UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form U-5S
ANNUAL REPORT
For the year ended December 31, 2004
Filed pursuant to the Public Utility Holding Company Act of 1935
by
CenterPoint Energy, Inc.
1111 Louisiana
Houston, Texas 70002
Utility Holding, LLC
200 West Ninth Street Plaza
Suite 411
Wilmington, Delaware 19801
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ITEM 1. SYSTEM COMPANIES AND INVESTMENTS THEREIN AS OF DECEMBER 31, 2004
See Exhibit F-1 attached hereto for the information required by this Item for
CenterPoint Energy, Inc. ("CenterPoint" or the "Company") and its subsidiaries.
ITEM 2. ACQUISITIONS OR SALES OF UTILITY ASSETS
None.
ITEM 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM SECURITIES
All transactions have been reported in certificates filed pursuant to Rule 24.
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES
In February 2004, CEHE extinguished two series of 6.7% collateralized pollution
control bonds with an aggregate principal amount of $100 million, issued on
behalf of CenterPoint, using the proceeds of the issuance of $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. The pollution control bonds
are collateralized by general mortgage bonds of CEHE with principal amounts,
interest rates and maturities that match the pollution control bonds. CEHE's
6.7% first mortgage bonds, which collateralized CenterPoint's payment
obligations under the refunded pollution control bonds were retired in
connection with the extinguishment of the refunded pollution control bonds.
CEHE's 6.7% notes payable to CenterPoint were also cancelled upon the
extinguishment of the refunded pollution control bonds.
In March 2004, CEHE extinguished two series of 6.375% collateralized pollution
control bonds with an aggregate principal amount of $45 million and one series
of 5.6% collateralized pollution control bonds with an aggregate principal
amount of $84 million, issued on behalf of CenterPoint, using the proceeds of
the issuance of $45 million aggregate principal amount of 3.625% collateralized
insurance-backed pollution control bonds due 2012 and $84 million aggregate
principal amount of 4.25% collateralized insurance-backed pollution control
bonds due 2017. The pollution control bonds are collateralized by general
mortgage bonds of CEHE with principal amounts, interest rates and maturities
that match the pollution control bonds. CEHE's 6.375% and 5.6% first mortgage
bonds, which collateralized CenterPoint's payment obligations under the refunded
pollution control bonds were retired in connection with the extinguishment of
the refunded pollution control bonds. CEHE's 6.375% and 5.6% notes payable to
CenterPoint were also cancelled upon the extinguishment of the refunded
pollution control bonds.
The above transactions were authorized pursuant to Rule 42 and/or CenterPoint's
June 30, 2003 omnibus financing order, as supplemented.
On December 15, 2004, in connection with the sale of the non-nuclear generation
assets and liabilities of Texas Genco Holdings, Inc. ("Texas Genco") to Texas
Genco LLC, Texas Genco repurchased its publicly held shares (other than 227
shares held by shareholders who validly perfected their dissenter's rights
under Texas law). This transaction was authorized pursuant to the Public
Utility Holding Company Act of 1935 (the "Act") and the rules thereunder.
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ITEM 5. INVESTMENTS IN SECURITIES OF NONSYSTEM COMPANIES
Description Number of % of Nature Owner's Book Value
Investor Investee of Security Shares Voting Power of Business (in millions)
----------------- ----------- ----------- ---------- ------------ ------------- ------------------
Reliant Energy AOL-Time Common 21,639,158 0.5% media and $ 420.9
Investment Warner entertainment
Management
CenterPoint Pantellos Common 70,327 0.7% supply chain N/A - has been
Houston Electric, Corporation services for written off
LLC utility and
energy
industries
ITEM 6. OFFICERS AND DIRECTORS - PART I.
The names, principal address and positions held as of December 31, 2004 of
the officers and directors of system companies is presented in the tables
on the following pages. The principal business address of each officer and
director is indicated in such tables by the numbers (1) through (10). The
addresses associated with these number designations are shown in the
address key below. The symbols used to indicate the positions held by
officers and directors are shown in the position symbol key below.
CENTERPOINT CNP TRANSITION
CENTERPOINT ENERGY SERVICE UTILITY HOLDING, CNP FUNDING CNP HOUSTON CNP TRANSITION BOND COMPANY II,
DIRECTORS AND OFFICERS ENERGY, INC. COMPANY, LLC LLC COMPANY ELECTRIC, LLC BOND COMPANY LLC
------------------------- ------------ -------------- ---------------- ----------- ------------- -------------- ----------------
Milton Carroll (1) D, COB
John T. Cater (1) D
Derrill Cody (1) D
O. Holcombe Crosswell (1) D
Thomas F. Madison (1) D
David M. McClanahan (1) D, P, CEO M, P, CEO D, C, P M, C
Robert T. O'Connell (1) D
Michael E. Shannon (1) D
Scott E. Rozzell (1) EVP, GC, S EVP, GC, S VP, S EVP, GC, S EVP, GC, S
Gary L. Whitlock (1) EVP, CFO EVP, CFO VP EVP, CFO M, P
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James S. Brian (1) SVP, CAO SVP, CAO SVP, CAO M, SVP, CAO
Johnny L. Blau (1) SVP
Preston Johnson, Jr. (1) SVP SVP
Byron R. Kelley (1) SVP
Thomas R. Standish (1) SVP P, COO
David G. Tees (1) SVP
Bernard J. Angelo (9) M
Patricia F. Genzel (2) M, P, S
Andrew L. Stidd (9) M
Jeff W. Bonham (1) VP VP
Rick L. Campbell (1) VP
Brenda S. Cauthen (1) VP
Donato Cortez, Jr. (1) VP
Walter L. Fitzgerald (1) VP, CO VP, CO VP, C
Patricia F. Graham (1) VP
John C. Houston (1) VP
Marc Kilbride (1) VP, T VP, T VP, T VP, T M, VP, T M
Deborah C. Korenek (1) VP
Floyd J. LeBlanc (1) VP VP
Joseph B. McGoldrick (1) VP VP
Doyle W. McQuillon (1) VP, GM
Sharon Michael-Owens (1) VP
H. Wayne Roesler (1) VP
Steven H. Schuler (1) VP
Rufus S. Scott (1) VP, DGC, AS VP, DGC, AS VP, AS VP, DGC, AS VP, DGC, AS
Jim F. Schaefer (1) VP, GM
Allan E. Schoeneberg (1) VP
William J. Starr (1) VP VP
C. Dean Woods (1) VP
Richard B. Dauphin (1) AS AS AS AS AS
Gretchen H. Denum (1) AS AS
Linda Geiger (1) AT AT AT AT AT
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HI FINANCECO CNP AVCO HOLDINGS,
DIRECTORS AND OFFICERS GP, LLC LLC
------------------------ ------------ ------------------
David M. McClanahan (1) P D, P
Scott E. Rozzell (1) EVP, S VP, S
Gary L. Whitlock (1) EVP, CFO
James S. Brian (1) SVP, CAO
Marc Kilbride (1) M, VP, T VP, T
Rufus S. Scott (1) VP, AS VP, AS
Allen E. Schoeneberg (1) VP
Richard B. Dauphin (1) AS AS
Linda Geiger (1) AT AT
CNP ENERGY, INC. CNP INVESTMENT
DIRECTORS AND OFFICERS (DE) MANAGEMENT, INC.
------------------------ ---------------- ----------------
David M. McClanahan (1) D
Scott E. Rozzell (1)
Gary L. Whitlock (1)
Patricia F. Genzel (2) D, P, S
Mike W. Watters (1) D
Marc Kilbride (1)
Kamini D. Patel (2) VP, AS
Richard B. Dauphin (1)
Linda Geiger (1)
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CNP POWER SYSTEMS,
DIRECTORS AND OFFICERS INC. CNP PRODUCTS, INC. CNP PROPERTIES, INC. CNP TEGCO, INC.
------------------------ ------------------ ------------------ -------------------- ---------------
David M. McClanahan (1) C D, P D, C, P D, P
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S
Stephen C. Schaeffer (1) D, VP
Gary L. Whitlock (1) VP
James S. Brian (1)
Marc Kilbride (1) VP, T VP, T D, VP, T VP, T
Allan E. Schoeneberg (1) VP
Rufus S. Scott (1) VP, AS VP, AS VP, AS
Richard Snyder (1) P, COO
Richard B. Dauphin (1) AS AS AS AS
Linda Geiger (1) AT AT AT AT
DIRECTORS AND OFFICERS NORAM ENERGY CORP.
------------------------ ------------------
David M. McClanahan (1) P
Scott E. Rozzell (1) VP, S
James S. Brian (1)
Marc Kilbride (1) VP, T
Rufus S. Scott (1)
Richard B. Dauphin (1) AS
Linda Geiger (1) AT
TEXAS GENCO TEXAS GENCO GP, TEXAS GENCO LP, UTILITY RAIL
DIRECTORS AND OFFICERS HOLDINGS, INC. LLC LLC SERVICES, INC.
------------------------ -------------- --------------- --------------- --------------
David M. McClanahan (1) C, P
Scott E. Rozzell (1) EVP, GC, S EVP, GC, S VP, S
David G. Tees (1) P, CEO M, P
Gary L. Whitlock (1) EVP, CFO EVP, CFO
James S. Brian (1) SVP, CAO SVP, CAO D, VP
Patricia F. Genzel (2) M, P, S
Walter L. Fitzgerald (1) VP, C
Marc Kilbride (1) VP, T VP, T VP, T
Joseph B. McGoldrick (1) VP
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Michael A. Reed (1) VP VP
Rufus S. Scott (1) D, VP, DGC, AS VP, DGC, AS VP, AS
Jerome D. Svatek (1) VP
Richard B. Dauphin (1) AS AS AS
Linda Geiger (1) AT AT AT
ARKANSAS
CNP ALG GAS ALLIED LOUISIANA
RESOURCES, SUPPLY MATERIALS FINANCE ARKLA ARKLA PRODUCTS
DIRECTORS AND OFFICERS CORP. COMPANY CORPORATION CORPORATION INDUSTRIES, INC. COMPANY
-------------------------- ------------ ------- ----------- ----------- ---------------- --------------
David M. McClanahan (1) D, C, P, CEO D, C, CEO D, P
Scott E. Rozzell (1) EVP, GC, S VP, S VP, S VP, S VP, S EVP, S
Gary L. Whitlock (1) EVP, CFO D, VP D, VP
James S. Brian (1) SVP, CAO D, VP D, VP D, VP D
Preston Johnson, Jr. (1) SVP
Gary M. Cerny (7) DP
Constantine S. Liollio (1) DP D, P D, P D, P
Georgianna E. Nichols (1) DP
Jerry W. Plant (4) D, P
Wayne D. Stinnett, Jr. (1) D, VP
Walter L. Fitzgerald (1) VP, CO
Marc Kilbride (1) VP, T VP, T VP, T VP, T VP, T VP, T
Rufus S. Scott (1) VP, DGC, AS VP, AS VP, AS VP, AS VP, AS
William J. Starr (1) VP
Brenda A. Bjorklund (7) AS
Richard B. Dauphin (1) AS AS AS AS AS AS
Daniel O. Hagen (7) AS
George C. Hepburn, III (1) AS VP, AS
Linda Geiger (1) AT AT AT AT AT AT
Michelle Willis (3) AS
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CNP CNP CNP FIELD CNP GAS
ALTERNATIVE CONSUMER CNP FIELD SERVICES PROCESSING,
DIRECTORS AND OFFICERS FUELS, INC. GROUP, INC. SERVICES, INC. HOLDINGS, INC. INC.
