall have one or more Paying Agents for the
Securities of any series, or any Tranche thereof, it will provide to a Paying
Agent a sum sufficient to pay the principal of or any premium or interest on
such Securities, such sum to be held as provided by the Trust Indenture Act, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.

      The Company will cause each Paying Agent for the Securities of any series,
or any Tranche thereof, other than the Company or the Trustee, to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee, subject to the provisions of this Section 603, that such Paying
Agent will:

            (1) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent; and

            (2) during the continuance of any default by the Company (or any
other obligor upon such Securities), upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of such Securities.

      The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.

      Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability


                                       53


of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, shall, upon receipt of a Company Request and at the expense
of the Company, cause to be published once, in a newspaper published in the
English language, customarily published on each Business Day and of general
circulation in The City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than thirty
(30) days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company. In the absence of a written
request from the Company to return unclaimed funds to the Company, the Trustee
or Paying Agent shall from time to time deliver all unclaimed funds to or as
directed by applicable escheat authorities, as determined by the Trustee or the
Paying Agent in its sole discretion, in accordance with its customary practices
and procedures. Any unclaimed funds held by the Trustee or Paying Agent pursuant
to this Section 603 shall be held uninvested and without any liability for
interest.

SECTION 604. Existence.

      Subject to Article Twelve and the Company's ability to convert into a
corporation, limited liability company or limited liability partnership or other
legal entity under applicable law, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence as
a limited partnership. On and after any conversion of the Company into a
corporation, limited liability company or limited liability partnership or other
legal entity under applicable law, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate,
limited liability company or limited liability partnership or other existence,
as applicable.

SECTION 605. Maintenance of Properties.

      The Company shall cause (or, with respect to property owned in common with
others, make reasonable effort to cause) the Mortgaged Property, considered as a
whole, to be maintained and kept in good condition, repair and working order and
shall cause (or, with respect to property owned in common with others, make
reasonable effort to cause) to be made such repairs, renewals, replacements,
betterments and improvements thereof, as, in the judgment of the Company, may be
necessary in order that the operation of the Mortgaged Property, considered as a
whole, may be conducted in accordance with common industry practice; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing, or causing the discontinuance of, the operation and maintenance
of any portion of the Mortgaged Property; and provided, further, that nothing in
this Section shall prevent the Company from selling, transferring or otherwise
disposing of, or causing the sale, transfer or other disposition of, any portion
of the Mortgaged Property or other property, subject to the provisions of this
Indenture.

SECTION 606. Payment of Taxes; Discharge of Liens.

      The Company shall pay all taxes and assessments and other governmental
charges lawfully levied or assessed upon the Mortgaged Property, or upon any
part thereof, or upon the interest of the Trustee in the Mortgaged Property,
before the same shall become delinquent, and


                                       54


shall make reasonable effort to observe and conform in all material respects to
all valid requirements of any Governmental Authority relative to any of the
Mortgaged Property and all covenants, terms and conditions upon or under which
any of the Mortgaged Property is held; and the Company shall not suffer any Lien
to be created upon the Mortgaged Property, or any part thereof, prior to the
Lien hereof, other than Permitted Liens and other than, in the case of property
hereafter acquired, Purchase Money Liens and any other Liens existing or placed
thereon at the time of the acquisition thereof; provided, however, that nothing
in this Section contained shall require the Company (i) to observe or conform to
any requirement of Governmental Authority or to cause to be paid or discharged,
or to make provision for, any such Lien, or to pay any such tax, assessment or
governmental charge so long as the validity thereof shall be contested in good
faith and by appropriate legal proceedings or such Lien, tax, assessment or
charge is not greater than Five Million Dollars ($5,000,000), (ii) to pay,
discharge or make provisions for any tax, assessment or other governmental
charge, the validity of which shall not be so contested if adequate security for
the payment of such tax, assessment or other governmental charge and for any
penalties or interest which may reasonably be anticipated from failure to pay
the same shall be given to the Trustee or (iii) to pay, discharge or make
provisions for any Liens existing on the Mortgaged Property at the date of
execution and delivery of this Indenture, as originally executed and delivered;
and provided, further, that nothing in this Section shall prohibit the issuance
or other incurrence of additional indebtedness, or the refunding of outstanding
indebtedness, secured by any Lien prior to the Lien hereof which is permitted
under this Section to continue to exist.

SECTION 607. Insurance.

            (1) The Company shall (i) keep or cause to be kept all the Mortgaged
Property insured against loss by fire, to the extent that property of similar
character is usually so insured by companies similarly situated and operating
like properties, to a reasonable amount, by reputable insurance companies, the
proceeds of such insurance (except as to any loss of Excepted Property and
except as to any particular loss less than the greater of (A) Thirty Million
Dollars ($30,000,000) and (B) three percentum (3%) of the principal amount of
Securities Outstanding on the date of such particular loss) to be made payable,
subject to applicable law, to the Trustee as the interest of the Trustee may
appear, or to the trustee or other holder of any other Lien prior hereto upon
property subject to the Lien hereof, if the terms thereof require such payment
or (ii) in lieu of or supplementing such insurance in whole or in part, adopt
some other method or plan of protection against loss by fire at least equal in
protection to the method or plan of protection against loss by fire of companies
similarly situated and operating properties subject to similar fire hazards or
properties on which an equal primary fire insurance rate has been set by
reputable insurance companies; and if the Company shall adopt such other method
or plan of protection, it shall, subject to applicable law (and except as to any
loss of Excepted Property and except as to any particular loss less than the
greater of (X) Thirty Million Dollars ($30,000,000) and (Y) three percentum (3%)
of the principal amount of Securities Outstanding on the date of such particular
loss) pay to the Trustee on account of any loss covered by such method or plan
an amount in cash equal to the amount of such loss less any amounts otherwise
paid to the Trustee in respect of such loss or paid to the trustee or other
holder of any other Lien prior hereto upon property subject to the Lien hereof
in respect of such loss if the terms thereof require such payment. Any cash so
required to be paid by the Company pursuant to any such method or plan shall for
the purposes of this Indenture be deemed to be proceeds of insurance. In case of
the adoption of such


                                       55


other method or plan of protection, the Company shall also furnish to the
Trustee a certificate of an actuary or other qualified person appointed by the
Company with respect to the adequacy of such method or plan.

      Anything herein to the contrary notwithstanding, the Company may have fire
insurance policies with (i) a deductible provision in a dollar amount per
occurrence not exceeding the greater of (A) Thirty Million Dollars ($30,000,000)
and (B) three percentum (3%) of the principal amount of the Securities
Outstanding on the date such policy goes into effect and/or (ii) co-insurance
provisions with a dollar amount per occurrence not exceeding thirty percentum
(30%) of the loss proceeds otherwise payable; provided, however, that the dollar
amount described in clause (i) above may be exceeded to the extent such dollar
amount per occurrence is below the deductible amount in effect as to fire
insurance (X) on property of similar character insured by companies similarly
situated and operating like property or (Y) on property as to which an equal
primary fire insurance rate has been set by reputable insurance companies.

            (2) All moneys paid to the Trustee by the Company in accordance with
this Section or received by the Trustee as proceeds of any insurance, in either
case on account of a loss on or with respect to Funded Property, shall, subject
to the requirements of any other Lien prior hereto upon property subject to the
Lien hereof, be held by the Trustee and, subject as aforesaid, shall be paid by
it from time to time to the Company to reimburse the Company for amounts
(including incremental amounts) expended or committed for expenditure in the
rebuilding, renewal and/or replacement of or substitution for the property
destroyed or damaged or lost, upon receipt by the Trustee of:

                  (A) a Company Request requesting such payment;

                  (B) an Expert's Certificate:

                        (i) describing the property so damaged or destroyed or
otherwise lost;

                        (ii) stating the Cost of such property (or, if the Fair
Value to the Company of such property at the time the same became Funded
Property was certified to be an amount less than the Cost thereof, then such
Fair Value, as so certified, in lieu of Cost) or, if such damage or destruction
shall have affected only a portion of such property, stating the allocable
portion of such Cost or Fair Value;

                        (iii) stating the amounts so expended or committed for
expenditure in the rebuilding, renewal, replacement of and/or substitution for
such property; and

                        (iv) stating the Fair Value to the Company of such
property as rebuilt or renewed or as to be rebuilt or renewed and/or of the
replacement or substituted property, and if:

                              (a) within six months prior to the date of
acquisition thereof by the Company, such property has been used or operated, by
a person or persons other than the Company, in a business similar to that in
which it has been or is to be used or operated by the Company; and


                                       56


                              (b) the Fair Value to the Company of such property
as set forth in such Expert's Certificate is not less than One Hundred Thousand
Dollars ($100,000) and not less than one percentum (1%) of the aggregate
principal amount of the Securities at the time Outstanding, the Expert making
the statement required by this clause (B) shall be an Independent Expert; and

                  (C) an Opinion of Counsel stating that, in the opinion of the
signer, the property so rebuilt or renewed or to be rebuilt or renewed, and/or
the replacement property, is or will be subject to the Lien hereof to the same
extent as was the property so destroyed or damaged or otherwise lost.

      Any such moneys not so applied within thirty-six (36) months after its
receipt by the Trustee, or in respect of which notice in writing of intention to
apply the same to the work of rebuilding, renewal, replacement or substitution
then in progress and uncompleted shall not have been given to the Trustee by the
Company within such thirty-six (36) months, or which the Company shall at any
time notify the Trustee is not to be so applied, shall thereafter be withdrawn,
used or applied in the manner, to the extent and for the purposes, and subject
to the conditions, provided in Section 706; provided, however, that if the
amount of such moneys shall exceed seventy percentum (70%) of the amount stated
pursuant to clause (B) in the Expert's Certificate referred to above, the amount
of such excess shall not be deemed to be Funded Cash, shall not be subject to
Section 706 and shall be remitted to or upon the order of the Company upon the
withdrawal, use or application of the balance of such moneys pursuant to Section
706.

      Anything in this Indenture to the contrary notwithstanding, if property on
or with respect to which a loss occurs constitutes Funded Property in part only,
the Company may, at its election, obtain the reimbursement of insurance proceeds
attributable to the part of such property which constitutes Funded Property
under this clause (2) and obtain the reimbursement of insurance proceeds
attributable to the part of such property which does not constitute Funded
Property under clause (3) of this Section 607.

            (3) All moneys paid to the Trustee by the Company in accordance with
this Section or received by the Trustee as proceeds of any insurance, in either
case on account of a loss on or with respect to property which does not
constitute Funded Property, shall, subject to the requirements of any other Lien
prior hereto upon property subject to the Lien hereof, be held by the Trustee
and, subject as aforesaid, shall be paid by it to the Company upon receipt by
the Trustee of:

                  (A) a Company Request requesting such payment;

                  (B) an Expert's Certificate stating:

                        (i) that such moneys were paid to or received by the
Trustee on account of a loss on or with respect to property which does not
constitute Funded Property; and

                        (ii) if true, either (I) that the aggregate amount of
the Cost or Fair Value to the Company (whichever is less) of all Property
Additions which do not constitute Funded Property (excluding, to the extent of
such loss, the property on or with respect to which


                                       57


such loss was incurred), after making deductions therefrom and additions thereto
of the character contemplated by Section 103, is not less than zero (0) or (II)
that the amount of such loss does not exceed the aggregate Cost or Fair Value to
the Company (whichever is less) of Property Additions acquired, made or
constructed on or after the ninetieth (90th) day prior to the date of the
Company Request requesting such payment; or

                        (iii) if neither of the statements contemplated in
subclause (ii) above can be made, the amount by which zero (0) exceeds the
amount referred to in subclause (ii)(I) above (showing in reasonable detail the
calculation thereof); and

                  (C) if the Expert's Certificate required by clause (B) above
contains neither of the statements contemplated in clause (B)(ii) above, an
amount in cash, to be held by the Trustee as part of the Mortgaged Property,
equal to seventy percentum (70%) of the amount shown in clause (B)(iii) above.

      To the extent that the Company shall be entitled to withdraw proceeds of
insurance pursuant to this clause (3), such proceeds shall be deemed not to
constitute Funded Cash.

            (4) Whenever under the provisions of this Section the Company is
required to deliver moneys to the Trustee and at the same time shall have
satisfied the conditions set forth herein for payment of moneys by the Trustee
to the Company, there shall be paid to or retained by the Trustee or paid to the
Company, as the case may be, only the net amount.

SECTION 608. Recording, Filing, etc.

      The Company shall cause this Indenture and all indentures and instruments
supplemental hereto (or notices, memoranda or financing statements as may be
recorded or filed to place third parties on notice thereof) to be promptly
recorded and filed and re-recorded and re-filed in such manner and in such
places, as may be required by law in order fully to preserve and protect the
security of the Holders and all rights of the Trustee, and shall furnish to the
Trustee:

            (1) promptly after the execution and delivery of this Indenture, as
originally executed and delivered, and of each supplemental indenture, an
Opinion of Counsel either stating that in the opinion of such counsel this
Indenture or such supplemental indenture (or any other instrument, notice,
memorandum or financing statement in connection therewith) has been properly
recorded and filed, so as to make effective the Lien intended to be created
hereby or thereby, and reciting the details of such action, or stating that in
the opinion of such counsel no such action is necessary to make such Lien
effective. The Company shall be deemed to be in compliance with this clause (1)
if (i) the Opinion of Counsel herein required to be delivered to the Trustee
shall state that this Indenture or such supplemental indenture (or any other
instrument, notice, memorandum or financing statement in connection therewith)
has been received for record or filing in each jurisdiction in which it is
required to be recorded or filed and that, in the opinion of such counsel (if
such is the case), such receipt for record or filing makes effective the Lien
intended to be created by this Indenture or such supplemental indenture, and
(ii) such opinion is delivered to the Trustee within such time, following the
date of the execution and delivery of this Indenture, as originally executed and
delivered, or such supplemental indenture, as shall be practicable having due
regard to the number and distance of the


                                       58


jurisdictions in which this Indenture or such supplemental indenture (or such
other instrument, notice, memorandum or financing statement in connection
therewith) is required to be recorded or filed; and

            (2) on or before April 1 of each year, beginning April 1, 2004, an
Opinion of Counsel stating either (i) that in the opinion of such counsel such
action has been taken, since the date of the most recent Opinion of Counsel
furnished pursuant to this clause (2) or the first Opinion of Counsel furnished
pursuant to clause (1) of this Section, with respect to the recording, filing,
re-recording, and re-filing of this Indenture and of each indenture supplemental
to this Indenture (or any other instrument, notice, memorandum or financing
statement in connection therewith), as is necessary to maintain the
effectiveness of the Lien hereof, and reciting the details of such action, or
(ii) that in the opinion of such counsel no such action is necessary to maintain
the effectiveness of such Lien.

      The Company shall execute and deliver such supplemental indenture or
indentures and such further instruments and do such further acts as may be
necessary or proper to carry out the purposes of this Indenture and to make
subject to the Lien hereof any property hereafter acquired, made or constructed
and intended to be subject to the Lien hereof, and to transfer to any new
trustee or trustees or co-trustee or co-trustees, the estate, powers,
instruments or funds held in trust hereunder.

SECTION 609. Waiver of Certain Covenants.

      The Company may omit in any particular instance to comply with any term,
provision or condition set forth in:

            (1) any covenant or restriction specified with respect to the
Securities of any one or more series, or any one or more Tranches thereof, as
contemplated by Section 301 if before the time for such compliance the Holders
of at least a majority in aggregate principal amount of the Outstanding
Securities of all series and Tranches with respect to which compliance with such
covenant or restriction is to be omitted, considered as one class, shall, by Act
of such Holders, either waive such compliance in such instance or generally
waive compliance with such term, provision or condition; provided, however, that
no such waiver shall be effective as to any of the matters contemplated in
clause (1), (2), (3) or (4) in Section 1302 without the consent of the Holders
specified in such Section; and

            (2) Section 604, 605, 606 or 607 or Article Twelve if before the
time for such compliance the Holders of at least a majority in principal amount
of Securities Outstanding under this Indenture shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition; but, in either case, no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.

SECTION 610. Annual Officer's Certificate as to Compliance.


                                       59


      Within one hundred twenty (120) days after the end of each fiscal year of
the Company ending after the date hereof, the Company shall deliver to the
Trustee an Officer's Certificate which need not comply with Section 105,
executed by the principal executive officer, the principal financial officer or
the principal accounting officer of the Company, as to such officer's knowledge
of the Company's compliance with all conditions and covenants under this
Indenture, such compliance to be determined (solely for the purpose of this
Section 610) without regard to any period of grace or requirement of notice
under this Indenture.

                                 ARTICLE SEVEN.

                POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY

SECTION 701. Quiet Enjoyment.

      Unless one or more Events of Default shall have occurred and be
continuing, the Company shall be permitted to possess, use and enjoy the
Mortgaged Property (except, to the extent not herein otherwise provided, such
cash and securities as are expressly required to be deposited with the Trustee).

SECTION 702. Dispositions without Release.

      Unless an Event of Default shall have occurred and be continuing, the
Company may at any time and from time to time, without any release or consent
by, or report to, the Trustee:

            (1) sell or otherwise dispose of, free from the Lien of this
Indenture, any machinery, equipment, apparatus, towers, transformers, poles,
lines, cables, conduits, ducts, conductors, meters, regulators, holders, tanks,
retorts, purifiers, odorizers, scrubbers, compressors, valves, pumps, mains,
pipes, service pipes, fittings, connections, services, tools, implements, or any
other fixtures or personalty, then subject to the Lien hereof, which shall have
become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable,
undesirable or unnecessary for use in the operations of the Company upon
replacing the same by, or substituting for the same, similar or analogous
property, or other property performing a similar or analogous function or
otherwise obviating the need therefor, having a Fair Value to the Company at
least equal to that of the property sold or otherwise disposed of and subject to
the Lien hereof, subject to no Liens prior hereto except Permitted Liens and any
other Liens to which the property sold or otherwise disposed of was subject;

            (2) cancel or make changes or alterations in or substitutions for
any and all easements, servitudes, rights-of-way and similar rights and/or
interests;

            (3) surrender or assent to the modification of any right, power,
franchise, license, governmental consent or permit under which it may be
operating, provided that any such surrender or modification which adversely
affects the Mortgaged Property, taken as a whole, in any material respect is, in
the opinion of the General Partner (such opinion to be stated in a resolution to
be filed with the Trustee), necessary or desirable in the conduct of the
business of the Company; and


                                       60


            (4) grant, free from the Lien of this Indenture, easements, ground
leases or rights-of-way in, upon, over and/or across the property or
rights-of-way of the Company for the purpose of roads, pipe lines, transmission
lines, distribution lines, communication lines, railways, removal of coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real property, rights-of-way, facilities and/or equipment; provided,
however, that such grant shall not materially impair the use of the property or
rights-of-way for the purposes for which such property or rights-of-way are held
by the Company.

SECTION 703. Release of Funded Property.

      Unless an Event of Default shall have occurred and be continuing, the
Company may obtain the release of any part of the Mortgaged Property, or any
interest therein, which constitutes Funded Property, and the Trustee shall
release all its right, title and interest in and to the same from the Lien
hereof, upon receipt by the Trustee of:

            (1) a Company Order requesting the release of such property and
transmitting therewith a form of instrument to effect such release;

            (2) an Officer's Certificate stating that, to the knowledge of the
signer, no Event of Default has occurred and is continuing;

            (3) an Expert's Certificate made and dated not more than ninety (90)
days prior to the date of such Company Order:

                  (A) describing the property to be released;

                  (B) stating the Fair Value, in the judgment of the signers, of
the property to be released;

                  (C) stating the Cost of the property to be released (or, if
the Fair Value to the Company of such property at the time the same became
Funded Property was certified to be an amount less than the Cost thereof, then
such Fair Value, as so certified, in lieu of Cost); and

                  (D) stating that, in the judgment of the signers, such release
will not impair the security under this Indenture in contravention of the
provisions hereof;

            (4) an amount in cash to be held by the Trustee as part of the
Mortgaged Property, equal to the amount, if any, by which seventy percentum
(70%) of the amount referred to in clause (3)(C) above exceeds the aggregate of
the following items:

                  (A) an amount equal to seventy percentum (70%) of the
aggregate principal amount of any obligations secured by Purchase Money Lien
delivered to the Trustee, to be held as part of the Mortgaged Property, subject
to the limitations hereafter in this Section set forth;

                  (B) an amount equal to seventy percentum (70%) of the Cost or
Fair Value to the Company (whichever is less), after making any deductions and
any additions


                                       61


pursuant to Section 103, of any Property Additions not constituting Funded
Property described in an Expert's Certificate, dated not more than ninety (90)
days prior to the date of the Company Order requesting such release and
complying with clause (B) and, to the extent applicable, clause (C) in Section
402(2), delivered to the Trustee; provided, however, that the deductions and
additions contemplated by Section 103 shall not be required to be made if such
Property Additions were acquired, made or constructed on or after the ninetieth
(90th) day preceding the date of such Company Order;

                  (C) the aggregate principal amount of Securities to the
authentication and delivery of which the Company shall be entitled under the
provisions of Section 403, by virtue of compliance with all applicable
provisions of Section 403 (except as hereinafter in this Section otherwise
provided); provided, however, that such release shall operate as a waiver by the
Company of the right to the authentication and delivery of such Securities and,
to such extent, no such Securities may thereafter be authenticated and delivered
hereunder; and any Securities which were the basis of such right to the
authentication and delivery of Securities so waived shall be deemed to have been
made the basis of such release of property;

                  (D) any amount in cash and/or an amount equal to seventy
percentum (70%) of the aggregate principal amount of any obligations secured by
Purchase Money Lien that, in either case, is evidenced to the Trustee by a
certificate of the trustee or other holder of a Lien prior to the Lien of this
Indenture to have been received by such trustee or other holder in accordance
with the provisions of such Lien in consideration for the release of such
property or any part thereof from such Lien, all subject to the limitations
hereafter in this Section set forth;

                  (E) the aggregate principal amount of any Outstanding
Securities delivered to the Trustee; and

                  (F) any taxes and expenses incidental to any sale, exchange,
dedication or other disposition of the property to be released;

            (5) if the release is on the basis of Property Additions or on the
basis of the right to the authentication and delivery of Securities under
Section 403, all documents contemplated below in this Section; and

            (6) if the release is on the basis of the delivery to the Trustee or
to the trustee or other holder of a prior Lien of obligations secured by
Purchase Money Lien, all documents contemplated below in this Section, to the
extent required.

