**Exhibit99.1****Item 1A.*****Risk Factors***     The following, along with any additional legal proceedings identified or incorporated byreference in Item 3 of this report, summarizes the principal risk factors associated with ourbusiness.**Risk Factors Affecting Our Businesses*****Rate regulation of our business may delay or deny our ability to earn a reasonable return andfully recover our costs.***          Our rates for our local distribution companies are regulated by certain municipalities andstate commissions, and for our interstate pipelines by the FERC, based on an analysis of ourinvested capital and our expenses in a test year. Thus, the rates that we are allowed to chargemay not match our expenses at any given time. The regulatory process in which rates are determinedmay not always result in rates that will produce full recovery of our costs and enable us to earn areasonable return on our invested capital.***Our businesses must compete with alternative energy sources, which could result in us marketingless natural gas, and our interstate pipelines and field services businesses must compete directlywith others in the transportation, storage, gathering, treating and processing of natural gas,which could lead to lower prices, either of which could have an adverse impact on our results ofoperations, financial condition and cash flows.***          We compete primarily with alternate energy sources such as electricity and other fuel sources.In some areas, intrastate pipelines, other natural gas distributors and marketers also competedirectly with us for natural gas sales to end-users. In addition, as a result of federalregulatory changes affecting interstate pipelines, natural gas marketers operating on thesepipelines may be able to bypass our facilities and market, sell and/or transport natural gasdirectly to commercial and industrial customers. Any reduction in the amount of natural gasmarketed, sold or transported by us as a result of competition may have an adverse impact on ourresults of operations, financial condition and cash flows.
 

 
          Our two interstate pipelines and our gathering systems compete with other interstate andintrastate pipelines and gathering systems in the transportation and storage of natural gas. Theprincipal elements of competition are rates, terms of service, and flexibility and reliability ofservice. We also compete indirectly with other forms of energy, including electricity, coal andfuel oils. The primary competitive factor is price. The actions of our competitors could lead tolower prices, which may have an adverse impact on our results of operations, financial conditionand cash flows.***Our natural gas distribution and competitive natural gas sales and services businesses are subjectto fluctuations in natural gas pricing levels, which could affect the ability of our suppliers andcustomers to meet their obligations or otherwise adversely affect our liquidity.***          We are subject to risk associated with increases in the price of natural gas. Increases innatural gas prices might affect our ability to collect balances due from our customers and, on theregulated side, could create the potential for uncollectible accounts expense to exceed therecoverable levels built into our tariff rates. In addition, a sustained period of high naturalgas prices could apply downward demand pressure on natural gas consumption in the areas in which weoperate and increase the risk that our suppliers or customers fail or are unable to meet theirobligations. Additionally, increasing natural gas prices could create the need for us to providecollateral in order to purchase natural gas.***If we were to fail to renegotiate a contract with one of our significant pipeline customers or ifwe renegotiate the contract on less favorable terms, there could be an adverse impact on ouroperations.***          Since October 31, 2006, our contract with Laclede Gas Company (Laclede), one of our pipeline’scustomers, has been terminable upon one year’s prior notice. We have not received a terminationnotice and are currently negotiating a long-term contract with Laclede. If Laclede were toterminate this contract or if we were to renegotiate this contract at rates substantially lowerthan the rates provided in the current contract, there could be an adverse effect on our results ofoperations, financial condition and cash flows.***A decline in our credit rating could result in us having to provide collateral in order topurchase gas.***          If our credit rating were to decline, we might be required to post cash collateral in order topurchase natural gas. If a credit rating downgrade and the resultant cash collateral requirementwere to occur at a time when we were experiencing significant working capital requirements orotherwise lacked liquidity, we might be unable to obtain the necessary natural gas to meet ourobligations to customers, and our results of operations, financial condition and cash flows wouldbe adversely affected.***The revenues and results of operations of our interstate pipelines and field services businessesare subject to fluctuations in the supply of natural gas.***          Our interstate pipelines and field services businesses largely rely on natural gas sourced inthe various supply basins located in the Mid-continent region of the United States. To the extentthe availability of this supply is substantially reduced, it could have an adverse effect on ourresults of operations, financial condition and cash flows.***Our revenues and results of operations are seasonal.***          A substantial portion of our revenues is derived from natural gas sales and transportation.Thus, our revenues and results of operations are subject to seasonality, weather conditions andother changes in natural gas usage, with revenues being higher during the winter months.***The actual construction costs of proposed pipelines and related compression facilities may besignificantly higher than our current estimates.***          Our subsidiaries are involved in significant pipeline construction projects. The constructionof new pipelines and related compression facilities requires the expenditure of significant amountsof capital, which may exceed our
 

 