-------------------------- ----------- ----------- -------------- -------------- -----------
David M. McClanahan (1) D, P D, C
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S VP, S
Edwin J. Spiegel (6)
Gary M. Cerny (7) P
Walter L. Ferguson (1)
Hugh G. Maddox (3) D, SVP, COO D, SVP
Benjamin J. Reese (1)
Wayne D. Stinnett, Jr. (1) D, VP
Cyril J. Zebot (1) D, VP
Marc Kilbride (1) VP, T VP, T VP, T VP, T VP, T
Andrea L. Newman (7) VP
Rufus S. Scott (1) VP, AS VP, AS VP, AS VP, AS VP, AS
Brenda A. Bjorklund (7) AS
Richard B. Dauphin (1) AS AS AS AS AS
George C. Hepburn, III (1)
Linda Geiger (1) AT AT AT AT AT
Michelle Willis (3) AS AS
CNP GAS CNP - ILLINOIS GAS
CNP GAS TRANSMISSION CNP HUB SERVICES, TRANSMISSION
DIRECTORS AND OFFICERS RECEIVABLES, LLC COMPANY INC. COMPANY
-------------------------- ---------------- ------------ ----------------- ------------------
David M. McClanahan (1) D, P
Scott E. Rozzell (1) EVP, GC, S VP, S VP, S VP, S
Gary L. Whitlock (1) M, P
James S. Brian (1) SVP, CAO
Frank B. Bilotta (8) IM
Walter L. Ferguson (1) D, VP D, VP
Constantine S. Liollio (1)
Benjamin J. Reese (1)
Wayne D. Stinnett, Jr. (1)
Cyril J. Zebot (1) VP D, VP VP
Walter L. Fitzgerald (1) VP, CO
Marc Kilbride (1) M, VP, T VP, T VP, T VP, T
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Rufus S. Scott (1) VP, DGC, AS VP, AS VP, AS VP, AS
Robert A. Trost (6) VP
Richard B. Dauphin (1) AS AS AS AS
George C. Hepburn, III (1)
Linda Geiger (1) AT AT AT AT
Michelle Willis (3) AS
PINE PIPELINE
CNP INTRASTATE ACQUISITION CNP GAS CNP RETAIL CNP - MRT CNP MRT
DIRECTORS AND OFFICERS HOLDINGS, LLC COMPANY SERVICES, INC. INTERESTS, INC. CORPORATION HOLDINGS, INC.
-------------------------- -------------- ------------- -------------- --------------- ----------- --------------
David M. McClanahan (1) D, P
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S
Walter L. Ferguson (1) D, VP
Benjamin J. Reese (1) VP
Wayne D. Stinnett, Jr. (1) D, P D, P
Cyril J. Zebot (1) M, VP M, VP VP D, P
Marc Kilbride (1) VP, T VP, T VP, T VP, T VP, T
Rufus S. Scott (1) VP, AS VP, AS VP, AS VP, AS
Robert A. Trost (6) VP
Richard B. Dauphin (1) AS AS AS AS
Linda Geiger (1) AT AT AT AT AT
Michelle Willis (3) AS
Sylvia Z. Zuroweste (6) AS
James Best (1) AS
George C. Hepburn, III (1) VP, GC, S
Edwin J. Spiegel (6) SVP
Kevin J. Blase (6) VP
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CNP TRADING &
CNP MRT SERVICES CNP PIPELINE SERVICES, TRANSPORTATION GROUP,
DIRECTORS AND OFFICERS COMPANY INC. CNP OQ, LLC INC.
------------------------ ---------------- ---------------------- ----------- ---------------------
David M. McClanahan (1) D, P
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S
Walter L. Ferguson (1) D, VP D, VP
Cyril J. Zebot (1) VP
Marc Kilbride (1) VP, T VP, T VP, T VP, T
Rufus S. Scott (1) VP, AS VP, AS VP, AS VP, AS
Robert A. Trost (6) D, VP, GM
Richard B. Dauphin (1) AS AS AS AS
Linda Geiger (1) AT AT AT AT
Michelle Willis (3) AS
Sylvia Z. Zuroweste (6) AS
ENTEX GAS
MARKETING ENTEX NGV, ENTEX OIL & CNP INTRASTATE
DIRECTORS AND OFFICERS COMPANY INC. GAS COMPANY INTEX, INC. PIPELINES, INC.
-------------------------- --------- ---------- ----------- ----------- ---------------
David M. McClanahan (1) D, C, P D, P C, P
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S
Benjamin J. Reese (1) VP VP VP
Wayne D. Stinnett, Jr. (1) D, SVP D, VP D, SVP D, P D, C, P
Marc Kilbride (1) VP, T VP, T VP, T VP, T VP, T
Rufus S. Scott (1) VP, AS VP, AS VP, AS
Richard B. Dauphin (1) AS AS AS AS AS
George C. Hepburn, III (1) VP, AS VP, GC, S
Linda Geiger (1) AT AT AT AT AT
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MINNESOTA
INTRASTATE NATIONAL CNP FUNDS
PIPELINE FURNACE NORAM UTILITY MANAGEMENT, UNITED GAS,
DIRECTORS AND OFFICERS COMPANY COMPANY SERVICES, INC. INC. INC.
-------------------------- ---------- -------- -------------- ----------- -----------
David M. McClanahan (1) D, C D, P D, P
Scott E. Rozzell (1) VP, S VP, S VP, S EVP, S VP, S
Benjamin J. Reese (1)
Wayne D. Stinnett, Jr. (1)
James S. Brian (1) D
Gary M. Cerny (7) D, P
Kenneth Clowes D, P
Phillip R. Hammond (7) D, VP
Constantine S. Liollio (1) D, P
Marc Kilbride (1) VP, T VP, T VP, T VP, T VP, T
Rufus S. Scott (1) VP, AS VP, AS VP, AS VP, AS VP, AS
Brenda A. Bjorklund (7) AS
Richard B. Dauphin (1) AS AS AS AS AS
George C. Hepburn, III (1)
Linda Geiger (1) AT AT AT AT AT
CNP INTERNATIONAL, CNP INTERNATIONAL RE EL SALVADOR, CNP INTERNATIONAL HIE FORD HEIGHTS,
DIRECTORS AND OFFICERS INC. HOLDINGS, LLC S.A.DE C.V. II,INC. INC.
------------------------ ------------------ ----------------- --------------- ----------------- -----------------
David M. McClanahan (1) D, C, P
Joseph B. McGoldrick (1) VP M, VP D, VP D, VP
Scott E. Rozzell (1) EVP, S VP, S VP, S VP, S
Gary L. Whitlock (1) D, EVP P P P
Marc Kilbride (1) VP, T VP, T D VP, T VP, T
Steven H. Schuler (1) VP VP VP
Rufus S. Scott (1) VP, AS VP, AS VP, AS VP, AS
Richard B. Dauphin (1) AS AS AS AS
Linda Geiger (1) AT AT AT AT
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CNP
BLOCK 368 GP, HIE FULTON, INTERNATIONAL CNP LIGHT,
DIRECTORS AND OFFICERS LLC INC. SERVICES, INC. INC.
------------------------ ------------- ----------- -------------- ----------
Joseph B. McGoldrick (1) P D, VP D, VP D, VP
Scott E. Rozzell (1) VP, S VP, S VP, S VP, S
Gary L. Whitlock (1) P P P
Marc Kilbride (1) VP, T VP, T VP, T VP, T
Steven H. Schuler (1) VP VP VP D, VP
Rufus S. Scott (1) VP, DGC, AS VP, AS VP, AS
Douglas H. Darrow (1)
Richard B. Dauphin (1) AS AS AS AS
Linda Geiger (1) AT AT AT AT
RE RE HIE BRASIL RE RE RE RE VENUS WORLDWIDE
DIRECTORS AND OFFICERS BRASIL, BRAZIL RIO SUL INTERNATIONAL BRAZIL COLOMBIA OUTSOURCE GENERATION ELECTRIC
LTDA. LTD. LTDA. BRASIL LTDA. TIETE LTD LTDA. LTD. EL SALVADOR HOLDINGS B.V.
---------------------- ------- ------ ---------- ------------- --------- -------- --------- ----------- -------------
Steven H. Schuler (1) DM D DM DM D D D D
A. POSITIONS CODES
ADT Administrative Trustee
AS Assistant Secretary
AT Assistant Treasurer
C Chairman
CAO Chief Accounting Officer
CEO Chief Executive Officer
CFO Chief Financial Officer
CIO Chief Information Officer
CO Controller
COB Chairman of the Board
COO Chief Operating Officer
D Director
DGC Deputy General Counsel
DM Delegate Member
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DTR Delaware Trustee
DP Division President
EVP Executive Vice President
GC General Counsel
GM General Manager
GP Group President
IM Independent Manager
M Manager
P President
S Secretary
SVP Senior Vice President
T Treasurer
TR Trustee
VP Vice President
B. ADDRESS CODES
1 1111 Louisiana
Houston, Texas 77002
2 1011 Centre Road Suite 324
Wilmington, Delaware 19805
3 525 Milam Street
Shreveport, Louisiana 71101
4 2301 N. W. 39th Expressway, Suite 200
Oklahoma City, OK 73112
5 700 W. Linden Avenue
Minneapolis, Minnesota 55403
6 9900 Clayton Road
St. Louis, Missouri 63124
7 800 LaSalle
Minneapolis, Minnesota 55402
8 114 West 47th Street, Suite 1715
New York, New York 10036
9 400 West Main Street, Suite 338
Babylon, New York 11702
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ITEM 6. OFFICERS AND DIRECTORS - PART II. FINANCIAL CONNECTIONS AS OF DECEMBER
31, 2004
CenterPoint and its subsidiaries have no officers or directors with a financial
connection within the provisions of Section 17(c) of the Act.
ITEM 6. OFFICERS AND DIRECTORS - PART III.
(a) Compensation of Directors and Executive Officers and (e) Participation in
Bonus and Profit-Sharing Arrangements and Other Benefits
Compensation Committee. It is CenterPoint's policy to provide executive
compensation programs that permit it to recruit talent on a national basis,
remain competitive with its peer group, align executive pay with corporate
performance and encourage equity ownership. CenterPoint's compensation
committee, (the "Compensation Committee") has four non-employee director
members: Mr. Cater (Chairman), Mr. Carroll, Mr. Cody and Mr. Madison, and it
oversees compensation for CenterPoint's senior officers, including salary and
short-term and long-term incentive awards. The committee also administers
incentive compensation plans and reviews some human resources programs. The
Compensation Committee met six times in 2004.
Role of Consulting Firm. CenterPoint retains a consulting firm to review the
competitiveness of its base pay, short term incentive and long term incentive
levels. The consultant analyzed and compared each senior management position's
responsibility and job title in order to acquire market data for base salary and
total cash compensation, long term incentives and total direct compensation.
Total cash compensation is defined as base salary plus short term incentive
payments. Total direct compensation is defined as total cash compensation plus
long term incentive payments. Comparative data was gathered from proxy
statements and published salary surveys.
Selecting the Peer Group for Compensation Purposes. CenterPoint and the
consultant jointly selected a peer group of utility companies that derive at
least 80% of their revenues from regulated operations. The group includes 12
publicly traded companies comparable in size to the Company.
Review of Proxy Statements. For 2004, the positions of Messrs. McClanahan,
Rozzell, Whitlock and Schaeffer were matched to ranges of compensation for those
positions based on proxy statement data for peer group companies. Base salary,
short term incentive compensation, total cash compensation, long term incentive
compensation and total direct compensation data were obtained from the most
recent proxies of the industry peer group. In conducting the analysis, the
consultant quantified compensation for restricted stock, performance-based
shares or units, stock appreciation rights and stock options. The consultant
valued stock options using the Black-Scholes model, and all other long-term
incentives were valued at either the target level using current market prices or
at the amounts disclosed in the Summary Compensation Table. To help mitigate the
effect of a few large or small grants skewing the data, the consultant used a
three-year average of short term incentive compensation and long-term
incentives. Only current salaries were used for comparisons. All proxy statement
data was updated to April 1, 2004 using an annualized trending factor of 3.7%.
