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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
-- OR--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------
Exact Name of Registrant as Specified in its Charter;
Commission State of Incorporation; Address of Principle Executive I.R.S. Employer
File Number Offices; and Telephone Number Identification No.
- ----------- ------------------------------------------------------ ------------------
1-11668 TXU Electric Company 75-1837355
a Texas Corporation
Energy Plaza, 1601 Bryan Street
Dallas, TX 75201-3411
(214) 812-4600
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------
Name of Each Exchange on
Registrant Title of Each Class Which Registered
---------- ------------------- ------------------------
TXU Electric Company Depositary Shares, Series A, each representing 1/4 of a share New York Stock Exchange
of $7.50 Cumulative Preferred Stock, without par value
TXU Electric Company Depositary Shares, Series B, each representing 1/4 of a share New York Stock Exchange
of $7.22 Cumulative Preferred Stock, without par value
TXU Electric Capital I, a subsidiary 8.25% Trust Originated Preferred Securities New York Stock Exchange
of TXU Electric
TXU Electric Capital III, a subsidiary 8.00% Quarterly Income Preferred Securities New York Stock Exchange
of TXU Electric
Securities registered pursuant to Section 12(g) of the Act: Preferred Stock of
TXU Electric, without par value
-----------------------------
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of TXU Electric Common Stock held by non-affiliates: None
Common Stock outstanding at February 28, 2001: TXU Electric - 72,794,600
shares, without par value
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DOCUMENTS INCORPORATED BY REFERENCE - None
TABLE OF CONTENTS
Page
----
PART I
Items 1. and 2. BUSINESS AND PROPERTIES............................................................ 1
BUSINESS AND PROPERTIES................................................................... 1
COMPETITIVE STRATEGY...................................................................... 10
ENVIRONMENTAL MATTERS..................................................................... 11
Item 3. LEGAL PROCEEDINGS......................................................................... 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................................................... 13
Item 6. SELECTED FINANCIAL DATA................................................................... 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................................... 13
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 13
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................................................. 13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT............................................ 14
Item 11. EXECUTIVE COMPENSATION.................................................................... 16
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................ 27
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................ 27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................... 28
APPENDIX A - Financial Information
APPENDIX B - TXU Electric Exhibits for 2000 Form 10-K
i
PART I
Items 1. and 2. BUSINESS and PROPERTIES
BUSINESS AND PROPERTIES
-----------------------
TXU Electric Company (TXU Electric) is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electric energy in
the north-central, eastern and western parts of Texas. TXU Electric is a wholly-
owned subsidiary of TXU Corp., a Texas corporation. TXU Corp. is a holding
company that engages in the generation, purchase, transmission, distribution and
sale of electricity; the purchase, transmission, distribution and sale of
natural gas; and energy marketing, energy services, telecommunications and other
businesses in the United States, Europe and Australia. References herein to TXU
Electric include its financing subsidiaries (see Note 6 to Financial
Statements). As an integrated electric utility, TXU Electric currently has only
one reportable segment. TXU Electric possesses all necessary franchises,
licenses and certificates to enable it to conduct its business.
TXU Electric's service area is located in the north-central, eastern and
western parts of Texas, with a population in excess of 6 million - about one-
third of the population of Texas. Electric service is provided to approximately
2.6 million customers in 92 counties and 370 incorporated municipalities,
including the Dallas-Fort Worth metropolitan area. The area is a diversified
commercial and industrial center with substantial banking, insurance,
telecommunications, electronics, aerospace, petrochemical and specialized steel
manufacturing, and automotive and aircraft assembly. The territory served
includes major portions of the oil and gas fields in the Permian Basin and East
Texas, as well as substantial farming and ranching sections of the State.
At December 31, 2000, TXU Electric had 7,552 full-time employees. Some of
these employees provide services to other subsidiaries of TXU Corp., the cost of
which is billed to those subsidiaries.
Electric Industry Restructuring -- Legislation was passed during the 1999
session of the Texas Legislature that will restructure the electric utility
industry in Texas (1999 Restructuring Legislation). Among other matters, the
legislation provides that earnings in excess of a regulatory earnings cap, as
defined in the 1999 Restructuring Legislation, be used as mitigation (reduction)
to the cost of nuclear production assets (see Note 13 to Financial Statements);
authorizes competition in the retail and generation markets for electricity
beginning January 1, 2002; provides for the recovery of generation-related
regulatory assets, generation-related and purchased power-related costs that are
in excess of market value (stranded costs); requires reductions in nitrogen
oxide (NOx) and sulfur dioxide (SO2) emissions; requires a rate freeze,
excluding cost of fuel, for all retail customers until January 1, 2002 and
certain rate reductions for residential and small commercial customers for up to
five years thereafter; and sets certain limits on capacity owned and controlled
by power generation companies. By September 1, 2000, each electric utility was
required to separate from its regulated activities its customer energy services
business activities that are otherwise already widely available in the
competitive market. By January 1, 2002, each electric utility must separate
(unbundle) its business into the following units: a power generation company,
a retail electric provider (REP) and a transmission and distribution (T&D)
company or separate T&D companies. A power generation company generates
electricity that is intended to be sold at wholesale. In general, a power
generation company may not own a transmission or distribution facility and may
not have a certificated service area. A REP sells electric energy to retail
customers and may not own or operate generation assets. (See Notes 3 and 13 to
Financial Statements.)
The 1999 Restructuring Legislation also provides for a Pilot Project (Pilot)
to begin limited competition on June 1, 2001. It allows up to five percent of
retail electric customers of electric utilities transitioning to competition to
choose to participate in the Pilot and select a competing REP. Customers are
not required to participate in the Pilot, but will elect to participate through
an application process established by the Public Utility Commission of Texas
(PUC). The Pilot is scheduled to run until the end of 2001. TXU Electric is
currently unable to predict the outcome of the Pilot or determine the number of
customers that might switch to other providers during the pilot period.
1
Generation
- ----------
Generating Units -- At December 31, 2000, TXU Electric owned or leased and
operated 80 electric generating units with an aggregate net generating
capability of 21,092 megawatts (MW). The generating stations and other
important units of property of TXU Electric are located on lands owned primarily
in fee simple.
Electricity Peak Load and Generation Capability -- TXU Electric's net
capability, peak load and reserve, in MW, at the time of peak were as follows
during the years indicated:
Electricity
Peak Load (a)
--------------------------
Increase Firm
Net Over Peak
Year Capability Amount Prior Year Load Reserve (b)
- ---- ---------- ------ ---------- ---- -----------
2000....... 23,608 (c) 22,442 3.2% 21,437 2,171
1999....... 22,858 (d) 21,748 1.7% 20,724 2,134
1998....... 22,579 (e) 21,383 5.1% 20,351 2,228
(a) The 2000 peak load occurred on August 31. TXU Electric's peak load includes
interruptible load at the time of peak of 1,005 MW in 2000, 1,024 MW in 1999
and 1,032 MW in 1998.
(b) Amount of net capability in excess of firm peak load at the time of peak.
(c) Included in net capability is 2,692 MW of firm purchased capacity.
(d) Included in net capability is 1,778 MW of firm purchased capacity.
(e) Included in net capability is 1,499 MW of firm purchased capacity.
The peak load changes resulted primarily from customer growth and increased
usage due to hotter-than-normal weather. TXU Electric expects to continue to
purchase capacity in the future from various sources. (See Fuel Supply and
Purchased Power and Note 14 to Financial Statements.) Firm peak load (excluding
interruptible contracts) in 2001 as compared to the actual firm peak demand for
2000 may be effectively offset by the loss of some retail customers due to the
retail Pilot and the efforts of the General Land Office of Texas to serve
certain retail customers (e.g., schools and state universities) as authorized by
the 1999 Restructuring Legislation.
Resource Estimates -- Changes in utility regulation and legislation at the
federal and state levels, such as the Public Utility Regulatory Policy Act of
1978 (PURPA), the National Energy Policy Act of 1992 (Energy Policy Act) and,
most recently, the 1999 Restructuring Legislation for the electric industry in
Texas, have significantly changed the way utilities plan for new resources. The
1999 Restructuring Legislation incorporates sweeping changes for electric
utilities operating in Texas by opening up the generation and retail portion of
the business to competition. Beginning January 1, 2002, REPs in Texas will be
able to select their electricity providers. Thus, each REP will be responsible
for purchasing electricity for its customers.
TXU Electric expects to continue to purchase some of its energy requirements
needed to serve customer loads through resource contracts with third-party
suppliers. Thus, for planning purposes, TXU Electric can no longer readily
identify the ownership and types of resources needed to serve its customers
prior to the actual selection of the resource contracts. TXU Electric will fill
some of its resource needs through load management and renewable resources. It
does not expect to have difficulty filling the remainder of its requirements
from purchased power.
In addition to its own generation, TXU Electric has secured resources for the
year 2001 from various suppliers through short-term (two years or less)
purchased power contracts. (See Fuel Supply and Purchased Power.) Third party
projects under construction as well as announced projects should provide
adequate power for 2002 and the near future.
Retail competition in Texas will be effective on January 1, 2002 for
customers of most investor-owned electric utilities. At that time, by law, TXU
Electric's affiliated REPs must lower retail rates charged to residential and
small commercial customers in the TXU Electric service area to rates that are 6%
lower than the rates that were in effect on January 1, 1999, as adjusted for
fuel factor charges. This is known as the "price to
2
beat," meaning that competitors will try to beat this price to attract new
customers. This rate is frozen, excluding cost of fuel, for TXU Electric
residential and small commercial customers for three years, with respect to each
class of service or until 40% of the electric power consumed by customers in
that class or segment is supplied by competing REPs. On January 1, 2005, or
earlier if such loss of customer load occurs, TXU Electric's affiliated REPs
will be able to lower their retail rates to compete directly with other REPs,
but must continue to offer the "price to beat" rate through December 31, 2006.
Electric retail rates will then be driven by market forces and will no longer be
regulated. Commencing in 2002, TXU Electric's affiliated REPs will be able to
compete in areas outside of their service territories against other REPs.
Fuel Supply And Purchased Power -- Net input during 2000 totaled 112,033
gigawatt hours (GWh) of which 96,868 GWh were generated by TXU Electric.
Average fuel and purchased power cost (excluding capacity charges) per kilowatt-
hour (kWh) of net input was 2.66 cents for 2000, 1.81 cents for 1999 and 1.77
cents for 1998. The increase in 2000 primarily represents the increase in
natural gas prices. A comparison of TXU Electric's resource mix for net kWh
input and the unit cost per million British thermal units (Btu) of fuel during
the last three years is as follows:
Mix for Net Unit Cost
kWh Input Per Million Btu
--------------------- ---------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Fuel for Electric Generation:
Gas/Oil (a)........................... 33.4% 34.3% 36.7% $4.33 $2.59 $2.39
Lignite/Coal (b)...................... 36.6 38.5 36.5 1.11 1.03 1.03
Nuclear............................... 16.5 16.4 16.4 0.51 0.57 0.59
----- ----- -----
Total/Weighted Average Fuel Cost......... 86.5 89.2 89.6 $2.27 $1.56 $1.52
Purchased Power (c)...................... 13.5 10.8 10.4
----- ----- -----
Total.................................... 100.0% 100.0% 100.0%
===== ===== =====
(a) Fuel oil was an insignificant component of total fuel and purchased power
requirements.
(b) Lignite/coal cost per ton to TXU Electric was $14.82 in 2000, $13.30 in 1999
and $13.47 in 1998.
(c) Excludes power purchased by TXU Electric's affiliate, TXU SESCO Company
(TXU SESCO), from TXU Electric: 2000 - 0 GWh; 1999 - 0 GWh; and 1998 - 267
GWh. Includes TXU Electric purchases from TXU SESCO: 2000 - 8.1 GWh; 1999 -
6.1 GWh; and 1998 - 6.3 GWh.
In 2000, TXU Electric purchased a net of 15,165 GWh or approximately 13.5% of
its energy requirements. TXU Electric had available 2,692 MW of firm purchased
capacity under contract. TXU Electric received energy in 2000 under purchased
power contracts for energy from wind turbines equivalent to approximately 41 MW.
TXU Electric has entered into several contracts for the purchase of 291 MW of
additional wind energy during 2000, from which power is expected to be received
beginning in 2001. TXU Electric expects to acquire additional amounts of
purchased resources in the future to adequately and reliably accommodate its
customers' electrical needs. Such resources will be acquired in accordance with
the requirements of the Texas Public Utility Regulatory Act, as amended (PURA),
and the PUC Substantive Rules. Beginning January 1, 2002, the acquisition of
resources will generally not be subject to regulation by the PUC. (See
Electricity Peak Load and Generation Capability.)
TXU Electric is unable to predict: (i) whether or not problems may be
encountered in the future in obtaining the fuel and purchased power it will
require, (ii) the effect upon operations of any difficulty it may experience in
protecting rights to fuel and purchased power now under contract, or (iii) the
future costs of fuel and purchased power and to what extent they will be
recoverable, see (Regulation and Rates).
Gas/Oil -- Fuel gas for units at eighteen of the principal generating
stations of TXU Electric, having an aggregate net gas/oil capability of 12,955
MW, was provided during 2000 by TXU Fuel Company (TXU Fuel), an affiliate of TXU
Electric. TXU Fuel supplied approximately 5% of such fuel gas requirements
under contracts with producers at the wellhead and 95% under contracts with
commercial suppliers.
Fuel oil can be stored at seventeen of the principally gas-fueled generating
stations. At December 31, 2000, TXU Electric had fuel oil storage capacity
sufficient to accommodate approximately 6.1 million barrels of oil and had
approximately 1.6 million barrels of oil in inventory.
3
TXU Fuel has acquired supplies of natural gas from producers at the wellhead
under contracts expiring at intervals through 2008. As natural gas production
under these contracts declines and contracts expire, new contracts are expected
to be negotiated to replenish or augment such supplies. TXU Fuel has negotiated
term gas purchase contracts with a number of commercial suppliers.
Additionally, TXU Fuel has entered into a number of short-term gas purchase
contracts with other commercial suppliers at spot market prices. In general,
these spot gas purchase contracts require both the buyer and seller to purchase
and deliver the gas on negotiated terms during the agreed-upon delivery period.
In the past, curtailments of gas deliveries have been experienced during periods
of winter peak gas demand; however, such curtailments have been of relatively
short duration, have had a minimal impact on operations and generally have
required utilization of fuel oil and gas storage inventories to replace the gas
curtailed. No curtailments were experienced during 2000.
TXU Fuel owns and operates an intrastate natural gas pipeline system that
extends from the gas-producing area of the Permian Basin in West Texas to the
East Texas gas fields and southward to the Gulf Coast area. This system
includes a one-half undivided interest in a 36-inch pipeline that extends
approximately 395 miles from the Permian Basin area to a point of termination
south of the Dallas-Fort Worth area. Additionally, TXU Fuel owns a 39%
undivided interest in another 36-inch pipeline connecting to this pipeline and
extending 58 miles eastward to one of TXU Fuel's underground gas storage
facilities. TXU Fuel also owns and operates approximately 1,500 miles of
various smaller capacity lines that are used to gather and transport natural gas
from other gas-producing areas. The pipeline facilities of TXU Fuel form an
integrated network through which fuel gas is gathered and transported to certain
TXU Electric generating stations for use in the generation of electric energy.
TXU Fuel also owns and operates two underground gas storage facilities with a
usable capacity of 14.0 billion cubic feet (Bcf), with approximately 12.0 Bcf of
gas in inventory at December 31, 2000. Gas stored in these facilities can be
withdrawn for use during periods of peak demand to meet seasonal and other
fluctuations or curtailment of deliveries by gas suppliers. Under normal
operating conditions, up to 400 million cubic feet can be withdrawn each day for
a ten-day period, with withdrawals at lower rates thereafter.
Lignite/Coal -- Lignite is used as the primary fuel in two units at the Big
Brown generating station (Big Brown), three units at the Monticello generating
station (Monticello), three units at the Martin Lake generating station (Martin
Lake), and one unit at the Sandow generating station (Sandow), having an
aggregate net capability of 5,837 MW. TXU Electric's lignite units have been
constructed adjacent to surface minable lignite reserves. TXU Electric owns in
fee or has under lease an estimated 448 million tons of proven reserves
dedicated to the Big Brown, Monticello and Martin Lake generating stations. TXU
Electric also owns in fee or has under lease in excess of 229 million tons of
proven reserves not dedicated to specific generating stations. TXU Mining
Company (TXU Mining), an affiliate of TXU Electric, operates owned and/or leased
equipment to remove the overburden and recover the lignite. One of TXU
Electric's lignite units, Sandow Unit 4, is fueled from lignite deposits owned
by Alcoa, which furnishes fuel at no cost to TXU Electric for that portion of
energy generated from such unit that is equal to the amount of energy delivered
to Alcoa.
Lignite production operations at Big Brown, Monticello and Martin Lake are
accompanied by an extensive reclamation program that returns the land to
productive uses such as wildlife habitats, commercial timberland and pasture
land. For information concerning federal and state laws with respect to surface
mining, see Environmental Matters.
TXU Electric supplements its lignite fuel at Big Brown, Monticello and Martin
Lake with western coal from the Powder River Basin (PRB) in Wyoming. The coal
is purchased from multiple suppliers under contracts of various lengths and is
transported from the PRB to TXU Electric's generating plants by railcar under
three contracts that range in length from two to seven years.
Nuclear -- TXU Electric owns and operates two nuclear-fueled generating units
at the Comanche Peak nuclear powered electric generating station (Comanche
Peak), each of which is designed for a net capability of 1,150 MW.
4
The nuclear fuel cycle requires the mining and milling of uranium ore to
provide uranium oxide concentrate (U3O8), the conversion of U3O8 to uranium
hexafluoride (UF6), the enrichment of the UF6 and the fabrication of the
enriched uranium into fuel assemblies. TXU Electric has on hand, or has
contracted for, the raw materials and services it expects to need for its
nuclear units through the years indicated: uranium (2001), conversion (2003),
enrichment (2014), and fabrication (2011). Although TXU Electric cannot predict
the future availability of uranium and nuclear fuel services, TXU Electric does
not currently expect to have difficulty obtaining U3O8 and the services
necessary for its conversion, enrichment and fabrication into nuclear fuel for
years later than those shown above.
The Nuclear Waste Policy Act of 1982, as amended (NWPA), provides for the
development by the United States Department of Energy (DOE) of interim storage
and permanent disposal facilities for spent nuclear fuel and/or high level
radioactive waste materials. In January 1998, the DOE did not meet its
obligation to begin accepting spent nuclear fuel. The DOE continues to maintain
its position that no obligation to begin acceptance of spent nuclear fuel exists
despite multiple industry-initiated lawsuits challenging that position and a US
Court of Appeals decision that such obligation exists. TXU Electric is unable to
predict what impact, if any, the DOE's delay will have on TXU Electric's future
operations. Under provisions of the NWPA, funding for the program is provided
by a one-mill per kWh fee currently levied on electricity generated and sold
from nuclear reactors, including the Comanche Peak units.
TXU Electric's onsite spent nuclear fuel storage capability is sufficient to
accommodate the operation of Comanche Peak through the year 2017, while fully
maintaining the capability to off-load the core of one of the nuclear-fueled
generating units. Additional approval from the Nuclear Regulatory Commission
(NRC) will be required to utilize this full storage capability. TXU Electric is
currently pursuing options for utilizing a larger portion of the full storage
capability, subject to approval by the NRC.
Transmission
- ------------
In 1995, TXU Electric became the first utility in Texas to functionally
unbundle, or separate, its transmission operations into a business unit. The
unit operates independently within the larger company and has the flexibility to
adapt to changing market and regulatory forces. TXU Electric is a member of the
Electric Reliability Council of Texas (ERCOT), an intrastate network of
investor-owned entities, cooperatives, public entities, non-utility generators
and power marketers. ERCOT is the regional reliability coordinating
organization for member electric power systems in Texas, the Independent System
Operator (ISO) of the interconnected transmission system of those systems, and
is responsible for ensuring equal access to transmission service by all
wholesale market participants in the ERCOT region.
The function of the transmission business is to provide non-discriminatory
wholesale open access to TXU Electric's transmission facilities through business
practices consistent with the standard of conduct rules enacted by the PUC. The
transmission system transverses almost 200,000 square miles of Texas and
consists of over 13,000 circuit miles of transmission line and over 900
substations.
The transmission business supports the operation of the ERCOT ISO and all
ERCOT members, as well as TXU Electric's responsibilities and obligations to its
wholesale and retail customers. The transmission business unit has planning,
design, construction, operation and maintenance responsibility for the
transmission grid and for the load serving substations.
Services are provided under tariffs approved by the PUC and the Federal
Energy Regulatory Commission (FERC). Transmission service offers the use of the
transmission system for delivery of power over facilities operating at 60,000
volts and above. Transformation service offers the use of substation assets to
transform voltage to below 60,000 volts. Other services offered by the
transmission business include: static and dynamic scheduling and miscellaneous
services such as system impact studies, facilities studies, and maintenance of
substations and transmission lines owned by other parties.
The transmission business is participating with the ISO and other ERCOT
utilities to plan, design and obtain regulatory approval for and construct new
transmission lines necessary to increase bulk power transfer capability and to
remove existing limitations on the ERCOT transmission grid.
5
The principal generating facilities of TXU Electric and load centers of TXU
Electric and TXU SESCO are connected by 3,996 circuit miles of 345-kilovolt (kV)
transmission lines and 9,371 circuit miles of 138- and 69-kV transmission lines.
TXU SESCO Company (TXU SESCO), operating in the eastern and central part of
Texas, is connected to TXU Electric by three 138-kV lines, ten 69-kV lines and
three lines at distribution voltage.
TXU Electric is connected by six 345-kV lines to Reliant Energy Company; by
three 345-kV, eight 138-kV and nine 69-kV lines to American Electric Power
Company; by two 345-kV and eight 138-kV lines to the Lower Colorado River
Authority; by four 345-kV and nine 138-kV lines to the Texas Municipal Power
Agency; by one asynchronous High Voltage Direct Current (HVDC) interconnection
to American Electric Power Company; and at several points with smaller systems
operating wholly within Texas.
Distribution
- ------------
The TXU Electric distribution system supplies electricity to approximately
2.6 million customers (including approximately 2.3 million residential customers
and 310,000 commercial and industrial businesses). On average, TXU Electric has
added approximately 47,000 customers to its system each year for the last
several years and over 58,000 in 2000. The electric distribution business
consists of the ownership, management, construction, maintenance and operation
of the distribution network within TXU Electric's certificated service area.
TXU Electric's distribution network receives electricity from the
transmission grid through power distribution substations and distributes
electricity to end users and wholesale customers through approximately 2,800
distribution feeders.
The TXU Electric distribution network consists of approximately 54,000 miles
of overhead primary conductors, 22,000 miles of overhead secondary and street
light conductors, 11,500 miles of underground primary conductors and 6,600 miles
of underground secondary and street light conductors. The majority of the
distribution system operates at 25-kV and 12.5-kV.
The greater portion of the T&D lines of TXU Electric has been constructed
over lands of others pursuant to easements or along public highways and streets
as permitted by law.
REGULATION AND RATES
The PUC has original jurisdiction over electric rates and service in
unincorporated areas and those municipalities that have ceded original
jurisdiction to the PUC and has exclusive appellate jurisdiction to review the
rate and service orders and ordinances of municipalities. Generally, PURA
prohibits the collection of any rates or charges (including charges for fuel) by
a public utility that does not have the prior approval of the PUC.
TXU Electric is subject to the jurisdiction of the NRC with respect to
nuclear power plants. NRC regulations govern the granting of licenses for the
construction and operation of nuclear power plants and subject such plants to
continuing review and regulation.
TXU Electric is subject to various federal, state and local regulations.
(See discussion below and Environmental Matters.) TXU Electric believes that
it is not a public utility as defined in the Federal Power Act and has been
advised by its counsel that it is not subject to general regulation under such
Act.
Docket No. 21527 -- In October 1999, TXU Electric filed a petition with the
PUC for a financing order (Docket No. 21527) to permit the issuance by a special
purpose entity of $1.65 billion of transition bonds secured by payments designed
to enable TXU Electric to recover its generation-related regulatory assets and
other qualified costs in accordance with the 1999 Restructuring Legislation.
The proceeds received by TXU Electric from the issuance of the transition bonds
are to be used solely for the purpose of retiring utility debt and equity. On
May 1, 2000, the PUC signed a final order rejecting TXU Electric's request for
the $1.65 billion and
6
authorized only $363 million. TXU Electric filed an appeal on May 2, 2000 with
the Travis County, Texas District Court.
