<Page>

================================================================================



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                        ---------------------------------


                                    FORM 10-Q



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




                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001



                                       OR


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


                        ---------------------------------

                          Commission File Number 1-3183


                                 TXU GAS COMPANY






     A Texas Corporation                          I.R.S. Employer Identification
                                                           No. 75-0399066



            ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
                                 (214) 812-4600





                        ---------------------------------


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

COMMON STOCK OUTSTANDING AT AUGUST 9, 2001: 451,000 shares, par value $0.01
per share.







================================================================================

<Page>

TABLE OF CONTENTS
--------------------------------------------------------------------------------


<Table>
<Caption>

PART I. FINANCIAL INFORMATION                                                                            PAGE
                                                                                                         ----
<S>         <C>                                                                                          <C>
            ITEM 1. FINANCIAL STATEMENTS

                Condensed Statements of Consolidated Income and Comprehensive Income --
                Three and Six Months Ended June 30, 2001 and 2000..................................        1

                Condensed Statements of Consolidated Cash Flows --
                Six Months Ended June 30, 2001 and 2000............................................        2

                Condensed Consolidated Balance Sheets --
                June 30, 2001 and December 31, 2000................................................        3

                Notes to Financial Statements......................................................        4

                Independent Accountants' Report....................................................       10

            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS......................................................       11

            ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................       14

PART II. OTHER INFORMATION

            ITEM 1. LEGAL PROCEEDINGS..............................................................       15

            ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................       15

SIGNATURE..........................................................................................       16

</Table>






                                                   (i)

<Page>

                          PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


                                   TXU GAS COMPANY AND SUBSIDIARIES
                             CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                                              (UNAUDITED)


<Table>
<Caption>

                                                                 THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                        JUNE 30,                       JUNE 30,
                                                                ----------------------         ------------------------
                                                                  2001           2000            2001             2000
                                                                -------        -------         -------          -------
                                                                                 MILLIONS OF DOLLARS
<S>                                                             <C>            <C>             <C>              <C>
Operating revenues..................................            $ 1,252        $ 1,338         $ 4,203          $ 2,688
                                                                -------        -------         -------          -------

Operating expenses
   Energy purchased for resale......................              1,134          1,230           3,864            2,387
   Operation and maintenance........................                 91             88             179              182
   Depreciation and other amortization..............                 17             16              32               32
   Goodwill amortization............................                  5              5              11               11
   Taxes other than income..........................                 40             20              63               35
                                                                -------        -------         -------          -------
     Total operating expenses.......................              1,287          1,359           4,149            2,647
                                                                -------        -------         -------          -------

Operating income (loss).............................                (35)           (21)             54               41

Other income (deductions) - net.....................                  4             52               5               52
                                                                -------        -------         -------          -------

Income (loss) before interest, other
   charges and income taxes.........................                (31)            31              59               93

Interest income.....................................                  4             --               8               --

Interest expense and other charges..................                (22)           (19)            (45)             (37)
                                                                -------        -------         -------          -------

Income (loss) before income taxes...................                (49)            12              22               56

Income tax expense (benefit)........................                (15)             5              11               23
                                                                -------        -------         -------          -------

Net income (loss)...................................                (34)             7              11               33

Preferred stock dividends...........................                  1              1               2                2
                                                                -------        -------         -------          -------

Net income (loss) applicable to common stock........            $   (35)       $     6         $     9          $    31
                                                                =======        =======         =======          =======

</Table>

                  CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
                                         (UNAUDITED)


<Table>
<Caption>

                                                                 THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                        JUNE 30,                       JUNE 30,
                                                                ----------------------         ------------------------
                                                                  2001           2000            2001             2000
                                                                -------        -------         -------          -------
                                                                                 MILLIONS OF DOLLARS
<S>                                                             <C>            <C>             <C>              <C>

Net income (loss)...................................            $   (34)       $     7         $    11          $    33
Other comprehensive income (loss) -
   Net change during period, net of tax effects:
   Cash flow hedges:
     Cumulative transition adjustment as of January
       1, 2001......................................                 --             --               2               --
     Net change in fair value of derivatives........                 --             --              (3)              --
                                                                -------        -------         -------          -------
       Total........................................                 --             --              (1)              --
                                                                -------        -------         -------          -------

Comprehensive income (loss).........................            $   (34)       $     7         $    10          $    33
                                                                =======        =======         =======          =======

</Table>

See Notes to Financial Statements.

