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    energy future holindings _EEI energy future holindings _EEI Presentation Transcript

    • EEI Conference C. John Wilder Chief Executive Officer November 8, 2005
    • Safe Harbor Statement This presentation contains forward-looking statements, which are subject to various risks and uncertainties. Discussion of risks and uncertainties that could cause actual results to differ materially from management's current projections, forecasts, estimates and expectations is contained in the company's SEC filings. In addition to the risks and uncertainties set forth in the company's SEC filings, the forward-looking statements in this release could be affected by the ability of the company to implement the initiatives that are part of its operational improvement and cost reduction program and financial and growth strategies, and the terms under which the company executes those initiatives, the ability of the company to execute its share repurchase program and the actions of its board of directors with respect to future dividends and other cash distributions to shareholders, which will be based upon a number of factors, including the company’s profit levels, operating cash flow levels and capital requirements as well as financial and other business conditions existing at the time. Regulation G This presentation includes certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measure is included in the appendix of the printed version of the slides and the version included on the company’s website at www.txucorp.com under Investor Resources/Presentations. 1
    • Today’s Agenda • The TXU Turnaround TXU Today TXU Today • Core Strategic Principles • TXU Power Business Unit Business Unit • TXU Retail/Wholesale Strategies Strategies • TXU Electric Delivery • Natural Gas • Heat Rate Risk/Market Outlook Risk/Market Outlook • Capital Allocation Principles • Financial Outlook And Growth Financial Financial • Financial Sensitivities Principles Principles • Long-Term Sources And Uses Of Cash 2
    • January 2004: TXU Was Challenged By The Transition To Its New Competitive Environment Too Much Debt: Debt/Total Enterprise Value Poor Returns: Annual TRS Jan 04; Percent Jan 94 - Jan 04; Percent 43% 43% 981% 65 11.9 37 1.1 Top quartile Top quartile TXU TXU (S&P Electric) (S&P Electric) Costly Operations: Nuclear Oper. Costs Poor Service: Average Speed To Answer 03; $/MWh 03; Seconds 18% 96% 18% 96% 280 12.0 9.8 12 TXU Best in class TXU Best in class 3
    • To Compete In This New Environment, TXU Designed And Is Executing A Three Phase Improvement Plan… Today Phase 3: Ongoing Value Creation Phase 2: Performance Improvement • Identified $1.3 billion in performance improvements over 3 years • Identified $900 million in year one – outperforming plan Phase 1: Risk And Return Restructuring • Sold disadvantaged businesses • Quickly reallocated $14 billion to repair balance sheet • Reduced major risks 4
    • …The Execution Of The Turnaround Plan Has Created Significant Value For TXU Shareholders By Focusing On Three Key Levers Based on price as Gains Across The Board: TXU Value Creation of November 4th 05; $/share 94 5 5 7 276% 276% 20 3 19 4 23 26 26 25 25 Stock Share Hedge Commodity Gas plant Baseload CGE cost Other Stock price repurchases removal increases improve- capacity reductions costs Price Feb and asset ments factor (bad debt, Today 04 sales (dispatch sourcing, and cost) SG&A) Portfolio Risk Performance management and management management capital allocation Total value creation is greater than $15 billion Total value creation is greater than $15 billion 5
    • TXU’s Strategy Reflects Core Beliefs About What It Takes To Win In The Energy Business Principle Rationale • Energy markets will continue to go through cycles; only assets with a structural cost Long-Term Success In The Energy advantage will win over the long term 1 Sector Is Based On Having Access • Structurally advantaged positions provide To Structurally Advantaged Assets better opportunities over the long term • Superior operations and performance management can drive a 200 basis-point increase in ROIC 2 An Industrial Skill Set Is Crucial For • Many companies in the sector have not Continual High Performance transformed their performance level to reflect a competitive environment (delta between median and top quartile is 10-20%) • Just like in other capital intensive sectors, scale is necessary to standardize operations, gain critical mass, and extract 3 Long-Term Winners Must Leverage rent from suppliers Not Only Scale But “Quality Scale” • “Quality scale” is needed to gain access to advantaged new build, and gain competitive and regulatory leadership 6
    • Principle 1: TXU’s Core Businesses Are Structurally Advantaged Across The Entire Value Chain TXU Competitive Business TXU Regulated Business Transmission and Generation Retail Wholesale Distribution TXU Power TXU Wholesale TXU Energy TXU Electric Delivery 2nd largest U.S. Access to largest Large scale 6th largest U.S. deregulated output competitive retailer ERCOT generation transmission & fleet distribution company Access to low cost Loyal customer lignite reserves base Access to largest Top quartile costs and Structural ERCOT retail reliability advantages 63 TWh of Strong brand position recognition baseload High growth NERC region (2.0%) production in a gas Incumbent Superior service on the margin expertise in Efficient capital market regulatory recovery advocacy and market design No commodity exposure No retail customers 05E EBITDA $2.6 - 2.7 B $1.2 B 7
    • Principle 2: An Industrial Skill Set Will Help Drive Superior Returns Throughout The Cycle Operational Excellence Risk/Return Mindset Market Leadership • Superior customer service • Top decile throughput • Strict capital allocation and brand management discipline • World class industrial • Customer segmentation production costs • Risk/return restructuring and pricing • Industry leading reliability • Commodity risk • Distinctive commodity management • Lean corporate SG&A sourcing Performance Management • High performance culture • Balanced cascading scorecards • Employee development • Incentives linked to key value drivers 8
