Ethics and Compliance Investigation

Manual

March, 2006

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Welcome This Investigation Manual was written for CenterPoint Energy, Inc. (“CenterPoint Energy,” “CNP” or “the Company”) employees who participate in internal investigations on behalf of the Ethics and Compliance Department. It explains why and how such investigations differ from other investigations and explains how the investigation process works when employees or other individuals contact the Ethics and Compliance Department through the Concerns Helpline, office visits, telephone calls, faxes, letters, or e-mails. Also, this manual explains the investigator’s role in working through compliance and business conduct issues and concerns.

The Concerns Helpline: 888-888-3165 Confidential Fax: 713-207-9056 Confidential Email: Compliance.Officer@CenterPointEnergy.com Confidential P. O. Box: P. O. Box 61867 Houston, Texas 77208-1867

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Table of Contents Page

I. Background on the Concerns Helpline ....................... 4

II. Calling the Concerns Helpline………………… ........... 6

III. Ethics and Compliance Department Procedures ........ 8

IV. The Role of the Investigator........................................ 9

V. Confidentiality & Anonymity ........................................ 10

VI. Protecting Employees from Retaliation....................... 12 VII. Conducting an Internal Investigation........................... 13 VIII. One Final Thought...................................................... 18 Attachment A....................................................................... 19 Attachment B....................................................................... 20 Attachment C ...................................................................... 22 Attachment D ...................................................................... 24

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I. Background on the Concerns Helpline

Helplines and/or hotlines have been used to detect theft and fraud for many years. However, since the Federal Sentencing Guidelines (FSG) were enacted in 1992, toll-free numbers were given new influence in helping companies uncover and address a variety of unethical or illegal activities. The guidelines offered a 7-step process for companies on how to implement a program to deter and detect inappropriate or illegal behavior. One step detailed the importance of putting into place a communication channel that offered employees anonymity. The Sarbanes-Oxley Act of 2002 reinforced and supported the value of this communications mechanism. CenterPoint Energy implemented the Concerns Helpline on March 10, 2003. In June, 2005 we outsourced the helpline to The Network thereby offering employees 24/7 accessibility and a greater safeguard of anonymity. One of the most important features of the Helpline is that a caller may choose to remain anonymous when asking for help or making a report. Employees may call the Concerns Helpline to:

ask a question request advice receive guidance make allegations or raise concerns regarding possible unethical

conduct, violations of law, regulatory requirements or breaches of Company policy.

In addition to the Concerns Helpline, employees have several other resources they may contact, including:

Supervisor Any member of Management Human Resources Department Internal Audit Department Legal Department

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Security Department Ethics and Compliance Department

CenterPoint Energy encourages employees to speak up about perceived ethical issues or suspected or known violations of the law or CNP policy. We encourage any employee with a concern to speak first with his or her supervisor and we expect each CNP supervisor to respond appropriately. However, we recognize that employees are not always comfortable speaking directly to their supervisors and managers about business conduct issues. The Concerns Helpline provides employees an alternative way to present their concerns. Some employees may be reluctant to bring up a problem without having a proposed solution. Some employees may have difficulties expressing their concerns. The important thing is that employees share their concerns with somebody. This way, CenterPoint Energy has the opportunity to address concerns promptly and completely.

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II. Calling the Concerns Helpline

Employees are encouraged to call the Concerns Helpline if they are seeking guidance about ethics and compliance issues, need clarification on a Company policy, wish to report an allegation of improper business conduct or policy violation, or simply ask a question. An independent third party vendor receives calls to the Concerns Helpline, which is staffed 24 hours a day, seven days a week, 365 days a year. It is important to note that the vendor does not use call-tracing nor recording devices. The Helpline vendor gathers basic information about the employee’s questions or concerns so that our Company can respond in a timely manner. A trained, skilled interviewer, the Call Specialist, answers each call and translation services are available for non-English speaking callers. The Call Specialist briefs the caller on the Helpline process and conducts an interview using a standardized questionnaire. (See Attachment A.) Callers can choose to identify themselves when they call the Concerns Helpline or they can remain anonymous. If the caller wishes to remain anonymous, he or she is assigned a unique personal identification number (PIN) and is asked to call back in fifteen business days for follow-up. The caller is encouraged to call back at any time to provide additional information. Calls are prioritized into two categories:

• Priority One Calls describe threats to life, property, or the environment

• Priority Two Calls include all other types of calls.

Calls are classified by type of issue or concern (See Attachment B). For Priority One Calls, the Call Specialist will immediately notify a Corporate Security Department representative. The Call Specialist

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will also send a follow-up report via secure email to the Ethics and Compliance Department within 24 business hours of receipt of the call. For Priority Two Calls, the Call Specialist will notify the Ethics and Compliance Department via secure e-mail transmission within 24 business hours of receipt of the call. The Helpline vendor forwards all subsequent follow-up information about a call within 24 business hours of receipt.

