Page 1 City of Houston, Texas Ordinance No. 2007- 4G / AN ORDINANCE GRANTING TO CENTERPOINT ENERGY RESOURCES CORP., DBA CENTERPOINT ENERGY TEXAS GAS OPERATIONS, THE RIGHT, PRIVILEGE AND FRANCHISE TO CONSTRUCT, INSTALL, EXTEND, RETIRE, OPERATE AND MAINTAIN ITS FACILITIES WITHIN THE PUBLIC RIGHTS-OF-WAY OF THE CITY OF HOUSTON, TEXAS FOR THE TRANSPORTATION, DELIVERY, SALE AND DISTRIBUTION OF NATURAL GAS; CONTAINING OTHER PROVISIONS RELATING TO THE FOREGOING SUBJECT; CONTAINING A REPEALER; PROVIDING FOR SEVERABILITY AND PROVIDING AN EFFECTIVE DATE. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF HOUSTON: Section 1. GRANT OF AUTHORITY. Subject to the terms, conditions and provisions of this ordinance, the right, privilege and franchise is hereby granted to CenterPoint Energy Resources Corp., DBA CenterPoint Energy Texas Gas Operations, hereinafter called “Company”, to construct, install, extend, retire, operate and maintain its facilities within the Public Rights-of-Way of the City of Houston, Texas for the transportation, delivery, sale and distribution of natural gas within the corporate limits of the City of Houston, as the same are now and as the same may from time to time be extended. The right, privilege and franchise granted hereunder is granted subject to the existing City of Houston Charter and Ordinances. Section 2. DEFINITIONS. A. “City” shail mean the City of Houston, Texas, a municipal corporation. “Company” shall rmean CenterPoint Energy Resources Corp., DBA CenterPoint Energy Texas Gas Operations, a Delaware Corporation and shall not mean any of its affiliates and subsidiaries who shall have no right, privilege or franchise granted hereunder. Cc. “Facilities” shall mean pipes, pipelines, natural gas mains, lateralis, feeders, regulators, meters, fixtures, connections and attachments and other instrumentalities and appurtenances, used in or incident fo providing transportation, distribution, supply and sales of natural gas for heating, lighting, power and any other purposes for which natural gas may now or hereafter be used. D. “Public Rights-of-Way” shall mean the areas in, under, upon, over, across, and along any and all of the present and future Streets or streams now or hereafter owned or controlled by City. E, “Public Works Director” shall mean the Director of the City’s Public Works and Engineering Department or his or her designee. F, “Street” shall mean the surface and the space above and below any public street, road, highway, alley, bridge, sidewalk, or other public place or way. ie Page 2 Section 3. TERM OF FRANCHISE. This Franchise shall become effective upon filing with the City by the Company of the acceptance required herein, and following the expiration of thirty days after final passage by the City Council and approval by the Mayor and shall be in full force and effect through March 31, 2037. Section 4. CONSTRUCTION AND MAINTENANCE OF NATURAL GAS DISTRIBUTION SYSTEM. All Facilities installed by Company shall be of sound material and good quality, and shall be laid so that they will not interfere with the aitificial drainage of the City or its underground fixtures, or with navigation in or. the natural drainage of any stream. All Facilities shall be installed in accordance with applicable Federal, State and City regulations and in the absence of such regulations in accordance with accepted industry practice. Within the Public Rights-of-Way, the location and route of the Facilities by the Company shall be subject to the reasonable and proper regulation, direction and control of the Public Works Director or delegee. Such regulation shall include, but not be limited to, the right to require in writing to the extent provided in Section 14 the relocation of Company's Facilities at Company's cost within the Public Rights-of-Way of the City whenever such relocation shall be reasonably necessary to accommodate City Public Works improvement projects within the Public Rights-of-Way. The Company and the Public Works Director shall work together to develop a procedure under which Company shall make available to the City maps showing the location of Company's Facilities within the corporate limits of the City. Section 5. STREETS TO BE RESTORED TO GOOD CONDITION. Company