Energy Future (TXU) 8-K Other Events

Exhibit 99.4

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Energy Future Holdings Corp.:

We have audited the accompanying consolidated balance sheets of Energy Future Holdings Corp. and subsidiaries (“EFH Corp.”) as of December 31, 2008 and 2007 (successor), and the related statements of consolidated income (loss), comprehensive income (loss), cash flows and shareholders’ equity for the year ended December 31, 2008 (successor), the period from October 11, 2007 through December 31, 2007 (successor), the period from January 1, 2007 through October 10, 2007 (predecessor) and the year ended December 31, 2006 (predecessor). These financial statements are the responsibility of EFH Corp.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Energy Future Holdings Corp. and subsidiaries at December 31, 2008 and 2007 (successor), and the results of their operations and their cash flows for the year ended December 31, 2008 (successor), the period from October 11, 2007 through December 31, 2007 (successor), the period from January 1, 2007 through October 10, 2007 (predecessor) and the year ended December 31, 2006 (predecessor), in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, EFH Corp. completed its merger with Texas Energy Future Merger Sub Corp and became a subsidiary of Texas Energy Future Holdings Limited Partnership on October 10, 2007. In addition, during the year ended December 31, 2008 EFH Corp. adopted the provisions of FASB Staff Position No. FIN 39-1 and reclassified the results of its commodity hedging and trading activities on a retrospective basis. As also discussed in Note 1 to the consolidated financial statements, EFH Corp. adopted SFAS 160 effective January 1, 2009, on a retrospective basis.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established inInternal Control – Integrated Framework issued by the Committee Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 2, 2009

(May 20, 2009 as to the effects of the retrospective adoption of SFAS 160 as described in Note 1)

69

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME (LOSS)

(Millions of Dollars)

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Operating revenues	$	11,364		$	1,994		$	8,044		$	10,703
Fuel, purchased power costs and delivery fees		(4,595	)		(644	)		(2,381	)		(2,784	)
Net gain (loss) from commodity hedging and trading activities		2,184			(1,492	)		(554	)		153
Operating costs		(1,503	)		(306	)		(1,107	)		(1,373	)
Depreciation and amortization		(1,610	)		(415	)		(634	)		(830	)
Selling, general and administrative expenses		(957	)		(216	)		(691	)		(819	)
Franchise and revenue-based taxes		(363	)		(93	)		(282	)		(390	)
Impairment of goodwill (Note 3)		(8,860	)		—			—			—
Other income (Note 13)		80			14			69			121
Other deductions (Note 13)		(1,301	)		(61	)		(841	)		(269	)
Interest income		27			24			56			46
Interest expense and related charges (Note 28)		(4,935	)		(839	)		(671	)		(830	)
Income (loss) from continuing operations before income taxes		(10,469	)		(2,034	)		1,008			3,728
Income tax (expense) benefit		471			673			(309	)		(1,263	)
Income (loss) from continuing operations		(9,998	)		(1,361	)		699			2,465
Income from discontinued operations, net of tax effect (Note 4)		—			1			24			87
Net income (loss)		(9,998	)		(1,360	)		723			2,552
Net loss attributable to noncontrolling interests		160			—			—			—
Net income (loss) attributable to EFH Corp.	$	(9,838	)	$	(1,360	)	$	723		$	2,552

See Notes to Financial Statements.

70

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(Millions of Dollars)

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Net income (loss)	$	(9,998	)	$	(1,360	)	$	723		$	2,552
Other comprehensive income (loss), net of tax effects:
Reclassification of pension and other retirement benefit costs (net of tax (expense) benefit of $69, $5, $(19) and $—) (Note 22)		(84	)		(57	)		49			—
Minimum pension liability adjustments (net of tax (expense) benefit of $—, $—, $— and $(38))		—			—			—			71
Cash flow hedges:
Net increase (decrease) in fair value of derivatives (net of tax (expense) benefit of $99, $97, $154 and $(321))		(183	)		(177	)		(288	)		598
Derivative value net (gains) losses related to hedged transactions recognized during the period and reported in net income (net of tax (expense) benefit of $66, $— , $(48) and $(25))		122			—			(89	)		(45	)
Total effect of cash flow hedges		(61	)		(177	)		(377	)		553
Total adjustments to net income (loss)		(145	)		(234	)		(328	)		624
Comprehensive income (loss)		(10,143	)		(1,594	)		395			3,176
Comprehensive loss attributable to noncontrolling interests		160			—			—			—
Comprehensive loss attributable to EFH Corp.	$	(9,983	)	$	(1,594	)	$	395		$	3,176

See Notes to Financial Statements.

71

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Millions of Dollars)

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Cash flows — operating activities
Net income (loss)	$	(9,998	)	$	(1,360	)	$	723		$	2,552
Income from discontinued operations, net of tax effect		—			(1	)		(24	)		(87	)
Income (loss) from continuing operations		(9,998	)		(1,361	)		699			2,465
Adjustments to reconcile income from continuing operations to cash provided by operating activities:
Depreciation and amortization		2,070			568			684			893
Deferred income tax expense (benefit) — net		(477	)		(736	)		(111	)		756
Impairment of goodwill (Note 3)		8,860			—			—			—
Impairment of trade name intangible asset (Note 3)		481			—			—			—
Impairment of emission allowances intangible assets (Note 3)		501			—			—			—
Impairment of natural gas-fueled generation fleet (Note 6)		229			—			—			198
Charge related to Lehman bankruptcy (Note 13)		26			—			—			—
Unrealized net losses (gains) from mark-to-market valuations of commodity positions		(2,329	)		1,556			722			(272	)
Unrealized net losses from mark-to-market valuations of interest rate swaps		1,477			—			—			—
Bad debt expense		81			12			46			68
Stock-based incentive compensation expense		30			—			27			27
Recognition of losses on dedesignated cash flow hedges		66			—			10			12
Customer appreciation bonus charge (net of amounts credited to customers in 2006) (Note 7)		—			—			—			122
Net charges related to cancelled development of generation facilities (Note 5)		—			2			676			—
Write-off of deferred transaction costs (Note 13)		—			—			38			—
Credit related to impaired leases (Note 13)		—			—			(48	)		(2	)
Net gains on sale of assets, including amortization of deferred gains		(1	)		(1	)		(40	)		(69	)
Other, net		(20	)		5			19			16
Changes in operating assets and liabilities:
Accounts receivable — trade		(505	)		309			(200	)		337
Impact of accounts receivable sales program (Note 14)		53			(336	)		72			(44	)
Inventories		(21	)		(5	)		(7	)		(21	)
Accounts payable — trade		385			(264	)		81			(219	)
Commodity and other derivative contractual assets and liabilities		(28	)		18			(185	)		—
Margin deposits — net		595			(614	)		(569	)		564
Other — net assets		440			284			(89	)		(92	)
Other — net liabilities		(410	)		113			440			215
Cash provided by (used in) operating activities from continuing operations	$	1,505		$	(450	)	$	2,265		$	4,954

See Notes to Financial Statements.

72

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS (CONT.)

(Millions of Dollars)

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Cash flows — financing activities
Issuances of securities/long-term borrowings (Note 15):
Equity financing from Sponsor Group and other investors	$	—		$	8,236		$	—		$	—
Merger-related debt financing		—			42,732			1,800			—
Pollution control revenue bonds		242			—			—			243
Oncor long-term debt		1,500
Other long-term debt		1,443			—			—			—
Common stock		34			—			1			180
Retirements/repurchases of securities/long-term borrowings (Note 15):
Equity-linked debt		—			—			—			(179	)
Pollution control revenue bonds		(242	)		—			(143	)		(259	)
Merger-related debt repurchases		—			(15,314	)		—			—
Other long-term debt		(925	)		(81	)		(302	)		(1,253	)
Common stock		(3	)		—			(13	)		(960	)
Increase (decrease) in short-term borrowings (Note 15):
Banks		(481	)		(722	)		2,245			(245	)
Commercial paper		—			—			(1,296	)		939
Proceeds from sale of noncontrolling interests, net of transaction costs (Note 18)		1,253			—			—			—
Common stock dividends paid		—			—			(788	)		(764	)
Settlements of minimum withholding tax liabilities under stock-based compensation plans		—			—			(93	)		(52	)
Excess tax benefit on stock-based incentive compensation		—			—			—			41
Debt discount, financing and reacquisition expenses		(21	)		(986	)		(17	)		(23	)
Other		37			—			—			—
Cash provided by (used in) financing activities from continuing operations	$	2,837		$	33,865		$	1,394		$	(2,332	)
Cash flows — investing activities
Acquisition of EFH Corp.		—			(32,694	)		—			—
Capital expenditures		(2,812	)		(684	)		(2,341	)		(2,180	)
Nuclear fuel purchases		(166	)		(23	)		(54	)		(117	)
Investment held in money market fund (Note 1)		(142	)		—			—			—
Purchase of mining-related assets		—			—			(122	)		—
Proceeds from sale of assets		80			86			71			20
Proceeds from sale of environmental allowances and credits		39			—			—			—
Purchases of environmental allowances and credits		(34	)		—			—			—
Purchase of lease trust		—			—			—			(69	)
Proceeds from letter of credit facility deposited with trustee (restricted cash) (Note 15)		—			(1,250	)		—			—
Proceeds from pollution control revenue bonds (deposited) withdrawn from trustee (restricted cash)		29			13			202			(240	)
Other changes in restricted cash		1			14			(16	)		—
Cash settlements related to outsourcing contract termination (Note 21)		70			—			—			—
Proceeds from sales of nuclear decommissioning trust fund securities		1,623			831			602			207
Investments in nuclear decommissioning trust fund securities		(1,639	)		(835	)		(614	)		(223	)
Costs to remove retired property		(37	)		(9	)		(25	)		(40	)
Settlement of loan (Note 21)		25			—			—			—
Other		29			(12	)		14			(22	)
Cash used in investing activities from continuing operations	$	(2,934	)	$	(34,563	)	$	(2,283	)	$	(2,664	)

73

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS (CONT.)

(Millions of Dollars)

	Successor					Predecessor
	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007		Year Ended December 31, 2006
Discontinued operations:
Cash provided by (used in) operating activities		—		(7	)		35		30
Cash used in financing activities		—		—			—		—
Cash provided by (used in) investing activities		—		—			—		—
Cash provided by (used in) discontinued operations		—		(7	)		35		30
Net change in cash and cash equivalents		1,408		(1,155	)		1,411		(12	)
Cash and cash equivalents — beginning balance		281		1,436			25		37
Cash and cash equivalents — ending balance	$	1,689	$	281		$	1,436	$	25

See Notes to Financial Statements.

74

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Millions of Dollars)

		Successor
		December 31, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents		$	1,689		$	281
Investments held in money market fund (Note 1)			142			—
Restricted cash (Note 28)			55			56
Trade accounts receivable — net (Note 14)			1,219			1,099
Income taxes receivable — net			42			101
Inventories (Note 28)			426			405
Commodity and other derivative contractual assets (Note 19)			2,534			1,129
Accumulated deferred income taxes (Note 12)			44			9
Margin deposits related to commodity positions			439			513
Other current assets			165			376
Total current assets			6,755			3,969
Restricted cash (Note 28)			1,267			1,296
Investments (Note 20)			645			868
Property, plant and equipment — net (Note 28)			29,522			28,650
Goodwill (Note 3)			14,386			22,954
Intangible assets — net (Note 3)			2,993			4,365
Regulatory assets — net (Note 28)			1,892			1,305
Commodity and other derivative contractual assets (Note 19)			962			244
Other noncurrent assets, principally unamortized debt issuance costs			841			1,130
Assets held for sale			—			23
Total assets	��	$	59,263		$	64,804
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings (Note 15)		$	1,237		$	1,718
Long-term debt due currently (Note 15)			385			513
Trade accounts payable			1,143			904
Commodity and other derivative contractual liabilities (Note 19)			2,908			1,146
Margin deposits related to commodity positions			525			5
Accrued interest			524			537
Other current liabilities			612			879
Total current liabilities			7,334			5,702
Accumulated deferred income taxes (Note 12)			5,926			6,664
Investment tax credits			42			47
Commodity and other derivative contractual liabilities (Note 19)			2,095			2,453
Long-term debt, less amounts due currently (Note 15)			40,838			38,603
Other noncurrent liabilities and deferred credits (Note 28)			5,205			4,650
Total liabilities			61,440			58,119
Commitments and Contingencies (Note 16)
Equity (Note 17):
EFH Corp. shareholders’ equity			(3,532	)		6,685
Noncontrolling interests in subsidiaries			1,355			—
Total equity			(2,177	)		6,685
Total liabilities and equity		$	59,263		$	64,804

See Notes to Financial Statements.

75

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED EQUITY

(Millions of Dollars)

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Common stock without par value (number of authorized shares — Successor — 2,000,000,000; Predecessor — 1,000,000,000):
Balance at beginning of period	$	—		$	—		$	5		$	5
Balance at end of period (number of shares outstanding: Successor: 2008 — 1,667,149,663; 2007 — 1,664,345,953; Predecessor: October 10, 2007 — 461,152,009; 2006 — 459,244,523)		—			—			5			5
Additional paid-in capital:
Balance at beginning of period		8,279			—			1,104			1,840
Investment by Sponsor Group and other investors		—			8,279			—			—
Effects of stock-based incentive compensation plans		29			—			(66	)		27
Effect of sale of noncontrolling interests (Note 18)		(265	)		—			—			—
Common stock repurchases		—			—			(13	)		(1,012	)
Excess tax benefit on stock-based compensation		—			—			82			41
Issuance of shares under equity-linked debt securities		—			—			—			180
Cost of Thrift Plan shares released by LESOP trustee (Note 22)		—			—			210			2
Effects of executive deferred compensation plan		—			—			11			13
Other		2			—			(2	)		13
Balance at end of period		8,045			8,279			1,326			1,104
Retained earnings (deficit):
Balance at beginning of period		(1,360	)		—			622			(1,168	)
Net income (loss)		(9,838	)		(1,360	)		723			2,552
Dividends declared on common stock ($-, $-, $1.30 and $1.67 per share)		—			—			(596	)		(768	)
Effect of adoption of FIN 48 (Note 10)		—			—			33			—
LESOP dividend deduction tax benefit and other		—			—			3			6
Balance at end of period		(11,198	)		(1,360	)		785			622
Accumulated other comprehensive gain (loss), net of tax effects:
Pension and other postretirement employee benefit liability adjustments:
Balance at beginning of period		(57	)		—			(2	)		(60	)
Change in unrecognized gains (losses) related to pension and other retirement benefit costs		(84	)		(57	)		49			—
Change in minimum pension liability		—			—			—			71
SFAS 158 transition adjustment		—			—			—			(13	)
Balance at end of period		(141	)		(57	)		47			(2	)
Amounts related to cash flow hedges:
Balance at beginning of period		(177	)		—			411			(142	)
Change during the period		(61	)		(177	)		(377	)		553
Balance at end of period		(238	)		(177	)		34			411
Total accumulated other comprehensive gain (loss) at end of period		(379	)		(234	)		81			409
EFH Corp. shareholders’ equity at end of period (Note 17)		(3,532	)		6,685			2,197			2,140
Noncontrolling interests in subsidiaries (Note 18):
Balance at beginning of period		—			—			—			—
Net loss		(160	)		—			—			—
Investment		1,253			—			—			—
Effect of sale of noncontrolling interests (Note 18)		265
Distributions to noncontrolling interests		(2	)		—			—			—
Other		(1	)
Noncontrolling interests in subsidiaries at end of period		1,355			—			—			—
Total equity at end of period	$	(2,177	)	$	6,685		$	2,197		$	2,140

See Notes to Financial Statements.

76

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

EFH Corp., a Texas corporation, is a Dallas-based holding company conducting its operations principally through its TCEH and Oncor subsidiaries. TCEH is a holding company for subsidiaries engaged in competitive electricity market activities largely in Texas including electricity generation, development and construction of new generation facilities, wholesale energy sales and purchases, commodity risk management and trading activities, and retail electricity sales. Oncor is engaged in regulated electricity transmission and distribution operations in Texas.

On October 10, 2007, EFH Corp. completed its Merger with Merger Sub. As a result of the Merger, EFH Corp. became a subsidiary of Texas Holdings, which is controlled by the Sponsor Group.

Various “ring-fencing” measures have been taken, in connection with the Merger, to enhance the credit quality of Oncor. Such measures include, among other things: the formation of a new special purpose holding company for Oncor, Oncor Holdings, as one of the Oncor Ring-Fenced Entities; the conversion of Oncor from a corporation to a limited liability company; maintenance of separate books and records for the Oncor Ring-Fenced Entities; changes to Oncor’s corporate governance provisions; appointment of a majority of independent directors to Oncor’s board of directors, and prohibitions on the Oncor Ring-Fenced Entities providing credit support to, or receiving credit support from, any member of the Texas Holdings Group. The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of the Texas Holdings Group and none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or other obligations of any member of the Texas Holdings Group. Moreover, the cash flows of the Oncor Ring-Fenced Entities and their results of operations are separate from those of the Texas Holdings Group. Oncor Holdings is consolidated with EFH Corp. as a variable interest entity under FIN 46R.

See Note 18 for discussion of noncontrolling interests sold by Oncor in November 2008.

EFH Corp. has two reportable segments: the Competitive Electric segment, which includes the activities of TCEH as well as equipment salvage and resale activities related to the 2007 cancelled development of new generation facilities, and the Regulated Delivery segment, which includes the activities of Oncor, its wholly-owned bankruptcy-remote financing subsidiary and, in 2007, certain revenues and costs associated with installation of equipment that will facilitate Oncor’s technology initiatives. See Note 27 for further information concerning reportable business segments.

77

Basis of Presentation

The consolidated financial statements of EFH Corp. have been prepared in accordance with US GAAP. The accompanying consolidated statements of income (loss), comprehensive income (loss) and cash flows present results of operations and cash flows of EFH Corp. for “Successor” and “Predecessor” periods, which relate to periods succeeding and preceding the Merger, respectively. The consolidated financial statements have been prepared on the same basis as the audited financial statements included in EFH Corp.’s 2007 Form 10-K, with the exception of a change to discontinue the netting of derivative assets and liabilities under master netting agreements as allowed under FSP FIN 39-1, a change in classification to report the results of commodity hedging and trading activities on a separate line item in the income statement instead of within operating revenues, as discussed immediately below, a change in the presentation of amounts attributable to noncontrolling interests in the financials statements pursuant to adoption of SFAS 160 as discussed in “Changes in Accounting Standards” below, and certain reclassifications in the statements of consolidated comprehensive income (loss) to conform to current period presentation. The consolidated financial statements of the Successor reflect the application of purchase accounting in accordance with the provisions of SFAS 141, include the activities of Merger Sub, all of which related to the acquisition of EFH Corp., and reflect the adoption of SFAS 157. All intercompany items and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in the notes are stated in millions of US dollars unless otherwise indicated.

Change in Classification of Results from Commodity Hedging and Trading Activities— Effective April 1, 2008, EFH Corp. changed its classification of realized and unrealized net gains and losses from commodity hedging and trading activities such that the results from these activities are reported as a separate line on the income statement. Prior to April 1, 2008, such amounts were included within operating revenues. EFH Corp. believes this change in classification provides users of the financial statements better transparency of underlying revenue trends. Results from commodity hedging and trading activities are volatile as a substantial majority of the activity involves natural gas financial instruments, which are used to economically hedge future cash flows from electricity sales and are marked-to-market in net income. Comparative financial statements of prior periods reflect this reclassification. The following table presents EFH Corp.’s operating revenues as reported in the 2007 Form 10-K and reflects the change in classification. There is no effect on reported earnings, the balance sheet or the statement of cash flows as a result of this change in presentation.

	Successor						Predecessor
	As Originally Reported			As Reclassified			As Originally Reported		As Reclassified			As Originally Reported		As Reclassified
	Period from October 11, 2007 through December 31, 2007			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007		Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006		Year Ended December 31, 2006
Operating revenues	$	502		$	1,994		$	7,490	$	8,044		$	10,856	$	10,703
Net gain (loss) from commodity hedging and trading activities		n/a			(1,492	)		n/a		(554	)		n/a		153
Income (loss) from continuing operations		(1,361	)		(1,361	)		699		699			2,465		2,465

Discontinued Businesses

Note 4 presents detailed information regarding the effects of discontinued businesses, the results of which have been classified as discontinued operations.

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Use of Estimates

Preparation of EFH Corp.’s financial statements requires management to make estimates and assumptions about future events that affect the reporting of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense, including fair value measurements. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. No material adjustments, other than those disclosed elsewhere herein, were made to previous estimates or assumptions during the current year.

Purchase Accounting

The Merger has been accounted for under purchase accounting, whereby the total purchase price of the transaction was allocated to EFH Corp.’s identifiable tangible and intangible assets acquired and liabilities assumed based on their fair values, and the excess of the purchase price over the fair value of net assets acquired was recorded as goodwill. The allocation resulted in a significant amount of goodwill, an increase in the carrying value of property, plant and equipment and deferred income tax liabilities as well as new identifiable intangible assets and liabilities. Reported earnings in periods subsequent to the Merger reflect increases in interest, depreciation and amortization expense. See Note 2 for details regarding the effect of purchase accounting.

Derivative Instruments and Mark-to-Market Accounting

EFH Corp. enters into contracts for the purchase and sale of electricity, natural gas and other commodities and also enters into other derivative instruments such as options, swaps, futures and forwards primarily to manage commodity price and interest rate risks. If the instrument meets the definition of a derivative under SFAS 133, changes in the fair value of the derivative are recognized in net income as unrealized gains and losses, unless the criteria for certain exceptions are met, and an offsetting derivative asset or liability is recorded in the balance sheet. This recognition is referred to as “mark-to-market” accounting. The fair values of EFH Corp.’s unsettled derivative instruments under mark-to-market accounting are reported in the balance sheet as commodity and other derivative contractual assets or liabilities. When derivative instruments are settled and realized gains and losses are recorded, the previously recorded unrealized gains and losses and derivative assets and liabilities are reversed. See Note 19 and 24 for additional information regarding commodity and other derivative contractual assets and liabilities and fair value measurement. Under the election criteria of SFAS 133, EFH Corp. may elect the “normal” purchase and sale exemption. A commodity-related derivative contract may be designated as a “normal” purchase or sale if the commodity is to be physically received or delivered for use or sale in the normal course of business. If designated as normal, the derivative contract is accounted for under the accrual method of accounting (not marked-to-market) with no balance sheet or income statement recognition of the contract until settlement.

Because derivative instruments are frequently used as economic hedges, SFAS 133 allows the designation of such instruments as cash flow or fair value hedges provided certain conditions are met. A cash flow hedge mitigates the risk associated with the variability of the future cash flows related to an asset or liability (e.g., a forecasted sale of electricity in the future at market prices or the payment of interest related to variable rate debt), while a fair value hedge mitigates risk associated with fixed future cash flows (e.g., debt with fixed interest rate payments). In accounting for changes in the fair value of cash flow hedges, derivative assets and liabilities are recorded on the balance sheet with an offset to other comprehensive income or loss to the extent the hedges are effective and the hedged transaction remains probable of occurring. If the hedged transaction becomes probable of not occurring, hedge accounting is discontinued and the amount recorded in other comprehensive income is immediately reclassified into net income. If the relationship between the hedge and the hedged transaction ceases to exist or is dedesignated, hedge accounting is discontinued, and the amounts recorded in other comprehensive income are recognized as the previously hedged transaction impacts earnings. Changes in value of fair value hedges are recorded as derivative assets or liabilities with an offset to net income, and the carrying value of the related asset or liability (hedged item) is adjusted for changes in fair value with an offset to net income. If the fair value hedge is settled prior to the maturity of the hedged item, the cumulative fair value gain or loss associated with the hedge is amortized into income over the remaining life of the hedged item. In the statement of cash flow, the effects of settlements of derivative instruments are classified consistent with the related hedged transactions.

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To qualify for hedge accounting, a hedge must be considered highly effective in offsetting changes in fair value of the hedged item. Assessment of the hedge’s effectiveness is tested at least quarterly throughout its term to continue to qualify for hedge accounting. Changes in fair value that represent hedge ineffectiveness, even if the hedge continues to be assessed as effective, are immediately recognized in net income. Ineffectiveness is generally measured as the cumulative excess, if any, of the change in value of the hedging instrument over the change in value of the hedged item. See Notes 15 and 19 for additional information concerning hedging activity.

Realized and unrealized gains and losses from transacting in energy-related derivative instruments are primarily reported in the income statement in net gain (loss) from commodity hedging and trading activities. In accordance with accounting rules, realized gains and losses associated with physically settled sales and purchase derivative instruments are reported in revenues and fuel, purchased power costs and delivery fees.

Revenue Recognition

EFH Corp. records revenue from electricity sales and delivery service under the accrual method of accounting. Revenues are recognized when electricity or delivery services are provided to customers on the basis of periodic cycle meter readings and include an estimated accrual for the revenues earned from the meter reading date to the end of the period (unbilled revenue).

EFH Corp.’s reported revenues include, on a net basis, ERCOT electricity balancing transactions, which represent wholesale purchases and sales of electricity for real-time balancing purposes as measured in 15-minute intervals. As is industry practice, these purchases and sales with ERCOT, as the balancing energy clearinghouse agent, are reported net in the income statement. Although difficult to predict, it is expected that the balancing activity will frequently result in net revenues due in part to generation volumes exceeding retail load. EFH Corp. believes that presentation of this activity as a component of revenues more appropriately reflects EFH Corp.’s market position.

Impairment of Long-Lived Assets

EFH Corp. evaluates long-lived assets (including intangible assets with finite lives) for impairment whenever indications of impairment exist in accordance with the requirements of SFAS 144. The carrying value of such assets is deemed to be impaired if the projected undiscounted cash flows are less than the carrying value. If there is such impairment, a loss would be recognized based on the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by discounted cash flows, supported by available market valuations, if applicable. See Note 6 for details of the impairment of the natural gas-fueled generation fleet recorded in 2008 and 2006.

Finite-lived intangibles identified as a result of purchase accounting are amortized over their estimated useful lives based on the expected realization of economic effects. See Note 3 to Financial Statements for additional information.

Goodwill and Intangible Assets with Indefinite Lives

EFH Corp. evaluates goodwill and intangible assets with indefinite lives for impairment at least annually (as of October 1) in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” The impairment tests performed are based on discounted cash flow analyses. See Note 3 for details of goodwill and intangible assets with indefinite lives, including discussion of goodwill and trade name intangible assets impairments recorded in 2008.

Amortization of Nuclear Fuel

Amortization of nuclear fuel is calculated on the units-of-production method and is reported as fuel costs.

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Major Maintenance

Major maintenance costs incurred during generation plant outages and the costs of other maintenance activities are charged to expense as incurred. This accounting is consistent with FASB Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities.”

Defined Benefit Pension Plans and Other Postretirement Employee Benefit Plans

EFH Corp. offers pension benefits based on either a traditional defined benefit formula or a cash balance formula and also offers certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees from EFH Corp. Costs of pension and OPEB plans are determined in accordance with SFAS 87 and SFAS 106 and are dependent upon numerous factors, assumptions and estimates. Effective December 31, 2006, EFH Corp. adopted SFAS 158. See Note 22 for additional information regarding pension and OPEB plans.

Stock-Based Incentive Compensation

Prior to the Merger, EFH Corp. provided discretionary awards payable in its common stock to qualified managerial employees under its shareholder-approved long-term incentive plans. These awards were accounted for based on the provisions of SFAS 123R, which provides for the recognition of stock-based compensation expense over the vesting period based on the grant-date fair value of those awards. In December 2007, EFH Corp.’s board of directors established its 2007 Stock Incentive Plan, which authorizes discretionary grants to directors, officers and qualified managerial employees of EFH Corp. or its affiliates of non-qualified stock options, stock appreciation rights, restricted shares, shares of common stock, the opportunity to purchase shares of common stock and other stock-based awards. Stock options and stock appreciation rights granted are being accounted for based upon the provisions of SFAS 123R. See Note 23 for information regarding stock-based incentive compensation.

Sales and Excise Taxes

Sales and excise taxes are accounted for as a “pass through” item on the balance sheet; i.e., the tax is billed to customers and recorded as trade accounts receivable with an offsetting amount recorded as a liability to the taxing jurisdiction.

Franchise and Revenue-Based Taxes

Unlike sales and excise taxes, franchise and gross receipt taxes are not a “pass through” item. These taxes are assessed to EFH Corp. by state and local government bodies, based on revenues or kWh delivered, as a cost of doing business and are recorded as an expense. Rates charged to customers by EFH Corp. are intended to recover the taxes, but EFH Corp. is not acting as an agent to collect the taxes from customers.

Income Taxes

EFH Corp. files a consolidated federal income tax return, and federal income taxes are allocated substantially as if the entities were stand-alone corporations. Deferred income taxes are provided for temporary differences between the book and tax basis of assets and liabilities. Effective with the sale of noncontrolling interests in Oncor (see Note 18), Oncor became a partnership for US federal income tax purposes, and EFH Corp. provides deferred income taxes on the difference between the book and tax basis of its investment in Oncor. Previously earned investment tax credits were deferred and amortized as a reduction of income tax expense over the estimated lives of the related properties. In connection with purchase accounting, the remaining unamortized investment tax credit amount related to unregulated businesses of $300 million was eliminated. Investment tax credits related to Oncor’s regulated operations will continue to be amortized over the lives of the related properties. Certain provisions of SFAS 109 provide that regulated enterprises are permitted to recognize deferred taxes as regulatory tax assets or tax liabilities if it is probable that such amounts will be recovered from, or returned to, customers in future rates.

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Prior to 2007, EFH Corp. generally accounted for uncertainty related to positions taken on tax returns based on the probable liability approach consistent with SFAS 5. Effective January 1, 2007, the company adopted FIN 48 as discussed in Note 10.

Accounting for Contingencies

The financial results of EFH Corp. may be affected by judgments and estimates related to loss contingencies. Accruals for loss contingencies are recorded when management determines that it is probable that an asset has been impaired or a liability has been incurred and that such economic loss can be reasonably estimated. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events and estimates of the financial impacts of such events. See Note 16 for a discussion of contingencies.

Cash and Cash Equivalents

For purposes of reporting cash and cash equivalents, temporary cash investments purchased with a remaining maturity of three months or less are considered to be cash equivalents.

EFH Corp. held an interest in The Reserve’s US Government Fund, which began liquidation proceedings in September 2008 due to the credit crisis and withdrawal demands. In September 2008, EFH Corp. attempted to redeem its interest, totaling $242 million, in the US Government Fund, but due to the liquidation process, the funds were not immediately made available; accordingly, such amount was reclassified from cash and cash equivalents to investment held in money market fund. EFH Corp. received $100 million of the funds in November 2008 and the remaining $142 million in January 2009.

Restricted Cash

The terms of certain agreements require the restriction of cash for specific purposes. At December 31, 2008, $1.250 billion of cash is restricted to support letters of credit. See Note 15 and 28 for more details regarding this and other restricted cash.

