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##### Index to Financial Statements

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2005

 OR 



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

Commission File Number 333-91935



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TXU Electric Delivery Transition Bond Company LLC

(Exact name of registrant as specified in its charter)



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|                                                   |  |                                                     
|-------------------------------------------------- |  | ----------------------------------------------------
|Delaware                                           |  | 75-2851358                                          
|(State of organization)                            |  | (I.R.S. Employer Identification No.)                
|                                                   | 
|500 N. Akard Street, Dallas, Texas 75201           |  | (214) 486-2000                                      
|(Address of principal executive offices)(Zip Code) |  | (Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered
pursuant to Section 12(g) of the Act: None



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  x    No ̈

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 ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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-10K or any amendment to this Form 10-K.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer ad large accelerated filer in Rule 12b-2 of
the Exchange Act.    Large Accelerated Filer ̈Accelerated Filer ̈Non-accelerated filer  x

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

As of
March 9, 2006, all outstanding common membership interests in TXU Electric Delivery Transition Bond Company LLC were held by TXU Electric Delivery Company.

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



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TABLE OF CONTENTS



|                                                                                        |  |                                                                                                |  |     
|--------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|                                                                                        |  |                                                                                                |  | Page
|Glossary                                                                                |  |                                                                                                |  | ii  
|                                                                                        |  | PART I                                                                                         |  |     
|Item 1.                                                                                 |  | BUSINESS                                                                                       |  | 1   
|                                                                                        |  | LEGISLATIVE BACKGROUND                                                                         |  | 1   
|                                                                                        |  | REQUIRED REPORTS                                                                               |  | 3   
|                                                                                        |  |                                                                                               
|Item 1A.                                                                                |  | RISK FACTORS                                                                                   |  | 4   
|                                                                                        |  |                                                                                               
|Item 1B.                                                                                |  | UNRESOLVED STAFF COMMENTS                                                                      |  | 21  
|                                                                                        |  |                                                                                               
|Item 2.                                                                                 |  | PROPERTIES                                                                                     |  | 21  
|                                                                                        |  |                                                                                               
|Item 3.                                                                                 |  | LEGAL PROCEEDINGS                                                                              |  | 21  
|                                                                                        |  |                                                                                               
|Item 4.                                                                                 |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 21  
|                                                                                        |  |                                                                                               
|                                                                                        |  | PART II                                                                                        |  |     
|                                                                                        |  |                                                                                               
|Item 5.                                                                                 |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          |  | 22  
|                                                                                        |  |                                                                                               
|Item 6.                                                                                 |  | SELECTED FINANCIAL DATA                                                                        |  | 22  
|                                                                                        |  |                                                                                               
|Item 7.                                                                                 |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 22  
|                                                                                        |  |                                                                                               
|Item 7a.                                                                                |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 22  
|                                                                                        |  |                                                                                               
|Item 8.                                                                                 |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  | 22  
|                                                                                        |  |                                                                                               
|Item 9.                                                                                 |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  | 22  
|                                                                                        |  |                                                                                               
|Item 9a.                                                                                |  | CONTROLS AND PROCEDURES                                                                        |  | 22  
|                                                                                        |  |                                                                                               
|Item 9b.                                                                                |  | OTHER INFORMATION                                                                              |  | 22  
|                                                                                        |  |                                                                                               
|                                                                                        |  | PART II                                                                                        |  |     
|                                                                                        |  |                                                                                               
|Item 10.                                                                                |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  | 23  
|                                                                                        |  |                                                                                               
|Item 11.                                                                                |  | EXECUTIVE COMPENSATION                                                                         |  | 23  
|                                                                                        |  |                                                                                               
|Item 12.                                                                                |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  | 23  
|                                                                                        |  |                                                                                               
|Item 13.                                                                                |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 23  
|                                                                                        |  |                                                                                               
|Item 14.                                                                                |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  | 24  
|                                                                                        |  |                                                                                               
|                                                                                        |  | PART IV                                                                                        |  |     
|                                                                                        |  |                                                                                               
|Item 15.                                                                                |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                     |  | 25  
|                                                                                        | 
|APPENDIX A  Financial Information of TXU Electric Delivery Transition Bond Company LLC |  | A-1                                                                                           
|APPENDIX B  Exhibits to 2005 Form 10-K                                                 |  | B-1                                                                                           

Periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K that contain financial information
of TXU Electric Delivery Transition Bond Company LLC will be made available to the public, free of charge, on the TXU Electric Delivery Company website at http://www.txuelectricdelivery.com, shortly after they have been filed with the Securities and
Exchange Commission. Upon request, TXU Electric Delivery Transition Bond Company LLC will furnish copies of the exhibits not included in this Form 10-K. See Appendix B of this Form 10-K for a description of the exhibits. TXU Electric Delivery
Transition Bond Company LLC will provide copies of current reports not posted on the website upon request. The information on TXU Electric Delivery Companys website shall not be deemed a part of, or incorporated by reference into, this report
on Form 10-K.



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GLOSSARY

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



|                               |  |                                                                                                                                                                                                                                  
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1999 Restructuring Legislation |  | legislation that restructured the electric utility industry in Texas to provide for retail competition                                                                                                                           
|                               | 
|2003 Bonds                     |  | refers collectively to the four series of securitization bonds issued in August 2003                                                                                                                                             
|                               | 
|2004 Bonds                     |  | refers collectively to the three series of securitization bonds issued in June 2004                                                                                                                                              
|                               | 
|2004 Form 10-K                 |  | TXU Electric Delivery Transition Bond Companys Annual Report on Form 10-K for the year ended December 31, 2004                                                                                                                  
|                               | 
|Commission                     |  | Public Utility Commission of Texas                                                                                                                                                                                               
|                               | 
|Company                        |  | TXU Electric Delivery Transition Bond Company LLC, a wholly-owned bankruptcy remote financing subsidiary of TXU Electric Delivery Company                                                                                        
|                               | 
|ERCOT                          |  | Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas                                                                  
|                               | 
|FASB                           |  | Financial Accounting Standards Board, the designated organization in the private sector for establishing standards for financial accounting and reporting                                                                        
|                               | 
|Financing Order                |  | the financing order issued by the Commission on August 5, 2002 to TXU Electric Delivery Company, its successors and assignees that provide transmission and distribution service                                                 
|                               | 
|Indenture                      |  | the agreement (dated as of August 21, 2003) between TXU Electric Delivery Transition Bond Company, as issuer, and the Indenture Trustee, which describes the governing terms of, and secures
payment of, the Transition Bonds    
|                               | 
|Indenture Trustee              |  | The Bank of New York, a New York banking corporation                                                                                                                                                                             
|                               | 
|Moodys                        |  | Moodys Investors Services, Inc. (a credit rating agency)                                                                                                                                                                        
|                               | 
|REP                            |  | retail electric provider                                                                                                                                                                                                         
|                               | 
|S&P                            |  | Standard & Poors, a division of the McGraw Hill Companies (a credit rating agency)                                                                                                                                              
|                               | 
|Settlement Plan                |  | regulatory settlement plan that received final approval by the Commission in January 2003                                                                                                                                        
|                               | 
|SFAS 71                        |  | Statement of Financial Accounting Standards No. 71, Accounting for the Effect of Certain Types of Regulation                                                                                                                   
|                               | 
|Transition Bonds               |  | refers collectively to the 2003 Bonds and the 2004 Bonds                                                                                                                                                                         
|                               | 
|TXU Electric Delivery          |  | refers to TXU Electric Delivery Company, a subsidiary of TXU Corp., or TXU Electric Delivery and its consolidated bankruptcy remote financing subsidiary, TXU Electric Delivery Transition Bond
Company LLC, depending on context



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|                    |  |                                                                                                                        
|------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|TXU Energy Holdings |  | refers to TXU Energy Company LLC, a subsidiary of TXU Corp., and/or its consolidated subsidiaries, depending on context
|                    | 
|US                  |  | United States of America                                                                                               
|                    | 
|US GAAP             |  | accounting principles generally accepted in the US                                                                     



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PART I

Item 1. BUSINESS

BUSINESS

The Company is a bankruptcy remote special purpose Delaware limited liability company, wholly-owned by TXU Electric Delivery. TXU Electric Delivery is a
wholly-owned subsidiary of TXU Corp. TXU Electric Delivery is a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of
Texas. TXU Electric Delivery provides the essential service of delivering electricity safely, reliably and economically to end-use consumers through its distribution systems, as well as providing transmission grid connections to merchant power
plants and interconnection to other transmission grids in Texas.

The Company was organized in November 1999 for the limited purposes of
issuing Transition Bonds and purchasing and owning transition property (as defined in the 1999 Restructuring Legislation) acquired from TXU Electric Delivery. For legal purposes, the transition property has been sold to the Company by TXU Electric
Delivery. The Company had no operations until August 2003. In connection with the acquisition of the transition property, the Company:



| |  |  | registered and issued the Transition Bonds;
| | - |  | -------------------------------------------



| |  |  | pledged its interest in the transition property and other Transition Bond collateral to secure the Transition Bonds;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | has agreed to make debt service payments on the Transition Bonds; and
| | - |  | ---------------------------------------------------------------------



| |  |  | has agreed to perform other activities that are necessary, suitable or convenient to accomplish these purposes.
| | - |  | ---------------------------------------------------------------------------------------------------------------

The Company is structured and operated in a manner such that in the event of bankruptcy proceedings against TXU Electric Delivery, the assets of the
Company will not be consolidated into the bankruptcy estate of TXU Electric Delivery. TXU Electric Delivery is not the owner of the transition property described herein, and the assets of the Company are not available to pay creditors of TXU
Electric Delivery or any of its affiliates.

LEGISLATIVE BACKGROUND

In September 1999, the Texas legislature passed the 1999 Restructuring Legislation to
restructure the electric utility industry in Texas. The 1999 Restructuring Legislation provided for a transition to competition in the retail and generation markets for electricity beginning in January 2002, and provided for recovery of certain
costs previously incurred by electric utilities. These costs consist of generation-related regulatory assets as well as stranded costs, which represent the excess of net book value over market value of generation assets (as such regulatory and
generation assets are defined by the 1999 Restructuring Legislation). Recovery of these costs is provided through irrevocable, nonbypassable transition charges assessed on substantially all existing and future retail electric customers within a
utilitys certificated service territory as it existed on May 1, 1999. The 1999 Restructuring Legislation authorized the Commission to issue a financing order approving the issuance of Transition Bonds to facilitate the recovery of
generation-related regulatory assets and stranded costs. The Commission issued a financing order to TXU Electric Delivery on August 5, 2002.

Transition Property - The 1999 Restructuring Legislation and the Financing Order permitted TXU Electric Delivery to transfer its rights and interests in the Financing Order, including the right to collect transition charges
pursuant to the 1999 Restructuring Legislation, to a special purpose entity (the Company) formed by TXU Electric Delivery to issue debt secured by the right to receive revenues arising from the transition charges. The electric utilitys right
to receive the transition charges and its other rights and interests under the Financing Order constitute transition property transferred to the Company. The transition property represents the irrevocable right to impose, collect and receive
transition charges in an amount sufficient to pay the interest, fees, and expenses associated with the Transition Bonds, and the aggregate principal amount of the Transition Bonds.



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Transition Charges  TXU Electric Delivery and the Company have entered into servicing
agreements to support the Transition Bonds. Transition charges are assessed and collected by TXU Electric Delivery as the servicer. The servicer manages, services, bills and collects payments in respect of the transition property under the terms of
the servicing agreements. Transition charges are collected by the servicer from REPs that in effect collect transition charges from retail customers as part of their normal collection activities. The REPs must pay these billings to TXU Electric
Delivery whether or not the REPs collect them from the retail customers. Transition charges are billed based on a retail customers actual consumption of electricity, or for certain classes of commercial customers, on the historical demand for
electricity by such customers. The Commission reviews and adjusts transition charges at least once a year. This review is used to adjust any over or under collections during the preceding 12 months and to provide for recovery of amounts sufficient
to pay all debt service and other required amounts and charges in connection with the Transition Bonds during the following 12 months.

Servicing Fees - As long as TXU Electric Delivery or its affiliate or agent acts as servicer, the annual aggregate servicing fee will be the greater of $400,000 for all series of outstanding Transition Bonds or 0.05% per
annum of the initial principal amount of all series of outstanding Transition Bonds. If a successor servicer that is not affiliated with TXU Electric Delivery is appointed, it will be entitled to receive a servicing fee not in excess of
0.60% per year of the initial principal amount of outstanding Transition Bonds. The servicing fee will be recovered by the Company through the transition charges. In addition, under the servicing agreements, TXU Electric Delivery, as servicer,
must seek interim and nonstandard true-up adjustments when certain conditions are met.

Administration Fees  TXU
Electric Delivery and the Company have also entered into an administration agreement, whereby TXU Electric Delivery provides administrative services to the Company, such as clerical, secretarial and other accounting services, at a fixed fee per
year. As long as TXU Electric Delivery or its affiliate or agent, act as administrator, the annual administration fee will be $50,000, payable in arrears on each payment date. TXU Electric Delivery, as administrator, is limited under the terms of
the administration agreement to total compensation in the form of the annual administration fee of $50,000 plus any fees paid to third parties on behalf of the Company.

Operating Expenses  The Company can recover annual operating expenses, including the annual administration fee to TXU Electric Delivery, of $185,000 annually through the transition charges.



