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    energy future holindings txu_121206 energy future holindings txu_121206 Presentation Transcript

    • The Need For Power In Texas Natural Gas Fundamentals And Reliance On Gas-Fired …That Is Further Complicated By Rapidly Growing Demand Generation Have Placed Texas’ Power Supply At Risk… And An Aging Generation Fleet Growing supply deficit for US natural gas… …and increased reliance on foreign reserves… Texas has a rapidly growing population… …that will deplete current reserve margins… 95-10E; TCF 05; Percent (100% = 6,338 TCF) Total population growth ERCOT reserve margins 00-15E; Millions of people 00-11E; Percent Other Russia 25 6.3 5.7 US Over 80% of 27 5.2 30 29 23 Over 80% of 26 demand total world 41 23 total world reserves are 16 17 16 15 21 reserves are 2.4 11 controlled by controlled by 2.0 2.0 9 7 19 US foreign 1.4 1.1 1.1 0.9 5 foreign 15 supply Iran 17 governments governments 3 14 95 97 99 01 03 05 07 09 U.S. CA TX FL AZ GA NC VA NV WA MD 00 02 04 06E 08E 10E Qatar …and stress an aging generation fleet… …resulting in increasing heat rates …have driven high and volatile prices… …particularly in markets with gas on the ERCOT generation fleet age ERCOT generation supply 95-10E; $/MMBtu1 margin 06; Percent of generation capacity 06; $/MWh @ $8/MMBtu gas 06; Percent of time gas is on the margin 100% = 77 GW Peak demand 150 06 10 12 343% 343% 41-50yrs >50yrs 10 92 90+ 2% 80 79 6% <10yrs 100 8 58 31-40yrs 6 47 22% 40 35% 50 4 2 0 0 19% 0 20 40 60 80 FRCC ERCOT WECC NEPOOL Entergy SPP PJM 95 97 99 01 03 05 07 09 21-30yrs 16% Cumulative capacity (GW) 1 Projected prices from 06-10 based on calendar strip prices as of Aug 31, 2006 1 10-20yrs 2 TXU Examined All Generation Technologies… …And The Tradeoffs Associated With Each Competitive Capital recovery technology Fixed O&M Horizon 1 Horizon 2 Technology Emission cost 0-5 years 5-15 years Levelized price to achieve full reinvestment economics Fuel and variable O&M 06; $/MWh Constructible Wind Cost effective 86 with subsidies 73 71-74 60 Gas Constructible 50-53 Reliable 71 15 45-48 58 2 0.2 25-28 Pulverized Constructible 7 43 4 coal Reliable 0.6 1.0 Cost effective 15 8 18 20 Constructible 7 1 IGCC Reliable Wind Advanced IGCC CCGT Super-critical Cost effective nuclear coal Constructible Supercritical pulverized coal has a distinct advantage over the other technologies Supercritical pulverized coal has a distinct advantage over the other technologies Nuclear Reliable and could have a steep learning curve to widen the gap and could have a steep learning curve to widen the gap Cost effective 3 1Includes $3/MWh renewable energy credit (REC); does not include production tax credit (PTC) 4
    • The Need For Power In Texas TXU’s Plan Will Help Meet These Challenges In Texas TXU’s Program Will Help Ensure Reliability And Reduce Reliance On Natural Gas In Texas… Historical and projected ERCOT Generation capacity by fuel type Ensuring reliability and reducing reliance of natural gas reserve margins 06-10E; Percent through a plan to bring on 9 GW of new capacity by 2010, 00-11E; Percent 1 rebalancing the Texas supply stack and helping to maintain 40 Impact of TXU Power 100%= 1,070 GW 77 GW 90 GW adequate reserve margins through 2014 Generation Program 30 30 29 26 35 42 23 Other 58 19 Lowering prices by leveraging a scale power generation 20 16 17 16 17 2 program to displace high cost generation and share savings with our customers 15 11 12 12 10 3 12 65 Gas 58 42 9 7 5 0 Improving the environment through the largest ever 00 03 06E 09E US Texas 06E Texas 10E 3 voluntary offset program and displacement of less efficient generation capacity 2000 – 2004 2000 – 2004 22 GW of natural gas fired 22 GW of natural gas fired generation added; generation added; 2005 – 2007 2005 – 2007 Rapid Rapid demand demand 2008 – 2011+ 2008 – 2011+ Dangerously Dangerously low supplies low supplies Reduction in gas Reduction in gas reliance and reliance and volatility by shifting 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 eliminates per year per year gas towards solid gas towards solid reserve fuel reserve fuel 5 Source: ERCOT, 10/1/05 and 6/19/06 6 …Allowing TXU To Deliver Lower Cost Power To Its …While Continuing To Improve The Texas Environment Customers… Breakeven power prices for TXU’s Power Generation Program Total annual ERCOT market Estimated key emissions SO2 NOX Hg 06E; $/MWh savings Thousands of tons Forward power price 11E; $ billions 2005 emissions (nine existing facilities) 273.1 42.1 .0025 76-79 17 1.7 Emissions after new development and 218.5 33.7 .0020 5 4 voluntary reductions 50-53 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 Market savings TXU emissions rates1 relative to US average (63%) (82%) (30%) Expectations Decreased Decreased Operational TXU for subscale capital costs fuel costs advantages target builder 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 Without scale, it would be virtually impossible for TXU 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 Without scale, it would be virtually impossible for TXU to deliver needed cost savings to its customers emissions by 20% and its emission rates by 70% emissions by 20% and its emission rates by 70% to deliver needed cost savings to its customers 7 1 TXU after new power generation development program and retrofits; relative to average US coal plant 8
    • Coal Is The Fuel Of Choice While TXU Believes A Portfolio Of Technologies Is Needed To …Today, Supercritical Coal Appears To Have The Economic Meet America’s Energy Challenges… Advantage Horizon 1 Horizon 2 Capital recovery Technology 0-5 years 5-15 years Fixed O&M Levelized price to achieve full reinvestment economics Constructible 06; $/MWh Emission cost Wind Fuel and variable O&M Cost effective 86 with subsidies 73 71-74 Gas Constructible 60 Reliable 50-53 71 15 45-48 SCPC Constructible 58 2 Reliable 0.2 25-28 Cost effective 7 43 4 Constructible 0.6 1.0 IGCC Reliable 8 18 20 Capacity additions Cost effective 15 7 represent 12% of 06-20 1 US demand growth Constructible Wind Advanced IGCC CCGT Supercritical coal Nuclear Reliable nuclear Cost effective Technology GW Technology GW TXU aspiration: Wind 1.5 Wind 3.0 Supercritical pulverized coal has a distinct advantage over the other technologies Supercritical pulverized coal has a distinct advantage over the other technologies balanced portfolio of SCPC 23.0 SCPC 30.0 and could have a steep learning curve to widen the gap and could have a steep learning curve to widen the gap IGCC 0.0 IGCC 6.0 state of the art Nuclear 2.5 Nuclear 8.0 generation 1Includes 1 2 $3/MWh renewable energy credit (REC); Does not include production tax credit (PTC) Total 27.0 Total 47.0 While The Characteristics Of Wind Generation Make It …Wind Must Be Part Of The Solution Difficult To Meet Long-Term Baseload Demand… TXU plans to double its wind …furthering Texas as the nation’s portfolio by 2010… leader in wind generation capacity Wind availability versus hourly electricity demand in ERCOT 06; Percent TXU wind generation purchases Total wind generation capacity 05-10E; MW 06; MW 100 146% 146% 80 1,425 2,370 2,325 Hourly 1,260 1,100 At peak demand demand 930 60 periods wind averages less than 40 20% capacity 580 Wind 825 800 capacity 20 0 1 5 9 13 17 21 06E 07E 08E 09E 10E TX CA IA MN Hours Not only does wind peak in the off-peak hours, it peaks in the shoulder months Not only does wind peak in the off-peak hours, it peaks in the shoulder months TXU is the largest purchaser of wind generation in Texas TXU is the largest purchaser of wind generation in Texas Source: AWEA Second Quarter Market Report, July 3 Source: AWEA Second Quarter Market Report, July 4
