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    energy future holindings txu_110906 energy future holindings txu_110906 Document Transcript

    • EEI Conference C. John Wilder Chief Executive Officer November 7, 2006 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. Specifically, the company makes reference to the section entitled “Risk Factors” in its annual and quarterly reports, particularly the risk factor relating to its new build program in Texas. In addition to the risks and uncertainties set forth in the company's SEC filings, the forward-looking statements in this presentation could be affected by actions of rating agencies, the ability of the company to attract and retain profitable customers, changes in demand for electricity, the impact of weather, changes in wholesale electricity prices or energy commodity prices, the company’s ability to hedge against changes in commodity prices and market heat rates, the company’s ability to fund certain investments described herein, delays in approval of, or failure to obtain, air and other environmental permits and the ability of the company to resolve the consent decree issue regarding the new Sandow 5 unit, changes in competitive market rules, changes in environmental laws or regulations, changes in electric generation and emissions control technologies, changes in projected demand for electricity, the ability of the company and its contractors to attract and retain skilled labor, at projected rates, for planning and building new generating units, changes in the cost and availability of materials necessary for the planned new generation units, the ability of the company to negotiate and finalize engineering, procurement and construction contracts for its reference plants in a timely manner and at projected costs, the ability of the company to manage the significant construction program to a timely conclusion with limited cost overruns, the ability of the company to implement the initiatives that are part of its performance improvement program and growth strategy and the terms under which the company executes those initiatives, and the decisions made and actions taken as a result of the company’s financial and growth strategies, and with respect to the InfrastruX Energy joint venture, the amount of time the PUC takes to review the transaction and the results of such review. 1
    • Today’s Agenda TXU Development/TXU Construction Business Unit Business Unit TXU Power Strategies Strategies TXU Wholesale TXU Energy TXU Electric Delivery America’s Power Challenge Generation Generation The Texas Solution Growth Plan Growth Plan A National Solution Short-term Financial Growth Financial Financial Financial Sensitivities Outlook Outlook Long-term Sources And Uses Of Cash 2 TXU’s Long-Term Objectives… 1. Drive 3-5% annual improvement in reliability, efficiency, and 1. Drive 3-5% annual improvement in reliability, efficiency, and service service 2. Meet Texas’ growing demand for power with 9 GW of new baseload 2. Meet Texas’ growing demand for power with 9 GW of new baseload power generation power generation 3. Maintain Texas residential market share by profitably gaining 3. Maintain Texas residential market share by profitably gaining customers and providing innovative products and services customers and providing innovative products and services 4. Leverage superior baseload operations, construction expertise, 4. Leverage superior baseload operations, construction expertise, and structuring skills to build a 10 GW business in other and structuring skills to build a 10 GW business in other competitive US markets competitive US markets 5. Continue to enhance business through building strong 5. Continue to enhance business through building strong management and ensuring the financial risk profile is management and ensuring the financial risk profile is commensurate with the business risk profile commensurate with the business risk profile 3