                                                     1

<Page>


                                  TXU GAS COMPANY AND SUBSIDIARIES
                           CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
                                             (UNAUDITED)

<Table>
<Caption>
                                                                                             SIX MONTHS ENDED
                                                                                                 JUNE 30,
                                                                                         -----------------------
                                                                                           2001            2000
                                                                                         --------         ------
                                                                                           MILLIONS OF DOLLARS
<S>                                                                                      <C>              <C>

Cash flows - operating activities
    Net income..............................................................             $   11           $   33
    Adjustments to reconcile net income to cash provided by (used in)
     operating activities:
        Depreciation and amortization.......................................                 48               45
        Deferred income taxes - net.........................................                 12               13
        Gain from sale of assets............................................                 (4)             (53)
        Changes in operating assets and liabilities.........................                246              (64)
                                                                                         ------           ------
              Cash provided by (used in) operating activities...............                313              (26)
                                                                                         ------           ------

Cash flows - financing activities
    Change in notes payable:
        Banks...............................................................                 (1)              --
        Parent..............................................................               (217)              (3)
    Cash dividends paid.....................................................                 (2)              (2)
                                                                                         ------           ------
              Cash used in financing activities.............................               (220)              (5)
                                                                                         ------           ------

Cash flows - investing activities
    Capital expenditures....................................................               (114)             (64)
    Proceeds from sale of assets............................................                  5              105
    Other...................................................................                  5               (2)
                                                                                         ------           ------
              Cash provided by (used in) investing activities...............               (104)              39
                                                                                         ------           ------

Cash used in discontinued operations .......................................                 (2)             (11)
                                                                                         ------           ------

Net change in cash and cash equivalents.....................................                (13)              (3)

Cash and cash equivalents - beginning balance...............................                 23                6
                                                                                         ------           ------

Cash and cash equivalents - ending balance..................................             $   10           $    3
                                                                                         ======           ======
</Table>


See Notes to Financial Statements.











                                                        2
<Page>



                                     TXU GAS COMPANY AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                              JUNE 30,
                                                                                                2001          DECEMBER 31,
                                                                                             (UNAUDITED)          2000
                                                                                            -------------    --------------
                                                                                                  MILLIONS OF DOLLARS
<S>                                                                                         <C>              <C>

                                        ASSETS

Current assets:
   Cash and cash equivalents.......................................................         $     10             $    23
   Accounts receivable.............................................................              523               1,164
   Inventories - at average cost...................................................              127                  85
   Merchant energy trading assets..................................................              666               1,412
   Deferred income taxes...........................................................               27                  29
   Other current assets............................................................               83                 327
                                                                                            --------             -------
        Total current assets.......................................................            1,436               3,040

Investments........................................................................               37                  43
Property, plant and equipment - net................................................            1,492               1,417
Goodwill...........................................................................              784                 788
Regulatory assets..................................................................               72                  69
Merchant energy trading assets.....................................................              362                 287
Deferred debits and other assets...................................................               14                  14
                                                                                            --------             -------

        Total assets...............................................................         $  4,197             $ 5,658
                                                                                            ========             =======

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Notes payable - banks...........................................................         $     --             $     1
   Accounts payable:
      Parent and affiliates........................................................              156                  18
      Trade........................................................................              433               1,018
   Merchant energy trading liabilities.............................................              581               1,396
   Other current liabilities.......................................................               96                  97
                                                                                            --------             -------
        Total current liabilities..................................................            1,266               2,530

Accumulated deferred income taxes and investment tax credits.......................              119                 103
Merchant energy trading liabilities................................................              286                 276
Other deferred credits and noncurrent liabilities..................................              235                 246
Advances from parent...............................................................              358                 575
Long-term debt, less amounts due currently.........................................              755                 757

TXU Gas Company obligated, mandatorily redeemable, preferred securities of
   subsidiary trust holding solely junior subordinated debentures of TXU Gas
   Company.........................................................................              147                 147

Contingencies (Note 5)

Shareholders' equity:
   Preferred stock.................................................................               75                  75
                                                                                            --------             -------

   Common stock (par value - $.01 per share):
      Authorized shares - 100,000,000, Outstanding shares - 451,000................               --                  --
   Paid in capital.................................................................            1,011               1,013
   Deficit.........................................................................              (54)                (64)
   Accumulated other comprehensive loss............................................               (1)                 --
                                                                                            --------             -------
      Total common stock equity....................................................              956                 949
                                                                                            --------             -------
        Total shareholders' equity.................................................            1,031               1,024
                                                                                            --------             -------

        Total liabilities and shareholders' equity.................................         $  4,197             $ 5,658
                                                                                            ========             =======
</Table>

   See Notes to Financial Statements.






                                                           3

<Page>

                        TXU GAS COMPANY AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


1.       BUSINESS

         TXU Gas Company (TXU Gas) is an integrated company engaged in the
purchase, transmission, distribution and sale of natural gas in the
north-central, eastern and western parts of Texas and merchant energy trading of
natural gas and electricity throughout the United States (US) and parts of
Canada. TXU Gas is a wholly-owned subsidiary of TXU Corp., a Texas corporation.
TXU Corp. is a global energy services company that engages in electric and
natural gas services, electricity generation, merchant energy trading, energy
marketing, energy delivery, telecommunications, and other energy-related
services.

