HOUSTON LIGHTING & POWER CO, 10-K405, 1996-03-29

HOUSTON LIGHTING & POWER CO
10-K405, 1996-03-29
ELECTRIC SERVICES

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<PAGE> 1

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

--------------

FORM 10-K

--------------

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from
to

COMMISSION FILE NUMBER 1-7629

HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)

TEXAS 74-1885573
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)

1111 LOUISIANA
HOUSTON, TEXAS 77002 (713) 207-3000
(Address and zip code of principal (Registrant's telephone number,
executive offices) including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, without par value, New York Stock Exchange
and associated rights to purchase Chicago Stock Exchange
preference stock London Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

COMMISSION FILE NUMBER 1-3187

HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)

TEXAS 74-0694415
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)

1111 LOUISIANA
HOUSTON, TEXAS 77002 (713) 207-1111
(Address and zip code of principal (Registrant's telephone number,
executive offices) including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

TITLE OF EACH CLASS
-------------------
Preferred stock, cumulative, no par: $4 Series; $6.72 Series; $7.52 Series;
$8.12 Series; Variable Term Cumulative Preferred Stock, Series A; Variable Term
Cumulative Preferred Stock, Series B; Variable Term Cumulative Preferred Stock,
Series C; Variable Term Cumulative Preferred Stock, Series D; and $9.375
Series.

Indicate by check mark whether each of the registrants: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
Houston Industries Incorporated was $6,030,611,109 as of March 1, 1996, using
the definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers.

As of March 1, 1996, Houston Industries Incorporated had 262,742,947 shares
of Common Stock outstanding, including 14,253,044 ESOP shares not deemed
outstanding for financial statement purposes. As of March 1, 1996, all
outstanding shares of Houston Lighting & Power Company's common stock were
held, directly or indirectly, by Houston Industries Incorporated.

Portions of the definitive proxy statement relating to the 1996 Annual
Meeting of Shareholders of Houston Industries Incorporated, which will be filed
within 120 days of December 31, 1995, are incorporated by reference in Item 10,
Item 11, Item 12 and Item 13 of Part III of this form.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of each of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

<PAGE> 2
HOUSTON INDUSTRIES INCORPORATED AND
HOUSTON LIGHTING & POWER COMPANY
Form 10-K for the Year Ended December 31, 1995

<TABLE>
<CAPTION>
PART I TABLE OF CONTENTS Page No.
- ------ --------
<S> <C> <C>
Item 1. Business:

The Company and Its Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business of HI Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Regulation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Executive Officers of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 22

PART II
- -------

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 23

Item 6. Selected Financial Data:

The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Item 8. Financial Statements and Supplementary Data:

Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 57
Notes to HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

PART III
- --------

Item 10. Directors and Executive Officers of the Company and HL&P . . . . . . . . . . . . . . . . . . 86

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 96

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 98

PART IV
- -------

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . 99
</TABLE>

<PAGE> 3
THIS COMBINED FORM 10-K IS SEPARATELY FILED BY HOUSTON INDUSTRIES
INCORPORATED (COMPANY) AND HOUSTON LIGHTING & POWER COMPANY (HL&P).
INFORMATION CONTAINED HEREIN RELATING TO HL&P IS FILED BY THE COMPANY AND
SEPARATELY BY HL&P ON ITS OWN BEHALF. HL&P MAKES NO REPRESENTATION AS TO
INFORMATION RELATING TO THE COMPANY (EXCEPT AS IT MAY RELATE TO HL&P), HOUSTON
INDUSTRIES ENERGY, INC. (HI ENERGY) OR TO ANY OTHER AFFILIATE OR SUBSIDIARY OF
THE COMPANY.

PART I
ITEM 1. BUSINESS.

THE COMPANY AND ITS SUBSIDIARIES

The Company, incorporated in Texas in 1976, is a holding company
operating principally in the electric utility business. For a description of
the Company's status under the Public Utility Holding Company Act of 1935 (1935
Act), see "Regulation of the Company."

HL&P, incorporated in Texas in 1906, is the principal subsidiary of
the Company and is engaged in the generation, transmission, distribution and
sale of electric energy. HI Energy, a subsidiary of the Company formed in
1993, participates in domestic and foreign power generation projects and
invests in the privatization of foreign electric utilities. The business and
operations of HL&P account for substantially all of the Company's income from
continuing operations and common stock equity. For information regarding the
reorganization of the Company's operations into strategic business units, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--Response to Competition" in Item 7 of this Report.

In July 1995, the Company sold its cable television subsidiary, KBLCOM
Incorporated (KBLCOM), to Time Warner Inc. (Time Warner) in exchange for Time
Warner securities recorded at approximately $1 billion and the purchase by Time
Warner of intercompany debt for cash. For information regarding the sale of
KBLCOM, see Note 13 of the Company's Consolidated and HL&P's Financial
Statements in Item 8 of this Report (Financial Statements).

As of December 31, 1995, the Company and its subsidiaries had 8,891
full-time employees.

BUSINESS OF HL&P

SPECIAL FACTORS

HL&P's business and operations are subject to a number of factors
affecting the electric utility industry in general, including increasing levels
of competition; legislative and regulatory changes in the basic rules governing
electric utility operations and the uncertainties associated with such changes;
new technologies; and environmental and nuclear plant contingencies. The
effects of these and other factors on HL&P's business and operations are
described elsewhere in this Report. See "Competition" and "Regulation of the
Company" below and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Certain Factors Affecting Future Earnings of the
Company and HL&P" in Item 7 of this Report.

SERVICE AREA

HL&P's service area covers a 5,000 square mile area on the Texas Gulf
Coast, including Houston (the nation's fourth largest city). HL&P serves
approximately 1.5 million residential,

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<PAGE> 4
commercial and industrial customers. HL&P is a member of the Electric
Reliability Council of Texas, Inc. (ERCOT) and is interconnected to a
transmission grid encompassing most of the state of Texas.

Although the economy of HL&P's service area encompasses a wide range
of products and services, Houston's economy is still centered primarily on
energy sector industries, such as oil firms, petrochemical and refining
complexes, industrial and petrochemical construction firms and natural gas
distribution and processing centers. During the year ended December 31, 1995,
energy sector industries accounted for approximately 35 percent of HL&P's
industrial electric base revenues and 9 percent of its total electric base
revenues. Other important sectors of Houston's economy include the Port of
Houston, the Johnson Space Center and the Texas Medical Center.

SYSTEM CAPABILITY AND LOAD

The following table sets forth information with respect to HL&P's
system capability and load:

<TABLE>
<CAPTION>
Maximum Hourly Firm Demand
------------------------------------
Installed % Change
Net Purchased Total Net From Reserve
Capability Power Capability Prior Margin
Year (MW) (MW)(1) (MW) Date MW (2) Year (%)
- ---- ----------- ------------ ------------ -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 13,583 945 14,528 Aug. 21 10,908 (2.2) 33.2
1992 13,583 945 14,528 Jul. 30 10,783 (1.1) 34.7
1993 13,679 945 14,624 Aug. 19 11,397 5.7 28.3
1994 13,666 720 14,386 Jun. 28 11,245 (1.3) 27.9
1995 13,921 445 14,366 Jul. 27 11,419 1.5 25.8
- -------------------
</TABLE>
(1) Reflects firm capacity purchased. For additional information on
purchased power commitments, see "Fuel--Purchased Power" below.

(2) Does not include interruptible load. Including interruptible demand,
the maximum hourly demand served in 1995 was 12,377 megawatts (MW)
compared to 12,009 MW in 1994.

Based on present trends, HL&P expects maximum hourly firm demand for
electricity to grow at a compound annual rate of approximately 1.5 percent over
the next ten years. Assuming average weather conditions and including the net
effects of HL&P's demand-side management (DSM) programs, HL&P projects that its
reserve margins will decrease from an estimated 25.5 percent in 1996 to an
estimated 17.4 percent in 2000. For long-term planning purposes, HL&P intends
to maintain reserve margins at approximately 15 percent in excess of maximum
hourly firm demand load requirements.

HL&P experiences significant seasonal variation in its sales of
electricity. Sales during the summer months are higher than sales during other
months of the year due, in large part, to the reliance on air conditioning.
See Note 15 to the Financial Statements for a presentation of certain unaudited
quarterly financial information for 1994 and 1995.

<PAGE> 5
COMPETITION

Competition in the electric utility industry is affected by a number
of variables, including price, reliability of service, the cost of energy
alternatives and the impact of governmental regulations.

The electric utility industry historically has been composed of
vertically integrated companies that have largely been the exclusive provider
of electric service within a governmentally-defined geographic area. Prices
for that service have been set by governmental authorities under principles
designed to provide the utility with an opportunity to recover its cost of
providing electric service plus a reasonable return on its invested capital.
Federal legislation, such as the Public Utility Regulatory Policy Act of 1978
(PURPA) and the Energy Policy Act of 1992 (Energy Policy Act), as well as
legislative and regulatory initiatives in various states have encouraged
competition among electric utility and non-utility owned power generators.
These developments, combined with increasing demand for lower-priced
electricity, technological advances in electric generation and relatively low
natural gas prices, are acting to accelerate the electric utility industry's
movement toward more competition.

WHOLESALE MARKET AND TRANSMISSION ACCESS. The adoption of PURPA
contributed to the development of new non-utility sources of electric
generation by freeing cogenerators (facilities which produce electric energy
along with thermal energy used for industrial processes, usually the generation
of steam) from most of the regulatory constraints applicable to traditional
utilities, such as state rate regulation and federal regulation under the
Federal Power Act and the 1935 Act. Since 1978 cogeneration projects
representing over 5,000 MW in generating capability (which is equal to
approximately one-third of HL&P's current total peak generating capability)
have been built in the Houston area. As a consequence of this development,
HL&P estimates that it has lost approximately 2,500 MW in customer load to
self-generation resulting from such projects. It is anticipated that HL&P's
industrial customers may continue to consider additional self-generation
projects in the future. In 1995, approximately 9 percent of HL&P's total base
revenues were derived from large industrial customers owning industrial or
other facilities. An additional 15 percent of such revenues was derived from
small industrial customers (including retail stores, office buildings and other
customers not associated with large industrial plants). For information
regarding electricity purchased by HL&P from PURPA-qualified facilities, see
"Fuel--Purchased Power" below.

The Energy Policy Act created another category of non-utility
generators, exempt wholesale generators (EWGs). Like cogenerators, EWGs are
permitted to sell electric energy at wholesale, but unlike cogenerators, EWGs
may generate electricity without regard to the simultaneous production of
thermal energy. The most significant benefit of EWG status is that ownership
of one or more EWGs does not trigger regulation under the 1935 Act. Although
the Energy Policy Act permits exempt public utility holding companies to form
EWGs, the Energy Policy Act imposes significant limitations on the ability of
utilities to purchase power in their own service territories from an affiliated
EWG.

The Energy Policy Act also authorizes the Federal Energy Regulatory
Commission (FERC) to require utilities to provide transmission services to EWGs
and other generators upon request if

5
<PAGE> 6
FERC finds that such transmission would be in the public interest and would not
unreasonably impair the continued reliability of affected electric systems. In
March 1995, the FERC issued a Notice of Proposed Rulemaking proposing to
require all public utilities owning or controlling transmission facilities to
file open-access tariffs and to take transmission and ancillary services for
their own wholesale needs under such tariffs. Because HL&P conducts its
operations entirely within the state of Texas, it does not believe that the
proposed FERC rule will be applicable to its transmission system operations.

In 1995, the Texas legislature reenacted the Texas Public Utility
Regulatory Act (PURA), the basic statute governing the regulation of electric
utilities in Texas. The reenacted version of PURA includes provisions
intended, among other things, to establish a regulatory system for competitive
wholesale electric sales in the state of Texas (including authorization for
EWGs and power marketers to engage in such sales without regulation as electric
utilities). In 1995, HL&P's wholesale sales accounted for less than 1 percent
of its total 1995 revenues.

In February 1996, the Public Utility Commission of Texas (Utility
Commission) adopted a new transmission access and pricing rule requiring that
utilities offer third parties open access to utility-owned transmission systems
at rates and on terms and conditions comparable to those available to
transmission-owning utilities. To ensure comparability, the Utility Commission
is requiring utilities to functionally unbundle their wholesale power marketing
operations from the operation of the transmission grid. The rule requires that
utilities separately disclose their costs of generation, transmission and
distribution for purposes of transmission pricing. The rule also implements a
transmission pricing methodology by which all transmission loads are assessed a
facilities charge for transmission usage. For a discussion of the rule and its
financial impact on HL&P, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Certain Factors Affecting Future
Earnings of the Company and HL&P--Competition" in Item 7 of this Report.

RETAIL COMPETITION. Although neither federal nor Texas law
currently permits retail sales by unregulated entities, such as cogenerators or
EWGs, HL&P anticipates that cogenerators and EWGs will continue to exert
pressure to obtain access to the electric transmission and distribution systems
of regulated utilities for the purpose of making retail sales to customers of
regulated utilities.

UTILITY COMMISSION REPORTS ON COMPETITION AND STRANDED INVESTMENT. By
January 1997, the Utility Commission is required to deliver a report to the
Texas legislature on the scope of competition in Texas electric markets and the
impact of competition and industry restructuring on customers in both
competitive and non-competitive markets (including further legislative
recommendations to promote the public interest in such markets). In preparing
its reports, the Utility Commission has initiated projects to consider issues
relating to the scope of competition in the electric utility industry and to
address the potential impact of "stranded cost investment." In this
connection, the Utility Commission has indicated that it will require each
Texas electric utility to file in June 1996 a calculation of its total stranded
investment exposure. As of March 1996, the Utility Commission has not
finalized the methodology or assumptions to be used for calculating stranded
cost investments. HL&P is not able to predict either the outcome of the
Utility

6
<PAGE> 7
Commission's review of stranded cost investment issues or the ultimate impact
of such review on HL&P's results of operations.

For additional information on competition in the electric utility
industry, stranded cost issues and the Company and HL&P's continuing efforts to
respond to competition (including a recent reorganization of the Company's and
HL&P's operations into strategic business units), see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Certain Factors
Affecting Future Earnings of the Company and HL&P--Competition" in Item 7 of
this Report and Note 1(b) to the Financial Statements.

CAPITAL PROGRAM

HL&P has an ongoing program to maintain its existing production,
transmission and distribution facilities and to expand its physical plant in
response to customer needs. Assuming a target reserve margin of 15%, HL&P does
not currently forecast a need for additional capacity until the year 2002.
Thereafter, HL&P intends to satisfy its additional needs through the
construction of new facilities at existing HL&P plant sites, the development of
cogeneration projects or purchased power. Under an integrated resource
planning rule required to be adopted by the Utility Commission no later than
the fall of 1996, it is expected that Texas utilities will be required to
conduct public solicitations for generating capacity to satisfy their future
energy needs.

In 1995, HL&P's capital and nuclear fuel expenditures were
approximately $392 million, excluding Allowance for Funds Used During
Construction (AFUDC). HL&P's capital program (excluding AFUDC) is currently
estimated to cost approximately $387 million in 1996, $301 million in 1997 and
$328 million in 1998. HL&P's capital program for the three-year period 1996
through 1998 consists primarily of improvements to its existing electric
generating, transmission and distribution facilities. For the three-year
period 1996 through 1998, HL&P's projected capital program consists of the
following estimated principal expenditures:

<TABLE>
<CAPTION>
Amount Percent of Total
(millions) Expenditures
---------- ------------
<S> <C> <C>
Generating facilities . . . . . . . . . . . . . $ 271 26%
Transmission facilities . . . . . . . . . . . . 37 4%
Distribution facilities . . . . . . . . . . . . 348 34%
Substation facilities . . . . . . . . . . . . . 68 7%
General plant facilities . . . . . . . . . . . . 230 23%
Nuclear fuel . . . . . . . . . . . . . . . . . . 62 6%
-------- ----

Total . . . . . . . . . . . . . . . . . . . $ 1,016 100%
======== ====

</TABLE>
Actual capital expenditures will vary from estimates as a result of
numerous factors, including, but not limited to, changes in the rate of
inflation, availability and relative cost of fuels and purchased power, changes
in environmental laws, regulatory and legislative changes and the effect of
regulatory proceedings. For information regarding expenditures associated with
(i) HL&P's share of nuclear fuel costs and (ii) environmental programs, see
"Fuel--Nuclear Fuel--Supply" and "Regulatory Matters--Environmental Quality"
below.

7
<PAGE> 8
FUEL

Based upon various assumptions relating to the cost and availability
of fuels, plant operation schedules, load growth, load management and
environmental protection requirements, HL&P's estimate of its future energy mix
is as follows:

<TABLE>
<CAPTION>
Energy Mix (%)
----------------------------------------------------
Historical ------------ Estimated -------------
1995 1996 1998 2000
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Gas . . . . . . . . . . . . . . . . . . 32 34 39 42
Coal and Lignite . . . . . . . . . . . . 43 41 42 40
Nuclear . . . . . . . . . . . . . . . . 9 9 7 8
Purchased Power (cogeneration) . . . . . 16 16 12 10
--- --- --- ---

Total . . . . . . . . . . . . . 100 100 100 100
=== === === ===
</TABLE>

There can be no assurance that the various assumptions upon which the
estimates set forth in the table above are based will prove to be correct.
Accordingly, HL&P's actual energy mix in future years may vary from the
percentages shown in the table. For information regarding HL&P's fuel costs,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Fuel and Purchased Power Expense--HL&P" in Item 7 of this Report
and Note 11(b) to the Financial Statements.

NATURAL GAS SUPPLY. During 1995, HL&P purchased approximately 71
percent of its natural gas requirements pursuant to long-term contracts having
terms of five years or longer. HL&P purchased the remaining 29 percent of its
natural gas requirements in the spot market. In 1995, no individual supplier
provided more than 24 percent of HL&P's total natural gas requirements.
Substantially all of HL&P's natural gas supply contracts contain pricing
provisions based on fluctuating spot market prices.

Based on the current market for, and availability of, natural gas,
HL&P believes that it will be able to replace the supplies of natural gas
covered under its present long-term contracts with gas purchased in the spot
market or under short-term contracts as such long-term contracts expire.
HL&P's average daily gas consumption during 1995 was 602 billion British
Thermal Units (BBtu) with peak daily consumption of 1,328 BBtu. HL&P's average
cost of natural gas in 1995 was $1.69 per million British thermal units
(MMBtu), $1.90 per MMBtu in 1994 and $2.21 per MMBtu in 1993.

Although natural gas has been relatively plentiful in recent years,
supplies available to HL&P and other consumers are vulnerable to disruption due
to weather conditions, transportation disruptions, price changes and other
events. As a result of these factors, supplies of natural gas may become
unavailable from time to time, or prices may increase rapidly in response to
temporary supply disruptions or other factors.

COAL AND LIGNITE SUPPLY. HL&P purchases approximately three-fourths
of the coal required to operate its four coal-fired units at the W. A. Parish
Electric Generating Station (W. A. Parish) under two long-term contracts from
mines in the Powder River Basin area of Wyoming.

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<PAGE> 9
The first of these contracts expires in 2008, and the other expires in 2010.
HL&P obtains the remaining coal required to operate these units under
short-term contracts. Based on current market conditions, HL&P believes that
it will be able to enter into new coal contracts with other suppliers as such
long-term contracts expire. Coal is transported to the W. A. Parish
coal-handling facilities under long-term and short-term rail transportation
contracts.

HL&P obtains the lignite used to fuel the two units of the Limestone
Electric Generating Station (Limestone) from a surface mine adjacent to the
plant. HL&P owns the mining equipment, facilities and a portion of the lignite
leases at the mine, which is operated under long-term contract. The lignite
reserves currently under lease and contract are expected to provide
substantially all of the fuel requirements for Limestone through 2015.

The mining of coal/lignite reserves is subject to federal and state
requirements with respect to the development and operation of coal mines, and
to state and federal regulations relating to land reclamation and environmental
protection.

NUCLEAR FUEL. Supply. HL&P is the project manager (and one of four
co-owners) of the South Texas Project Electric Generating Station (South Texas
Project). The supply of fuel for nuclear generating facilities involves the
acquisition of uranium concentrates, conversion of such concentrates into
uranium hexafluoride, enrichment of the uranium hexafluoride and fabrication of
nuclear fuel assemblies. The South Texas Project fuel requirements are
procured in common by the South Texas Project owners. HL&P and the other South
Texas Project owners have on-hand or have contracted for the raw materials and
services they expect to need for operation of the South Texas Project units
through the years shown in the following table:

Uranium . . . . . . . . . . . . . . . . 2000 (1)
Conversion . . . . . . . . . . . . . . . 2000 (1)
Enrichment . . . . . . . . . . . . . . 2014 (2)
Fabrication . . . . . . . . . . . . . . 2005

(1) Contracts provide for up to 50 percent of the uranium concentrates
required and up to 100 percent of the conversion services required.
The balance of uranium concentrates requirements (and any conversion
services not purchased under existing contracts) is expected to be
provided by future spot and medium-term contracts.

(2) The South Texas Project has suspended its enrichment services contract
for the period between October 2000 through September 2005 pursuant to
an option available under such contract. During this period, the
South Texas Project intends to obtain such services through a
competitive bidding process.

Although HL&P and the other South Texas Project owners cannot predict
the future availability of uranium and related services, they do not
anticipate, based on current market conditions, difficulty in obtaining
requirements for the remaining years of the South Texas Project's operations.

Spent Fuel Disposal. By contract, the United States Department of
Energy (DOE) has committed itself to ultimately taking possession of all spent
fuel generated by the South Texas

9
<PAGE> 10
Project. HL&P has been advised that the DOE plans to place the spent fuel in a
permanent underground storage facility (located near Yucca, Nevada). The DOE
contract currently requires payment of a spent fuel disposal fee on nuclear
plant-generated electricity of one mill (one-tenth of a cent) per net
kilowatt-hour (KWH) sold. This fee is subject to adjustment to ensure full cost
recovery by the DOE. Although the DOE's efforts to arrange long-term disposal
have been unsuccessful to date, the South Texas Project is designed to have
sufficient on-site storage facilities to accommodate over 40 years of spent fuel
disposal for each unit.

Enrichment Decontamination and Decommissioning Assessment Fees. The
Energy Policy Act includes a provision that assesses a fee upon domestic
utilities that purchased nuclear fuel enrichment services from the DOE before
October 24, 1992. This fee covers a portion of the cost to decontaminate and
decommission facilities providing for such enrichment services. In 1995, the
South Texas Project assessment was approximately $1.9 million and will be
approximately $2 million in 1996 and each year thereafter (subject to
escalation for inflation). HL&P's share of such fees is 30.8 percent. These
assessments will continue until the earlier of October 24, 2007, or when $2.25
billion (adjusted for inflation) has been collected from domestic utilities
with nuclear generating units. HL&P has a remaining estimated liability of $7
million for such assessments.

OIL SUPPLY. HL&P maintains limited fuel oil stocks to satisfy fuel
needs in emergency situations. In addition, certain of HL&P's gas-fired
generating plants are designed to operate on fuel oil if oil becomes more
economical to use than gas.

PURCHASED POWER. At December 31, 1995, HL&P had contracts covering
445 MW of firm capacity and associated energy. These contracts expire as
follows: 1998 - 125 MW and 2005 - 320 MW. Capacity payments under HL&P's firm
purchased power commitments for the next three years are approximately $22
million per year. The two principal firm capacity contracts contain provisions
allowing HL&P to suspend or reduce purchased power payments in the event that
the Utility Commission disallows future recovery of these costs through HL&P's
rates for electric service.

RECOVERY OF FUEL COSTS. Utility Commission rules provide for the
recovery of certain fuel and purchased power energy costs through a fixed fuel
factor included in electric rates. The fixed fuel factor is established during
either a utility's general rate proceeding or a fuel factor proceeding and is
to be generally effective for a minimum of six months. In any event, a
reconciliation of the fuel revenues and the fuel costs is required every three
years. HL&P can request a revision to its fuel factor in April and October of
each year. Fuel revenues accrued pursuant to such factor are adjusted monthly
to equal fuel expenses; therefore, such revenues and expenses have no effect on
earnings unless fuel costs are determined not to be recoverable. The adjusted
over/under recovery of fuel costs is recorded on HL&P's balance sheets as
fuel-related credits and fuel costs are reviewed during periodic fuel
reconciliation proceedings. For additional information regarding the recovery
of fuel costs, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--HL&P--Operating Revenues and Sales--HL&P" in Item 7
of this Report.

10
<PAGE> 11
REGULATORY MATTERS

RATES AND SERVICES. HL&P operates under a certificate of convenience
and necessity granted by the Utility Commission which covers HL&P's present
service area and facilities. In addition, HL&P holds franchises to provide
electric service within the incorporated municipalities in its service
territory. None of such franchises expires before 2007.

Under PURA, the Utility Commission has original jurisdiction over
electric rates and services in unincorporated areas of the state of Texas and
in the incorporated municipalities that have relinquished original
jurisdiction. Original jurisdiction over electric rates and services in the
remaining incorporated municipalities served by HL&P is exercised by such
municipalities, including Houston, but the Utility Commission has appellate
jurisdiction over electric rates and services within those incorporated
municipalities.

UTILITY COMMISSION RATE PROCEEDINGS. During 1995, HL&P implemented
under the terms of a settlement of its 1995 rate case (Docket No. 12065) a
reduction in its base rates (Rate Case Settlement). For a more detailed
description of the terms of the Rate Case Settlement, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--Rate Matters and Other Contingencies" in Item 7 of this Report and Note
3(a) to the Financial Statements.

ENVIRONMENTAL QUALITY. HL&P is subject to a number of federal, state
and local environmental requirements that govern its discharge of emissions
into the air and water and regulate its handling of solid and hazardous waste.
HL&P has incurred substantial expenditures in the past to comply with these
requirements and anticipates that further expenditures will be incurred in the
future. Most of the environmental requirements applicable to HL&P are
implemented by the Texas Natural Resource Conservation Commission (TNRCC),
which shares regulatory jurisdiction with the United States Environmental
Protection Agency (EPA).

Air Quality. A major provision of the Federal Clean Air Act (Clean
Air Act) affecting electric utilities, like HL&P, is the Acid Rain Program,
which is designed to reduce emissions of sulfur dioxide (SO2) from electric
utility generating units. The Acid Rain Program requires that after a certain
date a utility must have been granted a regulatory "allowance" for each ton of
SO2 emitted from its facilities. Allowances have been distributed to utilities
by the EPA based on their historic operations. If a utility is not allocated
sufficient allowances to cover its future SO2 emissions, it must either
purchase allowances from other utilities or reduce SO2 emissions from its units
through the installation of additional controls and equipment. HL&P believes
that it has been allocated a sufficient number of emission allowances for it to
continue operating its existing facilities for the foreseeable future.

Provisions of the Clean Air Act dealing with urban air pollution
require establishing new emission limitations for nitrogen oxides (NOx) from
existing sources. Initial limitations were finalized in 1993, but the
implementation of these emission reductions has been delayed by the EPA and
TNRCC until 1999. The cost of modifications to HL&P in 1995 was approximately
$1 million. Up to an additional $40 million may be incurred by HL&P in order
to fully comply with new NOx requirements through 1999.

11
<PAGE> 12
Additionally, to ensure compliance with these new regulatory programs,
the Clean Air Act requires electric utilities to install continuous emission
monitoring equipment, which cost HL&P approximately $3 million in 1995 and is
expected to cost an additional $1 million in 1996. To implement these new
Clean Air Act programs, a new Operating Permit Program was established that
will be administered in Texas by the TNRCC. Among other requirements, the
Operating Permit Program is funded by fees imposed by the TNRCC. The annual
cost of these fees to HL&P is approximately $1 million.

Water Quality. The Federal Clean Water Act governs the discharge of
pollutants into surface waters and is administered jointly in Texas by the
TNRCC and the EPA. HL&P has obtained permits from both the TNRCC and the EPA
for all of its facilities that require such permits and anticipates obtaining
renewal of such permits as they expire.

Solid and Hazardous Waste. HL&P's handling and disposal of solid
waste is also subject to regulation by the TNRCC. HL&P's cost in 1995 for
commercial disposal of industrial solid waste was approximately $2.3 million.

Electric and Magnetic Fields. The issue of whether exposure to
electric and magnetic fields (EMFs) may result in adverse health effects or
damage to the environment is currently being debated. EMFs are produced by all
devices which carry or use electricity, including home appliances as well as
electric transmission and distribution lines. Results of studies concerning
the effect of EMFs have been inconclusive and EMFs are not the subject of any
federal, state or local regulations affecting HL&P. However, lawsuits have
arisen in several states (including Texas) against electric utilities and
others alleging that the presence or use of electric power transmission and
distribution lines has an adverse effect on health and/or property values.

FEDERAL REGULATION OF NUCLEAR POWER. Under the 1954 Atomic Energy Act
and the 1974 Energy Reorganization Act, operation of nuclear plants is
extensively regulated by the United States Nuclear Regulatory Commission (NRC),
which has broad power to impose licensing and safety requirements. In the
event of non-compliance, the NRC has the authority to impose fines or shut down
nuclear plants, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved.

LOW-LEVEL RADIOACTIVE WASTE DISPOSAL. The 1980 federal Low-Level
Radioactive Waste Policy Act directed states to assume responsibility for the
disposal of low-level nuclear waste generated within their borders. Under the
Act, states may combine with other states and seek consent from Congress for
regional compacts to construct and operate low- level nuclear waste sites. As
of March 1, 1996, there existed in the United States only two facilities
licensed to receive commercial low-level nuclear waste. Only one such
facility, located in Barnwell, South Carolina, is currently available to the
South Texas Project. The South Texas Project has entered into a contract with
the operator of the Barnwell facility to dispose of all of its low-level
nuclear waste through September 1997.

12
<PAGE> 13
The Texas Low-Level Radioactive Waste Disposal Authority (Waste
Disposal Authority) is currently seeking authority to build and operate a
low-level waste disposal facility in Hudspeth County, Texas. A bill that
establishes an interstate compact among Texas, Maine and Vermont is currently
pending before Congress. Ratification of the compact would limit access to the
proposed facility to the three compact members. Although lack of Congressional
action would not prohibit the Waste Disposal Authority from constructing the
site unilaterally, failure to ratify the compact would result in the loss of
contributions from Maine and Vermont toward the construction of the facility.
HL&P expects that the measure will be considered by Congress in mid-1996.

The Waste Disposal Authority is authorized to assess a planning and
implementation fee to waste generators to fund development of the proposed
Texas disposal facility. For the authority's 1995 fiscal year, HL&P's share of
this assessment fee was approximately $1.3 million. Assuming Congress
ultimately approves the proposed compact, HL&P estimates that its share of
these fees for 1996 will be approximately $1.2 million. Subject to licensing
of the facility in 1996, the Waste Disposal Authority estimates that the Texas
site (construction of which has not yet begun) could begin receiving waste in
late 1997. In the event the Barnwell facility stops accepting waste before the
Texas site is opened, the South Texas Project would store its waste in an
interim storage facility located at the nuclear plant. The plant currently has
storage capacity for a minimum of five years of low-level nuclear waste
generated by the project.

NUCLEAR INSURANCE AND NUCLEAR DECOMMISSIONING

For information concerning nuclear insurance and nuclear
decommissioning, see Notes 2(c) and 2(d) to the Financial Statements.

LABOR MATTERS

As of December 31, 1995, HL&P had 8,641 full-time employees of whom
3,420 were hourly-paid employees represented by the International Brotherhood
of Electrical Workers under a collective bargaining agreement which expires on
May 25, 1998.

13
<PAGE> 14
OPERATING STATISTICS OF HL&P
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- --------- ----------

<S> <C> <C> <C>
Electric Energy Generated and Purchased (MWH):
Generated -- Net Station Output . . . . . . . . . 53,447,128 53,894,994 52,939,551
Purchased . . . . . . . . . . . . . . . . . . . . 10,452,818 10,107,449 11,113,971
Net Interchange . . . . . . . . . . . . . . . . . (1,488) (1,018) (282)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 63,898,458 64,001,425 64,053,240
Company Use, Lost and Unaccounted for Energy . . . (2,822,876) (2,678,629) (2,903,780)
---------- ---------- ----------
Total Energy Sold . . . . . . . . . . . . . . . 61,075,582 61,322,796 61,149,460
========== ========== ==========

Electric Sales (MWH):
Residential . . . . . . . . . . . . . . . . . . . 18,103,209 17,194,724 16,953,667
Commercial . . . . . . . . . . . . . . . . . . . . 14,233,413 13,631,381 13,083,391
Small Industrial (1) . . . . . . . . . . . . . . . 11,174,404 10,940,813 11,038,653
Large Industrial (1) . . . . . . . . . . . . . . . 12,493,029 13,537,677 13,648,129
Street Lighting -- Government and Municipal . . . 117,253 116,643 112,914
---------- ---------- -----------
Total Firm Retail Sales . . . . . . . . . . . . 56,121,308 55,421,238 54,836,754
Other Electric Utilities . . . . . . . . . . . . . 169,750 167,286 223,204
---------- ---------- -----------
Total Firm Sales . . . . . . . . . . . . . . . 56,291,058 55,588,524 55,059,958
Interruptible . . . . . . . . . . . . . . . . . . 4,093,385 5,027,743 5,748,086
Off-System . . . . . . . . . . . . . . . . . . . . 691,139 706,529 341,416
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 61,075,582 61,322,796 61,149,460
========== ========== ==========

Number of Customers (End of Period):
Residential . . . . . . . . . . . . . . . . . . . 1,327,168 1,301,074 1,278,774
Commercial . . . . . . . . . . . . . . . . . . . . 175,998 170,959 168,284
Small Industrial (1) . . . . . . . . . . . . . . . 1,543 1,525 1,568
Large Industrial (Including Interruptible) (1) . . 127 145 138
Street Lighting -- Government and Municipal . . . 82 81 82
Other Electric Utilities (Including Off-System) . 11 11 12
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 1,504,929 1,473,795 1,448,858
========== ========== ===========

Operating Revenue (Thousands of Dollars):
Residential . . . . . . . . . . . . . . . . . . . $1,471,702 $1,586,074 $1,578,175
Commercial . . . . . . . . . . . . . . . . . . . . 923,223 1,029,104 994,461
Small Industrial (1) . . . . . . . . . . . . . . . 564,609 643,383 650,946
Large Industrial (1) . . . . . . . . . . . . . . . 431,499 541,188 539,971
Street Lighting -- Government and Municipal . . . 20,679 25,902 24,258
---------- ---------- -----------
Total Electric Revenue -- Firm Retail Sales . . 3,411,712 3,825,651 3,787,811
Other Electric Utilities . . . . . . . . . . . . . 22,207 25,669 26,154
---------- ---------- -----------
Total Electric Revenue -- Firm Sales . . . . . 3,433,919 3,851,320 3,813,965
Interruptible . . . . . . . . . . . . . . . . . . 81,707 108,730 135,066
Off-System . . . . . . . . . . . . . . . . . . . . 12,250 13,691 7,313
---------- ---------- -----------
Total Electric Revenue . . . . . . . . . . . . 3,527,876 3,973,741 3,956,344
Miscellaneous Electric Revenues . . . . . . . . . 152,421 (227,656) 123,519
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . $3,680,297 $3,746,085 $4,079,863
========== ========== ==========

Installed Net Generating Capability (KW) 13,921,370 13,666,000 13,679,000
(End of Period) . . . . . . . . . . . . . . . . .

Cost of Fuel (Cents per MMBtu):
Gas . . . . . . . . . . . . . . . . . . . . . . . 168.5 189.8 221.4
Coal (2) . . . . . . . . . . . . . . . . . . . . . 202.5 159.0 199.6
Lignite . . . . . . . . . . . . . . . . . . . . . 124.8 110.8 122.1
Nuclear . . . . . . . . . . . . . . . . . . . . . 58.2 57.4 59.6
Average . . . . . . . . . . . . . . . . . . . . 159.3 153.6 195.2
</TABLE>

(1) For reporting purposes, HL&P classifies customers with an electric
demand in excess of 600 KVA as industrial. Small industrial
customers typically are retail stores, office buildings, universities
and other customers not associated with large industrial plants.
(2) The cost of coal for 1994 reflects the receipt of approximately $66.1
million related to the sale of certain railroad settlement payments.
See Note 14 to the Financial Statements.

<PAGE> 15
BUSINESS OF HI ENERGY

The Company formed HI Energy in 1993 to seek investment opportunities
in domestic and foreign power generation projects and the privatization of
foreign electric utilities.

HI Energy's major foreign investments include a 90 percent interest in
an electric utility operating in north-central Argentina (acquired in 1995 for
$15.7 million), and a 17 percent indirect interest in an electric utility
operating in La Plata, Argentina (for which HI Energy's share of the purchase
price in 1992 was $37.4 million). In late 1997, a subsidiary of HI Energy
expects to complete development of a 160 MW cogeneration facility in Argentina
at an estimated cost to HI Energy of approximately $92 million. In 1998, a
subsidiary of HI Energy, together with various other investors, expects to
complete development of a petroleum coke calcination facility in the state of
Andhra Pradesh, India. The waste gases from this facility will be used to
generate electricity for sale to industrial customers and a local utility.
Assuming the project is completed on schedule, HI Energy's estimated share of
the cost of this project is approximately $8 million. HI Energy also owns an
indirect interest in two waste tire-to-energy projects located in the state of
Illinois (in which it has made investments and advances totaling approximately
$28 million).

For the year ended December 31, 1995, HI Energy had a consolidated net
loss of approximately $33 million. The net loss includes an $18 million
after-tax charge to earnings resulting from the adverse impact of legislation
adopted by the state of Illinois on the operations of the two HI Energy waste
tire-to-energy projects located in that state. For additional information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--HI Energy" in Item 7 of this Report and Notes 1(a) and 4 to the Financial
Statements. Although HI Energy seeks to improve long-term shareholder returns,
HI Energy's operations are subject to greater risks than traditionally have
existed in HL&P's regulated operations. Such risks include foreign investment
risks, currency fluctuations, expropriation, intense competition for the
identification and development of projects and the risk of adverse legislation
or regulatory action.

As of December 31, 1995, HI Energy and its U.S. majority-owned
subsidiaries had 61 full-time employees of whom 14 were represented by a union.

15
<PAGE> 16
REGULATION OF THE COMPANY

FEDERAL

The Company is a holding company as defined in the 1935 Act; however,
based upon the intrastate operations of HL&P and the exemptions applicable to
the affiliates of HI Energy, the Company is exempt from regulation as a
"registered" holding company under the 1935 Act except with respect to the
acquisition of voting securities of other domestic public utility companies and
utility holding companies. The Company has no present intention of entering
into any transaction which would cause it to become a registered holding
company subject to regulation by the Securities and Exchange Commission (SEC)
under the 1935 Act.

In June 1995, the SEC issued a comprehensive report on the regulation
of utility holding companies in which it recommended repeal of the 1935 Act,
subject to a minimum one-year transition period and legislation that would
provide for access by state commissions to the books and records of holding
companies and their affiliates and oversight by the FERC of intrasystem
transactions. At least one bill has since been introduced in Congress which
would implement most of the SEC's recommendations. Repeal or significant
modification of the 1935 Act could have a significant effect on the electric
utility industry.

STATE

The Company is not subject to regulation by the Utility Commission
under PURA or by the incorporated municipalities served by HL&P. Those
regulatory bodies do, however, have authority to review accounts, records and
contracts relating to transactions by HL&P with the Company and its other
subsidiaries.

The exemption for foreign utility affiliates of the Company from
regulation under the 1935 Act as "public utility companies" is dependent upon
certification by the Utility Commission to the SEC to the effect that it has
the authority to protect HL&P's ratepayers from any adverse consequences of the
Company's investment in foreign utilities and that it intends to exercise its
authority. The Utility Commission has provided such certification to the SEC
subject, however, to its being revised or withdrawn by the Utility Commission
as to any future acquisition. In January 1996, the Utility Commission adopted
a rule specifying the procedures for granting certification to the SEC
regarding foreign utility investments and establishing reporting requirements
for exempt holding companies (like the Company) intended to provide the Utility
Commission with information relevant to its granting or maintaining the
certification. Among other things, the Company is now required to notify the
Utility Commission in the event that its aggregate investment in foreign EWGs
and utility companies exceeds 30 percent of the Company's consolidated net
worth or if the Company's operating losses attributable to its direct or
indirect investments exceeds 5 percent of consolidated retained earnings during
the previous four quarters.

16
<PAGE> 17
EXECUTIVE OFFICERS OF THE COMPANY (1)
As of March 1, 1996

<TABLE>
<CAPTION>
Officer
Name Age(2) Since Business Experience 1991-1996 and Positions
---- ------ ------- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Don D. Jordan . . . . . . . . . . 63 1976 Chairman and Chief Executive 1993-
Officer and Director
Chairman, President and Chief 1991-1993
Executive Officer and Director
Chairman and Chief Executive 1991-
Officer and Director - HL&P

Hugh Rice Kelly . . . . . . . . . 53 1984 Senior Vice President, General 1994-
Counsel and Corporate Secretary
Vice President, General Counsel 1991-1994
and Corporate Secretary
Senior Vice President, General 1991-
Counsel and Corporate Secretary
- HL&P

Lee W. Hogan . . . . . . . . . . 51 1990 Senior Vice President and Director 1996-
Vice President and Director 1995-1996
Vice President 1993-1995
President and Chief Operating 1993-
Officer - HI Energy
Group Vice President - 1991-1993
External Affairs - HL&P

R. Steve Letbetter . . . . . . . 47 1978 Senior Vice President and Director 1996-
Vice President and Director 1995-1996
Vice President 1993-1995
President and Chief 1993-
Operating Officer - HL&P
Group Vice President - Finance 1991-1993
and Regulatory Relations - HL&P

Stephen W. Naeve . . . . . . . . 48 1988 Senior Vice President and Chief 1996-
Financial Officer
Vice President - Strategic Planning 1993-1996
and Administration
Vice President - Corporate Planning 1991-1993
and Treasurer - HL&P

Mary P. Ricciardello . . . . . . 40 1993 Vice President and Comptroller 1996-
Vice President and Comptroller 1996-
- HL&P
Comptroller 1993-1996
Assistant Corporate Secretary 1991-1993
and Assistant Treasurer - HL&P
- --------------------
</TABLE>
(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to
occur on May 22, 1996 and until their successors qualify.

(2) At December 31, 1995.

17
<PAGE> 18
EXECUTIVE OFFICERS OF HL&P (1)(2)
As of March 1, 1996

<TABLE>
<CAPTION>
Officer
Name Age(3) Since Business Experience 1991-1996 and Positions
---- ------ ------- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Don D. Jordan . . . . . . . . . . 63 1971 Chairman and Chief Executive 1991-
Officer and Director

R. Steve Letbetter . . . . . . . 47 1978 President and Chief Operating Officer
and Director 1995-
President and Chief Operating Officer 1993-1995
Group Vice President - Finance 1991-1993
and Regulatory Relations

William T. Cottle . . . . . . . . 50 1993 Executive Vice President and General 1996-
Manager - Nuclear
Group Vice President - Nuclear 1993-1996
Vice President - Operations - 1991-1993
Grand Gulf Nuclear Station,
Entergy Operations, Inc.

Jack D. Greenwade . . . . . . . . 56 1982 Senior Vice President and Assistant 1996-
to the President
Group Vice President - Operations 1991-1996

Hugh Rice Kelly . . . . . . . . . 53 1984 Senior Vice President, General 1991-
Counsel and Corporate Secretary

David M. McClanahan . . . . . . . 46 1986 Executive Vice President and General 1996-
Manager - Energy Delivery and
Customer Services
Group Vice President - Finance 1993-1996
and Regulatory Relations
Senior Vice President and Chief 1991-1993
Financial Officer - KBLCOM
Vice President, Finance and 1991
Administration - KBLCOM
Vice President and Comptroller 1991
- Company

Stephen C. Schaeffer . . . . . . 48 1989 Executive Vice President - Shared 1996-
Services and Financial and
Regulatory Affairs
Senior Vice President - Treasurer - 1993-1996
HI Energy
Group Vice President - Administration 1992-1993
and Support
Vice President - Regulatory Relations 1991-1992

Robert L. Waldrop . . . . . . . 48 1988 Senior Vice President - Marketing and 1996-
Customer Services
Group Vice President - External Affairs 1993-1996
Vice President - Public and 1992-1993
Customer Relations
Vice President - Public Affairs 1991-1992

Mary P. Ricciardello . . . . . . 40 1993 Vice President and Comptroller 1996-
Vice President and Comptroller 1996-
- Company
Comptroller - Company 1993-1996
Assistant Corporate Secretary 1991-1993
and Assistant Treasurer
- -------------------

</TABLE>

18
<PAGE> 19
(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 22, 1996 and until
their successors qualify.

(2) For the purposes of the requirements of this Report, the HL&P officers
listed may also be deemed to be executive officers of the Company.

(3) At December 31, 1995.

19
<PAGE> 20
ITEM 2. PROPERTIES.

The Company considers its property and the property of its
subsidiaries to be well maintained, in good operating condition and suitable
for their intended purposes.

HL&P

All of HL&P's electric generating stations and all of the other
operating properties of HL&P are located in the state of Texas.

ELECTRIC GENERATING STATIONS. As of December 31, 1995, HL&P owned 12
electric generating stations (62 generating units) with a combined turbine
nameplate rating of 13,544,608 kilowatts (KW), including a 30.8 percent
interest in one nuclear generating station (two units) with a combined turbine
nameplate rating of 2,623,676 KW.

SUBSTATIONS. As of December 31, 1995, HL&P owned 203 major
substations (with capacities of at least 10 megavolt amperes (Mva)) having a
total installed rated transformer capacity of 55,320 Mva (exclusive of spare
transformers), including a 30.8 percent interest in one major substation with
an installed rated transformer capacity of 3,080 Mva.

ELECTRIC LINES--OVERHEAD. As of December 31, 1995, HL&P operated
24,385 pole miles of overhead distribution lines and 3,597 circuit miles of
overhead transmission lines, including 567 circuit miles operated at 69,000
volts, 1,999 circuit miles operated at 138,000 volts and 1,031 circuit miles
operated at 345,000 volts.

ELECTRIC LINES--UNDERGROUND. As of December 31, 1995, HL&P operated
9,098 circuit miles of underground distribution lines and 12.6 circuit miles of
underground transmission lines, including 8.1 circuit miles operated at 138,000
volts and 4.5 circuit miles operated at 69,000 volts.

GENERAL PROPERTIES. HL&P owns various properties, including division
offices, service centers, telecommunications equipment and other facilities
used for general purposes.

TITLE. The electric generating plants and other important units of
property of HL&P are situated on lands owned in fee by HL&P. Transmission
lines and distribution systems have been constructed in part on or across
privately owned land pursuant to easements or on streets and highways and
across waterways pursuant to authority granted by municipal and county permits,
and by permits issued by state and federal governmental authorities. Under the
laws of the state of Texas, HL&P has the right of eminent domain pursuant to
which it may secure or perfect rights-of-way over private property, if
necessary.

MORTGAGE. HL&P's mortgage, which secures first mortgage bonds issued
by HL&P and collateralizes certain other securities issued on behalf of HL&P,
constitutes a direct first lien on substantially all of HL&P's properties. The
terms of the mortgage contain significant restrictions on the ability of HL&P
to pledge, sell or otherwise dispose of its assets.

HI ENERGY

For information with respect to property owned directly or indirectly
by HI Energy, see "Business of HI Energy" in Item 1 of this Report and Note 4
to the Financial Statements.

20
<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS.

The following is a description of certain legal and regulatory
proceedings affecting the Company and its subsidiaries.

RATE MATTERS. In August 1995, the Utility Commission approved a
settlement of HL&P's 1995 rate case (Docket No. 12065) as well as a separate
proceeding (Docket No. 13126) regarding the prudence of operation of the South
Texas Project. For information regarding this settlement, including the status
of appeals of other Utility Commission orders affecting HL&P, see Note 3 to the
Financial Statements, which note is incorporated herein by reference.

SOUTH TEXAS PROJECT LITIGATION. For information concerning lawsuits
and related matters filed against HL&P by the City of Austin and the City of San
Antonio with respect to outages at the South Texas Project occurring in 1993 and
early 1994 and arbitration claims asserted against HL&P by the City of San
Antonio with respect to the construction of the South Texas Project, see Note
2(b) to the Financial Statements, which note is incorporated herein by
reference.

In April 1994, two former employees of HL&P filed a class action and
shareholder derivative suit on behalf of all shareholders of the Company. This
lawsuit (Pace and Fuentez v. Houston Industries Incorporated) alleges various
acts of mismanagement against certain officers and directors of the Company and
HL&P in connection with the operation of the South Texas Project, and seeks
unspecified actual and punitive damages for the benefit of shareholders of the
Company. The Company and HL&P believe that the suit is without merit. The
lawsuit is pending in the 133rd District Court of Harris County, Texas.

HL&P and the other owners of the South Texas Project filed suit in
1990 against Westinghouse Electric Corporation (Westinghouse) in the 23rd
District Court of Matagorda County, Texas, alleging breach of warranty and
misrepresentation in connection with the steam generators supplied by
Westinghouse for the South Texas Project. In December 1995, HL&P and the other
South Texas Project owners settled their lawsuit against Westinghouse.
Although the terms of the settlement do not allow disclosure of its specific
terms, the Company believes the litigation was settled on terms that provided
satisfactory consideration to HL&P.

ENVIRONMENTAL. HL&P is a defendent in litigation arising out of the
environmental remediation of a site in Corpus Christi, Texas. The site was
operated by third parties as a metals reclaiming operation. Although HL&P
neither operated nor owned the site, certain transformers and other equipment
originally sold by HL&P may have been delivered to the site by third parties,
and HL&P and others have remediated the site pursuant to a plan approved by
appropriate state agencies and a federal court. In Dumes, et al. v. HL&P, et
al., (pending in the U.S. District Court for the Southern District of Texas,
Corpus Christi Division), landowners near the site have asserted claims that
their property has been contaminated as a result of the remediation effort and
have asserted claims of approximately $70 million in damages, together with
punitive damages totaling $51 million. Although the ultimate outcome of this
case cannot be predicted at this time, the Company and HL&P do not believe that
this case will have a material adverse effect on the Company's or HL&P's
financial condition or results of operations.

The EPA has identified HL&P as a potentially responsible party under
the Comprehensive Environmental Response, Compensation, and Liability Act for
the costs of cleaning up a site located adjacent to one of HL&P's transmission
lines. In October 1992, the EPA issued an Administrative Order to HL&P and
several other companies purporting to require them to manage

21
<PAGE> 22
the remediation of the site. HL&P believes that the EPA took this action solely
on the basis of information indicating that HL&P in the 1950s acquired record
title to a portion of the land on which the site is located. HL&P does not
believe that it now nor previously has had any ownership interest in the land in
question and has obtained a judgment from a court in Galveston County, Texas, to
that effect. Accordingly, HL&P has not complied with this order, even though
HL&P understands that other responsible parties are proceeding with site
remediation. To date, neither the EPA nor any other potentially responsible
party has instituted a claim against HL&P for any share of the remediation
costs, but under current law if HL&P is determined to be a responsible party,
HL&P could be found to be jointly and severally liable for the remediation costs
(which HL&P estimates to be approximately $80 million in the aggregate) and
could be subjected to substantial fines and damage claims.

IRS REFUND LAWSUIT. In July 1990, the Company paid approximately
$104.5 million to the Internal Revenue Service (IRS) in connection with an IRS
audit of the Company's 1983 and 1984 federal income tax returns. In November
1991, the Company filed a refund suit in the U.S. Court of Federal Claims
seeking the return of $52.1 million of tax, $36.3 million of accrued interest,
plus interest on both of those amounts accruing after July 1990. The major
contested issue in the refund case involved the IRS's allegation that certain
amounts related to the over-recovery of fuel costs should have been included as
taxable income in 1983 and 1984 even though HL&P had an obligation to refund
the over- recoveries to its ratepayers. In October 1994, the Court granted the
Company's Motion for Partial Summary Judgment on the fuel cost over-recovery
issue, and in February 1995, entered partial judgment in favor of the Company.
The government has appealed this decision. If the government does not prevail
on appeal, the Company would be entitled to a refund of overpaid tax, interest
paid on the overpaid tax through July 1990 and interest on both of those
amounts from July 1990. If the government prevails on appeal, the Company's
ultimate financial exposure should be immaterial because of offsetting tax
deductions to which the Company is entitled for the year the over-recovery was
refunded to ratepayers.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders of the
Company or HL&P during the fourth quarter of 1995.

22
<PAGE> 23
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's Common Stock, which at March 1, 1996 was held of record
by approximately 66,000 shareholders, is listed on the New York, Chicago and
London Stock Exchanges (symbol: HOU). All of HL&P's common stock is directly
or indirectly held by the Company. The following table sets forth the high and
low sales prices of the Company's Common Stock on the composite tape during the
periods indicated, as reported by The Wall Street Journal, and the dividends
declared for such periods, in each case as adjusted to give effect to the
two-for-one stock split effected by a stock distribution in December 1995.
Dividend payout was $1.50 per share for 1995 and 1994. The dividend declared
during the fourth quarter of 1995 is payable in March 1996.

<TABLE>
<CAPTION>
Market Price
-------------------------- Dividend Declared
High Low Per Share
-------- -------- --------------------
<S> <C> <C> <C>
1995
First Quarter $0.375
January 3 $17 11/16
February 3 $20 1/2

Second Quarter $0.375
April 3 $18 15/16
June 5 $21 7/8

Third Quarter $0.375
September 1 $21 1/16
September 28 $22 3/4

Fourth Quarter $0.375
October 2 $22 1/16
December 29 $24 1/2

1994
First Quarter $0.375
January 3 $23 7/8
March 31 $17 3/8

Second Quarter $0.375
April 21 $18 5/8
May 10 $15

Third Quarter $0.375
July 1 $16 1/4
August 2 $18 5/16

Fourth Quarter $0.375
November 23 $16
December 15 $18 1/4
</TABLE>

On December 31, 1995, the consolidated book value of the Company's Common Stock
was $16.61 per share. The closing market price of the Company's Common Stock
on December 29, 1995 (the last business day of the year) was $24 1/4 per share.

There are no contractual limitations on the payment of dividends on
the Company's Common Stock or on the common stock of the Company's
subsidiaries.

23
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA OF THE COMPANY.

The following table sets forth selected financial data with respect to
the Company's consolidated financial condition and results of consolidated
operations and should be read in conjunction with the Financial Statements and
the related notes in Item 8 of this Report. On July 6, 1995, the Company closed
the sale of its cable television operations. The operations of KBLCOM have been
accounted for as discontinued operations.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(Thousands of Dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 3,730,173 $ 3,754,136 $ 4,083,655 $ 3,857,932 $ 3,707,605
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
cumulative effect of change in
accounting (1) . . . . . . . . . . . . . . . $ 397,400 $ 423,985 $ 440,531 $ 370,031 $ 484,275
Loss from discontinued operations . . . . . . . . (16,524) (24,495) (29,544) (67,521)
Gain on sale of cable television subsidiary . . . 708,124
Cumulative effect of change in accounting (2) . . (8,200) 94,180
----------- ----------- ----------- ----------- -----------
Net income (1) . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036 $ 434,667 $ 416,754
=========== =========== =========== =========== ===========
Earnings per common share (3):
Continuing operations before cumulative
effect of change in accounting (1) . . . . . . $ 1.60 $ 1.72 $ 1.69 $ 1.43 $ 1.88
Gain on sale of cable television subsidiary. . 2.86
Discontinued operations . . . . . . . . . . (.07) (.09) (.11) (.26)
Cumulative effect of change in
accounting (2) . . . . . . . . . . . . . . . . (.03) .36
----------- ----------- ----------- ----------- -----------
Earnings per common share (1) . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60 $ 1.68 $ 1.62
=========== =========== =========== =========== ===========
Cash dividends declared per common
share (3)(4) . . . . . . . . . . . . . . . . $ 1.50 $ 1.50 $ 1.875 $ 1.49 $ 1.48
Dividend pay-out ratio from continuing
operations . . . . . . . . . . . . . . . . . 94% 87% 89% 104% 79%
Return on average common equity (5) . . . . . . . 29.1% 11.9% 12.8% 13.4% 12.7%
Ratio of earnings from continuing
operations to fixed charges before
cumulative effect of change in accounting . . 2.71 2.89 2.78 2.29 2.55
- -------------------------------------------------- ----------------------------------------------------------------------

At year-end:
Book value per common share (1)(3) . . . . . $ 16.61 $ 13.64 $ 12.53 $ 12.68 $ 12.48
Market price per common share (3) . . . . . . $ 24.25 $ 17.82 $ 23.82 $ 22.94 $ 22.13
Market price as a percent of book value (1) 146% 131% 190% 181% 177%

- -------------------------------------------------- ----------------------------------------------------------------------
At year-end:
Total assets of continuing operations . . . . $11,819,606 $10,784,095 $10,867,581 $11,075,897 $10,820,562
Net assets of discontinued operations . . . . 618,982 487,026 231,252 170,718
----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . $11,819,606 $11,403,077 $11,354,607 $11,307,149 $10,991,280
=========== =========== =========== =========== ===========

Long-term obligations including current
maturities - continuing operations (6) . . . $ 3,768,928 $3,905,518 $ 3,950,576 $ 4,244,077 $ 4,488,628
Long-term obligations including current
maturities included in net assets of
discontinued operations . . . . . . . . . . 504,580 514,964 740,453 813,203

Capitalization from continuing operations:
Common stock equity . . . . . . . . . . . . 50% 44% 43% 42% 41%
Cumulative preferred stock of HL&P
(including current maturities) . . . . . 5% 7% 7% 7% 6%
Long-term debt (including current
maturities) . . . . . . . . . . . . . . . 45% 49% 50% 51% 53%

- -----------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Electric capital and nuclear fuel
expenditures (excluding AFUDC) (7) . . . . $ 296,635 $ 412,899 $ 329,016 $ 337,082 $ 365,486
Cable television additions and other . . . .
cable-related investments - discontinued. . 47,601 84,071 61,856 45,233 26,624
Corporate headquarters expenditures
(excluding capitalized interest) (7). . . . 89,627 44,250 26,034
Non-regulated electric power project
expenditures and advances . . . . . . . . 38,278 7,087 35,796 1,625
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company adopted Statement of Position (SOP) 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," effective January 1, 1994,
which had the effect of reducing net income while increasing earnings per
share. See also Notes 1(g) and 9(b) to the Financial Statements. SOP 93-6
is effective only with respect to financial statements for periods after
January 1, 1994, and no restatement was permitted for prior periods.

(2) The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 9(d) to the Financial Statements.
The 1992 cumulative effect relates to the change in accounting for revenues.

(3) All common share data reflect a two-for-one common stock dividend
distribution in December 1995.

(4) Year ended December 31, 1993 includes five quarterly dividends of $.375
per share due to a change in the timing of the Company's Board of Directors'
declaration of dividends. Dividend payout was $1.50 per share for 1993.
See also Note 5(b) to the Financial Statements.

(5) The return on average common equity for 1995 includes the gain on the sale
of the Company's cable television subsidiary. The return on average common
equity excluding the gain was 11.6%.

(6) Includes Cumulative Preferred Stock subject to mandatory redemption.

(7) During 1995, HL&P made a payment toward the purchase of an ownership
interest in the corporate headquarters building. Such payment is not
reflected in the Company's electric capital and nuclear fuel expenditures as
it is an affiliate transaction eliminated upon consolidation.

24
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA OF HL&P.

The following table sets forth selected financial data with respect to HL&P's
financial condition and results of operations and should be read in
conjunction with the Financial Statements.

- ---------------------------------------------------------------------------------------------------------------------
At year-end:
Total assets . . . . . . . . . . . $10,665,259 $10,850,981 $10,753,616 $10,790,052 $10,620,642
Long-term obligations including
current maturities (2) . . . . . . $ 3,220,015 $ 3,356,789 $ 3,402,032 $ 3,796,719 $ 4,150,454
Capitalization:
Common stock equity . . . . . . . . 52% 51% 50% 47% 44%
Cumulative preferred stock . . . .
(including current maturities) . 6% 7% 7% 7% 6%
Long-term debt (including current
maturities) . . . . . . . . . . 42% 42% 43% 46% 50%

- ---------------------------------------------------------------------------------------------------------------------

Capital and nuclear fuel expenditures
(excluding AFUDC) (3) . . . . . . . . $ 391,550 $ 412,899 $ 329,016 $ 337,082 $ 365,486
Percent of capital expenditures
financed internally from
operations . . . . . . . . . . . . . 110% 216% 158% 137% 126%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 9(d) to the Financial Statements.
The 1992 cumulative effect relates to the change in accounting for
revenues from a cycle billing to a full accrual method effective January 1,
1992.

(2) Includes Cumulative Preferred Stock subject to mandatory redemption.

(3) 1995 expenditures include a payment toward the purchase of an ownership
interest in the corporate headquarters building.

25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

HOUSTON INDUSTRIES INCORPORATED (COMPANY)

A summary of selected consolidated financial data for the Company and
its subsidiaries is set forth below:

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------- Percent
1995 1994 Change
------------ ------------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 3,730,173 $ 3,754,136 (1)
Operating Expenses . . . . . . . . . . . . . 2,825,240 2,785,521 1
Operating Income . . . . . . . . . . . . . . 904,933 968,615 (7)
Interest and Other Charges . . . . . . . . . 326,340 318,599 2
Income Taxes . . . . . . . . . . . . . . . . 199,555 230,424 (13)
Income from Continuing Operations . . . . . 397,400 423,985 (6)
Gain/(Loss) from Discontinued
Operations . . . . . . . . . . . . . . . . 708,124 (16,524) --
Net Income . . . . . . . . . . . . . . . . . 1,105,524 399,261 177

</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------- Percent
1994 1993 Change
------------ ------------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 3,754,136 $ 4,083,655 (8)
Operating Expenses . . . . . . . . . . . . . 2,785,521 3,102,509 (10)
Operating Income . . . . . . . . . . . . . . 968,615 981,146 (1)
Interest and Other Charges . . . . . . . . . 318,599 350,299 (9)
Income Taxes . . . . . . . . . . . . . . . . 230,424 228,863 1
Income from Continuing Operations . . . . . 423,985 440,531 (4)
Loss from Discontinued
Operations . . . . . . . . . . . . . . . . (16,524) (24,495) (33)
Net Income . . . . . . . . . . . . . . . . . 399,261 416,036 (4)

</TABLE>
All common stock data included in this section reflect the two-for-one stock
split in the form of a stock distribution effected on December 9, 1995. See
Note 5(a) to the Company's Consolidated and Houston Lighting & Power Company's
(HL&P) Financial Statements in Item 8 of this Report (Financial Statements).

In July 1995, the Company sold KBLCOM Incorporated, its cable television
subsidiary (KBLCOM). The operations of KBLCOM are reflected as discontinued
operations. See Note 13 to the Financial Statements.

26
<PAGE> 27
EARNINGS - THE COMPANY

1995 Compared to 1994. Consolidated earnings per share were $4.46 for
1995, an increase of $2.84 per share from 1994. The Company's 1995 earnings
were significantly affected by a one-time after-tax gain of $708 million or
$2.86 per share recorded upon the sale of the Company's cable television
subsidiary. The gain is reflected in discontinued operations on the Company's
Statements of Consolidated Income. The Company's 1995 consolidated earnings
per share from continuing operations were $1.60 per share, compared to $1.72
per share in 1994.

HL&P contributed $1.82 per share in 1995 (reflecting net income of
$451 million after dividends on preferred stock). In 1995, Houston Industries
Energy, Inc. (HI Energy) sustained a net loss of $33 million or $.13 per share.
The net loss includes an $18 million after-tax charge to earnings resulting from
the establishment of a valuation allowance reflecting the impairment of the
ability of two waste tire-to-energy projects to repay $28 million in
subordinated debt advanced to the projects by HI Energy. This impairment is the
result of a repeal by the state of Illinois of an operating subsidy benefiting
the projects. For additional information regarding this charge and HI Energy's
commitments under certain circumstances to make additional subordinated loans to
these projects, see Note 4(c) to the Financial Statements. The remaining $.09
per share loss was primarily due to corporate overhead costs and financing
expenses at the parent company. Earnings for 1995 included after-tax dividend
income of approximately $18 million related to Time Warner Inc. (Time Warner)
securities received by the Company upon the sale of its cable television
subsidiary.

The Company had other revenues of $50 million in 1995 compared to $8
million in 1994. Other revenues are principally from electric sales and
operating revenues from HI Energy. The increase is primarily due to revenues
from a foreign electric utility operating company acquired in 1995 by HI
Energy. Other operating expenses for the Company were $123 million for 1995
compared to $36 million in 1994. Other operating expenses primarily include HI
Energy operating expenses and corporate overhead costs at the parent company.
The increase is principally due to increased HI Energy operating expenses for
the foreign electric utility operating company, the $18 million after-tax
charge to earnings described above and increased project development costs.
For additional information regarding HI Energy's activities and investments,
see Note 4 to the Financial Statements.

1994 Compared to 1993. Consolidated earnings per share from
continuing operations were $1.72 for 1994, compared to $1.69 per share in 1993.
Effective January 1, 1994, the Company adopted Statement of Position (SOP)
93-6, "Employers' Accounting for Employee Stock Ownership Plans," which had the
effect of reducing 1994 net income by $12.8 million while increasing earnings
per share by $.05. The increase in earnings per share occurred because SOP
93-6 required a reduction in the number of weighted average common shares
outstanding for the period ended December 31, 1994 by the number of shares not
yet allocated to plan participants in the Company's Employee Stock Ownership
Plan (ESOP). For a further discussion of the effects of the adoption of SOP
93-6, see Notes 1(g) and 9(b) to the Financial Statements.