      If and to the extent that the release of property is, in whole or in part,
based upon Property Additions (as permitted under the provisions of clause
(4)(B) in the first paragraph of this Section), the Company shall, subject to
the provisions of said clause (4)(B) and except as hereafter in this paragraph
provided, comply with all applicable provisions of this Indenture as if such
Property Additions were to be made the basis of the authentication and delivery
of Securities equal in principal amount to seventy percentum (70%) of the Cost
(or, as to property of which the Fair Value to the Company at the time the same
became Funded Property was certified to be an amount less than the Cost thereof,
such Fair Value, as so certified, in lieu of Cost) of that portion of the
property to be released which is to be released on the basis of such


                                       62


Property Additions, as shown by the Expert's Certificate required by clause (3)
in the first paragraph of this Section; provided, however, that the Cost of any
Property Additions received or to be received by the Company in whole or in part
as consideration in exchange for the property to be released shall for all
purposes of this Indenture be deemed to be the amount stated in the Expert's
Certificate provided for in clause (3) in the first paragraph of this Section to
be the Fair Value of the property to be released (x) plus the amount of any cash
and the fair market value of any other consideration, further to be stated in
such Expert's Certificate, paid and/or delivered or to be paid and/or delivered
by, and the amount of any obligations assumed or to be assumed by, the Company
in connection with such exchange as additional consideration for such Property
Additions and/or (y) less the amount of any cash and the fair market value of
any other consideration, which shall also be stated in such Expert's
Certificate, received or to be received by the Company in connection with such
exchange in addition to such Property Additions. If and to the extent that the
release of property is in whole or in part based upon the right to the
authentication and delivery of Securities under Section 403 (as permitted under
the provisions of clause (4)(C) in the first paragraph of this Section), the
Company shall, except as hereafter in this paragraph provided, comply with all
applicable provisions of Section 403 relating to such authentication and
delivery. Notwithstanding the foregoing provisions of this paragraph, in no
event shall the Company be required to deliver the documents specified in
Section 401.

      If the release of property is, in whole or in part, based upon the
delivery to the Trustee or the trustee or other holder of a Lien prior to the
Lien of this Indenture of obligations secured by Purchase Money Lien, the
Company shall deliver to the Trustee:

            (A) an Officer's Certificate (i) stating that no event has occurred
and is continuing which entitles the holder of such Purchase Money Lien to
accelerate the maturity of the obligations, if any, outstanding thereunder and
(ii) reciting the aggregate principal amount of obligations, if any, then
outstanding thereunder in addition to the obligations then being delivered in
connection with the release of such property and the terms and conditions, if
any, on which additional obligations secured by such Purchase Money Lien are
permitted to be issued; and

            (B) an Opinion of Counsel stating that, in the opinion of the
signer, (i) such obligations are valid and legally binding obligations,
enforceable against the Company (subject to customary exceptions) and entitled
to the benefit of such Purchase Money Lien equally and ratably with all other
obligations, if any, then outstanding thereunder, (ii) that such Purchase Money
Lien constitutes, or, upon the delivery of, and/or the filing and/or recording
in the proper places and manner of, the instruments of conveyance, assignment or
transfer, if any, specified in such opinion, will constitute, a Lien upon the
property to be released, subject to no Lien prior thereto except Liens generally
of the character of Permitted Liens and such Liens, if any, as shall have
existed thereon immediately prior to such release as Liens prior to the Lien of
this Indenture, (iii) if any obligations in addition to the obligations being
delivered in connection with such release of property are then outstanding, or
are permitted to be issued, under such Purchase Money Lien, (a) that such
Purchase Money Lien constitutes, or, upon the delivery of, and/or the filing
and/or recording in the proper places and manner of, the instruments of
conveyance, assignment or transfer, if any, specified in such opinion, will
constitute, a Lien upon all other property, if any, purporting to be subject
thereto, subject to no Lien prior thereto except Liens generally of the
character of Permitted Liens and Liens permitted to exist or to be hereafter


                                       63


created under Section 606 and (b) that the terms of such Purchase Money Lien, as
then in effect, do not permit the issuance of obligations thereunder except on
the basis of property generally of the character of Property Additions, the
retirement or deposit of outstanding obligations, the deposit of prior Lien
obligations or the deposit of cash.

      Anything herein to the contrary notwithstanding (a) the aggregate
principal amount of obligations secured by Purchase Money Lien which may be used
pursuant to subclause (A) and/or subclause (D) of clause (4) in the first
paragraph of this Section as the basis for the release of property from the Lien
of this Indenture shall not exceed seventy-five percentum (75%) of the Fair
Value of the property to be released, as certified pursuant to clause (3)(B) in
the first paragraph of this Section, and (b) no obligations secured by Purchase
Money Lien shall be used as the basis for the release of property hereunder, if
the aggregate principal amount of such obligations to be used by the Company
pursuant to subclause (A) and/or subclause (D) of such clause (4) plus the
aggregate principal amount used by the Company pursuant to said subclause (A)
and subclause (D) in connection with all previous releases of property from the
Lien hereof on the basis of obligations secured by Purchase Money Lien
theretofore delivered to and then held by the Trustee or the trustee or other
holder of a Lien prior to the Lien of this Indenture shall, immediately after
the release then being applied for, exceed forty percentum (40%) of the
aggregate principal amount of Securities then Outstanding; provided, however,
that the limitation set forth in clause (a) above shall not be applicable if no
additional obligations are then outstanding, or are permitted to be issued,
under the Purchase Money Lien securing such obligations; and provided, further,
that there shall not be taken into account for purposes of the calculation
contemplated in clause (b) above any obligations secured by Purchase Money Lien
with respect to which there shall have been delivered to the Trustee:

            (X)   an Officer's Certificate (i) if any obligations shall then be
                  outstanding under such Purchase Money Lien and/or additional
                  obligations are permitted to be issued thereunder, either (A)
                  stating that the terms of such Purchase Money Lien, as then in
                  effect, do not permit the issuance of obligations thereunder
                  on the basis of property additions in a principal amount
                  exceeding seventy percentum (70%) of the balance of the cost
                  or fair value of such property additions to the issuer thereof
                  (whichever shall be less) after making deductions and
                  additions similar to those provided for in Section 103 or (B)
                  in the event that the statements contained in clause (A) above
                  cannot be made, stating that such issuer has irrevocably
                  waived its right to the authentication and delivery of
                  obligations under such Purchase Money Lien (1) on any basis,
                  in a principal amount equal to the excess of (I) the aggregate
                  principal amount of obligations, if any, then outstanding
                  under such Purchase Money Lien which were issued on the basis
                  of property additions or on the basis of the retirement of
                  obligations which were issued (whether directly or indirectly
                  when considered in light of the successive issuance and
                  retirement of obligations) on the basis of property additions
                  over (II) an amount equal to seventy percentum (70%) of the
                  aggregate Dollar amount of property additions certified as the
                  basis for the issuance of such obligations then outstanding
                  and (2) on the basis of property additions, in a principal
                  amount exceeding seventy percentum (70%) of the balance of the
                  cost or fair value thereof to such issuer


                                       64


                  (whichever shall be less) after making deductions and
                  additions similar to those provided for in Section 103 and
                  (ii) stating either (A) that the obligations secured by such
                  Purchase Money Lien delivered to the Trustee or to the trustee
                  or other holder of a Lien prior to the Lien of this Indenture
                  as the basis for such release of property contain a provision
                  for mandatory redemption upon the acceleration of the maturity
                  of all Outstanding Securities following an Event of Default
                  (whether or not such redemption may be rescinded upon the
                  rescission of such acceleration) or (B) that so long as such
                  obligations are held by the Trustee or the trustee or other
                  holder of such a prior Lien, an Event of Default under this
                  Indenture constitutes a matured event of default under such
                  Purchase Money Lien (provided, however, that the waiver or
                  cure of such Event of Default hereunder and the rescission and
                  annulment of the consequences thereof may constitute a cure of
                  the corresponding event of default under such Purchase Money
                  Lien and a rescission and annulment of the consequences
                  thereof); and

            (Y)   an Opinion or Opinions of Counsel to the effect that (i) if
                  any obligations shall then be outstanding under such Purchase
                  Money Lien and/or additional obligations are permitted to be
                  issued thereunder, to the effect either (A) that the terms of
                  such Purchase Money Lien, as then in effect, do not permit the
                  issuance of obligations thereunder upon the basis of property
                  additions in a principal amount exceeding seventy percentum
                  (70%) of the balance of the cost or the fair value thereof to
                  the issuer of such obligations (whichever shall be less) after
                  making deductions and additions similar to those provided for
                  in Section 103, or, if such is not the case, (B) that the
                  waivers contemplated by clause (X)(i)(B) above have been duly
                  made and (ii) to the effect either (A) that the obligations
                  secured by such Purchase Money Lien delivered to the Trustee
                  or to the trustee or other holder of a Lien prior to the Lien
                  of this Indenture as the basis for such release of property
                  contain a provision for mandatory redemption upon an
                  acceleration of the maturity of all Outstanding Securities
                  following an Event of Default (whether or not such redemption
                  may be rescinded upon the rescission of such acceleration) or
                  (B) that, so long as such obligations are held by the Trustee
                  or the trustee or other holder of such a prior Lien, an Event
                  of Default under this Indenture constitutes a matured event of
                  default under such Purchase Money Lien (provided, however,
                  that the waiver or cure of such Event of Default hereunder and
                  the rescission and annulment of the consequences thereof may
                  constitute a cure of the corresponding event of default under
                  such Purchase Money Lien and a rescission and annulment of the
                  consequences thereof).

      If (a) any property to be released from the Lien of this Indenture under
any provision of this Article (other than Section 707) is subject to a Lien
prior to the Lien hereof and is to be sold, exchanged, dedicated or otherwise
disposed of subject to such prior Lien and (b) after such release, such prior
Lien will not be a Lien on any property subject to the Lien hereof, then the
Fair Value of such property to be released shall be deemed, for all purposes of
this Indenture, to


                                       65


be the value thereof unencumbered by such prior Lien less the principal amount
of the indebtedness secured by such prior Lien.

      Any Outstanding Securities delivered to the Trustee pursuant to clause (4)
in the first paragraph of this Section shall forthwith be canceled by the
Trustee. Any cash and/or obligations so deposited with the Trustee, and the
proceeds of any such obligations, shall be held as part of the Mortgaged
Property and shall be withdrawn, released, used or applied in the manner, to the
extent and for the purposes, and subject to the conditions, provided in Section
706.

      Anything in this Indenture to the contrary notwithstanding, if property to
be released constitutes Funded Property in part only, the Company shall obtain
the release of the part of such property which constitutes Funded Property under
this Section 703 and obtain the release of the part of such property which does
not constitute Funded Property under Section 704. In such event, (a) the
application of Property Additions in the release under this Section 703 as
contemplated in clause (4)(B) in the first paragraph thereof shall be taken into
account in clause (E) or clause (F), whichever may be applicable, of the
Expert's Certificate described in clause (3) in Section 704 and (b) the Trustee
shall, at the election of the Company, execute and deliver a separate instrument
of release with respect to the property released under each of such Sections or
a consolidated instrument of release with respect to the property released under
both of such Sections considered as a whole.

SECTION 704. Release of Property Not Constituting Funded Property.

      Unless an Event of Default shall have occurred and be continuing, the
Company may obtain the release of any part of the Mortgaged Property, or any
interest therein, which does not constitute Funded Property, and the Trustee
shall release all its right, title and interest in and to the same from the Lien
hereof, upon receipt by the Trustee of:

            (1) a Company Order requesting the release of such property and
transmitting therewith a form of instrument to effect such release;

            (2) an Officer's Certificate stating that, to the knowledge of the
signer, no Event of Default has occurred and is continuing;

            (3) an Expert's Certificate, made and dated not more than ninety
(90) days prior to the date of such Company Order:

                  (A) describing the property to be released;

                  (B) stating the Fair Value, in the judgment of the signers, of
the property to be released;

                  (C) stating the Cost of the property to be released;

                  (D) stating that the property to be released does not
constitute Funded Property;


                                       66


                  (E) if true, stating either (i) that the aggregate amount of
the Cost or Fair Value to the Company (whichever is less) of all Property
Additions which do not constitute Funded Property (excluding the property to be
released), after making deductions therefrom and additions thereto of the
character contemplated by Section 103, is not less than zero (0) or (ii) that
the Cost or Fair Value (whichever is less) of the property to be released does
not exceed the aggregate Cost or Fair Value to the Company (whichever is less)
of Property Additions acquired, made or constructed on or after the ninetieth
(90th) day prior to the date of the Company Order requesting such release;

                  (F) if neither of the statements contemplated in clause (E)
above can be made, stating the amount by which zero (0) exceeds the amount
referred to in subclause (E)(i) above (showing in reasonable detail the
calculation thereof); and

                  (G) stating that, in the judgment of the signers, such release
will not impair the security under this Indenture in contravention of the
provisions hereof; and

            (4) if the Expert's Certificate required by clause (3) above
contains neither of the statements contemplated in clause (3)(E) above, an
amount in cash, to be held by the Trustee as part of the Mortgaged Property,
equal to the amount, if any, by which seventy percentum (70%) of the lower of
(i) the Cost or Fair Value (whichever shall be less) of the property to be
released and (ii) the amount shown in clause (3)(F) above exceeds the aggregate
of items of the character described in subclauses (C) and (E) of clause (4) in
the first paragraph of Section 703 then to be used as a credit under this
Section 704 (subject, however, to the same limitations and conditions with
respect to such items as are set forth in Section 703).

      Anything herein to the contrary notwithstanding, if any part of the
Mortgaged Property is to be released prior to the delivery of the Initial
Expert's Certificate pursuant to Section 402(2)(B), the Company shall deliver to
the Trustee an Initial Expert's Certificate complying with the provisions of
Section 402(2)(B), except that there shall be stated in clause (xiii) the
aggregate principal amount of Securities then Outstanding. Such Initial Expert's
Certificate shall be accompanied by the documents specified in clauses (C),(D),
and (E) of Section 402(2). Thereupon, the part of the Mortgaged Property to be
released shall be released pursuant to Section 703, to the extent the same shall
constitute Funded Property, and/or pursuant to Section 704, to the extent the
same shall not constitute Funded Property.

SECTION 705. Release of Minor Properties.

      Notwithstanding the provisions of Sections 703 and 704, unless an Event of
Default shall have occurred and be continuing, the Company may obtain the
release from the Lien hereof of any part of the Mortgaged Property, or any
interest therein, and the Trustee shall whenever from time to time requested by
the Company in a Company Order transmitting therewith a form of instrument to
effect such release, and without requiring compliance with any of the provisions
of Section 703 or 704, release from the Lien hereof all the right, title and
interest of the Trustee in and to the same provided that the aggregate Fair
Value of the property to be so released on any date in a given calendar year,
together with all other property released pursuant to this Section 705 in such
calendar year, shall not exceed the greater of (a) Thirty Million Dollars
($30,000,000) and (b) three percentum (3%) of the aggregate principal amount of
Securities then


                                       67


Outstanding. Prior to the granting of any such release, there shall be delivered
to the Trustee (x) an Officer's Certificate stating that, to the knowledge of
the signer, no Event of Default has occurred and is continuing and (y) an
Expert's Certificate stating, in the judgment of the signers, the Fair Value of
the property to be released, the aggregate Fair Value of all other property
theretofore released pursuant to this Section in such calendar year and, as to
Funded Property, the Cost thereof (or, if the Fair Value to the Company of such
property at the time the same became Funded Property was certified to be an
amount less than the Cost thereof, then such Fair Value, as so certified, in
lieu of Cost), and that, in the judgment of the signers, the release thereof
will not impair the security under this Indenture in contravention of the
provisions hereof. On or before December 31st of each calendar year, the Company
shall deposit with the Trustee an amount in cash equal to seventy percentum
(70%) of the aggregate Cost of the properties constituting Funded Property so
released during such year (or, if the Fair Value to the Company of any
particular property at the time the same became Funded Property was certified to
be an amount less than the Cost thereof, then such Fair Value, as so certified,
in lieu of Cost); provided, however, that no such deposit shall be required to
be made hereunder to the extent that cash or other consideration shall, as
indicated in an Officer's Certificate delivered to the Trustee, have been
deposited with the trustee or other holder of any other Lien prior to the Lien
of this Indenture in accordance with the provisions thereof; and provided,
further, that the amount of cash so required to be deposited may be reduced, at
the election of the Company, by the items specified in clause (4) in the first
paragraph of Section 703, subject to all of the limitations and conditions
specified in such Section, to the same extent as if such property were being
released pursuant to Section 703. Any cash deposited with the Trustee under this
Section may thereafter be withdrawn, used or applied in the manner, to the
extent and for the purposes, and subject to the conditions, provided in Section
706.

SECTION 706. Withdrawal or Other Application of Funded Cash; Purchase Money
             Obligations.

      Subject to the provisions of Section 404 and except as hereafter in this
Section provided, unless an Event of Default shall have occurred and be
continuing, any Funded Cash held by the Trustee, and any other cash which is
required to be withdrawn, used or applied as provided in this Section:

            (1) may be withdrawn from time to time by the Company to the extent
of an amount equal to seventy percentum (70%) of the Cost or the Fair Value to
the Company (whichever is less) of Property Additions not constituting Funded
Property, after making any deductions and additions pursuant to Section 103,
described in an Expert's Certificate, dated not more than ninety (90) days prior
to the date of the Company Order requesting such withdrawal and complying with
clause (B) and, to the extent applicable, clause (C) in Section 402(2),
delivered to the Trustee; provided, however, that the deductions and additions
contemplated by Section 103 shall not be required to be made if such Property
Additions were acquired, made or constructed on or after the ninetieth (90th)
day preceding the date of such Company Order;

            (2) may be withdrawn from time to time by the Company in an amount
equal to the aggregate principal amount of Securities to the authentication and
delivery of which the Company shall be entitled under the provisions of Section
403 hereof, by virtue of compliance with all applicable provisions of Section
403 (except as hereinafter in this Section otherwise


                                       68


provided); provided, however, that such withdrawal of cash shall operate as a
waiver by the Company of the right to the authentication and delivery of such
Securities and, to such extent, no such Securities may thereafter be
authenticated and delivered hereunder; and any such Securities which were the
basis of such right to the authentication and delivery of Securities so waived
shall be deemed to have been made the basis of such withdrawal of cash;

            (3) may be withdrawn from time to time by the Company in an amount
equal to the aggregate principal amount of any Outstanding Securities delivered
to the Trustee;

            (4) may, upon the request of the Company, be used by the Trustee for
the purchase of Securities in the manner, at the time or times, in the amount or
amounts, at the price or prices and otherwise as directed or approved by the
Company, all subject to the limitations hereafter in this Section set forth; or

            (5) may, upon the request of the Company, be applied by the Trustee
to the payment (or provision therefor pursuant to Article Seven) at Stated
Maturity of any Securities or to the redemption (or similar provision therefor)
of any Securities which are, by their terms, redeemable, in each case of such
series as may be designated by the Company, any such redemption to be in the
manner and as provided in Article Five, all subject to the limitations hereafter
in this Section set forth. Such moneys shall, from time to time, be paid or used
or applied by the Trustee, as aforesaid, upon the request of the Company in a
Company Order, and upon receipt by the Trustee of an Officer's Certificate
stating that, to the knowledge of the signer, no Event of Default has occurred
and is continuing. If and to the extent that the withdrawal of cash is based
upon Property Additions (as permitted under the provisions of clause (1) above),
the Company shall, subject to the provisions of said clause (1) and except as
hereafter in this paragraph provided, comply with all applicable provisions of
this Indenture as if such Property Additions were made the basis for the
authentication and delivery of Securities equal in principal amount to the cash
so to be withdrawn. If and to the extent that the withdrawal of cash is based
upon the right to the authentication and delivery of Securities (as permitted
under the provisions of clause (2) above), the Company shall, except as
hereafter in this paragraph provided, comply with all applicable provisions of
Section 403 relating to such authentication and delivery. Notwithstanding the
foregoing provisions of this paragraph, in no event shall the Company be
required to deliver the documents specified in Section 401.