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Review of Published Salary Surveys. Compensation data was also obtained from
published industry-specific and general industry survey sources and was updated
to April 1, 2004 using an annualized trending factor of 3.7%. Matches to the
market were evaluated to reflect the job scope and type of responsibility. The
consultant used the Company's revenue assumption of $9 billion when comparing to
survey results. Actual revenue for 2004 was $8.5 billion. Both the proxy and
survey data represent the national average for the position. Generally,
geographical differences are not applicable to executive positions since
companies recruit and compete for executive talent on a national basis. The
consultant calculated the Company's ratio to the market, compensation mix and
incentive compensation multiples. Compensation mix is the portion of the total
compensation dollars related to each of the three components: base salary, short
term incentives and long-term incentives.
Compensation Philosophy. CenterPoint generally considers that the objectives of
its pay philosophy are best served when each element of total compensation for
its executives approximates the 50th percentile of the market represented by the
companies included in the review. Using this philosophy and the information from
the consultant, the Compensation Committee reviewed and approved adjustments to
base pay and individual compensation targets. In establishing individual
compensation targets, the Committee considered the data provided by the
consultant, the level and nature of responsibility, experience and the
Committee's own subjective assessment of the performance of the executive. In
making these determinations, the Committee also took into account the Chief
Executive Officer's evaluations of the performance of other executive officers.
The Compensation Committee also periodically evaluates its executive
compensation programs in light of Section 162(m) of the Internal Revenue Code.
This section generally disallows the deductibility of compensation in excess of
$1 million for certain executive officers, but excludes from the limitation
certain qualifying performance-based compensation. The Company intends to
structure its compensation programs in a manner that maximizes tax
deductibility. The Compensation Committee recognizes, however, that there may be
situations in which the best interests of shareholders are served by
administering some elements of compensation such that they may not meet the
requirements for exclusion under Internal Revenue Code Section 162(m).
Additional Compensation Consultant Review. In 2004, the Compensation Committee
engaged an additional compensation consultant to review the effectiveness of the
Company's executive compensation programs and practices. This consultant
reviewed executive benefit plan documents and data, reviewed the Company's
business plans and interviewed executive officers and members of this Committee.
This consultant compared CenterPoint's executive compensation programs against
competitive norms and considered current trends in executive plan design and
administration.
Overall, this consultant found the Company's executive compensation programs to
be fundamentally sound and consistent with the market. This consultant made
recommendations primarily in the areas of communication and plan administration.
After review and consideration of the recommendations made by the consultant,
the Company is in the process of implementing some of those recommendations.
-15-
Base Salaries. The Compensation Committee's annual recommendations concerning
each executive officer's base salary are based on the annual review of the
consultant using the proxy statement and survey data discussed above and
evaluations of each executive officer's individual performance and level of
responsibility.
Short-Term Incentive Plan. All employees other than certain bargaining unit
employees participate in the short term incentive plan. The Compensation
Committee determines the pool of funds available for payment of all awards based
on the actual levels of achievement for all business units, referred to as
"funding." Each executive officer is assigned a short term incentive target
based upon the market analysis performed annually by the consultant, the
recommendation of the Chief Executive Officer for the other executive officers
and the Committee's assessment of internal equity. Targets for the executive
officers for the 2004 plan year were 75% of eligible plan earnings for the Chief
Executive Officer, 50% of eligible plan earnings for the other named executive
officers and 40% for the other executive officer. Eligible plan earnings is
generally defined as the actual base salary paid during the plan year, including
vacation, holiday and sick time. The maximum available funding pool is 150% of
target. The maximum payout for any executive officer is two times his target
award, with the exception of the Chief Executive Officer.
As a threshold for any short term incentive plan payout for the 2004 plan year,
CenterPoint was required to pay out at least $.40 per share in dividends. For
the executive officer group, performance criteria for funding the plan consisted
of a combination of corporate, business unit and specific operational
improvement goals. For the Chief Executive Officer, the performance criteria for
funding the plan was exclusively core operating income, defined as CenterPoint's
operating income, excluding the effects of Texas Genco Holdings, Inc. operating
income, stranded cost recovery and restructuring costs. Core operating income
was weighted from 20% to 40% in the performance criteria for funding the short
term incentives of the other named executive officers. The remainder of plan
funding for the other named executive officers was based on business unit and
specific operational improvement goals related to their respective areas of
responsibility, some of which were objective and others that required subjective
assessment. The other executive officer had similar short term incentive funding
performance criteria.
The Compensation Committee has discretion to determine actual bonuses paid.
Individual bonuses were subject to adjustment above or below the funding level
as determined by the funding performance criteria, taking into account the Chief
Executive Officer's subjective assessment of individual and/or business unit
performance. The bonus for the Chief Executive Officer may be decreased below
the level based on actual funding achievement at the discretion of the
Compensation Committee, but not increased.
As administrator of the short term incentive plan, the Compensation Committee
approved the funding achievement of the 2004 short term incentive goals in
February 2005. Actual bonuses earned by each of the named executive officers are
disclosed in the "Bonus" column of the Summary Compensation Table included in
the section entitled "Compensation of Executive Officers". Due to Mr.
Schaeffer's retirement, his bonus was determined at the target level of
achievement in accordance with the retirement provisions of the plan.
Impact of Base Salary and Short Term Incentive Compensation on Other Benefits.
Base salary and short term incentive compensation are included as eligible plan
compensation in the Company's retirement plan, benefit restoration plan, savings
plan and savings
-16-
restoration plan. As a result, changes in base salary and/or short term
incentive compensation affect benefits payable under these plans. The range of
annual pensions or account balances from the retirement plan and the benefit
restoration plan are disclosed in the "Retirement Plans, Related Benefits and
Other Arrangements" section. Company contributions to the savings plan and
savings restoration plan for the named executive officers are disclosed in the
"All Other Compensation" column of the Summary Compensation Table.
In 2004, all of the executive officers were eligible to participate in the
deferred compensation plan, which provides for the deferral of base salary
and/or short term incentive compensation. Interest accrues on current
contributions at the annual Moody's Long-Term Corporate Bond Index plus two
percentage points.
All of the executive officers, except Mr. Kelley, are covered under a single
life split-dollar insurance policy under the provisions of the executive life
insurance plan with a coverage amount equivalent to two times their current base
salary. Changes in base salary generally affect the specified face amount of the
policy accordingly. As the Company pays the annual premiums due, the executive
receives imputed income based upon the coverage amount, the age of the executive
and the carrier's group term table rates. The executive is also provided a paid
tax-gross up for all taxes due on the imputed income associated with the policy
value so that coverage is provided at no cost to the executive. During 2004, the
executive officer group received imputed income of $10,000 in total, and the
Company paid premiums totaling $225,000 and tax gross-ups totaling $6,000. If
the executive leaves after age 55 and prior to age 65, benefits under the plan
will cease unless the Committee elects, in its sole discretion, to continue the
coverage. Upon Mr. Schaeffer's retirement, the Committee elected to continue his
coverage.
Messrs. McClanahan, Standish and other executive officers participate in the
executive benefits plan, which provides salary continuation benefits and
supplemental retirement, death and/or disability benefits to their beneficiaries
upon death. Coverage under this plan has not been provided to persons attaining
executive officer status after July 1, 1996. Changes in base salary have a
corresponding affect on this plan benefit. If the executive leaves the Company
prior to reaching age 65, all plan benefits are forfeited. Mr. Schaeffer
forfeited his benefits upon his retirement.
Long-Term Incentive Plan. The primary objective of the long-term incentive plan
is to attract and retain the services of key employees and provide incentives to
those employees who can contribute materially to the Company's success and
profitability. Each executive officer is assigned a long-term incentive target
based upon the market analysis performed annually by the consultant, the
recommendation of the Chief Executive Officer and the Committee's assessment of
internal equity. Targets for the executive officers set in 2004 were 150% of
base salary for the Chief Executive Officer, 90% - 100% of base salary for the
other named executive officers and 60% for the other executive officer. Plan
grants are typically made on an annual basis in the form of one or several
types: (1) nonqualified stock options; (2) performance-based shares or units;
and/or (3) restricted stock. Generally, performance-based share or unit awards
are granted with a three-year performance cycle, so that in any given year, each
executive officer has grants under three concurrent performance cycles
outstanding.
-17-
Grants Made in 2004. As administrator of the long-term incentive plan, during
2004, the Compensation Committee approved non-qualified stock options,
restricted stock and performance units for the executive officer group. These
types of awards were weighted, on a grant date value basis, 20%, 30% and 50%,
respectively, of each executive officer's long-term incentive target. If the
Company's common stock price increases over the options' exercise price, the
executive officers may realize income upon exercise. The restricted stock fully
vests as of March 3, 2007, which is three years from the grant date. The
Committee believes that the restricted stock grant and the performance unit
grant were beneficial in providing a retention element for the executive
officers. The performance units were granted for the performance cycle
commencing January 1, 2004 and ending December 31, 2006 at a target value of
$100 per unit. Payouts, if any, for the performance units will be based on the
Company's total relative shareholder return for the three-year period compared
to the companies in the S&P Utility Index peer group. At the end of the
performance cycle, the following payouts will be realized if the Company places
in the peer group as indicated:
RANKING IN
ACHIEVEMENT LEVEL PAYOUT VALUE PER UNIT S&P UTILITY INDEX
----------------- --------------------- -----------------
Threshold $ 50 Top 50%
Target 100 Linear Interpolation
Maximum 150 Top 25%
Long-Term Incentive Plan Three-Year Performance Cycle Ending December 31, 2004.
In 2002, the Compensation Committee approved the grant of performance-based
shares for this performance cycle. The performance goals were based upon the
following criteria for executives employed by the Company:
TOTAL SHAREHOLDER
RETURN AS COMPARED TO
INTERNAL PEER GROUP, OPERATING CASH FLOW,
ACHIEVEMENT LEVEL ACHIEVEMENT PERCENTAGE WEIGHTED 40% WEIGHTED 60%
----------------- ---------------------- --------------------- --------------------
Threshold 50% Top 50% $371.8 million
Target 100% Linear interpolation $455.1 million
Maximum 150% Top 20% $542.6 million
Operating cash flow is defined as earnings before interest and taxes less
capital expenditures, excluding Texas Genco Holdings, Inc. All companies in the
internally-generated peer group had at least 80% of revenues from regulated
operations. The Committee reviewed and approved each of the goal achievements
for this performance cycle. The Company ranked 6th in the 19-company panel,
which equaled a 100% achievement level on this goal. For the second goal, the
Company reached a 150% achievement level of adjusted operating cash flow over
the three-year period. The overall achievement for this performance cycle was
130%.
The actual values of these long-term incentive distributions, including dividend
equivalents, for the named executive officers are shown in the "LTIP Payout"
column of the Summary Compensation Table. After-tax shares of the Company's
common stock were distributed to the named executive officers as follows:
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NUMBER OF AFTER-TAX
EXECUTIVE OFFICER SHARES AWARDED
------------------- -------------------
David M. McClanahan 42,302
Scott E. Rozzell 16,957
Gary L. Whitlock 15,633
Thomas R. Standish 10,983
Because of the date his employment commenced, Mr. Kelley was not eligible to
participate in this performance cycle of the Long-Term Incentive Plan. Mr.
Schaeffer's outstanding performance-based stock/units were distributed based on
a pro rata allocation upon his retirement on December 1, 2004.