HL&P contributed $1.88 per share in 1994 (reflecting income before
cumulative effect of a change in accounting and after dividends on preferred
stock of $461.4 million). In 1994, HI Energy sustained a net loss of $.03 per
share. The remaining net loss of $.13 per share was primarily due to corporate
overhead costs and financing expenses at the parent company partially offset by
the effects of the adoption of SOP 93-6, as discussed above.

27
<PAGE> 28
HL&P contributed $1.73 to the 1993 consolidated earnings per share
from continuing operations on income of $449.8 million after preferred
dividends. The remaining loss of $.04 per share resulted from corporate
overhead costs and financing expenses at the parent company and a combined loss
of the Company's other subsidiaries.

HL&P

Summary of selected financial data for HL&P is set forth below:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------- Percent
1995 1994 Change
------------ ------------ ------
(Thousands of Dollars)
<S> <C> <C> <C>
Base Revenues (1) . . . . . . . . . . . . . . . $2,645,303 $2,673,146 (1)
Reconcilable Fuel Revenues (2) . . . . . . . . . 1,034,994 1,072,939 (4)
Operating Expenses (3) . . . . . . . . . . . . . 2,945,633 3,003,203 (2)
Operating Income (3) . . . . . . . . . . . . . . 734,664 742,882 (1)
Interest Charges . . . . . . . . . . . . . . . . 247,809 249,472 (1)
Income After Preferred Dividends . . . . . . . . 450,977 453,181 -

</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------- Percent
1994 1993 Change
------------ ------------ ------
(Thousands of Dollars)
<S> <C> <C> <C>
Base Revenues (1) . . . . . . . . . . . . . . . $2,673,146 $2,755,057 (3)
Reconcilable Fuel Revenues (2) . . . . . . . . . 1,072,939 1,324,806 (19)
Operating Expenses (3) . . . . . . . . . . . . . 3,003,203 3,313,577 (9)
Operating Income (3) . . . . . . . . . . . . . . 742,882 766,286 (3)
Interest Charges . . . . . . . . . . . . . . . . 249,472 284,585 (12)
Income After Preferred Dividends . . . . . . . . 453,181 449,750 1
</TABLE>
-----------------

(1) Includes miscellaneous revenues, certain non-reconcilable fuel
revenues and certain purchased power related revenues.
(2) Includes revenues collected through a fixed fuel factor net of
adjustment for over/under recovery. See "Operating Revenues and
Sales - HL&P" in this section for further discussion.
(3) Includes income taxes.

EARNINGS - HL&P

1995 Compared to 1994. HL&P's 1995 earnings were $451 million, a
decline of $2.2 million from 1994. Earnings for 1995 benefited from 5% growth
in residential and 4% growth in commercial kilowatt-hour (KWH) sales resulting
from continued customer growth and hotter summer weather in 1995. However, the
revenue improvements were offset by (i) reduced electric rates stemming from
the settlement of Docket No. 12065, HL&P's 1995 rate case (Rate Case
Settlement), (ii) HL&P's decision to write down $50 million ($33 million
after-tax) of its investment in the South Texas Project Electric Generating
Station (South Texas Project) as permitted under the Rate Case Settlement, and
(iii) increased non-routine operating expenses in part associated with staff
severance costs and litigation. HL&P's earnings for 1994 reflect a one-time,
after-tax charge of $46 million in the fourth quarter also related to the Rate
Case Settlement.

28
<PAGE> 29
For additional information regarding the Rate Case Settlement, see
"Certain Factors Affecting Future Earnings of the Company and HL&P--Rate
Matters and Other Contingencies," below, and Note 3(a) to the Financial
Statements.

1994 Compared to 1993. HL&P's 1994 earnings were $453.2 million, an
increase of $3.4 million from 1993. The increase in HL&P's 1994 earnings
resulted primarily from (i) increased residential and commercial KWH sales of 1
percent and 4 percent, respectively, (ii) lower operating costs associated
with reductions in production plant maintenance and employee benefits, and
(iii) reduced interest expenses. The increase in 1994 earnings was partially
offset by (i) the one-time after-tax charge of $46 million discussed above and
(ii) the recognition of an $8.2 million after-tax charge for postemployment
benefit costs incurred as a result of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employer's Accounting for Postemployment
Benefits." Earnings for 1993 included approximately $21 million (after-tax) in
franchise tax refunds.

OPERATING REVENUES AND SALES - HL&P

1995 Compared to 1994. The $27.8 million decline in 1995 base
revenues was primarily due to (i) decreased base rates resulting from the Rate
Case Settlement, (ii) decreased firm industrial KWH sales and (iii) a reduction
of revenues associated with recovery of certain firm capacity purchased power
costs included in base rates. See Note 11(b) to the Financial Statements for a
discussion of firm capacity costs.

Firm industrial KWH sales declined 3 percent in 1995. Contributing to
this decrease were a decline in sales to the chemical and refining industries,
primarily due to the loss of a large industrial customer to self-generation,
and the expiration of an economic development rate which caused some customers
to make greater use of interruptible service or switch to alternative rates.
Firm industrial sales exclude electricity sold at a reduced rate under
agreements which allow HL&P to interrupt service under some circumstances.

Reconcilable fuel revenues are revenues that are collected through a
fixed fuel factor. The Public Utility Commission of Texas (Utility Commission)
provides for recovery of certain fuel and purchased power costs through a fixed
fuel factor included in electric rates. The fixed fuel factor is established
during either a utility's general rate proceeding or fuel factor proceeding and
is generally effective for a minimum of six months. Revenues collected through
such factor are adjusted monthly to equal expenses; therefore, such revenues
and expenses have no effect on earnings unless fuel costs are determined not to
be recoverable. The adjusted over/under recovery of fuel costs is recorded on
HL&P's balance sheets as fuel-related credits. Fuel costs are reviewed during
periodic fuel reconciliation proceedings, which are required at least every
three years.

1994 Compared to 1993. 1994 operating revenues declined 8.2 percent,
or $333 million, primarily due to a decrease in reconcilable fuel revenues and
the one-time, after-tax $46 million charge relating to the Rate Case Settlement
discussed above. 1994 residential and commercial KWH sales increased by 1
percent and 4 percent, respectively, while firm industrial sales remained
relatively unchanged.

FUEL AND PURCHASED POWER EXPENSE - HL&P

Fuel costs constitute the single largest expense for HL&P. The mix of
fuel sources for generation of electricity is determined primarily by system
load and the unit cost of fuel consumed. The average cost of fuel used by HL&P
in 1995 was $1.59 per million British Thermal Unit (MMBtu)

29
<PAGE> 30
($1.69 for natural gas, $2.03 for coal, $1.25 for lignite and $0.58 for
nuclear). In 1994, the average cost of fuel was $1.54 ($1.90 for natural gas,
$1.59 for coal, $1.11 for lignite and $0.57 for nuclear).

1995 Compared to 1994. 1995 fuel expense increased by 2 percent, or
$18.2 million, primarily due to the receipt in 1994 of $66.1 million from the
sale of receivables associated with a settlement resolving claims that HL&P had
been overcharged for the cost of coal transportation. For additional
information on this transaction, see Note 14 to the Financial Statements.
Excluding the effects of such transaction, 1995 fuel expense declined by 5.2
percent from 1994. This decline was attributable to (i) a general decline in
the unit cost of natural gas and (ii) the increased use of nuclear generation
(which has a per unit fuel cost that is substantially lower than HL&P's other
fuel sources). Purchased power expense decreased $175 million resulting
primarily from the expiration of certain purchased power contracts.

1994 Compared to 1993. The 19 percent, or $202 million, decrease in
1994 fuel expense was primarily due to (i) decreases in both the usage and per
unit cost of natural gas, and decreases in the unit cost of all other fuels
used in 1994 and (ii) the $66.1 million reduction discussed above. The $107
million decrease in purchased power costs was due to the expiration in 1994 of
a purchased power agreement.

OPERATION AND MAINTENANCE EXPENSES, DEPRECIATION, AMORTIZATION, AND OTHER -
HL&P

1995 Compared to 1994. Operation and maintenance expenses for 1995
increased $35 million and $2.4 million, respectively, compared to 1994.
Substantially all of the increase in operation expense resulted from (i)
employee severance expenses, (ii) other employee benefits adjustments and (iii)
certain litigation expenses. Depreciation and amortization expense for 1995
increased $77 million compared to 1994, primarily due to amortization recorded
pursuant to the Rate Case Settlement, see Note 3(a) to the Financial
Statements. Other taxes decreased $5.5 million for 1995 compared to 1994,
primarily due to decreased state gross receipts obligations attributable to
base and fuel refunds. Other-net expense for 1995 increased $13.3 million
compared to 1994 primarily as a result of a one-time, pre-tax charge of $9
million incurred in connection with mine-related costs which were not
previously recorded and are not recoverable under the Rate Case Settlement.

During 1995, HL&P incurred $15 million in work force severance costs
as a result of its efforts to streamline and improve certain business
activities. These severance costs reflect a staff reduction of approximately
570 employees. Although these costs have the short-term effect of putting
downward pressure on earnings, HL&P expects that these costs will be recovered
from future savings in employee-related costs. HL&P estimates that it saved
approximately $6 million in labor and benefit costs in 1995 as a result of
these work force reductions.

1994 Compared to 1993. Operation and maintenance expenses for 1994
decreased $28 million and $41.8 million, respectively, compared to 1993. These
decreases were due primarily to lower employee benefits expenses and production
plant maintenance costs. Depreciation and amortization expense in 1994
increased by $12.4 million compared to 1993, primarily due to an increase in
depreciable property and the commencement of the amortization of previously
deferred demand side management expenditures. Other taxes increased $40.1
million in 1994 primarily due to the effect of (i) franchise tax refunds of
$32.7 million received in 1993 and (ii) a $6.1 million increase in property
taxes in 1994.

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<PAGE> 31
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
OF THE COMPANY AND HL&P

Earnings for the past three years are not necessarily indicative of
future earnings and results of operations. The level of future earnings
depends on numerous factors ranging from growth in energy sales, weather, HI
Energy's future results of operations, competition, regulatory changes, the
rate of economic growth in HL&P's service area, and the ability of the Company
and HL&P to control costs and maintain a pricing structure that is both
attractive to customers and profitable to the Company and HL&P.

RATE MATTERS AND OTHER CONTINGENCIES

In August 1995, the Utility Commission unanimously approved the Rate
Case Settlement. Subject to certain changes in existing regulation or
legislation, the Rate Case Settlement precludes HL&P from seeking rate
increases through December 31, 1997.

Under the Rate Case Settlement, HL&P has the option to write down up
to $50 million per year of its investment in the South Texas Project through
December 31, 1999. In 1995, HL&P wrote down the maximum $50 million annual
($33 million after-tax) amount. Additionally, pursuant to the Rate Case
Settlement, HL&P was permitted, and in January 1996, commenced amortization of
its investment in certain lignite reserves (associated with the now canceled
Malakoff generation project) at a rate of approximately $22 million per year.
As a result of this additional amortization, all of HL&P's remaining investment
in the Malakoff project will be fully amortized no later than December 31, 2002.
In addition, accruals for nuclear decommissioning expenses increased by $9
million per year beginning in 1995. For details of the terms of the Rate Case
Settlement (as well as the status of pending litigation involving other Utility
Commission orders), see Note 3 to the Financial Statements.

HL&P is a party to litigation and an arbitration proceeding involving
certain of the owners of the South Texas Project. For information regarding
that litigation and such proceeding (including settlement discussions with the
City of San Antonio), see Note 2(b) to the Financial Statements.

The Company and HL&P are involved in other legal, tax and regulatory
proceedings before various courts, regulatory agencies and governmental
authorities, some of which may involve substantial amounts. For additional
information, see Notes 3 and 11 to the Financial Statements.

COMPETITION

Due to changing government regulations, technological developments and
the availability of alternative energy sources, the U.S. electric utility
industry has become increasingly competitive. Such competition affects HL&P's
business both in terms of source of power supply available to HL&P and
alternative choices for customers meeting their power needs.

Wholesale Competition. Under the Energy Policy Act of 1992 (Energy
Policy Act), exempt wholesale generators are permitted to produce and sell
electric energy at wholesale without becoming subject to regulation under the
Public Utility Holding Company Act of 1935 (1935 Act). In addition, the Energy
Policy Act expands the authority of the Federal Energy Regulatory Commission
(FERC) to grant exempt wholesale generators access to the transmission networks
of utilities in order to sell electricity to other utilities. Although HL&P's
wholesale sales traditionally

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<PAGE> 32
have accounted for less than 1% of its total revenues, HL&P believes that the
Energy Policy Act could encourage the development of additional independent
power projects within its service area.

New Transmission Access Rule. In February 1996, the Utility
Commission adopted a new transmission access and pricing rule granting
third-party users of transmission systems open access to such systems at rates,
terms and conditions comparable to those available to the transmission-owning
utilities. The rule also implements a transmission pricing methodology by
which all transmission users will be assessed a facilities charge for
transmission usage. The Utility Commission is also requiring utilities (i) to
operationally separate or "functionally unbundle" their wholesale power
marketing operations from the operation of the transmission grid and (ii) to
separately disclose their costs of generation, transmission and distribution
for purposes of transmission pricing.

The facilities' charge to be paid by transmission users has two
components: a statewide "postage stamp" component and a distance sensitive
component. For the statewide postage stamp component, transmission users will
pay an amount based upon their share of the total peak demand on the Electric
Reliability Council of Texas, Inc. (ERCOT) system multiplied by 70% of the
total ERCOT transmission cost of service. For the distance sensitive
component, transmission users will pay to each affected transmission owner an
amount based upon the user's relative impact on all transmission owners'
systems multiplied by 30% of the total ERCOT transmission cost of service.

Statewide postage stamp revenues will be apportioned to each
transmission owner based on the ratio of its transmission cost of service to
the total ERCOT transmission cost of service. As noted above, transmission
owners will receive distance sensitive revenues based upon the relative impact
on their systems of all ERCOT transmission users. Since the method for
apportioning costs among transmission users is different from the method for
apportioning revenues among transmission owners, the impact on any particular
utility that both owns transmission facilities and uses the transmission
systems of others can vary. Generally speaking, the new transmission access
rule is less favorable to utilities with compact service areas and more
favorable to utilities with broader service areas.

Because HL&P has a compact service area and its transmission cost per
megawatt is less than the statewide average, HL&P estimates that it could incur
increased transmission costs of $35 million per year under the new rule. The
actual impact on HL&P, however, will not be known until the Utility Commission
approves total ERCOT transmission cost of service, which is not expected to
occur until late 1996. To mitigate any cost increases to utilities and/or
their customers, the Utility Commission will phase-in the increased
transmission costs in 10% increments during the three-year period beginning
with the implementation of the rule. At the end of the three-year period, the
Utility Commission expects that each transmission-owning utility will have
either adjusted its cost structures or requested a change in rates to account
for such increased transmission cost.

The new transmission access rule is one of several related regulatory
proceedings now underway at the Utility Commission. In one such proceeding the
Utility Commission is evaluating programs for Standard Terms and Conditions
which will govern transmission service provided under the new transmission
access rule when it is implemented. It is anticipated that the rule
establishing such Standard Terms and Conditions will be effective in April
1996. The Utility Commission is specifying the components of a rate filing
package, which should be adopted in March 1996, and utilities will file
specific transmission and ancillary service tariffs in May 1996. Finally, the
Utility Commission intends to adopt in the third quarter of 1996 rules that
would govern

32
<PAGE> 33
the action of the independent system operator selected to assure
non-discriminatory operation of the transmission grid. Final implementation of
the various Utility Commission's rules is expected to occur in January 1997.
The Utility Commission is also expected to revisit this rulemaking in order to
ensure compliance with transmission rules to be adopted by FERC.

Retail Wheeling and Stranded Costs. Although federal law currently
does not provide for transmission access to retail customers, retail wheeling
initiatives are evolving and becoming prominent issues in several states.

As the U.S. electric utility industry continues its transition to a
more competitive environment, a substantial amount of fixed costs previously
approved for recovery under traditional utility regulatory practices (including
regulatory assets and liabilities) may become "stranded," i.e., unrecoverable
at competitive market prices. The issue of stranded costs could be
particularly significant with respect to fixed costs incurred in connection
with the past construction of generation plants, such as nuclear power plants
which, because of their high fixed costs, would not command the same price for
their output as they have in a regulated environment. The Utility Commission
has initiated projects to consider issues relating to the scope of competition
in the electric utility industry and stranded investment in connection with the
preparation of their 1997 reports to the Texas legislature. For a description
of HL&P's principal regulatory assets and liabilities, see Note 1(b) to the
Financial Statements.

RESPONSE TO COMPETITION

In February 1996, the Company announced its intent to form two new
strategic business units (in addition to HI Energy) to focus on nonregulated
energy marketing and energy services nationwide. In 1996, HL&P took steps to
reorganize its operations into three strategic business units in order to
better position itself to respond to the deregulation of the electric utility
industry. The three strategic business units will consist of Energy Production
(fossil-fueled electric generation), Energy Delivery and Customer Services
(transmission and distribution of electricity and engineering, as well as
marketing and other customer services) and the South Texas Project.

HL&P has implemented flexible pricing to respond to the threat of
competition in situations where large industrial customers have a viable source
of alternative generation. Under a new tariff option approved by the Utility
Commission in 1995, HL&P may negotiate a competitive rate with industrial
customers who have an alternative to taking power from HL&P (as a result, for
example, of cogeneration). Under the approved tariff, HL&P can price its
industrial rate within a range between 6% above its marginal cost to its full
embedded cost rate. While flexible tariff structures may help HL&P increase or
retain sales to industrial customers (and reduces costs that would otherwise be
borne by other customers), such tariffs result in sales at lower margins over
cost.

HI ENERGY

The Company, through its subsidiary HI Energy, is focusing on
international and domestic cogeneration, the international power market and the
privatization of generating and distribution facilities in the international
market. At December 31, 1995, HI Energy's investments in these projects
amounted to approximately $93 million. Subject to HI Energy's ability to
identify other attractive investment opportunities, future capital expenditures
in connection with HI Energy's international and domestic operations could be
substantial. In October 1995, the Company and another Texas utility made an
offer to purchase an English regional electricity company for a total price
equal to approximately $2.7 billion. The offer was withdrawn after a competing
bidder made a higher bid for the target company.

33
<PAGE> 34
During 1995, HI Energy had a consolidated loss of approximately $33
million or $.13 per share. The loss included an $18 million after-tax charge
to earnings as described in more detail below. Based on existing commitments
entered into by HI Energy, the Company estimates that HI Energy's capital
expenditures for 1996 will be approximately $34 million ($31 million to be
expended in connection with the construction of HI Energy's cogeneration
project in San Nicolas, Argentina, and $3 million in connection with HI
Energy's investment in a coke calcining project in the state of Andhra Pradesh,
India). Additional capital expenditures (which could be substantial) are
dependent upon the nature and extent of future project commitments entered into
by HI Energy. During 1995, HI Energy satisfied its cash requirements primarily
through intercompany borrowings from the Company. As of December 31, 1995, the
balance of such intercompany borrowings was $53.4 million. Although in the
near term, HI Energy's investments are unlikely to have a positive effect on
earnings, the Company believes that such investments (although subject to
greater risks) may offer long-term opportunities for growth greater than those
that exist in HL&P's regulated operations.

HI Energy is a subordinated lender to two waste tire-to-energy
projects being developed by CGE Ford Heights, L.L.C. (Ford Heights) and CGE
Fulton, L.L.C. (Fulton), respectively, located in the state of Illinois. HI
Energy also owns a $400,000 (20 percent) equity interest in Ford Heights. As
of March 26, 1996, HI Energy had lent on a subordinated basis approximately
$17.5 million (including unpaid interest) to the Ford Heights project and $10.8
million to the Fulton project. These amounts are recorded on the Company's
Consolidated Balance Sheets in equity investments in and advances to foreign
and non-regulated affiliates-net. HI Energy also is party to two separate
Note Purchase Agreements committing it, under certain circumstances, to
acquire up to (i) $3 million in aggregate principal amount of additional
subordinated notes from the Ford Heights project and (ii) $17 million in
aggregate principal amount of additional subordinated notes from the Fulton
project. The Company has entered into a support agreement under which it has
agreed to provide additional funds to HI Energy to enable it to honor its
obligations under the two Note Purchase Agreements.

The two waste tire-to-energy projects were being developed in reliance
on the terms of the Illinois Retail Rate Law, enacted in 1987, to encourage
development of energy production facilities for the disposal of solid waste by
providing an operating subsidy to qualifying projects. In March 1996, the
Governor of the state of Illinois signed legislation which purports to repeal
the Retail Rate Law. Following the action of the Governor, the projects filed a
lawsuit against the Illinois Commerce Commission and an Illinois utility
alleging, among other things, that the repeal of the Retail Rate Law violated
the Illinois Constitution. On March 26, 1996, the Ford Heights project filed a
voluntary petition seeking protection under the federal bankruptcy laws. The
ability of the two waste tire-to-energy projects to meet their debt obligations
is dependent upon the projects continuing to receive the operating subsidy
provided under the Retail Rate Law. As a result, the Company has recorded a
valuation allowance of $28 million with respect to its advances to these two
projects, resulting in an after-tax charge to earnings of $18 million. The
Company is unable to predict the ultimate effect of these developments on HI
Energy's remaining funding commitments under the Note Purchase Agreements;
however, in the Company's opinion, it is unlikely that the majority of the
additional unfunded subordinated debt provided for in the Fulton Note Purchase
Agreement would be required to be funded unless construction activities with
respect to the Fulton project are recommenced at some future date. If HI Energy
becomes obligated to advance additional funds under the Note Purchase
Agreements, the Company may be required to increase the amount of the valuation
allowance, which would result in additional charges to earnings.

INVESTMENT IN TIME WARNER SECURITIES

In connection with the sale of the Company's cable television
subsidiary, the Company received 1 million shares of Time Warner common stock
and 11 million shares of non-publicly

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<PAGE> 35

traded Time Warner convertible preferred stock. The 11 million shares of Time
Warner convertible preferred stock are convertible by the Company into
approximately 22.9 million shares of Time Warner common stock. The Company has
recorded these securities at a combined fair value of approximately $1 billion
on the Company's Consolidated Balance Sheets. The Company excludes unrealized
net changes in the fair value of Time Warner common stock (exclusive of
dividends and write downs) from earnings and, until realized, reports such
changes as a net amount in a separate component of shareholders' equity. The
Company's investment in the Time Warner convertible preferred stock is accounted
for under the cost method.

As with any investment, the value of the Company's investment will
fluctuate over time in response to general market conditions or economic and
regulatory developments affecting Time Warner.

Based on current dividend rates, the Company expects to receive
through July 1999 after-tax dividend income of approximately $37 million per
year from its Time Warner securities. While the Company has no specific plans
to dispose of these securities and is restricted in certain circumstances from
doing so, it does not expect to maintain its substantial investment in Time
Warner indefinitely. For a description of the Company's investment in Time
Warner (including a description of certain restrictions on the Company's
ability to sell its Time Warner securities), see Note 13 to the Financial
Statements.

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<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

The liquidity and capital requirements of the Company and its
subsidiaries are affected primarily by capital programs and debt service
requirements. The capital requirements for 1995 were, and as estimated for
1996 through 1998, are as follows:

<TABLE>
<CAPTION>
Millions of Dollars
-------------------------------------
1995 1996 1997 1998
------ ------ ------ ------

<S> <C> <C> <C> <C>
Electric capital and nuclear fuel (excluding Allowance
for Funds Used During Construction) (AFUDC) (1) . . . . . . $ 297 $ 387 $ 301 $ 328
Corporate headquarters expenditures (excluding
capitalized interest) (1) . . . . . . . . . . . . . . . . . 90 5
Non-regulated electric power project expenditures
and advances (2) . . . . . . . . . . . . . . . . . . . . . 38 34 55
Maturities of long-term debt, preferred stock
and minimum capital lease payments . . . . . . . . . . . . 49 379 252 66
Discontinued operations:
Cable television additions and other cable-related
investments . . . . . . . . . . . . . . . . . . . . . . . 48
Maturities of long-term debt . . . . . . . . . . . . . . . 41
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 563 $ 805 $ 608 $ 394
- -------------- ===== ===== ===== =====

</TABLE>
(1) Renovation costs of new corporate headquarters building include costs
of structural improvements and renovations. During 1995, HL&P made a
payment toward the purchase of an ownership interest in the new
corporate headquarters building. Such payment is not reflected in the
Company's electric capital and nuclear fuel expenditures as it is an
affiliate transaction eliminated upon consolidation.

(2) Expenditures in table reflect only expenditures made or to be made
under existing commitments entered into by HI Energy. Additional
capital expenditures are dependent upon the nature and extent of
future project commitments (some of which may be substantial) entered
into by HI Energy.

The foregoing estimates are based on numerous assumptions, some of
which may prove to be incorrect. Actual liquidity and capital requirements
will also vary because of changes in governmental regulations, the resolution
of various litigation and other contingencies and changes in economic
conditions.

COMPANY CONSOLIDATED CAPITAL REQUIREMENTS

The cash requirements of the Company and its subsidiaries stem
primarily from operating expenses, capital expenditures, payment of dividends
on its common stock, payment of dividends on HL&P's preferred stock and
interest and principal payments on debt. In 1995, net cash provided by
operating activities totaled $839.4 million. Net cash provided by investing
activities totaled $124.9 million, primarily due to the settlement of
subsidiary debt related to the sale of KBLCOM of $619.3 million partially
offset by electric capital expenditures of $301.3 million (including allowance

36
<PAGE> 37

for borrowed funds used during construction) and expenses associated with
structural improvements and renovation of a new corporate headquarters of $96.5
million (including capitalized interest). Net cash used in discontinued cable
television investing activities for 1995 totaled approximately $48 million,
primarily due to property additions and other cable-related investments.
Financing activities for 1995 resulted in a net cash outflow of $963 million.

HL&P CAPITAL REQUIREMENTS

Cash Requirements. HL&P's cash requirements stem primarily from
operating expenses, capital expenditures, payment of dividends on its common
stock, payment of dividends on its preferred stock and interest and principal
payments on debt. In 1995, HL&P's net cash provided by operating activities
totaled approximately $867.7 million, and net cash used in HL&P's investing
activities totaled $406.9 million, including allowance for borrowed funds used
during construction. HL&P's financing activities for 1995 resulted in a net
cash outflow of $620.8 million. Included in these activities were the payment
of dividends, the extinguishment of long-term debt, the redemption of preferred
stock and the issuance of collateralizing first mortgage bonds. For
information with respect to these matters, see Notes 6 and 7(b) to the
Financial Statements.

Capital Program. In 1995, HL&P's capital and nuclear fuel
expenditures (excluding AFUDC) totaled approximately $392 million with
estimated expenditures for 1996, 1997 and 1998 totaling $387 million, $301
million and $328 million, respectively. HL&P's capital programs for the next
three years, which are expected to relate to costs for production,
transmission, distribution and general plant, are subject to periodic review
and may be revised at any time due to changes in load forecasts, regulatory and
environmental standards and other factors.

During the next three years, it is anticipated that HL&P will require
approximately $497 million for repayment of maturing long-term debt, preferred
stock subject to mandatory redemption and capital leases. These expenditures
are anticipated to be $179 million in 1996, $252 million in 1997 and $66
million in 1998.

Environmental Expenditures. The Federal Clean Air Act (Clean Air Act)
has required, and will continue to require, HL&P to increase its environmental
expenditures. In 1995, modifying HL&P's existing facilities to reduce
emissions of nitrogen oxides (NOx) cost approximately $1 million. The date for
installation of additional controls has been delayed by the United States
Environmental Protection Agency (EPA) and the Texas Natural Resource
Conservation Commission until it becomes certain that additional expenditures
for NOx emission reductions will be required under the provisions of the Clean
Air Act. However, up to an additional $40 million may be incurred by HL&P in
order to fully comply with new NOx requirements through 1999. In addition, it
is anticipated that approximately $1 million in 1996 will be expended to
install continuous emission monitoring equipment; approximately $3 million was
incurred for this equipment in 1995.

The EPA identified HL&P as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act for the
costs of cleaning up a site located adjacent to one of HL&P's transmission
lines. HL&P believes that the EPA took this action solely on the basis of
information indicating that HL&P in the 1950s acquired record title to a
portion of the land on which the site is located. HL&P does not believe that
it now nor previously has had any ownership interest in the land in question
and has obtained a judgment from a court in Galveston County, Texas, to that
effect. Accordingly, HL&P has not complied with this order, even though HL&P
understands that other responsible parties are proceeding with site remediation.
To date, neither the EPA nor any other potentially responsible party has
instituted a claim against HL&P for any share of the remediation costs, but
under current law if HL&P is determined to be a responsible party, HL&P could be
found to be jointly and severally liable for the

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<PAGE> 38
remediation costs (which HL&P estimates to be approximately $80 million) and
could be subjected to substantial fines and damage claims.

Compliance with possible additional legislation related to global
climate change, electromagnetic fields and other environmental and health
issues could significantly affect the Company and HL&P. The impact of the new
legislation, if any, will depend on the subsequent development and
implementation of applicable regulations.

COMPANY--SOURCES OF CAPITAL RESOURCES AND LIQUIDITY

The Company has registered with the Securities and Exchange Commission
(SEC) ten million shares of its Common Stock and $250 million principal amount
of its debt securities, all of which securities remain unissued and, subject to
market conditions, could be sold to raise additional capital for the Company.
Proceeds from the sale of these securities can be used for general corporate
purposes, including, but not limited to, the redemption, repayment or
retirement of outstanding indebtedness of the Company or the advance or
contribution of funds to one or more of the Company's subsidiaries to be used
for their general corporate purposes, including, without limitation, the
redemption, repayment or retirement of indebtedness or preferred stock.

The Company has consolidated its financing activities in order to provide
a coordinated, cost-effective method of meeting short and long-term capital
requirements. As part of the consolidated financing program, the Company has
established a "money fund" through which its subsidiaries can borrow or invest
on a short-term basis. The funding requirements of individual subsidiaries are
aggregated and borrowing or investing is conducted by the Company based on the
net cash position.

In 1995, net funding requirements under the "money fund" were met with
borrowings under the Company's commercial paper program, except that HL&P's
short-term borrowing requirements were generally met with HL&P's commercial
paper program. In 1996, net funding requirements of the Company and HL&P are
expected to be met with a combination of commercial paper and bank borrowings.
As of December 31, 1995, the Company had a bank credit facility of $1.1 billion
(exclusive of bank credit facilities of subsidiaries), which was used to
support its commercial paper program. At December 31, 1995, the Company had
approximately $6.3 million of commercial paper outstanding. Rates paid by the
Company on its short-term borrowings are generally lower than the prime rate.

In the fourth quarter of 1996, the Company will be required to redeem
$200 million of its 7-1/4% debentures. Based on current market conditions, the
Company expects to fund this redemption requirement using proceeds from
short-term borrowings or other external sources.

Subject to the nature and extent of future project commitments, it is
anticipated that HI Energy's 1996 capital requirements will be satisfied
primarily through intercompany borrowings from the Company. HI Energy intends
that any third party borrowings it incurs will be non-recourse to the Company,
HL&P or HI Energy.

HL&P--SOURCES OF CAPITAL RESOURCES AND LIQUIDITY

HL&P expects to finance its 1996 through 1998 capital program with funds
generated internally from operations. HL&P has registered with the SEC $230
million aggregate liquidation value of its preferred stock and $580 million
aggregate principal amount of its debt securities that may be issued as first
mortgage bonds. Subject to market conditions, these securities could be

38
<PAGE> 39
issued as another source of capital for HL&P. Proceeds from any sale of these
securities are expected to be used for general corporate purposes including the
purchase, redemption (to the extent permitted by the terms of the outstanding
securities), repayment or retirement of outstanding indebtedness or preferred
stock of HL&P.

In 1995, HL&P's interim financing requirements were met with commercial
paper. HL&P has a commercial paper program supported by a bank line of credit
of $400 million. HL&P had no commercial paper outstanding at December 31,
1995. At December 31, 1995, HL&P had approximately $75.9 million in cash and
cash equivalents invested in short-term investments.

HL&P continued to reduce its financing costs by retiring higher-cost
bonds in 1995. In addition, HL&P accelerated in 1995 the sinking fund
requirements of certain shares of its preferred stock. As a result of these
efforts, the composite interest rate on long-term debt decreased from 8.32
percent at December 31, 1993 to 8.19 percent at December 31, 1995. During the
same period, the composite dividend rate on preferred stock increased from 6.23
percent to 6.43 percent. In 1996, HL&P will be required to redeem $150 million
of its first mortgage bonds and $26 million of its preferred stock. For
additional information, see Notes 6 and 7(b) to the Financial Statements.
HL&P intends to satisfy these redemption obligations using funds internally
generated from operations.

NEW ACCOUNTING ISSUES

In 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of"), which imposes stricter standards for assessing
asset impairments than previously imposed by generally accepted accounting
principles. SFAS No. 121 is effective for years beginning after December 15,
1995. Beginning in 1996, the Company and HL&P (and other companies subject to
SFAS No. 121) must review certain assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If an impairment is found to exist, the impairment loss to be
recognized is the amount by which the carrying amount exceeds the fair value.
The Company and HL&P believe that, based on current conditions, SFAS No. 121
will have no material effect on their respective results of operations when
adopted in 1996. This conclusion, however, may change in the future as
competition influences wholesale and retail pricing in the electric utility
industry.

In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." Effective for fiscal years beginning after December
15, 1995, SFAS No. 123 does not rescind the existing accounting for employee
stock-based arrangements but encourages (although it does not require)
recognizing the fair value based method of accounting for stock-based
compensation. Companies that choose not to adopt the new rules will continue to
apply the existing accounting rules contained in Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees"; however, SFAS
No. 123 requires disclosure of pro forma net income and earnings per share that
would have been reported under the "fair value" recognition provisions of SFAS
No. 123. The Company and HL&P have reviewed the provisions of SFAS No. 123,
and based on current assumptions, the calculated "fair value" does not result
in a material difference in 1995 recorded compensation cost. The Company and
HL&P will continue to account for stock-based compensation under APB Opinion
No. 25 and disclose the pro forma information required under SFAS No. 123.

The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs

39
<PAGE> 40
for nuclear generating facilities recorded on the financial statements of
electric utilities. In response to these questions, the FASB initiated a
project entitled "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets." Throughout 1995, the FASB reviewed the
accounting for closure or removal obligations, including decommissioning of
nuclear facilities. In February 1996, FASB issued an Exposure Draft
communicating the results of this project. The Exposure Draft outlines the
following: (i) the requirement of recognition of a liability based on the
present value of the estimated future cash outflows that will be required to
satisfy the closure or removal obligations, using a risk-free interest rate
(U.S. Treasury securities), (ii) an equal amount capitalized as part of the
costs of the related long-lived asset, depreciated over the life of the asset,
and (iii) recognition of a regulatory asset or liability under SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation", for differences in
expenses recognized under this statement and amounts charged to customers in
rate-regulated entities. HL&P believes that, while the proposed standard would
also significantly increase disclosure requirements, it would have minimal
impact on the Company's and HL&P's financial condition or results of
operations.

The Company and HL&P's financial statements include additional
disclosures required as a result of the adoption of the SOP 94-6 "Disclosure of
Certain Significant Risks and Uncertainties". This SOP, which is effective for
financial statements issued for fiscal years ending after December 15, 1995,
requires financial statement disclosure for (i) the nature of operations, (ii)
use of estimates in the preparation of financial statements, and, if specified
disclosure criteria are met, (iii) certain significant estimates and (iv)
current vulnerability due to certain concentrations.

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<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Electric utility . . . . . . . . . . . . . . . . . . $ 3,680,297 $ 3,746,085 $ 4,079,863
Other . . . . . . . . . . . . . . . . . . . . . . . 49,876 8,051 3,792
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 3,730,173 3,754,136 4,083,655
----------- ----------- -----------

EXPENSES:
Electric utility:
Fuel . . . . . . . . . . . . . . . . . . . . . . 879,148 860,936 1,063,050
Purchased power . . . . . . . . . . . . . . . . . 233,494 408,963 515,502
Operation and maintenance . . . . . . . . . . . . 866,170 828,748 898,535
Taxes other than income taxes. . . . . . . . . . . 245,890 251,421 211,295
Depreciation and amortization . . . . . . . . . . . . 478,034 399,341 386,893
Other operating expenses . . . . . . . . . . . . . . 122,504 36,112 27,234
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 2,825,240 2,785,521 3,102,509
------------ ----------- -----------

OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 904,933 968,615 981,146
----------- ----------- -----------

OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . 7,760 4,115 3,512
Time Warner dividend income . . . . . . . . . . . . 20,132
Interest income . . . . . . . . . . . . . . . . . . 9,774 6,628 33,357
Other - net . . . . . . . . . . . . . . . . . . . . (19,304) (6,350) 1,678
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 18,362 4,393 38,547
----------- ----------- -----------

INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . . . 279,491 265,494 304,462
Other interest . . . . . . . . . . . . . . . . . . . 21,586 25,076 15,145
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . (4,692) (5,554) (3,781)
Preferred dividends of subsidiary . . . . . . . . . 29,955 33,583 34,473
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 326,340 318,599 350,299
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING . . . . 596,955 654,409 669,394

INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 199,555 230,424 228,863
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING . . . . . . . . . . . 397,400 423,985 440,531

DISCONTINUED OPERATIONS (NET OF INCOME TAXES):
Gain on sale of cable television subsidiary . . . . 708,124
Loss from discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . (16,524) (24,495)
----------- ----------- -----------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING . . . . . . . . . . . . . . . . . . . 1,105,524 407,461 416,036

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415) . . . . . . . . . . . . . . . . . . (8,200)
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036
=========== =========== ===========

</TABLE>
(continued on next page)

41
<PAGE> 42
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

(CONTINUED)

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
(Restated) (Restated)
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE:

CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING . . . . . . . . . . $ 1.60 $ 1.72 $ 1.69

DISCONTINUED OPERATIONS:
Gain on sale of cable television subsidiary . . . 2.86
Loss from discontinued cable television
operations . . . . . . . . . . . . . . . . . . . (.07) (.09)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS . . . . . . . . . . . (.03)
----------- ----------- -----------

EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60
=========== =========== ===========

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000) . . . . . . . . . . . . . . . . . . 247,706 245,707 260,008

</TABLE>

See Notes to Consolidated Financial Statements.

42
<PAGE> 43
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1994 1993
----------- ----------- -----------

<S> <C> <C> <C>
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 1,221,221 $ 1,191,230 $ 1,254,584

Add - Net Income . . . . . . . . . . . . . . . . . . . . . 1,105,524 399,261 416,036
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,326,745 1,590,491 1,670,620

Common Stock Dividends:
1995, $1.50; 1994, $1.50; 1993, $1.875
(per share) . . . . . . . . . . . . . . . . . . . . . . . (371,760) (369,270) (487,927)

Stock Dividend Distribution . . . . . . . . . . . . . . . . (1,313)

Tax Benefit of ESOP Dividends . . . . . . . . . . . . . . . 8,939

Redemption of HL&P Preferred Stock . . . . . . . . . . . . (402)
----------- ----------- -----------

Balance at End of Year . . . . . . . . . . . . . . . . . . $ 1,953,672 $ 1,221,221 $ 1,191,230
=========== =========== ===========

</TABLE>

See Notes to Consolidated Financial Statements.

43
<PAGE> 44
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)

ASSETS

<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,423,891 $ 7,221,142
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,027 876,159
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711,482 2,628,450
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,090 1,017,319
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 320,040 333,180
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,604 212,795
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 48,631 201,741
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,624 85,529
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,781,389 12,579,481

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,916,540 3,527,598
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . 8,864,849 9,051,883
----------- ----------

CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 11,779 10,443
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 10
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . . . 39,635 13,981
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 59,017 38,372
Time Warner dividends receivable . . . . . . . . . . . . . . . . . . . . . . . 10,313
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,699 56,711
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 138,007 148,007
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,562 14,398
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 337,445 281,922
----------- -----------

OTHER ASSETS:
Investment in Time Warner securities . . . . . . . . . . . . . . . . . . . . . 1,027,875
Net assets of discontinued cable television operations . . . . . . . . . . . . 618,982
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . . . . 613,134 638,917
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,215 271,454
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 161,788 161,885
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . . . 232,775 98,954
Equity investments in and advances to foreign and
non-regulated affiliates - net . . . . . . . . . . . . . . . . . . . . . . 35,938 43,617
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,617,312 2,069,272
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,819,606 $11,403,077
=========== ===========

</TABLE>

See Notes to Consolidated Financial Statements.

44
<PAGE> 45
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)

CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,123,563 $ 3,369,248
----------- -----------

Preference stock, no par; authorized, 10,000,000 shares;
none outstanding

Cumulative preferred stock of subsidiary:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . . 402,400 473,255
----------- -----------

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,338,422 3,734,133
----------- -----------

Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 7,864,385 7,576,636
----------- -----------

CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,300 423,291
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,008 159,225
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,925 169,690
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,380 73,527
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,502 98,469
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 20,773 21,307
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,582 64,905
Current portion of long-term debt and preferred stock . . . . . . . . . . . . . 379,451 49,475
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,664 64,026
----------- -----------

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,015,585 1,123,915
----------- -----------

DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 2,067,246 1,763,230
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . . 392,153 411,580
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,063 242,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,174 284,804
----------- -----------

Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . 2,939,636 2,702,526
----------- -----------

COMMITMENTS AND CONTINGENCIES

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,819,606 $11,403,077
=========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

45
<PAGE> 46
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock, no par; authorized, 400,000,000 shares;
issued, 262,672,468 and 262,593,326 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . . . . $ 2,441,790 $ 2,437,638
Unearned ESOP shares, 14,355,758 and 15,540,626 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . . . . (268,405) (289,611)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,953,672 1,221,221
Unrealized loss on investment in Time Warner common
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,494)
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 4,123,563 3,369,248
----------- -----------

CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 4,318,397 and 5,232,397 shares at
December 31, 1995 and 1994, respectively (entitled upon
involuntary liquidation to $100 per share):

Houston Lighting & Power Company:
Not subject to mandatory redemption:
$4.00 series, 97,397 shares . . . . . . . . . . . . . . . . . . . . 9,740 9,740
$6.72 series, 250,000 shares . . . . . . . . . . . . . . . . . . . . 25,115 25,115
$7.52 series, 500,000 shares . . . . . . . . . . . . . . . . . . . . 50,226 50,226
$8.12 series, 500,000 shares . . . . . . . . . . . . . . . . . . . . 50,098 50,098
Series A - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,094 49,094
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,104 49,104
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,345 351,345
----------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 shares at December 31, 1994 . . . . . . . . . . . 39,799
$9.375 series, 771,000 and 1,285,000 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . 76,755 127,811
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . (25,700) (45,700)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . 402,400 473,255
----------- -----------

LONG-TERM DEBT:
Debentures:
7 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
9 3/8% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 7/8% series, due 2002 . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . (1,087) (1,271)
----------- -----------
Total debentures . . . . . . . . . . . . . . . . . . . . . . . . . . 548,913 548,729
----------- -----------

Houston Lighting & Power Company:
First mortgage bonds:
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . 62,275 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000

</TABLE>
(continued on next page)

46
<PAGE> 47
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)

(CONTINUED)

<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . $ 16,600 $ 16,600
7 % pollution control series, due 2008 . . . . . . . . . . . . . . 19,200 19,200
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 33,470 33,470
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 12,100 12,100
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . 90,000 90,000
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 91,945
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . 68,700 68,700
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 58,905
7 7/8% pollution control series, due 2016 . . . . . . . . . . . . . . 68,000 68,000
6.70 % pollution control series, due 2017 . . . . . . . . . . . . . . 43,820 43,820
5.60 % pollution control series, due 2017 . . . . . . . . . . . . . . 83,565 83,565
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 75,000 75,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 100,000 100,000
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . . 29,685 29,685
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . . 75,000 75,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . . 70,315 70,315
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999 . . . . . . . . . 180,500 180,500
Medium-term notes series B, 8 5/8%, due 1996 . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.10%, due 2000 . . . . . . . . . . . . . . . 150,000 150,000
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . . . 150,000 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . 3,145,175 3,032,050
----------- -----------

Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . . . 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . . . 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . . . 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . . . 58,905
----------- -----------
Total pollution control revenue bonds . . . . . . . . . . . . . . . 5,000 155,850
----------- -----------

Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . (16,456) (12,253)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1996-2018 . . . . . . . . . . . . . . . . . . . . . . . . 8,560 12,403
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 1,129
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,915) 1,279
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,143,260 3,189,179
----------- -----------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,692,173 3,737,908
Current maturities . . . . . . . . . . . . . . . . . . . . . . (353,751) (3,775)
----------- -----------
Total long-term debt 3,338,422 3,734,133
----------- -----------

Total capitalization . . . . . . . . . . . . . . . . . . . . $ 7,864,385 $ 7,576,636
=========== ===========

</TABLE>

See Notes to Consolidated Financial Statements.

47
<PAGE> 48
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)

Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 478,034 399,341 386,893
Amortization of nuclear fuel . . . . . . . . . . . . . . 28,545 21,561 2,101
Deferred income taxes . . . . . . . . . . . . . . . . . 78,382 85,547 194,711
Investment tax credits . . . . . . . . . . . . . . . . . (19,427) (19,416) (19,797)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . (7,760) (4,115) (3,512)
Fuel refund . . . . . . . . . . . . . . . . . . . . . . (189,571)
Fuel cost over (under) recovery . . . . . . . . . . . . 76,970 277,940 (91,863)
Regulatory tax asset - net . . . . . . . . . . . . . . . 6,876 11,300 (69,337)
Net cash provided by (used in) discontinued
cable television operations . . . . . . . . . . . . . 16,391 19,349 (1,073)
Changes in other assets and liabilities:
Accounts receivable - net. . . . . . . . . . . . . . . (46,299) (19,295) 302,268
Inventory . . . . . . . . . . . . . . . . . . . . . . 7,012 14,273 13,868
Other current assets . . . . . . . . . . . . . . . . . (14,900) 14,710 (15,138)
Accounts payable . . . . . . . . . . . . . . . . . . (23,217) (45,081) (7,962)
Interest and taxes accrued . . . . . . . . . . . . . . 11,088 (17,979) (16,689)
Other current liabilities . . . . . . . . . . . . . . (9,215) (5,102) 41,430
Other - net . . . . . . . . . . . . . . . . . . . . . 49,129 48,254 52,609
----------- ----------- -----------

Net cash provided by operating activities . . . . . . 839,438 1,205,272 1,209,040
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . (301,327) (418,453) (332,797)
Non-regulated electric power project expenditures
and advances . . . . . . . . . . . . . . . . . . . . . . (38,278) (7,087) (35,796)
Settlement of subsidiary debt in connection with
sale of cable television subsidiary . . . . . . . . . . 619,345
Corporate headquarters expenditures (including
capitalized interest) . . . . . . . . . . . . . . . . . (96,469) (46,829) (26,034)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . (47,601) (84,071) (61,856)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . (10,743) (13,562) (5,295)
----------- ----------- -----------

Net cash provided by (used in) investing activities . 124,927 (570,002) (461,778)
----------- ----------- -----------
</TABLE>

(continued on next page)

48
<PAGE> 49
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)

(CONTINUED)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock . . . . . . . . . . . . . . . . . $ 52,638
Proceeds from first mortgage bonds . . . . . . . . . . . . . $ 142,972 840,427
Payment of matured first mortgage bonds . . . . . . . . . . $ (19,500) (136,000)
Payment of common stock dividends . . . . . . . . . . . . . (371,731) (368,790) (389,933)
Redemption of preferred stock . . . . . . . . . . . . . . . (91,400) (20,000) (40,000)
Increase (decrease) in notes payable . . . . . . . . . . . . (416,991) (168,094) 27,136
Extinguishment of long-term debt . . . . . . . . . . . . . . (195,224) (995,751)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . (40,798) (68,184) (225,489)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . 10,143 4,857 65,277
----------- ----------- -----------

Net cash used in financing activities . . . . . . . . . (963,029) (639,711) (801,695)
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . 1,336 (4,441) (54,433)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . 10,443 14,884 69,317
----------- ----------- -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . $ 11,779 $ 10,443 $ 14,884
=========== =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------

Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . $ 342,551 $ 366,548 $ 397,911
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 104,228 174,657 123,975

</TABLE>

See Notes to Consolidated Financial Statements.

49
<PAGE> 50
HOUSTON LIGHTING & POWER COMPANY

STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . $ 3,680,297 $ 3,746,085 $ 4,079,863
----------- ----------- ------------

OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 879,148 860,936 1,063,050
Purchased power . . . . . . . . . . . . . . . . . . 233,494 408,963 515,502
Operation . . . . . . . . . . . . . . . . . . . . . 615,924 580,892 608,912
Maintenance . . . . . . . . . . . . . . . . . . . . 250,246 247,856 289,623
Depreciation and amortization . . . . . . . . . . . 475,124 398,142 385,731
Federal income taxes . . . . . . . . . . . . . . . . 245,807 254,993 239,464
Other taxes . . . . . . . . . . . . . . . . . . . . 245,890 251,421 211,295
----------- ----------- -----------
Total 2,945,633 3,003,203 3,313,577
----------- ----------- -----------

OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 734,664 742,882 766,286
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . 7,760 4,115 3,512
Interest income . . . . . . . . . . . . . . . . . . 12,218 10,000 3,296
Other - net . . . . . . . . . . . . . . . . . . . . (25,901) (12,561) (4,286)
----------- ----------- -----------
Total (5,923) 1,554 2,522
----------- ----------- -----------

INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . 728,741 744,436 768,808
----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . . . 244,384 246,533 276,049
Other interest . . . . . . . . . . . . . . . . . . . 8,117 8,493 12,317
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . (4,692) (5,554) (3,781)
----------- ----------- -----------
Total 247,809 249,472 284,585
----------- ----------- -----------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING . . . . . . . . . . . . . . . . . . . . 480,932 494,964 484,223

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415) . . . . . . . . . . . . . . . . . . . (8,200)
----------- ----------- -----------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 480,932 486,764 484,223

DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . . . . . 29,955 33,583 34,473
----------- ----------- -----------

INCOME AFTER PREFERRED DIVIDENDS . . . . . . . . . . . . . $ 450,977 $ 453,181 $ 449,750
=========== =========== ===========

</TABLE>

See Notes to Financial Statements.

50
<PAGE> 51
HOUSTON LIGHTING & POWER COMPANY

STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 2,153,109 $ 2,028,924 $ 1,922,558

Add - Net Income . . . . . . . . . . . . . . . . . . . . . 480,932 486,764 484,223

Redemption of Preferred Stock . . . . . . . . . . . . . . . (402)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 2,634,041 2,515,688 2,406,379
----------- ----------- -----------
Deduct - Cash Dividends:
Preferred:
$4.00 Series 389 390 390
$6.72 Series 1,680 1,680 1,680
$7.52 Series 3,760 3,760 3,760
$8.12 Series 4,060 4,060 4,060
Series A - 1992 2,324 1,740 1,366
Series B - 1992 2,322 1,683 1,366
Series C - 1992 2,823 2,040 1,672
Series D - 1992 2,747 2,075 1,615
$8.50 Series 1,417 4,108 6,517
$9.375 Series 8,433 12,047 12,047

Common 454,000 328,996 342,982
----------- ----------- -----------

Total . . . . . . . . . . . . . . . . . . . . . . . . 483,955 362,579 377,455
----------- ----------- -----------

Balance at End of Year . . . . . . . . . . . . . . . . . . $ 2,150,086 $ 2,153,109 $ 2,028,924
=========== =========== ===========

</TABLE>

See Notes to Financial Statements.

51
<PAGE> 52
HOUSTON LIGHTING & POWER COMPANY

BALANCE SHEETS
(THOUSANDS OF DOLLARS)

ASSETS

<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
----------- ------------

<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,423,891 $ 7,221,142
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,027 876,159
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711,482 2,628,450
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,090 1,017,319
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 320,040 333,180
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,604 212,795
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 48,631 201,741
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,675,765 12,493,952
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,906,139 3,517,923
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . 8,769,626 8,976,029
----------- -----------

CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 75,851 235,867
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 10
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,845 4,213
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,858 8,896
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 59,017 38,372
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,699 56,711
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 137,584 147,922
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,876 9,665
----------- -----------
Total current assets 371,163 501,656
----------- -----------

OTHER ASSETS:
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . . . . 613,134 638,917
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,012 241,611
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 159,962 158,351
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . . . 232,775 98,954
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524,470 1,373,296
----------- -----------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,665,259 $10,850,981
=========== ===========
</TABLE>

See Notes to Financial Statements.

52
<PAGE> 53
HOUSTON LIGHTING & POWER COMPANY

BALANCE SHEETS
(THOUSANDS OF DOLLARS)

CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,826,013 $ 3,829,036
Cumulative preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,989,509 3,185,404
----------- -----------

Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,217,922 7,487,695
----------- -----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,032 148,042
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . . 6,982 10,936
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,673 181,043
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,823 64,732
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 20,773 21,307
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,582 64,905
Current portion of long-term debt and preferred stock . . . . . . . . . . . . 179,451 49,475
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,149 59,912
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 705,465 600,352
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . 1,947,488 1,876,300
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 392,153 411,580
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,063 242,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,168 232,142
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . 2,741,872 2,762,934
----------- -----------
COMMITMENTS AND CONTINGENCIES

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,665,259 $10,850,981
=========== ===========
</TABLE>

See Notes to Financial Statements.

53
<PAGE> 54
HOUSTON LIGHTING & POWER COMPANY

STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock, Class A; no par; authorized and outstanding,
1,000 shares, voting . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,524,949 $ 1,524,949
Common stock, Class B; no par; authorized and outstanding,
100 shares, non-voting . . . . . . . . . . . . . . . . . . . . . . . . . 150,978 150,978
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,150,086 2,153,109
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . . . 3,826,013 3,829,036
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 4,318,397 and 5,232,397 shares at
December 31, 1995 and 1994, respectively (entitled upon
involuntary liquidation to $100 per share):

Not subject to mandatory redemption:
$4.00 series, 97,397 shares . . . . . . . . . . . . . . . . . . . 9,740 9,740
$6.72 series, 250,000 shares . . . . . . . . . . . . . . . . . . . 25,115 25,115
$7.52 series, 500,000 shares . . . . . . . . . . . . . . . . . . . 50,226 50,226
$8.12 series, 500,000 shares . . . . . . . . . . . . . . . . . . . 50,098 50,098
Series A - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . 49,094 49,094
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . 49,104 49,104
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . 58,984 58,984
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,345 351,345
---------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 shares at December 31, 1994 . . . . . . . . . 39,799
$9.375 series, 771,000 and 1,285,000 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . 76,755 127,811
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . (25,700) (45,700)
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
---------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . 402,400 473,255
---------- -----------
LONG-TERM DEBT:
First mortgage bonds:
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . 62,275 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . 16,600 16,600
7 % pollution control series, due 2008 . . . . . . . . . . . . . . 19,200 19,200
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 33,470 33,470
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 12,100 12,100
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . 90,000 90,000
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 91,945
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . 68,700 68,700
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 58,905
7 7/8% pollution control series, due 2016 . . . . . . . . . . . . . . 68,000 68,000
6.70 % pollution control series, due 2017 . . . . . . . . . . . . . . 43,820 43,820
5.60 % pollution control series, due 2017 . . . . . . . . . . . . . . 83,565 83,565
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 75,000 75,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 100,000 100,000

</TABLE>
(continued on next page)

54
<PAGE> 55
HOUSTON LIGHTING & POWER COMPANY

STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)

(CONTINUED)

<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . $ 29,685 $ 29,685
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . 75,000 75,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . 70,315 70,315
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999 . . . . . . . . 180,500 180,500
Medium-term notes series B, 8 5/8%, due 1996 . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.10%, due 2000 . . . . . . . . . . . . . 150,000 150,000
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . 150,000 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 3,145,175 3,032,050
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . 58,905
----------- -----------
Total pollution control revenue bonds 5,000 155,850
----------- -----------
Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . (16,456) (12,253)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1996-2018 . . . . . . . . . . . . . . . . . . . . . . . . 8,560 12,403
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 1,129
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,915) 1,279
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,143,260 3,189,179
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . (153,751) (3,775)
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 2,989,509 3,185,404
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . $ 7,217,922 $ 7,487,695
=========== ===========
</TABLE>
See Notes to Financial Statements.

55
<PAGE> 56
HOUSTON LIGHTING & POWER COMPANY

STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 480,932 $ 486,764 $ 484,223

Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 475,124 398,142 385,731
Amortization of nuclear fuel . . . . . . . . . . . . . . 28,545 21,561 2,101
Deferred federal income taxes . . . . . . . . . . . . . 71,188 81,739 214,369
Investment tax credits . . . . . . . . . . . . . . . . . (19,427) (19,416) (19,797)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . (7,760) (4,115) (3,512)
Fuel refund . . . . . . . . . . . . . . . . . . . . . . (189,571)
Fuel cost over (under) recovery . . . . . . . . . . . . 76,970 277,940 (91,863)
Cumulative effect of change in accounting
for postemployment benefits . . . . . . . . . . . . . 8,200
Regulatory tax asset - net . . . . . . . . . . . . . . . 6,876 11,300 (69,337)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . (34,239) (17,827) 170,784
Materials and supplies . . . . . . . . . . . . . . . 10,338 12,449 3,850
Fuel stock . . . . . . . . . . . . . . . . . . . . . (2,988) 1,874 9,979
Accounts payable . . . . . . . . . . . . . . . . . . (32,964) (40,054) (11,854)
Interest and taxes accrued . . . . . . . . . . . . . . 17,721 (6,980) (20,035)
Other current liabilities . . . . . . . . . . . . . . (7,816) (4,936) 18,040
Other - net . . . . . . . . . . . . . . . . . . . . . (5,239) 20,270 63,721
----------- ----------- -----------
Net cash provided by operating activities . . . . . . . 867,690 1,226,911 1,136,400
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . (396,242) (418,453) (332,797)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . (10,618) (15,822) (13,067)
----------- ----------- -----------
Net cash used in investing activities . . . . . . . . . (406,860) (434,275) (345,864)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first mortgage bonds . . . . . . . . . . . . . 142,972 840,427
Payment of matured bonds . . . . . . . . . . . . . . . . . . (19,500) (136,000)
Payment of dividends . . . . . . . . . . . . . . . . . . . . (485,793) (363,083) (378,528)
Increase (decrease) in notes payable . . . . . . . . . . . . (171,100) 31,660
Decrease in notes payable to affiliated company . . . . . . (120,001)
Redemption of preferred stock . . . . . . . . . . . . . . . (91,400) (20,000) (40,000)
Extinguishment of long-term debt . . . . . . . . . . . . . . (195,224) (995,751)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . 8,599 4,501 15,817
----------- ----------- -----------
Net cash used in financing activities . . . . . . . . . (620,846) (569,182) (782,376)
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . (160,016) 223,454 8,160

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . 235,867 12,413 4,253
----------- ----------- -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . $ 75,851 $ 235,867 $ 12,413
=========== =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------

Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . $ 247,672 $ 251,245 $ 296,201
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 157,400 196,655 127,713

</TABLE>

See Notes to Financial Statements.

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<PAGE> 57
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly owned and
majority-owned subsidiaries. Certain investments in joint ventures or
other entities in which the Company or its subsidiaries have a 50
percent or less interest are recorded using the equity method or the
cost method. For additional information regarding investments and
advances, see Notes 1(j) and 4.

All significant intercompany transactions and balances are eliminated
in consolidation.

(B) SYSTEM OF ACCOUNTS AND EFFECTS OF REGULATION. HL&P, the principal
subsidiary of the Company, maintains its accounting records in
accordance with the FERC Uniform System of Accounts. HL&P's
accounting practices are subject to regulation by the Utility
Commission, which has adopted the FERC Uniform System of Accounts.

As a result of its regulated status, HL&P follows the accounting
policies set forth in SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation," which allows a utility with cost-based
rates to defer certain costs in concert with rate recovery that would
otherwise be expensed. In accordance with this statement, HL&P has
deferred certain costs pursuant to rate actions of the Utility
Commission and is recovering or expects to recover such costs in
electric rates charged to customers. The regulatory assets are
included in other assets on the Company's Consolidated and HL&P's
Balance Sheets. The regulatory liabilities are included in deferred
credits on the Company's Consolidated and HL&P's Balance Sheets. The
following is a list of significant regulatory assets and liabilities
reflected on the Company's Consolidated and HL&P's Balance Sheets:

<TABLE>
<CAPTION>
December 31, 1995
-----------------
(Millions of Dollars)

<S> <C>
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . $613
Malakoff investment . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 229
Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . . . 121
Deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Unamortized investment tax credit. . . . . . . . . . . . . . . . . . . . (392)
Accumulated deferred income taxes - regulatory tax asset . . . . . . . . (80)
</TABLE>

If as a result of changes in regulation or competition, HL&P's ability
to recover these assets and/or liabilities would not be assured, then
pursuant to SFAS No. 71 and to the extent that such regulatory assets
or liabilities ultimately were determined not to be recoverable, HL&P
would be required to write off or write down such assets or
liabilities.

(C) ELECTRIC PLANT. HL&P capitalizes at cost all additions to electric
plant, betterments to existing property and replacements of units of
property. Cost includes the original cost of contracted services,
direct labor and material, indirect charges for engineering
supervision and similar overhead items and AFUDC. Customer payments
for construction reduce additions to electric

57
<PAGE> 58
plant. AFUDC represents the estimated debt and equity costs of capital
funds not already included in rates necessary to finance the
construction of new regulated facilities.

HL&P computes depreciation using the straight-line method. The
depreciation provision as a percentage of the depreciable cost of
plant was 3.2 percent for 1995, 3.2 percent for 1994 and 3.1 percent
for 1993.

(D) DEFERRED PLANT COSTS. Under a "deferred accounting" plan authorized
by the Utility Commission, HL&P was permitted for regulatory purposes
to accrue carrying costs in the form of AFUDC on its investment in the
South Texas Project and defer and capitalize depreciation and other
operating costs on its investment after commercial operation and
until such costs were reflected in rates. In addition, the Utility
Commission authorized HL&P under a "qualified phase-in plan" to
capitalize allowable costs (including return) deferred for future
recovery as deferred charges.

In 1991, HL&P ceased all cost deferrals related to the South Texas
Project and began amortizing such amounts on a straight-line basis.
The accumulated deferrals for "deferred accounting" are being
amortized over the estimated depreciable life of the South Texas
Project. The accumulated deferrals for the "qualified phase-in plan"
are being amortized over a ten-year phase-in period that commenced in
1991. The amortization of these deferrals (which totaled $25.8
million for each of the years 1995, 1994 and 1993) is included on the
Company's Statements of Consolidated Income and HL&P's Statements of
Income as depreciation and amortization expense.

(E) REVENUES. HL&P records electricity sales under the full accrual
method, whereby unbilled electricity sales are estimated and recorded
each month in order to better match revenues with expenses. Other
revenues include electricity sales of a foreign electric utility,
which are also recorded under the full accrual method. Other revenues
also include management fees and other sales and services, which are
recorded when earned.

(F) INCOME TAXES. The Company and its subsidiaries file a consolidated
federal income tax return. The Company follows a policy of
comprehensive interperiod income tax allocation. Investment tax
credits are deferred and amortized over the estimated lives of the
related property.

(G) EARNINGS PER COMMON SHARE. Earnings per common share for the Company
are computed by dividing net income by the weighted average number of
shares outstanding during the respective period. All earnings per
common share amounts reflect the two-for-one common stock split
effected in the form of a stock distribution on December 9, 1995.

The Company adopted SOP 93-6 effective January 1, 1994. Pursuant to
the adoption of SOP 93-6, the number of weighted average common shares
outstanding reflects a reduction for ESOP shares not yet committed for
release to savings plan participants (unallocated shares). In
accordance with SOP 93-6, earnings per common share for periods prior
to January 1, 1994 have not been restated.

(H) STATEMENTS OF CONSOLIDATED CASH FLOWS. For purposes of reporting cash
flows, cash equivalents are considered to be short-term, highly liquid
investments readily convertible to cash.

(I) DISCONTINUED OPERATIONS. In July 1995, the Company sold KBLCOM, its
cable television subsidiary. The operations of KBLCOM are reflected
as discontinued operations for all periods presented. See Note 13.

(J) INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company owns one
million shares of Time Warner common stock and 11 million shares of
non-publicly traded Time Warner convertible

58
<PAGE> 59

preferred stock. The Company has recorded its investment in these
securities at a combined fair value of approximately $1 billion on the
Company's Consolidated Balance Sheet. Investment in the Time Warner
common stock is considered an "available-for-sale" equity security
under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Consequently, the Company excludes unrealized net
changes in the fair value of Time Warner common stock (exclusive of
dividends and write downs) from earnings and, until realized, reports
such changes as a net amount in the shareholders' equity section of the
balance sheet. Investment in the Time Warner convertible preferred
stock (which is not subject to the requirements of SFAS No. 115, since
it is a non-publicly traded equity security) is accounted for under the
cost method.

The securities held in the Company's nuclear decommissioning trust are
classified as "available-for-sale" and, in accordance with SFAS No.
115, are reported at fair value which at December 31, 1995
approximates cost ($44.5 million as of December 31, 1995) on the
Company's Consolidated and HL&P's Balance Sheets under deferred debits
and deferred credits. Any unrealized gains or losses are accounted
for in accordance with SFAS No. 71 as a regulatory asset/liability and
reported on the Company's Consolidated and HL&P's Balance Sheets as a
deferred debit.

(K) FUEL STOCK. Gas inventory (at average cost) was $12.1 million at
December 31, 1995. Coal, lignite, and oil inventory balances
recorded at last-in, first-out, were $22.2 million, $12.1 million, and
$13.3 million, respectively.

(L) RECLASSIFICATION. Certain amounts from the previous years have been
reclassified to conform to the 1995 presentation of financial
statements. Such reclassifications do not affect earnings.