    • Principle 3: Multi-Market Leadership Is Crucial As Demonstrated By Similarities Between The E&P Sector And The Power Sector… Characteristic E&P Power Generation Delivery • Exploration and • Power marketing • Regulated model makes development driven constrained to regional every transmission region Multi-local by local geology and transmission grids different infrastructure • Minimum efficient • Minimum efficient • T&D companies can often Capital investment > $1 investment > $750 invest up to 10% of their billion million market cap in annual intensive capex • Oil/gas price cycles • Power price cycle • Regulated returns cycle driven by investment driven by gas price based on interest rate conduct, declining volatility, fuel price cycle Cyclical economics and volatility, demand demand cyclicality growth, investment conduct • Country regimes • State/federal • All capex and rate Importance of define development regulators approve structures must be regulatory rules and economics development and approved by local/federal competitive market regulators relationships rules 9
    • ...And Looking At The Characteristics Of The Most Successful E&P Companies… Actual E&P Companies Shareholder Value Creation (SVC)… …has been driven by scale and quality of scale 91-01; $ billions High A A 61 B D B 61 E Scale: C 25 C G Equity Cap D 21 F H E 7 Low F 6 Low High Quality of Scale: G 0 Percent of value in “Market Leading” H -5 positions1 10 “Market Leading” positions defined as having greater than 15% investment share in a basin with PVI > 2. 1
    • …The Winning Strategy In The Power Sector Will Require The Combination Of Scale And Quality Of Scale Key Principle Competitive Advantages TXU Application • Standardization of operating • Applying TXU Operating System practices across larger portfolio of assets • Ability to take part in needed large • Taking part in infrastructure build out Scale capital investments without “betting the company” • Ability to extract excess rents from • Leveraging bulk purchases to reduce equipment suppliers equipment supplier costs and increase returns • Better access to future • Taking advantage of sites like Oak development opportunities Grove for new build • Providing competitive leadership • Ensuring capital is invested Quality of scale and capital discipline appropriately in needed infrastructure • Providing regulatory leadership • Advocating that market rules (e.g., Nodal) develop to ensure fair competition In the E&P sector, the combination of both factors was In the E&P sector, the combination of both factors was needed to drive significant value creation over time needed to drive significant value creation over time 11
    • Scale Is Needed To Take A Meaningful Part In The Next Infrastructure Build Out Project As Percent Major Project Capex Equity Market Cap Of Market Cap $ billions $ billions Percent Exxon 370 1.1 Deepwater GOM development 4 BP 233 1.7 (e.g., Thunderhorse) CVX 124 3.2 47 6.3 Exelon 2000 MW 3 Dominion 27 11.1 coal plant 24 12.5 TXU While E&P leaders have the scale to take the risk of major new build projects, in the While E&P leaders have the scale to take the risk of major new build projects, in the deregulated power sector new build projects represent major bets deregulated power sector new build projects represent major bets 12
    • TXU Electric Delivery’s Aspiration Is To Establish A Winning Position in ERCOT/SPP High Winning Scale: Net T&D plant in service in Strategy Actual Delivery Companies ERCOT/SPP TXU Low Low High Quality of Scale: Percent of total assets in “Market Leading” positions1 Most delivery companies lack scale, despite some quality positions in aaparticular state Most delivery companies lack scale, despite some quality positions in particular state While aacouple of players have established leadership positions, none has taken aa While couple of players have established leadership positions, none has taken leading position across multiple regions leading position across multiple regions 13 “Market leading” defined as percent of state T&D assets >30%. 1
    • TXU Power’s Aspiration Is To Follow The “Regional Market Leader” Strategy And Replicate Its Quality Scale Position In Other Deregulated Markets High Scale: Total merchant generation Winning Actual Power Strategy Companies TXU Low Low High Quality of Scale: Percent of value in “Market Leading” positions1 No deregulated company has been able to establish “quality scale” in multiple markets No deregulated company has been able to establish “quality scale” in multiple markets There are aanumber of companies that have high quality positions but lack the scale to There are number of companies that have high quality positions but lack the scale to extract “Market Leader” value extract “Market Leader” value 14 “Market Leader” defined as solid fuel TWh >10% of NERC region merchant TWh. 1
    • Today’s Agenda • The TXU Turnaround TXU Today TXU Today • Core Strategic Principles • TXU Power Business Unit Business Unit • TXU Retail/Wholesale Strategies Strategies • TXU Electric Delivery • Natural Gas • Heat Rate Risk/Market Outlook Risk/Market Outlook • Capital Allocation Principles • Financial Outlook And Growth Financial Financial • Financial Sensitivities Principles Principles • Long-Term Sources And Uses Of Cash 15
    • TXU Power Has A Structurally Advantaged Portfolio In A Market With Strong Fundamentals… ERCOT Average Implied Heat Rate Large Portfolio 05; TWh of deregulated generation 04; MMBtu/MWh Gas fleet provides shaping and ancillary 24 178 services Solid fuel capacity 21 provides low cost 18 baseload power Gas 15 (10.2 GW) 12 62 62 Lignite 46 9 Nuclear (5.8 GW) 46 44 40 37 30 (2.3 6 GW) TXU units 3 EXC TXU NRG/ D PPL EME FE AYE ETR 10 20 30 40 50 60 70 80 Cumulative GWs TGN Source: Platts Low Coal Prices1 Robust Wholesale Power Prices 05; $/MMBtu 05; $/MWh 4.0 75 3.8 3.5 3.5 65 61 60 56 54 54 53 52 50 2.6 2.3 2.1 1.7 NPCC ERCOT WECC SERC MRO MAPP ECAR FRCC MAAC FRCC MAAC SPP MAIN ECAR TXU WECC SERC MAIN 16 Source: Platts Emissions-adjusted. 1
    • Based On Core Beliefs About Value Creation, TXU Power Has Designed A Bottom-Up Business Unit Strategy TXU Power Gain Scale Outside The ultimate The ultimate Continue To Strengthen The Of ERCOT And goal is to goal is to ERCOT Position Build Market Leader Position develop develop sustainable sustainable Leverage TXU Operating competitive competitive Scale TXU Operating System to continue to positions in positions in System to improve 3rd drive increased value multiple markets multiple markets party assets from Texas baseload fleet Leverage creative Take advantage of transactional solutions existing sites (Sandow, with counterparties who Oak Grove) to add new share our vision capacity in Texas Develop deeper multi- market wholesale capabilities 17