estimates. If we undertake these projects, they may not be completed at the budgeted cost, onschedule or at all. The construction of new pipeline or compression facilities is subject toconstruction cost overruns due to labor costs, costs of equipment and materials such as steel andnickel, labor shortages or delays, inflation or other factors, which could be material. Inaddition, the construction of these facilities is typically subject to the receipt of approvals andpermits from various regulatory agencies. Those agencies may not approve the projects in a timelymanner or may impose restrictions or conditions on the projects that could potentially prevent aproject from proceeding, lengthen its expected completion schedule and/or increase its anticipatedcost. As a result, there is the risk that the new facilities may not be able to achieve ourexpected investment return, which could adversely affect our financial condition, results ofoperations or cash flows.***The states in which we provide regulated local gas distribution may, either through legislationor rules, adopt restrictions similar to those under the 1935 Act regarding organization, financingand affiliate transactions that could have significant adverse effects on our ability to operate.***          In Arkansas, the APSC in December 2006 adopted rules governing affiliate transactionsinvolving public utilities operating in Arkansas. The rules treat as affiliate transactions alltransactions between our Arkansas utility operations and our other divisions, as well astransactions between the Arkansas utility operations and our affiliates. All such affiliatetransactions are required to be priced under an asymmetrical pricing formula under which theArkansas utility operations would benefit from any difference between the cost of providing goodsand services to or from the Arkansas utility operations and the market value of those goods orservices. Additionally, the Arkansas utility operations are not permitted to participate in anyfinancing other than to finance retail utility operations in Arkansas, which would precludecontinuation of existing financing arrangements in which we finance our divisions and subsidiaries,including our Arkansas utility operations.          Although the Arkansas rules are now in effect, we and other gas and electric utilitiesoperating in Arkansas sought reconsideration of the rules by the APSC. In February 2007, the APSCgranted that reconsideration and suspended operation of the rules in order to permit time foradditional consideration. If the rules are not significantly modified on reconsideration, we wouldbe entitled to seek judicial review. In adopting the rules, the APSC indicated that affiliatetransactions and financial arrangements currently in effect will be deemed in compliance untilDecember 19, 2007, and that utilities may seek waivers of specific provisions of the rules. If therules ultimately become effective as presently adopted, we would need to seek waivers from certainprovisions of the rules or would be required to make significant modifications to existingpractices, which could include the formation of and transfer of assets to subsidiaries.          In Minnesota, a bill has been introduced during the current session of the legislature thatwould create a regulatory scheme for public utility holding companies like CenterPoint Energy andtheir public utility operations in Minnesota. The proposed legislation would restrict financingactivities, affiliate arrangements between the Minnesota utility operations and the holding companyand other utility and non-utility operations within the holding company and acquisitions anddivestitures. In addition, the bill would require prior MPUC approval of dividends paid by theholding company, in addition to dividends paid by its utility subsidiaries, and would limit thelevel of non-utility investments of the holding company.          If either or both of these regulatory frameworks become effective, they could have adverseeffects on our ability to operate and to provide cost-effective utility service. In addition, ifmore than one state adopts restrictions like those proposed in Arkansas and Minnesota, it may bedifficult for us to comply with competing regulatory requirements.**Risk Factors Associated with Our Consolidated Financial Condition*****If we are unable to arrange future financings on acceptable terms, our ability to refinanceexisting indebtedness could be limited.***          As of December 31, 2006, we had $2.3 billion of outstanding indebtedness on a consolidatedbasis. As of December 31, 2006, approximately $320 million principal amount of this debt must bepaid through 2009. Our future financing activities may depend, at least in part, on:
 

 
 **•** general economic and capital market conditions;  **•** credit availability from financial institutions and other lenders;  **•** investor confidence in us and the market in which we operate;  **•** maintenance of acceptable credit ratings;  **•** market expectations regarding our future earnings and probable cash flows;  **•** market perceptions of our and CenterPoint Energy’s ability to access capitalmarkets on reasonable terms; and  **•** provisions of relevant tax and securities laws.          Our current credit ratings are discussed in “Management’s Narrative Analysis of Results ofOperations — Liquidity — Impact on Liquidity of a Downgrade in Credit Ratings” in Item 7 of thisreport. These credit ratings may not remain in effect for any given period of time and one or moreof these ratings may be lowered or withdrawn entirely by a rating agency. We note that thesecredit ratings are not recommendations to buy, sell or hold our securities. Each rating should beevaluated independently of any other rating. Any future reduction or withdrawal of one or more ofour credit ratings could have a material adverse impact on our ability to access capital onacceptable terms.