EXHIBIT 99(a)

NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

depreciation and amortization as of the Acquisition Date and (6) the recognition
of the associated deferred income tax effects. In addition, NorAm's pre-merger
common stock was canceled and replaced with 1,000 shares of common stock (all of
which are owned by Houston Industries), rendering presentation of per share data
no longer meaningful. Houston Industries' debt to fund the cash portion of the
purchase consideration has not been allocated or "pushed down" to NorAm and is
not reflected on NorAm's Financial Statements.

NorAm's Statements of Consolidated Income for periods after the Acquisition
Date are principally affected by (1) the amortization (over 40 years) of the
newly-recognized goodwill, partially offset by the elimination of the
amortization of NorAm's historical goodwill, (2) the amortization (to interest
expense) of the revaluation of long-term debt, (3) the removal of the
amortization (to operating expense) previously associated with the pension and
postretirement obligations as described preceding and (4) the deferred income
tax expense associated with these adjustments. Interest expense on Houston
Industries' debt which was used to fund the cash portion of the acquisition has
not been allocated or "pushed down" to NorAm and is not reflected on NorAm's
Financial Statements. For these reasons, among others, certain financial
information for periods before and after the Acquisition Date is not comparable.

If the Merger had occurred on January 1, 1997 and 1996, NorAm's unaudited
pro forma net income for 1997 and 1996 would have been $68.3 million and $76.9
million, respectively. Pro forma results are based on assumptions deemed
appropriate by NorAm's management, have been prepared for informational purposes
only and are not necessarily indicative of the results which would have resulted
had the Merger actually taken place on the date indicated.

In general, NorAm's interstate pipelines are subject to regulation by the
Federal Energy Regulatory Commission, while its natural gas distribution
operations are subject to regulation at the state or municipal level.
Historically, all of NorAm's rate-regulated businesses have followed the
accounting guidance contained in Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" .
NorAm discontinued application of SFAS No. 71 to NGT in 1992. As a result of the
continued application of SFAS No. 71 to MRT and the natural gas distribution
operations, NorAm's financial statements contain assets and liabilities which
would not be recognized by unregulated entities.

At December 31, 1997 approximately $48 million in regulatory assets are
reflected on NorAm's Consolidated Balance Sheet as deferred debits. These assets
represent probable future revenue to NorAm associated with certain incurred
costs as these costs are recovered through the rate making process. These costs
are being recovered through rates over varying periods up to 40 years.

(d) Principles of Consolidation.

NorAm's Consolidated Financial Statements include the accounts of NorAm and
its wholly owned subsidiaries (NorAm). All significant intercompany transactions
and balances are eliminated in consolidation.

(e) Property, Plant and Equipment.

Property, plant and equipment have been revalued to estimated fair market
value as of the Acquisition Date in accordance with the purchase method of
accounting, and depreciated or amortized on a straight-line basis over their
estimated useful lives; see Note 1(b) above. Prior to the Acquisition Date, such
assets were carried at cost. Additions to and betterments of utility property
are charged to property accounts at cost, while the costs of maintenance,
repairs and minor replacements are charged to expense as incurred. Upon normal
retirement of units of utility property, plant and equipment, the cost of such
property, together with cost of removal less salvage, is charged to accumulated
depreciation.

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(f) Depreciation and Amortization Expense.

Goodwill, none of which is being recovered in regulated service rates, is
amortized on a straight-line basis over 40 years. Approximately $29.9 million of
goodwill was amortized during 1997. Of this amount, $21.6 million represents
amortization related to the Merger and incurred during the period from the
Acquisition Date through December 31, 1997. Goodwill amortization for 1996 was
approximately $14.2 million. NorAm periodically compares the carrying value of
its goodwill to the anticipated undiscounted future operating income from the
businesses whose acquisition gave rise to the goodwill and, as yet, no
impairment is indicated or expected. For additional information regarding the
amortization of goodwill in connection with the Merger, see Note 1(b) above.