      Notwithstanding the generality of clauses (3) and (4) above, no cash to be
applied pursuant to such clauses shall be applied to the payment of an amount in
excess of the principal amount of any Securities to be purchased, paid or
redeemed except to the extent that the aggregate principal amount of all
Securities theretofore, and of all Securities then to be, purchased, paid or
redeemed pursuant to such clauses is not less than the aggregate cost for
principal of, premium, if any, and accrued interest, if any, on and brokerage
commissions, if any, with respect to, such Securities.

      Any obligations secured by Purchase Money Lien delivered to the Trustee in
consideration of the release of property from the Lien of this Indenture,
together with any evidence of such Purchase Money Lien held by the Trustee,
shall be released from the Lien of


                                       69


this Indenture and delivered to or upon the order of the Company upon payment by
the Company to the Trustee of an amount in cash equal to the aggregate principal
amount of such obligations less the aggregate amount theretofore paid to the
Trustee (by the Company, the obligor or otherwise) in respect of the principal
of such obligations.

      The principal of and interest on any such obligations secured by Purchase
Money Lien held by the Trustee shall be held by the Trustee as and when the same
are received by the Trustee. The interest received by the Trustee on any such
obligations shall be deemed not to constitute Funded Cash and shall be remitted
to the Company; provided, however, that if an Event of Default shall have
occurred and be continuing, such proceeds shall be held as part of the Mortgaged
Property until such Event of Default shall have been cured or waived.

      The Trustee shall have and may exercise all the rights and powers of any
owner of such obligations and of all substitutions therefor and, without
limiting the generality of the foregoing, may collect and receive all insurance
moneys payable to it under any of the provisions thereof and apply the same in
accordance with the provisions thereof, may consent to extensions thereof at a
higher or lower rate of interest, may join in any plan or plans of voluntary or
involuntary reorganization or readjustment or rearrangement and may accept and
hold hereunder new obligations, stocks or other securities issued in exchange
therefor under any such plan. Any discretionary action which the Trustee may be
entitled to take in connection with any such obligations or substitutions
therefor shall be taken, so long as no Event of Default shall have occurred and
be continuing, in accordance with a Company Order, and, during the continuance
of an Event of Default, in its own discretion.

      Anything herein to the contrary notwithstanding, the Company may
irrevocably waive all right to the withdrawal pursuant to this Section of, and
any other rights with respect to, any obligations secured by Purchase Money Lien
held by the Trustee, and the proceeds of any such obligations, by delivery to
the Trustee of a Company Order:

            (1) specifying such obligations and stating that the Company thereby
waives all rights to the withdrawal thereof and of the proceeds thereof pursuant
to this Section, and any other rights with respect thereto; and

            (2) directing that the principal of such obligations be applied as
provided in clause (4) in the first paragraph of this Section, specifying the
Securities to be paid or redeemed or for the payment or redemption of which
payment is to be made.

      Following any such waiver, the interest on any such obligations shall be
applied to the payment of interest, if any, on the Securities to be paid or
redeemed or for the payment or redemption of which provision is to be made, as
specified in the aforesaid Company Order, as and when such interest shall become
due from time to time, and any excess funds remaining from time to time after
such application shall be applied to the payment of interest on any other
Securities as and when the same shall become due. Pending any such application,
the interest on such obligations shall be invested in Investment Securities. The
principal of any such obligations shall be applied solely to the payment of
principal of the Securities to be paid or redeemed or for the payment or
redemption of which provision is to be made, as specified in the aforesaid
Company Order. Pending such application, the principal of such obligations shall
be invested in


                                       70


Eligible Obligations. The obligation of the Company to pay the principal of such
Securities when the same shall become due at Maturity, shall be offset and
reduced by the amount of the proceeds of such obligations then held, and to be
applied, by the Trustee in accordance with this paragraph.

SECTION 707. Release of Property Taken by Eminent Domain, etc.

      Should any of the Mortgaged Property, or any interest therein, be taken by
exercise of the power of eminent domain or be sold to an entity possessing the
power of eminent domain under a threat to exercise the same, and should the
Company elect not to obtain the release of such property pursuant to other
provisions of this Article, the Trustee shall, upon request of the Company
evidenced by a Company Order transmitting therewith a form of instrument to
effect such release, release from the Lien hereof all its right, title and
interest in and to the property so taken or sold (or with respect to an interest
in property, subordinate the Lien hereof to such interest), upon receiving (a)
an Opinion of Counsel to the effect that such property has been taken by
exercise of the power of eminent domain or has been sold to an entity possessing
the power of eminent domain under threat of an exercise of such power, (b) an
Officer's Certificate stating the amount of net proceeds received or to be
received for such property so taken or sold, and the amount so stated shall be
deemed to be the Fair Value of such property for the purpose of any notice to
the Holders, (c) if any portion of such property constitutes Funded Property, an
Expert's Certificate stating the Cost thereof (or, if the Fair Value to the
Company of such portion of such property at the time the same became Funded
Property was certified to be an amount less than the Cost thereof, then such
Fair Value, as so certified, in lieu of Cost) and (d) if any portion of such
property constitutes Funded Property, a deposit by the Company of an amount in
cash equal to seventy percentum (70%) of the Cost or Fair Value stated in the
Expert's Certificate delivered pursuant to clause (c) above; provided, however,
that the amount required to be so deposited shall not exceed the portion of the
net proceeds received or to be received for such property so taken or sold which
is allocable on a pro-rata or other reasonable basis to the portion of such
property constituting Funded Property; and provided, further, that no such
deposit shall be required to be made hereunder if the proceeds of such taking or
sale shall, as indicated in an Officer's Certificate delivered to the Trustee,
have been deposited with the trustee or other holder of any other Lien prior to
the Lien of this Indenture. Any cash deposited with the Trustee under this
Section may thereafter be withdrawn, used or applied in the manner, to the
extent and for the purposes, and subject to the conditions, provided in Section
706.

SECTION 708. Disclaimer or Quitclaim.

      In case the Company has sold, exchanged, dedicated or otherwise disposed
of, or has agreed or intends to sell, exchange, dedicate or otherwise dispose
of, or a Governmental Authority has ordered the Company to divest itself of, any
Excepted Property or any other property not subject to the Lien hereof, or the
Company desires to disclaim or quitclaim title to property to which the Company
does not purport to have title, the Trustee shall, from time to time, disclaim
or quitclaim such property upon receipt by the Trustee of the following:

            (1) a Company Order requesting such disclaimer or quitclaim and
transmitting therewith a form of instrument to effect such disclaimer or
quitclaim;


                                       71


            (2) an Officer's Certificate describing the property to be
disclaimed or quitclaimed; and

            (3) an Opinion of Counsel stating the signer's opinion that such
property is not subject to the Lien hereof or required to be subject thereto by
any of the provisions hereof.

SECTION 709. Miscellaneous.

            (1) No Expert's Certificate as to the Fair Value of property to be
released from the Lien of this Indenture in accordance with any provision of
this Article, and as to the nonimpairment, by reason of such release, of the
security under this Indenture in contravention of the provisions hereof, shall
be required to be made, if the Fair Value of such property and of all other
property released since the commencement of the then current calendar year, is
such that the disposition of such property would not contravene Section 9.02 of
the Credit Agreement dated December 23, 2003 by and among the Company, the
General Partner, Texas Genco LP, LLC, Texas Genco Holdings, Inc., Texas Genco
Services, LP, the lenders from time party thereto, Deutsche Bank AG New York
Branch, as administrative agent and collateral agent, and Compass Bank, as
documentation agent.

            (2) No release of property from the Lien of this Indenture effected
in accordance with the provisions, and in compliance with the conditions, set
forth in this Article and in Sections 105 and 106 shall be deemed to impair the
security of this Indenture in contravention of any provision hereof.

            (3) If the Mortgaged Property shall be in the possession of a
receiver or trustee, lawfully appointed, the powers herein before conferred upon
the Company with respect to the release of any part of the Mortgaged Property or
any interest therein or the withdrawal of cash may be exercised, with the
approval of the Trustee, by such receiver or trustee, notwithstanding that an
Event of Default may have occurred and be continuing, and any request,
certificate, appointment or approval made or signed by such receiver or trustee
for such purposes shall be as effective as if made by the Company or any of its
officers or appointees in the manner herein provided; and if the Trustee shall
be in possession of the Mortgaged Property under any provision of this
Indenture, then such powers may be exercised by the Trustee in its discretion
notwithstanding that an Event of Default may have occurred and be continuing.

            (4) If the Company shall retain any interest in any property
released from the Lien of this Indenture as provided in Section 703, 704 or 705,
this Indenture shall not become or be, or be required to become or be, a Lien
upon such property or such interest therein or any improvements, accessions,
extensions or additions to such property or renewals, replacements or
substitutions of or for such property or any part or parts thereof or the
proceeds thereof unless the Company shall execute and deliver to the Trustee an
indenture supplemental hereto, in recordable form, containing a grant,
conveyance, transfer and mortgage thereof.

            (5) Notwithstanding the occurrence and continuance of an Event of
Default, the Trustee, in its discretion, may release from the Lien hereof any
part of the Mortgaged Property or permit the withdrawal of cash, upon compliance
with the other conditions specified in this Article in respect thereof.


                                       72


            (6) No purchaser or grantee of property purporting to have been
released hereunder shall be bound to ascertain the authority of the Trustee to
execute the release, or to inquire as to any facts required by the provisions
hereof for the exercise of such authority; nor shall any purchaser or grantee of
any property or rights permitted by this Article to be sold, granted, exchanged,
dedicated or otherwise disposed of, be under obligation to ascertain or inquire
into the authority of the Company to make any such sale, grant, exchange,
dedication or other disposition.

                                 ARTICLE EIGHT.

                           SATISFACTION AND DISCHARGE

SECTION 801. Satisfaction and Discharge of Securities.

      Any Security or Securities, or any portion of the principal amount
thereof, shall be deemed to have been paid for all purposes of this Indenture,
and the entire indebtedness of the Company in respect thereof shall be satisfied
and discharged, if there shall have been irrevocably deposited with the Trustee
or any Paying Agent (other than the Company), in trust:

            (1) money (including Funded Cash not otherwise applied pursuant to
Section 706) in an amount which shall be sufficient; or

            (2) in the case of a deposit made prior to the Maturity of such
Securities or portions thereof, Eligible Obligations, which shall not contain
provisions permitting the redemption or other prepayment thereof at the option
of the issuer thereof, the principal of and the interest on which when due,
without any regard to reinvestment thereof, will provide moneys which, together
with the money, if any, deposited with or held by the Trustee or such Paying
Agent, shall be sufficient; or

            (3) a combination of (1) or (2) which shall be sufficient, to pay
when due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof; provided, however, that in
the case of the provision for payment or redemption of less than all the
Securities of any series or Tranche, such Securities or portions thereof shall
have been selected by the Security Registrar as provided herein and, in the case
of a redemption, the notice requisite to the validity of such redemption shall
have been given or irrevocable authority shall have been given by the Company to
the Trustee to give such notice, under arrangements satisfactory to the Trustee;
and provided, further, that the Company shall have delivered to the Trustee and
such Paying Agent:

                  (A) if such deposit shall have been made prior to the Maturity
of such Securities, a Company Order stating that the money and Eligible
Obligations deposited in accordance with this Section shall be held in trust, as
provided in Section 803;

                  (B) if Eligible Obligations shall have been deposited, an
Opinion of Counsel to the effect that such obligations constitute Eligible
Obligations and do not contain provisions permitting the redemption or other
prepayment thereof at the option of the issuer thereof, and an opinion of an
Independent Accountant of nationally recognized standing, selected


                                       73


by the Company, to the effect that the other requirements set forth in clause
(2) above have been satisfied;

            (C) if such deposit shall have been made prior to the Maturity of
such Securities, an Officer's Certificate stating the Company's intention that,
upon delivery of such Officer's Certificate, its indebtedness in respect of such
Securities or portions thereof will have been satisfied and discharged as
contemplated in this Section; and

            (D) either:

                  (i) an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Company has received from, or
there has been published by the Internal Revenue Service a ruling or (b) since
the date of this Indenture, there has been a change in the applicable federal
income tax law, in either case (a) or (b) to the effect that, and based thereon
such opinion shall confirm that, the Holders of such Securities shall not
recognize income, gain or loss for federal income tax purposes as a result of
the deposit, defeasance and discharge to be effected with respect to such
Securities and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would be the case if such deposit,
defeasance and discharge had not occurred; or

                  (ii) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of the Securities,
shall assume the obligation (which shall be absolute and unconditional) to
irrevocably deposit with the Trustee such additional sums of money, if any, or
additional Government Obligations, if any, or any combination thereof, at such
time or times, as shall be necessary, together with the money and/or Government
Obligations theretofore so deposited, to pay when due the principal of and
premium, if any, and interest due and to become due on such Securities or
portions thereof; provided, however, that such instrument may state that the
Company's obligation to make additional deposits as aforesaid shall be subject
to the delivery to it by the Trustee of (a) a notice asserting the deficiency
accompanied by an opinion of an independent public accountant of nationally
recognized standing showing the calculation thereof and (b) an opinion of tax
counsel in the United States reasonably acceptable to the Trustee to the effect
that the Holders of the Outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred.

      Upon the deposit of money or Eligible Obligations, or both, in accordance
with this Section, together with the documents required by clauses (A), (B), (C)
and (D) above, the Trustee shall, upon Company Request, acknowledge in writing
that such Securities or portions thereof are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Securities or portions
thereof except that, for any reason, the Officer's Certificate specified in
clause (C) (if otherwise required) shall not have been delivered, such
Securities or portions thereof shall nevertheless be deemed to have been paid
for all purposes of this Indenture, and the Holders of such Securities or
portions


                                       74


thereof shall nevertheless be no longer entitled to the benefit of the Lien of
this Indenture or of any of the covenants of the Company under Article Six
(except the covenants contained in Sections 602 and 603) or any other covenants
made in respect of such Securities or portions thereof as contemplated by
Section 301, but the indebtedness of the Company in respect of such Securities
or portions thereof shall not be deemed to have been satisfied and discharged
prior to Maturity for any other purpose; and, upon Company Request, the Trustee
shall acknowledge in writing that such Securities or portions thereof are deemed
to have been paid for all purposes of this Indenture.

      If payment at Stated Maturity of less than all of the Securities of any
series, or any Tranche thereof, is to be provided for in the manner and with the
effect provided in this Section, the Security Registrar shall select such
Securities, or portions of principal amount thereof, in the manner specified by
Section 503 for selection for redemption of less than all the Securities of a
series or Tranche.

      In the event that Securities which shall be deemed to have been paid for
purposes of this Indenture, and, if such is the case, in respect of which the
Company's indebtedness shall have been satisfied and discharged, all as provided
in this Section, do not mature and are not to be redeemed within the sixty (60)
day period commencing with the date of the deposit of moneys or Eligible
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.

      Notwithstanding that any Securities shall be deemed to have been paid for
purposes of this Indenture, as aforesaid, the obligations of the Company and the
Trustee in respect of such Securities under Sections 304, 305, 306, 504, 602,
603, 1007 and 1014 and this Article shall survive.

      The Company shall pay, and shall indemnify the Trustee or any Paying Agent
with which Eligible Obligations shall have been deposited as provided in this
Section against, any tax, fee or other charge imposed on or assessed against
such Eligible Obligations or the principal or interest received in respect of
such Eligible Obligations, including, but not limited to, any such tax payable
by any entity deemed, for tax purposes, to have been created as a result of such
deposit.

      Anything herein to the contrary notwithstanding, (a) if, at any time after
a Security would be deemed to have been paid for purposes of this Indenture,
and, if such is the case, the Company's indebtedness in respect thereof would be
deemed to have been satisfied and discharged, pursuant to this Section (without
regard to the provisions of this paragraph), the Trustee or any Paying Agent, as
the case may be, shall be required to return the money or Eligible Obligations,
or combination thereof, deposited with it as aforesaid to the Company or its
representative under any applicable Federal or State bankruptcy, insolvency or
other similar law, such Security shall thereupon be deemed retroactively not to
have been paid and any satisfaction and discharge of the Company's indebtedness
in respect thereof shall retroactively be deemed not to have been effected, and
such Security shall be deemed to remain Outstanding and (b) any satisfaction and
discharge of the Company's indebtedness in respect of any Security shall be
subject to the provisions of the last paragraph of Section 603.


                                       75


SECTION 802. Satisfaction and Discharge of Indenture.

      This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 802), and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the satisfaction and discharge of
this Indenture, when:

            (1) either,

                  (A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Securities for
the payment of which money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 603) have been delivered to
the Trustee for cancellation; or

                  (B) all such Securities not theretofore delivered to the
Trustee for cancellation:

                        (i) have become due and payable; or

                        (ii) will become due and payable at their Stated
Maturity within one year of the date of deposit; or

                        (iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company;

and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for such purpose
money in an amount sufficient to pay and discharge the entire indebtedness on
such Securities not theretofore delivered to the Trustee for cancellation, for
principal and any premium and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;

            (2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

            (3) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.

      Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 1007, the obligations of
the Trustee to any Authenticating Agent under Section 1015 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section 802, the obligations of the Trustee under Section 803 and the last
paragraph of Section 603 shall survive.


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      Upon satisfaction and discharge of this Indenture as provided in this
Section, the Trustee shall release, quit claim and otherwise turn over to the
Company the Mortgaged Property (other than money and Eligible Obligations held
by the Trustee pursuant to Section 803) and shall execute and deliver to the
Company such deeds and other instruments as, in the judgment of the Company,
shall be necessary, desirable or appropriate to effect or evidence such release
and quitclaim and the satisfaction and discharge of this Indenture.

SECTION 803. Application of Trust Money.

      Neither the Eligible Obligations nor the money deposited pursuant to
Section 801, nor the principal or interest payments on any such Eligible
Obligations, shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and premium, if any, and
interest, if any, on the Securities or portions of principal amount thereof in
respect of which such deposit was made, all subject, however, to the provisions
of Section 603; provided, however, that any cash received from such principal or
interest payments on such Eligible Obligations, if not then needed for such
purpose, shall, to the extent practicable and upon Company Request and delivery
to the Trustee of the documents referred to in clause (y) in the first paragraph
of Section 801, be invested in Eligible Obligations of the type described in
clause (2) in the first paragraph of Section 801 maturing at such times and in
such amounts as shall be sufficient, together with any other moneys and the
proceeds of any other Eligible Obligations then held by the Trustee, to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof on and prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company as received, free and clear of the Lien of this Indenture, except the
Lien provided by Section 1007; and provided, further, that any moneys held in
accordance with this Section on the Maturity of all such Securities in excess of
the amount required to pay the principal of and premium, if any, and interest,
if any, then due on such Securities shall be paid over to the Company free and
clear of the Lien of this Indenture, except the Lien provided by Section 1007;
and provided, further, that if an Event of Default shall have occurred and be
continuing, moneys to be paid over to the Company pursuant to this Section shall
be held as part of the Mortgaged Property until such Event of Default shall have
been waived or cured.

                                 ARTICLE NINE.

                           EVENTS OF DEFAULT; REMEDIES

SECTION 901. Events of Default.

      "Event of Default" means any of the following events which shall have
occurred and be continuing:

            (1) default in the payment of any interest upon any Security when it
becomes due and payable, and continuance of such default for a period of thirty
(30) days; or

            (2) default in the payment of the principal of or any premium on any
Security when it becomes due and payable; or


                                       77


            (3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which is elsewhere in this
Section 901 specifically dealt with and continuance of such default or breach
for a period of ninety (90) days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least thirty-three percentum (33%) in principal amount of
the Securities then Outstanding a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" unless the Trustee, or the Trustee and the Holders of a principal
amount of Securities not less than the principal amount of Securities the
Holders of which gave such notice, as the case may be, shall agree in writing to
an extension of such period prior to its expiration; provided, however, that the
Trustee, or the Trustee and the Holders of such principal amount of Securities,
as the case may be, shall be deemed to have agreed to an extension of such
period if corrective action is initiated by the Company within such period and
is being diligently pursued; or

            (4) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition by
one or more Persons other than the Company seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under any applicable
Federal or State law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order for relief or any such other decree or
order shall have remained unstayed and in effect for a period of ninety (90)
consecutive days; or

            (5) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable Federal
or State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
any substantial part of its property, or the making by it of an assignment of a
substantial part of its property and assets for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company in furtherance of
any such action.

      Notwithstanding the foregoing provisions of this Section 901, if the
principal or any premium or interest on any Security is payable in a currency
other than the currency of the United States and such currency is not available
to the Company for making payment thereof due to the imposition of exchange
controls or other circumstances beyond the control of the Company, the Company
will be entitled to satisfy its obligations to Holders by making such payment in
the currency of the United States in an amount equal to the currency of the
United States equivalent of the amount payable in such other currency, as
determined by the Trustee by


                                       78


reference to the noon buying rate in The City of New York for cable transfers
for such currency ("Exchange Rate"), as such Exchange Rate is reported or
otherwise made available by the Federal Reserve Bank of New York on the date of
such payment, or, if such rate is not then available, on the basis of the most
recently available Exchange Rate. Notwithstanding the foregoing provisions of
this Section 901, any payment made under such circumstances in the currency of
the United States where the required payment is in a currency other than the
currency of the United States will not constitute an Event of Default under this
Indenture.

SECTION 902. Acceleration of Maturity; Rescission and Annulment.