    • Coal Is The Fuel Of Choice There Must Be Regulatory And Capital Breakthroughs To …As Well As Solutions For Long-Term Storage Of Spent Fuel Make Nuclear Generation Competitive In The Long Term… Escalating costs with expectations of …and concerns about storage capacity have made additional increases…. nuclear capacity additions uncertain Estimated construction cost for the Estimated U.S. used nuclear fuel accumulation High construction costs… …combined with long …result in a high total Yucca Mountain Project 00-50E; Thousands of tons of heavy metal (tHM) lead times… cost relative to coal 86-00; $ billion1 200 MIT “global 76% growth” Construction costs Installation time Breakeven power price 76% Nuclear scenario 06E; $/KW 127% 06E; Months 167% 06E; $/MWh 43% growth 127% 167% 43% 60 150 scenario Yucca Mountain 2,500 120 70-73 73 capacity according to DOE 01 study (83,800 20 100 tHM) 34 1,100 45 CO21 50-53 50 Yucca Mountain legal capacity (63,000 tHM) SCPC coal Nuclear SCPC coal Nuclear SCPC coal Nuclear 0 86 00 00 05 15 25 35 45 The lack of a long-term spent fuel solution also makes The lack of a long-term spent fuel solution also makes nuclear a longer-term generation solution nuclear a longer-term generation solution A solution for spent fuel must be defined before nuclear can be a long-term A solution for spent fuel must be defined before nuclear can be a long-term solution for America solution for America 5 6 1 Based on potential carbon scenario with current European ETS pricing 1 02 dollars Today, IGCC Is Uncompetitive With The Supercritical Coal Gas Fundamentals And Improvements In Supercritical Coal Technology Make It The Winning Economic Technology Today Coal is a relatively low cost fuel source… …in abundant supply in the US Breakeven power price of SCPC and IGCC in Texas Commodity prices US reserves 06; $/MWh 99-06; $/MMBtu 04; Years of remaining reserves 12 191% 200 1,900% 1,900% 3 2 71-74 13 4 1 9 Natural Gas 50-53 1 6 1 3 Coal 29% 0 10 Sep- Sep- Sep- Sep- Sep- Sep- Sep- Sep- 99 00 01 02 03 04 05 06 Gas Coal TXU PC Lower Lower Higher Lower Longer Longer Higher IGCC reference emissions heat rate capital capacity ramp up time to operating estimate Coal technology has become more cost …and emissions have been reduced plant cost cost factor time build cost effective… dramatically PC ref plant Per TXU 9,130 $1,100/KW 94% None 38 months $42/KW/yr Improvements in construction cost NOX emissions from US power plants MMBtu/ 95-05; Percent reduction 05; Lbs/MMBtu estimate nominal (online 01/10) MWh IGCC baseline Per TXU 8,520 $1,800/KW 85% 6 Months 62 months $56/KW/yr estimate MMBtu/ nominal (online 01/12) 45 85% MWh 104% 0.33 85% 104% 22 IGCC is unproven on coal available in Texas IGCC is unproven on coal available in Texas Longer construction time makes it difficult to hedge output Longer construction time makes it difficult to hedge output 0.03-0.13 0.05 Cost of carbon capture is not necessarily advantaged Cost of carbon capture is not necessarily advantaged US average TXU new Gas Source: GE; EPRI, academic literature; press reports 7 Gas Coal coal coal 8
    • Coal Is The Fuel Of Choice TXU Is Investing In The Newest Technology… …To Ensure The Plants Are Part Of The Environmental Solution SO2 Building the most efficient plants in the country… …designed for potential future carbon capture Average emission rates Coal plant steam outlet temperatures for plants NOX under construction 70-15E; Lbs/MMBtu 06E; Degrees Fahrenheit 4.37 Meet EPRI IEA requirements to be 1,085 1,085 advanced considered carbon capture TXU supercritical ready status standard Sufficient space in critical access locations >90% >90% 1,050 1,050 1,050 Options for CO2 storage 1.08 0.78 Design studies on potential 0.29 0.35 0.29 separation methodologies 0.12 0.12 ~0.2 ~0.1 0.10 0.05 TXU Plant Plant Plant Plant Pre-investments including US Avg US Avg Texas CAIR Oak Grove, Reference plant siting reference A B C D 1970 2004 2004 2015 Sandow 5 plants plant TXU is commercializing the most efficient coal plants and continues to ensure TXU is commercializing the most efficient coal plants and continues to ensure TXU’s new plants will operate with the best available control technology, TXU’s new plants will operate with the best available control technology, the plants will be able to be retrofitted with carbon capture technology the plants will be able to be retrofitted with carbon capture technology reinforcing Texas’ proven environmental track record reinforcing Texas’ proven environmental track record 9 Source: EPA Acid Rain database and EIA 10 TXU Is Proactively Investing In Next Generation Technologies As In Europe, TXU Believes These Advances Will Continue To Make Coal The Winning Technology TXU is investing across technologies… …while working to commercialize Horizon 1 Horizon 2 technologies across the entire value chain… 0-5 years 5-15 years Generation Demand Levelized breakeven power cost European announced new Wind $/MWh build capacity 11+; Percent (100%=54 GW) Gas Fuel Combustion Efficiency Flue gas Customer IGCC Other Gasification removal initiatives Advanced coal 100 Wind Coal • Coal • Waste to • R&D • Solid CO2 • Time of Wind 5 cleaning energy partnership capture use retail IGCC • Oxy- • Chilled products firing NH3 • CO2 free 80 Nuclear • MEA products 40 • Storage • Efficiency 33 Nuclear study solutions 60 …acquiring the lowest-cost carbon offsets …and starting an environmental ventures CCGT @ across the world economy… fund to spur investment in this area SCPC 6.50/MMBtu 40 5 4 06; $/ton Nuclear 13 TXU 0 5 10 15 20 25 30 35 IGCC 120 Transport Natural Methane efficiency CO2 credit, $/ton 90 capture gas Bank $200M Industrial No-till Advisory 60 gas fund Board farming Equipment capture It would take a combination of low gas prices and high sustained carbon prices to It would take a combination of low gas prices and high sustained carbon prices to 30 supplier make the winning technology a non-coal technology make the winning technology a non-coal technology 0 Venture 0 1 2 3 4 5 6 7 8 capital This gap will continue to widen as the coal construction learning curve is exploited This gap will continue to widen as the coal construction learning curve is exploited CO2 reductions (Billion tons) 11 12
    • TXU Development: Solving America’s Energy Challenges TXU Power Development Is Focused On Developing A TXU Announced 9.1 GW of New Coal Capacity To Meet The Pipeline Of Origination Opportunities Future Power Needs Of Texas To become the Net leading originator Capacity Mission and constructor of Unit MW Fuel County baseload generation throughout the US Oak Grove 1, 2 1,634 Lignite Robertson Valley Monticello Sandow 5 581 Lignite Milam Morgan Creek Martin Lake Big Brown Big Brown 3 858 PRB Freestone Tradinghouse Originate long-term Develop steady Construct baseload Lake Creek Oak Grove Monticello 4 858 PRB Titus off-take agreements pipeline of baseload generation 35% Sandow and equity sell Martin Lake 4 858 PRB Rusk Objectives opportunities to add cheaper and faster downs to ensure 30% 3 GW of new capacity and make 5% annual of construction is Morgan Creek 7 858 PRB Mitchell annually improvement sold forward Tradinghouse 3, 4 1,716 PRB McLennan PJM Development Proprietary Construction Muni/Co-op Solutions Program Whole System Approach Lake Creek 3 858 PRB McLennan Industrial Solutions Incumbent Customer Advantaged Relationships Equity Partnership Valley 4 858 PRB Fannin Solutions Strategy With Top Contractors and Solutions Manufacturers Strategies Industrial Partnerships National Advocacy Global Low-cost Country, TXU is using its current, advantaged sites to expand capacity in ERCOT TXU is using its current, advantaged sites to expand capacity in ERCOT Scaled Sourcing Program Initiative Learning Curve Codification 1 2 TXU Has Focused Its Near-Term Ex-ERCOT Growth On The TXU Is Also Working With Regulated Entities To Deliver New Deregulated PJM and Northeast Markets Generation At Lower All-In Costs Northeast coal investment return analysis Status of PJM development TXU’s current origination efforts include up to …to provide potential customers with long- 06; IRR effort 10 GW of new generation… term, low-cost power Breakeven power prices for TXU’s Power Generation Program Completed Outstanding 06E; $/MWh Status Units GW 4 76-79 Target entry zones 5 3 GW of sites Final fuel plan 17 identified/secured Key Preliminary discussions 5 4 Preliminary stakeholder transmission agreements 50-53 studies complete completed by Advanced discussions 4 3.5 Site engineering end of 2006 complete Geo-technical Letters of intent1 3 2.5 Preliminary air evaluation modeling complete Definitive agreements 0 0 Permit levels identified and Total 12 10 discussed with states TXU Increased Increased Operational Regulated High target capital fuel costs disadvan- cost costs tages expecta- tions Low TXU has had more than 10 unsolicited requests for development projects in TXU has had more than 10 unsolicited requests for development projects in regulated markets regulated markets 1 Letter of intent signed or in approval process. 3 4