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III. Ethics and Compliance Department Procedures

The law requires “…establishing procedures for the receipt, retention and treatment of complaints…” It is the responsibility of the Ethics and Compliance Department to ensure that all matters received by the Department adhere to these guidelines and that they are resolved thoroughly, consistently and in a timely manner. We accomplish this by maintaining a database that enables us to document concerns, investigation steps, resolution, and action taken, if any. When the Ethics and Compliance Department receives a report from the Helpline vendor, or any other communication channel, a Case Manager will monitor the status of the case from beginning through closure. On receipt of a concern, the Case Manager will review and determine the appropriate department or employee to respond to the inquiry or conduct an investigation, i.e., Corporate H.R., Area H.R., Corporate Security, Internal Audit, Legal, or others. The Vice President, Corporate Compliance is always consulted before proceeding with an allegation against a member of senior management. Only the Chairman, CEO, General Counsel, Vice President of Internal Audit, the Audit Committee, or the Vice President of Corporate Compliance can refer a matter for external investigation.

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IV. The Role of the Investigator As an internal investigator, you have an important role in supporting the Company’s commitment to integrity and business ethics. Your role in resolving ethics and compliance issues begins when you are notified that a concern or an inquiry has been received. (See Attachment C.) You will receive a document that includes:

the case number; date received; response due date; location; caller name, if applicable; category assignment details of the case; and investigator assigned

You may be asked to research issues and provide guidance directly to the caller about the inquiry. If there is an allegation, you may be asked to assist in conducting an internal investigation. We encourage you to follow the investigative best practices and reporting guidelines that you will find in this manual. Because of new laws and regulations such as the Federal Sentencing Guidelines, Sarbanes Oxley, and the New York Stock Exchange Listing Requirements, this process will help you report the information we are required to document. It is very important to always consult the Legal Department before imposing any form of disciplinary action to avoid potential whistleblower allegation.

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V. Confidentiality & Anonymity Individuals who contact the Ethics and Compliance Department or the Concerns Helpline expect and deserve confidentiality. As an investigator, you are entrusted with an individual’s personal and/or professional reputation. You cannot give employees an unconditional guarantee of confidentiality, but you can assure employees that confidentiality will be maintained consistent with good business practices and to the extent provided by law. Although your co-workers may be curious about your participation in an Ethics and Compliance Department investigation, it is crucial to keep these matters confidential. Never talk about an investigation (even one that is closed) in casual conversation. The Ethics and Compliance Department and the Concerns Helpline are only as good as employees’ trust in them. Here are some suggestions on how to build employees’ confidence and trust:

Ensure that messages by letter, e-mail, or fax do not contain names of callers who have expressed concerns about confidentiality.

When returning a call, use discretion in leaving your name.

Find out from a caller with whom else they have discussed the

situation. Remind callers that by talking to others, they will make confidentiality much more difficult to maintain.

Never assume that other people share your level of concern

about confidentiality. Never make an ethics investigation the subject of gossip or

casual conversation, such as in elevators.

When a caller provides his or her name, be sure to gain permission before disclosing his or her identity to others or

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explain that it may not be possible to maintain the caller’s anonymity based on the facts of the case.

If a caller contacts you directly and is reluctant to give his or her

name or location, do not insist that he/she disclose his/her identity. Remind the caller that anonymity is maintained to the maximum extent possible. However, you can advise the caller that absolute anonymity may hinder the successful resolution of an inquiry or allegation. Remember, we do not want callers to feel pressured to identify themselves if they are uncomfortable in doing so. Reassurance that confidentiality/anonymity will be maintained to the fullest extent possible will help build credibility and trust in the Ethics and Compliance Department, the Concerns Helpline and our Company.

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VI. Protecting Employees from Retaliation The Sarbanes Oxley Act (SOX) established stiff penalties to corporations who retaliate against an employee who reports financial irregularities. But an even more important precedent, set by section 301 of SOX, is the requirement that public companies provide a mechanism for reporting concerns that enables employees to remain anonymous. This is an important ruling because anonymity is the ultimate protection against retaliation for an employee. Protecting employees from retaliation is critical to our success and in keeping with the law. CenterPoint Energy has zero tolerance for retaliation against any employee who in good faith: reports misconduct, describes a suspected violation of our Company policies or state or federal laws, or participates in an internal investigation. Employees may feel reluctant to address concerns to the Helpline or elsewhere out of fear of retaliation. It is our job to help make employees feel secure in coming forward--whether they are seeking advice or making a report about unethical conduct, or suspected violations of the law or CNP policy. For instance, an employee who reports an allegation involving his or her supervisor may fear that his or her next evaluation may be impacted as a result. Retaliation can take many forms. Some may be obvious – other forms of retaliation can be very subtle. Here are some examples:

Unwarranted discipline or termination Unsatisfactory performance evaluations Loss of promotional opportunities Disproportionately low pay raises or bonuses Change of assignment to less desirable work Excluding or shunning the employee

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VII. Conducting an Internal Investigation for the Ethics and Compliance Department

The purpose of an investigation, assigned to you by the Ethics and Compliance Department, is to: resolve a matter in a timely manner use a process that is fair and impartial; and meet established requirements for an effective ethics program.