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Property, Plant and Equipment

As a result of purchase accounting, carrying amounts of property, plant and equipment related to unregulated businesses at October 10, 2007 were adjusted to estimated fair values. Subsequent additions are recorded at cost. Regulated properties at Oncor continue to be reported at original cost, which is considered to be fair value due to the cost-based regulated returns associated with those assets. The cost of self-constructed property additions includes materials and both direct and indirect labor and applicable overhead, including payroll-related costs.

Depreciation of EFH Corp’s property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties. As is common in the industry, the Predecessor historically recorded depreciation expense using composite depreciation rates that reflect blended estimates of the lives of major asset components as compared to depreciation expense calculated on an asset-by-asset basis. Effective with the Merger, depreciation expense for unregulated properties is calculated on an asset-by-asset basis. Estimated depreciable lives are based on management’s estimates of the assets’ economic useful lives.

Capitalized Interest and Allowance for Funds Used During Construction (AFUDC)

Interest related to qualifying construction projects and qualifying software projects are capitalized in accordance with SFAS 34. Oncor capitalizes AFUDC as a cost component of projects involving construction periods lasting greater than thirty days. AFUDC is a regulatory cost accounting procedure whereby both interest charges on borrowed funds and a return on equity capital used to finance construction are included in the recorded cost of utility plant and equipment being constructed. The equity portion of capitalized AFUDC is accounted for as other income; there was no equity AFUDC for the years presented. See Note 28.

Inventories

All inventories are reported at the lower of cost (on a weighted average basis) or market unless expected to be used in the generation of electricity. In connection with purchase accounting, inventory amounts at October 10, 2007 were recorded at fair value. Also see discussion immediately below regarding environmental allowances and credits.

Environmental Allowances and Credits

Effective with the Merger, EFH Corp. began accounting for all environmental allowances and credits as identifiable intangible assets with finite lives that are subject to amortization. The recorded values of these intangible assets were originally established reflecting fair value determinations as of the date of the Merger under purchase accounting. Amortization expense associated with these intangible assets is recognized on a unit of production basis as the allowances or credits are consumed in generation operations. In accordance with SFAS 144, the environmental allowances and credits are assessed for impairment when conditions or events occur that could affect the carrying value of the assets. See Note 3 for details of impairment amounts recorded in 2008. EFH Corp. previously accounted for environmental allowances and credits as inventory. Both accounting methods are acceptable under GAAP.

Regulatory Assets and Liabilities

The financial statements of EFH Corp.’s regulated electricity delivery operations reflect regulatory assets and liabilities under cost-based rate regulation in accordance with SFAS 71. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. See Note 28 for details of the regulatory assets and liabilities.

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Investments

Investments in a nuclear decommissioning trust fund are carried at market value in the balance sheet. Investments in unconsolidated business entities over which EFH Corp. has significant influence but does not maintain effective control, generally representing ownership of at least 20% and not more than 50% of common equity, are accounted for under the equity method. Assets related to employee benefit plans represent investments held to satisfy deferred compensation liabilities and are recorded at market value. See Note 20 for details of investments.

Sale of Noncontrolling Interests

See Note 18 for discussion of accounting for the sale of noncontrolling interests by Oncor.

Changes in Accounting Standards

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS 160 was effective for fiscal years beginning on or after December 15, 2008 and required noncontrolling interests (previously called minority interests) in subsidiaries initially to be measured at fair value and classified as a separate component of equity. In accordance with the retrospective reporting requirements of SFAS 160, the financial statements present the noncontrolling interests created as a result of Oncor’s November 2008 sale of equity interests (see Note 18) as a separate component of equity in the consolidated balance sheet (totaling $1.355 billion as of December 31, 2008), consolidated net loss for the year ended December 31, 2008 reflects the net loss attributable to the noncontrolling interests as a line item below net loss (totaling $160 million) as compared to the previous presentation as a line item above net loss and the net proceeds received from Oncor’s sale of the noncontrolling interests are reflected in the statement of consolidated cash flows as a financing activity as compared to previous presentation as an investing activity.

Effective January 1, 2008, EFH Corp. adopted FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” This FSP provides additional guidance regarding the offsetting in the balance sheet of cash collateral and derivative fair value asset and liability amounts. As provided for by this rule, for balance sheet presentation, EFH Corp. elected to not adopt netting of cash collateral, and further to discontinue netting of derivative assets and liabilities under master netting agreements. Accordingly, as required by the rule, prior period amounts in the financial statements reflect the change in presentation, resulting in an increase of $849 million and $171 million in both commodity and other derivative contractual current and noncurrent assets and liabilities, respectively, at December 31, 2007 compared to amounts reported in the 2007 Form 10-K.

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133.” SFAS 161 enhances required disclosures regarding derivatives and hedging activities to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. As SFAS 161 provides only disclosure requirements, the adoption of this standard will not have any effect on EFH Corp.’s reported results of operations or financial condition. EFH Corp. will provide the enhanced disclosures in its Form 10-Q for the three months ended March 31, 2009.

In October 2008, the FASB issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” The FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP does not change the fair value measurement principles in SFAS 157. The FSP was effective upon issuance, including prior periods for which financial statements had not been issued. EFH Corp. has determined this FSP does not change its approach for measuring fair value of financial assets.

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Effective December 31, 2008, EFH Corp. adopted FSP SFAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” This FSP amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” to require additional disclosures about transfers of financial assets. It also amends FIN 46R, “Consolidation of Variable Interest Entities,” to require additional disclosures about an entity’s involvement with variable interest entities. The disclosures required by this FSP are intended to provide greater transparency about a transferor’s continuing involvement with transferred financial assets and an entity’s involvement with variable interest entities and qualifying special purpose entities (SPEs). As the FSP provides only disclosure requirements, the adoption of this FSP did not have any effect on EFH Corp.’s reported results of operations, financial condition or cash flows. See Note 14 for related disclosures.

In December 2008, the FASB issued FSP SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS 132(R) to provide enhanced disclosures regarding how investment allocation decisions are made and certain aspects of fair value measurements on plan assets. The disclosures required by this FSP are intended to provide transparency related to the types of assets and associated risks in an employer’s defined benefit pension or other postretirement employee benefits plan and events in the economy and markets that could have a significant effect on the value of plan assets. This FSP is effective for fiscal years ending after December 15, 2009. As the FSP provides only disclosure requirements, the adoption of this FSP will not have any effect on EFH Corp.’s reported results of operations, financial condition or cash flows. EFH Corp. is evaluating the impact of this FSP on its financial statement disclosures.

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2. FINANCIAL STATEMENT EFFECTS OF THE MERGER

As discussed in Note 1, the Merger was completed on October 10, 2007. The aggregate purchase price paid for the equity securities of EFH Corp. was $31.9 billion, which was financed by a combination of equity invested by the Sponsor Group and certain other investors and by borrowings under a senior secured credit facility and senior unsecured interim facilities. These facilities also funded the repayment and redemption of certain existing credit facilities and debt upon completion of the Merger. See Note 15 for a discussion of EFH Corp.’s debt.

The statements of consolidated income (loss) and cash flows for 2007 present Predecessor results from January 1 through October 10 and Successor results from October 11 through December 31.

Sources and Uses

The sources and uses of the funds for the Merger are summarized in the table below.

Sources of funds:			Uses of funds:
(billions of dollars)
Cash and other sources	$	0.3	Equity purchase price (b)	$	31.9
TCEH credit facilities (Note 15)		27.0	Transaction costs (c)		0.8
EFH Corp. senior unsecured interim facility (Note 15)		4.5	Repayment of existing debt (Note 15)		5.3
Equity contributions (a)		8.3	Restricted cash		1.2
			Financing fees related to new facilities		0.9
Total source of funds	$	40.1	Total uses of funds	$	40.1

(a) Consists of equity contributions by the Sponsor Group and certain other investors.

(b) Represents 461.2 million outstanding shares of EFH Corp. common stock multiplied by $69.25 per share.

(c) Represents professional fees incurred by the Sponsor Group that were directly associated with the Merger and accounted for as part of the purchase price.

Purchase Price Allocation

EFH Corp. accounted for the Merger under purchase accounting in accordance with the provisions of SFAS 141, whereby the total purchase price of the transaction was allocated to EFH Corp.’s identifiable tangible and intangible assets acquired and liabilities assumed based on their fair values as of October 10, 2007 as summarized in the table below. The fair values were determined based upon assumptions related to future cash flows, discount rates, and asset lives as well as factors more unique to EFH Corp., its industry and the competitive wholesale power market that include forward natural gas price curves and market heat rates, retail customer attrition rates, generation plant operating and construction costs, and the effect on generation facility values of lignite fuel reserves and mining capabilities using currently available information. As a result of cost-based regulatory rate-setting processes, the book value of the majority of Oncor’s assets and liabilities effectively represent fair value, and no adjustments to those regulated assets or liabilities were recorded. The excess of the purchase price over the fair value of net assets acquired was recorded as goodwill.

The goodwill amount recorded upon finalization of purchase accounting in 2008 totaled $23.2 billion. Management believes the drivers of the goodwill amount include the incremental value of the future cash flow potential of the baseload generation facilities, including facilities under construction, over the values assigned to those assets under purchase accounting rules, considering the market-pricing mechanisms and growth potential in the ERCOT market, as well as the value derived from the scale of the retail business. Management also believes that the goodwill reflects the value of the relatively stable, long-lived cash flows of the regulated business, considering the constructive regulatory environment and market growth potential. See Note 3 for disclosures related to goodwill, including an impairment recorded in the fourth quarter of 2008.

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The following table summarizes the components of the final purchase price allocation:

Equity purchase price		$	31,935
Transaction costs			759
Total purchase price.			32,694
Property, plant and equipment	28,088
Intangible assets (Note 3)	4,454
Regulatory assets and deferred debits	1,445
Other assets	5,187
Total assets acquired	39,174
Short-term borrowings and long-term debt	14,183
Deferred tax liabilities	7,706
Other liabilities	7,837
Total liabilities assumed	29,726
Net identifiable assets acquired			9,448
Goodwill.		$	23,246

The following table summarizes the change in the total amount of goodwill during 2008 as a result of purchase accounting:

Goodwill at December 31, 2007			$	22,954
Property, plant and equipment	311
Intangible assets	30
Regulatory assets – net	2
Other assets	174
Total assets acquired	517
Deferred income tax liabilities	(263	)
Other liabilities	38
Total liabilities assumed	(225	)
Net identifiable assets acquired				292
Goodwill at completion of purchase accounting			$	23,246

The above changes relate largely to finalization of fair values of natural gas-fueled generation plants and amounts related to the Capgemini outsourcing agreement, as well as the effects on related deferred income tax balances.

Exit liabilities originally recorded as part of the purchase price allocation totaled approximately $60 million, which consisted primarily of estimated amounts related to the cancellation of the development of coal-fueled generation facilities discussed in Note 5 and the exit of certain administrative activities. Such cancellation liabilities have been negotiated to a lesser amount and taking into consideration payments made, the exit liabilities have all been extinguished as of December 31, 2008. During 2008, additional exit liabilities totaling $66 million were recorded largely in connection with the termination of outsourcing arrangements with Capgemini under change of control provisions of such arrangements (also see Note 21). This amount is expected to be settled no later than June 30, 2011, the targeted date of completion of transition of outsourced activities back to EFH Corp. or to service providers.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial position and results of operations assume that the Merger-related transactions occurred on January 1, 2007 and 2006, respectively. The unaudited pro forma information is provided for informational purposes only and is not necessarily indicative of what EFH Corp.’s results of operations would have been if the Merger-related transactions had occurred on that date, or what EFH Corp.’s results of operations will be for any future periods.

For the year ended December 31, 2007, unaudited pro forma revenues and net loss were $10.0 billion and $2.3 billion, respectively. Pro forma adjustments for the year ended December 31, 2007 consist of adjustments for the Predecessor period and consist of $473 million in depreciation and amortization expense (including amounts recognized in revenues or fuel and purchased power costs), $2.1 billion in interest expense and a $895 million income tax benefit.

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For the year ended December 31, 2006, unaudited pro forma revenues and net income were $10.7 billion and $378 million, respectively. Pro forma adjustments for the year ended December 31, 2006 consist of adjustments for the Predecessor period and consist of $606 million in depreciation and amortization expense (including amounts recognized in revenues or fuel and purchased power costs), $2.8 billion in interest expense and a $1.2 billion income tax benefit.

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3. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

Reported goodwill as of December 31, 2008 totaled $14.4 billion, with $10.3 billion assigned to the Competitive Electric segment and $4.1 billion to the Regulated Delivery segment. As of December 31, 2007, reported goodwill totaled $23.0 billion with $18.1 billion assigned to the Competitive Electric segment and $4.9 billion to the Regulated Delivery segment. None of this goodwill balance is being deducted for tax purposes.

As discussed in Note 2, EFH Corp. accounted for the Merger under purchase accounting. The total goodwill amount recorded as a result of purchase accounting totaled $23.2 billion, representing the excess of the purchase price over the fair value of the tangible and identifiable intangible net assets acquired in the Merger; subsequently, an impairment charge was recorded in the fourth quarter of 2008 (discussed immediately below). SFAS 142 requires that goodwill be assigned to “reporting units”, which management has determined to be the Competitive Electric segment and the Regulated Delivery segment, which are largely comprised of TCEH and Oncor, respectively. The goodwill amounts assigned to the Competitive Electric segment of $18.3 billion and the Regulated Delivery segment of $4.9 billion were based on the enterprise values of those businesses at the closing date of the Merger and the completion of purchase accounting.

Goodwill and Trade Name Intangible Asset Impairments

In the fourth quarter of 2008, EFH Corp. recorded a goodwill impairment charge totaling $8.9 billion, which is not deductible for income tax purposes. This amount represents EFH Corp.’s best estimate of impairment pending finalization of the fair value calculations, which is expected in the first quarter of 2009. The total charge consists of an impairment of $8.0 billion related to the Competitive Electric segment and $860 million related to the Regulated Delivery segment. The impairment primarily arises from the dislocation in the capital markets that has increased interest rate spreads and the resulting discount rates used in estimating fair values and the effect of recent declines in market values of debt and equity securities of comparable companies.

Also in the fourth quarter of 2008, EFH Corp. recorded a trade name intangible asset impairment charge totaling $481 million ($310 million after-tax). The impairment primarily arises from the increase in the discount rate used in estimating fair value.

Although the annual goodwill and intangible assets with indefinite lives impairment test date set by management is October 1, management determined that in consideration of the continuing deterioration of securities values during the fourth quarter of 2008, an impairment testing trigger occurred subsequent to that test date; consequently, the impairment charges were based on estimated fair values at December 31, 2008.

The impairment determination involves significant assumptions and judgments in estimating enterprise values of the Competitive Electric and Regulated Delivery segments and the fair values of their assets and liabilities.

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Identifiable Intangible Assets

Identifiable intangible assets reported in the balance sheet are comprised of the following:

	Successor
	As of December 31, 2008						As of December 31, 2007
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Retail customer relationship	$	463	$	130	$	333	$	463	$	79	$	384
Favorable purchase and sales contracts		700		249		451		702		68		634
Capitalized in-service software		255		116		139		225		71		154
Environmental allowances and credits		994		121		873		1,525		19		1,506
Land easements and other		203		71		132		179		67		112
Total intangible assets subject to amortization	$	2,615	$	687		1,928	$	3,094	$	304		2,790
Trade name (not subject to amortization)						955						1,436
Mineral interests (not currently subject to amortization)						110						139
Total intangible assets					$	2,993					$	4,365

Amortization expense related to intangible assets consisted of:

	Successor					Predecessor
	Useful lives at December 31, 2008 (weighted average in years)	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007		Period from January 1, 2007 through October 10, 2007		Year Ended December 31, 2006
Retail customer relationship	4	$	51	$	79	$	—	$	—
Favorable purchase and sales contracts	10		168		72		—		—
Capitalized in-service software	8		44		8		23		35
Environmental allowances and credits	29		102		20		—		—
Land easements and other	69		4		—		2		2
Total amortization expense		$	369	$	179	$	25	$	37

Separately identifiable and previously unrecognized intangible assets acquired and recorded as part of purchase accounting for the Merger are described as follows:

• Retail Customer Relationship– Retail customer relationship intangible asset represents the estimated fair value of the non-contracted customer base and is being amortized using an accelerated method based on customer attrition rates and reflecting the pattern in which economic benefits are realized over their estimated useful life. Amortization expense related to the retail customer relationship intangible asset is reported as part of depreciation and amortization expense in the income statement (reported in the Competitive Electric segment).

• Favorable Purchase and Sales Contracts– Favorable purchase and sales contracts intangible asset primarily represents the above market value, based on observable prices or estimates, of commodity contracts for which: 1) EFH Corp. has made the “normal” purchase or sale election allowed by SFAS 133 or 2) the contracts that did not meet the definition of a derivative. The amortization periods of these intangible assets are based on the terms of the contracts, and the expense is reported as part of revenues or fuel and purchased power costs in the income statement as appropriate (reported in the Competitive Electric segment). Unfavorable purchase and sales contracts are recorded as other noncurrent liabilities and deferred credits (see Note 28).

• Trade name– The trade name intangible asset represents the estimated fair value of the TXU Energy trade name, and was determined to be an indefinite-lived asset not subject to amortization. This intangible asset will be evaluated for impairment at least annually (as of October 1) in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” See above for discussion of an impairment charge recorded in 2008.

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• Environmental Allowances and Credits –This intangible asset represents the fair value, based on observable prices or estimates, of environmental credits held by EFH Corp., substantially all of which were expected to be used in its power generation activity. These credits will be amortized to fuel and purchase power costs utilizing a units-of-production method (reported in the Competitive Electric segment).

Impairment of Environmental Allowances and Credits Intangible Assets

In March 2005, the EPA issued regulations called the Clean Air Interstate Rule (CAIR) for 28 states, including Texas, where EFH Corp.’s generation facilities are located. CAIR requires reductions of SO₂ and NOx emissions from power generation facilities in such states. The SO₂ reductions were beyond the reductions required under the Clean Air Act’s existing acid rain cap-and-trade program (the Acid Rain Program). CAIR also established a new regional cap-and-trade program for NOx emissions reductions.

In July 2008, the US Court of Appeals for the D.C. Circuit (the D.C. Circuit Court) invalidated CAIR. The D.C. Circuit Court did not overturn the existing cap-and-trade program for SO₂ reductions under the Acid Rain Program.

In the second quarter of 2008, EFH Corp. determined that certain of its SO₂ allowances had decreased materially in value, likely driven by litigation that resulted in the July 2008 decision from the D.C. Circuit Court invalidating CAIR. Accordingly, EFH Corp. recorded a $2 million (before deferred income tax benefit) impairment of certain SO₂ allowances.

Based on the D.C. Circuit Court’s ruling, EFH Corp. recorded a non-cash impairment charge to earnings in the third quarter of 2008. EFH Corp. impaired NOx allowances in the amount of $401 million (before deferred income tax benefit). As a result of the D.C. Circuit Court’s July 2008 decision, NOx allowances would no longer be needed, and thus there would not be an actively traded market for such allowances. Consequently, the NOx allowances held by EFH Corp. would likely have very little value absent reversal of the D.C. Circuit Court’s decision or promulgation of new rules by the EPA. In addition, EFH Corp. impaired SO₂ allowances in the amount of $98 million (before deferred income tax benefit). While the D.C. Circuit Court did not invalidate the Acid Rain Program, EFH Corp. would have more SO₂ allowances than it would need to comply with the Acid Rain Program. While there continued to be a market for SO₂ allowances, the D.C. Circuit Court’s decision resulted in a material decrease in the market price of SO₂ allowances.

The impairment amounts recorded in the second and third quarters of 2008 were reported in other deductions and are reflected in the results of the Competitive Electric segment.

In December 2008, in response to an EPA petition, the D.C. Circuit Court reversed, in part, its previous ruling. Such reversal confirmed CAIR is not valid, but allowed it to remain in place while the EPA revises CAIR to correct the previously identified shortcomings. Since the D.C. Circuit Court did not prescribe a deadline for this revision, at this time, EFH Corp. cannot predict how or when the EPA may revise CAIR.

Estimated Amortization of Intangible Assets–The estimated aggregate amortization expense of intangible assets for each of the five succeeding fiscal years from December 31, 2008 is as follows:

Year	Successor
2009	$	360
2010		225
2011		179
2012		137
2013		114

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4. DISCONTINUED OPERATIONS

Results from discontinued operations during the period October 11, 2007 to December 31, 2007 totaled $1 million in net income and during the period from January 1, 2007 to October 10, 2007 totaled $24 million in net income and consisted primarily of insurance proceeds related to the 2005 TXU Europe litigation settlement agreement in both periods.

Results from discontinued operations in 2006 totaled $87 million in net income. This amount included a $62 million credit representing reversal of a TXU Gas income tax reserve, due to favorable resolution of an IRS audit matter relating to a business sold in 2000, and a total of $27 million ($42 million pretax) in credits representing insurance recoveries associated with the TXU Europe settlement agreement.

5. CHARGES RELATED TO CANCELLED DEVELOPMENT OF COAL-FUELED GENERATION FACILITIES

In 2007, EFH Corp. recorded a net charge totaling $757 million ($492 million after-tax), substantially all of which was in the Predecessor period, in connection with the February 2007 suspension of the development of eight coal-fueled generation units. This decision and subsequent terminations of equipment orders required an evaluation of the recoverability of recorded assets associated with the development program. The net charge included $705 million for the impairment of construction work-in-process asset balances (primarily pre-construction development costs), $79 million for costs arising from terminations of equipment orders, $29 million for the write-off of deferred financing costs and a $57 million gain on sale (in early October 2007) of two in-process boilers. In determining the net charges recorded, EFH Corp. applied accounting rules for impairment of long-lived assets under SFAS 144 and for exit activities under SFAS 146. Additional charges totaling $12 million ($8 million after-tax) were recorded in 2008, which primarily represented costs for transportation and storage of materials.

The construction work-in-process asset balances totaled $871 million prior to the writedown and included progress payments made and accruals for amounts due to equipment suppliers, based on percentage of completion estimates, engineering and design services costs, site preparation expenditures, internal salary and related overhead costs for personnel engaged directly in construction management activities and capitalized interest. The construction work-in-process balance at December 31, 2008 totaled $81 million and consisted of estimated recovery amounts, using a probability-weighted methodology, from equipment salvage and potential resale activities. Cumulative net cash proceeds through December 31, 2008 from the sale of the impaired assets total $169 million.

Subsidiaries of EFH Corp. have terminated all of the equipment orders, with the exception of one purchase order for a boiler that is expected to be resold, and the air permit applications related to the eight units were formally withdrawn from the TCEQ in October 2007 after the close of the Merger. The net charges arising from cancellation of this development program have been classified in other deductions and are reported in the results of the Competitive Electric segment.

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6. IMPAIRMENT OF NATURAL GAS-FUELED GENERATION FLEET

In the fourth quarter of 2008, EFH Corp. performed an evaluation of its natural gas-fueled generation fleet for impairment in accordance with the requirements of SFAS 144, which provides that long-lived assets should be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment test was triggered by a determination that it was more likely than not that certain generation units would be retired or mothballed (idled) earlier than previously expected. The natural gas-fueled generation units are generally operated to meet peak demands for electricity and the fleet is tested for impairment as an asset group. As a result of the evaluation, it was determined that an impairment existed, and a charge of $229 million ($147 million after-tax) was recorded to write down the assets to fair value of approximately $28 million, which was determined based on discounted estimated future cash flows.

In 2006, EFH Corp. also performed an evaluation of its natural gas-fueled generation fleet for impairment in accordance with the requirements of SFAS 144. In consideration of the lignite/coal-fueled generation plant development program then underway, among other factors, EFH Corp. determined at that time that it was more likely than not that its natural gas-fueled generation units would be sold or otherwise disposed of before the end of their previously estimated useful lives and should be tested for impairment. As a result, it was determined that an impairment existed, and a charge of $198 million ($129 million after-tax) was recorded in 2006 to write down the assets to fair value, which was determined based on discounted estimated future cash flows.

The impairments in both years were reported in other deductions in the Competitive Electric segment.

7. CUSTOMER APPRECIATION BONUS

In 2006, EFH Corp. announced a special customer appreciation bonus program. Under the program, a $100 bonus was provided to residential customers receiving service as of October 29, 2006 and living in areas where EFH Corp. offered its then-regulated rate, which expired January 1, 2007 in accordance with applicable law. Eligible customers were not required to continue to receive service from EFH Corp. to receive the bonus. The bonus was paid out in the form of credits on customer bills, with approximately $40 million paid out in 2006 and the balance fully settled in 2007. The bonus program resulted in a charge of $162 million ($105 million after-tax) in 2006. The charge was recorded as a reduction to revenue in the Competitive Electric segment.

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8. STIPULATION APPROVED BY THE PUCT

Oncor and Texas Holdings agreed to the terms of a stipulation, which was conditional upon completion of the Merger, with major interested parties to resolve all outstanding issues in the PUCT review related to the Merger. In February 2008, the PUCT entered an order approving the stipulation. The PUCT issued a final order on rehearing in April 2008 that has been appealed to District Court.

In addition to commitments Oncor made in its filings in the PUCT review, the stipulation included the following provisions, among others:

• Oncor provided a one-time $72 million refund to its REP customers in the September 2008 billing cycle. The refund was in the form of a credit on distribution fee billings. The liability for the refund was recorded as part of purchase accounting.

• Consistent with the 2006 cities rate settlement (see Note 9), Oncor filed a system-wide rate case in June 2008 based on a test-year ended December 31, 2007.

• Oncor agreed not to request recovery of approximately $56 million of regulatory assets related to self-insurance reserve costs and 2002 restructuring expenses. These regulatory assets were eliminated as part of purchase accounting.

• The dividends paid by Oncor will be limited through December 31, 2012, to an amount not to exceed Oncor’s net income (determined in accordance with GAAP, subject to certain defined adjustments) for the period beginning October 11, 2007 and ending December 31, 2012 and are further limited by an agreement that Oncor’s regulatory capital structure, as determined by the PUCT, will be at or below the assumed debt-to-equity ratio established periodically by the PUCT for ratemaking purposes, which is currently set at 60% debt to 40% equity.

• Oncor committed to minimum capital spending of $3.6 billion over the five-year period ending December 31, 2012, subject to certain defined conditions.

• Oncor committed to an additional $100 million in spending over the five-year period ending December 31, 2012 on demand-side management or other energy efficiency initiatives. These additional expenditures will not be recoverable in rates, and this amount was recorded as a regulatory liability as part of purchase accounting and consistent with SFAS 71.

• If Oncor’s credit rating is below investment grade with two or more rating agencies, TCEH will post a letter of credit in an amount of $170 million to secure TXU Energy’s payment obligations to Oncor.

• Oncor agreed not to request recovery of the $4.9 billion of goodwill resulting from purchase accounting or any future impairment of the goodwill in its rates.

9. CITIES RATE SETTLEMENT IN 2006

In January 2006, Oncor agreed with a steering committee representing 108 cities in Texas (Cities) to defer the filing of a system-wide rate case with the PUCT to no later than July 1, 2008 (based on a test year ending December 31, 2007). Oncor filed the rate case with the PUCT in June 2008. Oncor extended the benefits of the agreement to 292 nonlitigant cities. The agreements provided that Oncor would make payments to participating cities totaling approximately $70 million, including incremental franchise taxes.

This amount was recognized in earnings of the Regulated Delivery segment over the period from May 2006 through June 2008. Amounts recognized totaled $23 million in 2008, $8 million for the period October 11, 2007 through December 31, 2007, $25 million for the period January 1, 2007 through October 10, 2007, and $18 million in 2006, of which $13 million, $6 million, $20 million and $13 million, respectively, are reported in other deductions (see Note 13) and franchise and revenue-based taxes.

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10. ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES (FIN 48)

Effective January 1, 2007, EFH Corp. adopted FIN 48. FIN 48 requires that all tax positions subject to uncertainty be reviewed and assessed with recognition and measurement of the tax benefit based on a “more-likely-than-not” standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable. EFH Corp. applied FSP FIN 48-1 to determine if each tax position was effectively settled for the purpose of recognizing previously uncertain tax positions. EFH Corp. completed its review and assessment of uncertain tax positions and in the 2007 Predecessor period recorded a net benefit to retained earnings and a decrease to noncurrent liabilities of $33 million in accordance with the new accounting rule.

EFH Corp. and its subsidiaries file income tax returns in US federal, state and foreign jurisdictions and are subject to examinations by the IRS and other taxing authorities. Examinations of income tax returns filed by EFH Corp. and any of its subsidiaries for the years ending prior to January 1, 2003 are complete. In the fourth quarter 2008, EFH Corp. was notified of the commencement of the IRS audit of tax years 2003 to 2006. The audit is expected to require two years to complete. Texas franchise tax return periods under examination or still open for examination range from 2003 to 2007.

During the third quarter of 2008, EFH Corp. participated in negotiations with the IRS regarding the 2002 worthlessness loss associated with its discontinued Europe business and has reduced the liability for uncertain tax positions to reflect the most likely settlement of the issue. The reduction in the liability of approximately $375 million was largely offset by a reduction of deferred tax assets related to alternative minimum tax. The conclusion of issues contested from the 1997-2002 audit, including Europe, is not expected to occur prior to 2010.

EFH Corp. classifies interest and penalties related to uncertain tax positions as income tax expense. The amount of interest and penalties included in income tax expense totaled $88 million in 2008, $12 million for the period October 11, 2007 through December 31, 2007 and $43 million for the period January 1, 2007 through October 10, 2007. Noncurrent liabilities included a total of $198 million and $105 million in accrued interest at December 31, 2008 and 2007, respectively. All interest amounts are after-tax.

The following table summarizes the changes to the uncertain tax positions, reported in other noncurrent liabilities in the consolidated balance sheet, during the years ended December 31, 2008 and 2007:

	2008			2007
Balance at January 1, excluding interest and penalties	$	1,834		$	1,770
Additions based on tax positions related to prior years		124			97
Reductions based on tax positions related to prior years		(451	)		(124	)
Additions based on tax positions related to the current year		33			101
Settlements with taxing authorities		43			(10	)
Reductions related to the lapse of the tax statute of limitations		—			—
Balance at December 31, excluding interest and penalties	$	1,583		$	1,834

Of the balance at December 31, 2008, $1.411 billion represents tax positions for which the uncertainty relates to the timing of recognition in tax returns. The disallowance of such positions would not affect the effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period.

With respect to tax positions for which the ultimate deductibility is uncertain (permanent items),should EFH Corp. sustain such positions on income tax returns previously filed, liabilities recorded would be reduced by $138 million, resulting in increased income from continuing operations and a favorable impact on the effective tax rate.

EFH Corp. filed a claim in 2006 for refund of income taxes and related interest paid in 2005 associated with IRS audits of 1993 and 1994 tax returns of a discontinued operation. The expected refund was recognized in the adoption of FIN 48. The carrying amount related to the claim, which is classified as a current income tax receivable as of December 31, 2008, consists of $43 million of tax and approximately $51 million of interest. The refund was received in February 2009 in an amount substantially as expected.

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EFH Corp. does not expect the total amount of liabilities recorded related to uncertain tax positions will significantly increase or decrease within the next 12 months.

