Oncor Electric Delivery 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

[√] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

― OR ―

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

_____________________

Commission File Number 333-100240

TXU Electric Delivery Company

(Exact Name of Registrant as Specified in its Charter)

Texas	75-2967830
(State of Incorporation)	(I.R.S. Employer Identification No.)
500 N. Akard Street, Dallas, TX 75201	(214) 486-2000
(Address of Principal Executive Offices)(Zip Code)	(Registrant’s Telephone Number)

_____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü   No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer ___ Accelerated filer ____ Non-Accelerated filer  ü

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes___ No ü

Common Stock outstanding at November 6, 2006: 48,864,775 shares, without par value 

TXU Electric Delivery Company meets the conditions set forth in General Instructions (H) (1) (a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format.

TABLE OF CONTENTS 

		Page
GLOSSARY		ii
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Statements of Consolidated Income—
	Three and Nine Months Ended September 30, 2006 and 2005	1
	Condensed Statements of Consolidated Comprehensive Income—
	Three and Nine Months Ended September 30, 2006 and 2005	1
	Condensed Statements of Consolidated Cash Flows —
	Nine Months Ended September 30, 2006 and 2005	2
	Condensed Consolidated Balance Sheets —
	September 30, 2006 and December 31, 2005	3
	Notes to Condensed Consolidated Financial Statements	4
	Report of Independent Registered Public Accounting Firm	18
Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	33
SIGNATURE		34

TXU Electric Delivery Company files periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K which are generally made available to the public, free of charge, on the TXU Corp. website at http://www.txucorp.com, shortly after they have been filed with the Securities and Exchange Commission. To the extent any of those reports are not posted on the TXU Corp. website, TXU Electric Delivery Company will provide such reports upon request. The information on TXU Corp.’s website shall not be deemed a part of, or incorporated by reference into, this report on Form 10-Q.

i

GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.

1999 Restructuring Legislation	legislation that restructured the electric utility industry in Texas to provide for retail competition
2005 Form 10-K	TXU Electric Delivery Company’s Annual Report on Form 10-K for the year ended December 31, 2005
Capgemini	Capgemini Energy LP, a subsidiary of Cap Gemini North America Inc. that provides business process support services to TXU Electric Delivery and TXU Energy Company
Commission	Public Utility Commission of Texas
ERCOT	Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
FASB	Financial Accounting Standards Board, the designated organization in the private sector for establishing standards for financial accounting and reporting
FERC	US Federal Energy Regulatory Commission
FIN	Financial Accounting Standards Board Interpretation
FIN 45	FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34”
FIN 48	FIN No. 48, “Accounting for Uncertainty in Income Taxes”
Fitch	Fitch Ratings, Ltd. (a credit rating agency)
GWh	gigawatt-hours
historical service territory	the territory, largely in north Texas, being served by TXU Corp.’s regulated electric utility subsidiary at the time of entering retail competition on January 1, 2002
Moody’s	Moody’s Investors Services, Inc. (a credit rating agency)
PURA	Texas Public Utility Regulatory Act
REP	retail electric provider
S&P	Standard & Poor’s Ratings Services, a division of the McGraw Hill Inc. Companies (a credit rating agency)
SEC	US Securities and Exchange Commission
SFAS	Statement of Financial Accounting Standards issued by the FASB
SFAS 87	SFAS No. 87, “Employers’ Accounting for Pensions”
SFAS 88	SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits”
SFAS 106	SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”
SFAS 109	SFAS No. 109, “Accounting for Income Taxes”
SFAS 123R	SFAS No. 123 (revised 2004), “Share-Based Payment”

ii

SFAS 132R	SFAS No. 132R (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”
SFAS 140	SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a Replacement of FASB Statement 125”
SFAS 157	SFAS No. 157, “Fair Value Measurements”
SFAS 158	SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans”
TXU Corp.	refers to TXU Corp., a holding company, and/or its consolidated subsidiaries, depending on context
TXU Electric Delivery	refers to TXU Electric Delivery Company, a subsidiary of TXU Corp., and/or its consolidated bankruptcy remote financing subsidiary, TXU Electric Delivery Transition Bond Company LLC, depending on context. This Form 10-Q and other SEC filings of TXU Electric Delivery occasionally make references to TXU Electric Delivery when describing actions, rights or obligations of its subsidiaries. These references reflect the fact that the subsidiaries are consolidated with TXU Electric Delivery for financial reporting purposes. However, these references should not be interpreted to imply that TXU Electric Delivery is actually undertaking the action or has the rights or obligations of its subsidiaries.
TXU Energy Company	refers to TXU Energy Company LLC, a subsidiary of TXU Corp., and/or its consolidated subsidiaries, depending on context
US	United States of America
US GAAP	accounting principles generally accepted in the US
US Holdings	TXU US Holdings Company, a subsidiary of TXU Corp and parent of TXU Energy Company

iii

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TXU ELECTRIC DELIVERY COMPANY

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(millions of dollars)
Operating revenues:
Affiliated	$	344	$	384	$	896	$	999
Nonaffiliated		364		322		978		821
Total operating revenues		708		706		1,874		1,820
Operating expenses:
Operation and maintenance		202		205		607		587
Depreciation and amortization		129		122		359		334
Income taxes		71		75		135		132
Taxes other than income		106		100		297		285
Total operating expenses		508		502		1,398		1,338
Operating income		200		204		476		482
Other income and deductions:
Other income (Note 9)		2		1		2		3
Other deductions (Note 9)		11		5		15		12
Nonoperating income taxes		―		3		11		12
Interest income		14		15		43		44
Interest expense and related charges (Note 9)		74		67		213		203
Net income	$	131	$	145	$	282	$	302

See Notes to Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED

COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(millions of dollars)
Net income	$	131	$	145	$	282	$	302
Other comprehensive income, net of tax effects:
Minimum pension liability adjustment (net of tax benefit of $-, $-, $- and $1)		―		―		―		(2	)
Cash flow hedges ― derivative value net losses reported in net income
that relate to hedged transactions recognized in the period
(net of tax expense of $− in all periods)		—		—		1		1
Comprehensive income	$	131	$	145	$	283	$	301

See Notes to Financial Statements.

1

TXU ELECTRIC DELIVERY COMPANY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2006			2005
	(millions of dollars)
Cash flows — operating activities:
Net income	$	282		$	302
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		357			335
Deferred income taxes and investment tax credits — net		29			46
Stock-based incentive compensation expense		3			4
Changes in operating assets and liabilities		(273	)		(151	)
Cash provided by operating activities		398			536
Cash flows — financing activities:
Retirements of long-term debt		(62	)		(153	)
Changes in short-term borrowings		564			140
Dividend to parent		(255	)		─
Advances from parent		12			2
Decrease in income tax-related note receivable from TXU Energy Company		30			40
Excess tax benefit on stock-based incentive compensation		17			9
Debt premium, discount, financing and reacquisition expenses		(3	)		(4	)
Cash provided by financing activities		303			34
Cash flows — investing activities:
Capital expenditures		(675	)		(553	)
Costs to remove retired property		(33	)		(34	)
Other		(7	)		19
Cash used in investing activities		(715	)		(568	)
Net change in cash and cash equivalents		(14	)		2
Cash and cash equivalents — beginning balance		15			─
Cash and cash equivalents — ending balance	$	1		$	2

See Notes to Financial Statements.

2

TXU ELECTRIC DELIVERY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2006			2005
	(millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents	$	1		$	15
Restricted cash		57			46
Trade accounts receivable from nonaffiliates — net		134			112
Trade accounts and other receivables from affiliates		228			189
Materials and supplies inventories — at average cost		64			53
Accumulated deferred income taxes		25			―
Prepayments		75			37
Other current assets		7			3
Total current assets		591			455
Investments and other property		98			76
Property, plant and equipment ― net		7,526			7,067
Note receivable due from TXU Energy Company (Note 6)		332			362
Regulatory assets ― net		1,759			1,826
Other noncurrent assets		126			125
Total assets	$	10,432		$	9,911
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Short-term borrowings	$	615		$	51
Advances from parent		35			23
Long-term debt due currently		295			93
Trade accounts payable		103			125
Accrued income taxes payable to parent		62			181
Accrued taxes other than income		123			156
Accrued interest		65			73
Other current liabilities		77			84
Total current liabilities		1,375			786
Accumulated deferred income taxes		1,468			1,383
Investment tax credits		54			58
Long-term debt, less amounts due currently (Note 3)		3,843			4,107
Other noncurrent liabilities and deferred credits		693			642
Total liabilities		7,433			6,976
Contingencies (Note 5)
Shareholder’s equity (Note 4):
Common stock without par value:
Authorized shares - 100,000,000 shares;
Outstanding shares: 48,864,775 at September 30, 2006 and December 31, 2005		1,988			1,952
Retained earnings		1,031			1,004
Accumulated other comprehensive loss		(20	)		(21	)
Total shareholder’s equity		2,999			2,935
Total liabilities and shareholder’s equity	$	10,432		$	9,911

See Notes to Financial Statements.