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REQUIRED REPORTS

The Company has included in this annual report on Form 10-K or furnished on its website at
www.txuelectricdelivery.com, as indicated, the following information in respect of each series of outstanding Transition Bonds, as required by the terms of the Indenture relating to the Transition Bonds. Exhibits that are filed as a part of
this Form 10-K are listed in Appendix B.



|                                                                                                                                                                                                                                                                                                                                                                                                |  |                                         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Required Item                                                                                                                                                                                                                                                                                                                                                                                   |  | Filed as Exhibit or Furnished on
Website
|Monthly servicer report (Series 2004-1 for October 2005)                                                                                                                                                                                                                                                                                                                                        |  | Exhibit 99 (a)(1)                       
|Monthly servicer report (Series 2004-1 for November 2005)                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 99 (a)(2)                       
|Monthly servicer report (Series 2004-1 for December 2005)                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 99 (a)(3)                       
|Monthly servicer report (Series 2003-1 for October 2005)                                                                                                                                                                                                                                                                                                                                        |  | Exhibit 99 (a)(4)                       
|Monthly servicer report (Series 2003-1 for November 2005)                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 99 (a)(5)                       
|Monthly servicer report (Series 2003-1 for December 2005)                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 99 (a)(6)                       
|                                                                                                                                                                                                                                                                                                                                                                                                | 
|A statement reporting the balance in the collection accounts as of the end of each quarter                                                                                                                                                                                                                                                                                                      |  | Exhibit 99 (b)                          
|                                                                                                                                                                                                                                                                                                                                                                                                | 
|A quarterly statement affirming that, in all material respects, for each materially significant REP, (a) each REP has been billed in compliance with the requirements outlined in the
Financing Order, (b) each REP has made payments in compliance with the requirements outlined in the Financing Order, and (c) each REP satisfies the creditworthiness requirements of the Financing Order. |  | Exhibit 99 (c)                          
|Statement of Series 2003-1 Outstanding Bond Balances                                                                                                                                                                                                                                                                                                                                            |  | Exhibit 99 (d)(1)                       
|Statement of Series 2004-1 Outstanding Bond Balances                                                                                                                                                                                                                                                                                                                                            |  | Exhibit 99 (d)(2)                       
|Semi Annual Servicers Certificate November 2005                                                                                                                                                                                                                                                                                                                                                |  | Exhibit 99 (e)                          



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##### Index to Financial Statements

Item 1A. RISK FACTORS

Some important factors that investors should consider carefully before deciding
whether to purchase Transition Bonds of any series or class include:

Material Payment Delays or Losses on Transition Bonds May be Experienced Due to the
Limited Sources of Payment for the Transition Bonds and Limited Credit Enhancement

Material payment delays or losses on Transition
Bonds may be experienced if the assets securing Transition Bonds are insufficient to pay the principal amount of such Transition Bonds and accrued interest on those Transition Bonds in full. The only source of funds for payments of interest on and
principal of the Transition Bonds of a particular series is the related collateral for that series. The collateral for a particular series of Transition Bonds is limited to:



| |  |  | the related transition property, including the irrevocable right to impose, collect and receive the related transition charges from customers and to adjust the transition charges at
least annually;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | available funds on deposit in the applicable trust accounts held by the Indenture Trustee;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | contractual rights under the applicable sale agreement, the applicable servicing agreement and other applicable contracts for such series; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any other credit enhancements described in the applicable prospectus supplement related to such series of Transition Bonds.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

The Transition Bonds are not insured or guaranteed by TXU Electric Delivery, including in its capacity as servicer, or by its ultimate parent, TXU Corp.,
any of its affiliates (other than the Company), the Indenture Trustee or any other person or entity. Thus, reliance for payment of the Transition Bonds must be based upon collections of the related transition charges, available funds on deposit in
the applicable trust accounts held by the Indenture Trustee and any other credit enhancement described in the applicable prospectus supplement related to a series of Transition Bonds. The 2003 Bonds and the 2004 Bonds are payable only from
collateral that secures each such series and not from transition charges imposed and collected for any other series of Transition Bonds. The organizational documents of the Company restrict the right to acquire other assets unrelated to the
transactions described herein.

Judicial, Legislative or Regulatory Actions That May Adversely Affect an Investment in Transition Bonds

Legal Action May Reduce the Value of an Investment in Transition Bonds. The transition property is created pursuant to the 1999 Restructuring
Legislation and the Financing Order. Investing in bonds payable from an asset that depends for its existence on legislation with limited history and judicial interpretation is risky.



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##### Index to Financial Statements

Because the securitization financing is a creation of statute, any alteration affecting the validity of
the relevant underlying legislative provisions could directly impact the Transition Bonds. For example, if the provisions that create transition property were invalidated, the validity of the principal assets securing the Transition Bonds could be
eliminated. As another example, if the provisions that allow for the transition charge true-up adjustment process were invalidated, the servicer could be prevented from ensuring that sufficient funds are deposited with the Indenture Trustee for the
scheduled payments on the Transition Bonds. If an invalidation of any relevant underlying legislative provision or Financing Order provision occurs, some or all of the investment in the Transition Bonds may be lost or delays may be experienced in
recovering the investment. The 1999 Restructuring Legislation or any of its provisions, including the provisions relating to securitization, may be directly contested in courts or otherwise become the subject of litigation.

The constitutionality of the securitization provisions of the 1999 Restructuring Legislation under the Texas Constitution was challenged in connection
with a securitization request made by Central Power and Light Company. The constitutionality of the challenged provisions of the 1999 Restructuring Legislation was affirmed by the Travis County, Texas District Court in July 2000. This judgment was
appealed directly to the Texas Supreme Court. On June 6, 2001, the Texas Supreme Court affirmed the judgment of the Travis County, Texas District Court denying this appeal and finding that the securitization provisions are constitutional. The
Texas Supreme Court denied rehearing, with a corrected opinion that did not affect the substance of the original ruling, on August 30, 2001. No petition for writ of certiorari was filed with the United States Supreme Court prior to the deadline
for such a filing.

If in the future a state or federal court were to determine that the relevant provisions of the 1999 Restructuring
Legislation or the Financing Order are unlawful or invalid, that decision could adversely affect the validity of the Transition Bonds or the Companys ability to make payments on the Transition Bonds. In that case, a loss on or delay in
recovery of the investment in the Transition Bonds may be experienced. If the 1999 Restructuring Legislation is overturned, the limitation on appealing the Financing Order may also be overturned. The Company cannot assure that another lawsuit
challenging the validity of the 1999 Restructuring Legislation will not be filed in the future or that, if filed, such lawsuit would not be successful.



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Other states have passed electric utility deregulation laws similar to the 1999 Restructuring
Legislation, and some of these laws have been challenged by judicial actions. To date, none of these challenges has succeeded, but future judicial challenges could be made in other states. An unfavorable decision regarding another states law
would not automatically invalidate the 1999 Restructuring Legislation or the Financing Order, but it might provoke a challenge to the 1999 Restructuring Legislation or the Financing Order. In addition, an unfavorable court decision with respect to
another states statute may establish a legal precedent for a successful challenge to the 1999 Restructuring Legislation depending on the similarity of the other statute and the applicability of the legal precedent to the 1999 Restructuring
Legislation. Furthermore, legal action in other states could heighten awareness of the political and other risks of the Transition Bonds, and in that way may limit the liquidity and value of the Transition Bonds. Therefore, legal activity in other
states may indirectly affect the value of an investment in Transition Bonds.

Neither the Company nor TXU Electric Delivery will indemnify
an investor for any changes in the law, including any amendment or repeal of the 1999 Restructuring Legislation that may affect the value of the Transition Bonds. TXU Electric Delivery may have to indemnify the Company, however, if legal action
based on law in effect at the time of the issuance of the Transition Bonds invalidates the transition property.

Further Legislative
Action May Reduce the Value of An Investment in Transition Bonds. The value of an investment in Transition Bonds may decline due to legislative action. For example:



| | (a) | Future Texas Legislative Action May Invalidate the Transition Bonds or the Transition Property which is the Primary Source of Payments on the Transition Bonds. Unlike many
other states (including California, Massachusetts and Michigan), the citizens of the State of Texas do not have the constitutional right to adopt or revise laws by initiative or referendum. Thus, absent any amendment of the constitution of the State
of Texas, the 1999 Restructuring Legislation cannot be amended or repealed by direct action of the electorate. The Texas legislature may repeal the 1999 Restructuring Legislation, or amend the 1999 Restructuring Legislation in a way that limits or
alters the transition property so as to reduce its value. However, under the 1999 Restructuring Legislation, the State of Texas has pledged for the benefit and protection of TXU Electric Delivery and all financing parties that it (including the
Commission) will not take or permit any action to be taken that would impair the value of the transition property.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Hunton & Williams LLP has rendered its opinion to the Company and TXU Electric Delivery in connection with the issuance of the 2003 Bonds, and rendered a similar opinion to the Company and TXU Electric Delivery in connection with
the 2004 Bonds, that under the laws of the State of Texas and the United States, holders of the Transition Bonds could successfully challenge under the Federal Contracts Clause and the Texas Contracts Clause the constitutionality of any legislation
passed by the State of Texas, including the Commission, which becomes law that repeals or amends the 1999 Restructuring Legislation in such a manner that substantially impairs the value of the rights of the holders of the Transition Bonds or the
transition charges prior to the time that the Transition Bonds are fully paid and discharged, unless it was determined that such repeal or amendment was a legitimate and reasonable exercise of the State of Texas sovereign powers and reasonable
and necessary to serve a significant and legitimate public purpose. Further, Hunton & Williams LLP rendered to the Company and TXU Electric Delivery its opinion that a court would conclude that adverse action by the Texas legislature or the
Commission that repeals the State of Texas pledge to the holders of the Transition Bonds or otherwise adversely affects the transition property would constitute a compensable taking under the Takings Clauses of the United States
and Texas Constitutions, if the court determines that any such action is an intentional action by the Texas legislature or the Commission, effects a regulatory taking of the transition property and is for public use. There is no assurance, however,
that, even if a court were to award just compensation, it would be sufficient to pay the full amount of principal and interest on the Transition Bonds.



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##### Index to Financial Statements

It may be possible for the Texas legislature to enact legislation that would impair the rights and
remedies of bondholders without violating the States pledge, if the legislature acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety or otherwise acts in the valid exercise of the
states police power. Even if the legislature provides an investor with an amount deemed to be just compensation, it may not be sufficient to fully recover the investment. The Company cannot assure an investor of the likelihood or legal
validity of any action of this type by the Texas legislature, or whether the action would be considered a taking. As of the date of this report, the Company is not aware of any pending legislation in the Texas legislature that would affect any
provisions of the 1999 Restructuring Legislation related to transition property or transition charges or the provisions of the Financing Order.

The Company cannot assure an investor that a repeal or amendment to the 1999 Restructuring Legislation will not be sought or adopted or that any action by the State of Texas adverse to an investment in the Transition Bonds will not occur.
In any such event, costly and time-consuming litigation might ensue. Any litigation of this type might adversely affect the price and liquidity of the Transition Bonds and delay the payment of interest and principal and, accordingly, the weighted
average lives of the Transition Bonds.



| | (b) | The 1999 Restructuring Legislation May be Overturned by the Federal Government Without Full Compensation. The United States Congress or a federal agency may decide that it
can preempt the Texas legislature and pass a law or adopt a rule or regulation prohibiting or limiting the collection of transition charges, or otherwise affecting the energy industry. A prohibition of this nature could negate the existence of
transition property. As of the date of this report, neither the House nor the Senate committees having primary relevant jurisdiction have considered, or indicated an intent to consider, the prohibition of the recovery of stranded costs or transition
charges. The Company cannot predict whether any future bills that prohibit the recovery of stranded costs or regulatory assets, or securitized financing for the recovery of stranded costs, will become law or, if they become law, what their final
form or effect will be. The Company can give no assurance that a court would consider the preemption by federal law of the Texas 1999 Restructuring Legislation a taking of property from the Company or from the holders of Transition bonds. Moreover,
even if this preemption of the 1999 Restructuring Legislation and/or the Financing Order by the federal government were considered a taking under the U.S. Constitution for which the government had to pay the estimated market value of the taken
transition property at the time of the taking, the Company can give no assurance that this compensation would be sufficient to pay the full amount of principal of and interest on the Transition Bonds or to pay such amounts on a timely basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company and TXU Electric Delivery have agreed to take legal or administrative action as may be reasonably necessary to
block or overturn any attempts to cause a repeal, modification or amendment to the 1999 Restructuring Legislation, the Financing Order or the transition property.

Neither the Company, TXU Electric Delivery nor any successor seller or servicer will indemnify an investor for any changes in the law that may affect the value of the Transition Bonds. In addition, any action by the
United States Congress or Texas legislature, even if the action is ultimately determined to be invalid, and even if full compensation is ultimately provided to the holders of Transition bonds, might result in costly and time-consuming litigation.
Any litigation of this type might adversely affect the price and liquidity of the Transition Bonds and the dates of payment of interest and principal. Moreover, given the lack of judicial precedent directly on point, and the novelty in Texas of
transition property as security for Transition Bonds, the Company cannot predict the outcome of any litigation with certainty. Accordingly, an investor may suffer a loss on or delay in recovery of an investment in the Transition Bonds.



7



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##### Table of Contents

##### Index to Financial Statements

| | (c) | The Commission May Take Future Actions Which May Reduce the Value of an Investment in Transition Bonds. The 1999 Restructuring Legislation provides that the Financing Order
is irrevocable upon issuance and is not subject to reduction, impairment or adjustment by further action of the Commission, except for the true-up adjustments. The State of Texas (including the Commission) has pledged that it will not take or permit
any action to amend, alter or impair the value of transition property created under the Financing Order, except as permitted in true-up adjustments, until the principal, interest and premium, if any, and any other charges incurred and contracts to
be performed in connection with the Transition Bonds have been paid and performed in full. The Commission guarantees that it will take specific actions pursuant to the Financing Order, as expressly authorized by the 1999 Restructuring Legislation,
to ensure that transition charge revenues are sufficient to pay principal and interest on the Transition Bonds. However, the Commission retains the power to adopt, revise or rescind rules or regulations affecting the seller or a successor utility.
The Commission also retains the power to interpret the Financing Order. Any new or amended regulations or orders by the Commission, for example, could affect the ability of the servicer to collect the transition charges in full and on a timely
basis. The seller has agreed to take legal or administrative action to resist any Commission rule, regulation or decision that would reduce the value of the transition property. The Company cannot assure an investor that the seller would be
successful in its efforts. Thus, future Commission rules, regulations or decisions may adversely affect the rating of the Transition Bonds, their price or the rate of transition charge collections and, accordingly, the amortization of Transition
Bonds and their weighted average lives. As a result, an investor could suffer a loss in connection with an investment in Transition Bonds.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The servicer is required to file with the Commission, on behalf of the Company, any requested adjustments of the transition charges. There is uncertainty associated with investing in Transition Bonds whose timely
payment of principal and interest may depend on true-up adjustments because of the limited judicial or regulatory experience implementing and interpreting the provisions of the 1999 Restructuring Legislation providing for true-up adjustments. The
Company cannot assure that the foregoing adjustment procedures and adjustments will not be challenged. Such challenges could result in costly and time consuming litigation. A shortfall or material delay in transition charge collections due to
inaccurate forecasts, delayed implementation of true-up adjustments or the failure to implement a true-up adjustment could result in payments of principal of and interest on the Transition Bonds not being paid according to the expected amortization
schedule, lengthening the weighted average life of the Transition bonds, or in payments of principal and interest not being made at all. As a result, an investor could suffer a loss in connection with an investment.

On May 20, 2003, various electric cooperatives and municipally-owned utilities in TXU Electric Deliverys service territory filed a petition for
rulemaking with the Commission requesting that the Commission adopt a rule regarding the billing and collection of transition charges from end-use customers in multi-certificated service areas who switched electricity providers after May 1,
1999. TXU Electric Delivery believes that the number of such customers is less than one hundred. The rule proposed by the petitioners only involves the method of collecting transition charges, including the liability in connection therewith, and
would require the transition charges to be billed directly to those customers by the servicer, rather than by the applicable electric cooperative or municipally-owned utility. TXU Electric Delivery has filed a response to the petition stating that
the proposed rule would violate the 1999 Restructuring Legislation and the Financing Order and has filed a complaint with the Commission requesting that the Commission order the electric cooperatives and municipally-owned utilities to implement the
current procedure. The Commission has denied the rulemaking petition. On June 13, 2005, TXU Electric Delivery reached a settlement with the parties and withdrew its complaint without prejudice for refiling. The settlement agreement establishes
a process by which the recovery of transition charges associated with switchover customers will be accomplished.