11. TEXAS MARGIN TAX

In May 2006, the Texas legislature enacted a new law that reformed the Texas franchise tax system and replaced it with a new tax system, referred to as the Texas margin tax. The Texas margin tax has been determined to be an income tax for accounting purposes. In accordance with the provisions of SFAS 109, which require that deferred tax assets and liabilities be adjusted for the effects of new income tax legislation in the period of enactment, EFH Corp. estimated and recorded a net deferred tax charge of $44 million in 2006.

In June 2007, an amendment to this law was enacted that included clarifications and technical changes to the provisions of the tax calculation. In the 2007 Predecessor period, EFH Corp. recorded a deferred tax benefit of $70 million, essentially all of which related to changes in the rate at which a tax credit is calculated as specified in the new law. This estimated benefit is based on the Texas margin tax law in its current form and the current guidance issued by the Texas Comptroller of Public Accounts.

The Texas margin tax was effective for returns filed on or after January 1, 2008. EFH Corp.’s return filed during 2008 was based upon the taxable margin earned in 2007. Beginning January 1, 2007, margin tax has been accrued based on revenues reduced by deductions provided in the amended law.

Of the total 2006 net deferred tax charge, $43 million was recognized as a deferred tax charge in the Competitive Electric segment results and $1 million was recognized as a deferred tax charge in the Corporate and Other nonsegment results. Of the total 2007 deferred tax benefit, $32 million was recognized in the Competitive Electric segment results and $38 million was recognized in the Corporate and Other nonsegment results.

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12. INCOME TAXES

The components of EFH Corp.’s income tax expense (benefit) applicable to continuing operations are as follows:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Current:
US Federal	$	(46	)	$	52		$	400		$	500
State		52			10			20			5
Non-US		—			—			—			1
Total		6			62			420			506
Deferred:
US Federal		(482	)		(722	)		12			715
State		10			(12	)		(108	)		63
Total		(472	)		(734	)		(96	)		778
Amortization of investment tax credits		(5	)		(1	)		(15	)		(21	)
Total	$	(471	)	$	(673	)	$	309		$	1,263

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Reconciliation of income taxes computed at the US federal statutory rate to income tax expense:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Income from continuing operations before income taxes	$	(10,469	)	$	(2,034	)	$	1,008		$	3,728
Income taxes at the US federal statutory rate of 35%	$	(3,664	)	$	(712	)	$	353		$	1,305
Nondeductible goodwill impairment		3,101
Lignite depletion allowance		(29	)		(5	)		(30	)		(51	)
Production activities deduction		—			10			(10	)		(14	)
Amortization of investment tax credits – net of deferred income tax effect		(5	)		(1	)		(12	)		(15	)
Amortization (under regulatory accounting) of statutory rate changes		2			—			2			(7	)
Medicare subsidy – other postretirement employee benefits		(6	)		(2	)		(6	)		(8	)
Nondeductible interest expense		11			1			—			—
Nondeductible losses (earnings) on benefit plans		9			(1	)		(6	)		(4	)
State income taxes, net of federal tax benefit		39			(3	)		16			6
Texas margin tax – deferred tax adjustments (Note 11)		—			—			(70	)		44
Nondeductible merger transaction costs		—			23			—			—
Deferred tax adjustments		—			—			25			—
Accrual of interest		59			12			43			9
Other, including audit settlements		12			5			4			(2	)
Income tax expense (benefit)	$	(471	)	$	(673	)	$	309		$	1,263
Effective tax rate		4.5	%		33.1	%		30.7	%		33.9	%

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Deferred Income Tax Balances

Deferred income taxes provided for temporary differences based on tax laws in effect at December 31, 2008 and 2007 balance sheet dates are as follows:

	Successor
			December 31,							December 31,
			2008							2007
	Total		Current			Noncurrent		Total		Current			Noncurrent
Deferred Income Tax Assets
Alternative minimum tax credit carryforwards	$	447	$	—		$	447	$	789	$	—		$	789
Employee benefit liabilities		173		33			140		456		29			427
Net operating loss (NOL) carryforwards		523		—			523		194		—			194
Regulatory liabilities		—		—			—		111		—			111
Unfavorable purchase and sales contracts		259		—			259		269		—			269
Other		260		44			216		133		11			122
Total		1,662		77			1,585		1,952		40			1,912
Deferred Income Tax Liabilities
Property, plant and equipment		4,375		—			4,375		5,787		—			5,787
Basis difference in Oncor partnership		1,192		—			1,192		—		—			—
Commodity contracts and interest rate swaps		645		31			614		224		31			193
Regulatory assets		—		—			—		680		—			680
Identifiable intangible assets		1,049		—			1,049		1,580		—			1,580
Debt fair value discounts		257		—			257		301		—			301
Other		26		2			24		35		—			35
Total		7,544		33			7,511		8,607		31			8,576
Net Deferred Income Tax (Asset) Liability	$	5,882	$	(44	)	$	5,926	$	6,655	$	(9	)	$	6,664

At December 31, 2008 EFH Corp. had $447 million of alternative minimum tax credit carryforwards (AMT) available to offset future tax payments. The AMT credit carryforwards have no expiration date. At December 31, 2008, EFH Corp. had net operating loss (NOL) carryforwards for federal income tax purposes of $1.493 billion that expire between 2023 and 2028. The NOL carryforwards can be used to offset future taxable income. EFH Corp. fully expects to utilize all of its NOL carryforwards prior to their expiration dates.

The component of deferred income tax liabilities referred to as “basis difference in Oncor partnership” arose as a result of the noncontrolling interests sale (see Note 18) at which time Oncor became a partnership for US federal income tax purposes. The amount of this basis difference at the date of the transaction represented EFH Corp.’s interest (approximately 80%) in the net deferred tax liabilities related to Oncor’s individual operating assets and liabilities. The remaining net deferred tax liabilities associated with Oncor ($299 million at December 31, 2008) that are attributable to the noncontrolling interests have been reclassified as other noncurrent liabilities (see Note 28).

The income tax effects of the components included in accumulated other comprehensive income at December 31, 2008 and 2007 totaled a net deferred tax asset of $207 and $91 million, respectively.

See Note 10 for discussion regarding accounting for uncertain tax positions (FIN 48).

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13. OTHER INCOME AND DEDUCTIONS

	Successor					Predecessor
	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Other income:
Gain on contract settlement (a)	$	—	$	—		$	—		$	26
Amortization of gain on sale of TXU Fuel (b)		—		—			36			47
Accretion of adjustment (discount) of regulatory assets resulting from purchase accounting (Note 2)		44		10			—			—
Insurance recoveries (c)		21		—			—			17
Net gain on sale of other properties and investments (d)		4		1			4			22
Reduction of insurance reserves related to discontinued operations		—		1			7			—
Penalty received for nonperformance under a coal transportation agreement		—		—			6			—
Mineral rights royalty income		4		1			8			—
Other		7		1			8			9
Total other income	$	80	$	14		$	69		$	121
Other deductions:
Impairment of trade name intangible asset (Note 3)	$	481	$	—		$	—		$	—
Impairment of emission allowances intangible assets (Note 3)		501		—			—			—
Charge for impairment of natural gas-fueled generation fleet (Note 6)		229		—			—			198
Charge related to Lehman bankruptcy (e)		26		—			—			—
Professional fees incurred related to the Merger (f)		14		51			39			—
Net charges related to cancelled development of generation facilities (Note 5)		12		2			755			—
Charge related to termination of rail car lease (g)		—		—			10			—
Other asset writeoffs (h)		2		—			34			4
Credit related to impaired leases (i)		—		—			(48	)		—
Equity losses — unconsolidated affiliates		—		—			1			14
Costs related to 2006 cities rate settlement (Note 9)		13		6			20			13
Litigation/regulatory settlements		10		—			5			9
Expenses related to cancelled joint venture at Oncor		—		—			12			7
Ongoing pension and other postretirement benefit costs related to discontinued businesses		2		(2	)		7			23
Other		11		4			6			1
Total other deductions	$	1,301	$	61		$	841		$	269

(a) In 2006, EFH Corp. recorded income of $26 million upon settlement of a contract dispute related to antenna site rentals by a telecommunication company (reported in Corporate and Other activities).

(b) As part of the 2004 sale of the assets of TXU Fuel, TCEH entered into a transportation agreement with the new owner, intended to be market-price based, to transport natural gas to TCEH’s generation plants. Because of the continuing involvement in the business through the transportation agreement, the pretax gain of $375 million related to the sale was deferred and being recognized over the eight-year life of the transportation agreement, and the business was not accounted for as a discontinued operation. The remaining $218 million deferred gain was eliminated as part of purchase accounting related to the Merger (reported in Corporate and Other activities).

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(c) 2008 amount represents insurance recovery for damage to mining equipment (reported in Competitive Electric segment). 2006 amount primarily represents additional insurance recoveries recorded related to the 2005 settlement of the shareholders’ litigation (reported in Corporate and Other activities).

(d) The 2006 period includes $12 million in gains on land sales (substantially all reported in the Competitive Electric segment) and a $10 million gain related to the sale of mineral interests (reported in Corporate and Other activities).

(e) Represents reserve established against amounts due (excluding termination related costs) from subsidiaries of Lehman Brothers Holdings Inc. arising from commodity hedging and trading activities. There are no open positions with these subsidiaries. (Reported in Competitive Electric segment.)

(f) Includes post-Merger consulting expenses related to optimizing business performance (reported in Corporate and Other activities).

(g) Represents costs associated with termination and refinancing of a rail car lease (reported in the Competitive Electric segment).

(h) Predecessor period of 2007 includes $30 million of previously deferred costs, consisting primarily of professional fees for tax, legal and other advisory services, in connection with certain previously anticipated strategic transactions (including expected financings) that were no longer expected to be consummated as a result of the Merger (reported in Corporate and Other activities).

(i) In 2004, EFH Corp. recorded a charge of $157 million for leases of certain natural gas-fueled combustion turbines, net of estimated sublease revenues, that were no longer operated for its own benefit. In the third quarter of 2007, a $48 million reduction in the related liability was recorded to reflect new subleases entered into in October 2007 (reported in the Competitive Electric segment results). The remaining $59 million liability was eliminated as part of purchase accounting as EFH Corp. intends to operate these assets for its own benefit.

14. TRADE ACCOUNTS RECEIVABLE AND SALE OF RECEIVABLES PROGRAM

Sale of Receivables

Subsidiaries of EFH Corp. engaged in retail sales of electricity participate in an accounts receivable securitization program, the activity under which is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the program, such subsidiaries (originators) sell trade accounts receivable to TXU Receivables Company, which is a special purpose entity created for the purpose of purchasing receivables from the originators and is a consolidated wholly-owned bankruptcy-remote direct subsidiary of EFH Corp. TXU Receivables Company sells undivided interests in the purchased accounts receivable for cash to special purpose entities established by financial institutions (the funding entities).

The maximum amount currently available under the accounts receivable securitization program is $700 million, and the program funding was $416 million at December 31, 2008. The amount of customer deposits held by the originators can reduce the amount of undivided interests that can be sold, thus reducing funding available under the program, during periods in which TCEH’s long-term senior unsecured debt rating is lower than investment grade. Funding availability for all originators can be reduced by 100% of the originators’ customer deposits if TCEH’s credit rating is lower than Ba3/BB-; 50% if TCEH’s credit rating is between Ba3/BB- and Ba1/BB+; and zero % if TCEH’s credit rating is at least Baa3/BBB-. The originators’ customer deposits, which totaled $108 million, reduced funding availability as of December 31, 2008 because TCEH’s credit ratings were lower than Ba3/BB-.

All new trade receivables under the program generated by the originators are continuously purchased by TXU Receivables Company with the proceeds from collections of receivables previously purchased. Changes in the amount of funding under the program, through changes in the amount of undivided interests sold by TXU Receivables Company, reflect seasonal variations in the level of accounts receivable, changes in collection trends and other factors such as changes in sales prices and volumes. TXU Receivables Company has issued subordinated notes payable to the originators for the difference between the face amount of the uncollected accounts receivable purchased, less a discount, and cash paid to the originators that was funded by the sale of the undivided interests. The balance of the subordinated notes payable, which is eliminated in consolidation, totaled $268 million and $296 million at December 31, 2008 and 2007, respectively.

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The discount from face amount on the purchase of receivables from the originators principally funds program fees paid to the funding entities. The program fees, which are also referred to as losses on sale of the receivables under SFAS 140, consist primarily of interest costs on the underlying financing. The discount also funds a servicing fee paid by TXU Receivables Company to EFH Corporate Services Company, a direct wholly-owned subsidiary of EFH Corp., which serves as the collection agent of the receivables. EFH Corp. maintains collection responsibilities through EFH Corporate Services Company in order to efficiently service and maintain the integrity of the receivables portfolio. The servicing fee compensates EFH Corporate Services Company for serving as the collection agent of the receivables. Responsibilities of the collection agent include, but are not limited to, maintaining detailed accounts receivable collection records and interfacing with customers regarding payment options and terms of current and past-due accounts. In the event EFH Corporate Services Company is relieved of its duties as collection agent because of default under the program, the funding entities assume responsibility as the collection agent.

The program fees represent essentially all the net incremental costs of the program on a consolidated basis and are reported in SG&A expenses. Fee amounts were as follows:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Program fees	$	25		$	9		$	32		$	40
Program fees as a percentage of average funding (annualized)		5.2	%		9.5	%		6.4	%		5.8	%
Servicing fees	$	4		$	1		$	3		$	4

The accounts receivable balance reported in the December 31, 2008 consolidated balance sheet includes $684 million face amount of trade accounts receivable of TCEH subsidiaries, in which undivided interests totaling $416 million have been sold by TXU Receivables Company. Funding under the program increased $53 million in 2008, decreased $264 million in 2007 and decreased $44 million in 2006. Funding increases or decreases under the program are reflected as operating cash flow activity in the statement of cash flows. The carrying amount of the retained interests in the accounts receivable balance approximated fair value due to the short-term nature of the collection period.

Activities of TXU Receivables Company were as follows:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Cash collections on accounts receivable	$	6,393		$	1,538		$	6,251		$	8,503
Face amount of new receivables purchased		(6,418	)		(1,194	)		(6,628	)		(8,469	)
Discount from face amount of purchased receivables		29			9			35			44
Program fees paid		(25	)		(9	)		(32	)		(40	)
Servicing fees paid		(4	)		(1	)		(3	)		(4	)
Increase (decrease) in subordinated notes payable		(28	)		(120	)		305			10
Oncor’s repurchase of receivables previously sold		—			113			—			—
Operating cash flows used by (provided to) EFH Corp. under the program	$	(53	)	$	336		$	(72	)	$	44

In connection with the Merger, the accounts receivable securitization program was amended. Concurrently with the amendment, the financial institutions required that Oncor repurchase all of the receivables it had previously sold to TXU Receivables Company, which totaled $254 million. Oncor funded such repurchases through borrowings under its credit facility of $113 million, and a related subordinated note receivable from TXU Receivables Company in the amount of $141 million was canceled. Amounts related to Oncor’s trade accounts receivable for the period from January 1, 2007 through October 11, 2007 totaled $6 million in program fees and $27 million in operating cash flows provided, exclusive of the $113 million used by Oncor to repurchase its receivables at the time of the Merger. Subsequent to the Merger, only subsidiaries of TCEH participate in the accounts receivable securitization program.

102

The program may be terminated upon the occurrence of a number of specified events, including if the delinquency ratio (delinquent for 31 days) for the sold receivables, the default ratio (delinquent for 91 days or deemed uncollectible), the dilution ratio (reductions for discounts, disputes and other allowances) or the days collection outstanding ratio exceed stated thresholds, and the financial institutions do not waive such event of termination. The thresholds apply to the entire portfolio of sold receivables, not separately to the receivables of each originator. In addition, the program may be terminated if TXU Receivables Company or EFH Corporate Services Company, as collection agent, shall default in any payment with respect to debt in excess of $50,000 in the aggregate for TXU Receivables Company and EFH Corporate Services Company, or if TCEH, any affiliate of TCEH acting as collection agent under the program other than EFH Corporate Services Company, any parent guarantor of an originator or any originator shall default in any payment with respect to debt (other than hedging obligations) in excess of $200 million in the aggregate for such entities.

Upon termination of the program, cash flows would be delayed as collections of sold receivables would be used by TXU Receivables Company to repurchase the undivided interests from the funding entities instead of purchasing new receivables. The level of cash flows would normalize in approximately 16 to 30 days.

The subordinated notes issued by TXU Receivables Company are subordinated to the undivided interests of the financial institutions in the purchased receivables.

Trade Accounts Receivable

	Successor
	December 31,
	2008			2007
Gross wholesale and retail trade accounts receivable	$	1,705		$	1,494
Undivided interests in retail accounts receivable sold by TXU Receivables Company		(416	)		(363	)
Allowance for uncollectible accounts		(70	)		(32	)
Trade accounts receivable — reported in balance sheet	$	1,219		$	1,099

Gross trade accounts receivable at December 31, 2008 and 2007 included unbilled revenues of $505 million and $477 million, respectively.

103

Allowance for Uncollectible Accounts Receivable

Predecessor:
Allowance for uncollectible accounts receivable as of December 31, 2005	$	36
Increase for bad debt expense		68
Decrease for account write-offs		(80	)
Changes related to receivables sold		4
Other (a)		(15	)
Allowance for uncollectible accounts receivable as of December 31, 2006		13
Increase for bad debt expense		46
Decrease for account write-offs		(54	)
Changes related to receivables sold		26
Allowance for uncollectible accounts receivable as of October 10, 2007		31
Successor:
Allowance for uncollectible accounts receivable as of October 11, 2007		31
Increase for bad debt expense		13
Decrease for account write-offs		(12	)
Allowance for uncollectible accounts receivable as of December 31, 2007		32
Increase for bad debt expense		81
Decrease for account write-offs		(69	)
Charge related to Lehman bankruptcy		26
Allowance for uncollectible accounts receivable as of December 31, 2008	$	70

(a) Reflects an allowance established in 2005 for a coal contract dispute that was reversed upon settlement in 2006. (Allowance and subsequent reversal are recorded in other deductions.)

104

15. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Short-Term Borrowings

At December 31, 2008, EFH Corp. and its subsidiaries had outstanding short-term borrowings of $1.237 billion at a weighted average interest rate of 3.41%, excluding certain customary fees, at the end of the period. Short-term borrowings under credit facilities totaled $900 million for TCEH and $337 million for Oncor.

At December 31, 2007, EFH Corp. and its subsidiaries had outstanding short-term borrowings of $1.718 billion at a weighted average interest rate of 5.39%, excluding certain customary fees, at the end of the period. Borrowings under credit facilities totaled $1.280 billion for Oncor and $438 million for TCEH.

Credit Facilities

EFH Corp.’s credit facilities with cash borrowing and/or letter of credit availability at December 31, 2008 are presented below. The facilities are all senior secured facilities of the authorized borrower.

		At December 31, 2008
Authorized Borrowers and Facility	Maturity Date	Facility Limit		Letters of Credit		Cash Borrowings		Availability
TCEH Delayed Draw Term Loan Facility (a)	October 2014	$	4,100	$	—	$	3,562	$	522
TCEH Revolving Credit Facility (b)	October 2013		2,700		7		900		1,767
TCEH Letter of Credit Facility (c)	October 2014		1,250		—		1,250		—
Subtotal TCEH (d)		$	8,050	$	7	$	5,712	$	2,289
TCEH Commodity Collateral Posting Facility (e)	December 2012		Unlimited	$	—	$	—		Unlimited
Oncor Revolving Credit Facility (f)	October 2013	$	2,000	$	—	$	337	$	1,508

(a) Facility to be used during the two-year period commencing on October 10, 2007 to fund expenditures for constructing certain new generation facilities and environmental upgrades of existing generation facilities, including previously incurred expenditures not yet funded under this facility. Borrowings are classified as long-term debt. Availability amount excludes $9 million of undrawn commitments from a subsidiary of Lehman Brothers Holding Inc. (Lehman) that has filed for bankruptcy under Chapter 11 of the US Bankruptcy Code and $7 million of requested draws that have not been funded by the Lehman subsidiary.

(b) Facility to be used for letters of credit and borrowings for general corporate purposes. Borrowings are classified as short-term borrowings. Availability amount includes $144 million of undrawn commitments from the Lehman subsidiary that is only available from the fronting banks in the form of letters of credit and excludes $26 million of requested draws that have not been funded by the Lehman subsidiary.

(c) Facility to be used for issuing letters of credit for general corporate purposes, including, but not limited to, providing collateral support under hedging arrangements and other commodity transactions that are not eligible for funding under the TCEH Commodity Collateral Posting Facility. The borrowings, all of which were drawn at the closing of the Merger and are classified as long-term debt, have been retained as restricted cash. Letters of credit totaling $760 million issued as of December 31, 2008 are supported by the restricted cash, and the remaining letter of credit availability totals $490 million.

(d) Pursuant to PUCT rules, TCEH is required to maintain available capacity under its credit facilities to assure adequate credit worthiness of TCEH’s REP subsidiaries, including the ability to return retail customer deposits, if necessary. As a result, at December 31, 2008, the total availability under the TCEH credit facilities should be further reduced by $266 million.

(e) Revolving facility to be used to fund cash collateral posting requirements for specified volumes of natural gas hedges. As of December 31, 2008, cash borrowings under the facility had been repaid. See “TCEH Senior Secured Facilities” below for additional information.

(f) Facility to be used by Oncor for its general corporate purposes. Borrowings are classified as short-term borrowings. Availability amount excludes $142 million of undrawn commitments from the Lehman subsidiary and $13 million of requested draws that have not been funded by the Lehman subsidiary.

105

Long-Term Debt

At December 31, 2008 and 2007, the long-term debt of EFH Corp. consisted of the following:

	Successor
	December 31,			December 31,
	2008			2007
TCEH
Pollution Control Revenue Bonds:
Brazos River Authority:
5.400% Fixed Series 1994A due May 1, 2029	$	39		$	39
7.700% Fixed Series 1999A due April 1, 2033		111			111
6.750% Fixed Series 1999B due September 1, 2034, remarketing date April 1, 2013 (a)		16			16
7.700% Fixed Series 1999C due March 1, 2032		50			50
8.250% Fixed Series 2001A due October 1, 2030		71			—
2.300% Floating Series 2001A due October 1, 2030 (b)		—			71
5.750% Fixed Series 2001C due May 1, 2036, remarketing date November 1, 2011 (a)		217			217
8.250% Fixed Series 2001D-1 due May 1, 2033		171			—
2.300% Floating Series 2001D-1 due May 1, 2033 (b)		—			171
1.400% Floating Series 2001D-2 due May 1, 2033 (c)		97			97
2.500% Floating Taxable Series 2001I due December 1, 2036 (d)		62			62
1.400% Floating Series 2002A due May 1, 2037 (c)		45			45
6.750% Fixed Series 2003A due April 1, 2038, remarketing date April 1, 2013 (a)		44			44
6.300% Fixed Series 2003B due July 1, 2032		39			39
6.750% Fixed Series 2003C due October 1, 2038		52			52
5.400% Fixed Series 2003D due October 1, 2029, remarketing date October 1, 2014 (a)		31			31
5.000% Fixed Series 2006 due March 1, 2041		100			100
Sabine River Authority of Texas:
6.450% Fixed Series 2000A due June 1, 2021		51			51
5.500% Fixed Series 2001A due May 1, 2022, remarketing date November 1, 2011 (a)		91			91
5.750% Fixed Series 2001B due May 1, 2030, remarketing date November 1, 2011 (a)		107			107
5.200% Fixed Series 2001C due May 1, 2028		70			70
5.800% Fixed Series 2003A due July 1, 2022		12			12
6.150% Fixed Series 2003B due August 1, 2022		45			45
Trinity River Authority of Texas:
6.250% Fixed Series 2000A due May 1, 2028		14			14
Unamortized fair value discount related to pollution control revenue bonds (e)		(161	)		(175	)
Senior Secured Facilities:
5.456% TCEH Initial Term Loan Facility maturing October 10, 2014 (f)(g)		16,244			16,409
5.150% TCEH Delayed Draw Term Loan Facility maturing October 10, 2014 (f)(g)		3,562			2,150
3.986% TCEH Letter of Credit Facility maturing October 10, 2014 (g)		1,250			1,250
0.449% TCEH Commodity Collateral Posting Facility maturing December 31, 2012 (h)		—			382
Other:
10.25% Fixed Senior Notes due November 1, 2015 (i)		3,000			3,000
10.25% Fixed Senior Notes Series B due November 1, 2015 (i)		2,000			2,000
10.50 / 11.25% Senior Toggle Notes due November 1, 2016 (i)		1,750			1,750
6.125% Fixed Senior Notes due March 15, 2008		—			3
7.000% Fixed Senior Notes due March 15, 2013		5			5
7.100% Promissory Note due January 5, 2009		65			65
7.460% Fixed Secured Facility Bonds with amortizing payments through January 2015		67			78
Capital lease obligations		159			161
Unamortized fair value discount (e)		(6	)		(9	)
Total TCEH	$	29,470		$	28,604

106

	Successor
	December 31,			December 31,
	2008			2007
EFC Holdings
9.580% Fixed Notes due in semiannual installments through December 4, 2019	$	55		$	59
8.254% Fixed Notes due in quarterly installments through December 31, 2021		53			56
3.993% Floating Rate Junior Subordinated Debentures, Series D due January 30, 2037 (g)		1			1
8.175% Fixed Junior Subordinated Debentures, Series E due January 30, 2037		8			8
Unamortized fair value discount (e)		(12	)		(14	)
Total EFC Holdings		105			110
EFH Corp. (parent entity)
10.875% Fixed Senior Notes due November 1, 2017 (i)		2,000			2,000
11.25 / 12.00% Senior Toggle Notes due November 1, 2017 (i)		2,500			2,500
6.375% Fixed Senior Notes Series C due January 1, 2008		—			200
4.800% Fixed Senior Notes Series O due November 15, 2009		3			3
5.550% Fixed Senior Notes Series P due November 15, 2014		1,000			1,000
6.500% Fixed Senior Notes Series Q due November 15, 2024		750			750
6.550% Fixed Senior Notes Series R due November 15, 2034		750			750
8.820% Building Financing due semiannually through February 11, 2022 (j)		80			88
Unamortized fair value premium related to Building Financing (e)		22			24
Unamortized fair value discount (e)		(661	)		(714	)
Total EFH Corp.		6,444			6,601
Oncor (k)
6.375% Fixed Senior Notes due May 1, 2012		700			700
5.950% Fixed Senior Notes due September 1, 2013		650			—
6.375% Fixed Senior Notes due January 15, 2015		500			500
6.800% Fixed Senior Notes due September 1, 2018		550			—
7.000% Fixed Debentures due September 1, 2022		800			800
7.000% Fixed Senior Notes due May 1, 2032		500			500
7.250% Fixed Senior Notes due January 15, 2033		350			350
7.500% Fixed Senior Notes due September 1, 2038		300			—
Unamortized discount		(16	)		(15	)
Total Oncor		4,334			2,835
Oncor Electric Delivery Transition Bond Company LLC (l)
4.030% Fixed Series 2003 Bonds due in semiannual installments through February 15, 2010		54			93
4.950% Fixed Series 2003 Bonds due in semiannual installments through February 15, 2013		130			130
5.420% Fixed Series 2003 Bonds due in semiannual installments through August 15, 2015		145			145
3.520% Fixed Series 2004 Bonds due in semiannual installments through November 15, 2009		39			99
4.810% Fixed Series 2004 Bonds due in semiannual installments through November 15, 2012		221			221
5.290% Fixed Series 2004 Bonds due in semiannual installments through May 15, 2016		290			290
Total Oncor Electric Delivery Transition Bond Company LLC		879			978
Unamortized fair value discount related to transition bonds (e)		(9	)		(12	)
Total Oncor consolidated		5,204			3,801
Total EFH Corp. consolidated		41,223			39,116
Less amount due currently (m)		(385	)		(513	)
Total long-term debt	$	40,838		$	38,603

(a) These series are in the multiannual interest rate mode and are subject to mandatory tender prior to maturity on the mandatory remarketing date. On such date, the interest rate and interest rate period will be reset for the bonds.

(b) Interest rates in effect at March 31, 2008. These series were remarketed in June 2008, resulting in a fixed rate to maturity.

(c) Interest rates in effect at December 31, 2008. These series are in a daily interest rate mode and are classified as long-term as they are supported by long-term irrevocable letters of credit.

(d) Interest rate in effect at December 31, 2008. This series is in a weekly interest rate mode and is classified as long-term as it is supported by long-term irrevocable letters of credit.

(e) Amount represents unamortized fair value adjustments recorded under purchase accounting.

(f) Interest rate swapped to fixed on $17.55 billion principal amount.

(g) Interest rates in effect at December 31, 2008.

(h) Interest rates in effect at December 31, 2008, excluding quarterly maintenance fee discussed below. See “Credit Facilities” above for more information.

(i) Additional Interest will be payable on these notes on May 1, 2009. See the discussion below under “TCEH Notes Issued Subsequent to the Merger” and “EFH Corp. Notes Issued Subsequent to the Merger.”

(j) This financing is secured with a $121 million letter of credit.

(k) Secured with first priority lien as discussed under “Oncor Revolving Credit Facility” below.

(l) These bonds are nonrecourse to Oncor and were issued to securitize a regulatory asset.

(m) Includes $3 million and $200 million at December 31, 2008 and 2007, respectively, representing debt of the EFH Corp. parent entity.

107

Debt-Related Activity in 2008— Repayments of long-term debt in 2008 totaling $1.167 billion represented principal payments at scheduled maturity dates as well as the remarketing of $242 million principal amount of pollution control revenue bonds discussed below, repayment of $413 million of borrowings under the TCEH Commodity Collateral Posting Facility, which fully repaid borrowings under the facility, and other repayments totaling $48 million, principally related to leases. Payments at scheduled maturity dates included $200 million of EFH Corp. senior notes, $165 million repaid under the TCEH Initial Term Loan Facility, and $99 million of Oncor transition bond principal payments.

Increases in long-term debt during 2008 totaling $3.185 billion consisted of issuances of senior secured notes issued by Oncor with an aggregate principal amount of $1.500 billion (see discussion below under “Oncor Senior Secured Notes”), borrowings under the TCEH Delayed Draw Term Loan Facility of $1.412 billion to fund expenditures related to the development of new generation facilities and the environmental retrofit program for existing lignite/coal-fueled generation facilities, the remarketing of $242 million principal amount of pollution control revenue bonds discussed immediately below and $31 million of additional borrowings under the TCEH Commodity Collateral Posting Facility.

In June 2008, TCEH remarketed the Brazos River Authority Pollution Control Revenue Bonds Series 2001A due in October 2030 and Series 2001D-1 due in May 2033 with aggregate principal amounts of $71 million and $171 million, respectively. The bonds were previously in a floating rate mode that reset weekly and were backed by two letters of credit in an aggregate amount of $247 million. As a result of the remarketing, the bonds were fixed to maturity at an interest rate of 8.25%, and the two letters of credit were cancelled. The bonds are redeemable at par beginning July 1, 2018 and are redeemable with a make-whole premium prior to July 1, 2018. These bonds were remarketed with a covenant package similar to the notes discussed below under “TCEH Notes Issued Subsequent to the Merger.”