and its contractors shall give City reasonable notice of the dates, location and nature of all work to. be performed on its Facilities within. the Public Rights-of-Way. This Franchise shall constitute a permit to perform all work on Company's Facilities within the Public Rights-of-Way and to park vehicles in the Streets and other Public Rights-of- Way when necessary for the installation, retirement, operation or maintenance of Company's Facilities. Company and contractors performing work for Company shall not be required to obtain any permits in addition to the Franchise or to pay any fee in addition to the franchise fee in order to perform work on Company's Facilities, or park within the Streets and other Public Rights-of-Way. Following completion of work in the Public Rights-of-Way, Company shall repair the affected Public Rights-of-Way as soon as possible, but in all cases Company shall comply with all City ordinances governing time periods and standards relating to excavating in the Public Rights-of-Way. No street, alley, highway or public place shall be encumbered for a longer period than shall be necessary to execute the work. Section 6. QUALITY OF SERVICE. The service furnished hereunder to the City and its inhabitants shall be in accordance with the quality of service rules of the Railroad Commission of Texas and all other applicable local, state and federal regulations. Company shall furriish the grade of service to its customers as provided by its rate schedules and shall maintain its system in reasonable operating condition during the continuance of this Franchise. An exception to this requirement is automatically in effect, but only for so long as is necessary, when caused by a shortage in materials, supplies and equipment beyond the control of the Company as a result of fires, strikes, riots, storms, floods and other casualties, governmental regulations, limitations and restrictions as to the use and availability of materials, supplies and equipment and as to the use of the services, and unforeseeable and unusual demands for service. In any of 2 Page 3 such events the Company shall do all things reasonably within its power to restore normal service as quickly as practicable. Section 7. PAYMENT TO THE CITY. In consideration for the rights and privileges herein granted, the administration of this Franchise by the City, the temporary interference with the use of Public Rights-of-Way and. cost and obligations undertaken by the City in relation thereto and in lieu of any license, charge, fee, street or alley rental or other character of charge for use and occupancy of the streets, alleys, and public places of the City, and in lieu of any inspection fee, the Company agrees to pay the City franchise fees in the amount and manner described herein. In no event shall the Company be required to remit to the City franchise fee amounts that for any reason whatsoever are not fully recoverable from its customers. (A) Under the prior Franchise, Ordinance No. 87-2031, franchise fee payments were made on a quarterly basis in arrears. The final quarterly payment under Ordinance No. 87-2031 shall be a pro-rated amount based upon the number of months during the quarter that such franchise was effective, and such final payment shall be made within thirty (30) days after the repeal of Ordinance No. 87-2031. (B) For the First Franchise Year under this Franchise, the Company shall make monthly franchise fee payments of $1,792,233.51 on the first day of the remaining months of the First Franchise Year in which this ordinance becomes effective. The first monthly payment under this Franchise shall be made within five (5) business days after the effective date of this Franchise. (C) Beginning with the second Franchise Year and each succeeding Franchise Year for the remaining term of this Franchise, the Company shall pay franchise fees in an amount equal to five percent (5%) multiplied by the average Gross Revenues of the Company for the three previous calendar years. This amount shall be payable in twelve monthly payments as described below. The formulas for determining the franchise fees for the second Franchise Year and each succeeding Franchise Year can be expressed as follows: Total Annual Franchise