Interim Fuel Factor Adjustment and Surcharge for Under-Recoveries Today we will be discussing the recent fuel factor increase and fuel surcharge request that TXU Electric filed with the PUC on August 7, 2000. With the recent increases in natural gas prices and oil prices, combined with reduced domestic production and other factors, fuel prices have increased nearly 100% since January. We will explain why we are filing and how it effects you and your business. Key Account Communications August 31, 2000 TXU Electric Co.

Fuel Factor Defined A component of your electric rate that covers the cost of fuel required to generate electricity Adopted by the Public Utility Commission of Texas in consideration of fuel price fluctuation Considers future price trends of all fuels as a factor and, in essence, creates average price Fuel Component can represent between 30 - 50% of a typical commercial & industrial customers’ bill What is a “Fuel Factor”? In order to generate electricity, power plants must purchase natural gas or other fuels for use in the production process. The cost of that fuel is included as a part of your electric rate. This fuel cost is a “pass through” amount that generates no profit for TXU. However, it is subject to market prices and fluctuates often. Prior to 1986, customers were subject to monthly rate increases due to the constantly changing price of natural gas on the open market. In an effort to alleviate those frequent rate changes, the Public Utility Regulatory Act established the Fuel Factor process. The Public Utility Commission of Texas adopted the process in consideration of fuel price fluctuations. The fuel factor is a component of your electric rate that takes the price fluctuation into account and, in essence, creates an average price that incorporates historical energy costs. TXU Electric & Gas

Important Points Fuel cost is based on the actual cost of fuel, without margin or profit to TXU Electric TXU mitigates the impact of fuel costs through production of nuclear power and lignite mining Fuel cost volatility is primarily driven by the cost of natural gas TXU Electric & Gas

TXU 2000 and 2001 Energy by Fuel Type* (Projected) 2000 TXU’s fuel diversity helps mitigate gas price volatility * Based 2000 Utility Update filed with PUC. ** Does not include Wind Contracts Announced in 2000. TXU Electric & Gas

Number of Active Contracts by Contract Type 1999 Gas Purchases 2000 Number of Active Contracts by Contract Type 100 (38%) Production with Market-Outs Typical Term 1 year - 20 years Potential for upward adjustment @ contract anniversary Potential to adjust to market price as warranted 49 (18%) Short - Term Commercial - Non - Spot Typical Term 30 Days - 1 Year Hourly, Daily, Monthly or Seasonal requirements 54 (20%) Short - Term Commercial - Spot Daily purchase for next day flow 62 (23%) Production w/o Market-Outs Generally long term - 20 years Typically signed prior to 1983 265 Contracts TXU Electric & Gas

MMBTU - Market Sensitive vs. Non-Market Sensitive 1999 Gas Purchases 2000 MMBTU - Market Sensitive vs. Non-Market Sensitive 38, 169,642 (10%) Non-Market Sensitive (Production w/out Market Outs) 353,203,024 (90%) Market Sensitive Short Term Spot Short Term Non-Spot Production w/ Market Outs 391,372,666 MMBTU TOTAL TXU Electric & Gas

Price for natural gas is up nearly 100% over 1999 Natural Gas Price Volatility Price for natural gas is up nearly 100% over 1999 Demand is up Domestic production is down Physical gas storage level is below last year Oil prices are much higher Price of natural gas in 1993 was $1.58 per mmbtu, market price for natural gas has increased to $3.13 per mmbtu for January through June 2000. TXU Electric & Gas

2000 American Gas Association Storage Report TXU Electric & Gas 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800 3000 3200 3400 Bcf 1999 1998 1997 1996 5 Year Avg The American Gas Association reported US gas storage at 1,733 Bcf for the week ended July 7th, up 97 from the previous week, and down 428 Bcf from the same period of 1999. Total storage is estimated to be 53% full compared to 66% for the same period of 1999. 2000 TXU Electric & Gas

Required by Public Utility Commission The PUC’s Substantive Rules require a utility to request a surcharge or a refund when the utility has materially under collected or over collected its fuel costs and projects that it will continue to be in that position The PUC allows petitions to be submitted twice per year. TXU Electric has two opportunities for filing -- august and February. TXU Electric & Gas

Maintaining Balance: Refund or Surcharge? Customer Overpayment for Fuel = Utility will refund to customers with interest Customer Underpayment for Fuel = Utility requests surcharge to recover cost of fuel and interest Utilizing a Fuel Factor creates two scenarios: TXU Electric & Gas

Since 1986, TXU Electric has instituted: History of Filings Since 1986, TXU Electric has instituted: 14 Refunds to customers representing $951 Million 2 Fuel Surcharges to customers representing $241 Million First Fuel Surcharge request since 1994 TXU Fuel Factor has not increased since 1993 TXU Electric & Gas

Fuel Factor & Surcharge Filing August 4, 2000: TXU Electric filed with the Public Utility Commission of Texas a request to increase the fuel component included in your electric rates in order to recover increased costs of gas. The August 7 filing requests the authority to increase TXU Electric’s Fuel Factor and institute an interim Fuel Surcharge to assist in recovering costs associated with the increase in generating fuel costs. The formal application was submitted on August 7 and represents the first such request since 1993. TXU Electric & Gas