      If an Event of Default shall have occurred and be continuing, then in
every such case the Trustee or the Holders of not less than thirty-three
percentum (33%) in principal amount of the Securities then Outstanding may
declare the principal amount (or, if any of the Securities are Discount
Securities, such portion of the principal amount of such Securities as may be
specified in the terms thereof as contemplated by Section 301) of all Securities
then Outstanding to be due and payable immediately, by a notice in writing to
the Company (and to the Trustee if given by Holders), and upon such declaration
such principal amount (or specified amount), together with premium, if any, and
accrued interest, if any, thereon, shall become immediately due and payable.

      At any time after such a declaration of acceleration of the Maturity of
the Securities has been made, but before any sale of any of the Mortgaged
Property has been made and before a judgment or decree for payment of the money
due has been obtained by the Trustee as hereinafter provided in this Article
Nine, the Event of Default giving rise to such declaration of acceleration
shall, without further act, be deemed to have been waived, and such declaration
and its consequences shall, without further act, be deemed to have been
rescinded and annulled, if:

            (1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:

                  (A) all overdue installments of interest on all Securities;

                  (B) the principal of and premium, if any, on any Securities
then Outstanding which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed therefor
in such Securities; and

                  (C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;

      and

            (2) all Events of Default with respect to Securities, other than the
non-payment of the principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in Section
917.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.


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SECTION 903. Entry upon Mortgaged Property.

      If an Event of Default shall have occurred and be continuing, the Company,
upon demand of the Trustee and if and to the extent permitted by law, shall
forthwith surrender to the Trustee the actual possession of, and the Trustee, by
such officers or agents as it may appoint, may enter upon and take possession
of, the Mortgaged Property; and the Trustee may hold, operate and manage the
Mortgaged Property and make all needful repairs and such renewals, replacements,
betterments and improvements as to the Trustee shall seem prudent; and the
Trustee may receive the rents, issues, profits, revenues and other income of the
Mortgaged Property, to the extent, if any, that the same shall not then
constitute Excepted Property; and, after deducting the costs and expenses of
entering, taking possession, holding, operating and managing the Mortgaged
Property, as well as payments for insurance and taxes and other proper charges
upon the Mortgaged Property prior to the Lien of this Indenture and reasonable
compensation to itself, its agents and counsel, the Trustee may apply the same
as provided in Section 907. Whenever all that is then due in respect of the
principal of and premium, if any, and interest, if any, on the Securities and
under any of the terms of this Indenture shall have been paid and all defaults
hereunder shall have been cured or shall have been waived as provided in Section
917, the Trustee shall surrender possession of the Mortgaged Property to the
Company.

SECTION 904. Power of Sale; Suits for Enforcement.

      If an Event of Default shall have occurred and be continuing, the Trustee,
by such officers or agents as it shall appoint, with or without entry, in its
discretion may, subject to the provisions of Section 916 and if and to the
extent permitted by law:

            (1) Foreclosure. Sell, subject to applicable law, the Mortgaged
Property.

                  (A) Foreclosure of Real Property. Mortgaged Property
constituting real property shall be sold in accordance with this Section
904(1)(A). The sale shall be a public sale at auction held between 10 A.M. and 4
P.M. on the first Tuesday of a month. The sale shall take place at the county
courthouse in the county in which the Mortgaged Property is located, or if it is
located in more than one county, the sale will be made at the courthouse in one
of those counties. The sale shall occur at the area at that courthouse which the
commissioners' court of that county has designated as the place where such sales
are to take place by designation recorded in the real property records of that
county, or if no area is so designated, then the notice of sale shall designate
the area at the courthouse where the sale covered by that notice is to take
place, and the sale shall occur in that area. Notice of the sale shall include a
statement of the earliest time at which the sale will occur and shall be given
at least twenty-one (21) days before the date of the sale; (i) by posting at the
courthouse door of each county in which the Mortgaged Property is located a
written notice designating the county in which the Mortgaged Property will be
sold; (ii) by filing in the Office of the County Clerk of each county in which
the Mortgaged Property is located a copy of the notice posted under subsection
(1) above; and (iii) by the holders of the indebtedness to which this power of
sale is related serving written notice of the sale by certified mail on each
debtor who, according to the records of such holders, is obligated to pay such
indebtedness. The sale shall begin at the time stated in the notice of sale or
not later than three (3) hours after that time. Service of any notice under this
Section 904(1)(A) by certified mail is complete when the notice is deposited in
the United States mail, postage prepaid


                                       80


and addressed to the debtor entitled to it at that debtor's last known address
as shown by the records of the Trustee and the Holders. The affidavit of a
person knowledgeable of the facts to the effect that service was completed is
prima facie evidence of service. After such written notice shall have been
posted and filed, as aforesaid, and such notice shall have been served upon such
debtor or debtors, as aforesaid, the Trustee (or his successor or substitute
then acting) shall perform his duty to enforce this Indenture by selling the
Mortgaged Property, either as an entirety or in parcels, by one sale or several
sales, as the Trustee acting may elect, all rights to a marshalling of assets or
sale in inverse order of alienation being WAIVED, as aforesaid to the highest
bidder or bidders for cash, and make due conveyance to the purchaser or
purchasers, with general warranty, and the title to such purchaser or
purchasers, when so made by the Trustee acting, the Company binds itself, its
successors and assigns, to warrant and forever defend against claims and demands
of every person whomsoever lawfully claiming or to claim the same or any part
thereof (such warranty to supersede any provision contained in this Indenture
limiting the liability of the Company), subject to Permitted Liens and Liens and
claims permitted in accordance with Section 606. The provisions of this
Indenture with respect to posting and giving notices of sale are intended to
comply with the provisions of Section 51.002 of the Texas Property Code as in
force and effect as of the date hereof, and in the event the requirement for any
notice under such Section 51.002 shall be eliminated or the prescribed manner of
giving it shall be modified by future amendment to, or adoption of any statute
superseding, such Section 51.002, the requirement for such particular notice
shall be deemed stricken from or modified in this Indenture in conformity with
such amendment or superseding statute, effective as of its effective date. The
manner prescribed in this Indenture for serving or giving any notice, other than
that to be posted or caused to be posted by the Trustee acting, shall not be
deemed exclusive but such notice or notices may be given in any other manner
permitted by applicable law. Said sale shall forever be a bar against the
Company, its successors and assigns, and all other persons claiming under it. It
is expressly agreed that the recitals in each conveyance to the purchaser shall
be full evidence of the truth of the matters therein stated, and all lawful
prerequisites to said sale shall be conclusively presumed to have been
performed. The Trustee may require minimum bids at any foreclosure sale and may
cancel and abandon the sale if no bid is received equal to or greater than any
such minimum bid. For the avoidance of doubt, references to the term Mortgaged
Property in this Section 904(1)(A) are references to all or a portion of the
Mortgaged Property to be sold in accordance with this Section 904(1)(A) at any
one time and not the Mortgaged Property in its entirety.

            (B) Foreclosure of Other Property. Mortgaged Property constituting
property other than real property shall be sold in accordance with this Section
904(1)(B). In conducting the sale, the Trustee shall have all of the rights and
remedies provided by applicable law or by this Indenture, including but not
limited to the right to require the Company to assemble the Mortgaged Property
and make it available to the Trustee at a place to be designated by the Trustee
which is reasonably convenient to both the Trustee and the Company, the right to
take possession of the Mortgaged Property with or without demand and with or
without process of law and the right to sell and dispose of the same and
distribute the proceeds according to Section 907 of this Indenture. Any
requirement of reasonable notice shall be met if the Trustee sends such notice
to the Company at least ten (10) days prior to the date of sale, disposition or
other event giving rise to the required notice. The parties hereto further agree
that any sale of the Mortgaged Property held contemporaneously with and upon the
same notice as required in Section 904(1)(A) (for the real property) shall be
deemed to be a public sale conducted in a


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commercially reasonable manner. With respect to the Mortgaged Property that has
become so attached to the real property that an interest therein arises under
the real property law of the State of Texas, this Indenture shall also
constitute a financing statement and a fixture filing under the Texas Uniform
Commercial Code.

            (2) Judicial Foreclosure. In addition to the foregoing, proceed to
protect and enforce its rights and the rights of the Holders under this
Indenture by sale pursuant to judicial proceedings or by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Indenture or in aid
of the execution of any power granted in this Indenture or for the foreclosure
of this Indenture or for the enforcement of any other legal, equitable or other
remedy, as the Trustee, being advised by counsel, shall deem most effectual to
protect and enforce any of the rights of the Trustee or the Holders.

SECTION 905. Incidents of Sale.

      Upon any sale of any of the Mortgaged Property, whether made under the
power of sale hereby given or pursuant to judicial proceedings, to the extent
permitted by law:

            (1) the principal amount (or, if any of the Securities are Original
Issue Discount Securities, such portion of the principal amount of such
Securities as may be specified in the terms thereof as contemplated by Section
301) of all Outstanding Securities, if not previously due, shall at once become
and be immediately due and payable, together with premium, if any, and accrued
interest, if any, thereon;

            (2) any Holder or Holders or the Trustee may bid for and purchase
the property offered for sale, and upon compliance with the terms of sale may
hold, retain and possess and dispose of such property, without further
accountability, and may, in paying the purchase money therefor, deliver any
Outstanding Securities or claims for interest thereon in lieu of cash to the
amount which shall, upon distribution of the net proceeds of such sale, be
payable thereon, and such Securities, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show partial payment;

            (3) the Trustee may make and deliver to the purchaser or purchasers
a good and sufficient deed, bill of sale and instrument of assignment and
transfer of the property sold;

            (4) the Trustee is hereby irrevocably appointed the true and lawful
attorney of the Company, in its name and stead, to make all necessary deeds,
bills of sale and instruments of assignment and transfer of the property so
sold; and for that purpose it may execute all necessary deeds, bills of sale and
instruments of assignment and transfer, and may substitute one or more persons,
firms or corporations with like power, the Company hereby ratifying and
confirming all that its said attorney or such substitute or substitutes shall
lawfully do by virtue hereof; but, if so requested by the Trustee or by any
purchaser, the Company shall ratify and confirm any such sale or transfer by
executing and delivering to the Trustee or to such purchaser or purchasers all
proper deeds, bills of sale, instruments of assignment and transfer and releases
as may be designated in any such request;


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            (5) all right, title, interest, claim and demand whatsoever, either
at law or in equity or otherwise, of the Company of, in and to the property so
sold shall be divested and such sale shall be a perpetual bar both at law and in
equity against the Company, its successors and assigns, and against any and all
persons claiming or who may claim the property sold or any part thereof from,
through or under the Company; and

            (6) the receipt of the Trustee or of the officer making such sale
shall be a sufficient discharge to the purchaser or purchasers at such sale for
his or their purchase money and such purchaser or purchasers and his or their
assigns or personal representatives shall not, after paying such purchase money
and receiving such receipt, be obliged to see to the application of such
purchase money, or be in anywise answerable for any loss, misapplication or
non-application thereof.

SECTION 906. Collection of Indebtedness and Suits for Enforcement by Trustee.

      If an Event of Default described in clause (1) or (2) of Section 901 shall
have occurred and be continuing, the Company shall, upon demand of the Trustee,
pay to it, for the benefit of the Holders of the Securities with respect to
which such Event of Default shall have occurred, the whole amount then due and
payable on such Securities for principal and premium, if any, and interest, if
any, and, in addition thereto, such further amount as shall be sufficient to
cover any amounts due to the Trustee under Section 1007.

      If the Company shall fail to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.

      The Trustee shall, to the extent permitted by law, be entitled to sue and
recover judgment as aforesaid either before, during or after the pendency of any
proceedings for the enforcement of the Lien of this Indenture, and in case of a
sale of the Mortgaged Property or any part thereof and the application of the
proceeds of sale as aforesaid, the Trustee, in its own name and as trustee of an
express trust, shall be entitled to enforce payment of, and to receive, all
amounts then remaining due and unpaid upon the Securities then Outstanding for
principal, premium, if any, and interest, if any, for the benefit of the Holders
thereof, and shall be entitled to recover judgment for any portion of the same
remaining unpaid, with interest as aforesaid. No recovery of any such judgment
by the Trustee and no levy of any execution upon any such judgment upon any of
the Mortgaged Property or any other property of the Company shall affect or
impair the Lien of this Indenture upon the Mortgaged Property or any part
thereof or any rights, powers or remedies of the Trustee hereunder, or any
rights, powers or remedies of the Holders.

SECTION 907. Application of Money Collected.

      Any money collected by the Trustee pursuant to this Article, including any
rents, issues, profits, revenues and other income collected pursuant to Section
903 (after the deductions therein provided) and any proceeds of any sale (after
deducting the costs and expenses of such sale,


                                       83


including a reasonable compensation to the Trustee, its agents and counsel, and
any taxes, assessments or Liens prior to the Lien of this Indenture, except any
thereof subject to which such sale shall have been made), whether made under any
power of sale herein granted or pursuant to judicial proceedings, and any money
collected by the Trustee under Section 706, together with, in the case of an
entry or sale or as otherwise provided herein, any other sums then held by the
Trustee as part of the Mortgaged Property, shall be applied in the following
order, to the extent permitted by law, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal or
premium, if any, or interest, if any, upon presentation of the Securities and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:

            First: To the payment of all amounts due the Trustee under Section
            1007;

            Second: To the payment of the whole amount then due and unpaid upon
            the Outstanding Securities for principal and premium, if any, and
            interest, if any, in respect of which or for the benefit of which
            such money has been collected; and in case such proceeds shall be
            insufficient to pay in full the whole amount so due and unpaid upon
            such Securities, then to the payment of such principal and interest,
            if any, thereon without any preference or priority, ratably
            according to the aggregate amount so due and unpaid, with any
            balance then remaining to the payment of premium, if any, and, if so
            specified as contemplated by Section 301 with respect to the
            Securities of any series, or any Tranche thereof, interest, if any,
            on overdue premium, if any, and overdue interest, if any, ratably as
            aforesaid, all to the extent permitted by applicable law; provided,
            however, that any money collected by the Trustee pursuant to Section
            706 in respect of interest or pursuant to Section 903 shall first be
            applied to the payment of interest accrued on the principal of
            Outstanding Securities; and

            Third: To the payment of the remainder, if any, to the Company or to
            whomsoever may be lawfully entitled to receive the same or as a
            court of competent jurisdiction may direct.

SECTION 908. Receiver.

      If an Event of Default shall have occurred and, during the continuance
thereof, the Trustee shall have commenced judicial proceedings to enforce any
right under this Indenture, the Trustee shall, to the extent permitted by law,
be entitled, as against the Company, without notice or demand and without regard
to the adequacy of the security for the Securities or the solvency of the
Company, to the appointment of a receiver of the Mortgaged Property.

SECTION 909. Trustee May File Proofs of Claim.

      In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective


                                       84


of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,

            (1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
amounts due to the Trustee under Section 1007) and of the Holders allowed in
such judicial proceeding, and

            (2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 1007.

      Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 910. Trustee May Enforce Claims Without Possession of Securities.

      All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee under Section 1007, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.

SECTION 911. Limitation on Suits.

      No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver, assignee, trustee, liquidator or sequestor (or other
similar official), or for any other remedy hereunder, unless:

            (1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;

            (2) the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;


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            (3) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;

            (4) the Trustee for sixty (60) days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and

            (5) no direction inconsistent with such written request has been
given to the Trustee during such sixty (60) day period by the Holders of a
majority in principal amount of the Outstanding Securities;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing himself of, any
provision of this Indenture to affect, disturb or prejudice the Lien of this
Indenture or the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other of such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all of such Holders.

SECTION 912. Unconditional Right of Holders to Receive Principal, Premium and
Interest.

      Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Security on the Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.

SECTION 913. Restoration of Rights and Remedies.

      If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and such Holder shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and such Holder shall continue as though
no such proceeding had been instituted.

SECTION 914. Rights and Remedies Cumulative.

      Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.


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      Anything in this Article to the contrary notwithstanding, the availability
of the remedies set forth herein (on an individual or cumulative basis) and the
procedures set forth herein relating to the exercise thereof shall be subject to
(a) the law (including, for purposes of this paragraph, general principles of
equity) of any jurisdiction wherein the Mortgaged Property or any part thereof
is located to the extent that such law is mandatorily applicable and (b) the
rights of the holder of any Lien prior to the Lien of this Indenture, and, if
and to the extent that any provision of this Article conflicts with any
provision of such applicable law and/or with the rights of the holder of any
such prior Lien, such provision of law and/or the rights of such holder shall
control.

SECTION 915. Delay or Omission Not Waiver.

      No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Nine or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.

SECTION 916. Control by Holders.

      If an Event of Default shall have occurred and be continuing, the Holders
of not less than a majority in principal amount of the Securities then
Outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that:

            (1) such direction shall not be in conflict with any rule of law or
with this Indenture;

            (2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and

            (3) subject to the provisions of Section 1001, the Trustee shall
have the right to decline to follow such direction if a Responsible Officer or
Officers of the Trustee shall, in good faith, determine that the proceeding so
directed would involve the Trustee in personal liability or would otherwise be
contrary to applicable law.

SECTION 917. Waiver of Past Defaults.

      Before any sale of any of the Mortgaged Property and before a judgment or
decree for payment of the money due shall have been obtained by the Trustee as
herein provided, the Holders of not less than a majority in principal amount of
the Securities then Outstanding may on behalf of the Holders of all the
Outstanding Securities waive any past default hereunder and its consequences,
except a default:

            (1) in the payment of the principal of or any premium or interest on
any Security Outstanding; or


                                       87


            (2) in respect of a covenant or provision hereof which under Article
Thirteen cannot be modified or amended without the consent of the Holder of each
Outstanding Security of any series or Tranche affected.

      Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.

SECTION 918. Undertaking for Costs.

      The Company and the Trustee agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and such court may in its discretion
assess reasonable costs including reasonable attorneys' fees and expenses,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; provided that
the provisions of this Section 918 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder or group of Holders holding in the
aggregate more than ten percentum (10%) in principal amount of the Securities
then Outstanding, or to any suit instituted by any Holder for the enforcement of
the payment of the principal of or interest on any Security, on or after the
Stated Maturity or Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date). Neither this Section 918 nor the
Trust Indenture Act shall be deemed to authorize any court to require such an
undertaking or such an assessment in any proceeding instituted by the Company.

SECTION 919. Waiver of Appraisement, Usury, Stay and Other Laws.

      To the full extent that it may lawfully so agree, the Company shall not at
any time set up, claim or otherwise seek to take the benefit or advantage of any
appraisement, valuation, stay, extension or redemption law, now or hereafter in
effect, in order to prevent or hinder the enforcement of this Indenture or the
absolute sale of the Mortgaged Property, or any part thereof, or the possession
thereof, or any part thereof, by any purchaser at any sale under this Article;
and the Company, for itself and all who may claim under it, so far as it or they
now or hereafter may lawfully do so, hereby waives the benefit of all such laws.
The Company, for itself and all who may claim under it, waives, to the extent
that it may lawfully do so, all right to have the Mortgaged Property marshalled
upon any foreclosure of the Lien hereof, and agrees that any court having
jurisdiction to foreclose the Lien of this Indenture may order the sale of the
Mortgaged Property as an entirety.

                                  ARTICLE TEN.

                                   THE TRUSTEE

SECTION 1001. Certain Duties and Responsibilities.

      (1) Except during the continuance of an Event of Default, (A) the Trustee
undertakes to perform such duties and only such duties as are specifically set
forth in this


                                       88


Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and (B) in the absence of negligence or bad faith
on its part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this Indenture.

            (2) In case an Event of Default shall have occurred and be
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

            (3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:

                  (A) this subsection shall not be construed to limit the effect
of Clause (1) of this Section;

                  (B) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;

                  (C) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders entitled to so direct the Trustee, as provided herein,
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture; and

                  (D) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

      Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.

SECTION 1002. Notice of Defaults.

      The Trustee shall give the Holders notice of any default hereunder in the
manner and to the extent required to do so by the Trust Indenture Act, unless
such default shall have been cured or waived; provided, however, that in the
case of any default of the character specified in Section 901(3), no such notice
to Holders shall be given until at least seventy-five (75) days after the


                                       89


occurrence thereof. For the purpose of this Section 1002, the term "default"
means any event which is, or after notice or lapse of time, or both, would
become, an Event of Default.

SECTION 1003. Certain Rights of Trustee.

      Subject to the provisions of Section 1001:

            (1) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;

            (2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order, and any
resolution of the General Partner shall be sufficiently evidenced by a General
Partner Resolution;

            (3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;

            (4) the Trustee may consult with counsel, and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;

            (5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;

            (6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney;

            (7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;

            (8) the Trustee is not required to give any bond or surety with
respect to the performance of its duties or the exercise of its powers under
this Indenture;


                                       90


            (9) in the event the Trustee receives inconsistent or conflicting
requests and indemnity from two or more groups of Holders, each representing
less than a majority in aggregate principal amount of the Securities then
Outstanding, the Trustee, in its sole discretion, may determine what action, if
any, shall be taken;

            (10) the Trustee's immunities and protections from liability and its
right to indemnification in connection with the performance of its duties under
this Indenture shall extend to the Trustee's officers, directors, agents and
employees. Such immunities and protections and right to indemnification,
together with the Trustee's right to compensation, shall survive the Trustee's
resignation or removal and final payment of the Securities; and

            (11) the Trustee is not required to take notice or deemed to have
notice of any default or Event of Default hereunder, except Events of Default
under Section 901(1) and (2), unless a Responsible Officer of the Trustee has
actual knowledge thereof or has received notice in writing of such default or
Event of Default from the Company or the holders of at least thirty-three
percentum (33%) in aggregate principal amount of the Securities then
Outstanding, and in the absence of any such notice, the Trustee may conclusively
assume that no such default or Event of Default exists.

