<PAGE>
 
                                   AGREEMENT
                                        

          WHEREAS, NorAm Energy Corp. ("NorAm"),  Houston Industries
Incorporated ("HI"), Houston Lighting & Power Company and HI Merger Inc.
(together, the "Parties") have entered into that certain Agreement and Plan of
Merger dated as of August 11, 1996 (the "Merger Agreement"); and

          WHEREAS, NorAm and HI have subsequently discussed continuing the
participation of NorAm employees in certain annual variable pay plans through
December 31, 1997, rather than making pro-rated payments to participants under
such plans as provided in Section 5.10(e) of the Merger Agreement.

          NOW, THEREFORE, the Parties hereby agree as follows:

1.   Section 5.10(e) of the Merger Agreement is hereby amended to read as
follows:

     "For the calendar year ending December 31, 1996, NorAm will pay to each
     employee of NorAm and the NorAm Affiliates who is a participant in a NorAm
     annual incentive compensation plan or a variable pay program the amount of
     annual incentive compensation or variable pay awarded to such employee for
     1996 based on the level of performance goals actually attained by NorAm.
     The amount of such incentive compensation or variable pay will be
     determined in accordance with normal practice and will be paid on or before
     March 15, 1997.

     For the calendar year ending December 31, 1997, annual incentive
     compensation and annual variable pay awarded to employees of NorAm and the
     NorAm Affiliates under any plan or program including, without limitation,
     Section 9 of the 1994 Incentive Equity Plan (also known as the Annual
     Incentive Award Plan), the All Employee Incentive Plan (also known as the
     All Employee Incentive Opportunity Plan) and the Gas Marketing Incentive
     Plan (the "Plans") will be paid to such employees in accordance with the
     terms and conditions on which the awards were originally based, subject to
     the following modifications:

          (1) In no event shall any individual who is an employee of NorAm or
          any affiliate of NorAm at the close of business on August 5, 1997 be
          paid less than an amount equal to 218/365 multiplied by the amount of
          the award that would have been payable to the employee had the
          applicable performance goals been achieved at the target level of
          performance.  Any individual whose employment  with NorAm and its
          affiliates terminates on or after the Effective Time and prior to
          December 31, 1997, shall be paid the award contemplated hereby as soon
          as practicable following termination of employment, but in no event
          later than 10 days following termination of employment.
<PAGE>
 
          (2) Performance with respect to any goals based on (i) earnings per
          share, or (ii) cash flow (where applicable), shall be measured
          utilizing the following assumptions:

               (A) The number of shares and the level of convertible securities
               outstanding at any applicable time shall be deemed to be the same
               as the number of shares and level of convertible securities
               outstanding immediately prior to the Effective Time.

               (B) Interest expense and distributions on convertible securities
               will be calculated from August 6, 1997 through December 31, 1997
               as if the balances outstanding on August 6, 1997 remained
               outstanding through December 31, 1997.

               (C) Corporate overhead expenses will be determined from August 6,
               1997 through December 31, 1997 in accordance with NorAm's 1997
               budget.

               (D) No costs directly related to the Merger, and no costs related
               to amortization of new goodwill will be taken into account.

          (3)  Performance with respect to any goals based on (i) return on
          capital employed or (ii) cash flow shall be measured assuming
          continuation of dividend payments with the frequency that such
          payments were made from August 1, 1996 through August 1, 1997, at the
          level most recently paid prior to August 6, 1997.

          (4)  Any other goals that cannot be accurately measured following the
          Merger without utilization of assumptions similar to those set forth
          above shall be measured utilizing such assumptions as the appropriate
          officers of HL&P deem fair and equitable in their sole discretion."

     2.   NorAm hereby represents that Exhibit A hereto is a true and correct
     representation of all of the performance goals originally applicable under
     the Plans for 1997 annual awards.

     3.   This Agreement may be executed in two or more counterparts, all of
     which shall be considered one and the same agreement, it being understood
     that all parties need not sign the same counterpart.
<PAGE>
 
IN WITNESS WHEREOF, each Party has caused this Agreement to be signed by its
duly authorized officer this 5th day of August, 1997.

                         NORAM ENERGY CORP.


                         By:  /s/ T. Milton Honea
                             ---------------------------------------------
                               Name: T. Milton Honea
                               Title: Chairman of the Board, President and
                                      Chief Executive Officer


                         HOUSTON INDUSTRIES INCORPORATED


                         By:  /s/ Hugh Rice Kelly
                             ---------------------------------------------
                               Name: Hugh Rice Kelly
                               Title: Executive Vice President, General Counsel
                                      and Corporate Secretary


                         HOUSTON LIGHTING & POWER COMPANY


                         By: /s/ Hugh Rice Kelly
                            ----------------------------------------------
                               Name: Hugh Rice Kelly
                               Title: Senior Vice President, General Counsel and
                                      Corporate Secretary


                         HI MERGER, INC.


                         By: /s/ Stephen W. Naeve
                            ----------------------------------------------
                               Name: Stephen W. Naeve
                               Title: President