2.       SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION -- The condensed consolidated financial
statements of TXU Gas and its subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP) and, except for the adoption of the new accounting standard for
derivatives discussed below, prepared on the same basis as the audited financial
statements included in its Annual Report on 2000 Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results of operations and financial position have
been included therein. Certain information and footnote disclosures normally
included in annual consolidated financial statements prepared in accordance with
US GAAP have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations for an interim
period may not give a true indication of results for the full year. Certain
previously reported amounts have been reclassified to conform to current
classifications. All dollar amounts in the financial statements and tables in
the notes are stated in millions of US dollars unless otherwise indicated.

         CHANGES IN ACCOUNTING STANDARDS -- On January 1, 2001, TXU Gas adopted
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).

         In accordance with the transition provisions of SFAS No. 133, TXU Gas
recorded, as of January 1, 2001, $2.4 million of derivatives as assets with a
cumulative effect of $1.6 million after-tax as an increase to Other
Comprehensive Income to recognize the fair value of all derivatives effective as
cash-flow hedging instruments. As of June 30, 2001, none of the amounts have
been reclassified into earnings.

         The terms of TXU Gas' derivatives match the terms of the underlying
hedged items. As a result, TXU Gas experienced no hedge ineffectiveness during
the period.

         As of June 30, 2001, it is expected that $1.5 million of net losses now
included in the net gains/losses from derivative instruments that are
accumulated in Other Comprehensive Income will be reported in earnings during
the next twelve months. This amount is not a forecasted loss incremental to
normal operations, but rather it demonstrates the extent to which volatility in
earnings (which would otherwise exist) is mitigated through the presence of cash
flow hedges.

         Ongoing implementation issues being addressed by standard-setting
groups may affect the application of SFAS No. 133. In April 2001, the Financial
Accounting Standards Board finalized a conclusion that volume option contracts
do not qualify for the normal purchase and sale exception. TXU Gas is evaluating
the financial impact resulting from the implementation of this issue.

                                       4

<Page>

         SFAS No. 141, "Business Combinations", is effective for TXU Gas
beginning July 1, 2001. SFAS No. 141 requires the use of the purchase method of
accounting for business combinations initiated and completed after June 30, 2001
and eliminates the use of the pooling-of-interests method.

         SFAS No. 142, "Goodwill and Other Intangible Assets", is effective for
TXU Gas beginning January 1, 2002. SFAS No. 142 requires, among other things,
the discontinuance of goodwill amortization. The amortization of TXU Gas'
existing goodwill will cease after December 31, 2001. Any goodwill resulting
from acquisitions completed after June 30, 2001 will not be amortized. As of
January 1, 2002, goodwill amortization of approximately $22 million on an
annualized basis will cease.

         In addition, SFAS No. 142 requires TXU Gas to complete a transitional
goodwill impairment test within six months from the date of adoption. It
establishes a new method of testing goodwill for impairment on an annual basis
or on an interim basis if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying value. Any goodwill
impairment loss during the transition period will be recognized as the
cumulative effect of a change in accounting principle.

         SFAS No. 143, "Accounting for Asset Retirement Obligations", will be
effective for TXU Gas beginning January 1, 2003. SFAS No. 143 requires the
recognition of a fair value liability for any retirement obligation associated
with long-lived assets. The offset to any liability recorded is added to the
recorded asset where the additional amount is depreciated over the same period
as the long-lived asset for which the retirement obligation is established. SFAS
No. 143 also requires additional disclosures.

         TXU Gas is evaluating the impact the adoption of these standards will
have on its financial position and results of operations.

3.       CAPITALIZATION

         TXU GAS OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF TXU GAS (TRUST
SECURITIES) -- At June 30, 2001, a statutory business trust, TXU Gas Capital I,
had $147 million of floating rate Trust Securities outstanding. Distributions on
these Trust Securities are payable quarterly based on an annual floating rate
determined quarterly with reference to a three-month LIBOR rate plus a margin.
The only assets held by the trust are $155 million principal amount of Floating
Rate Junior Subordinated Debentures Series A (Series A Debentures) of TXU Gas.
The interest on the Series A Debentures matches the distributions on the Trust
Securities. The Series A Debentures will mature on July 1, 2028. TXU Gas has the
right to redeem the Series A Debentures and cause the redemption of the Trust
Securities, in whole or in part, on or after July 1, 2003. TXU Gas owns the
common securities issued by its subsidiary trust, TXU Gas Capital I, and has
effectively issued a full and unconditional guarantee of the trust's securities.
At June 30, 2001, TXU Gas had two interest rate swap agreements with respect to
floating rate Trust Securities of TXU Gas Capital I, with notional principal
amounts of $100 million and $50 million, that effectively fixed the rate at
6.629% and 6.444%, respectively, per annum to July 1, 2003.