EFH Corp. and TCEH have the option every six months until November 1, 2012, at their election, to use the payment-in-kind (PIK) feature of their respective toggle notes in lieu of making cash interest payments. The companies elected to do so for the May 1, 2009 interest payment date as an efficient and cost-effective method to further enhance liquidity, in light of the substantial dislocation in the financial markets. Moreover, the incremental liquidity obtained by using the PIK feature of the toggle notes for this specific payment period more than offsets the liquidity that was effectively lost as a result of the default by affiliates of Lehman under TCEH’s Senior Secured Facilities.

EFH Corp. will make its May 2009 interest payment by using the PIK feature of the EFH Corp. Toggle Notes. The election will increase the interest rate on the toggle notes from 11.25% to 12.00% during the interest period covered by the PIK election and require EFH Corp. to issue an additional $150 million principal amount of EFH Corp. Toggle Notes on May 1, 2009. In addition, the election will increase liquidity by an amount equal to approximately $141 million, constituting the amount of cash interest that otherwise would have been payable on May 1, 2009, and increase the expected annual cash interest expense by approximately $17 million, constituting the additional cash interest that would be payable with respect to the $150 million of additional toggle notes.

Similarly, TCEH will make its May 2009 interest payment by using the PIK feature of the TCEH Toggle Notes. The election will increase the interest rate on the TCEH Toggle Notes from 10.50% to 11.25% during the interest period covered by the PIK election and require TCEH to issue an additional approximately $98.5 million principal amount of TCEH Toggle Notes on May 1, 2009. In addition, the election will increase liquidity by an amount equal to approximately $92 million, constituting the amount of cash interest that otherwise would have been payable on May 1, 2009, and increase the expected annual cash interest expense by approximately $10 million, constituting the additional cash interest that would be payable with respect to the $98.5 million of additional toggle notes.

108

Maturities— Long-term debt maturities as of December 31, 2008 are as follows (includes Oncor’s transition bond semi-annual payments):

Year
2009 (a)	$	371
2010		335
2011		759
2012		1,051
2013		1,066
Thereafter (a)		38,325
Unamortized fair value premium		22
Unamortized fair value discount (b)		(849	)
Unamortized discount		(16	)
Capital lease obligations		159
Total	$	41,223

(a) Long-term debt maturities for EFH Corp. (parent entity) totals $3 million and $7.0 billion for 2009 and thereafter, respectively.

(b) Unamortized fair value discount for EFH Corp. (parent entity) totals $(661) million.

109

Long-Term Debt-Related Activity in 2007—EFH Corp. and its subsidiaries issued, reacquired or made scheduled principal payments on long-term debt in 2007 as follows (all amounts presented are principal):

	Successor										Predecessor
	Post-Merger					Merger-Date
	Issuances		Repayments / Repurchases			Issuances		Repayments / Repurchases			Issuances		Repayments / Repurchases
TCEH:
Senior secured facilities:
Initial term loan facility	$	—	$	(41	)	$	16,450	$	—		$	—	$	—
Delayed draw term loan facility		—		—			2,150		—			—		—
Letter of credit facility		—		—			1,250		—			—		—
Commodity collateral posting facility		—		—			382		—			—		—
Senior unsecured interim facilities:
Initial cash-pay loans		—		(5,000	)		5,000		—			—		—
Initial toggle loans		—		(1,750	)		1,750		—			—		—
Senior notes:
Senior cash-pay notes		5,000		—			—		—			—		—
Senior toggle notes		1,750		—			—		—			—		—
Floating rate senior notes (a)		—		—			—		(1,000	)		1,000		—
Fixed senior notes		—		—			—		(1,242	)		—		—
Secured promissory note		—		—			—		—			65		—
Pollution control revenue bonds		—		—			—		—			—		(143	)
Capital lease obligations		16		(4	)		—		—			59		(8	)
Other long-term debt		—		—			—		—			—		(7	)
EFC Holdings:
Fixed senior debentures		—		—			—		—			—		(10	)
Other long-term debt		—		(4	)		—		—			—		(2	)
EFH Corp.:
Senior unsecured interim facilities:
Initial cash-pay loans		—		(2,000	)		2,000		—			—		—
Initial toggle loans		—		(2,500	)		2,500		—			—		—
Senior notes:
Senior cash-pay notes		2,000		—			—		—			—		—
Senior toggle notes		2,500		—			—		—			—		—
Fixed senior notes		—		—			—		(997	)		—		—
Floating convertible senior notes		—		—			—		(25	)		—		—
Other long-term debt		—		—			—		—			—		(11	)
Oncor:
Floating rate senior notes (a)		—		—			—		(800	)		800		—
Fixed debentures		—		—			—		—			—		(200	)
Transition bonds		—		(32	)		—		—			—		(64	)
Total	$	11,266	$	(11,331	)	$	31,482	$	(4,064	)	$	1,924	$	(445	)

(a) Notes were subject to mandatory redemption upon closing of the Merger.

Convertible Senior Notes— At December 31, 2006, EFH Corp. had $25 million principal amount outstanding of its Floating Rate Convertible Senior Notes due 2033. In conjunction with the Merger, a supplemental indenture was executed and provided that the previously outstanding EFH Corp. Floating Convertible Senior Notes became payable in cash at a fixed conversion rate of $4,274.05 per $1,000 principal amount of the Senior Notes. On October 25, 2007, substantially all of these notes (approximately $24.7 million) were converted and redeemed.

110

Other Debt-Related Activity in 2007— In September 2007, EFH Corp. commenced offers to purchase and consent solicitations with respect to $1.0 billion in aggregate principal amount of EFH Corp.’s outstanding 4.80% Series O Senior Notes due 2009, $250 million in aggregate principal amount of TCEH’s outstanding 6.125% Senior Notes due 2008 and $1.0 billion in aggregate principal amount of TCEH’s outstanding 7.000% Senior Notes due 2013. The offers were contingent upon the closing of the Merger. In October 2007, EFH Corp. purchased an aggregate of $997 million, $247 million and $995 million principal amounts of these notes, respectively, for $1.005 billion, $248 million and $1.097 billion, respectively, excluding unpaid interest. Interest rate swaps related to $700 million principal amount of these notes were settled for $13 million upon extinguishment of the debt.

In September 2007, subsidiaries of EFH Corp. acquired certain assets of Alcoa Inc. relating to the operation of a lignite mine near Sandow, including partial ownership of the lignite reserves in the mine, for a purchase price of $135 million, including cash of $70 million and a promissory note of $65 million that was paid at maturity on January 5, 2009 at a fixed interest rate of 7.100%, which is reported as a current liability as of December 31, 2008.

In September 2007, TCEH refinanced an existing lease of rail cars, which had been accounted for as an operating lease, with a lease with another party that has been accounted for as a capital lease, resulting in $52 million reported as long-term debt. In late 2007, TCEH also entered into leases related to mining equipment that have been accounted for as capital leases totaling $23 million reported as long-term debt.

In May 2007, TCEH redeemed at par the Sabine River Authority of Texas Series 2006A and 2006B pollution control revenue bonds with aggregate principal amounts of $47 million and $46 million, respectively, and the Trinity River Authority of Texas Series 2006 pollution control revenue bonds with an aggregate principal amount of $50 million. All three bond series were issued in November 2006 in conjunction with the development of eight coal-fueled generation units, which has been cancelled. Restricted cash retained upon issuance of the bonds was used to fund substantially all of the redemption amounts.

In March 2007, TCEH and Oncor issued floating rate senior notes with an aggregate principal amount of $1.0 billion and $800 million, respectively, with a floating rate based on LIBOR plus 50 basis points for TCEH and 37.5 basis points for Oncor. The notes were to mature in September 2008, but in accordance with their terms, were redeemed upon closing of the Merger.

TCEH Senior Secured Facilities — Borrowings under the TCEH Initial Term Loan Facility, the TCEH Delayed Draw Term Loan Facility, the TCEH Revolving Credit Facility and the TCEH Letter of Credit Facility, which totaled $21.956 billion at December 31, 2008, bear interest at per annum rates equal to, at TCEH’s option, (i) adjusted LIBOR plus 3.50% or (ii) a base rate (the higher of (1) the prime rate as announced from time to time by the administrative agent of the facilities and (2) the federal funds effective rate plus 0.50%) plus 2.50%. There is a margin adjustment mechanism in relation to term loans, revolving loans and letter of credit fees under which the applicable margins may be reduced based on the achievement of certain leverage ratio levels; there was no such reduction based upon December 31, 2008 levels. The applicable rate on each facility as of December 31, 2008 is provided in the long-term debt table above and reflects LIBOR-based borrowings.

A commitment fee is payable quarterly in arrears and upon termination of the TCEH Revolving Credit Facility at a rate per annum equal to 0.50% of the average daily unused portion of such facility. The commitment fee is subject to reduction, based on the achievement of certain leverage ratio levels; there was no such reduction based upon December 31, 2008 levels.

With respect to the TCEH Delayed Draw Term Loan Facility, a commitment fee is payable quarterly in arrears and upon termination of the undrawn portion of the commitments of such facility at a rate per annum equal to, prior to October 10, 2008, 1.25% per annum, and thereafter, 1.50% per annum.

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Letter of credit fees under the TCEH Revolving Facility are payable quarterly in arrears and upon termination at a rate per annum equal to the spread over adjusted LIBOR under the TCEH Revolving Facility, less the issuing bank’s fronting fee. Letter of credit fees under the TCEH Letter of Credit Facility are equal to the difference between interest paid on each outstanding letter of credit at a rate of LIBOR plus 3.50% per annum and the interest earned on the total $1.25 billion TCEH Letter of Credit Facility restricted cash at a rate of LIBOR minus 0.12% per annum yielding a currently effective rate of 3.62% per annum on each outstanding letter of credit under that facility.

TCEH will pay a fixed quarterly maintenance fee of approximately $11 million through maturity for having procured the TCEH Commodity Collateral Posting Facility regardless of actual borrowings under the facility. In addition, TCEH will pay interest at LIBOR on actual borrowed amounts under the TCEH Commodity Collateral Posting Facility partially offset by interest earned on collateral deposits to counterparties.

The TCEH Senior Secured Facilities are unconditionally guaranteed jointly and severally on a senior secured basis, by EFC Holdings, and each existing and subsequently acquired or organized direct or indirect wholly-owned US restricted subsidiary of TCEH (other than certain subsidiaries as provided in the TCEH Senior Secured Facilities), subject to certain other exceptions.

The TCEH Senior Secured Facilities, including the guarantees thereof, certain commodity hedging transactions and the interest rate swaps described under “TCEH Interest Rate Hedges” below are secured by (a) substantially all of the current and future assets of TCEH and TCEH’s subsidiaries who are guarantors of such facilities as described above, and (b) pledges of the capital stock of TCEH and each current and future material wholly-owned restricted subsidiary of TCEH directly owned by TCEH or any guarantor.

The TCEH Senior Secured Facilities contain customary negative covenants, restricting, subject to certain exceptions, TCEH and TCEH’s restricted subsidiaries from, among other things:

• incurring additional debt;

• incurring additional liens;

• entering into mergers and consolidations;

• selling or otherwise disposing of assets;

• making dividends, redemptions or other distributions in respect of capital stock;

• making acquisitions, investments, loans and advances, and

• paying or modifying certain subordinated and other material debt.

In addition, the TCEH Senior Secured Facilities contain a maintenance covenant that prohibits TCEH and its restricted subsidiaries from exceeding a maximum consolidated secured leverage ratio and to observe certain customary reporting requirements and other affirmative covenants.

The TCEH Initial Term Loan Facility is required to be repaid in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount of such facility ($41 million quarterly), with the balance payable on October 10, 2014. The TCEH Delayed Draw Term Loan Facility is required to be repaid in equal quarterly installments beginning on December 31, 2009 in an aggregate annual amount equal to 1% of the actual principal outstanding under the TCEH Delayed Draw Term Loan Facility as of such date, with the balance payable on October 10, 2014. Amounts borrowed under the TCEH Revolving Facility may be reborrowed from time to time from and after the closing date until October 10, 2013. The TCEH Letter of Credit Facility will mature on October 10, 2014. The TCEH Commodity Collateral Posting Facility will mature on December 31, 2012.

The TCEH Senior Secured Facilities contain certain customary events of default for senior leveraged acquisition financings, the occurrence of which would allow the lenders to accelerate all outstanding loans and terminate their commitments.

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TCEH Notes Issued Subsequent to the Merger— Pursuant to an indenture entered into in October 2007 (the TCEH Indenture), TCEH and TCEH Finance (the Co-Issuers) issued and sold $3.0 billion aggregate principal amount of 10.25% Senior Notes due November 1, 2015. In December 2007 under a supplemental indenture, the Co-Issuers issued and sold $2.0 billion aggregate principal amount of 10.25% Series B Senior Notes due November 1, 2015. Interest on these notes (referred to as the TCEH Cash-Pay Notes) is payable in cash semiannually in arrears on May 1 and November 1 of each year at a fixed rate of 10.25% per annum, and the first interest payment was made on May 1, 2008.

Pursuant to the supplemental indenture, the Co-Issuers also issued and sold $1.75 billion aggregate principal amount of 10.50%/11.25% Senior Toggle Notes due November 1, 2016. The initial interest payment on these notes (referred to as the TCEH Toggle Notes) was paid in cash. For any interest period thereafter until November 1, 2012, the Issuer may elect to pay interest on the notes, at the Issuer’s option (i) entirely in cash; (ii) by increasing the principal amount of the notes or by issuing new TCEH Toggle Notes (Payment-in-Kind or PIK Interest); or (iii) 50% in cash and 50% in PIK Interest. Interest on the notes is payable semi-annually in arrears on May 1 and November 1 of each year at a fixed rate of 10.50% per annum for cash interest and at a fixed rate of 11.25% per annum for PIK Interest, and the first interest payment was made on May 1, 2008. See “Debt Related Activity in 2008” above for discussion of TCEH’s election to use the PIK option for the May 1, 2009 payment.

The $6.75 billion principal amount of notes issued under the TCEH Indenture and its supplement (the TCEH Cash-Pay Notes and the TCEH Toggle Notes) are collectively referred to as the TCEH Notes.

The TCEH Notes are fully and unconditionally guaranteed by TCEH’s direct parent, EFC Holdings (which owns 100% of TCEH and its subsidiary guarantors), and by each subsidiary that guarantees the TCEH Senior Secured Facilities (the TCEH Guarantors). The TCEH Notes are the Co-Issuers’ senior unsecured debt and rank senior in right of payment to any future subordinated indebtedness of the Co-Issuers, equally in right of payment with all of the Co-Issuers’ existing and future senior unsecured indebtedness, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of the Co-Issuers’ non-guarantor subsidiaries, including trade payables (other than indebtedness and liabilities owed to the Co-Issuers or the TCEH Guarantors). The TCEH Notes rank effectively junior in right of payment to all existing and future senior secured indebtedness of the Co-Issuers, including the TCEH Senior Secured Facilities to the extent of the value of the collateral securing such indebtedness.

The guarantees are joint and several guarantees of the TCEH Notes, are the TCEH Guarantors’ senior unsecured obligations and rank equal in right of payment with all existing and future senior unsecured indebtedness of the relevant TCEH Guarantor and senior in right of payment to any existing or future subordinated indebtedness of the relevant TCEH Guarantor. The guarantees rank effectively junior to all secured indebtedness of the TCEH Guarantors to the extent of the assets securing that indebtedness. EFC Holdings’ guarantee of the TCEH Notes ranks equally with its guarantee of the EFH Corp. Cash-Pay Notes and the EFH Corp. Toggle Notes (discussed below). The guarantees of the TCEH Notes are structurally junior to all indebtedness and other liabilities of the Co-Issuers’ subsidiaries that do not guarantee the notes.

The TCEH Indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Co-Issuers’ and their restricted subsidiaries’ ability to:

• make restricted payments;

• incur debt and issue preferred stock;

• create liens;

• enter into mergers or consolidations;

• sell or otherwise dispose of certain assets;

• permit dividend and other payment restrictions on restricted subsidiaries, and

• engage in certain transactions with affiliates.

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The TCEH Indenture also contains customary events of default, including failure to pay principal or interest on the TCEH Notes or the guarantees when due, among others. If an event of default occurs under the TCEH Indenture, the trustee or the holders of at least 30% in principal amount of the Required Debt (as such term is defined in the TCEH Indenture) may declare the principal amount on the TCEH Notes to be due and payable immediately.

The Co-Issuers may redeem the TCEH Cash-Pay Notes, in whole or in part, at any time on or after November 1, 2011, or the TCEH Toggle Notes, in whole or in part, at any time on or after November 1, 2012, at specified redemption prices, plus accrued and unpaid interest, if any. In addition, before November 1, 2010, the Co-Issuers may redeem with the cash proceeds of certain equity offerings up to 35% of the aggregate principal amount of TCEH Cash-Pay Notes from time to time at a redemption price of 110.250% of the aggregate principal amount of the TCEH Cash-Pay Notes, plus accrued and unpaid interest, if any, or 110.500% of the aggregate principal amount of the TCEH Toggle Notes, plus accrued and unpaid interest, if any. The Co-Issuers may also redeem the TCEH Cash-Pay Notes at any time prior to November 1, 2011 or the TCEH Toggle Notes at any time prior to November 1, 2012 at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a “make-whole” premium. Upon the occurrence of a change in control of TCEH, the Co-Issuers must offer to repurchase the TCEH Notes at 101% of their principal amount, plus accrued and unpaid interest, if any.

The TCEH Notes were issued in a private placement with registration rights. Notes having substantially identical terms as the TCEH Notes were registered with the SEC by the Co-Issuers in December 2008 as part of an offer to exchange freely tradable exchange notes for the TCEH Notes. The exchange offer was completed in January 2009. Because the exchange offer was not completed within 360 days after the issue date of the TCEH Notes (a TCEH Registration Default), the annual interest rate on the TCEH Notes increased for the period during which the TCEH Registration Default continued (October 26, 2008 to January 30, 2009 for the Senior Notes and November 30, 2008 to January 30, 2009 for the Series B Senior Notes and Senior Toggle Notes), resulting in incremental interest of $3.7 million.

EFH Corp. Notes Issued Subsequent to the Merger — Pursuant to an indenture entered into in October 2007 (the EFH Corp. Indenture), EFH Corp. issued and sold $2.0 billion aggregate principal amount of 10.875% Senior Notes due November 1, 2017. Interest on the notes (referred to as the EFH Corp. Cash-Pay Notes) is payable in cash semi-annually in arrears on May 1 and November 1 of each year at a fixed rate of 10.875% per annum, and the first interest payment was made on May 1, 2008.

Pursuant to the EFH Corp. Indenture, EFH Corp. also issued and sold $2.5 billion aggregate principal amount of 11.250%/12.000% Senior Toggle Notes due November 1, 2017. The initial interest payment on the notes (referred to as the EFH Corp. Toggle Notes) was paid in cash. For any interest period thereafter until November 1, 2012, EFH Corp. may elect to pay interest on the notes, at EFH Corp.’s option (i) entirely in cash; (ii) by increasing the principal amount of the notes or by issuing new EFH Corp. Toggle Notes (PIK Interest); or (iii) 50% in cash and 50% in PIK Interest. Interest on the notes is payable semi-annually in arrears on May 1 and November 1 of each year at a fixed rate of 11.250% per annum for cash interest and at a fixed rate of 12.000% per annum for PIK Interest, and the first interest payment was made on May 1, 2008. See “Debt Related Activity in 2008” above for discussion of EFH Corp.’s election to use the PIK option for the May 1, 2009 payment.

The $4.5 billion principal amount of notes issued under the EFH Corp. Indenture (the EFH Corp. Cash-Pay Notes and the EFH Corp. Toggle Notes) are collectively referred to herein as the EFH Corp. Notes.

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The EFH Corp. Notes are fully and unconditionally guaranteed by EFC Holdings and Intermediate Holding, 100% owned subsidiaries of EFH Corp. (the EFH Corp. Guarantors). The EFH Corp. Notes are EFH Corp.’s senior unsecured debt and rank senior in right of payment to any existing and future subordinated indebtedness of EFH Corp., equally in right of payment with all of EFH Corp.’s existing and future senior unsecured indebtedness and structurally subordinated in right of payment to all existing and future indebtedness, preferred stock and other liabilities of EFH Corp.’s non-guarantor subsidiaries, including trade payables (other than indebtedness and liabilities owed to EFH Corp. or the EFH Corp. Guarantors). The EFH Corp. Notes will rank effectively junior in right of payment to all future secured indebtedness of EFH Corp. to the extent of the assets securing that indebtedness.

The guarantees are joint and several guarantees of the EFH Corp. Notes, are the EFH Corp. Guarantors’ unsecured senior obligations and rank equal in right of payment with all existing and future senior unsecured indebtedness of the relevant EFH Corp. Guarantor and senior in right of payment to any existing or future subordinated indebtedness of the relevant EFH Corp. Guarantor. The guarantees of the EFH Corp. Notes will be structurally junior to all indebtedness and other liabilities of the relevant EFH Corp. Guarantor’s subsidiaries that are not guarantors.

The EFH Corp. Indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, EFH Corp.’s and its restricted subsidiaries’ ability to:

• make restricted payments;

• incur debt and issue preferred stock;

• create liens;

• enter into mergers or consolidations;

• sell or otherwise dispose of certain assets;

• permit dividend and other payment restrictions on restricted subsidiaries, and

• engage in certain transactions with affiliates.

The EFH Corp. Indenture also contains customary events of default, including failure to pay principal or interest on the EFH Corp. Notes or the guarantees when due, among others. If an event of default occurs under the EFH Corp. Indenture, the trustee or the holders of at least 30% in principal amount outstanding of the EFH Corp. Notes may declare the principal amount on the EFH Corp. Notes to be due and payable immediately.

EFH Corp. may redeem the EFH Corp. Notes, in whole or in part, at any time on or after November 1, 2012, at specified redemption prices, plus accrued and unpaid interest, if any. In addition, before November 1, 2010, EFH Corp. may redeem, with the net cash proceeds of certain equity offerings, up to 35% of the aggregate principal amount of the EFH Corp. Notes from time to time at a redemption price of 110.875% of the aggregate principal amount of the EFH Corp. Cash Pay Notes, plus accrued and unpaid interest, if any, or 111.250% of the aggregate principal amount of the EFH Corp. Toggle Notes, plus accrued and unpaid interest, if any. EFH Corp. may also redeem the EFH Corp. Notes at any time prior to November 1, 2012 at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a “make-whole” premium. Upon the occurrence of a change in control, EFH Corp. must offer to repurchase the EFH Corp. Notes at 101% of their principal amount, plus accrued and unpaid interest, if any.

The EFH Corp. Notes were issued in a private placement with registration rights. Notes having substantially identical terms as the EFH Corp. Notes were registered with the SEC by EFH Corp. in December 2008 as part of an offer to exchange freely tradable exchange notes for the EFH Corp. Notes. The exchange offer was completed in January 2009. Because the exchange offer was not completed within 360 days after the issue date of the EFH Corp. Notes (an EFH Corp. Registration Default), the annual interest rate on the EFH Corp. Notes increased for the period during which the EFH Corp. Registration Default continued (October 26, 2008 to January 30, 2009), resulting in incremental interest of $3.2 million.

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Intercreditor Agreement — In October 2007, in connection with the Merger, TCEH entered into an Intercreditor Agreement (the Intercreditor Agreement) with Citibank, N.A. and five secured commodity hedge counterparties (the Secured Commodity Hedge Counterparties). The Intercreditor Agreement provides that the lien granted to the Secured Commodity Hedge Counterparties will rank pari passu with the lien granted with respect to the collateral of the secured parties under the TCEH Senior Secured Facilities. The Intercreditor Agreement also provides that the Secured Commodity Hedge Counterparties will be entitled to share, on a pro rata basis, in the proceeds of any liquidation of such collateral in connection with a foreclosure on such collateral in an amount provided in the TCEH Senior Secured Facilities. The Intercreditor Agreement also provides that the Secured Commodity Hedge Counterparties will have voting rights with respect to any amendment or waiver of any provision of the Intercreditor Agreement that changes the priority of the Secured Commodity Hedge Counterparties’ lien on such collateral relative to the priority of lien granted to the secured parties under the TCEH Senior Secured Facilities or the priority of payments to the Secured Commodity Hedge Counterparties upon a foreclosure and liquidation of such collateral relative to the priority of the lien granted to the secured parties under the TCEH Senior Secured Facilities.

TCEH Interest Rate Swap Transactions— In 2007, subsequent to the Merger, TCEH entered into interest rate swap transactions pursuant to which payment of the floating interest rates on an aggregate of $15.05 billion of senior secured term loans of TCEH were exchanged for interest payments at fixed rates of between 7.3% and 8.3% on debt maturing from 2009 to 2014. The interest rate swaps were being accounted for as cash flow hedges related to variable interest rate cash flows until August 29, 2008, at which time these swaps were dedesignated as cash flow hedges as a result of the intent to change the variable interest rate terms of the hedged debt (from three-month LIBOR to one-month LIBOR) in connection with the planned execution of interest rate basis swaps (discussed immediately below) to further reduce the fixed borrowing costs. Based on the fair value of the positions, the cumulative unrealized mark-to-market net losses related to these interest rate swaps totaled $431 million (pre-tax) at the dedesignation date and was recorded in accumulated other comprehensive income. This balance will be reclassified into net income as interest on the hedged debt is reflected in net income. No ineffectiveness gains or losses were recorded.

In September 2008, TCEH entered into interest rate swap transactions pursuant to which payment of the floating interest rates on an aggregate of an additional $1.5 billion of senior secured term loans of TCEH were exchanged for interest payments at fixed rates of between 7.3% and 7.6% on debt maturing from 2013 to 2014.

In October 2008, TCEH entered into interest rate swap transactions pursuant to which payment of the floating interest rates on an aggregate of an additional $1.0 billion of senior secured term loans of TCEH were exchanged for interest payments at fixed rates of between 7.5% and 7.6% on debt maturing in 2014.

In May 2008, TCEH entered into an interest rate swap transaction pursuant to which semiannual payment (settled quarterly) of the floating interest rates at LIBOR on an aggregate of $2.095 billion of senior secured term loans of TCEH were exchanged for floating interest rates at LIBOR plus 0.21% receivable monthly.

In September 2008, TCEH entered into interest rate basis swap transactions pursuant to which quarterly payment of the floating interest rates at LIBOR on an aggregate of $7.95 billion of senior secured term loans of TCEH were exchanged for floating interest rates of LIBOR plus spreads ranging from 0.076% to 0.145% receivable monthly.

In November 2008, TCEH entered into interest rate basis swap transactions pursuant to which quarterly payment of the floating interest rates at LIBOR on an aggregate of $3.0 billion of senior secured term loans of TCEH were exchanged for floating interest rates of LIBOR plus spreads ranging from 0.21% to 0.292%, receivable monthly.

The interest rate swap counterparties are secured proportionally with the lenders under the TCEH Senior Secured Facilities. Subsequent to the dedesignation in August 2008 discussed above, changes in the fair value of the swaps discussed in the above paragraphs are being reported in the income statement in interest expense and related charges, and such unrealized mark-to-market net losses totaled $1.477 billion in 2008.

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Oncor Revolving Credit Facility— At December 31, 2008, Oncor had a $2.0 billion credit facility to be used for working capital and general corporate purposes, including issuances of commercial paper and letters of credit. Oncor may request increases in the commitments under the facility in any amount up to $500 million, subject to the satisfaction of certain conditions. This facility is a revolving credit facility, which means that amounts borrowed under the facility, once repaid, can be reborrowed by Oncor from time to time until October 10, 2013. In May 2008, Oncor secured this credit facility with a first priority lien on certain of its transmission and distribution assets. Oncor also secured all of its existing long-term debt securities (excluding the transition bonds) with the same lien in accordance with the terms of those securities. The lien contains customary provisions allowing Oncor to use the assets in its business, as well as to replace and/or release collateral as long as the market value of the aggregate collateral is at least 115% of the aggregate secured debt. The lien may be terminated at Oncor’s option upon the termination of Oncor’s credit facility.

Borrowings under this credit facility totaled $337 million and $1.280 billion at December 31, 2008 and 2007, respectively. The decrease in borrowings reflects the use of the majority of the proceeds from Oncor’s issuance of $1.5 billion of senior secured notes (discussed below) to repay borrowings under the revolving credit facility, partially offset by funding of ongoing capital investments, including the acquisition of broadband over powerline based “Smart Grid” network assets.

Borrowings under this credit facility bear interest at per annum rates equal to, at Oncor’s option, (i) adjusted LIBOR plus a spread of 0.275% to 0.800% (depending on the rating assigned to Oncor’s senior secured debt) or (ii) a base rate (the higher of (1) the prime rate of JPMorgan Chase Bank, N.A. and (2) the federal funds effective rate plus 0.50%). Under option (i) and based on Oncor’s current ratings, its LIBOR-based borrowings, which apply to all outstanding borrowings at December 31, 2008, bear interest at LIBOR plus 0.425%.

A facility fee is payable at a rate per annum equal to 0.100% to 0.200% (depending on the rating assigned to Oncor’s senior secured debt) of the commitments under the facility. Based on Oncor’s current ratings, its facility fee is 0.150%. A utilization fee is payable on the average daily amount of borrowings in excess of 50% of the commitments under the facility at a rate per annum equal to 0.125% per annum.

The credit facility contains customary covenants for facilities of this type, restricting, subject to certain exceptions, Oncor and its subsidiary from, among other things:

• incurring additional liens;

• entering into mergers and consolidations;

• selling certain assets, and

• making acquisitions and investments in subsidiaries.

In addition, the credit facility requires that Oncor maintain a consolidated senior debt-to-capitalization ratio of no greater than 0.65 to 1.00 and observe certain customary reporting requirements and other affirmative covenants.

The credit facility contains certain customary events of default for facilities of this type, the occurrence of which would allow the lenders to accelerate all outstanding loans and terminate their commitments under the facility.

Oncor Senior Secured Notes— Pursuant to an indenture dated as of August 1, 2002, in September 2008, Oncor issued and sold senior secured notes with an aggregate principal amount of $1.500 billion consisting of $650 million aggregate principal amount of 5.95% senior secured notes maturing in September 2013, $550 million aggregate principal amount of 6.80% senior secured notes maturing in September 2018 and $300 million aggregate principal amount of 7.50% senior secured notes maturing in September 2038. Oncor used the net proceeds of approximately $1.487 billion from the sale of the Oncor notes to repay most of its borrowings under its credit facility as well as for general corporate purposes. The Oncor notes will initially be secured by the first priority lien described above. If the lien is terminated, the notes will cease to be secured obligations of Oncor and will become senior unsecured general obligations of Oncor.

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Interest on these notes is payable in cash semiannually in arrears on March 1 and September 1 of each year, and the first interest payment is due on March 1, 2009. Oncor may redeem the notes, in whole or in part, at any time, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a “make-whole” premium. The notes also contain customary events of default, including failure to pay principal or interest on the notes when due.