    • In Coal Generation, TXU’s Goal Is To Redefine High Performance Utilization While Simultaneously Achieving High Performance Costs Capacity Factor For US National Coal Fleet1 (n=225) O&M For Non-Scrubbed Coal Fleet2 (n=160) 02-04; Percent 02-04; $/KW-year 17.0 21.0 25.7 32.3 82.1 76.2 68.7 58.6 100 100 08 90 90 05 03 80 80 70 70 60 60 50 50 40 40 05 03 30 30 08 20 20 10 10 0 0 1st Quartile 3rd Quartile 1st Quartile 3rd Quartile 4th Quartile 2nd Quartile 2nd Quartile 4th Quartile Plant 05 08 EBITDA improvement Plant 05 08 EBITDA improvement Total 90% 92% $69M Total $26 $21 $30M TXU Power is driving increased production and cost reduction via the Operating System TXU Power is driving increased production and cost reduction via the Operating System Sample set includes all coal plants > 450 MWs. 1 18 Sample set includes all coal plants > 450 MWs, 2002-2004 non-scrubbed coal plants. TXU plants normalized for scrubbing & fuel type. 2
    • The Goal In Nuclear Is To Replicate Top Fleet Performance At A Single Plant Making Progress: Capacity Factor More Productive: Non-Fuel O&M 02-04; Percent 02-04; $/kW 95.4 95.1 101 94 89 79 92.6 91.3 Exelon TXU TXU TXU Exelon TXU TXU TXU Large 03-05 06-08 08-10 Large 03-05 06-08 08-10 Plants1 Plants1 Closing the gap on capacity factor and cost will have Closing the gap on capacity factor and cost will have ~$120 million upside relative to 03-05 ~$120 million upside relative to 03-05 19 Exelon large plants include Byron, Braidwood, Lasalle, Limerick, and Peach Bottom. 1
    • TXU Has Access To Two Development Opportunities In Texas… Oak Grove Steam Electric Station Sandow Unit 5 Robertson County, Texas Rockdale, Texas Key Statistic Key Statistic Installed Capacity (MW) 600 Installed Capacity (MW) 1,720 Technology CFB Technology SCPC Configuration 2X1 Configuration 2X2 Primary Fuel Lignite Primary Fuel Lignite LI/ SNCR1 SO2 and NOX Controls FGD/SCR2 SO2 and NOX Controls Key Milestones Key Milestones Air Permit In-Process Air Permit Complete Begin Construction 2 mos. after permit Resume Construction April 06 Commercial Operation June 09/Dec 09 Commercial Operation Oct 08 LI refers to Limestone Injection; SNCR refers to Selective Non-Catalytic Reduction. 1 20 FGD refers to Flue Gas Desulphurization; SCR refers to Selective Catalytic Reduction. 2
    • …That Deliver Strong Returns With A Strong Expected Hedged Position… Sandow 5 – 600 MW Oak Grove – 1,720 MW 06E-10E; $ millions 06E-10E; $ millions 06 07 08 09 10 06 07 08 09 10 EBITDA 165 575 EBITDA 45 165 160 Net income 30 285 Net income 15 70 70 Capex 260 740 650 250 15 Capex 230 265 165 5 5 Est. hedged Est. hedged output-% 75 75 75 output-% 75 75 PV/I = 1.5 PV/I = 1.7 PV/I = 1.5 PV/I = 1.7 IRR = 11% IRR = 14.2% IRR = 11% IRR = 14.2% Cash payback = 99years Cash payback = 88years Cash payback = years Cash payback = years 21
    • …Based On The Ability To Drive High Performance Across All Aspects Of The Project Respectable Returns: Oak Grove Project Economics - NPV 05; $ billions 1.7 0.4 0.1 0.7 0.3 0.3 (0.1) Plant value Compression Reduction Access to Reduction in Increase in Optimized based on of build in capex advantaged O&M by capacity value “regulated” schedule by by $250/ fuel $10/kW- year factor by performance 1 year kW 10% Value -30 170 180 410 90 260 1,080 $/kW IRR 5.6% 1.8% 2.3% 2.3% 0.5% 1.7% 14.2% Percent The difference between aaregulated new build and aaindustrial new build is The difference between regulated new build and industrial new build is significant; without both the commercial and operational skill set, new build significant; without both the commercial and operational skill set, new build economics will not work economics will not work 22
    • Market Forces Have Converged To Create An Opportunity To Consolidate And Improve Coal Generation… Performance Performance Variability Variability Variances between 1st and 4th quartile: •Capacity factor: 57% •Cost: 261% Fragmented Wholesale Market Fragmented Wholesale Market Ownership Deregulation Ownership Deregulation Consolidation Top 55merchant Competitive wholesale Top merchant Competitive wholesale Opportunity players account for markets have aligned players account for markets have aligned only 12% of national incentives with risks only 12% of national incentives with risks coal capacity coal capacity Fundamental Gas Fundamental Gas Price Shift Price Shift Dark spreads are up 81%, Dark spreads are up 81%, driving plant values up driving plant values up over 100% over 100% Other asset-intensive industries that have Other asset-intensive industries that have had similar characteristics have consolidated and created value had similar characteristics have consolidated and created value 23
    • Identifying The Value Opportunity Starts With Focusing On Assets That Fit TXU’s Core Strengths… US Fleet US Coal US Merchant US Merchant Coal Coal >100 MW # Plants 15,757 597 279 108 Capacity 959 GW 306 GW 95 GW 80 GW (GW, 04) Generation 530 TWh 3,950 TWh 1,950 TWh 550 TWh (TWh, 04) • Nuclear already • Greater • TXU Operating Rationale consolidated opportunity to System most retain value in effective on • Gas plants are a merchant fleet large plants market timing bet • TXU Operating • Quicker/cheaper • Small plants System focused on transaction generally older coal execution and marginal 24
    • …And Estimating The Performance Improvements By Replicating TXU’s Performance Across The Entire Merchant Coal Fleet EBITDA Improvement Potential For Targeted US Merchant Coal Fleet1 Value creation $ billions 0.8 4.9 0.5 $/kW 0.7 4.1 0.9 510 0.4 2.4 370 Aspiration Target Fuel Capacity Env Gross Non-fuel Heat Cost to Net value cost factor upgrades O&M value rate achieve Total improvement would be valued at over $40 billion Total improvement would be valued at over $40 billion 25 Power prices estimated using 2010 forward price of $7.05 natural gas. 1