(M) NATURE OF OPERATIONS. The Company is a holding company operating
principally in the electric utility business. HL&P is engaged in the
generation, transmission, distribution and sale of electric energy.
HL&P's service area covers a 5,000 square mile area in the Texas Gulf
Coast, including Houston. Another subsidiary of the Company, HI
Energy, participates in domestic and foreign power generation projects
and invests in the privatization of foreign electric utilities. The
business and operations of HL&P account for substantially all of the
Company's income from continuing operations and common stock equity.

(N) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

(2) JOINTLY-OWNED NUCLEAR PLANT

(A) HL&P INVESTMENT. HL&P is the project manager (and one of four
co-owners) of the South Texas Project, which consists of two 1,250
megawatt nuclear generating units. HL&P has a 30.8 percent interest
in the project and bears a corresponding share of capital and
operating costs associated with the project. As of December 31, 1995,
HL&P's investment in the South Texas Project and in nuclear fuel,
including AFUDC, was $2.0 billion (net of $439 million plant
accumulated depreciation) and $75.1 million (net of $142 million
nuclear fuel amortization), respectively.

(B) REGULATORY PROCEEDINGS AND LITIGATION. Between June 1993 and February
1995, the South Texas Project was listed on the United States Nuclear
Regulatory Commission's (NRC) "watch list" of plants with weaknesses
that warrant increased NRC regulatory attention. In February 1995,
the NRC removed the South Texas Project from its "watch list."

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<PAGE> 60
In February 1994, the City of Austin (Austin), one of the four
co-owners of the South Texas Project, filed suit against HL&P
(Austin Litigation). Trial of that suit, which began in March 1996
is pending in the 11th District Court of Harris County, Texas.
Austin alleges that the outages at the South Texas Project from
early 1993 to early 1994 were due to HL&P's failure to perform
obligations it owed to Austin under the Participation Agreement
among the four co-owners of the South Texas Project (Participation
Agreement). Austin also asserts that HL&P breached certain
undertakings voluntarily assumed by HL&P on behalf of the co-
owners under the terms of the NRC Operating Licenses and Technical
Specifications relating to the South Texas Project.

Under amended pleadings in the Austin Litigation, Austin claims it
suffered damages of at least $120 million due to increased operating
and maintenance costs, the cost of replacement power and lost profits
on wholesale transactions that did not occur. Although HL&P and the
Company do not believe there is merit to Austin's claims, no assurance
can be given as to the ultimate outcome of this matter.

In May 1994, the City of San Antonio (San Antonio), another co-owner
of the South Texas Project, intervened in the litigation filed by
Austin against HL&P and asserted claims similar to those asserted by
Austin. Although San Antonio has not specified the damages sought in
its complaint, expert reports filed in the litigation have indicated
that San Antonio's claims may be in excess of $228 million. On
February 29,1996, San Antonio announced that it was taking a nonsuit
on its claims in the Austin Litigation in order to pursue settlement
discussions with HL&P concerning those claims, as well as separate
claims for unspecified damages previously asserted by San Antonio
against HL&P with respect to the construction of the South Texas
Project, which construction claims are the subject of a request for
arbitration under the Participation Agreement. In order to preserve
its litigation claims pending the outcome of settlement negotiations,
San Antonio refiled its lawsuit in the 152nd District Court of Harris
County, Texas. While neither the Company nor HL&P believes there is
merit to San Antonio's claims either in the pending litigation or in
the arbitration proceeding, there can be no assurance as to the
ultimate outcome of those matters, nor can there be an assurance as to
the ultimate outcome of the settlement discussions. If a settlement
is reached, it is possible, among other things, that such resolution
could require in the near term a charge to earnings from continuing
operations, but it is not anticipated that any such resolution would
be material to the Company's or HL&P's financial position, liquidity
or ability to meet their respective cash requirements stemming from
operating, capital expenditures and financing activities.

(C) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas
Project maintain nuclear property and nuclear liability insurance
coverage as required by law and periodically review available limits
and coverage for additional protection. The owners of the South Texas
Project currently maintain $2.75 billion in property damage insurance
coverage which is above the legally required minimum, but is less than
the total amount of insurance currently available for such losses.
This coverage consists of $500 million in primary property damage
insurance and excess property insurance in the amount of $2.25
billion. Under the excess property insurance (which became effective
in November 1995), HL&P and the other owners of the South Texas
Project are subject to assessments, the maximum aggregate assessment
under current policies being $25.8 million during any one policy year.
The application of the proceeds of such property insurance is subject
to the priorities established by the NRC regulations relating to the
safety of licensed reactors and decontamination operations.

Pursuant to the Price Anderson Act (Act), the maximum liability to the
public for owners of nuclear power plants, such as the South Texas
Project, was $8.92 billion as of December 1995. Owners are required
under the Act to insure their liability for nuclear incidents and
protective evacuations by maintaining the maximum amount of financial
protection available from private sources and by maintaining secondary
financial protection through an industry retrospective rating plan.
The

60
<PAGE> 61
assessment of deferred premiums provided by the plan for each nuclear
incident is up to $75.5 million per reactor subject to indexing for
inflation, a possible 5 percent surcharge (but no more than $10 million
per reactor per incident in any one year) and a 3 percent state premium
tax. HL&P and the other owners of the South Texas Project currently
maintain the required nuclear liability insurance and participate in
the industry retrospective rating plan.

There can be no assurance that all potential losses or liabilities
will be insurable, or that the amount of insurance will be sufficient
to cover them. Any substantial losses not covered by insurance would
have a material effect on HL&P's and the Company's financial condition
and results of operations.

(D) NUCLEAR DECOMMISSIONING. In accordance with the Rate Case Settlement,
HL&P contributes $14.8 million per year to a trust established to fund
HL&P's share of the decommissioning costs for the South Texas Project.
For a discussion of securities held in the Company's nuclear
decommissioning trust, see Note 1(j). In May 1994, an outside
consultant estimated HL&P's portion of decommissioning costs to be
approximately $318 million (1994 dollars). The consultant's
calculation of decommissioning costs for financial planning purposes
used the DECON methodology (prompt removal/dismantling), one of the
three alternatives acceptable to the NRC, and assumed deactivation of
Unit Nos. 1 and 2 upon the expiration of their 40-year operating
licenses. While the current and projected funding levels presently
exceed minimum NRC requirements, no assurance can be given that the
amounts held in trust will be adequate to cover the actual
decommissioning costs of the South Texas Project. Such costs may vary
because of changes in the assumed date of decommissioning, changes in
regulatory and accounting requirements, changes in technology and
changes in costs of labor, materials and equipment.

(3) RATE MATTERS

The Utility Commission has original (or in some cases appellate)
jurisdiction over HL&P's electric rates and services. In Texas,
Utility Commission orders may be appealed to a District Court in
Travis County, and from that Court's decision an appeal may be taken
to the Court of Appeals for the 3rd District at Austin (Austin Court
of Appeals). Discretionary review by the Supreme Court of Texas may
be sought from decisions of the Austin Court of Appeals. In the event
that the courts ultimately reverse actions of the Utility Commission,
such matters are remanded to the Utility Commission for action in
light of the courts' orders. On remand, the Utility Commission's
action could range from granting rate relief substantially equal to
the rates previously approved to reducing the revenues to which HL&P
was entitled during the time the applicable rates were in effect,
which could require a refund to customers of amounts collected
pursuant to such rates.

(A) 1995 RATE CASE. In August 1995, the Utility Commission unanimously
approved the Rate Case Settlement, which resolved HL&P's 1995 rate
case (Docket No. 12065) as well as a separate proceeding (Docket No.
13126) regarding the prudence of operation of the South Texas Project.
Subject to certain changes in existing regulation or legislation, the
Rate Case Settlement precludes HL&P from seeking rate increases until
after December 31, 1997. HL&P began recording the effects of the Rate
Case Settlement in the first quarter of 1995. The Rate Case Settlement
reduced HL&P's earnings for 1995 by approximately $100 million.

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<PAGE> 62
The after-tax effects in 1995 of the Rate Case Settlement are as
follows:

<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
(Millions of Dollars)
<S> <C>
Reduction in base revenues . . . . . . . . . . . . . . . . . . . $ 52
South Texas Project write-down . . . . . . . . . . . . . . . . . 33
One-time write-off of mine-related costs . . . . . . . . . . . . 6
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9
----
Total Rate Case Settlement effect on net income . . . . $100
====
</TABLE>

The Rate Case Settlement gives HL&P the option to write down up to $50
million ($33 million after-tax) per year of its investment in the
South Texas Project through December 31, 1999. The parties to the
Rate Case Settlement agreed that any such write-down will be treated
as a reasonable and necessary expense during routine reviews of HL&P's
earnings and any rate review proceeding initiated against HL&P. In
accordance with the Rate Case Settlement, HL&P recorded a $50 million
pre-tax write-down in 1995 of its investment in the South Texas
Project which is included in the Company's Statements of Consolidated
Income and HL&P's Statements of Income in depreciation and
amortization expense. In 1995, HL&P also began accruing its share of
decommissioning expense for the South Texas Project at an annual rate
of $14.8 million (a $9 million per year increase over 1994).

As required by the Rate Case Settlement, HL&P will begin in 1996 to
amortize its $153 million investment in certain lignite reserves
associated with the canceled Malakoff project. These amortizations
will equal approximately $22 million per year. As a result of this
additional amortization, HL&P's remaining investment in Malakoff
($233 million at December 31, 1995) will be fully amortized no later
than December 31, 2002. During the second quarter of 1995, HL&P
recorded a one-time pre-tax charge of $9 million incurred in
connection with certain Malakoff mine-related costs that were not
previously recorded and were not recoverable under the terms of the
Rate Case Settlement. Issues concerning the prudence of expenditures
related to Malakoff were deferred until a subsequent rate case.

In Docket No. 8425, the Utility Commission allowed recovery of certain
costs associated with Malakoff by allowing HL&P to amortize these
costs over ten years. Such recoverable costs are not included in rate
base and, as a result, no return on investment is being earned during
the recovery period. The $28 million unamortized balance of these
costs at December 31, 1995 is included in the $233 million discussed
above and is to be amortized over the following 54 months.

In anticipation of the Rate Case Settlement, the Company and HL&P
recorded in the fourth quarter of 1994 a one-time, pre-tax charge of
approximately $70 million to reconcilable fuel revenues, an amount
which HL&P agreed as a part of the Rate Case Settlement was not
recoverable from ratepayers.

(B) RATE CASE APPEALS. Pursuant to the Rate Case Settlement, HL&P and the
other parties to that settlement have dismissed their pending appeals
of previous Utility Commission orders. As a result of that action or
subsequent judicial action, the Utility Commission's orders have
become final in Docket No. 9850 (involving HL&P's 1991 rate case) and
in Docket Nos. 8230 and 9010 (involving deferred accounting). Two
appeals of other orders, by parties who did not join in the Rate Case
Settlement, remain pending: review of Docket No. 8425 (HL&P's 1988
rate case), and review of Docket No. 6668 (the Utility Commission's
inquiry into the prudence of the planning and construction of the
South Texas Project). The appeal from the order in Docket No. 8425
concerns (i) the treatment as "plant held for future use" of certain
costs associated with the Malakoff

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generating station and (ii) the treatment by HL&P of certain tax
savings associated with federal income tax deductions for expenses not
included in cost of service for ratemaking purposes. The appeal is
currently pending before the Texas Supreme Court.

Review of the Utility Commission's order in Docket No. 6668 is pending
before a Travis County district court. In that order the Utility
Commission determined that $375.5 million of HL&P's $2.8 billion
investment in the South Texas Project had been imprudently incurred.
That ruling was incorporated into HL&P's 1988 and 1991 rate cases.
Unless the order is modified or reversed on appeal, the amount found
imprudent by the Utility Commission will be sustained.

(4) INVESTMENTS IN FOREIGN AND NON-REGULATED ENTITIES

(A) GENERAL. HI Energy sustained net losses of $33 million, $6 million
and $2 million in 1995, 1994 and 1993, respectively. Development
costs for 1995 were approximately $14 million. The majority of costs
in 1994 and 1993 were related to project development activities.

(B) FOREIGN INVESTMENTS. Houston Argentina S.A. (Houston Argentina),
a subsidiary of HI Energy, owns a 32.5 percent interest in
Compania de Inversiones en Electricidad S.A. (COINELEC), an Argentine
holding company which acquired a 51 percent interest in Empresa
Distribuidora de La Plata S.A. (EDELAP), an electric utility company
operating in La Plata, Argentina and surrounding regions. Houston
Argentina's share of the purchase price was approximately $37.4
million. Such investment was in the form of (i) a capital
contribution of $27.6 million to COINELEC and (ii) a loan to COINELEC
in the aggregate principal amount of $9.8 million. HI Energy has also
entered into support agreements with two financial institutions
pursuant to which HI Energy has agreed to make additional cash
contributions or subordinated loans to COINELEC or pay COINELEC's
lenders up to a maximum aggregate of $6.6 million in the event of a
default by COINELEC of its commitments to such financial institutions.
Subsequent to the acquisition, the generating assets of EDELAP were
transferred to Central Dique S.A., an Argentine Corporation, 51
percent of the stock of which is owned by COINELEC. HI Energy's
portion of EDELAP and Central Dique S.A. earnings was approximately $1
million in both 1995 and 1994.

In January 1995, HI Energy acquired for $15.7 million a 90 percent
ownership interest in an electric utility operating company located in
a rural province in the north central part of Argentina. The utility
system serves approximately 116,000 customers in an area of 136,000
square kilometers. HI Energy's share of net losses from this
investment for 1995 was $3.6 million substantially all of which was
due to non-recurring severance costs.

In 1995, HI Energy invested approximately $7 million in a cogeneration
project being developed in San Nicolas, Argentina and approximately $5
million in a coke calcining project being developed in the state of
Andhra Pradesh, India. These projects had no earnings impact in 1995.

HI Energy estimates that its commitment in 1996 for the Argentine
cogeneration project will be approximately $31 million and that its
share of the 1996 commitment for the coke calcining project will be
approximately $3 million. HI Energy has entered into a support
agreement in favor of the International Finance Corporation (IFC)
under the terms of which HI Energy has agreed to provide one of its
subsidiaries (HIE Rain), which is an investor in the coke calcining
project, with sufficient funds to meet certain funding obligations of
HIE Rain under agreements with the IFC. The maximum aggregate funding
commitment of HI Energy under this support agreement is approximately
$18 million, of which approximately $16 million is to support
contingent obligations of HIE Rain and the balance of which is
additional equity to be contributed to the coke calcining project.

63
<PAGE> 64
(C) ILLINOIS WASTE TIRE-TO-ENERGY PROJECTS. HI Energy is a subordinated
lender to two waste tire-to-energy projects being developed by Ford
Heights and Fulton, respectively, located in the state of Illinois. HI
Energy also owns a $400,000 equity interest (20 percent) in Ford
Heights. Both projects were being developed in reliance on the terms of
the Illinois Retail Rate Law, enacted in 1987, to encourage development
of energy production facilities for the disposal of solid waste by
providing an operating subsidy to qualifying projects. In March 1996,
the Governor of Illinois signed into law legislation which purports to
repeal the subsidy provided to most of such energy production
facilities, including the two waste tire-to-energy projects in which HI
Energy has invested. A lawsuit has been filed on behalf of the Ford
Heights and Fulton projects challenging, among other things, the
constitutionality of the repeal and its retroactive application to the
two waste tire-to-energy projects. On March 26, 1996, the Ford Heights
project filed a voluntary petition seeking protection under the federal
bankruptcy laws. The ability of the two waste tire-to-energy projects
to meet their debt obligations is dependent upon the projects
continuing to receive the operating subsidy under the Retail Rate Law.
The terms of the public bonds issued by the Ford Heights and Fulton
projects are non-recourse to the Company and HI Energy.

In response to the actions taken by the state of Illinois, the Company
has established a valuation allowance of $28 million ($18 million
after-tax), which amount reflects the combined amounts lent on a
subordinated basis to the Ford Heights and Fulton projects. In
addition to amounts funded through March 26, 1996, HI Energy also is
party to two separate Note Purchase Agreements committing it, under
certain circumstances, to acquire up to (i) $3 million in aggregate
principal amount of additional subordinated notes from the Ford Heights
project and (ii) $17 million in aggregate principal amount of
additional subordinated notes from the Fulton project. The Company has
entered into a support agreement under which it has agreed to provide
additional funds to HI Energy to enable it to honor its obligations
under the two Note Purchase Agreements. The Company is unable to
predict the ultimate effect of these developments on HI Energy's
remaining funding commitments under these Note Purchase Agreements;
however, in the Company's opinion it is unlikely that the majority of
the additional unfunded subordinated debt provided for in the Fulton
Note Purchase Agreement would be required to be funded unless
construction activities with respect to the Fulton project are
recommenced at some future date. If HI Energy becomes obligated to
advance additional funds under the Note Purchase Agreements, the
Company could be required to increase the amount of the valuation
allowance, which would result in additional charges to earnings.

(5) COMMON STOCK

(A) STOCK DISTRIBUTION. The Company effected a two-for-one stock split in
the form of a common stock distribution on December 9, 1995. All
prior periods have been restated for consistency to reflect the stock
distribution in terms of number of common shares outstanding and the
per share amounts for earnings, dividends and market price. The
nominal consideration established by the Board of Directors for the
common stock distributed ($.01 per share) is reflected as a deduction
from retained earnings in the Company's Statements of Consolidated
Retained Earnings.

(B) DIVIDENDS. The timing of the Company's Board of Directors'
declaration of dividends changed resulting in five quarterly dividend
declarations in 1993. All dividends declared in 1993 have been
included in 1993 common stock dividends on the Company's Statements of
Consolidated Retained Earnings. The Company paid four regular
quarterly dividends in 1993 aggregating $1.50 per share, after
restatement for the two-for-one stock split, on its common stock
shares.

(C) LONG-TERM INCENTIVE COMPENSATION PLANS. The Company has Long-Term
Incentive Compensation Plans (LICP) providing for the issuance of
stock incentives (including performance-based restricted shares and
stock options) to key employees of the Company, including officers.
As of December 31, 1995, 29 current and former employees participated
in the plans. A maximum of five million shares of common stock may be
issued under the LICP. Beginning one

<PAGE> 65
year after the grant date, the options become exercisable in one-third
increments each year. The options expire ten years from the grant
date.

Performance-based restricted shares issued were 49,792; 100,524; and
146,564 for 1995, 1994 and 1993, respectively. Stock option activity
for the years 1993 through 1995 is summarized below (as adjusted for
the Company's two-for-one stock distribution):
<TABLE>
<CAPTION>
Option Price at
Number Date of Grant
of Shares or Exercise
---------- --------------
<S> <C> <C>
Non-statutory stock options:

Outstanding at December 31, 1992 . . . . . . . . . . . . 131,742
Options Granted . . . . . . . . . . . . . . . . . . 131,552 $23.125
Options Exercised . . . . . . . . . . . . . . . . . . (1,324) $21.75
Options Withheld for Taxes . . . . . . . . . . . . . (34)
Options Canceled . . . . . . . . . . . . . . . . . . (10,038)

Outstanding at December 31, 1993 . . . . . . . . . . . . 251,898
Options Granted . . . . . . . . . . . . . . . . . . 131,452 $23.25
Options Exercised . . . . . . . . . . . . . . . . .
Options Withheld for Taxes . . . . . . . . . . . . .
Options Canceled . . . . . . . . . . . . . . . . . . (80,772)

Outstanding at December 31, 1994 . . . . . . . . . . . . 302,578
Options Granted . . . . . . . . . . . . . . . . . . 133,324 $17.75; $21.25
Options Exercised . . . . . . . . . . . . . . . . .
Options Withheld for Taxes . . . . . . . . . . . . .
Options Canceled . . . . . . . . . . . . . . . . . . (24,560)

Outstanding at December 31, 1995 . . . . . . . . . . . . 411,342

Exercisable at:
December 31, 1995 . . . . . . . . . . . . . . . . . 181,924 $21.75-$23.25

December 31, 1994 . . . . . . . . . . . . . . . . . 107,672 $21.75-$23.125

</TABLE>

(D) SHAREHOLDER RIGHTS PLAN. In July 1990, the Company adopted a shareholder
rights plan and declared a dividend of one right for each outstanding
share of the Company's common stock (including shares of common stock
issued in the Company's 1995 two-for-one stock split). The rights, which
under certain circumstances entitle their holders to purchase one
two-hundredth of a share of Series A Preference Stock for an exercise
price of $42.50, will expire on July 11, 2000. The rights will become
exercisable only if a person or entity acquires 20 percent or more of the
Company's outstanding common stock or if a person or entity commences a
tender offer or exchange offer for 20 percent or more of the outstanding
common stock. At any time after the occurrence of such events, the
Company may exchange unexercised rights at an exchange ratio of one share
of common stock, or equity securities of the Company of equivalent value,
per right. The rights are redeemable by the Company for $.01 per right
at any time prior to the date the rights become exercisable.

When the rights become exercisable, each right will entitle the holder to
receive, in lieu of the right to purchase Series A Preference Stock, upon
the exercise of such right, a number of shares of the Company's common
stock (or under certain circumstances cash, property, other equity

65
<PAGE> 66
securities or debt of the Company) having a current market price (as
defined in the plan) equal to twice the exercise price of the right,
except pursuant to an offer for all outstanding shares of common stock
which a majority of the independent directors of the Company determines
to be a price which is in the best interests of the Company and its
shareholders (Permitted Offer).

In the event that the Company is a party to a merger or other business
combination (other than a merger that follows a Permitted Offer), rights
holders will be entitled to receive, upon the exercise of a right, a
number of shares of common stock of the acquiring company having a
current market price (as defined in the plan) equal to twice the exercise
price of the right.

(E) INVESTOR'S CHOICE PLAN. The Company has registered four million shares
of its common stock under the Securities Act of 1933 for sale through the
Company's Investor's Choice Plan, a dividend reinvestment and stock
purchase plan. The plan is designed to provide investors with a way to
buy common stock directly from the Company and/or to arrange for
reinvestment of cash dividends in the Company's common stock.

(6) PREFERRED STOCK OF HL&P

At December 31, 1995, HL&P's cumulative preferred stock could be redeemed
at the following per share prices, plus any unpaid accrued dividends to
the date of redemption:

<TABLE>
<CAPTION>
Redemption
Series Price Per Share
------ ---------------
<S> <C>
Not Subject to Mandatory Redemption:
$4.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105.00
$6.72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.51
$7.52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.35
$8.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.25
Variable Term Preferred A (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred B (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred C (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred D (a) . . . . . . . . . . . . . . . . . . 100.00

Subject to Mandatory Redemption:
$9.375 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
</TABLE>

(a) Rates for Variable Term Preferred Stock as of December 31, 1995 were
as follows:

<TABLE>
<CAPTION>
Series Rate
------ ------
<S> <C>
Variable Term Preferred A 4.59%
Variable Term Preferred B 4.48%
Variable Term Preferred C 4.49%
Variable Term Preferred D 4.67%
</TABLE>

(b) HL&P is required to redeem 257,000 shares annually.

In 1995, HL&P redeemed 514,000 shares of its $9.375 cumulative preferred
stock at $100 per share and the remaining 400,000 shares of its $8.50
cumulative preferred stock at $100 per share. In 1994, HL&P redeemed 200,000
shares of its $8.50 cumulative preferred stock at $100 per share. Annual
mandatory redemptions of HL&P's preferred stock are $25.7 million in 1996,
1997 and 1998.

66
<PAGE> 67
(7) LONG-TERM DEBT

(a) COMPANY. Consolidated annual maturities of long-term debt and minimum
capital lease payments for the Company are approximately $354 million
in 1996, $226 million in 1997, $40 million in 1998, $171 million in
1999 and $150 million in 2000.

(b) HL&P. Sinking or improvement fund requirements of HL&P's first
mortgage bonds outstanding will be approximately $40 million for each
of the years 1996 through 2000. Of such requirements, approximately
$37 million for each of the years 1996 through 2000 may be satisfied
by certification of property additions at 100 percent of the
requirements, and the remainder through certification of such property
additions at 166 2/3 percent of the requirements. Sinking or
improvement fund requirements for 1995 and prior years have been
satisfied by certification of property additions.

HL&P has agreed to expend an amount each year for replacements and
improvements in respect of its depreciable mortgaged utility property
equal to $1,450,000 plus 2 1/2 percent of net additions to such
mortgaged property made after March 31, 1948 and before July 1 of the
preceding year. Such requirement may be met with cash, first mortgage
bonds, gross property additions or expenditures for repairs or
replacements, or by taking credit for property additions at 100
percent of the requirements. With respect to first mortgage bonds of
a series subject to special redemption, HL&P has the option to use
deposited cash to redeem first mortgage bonds of such series at the
applicable special redemption price. The replacement fund requirement
to be satisfied in 1996 is approximately $296 million.

The amount of HL&P's first mortgage bonds is unlimited as to issuance,
but limited by property, earnings and other provisions of the Mortgage
and Deed of Trust dated as of November 1, 1944, between HL&P and South
Texas Commercial National Bank of Houston (Texas Commerce Bank
National Association, as Successor Trustee) and the supplemental
indentures thereto. Substantially all properties of HL&P are subject
to liens securing HL&P's long-term debt under the mortgage.

In 1995, HL&P repurchased from a third party $37.7 million aggregate
principal amount of its 8 3/4% first mortgage bonds due 2022. The
total purchase price for those bonds was $42.2 million. In July 1995,
HL&P caused to be issued $150.9 million aggregate principal amount of
revenue refunding bonds collaterized by a like amount of HL&P first
mortgage bonds. The new bonds bear interest at 5.8% variable at
HL&P's option after a five-year, no-call period, and mature in 2015.
Proceeds from this issue were used to redeem $150.9 million of
pollution control revenue bonds (bearing a weighted average interest
rate of 9.9%) at 102% of the aggregate principal amount. HL&P's
annual maturities of long-term debt and minimum capital lease
payments are approximately $154 million in 1996, $226 million in 1997,
$40 million in 1998, $171 million in 1999 and $150 million in 2000.

(8) SHORT-TERM FINANCING

The interim financing requirements of the Company and its subsidiaries
are met through short-term bank loans, the issuance of commercial
paper and short-term advances from the Company. The Company and its
subsidiaries had bank credit facilities aggregating $1.5 billion at
December 31, 1995 and $1 billion at December 31, 1994, under which
borrowings are classified as short-term indebtedness. In the first
quarter of 1996, the Company reduced its borrowing capacity under
these facilities to $1.15 billion. These bank facilities limit total
short-term borrowings and provide for interest at rates generally less
than the prime rate. The Company's weighted average short-term
borrowing rates for commercial paper for the year ended December 31,
1995 and 1994 were 6.33% and 4.35%, respectively. Outstanding
commercial paper was $6 million at

67
<PAGE> 68
December 31, 1995 and $423 million at December 31, 1994. Facility fees are
required on the credit facilities.

(9) RETIREMENT PLANS

(a) PENSION. The Company has a noncontributory retirement plan covering
substantially all employees. The plan provides retirement benefits
based on years of service and compensation. The Company's funding
policy is to contribute amounts annually in accordance with applicable
regulations in order to achieve adequate funding of projected benefit
obligations. The assets of the plan consist principally of common
stocks and high quality, interest-bearing obligations.

Net pension cost for the Company attributable to continuing operations
includes the following components:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . . . $ 22,852 $ 21,977 $ 25,282
Interest cost on projected benefit obligation . . . . . . . 49,317 46,091 51,062
Actual (return) loss on plan assets . . . . . . . . . . . . (96,004) 5,357 (39,237)
Net amortization and deferrals . . . . . . . . . . . . . . . 50,889 (51,491) (558)
-------- -------- ----------
Net pension cost . . . . . . . . . . . . . . . . . . . 27,054 21,934 36,549
SFAS No. 88 - curtailment expense . . . . . . . . . . . . . 5,645
-------- -------- --------
Total pension cost . . . . . . . . . . . . . . . . . . $ 32,699 $ 21,934 $ 36,549
======== ======== ========
</TABLE>
The funded status of the Company's retirement plans attributable to
continuing operations was as follows:

<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . $ 504,655 $ 439,668
========= =========

Accumulated benefit obligation . . . . . . . . . . . . . . . . . $ 541,278 $ 471,987
========= =========

Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . $ 595,192 $ 496,365
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . 704,871 632,546
---------- -----------
Assets less than projected benefit obligation . . . . . . . . . . . (109,679) (136,181)
Unrecognized transitional asset . . . . . . . . . . . . . . . . . . . (13,421) (15,340)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . 46,627 21,456
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . 22,522 71,191
---------- -----------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . $ (53,951) $ (58,874)
========== ===========
</TABLE>

Net pension cost and funding attributable to discontinued operations
was not material.

The projected benefit obligation was determined using an assumed
discount rate of 7.5 percent in 1995 and 8 percent in 1994. A
long-term rate of compensation increase ranging from 4 percent to 6
percent was assumed for 1995 and ranging from 4.5 percent to 6.5
percent was assumed for 1994. The assumed long-term rate of return on
plan assets was 9.5 percent in 1995 and 1994. The transitional asset
at January 1, 1986, is being recognized over approximately 17 years,
and the prior service cost is being recognized over approximately 15
years.

68
<PAGE> 69

In 1995, the Company offered eligible employees (excluding officers) of
the Company, HL&P and HI Energy, who were 55 years of age or older and
had at least 10 years of service as of July 31, 1995 an incentive
program to retire early. For employees electing early retirement, the
program would add five years of service credit and five years in age up
to 35 years of service and age 65, respectively, in determining an
employee's pension. Each participating employee (under age 62) would
also receive a supplemental benefit to age 62. During July 1995, the
early retirement incentive was accepted by approximately 300 employees.

Pension benefits and supplemental benefits (if applicable) are being
paid out from the Houston Industries Incorporated Retirement Trust.
Based on the projected costs associated with the program, HL&P
increased its retirement plan and supplemental benefits by
approximately $28 million and $5 million, respectively. Pursuant to
SFAS No. 71, HL&P deferred the costs associated with the increases in
these benefit obligations and is amortizing the costs through the
period ending December 31, 1997. In 1995, the Company and HL&P
amortized $5.6 million of those costs as a curtailment under SFAS No.
88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," with regards to
the Company's and HL&P's early retirement program.

(b) SAVINGS PLAN. The Company has an employee savings plan that qualifies
as cash or deferred arrangements under Section 401(k) of the Internal
Revenue Code of 1986, as amended (IRC). Under the plan, participating
employees may contribute a portion of their compensation, pre-tax or
after-tax, up to a maximum of 16 percent of compensation limited by an
annual deferral limit ($9,240 for calendar year 1995) prescribed by
IRC Section 402(g) and the IRC Section 415 annual additions limits.
The Company matches 70 percent of the first 6 percent of each
employee's compensation contributed, subject to a vesting schedule
which entitles the employee to a percentage of the matching
contributions depending on years of service. Substantially all of the
Company's match is invested in the Company's common stock.

In October 1990, the Company amended its savings plan to add a
leveraged ESOP component. The Company may use ESOP shares to satisfy
its obligation to make matching contributions under the savings plan.
Debt service on the ESOP loan is paid using all dividends on shares in
the ESOP, interest earnings on funds held in the ESOP and cash
contributions by the Company. Shares of the Company's common stock
are released from encumbrance of the ESOP loan based on the proportion
of debt service paid during the period.

The Company adopted SOP 93-6, effective January 1, 1994, which
requires that the Company recognize benefit expense for the ESOP equal
to fair value of the ESOP shares committed to be released. In
accordance with SOP 93-6, the Company credits to unearned ESOP shares
the original purchase price of ESOP shares committed to be released to
plan participants with the difference between the fair value of the
shares and the original purchase price recorded to common stock.
Dividends on allocated ESOP shares are recorded as a reduction to
retained earnings; dividends on unallocated ESOP shares are recorded
as a reduction of debt or accrued interest on the ESOP loan. SOP 93-6
is effective only with respect to financial statements for periods
after January 1, 1994.

The Company's savings plan benefit expense attributable to continuing
operations was $18.9 million, $17.0 million and $17.3 million in 1995,
1994 and 1993, respectively. HL&P's portion of the savings plan
benefit expense was $18.3 million, $16.5 million and $15.9 million in
1995, 1994 and 1993, respectively. Savings plan benefit expense
attributable to discontinued operations was not material.

The ESOP shares (after restatement for the two-for-one stock dividend
distribution) were as follows:

69
<PAGE> 70
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
------------- ------------
<S> <C> <C>

Allocated shares . . . . . . . . . . . . . . . . . . . 4,093,834 3,151,086
Unallocated shares . . . . . . . . . . . . . . . . . . 14,355,758 15,540,626
------------- -------------
Total ESOP shares . . . . . . . . . . . . . . . . 18,449,592 18,691,712
============= =============
Fair value of unallocated ESOP shares . . . . . . . . $348,127,132 $276,817,401

</TABLE>
(c) POSTRETIREMENT BENEFITS. Effective January 1, 1993, the Company and
HL&P adopted SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," which requires that companies
recognize the liability for postretirement benefit plans other than
pensions (primarily health care). In accordance with SFAS No. 106,
the Company and HL&P are amortizing over a 22 year period
approximately $213 million ($211 million for HL&P) to cover the
"transition cost" of adopting SFAS No. 106 (i.e., the Company and
HL&P's liability for post-retirement benefits payable with respect to
employee service years accrued prior to the adoption of SFAS No. 106).

As provided in the Rate Case Settlement, HL&P is required to fund
during each year in an irrevocable external trust approximately $22
million of postretirement benefit costs which are included in rates.
In December 1995, HL&P commenced funding by contributing a total of
$15.1 million to three Voluntary Employees' Beneficiary Association
(VEBA) trusts and one 401(h) account of the retirement plan. This
contribution represented the amount of postretirement benefits
included in HL&P's rates (which included HL&P's interest in the South
Texas Project costs) less the estimated pay-as-you-go amounts for 1995
plus interest as if the contributions had been made on a monthly basis
during the year. HL&P intends to fund, on a monthly basis beginning
in 1996, the amount included in its rates. The Company, excluding
HL&P, will continue funding its postretirement benefits on a
pay-as-you-go basis.

The net postretirement benefit cost for the Company includes the
following components:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)

<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . . . . $ 9,093 $ 9,131 $ 9,453
Interest cost on accumulated benefit obligation . . . . . . . 11,143 10,265 18,354
Actual return on plan assets . . . . . . . . . . . . . . . . . -- -- --
Net amortization and deferrals . . . . . . . . . . . . . . . . 6,061 7,868 9,773
--------- --------- ---------
Net postretirement benefit cost . . . . . . . . . . . . . . . $ 26,297 $ 27,264 $ 37,580
========= ========= =========
</TABLE>

70
<PAGE> 71
The funded status of the Company's postretirement benefit costs was as
follows:

<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
------------- ------------
(Thousands of Dollars)

<S> <C> <C>
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (127,653) $ (98,828)
Fully eligible active plan participants . . . . . . . . . . . . . (13,307) (22,251)
Other active plan participants . . . . . . . . . . . . . . . . . . (27,492) (23,378)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (168,452) (144,457)
Plan assets at fair market value . . . . . . . . . . . . . . . . . . . 18,310
---------- ----------
Assets less than accumulated benefit obligation . . . . . . . . . . . (150,142) (144,457)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . 183,727 193,500
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . (73,613) (91,477)
---------- ----------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . $ (40,028) $ (42,434)
========== ==========

</TABLE>
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation in 1995 are as follows:

<TABLE>
<S> <C>
Medical - under 65 8.1%
Medical - 65 and over 9.0%
Dental 8.0%
</TABLE>

The assumed health care rates gradually decline to 5.4 percent for both
medical categories and 3.7 percent for dental by the year 2001. The
accumulated postretirement benefit obligation was determined using an assumed
discount rate of 7.5 percent for 1995 and 8 percent for 1994.

If the health care cost trend rate assumptions were increased by 1 percent,
the accumulated postretirement benefit obligation as of December 31, 1995
would be increased by approximately 7 percent. The annual effect of the 1
percent increase on the total of the service and interest costs would be an
increase of approximately 11 percent.

(d) POSTEMPLOYMENT BENEFITS. Effective January 1, 1994, the Company and
HL&P adopted SFAS No. 112, "Employer's Accounting for Postemployment
Benefits," which requires the recognition of a liability for
benefits, not previously accounted for on the accrual basis, provided
to former or inactive employees, their beneficiaries and covered
dependents, after employment but before retirement (primarily health
care and life insurance benefits for participants in the long-term
disability plan). As required by SFAS No. 112, the Company and HL&P
expensed the transition obligation (liability from prior years) upon
adoption and recorded a one-time, after-tax charge to income of $8.2
million in the first quarter of 1994. Ongoing charges to income were
not material.

(10) INCOME TAXES

The Company and HL&P record income taxes under SFAS No. 109,
"Accounting for Income Taxes," which, among other things, (i) requires
the liability method be used in computing deferred taxes on all
temporary differences between book and tax bases of assets other than
nondeductible goodwill; (ii) requires that deferred tax liabilities
and assets be adjusted for an enacted change in tax laws or rates; and
(iii) prohibits net-of-tax accounting and reporting. SFAS No. 109
requires that regulated enterprises recognize such adjustments as
regulatory assets or liabilities if it is probable that such amounts
will be recovered from or returned to customers in future rates.

71
<PAGE> 72
In 1993, the corporate tax rate applicable to the Company and HL&P increased
from 34% to 35%. The effects of the new law, which decreased the Company's net
income by $14.3 million (approximately half of which was attributed to
discontinued operations), were recognized as a component of income tax expense
in 1993. The effect on the Company's deferred taxes, primarily attributable to
discontinued operations, as a result of the change in the new law, was an
increase of $10.9 million in 1993.

The Company's current and deferred components of income tax expense from
continuing operations are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- ------------
(Thousands of Dollars)
<S> <C> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,435 $ 144,604 $ 109,078
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . 80,120 85,820 119,785
--------- --------- ---------
Income taxes for continuing operations before
cumulative effect of change in accounting . . . . . . $ 199,555 $ 230,424 $ 228,863
========= ========= =========
</TABLE>

The Company's effective income tax rates are lower than statutory corporate
rates for each year as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ------------ -------------
(Thousands of Dollars)
<S> <C> <C> <C>
Income from continuing operations before
income taxes and cumulative effect of
change in accounting . . . . . . . . . . . . . . . . $ 596,955 $ 654,409 $ 669,394
Preferred dividends of subsidiary . . . . . . . . . . . 29,955 33,583 34,473
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . 626,910 687,992 703,867
Statutory rate . . . . . . . . . . . . . . . . . . . . . 35% 35% 35%
--------- --------- ---------
Income taxes at statutory rate . . . . . . . . . . . . . 219,419 240,797 246,353
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . 2,716 1,440 1,229
Amortization of investment tax credit . . . . . . . . 19,427 19,416 19,797
Excess deferred taxes . . . . . . . . . . . . . . . . 4,384 3,537 9,625
Difference between book and tax
depreciation for which deferred
taxes have not been normalized . . . . . . . . . . (15,211) (15,455) (12,976)
Equity dividend exclusion . . . . . . . . . . . . . . 4,932
Other - net . . . . . . . . . . . . . . . . . . . . . 3,616 1,435 (185)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . 19,864 10,373 17,490
--------- --------- ---------
Income taxes before cumulative effect of
change in accounting . . . . . . . . . . . . . . . . $ 199,555 $ 230,424 $ 228,863
========= ========= =========

Effective rate . . . . . . . . . . . . . . . . . . . . . 31.8% 33.5% 32.5%
</TABLE>

72
<PAGE> 73
Following are the Company's tax effects of temporary differences
attributable to continuing operations resulting in deferred tax assets
and liabilities:
<TABLE>
<CAPTION>

December 31,
---------------------------------
1995 1994
-------------- -------------
(Thousands of Dollars)
<S> <C> <C>
Deferred Tax Assets:
Alternative minimum tax . . . . . . . . . . . . . . . . . . . . . . . $ 46,516 $ 66,707
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . . . 74,966 74,966
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . . 22,687 23,496
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,628 83,740
---------- ----------
Total deferred tax assets - net . . . . . . . . . . . . . . . . . 240,797 248,909
---------- ----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,573 1,336,035
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . 200,028 207,746
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Capitalized taxes, employee benefits and removal costs . . . . . . . . 110,065 111,660
Gain on sale of cable television subsidiary . . . . . . . . . . . . . 227,515
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,275 121,235
---------- ----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . 2,308,043 2,012,139
---------- ----------

Accumulated deferred income taxes - net . . . . . . . . . . $2,067,246 $1,763,230
========== ==========
</TABLE>

See Note 13 for income taxes related to discontinued operations.

(11) COMMITMENTS AND CONTINGENCIES

(a) HL&P COMMITMENTS. HL&P has various commitments for capital
expenditures, fuel, purchased power, cooling water and operating
leases. Commitments in connection with HL&P's capital program are
generally revocable by HL&P subject to reimbursement to manufacturers
for expenditures incurred or other cancellation penalties. HL&P's
other commitments have various quantity requirements and durations.
However, if these requirements could not be met, various alternatives
are available to mitigate the cost associated with the contracts'
commitments.

(b) FUEL AND PURCHASED POWER. HL&P is a party to several long-term coal,
lignite and natural gas contracts which have various quantity
requirements and durations. Minimum payment obligations for coal and
transportation agreements are approximately $175 million in 1996, $178
million in 1997 and $184 million in 1998. Additionally, minimum
payment obligations for lignite mining and lease agreements are
approximately $5 million for 1996, $8 million for 1997 and $9 million
for 1998. Collectively, the fixed price gas supply contracts, which
expire in 1997, could amount to 11 percent of HL&P's annual natural
gas requirements for 1996 and 7 percent for 1997. Minimum payment
obligations for both natural gas purchase and storage contracts are
approximately $57 million in 1996, $38 million in 1997 and $9 million
in 1998.

HL&P also has commitments to purchase firm capacity from cogenerators
of approximately $22 million in each of the years 1996 through 1998.
Utility Commission rules currently allow recovery of these costs
through HL&P's base rates for electric service and additionally
authorize HL&P to charge or credit customers through a purchased power
cost recovery factor for any variation in actual purchased power costs
from the cost utilized to determine its base rates. In the event that
the Utility Commission, at some future date, does not allow recovery
through rates of any amount of purchased power payments, the two
principal firm capacity contracts contain provisions allowing HL&P to
suspend or reduce payments and seek repayment for amounts disallowed.

73
<PAGE> 74
(c) OTHER. HL&P's service area is heavily dependent on oil, gas, refined
products, petrochemicals and related businesses. Significant adverse
events affecting these industries would negatively affect the
revenues of the Company and HL&P. For information regarding
contingencies relating to the South Texas Project, see Note 2 above.
The Company and HL&P are involved in legal, tax and regulatory
proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course
of business, some of which involve substantial amounts.

(12) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair value of the Company's
financial instruments are as follows:

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1995 1994
---------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------- ----------- -------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments . . . . . . . $ 11,779 $ 11,779 $ 10,443 $ 10,443
Investment in Time Warner securities . . . . 1,027,875 1,027,875

Financial liabilities:
Short-term notes payable . . . . . . . . . . 6,300 6,300 423,291 423,291
Cumulative preferred stock of
subsidiary (subject to mandatory
redemption) . . . . . . . . . . . . . . . . 76,755 79,250 167,610 173,355
Debentures . . . . . . . . . . . . . . . . . 348,914 396,903 548,729 549,532
Long-term debt of subsidiaries:
Electric:
First mortgage bonds . . . . . . . . . 2,979,293 3,247,139 3,020,400 2,980,028
Pollution control revenue bonds . . . 4,426 5,000 155,247 163,736
Other notes payable 981 981 1,129 1,129
Discontinued operations:
Senior bank debt . . . . . . . . . . . 364,000 364,000
Senior and senior subordinated
notes . . . . . . . . . . . . . . . 140,580 154,654
</TABLE>

The fair values of cash and short-term investments, investment in equity
securities, short-term and other notes payable and bank debt are estimated to
be equivalent to the carrying amounts.

The fair values of the Company's debentures, HL&P's cumulative preferred
stock subject to mandatory redemption, HL&P's first mortgage bonds, pollution
control revenue bonds issued on behalf of HL&P and senior subordinated notes
are estimated using rates currently available for securities with similar
terms and remaining maturities.

(13) CABLE TELEVISION--DISCONTINUED OPERATIONS

In July 1995, the Company completed the sale of KBLCOM, its cable television
subsidiary, to Time Warner. The Company's 1995 earnings include a one-time,
after-tax gain on the sale of $708 million. Effective January 1, 1995, the
operations of KBLCOM were accounted for as discontinued and prior periods
were restated for consistency in reflecting KBLCOM as a discontinued
operation.

74
<PAGE> 75
As consideration for the sale of KBLCOM, the Company received 1 million shares
of Time Warner common stock and 11 million shares of non-publicly traded
convertible preferred stock. Time Warner also purchased from the Company for
cash approximately $619 million (after post closing adjustments) of KBLCOM's
intercompany indebtedness and assumed approximately $650 million of KBLCOM's
external debt and other liabilities. The convertible preferred stock has an
aggregate liquidation preference (redeemable after July 6, 2000) of $100 per
share (plus accrued and unpaid dividends), is entitled to cumulative annual
dividends of $3.75 per share until July 6, 1999, is currently convertible by
the Company and after four years is exchangeable by Time Warner into
approximately 22.9 million shares of Time Warner common stock. Each share of
preferred stock is entitled to two votes (voting together with the holders of
the Time Warner common stock as a single class). Under the terms of the sale,
the Company may make up to four demands for registration of its shares of Time
Warner common stock. Subject to certain exceptions, the terms of the sale
prohibit the Company from acquiring additional shares of Time Warner securities
or selling shares of Time Warner securities to any holder of more than 5
percent of certain classes of Time Warner voting securities.

Dividends on the Time Warner securities are recognized as income at the time
they are earned. In 1995, the Company recorded pre-tax dividend income of
$20.1 million.

Operating results from discontinued operations for years ended December 31,
1995, 1994 and 1993 were as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,925 $255,772 $244,067
Operating expenses (a) . . . . . . . . . . . . . . . . . . . 86,938 156,084 148,325
--------- -------- --------
Gross operating margin (a) . . . . . . . . . . . . . . . . . 56,987 99,688 95,742
Depreciation, amortization, interest and other . . . . . . . 81,409 128,023 117,982
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . (4,997) (11,811) 2,255
Deferred loss (b) . . . . . . . . . . . . . . . . . . . . . 19,425
--------- -------- --------
Loss from discontinued operations (c) . . . . . . . . . . . $ 0 $(16,524) $(24,495)
========= ======== ========
</TABLE>

(a) Exclusive of depreciation and amortization.

(b) The net loss for discontinued operations of KBLCOM through the date of
sale (July 6, 1995) was deferred by the Company. Upon closing of the
sale, the deferred loss was included as an adjustment to the gain on
sale of cable television subsidiary on the Company's Statements of
Consolidated Income.

(c) Loss from discontinued operations of KBLCOM excludes the effects of
corporate overhead charges and includes interest expense relating to
the amount of intercompany debt that Time Warner purchased from the
Company.

75
<PAGE> 76
Net assets of discontinued operations were as follows:

<TABLE>
<CAPTION>
December 31, 1994
-----------------
(Thousands of Dollars)
<S> <C>
Assets:
Cable television property, net of
accumulated depreciation of $161,402 . . . . . $ 276,624
Equity in cable television partnerships . . . . . . 160,363
Intangible assets . . . . . . . . . . . . . . . . . 1,029,440
Other assets . . . . . . . . . . . . . . . . . . . 43,625
----------
Total assets . . . . . . . . . . . . . . . . . . 1,510,052

Less:
Cable television debt . . . . . . . . . . . . . . . (504,580)
Accumulated deferred income taxes . . . . . . . . . (316,241)
Other liabilities . . . . . . . . . . . . . . . . . (70,249)
----------
Net assets . . . . . . . . . . . . . . . . . . . $ 618,982
==========
</TABLE>

(14) RAILROAD SETTLEMENT PAYMENTS

In July 1994, HL&P contributed to a wholly owned subsidiary the right of HL&P
to receive certain receivables relating to a litigation settlement. This
subsidiary transferred the receivables to a trust, which in turn sold
certificates evidencing a senior interest in the trust to a commercial bank
for $66.1 million. The subsidiary retained a subordinate interest in the
trust. HL&P recorded the transaction as a $66.1 million reduction to
reconcilable fuel expense in July 1994. The reduction to reconcilable fuel
expense had no effect on earnings.

(15) UNAUDITED QUARTERLY INFORMATION

The following unaudited quarterly financial information includes, in the
opinion of management, all adjustments (which comprise only normal recurring
accruals) necessary for a fair presentation. Quarterly results are not
necessarily indicative of a full year's operations because of seasonality and
other factors, including rate increases and variations in operating expense
patterns.

<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------
(Thousands of Dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 824,133 $1,006,617 $1,152,667 $ 770,719
Operating income . . . . . . . . . . . . . . . . . 145,497 292,886 451,839 78,393
Income from continuing operations (b) . . . . . . . 41,599 134,308 242,239 5,839
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . . . . (7,501) (7,583) (6,271) 4,831
Net income . . . . . . . . . . . . . . . . . . . . 25,898 126,725 235,968 10,670
Earnings per common share (a):
Income from continuing operations (b) . . . . . $ .17 $ .55 $ .98 $ .02
Net income . . . . . . . . . . . . . . . . . . . .11 .52 .96 .04
</TABLE>

76
<PAGE> 77
<TABLE>
<CAPTION>

Year Ended December 31, 1995
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------
(Thousands of Dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $755,238 $989,843 $1,184,938 $800,154
Operating income . . . . . . . . . . . . . . . . . 115,151 283,789 421,903 84,090
Income from continuing operations . . . . . . . . . 23,849 133,260 235,861 4,430
Gain (loss) on sale of cable television
subsidiary . . . . . . . . . . . . . . . . . . . 90,607 618,088 (571)
Net income . . . . . . . . . . . . . . . . . . . . 114,456 133,260 853,949 3,859
Earnings per common share (a):
Income from continuing operations . . . . . . . $ .10 $ .54 $ .95 $ .02
Net income . . . . . . . . . . . . . . . . . . . .46 .54 3.44 .02
</TABLE>

(a) Quarterly earnings per common share are based on the
weighted average number of shares outstanding during
the quarter, and the sum of the quarters may not
equal annual earnings per common share. See Note
5(a).

(b) Information for the first quarter of 1994 is before
the cumulative effect of a change in accounting for
postemployment benefits of $8.2 million which reduced
earnings by $.03 per share.

77
<PAGE> 78
HOUSTON LIGHTING & POWER COMPANY

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1995

Except as modified below, the Notes to the Company's Consolidated Financial
Statements are incorporated herein by reference insofar as they relate to HL&P:
(1) Summary of Significant Accounting Policies, (2) Jointly-Owned Nuclear
Plant, (3) Rate Matters, (6) Preferred Stock of HL&P, (7) Long-Term Debt, (9)
Retirement Plans, (10) Income Taxes, (11) Commitments and Contingencies, (12)
Estimated Fair Value of Financial Instruments and (14) Railroad Settlement
Payments.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(g) EARNINGS PER COMMON SHARE. All issued and outstanding Class A voting
common stock of HL&P is held by the Company and all issued and
outstanding Class B non-voting common stock of HL&P is held by Houston
Industries (Delaware) Incorporated, a wholly owned subsidiary of the
Company. Accordingly, earnings per share are not computed.

(h) STATEMENTS OF CASH FLOWS. At December 31, 1995, HL&P had
affiliate investments (considered to be cash equivalents) of
$75.5 million. At December 31, 1994, HL&P had affiliate
investments of $227.6 million. At December 31, 1993, HL&P did
not have any investments with affiliated companies.

(8) SHORT-TERM FINANCING

In 1994 and 1995, the interim financing requirements of HL&P were
primarily met through the issuance of commercial paper. HL&P had bank
credit facilities of $400 million at December 31, 1995 and 1994, which
limited total short-term borrowings and provided for interest at rates
generally less than the prime rate. HL&P's weighted average
short-term borrowing rates for commercial paper for the years ended
December 31, 1995 and 1994 were 6.21% and 3.71%, respectively. HL&P
had no commercial paper outstanding at December 31, 1995 and 1994.
Facility fees are required on HL&P's bank credit facility.

(9) RETIREMENT PLANS

(a) PENSION. Net pension cost for HL&P includes the following components:

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . . . $ 22,264 $ 21,335 $ 24,640
Interest cost on projected benefit obligation . . . . . . . 48,144 45,064 49,950
Actual (return) loss on plan assets . . . . . . . . . . . . (93,023) 4,737 (38,668)
Net amortization and deferrals . . . . . . . . . . . . . . . 48,696 (50,012) (683)
-------- --------- ---------
Net pension cost . . . . . . . . . . . . . . . . . . . 26,081 21,124 35,239
SFAS No. 88 - curtailment expense . . . . . . . . . . . . . 5,645
-------- --------- ---------
Total pension cost . . . . . . . . . . . . . . . . . . $ 31,726 $ 21,124 $ 35,239
======== ========= ========
</TABLE>

78
<PAGE> 79
The funded status of HL&P's retirement plan was as follows:

<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . $ 493,006 $ 429,279
========= =========

Accumulated benefit obligation . . . . . . . . . . . . . $ 528,467 $ 460,760
========= =========

Plan assets at fair value . . . . . . . . . . . . . . . . . $ 581,194 $ 486,100
Projected benefit obligation . . . . . . . . . . . . . . . . 687,420 617,690
--------- ---------
Assets less than projected benefit obligation . . . . . . . (106,226) (131,590)
Unrecognized transitional asset . . . . . . . . . . . . . . . (13,252) (15,157)
Unrecognized prior service cost . . . . . . . . . . . . . . 46,462 21,275
Unrecognized net loss . . . . . . . . . . . . . . . . . . . 19,343 67,093
--------- ---------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . $ (53,673) $ (58,379)
========= =========
</TABLE>

(c) POSTRETIREMENT BENEFITS. The net postretirement benefit cost for HL&P
includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
---------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . . . $ 8,779 $ 8,904 $ 9,297
Interest cost on projected benefit obligation . . . . . . . 10,794 9,946 18,134
Actual return on plan assets . . . . . . . . . . . . . . . . ---- ---- ----
Net amortization and deferrals . . . . . . . . . . . . . . . 5,893 7,757 9,658
-------- --------- ---------
Net postretirement benefit cost . . . . . . . . . . . . . . $ 25,466 $ 26,607 $ 37,089
======== ========= =========
</TABLE>

The funded status of HL&P's postretirement benefit costs was as follows:

<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
-------------- -------------
(Thousands of Dollars)
<S> <C> <C>
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (125,925) $ (97,200)
Fully eligible active plan participants . . . . . . . . . . . . . (10,532) (20,126)
Other active plan participants . . . . . . . . . . . . . . . . . . (26,515) (22,706)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,972) (140,032)
Plan assets at fair market value . . . . . . . . . . . . . . . . . . . 18,310 ----
---------- ----------
Assets less than accumulated benefit obligation . . . . . . . . . . . (144,662) (140,032)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . 181,567 191,225
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . (75,451) (92,786)
---------- ---------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . $ (38,546) $ (41,593)
========== =========
</TABLE>

(10) INCOME TAXES

During 1993, federal tax legislation was enacted that changed the income tax
consequences for HL&P. A net regulatory asset and the related deferred
income tax liability of $71.3 million were recorded by HL&P in 1993. The
effects of the new law, which decreased HL&P's net income by

79
<PAGE> 80
$8.0 million, were recognized as a component of income tax expense in 1993.
The effect on HL&P's deferred taxes as a result of the change in the new law
was $4.5 million in 1993.

HL&P's current and deferred components of income tax expense are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,104 $ 184,669 $ 115,745
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,703 70,324 123,719
--------- --------- ---------
Federal income tax expense . . . . . . . . . . . . . . . . . . . 245,807 254,993 239,464
Federal income taxes charged to other income . . . . . . . . . . (851) (836) (2,993)
--------- --------- ---------
Income taxes before cumulative effect of change
in accounting . . . . . . . . . . . . . . . . . . . . . . $ 244,956 $ 254,157 $ 236,471
========= ========= =========
</TABLE>

HL&P's effective income tax rates are lower than statutory corporate rates
for each year as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C>
Income before income taxes, preferred dividends
and cumulative effect of change in accounting . . . . . . . . . $ 725,888 $ 749,121 $ 720,694
Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 35% 35%
--------- --------- ---------
Income taxes at statutory rate . . . . . . . . . . . . . . . . . . 254,061 262,192 252,243
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . . . . . . . 2,716 1,440 1,229
Amortization of investment tax credit . . . . . . . . . . . . . 19,427 19,416 19,797
Difference between book and tax depreciation for
which deferred taxes have not been normalized . . . . . . . . (15,211) (15,455) (12,976)
Excess deferred taxes . . . . . . . . . . . . . . . . . . . . . 4,384 3,537 9,625
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . (2,211) (903) (1,903)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,105 8,035 15,772
--------- --------- ---------
Income taxes before cumulative effect of change
in accounting . . . . . . . . . . . . . . . . . . . . . . . . $ 244,956 $ 254,157 $ 236,471
========= ========= =========
Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . 33.7% 33.9% 32.8%
</TABLE>

80
<PAGE> 81
Following are HL&P's tax effects of temporary differences resulting in
deferred tax assets and liabilities:

<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
Deferred Tax Assets:
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . . $ 48,513 $ 48,513
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . . 22,687 23,496
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,558 60,174
----------- -----------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . 130,758 132,183
----------- -----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,277 1,335,265
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . 200,028 207,746
Capitalized taxes, employee benefits and removal costs . . . . . . . 110,177 111,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,177 118,328
----------- -----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . 2,078,246 2,008,483
---------- ----------

Accumulated deferred income taxes - net . . . . . . . . . . . . . . . $1,947,488 $1,876,300
========== ==========
</TABLE>

(12) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair value of HL&P's cash and short-term
investments was $75.9 million for 1995 and $235.9 million for 1994. The
carrying amount and estimated fair value of investments in HL&P Nuclear
Decommissioning Trust was $44.5 million in 1995 and $25.1 million in 1994.
See Note 1(j).

81
<PAGE> 82

(15) UNAUDITED QUARTERLY INFORMATION

<TABLE>
<CAPTION>
Income After
Operating Preferred
Quarter Ended Revenues Income Dividends
----------------- ----------------------------------------------
(Thousands of Dollars)
1994
----
<S> <C> <C> <C>
March 31 . . . . . . . . . . . . . . . . . . . $ 821,581 $ 122,879 $ 41,686
June 30 . . . . . . . . . . . . . . . . . . . 1,004,906 216,842 142,478
September 30 . . . . . . . . . . . . . . . . . 1,150,946 320,859 251,092
December 31 . . . . . . . . . . . . . . . . . 768,652 82,302 17,925

1995
----

March 31 . . . . . . . . . . . . . . . . . . . $ 746,166 $ 104,566 $ 33,909
June 30 . . . . . . . . . . . . . . . . . . . 978,225 217,419 141,873
September 30 . . . . . . . . . . . . . . . . . 1,171,789 308,258 241,159
December 31 . . . . . . . . . . . . . . . . . 784,117 104,421 34,036
</TABLE>

(16) PRINCIPAL AFFILIATE TRANSACTIONS

<TABLE>
<CAPTION>
Year Ended December 31,
Affiliated ---------------------------------------------
Company Description 1995 1994 1993
---------- ----------------------------------- ----------- ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Houston Dividends $ 454,000 $ 328,996 $ 342,982
Industries Service Fees (a) 26,582 26,913 21,864
Money Fund Income (b) 10,837 6,025 2,748
</TABLE>
(a) Included in Operating Expenses.
(b) Included in Other Income (Expense).

82
<PAGE> 83
INDEPENDENT AUDITORS' REPORT

HOUSTON INDUSTRIES INCORPORATED:

We have audited the accompanying consolidated balance sheets and the
consolidated statements of capitalization of Houston Industries Incorporated
and its subsidiaries as of December 31, 1995 and 1994, and the related
statements of consolidated income, consolidated retained earnings and
consolidated cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the Company's financial statement
schedule listed in Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and its
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Notes 9(b) and 9(d), respectively, to the consolidated
financial statements, the Company changed its method of accounting in 1994 for
(i) the Employee Stock Ownership Plan to conform with AICPA Statement of
Position 93-6 and (ii) postemployment benefits to conform with Statement of
Financial Accounting Standards No. 112.

DELOITTE & TOUCHE LLP

Houston, Texas
February 29, 1996 (March 26, 1996 as to Note 4)

83
<PAGE> 84
INDEPENDENT AUDITORS' REPORT

HOUSTON LIGHTING & POWER COMPANY:

We have audited the accompanying balance sheets and the statements of
capitalization of Houston Lighting & Power Company (HL&P) as of December 31,
1995 and 1994, and the related statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule of HL&P listed in Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of HL&P's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

In our opinion, such financial statements present fairly, in all
material respects, the financial position of HL&P at December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 9(d) to the financial statements, HL&P changed
its method of accounting for postemployment benefits to conform with Statement
of Financial Accounting Standards No. 112 in 1994.

DELOITTE & TOUCHE LLP

Houston, Texas
February 29, 1996

84
<PAGE> 85
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

85
<PAGE> 86
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND HL&P.

(a) The Company

The information called for by Item 10, to the extent not set forth
under Item 1 "Business-Executive Officers of The Company", is or will be set
forth in the definitive proxy statement relating to the Company's 1996 annual
meeting of shareholders pursuant to the Commission's Regulation 14A. Such
definitive proxy statement relates to a meeting of shareholders involving the
election of directors and the portions thereof called for by Item 10 are
incorporated herein by reference pursuant to Instruction G to Form 10-K.

(b) HL&P

The information set forth under Item 1. "Business-Executive Officers
of HL&P" is incorporated herein by reference.

Each member of the board of directors of HL&P currently is also a
member of the board of directors of the Company. Each member of the board of
directors of HL&P is elected annually for a one-year term. The HL&P annual
shareholder's meeting, at which the Company elects members to the HL&P board of
directors, is expected to occur on May 22, 1996. Information is set forth
below with respect to the business experience for the last five years of each
person who currently serves as a member of the board of directors of HL&P,
certain other directorships held by each such person and certain other
information. Unless otherwise indicated, each person has had the same
principal occupation for at least five years.

MILTON CARROLL, age 45, has been a director since 1992. Mr. Carroll is
Chairman, President and Chief Executive Officer of Instrument Products Inc., an
oil field supply manufacturing company, in Houston, Texas. He is a director of
PanEnergy Corp., the Federal Reserve Bank of Dallas and Blue Cross Blue Shield
of Texas.

JOHN T. CATER, age 60, has been a director since 1983. Mr. Cater is Chairman,
Chief Executive Officer and a director of River Oaks Trust Company in Houston,
Texas. He also serves as President and a director of Compass Bank-Houston.
Until his retirement in 1990, Mr. Cater served as President, Chief Operating
Officer and a director of MCorp, a Texas bank holding company. He served as a
director of MCorp until July 1994.

ROBERT J. CRUIKSHANK, age 65, has been a director since 1993. Mr. Cruikshank
is primarily engaged in managing his personal investments in Houston, Texas.
Prior to his retirement in 1993, he was a Senior Partner in the accounting firm
of Deloitte & Touche. Mr. Cruikshank serves as a director of MAXXAM Inc.,
Kaiser Aluminum Corporation, Compass Bank - Houston and Texas Biotechnology
Corporation.

LINNET F. DEILY, age 50, has been a director since 1993. Ms. Deily is
Chairman, Chief Executive Officer and President of First Interstate Bank of
Texas, N.A. She has served as Chairman since 1992, Chief Executive Officer
since 1991 and President since 1988. (1)

JOSEPH M. HENDRIE, Ph.D., age 71, has been a director since 1985. Dr. Hendrie
is a Consulting Engineer in Bellport, New York, and a Senior Scientist at the
Brookhaven National Laboratory in

86
<PAGE> 87
Upton, New York, having previously served as Chairman and Commissioner of the
U.S. Nuclear Regulatory Commission and as President of the American Nuclear
Society. He is also a director of Entergy Operations, Inc. of Jackson,
Mississippi. (2)

LEE W. HOGAN, age 51, has been a director since 1995. Mr. Hogan is President
and Chief Operating Officer of Houston Industries Energy, Inc., the
nonregulated power business subsidiary of the Company, having served in that
capacity since 1993. From 1990 to 1993 he served as Group Vice President -
External Affairs for HL&P. Mr. Hogan is also a Senior Vice President of the
Company.

HOWARD W. HORNE, age 69, has been a director since 1978. Mr. Horne is
Vice-Chairman of Cushman & Wakefield of Texas, Inc., a subsidiary of a national
real estate brokerage firm. Until 1990, he was Chairman of the Board of The
Horne Company, a Houston realty firm.

DON D. JORDAN, age 63, has been a director of the Company since 1977 and of
HL&P since 1974. Mr. Jordan is Chairman and Chief Executive Officer of the
Company and Chairman and Chief Executive Officer of HL&P. He also serves as a
director of Texas Commerce Bancshares, Inc. and BJ Services Company, Inc.

R. STEVE LETBETTER, age 47, has been a director since 1995. Mr. Letbetter is
President and Chief Operating Officer of HL&P, having served in that capacity
since 1993. He has served in various positions as an officer of HL&P since
1978, most recently as Group Vice President - Finance and Regulatory Relations
since 1988. He is also a Senior Vice President of the Company. Mr. Letbetter
is a director of Charter Bancshares Inc., a Texas bank holding company.

ALEXANDER F. SCHILT, Ph.D., age 55, has been a director since 1992. Dr. Schilt
served as Chancellor of the University of Houston System through August 1995.
Prior to 1990, he was President of Eastern Washington University in Cheney and
Spokane, Washington.