The Oncor notes were issued in a private placement and have not been registered under the Securities Act. Oncor has agreed to use its commercially reasonable efforts to register with the SEC notes having substantially identical terms as the Oncor notes as part of an offer to exchange freely tradable exchange notes for the Oncor notes. Oncor has agreed to use commercially reasonable efforts to cause the exchange offer to be completed or, if required, to have one or more shelf registration statements declared effective, within 270 days after the issue date of the Oncor notes. If this obligation is not satisfied (an Oncor Registration Default), the annual interest rate on the Oncor notes will increase by 0.50% per annum over the applicable original interest rate until the earlier of the expiration of the Oncor Registration Default period or the second anniversary of the issue date of the notes. Oncor also agreed to file a registration statement containing a “market making prospectus” and to keep it effective, subject to certain exceptions, for a period of ten years after the issue date of the Oncor notes.

EFH Corp. Long-Term Debt Fair Value Hedges — EFH Corp. has used fair value hedging strategies to manage its exposure to fixed interest rates on long-term debt. Interest rate swaps related to $1.850 billion principal amount of debt were dedesignated as fair value hedges in January 2007. These swap positions were unwound by entering into offsetting positions, and both the original swaps and offsetting positions are subsequently being marked-to-market in net income. These swaps qualified for and were designated as fair value hedges in accordance with SFAS 133 (under the “short-cut method” entities are allowed under SFAS 133 to assume no hedge ineffectiveness in a hedging relationship of interest rate risk if certain conditions are met). Fixed-to-variable rate swaps related to $200 million principal amount of debt were dedesignated as fair value hedges at the Merger date and were settled on January 1, 2008 in conjunction with the repayment of the related debt.

Long-Term Debt Fair Value Adjustments Related to Interest Rate Swaps (fixed to variable rate)—

Predecessor:
Long-term debt fair value adjustments related to interest rate swaps at January 1, 2007 — net reduction in debt carrying value (net out-of-the-money value of swaps)	$	(63	)
Fair value adjustments during the period		6
Recognition of net gains on settled fair value hedges (a)		(2	)
Recognition of net losses on dedesignated fair value hedges (b)		7
Successor:
Long-term debt fair value adjustments at October 10, 2007 — net reduction in debt carrying value		(52	)
Purchase accounting adjustment (c)		52
Long-term debt fair value adjustments related to interest rate swaps at December 31, 2007	$	—

(a) Net value of settled in-the-money fixed-to-variable swaps recognized in net income when the hedged transactions are recognized. Amount is pretax.

(b) Net value of dedesignated out-of-the money fixed-to-variable swaps recognized in net income when the hedged transactions are recognized. Amount is pretax.

(c) Reflects the fair-valuing of debt as part of purchase accounting.

Changes in market values of unsettled fair value hedge positions are accounted for as adjustments to the carrying value of related debt amounts, offset by changes in commodity and other derivative contractual asset or liability amounts.

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16. COMMITMENTS AND CONTINGENCIES

Generation Development

Subsidiaries of EFH Corp. have executed EPC agreements for the development of three lignite-fueled generation units in Texas, two units at Oak Grove and one at Sandow, and construction of the units is well underway.

Subsidiaries of EFH Corp. have received the air permits for the Sandow and Oak Grove units. However, the Oak Grove air permit remains the subject of litigation as discussed below under “Litigation Related to Generation Development.”

Construction work-in-process asset balances for the Oak Grove units totaled approximately $2.8 billion as of December 31, 2008, which includes the effects of the fair value adjustments related to purchase accounting and capitalized interest. In the unexpected event the development of the Oak Grove units was cancelled, the cancellation exposure as of December 31, 2008 totaled $3.1 billion, which includes the carrying value of the project and up to approximately $300 million of termination obligations. This estimated exposure amount excludes any potential recovery values for assets acquired to date and for assets already owned prior to executing such agreements that are intended to be utilized for these projects.

Contractual Commitments

At December 31, 2008, EFH Corp. had noncancellable commitments under energy-related contracts, leases and other agreements as follows:

	Coal purchase agreements and coal transportation agreements		Pipeline transportation and storage reservation fees		Capacity payments under power purchase agreements (a)		Nuclear Fuel Contracts		Water Rights Contracts
2009	$	263	$	41	$	3	$	153	$	8
2010		54		38		—		91		8
2011		44		37		—		113		8
2012		—		37		—		182		8
2013		—		42		—		120		8
Thereafter		—		22		—		272		45
Total	$	361	$	217	$	3	$	931	$	85

(a) On the basis of EFH Corp.’s current expectations of demand from its electricity customers as compared with its capacity and take-or-pay payments, management does not consider it likely that any material payments will become due for electricity not taken beyond capacity payments.

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Future minimum lease payments under both capital leases and operating leases are as follows:

	Capital		Operating
	Leases		Leases (a)
2009	$	29	$	61
2010		29		60
2011		71		54
2012		14		51
2013		9		49
Thereafter		50		348
Total future minimum lease payments		202	$	623
Less amounts representing interest		43
Present value of future minimum lease payments		159
Less current portion		19
Long-term capital lease obligation	$	140

(a) Includes operating leases with initial or remaining noncancellable lease terms in excess of one year. Excludes TCEH’s future minimum lease payments for combustion turbines owned by a TCEH lease trust of $17 million in each of 2009 through 2013 and $17 million thereafter.

Rent charged to operating cost, fuel cost and SG&A totaled $92 million for the year ended December 31, 2008, $26 million for the period October 11, 2007 through December 31, 2007, $66 million for the period January 1, 2007 through October 10, 2007 and $86 million for the year ended December 31, 2006.

Litigation Related to Generation Development

An administrative appeal challenging the order of the TCEQ issuing the air permit for construction and operation of the Oak Grove generation facility in Robertson County, Texas to a subsidiary of EFH Corp. was filed in September 2007 in the State District Court of Travis County, Texas. Plaintiffs asked that the District Court reverse the TCEQ’s approval of the Oak Grove air permit and the TCEQ’s adoption and approval of the TCEQ Executive Director’s Response to Comments, and remand the matter back to TCEQ for further proceedings. The TCEQ has filed the administrative record with the District Court. In addition to this administrative appeal, two other petitions were filed in Travis County District Court by non-parties to the administrative hearing before the TCEQ and the State Office of Administrative Hearings (SOAH) seeking to challenge the TCEQ’s issuance of the Oak Grove air permit and asking the District Court to remand the matter to the SOAH for further proceedings. Finally, the plaintiffs in these two additional lawsuits filed a third, joint petition claiming insufficiencies in the Oak Grove application, permit, and process and seeking party status and remand to the SOAH for further proceedings. One of the plaintiffs has asked the court to consolidate all these proceedings, and the Attorney General of Texas, on behalf of TCEQ, has filed pleas to the jurisdiction that would, if granted, dismiss all but the administrative appeal. EFH Corp. does not know when the court will rule on these requests. EFH Corp. believes the Oak Grove air permit granted by the TCEQ is protective of the environment and that the application for and the processing of the air permit by the TCEQ was in accordance with law. There can be no assurance that the outcome of these matters would not result in an adverse impact on the Oak Grove project.

In May 2008, the Sierra Club announced that it may sue Oak Grove Management Company LLC for violating federal Clean Air Act provisions regarding hazardous air pollutants. Similarly, in July 2008, the Sierra Club announced that it may sue Luminant, after the expiration of a 60-day waiting period, for violating federal Clean Air Act provisions in connection with its Martin Lake generation facility. In December 2008, Luminant reached a settlement with the Sierra Club regarding its allegations relating to Oak Grove. Pursuant to the settlement, Luminant has filed for a Maximum Achievable Control Technology determination for hazardous air pollutant emissions by the TCEQ and has agreed to offset any emissions above the levels set in that review; in exchange the Sierra Club will not pursue legal action to obstruct construction or commencement of operation of the Oak Grove units. EFH Corp. cannot predict whether the Sierra Club will actually file suit relating to Martin Lake or the outcome of any such proceeding.

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Other Litigation

In September 2005, a lawsuit was filed in the US District Court for the Northern District of Texas, Dallas Division against EFH Corp. (then known as TXU Corp.) and C. John Wilder, EFH Corp.’s former Chief Executive Officer. The plaintiffs’ Amended Complaint asserts claims on behalf of the plaintiffs and a putative class of owners of certain EFH Corp. securities who tendered such securities in connection with a tender offer conducted by EFH Corp. in 2004. The Amended Complaint alleges violations of the provisions of Sections 14(e), 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The allegations relate to a tender offer conducted in September and October 2004 for certain equity-linked securities in which it was expressly disclosed that EFH Corp. management was evaluating whether it should recommend to the board of directors that the board reevaluate EFH Corp.’s dividend policy. After the tender offer was closed, and consistent with the disclosure, management did make a recommendation to the board to reevaluate the dividend policy, and the board elected to increase the quarterly dividend. The plaintiffs contend that such disclosure in connection with the tender offer was inadequate. EFH Corp. maintains that the disclosure provided in connection with the tender offer regarding the evaluation of the dividend policy was complete and accurate at the time the tender offer was initiated as well as when it was closed. A Motion to Dismiss was filed by the defendants, and the District Court entered an order granting the Motion to Dismiss and dismissing this litigation with prejudice in August 2006. The plaintiffs filed a timely notice of appeal, and on appeal, the US Court of Appeals for the Fifth Circuit remanded the dismissal to the District Court in light of the decisions in Tellabs, Inc. v. Makor Issues & Rights, Ltd. On remand, plaintiffs filed a Second Amended Complaint, and defendants filed a Motion to Dismiss. The District Court entered an order granting the Motion to Dismiss and dismissing this litigation with prejudice in April 2008. The plaintiffs filed a timely notice of appeal in May 2008 and the appeal is currently pending before the US Court of Appeals for the Fifth Circuit. Oral argument was held in February 2009, and EFH Corp. is now awaiting a ruling from the US Court of Appeals for the Fifth Circuit. While EFH Corp. is unable to estimate any possible loss or predict the outcome of this litigation, EFH Corp. believes the claims made in this litigation are without merit and, accordingly, intends to vigorously defend the appeal.

In July 2008, Alcoa Inc. filed a lawsuit in Milam County, Texas district court against Luminant Generation Company LLC, Luminant Mining Company LLC, Sandow Power Company LLC, Luminant Energy Company LLC and EFH Corp. The lawsuit makes various claims concerning operation of the Sandow Unit 4 generation facility and the Three Oaks lignite mine and construction of the Sandow 5 unit, including claims for breach of contract, breach of fiduciary duty, fraud and conversion, and requests money damages in an unspecified amount, declaratory judgment, an accounting and rescission. A federal district court in Austin, Texas has ordered Alcoa Inc. to amend its Milam County complaint to remove any references to a federal consent decree relating to Sandow Units 4 and 5. Alcoa Inc. has not yet filed its amended complaint. While EFH Corp. is unable to estimate any possible loss or predict the outcome of this litigation, EFH Corp. believes the claims made in this litigation are without merit and, accordingly, intends to vigorously defend this litigation.

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Regulatory Investigations and Reviews

In June 2008, the EPA issued a request for information to Luminant Energy under EPA’s authority under Section 114 of the Clean Air Act. The stated purpose of the request is to obtain information necessary to determine compliance with the Clean Air Act, including New Source Review Standards and air permits issued by the TCEQ for the Big Brown, Monticello and Martin Lake generation facilities. EFH Corp. is cooperating with the EPA and is responding in good faith to the EPA’s request. EFH Corp. is unable to predict the outcome of this matter.

Commitment to Fund Demand Side Management Initiatives

In connection with the Merger, Texas Holdings committed to spend $100 million over the five-year period ending December 31, 2012 on demand side management or other energy efficiency initiatives. This commitment is expected to be funded by EFH Corp. and/or its subsidiaries other than Oncor. This commitment is in addition to $300 million to be invested by Oncor for similar initiatives. See Note 8 for other provisions of the stipulation, including a similar commitment made by Oncor.

Other Proceedings

In addition to the above, EFH Corp. and its subsidiaries are involved in various other legal and administrative proceedings in the normal course of business the ultimate resolution of which, in the opinion of management, should not have a material effect on its financial position, results of operations or cash flows.

Capital Expenditures

Oncor and Texas Holdings agreed to the terms of a stipulation with major interested parties to resolve all outstanding issues in the PUCT review related to the Merger. As one of the provisions of this stipulation, Oncor committed to minimum capital spending of $3.6 billion over the five-year period ending December 31, 2012, subject to certain defined conditions.

Labor Contracts

Certain personnel engaged in TCEH and Oncor activities are represented by labor unions and covered by collective bargaining agreements with varying expiration dates. In January 2008, new one-year labor agreements were reached covering bargaining unit personnel engaged in the natural gas-fueled generation operations and were again renegotiated and completed in January 2009. Also in January 2008, a new two-year agreement was reached covering bargaining unit personnel engaged in lignite mining operations. In June 2008, a new labor agreement effective until October 2010 was reached covering bargaining unit personnel engaged in the Sandow lignite-fueled generation operations. In July 2008, a new labor agreement effective until September 2010 was reached covering bargaining unit personnel engaged in the Three Oaks lignite mining operations. In August 2008, a new labor agreement effective until August 2010 was reached covering bargaining unit personnel engaged in nuclear generation. Negotiations are currently underway with respect to the collective bargaining agreements covering bargaining unit personnel engaged in the Big Brown, Martin Lake and Oak Grove lignite-fueled generation operations and the natural gas-fueled generation operations. The current lignite-fueled generation operations contract, which expired November 2008, is in effect until either party gives notice to terminate, which is unlikely absent unforeseen developments. In February 2008, a new three-year contract was ratified covering bargaining unit personnel engaged in Oncor’s operations. In April 2008, a group of approximately 50 Oncor employees elected to be represented by a labor union. EFH Corp. expects that any changes in collective bargaining agreements will not have a material effect on EFH Corp.’s financial position, results of operations or cash flows; however, EFH Corp. is unable to predict the ultimate outcome of these labor negotiations.

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Environmental Contingencies

The federal Clean Air Act, as amended (Clean Air Act) includes provisions which, among other things, place limits on sulfur dioxide and nitrogen oxide emissions produced by electricity generation plants. The capital requirements of EFH Corp. and its subsidiaries have not been significantly affected by the requirements of the Clean Air Act. In addition, all air pollution control provisions of the 1999 Restructuring Legislation have been satisfied.

EFH Corp. and its subsidiaries must comply with environmental laws and regulations applicable to the handling and disposal of hazardous waste. EFH Corp. and its subsidiaries believe that they are in compliance with current environmental laws and regulations; however, the impact, if any, of changes to existing regulations or the implementation of new regulations is not determinable.

The costs to comply with environmental regulations can be significantly affected by the following external events or conditions:

• enactment of state or federal regulations regarding CO₂ emissions;

• other changes to existing state or federal regulation regarding air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters, and

• the identification of sites requiring clean-up or the filing of other complaints in which EFH Corp. or its subsidiaries may be asserted to be potential responsible parties.

Guarantees

As discussed below, EFH Corp. and its subsidiaries have entered into contracts that contain guarantees to outside parties that could require performance or payment under certain conditions.

Disposed TXU Gas operations—In connection with the TXU Gas transaction in October 2004, EFH Corp. agreed to indemnify Atmos Energy Corporation (Atmos), until October 1, 2014, for up to $500 million for any liability related to assets retained by TXU Gas, including certain inactive gas plant sites not acquired by Atmos, and up to $1.4 billion for contingent liabilities associated with preclosing tax and employee related matters. The maximum aggregate amount that EFH Corp. may be required to pay is $1.9 billion. To date, EFH Corp. has not been required to make any payments to Atmos under any of these indemnity obligations, and no such payments are currently anticipated.

Residual value guarantees in operating leases — EFH Corp. or a subsidiary is the lessee under various operating leases that guarantee the residual values of the leased assets. At December 31, 2008, the aggregate maximum amount of residual values guaranteed was approximately $63 million with an estimated residual recovery of approximately $69 million. These leased assets consist primarily of mining equipment, rail cars and vehicles. The average life of the residual value guarantees under the lease portfolio is approximately four years.

Indebtedness guarantee—In 1990, EFC Holdings repurchased an electric co-op’s minority ownership interest in the Comanche Peak nuclear generation plant and assumed the co-op’s indebtedness to the US government for the facilities. The indebtedness is included in long-term debt reported in the consolidated balance sheet. EFC Holdings is making principal and interest payments to the co-op in an amount sufficient for the co-op to make payments on its indebtedness. EFC Holdings guaranteed the co-op’s payments, and in the event that the co-op fails to make its payments on the indebtedness, the US government would assume the co-op’s rights under the agreement, and such payments would then be owed directly by EFC Holdings. At December 31, 2008, the balance of the indebtedness was $108 million with maturities of principal and interest extending to December 2021. The indebtedness is secured by a lien on the purchased facilities.

See Note 15 for discussion of guarantees and security for certain EFH Corp. indebtedness.

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Letters of Credit

At December 31, 2008, TCEH had outstanding letters of credit under its credit facilities totaling $767 million as follows:

• $342 million to support risk management and trading margin requirements in the normal course of business, including over-the-counter hedging transactions;

• $208 million to support floating rate pollution control revenue bond debt of $204 million principal amount. The letters of credit are available to fund the payment of such debt obligations and expire in 2014;

• $121 million to support obligations under the lease agreement for an EFH Corp. office building, and

• $96 million for miscellaneous credit support requirements.

Nuclear Insurance

Nuclear insurance includes liability coverage, property damage, decontamination and premature decommissioning coverage and accidental outage and/or extra expense coverage. The liability coverage is governed by the Price-Anderson Act (Act), while the property damage, decontamination and premature decommissioning coverage are promulgated by the rules and regulations of the NRC. EFH Corp. intends to maintain insurance against nuclear risks as long as such insurance is available. EFH Corp. is self-insured to the extent that losses (i) are within the policy deductibles, (ii) are not covered per policy exclusions, terms and limitations, (iii) exceed the amount of insurance maintained, or (iv) are not covered due to lack of insurance availability. Such losses could have a material adverse effect on EFH Corp.’s financial condition and its results of operations and cash flows.

With regard to liability coverage, the Act provides financial protection for the public in the event of a significant nuclear generation plant incident. The Act sets the statutory limit of public liability for a single nuclear incident at $12.5 billion and requires nuclear generation plant operators to provide financial protection for this amount. The US Congress could impose revenue-raising measures on the nuclear industry to pay claims exceeding the $12.5 billion limit for a single incident mandated by the Act. As required, EFH Corp. provides this financial protection for a nuclear incident at Comanche Peak resulting in public bodily injury and property damage through a combination of private insurance and industry-wide retrospective payment plans. As the first layer of financial protection, EFH Corp. has $300 million of liability insurance from American Nuclear Insurers (ANI), which provides such insurance on behalf of a major stock insurance company pool, Nuclear Energy Liability Insurance Association. The second layer of financial protection is provided under an industry-wide retrospective payment program called Secondary Financial Protection (SFP).

Under the SFP, in the event of an incident at any nuclear generation plant in the US, each operating licensed reactor in the US is subject to an assessment of up to $117.5 million plus a 3% insurance premium tax, subject to increases for inflation every five years. Assessments are limited to $17.5 million per operating licensed reactor per year per incident. EFH Corp.’s maximum potential assessment under the industry retrospective plan would be $235 million (excluding taxes) per incident but no more than $35 million in any one year for each incident. The potential assessment is triggered by a nuclear liability loss in excess of $300 million per accident at any nuclear facility. The SFP and liability coverage are not subject to any deductibles.

With respect to nuclear decontamination and property damage insurance, the NRC requires that nuclear generation plant license-holders maintain at least $1.1 billion of such insurance and require the proceeds thereof to be used to place a plant in a safe and stable condition, to decontaminate it pursuant to a plan submitted to and approved by the NRC before the proceeds can be used for plant repair or restoration or to provide for premature decommissioning. EFH Corp. maintains nuclear decontamination and property damage insurance for Comanche Peak in the amount of $2.25 billion (subject to $5 million deductible per accident), above which EFH Corp. is self-insured. This insurance coverage consists of a primary layer of coverage of $500 million provided by Nuclear Electric Insurance Limited (NEIL), a nuclear electric utility industry mutual insurance company and $1.75 billion of premature decommissioning coverage also provided by NEIL.

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EFH Corp. maintains Accidental Outage Insurance through NEIL to cover the additional costs of obtaining replacement electricity from another source if one or both of the units at Comanche Peak are out of service for more than twelve weeks as a result of covered direct physical damage. The coverage provides for weekly payments of $3.5 million for the first fifty-two weeks and $2.8 million for the next 110 weeks for each outage, respectively, after the initial twelve-week waiting period. The total maximum coverage is $490 million per unit. The coverage amounts applicable to each unit will be reduced to 80% if both units are out of service at the same time as a result of the same accident.

If NEIL’s losses exceeded its reserves for the applicable coverage, potential assessments in the form of a retrospective premium call could be made up to a total of $11.7 million for primary property, $14.1 million for excess property and $8.9 million for accidental outage.

Also, under the NEIL policies, if there were multiple terrorism losses occurring within a one-year time frame, NEIL would make available one industry aggregate limit of $3.2 billion plus any amounts it recovers from other sources up to the limits for each claimant. If terrorism losses occurred beyond the one-year period, a new set of limits and resources would apply.

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17. SHAREHOLDERS’ EQUITY

Successor

Equity Contributions and Repurchases— In connection with the Merger, Texas Holdings made an aggregate cash equity contribution of approximately $8.3 billion to EFH Corp. in exchange for EFH Corp. issuing approximately 1.658 billion shares of its common stock to Texas Holdings. In the year ended December 31, 2008 and the period from October 11, 2007 to December 31, 2007, EFH Corp. issued an aggregate of approximately 5.5 million and 2.0 million shares of its common stock, respectively, to, or for the benefit of, certain of its officers, directors and employees for an aggregate consideration of approximately $27.4 million and $9.8 million, respectively. The 2008 amounts include shares previously subscribed. In the year ended December 31, 2008, EFH Corp. repurchased 0.8 million shares of its common stock from employees primarily upon termination of employment or amendment of agreements, for an aggregate consideration of $3.9 million.

Effect of Sale of Noncontrolling Interests — Oncor’s sale of noncontrolling interests discussed in Note 18 resulted in a $265 million reduction of EFH Corp.’s shareholders’ equity. This amount represents the excess of the carrying value of the interests sold over the proceeds from the transactions, which reflects the fact that Oncor’s carrying value after purchase accounting is based on the Merger value, while the noncontrolling interests sale value does not include a control premium.

Dividend Restrictions— The indenture governing the EFH Corp. Senior Cash-Pay and Toggle Notes includes covenants that, among other things and subject to certain exceptions, restrict EFH Corp.’s ability to pay dividends or make other distributions in respect of its capital stock. Accordingly, essentially all of EFH Corp.’s net income is restricted from being used to make distributions on its common stock unless such distributions are expressly permitted under the indenture and/or after such distributions, on a pro forma basis, after giving effect to such payment, the consolidated leverage ratio of EFH Corp. is equal to or less than 7.0 to 1.0. Consolidated leverage ratio is generally defined as the ratio of consolidated total indebtedness (as defined in the indenture) of EFH Corp. to Adjusted EBITDA of EFH Corp., in each case, on a consolidated basis, excluding Oncor Holdings and its subsidiaries. In addition, the TCEH Senior Secured Facilities generally restrict TCEH from making any distribution to any of its parent companies for the ultimate purpose of making a distribution to Texas Holdings unless at the time, and after giving effect to such distribution, TCEH’s consolidated total debt (as defined in the TCEH Senior Secured Facilities) to TCEH’s Adjusted EBITDA would be equal to or less than 6.5 to 1.0.

Common Stock Registration Rights— The Sponsor Group and certain other investors entered into a registration rights agreement with EFH Corp. upon closing of the Merger. Pursuant to this agreement, in certain instances, the Sponsor Group can cause EFH Corp. to register shares of EFH Corp.’s common stock owned directly or indirectly by them under the Securities Act. In certain instances, the Sponsor Group and certain other investors are also entitled to participate on a pro rata basis in any registration of EFH Corp.’s common stock under the Securities Act that it may undertake.

See Note 23 for discussion of stock-based compensation plans.

Predecessor

Declaration of Dividend— At its August 2007 meeting, EFH Corp.’s board of directors declared a quarterly dividend of $0.4325 per share, which was paid October 1, 2007 to shareholders of record on September 7, 2007. At its May 2007 meeting, EFH Corp.’s board of directors declared a quarterly dividend of $0.4325 per share, which was paid on July 2, 2007 to shareholders of record on June 1, 2007. At its February 2007 meeting, EFH Corp.’s board of directors declared a quarterly dividend of $0.4325 a share, payable April 2, 2007 to shareholders of record on March 2, 2007.

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Common Stock Repurchase–Under authorization provided by EFH Corp.’s previous board of directors, 19 million shares and 0.2 million shares of common stock were repurchased during the twelve months ended December 31, 2006 and during the period from January 1, 2007 through October 10, 2007 at an average price of $51.77 and $64.80 per share, respectively (including related fees and expenses).

Common Stock Issuance –In May 2006, EFH Corp. settled the purchase contracts associated with its remaining equity-linked debt securities. In connection with the settlement, EFH Corp. issued 5.7 million shares of common stock, resulting in an increase in additional paid-in capital of $180 million.

Thrift Plan – The Thrift Plan is an employee savings plan under which EFH Corp. matched a portion of employees’ contributions of their earnings with a contribution in shares of common stock. Contributions to the Thrift Plan are held by an unconsolidated trust. At October 10, 2007, the Thrift Plan had an obligation of $201 million outstanding in the form of a note payable to EFH Corp. (LESOP note). Proceeds from the issuance of the note, which EFH Corp. purchased from a third-party lender in 1990, were used by the Thrift Plan trustee to purchase EFH Corp.’s common stock on the open market for the purpose of satisfying future matching requirements. These shares (LESOP shares) were held by the Thrift Plan trustee under the leveraged employee stock ownership provision of the Thrift Plan. The note receivable had been classified as a reduction of common stock equity, and the principal and related interest was being amortized as a component of LESOP-related expense.

The Thrift Plan used dividends received on the LESOP shares held and contributions from EFH Corp., if required, to repay interest and principal on the LESOP note; such contributions totaled $14 million for the period from January 1, 2007 through October 10, 2007 and $17 million in 2006.

On the date of the Merger, the Thrift Plan trustee held approximately 5.7 million shares of EFH Corp.’s common stock. These shares were converted to cash at $69.25 per share in connection with the closing of the Merger. The Thrift Plan trustee used the cash proceeds to repay the LESOP note, and then made an additional allocation of the remaining cash proceeds to eligible Thrift Plan participants.

EFC Holdings’ Preferred Stock –In October 2007 prior to the Merger, EFC Holdings issued 4,000 shares of its $4.56 Series preferred stock to EFH Corp. for its membership interests in certain subsidiaries established for the development and construction of new generation facilities.

The table below reflects the changes in the number of Predecessor common stock shares outstanding:

	Period from January 1, 2007 through October 10, 2007		Twelve months ended December 31, 2006
Balance at beginning of period	459,244,523		470,845,978
Issuances under equity-linked debt securities	—		5,683,791
Issuances under stock-based incentive compensation plans (Note 21)	2,771,257		2,200,766
Issued on conversion of convertible senior notes	36,372		—
Repurchases	—		(18,165,403	)
Forfeitures and cancellations under stock-based incentive compensation plans	(900,143	)	(1,320,609	)
Purchased in connection with Merger	(461,152,009	)	—
Balance at end of period	—		459,244,523

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18. NONCONTROLLING INTERESTS

On November 5, 2008, Oncor issued and sold additional equity interests to Texas Transmission. Texas Transmission is an entity indirectly owned by a private investment group led by OMERS Administration Corporation, acting through its infrastructure investment entity, Borealis Infrastructure Management Inc., and the Government of Singapore Investment Corporation, acting through its private equity and infrastructure arm, GIC Special Investments Pte Ltd.

Texas Transmission acquired the equity interests for $1.254 billion in cash. At the closing of the sale, Oncor also offered and indirectly sold additional equity interests to certain members of Oncor’s management team. Accordingly, after giving effect to all equity issuances, as of December 31, 2008, EFH Corp. indirectly owns 80.04% of Oncor, Oncor management indirectly owns 0.21% of Oncor and Texas Transmission owns 19.75% of Oncor.

The proceeds (net of closing costs) of $1.253 billion received by Oncor from Texas Transmission and the members of Oncor management upon completion of these transactions were distributed ultimately to EFH Corp. Under the terms of certain financing arrangements of EFH Corp. and TCEH, upon such distribution, under certain circumstances, EFH Corp. (parent entity) is required to repay certain outstanding intercompany loans from TCEH. In November 2008, EFH Corp. repaid the $253 million balance of notes payable to TCEH that related to payments of principal and interest on EFH Corp. (parent entity) debt.

EFH Corp. recorded the $265 million excess of EFH Corp.’s carrying amount of the noncontrolling interests sold by Oncor over the net proceeds from the transactions as a reduction to additional paid in capital, consistent with the provisions of SAB Topic 5-H, “Accounting for Sales of Stock by a Subsidiary.”

The noncontrolling interests balance of $1.355 billion reported in the equity section of the December 31, 2008 consolidated balance sheet represented the proportional share of Oncor’s net assets at the date of the transaction less $160 million representing the noncontrolling interests’ share of Oncor’s net losses for the period subsequent to the transaction (including the goodwill impairment charge), net of $2 million in cash distributions. See Note 17.

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19. COMMODITY AND OTHER DERIVATIVE CONTRACTUAL ASSETS AND LIABILITIES

The following table provides detail of commodity and other derivative contractual assets and liabilities as presented in the balance sheet:

	Successor
	December 31, 2008
	Commodity contracts		Cash flow hedges and other derivatives			Reclassification (a)			Total
Assets:
Current assets	$	2,385	$	157		$	(8	)	$	2,534
Noncurrent assets		962		—			—			962
Total	$	3,347	$	157		$	(8	)	$	3,496
Liabilities:
Current liabilities	$	2,235	$	681		$	(8	)	$	2,908
Noncurrent liabilities		682		1,413			—			2,095
Total	$	2,917	$	2,094		$	(8	)	$	5,003
Net assets (liabilities)	$	430	$	(1,937	)	$	—		$	(1,507	)

	Successor
	December 31, 2007
	Commodity contracts			Cash flow hedges and other derivatives			Total
Assets:
Current assets	$	1,118		$	11		$	1,129
Noncurrent assets		239			5			244
Total	$	1,357		$	16		$	1,373
Liabilities:
Current liabilities	$	1,042		$	104		$	1,146
Noncurrent liabilities		2,232			221			2,453
Total	$	3,274		$	325		$	3,599
Net assets (liabilities)	$	(1,917	)	$	(309	)	$	(2,226	)

(a) Represents the effects of reclassification of the assets and liabilities to conform to the balance sheet presentation of current assets and liabilities.

Margin deposit net liabilities of $190 million and net assets of $445 million under master netting arrangements at December 31, 2008 and December 31, 2007, respectively, were not netted with derivative assets and liabilities since EFH Corp. has elected to present the amounts of derivative assets and liabilities on a gross basis in the balance sheet as provided in FSP FIN 39-1. See discussion in Note 1 under “Changes in Accounting Standards.”

This presentation can result in significant volatility in commodity contract assets and liabilities because EFH Corp. enters into positions with the same counterparties that result in both assets and liabilities, and the underlying commodity prices can change significantly from period to period.

