0
First Quarter 2006
Earnings Discussion




      May 2, 2006
Safe Harbor Statement
 This presentation contains forward-looking statements, which are subject to various risks and
 unce...
Today’s Agenda

      Operational &
      Operational &       C. John Wilder
  Clean Coal Investment
  Clean Coal Investme...
TXU’s Operational Earnings Improved Substantially
Reported earnings per share             Operational earnings per share
Q...
TXU Power Achieved Record Production Levels…
     Lignite Units                                        Nuclear Units
     ...
…TXU Energy Has Introduced An Innovative Suite Of New
Offerings In North Texas…
                                          ...
…Establishing TXU As The Clear Leader Among Texas
Incumbents
                                                             ...
Attractive Returns Of TXU’s Clean Coal Investment Program
Driven By Six Factors
                 Factor                   ...
Hedging Protects A Portion Of The Value While Retaining
Asymmetric Upside To Commodity Moves
                             ...
Today’s Agenda

      Operational &
      Operational &       C. John Wilder
  Clean Coal Investment
  Clean Coal Investme...
TXU Has Been Able To Reduce The Typical Build Schedule
By Nearly 30%...
                 March 1,
                 2006
  ...
…While Reducing Costs By Almost 20%

    Cost to construct reference plants including access to dual rail
    06; $/KW
   ...
TXU’s Construction Strategy Has Limited Cost Variability
To Less Than $75/KW

  Cost to construct reference plant         ...
The New Build Program Will Ensure The Market Remains
Efficient
                                                           ...
TXU’s Build Program Can Deliver Attractive Returns

         800 MW reference plant pro forma1
         10E; $/MWh, $ mill...
Today’s Agenda

      Operational &
      Operational &       C. John Wilder
  Clean Coal Investment
  Clean Coal Investme...
Impact Of One-Time Costs, Weather And Hedge
Ineffectiveness On Q1 06 Operational Earnings

  Impact of one-time costs on o...
Growth Driven By TXU Energy Holdings Performance

Operational earnings contribution by segment
Q1 05 vs. Q1 06; $ per dilu...
TXU’s Financial Flexibility Measures Improved Substantially
 Operating cash flow                  Free cash flow
 Q1 05 vs...
TXU Has Significantly Reduced Its 3-Year Natural Gas Price
Exposure…

     Natural gas position                           ...
…Resulting In Low Exposure To Near Term Commodity And
Heat Rate Movements
              EBITDA impact of $1/MMBtu         ...
TXU’s Hedging Philosophy Reflects Three Screens

                                                          2              ...
5-Year Growth Estimates Including Only The Oak Grove
And Sandow New Build Projects
    TXU estimated long-term growth – as...
The Clean Coal Program Will Drive Significant Growth

                   Indicative Texas clean coal investment pro forma ...
TXU’s Sources And Uses Analysis And Capital Allocation
Framework Focus At The Corporate/Parent Level…



  Focus of “sourc...
…Over The Next Five Years, TXU Corp. Will Have Significant
Cash Flow For Investment Or Distribution…

Sources of cash     ...
…And Will Deploy Cash Flow And Manage Risk By Applying
The “Cash Scrubber”

                                              ...
TXU’s Clean Coal Investment Program Enables Strong
Five-Year Growth

    TXU estimated long-term growth including indicati...
Today’s Agenda

      Operational &
      Operational &       C. John Wilder
  Clean Coal Investment
  Clean Coal Investme...
Appendix –
Regulation G Reconciliations
Financial Definitions
   Measure                                                                   Definition
   Cap ex   ...
Financial Definitions – cont.
   Measure                                                                    Definition
   ...
Table 1: TXU Corp. Operational Earnings Reconciliation
Quarter Ended March 31, 2006 and 2005
$ millions and $ per share af...
Table 2: TXU Energy Holdings Operational Earnings Reconciliation
Quarter Ended March 31, 2006 and 2005
$ millions and $ pe...
Table 3: TXU Electric Delivery Operational Earnings Reconciliation
Quarter Ended March 31, 2006 and 2005
$ millions and $ ...
Table 4: TXU Corp. Total Debt
As of March 31, 2006 and 2005
$ millions