Stock Ownership Guidelines. The executive stock ownership guidelines are
administered and interpreted by the Senior Vice President of Human Resources and
Shared Services. The guidelines are determined based upon a multiple of the
executive's base salary at the time that executive becomes covered by the
guidelines, or at the time of promotion to another level covered by the
guidelines. The base salary multiple is then converted to a fixed number of
shares using the Company's prior 365-day average closing common stock price as
reported by the New York Stock Exchange. The result is then rounded to the
nearest 100 shares. The base salary multiples are four times for the Chief
Executive Officer and three times for other executive officers based upon their
individual level of responsibility and long-term incentive target.
In addition to shares owned outright, equivalent shares held in the Company's
Savings Plan, unvested restricted stock and performance-based shares or units
from the Company's Long-Term Incentive Plan and shares held in trust are counted
towards the guidelines. Current executive officers are expected to reach their
stock ownership guideline by December 31, 2008. Until the guideline is reached,
the executive officer is expected to retain at least 50% of the after-tax shares
delivered through the Company's Long-Term Incentive Plan. Certain exclusions
apply to the retention expectation, such as estate planning, gifts to charity,
education and the purchase of a primary residence. Executive officers are
required to verify their stock holdings on an annual basis.
Health & Welfare Benefits. The executive officers participate in the Company's
health and welfare benefit plans and share in the costs of such plans in the
same manner as all other employees, except that they do not participate in the
Company's vacation policy that permits buying and selling vacation hours.
Executive Perquisites.
Corporate Aircraft Usage. The Company's executive officers have use of a
corporate aircraft for travel on business of the Company. Four times during
2004, the spouse of an executive officer accompanied the executive officer on a
business trip. In such cases, an imputed income amount for spousal travel was
included in the applicable executive's taxable income.
Financial Planning Program. The Company's executive officers participate in a
financial planning program sponsored by the Company. This program provides
reimbursement of financial planning expenses such as the preparation of state
and federal income tax returns, comprehensive financial plans (including
monitoring), estates and wills. The maximum annual benefit for each executive
-19-
officer is $5,000, with an additional one-time benefit of $5,000. Reimbursed
expenses are treated as additional income to the executive, for which no tax
gross-ups are provided. During 2004, the Company reimbursed a gross amount of
$4,000 to the executive officer group under this program.
Compensation of the Chief Executive Officer. CenterPoint's compensation
consultant prepared a report on the Chief Executive Officer's compensation,
which took into consideration CenterPoint's size and complexity and the markets
in which it competes for talent. In evaluating Mr. McClanahan's total
compensation, the Compensation Committee considered his contributions to the
overall success of CenterPoint through his leadership and individual
performance. While Mr. McClanahan's current compensation is below the 50th
percentile of the market represented by the companies included in the review,
the Compensation Committee believes that Mr. McClanahan's compensation package,
in conjunction with anticipated future base pay increases, is sufficient to
ensure his continuing focus on creating substantial improvements in shareholder
value. During 2004, the Committee set Mr. McClanahan's base salary at $800,000.
His annual incentive target was set at 75% of base salary, and his long-term
incentive target was set at 150% of base salary. Mr. McClanahan's short term
incentive payout for 2004 was at 126% of target, which was the overall Company
achievement level.
When Mr. McClanahan's base salary reaches market levels, his long-term incentive
target, when combined with his short term incentive target, is intended to
position Mr. McClanahan's total direct compensation at the 50th percentile.
Compensation of Executive Officers. The following table summarizes compensation
for services to CenterPoint and its subsidiaries for the years 2004, 2003 and
2002 awarded to, earned by or paid to the Chief Executive Officer, the four
other most highly compensated executive officers who continued to serve as
executive officers as of December 31, 2004 and one executive officer who retired
during 2004 (collectively these individuals constitute the "Named Officers").
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------- PAYOUTS
--------------------------------------- RESTRICTED SECURITIES ----------
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION AWARDS(2) OPTIONS(3) PAYOUTS(4) COMPENSATION(5)
------------------------------- ---- --------- -------- ------------ ---------- ---------- ---------- ---------------
David M. McClanahan 2004 $781,250 $738,281 $1,629 $356,644 106,100 $638,342 $98,549
President and Chief 2003 687,500 773,437 1,985 348,840 103,900 962,013 129,306
Executive Officer 2002 575,000 646,875 1,074 -- 191,700 50,358 111,399
Scott E. Rozzell(6)
Executive Vice 2004 387,500 263,984 717 124,716 37,100 259,605 85,670
-20-
President, General 2003 376,000 282,000 1,653 147,060 43,900 406,110 111,020
Counsel and 2002 360,500 270,375 680 -- 77,800 -- 92,669
Corporate Secretary
Gary L. Whitlock(7)
Executive Vice 2004 382,750 267,160 717 118,152 35,200 240,048 32,651
President and Chief 2003 355,000 290,000 620 136,230 40,600 -- 53,550
Financial Officer 2002 334,000 250,500 48,607 -- 72,200 -- 37,946
Byron R. Kelley(8)
Senior Vice President and
Group President 2004 290,000 202,536 -- 85,332 25,500 -- 19,127
and Chief Operating Officer, 2003 182,348 120,000 -- 103,562 31,446 -- 13,139
CenterPoint Energy Pipelines
and Field Services
Thomas R. Standish
Senior Vice President and
Group President 2004 299,500 178,885 524 83,144 24,800 170,703 29,540
and Chief Operating Officer, 2003 279,250 200,000 1,367 97,470 29,100 267,131 39,803
CenterPoint Energy Houston
Electric, LLC 2002 264,750 177,510 466 -- 51,000 33,502 33,966
Stephen C. Schaeffer(9)
Executive Vice 2004 356,408 164,166 748 111,588 33,200 393,099 22,385
President and Group 2003 336,250 252,188 625 131,100 39,200 495,672 56,091
President, Gas Distribution
and Sales 2002 322,500 241,875 653 -- 70,000 92,227 46,893
--------------------
(1) The amounts shown include salary and bonus earned as well as earned but
deferred.
(2) Restricted stock awards are valued at the closing market price on the date
of the grant. The awards vest three years following the date of grant.
Dividends accrue on the awards from the date of grant. Performance-based
stock awards are reported as a component of LTIP payouts when paid.
As of December 31, 2004, the aggregate holdings of unvested shares of
common stock of CenterPoint, including performance-based stock, assuming
the attainment of performance goals at the maximum level, were as follows:
Mr. McClanahan, 257,281 shares ($2,907,280); Mr. Rozzell, 101,121 shares
($1,142,670); Mr. Whitlock 94,444 shares ($1,067,215); Mr. Kelley, 57,339
shares ($647,932); and Mr. Standish, 67,607 shares ($763,955). Upon his
retirement on December 1, 2004, Mr. Schaeffer vested in all his shares on
a pro rata basis.
(3) Securities underlying options are shares of CenterPoint common stock.
-21-
(4) Amounts shown represent the dollar value of CenterPoint common stock paid
out in the following year based on the achievement of performance goals
for the cycle ending in the current year plus dividend equivalent accruals
during the performance period.
Under the provisions of the CenterPoint Long-Term Incentive Plan, upon
retirement at the age of 55 or older and with five years of service, the
number of performance-based stock/units awarded is allocated based on the
total days lapsed in the award cycle as of the last date of employment
divided by the total number of days in the award cycle. The
performance-based stock/units are distributed at the target level of
performance as soon as possible after such termination. Accordingly, upon
Mr. Schaeffer's retirement on December 1, 2004, all of his outstanding
performance-based stock/units were distributed based on a pro rata
allocation.
In connection with the 2002 spin-off of a former subsidiary, all
outstanding performance based stock for the performance cycle ending in
2002 were converted to restricted shares of CenterPoint common stock at
the maximum level of performance with the exception of those awarded to
Mr. McClanahan and certain other former officers of CenterPoint. Mr.
McClanahan's awards were 56.25% of target, which reflected actual
performance. All such shares vested if the officer holding the restricted
shares remained employed with CenterPoint through December 31, 2002.
(5) 2004 amounts include: (a) matching contributions to the savings plan and
accruals under the related savings restoration plan, as follows: Mr.
McClanahan, $69,961; Mr. Rozzell, $30,127; Mr. Whitlock, $30,274; Mr.
Kelley, $18,450; Mr. Standish, $21,352; and Mr. Schaeffer, $9,225; (b) the
term portion of the premiums paid under the executive life insurance plan,
as follows: Mr. McClanahan, $2,672; Mr. Rozzell, $1,303; Mr. Whitlock,
$1,303; Mr. Standish, $952; and Mr. Schaeffer, $1,358; (c) accrued
interest on deferred compensation that exceeds 120% of the applicable
federal long-term rate, as follows: Mr. McClanahan, $23,854; Mr. Whitlock,
$136; Mr. Standish $6,532; and Mr. Schaeffer, $11,023; and (d) flexible
benefit credits provided for life insurance exceeding the company-provided
amount of $50,000, as follows: Mr. McClanahan, $2,062, Mr. Rozzell, $952;
Mr. Whitlock, $938; Mr. Kelley, $677; Mr. Standish, $704; and Mr.
Schaeffer, $797.
(6) CenterPoint extended a loan to Mr. Rozzell in the amount of $250,000 in
connection with his initial employment in March 2001. In accordance with
the loan agreement, the loan bears interest at a rate of 8% and principal
and interest are to be forgiven in semi-monthly installments through March
15, 2006 so long as Mr. Rozzell remains employed by CenterPoint or one of
its subsidiaries as of each relevant anniversary of his employment date.
The maximum principal amount of the loan outstanding during 2004 was
$110,417. As of March 31, 2005, the principal amount of the loan
outstanding was $47,917. The amount of loan and interest forgiveness of
$53,288 for 2004 is included in the "All Other Compensation" column.
(7) The amounts shown in the "Other Annual Compensation" column include tax
reimbursement payments to Mr. Whitlock during 2002 in connection with his
initial employment.
(8) Mr. Kelley was not employed with CenterPoint prior to May 15, 2003.
(9) Mr. Schaeffer served as CenterPoint's Executive Vice President and Group
President, Gas Distribution and Sales until his retirement on December 1,
2004.
Option Grants in 2004. The following table sets forth information concerning the
grants of options to purchase common stock made during 2004 to the Named
Officers.
CENTERPOINT OPTION GRANTS IN 2004
NUMBER OF PERCENTAGE
SECURITIES OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED(1) EMPLOYEES PRICE DATE VALUE (2)
-------------------- ---------- ---------- -------- ---------- ----------
David M. McClanahan 106,100 5.23% $ 10.92 03/02/2014 $ 197,346
Scott E. Rozzell 37,100 1.83% 10.92 03/02/2014 69,006
Gary L. Whitlock 35,200 1.74% 10.92 03/02/2014 65,472
Byron R. Kelley 25,500 1.26% 10.92 03/02/2014 47,430
Thomas R. Standish 24,800 1.22% 10.92 03/02/2014 46,128
Stephen C. Schaeffer 33,200 1.64% 10.92 03/02/2014 61,752
---------------------
(1) Option grants vest in one-third increments per year from the date of grant
(so long as the officer remains an employee of CenterPoint). All options
would immediately vest upon retirement at the age of 55 or older with five
years of service and upon a change of control (defined in substantially
the same manner as in the executive severance agreements described under
"Retirement Plans, Related Benefits and Other Arrangements").
(2) Grant date present value is calculated using a Black-Scholes option
pricing model assuming a five-year term, volatility of 27.23%, the current
annual dividend of $.40 per share and a risk-free interest rate of 3.02%.
Actual gains, if any, will depend on future performance of the common
stock.
-22-
Option Exercises in 2004. The following table sets forth certain information
concerning the exercise of options or stock appreciation rights during 2004 by
each of the Named Officers and the number and value of unexercised options and
stock appreciation rights at December 31, 2004.