3

TXU ELECTRIC DELIVERY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS

Description of Business— TXU Electric Delivery is a wholly-owned subsidiary of TXU Corp. TXU Electric Delivery is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of Texas. A significant portion of TXU Electric Delivery’s revenues represent fees for delivery services provided to TXU Energy Company. For the nine months ended September 30, 2006, distribution revenues from TXU Energy Company represented 53% of TXU Electric Delivery’s distribution revenues and 48% of TXU Electric Delivery’s total revenues.

TXU Electric Delivery’s consolidated financial statements include its wholly-owned, bankruptcy-remote financing subsidiary, TXU Electric Delivery Transition Bond Company LLC, which was organized for the limited purpose of issuing securitization (transition) bonds to recover regulatory asset stranded costs and other qualified costs.

TXU Electric Delivery is managed as an integrated business; therefore, there are no reportable business segments.

Basis of Presentation— The condensed consolidated financial statements of TXU Electric Delivery have been prepared in accordance with accounting principles generally accepted in the US and on the same basis as the audited financial statements included in its 2005 Form 10-K. All adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and footnotes required by US GAAP, they should be read in conjunction with the audited financial statements and related notes included in the 2005 Form 10-K. The results of operations for an interim period may not give a true indication of results for a full year. All dollar amounts in the financial statements and tables in the notes are stated in millions of US dollars unless otherwise indicated.

4

Changes in Accounting Standards― In September 2006, the FASB issued SFAS 157. SFAS 157 establishes a framework for measuring fair value. This statement is effective for fiscal years beginning after November 15, 2007. TXU Electric Delivery believes the adoption of SFAS 157 will have no significant impact on its results of operations or financial position.

Also, in September 2006, the FASB issued SFAS 158, which will be effective December 31, 2006 for TXU Electric Delivery. SFAS 158 revises SFAS 87, 88, 106 and 132(R) and requires reporting in the balance sheet of the funded status of defined benefit pension and other postretirement employee benefit (OPEB) plans. For TXU Electric Delivery, the initial recognition of the funded status on the financial statements is expected to be reflected as an increase in the defined benefit obligation and an increase in regulatory assets. The recording of a regulatory asset, instead of a reduction in the accumulated other comprehensive income component of shareholders’ equity as set forth in SFAS 158, is based on the regulatory recovery of retirement benefits under the June 2005 amendment to PURA discussed in Note 7. SFAS 158 does not change the measurement or reporting of net periodic benefit costs in the income statement.

TXU Electric Delivery is a participating employer in the pension and OPEB plans sponsored by TXU Corp. The funded status of the pension plan is determined on a total plan basis and has been allocated to TXU Electric Delivery using assumptions designed to provide a reasonable approximation of the funded status for its participants. Historically, TXU Corp. has only made contributions to the OPEB plan for its regulated businesses. Consequently, the funded status for TXU Electric Delivery reflects substantially all of the OPEB plan assets. Following is an indicative estimate of the effect on the consolidated balance sheet of the adoption of SFAS 158 based on a December 31, 2005 measurement:

	Increase to September 30, 2006 Balances
Noncurrent assets:
Regulatory assets - net	$	514
Noncurrent liabilities:
Defined benefit pension and OPEB obligation		514

The amounts to be recorded in the fourth quarter of 2006 upon adoption of SFAS 158 will be based on  TXU Electric Delivery’s allocation of the measurements of TXU Corp.'s pension and OPEB plans at the December 31, 2006 year-end date, which has been TXU Electric Delivery’s practice but is now required under SFAS 158.

In July 2006, the FASB issued FIN 48. FIN 48 provides clarification of the accounting for uncertainty in income taxes in accordance with SFAS 109 and requires disclosure of tax benefits taken that do not qualify for financial statement recognition. FIN 48 is effective for fiscal years beginning after December 15, 2006. TXU Electric Delivery is currently evaluating the potential impact of this standard.

5

2.TRADE ACCOUNTS RECEIVABLE AND SALE OF RECEIVABLES PROGRAM

Sale of Receivables— TXU Electric Delivery participates in an accounts receivable securitization program established by TXU Corp. for certain of its subsidiaries, the activity under which is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the program, TXU Electric Delivery sells trade accounts receivable to TXU Receivables Company, a consolidated wholly-owned bankruptcy-remote direct subsidiary of TXU Corp., which sells undivided interests in the purchased accounts receivable for cash to special purpose entities established by financial institutions (the funding entities). The current program is subject to renewal in June 2008.

As of September 30, 2006, the program funding to all TXU Corp. subsidiary participants (originators) totaled $700 million, which is the maximum amount of funding currently available under the program. The program funding to TXU Electric Delivery as of September 30, 2006 totaled $74 million. Under certain circumstances, 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. Total funding availability under the program is reduced by 100% of the originators’ customer deposits if TXU Energy Company’s fixed charge coverage ratio is less than 2.5 times; 50% if TXU Energy Company’s coverage ratio is less than 3.25 times, but at least 2.5 times; and zero % if TXU Energy Company’s coverage ratio is 3.25 times or more. The originators’ customer deposits, which totaled $115 million, did not affect funding availability at that date as TXU Energy Company’s coverage ratio was in excess of 3.25 times.

All new trade receivables under the program generated by TXU Electric Delivery 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 as well as other factors such as changes in sales prices and volumes. TXU Receivables Company has issued subordinated notes payable to TXU Electric Delivery for the difference between the face amount of the uncollected accounts receivable purchased, less a discount, and cash paid to TXU Electric Delivery that was funded by the sale of the undivided interests. The balance of the subordinated notes issued to TXU Electric Delivery, which is reported in trade accounts receivable, was $99 million and $47 million at September 30, 2006 and December 31, 2005, respectively.

The discount from face amount on the purchase of receivables principally funds program fees paid by TXU Receivables Company to the funding entities. The discount also funds a servicing fee paid by TXU Receivables Company to TXU Business Services Company, a direct subsidiary of TXU Corp., but the amounts are immaterial. The program fees, referred to as losses on sale of the receivables under SFAS 140, consist primarily of interest costs on the underlying financing and totaled $4 million and $2 million for the nine-month periods ended September 30, 2006 and 2005, respectively, and averaged 5.7% and 3.4% (on an annualized basis) of the funding under the program for the first nine months of 2006 and 2005, respectively. These fees represent essentially all the net incremental costs of the program to TXU Electric Delivery and are reported in operation and maintenance expenses.

The accounts receivable balance reported in the September 30, 2006 consolidated balance sheet has been reduced by $173 million face amount of trade accounts receivable from nonaffiliates sold to TXU Receivables Company, partially offset by the inclusion of $99 million of subordinated notes receivable from TXU Receivables Company. Funding under the program decreased $15 million to $74 million for the nine months ended September 30, 2006 and increased $14 million to $76 million for the nine months ended September 30, 2005. 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.

6

Activities of TXU Receivables Company related to TXU Electric Delivery for the nine months ended September 30, 2006 and 2005 were as follows:

	Nine Months Ended September 30,
	2006			2005
Cash collections on accounts receivable	$	891		$	672
Face amount of new receivables purchased		(928	)		(707	)
Discount from face amount of purchased receivables		4			2
Program fees paid		(4	)		(2	)
Increase in subordinated notes payable		52			21
Operating cash flows used by (provided to) TXU Electric Delivery under the program	$	15		$	(14	)

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

Contingencies Related to Sale of Receivables Program— Although TXU Receivables Company expects to be able to pay its subordinated notes from the collections of purchased receivables, these notes are subordinated to the undivided interests of the financial institutions in those receivables, and collections might not be sufficient to pay the subordinated notes. The program may be terminated if either of the following events occurs:

1)all of the originators cease to maintain their required fixed charge coverage ratio and debt to capital (leverage) ratio; or

2)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.

Trade Accounts Receivable—

	September 30,			December 31,
	2006			2005
Gross trade accounts receivable	$	409		$	377
Trade accounts receivable from TXU Energy Company		(194	)		(171	)
Undivided interests in accounts receivable sold by TXU Receivables Company		(173	)		(136	)
Subordinated notes receivable from TXU Receivables Company		99			47
Allowance for uncollectible accounts related to undivided interests in receivables retained		(7	)		(5	)
Trade accounts receivable from nonaffiliates ― net	$	134		$	112

Gross trade accounts receivable at September 30, 2006 and December 31, 2005 included unbilled revenues of $117 million and $112 million, respectively.

Allowances related to receivables sold are reported in current liabilities and totaled $1 million at both September 30, 2006 and December 31, 2005.