KENNETH L. SCHNITZER, SR., age 66, has been a director since 1983. Mr.
Schnitzer is Chairman of the Board of Schnitzer Enterprises Inc., a Houston
commercial real estate development company, having previously served as a
director of American Building Maintenance Industries Incorporated and
Weingarten Realty, Inc. (3)

JACK T. TROTTER, age 69, has been a director since 1985. Mr. Trotter is
primarily engaged in managing his personal investments in Houston, Texas. He
also serves as a director of First Interstate Bank of Texas, N.A. and Howell
Corporation and as a director and Trust Manager of Weingarten Realty Investors.

BERTRAM WOLFE, Ph.D., age 68, has been a director since 1993. Prior to his
retirement in 1992, Dr. Wolfe was Vice President and General Manager of General
Electric Company's nuclear energy business in San Jose, California. From 1992
to 1995, he was on the nuclear advisory committee of Pennsylvania Power & Light
and was a member of the international advisory committee of Concord Industries.
Dr. Wolfe serves on the boards of directors of URENCO Inc. and URENCO
Investments, Inc.

- ---------------
(1) First Interstate Bank of Texas, N. A., and certain of its affiliates
participate in various credit facilities with HL&P, the Company and
certain of HL&P's affiliates and other entities in which the Company
has an ownership interest. Under these agreements, First Interstate
and certain of its affiliates have

87
<PAGE> 88
maximum aggregate loans and loan commitments of approximately $35.5
million, as of December 31, 1995.

(2) Dr. Hendrie is expected to retire as a director of the Company and
HL&P at the May 22, 1996 annual shareholders' meetings.

(3) During 1995, HL&P and certain of its affiliates leased office space in
buildings owned or controlled by affiliates of Mr. Schnitzer. HL&P
and certain of its affiliates paid a total of approximately $283,000
to affiliates of Mr. Schnitzer during 1995. HL&P believes such
payments are comparable to those that would have been made to other
non-affiliated firms for comparable facilities and services. In 1994,
Mr. Schnitzer consented to the entry of an order by the Office of
Thrift Supervision (OTS) whereunder he may not hold office in, or
participate in the conduct of the affairs of, any federally regulated
depository institution without the prior approval of the OTS and, if
applicable, any other appropriate federal banking agency. The order
arose out of Mr. Schnitzer's prior service as a director of BancPLUS
Savings and Loan Association (BancPLUS), a Houston, Texas-based thrift
that was taken over by federal regulators in 1989. Mr. Schnitzer
consented to the order to avoid the time and expense of defending an
OTS administrative proceeding, without admitting whether there were
any grounds for such a proceeding. In August 1995, Mr. Schnitzer and
three other individuals were named as defendants in a criminal
proceeding based on two 1986 real estate transactions involving
BancPLUS. The matter is pending in the United States District Court
for the Southern District of Texas. The federal government has
alleged that the four defendants caused BancPLUS to enter into a land
swap and to falsely report the swap as two separate and independent
transactions. In 1987, following a default on notes secured by the
parcel that BancPLUS had sold and discovery that the person who
controlled the defaulting party had misrepresented his relationship
with the seller of the other parcel, BancPLUS reported the transaction
as a possible land swap to federal regulators and reversed a
previously reported profit from the sale transaction in its financial
statements. There is no allegation that Mr. Schnitzer (or any other
director or officer of BancPLUS) profited or attempted to profit
personally from the transaction. Mr. Schnitzer and his counsel have
advised the Company that the charges against him are without any basis
in fact and will be vigorously defended. The case has been scheduled
for trial in July 1996.

ITEM 11. EXECUTIVE COMPENSATION.

(a) The Company

The information called for by Item 11, with respect to the Company, is
or will be set forth in the definitive proxy statement relating to the
Company's 1996 annual meeting of shareholders pursuant to the Commission's
Regulation 14A. Such definitive proxy statement relates to a meeting of
shareholders involving the election of directors and the portions
thereof called for by Item 11 (excluding any information required by
paragraphs (i), (k) and (l) of Item 402 of Regulation S-K) are incorporated
herein by reference pursuant to Instruction G to Form 10-K.

88
<PAGE> 89
(b) HL&P

SUMMARY COMPENSATION TABLE. The following table shows, for the years ended
December 31, 1993, 1994 and 1995, the annual, long-term and certain other
compensation paid by the Company and its subsidiaries to the chief executive
officer and the other four most highly compensated executive officers of HL&P
(Named Officers).

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

Long-Term
Compensation
-----------------------
Awards Payouts
Annual Compensation ---------- ---------
----------------------- Securities
Name and Other Annual Underlying LTIP All Other
Principal Position Year Salary(1) Bonus(1) Compensation Options(#)(2) Payouts(3) Compensation(4)
- -------------------------- ----- ---------- -------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Don D. Jordan . . . . . 1995 $884,500 $ 907,226 $ 3,969 36,316 $ 407,437 $734,023
Chairman and 1994 859,500 734,873 114,648 27,726 550,567 717,261
Chief Executive Officer 1993 829,500 386,775 0 25,930 762,962 647,491
of the Company and
HL&P

R. Steve Letbetter . . 1995 363,500 285,750 190 9,746 84,201 47,242
President and Chief 1994 321,000 246,525 31,133 6,366 117,607 43,818
Operating Officer of 1993 271,000 109,335 0 4,256 212,362 42,562
HL&P and Senior Vice
President of the Company

Hugh Rice Kelly . . . . 1995 334,000 195,773 637 7,414 100,925 44,245
Senior Vice President, 1994 323,500 190,820 42,147 5,470 145,107 50,546
General Counsel and 1993 310,500 94,446 0 5,242 285,078 58,218
Corporate Secretary
of the Company and
HL&P

William T. Cottle (5) . 1995 254,500 157,200 401 5,566 0 16,711
Executive Vice 1994 241,000 129,675 337 4,044 0 13,126
President and General 1993 174,470 60,000 0 0 0 0
Manager - Nuclear
HL&P

David M. McClanahan . . 1995 238,100 151,860 317 5,028 35,806 23,162
Executive Vice 1994 208,100 129,398 12,195 3,322 41,512 23,376
President and General 1993 178,100 57,351 0 2,010 82,025 18,254
Manager - Energy
Delivery and Customer
Services of HL&P
</TABLE>

- --------------------

(1) The amounts shown include salary and bonus earned as well as earned but
deferred by the Named Officers.

(2) The amounts shown have been adjusted to reflect the Company's two-for-one
stock split effected by a stock distribution on December 9, 1995 (1995
Stock Split).

(3) The amounts shown for 1995 represent the dollar value of shares of the
Company's Common Stock paid out in 1995 under the Company's long-term
incentive compensation plan based on the achievement of

89
<PAGE> 90
certain performance goals for the 1992-1994 performance cycle, plus
dividend equivalent accruals during the performance period.

(4) The amounts shown include (i) Company contributions to the Company's
savings plan and accruals under its savings restoration plan for the
years shown on behalf of the Named Officers, as follows: Mr. Jordan 1993
- $57,152; 1994 - $52,344; and 1995 - $33,610; Mr. Letbetter 1993 -
$16,672; 1994 - $18,074; and 1995 - $ 25,621; Mr. Kelly 1993 - $19,569;
1994 - $17,554; and 1995 - $18,892; Mr. Cottle 1994 - $12,642; and 1995 -
$16,135; and Mr. McClanahan 1993 - $7,724; 1994 - $10,547; and 1995 -
$14,076; (ii) the term portion of the premiums paid by the Company under
split-dollar life insurance policies purchased in 1994 in connection with
the Company's executive life insurance plan, as follows: Mr. Jordan 1994
- $4,800 and 1995 - $5,700; Mr. Letbetter 1994 - $218 and 1995 - $272;
Mr. Kelly 1994 - $801 and 1995 - $915; Mr. Cottle 1994 - $484 and 1995 -
$576; and Mr. McClanahan 1994 - $328 and 1995 - $456; and (iii) the
portion of accrued interest on amounts of compensation deferred under the
Company's deferred compensation plan and executive incentive compensation
plan that exceeds 120 percent of the applicable federal long-term rate
provided under Section 1274(d) of the Internal Revenue Code, as follows:
Mr. Jordan 1993 - $590,339; 1994 - $660,117; and 1995 - $694,713; Mr.
Letbetter 1993 - $25,890; 1994 - $25,526; and 1995 - $21,349; Mr. Kelly
1993 - $38,649; 1994 - $32,191; and 1995 - $24,438; Mr. Cottle (none for
1993, 1994 and 1995); and Mr. McClanahan 1993 - $10,530; 1994 -
$12,501; and 1995 - $8,630. The Company owns and is the beneficiary
under certain life insurance policies which are currently anticipated to
provide benefits sufficient to cover the accrued interest on deferred
amounts referenced in (iii) of this footnote.

(5) Mr. Cottle commenced employment with HL&P in April 1993.

90
<PAGE> 91
STOCK OPTION GRANTS. The following table contains information concerning
grants during 1995 of stock options under the Company's long-term incentive
compensation plan to the Named Officers. The information has been adjusted to
reflect the Company's 1995 Stock Split.

OPTION GRANTS IN 1995

<TABLE>
<CAPTION>
Grant
Date
Individual Grants Value
-----------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise Grant
Underlying Employees or Base Date
Options in Fiscal Price Per Expiration Present
Name Granted(#)(1) Year Share Date Value(2)
- ---- -------------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Don D. Jordan . . . . . . . . 36,316 27.2% $17.75 01/02/05 $69,000
R. Steve Letbetter . . . . . 9,746 7.3% 17.75 01/02/05 18,517
Hugh Rice Kelly . . . . . . . 7,414 5.6% 17.75 01/02/05 14,087
William T. Cottle . . . . . . 5,566 4.2% 17.75 01/02/05 10,575
David M. McClanahan . . . . . 5,028 3.8% 17.75 01/02/05 9,553
</TABLE>

- -------------------

(1) The nonstatutory options for shares of the Company's Common Stock
included in the table were granted on January 3, 1995, have a ten-year
term and generally become exercisable annually in one-third increments
commencing one year after date of grant, so long as employment with the
Company or its subsidiaries continues. A change in control of the
Company would result in all options becoming immediately exercisable.
For the purposes of the Company's long-term incentive compensation plan,
a "change in control" generally is deemed to have occurred if (i) any
person or group becomes the direct or indirect beneficial owner of 30
percent or more of the Company's outstanding voting securities; (ii) the
majority of the Board changes as a result of, or in connection with,
certain transactions; (iii) as a result of the Company merging or
consolidating with another corporation, less than 70 percent of the
surviving corporation's outstanding voting securities is owned by the
former shareholders of the Company (excluding any party to such a
transaction or any affiliates of any such party); (iv) a tender offer or
exchange offer is made and consummated for the ownership of 30 percent or
more of the Company's outstanding voting securities; or (v) the Company
transfers all or substantially all of its assets to another corporation
that is not wholly-owned by the Company.

(2) The values are based on the Black-Scholes option pricing model adjusted
for the payment of dividends. The calculations were made based on the
following assumptions: volatility of 19.65 percent (based on daily
closing prices of the Company's Common Stock for the one-year period
prior to grant date); risk-free interest rate of 7.78 percent (interest
rate on a U.S. Treasury security with a maturity date corresponding to
that of the option term); option price of $17.75 (fair market value of
the underlying stock on the date of grant); current dividend rate of
$1.50 per share per year; and option term equal to the full ten-year
period until the stated expiration date. No reduction has been made in
the valuations on account of non-transferability of the options or
vesting or forfeiture provisions. Valuations would change if different
assumptions were made. Option values are dependent on general market
conditions and the performance of the Company's Common Stock. There can
be no assurance that the values in this table will be realized.

91
<PAGE> 92
STOCK OPTION VALUES. The following table sets forth information on the
unexercised options to purchase Common Stock held by each of the Named Officers
as of December 31, 1995. No options were exercised by the Named Officers
during 1995.

1995 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at December 31, 1995 December 31, 1995 (1)
---------------------------- -----------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ---------------------------------- -----------------------------

<S> <C> <C>
Don D. Jordan . . . . . . . . . 52,908 / 63,444 $97,946 / $268,228
R. Steve Letbetter . . . . . . 9,282 / 15,408 16,700 / 70,151
Hugh Rice Kelly . . . . . . . . 10,652 / 12,808 19,755 / 54,604
William T. Cottle . . . . . . . 1,348 / 8,262 1,432 / 39,392
David M. McClanahan . . . . . . 4,586 / 7,912 8,247 / 36,144
</TABLE>

- -------------------

(1) Based on the average of the high and low sales prices of the Company's
Common Stock on the New York Stock Exchange Composite Tape, as reported
in The Wall Street Journal for December 29, 1995.

LONG-TERM INCENTIVE COMPENSATION. The following table sets forth, for each of
the Named Officers, information concerning awards made during 1995 for the
1995-1997 performance cycle under the Company's long-term incentive
compensation plan, as adjusted for the 1995 Stock Split. The amounts shown
represent potential payouts of awards of shares of Common Stock based on the
achievement of performance goals over a three-year performance cycle. The
performance goals include Company consolidated goals and subsidiary or business
unit goals, weighted 25 percent on consolidated performance and 75 percent on
subsidiary or business unit performance. The Company consolidated goal is
achieving a certain level of total shareholder return in relation to a group of
other companies. The subsidiary or business unit goals are achieving certain
cash flow performance in relation to a group of other companies and achieving a
competitive price target for electric utility services by the year 2000 while
maintaining an adequate return on equity. An additional goal applicable to
Messrs. Jordan and Kelly is based on the success of HI Energy, in closing
certain transactions and its achievement of specified rates of return. If a
change in control of the Company occurs before the end of a performance cycle,
the payouts of awards for performance shares will occur without regard to
achievement of the performance goals. See Note 1 to the Option Grants in 1995
table for information regarding the definition of a change in control under the
Company's long-term incentive compensation plan.

92
<PAGE> 93
LONG-TERM INCENTIVE PLAN AWARDS IN 1995

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
Performance NON-STOCK PRICE-BASED PLANS(1)
or Other ----------------------------------
Period Until Threshold Target Maximum
Number Maturation or Number Number Number
Name of Shares Payout of Shares of Shares of Shares
- ---- --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Don D. Jordan . . . . . . . . 32,812 12/31/97 16,406 32,812 49,218
R. Steve Letbetter . . . . . 10,160 12/31/97 5,080 10,160 15,240
Hugh Rice Kelly . . . . . . . 7,730 12/31/97 3,866 7,730 11,596
William T. Cottle . . . . . . 5,802 12/31/97 2,902 5,802 8,704
David M. McClanahan . . . . . 5,242 12/31/97 2,622 5,242 7,864
</TABLE>

- ------------------

(1) The table does not reflect dividend equivalent accruals during the
performance period.

RETIREMENT PLANS, RELATED BENEFITS AND OTHER AGREEMENTS. The following table
shows the estimated annual benefit payable under the Company's retirement
plan, benefit restoration plan and, in certain cases, supplemental agreements,
to officers in various compensation classifications upon retirement at age 65
after the indicated periods of service, determined on a single-life annuity
basis. The benefits listed in the table are not subject to any deduction for
Social Security or other offsetting amounts.

PENSION PLAN TABLE

Final Average
Annual Estimated Annual Pension Based on Years of Service (1)
Compensation ------------------------------------------------------------
At Age 65 15 Years 20 Years 25 Years 30 Years 35 or More Years
----------- ---------- ----------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 85,901 $ 114,535 $ 143,169 $ 171,803 $200,436
400,000 115,001 153,335 191,669 230,003 268,336
500,000 144,101 192,135 240,169 288,203 336,236
600,000 173,201 230,935 288,669 346,403 404,136
700,000 202,301 269,735 337,169 404,603 472,036
800,000 231,401 308,535 385,669 462,803 539,936
900,000 260,501 347,335 434,169 521,003 607,836
1,000,000 289,601 386,135 482,669 579,203 675,736
1,200,000 347,801 463,735 579,669 695,603 811,536
1,400,000 406,001 541,335 676,669 812,003 947,336
1,600,000 464,201 618,935 773,669 928,403 1,083,136
1,800,000 522,401 695,535 870,669 1,044,803 1,218,936
2,000,000 580,601 774,135 967,669 1,161,203 1,354,736
</TABLE>

- --------------------

(1) The qualified pension plan limits compensation in accordance with
Section 401(a)(17) of the Internal Revenue Code and also limits
benefits in accordance with Section 415 of the Internal Revenue Code.
Pension 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.

93
<PAGE> 94
For the purpose of the pension table above, final average annual
compensation means the average of covered compensation for 36 consecutive
months out of the 120 consecutive months immediately preceding retirement in
which the participant's covered compensation was the highest. Covered
compensation only includes the amounts shown in the "Salary" and "Bonus"
columns of the Summary Compensation Table. At December 31, 1995, the credited
years of service for the following persons are: 35 years for Mr. Jordan; 22
years for Mr. Letbetter; 21 years for Mr. Kelly, 10 of which result from a
supplemental agreement; 3 years for Mr. Cottle; and 21 years for Mr.
McClanahan.

The Company maintains an executive benefits plan that provides certain
salary continuation, disability and death benefits to key officers of the
Company and certain of its subsidiaries, including HL&P. The Named Officers
participate in this plan pursuant to individual agreements that generally
provide for (i) a salary continuation benefit of 100 percent of the officer's
current salary for twelve months after death during active employment and then
50 percent of salary for nine years or until the deceased officer would have
attained age 65, if later, and (ii) if the officer retires after attainment of
age 65, an annual post-retirement death benefit of 50 percent of the officer's
preretirement annual salary payable for six years.

The Company has established an executive life insurance plan providing
split-dollar life insurance in the form of a death benefit for certain officers
of the Company and its subsidiaries and members of the Company's Board of
Directors who are not officers of the Company or its subsidiaries. The death
benefit coverage varies but in each case is based on coverage (either single
life or second to die) that is available for the same amount of premium that
could purchase coverage equal to two times current salary for Messrs. Kelly,
Cottle and McClanahan; four times current salary for Mr. Letbetter; ten million
dollars for Mr. Jordan; and six times the annual retainer for the Company's
non-employee directors (except in the case of Mr. Trotter, who has a separate
agreement providing for similar coverage, as described below under
"Compensation of Directors"). The plan also provides that the Company may make
payments to the covered individuals designed to compensate for tax consequences
with respect to imputed income that they must recognize for federal income tax
purposes based on the term portion of the annual premiums. If a covered
executive retires at age 65 or at an earlier age under circumstances approved
for this purpose by the Board of Directors, rights under the plan vest so that
coverage is continued based on the same death benefit in effect at the time of
retirement. Upon death, the Company will receive the balance of the insurance
proceeds payable in excess of the specified death benefit which by design is
expected to be at least sufficient to cover the Company's cumulative outlays to
pay premiums and the after-tax cost to the Company of the tax reimbursement
payments. There is no arrangement or understanding under which any covered
individuals will receive or be allocated any interest in any cash surrender
value under the policy.

The Company and its subsidiaries HL&P and HI Energy have entered into
a trust agreement with an independent trustee establishing a "rabbi trust" for
the purpose of funding benefits payable to participants (which include each of
the Named Officers) under the Company's deferred compensation plans, executive
incentive compensation plans, benefits restoration plan and savings
restoration plan (Designated Plans). The trust is a grantor trust, irrevocable
except in the event of

94
<PAGE> 95
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. The Company, HL&P and HI Energy are required to make future
contributions to the grantor trust when required by the provisions of the
Designated Plans or when required by the Company's benefits committee. The
benefits committee consists of officers of the Company designated by the board
of directors and has general responsibility for funding decisions and selection
of investment managers for the Company's retirement plans and other
administrative matters in connection with other employee benefit plans of the
Company. If there is a change in control (defined in a manner generally the
same as the comparable definition in the Company's long-term incentive
compensation plan), the Company, HL&P and HI Energy are required to fully fund
the grantor trust, within 15 days following the change in control, with an
amount equal to the entire benefit which each participant would be entitled
under the Designated Plans as of the date of the change in 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 the Company and its
subsidiaries, but remain subject to claims of general creditors under
applicable state and federal law.

The Company entered into an employment agreement in 1994 with Mr.
Jordan which provides for benefits in the event of termination of employment
following a change in control of the Company and for a two year extension of
employment if the covered executive is employed by the Company at age 65
without there having occurred a change in control. The Company also entered
into severance agreements in 1994 with certain executive officers, including
Messrs. Letbetter, Kelly, Cottle and McClanahan, that provide for the payment
of certain benefits in the event that, within three years following a change in
control of the Company, the officer's employment is terminated by the Company
or any subsidiary or successor to the Company for reasons other than cause or
disability or by the officer following certain changes in job responsibilities,
job location or compensation and benefits from those applicable to him
immediately prior to such change in control. For the purposes of these
agreements, the meaning of a change in control generally is the same as
provided in the Company's long-term incentive compensation plan which is
described in Note 1 to the Option Grants in 1995 table. All benefits payable
under these agreements would be payments by the Company and not HL&P.

HL&P and Mr. Cottle entered into an employment agreement in 1993 that
continues indefinitely, subject to termination by either party on 30 days'
notice (Employment Period). The agreement generally provides for employment of
Mr. Cottle as a group vice president - nuclear or in such other executive
capacities as may be determined from time to time, a minimum annual base salary
($235,000), bonuses and participation in those employee benefit plans and
programs available to similarly situated employees during the Employment
Period. In addition, if the Employment Period terminates after April 5, 2003,
Mr. Cottle will be eligible for supplemental pension, disability or death
benefits determined as if his employment had commenced ten years prior to the
initial date of the Employment Period.

The Company and Mr. McClanahan entered into a benefits agreement in
1991 which provided for the treatment of his employee benefits while he served
as an officer of the Company's cable television subsidiary from 1991 to 1993
(sold in July 1995). The agreement provided that

95
<PAGE> 96
Mr. McClanahan would be compensated for the difference between the cable
television subsidiary benefits and the Company benefits he would have received
if he had been an employee of the Company during his period of employment with
the subsidiary. Such amounts will be paid to Mr. McClanahan at such time
benefits are due to him under the terms of the Company's pension and
savings plans.

COMPENSATION OF DIRECTORS. Each non-employee director of the Company receives
an annual retainer fee of $20,000, a fee of $1,000 for each Company and HL&P
board meeting attended and a fee of $700 for each Company and HL&P committee
meeting attended. Directors may defer all or a part of their annual retainer
fees and meeting fees under the Company's deferred compensation plan. The
deferred compensation plan currently provides for accrual of interest on
deferred director compensation at a rate equal to the average annual yield on
Moody's Long-Term Corporate Bond Index plus two percentage points.

Non-employee directors of the Company participate in a director
benefits plan pursuant to which a director who serves at least one full year
will receive an annual benefit in cash equal to the annual retainer payable in
the year the director terminates service. Benefits under this plan will be
payable to a director, commencing 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.

Non-employee directors of the Company may also participate in the
Company's executive life insurance plan described above under "Retirement
Plans, Related Benefits and Other Agreements," providing split-dollar life
insurance with a death benefit equal to six times the director's annual
retainer with coverage continuing after termination of service as a director.
This plan also permits the Company to provide for a tax reimbursement payment
to make the directors whole for any imputed income recognized with respect to
the term portion of the annual insurance premiums. Upon death, the Company
will receive the balance of the insurance proceeds payable in excess of the
specified death benefit which, by design, is expected to be at least sufficient
to cover the Company's cumulative outlays to pay premiums and the after-tax
cost to the Company of the tax reimbursement payments. Mr. Trotter, who does
not participate in this plan, has a separate agreement with the Company
providing for payment in the event of his death of a lump sum equal to eight
times his final annual retainer, which, because it is subject to taxation at
distribution, approximates on an after-tax basis the amount of the death
benefit that would have been payable had he participated in the executive life
insurance plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a) The Company

The information called for by Item 12 is or will be set forth in the
definitive proxy statement relating to the Company's 1996 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive
proxy statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 12 are incorporated
herein by reference pursuant to Instruction G to Form 10-K.

96
<PAGE> 97
(b) HL&P

As of the date of this Report, the Company owned all 1,000 authorized,
issued and outstanding shares of HL&P's Class A voting common stock, without
par value.

The following table sets forth information as of March 1, 1996, with
respect to the beneficial ownership of shares of the Company's Common Stock by
each current director, the chief executive officer and the other four most
highly compensated executive officers of HL&P and, as a group, by such persons
and other executive officers of HL&P. No person or member of the group listed
owns any equity securities of HL&P or any other subsidiary of the Company.
Unless otherwise indicated, each person or member of the group listed has sole
voting and sole investment power with respect to the shares of Common Stock
listed. No ownership shown in the table represents 1 percent or more of the
outstanding shares of Common Stock.

<TABLE>
<CAPTION>
Name Shares of Common Stock Beneficially Owned
- --------------------- -----------------------------------------
<S> <C>
Milton Carroll . . . . . . . . . . . . . . . . . . . . 2,400
John T. Cater . . . . . . . . . . . . . . . . . . . . . 2,000 (1)
William T. Cottle . . . . . . . . . . . . . . . . . . . 11,790 (2)(3)
Robert J. Cruikshank . . . . . . . . . . . . . . . . . 2,000
Linnet F. Deily . . . . . . . . . . . . . . . . . . . . 2,000 (4)
Joseph M. Hendrie . . . . . . . . . . . . . . . . . . . 967 (4)(5)
Lee W. Hogan . . . . . . . . . . . . . . . . . . . . . 26,513 (2)(3)(5)
Howard W. Horne . . . . . . . . . . . . . . . . . . . . 12,871 (5)
Don D. Jordan . . . . . . . . . . . . . . . . . . . . . 222,969 (2)(3)(6)
Hugh Rice Kelly . . . . . . . . . . . . . . . . . . . . 61,975 (2)(3)(5)
R. Steve Letbetter . . . . . . . . . . . . . . . . . . 51,707 (2)(3)(5)
David M. McClanahan . . . . . . . . . . . . . . . . . . 24,242 (2)(3)(5)
Alexander F. Schilt . . . . . . . . . . . . . . . . . . 800
Kenneth L. Schnitzer, Sr. . . . . . . . . . . . . . . . 9,300
Jack T. Trotter . . . . . . . . . . . . . . . . . . . . 2,000
Bertram Wolfe . . . . . . . . . . . . . . . . . . . . . 220
All of the above and other executive officers
as a group (20 persons) . . . . . . . . . . . . . 542,464 (2)(3)(5)
</TABLE>

- -------------------

(1) Mr. Cater disclaims beneficial ownership of these shares, which are owned
by his adult children.

(2) Includes shares held under the Company's savings plan, as to 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). The shares held under the plan are reported as of
December 31, 1995.

97
<PAGE> 98
(3) The ownership shown in the table includes shares which may be acquired
within 60 days on exercise of outstanding stock options granted under the
Company's long-term incentive compensation plan by each of the persons
and group, as follows: Mr. Cottle - 4,552 shares; Mr. Hogan - 7,668
shares; Mr. Jordan - 82,900 shares; Mr. Kelly - 16,694 shares; Mr.
Letbetter - 16,070 shares; Mr. McClanahan - 8,038 shares; and the group -
161,784 shares.

(4) Voting power and investment power with respect to the shares listed for
Ms. Deily and for Dr. Hendrie are shared with the individual's spouse.

(5) Includes shares held under the Company's dividend reinvestment and stock
purchase plan as of December 31, 1995.

(6) Voting power and investment power with respect to 1,152 of the shares
listed are shared with Mr. Jordan's spouse.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

(a) The Company

The information called for by Item 13 is or will be set forth in the
definitive proxy statement relating to the Company's 1996 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive
proxy statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 13 are incorporated
herein by reference pursuant to Instruction G to Form 10-K.

(b) HL&P

The information set forth in Notes 1 and 3 to Item 10(b) above is
incorporated herein by reference.

98
<PAGE> 99
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
(a)(1) FINANCIAL STATEMENTS. PAGE
<S> <C>
Statements of Consolidated Income for the Three Years Ended December 31, 1995 . . . . . . . . . . . 41
Statements of Consolidated Retained Earnings for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Capitalization at December 31, 1995 and 1994 . . . . . . . . . . . . . . 46
Statements of Consolidated Cash Flows for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
HL&P Statements of Income for the Three Years Ended December 31, 1995 . . . . . . . . . . . . . . . 50
HL&P Statements of Retained Earnings for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
HL&P Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 52
HL&P Statements of Capitalization at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 54
HL&P Statements of Cash Flows for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Notes to HL&P's Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Independent Auditors' Report - The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Independent Auditors' Report - HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

(a)(2) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS ENDED DECEMBER 31,
1995.

THE COMPANY:
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

HL&P:
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

The following schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the financial statements:

I, II, III, IV, V, VI, VII, IX, X, XI, XII and XIII.

(a)(3) EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
</TABLE>

See Index of Exhibits on page 104, which also includes the management contracts
or compensatory plans or arrangements required to be filed as exhibits to this
Form 10-K by Item 601(10)(iii) of Regulation S-K.

(b) REPORTS ON FORM 8-K. None

99
<PAGE> 100
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE VIII - RESERVES

FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
===================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------

Additions
------------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period

- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Accumulated provisions deducted
from related assets on
balance sheet:
Uncollectible advances . . . . . . $ 27,412 $ 27,412
Net assets of discontinued cable
televisions operations . . . . . $ 282,958 $ 282,958
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . . (3,468) 2,187 836 (2,117)
Injuries and damages . . . . . . . 2,241 2,327 3,045 1,523

Year Ended December 31, 1994:
Accumulated provisions deducted from
related assets on balance sheet:
Net assets of discontinued
cable television operations . . $ 243,400 $ 44,319 $ 1,799 $ 6,560 $ 282,958
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . (2,891) 2,187 2,764 (3,468)
Injuries and damages . . . . . . 2,891 3,099 3,749 2,241

Year Ended December 31, 1993:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts . . . . . $ 7,194 $ 7,194
Net assets of discontinued
cable television operations . . . 205,739 $ 43,004 $ 91 5,434 $ 243,400
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . (2,821) 2,187 2,257 (2,891)
Injuries and damages . . . . . . 3,911 4,685 5,705 2,891
</TABLE>

- -----------------

Notes:

(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created. In the case of the uncollectible
accounts reserve, such deductions are net of recoveries of amounts
previously written off.
(B) The uncollectible advances reflect the combined amounts lent by HI Energy
on a subordinated basis to the Ford Heights and Fulton Projects as of
December 31, 1995. If the two projects no longer receive or qualify to
receive the operating subsidy provided by the Illinois Retail Rate Law,
the Projects would be unable to repay such amounts.
(C) During 1992, Houston Industries Finance purchased accounts receivable of
HL&P and of certain KBLCOM subsidiaries. In January 1993, Houston
Industries Finance sold the receivables back to the respective
subsidiaries and ceased operations. HL&P is now selling its accounts
receivable and most of its accrued unbilled revenues to a third party.

100
<PAGE> 101
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE VIII - RESERVES

FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
=====================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- ---------------------------------------------------------------------------------------------------------------------

Additions
------------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period

- ---------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (3,468) $ 2,187 $ 836 $ (2,117)
Injuries and damages . . . . . . 2,241 2,327 3,045 1,523

Year Ended December 31, 1994:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (2,891) $ 2,187 $ 2,764 $ (3,468)
Injuries and damages . . . . . . 2,891 3,099 3,749 2,241

Year Ended December 31, 1993:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . . $ (2,821) $ 2,187 $ 2,257 $ (2,891)
Injuries and damages . . . . . . . 3,911 4,685 5,705 2,891

</TABLE>

_______________

Notes:

(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created.
(B) HL&P has no reserves for uncollectible accounts due to sales of accounts
receivable.

101
<PAGE> 102
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON AND STATE OF TEXAS, ON THE 28TH DAY OF MARCH, 1996.

HOUSTON INDUSTRIES INCORPORATED (Registrant)

By DON D. JORDAN
----------------------------------------
(Don D. Jordan,
Chairman and Chief Executive Officer)

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>

DON D. JORDAN Chairman and Chief Executive
- --------------------------------------------- Officer and Director
(Don D. Jordan) (Principal Executive Officer)

STEPHEN W. NAEVE Senior Vice President
- --------------------------------------------- and Chief Financial Officer
(Stephen W. Naeve) (Principal Financial Officer)

MARY P. RICCIARDELLO Vice President and Comptroller
- --------------------------------------------- (Principal Accounting Officer)
(Mary P. Ricciardello)

MILTON CARROLL

- --------------------------------------------- Director
(Milton Carroll)

JOHN T. CATER
- --------------------------------------------- Director
(John T. Cater)

ROBERT J. CRUIKSHANK
- --------------------------------------------- Director
(Robert J. Cruikshank)

LINNET F. DEILY
--------------------------------------------- Director
(Linnet F. Deily)

JOSEPH M. HENDRIE
- --------------------------------------------- Director
(Joseph M. Hendrie)

LEE W. HOGAN
- --------------------------------------------- Director
(Lee W. Hogan)

HOWARD W. HORNE
- --------------------------------------------- Director
(Howard W. Horne)

R. S. LETBETTER
- --------------------------------------------- Director
(R. S. Letbetter)

ALEXANDER SCHILT
- --------------------------------------------- Director
(Alexander Schilt)

KENNETH L. SCHNITZER, SR.
- --------------------------------------------- Director
(Kenneth L. Schnitzer, Sr.)

JACK T. TROTTER
- --------------------------------------------- Director
(Jack T. Trotter)

BERTRAM WOLFE
- -------------------------------------------- Director
(Bertram Wolfe)
</TABLE>

102
<PAGE> 103

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON AND STATE OF TEXAS, ON THE 28TH DAY OF MARCH, 1996. THE SIGNATURE OF
HOUSTON LIGHTING & POWER COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS
HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.

HOUSTON LIGHTING & POWER COMPANY (Registrant)

By DON D. JORDAN
------------------------------------
(Don D. Jordan,
Chairman and Chief Executive Officer)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 28, 1996. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO HOUSTON LIGHTING & POWER COMPANY AND ANY SUBSIDIARIES THEREOF.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Chairman and Chief Executive
DON D. JORDAN Officer and Director
- ------------------------------------------- (Principal Executive Officer and
(Don D. Jordan) Principal Financial Officer)

Vice President and Comptroller
MARY P. RICCIARDELLO (Principal Accounting Officer)
- -------------------------------------------
(Mary P. Ricciardello)

MILTON CARROLL
- ------------------------------------------- Director
(Milton Carroll)

JOHN T. CATER
- ------------------------------------------- Director
(John T. Cater)

ROBERT J. CRUIKSHANK
- ------------------------------------------- Director
(Robert J. Cruikshank)

LINNET F. DEILY
- ------------------------------------------- Director
(Linnet F. Deily)

JOSEPH M. HENDRIE
- ------------------------------------------- Director
(Joseph M. Hendrie)

LEE W. HOGAN
- ------------------------------------------- Director
(Lee W. Hogan)

HOWARD W. HORNE
- ------------------------------------------- Director
(Howard W. Horne)

R. S. LETBETTER
- ------------------------------------------- Director
(R. S. Letbetter)

ALEXANDER SCHILT
- ------------------------------------------- Director
(Alexander Schilt)

KENNETH L. SCHNITZER, SR.
- ------------------------------------------- Director
(Kenneth L. Schnitzer, Sr.)

JACK T. TROTTER
- ------------------------------------------- Director
(Jack T. Trotter)

BERTRAM WOLFE
- ------------------------------------------- Director
(Bertram Wolfe)
</TABLE>

103

<PAGE> 104
HOUSTON INDUSTRIES INCORPORATED
HOUSTON LIGHTING & POWER COMPANY

EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

INDEX OF EXHIBITS

Exhibits not incorporated by reference to a prior filing are designated by a
cross (+); all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated. Exhibits designated by an asterisk (*) are
management contracts or compensatory plans or arrangements required to be filed
as exhibits to this Form 10-K by Item 601(10)(iii) of Regulation S-K.

(a) Houston Industries Incorporated

<TABLE>
<CAPTION>
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- --------- --------------------- ------------------ ------------ ---------
<S> <C> <C> <C> <C>
2(a) Articles of Merger of Form 10-Q for the 1-7629 2
Houston Industries quarter ended
Finance, Inc. with the June 30, 1993
Company, effective
June 8, 1993

3(a) Restated Articles of Form 10-Q for 1-7629 3
Incorporation of the the quarter ended
Company (Restated as June 30, 1993
of May 1993)

+3(b) Amended and Restated
Bylaws of the Company
(as of March 11, 1996)

4(a)(1) Mortgage and Deed of Form S-7 of HL&P 2-59748 2(b)
Trust dated November filed on August
1, 1944 between HL&P 25, 1977
and South Texas
Commercial National
Bank of Houston
(Texas Commerce
Bank National Associ-
ation, as successor
trustee), as Trustee, as
amended and supple-
mented by 20
Supplemental Inden-
tures thereto

</TABLE>

<PAGE> 105
<TABLE>
<S> <C> <C> <C> <C>
4(a)(2) Twenty-First through HL&P's Form 10-K 1-3187 4(a)(2)
Fiftieth Supplemental for the year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed
of Trust

4(a)(3) Fifty-First Supple- HL&P's Form 10-Q 1-3187 4(a)
mental Indenture dated for the quarter
March 25, 1991 to ended June 30,
HL&P Mortgage and 1991
of Trust

4(a)(4) Fifty-Second through HL&P's Form 10-Q 1-3187 4
Fifty-Fifth Supplemental for the quarter
Indentures, each dated ended March 31,
March 1, 1992, to HL&P 1992
Mortgage and Deed of
Trust

4(a)(5) Fifty-Sixth and Fifty- HL&P's Form 10-Q 1-3187 4
Seventh Supplemental for the quarter
Indentures, each dated ended September 30,
October 1, 1992, to 1992
HL&P Mortgage and
Deed of Trust

4(a)(6) Fifty-Eighth and Fifty- HL&P's Form 10-Q 1-3187 4
Ninth Supplemental for the quarter
Indenture, each dated ended March 31, 1993
as of March 1, 1993 to
HL&P Mortgage and
Deed of Trust

4(a)(7) Sixtieth Supplemental HL&P's Form 10-Q 1-3187 4
Indenture dated as for the quarter
July 1, 1993 to HL&P ended June 30, 1993
Mortgage and Deed of
Trust

4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust
</TABLE>

<PAGE> 106
<TABLE>
<S> <C> <C> <C> <C>
4(a)(9) Sixty-Fourth and Sixty- HL&P's Form 10-K 1-3187 4(a)(9)
Fifth Supplemental for the year ended
Indentures, each dated December 31, 1995
as of July 1, 1995, to
HL&P Mortgage and
Deed of Trust

4(b)(1) Rights Agreement dated Form 8-K dated 1-7629 4(a)(1)
July 11, 1990 between July 11, 1990
the Company and Texas
Commerce Bank National
Association, as Rights
Agent (Rights Agent),
which includes form of
Statement of Resolution
Establishing Series of
Shares designated Series
A Preference Stock and
form of Rights Certificate

4(b)(2) Agreement and Appoint- Form 8-K dated 1-7629 4(a)(2)
ment of Agent dated July 11, 1990
as of July 11, 1990
between the Company
and the Rights Agent

4(c) Indenture dated as of Form 10-Q for 1-7629 4(b)
April 1, 1991 between the quarter ended
the Company and June 30, 1991
NationsBank of Texas,
National Association,
as Trustee

4(d) Agreement and Plan Form 8-K dated 1-7629 2(a)
of Merger dated as of January 26, 1995
January 26, 1995
among KBLCOM, the
Company, Time Warner
and TW KBLCOM
Acquisition Corp.

</TABLE>
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed
as exhibits to this Form 10-K certain long-term debt instruments, under which
the total amount of securities authorized do not exceed 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis. The
Company hereby agrees to furnish a copy of any such instrument to the SEC upon
request.

<PAGE> 107
<TABLE>
<S> <C> <C> <C> <C>
*10(a) Executive Benefit Plan Form 10-Q for the 1-7629 10(a)(1)
of the Company and First quarter ended 10(a)(2)
and Second Amendments March 31, 1987 and
thereto (effective as 10(a)(3)
of June 2, 1982, July 1,
1984, May 7, 1986,
respectively)

*10(b)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effective December 31, 1991
as of January 1, 1982)

*10(b)(2) First Amendment to Form 10-Q for the 1-7629 10(a)
Exhibit 10(b)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)

*10(b)(3) Second Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(b)(1) year ended
(effective as of December 31, 1992
November 4, 1992)

*10(b)(4) Third Amendment to Form 10-K for the 1-7629 10(b)(4)
Exhibit 10(b)(1) year ended
(effective as of December 31, 1994
September 7, 1994)

*10(c)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)(1)
Compensation Plan quarter ended
of the Company March 31, 1987
(effective as of
January 1, 1985)

*10(c)(2) First Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(c)(1) year ended
(effective as of December 31, 1988
January 1, 1985)

*10(c)(3) Second Amendment to Form 10-K for 1-7629 10(c)(3)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1991
January 1, 1985)

*10(c)(4) Third Amendment to Form 10-Q for the 1-7629 10(b)
Exhibit 10(c)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
</TABLE>

<PAGE> 108
<TABLE>
<S> <C> <C> <C> <C>
*10(c)(5) Fourth Amendment to Form 10-K for 1-7629 10(c)(5)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)

*10(c)(6) Fifth Amendment to Form 10-K for the 1-7629 10(c)(6)
Exhibit 10(c)(1) year ended
(effective as of December 31, 1994
September 7, 1994)

*10(d) Executive Incentive Form 10-Q for the 1-7629 10(b)(2)
Compensation Plan of quarter ended
HL&P (effective as March 31, 1987
of January 1, 1985)

*10(e)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)
Compensation Plan quarter ended
of the Company June 30, 1989
(effective as of
January 1, 1989)

*10(e)(2) First Amendment to Form 10-K for the 1-7629 10(e)(2)
Exhibit 10(e)(1) year ended
(effective as of December 31, 1991
January 1, 1989)

*10(e)(3) Second Amendment to Form 10-Q for the 1-7629 10(c)
Exhibit 10(e)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)

*10(e)(4) Third Amendment to Form 10-K for 1-7629 10(c)(4)
Exhibit 10(e)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)

*10(e)(5) Fourth Amendment to Form 10-K for the 1-7629 10(e)(5)
Exhibit 10(e)(1) year ended December
(effective as of 31, 1994
September 7, 1994)

*10(f)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effec- December 31, 1990
tive as of January 1,
1991)

</TABLE>

<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C>
*10(f)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(f)(1) year ended
(effective as of December 31, 1991
January 1, 1991)

*10(f)(3) Second Amendment to Form 10-Q for the 1-7629 10(d)
Exhibit 10(f)(1) quarter ended
(effective as of March 31, 1992
January 1, 1991)

*10(f)(4) Third Amendment to Form 10-K for 1-7629 10(f)(4)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)

*10(f)(5) Fourth Amendment to Form 10-K for 1-7629 10(f)(5)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
January 1, 1993)

*10(f)(6) Fifth Amendment to Form 10-K for 1-7629 10(f)(6)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1994
September 7, 1994)

*10(f)(7) Sixth Amendment to Form 10-Q for 1-7629 10(a)
Exhibit 10(f)(1) the quarter ended
June 30, 1995

*10(g)(1) Benefit Restoration Form 10-Q for the 1-7629 10(c)
Plan of the Company quarter ended
(effective as of March 31, 1987
June 1, 1985)

*10(g)(2) Benefit Restoration Form 10-K for 1-7629 10(g)(2)
Plan of the Company the year ended
as amended and re- December 31, 1991
stated (effective as
of January 1, 1988)

*10(g)(3) Benefit Restoration Form 10-K for 1-7629 10(g)(3)
Plan of the Company, the year ended
as amended and re- December 31, 1991
stated (effective as
of July 1, 1991)

*10(h)(1) Deferred Compensation Form 10-Q for the 1-7629 10(d)
Plan of the Company quarter ended
(effective as of March 31, 1987
September 1, 1985)
</TABLE>

<PAGE> 110

<TABLE>
<S> <C> <C> <C> <C>
*10(h)(2) First Amendment to Form 10-K for the 1-7629 10(d)(2)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1990
September 1, 1985)

*10(h)(3) Second Amendment to Form 10-Q for the 1-7629 10(e)
Exhibit 10(h)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)

*10(h)(4) Third Amendment to Form 10-K for the 1-7629 10(h)(4)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1993
June 2, 1993)

*10(h)(5) Fourth Amendment to Form 10-K for the 1-7629 10(h)(5)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1994
September 7, 1994)

*10(h)(6) Fifth Amendment to Form 10-Q for the 1-7629 10(d)
Exhibit 10(h)(1) quarter ended
June 30, 1995

*10(i)(1) Deferred Compensation Form 10-Q for the 1-7629 10(a)
Plan of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)

*10(i)(2) First Amendment to Form 10-K for the 1-7629 10(e)(3)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1989
January 1, 1989)

*10(i)(3) Second Amendment to Form 10-Q for the 1-7629 10(f)
Exhibit 10(i)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)

*10(i)(4) Third Amendment to Form 10-K for the 1-7629 10(i)(4)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1993
June 2, 1993)

*10(i)(5) Fourth Amendment to Form 10-K for the 1-7629 10(i)(5)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1994
September 7, 1994)

</TABLE>

<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C>
*10(i)(6) Fifth Amendment to Form 10-Q for the 1-7629 10(c)
Exhibit 10(i)(1) quarter ended
June 30, 1995

*10(j)(1) Deferred Compensation Form 10-K for the 1-7629 10(d)(3)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)

*10(j)(2) First Amendment to Form 10-K for the 1-7629 10(j)(2)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1991
January 1, 1991)

*10(j)(3) Second Amendment to Form 10-Q for the 1-7629 10(g)
Exhibit 10(j)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)

*10(j)(4) Third Amendment to Form 10-K for the 1-7629 10(j)(4)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
June 2, 1993)

*10(j)(5) Fourth Amendment to Form 10-K for the 1-7629 10(j)(5)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
December 1, 1993)

*10(j)(6) Fifth Amendment to Form 10-K for the 1-7629 10(j)(6)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1994
September 7, 1994)

*10(j)(7) Sixth Amendment to Form 10-Q for 1-7629 10(b)
Exhibit 10(j)(1) the quarter ended
June 30, 1995

*10(k)(1) Long-Term Incentive Form 10-Q for the 1-7629 10(c)
Compensation Plan of quarter ended
the Company (effec- June 30, 1989
tive as of January 1,
1989)

*10(k)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1989
January 1, 1990)

</TABLE>

<PAGE> 112
<TABLE>
<S> <C> <C> <C> <C>
*10(k)(3) Second Amendment to Form 10-K for the 1-7629 10(k)(3)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1992
December 22, 1992)

*10(l) Form of stock option Form 10-Q for the 1-7629 10(h)
agreement for nonqual- quarter ended
ified stock options March 31, 1992
granted under the
Company's 1989
Long-Term Incentive
Compensation Plan

*10(m) Forms of restricted Form 10-Q for the 1-7629 10(i)
stock agreement for quarter ended
restricted stock March 31, 1992
granted under the
Company's 1989
Long-Term Incentive
Compensation
Plan

*10(n)(1) 1994 Long-Term Incentive Form 10-K for the 1-7629 10(n)(1)
Compensation Plan of year ended
the Company (effective December 31, 1993
as of January 1, 1994)

*10(n)(2) Form of stock option Form 10-K for the 1-7629 10(n)(2)
agreement for non- year ended
qualified stock options December 31, 1993
granted under the
Company's 1994 Long-
Term Incentive Com-
pensation Plan

*10(o)(1) Savings Restoration Form 10-K for the 1-7629 10(f)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)

*10(o)(2) First Amendment to Form 10-K for the 1-7629 10(l)(2)
Exhibit 10(o)(1) year ended
(effective as of December 31, 1991
January 1, 1991)

*10(p) Director Benefits Form 10-K for the 1-7629 10(m)
Plan, effective as year ended
of January 1, 1992 December 31, 1991

</TABLE>

<PAGE> 113
<TABLE>
<S> <C> <C> <C> <C>
*10(q)(1) Executive Life Form 10-K for the 1-7629 10(q)
Insurance Plan of year ended
the Company December 31, 1993
(effective as of
January 1, 1994)

*10(q)(2) First Amendment to Form 10-Q for the 1-7629 10
Exhibit 10(q)(1) quarter ended
June 30, 1995

*10(r) Employment and Form 10-Q for the 1-7629 10(f)
Supplemental Benefits quarter ended
Agreement between March 31, 1987
HL&P and Hugh Rice
Kelly

10(s)(1) Houston Industries Form 10-Q for the 1-7629 10
Master Savings Trust, quarter ended
as Amended and March 31, 1994
Restated Effective
January 1, 1994,
between the
Company and Texas
Commerce Bank
National Association

10(s)(2) First Amendment to Form 10-Q for the 1-7629 10(a)
Exhibit 10(s)(1) quarter ended
March 31, 1995

10(s)(3) Termination of Houston Form 10-Q for the 1-7629 10(a)
Industries Incorporated quarter ended
Savings Plan and Trust September 30, 1995
Agreement as to KBLCOM
Incorporated Effective
as of June 30, 1995

+10(s)(4) Houston Industries
Incorporated Savings
Trust between the Company
and The Northern Trust
Company, as Trustee. (As
Amended and Restated
Effective July 1, 1995)

</TABLE>

<PAGE> 114
<TABLE>
<S> <C> <C> <C> <C>
10(s)(5) ESOP Trust Agreement Form 10-K for the 1-7629 10(j)(2)
between the Company year ended
and State Street Bank December 31, 1990
and Trust Company,
as ESOP Trustee, dated
October 5, 1990

10(s)(6) First Amendment to Form 10-Q for the 1-7629 10(b)
Exhibit 10(s)(5) between quarter ended
the Company and The March 31, 1995
Northern Trust Company,
as successor Trustee,
effective as of May 1,
1995.

10(s)(7) Note Purchase Agree- Form 10-K for the 1-7629 10(j)(3)
ment between the year ended
Company and the ESOP December 31, 1990
Trustee, dated as of
October 5, 1990

10(s)(8) Stock Purchase Agree- Form 10-K for the 1-7629 10(j)(4)
ment between the year ended
Company and the ESOP December 31, 1991
Trustee, dated as of
October 5, 1990

*10(t) Agreement dated June 6, Form 10-Q for the 1-7629 10(a)
1994 between the quarter ended
Company and June 30, 1994
Don D. Jordan

*10(u) Agreement dated June 6, Form 10-Q for the 1-7629 10(b)
1994 between the quarter ended
Company and June 30, 1994
Don D. Sykora

*10(v) Letter Agreement between Form 10-K for the 1-7629 10(v)
the Company and year ended
Jack Trotter December 31, 1994

</TABLE>

<PAGE> 115
<TABLE>
<S> <C> <C> <C> <C>
*10(w) Form of Severance Form 10-K for the 1-7629 10(w)
Agreements dated year ended
December 22, 1994 December 31, 1994
between the Com-
pany and each of
the following executive
officers: Hugh Rice Kelly,
R. Steve Letbetter,
David M. McClanahan,
Lee W. Hogan and
William T. Cottle

*10(x) Employment Agreement Form 10-K for the 1-3187 10(t)
dated April 5, 1993 year ended
between HL&P and December 31, 1994
William T. Cottle

10(y)(1) Stockholder's Agreement Schedule 13-D 5-19351 2
dated as of July 6, dated July 6,
1995 between the 1995
Company and Time
Warner Inc.

10(y)(2) Registration Rights Schedule 13-D 5-19351 3
Agreement dated as of dated July 6,
July 6, 1995 between 1995
the Company and Time
Warner Inc.

10(y)(3) Certificate of Voting Schedule 13-D 5-19351 4
Powers, Designations, dated July 6,
Preferences and 1995
Relative Participating,
Optional or Other
Special rights, and
Qualifications,
Limitations or
Restrictions Thereof of
Series D. Convertible
Preferred Stock of
Time Warner Inc.

+*10(z) Houston Industries
Incorporated Executive
Deferred Compensation
Trust, effective as of
December 19, 1995

+*10(aa) Agreement dated June 14,
1991 between the Company
and David M. McClanahan

</TABLE>

<PAGE> 116
<TABLE>
<S> <C>
+11 Computation of
Earnings Per Common
Share - and Common
Equivalent Share

+12 Computation of Ratios
of Earnings to Fixed
Charges

+21 Subsidiaries of the
Company

+23 Consent of Deloitte &
Touche LLP

+27 Financial Data Schedule

+99 Second Amendment to
Houston Industries
Energy, Inc. Long-Term
Project Incentive
Compensation Plan
effective December 6,
1995

</TABLE>

<PAGE> 117
(b) Houston Lighting & Power Company

<TABLE>
<CAPTION>
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- --------- --------------------- ------------------ ------------ ---------
<S> <C> <C> <C> <C>
2 Articles of Merger of Form 10-Q for the 1-3187 2
Utility Fuels, Inc. quarter ended
with HL&P, effective September 30, 1993
October 8, 1993

3(a) Restated Articles of Form 10-Q for 1-3187 3
Incorporation of HL&P the quarter ended
dated May 11, 1993 June 30, 1993

3(b) Amended and Restated Form 10-K for the 1-3187 3(b)
Bylaws of HL&P (as year ended
of February 1, 1995) December 31, 1994

4(a)(1) Mortgage and Deed of Form S-7 filed on 2-59748 2(b)
Trust dated November August 25, 1977
1, 1944 between HL&P
and South Texas
Commercial National
Bank of Houston (Texas
Commerce Bank National
Association, as
successor trustee),
as Trustee, as amended
and supplemented
by 20 Supplemental
Indentures thereto

4(a)(2) Twenty-First through Form 10-K for the 1-3187 4(a)(2)
Fiftieth Supplemental year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed of
Trust

4(a)(3) Fifty-First Supple- Form 10-Q for the 1-3187 4(a)
mental Indenture quarter ended
dated March 25, 1991 June 30, 1991
to HL&P Mortgage
and Deed of Trust

4(a)(4) Fifty-Second through Form 10-Q for the 1-3187 4
Fifty-Fifth Supple- quarter ended
mental Indentures, March 31, 1992
each dated March 1,
1992, to HL&P Mortgage
and Deed of Trust

</TABLE>

<PAGE> 118
<TABLE>
<S> <C> <C> <C> <C>
4(a)(5) Fifty-Sixth and Fifty- Form 10-Q for the 1-3187 4
Seventh Supplemental quarter ended
Indentures, each September 30, 1992
dated October 1,
1992, to HL&P Mortgage
and Deed of Trust

4(a)(6) Fifty-Eighth and Fifty- Form 10-Q for the 1-3187 4
Ninth Supplemental quarter ended
Indentures, each March 31, 1993
dated March 1,
1993, to HL&P
Mortgage and Deed
of Trust

4(a)(7) Sixtieth Supplemental Form 10-Q for the 1-3187 4
Indenture dated as of quarter ended
July 1, 1993 to HL&P June 30, 1993
Mortgage and Deed of
Trust

4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust

+4(a)(9) Sixty-Fourth and
Sixty-Fifth Supplemental
Indentures, each dated
as of July 1, 1995, to
HL&P Mortgage and
Deed of Trust

</TABLE>

There have not been filed as exhibits to this Form 10-K certain long-term debt
instruments, including indentures, under which the total amount of securities
do not exceed 10 percent of the total assets of HL&P. HL&P hereby agrees to
furnish a copy of any such instrument to the SEC upon request.

<TABLE>
<S> <C> <C> <C> <C>
*10(a) Executive Benefit Plan The Company's 1-7629 10(a)(1)
of the Company and Form 10-Q for the 10(a)(2)
First and Second quarter ended and
Amendments thereto March 31, 1987 10(a)(3)
(effective as of
June 2, 1982, July 1,
1984, May 7, 1986,
respectively)

*10(b)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1982) December 31, 1991

</TABLE>

<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C>
*10(b)(2) First Amendment to The Company's 1-7629 10(a)
Exhibit 10(b)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(b)(3) Second Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992

*10(b)(4) Third Amendment to The Company's 1-7629 10(b)(4)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994

*10(c)(1) Executive Incentive The Company's 1-7629 10(b)(1)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of March 31, 1987
January 1, 1985)

*10(c)(2) First Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1988

*10(c)(3) Second Amendment to The Company's 1-7629 10(c)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1991

*10(c)(4) Third Amendment to The Company's 1-7629 10(b)
Exhibit 10(c)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(c)(5) Fourth Amendment to The Company's 1-7629 10(c)(5)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992

*10(c)(6) Fifth Amendment to The Company's 1-7629 10(c)(6)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994

*10(d) Executive Incentive The Company's 1-7629 10(b)(2)
Compensation Plan of Form 10-Q for the
HL&P (effective as quarter ended
of January 1, 1985) March 31, 1987

*10(e)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)

</TABLE>

<PAGE> 120
<TABLE>
<S> <C> <C> <C> <C>
*10(e)(2) First Amendment to The Company's 1-7629 10(e)(2)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1991

*10(e)(3) Second Amendment to The Company's 1-7629 10(c)
Exhibit 10(e)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(e)(4) Third Amendment to The Company's 1-7629 10(c)(4)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992

*10(e)(5) Fourth Amendment to The Company's 1-7629 10(e)(5)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994

*10(f)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-K for the
of the Company year ended
(effective as of December 31, 1990
January 1, 1991)

*10(f)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991

*10(f)(3) Second Amendment to The Company's 1-7629 10(d)
Exhibit 10(f)(1) Form 10-Q for the
(effective as of quarter ended
January 1, 1991) March 31, 1992

*10(f)(4) Third Amendment to The Company's 1-7629 10(f)(4)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992

*10(f)(5) Fourth Amendment to The Company's 1-7629 10(f)(5)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1993) December 31, 1992

*10(f)(6) Fifth Amendment to The Company's 1-7629 10(f)(6)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994

*10(f)(7) Sixth Amendment to The Company's 1-7629 10(a)
Exhibit 10(f)(1) Form 10-Q for the
quarter ended
June 30, 1995

</TABLE>

<PAGE> 121
<TABLE>
<S> <C> <C> <C> <C>
*10(g)(1) Benefit Restoration The Company's 1-7629 10(c)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
June 1, 1985) March 31, 1987

*10(g)(2) Benefit Restoration The Company's 1-7629 10(g)(2)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of January 1, 1988)

*10(g)(3) Benefit Restoration The Company's 1-7629 10(g)(3)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of July 1, 1991)

*10(h)(1) Deferred Compensation The Company's 1-7629 10(d)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
September 1, 1985) March 31, 1987

*10(h)(2) First Amendment to The Company's 1-7629 10(d)(2)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
September 1, 1985) December 31, 1990

*10(h)(3) Second Amendment to The Company's 1-7629 10(e)
Exhibit 10(h)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(h)(4) Third Amendment to The Company's 1-7629 10(h)(4)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993

*10(h)(5) Fourth Amendment to The Company's 1-7629 10(h)(5)
Exhibit 10(h)(1) Form 10-K for
effective as of the year ended
September 7, 1994 December 31, 1994

*10(h)(6) Fifth Amendment to The Company's 1-7629 10(d)
Exhibit 10(h)(1) Form 10-Q for
the quarter ended
June 30, 1995

*10(i)(1) Deferred Compensation The Company's 1-7629 10(a)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
January 1, 1989) June 30, 1989

*10(i)(2) First Amendment to The Company's 1-7629 10(e)(3)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1989

</TABLE>

<PAGE> 122
<TABLE>
<S> <C> <C> <C> <C>
*10(i)(3) Second Amendment to The Company's 1-7629 10(f)
Exhibit 10(i)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(i)(4) Third Amendment to The Company's 1-7629 10(i)(4)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993

*10(i)(5) Fourth Amendment to The Company's 1-7629 10(i)(5)
Exhibit 10(i)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994

*10(i)(6) Fifth Amendment to The Company's 1-7629 10(c)
Exhibit 10(i)(1) Form 10-Q for
the quarter ended
June 30, 1995

*10(j)(1) Deferred Compensation The Company's 1-7629 10(d)(3)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990

*10(j)(2) First Amendment to The Company's 1-7629 10(j)(2)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991

*10(j)(3) Second Amendment to The Company's 1-7629 10(g)
Exhibit 10(j)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992

*10(j)(4) Third Amendment to The Company's 1-7629 10(j)(4)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993

*10(j)(5) Fourth Amendment to The Company's 1-7629 10(j)(5)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
December 1, 1993) December 31, 1993

*10(j)(6) Fifth Amendment to The Company's 1-7629 10(j)(6)
Exhibit 10(j)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994

*10(j)(7) Sixth Amendment to The Company's 1-7629 10(b)
Exhibit 10(j)(1) Form 10-Q for the
quarter ended
June 30, 1995
</TABLE>

<PAGE> 123
<TABLE>
<S> <C> <C> <C> <C>
*10(k)(1) Long-Term Incentive The Company's 1-7629 10(c)
Compensation Plan of Form 10-Q for the
the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)

*10(k)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
January 1, 1990) December 31, 1989

*10(k)(3) Second Amendment to The Company's 1-7629 10(k)(3)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
December 22, 1992) December 31, 1992

*10(l) Form of stock option The Company's 1-7629 10(h)
agreement for nonqual- Form 10-Q for the
ified stock options quarter ended
granted under the March 31, 1992
Company's 1989
Long-Term Incentive
Compensation Plan

*10(m) Forms of restricted The Company's 1-7629 10(i)
stock agreement for Form 10-Q for the
restricted stock quarter ended
granted under the March 31, 1992
Company's 1989
Long-Term Incentive
Compensation Plan

*10(n)(1) 1994 Long-Term Incentive The Company's 1-7629 10(n)(1)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993

*10(n)(2) Form of Stock Option The Company's 1-7629 10(n)(2)
Agreement for Form 10-K for the
Nonqualified Stock year ended
Options Granted December 31, 1993
under the Company's
1994 Long-Term
Incentive Compen-
sation Plan

*10(o)(1) Savings Restoration The Company's 1-7629 10(f)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990

*10(o)(2) First Amendment to The Company's 1-7629 10(l)(2)
Exhibit 10(o)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
</TABLE>

<PAGE> 124
<TABLE>
<S> <C> <C> <C> <C>
*10(p) Director Benefits The Company's 1-7629 10(m)
Plan, effective as Form 10-K for the
of January 1, 1992 year ended
December 31, 1991

*10(q) Executive Life The Company's 1-7629 10(q)
Insurance Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993

*10(q)(1) First Amendment to The Company's 1-7629 10(e)
Exhibit 10(q) Form 10-Q for the
quarter ended
June 30, 1995

*10(r) Employment and The Company's 1-7629 10(f)
Supplemental Benefits Form 10-Q for the
Agreement between HL&P quarter ended
and Hugh Rice Kelly March 31, 1987

10(s)(1) The Company's Master The Company's 1-7629 10
Savings Trust, as Form 10-Q for the
Amended and Restated quarter ended
effective as of March 31, 1994
January 1, 1994,
between the Company
and Texas Commerce
Bank National
Association

10(s)(2) First Amendment to The Company's 1-7629 10(a)
Exhibit 10(s)(1) Form 10-Q for the
quarter ended
March 31, 1995

10(s)(3) Termination of Houston The Company's 1-7629 10(a)
Industries Incorporated Form 10-Q for the
Savings Plan and Trust quarter ended
Agreement as to September 30, 1995
KBLCOM Incorporated
Effective as of June 30,
1995

10(s)(4) Houston Industries The Company's Form 1-7629 10(s)(4)
Incorporated Savings 10-K for the year
Trust (As Amended and ended December 31,
Restated Effective 1995
July 1, 1995)

10(s)(5) ESOP Trust Agreement The Company's 1-7629 10(j)(2)
between Houston Form 10-K for the
Industries and State year ended
Street Bank and Trust December 31, 1990
Company, as ESOP
Trustee, dated
October 5, 1990
</TABLE>

<PAGE> 125
<TABLE>
<S> <C> <C> <C> <C>
10(s)(6) First Amendment to The Company's 1-7629 10(b)
Exhibit 10(s)(5) Form 10-Q for the
quarter ended
March 31, 1995

10(s)(7) Note Purchase Agreement The Company's 1-7629 10(j)(3)
between the Company Form 10-K for the
and the ESOP Trustee, year ended
dated as of December 31, 1990
October 5, 1990

10(s)(8) Stock Purchase The Company's 1-7629 10(j)(4)
Agreement between Form 10-K for the
the Company and the year ended
ESOP Trustee, dated as December 31, 1991
of October 9, 1990

*10(t) Employment Agreement Form 10-K for the 1-3187 10(t)
dated April 5, 1993 year ended
between HL&P and December 31, 1994
William T. Cottle

*10(u) Form of Severance Form 10-K for the 1-3187 10(u)
Agreements dated year ended
December 22, 1994 December 31, 1994
between the Company
and the following
executive officers:
Hugh Rice Kelly,
R. Steve Letbetter,
William T. Cottle and
David M. McClanahan

*10(v) Houston Industries The Company's Form 1-7629 10(z)
Incorporated Executive 10-K for the year ended
Deferred Compensation December 31, 1995
Trust, effective as of
December 19, 1995

*10(y) Agreement dated June The Company's 1-7629 10(aa)
14, 1991 between the Form 10-K for the
Company and David M. year ended
McClanahan December 31, 1995

+12 Computation of Ratios of
Earnings to Fixed Charges
and Ratios of Earnings
to Fixed Charges and
Preferred Dividends

+23 Consent of Deloitte
& Touche LLP

+27 Financial Data Schedule

</TABLE>

<PAGE> 1

AMENDED AND RESTATED BYLAWS

HOUSTON INDUSTRIES INCORPORATED

(Adopted by Resolution of the
Board of Directors as of
March 11, 1996)

ARTICLE I

CAPITAL STOCK

Section 1. Certificates Representing Shares. The Company
shall deliver certificates representing shares to which shareholders are
entitled. Such certificates shall be signed by the President or a Vice
President and either the Secretary or an Assistant Secretary and shall be
sealed with the seal of the Company or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Company with the same effect as if he were such officer at the
date of its issuance.