4.       REGULATION AND RATES

         TXU Gas employs a continuing program of rate review for all classes of
customers in its regulatory jurisdictions. Rate relief amounting to
approximately $19.8 million in annualized revenue increases, exclusive of
changes in gas costs, was granted in 2000. During 2001, rate cases supporting
$34 million in annualized revenue increases have been filed in 336 Texas cities.
A settlement agreement has been reached with 16 of 17 cities in the Hill Country
distribution system for rates that represent an annual increase of $1.1 million.
The City of Fredericksburg, Texas did not accept the settlement, and the results
have been appealed to the Railroad Commission of Texas. Additionally, a
settlement, in principle has been reached in the Northwest Metro/Mid Cities rate
case with all 40 cities in the system. When ordinances are finalized in each
city, the settlement will represent an aggregate increase in annual revenue of
$5.1 million. Ordinances are due to be finalized in all cities in August 2001.


                                       5

<Page>

5.       CONTINGENCIES

         In July 1999, the City of Gatesville, Texas filed suit in the State
District Court of Coryell County, Texas, 52nd Judicial District, against TXU Gas
Distribution, TXU Gas and other TXU companies, and sought to represent a class
of plaintiffs consisting of approximately 490 Texas cities, towns and other
municipalities to which TXU Gas Distribution had paid municipal franchise fees
over a period of twenty-five years. This case is in the early stages of
discovery, and a decision on class certification has not yet been made. The
complaint alleges that TXU Gas Distribution concealed information from the
cities regarding its revenue data, gross receipts and related charges and fees
that were subject to, but not used as a basis for determining, municipal
franchise fees owed to the plaintiffs. No amount of damages has been specified
in the complaint. While TXU Gas is unable to estimate any possible loss or
predict the outcome of this case, TXU Gas Distribution believes the claims are
without merit and intends to vigorously defend this suit.

         In September 1999, Quinque Operating Company (Quinque) filed suit in
the State District Court of Stevens County, Kansas against over 200 gas
companies, including TXU Gas (named in the litigation as ENSERCH) and TXU Energy
Trading Company, a wholly-owned subsidiary (TXU Energy Trading). The suit was
removed to federal court; however, a motion to remand the case back to Kansas
State District Court was granted on January 16, 2001, and the case is now
pending in Stevens County, Kansas. TXU Energy Trading has been dismissed from
the suit. Quinque and the other named plaintiffs seek to represent a class of
plaintiffs consisting of all similarly situated gas producers, overriding
royalty owners, working interest owners and state taxing authorities either from
whom defendants had purchased natural gas or who received economic benefit from
the sale of such gas since January 1, 1974. No class has been certified. The
complaint alleges that the defendants have mismeasured both the volume and heat
content of natural gas delivered into their pipelines resulting in underpayments
to plaintiffs. No amount of damages has been specified in the complaint. While
TXU Gas is unable to estimate any possible loss or predict the outcome of this
case, TXU Gas believes these claims are without merit and intends to vigorously
defend this suit.

         GENERAL -- In addition to the above, TXU Gas and its subsidiaries are
involved in various other legal and administrative proceedings the ultimate
resolution of which, in the opinion of management, should not have a material
effect upon its financial position, results of operations or cash flows.

6.       SEGMENT INFORMATION

         TXU Gas has two reportable operating segments:

         (1) GAS PIPELINE AND DISTRIBUTION -- operations involving the purchase,
transmission, distribution and sale of natural gas in Texas; and

         (2) MERCHANT ENERGY TRADING -- operations involving the purchase and
sale of natural gas and electricity and the provision of risk management
services for the energy industry throughout the US and parts of Canada; and

         OTHER -- non-segment operations.







                                       6

<Page>

         TXU Gas evaluates performance based on net income or loss. TXU Gas
accounts for inter-segment sales and transfers as if the sales or transfers were
to third parties, that is, at current market prices.