    • TXU Development: Meeting America’s Energy Challenges Improving New Build Construction Performance Could …Potentially Opening Additional Markets For New Coal Enable Displacement Of Existing, Inefficient Generation… Plant Developments… US 7X24 power prices Designing a business 07E; $/MWh model for advanced coal to compete in markets Generation reinvestment economic comparison (PV/I = 1.3) with coal on the margin 06; $/MWh 71-74 SOx SOx 73 emissions emissions 60 7 cost cost 8 19 56 Variable ~50 cost 7 40-43 43 7X24 43 21 10 Fixed 19 53 prices 58 45-48 4 High cost 4 15 2 28 Capital 23-26 7 15 17-20 recovery 8 3 5 CCGT Nuclear IGCC Advanced Advanced Nuclear Old CCGT Old un- ($6.50/ coal – TXU coal – (existing) ($6.50/ scrubbed MMBtu reference potential next MMBtu coal gas price) plant target1 wave gas price) plants reference plant2 Low If TXU could lower capital costs by ~30% and/or improve heat rate by 7%, TXU’s If TXU could lower capital costs by ~30% and/or improve heat rate by 7%, TXU’s next wave of coal plants could displace both gas and old coal plants next wave of coal plants could displace both gas and old coal plants Coal-on-coal competition represents a 78 GW market opportunity in the US Coal-on-coal competition represents a 78 GW market opportunity in the US 1 $1,100/KW cost to build, 9.13 MMBtu/MWh heat rate 2 $800/KW cost to build, 8.5 MMBtu/MWh heat rate 5 6 …By Creating An Opportunity To Replace Existing Coal TXU Believes That Tougher Environmental Standards… With New Efficient Advanced Coal US coal fleet heat rates US coal fleet ages TXU is redefining environmental standards …and CO2 emissions over the long-term 06; Percent of US coal generation capacity 06; Percent of US coal generation capacity for regulated emissions... CO2 emissions rate 100% = 313 GW 100% = 313 GW 20E; Tons/MWh >12 HR 0.96 0.54 >50yrs 8-9 HR 41-50yrs <10yrs 0.80 4% 2% For every incremental 1 ton of 11-12 HR 8% 10-20yrs For every incremental 1 ton of 16% 1% 9% emissions of SO2, ,NOX, ,and Hg emissions of SO NO and Hg 22% 2 X from new generation, existing 0.42 34% from new generation, existing 9-10 HR emissions in Texas must be emissions in Texas must be reduced by 1.2 tons reduced by 1.2 tons 34% 32% Peaking Coal Reduction Long-term 38% 31-40yrs 10-11 HR 21-30yrs gas today levers vision - (11 HR) CCGT Almost 60% of generation capacity is more than 30 years old and has a heat Almost 60% of generation capacity is more than 30 years old and has a heat TXU is working across the power value chain to commercialize TXU is working across the power value chain to commercialize rate of above 10.0 rate of above 10.0 technologies that will economically improve environmental performance technologies that will economically improve environmental performance 7 8
    • TXU Development: Meeting America’s Energy Challenges …Will Further Expand The Opportunity For New Coal Captive Industrial Demand Provides Another Potential Technology Channel For New Efficient Baseload Capacity Oil sands growth will create enormous demand for …however, the power demand from oil shale recovery Capacity of advanced coal to replace old coal Capacity of advanced coal to replace old coal with power generation… will be almost double that of oil sands 06; GW $20/ton CO2 tax Equivalent electricity capacity/boiler size requirement Projected production and power requirement 06; GW 06-20E; GW Increase Increase of New coal capital cost ($/KW) of New coal capital cost ($/KW) Power needed Future oil shale 8-12 GW for heating1 production emission emission new 10E-30E; GW 10E-30E; MMbpd cost 800 900 1,000 1,100 cost 800 900 1,000 1,100 build 40 4 10.3-14.1 0% 78 64 51 39 0% 135 109 86 71 35 8.4-11.5 30 Production 3 50% 131 111 93 76 50% 186 162 141 125 25 Power 100% 170 157 141 124 100% 212 201 177 166 5.5-7.5 20 needed 2 15 2.7-3.7 10 1 5 0 0 06E 10E 15E 20E 10E 15E 20E 25E 30E Tighter environmental regulation will significantly increase the opportunity to Tighter environmental regulation will significantly increase the opportunity to build cleaner advanced coal to replace inefficient old coal Power demand growth in the oil sands and oil shale could total up to 50GW Power demand growth in the oil sands and oil shale could total up to 50GW build cleaner advanced coal to replace inefficient old coal 1Does not include electricity needs for freeze wall, production, or transport 9 Source: Shell Exploration and Production Company; Oil Shale Review (J. Laherrere); RAND; U.S. Congressional testimony; team analysis 10 TXU Has Line Of Sight Around 17 GW Of New Generation …And Is Positioned To Be A Long-Term Leader In Low Development… Power Development High There is potentially an enormous …and TXU has line of sight around 17 GW of Key capability TXU Description opportunity to add new generation… development 06-20E; GW 06-20E; GW Development expertise Internal group of professionals with global 283 experience in multiple technology developments Transmission expertise Internal group with development and nodal modeling 16-23 capabilities across multiple regions 5-10 Incremental Valuation and risk Proven track record of value creation, capital growth 160 management allocation, and risk management 2-4 9 Construction expertise Advanced Proprietary Whole System Approach to construction coal replacing existing coal Global supply chain Successfully implemented global sourcing effort to 78 management reduce construction cost and time Advanced coal replacing 45 Baseload operational and Track record of best in class performance and existing gas fuel handling expertise experience in fuel handling and blending ERCOT Merchant Customer Total Total US growth PJM business National advocacy Developing national capabilities to augment strong opportunity (06-20) Texas skill base TXU is in substantive negotiations to develop 8 GW outside of ERCOT TXU is in substantive negotiations to develop 8 GW outside of ERCOT National regulatory Developing national capabilities to augment strong expertise Texas skill base 11 12
    • TXU Construction: Redefining Generation Construction Redefining Baseload Construction Processes Are Key To TXU Has Implemented A New Business Model To Make The TXU Power Development Company Strategy Step Change Improvements In Construction Cost And Time To become the leading originator and constructor of All-in construction cost estimates for announced US supercritical coal units Mission baseload generation 05-06; $/KW throughout the US 1,700-2,000 1,733 1,669 30% 1,635 1,600 1,576 1,518 1,450 1,100 Originate long term Develop steady Construct baseload off-take agreements pipeline of baseload generation 35% and equity sell Objectives opportunities to add cheaper and faster downs to ensure 30% 3 GW of new capacity and make 5% annual of construction is annually improvement sold forward Recent Plant A Plant B Plant C Plant D Plant E Plant F Plant G TXU PJM Development Proprietary Construction Muni/Co-op Solutions anecdotes target Program Whole System Approach Industrial Solutions Incumbent Customer Advantaged Relationships Equity Partnership Time from 39 45 53 54 59 47 - 30-32 Solutions Strategy With Top Contractors And Solutions Manufacturers permit to Strategies Industrial Partnerships Global Low-cost Country, online National