Section 2. Shareholders of Record. The Board of Directors of
the Company may appoint one or more transfer agents or registrars of any class
of stock of the Company. The Company shall be entitled to treat the holder of
record of any shares of the Company as the owner thereof for all purposes, and
shall not be bound to recognize any equitable or other claim to, or interest
in, such shares or any rights deriving from such shares, on the part of any
other person, including (but without limitation) a purchaser, assignee or
transferee, unless and until such other person becomes the holder of record of
such shares, whether or not the Company shall have either actual or
constructive notice of the interest of such other person.

Section 3. Transfer of Shares. The shares of the Company
shall be transferable on the stock certificate books of the Company by the
holder of record thereof, or his duly authorized attorney or legal
representative, upon surrender for cancellation of the certificate for such
shares. All certificates surrendered for transfer shall be cancelled and
<PAGE> 2
no new certificate shall be issued until a former certificate or certificates
for a like number of shares shall have been surrendered and cancelled except
that in the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such conditions for the protection of
the Company and any transfer agent or registrar as the Board of Directors or
the Secretary may prescribe.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. Place of Meetings. All meetings of shareholders
shall be held at the registered office of the Company, in the City of Houston,
Texas, or at such other place within or without the State of Texas as may be
designated by the Board of Directors or officer calling the meeting.

Section 2. Annual Meeting. The annual meeting of the
shareholders shall be held on such date not later than June 30 of each year and
at such time as shall be designated from time to time by the Board of
Directors. Failure to hold the annual meeting at the designated time shall not
work a dissolution of the Company.

Section 3. Special Meetings. Special meetings of the
shareholders may be called by the President, the Secretary, the Board of
Directors, the holders of not less than one-tenth of all of the shares
outstanding and entitled to vote at such meeting or such other persons as may
be authorized in the Articles of Incorporation.

Section 4. Notice of Meeting. Written or printed notice of
all meetings stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered to each shareholder of record entitled to vote at such meetings
not less than ten nor more than fifty days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary or the officer or person calling the meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Company, with postage thereon prepaid.

Section 5. Closing of Transfer Books and Fixing Record Date.
For the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, the Board of Directors
may either provide that

page 2 of 17
<PAGE> 3
the stock transfer books shall be closed for a stated period of not less than
ten nor more than fifty days before the meeting, or it may fix in advance a
record date for any such determination of shareholders, such date to be not
less than ten days nor more than fifty days prior to the meeting. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
then the date on which the notice of the meeting is mailed shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
herein provided, such determination shall apply to any adjournment thereof
except where the determination has been made through the closing of the stock
transfer books and the stated period of closing has expired.

Section 6. Voting List. The officer or agent having charge
of the stock transfer books for shares of the Company shall make, at least ten
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the Company and shall be subject to inspection
by any shareholder at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or to vote at any
meeting of shareholders. Failure to comply with any requirements of this
Section 6 shall not affect the validity of any action taken at such meeting.

Section 7. Voting at Meetings. Except as otherwise provided
in the Articles of Incorporation of the Company, each holder of shares of
capital stock of the Company entitled to vote shall be entitled to one vote for
each share of such stock, either in person or by proxy executed in writing by
him or by his duly authorized attorney-in-fact. No proxy shall be valid after
eleven months from the date of its execution unless otherwise provided in the
proxy. A proxy shall be revocable unless expressly provided therein to be
irrevocable and unless otherwise made irrevocable by law. At each election for
directors, every holder of shares of the Company entitled to vote shall have
the right to vote, in person or by proxy, the number of shares owned by him for
as many persons as there are directors to be elected, and for whose election he
has a right to vote, but in no event shall he be permitted to cumulate his
votes for one or more directors.

Section 8. Quorum of Shareholders. Except as otherwise
provided in the Articles of Incorporation of the Company, the holders of a
majority of shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of

page 3 of 17
<PAGE> 4
shareholders, but, if a quorum is not represented, a majority in interest of
those represented may adjourn the meeting from time to time. Except as
otherwise provided by law, the Articles of Incorporation or these Bylaws, the
affirmative vote of the holders of a majority of the shares entitled to vote
and thus represented at a meeting at which a quorum is present shall be the act
of the shareholders' meeting.

Section 9. Officers. The President shall preside at, and the
Secretary shall keep the records of, each meeting of shareholders. In the
absence of either such officer, his duties shall be performed by another
officer of the Company appointed at the meeting.

All determinations of the presiding person at each meeting of
shareholders shall be conclusive unless a matter is determined otherwise upon
motion duly adopted by the affirmative vote of the holders of at least 80% of
the voting power of the shares of capital stock of the Company entitled to vote
in the election of directors held by shareholders present in person or
represented by proxy at such meeting.

ARTICLE III

DIRECTORS

Section 1. Number and Classification of Board of Directors.
The business and affairs of the Company shall be managed by the Board of
Directors. The number of directors that shall constitute the whole Board of
Directors of the Company shall be not less than nine nor more than eighteen as
specified from time to time by the affirmative vote of at least 80% of all
directors then in office at any regular or special meeting of the Board of
Directors called for that purpose. The directors shall be divided into three
classes, Class I, Class II and Class III. Such classes shall be as nearly
equal in number of directors as possible. Each person serving as a director as
of July 2, 1986 and each person elected as a director subsequent to such date
but prior to the annual meeting of shareholders to be held in 1987 shall serve
for a term expiring at such annual meeting without regard to class.
Thereafter, each director, other than those who may be elected by the holders
of Preference Stock pursuant to Section 6 of Division A of Article VI of the
Articles of Incorporation of the Company (or elected by such directors to fill
a vacancy) and except as provided in the penultimate paragraph of this Section
1, shall serve for a term ending on the third annual meeting following the
annual meeting at which such director was elected; provided, however, that the
directors elected as Class I Directors at the annual meeting of shareholders to
be held in 1987 shall serve

page 4 of 17
<PAGE> 5
for a term expiring at the annual meeting of shareholders to be held in 1988,
the directors elected as Class II Directors at the annual meeting of
shareholders to be held in 1987 shall serve for a term expiring at the annual
meeting of shareholders to be held in 1989 and the directors elected as Class
III Directors at the annual meeting of shareholders to be held in 1987 shall
serve for a term expiring at the annual meeting of shareholders to be held in
1990. Each director elected by the holders of Preference Stock pursuant to
Section 6 of Division A of Article VI of the Articles of Incorporation of the
Company (or elected by such directors to fill a vacancy) shall serve for a term
ending upon the earlier of the election of his successor or the termination at
any time of a right of the holders of Preference Stock to elect members of the
Board of Directors.

At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.

Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors, each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death,
resignation, disqualification or removal. If any newly created directorship
may, consistent with the rule that the three classes shall be as nearly equal
in number of directors as possible, be allocated to any of the three classes,
the Board of Directors shall allocate it to that available class whose term of
office is due to expire at the earliest date following such allocation. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.

No person shall be eligible to serve as a director of the
Company subsequent to the annual meeting of the shareholders occurring on or
after the first day of the month immediately following the month of such
person's seventieth birthday, except that a Board member who has special
technical expertise in the nuclear power field shall be eligible to serve for
no more than one additional year should any Company or subsidiary nuclear
facility have been under special or enhanced scrutiny by the Nuclear Regulatory
Commission within one year preceding such person's seventieth birthday and such
person is otherwise specifically authorized to be eligible to serve by the
affirmative vote of at least 80% of all directors then in office. No person
shall be eligible to stand for reelection at the annual meeting of shareholders
on or immediately following the tenth anniversary of such person's initial
election or appointment to the Board of Directors. Any vacancy on the Board of
Directors resulting from any director being rendered ineligible to serve as a
director of the Company by the immediately preceding two sentences shall be
filled by the shareholders entitled to vote thereon at such annual meeting of
shareholders. Any

page 5 of 17
<PAGE> 6
director chosen to succeed a director who is so rendered ineligible to serve as
a director of the Company shall be of the same class as the director he
succeeds. Notwithstanding the rule that a director may not stand for
reelection at the annual meeting of shareholders on or immediately following
the tenth anniversary of such person's initial election or appointment to the
Board of Directors, an incumbent director may nevertheless continue as a
director until the expiration of his current term, or his prior death,
resignation, disqualification or removal; provided, however, that no person
serving as a director as of April 1, 1992 shall be affected by such term
limitation provision, nor shall such term limitation provision apply to
directors who are also employees of the Company or its corporate affiliates.

The above notwithstanding, each director shall serve until his
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified, disabled or shall otherwise be removed.

Section 2. Newly Created Directorships and Vacancies. Newly
created directorships resulting from any increase in the number of directors
may be filled by the affirmative vote of a majority of the directors then in
office for a term of office continuing only until the next election of one or
more directors by the shareholders entitled to vote thereon; provided, however,
that the Board of Directors shall not fill more than two such directorships
during the period between two successive annual meetings of shareholders.
Except as provided in Section 1 of this Article III, any vacancies on the Board
of Directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected to fill any such vacancy shall hold office
for the remainder of the full term of the director whose departure from the
Board of Directors created the vacancy and until such newly elected director's
successor shall have been duly elected and qualified.

Notwithstanding the foregoing paragraph of this Section 2,
whenever holders of outstanding shares of Preference Stock are entitled to
elect members of the Board of Directors pursuant to the provisions of Section 6
of Division A of Article VI of the Articles of Incorporation of the Company,
any vacancy or vacancies resulting by reason of the death, resignation,
disqualification or removal of any director or directors or any increase in the
number of directors shall be filled in accordance with the provisions of such
section.

Section 3. Nomination of Directors. Nominations for the
election of directors may be made by the Board of Directors or by any
shareholder (a "Nominator") entitled to vote in the election of directors.
Such nominations, other than those made by the Board of Directors, shall be
made in writing pursuant to timely notice delivered to

page 6 of 17
<PAGE> 7
or mailed and received by the Secretary of the Company as set forth in this
Section 3. To be timely in connection with an annual meeting of shareholders,
a Nominator's notice, setting forth the name and address of the person to be
nominated, shall be delivered to or mailed and received at the principal
executive offices of the Company not less than ninety days nor more than 180
days prior to the date on which the immediately preceding year's annual meeting
of shareholders was held. To be timely in connection with any election of a
director at a special meeting of the shareholders, a Nominator's notice,
setting forth the name of the person to be nominated, shall be delivered to or
mailed and received at the principal executive offices of the Company not less
than forty days nor more than sixty days prior to the date of such meeting;
provided, however, that in the event that less than fifty days' notice or prior
public disclosure of the date of the special meeting of the shareholders is
given or made to the shareholders, the Nominator's notice to be timely must be
so received not later than the close of business on the seventh day following
the day on which such notice of date of the meeting was mailed or such public
disclosure was made. At such time, the Nominator shall also submit written
evidence, reasonably satisfactory to the Secretary of the Company, that the
Nominator is a shareholder of the Company and shall identify in writing (a) the
name and address of the Nominator, (b) the number of shares of each class of
capital stock of the Company owned beneficially by the Nominator, (c) the name
and address of each of the persons with whom the Nominator is acting in
concert, (d) the number of shares of capital stock beneficially owned by each
such person with whom the Nominator is acting in concert, and (e) a description
of all arrangements or understandings between the Nominator and each nominee
and any other persons with whom the Nominator is acting in concert pursuant to
which the nomination or nominations are to be made. At such time, the
Nominator shall also submit in writing (i) the information with respect to each
such proposed nominee that would be required to be provided in a proxy
statement prepared in accordance with Regulation 14A under the Securities
Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by
each such proposed nominee to the effect that, if elected as a member of the
Board of Directors, he will serve and that he is eligible for election as a
member of the Board of Directors. Within thirty days (or such shorter time
period that may exist prior to the date of the meeting) after the Nominator has
submitted the aforesaid items to the Secretary of the Company, the Secretary of
the Company shall determine whether the evidence of the Nominator's status as a
shareholder submitted by the Nominator is reasonably satisfactory and shall
notify the Nominator in writing of his determination. The failure of the
Secretary of the Company to find such evidence reasonably satisfactory, or the
failure of the Nominator to submit the requisite information in the form or
within the time indicated, shall make the person to be nominated ineligible for
nomination at the meeting at which such person is proposed to be nominated. The
presiding person at each meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare to the

page 7 of 17
<PAGE> 8
meeting and the defective nomination shall be disregarded. Beneficial
ownership shall be determined in accordance with Section 6 of Article VII of
these Bylaws.

Section 4. Place of Meetings and Meetings by Telephone.
Meetings of the Board of Directors may be held either within or without the
State of Texas, at whatever place is specified by the officer calling the
meeting. Meetings of the Board of Directors may also be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in
such a meeting by means of conference telephone or similar communications
equipment shall constitute presence in person at such meeting, except where a
director participates in a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened. In the absence of specific designation by the officer
calling the meeting, the meetings shall be held at the registered office of the
Company in the City of Houston, Texas.

Section 5. Regular Meetings. The Board of Directors shall
meet each year immediately following the annual meeting of the shareholders at
the place of such meeting, for the transaction of such business as may properly
be brought before the meeting. The Board of Directors shall also meet
regularly at least each quarter at such time as shall be established by
resolution of the Board of Directors. No notice of any kind to either old or
new members of the Board of Directors for such annual or regular meetings shall
be necessary.

Section 6. Special Meetings. Special meetings of the Board
of Directors may be held at any time upon the call of the President or the
Secretary of the Company or a majority of the directors then in office. Notice
shall be sent by mail or telegram to the last known address of the director at
least two days before the meeting, or oral notice may be substituted for such
written notice if received not later than the day preceding such meeting.
Notice of the time, place and purpose of such meeting may be waived in writing
before or after such meeting, and shall be equivalent to the giving of notice.
Attendance of a director at such meeting shall also constitute a waiver of
notice thereof, except where he attends for the announced purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. Except as otherwise provided by these Bylaws,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.

Section 7. Quorum and Voting. Except as otherwise provided
by law, the Articles of Incorporation of the Company or these Bylaws, a
majority of the number of directors fixed in the manner provided in these
Bylaws as from time to time amended

page 8 of 17
<PAGE> 9
shall constitute a quorum for the transaction of business. Except as otherwise
provided by law, the Articles of Incorporation of the Company or these Bylaws,
the affirmative vote of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. Any
regular or special directors' meeting may be adjourned from time to time by
those present, whether a quorum is present or not.

Section 8. Compensation. Directors shall receive such
compensation for their services as shall be determined by the Board of
Directors.

Section 9. Removal. No director of the Company shall be
removed from his office as a director by vote or other action of the
shareholders or otherwise except (a) with cause, as defined below, by the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of capital stock of the Company entitled to vote in the
election of directors, voting together as a single class, or (b) without cause
by (i) the affirmative vote of at least 80% of all directors then in office at
any regular or special meeting of the Board of Directors called for that
purpose or (ii) the affirmative vote of the holders of at least 80% of the
voting power of all outstanding shares of capital stock of the Company entitled
to vote in the election of directors, voting together as a single class.

Except as may otherwise be provided by law, cause for removal
of a director shall be construed to exist only if: (a) the director whose
removal is proposed has been convicted, or where a director is granted immunity
to testify where another has been convicted, of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal; (b) such director has been found by the affirmative vote of at least
80% of all directors then in office at any regular or special meeting of the
Board of Directors called for that purpose or by a court of competent
jurisdiction to have been negligent or guilty of misconduct in the performance
of his duties to the Company in a matter of substantial importance to the
Company; or (c) such director has been adjudicated by a court of competent
jurisdiction to be mentally incompetent, which mental incompetency directly
affects his ability as a director of the Company.

Notwithstanding the first paragraph of this Section 9,
whenever holders of outstanding shares of Preference Stock are entitled to
elect members of the Board of Directors pursuant to the provisions of Section 6
of Division A of Article VI of the Articles of Incorporation of the Company,
any director of the Company may be removed in accordance with the provisions of
such section.

No proposal by a shareholder to remove a director of the
Company, regardless of whether such director was elected by holders of
outstanding shares of Preference Stock (or elected by such directors to fill a
vacancy), shall be voted upon at a meeting

page 9 of 17
<PAGE> 10
of the shareholders unless such shareholder shall have delivered or mailed in a
timely manner (as set forth in this Section 9) and in writing to the Secretary
of the Company (a) notice of such proposal, (b) a statement of the grounds, if
any, on which such director is proposed to be removed, (c) evidence, reasonably
satisfactory to the Secretary of the Company, of such shareholder's status as
such and of the number of shares of each class of the capital stock of the
Company beneficially owned by such shareholder, (d) a list of the names and
addresses of other beneficial owners of shares of the capital stock of the
Company, if any, with whom such shareholder is acting in concert, and of the
number of shares of each class of the capital stock of the Company beneficially
owned by each such beneficial owner, and (e) an opinion of counsel, which
counsel and the form and substance of which opinion shall be reasonably
satisfactory to the Board of Directors of the Company (excluding the director
proposed to be removed), to the effect that, if adopted at a duly called
special or annual meeting of the shareholders of the Company by the required
vote as set forth in the first paragraph of this Section 9, such removal would
not be in conflict with the laws of the State of Texas, the Articles of
Incorporation of the Company or these Bylaws. To be timely in connection with
an annual meeting of shareholders, a shareholder's notice and other aforesaid
items shall be delivered to or mailed and received at the principal executive
offices of the Company not less than ninety nor more than 180 days prior to the
date on which the immediately preceding year's annual meeting of shareholders
was held. To be timely in connection with the removal of any director at a
special meeting of the shareholders, a shareholder's notice and other aforesaid
items shall be delivered to or mailed and received at the principal executive
offices of the Company not less than forty days nor more than sixty days prior
to the date of such meeting; provided, however, that in the event that less
than fifty days' notice or prior public disclosure of the date of the special
meeting of shareholders is given or made to the shareholders, the shareholder's
notice and other aforesaid items to be timely must be so received not later
than the close of business on the seventh day following the day on which such
notice of date of the meeting was mailed or such public disclosure was made.
Within thirty days (or such shorter period that may exist prior to the date of
the meeting) after such shareholder shall have delivered the aforesaid items to
the Secretary of the Company, the Secretary and the Board of Directors of the
Company shall respectively determine whether the items to be ruled upon by them
are reasonably satisfactory and shall notify such shareholder in writing of
their respective determinations. If such shareholder fails to submit a
required item in the form or within the time indicated, or if the Secretary or
the Board of Directors of the Company determines that the items to be ruled
upon by them are not reasonably satisfactory, then such proposal by such
shareholder may not be voted upon by the shareholders of the Company at such
meeting of shareholders. The presiding person at each meeting of shareholders
shall, if the facts warrant, determine and declare to the meeting that a
proposal to remove a director of the Company was not made in accordance with
the procedures prescribed by these Bylaws, and if he should so determine, he
shall so declare to the meeting and the defective

page 10 of 17
<PAGE> 11
proposal shall be disregarded. Beneficial ownership shall be determined as
specified in Section 6 of Article VII of these Bylaws.

Section 10. Executive and Other Committees. The Board of
Directors, by resolution adopted by a majority of the full Board of Directors,
may designate from among its members an executive committee and two or more
other committees, each of which shall be comprised of two or more members and,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors.

Notwithstanding the foregoing paragraph of this Section 10, no
such committee shall have the authority of the Board of Directors to:

(a) amend the Articles of Incorporation of the
Company;

(b) amend, alter or repeal the Bylaws of the Company
or adopt new Bylaws for the Company;

(d) approve a plan of merger or consolidation;

(e) take definitive action on any reclassification
or exchange of securities, or repurchase by the Company of any
of its equity securities;

(f) declare a dividend on the capital stock of the
Company;

(g) call a special meeting of the shareholders;

(h) recommend any proposal to the shareholders for
action by the shareholders;

(i) fill vacancies in the Board of Directors or any
such committee;

(j) fill any directorship to be filled by reason of
an increase in the number of directors;

(k) elect or remove officers or members of any such
committee; or

(l) fix the compensation of any member of such
committee.

page 11 of 17
<PAGE> 12
The designation of any such committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or
any member thereof, of any responsibility imposed upon it or him by law, nor
shall such committee function where action of the Board of Directors is
required under applicable law. The Board of Directors shall have the power at
any time to change the membership of any such committee and to fill vacancies
in it. A majority of the members of any such committee shall constitute a
quorum. Each such committee may elect a chairman and appoint such
subcommittees and assistants as it may deem necessary. Except as otherwise
provided by the Board of Directors, meetings of any committee shall be
conducted in accordance with the provisions of Sections 4 and 6 of this Article
III as the same shall from time to time be amended. Any member of any such
committee elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever in its judgment the best interests of the Company
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of
a member of a committee shall not of itself create contract rights.

ARTICLE IV

OFFICERS

Section 1. Officers. The officers of the Company shall
consist of a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers, including assistant officers and agents, as may be deemed necessary
may be elected or appointed by the Board of Directors. Any two or more offices
may be held by the same person. The officers of the Company shall have such
powers and duties as generally pertain to their offices, respectively, as well
as such powers and duties as from time to time shall be conferred by the Board
of Directors.

Section 2. Vacancies. Whenever any vacancies shall occur in
any office by death, resignation, increase in the number of offices of the
Company, or otherwise, the officer so elected shall hold office until his
successor is chosen and qualified. The Board of Directors may at any time
remove any officer of the Company, whenever in its judgment the best interests
of the Company will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of an officer or agent shall not of itself create contract
rights.

page 12 of 17
<PAGE> 13
ARTICLE V

INDEMNIFICATION

Section 1. General. Each person who at any time shall serve,
or shall have served, as a director, officer, employee or agent of the Company,
or any person who, while a director, officer, employee or agent of the
Company, is or was serving at its request as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, shall be
entitled to indemnification as, and to the fullest extent, permitted by Article
2.02-1 of the Texas Business Corporation Act or any successor statutory
provision, as from time to time amended. The foregoing right of
indemnification shall not be deemed exclusive of any other rights to which
those to be indemnified may be entitled as a matter of law or under any
agreement, vote of shareholders or disinterested directors, or other
arrangement.

Section 2. Insurance. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Company or is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in
such capacity or arising out of his status as such a person, whether or not the
Company would have the power to indemnify him against that liability under this
Article V or the Texas Business Corporation Act.

ARTICLE VI

CONTRACTS AND TRANSACTIONS WITH DIRECTORS AND OFFICERS

Section 1. General Procedure. No contract or transaction
between the Company and one or more of its directors or officers, or between
the Company and any other corporation, partnership, association or other
organization in which one or more of the Company's directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely for this reason, solely because the director or officer is present at or
participates in the meeting of the Company's Board of Directors or committee
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:

page 13 of 17
<PAGE> 14
(a) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the
disinterested directors constitute less than a quorum; or

(b) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or

(c) The contract or transaction is fair to the
Company as of the time it is authorized, approved or ratified
by the Board of Directors, the committee thereof, or the
shareholders.

Section 2. Determination of Quorum. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction as provided in Section 1 of this Article VI.

ARTICLE VII

MISCELLANEOUS PROVISIONS

Section 1. Offices. The principal office of the Company
shall be located in Houston, Texas, unless and until changed by resolution of
the Board of Directors. The Company may also have offices at such other places
as the Board of Directors may designate from time to time, or as the business
of the Company may require. The principal office and registered office may be,
but need not be, the same.

Section 2. Resignations. Any director or officer may resign
at any time. Such resignations shall be made in writing and shall take effect
at the time specified therein, or, if no time be specified, at the time of its
receipt by the President or Secretary. The acceptance of a resignation shall
not be necessary to make it effective, unless expressly so provided in the
resignation.

Section 3. Fixing Record Dates for Payment of Dividends and
Other Purposes. For the purpose of determining shareholders entitled to
receive payment of any

page 14 of 17
<PAGE> 15
dividend or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Company may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, fifty days. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than fifty days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to receive
payment of a dividend, then the date on which the resolution of the Board of
Directors declaring such dividend is adopted shall be the record date for such
determination of shareholders.

Section 4. Seal. The seal of the Company shall be circular
in form, with the name "HOUSTON INDUSTRIES INCORPORATED."

Section 5. Separability. If one or more of the provisions of
these Bylaws shall be held to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof and these Bylaws shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein.

Section 6. Definition of Beneficial Owner. "Beneficial
Owner" as used in these Bylaws means any of the following:

(a) a person who individually or with any of his
affiliates or associates beneficially owns (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) any capital stock of the Company, directly or
indirectly;

(b) a person who individually or with any of his
affiliates or associates has either of the following rights:

(i) to acquire capital stock of the Company,
whether such right is exercisable immediately or only
after the passage of time, pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise,

(ii) to vote capital stock of the Company
pursuant to any agreement, arrangement or
understanding; or

page 15 of 17
<PAGE> 16
(c) a person who has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing capital stock of the Company with any other person
who beneficially owns or whose affiliates beneficially own
(within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly,
such shares of capital stock.

ARTICLE VIII

AMENDMENT OF BYLAWS

Section 1. Vote Requirements. The Board of Directors shall
have the power to alter, amend or repeal the Bylaws or adopt new Bylaws by the
affirmative vote of at least 80% of all directors then in office at any regular
or special meeting of the Board of Directors called for that purpose, subject
to repeal or change by the affirmative vote of the holders of at least 80% of
the voting power of all the shares of the Company entitled to vote in the
election of directors, voting together as a single class.

Section 2. Shareholder Proposals. No proposal by a
shareholder made pursuant to Section 1 of this Article VIII may be voted upon
at a meeting of shareholders unless such shareholder shall have delivered or
mailed in a timely manner (as set forth in this Section 2) and in writing to
the Secretary of the Company (a) notice of such proposal and the text of the
proposed alteration, amendment or repeal, (b) evidence reasonably satisfactory
to the Secretary of the Company, of such shareholder's status as such and of
the number of shares of each class of capital stock of the Company of which
such shareholder is the beneficial owner, (c) a list of the names and addresses
of other beneficial owners of shares of the capital stock of the Company, if
any, with whom such shareholder is acting in concert, and the number of shares
of each class of capital stock of the Company beneficially owned by each such
beneficial owner and (d) an opinion of counsel, which counsel and the form and
substance of which opinion shall be reasonably satisfactory to the Board of
Directors of the Company, to the effect that the Bylaws (if any) resulting from
the adoption of such proposal would not be in conflict with the Articles of
Incorporation of the Company or the laws of the State of Texas. To be timely
in connection with an annual meeting of shareholders, a shareholder's notice
and other aforesaid items shall be delivered to or

page 16 of 17
<PAGE> 17
mailed and received at the principal executive offices of the Company not less
than ninety nor more than 180 days prior to the date on which the immediately
preceding year's annual meeting of shareholders was held. To be timely in
connection with the voting on any such proposal at a special meeting of the
shareholders, a shareholder's notice and other aforesaid items shall be
delivered to or mailed and received at the principal executive offices of the
Company not less than forty days nor more than sixty days prior to the date of
such meeting; provided, however, that in the event that less than fifty days'
notice or prior public disclosure of the date of the special meeting of the
shareholders is given or made to the shareholders, the shareholder's notice and
other aforesaid items to be timely must be so received not later than the close
of business on the seventh day following the day on which such notice of date
of the meeting was mailed or such public disclosure was made. Within thirty
days (or such shorter period that may exist prior to the date of the meeting)
after such shareholder shall have submitted the aforesaid items, the Secretary
and the Board of Directors of the Company shall respectively determine whether
the items to be ruled upon by them are reasonably satisfactory and shall notify
such shareholder in writing of their respective determinations. If such
shareholder fails to submit a required item in the form or within the time
indicated, or if the Secretary or the Board of Directors of the Company
determines that the items to be ruled upon by them are not reasonably
satisfactory, then such proposal by such shareholder may not be voted upon by
the shareholders of the Company at such meeting of shareholders. The presiding
person at each meeting of shareholders shall, if the facts warrant, determine
and declare to the meeting that a proposal made pursuant to Section 1 of this
Article VIII was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare to the meeting and
the defective proposal shall be disregarded. Beneficial ownership shall be
determined in accordance with Section 6 of Article VII of these Bylaws.

page 17 of 17

<PAGE> 1
HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 10(s)(4)
<PAGE> 2
HOUSTON INDUSTRIES INCORPORATED
SAVINGS TRUST

(As Amended and Restated Effective July 1, 1995)
<PAGE> 3
HOUSTON INDUSTRIES INCORPORATED
SAVINGS TRUST

(As Amended and Restated Effective July 1, 1995)

I N D E X

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ARTICLE I DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section:
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Affiliated Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ESOP Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Fund or Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prior ESOP Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prior Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prior Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prohibited Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE II TRUST; GENERAL DUTIES OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section:
2.1 Continuation of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 General Duties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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2.3 Investment Guidelines; Contributions; Employee Records. . . . . . . . . . . . . . . . . . . . . . 6
2.4 General Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE III ACCOUNTS; AUTHORITY OF COMPANY AND COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section:
3.1 Accounts; Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Exclusive Benefit of Employees Under The Plan . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Authority of Company and Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE IV INVESTMENT, ADMINISTRATION AND DISBURSEMENT OF
TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section:
4.1 Division of the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Investment of the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Direction of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Voting of Securities Other than Company Stock in the HI
Common Stock Fund or in the ESOP Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Voting of Company Stock in the HI Common Stock Fund . . . . . . . . . . . . . . . . . . . . . 17
4.6 Voting of Company Stock in the ESOP Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.7 Tendering of Company Stock in the HI Common Stock
Fund and Company Stock in the ESOP Fund . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.8 Powers of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.9 Payments and Distributions from Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 Trustee's Dealings with Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.11 Ancillary Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE V ADDITIONAL ESOP FUND PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VI FOR THE PROTECTION OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section:
6.1 Composition of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Evidence of Action by Company or Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Advice of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.5 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.6 Fiduciary Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.7 Limitations on Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ARTICLE VII TAXES, EXPENSES AND COMPENSATION OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section:
7.1 Taxes and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Compensation of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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ARTICLE VIII SETTLEMENT OF ACCOUNTS; DETERMINATION
OF INTERESTS UNDER TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section:
8.1 Settlement of Accounts of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Determination of Rights and Benefits of Persons Claiming
an Interest in the Trust Fund; Enforcement of Trust Fund . . . . . . . . . . . . . . . . . 31

ARTICLE IX RESIGNATION, REMOVAL AND SUBSTITUTION
OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section:
9.1 Resignation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Transfer of Trust Fund to Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ARTICLE X DURATION AND TERMINATION OF TRUST; AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section:
10.1 Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.2 Distribution Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.3 Certain Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section:
11.1 Governing Law; No Bond Required of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Interest in Trust Fund; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.3 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Prohibition of Diversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.5 Headings for Convenience Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

(iii)
<PAGE> 6
HOUSTON INDUSTRIES INCORPORATED
SAVINGS TRUST

(As Amended and Restated Effective July 1, 1995)

THIS TRUST AGREEMENT made and entered into as of the 1st
day of July, 1995, by and between HOUSTON INDUSTRIES INCORPORATED, a Texas
corporation (the "Company"), and THE NORTHERN TRUST COMPANY, an Illinois
corporation (the "Trustee"), as trustee;

W I T N E S S E T H:

WHEREAS, by Agreement (the "1989 Trust Agreement") dated
June 21, 1989 but effective as of July 1, 1989, between the Company and Texas
Commerce Bank National Association, as trustee (the "Prior Trustee"), the
Company amended, restated and continued a trust established in connection with
the Savings Plan of Houston Industries Incorporated, as amended and restated
effective January 1, 1976, and as thereafter amended (said Plan as it existed
in the form of the Savings Plan of Houston Industries Incorporated, as amended
and restated effective January 1, 1976, and thereafter amended prior to July 1,
1995, being referred to hereinafter in this preamble as the "Prior Plan"); and

WHEREAS, the Company amended and restated the Prior Plan,
effective October 5, 1990, to include an "employee stock ownership plan"
("ESOP") within the meaning of Section 4975(e)(7) of the Internal Revenue Code
of 1986, as amended (the "Code"), and designed to meet the requirements of
Section 4975(d)(3) of the Code; and

WHEREAS, in order to effectuate the ESOP component of the
Prior Plan, the Company established an additional trust under the Prior Plan,
known as the Savings Plan of Houston Industries Incorporated ESOP Trust (the
"Prior ESOP Trust Agreement"), designed to meet the applicable requirements of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and

WHEREAS, the Company amended, restated and continued the
1989 Trust Agreement and the Trust Fund created thereby in the form of the
Houston Industries Incorporated Master Savings Trust, effective January 1, 1994
(the "Prior Trust Agreement"), to accommodate the merger of the KBLCOM
Incorporated Savings Plan into the Prior Plan and to make certain other changes
therein; and

WHEREAS, effective as of May 1, 1995, the Company
appointed the Trustee to replace the Prior Trustee as trustee of the Prior
Trust Agreement; and

<PAGE> 7
WHEREAS, effective as of May 1, 1995, the Company
appointed the Trustee to replace State Street Bank and Trust Company, a
Massachusetts trust company, as trustee of the Prior ESOP Trust Agreement; and

WHEREAS, effective as of July 1, 1995, the Company
amended and restated the Prior Plan to provide for daily valuations, provide
for the addition of new investment funds, and to make certain other changes
therein (the "Plan"); and

WHEREAS, the Company has reserved the right at any time
to amend the Prior Trust Agreement and the Prior ESOP Trust Agreement to any
extent that it may deem advisable provided that no amendment shall increase the
duties or responsibilities of the Trustee without the consent of the Trustee
thereto in writing; and

WHEREAS, the Company deems it advisable at this time to
amend, restate, merge and continue the Prior Trust Agreement and the Prior ESOP
Trust Agreement in the form of this Trust Agreement to the extent hereinafter
set forth, to provide for daily valuation, to increase the number of Investment
Funds to seven (or such other number as may be prescribed by the Committee from
time to time), to eliminate the master trust concept and to make certain other
changes therein;

NOW, THEREFORE, the Company and the Trustee hereby agree
that the Prior Trust Agreement and the Prior ESOP Trust Agreement shall both be
amended and restated in their entirety, merged and continued in the form of
this Trust Agreement, which shall read as follows:

- 2 -
<PAGE> 8
ARTICLE I

DEFINITIONS AND CONSTRUCTION

1.1 Definitions: As used in this Savings Trust, the following
words and phrases shall have the following meanings unless the context clearly
requires a different meaning:

AFFILIATED CORPORATION: Houston Industries Incorporated, a
Texas corporation, and any corporation in which the shares owned or controlled
directly or indirectly by Houston Industries Incorporated shall represent 50%
or more of the voting power of the issued and outstanding capital stock of such
corporation.

BOARD: The Board of Directors of the Company.

CODE: The Internal Revenue Code of 1986, as amended from time
to time.

COMMITTEE: The Benefits Committee appointed by the Board of
Directors of the Company, which shall serve as a "named fiduciary" hereunder
and assist in the investment and administration of the Trust Fund and whose
duties also include serving as "plan administrator" of the Plan. In regard to
any provision of this Trust under which an agent has been appointed by the
Benefits Committee pursuant to Section 6.1 hereof to administer such provision
of this Trust, such agent shall be deemed to be the Committee.

COMPANY: Houston Industries Incorporated, a Texas
corporation, and its successor or successors.

COMPANY STOCK: The common stock of the Company qualifying as
"employer securities" within the meaning of Section 409(1) of the Code and
Section 407(d)(5) of ERISA.

ERISA: Public Law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended from time to time.

ESOP FUND: All cash, Company Stock, and other properties held
by the Trustee under the Prior ESOP Trust Agreement at the close of business on
June 30, 1995, which have been transferred and allocated to the ESOP Fund under
this Trust as of July 1, 1995, any property into which the same or any part
thereof may from time to time be converted, and any appreciation therein or
income thereon less any depreciation therein, any losses thereon and any
distributions or payments therefrom.

EXCHANGE ACT: The Securities and Exchange Act of 1934, as
amended.

INVESTMENT FUND OR FUND: Any of the investment funds
comprising the Trust Fund (including the HI Common Stock Fund), as described in
Article IV, but excluding the ESOP Fund.

- 3 -
<PAGE> 9
INVESTMENT MANAGER: The fiduciary or fiduciaries, if any,
appointed hereunder by the Committee and meeting the definition set forth in
Section 3(38) of ERISA.

PARTICIPANT: Each employee, former employee, spouse or
beneficiary of an employee who is or was participating in the Plan in
accordance with the terms thereof.

PLAN: The Houston Industries Incorporated Savings Plan, as
amended and restated effective July 1, 1995, and as the same may hereafter be
amended from time to time.

PRIOR ESOP TRUST AGREEMENT: The Savings Plan of Houston
Industries Incorporated ESOP Trust Agreement, between the Company and State
Street Bank and Trust Company, established effective October 5, 1990, and as
thereafter amended and in effect on June 30, 1995, between the Company and
Trustee.

PRIOR PLAN: The Houston Industries Incorporated Savings Plan,
as amended and restated effective January 1, 1994, and as thereafter amended
and in effect on June 30, 1995.

PRIOR TRUST AGREEMENT: The Houston Industries Incorporated
Master Savings Trust Agreement, between the Company and Texas Commerce Bank
National Association, dated April 7, 1994 but effective as of January 1, 1994,
and as thereafter amended and in effect on June 30, 1995, between the Company
and Trustee.

PROHIBITED TRANSACTION: A transaction prohibited under
Sections 406 through 408 of ERISA.

TRUST: The Houston Industries Incorporated Savings Trust, as
amended and restated effective July 1, 1995 and as the same may hereafter be
amended from time to time.

TRUST FUND: The Investment Funds and ESOP Fund to be
established under the Trust and from which benefits under the Plan are to be
paid. Such fund shall consist of all assets, money and property, all
investments made therewith and proceeds thereof and all earnings and profits
thereon, less the payments or other distributions which, at the time of
reference, shall have been made by the Trustee, as authorized herein.

TRUSTEE: The Northern Trust Company, an Illinois corporation,
its successor or successors.

VALUATION DATE: Any date on which the New York Stock Exchange
is open for trading and any date on which the value of the assets of the Trust
Fund is determined by the Trustee pursuant to Section 3.1. The last business
day of each calendar month shall be the "monthly Valuation Date," and the last
business day of December of each Plan Year shall be the "annual Valuation
Date."

- 4 -
<PAGE> 10
1.2 Construction: The masculine gender, where appearing in the
Trust, shall be deemed to include the feminine gender, and the singular may
include the plural, unless the context clearly indicates to the contrary. The
words "hereof," "herein," "hereunder" and other similar compounds of the words
"here" shall mean and refer to the entire Trust, not to any particular
provision or section. Article and Section headings are included for
convenience of reference and are not intended to add to or subtract from the
terms of the Trust.

- 5 -
<PAGE> 11
ARTICLE II

TRUST; GENERAL DUTIES OF THE PARTIES

2.1 Continuation of Trust: The Company hereby continues with the
Trustee a Trust for the exclusive purposes of providing benefits to employees
of the Company and the Affiliated Corporations, and to the beneficiaries of
such employees, under the Plan and defraying reasonable expenses of
administering the Plan. The Trust shall consist of (a) such cash and other
property held in trust by the Trustee under the Prior Trust Agreement at the
close of business on June 30, 1995, and which was transferred to the Investment
Funds under this Trust, (b) such cash and other property held in trust by the
Trustee under the Prior ESOP Trust Agreement at the close of business on June
30, 1995, and which was transferred to the ESOP Fund under this Trust, and (c)
such sums of money and such property acceptable to the Trustee as shall from
time to time be paid or delivered to the Trustee as a contribution in respect
of the Plan, together with the income and gains therefrom. The Trust shall be
maintained at all times as a domestic trust in the United States.

2.2 General Duties of the Company:

A. The Company shall provide the Trustee with a certified copy of
the Plan, and with evidence acceptable to the Trustee that the Plan has been
duly adopted by the Company and has been determined to be qualified under Code
Section 401(a). True and correct copies of all amendments to the Plan shall be
delivered to the Trustee by the Company promptly following their adoption.

B. The Board of Directors of the Company shall appoint a Benefits
Committee, consisting of at least three individuals, which shall be authorized
under the Plan to serve as a "named fiduciary" (within the meaning of Section
402(a)(2) of ERISA) and "plan administrator" (within the meaning of Section
3(16)(A) of ERISA) of the Plan to assist in the investment and administration
of the Trust as hereinafter provided. Each member of the Committee shall serve
at the pleasure of the Board of Directors of the Company and the Company shall
certify to the Trustee the names and specimen signatures of the members of the
Committee serving from time to time hereunder. The Company shall indemnify and
hold harmless each member of the Committee from any and all claims, losses,
damages, expenses (including counsel fees approved by the Committee), and
liabilities (including any amounts paid in settlement with the Committee's
approval but excluding any excise tax assessed against any member or members of
the Committee pursuant to the provisions of Code Section 4975) arising from any
act or omission of such member in connection with his duties and
responsibilities under this Trust Agreement, except when the same is judicially
determined to be due to the gross negligence and willful misconduct of such
member.

2.3 Investment Guidelines; Contributions; Employee Records: From
time to time the Committee shall communicate in writing to any Investment
Manager who may be acting pursuant to Section 4.3 (and to the Trustee, if it is
managing the investment of any of the assets of the Trust pursuant to such
Section) the investment guidelines governing the portion of the assets of the
Trust managed by such Investment Manager or the Trustee. The Company shall
make, and shall cause the

- 6 -
<PAGE> 12
Affiliated Corporations to make, contributions to the Plan as the same may be
determined in accordance with the Plan and shall specify in writing to the
Trustee the amount of such contributions. The Company shall keep and shall
cause the Affiliated Corporations to keep accurate books and records with
respect to their respective employees, including, without limitation, records
as to the periods of employment, compensation and ages of such employees.

2.4 General Duties of Trustee: The Trustee shall hold all
property received by it hereunder, which, together with the income and gains
therefrom and additions thereto, and less payments and other distributions
therefrom, shall constitute the Trust Fund. Except as otherwise hereinafter
provided, the Trustee shall manage, invest and reinvest the Trust Fund, collect
the income thereof, and make payments therefrom, all in accordance with the
terms of this Agreement. The Trustee shall be responsible only for the
property actually received by it hereunder. It shall have no duty or authority
to compute any amount to be paid to it by the Company, by any Affiliated
Corporation or by any Participant in the Plan, or to bring any action or
proceeding to enforce the collection from any such person of any contribution
to the Trust in respect of the Plan.

- 7 -
<PAGE> 13
ARTICLE III

ACCOUNTS;
AUTHORITY OF COMPANY AND COMMITTEE

3.1 Accounts; Valuation: As provided below, the Trustee shall
determine the value of the Trust Fund as of each annual Valuation Date and any
interim Valuation Date as the Committee may prescribe; and the Trustee shall
determine and include in each such report for the assistance of the Committee
in administering the Plan the value as of such valuation dates of each such
asset. In accordance with its normal pricing methods and as provided below, the
Trustee shall value the assets of the Trust Fund on each Valuation Date. In
the absence of readily attainable fair market values, the fiduciary with
investment responsibility shall determine the fair market value to be used.
Notwithstanding any other provision of this Section, the Trustee, in
determining the value of the assets in the Trust Fund, may rely upon the
determination of any Investment Manager with respect to the value of any
interest of the Trust in any common, collective, commingled or group trust fund
maintained by such Investment Manager in which assets of the Trust are
permitted to be invested by Section 4.2(l) of this Agreement. As soon as
practicable after each annual Valuation Date (but no later than 90 days after
each such Valuation Date), the Trustee shall furnish the Company and the
Committee a written statement showing the net value of the Trust Fund on such
Valuation Date. Notwithstanding anything herein to the contrary, to the extent
assets are invested in a mutual fund, the Trustee shall rely upon the value
provided to it by the sponsor of the mutual fund or the pricing service
normally used by the Trustee for this purpose.

Any Investment Manager or the Committee who may be acting
pursuant to Section 4.3 (and the Trustee, if it is managing the investment of
any assets of the Trust pursuant to such Section) may in its discretion
transfer or direct the transfer to a liquidating account of any investment of
the portion of the Trust under its management which it determines should be
liquidated for the benefit of the Plan. Any investment that has been
transferred to a liquidating account shall be segregated and administered or
realized upon solely for the benefit of the Plan and shall be excluded in
determining the value of the Plan in the Trust Fund thereafter.

The Committee shall maintain for each of the Participants
under the Plan an accurate account reflecting the interest in the Trust Fund,
in its component Investment Funds and in the ESOP Fund of each such Participant
and shall furnish to each individual Participant, no less than annually, a
report of his account. The Trustee shall transfer assets to and from each
Investment Fund as directed by the Committee or its representative.

3.2 Exclusive Benefit of Employees Under The Plan: At no time
prior to the satisfaction of all liabilities with respect to Participants under
the Plan shall any part of the Trust Fund be used for, or diverted to, any
purposes other than for the exclusive benefit of such Participants or the
payment of Plan or Trust administrative expenses.

- 8 -
<PAGE> 14
3.3 Authority of Company and Committee: Any Affiliated
Corporation which participates in the Plan shall be bound by the decisions,
instructions, actions and directions of the Company, Committee (or its
representative), Investment Managers, and named fiduciaries (as such term is
defined in Sections 4.5, 4.6 and 4.7) under this Agreement, and the Trustee
shall be indemnified by the Company and such Affiliated Corporation for
expenses and liabilities incurred by relying upon such decisions, instructions,
actions and directions, or where such expenses or liabilities were incurred by
the Trustee due to the failure of such parties to carry out their
responsibilities under the Plan and Trust. The Trustee shall not be required
to give notice to or obtain the consent of any such Affiliated Corporation with
respect to any action which is taken by the Trustee pursuant to this Agreement.

- 9 -
<PAGE> 15
ARTICLE IV

INVESTMENT, ADMINISTRATION AND
DISBURSEMENT OF TRUST FUND

4.1 Division of the Trust Fund: Except as provided in Section
3.1, the Trust Fund shall be divided into an ESOP Fund and such Investment
Funds as shall be selected and reviewed from time to time by the Committee.
Initially, such additional Investment Funds shall consist of the HI Common
Stock Fund, Capital Appreciation Fund, Growth & Income Equity Fund,
International Equity Fund, Balanced Fund, Fixed Income Fund and Money Market
Fund, more specifically described in Section 4.2. Each such Investment Fund
shall be invested by the fiduciary with investment responsibility in accordance
with the provisions of Section 4.2 in the kinds of property specified for such
Investment Fund by the Committee. The ESOP Fund shall be invested primarily in
Company Stock, in accordance with the provisions of Section 4.2(h). The
Committee is authorized to terminate the existing Investment Funds and
establish new Investment Funds by giving advance written notice to the Trustee
describing the fund to be terminated or established and the effective date
thereof, provided that in no event shall the Trustee's duties be modified
without its consent. It is hereby specifically agreed that any termination,
modification, combination or creation of an Investment Fund which consists in
whole or in part of a group or commingled trust sponsored by Trustee hereunder
shall not require the consent of Trustee.

The Committee or its representative shall direct the Trustee
in accordance with the terms of the Plan and the Trust Agreement with respect
to the allocation of assets of the Trust Fund, and shall advise the Trustee
with respect to transfers among the Investment Funds and the ESOP Fund, and the
Trustee shall hold the amount so specified as a part of the Investment Fund or
ESOP Fund, as appropriate, to which it shall have been allocated or
transferred. The Committee's representative ("Recordkeeper") shall, on a daily
basis, calculate the net amount of money to be moved to or from each Investment
Fund based on investment elections made by Participants pursuant to the Plan.
Recordkeeper shall on a daily basis, and based on the information as described
above, notify the sponsor of each Investment Fund of the amount of money that
should be transferred from or transferred to such Investment Fund.
Recordkeeper shall also provide the Trustee with the same information on the
same day it notifies the fund sponsor and the Trustee shall act regarding
contributions and transfers based on such information. Recordkeeper shall also
calculate the amount of benefit payments and distributions hereunder and
provide the Trustee with information necessary to make such benefit payments
and distributions.

To the extent that any Investment Fund is invested in mutual
fund shares or bank commingled funds, the Committee shall initially select
funds to be invested in and shall be responsible for retaining the availability
of or terminating the availability of such funds. To the extent the Trustee is
required to enter into a custody agreement with the sponsor of a bank
commingled fund or such other type of fund, the Committee shall direct the
Trustee to enter into such agreement.

- 10 -
<PAGE> 16
The Trustee, upon receipt of direction from the Committee,
shall transfer to the Investment Funds all such cash and other property as the
Trustee held under the Prior Trust Agreement at the close of business on June
30, 1995. The Trustee, upon receipt of direction from the Committee, shall
transfer to the ESOP Fund all such cash and other property as the Trustee held
in the ESOP Fund under the Prior ESOP Trust Agreement at the close of business
on June 30, 1995.

4.2 Investment of the Trust Fund: The contributions
hereafter allocated to each of the said Investment Funds and the ESOP Fund, and
all proceeds, interest, income or other payments in respect of each such
Investment Fund and the ESOP Fund shall be invested and reinvested in a manner
described below:

(a) HI Common Stock Fund. Contributions are to be
invested and reinvested in Company Stock (which the Trustee shall
purchase as soon as practicable when and as it holds funds available
for that purpose, either (i) in the open market, (ii) from the ESOP
Fund for adequate consideration and in the sole discretion of the
Trustee, or (iii) privately from the Company at a price per share
equal to the closing price of said share on the New York Stock
Exchange on the day of the purchase, it being understood that shares
purchased from the Company may either be treasury shares or
authorized but unissued shares, if the Company shall make such shares
available for the purpose, and that the Trustee in its discretion may
refrain from making purchases of shares of Company Stock whenever it
deems such refraining to be necessary to prevent undue trading impact
on the price of the Company Stock. At any time that the Trustee
makes open market purchases of Company Stock, the Trustee will either
(i) be an "agent independent of the issuer" as that term is defined
in Rule 10(b)(18) promulgated pursuant to the Exchange Act or (ii)
make such open market purchases in accordance with the provisions,
and subject to the restrictions, of Rule 10(b)(18) of the Exchange
Act. Except in the case of fractional shares received in any stock
dividend, stock split or other recapitalization, or as necessary to
make any distribution or payment from the Trust Fund or transfers
among Investment Funds, the Trustee shall have no power or duty to
sell or otherwise dispose of any stock acquired for the HI Common
Stock Fund.

(b) Capital Appreciation Equity Fund. Contributions are
primarily invested and reinvested in a pool of stock funds that have
a goal of long-term growth with no emphasis on current income. The
funds are invested in stocks of rapidly growing companies or
companies with the potential for exceptional growth.

(c) Growth & Income Equity Fund. Contributions are
primarily invested and reinvested in a pool of stock funds with the
goals of growth and current

- 11 -
<PAGE> 17
income. The funds buy stocks of growing companies and companies that
have a history of paying steady dividends.

(d) International Equity Fund. Contributions are
primarily invested and reinvested in a pool of international stock
funds that have a goal of long-term growth by investing in stocks of
companies based outside the United States. These funds buy stocks of
growing and established companies outside of the United States with
the potential for growth.

(e) Balanced Fund. Contributions are primarily invested
and reinvested in both stock and bond funds. The funds invested in
may change from time to time, with the intent being to invest in
high-quality, limited term bonds and a wide variety of corporate
stocks.

(f) Fixed Income Fund. Contributions are primarily
invested and reinvested in short-term, high-quality government and
corporate bonds and other fixed income securities.

(g) Money Market Fund. Contributions are primarily
invested and reinvested in high-quality government and corporate
fixed income securities with maturities of less than one year.

(h) ESOP Fund. All amounts allocated to the ESOP Fund,
and all proceeds, interest, income or other payments in respect of
the ESOP Fund shall be invested and reinvested in Company Stock
except to the extent required to give effect to distributions,
transfers and other temporary cash needs. The Committee shall direct
the Trustee to sell Company Stock, which may include sales to the HI
Common Stock Fund, in order to make distributions, payments or
transfers. To the extent that Company contributions to the ESOP Fund
are made in Company Stock, the Trustee will be expected to retain
Company Stock. To the extent Company contributions to the ESOP Fund
are made in cash and are not used to pay principal or interest on an
ESOP Loan pursuant to Article V or to pay expenses of the Trust Fund,
the Trustee will be expected to acquire Company Stock within a
reasonable period of time. If at the time Company Stock is to be
purchased, the Company has outstanding more than one class of Company
Stock, the Committee shall direct the Trustee as to which class of
Company Stock shall be purchased. However, if the Company Stock to
be purchased is not readily tradeable on an established market, the
Trustee shall represent the Trust in the determination of the price
to be paid for such Company Stock.

(i) The Company has determined that daily movement of
Participant balances among the Investment Funds is an important
design feature and objective of the Plan and that timely transfers
and distributions from the HI Common Stock

- 12 -
<PAGE> 18
Fund need to be facilitated in order to achieve such objective. The
Committee may authorize and direct the Trustee in writing to seek to
obtain settlement for sales of Company Stock on an expedited basis
under certain circumstances in which case the Trustee shall carry out
its responsibilities for execution of Company Stock sale transactions
in accordance with such direction and subject to any limitations
expressed therein.

(j) Pending the acquisition of an investment in an
orderly manner for the purposes of the Investment Funds, the Trustee
may temporarily hold funds thereof uninvested or in repurchase
agreements, bankers acceptances, certificates of deposit, commercial
paper, demand or time deposits, obligations issued or fully
guaranteed by the United States of America or any agency thereof,
master notes or like holdings either separately or through the medium
of a common, collective, group or commingled trust fund that invests
primarily in such like investments.

(k) To the extent consistent with Section 4.2(h), the
ESOP Fund may hold temporary investments other than Company Stock,
may hold such portion of the ESOP Fund uninvested as the Committee
deems advisable for making distributions under the Plan, may invest
assets of the ESOP Fund in short term investment grade investments
bearing a reasonable rate of interest, including without limitation,
deposits in, or short term investment grade instruments of, the
Trustee, or in one or more short term collective investment funds
administered by the Trustee as trustee thereof for the collective
investment of assets of employee pension or profit-sharing trusts, as
long as each such collective investment fund constitutes a qualified
trust under the applicable provisions of the Code (and while any
portion of the ESOP Fund is so invested, such collective investment
funds shall constitute part of the Plan to the extent of such
investment, and the instrument creating such funds shall constitute
part of this Agreement).

(l) In the discretion of the person who is directing the
investment of a portion or all of any of the Investment Funds, with
the exception of the HI Common Stock Fund, under the provisions of
Section 4.3, all or any part of amounts allocated to such Investment
Funds, may be invested in such assets as are appropriate to the Fund
in question collectively with funds of other pension and
profit-sharing trusts exempt from tax under Code Section 501(a) by
reason of qualifying under Code Section 401(a) through the medium of
any common, collective or group trust fund which has been or
hereafter may be established by the Trustee or by any other bank or
trust company in the United States, the instrument or instruments
establishing such trust fund or funds, as amended from time to time,
being made a part of this Agreement so long as any portion of the
Trust Fund shall be invested through the medium thereof.

- 13 -
<PAGE> 19
The investments of the Trust Fund, with the exception of the
HI Common Stock Fund and the ESOP Fund, shall be so diversified as to minimize
the risk of large losses unless under the circumstances it is clearly prudent
not to do so, in the sole judgment of the person who is directing the investment
of such Funds under the provisions of Section 4.3. Any property at any time
received by the Trustee may be retained in the Trust Fund. To the extent that
the Trustee is managing the Trust Fund under the provisions of Section 4.3, the
Trustee may temporarily invest and reinvest all or any portion of the amounts
allocated to any Investment Fund either in short term investments selected by it
or collectively with funds of other pension and profit-sharing trusts exempt
from tax under Code Section 501(a) by reason of qualifying under Code Section
401(a) through the medium of any common, collective, commingled or group trust
fund which has been or hereafter may be established by the Trustee or by any
other bank or trust company in the United States, the instrument or instruments
establishing such trust fund or funds, as amended from time to time, being made
a part of this Agreement so long as any portion of the Trust Fund shall be
invested through the medium thereof. With respect to any portion of the Trust
Fund which is under the management of an Investment Manager as provided in
Section 4.3 subject to contrary instructions, the Trustee shall invest cash held
by it in short term obligations, either separately or by investment collectively
with funds of other pension and profit-sharing trusts exempt from tax under Code
Section 501(a) by reason of qualifying under Code Section 401(a) through the
medium of any common, collective, commingled or group trust fund which has been
or hereafter may be established by the Trustee or by any other bank or trust
company in the United States, the instrument or instruments establishing such
trust fund or funds, as amended from time to time, being made a part of this
Agreement so long as any portion of the Trust Fund shall be invested through the
medium thereof.

At any time and from time to time, the Committee may direct
the Trustee to transfer a specified portion or all of any of the Investment
Funds of the Trust Fund, with the exception of the HI Common Stock Fund, as it
shall deem advisable to the trustees of any other common, collective, group or
commingled trust (hereinafter collectively, the "Group Trusts"), if and only if
a Group Trust is qualified under Code Section 401(a) and exempt from tax under
Code Section 501(a) and is maintained as a medium for the commingled,
collective and common investment of assets of eligible participating trusts;
and the Committee may direct the Trustee to withdraw all or any part of the
Trust Fund so transferred. The terms and provisions of the agreements of trust
establishing any Group Trust and the provisions of any amendments thereto are
hereby incorporated herein by reference and shall be deemed a part of this
Trust Agreement so long as any portion of the Trust Fund shall be invested
through the medium thereof. The Trustee shall make any such transfer or
withdrawal of all or any part of the Trust Fund only upon the expressed
direction of the Committee. The Trustee shall be under no duty or obligation
to review any investment acquired, held or disposed of by the trustees of the
Group Trusts pursuant to the provisions thereof, and the trustees of the Group
Trusts shall have all fiduciary powers, responsibilities and liabilities
arising under this Trust Agreement with respect to the portion of the Trust
Fund transferred to them pursuant to directions of the Committee to be held
under the terms and provisions of the Group Trusts. The Company shall
indemnify and hold harmless the Trustee from any and all claims, losses,
damages, expenses (including counsel fees approved by the Trustee), and
liabilities (including any amount paid in settlement with the Trustee's
approval but excluding any excise tax assessed against the Trustee pursuant to
the provisions of Code

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<PAGE> 20
Section 4975) arising from any act or omission of the trustees of the Group
Trusts in connection with their duties and responsibilities under this Trust
Agreement with respect to the portion of the Trust Fund transferred to them,
except to any extent prohibited under ERISA.

4.3 Direction of Investment: The investment of the HI Common
Stock Fund and the ESOP Fund shall be managed solely by the Trustee in the
manner provided in Section 4.2. The Committee shall from time to time specify
by written notice to the Trustee whether the investment of the other Investment
Funds under the Plan, in the manner provided in Section 4.2, shall be managed
solely by the Trustee or the Committee (or its agent), or shall be directed by
one or more Investment Managers, or whether the Trustee, the Committee and one
or more Investment Managers are to participate in investment management and, if
so, how the investment responsibility is to be divided with respect to assets,
classes of assets, separate investment funds or sub-funds specified and defined
in such notice. In the event that the Committee shall fail to specify pursuant
to this Section the person or persons who are to manage the investment of the
other Investment Funds under the Plan, or any portion or portions thereof, the
Trustee shall manage the investment of such Investment Fund or such portion or
portions in the manner described in Section 4.2, until the Committee shall
specify such person or persons as provided herein. Any Investment Manager
appointed to manage the investment of a part (or all) of the Investment Funds,
other than the HI Common Stock Fund, under the Plan shall either (i) be
registered as an investment adviser under the Investment Managers Act of 1940,
(ii) be a bank, as defined in that Act, or (iii) be an insurance company
qualified to perform investment management services under the laws of more than
one State. If investment of the Trust Fund is to be directed in whole or in
part by an Investment Manager, such Investment Manager shall acknowledge that
it is acting as a fiduciary with respect to such assets. The Trustee may
continue to rely upon such instruments and certificate until otherwise notified
in writing by the Committee.

The Trustee shall follow the directions of the Investment
Manager regarding the investment and reinvestment of the Trust Fund as to such
portion thereof as shall be under management by the Investment Manager and
shall be under no duty or obligation to review any investment to be acquired,
held or disposed of pursuant to such directions nor to make any recommendations
with respect to the disposition or continued retention of any such investment.
The Trustee shall have no liability or responsibility for acting without
question on the direction of, or failing to act in the absence of any direction
from, the Investment Manager, unless the Trustee knows that by such action or
failure to act it will be participating in a breach of fiduciary duty by the
Investment Manager. The mere processing of investment instructions,
maintenance of records and providing reports shall not constitute knowledge.

The Investment Manager at any time and from time to time may
issue orders for the purchase or sale of securities directly to a broker, and
in order to facilitate such transaction the Trustee upon request shall execute
and deliver appropriate trading authorizations. Notification of the issuance
of each such order shall be given promptly to the Trustee by the Investment
Manager, and the execution of each such order shall be confirmed according to
industry practice. Such notification shall be authority for the Trustee to pay
for securities purchased and to deliver securities

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<PAGE> 21
sold according to industry practice, as the case may be. All written
notifications concerning investments made by the Investment Manager shall be
signed by such person or persons, acting on behalf of the Investment Manager as
may be duly authorized in writing; provided, however, that the transmission to
the Trustee of notifications, facsimile transmission or electronic data
transmission shall be considered a delivery in writing of the aforesaid
notifications until the Trustee is notified in writing by the Investment
Manager that the use of such devices is no longer authorized. The Trustee
shall be entitled to rely upon such directions which it receives by such means
if so authorized by the Investment Manager and shall in no way be responsible
for the consequences of any unauthorized use of such device which was not, in
fact, known by the Trustee at the time to be unauthorized. The Trustee shall,
as promptly as possible, comply with any written directions given by the
Investment Manager hereunder, and, where such directions are given by facsimile
transmission or electronic data transmission, the Trustee shall be entitled to
presume any directions so given are fully authorized.

In the event that an Investment Manager should resign or be
removed by the Committee, the Trustee shall, upon receiving written notice of
such resignation or removal, manage, pursuant to Section 4.2, the investment of
the portion of the Trust Fund under management by such Investment Manager at
the time of its resignation or removal, unless and until it shall be notified
of the appointment of another Investment Manager as provided in this Section
4.3, for such portion of the Trust Fund.

The Committee shall have investment responsibility for all or
a portion of the assets held in any Investment Fund other than the HI Common
Stock Fund for which it notifies the Trustee that it is to assume such
responsibility. With respect to the assets of any Investment Fund other than
the HI Common Stock Fund for which the Committee has investment responsibility,
the Trustee, acting only as directed by the Committee, shall enter into such
agreements as are necessary to facilitate any investment, including agreements
entering into a limited partnership, subtrust or the participation in real
estate funds. The Trustee shall not make any investment review of, or consider
the propriety of holding or selling, or vote any assets for which the Committee
has retained investment responsibility.

4.4 Voting of Securities Other than Company Stock in the HI Common
Stock Fund or in the ESOP Fund: The Trustee shall have power in its discretion
to exercise all voting rights with respect to any investment held in an
Investment Fund under the Plan, with the exception of investments held in the
HI Common Stock Fund and the ESOP Fund, and to grant proxies, discretionary or
otherwise, with respect thereto, except that at any time when an Investment
Manager or the Committee shall be acting with respect to such Investment Fund
as provided in Section 4.3, the Trustee shall not exercise its discretion with
respect to voting any securities under management of such Investment Manager or
the Committee but shall itself vote such securities only upon and in the manner
directed by the Investment Manager or the Committee or shall send such
Investment Manager or the Committee all proxies and proxy materials relating to
such securities, signed by the Trustee without indication of voting preference,
and the Investment Manager or the Committee shall exercise all voting rights
with respect thereto. All shares of Company Stock held in the HI Common

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<PAGE> 22
Stock Fund shall be voted as provided below in Section 4.5. All shares of
Company Stock held in the ESOP Fund shall be voted as provided below in Section
4.6.

4.5 Voting of Company Stock in the HI Common Stock Fund: The
Trustee shall not vote the shares of Company Stock held in the HI Common Stock
Fund at any meeting of stockholders except as it shall receive voting
instructions from Participants in the HI Common Stock Fund as provided below.
Each employee, former employee or beneficiary of a deceased employee
participating in the HI Common Stock Fund (hereinafter in Sections 4.5 and 4.7
referred to as "HI Common Stock Fund Participant") is, for purposes of this
Section 4.5, hereby designated as a "named fiduciary" (within the meaning of
Section 403(a)(1) of ERISA) with respect to the shares of Company Stock
attributable to his account and shall have the right to direct the Trustee with
respect to the vote of the shares of Company Stock attributable to his account,
on each matter brought before any meeting of the stockholders of the Company.
Before each such meeting of stockholders, the Company shall cause to be
furnished to each HI Common Stock Fund Participant a copy of the proxy
solicitation material, together with a form requesting confidential directions
to the Trustee on how such shares of Company Stock attributable to such HI
Common Stock Fund Participant's account shall be voted on each such matter.
Upon timely receipt of such directions, the Trustee shall on each such matter
vote as directed the number of shares (including fractional shares) of Company
Stock attributable to such HI Common Stock Fund Participant's account, giving
effect to all affirmative directions by HI Common Stock Fund Participants,
including directions to vote for or against, to abstain or to withhold the
vote, and the Trustee shall have no discretion in such matter. The Trustee
shall vote shares of Company Stock for which it has not received direction in
the same proportion as directed shares attributable to HI Common Stock Fund
Participants' accounts in the Plan are voted, and the Trustee shall have no
discretion in such matter. The instructions received by the Trustee from HI
Common Stock Fund Participants shall be held by the Trustee in confidence and
shall not be divulged or released to any person, including the Committee,
officers or employees of the Company or Affiliated Corporations. The Trustee
shall be authorized to coordinate the voting of Company Stock pursuant to this
Section 4.5 with the voting provisions of the ESOP Fund so as to fully
effectuate and carry out the purposes and intent thereof.