Fee Franchise Year = [(Gross Revenues calendar Year-t + Gross Revenues catendar Year2 + Gross Revenues calendar Year-3) * 3 x 5%], and Monthly Franchise Fee Payment = Total Annual Franchise Fee + 12 Payments will be paid on or before the first day of each month. Company shall calculate the new franchise fee to be payable for each Franchise Year and shall provide the same along with the basis for such calculation to City for its review no later than April 1° of each year. If Company does not receive an objection from City by May 31°, Company shall implement the new franchise fee payment on July 1%. (D) (1) Gross 5 1 8 1 1 4 533 1782 161 29 74.372162 Revenues” 5 1 8 1 1 5 712 1792 100 21 96.923691 means 5 1 8 1 1 6 829 1787 32 26 96.096519 all 5 1 8 1 1 7 877 1788 82 27 96.292542 funds 5 1 8 1 1 8 978 1789 124 28 96.566483 received 5 1 8 1 1 9 1120 1791 66 27 96.420891 from 5 1 8 1 1 10 1204 1794 153 26 96.816788 customers 5 1 8 1 1 11 1374 1794 57 28 95.930435 that 5 1 8 1 1 12 1448 1802 47 20 96.949570 are 4 1 8 1 2 0 183 1815 1311 50 -1 5 1 8 1 2 1 183 1815 108 34 96.758133 directly 5 1 8 1 2 2 307 1818 99 26 96.809395 related 5 1 8 1 2 3 421 1821 27 25 96.483208 to 5 1 8 1 2 4 463 1819 46 27 96.533463 the 5 1 8 1 2 5 523 1821 61 27 96.254272 sale 5 1 8 1 2 6 599 1828 30 21 95.938759 or 5 1 8 1 2 7 642 1823 205 34 96.921234 transportation 5 1 8 1 2 8 863 1826 29 26 96.849075 of 5 1 8 1 2 9 905 1828 102 26 96.945343 natural 5 1 8 1 2 10 1022 1834 54 27 96.924385 gas 5 1 8 1 2 11 1091 1829 83 27 96.924385 within 5 1 8 1 2 12 1190 1830 45 27 96.950165 the 5 1 8 1 2 13 1252 1831 56 33 96.974808 City 5 1 8 1 2 14 1323 1835 130 30 96.605843 pursuant 5 1 8 1 2 15 1466 1836 28 25 96.950737 to 4 1 8 1 3 0 182 1854 1311 50 -1 5 1 8 1 3 1 182 1854 59 27 96.707535 rate 5 1 8 1 3 2 255 1855 150 29 96.470085 schedules 5 1 8 1 3 3 420 1860 137 31 96.496704 approved 5 1 8 1 3 4 572 1860 34 33 96.912712 by 5 1 8 1 3 5 619 1861 47 28 96.866798 the 5 1 8 1 3 6 682 1862 57 34 96.853210 City 5 1 8 1 3 7 753 1869 30 20 96.987770 or 5 1 8 1 3 8 796 1864 77 27 97.006783 other 5 1 8 1 3 9 886 1865 149 35 97.000992 regulatory 5 1 8 1 3 10 1050 1867 134 35 96.889748 authority, 5 1 8 1 3 11 1200 1870 78 26 96.767311 other 5 1 8 1 3 12 1290 1870 63 27 96.906647 than 5 1 8 1 3 13 1369 1879 54 25 96.906647 any 5 1 8 1 3 14 1438 1875 55 25 96.977013 rate 4 1 8 1 4 0 180 1893 639 40 -1 5 1 8 1 4 1 180 1893 154 28 95.852715 schedules 5 1 8 1 4 2 345 1895 106 34 96.939072 relating 5 1 8 1 4 3 462 1898 27 25 96.980774 to 5 1 8 1 4 4 499 1898 47 26 95.600029 the 5 1 8 1 4 5 557 1905 127 28 96.699112 recovery 5 1 8 1 4 6 694 1901 30 26 96.699112 of 5 1 8 1 4 7 731 1902 88 27 96.107872 taxes. Page 4 (2) For purposes of this section, Gross 5 1 1 1 1 8 989 166 160 27 89.803131 Revenues does not include other amounts received from customers including, but not limited to: () any revenue not actually received, even if billed, such as uncollectibles; (ii) any revenue received by the Company that is not for the sale or transportation of natural gas including, for example, interest income; (iii) any tax or fee of general applicability imposed upon the Company's customers by a city, state, federal or any other governmental entity and required to be collected by the Company and remitted to the entity (including, but not limited to, sales and use tax, excise tax, and utility users tax. (iv) any amount received from the customer which the Company has an obligation to repay, such as customer deposits and customer advances, and which has not been applied against the customer's bill or account; and (v) any amount received from customers that represents a reimbursement of amounts spent by the Company such as contributions in aid of construction. (3) For purposes of this section, “Gross Revenues” includes any state gross receipt tax and the franchise fee hereunder which are imposed upon the Company and billed to its customers. (E) “Franchise Year" shall mean the twelve-month period that begins on July 1 and ends on June 30 of the following calendar year. (F) “First Franchise Year” shall mean the period from effective date of this ordinance through June 30, 2008. Section 8. ANNEXATIONS BY CITY. This Franchise shall extend to and include any and