                                                 ...
Table 5: TXU Corp. Interest and Debt Coverage Ratios
Twelve Months Ended March 31, 2006 and 2005
$ millions unless otherwi...
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  1. 1. First Quarter 2006 Earnings Discussion May 2, 2006
  2. 2. Safe Harbor Statement This presentation contains forward-looking statements, which are subject to various risks and uncertainties. Discussion of risks and uncertainties that could cause actual results to differ materially from management's current projections, forecasts, estimates and expectations is contained in the company's SEC filings. In addition to the risks and uncertainties set forth in the company's SEC filings, the forward-looking statements in this release could be affected by actions of rating agencies, delays in implementing any future price-to-beat fuel factor adjustments, 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, 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 in Texas, the ability of the company to attract and retain skilled labor 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 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. Regulation G This presentation includes certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is included in the appendix of the printed version of the slides and the version included on the company’s website at www.txucorp.com under Investor Resources/Presentations. 1
  3. 3. Today’s Agenda Operational & Operational & C. John Wilder Clean Coal Investment Clean Coal Investment Chairman & CEO Highlights Highlights Jonathan Siegler Clean Coal Investment Clean Coal Investment Vice President Drivers Drivers Strategy, Mergers & Acquisitions David Campbell Financial & Risk Financial & Risk Executive Vice President & Management Overview Management Overview Acting CFO Q&A Q&A 2
  4. 4. TXU’s Operational Earnings Improved Substantially Reported earnings per share Operational earnings per share Q1 05 vs. Q1 06; $ per diluted share Q1 05 vs. Q1 06; $ per diluted share 1.22 1.09 114% 114% 0.51 (0.10) Q1 05 Q1 06 Q1 05 Q1 06 Reported earnings Operational earnings Q1 05 vs. Q1 06; $ millions Q1 05 vs. Q1 06; $ millions 576 516 416 38% 110% 38% 110% 246 Q1 05 Q1 06 Q1 05 Q1 06 3
  5. 5. TXU Power Achieved Record Production Levels… Lignite Units Nuclear Units Production Production Q1 05 vs. Q1 06; GWh Q1 05 vs. Q1 06; GWh 5,080 4,797 10,874 10,520 3.4% 5.9% 3.4% 5.9% Q1 05 Q1 06 Q1 05 Q1 06 Capacity factor1 Capacity factor1 Q1 05 vs. Q1 06; Percent Q1 05 vs. Q1 06; Percent 102.7 97.5 100.1 96.0 1.6% 2.6% 1.6% 2.6% Q1 05 Q1 06 Q1 05 Q1 06 Improved production added ~ $27 million of contribution margin for the quarter Improved production added ~ $27 million of contribution margin for the quarter 1 Excludes planned outages and economic back-down. 4
  6. 6. …TXU Energy Has Introduced An Innovative Suite Of New Offerings In North Texas… Avg. Annual Price (¢/kWh)1 Product Description Provides price protection for the duration of 2006, while allowing Freedom Plan 14.6 customers to change plans at any time without penalty. PriceGuarantee24SM Features two years of price protection due to rising fuel costs; 14.5 priced below the current price-to-beat (PTB). SummerSavings 24SM Provides customers with savings year-round, with significant 14.1 discounts during the summer. Includes a 2-year term. (available May 19, 2006) SureValueSM (available Provides up to 10% off current PTB rates for a 5-year term. 13.2 June 1, 2006) MarketTracker+SM A 2-year plan that provides an immediate discount off the current 12.4-15.7 PTB rates and the opportunity for further savings if natural gas prices continue to trend lower; includes additional price protection features such as a maximum and minimum price. EarthWiseSM, 100% 3 new plans that allow customers to contribute to the environment, 14.5-15.7 featuring either 100% or 10% renewable energy on a month-to- EarthWiseSM, and month basis and an 18-month term option. EarthWise 18SM Empowers customers to use electricity wisely while saving as Time-of-Use Plan 10-13 off; much as 20% during off-peak times over a 2-year term. (available July 2006) 25-35 peak Provides a 10% discount for low-income customers who Low Income 13.2 previously received this discount as part of a discontinued state Assistance Plan program. 1 Based on average monthly usage of 1,500 kWh over a 12 month period. Estimated savings based on current PTB as of April 2006. 5