4.6 Voting of Company Stock in the ESOP Fund: Each Participant
(hereinafter in Sections 4.6 and 4.7 referred to as "ESOP Fund Participant" is,
for purposes of this Section 4.6, hereby designated as a "named fiduciary"
(within the meaning of Section 403(a)(1) of ERISA) with respect to the shares
of Company Stock allocated to his account in the ESOP Fund and to a pro rata
portion of the unallocated shares of Company Stock held in the ESOP Fund and
shall have the right to direct the Trustee with respect to the vote of the
shares of Company Stock allocated to his account, on each matter brought before
any meeting of the stockholders of the Company. Before each such meeting of
stockholders, the Company shall cause to be furnished to each Participant a
copy of the proxy solicitation material, together with a form requesting
confidential directions to the Trustee on how such shares of Company Stock
allocated to such Participant's account in the ESOP Fund shall be voted on each
such matter. Upon timely receipt of such directions, the Trustee shall on each
such matter vote as directed the number of shares (including fractional shares)
of Company Stock allocated to such Participant's account in the ESOP Fund, and
the Trustee shall have no

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<PAGE> 23
discretion in such matter. The instructions received by the Trustee from
Participants shall be held by the Trustee in confidence and shall not be
divulged or released to any person, including the Committee, officers or
employees of the Company or an Affiliated Corporation. The Trustee shall vote
both allocated shares of Company Stock for which it has not received direction,
as well as unallocated shares, in the same proportion as directed shares are
voted, and the Trustee shall have no discretion in such matter. In determining
such proportion, the Trustee shall under all circumstances include in its
calculation the votes of Participants on all shares allocated to Participants'
Plan accounts, giving effect to all affirmative directions by Participants,
including directions to vote for or against, to abstain or to withhold the
vote.

4.7 Tendering of Company Stock in the HI Common Stock Fund and
Company Stock in the ESOP Fund: The provisions of this Section 4.7, shall
apply in the event a tender or exchange offer including but not limited to a
tender offer or exchange offer within the meaning of the Exchange Act (a
"tender offer"), for Company Stock is commenced by a person or persons.

In the event a tender offer for Company Stock is commenced,
the Committee, promptly after receiving notice of the commencement of any such
tender offer, shall transfer certain of the Committee's record keeping
functions to an independent record keeper (which, if the Trustee consents in
writing, may be the Trustee). The functions so transferred shall be those
necessary to preserve the confidentiality of any directions given by the HI
Common Stock Fund Participants or the ESOP Fund Participants in connection with
the tender offer. The Trustee shall have no discretion or authority to sell,
exchange or transfer any of such shares pursuant to such tender offer except to
the extent, and only to the extent, as provided in this Trust Agreement.

Each HI Common Stock Fund Participant is, for purposes of this
Section 4.7, hereby designated as a "named fiduciary" (within the meaning of
Section 403(a)(1) of ERISA) with respect to the shares of Company Stock
attributable to his account and shall have the right, to the extent of the
number of whole shares of Company Stock attributable to his account, to direct
the Trustee in writing as to the manner in which to respond to a tender offer
with respect to shares of Company Stock. Each ESOP Fund Participant is, for
purposes of this Section 4.7, hereby designated as a "named fiduciary" (within
the meaning of Section 403(a)(1) of ERISA) with respect to the shares of
Company Stock allocated to his account and to a pro rata portion of the
unallocated shares of Company Stock held in the ESOP Fund and shall have the
right, to the extent of the number of whole shares of Company Stock allocated
to his account, to direct the Trustee in writing as to the manner in which to
respond to a tender offer with respect to shares of Company Stock. The Company
shall use its best efforts to timely distribute or cause to be distributed to
each HI Common Stock Fund Participant and ESOP Fund Participant such
information as will be distributed to stockholders of the Company in connection
with any such tender offer. Upon timely receipt of such instructions, the
Trustee shall respond as instructed with respect to such shares of Company
Stock. The instructions received by the Trustee from HI Common Stock Fund
Participants and ESOP Fund Participants shall be held by the Trustee in
confidence and shall not be divulged or released to any person, including the
Committee or officers or employees of the Company or Affiliated Corporations.
If the Trustee shall not receive timely instruction from a HI Common Stock Fund
Participant or an ESOP Fund

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<PAGE> 24
Participant as to the manner in which to respond to such a tender offer, the
Trustee shall not tender or exchange any shares of Company Stock with respect
to which such HI Common Stock Fund Participant or ESOP Fund Participant has the
right to direction, and the Trustee shall have no discretion in such matter.
Fractional shares of Company Stock attributable to HI Common Stock Fund
Participants' accounts shall be tendered or exchanged by the Trustee in the
same proportion as shares of Company Stock attributable to HI Common Stock Fund
Participants' accounts in the Plan are tendered or exchanged, and the Trustee
shall have no discretion in such matter. Fractional or unallocated shares of
Company Stock allocated to ESOP Fund Participants' accounts shall be tendered
or exchanged by the Trustee in the same proportion as shares of Company Stock
allocated to ESOP Fund Participants' accounts in the Plan are tendered or
exchanged, and the Trustee shall have no discretion in such matter. In
determining such proportion, the Trustee shall under all circumstances include
in its calculation the direction of HI Common Stock Fund Participants on all
shares of Company Stock attributable to HI Common Stock Fund Participants' Plan
accounts and the direction of ESOP Fund Participants on all shares of Company
Stock allocated to ESOP Fund Participants' Plan accounts.

The independent record keeper shall solicit confidentially
from each HI Common Stock Fund Participant and ESOP Fund Participant the
directions described in this Section 4.7 as to whether shares are to be
tendered. The independent record keeper, if different from the Trustee, shall
instruct the Trustee as to the amount of shares to be tendered, in accordance
with the above provisions.

4.8 Powers of Trustee: When so directed in accordance with the
provisions of Section 4.3, or in the discretion of the Trustee if it is
managing the Trust Fund under such provisions, the Trustee shall have, subject
to the provisions of Sections 4.1 and 4.2, the power:

(a) To manage, sell, contract to sell, grant options to
purchase, convey, exchange, transfer, abandon, improve, repair,
insure, lease for any term (even though commencing in the future or
extending beyond the term of the Trust), and otherwise deal with all
property, real or personal, in such manner, for such considerations
and on such terms and conditions as the Trustee decides;

(b) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan
relating to any property held in the Trust Fund, and to consent to or
oppose any such plan or any action thereunder, or any contract,
lease, mortgage, purchase, sale or other action by any person or
corporation;

(c) To deposit any property with any protective,
reorganization or similar committee; and to pay and agree to pay part
of the expenses and compensation of any such committee and any
assessments levied with respect to any property so deposited;

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<PAGE> 25
(d) To exercise conversion and subscription rights
pertaining to any property held in the Trust Fund;

(e) To extend the time of payment of any obligation held
in the Trust Fund;

(f) To enter into stand-by agreements for future
investment, either with or without a stand-by fee;

(g) To hold in cash or cash balances, without liability
for interest thereon, any moneys received by the Trustee which are
awaiting investment and such additional funds as the Trustee may deem
reasonable or necessary to meet anticipated distributions or other
payments or disbursements with respect to the Plan;

(h) To invest in any type of deposit of the Trustee (or
of a bank related to the Trustee within the meaning of Code Section
414(b)) at a reasonable rate of interest or in a common trust fund,
as described in Code Section 584, or in a collective investment fund,
the provisions of which govern the investment of such assets and
which the Plan incorporates by this reference, which the Trustee (or
its affiliate as defined in Code Section 1504) maintains exclusively
for the collective investment of money contributed by the bank (or
the affiliate) in its capacity as trustee and which conforms to the
rules of the Comptroller of the Currency;

(i) To provide temporary advances to cover overdrafts
and, in addition, with the prior approval of the Committee, to borrow
money from others, to issue its promissory note or notes therefor,
and to secure the repayment thereof by pledging any property in its
possession;

(j) If an Investment Manager directing investment under
Section 4.3 is a bank, as defined in the Investment Managers Act of
1940, to transfer to such Investment Manager all or any specified
assets in that part of the Trust Fund which is subject to such
Investment Manager's direction, for investment by such Investment
Manager through the medium of any common, collective, commingled or
group trust fund maintained by it which consists solely of assets of
trusts qualified under Code Section 401(a) and which is exempt from
tax under Code Section 501(a), whereupon the instrument establishing
such common, collective, commingled or group trust fund, as amended
from time to time, shall constitute a part of the Plan the assets of
which are included in such part of the trust fund as long as any
portion of such assets shall be invested through the medium of such
common, collective, commingled or group trust fund;

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<PAGE> 26
(k) Subject to the provisions of Sections 4.2, 4.5, 4.6
and 4.7, to exercise voting rights either in person or by proxy, with
respect to any securities or other property, and generally to
exercise with respect to the ESOP Fund all rights, powers and
privileges as may be lawfully exercised by any person owning similar
property in his own right;

(l) Subject to the provisions of Sections 4.5 through
4.7, to exercise any options, conversion rights, or rights to
subscribe for additional stocks, bonds or other securities
appurtenant to any securities or other property held by it, and to
make any necessary payments in connection with such exercise;

(m) To compromise, compound, contest, abandon and settle
any debt or obligation owing to or from it as Trustee; to reduce or
increase the rate of interest on, extend or otherwise modify,
foreclose upon default, or otherwise enforce any such obligation;

(n) To hold any property at any place, except that it
shall not maintain the indicia of ownership of any assets of the ESOP
Fund outside the jurisdiction of the district courts of the United
States except as permitted by regulations issued by the Secretary of
Labor of the United States under ERISA Section 404(b);

(o) To determine the market value of any securities or
other property held by the Trustee in the ESOP Fund, and where any
securities or other property are determined by the Trustee not to be
marketable, to determine their value in accordance with sound
practice and standards for evaluating such property;

(p) In regard to the ESOP Fund, to repay from time to
time the principal and interest on, and to take any other action with
respect to, any loan which was previously incurred by the ESOP Fund,
all as directed by the Committee and in accordance with the
applicable provisions of the Plan; provided, however, no loans shall
be made by the Trustee individually to the ESOP Fund other than such
temporary advancements to the ESOP Fund on a cash or overdraft basis
as may be agreed to by the Trustee from time to time;

(q) To open and make use of banking accounts including
checking accounts, which accounts, if bearing a reasonable rate of
interest or if checking accounts, may be with the Trustee;

(r) To sell at public or private sale, contract to sell,
convey, exchange, transfer and otherwise deal with the assets in
accordance with industry practice, and to sell put and covered call
options from time to time for such price and upon such terms as the
Trustee sees fit; the Company acknowledges that the Trustee

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<PAGE> 27
may reverse any credits made to the Trust Fund by the Trustee prior
to receipt of payment in the event that payment is not received;

(s) To employ agents, attorneys and proxies and to
delegate to any one or more of them any power, discretionary or
otherwise, granted to the Trustee;

(t) To maintain custody and safekeeping over all
securities and other property in the Investment Funds and the ESOP
Fund, and to arrange for the safe transit of any such securities and
other property; and

(u) To register any security or other property held by it
hereunder (i) in its own name, (ii) in the name of a title holding
company exempt from tax under Section 501(c)(2) of the Code (and to
form title holding corporations or trusts under Section 501(c)(25) of
the Code), or (iii) in the name of a nominee with or without the
addition of words indicating that such securities or other property
are held in a fiduciary capacity, and to hold any securities in
bearer form and to deposit any securities or other property in a
depository or a clearing corporation, provided that the requirement
under Section 403 of ERISA that all assets of the Plan be held in
trust is not violated (provided, however, that the Trustee's books
and records shall at all times show that all such investments are a
part of the Trust Fund).

(v) The Trustee shall have the power in its discretion:

(i) To collect and receive any and all money and
other property due to the Trust Fund and to give full
discharge therefor;

(ii) To settle, compromise or submit to
arbitration any claims, debts or damages due or owing to or
from the Trust; to commence or defend suits or legal
proceedings to protect any interest of the Trust; and to
represent the Trust in all suits or legal proceedings in any
court or before any other body or tribunal;

(iii) To organize under the laws of any state a
corporation for the purpose of acquiring and holding title to
any property which it is authorized to acquire under this
Agreement and to exercise with respect thereto any or all of
the powers set forth in this Agreement;

(iv) To manage, operate, repair, improve, develop,
preserve, mortgage or lease for any period any real property
or any oil, mineral or gas properties, royalties, interests or
rights held by it directly or through any corporation, either
alone or by joining with others, using other Trust assets for
any of such purposes; to modify,

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<PAGE> 28
extend, renew, waive or otherwise adjust any or all of the
provisions of any such mortgage or lease; and to make
provision for amortization of the investment in or
depreciation of the value of such property;

(v) Generally, to do all acts, whether or not
expressly authorized, which the Trustee may deem necessary or
desirable for the protection of the Trust Fund; and

(vi) To exercise all the rights, powers, options
and privileges now or hereafter granted to, provided for, or
vested in, trustees under the Texas Trust Code, except such as
conflict with the terms of this Agreement or applicable law.
As far as possible, no subsequent legislation or regulation
shall be in limitation of the rights, powers or privileges
granted the Trustee hereunder or in the Texas Trust Code as it
exists at the time of the execution hereof.

4.9 Payments and Distributions from Trust Fund: The Trustee shall
make such payments and distributions from the Trust Fund at such time or times
and to such person or persons, including a paying agent or agents designated by
the Committee as paying agent (including a commercial banking account in a
federally insured banking institution established by the Committee for such
purpose; provided, however that the Trustee shall have no responsibility to
account for funds held in or disbursed from any such commercial banking
account, or to prepare any information returns for tax purposes as to
distributions made therefrom), as the Committee shall direct in writing,
provided, however, (i) that disbursements for ordinary transaction expenses
incurred in the administration of the Trust Fund need not be authorized by the
Committee and (ii) that no payment or distribution in respect of the Plan shall
exceed the value of the Plan in the Trust Fund on the date such payment or
distribution is made. Any cash or property so paid or delivered to any such
paying agent shall be held in trust by such payee until disbursed in accordance
with the Plan. Any written direction of the Committee shall constitute a
certification that the distribution or payment so directed is one which the
Committee is authorized to direct and the Trustee shall not be responsible for
the adequacy of the value of the Plan to meet and discharge such distribution
or payment.

The Trustee may make any distribution or payment required to
be made by it hereunder by mailing its check for the specified amount, or
delivering the specified property, including certificates representing shares
of Company Stock in the ESOP Fund, if applicable, to the person to whom such
distribution or payment is to be made, at such address as may have been last
furnished to the Trustee, or, if no such address shall have been so furnished,
to such person in care of the Company or the Committee, or (if so directed by
the Committee by crediting the account of such person or by transferring funds
to such person's account by bank wire or transfer). If a payment or
distribution from the Trust is not claimed, the Trustee shall promptly notify
the Committee thereof and thereafter handle such payment in accordance with the
subsequent direction of the Committee.

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<PAGE> 29
4.10 Trustee's Dealings with Third Parties: Any corporation,
transfer agent or other third party dealing with the Trustee shall not make, nor
be required by any person to make, any inquiry whether the Trustee has authority
to take or omit any action under this Trust Agreement or whether the Committee
has instructed the Trustee to take or omit any such action, but shall be fully
protected in relying upon the certificate of the Trustee that it has authority
to take or omit such proposed action. The seal of the Trustee affixed to any
instrument executed by it shall constitute the Trustee's certificate that it is
authorized as Trustee hereunder to execute such instrument and proceed as may be
provided for therein. No third party shall be required to follow the application
by the Trustee of any money or property which may be paid or transferred to it.

4.11 Ancillary Trustee: If at any time the Trust Fund shall
consist in whole or in part of assets located in a jurisdiction in which the
Trustee is not authorized to act, the Trustee may appoint an individual or
corporation in such jurisdiction as ancillary trustee and may confer upon such
ancillary trustee, power to act solely with reference to such assets, and such
ancillary trustee shall remit all net income or proceeds from the sale of such
assets to the Trustee. The Trustee may pay such ancillary trustee reasonable
compensation and may absolve it from any requirement that it furnish bond or
other security unless otherwise required by law.

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<PAGE> 30
ARTICLE V

ADDITIONAL ESOP FUND PROVISIONS

It is specifically contemplated that the ESOP Fund will
operate pursuant to a leveraged employee stock ownership plan. The Company may
from time to time direct the Trustee to take such actions as the Company shall
determine with respect to any loan previously incurred for the purpose of
acquiring Company Stock (a "Loan"), including, without limitation, electing
applicable interest rates and prepaying such Loan. Any such Loan shall
continue to meet all of the requirements necessary to constitute an "exempt
loan" within the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iii)
and shall continue to be used primarily for the benefit of the ESOP Fund
Participants and their beneficiaries. The proceeds of any such Loan shall
continue to be used, within a reasonable time after the Loan is obtained, only
to purchase Company Stock or to repay such Loan or a prior Loan. Any such Loan
shall continue to provide for no more than a reasonable rate of interest and
must continue to be without recourse against the Plan and Trust. The Loan must
not be payable at the demand of any person, except in the case of a default.
The only assets of the ESOP Fund that may be given as collateral for a Loan are
shares of Company Stock acquired with the proceeds of the Loan and shares of
Company Stock that were used as collateral on prior Loans repaid with the
proceeds of the current Loan. In the event that Company Stock was used as
collateral for a Loan, such Company Stock shall be released from such
encumbrance at an annual rate which is geared to the rate of total repayment
(principal plus interest) of the Loan or the rate of principal repayment of the
Loan, provided that in either case all applicable requirements of the
applicable regulations shall be satisfied. No person entitled to payment under
a Loan shall be entitled to payment from the ESOP Fund other than from shares
of Company Stock acquired with the proceeds of the Loan which are collateral
for the Loan, Company contributions made under the Plan for the purpose of
satisfying the Loan obligation, earnings attributable to such Company Stock and
such Company contributions, and such other assets, if any, as to which recourse
may be permitted under Section 4975 of the Code. Payments of principal and
interest on any such Loan shall be made by the Trustee (as directed by the
Committee) only from (1) Company contributions made under the Plan for the
purpose of satisfying such Loan obligation, earnings on such contributions and
earnings on shares of Company Stock acquired with the proceeds of such Loan,
(2) the proceeds of a subsequent Loan made to repay the prior Loan, and/or (3)
the proceeds of the sale of any collateralized share of Company Stock acquired
with the proceeds of such Loan. In the event of a default under a Loan, the
value of ESOP Fund assets transferred to the lender shall not exceed the amount
of the default, provided further that if the lender is a "party in interest"
within the meaning of ERISA Section 3(14), a transfer of ESOP Fund assets upon
default shall be made only if, and to the extent of, the ESOP Fund's failure to
meet the Loan's payment schedule.

- 25 -
<PAGE> 31
ARTICLE VI

FOR THE PROTECTION OF THE TRUSTEE

6.1 Composition of Committee: The Plan shall be administered by
the Committee appointed by the Company pursuant to the provisions of the Plan,
and the Trustee shall not be responsible in any respect for such
administration. The members of the Committee shall serve pursuant to the
provisions of the Plan, and the Company shall certify to the Trustee the names
of the members of the Committee acting from time to time and furnish to the
Trustee specimens of the signatures of such persons. The Committee may
delegate any of its rights, powers and duties to any one or more of its members
or to an agent. The Company shall indemnify and hold harmless each member of
the Committee, from any and all claims, losses, damages, expenses (including
counsel fees approved by the Committee), and liabilities (including any amounts
paid in settlement with the Committee's approval but excluding any excise tax
assessed against any member or members of the Committee pursuant to the
provisions of Code Section 4975) arising from any act or omission of such
member in connection with his duties and responsibilities under this Trust
Agreement, except when the same is judicially determined to be due to the gross
negligence and willful misconduct of such member. The foregoing right of
indemnification shall be in addition to any rights to which any member of the
Committee, may otherwise be entitled as a matter of law. When any member of
the Committee, shall cease to act, the Company shall promptly give written
notice to that effect to the Trustee, but until such notice is received by the
Trustee it shall be fully protected in continuing to rely upon the authority of
such persons. If the full number of members of the Committee, as provided
under the Plan, shall not at any time have been designated, the remaining
member or members acting at such time shall be deemed to have all of the powers
and duties of the Committee; or, if at any time there is no member of the
Committee, the Board of Directors of the Company shall be deemed to be the
Committee.

6.2 Evidence of Action by Company or Committee: The Committee
shall certify to the Trustee the name or names of any person or persons
authorized to act for the Committee. Until the Committee notifies the Trustee
that any such person is no longer authorized to act for the Committee, the
Trustee may continue to rely on the authority of such person. The Trustee may
rely upon any certificate, notice or direction purporting to have been signed
on behalf of the Committee which the Trustee believes to have been signed by
the Committee or the person or persons authorized to act for the Committee.
Any action required by any provision of this Agreement to be taken by the Board
of Directors of the Company shall be evidenced by a resolution of such Board of
Directors, certified to the Trustee over the signature of its Secretary or
Assistant Secretary, and the Trustee may rely upon, and shall be fully
protected in acting in accordance with, such resolution so certified to it.
Unless other evidence with respect thereto has been expressly prescribed in
this Agreement, any other action of the Company or of an Affiliated Corporation
under any provision of this Agreement, including any approval of, or exceptions
to the Trustee's accounts, shall be evidenced by a certificate signed by an
officer of the Company or of an Affiliated Corporation, as the case may be, and
the Trustee shall be fully protected in relying upon such certificate.

- 26 -
<PAGE> 32
Any action by the Trustee pursuant to any of the provisions of
this Agreement shall be sufficiently evidenced by a certification of one of its
Vice Presidents, Second Vice Presidents or other appropriate Trust Officers,
and the Company, each Affiliated Corporation which participates in this Trust,
the Committee and all other persons in interest may rely upon, and shall be
fully protected in acting in accordance with, such certification.

6.3 Communications: Communications to the Trustee shall be
addressed to it at 50 South LaSalle Street, Chicago, Illinois 60675.
Communications to the Committee, the Company or any Affiliated Corporation
shall be addressed to it at Five Post Oak Park, 4400 Post Oak Parkway, 27th
Floor, Houston, Texas 77027, with a copy to the Benefits Committee, attention:
Secretary, P.O. Box 61867, Houston, Texas 77208, unless the Trustee, the
Committee, the Company or any Affiliated Corporation, respectively, shall
request that communications be sent to another address. No communication shall
be binding upon the Trust Fund or the Trustee, or upon the Committee, the
Company or any Affiliated Corporation until it is received by the Trustee, the
Committee or its agent, the Company or the appropriate Affiliated Corporation,
as the case may be.

6.4 Advice of Counsel: The Trustee may consult with any legal
counsel, including counsel to the Company or the Committee, with respect to the
construction of this Trust Agreement, its duties hereunder, or any act which it
proposes to take or omit.

6.5 Miscellaneous: The Trustee may assume until advised to the
contrary that the Plan and the Trust Fund is qualified under Sections 401(a),
409 and 4975(e)(7) and exempt from taxation under Section 501(a) of the Code.
The Trustee shall be accountable for contributions made to the Plan and
included among the assets of the Trust Fund, but shall have no responsibility
to determine whether the contributions comply with the provisions of the Plan
and ERISA.

The Trustee's duties and obligations shall be limited to those
expressly imposed upon it by this Trust, notwithstanding any reference to the
Plan.

The Company, any Affiliated Corporation, the Committee or all
of them, at any time may employ as agent (to perform any act, keep any records
or accounts, or make any computations required of the Company, an Affiliated
Corporation or the Committee by this Trust Agreement or the Plan) the
corporation serving as Trustee hereunder. Nothing done by said corporation as
such agent shall affect its responsibility or liability as Trustee hereunder.

6.6 Fiduciary Responsibilities:

A. The Trustee, the Investment Managers, if any, and the members
of the Committee shall discharge their duties with respect to the Trust solely
in the interest of the Participants in the Plan and with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. The Trustee,
Investment Managers, and the members of the Committee shall not be liable for
any loss sustained by the Trust Fund by reason of

- 27 -
<PAGE> 33
the purchase, retention, sale or exchange of any investment in good faith and
in accordance with the provisions of this Trust Agreement and of any applicable
Federal law.

B. No "fiduciary" (as such term is defined in Section 3(21) of
ERISA, or any successor statutory provision) under this Trust Agreement shall
be liable for an act or omission of another person in carrying out any
fiduciary responsibility where such fiduciary responsibility is allocated to
such other person by this Trust Agreement or pursuant to a procedure
established in this Trust Agreement except to the extent otherwise required by
ERISA.

6.7 Limitations on Powers: Except for the short-term investment
of cash, the Company has limited the investment power of the Trustee in the HI
Common Stock Fund and the ESOP Fund to the purchase and holding of Company
Stock. The Trustee shall not be liable for the purchase, retention, voting,
tender or sale of Company Stock in accordance with the provisions of Sections
4.2, 4.5, 4.6 and 4.7 hereof and the Company (which has the authority to do so
under the laws of the state of its incorporation) agrees to indemnify The
Northern Trust Company from any liability, loss and expense, including
reasonable legal fees and expenses which The Northern Trust Company may sustain
by reason of the purchase, retention, voting, tender or sale of Company Stock
in accordance with the provisions of Sections 4.2 4.5, 4.6 and 4.7 hereof;
provided, however, that the foregoing liability and indemnification provisions
shall not apply to the extent that such liability, loss or expense arises from
the Trustee's willful misconduct, bad faith or negligence in carrying out its
ministerial functions under Sections 4.2, 4.5, 4.6 and 4.7. This paragraph
shall survive the termination of this Agreement.

- 28 -
<PAGE> 34
ARTICLE VII

TAXES, EXPENSES AND COMPENSATION OF TRUSTEE

7.1 Taxes and Expenses: Brokerage fees, commissions, stock
transfer taxes and other charges and expenses incurred in connection with the
purchase and sale of securities for the Trust Fund or distribution thereof
shall be paid by the Trustee from the Trust Fund. All taxes imposed or levied
with respect to the Trust Fund or any part thereof, under existing or future
laws, shall be paid from the Trust Fund. The Trustee shall pay from the Trust
Fund, to the extent not paid by the Company and/or the Affiliated Corporations
which participate in the Plan, its reasonable expenses of management and
administration of the Trust, including reasonable compensation of counsel and
any agents engaged by the Trustee to assist it in such management and
administration, and when so directed by the Committee shall pay from the Trust
Fund the fees of any Investment Manager and any specified expenses of
administration of the Plan including, but not limited to, audit fees,
investment consulting fees, and recordkeeping expenses.

7.2 Compensation of the Trustee: The Trustee shall receive for
its services as Trustee hereunder such reasonable compensation which may be
agreed upon from time to time by the Company and the Trustee. All amounts due
the Trustee as compensation for its services shall be paid by the Company, or
prorated among the Company and the Affiliated Corporations which participate in
this Trust in such a manner as they deem equitable, or disbursed by the Trustee
out of the Trust Fund, and, until paid, shall constitute a charge upon the
Trust Fund.

- 29 -
<PAGE> 35
ARTICLE VIII

SETTLEMENT OF ACCOUNTS;
DETERMINATION OF INTERESTS UNDER TRUST

8.1 Settlement of Accounts of Trustee: The Trustee shall keep
accurate and detailed accounts of all of its receipts, investments and
disbursements under this Agreement on an accrual basis, accounting separately
for each Investment Fund and the ESOP Fund. The financial statements, books
and records of the Trustee with respect to the Trust shall be open to
inspection during all business hours of the Trustee by the Company or the
Committee or their representatives, including, without limitation, independent
certified public accountants engaged by the Company or the Committee, on behalf
of all participants in the Plan, to permit compliance with the reporting and
disclosure requirements of ERISA. However, such financial statements, books
and records may not be audited more frequently than twice in each fiscal year.
If an examination of the financial statements of the Plan requires a review of
the underlying transactions affecting such financial statements, such
independent certified public accountants shall rely on the report of the
independent certified public accountants engaged by the Trustee to review its
procedures and controls, to the extent such reliance is permitted by generally
accepted auditing standards.

Within 90 days after the close of each calendar year, or any
termination of the duties of the Trustee, the Trustee shall prepare, sign and
mail in duplicate to the Company and the Committee an account of its acts and
transactions as Trustee hereunder. Such account shall include a statement of
the value of the Trust Fund and in its component Investment Funds and in the
ESOP Fund as of the last day of such year or other period and a statement of
the portion of the Trust Fund under management by any Investment Manager as of
the same date.

If the Company finds the account to be correct, the Company
shall sign the instrument of settlement annexed to one counterpart of the
account and return such counterpart to the Trustee, whereupon the account shall
become an account stated. If within 90 days after receipt of the account or
any amended account the Company has not signed and returned a counterpart to
the Trustee, nor filed with the Trustee notice of any objection to any act or
transaction of the Trustee, the account or amended account shall become an
account stated. If any objection has been filed, and if the Company is
satisfied that it should be withdrawn or if the account is adjusted to its
satisfaction, the Company shall in writing filed with the Trustee signify its
approval of the account and it shall become an account stated. In each case in
which an account becomes an account stated, the account shall be an account
stated between the Trustee and the Company and any Affiliated Corporation which
had adopted the Plan.

When an account becomes an account stated, such account shall
be finally settled, and the Trustee shall be completely discharged and
released, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction in an action or proceeding in which
the Trustee, the Company and any Affiliated Corporation which has adopted the
Plan were parties.

- 30 -
<PAGE> 36
The account of the Trustee's acts and transactions delivered
to the Committee shall be settled, and shall become an account stated, in the
same manner as the account delivered to the Company hereunder. When an account
becomes an account stated as between the Trustee and the Committee, the account
shall be finally settled and the Trustee shall be completely discharged and
released, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction in an action or proceeding in which
the Trustee and the Committee were parties.

The Trustee, the Committee or the Company shall have the right
to apply at any time to a court of competent jurisdiction for judicial
settlement of any account of the Trustee not previously settled as hereinabove
provided. In any such action or proceeding it shall be necessary to join as
parties only the Trustee, the Committee and the Company (although the Trustee
may also join such other parties as it may deem appropriate), and any judgment
or decree entered therein shall be conclusive.

8.2 Determination of Rights and Benefits of Persons Claiming an
Interest in the Trust Fund; Enforcement of Trust Fund: The Committee shall
have authority to determine the existence, non-existence, nature and amount of
the rights and interests of all persons under the Plan and in or to the Trust
Fund, and the Trustee shall have no power, authority, or duty in respect of
such matters, or to question or examine any determination made by the
Committee, or any direction given by the Committee to the Trustee. The Company
and the Committee shall have authority, either jointly or severally, to enforce
this Trust Agreement on behalf of any and all persons having or claiming any
interest in the Trust Fund or under this Trust Agreement or the Plan.

- 31 -
<PAGE> 37
ARTICLE IX

RESIGNATION, REMOVAL AND SUBSTITUTION OF THE TRUSTEE

9.1 Resignation of Trustee: The Trustee may resign its duties
hereunder by filing with the Committee its written resignation. No such
resignation shall take effect until 60 days from the date thereof unless
shorter notice is acceptable to the Committee.

9.2 Removal of Trustee: The Trustee may be removed by the Board
of Directors of the Company at any time upon not less than 60 days' notice to
the Trustee, but such notice may be waived by the Trustee. Such removal shall
be effected by delivering to the Trustee a written notice of its removal
executed by the Company, and by giving notice to the Trustee of the appointment
of a successor Trustee in the manner hereinafter set forth.

9.3 Appointment of Successor Trustee: The appointment of a
successor Trustee hereunder shall be accomplished by and shall take effect upon
the delivery to the resigning or removed Trustee, as the case may be, of (a) an
instrument in writing appointing such successor Trustee, executed by the
Company, together with a certified copy of the resolution of the Board of
Directors of the Company to such effect and (b) an acceptance in writing of the
office of successor Trustee hereunder executed by the successor so appointed,
both of which documents shall be acknowledged in like manner as this Trust
Agreement. The Company shall send notice of such appointment to each
Affiliated Corporation which has adopted the Plan, and to each member of the
Committee then in office. Any successor Trustee hereunder may be either a
corporation authorized and empowered to exercise trust powers or one or more
individuals. All of the provisions set forth herein with respect to the
Trustee shall relate to each successor Trustee so appointed with the same force
and effect as if such successor Trustee had been originally named herein as the
Trustee hereunder. If within 60 days after notice of resignation shall have
been given under the provisions of this Article IX a successor Trustee shall
not have been appointed, the resigning Trustee or any member of the Committee
may apply to any court of competent jurisdiction for the appointment of a
successor Trustee.

9.4 Transfer of Trust Fund to Successor: Upon the appointment of
a successor Trustee, the resigning or removed Trustee shall transfer and
deliver the Trust Fund and the records relating thereto to such successor
Trustee, after reserving such reasonable amount as it shall deem necessary to
provide for its expenses in the settlement of its accounts, the amount of any
compensation due it and any sums chargeable against the Trust Fund for which it
may be liable, but if the sums so reserved are not sufficient for such
purposes, the resigning or removed Trustee shall be entitled to reimbursement
for any deficiency from the Trust Fund and from the Company and each Affiliated
Corporation which has adopted the Plan, who shall be jointly and severally
liable therefor.

- 32 -
<PAGE> 38
ARTICLE X

DURATION AND TERMINATION OF TRUST; AMENDMENT

10.1 Duration and Termination: This Trust Agreement shall continue
for such time as may be necessary to accomplish the purpose for which it was
created but may be terminated at any time by the Company by action of its Board
of Directors. Notice of such termination shall be given to the Trustee by an
instrument in writing executed by the Company and acknowledged in the same form
as this Agreement, together with a certified copy of the resolution of the
Board of Directors of the Company authorizing such termination. The Company
shall notify the Committee of such termination.

10.2 Distribution Upon Termination: If this Trust Agreement is
terminated, the Trustee upon the written direction of the Committee shall
liquidate the Trust Fund to the extent required for distribution and, after its
final account has been settled as provided in Article VIII, shall distribute
the net balance thereof to such person or persons, at such time or times and in
such proportions and manner as may be directed by the Committee or in the
absence of such direction, as may be directed by a judgment or decree of a
court of competent jurisdiction. Upon making such distributions, the Trustee
shall be relieved from all further responsibility. The powers of the Trustee
hereunder shall continue so long as any assets of the Trust Fund remain in its
hands. Notwithstanding the foregoing provisions of this Section 10.2, the
Company may promptly advise the appropriate District Director of Internal
Revenue of the termination of the Trust and the Trustee may delay the final
distribution to Participants in the terminated Plan until said District
Director shall advise in writing that such termination does not adversely
affect the previously qualified status of the terminated Plan or the exemption
from tax of the Trust under Code Section 401(a) or 501(a).

10.3 Certain Withdrawals: Each Affiliated Corporation which
participates in the Trust shall have the right to withdraw from this Trust upon
six months' written notice to the Trustee and the Committee, which written
notice may be waived by the Trustee and the Committee. In the event that any
Affiliated Corporation which participates in the Trust shall cease to be an
Affiliated Corporation of the Company, such corporation shall withdraw from
this Trust as soon as arrangements may be reasonably made therefor, but in any
event such withdrawal shall be made not more than six months after the date
such corporation ceases to be an Affiliated Corporation. Upon such withdrawal,
the Committee shall certify to the Trustee the interest in the Trust Fund of
the participants of such withdrawing corporation and the Trustee shall
thereupon separate such interest from the Trust Fund as provided below in this
Section. The Committee may at any time direct the Trustee to segregate and
withdraw any portion as may be certified to the Trustee by the Committee as
allocable to any specified group or groups of employees or beneficiaries in the
Plan. Whenever segregation is required, the Trustee shall withdraw from the
Trust Fund such assets as it shall in its absolute discretion deem to be equal
in value to the equitable share to be segregated. Such withdrawal from the
Trust Fund shall be in cash or in any property held in such Fund, or in a
combination of both, in the absolute discretion of the Trustee. The Trustee
shall thereafter hold the assets so withdrawn as a separate trust fund in
accordance with the provisions either of this Agreement (which shall be

- 33 -
<PAGE> 39
construed in respect of such assets as if the employer maintaining the Plan
(determined without regard to whether any subsidiaries or affiliates of such
employer have joined in the Plan)) had been named as the Company hereunder or
of a separate trust agreement. Such segregation shall not preclude later
readmission to the Trust.

10.4 Amendment: By an instrument in writing delivered to the
Trustee executed pursuant to the order of the Company's Board of Directors and
acknowledged in the same form as this Agreement, the Company shall have the
right to amend or modify this Trust Agreement at any time and from time to time
to the extent that it may deem advisable, except that the duties and
responsibilities of the Trustee shall not be increased without the Trustee's
written consent. The Committee shall have the right to amend or modify this
Trust Agreement in order to modify the administrative provisions of the Trust,
to change the Investment Funds offered under the Trust and for any changes
required by applicable law or by the Internal Revenue Service to maintain the
qualified status of the Plan and related Trust at any time and from time to
time to the extent that it may deem advisable, except that the duties and
responsibilities of the Trustee shall not be increased without the Trustee's
written consent. However, no such amendment shall authorize or permit, at any
time prior to the satisfaction of all liabilities with respect to employees and
their beneficiaries under the Plan, any part of the Plan in the Trust Fund to
be used for, or diverted to, any purposes other than for the exclusive benefit
of such employees and their beneficiaries.

Any such amendment shall become effective upon (a) delivery to
the Trustee of the written instrument of amendment executed (i) by the
appropriate officers of the Company, together with a certified copy of the
resolution of the Board of Directors of the Company authorizing such amendment,
or (ii) by the appropriate member of the Committee, together with a certified
copy of the resolution of the Committee and (b) endorsement by the Trustee on
such instrument of its receipt thereof, together with its consent thereto if
such consent is required.

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<PAGE> 40
ARTICLE XI

MISCELLANEOUS

11.1 Governing Law; No Bond Required of Trustee: Subject to the
provisions of ERISA, as they may be amended from time to time, which may be
applicable and provide to the contrary, this Trust Agreement and the Trust
hereby created shall be governed, construed, administered and regulated in all
respects under the laws of the State of Texas. No bond or other security for
the faithful performance of its duties hereunder shall be required of the
Trustee unless otherwise required by law.

11.2 Interest in Trust Fund; Assignment: No document shall be
issued evidencing any interest in the Trust or in the Trust Fund, and no
Affiliated Corporation shall have the power to assign all or any part of its
equitable share of the Trust Fund or of its interest therein.

11.3 Invalid Provisions: If any provision or provisions of this
Trust Agreement shall be held illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining provisions of this
Trust Agreement, but shall be fully severable and the Trust Agreement shall be
construed and enforced as if said illegal or invalid provisions had never been
inserted herein.

11.4 Prohibition of Diversion: Except as provided in Article VII
hereof, it shall be impossible under this Trust Agreement for any part of the
corpus or income of the Trust Fund to be used for, or diverted to, purposes
other than for the exclusive benefit of the Participants. It shall also be
impossible under this Trust Agreement for any part of the Trust Fund to revert
directly or indirectly to the Company or any Affiliated Corporation which
participates in the Plan, except to the extent such reversions are specifically
authorized under Section 403(c)(2) of ERISA.

11.5 Headings for Convenience Only: The headings and subheadings
in this Trust Agreement are inserted for convenience of reference only and are
not to be used in construing this instrument or any provision thereof.

11.6 Successors and Assigns: This Trust Agreement shall bind and
inure to the benefit of the successors and assigns of the Company and the
Trustee, respectively.

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<PAGE> 41
IN WITNESS WHEREOF, the Company and Trustee have caused these
presents to be executed by their duly authorized officers, in a number of
copies all of which shall constitute one and the same instrument which may be
sufficiently evidenced by any executed copy hereof, this 19th day of December,
1995, but effective as of July 1, 1995.

HOUSTON INDUSTRIES INCORPORATED

By /s/ D. D. Sykora
-----------------------------------
D. D. Sykora
Chairman of the Benefits Committee

ATTEST:

/s/ R. B. Dauphin
- -------------------------------
Assistant Corporate Secretary

THE NORTHERN TRUST COMPANY,
TRUSTEE

By /s/ Bruce G. Heniken
-----------------------------------
Vice President

ATTEST:

/s/ Stephen M. Kuropas
- -------------------------------

- 36 -

<PAGE> 1
HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 10(z)
<PAGE> 2
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE DEFERRED COMPENSATION TRUST
<PAGE> 3
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE DEFERRED COMPENSATION TRUST

I N D E X

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I ESTABLISHMENT OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equitable Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Payment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III IRREVOCABILITY AND AMENDABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section:
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Revocation Upon Unfavorable Ruling or Tax Law Change . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Limited Withdrawal Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE IV INCORPORATION OF OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section:
4.1 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Order for Interpretation in the Event of Conflict . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE V LEGAL TREATMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section:
5.1 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Alienation and Assignment; Spendthrift Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>

(i)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.4 Trust Subject to General Creditors of Each Employer . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Grantor Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE VI OPERATION AND TERMINATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section:
6.1 Distributions; Individual Accounts; Termination: . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Determination of Rights and Benefits of Persons Claiming an Interest
in the Trust; Enforcement of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Payments to Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VII POWERS AND DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section:
7.1 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Prudent Man Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Compensation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Receipt and Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Cooperation with Employers and the Committee . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.9 Direction of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.10 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.11 Appointment of Other Fiduciaries and Service Providers . . . . . . . . . . . . . . . . . . . . 20
7.12 Investment Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.13 Limitation of Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.14 Reliance on Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.15 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE VIII ENFORCEMENT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section:
8.1 Right to Sue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE IX REMOVAL, RESIGNATION AND APPOINTMENT OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . 21
Section:
9.1 Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.2 Resignation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3 Appointment of Successor Trustee; Transfer of Funds . . . . . . . . . . . . . . . . . . . . . . 22
9.4 Accounting of Removed or Resigned Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

(ii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section:
10.1 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 Income Tax Deferral; ERISA Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.3 Accountability For Funds Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4 Non-Recourse Beyond Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.5 Facility of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.6 No Bond Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.7 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.8 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>

(iii)
<PAGE> 6
HOUSTON INDUSTRIES INCORPORATED
EXECUTIVE DEFERRED COMPENSATION TRUST

THIS TRUST AGREEMENT is entered into effective as of the
19th day of December, 1995, among HOUSTON INDUSTRIES INCORPORATED, a Texas
corporation (the "Company"), HOUSTON LIGHTING & POWER COMPANY, a Texas
corporation, and HOUSTON INDUSTRIES ENERGY, INC., a Delaware corporation, as
settlors, and THE BANK OF NEW YORK, as Trustee (the "Trustee"), which in
conjunction with the Plans described below, is intended to be maintained, as an
irrevocable, grantor trust for the purpose of setting aside and providing a
specialized funding mechanism for the deferred compensation provided under the
Plans (as defined herein).

W I T N E S S E T H:

WHEREAS, the Company and certain of its subsidiaries and
affiliates (the "Employers") have adopted one or more of the Plans, as herein
defined; and

WHEREAS, each Employer has incurred or expects to incur
liability under the terms of the Plan with respect to the individuals
participating in the Plans; and

WHEREAS, each Employer wishes to establish the Trust (as
herein defined) and to contribute to the Trust assets that shall be held
therein, subject to the claims of such Employer's creditors in the event of
such Employer's insolvency, until paid to the Beneficiaries (as herein defined)
in such manner and at such times as specified in the Plans; and

WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not affect the status
of the Plans as unfunded plans maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended; and

WHEREAS, it is the intention of the Employers to make
contributions to the Trust to provide themselves with a source of funds to
assist them in the meeting of their liabilities under the Plans.

NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and disposed of as follows:

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<PAGE> 7
ARTICLE I

ESTABLISHMENT OF TRUST

The Employers have transferred and delivered to the Trustee in
Trust the property described in Exhibit A attached to and made a part of this
Trust Agreement for all purposes, which shall become the principal of the Trust
to be held, administered and disposed of by the Trustee as provided in this
Trust Agreement. The Trustee accepts such property in trust under the terms of
this Trust Agreement.

ARTICLE II

DEFINITIONS

For purposes of this Trust Agreement, the following
definitions shall apply:

BENEFICIARIES: The term "Beneficiaries" shall mean any
"participant" or the "beneficiary" of such participant, as those terms are
defined under the Plan. Where the context requires, such a "participant" or
"beneficiary" of a participant shall be deemed to be the Beneficiary of the
Employer for whom the participant performed services when accruing a benefit
under a Plan.

CODE: The term "Code" shall mean the Internal Revenue Code of
1986, as amended (or predecessor or successor codes thereto).

COMPANY: The term "Company" shall mean Houston Industries
Incorporated, a Texas corporation.

COMMITTEE: The term "Committee" shall mean the Benefits
Committee of Houston Industries Incorporated.

EMPLOYER: The term "Employer" shall mean the Company, Houston
Lighting & Power Company and Houston Industries Energy, Inc., or any other of
the Company's affiliates or subsidiaries which adopt the Plan.

EQUITABLE SHARE: The term "Equitable Share" shall mean, with
respect to a particular Plan at a particular time, the net value of the Trust's
assets allocable to such Plan or to a particular Employer participating in such
Plan, as reflected in the separate account maintained for such Employer and/or
such Plan, as the case may be, pursuant to Article VI hereof.

ERISA: The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.

PAYMENT SCHEDULE: The term "Payment Schedule" shall mean a
schedule delivered by the Company to the Trustee that indicates the amounts
payable in respect of each Beneficiary that

- 2 -
<PAGE> 8
provides the amounts so payable, the form in which such amount is to be paid
(as provided for as available under the Plan) and the time of commencement for
payment of such amounts.

PLAN: The term "Plan" shall mean the applicable of the
Houston Industries Incorporated Deferred Compensation Plan, effective September
1, 1985, the Houston Industries Incorporated Deferred Compensation Plan, as
amended and restated effective January 1, 1989, the Houston Industries
Incorporated Deferred Compensation Plan, as amended and restated effective
January 1, 1991, the Houston Industries Incorporated Executive Incentive
Compensation Plan, effective January 1, 1982, the Houston Industries
Incorporated Executive Incentive Compensation Plan, effective January 1, 1985,
the Houston Industries Incorporated Executive Incentive Compensation Plan, as
amended and restated effective January 1, 1989, the Houston Industries
Incorporated Executive Incentive Compensation Plan, as amended and restated
effective January 1, 1991, the Houston Industries Incorporated Benefits
Restoration Plan, effective June 1, 1985 and as amended and restated effective
July 1, 1991, the Houston Industries Incorporated Savings Restoration Plan,
effective January 1, 1991, including any amendments to said Plans, and any
other executive deferred compensation plan for which the Trust has been adopted
as a funding medium thereunder.

TRUST: The term "Trust" shall mean all property transferred
to the Trustee by the Employer and thereafter held by the Trustee pursuant to
this Trust Agreement, including the investments and reinvestments thereof.
This Trust shall be known as the Houston Industries Incorporated Executive
Deferred Compensation Trust.

TRUSTEE: The term "Trustee" shall mean the Trustee designated
herein and any successor Trustee.

ARTICLE III

IRREVOCABILITY AND AMENDABILITY

3.1 General: Except as provided in Section 3.2, subject to the
limited withdrawal right under Section 3.3, this Trust shall be irrevocable for
its term and shall only terminate when all the assets of the Trust have been
distributed in accordance with the terms of the Plan and this Trust Agreement,
and no Employer shall have the right or power to revoke the Trust.

3.2 Revocation Upon Unfavorable Ruling or Tax Law Change: The
provisions of Section 3.1 of this Article III shall not apply and the Trust may
be revoked by the Company in the event that either of the following two events
occurs:

(a) The Internal Revenue Service issues an unfavorable
ruling under Section 451 or other relevant sections of the Code with
respect to the Trust and Plan as a vehicle for providing non-qualified
deferred compensation.

(b) The Company receives an opinion from counsel that, as
a result of a change in the tax law, Beneficiaries will be deemed to
recognize taxable income

- 3 -
<PAGE> 9
under Section 83, 402(b) or 451 of the Code by reason of the creation
or existence of the Trust.

In the event that either of the foregoing events occurs, the assets of the
Trust shall revert to the Employers (less any unpaid fees and expenses owed to
the Trustee), the amount reverting to be equal to each respective Employer's
Equitable Share of the assets of the Trust at the time of reversion. The
Trustee shall not be responsible for taking any action under this Section 3.2
in the absence of notification from the Company.

3.3 Limited Withdrawal Right: An Employer shall be permitted to
withdraw, upon reasonable notice from the Company and prior to a Change of
Control, up to its Equitable Share from the Trust from time to time; provided,
however, that such withdrawal shall be permitted only if, and to the extent
that, (a) after taking into account such withdrawal, the Employer's Equitable
Share of the Trust's assets equals or exceeds 100% of the actuarially
determined liabilities of the Plans which are attributable to such Employer and
(b) such withdrawal will not at any time during the subsequent 10- year period
materially adversely affect the liquidity of the Trust or otherwise materially
impair the ability of the Trust to make distributions to Beneficiaries pursuant
to the terms of the Plans without having to liquidate Trust assets. Such
actuarial liabilities of the Plans (as set forth under clauses (a) and (b) in
the preceding sentence) shall be determined by an independent actuarial firm
selected by the Committee in its sole discretion, which determination shall be
conclusive and may be relied upon conclusively by the Trustee.

3.4 Amendment: This Trust Agreement may be amended by the express
written agreement of the Company and Trustee executed and acknowledged in the
same form of this Trust Agreement. Notwithstanding the foregoing or any other
provision of this Trust Agreement to the contrary, the Company shall not permit
any amendment to conflict with the terms of the Plans or make the Trust
revocable or permit a reversion or return of Trust assets to an Employer,
except as otherwise expressly provided in this Trust Agreement.

3.5 Change of Control: Upon a Change of Control, the Company
shall, as soon as possible, but in no event longer than 15 days following the
Change of Control, make an irrevocable contribution to the Trust in an amount
that is sufficient to fully fund the entire benefit to which each Beneficiary
would be entitled pursuant to the terms of the Plans as of the date on which
the Change of Control occurred. The amount of the contribution shall be
calculated by the independent service provider retained by the Company that
regularly performs calculations with respect to the Plans (or if no such
service provider exists, by a service provider appointed by the Trustee and
paid from the assets of the Trusts), by determining the present value, as of
the Change of Control date, of all the projected benefits of each Beneficiary
under each of the Plans. The discount rate utilized in the present value
calculation shall be the same as the rate employed for determining liabilities
for benefits under the Houston Industries Incorporated Retirement Plan. The
contribution may be in cash or in kind; provided, however, that if the
contribution is made in a form other than cash, it shall be valued, as of the
time it is made, at net cash surrender value (if a life insurance policy) or
fair market value (if a readily marketable security). For purposes of this
Trust Agreement, a "Change of Control" shall be deemed to have occurred if:

- 4 -
<PAGE> 10
(a) any "person," including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act of
1934 (the "Exchange Act"), is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities;

(b) as a result of, or in connection with, any tender
offer or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were directors of the
Company before the Transaction shall cease to constitute a majority of
the Board of Directors of the Company or any successor to the Company;

(c) the Company is merged or consolidated with another
corporation and as a result of such merger or consolidation less than
70% of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of the Company, other than (x) affiliates within the
meaning of the Exchange Act, or (y) any party to such merger or
consolidation;

(d) a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding voting securities; or

(e) the Company transfers substantially all of its assets
to another corporation which is not a wholly owned subsidiary of the
Company;

provided, however, that unless the Board of Directors of the Company
determines otherwise prior to the date of any event described in the
foregoing clauses (a) - (e) above ("Event"), a "Change of Control"
shall not have occurred if any Event results, directly or indirectly,
in the beneficial ownership by the employees, former employees or
members of the Board of Directors of the Company of:

(x) substantially all of the assets of the
Company; or

(y) securities of the Company representing 30% or
more of the combined voting power of the outstanding
securities of the Company or any successor to the Company.

Notwithstanding the foregoing definition, no Change of Control shall
be deemed to have occurred for purposes of this Agreement unless and
until the Trustee has actual knowledge from a reliable source, not
including an officer of the Company, of such Change of Control. For
this purpose, a report filed with the Securities and Exchange
Commission or a public statement issued by the Company, or a
periodical of general circulation, including but not limited to The
New York Times or The Wall Street Journal, shall be deemed to be a
reliable source.

- 5 -
<PAGE> 11
ARTICLE IV

INCORPORATION OF OTHER DOCUMENTS

4.1 Other Documents: Each of the Plans is hereby incorporated
herein by reference.

4.2 Order for Interpretation in the Event of Conflict: If a
conflict between the interpretation of this Trust and a Plan occurs, then
precedence shall be given to the provisions of the documents in the following
order:

(a) The Trust; and

(b) The applicable Plan.

To the extent possible, the applicable Plan and Trust shall be interpreted as
mutually consistent. The Trustee may request that the Company interpret any
provision of the Plan and/or Trust, and may conclusively rely upon such
interpretation.

ARTICLE V

LEGAL TREATMENT OF THE TRUST

5.1 Trustee: The Trustee of this Trust is the entity named
herein, and said entity, evidenced by the authorized signature of its agent and
representative hereon, accepts such position. The Trustee shall receive, hold
and disburse the assets designated to be so handled under the relevant Plan in
trust for the Beneficiaries in accordance with the provisions of this Trust
Agreement.

5.2 Contributions:

A. The Employers shall make contributions to this Trust in a form
reasonably acceptable to the Trustee in accordance with the provisions of the
Plans or as may be required by the Committee as a means of providing deferred
compensation to the Beneficiaries. Subject to the foregoing, the Employers
shall transfer to the Trustee all amounts provided for in the Plans in
accordance with the terms and conditions of each Plan or as may be required by
the Committee, to be held by the Trustee, together with the investments and
reinvestments thereof, in TRUST, for the purposes and with the powers and
authorities provided by this Trust Agreement and subject to the terms and
conditions of this Trust Agreement. Each Employer shall have the right at any
time, and from time to time in its sole discretion, to substitute assets of
equal fair market value reasonably acceptable to the Trustee for any asset
previously contributed by it to (and still held in) the Trust. This right is
exercisable by the Employer in a non-fiduciary capacity without the approval or
consent of any person in a fiduciary capacity. Except as otherwise provided in
a particular Plan and this Trust Agreement, all contributions made pursuant to
the provisions of the Plans and this Trust Agreement and all assets and
earnings of the Trust are solely and irrevocably dedicated to the payment of
benefits to the Beneficiaries pursuant to the Plans, and, except as otherwise
provided in Sections 3.2 and 3.3 and in this Section 5.2(A), the Employers
shall have no right or power to direct the Trustee to return to

- 6 -
<PAGE> 12
them or to divert to others any of the Trust assets before all payments of
benefits have been made to the Beneficiaries pursuant to the terms of the
Plans. The Trustee shall not have the responsibility for determining the
amount of contributions or collecting contributions to the Trust from the
Employers. The Trustee shall only be responsible for assets transferred to the
Trustee by the Employers.

B. The Trustee shall not be required to determine amounts to be
contributed or to take any legal action to collect such amounts or collect,
preserve or maintain any Trust property unless it has been indemnified either
by the Trust itself, with the approval of the Employers, or by the Employers
with respect to any expenses or losses to which it may be subjected by taking
such action. Any property acquired by the Trustee through the enforcement or
compromise of any claim or claims it has as Trustee of this Trust will become a
part of the assets of the Trust.

5.3 Alienation and Assignment; Spendthrift Trust: Except for
debts owed the Employer, the interest of each Beneficiary in this Trust shall
be held subject to a "spendthrift trust" within the meaning of the law of the
State of New York. Subject to the limited right of assignment to Permitted
Assignees in accordance with certain Sections of the Plans, the interest of the
Beneficiaries in the Trust may not be anticipated, alienated, assigned, pledged
or encumbered, voluntarily or involuntarily and any such attempt at
anticipation, alienation, assignment, pledge or encumbrance shall be void, and
such interest is not subject to attachment, garnishment, levy, execution or
other legal or equitable process by, or subject to the claim of, any creditors
of the Beneficiaries, except for debts owed the Employer.

5.4 Trust Subject to General Creditors of Each Employer:

A. The assets of the Trust (including principal and any earnings
thereon) shall be held separate and apart from other funds of each Employer and
shall be used exclusively for the uses and purposes of the Beneficiaries and
general creditors of each such Employer as herein set forth. However, in
accordance with this Section 5.4, an Employer's Equitable Share of the assets
of the Trust shall be treated as general assets of such Employer and, as such,
shall remain subject to claims of the general creditors of the Employer
(including Beneficiaries) under applicable state and federal law, and any
rights created under the Plans or this Trust Agreement shall be mere unsecured
contractual rights of the Beneficiaries against the Employer. No Beneficiary
shall have any preferred claim on or any beneficial ownership in the Trust
prior to the time for distribution to such Beneficiary under the applicable
Plan. Nor shall any Beneficiary with respect to a particular Employer be paid
distributions from the Trust, except from such Employer's Equitable Share of
the Trust. By agreeing to participate or continue to participate in a Plan
(with respect to plans in effect on the date hereof), each Beneficiary who is
or was an employee of an Employer shall, in the event that the Employer with
respect to such Beneficiary becomes insolvent (as hereinafter defined), thereby
waive any priority such Beneficiary may have had under law as an employee with
respect to any claim against the Employer for amounts or benefits payable to
such Beneficiary under such Plan and Trust beyond the rights such Beneficiary
would have as a general creditor.

B. The Trustee shall cease payment of benefits to the
Beneficiaries of an Employer if it receives actual notice in accordance with
this Section 5.4(B) that the Employer is insolvent. An Employer shall be
considered "insolvent" for purposes of this Trust Agreement if (1) the Employer
is unable to pay its debts as they become due or (2) the Employer is subject to
a pending proceeding

- 7 -
<PAGE> 13
as a debtor under the United States Bankruptcy Code. At all times during the
continuance of this Trust, an Employer's Equitable Share of the assets of the
Trust shall be subject to claims of general creditors of such Employer under
federal and state law in the manner set forth in this Section 5.4(B) below.

(i) The Board of Directors of the Company shall appoint
an individual who shall have the duty to inform the Trustee in writing
of an Employer's insolvency.

(ii) If (x) the individual described in clause (i)
notifies the Trustee that an Employer is insolvent, (y) the Trustee
actually receives a claim from a creditor of an Employer that such
Employer is insolvent or (z) the Trustee is actually served with any
order, process or paper from which it appears that an allegation has
been made to the effect that the Employer is insolvent, the Trustee
shall discontinue payments to the Beneficiaries with respect to such
Employer, and unless the Trustee receives a notice specified under
clause (iii) within 30 days after the first date of such
discontinuance, shall hold the Employer's Equitable Share of the
assets of the Trust for the benefit of the Employer's general
creditors.

(iii) If the Trustee has discontinued making payments to
Beneficiaries with respect to an affected Employer pursuant to clause
(ii), the Trustee shall resume holding the Trust assets for the
benefit of the Beneficiaries of such affected Employer and resume
making any payments under the Plans to the Beneficiaries of such
affected Employer only after (x) the Trustee receives an opinion from
the certified public accountant regularly auditing the Employer's
books that the Employer is not (or no longer is) insolvent and (y) the
resumption of payments is not in contravention of any court order or
automatic stay.

(iv) Unless the Trustee receives a notification specified
in clause (ii), the Trustee shall have no duty to inquire whether the
Employer is insolvent. The Trustee shall not be liable to any person
for any good faith action that it takes in connection with the
insolvency, or alleged insolvency, of an Employer.

(v) Provided that there are sufficient assets, if the
Trustee discontinues the payment of benefits from the Trust pursuant
to clause (iii) with respect to an affected Employer and subsequently
resumes such payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Beneficiaries with respect to such Employer under the terms of the
Plans for the period of such discontinuance, less the aggregate amount
of any payments made to the Beneficiaries by the affected Employer in
lieu of the payments provided hereunder during any such period of
discontinuance. If more than one Employer participates in the Plan
and Trust, the provisions of this Section 5.4(B) shall only apply to
the affected Employer, its Beneficiaries under the Plan, and its
Equitable Share of the assets of the Trust.

C. To the extent described in this Section 5.4(C), the provisions
of Section 5.4(B) of the Trust are expressly made subject to and conditioned on
the Plans' qualifying for an exemption from

- 8 -
<PAGE> 14
Part 4 of Title I of ERISA or the assets of the Trust not constituting "plan
assets" under Title I of ERISA. For purposes of the provisions of Section
5.4(B) of the Trust and notwithstanding any provision of the Trust to the
contrary, if the Company shall provide the Trustee with an opinion of its tax
and ERISA counsel to the effect that the conditions specified in the preceding
sentence are not met, the assets of the Trust shall not be payable to the
general creditors of any Employer and the Trustee shall not have the obligation
to pay the assets of the Trust to any such general creditor prior to a
direction to such effect by a court of competent jurisdiction. To the extent
deemed necessary or appropriate by the Trustee, the Trustee shall pay the
affected Employer's Equitable Share of the assets of the Trust into a court of
competent jurisdiction which shall have interpleader jurisdiction over both the
Employer, the general creditors of the Employer and the Beneficiaries of the
affected Employer. In making its determination as to whether the affected
Employer's Equitable Share of the assets of the Trust shall be paid to such
general creditors, the court of competent jurisdiction shall take into account
the provisions of the first sentence of this Section 5.4(C). If the conditions
of such first sentence are not satisfied, then the affected Employer's
Equitable Share of the assets of this Trust shall not be payable or paid to
such general creditors and shall be held for the exclusive benefit of the
Beneficiaries of the affected Employer in accordance with Part 4 of Title I of
ERISA. In the event that a court of competent jurisdiction reaches the
determination described in the preceding sentence or if the Company provides to
the Trustee the opinion described in the second sentence of this Section
5.4(C), this Trust shall terminate and shall be promptly liquidated by paying
the assets of the Trust to the Beneficiaries (of all the Employers) in a lump
sum distribution of the balance of each Beneficiary's account (or accounts) in
the Trust. The expenses or costs of the Trustee in connection with the
proceedings of such a court of competent jurisdiction or such opinion of
counsel shall be considered to be proper expenses within the meaning of Section
7.8 of this Trust and payable in accordance with the provisions of such
section.

5.5 Grantor Trust: It is intended that the Trust be taxed as a
grantor trust under the provisions of Section 671 and Section 677(a)(2) of the
Code, that the Employers, as grantors, be treated as the "owners" (within the
meaning of those provisions) of their respective Equitable Shares of the assets
of the Trust, and that the Trust be construed accordingly. The Employers shall
file their federal income tax returns in a manner consistent with the
provisions of the preceding sentence.

ARTICLE VI

OPERATION AND TERMINATION OF TRUST

6.1 Distributions; Individual Accounts; Termination:

A. This Trust shall be an accumulation trust. Principal and all
currently earned income shall be accumulated during the term of the Trust. The
Trustee shall hold, manage, invest and reinvest the assets of the Trust,
collect the income therefrom and, after deducting all charges and expenses
properly payable therefrom, hold and distribute the then principal of the Trust
and the income therefrom, all in accordance with, and subject to, the
provisions of the applicable Plan and this Trust Agreement. The Company shall
maintain a separate account reflecting the respective Equitable Share of each
of the Plans and of each of the Employers in the same Plan, and a separate
account reflecting the Equitable Share of each of the Employers in the Trust
assets. The Equitable

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<PAGE> 15
Share of each Employer shall consist of the amount of cash and value of other
property (as determined by the Trustee) transferred by the Employer to the
Trustee, plus a proportionate share of the earnings and appreciation (and less
losses and depreciation) of the Trust assets, less payments to Beneficiaries
with respect to such Employer under the Plans. Contemporaneously with the
transfer of assets to the Trustee, the Employer shall furnish the Trustee a
written statement setting forth the amount of such assets to be credited to the
accounts of each of the Plans. The Equitable Share of each Plan shall consist
of the amount of cash and the value of the other property (as determined by the
Trustee) credited to the account of the Plan as described in the preceding
sentence, plus a proportionate amount of the earnings and appreciation (and
less losses and depreciation) of the Trust assets, less payments to
Beneficiaries under such Plan. Amounts credited to the separate account of any
Plan shall not be available for payments under any other Plan. Amounts
credited to the separate account of any Employer in a given Plan shall not be
available for payments with respect to the Beneficiaries of any other Employer
in the same or other Plan. Unless earlier revoked pursuant to the provisions
of Section 3.2 of this Trust Agreement, this Trust shall terminate upon (a) a
complete distribution of the Trust as provided in the Plans or (b) if earlier
and if required by the applicable rule against perpetuities, one day prior to
the last day of the period ending 21 years after the death of the last to die
of the original "participants" under the Plans. The Company shall be solely
responsible for determining the existence and date of termination pursuant to
the preceding sentence and for advising the Trustee of such termination, and
the Trustee may rely conclusively upon the determination of the Company. If
the trust terminates pursuant to clause (b) above then the assets of this Trust
shall be transferred to a successor trust established for this purpose;
provided such a transfer does not result in the taxation of the transferred
assets to the Beneficiaries. Except as otherwise provided in the applicable
Plan or this Trust Agreement, any assets remaining in the Trust at the time of
termination of the Trust shall revert to the Employers, the amount reverting to
be equal to each respective Employer's Equitable Share of the assets of the
Trust at the time of the reversion.

B. The entitlement of a Beneficiary to benefits under a Plan
shall be determined by the Company, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan. The Trustee
shall have no responsibility or liability in respect of the entitlement of any
Beneficiary to benefits under the Plan. Notwithstanding any provision of the
Trust Agreement to the contrary, each Employer shall remain obligated to pay
the benefits under the Plan. Nothing in this Trust Agreement shall relieve any
Employer of its liabilities to pay the benefits except to the extent such
liabilities are met by the application of Trust assets.