SECTION 1004. Not Responsible for Recitals or Issuance of Securities or
              Application of Proceeds.

      The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the value or
condition of the Mortgaged Property or any part thereof, or as to the title of
the Company thereto or as to the security afforded thereby or hereby, or as to
the validity or genuineness of any securities at any time pledged and deposited
with the Trustee hereunder, or as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of the Securities or the proceeds thereof or of
any money paid to the Company or upon Company Order under any provision hereof.
The Trustee shall have no responsibility to make or to see to the making of any
recording, filing or registration of any instrument or notice (including any
financing or continuation statement or any tax or securities form) (or any
rerecording, refiling or reregistration of any thereof); at any time in any
public office or elsewhere for the purpose of perfecting, maintaining the
perfection of or otherwise making effective the Lien of this Indenture or for
any other purpose and shall have no responsibility for seeing to the insurance
on the Mortgaged Property or for paying any taxes relating to the Mortgaged
Property or for otherwise maintaining the Mortgaged Property, including, but not
limited to, attending to any environmental matters in respect thereof or
disposing of any hazardous or other wastes located thereon.

SECTION 1005. May Hold Securities.

      Each of the Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its commercial banking
or in any other capacity, may become the owner or pledgee of Securities and,
subject to Sections 1008 and 1013, may


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otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other agent. Each of said entities, in its commercial banking or in any other
capacity, may also engage in or be interested in any financial or other
transaction with the Company and, subject to Sections 1008 and 1013, may act as
depository, trustee or agent for any committee of Holders of Securities secured
hereby or other obligations of the Company as freely as if it were not Trustee,
Authenticating Agent, Paying Agent or Security Registrar. The provisions of this
Section shall extend to Affiliates of said entities.

SECTION 1006. Money Held in Trust.

      Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.

SECTION 1007. Compensation and Reimbursement.

      The Company agrees:

            (1) to pay to the Trustee from time to time such compensation for
all services rendered by it hereunder in such amounts as the Company and the
Trustee shall agree in writing from time to time (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);

            (2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence, willful misconduct or bad
faith; and

            (3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence, willful misconduct
or bad faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including: (a) the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except
those attributable to its negligence, willful misconduct or bad faith, and (b)
any such loss, liability or expense relating to a hazardous substance or a
violation by the Company of any environmental law.

      As security for the performance of the obligations of the Company under
this Section 1007, the Trustee shall have a Lien (the "Trustee's Lien") secured
by this Indenture prior to the Securities upon the Mortgaged Property and upon
all other property and funds held or collected by the Trustee as such, other
than property and funds held in trust under Section 803 (except moneys payable
to the Company as provided in Section 803). "Trustee" for purposes of this
Section 1007 shall include any predecessor Trustee; provided, however, that the
negligence, willful misconduct or bad faith of any Trustee hereunder shall not
affect the rights of any other Trustee hereunder.


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      The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity under this Section 1007. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and, in the event the subject matter of the claim involves a conflict of
interest between the Company and the Trustee, the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent.

      In the event the Trustee incurs expenses or renders services in any
proceedings which result from an Event of Default under Section 901(4) or (5),
or from any default which, with the passage of time, would become such Event of
Default, the expenses so incurred and compensation for services so rendered are
intended to constitute expenses of administration under the United States
Bankruptcy Code or equivalent law.

SECTION 1008. Conflicting Interests.

      If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.

SECTION 1009. Corporate Trustee Required; Eligibility.

      There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least Fifty Million Dollars ($50,000,000). If
any such Person publishes reports of condition at least annually, pursuant to
law or to the requirements of its supervising or examining authority, then for
the purposes of this Section 1009 and to the extent permitted by the Trust
Indenture Act, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee with respect to the
Securities of any series shall cease to be eligible in accordance with the
provisions of this Section 1009, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article Ten.

SECTION 1010. Resignation and Removal; Appointment of Successor.

            (1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Ten shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 1011.

            (2) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 1011 shall not have been delivered to the Trustee within thirty (30)
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series.


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            (3) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.

            (4) If at any time:

                  (A) the Trustee shall fail to comply with Section 1008 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder for at least six months; or

                  (B) the Trustee shall cease to be eligible under Section 1009
and shall fail to resign after written request therefor by the Company or by any
such Holder; or

                  (C) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, (a) the Company, acting
pursuant to the authority of a General Partner Resolution, may remove the
Trustee with respect to all Securities, or (b) subject to Section 918, any
Holder who has been a bona fide Holder for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.

            (5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause
(other than as contemplated in subclause (B) in clause (4) of this Section),
with respect to the Securities of one or more series, the Company, by a General
Partner Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the Securities of one or
more or all of such series) and shall comply with the applicable requirements of
Section 1011. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of such series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 1011, become the
successor Trustee with respect to the Securities of such series and to that
extent supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of such series shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
required by Section 1011, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.

            (6) So long as no event which is, or after notice or lapse of time,
or both, would become, an Event of Default shall have occurred and be
continuing, if the Company shall have delivered to the Trustee (i) a General
Partner Resolution appointing a successor Trustee, effective as of a date
specified therein, and (ii) an instrument of acceptance of such appointment,


                                       94


effective as of such date, by such successor Trustee in accordance with Section
1011, the Trustee shall be deemed to have resigned as contemplated in clause (2)
of this Section, the successor Trustee shall be deemed to have been appointed
pursuant to clause (5) of this Section and such appointment shall be deemed to
have been accepted as contemplated in Section 1011, all as of such date, and all
other provisions of this Section and Section 1011 shall be applicable to such
resignation, appointment and acceptance except to the extent inconsistent with
this clause (6).

            (7) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to all Holders of Securities of such series in the manner provided in Section
109. Each notice shall include the name of the successor Trustee with respect to
the Securities of such series and the address of its Corporate Trust Office.

SECTION 1011. Acceptance of Appointment by Successor.

            (1) In case of the appointment hereunder of a successor Trustee with
respect to any series of Securities, every such successor Trustee so appointed
shall execute, acknowledge and deliver to the Company and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder.

            (2) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in clause (1) of this Section.

            (3) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article Ten.

SECTION 1012. Merger, Conversion, Consolidation or Succession to Business.

      Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article Ten,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.

SECTION 1013. Preferential Collection of Claims Against Company.


                                       95


      If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act)), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Company (or any such other obligor). For purposes of Section
311(b)(4) and (6) of the Trust Indenture Act:

            (1) "cash transaction" means any transaction in which full payment
for goods or securities sold is made within seven days after delivery of the
goods or securities in currency or in checks or other orders drawn upon banks
and payable upon demand; and

            (2) "self-liquidating paper" means any draft, bill of exchange,
acceptance or obligation which is made, drawn, negotiated or incurred by the
Company (or any such obligor) for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to, possession
of, or a Lien upon, the goods, wares or merchandise or the receivables or
proceeds arising from the sale of the goods, wares or merchandise previously
constituting the security; provided the security is received by the Trustee
simultaneously with the creation of the creditor relationship with the Company
(or any such obligor) arising from the making, drawing, negotiating or incurring
of the draft, bill of exchange, acceptance or obligation.

SECTION 1014. Co-trustees and Separate Trustees.

            (1) At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Mortgaged Property may at
the time be located, the Company and the Trustee shall have power to appoint,
and, upon the written request of the Trustee or of the Holders of at least
thirty-three percentum (33%) in principal amount of the Securities then
Outstanding, the Company shall for such purpose join with the Trustee in the
execution and delivery of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Trustee and, if no Event of Default
shall have occurred and be continuing, by the Company either to act as
co-trustee, jointly with the Trustee, of all or any part of the Mortgaged
Property, or to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons, in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions of
this Section. If the Company does not join in such appointment within fifteen
(15) days after the receipt by it of a request so to do, or if an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.

            (2) Should any written instrument or instruments from the Company be
required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.

            (3) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
conditions:


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                  (A) the Securities shall be authenticated and delivered, and
all rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with the Trustee hereunder shall be exercised solely by the
Trustee;

                  (B) the rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed either
by the Trustee or by the Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee or
separate trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee;

                  (C) the Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Company, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section,
and, if an Event of Default shall have occurred and be continuing, the Trustee
shall have power to accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Company. Upon the written
request of the Trustee, the Company shall join with the Trustee in the execution
and delivery of all instruments and agreements necessary or proper to effectuate
such resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this Section;

                  (D) neither the Trustee nor any co-trustee or separate trustee
hereunder shall be personally liable by reason of any act or omission of any
other trustee hereunder; and

                  (E) any Act of Holders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.

SECTION 1015. Appointment of Authenticating Agent.

      The Trustee may appoint an Authenticating Agent or Agents with respect to
the Securities of one or more series, or any Tranche thereof which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series or Tranche issued upon original issuance, exchange, registration of
transfer or partial redemption thereof or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States, any State or Territory thereof or the
District of Columbia or the Commonwealth of Puerto Rico, authorized under such
laws to act as Authenticating Agent, having a combined capital and surplus of
not less than Fifty Million Dollars ($50,000,000) and subject to supervision or
examination by Federal or State authority. If


                                       97


such Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section 1015, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. If
at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section 1015, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 1015.

      Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of an Authenticating Agent
shall be the successor Authenticating Agent hereunder, provided such corporation
shall be otherwise eligible under this Section 1015, without the execution or
filing of any paper or any further act on the part of the Trustee or the
Authenticating Agent.

      An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 1015, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment in the manner provided in Section 109 to all Holders
of Securities of the series or Tranche with respect to which such Authenticating
Agent will serve. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section 1015.

      The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 1015, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 1007.

      If an appointment with respect to the Securities of one or more series, or
any Tranche thereof, shall be made pursuant to this Section 1015, the Securities
of such series or Tranche may have endorsed thereon, in addition to the
Trustee's certificate of authentication, an alternative certificate of
authentication in the following form:

      This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.

Date of Authentication: _____________

                                              _______________________,
                                                            as Trustee


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                                         By: _____________________________,
                                               as Authenticating Agent


                                         By: ______________________________
                                                   Authorized Officer

      If all of the Securities of a series may not be originally issued at one
time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested by the Company in writing (which writing
need not comply with Section 105 and need not be accompanied by an Opinion of
Counsel), shall appoint, in accordance with this Section and in accordance with
such procedures as shall be acceptable to the Trustee, an Authenticating Agent
having an office in a Place of Payment designated by the Company with respect to
such series of Securities.

SECTION 1016. Environmental Matters.

      Notwithstanding any other provision of this Indenture, the Trustee shall
have the power and the right, but not the duty, to:

            (1) refuse to accept property as Mortgaged Property if the Trustee
determines, based upon a report of an environmental science engineering firm
acceptable to it, that such property either is contaminated by any hazardous
substance or is being used or has been used for any activity directly or
indirectly involving a hazardous substance which would result in liability to
the Mortgaged Property or the Trustee or otherwise impair the value of the
Mortgaged Property; and

            (2) disclaim any power (including, without limitation, the power to
sell any Mortgaged Property) granted by the Indenture or any statute or rule of
law, the exercise of which power may, in the sole discretion of the Trustee, as
advised by counsel, cause the Trustee to incur corporate or personal liability
under any environmental law.

      For purposes of this Section and Section 1007(3), the term "environmental
law" means any federal, state or local law, rule, regulation or ordinance
relating to the protection of the environment or human health. For purposes of
this Section, the term "hazardous substance" means any substance defined as
hazardous or toxic or otherwise regulated by any environmental law. The Trustee
shall not be liable or responsible to the Company or any other party for any
decrease in value of the Mortgaged Property by reason of availing itself of the
rights granted by this Section or by reason of the Trustee's compliance with any
environmental law, specifically including any reporting requirement under any
such law. Neither the acceptance by the Trustee of property or a failure by the
Trustee to inspect property shall be deemed to create any inference that there
is or may be liability under any environmental law with respect to such
property.


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                                ARTICLE ELEVEN.

                LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY

SECTION 1101. Company to Furnish Trustee Names and Addresses of Holders.

      The Company will furnish or cause to be furnished to the Trustee:

            (1) semi-annually, not later than January 15 and July 15 in each
year, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders of Securities of each series as of the preceding
January 1 or July 1 as the case may be; and

            (2) at such other times as the Trustee may request in writing,
within thirty (30) days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than fifteen (15) days
prior to the time such list is furnished;

provided, however, that if and so long as the Trustee shall be Security
Registrar for Securities of a series, no such list need be furnished with
respect to such series of Securities.

SECTION 1102. Preservation of Information; Communications to Holders.

      The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 1101 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 1101 upon receipt of a new list so furnished.

      The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.

      Every Holder, by receiving and holding the same, agrees with the Company
and the Trustee that neither the Company nor the Trustee nor any agent of either
of them shall be held accountable by reason of any disclosure of information as
to names and addresses of Holders made pursuant to the Trust Indenture Act.

SECTION 1103. Reports by Trustee.

      The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.

      Reports so required to be transmitted at stated intervals of not more than
twelve (12) months shall be transmitted no later than January 31 in each
calendar year, commencing with the first January 31 after the first issuance of
Securities under this Indenture.


                                      100


      A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company.

SECTION 1104. Reports by Company.

      The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided in the Trust Indenture Act. The Company will notify the
Trustee when any Securities are listed on any stock exchange.

                                ARTICLE TWELVE.

              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 1201. Company May Consolidate, Etc., Only on Certain Terms.

      The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease, subject to the Lien of this Indenture, all of the
Mortgaged Property as or substantially as an entirety to any Person, unless:

            (1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease all of the Mortgaged Property as or
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the Mortgaged Property as or
substantially as an entirety shall be a Person organized and validly existing
under the laws of the United States, any State or Territory thereof or the
District of Columbia (such Person being hereinafter sometimes called the
"Successor Corporation") and shall execute and deliver to the Trustee an
indenture supplemental hereto, in form satisfactory to the Trustee, which:

                  (A) in the case of a consolidation, merger, conveyance or
other transfer, or in the case of a lease if the term thereof extends beyond the
last Stated Maturity of the Securities then Outstanding, contains an express
assumption by the Successor Corporation of the due and punctual payment of the
principal of and premium, if any, and interest, if any, on all the Securities
then Outstanding and the performance and observance of every covenant and
condition of this Indenture to be performed or observed by the Company; and

                  (B) in the case of a consolidation, merger, conveyance or
other transfer, contains a grant, conveyance, transfer and mortgage by the
Successor Corporation, of the same tenor of the Granting Clauses herein:

                        (i) confirming the Lien of this Indenture on the
Mortgaged Property (as constituted immediately prior to the time such
transaction became effective) and subjecting to the Lien of this Indenture all
property, real, personal and mixed, thereafter acquired by the Successor
Corporation which shall constitute an improvement, extension or addition to the
Mortgaged Property (as so constituted) or a renewal, replacement or substitution
of or for any part thereof; and


                                      101


                        (ii) at the election of the Successor Corporation
subjecting to the Lien of this Indenture such property, real, personal or mixed,
in addition to the property described in clause (i) of this Section, then owned
or thereafter acquired by the Successor Corporation as the Successor Corporation
shall, in its sole discretion, specify or describe therein, and the Lien
confirmed or created by such grant, conveyance, transfer and mortgage shall have
force, effect and standing similar to those which the Lien of this Indenture
would have had if the Company had not been a party to such consolidation,
merger, conveyance or other transfer and had itself, after the time such
transaction became effective, purchased, constructed or otherwise acquired the
property subject to such grant, conveyance, transfer and mortgage;

            (2) in the case of a lease, such lease shall be made expressly
subject to termination by the Company or by the Trustee at any time during the
continuance of an Event of Default, and also by the purchaser of the property so
leased at any sale thereof hereunder, whether such sale be made under the power
of sale hereby conferred or pursuant to judicial proceedings;

            (3) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and

            (4) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel stating that such consolidation, merger,
conveyance, transfer or lease and such supplemental indenture, comply with this
Article Twelve and that all conditions precedent herein provided for relating to
such transaction have been complied with.

SECTION 1202. Successor Corporation Substituted.

      Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease, subject to the Lien of
this Indenture, of the Mortgaged Property as or substantially as an entirety in
accordance with Section 1201, the Successor Corporation formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such Successor Corporation had been named as the Company
herein. Without limiting the generality of the foregoing:

            (1) all property of the Successor Corporation then subject to the
Lien of this Indenture, of the character described in Section 103, shall
constitute Property Additions;

            (2) the Successor Corporation may execute and deliver to the
Trustee, and thereupon the Trustee shall, subject to the provisions of Article
Four, authenticate and deliver, Securities upon any basis provided in Article
Four; and

            (3) the Successor Corporation may, subject to the applicable
provisions of this Indenture, cause Property Additions to be applied to any
other Authorized Purpose.

      All Securities so executed by the Successor Corporation, and authenticated
and delivered by the Trustee, shall in all respects be entitled to the benefit
of the Lien of this Indenture equally


                                      102


and ratably with all Securities executed, authenticated and delivered prior to
the time such consolidation, merger, conveyance or other transfer became
effective.

SECTION 1203. Extent of Lien Hereof on Property of Successor Corporation.

      Unless, in the case of a consolidation, merger, conveyance or other
transfer contemplated by Section 1201, the indenture supplemental hereto
contemplated in clause (1)(B) in Section 1201, or any other indenture, contains
a grant, conveyance, transfer and mortgage by the Successor Corporation as
described in subclause (ii) thereof, neither this Indenture nor such
supplemental indenture shall become or be, or be required to become or be, a
Lien upon any of the properties:

            (1) owned by the Successor Corporation or any other party to such
transaction (other than the Company) immediately prior to the time of
effectiveness of such transaction; or

            (2) acquired by the Successor Corporation at or after the time of
effectiveness of such transaction, except, in either case, properties acquired
from the Company in or as a result of such transaction and improvements,
extensions and additions to such properties and renewals, replacements and
substitutions of or for any part or parts thereof.

SECTION 1204. Release of Company upon Conveyance or Other Transfer.

      In the case of a conveyance or other transfer to any Person or Persons as
contemplated in Section 1201, upon the satisfaction of all the conditions
specified in Section 1201, the Company (such term being used in this Section
without giving effect to such transaction) shall be released and discharged from
all obligations and covenants under this Indenture and on and under all
Securities then Outstanding (unless the Company shall have delivered to the
Trustee an instrument in which it shall waive such release and discharge) and
the Trustee shall acknowledge in writing that the Company has been so released
and discharged.

SECTION 1205. Merger into Company; Extent of Lien Hereof.

            (1) Nothing in this Indenture shall be deemed to prevent or restrict
any consolidation or merger after the consummation of which the Company would be
the surviving or resulting corporation or any conveyance or other transfer, or
lease, subject to the Lien of this Indenture, of any part of the Mortgaged
Property which does not constitute the entirety, or substantially the entirety,
thereof.

            (2) Unless, in the case of a consolidation or merger described in
clause (1) of this Section, an indenture supplemental hereto shall otherwise
provide, this Indenture shall not become or be, or be required to become or be,
a Lien upon any of the properties acquired by the Company in or as a result of
such transaction or any improvements, extensions or additions to such properties
or any renewals, replacements or substitutions of or for any part or parts
thereof.


                                      103


                               ARTICLE THIRTEEN.

                             SUPPLEMENTAL INDENTURES

SECTION 1301. Supplemental Indentures Without Consent of Holders.

      Without the consent of any Holders, the Company, when authorized by a
General Partner Resolution, and the Trustee, at any time and from time to time,
may enter into one or more indentures supplemental hereto, in form reasonably
satisfactory to the Trustee, for any of the following purposes:

            (1) to evidence the succession of another Person to the Company, or
successive successions, and the assumption by any such successor of the
covenants, agreements and obligations of the Company herein and in the
Securities, all as provided in Article Twelve; or

            (2) to add one or more covenants of the Company or other provisions
for the benefit of the Holders of, or to remain in effect only so long as there
shall be Outstanding, all or any series of Securities, or any Tranches thereof
(and if such covenants are to be for the benefit of less than all series of
Securities, stating that such covenants are expressly being included solely for
the benefit of such series), or to surrender any right or power herein conferred
upon the Company; or

            (3) to correct or amplify the description of any property at any
time subject to the Lien of this Indenture; or better to assure, convey and
confirm unto the Trustee any property subject or required to be subjected to the
Lien of this Indenture; or to subject to the Lien of this Indenture additional
property (including property of Persons other than the Company), to specify any
additional Permitted Liens with respect to such additional property and to
modify Section 702 in order to specify therein any additional items with respect
to such additional property; or

            (4) to establish the form or terms of Securities of any series or
Tranche as permitted by Sections 201 and 301; or

            (5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
1011; or

            (6) to provide for the procedures required to permit the Company to
utilize, at its option, a non-certificated system of registration for all, or
any series or Tranche of, the Securities; or

            (7) to change any place or places where (A) the principal of and
premium, if any, and interest, if any, on all or any series of Securities, or
any Tranche thereof, shall be payable, (B) all or any series of Securities, or
any Tranche thereof, may be surrendered for registration of transfer, (C) all or
any series of Securities, or any Tranche thereof, may be


                                      104


surrendered for exchange and (D) notices and demands to or upon the Company in
respect of all or any series of Securities, or any Tranche thereof, and this
Indenture may be served; or

            (8) to cure any ambiguity, to correct or supplement any provision in
this Indenture which may be defective or inconsistent with any other provision
herein, or to make any other additions to, deletions from or other changes to
the provisions under this Indenture, provided that such additions, deletions
and/or other changes shall not adversely affect the interests of the Holders of
Securities of any series or Tranche in any material respect; or

            (9) to provide for the authentication and delivery of bearer bonds
and coupons appertaining thereto representing interest, if any, thereon and for
the procedures for the registration, exchange and replacement thereof and for
the giving of notice to, and the solicitation of the vote or consent of, the
Holders thereof, and for any and all other matters incidental thereto; or

            (10) to comply with the rules or regulations of any securities
exchange or automated quotation system on which any of the Securities may be
listed or traded; or

            (11) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the Trust Indenture Act, or under any similar federal statute
hereafter enacted, and to add to this Indenture such other provisions as may be
expressly permitted by the Trust Indenture Act, excluding, however the
provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in
effect at the date as of which this instrument was executed or any corresponding
provision in any similar federal statute hereafter enacted.