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##### Table of Contents

##### Index to Financial Statements

Servicing Risks

Inaccurate Forecasting or Unanticipated Delinquencies Could Result in Insufficient Funds to Make Scheduled Payments on the Transition Bonds. The transition charges are generally assessed based on customer
usage, which includes kilowatts demanded and kilowatt-hours of electricity consumed by retail customers in TXU Electric Deliverys service area. TXU Electric Delivery calculates the transition charges for each series of Transition Bonds
according to the methodology approved by the Financing Order authorizing those transition charges. In addition, TXU Electric Delivery, as servicer, is required to file with the Commission periodic adjustment calculations for the transition charges.
These adjustments are intended to provide, among other things, for timely payment of the Transition Bonds, but the frequency of these adjustments is limited to once per year for a standard true-up, no more than semi-annually (if payment dates on
Transition Bonds are semi-annual) or not more than once every three months (if payment dates on the Transition Bonds are quarterly) for an interim true-up, but can be more frequently for a nonstandard true-up. TXU Electric Delivery will generally
base its adjustment calculations on any shortfalls or excess in collections from customers during the prior adjustment period and on projections of future electricity use and customers ability to pay their electric bills. If the servicer
inaccurately forecasts electricity consumption or demand or underestimates customer delinquencies or charge-offs when setting or adjusting the transition charges, or if the effectiveness of the adjustments is delayed for any reason, there could be a
shortfall or material delay in transition charge collections. A shortfall or material delay in transition charge collections could result in payment of principal of and interest on the Transition Bonds not being made according to the expected
amortization schedule, thus lengthening the weighted average life of the Transition Bonds, or in payments of principal and interest not being made at all.

Inaccurate forecasting of electricity consumption by the servicer could result from, among other things:



| |  |  | warmer winters or cooler summers, resulting in less electricity consumption than forecasted;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | general economic conditions being worse than expected, causing customers to migrate from TXU Electric Deliverys service territory or reduce their electricity consumption;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the occurrence of a natural disaster, such as a tornado, or an act of war or terrorism or other catastrophic event unexpectedly disrupting electrical service and reducing usage;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems with energy generation, transmission or distribution resulting from the change in the market structure of the electric industry;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customers ceasing business or departing TXU Electric Deliverys service territory;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | dramatic changes in energy prices resulting in decreased consumption;
| | - |  | ---------------------------------------------------------------------



| |  |  | customers consuming less electricity because of increased conservation efforts or increased electric usage efficiency; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | customers switching to alternative sources of energy, including self-generation of electric power.
| | - |  | --------------------------------------------------------------------------------------------------



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##### Table of Contents

##### Index to Financial Statements

Inaccurate forecasting of delinquencies or charge-offs by the servicer could result from, among other
things:



| |  |  | unexpected deterioration of the economy or the occurrence of a natural disaster, or an act of war or terrorism or other catastrophic event or the declaration of a heat moratorium
causing greater charge-offs than expected or forcing TXU Electric Delivery or a successor distribution company to grant additional payment relief to more customers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a change in law that makes it more difficult for TXU Electric Delivery or a successor distribution company or a REP to terminate service to nonpaying customers, or that requires TXU
Electric Delivery or a successor distribution company or REP to apply more lenient credit standards in accepting customers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the introduction into the energy markets of REPs who collect payments arising from the transition charges, but who may fail to remit retail customer charges to the servicer in a
timely manner; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of REPs to submit accurate and timely information to the servicer regarding their collections and charge-offs. See It May Be Difficult to Collect the Transition
Charges from REPs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are Uncertainties Associated with Collecting the Transition Charges, and There is
Unpredictability Associated with a Deregulated Electricity Market. The predictions associated with billing and collecting transition charges are based primarily on historical collection of payments and forecasted energy usage for which TXU
Electric Delivery has records available. These usage and collection records, however, may not reflect customers payment patterns or energy usage in the competitive market, as competition was introduced in Texas for the first time on
January 1, 2002. These records also reflect limited experience with consolidated billing to REPs. Because that kind of billing is new in Texas, unforeseen factors may adversely affect collection of payments. Therefore, the records that TXU
Electric Delivery has to date may have limited value in calculating the initial transition charges and the proposed true-up adjustments. Furthermore, TXU Electric Delivery, as servicer, has only limited experience administering transition charges.
Risks are associated with TXU Electric Deliverys inexperience in calculating, billing and collecting the transition charges and in managing customer payments on the Companys behalf. A shortfall or material delay in collecting transition
charges could result in payments of principal not being paid according to the expected amortization schedule, lengthening the weighted average life of the Transition Bonds, or in payments of principal and interest not being made at all. As a result,
an investor could suffer a loss in connection with the investment.

An Investment in Transition Bonds Relies on TXU Electric Delivery or
its Successor Acting as Servicer of the Transition Property. TXU Electric Delivery, as servicer, is responsible for billing and collecting transition charges from REPs and for filing with the Commission to adjust these charges. If TXU Electric
Delivery ceases servicing the transition property, it might be hard to find a successor servicer and any transfer of servicing to a successor servicer may adversely affect an investor. Any successor servicer may have less experience than TXU
Electric Delivery and may have less capable billing and/or collection systems than TXU Electric Delivery and may experience difficulties in collecting transition charges and determining appropriate adjustments to transition charges. A successor
servicer might charge fees that, while permitted under the Financing Order, are higher than the fees paid to TXU Electric Delivery as servicer. If TXU Electric Delivery were to be replaced as servicer, any of these factors and others could delay the
timing of payments and may reduce the value of an investment in Transition Bonds. Also, a change in servicer may cause billing and/or payment arrangements to change, which may lead to a period of disruption in which customers continue to remit
payments according to the former arrangement, resulting in delays in collection that could result in delays in payment on the Transition Bonds. Under the TXU Electric Delivery servicing agreements, no servicer default may be waived without the
written consent of both the Commission and holders of a majority of the applicable series of outstanding Transition Bonds. The servicing agreements also grant the independent right to the Commission, in addition to the right of the Indenture Trustee
on behalf of the transition bondholders, to require transfer of the servicing to a successor servicer in the event of any such servicer default.



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##### Table of Contents

##### Index to Financial Statements

Upon a default under a servicing agreement based upon the commencement of a case by or against the
servicer under the United States Bankruptcy Code or similar laws, the Indenture Trustee and the Company may be prevented from effecting a transfer of servicing. The 1999 Restructuring Legislation provides that upon a default under the Transition
Bonds, which may result from servicers failure to make required remittances, the Indenture Trustee would have the right to apply to the Commission for an order that amounts arising from transition charges be transferred to a separate account,
and to apply to the district court of Travis County, Texas for an order for sequestration and payment of revenues arising from the transition charges. However, in the event that the servicer becomes subject to a bankruptcy proceeding, federal
bankruptcy law may prevent the Commission or the Texas court from issuing or enforcing these orders. The Indenture requires the Indenture Trustee to request an order from the bankruptcy court to permit the Commission or the Texas court to issue and
enforce these orders. However, the bankruptcy court may deny the request. The failure of the servicer to make required remittances would likely result in a default under the Indenture.

Under the intercreditor agreement among the Company, TXU Electric Delivery, the Transition Bond parties and the parties to TXU Corp.s receivables
financing program, a replacement servicer would require the agreement of both the Indenture Trustee and the other parties to the intercreditor agreement. If the Indenture Trustee and the other parties are unable to agree on a replacement servicer
within 10 business days, TXU Electric Deliverys independent registered public accounting firm (independent auditors) would appoint the replacement servicer.

It May Be Difficult to Collect the Transition Charges from REPs. As part of the restructuring of the Texas electric industry, retail customers in TXU Electric Deliverys service territory began, as of
January 1, 2002, or in limited circumstances by participating in a pilot project, sooner, purchasing electricity and related services from REPs rather than TXU Electric Delivery. TXU Electric Delivery is no longer permitted to sell electricity
directly to retail customers. TXU Corp. currently has organized an affiliated REP to provide electricity and related services to retail customers in TXU Electric Deliverys service territory. In the future, TXU Corp. may establish additional
affiliated REPs or divest itself of one or more affiliated REPs. REPs, including TXU Corp.s affiliated REP, issue a single bill to retail customers purchasing electricity from a REP. The 1999 Restructuring Legislation requires TXU Electric
Delivery to allow each REP, including TXU Corp.s affiliated REP, pursuant to a tariff to be filed by TXU Electric Delivery and approved by the Commission, to issue a single bill to customers purchasing electricity from that REP. This single
bill includes all charges related to purchasing electricity from the REP, including delivery services from TXU Electric Delivery and the applicable transition charges. Retail customers will pay transition charges to REPs who supply them with
electric power. The REPs will be obligated to remit payments of transition charges to the servicer less a specified percentage allowance for charge-offs or delinquent customer accounts whose service has been terminated, within 35 days of billing
from the servicer, even if the REPs do not collect the charges from retail customers. The charge-off percentage will initially be based on the servicers system-wide charge-off percentage but will then be recalculated annually for each REP in
conjunction with the true-up adjustment process. Each REPs recourse for transition charge payments remitted to the servicer but not collected ultimately from customers will be limited to a credit against future transition charge payments
unless the REP and the servicer agree to alternative arrangements, but in no event will the REP have recourse to the Company or the Companys funds for such payments. In the event that the REP does not pay the transition charges to the
servicer, the servicer will have the right to collect transition charges directly from those retail customers who receive their electricity bills from a REP and have not paid the REP. REPs will bill most retail customers for the transition charges,
and as a result the Company will have to rely on a relatively small number of entities for the collection of the bulk of the transition charges. The servicer will not pay any shortfalls resulting from the failure of any REP to forward transition
charge collections. This may adversely affect an investment in Transition Bonds because:



| |  |  | REPs might use more permissive standards in bill collection and credit appraisal than TXU Electric Deliverys affiliated REP uses, with respect to its customers, or might be
less effective in billing and collecting. As a result, those REPs may not be as successful in collecting the transition charges as the servicer anticipated when setting the transition charge.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

##### Index to Financial Statements

| |  |  | If a REP defaults, the REP must either (i) allow the provider of last resort (POLR) or another certified REP of the customers choosing to assume
responsibility for billing and collecting transition charges from the REPs retail customers, (ii) implement other mutually agreeable arrangements with the servicer or (iii) arrange at the REPs own expense for all amounts owed
by its customers to be paid into a lock box controlled by the servicer. In no event may the servicer directly bill a retail customer for service that was previously billed by the REP and previously paid by that customer to the REP. In addition, if a
replacement REP assumes the billing and collecting responsibility during the period of a REP default, billing and collections may be delayed due to the need to convert to such replacement providers systems or because such replacement provider
may not have adequate or complete information.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A default by a REP which collects from a large number of customers would have a greater impact than a default by a single customer.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | The bankruptcy of a REP may cause a delay in or prohibition of the enforcement of rights against the REP, including the right to payment to the servicer of transition charges
previously collected by the REP, or to comply with financial provisions of the 1999 Restructuring Legislation or other state law.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Any security deposit or other form of credit support made or deposited by a REP may not be sufficient to cover any shortfalls resulting from a failure of that REP to forward
transition charges to TXU Electric Delivery as servicer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

REPs who do not have a long-term unsecured credit rating of at
least BBB- and Baa3 (or the equivalent from S&P and Moodys, respectively), will be required to provide (i) a cash deposit, (ii) an affiliate guarantee, surety bond or letter of credit or (iii) some
combination of these forms of credit support to the Indenture Trustee. The amount of such credit support will equal two months maximum expected collections of transition charges, as determined by the servicer and agreed to by the REP, and any
cash deposits will be deposited in a REP security deposit subaccount. Credit support other than cash must be provided by an investment grade entity. Documents representing any other form of credit support will be held by the Indenture Trustee.
Although the Indenture Trustee will maintain the REP security deposit subaccounts, it will not have an ownership interest in such subaccounts. However, the Indenture Trustee will have a security interest in the Companys rights with respect to
such subaccounts and TXU Electric Delivery, as servicer, has agreed to use its reasonable best efforts to obtain a security agreement from each REP with respect to such REPs security deposit subaccount. In the event that a REP defaults in
remitting transition charges, the servicer may direct the Indenture Trustee to withdraw or seek recourse for the amount of the payment default or, if less, withdraw the full amount of that REPs security deposit from the REP security deposit
subaccount or seek full recourse against any other form of credit support provided for deposit into the general subaccount of the applicable series.

In addition, the 1999 Restructuring Legislation provides for one or more REPs in each designated geographical area to be designated the POLR for such area or for specified classes of customers in such area. The 1999
Restructuring Legislation requires the POLR to offer a standard retail service package of basic electric service to retail customers in its designated area at a fixed, nondiscountable rate approved by the Commission, regardless of the
creditworthiness of the customer. The REP serving as the POLR may face greater difficulty in bill collection than other REPs, and therefore the servicer may face greater difficulty in collecting transition charges from the REP serving as the POLR.



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##### Table of Contents

##### Index to Financial Statements

As noted above, REPs issue a single bill to retail customers purchasing electricity from a REP. This
single bill includes all charges related to purchasing electricity from the REP, delivery services from the transmission and distribution utility and the applicable transition charges. This may increase the risk that customers who have claims
against the REP will attempt to offset those claims against transition charges payable to the servicer or the Company. This also increases the risk that a bankruptcy court in the event of a bankruptcy of a REP would find that the REP has an interest
in the transition property and may make it more difficult to terminate a bankrupt REP or collect transition charges from its customers.

Adjustments to transition charges and, in some cases, credit enhancements (other than swap agreements) will be available to compensate for a failure by a REP to pay transition charges over to the servicer. However, the amount of credit
enhancement funds may not be sufficient to protect an investment.

The Introduction of Competition to Metering Services in January 2004
May Produce Unexpected Problems. Since January 2004, a commercial or industrial retail customer may choose to own its own meter or may choose to have its meter owned by a REP, the transmission and distribution utility, or another person
authorized by the customer. Until other entities are authorized by the Commission, a transmission and distribution utility will continue to provide metering services relating to the installation and removal of meters, meter maintenance, meter
testing and calibration, data collection, and data management, including the transfer of meter data to the settlement agent. ERCOT is required by the Commissions substantive rules to file with the Commission quarterly updates on the
operational readiness of the support systems necessary for the Commission to authorize an entity other than the transmission and distribution utility to provide the metering services described in the preceding sentence. Should the Commission allow
third parties to perform those metering services in TXU Electric Deliverys service territory, there may be unforeseen problems in converting to the third partys metering system, in taking accurate meter readings and in collecting and
processing accurate metering data. Inaccurate metering data may lead to inaccuracies in the calculation and imposition of transition charges and could give rise to disputes between the servicer and REPs regarding payments and payment shortfalls. A
shortfall or material delay in collecting transition charges because of the foregoing could result in payments of principal of the Transition Bonds not being paid according to the expected amortization schedule, lengthening the weighted average life
of the Transition Bonds or payments of principal and interest not being made at all.