On September 7, 2000, the Travis County, Texas District Court issued a final
judgment reversing that part of the PUC's financing order that utilized
regulated asset life (up to 40 years) for purposes of present-valuing the
benefits of securitization. Instead, the District Court ruled that a present-
value period based upon stranded cost and regulatory asset recovery periods
authorized under the 1999 Restructuring Legislation should have been used by the
PUC. The District Court also ruled that the PUC statements in its financing
order concerning the future impact of securitization of loss on reacquired debt
were only an advisory opinion. The judgment affirmed other aspects of the PUC's
financing order and ordered the case remanded to the PUC for further proceedings
consistent with the judgment. TXU Electric and various other parties have
appealed this judgment directly to the Texas Supreme Court. TXU Electric
expects that any difference between the $1.65 billion and the amount finally
authorized will continue to be deferred until recovery of generation related
regulatory assets is addressed again by the PUC. TXU Electric is unable to
predict the outcome of these proceedings.
The constitutionality of the securitization provisions of the 1999
Restructuring Legislation under the Texas constitution has been challenged in
connection with a securitization request made by Central Power and Light
Company. In July 2000, the Travis County, Texas District Court issued its
judgment denying this appeal and finding that the securitization provisions are
constitutional. This judgment has been appealed directly to the Texas Supreme
Court. TXU Electric is unable to predict the outcome of such proceedings.
Docket No. 22350 -- As required by the 1999 Restructuring Legislation, in
January 2000, TXU Electric filed its business separation plan with the PUC. In
March 2000, TXU Electric filed its application for approval of its unbundled
cost of service rates with the PUC. This plan and application lay the
foundation for TXU Electric to take part in retail competition to begin in the
Texas electricity market. Under the business separation plan, the generation
business unit and the retail business unit of TXU Electric will become
unregulated entities and will be allowed to compete for customers. The T&D
business units of TXU Electric will be separated into regulated entities and
will together represent the regulated part of the business. In addition to the
actual T&D charges for delivering electricity, these rates include nuclear
decommissioning fund charges, system benefit fund charges and stranded cost
recovery charges. In the March 2000 filing, TXU Electric's stranded costs were
estimated to be approximately $3.7 billion, including the regulatory assets that
were part of the Docket No. 21527 proceedings and amounts related to the remand
of Docket No. 9300, addressed below. TXU Electric filed an updated stranded
cost estimate on August 28, 2000 to reflect various PUC decisions made since
Docket No. 22350 was filed. In the August 28, 2000 filing, TXU Electric's
stranded costs were estimated to be $2.8 billion. Subsequent to the August 2000
filing, the PUC has required TXU Electric to revise the stranded cost estimate
to remove amounts related to regulatory assets, certain environmental
expenditures, and the remand of Docket No. 9300, which resulted in a revised
estimate of $14 million, including displaced worker costs. TXU Electric has
appealed certain of the PUC's decisions related to this matter to the Travis
County, Texas District Court. Various parties to Docket No. 22350 have
presented stranded cost estimates ranging from negative $1.5 billion to negative
$3.5 billion along with recommendations that these amounts be returned to
customers beginning in 2002. The estimate established in Docket No. 22350 is
subject to a future market-based "true-up" in 2004. TXU Electric is unable to
predict the outcome of these proceedings.
Docket No. 9300/Docket No. 22652 -- The PUC's final order (Order) in
connection with TXU Electric's January 1990 rate increase request (Docket No.
9300) was ultimately reviewed by the Texas Supreme Court. As a result, an
aggregate of $909 million of disallowances with respect to TXU Electric's
reacquisitions of minority owners' interests in Comanche Peak, which had
previously been recorded as a charge to TXU Electric's earnings, was remanded to
the District Court with instructions that it be remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC also was required to reevaluate the appropriate level of TXU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing. In connection with the settlement
of Docket No. 18490, proceedings in the remand of Docket No. 9300 had been
stayed through December 31, 1999. In April 2000, TXU Electric requested that
the District Court enter an order remanding Docket No. 9300 to the PUC. On
June 9, 2000, the District Court's order of remand was filed with the PUC, and
the PUC has assigned the remand proceeding Docket No. 22652. Pursuant to an
order entered on August 31, 2000, this docket will be held in
7
abeyance until March 20, 2001. TXU Electric cannot predict the outcome of the
reconsideration of the Order on remand by the PUC.
Docket No. 22344 -- In a generic issues docket held in August 2000, the PUC
issued orders that impacted TXU Electric's recovery of restructuring expenses
and certain other regulatory assets. Accordingly, in September 2000, such
unrecovered regulatory assets totaling $52 million were written off. This
reduced earnings in excess of the earnings cap by an equal amount. As a result,
there was no impact to net income.
Fuel Cost Recovery Rule -- Pursuant to a PUC rule, the recovery of TXU
Electric's eligible fuel costs is provided through fixed fuel factors. The rule
allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition to
make either surcharges or refunds to ratepayers, together with interest based on
a twelve-month average of prime commercial rates, for any material cumulative
under- or over-recovery of fuel costs. If the cumulative difference of the
under- or over-recovery, plus interest, exceeds 4% of the annual estimated fuel
costs most recently approved by the PUC, it will be deemed to be material.
Final reconciliation of fuel costs must be made either in a reconciliation
proceeding or in a general rate case. In a final reconciliation, a utility has
the burden of proving that fuel costs under review were reasonable and necessary
to provide reliable electric service, that it has properly accounted for its
fuel-related revenues, and that fuel prices charged to the utility by an
affiliate were reasonable and necessary and not higher than prices charged for
similar items by such affiliate to other affiliates or nonaffiliates. For
generating utilities like TXU Electric, through August 31, 1999, the rule
provided for recovery of purchased power capacity costs through a power cost
recovery factor with respect to purchases from qualifying facilities, to the
extent such costs were not otherwise included in base rates. Pursuant to the
1999 Restructuring Legislation, the power cost recovery factor will be frozen
between September 1, 1999 and January 1, 2002. The energy-related costs of such
purchases continue to be included in the fixed fuel factor. TXU Electric is
required to file in 2002 with the PUC for final reconciliation of its eligible
fuel costs. This final reconciliation will cover the period July 1998 through
December 2001.
Docket No. 22880/Docket No. 23153 -- Because natural gas prices recently have
exceeded those in the base fuel factor, on August 4, 2000, TXU Electric filed a
request with the PUC in Docket No. 22880 to surcharge the cumulative under-
collection of fuel cost revenues that existed as of June 30, 2000, together with
interest through November 2000, in the amount of $167 million, and to increase
its current fuel factors by 27.6%. On August 31, 2000, the Administrative Law
Judge entered an Interim Order, implementing an agreement of the parties,
providing for an interim increase in fuel factors of 13.8%, effective September
6, 2000, and a surcharge of TXU Electric's cumulative under-recovery of fuel
cost revenues that existed as of July 31, 2000, together with the interest
through November 2000, in the amount of $315 million to be collected over the
fourteen-month period beginning November 2000. On October 13, 2000, TXU
Electric filed a Supplemental Application with the PUC requesting its initial
27.6% fuel factor increase instead of the interim increase. Also on October 13,
2000, TXU Electric filed a request with the PUC in Docket No. 23153 for a
surcharge to recover a $231 million under-collection of fuel cost revenues for
the months of August and September 2000. The proposed surcharge would be
collected from January 2001 through December 2001. Docket No. 23153 was
subsequently consolidated into Docket No. 22880. On January 11, 2001, the PUC
approved TXU Electric's requests in Docket No. 22880 and Docket No. 23153. In
addition, on January 11, 2001, the PUC approved the requested fuel factor
increase, effective that date. The PUC also approved the surcharge request
filed in Docket No. 23153, effective January 11, 2001 through December 31, 2001.
Docket No. 23640 -- In February 2001, TXU Electric filed with the PUC a
request for a surcharge to recover under-collected fuel cost revenues for the
months of October 2000 through December 2000, plus estimated under-recoveries
for the period January 2001 through March 2001 totaling $591 million, and to
increase its current fuel factor by 26.4% over the increase approved in Docket
22880. The proposed fuel factor increase would be effective March 5, 2001 and
the proposed surcharge would be collected from April 2001 through December 2001.
TXU Electric cannot predict the outcome of this proceeding.
8
COMPETITION
General -- The Energy Policy Act addresses a wide range of energy issues and
is intended to increase competition in electric generation and broaden access to
electric transmission systems. In addition, PURA impacts the PUC and its
regulatory practices and encourages increased competition in the wholesale
electric utility industry in Texas. Although TXU Electric is unable to predict
the ultimate impact of these and any other related regulations or legislation on
its operations, it believes that such actions are consistent with the trend
toward increased competition in the energy industry.
The 1999 Restructuring Legislation will restructure the electric utility
industry in Texas. Among other matters, the 1999 Restructuring Legislation
authorizes competition in the retail and generation markets for electricity
beginning January 1, 2002; provides for the recovery of generation-related and
purchased power related stranded costs and generation-related regulatory assets;
requires reductions in NOx and SO2 emissions; requires a rate freeze, excluding
cost of fuel, for all customers until January 1, 2002 and certain rate
reductions for residential and small commercial customers for up to five years
thereafter; and sets certain limits on capacity owned and controlled by power
generation companies. Project teams have been established to prepare TXU
Electric for a competitive environment. These teams are comprised of resources
from all facets of TXU Corp.'s business. These teams continue to formulate
short- and long-term strategies to address implementation of the 1999
Restructuring Legislation.
As legislative, regulatory, economic and technological changes occur, the
energy and utility industries are faced with increasing pressure to become more
competitive while adhering to regulatory requirements. The level of competition
is affected by a number of variables, including price, reliability of service,
the cost of energy alternatives, new technologies and governmental regulations.
As a result of the shift in emphasis toward greater competition, large and
small industry participants are offering energy services and energy-related
products that are both economically and environmentally attractive to customers.
In Texas, aggressive marketing of competitive prices by rural electric
cooperatives, municipally-owned electric systems, and other energy providers
not subject to the traditional governmental regulation experienced by the
utility industry has intensified competition within the state's wholesale
markets, in multi-certificated areas, and retail customer markets.
Furthermore, there is increasing pressure on utilities to reduce costs,
including the cost of power, and tailor energy services to the specific needs of
customers. Such competitive pressures among electric utility and non-utility
power producers could result in the loss of some retail energy services
customers. TXU Electric is aggressively managing its operating costs and
capital expenditures through streamlined business processes and operating
practices and is developing and implementing strategies to address an
increasingly competitive environment.
Wholesale Competition -- Federal legislation such as the PURPA and the Energy
Policy Act, as well as initiatives in various states, encourage wholesale
competition among electric utility and non-utility power producers. Together
with increasing customer demand for lower-priced electricity and other energy
services, these measures have accelerated the industry's movement toward a more
competitive pricing and cost structure.
Amendments to PURA made during the 1995 session of the Texas Legislature
allow for wholesale pricing flexibility. While wholesale rates for electric
utilities are not deregulated, wholesale tariffs or contracts with charges less
than approved rates but greater than the utility's marginal cost may be approved
by the regulatory authority upon application by the utility. In the wholesale
power market, TXU Electric competes with a variety of utilities and other
suppliers, some of which are willing and able to sell at rates below TXU
Electric's standard wholesale power service rate as approved by the PUC. As
directed by the 1999 Restructuring Legislation (see Note 3 to Financial
Statements), beginning in January 2002, wholesale rates will no longer be
regulated. TXU Electric is unable to predict the extent of future competitive
developments in the wholesale market or what impact, if any, such developments
may have on its operations.
9
Open-Access Transmission -- At the federal level, the FERC issued Order No.
888 in April 1996, which requires all FERC-jurisdictional electric public
utilities to offer third parties wholesale transmission services under an open-
access tariff. In May 1997, TXU Electric filed with the FERC a modification of
its tariff governing service to, from and over certain HVDC interconnections
between ERCOT and the Southwest Power Pool, which, in October 1997, was accepted
by the FERC with minor modifications.
In August 1999, a Texas Court of Appeals issued a judgment declaring invalid
PUC rules governing open-access wholesale transmission service. These rules,
adopted in February 1996, guaranteed open-access wholesale transmission service
by electric utilities in ERCOT to other utilities and non-utility power
suppliers, and established a rate formula to determine access charges for the
transmission of wholesale electricity. In its decision, the court concluded
that the PUC lacks the statutory authority to establish transmission access
rates, and therefore rendered the transmission rules invalid. Several
interested parties and the PUC filed motions for rehearing with the Court of
Appeals, asking the court to reverse its decision and to recognize the PUC's
authority to set wholesale transmission rates in ERCOT. In January 2000, a
judgment was rendered on the motions for rehearing by the Texas Court of
Appeals, declaring that certain subsections of the open-access rules are
invalid, while still concluding that the PUC lacks statutory authority to
establish transmission access rates. Petitions for review were filed with the
Supreme Court of Texas by the PUC and other interested parties urging the
Supreme Court to reverse the judgment of the Court of Appeals. TXU Electric is
unable to predict the impact of this judgment on open-access transmission rates
at this time.
Customers -- There are no individually significant customers upon which TXU
Electric's business or results of operations are highly dependent.
COMPETITIVE STRATEGY
--------------------
As a result of the provisions of the 1999 Restructuring Legislation, TXU
Electric plans to implement a portfolio management/merchant trading strategy
with affiliates in conjunction with its upstream (generation and fuel supply)
and downstream (retail customers) positions to effectively serve its customers,
minimize risks and maximize margins available in the Texas markets. This
strategy has been effectively implemented by affiliates in Europe and Australia.
10
ENVIRONMENTAL MATTERS
---------------------
TXU Electric is subject to various federal, state and local regulations
dealing with air and water quality and related environmental matters. (See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Air -- Under the Texas Clean Air Act, the Texas Natural Resource Conservation
Commission (TNRCC) has jurisdiction over the permissible level of air
contaminant emissions from generating facilities located within the State of
Texas. In addition, the new source performance standards of the Environmental
Protection Agency (EPA) promulgated under the Federal Clean Air Act, as amended
(Clean Air Act), which have also been adopted by the TNRCC, are applicable to
certain generating units. TXU Electric's generating units have been built to
operate in compliance with applicable regulations and emission standards
promulgated pursuant to these Acts; however, due to variations in the quality of
the lignite fuel, operation of certain of the lignite-fueled generating units at
reduced loads is necessary from time to time in order for TXU Electric to
maintain compliance with these standards at these units. With these occasional
reduced loads, TXU Electric has achieved and continues to achieve material
compliance with the Clean Air Act's emission standards.
The Clean Air Act includes provisions which, among other things, place limits
on the SO2 emissions produced by generating units. In addition to the new
source performance standards applicable to SO2, the Clean Air Act required that
fossil-fueled plants meet certain SO2 emission allowances by 2000. TXU
Electric's generating units currently meet the SO2 allowance requirements.
To meet these SO2 requirements, the Clean Air Act provides for the annual
allocation of SO2 emission allowances to utilities. Under the Clean Air Act,
utilities are permitted to transfer allowances within their own systems and to
buy or sell allowances from or to other utilities. The EPA grants a maximum
number of allowances annually to TXU Electric based on the amount of emissions
from units in operation during the period 1985 through 1987. TXU Electric
intends to utilize internal allocation of emission allowances within its system
and, if cost effective, may purchase additional emission allowances to enable
future electric generating units to meet the requirements of the Clean Air Act.
TXU Electric may also sell excess emission allowances. TXU Electric is unable
to predict the extent to which it may generate excess allowances or will be able
to acquire allowances from others if needed but does not anticipate any
significant problems in keeping emissions within its allotted allowances.
TXU Electric's generating units meet the NOx limits currently required by the
Clean Air Act. The TNRCC and the EPA have proposed rules that will require NOx
emission reductions at TXU Electric's generating units in the Dallas-Fort Worth
area. Additionally, in 1996, TXU Electric elected for an early opt-in under
Phase I related to NOx limits for its coal-fired generating units. This
election locks in NOx limits for these generating units for a ten-year period.
The Clean Air Act also requires studies, which began in 1991, by the EPA to
assess the potential for toxic emissions from utility boilers. In December
2000, the EPA published a notice that it intends to regulate the emissions of
hazardous air pollutants, including mercury, from fossil fuel-fired power plants
in the future. Regulations on mercury will be proposed by 2003 to be issued by
2004. TXU Electric is unable to predict the effects of these regulations.
Recently, the EPA promulgated rules for regional haze; the impact of these
rules, is unknown at this time because the TNRCC must implement the regional
haze requirements.
In December 1997, the Conference of the Parties of the United Nations
Framework Convention on Climate Change adopted the Kyoto Protocol, which
specifies targets and timetables for certain countries to reduce greenhouse gas
emissions. TXU Electric is unable to predict whether the Kyoto Protocol will be
ratified by the United States Senate and to what extent, if any, such protocol
might impact TXU Electric.
11
In 1997, the TNRCC required some companies to submit Title V Operating Permit
applications for many of their facilities, including TXU Electric's generating
facilities. All required Title V Operating Permit applications have been filed
and TXU Electric has received Title V Operating Permits for most of its
facilities. TXU Electric anticipates the approval of all pending permit
applications.
Major air pollution control provisions of the 1999 Restructuring Legislation
require a 50% reduction in NOx emissions from "grandfathered" electric utility
generating units and a 25% reduction in SO2 emissions from "grandfathered"
electric utility generating units. This legislation also provides for an "opt-
in" of permitted units as an alternative for achieving the same reductions and
recovery of reasonable environmental improvement costs as stranded costs upon
approval by the PUC.
The TNRCC has also adopted revisions to its State Implementation Plan (SIP)
rules that require a 89% reduction in NOx emissions from electric utility units
in the Dallas-Fort Worth ozone non-attainment area, and a 51% reduction in NOx
emissions from electric utility units in East and Central Texas. The costs of
SIP reductions are eligible for recovery as stranded costs provided they satisfy
the standards for recovery of environmental improvement costs established by the
1999 Restructuring Legislation provisions. The cost of compliance will be
reduced due to emission trading provisions in the rules.
Additional Clean Air Act regulations have been proposed and others are not
yet finalized by the EPA. TXU Electric believes that the requirements necessary
to be in compliance with additional EPA regulatory provisions probably can be
met as they are developed. Estimates for the capital requirements related to
the Clean Air Act are included in TXU Electric's estimated construction
expenditures. TXU Electric currently believes that if the rules and regulations
under the Clean Air Act are adopted as proposed, operating costs that will be
incurred under operating permits, new permit fee structures, capital
expenditures associated with equipment modifications to reduce emissions, or any
expenditures on monitoring equipment, in the aggregate, will not have a
materially adverse effect on TXU Electric's financial position, results of
operations or cash flows.
Water -- The TNRCC, the EPA and the Railroad Commission of Texas (RRC) have
jurisdiction over water discharges (including storm water) from all domestic
facilities. TXU Electric's facilities are presently in compliance with
applicable state and federal requirements relating to discharge of pollutants
into the water. TXU Electric has obtained all required waste water discharge
permits from the TNRCC, the EPA and the RRC for facilities in operation and has
applied for or obtained necessary permits for facilities under construction.
TXU Electric believes it can satisfy the requirements necessary to obtain any
required permits or renewals.
Other -- Diversion, impoundment and withdrawal of water for cooling and other
purposes are subject to the jurisdiction of the TNRCC. TXU Electric possesses
all necessary permits for these activities from the TNRCC for its present
operations.
Treatment, storage and disposal of solid and hazardous waste are regulated at
the state level under the Texas Solid Waste Disposal Act (Texas Act) and at the
federal level under the Resource Conservation and Recovery Act of 1976, as
amended, (RCRA) and the Toxic Substances Control Act (TSCA). The EPA has issued
regulations under the RCRA and TSCA, and the TNRCC and the RRC have issued
regulations under the Texas Act applicable to TXU Electric's facilities. TXU
Electric has registered solid waste disposal sites and has obtained or applied
for such permits as are required by such regulations.
Under the federal Low-Level Radioactive Waste Policy Act of 1980, as amended,
the State of Texas is required to provide, either on its own or jointly with
other states in a compact, for the disposal of all low-level radioactive waste
generated within the state. The State of Texas has agreed to a compact with the
States of Maine and Vermont for a disposal facility that would be located in
Texas. That compact was ratified by Congress and signed by the President in
1998. The State of Texas had proposed to license a disposal site in Hudspeth
County, Texas, but in October 1998 the TNRCC denied that license application. No
appeal was taken from the denial of the license application, and that denial is
now final. The nature and extent of future efforts by the State of Texas to
provide for a disposal site are presently uncertain. TXU Electric will continue
to ship low-level waste material off-site for as long as an alternative disposal
site is available. Should existing off-site disposal become unavailable, the
low-level waste material will be stored on-site. TXU Electric's on-site storage
capacity is expected to be adequate until other off-site facilities become
available.
12
Item 3. LEGAL PROCEEDINGS
TXU Electric is party to lawsuits arising in the ordinary course of its
business. TXU Electric believes, based on its current knowledge and the advice
of counsel, that the ultimate resolution of all such lawsuits and resulting
claims would not have a material adverse effect on its financial position,
results of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of TXU Electric's common stock is owned by TXU Corp. Reference is made
to Note 8 to Financial Statements regarding limitations upon payment of
dividends on common stock of TXU Electric.
Item 6. SELECTED FINANCIAL DATA
The information required hereunder for TXU Electric is set forth under
Selected Financial Data included in Appendix A to this report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required hereunder for TXU Electric is set forth under
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Appendix A to this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for TXU Electric is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Appendix A to this report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder for TXU Electric is set forth under
Statement of Responsibility, Independent Auditors' Report, Statements of
Consolidated Income, Statements of Consolidated Comprehensive Income, Statements
of Consolidated Cash Flows, Consolidated Balance Sheets, Statements of
Consolidated Common Stock Equity and Notes to Financial Statements included in
Appendix A to this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Identification of Directors, business experience and other directorships:
Other Positions and
Offices Presently Held Date First Elected as Present Principal Occupation or
With TXU Electric Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age in May, 2001) in May, 2001) Other Directorships
- ------------------- --- ------------------------- --------------------- ------------------------------------------
T. L. Baker 55 President February 20, 1987 President of TXU Electric, TXU Gas and TXU
SESCO; prior thereto, President,
Electric Service Division, of TXU
Electric and TXU Gas Distribution; prior
thereto, Executive Vice President of TXU
Electric; prior thereto, Senior Vice
President of TXU Electric.
David W. Biegler 54 Group President August 29, 1997 President of TXU Corp., Group President of
TXU Electric and TXU Gas; prior thereto,
President and Chief Operating Officer of
TXU Corp., TXU Electric and TXU Gas;
prior thereto, Chairman, President and
Chief Executive Officer of TXU Gas;
other directorships: TXU Gas, J.P.
Morgan Chase Texas Bank and Trinity
Industries, Inc. (railcars, construction
materials and industrial equipment).
Barbara B. Curry 46 None August 29, 1997 Executive Vice President of TXU Corp.;
prior thereto, Executive Vice President
of TXU Business Services; prior thereto,
Vice President of TXU Business Services;
prior thereto, Assistant to the Chairman
of TXU Corp.; other directorship: TXU
Gas.
H. Jarrell Gibbs 63 None May 12, 2000 Vice Chairman of the Board of TXU Corp.
and TXU Gas; prior thereto, President of
TXU Electric; prior thereto, Vice
President and Principal Financial
Officer of TXU Corp.; other
directorships: TXU Gas and TXU Europe
Limited.
M. S. Greene 55 President, Transmission May 27, 1997 President, TXU Lone Star Pipeline and
Division Transmission Division of TXU Electric;
prior thereto, Executive Vice President
of TXU Fuel and TXU Mining.
Michael J. McNally 46 None February 16, 1996 Executive Vice President and Chief
Financial Officer of TXU Corp.; prior
thereto, President, Transmission
Division of TXU Electric; prior thereto,
Principal of Enron Development
Corporation; prior thereto, Managing
Director of Enron Capital and Trade
Resources; other directorships: TXU Gas
and TXU Europe Limited.
Erle Nye 63 Chairman of the Board and September 17, 1982 Chairman of the Board and Chief Executive
Chief Executive of TXU Corp., TXU Electric and TXU Gas;
prior thereto, President and Chief
Executive of TXU Corp. and Chairman of
the Board and Chief Executive of TXU
Electric; other directorships: TXU
Corp., TXU Gas and TXU Europe Limited.
14
Other Positions and
Offices Presently Held Date First Elected as Present Principal Occupation or
With TXU Electric Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age in May, 2001) in May, 2001) Other Directorships
- ------------------- --- ------------------------- --------------------- ------------------------------------------
W. M. Taylor 58 President, Generation May 20, 1986 President, Generation Division of TXU
Division Electric and Executive Vice President of
TXU Mining; prior thereto, Executive
Vice President of TXU Electric.