    • …Will Be Executed By Businesses That Compete Across The Entire Value Chain Transmission Generation Wholesale Retail and Distribution Power TXU Power TXU Wholesale TXU Energy TXU Electric Development/ Delivery Construction Company 2nd largest 6th largest T&D 9 GW active Access to Large scale company development deregulated largest ERCOT competitive program output generation retailer Top quartile costs fleet Up to 3 GW per Low-cost lignite Loyal and reliability reserves customers year phase 2 Access to High growth region development largest ERCOT 63 TWh of Strong brand program retail position Efficient capital recognition baseload recovery Advantaged production in Incumbent Superior construction gas on the regulatory No commodity service model margin market advocacy and exposure market design Active customer Industry-leading expertise No retail customers solutions performance business and reliability 4 TXU Power Development/Construction… To become the leading originator and constructor of Mission baseload generation throughout the US Originate long-term Develop steady Construct baseload off-take agreements pipeline of baseload generation 35% and equity sell opportunities to add cheaper and faster Objectives downs to ensure 30% 3 GW of new capacity and make 5% yearly of construction is annually improvement sold forward PJM Development Proprietary Construction Muni/Co-op Solutions Program Whole System Approach Industrial Solutions Incumbent Customer Advantaged Relationships Equity Partnership Solutions Strategy With Top Contractors And Solutions Manufacturers Industrial Partnerships Strategies Low-cost Country, Scaled National Advocacy Sourcing Program Initiative Learning Curve Codification Program 5
    • …Is Focused On Driving Advantages In Construction Costs And Origination Channels Leveraging scale to redefine costs… …and construction time… 06E; $/KW 06; Months 2,000 50 50 1,600 32 1,100 Recent US average TXU target Recent US average TXU target antecdotes anecdotes …following other successful build programs… …and locking up forward Texas power sales Kerr McGee Deepwater platform costs Incremental Municipal and Cooperative load 96-04; Index=100 05-15E; Percent 100% = 3.6 GW 30% learning curve factor 100 Demand not Active 75 targeted 27% 31% negotiations 50 25 0 42% 96 97 98 99 00 01 02 03 04 Targeted demand 6 TXU Power… To become the safest and most productive Mission operator of baseload generation in the US Achieve top decile Sustain year-over- Achieve industry reliability and year real productivity leading safety Objectives operating cost improvements of 5% performance performance across all operations Safety-first Attitude Reliability Centered TXU Operating Embedded In Culture Maintenance Program System Phase II Comprehensive Worldwide Supply Chain Industrial Training Program Management Partnerships/ Global Best Practices Strategies Safety Recognition And Reliability Optimization Incentive Programs Initiative TXU Academy Power Optimization Center 7 Integration
    • … Is Focused On Delivering Year-Over-Year Generation Performance Improvement …combined with superior coal operations… Industry-leading safety performance… Baseload plant lost time rate Capacity factor vs non-fuel O&M 05-06; Incidents/200k hrs 03-08E; Percent, $/KW-yr 100 0.07 08E 05 90 03 Top decile 80 70 0.00 0.00 60 EEI top 05 YTD 06 10 20 30 40 50 decile 1 …and a focus on continuous improvement …a top-performing nuclear operation… Capacity factor vs non-fuel O&M2 Industry annual productivity improvements 83-03; Percent 03-08E; Percent, $/KW-yr 08E 100 7 Top decile 05 90 03 80 3 2 2 70 1 60 Steel Telecom Refining US Gen- TXU Power 60 70 80 90 100 1 eration (05-08E) 8 Average of EEI top decile fossil & nuclear lost time rate 2 Normalized for outages & non recurring expenses TXU Wholesale… Deliver best in class energy management services to internal Mission and external customers Provide proprietary Optimize value and Develop and expand commodity insights manage risk across wholesale market Objectives and perform market TXU native assets presence advocacy National Commodities Fundamentals And Retail Risk Mitigation Expansion Program Quantitative Analysis Initiative Center Ex-Texas Growth Commodity Hedging Initiative National Regulatory Program Advocacy Program Strategies Large Customer Risk Management Solutions Culture Systems/Process 9 Initiative
