Fitch Rates CenterPoint Energy Resources $160MM Notes 'BBB'; Rating Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 29, 2003

Fitch Ratings has assigned a 'BBB' rating to CenterPoint Energy Resources Corp.'s (CERC) new issue of $160 million 5.955% senior unsecured notes, due Jan. 15, 2014. CERC is an indirect wholly-owned subsidiary of CenterPoint Energy, Inc. (CNP; 'BBB-' senior unsecured, Rating Outlook Stable by Fitch) and is engaged primarily in the business of natural gas distribution, interstate transmission and gas gathering. Proceeds from the new debt will be used to refinance CERC's remaining $140 million 6.375% term enhanced remarketable securities. The Rating Outlook for CERC is Stable.

CERC's rating is supported by its low risk gas distribution operations, and continued improvement of cash flow margins from the interstate pipeline segment. Deliveries to the more secure residential and small customer classes approximate roughly 80% of total throughput at CERC's three local gas distribution (LDC) divisions. Although this concentration exposes the LDCs to weather-related volume risk, ongoing cost reductions and rate design changes have had a positive impact on recent financial performance. CERC's two interstate pipeline subsidiaries, CenterPoint Energy Gas Transmission (CEGT) and CenterPoint Energy-Mississippi River Transmission (MRT), will remain challenged by rate discounting and excess pipeline capacity in the competitive U.S. mid-continent market. Mitigating this risk is CEGT's contract with affiliate Arkla and MRT's strong market position as the primary transporter into the St. Louis market.

CERC's standalone leverage and credit measures are consistent with the 'BBB' rating category. CERC's capital structure, including short-term borrowings, approximated 52% debt and 48% equity as of June 30, 2003. Assuming normal weather and favorable market conditions for CERC's two interstate natural gas pipeline subsidiaries, pretax interest coverage and cash coverage of interest should range above 2.5 times (x) and 3.0x, respectively. Offsetting CERC's relatively conservative financial profile is the high leverage of its parent CNP. In particular, there are no general legal restrictions that prevent the payment of dividends by CERC to CNP. Fitch expects debt leverage at CNP to remain in excess of 80% until the successful execution of planned de-leveraging events including the planned sale of CNP's 81% interest in Texas Genco Holdings, Inc. in 2004 and the subsequent recovery of stranded costs as permitted under approved Texas restructuring legislation. Any unexpected new legislation or appeals which would have the affect of amending the amount and/or delaying the ultimate timing of stranded cost recovery would be an unfavorable credit event for both CNP and CERC.

The September 2003 show cause order issued by the Federal Energy Regulatory Commission (FERC) related to CEGT's reporting practices under its various negotiated rate contracts currently remains unresolved. Under the order, CEGT has to effectively 'show cause' why FERC should not suspend or revoke their authority to enter into negotiated rate contracts. Although the revocation of this authority would not preclude CEGT from conducting firm and interruptible transportation business, negotiated rates have historically benefited CEGT by enabling it to adjust tariffs to reflect mid-continent market dynamics. CEGT's current Stable Outlook reflects Fitch's expectation that this matter will ultimately be settled in a manner which will not have a substantially adverse near-term impact on CEGT operations and/or CERC's overall liquidity position. Any unexpected severe penalties would be a negative credit event and would likely result in a change in CERC's rating and/or outlook.