<Table>
<Caption>

                                                  THREE MONTHS ENDED      SIX MONTHS ENDED
                                                       JUNE 30,                JUNE 30,
                                                 ---------------------  ---------------------
                                                   2001         2000       2001        2000
                                                 --------    ---------  ---------   ---------
  <S>                                            <C>         <C>        <C>         <C>
  Operating revenues --
    Gas pipeline and distribution......           $  171      $   154    $   854     $   481
    Merchant energy trading............            1,081        1,184      3,349       2,207
                                                  ------      -------    -------     -------
      Consolidated.....................           $1,252      $ 1,338    $ 4,203     $ 2,688
                                                  ======      =======    =======     =======

  Affiliated revenues --
    Gas pipeline and distribution......           $   --      $     3    $     1     $     8
    Merchant energy trading............                3           (1)         4          (2)
    Eliminations.......................               (3)          (2)        (5)         (6)
                                                  ------      -------    -------     -------
      Consolidated.....................           $   --      $    --    $    --     $    --
                                                  ======      =======    =======     =======

  Net income (loss) --
    Gas pipeline and distribution......           $  (34)     $    19    $    10     $    57
    Merchant energy trading............                5           (7)        10         (12)
    Other..............................               (5)          (5)        (9)        (12)
                                                  ------      -------    -------     -------
      Consolidated.....................           $  (34)     $     7    $    11     $    33
                                                  ======      =======    =======     =======

</Table>

7.       SUPPLEMENTARY FINANCIAL INFORMATION

         ACCOUNTS RECEIVABLE -- At June 30, 2001 and December 31, 2000, accounts
receivable are stated net of uncollectible accounts of $20 million and $17
million, respectively.

         SALE OF RECEIVABLES -- TXU Gas continually sells customer accounts
receivable to a wholly-owned bankruptcy-remote subsidiary (Receivables Company)
which sells undivided interests in these accounts receivable to financial
institutions. At June 30, 2001, $100 million of interests in accounts receivable
had been sold. On July 30, 2001, the Receivables Company facility was amended to
add TXU Electric Company, a wholly-owned subsidiary of TXU Corp. and an
affiliate of TXU Gas, as a party and to increase to $600 million the aggregate
amount in which Receivables Company could sell interests. The separate TXU
Electric Company accounts receivable arrangement was terminated.




                                       7

<Page>

         INVENTORIES BY MAJOR CATEGORY --


<Table>
<Caption>

                                                   JUNE 30,
                                                     2001      DECEMBER 31,
                                                 (UNAUDITED)       2000
                                                 -----------   ------------
<S>                                              <C>           <C>
Materials and supplies...........................  $     5       $     5
Gas stored underground...........................      122            80
                                                   -------       -------
     Total inventories...........................  $   127       $    85
                                                   =======       =======

</Table>

         PROPERTY, PLANT AND EQUIPMENT --
<Table>
<Caption>

                                                   JUNE 30,
                                                     2001      DECEMBER 31,
                                                 (UNAUDITED)       2000
                                                 -----------   ------------
<S>                                              <C>           <C>
Gas distribution and pipeline....................  $ 1,573       $ 1,510
Other............................................       44            25
                                                   -------       -------
        Total....................................    1,617         1,535
Less accumulated depreciation....................      236           205
                                                   -------       -------
        Net of accumulated depreciation..........    1,381         1,330
Construction work in progress....................      111            87
                                                   -------       -------

        Net property, plant and equipment........  $ 1,492       $ 1,417
                                                   =======       =======

</Table>

         GOODWILL -- At June 30, 2001 and December 31, 2000, goodwill is stated
net of accumulated amortization of $82 million and $72 million, respectively.

         CREDIT RISK -- Credit risk relates to the risk of loss that TXU Gas
would incur as a result of non-performance by counterparties. TXU Gas maintains
credit policies with regard to its counterparties that management believes
significantly minimize overall credit risk. These policies include an evaluation
of potential counterparties' financial condition (including credit rating),
guarantees and collateral requirements and the use of standardized agreements
that allow for the netting of positive and negative exposures associated with a
single counterparty.

         CALIFORNIA -- The State of California continues to work through its
transition to deregulation in an environment of insufficient energy supply
compounded by volatile natural gas prices. This situation has financially
distressed California utilities. TXU Gas has essentially no exposure to the
California Independent System Operator or the regulated utilities. However, due
to the uncertainties surrounding the California power situation, management
cannot predict the effects that the California power situation may have on
merchant energy trading counterparties, legislation and the capital markets.




                                       8

<Page>

         CONCENTRATION OF CREDIT RISK -- During the six months ended June 30,
2001, TXU Gas' merchant energy trading activity grew substantially. Systems and
procedures have been implemented to continually monitor the counterparty risk
exposure throughout TXU Gas' trading region. Price and credit risk are evaluated
daily within the established trading policies and limits established.

         TXU Gas' gross exposure to credit risk (before any netting agreements
or reserves) as of June 30, 2001 was $1,571 million.

         Concentrations of credit risk have the potential to affect TXU Gas'
overall exposure to credit risk, either positively or negatively, in that the
customer base and counterparties may be similarly affected by changes in
economic, regulatory, industry, weather or other conditions.