    • …Is Focused On Managing Key Risks To Support TXU’s Growth Objectives Ensuring competitive fuel sourcing… …and optimizing asset value… PRB coal cost 03-06E; $/MMBtu Generation Wholesale Retail 1.43 1.39 1.24 1.23 Selling excess power forward Purchasing required shaped power Dispatching power generation 03 04 05 06E Executing hedging transactions Millions 6.4 7.8 9.0 9.4 tons of coal …while actively managing key risks… …all leveraging proprietary market fundamental perspectives TXU Corp Net Natural Gas Economic Position 07-10; Million MMBtu Emissions and Weather Natural Gas ~95 to Heat Rate 175 150 125 ~30 to 90 100 75 50 ~0 to 10 ~(5) to 5 25 0 07 08 09 10 0 20 40 60 80 Cumulative Capacity (GW) 10 TXU Energy… To become the national leader in competitive Mission retail electricity Enter new Continue Achieve Achieve 40% markets to developing industry- market share in grow $50 innovative Objectives leading ERCOT million customer customer residential business ex- solutions and service retail market Texas offerings Worry-free Service North Texas Three- Customer Loyalty Long-Term Positioning year Price Programs Commercial Protection Contract Strategy Differential Care, Multi- Predictive Modeling channel Strategies Value-Added Enhanced Offering Strategy Hedging Program Churn Minimization Self-service Products Strategies Strategies Technologies Initiative Proprietary Strategic Technology Customer Multi-Channel Development Acquisition Partnering Strategy Initiative Initiative 11
    • …Is Focused On Creating An Industry-Leading Retail Model Industry-leading customer satisfaction… …with a set of innovative offerings… Average speed to answer Residential product offerings from AREP 03-08E; seconds Oct 06; Number 268 10 5 5 3 2 11 11 Top decile TXU RRI CPL WTU FC 03 08E 05 …combine to support Texas load growth… …and provide for growth in new markets Active competition ERCOT residential load Potential competition 06-10E; TWh 33 30 Out of 4 11 territory In 26 22 territory 06 10E 12 TXU Electric Delivery… To become the most economical and Mission reliable shipper of electricity in the US Ensure operating Achieve congestion Achieve top-decile performance goals reductions of 50% reliability with SAIDI while maintaining through grid Objectives of less than 60 top-quartile cost management and minutes per year performance investment Asset Rehabilitation Infrastrux Energy Grid Optimization And Modernization Services Strategic Though Wide Area Initiative Partnership Visualization Program Distributed Smart Self-healing Network Via Transmission Grid Grid Technologies Smart Switches Capacity Initiative Strategies Broadband Over Advanced Technology Processor-based Power Line Network Development Initiative Protection Systems 13
    • … Is Focused On Cost-Efficient And Reliable Performance Improving system reliability… …and cost structure… O&M and SG&A per customer Non-storm SAIDI 03-08E; $/customer 03-08E; Minutes 186 184 166 77 74 70 Top decile 03 05 08E 03 05 08E … while focusing on technology… …and capital investment Automated meter installations Average annual capex investment 05-10E; Cumulative (thousands) 81-11E; $ millions 731 600 2,770 407 293 1,570 283 70 05 08E 10E 81-90 91-95 96-00 01-04 06-11E 14 Today’s Agenda TXU Development/TXU Construction Business Unit Business Unit TXU Power Strategies Strategies TXU Wholesale TXU Energy TXU Electric Delivery America’s Power Challenge Generation Generation The Texas Solution Growth Plan Growth Plan A National Solution Short-term Financial Growth Financial Financial Financial Sensitivities Outlook Outlook Long-term Sources And Uses Of Cash 15
    • Key Challenges Facing United States Power Industry Decreasing reliability caused by power demand growth and 1 generation permitting and construction challenges Increasing reliance on imported energy caused by a 300 GW 2 buildout of gas capacity combined with decreasing US reserves Increasing electricity prices caused by high-priced natural 3 gas and utilization of less efficient generation capacity Sub-optimal environmental performance caused by 4 continued use of aging, inefficient existing generation 16 1 Decreasing Reliability… Sustained US power demand growth... …combined with complex policy issues… US electricity demand Breakeven power prices 05-10E; TWh 06; $/MWh 8% Not dispatchable 4,200 180 4,000 86 73 60 50-53 3,800 3,600 Solar Wind Nuclear CCGT Coal 05 06 07E 08E 09E 10E …and projected low reserve margins …have created a supply-demand imbalance… 07E-11E; GW Incremental demand and supply growth 06-15E; GW Incremental 141 19 demand exceeds supply 2.5x 15 15 14 Minimum 11 reserve 9 57 8 margin 07E 5 11E Demand Supply ERCOT MRO RFC WECC 17 Source: NERC Source: NERC