(g) Fuel Stock and Other Inventories.

Inventories principally follow the average cost method. Gas inventory (at
average cost) was $63.7 million and $70.7 million at December 31, 1997 and 1996,
respectively. All non-utility inventories held for resale are valued at the
lower of cost or market.

(h) Revenues.

NorAm's rate-regulated divisions/subsidiaries bill customers on a monthly
cycle billing basis. Revenues are recorded on an accrual basis, including an
estimate for gas delivered but unbilled at the end of each accounting period.

(i) Statements of Consolidated Cash Flows.

For purposes of reporting cash flows, cash equivalents are considered to be
short-term, highly liquid investments readily convertible into cash.

(j) Derivative Financial Instruments (Risk Management).

For information regarding NorAm's accounting for derivative financial
instruments associated with natural gas, electric power and transportation risk
management activities, see Note 2.

(k) Income Taxes.

Houston Industries files a consolidated federal income tax return, in which
NorAm and its subsidiaries are included (as of the Acquisition Date). Houston
Industries follows a policy of comprehensive interperiod income tax allocation.
For additional information regarding income taxes, see Note 7.

(l) Investments in Marketable Equity Securities.

A subsidiary of NorAm holds certain equity securities classified as
"available-for-sale" and, in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," reports such investments at
estimated fair value with any unrealized gain or loss, net of tax, as a separate
component of stockholders' equity. At December 31, 1997, NorAm's unrealized loss
relating to these marketable equity securities was approximately $5.6 million,
net of tax of $3.0 million.

(m) Reclassifications and Use of Estimates.

Certain amounts from the previous years have been reclassified to conform
to the 1997 presentation of financial statements. Such reclassifications do not
affect earnings.

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

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

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.

(n) Early Retirement and Severance.

During the first quarter of 1996, NorAm instituted several early retirement
and reorganization plans, pursuant to which a total of approximately 400
positions were eliminated resulting in expense for severance payments and
enhanced retirement benefits reported as a non-recurring pre-tax charge of
approximately $22.3 million (approximately $13.4 million after tax).

(o) Merger Transaction Costs.

"Merger transaction costs" include expenses associated with completion of
the business combination with Houston Industries (see Note 1(b)), principally
consisting of investment banking and legal fees.

(p) Allowance for Doubtful Accounts.

Accounts and notes receivable, principally customer as presented on NorAm's
Consolidated Balance Sheets are net of an allowance for doubtful accounts of
$15.3 million and $13.0 million at December 31, 1997 and 1996, respectively.

(q) Accounts Payable.

Certain of NorAm's cash balances reflect credit balances to the extent that
checks written have not yet been presented for payment. Such balances included
in accounts payable, principally trade on the NorAm Consolidated Balance Sheets
were approximately $17.0 million and $53.5 million at December 31, 1997 and
1996, respectively.

(2) DERIVATIVE FINANCIAL INSTRUMENTS (RISK MANAGEMENT)

(a) Trading Activities.

NorAm, through NES, offers price risk management services primarily in the
natural gas and electric industries. NES provides these services through, and by
utilizing, a variety of derivative financial instruments, including fixed-price
swap agreements, variable-price swap agreements, exchange-traded energy futures
and option contracts, and swaps and options traded in the over-the-counter
financial markets. Fixed-price swap agreements require payments to, or receipts
of payments from, counterparties based on the differential between a fixed and
variable price for the commodity. Variable-price swap agreements require
payments to, or receipts of payments from, counterparties based on the
differential between either industry pricing publications or exchange
quotations.

Certain trading transactions qualify for hedge accounting and accordingly
unrealized gains and losses associated with these transactions are deferred. For
trading transactions that do not qualify for hedge accounting, NES uses
mark-to-market accounting. Accordingly, such financial instruments are recorded
at fair value with realized and unrealized gains (losses) recorded as a
component of revenues in NorAm's Statements of Consolidated Income. The
recognized, unrealized balance is recorded as a deferred debit on NorAm's
Consolidated Balance Sheets.