Without limiting the generality of the foregoing, if the Trust Indenture Act as
in effect at the date of the execution and delivery of this Indenture, as
originally executed and delivered, or at any time thereafter shall be amended
and if any such amendment shall require one or more changes to any provisions
hereof or the inclusion herein of any additional provisions, or shall by
operation of law be deemed to effect such changes or incorporate such provisions
by reference or otherwise, this Indenture shall be deemed to have been amended
so as to conform to such amendment to the Trust Indenture Act, and the Company
and the Trustee may, without the consent of any Holders, enter into an indenture
supplemental hereto to evidence such amendment hereof.

SECTION 1302. Supplemental Indentures With Consent of Holders.

      Subject to the provisions of Section 1301, with the consent of the Holders
of not less than a majority in aggregate principal amount of the Securities of
all series then Outstanding under this Indenture, considered as one class, by
Act of said Holders delivered to the Company and the Trustee, the Company and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture; provided, however, that if
there shall be Securities of more than one series Outstanding hereunder and if a
proposed supplemental indenture shall directly affect the rights of the Holders
of Securities of one or more, but less than all, of such series, then the
consent only of the Holders of a majority in aggregate principal amount of the
Outstanding


                                      105


Securities of all series so directly affected, considered as one class, shall be
required; and provided, further, that if the Securities of any series shall have
been issued in more than one Tranche and if a proposed supplemental indenture
shall directly affect the rights of the Holders of Securities of one or more,
but less than all, of such Tranches, then the consent only of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that no such supplemental indenture shall:

            (1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or the amount of any
installment of interest thereon or change the method of calculating such rate or
any premium payable upon the redemption thereof, or reduce the amount of the
principal of an Original Issue Discount Security or any other Security which
would be due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 902, or change the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date) without the consent of the Holder of such Security; or

            (2) permit the creation of any Lien (not otherwise permitted hereby)
ranking prior to the Lien of this Indenture with respect to all or substantially
all of the Mortgaged Property, or (except by virtue of a supplemental indenture
described in clause (9) in Section 1301) terminate the Lien of this Indenture on
all or substantially all of the Mortgaged Property or deprive the Holders of the
benefit of the Lien of this Indenture, without, in any such case, the consent of
the Holders of all Securities then Outstanding; or

            (3) reduce the percentage in principal amount of the Outstanding
Securities of any series, or any Tranche thereof, the consent of the Holders of
which is required for any such supplemental indenture, or the consent of the
Holders of which is required for any waiver (of compliance with any provision of
this Indenture or any default hereunder and its consequence), or reduce the
requirements for quorum or voting provided for in this Indenture without the
consent of the Holder of each Outstanding Security of such series; or

            (4) modify any of the provisions of this Section 1302, Section 917
or Section 609, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived, without
the consent of the Holder of each Outstanding Security affected thereby;
provided, however, that this clause shall not be deemed to require the consent
of any Holder with respect to changes in the references to "the Trustee" and
concomitant changes in this Section 1302 and Section 609, or the deletion of
this proviso, in accordance with the requirements of Sections 1011 and 1301(5).

      A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of, or that is to remain in effect only so long as there shall be
Outstanding, one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series or Tranche.


                                      106


      It shall not be necessary for any Act of Holders under this Section 1302
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.

SECTION 1303. Execution of Supplemental Indentures.

      In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Thirteen or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 1001) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

SECTION 1304. Effect of Supplemental Indentures.

      Upon the execution of any supplemental indenture under this Article
Thirteen, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.

SECTION 1305. Conformity with Trust Indenture Act.

      Every supplemental indenture executed pursuant to this Article Thirteen
shall conform to the requirements of the Trust Indenture Act.

SECTION 1306. Reference in Securities to Supplemental Indentures.

      Securities of any series, or any Tranche thereof, authenticated and
delivered after the execution of any supplemental indenture pursuant to this
Article Thirteen may, and shall if required by the Trustee, bear a notation in
form approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities of any series, or
any Tranche thereof, so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and executed
by the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series or Tranche.

SECTION 1307. Modification Without Supplemental Indenture.

      To the extent, if any, that the terms of any particular series of
Securities shall have been established in or pursuant to a General Partner
Resolution or an Officer's Certificate pursuant to a supplemental indenture or a
General Partner Resolution as contemplated by Section 301, and not in a
supplemental indenture, additions to, changes in or the elimination of any of
such terms may be effected by means of a supplemental General Partner Resolution
or a supplemental Officer's Certificate, as the case may be, delivered to, and
accepted by, the Trustee, provided, however, that such supplemental General
Partner Resolution or supplemental Officer's Certificate shall not be accepted
by the Trustee or otherwise be effective unless all conditions set forth in this
Indenture which would be required to be satisfied if such additions, changes or


                                      107


elimination were contained in a supplemental indenture shall have been
appropriately satisfied. Upon the acceptance thereof by the Trustee, any such
supplemental General Partner Resolution or supplemental Officer's Certificate
shall be deemed to be a "supplemental indenture" for purposes of Section 1304
and 1306 and a "supplemental indenture", "indenture supplemental" to this
Indenture or "instrument" supplemental to this Indenture for purposes of Section
608.

                               ARTICLE FOURTEEN.

                   MEETINGS OF HOLDERS; ACTION WITHOUT MEETING

SECTION 1401. Purposes for Which Meetings May Be Called.

      A meeting of Holders of Securities of one or more, or all, series, or any
Tranche or Tranches thereof, may be called at any time and from time to time
pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series or Tranches.

SECTION 1402. Call, Notice and Place of Meetings.

            (1) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series, or any Tranche or Tranches thereof,
for any purpose specified in Section 1401, to be held at such time and (except
as provided in clause (2) of this Section 1402) at such place in the Borough of
Manhattan, the City of New York, as the Trustee shall determine, or, with the
approval of the Company, at any other place. Notice of every such meeting,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 109, not less than twenty-one (21) nor more than one hundred
eighty (180) days prior to the date fixed for the meeting.

            (2) The Trustee may be asked to call a meeting of the Holders of
Securities of one or more, or all, series, or any Tranche or Tranches thereof,
by the Company or by the Holders of thirty-three percentum (33%) in aggregate
principal amount of all of such series and Tranches, considered as one class,
for any purpose specified in Section 1401, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting. If the Trustee
shall have been asked by the Company to call such a meeting, the Company shall
determine the time and place for such meeting and may call such meeting by
giving notice thereof in the manner provided in clause (1) of this Section, or
shall direct the Trustee, in the name and at the expense of the Company, to give
such notice. If the Trustee shall have been asked to call such a meeting by
Holders in accordance with this clause (2), and the Trustee shall not have given
the notice of such meeting within twenty-one (21) days after receipt of such
request or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the Holders of Securities of such series and Tranches, in
the principal amount above specified, may determine the time and the place in
the Borough of Manhattan, The City of New York, or in such other place as shall
be determined or approved by the Company, for such meeting and may call such
meeting for such purposes by giving notice thereof as provided in clause (1) of
this Section.


                                      108


            (3) Any meeting of Holders of Securities of one or more, or all,
series, or any Tranche or Tranches thereof, shall be valid without notice if the
Holders of all Outstanding Securities of such series or Tranches are present in
person or by proxy and if representatives of the Company and the Trustee are
present, or if notice is waived in writing before or after the meeting by the
Holders of all Outstanding Securities of such series, or any Tranche or Tranches
thereof, or by such of them as are not present at the meeting in person or by
proxy, and by the Company and the Trustee.

SECTION 1403. Persons Entitled to Vote at Meetings.

      To be entitled to vote at any meeting of Holders of Securities of one or
more, or all, series, or any Tranche or Tranches thereof, a Person shall be (a)
a Holder of one or more Outstanding Securities of such series or Tranches or (b)
a Person appointed by an instrument in writing as proxy for a Holder or Holders
of one or more Outstanding Securities of such series or Tranches by such Holder
or Holders. The only Persons who shall be entitled to attend any meeting of
Holders of Securities of any series or Tranche shall be the Persons entitled to
vote at such meeting and their counsel, any representatives of the Trustee and
its counsel and any representatives of the Company and its counsel.

SECTION 1404. Quorum; Action.

      The Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of the series and Tranches with respect to which a
meeting shall have been called as herein before provided, considered as one
class, shall constitute a quorum for a meeting of Holders of Securities of such
series and Tranches; provided, however, that if any action is to be taken at
such meeting which this Indenture expressly provides may be taken by the Holders
of a specified percentage, which is less than a majority, in principal amount of
the Outstanding Securities of such series and Tranches, considered as one class,
the Persons entitled to vote such specified percentage in principal amount of
the Outstanding Securities of such series and Tranches, considered as one class,
shall constitute a quorum. In the absence of a quorum within one hour of the
time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities of such series and Tranches, be dissolved. In
any other case the meeting may be adjourned for such period as may be determined
by the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be
further adjourned for such period as may be determined by the chairman of the
meeting prior to the adjournment of such adjourned meeting. Except as provided
by Section 1405, notice of the reconvening of any meeting adjourned for more
than thirty (30) days shall be given as provided in Section 109 not less than
ten (10) days prior to the date on which the meeting is scheduled to be
reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage, as provided above, of the principal amount of the
Outstanding Securities of such series and Tranches which shall constitute a
quorum.

      Except as limited by Section 1302, any resolution presented to a meeting
or adjourned meeting duly reconvened at which a quorum is present as aforesaid
may be adopted only by the affirmative vote of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of the series and
Tranches with respect to which such meeting shall have been called,


                                      109


considered as one class; provided, however, that, except as so limited, any
resolution with respect to any action which this Indenture expressly provides
may be taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Securities of such series and Tranches, considered as one
class.

      Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities of the series and Tranches with respect to which such
meeting shall have been held, whether or not present or represented at the
meeting.

SECTION 1405. Attendance at Meetings; Determination of Voting Rights; Conduct
              and Adjournment of Meetings.

            (1) Attendance at meetings of Holders may be in person or by proxy;
and, to the extent permitted by law, any such proxy shall remain in effect and
be binding upon any future Holder of the Securities with respect to which it was
given unless and until specifically revoked by the Holder or future Holder
(except as provided in Section 107) of such Securities before being voted.

            (2) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders in regard to proof of the holding of such Securities and of
the appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations and approved by the Company, the
holding of Securities shall be proved in the manner specified in Section 107 and
the appointment of any proxy shall be proved in the manner specified in Section
107. Such regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the proof
specified in Section 107 or other proof.

            (3) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Holders as provided in Section 1402(2), in which case the
Company or the Holders of Securities of the series and Tranches calling the
meeting, as the case may be, shall in like manner appoint a temporary chairman.
A permanent chairman and a permanent secretary of the meeting shall be elected
by vote of the Persons entitled to vote a majority in aggregate principal amount
of the Outstanding Securities of all series and Tranches represented at the
meeting, considered as one class.

            (4) At any meeting each Holder or proxy shall be entitled to one
vote for each One Thousand Dollars ($1,000) principal amount of Outstanding
Securities held or represented by such Holder; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Security challenged as
not Outstanding and ruled by the chairman of the meeting


                                      110


to be not Outstanding. The chairman of the meeting shall have no right to vote,
except as a Holder of a Security or proxy.

            (5) Any meeting duly called pursuant to Section 1402 at which a
quorum is present may be adjourned from time to time by Persons entitled to vote
a majority in aggregate principal amount of the Outstanding Securities of all
series and Tranches represented at the meeting, considered as one class; and the
meeting may be held as so adjourned without further notice.

SECTION 1406. Counting Votes and Recording Action of Meetings.

      The vote upon any resolution submitted to any meeting of Holders shall be
by written ballots on which shall be subscribed the signatures of the Holders or
of their representatives by proxy and the principal amounts and serial numbers
of the Outstanding Securities, of the series and Tranches with respect to which
the meeting shall have been called, held or represented by them. The permanent
chairman of the meeting shall appoint two (2) inspectors of votes who shall
count all votes cast at the meeting for or against any resolution and who shall
make and file with the secretary of the meeting their verified written reports
of all votes cast at the meeting. A record in duplicate of the proceedings of
each meeting of Holders shall be prepared by the secretary of the meeting and
there shall be attached to such record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that such notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.

SECTION 1407. Action Without Meeting.

      In lieu of a vote of Holders at a meeting as herein before contemplated in
this Article, any request, demand, authorization, direction, notice, consent,
waiver or other action may be made, given or taken by Holders by one or more
written instruments as provided in Section 106.

                                ARTICLE FIFTEEN.

   IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES

SECTION 1501. Exemption from Individual Liability.

      No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Security, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, member, manager,
stockholder, officer, director or employee, as such, past, present or future, of
the Company or any predecessor or successor corporation or company, either
directly or through the Company or any predecessor or successor corporation or
company or any Successor Corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that


                                      111


this Indenture and the obligations issued hereunder are solely corporate
obligations of the Company, and that no such personal liability whatsoever shall
attach to, or is or shall be incurred by, the incorporators, members, managers,
stockholders, officers, directors, or employees, as such, of the Company or any
predecessor or successor corporation or company, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator, member,
manager, stockholder, officer, director or employee, as such, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Securities or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Securities.

      This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.


                                      112


      IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.

                                   TEXAS GENCO, LP


                                   By: TEXAS GENCO GP, LLC

                                       By: /s/ Marc Kilbride
                                           -----------------------------------
                                           Name:  Marc Kilbride
                                           Title: Vice President and Treasurer


                                   JPMORGAN CHASE BANK, as Trustee

                                   By: /s/ Carol Logan
                                       ---------------------------------------
                                       Name:  Carol Logan
                                       Title: Vice President and Trust Officer


                                      113


                                                                       EXHIBIT A

                                  REAL PROPERTY

A.    S. R. BERTRON ELECTRIC GENERATING STATION (2012 Miller Cut-Off Road, Deer
      Park, Harris County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the S. R. Bertron Electric Generating
            Station filed for record under Clerk's File No. W048257 and Film
            Code No. ###-##-#### in the Real Property Records of HARRIS COUNTY,
            TEXAS, together with all equipment, supplies, and other tangible or
            intangible personal property located thereon or used or enjoyed in
            connection therewith which are owned by the Grantee (as defined
            therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the S. R. Bertron Electric Generating Station filed for record under
            Clerk's File No. W048258 and Film Code No. 555-89-2094 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to Barnes Island at S. R. Bertron Electric
            Generating Station filed for record under Clerk's File No. W048259
            and Film Code No. 555-89-2199 in the Real Property Records of HARRIS
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).

      4.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Assignment and Conveyance of Easements
            related to S. R. Bertron Electric Generating Station filed for
            record under Clerk's File No. W048260 and Film Code No. 555-89-2219
            in the Real Property Records of HARRIS COUNTY, TEXAS (it being
            understood that the property being released from the lien of the
            Mortgage consists only of the easements granted by the Company and
            not fee title to the land covered by such easements).

B.    CEDAR BAYOU ELECTRIC GENERATING STATION (7705 Old West Bay Boulevard,
      Eldon, Chambers County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Cedar Bayou Electric Generating Station
            filed for record under Clerk's File No. 6952B and Volume 575, Page
            835 in the Real Property Records of


                                      A-1


            CHAMBERS COUNTY, TEXAS, together with all equipment, supplies, and
            other tangible or intangible personal property located thereon or
            used or enjoyed in connection therewith which are owned by the
            Grantee (as defined therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the Cedar Bayou Electric Generating Station filed for record under
            Clerk's File No. 6953B and Volume 576, Page 1 in the Real Property
            Records of CHAMBERS COUNTY, TEXAS (it being understood that the
            property being released from the lien of the Mortgage consists only
            of the easements granted by the Company and not fee title to the
            land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Fisher tracts and Intake Canal at Cedar
            Bayou Electric Generating Station filed for record under Clerk's
            File No. W048261 and Film Code No. 555-89-2222 in the Real Property
            Records of HARRIS COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

      4.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Special Warranty Deed related to the Conference Center at
            Cedar Bayou Electric Generating Station filed for record under
            Clerk's File No. 6955B and Volume 576, Page 100 in the Real Property
            Records of CHAMBERS COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

      5.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Assignment Agreement related to five
            easements comprising part of the Cooling Pond at the Cedar Bayou
            Electric Generating Station filed for record under Clerk's File No.
            6954B and Volume 576, Page 88 in the Real Property Records of
            CHAMBERS COUNTY, TEXAS.

      6.    Interests conveyed by the Company pursuant to that certain
            Assignment of Fencing License related to the Fisher Tracts at the
            Cedar Bayou Electric Generating Station filed for record under
            Clerk's File No. W048264 and Film Code No. 555-89-2245 in the Real
            Property Records of HARRIS COUNTY, TEXAS.

      7.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement Agreement relating to the Cooling
            Pond Fishing License at the Cedar Bayou Electric Generating Station
            filed for record under Clerk's File No. 6956B and Volume 576, Page
            111 in the Real Property Records of CHAMBERS COUNTY, TEXAS.


                                      A-2


C.    H.O. CLARKE ELECTRIC GENERATING STATION (12100 Hiram Clark Road, Houston,
      Harris County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the H.O. Clark Electric Generating Station
            filed for record under Clerk's File No. W048265 and Film Code No.
            ###-##-#### in the Real Property Records of HARRIS COUNTY, TEXAS,
            together with all equipment, supplies, and other tangible or
            intangible personal property located thereon or used or enjoyed in
            connection therewith which are owned by the Grantee (as defined
            therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the H.O. Clark Electric Generating Station filed for record under
            Clerk's File No. W048266 and Film Code No. 555-89-2302 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

D.    DEEPWATER ELECTRIC GENERATING STATION (901 Light Company Road, Pasadena,
      Harris County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Deepwater Electric Generating Station
            filed for record under Clerk's File No. W048267 and Film Code No.
            ###-##-#### in the Real Property Records of HARRIS COUNTY, TEXAS,
            together with all equipment, supplies, and other tangible or
            intangible personal property located thereon or used or enjoyed in
            connection therewith which are owned by the Grantee (as defined
            therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the Deepwater Electric Generating Station filed for record under
            Clerk's File No. W048268 and Film Code No. 555-89-2426 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

E.    GREENS BAYOU ELECTRIC GENERATING STATION (12070 Beaumont Highway, Houston,
      Harris County, Texas

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Greens Bayou Electric Generating Station
            filed for record under Clerk's File No. W048269 and Film Code No.
            ###-##-#### in the Real Property Records of HARRIS COUNTY, TEXAS,
            together with all equipment, supplies, and other tangible


                                      A-3


            or intangible personal property located thereon or used or enjoyed
            in connection therewith which are owned by the Grantee (as defined
            therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the Greens Bayou Electric Generating Station filed for record under
            Clerk's File No. W048270 and Film Code No. 555-89-2569 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Fore-Bay Cooling Pond at Greens
            Bayou Electric Generating Station filed for record under Clerk's
            File No. W048271 and Film Code No. 555-89-2659 in the Real Property
            Records of HARRIS COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

      4.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the offsite Fore-Bay Water Line, Supervisory Cable and Metering
            Station at Greens Bayou Electric Generating Station filed for record
            under Clerk's File No. W048272 and Film Code No. 555-89-2670 in the
            Real Property Records of HARRIS COUNTY, TEXAS (it being understood
            that the property being released from the lien of the Mortgage
            consists only of the easements granted by the Company and not fee
            title to the land covered by such easements).

      5.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Partial Assignment and Conveyance
            related to the offsite Fore-Bay Water Line and Supervisory Cable at
            Greens Bayou Electric Generating Station filed for record under
            Clerk's File No. W048273 and Film Code No. 555-89-2708 in the Real
            Property Records of HARRIS COUNTY, TEXAS.