Cumulative Fuel Cost Under Collection - Past 13 Months Cumulative End Of Month June 2000 Fuel underecovery numbers determined 7/11/00 Corporate decision to file interim fuel factor and surcharge finalized middle of July Under Collected Totals Trigger point for Potential Surcharge Filing - $62.5 Million The August 7 filing requests the authority to increase TXU Electric’s Fuel Factor and institute an interim Fuel Surcharge to assist in recovering costs associated with the increase in generating fuel costs. The formal application was submitted on August 7 and represents the first such request since 1993. TXU Electric & Gas

Filing in Two Parts Requested Fuel Factor increase Based on increased cost of commodity natural gas Requested Six Month Fuel Surcharge Needed to recover under collection for fuel costs incurred through June 2000 The filing actually contains two important pieces. First TXU Electric is requesting an increase in the fuel factor designed to help recover anticipated costs associated with the current increase in the price of commodity natural gas, as well as projected increases and sustained high prices for the near future. This filing is specifically in regard to natural gas costs as they effect TXU Generation most often. Secondly, TXU Electric is also requesting a 6 month fuel surcharge to help recover under collected cost from the past six months. With the rise in natural gas prices, the amount collected from customers was not sufficient to cover the cost of purchasing generating fuels. The surcharge will assist TXU Electric in recovering those short falls. TXU Electric & Gas

Fuel Factor Increase Request TXU Electric received regulatory approval to adjust the fuel factor August 31, 2000 1993 - 2000 Fuel Factor Proposed 8/4/00 Approved Fuel Factor 1.8926 cents/kWh 2.415 cents/kWh 2.1538 cents/kWh Secondary 1.8402 cents/kWh 2.3481 cents/kWh 2.0941 cents/kWh Primary The filing actually contains two important pieces. First TXU Electric is requesting an increase in the fuel factor designed to help recover anticipated costs associated with the current increase in the price of commodity natural gas, as well as projected increases and sustained high prices for the near future. This filing is specifically in regard to natural gas costs as they effect TXU Generation most often. Secondly, TXU Electric is also requesting a 6 month fuel surcharge to help recover under collected cost from the past six months. With the rise in natural gas prices, the amount collected from customers was not sufficient to cover the cost of purchasing generating fuels. The surcharge will assist TXU Electric in recovering those short falls. Transmission 1.8093 cents/kWh 2.3087 cents/kWh 2.0590 cents/kWh TXU Electric & Gas

Fuel Surcharge Request TXU Electric received approval to implement a surcharge for a 14-month period to recover $315,490,007 in under collected fuel costs. Fuel Surcharge extended to 14-months from requested 6-month period to reduce effect on customer bills. Proposed Fuel Surcharge 8/4/00 Secondary Primary Transmission Approved Fuel Surcharge 8/31/00 .2808 cents/kWh .2548 cents/kWh Based on Actual kWh usage .3971 cents/kWh .3472 cents/kWh Customer Specific Customer Specific surcharges are set on an account by account basis for transmission accounts. This rate is typically higher that secondary and primary service. TXU Electric & Gas

Other Utility Filings TXU Electric’s Fuel Factor Adjustment Request is among the lowest in the state TXU Electric is one of the last public utility to file for the increase based on natural gas prices * Reliant surcharge moved from $69M, 9 mo to $278M, 16 mo TXU Electric & Gas

Relationship to Senate Bill 7 Electric Rates frozen through January 1, 2002. AND, SB7 allows revision of the fuel factor and surcharge requests due to fuel price changes Legislature and PUC recognize the volatility of fuel costs Small Commercial and Residential customers will still receive the 6% “Price to Beat” rate reduction on Jan. 1, 2002 Price to Beat” discount includes fuel factor and surcharge as part of rate “Price to Beat” is discount off customers current rate at start date of competition - 01/01/02 TXU Electric & Gas

Preparing for Electric Price Volatility Deregulated electrical prices have been significantly more volatile than those of natural gas Creates potential for significant financial risk in the future Understanding one’s load profile and how it may be modified will help mitigate this risk “Konnections” or similar products allow you to capture your load profile for understanding and future pricing Electric & Gas Commodity Prices (3 years) 1/97 8/99 TXU Electric & Gas

Market Price Forecasts Natural Gas Market Price Forecasts Available on July 19, 2000 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 Jul-00 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun-01 Months Nominal $ per MMBtu Enron Jul 18 Swaps-Offer NYMEX July 18 Settle TXUE July 17 Avg Spot CERA Jul 14 Henry Hub S&P DRI Jul 17 Gulf Coast We very much appreciate the opportunity to serve your needs as we transition to an open energy market in Texas. We are here to assist you in preparing for the open market, by informing you of information that may impact you and your business. TXU Electric & Gas

Thank You for Your Business We very much appreciate the opportunity to serve your needs as we transition to an open energy market in Texas. We are here to assist you in preparing for the open market, by informing you of information that may impact you and your business. TXU Electric & Gas