1. 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, 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 2000
TXU Electric Co.

2. 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 % 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. Filing in Two Parts
Request Fuel Factor increase effective September 4, 2000
Based on increased cost of commodity natural gas
Request Six Month Fuel Surcharge - effective November billing through April 2001
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

11. TXU Electric is requesting a 27.6% increase in the fuel factor
Fuel Factor Increase Request
TXU Electric is requesting a 27.6% increase in the fuel factor
Fuel Factor
Proposed Fuel Factor
cents/kWh
2.415 cents/kWh
Secondary
cents/kWh
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
cents/kWh
cents/kWh
TXU Electric & Gas

12. Actual Historic kWh usage
Fuel Surcharge Request
TXU Electric requested a fuel surcharge on August 4, 2000 based on increases in natural gas costs.
TXU Electric requested a surcharge in the amount of $167,164,099 to be collected over a six month period.
Proposed surcharge
Secondary
Primary
Transmission
.3971 cents/kWh
.3472 cents/kWh
Actual Historic kWh usage
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

13. 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

14. 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
TXU Electric & Gas

15. 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
(Jan ‘97 to Sept ‘99)
1/1/97
9/15/99
TXU Electric & Gas

16. 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