CENTERPOINT FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 2004 DECEMBER 31, 2004(2)
------------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- ------------- ----------- -------------
David M. McClanahan 524,948 243,160 $ 855,259 $ 761,992
Scott E. Rozzell 206,688 93,881 350,365 313,528
Gary L. Whitlock 91,119 87,800 324,880 290,722
Byron R. Kelley 10,482 46,464 33,700 77,089
Thomas R. Standish 115,393 62,235 230,286 206,918
Stephen C. Schaeffer 296,406 -- 595,570 --
-----------------------
(1) None of the named executive officers exercised any options in 2004.
(2) Based on the year-end closing price of the common stock of CenterPoint on
the New York Stock Exchange Composite Tape on December 31, 2004.
Long-Term Incentive Plan Awards in 2004. The following table sets forth
information concerning the shares of restricted stock and shares of contingent
stock awarded pursuant to the Long-Term Incentive Plan during 2004 to each of
the Named Officers.
CENTERPOINT LONG-TERM INCENTIVE PLAN -- AWARDS IN 2004(1)
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS(2)
PERFORMANCE ------------------------------------------------
NUMBER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME OF UNITS PAYOUT VALUE OF UNITS VALUE OF UNITS VALUE OF UNITS
-------------------- -------- ------------ -------------- -------------- --------------
David M. McClanahan 5,400 12/31/2006 $ 270,000 $ 540,000 $ 810,000
Scott E. Rozzell 1,900 12/31/2006 95,000 190,000 285,000
Gary L. Whitlock 1,800 12/31/2006 90,000 180,000 270,000
-23-
Byron R. Kelley 1,300 12/31/2006 65,000 130,000 195,000
Thomas R. Standish 1,300 12/31/2006 65,000 130,000 195,000
Stephen C. Schaeffer 1,700 12/31/2006 85,000 170,000 255,000
-------------
(1) Amounts shown are potential payouts of awards in cash, common stock or a
combination thereof under CenterPoint's Long-Term Incentive Plan. These
awards have a three-year performance cycle. Payouts will be based on a
total shareholder return measure as compared to the S&P Utility Index. If
a change of control occurs (as defined in substantially the same manner as
in the executive severance agreements described under "Retirement Plans,
Related Benefits and Other Arrangements"), such amounts will be paid in
cash at the maximum level, without regard to the achievement of
performance goals.
(2) The table does not reflect dividend equivalent accruals during the
performance period.
Equity Compensation Plan Awards in 2004. The following table sets forth
information concerning the shares of restricted stock and shares of contingent
stock awarded pursuant to the Equity Compensation Plan during 2004 to each of
the Named Officers.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about CenterPoint's common
stock that may be issued under its existing equity compensation plans as of
December 31, 2004.
(c)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
(a) (b) FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED AVERAGE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS(1) COLUMN (a))
-------------------------------------------------- ----------------------- ---------------------- -----------------------
Equity compensation plans approved by security
holders(2) 18,331,916(3) $ 15.37 5,648,376(4)
Equity compensation plans not approved by security
holders(5) 265,663(5) 18.18 --
---------- ------------------- ---------
Total 18,597,579 $ 15.42 5,648,376
=========== =================== =========
----------
(1) The weighted average exercise price applies to outstanding options,
without taking into account performance units and performance shares which
do not have an exercise price.
(2) Plans approved by shareholders consist of the 1989 and 1994 Long-Term
Incentive Compensation Plans, the Long-Term Incentive Plan and the Amended
and Restated Stock Plan for Outside Directors. No future grants may be
made under the 1989 and 1994 Long-Term Incentive Compensation Plans.
(3) Includes, in addition to shares underlying options, an aggregate of
1,168,513 shares issuable upon settlement of outstanding grants of
performance shares (assuming maximum performance is achieved) and 493,805
shares issuable upon settlement of outstanding performance units, assuming
maximum performance and assuming 100% of the payment of outstanding
performance units is made in shares based on the closing price of the
common stock on December 31, 2004. Does not include 4,255 shares subject
to issuance upon exercise of options, having an average exercise price of
$6.71 per share, assumed in the 1997 merger in which NorAm Energy Corp.
was acquired.
(4) The securities remaining available for issuance may be issued in the form
of stock options, stock appreciation rights, restricted stock awards,
performance units and performance shares. The shares remaining available
for issuance may be used for any of these types of awards, except that the
Amended and Restated Stock Plan for Outside Directors provides only for
awards of common stock.
- 24 -
(5) Plans not approved by shareholders consist of the Common Stock
Participation Plan for Designated New Employees and Non-Officer Employees.
Outstanding awards under the Common Stock Participation Plan, in which
participation is limited to new employees and existing employees who are
not officers of CenterPoint, consist of stock options covering 265,663
shares of common stock which generally vest in equal annual increments
over three years from the grant date. No future grants may be made under
the Common Stock Participation Plan.
RETIREMENT PLANS, RELATED BENEFITS AND OTHER ARRANGEMENTS
Pension Plan. The following table shows estimated annual benefits, giving effect
to CenterPoint's Pension Plan, payable upon retirement to persons in the
specified remuneration and years-of-service classifications.
PENSION PLAN TABLE
PRIOR PLAN GRANDFATHER BENEFIT(1)
FINAL AVERAGE
ANNUAL ESTIMATED ANNUAL PENSION BASED ON YEARS OF SERVICE(2)
COMPENSATION ----------------------------------------------------
AT AGE 65 30 35 OR MORE
------------- ------------ -----------
$ 450,000 $ 255,472 $ 298,051
500,000 284,572 332,001
750,000 430,072 501,751
1,000,000 575,572 671,501
1,250,000 721,072 841,251
1,500,000 866,572 1,011,001
1,750,000 1,012,072 1,180,751
2,000,000 1,157,572 1,350,501
-----------
(1) Retirement benefits for our named executive officers are determined under
our retirement plan and benefit restoration plan formulas, either as
currently in effect or as they existed prior to January 1, 1999, depending
on the named executive officer's employment date. For employees hired
prior to January 1, 1999, the retirement plan and benefit restoration plan
accrue benefits based on a participant's years of service, final average
pay and covered compensation (final average pay formula). Final average
pay means the highest compensation for 36 consecutive months out of the
120 consecutive months immediately preceding retirement, based solely on
base salary and, for purposes of the benefit restoration plan, short term
incentive compensation amounts. Changes in base salary and/or short term
incentive compensation affect benefits payable under these plans. For
purposes of the table below, final average pay is frozen as of December
31, 2008 pursuant to the terms of the plans. Retirement benefits for
persons who were employees as of December 31, 1998 are based on the prior
plan grandfather benefit, which is the higher of (a) the benefit
calculated under the final average pay formula or (b) the cash balance
formula explained below. Messrs. McClanahan, Standish and Schaeffer are
eligible for the prior plan grandfather benefit. Since it is anticipated
that under the prior plan grandfather benefit, the final average pay
formula will provide the higher benefit, the benefits reflected in the
table below are based on the final average pay formula. Mr. McClanahan's,
Mr. Standish's and Mr. Schaeffer's benefits are not expected to exceed the
amounts reflected in the table as of their age 65 normal retirement. Mr.
McClanahan had 30 years of credited benefit service under the retirement
plan as of December 31, 2004, Mr. Standish had 23 years and Mr. Schaeffer
had 35 years. In some circumstances, Mr. McClanahan is entitled to up to
three additional years of credited benefit service under a supplemental
agreement.
(2) Amounts are determined on a single-life annuity basis and are not subject
to any deduction for Social Security or other offsetting amounts. The
qualified retirement plan limits compensation and benefits in accordance
with provisions of the Internal Revenue Code. Retirement benefits based on
compensation above the qualified plan limit or in excess of the limit on
annual benefits are provided through the benefit restoration plan.
For employees hired on or after January 1, 1999, the retirement plan and benefit
restoration plan provide for benefit accruals based on a cash balance formula.
Under the cash balance formula, participants accumulate a retirement benefit
based upon four percent of eligible earnings (which is primarily base salary and
short term incentive compensation) credited as of the end of the calendar year.
Changes in base salary and/or short term incentive compensation affect benefits
payable under this plan. Interest accrues in the current year at the "applicable
interest rate" prescribed under the Internal Revenue Code from the previous
November based upon the account balance as of the end of the previous year. An
additional annual credit ranging from one percent to four percent of eligible
- 25 -
earnings is generally available through December 31, 2008 for individuals who
were age 40 and had at least ten years of vesting service as of December 31,
1998. Messrs. McClanahan, Standish and Schaeffer are eligible to receive these
additional credits as follows: Mr. McClanahan: 4%; Mr. Standish: 2%; and Mr.
Schaeffer: 4%. Messrs. Rozzell, Whitlock and Kelley were first employed after
January 1, 1999 and thus their benefits are based solely on the cash balance
formula. They will be fully vested after five years of service with the Company
as of the following dates: Mr. Rozzell: March 1, 2006; Mr. Whitlock: July 23,
2006; and Mr. Kelley: May 15, 2008. The estimated annual benefits payable as of
their age 65 normal retirement are $42,168 for Mr. Rozzell; $42,669 for Mr.
Whitlock; and $17,101 for Mr. Kelley.
The executive officers are eligible to accrue credits toward postretirement
health and welfare benefits in the same manner as all other employees. The
Company maintains a bookkeeping account for each individual with dollar credits
corresponding to years of service, including interest at the "applicable
interest rate" prescribed under the Internal Revenue Code. The current annual
credit is $750 per year. In addition to the annual credit, certain transition
credits, which range from $150 per year to $600 per year, were available to
those that were at least age 40 with at least ten years of vesting service as of
December 31, 1998. Mr. McClanahan receives (and Mr. Schaeffer received until his
retirement) these transition credits in the amount of $600. Mr. Standish
receives $300 of transition credits. Upon retirement at or after age 55 with at
least five years of service after age 50, the credit amounts may be used to
offset the cost of Company-sponsored medical and/or dental coverage during
retirement. Credits are forfeited if the employee does not elect coverage under
a Company sponsored medical and/or dental plan or if such plans are no longer
offered by the Company.
All employees are eligible to participate in the Company's savings plan and
savings restoration plan. Base salary and short term incentive compensation are
included as eligible plan compensation under the provisions of these plans.
Participants may contribute up to 16 percent, on a pre-tax or after-tax basis,
of their plan eligible compensation up to certain Internal Revenue Code limits,
and the Company matches 75% of the first six percent contributed by employees on
a payroll period basis. The Company may make an additional discretionary match
of up to 50% of the first six percent contributed in the prior year, which is
referred to as the discretionary match. A participant must contribute a minimum
of six percent of all eligible compensation to the savings plan during the
entire calendar year to be eligible to participate in the savings restoration
plan. Once certain Internal Revenue Code limits are reached in the savings plan,
the Company match is placed in the savings restoration plan. Participants age 50
and above may make additional pre-tax contributions to the savings plan over the
Internal Revenue Code pre-tax contribution limit, or its 16% contribution limit,
in accordance with the IRS "catch up" limit which was $3,000 in 2004. Company
contributions to both plans for the named executive officers are disclosed in
the "All Other Compensation" column of the Summary Compensation Table.
The executive officers participate in other health and welfare benefits plans
and share in the costs of such plans in the same manner as all other employees,
except that they do not participate in the Company's vacation policy that
permits buying and selling vacation hours.