Advocacy Scaled Sourcing Program Initiative TXU has leveraged scale to achieve significant cost and time savings TXU has leveraged scale to achieve significant cost and time savings Learning Curve Codification 1 2 The Improvements Were Fundamentally Enabled By The Scale Has Created Substantial Savings That Suppliers Were Scale Of The Build Willing To Share With TXU Cost to construct reference plants The TXU program allowed suppliers to …translating to step change 06; $/KW remove waste from their process… improvements in delivery time Overall equipment effectiveness Number of units Percent 34% 2,000 530 31% 9 TXU reference 215 8 plant program 85 70 1,100 5 3 85 7 12 6 65 5 4 Typical Scale Design and Overhead Project TXU target 3 “brownfield” procurement specifications scale management Eight 2 individual build savings estimate 1 steam turbine unit build-out 0 Typical Reduced Reduced Reduced Optimized equipment die speed rework equipment 10 14 18 22 26 30 34 38 42 46 50 effectiveness change- losses effectiveness Months overs TXU’s goal is to translate its high performance construction model into a TXU’s goal is to translate its high performance construction model into a sustainable competitive advantage to support long-term growth sustainable competitive advantage to support long-term growth By utilizing 100% of GE’s manufacturing space in Schenectady, TXU was able By utilizing 100% of GE’s manufacturing space in Schenectady, TXU was able to move the turbine equipment off of the construction critical path to move the turbine equipment off of the construction critical path 3 4
    • TXU Construction: Redefining Generation Construction TXU Continues Progress Towards A Target Of $1100/KW …And Delivering TXU’s High Performance Schedule Build Cost Via Major Equipment And Materials Sourcing… Sourcing status Key equipment Awarded In negotiation Estimated Initial Bechtel based on bids estimates received Power block 100% 0 0 0 Eng. Equipment 0% 17% 74% 9% Bulk Materials 31% 0 1% 68% Sub-Contracts 40% 0 0 60% Sub Total 56% 7% 12% 25% TXU plans to have the book closed by first quarter of 07 TXU plans to have the book closed by first quarter of 07 Construction on the Sandow 5 unit is progressing according to schedule Construction on the Sandow 5 unit is progressing according to schedule 5 6 Construction Learning Curves In Other Industries Suggest TXU Has Already Seen The Potential For Improvement Strong Improvement Potential For Coal Plant Construction Through Equipment Sourcing In Low-Cost Countries (LCC)… E&P example Coal plant component costs 06; $/KW Lower costs… …in less time Platform costs E&C time 40% 40% 26% 26% 42% 42% 96-98; $ thousands/ton 94-97; Years/platform 335 36% 44% 14.4 5.3 Sourced in 11.3 US 9.2 195 3.0 Sourced in LCC 98 77 58 57 A B C 94 97 96 97 98 Boilers Turbines Balance of Other companies have created a distinct competitive advantage Other companies have created a distinct competitive advantage plant leveraging the scale of their construction investment to reduce leveraging the scale of their construction investment to reduce the costs and time of construction the costs and time of construction TXU sees even more potential to leverage LCC sourcing to reduce costs TXU sees even more potential to leverage LCC sourcing to reduce costs 7 8
    • TXU Construction: Redefining Generation Construction …Translating To Lower Construction Costs… …And Estimated Manufacturing Capacity Implies That TXU Can Access These Markets Normalized low-cost country construction cost “Generation equipment segment Net new LCC coal capacity additions will experience a downturn after 06; $/KW 05-15E, GW the strong performance of ’06- ’07 due to fewer equipment orders in ‘08-’10 ” - Morgan Stanley Analyst 65 66 230 850 59 Current LCC OEM equipment 80 production capacity 540 is 55 GW 43 42 42 Potential excess capacity 31 31 32 29 30 28 21 16 18 16 Low-cost Incremental US labor US normalized 00 01 02 03 04 05 06E 07E 08E 09E 10E 11E 12E 13E 14E 15E country coal environmental adjustment plant capital TXU has an opportunity to leverage LCC power equipment OEM network TXU has an opportunity to leverage LCC power equipment OEM network Accessing the low-cost countries for manufactured components may allow TXU to to realize far lower prices to realize far lower prices Accessing the low-cost countries for manufactured components may allow TXU to create aasignificantly lower cost plant create significantly lower cost plant 9 10 Moving Down This Learning Curve Will Open Up New TXU’s Goal Is To Translate Learning Curve Improvements To Opportunities For Baseload Growth Make Other Technologies More Competitive Breakeven conditions to displace other generation Improvement needed 06; $/KW capital cost Horizon 1 Horizon 2 to be competitive with Technology 0-5 years 5-15 years SCPC 2,200 Displace new gas 3 Constructible Wind 47% 1,800 Cost effective Displace existing gas 2 with subsidies 1,400 Gas Constructible 83% Reliable Today 1,000 Displace old coal 1 SCPC Constructible n/a Reliable Cost effective TXU vision 600 7.5 8.0 8.5 9.0 9.5 Constructible IGCC Reliable 50% Plant heat rate Cost effective $/MMBtu Constructible Next generation build will require step-change improvements as seen in other industrial Nuclear Reliable 44% Next generation build will require step-change improvements as seen in other industrial Cost effective construction programs construction programs 1 Cash cost of old coal: $43/MWh 2 Cash cost of old gas: $56/MWh, assuming $6.5/MMBtu gas and 8MMBtu/MWh heat rate 11 12 3 Long term breakeven power price of new gas is $60/MWh, assuming $600/KW cost to build, $6.5/MMBtu gas, and 6.5 MMBtu/MWh heat rate
    • TXU Power: Achieving Operational Excellence TXU Power Has A Structurally Advantaged Portfolio In A TXU Is Redefining Excellence In Its Power Operations… Market With Strong Fundamentals Large portfolio ERCOT full load average implied heat rate1 To become the safest 05; TWh of deregulated generation 06; MMBtu/MWh Gas fleet provides and most productive Mission operator of baseload shaping and ancillary 151 142 Solid fuel capacity provides low cost services generation in the US Includes baseload power coal new Gas (10.2 GW) build Lignite 68 67 63 (5.8 GW) Nuclear 50 45 44 42 (2.3 GW) 28 TXU units Achieve top decile Sustain year-over- EXC TXU NRG/ PPL FE EME AYE D ETR 10 20 30 40 50 60 70 80 Achieve industry Source: Energy Velocity TGN Cumulative GWs reliability and year real productivity Objectives leading safety operating cost improvements of 5% Robust wholesale power prices Low coal prices1 performance performance across all operations 05; $/MWh 07E; $/MMBtu 3.0 3.2 74 2.9 Safety First Attitude Reliability Optimization TXU Operating 65 2.6 59 57 Embedded In Culture Initiative System Phase II 53 51 2.3 49 2.0 2.0 39 1.7 Comprehensive Reliability Centered Industrial Training Program Maintenance Program Partnerships/ Global Best Strategies Safety Recognition Worldwide Supply Chain Practices SERC and Incentive Management NPCC FRCC RFC MRO SPP RFC FRCC WECC ERCOT SPP MRO TXU WECC SERC NPCC Programs TXU Academy Source: Energy Velocity, TXU Wholesale estimates 1Emissions-adjusted Power Optimization Source: TXU Wholesale estimates Center Integration 1 2 …Maintaining Industry-Leading Safety Performance… …And Matching Long-Term High Performance Trends Across Other Heavy Industries Fossil plant lost time rate Nuclear lost time rate 05-06; Incidents/200,000 hrs 05-06; Incidents/200,000 hrs Industry productivity improvements (CAGR) 83-031; Percent 6.7 0.13 Target 3.4 0.08 2.4 2.3 2.3 1.5 Target 0.7 0.00 0.00 0.00 0.00 Steel Telecom Gas Railroads Refining US TXU Power (workers ($/line) pipelines ($/ton- (bpd Generation O&M 05-08E EEI top 05 YTD 06 EEI top 05 YTD 06 /ton) ($) mile) Through- O&M ($/MWh) decile decile put) ($/MWh) TXU Power continues to improve on its impressive safety performance record TXU Power continues to improve on its impressive safety performance record TXU Power is planning for continuous productivity improvement that matches TXU Power is planning for continuous productivity improvement that matches by setting targets well below top decile performance for fossil generation by setting targets well below top decile performance for fossil generation other competitive industries other competitive industries 3 1 Steel is for the period 1990-2001; Gas pipelines for 1980-2003; Refining for 1985-2004 4