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

The notional quantities and maximum terms of derivative financial
instruments held for trading purposes at December 31, 1997 are presented below
(volumes in billions of British thermal units equivalent (Bbtue)):

VOLUME-FIXED VOLUME-FIXED MAXIMUM
PRICE PAYOR PRICE RECEIVER TERM (YEARS)
------------ -------------- ------------

Natural gas.................................. 85,701 64,890 4
Electricity.................................. 40,511 42,976 1

In addition to the fixed-price notional volumes above, NES also has
variable-price swap agreements, as discussed above, totaling 101,465 Bbtue.
Notional amounts reflect the volume of transactions but do not represent the
amounts exchanged by the parties to the financial instruments. Accordingly,
notional amounts do not accurately measure NorAm's exposure to market or credit
risks.

The estimated fair value of derivative financial instruments held for
trading purposes at December 31, 1997 are presented below (dollars in millions):

FAIR VALUE AVERAGE FAIR VALUE(A)
--------------------- -----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------

Natural gas.................................. $46 $39 $56 $48
Electricity.................................. $ 6 $ 6 $ 3 $ 2

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

(a) Computed using the ending balance of each month.

Substantially all of the fair value shown in the table above at December
31, 1997 has been recognized in income. The fair value as of and for the year
ended December 31, 1997 was estimated using quoted prices where available and
considering the liquidity of the market for the derivative financial
instruments. The prices are subject to significant changes based on changing
market conditions. The derivative financial instruments included in the NES
trading portfolio as of and for the year ended December 31, 1996 were
immaterial.

The weighted-average term of the trading portfolio, based on volumes, is
less than one year. The maximum and average terms disclosed herein are not
indicative of likely future cash flows as these positions may be changed by new
transactions in the trading portfolio at any time in response to changing market
conditions, market liquidity and NorAm's risk management portfolio needs and
strategies. Terms regarding cash settlements of these contracts vary with
respect to the actual timing of cash receipts and payments.

(b) Non-Trading Activities.

To reduce the risk from market fluctuations in the price of electric power,
natural gas and related transportation, NorAm and certain of its subsidiaries
enter into futures transactions, swaps and options (Energy Derivatives) in order
to hedge certain natural gas in storage, as well as certain expected purchases,
sales and transportation of natural gas and electric power (a portion of which
are firm commitments at the inception of the hedge). Energy Derivatives are also
utilized to fix the price of compressor fuel or other future operational gas
requirements, although usage to date for this purpose has not been material.
Usage of electricity derivative financial instruments by NorAm and its
subsidiaries for purposes other than trading is immaterial.

NorAm also utilizes interest-rate derivatives (principally interest-rate
swaps) in order to adjust the portion of its overall borrowings which are
subject to interest-rate risk, and also utilizes such derivatives to effectively
fix the interest rate on debt expected to be issued for refunding purposes.

For transactions involving either Energy Derivatives or interest-rate
derivatives, hedge accounting is applied only if the derivative (i) reduces the
price risk of the underlying hedged item and (ii) is designated as a hedge at
its inception. Additionally, the derivatives must be expected to result in
financial impacts which are

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

inversely correlated to those of the item(s) to be hedged. This correlation (a
measure of hedge effectiveness) is measured both at the inception of the hedge
and on an ongoing basis, with an acceptable level of correlation of 80% for
hedge designation. If and when correlation ceases to exist at an acceptable
level, hedge accounting ceases and mark-to-market accounting is applied.

In the case of interest-rate swaps associated with existing obligations,
cash flows and expenses associated with the interest-rate derivative
transactions are matched with the cash flows and interest expense of the
obligation being hedged, resulting in an adjustment to the effective interest
rate. When interest rate swaps are utilized to effectively fix the interest rate
for an anticipated debt issuance, changes in the market value of the
interest-rate derivatives are deferred and recognized as an adjustment to the
effective interest rate on the newly issued debt.