CenterPoint maintains an executive benefits plan that provides salary
continuation, disability and death benefits to certain key officers of
CenterPoint and its subsidiaries. Messrs. McClanahan and Standish participate in
this plan pursuant to individual agreements that generally provide for (a) a
salary continuation benefit of 100% of the officer's current salary for 12
months after death during active
- 26 -
employment and then 50% of salary for nine years or until the deceased officer
would have attained age 65, if later, and (b) if the officer retires after
attainment of age 65, an annual postretirement death benefit of 50% of the
officer's preretirement annual salary payable for six years. Changes in base
salary affect benefits payable under this plan. If the participant leaves the
Company prior to reaching age 65, all plan benefits are forfeited. Coverage
under this plan has not been provided to persons attaining executive officer
status after July 1, 1996.
CenterPoint has an executive life insurance plan providing split-dollar life
insurance in the form of a death benefit for designated officers. This plan
provides endorsement split-dollar life insurance, with coverage continuing after
the officer's termination of service at age 65 or later. If the participant
leaves after age 55 and prior to age 65, benefits under the plan will cease
unless the Compensation Committee elects, in its sole discretion, to continue
the coverage. Upon Mr. Schaeffer's retirement, the Committee elected to continue
his coverage. The death benefit coverage for each participating CenterPoint
officer varies in proportion to the officer's current salary. The named
executive officers other than Mr. Kelley have single-life coverage equal to two
times current salary. Changes in base salary affect the specified face amount of
the policy accordingly. The annual premiums due on the policies are payable
solely by CenterPoint. In accordance with the Internal Revenue Code, the
officers must recognize imputed income currently based upon the insurer's
one-year term rates. The plan also provides for CenterPoint to gross-up the
officer's compensation to cover the officer's after-tax cost of this imputed
income. The imputed income for the named executive officers is shown in the
footnote to the Summary Compensation Table under the "All Other Compensation"
column. The paid tax gross-up is shown in the "Other Annual Compensation" column
of the Summary Compensation Table. Upon the death of the insured, the officer's
beneficiaries will receive the specified death benefit, and CenterPoint will
receive any balance of the insurance proceeds payable in excess of such death
benefit. The intent of the design of the executive life insurance plan is that
the proceeds CenterPoint receives will be (but are not required to be)
sufficient to cover the cumulative premiums paid and the after-tax cost to
CenterPoint of the gross-up payments. Officers hired after 2001 may not
participate in this plan.
Since 1985, CenterPoint and its predecessors have had in effect deferred
compensation plans that permit eligible participants to elect each year to
currently defer a percentage of that year's salary and up to 100% of that year's
short term incentive compensation. In addition to salary and short term
incentive deferrals, eligible participants can also commence deferrals into the
plan once they reach the qualified savings plan compensation limit or the
defined contribution annual addition limit under the Internal Revenue Code.
Interest generally accrues on deferrals made in 1989 and subsequent years at a
rate equal to the average annual yield of the Moody's Long-Term Corporate Bond
Index plus 2%. Fixed rates of 19% to 24% were established for deferrals made in
1985 through 1988, as a result of then-higher prevailing rates and other
factors. Current accruals of the above-market portion of the interest on
deferred compensation amounts are included in the "All Other Compensation"
column of the Summary Compensation Table. Participants in the current plan may
elect to receive distributions of their deferred compensation and interest in
three ways: (i) an early distribution of either 50% or 100% of their account
balance in any year that is at least four years from the year of deferral; (ii)
a lump sum distribution; or (iii) 15 annual installments. If a participant
terminates employment prior to age 55, a lump-sum distribution of his deferral
amount plus interest, calculated using the Moody's rate and excluding the
additional two percentage points, will be made regardless of his form of
election. If a participant retires between age 55 and 60, the deferral amount
plus interest (including the additional two percent) will be paid in accordance
with the participant's distribution elections in either (i) a lump-sum payment
in the
- 27 -
January after his retirement or (ii) 15 annual installments commencing upon
retirement. If a participant retires after age 60, the deferral amount plus
interest (including the additional two percent) will be paid in accordance with
the participant's distribution elections after he reaches age 65. For purposes
of the prior deferred compensation plan, distribution payments generally follow
the same procedures described above for 15 annual installments; however, the
fixed interest rate established at the time of deferral is used. During the 2004
plan year, Mr. Standish elected to participate in the current plan and deferred
a portion of his short term incentive compensation earned in the prior year. If
the named executive officers had terminated their employment on December 31,
2004, payments from the deferred compensation plans would have been made as
follows: Mr. McClanahan: annual installments of $125,224 for 15 years; Mr.
Whitlock: lump sum retirement distribution of $7,170; and Mr. Standish: annual
installments of $29,535 for 15 years. Mr. Schaeffer commenced payments under the
plan as a result of his retirement. Annual installments of $17,149 per year for
15 years began in December 2004, and lump sum retirement distributions totaling
$301,122 were paid in early 2005.
CenterPoint maintains a trust agreement with an independent trustee establishing
a "rabbi trust" for the purpose of funding benefits payable to participants
(including each of its named executive officers) under CenterPoint's deferred
compensation plans, executive incentive compensation plans, benefit restoration
plan and savings restoration plan, also referred to as the "Designated Plans."
The trust is a grantor trust, irrevocable except in the event of an unfavorable
ruling by the Internal Revenue Service as to the tax status of the trust or
certain changes in tax law. It is currently funded with a nominal amount of
cash. Future contributions will be made to the grantor trust if and when
required by the provisions of the Designated Plans or when required by
CenterPoint's Benefits Committee. The Benefits Committee consists of officers of
CenterPoint designated by the Board of Directors and has general responsibility
for funding decisions, selection of investment managers for CenterPoint's
retirement plan and other administrative matters in connection with other
employee benefit plans of CenterPoint. If there is a change of control (defined
in substantially the same manner as in the executive severance agreements
described under "Retirement Plans, Related Benefits and Other Arrangements"),
the grantor trust must be fully funded, within 15 days following the change of
control, with an amount equal to the entire benefit to which each participant
would be entitled under the Designated Plans as of the date of the change of
control (calculated on the basis of the present value of the projected future
benefits payable under the Designated Plans). The assets of the grantor trust
are required to be held separate and apart from the other funds of CenterPoint
and its subsidiaries, but remain subject to claims of general creditors under
applicable state and federal law.
In December 2003, the company entered into severance agreements with certain
executive officers, including the named executive officers. The severance
agreements, effective January 1, 2004, provide for the payment of certain
benefits in the event of a covered termination of employment occurring after the
execution of a binding agreement to effect a change of control or within three
years (two years for Messrs. Kelley and Standish) after the date of a change of
control. A change of control will be deemed to occur under the severance
agreement if:
- any person or group becomes the direct or indirect beneficial owner
of 30% or more of CenterPoint's outstanding voting securities,
unless acquired directly from CenterPoint;
- a majority of the Board members changes;
- 28 -
- there is a merger or consolidation of, or involving, CenterPoint (a
"transaction") unless:
- more than 70% of the surviving corporation's outstanding
voting securities is owned by former shareholders of
CenterPoint,
- if the transaction involves CenterPoint's acquisition of
another entity, the total fair market value of the
consideration plus long-term debt of the entity or business
being acquired does not exceed 50% of the total fair market
value of CenterPoint's outstanding voting securities, plus
CenterPoint's consolidated long-term debt,
- no person is the direct or indirect beneficial owner of 30% or
more of the then outstanding shares of voting stock of the
parent corporation resulting from the transaction, and
- a majority of the members of the board of directors of the
parent corporation resulting from the transaction were members
of the Board immediately prior to consummation of the
transaction; or
- there is a sale or disposition of 70% or more of CenterPoint's
assets (an "asset sale") unless:
- individuals and entities that were beneficial owners of
CenterPoint's outstanding voting securities immediately prior
to the asset sale are the direct or indirect beneficial owners
of more than 70% of the then outstanding voting securities of
CenterPoint (if it continues to exist) and of the entity that
acquires the largest portion of the assets (or the entity, if
any, that owns a majority of the outstanding voting stock of
such acquiring entity), and
- a majority of the members of Board (if CenterPoint continues
to exist) and of the entity that acquires the largest portion
of the assets (or the entity, if any, that owns a majority of
the outstanding voting stock of such acquiring entity) were
members of the Board immediately prior to the asset sale.
Under these severance agreements, a covered termination occurs if the officer's
employment is terminated for reasons other than death, disability as defined in
CenterPoint's long-term disability plan, termination on or after age 65,
involuntary termination for Cause (as defined), or resignation of the officer
unless such resignation is due to (a) a failure to maintain the officer in his
position or a substantially equivalent position; (b) a significant adverse
change in the authorities, powers, functions, responsibilities or duties held;
(c) a reduction in the officer's base salary; (d) a significant reduction in the
officer's qualified, nonqualified and welfare benefits; (e) a reduction in the
officer's overall compensation; (f) a change in the location of the officer's
principal place of employment by more than 50 miles; or (g) a failure to provide
directors and officers liability insurance covering the officer. An officer
experiencing a covered termination of employment will be entitled to a lump-sum
payment of three times the sum of the officer's base salary plus target short
term incentive plan compensation (two times for Messrs. Kelley and Standish), as
well as certain welfare benefits for a period of three years (two years for
Messrs. Kelley and Standish). Three years of service and age (two years for
Messrs. Kelley and Standish) will be added for benefit purposes under the
retirement plan. The severance agreements also provide for a pro rata
distribution of the short term incentive plan compensation for the current plan
year, as well as continued coverage under the
- 29 -
Company's executive life insurance plan, if applicable. In addition, the
agreements provide for career transition placement services, the reimbursement
of legal fees incurred related to the severance, financial planning fees under
CenterPoint's program for a period of up to the earlier of (a) six months or (b)
when the maximum reimbursement amount has been reached and a tax gross-up
payment to cover any excise taxes, interest and penalties that may be assessed
on the officer as a result of the severance payment. If a covered termination
occurred under the terms of the severance agreements as of December 31, 2004,
the following estimated payments would have been made to the named executive
officers as follows: Mr. McClanahan: $4.2 million; Mr. Rozzell: $1.8 million;
Mr. Whitlock: $1.8 million; Mr. Kelley: $0.9 million; and Mr. Standish: $0.9
million. The value of benefits provided if a covered termination occurred as of
December 31, 2004 would have been as follows: Mr. McClanahan: $1.6 million; Mr.
Rozzell: $0.2 million; Mr. Whitlock: $0.2 million; Mr. Kelley: $0.1 million; and
Mr. Standish: $0.3 million. The term of the severance agreements is three years,
with an "evergreen" provision under which, at the election of the Board of
Directors, the term may be extended for an additional year on an annual basis.
The current severance agreements expire December 31, 2006 because the Board did
not extend the term in 2004.
Compensation of Directors.
CenterPoint employees receive no extra pay for serving as directors. Through May
2004, each non-employee director received an annual retainer of $30,000, a fee
of $1,200 for each Board and committee meeting attended and a supplemental
annual retainer of $4,000 for serving as a committee chairman. Effective as of
June 3, 2004, the annual retainer fee was increased to $50,000, the fee for each
Board and committee meeting attended was increased to $1,500 and the
supplemental annual retainer for service as a committee chairman was increased
to $7,500 for the Audit Committee and $5,000 for other Board committees. Acting
on the recommendation of the Governance Committee, the Board of Directors
approved an increase effective as of June 2, 2005 in the supplemental annual
retainer for the Chairman of the Audit Committee from $7,500 to $10,000 and the
fee for each Audit Committee meeting attended from $1,500 to $2,000.