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##### Table of Contents

##### Index to Financial Statements

Changes to Billing and Collection Practices May Reduce the Value of An Investment in Transition
Bonds. The Financing Order issued to TXU Electric Delivery under the 1999 Restructuring Legislation sets forth the methodology for determining the amount of the transition charges the Company may impose on each customer. The servicer cannot
change this methodology without approval from the Commission. However, TXU Electric Delivery, as servicer, may set its own billing and collection arrangements with REPs and with those customers from whom it collects the transition charges directly,
provided that these arrangements comply with Commission customer safeguards. For example, to recover part of an outstanding bill, TXU Electric Delivery may agree to extend a REPs or a customers payment schedule or to write-off the
remaining portion of the bill including transition charges. Also, TXU Electric Delivery, or a successor to TXU Electric Delivery as servicer, may change billing and collection practices. Any change to billing and collection practices may have an
adverse or unforeseen impact on the timing and amount of customer payments and may reduce the amount of transition charge collections and thereby limit the Companys ability to make scheduled payments on the Transition Bonds. Separately, the
Commission may require changes to these practices. Any changes in billing and collection regulation might adversely affect the billing terms and the terms of remittances by REPs to the servicer or make it more difficult for the servicer to collect
the transition charges. These changes may adversely affect the value of the Transition Bonds and their amortization, and, accordingly, their weighted average lives.

Limits on Rights to Terminate Service May Make it More Difficult to Collect Transition Charges. An important element of an electric utilitys policies and procedures relating to credit and collections is
the right to terminate or disconnect service on account of nonpayment. The Financing Order provides that the sale of transition property by TXU Electric Delivery includes all rights of TXU Electric Delivery to authorize disconnection of electric
service for nonpayment of transition charges. The Financing Order provides that, if the servicer is billing customers for transition charges, the servicer shall have the right to terminate service for nonpayment of transition charges pursuant to the
Commission rules. Nonetheless, Texas statutory requirements and the rules and regulations of the Commission, which may change from time to time, regulate and control the right to terminate service. In August 2002, the Commission adopted new rules
that significantly changed POLR service. Under the new POLR rules, instead of being transferred to the POLR, nonpaying residential and small nonresidential customers served by affiliated REPs are subject to disconnection. Nonpaying residential and
small nonresidential customers served by nonaffiliated REPs are transferred to the affiliated REP. Nonpaying large non-residential customers can be disconnected by any REP if the customers contract does not preclude it. Thus, within the new
POLR framework, the POLR provides electric service only to customers who request POLR service, whose selected REP goes out of business, or who are transferred to the POLR by other REPs for reasons other than nonpayment. Effective June 1, 2004,
REPs that meet certain conditions will be permitted to request disconnection of nonpaying customers. TXU Electric Deliverys affiliated REP and the other REPs may not terminate service to a customer on (1) a weekend day, (2) a day
when the previous days high temperature did not exceed 32 degrees Fahrenheit and is predicted to remain at or below that level for the next 24 hours or (3) a day for which the National Weather Service issues a heat advisory for any county
in the service territory, or when a heat advisory has been issued for either of the two prior calendar days. As a result, REPs must provide service to these customers during this period without recouping transition charges from these customers. This
could cause a REP to go out of business, which may reduce the amount of transition charge collections available for payments on the Transition Bonds, although any associated reduction in payments would be factored into the transition charge true-up
adjustments.



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##### Table of Contents

##### Index to Financial Statements

Future Adjustments to Transition Charges by Customer Class May Result in Insufficient Collections.
The customers who will be responsible for paying transition charges are divided into customer classes. Transition charges will be allocated among customer classes and assessed in accordance with the formula required under the 1999 Restructuring
Legislation and specified in the Financing Order. This allocation is based in part upon the existing rate structure of each customer class. Adjustments to the transition charges will also be made separately to each customer class. A shortfall in
collections of transition charges in one customer class may be corrected by making adjustments to the transition charges payable by that customer class and any other customer class. Some customer classes have a significantly smaller number of
customers than other customer classes. If customers in a class fail to pay transition charges, the servicer may have to substantially increase the transition charges for the remaining customers in that customer class and for other customer classes.
The servicer may also have to take this action if customers representing a significant percentage of a class cease to be customers. These increases could lead to further failures by the remaining customers to pay transition charges, thereby
increasing the risk of a shortfall in funds to pay the Transition Bonds.

The large industrial and the interruptible customer classes
consist of a small number of large customers. The failure of the customers in these customer classes to pay transition charges could lead to increases in transition charges to other members of this class as well as other customer classes. In
addition, with the issuance of each additional series of Transition Bonds, the transition charges imposed on each customer class may increase. These increases could lead to failures by customers to pay transition charges. In either case, these
increases could increase the risk of a shortfall in funds to pay the Transition Bonds.

Risks Associated with the Unusual Nature of the Transition
Property

TXU Electric Delivery May Not Recover Transition Charges More Than 15 Years from the Original Issue Date of the Series of
Transition Bonds Relating to Those Transition Charges.TXU Electric Delivery, or any successor servicer, is prohibited from recovering transition charges after the fifteenth anniversary of the date of issuance of the related Transition Bonds,
but the Company may continue to recover transition charges incurred during the applicable 15-year period through the use of judicial process. Amounts collected from transition charges imposed for electricity consumed through the fifteenth
anniversary of the date of issuance of the related Transition Bonds, or from credit enhancement funds, may not be sufficient to repay the Transition Bonds in full. If that is the case, no other funds will be available to pay the unpaid balance due
on the Transition Bonds.

Foreclosure of the Indenture Trustees Lien on the Transition Property May Not Be Practical. Under
the 1999 Restructuring Legislation and the Indenture, the Indenture Trustee or the bondholders have the right to foreclose or otherwise enforce the lien on transition property securing the Transition Bonds. However, in the event of foreclosure,
there is likely to be a limited market, if any, for the transition property. Therefore, foreclosure may not be a realistic or practical remedy, and the value of an investment in Transition Bonds may be materially reduced.

Risks Associated with Potential Bankruptcy Proceedings

The Servicer Will Commingle the Transition Charges with Other Revenues, Which May Obstruct Access to the Transition Charges in Case of the Servicers Bankruptcy. The servicer does not segregate the transition charges from its
general funds. The transition charges are segregated only when the servicer pays them to the Indenture Trustee and the Indenture Trustee deposits them to the applicable collection account. The servicer is permitted to remit collections on a monthly
basis if TXU Electric Delivery or a successor to TXU Electric Deliverys electric public utility business remains the servicer, no servicer default has occurred, and if:



| |  |  | the servicer meets the credit ratings requirements of the applicable rating agencies; or
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the servicer provides credit enhancement satisfactory to the applicable rating agencies to assure remittance by the servicer to the Indenture Trustee of the transition charges it
collects.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

##### Index to Financial Statements

If these conditions are not satisfied, the servicer is required to remit collections to the Indenture
Trustee within two business days of receipt. Despite these requirements, the servicer might fail to pay the full amount of the transition charges to the Indenture Trustee or might fail to do so on a timely basis. This failure, whether voluntary or
involuntary, could materially reduce the amount of transition charge collections available to make payments on the Transition Bonds.

The
1999 Restructuring Legislation provides that the Companys rights to the transition property are not affected by the commingling of these funds with any other funds of the servicer. In a bankruptcy of the servicer, however, a bankruptcy court
might rule that federal bankruptcy law takes precedence over the 1999 Restructuring Legislation and does not recognize the Companys right to collections of the transition charges that are commingled with other funds of the servicer as of the
date of bankruptcy. If so, the collections of the transition charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the Transition Bonds. In this case, the Company would have only a general unsecured
claim against the servicer for those amounts. This decision could cause material delays in payment or losses on the Transition Bonds and could materially reduce the value of an investment in Transition Bonds.

REPs Will Commingle the Transition Charges with Other Revenues, Which May Obstruct Access to the Transition Charges in Case of a REPs
Bankruptcy. A REP is not required to segregate the transition charges it collects from its general funds, either on a series basis or otherwise, but will be required to remit to the servicer amounts billed to it for transition charges, less an
amount relating to expected customer charge-offs, within 35 days of billing by the servicer. A REP nonetheless might fail to pay the full amount of the transition charges to the servicer or might fail to do so on a timely basis. This failure,
whether voluntary or involuntary, could materially reduce the amount of transition charge collections available to make payments on one or more series of Transition Bonds.

The 1999 Restructuring Legislation provides that the Companys rights to the transition property are not affected by the commingling of these funds
with other funds. In a bankruptcy of a REP, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the 1999 Restructuring Legislation and does not recognize the Companys right to receive the collected
transition charges that are commingled with other funds of a REP as of the date of bankruptcy. If so, the collected transition charges held by a REP prior to or as of the date of bankruptcy would not be available to the Company to pay amounts owing
on the Transition Bonds. In this case, the Company would have only a general unsecured claim against that REP for those amounts. This decision could cause material delays in payment or losses on the Transition Bonds and could materially reduce the
value of an investment in Transition Bonds, especially with respect to a default by TXU Energy Holdings, the largest REP in TXU Electric Deliverys service territory.

If a REP Enters Bankruptcy Proceedings, Transition Charge Payments Made by that REP to the Servicer May Constitute Preferences, and the Servicer May
be Required to Return such Funds to the Bankruptcy Estate of the REP. In the event of a bankruptcy of a REP, a party in interest may take the position that the remittance of funds prior to bankruptcy to the servicer, pursuant to the Financing
Order, constitutes a preference under bankruptcy law. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could
be required to be returned to the bankruptcy estate of the REP by the Company or the servicer. To the extent that transition charges have been commingled with the general funds of the REP, the risk that a court would hold that a remittance of funds
was a preference would increase. The Company or the servicer may be considered an insider with any REP that is affiliated with the Company or the servicer. If the servicer or the Company are considered to be an insider of the
REP, any such remittance made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, the Company or the servicer would merely be an
unsecured creditor of the REP. If any funds were required to be returned to the bankruptcy estate of the REP, the Company would expect that the amount of any future transition charges would be increased through the true-up mechanism to recover the
amount returned.



16



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##### Table of Contents

##### Index to Financial Statements

If the Servicer Enters Bankruptcy Proceedings, the Collections of the Transition Charges Held By the
Servicer as of the Date of Bankruptcy May Constitute Preferences, Which Means These Funds Would Be Unavailable to Pay Amounts Owing on the Transition Bonds. In the event of a bankruptcy of the servicer, a party in interest may take the position
that the remittance of funds prior to bankruptcy of the servicer, pursuant to the Financing Order, constitutes a preference under bankruptcy law. If a court were to hold that the remittance of funds constitutes a preference, any such remittance
within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that transition charges have been commingled with the general funds of
the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. In such case, the Company would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy
estate of the servicer, the Company would expect that the amount of any future transition charges would be increased through the true-up mechanism to recover the amount returned.

Bankruptcy of TXU Electric Delivery or any Successor Seller Could Result in Losses or Delays in Payments on the Transition Bonds. The 1999
Restructuring Legislation and the Financing Order provide that as a matter of Texas state law:



| |  |  | the rights and interests of a selling utility under a financing order, including the right to impose, collect and receive transition charges, are contract rights of the seller;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the seller may make a present transfer of its rights under a financing order, including the right to impose, collect and receive future transition charges that retail customers do
not yet owe;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | upon the transfer to the Company, the rights will become transition property and transition property constitutes a present property right, even though the imposition and collection
of transition charges depend on further acts that have not yet occurred; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a transfer of the transition property from the seller, or its affiliate, to the Company is a true sale of the transition property, not a pledge of the transition property to secure
a financing by the seller.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These four provisions are important to maintaining payments on the Transition Bonds in accordance
with their terms during any bankruptcy of TXU Electric Delivery. In addition, the Company has structured the transaction with the objective of keeping the Company legally separate from TXU Electric Delivery and its affiliates in the event of a
bankruptcy of TXU Electric Delivery or any such affiliate.

A bankruptcy court generally follows state property law on issues such as those
addressed by the state law provisions described above. However, a bankruptcy court has authority not to follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a
TXU Electric Delivery bankruptcy refused to enforce one or more of the state property law provisions described above for this reason, the effect of this decision on a beneficial owner of Transition Bonds might be similar to the treatment to be
received in an TXU Electric Delivery bankruptcy if the Transition Bonds had been issued directly by TXU Electric Delivery.

The Company has
taken steps together with TXU Electric Delivery, as the seller of the transition property, to reduce the risk that in the event the seller or an affiliate of the seller were to become the debtor in a bankruptcy case, a court would order that the
Companys assets and liabilities be substantively consolidated with those of TXU Electric Delivery or an affiliate. These steps include the fact that the Company is a separate special purpose limited liability company, and the Companys
organizational documents prevent the Company from commencing a voluntary bankruptcy case without the unanimous affirmative vote of all the Companys managers, including the managers independent of TXU Electric Delivery. Nonetheless, these steps
may not be completely effective, and thus if TXU Electric Delivery or an affiliate of the seller were to become a debtor in a bankruptcy case, a court might order that the Companys assets and liabilities be consolidated with those of TXU
Electric Delivery or an affiliate. A decision by the bankruptcy court that, despite the separateness of the



17



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##### Table of Contents

##### Index to Financial Statements

Company and TXU Electric Delivery, the two companies should be consolidated, would have a similar effect on a beneficial
owner of Transition Bonds. Either decision could cause material delays in payment of, or losses on, the Transition Bonds and could materially reduce the value of an investment in such bonds. For example:



| |  |  | the Indenture Trustee could be prevented from exercising any remedies against TXU Electric Delivery on an investors behalf, from recovering funds to repay the Transition
Bonds, from using funds in the accounts under the Indenture to make payments on the Transition Bonds or from replacing TXU Electric Delivery as servicer, without permission from the bankruptcy court;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the bankruptcy court could order the Indenture Trustee to exchange the transition property for other property, which might be of lower value;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | tax or other government liens on TXU Electric Deliverys property that arose after the transfer of the transition property to the Company might nevertheless have priority over
the Indenture Trustees lien and might be paid from transition charge collections before payments on the Transition Bonds;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Indenture Trustees lien might not be properly perfected in transition property collections that were commingled with other funds TXU Electric Delivery collected from its
customers or REPs prior to or as of the date of TXU Electric Deliverys bankruptcy or commingled in the general funds of TXU Electric Deliverys affiliated REP as of the date of that REPs bankruptcy, or might not be properly
perfected in all of the transition property, and the lien could therefore be set aside in the bankruptcy, with the result that the Transition Bonds would represent only general unsecured claims against TXU Electric Delivery;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the bankruptcy court might rule that neither the Companys property interest nor the Indenture Trustees lien extends to transition charges in respect of electricity
consumed after the commencement of TXU Electric Deliverys bankruptcy case, with the result that the Transition Bonds would represent only general unsecured claims against TXU Electric Delivery;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | neither TXU Electric Delivery nor the Company may be obligated to make any payments on the Transition Bonds during the pendency of the bankruptcy case and/or pay interest accruing
after the commencement of the case;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TXU Electric Delivery may be able to alter the terms of the Transition Bonds as part of its plan of reorganization;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the bankruptcy court might rule that the transition charges should be used to pay a portion of the cost of providing electric service; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the bankruptcy court might rule that the remedy provisions of the applicable sale agreement are unenforceable, leaving the Company with a claim of actual damages against TXU
Electric Delivery that may be difficult to prove.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Furthermore, if TXU Electric Delivery enters into bankruptcy, it may be
permitted to stop acting as servicer and it may be difficult to find a third party to act as servicer. The failure of a servicer to perform its duties or the inability to find a successor servicer may cause payment delays or losses on an investment
in Transition Bonds. Also, the mere fact of a servicer or REP bankruptcy proceeding could have an adverse effect on the resale market for the Transition Bonds and on the value of the Transition Bonds.



