Sources of funds Cash on balance sheet (including restricted cash) 1.0 Operating cash flow3.0 Divestment of assets  Debt transferred with assets1.8  Cash proceeds Issuance of Securitization Bonds0.8 Short Term Borrowings5.0 Total sources of funds16.3 Uses of funds Scheduled retirements of debt (including CEUs) 5.4 Repurchase of Exchangeable Preferred Membership Interests  Portion accounted for as debt0.8  Premium1.1 Debt transferred with divested assets1.8 Stock repurchases4.0 Common dividends0.8 Cash used in investing2.1 Discontinued Ops and other0.3 Total uses of funds16.3 Liability Management And Dividend Policy We Divested Disadvantaged Businesses, Deploying Proceeds To Improve Financial Flexibility… …By Reducing Debt… …And Repurchasing Stock……Resulting In Top Quartile Financial Flexibility… Financial metrics for SPELEC 1 (n=20) ; Various measures Top1 st QuartileMedian3 rd Quartile Total debt/EBITDA (X) Total debt/ enterprise value 2 (%) EBITDA/Interest (X) #5 3.2 #4 1 S&P Electric Utility Index 2 Quartile based on LTM as of June 04 performance; TXU 05 performance based on current guidance; updated for balance sheet restructuring through Sep 04; TXU 03 includes discontinued operations; 2 Total Capitalization uses market value of equity TXU 05E 4 th Quartile 3.0 #16 TXU # # #8 Key focus of liability management strategy will be to simplify, clarify and reduce the cost of financing our activities 1 Includes net cash proceeds of $475 million from sale of TXU Communications 04E-05E; $ billions Debt Reduction Plan 03-05; $ billions Total Debt Debt transferred with divested assets(1.8) Settlement of corporate equity units(0.4) Retirement of corporate equity units and convertible senior notes 2 (1.5) Repurchase of equity preferred membership interest(0.6) Scheduled retirement of debt(0.7) Early retirement of other debt(2.3) Additional borrowing and amortizations5.0 Total Debt 05E Excluding securitization debt 2 Assumes 100% success rate of tender offer Period end diluted shares 04-05; Number of shares Q104Q2Q3Q4E04E  Repurchased exchangeable preferred membership interest  Bought back shares on the open market  Repurchased exchangeable preferred membership interest  Bought back shares on the open market Average diluted shares 04-05; Number of shares 0304E05E

…We Will Issue A Conservative Dividend With A High Performance Growth Rate Based On Our Disciplined Capital Allocation Process… “Customer” Capital Debt Holders Yes Reinvest -ment Excess Yes, if Debt Reduction Yes, untilYes  50% of cash returned within 3 years  Minimum ROI of 15% Top Quartile Credit Metrics  Debt/EV 1  Coverage ratio  Debt/EBITDA  Quality service  Production reliability  Payout of 30-40% Excess Repurchases or Distributions Retained For Investment Excess Equity Holders Dividend Payout Oper/ Divest Cash Flow TXU Business Units Given cash flow expectations, we must determine our long-term capital allocation policy:  How much cash should we re-invest?  What are the big growth opportunities that can provide excess return over our cost of capital?  How much cash should we return to our shareholders? Given cash flow expectations, we must determine our long-term capital allocation policy:  How much cash should we re-invest?  What are the big growth opportunities that can provide excess return over our cost of capital?  How much cash should we return to our shareholders? 75% Total Payout Cap Liability Management And Dividend Policy The Decision Is Supported By A Strong Credit Profile……And Is Sustainable Under Multiple Stress Scenarios 1 Enterprise value (EV) defined as market value of equity + total debt EBITDA / interest Dividend payout ratio vs credit quality EBITDA / interest Total payout ratio vs credit quality Source :Deutsche Bank, June TXU (Average 05E-07E) Total debt / EBITDA Dividend payout ratio vs credit qualityTotal payout ratio vs credit quality Total debt / EBITDA Dividend payout ratio Total payout ratio Dividend payout ratio TXU (Average 05E-07E) Stress case:  Low gas ($4.50)  High churn (10%)  Extended baseload plant shutdown Plan Total payout ratio 04-06; % of net income 60% threshold 1 st Quartile2 nd Quartile3 rd Quartile4 th Quartile 1 st Quartile2 nd Quartile3 rd Quartile4 th Quartile Dividend growth rate ; % TXU 05E TXU LTM TXU 05E TXU (94-03) Dividend payout (TTM) 03-04; % of earnings