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Commodity Contract Assets and Liabilities

Commodity contract assets and liabilities primarily represent fair values of natural gas and electricity derivative instruments that have not been designated as cash flow hedges or “normal” purchases or sales under SFAS 133. These instruments are marked-to-market, and the associated unrealized gains and losses are reported in the income statement in net gain (loss) from commodity hedging and trading activities.

A multi-year power sales agreement was entered into with Alcoa Inc. in the 2007 Predecessor period. The agreement was determined to have a “day one” out-of-the-money value of $235 million. The agreement was entered into concurrently with the transfer of an air permit from Alcoa Inc. to an EFH Corp. subsidiary as well as other agreements with Alcoa Inc. that provide, among other things, access to real property and a supply of lignite fuel, all of which provides value to EFH Corp. by providing the right and ability to develop, construct and operate a new lignite coal-fueled generation unit at Sandow. In consideration of this right and ability, the initial out-of-the-money value of the sales agreement, as well as a $29 million out-of-the-money value of a related interim power sales agreement entered into in late 2006, were recorded as part of the construction work-in-process asset balance for the Sandow unit. The out-of-the-money values were recorded as commodity contract liabilities. The contracts were revalued applying the principles of SFAS 157 as part of purchase accounting, and subsequent changes in the value of the contracts continue to be marked-to-market in net income.

Successor results include net “day one” losses of $68 million in 2008 and $8 million in the 2007 period, and predecessor results include net “day one” losses of $201 million in the 2007 period, primarily associated with contracts entered into at below market prices. Substantially all of these amounts represent losses associated with related series of transactions involving natural gas financial instruments intended to hedge exposure to future changes in electricity prices. The 2007 predecessor period amount is net of a $30 million “day one” gain associated with a long-term power purchase agreement. The net losses are reported in net gain (loss) from commodity hedging and trading activities, and are included in the results of the Competitive Electric segment.

Other Derivative Assets and Liabilities

Other derivative assets and liabilities primarily represent fair values of interest rate swaps and also include fair values of commodity contracts that have been designated as cash flow hedges.

A significant portion of natural gas derivatives entered into to hedge future changes in electricity prices had previously been designated and accounted for as cash flow hedges. In March 2007, these instruments were dedesignated as cash flow hedges as allowed under SFAS 133, thus becoming subject to mark-to-market accounting in net income as the fair values change. See Note 15 for details of interest rate swaps previously designated as cash flow hedges.

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A summary of transactions comprising other derivative assets and liabilities follows:

	Successor
	December 31, 2008		December 31, 2007
Current and noncurrent assets:
Interest rate swaps (a)	$	142	$	8
Commodity-related cash flow hedges		15		8
Total	$	157	$	16
Current and noncurrent liabilities:
Interest rate swaps (a)	$	2,086	$	324
Commodity-related cash flow hedges		8		1
Total	$	2,094	$	325

(a) The 2008 amount includes $1.868 billion in net liabilities related to interest rate hedges on $17.55 billion principal amount of debt and $41 million in net liabilities related to interest rate basis swaps on $13.045 billion principal amount of debt, both entered into after the Merger, and $35 million in net liabilities related to swaps existing at the time of the Merger. As of August 29, 2008, changes in fair value of these swaps are marked-to-market in net income.

Other Cash Flow Hedge Information– EFH Corp. experienced cash flow hedge ineffectiveness of $4 million in net losses in 2008, $111 million in net gains in 2007 (essentially all of which was in the Predecessor period) and $231 million in net gains in 2006. These amounts are pretax and are reported in the income statement in net gain (loss) from commodity hedging and trading activities.

The net effect of recording unrealized mark-to-market gains and losses arising from hedge ineffectiveness (versus recording gains and losses upon settlement) includes the above amounts as well as the effect of reversing unrealized ineffectiveness gains and losses recorded in previous periods to offset realized gains and losses in the current period. Such net unrealized effect totaled $4 million in net losses in the 2008 Successor period, $90 million in net gains in 2007 (essentially all of which was in the Predecessor period) and $239 million in net gains in 2006.

Accumulated other comprehensive income related to cash flow hedges at December 31, 2008 totaled $238 million in net losses (after-tax), substantially all of which relates to interest rate swaps. EFH Corp. expects that $112 million of net losses related to cash flow hedges included in accumulated other comprehensive income as of December 31, 2008 will be reclassified into net income during the next twelve months as the related hedged transactions affect net income.

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20. INVESTMENTS

The balance of investments consists of the following:

	Successor
	December 31, 2008		December 31, 2007
Nuclear decommissioning trust	$	385	$	484
Assets related to employee benefit plans, including employee savings programs, net of distributions		210		306
Land		44		44
Note receivable from Capgemini		—		25
Miscellaneous other		6		9
Total investments	$	645	$	868

Nuclear Decommissioning Trust

Investments in a trust that will be used to fund the costs to decommission the Comanche Peak nuclear generation plant are carried at fair value. Decommissioning costs are being recovered from Oncor’s customers as a delivery fee surcharge over the life of the plant and deposited in the trust fund. Net gains and losses on investments in the trust fund are offset by a corresponding adjustment to a regulatory asset/liability. A summary of investments in the fund follows:

	Successor
	December 31, 2008
	Cost (a)		Unrealized gain		Unrealized loss			Fair market value
Debt securities	$	203	$	4	$	(14	)	$	193
Equity securities		181		46		(35	)		192
Total	$	384	$	50	$	(49	)	$	385
	Successor
	December 31, 2007
	Cost (a)		Unrealized gain		Unrealized loss			Fair market value
Debt securities	$	193	$	3	$	(1	)	$	195
Equity securities		168		129		(8	)		289
Total	$	361	$	132	$	(9	)	$	484

(a) Includes realized gains and losses of securities sold.

Debt securities held at December 31, 2008 mature as follows: $73 million in one to five years, $33 million in five to ten years and $87 million after ten years.

Assets Related to Employee Benefit Plans

The majority of these assets represent cash surrender values of life insurance policies that are purchased to fund liabilities under deferred compensation plans. EFH Corp. pays the premiums and is the beneficiary of these life insurance policies. As of December 31, 2008 and 2007, the face amount of these policies totaled $481 million and $540 million, and the net cash surrender values totaled $155 million and $189 million, respectively. Changes in cash surrender value are netted against premiums paid. Other investment assets held to satisfy deferred compensation liabilities are recorded at fair value.

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21. NOTICE OF TERMINATION OF OUTSOURCING ARRANGEMENTS

In connection with the closing of the Merger, EFH Corp., TCEH and Oncor commenced a review, under the change of control provision, of certain outsourcing arrangements with Capgemini Energy LP (Capgemini), Capgemini America, Inc. and Capgemini North America, Inc. (collectively, CgE). During the fourth quarter of 2008, EFH Corp. and TCEH executed a Separation Agreement with CgE. Simultaneous with the execution of that Separation Agreement, Oncor entered into a substantially similar Separation Agreement with CgE. The Separation Agreements principally provide for (i) notice of termination of each of the Master Framework Agreements, dated as of May 17, 2004, as each has been amended, between Capgemini and each of TCEH and Oncor and the related service agreements under each of the Master Framework Agreements and (ii) termination of the joint venture arrangements between EFH Corp. (and its applicable subsidiaries) and CgE. Under the Master Framework Agreements and related services agreements, Capgemini provides to EFH Corp. and its subsidiaries outsourced support services, including information technology, customer care and billing, human resources, procurement and certain finance and accounting activities.

Each Separation Agreement acts as a notice of termination under the applicable Master Framework Agreement and the related services agreements. As a result of the “change of control” of EFH Corp. that occurred as a result of the Merger, each of TCEH and Oncor had the contractual right to terminate, without penalty, its Master Framework Agreement. Each of TCEH and Oncor has elected to exercise such right. Consistent with the Master Framework Agreements, to provide for an orderly transition of the services, the Separation Agreements require that Capgemini provide termination assistance services until the services are transitioned back to EFH Corp. and/or to another service provider. The Separation Agreements provide that the services be transitioned by December 31, 2010 (June 30, 2011, in the case of the information technology services). Each Master Framework Agreement will actually terminate when these termination assistance services are completed. EFH Corp. (or its applicable subsidiary) previously provided a termination notice to Capgemini in respect of human resources services and customer care and revenue management services for TXU Energy.

The Separation Agreements provide for the termination of the joint venture arrangement between EFH Corp. (and its applicable subsidiaries) and CgE. As a result, during the fourth quarter of 2008:

• the 2.9% limited partnership interest in Capgemini owned by a subsidiary of EFH Corp. was redeemed in exchange for the termination of the license that was granted by a subsidiary of EFH Corp. to Capgemini at the time the Master Framework Agreements were executed in order for Capgemini to use certain information technology assets primarily consisting of capitalized software to provide services to EFH Corp. and third parties;

• EFH Corp. received approximately $70 million in exchange for the termination of a purchase option agreement pursuant to which subsidiaries of EFH Corp. had the right to “put” to Capgemini (and Capgemini had the right to “call” from a subsidiary of EFH Corp.) EFH Corp.’s 2.9% limited partnership interest in Capgemini and the licensed assets upon the expiration of the Master Framework Agreements in 2014 or, in some circumstances, earlier, and

• Capgemini repaid $25 million (plus accrued interest) representing all amounts owed by Capgemini under the working capital loan provided by EFH Corp. in July 2004.

Under the Separation Agreements, the parties also entered into a mutual release of all claims under the Master Framework Agreements and related services agreements and the joint venture agreements, subject to certain defined exceptions, resulting in EFH Corp. receiving $10 million in cash settlement.

The carrying value of the partnership interest was $2.9 million, and the carrying value of the purchase option was $177 million prior to the application of purchase accounting (recorded as a noncurrent asset). The effects of the termination of the outsourcing arrangements, including an accrual of $66 million for incremental costs to exit and transition the services, were included in the final purchase price allocation (see Note 2).

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22. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFIT (OPEB) PLANS

EFH Corp. is the plan sponsor of the EFH Retirement Plan (Retirement Plan), which provides benefits to eligible employees of consolidated subsidiaries (participating employers). The Retirement Plan is a qualified defined benefit pension plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (Code) and is subject to the provisions of ERISA. Employees are eligible to participate in the Retirement Plan upon their completion of one year of service and the attainment of age 21. The Retirement Plan provides benefits to participants under one of two formulas: (i) a Cash Balance Formula under which participants earn monthly contribution credits based on their compensation and a combination of their age and years of service, plus monthly interest credits or (ii) a Traditional Retirement Plan Formula based on years of service and the average earnings of the three years of highest earnings. The interest component of the Cash Balance Formula is variable and is determined using the yield on 30-year Treasury bonds.

All eligible employees hired after January 1, 2001 participate under the Cash Balance Formula. Certain employees who, prior to January 1, 2002, participated under the Traditional Retirement Plan Formula, continue their participation under that formula. Under the Cash Balance Formula, future increases in earnings will not apply to prior service costs. Effective October 1, 2007, all new employees, with the exception of employees hired by Oncor, are not eligible to participate in the Retirement Plan. New hires at Oncor are eligible to participate in the Cash Balance Formula of the Retirement Plan. It is EFH Corp.’s policy to fund the plans on a current basis to the extent deductible under existing federal tax regulations.

EFH Corp. also has supplemental unfunded retirement plans for certain employees whose retirement benefits cannot fully be earned under the qualified Retirement Plan, the information for which is included below.

EFH Corp. offers health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. For employees retiring on or after January 1, 2002, the retiree contributions required for such coverage vary based on a formula depending on the retiree’s age and years of service.

Regulatory Recovery of Pension and OPEB Costs

In June 2005, an amendment to PURA relating to pension and OPEB costs was enacted by the Legislature of the State of Texas. This amendment provides for the recovery by Oncor of pension and OPEB costs for all applicable former employees of the regulated predecessor integrated electric utility, which in addition to Oncor’s own employees consists largely of active and retired personnel engaged in TCEH’s activities, related to service of those additional personnel prior to the deregulation and disaggregation of EFH Corp.’s businesses effective January 1, 2002. The amendment additionally authorizes Oncor to establish a regulatory asset or liability for the difference between the amounts of pension and OPEB costs approved in current billing rates and the actual amounts that would otherwise have been recorded as charges or credits to earnings. Amounts deferred are ultimately subject to regulatory approval. Amounts recorded as a regulatory asset totaled $15 million and $20 million in 2008 and 2007, respectively.

Pension and OPEB Costs Recognized as Expense

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Pension costs under SFAS 87	$	21		$	(1	)	$	34		$	66
OPEB costs under SFAS 106		58			11			49			81
Total benefit costs		79			10			83			147
Less amounts deferred principally as a regulatory asset or property		(42	)		(8	)		(43	)		(84	)
Net amounts recognized as expense	$	37		$	2		$	40		$	63

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Consistent with SFAS 87, EFH Corp. uses the calculated value method to determine the market-related value of the assets held in its trust. EFH Corp. includes the realized and unrealized gains or losses in the market-related value of assets over a rolling four-year period. Each year, 25% of such gains and losses for the current year and for each of the preceding three years is included in the market-related value. Each year, the market-related value of assets is increased for contributions to the plan, and investment income and is decreased for benefit payments and expenses for that year.

Detailed Information Regarding Pension Benefits

The following information is based on December 31, 2008 and 2007, October 10, 2007 and December 31, 2006 measurement dates:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate		6.55	%		6.45	%		5.90	%		5.75	%
Expected return on plan assets		8.25	%		8.75	%		8.75	%		8.75	%
Rate of compensation increase		3.70	%		3.44	%		3.44	%		3.32	%
Components of Net Pension Cost:
Service cost	$	36		$	10		$	30		$	42
Interest cost		148			36			107			136
Expected return on assets		(165	)		(47	)		(119	)		(147	)
Amortization of prior service cost		1			—			1			3
Amortization of net loss		1			—			15			32
Recognized curtailment loss		—			—			—			—
Net periodic pension cost	$	21		$	(1	)	$	34		$	66
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net loss (gain)	$	204		$	20		$	(52	)
Transition obligation (asset)		—			—			—
Prior service cost (credit)		—			—			—
Amortization of net loss (gain)		—			—			(3	)
Amortization of transition obligation (asset)		—			—			—
Amortization of prior service cost		—			—			(1	)
Reclassification to regulatory asset		(6	)
Purchase accounting adjustment		(10	)		—			49
Total recognized in other comprehensive income	$	188		$	20		$	(7	)
Total recognized in net periodic benefit cost and other comprehensive income	$	209		$	19		$	27

	Successor				Predecessor
	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007		Period from January 1, 2007 through October 10, 2007		Year Ended December 31, 2006
Assumptions Used to Determine Benefit Obligations:
Discount rate	6.90	%	6.55	%	6.45	%	5.90	%
Rate of compensation increase	3.75	%	3.70	%	3.44	%	3.44	%

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	Successor
	Year Ended December 31, 2008			Year Ended December 31, 2007
Change in Pension Obligation:
Projected benefit obligation at beginning of year	$	2,335		$	2,457
Service cost		36			40
Interest cost		148			143
Plan amendments		—			—
Actuarial (gain) loss		(58	)		(184	)
Benefits paid		(124	)		(121	)
Settlements		—			—
Projected benefit obligation at end of year	$	2,337		$	2,335
Accumulated benefit obligation at end of year	$	2,203		$	2,219
Change in Plan Assets:
Fair value of assets at beginning of year	$	2,108		$	2,090
Actual return (loss) on assets		(412	)		136
Employer contributions		164			4
Benefits paid		(124	)		(122	)
Settlements		—			—
Fair value of assets at end of year	$	1,736		$	2,108
Funded Status:
Projected pension benefit obligation	$	(2,337	)	$	(2,335	)
Fair value of assets		1,736			2,108
Funded status at end of year	$	(601	)	$	(227	)

	Successor
	Year Ended December 31, 2008			Year Ended December 31, 2007
Amounts Recognized in the Balance Sheet Consist of:
Other noncurrent assets (a)	$	10		$	9
Other current liabilities		(4	)		(4	)
Other noncurrent liabilities		(607	)		(232	)
Net liability recognized	$	(601	)	$	(227	)
Amounts Recognized in Accumulated Other Comprehensive Income under SFAS 158 Consist of:
Net loss	$	208		$	20
Prior service cost		—			—
Net amount recognized	$	208		$	20
Amounts Recognized as Regulatory Assets under SFAS 158 Consist of:
Net loss	$	387		$	65
Prior service cost		1			2
Net amount recognized	$	388		$	67

(a) Amounts represent overfunded plans.

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The following table provides information regarding pension plans with projected benefit obligation (PBO) and accumulated benefit obligation (ABO) in excess of the fair value of plan assets.

	Successor
	December 31, 2008		December 31, 2007
Pension Plans with PBO and ABO in Excess Of Plan Assets:
Projected benefit obligations	$	2,332	$	2,330
Accumulated benefit obligation		2,199		2,214
Plan assets		1,721		2,094

Asset Allocations

The weighted-average asset allocations of pension plans by asset category are as follows:

	Successor
Asset Type	Allocation of Plan Assets 2008		Allocation of Plan Assets 2007		Target Allocation Ranges		Expected Long-Term Returns
US equities	31.7	%	42.1	%	30%-65	%	9.7	%
International equities	12.7	%	20.0	%	5%-20	%	10.5	%
Fixed income	54.0	%	36.1	%	15%-70	%	6.8	%
Real estate	1.6	%	1.8	%	0%-10	%	8.0	%
	100.0	%	100.0	%			8.25	%

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Detailed Information Regarding Postretirement Benefits Other Than Pensions

The following OPEB information is based on December 31, 2008 and 2007, October 10, 2007 and December 31, 2006 measurement dates:

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Assumptions Used to Determine Net Periodic Benefit Cost:
Discount rate		6.55	%		6.45	%		5.90	%		5.75	%
Expected return on plan assets		7.90	%		8.67	%		8.67	%		8.67	%
Components of Net Postretirement Benefit Cost:
Service cost	$	10		$	3		$	9		$	13
Interest cost		59			14			41			60
Expected return on assets		(20	)		(6	)		(15	)		(21	)
Amortization of net transition obligation		1			—			1			1
Amortization of prior service cost/(credit)		(1	)		—			(2	)		(3	)
Amortization of net loss		9			—			15			31
Net periodic OPEB cost	$	58		$	11		$	49		$	81
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Net loss (gain)	$	1		$	36		$	(16	)
Transition obligation (asset)		—			—			—
Prior service cost (credit)		—			—			—
Amortization of net loss (gain)		—			—			—
Amortization of transition obligation (asset)		—			—			—
Amortization of prior service cost		—			—			1
Reclassification to regulatory asset		(28	)
Purchase accounting adjustment		(1	)		—			13
Total recognized in other comprehensive income	$	(28	)	$	36		$	(2	)
Total recognized in net periodic benefit cost and other comprehensive income	$	30		$	47		$	47

	Successor				Predecessor
	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007		Period from January 1, 2007 through October 10, 2007		Year Ended December 31, 2006
Assumptions Used to Determine Benefit Obligations at Period End:
Discount rate	6.85	%	6.55	%	6.45	%	5.90	%

138

	Successor
	Year Ended December 31, 2008			Year Ended December 31, 2007
Change in Postretirement Benefit Obligation:
Benefit obligation at beginning of year	$	928		$	948
Service cost		10			12
Interest cost		59			55
Participant contributions		16			17
Medicare Part D reimbursement		4			4
Actuarial (gain)/loss		(35	)		(46	)
Benefits paid		(63	)		(62	)
Benefit obligation at end of year	$	919		$	928
Change in Plan Assets:
Fair value of assets at beginning of year	$	260		$	251
Actual return (loss) on assets		(54	)		10
Employer contributions		35			40
Participant contributions		16			17
Medicare Part D reimbursement		4			4
Benefits paid		(63	)		(62	)
Fair value of assets at end of year	$	198		$	260
Funded Status:
Benefit obligation	$	(919	)	$	(928	)
Fair value of assets		198			260
Funded status at end of year	$	(721	)	$	(668	)

	Successor
	Year Ended December 31, 2008			Year Ended December 31, 2007
Amounts Recognized on the Balance Sheet Consist of:
Other noncurrent liabilities	$	(721	)	$	(668	)
Amounts Recognized in Accumulated Other Comprehensive Income under SFAS 158 Consist of:
Net loss	$	7		$	36
Prior service cost credit		—			—
Net transition obligation		—			—
Net amount recognized	$	7		$	36
Amounts Recognized as Regulatory Assets under SFAS 158 Consist of:
Net loss	$	174		$	115
Prior service cost credit		(8	)		(10	)
Net transition obligation		5			6
Net amount recognized	$	171		$	111

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The following tables provide information regarding the assumed health care cost trend rates.

	Successor
	December 31, 2008		December 31, 2007
Assumed Health Care Cost Trend Rates — Not Medicare Eligible:
Health care cost trend rate assumed for next year	8.64	%	7.95	%
Rate to which the cost trend is expected to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2017		2013
Assumed Health Care Cost Trend Rates — Medicare Eligible:
Health care cost trend rate assumed for next year	8.32	%	8.55	%
Rate to which the cost trend is expected to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2017		2013

	1-Percentage Point Increase		1-Percentage Point Decrease
Sensitivity Analysis of Assumed Health Care Cost Trend Rates:
Effect on accumulated postretirement obligation Obligation	$	104	$	(87	)
Effect on postretirement benefits cost		9		(8	)

Asset Allocations –

The weighted average asset allocations of the OPEB plan by asset category are as follows:

	Allocation of Plan Assets
Asset Type	December 31, 2008		December 31, 2007
US equities	43.4	%	52.6	%
International equities	6.7	%	10.3	%
Fixed income	49.0	%	36.2	%
Real estate	0.9	%	0.9	%
	100.0	%	100.0	%

Plan Type	Expected Long-Term Returns
401(h) accounts	8.28	%
Life Insurance VEBA	7.32	%
Union VEBA	7.32	%
Non-Union VEBA	4.00	%
Insurance Continuation Reserve	4.00	%
	7.64	%

Investment Strategy

The investment objective of the Retirement Plan is to provide an adequate long-term return on existing assets and future contributions in order to meet the future benefit obligations of EFH Corp. The EFH Retirement Committee sets asset allocation targets incorporate the timing of future benefits payments and changes in pension legislation, along with asset class risk and return characteristics. The strategy of the OPEB plan is to follow the Retirement Plan strategy, while maintaining sufficient cash and short-term investments to pay near-term benefits and expenses.

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The fixed income assets are diversified by sector and security and maintain an average quality rating of at least “A” (as determined by a major ratings agency such as Moody’s). The duration of the fixed income assets was lengthened in the fourth quarter of 2008 to match the duration of the liabilities. The equity assets are diversified by size, style and country with a conservative bias toward value securities.

Expected Long-Term Rate of Return on Assets Assumption

EFH Corp. determined the long-term rate of return for each asset class based on historical asset class returns, current market conditions, rate of inflation, current prospects for economic growth, and taking into account the diversification benefits of investing in multiple asset classes. The expected return for each asset class was then weighted, based on the target asset allocation, to develop the 8.25% expected long-term rate of return on assets assumption for the portfolio.

Assumed Discount Rate

EFH Corp. selected the assumed discount rate using the Hewitt Top Quartile yield curve based on actual corporate bond yields for AA or better rated bonds at the measurement date as reported by either Moody’s or S&P.

Amortization in 2009

In 2009, EFH Corp. estimates amortization of the net actuarial loss, prior service cost, and transition obligation (asset) for the defined benefit pension plan from accumulated other comprehensive income into net periodic benefit cost will be $7 million, $0.8 million and zero, respectively. EFH Corp. estimates amortization of the net actuarial loss, prior service credit, and transition obligation for the OPEB plan from accumulated other comprehensive income into net periodic benefit cost will be $12 million, $2 million and $1 million, respectively.

Contributions in 2009

Estimated funding for calendar year 2009 totals $81 million for the Retirement Plan and $22 million for the OPEB plan.

Future Benefit Payments

Estimated future benefit payments to beneficiaries are as follows:

	Successor
	2009			2010			2011			2012			2013			2014-18
Pension benefits	$	129		$	135		$	143		$	153		$	161		$	934
OPEB	$	50		$	55		$	58		$	61		$	64		$	365
Medicare Part D subsidies received	$	(6	)	$	(8	)	$	(9	)	$	(9	)	$	(10	)	$	(61	)

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Thrift Plan

Employees of EFH Corp. and its consolidated subsidiaries may participate in a qualified savings plan, the Thrift Plan. This plan is a participant-directed defined contribution plan intended to qualify under Section 401(a) of the Code, and is subject to the provisions of ERISA. The Thrift Plan included an employee stock ownership component until October 10, 2007. Under the terms of the Thrift Plan, employees who do not earn more than the IRS threshold compensation limit used to determine highly compensated employees may contribute, through pre-tax salary deferrals and/or after-tax payroll deductions, the lesser of 75% of their regular salary or wages or the maximum amount permitted under applicable law. Employees who earn more than such threshold may contribute from 1% to 16% of their regular salary or wages. Employer matching contributions are also made in an amount equal to 100% of the first 6% of employee contributions for employees who are covered under the Cash Balance Formula of the Retirement Plan, and 75% of the first 6% of employee contributions for employees who are covered under the Traditional Retirement Plan Formula of the Retirement Plan. Prior to January 1, 2006, employer matching contributions were invested in EFH Corp. common stock. Effective January 1, 2006 through October 10, 2007, employees could reallocate or transfer all or part of their accumulated or future employer matching contributions to any of the plan’s other investment options. As of October 10, 2007, employer matching contributions are made in cash and may be allocated by participants to any of the plan’s investment options. See Note 17 for additional information related to the Thrift Plan.

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23. STOCK-BASED COMPENSATION PLANS AND PAYMENTS

Successor – EFH Corp. 2007 Stock Incentive Plan

In December 2007, EFH Corp. established the 2007 Stock Incentive Plan for Key Employees of EFH Corp. and its Affiliates (2007 SIP). Incentive awards under the 2007 SIP may be granted to directors and officers and qualified managerial employees of EFH Corp. or its subsidiaries or affiliates in the form of non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, shares of common stock, the opportunity to purchase shares of common stock and other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of EFH Corp.’s shares of common stock. The 2007 SIP permits the grant of awards for 72 million shares of common stock, subject to adjustments under applicable laws for certain events, such as a change in control, and no such grants may be issued after December 26, 2017. Shares related to grants that are forfeited, terminated, cancelled, expire unexercised, withheld to satisfy tax withholding obligations, or are repurchased by the Company are available for new grants under the 2007 SIP.

Under the terms of the 2007 SIP, options to purchase 33.1 million and 19.5 million shares of EFH Corp. common stock were issued to certain management employees in 2008 and December 2007, respectively. The options provide the holder the right to purchase EFH Corp. common stock for $5.00 per share. Vested awards must be exercised within 10 years of the grant date. The terms of the options were fixed at grant date.

Stock Options– The stock option awards under the 2007 SIP consist of two types of stock options. One-half of the options awarded vest solely based upon continued employment over a specific period of time, generally five years, with the options vesting ratably on an annual basis over the period (“Time-Based Options”). One-half of the options awarded vest based upon both continued employment and the achievement of a predetermined level of EFH Corp. EBITDA over time, generally ratably over five years based upon annual EBITDA levels, with provisions for vesting if the annual levels are not achieved but cumulative two- or three-year total EBITDA levels are achieved (“Performance-Based Options”). The Performance-Based Options may also vest in part or in full upon the occurrence of certain specified liquidity events. All options remain exercisable for ten years from the date of grant. Prior to vesting, expenses are recorded if the achievement of the EBITDA levels is probable, and amounts recorded are adjusted or reversed if the probability of achievement of such levels changes. Probability of vesting is evaluated at least each quarter.

The fair value of the Time-Based and Performance-Based Options granted was estimated using the Black-Scholes option pricing model and the assumptions noted in the table below. Since EFH Corp. is a private company, expected volatility is based on actual historical experience of comparable publicly-traded companies for a term corresponding to the expected life of the options. The expected life represents the period of time that options granted are expected to be outstanding and is calculated using the simplified method prescribed by the SEC Staff Accounting Bulletin No. 107. The simplified method was used since EFH Corp. does not have stock option history upon which to base the estimate of the expected life and data for similar companies was not reasonably available. The risk-free rate is based on the US Treasury security with terms equal to the expected life of the option as of the grant date.

	Successor
	Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007		Year Ended December 31, 2008		Period from October 11, 2007 through December 31, 2007
Assumptions	Time-Based Options				Performance-Based Options
Expected volatility	30% - 33	%	30	%	30% - 33	%	30	%
Expected annual dividend	—		—		—		—
Expected life (in years)	6.0 - 6.5		6.4		5.0 - 7.3		5.4 - 7.4
Risk-free rate	1.51% - 3.50	%	3.81	%	1.35% - 3.64	%	3.92	%

The weighted average grant-date fair value of the Time-Based Options granted in 2008 and December 2007 was $1.89 and $1.92 per option, respectively. The weighted-average grant-date fair value of the Performance-Based Options granted in 2008 and December 2007 ranged from $1.73 to $2.25 and $1.74 to $2.09, respectively, depending upon the performance period.

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Compensation expense for Time-Based Options is based on the grant-date fair value and recognized over the vesting period as employees perform services. During 2008 and the 2007 Successor period, approximately $11.9 million and less than $100,000, respectively, was recognized as expense for Time-Based Options.

As of December 31, 2008, there was approximately $36.8 million of unrecognized compensation expense related to nonvested Time-Based Options, which is expected to be recognized ratably over a remaining weighted-average period of approximately four years.

A summary of Time-Based Options activity is presented below:

	Year Ended December 31, 2008						Period from October 11, 2007 through December 31, 2007
Options	Options (millions)		Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)		Options (millions)		Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)
Total outstanding at beginning of period	9.8		$	5.00	$	—	—		$	—	$	—
Granted	16.8			5.00		—	9.8			5.00		—
Exercised	—			—		—	—			—		—
Forfeited	(2.0	)		5.00		—	—			—		—
Total outstanding at end of period (weighted average remaining term of 9 and 10 years)	24.6			5.00		—	9.8			5.00		—
Exercisable at end of period (weighted average remaining term of 9 and 10 years)	(4.7	)		5.00		—	—			—		—
Expected forfeitures	(0.4	)		5.00		—	(0.5	)		5.00		—
Expected to vest at end of period (weighted average remaining term of 9 and 10 years)	19.5			5.00		—	9.3			5.00		—

	Year Ended December 31, 2008				Period from October 11, 2007 through December 31, 2007
Nonvested Options	Options (millions)		Grant-Date Fair Value		Options (millions)	Grant-Date Fair Value
Total nonvested at beginning of period	9.8		$	1.92	—	$	—
Granted	16.8			1.89	9.8		1.92
Vested	(4.7	)		1.80	—		—
Forfeited	(2.0	)		1.92	—		—
Total nonvested at end of period	19.9			2.05	9.8		1.92

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Compensation expense for Performance-Based Options is based on the grant-date fair value and recognized over the requisite performance and service periods for each tranche of options depending upon the achievement of financial performance, or if certain liquidity events occur, as discussed above. Expense recognized in 2008 for Performance-Based Options totaled $8.1 million. No amounts were expensed in the 2007 Successor period for Performance-Based Options because the performance period for the first tranche of the options did not begin until January 1, 2008.