F.    LIMESTONE ELECTRIC GENERATING STATION (Route 1, Box 85, Jewett, Limestone
      County, Texas, Limestone, Leon and Freestone Counties, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Limestone Electric Generating Station
            filed for record under Clerk's File No. 024120 and Volume 1092, Page
            397 in the Real Property Records of LIMESTONE COUNTY, TEXAS, under
            Clerk's File No. 00302738 and Volume 1120, Page 395 in the Real
            Property Records of LEON COUNTY, TEXAS and under Clerk's File No.
            2006184 and Volume 1210, Page 1 in the Real Property Records of
            FREESTONE COUNTY, TEXAS, together with all equipment, supplies, and
            other


                                      A-4


            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the Limestone Electric Generating Station filed for record under
            Clerk's File No. 024121 and Volume 1092, Page 458 in the Real
            Property Records of LIMESTONE COUNTY, TEXAS, under Clerk's File No.
            00302729 and Volume 1120, Page 456 in the Real Property Records of
            LEON COUNTY, TEXAS and under Clerk's File No. 2006185 and Volume
            1210, Page 62 in the Real Property Records of FREESTONE COUNTY,
            TEXAS (it being understood that the property being released from the
            lien of the Mortgage consists only of the easements granted by the
            Company and not fee title to the land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Conference Center at Limestone Electric
            Generating Station filed for record under Clerk's File No. 024122
            and Volume 1092, Page 554 in the Real Property Records of LIMESTONE
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).

      4.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Limestone Water Line(s) at
            Limestone Electric Generating Station filed for record under Clerk's
            File No. 00302730 and Volume 1120, Page 552 in the Real Property
            Records of LEON COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

      5.    The easements, facilities and appurtenant rights conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the offsite Limestone Water Line(s) at Limestone Electric Generating
            Station filed for record under Clerk's File No. 00302731 and Volume
            1120, Page 563 in the Real Property Records of LEON COUNTY, TEXAS
            (it being understood that the property being released from the lien
            of the Mortgage consists only of the easements granted by the
            Company and not fee title to the land covered by such easements).

      6.    The easements, facilities and appurtenant rights conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the offsite Limestone Water Line(s) at Limestone Electric Generating
            Station filed for record under Clerk's File No. 024123 and Volume
            1092, Page 568 in the Real Property Records of LIMESTONE COUNTY,
            TEXAS (it being understood that the property being released from the
            lien of the Mortgage consists only of the easements granted by the
            Company and not fee title to the land covered by such easements).


                                      A-5


      7.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the offsite Limestone Water Line(s) at Limestone Electric
            Generating Station filed for record under Clerk's File No. 00302732
            and Volume 1120, Page 598 in the Real Property Records of LEON
            COUNTY, TEXAS.

      8.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Partial Assignment and Conveyance
            related to the offsite Limestone Water Line(s) at Limestone Electric
            Generating Station filed for record under Clerk's File No. 00302733
            and Volume 1120, Page 613 in the Real Property Records of LEON
            COUNTY, TEXAS.

G.    W.A. PARISH ELECTRIC GENERATING STATION (2500 Y.U. Jones Road, Thompson,
      Fort Bend County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the W.A. Parish Electric Generating Station
            filed for record under Clerk's File No. 2002094433 in the Real
            Property Records of FORT BEND COUNTY, TEXAS, together with all
            equipment, supplies, and other tangible or intangible personal
            property located thereon or used or enjoyed in connection therewith
            which are owned by the Grantee (as defined therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the W.A. Parish Electric Generating Station filed for record under
            Clerk's File No. 2002094434 in the Real Property Records of FORT
            BEND COUNTY, TEXAS (it being understood that the property being
            released from the lien of the Mortgage consists only of the
            easements granted by the Company and not fee title to the land
            covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Rail Line Fee Tracts at W.A.
            Parish Electric Generating Station filed for record under Clerk's
            File No. 2002094435 in the Real Property Records of FORT BEND
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).

      4.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Richmond Rice Canal at W.A.
            Parish Electric Generating Station filed for record under Clerk's
            File No. 2002094439 in the Real Property Records of FORT BEND
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).


                                      A-6


      5.    The facilities and appurtenances thereto conveyed by the Company
            pursuant to that certain Assignment and Conveyance related to the
            offsite Rail Spur Easement and offsite Smithers Lake Road easement
            at W.A. Parish Electric Generating Station filed for record under
            Clerk's File No. 2002094436 in the Real Property Records of FORT
            BEND COUNTY, TEXAS.

      6.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the offsite Richmond Rice Canal at W.A. Parish Electric
            Generating Station filed for record under Clerk's File No.
            2002094438 in the Real Property Records of FORT BEND COUNTY, TEXAS.

H.    P.H. ROBINSON ELECTRIC GENERATING STATION (5501 State Highway 146,
      Bacliff, Galveston County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the P.H. Robinson Electric Generating
            Station filed for record under Clerk's File No. 2002050899 and Film
            Code No. ###-##-#### in the Real Property Records of GALVESTON
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the P.H. Robinson Electric Generating Station filed for record under
            Clerk's File No. 2002050900 and Film Code No. 017-36-0282 in the
            Real Property Records of GALVESTON COUNTY, TEXAS (it being
            understood that the property being released from the lien of the
            Mortgage consists only of the easements granted by the Company and
            not fee title to the land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to four Spoils Tracts at P.H. Robinson Electric
            Generating Station filed for record under Clerk's File No.
            2002050901 and Film Code No. 017-36-0403 in the Real Property
            Records of GALVESTON COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

I.    SAN JACINTO STEAM ELECTRIC GENERATING STATION (845 Sens Road, LaPorte,
      Harris County, Texas)

      1.    The interest in that certain tract of land more particularly
            described on Exhibit A-1 attached hereto and improvements thereon
            and appurtenances thereto related to the San Jacinto Steam Electric
            Generating Station which is covered by the Mortgage.


                                      A-7


      2.    That certain Easement and Covenant Agreement related to the San
            Jacinto Steam Electric Station filed for record under Clerk's File
            No. W048250 and Film Code No. 555-89-1794 in the Real Property
            Records of HARRIS COUNTY, TEXAS (it being understood that the
            property being released from the lien of the Mortgage consists only
            of the easements granted by the Company and not fee or leasehold
            title to the land covered by such easements).

J.    SOUTH TEXAS POWER PLANT (P.O. Box 289, Wadsworth, Matagorda County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the South Texas Power Plant filed for record
            under Clerk's File No. 025924 in the Real Property Records of
            MATAGORDA COUNTY, TEXAS, together with all equipment, supplies, and
            other tangible or intangible personal property located thereon or
            used or enjoyed in connection therewith which are owned by the
            Grantee (as defined therein).

K.    WEBSTER ELECTRIC GENERATING STATION (19801 Old Galveston Road, Webster,
      Harris County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Webster Electric Generating Station
            filed for record under Clerk's File No. W048251 and Film Code No.
            ###-##-#### in the Real Property Records of HARRIS COUNTY, TEXAS,
            together with all equipment, supplies, and other tangible or
            intangible personal property located thereon or used or enjoyed in
            connection therewith which are owned by the Grantee (as defined
            therein) (save and except the portion thereof described in Schedules
            2A and 2B of the Deed described in this paragraph).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the Webster Electric Generating Station filed for record under
            Clerk's File No. W048252 and Film Code No. 555-89-1877 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Webster Discharge Canals at
            Webster Electric Generating Station filed for record under Clerk's
            File No. W048253 and Film Code No. 555-89-1969 in the Real Property
            Records of HARRIS COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).


                                      A-8


      4.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the offsite Webster Discharge Canals at
            Webster Electric Generating Station filed for record under Clerk's
            File No. 2002050903 and Film Code No. 017-36-0433 in the Real
            Property Records of GALVESTON COUNTY, TEXAS, together with all
            equipment, supplies, and other tangible or intangible personal
            property located thereon or used or enjoyed in connection therewith
            which are owned by the Grantee (as defined therein).

      5.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the offsite Webster Discharge Canals at Webster Electric Generating
            Station filed for record under Clerk's File No. W048254 and Film
            Code No. ###-##-#### in the Real Property Records of HARRIS COUNTY,
            TEXAS (it being understood that the property being released from the
            lien of the Mortgage consists only of the easements granted by the
            Company and not fee title to the land covered by such easements).

      6.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the offsite Webster Discharge Canals at Webster Electric Generating
            Station filed for record under Clerk's File No. 2002050904 and Film
            Code No. ###-##-#### in the Real Property Records of GALVESTON
            COUNTY, TEXAS (it being understood that the property being released
            from the lien of the Mortgage consists only of the easements granted
            by the Company and not fee title to the land covered by such
            easements).

      7.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the offsite Webster Discharge Canals at Webster Electric
            Generating Station filed for record under Clerk's File No. W048255
            and Film Code No. 555-89-2017 in the Real Property Records of HARRIS
            COUNTY, TEXAS.

      8.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the offsite Webster Discharge Canals at Webster Electric
            Generating Station filed for record under Clerk's File No.
            2002050905 and Film Code No. 017-36-0483 in the Real Property
            Records of GALVESTON COUNTY, TEXAS.

      9.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Submerged Tract at Webster Electric
            Generating Station filed for record under Clerk's File No. W048256
            and Film Code No. 555-89-2030 in the Real Property Records of HARRIS
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).


                                      A-9


L.    T.H. WHARTON ELECTRIC GENERATING STATION (16301 Tomball Parkway (SH 249),
      Harris County, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the T.H. Wharton Electric Generating Station
            filed for record under Clerk's File No. W048282 and Film Code No.
            ###-##-#### in the Real Property Records of HARRIS COUNTY, TEXAS,
            together with all equipment, supplies, and other tangible or
            intangible personal property located thereon or used or enjoyed in
            connection therewith which are owned by the Grantee (as defined
            therein).

      2.    The easements and appurtenant rights conveyed by the Company
            pursuant to that certain Easement and Covenant Agreement related to
            the T.H. Wharton Electric Generating Station filed for record under
            Clerk's File No. W048283 and Film Code No. 555-89-2793 in the Real
            Property Records of HARRIS COUNTY, TEXAS (it being understood that
            the property being released from the lien of the Mortgage consists
            only of the easements granted by the Company and not fee title to
            the land covered by such easements).

M.    FUEL OIL PIPELINE (Harris County, Texas)

      1.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the Fuel Oil Pipeline filed for record under Clerk's File No.
            W048284 and Film Code No. 555-89-2878 in the Real Property Records
            of HARRIS COUNTY, TEXAS (it being understood that the property being
            released from the lien of the Mortgage consists only of the
            easements granted by the Company and not fee title to the land
            covered by such easements).

      2.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the Fuel Oil Pipeline filed for record under Clerk's File No.
            W048285 and Film Code No. 555-89-3244 in the Real Property Records
            of HARRIS COUNTY, TEXAS.

      3.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Partial Assignment and Conveyance
            related to the Fuel Oil Pipeline filed for record under Clerk's File
            No. W048286 and Film Code No. 555-89-3270 in the Real Property
            Records of HARRIS COUNTY, TEXAS.

      4.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Gas Injection Facility adjacent to the
            Fuel Oil Pipeline filed for record under Clerk's File No. W048287
            and Film Code No. 555-89-3303 in the Real Property Records of HARRIS
            COUNTY, TEXAS, together with all equipment, supplies, and other
            tangible or intangible personal property located thereon or used or
            enjoyed in connection therewith which are owned by the Grantee (as
            defined therein).


                                      A-10


N.    FUEL OIL PIPELINE (Galveston County, Texas)

      1.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Easement and Conveyance related to
            the Fuel Oil Pipeline filed for record under Clerk's File No.
            2002050907 and Film Code No. 017-36-0503 in the Real Property
            Records of GALVESTON COUNTY, TEXAS (it being understood that the
            property being released from the lien of the Mortgage consists only
            of the easements granted by the Company and not fee title to the
            land covered by such easements).

      2.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the Fuel Oil Pipeline filed for record under Clerk's File No.
            2002050908 and Film Code No. 017-36-0561 in the Real Property
            Records of GALVESTON COUNTY, TEXAS.

      3.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Partial Assignment and Conveyance
            related to the Fuel Oil Pipeline filed for record under Clerk's File
            No. 2002050909 and Film Code No. 017-36-0576 in the Real Property
            Records of GALVESTON COUNTY, TEXAS.

O.    FUEL OIL PIPELINE (Chambers County, Texas)

      1.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the Fuel Oil Pipeline filed for record under Clerk's File No.
            6957B and Volume 576, Page 120 in the Real Property Records of
            CHAMBERS COUNTY, TEXAS.

      2.    The easements, facilities and appurtenances thereto conveyed by the
            Company pursuant to that certain Assignment related to the North
            Dayton Corridor of the Fuel Oil Pipeline filed for record under
            Clerk's File No. 6958B and Volume 576, Page 133 in the Real Property
            Records of CHAMBERS COUNTY, TEXAS.

      3.    The easements conveyed by the Company pursuant to that certain
            Partial Assignment related to the North Dayton Corridor of the Fuel
            Oil Pipeline filed for record under Clerk's File No. 6959B and
            Volume 576, Page 152 in the Real Property Records of CHAMBERS
            COUNTY, TEXAS.

P.    NORTH DAYTON SALT DOME / HUFFMAN ELECTRICAL SUBSTATION AND PIPELINE / GAS
      STORAGE FACILITY (Liberty County, Texas)

      1.    The easements, facilities, and appurtenant rights conveyed by the
            Company pursuant to that certain Assignment and Conveyance related
            to the Huffman Electrical Substation and Pipeline filed for record
            under Clerk's File No. 12605 and Volume 1993, Page 761 in the Real
            Property Records of LIBERTY COUNTY, TEXAS.

      2.    The services, agreements and appurtenant rights conveyed by the
            Company pursuant to that certain Assignment related to the Gas
            Storage Service Contract in


                                      A-11


            connection with the Gas Storage Facility filed for record under
            Clerk's File No. 12606 and Volume 1993, Page 774 in the Real
            Property Records of LIBERTY COUNTY, TEXAS.

                  Q. ENERGY DEVELOPMENT CENTER AND CONKLIN TRACT (Harris County,
Texas)

1.    The land, improvements, fixtures and other property thereon and
      appurtenances thereto conveyed by the Company pursuant to that certain
      Deed related to the Energy Development Center filed for record under
      Clerk's File No. W048288 and Film Code No. 555-89-3315 in the Real
      Property Records of HARRIS COUNTY, TEXAS, together with all equipment,
      supplies, and other tangible or intangible personal property located
      thereon or used or enjoyed in connection therewith which are owned by the
      Grantee (as defined therein).

2.    The leases, facilities and appurtenances thereto conveyed by the Company
      pursuant to that certain Assignment and Assumption of Tenant Lease related
      to the Energy Development Center filed for record under Clerk's File No.
      W0484289 and Film Code No. 555-89-3330 in the Real Property Records of
      HARRIS COUNTY, TEXAS.

R.    JEWETT MINE (Limestone, Leon and Freestone Counties, Texas)

      1.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Jewett Mine filed for record under
            Clerk's File No. 024124 and Volume 1092, Page 603 in the Real
            Property Records of LIMESTONE COUNTY, TEXAS, together with all
            equipment, supplies, and other tangible or intangible personal
            property located thereon or used or enjoyed in connection therewith
            which are owned by the Grantee (as defined therein).

      2.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Jewett Mine filed for record under
            Clerk's File No. 00302734 and Volume 1120, Page 650 in the Real
            Property Records of LEON COUNTY, TEXAS, together with all equipment,
            supplies, and other tangible or intangible personal property located
            thereon or used or enjoyed in connection therewith which are owned
            by the Grantee (as defined therein).

      3.    The land, improvements, fixtures and other property thereon and
            appurtenances thereto conveyed by the Company pursuant to that
            certain Deed related to the Jewett Mine filed for record under
            Clerk's File No. 2006186 and Volume 1210, Page 158 in the Real
            Property Records of FREESTONE COUNTY, TEXAS, together with all
            equipment, supplies, and other tangible or intangible personal
            property located thereon or used or enjoyed in connection therewith
            which are owned by the Grantee (as defined therein).


                                      A-12


      4.    The facilities and appurtenances thereto conveyed by the Company
            pursuant to that certain Assignment of Option Agreement related to
            the Jewett Mine filed for record under Clerk's File No. 2006190 and
            Volume 1210, Page 209 in the Real Property Records of FREESTONE
            COUNTY, TEXAS, under Clerk's File No. 00302737 and Volume 1120, Page
            688 in the Real Property Records of LEON COUNTY, TEXAS and under
            Clerk's File No. 024125 and Volume 1092, Page 625 in the Real
            Property Records of LIMESTONE COUNTY, TEXAS.


                                      A-13


                                   EXHIBIT A-1
                                   Page 1 of 2


                                                    San Jacinto Electric Station
                                                               Job No. 13015020P
                                                                Ref. Map 14-H-5E
                                                                         Tract 3

      Description of 7.306 acres of land in the Enoch Brinson League, Abstract
5, Harris County, Texas, being partly out of the residue of an 822.154-acre
tract recorded in Volume 1318, Page 364 of the Deed Records of Harris County,
Texas, and partly out of the residue of a 97.477-acre tract recorded in Volume
7034, Page 10 of said Deed Records and out of a 9.991-acre tract recorded in
Clerk's File No. N 530947 and Film Code No. 014-59-1718 of the Official Public
Records of Real Property of Harris County, Texas:

      All coordinates and bearings herein refer to the Texas Coordinate System
of 1983, South Central Zone as defined in the Texas Natural Resources Code, and
based on the position of H.G.C.S.D. 42 (1986), having published coordinates of N
(Y) = 13,823,622.030 and E (X) = 3,216,990.899 U.S. Survey Foot with an applied
scale factor of 0.9998839. Said 7.306-acre tract is described by metes and
bounds as follows:

COMMENCING at a 3/4 inch iron pipe found at the southwest corner of said
97.477-acre tract, having coordinates of N (Y)= 13,820,895.82 and E (X)=
3,223,298.68 same being the southwest corner of a 250-foot wide easement
described as Way No. 2 recorded in File D332601 and Film Code 129-23-2583 of the
Official Public Records of Real Property of Harris County, Texas and also on the
east line of Sens Road (60 feet wide), from which a found 3/4 inch iron pipe
bears North 58 degrees 48 minutes 36 seconds West, a distance of 0.82 feet and
from which a found 3/4 inch iron rod bears North 72 degrees 01 minutes 34
seconds West, a distance of 1.17 feet;

THENCE, North 86 degrees 55 minutes 32 seconds East, a distance of 2482.03 feet
along the south line of said 97.477-acre tract, same being the south line of
said 250-foot wide easement, to a point;

THENCE, North 03 degrees 04 minutes 28 seconds West, a distance of 301.31 feet
to a chain link fence post found for the southeast corner of Tract 1 and said
9.991- acre tract;

THENCE, South 86 degrees 53 minutes 39 seconds West, with the south line of
Tract 1 and said 9.991- acre tract, a distance of 265.00 feet to a found iron
rod with aluminum cap stamped HL&P;



                                   EXHIBIT A-1
                                   Page 2 of 2


THENCE, North 86 degrees 15 minutes 30 seconds West, continuing with said south
line, a distance of 60.40 feet to a R.R. spike set for a common corner of Tract
1, and a 7.306-acre tract referred to as Tract 3, and the POINT OF BEGINNING
having coordinates of N (Y)= 13,821,319.34 and E (X)= 3,225,435.84;

THENCE, North 86 degrees 15 minutes 30 seconds West, with the south line of said
Tract 3 and said 9.991- acre tract, a distance of 100.72 feet to a point for
corner;

THENCE, South 86 degrees 53 minutes 39 seconds West, a distance of 540.00 feet
to a found iron rod with aluminum cap stamped HL&P for the southwest corner of
the herein described tract and said 9.991- acre tract;

THENCE, North 51 degrees 40 minutes 56 seconds West, at 463.30 feet passing the
common line of said 94.477-acre tract with said 822.154 -acre tract, for a total
distance of 566.79 feet to a found iron rod with aluminum cap stamped HL&P for
the northwest corner of the herein described tract and said 9.991- acre tract;

THENCE, North 86 degrees 53 minutes 39 seconds East, with the north line of
Tract 3 and said 9.991- acre tract, a distance of 1,059.63 feet to a 3/4 inch
iron rod with plastic cap stamped "Reliant Energy HL&P" set for the common
corner of Tract 1, 3, and 4;

THENCE, South 03 degrees 02 minutes 05 seconds East, at 75.00 feet passing the
southwest corner of said tract 4, at 119.08 feet passing the northeast corner of
a 0.155-acre tract referred to as Tract 2, at 276.83 feet passing the southeast
corner of said Tract 2, for a total distance of 364.33 feet to a 3/4 inch iron
rod with plastic cap stamped "Reliant Energy HL&P" set for corner;

THENCE, South 90 degrees 00 minutes 00 seconds East, a distance of 7.05 feet to
a 3/4 inch iron rod with plastic cap stamped "Reliant Energy HL&P" set for
corner;

THENCE, South 00 degrees 00 minutes 00 seconds West, a distance of 22.33 feet to
the POINT OF BEGINNING and containing 7.306 acres of land.

A survey drawing with Map Number 14-H-5E was prepared by Carter & Burgess, Inc.
in conjunction with this metes and bounds description.



                                                                       EXHIBIT B

                          PREVIOUSLY CONVEYED PROPERTY

A.    ALLEN'S CREEK TRACT (Austin County, Texas)

The land, improvements, fixtures and other property thereon and easements and
appurtenances thereto conveyed by the Company pursuant to that certain Deed
related to the Allen's Creek Tract filed for record under Clerk's File No.
025196 in the Real Property Records of AUSTIN COUNTY, TEXAS, together with all
equipment, supplies, and other tangible or intangible personal property located
thereon or used or enjoyed in connection therewith which are owned by the
Grantee (as defined therein).