7

3.SHORT-TERM AND LONG-TERM DEBT

Short-term Borrowings —At September 30, 2006 and December 31, 2005, the outstanding short-term borrowings of TXU Electric Delivery consisted of the following:

	At September 30, 2006				At December 31, 2005
	Outstanding Amount		Interest Rate (a)		Outstanding Amount		Interest Rate (a)
Commercial paper	$	615		5.51%	$	51		4.56%
Advances from parent	$	35		5.68%	$	23		4.99%
Total	$	650			$	74
______________

(a)Weighted average interest rate at the end of the period.

Under the commercial paper program, TXU Electric Delivery may issue up to $1.0 billion of these securities. The program is supported by existing credit facilities.

Credit Facilities—At September 30, 2006, TXU Electric Delivery had access to credit facilities directly or indirectly (to the extent made available by affiliates) as follows:

		At September 30, 2006
Authorized	Maturity	Facility	Letters of	Cash
Borrowers	Date	Limit	Credit	Borrowings	Availability
TXU Energy Company	May 2007	$1,500	$―	$―	$1,500
TXU Energy Company, TXU Electric Delivery	June 2008	1,400	483	―	917
TXU Energy Company, TXU Electric Delivery	August 2008	1,000	―	250	750
TXU Energy Company, TXU Electric Delivery	March 2010	1,600	3	―	1,597
TXU Energy Company, TXU Electric Delivery	June 2010	500	―	―	500
TXU Energy Company	December 2009	500	455	45	―
Total		$6,500	$941	$295	$5,264

The maximum amount TXU Energy Company and TXU Electric Delivery can directly access under the facilities is $6.5 billion and $3.6 billion, respectively. These facilities may be used for working capital and general corporate purposes, including providing support for issuances of commercial paper and for issuing letters of credit.

In addition, TXU Energy Company and TXU Electric Delivery have a $25 million joint uncommitted line of credit facility without an expiration date and a $50 million joint uncommitted line of credit facility that expires on December 31, 2006. The terms of these facilities are generally consistent with existing credit facilities, except that funding remains at the discretion of the lenders. As of September 30, 2006, there were no outstanding borrowings under these facilities.

All letters of credit and cash borrowings under the credit facilities as of September 30, 2006 are the obligations of TXU Energy Company. In addition, TXU Energy Company has outstanding commercial paper supported by these facilities totaling $360 million.

8

Long-term debt — At September 30, 2006 and December 31, 2005, long-term debt of TXU Electric Delivery consisted of the following:

	September 30,			December 31,
	2006			2005
TXU Electric Delivery
6.375% Fixed Senior Notes due May 1, 2012	$	700		$	700
7.000% Fixed Senior Notes due May 1, 2032		500			500
6.375% Fixed Senior Notes due January 15, 2015 (swapped to variable)		500			500
7.250% Fixed Senior Notes due January 15, 2033		350			350
5.000% Fixed Debentures due September 1, 2007 (swapped to variable)		200			200
7.000% Fixed Debentures due September 1, 2022		800			800
Unamortized discount		(17	)		(17	)
Sub-total		3,033			3,033

TXU Electric Delivery Transition Bond Company LLC: (a)
2.260% Fixed Series 2003 Bonds due in semiannual installments through February 15, 2007		8			44
4.030% Fixed Series 2003 Bonds due in semiannual installments through February 15, 2010		122			122
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		189			215
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 TXU Electric Delivery Transition Bond Company LLC		1,105			1,167
Total TXU Electric Delivery consolidated		4,138			4,200
Less amount due currently		(295	)		(93	)
Total long-term debt	$	3,843		$	4,107

(a)These bonds are nonrecourse to TXU Electric Delivery and were issued to securitize a regulatory asset.

Debt Retirements in 2006 ―Retirements of long-term debt in 2006 totaled $62 million and represent transition bond principal payments at scheduled maturity dates.

9

4.SHAREHOLDER’S EQUITY

No shares of TXU Electric Delivery’s common stock are held by or for its own account, nor are any shares of such capital stock reserved for its officers and employees or for options, warrants, conversions or other rights in connection therewith.

Noncash contributions― Effective January 1, 2005, TXU Electric Delivery and TXU Energy Company entered into an agreement whereby TXU Electric Delivery assumed responsibility for pension and OPEB costs for all applicable employees of the regulated predecessor integrated electric utility (principally TXU Energy Company’s active and retired employees) related to employee service prior to unbundling of TXU Corp.’s electric utility business (see Note 7 for additional information related to this agreement). In connection with this agreement, in the first quarter of 2006 TXU Electric Delivery recorded a $15 million credit to its common stock account for the noncash contribution of pension-related assets.

Under SFAS 123R, expense related to TXU Corp.’s stock-based incentive compensation awards granted to TXU Electric Delivery’s employees is accounted for as a noncash capital contribution from TXU Corp.  Accordingly, TXU Electric Delivery recorded a credit of $1 million and $3 million to its common stock account for the three and nine months ended September 30, 2006, respectively.

The increase in common stock in 2006 also reflects the excess tax benefit of $17 million arising from the distribution date value of the stock-based incentive awards exceeding the reported compensation expense.

Dividends ― During 2006, TXU Electric Delivery declared and paid the following dividends:

Declaration Date	Payment Date	Dividend Amount
October 1, 2006	October 2, 2006	$85
July 1, 2006	July 3, 2006	$85
March 8, 2006	April 3, 2006	$85

In the second quarter of 2006, TXU Electric Delivery distributed its mineral interests in natural gas and oil to TXU Corp. in the form of a dividend. The dividend was recorded at the book value of the interests, which was zero. These mineral interests were acquired as part of land purchases over the years to support the expansion of the transmission and distribution system and not for the mineral development, and no value was attributed to the mineral interests at the time of acquisition.

The following table presents the changes to common stock equity during the nine months ended September 30, 2006:

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Gain (Loss)			Total Shareholder’s Equity
Balance at December 31, 2005	$	1,952	$	1,004		$	(21	)	$	2,935
Net income		─		282			─			282
Dividends to parent		─		(255	)		─			(255	)
Net effects of cash flow hedges		─		─			1			1
Effects of stock-based incentive compensation plans		20		─			─			20
Noncash contribution of pension-related assets		15		─			─			15
Other		1		―			─			1
Balance at September 30, 2006	$	1,988	$	1,031		$	(20	)	$	2,999

Cash distributions that have been in the legal form of common stock share repurchases have been recorded as a return of capital for accounting purposes.  There have not been any such repurchases in 2006.

10

5.CONTINGENCIES

Guarantees — TXU Electric Delivery and its subsidiaries have entered into contracts that contain guarantees to outside parties that could require performance or payment under certain conditions. Guarantees issued or modified after December 31, 2002 are subject to the recognition and initial measurement provisions of FIN 45, which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

Residual value guarantees in operating leases—TXU Electric Delivery is the lessee under various operating leases that obligate it to guarantee the residual values of the leased assets. At September 30, 2006, both the aggregate maximum amount of residual values guaranteed and the estimated residual recoveries totaled approximately $25 million. These leased assets consist primarily of vehicles used in distribution activities. The average life of the lease portfolio is approximately three years. A significant portion of the maximum guarantee amount relates to leases entered into prior to December 31, 2002.

Legal Proceedings —  TXU Electric Delivery is involved in various 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 upon its financial position, results of operations or cash flows.

Environmental Contingencies ―TXU Electric Delivery must comply with environmental laws and regulations applicable to the handling and disposal of hazardous waste. TXU Electric Delivery is in compliance with all current 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:

· changes to existing state or federal regulation by governmental authorities having jurisdiction over control of toxic substances and hazardous and solid wastes, and other environmental matters;

· the identification of additional sites requiring clean-up or the filing of other complaints in which TXU Electric Delivery may be asserted to be a potential responsible party.

11

6.RELATED-PARTY TRANSACTIONS

The following represent significant related-party transactions of TXU Electric Delivery:

· TXU Electric Delivery records revenue from TXU Energy Company for electricity delivery fees and other miscellaneous revenues, which totaled $344 million and $384 million for the three months ended September 30, 2006 and 2005, respectively, and $896 million and $999 million for the nine months ended September 30, 2006 and 2005, respectively.

· TXU Electric Delivery records interest income received from TXU Energy Company with respect to TXU Electric Delivery’s generation-related regulatory assets, which have been securitized through the issuance of transition bonds by TXU Electric Delivery. The interest income serves to offset TXU Electric Delivery’s interest expense on the transition bonds. This interest income totaled $13 million and $14 million for the three months ended September 30, 2006 and 2005, respectively, and $40 million and $42 million for the nine months ended September 30, 2006 and 2005, respectively.

· The incremental income taxes TXU Electric Delivery pays on the increased delivery fees charged to TXU Electric Delivery’s customers related to the transition bonds is reimbursed by TXU Energy Company. TXU Electric Delivery’s financial statements reflect a note receivable of $364 million from TXU Energy Company ($32 million reported as current assets) at September 30, 2006 and $395 million ($33 million reported as current assets) at December 31, 2005 for the remaining amount of such income taxes over the life of the bonds.