As of December 31, 2008, there was approximately $39.4 million of unrecognized compensation expense related to nonvested Performance-Based Options, which EFH Corp. could record as an expense over a remaining weighted-average period of approximately four years, subject to the achievement of financial performance being probable. Pursuant to an amendment to the 2007 SIP Plan terms in February 2009, a total of 4.8 million Performance-Based Options related to the period ended December 31, 2008 were declared vested in recognition that the established 2008 EBITDA target was substantially achieved.

A summary of Performance-Based Options activity is presented below:

	Year Ended December 31, 2008						Period from October 11, 2007 through December 31, 2007
Options	Options (millions)		Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)		Options (millions)		Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)
Outstanding at beginning of period	9.8		$	5.00	$	—	—		$	—	$	—
Granted	16.2			5.00		—	9.8			5.00		—
Exercised	—			—		—	—			—		—
Forfeited	(2.1	)		5.00		—	—			—		—
Total outstanding at end of period (weighted average remaining term of 9 and 10 years)	23.9			5.00		—	9.8			5.00		—
Exercisable at end of period (weighted average remaining term of 9 and 10 years)	—			—		—	—			—		—
Expected forfeitures	(0.5	)		5.00		—	(0.5	)		5.00		—
Expected to vest at end of period (weighted average remaining term of 9 and 10 years)	23.4			5.00		—	9.3			5.00		—

	Year Ended December 31, 2008				Period from October 11, 2007 through December 31, 2007
Nonvested Options	Options (millions)		Grant-Date Fair Value		Options (millions)	Grant-Date Fair Value
Total nonvested at beginning of period	9.8		$	1.74 – 2.09	—	$	—
Granted	16.2			1.73 – 2.25	9.8		1.74 – 2.09
Vested	—			—	—		—
Forfeited	(2.1	)		1.74 – 2.09	—		—
Total nonvested at end of period	23.9			1.73 – 2.21	9.8		1.74 – 2.09

Other Share and Share-Based Awards – In 2008, EFH Corp. granted 2.4 million deferred share awards, each of which represents the right to receive one share of EFH Corp. stock, to certain management employees who agreed to forego share-based awards that vested at the Merger date. The deferred share awards are fully vested and are payable in cash or stock upon the earlier of change of control or separation of service. No expense was recorded in 2008 related to these awards. An additional 1.2 million deferred share awards were granted to certain management employees in 2008, approximately half of which are payable in cash or stock and the balance payable in stock; these awards vest over periods of one to five years, and $2.2 million in expense was recorded in 2008 to recognize the vesting. Deferred share awards that are payable in cash or stock are accounted for as liability awards; therefore, the effects of changes in value of EFH Corp. shares are recognized in earnings.

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EFH Corp. granted 1.7 million shares of EFH Corp. stock in 2008, and 1.0 million shares in 2007, to board members and other non-employees. The shares vest over periods of one to two years, and a portion may be settled in cash. Expense recognized in 2008 and 2007 related to these grants totaled $8.2 million and $1 million, respectively.

Stock Appreciation Rights –In 2008, Oncor established the Oncor Electric Delivery Company LLC Stock Appreciation Rights Plan (the SARs Plan) under which certain employees of Oncor and its subsidiaries may be granted stock appreciation rights (SARs) payable in cash, or in some circumstances, Oncor units. Two types of SARs may be granted under the SARs Plan. Time-based SARs (Time SARs) vest solely based upon continued employment ratably on an annual basis on each of the first five anniversaries of the grant date. Performance-based SARs (Performance SARs) vest based upon both continued employment and the achievement of a predetermined level of Oncor EBITDA over time, generally ratably over five years based upon annual Oncor EBITDA levels, with provisions for vesting if the annual levels are not achieved but cumulative two- or three-year total Oncor EBITDA levels are achieved. Time and Performance SARs may also vest in part or in full upon the occurrence of certain specified liquidity events and are exercisable only upon the occurrence of certain specified liquidity events. Since the exercisability of the Time and Performance SARs is conditioned upon the occurrence of a liquidity event, compensation expense will not be recorded until it is probable that a liquidity event will occur. Generally, awards under the SARs Plan terminate on the tenth anniversary of the grant, unless the participant’s employment is terminated earlier under certain circumstances.

In February 2009, Oncor implemented a similar plan for primarily non-employee members of Oncor’s board of directors. The terms and conditions are similar to the SARs Plan with the exception that SARs granted to non-employee board members vest in eight equal quarterly installments over a two-year period.

SARs are generally payable in cash based on the fair market value of the SAR on the date of exercise. During 2008, Oncor granted 13.9 million SARs under the SARs Plan, of which 1.4 million Time SARs were vested at December 31, 2008. Pursuant to an amendment to the SARs Plan in February 2009, a total of 1.4 million Performance-SARs related to the period ended December 31, 2008 were declared vested in recognition that the established 2008 EBITDA target was substantially achieved. There were no SARs eligible for exercise at December 31, 2008.

Predecessor

Under its shareholder-approved long-term incentive plans, EFH Corp. provided discretionary awards to qualified management employees payable in its common stock. As presented below, the awards generally vested over a three-year period and the number of shares ultimately earned was based on the performance of the EFH Corp.’s stock over the vesting period.

	Awards Granted in 2007	Awards Granted in 2006
Vesting period	Three years	Three years
Potential share pay-out as a percent of initial number of awards granted	0% to 100% (a)	0% to 175% (a)
Basis for pay-out percentage – actual EFH Corp. three-year share return compared to:	Share returns of companies comprising the S&P 500 Electric Utilities Index	50% of award – threshold EFH Corp. share returns 50% of award – share returns of companies comprising the S&P 500 Electric Utilities Index and S&P 500 Multi-Utilities Index (a)
Award type	Performance units payable in EFH Corp. stock upon vesting	Performance units payable in EFH Corp. stock upon vesting

(a) For a small number of employees under employment agreements, potential share pay-out as a percent of initial number of awards granted was 0% to 200%, and the number of shares distributed was based 100% on EFH Corp.’s total share return over the vesting period compared to the total returns of companies comprising the Standard & Poor’s 500 Electric Utilities Index.

In addition, EFH Corp. established restrictions that limited certain employees’ opportunities to liquidate vested awards. For both restricted stock and performance unit awards, dividends over the vesting periods were converted to equivalent shares of EFH Corp. common stock to be distributed upon vesting.

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The determination of the fair value of stock-based compensation awards at grant date was based on a Monte Carlo simulation. The more significant assumptions used in this valuation process were as follows:

• Expected volatility of the stock price of EFH Corp. and peer group companies – expected volatility was determined based on historical stock price volatilities using daily stock price returns for the three years prior to the grant date.

• The dividend rate for EFH Corp. and peer group companies was based on the observed dividend payments over the twelve months prior to grant date.

• Risk-free rate (three-year US Treasury securities) during the three year vesting period.

• Discount for liquidation restrictions – this factor estimated the discount for lack of marketability of vested awards due to the anticipated time for the approval and issuance of the awards, the black-out period immediately after the grant and additional holding requirements imposed on senior executives. This discount was determined based on an estimation of the cost of a protective put at the award date and is calculated using the Black-Scholes option pricing model using expected volatility assumptions based on historical and implied volatility as discussed above and a risk-free rate of return over the option period.

• For the 2007 grant, change-in-control and no-change-in-control scenarios were considered. The change-in-control scenario was based on three different change-in-control dates each assigned projected probabilities. The change-in-control value was probability weighted with the value assuming no change of control

Assumptions	Period from January 1, 2007 through October 10, 2007		2006
Expected volatility	29% – 30	%		29	%
Expected annual dividend	—		$	1.65
Risk-free rate	4.8% – 4.9	%		4.83	%
Discount for liquidity restrictions	0% – 4.8	%		6.4% – 11.1	%

Effective with the 1997 merger of ENSERCH Corporation (subsequently TXU Gas) and EFH Corp., outstanding options for ENSERCH Corporation common stock were exchanged for 1,065,826 options for EFH Corp. common stock (TXU Gas Stock Option Plan). The weighted average exercise price for outstanding options at the beginning of 2006 was $11.95 and the weighted average exercise price for forfeited/expired options was $11.95. All options were granted on or before August 5, 1997 and expired on or before February 16, 2006. No further options may be granted under this plan.

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The following table presents information about Predecessor stock-based compensation plans.

	Performance Unit Awards			Stock Options under TXU Gas Plan
Number of awards:
Balance — December 31, 2005		5,285,982		1,520
Granted in 2006		1,052,222		—
Forfeited/expired		(523,946	)	(1,520	)
Vested/exercised		(1,563,918	)	—
Balance — December 31, 2006		4,250,340		—
Granted in period from January 1, 2007 to October 10, 2007		474,000
Forfeited/expired		(41,492	)
Vested/exercised		(4,682,848	)
Balance at Merger closing date		—
Weighted average fair value — Period from January 1, 2007 through October 10, 2007
Outstanding — Beginning of year	$	23.60
Granted	$	67.08
Forfeited	$	36.24
Vested	$	28.30
Outstanding — October 10, 2007	$	—
Weighted average fair value of awards granted in 2006	$	42.35
Period from January 1, 2007 to October 10, 2007	$	67.08

The table above reflects the weighted average fair value of the awards on grant date.

Reported expense related to the awards totaled $27 million ($18 million after-tax) in both the period from January 1, 2007 through October 10, 2007 and year ended December 31, 2006. Such expenses are reported in SG&A expense, except for immaterial amounts capitalized.

The fair value of awards that vested in the period from January 1, 2007 through October 10, 2007 and the year ended 2006 totaled $613 million and $210 million, respectively, based on the vesting date share prices.

Under the terms of the Merger Agreement, all outstanding Performance Unit awards were deemed to be vested at the date of the Merger. See Note 2.

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24. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies in situations where other accounting pronouncements either permit or require fair value measurements, including purchase accounting and impairment testing of goodwill, indefinite-lived intangible assets and long-lived assets. SFAS 157 does not require any new fair value measurements. However, SFAS 157 supersedes a previous accounting rule that prohibited the recognition of day one gains or losses on derivative instruments unless the fair value of those instruments were derived from an observable market price. Additionally, SFAS 157 requires an entity to take its own credit risk (nonperformance risk) into consideration when measuring the fair value of liabilities. EFH Corp. adopted SFAS 157 effective with the closing of the Merger.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. With the adoption of SFAS 157, EFH Corp. uses a “mid-market” valuation convention (the mid-point price between bid and ask prices) as a practical expedient to measure fair value for the majority of its assets and liabilities subject to fair value measurement under SFAS 133 and other accounting rules that require such measurement on a recurring basis. EFH Corp. primarily uses the market approach for recurring fair value measurements and uses valuation techniques to maximize the use of observable inputs and minimize the use of unobservable inputs.

EFH Corp. categorizes its assets and liabilities recorded at fair value based upon the following fair value hierarchy established by SFAS 157:

• Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. EFH Corp.’s Level 1 assets and liabilities normally include exchange traded commodity contracts. For example, EFH Corp. has a significant number of derivatives that are NYMEX futures and swaps transacted through clearing brokers for which the pricing is actively quoted.

• Level 2 valuations use inputs other than actively quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical or similar assets or liabilities in markets that are not active, (c) inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means. EFH Corp.’s Level 2 assets and liabilities utilize over the counter broker quotes, quoted prices for similar assets or liabilities that are corroborated by correlations or other mathematical means and other valuation inputs. For example, EFH Corp.’s Level 2 assets and liabilities include forward commodity positions at locations for which over-the-counter broker quotes are available.

• Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. EFH Corp. uses the most meaningful information available from the market combined with its own internally developed valuation methodologies to develop its best estimate of fair value. For example, certain derivative assets or liabilities are derived from pricing models that utilize multiple inputs to the valuations, including inputs that are not observable or easily corroborated through other means.

EFH Corp. utilizes several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those items that are measured on a recurring basis. These methods include, among others, the use of broker quotes and statistical relationships between different price curves.

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In utilizing broker quotes, EFH Corp. attempts to obtain multiple quotes from brokers that are active in the commodity markets in which it participates (and requires at least one quote from two brokers to determine a pricing input as observable); however, not all pricing inputs are quoted by brokers. The number of broker quotes that EFH Corp. receives for certain pricing inputs varies depending on the depth of the trading market, each individual broker’s publication policy, recent trading volume shifts and various other factors. Broker quotes received are generally reliable estimates of actively traded markets. In addition, for valuation of interest rate hedges, EFH Corp. uses a combination of dealer provided market valuations (generally non-binding) and Bloomberg valuations based on month-end interest rate curves and standard rate swap valuation models.

Certain derivatives and financial instruments are valued utilizing option pricing models that take into consideration multiple inputs including commodity prices, volatility factors, discount rates and other inputs. Additionally, when there is not a sufficient amount of observable market data, valuation models are developed that incorporate proprietary views of market factors. Those valuation models are generally used in developing long-term forward price curves for certain commodities. EFH Corp. believes that development of such curves is consistent with industry practice; however, the fair value measurements resulting from such curves are classified as Level 3.

With respect to amounts presented in the following fair value hierarchy table, the fair value measurement of an asset or liability (e.g. a contract) is required under SFAS 157 to fall in its entirety in one level, based on the lowest level input that is significant to the fair value measurement. Certain assets and liabilities would be classified in Level 2 instead of Level 3 of the hierarchy except for the effects of credit reserves and non-performance risk adjustments, respectively. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability being measured.

At December 31, 2008, assets and liabilities measured at fair value on a recurring basis consisted of the following:

	Successor
	Level 1		Level 2		Level 3 (a)		Total
Assets:
Commodity-related contracts	$	1,010	$	2,061	$	283	$	3,354
Interest rate swaps		—		142		—		142
Nuclear decommissioning trust (b)		109		276		—		385
Total assets	$	1,119	$	2,479	$	283	$	3,881
Liabilities:
Commodity-related contracts	$	1,288	$	1,274	$	355	$	2,917
Interest rate swaps		—		2,086		—		2,086
Total liabilities	$	1,288	$	3,360	$	355	$	5,003

(a) Level 3 assets and liabilities consist primarily of more complex long-term power purchases and sales agreements, including longer-term wind and other power purchase and sales contracts and certain natural gas positions in the long-term hedging program.

(b) EFH Corp.’s nuclear decommissioning trust investment is included in the Investments line on the balance sheet.

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At December 31, 2007, assets and liabilities measured at fair value on a recurring basis consisted of the following:

	Successor
	Level 1		Level 2		Level 3		Reclassification (a)		Total
Assets:
Commodity-related contracts	$	511	$	683	$	148	$	23	$	1,365
Interest rate swaps		—		8		—		—		8
Nuclear decommissioning trust (b)		165		319		—		—		484
Total assets	$	676	$	1,010	$	148	$	23	$	1,857
Liabilities:
Commodity-related contracts	$	559	$	2,372	$	321	$	23	$	3,275
Interest rate swaps		—		324		—		—		324
Total liabilities	$	559	$	2,696	$	321	$	23	$	3,599

(a) Represents the effects of reclassification of the assets and liabilities to conform to the balance sheet presentation of current and long-term assets and liabilities.

(b) EFH Corp.’s nuclear decommissioning trust investment is included in the Investments line on the balance sheet.

Commodity-related contracts consist primarily of natural gas and electricity derivative instruments entered into for hedging purposes and include physical contracts that have not been designated “normal” purchases or sales under SFAS 133.

Interest rate swaps consist largely of variable-to-fixed rate swap instruments that are economic hedges of interest on long-term debt, as well as interest rate basis swaps designed to further reduce fixed borrowing costs. See Note 15 for discussion of interest rate swaps.

Nuclear decommissioning trust assets represent securities held for the purpose of funding the future retirement and decommissioning of EFH Corp.’s nuclear generation units. These investments include equity, debt and other fixed-income securities consistent with investment rules established by the NRC and the PUCT.

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The following table presents the changes in fair value of EFH Corp.’s Level 3 assets and liabilities (all related to commodity contracts) for the year ended December 31, 2008 and the period from October 11, 2007 through December 31, 2007:

	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007
Balance at December 31, 2008 and October 11, 2007, respectively (net liability)	$	(173	)	$	(133	)
Total realized and unrealized gains (losses) (a):
Included in net income (loss)		(12	)		(112	)
Included in other comprehensive income		7			7
Purchases, sales, issuances and settlements (net) (b)		(13	)		14
Net transfers in and/or out of Level 3 (c)		119			51
Balance at end of period (net liability)	$	(72	)	$	(173	)
Net change in unrealized gains (losses) included in net income relating to instruments held at end of period (d)	$	85		$	(70	)

(a) Substantially all changes in values of commodity-related contracts are reported in the income statement in net gain (loss) from commodity hedging and trading activities.

(b) Settlements represent reversals of unrealized mark-to-market valuations of these positions previously recognized in net income. Generally, purchases have no value at inception and subsequent changes in value from these transactions are reflected in unrealized gains and losses. Issuances represent new transactions valued at the assessment date.

(c) Includes transfers due to changes in the observability of significant inputs. Transfers in are assumed to transfer in at the beginning of the quarter and transfers out at the end of the quarter, which is when the assessments were performed. Any changes in value during the period are reported as unrealized gains and losses in net gain (loss) from commodity hedging and trading activities.

(d) Includes unrealized gains and losses related only to the periods in which the instrument was classified as a Level 3 asset or liability.

25. FAIR VALUE OF NONDERIVATIVE FINANCIAL INSTRUMENTS

The carrying amounts and related estimated fair values of significant nonderivative financial instruments were as follows:

	Successor
	December 31, 2008						December 31, 2007
	Carrying Amount			Fair Value (a)			Carrying Amount			Fair Value (a)
On balance sheet assets (liabilities):
Long-term debt (including current maturities) (b): TCEH, EFH Corp., and other	$	(35,860	)	$	(24,162	)	$	(35,154	)	$	(34,948	)
Oncor	$	(5,204	)	$	(4,990	)	$	(3,801	)	$	(3,948	)
Total	$	(41,064	)	$	(29,152	)	$	(38,955	)	$	(38,896	)
Off balance sheet assets (liabilities):
Financial guarantees	$	—		$	(3	)	$	—		$	(1	)

(a) Fair value determined in accordance with SFAS 157.

(b) Excludes capital leases.

See Note 19 for discussion of accounting for financial instruments that are derivatives.

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26. RELATED PARTY TRANSACTIONS

Management Agreement

On October 10, 2007, in connection with the Merger, the Sponsor Group and Lehman Brothers Inc. entered into a management agreement with EFH Corp. (the Management Agreement), pursuant to which affiliates of the Sponsor Group will provide management, consulting, financial and other advisory services to EFH Corp. Pursuant to the Management Agreement, affiliates of the Sponsor Group are entitled to receive an aggregate annual management fee of $35 million, which amount will increase 2% annually, and reimbursement of out-of-pocket expenses incurred in connection with the provision of services pursuant to the Management Agreement. The Management Agreement will continue in effect from year to year, unless terminated upon a change of control of EFH Corp. or in connection with an initial public offering of EFH Corp. or if the parties mutually agree to terminate the Management Agreement. Pursuant to the Management Agreement, affiliates of the Sponsor Group and Lehman Brothers Inc. were paid transaction fees of $300 million for certain services provided in connection with the Merger and related transactions. A portion of these fees were included in the purchase price that was allocated to identifiable assets and liabilities as part of purchase accounting, and the remainder were reported as deferred financing costs. In addition, the Management Agreement provides that the Sponsor Group will be entitled to receive a fee equal to a percentage of the gross transaction value in connection with certain subsequent financing, acquisition, disposition, merger combination and change of control transactions, as well as a termination fee based on the net present value of future payment obligations under the Management Agreement in the event of an initial public offering or under certain other circumstances. The fee under the Management Agreement totaled $35 million for the year ended December 31, 2008 and $8 million for the period from October 11, 2007 to December 31, 2007, of which $35 million and $8 million was paid in 2008 and the 2007 period, respectively. The fee is reported as SG&A expense in Corporate and Other operations.

At the closing of the Merger, TCEH entered into the TCEH Senior Secured Facilities and Oncor entered into a revolving credit facility, each with syndicates of financial institutions and other lenders. These syndicates included affiliates of GS Capital Partners, which is a member of the Sponsor Group. Affiliates of GS Capital Partners and Kohlberg Kravis Roberts & Co. L.P. (a member of the Sponsor Group) have from time-to-time engaged in commercial banking and financial advisory transactions with EFH Corp. or its subsidiaries in the normal course of business.

Affiliates of Goldman Sachs & Co. are party to certain commodity and interest rate hedging transactions with EFH Corp. or its subsidiaries in the normal course of business.

From time to time affiliates of the Sponsor Group may acquire debt or debt securities issued by EFH Corp. or its subsidiaries in open market transactions or through loan syndications.

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27. SEGMENT INFORMATION

EFH Corp.’s operations are aligned into two reportable business segments: Competitive Electric and Regulated Delivery. The segments are managed separately because they are strategic business units that offer different products or services and involve different risks.

The Competitive Electric segment is engaged in competitive market activities consisting of electricity generation, the development and construction of new generation facilities, wholesale energy sales and purchases, commodity risk management and trading activities, and retail electricity sales to residential and business customers, all largely in Texas. These activities are conducted principally by subsidiaries of TCEH. The results of this segment also include equipment salvage and resale activities related to the eight cancelled coal-fueled generation units.

The Regulated Delivery segment is engaged in regulated electricity transmission and distribution operations in Texas. These activities are conducted by Oncor, including its wholly owned bankruptcy-remote financing subsidiary, and also include certain revenues and costs associated with installation of equipment that will facilitate Oncor’s technology initiatives.

Corporate and Other represents the remaining nonsegment operations consisting primarily of discontinued operations, general corporate expenses and interest on EFH Corp. and EFC Holdings debt.

The accounting policies of the business segments are the same as those described in the summary of significant accounting policies in Note 1. EFH Corp. evaluates performance based on income from continuing operations. EFH Corp. accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.

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	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Operating Revenues
Competitive Electric	$	9,787		$	1,671		$	6,884		$	9,396
Regulated Delivery		2,580			532			1,987			2,449
Corp. and Other		37			11			37			49
Eliminations		(1,040	)		(220	)		(864	)		(1,191	)
Consolidated	$	11,364		$	1,994		$	8,044		$	10,703
Regulated Revenues — Included in Operating Revenues
Competitive Electric	$	—		$	—		$	—		$	—
Regulated Delivery		2,580			532			1,987			2,449
Corp. and Other		—			—			—			—
Eliminations		(1,001	)		(208	)		(824	)		(1,139	)
Consolidated	$	1,579		$	324		$	1,163		$	1,310
Affiliated Revenues — Included in Operating Revenues
Competitive Electric	$	7		$	2		$	5		$	8
Regulated Delivery		1,001			208			824			1,139
Corp. and Other		32			10			35			44
Eliminations		(1,040	)		(220	)		(864	)		(1,191	)
Consolidated	$	—		$	—		$	—		$	—
Depreciation and Amortization
Competitive Electric	$	1,092		$	315		$	253		$	334
Regulated Delivery		492			96			366			476
Corp. and Other		26			4			15			20
Eliminations		—			—			—			—
Consolidated	$	1,610		$	415		$	634		$	830
Equity in Earnings (Losses) of Unconsolidated Subsidiaries (a)
Competitive Electric	$	(10	)	$	(2	)	$	(5	)	$	(10	)
Regulated Delivery		(4	)		(1	)		(2	)		(4	)
Corp. and Other		(5	)		(1	)		(4	)		(19	)
Eliminations		19			4			10			19
Consolidated	$	—		$	—		$	(1	)	$	(14	)
Interest Income
Competitive Electric	$	61		$	10		$	271		$	202
Regulated Delivery		45			12			44			58
Corp. and Other		100			42			106			91
Eliminations		(179	)		(40	)		(365	)		(305	)
Consolidated	$	27		$	24		$	56		$	46
Interest Expense and Related Charges
Competitive Electric	$	4,010		$	609		$	357		$	388
Regulated Delivery		317			70			242			286
Corp. and Other		787			200			437			461
Eliminations		(179	)		(40	)		(365	)		(305	)
Consolidated	$	4,935		$	839		$	671		$	830
Income Tax Expense (Benefit)
Competitive Electric	$	(450	)	$	(656	)	$	306		$	1,239
Regulated Delivery		221			30			160			170
Corp. and Other		(242	)		(47	)		(157	)		(146	)
Eliminations		—			—			—			—
Consolidated	$	(471	)	$	(673	)	$	309		$	1,263

155

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Income (loss) from Continuing Operations
Competitive Electric	$	(8,929	)	$	(1,245	)	$	722		$	2,363
Regulated Delivery		(486	)		63			265			344
Corp. and Other		(583	)		(179	)		(288	)		(242	)
Eliminations		—			—			—			—
Consolidated	$	(9,998	)	$	(1,361	)	$	699		$	2,465
Investment in Equity Investees
Competitive Electric	$	(2	)	$	(1	)				$	—
Regulated Delivery		—			—						—
Corp. and Other		—			—						1
Eliminations		—			—						—
Consolidated	$	(2	)	$	(1	)				$	1
Total assets (b) (c)
Competitive Electric	$	43,061		$	49,297					$	20,289
Regulated Delivery		15,772			15,458						10,709
Corp. and Other		3,526			2,992						1,676
Eliminations		(3,096	)		(2,943	)					(5,458	)
Consolidated	$	59,263		$	64,804					$	27,216
Capital Expenditures
Competitive Electric	$	1,914		$	530		$	1,901		$	1,330
Regulated Delivery		882			153			555			840
Corp. and Other		16			1			7			10
Eliminations		—			—			—			—
Consolidated	$	2,812		$	684		$	2,463		$	2,180

(a) Amounts invested in equity investees were not material in any period presented.

(b) Assets by segment exclude investments in affiliates.

(c) The total assets shown above reflect the change in presentation related to EFH Corp.’s adoption of FSP FIN 39-1 as discussed in Note 1. Such change in presentation resulted in an increase of $1.020 billion and $1.383 billion in EFH Corp.’s total assets and total liabilities as of December 31, 2007 and 2006, respectively, as compared to amounts previously reported in the 2007 Form 10-K.

156

28. SUPPLEMENTARY FINANCIAL INFORMATION

Regulated Versus Unregulated Operations

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Operating revenues
Regulated	$	2,580		$	532		$	1,987		$	2,449
Unregulated		9,824			1,682			6,921			9,445
Intercompany sales eliminations — regulated		(1,001	)		(208	)		(824	)		(1,139	)
Intercompany sales eliminations — unregulated		(39	)		(12	)		(40	)		(52	)
Total operating revenues		11,364			1,994			8,044			10,703
Fuel, purchased power and delivery fees — unregulated (a)		(4,595	)		(644	)		(2,381	)		(2,784	)
Net gain (loss) from commodity hedging and trading activities — unregulated		2,184			(1,492	)		(554	)		153
Operating costs — regulated		(828	)		(182	)		(637	)		(770	)
Operating costs — unregulated		(675	)		(124	)		(470	)		(603	)
Depreciation and amortization — regulated		(492	)		(96	)		(366	)		(476	)
Depreciation and amortization — unregulated		(1,118	)		(319	)		(268	)		(354	)
Selling, general and administrative expenses — regulated		(164	)		(45	)		(134	)		(172	)
Selling, general and administrative expenses — unregulated		(793	)		(171	)		(557	)		(647	)
Franchise and revenue-based taxes — regulated		(255	)		(62	)		(198	)		(262	)
Franchise and revenue-based taxes — unregulated		(108	)		(31	)		(84	)		(128	)
Other income		80			14			69			121
Other deductions		(10,161	)		(61	)		(841	)		(269	)
Interest income		27			24			56			46
Interest expense and other charges		(4,935	)		(839	)		(671	)		(830	)
Income (loss) from continuing operations before income taxes	$	(10,469	)	$	(2,034	)	$	1,008		$	3,728

(a) Includes unregulated cost of fuel consumed of $1,604 in 2008, $255 million in the period from October 11, 2007 through December 31, 2007, $868 million in the period from January 1, 2007 through October 10, 2007 and $927 million in 2006. The balance represents energy purchased for resale and delivery fees net of intercompany eliminations.

The operations of the Competitive Electric segment are included above as unregulated, as the ERCOT wholesale and retail electricity markets are open to competition. However, retail pricing to residential customers in EFH Corp.’s historical service territory was subject to certain price controls until December 31, 2006.

157

Interest Expense and Related Charges

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Interest	$	3,548		$	800		$	732		$	861
Unrealized mark-to-market net loss on interest rate swaps		1,477			—			—			—
Amortization of fair value debt discounts resulting from purchase accounting		75			17			—			—
Amortization of debt issuance cost and discounts		146			81			19			16
Capitalized interest, primarily related to generation facility and regulated utility asset construction		(311	)		(59	)		(80	)		(47	)
Total interest expense and related charges	$	4,935		$	839		$	671		$	830

Restricted Cash

	Successor
	At December 31, 2008				At December 31, 2007
	Current Assets		Noncurrent Assets		Current Assets		Noncurrent Assets
Amounts related to TCEH’s Letter of Credit Facility (See Note 15)	$	—	$	1,250	$	—	$	1,250
Amounts related to margin deposits held		4		—		—		—
Pollution control revenue bond funds held by trustee (See Note 15)		—		—		—		29
Amounts related to securitization (transition) bonds		51		17		56		17
Total restricted cash	$	55	$	1,267	$	56	$	1,296

Inventories by Major Category

	Successor
	December 31, 2008		December 31, 2007
Materials and supplies	$	199	$	174
Fuel stock		162		138
Natural gas in storage		65		93
Total inventories	$	426	$	405

158

Property, Plant and Equipment

	Successor
	December 31, 2008		December 31, 2007
Competitive Electric:
Generation and mining	$	16,954	$	17,069
Nuclear fuel (net of accumulated amortization of $235 and $47)		433		451
Other assets		16		22
Regulated Delivery:
Transmission		3,626		3,388
Distribution		8,429		8,036
Other assets		166		106
Corporate and Other		138		124
Total		29,762		29,196
Less accumulated depreciation		5,321		4,076
Net of accumulated depreciation		24,441		25,120
Construction work in progress:
Competitive Electric		4,852		3,358
Regulated Delivery		213		170
Corporate and Other		16		2
Total construction work in progress		5,081		3,530
Property, plant and equipment — net	$	29,522	$	28,650

Assets related to capitalized leases included above totaled $167 million at December 31, 2008 and $161 million at December 31, 2007, net of accumulated depreciation.

159

Asset Retirement Obligations

These liabilities primarily relate to nuclear generation plant decommissioning, land reclamation related to lignite mining, removal of lignite/coal-fueled plant ash treatment facilities and generation plant asbestos removal and disposal costs. There is no earnings impact with respect to the recognition of the asset retirement costs for nuclear decommissioning, as all costs are recoverable through the regulatory process as part of Oncor’s rates.