Directors of TXU Electric receive no compensation in their capacity as
Directors.
Identification of Executive Officers and business experience:
Positions and Offices Date First Elected to
Presently Held (Current Present Offices
Term Expires (Current Term Expires Business Experience
Name of Officer Age in May, 2001) in May, 2001) (Preceding Five Years)
- ------------------- --- ------------------------- --------------------- ------------------------------------------
Erle Nye 63 Chairman of the Board and February 20, 1987 Chairman of the Board and Chief Executive
Chief Executive of TXU Corp., TXU Electric and TXU Gas;
prior thereto, President and Chief
Executive of TXU Corp. and Chairman of
the Board and Chief Executive of TXU
Electric.
David W. Biegler 54 Group President May 12, 2000 President of TXU Corp. and Group President
of TXU Electric and TXU Gas; prior
thereto, President and Chief Operating
Officer of TXU Corp., TXU Electric and
TXU Gas; prior thereto, Chairman,
President and Chief Executive Officer of
TXU Gas.
T. L. Baker 55 President May 12, 2000 President of TXU Electric, TXU Gas and TXU
SESCO; prior thereto, President,
Electric Service Division, of TXU
Electric and TXU Gas Distribution; prior
thereto, Executive Vice President of TXU
Electric; prior thereto, Senior Vice
President of TXU Electric.
W. M. Taylor 58 President, Generation February 16, 1996 President, Generation Division of TXU
Division Electric and Executive Vice President of
TXU Mining; prior thereto, Executive
Vice President of TXU Electric.
M. S. Greene 55 President, Transmission May 27, 1997 President, TXU Lone Star Pipeline and
Division Transmission Division of TXU Electric;
prior thereto, Executive Vice President
of TXU Fuel and TXU Mining.
There is no family relationship between any of the above-named Directors and
Executive Officers.
15
Item 11. EXECUTIVE COMPENSATION
TXU Electric and its affiliates have paid or awarded compensation during the
last three calendar years to the following Executive Officers for services in
all capacities:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------------------- ------------------------------------
Awards Payouts
------------------------- -------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Salary Bonus Compen- Awards Options/ Payouts sation
Principal Position Year ($) ($) (4) sation ($) ($) (5) SARs (#) ($) (6) ($) (7)
- ------------------------- ---- ------- ------- ---------- ---------- ---------- ------- ---------
Erle Nye, (1) (8)........ 2000 950,000 380,000 --- 593,750 --- 399,793 218,101
Chairman of the Board 1999 908,333 475,000 --- 688,750 --- 61,016 184,892
and Chief Executive of 1998 818,750 350,000 --- 541,250 --- 19,674 156,906
the Company
David W. Biegler, (2).... 2000 650,000 162,500 --- 308,750 --- 0 96,924
Group President of the 1999 641,667 164,000 --- 310,250 --- 0 81,509
Company 1998 617,500 102,500 --- 244,250 --- 0 174,208
T. L. Baker (3) (8)...... 2000 399,167 125,000 --- 219,500 --- 93,968 84,152
President of the Company 1999 355,833 116,000 --- 199,250 --- 23,467 71,675
1998 323,083 60,000 --- 135,600 --- 8,212 62,011
W. M. Taylor (8)......... 2000 409,167 112,500 --- 209,250 --- 77,387 82,501
President, Generation 1999 375,000 98,500 --- 184,000 --- 24,969 70,720
Division 1998 360,500 75,000 --- 157,800 --- 7,733 63,421
M. S. Greene (8)........ 2000 283,333 75,000 --- 142,500 --- 6,021 59,487
President, Transmission 1999 255,833 63,500 --- 122,000 --- 18,304 51,454
Division 1998 245,833 50,000 --- 106,250 --- 5,645 45,875
- -------------
(1) Compensation amounts represent compensation paid by TXU Corp.
(2) Mr. Biegler was elected Group President of TXU Electric effective May 12,
2000; prior thereto, he was President and Chief Operating Officer.
Compensation amounts represent compensation paid by TXU Corp.
(3) Mr. Baker was elected President of TXU Electric effective May 12, 2000;
prior thereto, he was President, Electric Service Division.
(4) Amounts reported as Bonus in the Summary Compensation Table are
attributable to the named officer's participation in the Annual Incentive
Plan (AIP). Elected corporate officers of TXU Corp. and its participating
subsidiaries with a title of Vice President or above are eligible to
participate in the AIP. Under the terms of the AIP, target incentive
awards ranging from 40% to 75% of base salary, and a maximum award of 100%
of base salary, are established. The percentage of the target or the
maximum actually awarded, if any, is dependent upon the attainment of per
share net income goals established in advance by the TXU Corp. Organization
and Compensation Committee (Committee) as well as the Committee's
evaluation of the participant's and TXU Corp.'s performance. One-half of
each award is paid in cash and is reflected as Bonus in the Summary
Compensation Table. Payment of the remainder of the award is deferred and
invested under the Deferred and Incentive Compensation Plan (DICP)
discussed hereinafter in footnote (5).
(5) Amounts reported as Restricted Stock Awards in the Summary Compensation
Table are attributable to the named officer's participation in the Deferred
and Incentive Compensation Plan (DICP). Elected corporate officers of TXU
Corp. and its participating subsidiaries with the title of Vice President
or above are eligible to participate in the DICP. Participants in the DICP
may defer a percentage of their
16
base salary not to exceed a maximum percentage determined by the Committee
for each Plan year and in any event not to exceed 15% of the participant's
base salary. Salary deferred under the DICP is included in amounts reported
as Salary in the Summary Compensation Table. TXU Corp. makes a matching
award (Matching Award) equal to 150% of the participant's deferred salary.
In addition, one-half of any AIP award (Incentive Award) is deferred and
invested under the DICP. The Matching Awards and Incentive Awards are
subject to forfeiture under certain circumstances. Under the DICP, a
trustee purchases TXU Corp. common stock with an amount of cash equal to
each participant's deferred salary, Matching Award and Incentive Award, and
accounts are established for each participant containing performance units
(Units) equal to such number of common shares. DICP investments, including
reinvested dividends, are restricted to TXU Corp. common stock, and the
value of each unit credited to participants' accounts equals the value of a
share of TXU Corp. common stock. On the expiration of the applicable
maturity period (three years for Incentive Awards and five years for
deferred salary and Matching Awards), the values of the participant's
accounts are paid in cash based upon the then current value of the Units;
provided, however, that in no event will a participant's account be deemed
to have a cash value which is less than the sum of such participant's
deferred salary together with 6% per annum interest compounded annually.
The maturity period is waived if the participant dies or becomes totally
and permanently disabled and may be extended under certain circumstances.
Incentive Awards and Matching Awards that have been made under the DICP are
included under Restricted Stock Awards in the Summary Compensation Table
for each of the last three years. As a result of these awards,
undistributed Incentive Awards and Matching Awards made under the Plan in
prior years, and dividends reinvested thereon, the number and market value
at December 31, 2000 of such Units (each of which is equal to one share of
common stock) held in the DICP accounts for Messrs. Nye, Biegler, Baker,
Taylor and Greene were 62,925 ($2,788,364), 24,705 ($1,094,740), 20,236
($896,708), 20,772 ($920,459) and 14,064 ($623,211), respectively.
(6) Amounts reported as LTIP payouts in the Summary Compensation Table are
attributable to the vesting and distribution of performance based
restricted stock awards under the Long-Term Incentive Compensation Plan
(LTICP) and the distribution during the year of earnings on salaries
previously deferred under the DICP.
The LTICP is a comprehensive, stock-based incentive compensation plan
providing for discretionary grants of common stock-based awards, including
restricted stock. Outstanding awards to named executive officers vest at
the end of a three year performance period and provide for an ultimate
award of from 0% to 200% of the number of shares initially awarded based on
TXU Corp.'s total return to shareholders over the three year period
compared to the total return provided by the companies comprising the
Standard & Poor's Electric Utility Index. Dividends on the restricted
stock are reinvested in TXU Corp. common stock and are paid in cash upon
release of the restricted shares. Based on TXU Corp.'s total return to
shareholders over the three year period ending March 31, 2000 compared to
the returns provided by the companies comprising the Standard & Poor's
Electric Utility Index, Messrs. Nye, Baker and Taylor each received 50% of
the restricted shares awarded in May of 1997, which stock was valued at
$380,188, $86,406 and $69,125, respectively.
Amounts reported also include earnings distributed during the year on
salaries previously deferred under the DICP for Messrs. Nye, Baker, Taylor
and Greene of $19,605, $7,561, $8,262 and $6,021, respectively.
As a result of restricted stock awards under the LTICP, and reinvested
dividends thereon, the number of shares of restricted stock and the value
of such shares at December 31, 2000 held for Messrs. Nye, Biegler, Baker,
Taylor and Greene were 147,396 ($6,531,485), 29,539 ($1,308,947), 28,120
($1,246,067), 22,735 ($1,007,445) and 8,490 ($376,213), respectively.
As noted, salaries deferred under the DICP are included in amounts reported
as Salary in the Summary Compensation Table. Amounts shown in the table
below represent the number of shares purchased under the DICP with these
deferred salaries for 2000 and the number of shares awarded under the
LTICP:
17
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Deferred and Incentive
Compensation Plan (DICP) Long-Term Incentive Compensation Plan (LTICP)
------------------------- --------------------------------------------------------------
Number of Performance Performance
Shares, or Other Number of or Other
Units or Period Until Shares, Units Period Until Estimated Future Payouts
Other Maturation or Other Maturation or --------------------------
Name Rights (#) or Payout Rights (#) Payout Minimum (#) Maximum (#)
- -------------------- ---------- ------------ ------------- ------------- ----------- -----------
Erle Nye............ 4,503 5 Years 75,000 3 Years 0 150,000
David W. Biegler.... 3,081 5 Years 10,000 3 Years 0 20,000
T. L. Baker......... 1,990 5 Years 12,000 3 Years 0 24,000
W. M. Taylor........ 2,038 5 Years 10,000 3 Years 0 20,000
M. S. Greene........ 1,422 5 Years 5,000 3 Years 0 10,000
(7) Amounts reported as All Other Compensation in the Summary Compensation
Table are attributable to the named officer's participation in certain
plans and as otherwise described hereinafter in this footnote.
Under the TXU Thrift Plan (Thrift Plan) all eligible employees of TXU Corp.
and any of its participating subsidiaries may invest up to 16% of their
regular salary or wages in common stock of TXU Corp., or in a variety of
selected mutual funds. Under the Thrift Plan, TXU Corp. and its
participating subsidiaries match a portion of an employee's contributions
in an amount equal to 40%, 50% or 60% (depending on the employee's length
of service) of the first 6% of such employee's contributions. All matching
amounts are invested in common stock of TXU Corp. The amounts reported
under All Other Compensation in the Summary Compensation Table include
these matching amounts which, for Messrs. Nye, Biegler, Baker, Taylor and
Greene were $6,120, $6,120, $6,120, $6,120 and $6,120, respectively, during
2000.
TXU Corp. has a Salary Deferral Program (Program) under which each employee
of TXU Corp. and its participating subsidiaries whose annual salary is
equal to or greater than an amount established under the Program ($100,550
for the Program Year beginning April 1, 2000) may elect to defer a
percentage of annual base salary, or any bonus or other special cash
compensation for a period of seven years, for a period ending with the
retirement of such employee, or for a combination thereof. Such deferrals
may be up to a maximum of 50% of the employee's annual salary and/or 100%
of the employee's bonus or other special cash compensation. TXU Corp.
makes a matching award, subject to forfeiture under certain circumstances,
equal to 100% of up to the first 8% of salary deferred under the Program.
Salary and bonuses deferred under the Program are included in amounts
reported under Salary and Bonus, respectively, in the Summary Compensation
Table. Deferrals are credited with earnings or losses based on the
performance of investment alternatives selected by each participant. At
the end of the applicable maturity period, the trustee for the Program
distributes the deferrals and the applicable earnings in cash. The
distribution is in a lump sum if the applicable maturity period is seven
years. If the retirement option is elected, the distribution is made in
twenty annual installments. TXU Corp. is financing the retirement option
portion of the Program through the purchase of corporate-owned life
insurance on the lives of participants. The proceeds from such insurance
are expected to allow TXU Corp. to fully recover the cost of the retirement
option. During 2000, matching awards, which are included under All Other
Compensation in the Summary Compensation Table, were made for Messrs. Nye,
Biegler, Baker, Taylor and Greene in the amounts of $76,000, $52,000,
$31,933, $32,733 and $28,333, respectively.
Under TXU Corp.'s Split-Dollar Life Insurance Program (Insurance Program),
split-dollar life insurance policies are purchased for elected corporate
officers of TXU Corp. and its participating subsidiaries with a title of
Vice President or above, with a death benefit equal to four times their
annual Insurance Program compensation. New participants vest in the
policies issued under the Insurance Program over a six year period. TXU
Corp. pays the premiums for these policies and has received a collateral
assignment of the policies equal in value to the sum of all of its
insurance premium payments. Although the Insurance Program is terminable
at any time, it is designed so that if it is continued, TXU
18
Corp. will fully recover all of the insurance premium payments it has made
either upon the death of the participant or, if the assumptions made as to
policy yield are realized, upon the later of fifteen years of participation
or the participant's attainment of age sixty-five. During 2000, the
economic benefit derived by Messrs. Nye, Biegler, Baker, Taylor and Greene
from the term insurance coverage provided and the interest foregone on the
remainder of the insurance premiums paid by TXU Corp. amounted to $135,981,
$38,804, $46,698, $43,647 and $25,034, respectively.
(8) TXU Corp. has entered into employment agreements with Messrs. Nye, Baker,
Taylor and Greene as hereinafter described in this footnote.
Effective June 1, 2000, TXU Corp. entered into an employment agreement with
Mr. Nye. The agreement provides for Mr. Nye's continued service, through
June 1, 2004 (Term), as TXU Corp.'s Chairman of the Board and Chief
Executive. Under the terms of the agreement, Mr. Nye will, during the
Term, be entitled to a minimum annual base salary of $950,000, eligibility
for an annual bonus under the terms of the AIP, and minimum annual
restricted stock awards of 40,000 shares under the LTICP. The agreement
also provides for the funding of the retirement benefit to which Mr. Nye
will be entitled under TXU Corp.'s supplemental retirement plan in an
amount determined in accordance with the standard formula under such plan.
Additionally, the agreement entitles Mr. Nye to certain severance benefits
in the event he is terminated without cause during the Term, including a
payment equal to the greater of his annualized base salary and target
bonus, or the total amount of base salary and bonuses he would have
received for the remainder of the Term; a payment in lieu of foregone and
forfeited incentive compensation; and health care benefits. The agreement
also provides for compensation and benefits under certain circumstances
following a change-in-control of TXU Corp. during the Term, including a
payment equal to the greater of three times his annualized base salary and
target bonus, or the total base salary and bonus he would have received for
the remainder of the Term; a payment in lieu of foregone and forfeited
incentive compensation; health care benefits and a tax gross-up payment to
offset any excise tax which may result from such change-in-control
payments.
TXU Corp. entered into an employment agreement with Mr. Baker effective
July 1, 2000. The employment agreement provides for the continued service
by Mr. Baker through June 30, 2003 (Term). Under the terms of the
agreement, Mr. Baker will, during the Term, be entitled to a minimum annual
base salary of $420,000, eligibility for an annual bonus under the terms of
the AIP, and minimum restricted stock awards of 12,000 shares under the
LTICP. Additionally, the agreement entitles Mr. Baker to certain severance
benefits in the event he is terminated without cause during the Term,
including a payment equal to the greater of his annualized base salary and
target bonus, or the total amount of base salary and bonuses he would have
received for the remainder of the Term; a payment in lieu of foregone and
forfeited incentive compensation; and health care benefits. The agreement
also provides for compensation and benefits under certain circumstances
following a change-in-control of TXU Corp. during the Term, including a
payment equal to the greater of three times his annual base salary and
target bonus, or the total base salary and bonus he would have received for
the remainder of the Term; a payment in lieu of foregone and forfeited
incentive compensation; health care benefits and a tax gross-up payment to
offset any excise tax which may result from such change-in-control payment.
TXU Corp. entered into an employment agreement with Mr. Taylor effective
July 1, 2000. The employment agreement provides for the continued service
by Mr. Taylor through June 30, 2003 (Term). Under the terms of the
agreement, Mr. Taylor will, during the Term, be entitled to a minimum
annual base salary of $430,000, eligibility for an annual bonus under the
terms of the AIP, and minimum restricted stock awards of 10,000 shares
under the LTICP. Additionally, the agreement entitles Mr. Taylor to
certain severance benefits in the event he is terminated without cause
during the Term, including a payment equal to the greater of his annualized
base salary and target bonus, or the total amount of base salary and
bonuses he would have received for the remainder of the Term; a payment in
lieu of foregone and forfeited incentive compensation; and health care
benefits. The agreement also provides for compensation and benefits under
certain circumstances following a change-in-control of TXU Corp. during the
Term, including a payment equal to the greater of three times his annual
base salary and target bonus, or the total base salary and bonus he would
have received for the remainder of the Term; a payment in lieu of foregone
and forfeited incentive compensation;
19
health care benefits and a tax gross-up payment to offset any excise tax
which may result from such change-in-control payment.
TXU Corp. entered into an employment agreement with Mr. Greene effective
July 1, 2000. The employment agreement provides for the continued service
by Mr. Greene through June 30, 2003 (Term). Under the terms of the
agreement, Mr. Greene will, during the Term, be entitled to a minimum
annual base salary of $300,000, eligibility for an annual bonus under the
terms of the AIP, and minimum restricted stock awards of 5,000 shares under
the LTICP. Additionally, the agreement entitles Mr. Greene to certain
severance benefits in the event he is terminated without cause during the
Term, including a payment equal to the greater of his annualized base
salary and target bonus, or the total amount of base salary and bonuses he
would have received for the remainder of the Term; a payment in lieu of
foregone and forfeited incentive compensation; and health care benefits.
The agreement also provides for compensation and benefits under certain
circumstances following a change-in-control of TXU Corp. during the Term,
including a payment equal to the greater of three times his annual base
salary and target bonus, or the total base salary and bonus he would have
received for the remainder of the Term; a payment in lieu of foregone and
forfeited incentive compensation; health care benefits and a tax gross-up
payment to offset any excise tax which may result from such change-in-
control payment.
As a part of the acquisition of TXU Gas, options to purchase the common
stock of TXU Gas which had been granted to various employees of TXU Gas were
converted into options to acquire common shares of TXU Corp. The table below
shows, for each of the named officers, the information specified with respect to
exercised, exercisable and unexercisable options under all existing stock option
plans, converted into shares of TXU Corp.'s common stock into which such options
became exercisable at the time of the TXU Gas acquisition.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
Number Of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 2000 December 31, 2000
on Value (#) ($)
Exercise Realized ---------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ---------------- ------------ ----------- ------------- ----------- -------------
Erle Nye.................. 0 0 0 0 0 0
David W. Biegler.......... 0 0 129,778 0 2,598,889 0
T. L. Baker............... 0 0 0 0 0 0
W. M. Taylor.............. 0 0 0 0 0 0
M. S. Greene.............. 0 0 0 0 0 0
TXU Corp. and its subsidiaries maintain retirement plans (TXU Retirement
Plan) which are qualified under applicable provisions of the Internal Revenue
Code of 1986, as amended (Code). Annual retirement benefits under the
traditional defined benefit formula of the TXU Retirement Plan, which applied to
each of the named officers, are computed as follows: for each year of accredited
service up to a total of 40 years, 1.3% of the first $7,800, plus 1.5% of the
excess over $7,800, of the participant's average annual earnings during his or
her three years of highest earnings. Amounts reported under Salary for the
named officers in the Summary Compensation Table approximate earnings as defined
by the TXU Retirement Plan without regard to any limitations imposed by the
Code. Benefits paid under the TXU Retirement Plan are not subject to any
reduction for Social Security payments but are limited by provisions of the
Code. As of February 28, 2001, years of accredited service under the TXU
Retirement Plan for Messrs. Nye, Biegler, Baker, Taylor and Greene were 38, 3,
30, 33 and 30, respectively.
20
TXU PENSION PLAN TABLE
Years of Service
------------------------------------------------------------
Remuneration 20 25 30 35 40
- ------------ -------- -------- -------- ---------- ----------
$ 50,000 $ 14,688 $ 18,360 $ 22,032 $ 25,704 $ 29,376
100,000 29,688 37,110 44,532 51,954 59,376
200,000 59,688 74,610 89,532 104,454 119,376
400,000 119,688 149,610 179,532 209,454 239,376
800,000 239,688 299,610 359,532 419,454 479,376
1,000,000 299,688 374,610 449,532 524,454 599,376
1,400,000 419,688 524,610 629,532 734,454 839,376
1,800,000 539,688 674,610 809,532 944,454 1,079,376
2,000,000 599,688 749,610 899,532 1,049,454 1,199,376
Before the TXU Gas acquisition, Mr. Biegler earned retirement benefits under
the Retirement and Death Benefit Program of 1969 of ENSERCH Corporation and
Participating Subsidiary Companies (ENSERCH Retirement Plan) which was merged
into, and became a part of, the TXU Retirement Plan effective December 31, 1997.
In connection with this plan merger, the TXU Retirement Plan was amended to
provide that the retirement benefit of certain TXU Gas employees will equal the
sum of (1) their accrued benefit under the ENSERCH Retirement Plan through the
last pay period of 1997 and (2) their accrued benefit under the TXU Retirement
Plan beginning with the first pay period of 1998; provided that the aggregate
retirement benefit earned under the traditional defined benefit plan formula of
the plans can be no less than the retirement benefit which would have been
earned had all service under the traditional defined benefit formula been under
the ENSERCH Retirement Plan. Mr. Biegler, whose employment with TXU Corp. began
August 5, 1997, is treated in a similar manner. Amounts reported for Mr. Biegler
under Salary and Bonus in the Summary Compensation Table approximate earnings as
defined by the ENSERCH Retirement Plan without regard to any limitations imposed
by the Code. Benefits paid under the ENSERCH Retirement Plan are not subject to
any reduction for Social Security payments but are limited by provisions of the
Code. As of February 28, 2001, Mr. Biegler had 29 years of accredited service
under the ENSERCH Retirement Plan and, as noted, 3 years of accredited service
under the TXU Retirement Plan.
ENSERCH PENSION PLAN TABLE
Years of Service
------------------------------------------------------------------
Remuneration 20 25 30 35 40 45
- ------------ -------- -------- ---------- ---------- ---------- ----------
$ 50,000 $ 12,500 $ 15,625 $ 18,750 $ 21,875 $ 23,125 $ 24,375
100,000 29,735 37,169 44,603 52,036 54,536 57,036
200,000 64,735 80,919 97,103 113,286 118,286 123,286
400,000 134,735 168,419 202,103 235,786 245,786 255,786
800,000 274,735 343,419 412,103 480,786 500,786 520,786
1,000,000 344,735 430,919 517,103 603,286 628,286 653,286
1,400,000 484,735 605,919 727,103 848,286 883,286 918,286
1,800,000 624,735 780,919 937,103 1,093,286 1,138,286 1,183,286
2,000,000 694,735 868,419 1,042,103 1,215,786 1,265,786 1,315,786
21
TXU Corp.'s supplemental retirement plans (Supplemental Plan) provide for the
payment of retirement benefits which would otherwise be limited by the Code or
the definition of earnings in the TXU Retirement Plan or the ENSERCH Retirement
Plan, as applicable. Under the Supplemental Plan, retirement benefits are
calculated in accordance with the same formula used under the applicable
qualified plan, except that, with respect to calculating the portion of the
Supplemental Plan benefit attributable to service under the TXU Retirement Plan,
earnings also include AIP awards (50% of the AIP award is reported under Bonus
for the named officers in the Summary Compensation Table). The tables set forth
above illustrate the total annual benefit payable at retirement under the TXU
Retirement Plan and the ENSERCH Retirement Plan, respectively, inclusive of
benefits payable under the Supplemental Plan, prior to any reduction for a
contingent beneficiary option which may be selected by participants.
The following report and performance graph are presented herein for
information purposes only. This information is not required to be included
herein and shall not be deemed to form a part of this report to be "filed" with
the Securities and Exchange Commission. The report set forth hereinafter is the
report of the Organization and Compensation Committee of the Board of Directors
of TXU Corp. and is illustrative of the methodology utilized in establishing the
compensation of executive officers of TXU Electric. References in the report to
the "Company" are references to TXU Corp. and references to "this proxy
statement" are references to TXU Corp.'s proxy statement in connection with TXU
Corp.'s 2001 annual meeting of shareholders.
22
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors
(Committee) is responsible for reviewing and establishing the compensation of
the executive officers of the Company. The Committee consists of all of the
nonemployee directors of the Company and is chaired by James A. Middleton. The
Committee has directed the preparation of this report and has approved its
content and submission to the shareholders.