Unrealized changes in the market value of Energy Derivatives utilized as
hedges are not generally recognized in NorAm's Statements of Consolidated Income
until the underlying hedged transaction occurs. Once it becomes probable that an
anticipated transaction will not occur, deferred gains and losses are
recognized. In general, the financial impact of transactions involving these
Energy Derivatives is included in NorAm's Statements of Consolidated Income
under the caption natural gas and purchased power, net. Cash flows resulting
from these transactions in Energy Derivatives are included in NorAm's Statements
of Consolidated Cash Flows in the same category as the item being hedged.

At December 31, 1997, subsidiaries of NorAm were fixed-price payors and
fixed-price receivers in Energy Derivatives covering 38,754 Bbtu and 7,647 Bbtu
of natural gas, respectively. At December 31, 1996, subsidiaries of NorAm were
fixed-price payors and fixed-price receivers in Energy Derivatives covering
approximately 150,300 Bbtu and 66,500 Bbtu of natural gas, respectively. Also,
at December 31, 1997, subsidiaries of NorAm were parties to variable-priced
Energy Derivatives totaling 3,630 Bbtu of natural gas. The weighted average
maturity of these instruments at December 31, 1997 and 1996, respectively, is
less than one year.

NorAm has entered into options with various third parties which principally
serve to limit the year-to-year escalation from January 1998 to April 1999 in
the purchase price of gas which NorAm is committed to deliver to a distribution
affiliate. These options, which covered 9,800 Bbtu and 2,400 Bbtu at December
31, 1997 and 1996, respectively, expired in January 1998 unexercised. NorAm
previously established a reserve equal to its projected maximum exposure to
losses during the term of this commitment and, accordingly, no impact on
earnings is expected.

The notional amount is intended to be indicative of NorAm and its
subsidiaries' level of activity in such derivatives, although the amounts at
risk are significantly smaller because, in view of the price movement
correlation required for hedge accounting, changes in the market value of these
derivatives generally are offset by changes in the value associated with the
underlying physical transactions or in other derivatives. When Energy
Derivatives are closed out in advance of the underlying commitment or
anticipated transaction, however, the market value changes may not offset due to
the fact that price movement correlation ceases to exist when the positions are
closed as further discussed below. Under such circumstances gains (losses) are
deferred and recognized as a component of income when the underlying hedged item
is recognized in income.

The average maturity discussed above and the fair value discussed in Note
10 are not necessarily indicative of likely future cash flows as these positions
may be changed by new transactions in the trading portfolio at any time in
response to changing market conditions, market liquidity and NorAm's risk
management portfolio needs and strategies. Terms regarding cash settlements of
these contracts vary with respect to the actual timing of cash receipts and
payments.

In addition to the risk associated with price movements, credit risk is
also inherent in NorAm and its subsidiaries' risk management activities. Credit
risk relates to the risk of loss resulting from non performance

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

of contractual obligations by a counterparty. While, as yet, NorAm and its
subsidiaries have experienced no significant losses due to the credit risk
associated with these arrangements, NorAm has off-balance sheet risk to the
extent that the counterparties to these transactions may fail to perform as
required by the terms of each such contract. In order to minimize this risk,
NorAm and/or its subsidiaries, as the case may be, enter into such contracts
primarily with those counterparties with a minimum Standard & Poor's or Moody's
rating of BBB- or Baa3, respectively. For long-term arrangements, NorAm and its
subsidiaries periodically review the financial condition of such firms in
addition to monitoring the effectiveness of these financial contracts in
achieving NorAm's objectives. Should the counterparties to these arrangements
fail to perform, NorAm would seek to compel performance at law or otherwise, or
obtain compensatory damages in lieu thereof. NorAm might be forced to acquire
alternative hedging arrangements or be required to honor the underlying
commitment at then-current market prices. In such event, NorAm might incur
additional loss to the extent of amounts, if any, already paid to the
counterparties. In view of its criteria for selecting counterparties, its
process for monitoring the financial strength of these counterparties and its
experience to date in successfully completing these transactions, NorAm believes
that the risk of incurring a significant financial statement loss due to the
non-performance of counterparties to these transactions is minimal.