The following table summarizes the changes to the asset retirement liability, reported in other noncurrent liabilities and deferred credits in the balance sheet, during the years ended December 31, 2008 and 2007:

Asset retirement liability at January 1, 2007	$	585
Additions:
Accretion — January 1, 2007 through October 10, 2007		29
Accretion — October 11, 2007 through December 31, 2007		11
Purchase accounting adjustment		176
Reductions:
Mining reclamation cost adjustments		(2	)
Mining reclamation payments — January 1, 2007 through October 10, 2007		(19	)
Mining reclamation payments — October 11, 2007 through December 31, 2007		(7	)
Asset retirement liability at December 31, 2007	$	773
Additions:
Accretion		48
Incremental mining reclamation costs		59
Reductions:
Payments, essentially all mining reclamation		(21	)
Asset retirement liability at December 31, 2008	$	859

160

Regulatory Assets and Liabilities

	Successor
	December 31, 2008		December 31, 2007
Regulatory assets
Generation-related regulatory assets securitized by transition bonds	$	865	$	967
Employee retirement costs		659		265
Self-insurance reserve (primarily storm recovery costs)		214		149
Nuclear decommissioning cost under-recovery		127		—
Securities reacquisition costs		97		105
Recoverable deferred income taxes — net		77		84
Employee severance costs		20		20
Other		12		3
Total regulatory assets		2,071		1,593
Regulatory liabilities
Credit due REPs under PUCT stipulation		—		72
Committed spending for demand-side management initiatives		96		100
Investment tax credit and protected excess deferred taxes		49		55
Over-collection of securitization (transition) bond revenues		28		34
Nuclear decommissioning cost over-recovery		—		13
Other regulatory liabilities		6		14
Total regulatory liabilities		179		288
Net regulatory assets	$	1,892	$	1,305

Regulatory assets that have been reviewed and approved by the PUCT and are not earning a return totaled $1.021 billion and $997 million at December 31, 2008 and 2007, respectively, including the generation-related regulatory assets securitized by transition bonds that have a remaining recovery period of approximately eight years. As part of purchase accounting, the carrying value of the generation-related regulatory assets was reduced by $213 million, and this amount is being accreted to other income over the approximate nine-year recovery period remaining as of the date of the Merger. See Note 8 for discussion of effects on regulatory assets and liabilities of the stipulation approved by the PUCT.

As of December 31, 2008, regulatory assets totaling $913 million have not been reviewed by the PUCT but are deemed by management to be probable of recovery.

161

Other Noncurrent Liabilities and Deferred Credits

The balance of other noncurrent liabilities and deferred credits consists of the following:

	Successor
	December 31, 2008		December 31, 2007
Uncertain tax positions (including accrued interest) (Note 10)	$	1,780	$	1,939
Retirement plan and other employee benefits		1,451		1,076
Asset retirement obligations		859		773
Unfavorable purchase and sales contracts		727		751
Liabilities related to subsidiary tax sharing agreement		299		—
Other		89		111
Total other noncurrent liabilities and deferred credits	$	5,205	$	4,650

Unfavorable Purchase and Sales Contracts – Unfavorable purchase and sales contracts primarily represent the extent to which contracts on a net basis were unfavorable to market prices as of the date of the Merger. These are contracts for which: 1) TCEH has made the “normal” purchase or sale election allowed or 2) the contract did not meet the definition of a derivative under SFAS 133. Under purchase accounting, TCEH recorded the value as of October 10, 2007 as a deferred credit. Amortization of the deferred credit related to unfavorable contracts is primarily on a straight-line basis, which approximates the economic realization, and is recorded as revenues or a reduction of purchased power costs as appropriate. The amortization amount totaled $30 million in 2008 and $5 million in the 2007 Successor period. Favorable purchase and sales contracts are recorded as intangible assets (see Note 3).

The estimated amortization of unfavorable purchase and sales contracts for each of the five succeeding fiscal years from December 31, 2008 is as follows:

Year	Successor Amount
2009	$	27
2010		27
2011		27
2012		27
2013		26

Liabilities Related to Subsidiary Tax Sharing Agreement –Amount represents the noncontrolling interests’ portion of the previously recorded net deferred tax liabilities of Oncor. Upon the sale of noncontrolling interests in Oncor (see Note 18), Oncor became a partnership for US federal income tax purposes, and the temporary differences which gave rise to the deferred taxes will, over time, become taxable to the noncontrolling interests. Under a tax sharing agreement among Oncor and its equity holders, Oncor reimburses the equity holders for income taxes as the partnership earnings become taxable to the equity holders. Accordingly, as the temporary differences become taxable, the equity holders will be reimbursed by Oncor. In the unlikely event such amounts are not reimbursed under the tax sharing agreement, it is probable they would be reimbursed to rate payers.

162

Supplemental Cash Flow Information

	Successor						Predecessor
	Year Ended December 31, 2008			Period from October 11, 2007 through December 31, 2007			Period from January 1, 2007 through October 10, 2007			Year Ended December 31, 2006
Cash payments (receipts) related to continuing operations:
Interest paid	$	3,495		$	496		$	674		$	870
Capitalized interest		(311	)		(59	)		(80	)		(47	)
Interest paid (net of capitalized interest)		3,184			437			594			823
Income taxes		(204	)		—			271			220
Noncash investing and financing activities:
Below market values of power sales agreements (a)		—			—			264			—
Noncash construction expenditures (b)		183			211			210			228
Promissory note issued in conjunction with acquisition of mining-related assets		—			—			65			—
Capital leases		16			—			52			—
Noncash capital contribution from Texas Holdings		—			23			—			—

(a) Multi-year power sales agreement entered into with Alcoa Inc. and recorded as part of the construction work-in-process asset balance for the Sandow 5 coal-fueled generation unit.

(b) Represents end-of-period accruals.

163

29. SUPPLEMENTAL GUARANTOR CONDENSED FINANCIAL INFORMATION

On October 31, 2007, EFH Corp. refinanced the entire $4.5 billion outstanding under its Senior Unsecured Interim Facility obtained to finance the Merger with $2.0 billion 10.875% Senior Notes Due 2017 and $2.5 billion 11.25%/12.00% Senior Toggle Notes Due 2017 (collectively, the EFH Corp. Notes). The EFH Corp. Notes are unconditionally guaranteed by EFC Holdings and Intermediate Holding, 100% owned subsidiaries of EFH Corp. (collectively, the Guarantors) on an unsecured basis. The guarantees issued by the Guarantors are full and unconditional, joint and several guarantees of the EFH Corp. Notes. The guarantees rank equally with any senior unsecured indebtedness of the Guarantors and rank effectively junior to all of the secured indebtedness of the Guarantors to the extent of the assets securing that indebtedness. All other subsidiaries of EFH Corp., either direct or indirect, do not guarantee the EFH Corp. Notes (collectively, the Non-Guarantors). The EFH Corp. Indenture contains certain restrictions, subject to certain exceptions, on EFH Corp.’s ability to pay dividends or make investments.

The following tables have been prepared in accordance with Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered” in order to present the condensed consolidating statements of income and cash flows of EFH Corp. (the Parent/Issuer), the Guarantors and the Non-Guarantors for the year ended December 31, 2008, the period from October 11, 2007 through December 31, 2007, the period from January 1, 2007 through October 10, 2007 and the year ended December 31, 2006 and the consolidating balance sheets as of December 31, 2008 and 2007 of the Parent/Issuer, the Guarantors and the Non-Guarantors. Investments in consolidated subsidiaries are accounted for under the equity method. The presentations reflect the application of SEC Staff Accounting Bulletin Topic 5-J, Push Down Basis of Accounting Required in Certain Limited Circumstances, including the effects of the push down of the $4.5 billion EFH Corp. Notes to the Guarantors (see Notes 15 and 16).

EFH Corp. (Parent) received dividends from its consolidated subsidiaries totaling $329 million, $1.461 billion and $1.198 billion for the year ended December 31, 2008, the period from January 1, 2007 through October 10, 2007 and the year ended December 31, 2006, respectively. EFH Corp. also received a distribution of $1.253 billion indirectly from Oncor as discussed in Note 17. No dividends were received during the period from October 11, 2007 through December 31, 2007. See Note 17.

164

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Income

For the Year Ended December 31, 2008

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	11,364		$	—		$	11,364
Fuel, purchased power costs and delivery fees		—			—			(4,595	)		—			(4,595	)
Net gain from commodity hedging and trading activities		—			—			2,184			—			2,184
Operating costs		—			—			(1,503	)		—			(1,503	)
Depreciation and amortization		—			—			(1,610	)		—			(1,610	)
Selling, general and administrative expenses		(105	)		—			(852	)		—			(957	)
Franchise and revenue-based taxes		—			1			(364	)		—			(363	)
Impairment of goodwill		—			—			(8,860	)		—			(8,860	)
Other income		—			—			80			—			80
Other deductions		(22	)		—			(1,279	)		—			(1,301	)
Interest income		168			7			147			(295	)		27
Interest expense and related charges		(919	)		(537	)		(4,298	)		819			(4,935	)
Income (loss) from continuing operations before income taxes and equity earnings of subsidiaries		(878	)		(529	)		(9,586	)		524			(10,469	)
Income tax (expense) benefit		291			180			176			(176	)		471
Equity earnings of subsidiaries		(9,251	)		(9,184	)		—			18,435			—
Net loss		(9,838	)		(9,533	)		(9,410	)		18,783			(9,998	)
Net loss attributable to noncontrolling interests		—			—			160			—			160
Net loss attributable to EFH Corp.	$	(9,838	)	$	(9,533	)	$	(9,250	)	$	18,783		$	(9,838	)

165

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Income

For the Period from October 11, 2007 through December 31, 2007

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	1,994		$	—		$	1,994
Fuel, purchased power costs and delivery fees		—			—			(644	)		—			(644	)
Net loss from commodity hedging and trading activities		—			—			(1,492	)		—			(1,492	)
Operating costs		—			—			(306	)		—			(306	)
Depreciation and amortization		—			—			(416	)		1			(415	)
Selling, general and administrative expenses		(17	)		—			(198	)		(1	)		(216	)
Franchise and revenue-based taxes		(1	)		—			(92	)		—			(93	)
Other income		—			—			14			—			14
Other deductions		(54	)		—			(7	)		—			(61	)
Interest income		54			6			32			(68	)		24
Interest expense and related charges		(234	)		(140	)		(670	)		205			(839	)
Loss from continuing operations before income taxes and equity earnings of subsidiaries		(252	)		(134	)		(1,785	)		137			(2,034	)
Income tax benefit		53			28			637			(45	)		673
Equity earnings of subsidiaries		(1,161	)		(1,142	)		—			2,303			—
Loss from continuing operations		(1,360	)		(1,248	)		(1,148	)		2,395			(1,361	)
Income from discontinued operations, net of tax effect		—			—			1			—			1
Net loss attributable to EFH Corp.	$	(1,360	)	$	(1,248	)	$	(1,147	)	$	2,395		$	(1,360	)

166

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Income

For the Period from January 1, 2007 through October 10, 2007

(millions of dollars)

	Predecessor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	8,044		$	—		$	8,044
Fuel, purchased power costs and delivery fees		—			—			(2,381	)		—			(2,381	)
Net loss from commodity hedging and trading activities		—			—			(554	)		—			(554	)
Operating costs		—			—			(1,107	)		—			(1,107	)
Depreciation and amortization		—			—			(634	)		—			(634	)
Selling, general and administrative expenses		(58	)		—			(633	)		—			(691	)
Franchise and revenue-based taxes		—			(1	)		(282	)		1			(282	)
Other income		8			1			60			—			69
Other deductions		(108	)		—			(733	)		—			(841	)
Interest income		133			210			368			(655	)		56
Interest expense and related charges		(566	)		(192	)		(567	)		654			(671	)
Income (loss) from continuing operations before income taxes and equity earnings of subsidiaries		(591	)		18			1,581			—			1,008
Income tax (expense) benefit		235			(2	)		(542	)		—			(309	)
Equity earnings of subsidiaries		1,077			1,554			—			(2,631	)		—
Income from continuing operations		721			1,570			1,039			(2,631	)		699
Income from discontinued operations, net of tax effect		2			—			22			—			24
Net income attributable to EFH Corp.	$	723		$	1,570		$	1,061		$	(2,631	)	$	723

167

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Income

For the Year Ended December 31, 2006

(millions of dollars)

	Predecessor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	10,703		$	—		$	10,703
Fuel, purchased power costs and delivery fees		—			—			(2,784	)	��	—			(2,784	)
Net gain from commodity hedging and trading activities		—			—			153			—			153
Operating costs		—			—			(1,373	)		—			(1,373	)
Depreciation and amortization		—			—			(830	)		—			(830	)
Selling, general and administrative expenses		(70	)		—			(748	)		(1	)		(819	)
Franchise and revenue-based taxes		(1	)		—			(390	)		1			(390	)
Other income		15			—			106			—			121
Other deductions		(7	)		—			(262	)		—			(269	)
Interest income		74			206			367			(601	)		46
Interest expense and related charges		(609	)		(136	)		(703	)		618			(830	)
Income (loss) from continuing operations before income taxes and equity earnings of subsidiaries		(598	)		70			4,239			17			3,728
Income tax (expense) benefit		214			(17	)		(1,460	)		—			(1,263	)
Equity earnings of subsidiaries		2,936			2,792			—			(5,728	)		—
Income from continuing operations		2,552			2,845			2,779			(5,711	)		2,465
Income from discontinued operations, net of tax effect		—			—			87			—			87
Net income attributable to EFH Corp.	$	2,552		$	2,845		$	2,866		$	(5,711	)	$	2,552

168

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2008

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors			Non-guarantors			Eliminations			Consolidated
Cash flows — operating activities:
Net loss	$	(9,838	)	$	(9,533	)	$	(9,410	)	$	18,783		$	(9,998	)
Adjustments to reconcile loss to cash provided by (used in) operating activities:
Equity in losses of subsidiaries		9,251			9,184			—			(18,435	)		—
Depreciation and amortization		55			23			2,014			(22	)		2,070
Deferred income tax benefit — net		(44	)		1			(434	)		—			(477	)
Impairment of goodwill		—			—			8,860			—			8,860
Impairment of trade name intangible asset		—			—			481			—			481
Impairment of emission allowances intangible assets		—			—			501			—			501
Impairment of natural gas-fueled generation units		—			—			229			—			229
Effect of Parent’s payment of interest on pushed down debt		—			502			—			(502	)		—
Unrealized net gains from mark-to-market valuations of commodity positions		—			—			(2,329	)		—			(2,329	)
Unrealized net losses from mark-to-market valuations of interest rate swaps		—			—			1,477			—			1,477
Other, net		18			—			164			—			182
Changes in operating assets and liabilities:
Margin deposits — net		—			—			595			—			595
Other operating assets and liabilities		307			(1,101	)		(1,316	)		2,024			(86	)
Cash provided by (used in) operating activities		(251	)		(924	)		832			1,848			1,505
Cash flows — financing activities:
Issuances of securities/long-term borrowings:
Long-term debt		—			—			3,185			—			3,185
Common stock		34			—			—			—			34
Retirements/repurchases of securities/long-term borrowings:
Long-term debt		(200	)		(7	)		(960	)		—			(1,167	)
Common stock		(3	)		—			—			—			(3	)
Change in short-term borrowings		—			—			(481	)		—			(481	)
Proceeds from sale of noncontrolling interests, net of transaction costs		1,253			1,253			1,253			(2,506	)		1,253
Cash dividends paid		—			(329	)		(329	)		658			—
Change in advances — affiliates		205			7			—			(212	)		—
Other, net		—			—			16			—			16
Cash provided by (used in) financing activities		1,289			924			2,684			(2,060	)		2,837
Cash flows — investing activities:
Capital expenditures and nuclear fuel purchases		—			—			(2,978	)		—			(2,978	)
Investments held in money market fund		—			—			(142	)		—			(142	)
Proceeds from sale of environmental allowances and credits		—			—			39			—			39
Purchases of environmental allowances and credits		—			—			(34	)		—			(34	)
Proceeds from sales of nuclear decommissioning trust fund securities		—			—			1,623			—			1,623
Investments in nuclear decommissioning trust fund securities		—			—			(1,639	)		—			(1,639	)
Change in advances — affiliates		—			—			(212	)		212			—
Other, net		5			—			192			—			197
Cash provided by (used in) investing activities		5			—			(3,151	)		212			(2,934	)
Net change in cash and cash equivalents		1,043			—			365			—			1,408
Cash and cash equivalents — beginning balance		32			—			249			—			281
Cash and cash equivalents — ending balance	$	1,075		$	—		$	614		$	—		$	1,689

169

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

Period from October 11, 2007 through December 31, 2007

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows — operating activities:
Net loss	$	(1,360	)	$	(1,248	)	$	(1,147	)	$	2,395		$	(1,360	)
Income from discontinued operations, net of tax		—			—			(1	)		—			(1	)
Loss from continuing operations		(1,360	)		(1,248	)		(1,148	)		2,395			(1,361	)
Adjustments to reconcile income from continuing operations to cash provided by operating activities:
Equity in earnings of subsidiaries		1,161			1,142			—			(2,303	)		—
Depreciation and amortization		12			4			556			(4	)		568
Deferred income tax expense (benefit) — net		(357	)		11			(390	)		—			(736	)
Impairments and other asset writedown charges		1			—			1			—			2
Unrealized net losses from mark-to-market valuations of commodity positions		—			—			1,556			—			1,556
Other, net		1			—			15			—			16
Changes in operating assets and liabilities:
Margin deposits — net		—			—			(614	)		—			(614	)
Other		712			(220	)		(285	)		(88	)		119
Cash provided by (used in) operating activities of continuing operations		170			(311	)		(309	)		—			(450	)
Cash flows — financing activities:
Issuance of securities:
Equity financing from Sponsor Group		8,236			—			—			—			8,236
Long-term debt		9,000			—			33,732			—			42,732
Retirements/repurchases of long-term debt		(5,522	)		(4	)		(9,869	)		—			(15,395	)
Change in short-term borrowings		—			—			(722	)		—			(722	)
Change in advances — affiliates		33			—			—			(33	)		—
Contributions to parent		—			(21,000	)		(21,000	)		42,000			—
Other, net		(400	)		1			(587	)		—			(986	)
Cash provided by (used in) financing activities		11,347			(21,003	)		1,554			41,967			33,865
Cash flows — investing activities:
Acquisition of EFH Corp.		(32,694	)		—			—			—			(32,694	)
Contribution from subsidiaries		21,000			21,000			—			(42,000	)		—
Capital expenditures and nuclear fuel		(2	)		—			(705	)		—			(707	)
Proceeds from sales of nuclear decommissioning trust fund securities		—			—			831			—			831
Investments in nuclear decommissioning trust fund securities		—			—			(835	)		—			(835	)
Proceeds from letter of credit facility deposited with trustee		—			—			(1,250	)		—			(1,250	)
Change in advances — affiliates		—			314			(347	)		33			—
Other, net		(3	)		—			95			—			92
Cash provided by (used in) investing activities		(11,699	)		21,314			(2,211	)		(41,967	)		(34,563	)

170

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows (cont.)

Period from October 11, 2007 through December 31, 2007

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors		Non-Guarantors			Eliminations		Consolidated
Cash flows — discontinued operations:
Operating activities		—			—		(7	)		—		(7	)
Financing activities		—			—		—			—		—
Investing activities		—			—		—			—		—
Cash used in discontinued operations		—			—		(7	)		—		(7	)
Net change in cash and equivalents		(182	)		—		(973	)		—		(1,155	)
Cash and cash equivalents — beginning balance		214			—		1,222			—		1,436
Cash and cash equivalents — ending balance	$	32		$	—	$	249		$	—	$	281

171

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

Period from January 1, 2007 through October 10, 2007

(millions of dollars)

	Predecessor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows — operating activities:
Net income	$	723		$	1,570		$	1,061		$	(2,631	)	$	723
Income from discontinued operations, net of tax		(2	)		—			(22	)		—			(24	)
Income from continuing operations		721			1,570			1,039			(2,631	)		699
Adjustments to reconcile income from continuing operations to cash provided by operating activities:
Equity in earnings of subsidiaries		(1,077	)		(1,554	)		—			2,631			—
Depreciation and amortization		—			—			684			—			684
Deferred income tax expense (benefit) — net		(67	)		1			(45	)		—			(111	)
Impairments and other asset writedown charges		68			—			646			—			714
Unrealized net losses from mark-to-market valuations of commodity positions		—			—			722			—			722
Other, net		20			(1	)		(5	)		—			14
Changes in operating assets and liabilities:
Margin deposits — net		—			—			(569	)		—			(569	)
Other		1,464			1,452			118			(2,922	)		112
Cash provided by operating activities of continuing operations		1,129			1,468			2,590			(2,922	)		2,265
Cash flows — financing activities:
Issuance of securities:
Long-term debt		—			—			1,800			—			1,800
Common stock		1			—			—			—			1
Retirements/repurchases of securities:
Long-term debt		(1	)		(13	)		(431	)		—			(445	)
Common stock		(13	)		—			—			—			(13	)
Change in short-term borrowings		—			—			949			—			949
Cash dividends paid		(788	)		(1,461	)		(1,461	)		2,922			(788	)
Change in advances — affiliates		50			—			—			(50	)		—
Other, net		(93	)		—			(17	)		—			(110	)
Cash provided by (used in) financing activities		(844	)		(1,474	)		840			2,872			1,394
Cash flows — investing activities:
Capital expenditures and nuclear fuel		(70	)		—			(2,447	)		—			(2,517	)
Proceeds from sales of nuclear decommissioning trust fund securities		—			—			602			—			602
Investments in nuclear decommissioning trust fund securities		—			—			(614	)		—			(614	)
Change in advances — affiliates		—			6			(56	)		50			—
Other, net		(1	)		—			247			—			246
Cash provided by (used in) investing activities		(71	)		6			(2,268	)		50			(2,283	)

172

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows (cont.)

Period from January 1, 2007 through October 10, 2007

(millions of dollars)

	Predecessor
	Parent/ Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Cash flows — discontinued operations:
Operating activities		—		—		35		—		35
Financing activities		—		—		—		—		—
Investing activities		—		—		—		—		—
Cash provided by discontinued operations		—		—		35		—		35
Net change in cash and equivalents		214		—		1,197		—		1,411
Cash and cash equivalents — beginning balance		—		—		25		—		25
Cash and cash equivalents — ending balance	$	214	$	—	$	1,222	$	—	$	1,436

173

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2006

(millions of dollars)

	Predecessor
	Parent/ Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows — operating activities:
Net income	$	2,552		$	2,845		$	2,866		$	(5,711	)	$	2,552
Income from discontinued operations, net of tax		—			—			(87	)		—			(87	)
Income from continuing operations		2,552			2,845			2,779			(5,711	)		2,465
Adjustments to reconcile income from continuing operations to cash provided by operating activities:
Equity in earnings of subsidiaries		(2,936	)		(2,792	)		—			5,728			—
Depreciation and amortization		—			—			893			—			893
Deferred income tax expense (benefit) — net		116			(9	)		649			—			756
Impairments and other asset writedown charges		—			—			204			—			204
Unrealized net gains from mark-to-market valuations of commodity positions		—			—			(272	)		—			(272	)
Other, net		6			—			162			—			168
Changes in operating assets and liabilities:
Margin deposits — net		—			—			564			—			564
Other		482			1,528			892			(2,726	)		176
Cash provided by operating activities of continuing operations		220			1,572			5,871			(2,709	)		4,954
Cash flows — financing activities:
Issuance of securities:
Long-term debt		—			—			243			—			243
Common stock		180			—			—			—			180
Retirements/repurchases of securities:
Long-term debt		(911	)		(6	)		(774	)		—			(1,691	)
Common stock		(960	)		—			—			—			(960	)
Change in short-term borrowings		—			—			694			—			694
Cash dividends paid		(764	)		(1,198	)		(1,484	)		2,682			(764	)
Change in advances — affiliates		1,724			—			981			(2,705	)		—
Other, net		(12	)		—			(22	)		—			(34	)
Cash used in financing activities		(743	)		(1,204	)		(362	)		(23	)		(2,332	)
Cash flows — investing activities:
Capital expenditures and nuclear fuel		(12	)		—			(2,285	)		—			(2,297	)
Proceeds from sales of nuclear decommissioning trust fund securities		—			—			207			—			207
Investments in nuclear decommissioning trust fund securities		—			—			(223	)		—			(223	)
Change in advances — affiliates		—			(299	)		(2,433	)		2,732			—
Investment in collateral trust		533			—			(533	)		—			—
Other, net		2			(69	)		(284	)		—			(351	)
Cash provided by (used in) investing activities		523			(368	)		(5,551	)		2,732			(2,664	)

174

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows (cont.)

For the Year Ended December 31, 2006

(millions of dollars)

	Predecessor
	Parent/ Issuer		Guarantors		Non-Guarantors			Eliminations		Consolidated
Cash flows — discontinued operations:
Operating activities		—		—		30			—		30
Financing activities		—		—		—			—		—
Investing activities		—		—		—			—		—
Cash provided by discontinued operations		—		—		30			—		30
Net change in cash and equivalents		—		—		(12	)		—		(12	)
Cash and cash equivalents — beginning balance		—		—		37			—		37
Cash and cash equivalents — ending balance	$	—	$	—	$	25		$	—	$	25

175

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

at December 31, 2008

(millions of dollars)

	Successor
	Parent/ Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	1,075		$	—		$	614	$	—		$	1,689
Investments held in money market fund		—			—			142		—			142
Restricted cash		—			—			55		—			55
Advances to parent		403			7			—		(410	)		—
Trade accounts receivable — net		3			—			1,216		—			1,219
Income taxes receivable		—			—			128		(86	)		42
Accounts receivable from affiliates		—			—			3		(3	)		—
Notes receivable from affiliates		—			—			633		(633	)		—
Inventories		—			—			426		—			426
Commodity and other derivative contractual assets		143			—			2,391		—			2,534
Accumulated deferred income taxes		—			—			80		(36	)		44
Margin deposits related to commodity positions		—			—			439		—			439
Other current assets		6			—			159		—			165
Total current assets		1,630			7			6,286		(1,168	)		6,755
Restricted cash		—			—			1,267		—			1,267
Investments		3,899			2,793			579		(6,626	)		645
Property, plant and equipment — net		—			—			29,522		—			29,522
Notes receivable from affiliates		12			—			2,273		(2,285	)		—
Goodwill		—			—			14,386		—			14,386
Intangible assets — net		—			—			2,993		—			2,993
Regulatory assets — net		—			—			1,892		—			1,892
Commodity and other derivative contractual assets		—			—			962		—			962
Accumulated deferred income taxes		575			6			—		(581	)		—
Unamortized debt issuance costs and other noncurrent assets		130			111			711		(111	)		841
Total assets	$	6,246		$	2,917		$	60,871	$	(10,771	)	$	59,263
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	—		$	—		$	1,237	$	—		$	1,237
Advances from affiliates		—			—			410		(410	)		—
Long-term debt due currently		3			8			374		—			385
Trade accounts payable		8			—			1,135		—			1,143
Accounts payable to affiliates		—			3			—		(3	)		—
Notes payable to affiliates		585			13			35		(633	)		—
Commodity and other derivative contractual liabilities		178			—			2,730		—			2,908
Margin deposits related to commodity positions		—			—			525		—			525
Accumulated deferred income taxes		36			—			—		(36	)		—
Accrued interest		110			87			413		(86	)		524
Other current liabilities		111			—			587		(86	)		612
Total current liabilities		1,031			111			7,446		(1,254	)		7,334
Accumulated deferred income taxes		—			—			6,507		(581	)		5,926
Investment tax credits		—			—			42		—			42
Commodity and other derivative contractual liabilities		—			—			2,095		—			2,095
Notes or other liabilities due affiliates		2,019			—			266		(2,285	)		—
Long-term debt, less amounts due currently		6,340			4,597			34,401		(4,500	)		40,838
Other noncurrent liabilities and deferred credits		388			1			4,817		(1	)		5,205
Total liabilities		9,778			4,709			55,574		(8,621	)		61,440
Equity:
EFH Corp. shareholders’ equity		(3,532	)		(1,792	)		3,942		(2,150	)		(3,532	)
Noncontrolling interests in subsidiaries		—			—			1,355		—			1,355
Total equity		(3,532	)		(1,792	)		5,297		(2,150	)		(2,177	)
Total liabilities and equity	$	6,246		$	2,917		$	60,871	$	(10,771	)	$	59,263

176

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

at December 31, 2007

(millions of dollars)

	Successor
	Parent/ Issuer		Guarantors		Non-guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	32	$	—	$	249	$	—		$	281
Restricted cash		—		—		56		—			56
Advances to parent		378		1		—		(379	)		—
Trade accounts receivable — net		28		—		1,071		—			1,099
Income taxes receivable		—		44		366		(309	)		101
Accounts receivable from affiliates		—		82		29		(111	)		—
Notes receivable from affiliates		—		—		59		(59	)		—
Inventories		—		—		405		—			405
Commodity and other derivative contractual assets		3		—		1,126		—			1,129
Accumulated deferred income taxes		—		1		76		(68	)		9
Margin deposits related to commodity positions		—		—		513		—			513
Other current assets		253		—		123		—			376
Total current assets		694		128		4,073		(926	)		3,969
Restricted cash		—		—		1,296		—			1,296
Investments		15,157		13,860		749		(28,898	)		868
Property, plant and equipment — net		—		—		28,650		—			28,650
Notes receivable from affiliates		12		—		2,308		(2,320	)		—
Goodwill		—		—		22,954		—			22,954
Intangible assets — net		—		—		4,365		—			4,365
Regulatory assets — net		—		—		1,305		—			1,305
Commodity and other derivative contractual assets		—		—		244		—			244
Accumulated deferred income taxes		478		19		—		(497	)		—
Unamortized debt issuance costs and other noncurrent assets		144		132		986		(132	)		1,130
Assets held for sale		—		—		23		—			23
Total assets	$	16,485	$	14,139	$	66,953	$	(32,773	)	$	64,804
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	—	$	1,718	$	—		$	1,718
Advances from affiliates		—		—		379		(379	)		—
Long-term debt due currently		200		7		306		—			513
Trade accounts payable		6		—		898		—			904
Accounts payable to affiliates		110		—		—		(110	)		—
Notes payable to affiliates		25		—		34		(59	)		—
Commodity and other derivative contractual liabilities		38		—		1,108		—			1,146
Margin deposits related to commodity positions		—		—		5		—			5
Accumulated deferred income taxes		69		—		—		(69	)		—
Accrued interest		114		87		422		(86	)		537
Other current liabilities		556		—		586		(263	)		879
Total current liabilities		1,118		94		5,456		(966	)		5,702
Accumulated deferred income taxes		—		—		7,161		(497	)		6,664
Investment tax credits		—		—		47		—			47
Commodity and other derivative contractual liabilities		—		—		2,453		—			2,453
Notes or other liabilities due affiliates		2,019		—		301		(2,320	)		—
Long-term debt, less amounts due currently		6,288		4,603		32,212		(4,500	)		38,603
Other noncurrent liabilities and deferred credits		375		—		4,275		—			4,650
Total liabilities		9,800		4,697		51,905		(8,283	)		58,119
Shareholders’ equity		6,685		9,442		15,048		(24,490	)		6,685
Total liabilities and shareholders’ equity	$	16,485	$	14,139	$	66,953	$	(32,773	)	$	64,804

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