    • Applying These Value Levers To Individual Plants Produces A Targeted Origination List Of Counterparties EBITDA Improvement Relative Improvement $ millions Percent Operator Target Aspiration Target Aspiration A 140 180 50 60 B 160 220 40 50 C 220 300 30 40 D 245 345 30 40 E 225 325 30 40 F 95 140 25 40 G 85 130 25 35 H 100 150 25 35 I 100 160 20 30 J 115 165 15 20 K 50 70 15 20 TXU will leverage creative transaction structures to minimize premiums TXU will leverage creative transaction structures to minimize premiums 26
    • TXU’s Aspiration To Double The Size Of The Coal Portfolio Over The Next 5+ Years Coal Coal Capital Oper. capacity generation % of 2010 investment Earnings1 (GW) (TWh) target ($ billions) ($ billions) 0.02 36-47 1.0 2006 TXU 5.8 46 3-4 0.6 0.10 Sandow 5 0.5 4 11-14 2.0 0.35 Oak Grove 1.7 14 3-4 0.6 0.11 Other Texas existing sites 0.5 4 17-22 3.2 0.6 Organic growth 2.7 22 53-69 3.2 1.6 TXU today + Organic growth 8.5 68 31-47 3.9-7.7 0.8-1.6 Potential transactions 3.5-7.0 30-60 100 7.1-10.9 2.4-3.2 2010 Target 12-15.5 98-128 TXU is pursuing aamulti-pronged strategy of organic growth and TXU is pursuing multi-pronged strategy of organic growth and transactions to reach its portfolio goals transactions to reach its portfolio goals Based on $60/MWh power. 1 27 Does not include sustaining Capex. 2
    • TXU Retail/Wholesale Is The Largest Competitive Retailer In A Growth Market Large Competitive Customer Base High Growth 05; Millions of customers 05E-14E; Percent annual growth 2.8 2.4 2.4 1.9 2.0 1.9 1.7 1.7 1.6 1.6 1.6 1.3 0.9 0.2 0.1 0.1 TXU RRI Direct First Green Gexa FRCC ERCOT MAAC MAIN ECAR Energy Choice Mountain WECC MRO SERC SPP NPCC Source: NERC Sources: KEMA, company filings Highly Competitive Market Strong Demand Oct 05; Number of certified ERCOT 03; Residential GWh/household retailers 15 15 15 15 15 14 105 103 11 10 10 75 56 7 7 39 01 02 03 04 05 LA TN AL FL MS TX US OH PA NY CA 28 Source: PUC Sources: EIA, BEA
    • Based On Core Beliefs About Value Creation, TXU Energy Has Designed A Bottom-Up Business Unit Strategy TXU Retail/Wholesale TXU Energy’s TXU Energy’s top priority is top priority is to restore to restore Return The North Texas Opportunistically Build profitability to profitability to Consumer Franchise Profitable Businesses In North Texas To Profitability Other Customer Segments North Texas TXU will TXU will Introduce innovative Take advantage of higher continue to continue to products and pricing headroom opportunities monitor plans that meet customer monitor in South Texas to acquire opportunities needs and provide opportunities residential customers sustaining margins outside of outside of Texas Texas Continue to redefine Focus on higher margin customer service to customers in small, distinguish TXU Energy medium, and large from its competitors commercial segments Continue to drive cost leadership to Continue to advocate for a enhance competitiveness across all market-based structure that segments encourages competition 29
    • Although Margins In This Business Are Currently Negative Due To High Gas Prices … North Texas Residential Headroom vs. Gas Price Since Market Open 02-05; Mixed measures Retail headroom1 Gas price2 $/MWh $/MMBtu 12-month 40 $12.00 Retail forward gas headroom price 30 $10.00 20 $8.00 10 $6.00 0 $4.00 -10 $2.00 -20 -30 $0.00 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 Based on average customer usage of 16,000 kWh/yr. with PUC-approved residential load profile; headroom defined as PTB rate – cost of energy (avg. NYMEX 12 mo. strip x 7.8 heat 1 rate x assumed 25% for load shaping, congestion, line losses and other ancillary costs) – avg. wires cost (based on published TXU Electric Delivery rates, excluding clawback). 30 NYMEX 12-month strip through 10/31/05. 2
    • … They Are Expected To Improve With The Approved Fuel Factor Adjustment And Should Continue To Expand Over The Long Term Based Upon The Current Gas Curve Projected Headroom1 05E - 08E; $/MWh 27 3 10 Gross margin Net margin (5) 05E 06E - 08E Gas price2 $8.95 $9.71 The combination of the adjusted fuel factor and backwardation of the curve allow The combination of the adjusted fuel factor and backwardation of the curve allow headroom and net margins to recover to reasonable levels headroom and net margins to recover to reasonable levels Based on actual fuel factors through Oct-05 and $11.52/MMBtu for all future periods; assumes avg. customer usage of 16,000 kWh/yr. 1 31 Actual prices through Oct-05, forward prices based upon NYMEX curve as of 10/31/05. 2
    • Long-Term Headroom Of Approximately $25/MWh Is Needed To Allow Competitors To Earn A Reasonable Risk Adjusted Return Attacker Gross And Net Margins With 7% Discount Breakeven Payback For New And Headroom Of $25/MWh1,2 Customer 07E; Months1,2 07E; $/MWh Attacker discount; % 25 10 5% 7% 10% Head- 2 $20 53 NA NA 10 room ($/MWh) $25 12 21 NA Net margin 9 2 Net margin $30 7 9 17 North Com- Acquisition Attacker Texas petitor cost gross Reasonable payback headroom discount margin With an average customer life of three years and competitive discounts of at least 5 – With an average customer life of three years and competitive discounts of at least 5 – 10%, headroom of over $20/MWh is needed for attackers to achieve positive economics 10%, headroom of over $20/MWh is needed for attackers to achieve positive economics TXU Energy margins estimated using NYMEX 10/31/05 gas strip for calendar 06, average consumption of 16.0 MWh per year. 1 Attacker economics based on above, with discounts from PTB as shown, acquisition costs of $105/customer amortized over 36 months, marginal SG&A of $3/MWh, and bad debt of 1.3%. 2 32
    • The UK Experience Supports $20 - $30/MWh Headroom And Resilient Market Shares Incumbent Native Market Shares 01 - 04; Percent 69% 64% On an equivalent basis to 62% 61% On an equivalent basis to ERCOT, UK residential ERCOT, UK residential incumbents achieved incumbents achieved gross margins averaging gross margins averaging approximately $25/MWh approximately $25/MWh from 01 to 04 from 01 to 04 01 02 03 04 UK Retail Energy Gross Margins1 Six years after market Six years after market 01 - 04; $/MWh open, UK incumbents open, UK incumbents $26 continue to hold the $26 $25 continue to hold the $24 majority of their legacy majority of their legacy customers, while acquiring customers, while acquiring new customers in other new customers in other areas areas 01 02 03 04 Gross margins for combined electricity and gas customers (all major competitors offer both energy types and may discount either or both). Margins reported by Datamonitor and adjusted for 1 definitional differences between UK and TXU reporting. 01- 04 average FX of $1.60/£ assumed for all years. 33 Source: Datamonitor, PA Consulting, TXU Energy analysis