NorAm's policies prohibit the use of leveraged financial instruments.

Houston Industries has established a Risk Oversight Committee that oversees
all price and credit risk, including NES's risk management and trading
activities. The Risk Oversight Committee's responsibilities include reviewing
NorAm's overall risk management strategy and monitoring risk management
activities to ensure compliance with Houston Industries' risk management
limitations, policies and procedures.

(3) CAPITAL STOCK

(a) Earnings Per Share.

As a result of the Merger, NorAm is no longer required to present earnings
per share (EPS) data as its common shares (all of which are owned by Houston
Industries) are not publicly held. EPS data for 1996 and 1995 has not been
included because NorAm believes it is no longer meaningful.

(b) Equity Transactions Prior to the Merger.

In June 1996, NorAm issued 11,500,000 shares of NorAm common stock to the
public at a price of $9.875 per share, yielding net cash proceeds of
approximately $109 million. The net proceeds from the offering principally were
used to retire debt as described in Note 4(b).

The Direct Stock Purchase Plan and Dividend Reinvestment Plan were
suspended and canceled in connection with the Merger.

(4) LONG-TERM AND SHORT-TERM FINANCING

(a) Short-Term Financing.

In 1997 and 1996, NorAm met its short-term financing needs primarily
through a bank facility, bank lines of credit and a receivables facility.
NorAm's principal short-term credit facility (NorAm Credit Facility) of $400
million expires in December 1998. Borrowings under the NorAm Credit Facility are
unsecured. The weighted average interest rate at December 31, 1997 and 1996 was
6.3%. NorAm pays a facility fee on the $400 million facility of .14% per annum
which is subject to increase based on NorAm's debt rating. Borrowings under the
credit facility at December 31, 1997 and 1996 were $340 million and $115
million, respectively. In addition, NorAm had $50 million of outstanding loans
under uncommitted lines of credit at December 31, 1997 having a weighted average
interest rate of 6.82%.

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NORAM ENERGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) COMMITMENTS AND CONTINGENCIES

(a) Lease Commitments.

The following table sets forth certain information concerning NorAm's
obligations under operating leases:

Minimum Lease Commitments at December 31, 1997(1)

(MILLIONS OF DOLLARS)
---------------------

1998....................................................... $ 24
1999....................................................... 19
2000....................................................... 16
2001....................................................... 15
2002....................................................... 9
2003 and beyond............................................ 22
----
Total............................................ $105
====

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

(1) Principally consisting of rental agreements for building space and data
processing equipment and vehicles (including major work equipment).

NorAm has a master leasing agreement which provides for the lease of
vehicles, construction equipment, office furniture, data processing equipment
and other property. For accounting purposes, the lease is treated as an
operating lease. At December 31, 1997, NorAm had leased assets with a value of
approximately $58.1 million under this lease with a basic term of one year.
NorAm does not expect to lease additional property under this lease agreement.

Lease payments related to NorAm's leasing agreements are included in the
preceding table for only their basic term. Total rental expense for all leases
was $24.0 million, $33.4 million and $48.9 million in 1997, 1996 and 1995,
respectively.

(b) Letters of Credit.

At December 31, 1997, NorAm had letters of credit incidental to its
ordinary business operations totaling approximately $42 million under which
NorAm is obligated to reimburse drawings, if any.

At December 31, 1997, NorAm has an $11.4 million accounting reserve on its
Consolidated Balance Sheets in "Estimated obligations under indemnification
provisions of sale agreements" for possible indemnity claims asserted in
connection with its disposition of former subsidiaries or divisions, including
the sale of (i) Louisiana Intrastate Gas Corporation, a former subsidiary
engaged in the intrastate pipeline and liquids extraction business (1992); (ii)
Arkla Exploration Company, a former subsidiary engaged in oil and gas
exploration and production activities (June 1991); and (iii) Dyco Petroleum
Company, a former subsidiary engaged in oil and gas exploration and production
(1991).