As a matter of policy, the Committee believes that levels of executive
compensation should be based upon an evaluation of the performance of the
Company and its officers generally, as well as in comparison to persons with
comparable responsibilities in similar business enterprises. Compensation plans
should align executive compensation with returns to shareholders with due
consideration accorded to balancing both long-term and short-term objectives.
The overall compensation program should provide for an appropriate and
competitive balance between base salaries and performance-based annual and long-
term incentives. The Committee has determined that, as a matter of policy to be
implemented over time, the base salaries of the officers will be established
around the median, or 50th percentile, of the top ten electric utilities in the
United States, or other relevant market, and that opportunities for total direct
compensation (defined as the sum of base salaries, annual incentives and long-
term incentives) to reach the 75th percentile, or above, of such market or
markets will be provided through performance-based incentive compensation plans.
Such compensation principles and practices have allowed, and should continue to
allow, the Company to attract, retain and motivate its key executives.
In furtherance of these policies, a nationally recognized compensation
consultant has been retained since 1994 to assist the Committee in its periodic
reviews of compensation and benefits provided to officers. The consultant's
evaluations include comparisons to the largest utilities as well as to general
industry with respect both to the level and composition of officers'
compensation. The consultant's recommendations including the Annual Incentive
Plan, the Long-Term Incentive Compensation Plan and certain benefit plans have
generally been implemented. The Annual Incentive Plan, which was first approved
by the shareholders in 1995 and reapproved in 2000, is generally referred to as
the AIP and is described in this report and in footnote 1 on page 9 of this
proxy statement. The Long-Term Incentive Compensation Plan, referred to as the
Long-Term Plan or LTICP, was approved by the shareholders in 1997 and is
described in this report as well as in footnote 3 on pages 10 and 11 of this
proxy statement.
The compensation of the officers of the Company consists principally of base
salaries, the opportunity to earn an incentive award under the AIP, awards of
performance-based restricted shares under the Long-Term Plan and the opportunity
to participate in the Deferred and Incentive Compensation Plan (referred to as
the DICP and described in footnote 2 on pages 9 and 10 of this proxy statement).
The value of future payments under the DICP, as well as the value of the
deferred portion of any award under the AIP and the value of any awards of
performance-based restricted shares under the Long-Term Plan, are directly
related to the future performance of the Company's common stock. It is
anticipated that performance-based incentive awards under the AIP and the Long-
Term Plan, will, in future years, continue to constitute a substantial
percentage of the officers' total compensation.
Certain of the Company's business units have developed separate annual and
long-term incentive compensation plans. Those plans focus on the results
achieved by those individual business units and the compensation opportunities
provided by those plans are considered to be competitive in the markets in which
those units compete. Generally, officers may not participate in both the
traditional incentive compensation plans as discussed herein and the business
unit plans. None of the named officers participate in the individual business
unit plans.
The AIP is administered by the Committee and provides an objective framework
within which annual Company and individual performance can be evaluated by the
Committee. Depending on the results of such performance evaluations, and the
attainment of the per share net income goals established in advance, the
Committee may provide annual incentive compensation awards to eligible officers.
The evaluation of each individual participant's performance is based upon the
attainment of individual and business unit objectives.
23
The Company's performance is evaluated, compared to the ten largest electric
utilities and/or the electric utility industry, based upon its total return to
shareholders and return on invested capital, as well as other measures relating
to competitiveness, service quality and employee safety. The combination of
individual and Company performance results, together with the Committee's
evaluation of the competitive level of compensation which is appropriate for
such results, determines the amount, if any, actually awarded.
The Long-Term Plan, which is also administered by the Committee, is a
comprehensive stock-based incentive compensation plan under which all awards are
made in, or based on the value of, the Company's common stock. The Long-Term
Plan provides that, in the discretion of the Committee, awards may be in the
form of stock options, stock appreciation rights, performance and/or restricted
stock or stock units or in any other stock-based form. The purpose of the Long-
Term Plan is to provide performance-related incentives linked to long-term
performance goals. Such performance goals may be based on individual
performance and/or may include criteria such as absolute or relative levels of
total shareholder return, revenues, sales, net income or net worth of the
Company, any of its subsidiaries, business units or other areas, all as the
Committee may determine. Awards under the Long-Term Plan constitute the
principal long-term component of officers' compensation.
In establishing levels of executive compensation at its May 2000 meeting, the
Committee reviewed various performance and compensation data, including the
performance measures under the AIP and the report of its compensation
consultant. Information was also gathered from industry sources and other
published and private materials which provided a basis for comparing the largest
electric and gas utilities and other survey groups representing a large variety
of business organizations. Included in the data considered were the comparative
returns provided by the largest electric and gas utilities as represented by the
returns of the Standard & Poor's Electric Utility Index which are reflected in
the graph on page 22. Compensation amounts were established by the Committee
based upon its consideration of the above comparative data and its subjective
evaluation of Company and individual performance at levels consistent with the
Committee's policy relating to total direct compensation.
At its meeting in May 2000, the Committee provided awards of performance-
based restricted shares under the Long-Term Plan to certain officers, including
the Chief Executive. Information relating to awards made to the named executive
officers is contained in the Table on page 11 of this proxy statement. The
ultimate value of those awards will be determined by the Company's total return
to shareholders over a three year period compared to the total return for that
period of the companies comprising the Standard & Poor's Electric Utility Index.
Depending upon the Company's relative total return for such period, the officers
may earn from 0% to 200% of the original award and their compensation is,
thereby, directly related to shareholder value. Awards granted in May 2000
contemplate that 200% of the original award will be provided if the Company's
total return is in the 81st percentile or above of the returns of the companies
comprising the Standard & Poor's Electric Utility Index and that such percentage
of the original award will be reduced as the Company's return compared to the
Index declines so that 0% of the original award will be provided if the
Company's return is in the 40th percentile or below of returns provided by the
companies comprising the Index. These awards, and any awards that may be made
in the future, are based upon the Committee's evaluation of the appropriate
level of long-term compensation consistent with its policy relating to total
direct compensation.
Additionally with respect to the Long-Term Plan, the Committee, at its
meeting in May 2000, considered the restricted stock awards provided to certain
officers in May of 1997. Based upon its review and comparison of the results of
the Company's total return to the returns provided by the companies comprising
the Standard & Poor's Electric Utility Index, the Committee determined that the
Company's performance during the three year performance period ending in March
of 2000 permitted the payment of 50% of such 1997 awards. Payment of these
awards were made in the form of the Company's stock and cash, and, for Messrs.
Nye, Gibbs and McNally, the value of the stock at the date of distribution is
included in the LTIP Payouts column of the Summary Compensation Table on page 9
of this proxy statement.
During the year the Committee and the Board of Directors determined that it
was in the best interests of the Company to enter into employment agreements
with certain officers, including the Chief Executive. Accordingly, the
Committee recommended, and the Board of Directors subsequently approved, an
employment agreement with Mr. Nye which contemplates his continued service
through June 1, 2004 as Chairman of the Board and Chief Executive. The
agreement provides, among other things, for a minimum annual base salary,
24
eligibility for an annual bonus under the terms of the AIP, minimum restricted
stock awards under the Long-Term Plan, certain severance benefits upon
termination of employment without cause and compensation and benefits under
certain circumstances following a change in control of the Company.
Additionally, the Committee ratified and approved employment contracts with
certain other officers of the Company and its subsidiaries including agreements
with Messrs. Dickie and McNally, named executive officers. The agreements with
Messrs. Nye, Dickie and McNally are described in footnote 6 on pages 13 and 14
of this proxy statement.
Mr. Nye's base salary as Chief Executive was not increased in 2000. Based
upon the Committee's evaluation of individual and Company performance, as called
for by the AIP, the Committee provided Mr. Nye with an AIP award of $760,000
compared to the prior year's award of $950,000. The Committee also awarded
75,000 shares of performance-based restricted stock to Mr. Nye. Under the terms
of the award, Mr. Nye can earn from 0% to 200% of the award depending on the
Company's total return to shareholders over a three-year period (April 1, 2000
through March 31, 2003) compared to the total return provided by the companies
comprising the Standard & Poor's Electric Utility Index. This level of
compensation was established based upon the Committee's subjective evaluation of
the information described in this report. In addition, as previously noted in
this report, the Committee approved the payment of 50% of the 1997 restricted
stock awards under the Long-Term Plan, which for Mr. Nye was 11,000 shares.
In discharging its responsibilities with respect to establishing executive
compensation, the Committee normally considers such matters at its May meeting
held in conjunction with the Annual Meeting of Shareholders. Although Company
management may be present during Committee discussions of officers'
compensation, Committee decisions with respect to the compensation of the Chief
Executive are reached in private session without the presence of any member of
Company management.
Section 162(m) of the Code limits the deductibility of compensation which a
publicly traded corporation provides to its most highly compensated officers.
As a general policy, the Company does not intend to provide compensation which
is not deductible for federal income tax purposes. Awards under the AIP in 1996
and subsequent years have been, and are expected to continue to be, fully
deductible. Awards under the Long-Term Plan are expected to be fully
deductible, and the DICP and the Salary Deferral Program have been amended to
require the deferral of distributions of amounts maturing in years subsequent to
1995 until the time when such amounts would be deductible.
Shareholder comments to the Committee are welcomed and should be addressed
to the Secretary of the Company at the Company's offices.
Organization and Compensation Committee
James A. Middleton, Chair Margaret N. Maxey
Derek C. Bonham J. E. Oesterreicher
William M. Griffin Charles R. Perry
Kerney Laday Herbert H. Richardson
25
PERFORMANCE GRAPH
The following graph compares the performance of TXU Corp.'s common stock to
the S&P 500 Index and S&P Electric Utility Index for the last five years. The
graph assumes the investment of $100 at December 31, 1995 and that all dividends
were reinvested. The amount of the investment at the end of each year is shown
in the graph and in the table which follows.
Cumulative Total Returns
for the Five Years ended 12/31/00
[GRAPH]
----------------------------------
1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------
TXU Corp........................ 100 104 113 133 108 144
--------------------------------------------------------------------
S&P 500 Index................... 100 123 164 211 255 232
--------------------------------------------------------------------
S&P Electric Utility Index...... 100 100 126 145 117 180
--------------------------------------------------------------------
26
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners at February 22, 2001:
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Ownership Percent of Class
- ------------------ ------------------- ----------------- ----------------
Common stock, TXU Corp. 72,794,600 shares 100.0%
without par value, Energy Plaza sole voting and
of TXU Electric 1601 Bryan Street investment power
Dallas, Texas 75201
Security ownership of management at February 22, 2001:
The following lists the common stock of TXU Corp. owned by the Directors and
Executive Officers of TXU Electric. The named individuals have sole voting and
investment power for the shares of common stock reported. Ownership of such
common stock by the Directors and Executive Officers, individually and as a
group, constituted less than 1% of the outstanding shares at February 22, 2001.
None of the named individuals own any of the preferred stock of TXU Electric or
the preferred securities of any subsidiaries of TXU Electric.
Number of Shares
----------------------------------------------
Name Beneficially Owned Deferred Plan (1) Total
---- ------------------ ----------------- -------
T. L. Baker.................. 34,922 28,315 63,237
David W. Biegler............. 152,623 (2) 33,416 186,039
Barbara B. Curry............. 10,756 13,736 24,492
H. Jarrell Gibbs............. 48,361 37,486 85,847
M. S. Greene................. 11,510 20,084 31,594
Michael J. McNally........... 67,699 32,373 100,072
Erle Nye..................... 188,568 83,190 271,758
W. M. Taylor................. 38,862 29,522 68,384
All Directors and Executive
Officers as a group (8)..... 553,301 278,122 831,423
- -----------------
(1) Share units held in deferred compensation accounts under the Deferred and
Incentive Compensation Plan. Although this plan allows such units to be
paid only in the form of cash, investments in such units create essentially
the same investment stake in the performance of TXU Corp.'s common stock as
do investments in actual shares of common stock.
(2) Shares reported include 106,451 shares subject to stock options exercisable
within sixty days.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) Documents filed as part of this Report:
Financial Statements (included in Appendix A to this report):
Selected Financial Data - Consolidated Financial and Operating Statistics....................... A-2
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... A-4
Statement of Responsibility..................................................................... A-12
Independent Auditors' Report.................................................................... A-13
Statements of Consolidated Income for each of the three years in the
period ended December 31, 2000.............................................................. A-14
Statements of Consolidated Comprehensive Income for each of the
three years in the period ended December 31, 2000........................................... A-14
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 2000.......................................................... A-15
Consolidated Balance Sheets, December 31, 2000 and 1999......................................... A-16
Statements of Consolidated Shareholders' Equity for each of the three years in
the period ended December 31, 2000.......................................................... A-17
Notes to Financial Statements................................................................... A-18
The consolidated financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K:
Reports on Form 8-K filed since September 30, 2000, are as follows:
Date of Report Item Reported
-------------- -------------
December 14, 2000 Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits - Independent Auditor's Consent of KPMG LLP.
(c) Exhibits:
Included in Appendix B to this report.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, TXU Electric Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TXU ELECTRIC COMPANY
Date: March 8, 2001 By: /s/ ERLE NYE
----------------------------------------
(Erle Nye, Chairman of the Board and
Chief Executive)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of TXU Electric
Company and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ ERLE NYE Principal Executive
- ----------------------------------------------------- Officer
(Erle Nye, Chairman of the Board and Chief Executive)
/s/ KIRK R. OLIVER Principal Financial
- ----------------------------------------------------- Officer
(Kirk R. Oliver, Treasurer and Assistant Secretary)
/s/ BIGGS C. PORTER Principal Accounting
- ----------------------------------------------------- Officer
(Biggs C. Porter, Vice President)
/s/ T. L. BAKER Director
- -----------------------------------------------------
(T. L. Baker)
/s/ DAVID W. BIEGLER Director
- -----------------------------------------------------
(David W. Biegler)
/s/ BARBARA B. CURRY Director March 8, 2001
- -----------------------------------------------------
(Barbara B. Curry)
/s/ H. JARRELL GIBBS Director
- -----------------------------------------------------
(H. Jarrell Gibbs)
/s/ M. S. GREENE Director
- -----------------------------------------------------
(M. S. Greene)
/s/ MICHAEL J. McNALLY Director
- -----------------------------------------------------
(Michael J. McNally)
/s/ W. M. TAYLOR Director
- -----------------------------------------------------
(W. M. Taylor)
29
Appendix A
TXU ELECTRIC COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
December 31, 2000
Page
Selected Financial Data - Consolidated Financial and Operating Statistics A- 2
Management's Discussion and Analysis of Financial Condition and Results of Operations........ A- 4
Statement of Responsibility.................................................................. A-12
Independent Auditors' Report................................................................. A-13
Financial Statements:
Statements of Consolidated Income and Comprehensive Income................................... A-14
Statements of Consolidated Cash Flows........................................................ A-15
Consolidated Balance Sheets.................................................................. A-16
Statements of Consolidated Shareholders' Equity.............................................. A-17
Notes to Financial Statements................................................................ A-18
A-1
TXU ELECTRIC COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
Year Ended December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Millions of Dollars, except ratios)
Total assets -- end of year................................................... $18,816 $18,108 $18,405 $18,824 $18,795
Property, plant and equipment - net -- end of year............................. $15,324 $15,243 $15,409 $15,720 $15,865
Capital expenditures......................................................... 689 554 496 443 376
Capitalization -- end of year
Long-term debt, less amounts due currently................................... $ 5,039 $ 4,684 $ 5,208 $ 5,476 $ 6,311
TXU Electric Company obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely junior subordinated
debentures of TXU Electric Company (trust securities)....................... 829 824 823 875 381
Preferred stock:
Subject to mandatory redemption............................................ 21 21 21 21 238
Not subject to mandatory redemption........................................ 115 115 115 129 465
Common stock equity.......................................................... 6,764 6,671 6,495 6,298 6,106
------- ------- ------- ------- -------
Total..................................................................... $12,768 $12,315 $12,662 $12,799 $13,501
======= ======= ======= ======= =======
Capitalization ratios -- end of year
Long-term debt, less amounts due currently................................... 39.4% 38.0% 41.1% 42.8% 46.8%
Trust securities............................................................. 6.5 6.7 6.5 6.8 2.8
Preferred stock.............................................................. 1.1 1.1 1.1 1.2 5.2
Common stock equity.......................................................... 53.0 54.2 51.3 49.2 45.2
------- ------- ------- ------- -------
Total..................................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
Embedded interest cost on long-term debt -- end of year........................ 7.5% 7.4% 8.3% 8.3% 8.3%
Embedded distribution cost on trust securities -- end of year.................. 8.3% 8.4% 8.4% 8.3% 8.7%
Embedded dividend cost on preferred stock-- end of year*....................... 8.1% 11.0% 13.5% 14.1% 7.5%
Net income available for common stock.......................................... $ 885 $ 769 $ 785 $ 745 $ 809
Dividends declared on common stock............................................. -- -- -- 137 503
Common stock repurchased and retired........................................... 802 593 578 416 --
Ratio of earnings to fixed charges............................................. 3.7 3.2 3.3 2.9 3.0
Ratio of earnings to combined fixed charges and preferred dividends............ 3.6 3.1 3.1 2.7 2.6
Return on average common stock equity.......................................... 13.2% 11.7% 12.3% 12.0% 13.6%
*Includes the unamortized balance of the loss on reacquired preferred stock and
associated amortization. The embedded dividend cost, excluding the effects of
the loss on reacquired preferred stock, is 6.7% for 2000, 1999 and 1998, 6.9%
for 1997 and 6.8% for 1996.
Certain previously reported financial statistics have been reclassified to
conform to current classifications.
A-2
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
Year Ended December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Electric energy generated and
purchased (gigawatt hours - GWh)
Generated -- net station output............................................... 96,868 94,575 97,574 91,298 88,130
Purchased and net interchange................................................. 15,165 11,464 11,271 11,443 12,418
-------- -------- -------- -------- --------
Total generated and purchased............................................. 112,033 106,039 108,845 102,741 100,548
Company use, losses and unaccounted for....................................... 6,487 6,554 6,484 6,161 5,805
-------- -------- -------- -------- --------
Total electric energy sales............................................... 105,546 99,485 102,361 96,580 94,743
======== ======== ======== ======== ========
Electric energy sales (GWh)
Residential................................................................... 38,191 35,155 36,830 33,530 33,039
Commercial.................................................................... 32,020 29,736 29,332 27,323 26,456
Industrial.................................................................... 25,099 24,715 25,125 24,609 24,215
Government and municipal...................................................... 6,987 6,515 6,525 6,039 5,929
-------- -------- -------- -------- --------
Total general business.................................................... 102,297 96,121 97,812 91,501 89,639
Other electric utilities...................................................... 3,249 3,364 4,549 5,079 5,104
-------- -------- -------- -------- --------
Total electric energy sales............................................... 105,546 99,485 102,361 96,580 94,743
======== ======== ======== ======== ========
Operating revenues (millions of dollars)
Base rate revenues
Residential............................................................... $ 2,198 $ 2,042 $ 2,157 $ 1,991 $ 1,994
Commercial................................................................ 1,420 1,336 1,307 1,235 1,227
Industrial................................................................ 604 577 583 582 590
Government and municipal.................................................. 332 318 317 293 291
-------- -------- -------- -------- --------
Total general business................................................... 4,554 4,273 4,364 4,101 4,102
Other electric utilities.................................................. 125 105 138 164 166
-------- -------- -------- -------- --------
Total base rate business................................................. 4,679 4,378 4,502 4,265 4,268
Fuel (including over/under-recovered)......................................... 2,771 1,701 1,798 1,707 1,679
Transmission service.......................................................... 168 148 126 114 --
Other......................................................................... 91 72 62 49 83
-------- -------- -------- -------- --------
Subtotal.................................................................. 7,709 6,299 6,488 6,135 6,030
Earnings in excess of earnings cap............................................ (305) (92) -- -- --
-------- -------- -------- -------- --------
Total operating revenues.................................................. $ 7,404 $ 6,207 $ 6,488 $ 6,135 $ 6,030
======== ======== ======== ======== ========
Degree days (% of normal)
Cooling...................................................................... 119 114 130 94 115
Heating...................................................................... 95 70 89 106 94
Electric customers (end of year -- in thousands)
Residential.................................................................. 2,318 2,266 2,206 2,152 2,110
Commercial................................................................... 258 251 244 237 230
Industrial................................................................... 20 21 21 21 21
Government and municipal..................................................... 32 32 31 31 30
-------- -------- -------- -------- --------
Total electric customers.................................................. 2,628 2,570 2,502 2,441 2,391
======== ======== ======== ======== ========
Residential statistics (excludes master-metered
customers, kilowatt hour (kWh) sales, and revenues)
Average annual kWh per customer............................................. 15,845 14,875 16,170 15,026 15,100
Average revenue per kWh..................................................... 7.69 7.59 7.83 7.85 7.91
(cents) (cents) (cents) (cents) (cents)
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (GWh)................................................. 2,926 3,845 3,779 3,820 3,842
Operating revenues (millions of dollars).................................... $ 46 $ 41 $ 40 $ 47 $ 47
Certain previously reported operating statistics have been reclassified to
conform to current classifications.
A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
TXU Electric Company (TXU Electric) is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electric energy in
the north-central, eastern and western parts of Texas. TXU Electric is a wholly-
owned subsidiary of TXU Corp., a Texas corporation. TXU Corp. is a holding
company that engages in the generation, purchase, transmission, distribution and
sale of electricity; the purchase, transmission, distribution and sale of
natural gas; and energy marketing, energy services, telecommunications and other
businesses in the United States, Europe and Australia. As an integrated electric
utility, TXU Electric currently has only one reportable segment. TXU Electric
possesses all necessary franchises, licenses and certificates to enable it to
conduct its business.
RESULTS OF OPERATIONS
2000 1999 1998
----- ----- -----
(Millions of Dollars)
Impact of Earnings Cap:
Reduction of revenues.................................................................... $ 305 $ 92 $ --
Additional nuclear depreciation.......................................................... -- 52 170
Tax benefit.............................................................................. (107) (54) (27)
----- ----- -----
Net earnings reduction............................................................ $ 198 $ 90 $ 143
----- ----- -----
2000 versus 1999
- ----------------
Net income of $895 million for the year ended 2000 was 15% higher than
1999. Comparisons of net income were affected by gains in 2000 from asset sales
of $18 million after-tax and from the favorable resolution of certain regulatory
matters, higher rate base, lower interest expense and by a fuel reconciliation
settlement that reduced 1999 net income by $31 million.
See Notes 3 and 13 to financial statements for a discussion of the 1999
Texas electric industry restructuring legislation (1999 Restructuring
Legislation). Following the 1999 Restructuring Legislation, earnings in excess
of the regulatory earnings cap have been recorded as a reduction of revenues,
with a corresponding regulatory liability recorded. Application of the earnings
cap reduced net income by $198 million in 2000 and $90 million in 1999. TXU
Electric's earnings in excess of the earnings cap were reduced by $45 million
($29 million after-tax) in 2000 reflecting the favorable resolution of
regulatory matters relating to the 1999 calculation.
In addition, as a result of the 1999 Restructuring Legislation,
transmission and distribution (T&D) depreciation expense was no longer
transferred to nuclear production assets; instead an amount equivalent to T&D
depreciation was recorded as a regulatory asset, with a corresponding amount
recorded as a regulatory liability. The regulatory asset will be amortized as it
is recovered through the Distribution portion of the business, while the
regulatory liabilities will be applied as mitigation (reduction) of stranded
generation assets. Additional mitigation in 2000 was $509 million, including
$305 million to reduce earnings to the earnings cap and $204 million from the
establishment of a regulatory asset in the amount of T&D depreciation. Since
January 1998, TXU Electric has recorded more than $2 billion of nuclear
depreciation and mitigation, which reduces stranded costs.
Excluding the reduction of revenues as a result of the earnings cap and the
fuel reconciliation settlement, operating revenues for 2000 were 21% higher than
1999. Revenues in 2000 were $1.4 billion more than in 1999 due to the increase
in fuel revenue, growth and customer demand, including hotter than normal summer
weather and an extremely cold fourth quarter 2000. Cooling degree days in 2000
were 119% of normal compared to 114% of normal in 1999. Heating degree days in
2000 were 95% of normal compared to 70% of normal in 1999. Electric energy sales
volumes for 2000 were 6% higher than in 1999. Fuel revenues for 2000 were $1.1
billion higher than in 1999, primarily as a result of higher energy sales and
increased fuel prices.
