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 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

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

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

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

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 1993 - 2000 Fuel Factor Proposed Fuel Factor 1.8926 cents/kWh 2.415 cents/kWh Secondary 1.8402 cents/kWh 2.3481 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 TXU Electric & Gas

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

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

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

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

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