(d) Sale of Receivables.

Certain of NorAm's receivables are collateral for receivables which have
been sold pursuant to the terms of NorAm's receivables facility, see
"Receivables Facility" included in Note 4(a).

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Gas Purchase Claims.

In conjunction with settlements of "take-or-pay" claims, NorAm has prepaid
for certain volumes of gas, which prepayments have been recorded at their net
realizable value and, to the extent that NorAm is unable to realize at least the
carrying amount as the gas is delivered and sold, NorAm's earnings will be
reduced, although such reduction is not expected to be material. In addition to
these prepayments, NorAm is a party to a number of agreements which require it
to either purchase or sell gas in the future at prices which may differ from
then prevailing market prices or which require it to deliver gas at a point
other than the expected receipt point for volumes to be purchased. To the extent
that NorAm expects that these commitments will result in losses over the
contract term, NorAm has established reserves equal to such expected losses.

(f) Transportation Agreement.

NorAm had an agreement (ANR Agreement) with ANR Pipeline Company (ANR)
which contemplated a transfer to ANR of an interest in certain of NorAm's
pipeline and related assets, representing capacity of 250 Mmcf/day, and pursuant
to which ANR had advanced $125 million to NorAm. The ANR Agreement has been
restructured and, after refunds of $50 million and $34 million in 1995 and 1993,
respectively, NorAm currently retains $41 million (recorded as a liability) in
exchange for ANR's or its affiliates' use of 130 Mmcf/ day of capacity in
certain of NorAm's transportation facilities. The level of transportation will
decline to 100 Mmcf/day in the year 2003 with a refund of $5 million to ANR and
the ANR Agreement will terminate in 2005 with a refund of the remaining balance.

(g) Environmental Matters.

To the extent that potential environmental remediation costs are quantified
within a range, NorAm establishes reserves equal to the most likely level of
costs within the range and adjusts such accruals as better information becomes
available. In determining the amount of the liability, future costs are not
discounted to their present value and the liability is not offset by expected
insurance recoveries. If justified by circumstances within NorAm's business
subject to SFAS No. 71, corresponding regulatory assets are recorded in
anticipation of recovery through the rate making process.

Manufactured Gas Plant Sites. NorAm and its predecessors operated a
manufactured gas plant (MGP) adjacent to the Mississippi River in Minnesota
formerly known as Minneapolis Gas Works (FMGW) until 1960. NorAm has completed
remediation of the main site other than ongoing water monitoring and treatment.
There are six other former MGP sites in the Minnesota service territory.
Remediation has been completed on one site. Of the remaining five sites, NorAm
believes that two were neither owned nor operated by NorAm; two were owned by
NorAm at one time but were operated by others and are currently owned by others;
and one site was previously operated by NorAm but was owned by others. NorAm
believes it has no liability with respect to the sites it neither owned nor
operated.

At December 31, 1997, NorAm had estimated a range of $15 million to $77
million for possible remediation of the Minnesota sites. The low end of the
range was determined based on only those sites presently owned or known to have
been operated by NorAm, assuming use of NorAm's proposed remediation methods.
The upper end of the range was determined based on the sites once owned by
NorAm, whether or not operated by NorAm. The cost estimates for the FMGW site
are based on studies of that site. The remediation costs for other sites are
based on industry average costs for remediation of sites of similar size. The
actual remediation costs will be dependent upon the number of sites remediated,
the participation of other potentially responsible parties, if any, and the
remediation methods used.