Each non-employee director also receives an annual grant of up to 5,000 shares
of CenterPoint common stock which vest in one-third increments on the first,
second and third anniversaries of the grant date. Full vesting of such shares is
provided in the event of the director's death or upon a change of control
(defined in substantially the same manner as in the executive severance
agreements described under "Retirement Plans, Related Benefits and Other
Arrangements"). If a director's service on the Board is terminated for any
reason other than due to death or change of control, all rights to the unvested
portion of the director's grant is forfeited as of the termination date. Upon
the initial nomination to the Board, in addition to the annual grant, a
non-employee director may be granted a one-time grant of up to but not exceeding
5,000 shares of CenterPoint common stock which are subject to the same vesting
schedule outlined above. During 2004, each director received an award of 3,000
shares of common stock under the Amended and Restated Stock Plan for Outside
Directors.
Through September 2004, the Chairman received the compensation payable to other
non-employee directors plus a supplemental monthly retainer of $25,000. In
addition, in connection with his assuming the position of Chairman, Mr. Carroll
was granted 10,000 shares of CenterPoint common stock in November 2002 and
10,000 shares of common stock in October 2003. Beginning October
- 30 -
2004, the supplemental monthly retainer paid to the Chairman was increased to
$30,000. In addition, in connection with his agreement to continue to serve in
the position of Chairman through May 2007, Mr. Carroll was granted 20,000 shares
of CenterPoint common stock in November 2004 and will receive another 20,000
shares of common stock in each of October 2005 and 2006.
Since 1985, CenterPoint and its predecessors have had in effect deferred
compensation plans that permit directors to elect each year to defer all or part
of their annual retainer and meeting fees, other than Mr. Carroll's supplemental
monthly retainer for service as Chairman. Directors participating in these plans
may elect to receive distributions of their deferred compensation and interest
in three ways: (i) an early distribution of either 50% or 100% of their account
balance in any year that is at least four years from the year of deferral up to
the year in which they reach age 70, (ii) a lump sum distribution payable in the
year after they reach age 70 or upon leaving the Board of Directors, whichever
is later, or (iii) 15 annual installments beginning on the first of the month
coincident with or next following age 70 or upon leaving the Board of Directors,
whichever is later. Interest accrues on deferrals made in 1989 and subsequent
years at a rate equal to the average annual yield of the Moody's Long-Term
Corporate Bond Index plus 2%. Fixed rates of 19% to 24% were established for
deferrals made in 1985 through 1988, as a result of then-higher prevailing rates
and other factors.
Non-employee directors elected to the Board before 2004 participate in a
director benefits plan under which a director who serves at least one full year
will receive an annual cash amount equal to the annual retainer (excluding any
supplemental retainer) in effect when the director terminates service. Benefits
under this plan begin the January following the later of the director's
termination of service or attainment of age 65, for a period equal to the number
of full years of service of the director (which, in the case of Mr. Crosswell,
includes his service on the board of directors of NorAm Energy Corp.). The
increase in the annual retainer fee from $30,000 to $50,000 in 2004 had the
effect of increasing the directors' benefits under the provisions of this plan
based on their current length of service on the Board by the following amounts:
Mr. Carroll, $240,000; Mr. Cater, $420,000; Mr. Cody, $20,000; Mr. Crosswell,
$360,000; Mr. Madison, $20,000; and Mr. Shannon, $20,000. Directors elected to
the Board after 2003 may not participate in this plan.
Non-employee directors who were elected to the Board before 2001 participate in
CenterPoint's executive life insurance plan described under "Retirement Plans,
Related Benefits and Other Arrangements." This plan provides endorsement
split-dollar life insurance with a death benefit equal to six times the
director's annual retainer, excluding any supplemental retainer, with coverage
continuing after the director's termination of service at age 65 or later. The
increase in the annual retainer fee from $30,000 to $50,000 in 2004 had no
immediate effect on the death benefit under the provisions of this plan because
increases in the death benefit under the plan are limited to $5,000 every five
years. The death benefit for the current eligible directors remains at $180,000.
The annual premiums due on the policies are payable solely by CenterPoint, and
in accordance with the Internal Revenue Code, the directors must recognize
imputed income which is currently based upon the insurer's one-year term rates.
The plan also provides for CenterPoint to gross-up the director's compensation
to cover the director's after-tax cost of this imputed income. Upon the death of
the insured, the director's beneficiaries will receive the specified death
benefit, and CenterPoint will receive any balance of the insurance proceeds
payable in excess of such death benefit. The executive life insurance plan is
designed so that the proceeds CenterPoint ultimately receives are sufficient to
cover the cumulative premiums paid and the after-tax cost to CenterPoint of the
gross-up payments. Directors elected to the Board after 2000 may not participate
in this plan.
- 31 -
(b) Directors' and Executive Officers' Interests in Securities of System
Companies
The following table shows stock ownership of each director or nominee for
director, the Chief Executive Officer, the other most highly compensated
executive officers, and the executive officers and directors as a group. Except
as otherwise indicated, information for the executive officers, directors and
nominees is given as of March 1, 2005. The directors and officers, individually
and as a group, beneficially own less than 1% of CenterPoint's outstanding
common stock.
NUMBER OF SHARES OF
CENTERPOINT
NAME COMMON STOCK
---- ------------
Donald R. Campbell 10,000(4)
Milton Carroll 46,000
John T. Cater 11,000
Derrill Cody 11,000
O. Holcombe Crosswell 12,595
Byron R. Kelley 21,239(1)(2)
Janiece M. Longoria 4,000(4)
Thomas F. Madison 3,500
David M. McClanahan 823,725(1)(2)
Robert T. O'Connell 2,000
Scott E. Rozzell 325,591(1)(2)
Stephen C. Shaeffer 430,840(1)(2)
Michae1 E. Shannon 3,000
Thomas R. Standish ) 206,296(1)(2)(3)
Peter S. Wareing 10,000
Gary L. Whitlock 181,203(1)(2)
All of the above officers and directors and other executive officers as a group (17 persons) 2,263,527(1)(2)
------------
(1) Includes shares covered by CenterPoint stock options that are exercisable
within 60 days as follows: Mr. McClanahan, 657,406 shares; Mr. Rozzell,
261,201 shares; Mr. Whitlock, 141,918 shares; Mr. Kelley, 18,982 shares;
Mr. Standish, 151,394 shares; Mr. Shaeffer, 296,406 shares; and the group,
1,638,723 shares.
(2) Includes shares of CenterPoint common stock held under CenterPoint's
savings plan, for which the participant has sole voting power (subject to
such power being exercised by the plan's trustee in the same proportion as
directed shares in the savings plan are voted in the event the participant
does not exercise voting power).
(3) Includes shares held by spouse.
(4) Acquired subsequent to March 1, 2005.
- 32 -
(c) Directors' and Executive Officers' Contracts and Transactions with System
Companies
None.
(d) Directors' and Executive Officers' Indebtedness to System Companies
CenterPoint extended a loan to Mr. Rozzell in the amount of $250,000 in
connection with his initial employment. In accordance with the loan agreement,
the loan bears interest at a rate of 8% and principal and interest are to be
forgiven in semi-monthly installments through March 15, 2006 so long as Mr.
Rozzell remains employed by CenterPoint or one of its subsidiaries as of each
relevant anniversary of his employment date. The maximum principal amount of the
loan outstanding during 2004 was $110,417. As of March 31, 2005, the principal
amount of the loan outstanding was $47,917.
(f) Directors' and Executive Officers' Rights to Indemnity
The state laws under which each of CenterPoint and its domestic direct and
indirect subsidiaries is incorporated provide broadly for indemnification of
officers and directors against claims and liabilities against them in their
capacities as such. Refer to the disclosures made in the Amended and Restated
Bylaws of CenterPoint, adopted March 26, 2002 (incorporated by reference to
Exhibit 3.2 to CenterPoint's Form 10-K for the year ended December 31, 2001).
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS
Attached as Exhibit F-2 is a listing of expenditures to citizens groups and
public relations counsel.
ITEM 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS
Part I.
See Exhibits F-3 through F-6 hereto.
- 33 -
Part II. During 2004 no system companies had a contract to purchase services
or goods from any affiliate (other than a system company), or from a
company in which any officer or director of the receiving company is
a partner or owns 5% or more of any class of equity securities.
Part III. No system company employs any other person for the performance on a
continuing basis of management, supervisory or financial advisory
services.
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES
Part I.
CenterPoint does not hold any interest in a Foreign Utility Company.
(a) Texas Genco Holdings, Inc. ("Texas Genco") was formed in 2002 in connection
with the restructuring of Reliant Energy, Incorporated. It was formed to own the
approximately 14,000 MW of formerly regulated electric generating assets of
Reliant Energy, Incorporated in order to satisfy requirements under Texas
legislation. These electric generating assets were owned by Texas Genco, LP, a
Texas limited partnership, and a subsidiary of Texas Genco ("Texas Genco, LP").
Although Texas Genco was initially treated as a public utility company under the
Act, in October 2003, FERC granted certification to Texas Genco, LP as an exempt
wholesale generator under Section 32 of the Act. The generating facilities owned
by Texas Genco, LP were gas, oil, coal, lignite and nuclear fueled generating
facilities providing electric service to meet baseload, cyclic, intermediate and
peaking demands. Sales were made on an unregulated basis, primarily based on
public auction of available capacity.
In December 2004, Texas Genco and Texas Genco, LP completed the sale of all of
Texas Genco, LP's fossil generation assets to a third party for $2.813 billion
in cash. Approximately $700 million of these proceeds were used to acquire the
19% publicly held minority interest in Texas Genco. In the second step of the
transaction, which closed on April 13, 2005, the third party acquired Texas
Genco and the remaining nuclear generation assets for approximately $700 million
cash. As of that closing, CenterPoint no longer holds an investment in an EWG or
a FUCO.
(b) When Texas Genco was incorporated, CenterPoint acquired all of the issued
and outstanding shares of Texas Genco's common stock for $1,000 in exchange for
certain assets. Until December 13, 2004, CenterPoint held approximately 81% of
Texas Genco's common stock. On December 15, 2004, Texas Genco re-acquired the
19% of its stock that was publicly held and sold all of Texas Genco, LP's fossil
generation assets to an unrelated third party, and on April 13, 2005,
CenterPoint closed the sale of its remaining interest in Texas Genco to that
same purchaser.
Texas Genco does not have any debt or financial obligations for which there is
direct or indirect recourse to CenterPoint or any other system company.
- 34 -
CenterPoint has not made any financial guarantee to any party for Texas Genco
securities.
Texas Genco has not received any transfer of assets from any CenterPoint system
company.
(c) As of December 31, 2004, Texas Genco had no debt outstanding. Texas Genco
had net income of $250.1 million for 2004.
(d) Texas Genco has entered into a transition services agreement with
CenterPoint under which CenterPoint will provide Texas Genco through the earlier
of such time as all services under the agreement are terminated or CenterPoint
ceases to own a majority of Texas Genco's common stock, various corporate
support services that include accounting, finance, investor relations, planning,
legal, communications, governmental and regulatory affairs and human resources,
as well as information technology services and other previously shared services
such as corporate security, facilities management, accounts receivable, accounts
payable and payroll, office support services and purchasing and logistics. The
charges Texas Genco pays for the services are on a basis intended to allow
CenterPoint to recover the fully allocated direct and indirect costs of
providing the services, plus all out-of-pocket costs and expenses, but without
any profit to CenterPoint, except to the extent routinely included in
traditional utility cost of capital. Upon the sale of Texas Genco to the third
party purchaser, CenterPoint agreed to continue to provide certain of the
transition services for a limited term on essentially the same economic terms as
those services had been provided when Texas Genco was an indirect subsidiary of
CenterPoint.
Part II.
Please see Exhibit F-1 for an organizational chart showing the relationship of
Texas Genco to other CenterPoint system companies.
See Exhibit H hereto for the most recent audited financial statements of Texas
Genco. As of the date of the agreement to sell Texas Genco in the third quarter
of 2004, CenterPoint began treating Texas Genco as discontinued operations. When
the minority ownership was repurchased in December 2004, Texas Genco ceased to
be a reporting company under the 1934 Act and ceased to publish periodic
reports.