    • TXU Electric Delivery Has An Advantaged Structural Position… Scope: Large Infrastructure Size: Large Customer Base 04; Thousands of miles of primary distribution lines 04; Millions of customers 146 5.3 5.2 105 4.2 4.2 87 87 3.1 3.0 2.9 69 2.6 69 65 63 2.3 2.2 59 54 TXU PCG EXC FPL SO ED TXU PGN ETR D DUK Source: FERC Source: Proprietary benchmarking study Demand: High Growth Supportive Regulatory Environment 05E-14E; Percent annual growth 2.8 2.4 2.0 1.9 1.7 1.7 1.6 1.6 1.6 1.3 Outstanding FRCC ERCOT MAAC MAIN ECAR Above Average WECC MRO SERC SPP NPCC Average Source: NERC Source: Banc of America Securities Research Below Average TXU Electric Delivery is a scale player in a high-growth region TXU Electric Delivery is a scale player in a high-growth region 34
    • …And A Unique Business Model That Makes It Look More Like A FERC Transmission Or Pipeline System Than A Traditional Utility Traditional T&D Gas LDC’s Pipeline FERC TXU Electric comparables MLP’s Delivery TransCo Regulation State State FERC FERC State Capital tracker No No No Yes Yes1 Commodity risk Yes Yes No No No Retail customers Yes Yes No No No TXU Electric Delivery has higher growth and more progressive investment recovery TXU Electric Delivery has higher growth and more progressive investment recovery mechanisms than typical regulated transmission and distribution peer companies mechanisms than typical regulated transmission and distribution peer companies 35 For transmission and automated meter reading investments 1
    • Based On Core Beliefs About Value Creation, TXU Electric Delivery Has Designed A Bottom-Up Business Unit Strategy TXU Electric Delivery Continue To Redefine Consolidate Regional T&D To Excellence In Texas Extract Synergies TXU will TXU will continue to drive continue to drive Scale TXU’s distinctive asset Focus on distinctive asset distinctive distinctive management capabilities management: optimize performance in performance in over a larger grid reliability and costs Texas while Texas while attempting to attempting to scale its scale its Take advantage of high Take a national role in operating edge operating edge growth market and technology through regionally regionally advantaged business leading technology model to invest in needed consortium and third infrastructure party infrastructure fund Integrate BPL and AMR into grid to help redefine service quality 36
    • TXU Electric Delivery Has Achieved Top Quartile Reliability While Simultaneously Maintaining Top Quartile Costs Non-Storm SAIDI1 (n=33) O&M Costs2 Per Customer (n=33) 04; Minutes 04; $/customer 85.8 112.0 128.0 139.6 71.3 87.5 145.1 183.0 260 $220 234 $198 208 $176 182 $154 156 $132 130 $110 03 05 08 104 $88 05 03 78 $66 08 52 $44 26 $22 0 $0 3rd Quartile 3rd Quartile 1st Quartile 1st Quartile 2nd Quartile 4th Quartile 2nd Quartile 4th Quartile Significant capital investments are planned to ensure consistent top quartile reliability, Significant capital investments are planned to ensure consistent top quartile reliability, while rigorous focus on cost efficiency will result in top decile cost performance by 08 while rigorous focus on cost efficiency will result in top decile cost performance by 08 TXU Electric Delivery is evaluating adoption of the IEEE 1366 standard for reporting reliability performance. Projected 2008 non-storm SAIDI calculated under this method would be 74.59.2. 1 37 Benchmark includes specific O&M accounts as well as maintenance capital. 2
    • Based On A Rapidly Growing Market, And The Importance Of Keeping The Lights On, TXU Electric Delivery Is Investing In Needed Infrastructure Upgrades Automated meters Distribution Transmission North Texas Economic Cost Of One Minute TXU Electric Delivery Capex Budget of downtime1 03-08; $ millions 05: $ millions 9.6 850 875 7.3 825 75 750 75 75 25 600 350 350 543 325 375 300 300 2.2 450 425 425 350 300 243 0.1 Residential Commercial Industrial Total 03 04 05E 06E 07E 08E ••TXU Electric Delivery’s capital and technology deployment strategy is designed to TXU Electric Delivery’s capital and technology deployment strategy is designed to lower grid congestion, and increase system reliability lower grid congestion, and increase system reliability ••About 50% of TXU Electric Delivery’s capital is eligible for expedited recovery About 50% of TXU Electric Delivery’s capital is eligible for expedited recovery Outage cost/Customer also influenced by time of the day, season, region and duration of outage. 1 38 Source: Lawrence Berkeley National Laboratory study, 2004
    • Today The ERCOT Grid Remains Fragmented . . . All Too Small: Share Of Gross Transmission And Distribution PPE 04; Percent 100% = $25 billion Publics and Co-ops TXU 25% 38% PNM 3% CNP AEP 22% 12% Nearly 40 public power companies and Nearly 40 public power companies and co-ops comprise 25% of the ERCOT market co-ops comprise 25% of the ERCOT market 39 Source: Energy Velocity
    • …Offering An Opportunity Through Improvements In Efficiency And Reliability Relative Cost Position Relative Reliability Position SAIDI Total Cash Cost Per Customer 04; Minutes 04; $/customer 26% 25% 26% 25% 475 100 350 75 Weighted Avg Rest of TXU Weighted Avg Rest TXU ERCOT of ERCOT Driving the market to TXU Driving the market to TXU Reducing SAIDI by 25 minutes Reducing SAIDI by 25 minutes performance levels implies performance levels implies could save the Texas economy could save the Texas economy potential annual savings of potential annual savings of over $425 million annually over $425 million annually over $550 million over $550 million 40 Source: Texas Public Utilities Commission, FERC Form 1
    • TXU Has Implemented A Process To Help Each Business Achieve Their Strategic Aspirations 2006 2007 2008 2009 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th Transaction Electric Delivery • Technology consortium • Infrastructure fund • 1st Delivery transaction TXU Power • Sandow 5 online • Oak Grove online • 1st Power transaction 41