all territory that is annexed by the City during the term of this Franchise. Within sixty (60) days from the receipt of notice from the City of any such annexation, the Company shail assure that any and all customers within such annexed territory are inciuded and shown on its accounting system as being within the corporate limits of the City of Houston. After such sixty (60) day period the payment provisions specified in Section 7 of this Franchise shall apply to Gross Revenues received by the Company from customers located within such annexed territory. Company shail true-up its map of City boundaries to the City’s map on an annual basis. Section 9. NON-EXCLUSIVE FRANCHISE. Nothing contained in this Franchise shall ever be construed as conferring upon the Company any exclusive tights or privileges of any nature whatsoever. ; Section 10. COMPLIANCE AND REMEDIES. (a) In the event the Company by act or omission violates any material term, condition or provision of this Franchise, the City shall notify the Company in writing of such violation. Should the Company fail or refuse to correct any such violation within thirty (30) days from the date of City’s 4 Page 5 notice, the City shall, upon written notification to the Company, have the right to terminate this agreement. Any such termination and cancellation shall be by ordinance adopted by City Council; provided, however, before any such ordinance is adopted, the Company must be given at least sixty (60) days’ advance written notice. Such notice shall set forth the causes and reasons for the proposed termination and cancellation, shall advise the Company that it will be provided an opportunity to be heard by City Council regarding such proposed action before any such action is taken and shail set forth the time, date and place of the hearing. (b) Other than its failure, refusal or inability to pay its debts and obligations, including, specifically, the payments to the City required by this Franchise, the Company shall not be declared in default or be subject to any sanction under any provision of this Franchise in those cases in which performance of such provision is prevented by reasons beyond its control. (c) The rights and remedies of City and Company set forth herein shail be in addition to, and not in limitation of any other tights and remedies provided at law or in equity and City’s exercise of any particular remedy shall not constitute a waiver of its rights to exercise any other remedy. Section 11. FAIR VALUATION. This Franchise is granted subject to the lawful provisions of Article il, Section 17, of the Charter of the City of Houston, which provisions are incorporated herein by reference. If for the purposes of such section it shall ever become necessary to ascertain the mode of determining fair valuation, such fair valuation shall mean the then current value of such property which would be used for ratemaking purposes under the then applicable laws of the State of Texas. if the City should elect to exercise its rights under such section, payment of a fair valuation shall be required, the mode of ascertaining which, if not agreed upon by the parties, shall be determined in an appropriate proceeding filed in any court having jurisdiction. Section 12. RESERVE OF POWERS. The City by the granting of this Franchise does not surrender or to any extent lose, waive, impair or lessen the lawful powers, claims and rights, now or hereafter vested in the City under the Constitution and statutes of the State of Texas and under the Charter and Ordinances of the City of Houston or other applicable law, to regulate public utilities within the City, to reguiate the rates of public utilities within the City and to regulate the use of the Streets by the Company; and the Company by Its acceptance of this Franchise agrees that all lawful powers and rights, whether regulatory or otherwise, as are or as may be from time to time vested in or reserved to the City, shall be in full force and effect and subject to the exercise thereof by the City at any time and from time to time. SECTION 13. INDEMNITY. THE COMPANY, ITS SUCCESSORS AND ASSIGNS, SHALL PROTECT AND HOLD THE CITY AND ITS OFFICERS, AGENTS, AND EMPLOYEES (COLLECTIVELY REFERRED TO IN THIS SECTION