A-4
Operation and maintenance expenses for 2000 were 7% higher than 1999
primarily as a result of a $52 million writeoff of certain restructuring
expenses and other regulatory assets and increased regulated third-party
transmission rates. Excluding these items, operation and maintenance expenses
were up less than 1%. Depreciation and amortization expense was $32 million
lower in 2000 compared to 1999, which included mitigation depreciation of $52
million, partially offset by higher T&D depreciation.
Interest expense and other charges of $442 million for 2000 were 9% lower
than 1999 due to the reacquisition of long-term debt and remarketing of certain
debt to lower interest rates.
The effective income tax rate for TXU Electric for 2000 and 1999 was 31%.
1999 versus 1998
- ----------------
Net income of $779 million for 1999 was 2.4% lower than 1998. Comparisons
of net income were impacted by both a fuel reconciliation settlement that
reduced 1999 net income by $31 million and a rate settlement agreement that
became effective in January 1998 and was modified by the 1999 Restructuring
Legislation, which reduced customer rates and introduced an earnings cap.
Excluding the reduction of revenues as a result of the earnings cap and
fuel reconciliation disallowance, operating revenues for 1999 were 2.1% lower
than 1998. Revenues in 1999 were $160 million less than 1998 due to the impact
of the exceptionally hot summer weather in 1998. Cooling degree days in 1999
were 114% of normal compared to 130% of normal in 1998. Heating degree days in
1999 were 70% of normal compared to 89% of normal in 1998. An additional
reduction in rates effective January 1, 1999 due to the 1998 rate settlement
agreement was somewhat offset by continued strong core retail sales and revenue
growth. Electric energy sales volumes for 1999 were 2.8% lower than 1998. Fuel
revenues for 1999 were slightly lower than in 1998, primarily as a result of
lower energy sales.
Operation and maintenance expenses for 1999 were 4% higher than 1998
largely as a result of increased transmission expenses due to increased
regulated third party transmission rates. Depreciation and amortization expense
was $108 million lower in 1999 versus 1998. Earnings in excess of the earnings
cap recorded as additional nuclear depreciation in 1999 was $52 million versus
$170 million in 1998.
The net decrease of $52 million in interest expense and other charges for
1999 compared to 1998 is primarily due to the reacquisition of long-term debt
and remarketing of certain debt to lower interest rates.
The effective income tax rate for TXU Electric was lower in 1999 compared
to 1998 due primarily to the discontinuation of amortization of prior period
flow-through amounts and other tax-related regulatory assets and liabilities
resulting from the impact of the 1999 Restructuring Legislation.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flows provided by operating activities before changes in operating
assets and liabilities for 2000 were $1.9 billion compared with $1.7 billion and
$1.8 billion for 1999 and 1998, respectively. The year-to-year comparisons
reflect revenue changes discussed above in Results of Operations. Changes in
operating assets and liabilities in 2000 used $330 million and $85 million in
1999 and provided $2 million of cash in 1998. The increase in cash requirements
in 2000 compared to 1999 and 1998 is primarily due to the $650 million after-tax
increase in under-recovered fuel revenues partially offset by an increase in
accounts payable, both of which are a result of the increase in natural gas
prices. TXU Electric expects to recover fuel revenues through surcharges and
increases in the fuel factor on customer bills (See Note 13 to Financial
Statements).
A-5
Cash flows used in financing activities were $.8 billion, $1.0 billion and
$1.2 billion for the years 2000, 1999 and 1998, respectively. Major financing
activities in 2000 included the retirement of $577 million of long-term debt,
the repurchase of $802 million of common stock and the issuance of $65 million
in Pollution Control Revenue Bonds and $575 million of First Mortgage Bonds.
Financing transactions during the year ended December 31, 2000, were as
follows:
Issuances Retirements
--------- -----------
(Millions of Dollars)
Long-term Debt:
Pollution Control Revenue Bonds......................................... $ 65 $ 65
First Mortgage Bonds.................................................... 575 159
Other................................................................... -- 353
--------- -----------
Total $640 $577
========= ===========
Cash flows used in investing activities for 2000 totaled $786 million
versus $605 million for 1999 and $580 million for 1998. Capital expenditures
were $689 million, $554 million and $496 million for 2000, 1999 and 1998,
respectively, and are estimated at $690 million for 2001.
The capitalization ratios of TXU Electric at December 31, 2000 consisted of
approximately 39% long-term debt, 7% trust securities, 1% preferred stock and
53% common stock equity, compared to 1999 capitalization ratios of approximately
38% long-term debt, 7% trust securities, 1% preferred stock and 54% common stock
equity.
See Notes to Financial Statements for further details concerning long-term
debt, trust securities and preferred stock. Early redemptions of preferred
stock and long-term debt may occur from time to time in amounts presently
undetermined. TXU Electric may issue additional debt and equity securities as
needed, including the possible future sale of up to $25 million of its
Cumulative Preferred Stock and an aggregate of $924 million of debt securities,
including cumulative preferred stock, first mortgage bonds, debt securities
and/or preferred securities of subsidiary trusts all, of which are currently
registered with the Securities and Exchange Commission for offering pursuant to
Rule 415 under the Securities Act of 1933.
The 1999 Restructuring Legislation requires each electric utility to
separate its business by January 1, 2002 into the following units: a power
generation company, a retail electric provider and a transmission and
distribution company or separate transmission and distribution companies. In
January 2000, TXU Electric filed with the PUC its proposed business separation
plan which has not yet been approved by the PUC. TXU Electric continues to
analyze alternatives to determine the most efficient way to accomplish the
business separation objectives of the 1999 Restructuring Legislation. TXU
Electric anticipates that, in connection with the business separation plan, it
will refinance certain outstanding securities in the capital markets in order to
properly capitalize the separated businesses.
At December 31, 2000, TXU Corp., TXU Electric and TXU Gas Company had joint
US dollar-denominated lines of credit under revolving credit facility agreements
(US Credit Agreements) with a group of banking institutions. At December 31,
2000, TXU Electric had no borrowings outstanding under these facilities. The US
Credit Agreements were amended in February 2001 and have two facilities.
Facility A provides for short-term borrowings aggregating up to $1.4 billion
outstanding at any one time at variable interest rates and terminates in
February 2002. Facility B provides for borrowings aggregating up to $1.4
billion outstanding at any one time at variable interest rates and terminates in
February 2005. Facility B also provides for the issuance of up to $500 million
of letters of credit. TXU Electric's borrowings under both facilities are
limited to an aggregate of $2 billion outstanding at any one time of which $224
million was outstanding at December 31, 2000.
At December 31, 2000, accounts receivable of TXU Electric were reduced by
$500 million to reflect the sales of receivables.
A-6
TXU Electric has filed a petition with the PUC for a financing order to
permit the issuance of transition bonds secured by payments designed to enable
TXU Electric to recover its generation-related regulatory assets and other
qualified costs in accordance with the 1999 Restructuring Legislation. The
proceeds received by TXU Electric from the issuance of the transition bonds are
to be used solely for the purpose of retiring utility debt and equity. For more
information concerning securitization of regulatory assets, see Note 13 to
Financial Statements.
A-7
Quantitative and Qualitative Disclosure About Market Risk
TXU Electric's participation in derivative transactions is designated for
hedging purposes, and such derivative transactions are not entered into for
trading purposes.
ENERGY PRICE RISK -- As a result of continued regulation, TXU Electric has
minimal exposure to energy price risk, therefore, its use of derivative
instruments is limited.
INTEREST RATE RISK -- TXU Electric manages its exposure to interest rate
risk primarily through its balance of fixed and variable rate instruments. The
table below provides information concerning TXU Electric's financial instruments
as of December 31, 2000 that are sensitive to changes in interest rates, which
include debt obligations, trust securities, preferred stock subject to mandatory
redemption and interest rate swaps. TXU Electric has entered into an interest
rate swap under which it has agreed to exchange the difference between fixed-
rate and variable-rate interest amounts calculated with reference to a specified
notional principal amounts at dates that generally coincide with interest
payments. Weighted average variable rates are based on rates in effect at the
reporting date.
Expected Maturity Date
-------------------------------------------------------
(Millions of Dollars) 2000 1999
There- 2000 Fair 1999 Fair
2001 2002 2003 2004 2005 After Total Value Total Value
----- ----- ----- ----- ----- ------ ------ ----------- ------ ------
Long-term Debt
(including current maturities)
Fixed Rate...................... $ 220 $ 374 $ 308 $ 225 $ 97 $2,672 $3,896 $3,947 $4,405 $4,398
Average interest rate....... 7.49% 8.23% 6.91% 7.19% 6.87% 7.20% 7.28% -- 7.14% --
Variable Rate................... -- $ 575 -- -- -- $ 788 $1,363 $1,363 $ 788 $ 788
Average interest rate....... -- 7.13% -- -- -- 5.16% 5.99% -- 5.16% --
TXU Electric obligated, mandatorily
Redeemable, preferred securities
of subsidiary trusts holding
solely junior subordinated
debentures of TXU Electric
Fixed Rate...................... -- -- -- -- -- $ 731 $ 731 $ 734 $ 727 $ 645
Average interest rate...... -- -- -- -- -- 8.14% 8.14% -- 8.14% --
Variable Rate.................. -- -- -- -- -- $ 98 $ 98 $ 98 $ 97 $ 97
Average interest rate...... -- -- -- -- -- 7.55% 7.55% -- 7.01% --
Preferred stock subject to
mandatory redemption
Fixed rate.................. -- -- $ 10 $ 10 $ 1 -- $ 21 $ 17 $ 21 $ 21
Average dividend rate....... -- -- 6.68% 6.68% 6.98% -- 6.69% -- 6.69% --
Interest Rate Swaps
(notional amounts)
Variable to Fixed............... -- $ 100 -- -- -- -- $ 100 (1) 1 $ 100 $ 1
Pay rate.................... -- 7.18% -- -- -- -- 7.18% -- 7.18% --
Receive rate................ -- 7.55% -- -- -- -- 7.55% -- 7.01% --
A-8
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL TRUST -- TXU Electric
has established an external trust to provide for nuclear decommissioning and
disposal of spent fuel. The trust's assets are invested in marketable fixed
income debt and equity securities. The market value of the debt and equity
securities was $117 million and $150 million, respectively, at December 31,
2000. At December 31, 1999, the market value of the debt and equity securities
was $94 million and $150 million, respectively. A hypothetical 10% increase in
interest rates and 10% decrease in equity prices would result in a $19 million
reduction in the fair value of the trust assets. However, adjustments to market
value result in a corresponding adjustment to related liability accounts based
on current regulatory treatment.
Regulation and Rates
Electric Industry Restructuring -- Project teams have been established to
prepare TXU Electric for a competitive environment. These teams are comprised
of resources from all facets of TXU Corp.'s business and formulate short- and
long-term strategy to address the implementation of the 1999 Restructuring
Legislation.
Fuel Cost Recovery Rule -- Pursuant to a PUC rule, the recovery of TXU
Electric's eligible fuel costs is provided through fixed fuel factors. The rule
allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition to
make either surcharges or refunds to ratepayers, together with interest based on
a twelve-month average of prime commercial rates, for any material cumulative
under- or over-recovery of fuel costs. If the cumulative difference of the
under- or over-recovery, plus interest, exceeds 4% of the annual estimated fuel
costs most recently approved by the PUC, it will be deemed to be material.
Final reconciliation of fuel costs must be made either in a reconciliation
proceeding or in a general rate case. In a final reconciliation, a utility has
the burden of proving that fuel costs under review were reasonable and necessary
to provide reliable electric service, that it has properly accounted for its
fuel-related revenues, and that fuel prices charged to the utility by an
affiliate were reasonable and necessary and not higher than prices charged for
similar items by such affiliate to other affiliates or nonaffiliates. For
generating utilities like TXU Electric, through August 31, 1999, the rule
provided for recovery of purchased power capacity costs through a power cost
recovery factor with respect to purchases from qualifying facilities, to the
extent such costs were not otherwise included in base rates. Pursuant to the
1999 Restructuring Legislation, the power cost recovery factor will be frozen
between September 1, 1999 and January 1, 2002. The energy-related costs of such
purchases continue to be included in the fixed fuel factor. TXU Electric is
required to file in 2002 with the PUC for final reconciliation of its eligible
fuel costs. This final reconciliation will cover the period from July 1998
through December 2001. See Note 13 to Financial Statements.
TXU Electric has several rate requests pending or on appeal, see Note 13 to
Financial Statements.
The State of Texas is transitioning to deregulation with adequate
generation capability and sound enabling legislation. The State of California,
however, has for several months suffered from transition to deregulation in an
environment of insufficient energy supply compounded by escalating natural gas
costs. This situation has financially distressed California utilities. The
effects the California situation may have on legislation and the capital markets
cannot be predicted.
A-9
CHANGES IN ACCOUNTING STANDARDS
Changes in Accounting Standards -- Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as extended by SFAS No. 137 (June 1999) and amended by SFAS No. 138
(June 2000), is effective for TXU Electric beginning January 1, 2001. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires the recognition of derivatives in the
balance sheet and the measurement of those instruments at fair value.
All derivatives within TXU Electric have been identified pursuant to SFAS
No. 133 requirements. TXU Electric has designated, documented and assessed
hedging relationships, which resulted in cash-flow hedges that require TXU
Electric to record the derivative assets or liabilities at their fair value on
its balance sheet with an offset in other comprehensive income. Future hedge
ineffectiveness will be recorded in earnings.
Adoption of this accounting standard as of January 1, 2001 resulted in the
recognition of $.6 million of derivative liabilities with a cumulative effect of
$.4 million after-tax as a decrease to other comprehensive income. There are a
number of issues pending before the Derivatives Implementation Group that may
have an impact on the application of this statement. Management is unable to
predict the outcome of these issues.
SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets
and Extinguishments of Liabilities", is effective for TXU Electric for transfers
on or after April 1, 2001. SFAS No. 140 replaces SFAS No. 125. SFAS No. 140
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires disclosures, but carries over most
of SFAS No. 125's provisions without reconsideration. TXU Electric does not
expect SFAS No. 140 to have a material impact on the sale of receivables
program. SFAS No. 140 requires TXU Electric to provide certain disclosures about
securitizations in the financial statements at December 31, 2000. These
disclosures have been included in Note 15 to Financial Statements.
A-10
FORWARD-LOOKING STATEMENTS
This report and other presentations made by TXU Electric contain forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Although TXU Electric believes that in making any such
statement its expectations are based on reasonable assumptions, any such
statement involves uncertainties and is qualified in its entirety by reference
to the following important factors, among others, that could cause the actual
results of TXU Electric to differ materially from those projected in such
forward-looking statements: (i) prevailing governmental policies and regulatory
actions, including those of the FERC, PUC and NRC, with respect to allowed rates
of return, industry and rate structure, purchased power and investment recovery,
operations of nuclear generating facilities, acquisitions and disposal of assets
and facilities, operation and construction of plant facilities, decommissioning
costs, present or prospective wholesale and retail competition, changes in tax
laws and policies and changes in and compliance with environmental and safety
laws and policies, (ii) weather conditions and other natural phenomena, (iii)
unanticipated population growth or decline, and changes in market demand and
demographic patterns, (iv) competition for retail and wholesale customers, (v)
pricing and transportation of crude oil, natural gas and other commodities, (vi)
unanticipated changes in interest rates or rates of inflation, (vii)
unanticipated changes in operating expenses and capital expenditures, (viii)
capital market conditions, (ix) competition for new energy development
opportunities, (x) legal and administrative proceedings and settlements, (xi)
inability of the various counterparties to meet their obligations with respect
to TXU Electric's financial instruments, (xii) changes in technology used and
services offered by TXU Electric, and (xiii) significant changes in TXU
Electric's relationship with its employees and the potential adverse effects if
labor disputes or grievances were to occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Electric undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement 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 to predict all of such factors, nor can it 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.
A-11
TXU ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENT OF RESPONSIBILITY
The management of TXU Electric Company (TXU Electric) is responsible for
the preparation, integrity and objectivity of the consolidated financial
statements of TXU Electric and its subsidiaries and other information included
in this report. The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. As appropriate, the statements include amounts based on informed
estimates and judgments of management.
The management of TXU Electric has established and maintains a system of
internal control designed to provide reasonable assurance, on a cost-effective
basis, that assets are safeguarded, transactions are executed in accordance with
management's authorization and financial records are reliable for preparing
consolidated financial statements. Management believes that the system of
control provides reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period. Key elements in this system include the
effective communication of established written policies and procedures,
selection and training of qualified personnel and organizational arrangements
that provide an appropriate division of responsibility. This system of control
is augmented by an ongoing internal audit program designed to evaluate its
adequacy and effectiveness. Management considers the recommendations of the
internal auditors and independent auditors concerning TXU Electric's system of
internal control and takes appropriate actions which are cost-effective in the
circumstances. Management believes that, as of December 31, 2000, TXU
Electric's system of internal control was adequate to accomplish the objectives
discussed herein.
The independent auditing firm of Deloitte & Touche LLP is engaged to audit,
in accordance with auditing standards generally accepted in the United States of
America, the consolidated financial statements of TXU Electric and its
subsidiaries and to issue their report thereon.
/s/ ERLE NYE
---------------------------------------
Erle Nye, Chairman of the Board
and Chief Executive
/s/ D. W. BIEGLER
---------------------------------------
D. W. Biegler, Group President
/s/ THOMAS L. BAKER
---------------------------------------
Thomas L. Baker, President
/s/ KIRK OLIVER
---------------------------------------
Kirk Oliver, Vice President and
Principal Financial Officer
/s/ BIGGS C. PORTER
---------------------------------------
Biggs C. Porter, Vice President and
Principal Accounting Officer
A-12
INDEPENDENT AUDITORS' REPORT
TXU Electric Company:
We have audited the accompanying consolidated balance sheets of TXU Electric
Company (TXU Electric), and subsidiaries as of December 31, 2000 and 1999, and
the related statements of consolidated income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
TXU Electric management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TXU Electric and subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 1, 2001
A-13
TXU ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
Millions of Dollars
Operating revenues................................................................. $7,404 $6,207 $6,488
------ ------ ------
Operating expenses
Energy purchased for resale and fuel consumed................................. 3,110 2,081 2,102
Operation and maintenance..................................................... 1,429 1,333 1,281
Depreciation and amortization................................................. 609 641 749
Income taxes.................................................................. 383 362 490
Taxes other than income....................................................... 550 541 533
------ ------ ------
Total operating expenses................................................ 6,081 4,958 5,155
------ ------ ------
Operating income................................................................... 1,323 1,249 1,333
------ ------ ------
Other income (deductions)
Allowance for equity funds used during construction........................... 8 8 6
Other income (deductions) -- net.............................................. 14 (3) (12)
Income tax benefit (expense).................................................. (10) 6 4
------ ------ ------
Total other income (deductions).......................................... 12 11 (2)
------ ------ ------
Income before interest and other charges........................................... 1,335 1,260 1,331
------ ------ ------
Interest income.................................................................... 2 3 3
Interest expense and other charges
Interest...................................................................... 382 425 476
Distributions on TXU Electric Company obligated,
mandatorily redeemable, preferred securities
of subsidiary trusts holding solely junior
subordinated debentures of TXU Electric Company............................ 69 68 68
Allowance for borrowed funds used during construction
and capitalized interest................................................... (9) (9) (8)
------ ------ ------
Total interest expense and other charges................................ 442 484 536
------ ------ ------
Net income......................................................................... 895 779 798
Preferred stock dividends.......................................................... 10 10 13
------ ------ ------
Net income available for common stock.............................................. $ 885 $ 769 $ 785
====== ====== ======
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Year Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
Millions of Dollars
Net income......................................................................... $ 895 $ 779 $ 798
------ ------ ------
Other comprehensive income (loss) --
Net change during period in minimum pension
liability adjustment...................................................... -- 1 (1)
------ ------ ------
Total................................................................. -- 1 (1)
------ ------ ------
Comprehensive income............................................................... $ 895 $ 780 $ 797
====== ====== ======
See Notes to Financial Statements.
A-14
TXU ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,
--------------------------
2000 1999 1998
------ ------- -------
Millions of Dollars
Cash flows -- operating activities
Net income........................................................................................... $ 895 $ 779 $ 798
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization..................................................................... 770 781 905
Deferred income taxes and investment tax credits -- net........................................... (21) 72 106
Gains from sale of assets......................................................................... (30) -- --
Allowance for equity funds used during construction............................................... (8) (8) (6)
Reduction of revenues for earnings in excess of earnings cap...................................... 305 92 --
Changes in operating assets and liabilities:
Accounts receivable............................................................................ (134) 43 153
Inventories.................................................................................... 25 23 (2)
Accounts payable............................................................................... 293 (39) (169)
Interest and taxes accrued..................................................................... 41 (50) (6)
Other working capital.......................................................................... 33 11 (25)
Over/(under) - recovered fuel revenue -- net of deferred taxes................................. (650) (59) 26
Other -- net................................................................................... 62 (14) 25
------ ------- -------
Cash provided by operating activities....................................................... 1,581 1,631 1,805
------ ------- -------
Cash flows -- financing activities
Issuances of long-term debt.......................................................................... 640 177 429
Retirements/repurchases of securities:
Long-term debt.................................................................................... (577) (731) (924)
Preferred stock................................................................................... -- -- (14)
TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary
trusts holding solely junior subordinated debentures of TXU Electric Company................... -- -- (47)
Common stock...................................................................................... (802) (593) (578)
Change in notes payable -- affiliates................................................................ (19) 158 (20)
Preferred stock dividends paid....................................................................... (10) (9) (14)
Debt premium, discount, financing and reacquisition expenses......................................... (10) (29) (64)
------ ------- -------
Cash used in financing activities........................................................... (778) (1,027) (1,232)
------ ------- -------
Cash flows -- investing activities
Capital expenditures................................................................................. (689) (554) (496)
Nuclear fuel......................................................................................... (87) (54) (51)
Other investments.................................................................................... (10) 3 (33)
------ ------- -------
Cash used in investing activities........................................................... (786) (605) (580)
------ ------- -------
Net change in cash and cash equivalents................................................................. 17 (1) (7)
Cash and cash equivalents -- beginning balance.......................................................... 4 5 12
------ ------- -------
Cash and cash equivalents -- ending balance............................................................. $ 21 $ 4 $ 5
====== ======= =======
See Notes to Financial Statements.
A-15
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
----------------
2000 1999
------- -------
Millions of Dollars
Current assets:
Cash and cash equivalents........................................................................... $ 21 $ 4
Accounts receivable................................................................................. 287 162
Inventories -- at average cost...................................................................... 217 242
Other current assets................................................................................ 38 59
------- -------
Total current assets............................................................................. 563 467
Investments........................................................................................... 662 612
Property, plant and equipment -- net.................................................................. 15,324 15,243
Regulatory assets..................................................................................... 2,206 1,719
Deferred debits and other assets...................................................................... 61 67
------- -------
Total assets..................................................................................... $18,816 $18,108
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- affiliates........................................................................ $ 302 $ 321
Long-term debt due currently....................................................................... 220 509
Accounts payable:
Affiliates........................................................................................ 278 116
Trade............................................................................................. 256 119
Customers' deposits................................................................................ 79 79
Taxes accrued...................................................................................... 189 139
Interest accrued................................................................................... 104 113
Deferred income taxes.............................................................................. 268 --
Other current liabilities.......................................................................... 161 130
------- -------
Total current liabilities........................................................................ 1,857 1,526
Accumulated deferred income taxes..................................................................... 3,237 3,340
Investment tax credits................................................................................ 493 515
Other deferred credits and noncurrent liabilities..................................................... 461 412
Long-term debt, less amounts due currently............................................................ 5,039 4,684
TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely junior subordinated debentures of TXU Electric Company................................ 829 824
Preferred stock subject to mandatory redemption....................................................... 21 21
Contingencies (Note 14)
Shareholders' equity (See page A-17).................................................................. 6,879 6,786
------- -------
Total liabilities and shareholders' equity....................................................... $18,816 $18,108
======= =======
See Notes to Financial Statements.