  7. 7. …Establishing TXU As The Clear Leader Among Texas Incumbents TXU Energy Annualized Residential single family prices from incumbents Other incumbents (cents/kWh) Price-to-Beat * 20.0 * 19.0 Average Undiscounted PTB 16.4 cents/kWh 18.0 * 17.0 * 16.0 15.0 * * 14.0 13.0 12.0 Market Tracker+ Freedom Plan SummerSavings 24 Easy Price PriceGuarantee 24 Discounted Price to Discounted Price to EarthWise 18 EarthWise Price to Beat Price to Beat 100% EarthWise Price to Beat Price to Beat Price to Beat Heat Relief Simple Solutions Simple Solutions Low Income (on Low Income Low Income Low Income SureValue Renewable Offer PTB) Flex Beat Beat Provider t t t t FC t t t t t CPL FC t WTU RRI CPL RRI RRI RRI RRI CPL WTU WTU Residential customers also have competitive offers available from new entrants Residential customers also have competitive offers available from new entrants For Residential customers with an average usage of 1,500 kWh per month (average for single family). Shows all offers by incumbent providers in their traditional service areas including renewable products as of April 20, 2006. TXU Energy low income discount funded by TXU Energy. 6
  8. 8. Attractive Returns Of TXU’s Clean Coal Investment Program Driven By Six Factors Factor Description <80% of the cost and 30% less time than 1 Step Change In Capital Efficiency typical competitor 90% capacity factors and O&M of 2 High Performance Operations ~$3.70/MWh Fuel strategy combining TXU lignite, other 3 Long-Term Fuel Partnerships Texas lignite, and PRB coal reserves to ensure low-cost, stable supply Annual Texas electric demand growth 4 Expanding Power Needs In Texas forecasted at nearly 2%, or >1 GW/year Non-recourse project debt financing 5 Risk/Return Optimization Significant commodity hedging Potential sale of project equity Advantaged business model to replicate Advantaged Platform In Other 6 scaled 5-8 GW build ex-ERCOT Markets Site selection advisors engaged 7
  9. 9. Hedging Protects A Portion Of The Value While Retaining Asymmetric Upside To Commodity Moves Incremental $0.6 B Scenario 1: Power and/or gas prices fall 3.6 0 0.6 significantly (-$1.00/MMBtu) 3.0 • Opportunity to monetize hedge gains Expected Hedge Expansion Total value of value of new captured new builds build value program Incremental $1.3 B Scenario 2: Power and/or gas prices rise (+$1.00/MMBtu) from forward curve or 2.0 7.3 0.7 6.0 drop in interest rates • Hedge losses offset portion of asset appreciation Expected Hedge Expansion Total value of value of new captured • TXU realizes additional gains through new builds build value program additional builds in ERCOT or other markets The combination of hedging and the option to further expand the strategy The combination of hedging and the option to further expand the strategy provide TXU with asymmetric upside provide TXU with asymmetric upside 8
  10. 10. Today’s Agenda Operational & Operational & C. John Wilder Clean Coal Investment Clean Coal Investment Chairman & CEO Highlights Highlights Jonathan Siegler Clean Coal Investment Clean Coal Investment Vice President Drivers Drivers Strategy, Mergers & Acquisitions David Campbell Financial & Risk Financial & Risk Executive Vice President & Management Overview Management Overview Acting CFO Q&A Q&A 9
  11. 11. TXU Has Been Able To Reduce The Typical Build Schedule By Nearly 30%... March 1, 2006 10 20 30 40 50 60 Months 0 Commissioning and testing Wetlands permit Site construction ••Every month saved Every month saved 24 34 adds ~$20/KW of value adds ~$20/KW of value Air permit Original 4 63 17 critical path ••Across the entire new 5 Across the entire new 6 6 18 24 build strategy the lean build strategy the lean schedule adds almost Critical Critical schedule adds almost Permit Engineering components component $3.0 billion prep Sourcing lead time $3.0 billion construction 18 months 13 28 Revised 3 45 14 9 critical path 2 14 20 Pre-permit site prep 10