C. The Company may make payment of benefits directly to
Beneficiaries as they become due under the terms of the Plans. The Company
shall notify the Trustee of its decision to make payment of benefits directly
at least 10 business days prior to the time amounts are payable to the
Beneficiaries. In addition, if the assets of the Plan are not sufficient to
make payments of benefits to such Beneficiary, the Company shall make the
balance of each such payment as it falls due. The Trustee shall notify the
Company where assets are not sufficient.

D. At least annually, the Company shall supply the Trustee with a
list of participants in the Plans (the "List of Participants") substantially in
the form set forth in Exhibit B attached hereto. The Trustee may rely
conclusively on such List of Participants. Following a Change of Control, the
name of a participant shall not be deleted from such List of Participants
unless the Company files with the Trustee the written consent of such affected
participant.

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6.2 Determination of Rights and Benefits of Persons Claiming an
Interest in the Trust; Enforcement of Trust: The Committee shall have the
authority to determine the existence, non-existence, nature and amount of the
rights and interests of all persons under the Plan and in or to the Trust, and
the Trustee shall have no power, authority, or duty in respect of such matters,
or to question or examine any determination made by the Committee, or any
direction given by the Committee to the Trustee. The Company, other Employers
and the Committee shall have authority, either jointly or severally, to enforce
this Trust Agreement on behalf of any and all persons having or claiming any
interest in the Trust or under this Trust Agreement or the Plans.

6.3 Payments to Beneficiaries: The Company shall deliver to the
Trustee a schedule (the "Payment Schedule"), in a form to be mutually agreed
upon by the Company and the Trustee, that indicates the amounts payable in
respect of each Beneficiary that provides the amounts so payable, the form in
which such amount is to be paid (as provided for or available under the Plan)
and the time of commencement for payment of such amounts. Such Payment
Schedule may only be amended or revised following a Change of Control if the
Company files the consent(s) of the affected Beneficiaries with the Trustee.
Except as otherwise provided herein, the Trustee shall make payments to the
Beneficiaries in accordance with such Payment Schedule, and shall not make any
payments to any Beneficiary until such Beneficiary's Payment Schedule has been
received by the Trustee from the Company. The Trustee shall not make any
payments to Beneficiaries from the Trust not set forth on a Payment Schedule
even though the Trustee may be informed from another source that payments are
due under the Plan. Any amount payable under this Section 6.3 under a Plan
that has individual participant accounts shall be charged against such
Beneficiary's account and no payment with respect to a Beneficiary shall be
made in excess of the amount then credited to such Beneficiary's account. In
accordance with written instructions from the Company which may be relied upon
exclusively by the Trustee, the Trustee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Plans and shall pay amounts withheld to the appropriate taxing authorities.
The Trustee may rely upon, and shall be under no duty to verify, amounts
payable and other instructions contained in the Payment Schedule delivered to
the Trustee by the Company, and may, by receipt of a certification to that
effect by the Company, determine that any federal, state or local taxes that
may be required to be withheld with respect to the payment of benefits pursuant
to the terms of the Plans have been reported, withheld and paid by the Company.
The entitlement of a Beneficiary to benefits under the Plans shall be
determined by the Committee or such party as it shall designate under the
Plans, and any claim for such benefits shall be considered reviewed under the
procedures set out in the Plans. The Company may make payment of benefits
directly to Beneficiaries as they become due under the terms of the Plans. The
Company shall notify the Trustee of its decision to make payment of benefits
directly to a Beneficiary not currently receiving benefits from the Company at
least 10 business days prior to the time amounts are payable to Beneficiaries.
In addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plans, the Company shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company where principal and earnings are not
sufficient. In the event the Company makes payment of benefits as permitted in
this Section 6.3, the Company shall provide the Trustee with a schedule of all
benefits, and taxes attributable thereto, that have been paid by the Company
within 15 days after the end of the quarter in which such payments have been
made.

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ARTICLE VII

POWERS AND DUTIES OF TRUSTEE

7.1 General Powers: Except as provided herein to the contrary
(including requirements herein that the Trustee act pursuant to authorization
or direction), the Trustee shall have all the powers granted trustees under the
laws of the State of New York, as amended from time to time, and shall have the
power to perform every act necessary or appropriate to carry out the terms of
this Trust to the maximum extent permitted by law, including, without
limitation, the following:

(a) The receipt of contributions from the respective
Employers under the Plans;

(b) The investment of Trust assets only in such forms of
investment and pursuant to an investment policy as authorized and
directed by the Committee; provided, however, that in no event may the
Trust assets be invested in common stock or preferred stock of the
Company. The Trustee is hereby authorized and directed by the
Committee to invest in any whole life insurance policies described on
Exhibit C and other whole life insurance policies all as may be
directed by the Committee in accordance with the Committee's
direction, all as is more particularly described in Section 7.2 of
this Trust Agreement. The Trustee is also hereby authorized and
directed to invest any funds not otherwise invested in accordance with
the Committee's direction in a short-term investment fund, which is a
money market fund maintained by the Trustee for group trust accounts
("STIF Fund"). Authorized investments by the Trustee are subject to
change only by the direction of the Committee in accordance with
Section 7.9 of this Trust Agreement. Any income from whatever source
of investments authorized hereunder shall be invested in the STIF Fund
until or unless the Committee directs otherwise.

(c) If so directed by the Committee, the assets of this
Trust may be invested and reinvested in such personal property
investments and insurance and annuity contracts as appropriate and
consistent with the investment directions communicated by the
Committee, including without limiting the generality of the foregoing:
common and preferred stocks (excluding the common or preferred stock
of the Company); trusts and participation certificates; bonds;
debentures; covered call options; notes secured by personal property;
obligations of governmental bodies, both domestic and foreign; notes,
commercial paper and other evidences of indebtedness, secured or
unsecured, including variable amount notes; convertible securities of
all types and kinds; mutual funds shares; interest-bearing savings or
deposit accounts with any federally-insured bank (including the
Trustee) or savings and loan association; and any other personal
property permitted as investments under applicable law. Further, the
assets of this Trust may be invested and reinvested in such forms of
collective investments as may be consistent with the investment
directives communicated by the Committee.

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<PAGE> 18
(d) The Trustee shall follow the directions of the
Committee regarding the investment and reinvestment of Trust funds and
the voting of common stock, and shall be under no duty or obligation
to review any investment to be acquired, held or disposed of pursuant
to such directions nor to make any recommendations with respect to the
disposition or continued retention of any such investment. The
Trustee shall have no liability or responsibility for acting without
question on the direction of, or failing to act in the absence of any
direction from, the Committee.

(e) The entering into and performance of any agreement;

(f) Subject to the provisions of Section 5.2(B) of this
Trust Agreement, the undertaking of any legal action, whether as
plaintiff or defendant, on behalf of the Trust;

(g) The payment of any tax or assessment incurred in the
administration of the Trust;

(h) The employment of any person, including attorneys,
accountants, investment managers and agents, to advise and assist the
Trustee in the performance of its duties;

(i) The execution and delivery of all instruments
necessary or appropriate to accomplishing or facilitating the exercise
of the Trustee's powers;

(j) The borrowing of money from any source as may be
necessary or advisable to effectuate the purposes of the Trust on such
terms and conditions as the Trustee, in the Trustee's absolute
discretion, may deem advisable, and for this purpose to mortgage or
pledge on a nonrecourse basis the assets of the Trust;

(k) To release, in the discretion of the Trustee, any
fiduciary power at any time, whole or in part, temporarily or
permanently, whenever the Trustee may deem it advisable, by
acknowledged instrument;

(l) To keep any and all securities or other assets of the
Trust in the name of some other person or entity with a power of
attorney for the transfer attached or in bearer or Federal Reserve
Book - Entry form or in the name of the Trustee without disclosing the
fiduciary capacity of the Trustee;

(m) Subject to the provisions of Section 7.12 of this
Trust Agreement, to vote, either in person or by proxy, any share of
stock held as part of the assets of the Trust;

(n) To hold cash uninvested at any time and in any amount
pending investment pursuant to the terms of the Plans; and

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<PAGE> 19
(o) The exercise of all rights associated with the assets
of the Trust, it being the express intent of the parties that in no
event shall such rights be exercisable by, or rest with, the
Beneficiaries.

Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or applicable law, (i) if an insurance policy is held as
an asset of the Trust, the Trustee shall have no power to name a beneficiary of
the policy other than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a successor
trustee, or to loan to any person other than the Trust the proceeds of any
borrowing against such policy and (ii) the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the procedural
and administrative regulations promulgated pursuant to the Internal Revenue
Code.

7.2 Insurance Policies: With respect to the investment of the
Trust in whole life insurance policies ("Insurance Policies"), the Committee
shall direct the Trustee in the exercise of the powers set forth in Articles VI
and VII and the Trustee shall exercise such powers in the manner directed in
writing by the Committee. It shall be the duty of the Trustee to act strictly
in accordance with each direction of the Committee relating to the investment
of the Trust in Insurance Policies and the Trustee shall not have any duty to
question any such direction. The Trustee shall not have any duty to review any
such Insurance Policies held in the Trust pursuant to such direction, or to
make suggestions to the Committee with respect to the exercise or non-exercise
of any of the said powers. The Trustee shall be under no liability for any
loss of any kind which may result by reason of any action taken by it in
accordance with any direction of the Committee or by reason of its failure to
exercise any of the said powers in respect of such Insurance Policies because
of the failure of the Committee to give such direction.

(a) The Trustee, upon written direction of the Committee,
shall pay from the Trust such sums to such insurance company or
companies or other financial institutions (collectively referred to as
an "insurance company") as the Committee may direct for the purpose of
procuring individual or group policies of life insurance (hereinafter
referred to as "Policies"). The Committee shall prepare, or cause to
be prepared in such form as it shall prescribe, the application for
any Policy to be applied for under any or all of the Plans and this
Trust and the Trustee shall execute such application. The Committee
shall inform the Trustee the portion of each policy to be allocated to
each Employer and each Plan for purposes of determining Equitable
Shares pursuant to Section 6.1, and the Trustee may conclusively rely
upon such information. The Trustee shall receive and hold in the
Trust, subject to the provisions hereinafter set forth in this
Section, all Policies obtained pursuant to the Plans.

(b) The Trustee shall be the complete and absolute owner
of Policies held in the Trust and, upon written direction of the
Committee, shall have power, without the consent of any other person,
to collect and receive all dividends or other payments of any kind
payable with respect to any Policy held in the Trust or to leave the
same with the issuing insurance company; to convert from one form to
another any Policy held in the Trust; to change the person or persons
designated in any Policy

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<PAGE> 20
to receive the proceeds; to designate any mode of settlement of the
proceeds of any Policy held in the Trust; to sell or assign any Policy
held in the Trust; to surrender for cash any Policy held in the Trust;
to borrow sums of money from the issuing insurance company upon any
Policy or Policies issued by it and held in the Trust, provided that
the Trustee shall borrow such sums only in respect of all Policies for
the time being held in the Trust and upon a uniform basis; to agree
with the insurance company issuing any Policy to any release,
reduction, modification or amendment thereof; and, without limitation
of any of the foregoing, to exercise any and all of the rights,
options or privileges that belong to the absolute owner of any Policy
held in the Trust or that are granted by the terms of any such Policy
or by the terms of this Trust Agreement.

(c) The Trustee shall have no discretion with respect to
the exercise of any of the foregoing powers or to take any other
action permitted by any Policy held in the Trust, but shall exercise
such powers or take such action only upon the written direction of the
Committee; the Trustee shall have no duty to exercise any of such
powers or to take any such action unless and until it shall have
received such direction. The Trustee, upon the written direction of
the Committee, shall deliver any Policy held in the Trust to such
person or persons as may be specified in the direction.

(d) The Trustee shall hold in the Trust the proceeds of
any sale, assignment or surrender of any Policy held in the Trust and
any and all dividends and other payments of any kind received in
respect to any Policy held in the Trust, and shall distribute and/or
allocate such proceeds in accordance with the directions of the
Committee.

(e) If the Trustee shall have borrowed any sums of money
upon any Policy held in the Trust, it shall have no duty to repay any
part of the money so borrowed, notwithstanding the fact that
thereafter it may have sufficient funds to make such repayment, unless
and until it shall have both received written direction from the
Committee to make the repayment and have sufficient funds to make such
payment at the time of such direction.

(f) Upon the written direction of the Committee, the
Trustee shall pay from the Trust premiums, assessments, dues, charges
and interest, if any, upon any Policy held in the Trust. The Trustee
shall have no duty to make any such payment unless and until it shall
have received such direction. The written direction of the Committee
to pay the premiums becoming due on any Policy specified in the
direction shall be sufficient authority for the Trustee to pay any and
all bills presented to it for premiums or the amount specified in any
premium notice received from the insurance company issuing the Policy,
and for such purposes the Trustee may use any money held by it as part
of the Trust at the time the payment is due, unless the Committee
shall have directed that such money shall not be used for such
purpose. If the moneys held by the Trustee in the Trust at any time
and available for the payment of premiums are not sufficient to pay
all sums then due on all Policies held

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<PAGE> 21
in the Trust, the Trustee immediately shall notify the Committee of
the amount of the deficiency, and the Committee shall make payment of
the sum before the expiration of the last day of grace for such
payment; and the Trustee shall be under no duty or obligation to pay
any such amount if the Trustee shall have given such notice, unless
(i) the Committee shall direct the Trustee to pay from the funds
available a specified sum or sums upon a specified Policy or Policies
or (ii) the Committee shall pay the amount of the deficiency to the
Trustee at least five days before the date of expiration of the grace
period, and in either event, the Trustee immediately shall pay over
the same to the issuing insurance company or companies.

(g) Upon the direction of the Committee, the Trustee
shall have power to execute all necessary receipts and releases to any
insurance company issuing any Policy or Policies held in the Trust,
and, upon written advice from the Committee and at the direction of
the Committee that the proceeds of any Policy held in the Trust have
become payable, shall make reasonable efforts in accordance with
directions from the Committee to collect such sums as may appear to be
due; but the Trustee shall have no duty to begin or maintain any
action, suit or legal proceeding to collect the proceeds of any Policy
unless it is in possession of funds sufficient for the purpose or
unless it has been indemnified to its satisfaction for its counsel
fees, costs, disbursements and all other expenses and liabilities to
which it in its judgment may be subjected by beginning or maintaining
the action, suit or other legal proceeding. The Trustee may use the
assets of the Trust to defray the expenses incurred in connection with
collection and enforcing payment of that Policy. The Trustee shall
have power, with the written approval of the Committee, to compromise
and adjust claims arising out of any Policy held in the Trust upon
such terms and conditions as it may deem just, and the discretion of
the Trustee shall be binding and conclusive upon all persons
interested in the Trust.

(h) Any insurance company may deal with the Trustee as
sole owner of any Policy issued by it and held in the Trust, without
inquiry as to the authority of the Trustee to act, and may accept and
rely upon any written notice, instruction, direction, certificate or
other communication from the Trustee believed by it to be genuine and
to be signed by an officer of the Trustee. No insurance company shall
be required to look into the terms of this Trust Agreement, or to
question any action of the Trustee or to see that any action of the
Trustee is authorized by the terms of this Trust Agreement.

(i) The Trustee shall follow directions of the Committee
concerning the exercise or non-exercise of any powers or options
concerning any Policy held in the Trust. Notwithstanding any other
provision of this Trust Agreement to the contrary, the Company hereby
agrees to indemnify the Trustee and hold it harmless from and against
any claim or liability which may be asserted against the Trustee by
reason of its acting on any direction from the Committee or failing to
act in the absence of any such direction with respect to any Policy or
the acquisition of any Policy or exercise of any right of option
thereunder.

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<PAGE> 22
(j) Notwithstanding any of the foregoing provisions or
any other provision in this Trust Agreement, the Committee hereby
directs the Trustee to pay the premiums on the Policies listed on
Exhibit C and to borrow the full cash surrender value on each such
Policy (in accordance with such procedures as the Committee and the
Trustee may mutually agree upon) to the extent permitted under such
Policies. Further, the Committee hereby directs that the Trustee
shall not make any payments to Beneficiaries unless and until directed
in writing to do so by the Committee pursuant to Section 6.3 of this
Trust Agreement.

(k) With respect to any and all future Policies other
than those listed on Exhibit C, the Trustee shall not act in any
manner with regard to such future Policies, including but not limited
to paying premiums thereon, borrowing the cash surrender value thereof
or making payments to Beneficiaries thereunder, unless and until
directed in writing to do so by the Committee.

7.3 Prudent Man Standard: Except to the extent otherwise provided
in this Trust Agreement or the Plans, in acquiring, investing, reinvesting,
exchanging, retaining, selling, supervising and managing trust property, the
Trustee shall exercise the judgment and care under the current circumstances
that persons of ordinary prudence, discretion and intelligence exercise in the
management of their own affairs, not in regard to speculation, but in regard to
the permanent disposition of their funds, considering the probable income from
as well as the probable increase in value and the safety of their capital.
Provided, however, except as may otherwise be provided under applicable law
which cannot be waived, the Trustee shall incur no liability to any person or
entity for any action taken pursuant to a direction, request or approval (given
by any Employer, the Committee or any agent appointed or representing such
person or persons) contemplated by the terms of this Trust Agreement (or for
the actions of an investment manager appointed hereunder) and to that extent
shall be relieved of the prudent man standard regarding investments of the
Trust. The Trustee will be under no duties whatsoever, except such duties as
are specifically set forth as such in this Trust Agreement, and no implied
covenant or obligation will be read into this Trust against the Trustee.

7.4 Compensation of Trustee: The Trustee shall be paid reasonable
compensation for its services as set forth in Exhibit D attached hereto. Such
payment shall be made by the person designated in Section 7.8 of this Trust
Agreement.

7.5 Reliance by Third Parties: Any person dealing in good faith
with the Trustee or in good faith assisting the Trustee in conducting a
transaction shall be entitled to rely without inquiry upon the representation
that the Trustee has the power it purports to exercise and has exercised such
power in accordance with the provisions of this Trust Agreement, and in such
event such person shall not be responsible for the application of money or
property paid or delivered to the Trustee.

7.6 Receipt and Disbursement of Funds: The Trustee shall receive
all contributions from the Employers and disburse the Trust in accordance with
the provisions of the Plans and the terms of this Trust Agreement.

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7.7 Cooperation with Employers and the Committee: The Trustee
shall (i) exert reasonable efforts to cooperate with the Employers, the
Committee and any investment manager or third party recordkeeper as to any
filings, reports and disclosures required by United States federal, state and
local law (but the Trustee shall only be required to act pursuant to directions
in connection with such filings and disclosures) and (ii) keep accurate and
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Employer and the Trustee. Within 30 days
(or such other reasonable time mutually agreeable to the Trustee and the
Company) following the end of each Plan Year during the term of this Trust, the
Trustee shall provide the Employers and the Committee with a verified written
statement of accounts based on the Trustee's best information and knowledge in
a form which shall substantially reflect the following:

(a) The period covered by the account;

(b) The total principal with which the Trustee is
chargeable according to the last preceding written statement of
accounts or the original principal if there is no preceding statement;

(c) An itemized schedule of all principal, cash and
property received and disbursed, distributed, or otherwise disposed of
during the period;

(d) An itemized schedule of income received and
disbursed, distributed, or otherwise disposed of during the period;
and

(e) The balance of principal and income remaining at the
close of the period, how invested, and both the inventory and current
market values of all investments.

Any information transmitted by the Trustee to the Employers and the Committee
hereunder shall be certified to as complete and accurate by the Trustee. The
Trustee shall not be responsible for complying with the provisions of this
Section 7.7 to the extent that the underlying administrative responsibility has
been allocated to a third party in accordance with the applicable Plan. Any
information required to be provided for the preparation of any annual reporting
and disclosure materials shall be provided on an annual basis not less than 30
days prior to the time required for filing the applicable report, disclosure or
return (including extensions thereof), unless each Employer and the Trustee
shall in writing have agreed to a later date for the provision of such
information. The statements provided in accordance with the above shall be
deemed correct and final and binding as to all parties 90 days after receipt by
the Employers except to the extent objected to prior to the end of such period.

7.8 Payment of Expenses:

A. The expenses incurred by the Trustee in the performance of its
duties, including reasonable fees for legal services rendered to the Trustee
(whether or not rendered in connection with a judicial or administrative
proceeding) and including, without limitation, all brokerage fees and transfer
tax expenses and other expenses incurred in connection with the sale or
purchase of

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<PAGE> 24
investments and all real and personal taxes, income taxes and other taxes of
any kind at any time levied or assessed upon the Trust or any property included
in the Trust and the costs of the accounting described in Section 7.7 above;

B. Any compensation paid to the Trustee in accordance with
Section 7.4 above; and

C. All other proper charges and disbursements of the Trustee

shall be paid by the Trust unless paid by the Employers.

7.9 Direction of Investments: The Committee shall have the right
and affirmative obligation and duty to establish the investment policy and to
select (and to direct the Trustee as to) the investment alternatives provided
in Section 7.1(b) of the Trust Agreement and to modify them from time to time,
and the Trustee shall have sole and exclusive authority and responsibility to
invest and reinvest the assets of the Trust Fund as directed by the Committee
in accordance with said investment policy and in said investment alternatives.
No Beneficiary shall have the right to make directions to the Committee as to
the investment to be made of the amounts in such Beneficiary's account
maintained by the Committee.

7.10 Valuation: The Trustee shall value the Trust at the fair
market value of the assets in the Trust as of the last business day of each
Plan year and upon such other dates as may be determined by the Company or the
Trustee or as may be specified under the Plan. The determination of the
Trustee with respect to the fair market value of any asset shall be final and
conclusive. In making such valuation, the Trustee shall deduct all charges,
expenses and other liabilities, if any, contingent or otherwise, then
chargeable against the Trust, in order to give effect to income realized and
expenses paid or incurred, losses sustained, and unrealized gains or losses
constituting appreciation or depreciation in the value of the Trust investments
since the last previous valuation.

7.11 Appointment of Other Fiduciaries and Service Providers: The
Company and Trustee agree that either party with the prior consent of the other
may appoint third parties to be allocated administrative or investment
responsibilities under the Trust as mutually agreeable between the Company and
Trustee, including recordkeeping and investment fund managers or sponsors. In
addition, the Committee may appoint employees of the Company or other third
parties to act as its agent and on its behalf in carrying out any or all of its
administrative responsibilities under the Trust; provided, however, that
contemporaneously with or within 10 days after any such appointment, the
Committee shall notify the Trustee of such appointment and delegation of
administrative duties hereunder.

7.12 Investment Company Shares: The voting rights of any shares of
any investment company held in the Trust shall be exercised in accordance with
the direction given the Trustee by the Committee.

7.13 Limitation of Trustee Liability: The Trustee shall not be
liable to the Trust or to any person having a beneficial interest in the Trust
for any losses or decline in value which may be incurred upon any investment of
the Trust assets, as long as the Trustee acts in good faith and in accordance
with the terms of the applicable Plan and this Trust Agreement. The Trustee
shall not

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<PAGE> 25
be liable for any act or omission by the Trustee, because of a direction of any
Employer or the Committee; nor for any act or omission of any Beneficiary, any
Employer or the Committee, or any other agent appointed by any Employer or the
Committee except to the extent required by applicable state or federal law
under which liability cannot be waived.

7.14 Reliance on Information: When the Trustee acts in good faith,
the Trustee, in all matters pertaining to the Trustee's management and
investment of the Trust, may rely upon any notice, resolution, instruction,
direction, order, certificate, opinion, letter, telegram or other document
believed by the Trustee to be genuine, to have been signed by a proper
representative of any Beneficiary, any Employer, the Committee or any
investment manager or third party recordkeeper, if one is appointed, and to be
the act of any Beneficiary, any Employer, the Committee or the investment
manager or third party recordkeeper, as the case may be. The Trustee shall
accept any certificate or other instrument duly signed by a proper
representative of any Beneficiary, any Employer, the Committee or the
investment manager or third party recordkeeper, if one is appointed which
purports to evidence an instruction, direction or order of any Beneficiary, any
Employer, the Committee or the investment manager or third party recordkeeper,
as the case may be, as conclusive evidence thereof.

7.15 Indemnification: Each Employer hereby, jointly and severally,
agrees to indemnify and hold harmless the Trustee from and against any and all
losses, claims, damages, liabilities, costs and expenses, including but not
limited to, liability for any judgments, settlements consented to in writing by
the Trustee, which consents will not be unreasonably withheld, and reasonable
attorneys fees arising out of or in connection with or as a direct or indirect
result of its serving as Trustee of the Trust established under this Trust
Agreement, (including but not limited to the Trustee's acts or omissions with
respect to (a) the voting of any share of stock held as part of the assets of
the Trust, or (b) the determination of insolvency of any Employer and the
Trustee's acts or omissions in accordance with the terms and provisions of the
Trust following any determination of insolvency of any Employer or any acts of
the Trustee in accordance with the terms and provisions of Section 5.4(C) of
this Trust Agreement), except only those losses, claims, charges, liabilities,
costs and expenses, if any, arising out of or in connection with or as a direct
or indirect result of the Trustee's bad faith, ordinary negligence or willful
neglect or breach of trust. The Trustee shall promptly notify each Employer of
any claim, action or proceeding for which it may seek indemnity. Such
indemnity is a continuing obligation and shall be binding on each Employer and
its successors, whether by merger or otherwise, and assigns. In addition, such
indemnity shall survive the resignation or removal of the Trustee and/or the
liquidation of the Trust.

ARTICLE VIII

ENFORCEMENT AND REMEDIES

8.1 Right to Sue: The Trustee may maintain on behalf of the Trust
in its representative capacity a civil action for any legal or equitable remedy
against a third person that it could maintain in its own right if it were the
party aggrieved. The preceding sentence shall not require the Trustee to
maintain any action, except as specifically provided for in this Trust
Agreement.

- 20 -
<PAGE> 26
8.2 Liens: The Trustee is entitled to a lien against the Trust:

(a) for any unpaid expenses properly chargeable against
the Trust; and

(b) for payment of its compensation under Section 7.4 of
this Trust Agreement.

ARTICLE IX

REMOVAL, RESIGNATION AND
APPOINTMENT OF TRUSTEES

9.1 Removal of Trustee: The Trustee may be removed at any time by
the Company. No such removal shall take effect until 30 days from the date
that a written notice was delivered to the Trustee unless prior thereto a
successor Trustee shall have been appointed and accepted and the Trustee
consents to such earlier date.

9.2 Resignation of Trustee: The Trustee may resign at any time
upon 30 days written notice delivered to the Company.

9.3 Appointment of Successor Trustee; Transfer of Funds: The
Company shall appoint a qualified corporate fiduciary as Trustee to replace a
removed or resigned Trustee and such appointment shall be made not later than
the effective date of such removal or resignation of such Trustee. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust. The predecessor Trustee shall assign,
transfer and pay over the assets of the Trust to the successor Trustee and
shall complete such transfer within 60 days after the effective date of such
Trustee's removal or resignation. The predecessor Trustee is authorized,
however, to reserve such sum of money as is reasonable for the payment of its
fees and expenses in connection with the settlement of its account or
otherwise, and any balance of such reserve remaining after the payment of such
fees and expenses shall be paid over to the successor Trustee.

9.4 Accounting of Removed or Resigned Trustee: Any Trustee
removed under Section 9.1 above shall remain as Trustee until its successor
shall have been appointed, but not more than 30 days following notice of
removal. Within 90 days following the expiration of the 30-day period
following its removal or resignation, the Trustee shall provide the Committee
and each Employer with a full and final accounting. The written approval of
such an accounting by the Company, or the failure of the Committee and the
Company to notify the Trustee of their disapproval of such an accounting within
90 days after its receipt shall be final and binding as to the Trustee's
administration of the Trust for the applicable accounting period upon the
Employer and all persons who have or may thereafter have an interest in the
Trust.

- 21 -
<PAGE> 27
ARTICLE X

MISCELLANEOUS

10.1 Controlling Law: This Trust has been entered into in the
State of New York and except to the extent preempted by ERISA or other federal
law shall be construed and enforced in accordance with the laws of New York.

10.2 Income Tax Deferral; ERISA Status: This Trust is intended to
comply with the law and rulings under Sections 83, 402(b), 451 and 671 of the
Code and the economic benefit and constructive receipt doctrines thereunder,
including the ruling positions and criteria of the Internal Revenue Service as
in effect from time to time, and the related rulings and regulations, which
result in a deferral of income tax to the Beneficiaries. This Trust is also
intended to comply with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and
the related rules and regulations thereunder, applying to unfunded plans
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees.

10.3 Accountability For Funds Received: The Trustee shall be
accountable only for funds or other property received by it pursuant to the
Plans and Trust.

10.4 Non-Recourse Beyond Trust Assets: The rights of any
Beneficiary or other person under the Plans and the Trust shall be limited to
the assets of the Trust at any given time. No Employer shall be deemed a
guarantor of or be held liable for any benefits under the Plan beyond the
current assets of the Trust. Notwithstanding the provisions of the preceding
two sentences, the rights of a Beneficiary against the Employer with respect to
such Beneficiary for the payment of benefits under the Plans shall be preserved
in accordance with the provisions of Section 5.4(A) of this Trust Agreement in
the event that the assets of this Trust are paid to the general creditors of
the Employer in accordance with the provisions of Section 5.4(B) of this Trust
Agreement. The provisions of this Section 10.4 shall not limit the rights of
the Beneficiaries under this Trust Agreement or as otherwise allowed by law
with respect to the Trustee.

10.5 Facility of Payment: If the Committee determines that a payee
under this Trust Agreement is unable to care for his own affairs because of
physical or mental condition or minority, any such payment (unless a claim
shall have been made therefor by a duly appointed guardian or other legal
representative) may be made to the payee's guardian or spouse, or to any
descendant, parent, relative, or other person determined by the Committee to be
trustworthy to utilize the payment for the benefit of the payee, and the
payments so made shall completely discharge the liability of the Trustee with
respect thereto.

10.6 No Bond Required: Except as otherwise required by law, no
Trustee acting hereunder shall be required to give bond or other security in
any jurisdiction.

10.7 Gender and Number: To the extent required by the context
herein, each gender shall include the masculine, the feminine and the neuter,
and each number shall include the singular and the plural.

- 22 -
<PAGE> 28
10.8 Execution in Counterparts: This Trust may be executed in
counterparts, each of which shall be deemed an original.

10.9 Severability: Any provision of this Trust Agreement that is
determined to be prohibited by law shall be ineffective to the extent of any
such prohibition, without invalidating the remaining provisions hereof.

- 23 -
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this
TRUST AGREEMENT effective as of the day and year first above written.

HOUSTON INDUSTRIES INCORPORATED

By /s/ D. D. Sykora
----------------------------------
D. D. Sykora
Chairman of the Benefits Committee
ATTEST:

/s/ Richard B. Dauphin
- ---------------------------------
Assistant Corporate Secretary

HOUSTON LIGHTING & POWER COMPANY

By /s/ R. S. Letbetter
----------------------------------
ATTEST:

/s/ Richard B. Dauphin
- ---------------------------------
Assistant Corporate Secretary

HOUSTON INDUSTRIES ENERGY, INC.

By /s/ Lee W. Hogan
----------------------------------
ATTEST:

/s/ Richard B. Dauphin
- ---------------------------------
Assistant Corporate Secretary

THE BANK OF NEW YORK

By /s/ James Catera
----------------------------------
ATTEST: Vice President

/s/ Ellen R. Whalen
- ---------------------------------
Assistant Vice President

- 24 -
<PAGE> 30
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )

BEFORE ME, the undersigned authority, on this day personally
appeared D. D. Sykora, Chairman of the Benefits Committee of HOUSTON INDUSTRIES
INCORPORATED, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
as the act of the said HOUSTON INDUSTRIES INCORPORATED, a corporation, and that
he executed the same as the act and deed of such corporation for the purposes
and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 19th day of
December, 1995.

/s/ Monica J. Huseby
------------------------------------
Notary Public, State of Texas

THE STATE OF TEXAS )
)
COUNTY OF HARRIS )

BEFORE ME, the undersigned authority, on this day personally
appeared R. S. Letbetter, President and COO of HOUSTON LIGHTING & POWER
COMPANY, known to me to be the person and officer whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same as
the act of the said HOUSTON LIGHTING & POWER COMPANY, a corporation, and that
he executed the same as the act and deed of such corporation for the purposes
and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 21st day of
December, 1995.

/s/ Marita Kylene Hoffman
------------------------------------
Notary Public, State of Texas

[seal] Marita Kylene Hoffman
Notary Public, State of Texas
My Commission Expires 10/16/96

- 25 -
<PAGE> 31
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )

BEFORE ME, the undersigned authority, on this day personally
appeared Lee W. Hogan , President and COO of HOUSTON INDUSTRIES ENERGY, INC.,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same as the
act of the said HOUSTON INDUSTRIES ENERGY, INC., a corporation, and that he
executed the same as the act and deed of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 21st day of
December, 1995.

/s/ Marita Kylene Hoffman
------------------------------------
Notary Public, State of Texas

[seal] Marita Kylene Hoffman
Notary Public, State of Texas
My Commission Expires 10/16/96

THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )

BEFORE ME, the undersigned authority, on this day personally
appeared James Catera, Vice President of THE BANK OF NEW YORK, known to me to
be the person and officer whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same as the act of the said THE
BANK OF NEW YORK, a corporation, and that he executed the same as the act and
deed of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 5th day of January, 1996.

Notary Public, State of New York

[seal] Albert T. Tarantola
------------------------------------
Notary Public, State of New York
Qualified in Richmond County
My Commission Expires August 31, 1996

- 26 -
<PAGE> 32
EXHIBIT A

One Thousand and no/100 Dollars ($1,000.00)

A-1
<PAGE> 33
EXHIBIT B

FORM OF LIST OF PARTICIPANTS

Pursuant to Section 6.1 of the Trust Agreement, dated as of
_______________, 199__, between _______________________ (the "Company") and The
Bank of New York as Trustee, the Company provides the following list of
Participants in the Plan:

Dated: _________________, 199___

[COMPANY]

By
Authorized Officer

B-1
<PAGE> 34
EXHIBIT C

[LIST OF POLICIES]

C-1
<PAGE> 35
EXHIBIT D

The Bank of New York
Proposed Schedule of Fees
for the
Houston Industries Incorporated
Executive Deferred Compensation Trust

ANNUAL FEES

These fees are payable quarterly. There are no initial set-up fees with the
establishment/conversion of the trust to The Bank of New York.

ADMINISTRATIVE FEES: $ 15,000

This fee includes normal administrative, asset reporting, and trust fiduciary
tax reporting functions under the trust.

SPECIAL ASSET FEE: $ 3,000

This fee is for each passive, commingled investment fund, mutual fund, and
company stock account held as an asset per issuer.

There will be a $500 fee for each additional asset held in an account and a
$7.50 charge per annum for an insurance policy held in an account.

TRANSACTION FEES:

Security Transaction, per security transaction $ 15.00
Lump Sum Payment, per check plus postage $ 12.50
Periodic Payment, per check plus postage $ 2.00
Wire Transfers, per transfer $ 15.00
Overnight Delivery As Incurred

SPECIAL TRANSACTION FEES

Change of Control, per event $ 12,000
Insolvency, per event $ 12,000
Termination of the Trust, per event $ 3,500
Proxy Services As Incurred
Convert to Pay Status, per participant $ 100.00

D-1
<PAGE> 36
SPECIAL REPORTING FEES:

Schedule of Beneficial Interest (plan accounting)
per investment pool $ 1,500
per plan, per investment pool $ 250

INVESTMENT MANAGEMENT FEE:

Minimum $6,250 (exclusive of the schedule of additional charges below)

Based on Market Value of Principal

1.25% on the first $5,000,000
1.00% on the next $5,000,000
.75% on the next $10,000,000
.50% on the next $10,000,000
.25% on the balance balance

SCHEDULE OF ADDITIONAL CHARGES:

A special fee of $250 is payable for reviewing and accepting an investment
which requires special handling, such as an investment in a limited
partnership.

OUT-OF-POCKET EXPENSES

Fees as quoted above do not include any out-of-pocket expenses including, but
not limited to, facsimile, stationery, postage, telephone, overnight courier,
and messenger costs. These expenses will be billed, at our cost, when
incurred.

EXTERNAL COUNSEL FEES

Fees quoted do not include external counsel fees. A bill for counsel fees
incurred up to closing will be presented for payment on the closing date.

MISCELLANEOUS SERVICES

In the event of a Change in Control, the annual Administrative Fee increases to
$25,000. This fee is not inclusive of the Special Asset Fees, Transaction
Fees, or Investment Management Fees, if applicable.

The charges for performing services not contemplated at the time of the
execution of the documents or not specifically covered elsewhere in the
schedule will be determined by appraisal in amounts commensurate with the
service. These extraordinary services may partially be classified as
amendments and releases; the preparation of special or interim reports which
the trustee or agent must submit to security holders; unusual studies,
considerations and actions taken with respect to

D-2
<PAGE> 37
document provisions; and the custody of collateral which is diversified,
voluminous in bulk or which involves the trustee or agent in unusual activity.

TERMS OF PROPOSAL

The Bank of New York's final acceptance of this appointment is subject to the
full review and approval of all related documentation and financials and our
conflict investigation. Please note that if this transaction does not proceed
to a successful conclusion, you will be responsible for paying any expenses
incurred for this transaction.

D-3

<PAGE> 1

HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 10(a)(a)
<PAGE> 2
EXHIBIT (10 aa)

[Logo] Houston
Industries
Incorporated

June 14, 1991

Mr. David M. McClanahan
Vice President, Finance & Administration
KBLCOM Incorporated
800 Gessner, Suite 700
Houston, Texas 77024-4270

Dear David:

Effective January 1, 1991, you became Vice President, Finance &
Administration of KBLCOM Incorporated ("KBLCOM"), necessitating the transfer of
your employment from Houston Industries Incorporated ("HII") to KBLCOM. The
purpose of this letter is to set forth the effect of the transfer on your
retirement, savings and executive benefits.

(1) Retirement Plan. Concurrent with your transfer, you became
eligible for and started accruing a pension benefit under the KBLCOM Retirement
Plan; this benefit will accrue during your period of employment with KBLCOM.
Your prior service with HII companies will be considered under the KBLCOM
Retirement Plan for vesting purposes.

Under the terms of the Retirement Plan for Employees of Houston
Industries Incorporated (the "HII Retirement Plan"), you will retain your
benefit accrued to the date of transfer until your retirement or final
termination of employment with HII and its subsidiaries. If you are later
transferred to employment with HII or another of its subsidiaries, you will
then resume accruing a benefit under the HII Retirement Plan.

Upon your eligibility for a retirement benefit under the HII
Retirement Plan, you will be entitled to the full retirement benefit you would
have received under the HII Retirement Plan as if all your periods of service
had been with HII. If the sum of your benefits actually payable from the
KBLCOM Retirement Plan and the HII Retirement Plan does not equal or exceed the
amount you would have received from the HII Retirement Plan had all of your
service been with HII, HII will pay the difference to you (or your beneficiary)
in the same form and manner as your pension from the HII Retirement Plan.

(2) Savings Plan. During the period you are eligible for and
elect to participate in the KBLCOM Incorporated Savings Plan (the "KBLCOM
Savings Plan"), HII will account for the excess, if
<PAGE> 3

David M. McClanahan
June 14, 1991
Page Two

any, of the employer matching contribution that would have been credited to
your account under the Savings Plan of Houston Industries Incorporated (the
"HII Savings Plan") over any employer matching contribution credited to your
account under the KBLCOM Savings Plan. You will be vested in and eligible to
receive any amount payable under this paragraph if, as and when any final
distribution upon termination of employment is made to you from the HII Savings
Plan. The amounts so credited on your behalf shall accrue earnings as if
invested in HII common stock.

(3) Executive Benefits Plan. As an officer of HII, you
participated in the HII Executive Benefits Plan which is designed to provide
salary continuation and supplemental post-retirement benefits. As KBLCOM has
not adopted the Executive Benefits Plan, you are no longer eligible for the
benefits provided thereunder. However, during your period of employment as an
officer of KBLCOM, HII hereby agrees to provide the benefits which otherwise
would become payable to you (or your beneficiary) under the terms of the
Executive Benefits Agreement between you and HII, dated June 20, 1986.
Additionally, HII agrees that, in the event you become disabled during your
employment as a KBLCOM officer, you shall receive benefits from the KBLCOM LTD
Plan (and HII to the extent benefits are not payable under the KBLCOM LTD Plan)
as if the term "total disability" under the KBLCOM LTD Plan was defined as an
illness or injury which prevents you from performing the duties of an officer
of KBLCOM.

(4) Long-Term Incentive Compensation Plan. The lapse of
restrictions on your award of restricted shares for the performance cycle
January 1, 1990 through December 31, 1992 will be determined on a prorata basis
considering the length of your employment as an HII officer and KBLCOM officer
during the performance cycle.

(5) Benefits Restoration and Savings Restoration Plans. HII
agrees that it will pay you such amounts as would have been paid under each of
these plans as if your employment as a KBLCOM officer had been as an officer of
HII. HII will pay you such amounts, if any, at such times as they would have
been paid under the applicable section of the Benefits Restoration Plan and
Savings Restoration Plan.

(6) Executive Incentive Compensation Plan and Deferred
Compensation Plan. Your service with KBLCOM is considered as
<PAGE> 4

David M. McClanahan
June 14, 1991
Page Three

service with HII under each of the Executive Incentive Compensation Plan and
the Deferred Compensation Plan for vesting and distribution purposes. Thus,
any amounts credited on your behalf prior to your transfer will vest and be
paid under each plan as if your period of KBLCOM employment had been with HII.

This letter confirms the benefits HII intends to provide you in
recognition of your service as an officer of KBLCOM. All amounts payable
hereunder are payable out of the general funds of HII.

Very truly yours,

/s/ Don D. Jordan

Don D. Jordan
Chairman, President &
Chief Executive Officer

<PAGE> 1

HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 11
<PAGE> 2
Exhibit 11
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1995 1994 1993
------------ ------------- ------------
(Restated) (Restated)
<S> <C> <C> <C>
Primary Earnings Per Share:

(1) Weighted average shares of common stock
outstanding . . . . . . . . . . . . . . .. . . . 247,706,457 245,706,746 260,008,136

(2) Effect of issuance of shares from
assumed exercise of stock options
(treasury stock method) . . . . . . . . . . . . 47,098 (79,048) 7,836
------------ ------------- ------------
(3) Weighted average shares . . . . . . . . . . . . . . 247,753,555 245,627,698 260,015,972
============ ============= ============
(4) Net income . . . . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036

(5) Primary earnings per share
(line 4/line 3) . . . . . . . . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60

Fully Diluted Earnings Per Share:

(6) Weighted average shares per computation
on line 3 above . . . . . . . . . . . . . . . . . 247,753,555 245,627,698 260,015,972

(7) Shares applicable to options included
on line 2 above . . . . . . . . . . . . . . . . . (47,098) 79,048 (7,836)

(8) Dilutive effect of stock options
(treasury stock method) based on
higher of the average price for the
year or year-end price of $24.25,
$18.00 and $23.82 for 1995, 1994 and
1993, respectively . . . . . . . . . . . . . . . 52,730 (79,048) 14,600
------------ ------------- ------------
(9) Weighted average shares . . . . . . . . . . . . . . 247,759,187 245,627,698 260,022,736
============ ============= ============
(10) Net income . . . . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036

(11) Fully diluted earnings per share
(line 10/line 9) . . . . . . . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60

</TABLE>

Notes:

These calculations are submitted in accordance with Regulation S-K item
601(b)(11) although it is not required for financial presentation disclosure
per footnote 2 to paragraph 14 of Accounting Principles Board (APB) Opinion No.
15 because it does not meet the 3 percent dilutive test.

The calculations for year ended December 31, 1994 is submitted in accordance
with Regulation S-K item 601(b)(11) although they are contrary to paragraphs 30
and 40 of APB No. 15 because they produce anti-dilutive results.

The amounts for 1994 reflect the adoption, effective January 1, 1994, of the
American Institute of Certified Public Accountants Statement of Position 93-6
(SOP 93-6), "Employers' Accounting for Employee Stock Ownership Plans." See
Notes 1(g) and 9(b) to the Company's Consolidated and HL&P's Financial
Statements for information regarding the effects of SOP 93-6 on weighted
average shares of common stock outstanding and net income, respectively. In
accordance with SOP 93-6, periods prior to 1994 have not been restated.

All share amounts reflect the two-for-one stock split, effective December 1995.

<PAGE> 1

HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 12
<PAGE> 2
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES Exhibit 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Charges as Defined:

(1) Interest on Long-Term Debt . . . . . . . $ 279,491 $ 265,494 $ 304,462 $ 338,771 $ 340,810
(2) Other Interest . . . . . . . . . . . . 21,586 25,076 15,145 23,323 42,353
(3) Preferred Dividends Factor of Subsidiary
(line 12). . . . . . . . . . . . . . . 44,933 51,718 52,399 58,204 67,433
(4) Interest Component of Rentals Charged to
Operating Expense . . . . . . . . . . 3,102 3,951 4,449 5,116 5,943
---------- --------- ---------- ---------- ----------
(5) Total Fixed Charges . . . . . . . . . . $ 349,112 $ 346,239 $ 376,455 $ 425,414 $ 456,539
========== ========== ========== ========== ==========
Earnings as Defined:

(6) Income from Continuing Operations
Before Cumulative Effect of
Change in Accounting . . . . . . . . . . $ 397,400 $ 423,985 $ 440,531 $ 370,031 $ 484,275
(7) Income Taxes for Continuing Operations
Before Cumulative Effect of
Change in Accounting . . . . . . . . . 199,555 230,424 228,863 177,276 224,215
(8) Fixed Charges (line 5) . . . . . . . . . 349,112 346,239 376,455 425,414 456,539
---------- ---------- ---------- ---------- ----------
(9) Earnings from Continuing Operations
Before Cumulative Effect of Change
in Accounting, Income Taxes and Fixed
Charges . . . . . . . . . . . . . . . $ 946,067 $1,000,648 $1,045,849 $ 972,721 $1,165,029
========== ========== ========== ========== ==========

Preferred Dividends Factor of Subsidiary:

(10) Preferred Stock Dividends of Subsidiary $ 29,955 $ 33,583 $ 34,473 $ 39,327 $ 46,187
(11) Ratio of Pre-Tax Income from Continuing
Operations to Income from Continuing
Operations (line 6 plus line 7 divided
by line 6) . . . . . . . . . . . . . . 1.50 1.54 1.52 1.48 1.46
---------- ---------- ---------- --------- ----------
(12) Preferred Dividends Factor of Subsidiary
(line 10 times line 11). . . . . . . . $ 44,933 $ 51,718 $ 52,399 $ 58,204 $ 67,433
========== ========== ========= ========= ==========

Ratio of Earnings from Continuing Operations
to Fixed Charges Before Cumulative
Effect of Change in Accounting
(line 9 divided by line 5) . . . . . . . . 2.71 2.89 2.78 2.29 2.55

</TABLE>

<PAGE> 1

HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 21
<PAGE> 2
Exhibit 21

SUBSIDIARIES OF THE COMPANY*

<TABLE>
<CAPTION>
NAME JURISDICTION
- ------------------------------------------ ------------
<S> <C>
Houston Lighting & Power Company Texas

Houston Industries (Delaware) Incorporated Delaware
</TABLE>

- -----------------

*The names of certain subsidiaries of the Company are omitted pursuant to Item
601(b)(21)(ii) of Regulation S-K.

<PAGE> 1

HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 23
<PAGE> 2
Exhibit 23

INDEPENDENT AUDITORS' CONSENT

HOUSTON INDUSTRIES INCORPORATED:

We consent to the incorporation by reference in Houston Industries
Incorporated's (i) Registration Statements on Form S-3 Nos. 33-39921, 33-60756,
33-51431, 33-52207 and 33-55445 and (ii) Registration Statements on Form S-8
Nos. 33-37493, 33-50629, 33-52279, 33-55391 and 33-56855 of our report dated
February 29, 1996 (March 26, 1996 as to Note 4), appearing in this Annual
Report on Form 10-K of Houston Industries Incorporated for the year ended
December 31, 1995.

DELOITTE & TOUCHE LLP

HOUSTON, TEXAS
MARCH 27, 1996

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Company's and HL&P's financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000202131
<NAME> Houston Industries Incorporated
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,769,626
<OTHER-PROPERTY-AND-INVEST> 1,159,036
<TOTAL-CURRENT-ASSETS> 337,445
<TOTAL-DEFERRED-CHARGES> 930,349
<OTHER-ASSETS> 623,150
<TOTAL-ASSETS> 11,819,606
<COMMON> 2,173,385
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,953,672
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,123,563
51,055
351,345
<LONG-TERM-DEBT-NET> 3,333,483
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 6,300
<LONG-TERM-DEBT-CURRENT-PORT> 350,130
25,700
<CAPITAL-LEASE-OBLIGATIONS> 4,939
<LEASES-CURRENT> 3,621
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,565,976
<TOT-CAPITALIZATION-AND-LIAB> 11,819,606
<GROSS-OPERATING-REVENUE> 3,730,173
<INCOME-TAX-EXPENSE> 199,555
<OTHER-OPERATING-EXPENSES> 2,825,240
<TOTAL-OPERATING-EXPENSES> 2,825,240
<OPERATING-INCOME-LOSS> 904,933
<OTHER-INCOME-NET> 18,362
<INCOME-BEFORE-INTEREST-EXPEN> 923,295
<TOTAL-INTEREST-EXPENSE> 296,385
<NET-INCOME> 1,135,479
29,955
<EARNINGS-AVAILABLE-FOR-COMM> 1,105,524
<COMMON-STOCK-DIVIDENDS> 371,760
<TOTAL-INTEREST-ON-BONDS> 244,310
<CASH-FLOW-OPERATIONS> 839,438
<EPS-PRIMARY> 4.46<F1>
<EPS-DILUTED> 4.46<F1>
<FN>
<F1>
Reflects a two-for-one stock split effective December 9, 1995.
</FN>

</TABLE>

<PAGE> 1
HOUSTON INDUSTRIES INCORPORATED
EXHIBIT 99
<PAGE> 2
HOUSTON INDUSTRIES ENERGY, INC.
LONG-TERM PROJECT INCENTIVE COMPENSATION PLAN

(Effective January 1, 1994)

Second Amendment

Houston Industries Incorporated, a Texas corporation (the
"Company"), established the Houston Industries Energy, Inc. Long-Term Project
Incentive Compensation Plan, effective January 1, 1994 and as amended (the
"Plan"), and having reserved the right under Article XIV thereof to amend the
Plan, does hereby amend the definition of Project Review Committee contained in
Article I of the Plan, effective as of December 6, 1995, to read as follows:

"PROJECT REVIEW COMMITTEE: The individual(s) or business
entity appointed by the Chairman of the Board of Houston Industries
Incorporated to review and determine the financial success of projects
closed during a given Plan Year and to perform the other duties
specified herein."

IN WITNESS WHEREOF, Houston Industries Incorporated has caused
these presents to be executed by the duly authorized Chairman of the Benefits
Committee in a number of copies, all of which shall constitute one and the same
instrument, which may be sufficiently evidenced by any executed copy hereof,
this 19th day of December, 1995, but effective as of the date stated herein.

HOUSTON INDUSTRIES INCORPORATED

By /s/ D. D. Sykora
----------------------------------
D. D. Sykora
Chairman of the Benefits Committee

ATTEST:

/s/ Richard B. Dauphin
- -----------------------------------
Assistant Corporate Secretary

<PAGE> 1
HOUSTON LIGHTING & POWER COMPANY
EXHIBIT 4(a)(9)

<PAGE> 2

FILE NO. 1-74-016051

======================================================================

HOUSTON LIGHTING & POWER COMPANY

TEXAS COMMERCE BANK NATIONAL ASSOCIATION

(successor to SOUTH TEXAS COMMERCIAL NATIONAL BANK OF HOUSTON),

As Trustee under
Houston Lighting & Power Company's
Mortgage and Deed of Trust,
dated as of November 1, 1944.

__________

SIXTY-FOURTH

SUPPLEMENTAL INDENTURE

__________

Dated as of July 1, 1995

This Instrument Contains After-Acquired Property Provisions.

This Instrument Grants A Security Interest By A Utility.

=====================================================================

<PAGE> 3
This Instrument Contains After-Acquired Property Provisions.

This Instrument Grants A Security Interest By A Utility.

SIXTY-FOURTH SUPPLEMENTAL INDENTURE

INDENTURE, dated as of the 1st day of July, 1995, made and entered
into by and between Houston Lighting & Power Company, a corporation of the
State of Texas, hereinafter sometimes called the Company, and Texas Commerce
Bank National Association, a national bank organized under the banking laws of
the United States of America, whose principal place of business is in Houston,
Texas, hereinafter sometimes called the Trustee, under the Mortgage and Deed of
Trust, dated as of November 1, 1944, hereinafter called the Mortgage, which
Mortgage was executed and delivered by Houston Lighting & Power Company to
secure the payment of Bonds issued or to be issued under and in accordance with
the provisions of the Mortgage, this Indenture, hereinafter called the
Sixty-Fourth Supplemental Indenture, being supplemental thereto.

WHEREAS, by the Mortgage, the Company covenanted that it would execute
and deliver such supplemental indenture or indentures and such further
instruments and do such further acts as might be necessary or proper to carry
out more effectually the purposes of the Mortgage and to make subject to the
lien of the Mortgage any property thereafter acquired and intended to be
subject to the lien thereof, and the Company has heretofore executed and
delivered to the Trustee or its predecessor 63 supplemental indentures; and

WHEREAS, in addition to the property described in the Mortgage, as
heretofore supplemented, the Company has acquired certain other property,
rights and interests in property; and

WHEREAS, the Company has heretofore issued, in accordance with the
provisions of the Mortgage, Bonds designated First Mortgage Bonds of the
following series:
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- --------------------------- ------------ ------------
<S> <C> <C> <C> <C>
First . . . . . . . . . 2 7/8% Series due 1974 $ 30,000,000 None
Second . . . . . . . . 3% Series due 1978 $ 15,000,000 None
Third . . . . . . . . . 2 3/4% Series due 1985 $ 30,000,000 None
Fourth . . . . . . . . 3 1/4% Series due 1981 $ 20,000,000 None
Fifth . . . . . . . . . 3% Series due 1989 $ 30,000,000 None
Sixth . . . . . . . . . 3 1/4% Series due 1986 $ 30,000,000 None
Seventh . . . . . . . . 4 3/4% Series due 1987 $ 40,000,000 None
Eighth . . . . . . . . 4 7/8% Series due 1989 $ 25,000,000 None
Ninth . . . . . . . . . 4 1/2% Series due 1992 $ 25,000,000 None
Tenth . . . . . . . . . 5 1/4% Series due 1996 $ 40,000,000 $ 40,000,000
</TABLE>

2
<PAGE> 4
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- --------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Eleventh . . . . . . . 5 1/4% Series due 1997 $ 40,000,000 $ 40,000,000
Twelfth . . . . . . . . 6 3/4% Series due 1997 $ 35,000,000 $ 35,000,000
Thirteenth . . . . . . 6 3/4% Series due 1998 $ 35,000,000 $ 35,000,000
Fourteenth . . . . . . 7 1/2% Series due 1999 $ 30,000,000 None
Fifteenth . . . . . . . 7 1/4% Series due 2001 $ 50,000,000 $ 50,000,000
Sixteenth . . . . . . . 7 1/2% Series due 2001 $ 50,000,000 None
Seventeenth . . . . . . 8 1/8% Series due 2004 $100,000,000 None
Eighteenth . . . . . . 10 1/8% Series due $100,000,000 None
September 1, 2004
Nineteenth. . . . . . . 8 3/4% Series due $125,000,000 None
March 1, 2005
Twentieth . . . . . . . 8 3/8% Series due $125,000,000 None
October 1, 2006
Twenty-First. . . . . . 8 3/8% Series due $125,000,000 None
October 1, 2007
Twenty-Second . . . . . 8 7/8% Series due $125,000,000 None
September 1, 2008
Twenty-Third. . . . . . 9 1/4% Series due $100,000,000 None
December 1, 2008
Twenty-Fourth . . . . . 11 1/4% Series due $125,000,000 None
December 1, 2009
Twenty-Fifth. . . . . . 12% Series due $100,000,000 None
June 1, 2010
Twenty-Sixth. . . . . . 13 7/8% Series due $125,000,000 None
February 1, 1991
Twenty-Seventh. . . . . 15 1/8% Series due $125,000,000 None
March 1, 1992
Twenty-Eighth . . . . . 12 3/8% Series due $125,000,000 None
March 15, 2013
Twenty-Ninth. . . . . . 11 5/8% Series due $200,000,000 None
November 1, 2015
Thirtieth . . . . . . . Pollution Control 7 7/8% $ 50,000,000 $ 50,000,000
Series due 2018
Thirty-First. . . . . . Pollution Control 7 7/8% $ 68,000,000 $ 68,000,000
Series due 2016
Thirty-Second . . . . . 9% Series due $390,519,000 None
March 1, 2017
Thirty-Third. . . . . . 9 3/8% Series due $132,000,000 None
January 20, 1991
Thirty-Fourth . . . . . 9 3/8% Series due $132,000,000 None
January 20, 1992
Thirty-Fifth. . . . . . 9 3/8% Series due $136,000,000 None
January 20, 1993
Thirty-Sixth. . . . . . Pollution Control 8 1/4% $ 90,000,000 $ 90,000,000
Series due May 1, 2015
Thirty-Seventh. . . . . Pollution Control 8 1/4% $100,000,000 $100,000,000
Series due May 1, 2019
Thirty-Eighth . . . . . Pollution Control 8.10% $100,000,000 $100,000,000
Series due May 1, 2019
Thirty-Ninth. . . . . . Pollution Control 7 3/4% $ 68,700,000 $ 68,700,000
Series due October 1, 2015
Fortieth. . . . . . . . Medium-Term Note 15% $200,000,000 $180,500,000

</TABLE>

3
<PAGE> 5
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- ------------------------ ------------ ------------
<S> <C> <C> <C>
Series due November 1,
2018
Forty-First . . . . . . 10 1/4% Series due $225,000,000 None
February 1, 2019
Forty-Second. . . . . . Pollution Control 7 7/8% $ 29,685,000 $ 29,685,000
Series due February 1,
2019
Forty-Third . . . . . . Pollution Control 7.70% $ 75,000,000 $ 75,000,000
Series due February 1,
2019
Forty-Fourth. . . . . . Medium-Term Note 15% $200,000,000 $200,000,000
Series due May 1, 2019
Forty-Fifth . . . . . . Pollution Control 7% $ 19,200,000 $ 19,200,000
Series due December 1,
2008
Forty-Sixth . . . . . . Pollution Control 7 1/8% $100,000,000 $100,000,000
Series due July 1, 2019
Forty-Seventh . . . . . Pollution Control 7 5/8% $100,000,000 $100,000,000
Series due May 1, 2019
Forty-Eighth. . . . . . Pollution Control 7.60% $ 70,315,000 $ 70,315,000
Series due October 1,
2019
Forty-Ninth . . . . . . Pollution Control 7.20% $100,000,000 $100,000,000
Series A due December 1,
2018
Fiftieth. . . . . . . . Pollution Control 7.20% $ 75,000,000 $ 75,000,000
Series B due December 1,
2018
Fifty-First . . . . . . 9.15% Series due $160,000,000 $160,000,000
March 15, 2021
March 1, 1997
Fifty-Second. . . . . . 7 5/8% Series due $150,000,000 $150,000,000
Fifty-Third . . . . . . 8 3/4% Series due $100,000,000 $ 81,000,000
March 1, 2022
Fifty-Fourth. . . . . . Pollution Control 6.70% $ 43,820,000 $ 43,820,000
Series due March 1, 2017
Fifty-Fifth . . . . . . Pollution Control 6.70% $ 56,095,000 $ 56,095,000
Series due March 1, 2027
Fifty-Sixth . . . . . . Pollution Control 6 3/8% $ 33,470,000 $ 33,470,000
Series A due April 1,
2012
Fifty-Seventh . . . . . Pollution Control 6 3/8% $ 12,100,000 $ 12,100,000
Series B due April 1,
2012
Fifty-Eighth. . . . . . Medium-Term Note 10% $400,000,000 $400,000,000
Series due February 1,
2028
Fifty-Ninth . . . . . . 7 3/4% Series due March 15, $250,000,000 $250,000,000
2023
Sixtieth . . . . . . . 7 1/2% Series due July 1, $200,000,000 $200,000,000
2023
Sixty-First . . . . . . Pollution Control 5.60% $ 83,565,000 $ 83,565,000
Series due December 1, 2017
</TABLE>

4
<PAGE> 6
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- ------------------------ ------------ ------------
<S> <C> <C> <C>
Sixty-Second. . . . . . Pollution Control 4.90% $ 16,600,000 $ 16,600,000
Series due December 1, 2003
Sixty-Third . . . . . . Medium-Term Note 10% $350,000,000 $350,000,000
Series due December 1, 2028
</TABLE>

; and

WHEREAS, immediately following the execution and delivery of this
Sixty-Fourth Supplemental Indenture, the Company will execute and deliver a
Sixty-Fifth Supplemental Indenture relating to a series of Bonds designated
"Pollution Control 15% Series due October 15, 2015" in the aggregate principal
amount of $58,905,000; and

WHEREAS, the Trustee is duly qualified and eligible to act, and is
acting, as trustee under the Mortgage, as heretofore supplemented, in
accordance with the terms thereof; and

WHEREAS, Section 8 of the Mortgage provides for the issuance of Bonds
in series, with the form of each series of Bonds (other than the First Series)
issued thereunder to be established by resolution of the Board of Directors of
the Company and the form of such series, as established by said Board of
Directors, to specify the descriptive title of the Bonds and various other
terms thereof, and to also contain such provisions as the Board of Directors
may, in its discretion, cause to be inserted therein expressing or referring to
the terms and conditions upon which such Bonds are to be issued and/or secured
under the Mortgage; and

WHEREAS, the Company now desires to create a new series of Bonds and,
in accordance with Section 126 of the Mortgage, to add to the covenants and
agreements contained in the Mortgage, as heretofore supplemented, certain other
covenants and agreements to be observed by it and modify in certain respects
provisions contained in the Mortgage, as heretofore supplemented; and

WHEREAS, the execution and delivery by the Company of this
Sixty-Fourth Supplemental Indenture, and the terms of the Bond of the
Sixty-Fourth Series, hereinafter referred to, have been duly authorized by the
Board of Directors of the Company by appropriate resolutions of said Board of
Directors;

NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Houston Lighting &
Power Company, in consideration of the premises and in order further to secure
the payment of the principal of and premium, if any, and interest on the Bonds
from time to time issued under the Mortgage, as heretofore supplemented,
according to their tenor and effect, and performance of all the provisions of
the Mortgage (including any instruments supplemental thereto and any
modification or alteration made as in the Mortgage provided) and of said
Bonds, hereby grants, bargains, sells, releases, conveys, assigns, transfers,
mortgages, pledges, sets over and confirms unto Texas Commerce Bank National
Association, as Trustee under the Mortgage, as heretofore supplemented, and to
its successor or successors in said trust and to it and its and their assigns
forever, all properties, whether real, personal or mixed of the kind or nature
specifically mentioned in the Mortgage, as heretofore supplemented, or of any
other kind or nature acquired by the Company on or after the date of the
execution and delivery of the Mortgage (except any herein or in the Mortgage,
as heretofore supplemented, expressly excepted), and whether now owned or
hereafter acquired by the Company and wheresoever situated, including

5
<PAGE> 7
(without limiting or impairing by the enumeration of the same the scope and
intent of the foregoing or of any general description contained in this
Sixty-Fourth Supplemental Indenture) all lands, flowage rights, water rights,
flumes, raceways, dams, rights-of-way and roads; all plants for the generation
of electricity by water, steam and/or other power, power houses, gas plants,
telephone systems, water works, water systems, steam heat plants, hot water
plants, substations, measuring stations, regulating stations, gathering lines,
gas transportation lines, transmission lines, distributing systems, bridges,
culverts, tracks, rolling stock, vehicles, buses, automobiles, ice plants,
refrigeration plants, railway systems whether street or interurban, all
offices, buildings and structures, and the equipment thereof; all machinery,
engines, boilers, dynamos, machines, regulators, meters, transformers,
generators and motors; all appliances whether electrical, gas or mechanical,
conduits, cables and lines; all pipes whether for water, steam heat, gas or
other purposes; all mains and pipes, service pipes, fittings, valves and
connections, poles, wires, tools, implements, apparatus, furniture and
chattels; all municipal franchises and other franchises; all lines for the
transportation, transmission and/or distribution of electric current, gas,
steam heat or water for any purpose, including towers, poles, wires, cables,
pipes, conduits and all apparatus for use in connection therewith; all real
estate, lands, easements, servitudes, licenses, permits, rights, powers,
franchises, privileges, rights-of-way and other rights in or relating to real
estate or the occupancy of the same and (except as herein or in the Mortgage,
as heretofore supplemented, expressly excepted) all the right, title and
interest of the Company in and to all other property of any kind or nature
appertaining to and/or used and/or occupied and/or enjoyed in connection with
any property herein or in the Mortgage, as heretofore supplemented, described
or referred to.

TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in anywise appertaining to the aforesaid property or
any part thereof, with the reversion and reversions, remainder and remainders
and (subject to the provisions of Section 59 of the Mortgage) the tolls, rents,
revenues, issues, earnings, income, product and profits thereof, and all the
estate, right, title and interest and claim whatsoever, at law as well as in
equity, which the Company now has or may hereafter acquire in and to the
aforesaid property and franchises and every part and parcel thereof.

IT IS HEREBY AGREED by the Company that all the property, rights and
franchises acquired by the Company after the date hereof (except any herein or
in the Mortgage, as heretofore supplemented, expressly excepted) shall be as
fully embraced within the lien hereof and the lien of the Mortgage, as
heretofore supplemented, as if such property, rights and franchises were now
owned by the Company and were specifically described herein and conveyed
hereby.

