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EXHIBIT 99(a)

HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE YEARS ENDED DECEMBER 31, 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(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:

December 31, 1995
---------------------
(Millions of Dollars)

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)

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.

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(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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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

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

Year Ended
December 31, 1995
-----------------
(Millions of Dollars)

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
====

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.

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(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.

(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.

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(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.