         TXU Gas' exposure to one customer represented 2% of the gross fair
value of TXU Gas' accounts receivable, merchant energy trading assets and
derivative assets at June 30, 2001. This customer, like most other TXU Gas
counterparties, is a major energy company or financial institution and is
considered to be of investment grade, determined using publicly available
information including a Standard & Poor's rating of at least BBB-. The risk of
loss to TXU Gas arising from non-performance by these counterparties is
considered unlikely.

         Based on TXU Gas' policies, its exposures and its credit and other
reserves, TXU Gas does not anticipate a materially adverse effect on its
financial position or results of operations as a result of non-performance by
counterparties.












                                       9


<Page>

INDEPENDENT ACCOUNTANTS' REPORT





TXU Gas Company:

We have reviewed the accompanying condensed consolidated balance sheet of TXU
Gas Company and subsidiaries (TXU Gas) as of June 30, 2001, and the related
condensed statements of consolidated income and comprehensive income for the
three-month and six-month periods ended June 30, 2001 and 2000 and of
consolidated cash flows for the six-month periods ended June 30, 2001 and 2000.
These financial statements are the responsibility of TXU Gas management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of TXU
Gas as of December 31, 2000, and the related statements of consolidated
operations, comprehensive loss, cash flows and shareholders' equity for the year
then ended (not presented herein); and in our report dated February 1, 2001, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2000, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.





DELOITTE & TOUCHE LLP

Dallas, Texas
August 9, 2001






                                      10

<Page>

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

RESULTS OF OPERATIONS

         Although the price of natural gas has varied significantly since the
second quarter of 2000, the city gate rate for the cost of gas TXU Gas
Distribution ultimately delivers to residential and commercial customers is
established by the Railroad Commission of Texas and provides for full recovery
of the actual cost of gas delivered.

OVERVIEW

THREE MONTHS ENDED JUNE 30, 2001

         For the three months ended June 30, 2001, TXU Gas Company (TXU Gas) had
a net loss of $34 million compared with net income of $7 million for the three
months ended June 30, 2000. Substantially all of the natural gas processing
assets of the Gas Pipeline and Distribution segment were sold in May 2000
resulting in a pre-tax gain of $53 million ($34 million after-tax). Excluding
the gas processing results of operations and gain on sale, TXU Gas had a net
loss of $26 million for the three months ended June 30, 2000. Excluding gas
processing operations, higher taxes other than income and increased operation
and maintenance expense exceeded the improvement in margin from the 2000 period
to the 2001 period.

         The following discussion excludes the gas processing operations sold in
May 2000. Operating revenues decreased from $1,325 million in the 2000 period to
$1,252 million in the 2001 period because the increase in Gas Pipeline and
Distribution segment revenues was less than the reduction in Merchant Energy
Trading segment revenues. Energy purchased for resale decreased from $1,226
million in the 2000 period to $1,134 million in the 2001 period because the
increase in costs for the Gas Pipeline and Distribution segment in the 2001
period was less than the reduction in costs for the Merchant Energy Trading
segment in that period. Margin increased from the 2000 period to the 2001 period
with a $17 million improvement in the Merchant Energy Trading segment margin and
a $2 million improvement in the Gas Pipeline and Distribution segment margin.
Operation and maintenance expense increased from the 2000 period to the 2001
period as Gas Pipeline and Distribution segment costs increased from $50 million
to $62 million and were only partially offset by a $2 million decrease in
Merchant Energy Trading segment costs. Taxes other than income increased by $21
million in the 2001 period over the 2000 period, due to higher state and local
gross receipts taxes resulting from higher Gas Pipeline and Distribution segment
revenues.

SIX MONTHS ENDED JUNE 30, 2001

         For the six months ended June 30, 2001, TXU Gas had net income of $11
million compared with net income of $33 million for the six months ended June
30, 2000. The sale of natural gas processing assets in May 2000 resulted in a
pre-tax gain of $53 million ($34 million after-tax). Excluding the gas
processing results of operations and gain on sale, TXU Gas had a net loss of $5
million for the six months ended June 30, 2000. Excluding gas processing
operations, the improvement in margin from the 2000 period to the 2001 period
exceeded increased operation and maintenance expense and higher taxes other than
income.





                                      11

<Page>

         The following discussion excludes the gas processing operations sold in
May 2000. Operating revenues increased from $2,635 million in the 2000 six-month
period to $4,203 million in the 2001 period because Merchant Energy Trading
segment revenues increased $1,148 and Gas Pipeline and Distribution segment
revenues increased by $419 million. Energy purchased for resale increased from
$2,375 million in the 2000 period to $3,864 million in the 2001 period because
Merchant Energy Trading segment costs increased $1,107 million and Gas Pipeline
and Distribution segment costs increased $380 million. Margin increased from the
2000 period to the 2001 period with a $41 million improvement in the Merchant
Energy Trading segment margin and a $39 million improvement in Gas Pipeline and
Distribution segment margin. Operation and maintenance expense increased from
the 2000 period to the 2001 period as Gas Pipeline and Distribution segment
costs increased from $102 million to $127 million and Merchant Energy Trading
segment costs increased from $44 million to $48 million. Taxes other than income
increased by $29 million in the 2001 period due to higher state and local gross
receipts taxes resulting from higher Gas Pipeline and Distribution segment
revenues.