18



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##### Table of Contents

##### Index to Financial Statements

The Sale of the Transition Property Could Be Construed as a Financing and Not a Sale in a Case of TXU
Electric Deliverys Bankruptcy Which Could Delay or Limit Payment on the Transition Bonds. The 1999 Restructuring Legislation provides that the characterization of a transfer of transition property as a sale or other absolute transfer will
not be affected or impaired in any manner by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. The Company and TXU Electric Delivery have treated the transaction as a sale under applicable
law, although for financial reporting and federal and state income and franchise tax purposes the transaction has been treated as a financing and not a sale. In the event of a bankruptcy of TXU Electric Delivery, a party in interest in the
bankruptcy may assert that the sale of the transition property to the Company was a financing transaction and not a sale or other absolute transfer and that the treatment of the transaction for financial reporting and tax purposes as a financing and
not a sale lends weight to that position. In a recent bankruptcy court case involving LTV Steel Company, the debtor obtained an interim emergency motion to use collections from accounts and inventory that it had sold on the grounds that the sales
were in fact disguised financings. The circumstances under which the LTV Steel Company ruling would be followed by other courts are not certain. If a court were to adopt reasoning similar to that of the court in the LTV Steel case or were otherwise
to characterize the transaction as a financing, the Company would be treated as a secured creditor of TXU Electric Delivery in the bankruptcy proceedings. Although the Company would in that case have a security interest in the transition property,
the Company would not likely be entitled to access to the transition charge collections during the bankruptcy and would be subject to the typical risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in
the immediately preceding risk factor. As a result, repayment on the Transition Bonds could be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to the Company of
transition charge collections and therefore the amount and timing of funds available to the Company to make payments on the Transition Bonds.

Claims Against TXU Electric Delivery or any Successor Seller May Be Limited in the Event of a Bankruptcy of the Seller. If the seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by the Company
against the seller under the applicable sale agreement and the other documents executed in connection with the applicable sale agreement would be unsecured claims and would be subject to being discharged in the bankruptcy case. In addition, a party
in interest in the bankruptcy may request that the bankruptcy court estimate any contingent claims that the Company have against the seller. That party may then take the position that these claims should be estimated at zero or at a low amount
because the contingency giving rise to these claims is unlikely to occur. If the seller were to become a debtor in a bankruptcy case and the indemnity provisions of the applicable sale agreement were triggered, a party in interest in the bankruptcy
might challenge the enforceability of the indemnity provisions. If a court were to hold that the indemnity provisions were unenforceable, the Company would be left with a claim for actual damages against the seller based on breach of contract
principles. The actual amount of these damages would be subject to estimation and/or calculation by the court. The Company cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, the Company
cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving the seller.

A Bankruptcy of TXU Electric Delivery or Any Successor Seller Would Limit the Remedies Available to the Indenture Trustee. Upon an event of default under the Indenture, the 1999 Restructuring Legislation
permits the Indenture Trustee to enforce the security interest in the transition property in accordance with the terms of the Indenture. In this capacity, the Indenture Trustee is permitted to request a Travis County, Texas district court to order
the sequestration and payment to bondholders of all revenues arising with respect to the transition property. There can be no assurance, however, that the Travis County, Texas district court would issue this order after a seller bankruptcy in light
of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the Indenture Trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by the
Texas court, and an order requiring an accounting and segregation of the revenues arising from the transition property. There can be no assurance that a court would grant either order.



19



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##### Table of Contents

##### Index to Financial Statements

Other Risks Associated with an Investment in the Transition Bonds

TXU Electric Deliverys Obligation to Indemnify the Company for a Breach of a Representation or Warranty May Not Be Sufficient to Protect an
Investors Investment. If the seller breaches a representation or warranty in the applicable sale agreement, or the servicer (initially TXU Electric Delivery) breaches a representation or warranty under the applicable servicing agreement,
it is obligated to indemnify the Company and the Indenture Trustee for any liability, obligation, claim, action, suit or payment resulting from that breach, as well as any reasonable costs and expenses incurred. TXU Electric Delivery will not be
obligated to repurchase the transition property in the event of a breach of any representation or warranty regarding the transition property, and neither the Indenture Trustee nor the holders of Transition Bonds will have the right to accelerate
payments on the Transition Bonds because of such a breach (absent an event of default under the Indenture). The sale agreements will provide that any change in the law by legislative enactment, constitutional amendment or voter initiative that
renders any of the representations and warranties untrue would not constitute a breach under each sale agreement. TXU Electric Delivery or any successor entity acting as seller or servicer may not have sufficient funds available to satisfy its
indemnification obligations to the Company and to the Indenture Trustee; therefore TXU Electric Delivery may not be able to pay investors amounts owing on the Transition Bonds in full. If TXU Electric Delivery becomes obligated to indemnify holders
of Transition Bonds, the ratings on the Transitions Bonds will likely be downgraded since holders of Transition Bonds will be unsecured creditors of TXU Electric Delivery with respect to any of these indemnification amounts. TXU Electric Delivery
will not indemnify any person for any liability, obligation, claim, action, suit or payment resulting solely from a downgrade in the ratings on the Transition Bonds.

An Investor Might Receive Principal Payments Later, or Earlier, Than Expected. The amount and the rate of collection of transition charges that TXU Electric Delivery will collect from each customer class will
partially depend on actual electricity usage and the amount of collections and write-offs for that customer class. The amount and the rate of collection of transition charges, together with the transition charge adjustments described above, will
generally determine whether there is a delay in the scheduled repayments of Transition Bond principal. If TXU Electric Delivery collects transition charges at a slower rate than expected from any customer class or REP, it may have to request
adjustments to the transition charges. If those adjustments are not timely and accurate, investors may experience a delay in payments of principal and interest or a material decrease in the value of their investment. If there is an acceleration of
the Transition Bonds before maturity, all classes will be paid pro rata, therefore some classes may be paid earlier than expected and some classes may be paid later than expected.

Technological Change May Make Alternative Energy Sources More Attractive. The continuous process of technological development may result in the
introduction for an increasing number of retail consumers of economically attractive alternatives to purchasing electricity through TXU Electric Deliverys distribution facilities. Previously, only the largest industrial and institutional users
with large process steam requirements could use cogeneration or self-generation installations cost-effectively. However, manufacturers of self-generation facilities continue to develop smaller-scale, more fuel-efficient generating units which can be
cost-effective options for retail consumers with smaller electric energy requirements. If such facilities have rated



20



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##### Table of Contents

##### Index to Financial Statements

capacities of 10 megawatts or less, consumers that rely on such facilities do not generally have to pay transition
charges under provisions of the 1999 Restructuring Legislation. Consumers may avoid a portion of their overall transition charge bill by installing new on-site generation of over 10 megawatts that reduces consumption through TXU Electric
Deliverys transmission and distribution system up to 12.5%. Technological developments may allow greater numbers of retail consumers to avoid transition charges under such provisions, which may reduce the total number of retail consumers from
which transition charges will be collected. A reduction in the number of payers of transition charges could result in delays or a failure to make payments of interest on and principal of the Transition Bonds.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

The Company does not own any tangible property, other than books and records. The
primary asset of the Company is the transition property described in Item 1. Business.

Item 3. LEGAL PROCEEDINGS

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



21



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##### Table of Contents

##### Index to Financial Statements

PART II

Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable. All
outstanding common membership interests in the Company are held by TXU Electric Delivery.

Item 6. SELECTED FINANCIAL DATA

Item 6 is not presented herein as TXU Electric Delivery meets the
conditions set forth in General Instruction (I) (1) (a) and (b).

Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
information required hereunder for the Company in its reduced format as allowed for under the General Instruction (I)(1)(a) and (b) 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

None.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required hereunder for the Company
is set forth under Report of Independent Registered Public Accounting Firm, Statements of Income, Cash Flows, Balance Sheets, Members Interest and Notes to Financial Statements included in Appendix A of this report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9a. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of the Companys management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect as of December 31,
2005. Based on the evaluation performed, the Companys management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective.

There have been no changes in the Companys internal controls over financial reporting that have occurred during the most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

Item 9b. OTHER INFORMATION

None.



22



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##### Index to Financial Statements

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item 10 is not presented herein as the
Company meets the conditions set forth in General Instruction (I) (1) (a) and (b).

Item 11. EXECUTIVE COMPENSATION

Item 11 is not presented herein as the Company meets the conditions
set forth in General Instruction (I) (1) (a) and (b).

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 12 is not presented herein as the Company meets the conditions set forth in General Instruction (I) (1) (a) and (b).

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item 13 is not presented herein as the
Company meets the conditions set forth in General Instruction (I) (1) (a) and (b).



23



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##### Index to Financial Statements

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company has no Audit Committee of its own, but
relies upon the TXU Corp Audit Committee (Committee). The Committee has adopted a policy related to the engagement of TXU Corp.s independent auditor. The policy provides that in addition to the audit of the financial statements, related
quarterly reviews and other audit services, and providing services necessary to complete SEC filings, Deloitte & Touche LLP may be engaged to provide nonaudit services described herein. Prior to engagement, all services to be rendered by
the independent auditors must be authorized by the Committee in accordance with preapproval procedures which are defined in the policy. The preapproval procedures require (i) the annual review and preapproval by the Committee of all anticipated
audit and nonaudit services; and (ii) the quarterly preapproval by the Committee of services, if any, not previously approved and the review of the status of previously approved services. The Committee may also approve certain ongoing nonaudit
services not previously approved in limited circumstances provided for in the SEC rules. All services performed by the independent auditor in 2005 were preapproved.

The policy defines those nonaudit services which Deloitte & Touche LLP may also be engaged to provide as follows: (i) audit-related services (e.g. due diligence, accounting consultations and audits
related to mergers, acquisitions and divestitures, employee benefit plan audits; accounting and financial reporting standards consultation; internal control reviews; and the like); (ii) tax-related services (e.g. tax compliance; general tax
consultation and planning; tax advice related to mergers; acquisitions, and divestitures and the like); and (iii) other services (e.g. process improvement, review and assurance; litigation and rate case assistance; general research; forensic
and investigative services; training services and the like). The policy prohibits the engagement of Deloitte & Touche LLP to provide (i) bookkeeping or other services related to the accounting records or financial statements of the
Company, (ii) financial information systems design and implementation services; (iii) appraisal or valuation services, fairness opinions, or contribution in-kind reports; (iv) actuarial services; (v) internal audit outsourcing
services; (vi) management or human resources functions; (vii) broker-dealer, investment advisor, or investment banking services; (viii) legal and expert services unrelated to the audit; and (ix) any other services that the Public
Company Accounting Oversight Board determines, by regulation, to be impermissible. In addition, the policy prohibits the independent auditor from providing tax or financial planning advice to any officer of the Company.

Compliance with the Committees policy relating to the engagement of Deloitte & Touche LLP will be monitored on behalf of the Committee by
TXU Corp.s chief internal audit executive. Reports from Deloitte & Touche LLP and the chief internal audit executive describing the services provided by the firm and fees for such services will be provided to the Committee no less
often than quarterly.

For the years ended December 31, 2005 and 2004, fees billed to the Company by Deloitte & Touche LLP,
the member firms of Deloitte Touche Tohmatsu and their respective affiliates were as follows:



|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                      |  | 2005 |         | 2004
|Audit Fees. Fees for services necessary to perform the annual audit, review SEC filings, fulfill statutory and other attest service requirements and provide comfort letters and
consents                                                                                                                                                                                             |  | $    | 112,000 |      | $ | 98,000 
|                                                                                                                                                                                                                                                                                                                                                                                      |  |     
|Audit-Related Fees.Fees for services including employee benefit plan audits, due diligence related to mergers, acquisitions and divestitures, accounting consultations and audits in
connection with acquisitions, internal control reviews, attest services that are not required by statute or regulation, and consultation concerning financial accounting and reporting standards |  |      |        |      |   | 38,000 
|                                                                                                                                                                                                                                                                                                                                                                                      |  |     
|Tax Fees.Fees for tax compliance, tax planning, and tax advice related to mergers and acquisitions, divestitures, and communications with and requests for rulings from taxing
authorities                                                                                                                                                                                            |  |      |        |      |   |       
|                                                                                                                                                                                                                                                                                                                                                                                      |  |     
|All Other Fees.Fees for services including process improvement reviews, forensic accounting reviews, litigation and rate case assistance                                                                                                                                                                                                                                              |  |      |        |      |   |       
|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |         |      |   |        
|Total                                                                                                                                                                                                                                                                                                                                                                                 |  | $    | 112,000 |      | $ | 136,000
|                                                                                                                                                                                                                                                                                                                                                                                      |  |      |         |      |   |        



24



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##### Index to Financial Statements

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|(a) | Documents filed as part of this Report:
|--- | ---------------------------------------



|                                                                                                  |  |     
|------------------------------------------------------------------------------------------------- |  | ----
|Financial Statements (included in Appendix A to this report):                                     |  |     
|                                                                                                  | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations             |  | A-2 
|Report of Independent Registered Public Accounting Firm                                           |  | A-7 
|Statements of Income for the years ended December 31, 2005, 2004 and 2003                         |  | A-8 
|Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003                     |  | A-9 
|Balance Sheets, December 31, 2005 and 2004                                                        |  | A-10
|Statements of Members Interest for each of the three years in the period ended December 31, 2005 |  | A-11
|Notes to Financial Statements                                                                     |  | A-12

The financial statements 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) | Exhibits furnished or filed as a part of this report:
|--- | -----------------------------------------------------

Included in Appendix B to this report.