A-16
TXU ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Year Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
Millions of Dollars
Preferred stock -- not subject to mandatory redemption:
Balance at beginning of year................................................. $ 115 $ 115 $ 129
Preferred stock repurchased and retired (1998 -- 146,501 shares)......... -- -- (14)
------ ------ ------
Balance at end of year (2000, 1999 and 1998 -- 1,169,062 shares).............. 115 115 115
------ ------ ------
Common stock without par value -- authorized shares -- 180,000,000:
Balance at beginning of year.................................................. 3,145 3,738 4,316
Common stock repurchased and retired (2000 -- 24,125,100 shares;
1999 -- 19,786,000 shares; and 1998 -- 19,270,300 shares)............ (724) (593) (578)
------ ------ ------
Balance at end of year (2000 -- 79,749,600 shares;
1999 -- 103,874,700 shares; and 1998 -- 123,660,700 shares).............. 2,421 3,145 3,738
------ ------ ------
Stock of parent held for long-term incentive plan trust:
Balance at beginning of year.................................................. (10) (9) --
Change during the year.................................................... 10 (1) (9)
------ ------ ------
Balance at end of year........................................................ -- (10) (9)
------ ------ ------
Retained earnings:
Balance at beginning of year.................................................. 3,536 2,767 1,982
Net income................................................................ 895 779 798
Common stock repurchased and retired...................................... (78) -- --
Dividends declared on preferred stock..................................... (10) (10) (13)
------ ------ ------
Balance at end of year........................................................ 4,343 3,536 2,767
------ ------ ------
Accumulated other comprehensive income (loss):
Balance at beginning of year.................................................. -- (1) --
Change during the year.................................................... -- 1 (1)
------ ------ ------
Balance at end of year........................................................ -- -- (1)
------ ------ ------
------ ------ ------
Total common stock equity.......................................................... 6,764 6,671 6,495
------ ------ ------
Shareholders' equity............................................................... $6,879 $6,786 $6,610
====== ====== ======
See Notes to Financial Statements.
A-17
TXU ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
TXU Electric Company (TXU Electric) is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electric energy in
the north-central, eastern and western parts of Texas. As an integrated
electric utility, TXU Electric has only one reportable segment. TXU Electric is
a wholly-owned subsidiary of TXU Corp., a Texas corporation. TXU Corp. is a
holding company that engages in the generation, purchase, transmission,
distribution and sale of electricity; the purchase, transmission, distribution
and sale of natural gas; and energy marketing, energy services,
telecommunications and other businesses in the United States, Europe and
Australia.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements of TXU Electric
include all of its business trusts. Certain previously reported amounts have
been reclassified to conform to current classifications. All dollar amounts in
the financial statements and notes to financial statements are stated in
millions of dollars unless otherwise indicated.
Use of Estimates -- The preparation of TXU Electric's consolidated
financial statements requires management to make estimates and assumptions about
future events that affect the reporting and disclosure of assets and liabilities
at the balance sheet dates and the reported amounts of revenue and expense
during the periods. In the event estimates and/or assumptions prove to be
different from actual amounts, adjustments are made in subsequent periods to
reflect more current information. No material adjustments, other than those
disclosed elsewhere herein, were made to previous estimates during the current
year.
System of Accounts -- The accounting records of TXU Electric are maintained
in accordance with the Federal Energy Regulatory Commission's (FERC) Uniform
System of Accounts as adopted by the Public Utility Commission of Texas (PUC).
Property, Plant and Equipment -- Electric utility plant is stated at
original cost less certain regulatory disallowances. The cost of transmission
and distribution property additions to electric utility plant (and generation
prior to July 1, 1999) includes labor and materials, applicable overhead and
payroll-related costs and an allowance for funds used during construction
(AFUDC). Other property is stated at cost.
Interest Capitalized and Allowance For Funds Used During Construction --
AFUDC is a cost accounting procedure whereby amounts based upon interest charges
on borrowed funds and a return on equity capital used to finance construction
are added to utility plant.
Prior to July 1, 1999, TXU Electric capitalized AFUDC for all of its
expenditures for ongoing construction work in progress and nuclear fuel in
process not otherwise allowed in rate base by regulatory authorities. As a
result of the 1999 Restructuring Legislation, effective July 1, 1999, TXU
Electric began recording AFUDC only on transmission and distribution (T&D)
construction work in progress, and capitalizing interest during construction of
generation assets. For 2000, 1999 and 1998, TXU Electric used AFUDC rates of
9.0%, 9.0% and 8.0%, respectively.
Valuation of Long-lived Assets -- TXU Electric evaluates the carrying value
of long-lived assets to be held and used when events and circumstances warrant
such a review. The carrying value of long-lived assets would be considered
impaired when the projected undiscounted cash flows are less than carrying
value. In that event, a
A-18
loss would be recognized based on the amount by which the carrying value exceeds
the fair market value. Fair market value is determined primarily by available
market valuations or, if applicable, discounted cash flows.
Regulatory Assets and Liabilities -- The financial statements of TXU
Electric reflect regulatory assets and liabilities under cost-based rate
regulation in accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." As a result
of the 1999 Restructuring Legislation, the electricity generation portion of TXU
Electric's business no longer meets the criteria to apply SFAS No. 71. (See
Notes 3 and 13.)
Derivative Instruments -- TXU Electric does not enter into derivative
financial instruments for trading purposes. TXU Electric enters into interest
rate swaps to reduce exposure to interest rate fluctuations. Amounts paid or
received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the agreements as adjustments to
interest expense. See Changes in Accounting Standards below for the change in
accounting for derivatives effective January 1, 2001.
Revenues -- Electric sales revenues are recognized when services are
provided to customers on the basis of periodic cycle meter readings and include
an estimated accrual for the value of electricity provided from the meter
reading date to the end of the month. Electric revenues include billings under
approved rates and adjustments under various mechanisms to recover or refund the
cost of fuel and purchased power costs that are above or below the level
included in base rates. (See Note 13 for a discussion of Regulation and Rates.)
Depreciation of Property, Plant and Equipment -- Depreciation of electric
utility plant is generally based upon an amortization of the original cost of
depreciable properties (net of regulatory disallowances) on a straight-line
basis over the estimated service lives of the properties. Depreciation also
includes an amount for decommissioning costs for TXU Electric's nuclear powered
electric generating station (Comanche Peak) which is being accrued over the
lives of the units. Depreciation of all other plant and equipment generally is
determined by the straight-line method over the estimated useful life of the
asset. Depreciation as a percent of average depreciable property for TXU
Electric approximated 2.7% for 2000, 2.9% for 1999 and 3.0% for 1998.
Amortization of Nuclear Fuel -- The amortization of nuclear fuel in the
reactors (net of regulatory disallowances) is calculated on the units-of-
production method and is included in nuclear fuel expense.
Income Taxes -- TXU Electric is included in the consolidated federal income
tax return of TXU Corp. and subsidiary companies, and federal income taxes are
allocated to subsidiaries based upon their respective taxable income or loss.
Investment tax credits are amortized to income over the estimated service lives
of the properties. Deferred income taxes are provided for temporary differences
between the book and tax basis of assets and liabilities. Certain provisions of
SFAS No. 109 provide that regulated enterprises are permitted to recognize such
adjustments as regulatory tax assets or tax liabilities if it is probable that
such amounts will be recovered from, or returned to, customers in future rates.
Consolidated Cash Flows -- For purposes of reporting cash and cash
equivalents, temporary cash investments purchased with a remaining maturity of
three months or less are considered to be cash equivalents.
Changes in Accounting Standards -- SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as extended by SFAS No. 137 (June 1999) and
amended by SFAS No. 138 (June 2000), is effective for TXU Electric beginning
January 1, 2001. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recognition of
derivatives in the balance sheet and the measurement of those instruments at
fair value.
A-19
All derivatives within TXU Electric have been identified pursuant to SFAS
No. 133 requirements. TXU Electric has designated, documented and assessed
hedging relationships which resulted in cash-flow hedges that require TXU
Electric to record the derivative assets or liabilities at their fair value on
its balance sheet with an offset in other comprehensive income. Future hedge
ineffectiveness will be recorded in earnings.
Adoption of this accounting standard as of January 1, 2001 resulted in the
recognition of $.6 million of derivative liabilities with a cumulative effect of
$.4 million after-tax as a decrease to other comprehensive income. There are a
number of other issues pending before the Derivatives Implementation Group that
may have an impact on the application of this statement. Management is unable
to predict the outcome of these issues.
SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets
and Extinguishments of Liabilities", is effective for TXU Electric for transfers
on or after April 1, 2001. SFAS No. 140 replaces SFAS No. 125. SFAS No. 140
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires disclosures, but carries over most
of SFAS No. 125's provisions without reconsideration. TXU Electric does not
expect SFAS No. 140 to have a material impact on the sale of receivables
program. SFAS No. 140 requires TXU Electric to provide certain disclosures about
securitizations in the financial statements at December 31, 2000. These
disclosures have been incorporated.
A-20
3. ACCOUNTING IMPACT OF THE RESTRUCTURING OF THE ELECTRIC UTILITY INDUSTRY
IN TEXAS
Electric Industry Restructuring -- Legislation was passed during the 1999
session of the Texas Legislature that will restructure the electric utility
industry in Texas (1999 Restructuring Legislation). Among other matters, the
1999 Restructuring Legislation provides that earnings in excess of a regulatory
earnings cap, as defined, be used as mitigation (reduction) to the cost of
nuclear production assets (see Note 13); authorizes competition in the retail
and generation markets for electricity beginning January 1, 2002; provides for
the recovery of generation-related regulatory assets, generation-related and
purchased power-related costs that are in excess of market value (stranded
costs); requires reductions in nitrogen oxide (NOx) and sulfur dioxide (SO2)
emissions; requires a rate freeze, excluding cost of fuel, for all retail
customers until January 1, 2002 and certain rate reductions for residential and
small commercial customers for up to five years thereafter; and sets certain
limits on capacity owned and controlled by power generation companies. By
September 1, 2000, each electric utility was required to separate from its
regulated activities its customer energy services business activities that are
otherwise already widely available in the competitive market. By January 1,
2002, each electric utility must separate (unbundle) its business into the
following units: a power generation company, a retail electric provider (REP)
and a T&D company or separate T&D companies. A power generation company
generates electricity that is intended to be sold at wholesale. In general, a
power generation company may not own a transmission or distribution facility and
may not have a certificated service area. A REP sells electric energy to retail
customers and may not own or operate generation assets. (See Note 13.)
Accounting Impact of the Restructuring -- Regulatory Assets and
---------------------
Liabilities -- The financial statements of TXU Electric reflect regulatory
- -----------
assets and liabilities under cost-based rate regulation in accordance with
SFAS No. 71. As a result of the 1999 Restructuring Legislation, the electricity
generation portion of TXU Electric's business no longer meets the criteria to
apply regulatory accounting principles. Accordingly, application of SFAS No. 71
to the generation portion of TXU Electric's business was discontinued as of
June 30, 1999. TXU Electric's T&D operations continue to meet the criteria for
recognition of regulatory assets and liabilities. The 1999 Restructuring
Legislation provides for the recovery of net generation-related regulatory
assets existing at December 31, 1998. Such generation-related regulatory assets
will be amortized as recovered through the distribution portion of the business.
(See Note 13) In addition, fuel costs will be fully recoverable, subject to
regulatory review, during the transition period that extends to January 1, 2002.
As a result, management believes the economic benefit of all net regulatory
assets related to the generation business will be recovered.
Generation Production Assets -- TXU Electric anticipates that a portion of
----------------------------
the cost of its generation production assets and power purchase contracts may be
identified as stranded costs under the 1999 Restructuring Legislation and become
subject to a future quantification of the economic value of such assets in 2004.
The 1999 Restructuring Legislation provides that 100% of such stranded costs
will be recovered from customers. In 1999, TXU Electric performed an impairment
analysis of generation assets under the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires a company to forecast future net cash flows from
operating the asset, on an undiscounted basis excluding carrying costs, and to
compare the sum of those cash flows with the net carrying value of the asset.
Under this test, if the undiscounted net cash flows exceeded the net carrying
value, no impairment exists for accounting purposes. TXU Electric forecasted
the net cash flows of its generating assets and determined that the undiscounted
net cash flows exceeded the net carrying value of those plants. Accordingly, for
accounting purposes, there is no impairment. Generation-related plant assets at
December 31, 2000 were approximately $9.5 billion, net of accumulated
depreciation. See Notes 13 and 15 for further details concerning mitigation
impacts.
Investment Tax Credits -- TXU Electric has unamortized deferred investment
----------------------
tax credits (ITCs) of approximately $410 million applicable to its generation
business. The unamortized ITCs are temporary differences for which a deferred
income tax asset and a related regulatory liability have been recorded. It is
uncertain under applicable regulations whether, and to what extent, the
customers will ultimately benefit from
A-21
the unamortized ITCs and/or the related regulatory liability. Upon final
determination by the PUC, TXU Electric expects that the amount of unamortized
ITCs not applicable to customers will be amortized over the remaining life of
the generation plants. Also, upon final determination by the PUC, TXU Electric
expects that the regulatory liability related to the ITCs that is not applicable
to customers will be written off as an extraordinary credit to income.
4. SHORT-TERM FINANCING
At December 31, 2000, TXU Electric had $302 million of borrowings from
affiliates outstanding. Average borrowings outstanding from affiliates were
$261 million and $161 million during 2000 and 1999. Weighted average interest
rates on these borrowings were 7.36% and 6.24% at December 31, 2000 and 1999,
respectively.
At December 31, 2000, TXU Corp., TXU Electric and TXU Gas Company have
joint US dollar-denominated lines of credit under revolving credit facility
agreements (US Credit Agreements) with a group of banking institutions. At
December 31, 2000, TXU Electric had no borrowings outstanding under these
facilities. The US Credit Agreements have two facilities and were amended in
February 2001. Facility A provides for short-term borrowings aggregating up to
$1.4 billion outstanding at any one time at variable interest rates and
terminates in February 2002. Facility B provides for borrowings aggregating up
to $1.4 billion outstanding at any one time at variable interest rates and
terminates in February 2005. Facility B also provides for the issuance of up to
$500 million of letters of credit. Letters of credit outstanding under the
agreement total $224 million at December 31, 2000. TXU Electric's borrowings
under both facilities are limited to an aggregate of $2 billion outstanding at
any one time.
A-22
5. LONG-TERM DEBT
December 31,
----------------
2000 1999
------ ------
First mortgage bonds:
Fixed rate (6.25% to 9.75% due 2001 to 2025)......................................................... $2,251 $2,254
Variable rate (6.686% to 7.286% due 2002)............................................................. 575 --
Pollution control series:
Brazos River Authority:
Fixed rate (3.7% to 7.875% due 2021 to 2033)...................................................... 863 863
Taxable series (6.517% due 2023) (a).............................................................. 89 89
Variable rate (4.2% to 5.3% due 2022 to 2034) (b) (c)............................................. 467 466
Sabine River Authority of Texas:
Fixed rate (5.55% to 6.55% due 2021 to 2022)...................................................... 199 199
Variable rate (4.8% to 5.3% due 2022 to 2030) (c)................................................. 181 182
Trinity River Authority of Texas:
Variable rate (4.9% to 5.1% due 2022 to 2028) (c)................................................. 51 51
Secured medium-term notes, fixed rate (6.41% to 9.7% due 2001 to 2003).................................... 159 315
Debt assumed for purchase of utility plant (d)............................................................ 148 151
TXU Electric floating rate debentures due 2000............................................................ -- 350
TXU Electric 7.17% senior debentures due 2007............................................................. 300 300
Unamortized premium and discount.......................................................................... (24) (27)
------ ------
Total long-term debt......................................................................... 5,259 5,193
Less: Amounts due currently.............................................................................. 220 509
------ ------
Total long-term debt, less amounts due currently............................................. $5,039 $4,684
====== ======
- -----------------------
(a) Interest rates in effect at December 31, 2000 are presented. Taxable
pollution control series are in a flexible rate mode. Series 1993 bonds due
2023 will be remarketed for periods of less than 270 days and are secured
by an irrevocable letter of credit with a maturity in excess of one year.
(b) Interest rates in effect at December 31, 2000 are presented. These series
are in a flexible mode with varying interest rates and, while in such mode,
will be remarketed for periods of less than 270 days and are secured by
irrevocable letters of credit with maturities in excess of one year.
(c) Interest rates in effect at December 31, 2000 are presented. These series
are in a daily or multiannual mode with varying interest rates and are
supported by either municipal bond insurance policies and standby bond
purchase agreements or are secured by irrevocable letters of credit with
maturities in excess of one year.
(d) In 1990, TXU Electric purchased the ownership interest in Comanche Peak of
Tex-La Electric Cooperative of Texas, Inc. (Tex-La) and assumed debt of
Tex-La payable over approximately 32 years. The assumption is secured by a
mortgage on the acquired interest. TXU Corp. has guaranteed these payments.
Certain variable rate debt of TXU Electric requires periodic remarketing.
Because TXU Electric intends to remarket these obligations, and has the ability
and intent to refinance if necessary, they have been classified as long-term
debt.
A-23
On December 20, 2000, TXU Electric issued $575 million aggregate principal
amount of Floating Rate First Mortgage Bonds due December 20, 2002 in two
series: $150 million in Series A and $425 million in Series B. The interest
rate on both series is based on LIBOR plus a margin and will be reset quarterly.
The initial rate on series A is 6.686% and on Series B is 7.286%. On or after
June 20, 2001, TXU Electric may redeem the securities, at its option, on the
20th day of any calendar month prior to the maturity of these securities, at a
redemption price equal to 100% of the principal amount of these securities plus
accrued and unpaid interest. TXU Electric's first mortgage bonds are secured by
a mortgage and deed of trust with a major financial institution. Electric plant
of TXU Electric is generally subject to the lien of its mortgage.
Sinking fund and maturity requirements for the years 2001 through 2005
under long-term debt instruments outstanding at December 31, 2000, were as
follows:
Year
----
2001........................... $220
2002........................... $949
2003........................... $308
2004........................... $225
2005........................... $ 97
6. TXU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF
TXU ELECTRIC (TRUST SECURITIES)
Statutory business trusts have been established as wholly-owned financing
subsidiaries (Trusts) of TXU Electric for the purpose of issuing trust
securities and holding Junior Subordinated Debentures issued by TXU Electric
(Debentures). TXU Electric Capital I and III Trust Securities have a liquidation
preference of $25 per unit, and TXU Electric Capital IV and V Trust Securities
have a liquidation preference of $1,000 per unit. The only assets of each Trust
are Debentures of TXU Electric having a principal amount set forth under "Trust
Assets" in the table below. The interest on Trust assets matches the
distributions on the Trust Securities. Each Trust will use interest payments
received on the Debentures it holds to make cash distributions on the Trust
Securities it has issued.
The Trust Securities are subject to mandatory redemption upon payment of
the Debentures at maturity or upon redemption. The Debentures are subject to
redemption, in whole or in part at the option of TXU Electric, at 100% of their
principal amount plus accrued interest, after an initial period during which
they may not be redeemed and at any time upon the occurrence of certain events.
The carrying value of the Trust Securities is being increased periodically to
equal the redemption amounts at the mandatory redemption dates with a
corresponding increase in Trust Securities distributions.
A-24
The statutory business trust subsidiaries of TXU Electric had Trust
Securities outstanding and Trust Assets as follows at December 31:
Trust Securities Trust Assets Maturity
------------------------------------------ ------------------- --------
Units (000's) Amount Amount
---------------------- ------------------ -------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
------ ------ ------ ----- ----- ----- ----- ----- -----
TXU Electric Capital I
(8.25% Series)........ 5,871 5,871 5,871 $ 141 $ 141 $ 141 $ 155 $ 155 $ 155 2030
TXU Electric Capital III
(8.00% Series)........ 8,000 8,000 8,000 194 194 194 206 206 206 2035
TXU Electric Capital IV
(Floating Rate Trust
Securities) (a)....... 100 100 100 98 97 96 103 103 103 2037
TXU Electric Capital V
(8.175% Series)....... 400 400 400 396 392 392 412 412 412 2037
------ ------ ------ ----- ----- ----- ----- ----- -----
Total............. 14,371 14,371 14,371 $ 829 $ 824 $ 823 $ 876 $ 876 $ 876
====== ====== ====== ===== ===== ===== ===== ===== =====
(a) Floating rate is determined quarterly based on LIBOR. A related
interest rate swap, expiring 2002, effectively fixes the rate on the
TXU Electric Capital IV securities at 7.183%.
TXU Electric owns the common trust securities issued by its subsidiary
trusts and has effectively issued a full and unconditional guarantee of
such trusts' securities.
A-25
7. PREFERRED STOCK
Redemption Price Per
Share
(Before Adding
Shares Outstanding Amount Accumulated Dividends)
Dividend Rate December 31, December 31, December 31, 2000
- ------------- ------------ ------------ ------------------------
2000 1999 2000 1999
---- ---- ----- -----
Thousands of Shares
Not Subject to Mandatory Redemption (a):
- ---------------------------------------
$4.00 to $5.08 series.................. 379 379 $ 38 $ 38 $101.79 to $112.00
7.98 series........................... 261 261 26 26 (c)
7.50 series (b)....................... 308 308 30 30 (c)
7.22 series (b)....................... 221 221 21 21 (c)
----- -----
Total................................ $ 115 $ 115
===== =====
Subject to Mandatory Redemption (a) (d):
- ---------------------------------------
$6.98 series........................... 107 107 $ 11 $ 11 (c)
6.375 series.......................... 100 100 10 10 (c)
----- -----
Total............................... $ 21 $ 21
===== =====
(a) Cumulative, without par value, entitled upon liquidation to $100 a
share; total authorized shares of preferred stock 17,000,000.
(b) The preferred stock series is the underlying preferred stock for
depositary shares that were issued to the public. Each depositary
share represents one quarter of a share of underlying preferred stock.
(c) Preferred stock series is not redeemable at December 31, 2000.
(d) TXU Electric is required to redeem at a price of $100 per share plus
accumulated dividends a specified minimum number of shares annually or
semi-annually on the initial/next dates shown below. These redeemable
shares may be called, purchased or otherwise acquired. Certain issues
may not be redeemed at the option of TXU Electric prior to 2003. TXU
Electric may annually call for redemption, at its option, an aggregate
of up to twice the number of shares shown below for each series at a
price of $100 per share plus accumulated dividends.
Minimum Redeemable Initial/Next Date of
Series Shares Mandatory Redemption
------ ------------------ --------------------
$6.98 50,000 annually July 1, 2003
6.375 50,000 annually October 1, 2003
The carrying value of preferred stock subject to mandatory redemption is being
increased periodically to equal the redemption amounts at the mandatory
redemption dates with a corresponding increase in preferred stock dividends.
8. COMMON STOCK EQUITY
During 2000, 1999 and 1998, TXU Electric purchased and retired a total of
24.1 million, 19.8 million and 19.3 million shares, respectively, of its issued
and outstanding common stock from TXU Corp. at a total cost of $802 million,
$593 million and $578 million, respectively. In February 2001, TXU Electric
purchased and retired approximately 7.0 million shares of its issued and
outstanding common stock at a cost of $209 million. The cost of the repurchased
shares, to the extent it exceeded the average contributed capital per share, has
been charged to retained earnings totaling $78 million in 2000.
No shares of TXU Electric'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 and other rights in connection
therewith.
The articles of incorporation, the mortgage of substantially all of TXU
Electric's property and certain other debt instruments of TXU Electric contain
provisions which, under certain conditions, restrict distributions on or
acquisitions of common stock. At December 31, 2000, $13 million of retained
earnings of TXU Electric were restricted as a result of such provisions.