Your role is to determine the facts. Once an investigation is completed, CNP can respond appropriately. Below are some suggested guidelines you can follow. And remember, you can always call the Ethics and Compliance Department for help in conducting an investigation. 1. If the inquiry or allegation was made in confidence but not

anonymously, have an initial meeting with the person raising the issue.

Be sure the person is comfortable with your handling the investigation. You may ask, “Is there any reason why you feel I cannot be fair and objective?” Establishing good rapport with the complaining employee will help you conduct a thorough investigation.

When conducting your in-take interview, get the facts –

WHO, WHAT, WHEN, WHERE, and HOW. 2. If the allegation was anonymous, make an initial assessment

of the situation. Review the report carefully and try to determine the nature of

the caller’s concerns.

Use your knowledge of our business to identify others who may have some understanding of the issues or concerns, but be careful about sharing the report with others.

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Decide whether you have sufficient information to proceed with an investigation. We will not be able to fully investigate every matter that is raised anonymously.

3. Evaluate the situation

Is this a request for help, an allegation of wrongdoing, or both?

Will a single answer resolve the issue? Do you need other resources in order to reach a conclusion? What will happen if this matter is not resolved? Are there any

adverse consequences if you proceed with an investigation? Are there implications that require you to proceed with an

investigation?

4. Plan the investigation Determine what laws, policies, guidelines, or practices apply

to this situation. Obtain all relevant documents that will assist you in

conducting your investigation. Decide whom you should interview. Decide the order of your interviewees. Outline the questions you will ask.

Effective Techniques for Asking Questions:

Draft a preliminary list of questions to ask of each interviewee.

Ask questions designed to elicit relevant facts. Ask who, what, when, where, why and how questions. Start with open-ended questions. Save tough or embarrassing questions until the end of the interview.

Do not put words into the interviewee’s mouth. Be willing to go beyond your pre-planned questions if necessary. Determine whether the interviewee’s responses require clarification or elicit additional questions.

Ask if there are any other witnesses or documents to support this witness’s position or who the witness believes would have relevant information.

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5. Start the investigation

Anticipate questions that each of your interviewees might ask.

Before you begin the interview, be prepared to explain what you are investigating and why the individual is being interviewed.

Stress that no conclusion has yet been reached. Emphasize CenterPoint Energy’s policy regarding

confidentiality and retaliation. 6. Interview the witnesses

Be sure to interview all potential witnesses or individuals who can provide relevant information.

When interviewing a witness, provide a general account of the claim as it relates to this witness’s involvement or knowledge. Be careful not to disclose the identity of those who wish to remain anonymous.

Obtain the witness’s detailed account of his/her knowledge of the events surrounding the allegation.

Get as much information as possible from the witness. Remind the witness of our policy against retaliation. We

do not tolerate retaliation against any employee who has contacted the Ethics and Compliance Department or has participated in or an investigation.

7. Meet with the employee who is the focus of the

allegation or concern. Give the employee an account of the claim. Obtain the employee’s detailed account of the events

surrounding the allegation. Get as much information as possible from the employee. Do not take sides or be accusatory. Never argue with the interviewee. If the interviewee’s

account differs markedly from other information you have obtained, address the discrepancy in a direct, non-judgmental manner. It is your job to be neutral.

Remind the employee of our policy against retaliation. We do not tolerate retaliation against any employee who has contacted the Ethics and Compliance Department.

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8. Before closing your interview

Emphasize the seriousness of the matter. Ask if there is anyone else you should interview. Review the witness’s answers to ensure accuracy. Encourage the witness to contact you with any additional

information and/or documents. Remind the witness of the confidentiality of your interview.

Reinforce that he/she is not to discuss with anyone the components of your investigation or even the fact that an investigation is being conducted.

9. Assess credibility

After each interview, review your notes and assess the credibility of the witness.

Review the witness’s chronology of events. What relevant issues did the witness confirm or refute? Were there discrepancies between the witness’s

testimony and other substantial information? Were any conflicting statements made?

Is the witness plausible?

10. Document your work Create a paper record of your investigation. Your file should include your witness notes, the

documents you reviewed, a chronology of your efforts, and any other relevant information--such as copies of company policies.