25



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##### Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, TXU Electric Delivery Transition Bond Company LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|                    |  |                                                   |  |                                                                                              
|------------------- |  | ------------------------------------------------- |  | ---------------------------------------------------------------------------------------------
|                    |  | TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC
|                    | 
|                    |  |                                                  
|Date: March 9, 2006 |  |                                                   |  |                                                                                              
|                    |  | By                                                |  | /s/ T. L. BAKER                                                                              
|                    |  |                                                   |  | (T. L. Baker, as Chairman and Chief Executive of TXU Electric Delivery Company, the Servicer)

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 Delivery Transition Bond Company LLC and in the capacities and on the date indicated.



|                                                                       |  |                              |  |              
|---------------------------------------------------------------------- |  | ---------------------------- |  | -------------
|Signature                                                              |  | Title                        |  | Date         
|/s/ T. L. BAKER                                                        |  | Principal Executive          |  |              
|(T. L. Baker, Chairman and Chief Executive)                            |  | Officer and Manager          |  | March 9, 2006
|                                                                       |  |                             
|/s/ H. DAN FARELL                                                      |  | Principal Financial Officer  |  | March 9, 2006
|(H. Dan Farell, Senior Vice President and Principal Financial Officer) |  |                              |  |              
|                                                                       |  |                             
|/s/ STAN SZLAUDERBACH                                                  |  | Principal Accounting Officer |  | March 9, 2006
|(Stan Szlauderbach, Senior Vice President)                             |  |                              |  |              
|                                                                       |  |                             
|/s/ DAVID A. CAMPBELL                                                  |  | Manager                      |  | March 9, 2006
|(David A. Campbell)                                                    |  |                              |  |              
|                                                                       |  |                             
|/s/ KIRK R. OLIVER                                                     |  | Manager                      |  | March 9, 2006
|(Kirk R. Oliver)                                                       |  |                              |  |              
|                                                                       |  |                             
|/s/ ERIC H. PETERSON                                                   |  | Manager                      |  | March 9, 2006
|(Eric H. Peterson)                                                     |  |                              |  |              



26



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##### Index to Financial Statements

Appendix A

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

INDEX TO FINANCIAL INFORMATION

December 31, 2005



|                                                                                      |  |     
|------------------------------------------------------------------------------------- |  | ----
|                                                                                      |  | Page
|                                                                                      | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  | A-2 
|                                                                                      | 
|Report of Independent Registered Public Accounting Firm                               |  | A-7 
|                                                                                      | 
|Financial Statements:                                                                 |  |     
|                                                                                      | 
|Statements of Income                                                                  |  | A-8 
|                                                                                      | 
|Statements of Cash Flows                                                              |  | A-9 
|                                                                                      | 
|Balance Sheets                                                                        |  | A-10
|                                                                                      | 
|Statements of Members Interest                                                       |  | A-11
|                                                                                      | 
|Notes to Financial Statements                                                         |  | A-12



A-1



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##### Table of Contents

##### Index to Financial Statements

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

BUSINESS

The Company is a bankruptcy remote special
purpose Delaware limited liability company, wholly-owned by TXU Electric Delivery. TXU Electric Delivery is a wholly-owned subsidiary of TXU Corp. TXU Electric Delivery is a regulated electricity transmission and distribution company principally
engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of Texas.

The Company was
organized in November 1999 for the limited purposes of issuing Transition Bonds and purchasing and owning transition property (as defined in the 1999 Restructuring Legislation) acquired from TXU Electric Delivery. Transition property represents the
irrevocable right to impose, collect and receive transition charges in an amount sufficient to pay the interest, fees, and expenses associated with the Transition Bonds, and the aggregate principal amount of the Transition Bonds. For legal purposes,
the transition property has been sold to the Company by TXU Electric Delivery. The Company had no operations until August 2003. In connection with the acquisition of the transition property, the Company:



| |  |  | registered and issued the Transition Bonds;
| | - |  | -------------------------------------------



| |  |  | pledged its interest in the transition property and other Transition Bond collateral to secure the Transition Bonds;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | has agreed to make debt service payments on the Transition Bonds; and
| | - |  | ---------------------------------------------------------------------



| |  |  | has agreed to perform other activities that are necessary, suitable or convenient to accomplish these purposes.
| | - |  | ---------------------------------------------------------------------------------------------------------------

The Company is structured and is operated in a manner such that in the event of bankruptcy proceedings against TXU Electric Delivery, the assets of the
Company will not be consolidated into the bankruptcy estate of TXU Electric Delivery. TXU Electric Delivery is not the owner of the transition property described herein, and the assets of the Company are not available to pay creditors of TXU
Electric Delivery or any of its affiliates.

Also see Note 1 to Financial Statements.



A-2



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##### Table of Contents

##### Index to Financial Statements

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Companys significant accounting policies are detailed in Note 1 to Financial Statements. The Company follows accounting principles generally
accepted in the US.

Revenue Recognition The Companys revenue includes an estimate for the transition charges
billed to REPs by TXU Electric Delivery, as servicer, from the meter reading date to the end of the period (unbilled revenues). The unbilled revenue is based on actual daily revenues for the most recent period, adjusted for weather and other
measurable factors that affect consumption, applied to the number of unmetered days through the end of the period. Accrued unbilled revenues totaled $1,265,590, $4,139,808 and $2,534,155 at December 31, 2005, 2004 and 2003, respectively.

Restricted Cash  The Company has established collection accounts with the Indenture Trustee for each series of
Transition Bonds. Transition charge collection and payment amounts are applied or withdrawn, as required by the Indenture, from one of the following four subaccounts:



| |  |  | General  holds funds to pay allocated Company expenses and make payments and transfers including principal, interest and other amounts as required;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Over-collateralization  holds funds to cover any shortfall in transition charge collections. Required funds in the subaccount will be collected, as scheduled, by the servicer
over the expected life of the Transition Bonds and are scheduled to ultimately equal 0.50% of the initial principal amount of the Transition Bonds;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reserve  holds funds in excess of the amount necessary to make payments specified from general account described above;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital  contains the initial capital contribution of 0.50% of the principal amount of each series of Transition Bonds. Funds in this account are available to the Indenture
Trustee to make payments in the event the other three subaccounts are not sufficient. Any funds used from this account are replenished by the Indenture Trustee from subsequent excess transition charge collections. Required funds in the subaccount
are equal to 0.50% of the initial principal amount of the Transition Bonds.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has also established an Indenture
Trustee reserve account with the Indenture Trustee to provide for the payment of fees incurred by the Indenture Trustee associated with the Transition Bonds in excess of the annual operating expenses allowed to be collected through the transition
charges.



A-3



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##### Table of Contents

##### Index to Financial Statements

RESULTS OF OPERATIONS

The financial statements of the Company reflect the receipt of cash on billed revenues, the amortization of the transition property and the disbursement of cash to make debt service payments on the Transition Bonds.
The results of operations for the period ended December 31, 2005 included twelve months of revenues, expenses and cash flow activity related to both the 2004 Bonds and the 2003 Bonds. The results of operations for the periods ended
December 31, 2004 and 2003 included revenues, expenses and cash flow activity for that period the 2004 Bonds and 2003 Bonds were outstanding.

Operating Revenues



|                              |  |                         |             |      |   |             |  |   |           
|----------------------------- |  | ----------------------- | ----------- | ---- | - | ----------- |  | - | ----------
|                              |  | Year Ended December 31,
|                              |  | 2005                    |             | 2004 |   | 2003       
|Billed revenues               |  | $                       | 150,329,788 |      | $ | 102,256,006 |  | $ | 16,927,419
|Accrued net unbilled revenues |  |                         | 1,265,590   |      |   | 4,139,808   |  |   | 2,534,155 
|Investment income             |  |                         | 1,386,593   |      |   | 317,460     |  |   | 20,819    
|                              |  |                         |             |      |   |             |  |   |           
|Total operating revenues      |  | $                       | 152,981,971 |      | $ | 106,713,274 |  | $ | 19,482,393
|                              |  |                         |             |      |   |             |  |   |           

As discussed in Note 1 to Financial Statements, TXU Electric Delivery files for increases or
decreases (true-ups) in transition charges with the Commission to ensure sufficient funds will be collected during the following year to meet scheduled debt service payments on the Transition Bonds and to maintain the over-collateralization and
capital subaccounts at the required levels. The latest filings included annual true-ups filed in May and August 2005 for both series of Transition Bonds and an interim true-up filed in November 2004 for the 2003 Bonds. Based on the approved
transition charges and current forecast of customer usage, it is expected that revenues collected will be sufficient to make the scheduled payments. Also see discussion in Note 3 to Financial Statements regarding the interim true-up in November
2004.

As of December 31, 2005, restricted cash included the balance in the capital subaccount of $2,533,440 compared to the required
level of $2,500,000 for the 2003 Bonds and $421,492 compared to the required level of $3,948,885 for the 2004 Bonds. Additionally, as of December 31, 2005, the balance in the over-collateralization subaccount for the 2003 Bonds was $421,980
compared to the required level of $416,666 and for the 2004 Bonds was zero compared to the required level of $493,611. There are no implications as a result of being above or below the required levels in the capital and over-collateralization
subaccounts. The current transition charges for the 2004 Bonds have been designed to restore the capital and over-collateralization subaccounts for that series to their required levels by May 2006. Any future shortfalls in the subaccounts for either
series of Transition Bonds would be addressed in future true-up filings.

To the extent revenues, excluding interest on the Indenture
Trustee reserve and capital accounts, are greater or less than the total of interest expense, amortization of the transition property and other fees and expenses, the Company records an increase or decrease to expense for over/under-recovery of
transition charges. For the twelve months ended December 31, 2005, 2004 and 2003, the Company recorded an expense for over-recovery of transition charges with an offsetting increase to the regulatory liability of $5,632,408, $16,657,167 and
$5,770,918, respectively.

Net income for the twelve months ended December 31, 2005 was $369,376 and consists of interest earned on
the Indenture Trustee reserve account and capital subaccounts. The Company intends to periodically distribute to TXU Electric Delivery interest income in the Indenture Trustee reserve account and interest income in the capital subaccounts as
released by the Indenture Trustee.



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##### Table of Contents

##### Index to Financial Statements

FINANCIAL CONDITION

Cash Flows Cash flows provided by operating activities were $93,605,022 in 2005, $58,798,553 in 2004 and $12,405,917 in 2003. The 2005 increase over 2004 was primarily due to receiving a full year
of revenues related to the 2004 Bonds in 2005 as compared to approximately six months of such revenues in 2004. The 2004 increase over 2003 was primarily due to receiving in 2004 a full year of revenues related to the 2003 Bonds and approximately
six months of revenues related to the 2004 Bonds, as compared to 2003 including approximately four months of revenues from the 2003 Bonds.

Financing activities used cash flows of $90,645,256 in 2005 and provided cash flows of $761,685,524 and $512,500,000 in 2004 and 2003, respectively. Financing activities for each period are summarized in the table below:



|                                                                                           |  |                         |             |   |      |   |             |      |  |   |            
|------------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | -----------
|                                                                                           |  | Year Ended December 31,
|                                                                                           |  | 2005                    |             |   | 2004 |   |             | 2003
|Cash provided by (used in) financing activities:                                           |  |                         |             |   |      |   |             |      |  |   |            
|Proceeds from issuance of 2003 Bonds                                                       |  | $                       |            |   |      | $ |            |      |  | $ | 500,000,000
|Equity contribution from parent to the capital subaccount for the 2003 Bonds               |  |                         |            |   |      |   |            |      |  |   | 2,500,000  
|Equity contribution from parent to the Indenture Trustee reserve account                   |  |                         |            |   |      |   |            |      |  |   | 10,000,000 
|Proceeds from issuance of 2004 Bonds                                                       |  |                         |            |   |      |   | 789,777,000 |      |  |   |           
|Equity contribution from parent to the capital subaccount for the 2004 Bonds               |  |                         |            |   |      |   | 3,948,885   |      |  |   |           
|Repayment of debt on the 2003 Bonds                                                        |  |                         | (35,760,468 | ) |      |   | (22,543,239 | )    |  |   |           
|Repayment of debt on the 2004 Bonds                                                        |  |                         | (54,544,585 | ) |      |   | (9,497,122  | )    |  |   |           
|Distributions of interest income earned on the Indenture Trustee reserve account to parent |  |                         | (340,203    | ) |      |   |            |      |  |   |           
|                                                                                           |  |                         |             |   |      |   |             |      |  |   |            
|Total cash provided (used in) financing activities                                         |  | $                       | (90,645,256 | ) |      | $ | 761,685,524 |      |  | $ | 512,500,000
|                                                                                           |  |                         |             |   |      |   |             |      |  |   |            

Cash flows used in investing activities were $2,959,766 in 2005, $820,484,077 in 2004 and
$524,904,917 in 2003. The 2004 and 2003 activity included the purchase of transition property from TXU Electric Delivery for $789,777,000 and $500,000,000, respectively. The remaining investing activity in 2005, 2004 and 2003 consisted of changes in
the balances of all restricted cash accounts.

Equity Upon the issuance of the 2004 Bonds, TXU Electric Delivery was
required to contribute $3,948,885 to the capital subaccount included in restricted cash, which is pledged as collateral for that series of Transition Bonds. This was in addition to the $2,500,000 that TXU Electric Delivery contributed to the capital
subaccount for the 2003 Bonds.

The Company receives interest income with respect to its Indenture Trustee reserve account and capital
subaccounts. The Company intends to periodically distribute to TXU Electric Delivery interest income in the Indenture Trustee reserve account and interest income in the capital subaccounts as released by the Indenture Trustee. Interest income
totaling $340,203 was distributed to TXU Electric Delivery in the year ended December 31, 2005. The distribution was recorded as a reduction in Members Interest. No distributions were made to TXU Electric Delivery in the years ended
December 31, 2004 or 2003.



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##### Table of Contents

##### Index to Financial Statements

FINANCING ACTIVITIES

The Companys financing needs are limited to issuance of the Transition Bonds. There is no provision to allow for any other borrowings.

Financial Covenants, Credit Rating Provisions and Cross Default Provisions  The terms of the Indenture contain financial covenants
that require maintenance of specified collateral deposits in proportion to the aggregate principal amount of the Transition Bonds outstanding. As of December 31, 2005, the Company was in compliance with such covenants.