· Short-term advances from parent totaled $35 million and $23 million at September 30, 2006 and December 31, 2005, respectively. The average daily balances of short-term advances from parent totaled $76 million and $60 million during the three months ended September 30, 2006 and 2005, respectively, and the weighted average interest rates for the respective periods were 5.72% and 4.21%. Average daily short-term advances from parent totaled $50 million and $82 million for the nine months ended September 30, 2006 and 2005, respectively, and the weighted average interest rates for the respective periods were 5.35% and 3.87%. Interest expense incurred on the advances totaled approximately $1 million and $646 thousand for the three months ended September 30, 2006 and 2005, respectively, and $2 million for both the nine months ended September 30, 2006 and 2005, respectively.

· A TXU Corp. subsidiary charges TXU Electric Delivery for financial, accounting and other administrative services at cost. These costs, which are reported in operation and maintenance expenses, totaled $9 million and $8 million for the three months ended September 30, 2006 and 2005, respectively, and $28 million and $24 million for the nine months ended September 30, 2006 and 2005, respectively.

· Under Texas regulatory provisions, the trust fund for decommissioning the Comanche Peak nuclear generation facility, reported on TXU Energy Company’s balance sheet, is funded by a delivery fee surcharge collected from REPs by TXU Electric Delivery and remitted to TXU Energy Company, with the intent that the trust fund assets will be sufficient to fund the decommissioning liability, also reported on TXU Energy Company’s balance sheet. Income and expenses associated with the trust fund and the decommissioning liability incurred by TXU Energy Company are offset by a net change in the TXU Electric Delivery and TXU Energy Company intercompany receivable/payable, which in turn results in a change in TXU Electric Delivery’s reported net regulatory asset/liability. The regulatory liability totaled $2 million at September 30, 2006 and represents the excess of the trust fund balance over the decommissioning liability. The regulatory asset totaled $8 million at December 31, 2005 and represented the excess of the decommissioning liability over the trust fund balance.

· TXU Electric Delivery has a 19.5% limited partnership interest, with a carrying value of $5 million and $8 million at September 30, 2006 and December 31, 2005, respectively, in a TXU Corp. subsidiary holding Capgemini-related assets. Equity losses related to this interest totaled $1 million for both the three months ended September 30, 2006 and 2005, and $3 million and $2 million for the nine months ended September 30, 2006 and 2005, respectively. These losses primarily represent amortization of software assets held by the subsidiary.

12

· TXU Corp. files a consolidated federal income tax return, and federal income taxes are allocated to subsidiaries based on their respective taxable income or loss. As a result, TXU Electric Delivery had a federal income tax payable to TXU Corp. of $62 million and $181 million at September 30, 2006 and December 31, 2005, respectively.

See Notes 2, 4 and 7 for information regarding the accounts receivable securitization program and related subordinated notes receivable from TXU Receivables Company, dividends to TXU Corp. and the assumption of certain TXU Energy Company’s pension and OPEB costs, respectively.

13

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

TXU Electric Delivery is a participating employer in the pension plan sponsored by TXU Corp. TXU Electric Delivery also participates with TXU Corp. and other subsidiaries of TXU Corp. to offer health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. The net allocated pension and OPEB costs applicable to TXU Electric Delivery for the three and nine months ended September 30, 2006 and 2005 are comprised of the following:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(millions of dollars)
Amounts recognized as expense	$	5	$	6	$	14	$	15
Amounts deferred principally as a regulatory asset or property		20		13		61		42
Total pension and OPEB costs	$	25	$	19	$	75	$	57

The discount rate reflected in net pension and OPEB costs in 2006 is 5.75%. The expected rate of return on plan assets reflected in the 2006 cost amounts is 8.75% for the pension plan and 8.67% for the OPEB plan.

In June 2005, an amendment to PURA relating to pension and OPEBs was enacted by the Texas Legislature. This amendment, which was retroactively effective January 1, 2005, provides for the recovery by TXU Electric Delivery of pension and OPEB costs for all applicable former employees of the regulated predecessor integrated electric utility, primarily TXUEnergy Company’s active and retired employees, related to employee service prior to the unbundling of TXU Corp.’s electric utility business and the deregulation of the Texas electricity industry effective January 1, 2002. TXU Electric Delivery and TXU Energy Company have entered into an agreement whereby TXU Electric Delivery has assumed responsibility for TXU Energy Company’s applicable pension and OPEB costs. In accordance with this agreement, in 2005 TXU Electric Delivery recorded a $146 million charge to its common stock account for the noncash assumption of the pension obligation. In addition, during 2006 TXU Electric Delivery recorded a $15 million credit to its common stock account for the noncash contribution of pension-related assets.

The amendment additionally authorizes TXU Electric Delivery to establish a regulatory asset or liability for the difference between the amounts of pension and OPEBs approved in current billing rates and the actual amounts that would otherwise have been recorded as charges or credits to earnings. Accordingly, in the second quarter of 2005, TXU Electric Delivery began deferring (principally as a regulatory asset or property) additional pension and OPEB benefit costs for the effect of the amendment. Amounts deferred are ultimately subject to regulatory approval.

14

8.CITIES RATE SETTLEMENT

In January 2006, TXU Electric Delivery agreed with a steering committee representing 108 cities in Texas (Cities) to defer the filing of a system-wide rate case with the Commission to no later than June 30, 2008 (based on a test year ending December 31, 2007), unless the Cities and TXU Electric Delivery mutually agree that such a filing is unnecessary. TXU Electric Delivery has extended the benefits of the agreement to 292 nonlitigant cities. Based on the final agreements, including the participation of the nonlitigant cities, expected payments to the cities are estimated to total approximately $70 million, including incremental franchise taxes.

This amount is being recognized in earnings over the period from May 2006 through June 2008. Amounts recognized in 2006 totaled $7 million in the third quarter and $10 million year-to-date and have been reported in the other deductions and franchise and revenue-based taxes line items in the Condensed Statements of Consolidated Income.

9.SUPPLEMENTARY FINANCIAL INFORMATION

 Other Income and Other Deductions —

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2006		2005		2006		2005
Other income:
Equity portion of allowance for funds used during construction	$	―	$	1	$	―	$	1
Other, including net gain on sale of properties		2		—		2		2
Total other income	$	2	$	1	$	2	$	3
Other deductions:
Charge related to cities rate settlements (a)	$	6	$	1	$	6	$	1
Capgemini outsourcing transition costs		―		1		―		3
Equity losses in an unconsolidated affiliate		1		1		3		2
Transition costs related to InfrastruX Energy Services joint venture (b)		3		―		3		―
Other, including employee severance		1		2		3		6
Total other deductions	$	11	$	5	$	15	$	12

(a)	See Note 8 above.
(b)	Transition costs include costs incurred on behalf of the new venture such as modifying information technology systems, planning and designing processes and training transitioning employees to prepare for the operation of the venture.

Interest Expense and Related Charges—

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Interest	$	75		$	67		$	213		$	203
Amortization of debt discounts and issuance costs		1			1			4			4
Allowance for borrowed funds used during construction — capitalized interest portion		(2	)		(1	)		(4	)		(4	)
Total interest expense and related charges	$	74		$	67		$	213		$	203	��

Investments and Other Property —

	September 30,		December 31,
	2006		2005
Assets related to employee benefit plans, principally employee savings programs	$	72	$	51
Restricted cash		17		13
Investment in affiliate holding Capgemini-related assets		5		8
Land		4		4
Total other property and investments	$	98	$	76

15

Restricted Cash— All restricted cash amounts reported on the balance sheet relate to the securitization (transition) bonds.

Property, Plant and Equipment— At September 30, 2006 and December 31, 2005, property, plant and equipment of $7.5 billion and $7.1 billion, respectively, is stated net of accumulated depreciation and amortization of $3.8 billion and $3.7 billion, respectively.

Intangible Assets — Intangible assets other than goodwill are comprised of the following:

	As of September 30, 2006						As of December 31, 2005
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Intangible assets subject to amortization
included in property, plant and equipment:
Land easements	$	176	$	64	$	112	$	176	$	62	$	114
Capitalized software		85		48		37		71		34		37
Total	$	261	$	112	$	149	$	247	$	96	$	151

Aggregate TXU Electric Delivery amortization expense for intangible assets totaled $9 million and $2 million for the three months ended September 30, 2006 and 2005, respectively, and $16 million and $6 million for the nine months ended September 30, 2006 and 2005, respectively. At September 30, 2006, the weighted average remaining useful lives of capitalized land easements and software were 69 years and 8 years, respectively. The estimated aggregate amortization expense for each of the five succeeding fiscal years from December 31, 2005 is as follows:

Year	AmortizationExpense
2006	$	11
2007		11
2008		10
2009		8
2010		3

At September 30, 2006 and December 31, 2005, goodwill of $25 million was reported in other noncurrent assets on the balance sheet.