  12. 12. …While Reducing Costs By Almost 20% Cost to construct reference plants including access to dual rail 06; $/KW 1,450 205 60 50 35 1,100 Typical build Design Lean TXU all-in cost Scale Overhead estimate improvements procurement construction scale and existing site savings advantages TXU continues to focus on driving down the all-in cost of construction TXU continues to focus on driving down the all-in cost of construction 11
  13. 13. TXU’s Construction Strategy Has Limited Cost Variability To Less Than $75/KW Cost to construct reference plant Variability in costs $/KW $/KW 1,100 Labor, fee & 425 contingency Balance of 340 plant 15 Major 50 335 equipment & 75 engineering 10 The combination of turnkey deals, competitive sourcing and superior construction The combination of turnkey deals, competitive sourcing and superior construction expertise has limited the potential increase in cost to <$75/KW or 7% expertise has limited the potential increase in cost to <$75/KW or 7% 12
  14. 14. The New Build Program Will Ensure The Market Remains Efficient 05 supply curve ERCOT generation portfolio: Average variable cost1 10 supply curve2 05-10; $/MWh 150 New coal 125 2 plants 1 100 3 75 05 peak 50 10 peak demand demand 25 0 0 10 20 30 40 50 60 70 80 90 Cumulative Capacity GW After the new capacity comes on line, the combination of strong demand growth and aa After the new capacity comes on line, the combination of strong demand growth and relatively flat supply curve will help maintain 7X24 heat rates at current levels of ~8 relatively flat supply curve will help maintain 7X24 heat rates at current levels of ~8 MMBtu/MWh MMBtu/MWh Each additional 11GW of capacity impacts the 7X24 heat rate by ~0.1MMBtu/MWh Each additional GW of capacity impacts the 7X24 heat rate by ~0.1MMBtu/MWh 1 Based on gas price of $8/MMBtu 2 Assumes 10 GW of coal capacity brought on line 13
  15. 15. TXU’s Build Program Can Deliver Attractive Returns 800 MW reference plant pro forma1 10E; $/MWh, $ millions Component $/MWh $ Millions Revenue 63 400 Fuel cost 16 100 Emissions expense 1.3 10 O&M expense 3.9 25 Property taxes and insurance 2.2 15 EBITDA 39.6 250 Depreciation 2.7 20 EBIT 36.9 230 On average, each 800 MW plant will have a PV/I of 1.5 and will return On average, each 800 MW plant will have a PV/I of 1.5 and will return 45% of cash in the first 5 years 45% of cash in the first 5 years 1 Pro forma for reference plants with a full year of operation in 2010 14
  16. 16. Today’s Agenda Operational & Operational & C. John Wilder Clean Coal Investment Clean Coal Investment Chairman & CEO Highlights Highlights Jonathan Siegler Clean Coal Investment Clean Coal Investment Vice President Drivers Drivers Strategy, Mergers & Acquisitions David Campbell Financial & Risk Financial & Risk Executive Vice President & Management Overview Management Overview Acting CFO Q&A Q&A 15
  17. 17. Impact Of One-Time Costs, Weather And Hedge Ineffectiveness On Q1 06 Operational Earnings Impact of one-time costs on operational EPS Q1 06; $ per share Component $ Per Share One-time severance and transition costs (0.02) Impact of mild weather relative to normal (0.05) Impact of hedge ineffectiveness related to long-term hedge program (0.02) Total impact on Q1 06 (included in operational earnings) (0.09) 16
  18. 18. Growth Driven By TXU Energy Holdings Performance Operational earnings contribution by segment Q1 05 vs. Q1 06; $ per diluted share TXU Energy Holdings 1.10 TXU Corp. Consolidated 0.42 162% 162% 1.09 0.51 Q1 05 Q1 06 114% 114% TXU Electric Delivery Q1 05 Q1 06 0.15 0.14 7% 7% Q1 05 Q1 06 17