    • … With An Increasing Reliance On Natural Gas… 2 A massive natural gas generation buildout… …has increased US demand for natural gas… US generation development US natural gas demand 95 - 06; GW 95-05; TCF 296 22 22 4 29% Power 5 29% 13 9 Other 7 18 17 2 7% 7% Nat Gas Renew Coal Hydro Other 95 05 Source: Energy Velocity …causing a growing supply deficit… …and increasing reliance on foreign reserves… US Natural gas supply and demand World natural gas reserves (100% = 6,338 TCF) 95-10E; TCF 05; Percent Russia Other 25 27 Demand 23 41 21 Supply 19 15 Iran 17 3 14 95 97 99 01 03 05 07E 09E U.S. 18 Qatar 3 …Has Caused Increased Prices… Higher natural gas costs… …and growing demand across the US… 95-10E; $/MMBtu Increase in year over year peak demand by NERC region 12 343% 06; Percent 343% 10 4.5 8 3.5 3.1 6 2.5 4 2.0 1.7 2 0 95 97 99 01 03 05 07 09 PJM ERCOT SPP CAISO ISO-NE NY-ISO …is increasing heat rates… …with the expectation of higher prices ERCOT supply curve example Impact on residential rates 06; $/MWh @ $8/MMBtu gas 06-07E; Percent increase Peak demand 72 06 10E 59 150 33 100 19 50 0 0 20 40 60 80 IL MD DE PA Cumulative Capacity (GW) 19
    • 4 …And Less Than Optimal Environmental Performance Environmental performance has improved… ...but construction cycles remain long based on permitting uncertainty… Electric demand vs. key emissions 06E; Months 80-05; Indexed to 1980 levels Electric 120 200 usage 150 72 100 45 24 SO2 50 NOX 0 80 85 90 95 00 05 CCGT PC IGCC Nuclear …causing the US to rely on an aging fleet… …resulting in higher emissions Age of US coal fleet NOX emission rate 06; Percent 06; lb/MMBtu 100% = 313 GW >50yrs 0.33 41-50yrs Increasing usage 8% <10yrs with decreasing 16% 1% 10-20yrs 9% reserve margins 0.13 0.05 0.03 34% 32% CCGT New coal Peaker Old coal 21-30yrs 31-40yrs unit 20 TXU Started By Meeting These Challenges In Texas Ensuring reliability and reducing reliance of natural gas through a plan to bring on 9 GW of new capacity by 2010, 5 rebalancing the Texas supply stack and helping to maintain adequate reserve margins through 2014 Lowering prices by leveraging a scale power generation 6 program to displace high cost generation and share savings with our customers Improving the environment through the largest ever 7 voluntary offset program and displacement of less efficient generation capacity 21
    • TXU’s Program Will Help Ensure Reliability And Reduce 5 Reliance On Natural Gas In Texas… Historical and projected ERCOT Generation capacity by fuel type reserve margins 06-10E; Percent 00-11E; Percent 40 100%= 1,070 GW 77 GW 90 GW Impact of TXU Power Generation Program 30 29 30 26 35 42 Other 23 58 19 20 17 16 17 16 15 11 12 12 65 12 3 10 58 Gas 42 9 7 5 0 US Texas 06E Texas 10E 00 03 06E 09E 2000 –– 2004 2000 2004 2005 –– 2007 2005 2007 2008 –– 2011+ 2008 2011+ Reduction in gas Reduction in gas 22 GW of natural gas fired Rapid Dangerously reliance and 22 GW of natural gas fired Rapid Dangerously reliance and generation added; demand low supplies volatility by shifting generation added; demand low supplies volatility by shifting adequate supplies growth require 1.5 GW the stack away from adequate supplies growth require 1.5 GW the stack away from eliminates per year gas towards solid eliminates per year gas towards solid reserve fuel reserve fuel 22 Source: ERCOT, 10/1/05 and 6/19/06 6 …Allowing TXU To Deliver Lower Cost Power To Its Customers… Breakeven power prices for TXU’s Power Generation Program Total annual ERCOT market savings 06E; $/MWh 11E; $ billions Forward power price 76-79 17 1.7 5 4 50-53 Market savings Expectations Decreased Decreased Operational TXU for subscale capital costs fuel costs advantages target builder Without scale, it would be virtually impossible for TXU Without scale, it would be virtually impossible for TXU to deliver needed cost savings to its customers to deliver needed cost savings to its customers 23