FORWARD-LOOKING STATEMENTS

This report and other
presentations made by the Company contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company 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 risks discussed under RISK FACTORS THAT MAY AFFECT FUTURE RESULTS and the following important factors, among
others that could cause the actual results of the Company to differ materially from those projected in such forward-looking statements:



| |  |  | state or federal legislative or regulatory developments;
| | - |  | --------------------------------------------------------



| |  |  | national or regional economic conditions;
| | - |  | -----------------------------------------



| |  |  | the accuracy of the servicers estimates of market demand and prices for energy;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the accuracy of the servicers estimates of industrial, commercial and residential growth in TXU Electric Deliverys service territory, including related estimates of
conservation and electric usage efficiency;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | weather conditions and other natural phenomena affecting retail electric customer energy usage;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | acts of sabotage, terrorist activities or other catastrophic events;
| | - |  | --------------------------------------------------------------------



| |  |  | the speed, degree and effect of continued electric industry restructuring;
| | - |  | --------------------------------------------------------------------------



| |  |  | the operating performance of TXU Electric Deliverys facilities and third-party suppliers of electric energy in TXU Electric Deliverys service territory;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the accuracy of the servicers estimates of the payment patterns of retail electric customers, including the rate of delinquencies and any collections curves; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the operational and financial ability of REPs to bill and collect transition charges and make timely payments of amounts billed by the servicer to the REPs for transition charges.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any forward-looking statement speaks only as of the date on which such statement is made, and the Company 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 the Company 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 actual results to differ materially from those contained in any forward-looking
statement.



A-6



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers and Member of

TXU Electric Delivery Transition Bond Company LLC:

We have audited the
accompanying balance sheets of TXU Electric Delivery Transition Bond Company LLC (the Company) as of December 31, 2005 and 2004, and the related statements of income, cash flows and members interest for each of the three years
in the period ended December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2005 and 2004, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.



|                         
|-------------------------
|/s/ Deloitte & Touche LLP
|                         
|Dallas, Texas            
|March 7, 2006            



A-7



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##### Table of Contents

##### Index to Financial Statements

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

STATEMENTS OF INCOME



|                                                    |  |                         |             |      |   |             |  |   |           
|--------------------------------------------------- |  | ----------------------- | ----------- | ---- | - | ----------- |  | - | ----------
|                                                    |  | Year Ended December 31,
|                                                    |  | 2005                    |             | 2004 |   | 2003       
|Operating revenues:                                 |  |                         |             |      |   |             |  |   |           
|Transition charge revenue                           |  | $                       | 151,595,378 |      | $ | 106,395,814 |  | $ | 19,461,574
|Investment income                                   |  |                         | 1,386,593   |      |   | 317,460     |  |   | 20,819    
|                                                    |  |                         |             |      |   |             |  |   |           
|Total operating revenues                            |  |                         | 152,981,971 |      |   | 106,713,274 |  |   | 19,482,393
|                                                    |  |                         |             |      |   |             |  |   |           
|Operating expenses:                                 |  |                         |             |      |   |             |  |   |           
|Interest expense                                    |  |                         | 55,261,049  |      |   | 41,454,452  |  |   | 7,777,756 
|Amortization of transition property                 |  |                         | 90,889,250  |      |   | 47,911,024  |  |   | 5,748,164 
|Over-recovery of transition charges                 |  |                         | 5,632,408   |      |   | 16,657,167  |  |   | 5,770,918 
|Servicing fees, administrative and general expenses |  |                         | 829,888     |      |   | 690,631     |  |   | 185,555   
|                                                    |  |                         |             |      |   |             |  |   |           
|Total operating expenses                            |  |                         | 152,612,595 |      |   | 106,713,274 |  |   | 19,482,393
|                                                    |  |                         |             |      |   |             |  |   |           
|Net income                                          |  | $                       | 369,376     |      | $ |            |  | $ |          
|                                                    |  |                         |             |      |   |             |  |   |           

See Notes to Financial Statements



A-8



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##### Table of Contents

##### Index to Financial Statements

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

STATEMENTS OF CASH FLOWS



|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|----------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                              |  | Year Ended December 31, |            
|                                                                              |  | 2005                    |             |   | 2004 |   |              | 2003 | 
|Cash flows - operating activities:                                            |  |                         |             |   |      |   |              |      |  |   |              |  
|Net income                                                                    |  | $                       | 369,376     |   |      | $ |             |      |  | $ |             |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                         |             |   |      |   |              |      |  |   |              |  
|Amortization of transition property                                           |  |                         | 90,889,250  |   |      |   | 47,911,024   |      |  |   | 5,748,164    |  
|Over-recovery of transition charges                                           |  |                         | 5,632,408   |   |      |   | 16,657,167   |      |  |   | 5,770,918    |  
|Changes in operating assets                                                   |  |                         | (3,375,019  | ) |      |   | (11,532,312  | )    |  |   | (7,486,087   | )
|Changes in operating liabilities                                              |  |                         | 89,007      |   |      |   | 5,762,674    |      |  |   | 8,372,922    |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash provided by operating activities                                         |  |                         | 93,605,022  |   |      |   | 58,798,553   |      |  |   | 12,405,917   |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash flows - financing activities:                                            |  |                         |             |   |      |   |              |      |  |   |              |  
|Proceeds from issuance of Transition Bonds                                    |  |                         |            |   |      |   | 789,777,000  |      |  |   | 500,000,000  |  
|Equity contribution from parent                                               |  |                         |            |   |      |   | 3,948,885    |      |  |   | 12,500,000   |  
|Repayment of debt                                                             |  |                         | (90,305,053 | ) |      |   | (32,040,361  | )    |  |   |             |  
|Distribution paid to parent                                                   |  |                         | (340,203    | ) |      |   |             |      |  |   |             |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash provided by (used in) financing activities                               |  |                         | (90,645,256 | ) |      |   | 761,685,524  |      |  |   | 512,500,000  |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash flows - investing activities:                                            |  |                         |             |   |      |   |              |      |  |   |              |  
|Purchase of transition property                                               |  |                         |            |   |      |   | (789,777,000 | )    |  |   | (500,000,000 | )
|Change in restricted funds                                                    |  |                         | (2,959,766  | ) |      |   | (30,707,077  | )    |  |   | (24,904,917  | )
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash used in investing activities                                             |  |                         | (2,959,766  | ) |      |   | (820,484,077 | )    |  |   | (524,904,917 | )
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Net increase in cash and cash equivalents                                     |  |                         |            |   |      |   |             |      |  |   | 1,000        |  
|Cash and cash equivalents, beginning of period                                |  |                         | 1,000       |   |      |   | 1,000        |      |  |   |             |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  
|Cash and cash equivalents, end of period                                      |  | $                       | 1,000       |   |      | $ | 1,000        |      |  | $ | 1,000        |  
|                                                                              |  |                         |             |   |      |   |              |      |  |   |              |  

See Notes to Financial Statements



A-9



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##### Table of Contents

##### Index to Financial Statements

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

BALANCE SHEETS



|                                                                                     |  |              |               |      |   |              
|------------------------------------------------------------------------------------ |  | ------------ | ------------- | ---- | - | -------------
|                                                                                     |  | December 31,
|                                                                                     |  | 2005         |               | 2004
|ASSETS                                                                               |  |              |               |      |   |              
|Current assets:                                                                      |  |              |               |      |   |              
|Cash and cash equivalents                                                            |  | $            | 1,000         |      | $ | 1,000        
|Restricted cash                                                                      |  |              | 45,587,656    |      |   | 42,732,370   
|Accounts receivable - affiliate                                                      |  |              | 28,727        |      |   |             
|Transition charge receivable:                                                        |  |              |               |      |   |              
|Affiliates                                                                           |  |              | 11,175,991    |      |   | 12,622,632   
|All other                                                                            |  |              | 11,189,699    |      |   | 6,396,766    
|                                                                                     |  |              |               |      |   |              
|Total current assets                                                                 |  |              | 67,983,073    |      |   | 61,752,768   
|Investments:                                                                         |  |              |               |      |   |              
|Restricted funds held in trust                                                       |  |              | 12,984,105    |      |   | 12,879,625   
|Transition property, net of accumulated amortization of $144,548,438 and $53,659,188 |  |              | 1,145,228,562 |      |   | 1,236,117,812
|                                                                                     |  |              |               |      |   |              
|Total assets                                                                         |  | $            | 1,226,195,740 |      | $ | 1,310,750,205
|                                                                                     |  |              |               |      |   |              
|LIABILITIES AND MEMBERS INTEREST                                                    |  |              |               |      |   |              
|Current liabilities:                                                                 |  |              |               |      |   |              
|Long-term debt due currently                                                         |  | $            | 93,096,974    |      | $ | 90,305,053   
|Accounts payable - affiliate                                                         |  |              | 159,992       |      |   | 181,162      
|Accrued interest                                                                     |  |              | 11,773,505    |      |   | 12,316,572   
|Other current liabilities                                                            |  |              | 2,291,106     |      |   | 1,637,862    
|                                                                                     |  |              |               |      |   |              
|Total current liabilities                                                            |  |              | 107,321,577   |      |   | 104,440,649  
|Transition bonds                                                                     |  |              | 1,074,334,612 |      |   | 1,167,431,586
|Regulatory liability                                                                 |  |              | 28,060,493    |      |   | 22,428,085   
|                                                                                     |  |              |               |      |   |              
|Total liabilities                                                                    |  |              | 1,209,716,682 |      |   | 1,294,300,320
|Members interest                                                                    |  |              | 16,479,058    |      |   | 16,449,885   
|                                                                                     |  |              |               |      |   |              
|Total liabilities and members interest                                              |  | $            | 1,226,195,740 |      | $ | 1,310,750,205
|                                                                                     |  |              |               |      |   |              

See Notes to Financial Statements



A-10



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##### Table of Contents

##### Index to Financial Statements

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

STATEMENTS OF MEMBERS INTEREST



|                                       |  |                         |            |   |      |   |            |  |   |           
|-------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- |  | - | ----------
|                                       |  | Year Ended December 31,
|                                       |  | 2005                    |            |   | 2004 |   | 2003      
|Members interest:                     |  |                         |            |   |      |   |            |  |   |           
|Balance at beginning of year           |  | $                       | 16,449,885 |   |      | $ | 12,501,000 |  | $ | 1,000     
|Equity contributions from parent       |  |                         |           |   |      |   | 3,948,885  |  |   | 12,500,000
|Distributions paid to parent           |  |                         | (340,203   | ) |      |   |           |  |   |          
|Net income                             |  |                         | 369,376    |   |      |   |           |  |   |          
|                                       |  |                         |            |   |      |   |            |  |   |           
|Total members interest at end of year |  | $                       | 16,479,058 |   |      | $ | 16,449,885 |  | $ | 12,501,000
|                                       |  |                         |            |   |      |   |            |  |   |           

See Notes to Financial Statements



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##### Table of Contents

##### Index to Financial Statements

TXU ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Description
of Business  The Company is a bankruptcy remote special purpose Delaware limited liability company, wholly-owned by TXU Electric Delivery. TXU Electric Delivery is a wholly-owned subsidiary of TXU Corp. TXU Electric Delivery is a
regulated electricity transmission and distribution company, principally engaged in providing delivery services to REPs that sell electricity in the north-central, eastern and western parts of Texas.

The Company was organized in November 1999 for the limited purposes of issuing Transition Bonds and purchasing and owning transition property (as defined
in the 1999 Restructuring Legislation) acquired from TXU Electric Delivery. Transition property represents the irrevocable right to impose, collect and receive transition charges in an amount sufficient to pay the interest, fees, and expenses
associated with the Transition Bonds, and the aggregate principal amount of the Transition Bonds. For legal purposes, the transition property has been sold to the Company by TXU Electric Delivery. The Company had no operations until August 2003. In
connection with the acquisition of the transition property, the Company:



| |  |  | registered and issued the Transition Bonds;
| | - |  | -------------------------------------------



| |  |  | pledged its interest in the transition property and other Transition Bond collateral to secure the Transition Bonds;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | has agreed to make debt service payments on the Transition Bonds; and
| | - |  | ---------------------------------------------------------------------



| |  |  | has agreed to perform other activities that are necessary, suitable or convenient to accomplish these purposes.
| | - |  | ---------------------------------------------------------------------------------------------------------------

The Company is structured and is operated in a manner such that in the event of bankruptcy proceedings against TXU Electric Delivery, the assets of the
Company will not be consolidated into the bankruptcy estate of TXU Electric Delivery. TXU Electric Delivery is not the owner of the transition property described herein, and the assets of the Company are not available to pay creditors of TXU
Electric Delivery or any of its affiliates.

Basis of Presentation  The financial statements of the Company have been
prepared in accordance with US GAAP and on the same basis as the audited financial statements included in its 2004 Form 10-K. All adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of
operations and financial position have been included therein.

Use of Estimates  The preparation of the Companys
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. 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.

Regulatory Assets and Liabilities The Companys business meets the
applicability criteria of SFAS 71. This accounting standard recognizes the cost-based rate making process, which may result in differences in the application of generally accepted accounting principles between regulated and non-regulated entities.

Revenue Recognition The Company records revenue for transition charges under the accrual method of accounting.
Revenues are recognized when transition charges are billed to REPs by TXU Electric Delivery, as servicer, to customers on the basis of periodic cycle meter readings. The Companys revenue includes an estimate for the transition charges billed
to REPs by TXU Electric Delivery, as servicer, from the meter reading date to the end of the period (unbilled revenues). The unbilled revenue is based on actual daily revenues for the most recent period, adjusted for weather and other measurable
factors that affect consumption, applied to the number of unmetered days through the end of the period.



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##### Table of Contents

##### Index to Financial Statements

Interim and annual true-up adjustments  As a result of variations in customer usage,
temporary over or under recovery of transition charges may occur. In such instances where sufficient funds are not collected through transition charges, the over-collateralization and the capital subaccounts are drawn down to make scheduled payments
on the Transition Bonds. TXU Electric Delivery files, on behalf of the Company, an annual true-up adjustment with the Commission with respect to each series of Transition Bonds. The annual true-up adjustments for the 2003 Bonds and the 2004 Bonds
are filed in August and May, respectively. In the filing, TXU Electric Delivery requests the Commission to increase or decrease the authorized transition charges such that, based on the then current forecast of customer usage, sufficient funds will
be collected during the following year to meet the scheduled debt service payments and replenish the over-collateralization and capital subaccounts to their required level. The Company also has the right, under certain circumstances, to file interim
true-up adjustment requests semi-annually if needed to make scheduled payments.

Amortization The transition property
acquired from TXU Electric Delivery, which totaled $1,289,777,000 at acquisition date, is amortized over the life of the Transition Bonds in an amount equal to the scheduled principal payments of the original debt amounts.

Investment Income The Company earns investment income on funds held by the Indenture Trustee, including the Indenture Trustee
reserve account established to cover any future trustee fees and expenses associated with the Transition Bonds. These funds held by the Indenture Trustee are invested as allowed by the Indenture. Investment income on transition charge collections is
recognized as earned.