16

Regulatory Assets and Liabilities—

	September 30, 2006		December 31, 2005
Regulatory assets
Generation-related regulatory assets securitized by transition bonds	$	1,354	$	1,461
Securities reacquisition costs		114		119
Recoverable deferred income taxes — net		94		107
Storm-related costs		136		110
Employee retirement costs		148		89
Nuclear decommissioning cost under-recovery		―		8
Employee severance costs		42		33
Total regulatory assets		1,888		1,927
Regulatory liabilities
Investment tax credit and protected excess deferred taxes		69		71
Over-collection of securitization (transition) bond revenues		38		28
Nuclear decommissioning cost over-recovery		2		―
Other regulatory liabilities		20		2
Total regulatory liabilities		129		101
Net regulatory assets	$	1,759	$	1,826

Regulatory assets reported above that have been reviewed and approved by the Commission and are earning a return totaled $121 million at both September 30, 2006 and December 31, 2005. The assets that have been approved by the Commission and are not earning a return total $1,379 million and have a remaining recovery period of 10 to 45 years, including the regulatory assets securitized by transition bonds that have a remaining recovery period of 10 years.

Severance Liability Related to Strategic Initiatives —

Liability for severance costs as of December 31, 2005	$	4
Addition to liability (a)		8
Payments charged against liability		(3	)
Adjustments		(1	)
Liability for severance costs as of September 30, 2006	$	8

(a) Addition to the liability relates to a services agreement entered into with a provider and the cost was deferred as a regulatory asset.

Supplemental Cash Flow Information—

	Nine Months Ended
	September 30,
	2006		2005
Cash payments:
Interest (net of amounts capitalized)	$	217	$	210
Income taxes	$	224	$	77
Noncash investing and financing activities:
Noncash contribution for pension-related assets	$	15	$	(150	)
Transfer of property	$	―	$	18

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of TXU Electric Delivery Company:

We have reviewed the accompanying condensed consolidated balance sheet of TXU Electric Delivery Company and subsidiary (the “Company”) as of September 30, 2006, and the related condensed statements of consolidated income and comprehensive income for the three-month and nine-month periods ended September 30, 2006 and 2005, and of cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2005, and the related statements of consolidated income, comprehensive income, shareholder’s equity and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Dallas, Texas

November 9, 2006

18

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS

TXU Electric Delivery is a wholly-owned subsidiary of TXU Corp. TXU Electric Delivery is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of Texas. A significant portion of TXU Electric Delivery’s revenues represent fees for delivery services provided to TXU Energy Company. For the nine months ended September 30, 2006, distribution revenues from TXU Energy Company represented 53% of TXU Electric Delivery’s distribution revenues and 48% of TXU Electric Delivery’s total revenues.

TXU Electric Delivery’s financial statements include its wholly-owned, bankruptcy remote financing subsidiary, TXU Electric Delivery Transition Bond Company LLC, which was organized for the limited purpose of issuing securitization (transition) bonds to recover regulatory asset stranded costs and other qualified costs.

SIGNIFICANT DEVELOPMENTS IN 2006

Joint Venture and Services Agreement

 As previouslydisclosed, TXU Corp. and InfrastruX Group announced the formation of a joint venture, InfrastruX Energy Services, that expects to provide utility construction, power restoration, maintenance and other services. TXU Electric Delivery expects to enter into an agreement with InfrastruX Energy Services to provide services to TXU Electric Delivery at a cost of approximately $8.7 billion over its ten-year term. The arrangement is conditional upon InfrastruX Group refinancing its debt obligations prior to the final execution of the agreement.

TXU Corp. anticipates closing the transaction in the first half of 2007; however, the Commission recently expressed its desire to gather further information regarding the joint venture. TXU Electric Delivery cannot predict the ultimate outcome of this process, including its possible effect on the timing of closure of the transaction. (Also see discussion below under “Regulation and Rates”.)

Under the terms of the arrangement, over 2,000 TXU Electric Delivery employees are expected to be transferred to the joint venture. These employees represent essentially all of TXU Electric Delivery’s field operations personnel, consisting primarily of construction, maintenance and engineering staff. InfrastruX Group expects to contribute all its operations to the joint venture, including its 3,000 current employees. These operations generated revenues of approximately $400 million in 2005. In addition, TXU Electric Delivery (through TXU Corp.) expects to contribute approximately $30 million in tools and other equipment to the joint venture and also expects to sell approximately $60 million in inventory, principally poles and wire, to the joint venture. TXU Electric Delivery now expects to incur transition expenses related to the arrangement of up to $19 million, of which $3 million was expensed in the third quarter of 2006.

19

Technology Initiatives

As previously disclosed, in April 2006 TXU Electric Delivery executed an agreement with CURRENT Communications Group, LLC (CURRENT), to utilize TXU Electric Delivery’s power distribution network as a broadband-enabled “Smart Grid.” CURRENT plans to design, build and operate the “broadband-over-powerline” (BPL) network covering the majority of the TXU Electric Delivery service area. Under the terms of the agreement with CURRENT, once the BPL network begins operating (estimated to be late 2006), TXU Electric Delivery expects to incur service fees totaling approximately $150 million over a 10 year period commencing in 2007 to utilize the Smart Grid capabilities of CURRENT’s BPL network.

Overlaid on the existing electric distribution network, the CURRENT BPL network solution will incorporate advanced digital communication and computing capabilities that, for the first time, provide real-time monitoring through the electric distribution network, enabling TXU Electric Delivery to:

· increase network reliability and power quality;

· prevent, detect and restore customer outages more effectively; and

· efficiently implement automated meter reading.

20

RESULTS OF OPERATIONS

TXU Electric Delivery is managed as an integrated business; therefore, there are no reportable business segments.

All dollar amounts in Management’s Discussion and Analysis of Financial Condition and Results of Operations (including the tables) are stated in millions of US dollars unless otherwise indicated.

TXU Electric Delivery’s future results are expected to be impacted by the effects of the cities rate settlement described in Note 8 to the Financial Statements. Incremental expenses of approximately $70 million are being recognized almost entirely over the period from May 2006 through June 2008, of which $7 million and $10 million has been recognized in the three and nine month periods ended September 30, 2006, respectively.

TXU Electric Delivery’s future results are also expected to be impacted by additional transition costs associated with the InfrastruX Energy Services joint venture totaling an estimated $16 million, of which approximately $3 million is expected to be expensed in the fourth quarter of 2006 and the balance in the first half of 2007.

Operating Data

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2006		2005		Change %			2006		2005		Change %
Operating statistics - volumes:
Electric energy delivered (GWh)		33,105		34,028		(2.7	)		83,480		82,935		0.7
Reliability statistics (a):
System Average Interruption Duration Index (SAIDI) (nonstorm)									78.29		78.01		0.4
System Average Interruption Frequency Index (SAIFI) (nonstorm)									1.16		1.19		(2.5	)
Customer Average Interruption Duration Index (CAIDI) (nonstorm)									67.31		65.45		2.8
Electricity points of delivery (end of period and in thousands):
Electricity distribution points of delivery (based on number of meters) (b)									3,051		3,009		1.4
Operating revenues:
Electricity distribution revenues (c):
Affiliated (TXU Energy Company)	$	344	$	384		(10.4	)	$	894	$	998		(10.4	)
Nonaffiliated		296		262		13.0			782		645		21.2
Total distribution revenues		640		646		(0.9	)		1,676		1,643		2.0
Third-party transmission revenues		60		54		11.1			176		158		11.4
Other miscellaneous revenues		8		6		33.3			22		19		15.8
Total operating revenues	$	708	$	706		0.3		$	1,874	$	1,820		3.0

__________________________

(a)	SAIDI is the average number of electric service outage minutes per customer in a year. SAIFI is the average number of electric service interruptions per customer in a year. CAIDI is the average duration in minutes of interruptions to electric service in a year. The statistics presented are based on the preceding twelve months’ data.
(b)	Includes lighting sites, primarily guard lights, for which TXU Energy Company is the REP but are not included in TXU Energy Company’s customer count. Such sites totaled 83,068 and 87,326 at September 30, 2006 and 2005, respectively.
(c)	Includes transition charges associated with the issuance of securitization bonds totaling $44 million and $48 million for the three months ended September 30, 2006 and 2005, respectively, and $117 million and $116 million for the nine months ended September 30, 2006 and 2005, respectively. Also includes disconnect/reconnect fees and other discretionary revenues for services requested by REPs.

21

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Operating revenues increased $2 million, or less than 1%, to $708 million in 2006. Delivered volumes decreased 3%. The revenue increase reflected:

· $6 million in higher transmission revenues primarily due to rate increases approved in 2005 and 2006 to recover ongoing investment in the transmission system;

· an estimated $5 million due to growth in points of delivery; and

· $2 million from increased distribution tariffs to recover higher transmission costs,

partially offset by:

· an estimated $10 million decline due to lower delivered volumes as the effect of warmer weather on energy consumption was more than offset by end-user efficiency measures in response to energy prices and warmer weather; and

· $3 million in lower securitization transition revenue (offset by lower amortization of the related regulatory asset). The decline was due to a true-up of tariffs reflected in 2005 revenues.