AS “THE CITY”) HARMLESS AGAINST ANY AND ALL CLAIMS OR DEMANDS FOR DAMAGES TO ANY PERSON OR PROPERTY BY REASON OF THE CONSTRUCTION AND MAINTENANCE OF THE COMPANY’S NATURAL GAS DISTRIBUTION SYSTEM, OR IN ANY WAY GROWING OUT OF THE RIGHTS GRANTED BY THIS FRANCHISE, EITHER DIRECTLY OR INDIRECTLY, OR BY 5 Page 6 REASON OF ANY ACT, NEGLIGENCE OR NONFEASANCE OF THE COMPANY OR THE CONTRACTORS, AGENTS OR EMPLOYEES OF THE COMPANY OR ITS SUCCESSORS AND ASSIGNS, AND SHALL REFUND TO THE CITY ALL SUMS WHICH THE CITY MAY BE ADJUDGED TO PAY ON ANY SUCH CLAIM, OR WHICH MAY ARISE OR GROW OUT OF THE EXERCISE OF THE RIGHTS AND PRIVILEGES HEREBY GRANTED OR BY THE ABUSE THEREOF, AND THE COMPANY OR ITS SUCCESSORS AND ASSIGNS SHALL INDEMNIFY AND HOLD THE CITY HARMLESS FROM AND ON ACCOUNT OF ALL DAMAGES, COSTS, EXPENSES, ACTIONS, AND CAUSES OF ACTION THAT MAY ACCRUE TO OR BE BROUGHT BY, A PERSON, PERSONS, COMPANY OR COMPANIES AT ANY TIME HEREAFTER BY REASON OF THE EXERCISE OF THE RIGHTS AND PRIVILEGES HEREBY GRANTED, OR OF THE ABUSE THEREOF. Section 14. RELOCATION OF FACILITIES. The Company shall, upon written request of the City, relocate its Facilities within Public Rights-of-Way at Company's own expense, exclusive of Facilities installed for service directly to City, to accommodate City Public Works improvement projects, including but not limited to street widening, changes of grade, water, sewer, or drainage upgrades, construction or reconstruction projects and minor relocation of traffic lanes. City shall bear the costs of all relocations of Facilities installed for service directly to City and of any relocation of other Facilities requested by City for reasons other than City Public Works improvements projects. Section 15. GOVERNMENTAL FUNCTION. All of the regulations and activities required by this Franchise are hereby declared to be governmental and for the health, Safety and welfare of the general public. Section 16. RECORDS AND REPORTS. (a) Books of Account. The Company shall keep complete and accurate books of accounts and records of its business and operations under and in connection with this Franchise. All such books of accounts and records shall be kept at the Company's principal office in Houston, Texas. (b) Access by City. The City may conduct an audit or other inquiry or may pursue a cause of action in relation to the payment of the franchise fee only if such audit, inquiry, or pursuit of a cause of action concerns a payment made less than three (3) years before the commencement of such audit, inquiry, or pursuit of a cause of action. Each party shall bear its own costs of any such audit or inquiry. Upon receipt of a written request from the City, all books and records related to Company’s operations under this Franchise shall be made available for inspection and copying no later than thirty (30) days from receipt of such request, (c) Interest on Underpayments and Overpayments. (1) Amounts due to City for late payments shall include interest, compounded daily equal to the return on equity plus three percent (3%) granted to the Company in its most recent proceeding fixing rates applicable to customers within the corporate limits of the City. (2) If the City identifies, as a result of a franchise fee compliance review, amounts owed by the Company from prior periods or prior underpayments, then, the Company shall pay simple interest on such amounts equal to the return on equity granted to the Company in its most recent proceeding fixing rates applicable to customers within the corporate limits of the City. Said interest shall be payable on such sums from the date the initial 6 Page 7 payment was due until it is paid and shall not be billed to customers. (3) Amounts due Company for past overpayments shall include simple interest equal to the return on equity granted to the Company in its most recent proceeding fixing rates applicable to customers within the corporate limits of the City; provided, however, if there is a change in the approved return on equity during the time period subject to the City’s audit or inquiry, then for each time period during which there was an overpayment, the approved return on equity in effect during such time period shall be used in calculating interest under this