    • TXU Power: Achieving Operational Excellence Actual result …As Well As Nuclear Performance… TXU Has Dramatically Improved Its Coal Fleet Current plan Actual result Current plan Performance… Previous plan Nuclear production Previous plan 03-08E; TWh Lignite/coal fleet annual net production 03-08E; TWh1 47.2 47.6 19.9 1 06-08 06-08 1 19.6 1 19.6 46.1 19.4 45.9 3% 19.1 Top decile 3% performance 44.1 43.2 17.7 Top decile performance 03 04 05 06E 07E 08E 03 04 05 06E 07E 08E Non-fuel O&M2 03-08E; $/MWh Lignite/coal fleet non-fuel O&M2 03-08E; $/KW (net current capacity) 12.37 27.42 12.04 26.43 25.93 06-08 06-08 1 15% 15% 11.01 1 24.36 9.69 1 Top decile 20.59 10.11 10.14 Top decile performance 21.57 performance 03 04 05 06E 07E 08E 03 1 Normalized 04 05 06E 07E 08E 1 for multiple units refueled in the same year and the 65 day outage to replace Unit 1 steam generators in 07 Annual net production based on GADS meters 5 6 2 O&M Excludes one time expenses 2 Excludes environmental and new build costs …And Is Investing To Improve Its Emissions Performance The TXU Academy Will Develop Technical, Leadership, And Operational Excellence Across Its Fleet Of Operators SO2 emissions NOx emissions Hg emissions Technical Training Lbs/MMBtu 1 Lbs/MMBtu 1 Millionths of lbs/MMBtu TXU1 0.37 63% TXU1 0.06 82% C 2.39 All training for new hires All training for new hires A 0.47 B 0.10 TXU1 3.00 30% before 2010 will before 2010 will 10+ technical courses, B 0.49 G 0.20 F 3.08 occur at Martin Lake including occur at Martin Lake C 0.66 F 0.24 P 3.12 – Power block operations D 0.73 K 0.29 I 3.33 – Maintenance planning E 0.76 N 0.30 Q 3.38 VA – Asset management F 0.88 H 0.30 A 3.46 MO G 0.95 E 0.32 D 3.79 EP Multiple instruction methods H 0.98 J 0.33 K 3.89 MC – Control room simulator I 0.98 US avg 0.33 J 3.98 ML – Classroom US avg 1.00 L 0.34 US avg 4.25 BB – “Hands-on” in plant TH G 4.43 LC J 1.05 R 0.34 K 1.05 C 0.35 E 4.55 OG SA L 1.23 P 0.35 H 4.91 Operating System Training M 1.26 D 0.35 O 5.08 N 1.27 Q 0.36 L 5.11 Leadership Training O 1.29 O 0.39 N 5.12 Basic to advanced courses P 1.34 I 0.40 R 5.41 in lean principles and M 5.98 techniques Operations and Project Q 1.61 A 0.41 1.67 0.42 B 6.31 Management programs R M Focus on both teaching lean developed with McCombs tools and performance School of Business, Executive The combination of investment in the newest emissions control technology and The combination of investment in the newest emissions control technology and management/coaching Education at The University of an innovative voluntary retrofit program will make TXU’s coal fleet the an innovative voluntary retrofit program will make TXU’s coal fleet the techniques Texas at Austin cleanest large-scale fleet in the nation cleanest large-scale fleet in the nation Leverages plants for “hands- CEO/senior executives lead on” training modules 1TXU after new power generation development program and retrofits Source: 2004 EPA 7 8
    • TXU Electric Delivery: Driving Utility Performance Across The US TXU Electric Delivery Has An Advantaged Structural Position Successful Execution Of TXU Electric Delivery’s Long-Term Large customer base A unique business model that looks more like a Growth Strategy Depends On Operational Excellence 05; Millions of customers FERC pipeline than a traditional utility Traditional 5.3 5.0 T&D Gas Pipeline FERC TXU Electric To become the most 4.3 4.2 comparables LDC’s MLP’s TransCo Delivery economical and 3.2 3.0 3.0 Mission reliable shipper of Regulation State State FERC FERC State 2.7 electricity in the US 2.3 2.2 Capital tracker No No No Yes Yes Commodity risk Yes Yes No No No Retail customers Yes Yes No No No EXC FPL ED PGN D PCG SO TXU ETR DUK Source: FERC Ensure operating Achieve congestion High growth Supportive regulatory environment Achieve top-decile performance goals reductions of 50% 06E-15E; Percent annual growth reliability with SAIDI Objectives while maintaining through grid of less than 60 top-quartile cost management and 2.4 2.3 minutes per year 2.2 2.1 performance investment 1.9 1.6 Asset Rehabilitation InfrastruX Energy Grid Optimization 1.4 1.3 and Modernization Services Strategic through Wide Area Initiative Partnership Visualization Program Distributed Smart Self-Healing Network Strategies Grid Technologies via Smart Switches Transmission Grid Outstanding FRCC WECC MRO NPCC Above Average Capacity Initiative ERCOT SERC RFC SPP Average Broadband Over Advanced Technology Source: NERC Source: Banc of America Securities Research Below Average Power Line Network Development Initiative Processor-based TXU Electric Delivery is a scale player in a high-growth region Protection Systems TXU Electric Delivery is a scale player in a high-growth region 1 2 TXU Electric Delivery Is Investing In Technology And TXU Is Focused On Creating The 21st Century Grid Enabled Infrastructure To Improve Reliability And Drive Efficiency By The Newest Technology… U.S. electric delivery company performance Fiber Optics 05; SAIDI1 Improves grid control through real- time, two-way communications link 300 Top quartile cost Wholesale Power Provider Increases security through video surveillance of substations Transmission Substation 225 Substation 150 High-Voltage Transmission Lines 75 Top quartile SAIDI Transformer Automated Meter Reading TXU TXU 03 Target 06E Communicates outage instantly, eliminating need for phone call 0 Collects billing information Self-Healing Switches through power lines 50 100 150 200 250 Shortens outage time by Gathers data that will help retail Distribution O&M and capital cost ($/customer) sensing problems on lines, providers design new consumer isolating the outage cause, and municipal services and automatically restoring TXU Electric Delivery has achieved top quartile cost and reliability Residence TXU Electric Delivery has achieved top quartile cost and reliability power to most customers through an alternate path 1 Excluding major events and planned outages; System Average Interruption Duration Index is defined as the number of minutes per year that the average customer is out of electric service 3 4
    • TXU Electric Delivery: Driving Utility Performance Across The US …And Is Investing To Enhance Reliability And Meet The This Strategy Is Further Enabled Through An Innovative Growing Demand For Power Partnership With Infrastrux Energy Services… Energizing the grid: Average annual capex investment TXU Electric Delivery IES 81-11E; $ millions 731 Asset Owner Asset Owner Asset Manager Asset Manager Asset Service Asset Service 600 ERCOT estimates that at ERCOT estimates that at Business Excellence Business Excellence Asset Excellence Asset Excellence Service Excellence Service Excellence least 20 GW of new least 20 GW of new generation will need to generation will need to Finance & Accounting Transmission Grid Field Services be connected to the grid Management be connected to the grid Communications Engineering 407 by 2010 by 2010 Distribution Operating Centers Storm/Trouble Response Regulatory & Legal Investment Strategy & Electric Delivery will Electric Delivery will Rates Planning Construction 293 spend more than $360 spend more than $360 Maintenance Strategy Maintenance 283 REP Relations million to enhance million to enhance Environmental Lab & Waste Community/Customer Technology Management service quality through Management service quality through Relations System Protection advanced technology advanced technology Transformer Shop ERCOT Interface Engineering Standards Supply Chain & Sourcing Human Resources System Planning Fleet Management Environmental Standards Performance Management Safety & Training & Policy Information Management Work Management 81-90 91-95 96-00 01-04 06-11E TXU has established more than 100 metrics to ensure continued high quality utility TXU has established more than 100 metrics to ensure continued high quality utility service to customers service to customers 5 6 …That Will Provide A Platform To Help Meet The Growing …And Support Opportunities To Consolidate The Infrastructure Needs Across The US… Fragmented National T&D Infrastructure Historical and estimated T&D capex Share of gross transmission & distribution PPE 94-10E; Nominal $ billions 05; Percent 100% = $684 billion A B Increased capital spend growth from 23.3 24.1 5 22.6 5 C reliability upgrades, new generation connection, congestion relief, organic 20.6 21.4 5 19.6 D growth and technology advances 5 17.3 14.8 15.4 15.5 15.9 Other 4 E 14.0 15.0 15.4 48 11.8 12.3 13.0 13.7 14.2 14.5 IOUs 4 F 10.4 10.7 10.7 (n=93) 13.2 4 G 11.6 11.4 Trans- 10.4 11.1 10.3 10.4 4 mission 9.2 8.3 8.4 8.7 3 H 6.9 7.6 7.9 8.2 3 3 I 5.9 6.4 3 3 J Distri- 2.6 2.6 3.6 3.7 3.8 4.1 4.1 2.1 2.3 2.0 2.0 bution L K TXU 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 In addition, more than 500 public power utilities representing over $100 In addition, more than 500 public power utilities representing over $100 Growth in annual investment through 2010 is projected to be about 7% for Growth in annual investment through 2010 is projected to be about 7% for billion in transmission and distribution plant operate in the US billion in transmission and distribution plant operate in the US transmission and 3% for distribution transmission and 3% for distribution 7 Source: Energy Velocity 8
    • TXU Energy: Growing Through Innovation And Superior Service TXU Energy Is The Largest Competitive Retailer In The TXU Energy Will Leverage Its Core Capabilities In North High-Growth ERCOT Market Texas To Grow Its Business… Large competitive customer base High growth To become the Oct 06; Millions of customers1 06-15E; Percent annual growth national leader 2.0 2.4 2.3 in competitive 1.7 2.2 2.1 1.9 Mission retail 1.6 electricity 1.4 1.3 0.7 0.2 0.2 0.1 TXU RRI Direct Stream First Gexa FRCC WECC MRO NPCC Continue Enter new Energy Energy Choice ERCOT SERC RFC SPP Achieve Achieve 40% 1 Residential customers = meters developing markets to Source: NERC industry- market share Sources: KEMA, company filings innovative grow $50 Objectives leading in ERCOT Highly competitive market Strong demand (annual consumption) customer million customer residential Oct 06; Number of certified ERCOT 04; Residential MWh/household solutions and business ex- service retail market retailers offerings Texas 15.0 15.2 15.0 14.8 14.6 14.3 14.2 Worry-free Service North Texas Customer Loyalty Long-Term 14.1 Positioning Three-year Price Programs Commercial 106 102 10.9 10.4 Protection Contract Strategy 95 9.9 Differential Care, 72 Predictive Modeling 7.0 6.9 Multi-channel Value-Added Enhanced 55 43 Strategies Offering Strategy Churn Minimization Hedging Program Strategies Products Strategies Self-service Proprietary Strategic Technologies Technology Multi-Channel Customer TN LA AL SC MS VA FL TX US OH PA NY CA Initiative Development Acquisition 01 02 03 04 05 06 Partnering Strategy 1Top 8 states by consumption and others by population Initiative Initiative Sources: PUC, KEMA Source: EIA 1 2 …In The Most Competitive Retail Electric Power Market In …With Extremely Competitive Margins… The US… Net incumbent switch rates North Texas residential net margin1 Sep 06; Percent of load1 4.9X local phone 02-08E; Percent 1.8X long distance 85 30 73 “I know of no “I know of no society that has TXU Energy expecting 5-10% society that has sustainable net margins 34 been marked by a 20 19 been marked by a 7 large measure of large measure of Large Small-Med Residential TX Local Long political freedom, political freedom, 10 Business Business phone after 4 distance and that has not and that has not years after 4 years also used also used 0 ERCOT retail switching something something Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Net residential incumbent switch rates comparable to a Oct 05-Sep 06; Percent of load1 comparable to a -10 free market to free market to 34 Over 10X the nine region average organize the bulk organize the bulk -20 of economic of economic activity.” activity.” 10 Milton Friedman -30 8 Milton Friedman 3 3 2 2 0.3 0.3 0.0 Since the market opened, margins have been volatile and low and are Since the market opened, margins have been volatile and low and are TX NY MA CT PA DC MD OH CA NJ expected to remain competitive in the future 1Texas data as of 09/30/06 per ERCOT - business switching reflects load whereas residential reflects customer counts; NJ as of 7/06 from NJ Board of Public Utilities; expected to remain competitive in the future PA as of 10/05 from PA PUC; data for other states from July/August 06 KEMA Retail Energy Foresight Report and ranges from 3/31/06-7/21/06. Ohio excludes load 1 Based on average customer usage of 15,000 kWh/yr. with PUC-approved residential load profile; net margin defined as PTB rate – cost of energy (historical margins based on avg. attributable to municipal aggregation per OPUC August 2005 report. NYMEX monthly spot price, future margins based on 10/24/2006 NYMEX forward gas curves (average of forward 12 months) x 7.8 heat rate x assumed 27.5% for load shaping, Sources: KEMA, FCC, CERA, NJ Board of Public Utilities, Ohio PUC, ERCOT, Texas PUC 2003 Scope of Competition Data Responses congestion, line losses and other ancillary costs) – avg. wires cost (based on published TXU Electric Delivery rates, excluding clawback) – SG&A costs – bad debt – customer 3 appreciation bonus (2006) – other operating expenses – Income Tax at 35%. 4
    • TXU Energy: Growing Through Innovation And Superior Service …That Texans Strongly Support TXU Energy Is Focused On Delivering Industry-Leading Awareness of competition1 Support for competition2 Customer Service… Jun-Aug 06; Average percent Jun-Aug 06; Average percent TXU is committed to best in class …and resolving customer issues 91 87 85 86 84 87 service… immediately Average speed to answer (ASA) First call resolution1 03-YTD 062; Seconds 03-YTD 062; Percent 268 TXU Center- AEP TXU Center- AEP 61 65 ED point Central ED point Central 57 Target 51 AREP customer by choice3 AREP price/value rating4 Jun-Aug 06; Average percent Jun-Aug 06; Average percent 94 88 89 88 88 86 39 11 11 Target 03 04 05 YTD 06 03 04 05 YTD 06 TXU Reliant CPL TXU Reliant CPL 1 Awareness defined as percentage of customers who are aware of their ability to choose a provider 2 Support of competition defined as percentage of customers who are aware of competition and who moderately/strongly support Texas electric competition 3 Customers aware of electricity competition who say they have chosen to stay with the AREP 1 4 Survey of customers who responded that issue was resolved in one call Customers who perceive the value of service in relation to price paid as fair, good, very good, and excellent 2 YTD is nine months ended September 30 Source: TXU Energy, random digit dial among all households in these areas (n=~250 respondents per TDSP) 5 6 …And Developing The Most Innovative Offering Of New TXU’s Objective Is To Profitably Grow Volumes In Texas Low Cost Products And Potentially Expand Outside Of Texas * 100% Renewable Active residential single family offers from incumbent providers3 TXU’s retail business model will …and provide the foundation for growth 06; cents/kWh support load growth in Texas… outside of the Texas market Active competition ERCOT residential load Potential competition 06-10E; TWh WTU PTB1 19 Average Undiscounted PTB 16.4 cents/kWh CPL 33 18 PTB1 30 RRI Out of 17 PTB * 4 11 16 TXU FC * territory 15 PTB PTB2 * 14 Low Income In 26 13 22 12 territory 06 10E Residential customers also have other offers available from new entrants Market 38% 40% Residential customers also have other offers available from new entrants 1 share Denotes full, undiscounted Price to Beat. CPL and WTU provide existing Residential customers as of 6/30/06 a discounted PTB (Direct Electricity PlanTM) which is priced at 16.0 and 16.3 cents/kWh respectively in the two service areas. Both price points are included on the chart. 2 First Choice Power has filed for a PTB fuel factor adjustment that will result in a lower PTB if approved by the PUCT. 3 For Residential customers with an average usage of 1,500 kWh per month (average for single family), excluding any applicable one-time incentives or clawback The combination of unique product offerings, competitive prices, and The combination of unique product offerings, competitive prices, and credits. Time periods for prices and offers shown varies. Shows all known offers currently available for customer enrollment by incumbent providers in their historical service areas including renewable products as of 11/02/06. TXU Energy low income discount funded by TXU Energy. differentiated customer service will allow TXU to grow its retail business differentiated customer service will allow TXU to grow its retail business Source: TXU Energy, Power to Choose website (11/02/06), retailer websites 7 8