Part III.
CenterPoint's shareholder equity in EWGs was $518 million as of December 31,
2004. There are no foreign utility companies in the CenterPoint system. The
ratio of CenterPoint's aggregate investment in EWGs to the aggregate capital
investment in its domestic public utility subsidiary companies as of December
31, 2004 was approximately 10.5%. As of April 13, 2005, there were no EWGs in
the CenterPoint system.
- 35 -
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The consolidated financial statements for CenterPoint and its subsidiaries as of
December 31, 2004 have heretofore been filed with the Commission and are
incorporated herein by reference and made a part hereof by reference to
CenterPoint's annual report on Form 10-K for the year ended December 31, 2004.
The consolidating financial statements for CenterPoint and its subsidiaries as
of December 31, 2004 are attached hereto as Exhibit F-7.
EXHIBITS
EXHIBIT A ANNUAL REPORTS FILED UNDER THE SECURITIES AND EXCHANGE ACT OF 1934
A-1 CenterPoint's Annual Report on Form 10-K for the year ended December 31,
2004 (File No. 1-31447) incorporated by reference herein.
A-2 CenterPoint's 2005 Proxy Statement (File No. 001-31447) incorporated by
reference herein.
A-3 CenterPoint's Annual Report to Shareholders for the year ended December 31,
2004 (filed in connection herewith under cover of Form SE).
A-4 CenterPoint Energy Houston Electric, LLC's Annual Report on Form 10-K for
the year ended December 31, 2004 (File No. 1-3187) incorporated by reference
herein.
A-5 CenterPoint Energy Resources Corp.'s Annual Report on Form 10-K for the year
ended December 31, 2004 (File No. 1-13265) incorporated by reference herein.
EXHIBIT B CHARTERS, ARTICLES OF INCORPORATION, TRUST AGREEMENTS, BY-LAWS AND
OTHER FUNDAMENTAL DOCUMENTS OF ORGANIZATION
The articles, bylaws and other fundamental documents of organization of
CenterPoint are incorporated by reference to CenterPoint's 10-K for the year
ended December 31, 2001 (file number 1-31447):
- 36 -
CenterPoint 10-K Exhibit No. Description
---------------------------- -----------
2 Agreement and Plan of Merger, dated as of October 19, 2001, by and
among Reliant Energy, Incorporated, CenterPoint and Reliant Energy
MergerCo, Inc.
3(a)(1) Amended and Restated Articles of Incorporation of CenterPoint
3(a)(2) Articles of Amendment to Amended and Restated Articles of
Incorporation of CenterPoint
3(b) Amended and Restated Bylaws of CenterPoint
The organizational documents for CenterPoint's subsidiaries are
incorporated by reference to CenterPoint's Joint Registration Statement on Form
U5B (File No. 030-00360):
CenterPoint U5B Exhibit No. Description
--------------------------- -----------
B-2 Organizational documents of Utility Holding, LLC
B-3 Organizational Documents of CenterPoint Energy Houston Electric, LLC
B-4 Organizational Documents of Texas Genco Holdings, Inc.
B-5 Organizational Documents of Texas Genco LP, LLC
B-6 Organizational Documents of Texas Genco GP, LLC
B-7 Organizational Documents of Texas Genco, LP
B-8 Organizational Documents of CenterPoint Energy Resources Corp.
B-9 Organizational Documents of ALG Gas Supply Company
B-10 Organizational Documents of Allied Materials Corporation
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B-11 Organizational Documents of Arkansas Louisiana Finance Corporation
B-12 Organizational Documents of Arkla Industries Inc.
B-13 Organizational Documents of Arkla Products Company
B-15 Organizational Documents of CenterPoint Energy Alternative Fuels, Inc.
B-16 Organizational Documents of Entex Gas Marketing Company
B-16A Organizational Documents of CenterPoint Energy Gas Receivables, LLC
B-18 Organizational Documents of Entex NGV, Inc.
B-19 Organizational Documents of Entex Oil & Gas Company
B-20 Organizational Documents of CenterPoint Energy - Illinois Gas Transmission Company
B-22 Organizational Documents of Intex, Inc.
B-24 Organizational Documents of Minnesota Intrastate Pipeline Company
B-25 Organizational Documents of CenterPoint Energy - Mississippi River Transmission
Corporation
B-26 Organizational Documents of CenterPoint Energy MRT Holdings, Inc.
B-27 Organizational Documents of CenterPoint Energy MRT Services Company
B-29 Organizational Documents of National Furnace Company
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B-30 Organizational Documents of NorAm Financing I
B-31 Organizational Documents of NorAm Utility Services, Inc.
B-32 Organizational Documents of CenterPoint Energy Consumer Group, Inc.
B-33 Organizational Documents of CenterPoint Energy Field Services, Inc.
B-34 Organizational Documents of CenterPoint Energy Field Services Holdings, Inc.
B-35 Organizational Documents of CenterPoint Energy Gas Processing, Inc.
B-36 Organizational Documents of Reliant Energy Funds Management, Inc.
B-37 Organizational Documents of CenterPoint Energy Gas Transmission Company
B-38 Organizational Documents of CenterPoint Energy Hub Services, Inc.
B-39 Organizational Documents of CenterPoint Energy Intrastate Holdings, LLC
B-40 Organizational Documents of Pine Pipeline Acquisition Company, LLC
B-41 Organizational Documents of CenterPoint Energy Pipeline Services, Inc.
B-42 Organizational Documents of CenterPoint Energy OQ, LLC
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B-44 Organizational Documents of CenterPoint Energy Retail Interests, Inc.
B-45 Organizational Documents of CenterPoint Energy Trading and Transportation Group, Inc.
B-47 Organizational Documents of United Gas, Inc.
B-48 Organizational Documents of HL&P Capital Trust I
B-49 Organizational Documents of HL&P Capital Trust II
B-52 Organizational Documents of Houston Industries FinanceCo GP, LLC
B-53 Organizational Documents of Houston Industries FinanceCo LP
B-54 Organizational Documents of CenterPoint Energy Funding Company
B-55 Organizational Documents of NorAm Energy Corp.
B-56 Organizational Documents of REI Trust I
B-64 Organizational Documents of Reliant Energy Investment Management, Inc.
B-65 Organizational Documents of CenterPoint Energy Power Systems, Inc.
B-66 Organizational Documents of CenterPoint Energy Products, Inc.
B-67 Organizational Documents of CenterPoint Energy Properties, Inc.
B-68 Organizational Documents of CenterPoint Energy Tegco, Inc.
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B-73 Organizational Documents of CenterPoint Energy Transition Bond Company, LLC
B-75 Organizational Documents of Utility Rail Services, Inc.
B-76 Organizational Documents of CenterPoint Energy International, Inc.
B-77 Organizational Documents of Reliant Energy Brazil Ltd.
B-78 Organizational Documents of Reliant Energy Brazil Tiete Ltd.
B-81 Organizational Documents of CenterPoint Energy International II, Inc.
B-82 Organizational Documents of HIE Ford Heights, Inc.
B-83 Organizational Documents of HIE Fulton, Inc.
B-86 Organizational Documents of CenterPoint Energy International Holdings, LLC
B-88 Organizational Documents of CenterPoint Energy International Services, Inc.
B-89 Organizational Documents of CenterPoint Energy Light, Inc.
B-98 Organizational Documents of Reliant Energy Outsource Ltd.
B-99 Organizational Documents of Venus Generation El Salvador
The organizational documents for the following CenterPoint subsidiaries are
incorporated by reference to Amendment No. 1 to CenterPoint's Annual Report on
Form U-5S for the year ended December 31, 2003, (File No. 030-00360):
EXHIBIT DESCRIPTION
------- -----------
B-101 Organizational Documents of CenterPoint Energy Intrastate Pipelines, Inc.
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B-102 Amended Organizational Documents of CenterPoint Energy Gas Services, Inc.
B-103 Organizational Documents of CenterPoint Energy Service Company, LLC
B-104 Organizational Documents of Reliant Energy El Salvador, S.A. de C.V.
B-105 Organizational Documents of Block 368 GP, LLC
B-106 Organizational Documents of Reliant Energy Brasil, Ltda.
B-107 Organizational Documents of HIE Brasil Rio Sul Ltda.
B-108 Organizational Documents of Reliant Energy Colombia Ltda.
B-109 Amended Organizational Documents of CenterPoint Energy Funds Management Inc.
B-110 Amended Organizational Documents of CenterPoint Energy Investment Management Inc.
B-111 Organizational Documents of CenterPoint Energy, Inc. (DE)
EXHIBIT C INDENTURES AND CERTAIN OUTSTANDING CONTRACTS
EXHIBIT C - PART (a) - INDENTURES
Information with respect to the indentures and other fundamental documents
defining the rights of holders of funded debt is incorporated herein by
reference to CenterPoint's Annual Report on Form 10-K for the year ended
December 31, 2004 and CenterPoint's Joint Registration Statement on Form U5B
(File No. 030-00360).
EXHIBIT C - PART (b) - OUTSTANDING AND UNCOMPLETED CONTRACTS OR AGREEMENTS
RELATING TO THE ACQUISITION OF ANY SECURITIES, UTILITY ASSETS (AS DEFINED IN
SECTION 2(a)(18) OF THE ACT), OR ANY OTHER INTEREST IN ANY BUSINESS.
None.
EXHIBIT D TAX ALLOCATION AGREEMENT PURSUANT TO RULE 45(c)
Incorporated by reference to CenterPoint's Annual Report on Form U-5S for the
year ended December 31, 2003 (File No. 030-00360).
EXHIBIT E COPIES OF OTHER DOCUMENTS PRESCRIBED BY RULE OR ORDER
Reports to State regulators will be filed by amendment after such reports have
been filed with the states.
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EXHIBIT F SCHEDULES SUPPORTING ITEMS OF THE REPORT
F-1 Chart setting forth system companies and investments therein as of December
31, 2004.
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F-2 List of expenditures to citizens groups and public relations counsel.
F-3 Information on service transactions between CenterPoint and subsidiaries
(corporate services, support services and information technology services) for
the year ended December 31, 2004 (incorporated by reference to CenterPoint's
Annual Report on Form U-13-60 for the year ended December 31, 2004).
F-7 Consolidating financial statements for CenterPoint and its subsidiaries as
of December 31, 2004.
F-8 For consent of the independent accountants as to their opinion on
CenterPoint's consolidated financial statements, see Independent Auditors'
Consent of Deloitte & Touche LLP (previously filed as Exhibit 23 to
CenterPoint's Annual Report on Form 10-K for the year ended December 31, 2004
and incorporated by reference herein).
F-9 Information on intercompany transactions (other than service company
transactions) for CenterPoint and subsidiaries for the year ended December 31,
2004.
EXHIBIT G ORGANIZATION CHART: EWGS AND FOREIGN UTILITY COMPANIES
See Exhibit F-1.
EXHIBIT H EWG OR FOREIGN UTILITY FINANCIAL STATEMENTS
Financial statements of Texas Genco are incorporated herein by reference to the
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004
of Texas Genco Holdings, Inc. (file number 1-31449).
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SIGNATURE
Each undersigned system company has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized pursuant to
the requirements of the Public Utility Holding Company of 1935. The signature of
each undersigned company shall be deemed to relate only to matters having
reference to such company or its subsidiaries.
CENTERPOINT ENERGY, INC.,
for itself and on behalf of
UTILITY HOLDING, LLC
By: /s/ Rufus S. Scott
----------------------------------
Name: Rufus S. Scott
Title: Vice President, Deputy General
Counsel and Assistant Corporate
Secretary
Date: May 2, 2005
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