Operation and maintenance expense decreased $3 million, or 1%, to $202 million in 2006. The decrease reflected:

· $2 million in lower costs associated with meter installation activities;

· $1 million in lower civic-support costs;

· $1 million in lower stock-based incentive compensation and deferred compensation expenses; and

· $1 million decreased spending for vegetation management,

partially offset by $5 million in increased fees paid to third-party transmission entities.

Depreciation and amortization increased $7 million, or 6%, to $129 million in 2006. The increase reflected $6 million in higher depreciation due to normal additions and replacements of property, plant, and equipment, a $4 million adjustment related to capitalized software costs partially offset by $3 million in lower amortization of the regulatory assets associated with the securitization bonds (offset in revenues).

Taxes other than income increased $6 million, or 6%, to $106 million in 2006. The increase was driven by higher sales volumes in the period to which the tax applies and also includes $1 million in higher franchise fees under the cities rate settlement described in Note 8 to Financial Statements.

Other income totaled $2 million and $1 million in 2006 and 2005, respectively. Other deductions totaled $11 million and $5 million in 2006 and 2005, respectively. See Note 9 to Financial Statements for additional detail.

Income tax expense totaled $71 million in 2006, all related to operating income, compared to $78 million in 2005. The effective tax rate was comparable at 35.1% for 2006 and 35% for 2005.

Interest expense increased $7 million, or 10%, to $74 million in 2006 primarily due to higher average balances of commercial paper outstanding.

Net income decreased $14 million, or 10%, to $131 million driven by costs associated with the cities rate settlement, higher depreciation and amortization and transition costs related to the InfrastruX Energy Services joint venture. Net pension and OPEB costs reduced net income by $3 million in 2006 and $4 million in 2005.

22

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Operating revenues increased $54 million, or 3%, to $1.9 billion in 2006. Delivered volumes rose less than 1%. The revenue increase reflected:

· $18 million in higher transmission revenues primarily due to rate increases approved in 2005 and 2006 to recover ongoing investment in the transmission system;

· an estimated $13 million due to growth in points of delivery;

· an estimated $9 million in higher revenues as the effect of warmer weather on energy consumption was partially offset by end-user efficiency measures in response to energy prices and warmer weather;

· $6 million from increased distribution tariffs to recover higher transmission costs; and

· $2 million in higher securitization transition revenues related to tariff true-ups (offset by higher amortization of the related regulatory asset).

Operation and maintenance expense increased $20 million, or 3%, to $607 million in 2006. The increase reflected:

· $14 million in increased fees paid to third party transmission entities;

· $9 million increased spending for vegetation management; and

· $6 million in higher shared services costs partially due to executive severance expenses,

partially offset by,

· $4 million in office equipment lease expenses incurred in 2005 not recurring in 2006;

· $2 million in lower stock-based incentive compensation and deferred compensation expenses; and

· $2 million in lower civic-support costs.

Depreciation and amortization increased $25 million, or 7%, to $359 million in 2006. The increase reflected $18 million in higher depreciation due to normal additions and replacements of property, plant, and equipment, a $4 million adjustment related to capitalized software costs and $3 million in higher amortization of the regulatory assets largely associated with the securitization bonds (offset in revenues and interest income).

Taxes other than income increased $12 million, or 4%, to $297 million in 2006. The increase was driven by higher sales volumes in the period to which the tax applies and also includes $4 million in higher franchise fees under the cities rate settlement described in Note 8 to the Financial Statements.

Other income totaled $2 million and $3 million in 2006 and 2005, respectively. Other deductions totaled $15 million and $12 million in 2006 and 2005, respectively. See Note 9 to Financial Statements for additional detail.

Income tax expense totaled $146 million in 2006 (including $135 million related to operating income and $11 million related to nonoperating income) compared to $144 million in 2005. The effective tax rate increased to 34.1% in 2006 from 32.3% in 2005. The 2005 amount reflected a credit of $4 million (a 0.9 percentage point effective tax rate impact) related to the settlement of an IRS audit for the 1994 to 1996 years. The higher effective tax rate also reflected adjustments in 2006 related to the filing of the 2005 federal income tax return.

Interest expense increased $10 million, or 5%, to $213 million in 2006 due to higher average balances of commercial paper outstanding.

Net income decreased $20 million, or 7%, to $282 million. This decline was driven by a higher effective income tax rate and increased taxes other than income. Higher revenues were offset by increases in operation and maintenance, depreciation and interest costs. Net pension and OPEB costs reduced net income by $9 million in 2006 and $10 million in 2005.

23

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows — Cash flow from operating activities totaled $398 million and $536 million for the nine months ended September 30, 2006 and 2005, respectively. The $138 million decrease was primarily driven by higher income tax payments to TXU Corp. related to the 2005 income tax liability due to higher 2005 taxable income as compared to 2004.

Cash flows provided by financing activities totaled $303 million in 2006 compared to $34 million in 2005. The activity reflected:

	Nine Months Ended September 30,
	2006			2005
Net issuances and repayments of borrowings (including advances
from parent)	$	511		$	(15	)
Common stock dividends		(255	)		―
Decrease in note receivable from TXU Energy Company		30			40
Excess tax benefits on stock-based incentive compensation		17			9
Total	$	303		$	34

Investing activities, which consisted primarily of capital expenditures, totaled $715 million in 2006 and $568 million in 2005. The activity reflected:

	Nine Months Ended September 30,
	2006			2005
Capital expenditures	$	(675	)	$	(553	)
Restricted cash		(15	)		(9	)
Costs to remove retired property		(33	)		(34	)
Other		8			28
Total	$	(715	)	$	(568	)

The $122 million, or 22%, increase in capital expenditures reflected investment to enhance system load monitoring and outage detection and to support growth in points of delivery in ERCOT, as well as to purchase and install automated meter reading devices.

Credit Facilities— Available liquidity under credit facilities to which TXU Electric Delivery has direct and indirect access (to the extent made available by affiliates) totaled $5.3 billion at both September 30, 2006 and October 23, 2006. These credit facilities are used for working capital and general corporate purposes including providing support for issuances of commercial paper and for issuing letters of credit. See Note 3 to Financial Statements for details of the arrangements.

Short-term Borrowings — TXU Electric Delivery’s commercial paper outstanding totaled $615 million at September 30, 2006 and $658 million at October 23, 2006. The commercial paper funds short-term liquidity requirements.

24

Equity— TXU Electric Delivery’s cash distributions may take the legal form of common stock share repurchases or the payment of dividends on outstanding shares of its common stock. The form of the distributions is primarily determined by current and forecasted levels of retained earnings. Cash distributions in 2002 through 2004 were in the form of common stock share repurchases recorded as a return of capital for financial reporting purposes. There were no cash distributions in the form of common stock in 2005. Cash distributions are reported (i) as a return of capital if made through repurchases or (ii) as a dividend if so declared by the board of directors. Cash distributions through common stock share repurchases reduce the amount of TXU Electric Delivery's equity, but do not change TXU Corp.’s 100% ownership of TXU Electric Delivery.

Cash distributions through the third quarter of 2006 totaled $255 million and were in the form of dividends as declared by the board of directors.

In the second quarter of 2006, TXU Electric Delivery distributed its mineral interests in natural gas and oil to TXU Corp. in the form of a dividend. The dividend was recorded at the book value of the interests, which was zero. These mineral interests were acquired as part of land purchases over the years to support expansion of the transmission and distribution system and not for mineral development, and no value was attributed to the mineral interests at the time of acquisition. The fair value of these interests has not been determined. TXU Corp. is currently exploring potential initiatives with respect to the interests.

Sale of Accounts Receivable— TXU Electric Delivery participates in an accounts receivable securitization program established by TXU Corp. for certain of its subsidiaries, the activity under which is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the program, TXU Electric Delivery sells trade accounts receivable to TXU Receivables Company, a wholly-owned bankruptcy-remote direct subsidiary of TXU Corp., which sells undivided interests in the purchased accounts receivable for cash to special purpose entities established by financial institutions. All new trade receivables under the program generated by TXU Electric Delivery are continuously purchased by TXU Receivables Company with the proceeds from collections of receivables previously purchased. Funding to TXU Electric Delivery under the program totaled $74 million and $89 million at September 30, 2006 and December 31, 2005, respectively. See Note 2 to Financial Statements for a more complete description of the program including the impact on the financial statements for the periods presented and the contingencies that could result upon the termination of the program.

Financial Covenants, Credit Rating Provisions and Cross Default Provisions— The terms of certain financing arrangements of TXU Electric Delivery contain financial covenants that require maintenance of specified fixed charge coverage ratios and leverage ratios and/or contain minimum net worth covenants. As of September 30, 2006, TXU Electric Delivery was in compliance with all such applicable covenants.