    • Today’s Agenda • The TXU Turnaround TXU Today TXU Today • Core Strategic Principles • TXU Power Business Unit Business Unit • TXU Retail/Wholesale Strategies Strategies • TXU Electric Delivery • Natural Gas • Heat Rate Risk/Market Outlook Risk/Market Outlook • Capital Allocation Principles • Financial Outlook And Growth Financial Financial • Financial Sensitivities Principles Principles • Long-Term Sources And Uses Of Cash 42
    • TXU Believes The Fundamentals Support Backwardation In The Natural Gas Curve… US And Canada Gas Supply And Demand Natural Gas Price Forecasts (12 Bcfd LNG addition) 06E-10E; $/MMBtu 10E; $/MMBtu 12 $12.00 2010 demand 10 $10.00 NYMEX 8 $8.00 Price range=$5.50-$7.00 6 $6.00 PIRA $4.00 4 $2.00 2 $0.00 0 06 07 08 09 10 0 10 20 30 40 50 60 70 80 90 Cumulative Capacity Bcfd While the gas curve is backwardated, While the gas curve is backwardated, fundamentals still support historically high prices fundamentals still support historically high prices 43
    • …And Significant Heat Rate Recovery Over The Next Ten Years ERCOT Market 7X24 Heat Rates (NYMEX) 06E-10E; MMBtu/MWh Equivalent to 2010 Henwood an 8.5 HSC estimate = 9.1 heat rate 9.9 1.0 0.1 0.1 0.4 8.1 0.0 7.7 2010 2006 Demand Demand Wind Unmothballing Baseload Long-term heat heat heat growth destruction generation of gas peakers capacity rate to support rate rate increases additions CCGT new build1 Details • 2% yearly • 1.1 GW of • 1.8 GW • 2.4 GW • Sandow 5 demand destruction (0.6 GW) growth • Oak Grove • 1.7 GW per (1.7 GW) year • S.A. Power (0.8 GW) The growth in ERCOT supports limited baseload expansion The growth in ERCOT supports limited baseload expansion 44 Based on $5.00 gas prices. 1
    • Over The Next Three Years TXU Will Remain Relatively Neutral To Natural Gas And Become Longer Heat Rate Well Controlled: Natural Gas Position Growth Potential: Heat Rate Position 06E-08E; Million MMBtu 06E-08E; Million MWh 06E 07E 08E 06E 07E 08E Current baseload 470 460 460 Current baseload 61 61 62 production production Gas plants - - - Gas plants 5 5 6 Total “native long” 470 460 460 Total “native long” 66 66 68 position position Retail “short” (380) (330) (300) Retail “short” (50) (42) (38) position1 position1 PPAs/Tolls/Other (50) (80) (100) PPAs/Tolls/Other (3) 3 2 forward power and forward power and gas sales gas sales Expected underlying ~30-40 ~40-50 ~50-60 Expected underlying ~13 ~27 ~32 position position Percentage hedged 91-98% 89% 87-89% Percentage hedged 80% 59% 53% TXU has locked in ~ 90% of its natural gas exposure TXU has locked in ~ 90% of its natural gas exposure and is maintaining the majority of its long-term heat rate exposure and is maintaining the majority of its long-term heat rate exposure Assumes retail price remains constant 1 45
    • TXU’s EBITDA Is Expected To Remain Relatively Insensitive To Natural Gas Price Changes And Heat Rate Changes EBITDA Impact Of $1/MMBtu EBITDA Impact of 0.2 MMBtu/MWh change in market heat rate1 change in natural gas 06E-08E; Percent 06E-08E; Percent <1.5% <1.5% <1.0% <1.0% <1.0% <1.0% 06E 07E 08E 06E 07E 08E Change in EBITDA ~30-40 ~40-50 ~50-60 ~30 ~50 ~55 $ millions Over the next three years, TXU has a small sensitivity to natural gas price and Over the next three years, TXU has a small sensitivity to natural gas price and heat rate changes due to the benefits of market hedges and its integrated heat rate changes due to the benefits of market hedges and its integrated portfolio portfolio 46 Based on 06 natural gas price = $11.00, 07 natural gas price = $9.65, 08 natural gas price = $8.49. 1
    • TXU Also Manages Risk Through Its “Cash Scrubber” Retained for Investment Cash Flow TXU Business from Excess Excess Excess Units Oper- “Customer” Growth Financial Dividend ations Capital capital Flexibility Payout and Asset Yes Yes, if Yes, until Sales Yes in 06+ PV/ Investment Payout 30-40% Quality service EBITDA/Interest: PV/ Investment Payout 30-40% Quality service EBITDA/Interest: Repurchases threshold of 1.3 of operational Production >5.0 threshold of 1.3 of operational Production >5.0 or Distributions 25-35% cash earnings reliability Debt/EBITDA: 25-35% cash earnings reliability Debt/EBITDA: returned <5 yrs <2.5 returned <5 yrs <2.5 Debt/MEV: 30% Debt/MEV: 30% to 50% to 50% Equity Debt Holders Holders The cash scrubber will govern the allocation of operating The cash scrubber will govern the allocation of operating cash flow and the deployment of growth capital cash flow and the deployment of growth capital 47
    • Today’s Agenda • The TXU Turnaround TXU Today TXU Today • Core Strategic Principles • TXU Power Business Unit Business Unit • TXU Retail/Wholesale Strategies Strategies • TXU Electric Delivery • Natural Gas • Heat Rate Risk/Market Outlook Risk/Market Outlook • Capital Allocation Principles • Financial Outlook And Growth Financial Financial • Financial Sensitivities Principles Principles • Long-Term Sources And Uses Of Cash 48
    • TXU Is Focused On Achieving Balanced Financial Performance Increased Earning Power Increased Value Increased Increased Financial Returns Flexibility TXU’s ultimate financial objective is to TXU’s ultimate financial objective is to simultaneously improve all three economic dimensions simultaneously improve all three economic dimensions 49
    • Execution Of TXU’s Strategy Results In A Robust Forward Plan For Consolidated TXU Operational EPS1 Free Cash Flow3 Operating Cash Flow2 03-06E; $/share 5.50- 03-06E; $ billions 03-06E; $ billions 2.6 - 4.5- 5.75 2.8 4.7 3.25- 610% 205% 285% 2.6- 1.7 - 610% 205% 285% 3.35 2.7 1.8 2.0 1.0 1.5 0.79 1.41 0.7 03 04 05E 06E 03 04 05E 06E 03 04 05E 06E EBITDA1 Debt4/EBITDA1 EBITDA/Interest1 03-06E; $ billions5.5 - 03-06E; Percent 03-06E; Ratio 5.7 7.0- 5.1 3.8 - 4.2 3.1- 7.2 4.9- 3.9 60% 145% 60% 135% 145% 135% 3.2 1.9- 5.0 2.7 4.0 2.3 3.0 2.0 03 04 05E 06E 03 04 05E 06E 03 04 05E 06E Results are from continuing operations excluding special items and are split adjusted. 1 03 normalized operating cash flow (OCF) ($2.4B) excluding cash tax refund ($0.6B) and 02 collections; 04 normalized OCF ($1.8B) excluding special items (-$0.3B); 05 normalized OCF 2 excludes an estimated $125 million of special items. Normalized free cash flow is defined as normalized operating cash flow less capital expenditures and nuclear fuel. 3 50 Debt excludes transition bonds. 4