  19. 19. TXU’s Financial Flexibility Measures Improved Substantially Operating cash flow Free cash flow Q1 05 vs. Q1 06; $ millions Q1 05 vs. Q1 06; $ millions 712 1,046 431% 431% 197 (52) Q1 05 Q1 06 Q1 05 Q1 06 Debt/EBITDA EBITDA/interest Q1 05 vs. Q1 06; Percent Q1 05 vs. Q1 06; Ratio 5.3 4.1 4.1 2.8 29% 32% 29% 32% Q1 05 Q1 06 Q1 05 Q1 06 18
  20. 20. TXU Has Significantly Reduced Its 3-Year Natural Gas Price Exposure… Natural gas position Heat rate position Balance of 06E-08E; Million MMBtu Balance of 06E-08E; Million MWh Bal 06E 07E 08E Bal 06E 07E 08E Total “generation 336 444 452 Total “generation 47 66 67 long” position long” position1 Retail “short” (36) (47) (42) Retail “short” (301) (340) (322) position2 position2 Forward power and (3) 4 2 Forward power and (44) (111) (135) gas sales gas sales Expected underlying ~8 ~23 ~27 Expected underlying (10)-0 (10)-0 (10)-0 position position Percentage hedged ~83 ~65 ~59 Percentage hedged >95 >95 >95 TXU has mitigated over 95% of its estimated natural gas exposure from 06-08 while TXU has mitigated over 95% of its estimated natural gas exposure from 06-08 while maintaining the majority of its long-term heat rate exposure. Since November 2005, TXU maintaining the majority of its long-term heat rate exposure. Since November 2005, TXU has also reduced its 2009-2011 natural gas exposure by aacumulative 340 million MMBtu has also reduced its 2009-2011 natural gas exposure by cumulative 340 million MMBtu 1 Includes solid fuel and gas plants; excludes any new plant construction. 2 Assumes native market retail position diminishes over time (currently approximately 8% annually) due to competitor activity and acts as a short position while net margin remains at or below sustainable range of 5 to 10%. 19
  21. 21. …Resulting In Low Exposure To Near Term Commodity And Heat Rate Movements EBITDA impact of $1/MMBtu EBITDA impact of 0.2 MMBtu/MWh change in natural gas1 change in market heat rate1 06E-08E; $ millions 06E-08E; $ millions ~50 ~45 ~15 ~0-10 ~0-10 ~0-10 06E 07E 08E 06E 07E 08E Change in <1% <1% <1% <1% <1% ~1% EBITDA (%) Over the next three years, TXU has aarelatively low sensitivity Over the next three years, TXU has relatively low sensitivity to natural gas price and heat rate changes to natural gas price and heat rate changes 1 Based on NYMEX natural gas prices as of 3/31/06; based on estimated natural gas and heat rate exposure as described in position tables. 20
  22. 22. TXU’s Hedging Philosophy Reflects Three Screens 2 3 1 Hedge Point of Yes No Yes Ensure TXU growth view on financial commodity invest- hedges exposure flexibility ments TXU hedge Meet debt obligations, Ensure investment Management point of Meet debt obligations, Ensure investment Management point of strategy base business capex requirement of 25- view on hedge pricing base business capex requirement of 25- view on hedge pricing needs and preserve 35% cash returned and effectiveness needs and preserve 35% cash returned and effectiveness flexibility for dividends in <5 years is met Commodity pricing flexibility for dividends in <5 years is met Commodity pricing in 2 sigma (2%) and volatility in 2 sigma (2%) and volatility downside commodity Cost/liquidity downside commodity Cost/liquidity scenario scenario Yes No No Optimize Optimize risk-return risk-return trade-offs trade-offs Forward sales Forward sales Financial hedges Financial hedges Capital structure Capital structure Third party equity 21
  23. 23. 5-Year Growth Estimates Including Only The Oak Grove And Sandow New Build Projects TXU estimated long-term growth – as of April 19, 2006 06E-10E; $ per share, percent Performance Driver 06E-10E 06E operational EPS 5.50-5.75 06E-10E commodity impacts and retail churn1 (1.35) Performance improvements 0.60 Retail market penetration, T&D system growth 0.30 Oak Grove and Sandow 5 1.15 Debt repurchases and share repurchases 0.85 10E operational EPS 7.05 – 7.30 06E-10E annual growth rate (percent CAGR) 5.5% – 6.5% EPS change with +/-$1/MMBtu in 2010 natural gas1 + / - 0.40 06E-10E CAGR with +/- $1/MMBtu in 2010 natural gas (%) 4.5% – 8.5% Prior five-year estimates included only the Oak Grove and Sandow new builds. With Prior five-year estimates included only the Oak Grove and Sandow new builds. With these projects, TXU’s estimated 5-year annual growth estimate is 5.5% to 6.5% these projects, TXU’s estimated 5-year annual growth estimate is 5.5% to 6.5% 1 Based on forward natural gas prices as of April 19, 2006; includes impact of Sandow and Oak Grove in estimate of natural gas exposure and assumes that retail mass market load acts as a short position while net margin remains at or below sustainable range of 5% to 10%. 22