A-26
9. INCOME TAXES
The components of the provision for income taxes are as follows:
Year Ended December 31,
---------------------
2000 1999 1998
----- ----- -----
Charged (credited) to operating expenses
Current:
Federal............................................................................... $ 245 $ 274 $ 404
State................................................................................. 11 16 29
----- ----- -----
Total............................................................................ 256 290 433
----- ----- -----
Deferred:
Federal:
Depreciation differences and capitalized construction costs....................... (25) 84 109
Over/under-recovered fuel revenue................................................. 282 46 (14)
Other............................................................................. (87) (52) (17)
----- ----- -----
Total........................................................................... 170 78 78
----- ----- -----
State................................................................................. (22) 15 --
Investment tax credits..................................................................... (21) (21) (21)
----- ----- -----
Total to operating expenses..................................................... 383 362 490
----- ----- -----
Charged (credited) to other income
Current:
Federal............................................................................... (4) (36) (37)
State................................................................................. -- (2) (2)
----- ----- -----
Total............................................................................ (4) (38) (39)
----- ----- -----
Deferred:
Federal:
Regulatory disallowance........................................................... 14 31 32
Other............................................................................. (2) (1) 3
----- ----- -----
Total............................................................................ 12 30 35
----- ----- -----
State................................................................................. 2 2 --
----- ----- -----
Total to other income............................................................ 10 (6) (4)
----- ----- -----
Total..................................................................... $ 393 $ 356 $ 486
===== ===== =====
Reconciliation of income taxes computed at the federal statutory rate to
provision for income taxes:
Year Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
Income before income taxes...................................................................... $1,288 $1,135 $1,284
====== ====== ======
Income taxes at the federal statutory rate of 35%............................................... $ 451 $ 397 $ 449
Depletion allowance........................................................................ (24) (25) (24)
Amortization of investment tax credits..................................................... (21) (21) (21)
Amortization of tax rate differences....................................................... (9) (7) (4)
Amortization of prior flow-through amounts................................................. 5 2 66
State income taxes, net of federal tax benefit............................................. (6) 20 18
Other...................................................................................... (3) (10) 2
------ ------ ------
Provision for income taxes...................................................................... $ 393 $ 356 $ 486
====== ====== ======
Effective tax rate.............................................................................. 31% 31% 38%
A-27
The components of TXU Electric's deferred tax assets and deferred tax
liabilities are as follows:
December 31,
---------------------------------------------------------
2000 1999
--------------------------- ----------------------------
Total Current Noncurrent Total Current Noncurrent
------ ------- ---------- ------ ------- ----------
Deferred Tax Assets
Unbilled revenues................................. $ 45 $ 45 $ -- $ 30 $ 30 $ --
Unamortized investment tax credits................ 265 -- 265 277 -- 277
Impairment of assets.............................. 71 -- 71 72 -- 72
Regulatory disallowance........................... 107 -- 107 120 -- 120
Alternative minimum tax........................... 394 -- 394 424 -- 424
Tax rate differences.............................. 66 -- 66 71 -- 71
Employee benefits................................. 100 -- 100 111 -- 111
Mitigation and redirected depreciation............ 244 -- 244 66 -- 66
Deferred benefits of state income taxes........... 184 4 180 189 4 185
Other............................................. 14 -- 14 13 -- 13
Deferred state income taxes....................... 66 -- 66 58 2 56
------ ------- ---------- ------ ------- ----------
Total deferred tax assets................... 1,556 49 1,507 1,431 36 1,395
------ ------- ---------- ------ ------- ----------
Deferred Tax Liabilities
Depreciation differences and capitalized
Construction costs............................ 4,042 -- 4,042 4,072 -- 4,072
Over/(under)-recovered fuel revenue............... 295 295 -- 14 14 --
Redemption of long-term debt...................... 133 -- 133 135 -- 135
Recoverable redirected depreciation............... 123 -- 123 51 -- 51
Deferred charges for state income taxes........... 17 -- 17 23 -- 23
Other............................................. 97 1 96 104 1 103
Deferred state income taxes....................... 354 21 333 351 -- 351
------ ------- ---------- ------ ------- ----------
Total deferred tax liability................ 5,061 317 4,744 4,750 15 4,735
------ ------- ---------- ------ ------- ----------
Net Deferred Tax Liability (Asset)................ $3,505 $268 $3,237 $3,319 $(21) $3,340
====== ======= ========== ====== ======= ==========
At December 31, 2000, TXU Electric had approximately $394 million of
alternative minimum tax credit carryforwards available to offset future tax
payments.
TXU Electric's income tax returns are subject to audit by applicable tax
authorities. In management's opinion, an adequate provision has been made for
any future taxes that may be owed as a result of any audits.
A-28
10. RETIREMENT PLAN AND OTHER POSTRETIREMENT BENEFITS
Most employees are eligible for voluntary participation in the Thrift Plan.
The plan is participant-directed defined contribution combination employee stock
ownership and profit sharing plan under Section 401(k) and 401(m) of the
Internal Revenue Code and is subject to the provisions of the Employee
Retirement Income Security Act of 1974. Under the plan, a participant may
invest, through pre-tax salary deferrals or after-tax payroll deductions, a
specified amount ranging from 1% to 16% of regular salary or wages. Employer
matching contributions as a percentage of participant contributions, up to 6% of
base pay, are at a rate of 40%, 50% or 60% depending on length of service.
Contributions to the Thrift Plan aggregated $13 million for 2000, 1999 and 1998.
TXU Electric employees are covered by a defined benefit pension plan that
provides benefits based on years of service and average earnings. The projected
benefit obligations for the pension plans with projected benefit obligations in
excess of plan assets were $6 million as of December 31, 2000 and 1999. During
1999 certain TXU Electric employees were offered and accepted early retirement
and settlement options resulting in curtailment losses and settlement gains. As
these costs are recoverable, an offsetting regulatory asset was recorded.
2000 1999 1998
---- ---- ----
Weighted-average assumptions:
Discount rate................................................................................... 8.00% 8.25% 7.00%
Expected return on plan assets.................................................................. 9.00% 9.00% 9.00%
Rate of compensation increase................................................................... 4.30% 4.30% 4.30%
Year Ended December 31,
----------------------
2000 1999 1998
------ ----- -----
Components of Net Pension Costs:
Service cost.................................................................................... $ 21 $ 26 $ 22
Interest cost................................................................................... 63 64 60
Expected return on assets....................................................................... (90) (89) (77)
Amortization of unrecognized prior service cost................................................. 3 4 4
Amortization of net gain........................................................................ (20) (7) (5)
Recognized settlement gains..................................................................... -- (39) --
Recognized termination benefits loss............................................................ -- 35 --
------ ----- -----
Net periodic pension cost................................................................... $ (23) $ (6) $ 4
====== ===== =====
A-29
Year Ended December 31,
-----------------------
2000 1999
------ ------
Change in Pension Obligation:
Pension obligation at beginning of year..................... $ 781 $ 927
Service cost............................................ 21 26
Interest cost........................................... 63 64
Plan amendments......................................... 16 --
Actuarial (gain)/loss................................... 32 (128)
Benefits paid........................................... (44) (43)
Curtailments............................................ -- 8
Settlements............................................. -- (108)
Special termination benefits............................ -- 35
------ ------
Pension obligation at end of year........................... $ 869 $ 781
====== ======
Change in Plan Assets:
Fair value of assets at beginning of year................... $1,174 $1,226
Actual return on assets................................. 30 97
Benefits paid........................................... (44) (43)
Settlements............................................. -- (106)
------ ------
Fair value of assets at end of year......................... $1,160 $1,174
====== ======
Funded Status:
Pension obligation.......................................... $ (869) $ (781)
Fair value of assets........................................ 1,160 1,174
Unrecognized net transition asset........................... (1) (2)
Unrecognized prior service cost............................. 41 29
Unrecognized net gain....................................... (387) (499)
------ ------
Accrued pension cost........................................ $ (56) $ (79)
====== ======
A-30
In addition to the retirement plans, TXU Electric offers certain health
care and life insurance benefits to substantially all of its employees and their
eligible dependents at retirement. Benefits received vary in level depending on
years of service and retirement dates.
2000 1999 1998
----- ----- -----
Weighted-average assumptions:
Discount rate......................................................................................... 8.00% 8.25% 7.00%
Expected return on plan assets........................................................................ 8.49% 8.49% 8.13%
Year Ended December 31,
-------------------
2000 1999 1998
----- ----- -----
Components of Net Periodic Postretirement Benefit Costs:
Service cost........................................................................................ $ 12 $ 14 $ 10
Interest cost....................................................................................... 32 31 26
Expected return on assets........................................................................... (12) (9) (8)
Amortization of unrecognized net transition obligation.............................................. 9 9 14
Amortization of net loss............................................................................ -- 5 1
Recognized curtailment loss......................................................................... -- 17 --
----- ----- -----
Net postretirement benefit cost................................................................ $ 41 $ 67 $ 43
===== ===== =====
Change in Postretirement Benefit Obligation:
Benefit obligation at beginning of year............................................................. $ 396 $ 454
Service cost.................................................................................... 12 14
Interest cost................................................................................... 32 31
Participant contributions....................................................................... 2 3
Actuarial (gain)/loss........................................................................... 42 (93)
Benefits paid................................................................................... (34) (25)
Curtailments.................................................................................... -- 12
----- -----
Benefit obligation at end of year................................................................... $ 450 $ 396
===== =====
Change in Plan Assets:
Fair value of assets at beginning of year........................................................... $ 137 $ 104
Actual return on assets......................................................................... (1) 24
Employer contributions.......................................................................... 27 31
Participant contributions....................................................................... 2 3
Benefits paid................................................................................... (34) (25)
----- -----
Fair value of assets at end of year................................................................. $ 131 $ 137
===== =====
Funded Status:
Benefit obligation.................................................................................. $(450) $(396)
Fair value of assets................................................................................ 131 137
Unrecognized transition obligation.................................................................. 106 115
Unrecognized net loss............................................................................... 56 1
----- -----
Accrued postretirement benefit cost................................................................. $(157) $(143)
===== =====
A-31
The expected increase in costs of future benefits covered by the
postretirement benefit plans is projected using a health care cost trend rate
of 5% in 2001 and thereafter. A one percentage point increase in the assumed
health care cost trend rate in each future year would increase the accumulated
postretirement benefit obligation at December 31, 2000 by approximately $49
million, and other postretirement benefits cost for 2000 by approximately $5.7
million.
11. DERIVATIVE INSTRUMENTS
TXU Electric enters into derivative instruments, primarily swaps, for
hedging purposes only. Gains and losses on derivative instruments effective as
hedges are deferred and recorded as a component of the underlying transaction
when settled. See Note 2 for the change in accounting for derivatives effective
January 1, 2001.
Interest Rate Risk Management -- TXU Electric is exposed to the market risk
inherent in fixed rate debt securities and the cash flow risk inherent in
variable rate securities. TXU Electric manages its exposure to interest rate
risk primarily through its balance of fixed and variable rate instruments. In
addition, TXU Electric has an interest rate swap outstanding at December 31,
2000 the terms of which are discussed in Note 6.
Energy Price Risk Management -- As a result of continued regulation, TXU
Electric has minimal exposure to energy price risk, therefore, its use of
derivative instruments is limited.
Credit Risk -- Credit risk relates to the risk of loss that TXU Electric
would incur as a result of nonperformance by counterparties to their respective
derivative instruments. TXU Electric maintains credit policies with regard to
its counterparties that enable management to manage overall credit risk. TXU
Electric generally does not obtain collateral to support the agreements but
establishes credit limits, monitors the financial viability of counterparties
and seeks guarantees when appropriate. In the event a counterparty's credit
rating declines, TXU Electric may apply certain remedies, if considered
necessary. TXU Electric believes that it has established adequate reserves in
regard to the risk of nonperformance by counterparties.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and related estimated fair values of TXU Electric's
significant financial instruments are as follows:
December 31, December 31,
2000 1999
------------ ------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------- ------------ -------
On balance sheet assets (liabilities)
Long-term debt (including current maturities)....................... $(5,259) $(5,310) $(5,193) $(5,186)
TXU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely junior
subordinated debentures of TXU Electric......................... (829) (832) (824) (742)
Preferred stock subject to mandatory redemption..................... (21) (17) (21) (21)
Off balance sheet assets (liabilities)
Financial guarantees................................................ -- (65) -- (78)
Interest rate swap.................................................. -- (1) -- 1
The fair values of long-term debt and preferred stock subject to mandatory
redemption are estimated at the lesser of either the call price or the market
value as determined by quoted market prices, where available, or, where not
available, at the present value of future cash flows discounted at rates
consistent with comparable maturities with similar credit risk. The fair value
of Trust Securities is based on quoted market prices. The carrying amounts for
financial assets classified as current assets and the carrying amounts for
financial liabilities classified as current liabilities approximate fair value
due to the short maturity of such instruments.
A-32
Other investments primarily include deposits in an external trust fund for
nuclear decommissioning of Comanche Peak, which is carried at market value. The
trust fund is invested primarily in fixed income debt and equity securities,
which are considered as available-for-sale. Any unrealized gains or losses are
treated as regulatory assets or regulatory liabilities, respectively.
The fair value of the financial guarantees has been determined using the
full notional amount of the guarantee. Fair values for interest rate swaps are
based either on quotes or the cost to terminate the agreements. The fair values
of other financial instruments for which carrying amounts and fair values have
not been presented are not materially different than their related carrying
amounts.
13. REGULATION AND RATES
Docket No. 21527 -- In October 1999, TXU Electric filed a petition with the
Public Utility Commission of Texas (PUC) for a financing order (Docket No.
21527) to permit the issuance by a special purpose entity of $1.65 billion of
transition bonds secured by payments designed to enable TXU Electric to recover
its generation-related regulatory assets and other qualified costs in accordance
with the 1999 Restructuring Legislation. The proceeds received by TXU Electric
from the issuance of the transition bonds are to be used solely for the purpose
of retiring utility debt and equity. On May 1, 2000, the PUC signed a final
order rejecting TXU Electric's request for the $1.65 billion and authorized only
$363 million. TXU Electric filed an appeal on May 2, 2000 with the Travis
County, Texas District Court.
On September 7, 2000, the Travis County, Texas District Court issued a
final judgment reversing that part of the PUC's financing order that utilized
regulated asset life (up to 40 years) for purposes of present-valuing the
benefits of securitization. Instead, the District Court ruled that a present-
value period based upon stranded cost and regulatory asset recovery periods
authorized under the 1999 Restructuring Legislation should have been used by the
PUC. The District Court also ruled that the PUC statements in its financing
order concerning the future impact of securitization of loss on reacquired debt
were only an advisory opinion. The judgment affirmed other aspects of the PUC's
financing order and ordered the case remanded to the PUC for further proceedings
consistent with the judgment. TXU Electric and various other parties have
appealed this judgment directly to the Texas Supreme Court. TXU Electric expects
that any difference between the $1.65 billion and the amount finally authorized
will continue to be deferred until recovery of generated related regulatory
assets is addressed again by the PUC. TXU Electric is unable to predict the
outcome of these proceedings.
As noted above, the principal and interest on the transition bonds would be
secured by payments from retail customers designed to enable TXU Electric to
recover its generation-related regulatory assets and other qualified costs.
These regulatory assets have a carrying value of $1.86 billion. Once transition
bonds are issued, the full amount of the regulatory assets will be amortized to
expense over the life of the transition bonds. Distribution rates will increase
to reflect these payments. Consolidated revenues of TXU Electric will not
necessarily increase, however, during 2001 and the "price to beat" period. If
these payments from retail customers commence in 2001, they will be excluded
from revenue for purposes of determining whether earnings have exceeded the
earnings cap. There is no earnings cap after 2001.
The constitutionality of the securitization provisions of the 1999
Restructuring Legislation under the Texas constitution has been challenged in
connection with a securitization request made by Central Power and Light
Company. In July 2000, the Travis County, Texas District Court issued its
judgment denying this appeal and finding that the securitization provisions are
constitutional. This judgment has been appealed directly to the Texas Supreme
Court. TXU Electric is unable to predict the outcome of such proceedings.
From January 1, 1998 through June 30, 1999, earnings in excess of TXU
Electric's earnings cap were recorded as additional depreciation of nuclear
production assets. Effective July 1, 1999, following the 1999 Restructuring
Legislation, earnings in excess of the earnings cap were recorded as a reduction
of revenues, with a corresponding regulatory liability recorded. Additionally,
from January 1, 1998 through June 30, 1999, depreciation expense was
reclassified from T&D to nuclear production assets. Effective July 1, 1999,
following the 1999 Restructuring Legislation, T&D depreciation expense was no
longer transferred to nuclear production assets; instead an amount equivalent to
T&D depreciation was recorded as a regulatory asset, with a
A-33
corresponding amount recorded as a regulatory liability. The regulatory asset
will be amortized as it is recovered through the distribution portion of the
business, while the regulatory liability will be applied against stranded
generation assets.
Docket No. 22350 -- As required by the 1999 Restructuring Legislation, in
January 2000, TXU Electric filed its business separation plan with the PUC. In
March 2000, TXU Electric filed its application for approval of its unbundled
cost of service rates with the PUC. This plan and application lay the
foundation for retail competition to begin in the Texas electricity market.
Under the business separation plan, the generation business unit and the retail
business unit of TXU Electric will become unregulated entities and will be
allowed to compete for customers. The T&D business units of TXU Electric will
be separated into regulated entities and will together represent the regulated
part of the business. In addition to the actual T&D charges for delivering
electricity, these rates include nuclear decommissioning fund charges, system
benefit fund charges and stranded cost recovery charges. In the March 2000
filing, TXU Electric's stranded costs were estimated to be approximately $3.7
billion, including the regulatory assets that were part of the Docket No. 21527
proceedings and amounts related to the remand of Docket No. 9300, addressed
below. TXU Electric filed an updated stranded cost estimate on August 28, 2000
to reflect various PUC decisions made since Docket No. 22350 was filed. In the
August 28, 2000 filing, TXU Electric's stranded costs were estimated to be $2.8
billion. Subsequent to the August 2000 filing, the PUC has required TXU
Electric to revise the stranded cost estimate to remove amounts related to
regulatory assets, certain environmental expenditures, and the remand of Docket
No. 9300, which resulted in a revised estimate of $14 million, including
displaced worker costs. TXU Electric has appealed certain of the PUC's decisions
related to this matter to the Travis County, Texas District Court. Various
parties to Docket No. 22350 have presented stranded cost estimates ranging from
negative $1.5 billion to negative $3.5 billion along with recommendations that
these amounts be returned to customers beginning in 2002. The estimate
established in Docket No. 22350 is subject to a future market-based "true-up" in
2004. TXU Electric is unable to predict the outcome of these proceedings.
Docket No. 9300/Docket No. 22652 -- The PUC's final order (Order) in
connection with TXU Electric's January 1990 rate increase request (Docket No.
9300) was ultimately reviewed by the Texas Supreme Court. As a result, an
aggregate of $909 million of disallowances with respect to TXU Electric's
reacquisitions of minority owners' interests in Comanche Peak, which had
previously been recorded as a charge to TXU Electric's earnings, was remanded to
the District Court with instructions that it be remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC also was required to reevaluate the appropriate level of TXU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing. In connection with the settlement
of Docket No. 18490, proceedings in the remand of Docket No. 9300 had been
stayed through December 31, 1999. In April 2000, TXU Electric requested that
the District Court enter an order remanding Docket No. 9300 to the PUC. On June
9, 2000, the District Court's order of remand was filed with the PUC, and the
PUC has assigned the remand proceeding Docket No. 22652. Pursuant to an order
entered on August 31, 2000, this docket will be held in abeyance until March 20,
2001. TXU Electric cannot predict the outcome of the reconsideration of the
Order on remand by the PUC.
Docket No. 22344 -- In a generic issues docket held in August 2000, the PUC
issued orders that impacted TXU Electric's recovery of restructuring expenses
and certain other regulatory assets. Accordingly, in September 2000, such
unrecovered regulatory assets totaling $52 million were written off. This
reduced earnings in excess of the earnings cap by an equal amount. As a result,
there was no impact to net income.
Fuel Cost Recovery Rule -- Pursuant to a PUC rule, the recovery of TXU
Electric's eligible fuel costs is provided through fixed fuel factors. The rule
allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition to
make either surcharges or refunds to ratepayers, together with interest based on
a twelve-month average of prime commercial rates, for any material cumulative
under- or over-recovery of fuel costs. If the cumulative difference of the
under- or over-recovery, plus interest, exceeds 4% of the annual estimated fuel
costs most recently approved by the PUC, it will be deemed to be material.
A-34
Final reconciliation of fuel costs must be made either in a reconciliation
proceeding or in a general rate case. In a final reconciliation, a utility has
the burden of proving that fuel costs under review were reasonable and necessary
to provide reliable electric service, that it has properly accounted for its
fuel-related revenues, and that fuel prices charged to the utility by an
affiliate were reasonable and necessary and not higher than prices charged for
similar items by such affiliate to other affiliates or nonaffiliates. For
generating utilities like TXU Electric, through August 31, 1999, the rule
provided for recovery of purchased power capacity costs through a power cost
recovery factor with respect to purchases from qualifying facilities, to the
extent such costs were not otherwise included in base rates. Pursuant to the
1999 Restructuring Legislation, the power cost recovery factor will be frozen
between September 1, 1999 and January 1, 2002. The energy-related costs of such
purchases continue to be included in the fixed fuel factor. TXU Electric is
required to file in 2002 with the PUC for final reconciliation of its eligible
fuel costs. This final reconciliation will cover the period July 1998 through
December 2001.
Docket No. 22880/Docket No. 23153 -- Because natural gas prices recently
have exceeded those in the base fuel factor, on August 4, 2000, TXU Electric
filed a request with the PUC in Docket No. 22880 to surcharge the cumulative
under-collection of fuel cost revenues that existed as of June 30, 2000,
together with interest through November 2000, in the amount of $167 million, and
to increase its current fuel factors by 27.6%. On August 31, 2000, the
Administrative Law Judge entered an Interim Order, implementing an agreement of
the parties, providing for an interim increase in fuel factors of 13.8%,
effective September 6, 2000, and a surcharge of TXU Electric's cumulative under-
recovery of fuel cost revenues that existed as of July 31, 2000, together with
interest through November 2000, in the amount of $315 million to be collected
over the fourteen-month period beginning November 2000. On October 13, 2000, TXU
Electric filed a Supplemental Application with the PUC requesting its initial
27.6% fuel factor increase instead of the interim increase. In addition, on
January 11, 2001, the PUC approved the requested fuel factor increase, effective
that date. Also on October 13, 2000, TXU Electric filed a request with the PUC
in Docket No. 23153 for a surcharge to recover a $231 million under-collection
of fuel cost revenues for the months of August and September 2000. The proposed
surcharge would be collected from January 2001 through December 2001. Docket No.
23153 was subsequently consolidated into Docket No. 22880. On January 11, 2001,
the PUC approved TXU Electric's requests in Docket No. 22880 and Docket No.
23153. The PUC also approved the surcharge request filed in Docket No. 23153,
effective January 11, 2001 through December 31, 2001.
Docket No. 23640 -- In February 2001, TXU Electric filed with the PUC a
request for a surcharge to recover under-collected fuel cost revenues for the
months of October 2000 through December 2000, plus estimated under-recoveries
for the period January 2001 through March 2001 totaling $591 million, and to
increase its current fuel factor by 26.4% over the increase approved in Docket
22880. The proposed fuel factor increase would be effective March 5, 2001 and
the proposed surcharge would be collected from April 2001 through December 2001.
TXU Electric cannot predict the outcome of this proceeding.
A-35
14. COMMITMENTS AND CONTINGENCIES
Clean Air Act -- The Federal Clean Air Act, as amended (Clean Air Act)
includes provisions which, among other things, place limits on SO2 and NOx
emissions produced by generating units. TXU Electric's capital requirements
have not been significantly affected by the requirements of the Clean Air Act.
Purchased Power Contracts --TXU Electric has entered into contracts to
purchase power through the year 2005. These contracts provide for capacity
payments subject to performance standards and energy payments based on the
actual power taken under contract. Capacity payments under these contracts for
the years ended December 31, 2000, 1999 and 1998 were $186 million, $227 million
and $243 million, respectively.
Assuming operating standards are achieved, future capacity payments under
the agreements are estimated as follows:
Year
- ----
2001............................................................. $203
2002............................................................. 123
2003............................................................. 70
2004............................................................. 38
2005............................................................. 29
Thereafter....................................................... --
----
Total capacity payments..................................... $463
====
Leases -- TXU Electric has entered into operating leases covering various
facilities and properties including generating plants, combustion turbines,
transportation, mining equipment, data processing equipment and office space.
Certain of these leases contain renewal and purchase options and residual value
guarantees. Lease costs charged to operating expense for the years ended
December 31, 2000, 1999 and 1998 were $62 million, $89 million and $68 million,
respectively.
Future minimum lease commitments under operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of December 31,
2000, are as follows:
Year
- ----
2001............................................................. $ 45
2002............................................................. 39
2003............................................................. 30
2004............................................................. 29
2005............................................................. 34
Thereafter....................................................... 372
----
Total future minimum lease payments......................... $549
====
Coal Transportation Contracts -- TXU Electric supplements its lignite fuel
with western coal. The coal is transported to TXU Electric's generating plants
under three contracts. The annual commitment under these contracts is $53
million for 2001, $34 million for 2002 and 2003 and $17 million thereafter.
Financial Guarantees -- TXU Electric has entered into contracts with public
agencies to purchase cooling water for use in the generation of electric energy
and has agreed, in effect, to guarantee the principal, $22 million at December
31, 2000, and interest on bonds issued to finance the reservoirs from which the
water is supplied. The bonds mature at various dates through 2011 and have
interest rates ranging from 5-1/2% to 7%. TXU Electric is required to make
periodic payments equal to such principal and interest, including amounts
assumed by a third party and reimbursed to TXU Electric, of $4 million
annually for 2001 through 2003, $7 million for 2004 and $1 million for 2005.
Annual payments made by TXU Electric, net of amounts assumed by a third party
under such contracts, for 2000, 1999 and 1998 were $4 million each year. In
addition, TXU Electric is obligated to pay certain variable costs of operating
and maintaining the reservoirs. TXU Electric has assigned to
A-36
a municipality all contract rights and obligations of TXU Electric in connection
with $42 million remaining principal amount of bonds at December 31, 2000,
issued for similar purposes which had previously been guaranteed by TXU
Electric. TXU Electric is, however, contingently liable in the unlikely event of
default by the municipality.