    • 06 Outlook Is Driven By A Combination Of Performance Improvements And Commodity Impacts… Consolidated TXU Operational EPS (split adjusted) 05E-06E; $/share Performance driver 06E 05E operational earnings outlook range 3.25-3.35 Wholesale market prices 1.75 Increased base load production 0.16 O&M and SG&A cost improvements 0.13 Improvement from hedge roll-off and expiration of 0.18 wholesale/LCI contracts Mass market customer churn (0.04) Reduction of interest expense 0.03 Change in diluted shares outstanding 0.11 06E operational earnings outlook range 5.50 – 5.75 51
    • The Financial Plan Is Sensitive To A Number Of Variables… Impact On Consolidated TXU 06E EPS (split adjusted) 06E; $/share Description Low Base High Low Base = 5.50-5.75 High 06 gas prices (0.19) 0.10 7 11 13 ($/MMBtu) 06 7X24 market heat rate (0.04) 0.04 7.5 7.7 7.9 (MMBtu/MWh) 06 residential churn (0.03) 0.01 16 8 4 (% of customers) Coal capacity factor (0.09) 0.09 86 88 90 (Percent) Nuclear capacity factor (0.09) 0.02 92 96 97 (Percent) The plan is resilient to most sensitivities The plan is resilient to most sensitivities 52
    • …But Taken Together The Plan Is Resilient Under Downside Scenarios… Consolidated TXU Operational EPS (split adjusted) 06E; $/share 5.85 5.50-5.75 5.25 Low gas1/double churn High Gas/Half churn1 Base Case Gas price $7.00 $11.00 $13.00 Residential churn 16% 8% 4% Capacity factor Coal 86% 88% 90% Nuclear 92% 96% 97% The combination of TXU’s integrated business model and estimated performance The combination of TXU’s integrated business model and estimated performance improvements drive earnings growth under all scenarios improvements drive earnings growth under all scenarios 53 Assumes no change in PTB fuel factor relative to 10/28/05 approved increase 1
    • …Justifying A Rebased Common Dividend For Shareholders Continued Growth: TXU Dividend 03-06E; $ millions 384% 384% 29% payout for TXU Corp 775 ~18% payout for TXU Energy 425 ~95% payout for 540 350 280 Electric Delivery1 160 03 04 05E 06E The dividend is expected to grow at aahigh performance rate The dividend is expected to grow at high performance rate 54 Net income adjusted to exclude $32 million of transition bond amortization post tax expense. 1
    • Based On The Following Sources And Uses Of Capital… Sources Of Cash Uses Of Cash 06E-10E (indicative); $ billions 06E-10E (indicative); $ billions 21 - 23 21 - 23 TXU Electric Cash for 2.0 Delivery debt investment/ 7.0 distribution TXU Corp./ Energy LLC debt 2.0 Dividends 4.0 OCF 20.0 Sandow & 2.5 Oak Grove 6.5 Core portfolio capex 06E-10E 06E-10E Through execution of the industrial mindset, TXU will generate over $7 billion of Through execution of the industrial mindset, TXU will generate over $7 billion of discretionary FCF to grow the business or return to shareholders discretionary FCF to grow the business or return to shareholders 55
    • …TXU’s Strategy Will Result In Solid Long-Term Earnings Growth Even Without The Benefit Of External Transactions… TXU Consolidated EPS (Split Adjusted 06E-07E and 06E-10E; $ millions Performance Driver 06E-10E 06E-07E 5.50-5.75 5.50-5.75 06 EPS Commodity (0.32) (1.90) Commodity impacts and retail churn 5.31 3.73 06 EPS less commodity impacts and retail churn (0.15) 0.00 CP steam generator replacement 0.26 0.57 Execution Performance improvements 0.11 0.57 Execution sub-total 0.00 0.20 Sandow 0.00 0.72 Oak Grove Organic growth 0.06 0.25 Electric Delivery growth 0.06 1.17 Organic growth subtotal Capital allocation 0.27 0.79 Debt repurchases and share repurchases 5.60-5.90 6.10-6.40 EOY EPS 2.2% 2.7% Annual growth rate (percent) The combination of superior execution, organic growth, and capital allocation more than The combination of superior execution, organic growth, and capital allocation more than fills the gap caused by commodity backwardation fills the gap caused by commodity backwardation 56
    • …With Even Greater Growth If Able To Successfully Execute Value Creating Transactions Breakout Investments: TXU Operational EPS (split adjusted) 06E-10E; $/share CAGR CAGR 6.75-7.05 5.0% 5.0% 0.63 Transaction growth2 5.60-5.90 5.50-5.75 0.79 Capital allocation 0.06 0.27 0.12 1.17 Organic growth 0.57 Execution 5.31 06 EPS – commodity 3.73 impacts - churn1 06E 07E 10E The combination of strong free cash flow, performance improvements and value The combination of strong free cash flow, performance improvements and value creating intrinsic growth overcomes aabackwardated commodity curve to provide solid creating intrinsic growth overcomes backwardated commodity curve to provide solid earnings growth earnings growth Includes impact of gas price declines, heat rate recovery, and churn 1 57 Based on investing $7 billion over 5 years in underperforming coal plants with a PV/I=1.3 ($1,350 of new EBITDA) 2
    • TXU: A Strong Core Business Poised For Growth A Superior Economic Engine… …Driven By An Industrial Skill Set… 1. Rebased 06 earnings (split adjusted) of $5.50- 1. Operations excellence – top decile coal 5.75/ share reliability and targeting top quartile costs 2. Highly competitive dividend and distributions 2. Restructuring prowess – Generated over 3. Industry leading free cash flow of ~$3 billion $10 billion through restructuring an 4. Industry leading financial flexibility with over underperforming portfolio 7 X interest coverage 3. Performance management culture – driving 5. A ~90% hedged natural gas position with year over year real productivity gains of exposure to ERCOT heat rate recovery more than 5% …With Access To… …Significant Organic Growth That …And Significant Transactional Overcomes Commodity Declines… Growth Potential 1. A $50 billion opportunity to improve the US merchant coal fleet 1. ~ $400 million of annual EBITDA performance improvements between 2006 and 2010 2. A $50 billion opportunity in US new build generation over the next 20 years 2. ~850 million of annual EBITDA line of sight organic growth by 2010 3. A $50 billion opportunity in US power company restructuring 3. 5 year EPS growth of 2.5-3.0% 4. 5-year EPS growth of 5% with successful execution of transactions 58
    • Regulation G Reconciliations For future periods, TXU is currently unable to estimate the impact of special items or changes in accounting principles or policies on free cash flow, return on invested capital, total debt to capitalization or interest coverage. TXU is therefore currently unable to reconcile the most directly comparable GAAP measures to these items for forecasted periods.