    • 7 …While Continuing To Improve The Texas Environment… Estimated key emissions SO2 NOX Hg Thousands of tons 2005 emissions (nine existing facilities) 273.1 42.1 .0025 Emissions after new development and 218.5 33.7 .0020 voluntary reductions Total TXU reductions 54.6 8.4 .0005 Reduction relative to 05 TXU emissions (20%) (20%) (20%) Additional reductions from displacement of 3rd 0.0 12.1 0.0 party units US ranking1 among 20 largest coal generators 1st 1st 2nd TXU emissions rates1 relative to US average (63%) (82%) (30%) TXU has committed to the largest voluntary emissions reduction in U.S. history TXU has committed to the largest voluntary emissions reduction in U.S. history TXU’s plan will more than double its capacity in Texas while cutting key TXU’s plan will more than double its capacity in Texas while cutting key emissions by 20% and its emission rates by 70% emissions by 20% and its emission rates by 70% 1 TXU after new power generation development program and retrofits; relative to average US coal plant 24 7 …And Investing To Ensure The Plants Are Ready For Potential Future Regulations Building the most efficient plants in the country… …and being designed for potential future carbon capture Coal plant steam outlet temperatures for plants under construction 06E; Degrees Fahrenheit IEA1 requirements to be Meet EPRI considered carbon TXU 1,085 1,085 advanced capture ready status supercritical standard Sufficient space in critical access locations 1,050 1,050 1,050 Options for CO2 storage Design studies on potential separation methodologies Pre-investments TXU Plant Plant Plant Plant including plant siting reference A B C D plant TXU is commercializing the most efficient coal plants and continues to ensure the plants TXU is commercializing the most efficient coal plants and continues to ensure the plants will be able to be retrofitted with carbon capture technology in the future will be able to be retrofitted with carbon capture technology in the future 25 1 International Energy Agency
    • TXU’s Texas Program Is Progressing Well, Despite Market Low Shifts In Cost And Regulatory Delay High Category Grade Remarks Reference plant draft permits issued - final permits expected 2Q07 Permitting Oak Grove delayed to January but no impact on critical path Sandow consent decree pending resolution Leveraged Kaizen events to design most economical advanced supercritical boiler Plant design that is carbon capture and sequestration ready Open book process continuing on schedule Construction Some labor pressure, but plants coming in on schedule Supply chain Uncovering opportunities for improvements to be used in next phase Successfully executed significant hedging transactions to support ability to project Hedging finance Active negotiations with over 1 GW of long-term demand PPA’s In discussions to sign up majority of long-term Texas demand Obtained commitment for $11 billion non-recourse project financing Financing Continuing to evaluate optimal capital structure LOI’s signed or in approval process for sale of 600 MW of Oak Grove and 50% of Equity another facility partnerships Sell down process for equity participation in program underway Gas weakened slightly Market environment Reserve margin expectations continue to tighten Rail and fuel Constructive negotiations with shippers based on size and dual rail access 26 TXU Is Now Focusing On Its National Plan Establishing profitable market entry strategies across 8 markets to help customers meet their energy challenges Redefining the performance potential of new build baseload 9 generation by taking advantage of the global supply learning curve to drive down prices and increase returns Advocating for tougher environmental standards and 10 investing in technologies to redefine the environmental performance of new generation 27