Remember the cardinal rules of documentation: Write concisely and clearly Guard distribution of your notes, materials, and report

Avoid the use of terms that could show bias or subjectivity

Address the who, what, when, and how of each issue

11. Wrap up your investigation

Reach conclusions about the events that you believe occurred

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Make a recommendation as to how the matter can be resolved. Ask yourself these questions:

Were any of our Company’s policies, guidelines or practices violated?

Was the violation serious? Do any local, state, or federal laws require our Company to act?

What is the subject’s employment history--including prior complaints and performance record?

Do any factors mitigate against imposing discipline? How has the issue been addressed in the past? Has precedent been established?

Make a report to the Ethics and Compliance Department. (See Attachment D.)

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VIII. Final Thought…. We share a responsibility in upholding the values of CenterPoint Energy to our investors, shareholders, the communities we serve, and our employees. Working together – we can continue to make a difference. Thank you for your partnership.

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Attachment A The Network Standardized Questions

The Network’s Interview Specialist gathers and documents all pertinent information. During each call/interview, the following standard information is document:

1. Date and time of call 2. Caller location information 3. The name of the person(s) involved in the incident being reported 4. The gender of the person(s) involved in the incident being reported 5. A physical description of the person(s) – if the name of the person is unknown 6. The approximate age of the person(s) – if the name of the person is unknown 7. If the person is an employee of the Company 8. Titles, work area, responsibilities 9. Company tenure 10. The type of incident that has occurred 11. When the incident occurred 12. If the caller believes the incident will reoccur in the next 24 hours or in the future 13. Where the incident occurred 14. Specifics as to how the incident happened 15. How the caller has knowledge of the incident 16. What documentation exists that would help the Company investigate the

incident 17. If the caller has communicated this issue to any one in management 18. And if it was discussed with management, the name, title and action that has

been taken and date of action if known 19. The name(s) and job titles of others who have knowledge of the incident 20. How was the caller aware of the Concerns Helpline

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Attachment B Categories

HELPLINE Confidential Non-Confidential

CALLER IDENTITY

Anonymous Allegation Concern Inquiry

CALL TYPE

Other Caller Cancelled Findings Forwarded as FYI Insufficient Information Not Substantiated Guidance Given Referred to Customer Service

RESOLUTION

Referred to Counsel Information Provided None Progressive Action Counseling Training Reprimand Suspension

ACTION TAKEN

Termination

CATEGORY GROUP CATEGORY Company Policy/or Procedure Competitive Information Hours of Service Intellectual Property Legal Other Political Contributions/Activities

Business Practice Any departure from Company policy or procedure dealing with proprietary, competitive, intellectual information or government relations. Allegations of adverse treatment resulting from or against a person making a report.

Retaliation

Fraud Misuse of Company Assets Other Privacy of Communications

Company Property Any allegations/concerns of deliberate attempt to deceive in order to receive, gain, or the taking of money or money instruments or Company property. Misappropriation of Company property

Consultants, Contractors Entertainment Family/Personal Relationships Former Employees Gifts Meals Other Outside Activities Outside Employment

Conflict of Interest The taking of an action by a Company employee which is in business conflict with the Company.

Personal Business

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Contractor Behavior Co-worker Behavior Falsifying Reports Falsifying Time Favoritism Harassment-Other Harassment-Sexual Management Behavior Other

Employee Behavior Departure from Company policy which is or can be detrimental to the well being of an individual(s) or the Company.

Substance Abuse Accounting Auditing Improper Loans Insider Trading Other

Financial Concerns Issues relating to the reporting of financial matters or issues relating to financial/business controls by senior management that would affect Company functions. SOX

Environment Industrial Safety Other

Health & Safety Any condition which appears to be threatening, hazardous or unsafe to the well-being of an employee, customer, facility or the public.

Workplace Violence

Appraisal Benefits/Medical Discrimination Nepotism Other Personnel Policy Scheduling Staffing Suspension Termination Training/Testing Union Grievance Wage/Salary Work Environment

Human Resources Any issue dealing with employment concerns, employment laws or Company policy dealing with employment related issues.

Workers’ Compensation General Inquiries Information Request Other

Non-Issue Guidance, questions, requested information, policy clarification, and other non-policy violation issues. Policy Clarification Customer Service Customer Call Personnel Complaint

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Attachment C Case Management Screen

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Attachment D Investigator Response

CenterPoint Energy Concerns Helpline – Response/Investigation

Case # ______________________ Subject: ________________________________ ________________________________ ________________________________ Reported by: ________________________________

Business Unit/Functional Unit: _________________________________ Location/Site: _________________________________ _________________________________ Investigation Provided or Investigation Conducted By: _________________________________ _________________________________ Date Completed: _________________________________

Summary of Investigation:

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Findings: Resolution/Action Taken if any: Policy/Law Violation (if applicable: