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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005



 OR 



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



Commission File Number 333-108876



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TXU Energy Company LLC



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|                                                   |  |                                     
|-------------------------------------------------- |  | ------------------------------------
|A Delaware Limited Liability Company               |  | 75-2967817                          
|(State of Organization)                            |  | (I.R.S. Employer Identification No.)
|                                                   | 
|1601 Bryan Street, Dallas TX, 75201-3411           |  | (214) 812-4600                      
|(Address of Principal Executive Offices)(Zip Code) |  | (Registrants Telephone Number)     



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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 whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes ̈No  x



As of August 9, 2005, all outstanding common membership interests in TXU
Energy Company LLC were held by TXU US Holdings Company.



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



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##### Table of Contents

TABLE OF CONTENTS



|          |  |                                                                                                               |  |     
|--------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                               |  | PAGE
|GLOSSARY  |  | ii                                                                                                           
|          |  |                                                                                                              
|PART I.   |  | FINANCIAL INFORMATION                                                                                         |  |     
|          |  |                                                                                                              
|Item 1.   |  | Financial Statements                                                                                          |  |     
|          |  |                                                                                                              
|          |  | Condensed Statements of Consolidated Income  Three and Six Months Ended June 30, 2005 and 2004               |  | 1   
|          |  |                                                                                                              
|          |  | Condensed Statements of Consolidated Comprehensive Income  Three and Six Months Ended June 30, 2005 and 2004 |  | 2   
|          |  |                                                                                                              
|          |  | Condensed Statements of Consolidated Cash Flows  Six Months Ended June 30, 2005 and 2004                     |  | 3   
|          |  |                                                                                                              
|          |  | Condensed Consolidated Balance Sheets  June 30, 2005 and December 31, 2004                                   |  | 4   
|          |  |                                                                                                              
|          |  | Notes to Condensed Consolidated Financial Statements                                                          |  | 5   
|          |  |                                                                                                              
|          |  | Report of Independent Registered Public Accounting Firm                                                       |  | 18  
|          |  |                                                                                                              
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 19  
|          |  |                                                                                                              
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 38  
|          |  |                                                                                                              
|Item 4.   |  | Controls and Procedures                                                                                       |  | 50  
|          |  |                                                                                                              
|PART II.  |  | OTHER INFORMATION                                                                                             |  |     
|          |  |                                                                                                              
|Item 1.   |  | Legal Proceedings                                                                                             |  | 51  
|          |  |                                                                                                              
|Item 6.   |  | Exhibits                                                                                                      |  | 51  
|          | 
|SIGNATURE |  | 52                                                                                                           



Periodic reports on Form 10-K and
Form 10-Q and current reports on Form 8-K that contain financial information of TXU Energy Company LLC and its subsidiaries are made available to the public, free of charge, on the TXU Corp. website at http://www.txucorp.com, shortly after they have
been filed with the Securities and Exchange Commission. TXU Energy Company LLC will provide copies of current reports not posted on the website upon request. The information on TXU Corp.s website shall not be deemed a part of, or incorporated
by reference into, this report on Form 10-Q.



i



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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                                                         
|                               | 
|2004 Form 10-K/A               |  | TXU Energy Company LLCs Annual Report on Form 10-K, as amended, for the year ended December 31, 2004                                                          
|                               | 
|Bcf                            |  | billion cubic feet                                                                                                                                             
|                               | 
|Capgemini                      |  | Capgemini Energy LP, a subsidiary of Cap Gemini North America Inc. that provides business support services to TXU Energy Holdings                              
|                               | 
|Commission                     |  | Public Utility Commission of Texas                                                                                                                             
|                               | 
|EITF                           |  | Emerging Issues Task Force                                                                                                                                     
|                               | 
|EITF 04-6                      |  | EITF Issue No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry                                                        
|                               | 
|ERCOT                          |  | Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of the various electricity systems within Texas
|                               | 
|FASB                           |  | Financial Accounting Standards Board, the designated organization in the private sector for establishing standards for financial accounting and reporting      
|                               | 
|FERC                           |  | Federal Energy Regulatory Commission                                                                                                                           
|                               | 
|FIN                            |  | Financial Accounting Standards Board Interpretation                                                                                                            
|                               | 
|FIN 47                         |  | FIN No. 47, Accounting for Conditional Asset Retirement Obligations  An Interpretation of FASB Statement No. 143                                            
|                               | 
|Fitch                          |  | Fitch Ratings, Ltd.                                                                                                                                            
|                               | 
|GW                             |  | gigawatts                                                                                                                                                      
|                               | 
|GWh                            |  | gigawatt-hours                                                                                                                                                 
|                               | 
|historical service territory   |  | the territory, largely in north Texas, being served by TXU Corp. as a regulated utility at the time of entering retail competition on January 1, 2002          
|                               | 
|IRS                            |  | Internal Revenue Service                                                                                                                                       
|                               | 
|kWh                            |  | kilowatt-hours                                                                                                                                                 
|                               | 
|market heat rate               |  | a measure of the efficiency of the marginal supplier (generally gas plants) in generating electricity. A higher heat rate indicates lower efficiency           
|                               | 
|Moodys                        |  | Moodys Investors Services, Inc.                                                                                                                               
|                               | 
|MW                             |  | megawatts                                                                                                                                                      
|                               | 
|MWh                            |  | megawatt-hours                                                                                                                                                 
|                               | 
|NRC                            |  | United States Nuclear Regulatory Commission                                                                                                                    



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|                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|price-to-beat rate       |  | residential and small business customer electricity rates established by the Commission that (i) were required to be charged in a REPs historical service territories until the earlier of
January 1, 2005 or the date when 40% of the electricity consumed by such customer classes is supplied by competing REPs, adjusted periodically for changes in fuel costs, and (ii) are required to be made available to those customers until January 1,
2007
|                         | 
|REP                      |  | retail electric provider                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                         | 
|S&P                      |  | Standard & Poors, a division of the McGraw Hill Companies                                                                                                                                                                                                                                                                                                                                                                                               
|                         | 
|Sarbanes-Oxley           |  | Sarbanes  Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                             
|                         | 
|SEC                      |  | United States Securities and Exchange Commission                                                                                                                                                                                                                                                                                                                                                                                                         
|                         | 
|SFAS                     |  | Statement of Financial Accounting Standards issued by the FASB                                                                                                                                                                                                                                                                                                                                                                                           
|                         | 
|SFAS 34                  |  | SFAS No. 34, Capitalization of Interest Cost                                                                                                                                                                                                                                                                                                                                                                                                           
|                         | 
|SFAS 123R                |  | SFAS 123 (Revised 2004), Share-Based Payment                                                                                                                                                                                                                                                                                                                                                                                                           
|                         | 
|SFAS 133                 |  | SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                             
|                         | 
|SFAS 140                 |  | SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement 125                                                                                                                                                                                                                                                                                                       
|                         | 
|SFAS 143                 |  | SFAS No. 143, Accounting for Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                              
|                         | 
|SG&A                     |  | selling, general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                      
|                         | 
|TXU Corp.                |  | refers to TXU Corp., a holding company, and/or its consolidated subsidiaries, depending on context                                                                                                                                                                                                                                                                                                                                                       
|                         | 
|TXU Electric Delivery    |  | refers to TXU Electric Delivery Company, a subsidiary of US Holdings, and/or its consolidated bankruptcy remote financing subsidiary, TXU Electric Delivery Transition Bond Company LLC, depending
on context                                                                                                                                                                                                                                            
|                         | 
|TXU Energy Holdings      |  | refers to TXU Energy Company LLC, a subsidiary of US Holdings, and/or its consolidated subsidiaries, depending on context                                                                                                                                                                                                                                                                                                                                
|                         | 
|TXU Fuel                 |  | TXU Fuel Company, a former subsidiary of TXU Energy Holdings                                                                                                                                                                                                                                                                                                                                                                                             
|                         | 
|TXU Gas                  |  | TXU Gas Company, a former subsidiary of TXU Corp.                                                                                                                                                                                                                                                                                                                                                                                                        
|                         | 
|TXU Mining               |  | TXU Mining Company LP, a subsidiary of TXU Energy Holdings                                                                                                                                                                                                                                                                                                                                                                                               
|                         | 
|TXU Portfolio Management |  | TXU Portfolio Management Company LP, a subsidiary of TXU Energy Holdings                                                                                                                                                                                                                                                                                                                                                                                 
|                         | 
|US                       |  | United States of America                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                         | 
|US GAAP                  |  | accounting principles generally accepted in the US                                                                                                                                                                                                                                                                                                                                                                                                       
|                         | 
|US Holdings              |  | TXU US Holdings Company, a subsidiary of TXU Corp. and parent of TXU Energy Holdings and TXU Electric Delivery                                                                                                                                                                                                                                                                                                                                           



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PART I. FINANCIAL INFORMATION



Item 1. FINANCIAL STATEMENTS



TXU ENERGY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)



|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|-------------------------------------------------------------- |  | --------------------------- | ----- | - | ------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                               |  | Three Months Ended June 30, |       |   | Six Months Ended June 30, |  
|                                                               |  | 2005                        |       |   | 2004                      |   |       | 2005 |  |   | 2004  |  
|                                                               |  | (millions of dollars)       |      
|Operating revenues                                             |  | $                           | 2,227 |   |                           | $ | 2,115 |      |  | $ | 4,030 |   |  | $ | 4,072 |  
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|                                                               |  |                             |       |  
|Costs and expenses:                                            |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Cost of energy sold and delivery fees                          |  |                             | 1,216 |   |                           |   | 1,348 |      |  |   | 2,272 |   |  |   | 2,602 |  
|Operating costs                                                |  |                             | 177   |   |                           |   | 200   |      |  |   | 330   |   |  |   | 367   |  
|Depreciation and amortization                                  |  |                             | 77    |   |                           |   | 88    |      |  |   | 156   |   |  |   | 185   |  
|Selling, general and administrative expenses                   |  |                             | 113   |   |                           |   | 163   |      |  |   | 227   |   |  |   | 310   |  
|Franchise and revenue-based taxes                              |  |                             | 24    |   |                           |   | 27    |      |  |   | 50    |   |  |   | 53    |  
|Other income                                                   |  |                             | (6    | ) |                           |   | (12   | )    |  |   | (8    | ) |  |   | (13   | )
|Other deductions                                               |  |                             | 12    |   |                           |   | 261   |      |  |   | 13    |   |  |   | 281   |  
|Interest income                                                |  |                             | (11   | ) |                           |   | (7    | )    |  |   | (21   | ) |  |   | (8    | )
|Interest expense and related charges                           |  |                             | 94    |   |                           |   | 93    |      |  |   | 185   |   |  |   | 172   |  
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Total costs and expenses                                       |  |                             | 1,696 |   |                           |   | 2,161 |      |  |   | 3,204 |   |  |   | 3,949 |  
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations before income taxes   |  |                             | 531   |   |                           |   | (46   | )    |  |   | 826   |   |  |   | 123   |  
|                                                               |  |                             |       |  
|Income tax expense (benefit)                                   |  |                             | 186   |   |                           |   | (27   | )    |  |   | 278   |   |  |   | 26    |  
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations                       |  |                             | 345   |   |                           |   | (19   | )    |  |   | 548   |   |  |   | 97    |  
|                                                               |  |                             |       |  
|Loss from discontinued operations, net of tax benefit (Note 2) |  |                             | (1    | ) |                           |   | (27   | )    |  |   | (4    | ) |  |   | (30   | )
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Net income (loss)                                              |  | $                           | 344   |   |                           | $ | (46   | )    |  | $ | 544   |   |  | $ | 67    |  
|                                                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  



See Notes to Financial Statements.



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TXU ENERGY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)



|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|----------------------------------------------------------------------------------------------- |  | --------------------------- | --- | - | ------------------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                                                                                |  | Three Months Ended June 30, |     |   | Six Months Ended June 30, |  
|                                                                                                |  | 2005                        |     |   | 2004                      |   |     | 2005 |  |   | 2004 |  
|                                                                                                |  | (millions of dollars)       |    
|Components related to continuing operations:                                                    |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|                                                                                                |  |                             |     |  
|Income (loss) from continuing operations                                                        |  | $                           | 345 |   |                           | $ | (19 | )    |  | $ | 548  |   |  | $ | 97  |  
|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Other comprehensive income (loss), net of tax effects:                                          |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Minimum pension liability adjustment (net of tax expense of $4, $-, $4, $-)                     |  |                             | 7   |   |                           |   |    |      |  |   | 7    |   |  |   |    |  
|Cash flow hedges:                                                                               |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Net change in fair value of derivatives (net of tax (expense) benefit of $-, $13, $(8) and $44) |  |                             |    |   |                           |   | (17 | )    |  |   | 15   |   |  |   | (75 | )
|Amounts realized in earnings during the period (net of tax expense of $9, $5, $18, and $8)      |  |                             | 16  |   |                           |   | 7   |      |  |   | 33   |   |  |   | 12  |  
|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Total cash flow hedges                                                                          |  |                             | 16  |   |                           |   | (10 | )    |  |   | 48   |   |  |   | (63 | )
|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Comprehensive income (loss) from continuing operations                                          |  |                             | 368 |   |                           |   | (29 | )    |  |   | 603  |   |  |   | 34  |  
|                                                                                                |  |                             |     |  
|Comprehensive loss from discontinued operations                                                 |  |                             | (1  | ) |                           |   | (27 | )    |  |   | (4   | ) |  |   | (30 | )
|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Comprehensive income (loss)                                                                     |  | $                           | 367 |   |                           | $ | (56 | )    |  | $ | 599  |   |  | $ | 4   |  
|                                                                                                |  |                             |     |   |                           |   |     |      |  |   |      |   |  |   |     |  



See Notes to Financial Statements.



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TXU ENERGY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)



|                                                                                                     |  |                           |      |   |      |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                                     |  | Six Months Ended June 30, |     
|                                                                                                     |  | 2005                      |      |   | 2004 |  
|                                                                                                     |  | (millions of dollars)     |     
|Cash flows  operating activities:                                                                   |  |                           |      |   |      |   |        |  
|                                                                                                     |  |                          
|Income from continuing operations                                                                    |  | $                         | 548  |   |      | $ | 97     |  
|Adjustments to reconcile income from continuing operations to cash provided by operating activities: |  |                           |      |   |      |   |        |  
|Depreciation and amortization                                                                        |  |                           | 185  |   |      |   | 215    |  
|Deferred income taxes and investment tax credits  net                                               |  |                           | 54   |   |      |   | 58     |  
|Net effect of unrealized mark-to-market valuations of commodity contracts                            |  |                           | (18  | ) |      |   | 31     |  
|Asset write-down and lease related charges                                                           |  |                           |     |   |      |   | 188    |  
|Decrease in accrued lease liability for out-of-service assets                                        |  |                           | (12  | ) |      |   |       |  
|Net gain on sales of assets                                                                          |  |                           | (1   | ) |      |   | (12    | )
|Change in regulatory-related liabilities                                                             |  |                           | (32  | ) |      |   | (34    | )
|Charge for contract counterparty nonperformance                                                      |  |                           | 12   |   |      |   |       |  
|Net equity loss from unconsolidated affiliates                                                       |  |                           | 3    |   |      |   |       |  
|Stock-based compensation expense                                                                     |  |                           | 6    |   |      |   | 9      |  
|Amortization of losses on dedesignated financing-related cash flow hedges                            |  |                           | 4    |   |      |   | 4      |  
|Bad debt expense                                                                                     |  |                           | 19   |   |      |   | 47     |  
|Changes in operating assets and liabilities                                                          |  |                           | (256 | ) |      |   | (39    | )
|                                                                                                     |  |                           |      |   |      |   |        |  
|Cash provided by operating activities                                                                |  |                           | 512  |   |      |   | 564    |  
|                                                                                                     |  |                          
|Cash flows  financing activities:                                                                   |  |                           |      |   |      |   |        |  
|Issuances of long-term debt                                                                          |  |                           | 71   |   |      |   |       |  
|Retirements/repurchases of debt                                                                      |  |                           | (40  | ) |      |   | (127   | )
|Increase in notes payable to banks                                                                   |  |                           | 950  |   |      |   | 1,675  |  
|Net change in advances from affiliates                                                               |  |                           | (966 | ) |      |   | (1,647 | )
|Distribution paid to parent                                                                          |  |                           | (350 | ) |      |   | (350   | )
|Debt premium, discount, financing and reacquisition expenses                                         |  |                           | (12  | ) |      |   | (2     | )
|                                                                                                     |  |                           |      |   |      |   |        |  
|Cash used in financing activities                                                                    |  |                           | (347 | ) |      |   | (451   | )
|                                                                                                     |  |                          
|Cash flows  investing activities:                                                                   |  |                           |      |   |      |   |        |  
|Capital expenditures                                                                                 |  |                           | (135 | ) |      |   | (105   | )
|Nuclear fuel                                                                                         |  |                           | (26  | ) |      |   | (48    | )
|Other                                                                                                |  |                           | (7   | ) |      |   | 26     |  
|                                                                                                     |  |                           |      |   |      |   |        |  
|Cash used in investing activities                                                                    |  |                           | (168 | ) |      |   | (127   | )
|                                                                                                     |  |                          
|Discontinued Operations                                                                              |  |                           |      |   |      |   |        |  
|Cash used in operating activities                                                                    |  |                           | (3   | ) |      |   | (2     | )
|                                                                                                     |  |                           |      |   |      |   |        |  
|Cash used in discontinued operations                                                                 |  |                           | (3   | ) |      |   | (2     | )
|                                                                                                     |  |                           |      |   |      |   |        |  
|Net change in cash and cash equivalents                                                              |  |                           | (6   | ) |      |   | (16    | )
|                                                                                                     |  |                          
|Cash and cash equivalents  beginning balance                                                        |  |                           | 70   |   |      |   | 18     |  
|                                                                                                     |  |                           |      |   |      |   |        |  
|Cash and cash equivalents  ending balance                                                           |  | $                         | 64   |   |      | $ | 2      |  
|                                                                                                     |  |                           |      |   |      |   |        |  



See Notes to Financial Statements.



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TXU ENERGY COMPANY LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                            |  |                       |        |   |                   |   |        |  
|--------------------------------------------------------------------------- |  | --------------------- | ------ | - | ----------------- | - | ------ | -
|                                                                            |  | June 30, 2005         |        |   | December 31, 2004 |  
|                                                                            |  | (millions of dollars) |       
|ASSETS                                                                      |  |                       |        |   |                   |   |        |  
|Current assets:                                                             |  |                       |        |   |                   |   |        |  
|Cash and cash equivalents                                                   |  | $                     | 64     |   |                   | $ | 70     |  
|Restricted cash                                                             |  |                       | 9      |   |                   |   | 6      |  
|Advances to parent                                                          |  |                       | 1,620  |   |                   |   | 686    |  
|Accounts receivable  trade                                                 |  |                       | 1,033  |   |                   |   | 1,139  |  
|Inventories                                                                 |  |                       | 293    |   |                   |   | 284    |  
|Commodity contract assets                                                   |  |                       | 999    |   |                   |   | 546    |  
|Other current assets                                                        |  |                       | 265    |   |                   |   | 233    |  
|                                                                            |  |                       |        |   |                   |   |        |  
|Total current assets                                                        |  |                       | 4,283  |   |                   |   | 2,964  |  
|                                                                            |  |                      
|Investments:                                                                |  |                       |        |   |                   |   |        |  
|Restricted cash                                                             |  |                       | 12     |   |                   |   | 15     |  
|Other investments                                                           |  |                       | 546    |   |                   |   | 538    |  
|Property, plant and equipment  net                                         |  |                       | 9,802  |   |                   |   | 9,920  |  
|Goodwill                                                                    |  |                       | 517    |   |                   |   | 517    |  
|Commodity contract assets                                                   |  |                       | 338    |   |                   |   | 315    |  
|Cash flow hedge and other derivative assets                                 |  |                       | 30     |   |                   |   | 8      |  
|Assets held for sale (Note 2)                                               |  |                       | 14     |   |                   |   | 17     |  
|Other noncurrent assets                                                     |  |                       | 236    |   |                   |   | 221    |  
|                                                                            |  |                       |        |   |                   |   |        |  
|Total assets                                                                |  | $                     | 15,778 |   |                   | $ | 14,515 |  
|                                                                            |  |                       |        |   |                   |   |        |  
|LIABILITIES AND MEMBERSHIP INTERESTS                                        |  |                       |        |   |                   |   |        |  
|Current liabilities:                                                        |  |                       |        |   |                   |   |        |  
|Notes payable  banks                                                       |  | $                     | 1,160  |   |                   | $ | 210    |  
|Long-term debt due currently                                                |  |                       | 431    |   |                   |   | 31     |  
|Trade accounts payable  nonaffiliates                                      |  |                       | 730    |   |                   |   | 956    |  
|Trade accounts and other payables from affiliates                           |  |                       | 391    |   |                   |   | 240    |  
|Commodity contract liabilities                                              |  |                       | 726    |   |                   |   | 491    |  
|Accrued taxes                                                               |  |                       | 154    |   |                   |   | 190    |  
|Other current liabilities                                                   |  |                       | 603    |   |                   |   | 613    |  
|                                                                            |  |                       |        |   |                   |   |        |  
|Total current liabilities                                                   |  |                       | 4,195  |   |                   |   | 2,731  |  
|                                                                            |  |                      
|Accumulated deferred income taxes                                           |  |                       | 2,106  |   |                   |   | 1,927  |  
|Investment tax credits                                                      |  |                       | 334    |   |                   |   | 342    |  
|Commodity contract liabilities                                              |  |                       | 526    |   |                   |   | 347    |  
|Cash flow hedge and other derivative liabilities                            |  |                       | 125    |   |                   |   | 178    |  
|Notes or other liabilities due TXU Electric Delivery                        |  |                       | 371    |   |                   |   | 386    |  
|Other noncurrent liabilities and deferred credits                           |  |                       | 890    |   |                   |   | 1,270  |  
|Long-term debt, less amounts due currently                                  |  |                       | 2,855  |   |                   |   | 3,226  |  
|Exchangeable preferred membership interest, net of discount ($231 and $239) |  |                       | 519    |   |                   |   | 511    |  
|Liabilities held for sale                                                   |  |                       | 4      |   |                   |   | 6      |  
|                                                                            |  |                       |        |   |                   |   |        |  
|Total liabilities                                                           |  |                       | 11,925 |   |                   |   | 10,924 |  
|                                                                            |  |                      
|Contingencies (Note 5)                                                      |  |                       |        |   |                   |   |        |  
|                                                                            |  |                      
|Membership interests (Note 4):                                              |  |                       |        |   |                   |   |        |  
|Capital account                                                             |  |                       | 3,949  |   |                   |   | 3,742  |  
|Accumulated other comprehensive loss                                        |  |                       | (96    | ) |                   |   | (151   | )
|                                                                            |  |                       |        |   |                   |   |        |  
|Total membership interests                                                  |  |                       | 3,853  |   |                   |   | 3,591  |  
|                                                                            |  |                       |        |   |                   |   |        |  
|Total liabilities and membership interests                                  |  | $                     | 15,778 |   |                   | $ | 14,515 |  
|                                                                            |  |                       |        |   |                   |   |        |  



See Notes to Financial Statements.