25

Credit Ratings

Current credit ratings for TXU Corp. and certain of its subsidiaries are presented below:

	TXU Corp.	US Holdings	TXU Electric Delivery	TXU Energy Company
	(Senior Unsecured)	(Senior Unsecured)	(Senior Unsecured)	(Senior Unsecured)
S&P	BB+	BB+	BBB-	BBB-
Moody’s	Ba1	Baa3	Baa2	Baa2
Fitch	BBB-	BBB-	BBB+	BBB

Moody’s currently maintains a stable outlook for TXU Corp., US Holdings, TXU Energy Company and TXU Electric Delivery. Fitch’s outlook is negative for TXU Corp., US Holdings and TXU Energy Company and stable for TXU Electric Delivery. S&P’s outlook is negative for TXU Corp., US Holdings, TXU Energy Company and TXU Electric Delivery. These ratings are investment grade, except for Moody’s and S&P’s rating of TXU Corp.’s senior unsecured debt and S&P’s rating of US Holdings’ senior unsecured debt, which are one notch below investment grade.

Commercial paper issued by TXU Energy Company and TXU Electric Delivery is rated P2 by Moody’s and F2 by Fitch and has not been rated by S&P.

A rating reflects only the view of a rating agency, and is not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change.

Material Cross Default Provisions

Certain financing arrangements contain provisions that may result in an event of default if there were a failure under other financing arrangements to meet payment terms or to observe other covenants that may result in an acceleration of payments due. Such provisions are referred to as “cross default” provisions.

A default by TXU Energy Company or TXU Electric Delivery or any subsidiary thereof in respect of indebtedness in a principal amount in excess of $50 million may result in a cross default under joint credit facilities totaling $4.5 billion. Under these credit facilities, a default by TXU Energy Company or any subsidiary thereof may cause the maturity of outstanding balances ($1.2 billion at September 30, 2006) under such facility to be accelerated as to TXU Energy Company but not as to TXU Electric Delivery. Also, under these credit facilities, a default by TXU Electric Delivery or any subsidiary thereof may cause the maturity of outstanding balances (none as of September 30, 2006) under such facility to be accelerated as to TXU Electric Delivery but not as to TXU Energy Company.

The accounts receivable securitization program also contains a cross default provision with a threshold of $50 million applicable to each of the originators under the program. TXU Receivables Company and TXU Business Services Company each have a cross default threshold of $50 thousand. If either an originator, TXU Business Services Company or TXU Receivables Company defaults on indebtedness of the applicable threshold, the facility could terminate.

Other arrangements, including leases, have cross default provisions, the triggering of which would not result in a significant effect on liquidity.

26

OFF BALANCE SHEET ARRANGEMENTS

Subsidiaries of TXU Corp. participate in an accounts receivable securitization program. See discussion above under “Sale of Accounts Receivable”and in Note 2 to Financial Statements.

COMMITMENTS AND CONTINGENCIES

See Note 5 to Financial Statements for details of contingencies, including guarantees.

REGULATION AND RATES

Transmission Rates— In order to recover certain increased transmission costs including third-party transmission costs from affiliate and third-party REPs, TXU Electric Delivery is allowed to request an update twice a year to the TCRF component of its retail delivery rate. In July 2006, an application was filed to increase the TCRF, which became effective September 1, 2006. This increase is expected to result in an annual increase of $24 million in the TCRF component of TXU Electric Delivery’s retail delivery rates charged to REPs and includes $7 million of the wholesale transmission rate increase described below.

TXU Electric Delivery filed an application for an interim update of its wholesale transmission rate which was approved by the Commission in April 2006 and the new rate went into effect immediately. Annualized revenues are expected to increase by approximately $19 million. Approximately $12 million of this increase is recoverable through transmission rates charged to wholesale customers, and the remaining $7 million is recoverable from REPs through the retail transmission cost recovery factor (TCRF) component of TXU Electric Delivery’s delivery rates charged to REPs.

Automated Meter Reading — In 2005, the Texas legislature passed legislation that authorized utilities to impose a surcharge to recover costs incurred in deploying advanced metering and meter information networks. Benefits of the advanced metering installation include improved safety, on-demand meter reading, enhanced outage identification and restoration and system monitoring of voltages. At September 30, 2006, TXU Electric Delivery had installed approximately 214,000 advanced meters in its service territory and anticipates installation of approximately 370,000 automated meters by year-end 2006, which would represent approximately 12% of the meters on the distribution system. Commission staff have initiated rulemaking that may address various automated meter reading issues, including cost recovery. TXU Electric Delivery cannot predict the outcome of this rulemaking. TXU Electric Delivery anticipates filing a surcharge request in the near future to seek recovery of investment costs incurred.

Cities Rate Settlement— As previously disclosed, in January 2006 TXU Electric Delivery agreed with a steering committee representing 108 cities in Texas (Cities) to defer the filing of a system-wide rate case with the Commission to no later than June 30, 2008 (based on a test year ending December 31, 2007), unless the Cities and TXU Electric Delivery mutually agree that such a filing is unnecessary. TXU Electric Delivery has extended the benefits of the agreement to 292 nonlitigant cities. Based on the final agreements, including the participation of the nonlitigant cities, expected payments to the cities are estimated to total approximately $70 million, including incremental franchise taxes.

This amount is being recognized in earnings over the period from May 2006 through June 2008. Payments under the agreement are expected to be made until new tariffs are effective, which based upon an assumed June 2008 rate case filing, is projected to be mid-2009. Payments under the agreement are expected to total approximately $17 million in 2006, of which $10 million has been expensed through the third quarter, $30 million in 2007, $16 million in 2008 and $7 million in 2009. See Note 8 to Financial Statements.

27

InfrastruX Joint Venture and TXU Electric Delivery Services Agreement—As previouslydisclosed, TXU Corp. and InfrastruX Group announced the formation of a joint venture, InfrastruX Energy Services, that expects to provide utility construction, power restoration, maintenance and other services. TXU Corp. also announced an agreement between TXU Electric Delivery and InfrastruX Energy Services under which TXU Electric Delivery will receive services from the joint venture. The Commission recently announced its desire to gather further information regarding the joint venture. On November 6, 2006, the Commission filed a proposed procedural schedule outlining key events and dates related to the review. While the Commission does not believe an evidentiary hearing is needed, an intervening party may request that one be held. If no hearing is necessary, initial briefs are due January 24, 2007 and reply briefs are due February 7, 2007. TXU Electric Delivery cannot predict the ultimate outcome of this process, including its possible effect on the timing of the closure of the transaction.

Other Commission Matters — The Commission indicated in its last open meeting on November 10, 2006, during which it conducted its annual review of utility earnings monitoring reports, that it would consider at its next open meeting scheduled for December 1, 2006 whether or not it would require TXU Electric Delivery to file a rate case with the Commission prior to the date scheduled under the terms of the cities rate settlement discussed above.

 Texas Legislative Special Session — The 79^th Texas Legislature completed its 3^rd special session in May 2006. The session resulted in a reform to the Texas franchise tax system and the enactment of a property tax relief law.

The Texas franchise tax system is being replaced with a new tax system, referred to as the Texas margin tax. The Texas margin tax is a significant change in Texas tax law because it generally makes all legal entities subject to tax, including general and limited partnerships, while the current franchise tax system applies only to corporations and limited liability companies. The effective date of the Texas margin tax is January 1, 2008 for calendar year-end companies and the computation of tax liability will be based on TXU Corp.’s consolidated 2007 revenues as reduced by certain deductions. The new margin tax is expected to decrease TXU Electric Delivery’s annual state franchise tax expense by approximately $15 million beginning in 2007.

The property tax relief law is expected to reduce school taxes assessed to TXU Electric Delivery by an estimated $6 million in 2006 and $22 million annually in 2007 and subsequent years (based on current property values and without regard to any property additions).

Summary— Although TXU Electric Delivery cannot predict future regulatory or legislative actions or any changes in economic and securities market conditions, no changes are expected in trends or commitments, other than those discussed in this report, which might significantly alter its basic financial position, results of operations or cash flows.

28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the risk that TXU Electric Delivery may experience a loss in value as a result of changes in market conditions such as interest rates, which TXU Electric Delivery is exposed to in the ordinary course of business. TXU Electric Delivery enters into financial instruments to manage interest rate risk related to its indebtedness.

Except as discussed below, the information required hereunder is not significantly different from the information set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in the 2005 Form 10-K and is therefore not presented herein.

CREDIT RISK

Credit Risk— Credit risk relates to the risk of loss associated with nonperformance by counterparties. TXU Electric Delivery’s customers consist primarily of REPs. As a prerequisite for obtaining and maintaining certification, a REP must meet the financial resource standards established by the Commission. REP certificates granted by the Commission are subject to suspension and revocation for significant violation of PURA and Commission rules. Significant violations include failure to timely remit payments for invoiced charges to a transmission and distribution utility pursuant to the terms of tariffs approved by the Commission. Since a significant portion of the transmission and distribution services provided and invoiced by TXU Electric Delivery are to its affiliated REP, TXU Energy Company, a material loss to TXU Electric Delivery arising from nonperformance by its customers is considered unlikely.