B.    MILL'S CREEK TRACTS (Austin County, Texas)

The land, improvements, fixtures and other property thereon and appurtenances
thereto conveyed by the Company pursuant to that certain Deed related to the
Mill's Creek Tracts filed for record under Clerk's File No. 025200 in the Real
Property Records of AUSTIN COUNTY, TEXAS, together with all equipment, supplies,
and other tangible or intangible personal property located thereon or used or
enjoyed in connection therewith which are owned by the Grantee (as defined
therein).

C.    CEDAR BAYOU TRACTS (Chambers County, Texas)

Those certain tracts of land comprising approximately 12.085 acres and 5.05
acres in the Benjamin Winfree League, Abstract 28 in CHAMBERS COUNTY, TEXAS as
recorded in Volume 340, page 320 and Volume 340 page 650 respectively in the
deed records of Chambers County; such tracts were subsequently conveyed to Texas
Genco, LP by that certain deed recorded in the Deed Records of Chambers County,
Texas under County Clerk's File No. 6952B, Volume 575, Page 835.

D.    P.H. ROBINSON MINERALS (Galveston County, Texas)

Certain lands located in GALVESTON COUNTY, TEXAS which lands are more
particularly described on EXHIBIT A to that certain Oil, Gas and Mineral Lease
dated December 12, 1980 and recorded in the office of the County Clerk of
Galveston County, Texas under County Clerk's file No. 8101167 and bearing said
Clerk's film code No. ###-##-####, between Houston Lighting & Power Company, a
Texas corporation and predecessor in interest to Grantor, as lessor, and Lofco,
a Texas general partnership, as lessee (the "Lease"), together with all rights
and interests appurtenant thereto, including without limitation Grantor's right,
title and interest in and to the Lease.


                                      B-1


                                                                       EXHIBIT B

E.    MALAKOFF TRACTS - TRINITY MINE (Anderson County, Texas and Henderson
      County, Texas)

The land, improvements, fixtures and other property thereon and appurtenances
thereto conveyed by the Company pursuant to that certain Deed related to the
Malakoff Tracts and Trinity Mine filed for record under Clerk's File No. 0017482
and Volume 1740, Page 558 in the Real Property Records of ANDERSON COUNTY, TEXAS
and under Clerk's File No. 0015448 and Volume 2221, Page 372 in the Real
Property Records of HENDERSON COUNTY, TEXAS, together with all equipment,
supplies, and other tangible or intangible personal property located thereon or
used or enjoyed in connection therewith which are owned by the Grantee (as
defined therein).

F.    PARTITION TRACTS MINERALS (Leon County, Texas and Freestone County, Texas)

                                     TRACT I

669.75 Acres, more or less, out of the W. R. Nichols Survey, A-1159, T. J.
McCallom Survey, A-564 & A-576, J. H. Thomas Survey, A-891 and the J. L. Green
Survey, A-318, being more fully described in Pooling Designation dated January
11, 1982, recorded in Volume 519, Page 287, Deed Records of LEON COUNTY, TEXAS
and correction to Amendment of Pooling Designation dated October 8, 1982,
recorded in Volume 530, Page 122, Deed Records of Leon County, Texas.

                                    TRACTS II

Tract 1:    84.485 acres situated in the Samuel M. Phariss Survey, A-516,
            Freestone County, Texas, being the same land described as the "First
            Tract" in that certain deed dated April 30, 1963, from Clifton
            Harper, et ux, to the Veterans Land Board Of The State of Texas,
            recorded in Volume 330, Page 64, Deed Records, FREESTONE COUNTY,
            TEXAS.

Tract 2:    55.00 acres situated in the I. M. Childre Survey, A-883, Freestone
            County, Texas, and A-1284, LEON COUNTY, TEXAS, and being described
            in two (2) tracts, as follows:

            Tract 2A:   53.823 acres situated in the I. M. Childre Survey,
                        A-883, Freestone County, Texas, and A-1284, LEON COUNTY,
                        TEXAS, being the same land described in that certain
                        deed dated April 16, 1965, from Hayse E. Willingham, et
                        ux, to Calvin Pate, recorded in Volume 351, Page 270,
                        Deed Records, Freestone County, Texas and Volume 326,
                        Page 76, Deed Records, Leon County, Texas, SAVE AND
                        EXCEPT: 1.177 acres, being Tract 2B described below.


                                      B-2


                                                                       EXHIBIT B

            Tract 2B:   1.177 acres situated in the I. M. Childre Survey,
                        A-1284, LEON COUNTY, TEXAS, being the same land
                        described in that certain deed dated August 27, 1970
                        from Calvin Pate, et ux, to Betsy L. Thompson, recorded
                        in Volume 364, Page 11, Deed Records, Leon County,
                        Texas.

Tract 3:    11.332 acres out of a 95.11 acre tract situated in the Samuel M.
            Phariss Survey, A-516, FREESTONE COUNTY, TEXAS, such 95.11 acre
            tract being in that certain deed dated December 20, 1968, from Exla
            Brown, et al, to Ben F. Brown, et ux, recorded in Volume 385, Page
            681, Deed Records, Freestone County, Texas.

Tract 4:    28.095 acres situated in the I. M. Childre Survey, A-883, FREESTONE
            COUNTY, TEXAS, and A-1284, Leon County, Texas and being described in
            two (2) tracts, as follows:

            Tract 4A:   20.975 acres situated in the I. M. Childre Survey,
                        A-883, FREESTONE COUNTY, TEXAS, and A-1284, Leon County,
                        Texas, being the same land described as the "Second
                        Tract" in that certain deed dated April 30, 1963, from
                        Clifton Harper, et ux, to the Veterans Land Board of The
                        State of Texas, recorded in Volume 330, Page 64, Deed
                        Records, Freestone County, Texas, SAVE AND EXCEPT: 7.12
                        acres, being 4B described below.

            Tract 4B:   7.12 acres situated in the I. M. Childre Survey, A-1284,
                        LEON COUNTY, TEXAS, being the same land described in
                        that certain deed dated September 3, 1971 from Marvin M.
                        Risner, et ux, to Jodie Vann, recorded in Volume 372,
                        Page 160, Deed Records, Leon County, Texas.

Tract 5:    30.003 acres out of a 60.006 acre tract situated in the Samuel M.
            Phariss Survey, A-516, FREESTONE COUNTY, TEXAS, such 60.006 acre
            tract being described in two (2) tracts, as follows:

            Tract 5A:   30.70 acres situated in the Samuel M. Phariss Survey,
                        A-516, FREESTONE COUNTY, TEXAS, and being described in
                        that certain deed dated June 4, 1965 from Fred D. Scott
                        to Glen White, recorded in Volume 351, Page 576, Deed
                        Records, Freestone County, Texas.

            Tract 5B:   37.5 acres situated in the Samuel M. Phariss Survey,
                        A-516, FREESTONE COUNTY, TEXAS, and being described in
                        that certain deed dated August 31, 1963 from Dorris
                        Stone, et ux, to Glen White, recorded in Volume 335,
                        Page 375, Deed Records, Freestone County, Texas.


                                      B-3


                                                                       EXHIBIT B

                                    TRACT III

310.949 acres of land, more or less, out of the Gertrudis Diaz Survey, A-178,
FREESTONE COUNTY, TEXAS, as further described in that certain Declaration of
Pooled Unit dated September 27, 2000, effective September 1, 2000, recorded in
Volume 1133 at Page 295 of the Official Records of Freestone County, Texas.

                                    TRACT IV

320.0 acres of land, more or less out of the Gertrudis Diaz Survey, A-178,
FREESTONE COUNTY, TEXAS as further described in the Declaration of Pooled Unit
for the Kelly "A" Unit dated June 21, 2000, effective May 1, 2000, recorded at
Volume 1121, Page 172 et seq. of the Official Records of Freestone County,
Texas.

                                     TRACT V

653.055 acres in the M. C. Rejon Eleven League Grant, A-19, LEON COUNTY, TEXAS
and including all of Grantor's right title and interest in and to the oil and/or
gas royalty provided under two (2) Oil and Gas Leases, each dated October 11,
2002, recorded in Volume 1130, Pages 206 and 210, respectively, Official Records
of Leon County, Texas, and as such leases have been pooled into that certain
pooled unit called the "Reliant Energy Unit," as described in a Pooling
Declaration dated August 4, 2003, recorded in Volume 1152, Page 38, Official
Records of Leon County, Texas.


                                      B-4


                                                              EXHIBIT 10 (pp)(3)

Texas Genco, LP
1111 Louisiana
Houston, TX  77002

================================================================================

                                 TEXAS GENCO, LP

                                       TO

                               JPMORGAN CHASE BANK
                                     Trustee

                                   ----------

                          FIRST SUPPLEMENTAL INDENTURE

                          Dated as of December 23, 2003

                                   ----------

                   Supplementing the First Mortgage Indenture
                          Dated as of December 23, 2003

             THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY

           THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS

This instrument is being filed pursuant to Chapter 35 of the Texas Business and
                                 Commerce Code

================================================================================



FIRST SUPPLEMENTAL INDENTURE, dated as of December 23, 2003, between TEXAS
GENCO, LP, a limited partnership organized and existing under the laws of the
State of Texas (herein called the "Company"), having its principal office at
1111 Louisiana, Houston, Texas 77002, and JPMORGAN CHASE BANK, a banking
corporation duly organized and existing under the laws of the State of New York,
as Trustee (herein called the "Trustee"), the office of the Trustee at which on
the date hereof its corporate trust business is administered being 600 Travis
Street, Suite 1150, Houston, Texas 77002.

                             RECITALS OF THE COMPANY

WHEREAS, the Company has heretofore executed and delivered to the Trustee a
First Mortgage Indenture dated as of December 23, 2003 (the "Indenture")
providing for the issuance by the Company from time to time of its bonds, notes
or other evidence of indebtedness to be issued in one or more series (in the
Indenture and herein called the "Securities") and to provide security for the
payment of the principal of and premium, if any, and interest, if any, on the
Securities, and the performance of the covenants contained in the Indenture and
the Securities; and

WHEREAS, the Company, in the exercise of the power and authority conferred upon
and reserved to it under the provisions of the Indenture and pursuant to
appropriate resolutions of the General Partner, has duly determined to make,
execute and deliver to the Trustee this First Supplemental Indenture to the
Indenture as permitted by Sections 201, 301 and 1301 of the Indenture in order
to establish the form or terms of, and to provide for the creation and issuance
of, the Securities specified in clause (1) of the definition of the "Initial
Series" under the Indenture in an initial aggregate principal amount of
$75,000,000 (such series being hereinafter and in the Indenture referred to as
the "Initial Series (1)"); and

WHEREAS, all things necessary to make the Securities of the Initial Series (1),
when executed by the Company and authenticated and delivered by the Trustee or
any Authenticating Agent and issued upon the terms and subject to the conditions
hereinafter and in the Indenture set forth against payment therefor the valid,
binding and legal obligations of the Company and to make this First Supplemental
Indenture a valid, binding and legal agreement of the Company, have been done;

NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to
establish the terms of a series of Securities, and for and in consideration of
the premises and of the covenants contained in the Indenture and in this First
Supplemental Indenture and for other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, it is mutually covenanted and
agreed as follows:



                                   ARTICLE ONE

                        DEFINITIONS AND OTHER PROVISIONS
                             OF GENERAL APPLICATION

      Section 101. Definitions. Each capitalized term that is used herein and is
defined in the Indenture shall have the meaning specified in the Indenture
unless such term is otherwise defined herein.

                                   ARTICLE TWO

                       TITLE, FORM AND TERMS OF THE BONDS

      Section 201. Title of the Bonds. This First Supplemental Indenture hereby
creates a series of Securities designated as the "First Mortgage Bonds, Series
A, due December 21, 2004" of the Company (collectively referred to herein as the
"Bonds"). For purposes of the Indenture, the Bonds shall constitute a single
series of Securities and may be issued in an unlimited principal aggregate
amount, although the initial issuance of the Bonds shall be in the principal
amount of $75,000,000.

      Section 202. Form and Terms of the Bonds. The form and terms of the Bonds
will be set forth in an Officer's Certificate delivered by the Company to the
Trustee pursuant to the authority granted by this First Supplemental Indenture
in accordance with Sections 201 and 301 of the Indenture.

                                  ARTICLE THREE

                            MISCELLANEOUS PROVISIONS

The Trustee makes no undertaking or representations in respect of, and shall not
be responsible in any manner whatsoever for and in respect of, the validity or
sufficiency of this First Supplemental Indenture or the proper authorization or
the due execution hereof by the Company or for or in respect of the recitals and
statements contained herein, all of which recitals and statements are made
solely by the Company.

Except as expressly amended and supplemented hereby, the Indenture shall
continue in full force and effect in accordance with the provisions thereof and
the Indenture is in all respects hereby ratified and confirmed. This First
Supplemental Indenture and all of its provisions shall be deemed a part of the
Indenture in the manner and to the extent herein and therein provided.

This First Supplemental Indenture shall be governed by, and construed in
accordance with, the law of the State of New York.

This First Supplemental Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.



      IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                  TEXAS GENCO, LP


                                  By: TEXAS GENCO GP, LLC

                                      By:    /s/ Marc Kilbride
                                         ---------------------------------------
                                         Name:  Marc Kilbride
                                         Title: Vice President and Treasurer


                                      JPMORGAN CHASE BANK, as Trustee

                                      By:    /s/ Carol Logan
                                         ---------------------------------------
                                         Name:  Carol Logan
                                         Title: Vice President and Trust Officer



                                 ACKNOWLEDGMENT

STATE OF TEXAS    )
                  )     ss
COUNTY OF HARRIS  )

            On the 22nd day of December, 2003, before me personally came Marc
Kilbride, to me known, who, being by me duly sworn, did depose and say that he
resides in Houston, Texas; that he is the Vice President and Treasurer of Texas
Genco GP, LLC, a Texas limited liability company, the general partner of the
limited partnership described in and which executed the foregoing instrument;
and that he signed his name thereto by authority of the Sole Manager of said
limited liability company.


                                                 /s/ Christie J. Newsome
                                                 -------------------------------
                                                 Notary Public

                                 ACKNOWLEDGMENT

STATE OF TEXAS    )
                  )     ss
COUNTY OF HARRIS  )

            On the 22nd day of December, 2003, before me personally came Carol
Logan, to me known, who, being by me duly sworn, did depose and say that she
resides in Houston, Texas; that she is Vice President and Trust Officer of
JPMorgan Chase Bank, a banking corporation organized under the State of New
York, the Trustee described in and which executed the foregoing instrument; and
that she signed her name thereto by authority of the board of directors of said
corporation.


                                                 /s/ Christie J. Newsome
                                                 -------------------------------
                                                 Notary Public


                                                                      Exhibit 12
                CENTERPOINT ENERGY, INCORPORATED AND SUBSIDIARIES

               COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
                             (THOUSANDS OF DOLLARS)



                                                                               YEAR ENDED DECEMBER 31,
                                                     -----------------------------------------------------------------------
                                                        1999           2000          2001            2002           2003
                                                     -----------    -----------    -----------    -----------    -----------
                                                                                                  
Income from continuing operations ................   $ 1,631,697    $   245,516    $   499,378    $   368,827    $   419,711

Income taxes for continuing operations ...........       885,528        236,084        257,378        198,540        216,301

Minority interest expense (income) ...............          --              (37)           (36)            11         28,753

Capitalized interest .............................       (14,675)       (10,803)        (9,125)       (11,620)       (13,184)

Preference security dividend requirements of
     subsidiary ..................................          (599)          (762)        (1,304)            --             --
                                                     -----------    -----------    -----------    -----------    -----------
                                                       2,501,951        469,998        746,291        555,758        651,581
                                                     -----------    -----------    -----------    -----------    -----------
Fixed charges, as defined:

   Interest ......................................       488,868        509,773        551,298        708,711        906,023

   Capitalized interest ..........................        14,675         10,803          9,125         11,620         13,184

   Distribution on trust preferred securities ....        51,219         54,358         55,598         55,545         27,797

   Preference security dividend requirements
     of subsidiary ...............................           599            762          1,304             --             --

   Interest component of rentals charged to
     operating expense ...........................        15,680         15,243         15,114         15,822         15,231
                                                     -----------    -----------    -----------    -----------    -----------
   Total fixed charges ...........................       571,041        590,939        632,439        791,698        962,235
                                                     -----------    -----------    -----------    -----------    -----------
Earnings, as defined .............................   $ 3,072,992    $ 1,060,937    $ 1,378,730    $ 1,347,456    $ 1,613,816
                                                     ===========    ===========    ===========    ===========    ===========
Ratio of earnings to fixed charges ...............          5.38           1.80           2.18           1.70           1.68
                                                     ===========    ===========    ===========    ===========    ===========


                                                                      EXHIBIT 21

              SIGNIFICANT SUBSIDIARIES OF CENTERPOINT ENERGY, INC.

The following subsidiaries are deemed "significant subsidiaries" pursuant to
Item 601(b) (21) of Regulation S-K:

Utility Holdings, LLC, a Texas corporation and a direct wholly owned subsidiary
of CenterPoint Energy, Inc.

CNP Investment Management, Inc., a Texas corporation and a direct wholly owned
subsidiary of CenterPoint Energy, Inc.

CenterPoint Energy Resources Corp., a Delaware corporation and an indirect
wholly owned subsidiary of CenterPoint Energy, Inc.

CenterPoint Energy Houston Electric, LLC, a Texas corporation and an indirect
wholly owned subsidiary of CenterPoint Energy, Inc.

Texas Genco Holdings, Inc., a Texas corporation and an indirect wholly owned
subsidiary of CenterPoint Energy, Inc.

(1) Pursuant to Item 601(b) (21) of Regulation S-K, registrant has omitted the
names of subsidiaries, which considered in the aggregate as a single subsidiary,
would not constitute a "significant subsidiary" (as defined under Rule 1-02(w)
of Regulation S-X) as of December 31, 2003.

(2) CenterPoint Energy Resources Corp. also conducts business under the names of
its three unincorporated divisions: CenterPoint Energy Arkla, CenterPoint Energy
Entex and CenterPoint Energy Minnegasco.



                                                                      EXHIBIT 23

                          INDEPENDENT AUDITORS' CONSENT

         We consent to the incorporation by reference in CenterPoint Energy,
Inc.'s (i) Registration Statement No. 333-110348 on Form S-3; (ii) Registration
Statement No. 333-105733 on Form S-8; (iii) Post-Effective-Amendment No. 1 to
Registration Statement Nos. 333-33301, 333-33303, 333-58433, 333-81119 and
333-68290 on Form S-3; (iv) Post-Effective Amendment No. 1 to Registration
Statement Nos. 333-32413, 333-49333, 333-38188, 333-60260, 333-98271 and
333-101202 on Form S-8; and (v) Post-Effective Amendment No. 5 to Registration
Statement No. 333-11329 on Form S-8 of our report dated March 12, 2004 (which
report expresses an unqualified opinion and includes explanatory paragraphs
relating to the distribution of Reliant Resources, Inc., the change in method of
accounting for goodwill and certain intangible assets and the recording of asset
retirement obligations) appearing in this Annual Report on Form 10-K of
CenterPoint Energy, Inc. for the year ended December 31, 2003.

DELOITTE & TOUCHE LLP

Houston, Texas
March 12, 2004



                                                                    EXHIBIT 31.1
                                  CERTIFICATION


I, David M. McClanahan, certify that:

         1. I have reviewed this annual report on Form 10-K of CenterPoint
         Energy, Inc.;

         2. Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

         4. The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

         5. The registrant's other certifying officers and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of the
         registrant's board of directors (or persons performing the equivalent
         functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.


Date: March 12, 2004



By: /s/  David M. McClanahan
    ----------------------------------------
      David M. McClanahan
      President and Chief Executive Officer


                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Gary L. Whitlock, certify that:

         1. I have reviewed this annual report on Form 10-K of CenterPoint
         Energy, Inc.;

         2. Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

         4. The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

         5. The registrant's other certifying officers and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of the
         registrant's board of directors (or persons performing the equivalent
         functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.


Date: March 12, 2004


By: /s/  Gary L. Whitlock
    ----------------------------------------------------
    Gary L. Whitlock
    Executive Vice President and Chief Financial Officer



                                                                    EXHIBIT 32.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report of CenterPoint Energy, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2003 (the "Report"),
as filed with the Securities and Exchange Commission on the date hereof, I,
David M. McClanahan, Chief Executive Officer, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to the best of my knowledge, that:

         1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

         2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



/s/  David M. McClanahan
- --------------------------------------------
David M. McClanahan
President and Chief Executive Officer
March 12, 2004




                                                                    EXHIBIT 32.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report of CenterPoint Energy, Inc. (the
"Company") on Form 10-K for the period ending December 31, 2003 (the "Report"),
as filed with the Securities and Exchange Commission on the date hereof, I, Gary
L. Whitlock, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
the best of my knowledge, that:

         1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

         2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



/s/ Gary L. Whitlock
- ----------------------------------------------------
Gary L. Whitlock
Executive Vice President and Chief Financial Officer
March 12, 2004