Income and Other Taxes The Company is organized as a single-member limited liability company
and will not be subject to US federal income tax as an entity separate from TXU Electric Delivery. In addition, the Companys receipt of transition property, transition charges and short-term earnings from investments of the transition charges
will not be subject to state and local tax. Accordingly, there is no provision for federal, state or local taxes.

Comprehensive
Income There are no other components of comprehensive income besides net income.

2. RELATED PARTY TRANSACTIONS

Pursuant to administration and servicing agreements between the Company and TXU Electric Delivery, TXU Electric Delivery furnishes to the Company, at a
fixed fee per year, billing, payment processing, collection, clerical, secretarial and other accounting services, which are reflected as administrative and general expenses in the income statement. The Companys expense for servicing and
administration activities performed by TXU Electric Delivery totaled $775,221, $636,479 and $169,793 for the years ended December 31, 2005, 2004 and 2003, respectively.

During the years ended December 31, 2005, 2004 and 2003, transition charges billed to the REP subsidiary of TXU Energy Holdings, which are included
in operating revenues, totaled $82,720,978, $70,309,612 and $14,177,528, respectively. The balance of accounts receivable due from the REP subsidiary of TXU Energy Holdings was $11,175,991, $12,622,632 and $5,581,423 as of December 31, 2005,
2004 and 2003, respectively.

The balance of accounts receivable due from TXU Electric Delivery was $28,727 as of December 31, 2005
and represents deposits billed by TXU Electric Delivery to REPs as security for payment of the REPs transition charges. TXU Electric Delivery, as servicer of the Transition Bonds, reviews the security amount for the REPs quarterly and requests
increases when required.

The Company receives interest income with respect to its Indenture Trustee reserve account and capital
subaccounts. Interest income totaling $340,203 was distributed to TXU Electric Delivery in the year ended December 31, 2005. The distribution was recorded as a reduction in Members Interest. No distributions were made to TXU Electric
Delivery in the years ended December 31, 2004 or 2003.

Also see discussion in Note 3 under Interim true-up.



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##### Table of Contents

##### Index to Financial Statements

3. FINANCING ARRANGEMENTS

Long-term Debt At December 31, 2005 and 2004, the Companys long-term debt consisted of the following:



|                                                                                       |  |              |               |      |   |              
|-------------------------------------------------------------------------------------- |  | ------------ | ------------- | ---- | - | -------------
|                                                                                       |  | December 31,
|                                                                                       |  | 2005         |               | 2004
|                                                                                       |  |             
|2.260% Fixed Series 2003 Bonds due in bi-annual installments through February 15, 2007 |  | $            | 44,696,293    |      | $ | 80,456,761   
|4.030% Fixed Series 2003 Bonds due in bi-annual installments through February 15, 2010 |  |              | 122,000,000   |      |   | 122,000,000  
|4.950% Fixed Series 2003 Bonds due in bi-annual installments through February 15, 2013 |  |              | 130,000,000   |      |   | 130,000,000  
|5.420% Fixed Series 2003 Bonds due in bi-annual installments through August 15, 2015   |  |              | 145,000,000   |      |   | 145,000,000  
|3.520% Fixed Series 2004 Bonds due in bi-annual installments through November 15, 2009 |  |              | 214,958,293   |      |   | 269,502,878  
|4.810% Fixed Series 2004 Bonds due in bi-annual installments through November 15, 2012 |  |              | 221,000,000   |      |   | 221,000,000  
|5.290% Fixed Series 2004 Bonds due in bi-annual installments through May 15, 2016      |  |              | 289,777,000   |      |   | 289,777,000  
|                                                                                       |  |              |               |      |   |              
|Total                                                                                  |  |              | 1,167,431,586 |      |   | 1,257,736,639
|                                                                                       |  |             
|Less amount due currently                                                              |  |              | 93,096,974    |      |   | 90,305,053   
|                                                                                       |  |              |               |      |   |              
|Total Long-Term Debt                                                                   |  | $            | 1,074,334,612 |      | $ | 1,167,431,586
|                                                                                       |  |              |               |      |   |              

The Transition Bonds were issued in two series. The 2003 Bonds were issued on August 21,
2003, with a total principal amount of $500,000,000, and the 2004 Bonds were issued on June 7, 2004, with a total principal amount of $789,777,000.

The transition property sold to the Company, as well as restricted cash in the capital subaccount at December 31, 2005 of $2,954,932 are pledged as collateral for the Transition Bonds. Collections of transition
charges will be used to pay the principal, interest and associated costs of the Transition Bonds. The Company is required to maintain restricted cash pledged as collateral for the Transition Bonds in an amount equal to 0.5% of the initial aggregate
principal amount of Transition Bonds outstanding. Should the transition charges collected through the specified payment dates listed above not provide adequate funds to make the scheduled payments of principal and interest, the transition charges
can continue to be collected for approximately two years before the Transition Bond goes into default for nonpayment.

Maturity and sinking
fund requirements for the years 2006 through 2010 and thereafter under long-term debt instruments outstanding at December 31, 2005, were as follows:



|           |  |   |              
|---------- |  | - | -------------
|Year       |  |  
|2006       |  | $ | 93,096,974   
|2007       |  |   | 96,548,577   
|2008       |  |   | 99,433,391   
|2009       |  |   | 103,243,824  
|2010       |  |   | 107,824,974  
|Thereafter |  |   | 667,283,846  
|           |  |   |              
|Total      |  | $ | 1,167,431,586
|           |  |   |              

The fair value of the outstanding Transition Bonds was approximately $1,163,000,000 and
$1,281,000,000 as of December 31, 2005 and 2004, respectively. The fair values are estimated at the lesser of either the call price or the market value as determined by quoted market prices.



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##### Table of Contents

##### Index to Financial Statements

Interim true-up In the November 2004 interim true-up adjustment for the 2004 Bonds,
TXU Electric Delivery, in its role as servicer of the 2004 Bonds, made an error in the calculation of the transition charges applicable to the Large General Service Secondary class of customers. This error was clerical in nature and resulted in the
wrong number of forecasted kilowatt-hours for this particular rate class for the applicable period. The result of the error was that the transition charges billed for this customer class were lower than required to meet the May 16, 2005
scheduled principal payment on the 2004 Bonds (even considering the amount in the capital subaccount for that series of Transition Bonds, which was used to help meet the scheduled payment). In April 2005, TXU Electric Delivery, as servicer,
requested that TXU Energy Holdings (through its REP subsidiary) pay a portion of its then outstanding transition charges related to the 2004 Bonds early in an amount sufficient to cover the expected deficiency. Although not required to make such
early payment, TXU Energy Holdings agreed to make an early payment of approximately $2 million. TXU Energy Holdings made this early payment with no compensation from either TXU Electric Delivery or the Company. As a result, the scheduled payment of
principal and interest on the Transition Bonds was made in full.

Financial Covenants  The terms of the Indenture
contain financial covenants that require maintenance of specified collateral deposits in proportion to the aggregate principal amount of the Transition Bonds outstanding. As of December 31, 2005, the Company was in compliance with such
covenants.

4. MEMBERS INTEREST

The Company receives interest income with respect to its Indenture Trustee reserve account and capital subaccounts. Interest income totaling $340,203 was distributed to TXU Electric Delivery in the year ended December 31, 2005. No
distributions were made to TXU Electric Delivery in the years ended December 31, 2004 or 2003.

5. RESTRICTED CASH



|                                                                                                                                                        |  |                              |            |                      |   |                |  |            |            |  |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | -------------------- | - | -------------- |  | ---------- | ---------- |  | - | ----------
|                                                                                                                                                        |  | Balance Sheet Classification
|                                                                                                                                                        |  | At December 31, 2005         |            | At December 31, 2004
|                                                                                                                                                        |  | Current Assets               |            | Investment           |   | Current Assets |  | Investment
|Collections related to Transition Bonds used only to service debt and pay expenses (includes over-collateralization subaccount of $421,980, ,  and ) |  | $                            | 45,587,656 |                      | $ |               |  | $          | 42,732,370 |  | $ |          
|Funds for payment of fees associated with Transition Bonds                                                                                              |  |                              |           |                      |   | 10,029,173     |  |            |           |  |   | 10,093,149
|Reserve for shortfalls of Transition Bond charges (capital subaccount)                                                                                  |  |                              |           |                      |   | 2,954,932      |  |            |           |  |   | 2,786,476 
|                                                                                                                                                        |  |                              |            |                      |   |                |  |            |            |  |   |           
|Total                                                                                                                                                   |  | $                            | 45,587,656 |                      | $ | 12,984,105     |  | $          | 42,732,370 |  | $ | 12,879,625
|                                                                                                                                                        |  |                              |            |                      |   |                |  |            |            |  |   |           



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##### Table of Contents

##### Index to Financial Statements

APPENDIX B

TXU Electric Delivery Transition Bond Company LLC Exhibits to 2005 Form 10-K



|         |  |                                                      |  |           |  |   |  |                                                                                           
|-------- |  | ---------------------------------------------------- |  | --------- |  | - |  | ------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed* With File Number                   |  | AsExhibit |  |   |  |                                                                                           
|         | 
|3(i)     |  | Articles of Incorporation.                          
|         |  |                                                      |  |          
|3(a)     |  | 333-91935 (Form 8-K filed August 28, 2003)           |  | 4(b)      |  |  |  | Amended and Restated Certificate of Formation dated as of August 11, 2003.                
|         | 
|3(ii)    |  | By-laws                                             
|         |  |                                                      |  |          
|3(b)     |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 4(a)      |  |  |  | Amended and Restated Limited Liability Company Agreement dated as of August 21, 2003.     
|         | 
|4        |  | Instruments defining the rights of security holders.
|         |  |                                                      |  |          
|4(a)     |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 4(c)      |  |  |  | Indenture dated as of August 21, 2003.                                                    
|         |  |                                                      |  |          
|4(b)     |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 4(d)      |  |  |  | Series 2003-1 Supplement dated as of August 21, 2003.                                     
|         |  |                                                      |  |          
|4(c)     |  | 333-91935 (Form 8-K filed June 14,
2004)             |  | 4         |  |  |  | Series 2004-1 Supplement dated as of June 7, 2004.                                        
|         | 
|10       |  | Material Contracts.                                 
|         |  |                                                      |  |          
|10(a)    |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 10(a)     |  |  |  | Series 2003-1 Transition Property Purchase and Sale Agreement dated as of August 21, 2003.
|         |  |                                                      |  |          
|10(b)    |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 10(b)     |  |  |  | Series 2003-1 Transition Property Servicing Agreement dated as of August 21, 2003.        
|         |  |                                                      |  |          
|10(c)    |  | 333-91935 (Form 8-K filed June 14,
2004)             |  | 10(a)     |  |  |  | Series 2004-1 Transition Property Purchase and Sale Agreement dated as of June 7, 2004.   
|         |  |                                                      |  |          
|10(d)    |  | 333-91935 (Form 8-K filed June 14,
2004)             |  | 10(b)     |  |  |  | Series 2004-1 Transition Property Servicing Agreement dated as of June 7, 2004.           
|         |  |                                                      |  |          
|10(e)    |  | 333-91935 (Form 8-K filed August 28, 2003)           |  | 10(c)     |  |  |  | Administration Agreement dated as of August 21, 2003.                                     
|         |  |                                                      |  |          
|10(f)    |  | 333-91935 (Form 8-K filed August 28,
2003)           |  | 10(d)     |  |  |  | Intercreditor Agreement dated as of August 21, 2003.                                      



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##### Table of Contents

##### Index to Financial Statements

|         |  |                                    |  |           |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                
|-------- |  | ---------------------------------- |  | --------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed* With File Number |  | AsExhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                
|         | 
|(23)     |  | Consent of Experts.               
|         |  |                                    |  |          
|23       |  |                                    |  |           |  |  |  | Consent of Deloitte & Touche, LLP, Independent Auditors for TXU Electric Delivery Transition Bond Company LLC.                                                                                                                                                                                                                                                                                 
|         | 
|(32)     |  | Section 1350 Certifications.      
|         |  |                                    |  |          
|32(a)    |  |                                    |  |           |  |  |  | Certification of T. L. Baker, principal executive officer of TXU Electric Delivery Transition Bond Company LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                     
|         |  |                                    |  |          
|32(b)    |  |                                    |  |           |  |  |  | Certification of H. Dan Farell, principal financial officer of TXU Electric Delivery Transition Bond Company LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                   
|         | 
|(35)     |  | Servicer Compliance Statement.    
|         |  |                                    |  |          
|35       |  |                                    |  |           |  |  |  | Certification of H. Dan Farell, as principal executive officer of TXU Electric Delivery Company, the Servicer.                                                                                                                                                                                                                                                                                 
|         | 
|(99)     |  | Additional Exhibits.              
|         |  |                                    |  |          
|99(a)(1) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2004-1 for October 2005)                                                                                                                                                                                                                                                                                                                                       
|         |  |                                    |  |          
|99(a)(2) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2004-1 for November 2005)                                                                                                                                                                                                                                                                                                                                      
|         |  |                                    |  |          
|99(a)(3) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2004-1 for December 2005)                                                                                                                                                                                                                                                                                                                                      
|         |  |                                    |  |          
|99(a)(4) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2003-1 for October 2005)                                                                                                                                                                                                                                                                                                                                       
|         |  |                                    |  |          
|99(a)(5) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2003-1 for November 2005)                                                                                                                                                                                                                                                                                                                                      
|         |  |                                    |  |          
|99(a)(6) |  |                                    |  |           |  |  |  | Monthly Servicer Report (Series 2003-1 for December 2005)                                                                                                                                                                                                                                                                                                                                      
|         |  |                                    |  |          
|99(b)    |  |                                    |  |           |  |  |  | Statement of Balances as of December 31, 2005                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                    |  |          
|99(c)    |  |                                    |  |           |  |  |  | A quarterly statement affirming that, in all material respects, for each materially significant REP, (a) each REP has been billed in compliance with the requirements outlined in the
Financing Order, (b) each REP has made payments in compliance with the requirements outlined in the Financing Order, and (c) each REP satisfies the Creditworthiness requirements of the Financing Order.
|         |  |                                    |  |          
|99(d)(1) |  |                                    |  |           |  |  |  | Statement of Outstanding Bond Balances Series 2003-1                                                                                                                                                                                                                                                                                                                                           
|         |  |                                    |  |          
|99(d)(2) |  |                                    |  |           |  |  |  | Statement of Outstanding Bond Balances Series 2004-1                                                                                                                                                                                                                                                                                                                                           
|         |  |                                    |  |          
|99(e)    |  |                                    |  |           |  |  |  | Semi-Annual Servicers Certificate November 2005                                                                                                                                                                                                                                                                                                                                               

---

|* | Incorporated herein by reference.
|- | ---------------------------------



B-2