***The financial condition and liquidity of our parent company could affect our access to capital,our credit standing and our financial condition.***          Our ratings and credit may be impacted by CenterPoint Energy’s credit standing. As of December31, 2006, CenterPoint Energy and its other subsidiaries have approximately $555 million principalamount of debt required to be paid through 2009. This amount excludes amounts related to capitalleases, transition bonds and indexed debt securities obligations. In addition, CenterPoint Energyhas cash settlement obligations with respect to $575 million of outstanding 3.75% convertible noteson which holders could exercise their conversion rights during the first quarter of 2007 and insubsequent quarters in which CenterPoint Energy’s common stock price causes such notes to beconvertible. We cannot assure you that CenterPoint Energy and its other subsidiaries will be ableto pay or refinance these amounts. If CenterPoint Energy were to experience a deterioration in itscredit standing or liquidity difficulties, our access to credit and our credit ratings could beadversely affected.***We are an indirect wholly owned subsidiary of CenterPoint Energy. CenterPoint Energy can exercisesubstantial control over our dividend policy and business and operations and could do so in amanner that is adverse to our interests.***          We are managed by officers and employees of CenterPoint Energy. Our management will makedeterminations with respect to the following: **•** our payment of dividends;  **•** decisions on our financings and our capital raising activities;  **•** mergers or other business combinations; and  **•** our acquisition or disposition of assets.          There are no contractual restrictions on our ability to pay dividends to CenterPoint Energy.Our management could decide to increase our dividends to CenterPoint Energy to support its cashneeds. This could adversely affect our liquidity. However, under our credit facility and ourreceivables facility, our ability to pay dividends is restricted by a covenant that debt as apercentage of total capitalization may not exceed 65%.
 

 
***The use of derivative contracts by us and our subsidiaries in the normal course of business couldresult in financial losses that negatively impact our results of operations and those of oursubsidiaries.***          We use derivative instruments, such as swaps, options, futures and forwards, to manage ourcommodity and financial market risks. We could recognize financial losses as a result ofvolatility in the market values of these contracts, or should a counterparty fail to perform. Inthe absence of actively quoted market prices and pricing information from external sources, thevaluation of these financial instruments can involve management’s judgment or use of estimates. Asa result, changes in the underlying assumptions could affect the reported fair value of thesecontracts.***We derive a substantial portion of our operating income from subsidiaries through which we hold asubstantial portion of our assets.***          We derive a substantial portion of our operating income from, and hold a substantial portionof our assets through, our subsidiaries. In general, these subsidiaries are separate and distinctlegal entities and have no obligation to provide us with funds for our payment obligations, whetherby dividends, distributions, loans or otherwise. In addition, provisions of applicable law, such asthose limiting the legal sources of dividends, limit our subsidiaries’ ability to make payments orother distributions to us, and our subsidiaries could agree to contractual restrictions on theirability to make distributions.          Our right to receive any assets of any subsidiary, and therefore the right of our creditors toparticipate in those assets, will be effectively subordinated to the claims of that subsidiary’screditors, including trade creditors. In addition, even if we were a creditor of any subsidiary,our rights as a creditor would be subordinated to any security interest in the assets of thatsubsidiary and any indebtedness of the subsidiary senior to that held by us.**Risks Common to Our Businesses and Other Risks*****We are subject to operational and financial risks and liabilities arising from environmental lawsand regulations****.*          Our operations are subject to stringent and complex laws and regulations pertaining to health,safety and the environment. As an owner or operator of natural gas pipelines and distributionsystems, and gas gathering and processing systems, we must comply with these laws and regulationsat the federal, state and local levels. These laws and regulations can restrict or impact ourbusiness activities in many ways, such as: **•** restricting the way we can handle or dispose of wastes;  **•** limiting or prohibiting construction activities in sensitive areas such aswetlands, coastal regions, or areas inhabited by endangered species;  **•** requiring remedial action to mitigate pollution conditions caused by ouroperations, or attributable to former operations; and  **•** enjoining the operations of facilities deemed in non-compliance with permitsissued pursuant to such environmental laws and regulations. In order to comply with these requirements, we may need to spend substantial amounts anddevote other resources from time to time to:  **•** construct or acquire new equipment;  **•** acquire permits for facility operations;  **•** modify or replace existing and proposed equipment; and
 

 
 **•** clean up or decommission waste disposal areas, fuel storage and managementfacilities and other locations and facilities.          Failure to comply with these laws and regulations may trigger a variety of administrative,civil and criminal enforcement measures, including the assessment of monetary penalties, theimposition of remedial actions, and the issuance of orders enjoining future operations. Certainenvironmental statutes impose strict, joint and several liability for costs required to clean upand restore sites where hazardous substances have been disposed or otherwise released. Moreover,it is not uncommon for neighboring landowners and other third parties to file claims for personalinjury and property damage allegedly caused by the release of hazardous substances or other wasteproducts into the environment.