    • 8 Expanding The Portfolio Outside Of Texas… Working to build a business in PJM… …originating up to 10 GW of new generation… Completed Outstanding Status Units GW 3 GW of sites Final fuel plan Preliminary discussions 5 4 identified/secured Key stakeholder Preliminary transmission agreements Advanced discussions 4 3.5 studies complete completed by end of 06 Site engineering complete Letters of intent1 3 2.5 Geo-technical Preliminary air modeling evaluation Definitive agreements 0 0 complete Permit levels identified Total 12 10 and discussed with states 1 Letter of intent signed or in approval process. …exploring the potential for long term …and designing a model for new coal to energy intensive industrial demand… economically replace existing coal Potential incremental demand 20E; GW Designing a 35 model for new coal to compete in 7X24 14 coal on the prices 7 margin High markets Oil shale Tar sands Aluminum 28 Low 9 …Redefining Performance To Deliver Lower Cost Power And Open Up New Market Opportunities… Sourcing in Low Cost Countries (LCC)… …implying a $300/KW advantage in the US… Coal plant component costs Normalized LCC construction cost 06; $/KW 06E; $/KW 40% 26% 335 42% 40% 26% 42% 850 Sourced 230 in US 80 195 540 98 77 57 58 Sourced in LCC Incremental US US Boilers Turbines Balance of LCC coal env. capital labor normalized plant plant …that could help TXU deliver lower costs… …potentially creating a new market opportunity Power prices Breakeven conditions to displace generation 06; $/MWh 06; $/KW of capital cost 2,200 Displace existing gas 59 50 1,800 40 32 1,400 Today Displace old coal 1,000 TXU vision 600 US average TXU today TXU future Average 7.5 8.0 8.5 9.0 9.5 target LCC 29 Plant heat rate (MMBtu/MWh)
    • 10 …AdvocatingImprove Performance… For Tougher Environmental Standards And Investing To TXU is redefining environmental standards for …and CO2 emissions over the long term… regulated emissions... CO2 emissions rate 20E; Tons/ MWh 0.96 0.54 For every incremental 11ton of emissions of 0.80 For every incremental ton of emissions of SO2, ,NOX, ,and Hg from new generation, SO NO and Hg from new generation, 0.42 2 X existing emissions in Texas must be existing emissions in Texas must be reduced by at least 1.2 tons reduced by at least 1.2 tons Peaking Coal Reduction Long-term gas today levers vision - (11 HR) CCGT …while working to commercialize …and starting an environmental ventures technologies across the entire value chain… fund to spur investment in this area Generation Demand TXU Combustion Flue gas Customer Fuel Efficiency Gasification removal initiatives $200 Bank Advisory million Board fund Equipment • Coal • Waste to • R&D • Solid CO2 • Time of cleaning energy partnership capture use retail supplier products • Oxy- • Chilled firing NH3 • CO2 free Venture products • MEA capital • Efficiency • Storage 30 solutions study TXU Is Positioning Itself To Be A Leader Over The Low Long Term… High Key capability TXU Description Internal group of professionals with global Development expertise experience in multiple technology developments Internal group with development and nodal Transmission expertise modeling capabilities across multiple regions Valuation and risk Proven track record of value creation, capital management allocation, and risk management Proprietary Whole System Approach to Construction expertise construction Global supply chain Successfully implemented global sourcing effort to management reduce construction cost and time Baseload operational and Track record of best in class performance and fuel handling expertise experience in fuel handling and blending Developing national capabilities to augment strong National advocacy Texas skill base National regulatory Developing national capabilities to augment strong expertise Texas skill base 31
    • …And Has Line Of Sight Around 17 GW Of New Generation Development There is potentially an enormous …and TXU has line of sight around 17 GW of opportunity to add new generation… development 06-20E; GW 06-20E; GW 283 16-23 Incremental 5-10 160 growth 2-4 9 Advanced coal replacing 78 existing coal Advanced coal replacing 45 existing gas Total US growth ERCOT Merchant Customer Total opportunity (06-20) PJM business TXU is in substantive negotiations to develop 8 GW outside of ERCOT TXU is in substantive negotiations to develop 8 GW outside of ERCOT 32 Today’s Agenda TXU Development/TXU Construction Business Unit Business Unit TXU Power Strategies Strategies TXU Wholesale TXU Energy TXU Electric Delivery America’s Power Challenge Generation Generation The Texas Solution Growth Plan Growth Plan A National Solution Short-term Financial Growth Financial Financial Sensitivities Financial Outlook Long-term Sources And Uses Of Outlook Cash 33