    • Risk Management TXU’s Gas Position Is Derived From Its Baseload While The Fundamental Drivers Suggest Short-Term Generation Fleet Weakness In Natural Gas… ERCOT generation portfolio: average variable cost 04-06E; $/MWh Increases in forecasted US supply … …and storage levels at or near historic 200 05-08E; BCF/d highs At $6 gas: At $12 gas: Power price = $48 Power price = $96 1.8 End of October US natural gas storage Gas price= $12.00 1.8 Coal margin = $32 Coal margin = $80 BCF/d 00-06; TCF 150 BCF/d Nuclear margin = $43 Nuclear margin = $91 Demand 3.5 61.9 62.5 63.0 63.7 3.1 3.1 3.1 3.3 3.2 100 Gas price= $6.00 2.7 50 0 0 10 20 30 40 50 60 70 Wind Nuclear Coal CCGT costs Gas/oil 05 06E 07E 08E 00 01 02 03 04 05 06 costs costs costs Cumulative Capacity (GW) costs …price of Gas prices set If gas price wholesale …TXU Power’s ERCOT power goes… power goes… margin goes… A more rapid ramp up in supply coupled with benign storm season has led to A more rapid ramp up in supply coupled with benign storm season has led to prices 95% of the short-term weakness in the gas market short-term weakness in the gas market time = “Long” Gas 1 2 …The Long-Term Fundamentals Continue To Support Demand Growth Will Drive Short-Term Heat Rate Historically High Natural Gas Prices Recovery, Which Will Be Reset By The TXU New Build ERCOT market 7X24 heat rates (HSC) Long-term heat rate US and Canada gas supply and demand Natural gas price forecasts Long-term heat rate to support CCGT 06E-11E; MMBtu/MWh (12 BCF/d LNG addition) 06E-10E; $/MMBtu to support coal new new build 10E; $/MMBtu build @$2,000/KW1 @$600/KW1 12 $12.00 2010 10 demand $10.00 1.0 0.1 0.1 0.1 0.0 1.0 NYMEX 8 8.3 8.0 $8.00 6 Price range=$5.50-$7.00 $6.00 4 $4.00 CERA EIA PIRA 2006E Demand Demand Wind CCGT Unmothballed Baseload 2011E 2 $2.00 heat growth destruction generation generation gas peakers capacity heat rate increases increases additions rate 0 $0.00 07 08 09 10 11 12 Details 2.1% yearly 1.1 GW of 3.6 GW 1.3 GW 2.4 GW TXU coal 0 10 20 30 40 50 60 70 80 90 demand destruction (9.1 GW) Cumulative Capacity growth S.A. Power BCF/d 1.5 GW per (0.8 GW) year While the gas curve is slightly backwardated, While the gas curve is slightly backwardated, Long-term heat rates must increase to send the economic signal for Long-term heat rates must increase to send the economic signal for fundamentals still support historically high prices fundamentals still support historically high prices sub-scale builders to add capacity sub-scale builders to add capacity 3 1 $6.68/MMBtu based on 2011 HSC gas curve as of October 24, 2006 4
    • Risk Management TXU Has Hedged A Significant Portion Of Its Near-Term While Retail Served As A Resilient Hedge In 05 And 06, The Natural Gas Exposure Long-Term Sustainable Margins Are Expected To Be 5-10% Natural gas position Heat rate position North Texas residential net margin1 07E-09E; Million MMBtu 02-08E; Percent 07E-09E; Million MWh 30 07E 08E 09E 07E 08E 09E Current baseload 475 485 485 Expecting 5-10% 20 9 GW new build in Current baseload 62 62 63 sustainable net margins Texas - - 195 10 Retail/forward (300)- (230)- (160)- 9 GW new build in sales1 (370) (330) (320) Texas - - 26 Natural gas 0 hedges (110) (150) (260) Retail/forward (34)- (19)- (16)- Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 07 08 09 sales1 (42) (27) (31) -10 Planned power sales - - (30)-(60) Planned power Expected sales - - ~(7) -20 underlying ~(5) to ~5 to ~40 to Expected position 65 105 230 underlying position ~20-28 ~35-43 ~51-66 -30 TXU has mitigated 1.5 billion MMBtu of natural gas exposure through 2012 Retail served as a hedge to natural gas moves in 05 (in a rising gas price Retail served as a hedge to natural gas moves in 05 (in a rising gas price TXU has mitigated 1.5 billion MMBtu of natural gas exposure through 2012 while the retaining the majority of the underlying heat rate position environment) and 06 (in a falling gas price environment) environment) and 06 (in a falling gas price environment) while the retaining the majority of the underlying heat rate position 1 1 Based on average customer usage of 15,000 kWh/yr. with PUC-approved residential load profile; net margin defined as PTB rate – cost of energy (historical margins based on avg. Assumes that over time the native market retail position acts as a short position while net margin remains within sustainable range of 5 to 10%, NYMEX monthly spot price, future margins based on 10/24/2006 NYMEX forward gas curves (average of forward 12 months) x 7.8 heat rate x assumed 27.5% for load shaping, reflecting changes in underlying commodity prices, heat rates, TDSP charges, and other costs to serve retail load. Ranges reflect estimated congestion, line losses and other ancillary costs) – avg. wires cost (based on published TXU Electric Delivery rates, excluding clawback) – SG&A costs – bad debt – one-time potential impact of net margins outside of sustainable range. Includes wholesale power positions and fixed LC&I contracts. appreciation bonus (2006) – other operating expenses – Income Tax at 35%. 5 6 In The Long Term, TXU Will Continue To Evaluate Portfolio …As Well As Capitalization Through Its “Cash Scrubber” Options To Manage Risks… Potential Option Description strategies Retained for Life of plant Sell forward power for the life of the plant to Texas new Investment 1 PPAs municipalities/cooperatives build PPA process TXU Business Cash Flow from Excess Excess Excess Units Oper- “Customer” Growth Financial Dividend Equity sell Reduce the corresponding risk exposure Texas new ations Capital Capital Flexibility Payout 2 down proportional to percentage of equity sale build equity process and Asset Sales Yes Yes, if Yes, until Yes in 06+ Ex-ERCOT Diversify the portfolio through participation in PJM expansion Quality service PV/ Investment EBITDA/Interest: Payout 30-40% Quality service PV/ Investment EBITDA/Interest: Payout 30-40% 3 expansion multiple markets with different market dynamics and potentially different gas and CO2 regulation Production Production reliability threshold of 1.3 threshold of 1.3 25-35% cash 25-35% cash >5.0 >5.0 Debt/EBITDA: of operational Repurchases of operational or Distributions earnings earnings reliability Debt/EBITDA: returned <5 yrs returned <5 yrs <2.5 <2.5 Technology Access to multiple technologies changes the risk Nuclear Debt/MEV: 30% Debt/MEV: 30% to 50% 4 diversification exposure and profile relative to gas price and carbon risk IGCC to 50% Merger or Executing a merger or divestiture provides a Ex-ERCOT 5 divestiture means to eliminate exposure across markets, technologies, and regulatory regimes generator Debt Holders Equity Holders TXU will continue to optimize its portfolio to manage risks TXU will continue to optimize its portfolio to manage risks 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 7 8