  24. 24. The Clean Coal Program Will Drive Significant Growth Indicative Texas clean coal investment pro forma – all plants1 10E; Mixed measures Component $ Millions Revenue 4,250 Fuel cost (920) Emissions expense (120) O&M and SG&A expense (285) Property taxes and insurance (155) EBITDA 2,770 Depreciation & amortization (185) Interest (660) Taxes (680) Net income 1,245 By 2010, all plants in the clean coal investment program are expected to be on-line, By 2010, all plants in the clean coal investment program are expected to be on-line, generating more than $1 billion of incremental earnings generating more than $1 billion of incremental earnings 1 Indicative pro forma for 2010, including Oak Grove and Sandow. Assumes that Oak Grove, Sandow, and 4 reference plants are in operation for the full year, while 4 additional reference plants come into operation by early 2010. The indicative pro forma will change as financing, hedging, and equity sell-down and other key terms are finalized and as the permitting and construction process unfolds. Reflects forward natural gas and power curves as of April 19, 2006. 23
  25. 25. TXU’s Sources And Uses Analysis And Capital Allocation Framework Focus At The Corporate/Parent Level… Focus of “sources and uses” analysis and TXU’s capital TXU Corp TXU Corp allocation framework (the “cash scrubber”) Energy Texas New Electric Energy Texas New Electric Holdings LLC Generation Co Delivery Holdings LLC Generation Co Delivery 06E Interest 4X+ 11 X + N/A Coverage While the cash scrubber is used for capital allocation decisions at the consolidated While the cash scrubber is used for capital allocation decisions at the consolidated level, TXU operating entities are capitalized according to their risk profile level, TXU operating entities are capitalized according to their risk profile 24
  26. 26. …Over The Next Five Years, TXU Corp. Will Have Significant Cash Flow For Investment Or Distribution… Sources of cash Uses of cash 06E-10E (indicative); $ billions 06E-10E (indicative); $ billions 21 - 23 21 - 23 Electric 2.0 Delivery debt Cash for investment/ 9.5 distribution 2.0 Corp/Energy LLC debt 20.0 OCF 4.0 Dividends Core portfolio capex 6.5 06E-10E 06E-10E Through its current business operations, TXU Corp. expects to generate nearly $10 Through its current business operations, TXU Corp. expects to generate nearly $10 billion of discretionary FCF over the next five years for investment/distribution billion of discretionary FCF over the next five years for investment/distribution 25
  27. 27. …And Will Deploy Cash Flow And Manage Risk By Applying The “Cash Scrubber” Retained for Investment Cash TXU Business Flow from Excess Excess Excess Units Oper- “Customer” Growth Financial Dividend ations Capital capital Flexibility Payout and Asset Yes Yes, if Yes Sales Yes PV/Investment Payout 30-40% Quality service EBITDA/Interest: PV/Investment Payout 30-40% Quality service EBITDA/Interest: Repurchases threshold of 1.3 of operational Production >5.0 threshold of 1.3 of operational Production >5.0 or Distributions 25-35% cash earnings reliability Debt/EBITDA: 25-35% cash earnings reliability Debt/EBITDA: returned <5 yrs in <2.5 returned <5 yrs in <2.5 competitive Debt/MEV: 30% competitive Debt/MEV: 30% markets to 50% markets to 50% Equity Debt Holders Holders The cash scrubber will govern the allocation of operating The cash scrubber will govern the allocation of operating cash flow and the deployment of growth capital at the TXU Corp. level cash flow and the deployment of growth capital at the TXU Corp. level 26