SEGMENTS

         Revenues and net income by operating segment are shown in Note 6 to the
Financial Statements.

GAS PIPELINE AND DISTRIBUTION

SEGMENT HIGHLIGHTS


<Table>
<Caption>

                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                      JUNE 30,
                                                         ----------------------        ----------------------
                                                          2001           2000           2001           2000
                                                         -------        -------        -------        -------
<S>                                                      <C>            <C>            <C>            <C>
Gas distribution:
    Sales volumes (billion cubic feet - Bcf)...               18             19             92             68
    Margin (millions)..........................          $    42        $    57        $   194        $   179
Pipeline transportation:
    Transportation volumes (Bcf)...............              122            133            280            274
    Revenues (millions)........................          $    22        $    24        $    60        $    59
Heating degree days (% of normal)..............              41%            79%           105%            64%

</Table>

         For the three months ended June 30, 2001, the Gas Pipeline and
Distribution segment had a net loss of $34 million compared with net income of
$19 million for the three months ended June 30, 2000. Substantially all of the
natural gas processing assets of the Gas Pipeline and Distribution segment were
sold in May 2000, resulting in a pre-tax gain of $53 million ($34 million
after-tax). Excluding the gas processing results of operations and gain on sale,
the segment had a $14 million loss for the three months ended June 30, 2000.
Although volumes decreased due to warmer weather, margin for the segment
increased by $2 million from the 2000 period to the 2001 period, excluding gas
processing operations. Operation and maintenance expense increased from $50
million to $62 million from the 2000 period to the 2001 period, excluding gas
processing operations. The increase in maintenance expense primarily reflects
increased maintenance costs to improve reliability. Taxes other than income
increased by $22 million from the 2000 period to the 2001 period, excluding gas
processing operations, primarily reflecting higher state and local gross
receipts taxes resulting from higher revenues.

         For the six months ended June 30, 2001, the Gas Pipeline and
Distribution segment had net income of $10 million compared with net income of
$57 million for the six months ended June 30, 2000. Excluding the gas processing
results of operations and gain on sale, the segment had net income of $19
million for the six months ended June 30, 2000. Excluding the gas processing
operations, margin for the segment increased by $39 million from the 2000 period
to the 2001 period due to colder winter weather in the first quarter of 2001 and
the effects of rate relief granted for gas distribution operations. Operation
and maintenance expense increased from $102 million to $127 million from the
2000 period to the 2001 period, excluding gas processing operations. The
increase in the 2001 period primarily reflects increased maintenance costs to
improve reliability. Taxes other than income increased by $28 million from the
2000 period to the 2001 period, excluding gas processing operations, primarily
reflecting higher state and local gross receipt taxes resulting from higher
revenues.


                                      12

<Page>

MERCHANT ENERGY TRADING

SEGMENT HIGHLIGHTS


<Table>
<Caption>

                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                      JUNE 30,
                                                         ----------------------        ----------------------
                                                          2001           2000           2001           2000
                                                         -------        -------        -------        -------
  <S>                                                    <C>            <C>            <C>            <C>
  Trading and marketing volumes:
       Gas (Bcf).................................            182            306            454            626
       Electric (gigawatt-hours-GWh).............          2,431          6,836          7,790         10,540

</Table>

         The Merchant Energy Trading segment had net income of $5 million for
the three months ended June 30, 2001 compared with a net loss of $7 million for
the three months ended June 30, 2000. Margin for the segment improved by $17
million from the 2000 period to the 2001 period, reflecting favorable
proprietary trading activities and forward trading activities associated with
the deregulation of the Texas electricity market beginning in 2002.

         The Merchant Energy Trading segment had net income of $10 million for
the six months ended June 30, 2001 compared with a net loss of $12 million for
the six months ended June 30, 2000. Margin for the segment improved by $41
million from the 2000 period to the 2001 period, reflecting favorable
proprietary trading activities and forward trading activities associated with
the deregulation of the Texas electricity market beginning in 2002. Operation
and maintenance expense increased by $4 million from the 2000 period to the 2001
period primarily due to costs to support the growth in trading operations.
Interest expense increased from $2 million in the 2000 period to $9 million in
the 2001 period due to the costs of funding expanded infrastructure and growth
in trading operations.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

         Cash flows provided by operating activities before changes in operating
assets and liabilities for the six months ended June 30, 2001 were $67 million
compared with $38 million for the same period last year. Changes in operating
assets and liabilities provided $246 million in the first six months of 2001
compared to using $64 million in the first six months of 2000. TXU Energy
Trading Company (TXU Energy Trading) changed its practice to primarily provide
letters of credit rather than cash for its margin requirements. Such change
yielded a return in the first quarter of 2001 of $270 million of cash for
previously posted over-the-counter margin requirements.

