<PAGE>   1

                          AMENDED AND RESTATED BYLAWS

                                       OF

                        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;

                          (c)  alter or repeal any resolution of the Board of
                 Directors;

                          (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