subparagraph (c). Interest payable on such sums shail be credited to customers. Section 17. EASEMENT. in consideration for the compensation set forth in Section 7, City agrees that if City sells, conveys, or surrenders possession of any portion of the Public Right-of-Way that is being used by Company pursuant to this Franchise, City, to the maximum extent of its right to do so, shall first grant Company an easement for such use and the sale, conveyance, or surrender of possession of the Public Right-of-Way shall be subject to the right and continued use of Company. Section 18. REPEAL OF PREVIOUS ORDINANCES. This Franchise replaces the franchise agreement with the Company, dated December 30, 1987, granted by City of Houston, Texas Ordinance No. 87-2031which ordinance is hereby repealed as of the effective date of this Franchise. Any claims of City or Company thereunder are hereby waived. Section 19. ACCEPTANCE. The Company shall, within thirty (30) days following the final passage and approval of this Franchise, file with the City Secretary of the City of Houston a written statement signed in its name and behalf in the following form: “To the Honorable Mayor and City Council of the City of Houston: CenterPoint Energy Resources Corp., DBA CenterPoint Energy Texas Gas Operations, its successors and assigns, hereby accepts the attached Franchise Ordinance and agrees to be bound by ail of its terms and provisions.” CENTERPOINT ENERGY RESOURCES CORP., DBA CENTERPOINT ENERGY TEXAS GAS OPERATIONS By: Joseph B. McGoldrick Division President —- Gas Operations Dated this day of , 2007, Section 20. SEVERABILITY. If any provision, section, subsection, sentence, clause or phrase of this Franchise is for any reason held to be unconstitutional, void, or invalid or for any reason unenforceable, the validity of the remaining portions of this Franchise shall not be affected thereby, it being the intent of the City of Houston In adopting this Franchise that no portion hereof or provision hereof shall become inoperative or fail by reason of any unconstitutionality or invalidity of any other portion, 7 Page 8 provision or regulation and, to this end, all provisions of this ordinance are declared to be severable. Section 21. NOTICES. Every notice, order, petition, document, or other direction or communication to be served upon the City or the Grantee shall be deemed sufficiently given if sent by registered or certified mail, return receipt requested. Every such communication to the Grantee shall be sent to: CenterPoint Energy Resources Corp. Vice President Regulatory Relations PO Box 4567 Houston, TX 77210-4567 With a copy to General Counsel, Gas Division PO Box 2628 Houston, TX 77252-2628 Every such communication to the City or the City Council shall be sent to the Director, Finance & Administration Department 611 Walker, 10" Floor Houston, Texas 77002 and, as applicable, to the City Attorney, City Secretary City Hall Annex City Hall Annex 900 Bagby, 4" Floor 900 Bagby, Public Level Houston, Texas 77002 Houston, Texas 77002 Director of Public Works 611 Walker, 25" Floor Houston, Texas 77002 Section 22. PUBLICATION, PASSAGE AND EFFECTIVE DATE. This Franchise, having been published as required by Article Il, Section 17 of the City Charter shall take effect and be in force from and after 30 days following its final passage and approval, and receipt by the City of Company's acceptance filed pursuant to Section 19. In compliance with the provisions of Article ll, Sections 17 and 18, of the City Charter, the Company shall pay the cost of those publications and any costs associated with any elections held regarding this Franchise required by such Charter provisions. Page 9 PASSED first reading the Ib. day of Ly 24 , 2007, PASSED second reading the 1S day of , 2007, PASSED third and final reading thefed day ot Ly , 2007. APPROVED theAe/ day of flay. — , 2007, ATTEST/SEAL: City Secretary My Mayor of the City of Houston Director, Finance and Administration Dept. Prepared by Legal Dept. “mT. KauLame/ Or MTP April 16, 2007 Senior Ass't. City Attorney Requested by Judy Gray Johnson, Director Finance and Administration Department LD# 0340600163001 4.16.2007 ENTEX FRANCHISE ‘PTION PUBLISHED IN DAILY COURT ae -_ oMAX.-0-8 2007 ~ 9