         Cash flows of $220 million were used in financing activities in the
first six months of 2001 compared with $5 million in the first six months of
2000. A total of $217 million in advances from TXU Corp. was repaid in the first
six months of 2001.

         Cash flows of $104 million were used in investing activities in the
first six months of 2001 compared with cash flows provided of $39 million in the
first six months of 2000. The sale of substantially all of the natural gas
processing assets in the second quarter of 2000 provided $105 million.

         At June 30, 2001, TXU Gas had no borrowings outstanding under the US
Credit Agreements described in Note 3 of TXU Gas' 2000 Form 10-K. Letters of
Credit outstanding under the agreements totaled $115 million for TXU Gas. The US
Credit Agreements primarily support commercial paper borrowings of TXU Corp.

         FINANCING ARRANGEMENTS -- TXU Gas may issue and sell additional debt
and equity securities as needed, including the possible future issuance and sale
of up to an aggregate of $400 million of debt securities and/or preferred
securities of subsidiary trusts, which are currently registered with the
Securities and Exchange Commission pursuant to Rule 415 under the Securities Act
of 1933.


                                      13

<Page>

CREDIT RISK

         See Note 7 to Financial Statements for information on credit risk.

REGULATION AND RATES

         Although TXU Gas cannot predict future regulatory or legislative
actions or any changes in economic and securities market conditions, no changes
are expected in trends or commitments other than those discussed in the TXU Gas
2000 Form 10-K, the TXU Gas March 31, 2001 Form 10-Q and this Form 10-Q, which
might significantly alter its financial position, results of operations or cash
flows. See Note 4 to Financial Statements.

CHANGES IN ACCOUNTING STANDARDS

         CHANGES IN ACCOUNTING STANDARDS -- See Note 2 to Financial Statements
for discussion of changes in accounting standards.

FORWARD-LOOKING STATEMENTS

         This report and other presentations made by TXU Gas contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Gas 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 factors contained in the Forward-Looking Statements section of Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the TXU Gas 2000 Form 10-K, as well as general industry trends;
power costs and availability; changes in business strategy, development plans or
vendor relationships; availability of qualified personnel; changes in, or the
failure or inability to comply with, governmental regulations, including,
without limitation, environmental regulations; changes in tax laws; and access
to adequate transmission facilities to meet changing demand, among others, that
could cause the actual results of TXU Gas to differ materially from those
projected in such forward-looking statements.

         Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Gas 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 Gas
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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information required hereunder is not significantly different from
the information as set forth in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk included in the TXU Gas 2000 Form 10-K and is
therefore not presented herein. Changes in the fair value of TXU Gas' cash flow
hedges for interest rate swaps, that were discussed in the TXU Gas 2000 Form
10-K, are recorded as a component of Other Comprehensive Income as a result of
implementation of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Other than as
described therein, since December 31, 2000, there has been minimal change in the
contractual terms and notional amounts of interest rate contracts as disclosed
in the TXU Gas 2000 Form 10-K.

         TXU Energy Trading, a wholly-owned subsidiary of TXU Gas, uses
market-implied volatilities to determine its exposure to market risk. Market
risk is estimated as the potential loss in fair value resulting from at least a
15% change in market factors, which may differ from actual results. Using a two
standard deviation change, the most adverse change in fair value at June 30,
2001 and December 31, 2000, as a result of this analysis, was a reduction of
$11.5 million and $1.3 million, respectively. This change is a result of
expansion in the energy marketing business in accordance with the TXU merchant
energy strategy in preparation for deregulation of the electricity markets in
Texas commencing January 1, 2002.


                                      14

<Page>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         See the TXU Gas report on Form 10-Q for the quarter ended March 31,
         2001.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

   (a)   Exhibits filed as a part of Part II are:

     15  Letter from independent accountants as to unaudited interim financial
         information

     99  Condensed Statements of Consolidated Income - Twelve Months Ended June
         30, 2001 and 2000

   (b)   Reports on Form 8-K filed since March 31, 2001:

         None


























                                      15

<Page>

                                    SIGNATURE


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



                                               TXU GAS COMPANY




                                               By    /s/ Biggs C. Porter
                                                 -------------------------------
                                                         Biggs C. Porter
                                                         Vice President,
                                                   Principal Accounting Officer





Date:  August 10, 2001




















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