PROVIDED that the following are not and are not intended to be now or
hereafter granted, bargained, sold, released, conveyed, assigned, transferred,
mortgaged, pledged, set over or confirmed hereunder and are hereby expressly
excepted from the lien and operation of this Sixty-Fourth Supplemental
Indenture and from the lien and operation of the Mortgage, as heretofore
supplemented: (1) cash, shares of stock and obligations (including bonds, notes
and other securities) not herein or in the Mortgage, as heretofore
supplemented, specifically pledged, paid, deposited or delivered hereunder or
under the Mortgage, as heretofore supplemented, or covenanted to be; (2) any
goods, wares, merchandise, equipment,

6
<PAGE> 8
materials or supplies acquired for the purpose of sale or resale in the usual
course of business or for consumption in the operation of any properties of the
Company; (3) bills, accounts receivable, judgments, demands and choses in
action, and all contracts, leases and operating agreements not specifically
pledged hereunder or under the Mortgage, as heretofore supplemented, or
covenanted so to be; and (4) all timber, minerals, mineral rights and
royalties; provided, however, that the property and rights expressly excepted
from the lien and operation of the Mortgage, as heretofore supplemented, and
this Sixty-Fourth Supplemental Indenture in the above subdivisions (2) and (3)
of this paragraph shall (to the extent permitted by law) cease to be excepted
in the event that the Trustee or a receiver or trustee shall enter upon and
take possession of the mortgaged and pledged property in the manner provided in
Article XII of the Mortgage by reason of the occurrence of a completed default
as defined in Section 67 thereof.

TO HAVE AND TO HOLD all such properties, real, personal and mixed,
granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged,
pledged, set over or confirmed by the Company as aforesaid or intended so to
be, unto the Trustee and its successors and assigns forever.

IN TRUST NEVERTHELESS, for the same purposes and upon the same terms,
trusts and conditions and subject to and with the same provisions and covenants
as are set forth in the Mortgage, as heretofore supplemented, this Sixty-Fourth
Supplemental Indenture being supplemental to the Mortgage.

AND IT IS HEREBY COVENANTED by the Company that all the terms,
conditions, provisos, covenants and provisions contained in the Mortgage, as
heretofore supplemented, shall affect and apply to the property hereinbefore
described and conveyed and to the estate, rights, obligations and duties of the
Company and Trustee and the beneficiaries of the trust with respect to said
property, and to the Trustee and its successors as Trustee of said property in
the same manner and with the same effect as if the said property had been owned
by the Company at the time of the execution of the Mortgage, and had been
specifically and at length described in and conveyed to said Trustee, by the
Mortgage as a part of the property therein stated to be conveyed.

The Company further covenants and agrees to and with the Trustee and
its successors in said trust under the Mortgage, as follows:

ARTICLE I.

Sixty-Fourth Series of Bonds

SECTION 1. There shall be a series of Bonds designated "Pollution
Control 15% Series due August 1, 2015" (herein sometimes referred to as the
"Bond of the Sixty-Fourth Series") of which the Company shall be authorized to
issue a maximum of $91,945,000 in total principal amount, each of which shall
also bear the descriptive title First Mortgage Bond and the form thereof and
the terms and provisions thereof are hereby established as follows:

[FORM OF BOND OF THE SIXTY-FOURTH SERIES]

THE BOND REPRESENTED BY THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT

7
<PAGE> 9
TO ANY SUCCESSOR TRUSTEE UNDER THE TRUST INDENTURE, AS HEREIN DEFINED. IN
ADDITION, THE BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT
COMPLIANCE WITH APPLICABLE SECURITIES LAWS.

HOUSTON LIGHTING & POWER COMPANY
FIRST MORTGAGE BOND,
POLLUTION CONTROL 15% SERIES DUE AUGUST 1, 2015

No........... $...................

Houston Lighting & Power Company, a corporation of the State of Texas
(hereinafter called the Company), for value received, hereby promises to pay to
The First National Bank of Chicago (First Chicago), acting in its capacity as
trustee (BRA Trustee) under that certain Trust Indenture, dated as of July 1,
1995 (Trust Indenture), between the Brazos River Authority and First Chicago
relating to the Brazos River Authority Collateralized Revenue Refunding Bonds
(Houston Lighting & Power Company Project) Series 1995 (Series 1995 Revenue
Bonds), and its successors, on August 1, 2015 at the office or agency of the
Company in the City of Houston, Texas, ____________ Dollars in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay to the BRA
Trustee interest thereon from July 1, 1995 or the most recent February 1 or
August 1 to which interest has been paid or duly provided for, at the rate of
15% per annum in like coin or currency, at said office or agency on each
February 1 and August 1 in each year, commencing February 1, 1996 and at
maturity, until the Company's obligation with respect to the payment of such
principal shall have been discharged. Notwithstanding the foregoing, the
obligation of the Company to make any payment of the principal of and premium,
if any, or interest on this Bond, whether at maturity, upon redemption or
otherwise, shall be fully or partially, as the case may be, deemed to have been
paid or otherwise satisfied and discharged if at the time any such payment
shall be due, the then-due principal or purchase price of, premium, if any, or
interest on the Series 1995 Revenue Bonds shall have been fully or partially
paid, deemed to have been paid or otherwise satisfied and discharged. In
addition, such obligation to make any payment of the principal of, premium, if
any, or interest on this Bond at any time shall be deemed to have been
satisfied and discharged to the extent that the amount of the Company's
obligation to make any payment of the principal of and premium, if any, and
interest on this Bond exceeds the obligation of the Company at that time to
make any Installment Payment (as defined in that certain Installment Payment
and Bond Amortization Agreement, dated as of July 1, 1995 (Agreement), between
the Brazos River Authority and the Company relating to the Series 1995 Revenue
Bonds).

The Sixty-Fourth Supplemental Indenture to the Mortgage hereinafter
mentioned provides that the amount of interest payable or paid on this Bond
shall be limited and subject to reduction to an amount which shall not exceed
the maximum nonusurious rate of interest allowed by the applicable laws of the
State of Texas or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable Texas laws, which could
lawfully be contracted for, taken, reserved, charged or received, it being the
intention of the parties hereto to conform strictly to the usury laws of the
State of Texas.

8
<PAGE> 10
This Bond shall not become obligatory until Texas Commerce Bank
National Association, the Trustee under the Mortgage hereinafter mentioned, or
its successor thereunder, shall have signed the form of certificate endorsed
hereon.

IN WITNESS WHEREOF, Houston Lighting & Power Company has caused this
Bond to be signed in its name by its President or one of its Vice Presidents
and its corporate seal to be impressed or imprinted hereon and attested by its
Secretary or one of its Assistant Secretaries.

Dated................
HOUSTON LIGHTING & POWER COMPANY

By..............................
President
Attest:

.........................
Secretary

This is the Bond of the series
herein designated, provided for in
the within-mentioned Mortgage.

TEXAS COMMERCE BANK HOUSTON INDUSTRIES INCORPORATED,
NATIONAL ASSOCIATION, Transfer Agent,
Trustee/Authenticating Agent,

By________________________________ By______________________________
Authorized Signatory Authorized Officer

9
<PAGE> 11
HOUSTON LIGHTING & POWER COMPANY

FIRST MORTGAGE BOND,

POLLUTION CONTROL 15% SERIES DUE AUGUST 1, 2015

This Bond is the Bond of the Company of the series specified in the
title hereof, and is issued in the aggregate principal amount of $91,945,000 in
order to provide the benefit of a lien to secure the obligations of the Company
to pay the Installment Payments (as defined in the Agreement) under the
Agreement, and is together with all Bonds of all series issued and to be issued
under and equally secured (except insofar as any sinking fund, established in
accordance with the provisions of the Mortgage hereinafter mentioned, may
afford additional security for other Bonds of any particular series) by a
Mortgage and Deed of Trust (herein, together with all indentures supplemental
thereto, called the Mortgage), dated as of November 1, 1944, executed by the
Company to South Texas Commercial National Bank of Houston (Texas Commerce Bank
National Association, as successor trustee), as Trustee, to which reference is
made for a description of the property mortgaged and pledged, the nature and
extent of the security, the rights of the holders of the Bonds in respect
thereof, the duties and immunities of the Trustee and the terms and conditions
upon which the Bonds are secured. With the consent of the Company and to the
extent permitted by and as provided in the Mortgage, the rights and obligations
of the Company and/or the rights of the holders of the Bonds and/or Coupons
and/or the terms and provisions of the Mortgage may be modified or altered by
the affirmative vote of the holders of at least seventy per centum (70%) in
principal amount of the Bonds then outstanding under the Mortgage and, if the
rights of one or more, but fewer than all, series of Bonds then outstanding are
to be affected, then also by the affirmative vote of the holders of at least
seventy per centum (70%) in principal amount of the Bonds then outstanding of
each series of Bonds so to be affected (excluding in any case Bonds
disqualified from voting by reason of the Company's interest therein as
provided in the Mortgage); provided that, without the consent of the holder
hereof, no such modification or alteration, among other things, shall impair or
affect the right of the holder to receive payment of the principal of and
premium, if any, and interest on this Bond, on or after the respective due
dates expressed herein, or permit the creation of any lien equal or prior to
the lien of the Mortgage or deprive the holder of the benefit of a lien on the
mortgaged and pledged property.

The principal hereof may be declared or may become due on the
conditions, in the manner and at the time set forth in the Mortgage, upon the
occurrence of a completed default as in the Mortgage provided.

The applicable Supplemental Indenture to the Mortgage provides that
the amount of interest payable or paid on this Bond shall be limited and
subject to reduction to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of
Texas or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable Texas laws, which could lawfully
be contracted for, taken, reserved, charged or received.

The Mortgage provides that no holder of any Bond shall have any right

10
<PAGE> 12
to institute any suit, action or proceeding in equity or at law for the
foreclosure of the Mortgage or for the execution of any trust thereof or for
the appointment of a receiver or any other remedy thereunder, unless (i) such
holder shall have previously given to the Trustee written notice of a default,
(ii) the holders of 25% in principal amount of the Bonds then outstanding shall
have made written request to the Trustee and shall have offered it reasonable
opportunity either to proceed to exercise the powers granted to it in the
Mortgage or to institute such action, suit or proceeding in its own name, (iii)
such holders shall have offered to the Trustee adequate security and indemnity
against the costs, expenses and liabilities to be incurred and (iv) the Trustee
shall have declined to take such action or shall have failed to do so within 60
days thereafter. Notwithstanding any other provision of the Mortgage, the right
of any holder of any Bond to receive payment of the principal of and interest
on such Bond, on or after the respective due dates expressed in such Bond, or
to institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
holder. The Mortgage provides that the holders of not less than a majority in
principal amount of the Bonds at the time outstanding may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee; provided,
however, that such direction shall not be otherwise than in accordance with the
provisions of law and the Mortgage and that, subject to certain provisions of
the Mortgage, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall by responsible officers determine
that the action or proceeding so directed would involve the Trustee in personal
liability or be unjustifiably prejudicial to nonassenting bondholders or that
it will not be sufficiently indemnified for any expenditures in any action or
proceeding so directed.

This Bond has been issued and delivered to, registered in the name of
and pledged with the BRA Trustee under the Trust Indenture for the ratable
benefit of the owners of the Series 1995 Revenue Bonds and shall not be
transferable except to any successor trustee under the Trust Indenture, any
such transfer to be made at the office or agency of the Company in the City of
Houston, Texas, upon surrender and cancellation of this Bond, and thereupon a
new fully registered Bond of the same series for a like principal amount will
be issued to such transferee in exchange herefor as provided in the Mortgage.
The Company hereby waives any right to make a charge for such an exchange or
transfer of this Bond. The Company and the Trustee may deem and treat the BRA
Trustee as the absolute owner hereof for the purpose of receiving payment and
for all other purposes.

The Trustee may conclusively presume that the obligation of the
Company to pay the principal of and premium, if any, and interest on the Bond
of this series as the same shall become due and payable shall have been fully
satisfied and discharged unless and until it shall have received a written
notice from the BRA Trustee, signed by its president, a vice president or a
trust officer, stating that an Installment Payment has become due and payable
and has not been fully paid and specifying the amount of funds required to make
such payment.

The Bond of this series shall not be redeemable at the option of the
Company or otherwise pursuant to the requirements of the Mortgage, except

11
<PAGE> 13
(i) pursuant to the provisions of the second immediately following paragraph or
(ii) that in the event that any of the Series 1995 Revenue Bonds are to be
redeemed pursuant to the terms thereof by reason of a Determination of
Taxability, as such term is defined in the form of the Series 1995 Revenue
Bonds, the Bond of this series, in a principal amount equal to the aggregate
principal amount of the Series 1995 Revenue Bonds so to be redeemed, shall be
redeemed by the Company, on the date fixed for redemption of such Series 1995
Revenue Bonds, at the principal amount thereof, plus accrued interest thereon
equal to the amount of accrued interest of the Series 1995 Revenue Bonds so to
be redeemed to such date fixed for redemption.

The Trustee may conclusively presume that no redemption of the Bond of
this series is required pursuant to clause (ii) of the immediately preceding
paragraph unless and until it shall have received a written notice from the BRA
Trustee under the Trust Indenture, signed by its president, a vice president or
a trust officer, stating that Series 1995 Revenue Bonds are to be redeemed by
reason of such Determination of Taxability and specifying the principal amount
and date fixed for redemption of the Series 1995 Revenue Bonds so to be
redeemed.

The Bonds of this series shall also be redeemable in whole, by payment
of the principal amount thereof plus accrued interest thereon equal to the
amount of accrued interest of all of the Series 1995 Revenue Bonds then
outstanding under the Trust Indenture to the date fixed for redemption, upon
receipt by the Trustee of a written demand from the BRA Trustee under the Trust
Indenture stating that the principal amount of all the Series 1995 Revenue
Bonds then outstanding under the Trust Indenture has been declared immediately
due and payable pursuant to the provisions of Section 8.02 of the Trust
Indenture. The date fixed for such redemption shall not be more than 180 days
after receipt by the Trustee of the aforesaid written demand and a notice of
redemption shall be (i) published pursuant to the provisions of Section 54 of
the Mortgage and (ii) delivered to each registered holder of a Bond of this
series not less than 20 days prior to the date so fixed for such redemption
pursuant to the provisions of Section 54 of the Mortgage. Such notice of
redemption shall be rescinded and become null and void for all purposes under
the Mortgage upon rescission, annulment or waiver of the aforesaid written
demand or the aforesaid declaration of maturity pursuant to the terms and
provisions of the Trust Indenture, and thereupon the obligation to redeem the
Bonds of this series shall terminate and no redemption of the Bonds of this
series and no payments in respect thereof as specified in such notice of
redemption shall be effected or required.

The Company hereby waives its right to have any notice of redemption
(i) by reason of a Determination of Taxability or (ii) pursuant to the
provisions of the immediately preceding paragraph state that such notice is
subject to the receipt of the redemption moneys by the Trustee on or before the
date fixed for redemption. Notwithstanding the provisions of Section 54 of the
Mortgage, any such notice will not be conditional.

No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Bond against any incorporator or any past,
present or future subscriber to the capital stock, stockholder, officer or
director of the Company or of any predecessor or successor corporation, as
such, either directly or through the Company or any

12
<PAGE> 14
predecessor or successor corporation, under any rule of law, statute or
constitution or by the enforcement of any assessment or otherwise, all such
liability of incorporators, subscribers, stockholders, officers and directors,
as such, being released by the holder or owner hereof by the acceptance of this
Bond and being likewise waived and released by the terms of the Mortgage.

[END OF FORM OF BOND]

The Bond of the Sixty-Fourth Series shall be issued as a fully
registered Bond; it shall bear interest at the rate per annum shown in its
title, payable semi annually on February 1 and August 1 of each year,
commencing February 1, 1996, and at maturity; the principal of and premium, if
any, and interest on said Bond to be payable at the office or agency of the
Company in the City of Houston, Texas, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts. The Bond of the Sixty-Fourth Series shall
be dated as in Section 10 of the Mortgage provided.

The Trustee may conclusively presume that the obligation of the
Company to pay the principal of and premium, if any, and interest on the Bond
of the Sixty-Fourth Series as the same shall become due and payable shall have
been fully satisfied and discharged unless and until it shall have received a
written notice from the BRA Trustee, signed by its president, a vice president
or a trust officer, stating that an Installment Payment, as such term is
defined in the Agreement, has become due and payable and has not been fully
paid and specifying the amount of funds required to make such payment.

The Bond of the Sixty-Fourth Series shall not be redeemable at the
option of the Company or otherwise pursuant to the requirements of the
Mortgage, except (i) pursuant to the provisions of the second immediately
following paragraph or (ii) that in the event that any of the Series 1995
Revenue Bonds are to be redeemed pursuant to the terms thereof by reason of a
Determination of Taxability, as such term is defined in the form of the Series
1995 Revenue Bonds, the Bond of the Sixty-Fourth Series, in a principal amount
equal to the aggregate principal amount of the Series 1995 Revenue Bonds so to
be redeemed, shall be redeemed by the Company, on the date fixed for redemption
of such Series 1995 Revenue Bonds, at the principal amount thereof, plus
accrued interest thereon equal to the amount of accrued interest of the Series
1995A Revenue Bonds so to be redeemed to such date fixed for redemption.

The Trustee may conclusively presume that no redemption of the Bond of
the Sixty-Fourth Series is required pursuant to clause (ii) of the immediately
preceding paragraph unless and until it shall have received a written notice
from the BRA Trustee under the Trust Indenture, signed by its president, a vice
president or a trust officer, stating that the Series 1995 Revenue Bonds are to
be redeemed by reason of such Determination of Taxability and specifying the
principal amount and the date fixed for redemption of the Series 1995 Revenue
Bonds so to be redeemed.

The Bonds of the Sixty-Fourth Series shall also be redeemable in
whole, by payment of the principal amount thereof plus accrued interest thereon
equal to the amount of accrued interest of all of the Series 1995 Revenue Bonds
then outstanding under the Trust Indenture to the date fixed

13
<PAGE> 15
for redemption, upon receipt by the Trustee of a written demand from the BRA
Trustee under the Trust Indenture stating that the principal amount of all the
Series 1995 Revenue Bonds then outstanding under the Trust Indenture has been
declared immediately due and payable pursuant to the provisions of Section 8.02
of the Trust Indenture. The date fixed for such redemption shall not be more
than 180 days after receipt by the Trustee of the aforesaid written demand and
a notice of redemption shall be (i) published pursuant to the provisions of
Section 54 of the Mortgage and (ii) delivered to each registered holder of a
Bond of the Sixty-Fourth Series not less than 20 days prior to the date so
fixed for such redemption pursuant to the provisions of Section 54 of the
Mortgage. Such notice of redemption shall be rescinded and become null and
void for all purposes under the Mortgage upon rescission, annulment or waiver
of the aforesaid written demand or the aforesaid declaration of maturity
pursuant to the terms and provisions of the Trust Indenture, and thereupon the
obligation to redeem the Bonds of the Sixty-Fourth Series shall terminate and
no redemption of the Bonds of the Sixty-Fourth Series and no payments in
respect thereof as specified in such notice of redemption shall be effected or
required.

ARTICLE II.

Replacement Fund Provisions

SECTION 2. Section 3 of the First Supplemental Indenture, as
heretofore amended, is hereby further amended by inserting "Sixty-Fourth
Series," before the words "Sixty-Third" each time such words appear in said
Section 3, as heretofore amended.

ARTICLE III.

Miscellaneous Provisions

SECTION 3. Subject to the amendments provided for in this
Sixty-Fourth Supplemental Indenture, the terms defined in the Mortgage, as
heretofore supplemented, shall, for all purposes of this Sixty-Fourth
Supplemental Indenture, have the meaning specified in the Mortgage, as
heretofore supplemented.

So long as any Bonds of the Sixty-Fourth Series are outstanding,
whenever a net earnings certificate is required by the Mortgage to be furnished
to the Trustee as a condition precedent to the authentication and delivery of
Bonds, no Bonds shall be authenticated and delivered by the Trustee unless such
net earnings certificate shall show, in addition to the matters required by
Sections 7 and 28 of the Mortgage, that after deducting from the net earnings
of the Company as so calculated an amount equal to the Company's expenses and
provisions for renewals, replacements, depreciation, depletion, retirement and
amortization of property during the

14
<PAGE> 16
period for which such net earnings shall have been calculated, the remainder of
the net earnings of the Company shall have been at least equivalent to twice
the annual interest requirements as shown by such net earnings certificate.

SECTION 4. This Sixty-Fourth Supplemental Indenture and the Bond of
the Sixty-Fourth Series shall be deemed to be a contract made under the laws of
the State of Texas, and for all purposes shall be construed in accordance with
the laws of said State.

The amount of interest payable or paid on the Bond of the Sixty-Fourth
Series shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of
Texas or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable Texas laws, which could lawfully
be contracted for, taken, reserved, charged or received (the "Maximum Interest
Rate"). If, as a result of any circumstances whatsoever, the Company or any
other person is deemed to have paid interest (or amounts deemed to be interest
under applicable law) or any holder of a Bond of this Sixty-Fourth Series is
deemed to have contracted for, taken, reserved, charged or received interest
(or amounts deemed to be interest under applicable law), in excess of the
Maximum Interest Rate, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of validity, and if from any such circumstance, the
Trustee, acting on behalf of the holders, or any holder shall ever receive
interest or anything that might be deemed interest under applicable law that
would exceed the Maximum Interest Rate, such amount that would be excessive
interest shall be applied to the reduction of the principal amount owing on the
applicable Bond or Bonds and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal balance of any such Bond or
Bonds, such excess shall be refunded to the Company. In addition, for purposes
of determining whether payments in respect of the Bond of the Sixty-Fourth
Series are usurious, all sums paid or agreed to be paid with respect to such
Bond for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Bond.

SECTION 5. The Trustee hereby accepts the trusts herein declared,
provided, created or supplemented and agrees to perform the same upon the terms
and conditions herein and in the Mortgage, as heretofore supplemented, set
forth and upon the following terms and conditions:

The Trustee shall not be responsible in any manner whatsoever for or
in respect to the validity or sufficiency of this Sixty-Fourth Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made by the Company solely. In general, each and every term and
condition contained in Article XVI of the Mortgage shall apply to and form part
of this Sixty-Fourth Supplemental Indenture with the same force and effect as
if the same were herein set forth in full with such omissions, variations and
insertions, if any, as may be appropriate to make the same conform to the
provisions of this Sixty-Fourth Supplemental Indenture.

SECTION 6. Subject to the provisions of Articles XV and XVI of the

15
<PAGE> 17
Mortgage, whenever in this Sixty-Fourth Supplemental Indenture either of the
parties hereto is named or referred to, this shall be deemed to include the
successors or assigns of such party, and all the covenants and agreements in
this Sixty-Fourth Supplemental Indenture by or on behalf of the Company or by
or on behalf of the Trustee shall bind and inure to the respective successors
and assigns of such parties, whether so expressed or not.

SECTION 7. Nothing in this Sixty-Fourth Supplemental Indenture,
expressed or implied, is intended, or shall be construed, to confer upon, or to
give to, any person, firm or corporation, other than the parties hereto and the
holders of the Bonds and coupons outstanding under the Mortgage, as heretofore
supplemented, any right, remedy or claim under or by reason of this
Sixty-Fourth Supplemental Indenture or any covenant, condition, stipulation,
promise or agreement hereof, and all the covenants, conditions, stipulations,
promises and agreements in this Sixty-Fourth Supplemental Indenture, by or on
behalf of the Company, shall be for the sole and exclusive benefit of the
parties hereto, and of the holders of the Bonds and coupons outstanding under
the Mortgage, as heretofore supplemented.

SECTION 8. This Sixty-Fourth Supplemental Indenture may be
simultaneously executed in several counterparts, and all such counterparts
executed and delivered, each as an original, shall constitute but one and the
same instrument.

IN WITNESS WHEREOF, HOUSTON LIGHTING & POWER COMPANY and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION each has caused this Sixty-Fourth
Supplemental Indenture to be signed in its corporate name and its corporate
seal to be affixed and attested by its duly authorized officers as of the 1st
day of July, 1995.

HOUSTON LIGHTING & POWER COMPANY

Attest: By /s/ K. W. Nabors
---------------------------------
Vice President

/s/ Rufus S. Scott
- -------------------------------
Assistant Secretary

[Corporate Seal]

16
<PAGE> 18
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,

As Trustee.

Attest: By /s/ Wayne Mentz
--------------------------------
Wayne Mentz
/s/ Jo Anne K. Gulliver Assistant Vice President
- ------------------------------- & Trust Officer
Jo Anne Gulliver
Vice President
& Trust Officer

[Corporate Seal]

STATE OF TEXAS
COUNTY OF HARRIS

This instrument was acknowledged before me on July 10, 1995 by K. W.
Nabors of Houston Lighting & Power Company, a Texas corporation, on behalf of
said corporation.

/s/ Miroslava D. Massar
---------------------------------------
Notary Public for the State of Texas

My Commission Expires: 9/30/96
[Notarial Seal]

STATE OF TEXAS
COUNTY OF HARRIS

This instrument was acknowledged before me on July 14, 1995 by Wayne
Mentz, Assistant Vice President & Trust Officer of Texas Commerce Bank National
Association, a national banking association organized under the laws of the
United States, on behalf of said association.

/s/ Connie J. Arndt
---------------------------------------
Notary Public for the State of Texas
My Commission Expires: 3/6/99
[Notarial Seal]

17
<PAGE> 19
STATE OF TEXAS
COUNTY OF HARRIS

The undersigned, Rufus S. Scott, Assistant Corporate Secretary of
Houston Lighting & Power Company, a corporation of the State of Texas, being
first duly sworn, deposes and says that Houston Lighting & Power Company, the
corporation that executed the foregoing instrument, is a utility as defined in
Section 35.01(2) of the Business and Commerce Code of the State of Texas, that
is to say a corporation engaged in Texas in the generation, transmission or
distribution and sale of electric power.

/s/ Rufus S. Scott
-----------------------------
Rufus S. Scott

Subscribed and sworn to before me
this 10th day of July, 1995

/s/ Bonita Gatlin [Notarial Seal]
- -------------------------------------
Notary Public for the State of Texas

My Commission Expires:

4-27-96

18
<PAGE> 20

FILE NO. 1-74-016051

======================================================================

HOUSTON LIGHTING & POWER COMPANY

TEXAS COMMERCE BANK NATIONAL ASSOCIATION

(successor to SOUTH TEXAS COMMERCIAL NATIONAL BANK OF HOUSTON),

As Trustee under
Houston Lighting & Power Company's
Mortgage and Deed of Trust,
dated as of November 1, 1944.

__________

SIXTY-FIFTH

SUPPLEMENTAL INDENTURE

__________

Dated as of July 1, 1995

This Instrument Contains After-Acquired Property Provisions.

This Instrument Grants A Security Interest By A Utility.

=====================================================================

<PAGE> 21
This Instrument Contains After-Acquired Property Provisions.

This Instrument Grants A Security Interest By A Utility.

SIXTY-FIFTH SUPPLEMENTAL INDENTURE

INDENTURE, dated as of the 1st day of July, 1995, made and entered
into by and between Houston Lighting & Power Company, a corporation of the
State of Texas, hereinafter sometimes called the Company, and Texas Commerce
Bank National Association, a national bank organized under the banking laws of
the United States of America, whose principal place of business is in Houston,
Texas, hereinafter sometimes called the Trustee, under the Mortgage and Deed of
Trust, dated as of November 1, 1944, hereinafter called the Mortgage, which
Mortgage was executed and delivered by Houston Lighting & Power Company to
secure the payment of Bonds issued or to be issued under and in accordance with
the provisions of the Mortgage, this Indenture, hereinafter called the
Sixty-Fifth Supplemental Indenture, being supplemental thereto.

WHEREAS, in addition to the property described in the Mortgage, as
heretofore supplemented, the Company has acquired certain other property,
rights and interests in property; and

2
<PAGE> 22
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- --------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Twelfth . . . . . . . . 6 3/4% Series due 1997 $ 35,000,000 $ 35,000,000
Thirteenth . . . . . . 6 3/4% Series due 1998 $ 35,000,000 $ 35,000,000
Fourteenth . . . . . . 7 1/2% Series due 1999 $ 30,000,000 None
Fifteenth . . . . . . . 7 1/4% Series due 2001 $ 50,000,000 $ 50,000,000
Sixteenth . . . . . . . 7 1/2% Series due 2001 $ 50,000,000 None
Seventeenth . . . . . . 8 1/8% Series due 2004 $100,000,000 None
Eighteenth . . . . . . 10 1/8% Series due $100,000,000 None
September 1, 2004
Nineteenth. . . . . . . 8 3/4% Series due $125,000,000 None
March 1, 2005
Twentieth . . . . . . . 8 3/8% Series due $125,000,000 None
October 1, 2006
Twenty-First. . . . . . 8 3/8% Series due $125,000,000 None
October 1, 2007
Twenty-Second . . . . . 8 7/8% Series due $125,000,000 None
September 1, 2008
Twenty-Third. . . . . . 9 1/4% Series due $100,000,000 None
December 1, 2008
Twenty-Fourth . . . . . 11 1/4% Series due $125,000,000 None
December 1, 2009
Twenty-Fifth. . . . . . 12% Series due $100,000,000 None
June 1, 2010
Twenty-Sixth. . . . . . 13 7/8% Series due $125,000,000 None
February 1, 1991
Twenty-Seventh. . . . . 15 1/8% Series due $125,000,000 None
March 1, 1992
Twenty-Eighth . . . . . 12 3/8% Series due $125,000,000 None
March 15, 2013
Twenty-Ninth. . . . . . 11 5/8% Series due $200,000,000 None
November 1, 2015
Thirtieth . . . . . . . Pollution Control 7 7/8% $ 50,000,000 $ 50,000,000
Series due 2018
Thirty-First. . . . . . Pollution Control 7 7/8% $ 68,000,000 $ 68,000,000
Series due 2016
Thirty-Second . . . . . 9% Series due $390,519,000 None
March 1, 2017
Thirty-Third. . . . . . 9 3/8% Series due $132,000,000 None
January 20, 1991
Thirty-Fourth . . . . . 9 3/8% Series due $132,000,000 None
January 20, 1992
Thirty-Fifth. . . . . . 9 3/8% Series due $136,000,000 None
January 20, 1993
Thirty-Sixth. . . . . . Pollution Control 8 1/4% $ 90,000,000 $ 90,000,000
Series due May 1, 2015
Thirty-Seventh. . . . . Pollution Control 8 1/4% $100,000,000 $100,000,000
Series due May 1, 2019
Thirty-Eighth . . . . . Pollution Control 8.10% $100,000,000 $100,000,000
Series due May 1, 2019
Thirty-Ninth. . . . . . Pollution Control 7 3/4% $ 68,700,000 $ 68,700,000
Series due October 1,
2015
Fortieth. . . . . . . . Medium-Term Note 15% $200,000,000 $180,500,000
Series due November 1,
</TABLE>

3
<PAGE> 23
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- ------------------------ ------------ ------------
<S> <C> <C> <C>
2018
Forty-First . . . . . . 10 1/4% Series due $225,000,000 None
February 1, 2019
Forty-Second. . . . . . Pollution Control 7 7/8% $ 29,685,000 $ 29,685,000
Series due February 1,
2019
Forty-Third . . . . . . Pollution Control 7.70% $ 75,000,000 $ 75,000,000
Series due February 1,
2019
Forty-Fourth. . . . . . Medium-Term Note 15% $200,000,000 $200,000,000
Series due May 1, 2019
Forty-Fifth . . . . . . Pollution Control 7% $ 19,200,000 $ 19,200,000
Series due December 1,
2008
Forty-Sixth . . . . . . Pollution Control 7 1/8% $100,000,000 $100,000,000
Series due July 1, 2019
Forty-Seventh . . . . . Pollution Control 7 5/8% $100,000,000 $100,000,000
Series due May 1, 2019
Forty-Eighth. . . . . . Pollution Control 7.60% $ 70,315,000 $ 70,315,000
Series due October 1,
2019
Forty-Ninth . . . . . . Pollution Control 7.20% $100,000,000 $100,000,000
Series A due December 1,
2018
Fiftieth. . . . . . . . Pollution Control 7.20% $ 75,000,000 $ 75,000,000
Series B due December 1,
2018
Fifty-First . . . . . . 9.15% Series due $160,000,000 $160,000,000
March 15, 2021
Fifty-Second. . . . . . 7 5/8% Series due $150,000,000 $150,000,000
March 1, 1997
Fifty-Third . . . . . . 8 3/4% Series due $100,000,000 $ 81,000,000
March 1, 2022
Series due March 1, 2017
Fifty-Fourth. . . . . . Pollution Control 6.70% $ 43,820,000 $ 43,820,000
Series due March 1, 2017
Fifty-Fifth . . . . . . Pollution Control 6.70% $ 56,095,000 $ 56,095,000
Series due March 1, 2027
Fifty-Sixth . . . . . . Pollution Control 6 3/8% $ 33,470,000 $ 33,470,000
Series A due April 1,
2012
Fifty-Seventh . . . . . Pollution Control 6 3/8% $ 12,100,000 $ 12,100,000
Series B due April 1,
2012
Fifty-Eighth. . . . . . Medium-Term Note 10% $400,000,000 $400,000,000
Series due February 1,
2028
Fifty-Ninth . . . . . . 7 3/4% Series due March 15, $250,000,000 $250,000,000
2023
Sixtieth . . . . . . . 7 1/2% Series due July 1, $200,000,000 $200,000,000
2023
Sixty-First . . . . . . Pollution Control 5.60% $ 83,565,000 $ 83,565,000
</TABLE>

4
<PAGE> 24
<TABLE>
<CAPTION>
Aggregate Aggregate
Principal Principal
Amount Amount
Series No. Title Issued Outstanding
- --------------- ------------------------ ------------ ------------
<S> <C> <C> <C>
Series due December 1, 2017

Sixty-Second. . . . . . Pollution Control 4.90% $ 16,600,000 $ 16,600,000
Series due December 1, 2003

Sixty-Third . . . . . . Medium-Term Note 10% $350,000,000 $350,000,000
Series due December 1,
2028
</TABLE>

; and

WHEREAS, immediately prior to the execution and delivery of this
Sixty-Fifth Supplemental Indenture, the Company has executed and delivered a
Sixty-Fourth Supplemental Indenture relating to a series of Bonds designated
"Pollution Control 15% Series due August 1, 2015" in the aggregate principal
amount of $91,945,000; and

WHEREAS, the Trustee is duly qualified and eligible to act, and is
acting, as trustee under the Mortgage, as heretofore supplemented, in
accordance with the terms thereof; and

WHEREAS, the execution and delivery by the Company of this Sixty-Fifth
Supplemental Indenture, and the terms of the Bond of the Sixty-Fifth Series,
hereinafter referred to, have been duly authorized by the Board of Directors of
the Company by appropriate resolutions of said Board of Directors;

5
<PAGE> 25
or nature acquired by the Company on or after the date of the execution and
delivery of the Mortgage (except any herein or in the Mortgage, as heretofore
supplemented, expressly excepted), and whether now owned or hereafter acquired
by the Company and wheresoever situated, including (without limiting or
impairing by the enumeration of the same the scope and intent of the foregoing
or of any general description contained in this Sixty-Fifth Supplemental
Indenture) all lands, flowage rights, water rights, flumes, raceways, dams,
rights-of-way and roads; all plants for the generation of electricity by water,
steam and/or other power, power houses, gas plants, telephone systems, water
works, water systems, steam heat plants, hot water plants, substations,
measuring stations, regulating stations, gathering lines, gas transportation
lines, transmission lines, distributing systems, bridges, culverts, tracks,
rolling stock, vehicles, buses, automobiles, ice plants, refrigeration plants,
railway systems whether street or interurban, all offices, buildings and
structures, and the equipment thereof; all machinery, engines, boilers,
dynamos, machines, regulators, meters, transformers, generators and motors; all
appliances whether electrical, gas or mechanical, conduits, cables and lines;
all pipes whether for water, steam heat, gas or other purposes; all mains
and pipes, service pipes, fittings, valves and connections, poles, wires,
tools, implements, apparatus, furniture and chattels; all municipal franchises
and other franchises; all lines for the transportation, transmission and/or
distribution of electric current, gas, steam heat or water for any purpose,
including towers, poles, wires, cables, pipes, conduits and all apparatus for
use in connection therewith; all real estate, lands, easements, servitudes,
licenses, permits, rights, powers, franchises, privileges, rights-of-way and
other rights in or relating to real estate or the occupancy of the same and
(except as herein or in the Mortgage, as heretofore supplemented, expressly
excepted) all the right, title and interest of the Company in and to all other
property of any kind or nature appertaining to and/or used and/or occupied
and/or enjoyed in connection with any property herein or in the Mortgage, as
heretofore supplemented, described or referred to.

6
<PAGE> 26
(including bonds, notes and other securities) not herein or in the Mortgage, as
heretofore supplemented, specifically pledged, paid, deposited or delivered
hereunder or under the Mortgage, as heretofore supplemented, or covenanted to
be; (2) any goods, wares, merchandise, equipment, materials or supplies
acquired for the purpose of sale or resale in the usual course of business or
for consumption in the operation of any properties of the Company; (3) bills,
accounts receivable, judgments, demands and choses in action, and all
contracts, leases and operating agreements not specifically pledged
hereunder or under the Mortgage, as heretofore supplemented, or covenanted so
to be; and (4) all timber, minerals, mineral rights and royalties; provided,
however, that the property and rights expressly excepted from the lien and
operation of the Mortgage, as heretofore supplemented, and this Sixty-Fifth
Supplemental Indenture in the above subdivisions (2) and (3) of this paragraph
shall (to the extent permitted by law) cease to be excepted in the event that
the Trustee or a receiver or trustee shall enter upon and take possession of
the mortgaged and pledged property in the manner provided in Article XII of the
Mortgage by reason of the occurrence of a completed default as defined in
Section 67 thereof.

IN TRUST NEVERTHELESS, for the same purposes and upon the same terms,
trusts and conditions and subject to and with the same provisions and covenants
as are set forth in the Mortgage, as heretofore supplemented, this Sixty-Fifth
Supplemental Indenture being supplemental to the Mortgage.

The Company further covenants and agrees to and with the Trustee and
its successors in said trust under the Mortgage, as follows:

ARTICLE I.

Sixty-Fifth Series of Bonds

SECTION 1. There shall be a series of Bonds designated "Pollution
Control 15% Series due October 15, 2015" (herein sometimes referred to as the
"Bond of the Sixty-Fifth Series") of which the Company shall be authorized to
issue a maximum of $58,905,000 in total principal amount, each of which shall
also bear the descriptive title First Mortgage Bond and the form thereof and
the terms and provisions thereof are hereby established as follows:

7
<PAGE> 27
[FORM OF BOND OF THE SIXTY-FIFTH SERIES]

THE BOND REPRESENTED BY THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO
ANY SUCCESSOR TRUSTEE UNDER THE TRUST INDENTURE, AS HEREIN DEFINED. IN
ADDITION, THE BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT
COMPLIANCE WITH APPLICABLE SECURITIES LAWS.

HOUSTON LIGHTING & POWER COMPANY
FIRST MORTGAGE BOND,
POLLUTION CONTROL 15% SERIES DUE OCTOBER 15, 2015

No........... $...................

Houston Lighting & Power Company, a corporation of the State of Texas
(hereinafter called the Company), for value received, hereby promises to pay to
The First National Bank of Chicago (First Chicago), acting in its capacity as
trustee (MCND Trustee) under that certain Trust Indenture, dated as of July 1,
1995 (Trust Indenture), between the Matagorda County Navigation District Number
One and First Chicago relating to the Matagorda County Navigation District
Number One Collateralized Revenue Refunding Bonds (Houston Lighting & Power
Company Project) Series 1995 (Series 1995 Revenue Bonds), and its successors,
on October 15, 2015 at the office or agency of the Company in the City of
Houston, Texas, ____________ Dollars in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay to the MCND Trustee interest
thereon from July 1, 1995 or the most recent April 15 or October 15 to which
interest has been paid or duly provided for, at the rate of 15% per annum in
like coin or currency, at said office or agency on April 15 and October 15 in
each year, commencing April 15, 1996 and at maturity, until the Company's
obligation with respect to the payment of such principal shall have been
discharged. Notwithstanding the foregoing, the obligation of the Company to
make any payment of the principal of and premium, if any, or interest on this
Bond, whether at maturity, upon redemption or otherwise, shall be fully or
partially, as the case may be, deemed to have been paid or otherwise satisfied
and discharged if at the time any such payment shall be due, the then-due
principal or purchase price of, premium, if any, or interest on the Series 1995
Revenue Bonds shall have been fully or partially paid, deemed to have been paid
or otherwise satisfied and discharged. In addition, such obligation to make
any payment of the principal of, premium, if any, or interest on this Bond at
any time shall be deemed to have been satisfied and discharged to the extent
that the amount of the Company's obligation to make any payment of the
principal of and premium, if any, and interest on this Bond exceeds the
obligation of the Company at that time to make any Installment Payment (as
defined in that certain Installment Payment and Bond Amortization Agreement,
dated as of July 1, 1995 (Agreement), between the Matagorda County Navigation
District Number One and the Company relating to the Series 1995 Revenue Bonds).

The Sixty-Fifth Supplemental Indenture to the Mortgage hereinafter
mentioned provides that the amount of interest payable or paid on this Bond
shall be limited and subject to reduction to an amount which shall not exceed
the maximum nonusurious rate of interest allowed by the applicable laws of the
State of Texas or any applicable law of the United States

8
<PAGE> 28
permitting a higher maximum nonusurious rate that preempts such applicable
Texas laws, which could lawfully be contracted for, taken, reserved, charged or
received, it being the intention of the parties hereto to conform strictly to
the usury laws of the State of Texas.

This Bond shall not become obligatory until Texas Commerce Bank
National Association, the Trustee under the Mortgage hereinafter mentioned, or
its successor thereunder, shall have signed the form of certificate endorsed
hereon.

Dated................
HOUSTON LIGHTING & POWER COMPANY

By..............................
President
Attest:

.........................
Secretary

This is the Bond of the series
herein designated, provided for in
the within-mentioned Mortgage.

TEXAS COMMERCE BANK HOUSTON INDUSTRIES INCORPORATED,
NATIONAL ASSOCIATION, Transfer Agent,
Trustee/Authenticating Agent,

By________________________________ By______________________________
Authorized Signatory Authorized Officer

9
<PAGE> 29
HOUSTON LIGHTING & POWER COMPANY

FIRST MORTGAGE BOND,

POLLUTION CONTROL 15% SERIES DUE OCTOBER 15, 2015

This Bond is the Bond of the Company of the series specified in the
title hereof, and is issued in the aggregate principal amount of $58,905,000 in
order to provide the benefit of a lien to secure the obligations of the Company
to pay the Installment Payments (as defined in the Agreement) under the
Agreement, and is together with all Bonds of all series issued and to be issued
under and equally secured (except insofar as any sinking fund, established in
accordance with the provisions of the Mortgage hereinafter mentioned, may
afford additional security for other Bonds of any particular series) by a
Mortgage and Deed of Trust (herein, together with all indentures supplemental
thereto, called the Mortgage), dated as of November 1, 1944, executed by the
Company to South Texas Commercial National Bank of Houston (Texas Commerce Bank
National Association, as successor trustee), as Trustee, to which reference is
made for a description of the property mortgaged and pledged, the nature and
extent of the security, the rights of the holders of the Bonds in respect
thereof, the duties and immunities of the Trustee and the terms and conditions
upon which the Bonds are secured. With the consent of the Company and to the
extent permitted by and as provided in the Mortgage, the rights and obligations
of the Company and/or the rights of the holders of the Bonds and/or Coupons
and/or the terms and provisions of the Mortgage may be modified or altered by
the affirmative vote of the holders of at least seventy per centum (70%) in
principal amount of the Bonds then outstanding under the Mortgage and, if the
rights of one or more, but fewer than all, series of Bonds then outstanding are
to be affected, then also by the affirmative vote of the holders of at least
seventy per centum (70%) in principal amount of the Bonds then outstanding of
each series of Bonds so to be affected (excluding in any case Bonds
disqualified from voting by reason of the Company's interest therein as
provided in the Mortgage); provided that, without the consent of the holder
hereof, no such modification or alteration, among other things, shall impair or
affect the right of the holder to receive payment of the principal of and
premium, if any, and interest on this Bond, on or after the respective due
dates expressed herein, or permit the creation of any lien equal or prior to
the lien of the Mortgage or deprive the holder of the benefit of a lien on the
mortgaged and pledged property.

The Mortgage provides that no holder of any Bond shall have any right

10
<PAGE> 30
to institute any suit, action or proceeding in equity or at law for the
foreclosure of the Mortgage or for the execution of any trust thereof or for
the appointment of a receiver or any other remedy thereunder, unless (i) such
holder shall have previously given to the Trustee written notice of a default,
(ii) the holders of 25% in principal amount of the Bonds then outstanding shall
have made written request to the Trustee and shall have offered it reasonable
opportunity either to proceed to exercise the powers granted to it in the
Mortgage or to institute such action, suit or proceeding in its own name, (iii)
such holders shall have offered to the Trustee adequate security and indemnity
against the costs, expenses and liabilities to be incurred and (iv) the Trustee
shall have declined to take such action or shall have failed to do so within 60
days thereafter. Notwithstanding any other provision of the Mortgage, the right
of any holder of any Bond to receive payment of the principal of and interest
on such Bond, on or after the respective due dates expressed in such Bond, or
to institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
holder. The Mortgage provides that the holders of not less than a majority in
principal amount of the Bonds at the time outstanding may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee; provided,
however, that such direction shall not be otherwise than in accordance with the
provisions of law and the Mortgage and that, subject to certain provisions of
the Mortgage, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall by responsible officers determine
that the action or proceeding so directed would involve the Trustee in personal
liability or be unjustifiably prejudicial to nonassenting bondholders or that
it will not be sufficiently indemnified for any expenditures in any action or
proceeding so directed.

This Bond has been issued and delivered to, registered in the name of
and pledged with the MCND Trustee under the Trust Indenture for the ratable
benefit of the owners of the Series 1995 Revenue Bonds and shall not be
transferable except to any successor trustee under the Trust Indenture, any
such transfer to be made at the office or agency of the Company in the City of
Houston, Texas, upon surrender and cancellation of this Bond, and thereupon a
new fully registered Bond of the same series for a like principal amount will
be issued to such transferee in exchange herefor as provided in the Mortgage.
The Company hereby waives any right to make a charge for such an exchange or
transfer of this Bond. The Company and the Trustee may deem and treat the MCND
Trustee as the absolute owner hereof for the purpose of receiving payment and
for all other purposes.

The Trustee may conclusively presume that the obligation of the
Company to pay the principal of and premium, if any, and interest on the Bond
of this series as the same shall become due and payable shall have been fully
satisfied and discharged unless and until it shall have received a written
notice from the MCND Trustee, signed by its president, a vice president or a
trust officer, stating that an Installment Payment has become due and payable
and has not been fully paid and specifying the amount of funds required to make
such payment.

The Bond of this series shall not be redeemable at the option of the
Company or otherwise pursuant to the requirements of the Mortgage, except

11
<PAGE> 31
(i) pursuant to the provisions of the second immediately following paragraph or
(ii) that in the event that any of the Series 1995 Revenue Bonds are to be
redeemed pursuant to the terms thereof by reason of a Determination of
Taxability, as such term is defined in the form of the Series 1995 Revenue
Bonds, the Bond of this series, in a principal amount equal to the aggregate
principal amount of the Series 1995 Revenue Bonds so to be redeemed, shall be
redeemed by the Company, on the date fixed for redemption of such Series 1995
Revenue Bonds, at the principal amount thereof, plus accrued interest thereon
equal to the amount of accrued interest of Series 1995A Revenue Bonds so to be
redeemed to such date fixed for redemption.

The Trustee may conclusively presume that no redemption of the Bond of
this series is required pursuant to clause (ii) of the immediately preceding
paragraph unless and until it shall have received a written notice from the
MCND Trustee under the Trust Indenture, signed by its president, a vice
president or a trust officer, stating that Series 1995 Revenue Bonds are to be
redeemed by reason of such Determination of Taxability and specifying the
principal amount and date fixed for redemption of the Series 1995 Revenue Bonds
so to be redeemed.

The Bonds of this series shall also be redeemable in whole, by payment
of the principal amount thereof plus accrued interest thereon equal to the
amount of accrued interest of all of the Series 1995 Revenue Bonds then
outstanding under the Trust Indenture to the date fixed for redemption, upon
receipt by the Trustee of a written demand from the MCND Trustee under the
Trust Indenture stating that the principal amount of all the Series 1995
Revenue Bonds then outstanding under the Trust Indenture has been declared
immediately due and payable pursuant to the provisions of Section 8.02 of the
Trust Indenture. The date fixed for such redemption shall not be more than 180
days after receipt by the Trustee of the aforesaid written demand and a notice
of redemption shall be (i) published pursuant to the provisions of Section 54
of the Mortgage and (ii) delivered to each registered holder of a Bond of this
series not less than 20 days prior to the date so fixed for such redemption
pursuant to the provisions of Section 54 of the Mortgage. Such notice of
redemption shall be rescinded and become null and void for all purposes under
the Mortgage upon rescission, annulment or waiver of the aforesaid written
demand or the aforesaid declaration of maturity pursuant to the terms and
provisions of the Trust Indenture, and thereupon the obligation to redeem the
Bonds of this series shall terminate and no redemption of the Bonds of this
series and no payments in respect thereof as specified in such notice of
redemption shall be effected or required.

12
<PAGE> 32
predecessor or successor corporation, under any rule of law, statute or
constitution or by the enforcement of any assessment or otherwise, all such
liability of incorporators, subscribers, stockholders, officers and directors,
as such, being released by the holder or owner hereof by the acceptance of this
Bond and being likewise waived and released by the terms of the Mortgage.

[END OF FORM OF BOND]

The Bond of the Sixty-Fifth Series shall be issued as a fully
registered Bond; it shall bear interest at the rate per annum shown in its
title, payable semi annually on April 15 and October 15 of each year,
commencing April 15, 1996, and at maturity; the principal of and premium, if
any, and interest on said Bond to be payable at the office or agency of the
Company in the City of Houston, Texas, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts. The Bond of the Sixty-Fifth Series shall
be dated as in Section 10 of the Mortgage provided.

The Trustee may conclusively presume that the obligation of the
Company to pay the principal of and premium, if any, and interest on the Bond
of the Sixty-Fifth Series as the same shall become due and payable shall have
been fully satisfied and discharged unless and until it shall have received a
written notice from the MCND Trustee, signed by its president, a vice president
or a trust officer, stating that an Installment Payment, as such term is
defined in the Agreement, has become due and payable and has not been fully
paid and specifying the amount of funds required to make such payment.

The Bond of the Sixty-Fifth Series shall not be redeemable at the
option of the Company or otherwise pursuant to the requirements of the
Mortgage, except (i) pursuant to the provisions of the second immediately
following paragraph or (ii) that in the event that any of the Series 1995
Revenue Bonds are to be redeemed pursuant to the terms thereof by reason of a
Determination of Taxability, as such term is defined in the form of the Series
1995 Revenue Bonds, the Bond of the Sixty-Fifth Series, in a principal amount
equal to the aggregate principal amount of the Series 1995 Revenue Bonds so to
be redeemed, shall be redeemed by the Company, on the date fixed for redemption
of such Series 1995 Revenue Bonds, at the principal amount thereof, plus
accrued interest thereon equal to the amount of accrued interest of the Series
1995 Revenue Bonds so to be redeemed to such date fixed for redemption.

The Trustee may conclusively presume that no redemption of the Bond of
the Sixty-Fifth Series is required pursuant to clause (ii) of the immediately
preceding paragraph unless and until it shall have received a written notice
from the MCND Trustee under the Trust Indenture, signed by its president, a
vice president or a trust officer, stating that the Series 1995 Revenue Bonds
are to be redeemed by reason of such Determination of Taxability and specifying
the principal amount and the date fixed for redemption of the Series 1995
Revenue Bonds so to be redeemed.

The Bonds of the Sixty-Fifth Series shall also be redeemable in whole,
by payment of the principal amount thereof plus accrued interest thereon equal
to the amount of accrued interest of all of the Series 1995 Revenue Bonds then
outstanding under the Trust Indenture to the date fixed

13
<PAGE> 33
for redemption, upon receipt by the Trustee of a written demand from the MCND
Trustee under the Trust Indenture stating that the principal amount of all the
Series 1995 Revenue Bonds then outstanding under the Trust Indenture has been
declared immediately due and payable pursuant to the provisions of Section 8.02
of the Trust Indenture. The date fixed for such redemption shall not be more
than 180 days after receipt by the Trustee of the aforesaid written demand and
a notice of redemption shall be (i) published pursuant to the provisions of
Section 54 of the Mortgage and (ii) delivered to each registered holder of a
Bond of the Sixty-Fifth Series not less than 20 days prior to the date so fixed
for such redemption pursuant to the provisions of Section 54 of the Mortgage.
Such notice of redemption shall be rescinded and become null and void for all
purposes under the Mortgage upon rescission, annulment or waiver of the
aforesaid written demand or the aforesaid declaration of maturity pursuant to
the terms and provisions of the Trust Indenture, and thereupon the obligation
to redeem the Bonds of the Sixty-Fifth Series shall terminate and no redemption
of the Bonds of the Sixty-Fifth Series and no payments in respect thereof as
specified in such notice of redemption shall be effected or required.

ARTICLE II.

Replacement Fund Provisions

SECTION 2. Section 3 of the First Supplemental Indenture, as
heretofore amended, is hereby further amended by inserting "Sixty-Fifth
Series," before the words "Sixty-Fourth" each time such words appear in said
Section 3, as heretofore amended.

ARTICLE III.

Miscellaneous Provisions

SECTION 3. Subject to the amendments provided for in this Sixty-Fifth
Supplemental Indenture, the terms defined in the Mortgage, as heretofore
supplemented, shall, for all purposes of this Sixty-Fifth Supplemental
Indenture, have the meaning specified in the Mortgage, as heretofore
supplemented.

So long as any Bonds of the Sixty-Fifth Series are outstanding,
whenever a net earnings certificate is required by the Mortgage to be furnished
to the Trustee as a condition precedent to the authentication and delivery of
Bonds, no Bonds shall be authenticated and delivered by the Trustee unless such
net earnings certificate shall show, in addition to the matters required by
Sections 7 and 28 of the Mortgage, that after deducting from the net earnings
of the Company as so calculated an amount equal to the Company's expenses and
provisions for renewals, replacements, depreciation, depletion, retirement and
amortization of property during the period for which such net earnings shall
have been calculated, the

14
<PAGE> 34
remainder of the net earnings of the Company shall have been at least
equivalent to twice the annual interest requirements as shown by such net
earnings certificate.

SECTION 4. This Sixty-Fifth Supplemental Indenture and the Bond of
the Sixty-Fifth Series shall be deemed to be a contract made under the laws of
the State of Texas, and for all purposes shall be construed in accordance with
the laws of said State.

The amount of interest payable or paid on the Bond of the Sixty-Fifth
Series shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of
Texas or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable Texas laws, which could lawfully
be contracted for, taken, reserved, charged or received (the "Maximum Interest
Rate"). If, as a result of any circumstances whatsoever, the Company or any
other person is deemed to have paid interest (or amounts deemed to be interest
under applicable law) or any holder of a Bond of this Sixty-Fifth Series is
deemed to have contracted for, taken, reserved, charged or received interest
(or amounts deemed to be interest under applicable law), in excess of the
Maximum Interest Rate, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of validity, and if from any such circumstance, the
Trustee, acting on behalf of the holders, or any holder shall ever receive
interest or anything that might be deemed interest under applicable law that
would exceed the Maximum Interest Rate, such amount that would be excessive
interest shall be applied to the reduction of the principal amount owing on the
applicable Bond or Bonds and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal balance of any such Bond or
Bonds, such excess shall be refunded to the Company. In addition, for purposes
of determining whether payments in respect of the Bond of the Sixty-Fifth
Series are usurious, all sums paid or agreed to be paid with respect to such
Bond for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Bond.

The Trustee shall not be responsible in any manner whatsoever for or
in respect to the validity or sufficiency of this Sixty-Fifth Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made by the Company solely. In general, each and every term and
condition contained in Article XVI of the Mortgage shall apply to and form part
of this Sixty-Fifth Supplemental Indenture with the same force and effect as if
the same were herein set forth in full with such omissions, variations and
insertions, if any, as may be appropriate to make the same conform to the
provisions of this Sixty-Fifth Supplemental Indenture.

SECTION 6. Subject to the provisions of Articles XV and XVI of the
Mortgage, whenever in this Sixty-Fifth Supplemental Indenture either of the
parties hereto is named or referred to, this shall be deemed to include the

15
<PAGE> 35
successors or assigns of such party, and all the covenants and agreements in
this Sixty-Fifth Supplemental Indenture by or on behalf of the Company or by or
on behalf of the Trustee shall bind and inure to the respective successors and
assigns of such parties, whether so expressed or not.

SECTION 7. Nothing in this Sixty-Fifth Supplemental Indenture,
expressed or implied, is intended, or shall be construed, to confer upon, or to
give to, any person, firm or corporation, other than the parties hereto and the
holders of the Bonds and coupons outstanding under the Mortgage, as heretofore
supplemented, any right, remedy or claim under or by reason of this Sixty-Fifth
Supplemental Indenture or any covenant, condition, stipulation, promise or
agreement hereof, and all the covenants, conditions, stipulations, promises and
agreements in this Sixty-Fifth Supplemental Indenture, by or on behalf of the
Company, shall be for the sole and exclusive benefit of the parties hereto, and
of the holders of the Bonds and coupons outstanding under the Mortgage, as
heretofore supplemented.

SECTION 8. This Sixty-Fifth Supplemental Indenture may be
simultaneously executed in several counterparts, and all such counterparts
executed and delivered, each as an original, shall constitute but one and the
same instrument.

IN WITNESS WHEREOF, HOUSTON LIGHTING & POWER COMPANY and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION each has caused this Sixty-Fifth
Supplemental Indenture to be signed in its corporate name and its corporate
seal to be affixed and attested by its duly authorized officers as of the 1st
day of July, 1995.

HOUSTON LIGHTING & POWER COMPANY

Attest: By /s/ K. W. Nabors
--------------------------------
Vice President
/s/ Rufus S. Scott
- ----------------------------------
Assistant Secretary

[Corporate Seal]

16
<PAGE> 36
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,

As Trustee.

[Corporate Seal]

STATE OF TEXAS
COUNTY OF HARRIS

This instrument was acknowledged before me on July 10, 1995 by K. W.
Nabors of Houston Lighting & Power Company, a Texas corporation, on behalf of
said corporation.

/s/ Miroslava D. Massar
---------------------------------------
Notary Public for the State of Texas
My Commission Expires: 9/30/96
[Notarial Seal]

STATE OF TEXAS
COUNTY OF HARRIS

/s/ Connie J. Arndt
---------------------------------------
Notary Public for
the State of Texas
My Commission Expires: 3/6/99
[Notarial Seal]

17
<PAGE> 37
STATE OF TEXAS
COUNTY OF HARRIS

/s/ Rufus S. Scott
----------------------------------
Rufus S. Scott

Subscribed and sworn to before me
this 10th day of July, 1995

/s/ Bonita Gatlin [Notarial Seal]
Notary Public for the State of Texas

My Commission Expires:

4-27-96

<PAGE> 1

HOUSTON LIGHTING & POWER COMPANY
EXHIBIT 12
<PAGE> 2
Exhibit 12

HOUSTON LIGHTING & POWER COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Twelve Months Ended December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Charges as Defined:

(1) Interest on Long-Term Debt . . . . . . . $ 244,384 $ 246,533 $ 276,049 $ 311,208 $ 326,722
(2) Other Interest. . . . . . . . . . . . . . 8,117 8,493 12,317 19,548 41,216
(3) Amortization of (Premium) Discount . . . 8,762 8,484 7,234 5,346 4,209
(4) Interest Component of Rentals Charged
to Operating Expense . . . . . . . . . 3,102 3,951 4,449 5,116 5,943
----------- ---------- ---------- ---------- ----------
(5) Total Fixed Charges . . . . . . . . . . . $ 264,365 $ 267,461 $ 300,049 $ 341,218 $ 378,090
========== ========== ========== ========== ==========
Earnings as Defined:

(6) Net Income . . . . . . . . . . . . . . . $ 480,932 $ 486,764 $ 484,223 $ 509,462 $ 518,899
(7) Cumulative Effect of Change in
Accounting . . . . . . . . . . . . . . 8,200 (94,180)
----------- ---------- ---------- ---------- ----------
(8) Income Before Cumulative Effect of
Change in Accounting . . . . . . . . . 480,932 494,964 484,223 415,282 518,899
----------- ---------- ---------- ---------- ----------

Income Taxes:

(9) Current . . . . . . . . . . . . . . . . . 186,010 181,109 113,394 129,611 143,054
(10) Deferred (Net). . . . . . . . . . . . . . 58,946 68,633 123,077 92,575 83,991
(11) Cumulative Effect of Change in
Accounting. . . . . . . . . . . . . . . 4,415 (48,517)
----------- ---------- ---------- ---------- ----------
(12) Total Income Taxes Before Cumulative
Effect of Change in Accounting . . . . 244,956 254,157 236,471 173,669 227,045
----------- ---------- ---------- ---------- ----------
(13) Total Fixed Charges (line 5). . . . . . . 264,365 267,461 300,049 341,218 378,090
----------- ---------- ---------- ---------- ----------
(14) Earnings Before Income Taxes and Fixed
Charges (line 8 plus line 12 plus
line 13). . . . . . . . . . . . . . . . $ 990,253 $1,016,582 $1,020,743 $ 930,169 $1,124,034
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges
(line 14 divided by line 5) . . . . . . . . . 3.75 3.80 3.40 2.73 2.97

Preferred Dividend Requirements:

(15) Preferred Dividends . . . . . . . . . . . $ 29,955 $ 33,583 $ 34,473 $ 39,327 $ 46,187

(16) Less Tax Deduction for Preferred
Dividends . . . . . . . . . . . . . . . 54 54 54 56 56
---------- ---------- ---------- ---------- ----------
(17) Total . . . . . . . . . . . . . . . . . . 29,901 33,529 34,419 39,271 46,131

(18) Ratio of Pre-Tax Income to Net Income
(line 8 plus line 12 divided by
line 8) . . . . . . . . . . . . . . . . 1.51 1.51 1.49 1.42 1.44
---------- ---------- ---------- ---------- ----------
(19) Line 17 times line 18 . . . . . . . . . . 45,151 50,629 51,284 55,765 66,429

(20) Add Back Tax Deduction (line 16). . . . . 54 54 54 56 56
---------- ---------- ---------- ---------- ----------
(21) Preferred Dividends Factor . . . . . . . $ 45,205 $ 50,683 $ 51,338 $ 55,821 $ 66,485
========== ========== ========== ========== ==========
(22) Total Fixed Charges (line 5). . . . . . . $ 264,365 $ 267,461 $ 300,049 $ 341,218 $ 378,090

(23) Preferred Dividends Factor (line 21). . . 45,205 50,683 51,338 55,821 66,485
---------- ---------- ---------- ---------- ----------
(24) Total . . . . . . . . . . . . . . . . . . $ 309,570 $ 318,144 $ 351,387 $ 397,039 $ 444,575
========== ========== ========== ========== ==========

Ratio of Earnings to Fixed Charges and
Preferred Dividends Requirements
(line 14 divided by line 24) . . . . . . 3.20 3.20 2.90 2.34 2.53

</TABLE>

<PAGE> 1

HOUSTON LIGHTING & POWER COMPANY
EXHIBIT 23
<PAGE> 2
Exhibit 23

INDEPENDENT AUDITORS' CONSENT

HOUSTON LIGHTING & POWER COMPANY:

We consent to the incorporation by reference in Houston Lighting &
Power Company's (i) Registration Statements on Form S-3 Nos. 33-46368 and
33-54228 and (ii) Post-Effective Amendment No. 1 to Registration Statement No.
33-51417 on Form S-3 of our report dated February 29, 1996, appearing in this
Annual Report on Form 10-K of Houston Lighting & Power Company for the year
ended December 31, 1995.

DELOITTE & TOUCHE LLP

HOUSTON, TEXAS
MARCH 27, 1996

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from HL&P's
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000048732
<NAME> Houston Lighting & Power Company
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 8,769,626
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 371,163
<TOTAL-DEFERRED-CHARGES> 903,146
<OTHER-ASSETS> 621,324
<TOTAL-ASSETS> 10,665,259
<COMMON> 1,675,927
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2,150,086
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,826,013
51,055
351,345
<LONG-TERM-DEBT-NET> 2,984,570
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 150,130
25,700
<CAPITAL-LEASE-OBLIGATIONS> 4,939
<LEASES-CURRENT> 3,621
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,267,886
<TOT-CAPITALIZATION-AND-LIAB> 10,665,259
<GROSS-OPERATING-REVENUE> 3,680,297
<INCOME-TAX-EXPENSE> 245,807
<OTHER-OPERATING-EXPENSES> 2,699,826
<TOTAL-OPERATING-EXPENSES> 2,945,633
<OPERATING-INCOME-LOSS> 734,664
<OTHER-INCOME-NET> (5,923)
<INCOME-BEFORE-INTEREST-EXPEN> 728,741
<TOTAL-INTEREST-EXPENSE> 247,809
<NET-INCOME> 480,932
29,955
<EARNINGS-AVAILABLE-FOR-COMM> 450,977
<COMMON-STOCK-DIVIDENDS> 454,000
<TOTAL-INTEREST-ON-BONDS> 244,310
<CASH-FLOW-OPERATIONS> 867,690
<EPS-PRIMARY> 0
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</TABLE>