    • Financial Definitions Measure Definition Capex Capital expenditures. Cash Interest Expense Interest expense and related charges less amortization of discount and reacquired debt expense plus (non-GAAP) capitalized interest. Cash interest expense is a measure used by TXU to assess credit quality. Contribution Margin Operating revenues (GAAP) less fuel and purchased power costs and delivery fees (GAAP). EBITDA (non-GAAP) Income from continuing operations before interest income, interest expense and related charges, and income tax plus depreciation and amortization and special items. EBITDA is a measure used by TXU to assess performance. EBITDA/Interest (non-GAAP) EBITDA divided by cash interest expense is a measure used by TXU to assess credit quality. Enterprise Value (non-GAAP) Total debt plus preference stock plus market capitalization less cash and restricted cash. Market Capitalization Shares of common stock outstanding multiplied by closing share price as of the balance sheet date. (non-GAAP) Measures the market value of a company’s equity at a point in time. Normalized Free Cash Flow Cash from operating activities, adjusted for unusual or nonrecurring items, less capital expenditures and (non-GAAP) nuclear fuel. Used by TXU predominantly as a forecasting tool to estimate cash available for dividends, debt reduction, and other investments. Normalized Operating Cash Cash provided by operating activities adjusted for unusual or nonrecurring items. Used by TXU Flow predominantly as a forecasting tool to estimate cash available for capital expenditures, nuclear fuel, (non-GAAP) dividends, debt reduction and other investments. Operational Earnings per Share Per share (diluted) income from continuing operations net of preference stock dividends, excluding special (non-GAAP) items and the adjustment in 2005 for the dilution effect of the cost of the true-up payment on the 52.5 million share accelerated common stock repurchase and the adjustment in 2004 for the dilution effect of the convertible senior notes, the majority of which were repurchased in the fourth quarter. TXU relies on operational earnings for evaluation of performance and believes that analysis of the business by external users is enhanced by visibility to both reported GAAP earnings and operational earnings. 60
    • Financial Definitions – cont. Measure Definition Return on Invested Capital Operational earnings (non-GAAP) plus preference stock dividends plus after-tax interest expense and (ROIC) related charges, net of interest income on restricted cash related to debt, divided by the average of the (non-GAAP) beginning and ending total capitalization less debt-related restricted cash. This measure is used to evaluate operational performance and management effectiveness. Special Items Unusual charges related to the implementation of the performance improvement program and other charges, credits or gains, that are unusual or nonrecurring. Special items are included in reported GAAP earnings, but are excluded from operational earnings. Special items associated with the performance improvement program include debt extinguishment losses and costs related to severance programs, asset impairments and facility closures. Total Debt (GAAP) Long-term debt (including current portion), plus bank loans and commercial paper, plus long-term debt held by subsidiary trusts, plus preferred securities of subsidiaries, including exchangeable preferred membership interests (EPMIs). Debt/EBITDA (non-GAAP) Total debt less transition bonds and debt-related restricted cash divided by EBITDA. Transition, or securitization, bonds are serviced by a regulatory transition charge on wires rates and are therefore excluded from debt in credit reviews. Debt-related restricted cash is treated as net debt in credit reviews. Debt/EBITDA is a measure used by TXU to access credit quality. Debt/Total Enterprise Value Total debt less transition bonds divided by total enterprise value is used by TXU to assess credit quality. (non-GAAP) 61
    • Table 1: TXU Corp. Operational Earnings Reconciliation Twelve Months Ended December 31, 2004 and 2003 $/share after tax 04 03 Net income (loss) to common (1.29) 1.62 Discontinued operations (1.26) (0.20) Extraordinary gain (0.05) - Cum. effect of changes in accounting principles (0.03) 0.15 Premium on EPMIs 2.83 - Preference stock dividends 0.07 0.06 Income from continuing operations 0.27 1.63 Preference stock dividends (0.07) (0.06) Effect of diluted shares calculation 0.04 0.01 Special items 2.58 - Operational earnings 2.82 1.58 62
    • Table 2: TXU Corp. Normalized Operating Cash Flow, Normalized Free Cash Flow and Normalized Free Cash Flow Yield Twelve Months Ended December 31, 2004 and 2003 $ millions, unless otherwise noted 04 03 Ref Reported cash provided by operating activities 1,758 2,413 Special items 284 - 2003 tax refund - (601) 2002 collections in 2003 - (337) Normalized operating cash flow 2,042 1,475 Capital expenditures (912) (721) Nuclear fuel (87) (44) Normalized free cash flow 1,043 710 63
    • Table 3: TXU Corp. Interest and Debt Coverage Ratios Twelve Months Ended December 31, 2004 and 2003 $ millions, unless otherwise noted 04 03 Ref Cash provided by operating activities 1,758 2,413 A Reconciling adjustments from cash flow statement (1,677) (1,847) B Income from continuing operations 81 566 Income tax expense 42 252 Interest expense and related charges 695 784 Interest income (28) (36) Depreciation and amortization 760 724 EBITDA 1,550 2,290 Special Items 1,190 - EBITDA (excluding special items) 2,740 2,290 C Interest expense and related charges 695 784 Amortization of discount and reacquired debt expense (27) (31) Capitalized interest 12 12 Cash interest expense 680 765 D Total debt 12,889 12,591 E Transition bonds (1,258) (500) Debt-related restricted cash - (525) Total debt less transition bonds and debt-related restricted cash 11,631 11,566 F EBITDA/interest – ratio (C/D) 4.0 3.0 Debt/EBITDA – ratio (F/C) 4.2 5.1 Cash provided by operating activities + cash interest expense/cash interest expense – ratio (A+D/D) 3.6 4.2 Total debt/cash provided by operating activities – ratio (E/A) 7.3 5.2 64
    • Table 4: TXU Corp. Total Debt to Enterprise Value Twelve Months Ended December 31, 2003 $ millions, unless otherwise noted 2003 Ref Debt Notes payable - Long-term debt due currently 678 Long-term debt held by subsidiary trusts 546 Other long-term debt less due current 10,608 Transition bonds (500) A Preferred securities of subsidiaries 759 Total debt less transition bonds 12,091 B Preference stock 300 Total debt and preference stock 12,391 C Market capitalization Shares outstanding 324 Price per share 23.72 Total market capitalization 7,685 Cash and restricted cash (1,423) Enterprise Value 18,653 D Debt to enterprise value - % (B/D) 64.8 Common equity (GAAP) 5,619 E Total Capital (C-A+E) (GAAP) 18,510 F Debt/Total Capital -% (B-A)/F 68.0 65