  28. 28. TXU’s Clean Coal Investment Program Enables Strong Five-Year Growth TXU estimated long-term growth including indicative clean coal pro forma 06E-10E; $ per share, percent Performance Driver 06E-10E 06E operational EPS outlook range 5.50-5.75 Commodity impacts, operational improvements, retail and T&D growth1 (0.45) Debt repurchases and share repurchases1 1.25 10E operational EPS – existing businesses 6.30 – 6.55 06E-10E annual growth rate (percent CAGR) 3% – 4% Earnings from clean coal project project company2 3.45 10E operational EPS including indicative clean coal pro forma 9.75 – 10.00 06E-10E annual growth rate (percent CAGR) 14% - 16% Including the impact of the clean coal investment program, Including the impact of the clean coal investment program, TXU’s estimated 5-year annual growth rate ranges from 14-16% TXU’s estimated 5-year annual growth rate ranges from 14-16% 1 Reflects performance drivers discussed on slide 22 plus an additional $0.40 per share relating to share repurchases resulting from free cash flows not deployed for Oak Grove and Sandow. 2 Indicative pro forma for 2010, including Oak Grove and Sandow. Assumes that Oak Grove, Sandow, and 4 reference plants are in operation for the full year, while 4 additional reference plants come into operation by early 2010. The indicative pro forma will change as financing, hedging, and equity sell-down and other key terms are finalized and as the permitting and construction process unfolds. Reflects forward natural gas and power curves as of April 19, 2006. 27
  29. 29. Today’s Agenda Operational & Operational & C. John Wilder Clean Coal Investment Clean Coal Investment Chairman & CEO Highlights Highlights Jonathan Siegler Clean Coal Investment Clean Coal Investment Vice President Drivers Drivers Strategy, Mergers & Acquisitions David Campbell Financial & Risk Financial & Risk Executive Vice President & Management Overview Management Overview Acting CFO Q&A Q&A 28
  30. 30. Appendix – Regulation G Reconciliations
  31. 31. Financial Definitions Measure Definition Cap ex Capital expenditures. Cash Interest Expense Interest expense and related charges less amortization of discount and reacquired debt expense plus (non-GAAP) capitalized interest. Cash interest expense is a measure used by TXU to assess credit quality. Contribution Margin Operating revenues (GAAP) less fuel and purchased power costs and delivery fees (GAAP). Debt Total debt less transition bonds and debt-related restricted cash. Debt/EBITDA (non-GAAP) Total debt less transition bonds and debt-related restricted cash divided by EBITDA. Transition, or securitization, bonds are serviced by a regulatory transition charge on wires rates and are therefore excluded from debt in credit reviews. Debt-related restricted cash is treated as net debt in credit reviews. Debt/EBITDA is a measure used by TXU to assess credit quality. EBITDA (non-GAAP) Income from continuing operations before interest income, interest expense and related charges, and income tax plus depreciation and amortization and special items. EBITDA is a measure used by TXU to assess performance. EBITDA/Interest (non-GAAP) EBITDA divided by cash interest expense is a measure used by TXU to assess credit quality. Free Cash Flow Cash from operating activities, less capital expenditures and nuclear fuel. Used by TXU (non-GAAP) predominantly as a forecasting tool to estimate cash available for dividends, debt reduction, and other investments. Operating Cash Flow (GAAP) Cash provided by operating activities. Operational Earnings Income from continuing operations net of preference stock dividends, excluding special items. TXU (non-GAAP) 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. 30