***Our insurance coverage may not be sufficient. Insufficient insurance coverage and increasedinsurance costs could adversely impact our results of operations, financial condition and cashflows.***          We currently have general liability and property insurance in place to cover certain of ourfacilities in amounts that we consider appropriate. Such policies are subject to certain limitsand deductibles and do not include business interruption coverage. Insurance coverage may not beavailable in the future at current costs or on commercially reasonable terms, and the insuranceproceeds received for any loss of, or any damage to, any of our facilities may not be sufficient torestore the loss or damage without negative impact on our results of operations, financialcondition and cash flows.***We and CenterPoint Energy could incur liabilities associated with businesses and assets that wehave transferred to others.***          In connection with the organization and capitalization of Reliant Resources, Inc. (RRI), RRIand its subsidiaries assumed liabilities associated with various assets and businesses ReliantEnergy transferred to them. RRI also agreed to indemnify, and cause the applicable transfereesubsidiaries to indemnify, CenterPoint Energy and its subsidiaries, including us, with respect toliabilities associated with the transferred assets and businesses. These indemnity provisions wereintended to place sole financial responsibility on RRI and its subsidiaries for all liabilitiesassociated with the current and historical businesses and operations of RRI, regardless of the timethose liabilities arose. If RRI is unable to satisfy a liability that has been so assumed incircumstances in which Reliant Energy has not been released from the liability in connection withthe transfer, we or CenterPoint Energy could be responsible for satisfying the liability.          Prior to CenterPoint Energy’s distribution of its ownership in RRI to its shareholders, we hadguaranteed certain contractual obligations of what became RRI’s trading subsidiary. Under theterms of the separation agreement between the companies, RRI agreed to extinguish all such guarantyobligations prior to separation, but at the time of separation in September 2002, RRI had beenunable to extinguish all obligations. To secure CenterPoint Energy and us against obligationsunder the remaining guaranties, RRI agreed to provide cash or letters of credit for our benefit andthat of CenterPoint Energy, and undertook to use commercially reasonable efforts to extinguish theremaining guaranties. We currently hold letters of credit in the amount of $33.3 million issued onbehalf of RRI against guaranties that have not been released. Our current exposure under theguaranties relates to our guaranty of the payment by RRI of demand charges related totransportation contracts with one counterparty. The demand charges are approximately $53 millionper year through 2015, $49 million in 2016, $38 million in 2017 and $13 million in 2018. RRIcontinues to meet its obligations under the transportation contracts, and we believe current marketconditions make those contracts valuable for transportation services in the near term. However,changes in market conditions could affect the value of those contracts. If RRI should fail toperform its obligations under the transportation contracts, our exposure to the counterparty underthe guaranty could exceed the security provided by RRI. We have requested RRI to increase theamount of its existing letters of credit or, in the alternative, to obtain a release of ourobligations under the guaranty. In June 2006, we and the RRI trading subsidiary jointly filed acomplaint at the FERC against the counterparty on our guaranty. In the complaint, the RRI tradingsubsidiary seeks a determination by the FERC that the security demanded by the counterparty exceedsthe level permitted by the FERC’s policies. The complaint asks the FERC to require the counterpartyto release us from our guaranty obligation and, in its place, accept (i) a guaranty from RRI of theobligations of the RRI trading subsidiary, and (ii) letters of credit limited to (A) one year ofdemand charges for a transportation agreement related to a 2003
 

 
expansion of the counterparty’s pipeline, and (B) three months of demand charges for threeother transportation agreements held by the RRI trading subsidiary. The counterparty has arguedthat the amount of the guaranty does not violate the FERC’s policies and that the proposedsubstitution of credit support is not authorized under the counterparty’s financing documents orrequired by the FERC’s policy. The parties have now completed their submissions to FERC regardingthe complaint. We cannot predict what action the FERC may take on the complaint or when the FERCmay rule. In addition to the FERC proceeding, in February 2007 we and CenterPoint Energy made aformal demand on RRI under procedures provided for by the Master Separation Agreement, dated as ofDecember 31, 2000, between Reliant Energy and RRI. That demand seeks to resolve the disagreementwith RRI over the amount of security RRI is obligated to provide with respect to this guaranty. Itis possible that this demand could lead to an arbitration proceeding between the companies, butwhen and on what terms the disagreement with RRI will ultimately be resolved cannot be predicted.     RRI’s unsecured debt ratings are currently below investment grade. If RRI were unable to meetits obligations, it would need to consider, among various options, restructuring under thebankruptcy laws, in which event RRI might not honor its indemnification obligations and claims byRRI’s creditors might be made against CenterPoint Energy as its former owner.