4



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##### Table of Contents

TXU ENERGY COMPANY LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS
|-- | --------------------------------------------



Description of Business  TXU Energy Holdings is a wholly-owned subsidiary of US Holdings, which is a wholly-owned subsidiary of TXU
Corp. TXU Energy Holdings is engaged in electricity generation and retail and wholesale energy sales. There are no reportable business segments within TXU Energy Holdings.



Discontinued Businesses  Note 2 presents detailed information regarding the discontinued New Jersey
generation operations and the strategic retail services business.



Basis of Presentation  The condensed consolidated financial statements of TXU Energy Holdings 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/A, except with respect to pension and other postretirement benefits as discussed in Note 7, as well as the changes in composite depreciation rates discussed immediately below. All other adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the results of operations and financial position have been included therein. The financial statements reflect reclassification of prior period amounts to conform to the current period presentation. All
intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to
the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and footnotes required by US GAAP, they should be read in conjunction with the audited financial statements
and related notes included in the 2004 Form 10-K/A. The results of operations for an interim period may not give a true indication of results for a full year.



Effective January 1, 2005, TXU Energy Holdings adjusted the composite depreciation rates related to lignite-fired generation facilities to better
reflect their useful lives, resulting in lower (as compared to the 2004 periods) depreciation expense for the three and six months ended June 30, 2005 of $3 million and $6 million ($2 million and $4 million after-tax), respectively.



All dollar amounts in the financial statements and tables in the notes are
stated in millions of US dollars unless otherwise indicated.



See Note 7 for a discussion of effects of a change in legislation regarding regulatory recovery of pension and other postretirement benefit costs.



Changes in Accounting Standards  Presented below are recently issued accounting standards that are expected to apply to TXU Energy
Holdings.



FIN 47 was issued in March 2005. This interpretation
clarifies the term conditional asset retirement and requires recognition of a liability for the fair value of the conditional asset retirement obligation when incurred if the liabilitys fair value can be reasonably estimated. This
interpretation is effective for TXU Energy Holdings with reporting for the fourth quarter of 2005. TXU Energy Holdings is currently evaluating the potential impact of this standard.



In March 2005, the FASB ratified the consensus reached in EITF 04-6 Accounting for Stripping Costs in the Mining
Industry. The consensus concludes that stripping costs incurred after a mine enters the production phase be treated as variable inventory production cost, which makes such costs subject to inventory costing procedures in the period they are
incurred. The consensus was later modified to clarify that inventory produced, as included in the consensus, means the same as inventory extracted. This consensus is effective for TXU Energy Holdings with reporting for the
first quarter of 2006. The implementation of EITF 04-6 is not expected to materially impact TXU Energy Holdings results of operations or financial position.



5



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##### Table of Contents

|2. | DISCONTINUED OPERATIONS
|-- | -----------------------



The following summarizes the historical consolidated financial information of the businesses reported as discontinued operations:



|                                    |  |                                  |    |   |                                |   |    |  
|----------------------------------- |  | -------------------------------- | -- | - | ------------------------------ | - | -- | -
|                                    |  | Three Months Ended June 30, 2005 |    |   | Six Months Ended June 30, 2005 |  
|Pedricktown                         |  |                                  |    |   |                                |   |    |  
|Operating revenues                  |  | $                                | 6  |   |                                | $ | 12 |  
|Operating costs and expenses        |  |                                  | 7  |   |                                |   | 14 |  
|                                    |  |                                  |    |   |                                |   |    |  
|Operating loss before income taxes  |  |                                  | (1 | ) |                                |   | (2 | )
|Income tax benefit (expense)        |  |                                  |   |   |                                |   |   |  
|Charges related to exit (after-tax) |  |                                  |   |   |                                |   | (2 | )
|                                    |  |                                  |    |   |                                |   |    |  
|Loss from discontinued operations   |  | $                                | (1 | ) |                                | $ | (4 | )
|                                    |  |                                  |    |   |                                |   |    |  



|                                    |  |                                  |     |   |                                |   |     |       |  |   |               |   |  |                           |     |   |       |   |     |   |  |   |     |  
|----------------------------------- |  | -------------------------------- | --- | - | ------------------------------ | - | --- | ----- |  | - | ------------- | - |  | ------------------------- | --- | - | ----- | - | --- | - |  | - | --- | -
|                                    |  | Three Months Ended June 30, 2004 |     |   | Six Months Ended June 30, 2004 |  
|                                    |  | Pedrick- town                    |     |   | Strategic Retail Services      |   |     | Total |  |   | Pedrick- town |   |  | Strategic Retail Services |     |   | Total |  
|Operating revenues                  |  | $                                | 8   |   |                                | $ | 4   |       |  | $ | 12            |   |  | $                         | 19  |   |       | $ | 10  |   |  | $ | 29  |  
|Operating costs and expenses        |  |                                  | 9   |   |                                |   | 5   |       |  |   | 14            |   |  |                           | 22  |   |       |   | 12  |   |  |   | 34  |  
|Other deductions (income)  net     |  |                                  |    |   |                                |   | 10  |       |  |   | 10            |   |  |                           |    |   |       |   | 10  |   |  |   | 10  |  
|                                    |  |                                  |     |   |                                |   |     |       |  |   |               |   |  |                           |     |   |       |   |     |   |  |   |     |  
|Operating loss before income taxes  |  |                                  | (1  | ) |                                |   | (11 | )     |  |   | (12           | ) |  |                           | (3  | ) |       |   | (12 | ) |  |   | (15 | )
|Income tax (benefit)                |  |                                  |    |   |                                |   | (3  | )     |  |   | (3            | ) |  |                           | (1  | ) |       |   | (5  | ) |  |   | (6  | )
|Charges related to exit (after-tax) |  |                                  | (17 | ) |                                |   | (1  | )     |  |   | (18           | ) |  |                           | (17 | ) |       |   | (4  | ) |  |   | (21 | )
|                                    |  |                                  |     |   |                                |   |     |       |  |   |               |   |  |                           |     |   |       |   |     |   |  |   |     |  
|Loss from discontinued operations   |  | $                                | (18 | ) |                                | $ | (9  | )     |  | $ | (27           | ) |  | $                         | (19 | ) |       | $ | (11 | ) |  | $ | (30 | )
|                                    |  |                                  |     |   |                                |   |     |       |  |   |               |   |  |                           |     |   |       |   |     |   |  |   |     |  



Pedricktown
 In the second quarter of 2004, TXU Energy Holdings initiated a plan to sell the Pedricktown, New Jersey 122 MW power production business and exit the related power supply and gas transportation agreements. The business was sold on
July 1, 2005 for $8.7 million in cash.



Strategic Retail
Services  In December 2003, TXU Energy Holdings finalized a formal plan to sell its strategic retail services business, which was engaged principally in providing energy management services. Substantially all disposition activities
have been completed.



Balance sheet The
following details the assets and liabilities of the Pedricktown operations held for sale:



|                              |  |               |    |                   |   |   
|----------------------------- |  | ------------- | -- | ----------------- | - | --
|                              |  | June 30, 2005 |    | December 31, 2004
|Current assets                |  | $             | 2  |                   | $ | 2 
|Property, plant and equipment |  |               | 12 |                   |   | 15
|                              |  |               |    |                   |   |   
|Assets held for sale          |  | $             | 14 |                   | $ | 17
|                              |  |               |    |                   |   |   
|Current liabilities           |  | $             | 2  |                   | $ | 3 
|Noncurrent liabilities        |  |               | 2  |                   |   | 3 
|                              |  |               |    |                   |   |   
|Liabilities held for sale     |  | $             | 4  |                   | $ | 6 
|                              |  |               |    |                   |   |   



6



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##### Table of Contents

3. FINANCING ARRANGEMENTS



Short-term Borrowings At June 30, 2005, TXU Energy Holdings had outstanding short-term borrowings
consisting of bank borrowings of $1.2 billion at a weighted average interest rate of 3.67%. At December 31, 2004, TXU Energy Holdings had outstanding short-term borrowings consisting of bank borrowings of $210 million at a weighted average interest
rate of 5.25%.



Credit Facilities At June 30, 2005, TXU Energy Holdings had access to credit facilities (some of which provide for long-term borrowings) as follows:



|                                     |  |               |                |                                            |                   |                  |                 |  |              |     |  |   |       |  |   |      
|------------------------------------ |  | ------------- | -------------- | ------------------------------------------ | ----------------- | ---------------- | --------------- |  | ------------ | --- |  | - | ----- |  | - | -----
|Facility                             |  | Maturity Date |                | Authorized Borrowers                       |                   | At June 30, 2005
|                                     |  |               | Facility Limit |                                            | Letters of Credit |                  | Cash Borrowings |  | Availability
|Three-Year Revolving Credit Facility |  | June 2008     |                | TXU Energy Holdings, TXU Electric Delivery |                   | $                | 1,400           |  | $            | 167 |  | $ | 410   |  | $ | 823  
|Five-Year Revolving Credit Facility  |  | March 2010    |                | TXU Energy Holdings, TXU Electric Delivery |                   |                  | 1,600           |  |              |    |  |   | 620   |  |   | 980  
|Five-Year Revolving Credit Facility  |  | June 2010     |                | TXU Energy Holdings, TXU Electric Delivery |                   |                  | 500             |  |              |    |  |   | 245   |  |   | 255  
|Five-Year Revolving Credit Facility  |  | December 2009 |                | TXU Energy Holdings                        |                   |                  | 500             |  |              | 455 |  |   | 45    |  |   |     
|Total                                |  |               |                |                                            |                   | $                | 4,000           |  | $            | 622 |  | $ | 1,320 |  | $ | 2,058



In March 2005, TXU
Energy Holdings and TXU Electric Delivery amended their joint credit facilities, increasing the capacity from $2.5 billion to $3.5 billion, extending the maturity dates and reducing the borrowing costs. The amended and restated facilities can be
used for working capital and general corporate purposes, including providing back-up for any future issuances of commercial paper by TXU Energy Holdings or TXU Electric Delivery and letters of credit. At June 30, 2005, there was no commercial paper
outstanding. The maximum amount directly available to TXU Electric Delivery under the facilities is $2.8 billion.



In January 2005, TXU Corp.s $425 million credit facility was terminated and $419 million of related outstanding letters of credit were effectively
transferred to other facilities.



Sale of
Receivables  TXU Corp. has had an accounts receivable securitization program in place for a number of years. The activity under this program is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the
program, subsidiaries of TXU Corp. (originators) sell trade accounts receivable to TXU Receivables Company, a consolidated wholly-owned bankruptcy remote direct subsidiary of TXU Corp., which sells undivided interests in the purchased accounts
receivable for cash to special purpose entities established by financial institutions (the funding entities). In June 2005, the program was renewed until June 2008. Funding under the program to TXU Energy Holdings as of June 30, 2005 was $406
million.



The maximum amount of funding available under the
program is $700 million. Under certain circumstances, the amount of customer deposits held by the originators can reduce the amount of undivided interests that can be sold, thus reducing funding available under the program. Previously, this
reduction was determined by the originators credit rating. Undivided interests were reduced by 100% of the customer deposits for a Baa3/BBB- rating; 50% for a Baa2/BBB rating; and zero % for a Baa1/BBB+ and above rating. Effective with the
June 2005 renewal, this reduction is based only on TXU Energy Holdings fixed charge coverage ratio. Under the renewal, funding availability for all originators is reduced by 100% of the customer deposits if TXU Energy Holdings coverage
ratio is less than 2.5 times; 50% if TXU Energy Holdings coverage ratio is less than 3.25 times, but at least 2.5 times; and zero % if TXU Energy Holdings coverage ratio is 3.25 times or more. At June 30, 2005, customer deposits were
$108 million and TXU Energy Holdings coverage ratio was in excess of 3.25 times.



7



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##### Table of Contents

All new trade receivables under the program generated by the originators are continuously purchased by
TXU Receivables Company with the proceeds from collections of receivables previously purchased. Changes in the amount of funding under the program, through changes in the amount of undivided interests sold by TXU Receivables Company, are generally
due to seasonal variations in the level of accounts receivable and changes in collection trends. TXU Receivables Company has issued subordinated notes payable to the originators for the difference between the face amount of the uncollected accounts
receivable purchased, less a discount, and cash paid to the originators that was funded by the sale of the undivided interests. The balance of the subordinated notes issued to TXU Energy Holdings, which is reported in accounts receivable, was $230
million at June 30, 2005 and $293 million at December 31, 2004.



The discount from face amount on the purchase of receivables principally funds program fees paid by TXU Receivables Company to the funding entities, as well as a servicing fee paid by TXU Receivables Company to TXU Business Services, a
direct subsidiary of TXU Corp. The program fees (losses on sale), which consist primarily of interest costs on the underlying financing, were approximately $7 million and $4 million for the six-month periods ending June 30, 2005 and 2004,
respectively, and approximated 3.7% and 2.1% for the first six months of 2005 and 2004, respectively, of the average funding under the program on an annualized basis; these fees represent the net incremental costs of the program to TXU Energy
Holdings and are reported in SG&A expenses. The servicing fee, which totaled approximately $2 million in the first six months of 2005 and 2004, compensates TXU Business Services for its services as collection agent, including maintaining the
detailed accounts receivable collection records.



The June 30,
2005 consolidated balance sheet reflects $636 million face amount of trade accounts receivable, such amount having been reduced by $406 million of undivided interests sold by TXU Receivables Company. Funding under the program to TXU Energy Holdings
decreased $5 million and $59 million for the six months ended June 30, 2005 and 2004, respectively. Funding increases or decreases under the program are reflected as operating cash flow activity in the statement of cash flows. The carrying amount of
the retained interests in the accounts receivable approximated fair value due to the short-term nature of the collection period.



Activities of TXU Receivables Company related to TXU Energy Holdings for the six months ended June 30, 2005 and 2004 were as follows:



|                                                                   |  |                           |        |   |      |   |        |  
|------------------------------------------------------------------ |  | ------------------------- | ------ | - | ---- | - | ------ | -
|                                                                   |  | Six Months Ended June 30, |       
|                                                                   |  | 2005                      |        |   | 2004 |  
|Cash collections on accounts receivable                            |  | $                         | 2,786  |   |      | $ | 3,035  |  
|Face amount of new receivables purchased                           |  |                           | (2,718 | ) |      |   | (2,903 | )
|Discount from face amount of purchased receivables                 |  |                           | 9      |   |      |   | 6      |  
|Program fees paid                                                  |  |                           | (7     | ) |      |   | (4     | )
|Servicing fees paid                                                |  |                           | (2     | ) |      |   | (2     | )
|Decrease in subordinated notes payable                             |  |                           | (63    | ) |      |   | (73    | )
|                                                                   |  |                           |        |   |      |   |        |  
|Operating cash flows used by TXU Energy Holdings under the program |  | $                         | 5      |   |      | $ | 59     |  
|                                                                   |  |                           |        |   |      |   |        |  



Upon termination of
the program, cash flows to TXU Energy Holdings would be delayed as collections of sold receivables would be used by TXU Receivables Company to repurchase the undivided interests sold instead of purchasing new receivables. The level of cash flows
would normalize in approximately 16 to 31 days.



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



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



| | 2) | the delinquency ratio (delinquent for 31 days) for the sold receivables, the default ratio (delinquent for 91 days or deemed uncollectible), the dilution ratio (reductions for
discounts, disputes and other allowances) or the days collection outstanding ratio exceed stated thresholds and the financial institutions do not waive such event of termination. The thresholds apply to the entire portfolio of sold receivables, not
separately to the receivables of each originator.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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##### Table of Contents

Long-term Debt  At June 30, 2005 and December 31, 2004, the long-term debt of TXU
Energy Holdings and its consolidated subsidiaries consisted of the following:



|                                                                                   |  |               |       |                   |   |      
|---------------------------------------------------------------------------------- |  | ------------- | ----- | ----------------- | - | -----
|                                                                                   |  | June 30, 2005 |       | December 31, 2004
|Pollution Control Revenue Bonds:                                                   |  |               |       |                   |   |      
|Brazos River Authority:                                                            |  |               |       |                   |   |      
|3.000% Fixed Series 1994A due May 1, 2029, remarketing date May 1, 2005(a)         |  | $             |      |                   | $ | 39   
|5.400% Fixed Series 1994B due May 1, 2029, remarketing date May 1, 2006(a)         |  |               | 39    |                   |   | 39   
|5.400% Fixed Series 1995A due April 1, 2030, remarketing date May 1, 2006(a)       |  |               | 50    |                   |   | 50   
|5.050% Fixed Series 1995B due June 1, 2030, remarketing date June 19, 2006(a)      |  |               | 114   |                   |   | 114  
|7.700% Fixed Series 1999A due April 1, 2033                                        |  |               | 111   |                   |   | 111  
|6.750% Fixed Series 1999B due September 1, 2034, remarketing date April 1, 2013(a) |  |               | 16    |                   |   | 16   
|7.700% Fixed Series 1999C due March 1, 2032                                        |  |               | 50    |                   |   | 50   
|2.400% Floating Series 2001A due October 1, 2030(b)                                |  |               | 71    |                   |   |     
|4.750% Fixed Series 2001B due May 1, 2029, remarketing date November 1, 2006(a)    |  |               | 19    |                   |   | 19   
|5.750% Fixed Series 2001C due May 1, 2036, remarketing date November 1, 2011(a)    |  |               | 217   |                   |   | 217  
|2.330% Floating Series 2001D due May 1, 2033(b)                                    |  |               | 268   |                   |   | 268  
|3.300% Floating Taxable Series 2001I due December 1, 2036(b)                       |  |               | 62    |                   |   | 62   
|2.400% Floating Series 2002A due May 1, 2037(b)                                    |  |               | 45    |                   |   | 45   
|6.750% Fixed Series 2003A due April 1, 2038, remarketing date April 1, 2013(a)     |  |               | 44    |                   |   | 44   
|6.300% Fixed Series 2003B due July 1, 2032                                         |  |               | 39    |                   |   | 39   
|6.750% Fixed Series 2003C due October 1, 2038                                      |  |               | 52    |                   |   | 52   
|5.400% Fixed Series 2003D due October 1, 2029, remarketing date October 1, 2014(a) |  |               | 31    |                   |   | 31   
|Sabine River Authority of Texas:                                                   |  |               |       |                   |   |      
|6.450% Fixed Series 2000A due June 1, 2021                                         |  |               | 51    |                   |   | 51   
|5.500% Fixed Series 2001A due May 1, 2022, remarketing date November 1, 2011(a)    |  |               | 91    |                   |   | 91   
|5.750% Fixed Series 2001B due May 1, 2030, remarketing date November 1, 2011(a)    |  |               | 107   |                   |   | 107  
|5.800% Fixed Series 2003A due July 1, 2022                                         |  |               | 12    |                   |   | 12   
|6.150% Fixed Series 2003B due August 1, 2022                                       |  |               | 45    |                   |   | 45   
|Trinity River Authority of Texas:                                                  |  |               |       |                   |   |      
|6.250% Fixed Series 2000A due May 1, 2028                                          |  |               | 14    |                   |   | 14   
|5.000% Fixed Series 2001A due May 1, 2027, remarketing date November 1, 2006(a)    |  |               | 37    |                   |   | 37   
|Other:                                                                             |  |               |       |                   |   |      
|6.875% TXU Mining Fixed Senior Notes due August 1, 2005                            |  |               | 30    |                   |   | 30   
|6.125% Fixed Senior Notes due March 15, 2008(c)                                    |  |               | 250   |                   |   | 250  
|7.000% Fixed Senior Notes due March 15, 2013                                       |  |               | 1,000 |                   |   | 1,000
|3.920% Floating Rate Senior Notes due January 17, 2006(d)                          |  |               | 400   |                   |   | 400  
|Capital lease obligations                                                          |  |               | 8     |                   |   | 9    
|Fair value adjustments related to interest rate swaps                              |  |               | 13    |                   |   | 15   
|                                                                                   |  |               |       |                   |   |      
|Total TXU Energy Holdings                                                          |  |               | 3,286 |                   |   | 3,257
|                                                                                   |  |              
|Less amount due currently                                                          |  |               | 431   |                   |   | 31   
|                                                                                   |  |               |       |                   |   |      
|Total long-term debt                                                               |  | $             | 2,855 |                   | $ | 3,226
|                                                                                   |  |               |       |                   |   |      

---

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

|(b) | Interest rates in effect at June 30, 2005. These series are in a weekly rate mode and are classified as long-term as they are supported by long-term irrevocable letters of credit.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Interest rates swapped to floating on an aggregate $250 million principal amount.
|--- | ---------------------------------------------------------------------------------

|(d) | Interest rates in effect at June 30, 2005.
|--- | ------------------------------------------



In May 2005, TXU Energy Holdings repurchased all of the Brazos River Authority Pollution Control Revenue (Refunding) Bonds Series 1994A, in an aggregate
principal amount of $39 million, at a price of 100% of the principal amount thereof, upon the scheduled mandatory tender date for this series. TXU Energy Holdings currently plans to remarket the bonds later this year.



In January 2005, TXU Energy Holdings remarketed and converted to floating
rate mode the Brazos River Authority Series 2001A pollution control revenue bonds with an aggregate principal amount of $71 million. The bonds were purchased upon mandatory tender in April 2004.



9



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##### Table of Contents

Fair Value Hedges TXU Energy Holdings uses fair value hedging strategies to manage
its exposure to fixed interest rates on long-term debt. At June 30, 2005, $250 million of fixed rate debt had been effectively converted to variable rates through interest rate swap transactions, expiring through 2008. These swaps qualified for and
have been designated as fair value hedges in accordance with SFAS 133 (under the short-cut method as the hedges are 100% effective).



4. MEMBERSHIP INTERESTS



Under SFAS 123R, compensation expense related to TXU Corp. share-based awards for TXU Energy Holdings employees is accounted for as a noncash
capital contribution from the parent. Accordingly, TXU Energy Holdings recorded a $6 million credit to common membership interests in the second quarter of 2005. In addition, TXU Energy Holdings recorded a $7 million credit to common membership
interests for the effect of the tax deduction amount exceeding the reported compensation expense for TXU Corp. share-based awards vested in the second quarter of 2005.



In November 2004, TXU Energy Holdings approved a cash distribution of $175 million that was paid to US Holdings in January
2005. In February 2005, TXU Energy Holdings approved a cash distribution of $175 million that was paid to US Holdings in April 2005. In May 2005, TXU Energy Holdings approved a cash distribution of $175 million that was paid to US Holdings in July
2005.



The following table presents the changes in membership
interests for the six months ended June 30, 2005:



|                                        |  |                  |       |   |                                             |   |      |                            |  |   |       |  
|--------------------------------------- |  | ---------------- | ----- | - | ------------------------------------------- | - | ---- | -------------------------- |  | - | ----- | -
|                                        |  | Capital Accounts |       |   | Accumulated Other Comprehensive Gain (Loss) |   |      | Total Membership Interests | 
|Balance at December 31, 2004            |  | $                | 3,742 |   |                                             | $ | (151 | )                          |  | $ | 3,591 |  
|Distributions paid to parent            |  |                  | (350  | ) |                                             |   |     |                            |  |   | (350  | )
|Net income                              |  |                  | 544   |   |                                             |   |     |                            |  |   | 544   |  
|Net effects of cash flow hedges         |  |                  |      |   |                                             |   | 48   |                            |  |   | 48    |  
|Effects of incentive compensation plans |  |                  | 13    |   |                                             |   |     |                            |  |   | 13    |  
|Other                                   |  |                  |      |   |                                             |   | 7    |                            |  |   | 7     |  
|                                        |  |                  |       |   |                                             |   |      |                            |  |   |       |  
|Balance at June 30, 2005                |  | $                | 3,949 |   |                                             | $ | (96  | )                          |  | $ | 3,853 |  
|                                        |  |                  |       |   |                                             |   |      |                            |  |   |       |  



5. CONTINGENCIES



Guarantees TXU Energy Holdings has entered into
contracts that contain guarantees to outside parties that could require performance or payment under certain conditions. Accounting rules require the recording of a liability for all guarantees entered into subsequent to December 31, 2002. These
guarantees are described below.



Residual value
guarantees in operating leases  TXU Energy Holdings is the lessee under various operating leases that obligate it to guarantee the residual values of the leased assets. At June 30, 2005, both the aggregate maximum amount of residual values
guaranteed and the estimated residual recoveries totaled approximately $192 million. The substantial majority of the maximum guarantee amount relates to leases entered into prior to December 31, 2002. The average life of the lease portfolio is
approximately six years.



Debt obligations of the
parent TXU Energy Holdings has provided a guarantee of the obligations under TXU Corp.s financing lease (approximately $115 million at June 30, 2005) for its headquarters building.



Letters of credit TXU Energy Holdings has entered into various
agreements that require letters of credit for financial assurance purposes. Under its five-year revolving credit facility, letters of credit totaling $455 million were outstanding at June 30, 2005 to support existing floating rate pollution control
revenue bond debt of approximately $445 million. The letters of credit are available to fund the payment of such debt obligations. These letters of credit have expiration dates in 2009.



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At June 30, 2005, TXU Energy Holdings has outstanding letters of credit under the three-year revolving
credit facility in the amount of $133 million to support hedging and risk management margin requirements in the normal course of business and for miscellaneous credit support requirements. As of June 30, 2005, approximately 48% of the obligations
supported by these letters of credit mature within one year, and substantially all of the remainder mature in the next two years.



Surety bonds  TXU Energy Holdings has outstanding surety bonds of approximately $29 million to support performance under various subsidiary
contracts and legal obligations in the normal course of business. The term of the surety bond obligations is approximately one year.



Legal Proceedings  On March 18, 2005, TXU Corp. received a subpoena from the SEC. The subpoena requires TXU Corp. to produce documents
and other information for the period from January 1, 2001 to March 31, 2003 relating to, among other things, the financial distress at TXU Europe during 2002 and the resulting financial condition of TXU Corp., TXU Corp.s reduction of its
quarterly dividend in October 2002, and the following two previously disclosed claims against TXU Corp. and certain other persons named in such claims: (i) a lawsuit brought in April 2003 by a former employee of TXU Portfolio Management, William J.
Murray (Murray Litigation) and (ii) various consolidated lawsuits brought by various shareholders of TXU Corp. during late 2002 and January 2003 (Shareholders Litigation). The documents accompanying the subpoena state that (i) the SEC is
conducting a fact-finding inquiry for purposes of allowing it to determine whether there have been any violations of the federal securities laws and (ii) the request does not mean the SEC has concluded that TXU Corp. or any other person has violated
the law. Although TXU Corp. cannot predict the outcome of the SEC inquiry, TXU Corp. does not believe there was any basis for the claims made in the Murray Litigation, which has now been settled. In addition, TXU Corp. has executed a
memorandum of understanding regarding the settlement of the Shareholders Litigation. A final settlement stipulation has been signed and filed with the Court and the Court entered an order April 11, 2005 granting preliminary approval of the
settlement. The Court held a hearing on June 23, 2005 to consider final approval of the settlement but has not yet granted such final approval. TXU Corp. has cooperated, and intends to continue to cooperate, with the SEC. In addition, on July 12,
2005, Mr. Erle Nye, currently a director of TXU Corp. and formerly the CEO and Chairman of the Board of TXU Corp., received a similar fact-finding subpoena from the SEC. Mr. Nye has informed TXU Corp. that he is in the process of
responding to the SEC.



On February 18, 2005, a lawsuit was
filed by Utility Choice, L.P. and Cirro Group, Inc. in the United States District Court for the Southern District of Texas, Houston Division, against TXU Corp. and certain of its subsidiaries, as well as various other wholesale market participants
doing business in ERCOT, claiming generally that defendants engaged in a variety of anticompetitive conduct, including market manipulation in violation of antitrust and other laws. This lawsuit had been stayed pending a ruling on the Texas
Commercial Energy (TCE) lawsuit described below. The Court subsequently lifted the stay and has entered an order following a July 21, 2005 conference setting a briefing schedule for the defendants to file motions to dismiss. TXU Corp. believes that
claims against it and its subsidiary companies are without merit and that the dismissal of the TCE litigation requires that this case be dismissed as well. TXU Corp. and its subsidiaries intend to vigorously defend the lawsuit. TXU Energy Holdings
is, however, unable to estimate any possible loss or predict the outcome of this action.



Between October 19 and December 30, 2004, ten lawsuits were filed in various California superior courts by purported customers against TXU Corp., TXU Energy Trading Company (a subsidiary of TXU Energy Holdings) and
TXU Energy Services (a subsidiary of TXU Energy Holdings) and other marketers, traders, transporters and sellers of natural gas in California. Plaintiffs allege that beginning at least by the summer of 2000, defendants manipulated and fixed at
artificially high levels natural gas prices in California in violation of the Cartwright Act and other California state laws. These lawsuits have been coordinated in the San Diego Superior Court with numerous other natural gas actions as In re
Natural Gas Anti-Trust Cases I, II, III, IV and V. TXU Corp. believes the claims against TXU Corp. and its subsidiaries are without merit, and intends to vigorously defend the lawsuits. TXU Energy Holdings is, however, unable to estimate any
possible loss or predict the outcome of these actions.



On July
7, 2003, a lawsuit was filed by TCE in the United States District Court for the Southern District of Texas, Corpus Christi Division, against TXU Energy Holdings and certain of its subsidiaries, as well as various other wholesale market participants
doing business in ERCOT, claiming generally that defendants engaged in market manipulation, in violation of antitrust and other laws, primarily during the period of extreme weather



11



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conditions in late February 2003. An amended complaint was filed in February 2004 that joined additional, unaffiliated
defendants. Three retail electric providers filed motions for leave to intervene in the action alleging claims substantially identical to TCEs. In addition, approximately 25 purported former customers of TCE filed a motion to intervene in the
action alleging claims substantially identical to TCEs, both on their own behalf and on behalf of a putative class of all former customers of TCE. An order granting TXU Energy Holdings Motion to Dismiss based on the filed rate doctrine
was entered on June 24, 2004. TCE has appealed the dismissal; however, TXU Energy Holdings believes the dismissal of the antitrust claims was proper and that it has not committed any violation of the antitrust laws. The appeal remains pending before
the Fifth Circuit Court of Appeals; however, the Court has issued an opinion affirming the dismissal. TXU Energy Holdings believes that TCEs and the intervenors claims are without merit, and intends to vigorously defend the lawsuit on
any further appeal. TXU Energy Holdings is, however, unable to estimate any possible loss or predict the outcome of this action.



On April 28, 2003, a lawsuit referred to above as the Murray Litigation was filed by a former employee of TXU Portfolio Management in the United States
District Court for the Northern District of Texas, Dallas Division, against TXU Corp., TXU Energy Holdings and TXU Portfolio Management. The plaintiff asserted claims under Section 806 of Sarbanes-Oxley arising from the termination of
plaintiffs employment and claims for breach of contract relating to payment of certain bonuses. Plaintiff sought back pay, payment of bonuses and alternatively, reinstatement or future compensation, including bonuses. In June 2005, this
lawsuit was settled between the parties through a confidential mediation process. As a result of the settlement, the pending litigation has been dismissed.



On March 10, 2003, a lawsuit was filed by Kimberly P. Killebrew in the United States District Court for the Eastern District of Texas, Lufkin Division,
against TXU Corp. and TXU Portfolio Management, asserting generally that defendants engaged in manipulation of the wholesale electric market, in violation of antitrust and other laws. This case was transferred to the Beaumont Division of the Eastern
District of Texas and on March 24, 2004 was transferred to the Northern District of Texas, Dallas Division. This action is brought by an individual, alleging to be a retail consumer of electricity, on behalf of herself and as a proposed
representative of a putative class of retail purchasers of electricity that are similarly situated. Defendants have filed a motion to dismiss the lawsuit which is pending before the court; however, as a result of the dismissal of the antitrust
claims in the litigation described above brought by TCE, the parties have agreed to stay this litigation until the appeal in the TCE case is final. TXU Energy Holdings believes that the plaintiff lacks standing to assert any antitrust claims, that
the defendants have not violated antitrust laws or other laws as claimed by plaintiff and that dismissal of the TCE litigation requires that this case be dismissed as well. Therefore, TXU Energy Holdings believes that plaintiffs claims are
without merit and plans to vigorously defend the lawsuit. TXU Energy Holdings is, however, unable to estimate any possible loss or predict the outcome of this action.



General In addition to the above, TXU Energy Holdings. is involved in various other legal and
administrative proceedings in the normal course of business the ultimate resolution of which, in the opinion of management, should not have a material effect upon its financial position, results of operations or cash flows.



12



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|6. | DERIVATIVES AND HEDGES
|-- | ----------------------



As of June 30, 2005, it is expected that $41 million of after-tax net losses accumulated in other comprehensive income will be reclassified into earnings
during the next twelve months. This amount primarily represents amortization of dedesignated hedge losses as the hedged transactions are settled. Of this amount, $35 million relates to commodity hedges and $6 million relates to financing-related
hedges.



TXU Energy Holdings experienced no cash flow net hedge
ineffectiveness for the three months ended June 30, 2005 and $1 million, reported as a gain in revenues, for the six months ended June 30, 2005. For the three and six months ended June 30, 2004, TXU Energy Holdings experienced net cash flow hedge
ineffectiveness of $5 million and $17 million, respectively, reported as a loss in revenues.



The net effect of recording unrealized mark-to-market gains and losses arising from hedge ineffectiveness (versus recording gains and losses upon settlement) includes the above amounts as well as the effect of
reversing unrealized gains and losses recorded in previous periods to offset realized gains and losses in the current period. Such net effect totaled $3 million and $6 million, respectively, in net gains for the three and six months ended June 30,
2005 and $2 million and $17 million, respectively, in net losses for the three and six months ended June 30, 2004.



|7. | SUPPLEMENTARY FINANCIAL INFORMATION
|-- | -----------------------------------



Other Income and Deductions 



|                                                            |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|----------------------------------------------------------- |  | --------------------------- | -- | ------------------------- | - | ---- |  | - | ---- | - |  | - | ---
|                                                            |  | Three Months Ended June 30, |    | Six Months Ended June 30,
|                                                            |  | 2005                        |    | 2004                      |   | 2005 |  |   | 2004
|Other income:                                               |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|Net gain on sales of assets (a)                             |  | $                           | 2  |                           | $ | 11   |  | $ | 1    |   |  | $ | 12 
|Power services agreement termination fee                    |  |                             | 4  |                           |   |     |  |   | 4    |   |  |   |   
|Other                                                       |  |                             |   |                           |   | 1    |  |   | 3    |   |  |   | 1  
|                                                            |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|Total other income                                          |  | $                           | 6  |                           | $ | 12   |  | $ | 8    |   |  | $ | 13 
|                                                            |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|Other deductions:                                           |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|Charge related to coal contract counterparty nonperformance |  | $                           |   |                           | $ |     |  | $ | 12   |   |  | $ |   
|Software write-off                                          |  |                             |   |                           |   | 109  |  |   |     |   |  |   | 109
|Spare parts write-down                                      |  |                             |   |                           |   | 79   |  |   |     |   |  |   | 79 
|Capgemini outsourcing transition costs                      |  |                             | 2  |                           |   |     |  |   | 6    |   |  |   |   
|Employee severance                                          |  |                             | 3  |                           |   | 70   |  |   | (1   | ) |  |   | 86 
|Increase (decrease) in lease liability (b)                  |  |                             | 3  |                           |   |     |  |   | (12  | ) |  |   |   
|Other                                                       |  |                             | 4  |                           |   | 3    |  |   | 8    |   |  |   | 7  
|                                                            |  |                             |    |                           |   |      |  |   |      |   |  |   |    
|Total other deductions                                      |  | $                           | 12 |                           | $ | 261  |  | $ | 13   |   |  | $ | 281
|                                                            |  |                             |    |                           |   |      |  |   |      |   |  |   |    

---

|(a) | In 2004, principally amortization of deferred gains.
|--- | ----------------------------------------------------

|(b) | In December 2004, TXU Energy Holdings committed to immediately cease operating for its own benefit nine leased gas-fired combustion turbines, and recorded a charge of $157 million
reported in other deductions. The charge represented the present value of the future lease payments related to the turbines, net of estimated sublease proceeds. An adjustment of $15 million was recorded in the first quarter of 2005 to reflect
indicative sublease bids received that exceeded the originally estimated sublease proceeds. A further true-up of the sublease proceeds for leases entered into resulted in a charge of $3 million in the second quarter of 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Severance Liability Related to
Restructuring Activities 



|                                                    |  |   |     |  
|--------------------------------------------------- |  | - | --- | -
|Liability for severance costs as of January 1, 2005 |  | $ | 42  |  
|Additions to liability                              |  |   | 1   |  
|Payments charged against liability                  |  |   | (12 | )
|Other adjustments to the liability                  |  |   | (3  | )
|                                                    |  |   |     |  
|Liability for severance costs as of June 30, 2005   |  | $ | 28  |  
|                                                    |  |   |     |  



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Interest Expense and Related Charges 



|                                                    |  |                             |    |   |                           |   |    |      |  |   |      |   |  |   |     |  
|--------------------------------------------------- |  | --------------------------- | -- | - | ------------------------- | - | -- | ---- |  | - | ---- | - |  | - | --- | -
|                                                    |  | Three Months Ended June 30, |    |   | Six Months Ended June 30, |  
|                                                    |  | 2005                        |    |   | 2004                      |   |    | 2005 |  |   | 2004 |  
|Interest                                            |  | $                           | 72 |   |                           | $ | 71 |      |  | $ | 139  |   |  | $ | 129 |  
|Distributions on preferred membership interests (a) |  |                             | 17 |   |                           |   | 17 |      |  |   | 34   |   |  |   | 34  |  
|Amortization of discount and debt issuance costs    |  |                             | 8  |   |                           |   | 6  |      |  |   | 17   |   |  |   | 12  |  
|Interest capitalized in accordance with SFAS 34     |  |                             | (3 | ) |                           |   | (1 | )    |  |   | (5   | ) |  |   | (3  | )
|                                                    |  |                             |    |   |                           |   |    |      |  |   |      |   |  |   |     |  
|Total interest expense and related charges          |  | $                           | 94 |   |                           | $ | 93 |      |  | $ | 185  |   |  | $ | 172 |  
|                                                    |  |                             |    |   |                           |   |    |      |  |   |      |   |  |   |     |  

---

|(a) | In April 2004, TXU Corp. purchased TXU Energy Holdings preferred membership interests from unaffiliated holders, and subsequent to this purchase, TXU Energy Holdings has paid
distributions on the preferred membership interests to TXU Corp.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Affiliate Transactions  The following represent the significant affiliate transactions of TXU Energy Holdings:



| |  |  | TXU Energy Holdings incurs electricity delivery fees charged by TXU Electric Delivery. For the three months ended June 30, 2005 and 2004, these fees totaled $304 million and $335
million, respectively. For the six months ended June 30, 2005 and 2004, these fees totaled $615 million and $685 million, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TXU Energy Holdings records interest expense to TXU Electric Delivery with respect to TXU Electric Deliverys generation-related regulatory assets, which have been securitized
through the issuance of transition bonds by TXU Electric Delivery. The interest expense serves to offset TXU Electric Deliverys interest expense on the transition bonds. For the three months ended June 30, 2005 and 2004, this interest expense
totaled $14 million. For the six months ended June 30, 2005 and 2004, this interest expense totaled $28 million and $25 million, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The incremental income taxes TXU Electric Delivery will pay on the increased delivery fees to be charged to TXU Electric Deliverys customers related to the transition bonds
will be reimbursed by TXU Energy Holdings. Therefore, TXU Energy Holdings financial statements reflect a payable of $403 million to TXU Electric Delivery ($32 million of which is classified as due currently) at June 30, 2005 and $435 million
($49 million of which is classified as due currently) at December 31, 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The average daily balances of short-term advances to parent during the three months ended June 30, 2005 and 2004 was $1 billion. Interest income earned on the advances for the three
months ended June 30, 2005 and 2004 was $10 million and $7 million, respectively. The weighted average interest rate for the three months ended June 30, 2005 and 2004 was 3.72% and 2.85%, respectively. The average daily balances of short-term
advances to affiliates during the six months ended June 30, 2005 and 2004 was $853 million and $620 million, respectively. Interest income earned on the advances for the six months ended June 30, 2005 and 2004 was $16 million and $9 million,
respectively. The weighted average interest rate for the six months ended June 30, 2005 and 2004 was 3.70% and 2.85%, respectively. Advances to affiliates may be settled in the form of dividends to US Holdings.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TXU Corp. charges TXU Energy Holdings for certain administrative services at cost. These costs, which are primarily included in SG&A expenses, totaled $14 million and $83
million for the three months ended June 30, 2005 and 2004, respectively. These costs totaled $28 million and $134 million for the six months ended June 30, 2005 and 2004, respectively. Effective July 1, 2004, under TXU Energy Holdings ten year
services agreement with Capgemini, several of the services previously performed by TXU Corp. are now provided to TXU Energy Holdings by Capgemini.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TXU Energy Holdings received payments from TXU Gas under a service agreement that began in 2002 and ended June 30, 2004 and covered customer billing and customer support services
provided for TXU Gas. These revenues totaled $8 million and $15 million for the three and six months ended June 30, 2004, respectively, and are included in other revenues. On October 1, 2004, TXU Corp. and Atmos Energy Corporation completed a merger
by division in which Atmos Energy Corporation acquired TXU Gas operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under Texas regulatory provisions, the trust fund for decommissioning the Comanche Peak nuclear generation facility, reported in investments on TXU Energy Holdings balance
sheet, is funded by a delivery fee surcharge collected from REPs by TXU Electric Delivery and remitted to TXU Energy Holdings, with the intent that the trust fund assets will be sufficient to fund the decommissioning
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

liability, reported in noncurrent liabilities on TXU Energy Holdings balance sheet. Income and
expenses associated with the trust fund and decommissioning liability incurred by TXU Energy Holdings are offset by a net change in the intercompany receivable/payable with TXU Electric Delivery, which in turn results in a change in a net regulatory
asset/liability. The regulatory asset, which totaled $37 million at June 30, 2005 and is reported on TXU Electric Deliverys balance sheet, represents the excess of the decommissioning liability over the trust fund balance.



| |  |  | In April 2004, TXU Corp. purchased TXU Energy Holdings exchangeable preferred membership interests from unaffiliated holders, and as a result TXU Energy Holdings has paid
distributions to TXU Corp. on these securities, which remain outstanding, since the purchase. Interest expense and related charges associated with these securities, including amortization of the related discount, totaled $17 million and $34 million
for the three and six months ended June 30, 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | See Note 3 for information regarding the accounts receivable securitization program and the related subordinated notes receivable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also see discussion immediately below regarding a change in allocation of pension and other postretirement benefit costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



Pension and Other Postretirement Benefits TXU Energy
Holdings is a participating employer in the pension plan sponsored by TXU Corp. TXU Energy Holdings also participates with TXU Corp. and other subsidiaries of TXU Corp. to offer health care and life insurance benefits to eligible employees and their
eligible dependents upon the retirement of such employees. The allocated pension and other postretirement benefit costs applicable to TXU Energy Holdings totaled less than $1 million and $15 million for the three month periods ended June 30, 2005
and 2004, respectively, and $7 million and $31 million for the six month periods ended June 30, 2005 and 2004, respectively.



Effective January 1, 2005, TXU Electric Delivery and TXU Energy Holdings entered into an agreement whereby TXU Electric Delivery assumed responsibility
for pension and other postretirement benefit costs for applicable TXU Energy Holdings active and retired employees (i.e., former employees of the regulated predecessor integrated electric utility) related to employee service prior to the
unbundling of TXU Corp.s electric utility business and the deregulation of the Texas electricity industry effective January 1, 2002. Accordingly, the June 30, 2005 balance sheet reflects a decrease of $239 million in the accumulated pension
and other postretirement liabilities and an $82 million decrease in the related deferred tax assets. The offset was recorded as an increase in current affiliate payables. The amounts of liabilities transferred reflect refinements of allocation bases
of plan assets and liabilities to achieve a greater level of precision and support the implementation of legislation affecting TXU Electric Deliverys regulatory recovery of pension and other postretirement benefit costs.



The discount rate reflected in net pension and other postretirement benefit
costs in 2005 is 6.0%. The expected rate of return on plan assets reflected in the 2005 cost amounts is 8.75% for the pension plan and 8.66% for other postretirement benefits.



Restricted Cash At June 30, 2005, TXU Energy Holdings had $21 million in restricted cash ($9 million
reported in current assets and $12 million reported in investments) for demolition and relocation work to be performed by TXU Energy Holdings related to the sale of land.



Trade Accounts Receivable  At June 30, 2005 and December 31, 2004, trade accounts receivable from
nonaffiliates of $1 billion and $1.1 billion are stated net of allowance for uncollectible accounts of $36 million and $15 million, respectively. Allowances related to receivables sold are reported in current liabilities and totaled $28 million and
$45 million at June 30, 2005 and December 31, 2004, respectively. During the six months ended June 30, 2005, bad debt expense was $19 million, account write-offs were $16 million and changes related to receivables sold increased the allowance for
uncollectible accounts by $18 million. During the six months ended June 30, 2004, bad debt expense was $47 million, account write-offs were $68 million and other changes related to receivables sold increased the allowance for uncollectible accounts
by $10 million.



Trade accounts receivable included $457
million and $387 million of unbilled revenues at June 30, 2005 and December 31, 2004, respectively.



15



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##### Table of Contents

Reserves Related to Commodity Contract Assets At June 30, 2005 and December 31, 2004,
current and noncurrent commodity contract assets totaled $1.3 billion and $861 million, respectively, and are stated net of applicable credit (collection) and performance reserves totaling $18 million and $15 million, respectively. Performance
reserves are provided for direct, incremental costs to settle the contracts.



Intangible Assets Intangible assets other than goodwill are comprised of the followings:



|                                                                                     |  |                       |    |                          |   |     |  |                       |    |                          |   |     |  |   |    |  |   |   
|------------------------------------------------------------------------------------ |  | --------------------- | -- | ------------------------ | - | --- |  | --------------------- | -- | ------------------------ | - | --- |  | - | -- |  | - | --
|                                                                                     |  | As of June 30, 2005   |    | As of December 31, 2004 
|                                                                                     |  | Gross Carrying Amount |    | Accumulated Amortization |   | Net |  | Gross Carrying Amount |    | Accumulated Amortization |   | Net
|Intangible assets subject to amortization included in property, plant and equipment: |  |                       |    |                          |   |     |  |                       |    |                          |   |     |  |   |    |  |   |   
|Capitalized software placed in service                                               |  | $                     | 4  |                          | $ | 2   |  | $                     | 2  |                          | $ | 3   |  | $ | 1  |  | $ | 2 
|Land easements                                                                       |  |                       | 2  |                          |   | 1   |  |                       | 1  |                          |   | 2   |  |   | 1  |  |   | 1 
|Other                                                                                |  |                       | 31 |                          |   | 23  |  |                       | 8  |                          |   | 31  |  |   | 23 |  |   | 8 
|                                                                                     |  |                       |    |                          |   |     |  |                       |    |                          |   |     |  |   |    |  |   |   
|Total                                                                                |  | $                     | 37 |                          | $ | 26  |  | $                     | 11 |                          | $ | 36  |  | $ | 25 |  | $ | 11
|                                                                                     |  |                       |    |                          |   |     |  |                       |    |                          |   |     |  |   |    |  |   |   



Aggregate amortization
expense for intangible assets for the three months ended June 30, 2005 and 2004 was approximately $0.4 million and $6 million, respectively. Aggregate amortization expense for intangible assets for the six months ended June 30, 2005 and 2004 was
approximately $1 million and $20 million, respectively. At June 30, 2005, the weighted average useful lives of capitalized software, land easements and other were 5 years, 54 years and 40 years, respectively.



The estimated aggregate amortization expense for each of the five succeeding
fiscal years from December 31, 2004 is as follows:



|     |  |        |  
|---- |  | ------ | -
|Year |  | Amount
|2005 |  | $      | 2
|2006 |  |        | 2
|2007 |  |        | 2
|2008 |  |        | 1
|2009 |  |        | 1



Goodwill of $517
million at June 30, 2005 and December 31, 2004 was stated net of previously recorded accumulated amortization of $60 million.



Inventories by Major Category 



|                       |  |               |     |                   |   |    
|---------------------- |  | ------------- | --- | ----------------- | - | ---
|                       |  | June 30, 2005 |     | December 31, 2004
|Materials and supplies |  | $             | 143 |                   | $ | 133
|Fuel stock             |  |               | 78  |                   |   | 79 
|Gas stored underground |  |               | 72  |                   |   | 72 
|                       |  |               |     |                   |   |    
|Total inventories      |  | $             | 293 |                   | $ | 284
|                       |  |               |     |                   |   |    



Inventories are
carried at average cost.



Property, Plant and
Equipment  At June 30, 2005 and December 31, 2004, property, plant and equipment of $9.8 billion and $9.9 billion, respectively, is stated net of accumulated depreciation and amortization of $7.7 billion and $7.5 billion, respectively.



16



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##### Table of Contents

Asset Retirement Obligations  SFAS 143 became effective on January 1, 2003. SFAS 143
requires entities to record the fair value of a legal liability for an asset retirement obligation in the period of its inception. For TXU Energy Holdings, such liabilities primarily relate to nuclear generation plant decommissioning, land
reclamation related to lignite mining and removal of lignite/coal-fired plant ash treatment facilities. The liability is recorded at its net present value with a corresponding increase in the carrying value of the related long-lived asset. The
liability is accreted each period, representing the time value of money, and the capitalized cost is depreciated over the remaining useful life of the related asset.



The asset retirement liability was $520 million at June 30, 2005 and $631 million at December 31, 2004. Accretion during the
six months ended June 30, 2005 totaled $17 million and reclamation payments totaled $15 million. Also, during the first quarter of 2005, an updated study of the cost to decommission TXU Corp.s nuclear generating facility was completed. As a
result of the updated study, the asset retirement obligation and related asset were adjusted downward $113 million, or 19%, principally due to revised cost escalation factors assumed in the previous study.



Accounting under SFAS 143 has no earnings impact with respect to the
recognition of the asset retirement costs for nuclear decommissioning, as all costs are recoverable through the regulatory process as part of TXU Electric Deliverys rate setting.



Supplemental Cash Flow Information 



|                                                                                                 |  |                           |     |      |   |    
|------------------------------------------------------------------------------------------------ |  | ------------------------- | --- | ---- | - | ---
|                                                                                                 |  | Six Months Ended June 30,
|                                                                                                 |  | 2005                      |     | 2004
|Cash payments related to continuing operations:                                                  |  |                           |     |      |   |    
|Interest (net of amounts capitalized)                                                            |  | $                         | 166 |      | $ | 177
|Income taxes                                                                                     |  | $                         | 238 |      | $ | 1  
|Noncash investing and financing activities:                                                      |  |                           |     |      |   |    
|Transfer of pension and other postretirement benefit obligations and related deferred tax assets |  | $                         | 157 |      | $ |   



17



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



TXU Energy Company LLC:



We have reviewed the accompanying condensed
consolidated balance sheet of TXU Energy Company LLC and subsidiaries (TXU Energy Holdings) as of June 30, 2005, and the related condensed statements of consolidated income and comprehensive income for the three-month and six-month periods ended
June 30, 2005 and 2004, and the condensed statements of consolidated cash flows for the six-month periods ended June 30, 2005 and 2004. These interim financial statements are the responsibility of TXU Energy Holdings management.



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



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



We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of TXU Energy Holdings as of December 31, 2004, and the related statements of consolidated income, comprehensive income, cash flows and membership interests for the year then ended (not
presented herein); and in our report (which report includes explanatory paragraphs related to the Companys change in method of accounting for stock based compensation with the election to early adopt Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment; and the rescission of Emerging Issues Task Force Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities and the restatement of the statements of
cash flows for each of the three years in the period ended December 31, 2004), dated March 21, 2005 and June 8, 2005 as to Note 17, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.



/s/ DELOITTE & TOUCHE LLP



Dallas, Texas

August 12, 2005



18



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##### Table of Contents

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



BUSINESS



TXU Energy Holdings is a wholly-owned subsidiary of US Holdings, which is a wholly-owned subsidiary of TXU Corp. TXU Energy Holdings is engaged in
electricity generation and retail and wholesale energy sales. There are no reportable business segments within TXU Energy Holdings.



Subsequent to rating actions taken by S&P (see discussion below under Credit Ratings), TXU Corp. has undertaken a detailed review of its
financial strategy and business plans. TXU Corp. continues to evaluate growth strategies and other value-creating opportunities involving each of its businesses and assets, including TXU Energy Holdings.



Discontinued operations  The Pedricktown, New Jersey 122
MW power production business was sold on July 1, 2005 for $8.7 million in cash.



RESULTS OF OPERATIONS



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



The results of operations and the related managements discussion of those results for all periods presented reflect
the discontinuance of certain operations of TXU Energy Holdings (see Note 2 to Financial Statements regarding discontinued operations).



19



---

##### Table of Contents

Sales Volume Data



|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|---------------------------------------------------------------- |  | --------------------------- | - |  | ------------------------- | - |  | -------- | - |  | ------- | - |  | ------- | - |  | -------- | -
|                                                                 |  | Three Months Ended June 30, |   |  | Six Months Ended June 30, |  
|                                                                 |  | 2005                        |   |  | 2004                      |   |  | Change % |   |  | 2005    |   |  | 2004    |   |  | Change % |  
|Sales volumes:                                                   |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Retail electricity sales volumes (GWh):                          |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Historical service territory:                                    |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Residential                                                      |  | 7,100                       |   |  | 7,367                     |   |  | (3.6     | ) |  | 13,417  |   |  | 14,486  |   |  | (7.4     | )
|Small business (a)                                               |  | 2,289                       |   |  | 2,542                     |   |  | (10.0    | ) |  | 4,323   |   |  | 5,075   |   |  | (14.8    | )
|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Total historical service territory                               |  | 9,389                       |   |  | 9,909                     |   |  | (5.2     | ) |  | 17,740  |   |  | 19,561  |   |  | (9.3     | )
|Other territories:                                               |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Residential                                                      |  | 858                         |   |  | 731                       |   |  | 17.4     |   |  | 1,486   |   |  | 1,249   |   |  | 19.0     |  
|Small business (a)                                               |  | 165                         |   |  | 89                        |   |  | 85.4     |   |  | 304     |   |  | 150     |   |  | 102.7    |  
|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Total other territories                                          |  | 1,023                       |   |  | 820                       |   |  | 24.8     |   |  | 1,790   |   |  | 1,399   |   |  | 27.9     |  
|Large business and other customers                               |  | 4,172                       |   |  | 6,771                     |   |  | (38.4    | ) |  | 8,534   |   |  | 13,480  |   |  | (36.7    | )
|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Total retail electricity                                         |  | 14,584                      |   |  | 17,500                    |   |  | (16.7    | ) |  | 28,064  |   |  | 34,440  |   |  | (18.5    | )
|Wholesale electricity sales volumes                              |  | 11,331                      |   |  | 12,171                    |   |  | (6.9     | ) |  | 22,811  |   |  | 24,724  |   |  | (7.7     | )
|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Total retail and wholesale electricity sales volumes             |  | 25,915                      |   |  | 29,671                    |   |  | (12.7    | ) |  | 50,875  |   |  | 59,164  |   |  | (14.0    | )
|                                                                 |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Retail volumes (GWh)  weather adjusted (b):                     |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Residential                                                      |  | 7,643                       |   |  | 8,098                     |   |  | (5.6     | ) |  | 14,727  |   |  | 15,735  |   |  | (6.4     | )
|Small business                                                   |  | 2,411                       |   |  | 2,631                     |   |  | (8.4     | ) |  | 4,601   |   |  | 5,225   |   |  | (11.9    | )
|Large business and other customers                               |  | 4,166                       |   |  | 6,771                     |   |  | (38.5    | ) |  | 8,542   |   |  | 13,480  |   |  | (36.6    | )
|                                                                 |  |                             |   |  |                           |  
|Average volume (kWh) per retail customer (c):                    |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Residential                                                      |  | 3,809                       |   |  | 3,649                     |   |  | 4.4      |   |  | 7,091   |   |  | 7,108   |   |  | (0.2     | )
|Small business                                                   |  | 8,096                       |   |  | 8,161                     |   |  | (0.8     | ) |  | 15,028  |   |  | 16,222  |   |  | (7.4     | )
|Large business and other customers                               |  | 71,155                      |   |  | 87,380                    |   |  | (18.6    | ) |  | 129,342 |   |  | 184,108 |   |  | (29.7    | )
|                                                                 |  |                             |   |  |                           |  
|Average volume (kWh) per retail customer  weather adjusted (b): |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Residential                                                      |  | 3,659                       |   |  | 3,649                     |   |  | 0.3      |   |  | 7,008   |   |  | 7,108   |   |  | (1.4     | )
|Small business                                                   |  | 7,957                       |   |  | 8,161                     |   |  | (2.5     | ) |  | 14,944  |   |  | 16,222  |   |  | (7.9     | )
|Large business and other customers                               |  | 71,057                      |   |  | 87,380                    |   |  | (18.7    | ) |  | 129,466 |   |  | 184,108 |   |  | (29.7    | )
|                                                                 |  |                             |   |  |                           |  
|Weather (service territory average)  percent of normal (d):     |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|                                                                 |  |                             |   |  |                           |  
|Percent of normal:                                               |  |                             |   |  |                           |   |  |          |   |  |         |   |  |         |   |  |          |  
|Cooling degree days                                              |  | 102.2                       | % |  | 89.9                      | % |  |          |   |  | 101.3   | % |  | 92.2    | % |  |          |  
|Heating degree days                                              |  | 106.9                       | % |  | 109.9                     | % |  |          |   |  | 89.6    | % |  | 93.8    | % |  |          |  

---

|(a) | Customers with demand of less than 1 MW annually.
|--- | -------------------------------------------------

|(b) | 2005 amounts adjusted for estimated weather effect as compared to 2004.
|--- | -----------------------------------------------------------------------

|(c) | Calculated using average number of customers for period.
|--- | --------------------------------------------------------

|(d) | Weather data is obtained from Weatherbank, Inc., an independent company that collects and archives weather data from reporting stations of the National Oceanic and Atmospheric
Administration (a federal agency under the US Department of Commerce).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

##### Table of Contents

Customer Count Data



|                                                                   |  |                           |  |       |  |          |  
|------------------------------------------------------------------ |  | ------------------------- |  | ----- |  | -------- | -
|                                                                   |  | Six Months Ended June 30, | 
|                                                                   |  | 2005                      |  | 2004  |  | Change % |  
|Customer counts:                                                   |  |                           |  |       |  |          |  
|Retail electricity customers (end of period and in thousands) (a): |  |                           |  |       |  |          |  
|Historical service territory:                                      |  |                           |  |       |  |          |  
|Residential                                                        |  | 1,865                     |  | 2,037 |  | (8.4     | )
|Small business (b)                                                 |  | 294                       |  | 318   |  | (7.5     | )
|                                                                   |  |                           |  |       |  |          |  
|Total historical service territory                                 |  | 2,159                     |  | 2,355 |  | (8.3     | )
|                                                                   |  |                           | 
|Other territories:                                                 |  |                           |  |       |  |          |  
|Residential                                                        |  | 193                       |  | 183   |  | 5.5      |  
|Small business (b)                                                 |  | 7                         |  | 6     |  | 16.7     |  
|                                                                   |  |                           |  |       |  |          |  
|Total other territories                                            |  | 200                       |  | 189   |  | 5.8      |  
|                                                                   |  |                           | 
|Large business and other customers                                 |  | 56                        |  | 77    |  | (27.3    | )
|                                                                   |  |                           |  |       |  |          |  
|Total retail electricity customers                                 |  | 2,415                     |  | 2,621 |  | (7.9     | )
|                                                                   |  |                           |  |       |  |          |  

---

|(a) | Based on number of meters.
|--- | --------------------------

|(b) | Customers with demand of less than 1 MW annually.
|--- | -------------------------------------------------



21



---

##### Table of Contents

Revenue and Market Share Data



|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|--------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | -------- |  | ----- | ---- |  | - | ------ | - |  | -------- | ------ | - |  | ----- | -
|                                                                            |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                            |  | 2005                        |        |   | 2004                      |   |        | Change % |  |       | 2005 |  |   | 2004   |   |  | Change % |       
|Operating revenues (millions of dollars):                                   |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                            |  |                             |        |   |                           |  
|Retail electricity revenues:                                                |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Historical service territory:                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Residential                                                                 |  | $                           | 838    |   |                           | $ | 750    |          |  | 11.7  |      |  | $ | 1,474  |   |  | $        | 1,400  |   |  | 5.3   |  
|Small business (a)                                                          |  |                             | 270    |   |                           |   | 258    |          |  | 4.7   |      |  |   | 498    |   |  |          | 514    |   |  | (3.1  | )
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total historical service territory                                          |  |                             | 1,108  |   |                           |   | 1,008  |          |  | 9.9   |      |  |   | 1,972  |   |  |          | 1,914  |   |  | 3.0   |  
|                                                                            |  |                             |        |   |                           |  
|Other territories:                                                          |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Residential                                                                 |  |                             | 99     |   |                           |   | 72     |          |  | 37.5  |      |  |   | 156    |   |  |          | 115    |   |  | 35.7  |  
|Small business (a)                                                          |  |                             | 15     |   |                           |   | 8      |          |  | 87.5  |      |  |   | 27     |   |  |          | 14     |   |  | 92.9  |  
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total other territories                                                     |  |                             | 114    |   |                           |   | 80     |          |  | 42.5  |      |  |   | 183    |   |  |          | 129    |   |  | 41.9  |  
|                                                                            |  |                             |        |   |                           |  
|Large business and other customers                                          |  |                             | 332    |   |                           |   | 455    |          |  | (27.0 | )    |  |   | 659    |   |  |          | 908    |   |  | (27.4 | )
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total retail electricity revenues                                           |  |                             | 1,554  |   |                           |   | 1,543  |          |  | 0.7   |      |  |   | 2,814  |   |  |          | 2,951  |   |  | (4.6  | )
|Wholesale electricity revenues                                              |  |                             | 549    |   |                           |   | 476    |          |  | 15.3  |      |  |   | 1,065  |   |  |          | 942    |   |  | 13.1  |  
|Hedging and risk management activities                                      |  |                             | 47     |   |                           |   | 11     |          |  |      |      |  |   | (6     | ) |  |          | 3      |   |  |      |  
|Other revenues                                                              |  |                             | 77     |   |                           |   | 85     |          |  | (9.4  | )    |  |   | 157    |   |  |          | 176    |   |  | (10.8 | )
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total operating revenues                                                    |  | $                           | 2,227  |   |                           | $ | 2,115  |          |  | 5.3   |      |  | $ | 4,030  |   |  | $        | 4,072  |   |  | (1.0  | )
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Hedging and risk management activities:                                     |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                            |  |                             |        |   |                           |  
|Net realized gains (losses) on settled positions                            |  | $                           | 5      |   |                           | $ | 24     |          |  |       |      |  | $ | (24    | ) |  | $        | 34     |   |  |       |  
|Reversal of previously recognized net unrealized gains on settled positions |  |                             | (14    | ) |                           |   | (9     | )        |  |       |      |  |   | (23    | ) |  |          | (39    | ) |  |       |  
|Net unrealized gains (losses) on open positions, including ineffectiveness  |  |                             | 56     |   |                           |   | (4     | )        |  |       |      |  |   | 41     |   |  |          | 8      |   |  |       |  
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total                                                                       |  | $                           | 47     |   |                           | $ | 11     |          |  |       |      |  | $ | (6     | ) |  | $        | 3      |   |  |       |  
|                                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Average revenues per MWh:                                                   |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                            |  |                             |        |   |                           |  
|Residential                                                                 |  | $                           | 117.80 |   |                           | $ | 101.53 |          |  | 16.0  |      |  | $ | 109.39 |   |  | $        | 96.27  |   |  | 13.6  |  
|Small business                                                              |  | $                           | 116.38 |   |                           | $ | 101.28 |          |  | 14.9  |      |  | $ | 113.59 |   |  | $        | 101.06 |   |  | 12.4  |  
|Large business and other customers                                          |  | $                           | 79.43  |   |                           | $ | 67.14  |          |  | 18.3  |      |  | $ | 77.19  |   |  | $        | 67.33  |   |  | 14.6  |  
|                                                                            |  |                             |        |   |                           |  
|Estimated share of ERCOT retail markets (b):                                |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                            |  |                             |        |   |                           |  
|Historical service territory:                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Residential (c)                                                             |  |                             |        |   |                           |   |        |          |  |       |      |  |   | 77     | % |  |          | 85     | % |  |       |  
|Small business (c)                                                          |  |                             |        |   |                           |   |        |          |  |       |      |  |   | 74     | % |  |          | 83     | % |  |       |  
|Total ERCOT:                                                                |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Residential                                                                 |  |                             |        |   |                           |   |        |          |  |       |      |  |   | 42     | % |  |          | 45     | % |  |       |  
|Small business                                                              |  |                             |        |   |                           |   |        |          |  |       |      |  |   | 30     | % |  |          | 33     | % |  |       |  
|Large business and other customers                                          |  |                             |        |   |                           |   |        |          |  |       |      |  |   | 24     | % |  |          | 35     | % |  |       |  

---

|(a) | Customers with demand of less than 1 MW annually.
|--- | -------------------------------------------------

|(b) | Based on number of meters, except large business which is based upon annualized consumption.
|--- | --------------------------------------------------------------------------------------------

|(c) | Estimated market share is based on the number of customers that have choice.
|--- | ----------------------------------------------------------------------------



22



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##### Table of Contents

Cost of Energy Sold Data



|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | -------- |  | ----- | ---- |  | - | ------ | - |  | -------- | ------ | - |  | ----- | -
|                                                                                                               |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                                                               |  | 2005                        |        |   | 2004                      |   |        | Change % |  |       | 2005 |  |   | 2004   |   |  | Change % |       
|Cost of energy sold and delivery fees ($ millions):                                                            |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                                                               |  |                             |        |   |                           |  
|Nuclear fuel (baseload)                                                                                        |  | $                           | 18     |   |                           | $ | 17     |          |  | 5.9   |      |  | $ | 38     |   |  | $        | 38     |   |  |      |  
|Lignite/coal (baseload)                                                                                        |  |                             | 119    |   |                           |   | 116    |          |  | 2.6   |      |  |   | 234    |   |  |          | 242    |   |  | (3.3  | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total baseload                                                                                                 |  |                             | 137    |   |                           |   | 133    |          |  | 3.0   |      |  |   | 272    |   |  |          | 280    |   |  | (2.9  | )
|Gas/oil fuel and purchased power                                                                               |  |                             | 671    |   |                           |   | 788    |          |  | (14.8 | )    |  |   | 1,186  |   |  |          | 1,456  |   |  | (18.5 | )
|Other cost of energy sold                                                                                      |  |                             | 70     |   |                           |   | 57     |          |  | 22.8  |      |  |   | 133    |   |  |          | 112    |   |  | 18.8  |  
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Cost of energy sold                                                                                            |  |                             | 878    |   |                           |   | 978    |          |  | (10.2 | )    |  |   | 1,591  |   |  |          | 1,848  |   |  | (13.9 | )
|Delivery fees                                                                                                  |  |                             | 338    |   |                           |   | 370    |          |  | (8.6  | )    |  |   | 681    |   |  |          | 754    |   |  | (9.7  | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Cost of energy sold and delivery fees                                                                          |  | $                           | 1,216  |   |                           | $ | 1,348  |          |  | (9.8  | )    |  | $ | 2,272  |   |  | $        | 2,602  |   |  | (12.7 | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Fuel and purchased power costs (cost of energy sold, which excludes generation plant operating costs) per MWh: |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                                                               |  |                             |        |   |                           |  
|Nuclear generation                                                                                             |  | $                           | 4.20   |   |                           | $ | 4.25   |          |  | (1.2  | )    |  | $ | 4.19   |   |  | $        | 4.34   |   |  | (3.5  | )
|Lignite/coal generation (a)                                                                                    |  | $                           | 12.02  |   |                           | $ | 12.36  |          |  | (2.7  | )    |  | $ | 11.98  |   |  | $        | 12.81  |   |  | (6.5  | )
|Gas/oil generation and purchased power                                                                         |  | $                           | 56.59  |   |                           | $ | 47.17  |          |  | 20.0  |      |  | $ | 54.27  |   |  | $        | 45.60  |   |  | 19.0  |  
|                                                                                                               |  |                             |        |   |                           |  
|Delivery fees per MWh                                                                                          |  | $                           | 22.84  |   |                           | $ | 20.86  |          |  | 9.5   |      |  | $ | 23.95  |   |  | $        | 21.59  |   |  | 10.9  |  
|                                                                                                               |  |                             |        |   |                           |  
|Production and purchased power volumes (GWh):                                                                  |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                                                               |  |                             |        |   |                           |  
|Nuclear (baseload)                                                                                             |  |                             | 4,250  |   |                           |   | 3,992  |          |  | 6.5   |      |  |   | 9,047  |   |  |          | 8,845  |   |  | 2.3   |  
|Lignite/coal (baseload)                                                                                        |  |                             | 10,605 |   |                           |   | 10,223 |          |  | 3.7   |      |  |   | 21,125 |   |  |          | 20,426 |   |  | 3.4   |  
|Gas/oil                                                                                                        |  |                             | 1,005  |   |                           |   | 1,401  |          |  | (28.3 | )    |  |   | 1,265  |   |  |          | 2,311  |   |  | (45.3 | )
|Purchased power                                                                                                |  |                             | 10,780 |   |                           |   | 15,237 |          |  | (29.3 | )    |  |   | 20,586 |   |  |          | 29,469 |   |  | (30.1 | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Total energy supply                                                                                            |  |                             | 26,640 |   |                           |   | 30,853 |          |  | (13.7 | )    |  |   | 52,023 |   |  |          | 61,051 |   |  | (14.8 | )
|Less line loss and other                                                                                       |  |                             | 725    |   |                           |   | 1,182  |          |  | (38.7 | )    |  |   | 1,148  |   |  |          | 1,887  |   |  | (39.2 | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Net energy supply volumes                                                                                      |  |                             | 25,915 |   |                           |   | 29,671 |          |  | (12.7 | )    |  |   | 50,875 |   |  |          | 59,164 |   |  | (14.0 | )
|                                                                                                               |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|Baseload capacity factors (%):                                                                                 |  |                             |        |   |                           |   |        |          |  |       |      |  |   |        |   |  |          |        |   |  |       |  
|                                                                                                               |  |                             |        |   |                           |  
|Nuclear                                                                                                        |  |                             | 84.9   | % |                           |   | 79.9   | %        |  |       |      |  |   | 90.8   | % |  |          | 88.4   | % |  |       |  
|Lignite/coal                                                                                                   |  |                             | 86.9   | % |                           |   | 83.9   | %        |  |       |      |  |   | 87.3   | % |  |          | 83.8   | % |  |       |  
|Total base load                                                                                                |  |                             | 86.3   | % |                           |   | 82.8   | %        |  |       |      |  |   | 88.3   | % |  |          | 85.1   | % |  |       |  

---

|(a) | Includes depreciation and amortization of lignite mining assets, which is reported in the depreciation and amortization expense line item, but is part of overall fuel costs.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



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##### Table of Contents

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004



Operating revenues increased $112 million, or 5%, to $2.2 billion in 2005.



| |  |  | Retail electricity revenues increased $11 million to $1.6 billion.
| | - |  | ------------------------------------------------------------------



| |  |  | This increase reflected $268 million in higher average pricing due to increased price-to-beat rates, reflecting regulatory-approved fuel factor increases in 2004 and 2005, and
higher pricing in the competitive business market, both resulting from higher natural gas prices.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effect of higher average retail pricing was partially offset by a $257 million decrease attributable to a 17% drop in sales volumes, primarily reflecting loss of customers due
to competitive activity, particularly in the large business market. Lower large business market volumes also reflected a strategy to target higher margin customers in that segment. Total residential and small business sales volumes fell 3%, driven
by competitive activity and stricter credit and collection policies and partially offset by the effect of increased consumption due to hotter weather.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retail electricity customer counts at June 30, 2005 declined 8% from June 30, 2004. Total residential and small business customer counts in the historical service territory declined
8% and in all combined territories declined 7%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wholesale electricity revenues grew $73 million, or 15%, to $549 million reflecting a $106 million increase due to the effect of increased natural gas prices on wholesale prices,
partially offset by a $33 million decrease attributable to a 7% decline in sales volumes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The wholesale sales volumes comparison to 2004 reflects an increase in volumes in 2004 due to the establishment of the new northeast zone in ERCOT. Because TXU Energy Holdings has a
generation plant and a relatively small retail customer base in the new zone, wholesale sales volumes increased, and wholesale power purchases also increased to meet retail sales demand in other zones and minimize congestion costs. Completion of
transmission projects later in 2004 reduced congestion costs, resulting in normalized sales and purchase volumes in the second quarter of 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The decrease in other revenues of $8 million primarily reflected the effect of no longer providing customer care support to TXU Gas and the sale of the gas transportation business
in June 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results from hedging and risk
management activities, which are reported in revenues and include both realized and unrealized gains and losses, totaled $47 million and $11 million in net gains in 2005 and 2004, respectively. Because the hedging activities are intended to mitigate
the risk of commodity price movements on revenues and cost of energy sold, the changes in such results should not be viewed in isolation, but rather taken together with the effects of pricing and cost changes on gross margin. Results in 2005
included:



| |  |  | $55 million in net unrealized gains resulting primarily from increasing market heat rates;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | $22 million in net realized losses (compared to $4 million in net realized losses in 2004), associated with prior years cash flow hedges, reclassified from accumulated other
comprehensive income; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $9 million in net unrealized gains on hedges from changes in natural gas prices.
| | - |  | --------------------------------------------------------------------------------



Gross Margin



|                                      |  |                             |       |             |     |   |      |   |             |  |     |  
|------------------------------------- |  | --------------------------- | ----- | ----------- | --- | - | ---- | - | ----------- |  | --- | -
|                                      |  | Three Months Ended June 30, |      
|                                      |  | 2005                        |       | % ofRevenue |     |   | 2004 |   | % ofRevenue | 
|Operating revenues                    |  | $                           | 2,227 |             | 100 | % |      | $ | 2,115       |  | 100 | %
|Costs and expenses:                   |  |                             |       |             |     |   |      |   |             |  |     |  
|Cost of energy sold and delivery fees |  |                             | 1,216 |             | 55  | % |      |   | 1,348       |  | 64  | %
|Generation plant operating costs      |  |                             | 177   |             | 8   | % |      |   | 200         |  | 9   | %
|Depreciation and amortization         |  |                             | 76    |             | 3   | % |      |   | 82          |  | 4   | %
|                                      |  |                             |       |             |     |   |      |   |             |  |     |  
|Gross margin                          |  | $                           | 758   |             | 34  | % |      | $ | 485         |  | 23  | %
|                                      |  |                             |       |             |     |   |      |   |             |  |     |  



24



---

##### Table of Contents

Gross margin is considered a key operating metric as it measures the effect of changes in sales volumes
and pricing versus the variable and fixed costs to generate and deliver energy. Cost of energy sold consists of fuel and purchased power costs. Operating costs relate directly to generation plants. Depreciation and amortization expense included in
gross margin relates to assets that are directly used in the generation of electricity.



Gross margin increased $273 million, or 56%, to $758 million in 2005.



| |  |  | The gross margin increase primarily reflected the increasing cost advantage and improved performance of TXU Energy Holdings nuclear and coal/lignite-fired baseload plants in
an environment of higher wholesale market prices. The increased wholesale prices were driven by rising natural gas prices and higher market heat rates. Retail prices, including price-to-beat rates, were increased in response to higher wholesale
prices. The gross margin performance was mitigated by the effect of lower volumes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower cost of energy sold (fuel and purchased power costs) as a percent of revenues reflected:
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the higher pricing;
| | - |  | -------------------



| |  |  | the favorable effect of lower purchased power volumes (due to lower sales volumes);
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a favorable retail sales mix shift from lower margin large business customers;
| | - |  | ------------------------------------------------------------------------------



| |  |  | improved efficiency of coal/lignite-fired generation plants and lower use of gas-fired generation, resulting in a 2% decline in fuel cost per MWh produced (including baseload and
gas-fired generation); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 7% decline in planned and unplanned baseload plant outage days;
| | - |  | -----------------------------------------------------------------



partially offset by:



| |  |  | a 17% increase in per MWh cost of purchased power, due to rising natural gas prices and higher market heat rates; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | a 10% increase in delivery fees per MWh.
| | - |  | ----------------------------------------



Operating costs decreased $23 million, or 12%, to $177 million in 2005. The decline reflected:



| |  |  | a $9 million effect of no longer providing customer care support to TXU Gas (largely offset by lower related revenues), the operations of which were sold in October 2004;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the absence of $5 million of costs associated with 9 combustion turbine units no longer operated for TXU Energy Holdings benefit;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | $4 million in lower pension and other postretirement benefit costs (see discussion in SG&A expenses below regarding these costs)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | $4 million decrease in other employee benefits including lower medical benefits costs due to changes in plans;
| | - |  | --------------------------------------------------------------------------------------------------------------



partially offset by:



| |  |  | $4 million in increased incentive compensation expense to reflect projected performance against established targets in generation operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



Depreciation and amortization (including amounts shown in the gross margin
table above) decreased $11 million, or 13%, to $77 million. The decline included $5 million due to the effect of the transfer of information technology assets, principally capitalized software, to a TXU Corp. affiliate in connection with the
Capgemini outsourcing transaction and a $3 million effect of reduced 2005 depreciation rates for lignite/coal-fired plants due to an increase in the estimated useful lives.



25



---

##### Table of Contents

SG&A expenses decreased $50 million, or 31%, to $113 million in 2005. The decline reflected:



| |  |  | a net $24 million decline due to cost reduction initiatives, including the effects of the Capgemini agreement;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | $13 million in lower bad debt expense reflecting stricter disconnect policies, more focused collection activities, targeted customer marketing and lower accounts receivable
balances;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $7 million in reduced incentive compensation expense due to lower TXU Corp. share awards to management;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | a $4 million decrease in marketing expense due to timing of expenditures;
| | - |  | -------------------------------------------------------------------------



| |  |  | a $6 million net decrease in employee retirement-related expenses primarily due to the assumption by TXU Electric Delivery of pension and other postretirement benefit costs related
to service of TXU Energy Holdings employees prior to the unbundling of TXU Corp.s electric utility business and the deregulation of the Texas electricity industry effective January 1, 2002. This change in retirement-related expense
allocation was based on an agreement between TXU Energy Holdings and TXU Electric Delivery effective January 1, 2005 (see Note 7 to Financial Statements for more detail); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $5 million increase in outside consulting expense primarily related to projects to improve operational efficiencies at generation plants.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Other income totaled $6 million in 2005 and $12 million in 2004. Other income
in 2005 included a gain of $4 million in connection with the termination of a power services contract and $2 million in gains on the sale of mining lands. Other income in 2004 reflected $12 million of amortization of a gain on the sale of two
generation plants in 2002; the amortization ceased due to the recognition of the gain in the fourth quarter of 2004 upon termination of a power purchase agreement entered into upon sale of the plants.



Other deductions totaled $12 million in 2005 and $261 million in 2004. The
2004 amount includes charges totaling $258 million for asset write-downs and employee severance related to the restructuring actions described in detail in the 2004 Form 10-K/A. The 2005 amount includes:



| |  |  | $3 million to reduce estimated sublease proceeds included in the net liability recorded in 2004 for the leased gas-fired combustion turbines no longer operated for TXU Energy
Holdings benefit;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2 million in equity losses (representing amortization expense) in the TXU Corp. entity holding the capitalized software licensed to Capgemini; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2 million in transition costs associated with the Capgemini outsourcing agreement.
| | - |  | -----------------------------------------------------------------------------------



Interest income increased by $4 million to $11 million in 2005 reflecting higher interest on short-term investments and
higher average advances to affiliates.



The effective income
tax rate was 35.0% in 2005 compared to 58.7% on a loss in 2004. The 2005 effective tax rate reflects $10 million related to settlement of the IRS audit for the 1994 through 1996 tax years. The effective tax rate in 2004 reflected the effects of
ongoing tax benefits of depletion allowances and amortization of investment tax credits.



Results from continuing operations after-tax improved $364 million to $345 million in 2005 driven by improved gross margin, the effect of restructuring-related charges in 2004 and lower SG&A expenses. Net pension
and postretirement benefit costs reduced net income by $9 million in 2004 and had no material effect on net income in 2005.



26



---

##### Table of Contents

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004



Operating revenues declined $42 million, or 1%, to $4.0 billion in 2005.



| |  |  | Retail electricity revenues decreased $137 million, or 5%, to $2.8 billion.
| | - |  | ---------------------------------------------------------------------------



| |  |  | This decline reflected a $547 million decrease attributable to a 19% drop in sales volumes, primarily reflecting loss of customers due to competitive activity, particularly in the
large business market. Lower large business market volumes also reflected a strategy to target higher margin customers in that segment. Total residential and small business sales volumes fell 7%, driven by competitive activity and stricter credit
and collection policies and partially offset by the effect of increased consumption due to hotter weather.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effect of lower retail volumes was partially offset by $410 million in higher average pricing due to increased price-to-beat rates, reflecting regulatory-approved fuel factor
increases in 2004 and 2005, and higher pricing in the competitive business market, both resulting from higher natural gas prices.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retail electricity customer counts at June 30, 2005 declined 8% from June 30, 2004. Total residential and small business customer counts in the historical service territory declined
8% and in all combined territories declined 7%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wholesale electricity revenues grew $123 million, or 13%, to $1.1 billion reflecting a $196 million increase due to the effect of increased natural gas prices on wholesale prices,
partially offset by a $73 million decrease attributable to a 8% decline in sales volumes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The wholesale sales volumes comparison to 2004 reflects an increase in volumes in 2004 due to the establishment of the new northeast zone in ERCOT. Because TXU Energy Holdings has a
generation plant and a relatively small retail customer base in the new zone, wholesale sales volumes increased, and wholesale power purchases also increased to meet retail sales demand in other zones and minimize congestion costs. Completion of
transmission projects later in 2004 reduced congestion costs, resulting in normalized sales and purchase volumes in 2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The decrease in other revenues of $19 million primarily reflected the effect of no longer providing customer care support to TXU Gas and the sale of the gas transportation business
in June 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Results from hedging and risk
management activities, which are reported in revenues and include both realized and unrealized gains and losses, totaled $6 million in net losses in 2005 and $3 million in net gains in 2004. Because the hedging activities are intended to mitigate
the risk of commodity price movements on revenues and cost of energy sold, the changes in such results should not be viewed in isolation, but rather taken together with the effects of pricing and cost changes on gross margin. Results in 2005
included:



| |  |  | $46 million in net realized losses (compared to $2 million in net realized losses in 2004), associated with prior years cash flow hedges, reclassified from accumulated other
comprehensive income;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $67 million in net unrealized gains resulting primarily from increasing market heat rates; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | $22 million in net unrealized losses on hedges from changes in natural gas prices.
| | - |  | ----------------------------------------------------------------------------------



Gross Margin



|                                      |  |                           |       |             |     |   |      |   |             |  |     |  
|------------------------------------- |  | ------------------------- | ----- | ----------- | --- | - | ---- | - | ----------- |  | --- | -
|                                      |  | Six Months Ended June 30, |      
|                                      |  | 2005                      |       | % ofRevenue |     |   | 2004 |   | % ofRevenue | 
|Operating revenues                    |  | $                         | 4,030 |             | 100 | % |      | $ | 4,072       |  | 100 | %
|Costs and expenses:                   |  |                           |       |             |     |   |      |   |             |  |     |  
|Cost of energy sold and delivery fees |  |                           | 2,272 |             | 56  | % |      |   | 2,602       |  | 64  | %
|Generation plant operating costs      |  |                           | 330   |             | 8   | % |      |   | 367         |  | 9   | %
|Depreciation and amortization         |  |                           | 154   |             | 4   | % |      |   | 164         |  | 4   | %
|                                      |  |                           |       |             |     |   |      |   |             |  |     |  
|Gross margin                          |  | $                         | 1,274 |             | 32  | % |      | $ | 939         |  | 23  | %
|                                      |  |                           |       |             |     |   |      |   |             |  |     |  



27



---

##### Table of Contents

Gross margin increased $335 million, or 36%, to $1.3 billion in 2005.



| |  |  | The gross margin increase primarily reflected the increasing cost advantage and improved performance of TXU Energy Holdings nuclear and coal/lignite-fired baseload plants in
an environment of higher wholesale market prices. The increased wholesale prices were driven by rising natural gas prices and higher market heat rates. Retail prices, including price-to-beat rates, were increased in response to higher wholesale
prices. The gross margin performance was mitigated by the effect of lower volumes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower cost of energy sold as a percent of revenues reflected:
| | - |  | -------------------------------------------------------------



| |  |  | the higher pricing;
| | - |  | -------------------



| |  |  | the favorable effect of lower purchased power volumes (due to lower sales volumes);
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a favorable retail sales mix shift from lower margin large business customers;
| | - |  | ------------------------------------------------------------------------------



| |  |  | improved efficiency of coal/lignite-fired generation plants and lower use of gas-fired generation, resulting in a 12% decline in fuel cost per MWh produced (including baseload and
gas-fired generation); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 16% decline in planned and unplanned baseload plant outage days;
| | - |  | ------------------------------------------------------------------



partially offset by:



| |  |  | a 19% increase in per MWh cost of purchased power, due to rising natural gas prices and higher market heat rates; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | an 11% increase in delivery fees per MWh.
| | - |  | -----------------------------------------



Operating costs decreased $37 million, or 10%, to $330 million in 2005. The decline reflected:



| |  |  | a $15 million effect of no longer providing customer care support to TXU Gas (largely offset by lower related revenues), the operations of which were sold in October 2004;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the absence of $9 million of costs associated with 9 combustion turbine units no longer operated for TXU Energy Holdings benefit;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the absence of $6 million of costs associated with the gas transportation business sold in June 2004; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | $14 million in lower staffing and benefits expense including $5 million in lower pension and other postretirement benefit costs (see discussion in SG&A expenses below regarding
these costs);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



partially offset by:



| |  |  | a $4 million increase in incentive compensation to reflect projected performance against established targets in generation operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



Depreciation and amortization (including amounts shown in the gross margin
table above) decreased $29 million, or 16%, to $156 million. The decline included $19 million due to the effect of the transfer of information technology assets, principally capitalized software, to a TXU Corp. affiliate in connection with the
Capgemini outsourcing transaction (a portion of the software was written down prior to transfer). The decrease also reflected a $6 million effect of reduced 2005 depreciation rates for lignite/coal-fired plants due to an increase in the estimated
useful lives.



28



---

##### Table of Contents

SG&A expenses decreased by $83 million, or 27%, to $227 million in 2005. The decline reflected:



| |  |  | a net $38 million decline due to cost reduction initiatives, including the effects of the Capgemini outsourcing agreement;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | $28 million in lower bad debt expense reflecting improved credit risk management practices, more focused collection activities, targeted customer marketing and lower accounts
receivable balances;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $10 million in reduced incentive compensation expense due to lower TXU Corp. share awards to management;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | a $6 million decrease in marketing expense due to timing;
| | - |  | ---------------------------------------------------------



| |  |  | a $8 million net decrease in employee retirement-related expenses due to the assumption by TXU Electric Delivery of pension and other postretirement benefit costs related to service
of TXU Energy Holdings employees prior to the unbundling of TXU Corp.s electric utility business and the deregulation of the Texas electricity industry effective January 1, 2002 as discussed above (Also see Note 7 to Financial
Statements); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $9 million increase in outside consulting expense primarily related to projects to improve operational efficiencies at generation plants.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Other income totaled $8 million in 2005 and $13 million in 2004. Other income
in 2005 included $4 million in connection with the termination of a power services contract and $2 million in gains on the sale of mining lands. Other income in 2004 included $12 million of amortization of a gain on the sale of two generation plants
in 2002; the amortization ceased due to the recognition of the gain in the fourth quarter of 2004 upon termination of a power purchase agreement entered into upon sale of the plants.



Other deductions totaled $13 million in 2005 and $281 million in 2004. The 2004 amount includes charges totaling $274
million for asset write-downs and employee severance related to the restructuring actions described in detail in the 2004 Form 10-K/A. The 2005 amount includes:



| |  |  | a $12 million charge related to nonperformance of a counterparty in connection with a trading coal contract;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | $4 million in equity losses (representing amortization expense) in the TXU Corp. entity holding the capitalized software licensed to Capgemini;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $4 million in transition costs associated with the Capgemini outsourcing agreement; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | a $12 million net credit arising from a change in estimated sublease proceeds, due to the receipt of indicative bids in the quarter, reflected in the net liability recorded in 2004
related to leased gas-fired combustion turbines no longer operated for TXU Energy Holdings benefit. As the original charge associated with this liability was recorded in this line item, the related credit is being similarly reported.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Interest income increased by $13 million to $21
million in 2005 reflecting higher interest on short-term investments and higher average advances to affiliates.



Interest expense and related charges increased by $13 million, or 8%, to $185 million in 2005. The increase reflected $9 million due to higher average
debt levels and $4 million representing higher interest reimbursement to TXU Electric Delivery for carrying costs related to securitized regulatory assets.



The effective income tax rate was 33.7% in 2005 and 21.1% in 2004. The 2005 effective tax rate reflects $10 million related to settlement of the IRS audit
for the 1994 to 1996 tax years. The effective tax rate in 2004 reflected the effects of ongoing tax benefits of depletion allowances and amortization of investment tax credits on the lower income base.



Income from continuing operations increased $451 million to $548 million in
2005 driven by improved gross margin, the effect of restructuring-related charges in 2004 and lower SG&A expenses. Net pension and postretirement benefit costs reduced net income by $5 million in 2005 and $19 million in 2004.



29



---

##### Table of Contents

Energy-Related Commodity Contracts and Mark-to-Market Activities



The table below summarizes the changes in commodity contract assets and
liabilities for the six months ended June 30, 2005. The net changes in these assets and liabilities, excluding other activity as described below, represent the net effect of mark-to-market accounting for positions in the commodity
contract portfolio, which excludes positions that qualify for hedge accounting. For the year-to-date 2005 period, this effect totaled $12 million in unrealized net gains ($35 million in net gains on open positions less $23 million in reversals of
net gains recognized in prior periods.) These positions consist largely of economic hedge transactions, but also include some speculative trading.



|                                                                        |  |                            |     |  
|----------------------------------------------------------------------- |  | -------------------------- | --- | -
|                                                                        |  | SixMonthsEndedJune 30,2005 |    
|Balance of net commodity contract assets at beginning of period         |  | $                          | 23  |  
|Settlements of positions included in the opening balance (1)            |  |                            | (23 | )
|Unrealized mark-to-market valuations of positions held at end of period |  |                            | 35  |  
|Other activity (2)                                                      |  |                            | 50  |  
|                                                                        |  |                            |     |  
|Balance of net commodity contract assets at end of period               |  | $                          | 85  |  
|                                                                        |  |                            |     |  

---

|(1) | Represents unrealized mark-to-market valuations of these positions recognized in earnings prior to the beginning of the period.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | These activities have no effect on unrealized mark-to-market valuations. Includes initial values of positions involving the receipt or payment of cash or other consideration,
including $56 million related to natural gas physical swap transactions, as well as option premiums and related amortization. Also includes a $12 million charge related to nonperformance by a coal contract counterparty.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the net effect of recording unrealized mark-to-market gains
and losses that are reflected in changes in commodity contract assets and liabilities, similar effects arise in the recording of unrealized ineffectiveness mark-to-market gains and losses associated with commodity-related cash flow hedges. These
effects are reflected in the balance sheet as changes in cash flow hedge and other derivative assets and liabilities. The total net effect of recording unrealized gains and losses under mark-to-market accounting is summarized as follows:



|                                                                  |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|----------------------------------------------------------------- |  | --------------------------- | -- | ---- | ------------------------- | --- | ---- |  | ---- | -- |  | - | --- | -
|                                                                  |  | Three Months Ended June 30, |    |      | Six Months Ended June 30, |    
|                                                                  |  | 2005                        |    | 2004 |                           |     | 2005 |  | 2004 |   
|Unrealized gains/(losses) related to commodity contract portfolio |  | $                           | 39 |      | $                         | (11 | )    |  | $    | 12 |  | $ | (14 | )
|                                                                  |  |                             |    |     
|Ineffectiveness gains/(losses) related to cash flow hedges        |  |                             | 3  |      |                           | (2  | )    |  |      | 6  |  |   | (17 | )
|                                                                  |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|Total unrealized gains/(losses) related to commodity contracts    |  | $                           | 42 |      | $                         | (13 | )    |  | $    | 18 |  | $ | (31 | )
|                                                                  |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  



These amounts are
included in the hedging and risk management activities component of revenues.



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##### Table of Contents

Accounting Election Related to Sales Contracts  Effective with the second quarter of
2005, TXU Energy Holdings elected the normal sale exception under SFAS 133 for all fixed price sales contracts with large business customers entered into after May 2005 (thus the contracts are not marked-to-market). As part of its risk management
activities, TXU Energy Holdings has discontinued economically hedging these contracts with mark-to-market instruments for future periods (after 2005) in which the portfolio is not already balanced. As disclosed in the 2004 Form 10-K/A, similar sales
contracts were marked-to-market effective with new contract activity after November 2004 upon a decision to no longer elect the normal sale exception and to economically hedge the contracts with mark-to-market instruments. These accounting elections
were driven by TXU Energy Holdings continued review of its large business customer sale operations and ongoing management of the overall portfolio exposure to energy price risk. As TXU Energy Holdings economically hedges its natural long power
position (generation load), TXU Energy Holdings strives to make elections under SFAS 133 with respect to the hedging instruments that allow accounting results to better reflect its economic position.



Maturity Table  Of the net commodity contract asset
balance above at June 30, 2005, the amount representing cumulative unrealized mark-to-market net gains that have been recognized in current and prior years earnings is $33 million. The remaining net asset of $52 million included in the June
30, 2005 balance sheet is comprised principally of amounts representing current and prior years net payments of cash or other consideration, including amounts related to natural gas physical swap transactions, as well as option premiums, net
of amortization. The following table presents the unrealized net commodity contract asset arising from mark-to-market accounting as of June 30, 2005, scheduled by contractual settlement dates of the underlying positions.



|                                          |  |                                                                            |     |    |                       |   |     |                       |  |   |                               |   |  |       |     |    |  |   |     |  
|----------------------------------------- |  | -------------------------------------------------------------------------- | --- | -- | --------------------- | - | --- | --------------------- |  | - | ----------------------------- | - |  | ----- | --- | -- |  | - | --- | -
|                                          |  | Maturity dates of unrealized net commodity contract asset at June 30, 2005 |    
|Source of fair value                      |  | Maturity less than 1 year                                                  |     |    | Maturity of 1-3 years |   |     | Maturity of 4-5 years |  |   | Maturity in Excess of 5 years |   |  | Total |    
|Prices actively quoted                    |  | $                                                                          | 14  |    |                       | $ | 59  |                       |  | $ | 2                             |   |  | $     |    |    |  | $ | 75  |  
|Prices provided by other external sources |  |                                                                            | (35 | )  |                       |   | (34 | )                     |  |   | (2                            | ) |  |       | (4  | )  |  |   | (75 | )
|Prices based on models                    |  |                                                                            | 19  |    |                       |   | 14  |                       |  |   |                              |   |  |       |    |    |  |   | 33  |  
|                                          |  |                                                                            |     |    |                       |   |     |                       |  |   |                               |   |  |       |     |    |  |   |     |  
|Total                                     |  | $                                                                          | (2  | )  |                       | $ | 39  |                       |  | $ |                              |   |  | $     | (4  | )  |  | $ | 33  |  
|                                          |  |                                                                            |     |    |                       |   |     |                       |  |   |                               |   |  |       |     |    |  |   |     |  
|Percentage of total fair value            |  |                                                                            | (6  | )% |                       |   | 118 | %                     |  |   |                              | % |  |       | (12 | )% |  |   | 100 | %



As the above table
indicates, 112% of the net unrealized mark-to-market valuation gains at June 30, 2005 mature within three years. This is reflective of the terms of the positions and the methodologies employed in valuing positions for periods where there is less
market liquidity and visibility. The prices actively quoted category reflects only exchange traded contracts with active quotes available. The prices provided by other external sources category represents forward commodity
positions at locations for which over-the-counter broker quotes are available. Over-the-counter quotes for power and natural gas generally extend through 2007 and 2010, respectively. The prices based on models category contains the value
of all nonexchange traded options, valued using industry accepted option pricing models. In addition, this category contains other contractual arrangements which may have both forward and option components. In many instances, these contracts can be
broken down into their component parts and modeled as simple forwards and options based on prices actively quoted. As the modeled value is ultimately the result of a combination of prices from two or more different instruments, it has been included
in this category.



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COMPREHENSIVE INCOME



Cash flow hedge activity reported in other comprehensive income from continuing operations included:



|                                                                                              |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|--------------------------------------------------------------------------------------------- |  | --------------------------- | -- | ---- | ------------------------- | --- | ---- |  | ---- | -- |  | - | --- | -
|                                                                                              |  | Three Months Ended June 30, |    |      | Six Months Ended June 30, |    
|                                                                                              |  | 2005                        |    | 2004 |                           |     | 2005 |  | 2004 |   
|Cash flow hedge activity (net of tax):                                                        |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|Net change in fair value of hedges  gains/(losses):                                          |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|Commodities                                                                                   |  | $                           |   |      | $                         | (17 | )    |  | $    | 15 |  | $ | (75 | )
|                                                                                              |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|                                                                                              |  |                             |   |      |                           | (17 | )    |  |      | 15 |  |   | (75 | )
|Losses realized in earnings (net of tax):                                                     |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|Commodities                                                                                   |  |                             | 14 |      |                           | 6   |      |  |      | 30 |  |   | 10  |  
|Financing  interest rate swaps                                                               |  |                             | 2  |      |                           | 1   |      |  |      | 3  |  |   | 2   |  
|                                                                                              |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  
|                                                                                              |  |                             | 16 |      |                           | 7   |      |  |      | 33 |  |   | 12  |  
|Effect of cash flow hedges reported in comprehensive results related to continuing operations |  | $                           | 16 |      | $                         | (10 | )    |  | $    | 48 |  | $ | (63 | )
|                                                                                              |  |                             |    |      |                           |     |      |  |      |    |  |   |     |  



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##### Table of Contents

FINANCIAL CONDITION



LIQUIDITY AND CAPITAL RESOURCES



Cash Flows Cash flows provided by operating activities for the six months ended June 30, 2005 totaled $512 million for a decrease of
$52 million, or 9%. The decrease reflected a $206 million decrease in working capital (accounts receivable, accounts payable and inventory) primarily reflecting cash flow timing effects arising from lower wholesale purchases and sales, as well as
higher retail accounts receivable balances due to higher pricing and hotter weather. This effect was partially offset by higher earnings (as adjusted for the noncash charges and credits identified in the statement of cash flows).



Cash flows used in financing activities totaled $347 million in 2005 compared
to $451 million in 2004. The activity reflected:



| |  |  | advances to parent of $966 million in 2005 and $1.6 billion in 2004;
| | - |  | --------------------------------------------------------------------



| |  |  | cash distributions to parent of $350 million in both years; and
| | - |  | ---------------------------------------------------------------



| |  |  | funds provided by net issuances and repayments of borrowings of $969 million in 2005 and $1.5 billion in 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------



Cash flows used in investing activities totaled $168 million in 2005 compared
to $127 million during 2004. Capital expenditures, including nuclear fuel, were $161 million in 2005 and $153 million in 2004. Capital expenditures in 2005 reflect increased spending for generation projects, including the nuclear steam generator
replacement.



Depreciation and amortization expense reported in
the statement of cash flows exceeds the amount reported in the statement of income by $29 million for 2005. This difference represents amortization of nuclear fuel, which is reported as cost of energy sold in the statement of income consistent with
industry practice.



Financing Activities



Long-term Debt Activity During the six months ended
June 30, 2005, TXU Energy Holdings issued, reacquired, or made scheduled principal payments on long-term debt as follows (all amounts presented are principal):



|                                |  |           |    |             |   |   
|------------------------------- |  | --------- | -- | ----------- | - | --
|                                |  | Issuances |    | Retirements
|TXU Energy Holdings:            |  |           |    |             |   |   
|Pollution control revenue bonds |  | $         | 71 |             | $ | 39
|Other long-term debt            |  |           |   |             |   | 1 
|                                |  |           |    |             |   |   
|Total                           |  | $         | 71 |             | $ | 40
|                                |  |           |    |             |   |   



See Note 3 to
Financial Statements for further detail of debt issuance and retirements and financing arrangements.



Credit Facilities At August 5, 2005, TXU Energy Holdings had access to credit facilities totaling $4.0 billion of which
$2.3 billion was unused. These credit facilities are used for working capital and general corporate purposes and to support issuances of letters of credit. See Note 3 to Financial Statements for details of the arrangements.



In June 2005, TXU Energy Holdings obtained a commitment from a financial
institution for a new credit facility totaling $1 billion, on terms comparable to its existing credit facilities, which can be used for general corporate purposes. The commitment was subsequently amended to include TXU Electric Delivery as a
borrower. The agreement was executed on August 12, 2005. The maximum amount directly available to TXU Electric Delivery under the facility is $800 million.



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##### Table of Contents

Short-term Borrowings At June 30, 2005, TXU Energy Holdings had outstanding
short-term borrowings consisting of bank borrowings of $1.2 billion at a weighted average interest rate of 3.67%. At December 31, 2004, TXU Energy Holdings had outstanding short-term borrowings consisting of bank borrowings of $210 million at a
weighted average interest rate of 5.25%.



The increase in bank
borrowings is largely attributable to TXU Corp.s funding requirements for the settlement of its accelerated share repurchase program and the redemption of its Series B preference stock. TXU Energy Holdings expects to reduce its bank borrowings
by the end of 2005 with cash from operations.



Sale of
Receivables  TXU Corp. has had an accounts receivable securitization program in place for several years. The activity under this program is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the program,
subsidiaries of TXU Corp. (originators) sell trade accounts receivable to TXU Receivables Company, a consolidated wholly-owned bankruptcy remote direct subsidiary of TXU Corp., which sells undivided interests in the purchased accounts receivable for
cash to special purpose entities established by financial institutions. Effective June 17, 2005, the program was extended until June 17, 2008. All new trade receivables under the program generated by the originators are continuously purchased by TXU
Receivables Company with the proceeds from collections of receivables previously purchased. Funding to TXU Energy Holdings under the program totaled $406 million and $411 million at June 30, 2005 and December 31, 2004, respectively. See Note 3 to
Financial Statements for a more complete description of the program including the financial impact on earnings and cash flows for the periods presented and the contingencies that could result in termination of the program.



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



|        |  |                    |  |                    |  |                       |  |                       |  |                    
|------- |  | ------------------ |  | ------------------ |  | --------------------- |  | --------------------- |  | -------------------
|        |  | TXU Corp.          |  | US Holdings        |  | TXU Electric Delivery |  | TXU Electric Delivery |  | TXU Energy Holdings
|        |  | (Senior Unsecured) |  | (Senior Unsecured) |  | (Secured)             |  | (Senior Unsecured)    |  | (Senior Unsecured) 
|S&P     |  | BB+                |  | BB+                |  | BBB-                  |  | BBB-                  |  | BBB-               
|Moodys |  | Ba1                |  | Baa3               |  | Baa1                  |  | Baa2                  |  | Baa2               
|Fitch   |  | BBB-               |  | BBB-               |  | BBB+                  |  | BBB+                  |  | BBB                



Moodys currently
maintains a stable outlook for TXU Corp., US Holdings, TXU Energy Holdings and TXU Electric Delivery. Fitch changed its outlook to negative for TXU Corp., US Holdings and TXU Energy Holdings and reaffirmed its stable outlook for TXU Electric
Delivery in May 2005.



As reflected in the table above, in June
2005, S&P lowered its rating of the senior unsecured debt of TXU Corp., US Holdings and TXU Energy Holdings one notch and lowered its rating of TXU Electric Deliverys secured debt one notch. S&P also changed its rating outlook for TXU
Corp. and all of its rated subsidiaries to stable from CreditWatch Negative. The one level downgrade by S&P results in approximately $50 million of cash collateral requirements.



These ratings are investment grade, except for Moodys and
S&Ps rating of TXU Corp.s senior unsecured debt, and S&Ps rating of US Holdings senior unsecured debt, which are one notch below investment grade.



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



Financial Covenants, Credit Rating Provisions and Cross Default Provisions  The terms of certain financing arrangements of TXU Energy
Holdings contain financial covenants that require maintenance of specified fixed charge coverage ratios and leverage ratios and/or contain minimum net worth covenants. As of June 30, 2005, all such applicable covenants were complied with.



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##### Table of Contents

Material Credit Rating Covenants



TXU Energy Holdings has provided a guarantee of the obligations under TXU Corp.s lease of its headquarters building
(approximately $115 million at June 30, 2005). In the event of a downgrade of TXU Energy Holdings credit rating to below investment grade, a letter of credit would need to be provided within 30 days of any such rating decline.



Under the terms of leases with $148 million in remaining lease payments
(principal amount as of June 30, 2005), if TXU Energy Holdings credit rating were downgraded to below investment grade by any specified rating agency, TXU Energy Holdings could be required to sell the assets, assign the leases to a new obligor
that is investment grade, post a letter of credit or defease the lease. A rail spur lease, which had a July 2005 renewal option date, includes a credit rating covenant. TXU Energy Holdings and the counterparty agreed to extend the lease for 30 days
and further agreed in principle to remove the credit rating covenant upon an amendment expected to occur in August 2005. The lease has $97 million in remaining payments (principal amount as of June 30, 2005).



TXU Energy Holdings has entered into certain commodity contracts and lease
arrangements that in some instances give the other party the right, but not the obligation, to request TXU Energy Holdings to post collateral in the event that its credit rating falls below investment grade. Based on its current commodity contract
positions, in the event TXU Energy Holdings were downgraded to one level below investment grade by specified rating agencies, counterparties would have the option, based on reduced credit thresholds, to request TXU Energy Holdings to post an
incremental $185 million in addition to existing collateral requirements. Should TXU Energy Holdings be downgraded two levels below investment grade, counterparties would have the option to request additional collateral of up to approximately $36
million at June 30, 2005. The amount TXU Energy Holdings could be required to post under these transactions depends in part on the value of the contracts at that time.



ERCOT also has rules in place to assure adequate credit worthiness for parties that schedule power on the ERCOT System.
Under those rules, if TXU Energy Holdings credit rating were downgraded to below investment grade by any specified rating agency, TXU Energy Holdings could be required to post collateral of approximately $7 million.



Other arrangements of TXU Energy Holdings, including credit facilities,
contain terms pursuant to which the interest rates charged under the agreements may be adjusted depending on the credit ratings of TXU Energy Holdings or its subsidiaries.



Material Cross Default Provisions



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



A default by TXU Energy Holdings or TXU Electric Delivery or any subsidiary thereof in respect of indebtedness in a
principal amount in excess of $50 million would result in a cross default under the $3.5 billion joint credit facilities expiring in June 2008, March 2010 and June 2010. Under these credit facilities, a default by TXU Energy Holdings or any
subsidiary thereof would cause the maturity of outstanding balances under such facility to be accelerated as to TXU Energy Holdings but not as to TXU Electric Delivery. Also, under these credit facilities, a default by TXU Electric Delivery or any
subsidiary thereof would cause the maturity of outstanding balances under such facility to be accelerated as to TXU Electric Delivery but not as to TXU Energy Holdings. All of the above default provisions are the same under the new $1 billion
facility that was executed in August 2005. See Credit Facilities above regarding the facility.



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##### Table of Contents

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



TXU Energy Holdings enters into energy-related and financial contracts, the master forms of which contain provisions whereby an event of default or acceleration of settlement would occur if TXU Energy Holdings were to
default under an obligation in respect of borrowings in excess of thresholds, which vary, stated in the contracts.



Long-term Contractual Obligations and Commitments There were no significant changes to contractual obligations and commitments
as presented in the 2004 Form 10-K/A other than an increase of approximately $900 million (to $3.3 billion) in the one to three years obligation related to commodity purchase and services agreements. The change was due to increases in pricing and
volumes.



OFF BALANCE SHEET ARRANGEMENTS



TXU Corp. has had an accounts receivable securitization program in place for
several years. See discussion above under Sale of Receivables and in Note 3 to Financial Statements.



There have been no changes related to the outstanding arrangement with Capgemini, as disclosed in the 2004 Form 10-K/A.



Also see Note 5 to Financial Statements regarding guarantees.



COMMITMENTS AND CONTINGENCIES



See Note 5 to Financial Statements for additional discussion of commitments
and contingencies.



REGULATION AND RATES



Price-to-Beat Rates  On April 15, 2005, TXU
Energy Holdings filed a request for a price-to-beat increase which was approved by the Commission on May 11, 2005. The increase was effective with the billing cycle following the approval. The price-to-beat increase raises the average monthly
residential bill by 9.9%.



ERCOT Market Issues The Texas Public Utility Regulatory Act (PURA) and the Commission were subject to sunset review by the Texas Legislature in the 2005 legislative session. Sunset review entails, generally, a comprehensive review of the need for
and efficacy of an administrative agency (e.g., the Commission), along with an evaluation of the advisability of any changes to that agencys authorizing legislation (e.g., PURA). As part of the sunset review process, the legislative Sunset
Advisory Commission recommended that the Legislature reauthorize the Commission for six years, and recommended other changes to PURA that are not expected to have a material impact upon TXU Corp.s operations. Senate Bill 408, which was passed
by the Texas Legislature, reauthorized the Commission for six years, adjusted the governance of ERCOT, and clarified that the Commission has full oversight of the independent grid operator (ERCOT). The legislation also creates a new wholesale market
monitor in ERCOT.



Texas Legislature Special
Session  The 79thTexas Legislature completed its 1stspecial session called to consider school finance and various associated tax provisions. This session was unable to address the school finance matters but
acted on several other matters including an extension and expansion of the Renewable Portfolio Standard in ERCOT. The Governor has called a 2ndsession of the 79thLegislature to again address school finance and
various associated tax provisions. Other legislation may be brought up (if so designated by the Governor) but TXU Energy Holdings cannot predict the ultimate outcome of this or any other matters under consideration by the legislature during this
special session.



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##### Table of Contents

Wholesale Market Design In August 2003, the Commission adopted a rule that, if fully
implemented, would alter the wholesale market design in ERCOT. The rule requires ERCOT:



| |  |  | to use a stakeholder process to develop a new wholesale market model;
| | - |  | ---------------------------------------------------------------------



| |  |  | to operate a voluntary day-ahead energy market;
| | - |  | -----------------------------------------------



| |  |  | to directly assign all congestion rents to the resources that caused the congestion;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | to use nodal energy prices for resources;
| | - |  | -----------------------------------------



| |  |  | to provide information for energy trading hubs by aggregating nodes;
| | - |  | --------------------------------------------------------------------



| |  |  | to use zonal prices for loads; and
| | - |  | ----------------------------------



| |  |  | to provide congestion revenue rights (but not physical rights).
| | - |  | ---------------------------------------------------------------



In December 2004, a cost-benefit analysis prepared by a third-party consultant was filed with the Commission by ERCOT. ERCOT filed its description of the
proposed market design on March 18, 2005, subject to a commitment to update the filing when the description of the financial settlement for the proposed market design is completed. The Chairman of the Commission has announced his intention to have
the Commission reach a final decision concerning the implementation of the ERCOT nodal market by mid-August, 2005. Further actions by the Commission concerning proposed changes to the ERCOT market design may follow the mid-August decision and TXU
Energy Holdings is currently unable to predict the cost or impact of implementing any proposed change to the current wholesale market design.