In its 1995 rate case, NorAm's Minnegasco division was allowed to recover
approximately $7 million annually for remediation costs. Such costs are subject
to a true-up mechanism whereby any over or under recovered amounts, net of
certain insurance recoveries, plus carrying charges, would be deferred for
recovery

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

or refund in the next rate case. At December 31, 1997 and 1996, Minnegasco had
recorded a liability of $20.6 million and $35.9 million, respectively, to cover
the cost of future remediation. In addition, at December 31, 1997, Minnegasco
had receivables from insurance settlements of $2.9 million. These insurance
settlements will be collected through 1999. Minnegasco expects that
approximately half of its accrual as of December 31, 1997 will be expended
within the next five years. The remainder will be expended on an ongoing basis
for an estimated 40 years. In accordance with the provisions of SFAS No. 71, a
regulatory asset has been recorded equal to the liability accrued. Minnegasco is
continuing to pursue recovery of at least a portion of these costs from
insurers. Minnegasco believes the difference between any cash expenditures for
these costs and the amount recovered in rates during any year will not be
material to NorAm's overall cash requirements, results of operations or cash
flows.

At December 31, 1997 and 1996, NorAm had recorded an accrual of $3.3
million (with a maximum estimated exposure of approximately $18 million) and an
offsetting regulatory asset for environmental matters in connection with a
former fire training facility and a landfill for which future remediation may be
required. This accrual is in addition to the accrual for MGP sites as previously
discussed.

Issues relating to the identification and remediation of MGPs are common in
the natural gas distribution industry. NorAm has received notices from the EPA
and others regarding its status as a potentially responsible party for other
sites. Based on current information, NorAm has not been able to quantify a range
of environmental expenditures for potential remediation expenditures with
respect to other MGP sites.

Mercury Contamination. Like other natural gas pipelines, NorAm's pipeline
operations have in the past employed elemental mercury in meters used on its
pipelines. Although the mercury has now been removed from the meters, it is
possible that small amounts of mercury have been spilled at some of those sites
in the course of normal maintenance and replacement operations and that such
spills have contaminated the immediate area around the meters with elemental
mercury. Such contamination has been found by NorAm at some sites in the past,
and NorAm has conducted remediation at sites found to be contaminated. Although
NorAm is not aware of additional specific sites, it is possible that other
contaminated sites exist and that remediation costs will be incurred for such
sites. Although the total amount of such costs cannot be known at this time,
based on experience by NorAm and others in the natural gas industry to date and
on the current regulations regarding remediation of such sites, NorAm believes
that the cost of any remediation of such sites will not be material to NorAm's
financial position, results of operation or cash flows.

Potentially Responsible Party Notifications. From time to time NorAm and
its subsidiaries have been notified that they are potentially responsible
parties with respect to properties which environmental authorities have
determined warrant remediation under state or federal environmental laws and
regulations. In October 1994 the United States Environmental Protection Agency
issued such a notice with respect to a landfill site in West Memphis, Arkansas,
and in December 1995, the Louisiana Department of Environmental Quality advised
that one of NorAm subsidiaries had been identified as a potentially responsible
party with respect to a hazardous waste site in Shreveport, Louisiana.
Considering the information currently known about such sites and the involvement
of NorAm or its subsidiaries in activities at these sites, NorAm does not
believe that these matters will have a material adverse effect on NorAm's
financial position, results of operation or cash flows.

(h) Other

NorAm Merger Lawsuit. In August 1996, a purported NorAm stockholder filed a
lawsuit, Shaw v. NorAm Energy Corp., et al., in the District Court of Harris
County, Texas, against NorAm, certain of its officers and directors and the
Company to enjoin the Merger or to rescind the Merger and/or to recover damages
in the event that the Merger was consummated. In February 1998, the plaintiffs
withdrew their lawsuit and the court issued an order of non-suit dismissing the
litigation.

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NORAM ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

NorAm is a party to litigation (other than that specifically noted) which
arises in the normal course of business. Management regularly analyzes current
information and, as necessary, provides accruals for probable liabilities on the
eventual disposition of these matters. Management believes that the effect on
NorAm's financial statements, if any, from the disposition of these matters will
not be material.

135