Credit Exposure— TXU Electric Delivery’s exposure to credit risk totaled $194 million from TXU Energy Company and $214 million from unaffiliated customers as of September 30, 2006. The unaffiliated customer receivable amount is inclusive of $74 million of accounts receivable sold and is before the allowance for uncollectible accounts. The unaffiliated exposure of $214 million consists almost entirely of noninvestment grade trade accounts receivable. TXU Electric Delivery has one customer, with a net uncollateralized balance of $35 million, that represents more than 10% of the unaffiliated trade receivable amount at September 30, 2006. The customer is noninvestment grade quality; however, the customer has consistently performed its obligations in accordance with its agreement.

TXU Electric Delivery is also exposed to credit risk related to the Capgemini put option with a carrying value of $51 million. Subject to certain terms and conditions, Cap Gemini North America, Inc. and its parent, Cap Gemini S.A., have guaranteed the performance and payment obligations of Capgemini under the services agreement, as well as the payment in connection with the put option. S&P currently maintains a BB+ rating with a positive outlook for Cap Gemini S. A.

29

FORWARD-LOOKING STATEMENTS

This report and other presentations made by TXU Electric Delivery contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that are included in this report, or made in presentations, in response to questions or otherwise, that address activities, events or developments that TXU Electric Delivery expects or anticipates to occur in the future, including such matters as projections, capital allocation, future capital expenditures, business strategy, competitive strengths, goals, future acquisitions or dispositions, development or operation of facilities, market and industry developments and the growth of TXU Electric Delivery’s business and operations (often, but not always, through the use of words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “projection,” “target,” “outlook,”), are forward-looking statements. Although TXU Electric Delivery believes that in making such forward-looking statement its expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the discussion of risk factors discussed under “Risk Factors” and the following important factors, among others, that could cause the actual results of TXU Electric Delivery to differ materially from those projected in such forward-looking statements:

· prevailing governmental policies and regulatory actions, including those of the Texas Legislature, the Governor of Texas, the FERC and the Commission, with respect to:

allowed rate of return;

industry, market and rate structure;

recovery of investments;

acquisitions and disposals of assets and facilities;

operation and construction of facilities;

changes in tax laws and policies; and

changes in and compliance with environmental and safety laws and policies;

· continued implementation of the 1999 Restructuring Legislation;

· legal and administrative proceedings and settlements;

· general industry trends;

· weather conditions and other natural phenomena, and acts of sabotage, wars or terrorist activities;

· unanticipated population growth or decline, and changes in market demand and demographic patterns;

· changes in business strategy, development plans or vendor relationships;

· unanticipated changes in interest rates or rates of inflation;

· unanticipated changes in operating expenses, liquidity needs and capital expenditures;

· commercial bank market and capital market conditions;

· inability of various counterparties to meet their obligations with respect to TXU Electric Delivery’s financial instruments;

· changes in technology used by and services offered by TXU Electric Delivery;

· significant changes in TXU Electric Delivery’s relationship with its employees, including the availability of qualified personnel, and the potential adverse effects if labor disputes or grievances were to occur;

· significant changes in critical accounting policies material to TXU Electric Delivery;

· actions by credit rating agencies;

30

· the ability of TXU Electric Delivery to implement cost reduction initiatives and effectively execute its growth strategy; and

· with respect to the InfrastruX Energy joint venture, the amount of time the Commission takes to review the transaction and the results of such review. 

Any forward-looking statement speaks only as of the date on which it is made, and TXU Electric Delivery undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for TXU Electric Delivery to predict all of them, nor can TXU Electric Delivery assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of TXU Electric Delivery’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect as of the end of the current period included in this quarterly report. Based on the evaluation performed, TXU Electric Delivery’s management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective. During the most recent fiscal quarter covered by this quarterly report, there have been no changes in TXU Electric Delivery’s internal controls over financial reporting that have occurred that has materially affected, or is reasonably likely to materially affect, TXU Electric Delivery’s internal control over financial reporting.

31

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the discussion in Note 5 regarding legal proceedings.

ITEM 1A. RISK FACTORS

Other than risk factors presented below, there have been no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A of the 2005 Form 10-K as updated by the risk factors disclosed under the heading “Risk Factors” in Item 1A of the report on Form 10-Q for the quarterly periods ended March 31, 2006 (March 2006 10-Q) and June 30, 2006 (June 2006 10-Q). The risk factors below update, and should be read in conjunction with, the risk factors disclosed in the 2005 Form 10-K, March 2006 10-Q and June 2006 10-Q.

The rates of TXU Electric Delivery’s business are subject to regulatory review.

The rates assessed by TXU Electric Delivery are regulated by the Commission and certain cities and are subject to cost-of-service regulation and annual earnings oversight. This regulatory treatment does not provide any assurance as to achievement of earnings levels. TXU Electric Delivery’s rates are regulated based on an analysis of TXU Electric Delivery’s costs and capital structure, as reviewed and approved in a regulatory proceeding. While rate regulation is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that the Commission will judge all of TXU Electric Delivery’s costs to have been prudently incurred, that the Commission will not reduce the amount of invested capital included in the capital structure that TXU Electric Delivery’s rates are based upon or that the regulatory process in which rates are determined will always result in rates that will produce full recovery of TXU Electric Delivery’s costs, including regulatory assets reported in the balance sheet and the return on invested capital allowed by the Commission

In 2004, certain cities (Cities) within TXU Electric Delivery’s service territory, acting in their role as a regulatory authority with original jurisdiction, initiated inquiries to determine if TXU Electric Delivery’s Commission-established rates were just and reasonable. TXU Electric Delivery has entered into settlements deferring rate action but TXU Electric Delivery will be required to file a rate case in 2008, based on a 2007 test year, unless TXU Electric Delivery and the Cities mutually agree that such a filing is unnecessary. In addition, the Commission indicated in its last open meeting on November 10, 2006, during which it conducted its annual review of utility earnings monitoring reports, that it would consider at its next open meeting, scheduled for December 1, 2006, whether or not it would require TXU Electric Delivery to file a rate case with the Commission prior to the date schedule under the terms of the settlements with the Cities.

While TXU Electric Delivery believes the rates are just and reasonable, it cannot predict the results of any rate case.

InfrastruX Energy Services faces challenges to transition into a consolidated and independent business. It may not be able to provide TXU Electric Delivery sufficient services.

TXU Corp. has agreed to form a joint venture with InfrastruX Group.  This joint venture, InfrastruX Energy Services, will have to undertake significant actions to integrate the legacy operations of InfrastruX Group, Inc. with the functions required under the services agreement with TXU Electric Delivery prior to the commencement of InfrastruX Energy Services’ operations. InfrastruX Energy Services may not have sufficient resources to adequately complete these actions on a timely basis. If these actions cannot be accomplished, the operational performance of InfrastruX Energy Services and its ability to provide services to TXU Electric Delivery could be affected.

The ownership structure of InfrastruX Energy Services and the services agreement between it and TXU Electric Delivery are designed to ensure that TXU Electric Delivery receives sufficient services to provide service to its customers, but may not operate as planned. In this case, TXU Electric Delivery will have to identify an alternative means to acquire sufficient asset services because it will no longer have an internal asset services function. TXU Electric Delivery may not be able to readily find replacement services and such services may be more costly than those provided by InfrastruX Energy Services. Should TXU Electric Delivery wish to terminate or materially modify the services agreement, InfrastruX Energy Services and TXU Electric Delivery would also incur transition costs. Failure to obtain sufficient services and costs to acquire replacement services (including transition costs) could adversely affect the financial condition and results of operations of TXU Electric Delivery.

The Commission has recently requested to review the proposed joint venture transaction. TXU Electric Delivery cannot predict the timing and results of the Commission’s review. Such review has delayed the closing of the transaction.

32

ITEM 6. EXHIBITS

	(a)Exhibits provided as part of Part II are:
Exhibits	Previously Filed* With File Number	As Exhibit
(31)	Rule 13a - 14(a)/15d - 14(a) Certifications.
31(a)		—			Certification of T. L. Baker, chief executive officer of TXU Electric Delivery Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)		—			Certification of David M. Davis, principal financial officer of TXU Electric Delivery Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)	Section 1350 Certifications.
32(a)			—	Certification of T. L. Baker, chief executive officer of TXU Electric Delivery Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)			—	Certification of David M. Davis, principal financial officer of TXU Electric Delivery Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99)	Additional Exhibits.
99			—	Condensed Statements of Consolidated Income - Twelve Months Ended September 30, 2006

33

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

   TXU ELECTRIC DELIVERY COMPANY

By:	/s/ Stan Szlauderbach
	Stan Szlauderbach
	Senior Vice President & Principal
	Accounting Officer

Date: November 9, 2006

34