Wholesale Market Investigation  On December 8, 2004, the Commission Staff opened a project (PUC Project No. 30513) to facilitate an
ongoing informal fact-finding review of the electric wholesale market activities of TXU Energy Holdings and its affiliates. Commission Staff indicated that it created this project because of substantial concerns publicly expressed by the
Commission and market participants about TXUs recent activities. On April 26, 2005, the Commission Staff issued a report by its consultant, Potomac Economics, concerning the balancing energy transactions at issue. This report indicates
no evidence of unlawful activities by TXU Energy Holdings. The Staff indicated in an accompanying memorandum that it does not intend to pursue any enforcement actions against market participants, including TXU Energy Holdings, in this matter.



Nuclear Decommissioning  Through December
31, 2001, decommissioning costs were recovered from consumers based upon a 1992 site-specific study through rates placed in effect under TXU Energy Holdings January 1993 rate increase request. Effective January 1, 2002, decommissioning costs
are recovered through a tariff charged to REPs by TXU Electric Delivery based upon a 2000 redetermination of the 1997 site-specific study, adjusted for trust fund assets, as a component of delivery fees effective under TXU Corp.s 2001
Unbundled Cost of Service filing. During the first quarter of 2005, an updated study of the cost to decommission TXU Energy Holdings nuclear generating facility was completed. The updated study was filed with the Commission on June 17, 2005.
The accompanying testimony concludes that no change to the nuclear decommissioning tariff is warranted at this time. In its July 6, 2005 filing, the Commission Staff concluded that the study is adequate, complies with the Commissions rules,
and constitutes a compliance filing that does not require further process. On July 29, 2005, the Commissions Policy Development Division issued an order approving the decommissioning cost study and closing the docket.



Air Permit Filing  In July 2005, TXU Energy Holdings
filed an air permit with the Texas Commission on Environmental Quality for a proposed 1,720-megawatt lignite-fired power plant in Robertson County, approximately 30 miles northwest of the Bryan-College Station area. The permit is necessary to
continue discussions about the facilitys benefits with potential partners. If a decision is made to proceed with the project, construction could begin as early as 2006, and the facility would take about four years to complete, making it
operational around 2009 or 2010.



Energy Policy
Act The Energy Policy Act of 2005 (which provides for, among other things, the repeal of Public Utility Holding Company Act (PUHCA) no later than six months after enactment) has been passed by both houses of the US
Congress and was signed into law by the President on August 8, 2005. PUHCA has limited the operations and ownership of public utilities to discrete geographical areas in the United States and the ability of nonutility companies to own or merge with
public utilities. The FERC has been charged with adopting rules regarding certain new authority afforded it that is more limited than the authority conferred upon the SEC by PUHCA. As rules are enacted with respect to implementation and
interpretation of the new law, TXU Energy Holdings will assess the expected effects of the bill on its businesses.



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



CHANGES IN ACCOUNTING STANDARDS



See Note 1 to Financial Statements for discussion of changes in accounting
standards.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Market risk is the risk that TXU Energy Holdings may experience a loss in value as a result of changes in market conditions affecting commodity prices and
interest rates, which TXU Energy Holdings is exposed to in the ordinary course of business. TXU Energy Holdings exposure to market risk is affected by a number of factors, including the size, duration and composition of its energy and
financial portfolio, as well as volatility and liquidity of markets. TXU Energy Holdings enters into financial instruments such as interest rate swaps to manage interest rate risks related to its indebtedness, as well as exchange traded,
over-the-counter contracts and other contractual commitments to manage commodity price risk as part of its wholesale markets activities.



RISK OVERSIGHT



TXU Energy Holdings wholesale markets operation manages the market, credit and operational risk related to commodity prices of the unregulated
energy business within limitations established by senior management and in accordance with TXU Corp.s overall risk management policies. Interest rate risks are managed centrally by the corporate treasury function. Market risks are monitored
daily by risk management groups that operate and report independently of the wholesale markets operations, utilizing industry accepted practices and analytical methodologies. These techniques measure the risk of change in value of the portfolio of
contracts and the hypothetical effect on this value from changes in market conditions and include, but are not limited to, Value at Risk (VaR) methodologies.



TXU Corp. has a corporate risk management organization that is headed by a Chief Risk Officer. The Chief Risk Officer, through his designees, enforces all
applicable risk limits, including the respective policies and procedures to ensure compliance with such limits and evaluates the risks inherent in the various businesses of TXU Corp. and their associated transactions. Key risk control activities
include, but are not limited to, credit review and approval, operational and market risk measurement, validation of transaction capture, portfolio valuation and daily portfolio reporting, including mark-to-market valuation, VaR and other risk
measurement metrics.



COMMODITY PRICE RISK



TXU Energy Holdings is subject to the inherent risks of market fluctuations
in the price of electricity, natural gas and other energy-related products marketed and purchased. TXU Energy Holdings actively manages its portfolio of owned generation assets, fuel supply and retail sales load to mitigate the near-term impacts of
these risks on its results of operations. TXU Energy Holdings, as well as any participant in the market, cannot fully manage the long-term value impact of structural declines or increases in natural gas, power and oil prices and spark spreads
(differences between the market price of electricity and its cost of production).



In managing energy price risk, TXU Energy Holdings enters into short- and long-term physical contracts, exchange traded and over-the-counter financial contracts as well as bilateral contracts with customers. TXU
Energy Holdings risk management activities also incorporate some speculative trading activity. The operation continuously monitors the valuation of identified risks and adjusts the portfolio based on current market conditions. Valuation
adjustments or reserves are established in recognition that certain risks exist until full delivery of energy has occurred, counterparties have fulfilled their financial commitments and related financial instruments have either matured or are closed
out.



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TXU Energy Holdings strives to use consistent assumptions regarding forward market price curves in
evaluating and recording the effects of commodity price risk.



VaR Methodology  A VaR methodology is used to measure the amount of market risk that exists within the portfolio under a variety of market conditions. The resultant VaR produces an estimate of a portfolios
potential for loss given a specified confidence level and considers among other things, market movements utilizing standard statistical techniques given historical and projected market prices and volatilities. Stress testing of market variables is
also conducted to simulate and address abnormal market conditions.



The use of this method requires a number of key assumptions, such as use of (i) an assumed confidence level; (ii) an assumed holding period (i.e. the time necessary for management action, such as to liquidate positions); and (iii)
historical estimates of volatility and correlation data.



VaR for Energy Contracts Subject to Mark-to-Market Accounting  This measurement estimates the potential loss in value, due to changes in market conditions, of all energy-related contracts subject to mark-to-market
accounting, based on a specific confidence level and an assumed holding period. Assumptions in determining this VaR include using a 95% confidence level and a five-day holding period. A probabilistic simulation methodology is used to calculate VaR,
and is considered by management to be the most effective way to estimate changes in a portfolios value based on assumed market conditions for liquid markets.



|                           |  |               |    |                   |   |   
|-------------------------- |  | ------------- | -- | ----------------- | - | --
|                           |  | June 30, 2005 |    | December 31, 2004
|Period-end MtM VaR:        |  | $             | 25 |                   | $ | 20
|Average Month-end MtM VaR: |  | $             | 17 |                   | $ | 20



Earnings at Risk
(EaR)  EaR measures the estimated potential loss of expected pretax earnings for the year presented due to changes in market conditions. EaR metrics include the owned generation assets, estimates of retail load and all contractual
positions except for accrual positions expected to be settled beyond the fiscal year. Assumptions include using a 95% confidence level over a five-day holding period under normal market conditions.



Cash Flow at Risk (CFaR)  CFaR measures the estimated
potential loss of expected cash flow over the next six months, due to changes in market conditions. CFaR metrics include all owned generation assets, estimates of retail load and all contractual positions that impact cash flow during the next six
months. Assumptions include using a 99% confidence level over a six-month holding period under normal market conditions.



|     |  |              |     |                   |   |    
|---- |  | ------------ | --- | ----------------- | - | ---
|     |  | June 30,2005 |     | December 31, 2004
|EaR  |  | $            | 33  |                   | $ | 24 
|CFaR |  | $            | 106 |                   | $ | 116



Natural Gas
Price & Market Heat-Rate Exposure  Wholesale electricity prices in the Texas market generally move with the price of natural gas because marginal demand is generally met with gas-fired generation plants. Wholesale electricity
prices also move with market heat rates, which are a measure of the efficiency of the marginal supplier (generally gas plants) in generating electricity.



TXU Energy Holdings is both a producer and a buyer of wholesale electricity. The generation operations supply power to the wholesale market and the retail
business, which also purchases power in the wholesale market. The combination of these two businesses provides a partial natural hedge against near-term price volatility in wholesale electricity and natural gas markets. With this natural hedge and
TXU Energy Holdings wholesale market positions, for 2005 TXU Energy Holdings portfolio position is substantially balanced with respect to changes in natural gas prices, given TXU Energy Holdings projections of baseload unit
availability and customer churn and assuming no further changes in the price-to-beat rates. The primary sensitivity to natural gas prices over the near term derives from the price-to-beat structure for residential and small business customers;
higher price-to-beat rates triggered by higher gas prices could result in increased profitability but also more customer churn, and vice versa. In the near term, TXU Energy Holdings has more significant exposure to



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changes in market heat rates than natural gas prices, in part due to TXU Energy Holdings 6,309 MW of active
gas-fired generation capacity in Texas that TXU Energy Holdings currently dispatches for its own use. TXU Energy Holdings expects that increases in heat rates would increase the profitability of its overall market position and its gas-fired
generation fleet, and vice versa.



Over the longer term, TXU
Energy Holdings exposure to changes in natural gas prices and market heat rates is expected to increase. The magnitude of this exposure is determined by several key assumptions including, but not limited to, baseload generation capacity
factors, gas plant availability, the size of the retail business (both large business and residential), and the levels and stability of margins in the retail business. In the unlikely case that TXU Energy Holdings retail price changes exactly
and immediately mirrored changes in wholesale electricity markets, TXU Energy Holdings could experience an approximate $250 million reduction in annual pretax earnings for every $0.50 per million British thermal units reduction in natural gas prices
(approximate 6% change in current price) sustained over a full year. In the same scenario of retail price linkage to wholesale markets, if natural gas prices and other nonprice conditions remained unchanged, but ERCOT electricity prices declined by
$5/MWh (approximate 8% change in current price) for a full year because of declining market heat rates, TXU Energy Holdings could experience an approximate $330 million reduction in annual pretax earnings.



INTEREST RATE RISK



See Note 3 to Financial Statements for a discussion of the issuance and
retirement of debt since December 31, 2004.



CREDIT RISK



Credit Risk  Credit risk relates
to the risk of loss associated with nonperformance by counterparties. TXU Energy Holdings maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies require an evaluation of a potential
counterpartys financial condition, credit rating, and other quantitative and qualitative credit criteria and specify authorized risk mitigation tools, including but not limited to use of standardized agreements that allow for netting of
positive and negative exposures associated with a single counterparty. TXU Energy Holdings has standardized documented processes for monitoring and managing its credit exposure, including methodologies to analyze counterparties financial
strength, measurement of current and potential future credit exposures and standardized contract language that provides rights for netting and set-off. Credit enhancements such as parental guarantees, letters of credit, surety bonds and margin
deposits are also utilized. Additionally, individual counterparties and credit portfolios are managed to preset limits and stress tested to assess potential credit exposure. This evaluation results in establishing credit limits or collateral
requirements prior to entering into an agreement with a counterparty that creates credit exposure to TXU Energy Holdings. Additionally, TXU Energy Holdings has established controls to determine and monitor the appropriateness of these limits on an
ongoing basis. Any prospective material adverse change in the payment history or financial condition of a counterparty or downgrade of its credit quality will result in the reassessment of the credit limit with that counterparty. This process can
result in the subsequent reduction of the credit limit or a request for additional financial assurances.



Credit Exposure  TXU Energy Holdings gross exposure to credit risk related to trade accounts receivable, as well as commodity
contract assets and other derivative assets that arise primarily from hedging activities, totaled $2.4 billion at June 30, 2005.



A large share of gross assets subject to credit risk represents accounts receivable from the retail sale of electricity to residential and small business
customers. The risk of material loss (after consideration of allowances) from nonperformance by these customers is unlikely based upon historical experience. Allowances for uncollectible accounts receivable are established for the potential loss
from nonpayment by these customers based on historical experience and market or operational conditions.



Most of the remaining trade accounts receivable are with large business customers and hedging counterparties. These counterparties include major energy
companies, financial institutions, electric utilities, independent power producers, oil and gas producers and energy trading companies. The exposure to credit risk from these customers and counterparties, excluding credit collateral, as of June 30,
2005, is $1.3 billion net of



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standardized master netting contracts and agreements that provide the right of offset of positive and negative credit
exposures with individual customers and counterparties. When considering collateral currently held by TXU Energy Holdings (cash, letters of credit and other security interests), the net credit exposure is $1.1 billion. Of this amount, approximately
84% of the associated exposure is with investment grade customers and counterparties, as determined using publicly available information including major rating agencies published ratings and TXU Energy Holdings internal credit evaluation
process. Those customers and counterparties without an S&P rating of at least BBB- or similar rating from another major rating agency are rated using internal credit methodologies and credit scoring models to estimate an S&P equivalent
rating. TXU Energy Holdings routinely monitors and manages its credit exposure to these customers and counterparties on this basis.



TXU Energy Holdings is also exposed to credit risk related to the Capgemini put option with a carrying value of $103 million. Subject to certain terms and
conditions, Cap Gemini North America, Inc. and its parent, Cap Gemini S.A., have guaranteed the performance and payment obligations of Capgemini under the services agreement, as well as the payment in connection with the put option. S&P
currently maintains a BB+ rating with a negative outlook for Cap Gemini S. A.



The following table presents the distribution of credit exposure as of June 30, 2005, for trade accounts receivable from large business customers, commodity contract assets and other derivative assets that arise
primarily from hedging activities, by investment grade and noninvestment grade, credit quality and maturity.



|                    |  |                                   |       |   |                   |   |                   |              |                      |   |                      |   |  |   |     |  |   |     |  |   |     |  |   |      
|------------------- |  | --------------------------------- | ----- | - | ----------------- | - | ----------------- | ------------ | -------------------- | - | -------------------- | - |  | - | --- |  | - | --- |  | - | --- |  | - | -----
|                    |  | Exposure before Credit Collateral |       |   | Credit Collateral |   |                   | Net Exposure |                      |   | Exposure by Maturity
|                    |  |                                   |       |   | 2 years or less   |   | Between 2-5 years |              | Greater than 5 years |   | Total               
|Investment grade    |  | $                                 | 1,103 |   |                   | $ | 220               |              |                      | $ | 883                  |   |  | $ | 667 |  | $ | 117 |  | $ | 99  |  | $ | 883  
|Noninvestment grade |  |                                   | 231   |   |                   |   | 64                |              |                      |   | 167                  |   |  |   | 128 |  |   | 21  |  |   | 18  |  |   | 167  
|                    |  |                                   |       |   |                   |   |                   |              |                      |   |                      |   |  |   |     |  |   |     |  |   |     |  |   |      
|Totals              |  | $                                 | 1,334 |   |                   | $ | 284               |              |                      | $ | 1,050                |   |  | $ | 795 |  | $ | 138 |  | $ | 117 |  | $ | 1,050
|                    |  |                                   |       |   |                   |   |                   |              |                      |   |                      |   |  |   |     |  |   |     |  |   |     |  |   |      
|Investment grade    |  |                                   | 83    | % |                   |   | 78                | %            |                      |   | 84                   | % |  |   |     |  |   |     |  |   |     |  |   |      
|Noninvestment grade |  |                                   | 17    | % |                   |   | 22                | %            |                      |   | 16                   | % |  |   |     |  |   |     |  |   |     |  |   |      



TXU Energy Holdings
had exposure with two counterparties each having exposure greater than 10% of the net exposure of $1.1 billion at June 30, 2005. These two counterparties represent approximately 10% and 11% respectively of the net exposure and are viewed to be a low
credit risk. Additionally, approximately 76% of the credit exposure, net of collateral held, has a maturity date of two years or less. TXU Energy Holdings does not anticipate any material adverse effect on its financial position or results of
operations as a result of nonperformance by any customer or counterparty.



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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS



Some important factors, in addition to others specifically addressed in this Managements Discussion and Analysis of
Financial Condition and Results of Operations, that could have a material impact on TXU Energy Holdings operations, financial results and financial condition, and could cause TXU Energy Holdings actual results or outcomes to differ
materially from any projected outcome contained in any forward-looking statement in this report, include:



The Recent Implementation of Performance Improvement Initiatives May Result in Disruptions.



The implementation of performance improvement initiatives identified by management may not produce the desired results and may result in disruptions
arising from employee displacements and the rapid pace of changes to organizational structure and operating practices and processes. Most notably, TXU Energy Holdings is subject to the risk that the joint venture outsourcing arrangement with
Capgemini may not produce the desired cost savings as well as potential transition costs, which would likely be significant, in the event TXU Energy Holdings needed to switch to another vendor if Capgemini failed to perform its obligations to TXU
Energy Holdings.



TXU Energy Holdings Future Results of Operations May
be Impacted by Settlement Adjustments Determined by ERCOT Related to Prior Periods.



ERCOT is the independent system operator that is responsible for maintaining reliable operation of the bulk electric power supply system in the ERCOT region. Its responsibilities include the clearing and settlement of
electricity volumes and related ancillary services among the various participants in the deregulated Texas market. Settlement information is due from ERCOT within two months after the operating day, and true-up settlements are due from ERCOT within
six months after the operating day. As a result, TXU Energy Holdings is subject to settlement adjustments from ERCOT related to prior periods, which may result in charges or credits impacting future reported results of operations.



TXU Energy Holdings Businesses are Subject to Complex Governmental Regulations and
Increased Competition Due to Deregulation. These Factors May Have a Negative Impact on Its Business or Results of Operations.



TXU Energy Holdings businesses operate in changing market environments influenced by various legislative and regulatory initiatives regarding
deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity. TXU Energy Holdings will need to adapt to these changes and may face increasing competitive pressure. For example,
the Texas electricity market was deregulated as of January 1, 2002, and competition has resulted, and may continue to result in, declines in customer counts and sales volumes.



TXU Energy Holdings businesses are subject to changes in laws (including PURA, the Federal Power Act, as amended, the
Atomic Energy Act, as amended, the Public Utility Regulatory Policies Act of 1978, as amended, and the Clean Air Act, as amended) and changing governmental policy and regulatory actions (including those of the Commission, the FERC, the EPA and the
NRC) with respect to matters including, but not limited to, market structure and design, operation of nuclear power facilities, construction and operation of other power generation facilities, recovery of purchased gas and power costs,
decommissioning costs and present or prospective wholesale and retail competition.



TXU Energy Holdings, along with other market participants, is subject to oversight by the Commission. In that connection, TXU Energy Holdings and other market participants may be subject to various competition-related
rules and regulations, including but not limited to possible price-mitigation rules, as well as rules related to market behavior.



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TXU Energy Holdings Revenues and Results of Operations are Subject to Risks that are Beyond Its Control.



TXU Energy Holdings is not guaranteed any rate of return
on its capital investments in unregulated businesses. TXU Energy Holdings markets and trades power, including power from its own production facilities, as part of its wholesale markets management operation. TXU Energy Holdings results of
operations are likely to depend in large part upon prevailing retail rates, which are set in part by regulatory authorities, and market prices for electricity, gas and coal in its regional market and other competitive markets. Market prices may
fluctuate substantially over relatively short periods of time. Demand for electricity can fluctuate dramatically, creating periods of substantial under- or over-supply. During periods of over-supply, prices might be depressed. Also, at times there
may be political pressure, or pressure from regulatory authorities with jurisdiction over wholesale and retail energy commodity and transportation rates, to impose price limitations, bidding rules and other mechanisms to address volatility and other
issues in these markets.



Some of the fuel for TXU Energy
Holdings power production facilities is purchased under short-term contracts or on the spot market. Prices of fuel, including natural gas, may also be volatile, and the price TXU Energy Holdings can obtain for power sales may not change at the
same rate as changes in fuel costs. In addition, TXU Energy Holdings purchases and sells natural gas and other energy related commodities, and volatility in these markets may affect TXU Energy Holdings costs incurred in meeting its
obligations.



Volatility in market prices for fuel and
electricity may result from:



| |  |  | severe or unexpected weather conditions,
| | - |  | ----------------------------------------



| |  |  | seasonality,
| | - |  | ------------



| |  |  | changes in electricity usage,
| | - |  | -----------------------------



| |  |  | illiquidity in the wholesale power or other markets,
| | - |  | ----------------------------------------------------



| |  |  | transmission or transportation constraints, inoperability or inefficiencies,
| | - |  | ----------------------------------------------------------------------------



| |  |  | availability of competitively priced alternative energy sources,
| | - |  | ----------------------------------------------------------------



| |  |  | changes in supply and demand for energy commodities,
| | - |  | ----------------------------------------------------



| |  |  | changes in power production capacity and heat rate,
| | - |  | ---------------------------------------------------



| |  |  | outages at TXU Energy Holdings power production facilities or those of its competitors,
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | changes in production and storage levels of natural gas, lignite, coal and crude oil and refined products,
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | natural disasters, wars, sabotage, terrorist acts, embargoes and other catastrophic events, and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | federal, state, local and foreign energy, environmental and other regulation and legislation.
| | - |  | ---------------------------------------------------------------------------------------------



All of TXU Energy Holdings facilities for power production are located in the ERCOT region, a market with limited
interconnections to other markets. Electricity prices in the ERCOT region are correlated to gas prices because gas-fired plant is the marginal cost unit during the majority of the year in the ERCOT region. Accordingly, the contribution to earnings
and the value of TXU Energy Holdings baseload power production is dependent in significant part upon the price of natural gas. TXU Energy Holdings cannot fully hedge the risk associated with dependency on gas because of the expected useful
life of TXU Energy Holdings power production assets and the size of its position relative to market liquidity.



TXU Energy Holdings Assets or Positions Cannot be Fully Hedged Against Changes in Commodity Prices, and Its Hedging Procedures May Not Work as Planned.



To manage its near-term financial exposure related to
commodity price fluctuations, TXU Energy Holdings routinely enters into contracts to hedge portions of its purchase and sale commitments, weather positions, fuel requirements and inventories of natural gas, lignite, coal, refined products, and other
commodities, within established risk management guidelines. As part of this strategy, TXU Energy Holdings routinely utilizes fixed-price forward physical purchase and sales contracts, futures, financial swaps and option contracts traded in the
over-the-counter markets or on exchanges. However, TXU Energy Holdings can normally cover only a small portion of the exposure of its assets and positions to market price volatility, and the coverage will vary over time. To the extent TXU Energy
Holdings has unhedged positions, fluctuating commodity prices can materially impact TXU Energy Holdings results of operations and financial position, either favorably or unfavorably.



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Although TXU Energy Holdings devotes a considerable amount of management time and effort to the
establishment of risk management procedures as well as the ongoing review of the implementation of these procedures, the procedures it has in place may not always be followed or may not always function as planned and cannot eliminate all the risks
associated with these activities. As a result of these and other factors, TXU Energy Holdings cannot predict with precision the impact that risk management decisions may have on its business, results of operations or financial position.



TXU Energy Holdings might not be able to satisfy all of its guarantees and
indemnification obligations, including those related to hedging and risk management activities, if they were to come due at the same time.



TXU Energy Holdings Counterparties May Not Meet Their Obligations.



TXU Energy Holdings hedging and risk management activities are exposed to the risk that counterparties that owe TXU Energy Holdings money, energy
or other commodities as a result of market transactions will not perform their obligations. The likelihood that certain counterparties may fail to perform their obligations has increased due to financial difficulties, brought on by various factors
including improper or illegal accounting and business practices, affecting some participants in the industry. Some of these financial difficulties have been so severe that certain industry participants have filed for bankruptcy protection or are
facing the possibility of doing so. Should the counterparties to these arrangements fail to perform, TXU Energy Holdings might be forced to acquire alternative hedging arrangements or honor the underlying commitment at then-current market prices. In
such event, TXU Energy Holdings might incur losses in addition to amounts, if any, already paid to the counterparties. ERCOT market participants are also exposed to risks that another ERCOT market participant may default in its obligations to pay
ERCOT for power taken in the ancillary services market, in which case such costs, to the extent not offset by posted security and other protections available to ERCOT, may be allocated to various nondefaulting ERCOT market participants.



A Downgrade in TXU Energy Holdings Credit Ratings Could Negatively Affect its
Ability to Access Capital and/or its Ability to Operate Efficiently its Power Operations and Could Require TXU Energy Holdings to Post Collateral or Repay Certain Indebtedness.



The current credit ratings for TXU Energy Holdings long-term debt are investment grade. A rating reflects only the
view of a rating agency, and it is not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change. If S&P,
Moodys or Fitch were to downgrade TXU Energy Holdings ratings, borrowing costs would increase, the potential pool of investors and funding sources would likely decrease and liquidity demands would be triggered by the terms of a number of
commodity contracts, leases and other agreements.



Most of TXU
Energy Holdings large customers, suppliers and counterparties require sufficient creditworthiness in order to enter into transactions. If TXU Energy Holdings ratings were to decline, particularly below investment grade, costs to operate
the power business would increase because counterparties may require the posting of collateral in the form of cash-related instruments, or counterparties may decline to do business with TXU Energy Holdings.



In addition, as discussed in the 2004 Form 10-K/A and this Form 10-Q, the
terms of certain of TXU Energy Holdings financing and other arrangements contain provisions that are specifically affected by changes in credit ratings and could require the posting of collateral, the repayment of indebtedness or the payment
of other amounts.



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Operation of Power Production Facilities Involves Significant Risks that Could Adversely Affect TXU Energy
Holdings Results of Operations and Financial Condition.



The operation of power production and energy transportation facilities involves many risks, including start up risks, breakdown or failure of facilities, lack of sufficient capital to maintain the facilities, the dependence on a specific
fuel source or the impact of unusual or adverse weather conditions or other natural events, as well as the risk of performance below expected levels of output or efficiency, the occurrence of any of which could result in lost revenues and/or
increased expenses. A significant portion of TXU Energy Holdings facilities was constructed many years ago. In particular, older generating equipment, even if maintained in accordance with good engineering practices, may require significant
capital expenditures to keep it operating at peak efficiency. The risk of increased maintenance and capital expenditures arises from (a) increased starting and stopping of generation equipment due to the volatility of the competitive market, (b) any
unexpected failure to produce power, including failure caused by breakdown or forced outage, and (c) repairing damage to facilities due to storms, natural disasters, wars, terrorist acts and other catastrophic events. Further, TXU Energy
Holdings ability to successfully and timely complete capital improvements to existing facilities or other capital projects is contingent upon many variables and subject to substantial risks. Should any such efforts be unsuccessful, TXU Energy
Holdings could be subject to additional costs and/or the write-off of its investment in the project or improvement.



Insurance, warranties or performance guarantees may not cover all or any of the lost revenues or increased expenses, including the cost of replacement
power. Likewise, TXU Energy Holdings ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by events outside its control.



TXU Energy Holdings May Incur Substantial Costs and Liabilities Due to Its Ownership and Operation of the Comanche Peak Nuclear
Facilities.



The ownership and operation of nuclear
facilities, including TXU Energy Holdings ownership and operation of the Comanche Peak generation plant, involve certain risks. These risks include: mechanical or structural problems; inadequacy or lapses in maintenance protocols; the
impairment of reactor operation and safety systems due to human error; the costs of storage, handling and disposal of nuclear materials; limitations on the amounts and types of insurance coverage commercially available; and uncertainties with
respect to the technological and financial aspects of decommissioning nuclear facilities at the end of their useful lives. The following are among the more significant of these risks:



| |  |  | Operational Risk  Operations at any nuclear power production plant could degrade to the point where the plant would have to be shut down. Over the next three years,
certain equipment at Comanche Peak is expected to be replaced. The cost of these actions is currently expected to be material and could result in extended outages. If this were to happen, the process of identifying and correcting the causes of the
operational downgrade to return the plant to operation could require significant time and expense, resulting in both lost revenue and increased fuel and purchased power expense to meet supply commitments. Rather than incurring substantial costs to
restart the plant, the plant may be shut down. Furthermore, a shut-down or failure at any other nuclear plant could cause regulators to require a shut-down or reduced availability at Comanche Peak.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Regulatory Risk The NRC may modify, suspend or revoke licenses and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations
under it or the terms of the licenses of nuclear facilities. Unless extended, the NRC operating licenses for Comanche Peak Unit 1 and Unit 2 will expire in 2030 and 2033, respectively. Changes in regulations by the NRC could require a substantial
increase in capital expenditures or result in increased operating or decommissioning costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Nuclear Accident Risk Although the safety record of Comanche Peak and other nuclear reactors generally has been very good, accidents and other unforeseen
problems have occurred both in the US and elsewhere. The consequences of an accident can be severe and include loss of life and property damage. Any resulting liability from a nuclear accident could exceed TXU Energy Holdings resources,
including insurance coverage.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TXU Energy Holdings Cost of Compliance With Environmental Laws are Significant, and the Cost of Compliance With
New Environmental Laws Could Materially Adversely Affect TXU Energy Holdings Results of Operations and Financial Condition.



TXU Energy Holdings is subject to extensive environmental regulation by governmental authorities. In operating its facilities, TXU Energy Holdings is
required to comply with numerous environmental laws and regulations, and to obtain numerous governmental permits. TXU Energy Holdings may incur significant additional costs to comply with these requirements. If TXU Energy Holdings fails to comply
with these requirements, it could be subject to civil or criminal liability and fines. Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted or become applicable to TXU Energy Holdings or its
facilities, and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions.



TXU Energy Holdings may not be able to obtain or maintain all required environmental regulatory approvals. If there is a
delay in obtaining any required environmental regulatory approvals or if TXU Energy Holdings fails to obtain, maintain or comply with any such approval, the operation of its facilities could be stopped or become subject to additional costs. Further,
at some of TXU Energy Holdings older facilities, including baseload lignite and coal plants, it may be uneconomical for TXU Energy Holdings to install the necessary equipment, which may cause TXU Energy Holdings to shut down those facilities.



In addition, TXU Energy Holdings may be responsible for any
on-site liabilities associated with the environmental condition of facilities that it has acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with certain acquisitions and sales of
assets, TXU Energy Holdings may obtain, or be required to provide, indemnification against certain environmental liabilities. Another party could fail to meet its indemnification obligations to TXU Energy Holdings.



TXU Energy Holdings May Lose a Significant Number of Retail Customers in the Historical
Service Territory.



While TXU Energy Holdings may now
offer prices other than the price-to-beat, it is obligated to offer the price-to-beat rate to its residential and small business customers in its historical service territory through January 1, 2007. The results of TXU Energy Holdings retail
electric operations in its historical service territory are largely dependent upon the amount of headroom available to TXU Energy Holdings in its price-to-beat rate. The margin or headroom available in the price-to-beat rate for any REP
equals the difference between the price-to-beat rate and the sum of delivery charges and the wholesale market price for power. Headroom may be a positive or a negative number. Since headroom is dependent, in part, on wholesale market prices for
power, TXU Energy Holdings does not know nor can it estimate the amount of headroom that it will have in its price-to-beat rate. There is no assurance that future adjustments to TXU Energy Holdings price-to-beat rate will be adequate to cover
future increases in its costs of electricity to serve its price-to-beat rate customers or that TXU Energy Holdings price-to-beat rate will not result in negative headroom in the future. In addition, TXU Corp. faces competition for customers
within its historical service territory. Such competitors may be larger or better capitalized or have well known brand recognition. Such competitors may also offer prices that are too low to be sustainable over the long-term, but attract customers
away from TXU Energy Holdings.



In most retail electric markets
outside its historical service territory, TXU Energy Holdings principal competitor may be the retail affiliate of the local incumbent utility company. The incumbent retail affiliates have the advantage of long-standing relationships with their
customers. In addition to competition from the incumbent utilities and their affiliates, TXU Energy Holdings may face competition from a number of other energy service providers, or other energy industry participants, who may develop businesses that
will compete with TXU Energy Holdings and nationally branded providers of consumer products and services. Some of these competitors or potential competitors may be larger and better capitalized than TXU Energy Holdings. If there is inadequate margin
in these retail electric markets, it may not be profitable for TXU Energy Holdings to enter these markets.



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TXU Energy Holdings Subsidiaries Rely on the Infrastructure of Local Utilities or Independent Transmission
System Operators to Provide Electricity to, and to Obtain Information About, Their Customers. Any Infrastructure Failure Could Negatively Impact Customer Satisfaction and Could Have a Material Negative Impact on TXU Energy Holdings Business
and Results of Operations.



TXU Energy Holdings depends on
transmission and distribution facilities owned and operated by other utilities to deliver the electricity it produces and sells to consumers, as well as to other REPs. If transmission capacity is inadequate, TXU Energy Holdings ability to sell
and deliver electricity may be hindered, it may have to forgo sales or it may have to buy more expensive wholesale electricity that is available in the capacity-constrained area. In particular, during some periods transmission access is constrained
to some areas of the Dallas-Fort Worth metroplex. TXU Energy Holdings expects to have a significant number of customers inside these constrained areas. The cost to provide service to these customers may exceed the cost to provide service to other
customers, resulting in lower headroom. In addition, any infrastructure failure that interrupts or impairs delivery of electricity to TXU Energy Holdings customers could negatively impact the satisfaction of its customers with its service.



TXU Energy Holdings Offers Bundled Services to Its Retail Customers at
Fixed Prices and for Fixed Terms. If TXU Energy Holdings Cost to Obtain the Commodities Included in These Bundled Services Exceed the Prices Paid by Its Customers, TXU Corp.s Results of Operations Could be Materially Adversely Affected.



TXU Energy Holdings offers its customers a bundle of
services that include, at a minimum, the electric commodity itself plus transmission, distribution and related services. The prices TXU Energy Holdings charges for this bundle of services or for the various components of the bundle, either of which
may be fixed by contract with the customer for a period of time, could fall below TXU Energy Holdings underlying cost to obtain the commodities or services.



Changes in Technology or Increased Competition May Reduce the Value of TXU Energy Holdings Power Plants and May Significantly
Impact Its Business in Other Ways as Well.



Research and
development activities are ongoing to improve existing and alternative technologies to produce electricity, including gas turbines, fuel cells, microturbines and photovoltaic (solar) cells. It is possible that advances in these or other alternative
technologies will reduce the costs of electricity production from these technologies to a level that will enable these technologies to compete effectively with electricity production from traditional power plants like TXU Energy Holdings.
While demand for electric energy services is generally increasing throughout the US, the rate of construction and development of new, more efficient power production facilities may exceed increases in demand in some regional electric markets.
Consequently, where TXU Energy Holdings has facilities, the market value of TXU Energy Holdings power production and/or energy transportation facilities could be significantly reduced. Also, electricity demand could be reduced by increased
conservation efforts and advances in technology, which could likewise significantly reduce the value of TXU Energy Holdings facilities. Changes in technology could also alter the channels through which retail electric customers buy
electricity.



TXU Energy Holdings is a Holding Company, and Its Obligations
are Structurally Subordinated to Existing and Future Liabilities of Its Subsidiaries.



TXU Energy Holdings is a holding company and conducts its operations primarily through wholly-owned subsidiaries. Substantially all of TXU Energy Holdings consolidated assets are held by these subsidiaries.
Accordingly, TXU Energy Holdings cash flows and ability to meet its obligations and to pay distributions are largely dependent upon the earnings of its subsidiaries and the distribution or other payment of such earnings to TXU Energy Holdings
in the form of distributions, loans or advances, and repayment of loans or advances from TXU Energy Holdings. The subsidiaries are separate and distinct legal entities and have no obligation to provide TXU Energy Holdings with funds for its payment
obligations, whether by distributions, loans or otherwise.



Because TXU Energy Holdings is a holding company, its obligations are structurally subordinated to all existing and future liabilities and any future preferred stock of its subsidiaries. Therefore, TXU Energy Holdings rights and the
rights of its creditors to participate in the assets of any subsidiary in the event that such a subsidiary is liquidated or reorganized are subject to the prior claims of such subsidiarys creditors and holders



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of its preferred stock. To the extent that TXU Energy Holdings may be a creditor with recognized claims against any such
subsidiary, its claims would still be subject to the prior claims of such subsidiarys creditors to the extent that they are secured or senior to those held by TXU Energy Holdings.



In the Future, TXU Energy Holdings Could Have Liquidity Needs That Could be Difficult to Satisfy Under Some Circumstances.



The inability to raise capital on favorable terms,
particularly during times of uncertainty in the financial markets, could impact TXU Energy Holdings ability to sustain and grow its businesses, which are capital intensive, and would increase its capital costs. TXU Energy Holdings relies on
access to financial markets as a significant source of liquidity for capital requirements not satisfied by cash on hand or operating cash flows. TXU Energy Holdings access to the financial markets could be adversely impacted by various
factors, such as:



| |  |  | changes in credit markets that reduce available credit or the ability to renew existing liquidity facilities on acceptable terms;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | inability to access commercial paper markets;
| | - |  | ---------------------------------------------



| |  |  | a deterioration of TXU Energy Holdings credit or a reduction in TXU Energy Holdings credit ratings or the credit ratings of TXU Corp. or TXU Corp.s other
subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | extreme volatility in TXU Energy Holdings markets that increases margin or credit requirements;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | a material breakdown in TXU Energy Holdings risk management procedures;
| | - |  | ------------------------------------------------------------------------



| |  |  | prolonged delays in billing and payment resulting from delays in switching customers from one REP to another; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the occurrence of material adverse changes in TXU Energy Holdings businesses that restrict TXU Energy Holdings ability to access its liquidity facilities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



A lack of necessary capital and cash reserves
could adversely impact the evaluation of TXU Energy Holdings credit worthiness by counterparties and rating agencies, and would likely increase its capital costs. Further, concerns on the part of counterparties regarding TXU Energy
Holdings liquidity and credit could limit its wholesale markets management activities.



Recent Events in the Energy Markets that are Beyond TXU Energy Holdings Control have Increased the Level of Public and Regulatory Scrutiny in TXU Energy Holdings Industry and in the Capital Markets and
Have Resulted in Increased Regulation and New Accounting Standards. The Reaction to these Events May Have Negative Impacts on Its Businesses, Financial Condition and Access to Capital.



As a result of the energy crisis in California during 2001, the recent
volatility of natural gas prices in North America, the bankruptcy filing by Enron Corporation, accounting irregularities of public companies, and investigations by governmental authorities into energy trading activities, companies in the regulated
and nonregulated utility businesses have been under a generally increased amount of public and regulatory scrutiny. Accounting irregularities at certain companies in the industry have caused regulators and legislators to review current accounting
practices and financial disclosures. The capital markets and ratings agencies also have increased their level of scrutiny. Additionally, allegations against various energy trading companies of round trip or wash transactions,
which involve the simultaneous buying and selling of the same amount of power at the same price and delivery location and provide no true economic benefit, power market manipulation and inaccurate power and commodity price reporting have had a
negative effect on the industry. TXU Energy Holdings believes that it is complying with all applicable laws, but it is difficult or impossible to predict or control what effect events and investigations in the energy industry may have on TXU Energy
Holdings financial condition or access to the capital markets. Additionally, it is unclear what laws and regulations may develop, and TXU Energy Holdings cannot predict the ultimate impact of any future changes in accounting regulations or
practices in general with respect to public companies, the energy industry or its operations specifically. Any such new accounting standards could negatively impact reported financial results.



The issues and associated risks and uncertainties described above are not the
only ones TXU Energy Holdings may face. Additional issues may arise or become material as the energy industry evolves.



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FORWARD-LOOKING STATEMENTS



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



| |  |  | prevailing governmental policies and regulatory actions, including those of the FERC, the Commission and the NRC, with respect to:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | allowed rates of return;
| | - |  | ------------------------



| |  |  | industry, market and rate structure;
| | - |  | ------------------------------------



| |  |  | purchased power and recovery of investments;
| | - |  | --------------------------------------------



| |  |  | operations of nuclear generating facilities;
| | - |  | --------------------------------------------



| |  |  | acquisitions and disposal of assets and facilities;
| | - |  | ---------------------------------------------------



| |  |  | operation and construction of facilities;
| | - |  | -----------------------------------------



| |  |  | decommissioning costs;
| | - |  | ----------------------



| |  |  | present or prospective wholesale and retail competition;
| | - |  | --------------------------------------------------------



| |  |  | changes in tax laws and policies; and
| | - |  | -------------------------------------



| |  |  | changes in and compliance with environmental and safety laws and policies;
| | - |  | --------------------------------------------------------------------------



| |  |  | continued implementation of the 1999 Restructuring Legislation;
| | - |  | ---------------------------------------------------------------



| |  |  | legal and administrative proceedings and settlements;
| | - |  | -----------------------------------------------------



| |  |  | general industry trends;
| | - |  | ------------------------



| |  |  | power costs (including repair costs) and availability;
| | - |  | ------------------------------------------------------



| |  |  | weather conditions and other natural phenomena, and acts of sabotage, wars or terrorist activities;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | unanticipated population growth or decline, and changes in market demand and demographic patterns;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | changes in business strategy, development plans or vendor relationships;
| | - |  | ------------------------------------------------------------------------



| |  |  | TXU Energy Holdings ability to implement the initiatives that are part of its restructuring, operational improvement and cost reduction program, and the terms which those
initiatives are executed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competition for retail and wholesale customers;
| | - |  | -----------------------------------------------



| |  |  | access to adequate transmission facilities to meet changing demands;
| | - |  | --------------------------------------------------------------------



| |  |  | pricing and transportation of crude oil, natural gas and other commodities;
| | - |  | ---------------------------------------------------------------------------



| |  |  | unanticipated changes in interest rates, commodity prices or rates of inflation;
| | - |  | --------------------------------------------------------------------------------



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| |  |  | unanticipated changes in operating expenses, liquidity needs and capital expenditures;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | commercial bank market and capital market conditions;
| | - |  | -----------------------------------------------------



| |  |  | competition for new energy development and other business opportunities;
| | - |  | ------------------------------------------------------------------------



| |  |  | inability of various counterparties to meet their obligations with respect to TXU Energy Holdings financial instruments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in technology used by and services offered by TXU Energy Holdings;
| | - |  | --------------------------------------------------------------------------



| |  |  | significant changes in TXU Energy Holdings relationship with its employees, including the availability of qualified personnel, and the potential adverse effects if labor
disputes or grievances were to occur;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant changes in critical accounting policies material to TXU Energy Holdings; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | actions by credit rating agencies.
| | - |  | ----------------------------------



Any forward-looking statement speaks only as of the date on which it is made, and TXU Energy Holdings undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for TXU Energy Holdings to predict all
of them, 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.



ITEM 4. CONTROLS AND PROCEDURES



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



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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



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



ITEM 6. EXHIBITS



| | (a) | Exhibits provided as part of Part II are:
| | --- | -----------------------------------------



|         |  |                                                     |  |           |  |   |  |                                                                                                                                                                                                                                  
|-------- |  | --------------------------------------------------- |  | --------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed* With File Number                  |  | AsExhibit |  |   |  |                                                                                                                                                                                                                                  
|(15)     |  | Letter re: Unaudited Interim Financial Information. |  |           |  |   |  |                                                                                                                                                                                                                                  
|         |  |                                                     |  |          
|15       |  |                                                     |  |           |  |   |  | Letter from independent registered public accounting firm as to unaudited interim financial information.                                                                                                                         
|         |  |                                                     |  |          
|(31)     |  | Rule 13a - 14(a)/15d - 14(a) Certifications.        |  |           |  |   |  |                                                                                                                                                                                                                                  
|         |  |                                                     |  |          
|31(a)    |  |                                                     |  |           |  |  |  | Certification of M.S. Greene, principal executive officer of TXU Energy Company LLC, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.   
|         |  |                                                     |  |          
|31(b)    |  |                                                     |  |           |  |  |  | Certification of Kirk R. Oliver, principal financial officer of TXU Energy Company LLC, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|         |  |                                                     |  |          
|(32)     |  | Section 1350 Certifications.                        |  |           |  |   |  |                                                                                                                                                                                                                                  
|         |  |                                                     |  |          
|32(a)    |  |                                                     |  |           |  |  |  | Certification of M.S. Greene, principal executive officer of TXU Energy Company LLC, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                   
|         |  |                                                     |  |          
|32(b)    |  |                                                     |  |           |  |  |  | Certification of Kirk R. Oliver, principal financial officer of TXU Energy Company LLC, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                
|         |  |                                                     |  |          
|(99)     |  | Additional Exhibits                                 |  |           |  |   |  |                                                                                                                                                                                                                                  
|         |  |                                                     |  |          
|99       |  |                                                     |  |           |  |   |  | Condensed Statements of Consolidated Income  Twelve Months Ended June 30, 2005.                                                                                                                                                 

---

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



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SIGNATURE



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



TXU ENERGY COMPANY LLCBy

/s/ Stan SzlauderbachStan SzlauderbachSenior Vice President and Controller




Date: August 12, 2005



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