    • TXU Earnings Drivers Commodity and Capital Allocation Impacts Have Reshaped The Revised 07 Outlook Reflects Pricing Actions In Retail, The Earnings Power Generation Investments And Generation Productivity Earning Power Impact 07 11 Improvements May business plan 5.75 9.75-10.001 Consolidated – operational EPS walk-forward Previous 07E to Revised 07E; $ per share after tax Lower wholesale power price reduce gross margins for TXU Power and Income Statement Commodities Commodities reduce TXU Energy’s gross margin as Performance Driver Category 07E lower wholesale prices passed on to Previous 07E indicative operational earnings ~5.75 customer; PRB increases ~(0.20) ~(1.20) Operating revenues, Productivity gains O&M expense 0.10 Increased growth investment, reduced Capital Capital OCF, and higher prices for share Retail pricing and marketing actions; demand Operating revenues, Allocation Allocation repurchases reduce the # of share response SG&A expense (0.25) repurchases ~(0.15) ~(0.50) Technology and development investments SG&A, Interest expense (0.05) Generation growth investments - change in Change in diluted shares Selldown reduces risks and improves timing/size of share repurchases outstanding (0.15) Selldowns Selldowns capital returns but reduces EPS - ~(0.45) Revised 07E operational earnings outlook1 5.25-5.55 November business plan2 5.25-5.55 7.55-7.85 Operational earnings for 07E are expected to be lower due to the effects of lower Operational earnings for 07E are expected to be lower due to the effects of lower 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% commodity prices on retail prices and technology and generation growth investments 1 2010 indicative earnings as of May 06 commodity prices on retail prices and technology and generation growth investments 2 Indicative pro forma for 2007 and 2011 reflects current targets for the 11 new generation units currently planned in Texas. Throughout this presentation, 2007E operational earnings estimate (and subsequent years) excludes fees, expenses, and interest associated with debt that is part of the expected TXU Power Development nonrecourse financing package. 1 2007E operational earnings estimate (and subsequent years) excludes fees, expenses, and interest associated with debt that is part of the 1 expected TXU Power Development nonrecourse financing package. 2 Indicative 07E-08E Growth Rate Reflects Impact Of Retail The Texas Build Program Provides Strong Growth Over The And Hedge Prices, Higher Fuel Costs And Capital Next 5 Years Allocation TXU indicative long-term operational EPS growth with ERCOT generation development pro forma 07E-11E; $ per share, percent Operational EPS indicative growth rate Performance Driver 07E-11E 07E-08E; percent 07E outlook 5.25-5.55 Commodity price movements (roll-off of 07 hedges, open position) (0.48) Performance Driver Income Statement Category 07E-08E Retail pricing and marketing actions (0.32) Retail prices/differential between 07 and 08 Coal and nuclear fuel prices (0.33) hedge price levels Operating revenues (5.0) Performance improvements, retail and T&D growth 0.43 Fuel costs Contribution margin (2.5) Share repurchases/capital allocation model 0.85 Contribution margin, O&M 11E indicative operational EPS – existing businesses 5.40-5.70 Dual outage cost at Comanche Peak expense (0.5) Indicative earnings from ERCOT power generation development1 2.60 Change in diluted shares Impact of ERCOT plant sell-downs2 (0.45) Share repurchases outstanding 5.5 11E indicative operational EPS including power generation development 7.55-7.85 07E-08E indicative growth rate1 (2.5) 07E-11E annual growth rate (percent CAGR) ~8 to 10% Estimated 2011E sensitivity to +/- $1.00 natural gas price move3 +/-0.65 Including the impact of the ERCOT development program, Including the impact of the ERCOT development program, TXU’s estimated 5-year annual growth rate is ~8 to 10% TXU’s estimated 5-year annual growth rate is ~8 to 10% 1 Indicative pro forma for 2011; assumes announced 11 new units in operation for full year. The indicative pro forma will change as EPC, financing, hedging, equity sell-down and other terms are finalized and as the permitting and construction process unfolds, among other factors. Reflects forward natural gas/power curves as of 9/30/06. 2 Assumes equivalent of 3GW sell-down and that proceeds from sell-down are deployed using the company’s capital allocation philosophy. 3 Estimated sensitivity including base business portfolio and new build program, net of natural gas hedges and planned forward power sales; assumes retail load acts as a partial short position while net margin remains within sustainable range of 5 to 10% 3 4 1 2007E operational earnings estimate (and subsequent years) excludes fees, expenses, and interest associated with debt that is part of the expected TXU Power Development nonrecourse financing package.
    • TXU Earnings Drivers Difference In Growth Rate Relative To Nov 05 EEI View Difference In Growth Rate Relative To May 2, 2006 View Reflects Commodity Prices, Productivity Improvements And Reflects Commodity Prices, Fuel Costs, And Growth The Expansion Of The ERCOT Program Investments Indicative 11E operational EPS, current plan, vs. 10E operational EPS, May 06 plan Indicative 11E operational EPS, current business plan, vs. 10E operational EPS, Nov. 2005 plan 07E-11E; $ per share, percent 07E-11E; $ per share Performance Driver May 06 plan – 10E operational EPS 9.75-10.00 Performance Driver 10E vs. 11E Base business Nov. 05 EEI plan – 10E operational EPS 6.10-6.40 Lower wholesale prices and retail prices (0.33) Commodity price movements 0.10 Higher fuel costs (0.28) Fuel costs (0.25) Performance improvements 0.11 Productivity improvements 0.45 ERCOT plant development Change in ERCOT power generation development1 0.80 Change in diluted shares outstanding/interest expense 0.35 Lower wholesale prices (11 vs. 10 hedge pricing) (0.29) Lower wholesale prices (open position) (0.14) Current business plan - 11E operational EPS 7.55-7.85 Higher fuel costs (0.32) Higher production (full year all plants), other expenses 0.04 Impact of potential ERCOT sell-downs (0.86) Redeployment of capital from ERCOT sell-downs 0.40 Capital allocation (operating cash flow changes, growth investments) (0.48) Current business plan - 11E operational EPS1 7.55-7.85 1 1 As of November 05, only Oak Grove and Sandow 5 units planned; as of November 06, 11 new units planned for Texas market, with estimated 3 GW planned sell- See slide 4 for current plan assumptions. down. Also see slide 4 for other current plan assumptions. 5 6 Differences In Capital Allocation Model, Current Vs. May 06 The Ability To Grow EBITDA In A Backwardated Commodity View Environment Potential EBITDA 7-14% Cash available for investment/distribution, current business plan vs May 06 plan 7-14% 07E-11E; Mixed measures 11E-15E; $ billions CAGR CAGR Performance Driver Cash flows Incremental 11E cash flow available under capital allocation model $ mm 1,000 11.2 Higher share price for repurchases ($5/share) $ mm (450) 2.5 Lower cash from operational earnings (primarily wholesale prices, fuel)1 $ mm (750) 2.5 Growth investments, 07E-11E2 $ mm (1,500) ~6.7 1.0 6.2 Total change – cash available for investment/distribution $ mm (1,700) 0.5 11E EPS impact from capital allocation $ EPS (0.48) Estimated proceeds from equity sell-downs $ mm 1,500 11E EPS impact of share repurchases following sell-down $ EPS 0.40 Net EPS impact from capital allocation $ EPS (0.08) TXU Backwar- Core business TXU 2015E Advanced Advanced 2015E 2011E1 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 1 Also includes cash impact of special bonus to customers of ~$170 mm pre-tax associated with one-time bonus at year end 2006, payable over three quarters. 1 See slide 4 for current plan assumptions. 2 Includes approximately $500 mm investment in retrofits to reduce emissions in current coal plants and an estimated $1 billion investment in growth initiatives. 7 8