    • Commodity and Capital Allocation Impacts Have Reshaped The Earnings Power Earning Power Impact 07 11 May 06 business plan 5.75 9.75-10.001 Lower wholesale power prices reduce gross margins for TXU Power and Commodities Commodities reduce TXU Energy’s gross margin when they are passed on to customers; PRB increases ~(.20) ~(1.20) Increased growth investment, reduced Capital Capital OCF, and higher share prices reduce the Allocation Allocation # of share repurchased ~(.15) ~(.50) Sell-down reduces risk and improves Sell-downs Sell-downs capital returns but reduces EPS 0 ~(.45) Current business plan2 5.25-5.55 7.55-7.85 TXU’s new build strategy enables a 5-year growth trajectory of 8-10% TXU’s new build strategy enables a 5-year growth trajectory of 8-10% 1 2010 indicative earnings as of May 2006 2 Indicative pro forma for 2007 and 2011 reflects current targets for the 11 new generation units currently planned in Texas. 2007E operational earnings estimate excludes fees, expenses, and interest associated with debt that is part of the expected TXU Power Development nonrecourse financing package. 34 Through 2011 TXU Is Generating Significant Free Cash Flow And Planning Very Significant Investments Sources of cash1 Uses of cash1 07E-11E (indicative); $ billions 07E-11E (indicative); $ billions 19-22 19-22 New plant equity 1.0-2.0 sell-down 1.5-2.0 Cash for investment/ 8.5-9.5 Electric distribution Delivery debt De-levering 1.5-2.0 16.5-18.0 OCF Dividends 3.5-4.0 Core portfolio capex 5.5-6.5 07E-11E 07E-11E TXU is investing in its core business while returning aasignificant amount of capital to TXU is investing in its core business while returning significant amount of capital to shareholders. Over 06-11, > $1 bn is earmarked for additional growth investments shareholders. Over 06-11, > $1 bn is earmarked for additional growth investments 1 Excludes capital expenditures and operating cash flows for the 11 new ERCOT development units expected to be reimbursed from TXU Power Development Company’s non-recourse financing. 35
    • TXU’s Risk Strategy Will Lock-In Substantial Value For The New Build Projects… New build program NPV distribution 06; Number of trials 1 2 3 4 Merchant coal plant Impact: Hedges/PPA’s Impact: Sell downs Impact: Continued build and performance P(NPV<0)= 13% P(NPV<0)= 7% P(NPV<0)= 3% P(NPV<0)= 1.5% 1000 -1000 0 1000 -1000 0 1000 1000 -1000 0 -1000 0 Hedge volumes for debt Sell down up to 49% equity Continue to construct financing and sell forward at prices at or above hold capacity and ride down volumes above hold case case learning curve New GW 1.0 1.0 0.5 1.0 PV/I 1.6 1.6 2.4 4.2 Gas exp. Base exposure 30% reduction 65% reduction 30% reduction Carbon exp. Base exposure 0% reduction 49% reduction 0% reduction Earnings (GW) $0.20-$0.25 $0.19-$0.24 $0.15-$0.20 $0.35-$0.45 36 …While Helping To Build The Option To Capture Upside Developing the option to Value of new build strategy to TXU build allows TXU to capture 06 significant upside in high commodity environments A merchant model is The combination of hedges, completely levered to gas and sell downs reduces gas Option to prices with the potential to exposure and helps to destroy value at low gas ensure value capture even in build prices downside cases comes in the money 3.0 4.0 5.0 6.0 7.0 8.0 Levelized natural gas price $/MMBtu The combination of locking in value today through hedging, PPA’s and sell The combination of locking in value today through hedging, PPA’s and sell downs and building the option to add capacity creates a robust business model downs and building the option to add capacity creates a robust business model 37
    • Expansion Opportunities Give TXU The Ability To Grow Under Different Scenarios… GW added Scenario by 2015 Description Backwardated gas prices, severe greenhouse gas regulations, slow technology Texas only ~9 improvements, and/or regulatory barriers limit the potential for coal outside of Texas The backwardated gas curve, combined with slow technology advances provides a limited Advanced window over the next 10 years for coal to be coal on gas ~20 the winning new build technology opportunity New coal is not advantaged enough to fully displace existing coal Improvements in new coal technology, costs, efficiency, and environmental performance Advanced allow it to displace existing, inefficient, high coal on ~30 