  32. 32. Financial Definitions – cont. Measure Definition Operational Earnings per Per share (diluted) income from continuing operations net of preference stock dividends, excluding Share (non-GAAP) special items. Operational earnings for first quarter 2005 excludes the effect of the adjustment in 2005 for the cost of the true-up payment on the 52.5 million-share accelerated common stock repurchase. Reported Earnings per Share Per share (diluted) net income available to common shareholders. (GAAP) Return on Invested Capital Operational earnings (non-GAAP) plus preference stock dividends plus after-tax interest expense and (ROIC) - (non-GAAP) related charges, net of interest income on restricted cash related to debt, divided by the average of the beginning and ending total capitalization less debt-related restricted cash. This measure is used to evaluate operational performance and management effectiveness. Special Items (Non-GAAP) Unusual charges related to the implementation of the performance improvement program and other charges, credits or gains, that are unusual or nonrecurring. Special items are included in reported GAAP earnings, but are excluded from operational earnings. Special items associated with the performance improvement program include debt extinguishment losses and costs related to severance programs, asset impairments and facility closures. Total Debt (GAAP) Long-term debt (including current portion), plus bank loans and commercial paper, plus preferred securities of subsidiaries, including exchangeable preferred membership interests (EPMIs). 31
  33. 33. Table 1: TXU Corp. Operational Earnings Reconciliation Quarter Ended March 31, 2006 and 2005 $ millions and $ per share after tax Q1 06 Q1 06 Q1 05 Q1 05 Net income available for common 576 1.22 416 (0.10) Discontinued operations (60) (0.13) (15) (0.03) Preference stock dividends - - 5 0.01 Income from continuing operations 516 1.09 406 (0.12) Effect of share repurchase dilution - - - 0.97 Effect of share dilution/rounding - - - (0.01) Preference stock dividends - - (5) (0.01) Special items - - (155) (0.32) Operational earnings 516 1.09 246 0.51 32
  34. 34. Table 2: TXU Energy Holdings Operational Earnings Reconciliation Quarter Ended March 31, 2006 and 2005 $ millions and $ per share after tax Q1 06 Q1 06 Q1 05 Q1 05 Net income available for common 520 1.10 200 0.42 Discontinued operations - - 3 0.01 Income from continuing operations 520 1.10 203 0.43 Effect of share dilution/rounding - - 1 (0.01) Special items - - 2 - Operational earnings 520 1.10 206 0.42 33
  35. 35. Table 3: TXU Electric Delivery Operational Earnings Reconciliation Quarter Ended March 31, 2006 and 2005 $ millions and $ per share after tax Q1 06 Q1 06 Q1 05 Q1 05 Income from continuing operations 65 0.14 71 0.15 Special items - - 1 - Operational earnings 65 0.14 72 0.15 34
  36. 36. Table 4: TXU Corp. Total Debt As of March 31, 2006 and 2005 $ millions 3/31/06 3/31/05 Debt Notes payable 45 395 Commercial paper 1,236 - Long-term debt due currently 850 624 All other long-term debt, less due currently 11,327 11,970 Preferred securities of subs - 38 Total debt 13,458 13,027 35
  37. 37. Table 5: TXU Corp. Interest and Debt Coverage Ratios Twelve Months Ended March 31, 2006 and 2005 $ millions unless otherwise noted 3/31/06 3/31/05 Ref Cash provided by operating activities 3,642 1,617 A Reconciling adjustments from cash flow statement (1,758) (1,259) B Income from continuing operations before taxes and extraordinary items 1,884 358 Income tax expense 910 (45) Interest expense and related charges 821 706 Interest income (38) (43) Depreciation and amortization 793 757 EBITDA 4,370 1,733 Special Items 7 1,133 EBITDA (excluding special items) 4,377 2,866 C Interest expense and related charges 821 706 Amortization of discount and reacquired debt expense (15) (27) Capitalized interest 18 14 Cash interest expense 824 693 D Total debt 13,458 13,027 E Transition bonds (1,146) (1,237) Debt-related restricted cash (99) - Total debt less transition bonds and debt-related restricted cash 12,213 11,790 F EBITDA/interest – ratio (C/D) 5.3 4.1 Debt/EBITDA – ratio (F/C) 2.8 4.1 Cash provided by operating activities + cash interest expense/cash interest expense–ratio 5.4 3.3 (A+D/D) Total debt/cash flow from operating activities – ratio (E/A) 3.7 8.1 36
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