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                 RATE CASE MATTERS AND OTHER PROCEEDINGS

     (7)         For information regarding the appeal of Docket No. 6668, an
                 inquiry into the prudence of the planning and construction of
                 the South Texas Project Electric Generating Station (South
                 Texas Project), see Note 3(b) to the Form 10-K.  

                 In July 1997, the one appellant remaining in the appeal of
                 Docket No. 6668 voluntarily dismissed its appeal.  Based on
                 this action, HL&P is seeking entry of a judgment affirming the
                 Public Utility Commission's of Texas (Utility Commission) order
                 in Docket No. 6668.  If the motions are granted, all appeals of
                 HL&P's prior rate cases will be concluded.

                 Reference is made to Note 11(c) to the Form 10-K and Note 8 to
                 the First Quarter 10-Q for information regarding a lawsuit
                 against HL&P for recovery of allegedly unpaid franchise fees.
                 In June 1997, the Texas Supreme Court ruled that it did not
                 have jurisdiction, at this stage in the proceedings, to review
                 the trial court's certification of the case as a class action.
                 The case is scheduled for trial in April 1998 before the
                 District Court of Harris County, Texas. For the reasons set
                 forth in Note 11(c) to the Form 10-K, the Company regards the
                 case as spurious and is aggressively contesting the lawsuit.