emission generation old coal opportunity The 280 GW opportunity for new development becomes economically available 38 … And The Ability To Grow EBITDA In A Backwardated Commodity Environment Potential EBITDA 7-14% 7-14% 11E-15E; $ billions CAGR CAGR 11.2 2.5 2.5 1.0 6.2 ~6.7 0.5 TXU Backwar- Core business TXU 2015E Advanced Advanced 2015E 2011E dated performance in Texas coal on gas coal on coal potential (including commodity improvements only opportunity opportunity ERCOT environment scenario new build) Successful execution of the build strategy could provide a solid long-term Successful execution of the build strategy could provide a solid long-term EBITDA growth strategy overcoming the backwardated commodity environment EBITDA growth strategy overcoming the backwardated commodity environment 39
    • TXU: Competitively Positioned To Meet America’s Energy Challenges 1. Competitively advantaged businesses across the value chain positioned for long- 1. Competitively advantaged businesses across the value chain positioned for long- term success term success –– Structurally advantaged low cost position difficult to replicate Structurally advantaged low cost position difficult to replicate –– Industrial skill set focused on top decile operations Industrial skill set focused on top decile operations –– Scale to drive waste out of the value chain Scale to drive waste out of the value chain 2. Business model to profitably meet America’s energy challenges 2. Business model to profitably meet America’s energy challenges –– Advantaged build model to help improve reliability, lower prices and improve the Advantaged build model to help improve reliability, lower prices and improve the environment environment –– Focus on driving new build construction costs to worldwide low cost levels Focus on driving new build construction costs to worldwide low cost levels –– Advocacy for tougher environmental standards to help remove inefficient existing Advocacy for tougher environmental standards to help remove inefficient existing generation from service generation from service –– Investment in the next generation of technology to improve the environment Investment in the next generation of technology to improve the environment 3. Balanced focus on rigorous capital allocation and organic growth that will overcome 3. Balanced focus on rigorous capital allocation and organic growth that will overcome the backwardated commodity environment the backwardated commodity environment –– Reduced 07E earnings based on aafunctioning competitive market and value Reduced 07E earnings based on functioning competitive market and value being returned to the customer being returned to the customer –– 5-year earnings growth of ~8% to 10% based on the Texas new build program 5-year earnings growth of ~8% to 10% based on the Texas new build program –– Continued long term EBITDA growth based on success of Ex-ERCOT strategy Continued long term EBITDA growth based on success of Ex-ERCOT strategy 40 Appendix – Regulation G Definitions
    • Financial Definitions Measure Definition Capex Capital expenditures. 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. Operating Cash Flow Cash provided by operating activities. (GAAP) Operational Earnings per Operational Earnings Per Share (a non-GAAP measure) is defined as per share Share (non-GAAP) (diluted) income from continuing operations, excluding special items. Beginning in the fourth quarter of 2006, TXU also plans to exclude all effects of unrealized cash flow hedging ineffectiveness and market-to-market gains or/and losses on positions in its long- term hedging program from operational earnings because management believes such presentation will more appropriately reflect the ongoing earnings of the business. The effect is that only realized gains and losses on positions in the long-term hedging program are reflected in operational earnings. TXU forecasts earnings on such operational earnings basis and is unable to reconcile forecasted operational earnings to a GAAP financial measure because forecasts of special items and material non-recurring items or ineffectiveness or market-to-market gains or losses on its long term hedging program are not practical. 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. 42