Nuclear Insurance -- With regard to liability coverage, the Price-Anderson
Act (Act) provides financial protection for the public in the event of a
significant nuclear power plant incident. The Act sets the statutory limit of
public liability for a single nuclear incident currently at $9.5 billion and
requires nuclear power plant operators to provide financial protection for this
amount. As required, TXU Electric provides this financial protection for a
nuclear incident at Comanche Peak resulting in public bodily injury and
property damage through a combination of private insurance and industry-
wide retrospective payment plans. As the first layer of financial protection,
TXU Electric has purchased $200 million of liability insurance from American
Nuclear Insurers (ANI), which provides such insurance on behalf of a major stock
insurance company pool, Nuclear Energy Liability Insurance Association. The
second layer of financial protection is provided under an industry-wide
retrospective payment program called Secondary Financial Protection (SFP).
Under the SFP, each operating licensed reactor in the United States is
subject to an assessment of up to $88 million, subject to increases for
inflation every five years, in the event of a nuclear incident at any nuclear
plant in the United States. Assessments are limited to $10 million per
operating licensed reactor per year per incident. All assessments under the SFP
are subject to a 3% insurance premium tax which is not included in the amounts
above.
With respect to nuclear decontamination and property damage insurance,
Nuclear Regulatory Commission (NRC) regulations require that nuclear plant
license-holders maintain not less than $1.1 billion of such insurance and
require the proceeds thereof to be used to place a plant in a safe and stable
condition, to decontaminate it pursuant to a plan submitted to and approved by
the NRC before the proceeds can be used for plant repair or restoration or to
provide for premature decommissioning. TXU Electric maintains nuclear
decontamination and property damage insurance for Comanche Peak in the amount of
$3.8 billion, above which TXU Electric is self-insured. The primary layer of
coverage of $500 million is provided by Nuclear Electric Insurance Limited
(NEIL), a nuclear electric utility industry mutual insurance company. The
remaining coverage includes premature decommissioning coverage and is provided
by ANI in the amount of $500, additional insurance from NEIL in the amount of
$2.25 billion and $580 million from Lloyds of London, other insurance markets
and foreign nuclear insurance pools. TXU Electric is subject to a maximum
annual assessment from NEIL of $12.3 million in the event NEIL's losses under
this type of insurance for major incidents at nuclear plants participating in
these programs exceed the mutual's accumulated funds and reinsurance.
TXU Electric maintains Extra Expense Insurance through NEIL to cover the
additional costs of obtaining replacement power from another source if one or
both of the units at Comanche Peak are out of service for more than twelve weeks
as a result of covered direct physical damage. The coverage provides for weekly
payments of $3.5 million for the first fifty-two weeks and $2.8 million for the
next 110 weeks for each outage, respectively, after the initial twelve-week
period. The total maximum coverage is $490 million per unit. The coverage
amounts applicable to each unit will be reduced to 80% if both units are out of
service at the same time as a result of the same accident. Under this coverage,
TXU Electric is subject to a maximum annual assessment of $4.1 million per year.
Nuclear Decommissioning and Disposal of Spent Fuel -- TXU Electric has
established a reserve, charged to depreciation expense and included in
accumulated depreciation, for the decommissioning of Comanche Peak, whereby
decommissioning costs are being recovered from customers over the life of the
plant and deposited in external trust funds (included in other investments). At
December 31, 2000, such reserve totaled $192 million, which includes an accrual
of $18 million for the year ended December 31, 2000. As of December 31, 2000,
the market value of deposits in the external trust for decommissioning of
Comanche Peak was $267 million, including unrealized gains of $75 million. Any
difference between the market value of the external trust fund and the
decommissioning reserve, that represents unrealized gains or losses of the trust
fund, is treated as a regulatory asset or a regulatory liability. Realized
earnings on funds deposited in the external trust are
A-37
recognized in the reserve. Based on a site-specific study completed during 1997
using the prompt dismantlement method and 1997 dollars, decommissioning costs
for Comanche Peak Unit 1 and for Unit 2 and common facilities were estimated to
be $271 million and $404 million, respectively. This estimate is subject to
change in the future.
Decommissioning activities are projected to begin in 2030 for Comanche Peak
Unit 1 and 2033 for Unit 2 and common facilities. TXU Electric is
recovering decommissioning costs based upon a 1992 site-specific study through
rates placed in effect under its January 1993 rate increase request.
General -- In addition to the above, TXU Electric is involved in various
other legal and administrative proceedings which the ultimate resolution, in the
opinion of management, should not have a material effect upon its financial
position, results of operations or cash flows.
15. SUPPLEMENTARY FINANCIAL INFORMATION
Sale of Receivables and Other Receivable Financing -- TXU Electric has
facilities with financial institutions whereby it is entitled to sell and such
financial institutions may purchase, on an ongoing basis, undivided interests in
customer accounts receivable representing up to an aggregate of $500 million.
Additional receivables are continually sold to replace those collected. At
December 31, 2000 and 1999, accounts receivable of TXU Electric was reduced by
$500 million to reflect the sales of such receivables to financial institutions
under such agreements.
Significant regulatory assets and liabilities are as follows:
December 31,
--------------
2000 1999
------ ------
Regulatory Assets
Securities reacquisition costs............................................................................ $ 423 $ 431
Recoverable redirected depreciation....................................................................... 351 146
Rate case costs........................................................................................... 59 55
Litigation and settlement costs........................................................................... 73 73
Voluntary retirement/severance program................................................................... 50 94
Recoverable deferred income taxes -- net.................................................................. 1,566 1,558
Under-recovered fuel revenue.............................................................................. 852 39
Other regulatory assets................................................................................... 53 63
------ ------
Total regulatory assets............................................................................... 3,427 2,459
------ ------
Regulatory Liabilities
Liability to be applied to stranded generation assets..................................................... 698 189
ITC and protected excess deferred taxes................................................................... 364 389
Other regulatory liabilities.............................................................................. 86 89
Reserve for regulatory disallowances...................................................................... 73 73
------ ------
Total regulatory liabilities.......................................................................... 1,221 740
------ ------
Net regulatory assets................................................................................. $2,206 $1,719
====== ======
Affiliates -- TXU Corp. provides common stock capital and a part of short-
term financing requirements to TXU Electric and other subsidiaries. TXU Corp.
has other subsidiaries that perform specialized services for TXU Electric and
other subsidiaries: TXU Business Services Company, which provides financial,
accounting, information technology, environmental, customer, procurement,
personnel, shareholder and other administrative services at cost; TXU Fuel
Company (TXU Fuel), which owns a natural gas pipeline system, acquires, stores
and delivers fuel gas and provides other fuel services at cost for the
generation of electric energy by TXU Electric; and TXU Mining Company (TXU
Mining), which owns, leases and operates fuel production facilities for the
surface mining and recovery of lignite at cost for use at TXU Electric's
generating stations. TXU Electric provides services such as energy sales,
wheeling and scheduling to TXU SESCO Company, an electric utility subsidiary of
TXU Corp. operating in the eastern and central part of Texas.
A-38
TXU Electric has entered into agreements with TXU Fuel for the procurement
of certain fuels and related services and with TXU Mining for the procurement
and production of lignite. Payments are at cost for the services received and
are required by the agreements to be "at least equivalent in the aggregate to
the annual charge to income on the books" of TXU Fuel and of TXU Mining.
The schedule below details TXU Electric's significant billings to and from
affiliates for services rendered and interest on short-term financings:
Year Ended December 31,
----------------------
2000 1999 1998
------ ------ ------
Billings from:
TXU Business Services...................................................................... $ 306 $ 252 $ 248
TXU Fuel................................................................................... 1,723 997 1,019
TXU Mining................................................................................. 346 358 360
TXU SESCO.................................................................................. 1 1 1
Billings to:
TXU Gas..................................................................................... 72 92 107
TXU SESCO................................................................................... 3 3 23
Cash Payments --The schedule below details TXU Electric's supplemental cash
flow information:
Year Ended December 31,
----------------------
2000 1999 1998
------ ------ ------
Interest (net of amounts capitalized)......................................... $ 438 $ 464 $ 508
Income taxes.................................................................. 156 324 374
A-39
Accounts Receivable -- Accounts receivable are stated net of uncollectible
accounts of $7 million in 2000 and $4 million in 1999.
Inventories by major category --
December 31,
-----------------
2000 1999
------- -------
Materials and supplies.................................................................................... $ 147 $ 158
Fuel stock................................................................................................ 70 84
------- -------
Total inventories..................................................................................... $ 217 $ 242
======= =======
Property, Plant and Equipment --
December 31,
-----------------
2000 1999
------- -------
In service
Production...................................................................................... $15,658 $15,533
Transmission.................................................................................... 1,760 1,681
Distribution.................................................................................... 5,723 5,390
General......................................................................................... 506 498
------- -------
Total....................................................................................... 23,647 23,102
Less accumulated depreciation................................................................... 7,958 7,409
------- -------
Net of accumulated depreciation............................................................. 15,689 15,693
Construction work in progress........................................................................ 271 191
Nuclear fuel (net of accumulated amortization: 2000 -- $716; 1999 -- $635)........................... 178 171
Held for future use.................................................................................. 22 24
Reserve for regulatory disallowances................................................................. (836) (836)
------- -------
Net property, plant and equipment........................................................... $15,324 $15,243
======= =======
Quarterly Information (unaudited) -- In the opinion of TXU Electric, the
information below includes all adjustments (constituting only normal recurring
accruals) necessary for a fair statement of such amounts. Quarterly results are
not necessarily indicative of expectations for a full year's operations because
of seasonal and other factors.
Operating Operating Consolidated
Revenues Income Net Income
------------- -------------- ----------------
Quarter Ended 2000 1999 2000 1999 2000 1999
- ----------------------------------------------------- ------ ------ ------ ------ ------ ------
March 31............................................. $1,351 $1,285 $ 262 $ 233 $ 147 $ 106
June 30.............................................. 1,684 1,503 298 290 188 162
September 30......................................... 2,444 2,059 509 543 395 434
December 31.......................................... 1,925 1,360 254 183 165(1) 77
------ ------ ------ ------ ------ ------
$7,404 $6,207 $1,323 $1,249 $ 895 $ 779
====== ====== ====== ====== ====== ======
(1) Fourth quarter 2000 net income includes $29 million after-tax from the
favorable resolution of regulatory matters and after-tax gains of $18
million from asset sales.
A-40
TXU ELECTRIC EXHIBITS FOR 2000 FORM 10-K
Appendix B
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
3(a) 0-11442 4 -- Articles of Amendment, effective June 14, 1999 to the Articles
Form 10-Q of Incorporation of TXU Electric.
(Quarter ended
June 30, 1999)
3(b) 0-11442 -- Bylaws of TXU Electric, as restated August 1, 1999.
Form 10-Q
(Quarter ended
June 30, 1999)
4(a) 2-90185 4(a) -- Mortgage and Deed of Trust, dated as of December 1, 1983,
between TXU Electric and Irving Trust Company (now The Bank
of New York), Trustee.
4(a)(1) -- Supplemental Indentures to Mortgage and Deed of Trust:
Number Dated
------ -----
2-90185 4(b) First April 1, 1984
2-92738 4(a)-1 Second September 1, 1984
2-97185 4(a)-1 Third April 1, 1985
2-99940 4(a)-1 Fourth August 1, 1985
2-99940 4(a)-2 Fifth September 1, 1985
33-01774 4(a)-2 Sixth December 1, 1985
33-9583 4(a)-1 Seventh March 1, 1986
33-9583 4(a)-2 Eighth May 1, 1986
33-11376 4(a)-1 Ninth October 1, 1986
33-11376 4(a)-2 Tenth December 1, 1986
33-11376 4(a)-3 Eleventh December 1, 1986
33-14584 4(a)-1 Twelfth February 1, 1987
33-14584 4(a)-2 Thirteenth March 1, 1987
33-14584 4(a)-3 Fourteenth April 1, 1987
33-24089 4(a)-1 Fifteenth July 1, 1987
33-24089 4(a)-2 Sixteenth September 1, 1987
33-24089 4(a)-3 Seventeenth October 1, 1987
33-24089 4(a)-4 Eighteenth March 1, 1988
33-24089 4(a)-5 Nineteenth May 1, 1988
33-30141 4(a)-1 Twentieth September 1, 1988
33-30141 4(a)-2 Twenty-first November 1, 1988
33-30141 4(a)-3 Twenty-second January 1, 1989
33-35614 4(a)-1 Twenty-third August 1, 1989
33-35614 4(a)-2 Twenty-fourth November 1, 1989
33-35614 4(a)-3 Twenty-fifth December 1, 1989
33-35614 4(a)-4 Twenty-six February 1, 1990
33-39493 4(a)-1 Twenty-seventh September 1, 1990
33-39493 4(a)-2 Twenty-eighth October 1, 1990
33-39493 4(a)-3 Twenty-ninth October 1, 1990
33-39493 4(a)-4 Thirtieth March 1, 1991
33-45104 4(a)-1 Thirty-first May 1, 1991
33-45104 4(a)-2 Thirty-second July 1, 1991
33-46293 4(a)-1 Thirty-third February 1, 1992
B-1
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
33-49710 4(a)-1 Thirty-fourth April 1, 1992
33-49710 4(a)-2 Thirty-fifth April 1, 1992
33-49710 4(a)-3 Thirty-sixth June 1, 1992
33-49710 4(a)-4 Thirty-seventh June 1, 1992
33-57576 4(a)-1 Thirty-eighth August 1, 1992
33-57576 4(a)-2 Thirty-ninth October 1, 1992
33-57576 4(a)-3 Fortieth November 1, 1992
33-57576 4(a)-4 Forty-first December 1, 1992
33-60528 4(a)-1 Forty-second March 1, 1993
33-64692 4(a)-1 Forty-third April 1, 1993
33-64692 4(a)-2 Forty-fourth April 1, 1993
33-64692 4(a)-3 Forty-fifth May 1, 1993
33-68100 4(a)-1 Forty-sixth July 1, 1993
33-68100 4(a)-3 Forty-seventh October 1, 1993
33-68100 4(a)-4 Forty-eighth November 1, 1993
33-68100 4(a)-5 Forty-ninth May 1, 1994
33-68100 4(a)-6 Fiftieth May 1, 1994
33-68100 4(a)-7 Fifty-first August 1, 1994
0-11442 99 Fifty-second April 1, 1995
Form 10-Q
(Quarter ended
March 31, 1995)
0-11442 99 Fifty-third June 1, 1995
Form 10-Q
(Quarter ended
June 30, 1995)
0-11442 4 Fifty-fourth October 1, 1995
Form 8-K (Dated
September 26,
1995)
0-11442 4(a) Fifty-fifth March 1, 1996
Form 10-Q
(Quarter ended
March 31, 1996)
0-11442 4(a) Fifty-sixth September 1, 1996
Form 10-Q
(Quarter ended
September 30,
1996)
33-83976 4(g) Fifty-seventh February 1, 1997
0-11442 4(b) Fifty -eighth July 1, 1997
Form 10-Q
(Quarter ended
June 30, 1997)
333-53296 4(f) Fifty-ninth March 1, 1999
333-53296-01
333-53296-02
333-53296-03
333-53296 4(g) Sixtieth December 1, 1999
333-53296-01
333-53296-02
333-53296-03
B-2
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
4(a)-2 --Sixty-first February 1, 2001
4(b) - Agreement to furnish certain debt instruments.
4(c) 33-68104 4(b)-17 - Deposit Agreement between TXU Electric and Chemical Bank,
dated as of August 4, 1993.
4(d) 0-11442 4(e) - Deposit Agreement between TXU Electric and Chemical Bank,
Form 10-K dated as of October 14, 1993.
(1993)
4(e) 0-11442 4(f) - Indenture (For Unsecured Subordinated Debt Securities
Form 10-K relating to Trust Securities), dated as of December 1, 1995,
(1995) between TXU Electric and The Bank of New York, as Trustee.
4(f) 0-11442 4(g) - Amended and Restated Trust Agreement, dated as of
Form 10-K December 12, 1995 between TXU Electric, as Depositor, and
(1995) The Bank of New York, The Bank of New York (Delaware)
and the Administrative Trustees thereunder as trustees for
TXU
Electric Capital I.
4(g) 0-11442 4(h) - Guarantee Agreement with respect to TXU Electric Capital I,
Form 10-K dated as of December 12, 1995, between TU Electric, as
(1995) Guarantor, and The Bank of New York, as Trustee.
4(h) 0-11442 4(i) - Agreement as to Expenses and Liabilities, dated as of December
Form 10-K 12, 1995, between TXU Electric and TXU Electric Capital I.
(1995)
4(i) 0-11442 4(j) - Officer's Certificate, dated as of December 12, 1995,
Form 10-K establishing the terms of the Junior Subordinated Debentures
(1996) issued in connection with the preferred securities of TU
Electric Capital I.
4(j) 0-11442 4(m) - Amended and Restated Trust Agreement, dated as of December
Form 10-K 13, 1995, between TXU Electric, as Depositor, and The Bank
(1995) of New York, The Bank of New York (Delaware), and the
Administrative Trustees thereunder, as Trustees for TXU
Electric Capital III.
4(k) 0-11442 4(n) - Guarantee Agreement with respect to TXU Electric Capital III,
Form 10-K dated as of December 13, 1995, between TU Electric, as
(1995) Guarantor, and The Bank of New York, as Trustee.
4(l) 0-11442 4(o) - Agreement as to Expenses and Liabilities, dated as of
Form 10-K December 13, 1995, between TU Electric and TXU
(1995) Electric Capital III.
4(m) 0-11442 4(r) - Officer's Certificate, dated as of December 13, 1995,
Form 10-K establishing the terms of the Junior Subordinated Debentures
(1996) issued in connection with the preferred securities of TXU
Electric Capital III.
4(n) 0-11442 4(s) - Amended and Restated Trust Agreement, dated as of January
Form 10-K 30, 1997, between TXU Electric, as Depositor, and The Bank
(1996) of New York (Delaware), and the Administrative Trustee as
thereunder, as Trustees for TXU Electric Capital IV.
4(o) 0-11442 4(t) - Guarantee Agreement with respect to TXU Electric Capital IV,
Form 10-K dated as of January 30, 1997, between TXU Electric, as
(1996) Guarantor and The Bank of New York, as Trustee.
4(p) 0-11442 4(u) - Agreement as to Expenses and Liabilities, dated as of January
Form 10-K 30, 1997, between TXU Electric and TXU Electric Capital IV.
(1996)
B-3
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
4(q) 0-11442 4(v) - Officer's Certificate, dated as of January 30, 1997, establishing
Form 10-K the terms of the Junior Subordinated Debentures issued in
(1996) connection with the preferred securities of TXU Electric Capital
IV.
4(r) 0-11442 4(w) - Amended and Restated Trust Agreement, dated as of January
Form 10-K 30, 1997, between TXU Electric, as Depositor, and The Bank
(1996) of New York (Delaware), and the Administrative Trustee
thereunder, as Trustees for TXU Electric Capital V.
4(s) 0-11442 4(x) - Guarantee Agreement with respect to TXU Electric Capital V,
Form 10-K dated as of January 30, 1997, between TXU Electric, as
(1996) Guarantor, and The Bank of New York, as Trustee.
4(t) 0-11442 4(y) - Agreement as to Expenses and Liabilities, dated as of January
Form 10-K 30, 1997, between TXU Electric and TXU Electric Capital V.
(1996)
4(u) 0-11442 4(z) - Officer's Certificate, dated as of January 30, 1997, establishing
Form 10-K the terms of the Junior Subordinated Debentures issued in
(1996) connection with the preferred securities of TXU Electric
Capital V.
4(v) 0-11442 4(a) - Indenture (For Unsecured Debt Securities), dated as of August
Form 10-Q 1, 1997, between TXU Electric and The Bank of New York.
(Quarter ended
Sept. 30, 1997)
4(w) 0-11442 4(b) - Officer's Certificate establishing the TXU Electric 7.17%
Form 10-Q Debentures due August 1, 2007.
(Quarter
ended
Sept. 30,
1997)
4(x) 0-11422 99(a) Officer's certificate establishing TXU Electric's Floating Rate
Form 10-Q - debentures due April 24, 2000.
(Quarter ended
March 31, 1998)
10(a) - 364 Day Competitive Advance and Revolving Credit Facility
Agreement, dated as of February 23, 2001 among TXU
Corp., TXU Electric, TXU Gas Company, Chase Manhattan
Bank, as Administrative Agent and certain banks listed therein
and The Chase Manhattan Bank, as Competitive Advance
Facility Agent (US Facility A).
10(b) 0-11442 10(b) - Five Year Second Amended and Restated Competitive
Form 10-K Advance and Revolving Credit Facility Agreement dated as of
(1999) February 25, 2000 among Texas Utilities Company, TXU
Electric, TXU Gas, The Chase Manhattan Bank, as
Competitive Advance Facility Agent and Chase Bank of
Texas, National Association, as Administrative Agent and
certain banks listed therein (US Facility B).
10(c) - Amendment to US Facility B, dated February 23, 2001.
12 - Computation of Ratio of Earnings to Fixed Charges and to
Fixed Charges and Preferred Dividends for TXU Electric.
23(a) - Consent of Deloitte & Touche LLP Independent Auditors' for
TXU Electric.
B-4
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
99(a) 1-3591 28(b) - Agreement, dated as of February 12, 1988, between TXU
Form 10-K Electric and Texas Municipal Power Agency.
(1987)
99(b) 33-55408 99(a) - Agreement, dated as of July 5, 1988, between TXU Electric and
Electric and Tex-La Electric Cooperative of Texas, Inc.
99(c) 33-23532 4(c)(i) - Trust Indenture, Security Agreement and Mortgage, dated as
of December 1, 1987, as supplemented by Supplement No. 1 thereto
dated as of May 1, 1988 among the Lessor, TXU
Electric and the Trustee.
99(d) 33-24089 4(c)-1 - Supplement No. 2 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(e) 33-24089 4(e)-1 - Supplement No. 3 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(f) 0-11442 99(c) - Supplement No. 4 to Trust Indenture, Security Agreement and
Form 10-Q Mortgage, including form of Secured Facility Bond, 1993
(Quarter ended Series.
June 30, 1993)
99(g) 33-23532 4(d) - Lease Agreement, dated as of December 1, 1987 between the
Lessor and TXU Electric as supplemented by Supplement No.
1 thereto dated as of May 20, 1988 between the Lessor and
TXU Electric.
99(h) 33-24089 4(f) - Lease Agreement Supplement No. 2, dated as of August 18,
1988.
99(i) 33-24089 4(f)-1 - Lease Agreement Supplement No. 3, dated as of August 25,
1988.
99(j) 33-63434 4(d)(iv) - Lease Agreement Supplement No. 4, dated as of December 1,
1988.
99(k) 33-63434 4(d)(v) - Lease Agreement Supplement No. 5, dated as of June 1, 1989.
99(l) 0-11442 99(d) - Lease Agreement Supplement No. 6, dated as of July 1, 1993.
Form 10-Q
(Quarter ended
June 30, 1993)
99(m) 33-23532 4(e) - Participation Agreement dated as of December 1, 1987, as
amended by a Consent to Amendment of the Participation
Agreement, dated as of May 20, 1988, each among the Lessor,
the Trustee, the Owner Participant, certain banking
institutions, Capcorp, Inc. and TXU Electric.
99(n) 33-24089 4(g) - Consent to Amendment of the Participation Agreement, dated
as of August 18, 1988.
99(o) 33-24089 4(g)-1 - Supplement No. 1 to the Participation Agreement, dated as of
August 18, 1988.
99(p) 33-24089 4(g)-2 - Supplement No. 2 to the Participation Agreement, dated as of
August 18, 1988.
99(q) 33-63434 4(e)(v) - Supplement No. 3 to the Participation Agreement, dated as of
December 1, 1988.
B-5
Previously Filed*
----------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
99(r) 0-11442 99(e) - Supplement No. 4 to the Participation Agreement, dated as of
Form 10-Q June 17, 1993.
(Quarter ended
June 30, 1993)
99(s) 0-11442 4(b) - Supplement No. 1, dated October 25, 1995, to Trust
Form 10-Q Indenture, Security Agreement and Mortgage, dated as of
(Quarter ended December 1, 1989, among the Owner Trustee, TXU Electric
March 31, 1996) and the Indenture Trustee.
99(t) 0-11442 4(c) - Supplement No. 1, dated October 19, 1995, to Amended and
Form 10-Q Restated Participation Agreement, dated as of November 28,
(Quarter ended 1989, among the Owner Trustee, The First National Bank of
March 31, 1996) Chicago, As Original Indenture Trustee, the Indenture Trustee,
the Owner Participant, Mesquite Power Corporation and TXU
Electric.
______________________
* Incorporated herein by reference.
B-6